<PAGE>
As filed electronically with the Securities and
Exchange Commission on May 3, 1999
Securities Act File No. 33-64915
Investment Company Act File No. 811-7447
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 11
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 14
HARRIS INSIGHT FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)
FOUR FALLS CORPORATE CENTER, 6TH FLOOR, WEST CONSHOHOCKEN, PA 19428-2961
(Address of Principal Executive Offices including Zip Code)
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Registrant's Telephone Number, including Area Code: 610.260.6533
Name and Address of Agent for Service:
Gary M. Gardner, Esq.
Harris Insight Funds Trust
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Copies to:
Cameron S. Avery, Esq. and G. Nicholas Bullat, Esq.
Bell, Boyd & Lloyd Harris Trust & Savings Bank
Three First National Plaza 111 West Monroe Street
70 West Madison Street 21st Floor East
Chicago, IL 60602-4207 Chicago, IL 60603
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It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragraph (b)
---- 60 days after filing pursuant to paragraph (a)(1)
---- 75 days after filing pursuant to paragraph (a)(2)
---- on ---- pursuant to paragraph (b)
---- on (date) pursuant to paragraph (a)(1)
---- on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
---- This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE>
<TABLE>
<CAPTION>
HARRIS INSIGHT FUNDS TRUST
Cross reference sheet pursuant to rule 495(a) of Regulation C
ITEM NO. LOCATION OR CAPTION*
<S> <C>
PART A (PROSPECTUS)
HARRIS INSIGHT FUNDS TRUST - A SHARES
1. Front and Back Cover Pages Cover Page; Outside Back Cover
2. Risk/Return Summary: Harris Insight Equity Funds; Harris Insight Equity
Investment Risks and Performance Funds - Risk Considerations; Harris Insight Fixed Income
Funds; Harris Insight Fixed Income Funds - Risk Considerations
3. Risk/Return Summary: Fee Table Harris Insight Equity Funds - Fees and Expenses;
Harris Insight Fixed Income Funds - Fees and Expenses
4. Investment Objectives, Principal Investment Harris Insight Equity Funds; Harris Insight Equity
Strategies, and Related Risks Funds - Risk Considerations; Harris Insight Fixed Income
Funds; Harris Insight Fixed Income Funds - Risk Considerations
5. Management's Discussion of Fund Performance Not Applicable
6. Management, Organization and Capital Structure Investment Adviser
7. Shareholder Information Pricing of Fund Shares; Shareholder Services;
Dividends and Tax Considerations
8. Distribution Agreements Distribution Arrangements
9. Financial Highlights Information Not Applicable
PART A (PROSPECTUS)
HARRIS INSIGHT FUNDS TRUST - N SHARES
1. Front and Back Cover Pages Cover Page; Outside Back Cover
<PAGE>
2. Risk/Return Summary: Harris Insight Equity Funds; Harris Insight Equity
Investment Risks and Performance Funds - Risk Considerations; Harris Insight Fixed Income
Funds; Harris Insight Fixed Income Funds - Risk Considerations
3. Risk/Return Summary: Fee Table Harris Insight Equity Funds - Fees and Expenses;
Harris Insight Fixed Income Funds - Fees and Expenses
4. Investment Objectives, Principal Investment Harris Insight Equity Funds; Harris Insight Equity
Strategies, and Related Risks Funds - Risk Considerations; Harris Insight Fixed Income
Funds; Harris Insight Fixed Income Funds - Risk Considerations
5. Management's Discussion of Fund Performance Not Applicable
6. Management, Organization and Capital Structure Investment Adviser
7. Shareholder Information Pricing of Fund Shares; Shareholder Services;
Dividends and Tax Considerations
8. Distribution Agreements Distribution Arrangements
9. Financial Highlights Information Financial Highlights
PART A (PROSPECTUS)
HARRIS INSIGHT FUNDS TRUST - INSTITUTIONAL SHARES
1. Front and Back Cover Pages Cover Page; Outside Back Cover
2. Risk/Return Summary: Harris Insight Equity Funds; Harris Insight Equity
Investment Risks and Performance Funds - Risk Considerations; Harris Insight Fixed Income
Funds; Harris Insight Fixed Income Funds - Risk Considerations
3. Risk/Return Summary: Fee Table Harris Insight Equity Funds - Fees and Expenses;
Harris Insight Fixed Income Funds - Fees and Expenses
4. Investment Objectives, Principal Investment Harris Insight Equity Funds; Harris Insight Equity
Strategies, and Related Risks Funds - Risk Considerations; Harris Insight Fixed Income
Funds; Harris Insight Fixed Income Funds - Risk Considerations
5. Management's Discussion of Fund Performance Not Applicable
6. Management, Organization and Capital Structure Investment Adviser
7. Shareholder Information Pricing of Fund Shares; Shareholder Services;
Dividends and Tax Considerations
8. Distribution Agreements Distribution Arrangements
9. Financial Highlights Information Financial Highlights
<PAGE>
ITEM NO. LOCATION OR CAPTION*
PART B (STATEMENT OF ADDITIONAL INFORMATION)
HARRIS INSIGHT FUNDS TRUST
10. Cover Page and Table of Contents Cover Page; Table of Contents
11. Fund History General Information About the Trust
and the Company
12. Description of the Fund and Its Investment Strategies; Ratings; Investment
Investments and Risk Restrictions; Appendix A
13. Management of the Fund Trustees, Directors and Executive Officers
14. Control Persons and Principal Control Persons and Principal Holders of
Holders of Securities Securities
15. Investment Advisory and Other Services Investment Management, Distribution and Other
Services; Service Plans
16. Brokerage Allocation and Other Practices Portfolio Transactions
17. Capital Stock and Other Securities Capital Stock and Beneficial Interest
18. Purchase, Redemption, and Additional Purchase and Redemption
Pricing of Shares Information; Determination of Net Asset Value
19. Taxation of the Fund Tax Information
20. Underwriters Investment Management, Distribution and Other Services
21. Calculation of Performance Data Calculation of Yield and Total Return
22. Financial Statements Cover Page; Independent Auditors and Reports to Shareholders
- --------
*References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
</TABLE>
<PAGE>
HARRIS INSIGHT(R) FUNDS
May 3, 1999 Prospectus
A Shares
Harris Insight Equity Funds
Balanced Fund
Equity Income Fund
Equity Fund
Growth Fund
Small-Cap Value Fund
Small-Cap Opportunity Fund
International Fund
Emerging Markets Fund
Harris Insight 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
As with any mutual fund, the Securities and Exchange Commission (SEC) has not
approved or disapproved of these securities or determined whether this
prospectus is adequate or complete. Any representation to the contrary is a
criminal offense.
<PAGE>
TABLE OF CONTENTS
INTRODUCTION TO EQUITY FUNDS PAGE 2
HARRIS INSIGHT EQUITY FUNDS
Balanced Funds 3
Equity Income Fund 5
Equity Fund 6
Growth Fund 9
Small-Cap Value Fund 11
Small-Cap Opportunity Fund 13
International Fund 15
Emerging Markets Fund 17
RISK CONSIDERATIONS 19
FEES AND EXPENSES 22
INTRODUCTION TO FIXED INCOME FUNDS 24
HARRIS INSIGHT FIXED INCOME FUNDS
Convertible Securities Fund 26
Tax-Exempt Bond Fund 28
Bond Fund 30
Intermediate Tax-Exempt Bond Fund 32
Short-Intermediate Bond Fund 34
Intermediate Government Bond Fund 36
RISK CONSIDERATIONS 38
FEES AND EXPENSES 41
INVESTMENT ADVISER 44
PRICING OF FUND SHARES 49
SHAREHOLDER SERVICES 50
DIVIDENDS AND TAX CONSIDERATIONS 57
DISTRIBUTION ARRANGEMENTS 58
<PAGE>
INTRODUCTION TO THE HARRIS INSIGHT EQUITY FUNDS
The Harris Insight Equity Funds invest in stocks, which represent partial
ownership in a company. These Funds generally pursue capital appreciation: that
is, an increase in the Fund's share value. In some cases, the Harris Insight
Equity Funds also seek dividend income.
Equity funds will fluctuate in price with changes in the market and economy as
well as with the fortunes of the companies issuing the underlying stocks. For
this reason, equity fund share prices can sometimes be more volatile than the
share prices of other types of funds, exhibiting sharp increases or decreases
over relatively short periods of time.
WHY INVEST IN EQUITY FUNDS?
Equity funds offer investors the potential for greater returns than fixed income
funds and are considered an attractive choice for outpacing inflation over the
long term. Equity funds are more appropriate for investors who can tolerate a
higher degree of risk in exchange for an opportunity to pursue attractive
long-term investment rewards.
HOW ARE SECURITIES SELECTED FOR THE HARRIS INSIGHT EQUITY FUNDS?
The portfolio manager considers a combination of factors when selecting
portfolio securities:
o Measurable elements, such as the value of assets and the cost of capital
o Economic, financial and market indicators
o A company's financial condition, management and position in its industry
Based on this analysis, the portfolio manager endeavors to identify stocks of
companies that may demonstrate:
o Above-average earnings, sales and asset value growth
o Greater potential value than is perceived by others in the marketplace
(Sidebar)
Shares of the Harris Insight Equity Funds are not bank deposits and are not
insured or guaranteed by the FDIC or any other government agency. The value of
your investment in a Fund will fluctuate, which means that you may lose money.
Each Fund's primary investment practices and strategies are discussed in this
prospectus. Other practices, and their related risks, are described in the
statement of additional information. The investment objective of each Fund is
not fundamental and may be changed by the Board of Directors or Trustees without
approval by the Fund's shareholders.
Each Fund's principal risks are provided in an alphabetical listing within the
Fund description that follows. These risks are discussed in detail under "Risk
Considerations" on page 19.
2
<PAGE>
BALANCED FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide current income and capital appreciation.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund invests in a portfolio of equity and fixed income securities. Under
normal market conditions, equity securities will comprise between 40% and 65% of
the Fund's assets, and fixed income securities will comprise at least 25% of the
Fund's assets.
The portfolio manager continually reviews and adjusts the blend of the
securities in an effort to enhance returns based on current market conditions,
interest rate projections and other economic factors.
The Fund seeks to provide an overall return comprising between 40% and 65% of
the return of the STANDARD & POOR'S 500 STOCK INDEX and between 35% and 60% of
the return of the LEHMAN BROTHERS AGGREGATE BOND INDEX.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 19.)
Allocation risk
Interest rate risk
Market risk
(Sidebar)
TERMS TO KNOW
STANDARD & POOR'S 500 STOCK INDEX (S&P 500(R))
An unmanaged index consisting of 500 widely held U.S. common stocks. The
stocks in the index are chosen based on industry representation, liquidity and
stability. The index is designed to reflect the returns of many different
sectors of the U.S. economy.
LEHMAN BROTHERS AGGREGATE BOND INDEX
An index measuring the total return of approximately 6,500 U.S. bonds.
3
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998
8.29%
BEST QUARTER: Q4 1998 5.92%
WORST QUARTER: Q3 1998 -6.35%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year Inception (4/16/97)
Balanced Fund 8.29% 17.47%
S&P 500 Stock Index 28.58% 30.43%
Lehman Brothers
Aggregate Bond Index 8.67% 10.18%
*A Shares of the Fund commenced operations on 2/10/99. Performance prior to
2/10/99 reflects performance of the N Shares, which had lower expenses, and does
not reflect the effect that A Shares' expenses would have had on performance.
4
<PAGE>
EQUITY INCOME FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide current income and, secondarily, capital appreciation.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in common stocks that can
be found in the S&P 500 or other attractive issues. These stocks are of larger
capitalization companies (i.e., companies with MARKET CAPITALIZATIONS in excess
of $1 billion).
The portfolio manager's approach should produce returns that are similar to
those of the S&P 500 and its corresponding sectors, yet with a higher level of
income.
The portfolio manager utilizes a disciplined investment process designed to
maintain a diversified portfolio of the equity securities of higher quality
companies.
The portfolio manager seeks securities with:
o Higher-than-average dividend yields
o Stronger-than-average growth characteristics
WHAT IS THE FUND'S PRINCIPAL RISK? (see Risk Considerations, page 19.)
Market risk
Market segment risk
(sidebar)
TERMS TO KNOW
MARKET CAPITALIZATION
The total market value of a company's outstanding shares of common stock,
calculated by multiplying the number of shares outstanding by the current market
price of the shares.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
5
<PAGE>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998 1997 1996 1995 1994
22.66% 31.53% 17.62% 36.50% -0.66%
Best Quarter: Q4 1998 19.62%
Worst Quarter: Q3 1998 -11.12%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years Inception (1/1/94)
Equity Income Fund 22.66% 20.81% 20.79%
S&P 500 Stock Index 28.58% 24.06% 24.04%
*A Shares of the Fund commenced operations on 2/10/99. Performance prior to
2/10/99 reflects performance of the N Shares, which had lower expenses, and does
not reflect the effect that A Shares' expenses would have had on performance.
Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
6
<PAGE>
EQUITY FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide capital appreciation and current income.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in common stocks. These
stocks are of larger capitalization companies (i.e., companies with MARKET
CAPITALIZATIONS in excess of $1 billion).
The portfolio manager selects stocks that represent sectors found within the S&P
500 in an effort to:
o Provide greater returns, over the long-term, than the securities
comprising the S&P 500
o Maintain a risk level approximating that of the S&P 500
The Fund's portfolio consists of approximately 50 to 75 stocks, diversified
among major sectors of the market.
WHAT IS THE FUND'S PRINCIPAL RISK? (See Risk Considerations, page 19.)
Market risk
Market segement risk
(Sidebar)
TERMS TO KNOW
MARKET CAPITALIZATION see page 5.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
7
<PAGE>
<TABLE>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
13.42% 35.45% 24.15% 36.26% -2.05% 18.23% 8.19% 27.29% -7.87% 27.81%
</TABLE>
BEST QUARTER: Q4 1998 18.66%
WORST QUARTER: Q3 1998 -14.52%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Equity Fund 13.42% 20.55% 17.20%
S&P 500
Stock Index 28.58% 24.06% 19.20%
*A Shares of the Fund commenced operations on 2/12/99. Performance prior to
2/12/99 reflects performance of the N Shares, which had lower expenses, and does
not reflect the effect that A Shares' expenses would have had on performance.
8
<PAGE>
GROWTH FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide capital appreciation.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in common stocks. These
stocks are of larger capitalization companies (i.e., companies with MARKET
CAPITALIZATIONS in excess of $1 billion).
The portfolio manager selects securities that are considered to be undervalued
and to represent growth opportunities. The Fund's investment management
discipline emphasizes growth in sales, earnings and asset values.
WHAT IS THE FUND'S PRINCIPAL RISK? (See Risk Considerations, page 19.)
Market risk
Market segment risk
Volatility risk
(Sidebar)
TERMS TO KNOW
MARKET CAPITALIZATION, see page 5.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
9
<PAGE>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998 1997 1996 1995 1994 1993
24.68% 32.54% 28.60% 36.16% -0.30% 5.96%
BEST QUARTER: Q4 1998 22.65%
WORST QUARTER: Q3 1998 -11.95%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years Inception (4/1/92)
Growth Fund 24.68% 23.60% 19.61%
S&P 500
Stock Index 28.58% 24.06% 19.20%
*A Shares of the Fund commenced operations on 2/5/99. Performance prior to
2/5/99 reflects performance of the N Shares, which had lower expenses, and does
not reflect the effect that A Shares' expenses would have had on performance.
Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
10
<PAGE>
SMALL-CAP VALUE FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide capital appreciation.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in the securities of
smaller capitalization companies (i.e., companies that fall in the lowest 15% of
publicly traded companies listed in the U.S. determined by MARKET
CAPITALIZATIONS). These securities tend to be represented in the Russell 2000
Index, an index of companies with a median market capitalization of $500
million, that is a popular measure of the stock price performance of
small companies.
Using a "value" approach, the portfolio manager buys those securities considered
to be conservatively valued relative to the securities of comparable companies.
The portfolio manager pays particular attention to a company's current and
forecasted earnings levels.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 19.)
Market risk
Small company risk
(Sidebar)
Terms To Know
Market capitalization, see page 5.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
11
<PAGE>
<TABLE>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -4.15% 29.09% 14.50% 26.78% -3.44% 14.68% 15.95% 41.39% -16.52% 13.83%
</TABLE>
Best Quarter: Q1 1991 20.93%
Worst Quarter: Q3 1990 -23.80%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Small-Cap
Value Fund -4.15% 11.70% 12.00%
Russell 2000
Small Stock
Index -2.55% 11.86% 12.92%
*A Shares of the Fund had not commenced operations as of the date of this
prospectus. Performance reflects performance of the N Shares, which had lower
expenses, and does not reflect the effect that A Shares' expenses would have had
on performance.
Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
12
<PAGE>
SMALL-CAP OPPORTUNITY FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide capital appreciation.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in the securities of
smaller capitalization companies (i.e., companies that fall in the lowest 15% of
publicly traded companies listed in the U.S. determined by MARKET
CAPITALIZATIONS). These securities tend to be represented in the Russell 2000
Index, an index of companies with a median market capitalization of $500
million, that is a popular measure of the stock price performance of
small companies.
The Fund invests in the securities of companies that the portfolio manager
believes have superior growth potential. In selecting securities, the portfolio
manager pays particular attention to companies offering potentially
above-average earnings, sales and asset value growth. The portfolio manager buys
those securities considered to be attractively valued relative to the securities
of comparable companies.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (see Risk Considerations, page 19.)
Market risk
Small company risk
(Sidebar)
Terms To Know
MARKET CAPITALIZATIONS, see page 5.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
13
<PAGE>
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.99% 25.14% 18.53% 25.99% -3.96% 14.85% 18.71% 47.29% -11.79% 16.94%
</TABLE>
Best Quarter: Q1 1991 24.86%
Worst Quarter: Q3 1990 -23.83%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Small-Cap
Opportunity
Fund 0.99% 12.63% 14.15%
Russell 2000
Small Stock
Index -2.55% 11.86% 12.92%
*A Shares of the Fund commenced operations on 3/5/99. Performance prior to
3/5/99 reflects performance of the N Shares, which had lower expenses, and does
not reflect the effect that A Shares' expenses would have had on performance.
Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
14
<PAGE>
INTERNATIONAL FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide capital appreciation. Current income is a secondary
objective.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in non-U.S. equity
securities. The Fund invests in at least three foreign countries to reduce risk.
The Fund invests in securities that the portfolio manager believes are
undervalued. When selecting securities, the portfolio manager pays particular
attention to the quality of a company's management, its growth prospects and
financial soundness.
The Fund may engage in foreign currency hedging transactions in an attempt to
minimize the effects of currency fluctuations on the Fund.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 19.)
Currency rate risk
Foreign risk
Foreign Year 2000 risk
Geographic concentration risk
Market risk
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
15
<PAGE>
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -4.84% -5.21% 4.89% 3.87% 4.11% 24.36% -4.60% 11.77% -22.40% 11.40%
</TABLE>
Best Quarter: Q4 1998 13.46%
Worst Quarter: Q3 1990 -19.83%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
International Fund -4.84% 0.46% 1.61%
MSCI EAFE Index 20.00% 9.19% 5.54%
*A Shares of the Fund commenced operations on 3/5/99. Performance prior to
3/5/99 reflects performance of the N Shares, which had lower expenses, and does
not reflect the effect that A Shares' expenses would have had on performance.
Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
16
<PAGE>
EMERGING MARKETS FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide capital appreciation.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in equity securities of
issuers located in EMERGING MARKET COUNTRIES. The portfolio manager selects
securities considered by the manager to be undervalued.
The Fund's investments reflect a broad cross-section of countries, industries
and companies.
When selecting securities, the portfolio manager pays particular attention to
the quality of a company's management, its growth prospects and financial
soundness.
The portfolio manager also evaluates such criteria as:
o Political climate of a country
o Interest rate and currency considerations
o Equity market valuations
The Fund may invest in certain debt securities when the portfolio manager
believes the potential for appreciation equals or exceeds that available from
investments in common stock.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 19.)
Currency rate risk
Foreign risk
Foreign Year 2000 risk
Geographic concentration risk
Market risk
(Sidebar)
TERMS TO KNOW
EMERGING MARKET COUNTRY
The World Bank and other international agencies define a developing country on
the basis of such factors as trade initiatives, per capita income and level of
industrialization. There are over 130 countries that are emerging or developing
under this standard and approximately 40 of these countries have stock markets.
Emerging market countries generally include every nation in the world except the
U.S., Canada, Japan, Australia, New Zealand and most nations located in Western
Europe.
17
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998
- -31.50%
Best Quarter: Q4 1998 14.48%
Worst Quarter: Q2 1998 -27.18%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
Inception
1 Year (10/21/97)
Emerging Markets Fund -31.50% -36.03%
MSCI Emerging
Markets Index -25.30% -23.10%
*A Shares of the Fund had not commenced operations as of the date of this
prospectus. Performance reflects performance of the N Shares, which had lower
expenses, and does not reflect the effect that A Shares' expenses would have had
on performance.
18
<PAGE>
RISK CONSIDERATIONS
All Fund investments are subject to risk and may decline in value. Each Fund's
exposure depends upon its specific investment practices. The amount and types of
risk vary depending on: The investment objective
o The Fund's ability to achieve its objective
o The markets in which the Fund invests
o The investments the Fund makes in those markets
o Prevailing economic conditions over the period of an investment
Please note that there are other circumstances that could adversely affect your
investment and prevent a Fund from achieving its objectives.
ALLOCATION RISK
The risk that the percentages of the Fund's assets invested in equities and
fixed income securities, respectively, will not be optimum for market
conditions at a given time.
COUNTERPARTY RISK
The risk that when a fund engages in repurchase, reverse repurchase, derivative,
when-issued, forward commitment, delayed settlement and securities lending
transactions with another party, it relies on the other party to consummate the
transaction and is subject to the risk of default by the other party. Failure of
the other party to consummate the transaction may result in the fund's incurring
a loss or missing an opportunity to obtain a price believed to be advantageous.
CURRENCY RATE RISK
The risk that fluctuations in the exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. Although a fund may
engage in foreign currency hedge transactions to help reduce this risk, those
transactions may not be effective or appropriate in particular situations nor,
of course, will they protect against declines in security values.
FOREIGN RISK
The risk that foreign securities may be more volatile in price than their
domestic counterparts, in part because of higher political and economic risks,
lack of reliable financial information and fluctuations in currency exchange
rates. These risks are usually higher in less developed countries.
FOREIGN YEAR 2000 RISK
The risk that companies in a country or a region cannot anticipate or manage
problems related to computer programs and the year 2000, and that this will
adversely affect the value of securities issued by companies located in that
country or region.
19
<PAGE>
GEOGRAPHIC CONCENTRATION RISK
The risk that, if a fund concentrates its investments in a single country or
region, its portfolio will be more susceptible to factors adversely affecting
issuers located in that country or region than would a more geographically
diverse portfolio of securities.
MARKET RISK
The risk that the market value of a fund's investments will fluctuate as the
stock and bond markets fluctuate. Market risk may affect a single issuer,
industry or section of the economy or it may affect the market as a whole.
MARKET SEGMENT RISK
The risk that investments concentrated in one portion of the market (e.g.,
large capitalization stocks or short-term government bonds) will underperform
the overall market.
SMALL COMPANY RISK
The risk that investments in smaller companies may be more volatile than
investments in larger companies, as smaller companies generally experience
higher growth and failure rates. The trading volume of smaller company
securities is normally lower than that of larger companies. Changes in the
demand for the securities of smaller companies generally have a disproportionate
effect on their market price, tending to make prices rise more in response to
buying demand and fall more in response to selling pressure.
VOLATILITY RISK
The risk that performance will be affected by unanticipated events (e.g.,
significant earnings shortfalls or gains, war, or political events) that cause
major price changes in individual securities or market sectors.
20
<PAGE>
The risks of investing in the various Funds are illustrated in the chart below.
<TABLE>
<CAPTION>
Equity Small-Cap Small-Cap Emerging
Balanced Income Equity Growth Value Opportunity International Markets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RISKS
Allocation *
Counterparty * * * * * * * *
Credit * * *
Currency rate * * *
Foreign * * * * * * * *
Foreign Year
2000 * *
Geographic
concentration * *
Interest rate * * *
Leverage * * * * * * * *
Market * * * * * * * *
Market segment * * * * *
Prepayment * * *
Small company * *
Volatility * * * * *
</TABLE>
21
<PAGE>
FEES AND EXPENSES
The tables below describe the fees and expenses that you will pay if you buy and
hold shares of the Harris Insight Equity Funds.
SHAREHOLDER FEES (fees paid directly from your investment)
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES* 5.50%
MAXIMUM DEFERRED SALES CHARGE (LOAD)* 1.00%
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON REINVESTED DIVIDENDS None
EXCHANGE FEE None
* Sales charge waivers and reduced sales charge plans are available for
A Shares. If A Shares purchased without an initial sales charge (purchases of
$1,000,000 or more) are redeemed within two years after purchase, a contingent
deferred sales charge of up to 1.00% will be applied to the redemption. See
Shareholder Services n How To Buy Shares.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets,
expressed as a % of average net assets)
<TABLE>
<CAPTION>
Equity Small-Cap Small-Cap Emerging
Balanced Income Equity Growth Value Opportunity International Markets
Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
Advisory Fees1 0.60% 0.70% 0.70% 0.90% 0.80% 1.00% 1.05% 1.25%
Rule
12b-1 Fees 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35
Other Expenses 0.38 0.26 0.19 0.21 0.25 0.21 0.28 0.83
Total Operating
Expenses(1) 1.33% 1.31% 1.24% 1.46% 1.40% 1.56% 1.68% 2.43%
</TABLE>
(1)Expenses are based on amounts incurred by the Funds during their most recent
fiscal year but do not reflect advisory fees waived by Harris Trust. After these
waivers, actual Fund advisory fees and total operating expenses for the fiscal
year ended December 31, 1998 were:
<TABLE>
<CAPTION>
Equity Small-Cap Small-Cap Emerging
Balanced Income Equity Growth Value Opportunity International Markets
Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
Advisory Fees 0.50% 0.67% 0.70% 0.89% 0.74% 0.99% 1.05% 0.92%
Total Operating
Expenses 1.23% 1.28% 1.24% 1.45% 1.34% 1.55% 1.68% 2.10%
</TABLE>
Customers of a financial institution, such as Harris Trust, may also be charged
certain fees or 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.
22
<PAGE>
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the Harris
Insight Equity Funds to the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in a Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although your actual costs and the return on
your investment may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
Equity Small-Cap Small-Cap Emerging
Balanced Income Equity Growth Value Opportunity International Markets
Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One Year $678 $676 $669 $690 $685 $700 $711 $783
Three Years 948 942 922 986 969 1,016 1,050 1,266
Five Years 1,239 1,229 1,194 1,304 1,274 1,353 1,412 1,774
Ten Years 2,063 2,042 1,967 2,200 2,137 2,304 2,428 3,164
</TABLE>
23
<PAGE>
INTRODUCTION TO THE HARRIS INSIGHT FIXED INCOME FUNDS
The Harris Insight Fixed Income Funds invest primarily in bonds, which are debt
instruments that normally -
o Pay a set amount of interest on a regular basis
o Repay the face amount, or principal, at a stated future date
o Are issued by domestic and foreign corporations, federal and state
governments, and their agencies
WHY INVEST IN FIXED INCOME FUNDS?
Fixed income funds can play a key role in an investor's portfolio by offering:
o A reasonable level of current income
o A measure of price stability relative to equity fund investments
o In the case of tax-exempt funds, income that is generally free from
federal income tax
HOW DO FIXED INCOME FUNDS PROVIDE A STEADY STREAM OF INCOME?
Fixed income funds earn income on the underlying securities and pay this out to
the shareholders on a regular (e.g., monthly) basis.
WHAT CAUSES BOND VALUES TO CHANGE?
Investors should be aware that bonds will fluctuate in value for any of three
main reasons:
o A change in interest rates
o A change in economic conditions
o A change in the financial condition of the issuer
HOW DOES THE PRICE OF A BOND MOVE WITH INTEREST RATES?
When interest rates rise, bond prices fall and vice versa. Changing interest
rates have a greater effect on bonds with longer maturities than on those with
shorter maturities. As a result, when prevailing interest rates rise the
prices of long-term bonds decrease to a greater degree than the prices of
short-term bonds. The reverse is true when interest rates fall.
HOW ARE BONDS GRADED?
Bond quality, or grade, refers to the creditworthiness (the ability to repay
debt) of the issuing organization. Higher ratings indicate better quality.
Independent rating services, such as Moody's Investors Service or Standard &
Poor's, publish and disseminate bond quality ratings on a regular basis.
24
<PAGE>
HOW ARE SECURITIES SELECTED FOR THE HARRIS INSIGHT FIXED INCOME FUNDS?
The portfolio manager actively manages fixed income investments in pursuit of
attractive investment opportunities. The portfolio manager applies three key
tools in selecting securities:
o Analysis of economic and market conditions affecting the fixed income
markets, including forecasting the direction of interest rates
o Assessment of the yield advantages of different classes of bonds or
sectors of the bond market
o Assessment of the value offered, relative to other investment
opportunities, including an independent review of each issue's credit
quality
Based on this analysis, the portfolio manager endeavors to identify bonds that
appear:
o Undervalued relative to the market's expectations
o Positioned to benefit from anticipated changes in interest rates
(Sidebar)
Shares of the Harris Insight Fixed Income Funds are not bank deposits and are
not insured or guaranteed by the FDIC or any other government agency. The value
of your investment in a Fund will fluctuate, which means that you may lose
money.
Each Fund's primary investment practices and strategies are discussed in this
prospectus. Other practices, and their related risks, are described in the
statement of additional information. The investment objective of each Fund is
not fundamental and may be changed by the Board of Directors or Trustees without
approval by the Fund's shareholders.
Each Fund's principal risks are provided in an alphabetical listing within the
Fund description that follows. These risks are discussed in detail under "Risk
Considerations" on page 39.
25
<PAGE>
CONVERTIBLE SECURITIES FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide capital appreciation and current income.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in CONVERTIBLE SECURITIES
(bonds, preferred stock and other instruments that are convertible into common
stock).
The Fund also may invest up to 35% of its assets in SYNTHETIC CONVERTIBLES and
15% of its assets in common stocks. When, in the portfolio manager's opinion,
convertible securities do not serve the Fund's objective, the Fund may invest
part or all of its assets in U.S. GOVERNMENT SECURITIES, corporate debt
obligations and short-term money market instruments. The portfolio manager will
continue to seek current income during such periods, but will put less emphasis
on capital appreciation.
The portfolio manager invests primarily in convertible securities rated "B" or
better by Standard & Poor's Corporation and Moody's Investors Service, Inc. (or,
if not rated, securities considered by the portfolio manager to be of comparable
quality). The Fund may also invest up to:
o 15% of its assets in securities rated "B-"
o 5% of its assets in convertible securities rated "CCC" by Standard &
Poor's or "Caa" by Moody's. (Securities rated "BB" or below by Standard &
Poor's or "Ba" or below by Moody's are "high yield" securities, commonly
known as "junk bonds." These securities are considered speculative and are
subject to increased risk.)
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 39.)
Credit risk
Interest rate risk
Market risk
26
<PAGE>
(Side Bar)
TERMS TO KNOW
CONVERTIBLE SECURITIES
Bonds, debentures, notes, preferred stock or other securities that are
convertible into common stock. Convertible securities have some unique return
characteristics relative to market fluctuations:
o When equity markets go up, they tend to rise in price
o When interest rates rise, they tend to decline relatively less in price
than long-term bonds
SYNTHETIC CONVERTIBLES
Issues that function like a convertible security by combining separate
securities into one investment package offering fixed income and the right to
acquire stock.
U.S. GOVERNMENT SECURITIES
Obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -2.04% 18.32% 20.77% 18.93% -3.36% 13.52% 17.31% 26.90% -20.62% 12.87%
</TABLE>
Best Quarter: Q1 1991 14.95%
Worst Quarter: Q3 1990 -17.71%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Convertible
Securities Fund -2.04% 9.98% 9.31%
First Boston
Convertible Index 6.55% 10.82% 12.29%
*A Shares of the Fund had not commenced operations as of the date of this
prospectus. Performance reflects performance of the N Shares, which had lower
expenses, and does not reflect the effect that A Shares' expenses would have had
on performance.
Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
27
<PAGE>
TAX-EXEMPT BOND FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide a high level of current income that is exempt from
federal income tax.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 80% of its assets in MUNICIPAL SECURITIES
with varying maturities. These securities are generally exempt from federal
income tax and not subject to the ALTERNATIVE MINIMUM TAX.
The portfolio manager employs:
o Interest rate risk management techniques to temper the potential negative
impact of interest rate increases on the Fund's share price
o In-depth credit analysis to help ensure that the municipalities issuing
the bonds are likely to repay their debt
The Fund also may invest in U.S. GOVERNMENT SECURITIES and securities with
various forms of credit enhancement (such as bank letters of credit). The Fund
may buy and sell options and interest rate futures contracts to hedge against
declines in the value of portfolio securities.
In pursuit of higher income, the portfolio manager normally favors longer-term
bonds that typically mature in ten years or more. In exchange for this higher
potential income, investors may experience higher share price volatility than
would occur through investments with shorter maturities.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 39.)
Credit risk
Interest rate risk
Municipal market risk
(Sidebar)
TERMS TO KNOW
ALTERNATIVE MINIMUM TAX (AMT)
A federal tax designed to ensure that wealthy individuals, trusts, estates and
companies pay at least some income tax.
MUNICIPAL SECURITIES
Bonds and other obligations issued by state and local governments to finance
operations or projects. These securities make interest payments that are exempt
from federal income tax.
U.S. GOVERNMENT SECURITIES, see page 27.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
28
<PAGE>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.62% 8.28% 3.43% 14.16% -7.53% 12.67% 8.09% 11.34% 5.34% 10.59%
</TABLE>
Best Quarter: Q2 1989 6.39%
Worst Quarter: Q1 1994 -5.15%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Tax-Exempt Bond
Fund 4.62% 4.34% 6.93%
Lehman Brothers
Municipal Bond
Index 6.48% 6.22% 8.22%
*A Shares of the Fund had not commenced operations as of the date of this
prospectus. Performance reflects performance of the N Shares, which had lower
expenses, and does not reflect the effect that A Shares' expenses would have had
on performance.
Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
29
<PAGE>
BOND FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide a high level of total return, including a competitive
level of current income.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in bonds and similar fixed
income securities.
The Fund may invest in the following:
o Bonds and debentures
o U.S. GOVERNMENT SECURITIES
o DEBT OBLIGATIONS OF FOREIGN GOVERNMENTS
o MORTGAGE-BACKED SECURITIES
o MUNICIPAL SECURITIES
o ZERO COUPON SECURITIES
o Other floating/variable rate obligations
o Options and interest-rate futures contracts
The Fund normally maintains a WEIGHTED AVERAGE MATURITY (or average life with
respect to mortgage-backed and asset-backed securities) of between five and ten
years. Accordingly, the Fund's holdings may experience more share price
volatility than bonds with shorter maturities, making the Fund a more suitable
investment for long-term investors.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 37.)
Credit risk
Interest rate risk
Prepayment risk
(Sidebar)
TERMS TO KNOW
U.S. GOVERNMENT SECURITIES, see page 27.
MORTGAGE-BACKED SECURITIES
Debt issues, based on a pool of underlying mortgages, that make interest and
principal payments to investors.
MUNICIPAL SECURITIES, see page 28.
ZERO COUPON SECURITIES
Securities that do not pay a stated interest rate, but are sold at a deep
discount to their value at maturity. The difference between its discounted price
and the full value of the security at maturity represents the payment of
interest.
WEIGHTED AVERAGE MATURITY
An average of all of the maturities of a fund's securities holdings, weighted
according to each security's dollar value relative to the rest of the holdings.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
30
<PAGE>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998 1997
6.86% 9.14%
Best Quarter: Q3 1997 3.61%
Worst Quarter: Q1 1997 -0.93%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Inception
Year (4/22/96)
Bond Fund
6.86% 7.88%
Lehman Brothers
Aggregate
Bond Index 8.67% 9.07%
*A Shares of the Fund commenced operations on 2/18/99. Performance prior to
2/18/99 reflects performance of the N Shares, which had lower expenses, and does
not reflect the effect that A Shares' expenses would have had on performance.
31
<PAGE>
INTERMEDIATE TAX-EXEMPT BOND FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide a high level of current income that is exempt from
federal income tax.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 80% of its assets in a broad range of
MUNICIPAL SECURITIES. These securities are generally exempt from federal income
tax and not subject to the ALTERNATIVE MINIMUM TAX.
Under normal market conditions, the Fund's investments will have a WEIGHTED
AVERAGE MATURITY in a range of three to ten years. Such intermediate-term
securities share these basic characteristics:
o They offer a higher income stream and somewhat higher share price
volatility than shorter-term municipal bond funds
o They tend to deliver less income with greater share price stability than
longer-term bond funds
The Fund also may invest in U.S. GOVERNMENT SECURITIES and securities with
various forms of credit enhancement (such as bank letters of credit). The Fund
may buy and sell options and interest rate futures contracts to hedge against
declines in value of portfolio securities.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 39.)
Credit risk
Interest rate risk
Municipal market risk
32
<PAGE>
(Sidebar)
TERMS TO KNOW
MUNICIPAL SECURITIES, see page 28
ALTERNATIVE MINIMUM TAX, see page 28
WEIGHTED AVERAGE MATURITY, see page 30
U.S. GOVERNMENT SECURITIES, see page 27
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.67% 6.14% 2.80% 11.40% -3.33% 8.28% 6.50% 10.75% 6.08% 7.84%
</TABLE>
Best Quarter: Q2 1989 4.66%
Worst Quarter: Q1 1994 -2.89%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Intermediate
Tax-Exempt
Bond Fund 4.67% 4.23% 6.04%
Lehman Brothers
Quality
Intermediate
Municipal
Bond Index 6.00% 5.59% N/A**
*A Shares of the Fund had not commenced operations as of the date of this
prospectus. Performance reflects performance of the N Shares, which had lower
expenses, and does not reflect the effect that A Shares' expenses would have had
on performance.
Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
**The inception date of the Lehman Brothers Quality Intermediate Municipal Bond
Index is July 1, 1993.
33
<PAGE>
SHORT/INTERMEDIATE BOND FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide a high level of total return, including a competitive
level of current income.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets primarily in bonds with a
short/intermediate-term average maturity.
The portfolio manager favors bonds with two to five years remaining to maturity
in order to achieve relative price stability and an attractive stream of income.
Such short/intermediate-term bonds tend to offer a buffer against rising
interest rates, although they will appreciate less when interest rates fall.
The Fund normally maintains a WEIGHTED AVERAGE MATURITY (or average life with
respect to mortgage-backed and asset-backed securities) of
between two and five years. The Fund may invest in:
o Bonds and debentures
o U.S. GOVERNMENT SECURITIES
o U.S. dollar-denominated debt obligations of foreign issuers
o MORTGAGE-BACKED SECURITIES
o MUNICIPAL SECURITIES
o ZERO COUPON SECURITIES
o Other floating/variable rate obligations
o Options and interest-rate futures contracts
If a defensive position is warranted, the Fund may hold short-term U.S.
government securities (such as Treasury bills), high-quality money market
instruments and cash.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (see Risk Considerations, page 39.)
Credit risk
Interest rate risk
Prepayment risk
34
<PAGE>
(Sidebar)
TERMS TO KNOW
U.S. GOVERNMENT SECURITIES, see page 27
MORTGAGE-BACKED SECURITIES, see page 30
MUNICIPAL SECURITIES, see page 28
ZERO COUPON SECURITIES, see page 30
WEIGHTED AVERAGE MATURITY, see page 30
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998 1997 1996 1995 1994 1993 1992
6.75% 6.89% 3.51% 13.88% -1.29% 9.91% 5.28%
Best Quarter: Q3 1992 4.62%
Worst Quarter: Q4 1992 -2.13%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 5 Inception
Year Years (4/1/91)
Short/
Intermediate
Bond Fund 6.75% 5.83% 7.12%
Lehman Brothers
Intermediate
Government
Corporate
Bond Index 8.42% 6.59% 8.65%
*A Shares of the Fund had not commenced operations as of the date of this
prospectus. Performance reflects performance of the N Shares, which had lower
expenses, and does not reflect the effect that A Shares' expenses would have had
on performance.
35
<PAGE>
INTERMEDIATE GOVERNMENT BOND FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide a high level of current income, consistent with
preservation of capital.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in:
o U.S. GOVERNMENT SECURITIES
o MORTGAGE-BACKED SECURITIES, issued by U.S. government agencies
o REPURCHASE AGREEMENTS collateralized by U.S. government securities
The WEIGHTED AVERAGE MATURITY (or average life with respect to mortgage-backed
and asset-backed securities) generally will be in the intermediate range of
between three and ten years.
The portfolio manager may invest up to 20% of the Fund's assets in:
o ASSET-BACKED SECURITIES
o ZERO COUPON SECURITIES
o Corporate bonds
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 39.)
Credit risk
Interest rate risk
Prepayment risk
36
<PAGE>
(Sidebar)
TERMS TO KNOW
U.S. GOVERNMENT SECURITIES, see page 27
MORTGAGE-BACKED SECURITIES, see page 27
REPURCHASE AGREEMENTS
A binding agreement enabling a bank or broker to borrow money, using securities
as collateral, with a promise to buy back the securities at a specified price,
usually within 90 days.
WEIGHTED AVERAGE MATURITY, see page 30
ASSET-BACKED SECURITIES
Securities collateralized by credit card loans or other accounts receivable.
ZERO COUPON SECURITIES, see page 30
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.18% 7.56% 3.86% 13.09% -1.93% 8.10% 6.49% 13.30% 8.92% 12.03%
</TABLE>
Best Quarter: Q2 1989 6.29%
Worst Quarter: Q1 1994 -2.21%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Intermediate
Government
Bond Fund 7.18% 5.84% 7.77%
Lehman
Brothers
Intermediate
Government
Bond Index 8.48% 6.45% 8.34%
*A Shares of the Fund commenced operations on 2/12/99. Performance prior to
2/12/99 reflects performance of the N Shares, which had lower expenses, and does
not reflect the effect that A Shares' expenses would have had on performance.
Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
37
<PAGE>
RISK CONSIDERATIONS
All Fund investments are subject to risk and may decline in value. Each Fund's
exposure depends upon its specific investment practices. The amount and types of
risk vary depending on: The investment objective
o The Fund's ability to achieve its objective
o The markets in which the Fund invests
o The investments the Fund makes in those markets
o Prevailing economic conditions over the period of an investment
Please note that there are other circumstances that could adversely affect your
investment and prevent a Fund from achieving its objectives.
COUNTERPARTY RISK
The risk that when a fund engages in repurchase, reverse repurchase, derivative,
when-issued, forward commitment, delayed settlement and securities lending
transactions with another party, it relies on the other party to consummate the
transaction and is subject to the risk of default by the other party. Failure of
the other party to consummate the transaction may result in the fund's incurring
a loss or missing an opportunity to obtain a price believed to be advantageous.
CREDIT RISK
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise be unable to honor a financial obligation. Debt securities
rated below investment-grade are especially susceptible to this risk.
38
<PAGE>
INTEREST RATE RISK
The risk that changing interest rates may adversely affect the value of an
investment. With fixed-rate securities, an increase in prevailing interest rates
typically causes the value of those securities to fall, while a decline in
prevailing interest rates may produce an increase in the market value of the
securities. Changes in interest rates will affect the value of longer-term fixed
income securities more than shorter-term securities and lower quality securities
more than higher quality securities.
MARKET RISK
The risk that the market value of a fund's investments will fluctuate as the
stock and bond markets fluctuate. Market risk may affect a single issuer,
industry or section of the economy or it may affect the market as a whole.
MUNICIPAL MARKET RISK
The risk that certain factors may negatively affect the value of municipal
securities, and, as a result, the share price of a fund that invests in them.
These factors include political or legislative changes, uncertainties related to
the tax status of the securities or the rights of investors in the securities. A
fund may invest in municipal obligations that are related in such a way (e.g.
multiple apparently unrelated issues that depend on the financial rating or
support of a single government unit) that an economic, business or political
development or change that affects one of these obligations would also affect
the other obligations.
SMALL COMPANY RISK
The risk that investments in smaller companies may be more volatile than
investments in larger companies, as smaller companies generally experience
higher growth and failure rates. The trading volume of smaller company
securities is normally lower than that of larger companies. Changes in the
demand for the securities of smaller companies generally have a disproportionate
effect on their market price, tending to make prices rise more in response to
buying demand and fall more in response to selling pressure.
39
<PAGE>
The risks of investing in the various Funds are illustrated in the chart below.
<TABLE>
<CAPTION>
Convertible Tax-Exempt Bond Intermediate Tax- Short/Intermediate Intermediate Gov.
Securities Bond Exempt Bond Bond Bond
<S> <C> <C> <C> <C> <C> <C>
RISKS
Counterparty * * * * * *
Credit * * * * * *
Foreign * * * *
Interest rate * * * * * *
Leverage * * * * * *
Market * * * * * *
Municipal
market * * *
Municipal
market * * *
Prepayment * * * * *
</TABLE>
40
<PAGE>
FEES AND EXPENSES
The tables below describe the fees and expenses that you will pay if you buy and
hold shares of the Harris Insight Fixed Income Funds.
SHAREHOLDER FEES (fees paid directly from your investment)
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES* 4.50%
MAXIMUM DEFERRED SALES CHARGE (LOAD)* 1.00%
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON REINVESTED DIVIDENDS None
EXCHANGE FEE None
* Sales charge waivers and reduced sales charge plans are available for A
Shares. If A Shares purchased without an initial sales charge (purchases of
$1,000,000 or more) are redeemed within two years after purchase, a contingent
deferred sales charge of up to 1.00% will be applied to the redemption. See
Shareholder Services n How To Buy Shares.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets,
expressed as a % of average net assets)
<TABLE>
<CAPTION>
Convertible Intermediate Short/ Intermediate
Securities Tax-Exempt Bond Tax-Exempt Intermediate Government
Fund Bond Fund Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
Investment
Advisory Fees(1) 0.70% 0.60% 0.65% 0.60% 0.70% 0.65%
Rule
12b-1 Fees(1) 0.25 0.25 0.25 0.25 0.25 0.25
Other Expenses 0.31 0.20 0.23 0.20 0.20 0.26
Total Operating
Expenses(1) 1.26% 1.05% 1.13% 1.05% 1.15% 1.16%
</TABLE>
(1)Expenses are based on amounts incurred by the Funds during their most recent
fiscal year but do not reflect advisory fee waivers by Harris Trust. After these
waivers, actual Fund advisory fees and total operating expenses for the fiscal
year ended December 31, 1998 were:
<TABLE>
<CAPTION>
Convertible Intermediate Short/ Intermediate
Securities Tax-Exempt Bond Tax-Exempt Intermediate Government
Fund Bond Fund Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
Investment
Advisory Fees 0.61% 0.59% 0.37% 0.60% 0.40% 0.24%
Total Operating
Expenses 1.17% 1.04% 0.85% 1.05% 0.85% 0.75%
</TABLE>
Customers of a financial institution, such as Harris Trust, may also be charged
certain fees or 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.
41
<PAGE>
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the Harris
Insight Fixed Income Funds to the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in a Fund for the time periods indicated
and then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although your actual costs and the return on
your investment may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
Convertible Intermediate Short/ Intermediate
Securities Tax-Exempt Bond Tax-Exempt Intermediate Government
Fund Bond Fund Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
One Year $573 $552 $560 $453 $463 $464
Three Years 832 769 793 672 703 706
Five Years 1,110 1,003 1,044 909 961 966
Ten Years 1,904 1,675 1,763 1,588 1,699 1,710
</TABLE>
42
<PAGE>
YEAR 2000
The services provided by the Funds' investment adviser, portfolio management
agent, investment sub-adviser, sub-administrators, distributor, transfer agent
and custodian (the "Service Providers"), depend on the smooth functioning of
their computer systems. Many computer software systems in use today cannot
recognize the year 2000, but revert to 1900 or 1980, due to the manner in which
dates were encoded and calculated. That failure could have a negative impact on
the handling of securities trades, pricing and account services. Each of the
Service Providers has advised the Funds that it has been actively working on
necessary changes to its own computer systems to deal with the year 2000, and
expects that its systems will be adapted before that date. However, there can be
no assurance that they will be successful or that interaction with other
noncomplying computer systems will not impair their services at that time. In
addition, the Funds are also subject to similar risks with respect to issuers of
securities in which the Funds invest.
43
<PAGE>
INVESTMENT ADVISER
Harris Trust and Savings Bank (Harris Trust), an Illinois state-chartered bank
and a member of the Federal Reserve System, is the investment adviser for each
of the Harris Insight Funds. Harris Trust is the successor to the investment
banking firm of N.W. Harris & Co, which was organized in 1882 and incorporated
in 1907. At December 31, 1998, Harris Trust had total discretionary assets under
management of approximately $19.4 billion and was the largest of 28 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,
1998, Harris Trust managed more than $14.5 billion in discretionary personal
trust assets, and administered more than $17.2 billion in non-discretionary
trust assets.
Harris Trust oversees the PORTFOLIO MANAGEMENT AGENT and the INVESTMENT
SUB-ADVISER.
ADVISORY FEES
The following chart shows the investment advisory fees paid, before fee waivers,
by each Fund during its last fiscal year.
Management Fees Paid (expressed as a percentage of average net assets)
Balanced Fund . . . . . 0.60%
Equity Income Fund . . . . . . 0.70
Equity Fund . . . . . . . . . . . . 0.70
Growth Fund . . . . . . . . . . . 0.90
Small-Cap Value Fund . . . . 0.80
Small-Cap Opportunity Fund . . . . . . . 1.00
International Fund . . . . . . . 1.05
Emerging Markets Fund . . . 1.25
Intermediate Government Bond Fund .. . 0.65
Short/Intermediate Bond Fund .. . . . . .. . . . . 0.70
Intermediate Tax-Exempt Bond Fund .. . . . . 0.60
Bond Fund . . . . . . . . . . . . . 0.65
Tax-Exempt Bond Fund . . . 0.60
Convertible Securities Fund. . . . . . . . . . 0.70
Harris Trust may waive any portion of its investment advisory fees or reimburse
Fund expenses from time to time. These arrangements are voluntary and may be
terminated at any time.
44
<PAGE>
PORTFOLIO MANAGEMENT AGENT
As the portfolio management agent, Harris Investment Management, Inc. (HIM)
manages the investments of all of the Funds and, in the case of the
International Fund and the Emerging Markets Fund, HIM has appointed Hansberger
Global Investors, Inc. as the investment sub-adviser. HIM is a wholly-owned
subsidiary of Harris Bankcorp, Inc. For the services provided by HIM, Harris
Trust pays HIM the advisory fees Harris Trust receives from the Funds. As of
December 31, 1998, HIM managed approximately $14.9 billion in assets.
INVESTMENT SUB-ADVISER
Hansberger Global Investors, Inc. (Hansberger) serves as investment sub-adviser
to, and makes all investment decisions for, the International Fund and the
Emerging Markets Fund. Hansberger, founded in 1994, provides a broad range of
portfolio management services to clients in the U.S. and abroad. As of December
31, 1998, Hansberger managed approximately $2.1 billion in assets. Hansberger is
paid for its investment sub-advisory services from the advisory fees HIM
receives from Harris Trust.
Many persons on the staffs of the investment adviser, portfolio management agent
and investment sub-adviser 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.
(Sidebar)
INVESTMENT ADVISER
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 60690
INVESTMENT SUB-ADVISER
Hansberger Global Investments, Inc., 515 East Las Olas Blvd., Suite 1300,
Fort Lauderdale, Florida 33301
45
<PAGE>
PORTFOLIO MANAGERS OF THE HARRIS INSIGHT EQUITY FUNDS
BALANCED FUND
C. Thomas Johnson, CFA, Senior Partner and Portfolio Manager (HIM)
Mr. Johnson joined Harris Trust in 1969. He has served as Portfolio Manager of
the Fund since it commenced operations in 1997 and has 29 years of experience
in portfolio management.
EQUITY INCOME FUND
Daniel L. Sido, Senior Partner and Portfolio Manager (HIM)
Prior to joining HIM in 1994, Mr. Sido served as Portfolio Manager for a trust
company, managing equity and fixed income portfolios. He has served as Portfolio
Manager of the Fund since it commenced operations in 1996 and has over 15 years
of investment management experience.
EQUITY FUND
Donald G. M. Coxe, Chairman and Chief Strategist (HIM)
Mr. Coxe joined HIM in 1993. He has served as Portfolio Manager of the Fund
since 1996 and has nearly 31 years of institutional investment management
experience.
GROWTH FUND
James E. Depies, CFA, Senior Partner and Portfolio Manager (HIM)
Mr. Depies joined Harris Trust in 1981 and has served as Portfolio Manager of
the Fund since it commenced operations in 1996 and has 38 years of investment
management experience.
SMALL-CAP VALUE FUND
SMALL-CAP OPPORTUNITY FUND
Thomas M. Corkill, CFA, Partner and Portfolio Manager (HIM)
Mr. Corkill joined Harris Trust in 1982 and has 29 years of experience in
portfolio management and research. He was appointed Portfolio
Manager of:
o Small-Cap Value Fund when it commenced operations in 1997
o Small-Cap Opportunity Fund in 1998
46
<PAGE>
INTERNATIONAL FUND
James E. Chaney, Chief Investment Officer (Hansberger)
Prior to joining Hansberger in 1996, Mr. Chaney was Executive Vice President of
Templeton Worldwide Inc. and a senior member of its Portfolio Management/
Strategy Committee. While at Templeton, he managed numerous accounts, including
the Foreign Equity Series of Templeton Institutional Funds Inc. He leads the
International Fund's portfolio team, which includes:
John Carl Fenley, CFA, Research Analyst, Global Equities
Victoria Gretzky, Research Analyst
John Hock, Research Analyst
EMERGING MARKETS FUND
Thomas L. Hansberger, Chairman and Chief Executive Officer (Hansberger)
Before forming Hansberger in 1994, Mr. Hansberger was Chairman, President and
Chief Executive Officer of Templeton Worldwide, Inc. While at Templeton, he
served as director of research and was an officer, director or primary portfolio
manager for several Templeton mutual funds. He leads the Emerging Markets Fund's
portfolio team, which includes:
Francisco Alzuru, Managing Director, Portfolio Manager and
Research Analyst
Aureole L.W. Foong, Director of Asian Research
Robert Mazuelos, Research Analyst
Vladimir Tyurenkov, Managing Director of Eastern Europe and Russia,
Portfolio Manager and Research Analyst
47
<PAGE>
PORTFOLIO MANAGERS OF THE HARRIS INSIGHT FIXED INCOME FUNDS
INTERMEDIATE GOVERNMENT BOND FUND
SHORT/INTERMEDIATE BOND FUND
BOND FUND
Laura Alter, Senior Partner and Portfolio Manager (HIM)
Prior to joining HIM in 1994, Ms. Alter served as Portfolio Manager for a major
mutual fund investment management firm. She has 14 years of experience in the
fixed income investment area and was appointed Portfolio Manager of:
o Short/Intermediate Bond Fund in 1994
o Bond Fund when it commenced operations in 1996
Maureen Svagera, Senior Partner and Portfolio Manager (HIM)
Prior to joining HIM in 1994, Ms. Svagera was Principal/Vice President at an
investment management firm, where she focused on the mortgage and asset-backed
securities markets. She has 16 years of experience in the fixed income market
and was appointed Portfolio Manager of:
o Intermediate Government Bond Fund when it commenced operations in 1997
o Short/Intermediate Bond Fund in 1996
o Bond Fund when it commenced operations in 1996
INTERMEDIATE TAX-EXEMPT BOND FUND
TAX-EXEMPT BOND FUND
George W. Selby, Principal and Portfolio Manager (HIM)
Prior to joining HIM in 1998, Mr. Selby served as Executive Director of
Municipal Bond Sales for a brokerage firm. He has 16 years of municipal bond
sales experience and was appointed Portfolio Manager of:
o Intermediate Tax-Exempt Bond Fund in 1998
o Tax-Exempt Bond Fund in 1998
CONVERTIBLE SECURITIES FUND
Thomas M. Corkill, CFA, Partner and Portfolio Manager (HIM)
Mr. Corkill joined Harris Trust in 1982. He was appointed Portfolio Manager of
the Fund in 1998 and has 29 years of experience in portfolio management and
research.
48
<PAGE>
PRICING OF FUND SHARES
SHARES OF THE FUNDS ARE BOUGHT AND SOLD AT NET ASSET VALUE PLUS ANY APPLICABLE
SALES CHARGE
Each Fund calculates its net asset value per share (NAV) on each business day
that both the New York Stock Exchange (NYSE) and the Federal Reserve Bank of
Philadelphia are open.
(Sidebar)
HOW THE FUNDS CALCULATE NAV
The NAV of a class of shares of a Fund is determined by dividing the value of
the securities and other assets, less liabilities, allocated to the class by the
number of outstanding shares of the class.
The NAV is calculated at the close of regular trading on the NYSE (normally 4:00
p.m., Eastern time) and is generally based on the last sale prices of all
securities held in the Fund and the number of shares outstanding. A Fund's
securities are valued based on market value or, where market quotations are not
readily available, are based on fair value as determined in good faith by the
Fund's board of directors or board of trustees, as the case may be.
Foreign securities are valued on the basis of quotations from the primary
markets in which they are traded, and are translated from the local currency
into U.S. dollars using current exchange rates. If the value of a foreign
security has been materially affected by events occurring after the close of a
foreign market, it may be valued by another method that the board believes
reflects fair value. Foreign securities may trade in their local markets on
weekends or other days when a Fund does not price its shares. Therefore, the NAV
of Funds holding foreign securities may change on days when shareholders will
not be able to buy or sell their Fund shares.
49
<PAGE>
SHAREHOLDER SERVICES
HOW TO BUY SHARES
OPENING A NEW ACCOUNT IS EASY
There are three convenient ways to invest in the Harris Insight Funds.
BY MAIL
Complete and sign an application for A Shares.
Make your check payable to the Harris Insight Funds.
If you are adding to your existing account, indicate your Fund account number
directly on the check.
Mail your application and check to:
Harris Insight Funds
c/o PFPC Inc.
P.O. Box 8952
Wilmington, DE
19899-8952
BY BANK WIRE
Call the Funds at 800.625.7073 to initiate your purchase.
Please be sure to furnish your taxpayer identification number.
Then wire your investment to:
PNC Bank, N.A.
Philadelphia, PA
ABA #0310-0005-3
For Credit To:
Harris Insight Funds
85-5093-2950
Re: [Name of Fund]o
A Shares
Account No.:
Account Name:
Taxpayer ID No.:
If you are opening a new account, please complete and mail the account
application form to the Funds at the address given 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.
THROUGH FINANCIAL INSTITUTIONS/PROFESSIONALS
Contact your financial institution or professional for more information.
Important note: Each institution or professional may have its own procedures and
requirements for buying shares and may charge fees.
50
<PAGE>
Orders placed directly with the Funds must be paid for by check or bank wire
before the order will be executed. Payment for the shares purchased through a
financial institution will not be due until settlement date, normally three
business days after the order has been executed.
Shares are purchased at the next share price calculated plus any applicable
sales charge after your investment is received. In some cases, a contingent
deferred sales charge is imposed on redemptions made within one year of
purchase. The Funds reserve the right to reject any purchase order.
SALES CHARGES
A Shares of the Funds are generally sold with a sales charge of up to 5.50%
(applied when your investment is made).
When you purchase A Shares of the Funds through an institution, the distributor
reallows a portion of the sales charge to the institution, except as described
below. No sales charge is assessed on the reinvestment of distributions.
Sales charges for A Shares of the Funds are as follows:
<TABLE>
<CAPTION>
EQUITY FUNDS
SALES CHARGE AS A % OF DEALER ALLOWANCE AS
AMOUNT OF PURCHASE SALES CHARGES NET AMOUNT INVESTED % OF OFFERING PRICE
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 to $99,999 4.50 4.71 4.00
$100,000 to $249,999 3.50 3.63 3.25
$250,000 to $499,999 2.50 2.56 2.25
$500,000 to $999,999 2.00 2.04 1.75
$1,000,000 and over 0.00 0.00 1.00
CONVERTIBLE SECURITIES FUND, TAX-EXEMPT BOND FUND AND BOND FUND
SALES CHARGE AS A % OF DEALER ALLOWANCE AS
AMOUNT OF PURCHASE SALES CHARGES NET AMOUNT INVESTED % OF OFFERING PRICE
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.25%
$50,000 to $99,999 4.25 4.43 4.00
$100,000 to $249,999 3.50 3.63 3.25
$250,000 to $499,999 2.50 2.56 2.25
$500,000 to $999,999 2.00 2.04 1.75
$1,000,000 and over 0.00 0.00 1.00
INTERMEDIATE TAX-EXEMPT BOND FUND, SHORT/INTERMEDIATE BOND FUND AND
INTERMEDIATE GOVERNMENT BOND FUND
SALES CHARGE AS A % OF DEALER ALLOWANCE AS
AMOUNT OF PURCHASE SALES CHARGES NET AMOUNT INVESTED % OF OFFERING PRICE
<S> <C> <C> <C>
Less than $50,000 3.50% 3.63% 3.25%
$50,000 to $99,999 3.25 3.36 3.00
$100,000 to $249,999 2.50 2.56 2.25
$250,000 to $499,999 2.00 2.04 1.75
$500,000 to $999,999 1.50 1.52 1.25
$1,000,000 and over 0.00 0.00 1.00
</TABLE>
51
<PAGE>
No sales charge is assessed on purchases by:
o Any bank, trust company, or other institution acting on behalf of a
fiduciary customer account or any other trust account (including plans
under Section 401 of the Internal Revenue Code)
o Any individual with an investment account or relationship with HIM
o Directors
REDUCED SALES CHARGES
You may be eligible to buy A Shares with a reduced sales charge through two
programs -
RIGHT OF ACCUMULATION Allows you to include your existing investments in A
Shares of the Funds as part of your current investment for purposes of
calculating sales charges.
LETTER OF INTENT Allows you to count all investments in A Shares of the
Funds over the next thirteen months, as if you were making them all at once
for purposes of calculating sales charges.
To qualify for a reduced sales charge, you must notify and provide sufficient
information to the Funds at the time of purchase. If you invest through an
institution, you should notify the institution, which in turn must notify the
Funds. Programs that allow for reduced sales charges may be changed or
eliminated at any time.
CONTINGENT DEFERRED SALES CHARGE
A Shares of a Fund that are redeemed within certain periods will be subject to a
contingent deferred sales charge (CDSC) when no initial sales charge was
assessed on purchases:
o of $1,000,000 or more in a single transaction
o pursuant to the right of accumulation or a letter of intent
The amount of the CSDC and the period for which it applies are as follows:
ALL FUNDS
CONTINGENT DEFERRED
SALES CHARGE
AS A % OF DOLLAR AMOUNT
PERIOD SHARES HELD SUBJECT TO CHARGE
Less than one year 1.00%
One to two years 0.50
The CDSC, which will be used to recover commissions paid to institutions, will
be assessed on an amount equal to the lessor of the cost of the shares being
redeemed and the net asset value of the shares at the time of redemption.
No sales charge will be imposed on
o increases in net asset value above the initial purchase price
o redemptions of shares acquired through the reinvestment of dividends and
distributions
o involuntary redemptions by a Fund of shareholder accounts with low
account balances
Redemptions of shares will be effected in the manner that results in the
imposition of the lowest deferred sales charge. Redemptions will be made
o First, from A Shares held for more than two years
o Second, from A Shares acquired through the reinvestment of
dividends and distributions
o Third, from A Shares held within one and two years Fourth, from
A Shares held for less than one year
o Fourth, from A shares held for less than one year
The CDSC on shares purchased through an exchange from A Shares of another Fund
is based upon the original purchase date and price of the other Fund's shares.
52
<PAGE>
For a shareholder with a letter of intent who does not purchase $1,000,000 of A
Shares under the letter, no CDSC is imposed. A letter of intent may provide for
a CDSC.
AUTOMATIC INVESTMENT PLAN: A CONVENIENT OPTION
Through automatic investing, you can invest equal amounts of money on a regular
basis.
At the time you open your account or any time afterward, you can elect Harris
Insight Funds' Automatic Investment Plan by so indicating on the Harris Insight
Funds New Account Application. The Plan lets you invest as little as $50 a month
in the Fund of your choice through electronic withdrawals from your checking or
savings account. (If your checking or savings account does not have sufficient
assets to permit the Automatic Investment in any month, your participation in
the Plan will cease and a new application will be needed to reinstate your
Plan.)
(sidebar)
For more information on any of Harris Insight Funds' shareholder services,
please call 800.982.8782.
CHOOSE YOUR INVESTMENT AMOUNT
The Harris Insight Funds offer a flexible range of minimum investment amounts to
initiate or add to your investment program.
MINIMUM PER FUND
To open an account $1,000
To open a retirement account $250
To add to an existing account $50
To make additional
investments through
the Automatic Investment Plan $50
MORE ABOUT BUYING SHARES
MULTIPLE OWNERS
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.
TAXPAYER IDENTIFICATION
You must certify whether you are subject to withholding for failing to report
income to the Internal Revenue Service. Investments received without a certified
taxpayer identification number may be returned.
HOURS OF OPERATION
The Funds are open for business each day the New York Stock Exchange (NYSE) and
the Federal Reserve Bank of Philadelphia are open for business. The Funds are
closed for business on:
New Year's Day Memorial Day Veterans' Day
Martin Luther King, Jr. Day Independence Day Thanksgiving Day
Presidents' Day Labor Day Christmas Day
Good Friday Columbus Day
You may call 800.982.8782 to speak with a Fund representative Monday through
Friday from 8:30 a.m. to 5:00 p.m. Eastern time.
53
<PAGE>
(Sidebar)
PLEASE INDICATE WHETHER YOU WOULD LIKE THE ABILITY TO BUY, REDEEM OR EXCHANGE
SHARES BY TELEPHONE OR WIRE WHEN YOU COMPLETE YOUR APPLICATION.
HOW TO SELL SHARES
ACCESSING YOUR MONEY IS EASY
You may sell, or redeem, some or all of your shares when the Funds are open for
business by doing one of the following.
<TABLE>
<CAPTION>
BY MAIL AND BY TELEPHONE BY TELEPHONE AND THROUGH FINANCIAL
CHECK AND CHECK BANK WIRE INSTITUTIONS/PROFESSIONALS
<S> <C> <C> <C>
Shareholders may sell If you have chosen the If you have chosen the Contact your financial
shares by writing the telephone redemption wire redemption institution or professional
Funds at the following privilege, you may call privilege, you may call for more information.
address: 800.625.7073 to sell 800.625.7073 to sell
Harris Insight Funds shares. Your proceeds shares and have your Important note: Each
c/o PFPC Inc. will be mailed to you. proceeds wired to a institution or professional
P.O. Box 8952 predesignated bank may have its own procedures
Wilmington, Delaware account. and requirements for selling
19899-8952. Your shares and may charge fees.
proceeds will be mailed
to you.
</TABLE>
Redemption requests should be accompanied by your account number, the exact
name(s) on your account and your social security or taxpayer identification
number. The Fund will mail a check to your account address or, if you have
elected the wire redemption privilege, the Fund will wire the proceeds to your
bank on the following business day. Some redemption requests require a signature
guarantee. (See page 55 for more information.)
The Funds reserve the right to pay redemptions "in kind" -- payment in portfolio
securities rather than cash -- if the amount you are redeeming is large enough
to affect a Fund's operations (limited to amounts more than $250,000 or
representing more than 1% of the Fund's assets). In these cases, you might incur
brokerage costs in converting the securities to cash.
MORE ABOUT REDEMPTIONS
WHEN ORDERS ARE PROCESSED
Your shares will be sold at the NAV next calculated after your order is accepted
by the Funds' transfer agent in good order. Your order will be processed
promptly and you will generally receive the proceeds within five to seven
business days.
Please note that proceeds for redemption requests made shortly after a recent
purchase by check will be distributed once the check clears, which may take up
to 15 days.
Under unusual circumstances, the Funds may suspend redemptions, if allowed by
the Securities and Exchange Commission, or postpone payment.
MINIMUM AMOUNT REQUIRED FOR WIRE SALES
The minimum amount of redemption proceeds that may be wired is $1,000.
Otherwise, a check for redemption proceeds is mailed to your address of record.
The Funds reserve the right to change this minimum or to terminate the
privilege.
54
<PAGE>
SYSTEMATIC WITHDRAWAL PLAN (NOT AVAILABLE FOR IRAS OR OTHER RETIREMENT ACCOUNTS)
You may enroll in the Systematic Withdrawal Plan (SWP) by so indicating on the
Harris Insight Funds New Account Application. Using the SWP, you may redeem a
specific dollar amount (not less than $100) from your Harris Insight Funds
account each month, quarterly, every six months or annually.
To enroll in the SWP, you must meet the following conditions:
o you must have elected to reinvest your Fund dividends,
o your shares of the Fund from which you want shares redeemed must have a
value of at least $10,000 at the time of each withdrawal, and
o your shares must not be subject to the Contingent Deferred Sales Load that
applies to certain purchases of A Shares.
Plan redemptions are normally processed on the 25th day of the applicable month
(or on the next Business Day if the normal processing day is not a Business Day)
and are paid promptly thereafter. You should know that, if your SWP withdrawals
are greater than the amount of dividends from your Fund, the withdrawals reduce
the principal invested. (If your Fund account does not have a sufficient balance
to permit a Systematic Withdrawal, your participation in the SWP will cease and
a new application will be needed to reinstate your Plan.)
(sidebar)
For more information on any of Harris Insight Funds' shareholder services,
please call 800.982.8782.
SIGNATURE GUARANTEES
The Funds require signature guarantees on certain redemption requests to protect
you and the Funds from unauthorized account transfers. A signature guarantee is
required when a redemption check is -
o Payable to anyone other than the shareholder(s) of record To be mailed to
an address other than the address of record
o To be wired to a bank other than one previously authorized
Signature guarantees may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency or savings association that is a participant in
a medallion program recognized by the Securities Transfer Association.
REDEMPTION OF SHARES IN SMALLER ACCOUNTS
Each Fund reserves the right to close a shareholder's account if the balance is
below $500 ($250 in the case of a retirement account) unless the decline is due
to market activity. In such cases, shareholders will be notified in writing and
permitted 30 days to increase their balance.
55
<PAGE>
ADDITIONAL SHAREHOLDER SERVICES AND INFORMATION
EXCHANGING SHARES
You can exchange your A Shares of a fund for A Shares of any other Harris
Insight Fund without a sales charge, provided that:
o Shares have been held for at least seven days
o Account registration stays the same
o The shares you wish to buy are registered for sale in your home state
Under certain circumstances, the Funds may:
o Limit the number of exchanges between Funds
o Reject a telephone exchange order
o Modify or discontinue the exchange privilege upon 60 days' written notice
The procedures that apply to redeeming shares also apply to exchanging shares.
DIRECTED DIVIDEND PLAN (DDP)
You may direct your dividends and/or distributions from one Harris Insight Fund
to be reinvested automatically in another Harris Insight Fund without any fee or
sales charge, provided that both Funds are in the same share class (except for
the directing dividends between A Shares and N Shares of the Money Market Funds
and Index Fund) and have identical ownership registration. To use the DDP, you
must maintain a balance of at least $1,000 in the Fund account from which
dividends are paid at the time each DDP payment is made. (If your Fund account
does not have a sufficient balance to permit a Directed Dividend payment, your
participation in the DDP will cease and a new application will be needed to
reinstate your Plan.)
TELEPHONE TRANSACTIONS
You may give up some level of security by choosing to buy or sell shares by
telephone, rather than by mail. The Funds will employ reasonable procedures to
confirm that telephone instructions are genuine. If the Funds or their service
providers follow these procedures, they will not be liable for any losses
arising from unauthorized or fraudulent instructions. However, you may be
otherwise held responsible for unauthorized requests.
Please verify the accuracy of instructions immediately upon receipt of
confirmation statements. You may bear the risk of loss from an unauthorized
telephone transaction.
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 c/o PFPC Inc., 103 Bellevue Parkway, Wilmington, DE 19809.
REGULAR REPORTS
Your investment will be easy to track. During the year, you will receive:
o An annual account statement A quarterly consolidated statement
o A confirmation statement, each time you buy, sell or exchange shares
o An annual and semi-annual report to shareholders for each Fund in which
you invest
56
<PAGE>
DIVIDENDS AND TAX CONSIDERATIONS
Dividends of net investment income, if any, are declared and paid at least
annually by each Fund. Following is the schedule of payments:
FUND DECLARED AND PAID
Balanced Fund Quarterly
Equity Income Fund Quarterly
Equity Fund Quarterly
Growth Fund Annually
Small-Cap Value Fund Annually
Small-Cap Opportunity Fund Annually
International Fund Annually
Emerging Markets Fund Annually
Convertible Securities Fund Quarterly
Tax-Exempt Bond Fund Daily/Monthly
Bond Fund Daily/Monthly
Intermediate Tax-Exempt Bond Fund Daily/Monthly
Short/Intermediate Bond Fund Daily/Monthly
Intermediate Government Bond Fund Daily/Monthly
Any capital gains are declared and paid at least annually.
All 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.
TAX CONSIDERATIONS
Following is a brief discussion of the general tax treatment of various
distributions from the Funds. It is not an exhaustive discussion, and your
particular tax status may be different. We encourage you to consult with your
own tax adviser about federal, state and local tax considerations.
The tax status of any distribution is the same regardless of how long you have
been in the Fund and whether you reinvest in additional shares or take it in
cash.
o All dividends paid, including net short-term capital gains (except
"exempt-interest dividends") are taxable to you as ordinary income.
o Distributions of net long-term capital gains, if any, are taxable to you
as long-term capital gains regardless of how long you have held
the shares.
o You may realize a taxable gain or loss when you sell shares or exchange
shares between Funds, depending on your tax basis in the shares and the
value of those shares at the time of the transaction.
57
<PAGE>
(side-bar)
EXEMPT-INTEREST DIVIDENDS
Dividends paid by tax-exempt funds that are exempt from federal income tax.
Exempt-interest dividends are not necessarily exempt from state and local income
taxes.
DISTRIBUTION ARRANGEMENTS
SERVICE PLAN (A SHARES ONLY)
Under a service plan adopted under Rule 12b-1, each of the Funds bears the costs
and expenses connected with advertising and marketing A Shares and may pay the
fees of financial institutions, securities dealers and other industry
professionals (which may include Harris Trust and its affiliates) for
shareholder support services at a rate of up to 0.35% of the average daily net
assets of each Fund's A Shares. Because these expenses are paid out of the
Funds' assets on an on-going basis, over time these expenses will increase the
cost of your investment and may cost you more than paying other types of sales
charges.
MULTIPLE CLASSES
Each Fund offers three classes of shares, N Shares, A Shares and Institutional
shares.
[back cover]
FOR MORE INFORMATION
More information on the Harris Insight Funds is available free upon request:
SHAREHOLDER REPORTS
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected a Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about each Fund and its policies. The SAI is on file with
the Securities and Exchange Commission (SEC) and is incorporated by reference
into (is legally considered part of) this prospectus.
(Sidebar)
To obtain information:
BY TELEPHONE
Call 800.982.8782
BY MAIL
Harris Insight Funds
Four Falls Corporate Center, 6th Floor West Conshohocken, PA 19428-2961
By email
[email protected]
ON THE INTERNET
Text only versions of the prospectus and other documents pertaining to the Fund
can be viewed online or downloaded from:
SEC http://www.sec.gov
HARRIS INSIGHT FUNDS
http://www.harrisinsight.com
Information about the Funds (including the SAI) can also be reviewed and copied
at the SEC's public reference room in Washington, DC (phone 800.SEC.0330). Or,
you can obtain copies of this information by sending a request, along with a
duplicating fee, to the SEC's Public Reference Section, Washington, DC
20549-6009.
The Funds are series of HT Insight Funds, Inc. and Harris Insight Funds Trust,
whose investment company registration numbers are 811-5366 and 811-7447,
respectively.
58
<PAGE>
HARRIS INSIGHT(R) FUNDS
May 3, 1999 Prospectus
N Shares
Harris Insight Equity Funds
Balanced Fund
Index Fund
Equity Income Fund
Equity Fund
Growth Fund
Small-Cap Value Fund
Small-Cap Opportunity Fund
International Fund
Emerging Markets Fund
Harris Insight 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
Harris Insight Money Market Funds
Tax-Exempt Money Market Fund
Money Market Fund
Government Money Market Fund
As with any mutual fund, the Securities and Exchange Commission (SEC) has not
approved or disapproved of these securities or determined whether this
prospectus is adequate or complete. Any representation to the contrary is a
criminal offense.
<PAGE>
TABLE OF CONTENTS PAGE
INTRODUCTION TO EQUITY FUNDS 2
Harris Insight Equity Funds
Balanced Fund 3
Index Fund 5
Equity Income Fund 7
Equity Fund 9
Growth Fund 11
Small-Cap Value Fund 13
Small-Cap Opportunity Fund 15
International Fund 17
Emerging Markets Fund 19
RISK CONSIDERATIONS 21
FEES AND EXPENSES 24
INTRODUCTION TO FIXED INCOME FUNDS 26
Harris Insight Fixed Income Funds
Convertible Securities Fund 28
Tax-Exempt Bond Fund 30
Bond Fund 32
Intermediate Tax-Exempt Bond Fund 34
Short-Intermediate Bond Fund 36
Intermediate Government Bond Fund 38
RISK CONSIDERATIONS 40
FEES AND EXPENSES 43
INTRODUCTION TO MONEY MARKET FUNDS 45
Harris Insight Money Market Funds
Tax-Exempt Money Market Fund 47
Money Market Fund 49
Government Money Market Fund 51
RISK CONSIDERATIONS 52
FEES AND EXPENSES 55
INVESTMENT ADVISER 57
PRICING OF FUND SHARES 61
SHAREHOLDER SERVICES 62
DIVIDENDS AND TAX CONSIDERATIONS 69
DISTRIBUTION ARRANGEMENTS 70
FINANCIAL HIGHLIGHTS 71
<PAGE>
INTRODUCTION TO THE HARRIS INSIGHT EQUITY FUNDS
The Harris Insight Equity Funds invest in stocks, which represent partial
ownership in a company. These Funds generally pursue capital appreciation: that
is, an increase in the Fund's share value. In some cases, the Harris Insight
Equity Funds also seek dividend income.
Equity funds will fluctuate in price with changes in the market and economy as
well as with the fortunes of the companies issuing the underlying stocks. For
this reason, equity fund share prices can sometimes be more volatile than the
share prices of other types of funds, exhibiting sharp increases or decreases
over relatively short periods of time.
WHY INVEST IN EQUITY FUNDS?
Equity funds offer investors the potential for greater returns than fixed income
funds and are considered an attractive choice for outpacing inflation over the
long term. Equity funds are more appropriate for investors who can tolerate a
higher degree of risk in exchange for an opportunity to pursue attractive
long-term investment rewards.
HOW ARE SECURITIES SELECTED FOR THE HARRIS INSIGHT EQUITY FUNDS?
The portfolio manager considers a combination of factors when selecting
portfolio securities:
o Measurable elements, such as the value of assets and the cost of capital
o Economic, financial and market indicators
o A company's financial condition, management and position in its industry
Based on this analysis, the portfolio manager endeavors to identify stocks
of companies that may demonstrate:
o Above-average earnings, sales and asset value growth
o Greater potential value than is perceived by others in the marketplace
(Sidebar)
Shares of the Harris Insight Equity Funds are not bank deposits and are not
insured or guaranteed by the FDIC or any other government agency. The value of
your investment in a Fund will fluctuate, which means that you may lose money.
Each Fund's primary investment practices and strategies are discussed in this
prospectus. Other practices, and their related risks, are described in the
statement of additional information. The investment objective of each Fund is
not fundamental and may be changed by the Board of Directors or Trustees without
approval by the Fund's shareholders.
Each Fund's principal risks are provided in an alphabetical listing within the
Fund description that follows. These risks are discussed in detail under "Risk
Considerations" on page 21.
2
<PAGE>
BALANCED FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide current income and capital appreciation.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund invests in a portfolio of equity and fixed income securities. Under
normal market conditions, equity securities will comprise between 40% and 65% of
the Fund's assets, and fixed income securities will comprise at least 25% of the
Fund's assets.
The portfolio manager continually reviews and adjusts the blend of the
securities in an effort to enhance returns based on current market conditions,
interest rate projections and other economic factors.
The Fund seeks to provide an overall return comprising between 40% and 65% of
the return of the STANDARD & POOR'S 500 STOCK INDEX and between 35% and 60% of
the return of the LEHMAN BROTHERS AGGREGATE BOND INDEX.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 21.)
Interest rate risk
Market risk
Allocation risk
(Sidebar)
TERMS TO KNOW
STANDARD & POOR'S 500 STOCK INDEX (S&P 500(R))
An unmanaged index consisting of 500 widely held U.S. common stocks. The stocks
in the index are chosen based on industry representation, liquidity and
stability. The index is designed to reflect the returns of many different
sectors of the U.S. economy.
LEHMAN BROTHERS AGGREGATE BOND INDEX
An index measuring the total return of approximately 6,500 U.S. bonds.
3
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
1998
8.29%
BEST QUARTER: Q4 1998 5.92%
WORST QUARTER: Q3 1998 -6.35%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
Inception
1 Year (4/16/97)
Balanced Fund 8.29% 17.47%
S&P 500 Stock Index 28.58% 30.43%
Lehman Brothers
Aggregate Bond Index 8.67% 10.18%
4
<PAGE>
INDEX FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide the return and risk characteristics of the S&P 500.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally holds at least 90% of the 500 securities in the S&P 500 and
attempts to match its holdings of each issue with that security's proportional
representation in the S&P 500.
The portfolio manager employs a "passively" managed - or index - investment
approach that attempts to replicate the performance of the index without
necessarily investing in all of its stocks. This approach is unlike traditional
methods of active investment management whereby securities are selected on the
basis of economic, financial and market analysis. The Fund seeks a quarterly
performance within one percentage point of the performance of the S&P 500. On a
regular basis, the portfolio manager compares the Fund's performance to that of
the S&P 500. The portfolio manager may adjust the Fund's holdings if the Fund's
performance does not adequately track the performance of the S&P 500.
Apart from its equity investments, the Fund may use S&P 500 STOCK INDEX FUTURES
CONTRACTS to reduce transactional costs and simulate full investment in
the S&P 500 while retaining a cash balance for portfolio management purposes.
WHAT IS THE FUND'S PRINCIPAL RISK? (See Risk Considerations, page 21.)
Market risk
Market segment risks
(Sidebar)
TERMS TO KNOW
S&P 500 STOCK INDEX FUTURES CONTRACTS
Agreements whereby one party agrees to accept, and the other party agrees to
deliver, a dollar amount based on the value of the S&P 500 on a specified future
date. Purchasers of index futures contracts may participate in the performance
of the securities included in the index without commiting the full amonut of
capital required to purchase all of the individual securities.
5
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
27.88% 32.51% 22.47% 36.62% 0.53% 9.23%
</TABLE>
BEST QUARTER: Q4 1998 19.57%
WORST QUARTER: Q3 1998 -10.03%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 5 Inception
Year Years (4/1/92)
Index Fund 27.88% 23.30% 19.64%
S&P 500 Stock Index 28.58% 24.06% 19.20%
*Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
6
<PAGE>
EQUITY INCOME FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide current income and, secondarily, capital appreciation.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in common stocks that can
be found in the S&P 500 or other attractive issues. These stocks are of larger
capitalization companies (i.e., companies with MARKET CAPITALIZATIONS in excess
of $1 billion).
The portfolio manager's approach should produce returns that are similar to
those of the S&P 500 and its corresponding sectors, yet with a higher level of
income.
The portfolio manager utilizes a disciplined investment process designed to
maintain a diversified portfolio of the equity securities of higher quality
companies.
The portfolio manager seeks securities with:
o Higher-than-average dividend yields
o Stronger-than-average growth characteristics
WHAT IS THE FUND'S PRINCIPAL RISK? (See Risk Considerations, page 21.)
Market risk
Market segment risk
(sidebar)
TERMS TO KNOW
MARKET CAPITALIZATION
The total market value of a company's outstanding shares of common stock,
calculated by multiplying the number of shares outstanding by the current market
price of the shares.
7
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998 1997 1996 1995 1994
22.66% 31.53% 17.62% 36.50% -0.66%
BEST QUARTER: Q4 1998 19.62%
WORST QUARTER: Q3 1998 -11.12%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 5 Inception
Year Years (1/1/94)
Equity Income Fund 22.66% 20.81% 20.79%
- -
S&P 500 Stock Index 28.58% 24.06% 24.04%
*Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
8
<PAGE>
EQUITY FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide capital appreciation and current income.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in common stocks. These
stocks are of larger capitalization companies (i.e., companies with MARKET
CAPITALIZATIONS in excess of $1 billion).
The portfolio manager selects stocks that represent sectors found within
the S&P 500 in an effort to:
o Provide greater returns, over the long-term, than the securities
comprising the S&P 500
o Maintain a risk level approximating that of the S&P 500
The Fund's portfolio consists of approximately 50 to 75 stocks, diversified
among major sectors of the market.
WHAT IS THE FUND'S PRINCIPAL RISK? (See Risk Considerations, page 21.)
Market risk
Market segment risk
(Sidebar)
TERMS TO KNOW
MARKET CAPITALIZATION see page 7.
9
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
13.42% 35.45% 24.15% 36.26% -2.05% 18.23% 8.19% 27.29% -7.87% 27.81%
</TABLE>
BEST QUARTER: Q4 1998 18.66%
WORST QUARTER: Q3 1998 -14.52%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- -
1 Year 5 Years 10 Years
Equity Fund 13.42% 20.55% 17.20%
S&P 500 Stock Index 28.58% 24.06% 19.20%
10
<PAGE>
GROWTH FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide capital appreciation.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in common stocks. These
stocks are of larger capitalization companies (i.e., companies with MARKET
CAPITALIZATIONS in excess of $1 billion).
The portfolio manager selects securities that are considered to be undervalued
and to represent growth opportunities. The Fund's investment management
discipline emphasizes growth in sales, earnings and asset values.
WHAT IS THE FUND'S PRINCIPAL RISK? (See Risk Considerations, page 21.)
Market risk
Market segment risk
Volatility risk
(Sidebar)
TERMS TO KNOW
MARKET CAPITALIZATION, see page 7.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998 1997 1996 1995 1994 1993
24.68% 32.54% 28.60% 36.16% -0.30% 5.96%
BEST QUARTER: Q4 1998 22.65%
WORST QUARTER: Q3 1998 -11.95%
11
<PAGE>
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
Inception
1 Year 5 Years (4/1/92)
Growth Fund 24.68% 23.60% 19.61%
S&P 500 Stock Index 28.58% 24.06% 19.20%
*Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
12
<PAGE>
SMALL-CAP VALUE FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide capital appreciation.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in the securities of
smaller capitalization companies (i.e., companies that fall in the lowest 15% of
publicly traded companies listed in the U.S. determined by MARKET
CAPITALIZATIONS). These securities tend to be represented in the Russell 2000
Index, an index of companies with a median market capitalization of $500
million, that is a popular measure of the stock price performance of
small companies.
Using a "value" approach, the portfolio manager buys those securities considered
to be conservatively valued relative to the securities of comparable companies.
The portfolio manager pays particular attention to a company's current and
forecasted earnings levels.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 21.)
Market risk
Small company risk
(Sidebar)
TERMS TO KNOW
MARKET CAPITALIZATION, see page 7.
13
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-4.15% 29.09% 14.50% 26.78% -3.44% 14.68% 15.95% 41.39% -16.52% 13.83%
</TABLE>
BEST QUARTER: Q1 1991 20.93%
WORST QUARTER: Q3 1990 -23.80%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Small-Cap Value Fund -4.15% 11.70% 12.00%
Russell 2000 Small
Stock Index -2.55% 11.86% 12.92%
*Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
14
<PAGE>
SMALL-CAP OPPORTUNITY FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide capital appreciation.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in the securities of
smaller capitalization companies (i.e., companies that fall in the lowest 15% of
publicly traded companies listed in the U.S. determined by MARKET
CAPITALIZATIONS). These securities tend to be represented in the Russell 2000
Index, an index of companies with a median market capitalization of $500
million, that is a popular measure of the stock price performance of
small companies.
The Fund invests in the securities of companies that the portfolio manager
believes have superior growth potential. In selecting securities, the portfolio
manager pays particular attention to companies offering potentially
above-average earnings, sales and asset value growth. The portfolio manager buys
those securities considered to be attractively valued relative to the securities
of comparable companies.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 21.)
Market risk
Small company risk
(Sidebar)
TERMS TO KNOW
MARKET CAPITALIZATIONS, see page 7.
15
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.99% 25.14% 18.53% 25.99% -3.96% 14.85% 18.71% 47.29% -11.79% 16.94%
</TABLE>
BEST QUARTER: Q1 1991 24.86%
WORST QUARTER: Q3 1990 -23.83%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Small-Cap Opportunity Fund 0.99% 12.63% 14.15%
Russell 2000 Small
Stock Index -2.55% 11.86% 12.92%
*Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
16
<PAGE>
INTERNATIONAL FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide capital appreciation. Current income is a secondary
objective.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in non-U.S. equity
securities. The Fund invests in at least three foreign countries to reduce risk.
The Fund invests in securities that the portfolio manager believes are
undervalued. When selecting securities, the portfolio manager pays particular
attention to the quality of a company's management, its growth prospects and
financial soundness.
The Fund may engage in foreign currency hedging transactions in an attempt to
minimize the effects of currency fluctuations on the Fund.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 21.)
Currency rate risk
Foreign risk
Foreign Year 2000 risk
Geographic concentration risk
Market risk
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-4.84% -5.21% 4.89% 3.87% 4.11% 24.36% -4.60% 11.77% -22.40% 11.40%
</TABLE>
BEST QUARTER: Q4 1998 13.46%
WORST QUARTER: Q3 1990 -19.83%
17
<PAGE>
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
International Fund -4.84% 0.46% 1.61%
MSCI EAFE Index 20.00% 9.19% 5.54%
*Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
18
<PAGE>
EMERGING MARKETS FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide capital appreciation.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in equity securities of
issuers located in EMERGING MARKET COUNTRIES. The portfolio manager selects
securities considered by the manager to be undervalued.
The Fund's investments reflect a broad cross-section of countries, industries
and companies.
When selecting securities, the portfolio manager pays particular attention to
the quality of a company's management, its growth prospects and financial
soundness.
The portfolio manager also evaluates such criteria as:
o Political climate of a country
o Interest rate and currency considerations
o Equity market valuations
The Fund may invest in certain debt securities when the portfolio manager
believes the potential for appreciation equals or exceeds that available from
investments in common stock.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 21.)
Currency rate risk
Foreign risk
Foreign Year 2000 risk
Geographic concentration risk
Market risk
(Sidebar)
TERMS TO KNOW
EMERGING MARKET COUNTRY
The World Bank and other international agencies define a developing country on
the basis of such factors as trade initiatives, per capita income and level of
industrialization. There are over 130 countries that are emerging or developing
under this standard and approximately 40 of these countries have stock markets.
Emerging market countries generally include every nation in the world except the
U.S., Canada, Japan, Australia, New Zealand and most nations located in Western
Europe.
19
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
1998
-31.50%
BEST QUARTER: Q4 1998 14.48%
WORST QUARTER: Q2 1998 -27.18%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
Inception
1 Year (10/21/97)
Emerging Markets Fund -31.50% -36.03%
MSCI Emerging
Markets Index -25.30% -23.10%
20
<PAGE>
RISK CONSIDERATIONS
All Fund investments are subject to risk and may decline in value. Each Fund's
exposure depends upon its specific investment practices. The amount and types of
risk vary depending on:
o The investment objective
o The Fund's ability to achieve its objective
o The markets in which the Fund invests
o The investments the Fund makes in those markets
o Prevailing economic conditions over the period of an investment
Please note that there are other circumstances that could adversely affect your
investment and prevent a Fund from achieving its objectives.
ALLOCATION RISK
The risk that the percentages of the Fund's assets invested in equities and
fixed income securities, respectively, will not be optimum for market conditions
at a given time.
COUNTERPARTY RISK
The risk that when a fund engages in repurchase, reverse repurchase, derivative,
when-issued, forward commitment, delayed settlement and securities lending
transactions with another party, it relies on the other party to consummate the
transaction and is subject to the risk of default by the other party. Failure of
the other party to consummate the transaction may result in the fund's incurring
a loss or missing an opportunity to obtain a price believed to be advantageous.
CURRENCY RATE RISK
The risk that fluctuations in the exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. Although a fund may
engage in foreign currency hedge transactions to help reduce this risk, those
transactions may not be effective or appropriate in particular situations nor,
of course, will they protect against declines in security values.
FOREIGN RISK
The risk that foreign securities may be more volatile in price than their
domestic counterparts, in part because of higher political and economic risks,
lack of reliable financial information and fluctuations in currency exchange
rates. These risks are usually higher in less developed countries.
FOREIGN YEAR 2000 RISK
The risk that companies in a country or a region cannot anticipate or manage
problems related to computer programs and the Year 2000, and that this will
adversely affect the value of securities issued by companies located in that
country or region.
GEOGRAPHIC CONCENTRATION RISK
The risk that, if a fund concentrates its investments in a single country or
region, its portfolio will be more susceptible to factors adversely affecting
issuers located in that country or region than would a more geographically
diverse portfolio of securities.
21
<PAGE>
MARKET RISK
The risk that the market value of a fund's investments will fluctuate as the
stock and bond markets fluctuate. Market risk may affect a single issuer,
industry or section of the economy or it may affect the market as a whole.
MARKET SEGMENT RISK
The risk that investments concentrated in one portion of the market (e.g., large
capitalization stocks or short-term government bonds) will underperform the
overall market.
SMALL COMPANY RISK
The risk that investments in smaller companies may be more volatile than
investments in larger companies, as smaller companies generally experience
higher growth and failure rates. The trading volume of smaller company
securities is normally lower than that of larger companies. Changes in the
demand for the securities of smaller companies generally have a disproportionate
effect on their market price, tending to make prices rise more in response to
buying demand and fall more in response to selling pressure.
VOLATILITY RISK
The risk that performance will be affected by unanticipated events (e.g.,
significant earnings shortfalls or gains, war, or political events) that cause
major price changes in individual securities or market sectors.
22
<PAGE>
The risks of investing in the various Funds are illustrated in the chart below.
<TABLE>
<CAPTION>
Balanced Index Equity Equity Growth Small-Cap Small-Cap International Emerging
Income Value Opportunity Markets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RISKS
Allocation *
Counterparty * * * * * * * * *
Credit * * *
Currency * * *
rate
Foreign * * * * * * * *
Foreign Year
2000 * *
Geographic
concentration * *
Interest * * *
rate
Leverage * * * * * * * * *
Market * * * * * * * * *
Market
segment * * * * * *
Prepayment * * *
Small * *
company
Volatility * * * * *
</TABLE>
23
<PAGE>
FEES AND EXPENSES
The tables below describe the fees and expenses that you will pay if you buy and
hold shares of the Harris Insight Equity Funds.
SHAREHOLDER FEES (fees paid directly from your investment)
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON REINVESTED DIVIDENDS None
REDEMPTION FEE None
EXCHANGE FEE None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets,
expressed as a % of average net assets)
<TABLE>
<CAPTION>
Equity Small-Cap Small-Cap Emerging
Balanced Index Income Equity Growth Value Opportunity International Markets
Fund Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
Advisory 0.60% 0.25% 0.70% 0.70% 0.90% 0.80% 1.00% 1.05% 1.25%
Fees(1)
Shareholder
Servicing
Fees 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25
Other
Expenses 0.38 0.21 0.26 0.19 0.21 0.25 0.21 0.28 0.83
Total
Operating
Expenses(1) 1.23% 0.71% 1.21% 1.14% 1.36% 1.30% 1.46% 1.58% 2.33%
</TABLE>
(1)Expenses are based on amounts incurred by the Funds during their most recent
fiscal year but do not reflect advisory fees waived by Harris Trust. After these
waivers, actual Fund advisory fees and total operating expenses for the fiscal
year ended December 31, 1998 were:
<TABLE>
<CAPTION>
Equity Small-Cap Small-Cap Emerging
Balanced Index Income Equity Growth Value Opportunity International Markets
Fund Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
Advisory
Fees 0.50% 0.24% 0.67% 0.70% 0.89% 0.74% 0.99% 1.05% 0.92%
Total
Operating
Expenses 1.13% 0.70% 1.18% 1.14% 1.35% 1.24% 1.45% 1.58% 2.00%
</TABLE>
24
<PAGE>
Customers of a financial institution, such as Harris Trust, may also be charged
certain fees or 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.
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the Harris
Insight Equity Funds to the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in a Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although your actual costs and the return on
your investment may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
Equity Small-Cap Small-Cap Emerging
Balanced Index Income Equity Growth Value Opportunity International Markets
Fund Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One Year $125 $73 $123 $116 $138 $132 $149 $161 $236
Three Years 390 227 384 362 431 412 462 499 727
Five Years 676 395 665 628 745 713 797 860 1,245
Ten Years 1,489 883 1,466 1,386 1,635 1,568 1,746 1,878 2,666
</TABLE>
25
<PAGE>
INTRODUCTION TO THE HARRIS INSIGHT FIXED INCOME FUNDS
The Harris Insight Fixed Income Funds invest primarily in bonds, which are debt
instruments that normally-
o Pay a set amount of interest on a regular basis
o Repay the face amount, or principal, at a stated future date
o Are issued by domestic and foreign corporations, federal and state
governments, and their agencies
WHY INVEST IN FIXED INCOME FUNDS?
Fixed income funds can play a key role in an investor's portfolio by offering:
o A reasonable level of current income
o A measure of price stability relative to equity fund investments
o In the case of tax-exempt funds, income that is generally free from
federal income tax
HOW DO FIXED INCOME FUNDS PROVIDE A STEADY STREAM OF INCOME?
Fixed income funds earn income on the underlying securities and pay this out to
the shareholders on a regular (e.g., monthly) basis.
WHAT CAUSES BOND VALUES TO CHANGE?
Investors should be aware that bonds will fluctuate in value for any of three
main reasons:
o A change in interest rates
o A change in economic conditions
o A change in the financial condition of the issuer
HOW DOES THE PRICE OF A BOND MOVE WITH INTEREST RATES?
When interest rates rise, bond prices fall - and vice versa. Changing interest
rates have a greater effect on bonds with longer maturities than on those with
shorter maturities. As a result, when prevailing interest rates rise, the prices
of long-term bonds decrease, to a greater degree than the prices of short-term
bonds. The reverse is true when interest rates fall.
HOW ARE BONDS GRADED?
Bond quality, or grade, refers to the creditworthiness (the ability to repay
debt) of the issuing organization. Higher ratings indicate better quality.
Independent rating services, such as Moody's Investors Service or Standard &
Poor's, publish and disseminate bond quality ratings on a regular basis.
HOW ARE SECURITIES SELECTED FOR THE HARRIS INSIGHT FIXED INCOME FUNDS?
The portfolio manager actively manages fixed income investments in pursuit of
attractive investment opportunities. The portfolio manager applies three key
tools in selecting securities:
o Analysis of economic and market conditions affecting the fixed income
markets, including forecasting the direction of interest rates
o Assessment of the yield advantages of different classes of bonds or
sectors of the bond market
o Assessment of the value offered, relative to other investment
opportunities, including an independent review of each issue's credit
quality
Based on this analysis, the portfolio manager endeavors to identify bonds
that appear:
o Undervalued relative to the market's expectations
o Positioned to benefit from anticipated changes in interest rates
26
<PAGE>
(Sidebar)
Shares of the Harris Insight Fixed Income Funds are not bank deposits and are
not insured or guaranteed by the FDIC or any other government agency. The value
of your investment in a Fund will fluctuate, which means that you may lose
money.
Each Fund's primary investment practices and strategies are discussed in this
prospectus. Other practices, and their related risks, are described in the
statement of additional information. The investment objective of each Fund is
not fundamental and may be changed by the Board of Directors or Trustees without
approval by the Fund's shareholders.
Each Fund's principal risks are provided in an alphabetical listing within the
Fund description that follows. These risks are discussed in detail under "Risk
Considerations" on page 40.
27
<PAGE>
CONVERTIBLE SECURITIES FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide capital appreciation and current income.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in CONVERTIBLE SECURITIES
(bonds, preferred stock and other instruments that are convertible into common
stock).
The Fund also may invest up to 35% of its assets in SYNTHETIC CONVERTIBLES and
15% of its assets in common stocks. When, in the portfolio manager's opinion,
convertible securities do not serve the Fund's objective, the Fund may invest
part or all of its assets in U.S. GOVERNMENT SECURITIES, corporate debt
obligations and short-term money market instruments. The portfolio manager will
continue to seek current income during such periods, but will put less emphasis
on capital appreciation.
The portfolio manager invests primarily in convertible securities rated "B" or
better by Standard & Poor's Corporation and Moody's Investors Service, Inc. (or,
if not rated, securities considered by the portfolio manager to be of comparable
quality). The Fund may also invest up to:
o 15% of its assets in securities rated "B-"
o 5% of its assets in convertible securities rated "CCC" by Standard &
Poor's or "Caa" by Moody's. (Securities rated "BB" or below by Standard
& Poor's or "Ba" or below by Moody's are "high yield" securities,
commonly known as "junk bonds." These securities are considered
speculative and are subject to increased risk.)
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 40.)
Credit risk
Interest rate risk
Market risk
28
<PAGE>
(Side Bar)
TERMS TO KNOW
CONVERTIBLE SECURITIES
Bonds, debentures, notes, preferred stock or other securities that are
convertible into common stock. Convertible securities have some unique return
characteristics relative to market fluctuations:
o When equity markets go up, they tend to rise in price
o When interest rates rise, they tend to decline relatively less in
price than long-term bonds
SYNTHETIC CONVERTIBLES
Issues that function like a convertible security by combining separate
securities into one investment package offering fixed income and the right to
acquire stock.
U.S. GOVERNMENT SECURITIES
Obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-2.04% 18.32% 20.77% 18.93% -3.36% 13.52% 17.31% 26.90% -20.62% 12.87%
</TABLE>
BEST QUARTER: Q1 1991 14.95%
WORST QUARTER: Q3 1990 -17.71%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Convertible Securities Fund -2.04% 9.98% 9.31%
First Boston
Convertible Index 6.55% 10.82% 12.29%
*Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
29
<PAGE>
TAX-EXEMPT BOND FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide a high level of current income that is exempt from
federal income tax.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 80% of its assets in MUNICIPAL SECURITIES
with varying maturities. These securities are generally exempt from federal
income tax and not subject to the ALTERNATIVE MINIMUM TAX.
The portfolio manager employs:
o Interest rate risk management techniques to temper the potential
negative impact of interest rate increases on the Fund's share price
o In-depth credit analysis to help ensure that the municipalities
issuing the bonds are likely to repay their debt
The Fund also may invest in U.S. GOVERNMENT SECURITIES and securities with
various forms of credit enhancement (such as bank letters of credit). The Fund
may buy and sell options and interest rate futures contracts to hedge against
declines in the value of portfolio securities.
In pursuit of higher income, the portfolio manager normally favors longer-term
bonds that typically mature in ten years or more. In exchange for this higher
potential income, investors may experience higher share price volatility than
would occur through investments with shorter maturities.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 40.)
Credit risk
Interest rate risk
Municipal market risk
(Sidebar)
TERMS TO KNOW
ALTERNATIVE MINIMUM TAX (AMT)
A federal tax designed to ensure that wealthy individuals, trusts, estates and
companies pay at least some income tax.
MUNICIPAL SECURITIES
Bonds and other obligations issued by state and local governments to finance
operations or projects. These securities make interest payments that are exempt
from federal income tax.
U.S. GOVERNMENT SECURITIES, see page 29.
30
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.62% 8.28% 3.43% 14.16% -7.53% 12.67% 8.09% 11.34% 5.34% 10.59%
</TABLE>
BEST QUARTER: Q2 1989 6.39%
WORST QUARTER: Q1 1994 -5.15%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Tax-Exempt Bond Fund 4.62% 4.34% 6.93%
Lehman Brothers 6.48% 6.22% 8.22%
Municipal Bond Index
*Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
31
<PAGE>
BOND FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide a high level of total return, including a competitive
level of current income.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in bonds and similar fixed
income securities.
The Fund may invest in the following:
o Bonds and debentures
o U.S. GOVERNMENT SECURITIES
o Debt obligations of foreign governments
o MORTGAGE-BACKED SECURITIES
o MUNICIPAL SECURITIES
o ZERO COUPON SECURITIES
o Other floating/variable rate obligations
o Options and interest-rate futures contracts
The Fund normally maintains a WEIGHTED AVERAGE MATURITY (or average life with
respect to mortgage-backed and asset-backed securities) of between five and ten
years. Accordingly, the Fund's holdings may experience more share price
volatility than bonds with shorter maturities, making the Fund a more suitable
investment for long-term investors.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 40.)
Credit risk
Interest rate risk
Prepayment risk
(Sidebar)
TERMS TO KNOW
U.S. GOVERNMENT SECURITIES, see page 29.
MORTGAGE-BACKED SECURITIES
Debt issues, based on a pool of underlying mortgages, that make interest and
principal payments to investors.
MUNICIPAL SECURITIES, see page 30.
32
<PAGE>
ZERO COUPON SECURITIES
Securities that do not pay a stated interest rate, but are sold at a deep
discount to their value at maturity. The difference between its discounted price
and the full value of the security at maturity represents the payment of
interest.
WEIGHTED AVERAGE MATURITY
An average of all of the maturities of a fund's securities holdings, weighted
according to each security's dollar value relative to the rest of the holdings.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
1998 1997
6.86% 9.14%
BEST QUARTER: Q3 1997 3.61%
WORST QUARTER: Q1 1997 -0.93%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
Inception
1 Year (4/22/96)
Bond Fund 6.86% 7.88%
Lehman Brothers
Aggregate Bond Index 8.67% 9.07%
33
<PAGE>
INTERMEDIATE TAX-EXEMPT BOND FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide a high level of current income that is exempt from
federal income tax.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 80% of its assets in a broad range of
MUNICIPAL SECURITIES. These securities are generally exempt from federal income
tax and not subject to the ALTERNATIVE MINIMUM TAX.
Under normal market conditions, the Fund's investments will have a WEIGHTED
AVERAGE MATURITY in a range of three to ten years. Such intermediate-term
securities share these basic characteristics:
o They offer a higher income stream and somewhat higher share price
volatility than shorter-term municipal bond funds
o They tend to deliver less income with greater share price stability
than longer-term bond funds
The Fund also may invest in U.S. GOVERNMENT SECURITIES and securities with
various forms of credit enhancement (such as bank letters of credit). The Fund
may buy and sell options and interest rate futures contracts to hedge against
declines in value of portfolio securities.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 40.)
Credit risk
Interest rate risk
Municipal market risk
(Sidebar)
TERMS TO KNOW
MUNICIPAL SECURITIES, see page 30.
ALTERNATIVE MINIMUM TAX, see page 30.
WEIGHTED AVERAGE MATURITY, see page 33.
U.S. GOVERNMENT SECURITIES, see page 29.
34
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.67% 6.14% 2.80% 11.40% -3.33% 8.28% 6.50% 10.75% 6.08% 7.84%
</TABLE>
BEST QUARTER: Q2 1989 4.66%
WORST QUARTER: Q1 1994 -2.89%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Intermediate Tax-Exempt Bond
Fund 4.67% 4.23% 6.04%
Lehman Brothers Quality
Intermediate Municipal Bond
Index 6.00% 5.59% N/A **
*Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
**The inception date of the Lehman Brothers Quality Intermediate Municipal Bond
Index is July 1, 1993.
35
<PAGE>
SHORT/INTERMEDIATE BOND FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide a high level of total return, including a competitive
level of current income.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets primarily in bonds with a
short/intermediate-term average maturity.
The portfolio manager favors bonds with two to five years remaining to maturity
in order to achieve relative price stability and an attractive stream of income.
Such short/intermediate-term bonds tend to offer a buffer against rising
interest rates, although they will appreciate less when interest rates fall.
The Fund normally maintains a WEIGHTED AVERAGE MATURITY (or average life with
respect to mortgage-backed and asset-backed securities) of between two and five
years. The Fund may invest in:
o Bonds and debentures
o U.S. GOVERNMENT SECURITIES
o U.S. dollar-denominated debt obligations of foreign issuers
o MORTGAGE-BACKED SECURITIES
o MUNICIPAL SECURITIES
o ZERO COUPON SECURITIES
o Other floating/variable rate obligations
o Options and interest-rate futures contracts
If a defensive position is warranted, the Fund may hold short-term U.S.
government securities (such as Treasury bills), high-quality money market
instruments and cash.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 40.)
Credit risk
Interest rate risk
Prepayment risk
36
<PAGE>
(Sidebar)
TERMS TO KNOW
U.S. GOVERNMENT SECURITIES, see page 29.
MORTGAGE-BACKED SECURITIES, see page 32.
MUNICIPAL SECURITIES, see page 30.
ZERO COUPON SECURITIES, see page 33.
WEIGHTED AVERAGE MATURITY, see page 33.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
1998 1997 1996 1995 1994 1993 1992
6.75% 6.89% 3.51% 13.88% -1.29% 9.91% 5.28%
BEST QUARTER: Q3 1992 4.62%
WORST QUARTER: Q4 1992 -2.13%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
Inception
1 Year 5 Years (4/1/91)
Short/Intermediate 6.75% 5.83% 7.12%
Bond Fund
Lehman Brothers
Intermediate Government
Corporate
Bond Index 8.42% 6.59% 8.65%
37
<PAGE>
INTERMEDIATE GOVERNMENT BOND FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide a high level of current income, consistent with
preservation of capital.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in:
o U.S. GOVERNMENT SECURITIES
o MORTGAGE-BACKED SECURITIES, issued by U.S. government agencies
o REPURCHASE AGREEMENTS collateralized by U.S. government securities
The WEIGHTED AVERAGE MATURITY (or average life with respect to mortgage-backed
and asset-backed securities) generally will be in the intermediate range of
between three and ten years.
The portfolio manager may invest up to 20% of the Fund's assets in:
ASSET-BACKED SECURITIES
ZERO COUPON SECURITIES
Corporate bonds
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 40.)
Credit risk
Interest rate risk
Prepayment risk
(Sidebar)
TERMS TO KNOW
U.S. GOVERNMENT SECURITIES, see page 29.
MORTGAGE-BACKED SECURITIES, see page 32.
REPURCHASE AGREEMENTS
A binding agreement enabling a bank or broker to borrow money, using securities
as collateral, with a promise to buy back the securities at a specified price,
usually within 90 days.
WEIGHTED AVERAGE MATURITY, see page 33.
ASSET-BACKED SECURITIES
Securities collateralized by credit card loans or other accounts receivable.
ZERO COUPON SECURITIES, see page 38.
39
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.18% 7.56% 3.86% 13.09% -1.93% 8.10% 6.49% 13.30% 8.92% 12.03%
</TABLE>
BEST QUARTER: Q2 1989 6.29%
WORST QUARTER: Q1 1994 -2.21%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Intermediate Government Bond
Fund 7.18% 5.84% 7.77%
Lehman Brothers
Intermediate Government Bond
Index 8.48% 6.45% 8.34%
*Prior to the Fund commencing operations, Harris Trust managed a collective or
common investment fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor fund for periods before it became a mutual
fund. The predecessor fund's performance was adjusted to reflect the Fund's
estimate of its expense ratio for the first year of operations as a mutual fund,
including any applicable sales load. The predecessor fund was not registered
under the Investment Company Act of 1940 nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Act and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results.
39
<PAGE>
RISK CONSIDERATIONS
All Fund investments are subject to risk and may decline in value. Each Fund's
exposure depends upon its specific investment practices. The amount and types of
risk vary depending on:
o The investment objective
o The Fund's ability to achieve its objective
o The markets in which the Fund invests
o The investments the Fund makes in those markets
o Prevailing economic conditions over the period of an investment
Please note that there are other circumstances that could adversely affect your
investment and prevent a Fund from achieving its objectives.
COUNTERPARTY RISK
The risk that when a fund engages in repurchase, reverse repurchase, derivative,
when-issued, forward commitment, delayed settlement and securities lending
transactions with another party, it relies on the other party to consummate the
transaction and is subject to the risk of default by the other party. Failure of
the other party to consummate the transaction may result in the fund's incurring
a loss or missing an opportunity to obtain a price believed to be advantageous.
CREDIT RISK
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise be unable to honor a financial obligation. Debt securities
rated below investment-grade are especially susceptible to this risk.
INTEREST RATE RISK
The risk that changing interest rates may adversely affect the value of an
investment. With fixed-rate securities, an increase in prevailing interest rates
typically causes the value of those securities to fall, while a decline in
prevailing interest rates may produce an increase in the market value of the
securities. Changes in interest rates will affect the value of longer-term fixed
income securities more than shorter-term securities and lower quality securities
more than higher quality securities.
40
<PAGE>
MARKET RISK
The risk that the market value of a fund's investments will fluctuate as the
stock and bond markets fluctuate. Market risk may affect a single issuer,
industry or section of the economy or it may affect the market as a whole.
MUNICIPAL MARKET RISK
The risk that certain factors may negatively affect the value of municipal
securities, and, as a result, the share price of a fund that invests in them.
These factors include political or legislative changes, uncertainties related to
the tax status of the securities or the rights of investors in the securities. A
fund may invest in municipal obligations that are related in such a way (e.g.
multiple apparently unrelated issues that depend on the financial rating or
support of a single government unit) that an economic, business or political
development or change that affects one of these obligations would also affect
the other obligations.
PREPAYMENT RISK
The risk that issuers will prepay fixed rate obligations when interest rates
fall, forcing a fund to re-invest in obligations with lower interest rates than
the original obligations.
41
<PAGE>
The risks of investing in the various Funds are illustrated in the chart below.
<TABLE>
<CAPTION>
Convertible Tax-Exempt Bond Intermediate Tax- Short Intermediate Intermediate Gov.
Securities Bond Exempt Bond Bond Bond
<S> <C> <C> <C> <C> <C> <C>
RISKS
Counterparty * * * * * *
Credit * * * * * *
Foreign * * * *
Interest * * * * * *
rate
Leverage * * * * * *
Market * * * * * *
Market
segment * *
Municipal * * *
market
Prepayment * * * * *
</TABLE>
42
<PAGE>
FEES AND EXPENSES
The tables below describe the fees and expenses that you will pay if you buy and
hold shares of the Harris Insight Fixed Income Funds.
SHAREHOLDER FEES (fees paid directly from your investment)
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON REINVESTED DIVIDENDS None
REDEMPTION FEE None
EXCHANGE FEE None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets,
expressed as a % of average net assets)
<TABLE>
<CAPTION>
Convertible Intermediate Intermediate
Securities Tax-Exempt Bond Tax-Exempt Short/Intermediate Government
Fund Bond Fund Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
Investment
Advisory
Fees(1) 0.70% 0.60% 0.65% 0.60% 0.70% 0.65%
Shareholder
Servicing
Fees 0.25 0.25 0.25 0.25 0.25 0.25
Other
Expenses 0.31 0.20 0.23 0.20 0.20 0.26
Total
Operating
Expenses(1) 1.26% 1.05% 1.13% 1.05% 1.15% 1.16%
</TABLE>
(1)Expenses are based on amounts incurred by the Funds during their most recent
fiscal year but do not reflect advisory fees waived by Harris Trust. After these
waivers, actual Fund advisory fees and total operating expenses for the fiscal
year ended December 31, 1998 were:
<TABLE>
<CAPTION>
Convertible Intermediate Intermediate
Securities Tax-Exempt Bond Tax-Exempt Short/Intermediate Government
Fund Bond Fund Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
Investment
Advisory
Fees 0.61% 0.59% 0.37% 0.60% 0.40% 0.24%
Total
Operating
Expenses 1.17% 1.04% 0.85% 1.05% 0.85% 0.75%
</TABLE>
43
<PAGE>
Customers of a financial institution, such as Harris Trust, may also be charged
certain fees or 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.
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the Harris
Insight Fixed Income Funds to the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in a Fund for the time periods indicated
and then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although your actual costs and the return on
your investment may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
Convertible Intermediate Intermediate
Securities Tax-Exempt Bond Tax-Exempt Short/Intermediate Government
Fund Bond Fund Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
One Year $128 $107 $115 $107 $117 $118
Three Years 400 334 359 334 365 368
Five Years 692 579 622 579 633 638
Ten Years 1,523 1,283 1,375 1,283 1,398 1,409
</TABLE>
44
<PAGE>
INTRODUCTION TO THE HARRIS INSIGHT MONEY MARKET FUNDS
The Harris Insight Money Market Funds offer investors the opportunity to derive
income from a portfolio of money market instruments with a stable net asset
value. They invest in short-term securities issued by banks, other U.S.
corporations, the U.S. government, state or local governments, and other
entities. These money market instruments may include certificates of deposit,
bankers' acceptances, variable rate demand notes, fixed-term obligations,
COMMERCIAL PAPER, ASSET-BACKED SECURITIES and REPURCHASE AGREEMENTS.
WHY INVEST IN MONEY MARKET FUNDS?
These funds are especially well-suited for conservative investors who seek -
o Current income
o Stability of principal (they are managed in an attempt to maintain a
share price of $1.00)
o Checkwriting privileges permitting access to
your money at any time
WHAT ARE THE FUNDS' INVESTMENT PARAMETERS?
Money market funds must conform to a number of regulations, including rules that
require each fund to-
o Limit the WEIGHTED AVERAGE MATURITY of their investments to
90 days or less
o Buy only high quality, short-term money market instruments
o Buy securities with remaining maturities no longer than 397 days
HOW ARE SECURITIES SELECTED FOR THE HARRIS INSIGHT MONEY MARKET FUNDS?
Two key tools are applied when selecting short-term securities for the money
market funds:
o Independent review of each issue's credit quality
o Analysis of economic and market conditions
The portfolio manager endeavors to identify money market instruments that
appear to-
o Have minimal credit risk
o Be positioned to benefit from anticipated changes in interest rates
(Sidebar)
TERMS TO KNOW
COMMERCIAL PAPER
Short-term securities that are issued by corporations and other borrowers to
finance their current obligations and are typically unsecured. Issues of
commercial paper normally have maturities of less than nine months and have
fixed rates of return.
ASSET-BACKED SECURITIES, see page 38.
REPURCHASE AGREEMENTS, see page 38.
WEIGHTED AVERAGE MATURITY, see page 33.
45
<PAGE>
Shares of the Harris Insight Money Market Funds are not bank deposits and are
not guaranteed or insured by any bank, government entity, or the FDIC. Although
each of the Harris Insight Money Market Funds seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by investing in
a Fund.
Each Fund's primary investment practices and strategies are discussed in this
prospectus. Other practices, and their related risks, are described in the
statement of additional information. The investment objective of each Fund is
not fundamental and may be changed by the Board of Directors or Trustees without
approval by the Fund's shareholders.
Each of the Funds' principal risks is provided in an alphabetical listing within
the Fund description. These risks are discussed in detail under "Risk
Considerations" on page 40.
46
<PAGE>
TAX-EXEMPT MONEY MARKET FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide 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.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 80% of its assets in high-quality, short-term
money market instruments that are generally exempt from federal income tax and
are not subject to the ALTERNATIVE MINIMUM TAX.
The Fund will invest primarily in high-quality MUNICIPAL SECURITIES that are
generally exempt from federal income taxes and will purchase only U.S.
dollar-denominated securities.
In addition, the Fund will purchase only securities (other than U.S. GOVERNMENT
SECURITIES) that have been rated within the two highest rating categories by at
least two nationally recognized rating agencies (or, if not rated, are
considered by the portfolio manager to be of comparable quality).
Depending on market conditions, the Fund may temporarily hold up to 20% of the
current value of its assets in securities whose interest income is subject to
taxation.
Current income generally will be lower than the income provided by funds that
invest in securities with taxable income or securities with longer maturities or
lower quality.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 52.)
Credit risk
Municipal market risk
Principal stability risk
(Sidebar)
TERMS TO KNOW
ALTERNATIVE MINIMUM TAX (AMT)
A federal tax designed to ensure that wealthy individuals, trusts, estates and
companies pay at least some income tax.
MUNICIPAL SECURITIES
Bonds and other obligations issued by state and local governments to finance
operations or projects. These securities make interest payments that are exempt
from federal income tax.
47
<PAGE>
U.S. GOVERNMENT SECURITIES
Obligations issued or guaranteed by the U.S. government, its agencies,
instrumentalities or sponsored enterprises.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3.02% 3.17% 2.94% 3.31% 2.30% 1.99% 2.54% 4.16% 5.51% 5.91%
</TABLE>
BEST QUARTER: Q2 1989 2.23%
WORST QUARTER: Q2 1993 0.63%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year 5 Years 10 Years
Tax-Exempt Money Market Fund 3.02% 2.95% 3.48%
As of December 31, 1998, the seven-day yield for the Fund was 3.02%. As of the
same date, the effective tax-equivalent seven-day yield for the Fund was 4.26%.
For current yield information, please call 800.982.8782.
48
<PAGE>
MONEY MARKET FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide as high a level of current income as is consistent
with its investment policies and with preservation of capital and liquidity.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund invests only in high-quality, short-term money market instruments that,
in the opinion of the investment adviser, present minimal credit risks. The Fund
invests in a broad range of short-term money market instruments, including U.S.
GOVERNMENT SECURITIES, as well as bank and commercial obligations. 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 will purchase only U.S. dollar-denominated securities. In addition, the
Fund will purchase only securities (other than U.S. government securities) that
have been rated within the two highest rating categories by at least two
nationally recognized rating agencies (or, if not rated, are considered by the
portfolio manager to be of comparable quality). No more than 5% of the Fund's
assets will be invested in securities in the second highest rating category.
Current income generally will be lower than the income provided by funds that
invest in securities with longer maturities or lower quality.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 52.)
Credit risk
Foreign risk
Principal stability risk
(Sidebar)
TERMS TO KNOW
U.S. GOVERNMENT SECURITIES, see page 29.
COMMERCIAL PAPER, see page 45.
49
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.25% 5.35% 5.11% 5.58% 3.79% 2.69% 3.41% 5.87% 7.94% 9.01%
</TABLE>
BEST QUARTER: Q2 1989 2.30%
WORST QUARTER: Q2 1993 0.65%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year 5 Years 10 Years
Money Market Fund 5.25% 5.01% 5.38%
As ofDecember 31, 1998, the seven-day yield for the Fund was 4.91%. For current
yield information, please call 800.982.8782.
50
<PAGE>
GOVERNMENT MONEY MARKET FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide as high a level of current income from government
obligations as is consistent with preservation of capital and liquidity.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund invests exclusively in short-term securities issued by the U.S.
government, its agencies or instrumentalities and repurchase agreements backed
by those securities, all of which are deemed to be of minimal credit risk by the
investment adviser.
Current income generally will be lower than the income provided by funds that
invest in securities with longer maturities or lower quality.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 52.)
Credit risk
Principal stability risk
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.08% 5.17% 5.00% 5.51% 3.72% 2.62% 3.42% 5.67% 7.78% 8.80%
</TABLE>
BEST QUARTER: Q2 1989 2.23%
WORST QUARTER: Q2 1993 0.63%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year 5 Years 10 Years
Government Money Market Fund 5.08% 4.89% 5.26%
As of December 31, 1998, the seven-day yield for the Fund was 4.57%. For current
yield information, please call 800.982.8782.
52
<PAGE>
RISK CONSIDERATIONS
All Fund investments are subject to risk and may decline in value. Each Fund's
exposure depends upon its specific investment practices. The amount and types of
risk vary depending on:
o The investment objective
o The Fund's ability to achieve its objective
o The markets in which the Fund invests
o The investments the Fund makes in those markets
o Prevailing economic conditions over the period of an investment
Please note that there are other circumstances that could adversely affect your
investment and prevent a Fund from achieving its objectives.
COUNTERPARTY RISK
The risk that when a fund engages in repurchase, reverse repurchase, derivative,
when-issued, forward commitment, delayed settlement and securities lending
transactions with another party, it relies on the other party to consummate the
transaction and is subject to the risk of default by the other party. Failure of
the other party to consummate the transaction may result in the fund's incurring
a loss or missing an opportunity to obtain a price believed to be advantageous.
CREDIT RISK
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise be unable to honor a financial obligation. Debt securities
rated below investment-grade are especially susceptible to this risk.
FOREIGN RISK
The risk that foreign securities may be more volatile in price than their
domestic counterparts, in part because of higher political and economic risks,
lack of reliable financial information and fluctuations in currency exchange
rates. These risks are usually higher in less developed countries.
52
<PAGE>
MARKET SEGMENT RISK
The risk that investments concentrated in one portion of the market (e.g., large
capitalization stocks or short-term government bonds) will underperform the
overall market.
MUNICIPAL MARKET RISK
The risk that certain factors may negatively affect the value of municipal
securities, and, as a result, the share price of a fund that invests in them.
These factors include political or legislative changes, uncertainties related to
the tax status of the securities or the rights of investors in the securities. A
fund may invest in municipal obligations that are related in such a way (e.g.
multiple apparently unrelated issues that depend on the financial rating or
support of a single government unit) that an economic, business or political
development or change that affects one of these obligations would also affect
the other obligations.
PRINCIPAL STABILITY RISK
The risk that a money market fund may not be able to maintain a stable net asset
value of $1.00 per share.
53
<PAGE>
The risks of investing in the various Funds are illustrated in the chart below.
Tax-Exempt Money Market Government
Money Market Money Market
RISKS
Counterparty * * *
Credit * * *
Foreign *
Municipal *
market
Principal * * *
stability
54
<PAGE>
FEES AND EXPENSES
The tables below describe the fees and expenses that you will pay if you buy and
hold shares of the Harris Insight Money Market Funds.
SHAREHOLDER FEES (fees paid directly from your investment)
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON REINVESTED DIVIDENDS None
REDEMPTION FEE None
EXCHANGE FEE None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets,
expressed as a % of average net assets)
Tax-Exempt Money Government Money
Money Market Fund Market Fund Market Fund
Investment 0.10% 0.10% 0.11%
Advisory Fee
Rule 0.10 0.10 0.10
12b-1 Fees(1)
Shareholder Servicing Fees 0.25 0.25 0.25
Other Expenses(1) 0.13 0.14 0.13
Total Operating Expenses(1) 0.58% 0.59% 0.59%
(1)Expenses are based on amounts incurred by the Funds during their most recent
fiscal year but do not reflect reduced Rule 12b-1 fees or expense reductions
(expense reimbursements and fee waivers) by Harris Trust. After these
reductions, actual Rule 12b-1 fees and total operating and other expenses of
the Funds for the fiscal year ended December 31, 1998 were:
Tax-Exempt Money Government Money
Money Market Fund Market Market Fund
Fund
Rule 12b-1 Fees 0.07% 0.09% 0.10%
Other Expenses 0.13 0.09 0.08
Total Operating Expenses 0.55% 0.53% 0.54%
55
<PAGE>
Customers of a financial institution, such as Harris Trust, may also be charged
certain fees or 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.
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the Harris
Insight Money Market Funds to the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in a Fund for the time periods indicated
and then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although your actual costs and the return on
your investment may be higher or lower, based on these assumptions your costs
would be:
Tax-Exempt Money Government Money
Money Market Fund Market Market Fund
Fund
One Year $59 $60 $60
Three Years 186 189 189
Five Years 324 329 329
Ten Years 726 738 738
56
<PAGE>
YEAR 2000
The services provided by the Funds' investment adviser, portfolio management
agent, investment sub-adviser, sub-administrators, distributor, transfer agent
and custodian (the "Service Providers"), depend on the smooth functioning of
their computer systems. Many computer software systems in use today cannot
recognize the year 2000, but revert to 1900 or 1980, due to the manner in which
dates were encoded and calculated. That failure could have a negative impact on
the handling of securities trades, pricing and account services. Each of the
Service Providers has advised the Funds that it has been actively working on
necessary changes to its own computer systems to deal with the year 2000, and
expects that its systems will be adapted before that date. However, there can be
no assurance that they will be successful or that interaction with other
noncomplying computer systems will not impair their services at that time. In
addition, the Funds are also subject to similar risks with respect to issuers of
securities in which the Funds invest.
INVESTMENT ADVISER
Harris Trust and Savings Bank (Harris Trust), an Illinois state-chartered bank
and a member of the Federal Reserve System, is the investment adviser for each
of the Harris Insight Funds. Harris Trust is the successor to the investment
banking firm of N.W. Harris & Co, which was organized in 1882 and incorporated
in 1907. At December 31, 1998, Harris Trust had total discretionary assets under
management of approximately $19.4 billion and was the largest of 28 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,
1998, Harris Trust managed more than $14.5 billion in discretionary personal
trust assets, and administered more than $17.2 billion in non-discretionary
trust assets.
Harris Trust oversees the PORTFOLIO MANAGEMENT AGENT and the INVESTMENT
SUB-ADVISER.
ADVISORY FEES
The following chart shows the investment advisory fees paid, before fee waivers,
by each Fund during its last fiscal year.
MANAGEMENT FEES PAID (expressed as a percentage of average net assets)
Balanced Fund.. ..................................... 0.60%
Index Fund........................................... 0.25
Equity Income Fund....................................0.70
Equity Fund.......................................... 0.70
Growth Fund...........................................0.90
Small-Cap Value Fund..................................0.80
Small-Cap Opportunity Fund............................1.00
International Fund....................................1.05
Emerging Markets Fund.................................1.25
Intermediate Government Bond Fund.....................0.65
Short/Intermediate Bond Fund..........................0.70
Intermediate Tax-Exempt Bond Fund.....................0.60
Bond Fund.............................................0.65
Tax-Exempt Bond Fund .................................0.60
Convertible Securities Fund...........................0.70
57
<PAGE>
Government Money Market Fund, Money Market Fund and Tax-Exempt Money Market
Fund: 0.14% of each Fund's first $100 million of net assets plus 0.10% of the
Fund's remaining net assets.
Harris Trust may waive any portion of its investment advisory fees or reimburse
Fund expenses from time to time. These arrangements are voluntary and may be
terminated at any time.
PORTFOLIO MANAGEMENT AGENT
As the portfolio management agent, Harris Investment Management, Inc. (HIM)
manages the investments of all of the Funds EXCEPT the Tax-Exempt Money Market
Fund and, in the case of the International Fund and the Emerging Markets Fund,
HIM has appointed Hansberger Global Investors, Inc. as the investment
sub-adviser. HIM is a wholly-owned subsidiary of Harris Bankcorp, Inc. For the
services provided by HIM to the Funds for which it serves as portfolio
management agent, Harris Trust pays HIM the advisory fees Harris Trust receives
from those Funds. As of December 31, 1998, HIM managed approximately $14.9
billion in assets.
INVESTMENT SUB-ADVISER
Hansberger Global Investors, Inc. (Hansberger) serves as investment sub-adviser
to, and makes all investment decisions for, the International Fund and the
Emerging Markets Fund. Hansberger, founded in 1994, provides a broad range of
portfolio management services to clients in the U.S. and abroad. As of December
31, 1998, Hansberger managed approximately $2.1 billion in assets. Hansberger is
paid for its investment sub-advisory services from the advisory fees HIM
receives from Harris Trust.
Many persons on the staffs of the investment adviser, portfolio management agent
and investment sub-adviser 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.
(Sidebar)
INVESTMENT ADVISER
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 60690
INVESTMENT SUB-ADVISER
Hansberger Global Investments, Inc., 515 East Las Olas Blvd., Suite 1300,
Fort Lauderdale, Florida 33301
58
<PAGE>
PORTFOLIO MANAGERS OF THE HARRIS INSIGHT EQUITY FUNDS
BALANCED FUND
C. THOMAS JOHNSON, CFA, SENIOR PARTNER AND PORTFOLIO MANAGER (HIM)
Mr. Johnson joined Harris Trust in 1969. He has served as Portfolio Manager of
the Fund since it commenced operations in 1997 and has 29 years of experience in
portfolio management.
EQUITY INCOME FUND
DANIEL L. SIDO, SENIOR PARTNER AND PORTFOLIO MANAGER (HIM)
Prior to joining HIM in 1994, Mr. Sido served as Portfolio Manager for a trust
company, managing equity and fixed income portfolios. He has served as Portfolio
Manager of the Fund since it commenced operations in 1996 and has over 15 years
of investment management experience.
EQUITY FUND
DONALD G. M. COXE, CHAIRMAN AND CHIEF STRATEGIST (HIM)
Mr. Coxe joined HIM in 1993. He has served as Portfolio Manager of the Fund
since 1996 and has nearly 31 years of institutional investment management
experience.
GROWTH FUND
JAMES E. DEPIES, CFA, SENIOR PARTNER AND PORTFOLIO MANAGER (HIM)
Mr. Depies joined Harris Trust in 1981 and has served as Portfolio Manager of
the Fund since it commenced operations in 1996 and has 38 years of investment
management experience.
INDEX FUND
SMALL-CAP VALUE FUND
SMALL-CAP OPPORTUNITY FUND
THOMAS M. CORKILL, CFA, PARTNER AND PORTFOLIO MANAGER (HIM)
Mr. Corkill joined Harris Trust in 1982 and has 29 years of experience in
portfolio management and research. He was appointed Portfolio Manager of:
o Index Fund when it commenced operations in 1996
o Small-Cap Value Fund when it commenced operations in 1997
o Small-Cap Opportunity Fund in 1998
INTERNATIONAL FUND
JAMES E. CHANEY, CHIEF INVESTMENT OFFICER (HANSBERGER)
Prior to joining Hansberger in 1996, Mr. Chaney was Executive Vice
President of Templeton Worldwide Inc. and a senior member of its Portfolio
Management/Strategy Committee. While at Templeton, he managed numerous accounts,
including the Foreign Equity Series of Templeton Institutional Funds Inc. He
leads the International Fund's portfolio team, which includes:
John Carl Fenley, CFA, Research Analyst, Global Equities
Victoria Gretzky, Research Analyst
John Hock, Research Analyst
59
<PAGE>
EMERGING MARKETS FUND
THOMAS L. HANSBERGER, CHAIRMAN AND CHIEF EXECUTIVE OFFICER (HANSBERGER)
Before forming Hansberger in 1994, Mr. Hansberger was Chairman, President and
Chief Executive Officer of Templeton Worldwide, Inc. While at Templeton, he
served as director of research and was an officer, director or primary portfolio
manager for several Templeton mutual funds. He leads the Emerging Markets Fund's
portfolio team, which includes:
Francisco Alzuru, Managing Director, Portfolio Manager and Research Analyst
Aureole L.W. Foong, Director of Asian Research
Robert Mazuelos, Research Analyst
Vladimir Tyurenkov, Managing Director of Eastern Europe and Russia, Portfolio
Manager and Research Analyst
PORTFOLIO MANAGERS OF THE HARRIS INSIGHT FIXED INCOME FUNDS
INTERMEDIATE GOVERNMENT BOND FUND
SHORT/INTERMEDIATE BOND FUND
BOND FUND
LAURA ALTER, SENIOR PARTNER AND PORTFOLIO MANAGER (HIM)
Prior to joining HIM in 1994, Ms. Alter served as Portfolio Manager for a major
mutual fund investment management firm. She has 14 years of experience in the
fixed income investment area and was appointed Portfolio Manager of:
o Short/Intermediate Bond Fund in 1994
o Bond Fund when it commenced operations in 1996
MAUREEN SVAGERA, SENIOR PARTNER AND PORTFOLIO MANAGER (HIM)
Prior to joining HIM in 1994, Ms. Svagera was Principal/Vice President at an
investment management firm, where she focused on the mortgage and asset-backed
securities markets. She has 16 years of experience in the fixed income market
and was appointed Portfolio Manager of:
o Intermediate Government Bond Fund when it commenced operations in 1997
o Short/Intermediate Bond Fund in 1996 Bond Fund when it commenced
operations in 1996
INTERMEDIATE TAX-EXEMPT BOND FUND
TAX-EXEMPT BOND FUND
GEORGE W. SELBY, PRINCIPAL AND PORTFOLIO MANAGER (HIM)
Prior to joining HIM in 1998, Mr. Selby served as Executive Director of
Municipal Bond Sales for a brokerage firm. He has 16 years of municipal bond
sales experience and was appointed Portfolio Manager of:
o Intermediate Tax-Exempt Bond Fund in 1998
o Tax-Exempt Bond Fund in 1998
60
<PAGE>
CONVERTIBLE SECURITIES FUND
THOMAS M. CORKILL, CFA, PARTNER AND PORTFOLIO MANAGER (HIM)
Mr. Corkill joined Harris Trust in 1982. He was appointed Portfolio Manager of
the Fund in 1998 and has 29 years of experience in portfolio management and
research.
PORTFOLIO MANAGERS OF THE HARRIS INSIGHT MONEY MARKET FUNDS
GOVERNMENT MONEY MARKET FUND
MONEY MARKET FUND
RANDALL T. ROYTHER, PARTNER AND PORTFOLIO MANAGER (HIM)
Mr. Royther joined Harris Trust in 1990. He has 10 years of investment
management experience and was appointed Portfolio Manager of:
o Government Money Market Fund in 1995
o Money Market Fund in 1995
TAX-EXEMPT MONEY MARKET FUND
KIMBERLY J. KEYWELL, PRINCIPAL AND PORTFOLIO MANAGER (HIM)
Prior to joining HIM in 1995, Ms. Keywell served as an Associate Portfolio
Manager for the trust department of a large banking institution. In 1997, she
became a dual employee of Harris Trust and HIM and was appointed Portfolio
Manager of the Fund in 1998. She has seven years of investment management
experience.
PRICING OF FUND SHARES
SHARES OF THE FUNDS ARE BOUGHT AND SOLD AT NET ASSET VALUE
Each Fund calculates its net asset value per share (NAV) on each business day
that both the New York Stock Exchange (NYSE) and the Federal Reserve Bank of
Philadelphia are open.
(Sidebar)
HOW THE FUNDS CALCULATE NAV
The NAV of a class of shares of a Fund is determined by dividing the value of
the securities and other assets, less liabilities, allocated to the class by the
number of outstanding shares of the class.
NON-MONEY MARKET FUNDS
The NAV is calculated at the close of regular trading on the NYSE (normally 4:00
p.m., Eastern time) and is generally based on the last sale prices of all
securities held in the Fund and the number of shares outstanding. A Fund's
securities are valued based on market value or, where market quotations are not
readily available, are based on fair value as determined in good faith by the
Fund's board of directors or board of trustees, as the case may be.
61
<PAGE>
Foreign securities are valued on the basis of quotations from the primary
markets in which they are traded, and are translated from the local currency
into U.S. dollars using current exchange rates. If the value of a foreign
security has been materially affected by events occurring after the close of a
foreign market, it may be valued by another method that the board believes
reflects fair value. Foreign securities may trade in their local markets on
weekends or other days when a Fund does not price its shares. Therefore, the NAV
of Funds holding foreign securities may change on days when shareholders will
not be able to buy or sell their Fund shares.
MONEY MARKET FUNDS
The NAV for the Tax-Exempt Money Market Fund is calculated at 12:00 Noon,
Eastern time. The NAV for each of the Money Market Fund and the Government Money
Market Fund is calculated at 2:30 p.m., Eastern time. In their attempt to
maintain a stable NAV of $1.00 per share, securities held by the Money Market
Funds are valued at amortized cost, which is approximately equal to market
value.
SHAREHOLDER SERVICES
HOW TO BUY SHARES
OPENING A NEW ACCOUNT IS EASY
There are three convenient ways to invest in the Harris Insight Funds.
<TABLE>
<CAPTION>
BY MAIL BY BANK WIRE THROUGH FINANCIAL
INSTITUTIONS/PROFESSIONALS
<S> <C> <C>
Complete and sign an application Call the Funds at 800.625.7073 to Contact your financial
for N Shares. initiate your purchase. institution or professional for
more information.
Make your check payable to the Please be sure to furnish your
Harris Insight Funds. taxpayer identification number. Important note: Each institution
or professional may have its own
If you are adding to your existing Then wire your investment to: procedures and requirements for
account, indicate your Fund PNC Bank, N.A. buying shares and may charge
account number directly on the Philadelphia, PA fees.
check. ABA #0310-0005-3
For Credit To:
Mail your application and check to: Harris Insight Funds
Harris Insight Funds 85-5093-2950
c/o PFPC Inc. Re: [Name of Fund]--
P.O. Box 8952 N Shares
Wilmington, DE Account No.:
19899-8952 Account Name:
Taxpayer ID No.:
If you are opening a new account, please
complete and mail the account application
form to the Funds at the address given
under "By Mail."
62
<PAGE>
The Funds currently do not charge
investors for the receipt of wire
transfers, although your bank may
charge you for their wiring
services.
</TABLE>
Orders placed directly with the Funds must be paid for by check or bank wire
before the order will be executed. Payment for the shares purchased through a
financial institution will not be due until settlement date, normally three
business days after the order has been executed.
Shares are purchased at the next share price calculated after your investment is
received. The Funds reserve the right to reject any purchase order.
AUTOMATIC INVESTMENT PLAN: A CONVENIENT OPTION
Through automatic investing, you can invest equal amounts of money on a regular
basis.
At the time you open your account or any time afterward, you can elect Harris
Insight Funds' Automatic Investment Plan by so indicating on the Harris Insight
Funds New Account Application. The Plan lets you invest as little as $50 a month
in the Fund of your choice through electronic withdrawals from your checking or
savings account. (If your checking or savings account does not have sufficient
assets to permit the Automatic Investment in any month, your participation in
the Plan will cease and a new application will be needed to reinstate your
Plan.)
(sidebar)
For more information on any of Harris Insight Funds' shareholder services,
please call 800.982.8782.
CHOOSE YOUR INVESTMENT AMOUNT
The Harris Insight Funds offer a flexible range of minimum investment amounts to
initiate or add to your investment program.
MINIMUM PER FUND
To open an account $1,000
To open a retirement account $250
To add to an existing account $50
To make additional investments through the Automatic $50
Investment Plan
63
<PAGE>
MORE ABOUT BUYING SHARES
MULTIPLE OWNERS
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.
TAXPAYER IDENTIFICATION
You must certify whether you are subject to withholding for failing to report
income to the Internal Revenue Service. Investments received without a certified
taxpayer identification number may be returned.
HOURS OF OPERATION
The Funds are open for business each day the New York Stock Exchange (NYSE) and
the Federal Reserve Bank of Philadelphia are open for business. The Funds are
closed for business on:
New Year's Day Memorial Day Veterans' Day
Martin Luther King, Jr. Day Independence Day Thanksgiving Day
Presidents' Day Labor Day Christmas Day
Good Friday Columbus Day
You may call 800.982.8782 to speak with a Fund representative Monday through
Friday from 8:30 a.m. to 5:00 p.m. Eastern time.
(Sidebar)
PLEASE INDICATE WHETHER YOU WOULD LIKE THE ABILITY TO BUY, REDEEM OR EXCHANGE
SHARES BY TELEPHONE OR WIRE WHEN YOU COMPLETE YOUR APPLICATION.
HOW TO SELL SHARES
ACCESSING YOUR MONEY IS EASY
You may sell, or redeem, some or all of your shares when the Funds are open for
business by doing one of the following.
<TABLE>
<CAPTION>
BY MAIL AND BY TELEPHONE BY TELEPHONE AND THROUGH FINANCIAL
CHECK AND CHECK BANK WIRE INSTITUTIONS/PROFESSIONALS
<S> <C> <C> <C>
Shareholders may sell If you have chosen the If you have chosen the Contact your financial
shares by writing the telephone redemption wire redemption institution or professional
Funds at the following privilege, you may call privilege, you may call for more information.
address: 800.625.7073 to sell 800.625.7073 to sell
Harris Insight Funds shares. Your proceeds shares and have your Important note: Each
c/o PFPC Inc. will be mailed to you. proceeds wired to a institution or professional
P.O. Box 8952 predesignated bank may have its own procedures
Wilmington, Delaware account. and requirements for selling
19899-8952. Your shares and may charge fees.
proceeds will be mailed
to you.
</TABLE>
64
<PAGE>
Redemption requests should be accompanied by your account number, the exact
name(s) on your account and your social security or taxpayer identification
number. The Fund will mail a check to your account address or, if you have
elected the wire redemption privilege, the Fund will wire the proceeds to your
bank on the following business day. Some redemption requests require a signature
guarantee. (See page 60 for more information.)
The Funds reserve the right to pay redemptions "in kind" - payment in portfolio
securities rather than cash - if the amount you are redeeming is large enough to
affect a Fund's operations (limited to amounts more than $250,000 or
representing more than 1% of the Fund's assets). In these cases, you might incur
brokerage costs in converting the securities to cash.
MORE ABOUT REDEMPTIONS
WHEN ORDERS ARE PROCESSED
Your shares will be sold at the NAV next calculated after your order is accepted
by the Funds' transfer agent in good order. Your order will be processed
promptly and you will generally receive the proceeds within five to seven
business days.
Please note that proceeds for redemption requests made shortly after a recent
purchase by check will be distributed once the check clears, which may take up
to 15 days.
Under unusual circumstances, the Funds may suspend redemptions, if allowed by
the Securities and Exchange Commission, or postpone payment.
MINIMUM AMOUNT REQUIRED FOR WIRE SALES
The minimum amount of redemption proceeds that may be wired is $1,000.
Otherwise, a check for redemption proceeds is mailed to your address of record.
The Funds reserve the right to change this minimum or to terminate the
privilege.
SYSTEMATIC WITHDRAWAL PLAN (NOT AVAILABLE FOR IRAS OR OTHER RETIREMENT ACCOUNTS)
You may enroll in the Systematic Withdrawal Plan (SWP) by so indicating on the
Harris Insight Funds New Account Application. Using the SWP, you may redeem a
specific dollar amount (not less than $100) from your Harris Insight Funds
account each month, quarter, six months or year.
To enroll in the SWP, you must meet the following conditions:
o you must have elected to reinvest your Fund dividends, and
o your shares of the Fund from which you want shares redeemed must have
a value of at least $10,000 at the time of each withdrawal.
Plan redemptions are normally processed on the 25th day of the applicable month
(or on the next Business Day if the normal processing day is not a Business Day)
and are paid promptly thereafter. You should know that, if your SWP withdrawals
are greater than the amount of dividends from your Fund, the withdrawals reduce
the principal invested. (If your Fund account does not have a sufficient balance
to permit a Systematic Withdrawal, your participation in the SWP will cease and
a new application will be needed to reinstate your Plan.)
65
<PAGE>
(sidebar)
For more information on any of Harris Insight Funds' shareholder services,
please call 800.982.8782.
SIGNATURE GUARANTEES
The Funds require signature guarantees on certain redemption requests to protect
you and the Funds from unauthorized account transfers. A signature guarantee is
required when a redemption check is -
To be payable to anyone other than the shareholder(s) of record
To be mailed to an address other than the address of record
To be wired to a bank other than one previously authorized
Signature guarantees may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency or savings association that is a participant in
a medallion program recognized by the Securities Transfer Association.
CHECKWRITING
Checkwriting is available for each of the Harris Insight Money Market Funds. If
you are an investor in these Funds and have completed the checkwriting portion
of your application and signature card, you may redeem shares by writing a check
against your account.
You will continue to earn income on your shares until a check is presented to
the Transfer Agent for payment. The minimum check amount is $500.
If you are opening a new account and wish to establish the checkwriting option,
you must complete the account application and signature card. If you already
have an account, you may contact the Harris Insight Funds at 800.982.8782 for
the necessary checkwriting application. Upon receipt of this form, checks will
be forwarded to you.
This privilege is not available for IRAs, SEP-IRAs, 401(k), 403(b), Keogh or
other retirement accounts.
The checkwriting privilege will be subject to the customary rules and
regulations governing checkwriting:
o FOR JOINT TENANT ACCOUNTS, each shareholder must sign each check,
unless the shareholders have authorized fewer signatures and such
election is on file with the Funds' Transfer Agent.
o A SUFFICIENT NUMBER OF SHARES IS REQUIRED 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."
o CHECKS MAY BE RETURNED for amounts representing shares purchased by
check or electronic funds transfer within the previous ten business
days or checks for amounts less than $500.
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<PAGE>
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.
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.
Charges may be imposed for returned checks, stop payment orders, copies of
cancelled checks and other special services.
REDEMPTION OF SHARES IN SMALLER ACCOUNTS
Each Fund reserves the right to close a shareholder's account if the balance is
below $500 ($250 in the case of a retirement account) unless the decline is due
to market activity. In such cases, shareholders will be notified in writing and
permitted 30 days to increase their balance.
67
<PAGE>
(Sidebar)
ADDITIONAL SHAREHOLDER SERVICES AND INFORMATION
EXCHANGING SHARES
You can exchange your N Shares for N Shares of any other Harris
Insight Fund, provided that:
o Shares have been held for at least seven days Account registration
stays the same
o The shares you wish to buy are registered for sale in your home
state
Under certain circumstances, the Funds may:
Limit the number of exchanges between Funds
Reject a telephone exchange order
Modify or discontinue the exchange privilege upon 60 days'
written notice
The procedures that apply to redeeming shares also apply to exchanging
shares.
DIRECTED DIVIDEND PLAN (DDP)
You may direct your dividends and/or distributions from one Harris
Insight Fund to be reinvested automatically in another Harris Insight
Fund without any fee or sales charge, provided that both Funds are in
the same share class and have identical ownership registration. To use
the DDP, you must maintain a balance of at least $1,000 in the Fund
account from which dividends are paid at the time each DDP payment is
made. (If your Fund account does not have a sufficient balance to
permit a Directed Dividend payment, your participation in the DDP will
cease and a new application will be needed to reinstate your Plan.)
TELEPHONE TRANSACTIONS
You may give up some level of security by choosing to buy or sell
shares by telephone, rather than by mail. The Funds will employ
reasonable procedures to confirm that telephone instructions are
genuine. If the Funds or their service providers follow these
procedures, they will not be liable for any losses arising from
unauthorized or fraudulent instructions.
However, you may be otherwise held responsible for unauthorized
requests.
Please verify the accuracy of instructions immediately upon receipt of
confirmation statements. You may bear the risk of loss from an
unauthorized telephone transaction.
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 c/o PFPC Inc., 103
Bellevue Parkway, Wilmington, DE 19809.
REGULAR REPORTS
Your investment will be easy to track. During the year, you will
receive:
An annual account statement A quarterly consolidated
statement
68
<PAGE>
A confirmation statement, each time you buy, sell
or exchange shares
An annual and semi-annual report to shareholders for each Fund
in which you invest
DIVIDENDS AND TAX CONSIDERATIONS
Dividends of net investment income, if any, are declared and paid at least
annually by each Fund. Following is the schedule of payments:
FUND DECLARED AND PAID
Balanced Fund Quarterly
Index Fund Quarterly
Equity Income Fund Quarterly
Equity Fund Quarterly
Growth Fund Annually
Small-Cap Value Fund Annually
Small-Cap Opportunity Fund Annually
International Fund Annually
Emerging Markets Fund Annually
Convertible Securities Fund Quarterly
Tax-Exempt Bond Fund Daily/Monthly
Bond Fund Daily/Monthly
Intermediate Tax-Exempt Bond Fund Daily/Monthly
Short/Intermediate Bond Fund Daily/Monthly
Intermediate Government Bond Fund Daily/Monthly
Tax-Exempt Money Market Fund Daily/Monthly
Money Market Fund Daily/Monthly
Government Money Market Fund Daily/Monthly
Any capital gains are declared and paid at least annually.
All 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.
TAX CONSIDERATIONS
Following is a brief discussion of the general tax treatment of various
distributions from the Funds. It is not an exhaustive discussion, and your
particular tax status may be different. We encourage you to consult with your
own tax adviser about federal, state and local tax considerations.
The tax status of any distribution is the same regardless of how long you have
been in the Fund and whether you reinvest in additional shares or take it in
cash.
o All dividends paid, including net SHORT-TERM capital gains (except
"exempt-interest dividends") are taxable to you as ordinary income.
o Distributions of net LONG-TERM capital gains, if any, are taxable to
you as long-term capital gains regardless of how long you have held the
shares.
o You may realize a taxable gain or loss when you sell shares or
exchange shares between Funds, depending on your tax basis in the
shares and the value of those shares at the time of the transaction.
69
<PAGE>
(side-bar)
EXEMPT-INTEREST DIVIDENDS
Dividends paid by tax-exempt funds that are exempt from federal income tax.
Exempt-interest dividends are not necessarily exempt from state and local income
taxes.
DISTRIBUTION ARRANGEMENTS
SERVICE PLANS (N SHARES ONLY)
Each of the Funds may pay fees, at a rate of up to 0.25% of the average daily
net assets of each Fund's N Shares, to financial institutions, securities
dealers and other industry professionals (which may include Harris Trust and its
affiliates) for shareholder support services they provide. In addition to
shareholder support services, the Money Market Funds have adopted a plan under
Rule 12b-1 that allows the Funds to bear the expenses incurred with respect to
advertising and marketing N Shares of those Funds, and may make additional
payments of up to 0.10% of average daily net assets. Because these expenses are
paid out of the Money Market Funds' assets on an on-going basis, over time these
expenses will increase the cost of your investment and may cost you more than
paying other types of sales charges.
MULTIPLE CLASSES
Each Fund, except for the Index Fund, Tax-Exempt Money Market Fund, Money Market
Fund and Government Money Market Fund, offers three classes of shares, N Shares,
A Shares and Institutional shares. The Index Fund, Tax-Exempt Money Market Fund,
Money Market Fund and Government Money Market Fund offer two classes of shares,
N Shares and Institutional shares.
70
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand a Fund's
financial performance for the past 5 years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in each Fund (assuming reinvestment
of all dividends and distributions). This information has been derived from the
financial statements audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Funds' financial statements, is
included in the Funds' annual report, which is available upon request.
These financial highlights should be read with the financial statements.
<TABLE>
<CAPTION>
Balanced Fund
N Shares
04/16/97(3)
12/31/98 to 12/31/97
<S> <C> <C>
Net Asset Value, Beginning of Period $14.93 $12.56
Income from Investment Operations:
Net Investment Income $0.440 $0.301
Net Realized and Unrealized Gain/(Loss) on Investments $0.759 $2.411
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.448) $(0.342)
Net Realized Gains $(1.241) $ --
Total Distributions
Net Asset Value, End of Period $14.44 $14.93
Total Return 8.29% 21.72%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $2,328 $700
Ratio of Expenses to Average Net Assets 1.13% 1.13%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.23% 1.17%(1)
Ratio of Net Investment Income to Average Net Assets 2.91% 3.20%(1)
Portfolio Turnover Rate 70.93% 108.29%(1)
</TABLE>
<TABLE>
<CAPTION>
Index Fund
N Shares
04/19/96(3)
12/31/98 12/31/97 to 12/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $23.51 $18.48 $16.35
Income from Investment Operations:
Net Investment Income $0.236 $0.247 $0.188
Net Realized and Unrealized Gain/(Loss) on Investments $6.244 $5.725 $2.511
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.232) $(0.233) $(0.225)
Net Realized Gains $(1.408) $(0.709) $(0.344)
Total Distributions
Net Asset Value, End of Period $28.35 $23.51 $18.48
Total Return 27.88% 32.51% 16.56%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $13,727 $6,942 $150
Ratio of Expenses to Average Net Assets 0.70% 0.70% 0.70%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.71% 0.72% 0.74%(1)
Ratio of Net Investment Income to Average Net Assets 0.91% 1.14% 1.60%(1)
Portfolio Turnover Rate 5.59% 7.10% 4.71%
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
Equity Income Fund
N Shares
04/18/96(3)
12/31/98 12/31/97 to 12/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $16.31 $13.72 $13.02
Income from Investment Operations:
Net Investment Income $0.171 $0.237 $0.179
Net Realized and Unrealized Gain/(Loss) on Investments $3.490 $4.037 $1.732
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.167) $(0.220) $(0.213)
Net Realized Gains $(0.544) $(1.464) $(0.998)
Total Distributions
Net Asset Value, End of Period $19.26 $16.31 $13.72
Total Return 22.66% 31.53% 14.67%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $3,728 $1,241 $298
Ratio of Expenses to Average Net Assets 1.18% 1.18% 1.18%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.21% 1.21% 1.19%(1)
Ratio of Net Investment Income to Average Net Assets 1.01% 1.44% 2.11%(1)
Portfolio Turnover Rate 21.60% 29.87% 52.77%
</TABLE>
<TABLE>
<CAPTION>
Equity Fund
N Shares
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $17.59 $15.53 $13.99 $11.28 $12.86
Income from Investment Operations:
Net Investment Income $0.066 $0.174 $0.451 $0.229 $0.263
Net Realized and Unrealized
Gain/(Loss) on Investments $2.213 $5.190 $2.926 $3.827 $(0.514)
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.063) $(0.175) $(0.173) $(0.232) $(0.263)
Net Realized Gains $(2.786) $(3.129) $(1.664) $(1.114) $(1.066)
Total Distributions
Net Asset Value, End of Period $17.02 $17.59 $15.53 $13.99 $11.28
Total Return 13.42% 35.45% 24.15% 36.26% (2.05)%
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $29,050 $17,859 $7,792 $61,256 $38,920
Ratio of Expenses to Average Net Assets 1.14% 1.13% 0.94% 0.96% 0.90%
Ratio of Expenses to Average Net
Assets (Excluding Waivers) 1.14% 1.13% 0.94% 0.97% 0.92%
Ratio of Net Investment Income to
Average Net Assets 0.39% 1.08% 1.47% 1.75% 1.94%
Portfolio Turnover Rate 76.92% 81.48% 75.20% 75.93% 87.83%
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
Growth Fund
N Shares
04/19/96(3)
12/31/98 12/31/97 to 12/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $22.67 18.69 $16.49
Income from Investment Operations:
Net Investment Income $(0.030) $0.004 $0.030
Net Realized and Unrealized Gain/(Loss) on Investments $5.546 $6.026 $3.273
Total from Investment Operations
Less Distributions:
Net Investment Income $ -- $(0.004) $(0.038)
Net Realized Gains $(2.006) $(2.046) $(1.065)
Total Distributions
Net Asset Value, End of Period $26.18 $22.67 $18.69
Total Return 24.68% 32.54% 19.95%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $7,661 $2,766 $397
Ratio of Expenses to Average Net Assets 1.35% 1.35% 1.35%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.36% 1.36% 1.39%(1)
Ratio of Net Investment Income to Average Net Assets (0.20)% (0.03)% 0.17%(1)
Portfolio Turnover Rate 34.96% 37.02% 35.36%
</TABLE>
<TABLE>
<CAPTION>
Small-Cap Value Fund
N Shares
07/10/97(3)
12/31/98 to 12/31/97
<S> <C> <C>
Net Asset Value, Beginning of Period $33.02 $32.31
Income from Investment Operations:
Net Investment Income $0.093 $0.028
Net Realized and Unrealized Gain/(Loss) on Investments $(1.342) $3.462
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.070) $(0.036)
Net Realized Gains $(1.011) $(2.744)
Total Distributions
Net Asset Value, End of Period $30.69 $33.02
Total Return (4.15)% 10.95%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $641 $292
Ratio of Expenses to Average Net Assets 1.24% 1.24%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.30% 1.31%(1)
Ratio of Net Investment Income to Average Net Assets 0.31% 0.38%(1)
Portfolio Turnover Rate 76.44% 91.66%(1)
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
Small-Cap Opportunity Fund
N Shares
04/19/96(3)
12/31/98 12/31/97 to 12/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $17.66 $15.51 $14.25
Income from Investment Operations:
Net Investment Income $(0.060) $(0.003) $0.032
Net Realized and Unrealized Gain/(Loss) on Investments $0.241 $3.823 $1.996
Total from Investment Operations
Less Distributions:
Net Investment Income $ -- $ -- $(0.050)
Net Realized Gains $(0.071) $(1.670) $(0.718)
Total Distributions
Net Asset Value, End of Period $17.77 $17.66 $15.51
Total Return 0.99% 25.14% 14.29%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $5,032 $2,485 $443
Ratio of Expenses to Average Net Assets 1.45% 1.45% 1.45%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.46% 1.46% 1.47%(1)
Ratio of Net Investment Income to Average Net Assets (0.53)% (0.22)% 0.10%(1)
Portfolio Turnover Rate 51.49% 39.63% 46.13%
</TABLE>
<TABLE>
<CAPTION>
International Fund
N Shares
03/13/96(3)
12/31/98 12/31/97 to 12/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $13.33 $15.46 $14.69
Income from Investment Operations:
Net Investment Income $0.140 $0.078 $0.091
Net Realized and Unrealized Gain/(Loss) on Investments $(0.787) $(0.876) $0.860
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.133) $(0.069) $(0.113)
Net Realized Gains $ -- $(1.263) $(0.068)
Total Distributions
Net Asset Value, End of Period $12.55 $13.33 $15.46
Total Return (4.84)% (5.21)% 6.48%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $1,657 $1,265 $597
Ratio of Expenses to Average Net Assets 1.58% 1.65% 1.61%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.58% 1.67% 1.63%(1)
Ratio of Net Investment Income to Average Net Assets 1.39% 0.57% 0.35%(1)
Portfolio Turnover Rate 45.82% 93.33% 6.72%
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
Emerging Markets Fund
N Shares
10/21/97(3)
12/31/98 to 12/31/97
<S> <C> <C>
Net Asset Value, Beginning of Period $8.54 $10.00
Income from Investment Operations:
Net Investment Income $0.008 $0.002
Net Realized and Unrealized Gain/(Loss) on Investments $(2.698) $(1.462)
Total from Investment Operations
Less Distributions:
Net Investment Income $ -- $ --
Net Realized Gains $ -- $ --
Total Distributions
Net Asset Value, End of Period $ 5.85 $8.54
Total Return (31.50)% (14.60)%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $62 $96
Ratio of Expenses to Average Net Assets 2.00% 2.00%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 2.33% 2.34%(1)
Ratio of Net Investment Income to Average Net Assets 0.81% 0.18%(1)
Portfolio Turnover Rate 34.55% --%
</TABLE>
<TABLE>
<CAPTION>
Convertible Securities Fund
N Shares
03/26/97(3)
12/31/98 to 12/31/97
<S> <C> <C>
Net Asset Value, Beginning of Period $28.52 $29.30
Income from Investment Operations:
Net Investment Income $1.106 $0.690
Net Realized and Unrealized Gain/(Loss) on Investments $(1.691) $3.122
Total from Investment Operations
Less Distributions:
Net Investment Income $(1.073) $(0.825)
Net Realized Gains $(2.722) $(3.767)
Total Distributions
Net Asset Value, End of Period $24.14 $28.52
Total Return (2.04)% 13.39%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $409 $85
Ratio of Expenses to Average Net Assets 1.17% 1.17%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.26% 1.21%(1)
Ratio of Net Investment Income to Average Net Assets 3.80% 3.51%(1)
Portfolio Turnover Rate 48.73% 93.24%(1)
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
Convertible Securities Fund
N Shares
03/26/97(3)
12/31/98 to 12/31/97
<S> <C> <C>
Net Asset Value, Beginning of Period $28.52 $29.30
Income from Investment Operations:
Net Investment Income $1.106 $0.690
Net Realized and Unrealized Gain/(Loss) on Investments $(1.691) $3.122
Total from Investment Operations
Less Distributions:
Net Investment Income $(1.073) $(0.825)
Net Realized Gains $(2.722) $(3.767)
Total Distributions
Net Asset Value, End of Period $24.14 $28.52
Total Return (2.04)% 13.39%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $409 $85
Ratio of Expenses to Average Net Assets 1.17% 1.17%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.26% 1.21%(1)
Ratio of Net Investment Income to Average Net Assets 3.80% 3.51%(1)
Portfolio Turnover Rate 48.73% $93.24 %(1)
</TABLE>
<TABLE>
<CAPTION>
Tax-Exempt Fund
N Shares
10/02/96(3)
12/31/98 12/31/97 to 12/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $10.52 $10.25 $10.33
Income from Investment Operations:
Net Investment Income $0.418 $0.435 $0.105
Net Realized and Unrealized Gain/(Loss) on Investments $0.059 $0.391 $0.136
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.418) $(0.435) $(0.105)
Net Realized Gains $(0.189) $(0.121) $(0.216)
Total Distributions
Net Asset Value, End of Period $10.39 $10.52 $10.25
Total Return 4.62% $8.28% 2.34%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $909 $644 $38
Ratio of Expenses to Average Net Assets 1.04% 1.05% 1.05%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.05% 1.05% 1.06%(1)
Ratio of Net Investment Income to Average Net Assets 3.97% 4.22% 4.35%(1)
Portfolio Turnover Rate 87.61% 61.52% 61.60%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Bond Fund
N Shares
04/22/96(3)
12/31/98 12/31/97 to 12/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $10.20 $10.07 $9.99
Income from Investment Operations:
Net Investment Income $0.579 $0.603 $0.402
Net Realized and Unrealized Gain/(Loss) on Investments $0.103 $0.284 $0.113
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.579) $(0.603) $(0.402)
Net Realized Gains $(0.103) $(0.154) $(0.033)
Total Distributions
Net Asset Value, End of Period $10.20 $10.20 $10.07
Total Return 6.86% 9.14% 5.27%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $2,566 $936 $130
Ratio of Expenses to Average Net Assets 0.85% 0.85% 0.85%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.13% 1.14% 1.23%(1)
Ratio of Net Investment Income to Average Net Assets 5.64% 6.00% 5.87%(1)
Portfolio Turnover Rate 64.93% 138.30% 116.02%
</TABLE>
<TABLE>
<CAPTION>
Intermediate Tax-Exempt Fund
N Shares
03/13/96(3)
12/31/98 12/31/97 to 12/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $10.75 $10.58 $10.55
Income from Investment Operations:
Net Investment Income $0.390 $0.327 $0.084
Net Realized and Unrealized Gain/(Loss) on Investments $ 0.103 $0.220 $0.066
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.390) $(0.327) $(0.084)
Net Realized Gains $(0.153) $(0.050) $(0.036)
Total Distributions
Net Asset Value, End of Period $10.70 $10.75 $10.58
Total Return 4.67% 6.14% 1.44%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $900 $644 $ --
Ratio of Expenses to Average Net Assets 1.05% 1.04% 1.04%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.05% 1.04% 1.07%(1)
Ratio of Net Investment Income to Average Net Assets 3.62% 3.91% 4.33%(1)
Portfolio Turnover Rate 90.92% 48.72% 57.23%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Short/Intermediate Fund
N Shares
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.21 $10.14 $10.38 $9.66 $10.34
Income from Investment Operations:
Net Investment Income $0.577 $0.608 $0.594 $0.588 $0.559
Net Realized and Unrealized
Gain/(Loss) on Investments $0.096 $0.070 $(0.247) $0.720 $(0.694)
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.577) $(0.608) $(0.587) $(0.588) $(0.545)
Net Realized Gains $(0.006) $ -- $ -- $ -- $ --
Total Distributions
Net Asset Value, End of Period $10.30 $10.21 $10.14 $10.38 $9.66
Total Return 6.75% 6.89% 3.51% 13.88% (1.29)%
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $4,658 $5,922 $4,432 $51,814 $44,333
Ratio of Expenses to Average Net Assets 0.85% 0.85% 0.62% 0.60% 0.60%
Ratio of Expenses to Average Net
Assets (Excluding Waivers) 1.15% 1.14% 0.92% 0.96% 0.92%
Ratio of Net Investment Income to
Average Net Assets 5.60% 5.99% 5.59% 5.91% 5.29%
Portfolio Turnover Rate 66.06% 98.08% 186.02% 194.94% 140.99%
</TABLE>
<TABLE>
<CAPTION>
Intermediate Government Fund
N Shares
04/16/97(3)
12/31/98 to 12/31/97
<S> <C> <C>
Net Asset Value, Beginning of Period $16.54 $16.06
Income from Investment Operations:
Net Investment Income $0.925 $0.702
Net Realized and Unrealized Gain/(Loss) on Investments $ 0.231 $0.521
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.925) $ (0.702)
Net Realized Gains $(0.161) $ (0.041)
Total Distributions
Net Asset Value, End of Period $16.61 $16.54
Total Return 7.18% 7.76%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $2,126 $716
Ratio of Expenses to Average Net Assets 0.75% 0.75%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.16% 1.16%(1)
Ratio of Net Investment Income to Average Net Assets 5.57% 6.06%(1)
Portfolio Turnover Rate 99.63% 84.89%(1)
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
Tax-Exempt Money Fund
N Shares
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment Operations:
Net Investment Income $0.030 $0.031 $0.029 $0.033 $0.023
Net Realized and Unrealized
Gain/(Loss) on Investments $ -- $ -- $ -- $ -- $ --
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.030) $(0.031) $(0.029) $(0.033) $(0.023)
Capital Contribution $ -- $ -- $ -- $ -- $ --
Total Distributions
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
Total Return 3.02% 3.17% 2.94% 3.31% 2.30%
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $204,114 $223,071 $178,849 $170,570 $123,501
Ratio of Expenses to Average Net Assets 0.55% 0.54% 0.53% 0.56% 0.54%
Ratio of Expenses to Average Net
Assets (Excluding Waivers) 0.58% 0.61% 0.64% 0.65% 0.65%
Ratio of Net Investment Income to
Average Net Assets 2.99% 3.13% 2.89% 3.25% 2.20%
</TABLE>
<TABLE>
<CAPTION>
Money Market Fund
N Shares
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment Operations:
Net Investment Income $0.051 $0.052 $0.050 $0.054 $0.037
Net Realized and Unrealized
Gain/(Loss) on Investments $ -- $(0.001) $ -- $ -- $ --
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.051) $(0.052) $(0.050) $(0.054) $(0.037)
Capital Contribution $ -- $0.001 $ -- $ -- $ --
Total Distributions
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
Total Return 5.25% 5.35% 5.11% 5.58% 3.79%
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $877,527 $677,804 $461,213 $423,588 $530,366
Ratio of Expenses to Average Net Assets 0.53% 0.51% 0.52% 0.56% 0.55%
Ratio of Expenses to Average Net
Assets (Excluding Waivers) 0.59% 0.61% 0.63% 0.65% 0.65%
Ratio of Net Investment Income to
Average Net Assets 5.12% 5.23% 5.00% 5.42% 3.79%
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
Government Money Fund
N Shares
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment Operations:
Net Investment Income $0.050 $0.050 $0.049 $0.054 $0.037
Net Realized and Unrealized
Gain/(Loss) on Investments $ -- $ -- $ -- $ -- $ --
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.050) $(0.050) $(0.049) $(0.054) $(0.037)
Capital Contribution $ -- $ -- $ -- $ -- $ --
Total Distributions
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
Total Return 5.08% 5.17% 5.00% 5.51% 3.72%
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $248,595 $247,594 $206,073 $264,426 $229,619
Ratio of Expenses to Average Net Assets 0.54% 0.53% 0.54% 0.57% 0.60%
Ratio of Expenses to Average Net
Assets (Excluding Waivers) 0.59% 0.63% 0.67% 0.67% 0.66%
Ratio of Net Investment Income to
Average Net Assets 4.96% 5.05% 4.89% 5.36% 3.62%
</TABLE>
80
<PAGE>
[back cover]
FOR MORE INFORMATION
More information on the Harris Insight Funds is available free upon request:
SHAREHOLDER REPORTS
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected a Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about each Fund and its policies. The SAI is on file with
the Securities and Exchange Commission (SEC) and is incorporated by reference
into (is legally considered part of) this prospectus.
(Sidebar)
To obtain information:
BY TELEPHONE
Call 800.982.8782
BY MAIL
Harris Insight Funds
Four Falls Corporate Center, 6th Floor
West Conshohocken, PA 19428-2961
BY EMAIL
[email protected]
ON THE INTERNET
Text only versions of the prospectus and other documents pertaining to the
Funds can be viewed online or downloaded from:
SEC http://www.sec.gov
HARRIS INSIGHT FUNDS
http://www.harrisinsight.com
Information about the Funds (including the SAI) can also be reviewed and copied
at the SEC's public reference room in Washington, DC (phone 800.SEC.0330). Or,
you can obtain copies of this information by sending a request, along with a
duplicating fee, to the SEC's Public Reference Section, Washington, DC
20549-6009.
The Funds are series of HT Insight Funds, Inc. and Harris Insight Funds Trust,
whose investment company registration numbers are 811-5366 and 811-7447,
respectively.
81
<PAGE>
HARRIS INSIGHT(R) FUNDS
May 3, 1999 Prospectus
Institutional Shares
Harris Insight Equity Funds
Harris Insight Balanced Fund
Harris Insight Index Fund
Harris Insight Equity Income Fund
Harris Insight Equity Fund
Harris Insight Growth Fund
Harris Insight Small-Cap Value Fund
Harris Insight Small-Cap Opportunity Fund
Harris Insight International Fund
Harris Insight Emerging Markets Fund
Harris Insight Fixed Income Funds
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 Money Market Funds
Harris Insight Tax-Exempt Money Market Fund
Harris Insight Money Market Fund
Harris Insight Government Money Market Fund
As with any mutual fund, the Securities and Exchange Commission (SEC) has not
approved or disapproved of these securities or determined whether this
prospectus is adequate or complete. Any representation to the contrary is a
criminal offense.
<PAGE>
TABLE OF CONTENTS PAGE
INTRODUCTION TO EQUITY FUNDS 3
HARRIS INSIGHT EQUITY FUNDS
Balanced Fund 4
Index Fund 6
Equity Income Fund 8
Equity Fund 10
Growth Fund 12
Small-Cap Value Fund 14
Small-Cap Opportunity Fund 16
International Fund 18
Emerging Markets Fund 20
RISK CONSIDERATIONS 22
FEES AND EXPENSES 25
INTRODUCTION TO FIXED INCOME FUNDS 27
HARRIS INSIGHT FIXED INCOME FUNDS
Convertible Securities Fund 29
Tax-Exempt Bond Fund 32
Bond Fund 34
Intermediate Tax-Exempt Bond Fund 36
Short-Intermediate Bond Fund 38
Intermediate Government Bond Fund 40
RISK CONSIDERATIONS 42
FEES AND EXPENSES 45
INTRODUCTION TO MONEY MARKET FUNDS 46
Tax-Exempt Money Market Fund 48
Money Market Fund 50
Government Money Market Fund 52
RISK CONSIDERATIONS 54
FEES AND EXPENSES 57
INVESTMENT ADVISOR 59
PRICING OF FUND SHARES 63
SHAREHOLDER SERVICES 64
DIVIDENDS AND TAX CONSIDERATIONS 68
FINANCIAL HIGHLIGHTS 70
2
<PAGE>
INTRODUCTION TO THE HARRIS INSIGHT EQUITY FUNDS
The Harris Insight Equity Funds invest in stocks, which represent partial
ownership in a company. These Funds generally pursue capital appreciation: that
is, an increase in the Fund's share value. In some cases, the Harris Insight
Equity Funds also seek dividend income.
Equity funds will fluctuate in price with changes in the market and economy
as well as with the fortunes of the companies issuing the underlying stocks. For
this reason, equity fund share prices can sometimes be more volatile than the
share prices of other types of funds, exhibiting sharp increases or decreases
over relatively short periods of time.
WHY INVEST IN EQUITY FUNDS?
Equity funds offer investors the potential for greater returns than fixed
income funds and are considered an attractive choice for outpacing inflation
over the long term. Equity funds are more appropriate for investors who can
tolerate a higher degree of risk in exchange for an opportunity to pursue
attractive long-term investment rewards.
HOW ARE SECURITIES SELECTED FOR THE HARRIS INSIGHT EQUITY FUNDS?
The portfolio manager considers a combination of factors when selecting
portfolio securities:
o Measurable elements, such as the value of assets and the cost of capital
o Economic, financial and market indicators
o A company's financial condition, management and position in its industry
Based on this analysis, the portfolio manager endeavors to identify stocks of
companies that may demonstrate:
o Above-average earnings, sales and asset value growth
o Greater potential value than is perceived by others in the marketplace
(Sidebar)
Shares of the Harris Insight Equity Funds are not bank deposits and are not
insured or guaranteed by the FDIC or any other government agency. The value of
your investment in a Fund will fluctuate, which means that you may lose money.
Each Fund's primary investment practices and strategies are discussed in this
prospectus. Other practices, and their related risks, are described in the
statement of additional information. The investment objective of each Fund is
not fundamental and may be changed by the Board of Directors or Trustees without
approval by the Fund's shareholders.
Each Fund's principal risks are provided in an alphabetical listing within
the Fund description that follows. These risks are discussed in detail under
"Risk Considerations" on page 22.
3
<PAGE>
BALANCED FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide current income and capital appreciation.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund invests in a portfolio of equity and fixed income securities. Under
normal market conditions, equity securities will comprise between 40% and 65% of
the Fund's assets, and fixed income securities will comprise at least 25% of the
Fund's assets.
The portfolio manager continually reviews and adjusts the blend of the
securities in an effort to enhance returns based on current market conditions,
interest rate projections and other economic factors.
The Fund seeks to provide an overall return comprising between 40% and 65% of
the return of the STANDARD & POOR'S 500 STOCK INDEX and between 35% and 60% of
the return of the LEHMAN BROTHERS AGGREGATE BOND INDEX.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 22.)
Allocation risk
Interest rate risk
Market risk
(Sidebar)
Terms To Know
STANDARD & POOR'S 500 STOCK INDEX (S&P 500(R))
An unmanaged index consisting of 500 widely held U.S. common stocks. The
stocks in the index are chosen based on industry representation, liquidity and
stability. The index is designed to reflect the returns of many different
sectors of the U.S. economy.
LEHMAN BROTHERS AGGREGATE BOND INDEX
An index measuring the total return of approximately 6,500 U.S. bonds.
4
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. When you consider this information, please
remember that the Fund's past performance is not necessarily an indication of
how it will perform in the future.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
1998
8.61%
BEST QUARTER: Q4 1998 5.99%
WORST QUARTER: Q3 1998 -6.30%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year Inception (3/24/97)
Balanced Fund 8.61% 16.22%
S&P 500 Stock Index 28.58% 33.55%
Lehman Brothers
Aggregate Bond Index 8.67% 10.74%
5
<PAGE>
INDEX FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide the return and risk characteristics of the S&P 500.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally holds at least 90% of the 500 securities in the S&P 500 and
attempts to match its holdings of each issue with that security's proportional
representation in the S&P 500.
The portfolio manager employs a "passively" managed -- or index -- investment
approach that attempts to replicate the performance of the index without
necessarily investing in all of its stocks. This approach is unlike traditional
methods of active investment management whereby securities are selected on the
basis of economic, financial and market analysis. The Fund seeks a quarterly
performance within one percentage point of the performance of the S&P 500. On a
regular basis, the portfolio manager compares the Fund's performance to that of
the S&P 500. The portfolio manager may adjust the Fund's holdings if the Fund's
performance does not adequately track the performance of the S&P 500.
Apart from its equity investments, the Fund may use S&P 500 STOCK INDEX
FUTURES CONTRACTS to reduce transaction costs and simulate full investment in
the S&P 500 while retaining a cash balance for portfolio management purposes.
WHAT IS THE FUND'S PRINCIPAL RISK? (See Risk Considerations, page 22.)
Market risk
(Sidebar)
TERMS TO KNOW
S&P 500 STOCK INDEX FUTURES CONTRACTS
Agreements whereby one party agrees to accept, and the other party agrees to
deliver, a dollar amount based on the value of the S&P 500 on a specified future
date. Because no delivery of the underlying securities is made, purchasers of
index futures contracts may participate in the performance of the securities
included in the index without the required commitment of capital to purchase the
securities.
6
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. When you consider this information, please
remember that the Fund's past performance is not necessarily an indication of
how it will perform in the future.
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998 1997 1996 1995 1994 1993
28.22% 32.78% 22.71% 39.96% 0.78% 9.50%
BEST QUARTER: Q4 1998 21.23%
WORST QUARTER: Q3 1998 -10.01%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years Inception (4/1/92)
Index Fund 28.22% 23.59% 19.92%
S&P 500
Stock Index 28.58% 24.06% 19.20%
*Prior to the Fund commencing operations, Harris Trust managed a collective
or common investment fund with investment objectives and policies that were, in
all material respects, equivalent to the Fund. The performance for the Fund
includes the performance of the predecessor fund for periods before it became a
mutual fund. The predecessor fund's performance was adjusted to reflect the
Fund's estimate of its expense ratio for the first year of operations as a
mutual fund, including any applicable sales load. The predecessor fund was not
registered under the Investment Company Act of 1940 nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results.
7
<PAGE>
EQUITY INCOME FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide current income and, secondarily, capital appreciation.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in common stocks that
can be found in the S&P 500 or other attractive issues. These stocks are of
larger capitalization companies (i.e., companies with MARKET CAPITALIZATIONS in
excess of $1 billion).
The portfolio manager's approach should produce returns that are similar to
those of the S&P 500 and its corresponding sectors, yet with a higher level of
income.
The portfolio manager utilizes a disciplined investment process designed to
maintain a diversified portfolio of the equity securities of higher quality
companies.
The portfolio manager seeks securities with:
o Higher-than-average dividend yields
o Stronger-than-average growth characteristics
WHAT IS THE FUND'S PRINCIPAL RISK? (See Risk Considerations, page 22.)
Market risk
Market segment risk
(sidebar)
TERMS TO KNOW
MARKET CAPITALIZATION
The total market value of a company's outstanding shares of common stock,
calculated by multiplying the number of shares outstanding by the current market
price of the shares.
8
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. When you consider this information, please
remember that the Fund's past performance is not necessarily an indication of
how it will perform in the future.
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998 1997 1996 1995 1994
22.97% 31.90% 17.95% 36.84% -0.43%
BEST QUARTER: Q4 1998 19.75%
WORST QUARTER: Q3 1998 -11.06%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years Inception (1/1/94)
Equity Income Fund 22.97% 21.12% 21.11%
S&P 500 Stock Index 28.58% 24.06% 24.04%
*Prior to the Fund commencing operations, Harris Trust managed a collective
or common investment fund with investment objectives and policies that were, in
all material respects, equivalent to the Fund. The performance for the Fund
includes the performance of the predecessor fund for periods before it became a
mutual fund. The predecessor fund's performance was adjusted to reflect the
Fund's estimate of its expense ratio for the first year of operations as a
mutual fund, including any applicable sales load. The predecessor fund was not
registered under the Investment Company Act of 1940 nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results.
9
<PAGE>
EQUITY FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide capital appreciation and current income.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in common stocks. These
stocks are of larger capitalization companies (i.e., companies with MARKET
CAPITALIZATIONS in excess of $1 billion).
The portfolio manager selects stocks that represent sectors found within the
S&P 500 in an effort to:
o Provide greater returns, over the long-term, than the securities
comprising the S&P 500
o Maintain a risk level approximating that of the S&P 500
The Fund's portfolio consists of approximately 50 to 75 stocks, diversified
among major sectors of the market.
WHAT IS THE FUND'S PRINCIPAL RISK? (See Risk Considerations, page 22.)
Market risk
Market segment risk
(Sidebar)
TERMS TO KNOW
MARKET CAPITALIZATION see page 8
10
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. When you consider this information, please
remember that the Fund's past performance is not necessarily an indication of
how it will perform in the future.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
1998 1997
13.80% 35.89%
BEST QUARTER: Q4 1998 18.81%
WORST QUARTER: Q3 1998 -14.46%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year Inception (2/26/96)
Equity Fund 13.80% 21.82%
S&P 500 Stock Index 28.58% 27.92%
11
<PAGE>
GROWTH FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide capital appreciation.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in common stocks. These
stocks are of larger capitalization companies (i.e., companies with MARKET
CAPITALIZATIONS in excess of $1 billion).
The portfolio manager selects securities that are considered to be
undervalued and to represent growth opportunities. The Fund's investment
management discipline emphasizes growth in sales, earnings and asset values.
WHAT IS THE FUND'S PRINCIPAL RISK? (See Risk Considerations, page 22.)
Market risk
Market segment risk
Volatility risk
(Sidebar)
TERMS TO KNOW
MARKET CAPITALIZATION, see page 8
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. When you consider this information, please
remember that the Fund's past performance is not necessarily an indication of
how it will perform in the future.
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
1998 1997 1996 1995 1994 1993
25.03% 32.81% 28.92% 36.43% -0.05% 6.21%
BEST QUARTER: Q4 1998 22.71%
WORST QUARTER: Q3 1998 -11.92%
12
<PAGE>
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years Inception (4/1/92)
Growth Fund 25.03% 23.89% 19.89%
S&P 500 Stock Index 28.58% 24.06% 19.20%
*Prior to the Fund commencing operations, Harris Trust managed a collective
or common investment fund with investment objectives and policies that were, in
all material respects, equivalent to the Fund. The performance for the Fund
includes the performance of the predecessor fund for periods before it became a
mutual fund. The predecessor fund's performance was adjusted to reflect the
Fund's estimate of its expense ratio for the first year of operations as a
mutual fund, including any applicable sales load. The predecessor fund was not
registered under the Investment Company Act of 1940 nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results.
13
<PAGE>
SMALL-CAP VALUE FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide capital appreciation.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in the securities of
smaller capitalization companies (i.e., companies that fall in the lowest 15% of
publicly traded companies listed in the U.S. determined by MARKET
CAPITALIZATIONS). These securities tend to be represented in the Russell 2000
Index, an index of companies with a median market capitalization of $500
million, that is a popular measure of the stock price performance of
small companies.
Using a "value" approach, the portfolio manager buys those securities
considered to be conservatively valued relative to the securities of comparable
companies. The portfolio manager pays particular attention to a company's
current and forecasted earnings levels.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 22.)
Market risk
Small company risk
(Sidebar)
TERMS TO KNOW
MARKET CAPITALIZATION, see page 8
14
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. When you consider this information, please
remember that the Fund's past performance is not necessarily an indication of
how it will perform in the future.
<TABLE>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -3.93% 29.58% 15.05% 27.15% -3.21% 14.96% 16.30% 41.64% -16.26% 14.02%
</TABLE>
BEST QUARTER: Q1 1991 20.97%
WORST QUARTER: Q3 1990 -23.72%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Small-Cap Value Fund -3.93% 12.00% 12.29%
Russell 2000 Small
Stock Index -2.55% 11.86% 12.92%
*Prior to the Fund commencing operations, Harris Trust managed a collective
or common investment fund with investment objectives and policies that were, in
all material respects, equivalent to the Fund. The performance for the Fund
includes the performance of the predecessor fund for periods before it became a
mutual fund. The predecessor fund's performance was adjusted to reflect the
Fund's estimate of its expense ratio for the first year of operations as a
mutual fund, including any applicable sales load. The predecessor fund was not
registered under the Investment Company Act of 1940 nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results.
15
<PAGE>
SMALL-CAP OPPORTUNITY FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide capital appreciation.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in the securities of
smaller capitalization companies (i.e., companies that fall in the lowest 15% of
publicly traded companies listed in the U.S. determined by MARKET
CAPITALIZATIONS). These securities tend to be represented in the Russell 2000
Index, an index of companies with a median market capitalization of $500
million, that is a popular measure of the stock price performance of
small companies.
The Fund invests in the securities of companies that the portfolio manager
believes have superior growth potential. In selecting securities, the portfolio
manager pays particular attention to companies offering potentially
above-average earnings, sales and asset value growth. The portfolio manager buys
those securities considered to be attractively valued relative to the securities
of comparable companies.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 22.)
Market risk
Small company risk
(Sidebar)
TERMS TO KNOW
MARKET CAPITALIZATIONS, see page 8
16
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. When you consider this information, please
remember that the Fund's past performance is not necessarily an indication of
how it will perform in the future.
<TABLE>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.16% 25.47% 18.80% 26.30% -3.71% 15.19% 19.00% 47.65% -11.57% 17.23%
</TABLE>
BEST QUARTER: Q1 1991 24.93%
WORST QUARTER: Q3 1990 -23.79%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Small-Cap Opportunity Fund 1.16% 12.89% 14.42%
Russell 2000 Small
Stock Index -2.55% 11.86% 12.92%
*Prior to the Fund commencing operations, Harris Trust managed a collective
or common investment fund with investment objectives and policies that were, in
all material respects, equivalent to the Fund. The performance for the Fund
includes the performance of the predecessor fund for periods before it became a
mutual fund. The predecessor fund's performance was adjusted to reflect the
Fund's estimate of its expense ratio for the first year of operations as a
mutual fund, including any applicable sales load. The predecessor fund was not
registered under the Investment Company Act of 1940 nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results.
17
<PAGE>
INTERNATIONAL FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide capital appreciation. Current income is a secondary
objective.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in non-U.S. equity
securities. The Fund invests in at least three foreign countries to reduce risk.
The Fund invests in securities that the portfolio manager believes are
undervalued. When selecting securities, the portfolio manager pays particular
attention to the quality of a company's management, its growth prospects and
financial soundness.
The Fund may engage in foreign currency hedging transactions in an attempt to
minimize the effects of currency fluctuations on the Fund.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 22.)
Currency rate risk
Foreign risk
Foreign Year 2000 risk
Geographic concentration risk
Market risk
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. When you consider this information, please
remember that the Fund's past performance is not necessarily an indication of
how it will perform in the future.
<TABLE>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -4.64% -4.87% 5.11% 4.18% 4.29% 24.61% -4.39% 11.95% -22.16% 11.84%
</TABLE>
BEST QUARTER: Q4 1998 13.60%
WORST QUARTER: Q3 1990 -19.75%
18
<PAGE>
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
International Fund -4.64% 0.71% 1.87%
MSCI EAFE Index 20.00% 9.19% 5.54%
*Prior to the Fund commencing operations, Harris Trust managed a collective
or common investment fund with investment objectives and policies that were, in
all material respects, equivalent to the Fund. The performance for the Fund
includes the performance of the predecessor fund for periods before it became a
mutual fund. The predecessor fund's performance was adjusted to reflect the
Fund's estimate of its expense ratio for the first year of operations as a
mutual fund, including any applicable sales load. The predecessor fund was not
registered under the Investment Company Act of 1940 nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results.
19
<PAGE>
EMERGING MARKETS FUND
WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks to provide capital appreciation.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in equity securities of
issuers located in EMERGING MARKET COUNTRIES. The portfolio manager selects
securities considered by the manager to be undervalued.
The Fund's investments reflect a broad cross-section of countries, industries
and companies.
When selecting securities, the portfolio manager pays particular attention to
the quality of a company's management, its growth prospects and financial
soundness.
The portfolio manager also evaluates such criteria as:
o Political climate of a country
o Interest rate and currency considerations
o Equity market valuations
The Fund may invest in certain debt securities when the portfolio manager
believes the potential for appreciation equals or exceeds that available from
investments in common stock.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 22.)
Currency rate risk
Foreign risk
Foreign Year 2000 risk
Geographic concentration risk
Market risk
(Sidebar)
TERMS TO KNOW
EMERGING MARKET COUNTRY
The World Bank and other international agencies define a developing country
on the basis of such factors as trade initiatives, per capita income and level
of industrialization. There are over 130 countries that are emerging or
developing under this standard and approximately 40 of these countries have
stock markets. Emerging market countries generally include every nation in the
world except the U.S., Canada, Japan, Australia, New Zealand and most nations
located in Western Europe.
20
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. When you consider this information, please
remember that the Fund's past performance is not necessarily an indication of
how it will perform in the future.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
1998
- -31.16%
BEST QUARTER: Q4 1998 14.50%
WORST QUARTER: Q2 1998 -27.09%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year Inception (10/21/97)
Emerging Markets Fund -31.16% -35.71%
MSCI Emerging
Markets Index -25.30% -23.10%
21
<PAGE>
RISK CONSIDERATIONS
All Fund investments are subject to risk and may decline in value. Each Fund's
exposure depends upon its specific investment practices. The amount and types of
risk vary depending on:
o The investment objective
o The Fund's ability to achieve its objective
o The markets in which the Fund invests
o The investments the Fund makes in those markets
o Prevailing economic conditions over the period of an investment
Please note that there are other circumstances that could adversely affect
your investment and prevent a Fund from achieving its objectives.
ALLOCATION RISK
The risk that the percentages of the Fund's assets invested in equities and
fixed income securities, respectively, will not be optimum for market conditions
at a given time.
COUNTERPARTY RISK
The risk that when a fund engages in repurchase, reverse repurchase,
derivative, when-issued, forward commitment, delayed settlement and securities
lending transactions with another party, it relies on the other party to
consummate the transaction and is subject to the risk of default by the other
party. Failure of the other party to consummate the transaction may result in
the fund's incurring a loss or missing an opportunity to obtain a price believed
to be advantageous.
CURRENCY RATE RISK
The risk that fluctuations in the exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. Although a fund may
engage in foreign currency hedge transactions to help reduce this risk, those
transactions may not be effective or appropriate in particular situations nor,
of course, will they protect against declines in security values.
FOREIGN RISK
The risk that foreign securities may be more volatile in price than their
domestic counterparts, in part because of higher political and economic risks,
lack of reliable financial information and fluctuations in currency exchange
rates. These risks are usually higher in less developed countries.
FOREIGN YEAR 2000 RISK
The risk that companies in a country or a region cannot anticipate or manage
problems related to computer programs and the year 2000, and that this will
adversely affect the value of securities issued by companies located in that
country or region.
GEOGRAPHIC CONCENTRATION RISK
The risk that, if a fund concentrates its investments in a single country or
region, its portfolio will be more susceptible to factors adversely affecting
issuers located in that country or region than would a more geographically
diverse portfolio of securities.
22
<PAGE>
securities more than shorter-term securities and lower quality securities
more than higher quality securities.
MARKET RISK
The risk that the market value of a fund's investments will fluctuate as the
stock and bond markets fluctuate. Market risk may affect a single issuer,
industry or section of the economy or it may affect the market as a whole.
MARKET SEGMENT RISK
The risk that investments concentrated in one portion of the market (e.g.,
large capitalization stocks or short-term government bonds) will underperform
the overall market.
SMALL COMPANY RISK
The risk that investments in smaller companies may be more volatile than
investments in larger companies, as smaller companies generally experience
higher growth and failure rates. The trading volume of smaller company
securities is normally lower than that of larger companies. Changes in the
demand for the securities of smaller companies generally have a disproportionate
effect on their market price, tending to make prices rise more in response to
buying demand and fall more in response to selling pressure.
VOLATILITY RISK
The risk that performance will be affected by unanticipated events (e.g.,
significant earnings shortfalls or gains, war, or political events) that cause
major price changes in individual securities or market sectors.
23
<PAGE>
The risks of investing in the various Funds are illustrated in the chart below.
<TABLE>
<CAPTION>
Balanced Index Equity Equity Growth Small-Cap Small-Cap International Emerging
Income Value Opportunity Markets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RISKS
Allocation *
Counterparty * * * * * * * * *
Credit * * *
Currency rate * * *
Foreign * * * * * * * *
Foreign
Year 2000 * *
Geographic
concentration * *
Interest rate * * *
Leverage * * * * * * * * *
Market * * * * * * * * *
Market segment * * * * * *
Prepayment * * *
Small company * *
Volatility * * * *
</TABLE>
24
<PAGE>
FEES AND EXPENSES
The tables below describe the fees and expenses that you will pay if you buy
and hold shares of the Harris Insight Equity Funds.
SHAREHOLDER FEES (fees paid directly from your investment)
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON REINVESTED DIVIDENDS None
REDEMPTION FEE None
EXCHANGE FEE None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets,
expressed as a % of average net assets)
<TABLE>
<CAPTION>
Equity Small-Cap Small-Cap Emerging
Balanced Index Income Equity Growth Value Opportunity International Markets
Fund Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
Advisory Fees(1) 0.60% 0.25% 0.70% 0.70% 0.90% 0.80% 1.00% 1.05% 1.25%
Other Expenses 0.38 0.21 0.26 0.19 0.21 0.25 0.21 0.28 0.83
Total Operating
Expenses(1) 0.98% 0.46% 0.96% 0.89% 1.11% 1.05% 1.21% 1.33% 2.08%
</TABLE>
(1)Expenses are based on amounts incurred by the Funds during their most
recent fiscal year but do not reflect advisory fees waived by Harris Trust.
After these waivers, actual Fund advisory fees and total operating expenses for
the fiscal year ended December 31, 1998 were:
<TABLE>
<CAPTION>
Equity Small-Cap Small-Cap Emerging
Balanced Index Income Equity Growth Value Opportunity International Markets
Fund Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
Advisory Fees 0.50% 0.24% 0.67% 0.70% 0.89% 0.74% 0.99% 1.05% 0.92%
Total Operating
Expenses 0.88% 0.45% 0.93% 0.89% 1.10% 0.99% 1.20% 1.33% 1.75%
</TABLE>
25
<PAGE>
Customers of a financial institution, such as Harris Trust, may also be
charged certain fees or 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.
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the
Harris Insight Equity Funds to the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in a Fund for the time periods indicated
and then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although your actual costs and the return on
your investment may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
Equity Small-Cap Small-Cap Emerging
Balanced Index Income Equity Growth Value Opportunity International Markets
Fund Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One Year $100 $47 $98 $91 $113 $107 $123 $135 $211
Three Years 312 148 306 284 353 334 384 421 652
Five Years 542 258 531 493 612 579 665 729 1,119
Ten Years 1,201 579 1,178 1,096 1,352 1,283 1,466 1,601 2,410
</TABLE>
26
<PAGE>
INTRODUCTION TO THE HARRIS INSIGHT FIXED INCOME FUNDS
The Harris Insight Fixed Income Funds invest primarily in bonds, which are
debt instruments that normally --
o Pay a set amount of interest on a regular basis
o Repay the face amount, or principal, at a stated future date
o Are issued by domestic and foreign corporations, federal and state
governments, and their agencies
WHY INVEST IN FIXED INCOME FUNDS?
Fixed income funds can play a key role in an investor's portfolio by offering:
o A reasonable level of current income
o A measure of price stability relative to equity fund investments
o In the case of tax-exempt funds, income that is generally free from
federal income tax
HOW DO FIXED INCOME FUNDS PROVIDE A STEADY STREAM OF INCOME?
Fixed income funds earn income on the underlying securities and pay this out
to the shareholders on a regular (e.g., monthly) basis.
WHAT CAUSES BOND VALUES TO CHANGE?
Investors should be aware that bonds will fluctuate in value for any of three
main reasons:
o A change in interest rates
o A change in economic conditions
o A change in the financial condition of the issuer
HOW DOES THE PRICE OF A BOND MOVE WITH INTEREST RATES?
When interest rates rise, bond prices fall -- and vice versa. Changing interest
rates have a greater effect on bonds with longer maturities than on those with
shorter maturities. As a result, when prevailing interest rates rise, the prices
of long-term bonds decrease, to a greater degree than the prices of short-term
bonds. The reverse is true when interest rates fall.
HOW ARE BONDS GRADED?
Bond quality, or grade, refers to the creditworthiness (the ability to repay
debt) of the issuing organization. Higher ratings indicate better quality.
Independent rating services, such as Moody's Investors Service or Standard &
Poor's, publish and disseminate bond quality ratings on a regular basis.
HOW ARE SECURITIES SELECTED FOR THE HARRIS INSIGHT FIXED INCOME FUNDS?
The portfolio manager actively manages fixed income investments in pursuit of
attractive investment opportunities. The portfolio manager applies three key
tools in selecting securities:
o Analysis of economic and market conditions affecting the fixed income
markets, including forecasting the direction of interest rates
o Assessment of the yield advantages of different classes of bonds or
sectors of the bond market
o Assessment of the value offered, relative to other investment
opportunities, including an independent review of each issue's credit
quality
27
<PAGE>
Based on this analysis, the portfolio manager endeavors to identify bonds
that appear:
o Undervalued relative to the market's expectations
o Positioned to benefit from anticipated changes in interest rates
(Sidebar)
Shares of the Harris Insight Fixed Income Funds are not bank deposits and are
not insured or guaranteed by the FDIC or any other government agency. The value
of your investment in a Fund will fluctuate, which means that you may lose
money.
Each Fund's primary investment practices and strategies are discussed in this
prospectus. Other practices, and their related risks, are described in the
statement of additional information. The investment objective of each Fund is
not fundamental and may be changed by the Board of Directors or Trustees without
approval by the Fund's shareholders.
Each Fund's principal risks are provided in an alphabetical listing within
the Fund description that follows. These risks are discussed in detail under
"Risk Considerations" on page 42.
28
<PAGE>
CONVERTIBLE SECURITIES FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide capital appreciation and current income.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in CONVERTIBLE
SECURITIES (bonds, preferred stock and other instruments that are convertible
into common stock).
The Fund also may invest up to 35% of its assets in SYNTHETIC CONVERTIBLES
and 15% of its assets in common stocks. When, in the portfolio manager's
opinion, convertible securities do not serve the Fund's objective, the Fund may
invest part or all of its assets in U.S. GOVERNMENT SECURITIES, corporate debt
obligations and short-term money market instruments. The portfolio manager will
continue to seek current income during such periods, but will put less emphasis
on capital appreciation.
The portfolio manager invests primarily in convertible securities rated "B"
or better by Standard & Poor's Corporation and Moody's Investors Service, Inc.
(or, if not rated, securities considered by the portfolio manager to be of
comparable quality). The Fund may also invest up to:
o 15% of its assets in securities rated "B-"
o 5% of its assets in convertible securities rated "CCC" by Standard &
Poor's or "Caa" by Moody's. (Securities rated "BB" or below by Standard
& Poor's or "Ba" or below by Moody's are "high yield" securities,
commonly known as "junk bonds." These securities are considered
speculative and are subject to increased risk.)
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 42.)
Credit risk
Interest rate risk
Market risk
29
<PAGE>
(Side Bar)
TERMS TO KNOW
CONVERTIBLE SECURITIES
Bonds, debentures, notes, preferred stock or other securities that are
convertible into common stock. Convertible securities have some unique return
characteristics relative to market fluctuations:
o When equity markets go up, they tend to rise in price
o When interest rates rise, they tend to decline relatively less in price
than long-term bonds
SYNTHETIC CONVERTIBLES
Issues that function like a convertible security by combining separate
securities into one investment package offering fixed income and the right to
acquire stock.
U.S. GOVERNMENT SECURITIES
Obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. When you consider this information, please
remember that the Fund's past performance is not necessarily an indication of
how it will perform in the future.
<TABLE>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -1.80% 18.68% 21.05% 19.18% -3.09% 13.84% 17.61% 27.14% -20.39% 13.14%
</TABLE>
BEST QUARTER: Q1 1991 15.01%
WORST QUARTER: Q3 1990 -17.64%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Convertible Securities Fund -1.80% 10.26% 9.59%
First Boston
Convertible Index 6.55% 10.82% 12.29%
*Prior to the Fund commencing operations, Harris Trust managed a collective
or common investment fund with investment objectives and policies that were, in
all material respects, equivalent to the Fund. The performance for the Fund
includes the performance of the predecessor fund for periods before it became a
30
<PAGE>
mutual fund. The predecessor fund's performance was adjusted to reflect the
Fund's estimate of its expense ratio for the first year of operations as a
mutual fund, including any applicable sales load. The predecessor fund was not
registered under the Investment Company Act of 1940 nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results.
31
<PAGE>
TAX-EXEMPT BOND FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide a high level of current income that is exempt from
federal income tax.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 80% of its assets in MUNICIPAL SECURITIES
with varying maturities. These securities are generally exempt from federal
income tax and not subject to the ALTERNATIVE MINIMUM TAX.
The portfolio manager employs:
o Interest rate risk management techniques to temper the potential negative
impact of interest rate increases on the Fund's share price
o In-depth credit analysis to help ensure that the municipalities issuing
the bonds are likely to repay their debt
The Fund also may invest in U.S. GOVERNMENT SECURITIES and securities with
various forms of credit enhancement (such as bank letters of credit). The Fund
may buy and sell options and interest rate futures contracts to hedge against
declines in the value of portfolio securities.
In pursuit of higher income, the portfolio manager normally favors
longer-term bonds that typically mature in ten years or more. In exchange for
this higher potential income, investors may experience higher share price
volatility than would occur through investments with shorter maturities.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 42.)
Credit risk
Interest rate risk
Municipal market risk
(Sidebar)
TERMS TO KNOW
ALTERNATIVE MINIMUM TAX (AMT)
A federal tax designed to ensure that wealthy individuals, trusts, estates and
companies pay at least some income tax.
MUNICIPAL SECURITIES
Bonds and other obligations issued by state and local governments to finance
operations or projects. These securities make interest payments that are exempt
from federal income tax.
U.S. GOVERNMENT SECURITIES, see page 30
32
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. When you consider this information, please
remember that the Fund's past performance is not necessarily an indication of
how it will perform in the future.
<TABLE>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.88% 8.55% 3.76% 14.45% -7.30% 12.95% 8.37% 11.61% 5.60% 10.87%
</TABLE>
BEST QUARTER: Q2 1989 6.46%
WORST QUARTER: Q1 1994 -5.09%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Tax-Exempt Bond Fund 4.88% 4.62% 7.20%
Lehman Brothers
Municipal Bond Index 6.48% 6.22% 8.22%
*Prior to the Fund commencing operations, Harris Trust managed a collective
or common investment fund with investment objectives and policies that were, in
all material respects, equivalent to the Fund. The performance for the Fund
includes the performance of the predecessor fund for periods before it became a
mutual fund. The predecessor fund's performance was adjusted to reflect the
Fund's estimate of its expense ratio for the first year of operations as a
mutual fund, including any applicable sales load. The predecessor fund was not
registered under the Investment Company Act of 1940 nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results.
33
<PAGE>
BOND FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide a high level of total return, including a competitive
level of current income.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in bonds and similar fixed
income securities.
o The Fund may invest in the following:
o Bonds and debentures
o U.S. GOVERNMENT SECURITIES
o Debt obligations of foreign governments
o MORTGAGE-BACKED SECURITIES
o MUNICIPAL SECURITIES
o ZERO COUPON SECURITIES
o Other floating/variable rate obligations
o Options and interest-rate futures contracts
The Fund normally maintains a WEIGHTED AVERAGE MATURITY (or average life with
respect to mortgage-backed and asset-backed securities) of between five and ten
years. Accordingly, the Fund's holdings may experience more share price
volatility than bonds with shorter maturities, making the Fund a more suitable
investment for long-term investors.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 42.)
Credit risk
Interest rate risk
Prepayment risk
(Sidebar)
TERMS TO KNOW
U.S. GOVERNMENT SECURITIES, see page 30
MORTGAGE-BACKED SECURITIES
Debt issues, based on a pool of underlying mortgages, that make interest and
principal payments to investors.
MUNICIPAL SECURITIES, see page 32
34
<PAGE>
ZERO COUPON SECURITIES
Securities that do not pay a stated interest rate, but are sold at a deep
discount to their value at maturity. The difference between its discounted price
and the full value of the security at maturity represents the payment of
interest.
WEIGHTED AVERAGE MATURITY
An average of all of the maturities of a fund's securities holdings, weighted
according to each security's dollar value relative to the rest of the holdings.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. When you consider this information, please
remember that the Fund's past performance is not necessarily an indication of
how it will perform in the future.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
1998 1997
7.12% 9.41%
Best Quarter: Q3 1997 3.67%
Worst Quarter: Q1 1997 -0.87%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year Inception (4/16/96)
Bond Fund 7.12% 8.10%
Lehman Brothers
Aggregate Bond Index 8.67% 9.04%
35
<PAGE>
INTERMEDIATE TAX-EXEMPT BOND FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide a high level of current income that is exempt from
federal income tax.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 80% of its assets in a broad range of
MUNICIPAL SECURITIES. These securities are generally exempt from federal income
tax and not subject to the ALTERNATIVE MINIMUM TAX.
Under normal market conditions, the Fund's investments will have a WEIGHTED
AVERAGE MATURITY in a range of three to ten years. Such intermediate-term
securities share these basic characteristics:
o They offer a higher income stream and somewhat higher share price
volatility than shorter-term municipal bond funds
o They tend to deliver less income with greater share price stability
than longer-term bond funds
The Fund also may invest in U.S. GOVERNMENT SECURITIES and securities with
various forms of credit enhancement (such as bank letters of credit). The Fund
may buy and sell options and interest rate futures contracts to hedge against
declines in value of portfolio securities.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 42.)
Credit risk
Interest rate risk
Municipal market risk
(Sidebar)
TERMS TO KNOW
MUNICIPAL SECURITIES, see page 32
ALTERNATIVE MINIMUM TAX, see page 32
WEIGHTED AVERAGE MATURITY, see page 35
U.S. GOVERNMENT SECURITIES, see page 30
36
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. When you consider this information, please
remember that the Fund's past performance is not necessarily an indication of
how it will perform in the future.
<TABLE>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.94% 6.41% 3.06% 11.68% -3.08% 8.55% 6.77% 11.02% 6.35% 8.10%
</TABLE>
Best Quarter: Q2 1989 4.72%
Worst Quarter: Q1 1994 -2.83%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Intermediate Tax-Exempt Bond Fund 4.94% 4.49% 6.30%
Lehman Brothers Quality
Intermediate Municipal Bond Index 6.00% 5.59% N/A **
*Prior to the Fund commencing operations, Harris Trust managed a collective
or common investment fund with investment objectives and policies that were, in
all material respects, equivalent to the Fund. The performance for the Fund
includes the performance of the predecessor fund for periods before it became a
mutual fund. The predecessor fund's performance was adjusted to reflect the
Fund's estimate of its expense ratio for the first year of operations as a
mutual fund, including any applicable sales load. The predecessor fund was not
registered under the Investment Company Act of 1940 nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results.
**The inception date of the Lehman Brothers Quality Intermediate Municipal Bond
Index is July 1, 1993.
37
<PAGE>
SHORT/INTERMEDIATE BOND FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide a high level of total return, including a
competitive level of current income.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets primarily in bonds with
a short/intermediate-term average maturity.
The portfolio manager favors bonds with two to five years remaining to
maturity in order to achieve relative price stability and an attractive stream
of income. Such short/intermediate-term bonds tend to offer a buffer against
rising interest rates, although they will appreciate less when interest rates
fall.
The Fund normally maintains a WEIGHTED AVERAGE MATURITY (or average life with
respect to mortgage-backed and asset-backed securities) of between two and five
years. The Fund may invest in:
o Bonds and debentures
o U.S. GOVERNMENT SECURITIES
o U.S. dollar-denominated debt obligations of foreign issuers
o MORTGAGE-BACKED SECURITIES
o MUNICIPAL SECURITIES
o ZERO COUPON SECURITIES
o Other floating/variable rate obligations
o Options and interest-rate futures contracts
If a defensive position is warranted, the Fund may hold short-term U.S.
government securities (such as Treasury bills), high-quality money market
instruments and cash.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 42.)
Credit risk
Interest rate risk
Prepayment risk
38
<PAGE>
(Sidebar)
TERMS TO KNOW
U.S. GOVERNMENT SECURITIES, see page 30
MORTGAGE-BACKED SECURITIES, see page 34
MUNICIPAL SECURITIES, see page 32
ZERO COUPON SECURITIES, see page 35
WEIGHTED AVERAGE MATURITY, see page 35
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. When you consider this information, please
remember that the Fund's past performance is not necessarily an indication of
how it will perform in the future.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
1998 1997
7.01% 7.15%
BEST QUARTER: Q3 1998 3.33%
WORST QUARTER: Q1 1997 -0.06%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year Inception (2/26/96)
Short/Intermediate
Bond Fund 7.01% 6.22%
Lehman Brothers
Intermediate Government Corporate
Bond Index 8.42% 7.23%
39
<PAGE>
INTERMEDIATE GOVERNMENT BOND FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide a high level of current income, consistent with
preservation of capital.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 65% of its assets in:
o U.S. GOVERNMENT SECURITIES
o MORTGAGE-BACKED SECURITIES, issued by U.S. government agencies
o REPURCHASE AGREEMENTS collateralized by U.S. government securities
The WEIGHTED AVERAGE MATURITY (or average life with respect to
mortgage-backed and asset-backed securities) generally will be in the
intermediate range of between three and ten years.
The portfolio manager may invest up to 20% of the Fund's assets in:
o ASSET-BACKED SECURITIES
o ZERO COUPON SECURITIES
o Corporate bonds
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 42.)
Credit risk
Interest rate risk
Prepayment risk
(Sidebar)
TERMS TO KNOW
U.S. GOVERNMENT SECURITIES, see page 30
MORTGAGE-BACKED SECURITIES, see page 34
REPURCHASE AGREEMENTS
A binding agreement enabling a bank or broker to borrow money, using securities
as collateral, with a promise to buy back the securities at a specified price,
usually within 90 days.
WEIGHTED AVERAGE MATURITY, see page 35
ASSET-BACKED SECURITIES
Securities collateralized by credit card loans or other accounts receivable.
ZERO COUPON SECURITIES, see page 35
40
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. When you consider this information, please
remember that the Fund's past performance is not necessarily an indication of
how it will perform in the future.
<TABLE>
YEAR-BY-YEAR TOTAL RETURN* (as of 12/31 each year)
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.45% 7.82% 4.06% 13.46% -1.65% 8.26% 6.82% 13.50% 9.29% 12.28%
</TABLE>
BEST QUARTER: Q2 1989 6.42%
WORST QUARTER: Q1 1994 -2.09%
AVERAGE ANNUAL TOTAL RETURN* (as of 12/31/98)
1 Year 5 Years 10 Years
Intermediate Government Bond Fund 7.45% 6.11% 8.04%
Lehman Brothers
Intermediate Government Bond Index 8.48% 6.45% 8.34%
*Prior to the Fund commencing operations, Harris Trust managed a collective
or common investment fund with investment objectives and policies that were, in
all material respects, equivalent to the Fund. The performance for the Fund
includes the performance of the predecessor fund for periods before it became a
mutual fund. The predecessor fund's performance was adjusted to reflect the
Fund's estimate of its expense ratio for the first year of operations as a
mutual fund, including any applicable sales load. The predecessor fund was not
registered under the Investment Company Act of 1940 nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results.
41
<PAGE>
RISK CONSIDERATIONS
All Fund investments are subject to risk and may decline in value. Each Fund's
exposure depends upon its specific investment practices. The amount and types of
risk vary depending on:
o The investment objective
o The Fund's ability to achieve its objective
o The markets in which the Fund invests
o The investments the Fund makes in those markets
o Prevailing economic conditions over the period of an investment
Please note that there are other circumstances that could adversely affect
your investment and prevent a Fund from achieving its objectives.
COUNTERPARTY RISK
The risk that when a fund engages in repurchase, reverse repurchase,
derivative, when-issued, forward commitment, delayed settlement and securities
lending transactions with another party, it relies on the other party to
consummate the transaction and is subject to the risk of default by the other
party. Failure of the other party to consummate the transaction may result in
the fund's incurring a loss or missing an opportunity to obtain a price believed
to be advantageous.
CREDIT RISK
The risk that the issuer of a security, or the counterparty to a contract,
will default or otherwise be unable to honor a financial obligation. Debt
securities rated below investment-grade are especially susceptible to this risk.
INTEREST RATE RISK
The risk that changing interest rates may adversely affect the value of an
investment. With fixed-rate securities, an increase in prevailing interest rates
typically causes the value of those securities to fall, while a decline in
prevailing interest rates may produce an increase in the market value of the
securities. Changes in interest rates will affect the value of longer-term fixed
income
42
<PAGE>
securities more than shorter-term securities and lower quality securities
more than higher quality securities.
MARKET RISK
The risk that the market value of a fund's investments will fluctuate as the
stock and bond markets fluctuate. Market risk may affect a single issuer,
industry or section of the economy or it may affect the market as a whole.
MUNICIPAL MARKET RISK
The risk that certain factors may negatively affect the value of municipal
securities, and, as a result, the share price of a fund that invests in them.
These factors include political or legislative changes, uncertainties related to
the tax status of the securities or the rights of investors in the securities. A
fund may invest in municipal obligations that are related in such a way (e.g.,
multiple apparently unrelated issues that depend on the financial rating or
support of a single government unit) that an economic, business or political
development or change that affects one of these obligations would also affect
the other obligations.
PREPAYMENT RISK
The risk that issuers will prepay fixed rate obligations when interest rates
fall, forcing a fund to re-invest in obligations with lower interest rates than
the original obligations.
43
<PAGE>
The risks of investing in the various Funds are illustrated in the chart below.
<TABLE>
<CAPTION>
Convertible Tax-Exempt Bond Intermediate Short/Intermediate Intermediate Gov.
Securities Bond Tax-Exempt Bond Bond
<S> <C> <C> <C> <C> <C> <C>
RISKS
Counterparty * * * * * *
Credit * * * * * *
Foreign * * * *
Interest rate * * * * * *
Leverage * * * * * *
Market * * * * * *
Market segment * * *
Municipal market * * *
Prepayment * * * * *
</TABLE>
44
<PAGE>
FEES AND EXPENSES
The tables below describe the fees and expenses that you will pay if you buy
and hold shares of the Harris Insight Fixed Income Funds.
SHAREHOLDER FEES (fees paid directly from your investment)
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON REINVESTED DIVIDENDS None
REDEMPTION FEE None
EXCHANGE FEE None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets,
expressed as a % of average net assets)
<TABLE>
<CAPTION>
Convertible Intermediate Short/ Intermediate
Securities Tax-Exempt Bond Tax-Exempt Intermediate Government
Fund Bond Fund Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
Investment
Advisory Fees(1) 0.70% 0.60% 0.65% 0.60% 0.70% 0.65%
Other Expenses 0.31 0.20 0.23 0.20 0.20 0.26
Total Operating
Expenses(1) 1.01% 0.80% 0.88% 0.80% 0.90% 0.91%
</TABLE>
(1)Expenses are based on amounts incurred by the Funds during their most
recent fiscal year but do not reflect advisory fees waived by Harris Trust.
After these reductions, actual Fund advisory fees and total operating expenses
for the fiscal year ended December 31, 1998 were:
<TABLE>
<CAPTION>
Convertible Intermediate Short/ Intermediate
Securities Tax-Exempt Bond Tax-Exempt Intermediate Government
Fund Bond Fund Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
Investment
Advisory Fees 0.61% 0.59% 0.37% 0.60% 0.40% 0.24%
Total Operating Expenses 0.92% 0.79% 0.60% 0.80% 0.60% 0.50%
</TABLE>
Customers of a financial institution, such as Harris Trust, may also be
charged certain fees or 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.
45
<PAGE>
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the
Harris Insight Fixed Income Funds to the cost of investing in other mutual
funds. The example assumes that you invest $10,000 in a Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs and the return on your investment may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
Convertible Intermediate Short/ Intermediate
Securities Tax-Exempt Bond Tax-Exempt Intermediate Government
Fund Bond Fund Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
One Year $ 103 $ 82 $ 90 $ 82 $ 92 $ 93
Three Years 322 255 281 255 287 290
Five Years 558 444 488 444 498 504
Ten Years 1,236 990 1,084 990 1,108 1,120
</TABLE>
46
<PAGE>
INTRODUCTION TO THE HARRIS INSIGHT MONEY MARKET FUNDS
The Harris Insight Money Market Funds offer investors the opportunity to
derive income from a portfolio of money market instruments with a stable net
asset value. They invest in short-term securities issued by banks, other U.S.
corporations, the U.S. government, state or local governments, and other
entities. These money market instruments may include certificates of deposit,
bankers' acceptances, variable rate demand notes, fixed-term obligations,
COMMERCIAL PAPER, ASSET-BACKED SECURITIES AND REPURCHASE AGREEMENTS.
WHY INVEST IN MONEY MARKET FUNDS?
These funds are especially well-suited for conservative investors who seek --
o Current income
o Stability of principal (they are managed in an attempt to maintain a
share price of $1.00)
o Checkwriting privileges permitting access to your money at any time
WHAT ARE THE FUNDS' INVESTMENT PARAMETERS?
Money market funds must conform to a number of regulations, including rules that
require each fund to --
o Limit the WEIGHTED AVERAGE MATURITY of their investments to 90 days or
less
o Buy only high quality, short-term money market instruments
o Buy securities with remaining maturities no longer than 397 days
HOW ARE SECURITIES SELECTED FOR THE HARRIS INSIGHT MONEY MARKET FUNDS?
Two key tools are applied when selecting short-term securities for the money
market funds:
o Independent review of each issue's credit quality
o Analysis of economic and market conditions
The portfolio manager endeavors to identify money market instruments that
appear to --
o Have minimal credit risk
o Be positioned to benefit from anticipated changes in interest rates
(Sidebar)
TERMS TO KNOW
COMMERCIAL PAPER
Short-term securities that are issued by corporations and other borrowers to
finance their current obligations and are typically unsecured. Issues of
commercial paper normally have maturities of less than nine months and have
fixed rates of return.
ASSET-BACKED SECURITIES, see page 40
REPURCHASE AGREEMENTS, see page 40
WEIGHTED AVERAGE MATURITY, see page 35
47
<PAGE>
Shares of the Harris Insight Money Market Funds are not bank deposits and are
not guaranteed or insured by any bank, government entity, or the FDIC. Although
each of the Harris Insight Money Market Funds seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by investing in
a Fund.
Each Fund's primary investment practices and strategies are discussed in this
prospectus. Other practices, and their related risks, are described in the
statement of additional information. The investment objective of each Fund is
not fundamental and may be changed by the Board of Directors or Trustees without
approval by the Fund's shareholders.
Each of the Funds' principal risks is provided in an alphabetical listing
within the Fund description. These risks are discussed in detail under "Risk
Considerations" on page 54
48
<PAGE>
TAX-EXEMPT MONEY MARKET FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide 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.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund normally invests at least 80% of its assets in high-quality,
short-term money market instruments that are generally exempt from federal
income tax and are not subject to the ALTERNATIVE MINIMUM TAX.
The Fund will invest primarily in high-quality MUNICIPAL SECURITIES that are
generally exempt from federal income taxes and will purchase only U.S.
dollar-denominated securities.
In addition, the Fund will purchase only securities (other than U.S.
GOVERNMENT SECURITIES) that have been rated within the two highest rating
categories by at least two nationally recognized rating agencies (or, if not
rated, are considered by the portfolio manager to be of comparable quality).
Depending on market conditions, the Fund may temporarily hold up to 20% of
the current value of its assets in securities whose interest income is subject
to taxation.
Current income generally will be lower than the income provided by funds that
invest in securities with taxable income or securities with longer maturities or
lower quality.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 54.)
Credit risk
Municipal market risk
Principal stability risk
(Sidebar)
TERMS TO KNOW
ALTERNATIVE MINIMUM TAX (AMT)
A federal tax designed to ensure that wealthy individuals, trusts, estates and
companies pay at least some income tax.
MUNICIPAL SECURITIES
Bonds and other obligations issued by state and local governments to finance
operations or projects. These securities make interest payments that are exempt
from federal income tax.
49
<PAGE>
U.S. GOVERNMENT SECURITIES
Obligations issued or guaranteed by the U.S. government, its agencies,
instrumentalities or sponsored enterprises.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. When you consider this information, please
remember that the Fund's past performance is not necessarily an indication of
how it will perform in the future.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
1998 1997 1996 1995
3.35% 3.47% 3.19% 3.60%
BEST QUARTER: Q2 1995 0.95%
WORST QUARTER: Q1 1996 0.76%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year Inception (1/5/94)
Tax-Exempt Money Market Fund 3.35% 3.23%
As of December 31, 1998, the seven-day yield for the Fund was 3.35%. As of
the same date, the effective tax-equivalent seven-day yield for the Fund was
4.74%. For current yield information, please call 800.982.8782.
50
<PAGE>
MONEY MARKET FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide as high a level of current income as is consistent
with its investment policies and with preservation of capital and liquidity.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund invests only in high-quality, short-term money market instruments
that, in the opinion of the investment adviser, present minimal credit risks.
The Fund invests in a broad range of short-term money market instruments,
including U.S. GOVERNMENT SECURITIES, as well as bank and commercial
obligations. 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 will purchase only U.S. dollar-denominated securities. In addition,
the Fund will purchase only securities (other than U.S. government securities)
that have been rated within the two highest rating categories by at least two
nationally recognized rating agencies (or, if not rated, are considered by the
portfolio manager to be of comparable quality). No more than 5% of the Fund's
assets will be invested in securities in the second highest rating category.
Current income generally will be lower than the income provided by funds that
invest in securities with longer maturities or lower quality.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 54.)
Credit risk
Foreign risk
Principal stability risk
(Sidebar)
TERMS TO KNOW
U.S. GOVERNMENT SECURITIES, see page 50
COMMERCIAL PAPER, see page 47
51
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. When you consider this information, please
remember that the Fund's past performance is not necessarily an indication of
how it will perform in the future.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
1998 1997 1996 1995
5.61% 5.66% 5.38% 5.86%
BEST QUARTER: Q2 1995 1.46%
WORST QUARTER: Q2 1996 1.27%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year Inception (1/5/94)
Money Market Fund 5.61% 5.31%
As of December 31, 1998, the seven-day yield for the Fund was 5.26%. For
current yield information, please call 800.982.8782.
52
<PAGE>
GOVERNMENT MONEY MARKET FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide as high a level of current income from government
obligations as is consistent with preservation of capital and liquidity.
WHAT IS THE FUND'S INVESTMENT APPROACH?
The Fund invests exclusively in short-term securities issued by the U.S.
government, its agencies or instrumentalities and repurchase agreements backed
by those securities, all of which are deemed to be of minimal credit risk by the
investment adviser.
Current income generally will be lower than the income provided by funds that
invest in securities with longer maturities or lower quality.
WHAT ARE THE FUND'S PRINCIPAL RISKS? (See Risk Considerations, page 54.)
Credit risk
Principal stability risk
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. When you consider this information, please
remember that the Fund's past performance is not necessarily an indication of
how it will perform in the future.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
1998 1997 1996 1995
5.43% 5.48% 5.24% 5.79%
BEST QUARTER: Q2 1995 1.44%
WORST QUARTER: Q2 1996 1.26%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year Inception (5/16/94)
Government Money Market Fund 5.43% 5.35%
As of December 31, 1998, the seven-day yield for the Fund was 4.92%. For
current yield information, please call 800.982.8782.
53
<PAGE>
RISK CONSIDERATIONS
All Fund investments are subject to risk and may decline in value. Each Fund's
exposure depends upon its specific investment practices. The amount and types of
risk vary depending on:
o The investment objective
o The Fund's ability to achieve its objective
o The markets in which the Fund invests
o The investments the Fund makes in those markets
o Prevailing economic conditions over the period of an investment
Please note that there are other circumstances that could adversely affect
your investment and prevent a Fund from achieving its objectives.
COUNTERPARTY RISK
The risk that when a fund engages in repurchase, reverse repurchase,
derivative, when-issued, forward commitment, delayed settlement and securities
lending transactions with another party, it relies on the other party to
consummate the transaction and is subject to the risk of default by the other
party. Failure of the other party to consummate the transaction may result in
the fund's incurring a loss or missing an opportunity to obtain a price believed
to be advantageous.
CREDIT RISK
The risk that the issuer of a security, or the counterparty to a contract,
will default or otherwise be unable to honor a financial obligation. Debt
securities rated below investment-grade are especially susceptible to this risk.
FOREIGN RISK
The risk that foreign securities may be more volatile in price than their
domestic counterparts, in part because of higher political and economic risks,
lack of reliable financial information and fluctuations in currency exchange
rates. These risks are usually higher in less developed countries.
54
<PAGE>
securities more than shorter-term securities and lower quality securities
more than higher quality securities.
MARKET SEGMENT RISK
The risk that investments concentrated in one portion of the market (e.g.,
large capitalization stocks or short-term government bonds) will underperform
the overall market.
MUNICIPAL MARKET RISK
The risk that certain factors may negatively affect the value of municipal
securities, and, as a result, the share price of a fund that invests in them.
These factors include political or legislative changes, uncertainties related to
the tax status of the securities or the rights of investors in the securities. A
fund may invest in municipal obligations that are related in such a way (e.g.,
multiple apparently unrelated issues that depend on the financial rating or
support of a single government unit) that an economic, business or political
development or change that affects one of these obligations would also affect
the other obligations.
PRINCIPAL STABILITY RISK
The risk that a money market fund may not be able to maintain a stable net asset
value of $1.00 per share.
55
<PAGE>
The risks of investing in the various Funds are illustrated in the chart below.
Tax-Exempt Money Market Government
Money Market Money Market
RISKS
Counterparty * * *
Credit * * *
Foreign *
Municipal market *
Principal stability * * *
56
<PAGE>
FEES AND EXPENSES
The tables below describe the fees and expenses that you will pay if you buy
and hold shares of the Harris Insight Money Market Funds.
SHAREHOLDER FEES (fees paid directly from your investment)
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON REINVESTED DIVIDENDS None
REDEMPTION FEE None
EXCHANGE FEE None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets,
expressed as a % of average net assets)
Tax-Exempt Money Government
Money Market Market Money Market
Fund Fund Fund
Investment
Advisory Fees 0.10% 0.10% 0.11%
Other Expenses(1) 0.13 0.14 0.13
Total Operating
Expenses(1) 0.23% 0.24% 0.24%
(1)Expenses are based on amounts incurred by the Funds during their most
recent fiscal year but do not reflect expense reductions
(expense reimbursements and fee waivers) by Harris Trust. After these
reductions, actual total operating and other expenses of the Funds for the
fiscal year ended December 31, 1998 were:
Tax-Exempt Money Government
Money Market Market Money Market
Fund Fund Fund
Other Expenses 0.10% 0.10% 0.11%
Total Operating
Expenses 0.23% 0.19% 0.19%
Customers of a financial institution, such as Harris Trust, may also be
charged certain fees or 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.
57
<PAGE>
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the
Harris Insight Money Market Funds to the cost of investing in other mutual
funds. The example assumes that you invest $10,000 in a Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs and the return on your investment may be higher or lower, based on these
assumptions your costs would be:
Tax-Exempt Money Government
Money Market Market Money Market
Fund Fund Fund
One Year $ 24 $ 25 $ 25
Three Years 74 77 77
Five Years 130 135 135
Ten Years 293 306 306
58
<PAGE>
YEAR 2000
The services provided by the Funds' investment adviser, portfolio management
agent, investment sub-adviser, sub-administrators, distributor, transfer agent
and custodian (the "Service Providers"), depend on the smooth functioning of
their computer systems. Many computer software systems in use today cannot
recognize the year 2000, but revert to 1900 or 1980, due to the manner in which
dates were encoded and calculated. That failure could have a negative impact on
the handling of securities trades, pricing and account services. Each of the
Service Providers has advised the Funds that it has been actively working on
necessary changes to its own computer systems to deal with the year 2000, and
expects that its systems will be adapted before that date. However, there can be
no assurance that they will be successful or that interaction with other
noncomplying computer systems will not impair their services at that time. In
addition, the Funds are also subject to similar risks with respect to issuers of
securities in which the Funds invest.
INVESTMENT ADVISER
Harris Trust and Savings Bank (Harris Trust), an Illinois state-chartered
bank and a member of the Federal Reserve System, is the investment adviser for
each of the Harris Insight Funds. Harris Trust is the successor to the
investment banking firm of N.W. Harris & Co, which was organized in 1882 and
incorporated in 1907. At December 31, 1998, Harris Trust had total discretionary
assets under management of approximately $19.4 billion and was the largest of 28
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, 1998, Harris Trust managed more than $14.5 billion in discretionary personal
trust assets, and administered more than $17.2 billion in non-discretionary
trust assets.
Harris Trust oversees the PORTFOLIO MANAGEMENT AGENT and the INVESTMENT
SUB-ADVISER.
ADVISORY FEES
The following chart shows the investment advisory fees paid, before fee waivers,
by each Fund during its last fiscal year.
MANAGEMENT FEES PAID (expressed as a percentage of average net assets)
Balanced Fund . . . . . . . . . . . 0.60%
Index Fund. . . . . . . . . . . . . 0.25
Equity Income Fund . . . . . . . . 0.70
Equity Fund . . . . . . . . . . . . 0.70
Growth Fund . . . . . . . . . . . . 0.90
Small-Cap Value Fund . . . . . . . . 0.80
Small-Cap Opportunity Fund . . . . . 1.00
International Fund . . . . . . . . . 1.05
Emerging Markets Fund . . . . . . . 1.25
Intermediate Government Bond Fund . 0.65
Short/Intermediate Bond Fund .. . . 0.70
59
<PAGE>
Intermediate Tax-Exempt Bond Fund . 0.60
Bond Fund . . . . . . . . . . . . . 0.65
Tax-Exempt Bond Fund . . . . . . . . 0.60
Convertible Securities Fund. . . . . 0.70
Government Money Market Fund, Money Market Fund and Tax-Exempt Money Market
Fund: 0.14% of each Fund's first $100 million of net assets plus 0.10% of the
Fund's remaining net assets.
Harris Trust may waive any portion of its investment advisory fees or
reimburse Fund expenses from time to time. These arrangements are voluntary and
may be terminated at any time.
PORTFOLIO MANAGEMENT AGENT
As the portfolio management agent, Harris Investment Management, Inc. (HIM)
manages the investments of all of the Funds except the Tax-Exempt Money Market
Fund and, in the case of the International Fund and the Emerging Markets Fund,
HIM has appointed Hansberger Global Investors, Inc. as the investment
sub-adviser. HIM is a wholly-owned subsidiary of Harris Bankcorp, Inc. For the
services provided by HIM to the Funds for which it serves as portfolio
management agent, Harris Trust pays HIM the advisory fees Harris Trust receives
from those Funds. As of December 31, 1998, HIM managed approximately $14.9
billion in assets.
INVESTMENT SUB-ADVISER
Hansberger Global Investors, Inc. (Hansberger) serves as investment
sub-adviser to, and makes all investment decisions for, the International Fund
and the Emerging Markets Fund. Hansberger, founded in 1994, provides a broad
range of portfolio management services to clients in the U.S. and abroad. As of
December 31, 1998, Hansberger managed approximately $2.1 billion in assets.
Hansberger is paid for its investment sub-advisory services from the advisory
fees HIM receives from Harris Trust.
Many persons on the staffs of the investment adviser, portfolio management
agent and investment sub-adviser 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.
(Sidebar)
INVESTMENT ADVISER
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
60690
INVESTMENT SUB-ADVISER
Hansberger Global Investments, Inc., 515 East Las Olas Blvd., Suite 1300,
Fort Lauderdale, Florida 33301
60
<PAGE>
PORTFOLIO MANAGERS OF THE HARRIS INSIGHT EQUITY FUNDS
BALANCED FUND
C. THOMAS JOHNSON, CFA, Senior Partner and Portfolio Manager (HIM)
Mr. Johnson joined Harris Trust in 1969. He has served as Portfolio Manager of
the Fund since it commenced operations in 1997 and has 29 years of experience in
portfolio management.
EQUITY INCOME FUND
DANIEL L. SIDO, Senior Partner and Portfolio Manager (HIM)
Prior to joining HIM in 1994, Mr. Sido served as Portfolio Manager for a trust
company, managing equity and fixed income portfolios. He has served as Portfolio
Manager of the Fund since it commenced operations in 1996 and has over 15 years
of investment management experience.
EQUITY FUND
DONALD G. M. COXE, Chairman and Chief Strategist (HIM)
Mr. Coxe joined HIM in 1993. He has served as Portfolio Manager of the Fund
since 1996 and has nearly 31 years of institutional investment management
experience.
GROWTH FUND
JAMES E. DEPIES, CFA, Senior Partner and Portfolio Manager (HIM)
Mr. Depies joined Harris Trust in 1981 and has served as Portfolio Manager of
the Fund since it commenced operations in 1996 and has 38 years of investment
management experience.
INDEX FUND
SMALL-CAP VALUE FUND
SMALL-CAP OPPORTUNITY FUND
THOMAS M. CORKILL, CFA, Partner and Portfolio Manager (HIM)
Mr. Corkill joined Harris Trust in 1982 and has 29 years of experience in
portfolio management and research. He was appointed Portfolio Manager of:
o Index Fund when it commenced operations in 1996
o Small-Cap Value Fund when it commenced operations in 1997
o Small-Cap Opportunity Fund in 1998
INTERNATIONAL FUND
JAMES E. CHANEY, Chief Investment Officer (Hansberger)
Prior to joining Hansberger in 1996, Mr. Chaney was Executive Vice President
of Templeton Worldwide Inc. and a senior member of its Portfolio
Management/Strategy Committee. While at Templeton, he managed numerous accounts,
including the Foreign Equity Series of Templeton Institutional Funds Inc. He
leads the International Fund's portfolio team, which includes:
John Carl Fenley, CFA, Research Analyst, Global Equities
Victoria Gretzky, Research Analyst
John Hock, Research Analyst
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<PAGE>
EMERGING MARKETS FUND
THOMAS L. HANSBERGER, Chairman and Chief Executive Officer (Hansberger)
Before forming Hansberger in 1994, Mr. Hansberger was Chairman, President and
Chief Executive Officer of Templeton Worldwide, Inc. While at Templeton, he
served as director of research and was an officer, director or primary portfolio
manager for several Templeton mutual funds. He leads the Emerging Markets Fund's
portfolio team, which includes:
Francisco Alzuru, Managing Director, Portfolio Manager and Research Analyst
Aureole L.W. Foong, Director of Asian Research
Robert Mazuelos, Research Analyst
Vladimir Tyurenkov, Managing Director of Eastern Europe and Russia, Portfolio
Manager and Research Analyst
PORTFOLIO MANAGERS OF THE HARRIS INSIGHT FIXED INCOME FUNDS
INTERMEDIATE GOVERNMENT BOND FUND
SHORT/INTERMEDIATE BOND FUND
BOND FUND
LAURA ALTER, Senior Partner and Portfolio Manager (HIM)
Prior to joining HIM in 1994, Ms. Alter served as Portfolio Manager for a major
mutual fund investment management firm. She has 14 years of experience in the
fixed income investment area and was appointed Portfolio Manager of:
o Short/Intermediate Bond Fund in 1994
o Bond Fund when it commenced operations in 1996
MAUREEN SVAGERA, Senior Partner and Portfolio Manager (HIM)
Prior to joining HIM in 1994, Ms. Svagera was Principal/Vice President at an
investment management firm, where she focused on the mortgage and asset-backed
securities markets. She has 16 years of experience in the fixed income market
and was appointed Portfolio Manager of:
o Intermediate Government Bond Fund when it commenced operations in 1997
o Short/Intermediate Bond Fund in 1996
o Bond Fund when it commenced operations in 1996
INTERMEDIATE TAX-EXEMPT BOND FUND
TAX-EXEMPT BOND FUND
GEORGE W. SELBY, Principal and Portfolio Manager (HIM)
Prior to joining HIM in 1998, Mr. Selby served as Executive Director of
Municipal Bond Sales for a brokerage firm. He has 16 years of municipal bond
sales experience and was appointed Portfolio Manager of:
o Intermediate Tax-Exempt Bond Fund in 1998
o Tax-Exempt Bond Fund in 1998
62
<PAGE>
CONVERTIBLE SECURITIES FUND
THOMAS M. CORKILL, CFA, Partner and Portfolio Manager (HIM)
Mr. Corkill joined Harris Trust in 1982. He was appointed Portfolio Manager of
the Fund in 1998 and has 29 years of experience in portfolio management
and research.
PORTFOLIO MANAGERS OF THE HARRIS INSIGHT MONEY MARKET FUNDS
GOVERNMENT MONEY MARKET FUND
MONEY MARKET FUND
RANDALL T. ROYTHER, Partner and Portfolio Manager (HIM)
Mr. Royther joined Harris Trust in 1990. He has 10 years of investment
management experience and was appointed Portfolio Manager of:
o Government Money Market Fund in 1995
o Money Market Fund in 1995
TAX-EXEMPT MONEY MARKET FUND
KIMBERLY J. KEYWELL, Principal and Portfolio Manager (HIM)
Prior to joining HIM in 1995, Ms. Keywell served as an Associate Portfolio
Manager for the trust department of a large banking institution. In 1997, she
became a dual employee of Harris Trust and HIM and was appointed Portfolio
Manager of the Fund in 1998. She has seven years of investment management
experience.
PRICING OF FUND SHARES
SHARES OF THE FUNDS ARE BOUGHT AND SOLD AT NET ASSET VALUE
Each Fund calculates its net asset value per share (NAV) on each business day
that both the New York Stock Exchange (NYSE) and the Federal Reserve Bank of
Philadelphia are open.
(Sidebar)
HOW THE FUNDS CALCULATE NAV
The NAV of a class of shares of a Fund is determined by dividing the value of
the securities and other assets, less liabilities, allocated to the class by the
number of outstanding shares of the class.
NON-MONEY MARKET FUNDS
The NAV is calculated at the close of regular trading on the NYSE (normally
4:00 p.m., Eastern time) and is generally based on the last sale prices of all
securities held in the Fund and the number of shares outstanding. A Fund's
securities are valued based on market value or, where market quotations are not
readily available, are based on fair value as determined in good faith by the
Fund's board of directors or board of trustees, as the case may be.
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<PAGE>
Foreign securities are valued on the basis of quotations from the primary
markets in which they are traded, and are translated from the local currency
into U.S. dollars using current exchange rates. If the value of a foreign
security has been materially affected by events occurring after the close of a
foreign market, it may be valued by another method that the board believes
reflects fair value. Foreign securities may trade in their local markets on
weekends or other days when a Fund does not price its shares. Therefore, the NAV
of Funds holding foreign securities may change on days when shareholders will
not be able to buy or sell their Fund shares.
MONEY MARKET FUNDS
The NAV for the Tax-Exempt Money Market Fund is calculated at 12:00 Noon,
Eastern time. The NAV for each of the Money Market Fund and the Government Money
Market Fund is calculated at 2:30 p.m., Eastern time. In their attempt to
maintain a stable NAV of $1.00 per share, securities held by the Money Market
Funds are valued at amortized cost, which is approximately equal to market
value.
SHAREHOLDER SERVICES
HOW TO BUY SHARES
Institutional shares are sold to the following investors:
o Fiduciary and discretionary accounts of institutions
o Financial institutions, such as banks, savings institutions and credit
unions
o Pension and profit sharing and employee benefit plans and trusts
o Insurance companies
o Investment companies
o Investment advisers
o Broker/dealers investing for their own accounts or for the accounts of
other institutional investors
Institutional shares may also be sold to directors, trustees, officers and
employees of the Funds, the investment adviser, the portfolio management agent,
the distributor and the investment adviser's other investment advisory clients.
OPENING A NEW ACCOUNT IS EASY
There are three convenient ways to invest in the Harris Insight Funds.
BY MAIL
Complete and sign an application for Institutional Shares.
Make your check payable to the Harris Insight Funds.
If you are adding to your existing account, indicate your Fund account number
directly on the check.
Mail your application and check to:
Harris Insight Funds
c/o PFPC Inc.
P.O. Box 8952
Wilmington, DE
19899-8952
BY BANK WIRE
Call the Funds at 800.625.7073 to initiate your purchase.
Please be sure to furnish your taxpayer identification number.
Then wire your investment to:
PNC Bank, N.A.
Philadelphia, PA
ABA #0310-0005-3
For Credit To:
Harris Insight Funds
85-5093-2950
Re: [Name of Fund]--
Institutional Shares
Account No.:
Account Name:
Taxpayer ID No.:
If you are opening a new account, please complete and mail the account
application form to the Funds at the address given 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.
THROUGH FINANCIAL INSTITUTIONS/PROFESSIONALS
Contact your financial institution or professional for more information.
Important note: Each institution or professional may have its own procedures and
requirements for buying shares and may charge fees.
64
<PAGE>
The Harris Insight Funds do not require a minimum investment to initiate or add
to your investment program.
Orders placed directly with the Funds must be paid for by check or bank wire
before the order will be executed. Payment for the shares purchased through a
financial institution will not be due until settlement date, normally three
business days after the order has been executed.
Shares are purchased at the next share price calculated after your investment
is received. The Funds reserve the right to reject any purchase order.
MORE ABOUT BUYING SHARES
TAXPAYER IDENTIFICATION
You must certify whether you are subject to withholding for failing to report
income to the Internal Revenue Service. Investments received without a certified
taxpayer identification number may be returned.
HOURS OF OPERATION
The Funds are open for business each day the New York Stock Exchange (NYSE) and
the Federal Reserve Bank of Philadelphia are open for business. The Funds are
closed for business on:
65
<PAGE>
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
Christmas Day
You may call 800.982.8782 to speak with a Fund representative Monday through
Friday from 8:30 a.m. to 5:00 p.m. Eastern time.
(Sidebar)
PLEASE INDICATE WHETHER YOU WOULD LIKE THE ABILITY TO BUY, REDEEM OR EXCHANGE
SHARES BY TELEPHONE OR WIRE WHEN YOU COMPLETE YOUR APPLICATION.
HOW TO SELL SHARES
ACCESSING YOUR MONEY IS EASY
You may sell, or redeem, some or all of your shares when the Funds are open for
business by doing one of the following.
BY MAIL
AND CHECK
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.
Your proceeds will be mailed to you.
BY TELEPHONE
AND CHECK
If you have chosen the telephone redemption privilege, you may call 800.625.7073
to sell shares. Your proceeds will be mailed to you.
BY TELEPHONE AND
BANK WIRE
If you have chosen the wire redemption privilege, you may call 800.625.7073 to
sell shares and have your proceeds wired to a predesignated bank account.
THROUGH FINANCIAL INSTITUTIONS/PROFESSIONALS
Contact your financial institution or professional for more information.
Important note: Each institution or professional may have its own procedures and
requirements for selling shares and may charge fees.
Redemption requests should be accompanied by your account number, the exact
name(s) on your account and your social security or taxpayer identification
number. The Fund will mail a check to your account address or, if you have
elected the wire redemption privilege, the Fund will wire the proceeds to your
bank on the following business day. Some redemption requests require a signature
guarantee. (See page for more information.)
The Funds reserve the right to pay redemptions "in kind" -- payment in
portfolio securities rather than cash -- if the amount you are redeeming is
large enough to affect a Fund's operations (limited to amounts more than
$250,000 or representing more than 1% of the Fund's assets). In these cases, you
might incur brokerage costs in converting the securities to cash.
66
<PAGE>
MORE ABOUT REDEMPTIONS
WHEN ORDERS ARE PROCESSED
Your shares will be sold at the NAV next calculated after your order is
accepted by the Funds' transfer agent in good order. Your order will be
processed promptly and you will generally receive the proceeds within five to
seven business days.
Please note that proceeds for redemption requests made shortly after a recent
purchase by check will be distributed once the check clears, which may take up
to 15 days.
Under unusual circumstances, the Funds may suspend redemptions, if allowed by
the Securities and Exchange Commission, or postpone payment.
MINIMUM AMOUNT REQUIRED FOR WIRE SALES
The minimum amount of redemption proceeds that may be wired is $1,000.
Otherwise, a check for redemption proceeds is mailed to your address of record.
The Funds reserve the right to change this minimum or to terminate the
privilege.
SIGNATURE GUARANTEES
The Funds use signature guarantees to protect you and the Funds from
unauthorized account transfers. A signature guarantee is required when a
redemption check is --
o Payable to anyone other than the shareholder(s) of record
o To be mailed to an address other than the address of record
o To be wired to a bank other than one previously authorized
Signature guarantees may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency or savings association that is a participant in
a medallion program recognized by the Securities Transfer Association.
REDEMPTION OF SHARES IN SMALLER ACCOUNTS
Each Fund reserves the right to close a shareholder's account if the balance
is below $500 ($250 in the case of a retirement account) unless the decline is
due to market activity. In such cases, shareholders will be notified in writing
and permitted 30 days to increase their balance.
ADDITIONAL SHAREHOLDER SERVICES AND INFORMATION
EXCHANGING SHARES
You can exchange your Institutional shares for Institutional shares of any other
Harris Insight Fund, provided that:
o Shares have been held for at least seven days
o Account registration stays the same
o The shares you wish to buy are registered for sale in your home state
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<PAGE>
Under certain circumstances, the Funds may:
o Limit the number of exchanges between Funds
o Reject a telephone exchange order
o Modify or discontinue the exchange privilege upon 60 days' written notice
The procedures that apply to redeeming shares also apply to exchanging shares.
TELEPHONE TRANSACTIONS
You may give up some level of security by choosing to buy or sell shares by
telephone, rather than by mail. The Funds will employ reasonable procedures to
confirm that telephone instructions are genuine. If the Funds or their service
providers follow these procedures, they will not be liable for any losses
arising from unauthorized or fraudulent instructions. However, you may be
otherwise held responsible for unauthorized requests.
Please verify the accuracy of instructions immediately upon receipt of
confirmation statements. You may bear the risk of loss from an unauthorized
telephone transaction.
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 c/o PFPC Inc., 103 Bellevue Parkway, Wilmington, DE 19809.
REGULAR REPORTS
Your investment will be easy to track. During the year, you will receive:
o An annual account statement
o A quarterly consolidated statement
o A confirmation statement, each time you buy, sell or exchange shares
o An annual and semi-annual report to shareholders for each Fund in which
you invest
DIVIDENDS AND TAX CONSIDERATIONS
Dividends of net investment income, if any, are declared and paid at least
annually by each Fund. Following is the schedule of payments:
FUND DECLARED AND PAID
Balanced Fund Quarterly
Index Fund Quarterly
Equity Income Fund Quarterly
Equity Fund Quarterly
Growth Fund Annually
Small-Cap Value Fund Annually
Small-Cap Opportunity Fund Annually
International Fund Annually
Emerging Markets Fund Annually
Convertible Securities Fund Quarterly
Tax-Exempt Bond Fund Daily/Monthly
Bond Fund Daily/Monthly
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<PAGE>
Intermediate Tax-Exempt Bond Fund Daily/Monthly
Short/Intermediate Bond Fund Daily/Monthly
Intermediate Government Bond Fund Daily/Monthly
Tax-Exempt Money Market Fund Daily/Monthly
Money Market Fund Daily/Monthly
Government Money Market Fund Daily/Monthly
Any capital gains are declared and paid at least annually.
All 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.
TAX CONSIDERATIONS
Following is a brief discussion of the general tax treatment of various
distributions from the Funds. It is not an exhaustive discussion, and your
particular tax status may be different. We encourage you to consult with your
own tax adviser about federal, state and local tax considerations.
The tax status of any distribution is the same regardless of how long you
have been in the Fund and whether you reinvest in additional shares or take it
in cash.
o All dividends paid, including net short-term capital gains (except
"exempt-interest dividends") are taxable to you as ordinary income.
o Distributions of net long-term capital gains, if any, are taxable to you
as long-term capital gains regardless of how long you have held the
shares.
o You may realize a taxable gain or loss when you sell shares or exchange
shares between Funds, depending on your tax basis in the shares and the
value of those shares at the time of the transaction.
(side-bar)
EXEMPT-INTEREST DIVIDENDS
Dividends paid by tax-exempt funds that are exempt from federal income tax.
Exempt-interest dividends are not necessarily exempt from state and local income
taxes.
MULTIPLE CLASSES
Each Fund, except for the Index Fund, Tax-Exempt Money Market Fund, Money
Market Fund and Government Money Market Fund, offers three classes of shares, N
shares, A shares and Institutional shares. The Index Fund, Tax-Exempt Money
Market Fund, Money Market Fund and Government Money Market Fund offer two
classes of shares, N shares and Institutional shares.
69
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand a Fund's
financial performance for the past 5 years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in each Fund (assuming reinvestment
of all dividends and distributions). This information has been derived from the
financial statements audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Funds' financial statements, is
included in the Funds' annual report, which is available upon request.
These financial highlights should be read with the financial statements.
<TABLE>
<CAPTION>
Balanced Fund
Institutional Class
03/24/97(3)
12/31/98 to 12/31/97
<S> <C> <C>
Net Asset Value, Beginning of Period $14.93 $12.74
Income from Investment Operations:
Net Investment Income $0.492 $0.377
Net Realized and Unrealized Gain/(Loss) on Investments $0.753 $2.185
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.494) $(0.372)
Net Realized Gains $(1.241) $ --
Total Distributions
Net Asset Value, End of Period $14.44 $14.93
Total Return 8.61% 20.24%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $56,027 $69,415
Ratio of Expenses to Average Net Assets 0.88% 0.88%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.98% 0.92%(1)
Ratio of Net Investment Income to Average Net Assets 3.16% 3.45%(1)
Portfolio Turnover Rate 70.93% 108.29%(1)
</TABLE>
<TABLE>
<CAPTION>
Index Fund
Institutional Class
02/26/96(3)
12/31/98 12/31/97 to 12/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $23.51 $18.48 $16.72
Income from Investment Operations:
Net Investment Income $0.304 $0.278 $0.268
Net Realized and Unrealized Gain/(Loss) on Investments $6.247 $5.742 $2.104
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.303) $(0.281) $(0.268)
Net Realized Gains $(1.408) $(0.709) $(0.344)
Total Distributions
Net Asset Value, End of Period $28.35 $23.51 $18.48
Total Return 28.22% 32.78% 14.26%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $362,568 $292,196 $143,954
Ratio of Expenses to Average Net Assets 0.45% 0.45% 0.45%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.46% 0.47% 0.49%(1)
Ratio of Net Investment Income to Average Net Assets 1.16% 1.39% 1.85%(1)
Portfolio Turnover Rate 5.59% 7.10% 4.71%
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
Equity Income Fund
Institutional Class
02/26/96(3)
12/31/98 12/31/97 to 12/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $16.32 $13.73 $13.34
Income from Investment Operations:
Net Investment Income $0.218 $0.272 $0.270
Net Realized and Unrealized Gain/(Loss) on Investments $3.492 $4.050 $1.387
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.216) $(0.268) $(0.269)
Net Realized Gains $(0.544) $(1.464) $(0.998)
Total Distributions
Net Asset Value, End of Period $19.27 $16.32 $13.73
Total Return 22.97% 31.90% 12.46%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $62,204 $40,424 $31,760
Ratio of Expenses to Average Net Assets 0.93% 0.93% 0.93%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.96% 0.96% 0.97%(1)
Ratio of Net Investment Income to Average Net Assets 1.26% 1.69% 2.36%(1)
Portfolio Turnover Rate 21.60% 29.87% 52.77%
</TABLE>
<TABLE>
<CAPTION>
Equity Fund
Institutional Class
02/26/96(3)
12/31/98 12/31/97 to 12/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $17.59 $15.53 $15.30
Income from Investment Operations:
Net Investment Income $0.116 $0.234 $0.189
Net Realized and Unrealized Gain/(Loss) on Investments $2.224 $5.190 $1.898
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.114) $(0.235) $(0.193)
Net Realized Gains $(2.786) $(3.129) $(1.664)
Total Distributions
Net Asset Value, End of Period $17.03 $17.59 $15.53
Total Return 13.80% 35.89% 13.66%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $841,119 $845,829 $568,400
Ratio of Expenses to Average Net Assets 0.89% 0.88% 0.90%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.89% 0.88% 0.90%(1)
Ratio of Net Investment Income to Average Net Assets 0.64% 1.33% 1.43%(1)
Portfolio Turnover Rate 76.92% 81.48% 75.20%
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
Growth Fund
Institutional Class
02/26/96(3)
12/31/98 12/31/97 to 12/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $22.67 $18.69 $17.01
Income from Investment Operations:
Net Investment Income $0.012 $0.048 $0.062
Net Realized and Unrealized Gain/(Loss) on Investments $5.583 $6.026 $2.746
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.009) $(0.048) $(0.063)
Net Realized Gains $(2.006) $(2.046) $(1.065)
Total Distributions
Net Asset Value, End of Period $26.25 $22.67 $18.69
Total Return 25.03% 32.81% 16.43%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $144,759 $109,140 $76,516
Ratio of Expenses to Average Net Assets 1.10% 1.10% 1.10%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.11% 1.11% 1.14%(1)
Ratio of Net Investment Income to Average Net Assets 0.05% 0.22% 0.42%(1)
Portfolio Turnover Rate 34.96% 37.02% 35.36%
</TABLE>
<TABLE>
<CAPTION>
Small-Cap Value Fund
Institutional Class
03/24/97(3)
12/31/98 to 12/31/97
<S> <C> <C>
Net Asset Value, Beginning of Period $33.02 $28.29
Income from Investment Operations:
Net Investment Income $0.132 $0.146
Net Realized and Unrealized Gain/(Loss) on Investments $(1.312) $7.467
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.139) $(0.139)
Net Realized Gains $(1.011) $(2.744)
Total Distributions
Net Asset Value, End of Period $30.69 $33.02
Total Return (3.93)% 27.11%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $143,525 $99,816
Ratio of Expenses to Average Net Assets 0.99% 0.99%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.05% 1.06%(1)
Ratio of Net Investment Income to Average Net Assets 0.56% 0.63%(1)
Portfolio Turnover Rate 76.44% 91.66%(1)
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
Small-Cap Opportunity Fund
Institutional Class
02/26/96(3)
12/31/98 12/31/97 to 12/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $17.71 $15.52 $14.24
Income from Investment Operations:
Net Investment Income $(0.047) $0.007 $0.057
Net Realized and Unrealized Gain/(Loss) on Investments $0.258 $3.865 $1.998
Total from Investment Operations
Less Distributions:
Net Investment Income $ -- $(0.012) $(0.057)
Net Realized Gains $(0.071) $(1.670) $(0.718)
Total Distributions
Net Asset Value, End of Period $17.85 $17.71 $15.52
Total Return 1.16% 25.47% 14.49%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $296,719 $274,353 $150,306
Ratio of Expenses to Average Net Assets 1.20% 1.20% 1.20%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.21% 1.21% 1.22%(1)
Ratio of Net Investment Income to Average Net Assets (0.28)% 0.03% 0.46%(1)
Portfolio Turnover Rate 51.49% 39.63% 46.13%
</TABLE>
<TABLE>
<CAPTION>
International Fund
Institutional Class
02/26/96(3)
12/31/98 12/31/97 to 12/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $13.33 $15.46 $15.04
Income from Investment Operations:
Net Investment Income $0.166 $0.116 $0.128
Net Realized and Unrealized Gain/(Loss) on Investments $(0.787) $(0.858) $0.485
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.159) $(0.125) $(0.125)
Net Realized Gains $ -- $(1.263) $(0.068)
Total Distributions
Net Asset Value, End of Period $12.55 $13.33 $15.46
Total Return (4.64)% (4.87) % 4.08%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $194,447 $172,158 $109,747
Ratio of Expenses to Average Net Assets 1.33% 1.40% 1.36%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.33% 1.42% 1.38%(1)
Ratio of Net Investment Income to Average Net Assets 1.64% 0.82% 0.99%(1)
Portfolio Turnover Rate 45.82% 93.33% 6.72%
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
Emerging Markets Fund
Institutional Class
10/21/97(3)
12/31/98 to 12/31/97
<S> <C> <C>
Net Asset Value, Beginning of Period $ 8.55 $10.00
Income from Investment Operations:
Net Investment Income $0.023 $0.006
Net Realized and Unrealized Gain/(Loss) on Investments $(2.688) $(1.456)
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.015) $ --
Net Realized Gains $ -- $ --
Total Distributions
Net Asset Value, End of Period $ 5.87 $8.55
Total Return (31.16)% (14.50)%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $19,072 $18,023
Ratio of Expenses to Average Net Assets 1.75% 1.75%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 2.08% 2.09%(1)
Ratio of Net Investment Income to Average Net Assets 1.06% 0.43%(1)
Portfolio Turnover Rate 34.55% --%
</TABLE>
<TABLE>
<CAPTION>
Convertible Securities Fund
Institutional Class
03/24/97(3)
12/31/98 to 12/31/97
<S> <C> <C>
Net Asset Value, Beginning of Period $28.52 $29.15
Income from Investment Operations:
Net Investment Income $1.130 $0.914
Net Realized and Unrealized Gain/(Loss) on Investments $(1.647) $3.120
Total from Investment Operations
Less Distributions:
Net Investment Income $(1.141) $(0.897)
Net Realized Gains $(2.722) $(3.767)
Total Distributions
Net Asset Value, End of Period $24.14 $28.52
Total Return (1.80)% 14.24%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $49,396 $59,384
Ratio of Expenses to Average Net Assets 0.92% 0.92%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.01% 0.96%(1)
Ratio of Net Investment Income to Average Net Assets 4.05% 3.76%(1)
Portfolio Turnover Rate 48.73% 93.24%(1)
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
Convertible Securities Fund
Institutional Class
03/24/97(3)
12/31/98 to 12/31/97
<S> <C> <C>
Net Asset Value, Beginning of Period $28.52 $29.15
Income from Investment Operations:
Net Investment Income $1.130 $0.914
Net Realized and Unrealized Gain/(Loss) on Investments $(1.647) $3.120
Total from Investment Operations
Less Distributions:
Net Investment Income $(1.141) $(0.897)
Net Realized Gains $(2.722) $(3.767)
Total Distributions
Net Asset Value, End of Period $24.14 $28.52
Total Return (1.80)% 14.24%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $49,396 $59,384
Ratio of Expenses to Average Net Assets 0.92% 0.92%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 1.01% 0.96%(1)
Ratio of Net Investment Income to Average Net Assets 4.05% 3.76%(1)
Portfolio Turnover Rate 48.73% 93.24%(1)
</TABLE>
<TABLE>
<CAPTION>
Tax-Exempt Fund
Institutional Class
02/26/96(3)
12/31/98 12/31/97 to 12/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $10.52 $10.25 $10.56
Income from Investment Operations:
Net Investment Income $0.444 $0.461 $0.402
Net Realized and Unrealized Gain/(Loss) on Investments $0.059 $0.391 $(0.094)
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.444) $(0.461) $(0.402)
Net Realized Gains $(0.189) $(0.121) $(0.216)
Total Distributions
Net Asset Value, End of Period $10.39 $10.52 $10.25
Total Return 4.88% 8.55% 3.04%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $169,060 $179,871 $165,388
Ratio of Expenses to Average Net Assets 0.79% 0.80% 0.80%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.80% 0.80% 0.81%(1)
Ratio of Net Investment Income to Average Net Assets 4.22% 4.47% 4.60%(1)
Portfolio Turnover Rate 87.61% 61.52% 61.60%
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
Bond Fund
Institutional Class
04/16/96(3)
12/31/98 12/31/97 to 12/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $10.20 $10.07 $10.00
Income from Investment Operations:
Net Investment Income $0.604 $0.628 $0.425
Net Realized and Unrealized Gain/(Loss) on Investments $ 0.103 $0.284 $0.103
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.604) $(0.628) $(0.425)
Net Realized Gains $(0.103) $(0.154) $(0.033)
Total Distributions
Net Asset Value, End of Period $10.20 $10.20 $10.07
Total Return 7.12% 9.41% 5.40%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $183,831 $140,447 $43,142
Ratio of Expenses to Average Net Assets 0.60% 0.60% 0.60%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.88% 0.89% 0.98%(1)
Ratio of Net Investment Income to Average Net Assets 5.89% 6.25% 6.03%(1)
Portfolio Turnover Rate 64.93% 138.30% 116.02%
</TABLE>
<TABLE>
<CAPTION>
Intermediate Tax-Exempt Fund
Institutional Class
02/26/96(3)
12/31/98 12/31/97 to 12/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $10.75 $10.58 $10.74
Income from Investment Operations:
Net Investment Income $0.417 $0.442 $0.381
Net Realized and Unrealized Gain/(Loss) on Investments $0.103 $0.220 $(0.124)
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.417) $(0.442) $(0.381)
Net Realized Gains $(0.153) $(0.050) $(0.036)
Total Distributions
Net Asset Value, End of Period $10.70 $10.75 $10.58
Total Return 4.94% 6.41% 2.49%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $226,087 $193,009 $208,690
Ratio of Expenses to Average Net Assets 0.80% 0.79% 0.79%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.80% 0.79% 0.82%(1)
Ratio of Net Investment Income to Average Net Assets 3.87% 4.16% 4.28%(1)
Portfolio Turnover Rate 90.92% 48.72% 57.23%
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
Short/Intermediate Fund
Institutional Class
02/26/96(3)
12/31/98 12/31/97 to 12/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $10.21 $10.14 $10.30
Income from Investment Operations:
Net Investment Income $0.603 $0.633 $0.517
Net Realized and Unrealized Gain/(Loss) on Investments $0.096 $0.070 $(0.160)
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.603) $(0.633) $(0.517)
Net Realized Gains $(0.006) $ -- $ --
Total Distributions
Net Asset Value, End of Period $10.30 $10.21 $10.14
Total Return 7.01% 7.15% 3.61%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $337,015 $288,886 $255,573
Ratio of Expenses to Average Net Assets 0.60% 0.60% 0.60%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.90% 0.89% 0.90%(1)
Ratio of Net Investment Income to Average Net Assets 5.85% 6.24% 6.06%(1)
Portfolio Turnover Rate 66.06% 98.08% 186.02%
</TABLE>
<TABLE>
<CAPTION>
Intermediate Government Fund
Institutional Class
03/24/97(3)
12/31/98 to 12/31/97
<S> <C> <C>
Net Asset Value, Beginning of Period $16.54 $16.12
Income from Investment Operations:
Net Investment Income $0.967 $0.793
Net Realized and Unrealized Gain/(Loss) on Investments $0.231 $0.461
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.967) $(0.793)
Net Realized Gains $(0.161) $(0.041)
Total Distributions
Net Asset Value, End of Period $16.61 $16.54
Total Return 7.45% 7.96%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $103,162 $99,359
Ratio of Expenses to Average Net Assets 0.50% 0.50%(1)
Ratio of Expenses to Average Net Assets (Excluding Waivers) 0.91% 0.91%(1)
Ratio of Net Investment Income to Average Net Assets 5.82% 6.31%(1)
Portfolio Turnover Rate 99.63% 84.89%(1)
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
Tax-Exempt Money Fund
Institutional Class
01/05/94(3)
12/31/98 12/31/97 12/31/96 12/31/95 to 12/31/94
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment Operations:
Net Investment Income $0.033 $0.034 $0.031 $0.035 $0.025
Net Realized and Unrealized
Gain/(Loss) on Investments $ -- $ -- $ -- $ -- $ --
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.033) $(0.034) $(0.031) $ (0.035) $ (0.025)
Capital Contribution $ -- $ -- $ -- $ -- $ --
Total Distributions
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
Total Return 3.35% 3.47% 3.19% 3.60% 2.56%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $606,754 $497,986 $388,404 $212,146 $237,100
Ratio of Expenses to Average Net Assets 0.23% 0.25% 0.29% 0.29% 0.28%(1)
Ratio of Expenses to Average Net
Assets (Excluding Waivers) 0.23% 0.26% 0.29% 0.29% 0.30%(1)
Ratio of Net Investment Income to
Average Net Assets 3.30% 3.41% 3.14% 3.52% 2.99%(1)
</TABLE>
<TABLE>
<CAPTION>
Money Market Fund
Institutional Class
01/05/94(3)
12/31/98 12/31/97 12/31/96 12/31/95 to 12/31/94
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment Operations:
Net Investment Income $0.055 $0.055 $0.052 $0.057 $0.039
Net Realized and Unrealized
Gain/(Loss) on Investments $ -- $(0.001) $ -- $ -- $ --
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.055) $(0.055) $ (0.052) $ (0.057) $ (0.039)
Capital Contribution $ -- $ 0.001 $ -- $ -- $ --
Total Distributions
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
Total Return 5.61% 5.66% 5.38% 5.86% 4.08%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $1,391,856 $1,028,091 $369,417 $98,837 $31,990
Ratio of Expenses to Average Net Assets 0.19% 0.21% 0.27% 0.29% 0.29%(1)
Ratio of Expenses to Average Net
Assets (Excluding Waivers) 0.24% 0.26% 0.28% 0.30% 0.30%(1)
Ratio of Net Investment Income to
Average Net Assets 5.46% 5.54% 5.23% 5.69% 4.79%(1)
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
Government Money Fund
Institutional Class
05/16/94(3)
12/31/98 12/31/97 12/31/96 12/31/95 to 12/31/94
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment Operations:
Net Investment Income $0.053 $0.053 $0.051 $0.056 $0.028
Net Realized and Unrealized
Gain/(Loss) on Investments $ -- $ -- $ -- $ -- $ --
Total from Investment Operations
Less Distributions:
Net Investment Income $(0.053) $(0.053) $(0.051) $(0.056) $(0.028)
Capital Contribution $ -- $ -- $ -- $ -- $ --
Total Distributions
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
Total Return 5.43% 5.48% 5.24% 5.79% 2.82%(2)
Ratios/Supplemental Data:
Net Assets, End of Period ($000) $162,285 $63,970 $37,169 $18,367 $9,617
Ratio of Expenses to Average Net Assets 0.19% 0.23% 0.31% 0.31% 0.29%(1)
Ratio of Expenses to Average Net
Assets (Excluding Waivers) 0.24% 0.28% 0.32% 0.32% 0.31%(1)
Ratio of Net Investment Income to
Average Net Assets 5.27% 5.36% 5.12% 5.62% 4.52%(1)
</TABLE>
(1) Annualized.
(2) Total returns for periods of less than one year are not annualized.
(3) Date commenced operation.
79
<PAGE>
[back cover]
FOR MORE INFORMATION
More information on the Harris Insight Funds is available free upon request:
SHAREHOLDER REPORTS
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected a Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about each Fund and its policies. The SAI is on file with
the Securities and Exchange Commission (SEC) and is incorporated by reference
into (is legally considered part of) this prospectus.
(Sidebar)
To obtain information:
BY TELEPHONE
Call 800.982.8782
BY MAIL
Harris Insight Funds
Four Falls Corporate Center, 6th Floor West Conshohocken, PA 19428-2961
BY EMAIL
[email protected]
ON THE INTERNET
Text only versions of the prospectus and other documents pertaining to the Funds
can be viewed online or downloaded from:
SEC
http://www.sec.gov
HARRIS INSIGHT FUNDS
http://www.harrisinsight.com
Information about the Funds (including the SAI) can also be reviewed and
copied at the SEC's public reference room in Washington, DC (phone
800.SEC.0330). Or, you can obtain copies of this information by sending a
request, along with a duplicating fee, to the SEC's Public Reference Section,
Washington, DC 20549-6009.
The Funds are series of HT Insight Funds, Inc. and Harris Insight Funds
Trust, whose investment company registration numbers are 811-5366 and 811-7447,
respectively.
80
<PAGE>
HARRIS INSIGHT(R) FUNDS
Four Falls Corporate Center, 6th Floor
West Conshohocken, Pennsylvania
19428-2961
Telephone: (800) 982-8782
STATEMENT OF ADDITIONAL INFORMATION
May 3, 1999
This Statement of Additional Information (the "SAI") is not a
prospectus. It should be read in conjunction with corresponding prospectuses
dated May 1, 1999 and any supplement thereto (the "Prospectuses") for the series
of Harris Insight Funds Trust (the "Trust") and HT Insight Funds, Inc. (the
"Company") listed below (each a "Fund" and collectively the "Funds").
The Funds are as follows:
o Harris Insight Emerging Markets Fund
o Harris Insight International Fund
o Harris Insight Small-Cap Opportunity Fund
o Harris Insight Small-Cap Value Fund
o Harris Insight Growth Fund
o Harris Insight Equity Fund
o Harris Insight Equity Income Fund
o Harris Insight Index Fund
o Harris Insight Balanced Fund
o Harris Insight Convertible Securities Fund
o Harris Insight Tax-Exempt Bond Fund
o Harris Insight Bond Fund
o Harris Insight Intermediate Tax-Exempt Bond Fund
o Harris Insight Short/Intermediate Bond Fund
o Harris Insight Intermediate Government Bond Fund
o Harris Insight Tax-Exempt Money Market Fund
o Harris Insight Money Market Fund
o Harris Insight Government Money Market Fund
Each Fund's financial statements and financial highlights for the
fiscal period ended December 31, 1998, including the independent auditors'
report thereon, are included in the Funds' Annual Report and are incorporated
herein by reference.
To obtain a free copy of the Prospectuses or Annual Report, please
write or call the Funds at the address or telephone number given above.
Capitalized terms not defined herein are defined in the Prospectuses.
1
<PAGE>
TABLE OF CONTENTS
PAGE
General Information About the Trust and the Company..................3
Investment Strategies................................................3
Ratings.............................................................29
Investment Restrictions.............................................29
Trustees, Directors and Executive Officers..........................31
Control Persons and Principal Holders of Securities.................33
Investment Management, Distribution and Other Services..............37
Service Plans.......................................................43
Calculation of Yield and Total Return...............................46
Additional Purchase and Redemption Information......................50
Determination of Net Asset Value....................................51
Portfolio Transactions .............................................52
Tax Information.....................................................55
Capital Stock and Beneficial Interest...............................58
Banking Law Matters.................................................60
Other...............................................................60
Independent Auditors and Reports to Shareholders....................60
Appendix A..........................................................61
2
<PAGE>
GENERAL INFORMATION ABOUT THE TRUST AND THE COMPANY
The Trust and the Company are registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as open-end management investment
companies. The Trust was organized as a Massachusetts business trust on
December 6, 1995. The Company was organized as a Maryland corporation on
September 16, 1987. Because the Trust and the Company offer multiple portfolios
(the Funds), they are known as "series" companies. The Trust currently has
thirteen investment portfolios, and the Company currently has five investment
portfolios, with various investment objectives and policies. Each Fund, except
for the Index Fund and the Money Market Funds, offers three classes of shares,
A Shares, N Shares and Institutional Shares. Each of the Index Fund and the
Money Market Funds offers two classes of shares, N Shares and Institutional
Shares. (Prior to February 18, 1999, A Shares were named "Advisor" Shares and
N Shares were named "Class A" Shares.) The investment objectives of the Funds
are described in the Prospectuses.
DIVERSIFICATION AND CONCENTRATION. Each Fund is diversified as that
term is defined in 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 a Money Market Fund) may
be invested without regard to this limitation. Notwithstanding that policy, each
of the Money Market Funds 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.
Each Fund is prohibited from concentrating its assets in the securities
of issuers in a single industry. As a matter of fundamental policy, no Fund may
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. That 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 same industry.
INVESTMENT STRATEGIES
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 Funds 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
3
<PAGE>
Directors, as the case may be, 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.
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 bank obligations, include
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. 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"). The 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.
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
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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.
BORROWING. A Fund may borrow up to 10% of the current value of its net
assets for temporary purposes only in order to meet redemptions, which borrowing
may be secured by the pledge of up to 10% of the current value of the Fund's net
assets. Investments may not be purchased while any aggregate borrowings in
excess of 5% exist (or any borrowings exist for the Equity Fund, the
Short/Intermediate Bond Fund and the Money Market Funds).
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, in the event of liquidation of the
company, would be entitled to their pro rata shares 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.
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.
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CONVERTIBLE SECURITIES. The Equity Funds and the Fixed Income Funds 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 they have the characteristics of both fixed-income
securities and common stock, convertible securities sometimes are called
"hybrid" securities. Convertible bonds, debentures and notes are debt
obligations offering a stated interest rate; convertible preferred stocks are
senior securities offering a stated dividend rate. Convertible securities will
at times be priced in the market like other fixed income securities: that is,
their prices will tend to rise when interest rates decline and will tend to fall
when interest rates rise. However, because a convertible security provides an
option to the holder to exchange the security for either a specified number of
the issuer's common shares at a stated price per share or the cash value of such
common shares, the security market price will tend to fluctuate in relationship
to the price of the common shares into which it is convertible. Thus,
convertible securities ordinarily will provide opportunities both for producing
current income and longer-term capital appreciation. Because convertible
securities are usually viewed by the issuer as future common stock, they are
generally subordinated to other senior securities and therefore are rated one
category lower than the issuer's non-convertible debt obligations or preferred
stock. Securities rated "B" or "CCC" (or "Caa") are regarded as having
predominantly speculative characteristics with respect to the issuer's capacity
to pay interest and repay principal, with "B" indicating a lesser degree of
speculation than "CCC" (or "Caa"). While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions. Securities rated "CCC" (or "Caa") have a
currently identifiable vulnerability to default and are dependent upon favorable
business, financial, and economic conditions to meet timely payment of interest
and repayment of principal. In the event of adverse business, financial, or
economic conditions, they are not likely to have the capacity to pay interest
and repay principal.
While the market values of low-rated and comparable unrated securities
tend to react less to fluctuations in interest rate levels than the market
values of higher-rated securities, the market values of certain low-rated and
comparable unrated securities also tend to be 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.
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To the extent that there is no established retail secondary market for
low-rated and comparable unrated securities, there may be little trading of such
securities in which case the responsibility of the Trust's Board of Trustees or
the Company's Board of Directors, as the case may be, to value such securities
becomes more difficult and judgment plays a greater role in valuation because
there is less reliable, objective data available. In addition, a Fund's ability
to dispose of the bonds may become more difficult. Furthermore, adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield bonds, especially
in a thinly traded market.
The market for certain low-rated and comparable unrated securities is
relatively new and has not weathered a major economic recession. The effect that
such a recession might have on such securities is not known. Any such recession,
however, could likely disrupt severely the market for such securities and
adversely affect the value of such securities. Any such economic downturn also
could adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and could result in a higher incidence of
defaults.
FLOATING AND VARIABLE RATE OBLIGATIONS. 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 an interest rate index or market interest
rate. These adjustments tend to decrease the sensitivity of the security's
market value to changes in interest rates. 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.
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 prevailing market interest
rates or changes in the issuer's creditworthiness.
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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 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 CURRENCY AND FOREIGN CURRENCY FORWARD CONTRACTS, OPTIONS AND
FUTURES. 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 expenses in
converting assets from one currency to another.
FORWARD CONTRACTS. Each of the Equity Funds may enter into foreign
currency forward 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, either to "lock-in" the U.S.
dollar purchase 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, as well as
for non-hedging purposes. A Fund may also enter into a forward contract on one
currency in order to hedge against risk of loss arising from fluctuations in the
value of a second currency ("cross hedging"), if in the judgment of the
Investment Adviser or Investment Sub-Adviser, a reasonable degree of correlation
can be expected between movements in the values of the two currencies. By
entering into such transactions, however, the Fund may be required to forego the
benefits of advantageous changes in exchange rates. 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 an exchange.
Each of the Emerging Markets Fund and the International Fund may also
enter into transactions in forward contracts for other than hedging purposes
that present greater profit potential but also involve 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 Funds may purchase or sell such currency,
respectively, through a forward contract. If the expected changes in the value
of the currency occur, the Funds will realize profits which will increase their
gross income. Where exchange rates do not move in the direction or to the extent
anticipated, however, the Funds may sustain losses which will reduce their gross
income. Such transactions, therefore, could be considered speculative.
The 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
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which the Funds satisfy this requirement through segregation of assets, they
will segregate appropriate liquid securities, which will be marked to market on
a daily basis, in an amount equal to the value of their commitments under
forward contracts.
Only a limited market, if any, currently 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, in which the Emerging Markets Fund or the International Fund
may invest. This may limit a 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.
A 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 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. A Fund may also write options to
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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. A 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.
As in the case of other kinds of options, the use of foreign currency
options constitutes only a partial hedge and a 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, the Fund may forfeit the
entire amount of the premium plus related transaction costs.
Options on foreign currencies written or purchased by a Fund may be
traded on U.S. or foreign exchanges or over-the-counter. 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.
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 be permitted only through foreign
government-approved or authorized investment vehicles, which may include other
investment companies. These Funds 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 1940 Act. Under the 1940 Act, a Fund may invest up to 10% of its assets in
shares of investment companies and up to 5% of its assets in any one investment
company as long as the Fund does not own more than 3% of the voting stock of any
one investment company.
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FOREIGN SECURITIES. 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
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.
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 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
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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 repayment 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.
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 only in
dollar-denominated Eurodollar securities that are convertible into the common
stock of domestic corporations. The Intermediate Government Bond Fund may invest
in dollar-denominated Eurodollar securities that are guaranteed by the U.S.
Government or its agencies or instrumentalities.
On January 1, 1999, the European Monetary Union (the "EMU") introduced
a new single currency, the Euro, which will replace the national currencies of
participating member nations. If a Fund holds investments in nations with
currencies to be replaced by the Euro, the investment process, including
trading, foreign exchange, payments, settlements, cash accounts, custody and
accounting, will be affected. Although it is not possible to predict fully the
impact of the Euro on the Funds, the transition and the elimination of currency
risk among nations participating in the EMU may change the economic environment
and behavior of investors, particularly in European markets.
The adoption of the Euro does not reduce the currency risk presented by
the fluctuations in value of the U.S. dollar relative to other currencies and,
in fact, currency risk may be magnified. Also, increased market volatility may
result. Additional risks that may result include the fact that European issuers
in which the Funds invest may face substantial conversion costs, which may not
be accurately anticipated and may affect issuer profitability and
creditworthiness.
Although there can be no assurance that the Funds will not be adversely
affected, the Funds' service providers are taking steps that they believe are
reasonably designed to address the Euro issue.
FUNDING AGREEMENTS. Funding agreements are insurance contracts between
an investor and the issuing insurance company. For the issuer, they represent
senior obligations under an insurance product. For the investor, and from a
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regulatory perspective, these agreements are treated as securities. These
agreements, like other insurance products, are backed by claims on the general
assets of the issuing entity and rank on the same priority level as other policy
holder claims. Funding agreements typically are issued with a one year final
maturity and a variable interest rate, which may adjust weekly, monthly, or
quarterly. Some agreements carry a seven-day put feature. A funding agreement
without this feature is considered illiquid. These agreements are regulated by
the state insurance board in the state where they are executed.
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 U.S.
Government agencies and instrumentalities are debt securities issued by U. S.
Government-sponsored enterprises and federal agencies. Some of these obligations
are supported by: (a) the full faith and credit of the U.S. Treasury (such as
Government National Mortgage Association participation certificates); (b) the
limited authority of the issuer to borrow from the U.S. Treasury (such as
securities of the Federal Home Loan Bank); (c) the discretionary authority of
the U.S. 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 U.S. Government support of
agencies or instrumentalities is discretionary, no assurance can be given that
the U.S. Government will provide financial support, since it is not lawfully
obligated to do so.
GUARANTEED INVESTMENT CONTRACTS. Each of 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. A
GIC requires the investor to make cash contributions to a deposit fund of an
insurance company's general account. The insurance company then makes payments
to the investor 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, a GIC is not assignable or transferable without the
permission of the issuing insurance company, 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 that 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.
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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). Those 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 those guidelines on a periodic basis.
INDEX FUTURES CONTRACTS AND OPTIONS ON INDEX FUTURES CONTRACTS. All
Equity Funds and Fixed Income Funds 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.
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.
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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 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.
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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.
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
and Fixed Income Funds 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 U. S. Treasury Bonds, ten-year U.S.
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
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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 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.
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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.
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."
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
that seek to maintain a $1.00 net asset value per share.
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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,
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. 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. Those expenses would be in addition to the advisory and other expenses
that the Fund bears directly in connection with its own operations.
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 those countries is permitted by certain emerging
countries through specifically authorized investment funds. Each of the Emerging
Markets Fund and the International 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 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.
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 this SAI.
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.
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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 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-only Government
Stripped Mortgage-Backed Securities. Conversely, if an increase in the level of
prevailing interest rates results in a rate of principal prepayments lower than
anticipated, distributions of principal will be deferred, thereby increasing the
yield to maturity on interest-only Government Stripped Mortgage-Backed
Securities and decreasing the yield to maturity on principal-only Government
Stripped Mortgage-Backed Securities. Sufficiently high prepayment rates could
result in a Fund's not fully recovering its initial investment in an
interest-only Government Stripped Mortgage-Backed Security. Government Stripped
Mortgage-Backed Securities are currently traded in an over-the-counter market
maintained by several large investment banking firms. There can be no assurance
that a Fund will be able to effect a trade of a Government Stripped
Mortgage-Backed Security at a time when it wishes to do so.
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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.
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. 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.
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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 and Fixed Income Funds 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.
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Each Fund may purchase put options in an effort to protect the value of
a security owned against an anticipated decline in market value. Exercise of a
put option will generally be profitable only if the market price of the
underlying security declines sufficiently below the exercise price to offset the
premium paid and the transaction costs. If the market price of the underlying
security increases, a Fund's profit upon the sale of the security will be
reduced by the premium paid for the put option less any amount for which the put
is sold.
The staff of the Commission has taken the position that purchased
options not traded on registered domestic securities exchanges and the assets
used as cover for written options not traded on such exchanges are illiquid
securities. The Trust and the Company have agreed that, pending resolution of
the issue, each of the Funds will treat such options and assets as subject to
such Fund's limitation on investment in securities that are not readily
marketable.
Writing of options involves the risk that there will be no market in
which to effect a closing transaction. An exchange-traded option may be closed
out only on an exchange that provides a secondary market for an option of the
same series, and there is no assurance that a liquid secondary market on an
exchange will exist.
REAL ESTATE INVESTMENT TRUSTS. The Emerging Markets Fund and the
International 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 securities of larger companies.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements
by which the Fund purchases 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 repurchase
agreement must be collateralized by obligations that could otherwise be
purchased by the Fund (except with respect to maturity) and be maintained by the
seller 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
or a Money Market Fund) 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
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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.
REVERSE REPURCHASE AGREEMENTS. Each of the Equity Funds and the Fixed
Income Funds may borrow funds for temporary purposes by entering into an
agreement to sell portfolio securities to a financial institution such as a bank
or broker-dealer and to repurchase them at a mutually specified date and price
("reverse repurchase agreement"). A reverse repurchase agreement involves the
risk that the market value of the securities sold by the Fund may decline below
the repurchase price. The Fund would pay interest on the amount obtained
pursuant to the reverse repurchase agreement.
A Fund may not enter into a reverse repurchase agreement if, as a
result, more than 15% (10% with respect to the Equity Fund, the
Short/Intermediate Bond Fund or a Money Market Fund) of the Fund's net assets
would be invested in reverse repurchase agreements with a maturity of more than
seven days and in other illiquid securities. The Funds will enter into reverse
repurchase agreements only with registered broker-dealers and commercial banks
that meet guidelines established by the Trust's Board of Trustees or the
Company's Board of Directors, as the case may be.
RULE 2A-7 MATTERS. Each of the Money Market Funds must comply with the
requirements of Rule 2a-7 under the 1940 Act ("Rule 2a-7"). Under the applicable
quality requirements of Rule 2a-7, the Funds may purchase only U.S.
dollar-denominated instruments that are determined to present minimal credit
risks and that are at the time of acquisition "eligible securities" as defined
in Rule 2a-7. Generally, eligible securities are divided into "first tier" and
"second tier" securities. First tier securities are generally those in the
highest rating category (e.g., A-1 by S&P) or unrated securities deemed to be
comparable in quality, government securities and securities issued by other
money market funds. Second tier securities are generally those in the second
highest rating category (e.g., A-2 by S&P) or unrated securities deemed to be
comparable in quality. See Appendix A.
The Money Market Fund may not invest more than 5% of its total assets
in second tier securities nor more than 1% of its total assets or $1 million
(whichever is greater) in the second tier securities of a single issuer. The
Tax-Exempt Money Market Fund may not invest more than 5% of its total assets in
second tier "conduit securities" (as defined in Rule 2a-7), nor more than 1% of
its total assets or $1 million (whichever is greater) in second tier conduit
securities issued by a single issuer. Generally, conduit securities are
securities issued to finance non-governmental private projects, such as
retirement homes, private hospitals, local housing projects, and industrial
development projects, with respect to which the ultimate obligor is not a
government entity.
Each Money Market Fund will maintain a dollar-weighted average maturity
of 90 days or less and will limit its investments to securities that have
remaining maturities of 397 calendar days or less or other features that shorten
maturities in a manner consistent with the requirements of Rule 2a-7, such as
interest rate reset and demand features.
SECURITIES LENDING. 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 total assets if cash or cash
equivalent collateral, including letters of credit, marked-to-market daily and
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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 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.
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 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.
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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.
SOVEREIGN DEBT. The Emerging Markets Fund and the International 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 Funds may hold and trade sovereign debt of
emerging market countries in appropriate circumstances 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 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 Funds may
invest in sovereign debt that is in default as to payments of principal or
interest. In the event that the Funds hold non-performing sovereign debt, the
Funds may incur additional expenses in connection with any restructuring of the
issuer's obligations or in otherwise enforcing their rights thereunder.
STAND-BY COMMITMENTS. Each of 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
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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 are 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.
TEMPORARY INVESTMENTS. When business or financial conditions warrant,
each of the non-Money Market Funds 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). In the case of the International Fund and
the Emerging Markets Fund, 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).
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 PURCHASES AND FORWARD COMMITMENTS (DELAYED-DELIVERY).
When-issued purchases and forward commitments (delayed-delivery) are commitments
by a Fund to purchase or sell particular securities with payment and delivery to
occur at a future date (perhaps one or two months later). These transactions
permit the Fund to lock-in a price or yield on a security, regardless of future
changes in interest rates.
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When a Fund agrees to purchase securities on a when-issued or forward
commitment basis, 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 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. Each Fund 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 may be created by separating the
interest and principal components of securities issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities or issued by private
corporate issuers. These securities may not be issued or guaranteed by the U.S.
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
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instruments is determined by the difference between such instrument's purchase
price and its value at maturity. Because interest on zero coupon securities is
not paid on a current basis, the values of securities of this type are subject
to greater fluctuations than are the values of securities that distribute income
regularly. In addition, a Fund's investment in zero coupon securities will
result in special tax consequences. Although zero coupon securities do not make
interest payments, for tax purposes, a portion of the difference between the
security's maturity value and its purchase price is imputed income to a Fund
each year. Under the Federal tax laws applicable to investment companies, a Fund
will not be subject to tax on its income if it pays annual dividends to its
shareholders substantially equal to all the income received from, and imputed
to, its investments during the year. Because imputed income must be paid to
shareholders annually, a Fund may need to borrow money or sell securities to
meet certain dividend and redemption obligations. In addition, the sale of
securities by a Fund may increase its expense ratio and decrease its rate of
return.
RATINGS
After purchase by a Fund, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require the Fund for such type of security to sell the
security unless the amount of the security exceeds the Fund's permissible limit.
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 the organization or in its rating system,
the Fund will attempt to use comparable ratings as standards for investments in
accordance with the investment policies contained in the Prospectuses and in
this SAI.
For additional information on ratings, see Appendix A to this SAI.
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);
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(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
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.
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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.)
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.
TRUSTEES, DIRECTORS AND EXECUTIVE OFFICERS
Responsibility for overall management of the Trust and the Company and
their respective Funds rests with the Board of Trustees or Board of Directors in
accordance with Massachusetts or Maryland law, respectively. 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
Four Falls Corporate Center, 6th Floor West Conshohocken, Pennsylvania
19428-2961.
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 60. 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, DEL-LPAML Limited Partnership,
Nonlinear Dynamics, Inc., and Evanston Northwestern Healthcare.
EDGAR R. FIEDLER, TRUSTEE AND DIRECTOR - 845 Third Avenue, New York, New York
10022. Age 70. Senior Fellow and Economic Counsellor, The Conference Board;
Director or Trustee, The Stanley Works, Emerging Mexico Fund, AARP Income Trust,
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Scudder Institutional Funds, Scudder Pathway Series, Brazil Fund and PEG Capital
Management. 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 61. President and Chief Executive Officer, The
Field Museum of Natural 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 72. 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 WOLFF, TRUSTEE AND DIRECTOR - University Park, Illinois 60466. Age 54.
President, Governors State University since 1992. Chair, University of Chicago
Hospitals, and Director, Ariel Capital Management.
MONROE J. HAEGELE, President. Age 54. Chief Executive Officer and Director of
Provident Distributors, Inc. Director of the International Dollar Reserve Fund I
of the Provident Institutional Fund Group, and an officer of certian investment
companies distributed by Provident Distributors.
THOMAS J. RYAN, Treasurer and Chief Financial Officer. Age 57. Vice President
and Director of PFPC, Inc.
GARY M. GARDNER, Secretary. Age 47. Senior Vice President of PFPC, Inc. and
an officer of certain investment companies distributed by Provident
Distributors, Inc.
PHILIP H. RINNANDER, Vice President. Age 54. Secretary of Provident
Distributors, Inc. From July 1994 to April 1995, Mr. Rinnander was Executive
Vice President of CorStates Financial Corp. from June 1988 to July 1994, Mr.
Rinnander was Executive Vice President and Chief Financial Officer of
Independence Bancorp.
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. Neither the Trust or the Company has adopted any form of
retirement plan covering Trustees, Directors or officers.
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, 1998:
<TABLE>
<CAPTION>
Aggregate Aggregate Compensation
Compensation from from the Company Total Compensation
Name of Person, Position the Trust from the Fund Complex*
- ------------------------------ ---------------------- ------------------------ ---------------------------
<S> <C> <C> <C>
C. Gary Gerst, $12,450 $29,050 $41,500
Chairman, Director and
Trustee
32
<PAGE>
Edgar R. Fiedler, $10,200(1) $23,800(1) $34,000
Director and Trustee
John W. McCarter, Jr. $10,200 $23,800 $34,000
Director and Trustee
Ernest M. Roth, $10,200 $23,800 $34,000
Director and Trustee
Paula Wolff@, $5,100 $11,900 $17,000
Director and Trustee
</TABLE>
"Fund Complex" includes the Company and the Trust.
(1) For the period June 1988 through December 31, 1998, the total amount of
compensation (including interest) payable or accrued for Mr. Fiedler
was $208,083 pursuant to the Company's Deferred Compensation Plan for
its independent Directors.
@ Became a Director of the Company and a Trustee of the Trust on
July 16, 1998.
A Shares of the Funds are sold with a sales load of up to 5.50%;
however, no sales charge is assessed on purchases by (a) any bank, trust
company, or other institution acting on behalf of a fiduciary customer account
or any other trust account (including a pension, profit-sharing or other
employee benefit trust created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code of 1986, as amended); (b) any individual with an
investment account or relationship with HIM; and (c) Trustees or Directors.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of April 1, 1999, the principal holders of the A Shares, N Shares
and Institutional Shares of each Fund of the Company and the Trust were as
follows:
The principal holders of N Shares of the Emerging Markets Fund were
Anthony M. Montenurro Profit Sharing Plan, Chicago, Illinois 60631 and W. O.
Leszinske, Chicago, Illinois 60603, which held of record 2,709.178 and 2,012.210
shares, respectively, equal to 21.52% and 15.98%, respectively of the
outstanding N Shares of the Fund. National Financial Services Corp., New York,
New York 10008, also a principal holder of N Shares, owns 1,048.951, 1,048.951,
995.221 and 671.642 shares, respectively, in separate beneficial accounts, equal
to 8.33%, 8.33%, 7.90% and 5.33%, respectively of the outstanding N Shares of
the Fund. The principal holder of Institutional Shares of the Emerging Markets
Fund was Harris Trust and Savings Bank, Chicago, Illinois 60603, which held of
record 3,413,043.026 shares, equal to 98.94% of the outstanding Institutional
Shares of the Fund.
The principal holder of A Shares of the International Fund was National
Financial Services Corp., New York, New York 10008, which held of record 39.714
shares equal to 97.97% of the outstanding A Shares of the Fund. The principal
holders of N Shares of the International Fund were LaSalle National Bank,
Chicago, Illinois 60690-1443; Harris Trust and Savings Bank, Chicago, Illinois
60603; and Karen Toole Verbica, San Jose, California 95150, which held of record
33
<PAGE>
20,072.912; 12,342.429; and 8,157.749 shares, respectively, equal to 13.39%;
8.23%; and 5.44%, respectively of the outstanding A Shares of the Fund. The
principal holder of Institutional Shares of the International Fund was Harris
Trust and Savings Bank, Chicago, Illinois 60603; which held of record
16,233,760.825 shares equal to 99.71% of the outstanding Institutional Shares of
the Fund.
The principal holder of A Shares of the Small-Cap Opportunity Fund was
National Financial Services Corp., New York, New York 10008, which held of
record, in separate beneficial accounts, 35.828 and 28.345 shares, respectively,
equal to 55.32% and 43.76%, respectively of the outstanding A Shares of the
Fund. The principal holder of N Shares of the Small-Cap Opportunity Fund was
Bank of America, Los Angeles, California 90051, which held of record 26,137.804
shares equal to 10.86% of the outstanding N Shares of the Fund. The principal
holder of Institutional Shares of the Small-Cap Opportunity Fund was Harris
Trust and Savings Bank, Chicago, Illinois 60603, which held of record
16,346,112.787 shares equal to 97.50% of the outstanding Institutional Shares of
the Fund.
The principal holders of N Shares of the Small-Cap Value Fund were
Harris Trust and Savings Bank, Chicago, Illinois 60603; John A. Sivright,
Winnetka, Illinois 60093; and National Financial Services Corp., New York, New
York 10008, which held of record 3,907.251; 3,908.673; and 1,398.039 shares,
respectively, equal to 16.95%; 16.95%; and 6.06%, respectively of the
outstanding N Shares of the Fund. The principal holder of Institutional Shares
of the Small-Cap Value Fund was Harris Trust and Savings Bank, Chicago, Illinois
60603, which held of record 4,482,977.074 shares equal to 95.46% of the
outstanding Institutional Shares of the Fund.
The principal holder of A Shares of the Growth Fund was National
Financial Services Corp., New York, New York 10008, which held of record, in
separate beneficial accounts, 701.389, 701.389, 701.389, 676.770 and 672.646
shares, respectively, equal to 8.70%, 8.70%, 8.70%, 8.39% and 8.34%,
respectively, of the outstanding A Shares of the Fund. The principal holder of N
Shares of the Growth Fund was GSB & Co., Glenview, Illinois 60025, which held of
record 15,025.778 shares equal to 5.94% of the outstanding N Shares of the Fund.
The principal holder of Institutional Shares of the Growth Fund was Harris Trust
and Savings Bank, Chicago, Illinois 60603, which held of record 5,762,532.755
shares equal to 99.52% of the outstanding Institutional Shares of the Fund.
The principal holder of A Shares of the Equity Fund was National
Financial Service Corp., New York, New York 10008, which held of record, in
separate beneficial accounts, 1,026.272, 393.008, 285.602, 222.757 and 215.605
shares, respectively, equal to 33.84%, 12.95%, 9.41%, 7.34%, and 7.11%,
respectively, of the outstanding A Shares of the Fund. The principal holders of
N Shares of the Equity Fund were Norwest Bank of Arizona, Minneapolis, Minnesota
55480-8477; and National Financial Services Corp., New York, New York 10008,
which held of record 134,959.326 and 84,899.798 shares, respectively, equal to
8.36% and 5.26%, respectively of the outstanding N Shares of the Fund. The
principal holder of Institutional Shares of the Equity Fund was Harris Trust and
Savings Bank, Chicago, Illinois 60603, which held of record 44,311,943.991
shares equal to 94.38% of the outstanding Institutional Shares of the Fund.
The principal holder of A Shares of the Equity Income Fund was National
Financial Services Corp., New York, New York 10008, which held of record, in
separate beneficial accounts, 929.584, 504.022, 449.951, 166.848, 166.848 and
148.080, shares, respectively, equal to 32.21%, 18.01%, 16.07%, 5.96%, 5.96% and
5.29%, respectively, of the outstanding A Shares of the Fund. The principal
holders of N Shares of the Equity Income Fund were Harris Trust and Savings
Bank, Chicago, Illinois 60603; and National Financial Services Corp., New York,
34
<PAGE>
New York 10008, which held of record 22,613.430 and 16,566.160 shares,
respectively, equal to 10.04% and 7.35%, respectively of the outstanding N
Shares of the Fund. The principal holder of Institutional Shares of the Equity
Income Fund was Harris Trust and Savings Bank, Chicago, Illinois 60603, which
held of record 3,360,266.203 shares equal to 99.60% of the outstanding
Institutional Shares of the Fund.
The principal holders of N Shares of the Index Fund were Harris Trust
and Savings Bank, Chicago, Illinois 60603; and National Financial Services
Corp., New York, New York 10008, which held of record 53,440.330 and 32,497.383
shares, respectively, equal to 9.53% and 5.80%, respectively of the outstanding
N Shares of the Fund. The principal holder of the Institutional Shares of the
Index Fund was Harris Trust and Savings Bank, Chicago, Illinois 60603, which
held of record 12,487,092.915 shares equal to 96.80% of the outstanding
Institutional Shares of the Fund.
The principal holder of A Shares of the Balanced Fund was National
Financial Services Corp., New York, New York 10008, which held of record, in
separate beneficial accounts, 501.649, 297.493 and 85.182 shares, respectively,
equal to 56.68%, 33.61% and 9.62%, respectively, of the outstanding A Shares of
the Fund. The principal holders of the N Shares of the Balanced Fund were David
P. Sanes, Skokie, Illinois 60077; and Harris Trust and Savings Bank, Chicago,
Illinois 60603, which held of record 26,249.739 and 9,865.725 shares,
respectively, equal to 14.54% and 5.46%, respectively, of the outstanding N
Shares of the Fund. National Financial Services Corp., New York, New York 10008,
also a principal holder of N Shares, owns 12,838.079 and 10,288.649 shares,
respectively, in separate beneficial accounts, equal to 7.11% and 5.70%,
respectively of the outstanding N Shares of the Fund. The principal holder of
Institutional Shares of the Balanced Fund was Harris Trust and Savings Bank,
Chicago, Illinois 60603, which held of record 3,755,673.210 shares equal to
99.99% of the outstanding Institutional Shares of the Fund.
The principal holder of N Shares of the Convertible Securities Fund was
Judith W. McCarter, Northfield, Illinois 60093, which held of record 842.201
shares equal to 5.05% of the outstanding N Shares of the Fund. National
Financial Services Corp., New York, New York 10008, also a principal holder of N
Shares, owns 2,475.190, 1,838.957, 1,803.290, 1,108.779, 959.442, 945.345 and
918.918 shares, respectively, in separate beneficial accounts, equal to 14.84%,
11.02%, 10.81%, 6.65%, 5.75%, 5.67% and 5.51%, respectively, of the outstanding
N Shares of the Fund. The principal holders of Institutional Shares of the
Convertible Securities Fund were Harris Trust and Savings Bank, Chicago,
Illinois 60603; and Pipe Fitters Retirement Fund, Tampa, Florida 33607, which
held of record 1,686,172.424; and 181,725.012 shares, respectively, equal to
89.81% and 9.68%, respectively of the outstanding Institutional Shares of the
Fund.
The principal holders of N Shares of the Tax-Exempt Bond Fund were Bank
of America, Los Angeles, California 90051; William D. Markle, Chicago, Illinois
60614; Harris Trust and Savings Bank, Chicago, Illinois 60603; Benjamin F.
Kable, La Pine, Oregon 97739; and Michael R. Chandler, Beverly Hills, Florida
34465, which held of record 5,362.00; 5,327.797; 5,140.216; 5,055.00; and
4,860.708 shares, respectively, equal to 6.15%; 6.11%; 5.90%; 5.80% and 5.58%,
respectively of the outstanding N Shares of the Fund. National Financial
Services Corp., New York, New York 10008, also a principal holder of N Shares,
owns 10,411.896, 7,996.794, 4,929.922, 4,848.461 and 4,768.348 shares,
respectively, in separate beneficial accounts, equal to 11.95%, 9.18%, 5.66%,
5.56% and 5.47%, respectively, of the outstanding N Shares of the Fund. The
35
<PAGE>
principal holder of Institutional Shares of the Tax-Exempt Bond Fund was Harris
Trust and Savings Bank, Chicago, Illinois 60690, which held of record
14,024,104.826 shares equal to 98.70% of the outstanding Institutional Shares of
the Fund.
The principal holder of A Shares of the Bond Fund was National
Financial Services Corp., New York, New York 10008, which held of record
1,873.395 shares equal to 99.94% of the outstanding shares of A Shares of the
Fund. The principal holders of the N Shares of the Bond Fund were Harris Trust
and Savings Bank, Chicago, Illinois 60603; Carlos Garin, Bosque De Las Lomas,
Mexico; and National Financial Services Corp., New York, New York 10008, which
held of record 64,759.979; 31,305.794; and 18,175.276 shares, respectively,
equal to 22.09%; 10.68%; and 6.20%, respectively of the outstanding shares of
the N Shares of the Fund. The principal holder of Institutional Shares of the
Bond Fund was Harris Trust and Savings Bank, Chicago, Illinois 60690, which held
of record 17,423,711.459 shares equal to 93.00% of the outstanding Institutional
Shares of the Fund.
The principal holders of N Shares of the Intermediate Tax-Exempt Bond
Fund were Alpine Associates LP, Cresskill, New Jersey 07626; and Harris Trust
and Savings Bank, Chicago, Illinois 60603, which held of record 186,759.628; and
18,280.00 shares, respectively, equal to 63.80% and 6.25%, respectively of the
outstanding N Shares of the Fund. The principal holder of the Institutional
Shares of the Intermediate Tax-Exempt Bond Fund was Harris Trust and Savings
Bank, Chicago, Illinois 60603, which held of record 19,790,658.345 shares equal
to 98.69% of the outstanding Institutional Shares of the Fund.
The principal holders of N Shares of the Short/Intermediate Bond Fund
were Alpine Associates LP, Cresskill, New Jersey 07626; and Harris Trust and
Savings Bank, Chicago, Illinois 60603, which held of record 343,187.788; and
41,773.871 shares, respectively, equal to 42.85% and 5.21%, respectively of the
outstanding N Shares of the Fund. The principal holder of Institutional Shares
of the Short/Intermediate Bond Fund was Harris Trust and Savings Bank, Chicago,
Illinois 60603, which held of record 31,022,257.435 shares equal to 96.59% of
the outstanding Institutional Shares of the Fund.
The principal holder of A Shares of the Intermediate Government Bond
Fund was National Financial Services Corp, New York, New York 10008, which held,
in separate beneficial accounts, 362.938 and 144.928 shares, respectively, equal
to 71.37% and 28.50%, respectively of the outstanding A Shares of the Fund. The
principal holders of N Shares of the Intermediate Government Bond Fund were
Harris Trust and Savings Bank, Chicago, Illinois 60603; George C. Slezak,
Western Springs, Illinois 60558; Shirlee R. Hollander, Chicago, Illinois 60646;
David P. Sanes, Skokie, Illinois 60077; and National Financial Services Corp.,
New York, New York 10008, which held of record 19,764.105; 10,998.055;
9,857.540; 9,144.255; and 8,138.189 shares, respectively, equal to 12.78%;
6.77%; 6.07%; 5.61%; and 5.01%, respectively of the outstanding N Shares of the
Fund. The principal holders of Institutional Shares of the Intermediate
Government Bond Fund were Harris Trust and Savings Bank, Chicago, Illinois
60603; Lebcitco & Co., Lebanon, Ohio 45036; and Hospital for Joint Diseases, New
York, New York 10006, which held of record 5,079,132.360; 465,792.632; and
433,326.778 shares, respectively, equal to 81.93%; 7.51%; and 6.99%,
respectively of the outstanding Institutional Shares of the Fund.
The principal holders of N Shares of the Tax-Exempt Money Market Fund
were Harris Trust and Savings Bank, Chicago, Illinois 60603; and National
36
<PAGE>
Financial Services Corp., New York, New York 10008, which held of record
143,863,701.070; and 24,267,251.000 shares, respectively, equal to 82.63% and
10.56%, respectively of the outstanding N Shares of the Fund. The principal
holder of Institutional Shares of the Tax-Exempt Money Market Fund was Harris
Trust and Savings Bank, Chicago, Illinois 60603, which held of record
498,505,328.140 shares equal to 97.33% of the outstanding Institutional Shares
of the Fund.
The principal holders of the N Shares of the Money Market Fund were
Harris Trust and Savings Bank, Chicago, Illinois 60603; National Financial
Services Corp., New York, New York 10008; and Harris Bank Hinsdale, Lombard,
Illinois 60148, which held of record 678,374,071.040; 70,161,073.930; and
63,012,012.540 shares, respectively, equal to 74.59%; 7.71%; and 6.92%,
respectively of the outstanding N Shares of the Fund. The principal holder of
Institutional Shares of the Money Market Fund was Harris Trust and Savings Bank,
Chicago, Illinois 60603, which held of record 1,250,197,032.100 shares equal to
76.20% of the outstanding Institutional Shares of the Fund.
The principal holders of N Shares of the Government Money Market Fund
were Harris Trust and Savings Bank, Chicago, Illinois 60603; Harris Trust Bank
of Arizona, Scottsdale, Arizona 85253; and National Financial Services Corp.,
New York, New York 10008, which held of record 205,600,336.800; 16,632,828.350;
and 14,173,685.430 shares, respectively, equal to 75.37%; 6.09%; and 5.19%,
respectively of the outstanding N Shares of the Fund. The principal holder of
Institutional Shares of the Government Money Market Fund was Harris Trust and
Savings Bank, Chicago, Illinois 60603, which held of record 206,538,332.090
shares equal to 92.41% of the outstanding Institutional Shares of the Fund.
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, 1999, 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, 1999, Trustees and officers of the Trust as a group
beneficially owned less than 1% of the outstanding shares of the Trust's Funds.
INVESTMENT MANAGEMENT, DISTRIBUTION AND OTHER SERVICES
INVESTMENT MANAGEMENT. Each of the Funds is advised by Harris Trust.
Harris Trust 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. Harris Trust is a wholly-owned subsidiary of Harris
Bankcorp, Inc, which 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. 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.
37
<PAGE>
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 the
Portfolio Management Contracts, Harris Trust remains responsible for the
supervision and oversight of HIM's performance. HIM, an investment adviser
registered under the Investment Advisers Act of 1940, as amended, is a
wholly-owned subsidiary of Harris Bankcorp, Inc.
HIM has entered into Investment Sub-Advisory Agreements (the
"Sub-Advisory Contracts") with Hansberger. 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 is majority controlled by Thomas L. Hansberger, who founded the firm
in 1994. 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 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 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.
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.
38
<PAGE>
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:
o Active management is a key component of superior performance.
o A systematic investment process may increase both consistency and
levels of relative performance.
Experience and creativity, combined with technological support, are
most likely to result in successful investment decisions. 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, 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.
39
<PAGE>
<TABLE>
<CAPTION>
Gross Advisory Fee Advisory Fee Voluntarily Net Advisory Fee
($) Waived ($) ($)
------------------------------- ------------------------------ ---------------------------------
1996 1997 1998 1996 1997 1998 1996 1997 1998
- ----------------------------- ---------- ---------- --------- --------- --------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Government Money Market Fund 292,088 343,287 432,078 -- -- -- 292,088 343,287 432,078
Money Market Fund 825,619 1,285,919 1,926,556 -- -- -- 825,619 1,285,919 1,926,556
Tax-Exempt Money Market Fund 667,922 676,850 897,439 -- -- -- 667,922 676,850 897,439
Intermediate Government -- 453,478 682,626 -- 283,923 430,386 -- 169,555 252,240
Bond Fund
Short/Intermediate Bond Fund 1,594,951 1,950,205 2,309,905 684,243 812,087 985,902 910,708 1,138,118 1,324,003
Intermediate Tax-Exempt 1,120,322 1,195,229 1,193,836 32,722 2,062 1,920 1,087,600 1,193,167 1,191,916
Bond Fund
Bond Fund 148,028 617,981 1,107,053 88,847 277,603 470,364 59,181 340,378 636,689
Tax-Exempt Bond Fund 829,656 1,034,844 1,058,237 26,205 564 7,788 803,451 1,034,280 1,050,449
Convertible Securities Fund -- 325,654 364,871 -- 20,552 48,872 -- 305,102 315,999
Balanced Fund -- 297,432 382,132 -- 18,183 65,775 -- 279,249 316,357
Index Fund 280,516 581,658 818,579 41,424 40,100 23,765 239,092 541,558 794,814
Equity Income Fund 182,866 265,358 360,398 9,997 10,661 16,960 172,869 254,697 343,438
Equity Fund 3,549,319 5,497,774 6,213,809 -- -- -- 3,549,319 5,497,774 6,213,809
Growth Fund 529,786 875,635 1,191,917 20,952 13,517 15,256 508,834 862,118 1,176,661
Small-Cap Value Fund -- 447,182 887,045 -- 38,615 69,402 -- 408,567 817,643
Small-Cap Opportunity Fund 1,137,914 2,218,918 2,858,643 23,743 17,029 24,863 1,114,171 2,201,889 2,833,780
International Fund 934,699 1,796,685 1,932,241 17,146 32,097 -- 917,553 1,764,588 1,932,241
Emerging Markets Fund -- 37,994 238,897 -- 10,336 62,722 -- 27,658 176,175
- ----------------------------- ---------- ---------- --------- --------- --------- ---------- ----------- ---------- ----------
</TABLE>
ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN. 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 and Accounting Services Agreements with PFPC
Inc. ("PFPC") (the "Sub-Administrators") on behalf of the Company and the Trust.
PFPC has agreed to furnish officers for the Company and the Trust; provide
corporate secretarial services; prepare and file various reports with the
appropriate regulatory agencies; assit in preparing various materials required
by the Commission; 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.
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 whereby the Sub-Transfer Agent performs certain transfer
40
<PAGE>
agency and dividend disbursing agency services. PFPC Trust Company ("PFPC Trust"
or the "Custodian") serves as custodian of the assets of the Funds and 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. The
Custodian has entered into Sub-Custodian Services Agreements with PNC Bank, N.A.
("PNC" or the "Sub-Custodian") on behalf of the Company and the Trust whereby
the Sub-Custodian performs certain sub-custodian services. PFPC, PFPC Trust and
PNC 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 Funds 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 $600 million. In addition, the Funds pay a separate fee to
the Sub-Transfer Agent for certain retail sub-transfer agent services and
reimburse the Custodian for various custody transactional expenses.
The following table shows the dollar amount of fees payable to the
Administrator for its services with respect to each Fund, the amount of fee that
was waived by the Administrator, if any, and the actual fee received by the
Administrator. The data is for the past three fiscal years or shorter period if
the Fund has been in operation for a shorter period.
<TABLE>
<CAPTION>
Administration Fee ($) Reduction by Administrator Net Administration Fee ($)
($)
------------------------------ ---------------------------- --------------------------------
1996 1997 1998 1996 1997 1998 1996 1997 1998
- ------------------------------ --------- ---------- --------- --------- --------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Government Money Market Fund 289,773 264,347 332,164 23,295 114,341 179,879 266,478 150,006 152,285
Money Market Fund 878,336 1,058,621 1,627,203 73,647 476,735 865,316 804,689 581,886 761,887
Tax-Exempt Money Market Fund 717,310 554,506 739,379 -- -- -- 717,310 554,506 739,379
Intermediate Government Bond -- 96,088 152,049 -- -- -- -- 96,088 152,049
Fund
Short/Intermediate Bond Fund 260,768 385,023 477,736 15,143 -- -- 245,625 385,023 477,736
Intermediate Tax-Exempt Bond 201,598 273,834 287,718 12,277 -- -- 189,321 273,834 287,718
Fund
Bond Fund 24,268 129,517 245,966 1,523 -- -- 22,745 129,517 245,966
Tax-Exempt Bond Fund 155,225 238,688 255,614 8,902 -- -- 146,323 238,688 255,614
Convertible Securities Fund -- 63,999 75,640 -- -- -- -- 63,999 75,640
Balanced Fund -- 68,073 92,442 -- -- -- -- 68,073 92,442
Index Fund 125,126 318,288 474,653 -- -- -- 125,126 318,288 474,653
Equity Income Fund 28,389 52,398 74,396 -- -- -- 28,389 52,398 74,396
Equity Fund 573,867 1,078,273 1,288,430 -- -- -- 573,867 1,078,273 1,288,430
Growth Fund 64,717 134,450 191,807 -- -- -- 64,717 134,450 191,807
Small-Cap Value Fund -- 77,285 160,268 -- -- -- -- 77,285 160,268
Small-Cap Opportunity Fund 126,884 304,109 414,180 -- -- -- 126,884 304,109 414,180
International Fund 109,741 248,075 280,560 -- -- -- 109,741 248,075 280,560
Emerging Markets Fund -- 4,309 28,633 -- -- -- -- 4,309 28,633
- ------------------------------ --------- ---------- --------- --------- --------- -------- ---------- ---------- ----------
</TABLE>
41
<PAGE>
DISTRIBUTOR. Provident Distributors, 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. 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 Trustees of the Company.
The Distributor has agreed to furnish offices for the Company and the Trust, as
required.
A Shares of the Funds are sold with a maximum front-end sales charge of
5.50%, but no A Shares had been issued as of December 31, 1998. Effective
December 1, 1997, the front-end sales charge assessed on N Shares of the Equity
Funds and the Fixed Income Funds was eliminated. N Shares of these Funds were
previously sold with a maximum front-end sales charge of 4.50%. A Shares of the
Funds may be subject to a contingent deferred sales charge of up to 1.00%, which
is described in the Prospectuses and under "Additional Purchase and Redemption
Information" in this SAI.
Sales charges for A Shares of the Funds are described in the
Prospectuses and under "Additional Purchase and Redemption Information" in this
SAI.
The following table shows the dollar amount of sales charges payable to
the Distributor with respect to sales of N 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 Funds
Commissions ($) Distributor, Inc. ($) Amount Reallowed ($)
----------------------------- --------------------------- -----------------------------
1996 1997 1998 1996 1997 1998 1996 1997 1998
--------- --------- --------- ------ --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short/Intermediate Bond Fund 4,365 1,473 N/A 280 81 N/A 4,085 1,392 N/A
Equity Fund 12,647 7,153 N/A 728 392 N/A 11,919 6,761 N/A
Equity Income Fund -- 85 N/A -- 5 N/A -- 80 N/A
Growth Fund 452 1,908 N/A 27 108 N/A 425 1,800 N/A
Small-Cap Opportunity Fund 1,402 2,380 N/A 84 134 N/A 1,318 2,246 N/A
Index Fund 247 728 N/A 13 40 N/A 234 688 N/A
International Fund 225 2,712 N/A 13 147 N/A 212 2,565 N/A
- --------------------------------- --------- --------- --------- ------ --------- ---------- --------- --------- ---------
</TABLE>
OTHER EXPENSES. Except for certain expenses borne by the Distributor,
Harris Trust, or HIM, the Trust and the Company bear all costs of their
42
<PAGE>
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 only to A Shares and N 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.
SERVICE PLANS
A SHARES. The Funds, except for the Index Fund, Tax-Exempt Money Market
Fund, Money Market Fund and Government Money Market Fund, have adopted a Service
Plan for A Shares under Section 12(b) of the 1940 Act and Rule 12b-1 promulgated
thereunder ("Rule 12b-1") that provides for distribution/service fees of up to
0.35% (on an annualized basis) of the average daily net assets attributable to A
Shares.
The Funds bear the costs and expenses connected with advertising and
marketing the Funds' A Shares and may pay the fees of each institution ("Service
Organization") which purchases A Shares on behalf of its customers ("Customers")
for servicing activities, as described below, at a rate of up to 0.35% per annum
of the value of a Fund's average daily net asset values of its A Shares.
Servicing activities provided by Service Organizations to their
Customers investing in A Shares of the Fund may include, among other things, one
or more of the following: (i) establishing and maintaining shareholder accounts
and records; (ii) processing purchase and redemption transactions; (iii)
answering Customer inquiries; (iv) assisting Customers in changing dividend
options, account designations and addresses; (v) performing sub-accounting; (vi)
investing Customer cash account balances automatically in Fund shares; (vii)
providing periodic statements showing a Customer's account balance and
integrating such statements with those of other transactions and balances in the
Customer's other accounts serviced by the Service Agent; (viii) arranging for
bank wires; (ix) distribution and such other services as the Fund may request,
to the extent the Service Organization is permitted by applicable statute, rule
or regulation.
N SHARES. The Funds have adopted a complex-wide Service Plan for N
Shares of the Funds that provides for service fees of up to 0.25% per annum of
the average daily net asset values of the N Shares. This Service Plan does not
authorize payments under the Plan to be made for distribution purposes and was
not adopted under Rule 12b-1. Additionally, the Money Market Funds have adopted
a Service Plan relating to N Shares pursuant to Rule 12b-1. That Service Plan
provides for distribution fees of up to 0.10% per annum of the average daily net
asset values of the Money Market Funds' N Shares.
43
<PAGE>
ALL FUNDS. Each Fund has entered into an agreement with each Service
Organization which purchases N Shares on behalf of its Customers. In the case of
N 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 Fund's N 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 Fund's Distributor; (ii) processing
dividend payments from the Fund on behalf of Customers; (iii) providing
information periodically to Customers showing their positions in the 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 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 N Shares (a) a service that invests the assets of their other
accounts with the Service Organization in the 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.
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 N 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 provided by the Distributor of shares, at a rate of up to 0.10% per
annum of the average daily net asset values of the N Shares.
INSTITUTIONAL SHARES. There is no Service Plan in existence with
respect to the Institutional Shares of the Funds.
GENERAL. 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 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 Organizations 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
44
<PAGE>
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.
From its own resources, Harris Trust and HIM from time to time may
voluntarily pay fees to certain Service Organizations. Additionally, Harris
Trust and the Distributor may act as Service Organizations and receive fees
under a Service Plan. The following table shows Service Organization fees paid
to Harris Trust with respect to N Shares of each Fund for the period ended
December 31, 1998. No A Shares of the Funds had been issued as of December 31,
1998.
<TABLE>
<CAPTION>
Shareholder Shareholder Rule 12b-1 Fees
Servicing Plan Servicing Plan Rule 12b-1 Fees Waived
Fees Paid Fees Waived ($) ($) ($)
($)
- ---------------------------------------------- ------------------- ---------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
Government Money Market Fund 693,619 -- 244,231 25,496
Money Market Fund 1,854,774 -- 685,686 36,921
Tax-Exempt Money Market Fund 540,978 -- 141,615 67,711
Short/Intermediate Bond Fund 13,511 -- -- --
Bond Fund 4,708 -- -- --
Intermediate Government Bond Fund 3,236 -- -- --
Intermediate Tax-Exempt Bond Fund 2,042 -- -- --
Tax-Exempt Bond Fund 2,017 -- -- --
Convertible Securities Fund 723 -- -- --
Equity Fund 61,176 -- -- --
Equity Income Fund 5,813 -- -- --
Growth Fund 12,155 -- -- --
Small-Cap Opportunity Fund 9,453 -- -- --
Small-Cap Value Fund 1,353 -- -- --
Index Fund 23,829 -- -- --
International Fund 4,928 -- -- --
Balanced Fund 4,337 -- -- --
Emerging Markets Fund 230 -- -- --
</TABLE>
45
<PAGE>
CALCULATION OF YIELD AND TOTAL RETURN
The Company makes available various yield quotations with respect to
shares of each class of shares of the Money Market Funds. Each of these amounts
was calculated based on the 7-day period ended December 31, 1998, 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 N 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 N Shares and Institutional Shares of each of the
following Money Market Funds for the 7-day period ended December 31, 1998 are
listed below.
<TABLE>
<CAPTION>
CURRENT YIELD EFFECTIVE YIELD
------------- ---------------
N INSTITUTIONAL N INSTITUTIONAL
---- ------------- ---- -------------
<S> <C> <C> <C> <C>
Government Money Market Fund 4.57% 4.92% 4.68% 5.04%
Money Market Fund 4.91 5.26 5.03 5.40
Tax-Exempt Money Market Fund 3.02 3.35 3.07 3.41
</TABLE>
N 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 N 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 N Shares and Institutional Shares of each of the
following Money Market Funds for the 30-day period ended December 31, 1998 are:
30-DAY YIELD
N INSTITUTIONAL
---- -------------
Government Money Market Fund 4.58% 4.93%
Money Market Fund 4.87 5.22
Tax-Exempt Money Market Fund 2.78 3.11
46
<PAGE>
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 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, 1998, the effective tax equivalent yield of
the N Shares and Institutional Shares of the Tax-Exempt Money Market Fund was
4.26% and 4.74%, respectively. For the 30-day period ended December 31, 1998,
the 30-day tax equivalent yield for the N Shares and Institutional Shares of the
Tax-Exempt Bond Fund and the N Shares and Institutional Shares of the
Intermediate Tax-Exempt Bond Fund were 5.33% and 5.68%, and 4.83% and 5.18%,
respectively, based on a stated tax rate of 28%. No A Shares of the Tax-Exempt
Bond Fund and the Intermediate Tax-Exempt Bond Fund had been issued as of
December 31, 1998.
The Trust or the Company, as the case may be, makes available 30-day
yield quotations with respect to A Shares, N 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, 1998, for N Shares and Institutional Shares of the Non-Money Market Funds.
No A Shares of the Non-Money Market Funds had been issued as of December 31,
1998.
30-DAY YIELD
N INSTITUTIONAL
Intermediate Government Bond Fund 4.82% 5.07%
Short/Intermediate Bond Fund 5.21 5.46
Intermediate Tax-Exempt Bond Fund 3.48 3.73
Bond Fund 5.48 5.73
Tax-Exempt Bond Fund 3.84 4.09
Convertible Securities Fund 3.74 3.99
Balanced Fund 2.69 2.94
Index Fund 0.85 1.10
Equity Income Fund 0.76 1.01
Equity Fund 0.17 0.42
Growth Fund -0.27 -0.02
Small-Cap Value Fund 0.28 0.53
Small-Cap Opportunity Fund -0.61 -0.36
The Trust or the Company, as the case may be, also makes available
total return quotations for A Shares, N Shares 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, 1998 for N 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
47
<PAGE>
each Class' Shares, is listed in the Funds' financial statements. No A Shares of
the Funds had been issued as of December 31, 1998.
<TABLE>
<CAPTION>
1 Year 5 Year 10 Year Inception to 12/31/98
---------------------- ---------------------- ---------------------- -----------------------
N Institutional N Institutional N Institutional N Institutional
--------- ------------ --------- ------------ --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(%) (%) (%) (%) (%) (%) (%) (%)
Intermediate Government 7.18 7.45 5.84 6.11 7.77 8.04 8.29 8.56
Bond Fund
Short/Intermediate Bond Fund 6.75 7.01 5.83 -- -- -- 7.12 6.22
Intermediate Tax-Exempt 4.67 4.94 4.23 4.49 6.04 6.30 5.62 5.88
Bond Fund
Bond Fund 6.86 7.12 -- -- -- -- 7.88 8.10
Tax-Exempt Bond Fund 4.62 4.88 4.34 4.62 6.93 7.20 7.76 8.03
Convertible Securities Fund (2.04) (1.80) 9.98 10.26 9.31 9.59 10.79 11.06
Balanced Fund 8.29 8.61 -- -- -- -- 17.47 16.22
Index Fund 27.88 28.22 23.30 23.59 -- -- 19.64 19.92
Equity Income Fund 22.66 22.97 20.81 21.12 -- -- 20.79 21.11
Equity Fund 13.42 13.80 20.55 -- 17.20 -- 16.59 21.82
Growth Fund 24.68 25.03 23.60 23.89 -- -- 19.61 19.89
Small-Cap Value Fund (4.15) (3.93) 11.70 12.00 12.00 12.29 13.73 14.02
Small-Cap Opportunity Fund .99 1.16 12.63 12.89 14.15 14.42 14.40 14.68
International Fund (4.84) (4.64) .46 .71 1.61 1.87 3.31 3.56
Emerging Markets Fund (31.50) (31.16) -- -- -- -- (36.03) (35.71)
</TABLE>
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,
1998 for N Shares and Institutional Shares of the Non-Money Market Funds. No A
Shares of the Funds had been issued as of December 31, 1998.
<TABLE>
<CAPTION>
1 Year 5 Year 10 Year Inception to 12/31/98
---------------------- ---------------------- ---------------------- -----------------------
N Institutional N Institutional N Institutional N Institutional
---------- ----------- ---------- ----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(%) (%) (%) (%) (%) (%) (%) (%)
Intermediate Government 7.18 7.45 32.80 34.53 111.33 116.68 205.22 215.87
Bond Fund
Short/Intermediate Bond Fund 6.75 7.01 32.77 -- -- -- 70.57 18.81
48
<PAGE>
Intermediate Tax-Exempt 4.67 4.94 23.01 24.55 79.71 84.24 103.76 110.40
Bond Fund
Bond Fund 6.86 7.12 -- -- -- -- 22.77 23.54
Tax-Exempt Bond Fund 4.62 4.88 23.68 25.32 95.37 100.44 184.93 195.22
Convertible Securities Fund (2.04) (1.80) 60.88 62.93 143.61 149.80 319.95 334.83
Balanced Fund 8.29 8.61 -- -- -- -- 31.81 30.59
Index Fund 27.88 28.22 185.03 188.38 -- -- 233.47 238.84
Equity Income Fund 22.66 22.97 157.31 160.68 -- -- 157.31 160.68
Equity Fund 13.42 13.80 154.55 -- 388.81 -- 429.04 75.77
Growth Fund 24.68 25.03 188.47 191.90 -- -- 232.96 238.22
Small-Cap Value Fund (4.15) (3.93) 73.88 76.25 210.66 218.68 505.98 528.09
Small-Cap Opportunity Fund .99 1.16 81.26 83.38 275.47 284.73 555.26 578.04
International Fund (4.84) (4.64) 2.31 3.61 17.28 20.31 47.52 51.85
Emerging Markets Fund (31.50) (31.16) -- -- -- -- (41.50) (41.15)
</TABLE>
Current yield and total return for the Non-Money Market Funds will
fluctuate from time to time, unlike bank deposits or other investments which pay
a fixed yield for a stated period of time, and do not provide a basis for
determining future yields. Yield (or total return) is a function of portfolio
quality, composition, maturity and market conditions as well as expenses
allocated to the Funds.
Performance data of the Funds may be compared to those of other mutual
funds with similar investment objectives and to other relevant indices, such as
those prepared by Salomon Brothers Inc. or Lehman Brothers Inc., or any of their
affiliates or to ratings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
such data is reported in national financial publications such as IBC/Donoghue's
Money Fund Report and Bank Rate Monitor (for money market deposit accounts
offered by the 50 leading banks and thrift institutions in the top five
metropolitan statistical areas), Money Magazine, Forbes, Barron's, The Wall
Street Journal and The New York Times, reports prepared by Lipper Analytical
Services and publications of a local or regional nature. Performance information
may be quoted numerically or may be presented in a table, graph or other
illustrations. All performance information advertised by the Funds is historical
in nature and is not intended to represent or guarantee future results.
In addition, investors should recognize that changes in the net asset
value of shares of the Non-Money Market Funds will affect the yield of such
Funds for any specified period, and such changes should be considered together
with each such Fund's yield in ascertaining 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.
49
<PAGE>
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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order, which will be priced at the Fund's net asset value next calculated after
it is so accepted.
Redemption proceeds normally are paid in cash. However, the Company and
the Trust have filed formal elections with the Commission pursuant to which a
Fund may effect a redemption in portfolio securities only if a shareholder is
redeeming more than $250,000 or 1% of the Fund's total net assets, whichever is
less, during any 90-day period. If payment for shares redeemed is made wholly or
partially in portfolio securities, brokerage costs may be incurred by the
shareholder in converting the securities to cash.
An investor in A Shares of a Fund may be entitled to reduced sales
charges. To qualify for a reduced sales charge, an investor must notify the
Funds at the time of purchase. If an investor invests through an Institution,
the investor should notify the Institution, which in turn must notify the Funds.
Programs that allow for reduced sales charges, such as the Right of Accumulation
and a Letter of Intent, may be changed or eliminated at any time.
The Right of Accumulation allows an investor to combine the amount
invested in A Shares of a Fund with the total net asset value of A Shares
currently purchased or already owned by that investor of all Funds to determine
the applicable sales charge. To obtain such discount, the purchaser must provide
sufficient information at the time of purchase to permit verification that the
purchase qualifies for the reduced sales charge, and confirmation of the order
is subject to such verification. The Right of Accumulation may be modified or
discontinued at any time by the Funds with respect to all A Shares purchased
thereafter.
A Letter of Intent allows an investor to purchase A Shares of the Funds
over a 13-month period at reduced sales charges based on the total amount
intended to be purchased plus the total net asset value of A Shares already
owned. Each investment made during the period receives the reduced sales charge
applicable to the total amount of the intended investment. If such amount is not
50
<PAGE>
invested within the period, the investor must pay the difference between the
sales charges applicable to the purchases made and the charges previously paid.
In order to recover commissions paid to Institutions, A Shares of a
Fund on which no initial sales charge was assessed due to a purchase amount of
$1,000,000 or more in a single transaction or pursuant to the Right of
Accumulation or a Letter of Intent that are redeemed within one year of the
purchase date will be subject to contingent deferred sales charges equal to
1.00% of the dollar amount subject to the charge. Redemptions made within one to
two years of the purchase will be subject to contingent deferred sales charges
equal to 0.50% of the dollar amount subject to the charge. The charge will be
assessed on an amount equal to the lesser of the cost of the shares being
redeemed and their net asset value at the time of redemption. Accordingly, no
sales charge will be imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on redemptions of shares
acquired through the reinvestment of dividends and distributions or involuntary
redemptions by a Fund of shareholder accounts with low account balances.
Redemptions of shares will be effected in the manner that results in
the imposition of the lowest deferred sales charge. Redemptions with respect to
a shareholder's investment in a Fund will automatically be made first from any A
Shares in a Fund held for more than one year, second from A Shares of the Fund
acquired pursuant to reinvestment of dividends and distributions and third from
A Shares of the Fund held for less than one year.
The contingent deferred sales charge on shares purchased through an
exchange from A Shares of another Fund is based upon the original purchase date
and price of the other Fund's shares. For a shareholder with a Letter of Intent
who does not purchase $1,000,000 of A Shares under the letter, no contingent
deferred sales charge is imposed. A Letter of Intent may provide for a
contingent deferred sales charge in some cases.
DETERMINATION OF NET ASSET VALUE
The 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").
The value of securities held by the Non-Money Market Funds (other than
debt obligations maturing in 60 days or less) is determined based on the last
sale price on the principal exchange (including for these purposes the National
Association of Securities Dealers' Automatic Quotation System) 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 generally are valued at
closing over-the-counter bid prices. Portfolio securities that are primarily
traded on foreign securities exchanges generally are 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.
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<PAGE>
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, as discussed below.
Each of the Money Market Funds uses the amortized cost method to
determine the value of its portfolio securities pursuant to 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.
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
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
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<PAGE>
respect to equity securities, the amount of brokerage commissions will tend to
increase as the level of portfolio activity increases. An annual portfolio
turnover rate of 100% would occur if all of the securities held by the Fund were
replaced once in a period of one year.
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.
Purchase and sale orders for securities on behalf any Fund may be
combined with those of other accounts that Harris Trust, HIM or Hansberger
manages, and for which it has brokerage placement authority, in the interest of
seeking the most favorable overall net results. When Harris Trust, HIM or
Hansberger determines that a particular security should be bought or sold for
any of the Funds and other accounts it manages, it allocates the transactions
among the participants equitably. To the extent permitted by the Commission, the
Funds may pay brokerage commissions to certain affiliated persons. During the
last fiscal year, no Fund paid commissions to such persons.
The Trust, the Company, Harris Trust, HIM, Hansberger and other service
providers to the Funds have adopted codes of ethics that contain policies on
personal securities transactions by "access persons," including portfolio
managers and investment analysts.
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 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,
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<PAGE>
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 ($)
------------------------------------- ------------------------------------------------
1996 1997 1998 1996 1997 1998
----------- ------------ ------------ -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Equity Fund 990,841 1,490,680 1,855,467 810,758,972 1,226,623,062 1,400,503,290
Equity Income Fund 38,375 20,970 28,649 31,623,167 20,785,343 30,249,587
Growth Fund 66,607 80,371 129,319 48,648,396 64,254,236 96,800,368
Small-Cap Opportunity Fund 271,499 269,136 437,246 124,656,326 156,483,678 232,858,016
Index Fund 16,300 43,400 20,464 20,433,355 116,419,664 28,635,056
International Fund 33,329 358,558 614,604 13,237,746 289,865,829 173,826,470
Emerging Markets Fund -- 66,505 86,280 -- 11,195,946 16,890,323
Balanced Fund -- 51,841 77,519 -- 36,694,360 52,768,682
Small-Cap Value Fund -- 240,854 405,440 -- 129,913,628 195,946,616
Convertible Securities Fund -- 15,915 17,957 -- 12,667,478 13,220,179
</TABLE>
With respect to transactions directed to brokers because of research
services provided, the following table shows total brokerage commissions and the
total dollar amount of transactions on which commissions were paid for the
fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
Total Brokerage Commissions Total Dollar Amount of Transactions on which
(Research-related) ($) Commissions were paid (Research-related) ($)
---------------------------------- ------------------------------------------------
<S> <C> <C>
Equity Fund 313,750 304,820,186
Equity Income Fund 631 2,266,910
Growth Fund 14,893 16,762,899
Small-Cap Opportunity Fund 33,475 44,507,933
Small-Cap Value Fund 18,575 20,282,471
Balanced Fund
</TABLE>
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<PAGE>
Purchases and sales of securities on a securities exchange are effected
through brokers who charge a negotiated commission for their services. Orders
may be directed to any broker including, to the extent and in the manner
permitted by applicable law, Harris Investors Direct, Inc. ("HID"). In the
over-the-counter market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price that includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. The Funds will not deal with the
Distributor or HID in any transaction in which either one acts as principal
except as may be permitted by the Commission.
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.
TAX INFORMATION
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. 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. 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
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<PAGE>
options thereon and certain other income 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" (described below).
Dividends (including net short-term capital gains), except
exempt-interest dividends, 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 the IRS rules 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
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<PAGE>
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.
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 Funds 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, 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.
57
<PAGE>
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, the Short/Intermediate 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, the Short/Intermediate 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.
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 Market Fund - N Shares," consisting of
1,000,000,000 Shares, "Government Money Market Fund - Institutional Shares,"
consisting of 500,000,000 Shares, "Money Market Fund - N Shares," consisting of
1,300,000,000 Shares, "Money Market Fund - Institutional Shares," consisting of
2,250,000,000 Shares, "Tax-Exempt Money Market Fund - N Shares," consisting of
500,000,000 Shares, "Tax-Exempt Money Market Fund - Institutional Shares,"
consisting of 1,000,000,000 Shares, "Equity Fund - A Shares," consisting of
100,000,000 Shares, "Equity Fund - N Shares," consisting of 100,000,000 Shares,
"Equity Fund - Institutional Shares," consisting of 100,000,000 Shares,
"Short/Intermediate Bond Fund - A Shares," consisting of 100,000,000 Shares,
"Short/Intermediate Bond Fund - N Shares," consisting of 100,000,000 Shares,
"Short/Intermediate Bond Fund - Institutional Shares," consisting of 100,000,000
Shares, and "Class G," referred to as the Harris Insight Intermediate Municipal
Income Fund, 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
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<PAGE>
value, and to create one or more classes of these shares. Pursuant thereto, the
Trustees have authorized the issuance of three classes of shares, A Shares, N
Shares and Institutional Shares, for each Fund of the Trust, except for the
Harris Insight Index Fund. The Index Fund has two classes of shares, N Shares
and Institutional Shares.
Generally, all shares of the Trust and all shares of the Company have
equal voting rights with other shares of the Trust or the Company, respectively,
and will be voted in the aggregate, and not by class, except where voting by
class is required by law or where the matter involved affects only one class. As
used in the Prospectuses and in this Statement of Additional Information, the
term "majority," when referring to the approvals to be obtained from
shareholders in connection with general matters affecting the Funds (e.g.,
election of Trustees or Directors and ratification of independent accountants),
means the vote of the lesser of (i) 67% of the Trust's or the Company's shares
represented at a meeting if the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (ii) more than 50% of the Trust's
or the Company's outstanding shares. The term "majority," when referring to the
approvals to be obtained from shareholders in connection with matters affecting
a single Fund or any other single Fund (e.g., annual approval of advisory
contracts), means the vote of the lesser of (i) 67% of the shares of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Fund are present in person or by proxy or (ii) more than 50% of
the outstanding shares of the Fund. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held.
Each share of a Fund represents an equal proportionate interest in that
Fund with each other share of the same Fund and is entitled to such dividends
and distributions out of the income earned on the assets belonging to that Fund
as are declared in the discretion of the Trust's Board of Trustees or the
Company's Board of Directors, as the case may be. Notwithstanding the foregoing,
each class of shares of each Fund bears exclusively the expense of fees paid to
Service Organizations with respect to that class of shares. In the event of the
liquidation or dissolution of the Trust or the Company (or a Fund), shareholders
of each Fund (or the Fund being dissolved) are entitled to receive the assets
attributable to that Fund that are available for distribution, and a
distribution of any general assets not attributable to a particular Fund that
are available for distribution in such manner and on such basis as the Trustees
or the Directors, as the case may be, in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Trust or the Company,
as the case may be.
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 the Prospectuses or SAI
concerning the Company. Likewise, there is a possibility that the Company might
become liable for any misstatement, inaccuracy or incomplete disclosure in the
Prospectuses or SAI 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
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<PAGE>
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.
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 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.
OTHER
The Registration Statement, including the Prospectuses, the SAI 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 SAI 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.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS
PricewaterhouseCoopers LLP, 30 South 17th Street, Philadelphia,
Pennsylvania 19103 are the independent auditors for both the Trust and the
Company and audit and report on the Trust's and the Company's annual financial
statements, review certain regulatory reports and the Trust's and the Company's
federal income tax returns, and perform other professional accounting, auditing,
tax and advisory services when engaged to do so by the Trust and the Company.
Shareholders will receive annual audited financial statements and semi-annual
unaudited financial statements. The Funds' December 31, 1998 financial
statements and the report thereon of PricewaterhouseCoopers LLP from the Funds'
December 31, 1998 Annual Report (as filed with the Commission on March 1, 1999
pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder (Accession
Number 0000935069-99-000038)) are incorporated herein by reference.
60
<PAGE>
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.
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
61
<PAGE>
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 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
62
<PAGE>
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. 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.
63
<PAGE>
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 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.
64
<PAGE>
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.
65
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) (1) Declaration of Trust dated December 6, 1995 (incorporated
by reference to Registration Statement filed on
December 12, 1995).
(2) Amendment to Declaration of Trust dated November 4, 1996
(incorporated by reference to Post-Effective Amendment
("PEA") No. 3 filed on February 28, 1997).
(3) Amendment to Declaration of Trust dated June 6, 1997
(incorporated by reference to PEA No. 5 filed on
June 13, 1997).
(4) Amendment to Declaration of Trust dated November 2, 1998
(incorporated by reference to PEA No. 9 filed on
November 9, 1998).
(5) Amendment to Declaration of Trust dated February 18, 1999
(incorporated by reference to PEA No. 10 filed on
March 2, 1999).
(b) (1) By-Laws (incorporated by reference to Registration Statemen
filed on December 12, 1995).
(2) Amendment to By-Laws dated October 31, 1995
(incorporated by reference to PEA No. 3
filed on February 28, 1997).
(3) Amendment to By-Laws dated January 23, 1996 (incorporated
by reference to PEA No. 3 filed on February 28, 1997).
(4) Amendment to By-Laws dated November 4, 1996 (incorporated
by reference to PEA No. 3 filed on February 28, 1997).
(c) Not applicable.
(d) (1) Advisory Contract dated February 23, 1996 between Registrant
and Harris Trust and Savings Bank ("Harris Trust" or the
"Adviser") (incorporated by reference to PEA No. 3 filed on
February 28, 1997).
(2) Notice to the Adviser dated January 21, 1997 on behalf of
Harris Insight Small-Cap Value Fund (incorporated by
reference to PEA No. 5 filed on June 13, 1997).
(3) Notice to the Adviser dated June 6, 1997 on behalf of Harris
Insight Emerging Markets Fund (incorporated by reference to
PEA No. 6 filed on September 15, 1997).
(4) 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 PEA No. 3 filed on February 28, 1997).
(5) Notice to the Portfolio Management Agent dated January 21,
1997 on behalf of Harris Insight Small-Cap Value Fund
(incorporated by reference to PEA No. 5 filed on June 13,
1997).
<PAGE>
(6) Notice to the Portfolio Management Agent dated June 6, 1997
on behalf of Harris Insight Emerging Markets Fund
(incorporated by reference to PEA No. 6 filed on September
15, 1997).
(7) 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 PEA
No. 6 filed on September 15, 1997).
(8) Investment Sub-Advisory Contract dated October 1, 1997
between HIM and Hansberger Global Investors, Inc. on behalf
of Harris Insight Emerging Markets Fund (incorporated by
reference to PEA No. 7 filed on February 27, 1998).
(e) (1) Form of Distribution Agreement dated April 30, 1999 between
the Registrant and Provident Distributors, Inc. ("PDI")
(filed herewith).
(f) Not applicable.
(g) (1) Custodian Agreement dated February 23, 1996 between
Registrant and PNC Bank, N.A. (incorporated by reference to
PEA No. 3 filed on February 28, 1997).
(2) Notice to the Custodian dated January 21, 1997 on behalf of
Harris Insight Small-Cap Value Fund (incorporated by
reference to PEA No. 3 filed on February 28, 1997).
(3) Notice to the Custodian dated June 6, 1997 on behalf of
Harris Insight Emerging Markets Fund (incorporated by
reference to PEA No. 6 filed on September 15, 1997).
(4) Consent to Assignment of Custodian Agreement dated
February 18, 1999 between Registrant and PNC Bank, N.A.
(filed herewith).
(5) Sub-Custodian Services Agreement dated February 18, 1999 by
and between PFPC Trust Company, PNC Bank, N.A. and Registrant
(filed herewith).
(6) Foreign Custody Manager Delegation Amendment dated February
18, 1999 by and between PFPC Trust Company, PNC Bank, N.A.
and Registrant (filed herewith).
(h) (1) Transfer Agency Services Agreement dated July 1, 1996
between Registrant and Harris Trust (incorporated by
reference to PEA No. 3 filed on February 28, 1997).
(2) Notice to the Transfer Agent dated January 21, 1997 on behalf
of Harris Insight Small-Cap Value Fund (incorporated by
reference to PEA No. 5 filed on June 13, 1997).
(3) Notice to the Transfer Agent dated June 6, 1997 on behalf of
Harris Insight Emerging Markets Fund (incorporated by
reference to PEA No. 7 filed on February 27, 1998).
<PAGE>
(4) Sub-Transfer Agency Services Agreement dated July 1, 1996
between Harris Trust and PFPC Inc. (incorporated by reference
to PEA No. 3 filed on February 28, 1997).
(5) Notice to the Sub-Transfer Agent dated January 21, 1997 on
behalf of Harris Insight Small-Cap Value Fund (incorporated
by reference to PEA No. 3 filed on February 28, 1997).
(6) Notice to the Sub-Transfer Agent dated June 6, 1997 on behalf
of Harris Insight Emerging Markets Fund (incorporated by
reference to PEA No. 6 filed on September 15, 1997).
(7) Administration Agreement dated July 1, 1996 between
Registrant and Harris Trust (incorporated by reference to PEA
No. 3 filed on February 28, 1997).
(8) Notice to the Administrator dated January 21, 1997 on behalf
of Harris Insight Small-Cap Value Fund (incorporated by
reference to PEA No. 5 filed on June 13, 1997).
(9) Notice to the Administrator dated June 6, 1997 on behalf of
Harris Insight Emerging Markets Fund (incorporated by
reference to PEA No. 6 filed on September 15, 1997).
(10) Sub-Administration and Accounting Services Agreement dated
July 1, 1996 between Harris Trust and PFPC Inc. (incorporated
by reference to PEA No. 3 filed on February 28, 1997).
(10)(a) Form of Amendment dated 1 May 1999 of Sub-Administration and
Accounting Services Agreement dated July 1, 1996 between
Harris Trust and PFPC Inc. (filed herewith)
(11) 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 PEA No. 3 filed on
February 28, 1997).
(12) 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 PEA No. 6
filed on September 15, 1997).
(13) Form of Shareholder Servicing Agreement (incorporated by
reference to PEA No. 7 filed on February 27, 1998).
(14) Form of Shareholder Servicing Agreement relating to Advisor
Shares (incorporated by reference to PEA No. 9 filed on
November 9, 1998).
(i) Not applicable.
(j) Consent of Independent Accountants (filed herewith).
(k) Not applicable.
(l) (1) Form of Purchase Agreement relating to Initial Capital
(incorporated by reference to PEA No. 3 filed on February 28,
1997).
(2) Subscription Agreement dated January 14, 1999 between
Registrant and FDI Distribution Services, Inc. relating to
Advisor Shares (incorporated by reference to PEA No. 10 filed
on March 2, 1999).
<PAGE>
(m) (1) Service Plan dated November 18, 1997 relating to Class A
Shares (incorporated by reference to PEA No. 7 filed on
February 27, 1998).
(2) Service Plan dated November 2, 1998 relating to Advisor
Shares (incorporated by reference to PEA No. 10 filed on
March 2, 1999).
(3) Form of Selling Agreement (filed herewith).
(n) Financial Data Schedules (filed herewith).
(o) (1) Multi-Class Plan (incorporated by reference to PEA No. 3
filed on February 28, 1997).
(2) Multi-Class Plan dated November 2, 1998 (incorporated by
reference to PEA No. 9 filed on November 9, 1998).
(3) Multi-Class Plan dated February 18, 1999 (incorporated by
reference to PEA No. 10 filed on March 2, 1999).
Other Exhibits: Powers of Attorney for C. Gary Gerst, Edgar R. Fielder,
John W. McCarter, Jr., Ernest M. Roth, and Paula Wolff
dated April 30, 1999 (filed herewith).
Power of Attorney for Monroe Haegele dated April 30, 1999
(filed herewith).
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 25. 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.
<PAGE>
The Distribution Agreement, the Custodian Agreement, the Transfer
Agency Services Agreement and the Administration Agreement (the "Agreements")
contained in various post-effective amendments 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.
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 26. 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 Bankmont
Financial Corp., Harris Bankmont, Inc. and 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, Harris Trust and
Savings Bank and Harris Bankcorp,
Inc.
F. Anthony Comper Director President and Chief Operating
Officer, Bank of Montreal
<PAGE>
Susan T. Congalton Director Managing Director, Lupine Partners
Wilbur H. Gantz Director Chairman of the Board and Chief
Executive Officer, PathoGenesis
Corporation
James J. Glasser Director Chairman Emeritus, GATX Corporation
Dr. Leo M. Henikoff Director President and Chief Executive
Officer, Rush-Presbyterian - St.
Luke's Medical Center
Richard M. Jaffey Director Chairman, Oil-Dri Corporation of
America
Edward W. Lyman, Jr. Director Vice Chair of the Board, Harris
Trust and Savings Bank and Harris
Bankcorp, Inc.
Pastora San Juan Cafferty Director Professor, University of Chicago
School of Social Service
Administration
Charles H. Shaw Director Chairman, The Shaw Company
Richard E. Terry Director Chairman and Chief Executive
Officer, Peoples Energy Corporation
James O. Webb Director President, James O. Webb and
Associates, Inc.
</TABLE>
(b) Harris Investment Management, Inc. ("HIM"), an indirect
wholly-owned 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 Harris Investment Management, Inc.;
Chairman of the Board, Jones Heward
Investments, Inc.
<PAGE>
Peter P. Capaccio Director Senior Vice President/Director, Mutual
Funds and the Investment Product Group,
Harris Trust and Savings Bank
Terry A. Jackson Director Executive Vice President, Bank of Montreal
Asset Management Services; President, the
Trust Company of Bank of Montreal;
President, First Canadian Funds Inc.;
Deputy Chairman, Jones Heward Investments,
Inc. and Jones Heward Investment Counsel, Inc.
William O. Leszinske Director, President, Chief President and Chief Investment Officer,
Investment Officer Harris Investment Management, Inc.
Edward W. Lyman, Jr. Director Vice Chair of the Board, Harris Trust and
Savings Bank and Harris Bankcorp, Inc.
Brian J. Steck Director Vice-Chairman of Investment and Corporate
Banking, Bank of Montreal; Chairman and
Chief Executive Officer, Nesbitt Burns, Inc.
Wayne Thomas Director Senior Vice President - Personal Investment
Management, Harris Trust and Savings Bank
William E. Thonn Director Executive Vice President - The Private
Bank, Harris Trust and Savings Bank
Randall J. Johnson Chief Financial Officer and Senior Partner, Harris Investment
Treasurer Management, Inc.
Blanche O. Hurt Secretary Vice President and Senior Counsel, Harris
Trust and Savings Bank
</TABLE>
(c) Hansberger Global Investors, Inc. ("Hansberger") serves as the
Investment Sub-Adviser of the Harris Insight International Fund and the Harris
Insight Emerging Markets Fund. Hansberger is currently majority controlled by
Mr. Thomas L. Hansberger. Hansberger, a Delaware corporation, is registered as
an investment adviser under the Investment Advisers Act of 1940, as amended. As
of September 30, 1998, Hansberger managed assets with a value of approximately
$1.71 billion.
<TABLE>
<CAPTION>
Principal Business(es) During the Last
Name Position(s) with Hansberger Two Fiscal Years
- ----------------------------- ------------------------------------- -------------------------------------------
<S> <C> <C>
Thomas L. Hansberger Chairman, President and Chief Chairman, President and Chief Executive
Executive Officer Officer of Hansberger.
Salah Al-Maousherji Director Gulf Paper Kuwait and Mashora Consulting
Services (financial consulting firm).
Alberto Cribiore Director Principal, Brera Capital Partners, LLC
(investment banking firm); formerly,
Officer and Member of the Board of
Directors of Clayton, Dubilies & Rice,
Inc. (a private equity investment firm).
<PAGE>
Max C. Chapman, Jr. Director Chairman, Nomura Holding America, Inc.
and Director and Managing Director,
Nomura Securities Limited (financial
services companies).
Virgil H. Cumming Director Chief Investment Officer, Smith Barney,
Inc. and Chief Investment Officer, Smith
Barney Asset Management, a division of
Smith Barney, Inc.; formerly, Executive
Vice President and Head of Investments,
College Retirement Equities Fund.
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITER.
(a) Provident Distributors, Inc. (the "Distributor") acts as principal
underwriter for the following investment companies:
Pacific Horizon Funds, Inc.
Time Horizon Funds
World Horizon Funds, Inc.
Pacific Innovations Trust
International Dollar Reserve Fund I, Ltd.
Municipal Fund for Temporary Investment
Municipal Fund for New York Investors, Inc.
Municipal Fund for California Investors, Inc.
Temporary Investment Fund, Inc.
Trust for Federal Securities
Columbia Common Stock Fund, Inc.
Columbia Growth Fund, Inc.
Columbia International Stock Fund, Inc.
Columbia Special Fund, Inc.
Columbia Small Cap Fund, Inc.
Columbia Real Estate Equity Fund, Inc.
Columbia Balanced Fund, Inc.
Columbia Daily Income Company
Columbia U.S. Government Securities Fund, Inc.
Columbia Fixed Income Securities Fund, Inc.
Columbia Municipal Bond Fund, Inc.
Columbia High Yield Fund, Inc.
Columbia National Municipal Bond Fund, Inc.
Kiewit Mutual Fund
Kalmar Pooled Investment Trust
The RBB Fund, Inc.
<PAGE>
Robertson Stephens Investment Trust
Hilliard-Lyons Government Fund, Inc
Hilliard-Lyons Growth Fund, Inc.
The Rodney Square Fund, Inc.
The Rodney Square Tax-Exempt Fund, Inc.
The Rodney Square Strategic Equity Fund, Inc.
The Rodney Square Strategic Fixed-Income Fund, Inc.
The BlackRock Funds, Inc. (Distributed by BlackRock
Distributors, Inc. a wholly owned subsidiary of Provident
Distributors, Inc.)
The OffitBank Investment Fund, Inc. (Distributed by Offit
Funds Distributor, Inc. a wholly owned subsidiary of
Provident Distributors, Inc.)
The OffitBank Variable Insurance Fund, Inc. (Distributed by
Offit Funds Distributor, Inc. a wholly owned subsidiary of
Provident Distributors, Inc.)
CVO Greater China Fund, Inc. (Distributed by Offit Funds
Distributor, Inc. a wholly owned subsidiary of Provident
Distributors, Inc.)
Provident Distributors, Inc. is registered with the Securities and
Exchange Commission as a broker-dealer and is a member of the
National Association of Securities Dealers. Provident
Distributors, Inc. is located at Four Falls Corporate Center,
Suite 600, West Conshohocken, Pennsylvania 19428-2961.
(b) The following is a list of the executive officers, directors and partners of
Provident Distributors, Inc.
Director and Chief Executive Officer - Monroe J. Haegele
Secretary - Philip H. Rinnander
President - Jane Haegele
Managing Director - Barbara A. Rice
Director of Mutual Fund Operations - Jason A. Greim
(c) Not applicable
ITEM 28. 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,
Four Falls Corporate Center, 6th Floor, West Conshohocken, Pennsylvania
19428-2961; PNC Bank, N.A., 200 Stevens Dr., Suite 440, Lester, Pennsylvania
19113; PFPC Inc., 103 Bellevue Parkway, Wilmington, Delaware 19809; or Harris
Trust and Savings Bank, 111 West Monroe Street, Chicago, Illinois 60603.
ITEM 29. 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.
ITEM 30. UNDERTAKINGS.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it meets all of the requirements for effectiveness of this Post-Effective
Amendment No. 11 to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 11
to the Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Chicago and State of Illinois on the
30th day of April, 1999.
Harris Insight Funds Trust
By: MONROE HAEGELE, PRESIDENT *
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 11 to the Registration Statement has been
signed below by the following persons in the capacities and on the date
indicated:
SIGNATURE TITLE DATE
Monroe Haegele * President 30 April 1999
/S/ THOMAS J. RYAN Treasurer and Chief 30 April 1999
- ------------------
Thomas J. Ryan Financial Officer
C. Gary Gerst * Chairman of the 30 April 1999
Board of Trustees;
Trustee
Edgar R. Fiedler * Trustee 30 April 1999
John W. McCarter, Jr. * Trustee 30 April 1999
Ernest M. Roth * Trustee 30 April 1999
Paula Wolff * Trustee 30 April 1999
* By: /S/ G. NICHOLAS BULLAT
----------------------
G. Nicholas Bullat, Attorney-in-fact pursuant to powers of attorney
dated 30 April 1999.
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
(e)(1) Form of Distribution Agreement dated April 30, 1999 between
the Registrant and Provident Distributors, Inc. ("PDI")
(g)(4) Consent to Assignment of Custodian Agreement dated
February 18, 1999
(g)(5) Sub-Custodian Services Agreement dated February 18, 1999
(g)(6) Foreign Custody Manager Delegation Amendment dated
February 18, 1999
(h)(10)(a) Form of Amendment dated 1 May 1999 of Sub-Administration and
Accounting Services Agreement dated July 1, 1996 between
Harris Trust and PFPC Inc.
(j) Consent of Independent Accountants
(m)(3) Form of Selling Agreement
(n) Financial Data Schedules
Other Exhibit Powers of Attorney for C. Gary Gerst, Edgar R. Fielder,
(a) John W. McCarter, Jr., Ernest M. Roth,
and Paula Wolff dated April 30, 1999 (filed herewith).
Other Exhibit Power of Attorney for Monroe Haegele dated April 30, 1999
(b) (filed herewith).
EXHIBIT (e)(1)
FORM OF DISTRIBUTION AGREEMENT
This Distribution Agreement is made as of this 30th day of April, 1999
by and between Harris Insight(R) Funds Trust, a Massachusetts Business Trust
(the "Trust"), and PROVIDENT DISTRIBUTORS, INC., a Delaware corporation
("Provident" or "Distributor").
WHEREAS, the Trust is an open-end management investment company and is
so registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Trust desires to retain Provident as Distributor for the
Trust's separate portfolios - 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
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, and Harris
Insight Intermediate Government Bond Fund (individually, a "Fund" and
collectively, the "Funds") to provide for the sale and distribution of shares of
the Funds (the "Shares"), and Provident is willing to render such services;
NOW THEREFORE, in consideration of the premises and mutual covenants
set forth herein and intending to be legally bound hereby, the parties hereto
agree as follows:
I. DELIVERY OF DOCUMENTS
The Trust has delivered to Provident copies of each of the following
documents and will deliver to it all future amendments and supplements thereto,
if any:
(a) The Trust's most recent Prospectus(es) and Statement(s) of
Additional Information and all amendments and supplements
thereto (collectively, the "Prospectuses").
II. DISTRIBUTION
1. APPOINTMENT OF DISTRIBUTOR. The Trust hereby appoints Provident as
Distributor of the Funds' Shares and Provident hereby accepts such appointment
and agrees to render the services and duties set forth in this Section II. In
the event that the Trust establishes one or more portfolios other than the Funds
with respect to which it desires to retain Provident to act as distributor
hereunder, the Trust shall notify Provident in writing. If Provident is willing
to render such services, it shall notify the Trust whereupon such portfolio
shall become one of the "Funds" hereunder and such portfolios shall be listed on
an addendum acknowledged in writing by the parties hereto.
2
<PAGE>
2. SERVICES AND DUTIES.
(a) The Trust agrees to sell through Provident, as agent, from time to
time during the term of this Agreement, Shares upon the terms and at the current
offering price as described in the applicable Prospectus. Provident will act
only in its own behalf as principal in making agreements with selected dealers
or others for the sale and redemption of Shares, and shall sell Shares only at
the offering price thereof as set forth in the applicable Prospectus. Prior to
making any payments from its own resources to financial institutions, securities
dealers or other industry professionals for shareholder services, administration
or distribution assistance for a Fund, Provident will enter into written
agreements in a form satisfactory to the Trust's Board of Trustees. Provident
shall devote appropriate efforts to effect sales of Shares of each of the Funds,
but shall not be obligated to sell any certain number of Shares.
(b) In all matters relating to the sale and redemption of Shares,
Provident will act in conformity with the Trust's Declaration of Trust, By-Laws
and applicable Prospectuses and with the instructions and directions of the
Board of Trustees of the Trust and will conform to and comply with the
requirements of the 1933 Act, the 1940 Act, the regulations of the National
Association of Securities Dealers, Inc. and all other applicable Federal or
state laws and regulations.
(c) All Shares of the Funds and future funds covered by this Agreement
offered for sale by Provident shall be offered for sale to the public at a price
per share (the "offering price") equal to (i) their net asset value (determined
in the manner set forth in the applicable Prospectuses), plus (ii) any sales
charge applicable to a class of Shares which shall be the percentage of the
offering price of such Shares as set forth in the applicable Prospectuses. The
offering price, if not an exact multiple of one cent, shall be adjusted to the
nearest cent. Concessions paid by Provident to broker-dealers and other persons
shall be set forth in either the selling agreements between Provident and such
broker-dealers and persons or, if such concessions are described in the
applicable Prospectuses, shall be as so set forth. No broker-dealer or other
person who enters into a selling or distribution and servicing agreement with
Provident shall be authorized to act as agent for the Trust in connection with
the offering or sale of Shares to the public or otherwise.
(d) If any Shares sold by Provident under the terms of this Agreement
are redeemed or repurchased by the Trust or by Provident as agent or are
tendered for redemption within seven business days after the date of
confirmation of the original purchase of said Shares, Provident shall forfeit
the amount above the net asset value received by it with respect to such Shares,
provided that the portion, if any, of such amount re-allowed by Provident to
broker-dealers or other persons shall be repayable to the Trust only to the
extent recovered by Provident from the broker-dealer or other persons concerned.
Provident shall include in the form of agreement with such broker-dealers and
other persons a corresponding provision for the forfeiture by them of their
concession with respect to Shares sold by them or their principals and redeemed
or repurchased by the Trust or by Provident as agent (or tendered for
redemption) within seven business days after the date of confirmation of such
initial purchases.
3
<PAGE>
3. SERVICE PLAN REPORTS.
So long as the Trust has one or more service plans in effect for one or
more classes of shares (the "Service Plans"), the Distributor shall provide the
Trust's Board of Trustees at least quarterly, a written report of the amounts
expended by the Distributor pursuant to the Service Plans and the purpose for
which such expenditures were made.
4. SALES AND REDEMPTIONS.
(a) The Trust shall pay all costs and expenses in connection with the
registration of the Shares under the 1933 Act, and all expenses in connection
with maintaining facilities for the issue and transfer of the Shares and for
supplying information, prices and other data to be furnished by the Trust
hereunder, and all expenses in connection with preparing, printing and
distributing the Prospectuses except as set forth in subsection 2(c) of Section
II hereof.
(b) The Trust shall execute all documents, furnish all information and
otherwise take all actions which may be reasonably necessary in the discretion
of the Trust's officers in connection with the qualification of the Shares for
sale in such states as Provident may designate to the Trust and the Trust may
approve, and the Trust shall pay all filing fees which may be incurred in
connection with such qualification. Provident shall pay all other expenses
incurred by Provident in connection with the sale of the Shares, except as
otherwise specifically provided in this Agreement.
(c) The Trust shall have the right to suspend the sale of Shares at any
time in response to conditions in the securities markets or otherwise, and to
suspend the redemption of Shares of any Fund at any time permitted by the 1940
Act or the rules of the SEC ("Rules").
(d) The Trust reserves the right to reject any order for Shares,
but will not do so arbitrarily or without reasonable cause.
III. CONFIDENTIALITY
Provident will treat confidentially and as proprietary information of
the Trust all records and other information relative to the Trust, to the
Trust's prior or current shareholders and to those persons or entities who
respond to Provident's inquiries concerning investment in the Trust, and, except
as provided below, will not use such records and information for any purpose
other than the performance of its responsibilities and duties hereunder. Any
other use by Provident of the information and records referred to above may be
made only after prior notification to and approval in writing by the Trust. Such
approval shall not be unreasonably withheld and may not be withheld where: (i)
Provident may be exposed to civil or criminal contempt proceedings for failure
to divulge such information; (ii) Provident is requested to divulge such
information by duly constituted authorities; or (iii) Provident is so requested
by the Trust.
<PAGE> 4
IV. INDEMNIFICATION
1. TRUST REPRESENTATION. The Trust represents and warrants to Provident
that at all times the Registration Statement and Prospectuses will in all
material respects conform to the applicable requirements of the 1933 Act and the
Rules thereunder and will not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they are
made, not misleading, except that no representation or warranty in this
subsection shall apply to statements or omissions made in reliance upon and in
conformity with written information furnished to the Trust by or on behalf of
and with respect to Provident expressly for use in the Registration Statement or
Prospectuses.
2. PROVIDENT REPRESENTATION. Provident represents and warrants to the
Trust that it is duly organized as a Delaware corporation and is and at all
times will remain registered as a broker/dealer under the Securities Exchange
act of 1934 and a member in good standing with the National Association of
Securities Dealers and is otherwise duly authorized and licensed to carry out
its services as contemplated herein.
3. TRUST INDEMNIFICATION. The Trust, on behalf of each Fund, will
indemnify, defend and hold harmless Provident, its several officers and Trustees
and any person who controls Provident within the meaning of Section 15 of the
1933 Act, from and against any losses, claims, damages or liabilities, joint or
several, to which any of them may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon, any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectuses or in any application or other document
executed by the Trust, or arise out of, or are based upon, information furnished
on behalf of a Fund, filed in any state in order to qualify the Shares under the
securities or blue sky laws thereof ("Blue Sky Application"), or arise out of,
or are based upon, the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse Provident, its several officers and Trustees,
and any person who controls Provident within the meaning of Section 15 of the
1933 Act, for any legal or other expenses reasonably incurred by any of them in
investigating, defending or preparing to defend any such action, proceeding or
claim; PROVIDED, HOWEVER, that the Trust shall not be liable in any case to the
extent that such loss, claim, damage or liability arises out of, or is based
upon, any untrue statement, alleged untrue statement, or omission or alleged
omission made in the Registration Statement, the Prospectuses, any Blue Sky
Application or any application or other document executed by or on behalf of the
Trust in reliance upon and in conformity with written information furnished to
the Trust by or on behalf of and with respect to Provident specifically for
inclusion therein.
The Trust shall not indemnify any person pursuant to this subsection 3
unless the court or other body before which the proceeding was brought has
rendered a final decision on the merits that such person was not liable by
reason of his willful misfeasance, bad faith or gross negligence in the
performance of his duties, or his reckless disregard of his obligations and
duties, under this Agreement ("disabling conduct") or, in the absence of such a
decision, a reasonable determination (based upon a review of the facts) that
such person was not liable by reason of disabling conduct has been made by the
vote of a majority of a quorum of Trustees of the Trust who are neither
5
<PAGE>
"interested persons" of the Trust (as defined in the 1940 Act) nor parties to
the proceeding, or by an independent legal counsel in a written opinion.
The Company shall advance attorneys' fees and other expenses incurred
by any person in defending any claim, demand, action or suit which is the
subject of a claim for indemnification pursuant to this subsection 3, so long
as: (i) such person shall undertake to repay all such advances unless it is
ultimately determined that he is entitled to indemnification hereunder; and (ii)
such person shall provide security for such undertaking, or the Company shall be
insured against losses arising by reason of any lawful advances, or a majority
of a quorum of the disinterested, non-party directors of the Company (or an
independent legal counsel in a written opinion) shall determine based on a
review of readily available facts (as opposed to a full trial-type inquiry) that
there is reason to believe that such person ultimately will be found entitled to
indemnification hereunder.
4. PROVIDENT INDEMNIFICATION. Provident will indemnify, defend and hold
harmless the Trust, the Trust's several officers and Trustees and any person who
controls the Trust within the meaning of Section 15 of the 1933 Act, from and
against any losses, claims, damages or liabilities, joint or several, to which
any of them may become subject under the 1933 Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of, or are based upon any breach of its representations,
warranties and agreements herein, or which arise out of, or are based upon, any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectuses, any Blue Sky Application or any
application or other documents executed by or on behalf of the Trust or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, which
statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Trust by or on behalf of and with
respect to Provident specifically for inclusion therein, and will reimburse the
Trust, the Trust's several officers and Trustees, and any person who controls
the Trust within the meaning of Section 15 of the 1933 Act, for any legal or
other expenses reasonably incurred by any of them in investigating, defending or
preparing to defend any such action, proceeding or claim, as such expenses are
incurred.
5. GENERAL INDEMNITY PROVISION. No indemnifying party shall be liable
under its indemnity agreement contained in subsection 3 or 4 hereof with respect
to any claim made against such indemnifying party unless the indemnified party
shall have notified the indemnifying party in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the indemnified party (or after the
indemnified party shall have received notice of such service on any designated
agent), but failure to notify the indemnifying party of any such claim shall not
relieve it from any liability which it may otherwise have to the indemnified
party. The indemnifying party will be entitled to participate at its own expense
in the defense or, if it so elects to assume the defense of any suit brought to
enforce any such liability, and if the indemnifying party elects to assume the
defense, such defense shall be conducted by counsel chosen by it and reasonably
satisfactory to the indemnified party. In the event the indemnifying party
elects to assume the defense of any such suit and retain such counsel, the
indemnified party shall bear the fees and expenses of any additional counsel
retained by the indemnified party, provided that the indemnified party shall
have the right to employ one separate counsel to represent it in such suit if in
the reasonable judgment of the indemnified party it is advisable because of an
6
<PAGE>
actual or potential conflict of interest between it and the indemnifying party
in the conduct of the defense of such action, in which event the fees and
expenses of such separate counsel will be borne by the indemnifying party.
6. LIMITATION OF LIABILITY. The names "Harris Insight Fund Trust" and
Trustees of "Harris Insight Fund Trust" refer respectively to the Trust created
and the Trustees as trustees but not individually or personally, acting from
time to time under a Declaration of Trust dated December 6, 1995 which is hereby
referred to and a copy of which is on file at the office of the Secretary of
State of the Commonwealth of Massachusetts and at the principal office of the
Trust. The obligations of "Harris Insight Fund Trust Funds" entered into in the
name or on behalf thereof by any of the Trustees, officers, representatives or
agents are not made individually, but in such capacities, and are not binding
upon any of the Trustees, shareholders, officers, representatives or agents of
the Trust personally, but bind only the Trust property, and all persons dealing
with any class of shares of the Trust must look solely to the Trust Property
belonging to such class for the enforcement of any claims against the Trust.
V. DURATION AND TERMINATION
This Agreement shall become effective as of the date first above
written, and, unless sooner terminated as provided herein, shall continue until
April 30, 2000. Thereafter, if not terminated, this Agreement shall continue
automatically for successive terms of one year, provided that such continuance
is specifically approved at least annually by a vote of the majority of those
members of the Board of Trustees of the Trust who are not parties to this
Agreement or "interested persons" of the Trust and have no direct or indirect
financial interest in the operation of each Fund's Service Plan or in this
Agreement, or in any agreement relating to the Plan, by vote cast in person at a
meeting called for the purpose of voting on such approval; PROVIDED, HOWEVER,
that this Agreement may be terminated by the Trust at any time, without the
payment of any penalty, by vote of a majority of the entire Board of Trustees of
the Trust or by a vote of a "majority of the outstanding voting securities" of
the Trust on 60 days' written notice to Provident, or by Provident at any time,
without the payment of any penalty, on 60 days' written notice to the Trust.
This Agreement will automatically and immediately terminate in the event of its
"assignment". (As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested person" and "assignment" shall have the same
meanings as such terms have in the 1940 Act.)
VI. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived, discharged or
terminated except by an instrument in writing signed by the party against which
an enforcement of the change, waiver, discharge or termination is sought.
VII. NOTICES
Notices of any kind to be given to the Trust hereunder by Provident
shall be in writing and shall be duly given if mailed or delivered to the Trust
at Four Falls Corporate Center, 6th Floor, West Conshohocken, PA 19428, or at
such other address or to such individual as shall be so specified by the Trust
to Provident. Notices of any kind to be given to Provident hereunder by the
Trust shall be in writing and shall be duly given if mailed or delivered to
7
<PAGE>
Provident at Four Falls Corporate Center, 6th Floor, West Conshohocken, PA 19428
or at such other address or to such individual as shall be so specified by
Provident to the Trust.
VIII. MISCELLANEOUS
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision if this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Section V hereof, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and shall be governed by Delaware law; PROVIDED, HOWEVER, that
nothing herein shall be construed in a manner inconsistent with the 1940 Act or
any rule or regulation of the SEC thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
HARRIS INSIGHT FUNDS TRUST
By: ________________________________
ATTEST: ____________________
PROVIDENT DISTRIBUTORS, INC.
By: ________________________________
Attest: ____________________
EXHIBIT (g)(4)
CONSENT TO ASSIGNMENT
This Consent to Assignment by Harris Insight Funds Trust (the "Fund") relates to
the Custodian Agreement between the Fund and PNC Bank, N.A. (formerly Provident
National Bank) ("PNC Bank") dated February 23, 1996 (the "Agreement").
WHEREAS, PNC Bank will assign all of its rights, title, interest, duties and
obligations under the Agreement to PFPC Trust Company ("PFPC"); and
WHEREAS, it is desirable to have the Fund consent to such assignment, and the
Fund will thereby release its rights against PNC Bank; and
WHEREAS, the Agreement may require an assignee of the Agreement such as PFPC to
make certain representations and agreements.
NOW, THEREFORE:
1. The Fund hereby consents to the assignment of the Agreement from PNC Bank
to PFPC, and hereby waives any rights to notice or any other prerequisites
that it might otherwise be able to assert in connection with the
assignment. By consenting to the assignment, the Fund agrees (on behalf of
itself, its shareholders and any other persons claiming through the Fund)
(i) not to challenge or otherwise call into question the assignment, and
(ii) to look solely to PFPC for the performance of the duties or
obligations of the custodian and the satisfaction of any claims or rights
of the Fund under the Agreement that arise from the date of consent or
thereafter. In addition, notwithstanding anything set forth in the
Agreement, in consideration of the assignment the Fund agrees to waive and
release any and all claims or rights it may have against PNC Bank with
respect to the Agreement that arise from the date of consent or thereafter.
2. PFPC hereby makes the representations and agreements which are required to
be made by an assignee such as PFPC pursuant to the Agreement, to the
extent such representations and agreements are necessary to effect a valid
assignment of the Agreement to PFPC as described herein. In particular,
PFPC agrees to comply with all relevant provisions of the Investment
Company Act of 1940 which relate to its duties and obligations under the
Agreement (provided that PFPC will have no responsibility for compliance by
the Fund with such Act).
Harris Insight Funds Trust Acknowledged and Agreed:
PFPC Trust Company
By: /S/ GEORGE A. RIO By: /S/ JOSEPH GRAMLICH
Title: PRESIDENT Title: SENIOR VICE PRESIDENT
Date of Consent: FEBRUARY 18, 1999
EXHIBIT (g)(5)
SUB-CUSTODIAN SERVICES AGREEMENT
THIS AGREEMENT is made as of February 18, 1999 by and between PFPC
TRUST COMPANY, a limited purpose trust company organized under the laws of
Delaware ("Custodian"), PNC Bank, National Association, a national banking
association ("PNC Bank") and Harris Insight Funds Trust, a Massachusetts
business trust (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, PFPC Trust Company serves as custodian for the Fund
pursuant to a Custody Agreement with the Fund dated February 23, 1996
("Custody Agreement"); and
WHEREAS, Custodian and the Fund wish to retain PNC Bank to provide
sub-custodian services, and PNC Bank wishes to furnish sub-custodian services,
either directly or through an affiliate, as more fully described herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 ACT" means the Securities Act of 1933, as amended.
(b) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
(c) "AUTHORIZED PERSON" means any officer of the Fund, the
Custodian and any other person duly authorized by the Fund's
Board of Trustees to give Oral Instructions and Written
Instructions on behalf of the Fund and listed on the
Authorized Persons Appendix attached hereto and made a part
hereof or any amendment thereto as may be received by PNC
Bank. An Authorized Person's scope of authority may be limited
by the Fund by setting forth such limitation in the Authorized
Persons Appendix.
<PAGE>
(d) "BOOK-ENTRY SYSTEM" means Federal Reserve Treasury
book-entry system for United States and federal agency
securities, its successor or successors, and its nominee or
nominees and any book-entry system maintained by an exchange
registered with the SEC under the 1934 Act.
(e) "CEA" means the Commodities Exchange Act, as amended.
(f) "CHANGE OF CONTROL" means a change in ownership or control
(not including transactions between wholly-owned direct or
indirect subsidiaries of a common parent) of 25% or more of
the beneficial ownership of the shares of common stock or
shares of beneficial interest of an entity or its parent(s).
(g) "ORAL INSTRUCTIONS" mean oral instructions received by PNC
Bank from an Authorized Person or from a person reasonably
believed by PNC Bank to be an Authorized Person.
(h) "PNC BANK" means PNC Bank, National Association or a
subsidiary or affiliate of PNC Bank, National Association.
(i) "SEC" means the Securities and Exchange Commission.
(j) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940
Act and the CEA.
(k) "SHARES" mean the shares of beneficial interest of any series
or class of the Fund.
(l) "PROPERTY" means:
(i) any and all securities and other investment items
which the Custodian may from time to time deposit, or
cause to be deposited, with PNC Bank or which PNC
Bank may from time to time hold for the Fund;
<PAGE>
(ii) all income in respect of any of such securities or
other investment items;
(iii) all proceeds of the sale of any of such securities or
investment items; and
(iv) all proceeds of the sale of securities issued by the
Fund, which are received by PNC Bank from time to
time, from or on behalf of the Fund.
(m) "WRITTEN INSTRUCTIONS" mean written instructions signed by two
Authorized Persons and received by PNC Bank. The instructions
may be delivered by hand, mail, tested telegram, cable, telex
or facsimile sending device.
2. APPOINTMENT. The Custodian and the Fund hereby appoint PNC Bank to
provide sub-custodian services to the Fund, on behalf of each of its
investment portfolios (each, a "Portfolio"), and PNC Bank accepts such
appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable, will
provide PNC Bank with the following:
(a) certified or authenticated copies of the resolutions of the
Fund's Board of Directors, approving the appointment of PNC
Bank or its affiliates to provide sub-custodian services;
(b) a copy of the Fund's most recent effective registration
statement;
(c) a copy of each Portfolio's advisory agreements;
(d) a copy of the distribution agreement with respect to each
class of Shares;
(e) copies of any shareholder servicing agreements made in
respect of the Fund or a Portfolio; and
(f) certified or authenticated copies of any and all amendments or
supplements to the foregoing.
<PAGE>
4. COMPLIANCE WITH LAWS.
PNC Bank undertakes to comply with all applicable requirements of the
Securities Laws and any laws, rules and regulations of governmental
authorities having jurisdiction with respect to the duties to be
performed by PNC Bank hereunder. Except as specifically set forth
herein, PNC Bank assumes no responsibility for such compliance by the
Fund or any Portfolio.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PNC Bank shall
act only upon Oral Instructions and Written Instructions.
(b) PNC Bank shall be entitled to rely upon any Oral Instructions
and Written Instructions it receives from an Authorized
Person (or from a person reasonably believed by PNC Bank to be
an Authorized Person) pursuant to this Agreement. PNC Bank may
assume that any Oral Instructions or Written Instructions
received hereunder are not in any way inconsistent with the
provisions of organizational documents of the Fund or of any
vote, resolution or proceeding of the Fund's Board of Trustees
or of the Fund's shareholders, unless and until PNC Bank
receives Written Instructions to the contrary.
(c) The Custodian and the Fund, as applicable, agree to
forward to PNC Bank Written Instructions confirming Oral
Instructions (except where such Oral Instructions are
given by PNC Bank or its affiliates) so that PNC Bank
receives the Written Instructions by the close of business
on the same day that such Oral Instructions are received.
The fact that such confirming Written Instructions are
not received by PNC Bank shall in no way invalidate the
<PAGE>
transactions or enforceability of the transactions
authorized by the Oral Instructions. Where Oral
Instructions or Written Instructions reasonably appear
to have been received from an Authorized Person, PNC Bank
shall incur no liability to the Fund in acting upon such
Oral Instructions or Written Instructions provided that
PNC Bank's actions comply with the other provisions of
this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF THE FUND. If PNC Bank is in doubt as to any action
it should or should not take, PNC Bank may request directions
or advice, including Oral Instructions or Written
Instructions, from the Custodian or the Fund as applicable.
(b) ADVICE OF COUNSEL. If PNC Bank shall be in doubt as to any
question of law pertaining to any action it should or should
not take, PNC Bank may request advice at its own cost from
such counsel of its own choosing (who may be counsel for the
Custodian, the Fund, the Fund's investment adviser or PNC
Bank, at the option of PNC Bank).
(c) CONFLICTING ADVICE. In the event of a conflict between
directions, advice or Oral Instructions or Written
Instructions PNC Bank receives, and the advice it receives
from counsel, PNC Bank shall be entitled to rely upon and,
after notice to Custodian and the Fund, follow the advice of
counsel. In the event PNC Bank so relies on the advice of
counsel, PNC Bank remains liable for any action or omission on
the part of PNC Bank which constitutes willful misfeasance,
bad faith, gross negligence or reckless disregard by PNC Bank
<PAGE>
of any duties, obligations or responsibilities set forth in
this Agreement.
(d) PROTECTION OF PNC BANK. PNC Bank shall be protected in
any action it takes or does not take in reliance upon
directions, advice or Oral Instructions or Written
Instructions it receives from the Fund or from counsel and
which PNC Bank believes, in good faith, to be consistent
with those directions, advice or Oral Instructions or
Written Instructions. Nothing in this section shall be
construed so as to impose an obligation upon PNC Bank (i)
to seek such directions, advice or Oral Instructions or
Written Instructions, or (ii) to act in accordance with
such directions, advice or Oral Instructions or Written
Instructions unless, under the terms of other provisions
of this Agreement, the same is a condition of PNC Bank's
properly taking or not taking such action. Nothing in
this subsection shall excuse PNC Bank when an action
or omission on the part of PNC Bank constitutes willful
misfeasance, bad faith, gross negligence or reckless
disregard by PNC Bank of any duties, obligations or
responsibilities set forth in this Agreement.
7. RECORDS; VISITS. The books and records pertaining to Custodian, the
Fund and any Portfolio, which are in the possession or under the
control of PNC Bank, shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act
and other applicable securities laws, rules and regulations. The
Custodian, the Fund and Authorized Persons shall have access to such
books and records at all times during PNC Bank's normal business hours.
<PAGE>
Upon the reasonable request of the Custodian or the Fund, copies of any
such books and records shall be provided by PNC Bank to the Custodian,
the Fund or to an authorized representative of the Fund, at the Fund's
expense.
8. CONFIDENTIALITY. PNC Bank agrees to keep confidential all records of
the Custodian and the Fund and information relating to the Custodian,
the Fund and its shareholders, unless the release of such records or
information is otherwise consented to, in writing, by the Custodian or
the Fund, as the case may be. The Custodian and the Fund agree that
such consent shall not be unreasonably withheld and may not be withheld
where PNC Bank may be exposed to civil or criminal contempt proceedings
or when required to divulge such information or records to duly
constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PNC Bank shall cooperate with the
Custodian's and the Fund's independent public accountants and shall
take all reasonable action in the performance of its obligations under
this Agreement to ensure that the necessary information is made
available to such accountants for the expression of their opinion, as
required by the Fund.
10. DISASTER RECOVERY. PNC Bank shall enter into and shall maintain in
effect with appropriate parties one or more agreements making
reasonable provisions for emergency use of electronic data processing
equipment to the extent appropriate equipment is available. In the
event of equipment failures, PNC Bank shall, at no additional expense
to the Fund, take reasonable steps to minimize service interruptions.
PNC Bank shall have no liability with respect to the loss of data or
service interruptions caused by equipment failure provided such loss or
<PAGE>
interruption is not covered by PNC Bank's own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties or
obligations under this Agreement.
11. YEAR 2000 READINESS DISCLOSURE. PNC Bank (a) has reviewed its
business and operations as they relate to the services provided
hereunder, (b) has developed or is developing a program to remediate
or replace computer applications and systems, and (c) has
developed a testing plan to test the remediation or replacement of
computer applications/systems, in each case, to address on a
timely basis the risk that certain computer applications/systems
used by PNC Bank may be unable to recognize and perform
properly date sensitive functions involving dates prior to,
including and after December 31, 1999, including dates such as
February 29, 2000 (the "Year 2000 Challenge"). To the best of PNC
Bank's knowledge and belief, the reasonably foreseeable
consequences of the Year 2000 Challenge will not adversely effect
PNC Bank's ability to perform its duties and obligations under
this Agreement.
12. COMPENSATION. As compensation for sub-custody services rendered by PNC
Bank during the term of this Agreement, the Custodian, will pay to PNC
Bank a fee or fees as may be agreed to in writing from time to time by
the Custodian and PNC Bank.
13. INDEMNIFICATION. The Fund, on behalf of each Portfolio, agrees to
indemnify and hold harmless PNC Bank and its affiliates from all
taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the
Securities Laws and any state and foreign securities and blue sky
laws, and amendments thereto) and expenses, including (without
<PAGE>
limitation) attorneys' fees and disbursements, arising directly or
indirectly from any action or omission to act which PNC Bank
takes (i) at the request or on the direction of or in reliance
on the advice of the Fund or (ii) upon Oral Instructions or
Written Instructions given by any person authorized by the Fund's
Board of Trustees to give such Instructions. Neither PNC
Bank, nor any of its affiliates, shall be indemnified against any
liability (or any expenses incident to such liability) arising
out of PNC Bank's or its affiliates' own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties under
this Agreement.
14. RESPONSIBILITY OF PNC BANK.
(a) PNC Bank shall be under no duty to take any action on behalf
of Custodian, or the Fund or any Portfolio except as
specifically set forth herein or as may be specifically agreed
to by PNC Bank in writing. PNC Bank shall be obligated to
exercise care and diligence in the performance of its duties
hereunder, to act in good faith and to use its best efforts,
within reasonable limits, in performing services provided for
under this Agreement. PNC Bank shall be liable for any damages
arising out of PNC Bank's failure to perform its duties under
this agreement to the extent such damages arise out of PNC
Bank's willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties under this Agreement.
(b) Without limiting the generality of the foregoing or of any
other provision of this Agreement, (i) PNC Bank shall not be
under any duty or obligation to inquire into and shall not be
liable for (A) the validity or invalidity or authority or lack
<PAGE>
thereof of any Oral Instruction or Written Instruction, notice
or other instrument which conforms to the applicable
requirements of this Agreement, and which PNC Bank reasonably
believes to be genuine; or (B) subject to section 10, delays
or errors or loss of data occurring by reason of circumstances
beyond PNC Bank's control, including acts of civil or military
authority, national emergencies, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither PNC Bank nor its affiliates shall be liable to the
Custodian, the Fund or to any Portfolio for any consequential,
special or indirect losses or damages which the Fund may incur
or suffer by or as a consequence of PNC Bank's or its
affiliates' performance of the services provided hereunder,
whether or not the likelihood of such losses or damages was
known by PNC Bank or its affiliates.
15. DESCRIPTION OF SERVICES.
(a) DELIVERY OF THE PROPERTY. The Custodian, for the account of
the Fund, will deliver or arrange for delivery to PNC Bank,
certain Property owned by the Portfolios, including cash
received as a result of the distribution of Shares, during the
period that is set forth in this Agreement. PNC Bank will not
be responsible for such Property until actual receipt.
(b) RECEIPT AND DISBURSEMENT OF MONEY. PNC Bank, acting upon
Written Instructions, shall open and maintain separate
accounts in Custodian's name for the benefit of the Fund using
<PAGE>
all cash received from or for the account of the Fund, subject
to the terms of this Agreement. In addition, upon Written
Instructions, PNC Bank shall open separate custodial accounts
for each separate series or Portfolio of the Fund
(collectively, the "Accounts") and shall hold in the Accounts
all cash received from or for the Accounts of the Fund
specifically designated to each separate series or Portfolio.
PNC Bank shall make cash payments from or for the Accounts of
a Portfolio only for:
(i) purchases of securities in the name of a Portfolio or
PNC Bank or PNC Bank's nominee as provided in
sub-section (j) and for which PNC Bank has received a
copy of the broker's or dealer's confirmation or
payee's invoice, as appropriate;
(ii) purchase or redemption of Shares of the Fund;
(iii) payment of, subject to Written Instructions,
interest, taxes, administration, accounting,
distribution, advisory, management fees or similar
expenses which are to be borne by a Portfolio;
(iv) payment to, subject to receipt of Written
Instructions, the Fund's transfer agent, as agent for
the shareholders, an amount equal to the amount of
dividends and distributions stated in the Written
Instructions to be distributed in cash by the
transfer agent to shareholders, or, in lieu of paying
the Fund's transfer agent, PNC Bank may arrange for
the direct payment of cash dividends and
distributions to shareholders in accordance with
procedures mutually agreed upon from time to time by
and among the Fund, PNC Bank and the Fund's transfer
agent.
(v) payments, upon receipt Written Instructions, in
connection with the conversion, exchange or surrender
of securities owned or subscribed to by the Fund and
held by or delivered to PNC Bank;
(vi) payments of the amounts of dividends received with
respect to securities sold short;
(vii) payments made to a sub-custodian pursuant to
provisions in sub-section (c) of this Section; and
<PAGE>
(viii) payments, upon Written Instructions, made for other
proper Fund purposes.
PNC Bank is hereby authorized to endorse and collect all checks, drafts
or other orders for the payment of money received as sub-custodian for
the Accounts.
(c) RECEIPT OF SECURITIES; SUBCUSTODIANS.
(i) PNC Bank shall hold all securities received by it
for the Accounts in a separate account that
segregates such securities from those of any other
persons, firms or corporations, except for
securities held in a Book-Entry System. All such
securities shall be held or disposed of only upon
Written Instructions of the Custodian or Fund
pursuant to the terms of this Agreement. PNC
Bank shall have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any
such securities or investment, except upon the
express terms of this Agreement and upon Written
Instructions, accompanied by a certified resolution
of the Fund's Board of Directors, authorizing the
transaction. In no case may any member of the
Fund's Board of Directors, or any officer,
employee or agent of the Fund withdraw any
securities.
At PNC Bank's own expense and for its own
convenience, PNC Bank may enter into sub-custodian
agreements with other United States banks or trust
companies to perform duties described in this
sub-section (c). Such bank or trust company shall
have an aggregate capital, surplus and undivided
profits, according to its last published report, of
at least one million dollars ($1,000,000), if it is a
subsidiary or affiliate of PNC Bank, or at least
twenty million dollars ($20,000,000) if such bank or
trust company is not a subsidiary or affiliate of PNC
Bank. In addition, such bank or trust company must be
qualified to act as custodian and agree to comply
with the relevant provisions of the 1940 Act and
other applicable rules and regulations. Any such
arrangement will not be entered into without prior
written notice to the Custodian or Fund.
PNC Bank shall remain responsible for the performance of all of its
duties as described in this Agreement and shall hold the Custodian, the
Fund and each Portfolio harmless from its own acts or omissions, under
the standards of care provided for herein, or the acts and omissions of
<PAGE>
any sub-custodian retained by PNC Bank under the terms of this
sub-section (c).
(d) TRANSACTIONS REQUIRING INSTRUCTIONS. Upon receipt of Oral Instructions
or Written Instructions and not otherwise, PNC Bank, directly or
through the use of the Book-Entry System, shall:
(i) deliver any securities held for a Portfolio
against the receipt of payment for the sale
of such securities;
(ii) execute and deliver to such persons as may be
designated in such Oral Instructions or Written
Instructions, proxies, consents, authorizations, and
any other instruments whereby the authority of a
Portfolio as owner of any securities may be
exercised;
(iii) deliver any securities to the issuer thereof, or its
agent, when such securities are called, redeemed,
retired or otherwise become payable; provided that,
in any such case, the cash or other consideration is
to be delivered to PNC Bank;
(iv) deliver any securities held for a Portfolio against
receipt of other securities or cash issued or paid in
connection with the liquidation, reorganization,
refinancing, tender offer, merger, consolidation or
recapitalization of any corporation, or the exercise
of any conversion privilege;
(v) deliver any securities held for a Portfolio to any
protective committee, reorganization committee or
other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization
or sale of assets of any corporation, and receive and
hold under the terms of this Agreement such
certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to
evidence such delivery;
(vi) make such transfer or exchanges of the assets of the
Portfolios and take such other steps as shall be
stated in said Oral Instructions or Written
Instructions to be for the purpose of effectuating a
duly authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the
Fund;
(vii) release securities belonging to a Portfolio to any
bank or trust company for the purpose of a pledge or
hypothecation to secure any loan incurred by the Fund
on behalf of that Portfolio; provided, however, that
securities shall be released only upon payment to PNC
<PAGE>
Bank of the monies borrowed, except that in cases
where additional collateral is required to secure a
borrowing already made subject to proper prior
authorization, further securities may be released for
that purpose; and repay such loan upon redelivery to
it of the securities pledged or hypothecated therefor
and upon surrender of the note or notes evidencing
the loan;
(viii) release and deliver securities owned by a Portfolio
in connection with any repurchase agreement entered
into on behalf of the Fund, but only on receipt of
payment therefor; and pay out moneys of the Fund in
connection with such repurchase agreements, but only
upon the delivery of the securities;
(ix) release and deliver or exchange securities owned by
the Fund in connection with any conversion of such
securities, pursuant to their terms, into other
securities;
(x) release and deliver securities owned by the Fund for
the purpose of redeeming in kind shares of the Fund
upon delivery thereof; and
(xi) release and deliver or exchange securities owned by
the Fund for other corporate purposes.
PNC Bank must also receive a certified resolution
describing the nature of the corporate purpose and
the name and address of the person(s) to whom
delivery shall be made when such action is pursuant
to sub-paragraph d.
(e) USE OF BOOK-ENTRY SYSTEM. The Fund shall deliver to PNC Bank
certified resolutions of the Fund's Board of Directors
approving, authorizing and instructing PNC Bank on a
continuous basis, to deposit in the Book-Entry System all
securities belonging to the Portfolios eligible for deposit
therein and to utilize the Book-Entry System to the extent
possible in connection with settlements of purchases and sales
of securities by the Portfolios, and deliveries and returns of
securities loaned, subject to repurchase agreements or used as
collateral in connection with borrowings. PNC Bank shall
<PAGE>
continue to perform such duties until it receives Written
Instructions or Oral Instructions authorizing contrary
actions.
PNC Bank shall administer the Book-Entry System as follows:
(i) With respect to securities of each Portfolio which
are maintained in the Book-Entry System, the records
of PNC Bank shall identify by Book-Entry or otherwise
those securities belonging to each Portfolio. PNC
Bank shall furnish to the Custodian and Fund a
detailed statement of the Property held for each
Portfolio under this Agreement at least monthly and
from time to time and upon written request.
(ii) Securities and any cash of each Portfolio deposited
in the Book-Entry System will at all times be
segregated from any assets and cash controlled by PNC
Bank in other than a fiduciary or custodian capacity
but may be commingled with other assets held in such
capacities. PNC Bank and its sub-custodian, if any,
will pay out money only upon receipt of securities
and will deliver securities only upon the receipt of
money.
(iii) All books and records maintained by PNC Bank which
relate to the Fund's participation in the Book-Entry
System will at all times during PNC Bank's regular
business hours be open to the inspection of
Authorized Persons, and PNC Bank will furnish to the
Custodian and the Fund all information in respect of
the services rendered as it may require.
PNC Bank will also provide the Custodian and the Fund with
such reports on its own system of internal control as the
Custodian and the Fund may reasonably request from time to
time.
(f) REGISTRATION OF SECURITIES. All Securities held for a
Portfolio which are issued or issuable only in bearer form,
except such securities held in the Book-Entry System,
shall be held by PNC Bank in bearer form; all other
securities held for a Portfolio may be registered in the
name of the Custodian on behalf of the Fund and the
respective Portfolio, PNC Bank, the Book-Entry System, a
sub-custodian, or any duly appointed nominees of the
Custodian, Fund, PNC Bank, Book-Entry System or
sub-custodian. The Custodian and the Fund reserves the
<PAGE>
right to instruct PNC Bank as to the method of registration
and safekeeping of the securities of the Fund. The Fund
agrees to furnish to PNC Bank appropriate instruments to
enable PNC Bank to hold or deliver in proper form for
transfer, or to register in the name of its nominee or in
the name of the Book-Entry System, any securities which
it may hold for the Accounts and which may from time to time
be registered in the name of the Fund on behalf of a
Portfolio.
(g) VOTING AND OTHER ACTION. Neither PNC Bank nor its nominee
shall vote any of the securities held pursuant to this
Agreement by or for the account of a Portfolio, except in
accordance with Written Instructions. PNC Bank, directly or
through the use of the Book-Entry System, shall execute in
blank and promptly deliver all notices, proxies and proxy
soliciting materials to the registered holder of such
securities. If the registered holder is not the Fund on behalf
of a Portfolio, then Written Instructions or Oral Instructions
must designate the person who owns such securities.
(h) TRANSACTIONS NOT REQUIRING INSTRUCTIONS. In the absence of
contrary Written Instructions, PNC Bank is authorized to take
the following actions:
(i) COLLECTION OF INCOME AND OTHER PAYMENTS.
(A) collect and receive for the account of each
Portfolio, all income, dividends,
distributions, coupons, option premiums,
other payments and similar items, included
or to be included in the Property, and, in
addition, promptly advise each Portfolio of
such receipt and credit such income, as
collected, to each Portfolio's account;
(B) endorse and deposit for collection, in the
<PAGE>
name of the Fund, checks, drafts, or other
orders for the payment of money;
(C) receive and hold for the account of each
Portfolio all securities received as a
distribution on the Portfolio's securities
as a result of a stock dividend, share
split-up or reorganization,
recapitalization, readjustment or other
rearrangement or distribution of rights or
similar securities issued with respect to
any securities belonging to a Portfolio and
held by PNC Bank hereunder;
(D) present for payment and collect the amount
payable upon all securities which may mature
or be called, redeemed, or retired, or
otherwise become payable on the date such
securities become payable; and
(E) take any action which may be necessary and
proper in connection with the collection and
receipt of such income and other payments
and the endorsement for collection of
checks, drafts, and other negotiable
instruments.
(ii) MISCELLANEOUS TRANSACTIONS.
(A) deliver or cause to be delivered Property
against payment or other consideration or
written receipt therefor in the following
cases:
(1) for examination by a broker or
dealer selling for the account of
a Portfolio in accordance with
street delivery custom;
(2) for the exchange of interim
receipts or temporary securities
for definitive securities; and
(3) for transfer of securities into the
name of the Fund on behalf of a
Portfolio or PNC Bank or nominee of
either, or for exchange of
securities for a different number of
bonds, certificates, or other
evidence, representing the same
aggregate face amount or number of
units bearing the same interest
rate, maturity date and call
provisions, if any; provided that,
in any such case, the new securities
are to be delivered to PNC Bank.
(B) Unless and until PNC Bank receives Oral
Instructions or Written Instructions to the
contrary, PNC Bank shall:
<PAGE>
(1) pay all income items held by it
which call for payment upon
presentation and hold the cash
received by it upon such payment for
the account of each Portfolio;
(2) collect interest and cash dividends
received, with notice to the Fund,
to the account of each Portfolio;
(3) hold for the account of each
Portfolio all stock dividends,
rights and similar securities issued
with respect to any securities held
by PNC Bank; and
(4) execute as agent on behalf of the
Fund all necessary ownership
certificates required by the
Internal Revenue Code or the Income
Tax Regulations of the United States
Treasury Department or under the
laws of any state now or hereafter
in effect, inserting the Fund's
name, on behalf of a Portfolio, on
such certificate as the owner of the
securities covered thereby, to the
extent it may lawfully do so.
(i) SEGREGATED ACCOUNTS.
(i) PNC Bank shall upon receipt of Written Instructions
or Oral Instructions establish and maintain a
segregated accounts on its records for and on behalf
of each Portfolio. Such accounts may be used to
transfer cash and securities, including securities in
the Book-Entry System:
(A) for the purposes of compliance by the Fund
with the procedures required by a securities
or option exchange, providing such
procedures comply with the 1940 Act and any
releases of the SEC relating to the
maintenance of segregated accounts by
registered investment companies; and
(B) Upon receipt of Written Instructions, for
other proper corporate purposes.
(j) PURCHASES OF SECURITIES. PNC Bank shall settle purchased
securities upon receipt of Oral Instructions or Written
Instructions from the Fund or its investment advisers that
specify:
(i) the name of the issuer and the title of the
securities, including CUSIP number if applicable;
<PAGE>
(ii) the number of shares or the principal amount
purchased and accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase;
(vi) the Portfolio involved; and
(vii) the name of the person from whom or the broker
through whom the purchase was made. PNC Bank shall
upon receipt of securities purchased by or for a
Portfolio pay out of the moneys held for the account
of the Portfolio the total amount payable to the
person from whom or the broker through whom the
purchase was made, provided that the same conforms to
the total amount payable as set forth in such Oral
Instructions or Written Instructions.
(k) SALES OF SECURITIES. PNC Bank shall settle sold securities
upon receipt of Oral Instructions or Written Instructions from
the Fund that specify:
(i) the name of the issuer and the title of the security,
including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and
accrued interest, if any;
(iii) the date of trade and settlement;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to
whom the sale was made; and
(vii) the location to which the security must be delivered
and delivery deadline, if any; and
(viii) the Portfolio involved.
PNC Bank shall deliver the securities upon receipt of the total amount
payable to the Portfolio upon such sale, provided that the total amount
<PAGE>
payable is the same as was set forth in the Oral Instructions or
Written Instructions. Subject to the foregoing, PNC Bank may accept
payment in such form as shall be satisfactory to it, and may deliver
securities and arrange for payment in accordance with the customs
prevailing among dealers in securities.
(l) REPORTS; PROXY MATERIALS.
(i) PNC Bank shall furnish to the Custodian and the
Fund the following reports:
(A) such periodic and special reports as the
Custodian and/or the Fund may reasonably
request;
(B) a monthly statement summarizing all
transactions and entries for the account of
each Portfolio, listing each Portfolio
securities belonging to each Portfolio with
the adjusted average cost of each issue and
the market value at the end of such month
and stating the cash account of each
Portfolio including disbursements;
(C) the reports required to be furnished to the
Fund pursuant to Rule 17f-4; and
(D) such other information as may be agreed upon
from time to time between the Custodian or
the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the Fund any
proxy statement, proxy material, notice of a call or
conversion or similar communication received by it as
sub-custodian of the Property. PNC Bank shall be
under no other obligation to inform the Fund as to
such actions or events.
(m) COLLECTIONS. All collections of monies or other property in
respect, or which are to become part, of the Property (but
not the safekeeping thereof upon receipt by PNC Bank)
shall be at the sole risk of the Fund. If payment is not
received by PNC Bank within a reasonable time after proper
<PAGE>
demands have been made, PNC Bank shall notify the Fund in
writing, including copies of all demand letters, any written
responses, memoranda of all oral responses and shall await
instructions from the Fund. PNC Bank shall not be obliged
to take legal action for collection unless and until
reasonably indemnified to its satisfaction. PNC Bank
shall also notify the Custodian and the Fund as soon as
reasonably practicable whenever income due on securities is
not collected in due course and shall provide the Custodian
and the Fund with periodic status reports of such income
collected after a reasonable time.
16. DURATION AND TERMINATION. This Agreement shall continue until
terminated by the Custodian, the Fund or PNC Bank on sixty (60)
days' prior written notice to the other parties.
17. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram,
cable, telex or facsimile sending device. Notice shall be addressed
(a) if to PNC Bank at Airport Business Center, 200 Stevens Drive,
Lester, Pennsylvania 19113, Attention: Brian Burns (b) if to the
Custodian, at Airport Business Center, 200 Stevens Drive, Lester,
Pennsylvania 19113, Attn: Sam Sparhawk (c) if to the Fund at its
address or (d) at such other address as shall have been given by like
notice to the sender of any such notice or other communication by
the other party. If notice is sent by confirming telegram, cable,
telex or facsimile sending device, it shall be deemed to have been
given immediately. If notice is sent by first-class mail, it
shall be deemed to have been given five days after it has been
mailed. If notice is sent by messenger, it shall be deemed to have
<PAGE>
been given on the day it is delivered.
19. AMENDMENTS. This Agreement, or any term hereof, may be changed or
waived only by a written amendment, signed by the party against whom
enforcement of such change or waiver is sought.
20. DELEGATION; ASSIGNMENT. PNC Bank may assign its rights and delegate its
duties hereunder to any affiliate (as defined in the 1940 Act) of or
any majority-owned direct or indirect subsidiary of PNC Bank, or PNC
Bank Corp., provided that (i) PNC Bank gives the Fund 30 days' prior
written notice of such assignment or delegation; (ii) the assignee or
delegate agrees to comply with the relevant provision of the 1940 Act;
and (iii) PNC Bank and such assignee or delegate promptly provide such
information as the Fund may reasonably request, and respond to such
questions as the Fund may reasonably ask, relative to the assignment or
delegation, (including, without limitation, the capabilities of the
assignee or delegate). In the event of such delegation, PNC Bank shall
remain liable under this Agreement.
21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
22. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the
purposes hereof.
<PAGE>
23. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the parties and supersedes all prior
agreements and understandings relating to the subject matter
hereof, provided that the parties may embody in one or more
separate documents their agreement, if any, with respect to
delegated duties and Oral Instructions.
(b) CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit
any of the provisions hereof or otherwise affect their
construction or effect.
(c) GOVERNING LAW. This Agreement shall be deemed to be a contract
made in Pennsylvania and governed by Pennsylvania law, without
regard to principles of conflicts of law.
(d) PARTIAL INVALIDITY. If any provision of this Agreement shall
be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be
affected thereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
(f) FACSIMILE SIGNATURES. The facsimile signature of any party to
this Agreement shall constitute the valid and binding
execution hereof by such party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC TRUST COMPANY
By: /S/ JOSEPH GRAMLICH
------------------------------------
Title: SENIOR VICE PRESIDENT
PNC BANK, NATIONAL ASSOCIATION
By: /S/ SAMUEL SPARHAWK
------------------------------------
Title: VICE PRESIDENT
HARRIS INSIGHT FUNDS TRUST
By: /S/ GEORGE A. RIO
------------------------------------
Title: PRESIDENT
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
- -------------------------------
- -------------------------------
- -------------------------------
- -------------------------------
- -------------------------------
- -------------------------------
EXHIBIT (g)(6)
Harris Insight Funds Trust
60 State Street, Suite 1300
Boston, MA 02109
Re: FOREIGN CUSTODY MANAGER DELEGATION AMENDMENT
Dear Sirs:
Reference is made to the Sub-Custodian Services Agreement dated as of February
18, 1999 (the "Agreement") by and among PNC Bank, N.A. ("PNC Bank"), PFPC Trust
Company ("PFPC Trust") and Harris Insight Funds Trust (the "Fund"). Unless
otherwise defined herein, terms defined in the Agreement are used herein with
their defined meanings.
1. In addition to the duties of PNC Bank under the Agreement, with respect to
the Property in such jurisdictions as the Fund and PNC Bank shall agree from
time to time, the Fund hereby delegates to PNC Bank, and PNC Bank hereby accepts
and assumes, the following duties of a "Foreign Custody Manager" as permitted by
and in accordance with Rule 17f-5 under the Investment Company Act of 1940, as
amended ("Rule 17f-5"):
a. selecting Eligible Foreign Custodians (as defined in Rule
17f-5) and placing and maintaining Property with such
Eligible Foreign Custodians;
b. providing for written contracts with such Eligible
Foreign Custodians; and
c. monitoring the appropriateness of maintaining the
Property with each Eligible Foreign Custodian and the
custody contracts with such Eligible Foreign
Custodian.
The procedures PNC Bank and the Fund will use in performing the activities under
this Amendment are set forth in the Agreement and the Client Services Guide.
Notwithstanding anything to the contrary in this Amendment or the Agreement, PNC
Bank shall not be responsible for the duties described in a., b., and c. with
respect to any Compulsory Securities Depository. A "Compulsory Securities
Depository" shall mean a securities depository or clearing agency the use of
which is mandatory (i) by law or regulation; (ii) because securities cannot be
withdrawn from the depository or clearing agency; or (iii) because maintaining
securities outside the securities depository or clearing agency is not
consistent with prevailing local custodial practices. PNC Bank, or such entity
as it may designate for this purpose, shall inform the Fund in writing of the
name and location of each Compulsory Securities Depository and the factors used
to determine that the securities depository is a Compulsory Securities
Depository.
<PAGE>
2. In acting as a Foreign Custody Manager, PNC Bank shall not supervise,
recommend or advise the Fund relative to the investment, purchase, sale,
retention or disposition of any Property in any particular country, including
with respect to prevailing country risks.
3. (a) The Fund represents that it (i) has the authority and power to
delegate to PNC Bank the duties set forth herein and (ii) has taken all
requisite action (corporate or otherwise) to authorize the execution and
delivery of this Amendment.
(b) PNC Bank represents that it (i) is a U.S. Bank ( as defined in Rule
17f-5) and (ii) has taken all requisite action (corporate or otherwise) to
authorize the execution and delivery of this Amendment.
4. PNC Bank's only responsibility with respect to the activities covered by this
Amendment shall be to exercise reasonable care, prudence and diligence such as a
person having responsibility for safekeeping of fund assets would exercise.
5. Except as expressly amended hereby, all terms and provisions of the Agreement
are and shall continue to be in full force and effect. This Amendment shall be
construed in accordance with laws of the State of New York. This Amendment may
be executed by the parties hereto on any number of separate counterparts, and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument.
The parties to this Amendment hereby agree to the Amendment as of February 18,
1999.
PFPC TRUST COMPANY PNC BANK, N.A.
By:/S/ JOSEPH GRAMLICH By: /S/ SAMUEL SPARHAW
--------------------- ---------------------
Name: JOSEPH GRAMLICH Name: SAMUEL SPARHAWK
Title: SENIOR VICE PRESIDENT Title: VICE PRESIDENT
HARRIS INSIGHT FUNDS TRUST
By: /S/ GEORGE A. RIO
-------------------
Name: GEORGE A. RIO
Title: PRESIDENT
EXHIBIT (h)(10)(a)
Form of AMENDMENT OF
SUB-ADMINISTRATION AND
ACCOUNTING SERVICES AGREEMENT
BETWEEN
HARRIS TRUST AND SAVINGS BANK
AND
PFPC INC.
[HARRIS INSIGHT(R) FUNDS TRUSt]
THIS AMENDMENT ("Amendment") is made as of 1 May 1999 by and between HARRIS
TRUST AND SAVINGS BANK, an Illinois banking corporation ("Harris"), and PFPC
INC., a Delaware corporation ("PFPC"), an indirect majority-owned subsidiary of
PNC Bank Corp.
WITNESSETH:
WHEREAS, Harris and PFPC have entered into a Sub-Administration and
Accounting Services Agreement dated 1 July 1996 ("Agreement") to provide certain
services to the portfolios of Harris Insight(R) Funds Trust ("Funds"); and
WHEREAS, Section 18 of the Agreement provides that the parties thereto
may amend the Agreement by a written amendment; and
WHEREAS Harris and PFPC wish to amend the Agreement in order to modify
and add to the services to be performed for the Funds by PFPC.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and intending to be legally bound hereby, Harris and PFPC
agree as follows:
1. ADDITIONAL SERVICES. Harris hereby appoints PFPC to provide the
additional services set forth on Exhibit A to this Amendment, which is hereby
incorporated herein. PFPC accepts such appointment and agrees to furnish
such services.
2. COMPENSATION. As compensation for the additional services provided
pursuant to this Amendment, Harris, on behalf of the Funds, will pay to PFPC
such fee(s) as may be agreed upon in writing by Harris and PFPC.
<PAGE>
3. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute a single instrument.
4. FUTURE ACTIONS. Each party agrees to perform such further acts and to
execute such additional documents as are necessary to effect the purposes of
this Amendment.
5. FACSIMILE SIGNATURES. The facsimile signature of any party to this
Amendment shall constitute the valid and binding execution hereof by such party.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first given above.
PFPC INC. HARRIS TRUST AND SAVINGS BANK
By: ________________________________ By: _________________________
Its ________________________________ Its _________________________
EXHIBIT A
ADDITIONAL REGULATORY, COMPLIANCE,
AND SUB-ADMINISTRATION SERVICES
[As used herein, the term "Trust" refers to Harris Insight Funds
Trust, and each portfolio of the Trust.]
(i) Coordinate, together with Harris and the distributor, the management of
routine examinations by the SEC and other regulatory agencies;
(ii) Assist in developing responses to the examinations of the SEC and other
regulatory agencies;
(iii) Assist in the preparation of Post-Effective Amendments to the Trust's
Registration Statements on Form N-1A, Shareholder Reports and other
filings with the SEC;
(iv) Monitor various SEC and IRS regulatory developments affecting investment
companies;
(v) Coordinate the preparation of an agenda for the Trust's Board Meetings and
the administration report, and assist in the coordination of reports and
related materials from the adviser, distributor, transfer agent and
custodian, etc.;
(vi) Provide facilities for the Trust's Shareholder Meetings and coordinate the
preparation and filing of the shareholder meeting materials and assist
with all shareholder communications;
(vii) Provide the Trust with officers who may be authorized by the Trust to
facilitate certain required regulatory filings and the processing of
invoices;
(viii) Monitor the maintenance of directors' and officers' insurance and
fidelity bond insurance coverage on behalf of the Trust;
(ix) Coordinate with independent auditors and printers the preparation of
shareholder reports;
(x) Maintain a general corporate calendar noting required completion dates;
(xi) Maintain the Trust's Declaration of Trust and By-Laws;
<PAGE>
(xii) Maintain the Trust's code of ethics and monitor compliance;
(xiii) Assist in developing guidelines and procedures to improve overall
compliance by the Trust and its various agents;
(xiv) Create Compliance Manuals and, in conjunction with Harris, present
workshops for advisory personnel;
(xv) Assist in developing solutions to regulatory, administration and
operations-related issues with respect to the Trust;
(xvi) In conjunction with Harris, supervise the Trust's relationships with
outside counsel, counsel to the "non-interested" board members, the
Trust's local counsel and auditors;
(xvii) Monitor activities and billing practices of outside counsel;
(xviii) Assist with new product development initiatives from an operations and
regulatory perspective;
(xix) Review and comment upon drafts of prospectuses and statements of
additional information and drafts of reports and other communications
to shareholders;
(xx) Assist Provident Distributors, Inc., by providing a compliance review
of sales literature and advertisements prepared for the Trust; and
(xxi) PFPC may also provide certain extraordinary administration services
to the Trust. These extraordinary administration services may be
accomplished solely by PFPC or by PFPC in cooperation with the Trust's
counsel, adviser's counsel, or other counsel as designated by Harris,
depending upon the circumstances and timing constraints surrounding
each request.
EXHIBIT (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 11 to the Registration Statement on Form N-1A (No. 33-64915) of
Harris Insight Funds Trust of our report dated February 8, 1999 relating to the
financial statements and financial highlights, which appears in the December 31,
1998 Annual Report to Shareholders, which is incorporated by reference in such
Statement of Additional Information. We also consent to the references to us
under the heading "Financial Highlights" in such Prospectuses and under the
heading "Independent Accounts and Reports to Shareholders" in such Statement of
Additional Information.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
April 26, 1999
EXHIBIT (m)(3)
Dear Sirs:
As the principal underwriter of shares of certain registered
investment companies presently or hereafter managed, advised or administered by
Harris Trust and Savings Bank or its affiliates, shares of which companies are
distributed by us at their respective net asset values plus sales charges as
applicable, pursuant to our Distribution Agreements with such companies (the
"Funds"), we invite you to participate as a non-exclusive principal in the
distribution of shares of any and all of the Funds upon the following terms and
conditions:
1. You are to offer and sell such shares only at the public offering prices
which shall be currently in effect, in accordance with the terms of the
then current prospectuses and statements of additional information of
the Funds subject in each case to the delivery prior to or at the time
of such sales of the then current prospectus. You agree to act only as
principal in such transactions and nothing in this Agreement shall
constitute either of us the agent of the other or shall constitute you
or the Fund the agent of the other. In all transactions in these shares
between you and us, we are acting as agent for the Fund and not
as principal. All orders are subject to acceptance by us and become
effective only upon confirmation by us. We reserve the right in our
sole discretion to reject any order. The minimum dollar purchase of
shares of the Funds shall be the applicable minimum amounts described
in the then current prospectuses and statements of additional
information and no order for less than such amounts will be accepted.
2. On each purchase of shares by you from us, the total sales charges and
discount to selected dealer, if any, shall be as stated in each Fund's
then current prospectus.
Such sales charges and discount to selected dealers are subject to
reductions under a variety of circumstances as described in each Fund's
then current prospectus and statement of additional information. To
obtain these reductions, we must be notified when the sale takes place
which would qualify for the reduced charge.
There is no sales charge or discount to selected dealers on the
reinvestment of any dividends or distributions.
3. All purchases of shares of a Fund made under any cumulative purchase
privilege as set forth in a Fund's then current effective prospectus
shall be considered an individual transaction for the purpose of
determining the concession from the public offering price to which you
are entitled as set forth in paragraph 2 hereof.
4. As a member of the selling group, you agree to purchase shares of the
Funds only through us or from your customers. Purchases through us shall
be made only for your own investment purposes or for the purpose of
covering purchase orders already received from your customers, and we
agree that we will not place orders for the purchase of shares from a
Fund except to cover purchase orders already received by us. Purchases
from your customers shall be at a price not less than the net asset value
quoted by each such Fund at the time of such purchase. Nothing herein
contained shall prevent you from selling any shares of a Fund for the
account of a record holder to us or to such Fund at the net asset value
quoted by us and charging your customer a fair commission for handling
the transaction.
5. You agree that you will not withhold placing customers' orders so as to
profit yourself as a result of such withholding.
6. You agree to sell shares of the Funds only (a) to your customers at the
public offering prices then in effect or (b) to us as agent for the Funds
or to each such Fund itself at the redemption price, as described in each
Fund's then current effective prospectus.
7. Settlement shall be made promptly, but in no case later than the time
customary for such payments after our acceptance of the order or, if so
specified by you, we will make delivery by draft on you, the amount of
which draft you agree to pay on presentation to you. If payment is not so
received or made, the right is reserved forthwith to cancel the sale or
at our option to resell the shares to the applicable Fund, at the then
prevailing net asset value in which latter case you agree to be
<PAGE>
responsible for any loss resulting to such Fund or to us from your
failure to make payment as aforesaid.
8. If any shares sold to you under the terms of this Agreement are
repurchased by a Fund or by us as agent, or for the account of that Fund
or are tendered to that Fund for purchase at liquidating value under the
terms of the Articles of Incorporation or Declaration of Trust or other
document governing such Fund within seven (7) business days after the
date of confirmation to you of your original purchase order therefor, you
agree to pay forthwith to us the full amount of the concession allowed to
you on the original sale and we agree to pay such amount to the Fund when
received by us. We shall notify you of such repurchase within ten (10)
days of the effective date of such repurchase.
9. All sales will be subject to receipt of shares by us from the Funds. We
reserve the right in our discretion without notice to you to suspend
sales or withdraw the offering of shares entirely, or to modify or cancel
this Agreement.
10. From time to time during the term of this Agreement we may make payments
to you pursuant to one or more of the distribution and/or service plans
adopted by certain of the Funds pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Act") in consideration of your
furnishing distribution and/or shareholder services hereunder with
respect to each such Fund. We have no obligation to make any such
payments and you waive any such payments until we receive monies therefor
from the Fund. Any such payments made pursuant to this Section 10 shall
be subject to the following terms and conditions:
(a) Any such payments shall be in such amounts as we may from time to
time advise you in writing but in any event not in excess of the amounts
permitted by the plan in effect with respect to each particular Fund and
will be based on the dollar amount of Fund shares which are owned of
record by your firm as nominee for your customers or which are owned by
those customers of your firm whose records, as maintained by the Funds or
their agents, designate your firm as the customer's dealer of record. Any
such payments shall be in addition to the selling concession, if any,
allowed to you pursuant to this Agreement. No such fee will be paid to
you with respect to shares purchased by you and redeemed by the funds or
by us as agent within seven business days after the dates of confirmation
of such purchase.
(b) The provisions of this Section 10 relate to the plan adopted by a
particular Fund pursuant to Rule 12b-1. In accordance with Rule 12b-1,
any person authorized to direct the disposition of monies paid or payable
by a Fund pursuant to this Section 10 shall provide the Fund's Board, and
the Board shall review, at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures were
made.
(c) The provisions of this Section 10 applicable to each Fund shall
remain in effect for not more than a year and thereafter for successive
annual periods only so long as such continuance is specifically approved
at least annually in conformity with Rule 12b-1 and the Act. The
provisions of this Section 10 shall automatically terminate with respect
to a particular Plan, in the event such Plan terminates or is not
continued or in the event this Agreement terminates or ceases to remain
in effect. In addition, the provisions of this Section 10 may be
terminated at any time, without penalty, by either party with respect to
any particular Plan or not more than 60 days' nor less than 30 days'
written notice delivered or mailed by registered mail, postage prepaid,
to the other party.
11. No person is authorized to make any representations concerning the Funds
or shares of the Funds except those contained in each Fund's then current
effective prospectus or statement of additional information and any such
information as may be released by a Fund as information supplemental to
such prospectus or statement of additional information. In purchasing
shares through us you shall rely solely on the representations contained
in each Fund's then current effective prospectus or statement of
additional information and supplemental information above-mentioned.
12. Additional copies of each such prospectus or statement of additional
information and any printed information issued as supplemental to each
such prospectus or statement of additional information will be supplied
by us to members of the selling group in reasonable quantities upon
request.
<PAGE>
13. We, our affiliates and the Funds shall not be liable for any loss,
expense, damages, costs or other claim arising out of any redemption or
exchange pursuant to telephone instructions from any person or our
refusal to execute such instructions for any reason.
14. All communications to us shall be sent to us at Provident Distributors,
Inc., Four Falls Corporate Center, 6TH Floor, West Conshohocken, PA
19428, Attention: Phil Rinnander. Any notice to you shall be duly given
if mailed or telegraphed to you at your address as registered from time
to time with the National Association of Securities Dealers, Inc.
15. This Agreement may be terminated upon written notice by either party at
any time, and shall automatically terminate upon its attempted assignment
by you, whether by operation of law or otherwise.
16. By accepting this Agreement, you represent that you are registered as a
broker-dealer under the Securities Exchange Act of 1934, are qualified
to act as a dealer in the states or other jurisdictions where you
transact business, and are a member in good standing of the National
Association of Securities Dealers, Inc., and you agree that you will
maintain such registrations, qualifications, and membership in good
standing and in full force and effect throughout the term of this
Agreement. You further agree to comply with all applicable Federal
laws, the laws of the states or other jurisdictions concerned, and the
rules and regulations promulgated thereunder and with the Constitution,
By-Laws and Code of Conduct of the National Association of Securities
Dealers, Inc., and that you will not offer or sell shares of the Funds
in any state or jurisdiction where they may not lawfully be offered
and/or sold.
If you are offering and selling shares of the Funds in jurisdictions
outside the several states, territories, and possessions of the United
States and are not otherwise required to be registered, qualified, or a
member of the National Association of Securities Dealers, Inc., as set
forth above you, you nevertheless agree to observe the applicable laws of
the jurisdiction in which such offer and/or sale is made, to comply with
the full disclosure requirements of the Securities Act of 1933 and the
regulations promulgated thereunder, to conduct your business in
accordance with the spirit of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. You agree to indemnify and hold
the Funds, their investment advisor, and us harmless from loss or damage
resulting from any failure on your part to comply with applicable laws.
17. You agree to maintain records of all sales of shares made through you
and to furnish us with copies of each record on request.
18. This Agreement and all amendments to this Agreement shall take effect
with respect to and on the date of any orders placed by you after the
date set forth below or, as applicable, after the date of the notice of
amendment sent to you by the undersigned.
19. This Agreement shall be construed in accordance with the laws of the
State of Delaware and shall be binding upon both parties hereto when
signed and accepted by you in the space provided below.
<PAGE>
FOR PROVIDENT DISTRIBUTORS, INC.:
- ----------------------------------------- -------------
By: Date
FOR:
-------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Address of Principal Office
- -----------------------------------------------------------------------------
City State Zip Code
BY: ITS:
-------------------------------------- --------------- ----------
Authorized Signature Title Date
- -----------------------------------------
Print Name
<PAGE>
Dear Sirs:
As the principal underwriter of shares of certain registered
investment companies presently or hereafter managed, advised or administered by
Harris Trust and Savings Bank or its affiliates, shares of which companies are
distributed by us at their respective net asset values plus sales charges as
applicable, pursuant to our Distribution Agreements with such companies (the
"Funds"), we invite you, a "bank" (as such term is defined in Section 3(a)(6) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to
participate as a non-exclusive agent in the distribution of shares of any and
all of the Funds upon the following terms and conditions:
1. You are to offer and sell such shares only at the public offering prices
that shall be currently in effect, in accordance with the terms of the
then current prospectuses and statements of additional information of
the Funds subject in each case to the delivery prior to or at the time
of such sales of the then current prospectus. You agree to act only as
agent in such transactions and nothing in this Agreement shall
constitute either of us the agent of the other or shall constitute you
or the Fund the agent of the other. In all transactions in these shares
between you and us, we are acting as agent for the Fund and not as
principal. All orders are subject to acceptance by us and become
effective only upon confirmation by us. We reserve the right in our sole
discretion to reject any order. The minimum dollar purchase of shares
of the Funds shall be the applicable minimum amounts described in the
then current prospectuses and statements of additional information and
no order for less than such amounts will be accepted.
2. On each purchase of shares by you from us, the total sales charges and
discount to selected dealer, if any, shall be as stated in each Fund's
then current prospectus.
Such sales charges and discount to selected dealers are subject to
reductions under a variety of circumstances as described in each Fund's
then current prospectus and statement of additional information. To
obtain these reductions, we must be notified when the sale takes place
which would qualify for the reduced charge.
There is no sales charge or discount to selected dealers on the
reinvestment of any dividends or distributions.
3. All purchases of shares of a Fund made under any cumulative purchase
privilege as set forth in a Fund's then current effective Prospectus
shall be considered an individual transaction for the purpose of
determining the concession from the public offering price to which you
are entitled as set forth in paragraph 2 hereof.
4. As an authorized agent to sell shares of the Fund, you agree to purchase
shares of the Funds only through us or from your customers. Purchases
through us shall be made only for your own investment purposes or for the
purpose of covering purchase orders already received from your customers,
and we agree that we will not place orders for the purchase of shares
from a Fund except to cover purchase orders already received by us.
Purchases from your customers shall be at a price not less than the net
asset value quoted by each such Fund at the time of such purchase.
<PAGE>
Nothing herein contained shall prevent you from selling any shares of a
Fund for the account of a record holder to us or to such Fund at the net
asset value quoted by us and charging your customer a fair commission for
handling the transaction.
5. You agree that you will not withhold placing customers' orders so as to
profit yourself as a result of such withholding.
6. You agree to sell shares of the Funds only (a) to your customers at the
public offering prices then in effect or (b) to us as agent for the Funds
or to each such Fund itself at the redemption price, as described in each
Fund's then current effective Prospectus.
7. Settlement shall be made promptly, but in no case later than the time
customary for such payments after our acceptance of the order or, if so
specified by you, we will make delivery by draft on you, the amount of
which draft you agree to pay on presentation to you. If payment is not so
received or made, the right is reserved forthwith to cancel the sale or
at our option to resell the shares to the applicable Fund, at the then
prevailing net asset value in which latter case you agree to be
responsible for any loss resulting to such Fund or to us from your
failure to make payment as aforesaid.
8. If any shares sold to you under the terms of this Agreement are
repurchased by a Fund or by us as agent, or for the account of that Fund
or are tendered to that Fund for purchase at liquidating value under the
terms of the Agreement and Declaration of Trust or other document
governing such Fund within seven (7) business days after the date of
confirmation to you of your original purchase order therefor, you agree
to pay forthwith to us the full amount of the concession allowed to you
on the original sale and we agree to pay such amount to the Fund when
received by us. We shall notify you of such repurchase within ten (10)
days of the effective date of such repurchase.
9. All sales will be subject to receipt of shares by us from the Funds. We
reserve the right in our discretion, without notice to you, to suspend
sales or withdraw the offering of shares entirely, or to modify or cancel
this Agreement. We will notify you promptly when we become aware that the
Funds have suspended sales or withdrawn their offering of shares.
10. From time to time during the term of this Agreement we may make payments
to you pursuant to one or more of the distribution and/or service plans
adopted by certain of the Funds pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Act") in consideration of your
furnishing distribution and/or shareholder services hereunder with
respect to each such Fund (each, a "Plan, " together, the "Plans"). We
have no obligation to make any such payments and you hereby waive any
such payments until we receive monies therefor from the Fund. Any such
payments made pursuant to this Section 10 shall be subject to the
following terms and conditions:
(a) Any such payments shall be in such amounts as we may from time to
time advise you in writing but in any event not in excess of the amounts
permitted by the plan in effect with respect to each particular Fund and
will be based on the dollar amount of Fund shares which are owned of
<PAGE>
record by your firm as nominee for your customers or which are owned by
those customers of your firm whose records, as maintained by the Funds or
their agents, designate your firm as the customer's dealer of record. Any
such payments shall be in addition to the selling concession, if any,
allowed to you pursuant to this Agreement. No such fee will be paid to
you with respect to shares purchased by you and redeemed by the funds or
by us as agent within seven business days after the dates of confirmation
of such purchase.
(b) The provisions of this Section 10 relate to the plan adopted by a
particular Fund pursuant to Rule 12b-1. In accordance with Rule 12b-1,
any person authorized to direct the disposition of monies paid or payable
by a Fund pursuant to this Section 10 shall provide the Fund's Board, and
the Board shall review, at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures were
made. You agree to provide us with such information as requested from
time to time in order for us to fulfill our obligations under this
Agreement and under the Plans to provide the Boards of the Funds with the
required information on at least a quarterly basis.
(c) The provisions of this Section 10 applicable to each Fund shall
remain in effect for not more than a year and thereafter for successive
annual periods only so long as such continuance is specifically approved
at least annually in conformity with Rule 12b-1 and the Act. The
provisions of this Section 10 shall automatically terminate with respect
to a particular Plan, in the event such Plan terminates or is not
continued or in the event this Agreement terminates or ceases to remain
in effect. In addition, the provisions of this Section 10 may be
terminated at any time, without penalty, with respect to any particular
Plan by you, by a majority of the Board of a Fund who are not interested
persons of the Fund and have no direct or indirect financial interest in
the operation of the particular Plan or in any agreements related to the
Plan, or by vote of a majority of the outstanding voting securities of
the Fund on not more than 60 days' nor less than 30 days' written notice
delivered or mailed by registered mail, postage prepaid, to the other
party.
11. No person is authorized to make any representations concerning the
Funds or shares of the Funds except those contained in each Fund's then
current effective Prospectus or Statement of Additional Information and
any such information as may be released by a Fund as information
supplemental to such Prospectus or Statement of Additional Information.
In purchasing shares through us you shall rely solely on the
representations contained in each Fund's then current effective
prospectus or statement of additional information and supplemental
information above-mentioned. In addition, in making Fund shares
available to your customers hereunder or in providing investment advice
regarding such shares to your customers, you shall at all times act in
compliance with the Interagency Statement on Retail Sales of Non-deposit
Investment Products issued by the Board of Governors of the Federal
Reserve System, the Federal Deposit Insurance Corporation, the Office
of the Comptroller of the Currency, and the Office of Thrift
Supervision (February 15, 1994) or any successor interagency
requirements as in force at the time such services are provided.
<PAGE>
12. Additional copies of each such Prospectus or Statement of Additional
Information and any printed information issued as supplemental to each
such Prospectus or Statement of Additional Information will be supplied
by us to you in reasonable quantities upon request.
13. We, our affiliates and the Funds shall not be liable for any losses,
expenses, damages, costs or other claims arising out of any redemption or
exchange pursuant to telephone instructions from any person, or our
refusal to execute such instructions for any reason.
14. All notices or other communications hereunder to either party shall be in
writing and shall be deemed sufficient if mailed to such party at the
address of such party set forth on page 4 of this Agreement or at such
other addresses as such party designate by written notice to the other,
or by telex, telecopier, or telegram or similar means of same day
delivery (with a confirming copy by mail as provided herein).
15. This Agreement may be terminated upon written notice by either party at
any time, and shall automatically terminate upon its attempted assignment
by you, whether by operation of law or otherwise.
16. You hereby represent that: (a) you are a "bank" as such term is defined
in Section 3(a)(6) of the Exchange Act; (b) you are a duly organized and
validly existing "bank" in good standing under the laws of the
jurisdiction in which you were organized; (c) all authorizations (if any)
required for your lawful execution of this Agreement and your performance
hereunder have been obtained; and (d) upon execution and delivery by us,
and assuming due and valid execution and delivery by us, this Agreement
will constitute a valid and binding agreement, enforceable against you in
accordance with its terms. You agree to give written notice to us
promptly in the event that you shall cease to be a "bank" as such term is
defined in Section 3(a)(b) of the Exchange Act. In such event, this
Agreement shall be automatically terminated upon written notice.
If you are offering and selling shares of the Funds in jurisdictions
outside the several states, territories, and possessions of the United
States and are not otherwise required to be registered, qualified, or a
member of the National Association of Securities Dealers, Inc., as set
forth above, you nevertheless agree to observe the applicable laws of the
jurisdiction in which such offer and/or sale is made, to comply with the
full disclosure requirements of the Securities Act of 1933 and the
regulations promulgated thereunder, to conduct your business in
accordance with the spirit of the Code of Conduct of the National
Association of Securities Dealers, Inc. You agree to indemnify and hold
the Funds, their investment advisor, and us harmless from loss or damage
resulting from any failure on your part to comply with applicable laws.
17. You agree to maintain records of all sales of shares made through you
and to furnish us with copies of each record on request.
18. This Agreement and all amendments to this Agreement shall take effect
with respect to and on the date of any orders placed by you after the
<PAGE>
date set forth below or, as applicable, after the date of the notice of
amendment sent to you by the undersigned. Any amendment to this Agreement
may be made unilaterally by us upon written notification to you.
19. This Agreement shall be construed in accordance with the laws of the
State of Delaware and shall be binding upon both parties hereto when
signed and accepted by you in the space provided below.
FOR PROVIDENT DISTRIBUTORS, INC.
FOUR FALLS CORPORATE CENTER, 6TH FLOOR
WEST CONSHOHOCKEN, PA 19428
- ----------------------------------------------- ------------
Its: Date
FOR:
-------------------------------------------
- -----------------------------------------------
Address of Principal Office
- --------------------------------
City, State, Zip Code
BY: ITS:
--------------------------------- ------------------- -----------
Authorized Signature Title Date
--------------------------------
Print Name
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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Other Exhibit (a)
POWER OF ATTORNEY
The undersigned hereby constitute and appoint G. Nicholas Bullat, Blanche O.
Hurt, Peter P. Capaccio, and Merrill J. Sklenar, and each of them, with full
power to act their true and lawful attorneys-in-fact and agents with full power
of substitution and resubstitution, for them and in their name, place, and
stead, in any and all capacities (until revoked in writing) to sign any or all
amendments to the Registration Statement on Form N-1A of Harris Insight Funds
Trust and of HT Insight Funds, Inc., and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and any states securities commissions, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing, and ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Dated: 30 April 1999.
/s/ C. Gary Gerst /s/ Ernest M. Rother
C. Gary Gerst Ernest M. Rother
/s/ Edgar R. Fiedler /s/ John W. McCarter, Jr.
Edgar R. Fiedler John W. McCarter, Jr.
/s/ Paula Wolff
Paula Wolff
<PAGE>
Other Exhibit (b)
POWER OF ATTORNEY
The undersigned hereby constitute and appoint G. Nicholas Bullat, Blanche O.
Hurt, Peter P. Capaccio, and Merrill J. Sklenar, and each of them, with full
power to act his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities (until revoked in writing) to sign any or all amendments
to the Registration Statement on Form N-1A of Harris Insight Funds Trust and of
HT Insight Funds, Inc., and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission and any states securities commissions, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing, and ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Dated: 30 April 1999.
Attest: /s/ Monroe Haegele
Monroe Haegele
