HARRIS INSIGHT FIXED INCOME FUNDS
HARRIS INSIGHT FUNDS
One Exchange Place, Boston, Massachusetts 02109
Telephone: (800) 982-8782
The Harris Insight Funds Trust (the ``Trust'') is an open-end, diversified
management investment company that currently offers a selection of eleven
investment portfolios. HT Insight Funds, Inc. (the ``Company'') is an open-end,
diversified management investment company that currently offers six investment
portfolios. (The eleven portfolios of the Trust and five of the six portfolios
of the Company are collectively referred to herein as the ``Harris Insight
Funds'' or the ``Funds'') This Prospectus describes one class of shares (``Class
A Shares'' or ``Shares'') of each of five investment portfolios offered by the
Trust and the Class A Shares of the Harris Insight Short/Intermediate Bond Fund,
a portfolio offered by the Company. The Funds are as follows:
o Harris Insight Convertible Securities Fund (the ``Convertible Securities
Fund'')
o Harris Insight Short/Intermediate Bond Fund (the ``Short/Intermediate
Fund'')
o Harris Insight Bond Fund (the ``Bond Fund'')
o Harris Insight Intermediate Government Bond Fund (the ``Government Fund'')
o Harris Insight Intermediate Tax-Exempt Bond Fund (the ``Intermediate
Tax-Exempt Fund'')
o Harris Insight Tax-Exempt Bond Fund (the ``Tax-Exempt Fund'')
Harris Trust & Savings Bank is the Investment Adviser to the Funds and
Harris Investment Management, Inc., a subsidiary of Harris Bankcorp, Inc., acts
as each Fund's Portfolio Management Agent. Shares of each Fund are offered by
Funds Distributor, Inc., the distributor for the Trust and the Company.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Funds. Please read and retain it for future
reference. A Statement of Additional Information dated February 21, 1996,
containing more detailed information about the Funds has been filed with the
Securities and Exchange Commission and (together with any supplements thereto)
is incorporated by reference into this Prospectus. The Statement of Additional
Information and separate Prospectuses for the other investment portfolios
offered by the Trust or the Company may be obtained without charge by writing or
calling the Harris Insight Funds at the address and telephone number printed
above.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY HARRIS TRUST & SAVINGS BANK, OR ANY OF ITS AFFILIATES, AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUNDS INVOLVES
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
__________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE ``COMMISSION'') OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
February 21, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
Expense Table 3
Highlights 4
Financial Highlights 6
Investment Objectives and Policies 7
Convertible Securities Fund 7
Short/Intermediate Fund 8
Bond Fund 9
Government Fund 9
Intermediate Tax-Exempt Fund 10
Tax-Exempt Fund 10
All Funds 10
Investment Strategies 11
Investment Limitations 20
Management 21
Determination of Net Asset Value 23
Purchase of Shares 24
Redemption of Shares 26
Exchange Privilege 27
Service Plans 27
Dividends and Distributions 28
Federal Income Taxes 28
Account Services 29
Organization and Capital Stock 29
Reports to Shareholders 30
Calculation of Yield and Total Return 30
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND/OR IN THE FUNDS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF THE FUNDS' SHARES AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST, THE COMPANY OR THE DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
2
<PAGE>
EXPENSE TABLE
Expenses and fees payable by shareholders are summarized in this table and
expressed as a percentage of average net assets.
The following table sets forth certain information concerning shareholder
transaction expenses and projected annual fund operating expenses for Class A
Shares of the Funds during the current fiscal year.
<TABLE>
<CAPTION>
CONVERTIBLE SHORT/ INTERMEDIATE
SECURITIES INTERMEDIATE BOND GOVERNMENT TAX-EXEMPT TAX-EXEMPT
FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
ANNUAL FUND OPERATING EXPENSES*:
as a percentage of average net assets)
Advisory Fees 0.70% 0.34%+ 0.40%+ 0.30%+ 0.60% 0.60%
Rule 12b-1 Fees 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses++ 0.22% 0.26% 0.20% 0.20% 0.20% 0.20%
Total Fund Operating Expenses 1.17% 0.85%+ 0.85%+ 0.75%+ 1.05% 1.05%
</TABLE>
__________
* Customers of a financial institution, such as Harris Trust & Savings Bank,
may be charged certain fees and expenses by their institution. These fees may
vary depending on the capacity in which the institution provides fiduciary
and investment services to the particular client (e.g., trust, estate
settlement, advisory and custodian services).
+ Reflects advisory fees after waivers.
++ With respect to each Fund, other than the Short/Intermediate Fund, the amount
of ``Other Expenses'' in the table above is based on estimated expenses and
projected assets for the current fiscal year. With respect to the
Short/Intermediate Fund, the amount of ``Other Expenses'' is based on amounts
incurred during the most recent fiscal year. Without waivers, the ratio of
total fund operating expenses to average net assets would be 1.21% with
respect to the Short/Intermediate Fund and 1.10% with respect to the Bond
Fund, Government Fund, Intermediate Tax-Exempt Fund and Tax-Exempt Fund. The
investment adviser has voluntarily agreed to waive a portion of its advisory
fees with respect to the Short/Intermediate Fund, the Bond Fund and the
Government Fund and will not increase its advisory fee without prior approval
of the Company's Board of Directors and 30 days' prior notice to
shareholders. Without waivers, the advisory fee for the Short/Intermediate
Fund would be 0.70% of the Fund's average net assets. Without waivers, the
advisory fee for each of the Bond and Government Funds would be 0.65% of each
Fund's average net assets.
EXAMPLE
You would pay the following expenses on a $1,000 investment in Class A Shares,
assuming (1) a hypothetical 5% gross annual return and (2) redemption at the end
of each time period:
<TABLE>
<CAPTION>
CONVERTIBLE SHORT/ INTERMEDIATE
SECURITIES INTERMEDIATE BOND GOVERNMENT TAX-EXEMPT TAX-EXEMPT
FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
1 year $56 $53 $53 $52 $55 $55
3 years 80 71 71 68 77 77
5 years N/A 90 N/A N/A N/A N/A
10 years N/A 145 N/A N/A N/A N/A
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
The purpose of the expense table is to assist the investor in understanding the
various costs and expenses that an investor in a Fund will bear directly or
indirectly. For more information concerning the various costs and expenses, see
``Management.''
3
<PAGE>
HIGHLIGHTS
The following six investment portfolios are described in this Prospectus:
CONVERTIBLE SECURITIES FUND -- seeks to provide capital appreciation and current
income by investing primarily in securities such as bonds, debentures, notes,
preferred stocks or warrants that are convertible into common stocks.
SHORT/INTERMEDIATE BOND FUND -- seeks to provide a high level of total return,
including a competitive level of current income, by investing primarily in
investment grade debt securities with a short/intermediate term average
maturity.
BOND FUND -- seeks to provide a high level of total return, including a
competitive level of current income, by investing primarily in investment grade
debt securities of varying maturities.
GOVERNMENT FUND -- seeks to provide a high level of current income, consistent
with preservation of capital, by investing primarily in Government Securities
having an intermediate term average maturity.
INTERMEDIATE TAX-EXEMPT FUND -- seeks to provide a high level of current income
that is exempt from federal income tax by investing, under normal market
conditions, at least 80% of its assets in municipal obligations with an
intermediate term average maturity.
TAX-EXEMPT FUND -- seeks to provide a high level of current income that is
exempt from federal income tax by investing, under normal market conditions, at
least 80% of its assets in municipal obligations of varying maturities.
See page 7.
WHO MANAGES EACH FUND'S INVESTMENTS?
Harris Trust & Savings Bank (``Harris Trust'' or the ``Investment
Adviser'') is the investment adviser for each Fund. Harris Trust has provided
investment management service to clients for over 100 years. Harris Trust
provides investment services for pension, profit-sharing and personal
portfolios.As of June 30, 1995, assets under management total approximately $23
billion. See page 20.
Harris Investment Management, Inc. (``HIM'' or the ``Portfolio Management
Agent'') provides daily portfolio management services for the Funds, other than
the Tax-Exempt Money Fund. HIM and its predecessors have managed client assets
for over 100 years. HIM has a staff of 96, including 64 professionals, providing
investment expertise to the management of Harris Insight Funds and for pension,
profit-sharing and institutional portfolios. As of June 30, 1995, assets under
management are estimated to exceed $13 billion. See page 21.
Harris Trust and HIM are subsidiaries of Harris Bankcorp., Inc.
WHAT ADVANTAGES DO THE FUNDS OFFER?
The Funds are designed for individual and institutional investors. A single
investment in shares of the Funds gives the investor benefits customarily
available only to large investors, such as diversification of investment,
greater liquidity and professional management, block purchases of securities,
relief from bookkeeping, safekeeping of securities and other administrative
details.
4
<PAGE>
WHEN ARE DIVIDENDS PAID?
Dividends from each of the Funds, except the Convertible Securities Fund,
are declared daily and paid monthly. Dividends from the Convertible Securities
Fund are declared and paid quarterly. Any net capital gains will be declared and
paid annually. See page 27.
HOW ARE SHARES REDEEMED?
Shares may be redeemed at their next determined net asset value after
receipt of a proper request by the Registered Representative servicing your
account, the Distributor, or through any Service Agent. See page 25.
WHAT RISKS ARE ASSOCIATED WITH THE FUNDS?
Each Fund's performance and price per share will change daily based on many
factors, including the quality of the Fund's investments, U.S. and international
economic conditions, general market conditions and international exchange rates.
There is no assurance that any Fund will achieve its investment objective. See
``Investment Strategies.''
5
<PAGE>
FINANCIAL HIGHLIGHTS
This table shows the total return on one share of the Short/Intermediate
Fund for each period illustrated.
The following financial highlights, insofar as it relates to each of the
five years in the period ended December 31, 1995, are derived from the financial
statements of the Company for the year ended December 31, 1995 audited by Price
Waterhouse LLP, independent accountants. This information should be read in
conjunction with the financial statements and notes thereto which are
incorporated by reference in this Prospectus. Only the Short/Intermediate Fund,
formerly known as Harris Insight Managed Fixed Income Fund, was in operation
during the period shown. As of February 21, 1996, all outstanding shares of the
Short/Intermediate Fund were renamed Class A Shares. No fees for distribution
and support services under the Intermediate Bond Fund's Service Plan were paid
by that Fund for the periods through December 31, 1995.
<TABLE>
<CAPTION>
SHORT/INTERMEDIATE FUND
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED 04/01/91* TO
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.66 $ 10.34 $ 10.22 $ 10.57 $ 10.00
Income From Investment Operations:
Net Investment Income .588 .559 .563 .630 .474
Net Realized and Unrealized Gain
(Loss) on Investments .720 (.694) .435 (.087) .601
Total from Investment
Operations 1.308 (.135) .998 .543 1.075
Less Distributions:
Net Investment Income (.588) (.545) (.564) (.631) (.475)
Net Realized Gains -- -- (.314) (.262) (.030)
Total distributions (.588) (.545) (.878) (.893) (.505)
Net Asset Value, End of Period $ 10.38 $ 9.66 $ 10.34 $ 10.22 $ 10.57
Total return(4) 13.88% (1.29) % 9.91% 5.28% 11.04%(3)
Ratios/Supplemental Data:
Net Assets, End of Period $(000) 51,814 44,333 74,057 71,848 44,313
Ratios of Expenses to Average Net
Assets(1) 0.60% 0.60% 0.60% 0.60% 0.60%(2)
Ratios of Net Investment Income
to Average Net Assets 5.91% 5.29% 5.32% 6.07% 6.60%(2)
Portfolio Turnover Rate 194.94% 140.99% 215.07% 133.78% 108.70%
____________
* Date commenced operations.
(1) Without the voluntary waiver of fees, the expense ratios for the years ended
December 31, 1995, 1994, 1993, and 1992, and the period ended December 31,
1991, would have been 0.96%, 0.92%, 0.94%, 0.93%, and 1.01% (annualized) for
the Short/Intermediate Fund.
(2) Annualized.
(3) Total returns for periods of less than one year are not annualized.
(4) Sales load is not reflected in total return.
</TABLE>
6
INVESTMENT OBJECTIVES AND POLICIES
Set forth below are the investment objectives and policies of each of the
Funds. Those investments that may be made by all of the Funds are listed on page
10 following the specific description of each Fund. Each Fund may also invest in
securities described in ``Investment Strategies'' below and the Statement of
Additional Information.
CONVERTIBLE SECURITIES FUND
The Convertible Securities Fund seeks to provide capital appreciation and
current income.
The Convertible Securities Fund seeks to provide capital appreciation and
current income. The Fund intends, under normal market conditions, to invest at
least 65% of the value of its total assets in convertible securities, that is,
securities including bonds, debentures, notes or preferred stock that are
convertible into common stock, or warrants that provide the owner the right to
purchase shares of common stock at a specified price. The Fund may also invest
in equity securities of U.S. corporations. The Fund seeks to diversify among
issuers in a manner that will enable the Fund to minimize the volatility of the
Fund's net asset value in erratic or declining markets.
Under normal market conditions, the Convertible Securities Fund will invest
without limitation in convertible securities of U.S. corporations and in
Eurodollar securities convertible into common stocks of U.S. corporations which
securities are rated ``B'' or better by Standard & Poor's Corporation (``S&P'')
or ``B'' (``b'' in the case of preferred stocks) or better by Moody's Investors
Service, Inc. (``Moody's'') at the time of purchase, or, if not rated,
considered by the Portfolio Management Agent to be of comparable quality, except
that investment in securities rated ``B-'' by S&P or Moody's will be limited to
15% of its total assets. Up to 5% of the Convertible Securities Fund's total
assets may be invested in convertible securities that are rated ``CCC'' by S&P
or ``Caa'' by Moody's at the time of purchase. Securities that are rated ``BB''
or below by S&P or ``Ba'' or below by Moody's are ``high yield securities'',
commonly known as junk bonds. By their nature, convertible securities may be
more volatile in price than higher rated debt obligations.
The Convertible Securities Fund may also invest up to 35% of its total
assets in ``synthetic convertibles'' created by combining separate securities
that possess the two principal characteristics of a true convertible security,
i.e., fixed income and the right to acquire equity securities. In addition, the
Convertible Securities Fund may invest: up to 15% of its net assets in
convertible securities offered in ``private placements'' and other illiquid
securities; up to 15% of its total assets in common stocks; and up to 5% of its
net assets in warrants. The Convertible Securities Fund may purchase and sell
index and interest rate futures contracts and covered put and call options on
securities and on indices.
In periods of unusual market conditions, when the Portfolio Management
Agent believes that convertible securities would not best serve the Fund's
objectives, the Convertible Securities Fund may for defensive purposes invest
part or all of its total assets in: (a) Government Securities; (b)
non-convertible debt obligations of domestic corporations, including bonds,
debentures, notes or preferred stock rated ``BBB'' or better by S&P or ``Baa''
or better by Moody's at the time of purchase, which ordinarily are less volatile
in price than convertible securities and serve to increase diversification of
risk; and (c) short-term money market instruments, including U.S. Government,
bank and commercial obligations with remaining maturities of thirteen months or
less. During such periods, the Convertible Securities Fund will continue to seek
current income but will put less emphasis on capital appreciation.
7
<PAGE>
RISK FACTORS AND OTHER CONSIDERATIONS RELATING TO LOW-RATED AND COMPARABLE
UNRATED SECURITIES. Low-rated and comparable unrated securities (a) will likely
have some quality and protective characteristics that, in the judgment of the
rating organization, are outweighed by large uncertainties or major risk
exposures to adverse conditions and (b) are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation.
The market values of low-rated and comparable unrated securities are less
sensitive to interest rate changes but more sensitive to economic changes or
individual corporate developments than those of higher-rated securities; they
present a higher degree of credit risk and their yields will fluctuate over
time. During economic downturns or sustained periods of rising interest rates,
the ability of highly leveraged issuers to service debt obligations may be
impaired.
The existence of limited or no established trading markets for low-rated
and comparable unrated securities may result in thin trading of such securities,
diminish the Convertible Securities Fund's ability to dispose of such securities
or to obtain accurate market quotations for valuing such securities and
calculating net asset value. The responsibility of the Trust's Board of Trustees
to value such securities becomes greater and judgment plays a greater role in
valuation because there is less reliable objective data available. In addition,
adverse publicity and investor perceptions may decrease the values and liquidity
of low-rated and comparable unrated securities bonds, especially in a thinly
traded market.
A major economic recession would likely disrupt the market for such
securities, adversely affect their value and the ability of issuers to repay
principal and pay interest, and result in a higher incidence of defaults.
The ratings of Moody's and S&P represent the opinions of those
organizations as to the quality of securities. Such ratings are relative and
subjective, not absolute standards of quality and do not evaluate the market
risk of the securities. Although the Convertible Securities Fund's Portfolio
Management Agent uses these ratings as a criterion for the selection of
securities for the Convertible Securities Fund, it also relies on its
independent analysis to evaluate potential investments for the Convertible
Securities Fund. The Convertible Securities Fund's achievement of its investment
objective may be more dependent on the Portfolio Management Agent's credit
analysis of low-rated and unrated securities than would be the case for a
portfolio of high-rated securities.
SHORT/INTERMEDIATE FUND
The Short/Intermediate Fund seeks to provide a high level of total return,
including a competitive level of current income, by investing primarily in
investment grade debt securities with a short/intermediate term average
maturity.
The Short/Intermediate Fund, formerly known as Harris Insight Managed Fixed
Income Fund, seeks to provide a high level of total return, including a
competitive level of current income, by investing primarily in investment grade
debt securities with a short/intermediate term average maturity. The Fund
intends, under normal market conditions, to invest at least 65% of the value of
its total assets in bonds. For purposes of this 65% limitation, the term
``bond'' shall include debt obligations such as bonds and debentures, Government
Securities, debt obligations of domestic and foreign corporations, debt
obligations of foreign governments and their political subdivisions,
asset-backed securities, various mortgage-related securities (including those
issued or collateralized by U.S. Government agencies and inverse floating rate
mortgage-backed and asset-backed securities), other floating/variable rate
obligations, municipal obligations and zero coupon securities. The Fund seeks to
achieve its objective by utilizing a number of investment disciplines, including
the assessment of yield advantages among different classes of bonds and among
different maturities, the independent review by the Fund's Portfolio Management
Agent of the credit quality of individual
8
<PAGE>
issues and the analysis by the Fund's Portfolio Management Agent of economic and
market conditions affecting the fixed income market. The Short/Intermediate Fund
may invest in a broad range of fixed income obligations. The Fund may invest in
fixed and variable rate bonds, debentures, Government Securities, and Government
Stripped Mortgage-Backed Securities. The Fund also may invest in U.S. Treasury
or agency securities placed into irrevocable trusts and evidenced by a trust
receipt.
The Short/Intermediate Fund may invest more than 25% of the current value
of its total assets in obligations (including repurchase agreements) of: (a)
U.S. banks; (b) U.S. branches of foreign banks that are subject to the same
regulation as U.S. banks by the U.S. Government or its agencies or
instrumentalities; or (c) foreign branches of U.S. banks if the U.S. banks would
be unconditionally liable in the event the foreign branch failed to pay on such
obligation for any reason. Obligations of foreign banks involve somewhat
different investment risks from those associated with obligations of U.S. banks.
See ``Investment Strategies -- Foreign Securities.''
The Fund's dollar-weighted average portfolio maturity (or average life with
respect to mortgage-related and asset-backed securities), under normal market
conditions, will be between two and five years. The Fund may also hold
short-term U.S. Government Obligations, ``high-quality'' money market
instruments (i.e., those within the two highest rating categories or, if
unrated, determined by the Portfolio Management Agent to be comparable in
quality to instruments so rated) and cash. Such obligations may include those
issued by foreign banks and foreign branches of U.S. banks. These investments
may be in such proportions as, in the Portfolio Management Agent's opinion,
existing circumstances warrant.
BOND FUND
The Bond Fund seeks to provide a high level of total return, including a
competitive level of current income, by investing primarily in investment grade
debt securities of varying maturities.
The Bond Fund seeks to provide a high level of total return, including a
competitive level of current income, by investing primarily in investment grade
debt securities of varying maturities. The Fund seeks to achieve its objective
by utilizing a highly-disciplined, quantitatively-based process to identify
fixed income securities which the Fund's Portfolio Management Agent believes are
undervalued and are positioned to offer the best relative value to enable the
Fund to benefit from anticipated changes in interest rates. Under normal market
conditions, at least 65% of the Bond Fund's total assets will be invested in
bonds. For purposes of this 65% limitation, the term ``bond'' shall include debt
obligations such as bonds and debentures, Government Securities, debt
obligations of domestic and foreign corporations, debt obligations of foreign
governments and their political subdivisions, asset-backed securities, various
mortgage-related securities (including those issued or collateralized by U.S.
Government agencies and inverse floating rate mortgage-backed securities), other
floating/variable rate obligations, municipal obligations and zero coupon
securities.
GOVERNMENT FUND
The Government Fund seeks to provide a high level of current income,
consistent with preservation of capital.
The Government Fund seeks to provide a high level of current income,
consistent with preservation of capital. The Fund seeks to achieve its
investment objective by investing primarily in Government Securities, including
mortgage-backed securities, having an intermediate term average maturity. Under
normal market conditions, the Fund's total assets will be primarily invested in
Government Securities and in repurchase agreements collateralized by Government
Securities. The average portfolio maturity (or average life with respect to
mortgage-related securities) generally will be between three and ten years.
In addition, the Fund may also invest in asset-backed securities
collateralized by the U.S. Treasury and certain U.S. Government agencies. It may
also hold foreign debt securities guaranteed by the U.S. Government, its
agencies or instrumentalities (with respect to 10% of its total assets).
Further, the Government Fund may invest in covered put and call options on
securities and on indices.
9
<PAGE>
INTERMEDIATE TAX-EXEMPT FUND
The Intermediate Tax-Exempt Fund seeks to provide a high level of current
income that is exempt from federal income tax.
The Intermediate Tax-Exempt Fund seeks to provide a high level of current
income that is exempt from federal income tax. As a matter of fundamental
policy, the Fund seeks to achieve its investment objective by investing at least
80% of its assets, under normal market conditions, in a broad range of municipal
bonds and other obligations issued by state and local governments to finance
their operations or special projects. These securities, which are of varying
maturities, make interest payments that are exempt from federal income tax. The
Fund's dollar-weighted average portfolio maturity, under normal market
conditions, will be between three and ten years.
The Fund's selection of individual securities is based on a number of
factors, including anticipated changes in interest rates, the assessment of the
yield advantages of different classes of bonds, and an independent analysis of
credit quality of individual issues by the Fund's Portfolio Management Agent or
the Investment Adviser.
The Intermediate Tax-Exempt Fund may also invest in letters of credit and
U.S. Government Obligations. In addition, the Fund may purchase and sell covered
put and call options on securities and on indices.
TAX-EXEMPT FUND
The Tax-Exempt Fund seeks to provide a high level of current income that is
exempt from federal income tax.
The Tax-Exempt Fund seeks to provide a high level of current income that is
exempt from federal income tax. The Fund seeks to achieve its objective by
anticipating changes in interest rates, analyzing yield differentials for
different types of bonds, and analyzing credit for specific issues. As a matter
of fundamental policy, the Fund seeks to achieve its investment objective by
investing at least 80% of its assets, under normal market conditions, in a broad
range of municipal bonds and other obligations issued by state and local
governments to finance their operations or special projects. These securities
make interest payments that are exempt from federal income tax.
The Tax-Exempt Fund may also invest in letters of credit and U.S.
Government Obligations and zero coupon securities. Further, the Fund may
purchase and sell covered put and call options on securities and on indices.
ALL FIXED INCOME FUNDS
Each Fund may invest in securities of other investment companies,
when-issued securities and forward commitments, floating/variable rate
obligations (in the case of the Government Fund, if issued by the U.S.
Government or certain government agencies) and inverse floating rate
obligations. Further, each Fund may enter into repurchase agreements and reverse
repurchase agreements. In addition, each Fund may lend its portfolio securities
with respect to up to one-third of its net assets.
Each Fund other than the Convertible Securities Fund may invest only in
securities that are rated ``BBB'' or better by S&P, ``Baa'' or better by Moody's
or an equivalent rating by another nationally recognized statistical rating
organization at the time of purchase, or, if not rated, are considered by the
Portfolio Management Agent to be of comparable quality. Debt obligations rated
``BBB'' by S&P, ``Baa'' by Moody's, or the equivalent by such other rating
organization may have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
bonds.
10
<PAGE>
Portfolio securities of each Fund are kept under continuing supervision and
changes may be made whenever, in the opinion of the Portfolio Management Agent,
a security no longer seems to meet the objective of the Fund. Portfolio changes
also may be made to increase or decrease investments in anticipation of changes
in security prices in general or to provide funds required for redemptions,
distributions to shareholders or other corporate purposes. Neither the length of
time a security has been held nor the rate of turnover of a Fund's portfolio is
considered a limiting factor on such changes.
____________
Each Fund may purchase debt obligations that are not rated if, in the
opinion of the Portfolio Management Agent, they are of investment quality at
least comparable to other rated investments that are permitted by the Fund.
After purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event will
require the Fund to sell such security unless the amount of such security
exceeds permissible limits. However, the Portfolio Management Agent will
reassess promptly whether the security presents minimal credit risks and
determine whether continuing to hold the security is in the best interests of
the Fund. To the extent that the ratings given by Moody's, S&P or another
nationally recognized statistical rating organization for securities may change
as a result of changes in the rating systems or because of corporate
reorganization of such rating organizations, a Fund will attempt to use
comparable ratings as standards for its investments in accordance with the
investment objectives and policies of the Fund. The ratings of Moody's and S&P
are more fully described in the Appendix to the Statement of Additional
Information.
INVESTMENT STRATEGIES
These bond or debt securities may be collateralized by a pool of assets,
such as automobile loans, home equity loans, equipment leases or other
obligations.
ASSET-BACKED SECURITIES. The Short/Intermediate Fund, the Bond Fund, the
Government Fund, the Intermediate Tax-Exempt Fund and the Tax-Exempt Fund may
purchase asset-backed securities, which represent a participation in, or are
secured by and payable from, a stream of payments generated by particular
assets, most often a pool of assets similar to one another. With respect to
asset-backed securities purchased by the Intermediate Bond Fund and the Bond
Fund, assets generating payments will include motor vehicle installment purchase
obligations, credit card receivables and home equity loans, equipment leases,
manufactured housing loans and marine loans. The asset-backed securities
purchased by the Intermediate Tax-Exempt Fund and the Tax-Exempt Fund represent
units of beneficial interest in pools of purchasing contracts, financing leases
and sales agreements entered into by municipalities. The Government Fund may
invest in asset-backed trusts collateralized by the U.S. Treasury or certain
other U.S. Government agencies and instrumentalities. In accordance with
guidelines established by the Boards of Trustees and Directors, asset-backed
securities may be considered illiquid securities and, therefore, may be subject
to a Fund's 15% (10% with respect to the Short/Intermediate Fund) limitation on
such investments.
The estimated life of an asset-backed security varies with prepayment
experience with respect to underlying debt instruments. The rate of such
prepayments, and therefore the life of the asset-backed security, will be
primarily a function of current market interest rates, although other economic
and demographic factors may be involved. In periods of falling interest rates,
the rate of prepayments tends to increase. During such periods, the reinvestment
of prepayment proceeds by a Fund will generally be at lower rates than the rates
that were carried by
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the obligations that have been prepaid. Because of these and other reasons, an
asset-backed security's total return may be difficult to predict precisely. If a
Fund purchases asset-backed securities at a premium, prepayments may result in
some loss of the Fund's principal investment to the extent of premium paid.
A BIC is a bank obligation which provides a specified rate of return in
exchange for cash deposits to the issuing bank.
BANK INVESTMENT CONTRACTS. The Short/Intermediate Fund and the Bond Fund
may invest in bank investment contracts (``BICs'') which are debt obligations
issued by banks. BICs require a Fund to make cash contributions to a deposit
account at a bank in exchange for payments at negotiated, floating or fixed
interest rates. A BIC is a general obligation of the issuing bank. BICs are
considered illiquid securities and will be subject to each Fund's 15% (10% with
respect to the Short/Intermediate Fund) limitation on such investments, unless
there is an active and substantial secondary market for the particular
instrument and market quotations are readily available in accordance with
guidelines established by the Board of Directors or the Board of Trustees, as
the case may be. All purchases of BICs will be subject to the applicable quality
requirements described under ``Investment Objectives and Policies.''
Convertible bonds, debentures, and notes are debt obligations offering a
stated interest rate; convertible preferred stocks are senior securities
offering a stated dividend rate.
CONVERTIBLE SECURITIES. The Convertible Securities and the Bond Funds may
invest in convertible securities. Appropriate ratings for the convertible
securities purchased by each of these Funds are provided under ``Investment
Objectives and Policies''. Because convertible securities have the
characteristics of both fixed-income securities and common stock, they sometimes
are called ``hybrid'' securities. Convertible bonds, debentures and notes are
debt obligations offering a stated interest rate; convertible preferred stocks
are senior securities offering a stated dividend rate. Convertible securities
will at times be priced in the market like other fixed income securities: that
is, their prices will tend to rise when interest rates decline and will tend to
fall when interest rates rise. However, because a convertible security provides
an option to the holder to exchange the security for either a specified number
of the issuer's common shares at a stated price per share or the cash value of
such common shares, the security's market price will tend to fluctuate in
relation to the price of the common shares into which it is convertible. Thus,
convertible securities ordinarily will provide opportunities for both producing
current income and longer term capital appreciation. Because convertible
securities are usually viewed by the issuer as future common stock, they are
generally subordinated to other senior securities and therefore are rated one
category lower than the issuer's non-convertible debt obligations or preferred
stock.
These obligations bear interest rates that are not fixed but vary with
changes in specified market rates or indices.
FLOATING AND VARIABLE RATE INSTRUMENTS. Each of the Funds may purchase
instruments (municipal obligations in the case of the Intermediate Tax-Exempt
Fund and the Tax-Exempt Fund and instruments issued by the U.S. Treasury or
certain U.S. Government agencies or instrumentalities in the case of the
Government Fund) having a floating or variable rate of interest. These
obligations bear interest at rates that are not fixed, but vary with changes in
specified market rates or indices, such as the prime rate, or at specified
intervals. Certain of these obligations may carry a demand feature that would
permit the holder to tender them back to the issuer at par value prior to
maturity. Each Fund will limit its purchases of floating and variable rate
obligations to those of the same quality as it otherwise is allowed to purchase.
A floating or variable rate instrument may be subject to the Fund's
percentage limitation on illiquid investments if there is no reliable trading
market for the investment or if the Fund may not demand payment of the principal
amount within seven days.
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The Short/Intermediate Fund and the Bond Fund may invest in obligations of
foreign banks, corporations and governments which are denominated and pay
interest in U.S. dollars.
FOREIGN SECURITIES. The Short/Intermediate Fund (with respect to 20% of its
total assets), the Bond Fund (with respect to 20% of its total assets) and the
Government Fund (with respect to 10% of its total assets) may invest in
non-convertible (and convertible in the case of the Bond Fund) debt obligations
of foreign banks, foreign corporations and foreign governments, which
obligations are denominated in and pay interest in U.S. dollars. The Convertible
Securities Fund may invest in dollar-denominated Eurodollar securities
convertible into the common stock of domestic corporations. The Government Fund
may invest in dollar-denominated Eurodollar securities that are guaranteed by
the U.S. Government or its agencies or instrumentalities.
Investments in foreign securities involve certain considerations that are
not typically associated with investing in domestic securities. For example,
investments in foreign securities typically involve higher transaction costs
than investments in U.S. securities. Foreign investments may have risks
associated with currency exchange rates, political instability, less complete
financial information about the issuers and less market liquidity than domestic
securities. Future political and economic developments, possible imposition of
withholding taxes on income, seizure or nationalization of foreign holdings,
establishment of exchange controls or the adoption of other governmental
restrictions might adversely affect the payment of principal and interest on
foreign obligations. In addition, foreign banks and foreign branches of domestic
banks may be subject to less stringent reserve requirements than and to
different accounting, auditing and recordkeeping requirements from domestic
banks.
GOVERNMENT SECURITIES. Government Securities consist of obligations issued
or guaranteed by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises.
A GIC is a general obligation of a U.S. or Canadian insurance company.
GUARANTEED INVESTMENT CONTRACTS. The Short/Intermediate Fund and the Bond
Fund may invest in guaranteed investment contracts (``GICs'') issued by U.S. and
Canadian insurance companies. GICs require a Fund to make cash contributions to
a deposit fund of an insurance company's general account. The insurance company
then makes payments to the Fund based on negotiated, floating or fixed interest
rates. A GIC is a general obligation of the issuing insurance company and not a
separate account. The purchase price paid for a GIC becomes part of the general
assets of the insurance company, and the contract is paid from the insurance
company's general assets. Generally, GICs are not assignable or transferable
without the permission of the issuing insurance companies, and an active
secondary market in GICs does not currently exist. In accordance with guidelines
established by the Trust's Board of Trustees, GICs may be considered illiquid
securities and, therefore, subject to the Fund's 15% (10% in the case of the
Short/Intermediate Fund) limitation on such investments. All purchases of GICs
by the Fund will be subject to the applicable quality requirements described
under ``Investment Objectives and Policies.''
Repurchase agreements and time deposits that do not provide for payment to
a Fund within 7 days after notice or which have a term greater then 7 days may
be deemed illiquid securities.
ILLIQUID SECURITIES. Each Fund may invest up to 15% (10% in the case of the
Short/Intermediate Fund) of the value of its net assets in securities that are
considered illiquid. Repurchase agreements and time deposits that do not provide
for payment to the Fund within seven days after notice or which have a term
greater than seven days are deemed illiquid securities for this purpose, unless
such securities are variable amount master demand notes with maturities of nine
months or less or unless the Portfolio Management Agent or Investment Adviser
has determined under the supervision and direction of the Trust's Board of
Trustees (or, with respect to the Intermediate Bond Fund, the Company's Board of
Directors) that an adequate trading market exists for such securities or that
market quotations are readily available.
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Each Fund may also purchase Rule 144A securities sold to institutional
investors without registration under the Securities Act of 1933 and commercial
paper issued in reliance upon the exemption in Section 4(2) of the Securities
Act of 1933. These securities may be determined to be liquid in accordance with
guidelines established by the Portfolio Management Agent or Investment Adviser
and approved by the Trust's Board of Trustees (or, with respect to the
Intermediate Bond Fund, the Company's Board of Directors). The Board of Trustees
or Directors will monitor the Portfolio Management Agent's or Investment
Adviser's implementation of these guidelines on a periodic basis.
These securities may be used as a hedge against anticipated changes in the
value of securities held or in the value of securities a Fund intends to
purchase.
INDEX AND INTEREST RATE FUTURES CONTRACTS; OPTIONS. The Convertible
Securities Fund, the Bond Fund, the Government Fund, the Intermediate Tax-Exempt
Fund and the Tax-Exempt Fund may attempt to reduce the risk of investments in
fixed income securities by hedging a portion of their respective portfolio
through the use of futures contracts on indices and options on such indices
traded on national securities exchanges. Each of these Funds may attempt to
reduce the risk of investment in debt securities by hedging a portion of its
portfolio through the use of interest rate futures. Each such Fund will use
futures contracts and options on such futures contracts only as a hedge against
anticipated changes in the values of securities held in its portfolio or in the
values of securities that it intends to purchase.
Each of the Funds (except the Short/Intermediate Fund) may invest in
covered put and covered call options and may write covered put and covered call
options on securities in which they may invest directly and that are traded on
registered domestic security exchanges or over-the-counter.
See ``Investment Strategies'' in the Statement of Additional Information.
The use of index and interest rate futures contracts and options may expose
a Fund to additional risks and transaction costs. Risks inherent in the use of
such instruments include: (1) the risk that interest rates, securities prices or
currency markets will not move in the direction that the Portfolio Management
Agent anticipates; (2) the existence of an imperfect correlation between the
price of such instruments and movements in the prices of the securities,
interest rates or currencies being hedged; (3) the fact that skills needed to
use these strategies are different than those needed to select portfolio
securities; (4) the possible inability to close out certain hedged positions may
result in adverse tax consequences; (5) the possible absence of a liquid
secondary market for any particular instrument and possible exchange-imposed
price fluctuation limits, either of which may make it difficult or impossible to
close out a position when desired; (6) the leverage risk, that is, the risk that
adverse price movements in an instrument can result in a loss substantially
greater than a Fund's initial investment in that instrument (in some cases, the
potential loss is unlimited); and (7) particularly in the case of
privately-negotiated instruments, the risk that the counterparty will fail to
perform its obligations, which could leave a Fund worse off than if it had not
entered into the position.
When a Fund invests in index and interest rate futures contracts and
options, it may be required to segregate cash and other high-grade liquid assets
or certain portfolio securities to ``cover'' the Fund's position. Assets
segregated or set aside generally may not be disposed of so long as a Fund
maintains the positions requiring segregation or cover. Segregating assets could
diminish a Fund's return due to the opportunity losses of foregoing other
potential investments with the segregated assets.
These obligations generally have floating or variable interest rates that
move in the opposite direction of short-term interest rates.
Inverse Floating Rate Obligations. Each Fund may invest in so called
``inverse floating rate obligations'' or ``residual interest'' bonds, or other
related obligations or certificates structured to have similar features. Such
obligations generally have floating or variable interest rates that move in the
opposite direction from short-term interest rates and generally increase or
decrease in value in response to changes in short-term interest rates at a rate
which is a multiple
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(typically two) of the rate at which fixed-rate, long-term, tax-exempt
securities increase or decrease in response to such changes. As a result, such
obligations have the effect of providing investment leverage and may be more
volatile than long-term, fixed-rate, tax-exempt obligations.
The Bond Fund, the Short/Intermediate Fund and the Government Fund may
invest in mortgage-backed securities (see description of ``mortgage-related
securities'' below) that have an inverse floating rate.
Subject to certain limitations, the Funds may invest in the securities of
other investment companies.
INVESTMENT COMPANY SECURITIES. In connection with the management of its
daily cash positions, each Fund may invest in securities issued by investment
companies that invest in short-term debt securities (which may include municipal
obligations that are exempt from federal income taxes) and which seek to
maintain a $1.00 net asset value per share. Each Fund, other than the
Short/Intermediate Fund, may also invest in securities issued by investment
companies that invest in securities in which such Fund could invest directly.
Securities of investment companies may be acquired by any of the Funds within
the limits prescribed by the Investment Company Act of 1940, as amended (the
``1940 Act''). These limit each such Fund so that: (i) not more than 5% of the
value of its total assets will be invested in the securities of any one
investment company; (ii) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of investment companies as a group;
and (iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Fund or by the Trust or the Company as a whole. As
a shareholder of another investment company, the Fund would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that the Fund bears directly in connection with its
own operations.
LETTERS OF CREDIT. Debt obligations, including municipal obligations,
certificates of participation, commercial paper and other short-term obligations
may be backed by an irrevocable letter of credit of a bank. Only banks that, in
the opinion of the Portfolio Management Agent, are of investment quality
comparable to other permitted investments of a Fund, may be used for letter of
credit-backed investments.
Each of the Funds may lend to brokers, dealers and financial institutions
securities from its portfolio representing up to one-third of the Fund's net
assets.
LOANS OF PORTFOLIO SECURITIES. Each Fund may lend to brokers, dealers and
financial institutions securities from its portfolio representing up to
one-third of the Fund's net assets. However, such loans may be made only if cash
or cash equivalent collateral, including letters of credit, marked-to-market
daily and equal to at least 100% of the current market value of the securities
loaned (including accrued interest and dividends thereon) plus the interest
payable to the Fund with respect to the loan is maintained by the borrower with
the Fund in a segregated account. In determining whether to lend a security to a
particular broker, dealer or financial institution, the Portfolio Management
Agent will consider all relevant facts and circumstances, including the
creditworthiness of the broker, dealer or financial institution. No Fund will
enter into any portfolio security lending arrangement having a duration longer
than one year. Any securities that a Fund may receive as collateral will not
become part of the Fund's portfolio at the time of the loan and, in the event of
a default by the borrower, the Fund will, if permitted by law, dispose of such
collateral except for such part thereof that is a security in which the Fund is
permitted to invest. During the time securities are on loan, the borrower will
pay the Fund any accrued income on those securities, and the Fund may invest the
cash collateral and earn additional income or receive an agreed 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
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connection with a securities loan and may pay a negotiated fee to the borrower
or the placing broker. Borrowers and placing brokers may not be affiliated,
directly or indirectly, with the Trust, the Company, the Investment Adviser, the
Portfolio Management Agent or the Distributor.
Certain of the Funds may invest in mortgage-backed securities, including
collateralized mortgage obligations.
MORTGAGE-RELATED SECURITIES. The Short/Intermediate Fund, the Bond Fund and
the Government Fund may invest in mortgage-backed securities, including
collateralized mortgage obligations (``CMOs'') and Government Stripped
Mortgage-Backed Securities. The Government Fund may purchase such securities
only if they represent interests in an asset-backed trust collateralized by the
Government National Mortgage Association (``GNMA''), the Federal National
Mortgage Association (``FNMA'') or the Federal Home Loan Mortgage Corporation
(``FHLMC'').
CMOs are types of bonds secured by an underlying pool of mortgages or
mortgage pass-through certificates that are structured to direct payments on
underlying collateral to different series or classes of obligations. To the
extent that CMOs are considered to be investment companies, investment in such
CMOs will be subject to the percentage limitations described under ``Investment
Company Securities.''
Government Stripped Mortgage-Backed Securities are mortgage-backed
securities issued or guaranteed by GNMA, FNMA or FHLMC. These securities
represent beneficial ownership interests in either periodic principal
distributions (``principal-only'') or interest distributions (``interest-only'')
on mortgage-backed certificates issued by GNMA, FNMA or FHLMC, as the case may
be. The certificates underlying the Government Stripped Mortgage-Backed
Securities represent all or part of the beneficial interest in pools of mortgage
loans.
To the extent that a Fund purchases mortgage-related or mortgage-backed
securities at a premium, mortgage foreclosures and prepayments of principal by
mortgagors (which may be made at any time without penalty) may result in loss of
the Fund's principal investment to the extent of the premium paid. Yield may be
affected by reinvestment of prepayments at higher or lower rates than the
original investment. Like other debt securities, the value of mortgage-related
securities will generally fluctuate in response to market interest rates. The
average life of a mortgage-backed instrument, in particular, is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities as the result of scheduled principal payments and mortgage
prepayments. The rate of such mortgage prepayments, and hence the life of the
certificates, will be primarily a function of current market rates and current
conditions in the relevant housing markets. In calculating the average weighted
maturity of the Funds, the maturity of mortgage-backed instruments will be based
on estimates of average life. Government Stripped Mortgage-Backed Securities are
currently traded in an over-the-counter market maintained by several large
investment banking firms. There can be no assurance that a Fund will be able to
effect a trade of a Government Stripped Mortgage-Backed Security at a time when
it wishes to do so. A Fund will acquire Government Stripped Mortgage-Backed
Securities only if a liquid secondary market for the securities exists at the
time of acquisition.
Generally, municipal leases are participations in intermediate-
and-short-term obligations issued by municipalities and consisting of leases or
installment purchase contracts for property or equipment.
MUNICIPAL LEASES. The Intermediate Tax-Exempt Fund and the Tax-Exempt Fund
may invest in municipal leases, which are generally participations in
intermediate-and short-term debt obligations issued by municipalities and
consisting of leases or installment purchase contracts for property or
equipment. Although lease obligations do not constitute general obligations of
the municipality for which the municipality's taxing power is pledged, a lease
obligation is ordinarily backed by the 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
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purpose on a yearly basis. Although ``non-appropriation'' lease obligations are
secured by the leased property, disposition of the property in the event of
foreclosure may prove difficult. Municipal lease obligations may be considered
illiquid securities and may be subject to each Fund's 15% limitation on such
investments. These securities may be determined to be liquid by the Portfolio
Management Agent in accordance with its procedures and subject to the
supervision and direction by the Board of Trustees of the Trust. See
``Investment Strategies -- Municipal Leases'' in the Statement of Additional
Information.
Municipal Obligations include municipal bonds, notes, and commercial paper.
MUNICIPAL OBLIGATIONS. The Short/Intermediate Fund, the Bond Fund, the
Intermediate Tax-Exempt Fund and the Tax-Exempt Fund may each purchase municipal
obligations. As a matter of fundamental policy, the Intermediate Tax-Exempt Fund
and the Tax-Exempt Fund will invest at least 80% of assets under normal market
conditions in municipal obligations. Municipal bonds generally have a maturity
at the time of issuance of up to 30 years. Municipal notes generally have
maturities at the time of issuance of three years or less. These notes are
generally issued in anticipation of the receipt of tax funds, the proceeds of
bond placements or other revenues. The ability of an issuer to make payments is
therefore dependent on these tax receipts, proceeds from bond sales or other
revenues, as the case may be. Municipal commercial paper is a debt obligation
with an effective maturity or put date of 270 days or less that is issued to
finance seasonal working capital needs or as short-term financing in
anticipation of longer-term debt.
The two principal classifications of municipal obligations are ``general
obligation'' securities and ``revenue'' securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or from
other specific revenue source such as the user of the facility being financed.
Revenue securities include private activity bonds (also known as industrial
revenue bonds), which may be purchased only by the Intermediate Tax-Exempt Fund
and the Tax-Exempt Fund and which are not payable from the unrestricted revenues
of the issuer. Consequently, the credit quality of private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
Certain other of the municipal obligations in which the Funds may invest are:
TANs. The Intermediate Tax-Exempt Fund and the Tax-Exempt Fund may invest
in tax anticipation notes (``TANs''). The possible inability or failure of a
municipal issuer to raise taxes as a result of such events as a decline in its
tax base or a rise in delinquencies could adversely affect the issuer's ability
to meet its obligations on outstanding TANs. Furthermore, some municipal issuers
include various tax proceeds in a general fund that is used to meet obligations
other than those of the outstanding TANs. Use of such a general fund to meet
various obligations could affect the likelihood of making payments on TANs.
BANs. The Intermediate Tax-Exempt Fund and the Tax-Exempt Fund may invest
in bond anticipation notes (``BANs''). The ability of a municipal issuer to meet
its obligations on its BANs is primarily dependent on the issuer's adequate
access to the longer term municipal bond market and the likelihood that the
proceeds of such bond sales will be used to pay the principal of, and interest
on, BANs.
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RANs. The Intermediate Tax-Exempt Fund and the Tax-Exempt Fund may invest
in revenue anticipation notes (``RANs''). A decline in the receipt of certain
revenues, such as anticipated revenues from another level of government, could
adversely affect an issuer's ability to meet its obligations on outstanding
RANs. In addition, the possibility that the revenues would, when received, be
used to meet other obligations could adversely affect the ability of the issuer
to pay the principal of, and interest on, RANs.
See ``Investment Strategies'' in the Statement of Additional Information.
The Funds purchase securities subject to agreement by the seller to
repurchase them at a specified time and place.
REPURCHASE AGREEMENTS. Each of the Funds may purchase portfolio securities
subject to the seller's agreement to repurchase them at a mutually agreed upon
time and price, which includes an amount representing interest on the purchase
price. Each of these Funds may enter into repurchase agreements only with
respect to obligations that could otherwise be purchased by the Fund. The seller
will be required to maintain in a segregated account for the Fund cash or cash
equivalent collateral equal to at least 100% of the repurchase price (including
accrued interest). Default or bankruptcy of the seller would expose a Fund to
possible loss because of adverse market action, delays in connection with the
disposition of the underlying obligations or expenses of enforcing its rights.
Each Fund may borrow funds for temporary purposes by selling portfolio
securities to financial institutions and agreeing to repurchase them at a
mutually specified date and price.
REVERSE REPURCHASE AGREEMENTS. Each Fund may borrow funds for temporary
purposes by selling portfolio securities to financial institutions such as banks
and broker/dealers and agreeing to repurchase them at a mutually specified date
and price (``reverse repurchase agreements''). Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the repurchase price. A Fund would pay interest on amounts
obtained pursuant to a reverse repurchase agreement.
A Fund may not enter into a repurchase agreement or reverse repurchase
agreements if, as a result, more than 15% (10% with respect to the Intermediate
Bond Fund) of the market value of the Fund's total net assets would be invested
in repurchase agreements or reverse repurchase agreements with a maturity of
more than seven days and in other illiquid securities. The Funds will enter into
repurchase agreements and reverse repurchase agreements only with registered
broker/dealers and commercial banks that meet guidelines established by the
Trust's Board of Trustees or the Company's Board of Directors.
These securities allow the Funds to purchase securities with the right, but
not the obligation, to sell the security at a specific price valid for a
specific period of time.
SECURITIES WITH PUTS. In order to maintain liquidity, the
Short/Intermediate Fund, the Bond Fund, the Government Fund, the Intermediate
Tax-Exempt Fund and the Tax-Exempt Fund may enter into puts with respect to
portfolio securities with banks or broker/dealers that, in the opinion of the
Portfolio Management Agent, present minimal credit risks. The ability of these
Funds to exercise a put will depend on the ability of the bank or broker/dealer
to pay for the underlying securities at the time the put is exercised. In the
event that a bank or broker/dealer defaults on its obligation to repurchase an
underlying security, the Fund might be unable to recover all or a portion of any
loss sustained by having to sell the security elsewhere.
Under a stand-by commitment, a dealer agrees to purchase, at the Fund's
option, specified obligations at a specified price.
STAND-BY COMMITMENTS. The Intermediate Tax-Exempt Fund and the Tax-Exempt
Fund may acquire ``stand-by commitments'' with respect to obligations held by
it. Under a stand-by commitment, a dealer agrees to purchase, at the Fund's
option, specified obligations at a specified price. The acquisition of a
stand-by commitment may increase the cost, and thereby reduce the yield, of the
obligations to which the commitment relates. The Funds will acquire stand-by
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commitments solely to facilitate portfolio liquidity and do not intend to
exercise their rights thereunder for trading purposes. Stand-by commitments
acquired by a Fund will be valued at zero in determining the Fund's net asset
value.
U.S. GOVERNMENT OBLIGATIONS. U.S. Government Obligations consist of bills,
notes and bonds issued by the U.S. Treasury. They are direct obligations of the
U.S. Government and differ primarily in the length of their maturities.
These obligations are debt securities issued by U.S. Government-sponsored
enterprises and federal agencies.
U.S. GOVERNMENT AGENCY AND INSTRUMENTALITY OBLIGATIONS. Obligations of U.S.
Government agencies and instrumentalities are debt securities issued by U.S.
Government-sponsored enterprises and federal agencies. Some of these obligations
are supported by: (a) the full faith and credit of the U.S. Treasury (such as
Government National Mortgage Association participation certificates); (b) the
limited authority of the issuer to borrow from the U.S. Treasury (such as
securities of the Federal Home Loan Bank); (c) the authority of the U.S.
Government to purchase certain obligations of the issuer (such as securities of
the Federal National Mortgage Association); or (d) the credit of the issuer
only. In the case of obligations not backed by the full faith and credit of the
U.S. Government, the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment.
Variable amount master demand notes differ from ordinary commercial paper
in that they are issued pursuant to a written agreement between the issuer and
the holder.
VARIABLE AMOUNT MASTER DEMAND NOTES. The Short/Intermediate Fund may
purchase and sell variable amount master demand notes, which differ from
ordinary commercial paper in that they are issued pursuant to a written
agreement between the issuer and the holder. Their amounts may from time to time
be increased by the holder (subject to an agreed maximum) or decreased by the
holder or the issuer; they are payable on demand or after an agreed-upon notice
period, e.g., seven days; and the rates of interest vary pursuant to an
agreed-upon formula. Generally, master demand notes are not rated by a rating
agency. However, the Fund may invest in these obligations if, in the opinion of
the Portfolio Management Agent, they are of an investment quality comparable to
rated securities in which the Fund may invest. The Portfolio Management Agent
monitors the creditworthiness of issuers of master demand notes on a daily
basis. Transfer of these notes is usually restricted by the issuer, and there is
no secondary trading market for these notes. The Short/Intermediate Fund may not
invest in a master demand note with a demand notice period of more than seven
days if, as a result, more than 10% of the value of the Fund's total net assets
would be invested in these notes, together with other illiquid securities.
Warrants represent rights to purchase securities at a specific price valid
for a specific period of time.
WARRANTS. The Convertible Securities Fund may invest up to 5% of its net
assets at the time of purchase in warrants (other than those that have been
acquired in units or attached to other securities) on securities in which it may
invest directly. Warrants represent rights to purchase securities at a specific
price valid for a specific period of time.
When-issued securities (new securities that have not started trading) will
only be purchased by the Funds with the intention of actually acquiring these
instruments.
WHEN-ISSUED SECURITIES. Each of the Funds may purchase securities
(including securities issued pursuant to an initial public offering) on a
when-issued basis, in which case delivery and payment normally take place within
45 days after the date of the commitment to purchase. The Funds will make
commitments to purchase securities on a when-issued basis only with the
intention of actually acquiring the securities, but may sell them before the
settlement date, if deemed advisable. The purchase price and the interest rate
that will be received are fixed at the time of the commitment. When-issued
securities are subject to market fluctuation and no income accrues to the
purchaser prior to issuance. Purchasing a security on a when-issued basis can
involve a risk that the market price at the time of delivery may be lower than
the agreed upon purchase price.
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These securities are debt obligations that do not entitle the holder to any
periodic payments of interest prior to maturity and are issued and traded at a
discount.
ZERO COUPON SECURITIES. Each of the Funds except the Convertible Securities
Fund may invest in zero coupon securities. These securities are debt obligations
that do not entitle the holder to any periodic payments of interest prior to
maturity and are issued and traded at a discount. The values of zero coupon
securities are subject to greater fluctuations than are the values of income
securities that distribute income regularly. Zero coupon securities may be
created by separating the interest and principal component of Government
Securities or securities issued by private corporate issuers.
INVESTMENT LIMITATIONS
This section outlines each Fund's policies that may be changed only by a
majority vote of shareholders.
Unless otherwise noted, the foregoing investment objectives and related
policies and activities of each of the Funds are not fundamental and may be
changed by the Board of Trustees of the Trust (or, with respect to the
Short/Intermediate Fund, the Board of Directors of the Company) without the
approval of shareholders, provided that, with respect to the Short/Intermediate
Fund, the policy relating to investment company securities is a fundamental
investment policy. If there is a change in a Fund's investment objective,
shareholders should consider whether the Fund remains an appropriate investment
in light of their then current financial position and needs.
As matters of fundamental policy, which may be changed only with approval
by the vote of the holders of a majority of the Fund's outstanding voting
securities, as described in the Statement of Additional Information, no Fund
may: (1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of its investments in that industry would exceed 25% of the
current value of its total assets, provided that there is no limitation with
respect to investments in municipal obligations (for the purpose of this
restriction, private activity bonds shall not be deemed municipal obligations if
the payment of principal and interest on such bonds is the ultimate
responsibility of non-governmental users) and in obligations of the U.S.
Government, its agencies or instrumentalities; (2) invest more than 5% of the
current value of its total assets in the securities of any one issuer, other
than obligations of the U.S. Government, its agencies or instrumentalities,
except that up to 25% of the value of the total assets of a Fund may be invested
without regard to this limitation; (3) purchase securities of an issuer if, as a
result, with respect to 75% of its total assets, it would own more than 10% of
the voting securities of such issuer; or (4) borrow from banks, except that a
Fund may borrow up to 10% of the current value of its total assets for temporary
purposes only in order to meet redemptions, and these borrowings may be secured
by the pledge of up to 10% of the current value of the Fund's net assets (but
investments may not be purchased while borrowings are in excess of 5%). It is
also a fundamental policy that each Fund may make loans of portfolio securities.
In addition, it is a fundamental policy that the Short/Intermediate Fund may
only invest up to 10% of the current value of its net assets in repurchase
agreements having maturities of more than seven days, variable amount master
demand notes having notice periods of more than seven days, fixed time deposits
subject to withdrawal penalties having maturities of more than seven days, and
securities that are not readily marketable. Although not a matter of fundamental
policy, the Funds consider the securities of foreign governments to be a
separate industry for purposes of the 25% asset limitation on investments in the
securities of issuers conducting their principal business activity in the same
industry.
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MANAGEMENT
The Trust and the Company are managed under the direction of their
governing Boards of Trustees and Directors, respectively. Each individual listed
below is a member of both the Trust's Board of Trustees and the Company's Board
of Directors. The principal occupation of each individual is also listed below.
TRUSTEES AND DIRECTORS
Edgar R. Fiedler Vice President and Economic Counsellor,
The Conference Board.
C. Gary Gerst Chairman of the Board of Directors and
Trustees; Chairman Emeritus, La Salle
Partners, Ltd. (Real Estate Developer
and Manager).
John W. McCarter, Jr. Senior Vice President, Booz Allen &
Hamilton, Inc. (Consulting Firm);
Director of W.W. Grainger, Inc. and
A.M. Castle, Inc.
Ernest M. Roth Consultant; Retired Senior Vice President
and Chief Financial Officer, Commonwealth
Edison Company.
INVESTMENT ADVISER
This section high-lights the experience, services offered, and compensation
of the Funds' Adviser.
The Trust and the Company have each entered into Advisory Contracts with
Harris Trust with respect to each of the Funds. Harris Trust, located at 111
West Monroe Street, Chicago, Illinois, is the successor to the investment
banking firm of N.W. Harris & Co. that was organized in 1882 and was
incorporated in 1907 under the present name of the bank. It is an Illinois
state-chartered bank and a member of the Federal Reserve System. At December 31,
1994, Harris Trust had assets of more than $13 billion and was the largest of 14
banks owned by Harris Bankcorp, Inc. Harris Bankcorp, Inc. is a wholly-owned
subsidiary of Bankmont Financial Corp., which is a wholly-owned subsidiary of
Bank of Montreal, a publicly traded Canadian banking institution.
As of December 31, 1994, Harris Trust managed more than $8 billion in
personal trust assets, and acted as custodian of more than $151 billion in
assets.
With respect to the Funds, the Advisory Contracts provide that Harris Trust
is responsible for the supervision and oversight of the Portfolio Management
Agent's performance (as discussed below).
For all its services under the Advisory Contracts with the Funds, Harris
Trust is entitled to receive monthly advisory fees at the annual rate of 0.70%,
0.70%, 0.65%, 0.65%, 0.60% and 0.60% of the average daily net assets of the
Convertible Securities Fund, the Short/Intermediate Fund, the Bond Fund, the
Government Fund, the Intermediate Tax-Exempt Fund and the Tax-Exempt Fund,
respectively. For the fiscal year ended December 31, 1995, Harris Trust received
fees, after waivers, at the effective rate of 0.34% of the average daily net
assets of the Short/Intermediate Fund. Harris Trust expects to receive, after
waivers, advisory fees for the current fiscal year at the annual rate of 0.34%
of the average daily net assets of the Short/Intermediate Fund; 0.40% of the
average daily net assets of the Bond Fund; and 0.30% of the average daily net
assets of the Government Fund, respectively.
PORTFOLIO MANAGEMENT AGENT
Harris Trust has entered into Portfolio Management Contracts with Harris
Investment Management, Inc. (``HIM'' or the ``Portfolio Management Agent'')
under which HIM undertakes to furnish investment guidance and policy direction
in connection with the daily portfolio management of the Funds. For the services
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provided by HIM, Harris Trust will pay to HIM the advisory fees it receives from
the Funds. As of June 30, 1995, HIM managed an estimated $13.8 billion in
assets.
Purchase and sale orders of the securities held by each of the Funds may be
combined with those of other accounts that HIM manages, and for which it has
brokerage placement authority, in the interest of seeking the most favorable
overall net results. When HIM determines that a particular security should be
bought or sold for any of the Funds and other accounts managed by HIM, HIM
undertakes to allocate those transactions among the participants equitably.
PORTFOLIO MANAGEMENT
The organizational arrangements of the Investment Adviser and the Portfolio
Management Agent require that all investment decisions be made by a committee
and no one person is responsible for making recommendations to that committee.
GLASS-STEAGALL ACT
The Glass-Steagall Act, among other things, generally prohibits federally
chartered or supervised banks from engaging to any extent in the business of
issuing, underwriting, selling or distributing securities, although subsidiaries
of bank holding companies such as Harris Trust and HIM are permitted to purchase
and sell securities upon the order and for the account of their customers.
It is the position of Harris Trust and HIM that they may perform the
services contemplated by the Advisory Contracts, the Portfolio Management
Contracts and this Prospectus without violation of the Glass-Steagall Act or
other applicable federal banking laws or regulations. It is noted, however, that
there are no controlling judicial or administrative interpretations or decisions
and that future judicial or administrative interpretations of, or decisions
relating to, present federal statutes and regulations relating to the
permissible activities of banks and their subsidiaries or affiliates, as well as
future changes in federal statutes or regulations and judicial or administrative
decisions or interpretations thereof, could prevent Harris Trust or HIM from
continuing to perform, in whole or in part, such services. If Harris Trust or
HIM were prohibited from performing any of such services, it is expected that
the Boards of Trustees and Directors of the Trust and the Company, respectively,
would recommend to the Funds' shareholders that they approve new agreements with
another entity or entities qualified to perform such services and selected by
the Boards of Trustees and Directors.
To the extent permitted by the Commission, the Funds may pay brokerage
commissions to certain affiliated persons. No such commission payments were made
during the last fiscal year by the Short/Intermediate Fund.
ADMINISTRATORS, CUSTODIAN AND TRANSFER AGENT
These service providers are responsible for maintaining the books and
records of the Funds, handling compliance and regulatory issues, processing
buy/sell orders, customer service and the safekeeping of securities.
First Data Investor Services Group, Inc. (formerly known as The Shareholder
Services Group, Inc.) (``First Data'' or the ``Administrator'') and PFPC Inc.
(``PFPC'' or the ``Administrator and Accounting Services Agent'') (collectively,
the ``Administrators'') serve as the administrators of the Funds. In such
capacity, the Administrators generally assist the Funds in all aspects of their
administration and operation. PFPC also serves as the transfer and dividend
disbursing agent of the Funds (the ``Transfer Agent'').
PNC Bank, N.A. (the ``Custodian'') serves as custodian of the assets of the
Funds. PFPC and the Custodian are indirect, wholly-owned subsidiaries of PNC
Bank Corp.
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As compensation for their services, the Administrators, the Custodian, and
the Transfer Agent are entitled to receive a combined fee based on the aggregate
average daily net assets of the Funds and the Trust's and the Company's other
investment portfolios, payable monthly at an annual rate of .17% of the first
$300 million of average daily net assets; .15% of the next $300 million; and
.13% of average net assets in excess of $600 million. In addition, a separate
fee is charged by PFPC for certain retail transfer agent services and for
various custody transactional charges.
DISTRIBUTOR
The Distributor underwrites the Funds' shares which are then available for
purchase or redemption.
Funds Distributor, Inc. (the ``Distributor'') has entered into a
Distribution Agreement with the Trust (and, with respect to the Intermediate
Bond Fund, the Company) pursuant to which it has the responsibility for
distributing shares of the Funds. Fees for services rendered by the Distributor
will be paid by the Administrators. The Distributor bears the cost of printing
and mailing prospectuses to potential investors and any advertising expenses
incurred by it in connection with the distribution of Shares, subject to the
terms of the Service Plans described below, pursuant to contractual arrangements
between the Trust and the Distributor or the Company and the Distributor and
approved by the Board of Trustees of the Trust (or, with respect to the
Intermediate Bond Fund, the Board of Directors of the Company).
See ``Management'' and ``Custodian'' in the Statement of Additional
Information for additional information regarding the Funds' Investment Adviser,
Portfolio Management Agent, Administrators, Custodian, Transfer Agent and
Distributor.
EXPENSES
Except for certain expenses borne by the Distributor, Harris Trust and HIM,
the Trust and the Company each bears all costs of its operations, including the
compensation of its Trustees or Directors who are not affiliated with Harris
Trust, HIM or the Distributor or any of their affiliates; advisory and
administration fees; payments pursuant to any Service Plan; interest charges;
taxes; fees and expenses of its independent accountants, legal counsel, transfer
agent and dividend disbursing agent; expenses of preparing and printing
prospectuses (except the expense of printing and mailing prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Service Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio securities transactions; fees and
expenses of the Funds' custodian including those for keeping books and accounts
and calculating the net asset value per share of the Funds; expenses of
shareholders' meetings and meetings of Boards of Trustees and Directors;
expenses relating to the issuance, registration and qualification of shares of
the Funds; pricing services; organizational expenses; and any extraordinary
expenses. Expenses attributable to each Fund are charged against the assets of
the Fund. Other general expenses of the Trust and the Company are allocated
among the Funds in an equitable manner as determined by the Boards of Trustees
and Directors.
DETERMINATION OF NET ASSET VALUE
The Net Asset Value (NAV) is the price or value of one share of a Fund.
Net asset value per share for each Fund is determined on each day that the
New York Stock Exchange (``NYSE'') and the Federal Reserve Bank of Philadelphia
(the ``Fed'') are open for trading. For a list of the days on which the net
asset value will not be determined, see ``Determination of Net Asset Value'' in
the Statement of Additional Information. The net asset value per share of each
of the Funds is determined by dividing the value of the total assets of a Fund
less all of its liabilities by the total number of outstanding shares of that
Fund.
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The net asset value per share of each of the Funds is determined at the
close of regular trading on the NYSE on each day the Funds are open for
business. The value of securities of the Funds (other than bonds and debt
obligations maturing in 60 days or less) is determined based on the last sale
price on the principal exchange on which the securities are traded as of the
close of regular trading on the NYSE (which is currently 4:00 P.M., New York
City time). In the absence of any sale on the valuation date, the securities are
valued at the closing bid price. Securities traded only on over-the-counter
markets are valued at closing over-the-counter bid prices. Bonds are valued at
the mean of the last bid and asked prices. Portfolio securities which are
primarily traded on foreign securities exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
except when an occurrence subsequent to the time a value was so established is
likely to have changed such value. In such an event as well as in those
instances where prices of securities are not readily available, the fair value
of those securities will be determined in good faith by or under the direction
of the Board of Trustees or Directors, as the case may be. Prices used for
valuations of securities are provided by independent pricing services. Debt
obligations with remaining maturities of 60 days or less are valued at amortized
cost when the Trust's Board of Trustees or the Company's Board of Directors, as
the case may be, has determined that amortized cost valuation represents fair
value.
PURCHASE OF SHARES
Contact your broker, financial institution or service agent for answers to
any questions you may have about purchasing shares.
Shares of any of the Funds may be purchased through authorized
broker/dealers, financial institutions and service agents (``Institutions'') on
any day the NYSE and the Fed are open for business. Individual investors will
purchase all shares directly through Institutions which will transmit purchase
orders directly to the Distributor. Institutions are responsible for the prompt
transmission of purchase, exchange or redemption orders, and may independently
establish and charge additional fees to their customers for such services, which
would reduce the customers' yield or return. No minimum initial or subsequent
investment limitations have been imposed. Each Institution through which shares
may be purchased may establish its own terms with respect to the requirement of
a minimum initial investment and minimum subsequent investments.
The Trust (or the Company with respect to the Intermediate Bond Fund)
reserves the right to reject any purchase order. All funds, net of sales charge,
if any, will be invested in full and fractional shares. Checks will be accepted
for the purchase of any Fund's shares subject to collection at full face value
in U.S. dollars. Inquiries may be directed to the Funds at the address and
telephone number on the cover of this Prospectus.
Purchase orders for shares of a Fund received in good order by the
Distributor prior to the close of regular trading (4:00 P.M., New York City
time) on the NYSE will be executed at the offering price, which includes a sales
charge, next determined on that day. Orders placed directly with the Distributor
must be paid for by check or bank wire on the next business day. Payment for the
shares purchased through an Institution will not be due until settlement date,
normally three business days after the order has been executed.
Although Class A Shares of the Funds are sold with a sales load of up to
4.50%, there are a number of ways to reduce the sales load.
When Class A Shares of the Funds are purchased through an Institution, the
Distributor reallows a portion of the sales charge. No sales charge will be
assessed on the reinvestment of distributions.
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Sales charges for Class A Shares of the Funds are as follows:
<TABLE>
<CAPTION>
SALES CHARGE DEALER ALLOWANCES
SALES AS % OF NET AS % OF
AMOUNT OF PURCHASE CHARGE AMOUNT INVESTED OFFERING PRICE
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.25%
$100,000 up to (but less than)
$200,000 4.00 4.17 3.75
$200,000 up to (but less than)
$400,000 3.50 3.63 3.25
$400,000 up to (but less than)
$600,000 2.50 2.56 2.25
$600,000 up to (but less than)
$800,000 2.00 2.04 1.75
$800,000 up to (but less than)
$1,000,000 1.00 1.01 0.75
$1,000,000 and over .00 .00 .00
</TABLE>
No sales charge will be assessed on purchases by (a) any bank, trust
company, or other institution acting on behalf of its fiduciary customer
accounts or any other trust account (including a pension, profit-sharing or
other employee benefit trust created pursuant to a plan qualified under Section
401 of the Internal Revenue Code of 1986, as amended (the ``Code'')); (b)
individuals with an investment account or relationship with HIM; (c) directors
and officers of the Company; (d) directors, current and retired employees of
Harris Bankcorp, Inc. or any of its affiliates and the immediate family members
of such individuals (spouses and children under 21); (e) brokers, dealers, and
agents who have a sales agreement with the Distributor, and their employees (and
the immediate family members of such individuals); (f) financial institutions,
financial planners, employee benefit plan consultants or registered investment
advisers acting for the accounts of their clients and (g) customers of Harris
Trust and its affiliate banks.
Depending upon the terms of the particular customer account, financial
services institutions, including Harris Trust and HIM, may charge account fees
for automatic investment and other cash management services which they provide,
including, for example, account maintenance fees, compensating balance
requirements, or fees based upon account transactions, assets, or income. This
Prospectus should be read in connection with any information received from
financial services institutions.
The Right of Accumulation allows an investor to combine the amount being
invested in Class A Shares of the non-money market funds of the Trust and the
Company with the total net asset value of Class A Shares currently being
purchased or already owned of such funds to determine reduced sales charges in
accordance with the above sales charge schedule. To obtain such discount, the
purchaser must provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge, and
confirmation of the order is subject to such verification. The Right of
Accumulation may be modified or discontinued at any time by the Funds with
respect to all Class A Shares purchased thereafter.
A Letter of Intent allows an investor to purchase Class A Shares of the
non-money market funds of the Trust and the Company over a 13-month period at
reduced sales charges based on the total amount intended to be purchased plus
the total net asset value of Class A Shares already owned pursuant to the terms
of the
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letter of such Fund. Each investment made during the period receives the reduced
sales charge applicable to the total amount of the intended investment. If such
amount is not invested within the period, the investor must pay the difference
between the sales charges applicable to the purchases made and the charges
previously paid.
Each Fund also offers Institutional Shares. Different classes of shares of
a single portfolio may bear different sales charges (if any) and other expenses
which may affect their relative performance. Investors may call 1-800-982-8782
to obtain more information concerning Institutional Shares of the Funds.
REDEMPTION OF SHARES
There is no charge by the Funds for redemptions, although Institutions may
charge an account-based service fee.
Shares may be redeemed at their next determined net asset value after
receipt of a proper request by the Distributor directly or through any
Institution.
There is no charge for redemption transactions, but an Institution may
charge an account-based service fee. Redemption orders received by an
Institution before the close of the NYSE with respect to shares of a Fund and
received by the Distributor before the close of business on the same day will be
executed at the Fund's net asset value per share next determined on that day.
Redemption orders received by an Institution after the close of the NYSE, or not
received by the Distributor prior to the close of business, will be executed at
the Fund's net asset value next determined on the next business day.
Redemption orders for a Fund that are received in good order by 4:00 P.M.
(New York City time) will normally be remitted within five business days but not
more than seven days. In the case of a redemption request made shortly after a
recent purchase, the redemption proceeds will be distributed upon the clearance
of the shareholder's check used to purchase the Fund's shares which may take up
to 15 days or more after the investment. The proceeds may be more or less than
cost and, therefore, a redemption may result in a gain or loss for federal
income tax purposes. Payment of redemption proceeds may be made in readily
marketable securities.
REDEMPTION THROUGH INSTITUTIONS
Proceeds of redemptions made through authorized Institutions will be
credited to the shareholder's account with the Institution. A redeeming
shareholder may request a check from the Institution or may elect to retain the
redemption proceeds in such shareholder's account. The Institution may benefit
from the use of the redemption proceeds prior to the clearance of a check issued
to a redeeming shareholder for the proceeds or prior to disbursement or
reinvestment of the proceeds on behalf of the shareholder.
Because of the high cost of maintaining small accounts, the Trust (or the
Company with respect to the Short/Intermediate Fund) reserves the right to
involuntarily redeem accounts on behalf of shareholders whose share balances
fall below $500 unless this balance condition results from a decline in the
market value of a Fund's assets. Prior to such a redemption, a shareholder will
be notified in writing and permitted 30 days to make additional investments to
raise the account balance to the specified minimum.
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<PAGE>
EXCHANGE PRIVILEGE
Once you have held shares for 7 days or more, you can exchange these shares
for other eligible Harris Insight Fund Class A Shares.
Class A Shares of any of the Funds that have been held for seven days or
more may be exchanged for shares of any other fund in the Harris Insight Funds
in an identically registered account, provided Class A Shares of the Fund to be
acquired are registered for sale in the shareholder's state of residence, on the
following terms: Class A Shares of the non-money market funds of the Trust and
the Company may be exchanged for shares of one another and for Class A Shares of
each of the money market funds of the Company, all at respective net asset
values. In addition, Class A Shares of a Fund that have been exchanged pursuant
to these privileges may be re-exchanged at respective net asset values of Class
A Shares of the Fund in which they were originally invested upon notification.
Procedures applicable to redemption of a Fund's shares are also applicable
to exchanging shares. The Trust (or the Company with respect to the Intermediate
Bond Fund) reserves the right to limit the number of times shares may be
exchanged between the Harris Insight Funds, to reject any telephone exchange
order or otherwise to modify or discontinue exchange privileges at any time upon
60 days written notice. A capital gain or loss for tax purposes may be realized
upon an exchange, depending upon the cost or other basis of shares redeemed.
SERVICE PLANS
The Service Plans for the Funds allow these Funds to pay Service Agents for
certain servicing activities provided to their customers.
Under each Fund's Service Plan relating to Class A Shares, each Fund bears
the costs and expenses in connection with advertising and marketing the Fund's
shares and pays the fees of financial institutions (which may include banks),
securities dealers and other industry professionals, such as investment
advisers, accountants and estate planning firms (collectively, ``Service
Agents'') for servicing activities, as described below, at a rate up to 0.25%
per annum of the average daily net asset value of the Fund's Class A Shares.
However, Harris Trust or HIM, in lieu of a Fund, from time to time in its sole
discretion, may volunteer to bear the costs of such fees to certain Service
Agents. The Administrators and the Distributor may act as Service Agents and
receive fees under a Service Plan.
In addition to the fees paid by a Fund, the Fund may, pursuant to the
Service Plan, defray all or part of the cost of preparing and printing brochures
and other promotional materials and of delivering prospectuses and those
materials to prospective shareholders of the Fund by paying on an annual basis
up to the greater of $100,000 or 0.05% of the net asset value of the Fund's
Class A Shares (but not in any case greater than such costs). For more
information concerning expenses pursuant to the Service Plans, see
``Management.''
Servicing activities provided by Service Agents to their customers
investing in the Funds may include, among other things, one or more of the
following: establishing and maintaining shareholder accounts and records;
processing purchase and redemption transactions; answering customer inquiries
regarding the Funds; assisting customers in changing dividend options, account
designations and addresses; performing sub-accounting; investing customer cash
account balances automatically in Fund Shares; providing periodic statements
showing a customer's account balance and integrating such statements with those
of other transactions and balances in the customer's other accounts serviced by
the Service Agent; arranging for bank wires, distribution and such other
services as a Fund may request, to the extent the Service Agent is permitted to
do so by applicable statute, rule or regulation.
DIVIDENDS AND DISTRIBUTIONS
All Funds, except the Convertible Securities Fund, declare and pay
dividends monthly, while the Convertible Securities Fund declares and pays
dividends quarterly.
Dividends from net investment income of each of the Funds, except the
Convertible Securities Fund, will be declared daily and paid monthly. Dividends
from net investment income of the Convertible Securities Fund will be declared
and paid quarterly. Each Fund's net taxable capital gains, if any, will be
distributed at least annually (to the extent required to avoid imposition of the
4% excise tax described below). Dividends and distributions paid by any of the
Funds will be invested in additional shares of the same Fund at net asset value
and credited to the shareholder's account on the payment date or, at the
shareholder's election, paid in cash. Dividend checks and Statements of Account
will be mailed approximately two business days after the payment date. Each Fund
will forward to the Transfer Agent the monies for dividends to be paid in cash
on the payment date.
Shareholders who redeem all their shares of any of the Funds prior to a
dividend payment will receive, in addition to the redemption proceeds, dividends
declared but unpaid. Shareholders who redeem only a portion of their shares will
be entitled to all dividends but unpaid on such shares on the next dividend
payment date.
FEDERAL INCOME TAXES
Each Fund (and each of the other Harris Insight Funds) will be treated as a
separate entity for tax purposes and thus the provisions of the Internal Revenue
Code (the ``Code'') generally will be applied to each Fund separately, rather
than to the Trust or the Company as a whole. As a result, net capital gains, net
investment income, and operating expenses will be determined separately for each
Fund. The Trust (or the Company with respect to the Short/Intermediate Fund)
intends to qualify each Fund as a regulated investment company under Subchapter
M of the Code. As a portfolio of a regulated investment company, each Fund will
not be subject to federal income taxes with respect to net investment income and
net capital gains distributed to its shareholders, as long as it distributes 90%
or more of its net investment income (including net short-term capital gains)
each year.
Because substantially all of the income of each Fund will arise from
interest, no part of the distributions to shareholders is expected to qualify
for the dividends-received deduction allowed to Corporations under the Code.
Distributions of net long-term capital gains, if any, will be taxable as
long-term capital gains, whether received in cash or reinvested in additional
shares, regardless of how long the shareholder has held the shares, and will not
qualify for the dividends-received deductions.
A taxable gain or loss may also be realized by a holder of shares in a Fund
upon the redemption or transfer of shares depending on the tax basis of the
shares and their price at the time of the transaction.
Because more than 50% of the value of the total assets of each of the
Tax-Exempt Fund and the Intermediate Tax-Exempt Fund at the close of each
quarter of its taxable year is expected to consist of obligations the interest
on which is exempt from federal income tax, these Funds expect to qualify under
the Code to pay ``exempt-interest dividends.'' Dividends distributed by each of
these Funds that are attributable to interest from tax-exempt securities will be
designated by the Fund as an ``exempt-interest dividend,'' and, as such, will
generally be exempt from federal income tax.
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<PAGE>
In the case of the shareholders of each of the Tax-Exempt Fund or the
Intermediate Tax-Exempt Fund, interest on indebtedness incurred or continued to
purchase or carry shares of the Fund will not be deductible to the extent that
the Fund's distributions are exempt from federal income tax. In addition, the
portion of an exempt-interest dividend allocable to certain tax-exempt
obligations will be treated as a preference item for purposes of the alternative
minimum tax imposed on both individuals and corporations. Persons who may be
``substantial users'' (or ``related persons'' of substantial users) of
facilities financed by private activity bonds should consult their tax advisers
before purchasing shares in the Tax-Exempt Fund or the Intermediate Tax-Exempt
Fund.
The exemption of exempt-interest dividends paid by each of the Tax-Exempt
Fund and the Intermediate Tax-Exempt Fund for federal income tax purposes may
not result in similar exemptions under the tax law of state and local
authorities. In general, only interest earned on obligations issued by the state
or locality in which the investor resides will be exempt from state and local
taxes. Shareholders should consult their advisers about the status of dividends
from these Funds in their own states and localities. Each year the Trust will
notify shareholders of the tax status of distributions.
Any loss realized on a sale or exchange of shares of a Fund will be
disallowed to the extent shares are acquired within the 61-day period beginning
30 days before and ending 30 days after disposition of the shares.
The Trust (or the Company with respect to the Short/Intermediate Fund) will
be required to withhold, subject to certain exemptions, a portion (currently,
31%) from dividends paid or credited to individual shareholders and of
redemption proceeds, if a correct taxpayer identification number, certified when
required, is not on file with the Trust (or the Company with respect to the
Short/Intermediate Fund) or Transfer Agent.
ACCOUNT SERVICES
Shareholders receive a Statement of Account whenever a share transaction,
dividend or capital gain distribution is effected in the accounts, or at least
annually. Shareholders can write or call the Funds at the address and telephone
number on page one of this Prospectus with any questions relating to their
investment in shares of the Funds.
ORGANIZATION AND CAPITAL STOCK
The Trust is a diversified open-end management investment company which was
organized on December 6, 1995 as a business trust under the laws of The
Commonwealth of Massachusetts. The Trust offers shares of beneficial interest,
$.001 par value, for sale to the public. Currently the Trust has eleven
portfolios in operation. The Board has authorized each of the eleven Funds which
are portfolios of the Trust to issue two classes of shares, Class A and
Institutional Shares.
The Company, which was incorporated in Maryland on September 16, 1987, is a
diversified, open-end management investment company. The authorized capital
stock of the Company consists of 10,000,000,000 shares having a par value of
$.001 per share. Currently, the Company has six portfolios in operation. The
Board has authorized the Short/Intermediate Fund to issue two classes of shares,
Class A and Institutional Shares.
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Institutional Shares of the Funds, which are offered only to certain
classes of investors, do not bear any sales, marketing or distribution expenses.
In the future, the Board of Trustees of the Trust and the Board of Directors of
the Company may authorize the issuance of shares of additional investment
portfolios and additional classes of shares of any portfolio. Different classes
of shares of a single portfolio may bear different sales charges and other
expenses which may affect their relative performance. Information regarding
other classes of shares may be obtained by calling the Funds at the telephone
number shown on the cover page of this Prospectus or from any institution which
makes available shares of the Funds. All shares of the Trust and all shares of
the Company have equal voting rights and the shares of each will be voted in the
aggregate, and not by class, except where voting by class is required by law or
where the matter involved affects only one class. A more detailed statement of
the voting rights of shareholders is contained in the Statement of Additional
Information. All shares of the Trust and all shares of the Company, when issued,
will be fully paid and non-assessable.
As of January 31, 1996, Harris Trust held of record 4,031,259 shares, equal
to 81.62% of the outstanding shares of the Short/Intermediate Fund. Harris Trust
has indicated that it holds its shares on behalf of various client accounts and
not as beneficial owner.
The Trust and the Company may dispense with annual meetings of shareholders
in any year in which Trustees and Directors are not required to be elected by
shareholders. The Board of Trustees of the Trust and the Board of Directors of
the Company, when requested by at least 10% of the Trust's or the Company's
outstanding shares, will call a meeting of shareholders for the purpose of
voting upon the question of removal of a Trustee or Trustees or of a Director or
Directors and will assist in communications with other shareholders as required
by Section 16(c) of the 1940 Act.
There is a possibility that the Trust might become liable for any
misstatement, inaccuracy or incomplete disclosure in this Prospectus concerning
the Company. There is a possibility that the Company might become liable for any
misstatement, inaccuracy or incomplete disclosure in this Prospectus concerning
the Trust.
REPORTS TO SHAREHOLDERS
The fiscal year of both the Trust and the Company ends on December 31. Each
of the Trust and the Company will send to its shareholders a semi-annual report
showing the investments held by each of the Funds and other information
(including unaudited financial statements) pertaining to the Trust or the
Company, as the case may be. An annual report, containing financial statements
audited by independent accountants, is also sent to shareholders.
CALCULATION OF YIELD AND TOTAL RETURN
From time to time each of the Funds may advertise its yield, tax-equivalent
yield and ``total return.'' ``Total return'' refers to the amount an investment
in Class A Shares of a Fund would have earned, including any increase or
decrease in net asset value, over a specified period of time and assumes the
payment of the maximum sales load and the reinvestment of all dividends and
distributions. The total return of each Fund shows what an investment in Class A
Shares of the Fund would have earned over a specified period of time (such as
one, five or ten years or the period of time since commencement of operations,
if shorter) assuming the payment of the maximum sales loads when the investment
was first made and that
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all distributions and dividends by the Fund were reinvested on their
reinvestment dates during the period less all recurring fees. When a Fund
compares its total return to that of other mutual funds or relevant indices, its
total return may also be computed without reflecting the sales load so long as
the sales load is stated separately in connection with the comparison.
The yield of each Fund refers to the income generated by an investment in
Class A Shares of the Fund over a 30-day period (which period will be stated in
the advertisement). This income is then ``annualized.'' That is, the amount of
income generated by the investment during the 30-day period is assumed to be
earned and reinvested at a constant rate and compounded semi-annually. The
annualized income is then shown as a percentage of the investment.
The ``tax-equivalent yield'', which will be calculated only for the
Intermediate Tax-Exempt Fund and the Tax-Exempt Fund, refers to the yield on a
taxable investment necessary to produce an after-tax yield equal to a Fund's
tax-free yield, and is calculated by increasing the yield shown for the Fund to
the extent necessary to reflect the payment of specified tax rates. Thus, the
tax-equivalent yield for a Fund will always exceed that Fund's yield.
A Fund's performance figures for a class of shares represent past
performance, will fluctuate and should not be considered as representative of
future results. The yield of any investment is generally a function of portfolio
quality and maturity, type of instrument and operating expenses.
31
INVESTMENT ADVISER
Harris Trust & Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
PORTFOLIO MANAGEMENT AGENT
Harris Investment Management, Inc.
190 South LaSalle Street
Chicago, Illinois 60603
ADMINISTRATORS
First Data Investor Services Group, Inc.
53 State Street
Boston, Massachusetts 02109
PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809
DISTRIBUTOR
Funds Distributor, Inc.
One Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
PNC Bank, N.A.
Broad and Chestnut Streets
Philadelphia, Pennsylvania 19101
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
PFPC Inc.
P.O. Box 8950
Wilmington, Delaware 19885
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
Philadelphia, Pennsylvania
LEGAL COUNSEL
Bell, Boyd & Lloyd
Chicago, Illinois
