HARRIS INSIGHT FUNDS
HARRIS INSIGHT CONVERTIBLE FUND
One Exchange Place, Boston, Massachusetts 02109
Telephone: (800) 982-8782
HT Insight Funds, Inc. (the "Company") is an open-end, diversified
management investment company that currently offers six investment portfolios.
This Prospectus describes the Company's Harris Insight Convertible Fund (the
"Fund"). The Fund's investment objective is to provide investors with capital
appreciation and current income.
Harris Trust & Savings Bank is the Investment Adviser to the Fund and
Harris Investment Management, Inc., a subsidiary of Harris Bankcorp, Inc., acts
as the Fund's Portfolio Management Agent. Shares of the Fund are offered by
Funds Distributor, Inc., the Company's distributor.
This Prospectus sets forth concisely the information a prospective
investor should know before investing in the Fund. Please read and retain it for
future reference. A Statement of Additional Information dated February 21, 1996,
containing more detailed information about the Fund 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 and Statements of Additional Information
for the other investment portfolios offered by 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 FUND 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 FUND
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
Financial Highlights................................................... 7
Investment Objective and Policies...................................... 8
Investment Strategies.................................................. 11
Management............................................................. 16
Determination of Net Asset Value....................................... 20
Purchase of Shares..................................................... 21
Redemption of Shares................................................... 23
Exchange Privilege..................................................... 24
Service Plan........................................................... 24
Dividends and Distributions............................................ 25
Federal Income Taxes................................................... 25
Account Services....................................................... 26
Organization and Description of Shares................................. 26
Reports to Shareholders................................................ 27
Calculation of Yield and Total Return.................................. 27
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 Fund's official sales literature in
connection with the offering of the Fund's shares and, if given or made, such
other information or representations must not be relied upon as having been
authorized by the Company or the Distributor. This Prospectus does not
constitute an offer in any state in which, or to any person to whom, such offer
may not lawfully be made.
2
<PAGE>
EXPENSE TABLE
The following table sets forth certain information concerning shareholder
transaction expenses and projected annual fund operating expenses for the Fund
during the current fiscal year.
Expenses and fees payable by
shareholders are summarized in
this table and expressed as a
percentage of average net
assets.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on 4.50%
Purchases
ANNUAL FUND OPERATING EXPENSES*:
(as a percentage of average net
assets after voluntary fee
waivers)
Advisory Fees (after waivers) 0.00%
Rule 12b-1 Fees (after expense 0.25%
reimbursement)
Other Expenses 0.80%
Total Fund Operating Expenses 1.05%
(after expense reimbursement)
- --------------------------------
*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., personal trust, estate
settlement, advisory and custodian services).
Without any fee waivers and expense reimbursements, total operating
expenses for the fiscal year ended December 31, 1995 for the Fund would have
been 2.58%. Without waivers, the Fund's investment advisory fee would have been
0.70% of the Fund's average net assets. The amount of "Other Expenses" is based
on amounts incurred during the most recent fiscal year.
3
<PAGE>
EXAMPLE
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (1) a hypothetical 5% gross annual return and (2) redemption at the end
of each time period:
1 year $ 55
3 years 77
5 years 100
10 years 167
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 the Fund will bear directly or
indirectly. For more information concerning the various costs and expenses, see
"Management."
4
<PAGE>
HIGHLIGHTS
The Harris Insight Convertible Fund seeks to provide capital
appreciation and current income by investing, at least 65% of its assets in
securities securities such as bonds, debentures, notes, preferred stocks or
warrants that are convertible into common stocks. See page 8 below.
WHO MANAGES THE FUND'S INVESTMENTS?
Harris Trust & Savings Bank ("Harris Trust" or the "Investment
Adviser") is the investment adviser for the 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 $23 billion. See
page 17.
Harris Investment Management, Inc. ("HIM" or the "Portfolio Management
Agent") provides daily portfolio management services for the Fund. HIM and its
predecessors have managed client assets for over 100 years. HIM has a staff of
96, including 64 professionals, providing investment expertise to the management
of Harris Insight Funds and for pension, profit-sharing and institutional
portfolios. As of June 30, 1995, assets under management are estimated to exceed
$13 billion. See page 17.
Harris Trust and HIM are subsidiaries of Harris Bankcorp., Inc.
WHAT ADVANTAGES DOES THE FUND OFFER?
The Fund is designed for individual and institutional investors. A
single investment in shares of the Fund gives the investor benefits customarily
available only to large investors, such as diversification of investment,
greater liquidity and professional management, block purchases of securities,
relief from bookkeeping, safekeeping of securities and other administrative
details.
WHEN ARE DIVIDENDS PAID?
Dividends from the Fund are declared and paid quarterly. Any net
capital gains will be declared and paid annually. See page 25.
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 23.
5
<PAGE>
WHAT RISKS ARE ASSOCIATED WITH THE FUND?
The 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 the Fund will achieve its investment
objective. See "Investment Strategies."
6
<PAGE>
FINANCIAL HIGHLIGHTS
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.
This table shows the total
return on one share of the
Fund for each period
illustrated.
<TABLE>
<CAPTION>
CONVERTIBLE FUND
----------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR
2/24/88*
ENDED ENDED ENDED ENDED ENDED ENDED
ENDED TO
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89
12/31/88
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $ 8.78 $ 9.84 $ 9.16 $ 8.41 $ 7.18 $ 9.51 $10.05 $10.00
------ ------ ------ ------ ------ ------ ------ ------
Income From Investment
Operations:
Net Investment Income .621 .669 .538 .487 .609 .788 .732 .616
Net Realized and Unrealized
Gain (Loss) on Investments .975 (1.049) .680 .783 1.221 (2.378) .333
.070
---- ------ ---- ---- ----- ------ ---- ----
Total from Investment
Operations 1.596 (.380) 1.218 1.270 1.830 (1.590) 1.065 .686
----- ----- ----- ----- ----- ------ ----- ----
Less Distributions:
Net Investment Income (0.856) (.680) (.538) (.520) (.600) (.740) (.795)
(.540)
Net Realized Gains -- -- -- -- -- -- (.810) (.096)
----- ----- ----- ----- ----- ------ ----- ----
Total distributions (0.856) (.680) (.538) (.520) (.600) (.740) (1.605) (.636)
------ ----- ----- ----- ----- ----- ------ -----
Net Asset Value, End of Period $ 9.52 $ 8.78 $ 9.84 $ 9.16 $ 8.41 $ 7.18 $ 9.51
$10.05
====== ====== ====== ====== ====== ====== ======
======
Total return(4) 18.52% (4.01)% 13.50% 15.40% 26.04% (17.12%) 10.58%
6.89%(3)
Ratios/Supplemental Data:
Net Assets, End of
Period $(000) 1,171 1,416 6,064 7,354 3,732 5,552 15,241 19,097
Ratios of Expenses to Average
Net Assets(1) 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.78%
0.62%(2)
Ratios of Net Investment
Income to Average Net Assets 5.68% 5.21% 5.16% 5.83% 6.91% 8.13%
6.78% 7.09%(2)
Portfolio Turnover Rate 35.59% 31.63% 81.04% 21.27% 62.20% 48.20%
59.15% 22.80%
- ----------------------------
</TABLE>
*Date commenced operations
(1) Without the voluntary waiver of fees, the expense ratios for the years ended
December 31, 1995, 1994, 1993, 1992, 1991, 1990, 1989 and the period ended
December 31, 1988, would have been 2.58%, 1.26%, 1.20%, 1.26%, 1.66%, 1.40%,
1.44% and 1.49% (annualized) for the Convertible Fund, respectively.
(2) Annualized.
(3) Total returns for periods of less than one year are not annualized.
(4) Sales load is not reflected in total return.
7
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide capital appreciation
and current income. The Fund intends, under normal market conditions, to invest
primarily 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. Convertible securities are initially selected from a universe
of approximately 200 securities which are then assessed by HIM on the basis of
strict fundamental factors. The Portfolio Management Agent ultimately constructs
a portfolio of 25 to 100 convertible securities. The Portfolio Management Agent
purchases securities in an effort to establish the proper mix of convertible
securities which are positioned to benefit from yield discrepancies, variations
in the creditworthiness of issuers, and changes in economic conditions and the
outlook for particular companies. The Fund also 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.
The Fund seeks to provide
capital appreciation and
current income.
Under normal market conditions, the Fund will invest without limitation
in convertible securities of U.S. corporations and in Eurodollar securities
convertible into common stocks of U.S. corporations which securities are rated
"B" or better by Standard & Poor's Corporation ("S&P"), "B" ("b" in the case of
preferred stocks) or better by Moody's Investors Service, Inc. ("Moody's") or
the equivalent rating from another nationally recognized statistical rating
organization 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 Fund's total assets may be invested in convertible
securities that are rated "CCC" by S&P or "Caa" by Moody's at the time of
purchase. Securities that are rated "BB" or below by S&P or "Ba" or below by
Moody's are "high yield securities", commonly known as junk bonds. By their
nature, convertible securities may be more volatile in price than higher rated
debt obligations.
The Fund may 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 Fund may invest: up to
15% of its total assets in convertible securities offered in "private
placements" and other illiquid securities; up to 15% of its total assets in
common stocks; and up to 5% of its net assets in warrants. The Fund may purchase
and sell index and interest rate futures contracts and covered put and call
options on securities and on indices.
8
<PAGE>
In periods of unusual market conditions, when the Portfolio Management
Agent believes that convertible securities would not best serve the Fund's
objectives, the Fund may for defensive purposes invest part or all of its total
assets in: (a) 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 Fund will continue to seek current income but will put less
emphasis on capital appreciation.
RISK FACTORS AND OTHER CONSIDERATIONS RELATING TO LOW-RATED AND
COMPARABLE UNRATED SECURITIES. Low-rated and comparable unrated securities (a)
will likely have some quality and protective characteristics that, in the
judgment of the rating organization, are outweighed by large uncertainties or
major risk exposures to adverse conditions and (b) are predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation.
The market values of low-rated and comparable unrated securities are
less sensitive to interest rate changes but more sensitive to economic changes
or individual corporate developments than 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 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 Company's Board of Directors to value
such securities becomes more difficult and judgment plays a greater role in
valuation because there is less reliable objective data available. In addition,
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 Fund's Portfolio Management Agent uses
these
9
<PAGE>
ratings as a criterion for the selection of securities for the Fund, it also
relies on its independent analysis to evaluate potential investments for the
Fund. The 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.
An issue of securities held by the Fund may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund. In
addition, it is possible that Moody's, S&P or another nationally recognized
statistical rating organization might not change their ratings in a particular
issue in a timely manner to reflect subsequent events. None of these events will
require the sale of the securities by the Fund, although the Portfolio
Management Agent will consider these events in determining whether the Fund
should continue to hold the securities. To the extent that the ratings given by
such rating organization for securities may change as a result of changes in the
ratings systems or due to corporate reorganization of such rating organization,
the 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 Statement of
Additional Information.
The average distribution of investments (at market value) by the Fund
in portfolio securities, including corporate bonds and commercial paper by
ratings for the year ended December 31, 1995 was as follows: AA, 0%; A, 11.7%;
BBB/Baa, 39.9%; BB/Ba, 27.4%; B, 15.6%.
----------------------------
Portfolio securities of the 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 the
Fund's portfolio is considered a limiting factor on such changes.
-----------
The 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 the 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
10
<PAGE>
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.
INVESTMENT STRATEGIES
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities.
Appropriate . ratings for the convertible securities purchased by the Fund are
provided under "Investment Objective 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 time 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.
Convertible bonds, debentures,
and notes are debt obligations
offering a stated interest
rate; convertible preferred
stocks are senior securities
offering a stated dividend
rate
FLOATING AND VARIABLE RATE INSTRUMENTS. The Fund may purchase
instruments having a floating or variable rate of interest. These obligations
bear interest at rates that are not fixed, but vary with changes in specified
market rates or indices, such as the prime rate, or at specified intervals.
Certain of these obligations may carry a demand feature that would permit the
holder to tender them back to the issuer at par value prior to maturity. Each
Fund will limit its purchases of floating and variable rate obligations to those
of the same quality as it otherwise is allowed to purchase.
These obligations bear
interest rates that are not
fixed but vary with changes in
specified market rates or
indices.
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.
11
<PAGE>
FOREIGN SECURITIES. The Fund may invest in dollar-denominated
Eurodollar securities . convertible into the common stock of domestic
corporations. Investments in foreign securities involve certain considerations
that are not typically associated with investing in domestic securities. For
example, investments in foreign securities typically involve higher transaction
costs than investments in U.S. securities. Foreign investments may have risks
associated with currency exchange rates, political instability, less complete
financial information about the issuers and less market liquidity. Future
political and economic developments, possible imposition of withholding taxes on
income, seizure or nationalization of foreign holdings, establishment of
exchange controls or the adoption of other governmental restrictions might
adversely affect the payment of principal and interest on foreign obligations.
In addition, foreign banks and foreign branches of domestic banks may be subject
to less stringent reserve requirements and to different accounting, auditing and
recordkeeping requirements than domestic banks.
The Fund may invest in certain
dollar-denominated foreign
securities convertible into
common stock of domestic
corporations
GOVERNMENT SECURITIES. Government Securities consist of obligations
issued or guaranteed by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises.
ILLIQUID SECURITIES. The Fund may invest up to 10% of the value of its
net assets in . securities that are considered illiquid. Repurchase agreements
and time deposits that do not provide for payment to the Fund within seven days
after notice or which have a term greater than seven days are deemed illiquid
securities for this purpose, unless such securities are variable amount master
demand notes with maturities of nine months or less or unless the Portfolio
Management Agent or Investment Adviser has determined under the supervision and
direction of the Company's Board of Directors that an adequate trading market
exists for such securities or that market quotations are readily available.
Repurchase agreements and time
deposits that do not provide
for payment to the Fund within
7 days after notice or which
have a term greater than 7
days may be deemed illiquid
securities
The Fund may also purchase Rule 144A securities sold to institutional
investors without registration under the Securities Act of 1933 and commercial
paper issued in reliance upon the exemption in Section 4(2) of the Securities
Act of 1933. These securities may be determined to be liquid in accordance with
guidelines established by the Portfolio Management Agent or Investment Adviser
and approved by the Company's Board of Directors. The Board of Directors will
monitor the Portfolio Management Agent's or Investment Adviser's implementation
of these guidelines on a periodic basis.
OPTIONS. The 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.
12
<PAGE>
INVERSE FLOATING RATE OBLIGATIONS. The 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 of short-term interest rates and generally increase or
decrease in value in response to changes in short-term interest rates at a rate
which is a multiple (typically two) of the rate at which fixed-rate, long-term,
tax-exempt securities increase or decrease in response to such changes. As a
result, such obligations have the effect of providing investment leverage and
may be more volatile than long-term, fixed-rate, tax-exempt obligations.
These obligations generally
have floating or variable
interest rates that move in
the opposite direction of
short-term interest rates.
INVESTMENT COMPANY SECURITIES. In connection with the management of its
daily cash positions, the Fund may invest in securities issued by investment
companies that invest from 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. Securities of investment
companies may be acquired by the Fund within the limits prescribed by the
Investment Company Act of 1940, as amended (the "1940 Act"). These limit the
Fund so that: (i) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (ii) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of investment companies as a group; and (iii) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the Fund
or by the Company as a whole. As a shareholder of another investment company,
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.
Subject to certain
limitations, the Fund may
invest in the securities of
other investment companies.
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 the Fund, may be used for
letter of credit-backed investments.
13
<PAGE>
LOANS OF PORTFOLIO SECURITIES. The 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 the 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
the Fund will be subject to termination at the Fund's or the borrower's option.
The Fund may pay reasonable administrative and custodial fees in connection with
a securities loan and may pay a negotiated fee to the borrower or the placing
broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with the Company, the Investment Adviser, the Portfolio Management
Agent or the Distributor.
The Fund may lend to brokers,
dealers and financial
institutions securities from
its portfolio representing up
to one-third of the Fund's net
assets.
REPURCHASE AGREEMENTS. The Fund may purchase portfolio securities
subject to the seller's agreement to repurchase them at a mutually agreed upon
time and price, which includes an amount representing interest on the purchase
price. The Fund may enter into repurchase agreements only with respect to
obligations that could otherwise be purchased by the Fund. The seller will be
required to maintain in a segregated account for the Fund cash or cash
equivalent collateral equal to at least 100% of the repurchase price (including
accrued interest). Default or bankruptcy of the seller would expose the Fund to
possible loss because of adverse market action, delays in connection with the
disposition of the underlying obligations or expenses of enforcing its rights.
The Fund may purchase
securities subject to
agreement by the seller to
repurchase them at a specified
time and place.
REVERSE REPURCHASE AGREEMENTS. The 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 the Fund may
decline below the repurchase price. The Fund would pay interest on amounts
obtained pursuant to a reverse repurchase agreement.
The 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.
14
<PAGE>
The Fund may not enter into a repurchase agreement or reverse
repurchase agreements if, as a result, more than 10% 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 Fund will enter into repurchase agreements and reverse
repurchase agreements only with registered broker/dealers and commercial banks
that meet guidelines established by the Company's Board of Directors.
U.S. GOVERNMENT OBLIGATIONS. U.S. Government Obligations consist of
bills, notes and bonds issued by the U.S. Treasury. They are direct obligations
of the U.S. Government and differ primarily in the length of their maturities.
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.
WARRANTS. The 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.
Warrants represent rights to
purchase securities at a
specific price valid for a
specific period of time.
WHEN-ISSUED SECURITIES. The Fund may purchase securities (including
securities issued pursuant to an initial public offering) on a when-issued
basis, in which case delivery and payment normally take place within 45 days
after the date of the commitment to purchase. The Fund 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.
When-issued securities (new
securities that have not
started trading) will only be
purchased by the Fund with the
intention of actually
acquiring these instruments.
15
<PAGE>
INVESTMENT LIMITATIONS
Unless otherwise noted, the Fund's investment objective and related
policies and activities of the Fund are not fundamental and may be changed only
by the Board of Directors of the Company without the approval of shareholders,
provided that, the policy relating to investment company securities is a
fundamental investment policy. If there is a change in the Fund's investment
objective, shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial position and needs.
This section outlines the
Fund's policies that may be
changed only by a majority
vote of shareholders.
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, the
Fund may not: (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 the 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 the 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 the Fund may make loans of portfolio
securities. In addition, it is a fundamental policy that the 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 Fund considers 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.
16
<PAGE>
MANAGEMENT
The Board of Directors has overall responsibility for the conduct of
the affairs of the Fund and Company. Each individual listed below is a member of
the Company's Board of Directors. The principal occupation of each individual is
also listed below.
BOARD OF DIRECTORS
Edgar R. Fiedler Vice President and Economic Counsellor, The
Conference Board.
C. Gary Gerst Chairman of the Board of Directors and Trustees;
Chairman Emeritus, La Salle Partners, Ltd. (Real
Estate Developer and Manager).
John W. McCarter, Jr. Senior Vice President, Boozo Allen & Hamilton,
Inc. (Consulting Firm); Director of W.W. Grainger,
Inc. and A.M. Castle, Inc.
Ernest M. Roth Consultant; Retired Senior Vice President and Chief
Financial Officer, Commonwealth Edison Company.
INVESTMENT ADVISER
The Fund has entered into an Advisory Contract with Harris Trust.
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.
This section highlights the
experience, services offered,
and compensation of the Fund's
Adviser.
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 Fund, the Advisory Contract provides 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 Contract with the Fund, Harris
Trust is entitled to receive a monthly advisory fees at the annual rate of
0.70%, of the average daily net assets of the Fund. For the fiscal year ended
December
17
<PAGE>
31, 1995, Harris Trust waived all of its advisory fees. Harris Trust expects to
waive all of its advisory fees for the current fiscal year. However, Harris
Trust may discontinue such fee waiver at any time in its sole discretion.
PORTFOLIO MANAGEMENT AGENT
Harris Trust has entered into a Portfolio Management Contract 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 Fund. For the services
provided by HIM, Harris Trust will pay to HIM the advisory fees it receives from
the Fund. As of June 30, 1995, HIM managed an estimated $13.8 billion in assets.
Purchase and sale orders of the securities held by the Fund may be
combined with those of other accounts that HIM manages, and for which it has
brokerage placement authority, in the interest of seeking the most favorable
overall net results. When HIM determines that a particular security should be
bought or sold for the Fund 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 Contract, the Portfolio Management
Contract 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
18
<PAGE>
thereof, could prevent Harris Trust or HIM from continuing to perform, in whole
or in part, such services. If Harris Trust or HIM were prohibited from
performing any of such services, it is expected that the Board of Directors of
the Company would recommend to the Fund's shareholders that they approve new
agreements with another entity or entities qualified to perform such services
and selected by the Board of Directors.
To the extent permitted by the Commission, the Fund may pay brokerage
commissions to certain affiliated persons. No such commission payments were made
during the last fiscal year by the Fund.
ADMINISTRATORS, CUSTODIAN AND TRANSFER AGENT
First Data Investor Services Group, Inc. (formerly known as The
Shareholder Services Group, Inc.) ("First Data" or the "Administrator") and PFPC
Inc. ("PFPC" or the "Administrator and Accounting Services Agent")
(collectively, the "Administrators") serve as the administrators of the Fund. In
such capacity, the Administrators generally assist the Fund in all aspects of
their administration and operation. PFPC also serves as the transfer and
dividend disbursing agent of the Funds (the "Transfer Agent").
These service providers are
responsible for maintaining
the books and records of the
Fund, handling compliance and
regulatory issues, processing
buy/sell orders, customer
service and the safekeeping of
securities.
PNC Bank, N.A. (the "Custodian") serves as custodian of the assets of
the Fund. PFPC and the Custodian are indirect, wholly-owned subsidiaries of PNC
Bank Corp.
As compensation for their services, the Administrators, the Custodian,
and the Transfer Agent are entitled to receive a combined fee based on the
aggregate average daily net assets of the Fund and certain other investment
portfolios managed by the Investment Adviser and Portfolio Management Agent,
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. The Administrators have entered into a Sub-Administration Agreement
with the Funds' Distributor under which the Distributor provides certain
administrative services with respect to the Funds. The Administrator pays the
Distributor a fee for these services out of its own resources at no cost to the
Funds.
19
<PAGE>
DISTRIBUTOR
Funds Distributor, Inc. (the "Distributor") has entered into a
Distribution Agreement with the Company pursuant to which it has the
responsibility for distributing shares of the Fund. 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 the
Fund, subject to the terms of the Service Plan described below, pursuant to
contractual arrangements between the Company and the Distributor and approved by
the Board of Directors of the Company.
The Distributor under- writes
the Fund's shares which are
then available for purchase or
redemption.
See "Management" and "Custodian" in the Statement of Additional
Information for additional information regarding the Fund's Investment Adviser,
Portfolio Management Agent, Administrators, Custodian, Transfer Agent and
Distributor.
EXPENSES
Except for certain expenses borne by the Distributor, Harris Trust and
HIM, the Company each bears all costs of its operations, including the
compensation of its Directors who are not affiliated with Harris Trust, HIM or
the Distributor or any of their affiliates; advisory and administration fees;
payments pursuant to the 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 the 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 Fund's custodian
including those for keeping books and accounts and calculating the net asset
value per share of the Fund; expenses of shareholders' meetings and meetings of
Board of Directors; expenses relating to the issuance, registration and
qualification of shares of the Fund; pricing services; organizational expenses;
and any extraordinary expenses. Expenses attributable to the Fund are charged
against the assets of the Fund. Other general expenses of the Company are
allocated among the investment portfolios of the Company in an equitable manner
as determined by the Board of Directors.
20
<PAGE>
DETERMINATION OF NET ASSET VALUE
Net asset value per share for the 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 the Fund is determined by dividing the value of the total assets of the Fund
less all of its liabilities by the total number of outstanding shares of the
Fund.
The Net Asset Value (NAV) is
the price or value of one
share of the Fund.
The net asset value per share of the Fund is determined at the close of
regular trading on the NYSE on each day the Fund is open for business. The value
of securities of the Fund (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 Directors. 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 Company's Board of Directors has determined that amortized cost
valuation represents fair value.
PURCHASE OF SHARES
Shares of the Fund 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.
Contact your broker, financial
institution or service agent
for answers to any questions
you may have about purchasing
shares.
21
<PAGE>
The Company 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 the Fund's shares subject to
collection at full face value in U.S. dollars. Inquiries may be directed to the
Fund at the address and telephone number on the cover of this Prospectus.
Purchase orders for shares of the Fund received in good order by the
Distributor prior to the close of regular trading (4:00 P.M., New York City
time) on the NYSE will be executed at the offering price, which includes a sales
charge, next determined on that day. Orders placed directly with the Distributor
must be paid for by check or bank wire on the next business day. Payment for the
shares purchased through an Institution will not be due until settlement date,
normally three business days after the order has been executed.
When shares of the Fund 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.
Although shares of the Fund
are sold with a sales load of
up to 4.50%, there are a
number of ways to reduce the
sales load.
Sales charges for shares of the Fund are as follows:
<TABLE>
<CAPTION>
SALES SALES CHARGE AS % OF DEALER ALLOWANCE AS
AMOUNT OF PURCHASE CHARGE NET AMOUNT INVESTED % OF
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 (g) customers of Harris Trust
and its affiliate banks.
22
<PAGE>
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 shares of the Fund, Class A Shares of the non-money market
funds of the Harris Insight Funds Trust and the Company with the total net asset
value of the Fund's shares and Class A Shares of such funds currently being
purchased or already owned 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 Fund with respect to all shares
purchased thereafter.
A Letter of Intent allows an investor to purchase shares of the Fund
and Class A Shares of the non-money market funds of the Harris Insight Funds
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 the
Fund's shares and Class A Shares of such funds already owned pursuant to the
terms of the letter. 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.
REDEMPTION OF SHARES
Shares may be redeemed at their next determined net asset value after
receipt of a proper request by the Distributor directly or through any
Institution.
There is no charge 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 the 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.
There is no charge by the Fund
for redemptions, although
Institutions may charge an
account- based service fee
23
<PAGE>
Redemption orders for the 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 Company
with 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 the Fund's assets. Prior to such a
redemption, a shareholder will be notified in writing and permitted 30 days to
make additional investments to raise the account balance to the specified
minimum.
EXCHANGE PRIVILEGE
Shares of the Fund that have been held for seven days or more may be
exchanged for Class A Shares of any other fund of the Company or the Harris
Insight Funds Trust in an identically registered account, provided the shares of
the fund to be acquired are registered for sale in the shareholder's state of
residence, on the following terms: Shares of the Fund and Class A Shares of
non-money market funds of the Harris Insight Funds 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,
shares of a fund that have been exchanged pursuant to these privileges may be
re-exchanged at respective net asset values of the class of shares of the fund
in which they were originally invested upon notification.
Once you have held shares for
7 days or more, ,you can
exchange these shares for
other eligible Harris Insight
Fund Shares
Procedures applicable to redemption of the Fund's shares are also
applicable to exchanging shares. The Company reserves the right to limit the
number of times shares may be exchanged, to reject any telephone exchange order
or otherwise to modify or discontinue exchange privileges at any time
24
<PAGE>
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 PLAN
Under the Fund's Service Plan, the Fund bears the costs and expenses in
connection with advertising and marketing its 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 shares. However, Harris Trust or HIM, in lieu of the 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 the Service Plan.
The Service Plan for the Fund
allow the Fund to pay Service
Agents for certain servicing
activities provided to their
customers.
In addition to the fees paid by the 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
shares (but not in any case greater than such costs). For more information
concerning expenses pursuant to the Service Plan, see "Management."
Servicing activities provided by Service Agents to their customers
investing in the Fund may include, among other things, one or more of the
following: establishing and maintaining shareholder accounts and records;
processing purchase and redemption transactions; answering customer inquiries
regarding the Fund; assisting customers in changing dividend options, account
designations and addresses; performing sub-accounting; investing customer cash
account balances automatically in Fund shares; providing periodic statements
showing a customer's account balance and integrating 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 the Fund may request, to the extent the Service Agent is permitted
to do so by applicable statute, rule or regulation.
25
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund will be declared and
paid quarterly. The 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 the Fund
will be invested in additional shares of the 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. The Fund
will forward to the Transfer Agent the monies for dividends to be paid in cash
on the payment date.
The Fund declares and pays
dividends quarterly.
FEDERAL INCOME TAXES
The Fund (and each of the other investment portfolios of the Company)
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 the Fund
separately, rather than to the Company as a whole. As a result, net capital
gains, net investment income, and operating expenses will be determined
separately for the Fund. The Company intends to qualify the Fund as a regulated
investment company under Subchapter M of the Code. As a portfolio of a regulated
investment company, the 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.
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
the Fund upon the redemption or transfer of shares depending on the tax basis of
the shares and their price at the time of the transaction. Any loss realized on
a sale or exchange of shares of the Fund will be disallowed to the extent shares
are acquired within the 61-day period beginning 30 days before and ending 30
days after disposition of the shares.
The Company will be required to withhold, subject to certain
exemptions, a portion (currently, 31%) from dividends paid or credited to
individual shareholders and from redemption proceeds, if a correct taxpayer
identification number, certified when required, is not on file with the Company
or Transfer Agent.
26
<PAGE>
ACCOUNT SERVICES
Shareholders receive a Statement of Account whenever a share
transaction, dividend or capital gain distribution is effected in the accounts,
or at least annually. Shareholders an write or call the Company at the address
and telephone number on page one of this Prospectus with any questions relating
to their investment in shares of the Fund.
ORGANIZATION AND CAPITAL STOCK
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 Intermediate Bond Fund to issue one class of shares. In
the future, 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.
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 Company, when issued,
will be fully paid and non-assessable.
As of January 31, 1996, Harris Trust held of record 35,249 shares,
equal to 29.47% of the outstanding shares of the Fund. Harris Trust has
indicated that it holds its shares on behalf of various client accounts and not
as beneficial owner.
The Company may dispense with annual meetings of shareholders in any
year in which Directors are not required to be elected by shareholders. The
Board of Directors of the Company, when requested by at least 10% of the
Company's outstanding shares, will call a meeting of shareholders for the
purpose of voting upon the question of removal of a Director or Directors and
will assist in communications with other shareholders as required by Section
16(c) of the 1940 Act.
REPORTS TO SHAREHOLDERS
The fiscal year of the Company ends on December 31. The Company will
send to its shareholders a semi-annual report showing the investments held by
the Fund and other information (including unaudited financial statements)
pertaining to the Company. An annual report, containing financial statements
audited by independent accountants, is also sent to shareholders.
27
<PAGE>
CALCULATION OF YIELD AND TOTAL RETURN
From time to time the Fund may advertise its yield, tax-equivalent
yield and "total return." "Total return" refers to the amount an investment in
shares of the 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 the Fund shows what an investment in shares of the Fund would
have earned over a specified period of time (such as one, five or ten years or
the period of time since commencement of operations, if shorter) assuming the
payment of the maximum sales loads when the investment was first made and that
all distributions and dividends by the Fund were reinvested on their
reinvestment dates during the period less all recurring fees. When the 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 the Fund refers to the income generated by an investment
in 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 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.
28
<PAGE>
INVESTMENT ADVISER DISTRIBUTOR
Harris Trust & Savings Bank Funds Distributor, Inc.
111 West Monroe Street One Exchange Place
Chicago, Illinois 60603 Boston, Massachusetts 02109
PORTFOLIO MANAGEMENT AGENT CUSTODIAN
Harris Investment Management, Inc. PNC Bank, N.A.
190 South LaSalle Street Broad and Chestnut Streets
Chicago, Illinois 60603 Philadelphia, Pennsylvania 19101
ADMINISTRATORS TRANSFER AGENT AND
First Data Investor Services Group, Inc. DIVIDEND DISBURSING AGENT
53 State Street PFPC Inc.
Boston, Massachusetts 02109 P.O. Box 8950
Wilmington, Delaware 19885
PFPC Inc.
103 Bellevue Parkway INDEPENDENT ACCOUNTANTS
Wilmington, Delaware 19809 Price Waterhouse LLP
Philadelphia, Pennsylvania
LEGAL COUNSEL
Bell, Boyd & Lloyd
Chicago, Illinois
29
HARRIS INSIGHT FUNDS
HARRIS INSIGHT CONVERTIBLE FUND
STATEMENT OF ADDITIONAL INFORMATION
One Exchange Place, Boston, Massachusetts 02109
Telephone: (800) 982-8782
The Harris Insight Convertible Fund (the "Fund") is one of six
portfolios of HT Insight Funds, Inc. (the "Company") an open-end, diversified
management investment company. The investment objective of the Fund is described
in the Prospectus.
See "Investment Objective and Policies."
This Statement of Additional Information is not a prospectus and is
authorized for distribution only when preceded or accompanied by the Fund's
Prospectus dated February 21, 1996 and any supplement thereto (the
"Prospectuses"). This Statement of Additional Information contains additional
information that should be read in conjunction with each of the Prospectuses,
additional copies of which may be obtained without charge from the Company's
distributor, Funds Distributor, Inc., by writing or calling the Fund at the
address or telephone number given above.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C> <C>
Investment Strategies....................... 2 Capital Stock............................ 20
Ratings..................................... 8 Other.................................... 21
Investment Restrictions..................... 8 Custodian................................ 21
Management..................................10 Independent Accountants.................. 22
Service Plan................................14 Experts.................................. 22
Calculation of Yield and Financial Statements..................... 23
Total Return..............................15 Appendix................................. A-1
Determination of Net
Asset Value ..............................16
Portfolio Transactions......................17
Federal Income Taxes........................19
</TABLE>
<PAGE>
INVESTMENT STRATEGIES
CONVERTIBLE SECURITIES. Because they have the characteristics of both
fixed-income securities and common stock, convertible securities sometimes are
called "hybrid" securities. Convertible bonds, debentures and notes are debt
obligations offering a stated interest rate; convertible preferred stocks are
senior securities offering a stated dividend rate. Convertible securities will
at times be priced in the market like other fixed income securities: that is,
their prices will tend to rise when interest rates decline and will tend to fall
when interest rates rise. However, because a convertible security provides an
option to the holder to exchange the security for either a specified number of
the issuer's common shares at a stated price per share or the cash value of such
common shares, the security market price will tend to fluctuate in relationship
to the price of the common shares into which it is convertible. Thus,
convertible securities ordinarily will provide opportunities both for producing
current income and longer-term capital appreciation. Because convertible
securities are usually viewed by the issuer as future common stock, they are
generally subordinated to other senior securities and therefore are rated one
category lower than the issuer's non-convertible debt obligations or preferred
stock. Securities rated "B" or "CCC" (or "Caa") are regarded as having
predominantly speculative characteristics with respect to the issuer's capacity
to pay interest and repay principal, with "B" indicating a lesser degree of
speculation than "CCC" (or "Caa"). While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions. Securities rated "CCC" (or "Caa") have a
currently identifiable vulnerability to default and are dependent upon favorable
business, financial, and economic conditions to meet timely payment of interest
and repayment of principal. In the event of adverse business, financial, or
economic conditions, they are not likely to have the capacity to pay interest
and repay principal.
While the market values of low-rated and comparable unrated securities
tend to react less to fluctuations in interest rate levels than the market
values of higher-rated securities, the market values of certain low-rated and
comparable unrated securities also tend to be more sensitive to individual
corporate developments and changes in economic conditions than higher-rated
securities. In addition, low-rated securities and comparable unrated securities
generally present a higher degree of credit risk, and yields on such securities
will fluctuate over time. Issuers of low-rated and comparable unrated securities
are often highly leveraged and may not have more traditional methods of
financing available to them so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such issuers
is significantly greater because low-rated and comparable unrated securities
generally are unsecured and frequently are subordinated to the prior payment of
senior indebtedness. The Fund may incur additional expenses to the extent that
it is required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings. The existence of limited markets for
low-rated and comparable unrated securities may diminish the Fund's ability to
obtain accurate market quotations for purposes of valuing such securities and
calculating its net asset value.
<PAGE>
Fixed-income securities, including low-rated securities and comparable
unrated securities, frequently have call or buy-back features that permit their
issuers to call or repurchase the securities from their holders, such as the
Fund. If an issuer exercises these rights during periods of declining interest
rates, the Fund may have to replace the security with a lower yielding security,
thus resulting in a decreased return to the Fund.
To the extent that there is no established retail secondary market for
low-rated and comparable unrated securities, there may be little trading of such
securities in which case the responsibility of the Company's Board of Directors,
as the case may be, to value such securities becomes more difficult and judgment
plays a greater role in valuation because there is less reliable, objective data
available. In addition, the Fund's ability to dispose of the bonds may become
more difficult. Furthermore, adverse publicity and investor perceptions, whether
or not based on fundamental analysis, may decrease the values and liquidity of
high yield bonds, especially in a thinly traded market.
The market for certain low-rated and comparable unrated securities is
relatively new and has not weathered a major economic recession. The effect that
such a recession might have on such securities is not known. Any such recession,
however, could likely disrupt severely the market for such securities and
adversely affect the value of such securities. Any such economic downturn also
could adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and could result in a higher incidence of
defaults.
FLOATING AND VARIABLE RATE OBLIGATIONS. The Portfolio Management Agent
will monitor, on an ongoing basis, the ability of an issuer of a Floating or
Variable Rate demand instrument to pay principal and interest on demand. The
Fund's right to obtain payment at par on a demand instrument could be affected
by events occurring between the date the Fund elects to demand payment and the
date payment is due that may affect the ability of the issuer of the instrument
to make payment when due, except when such demand instrument permits same day
settlement. To facilitate settlement, these same day demand instruments may be
held in book entry form at a bank other than the Fund's custodian subject to a
sub-custodian agreement between the bank and the Fund's custodian.
The floating and variable rate obligations that the Fund may purchase
include certificates of participation in such obligations purchased from banks.
A certificate of participation gives the Fund an undivided interest in the
underlying obligations in the proportion that the Fund's interest bears to the
total principal amount of the obligation. Certain certificates of participation
may carry a demand feature that would permit the holder to tender them back to
the issuer prior to maturity. The income received on certificates of
participation in tax-exempt municipal obligations constitutes interest from
tax-exempt obligations.
FOREIGN SECURITIES. As discussed in the Prospectus, investing in
foreign securities generally represents a greater degree of risk than investing
in domestic securities, due to possible exchange rate fluctuations, less
publicly available information, more volatile
<PAGE>
markets, less securities regulation, less favorable tax provisions, war or
expropriation. As a result of its investments in foreign securities, the Fund
may receive interest or dividend payments, or the proceeds of the sale or
redemption of such securities, in the foreign currencies in which such
securities are denominated.
GOVERNMENT SECURITIES. Government Securities consist of obligations
issued or guaranteed by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises. Obligations of the United States Government agencies and
instrumentalities are debt securities issued by United States
Government-sponsored enterprises and federal agencies. Some of these obligations
are supported by: (a) the full faith and credit of the United States Treasury
(such as Government National Mortgage Association participation certificates);
(b) the limited authority of the issuer to borrow from the United States
Treasury (such as securities of the Federal Home Loan Bank); (c) the
discretionary authority of the United States Government to purchase certain
obligations (such as securities of the Federal National Mortgage Association);
or (d) the credit of the issuer only. In the case of obligations not backed by
the full faith and credit of the United States, the investor must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment. In cases where United States Government support of agencies or
instrumentalities is discretionary, no assurance can be given that the United
States Government will provide financial support, since it is not lawfully
obligated to do so.
LETTERS OF CREDIT. Debt obligations, including municipal obligations,
certificates of participation, commercial paper and other short-term
obligations, may be backed by an irrevocable letter of credit of a bank that
assumes the obligation for payment of principal and interest in the event of
default by the issuer. Only banks that, in the opinion of the Portfolio
Management Agent are of investment quality comparable to other permitted
investments of the Fund, may be used for letter of credit backed investments.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend to brokers, dealers
and financial institutions securities from its portfolio representing up to
one-third of the Fund's net assets if cash or cash equivalent collateral,
including letters of credit, marked-to-market daily and equal to at least 100%
of the current market value of the securities loaned (including accrued interest
and dividends thereon) plus the interest payable to the Fund with respect to the
loan is maintained by the borrower with the Fund in a segregated account. In
determining whether to lend a security to a particular broker, dealer or
financial institution, the Portfolio Management Agent will consider all relevant
facts and circumstances, including the creditworthiness of the broker, dealer or
financial institution. The Fund will not into any portfolio security lending
arrangement having a duration of longer than one year. Any securities that the
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 the Fund will
<PAGE>
be subject to termination at the Fund's or the borrower's option. The Fund may
pay reasonable administrative and custodial fees in connection with a securities
loan and may pay a negotiated fee to the borrower or the placing broker.
Borrowers and placing brokers may not be affiliated, directly or indirectly,
with the Company, the Investment Adviser, the Portfolio Management Agent or the
Distributor.
PUT AND CALL OPTIONS. The Fund may invest in covered put and covered
call options and write covered put and covered call options on securities in
which the Fund may invest directly and that are traded on registered domestic
securities exchanges. The writer of a call option, who receives a premium, has
the obligation, upon exercise of the option, to deliver the underlying security
against payment of the exercise price during the option period. The writer of a
put, who receives a premium, has the obligation to buy the underlying security,
upon exercise, at the exercise price during the option period.
The Fund may write put and call options on securities only if they are
"covered," and such options must remain "covered" as long as the Fund is
obligated as a writer. A call option is "covered" if the Fund owns the
underlying security or its equivalent covered by the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or for additional cash consideration if held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Fund holds on a share-for-share
or equal principal amount basis a call on the same security as the call written
where the exercise price of the call held is equal to or less than the exercise
price of the call written or greater than the exercise price of the call written
if the difference is maintained by the Fund in cash, Treasury bills or other
high-grade short-term obligations in a segregated account with its custodian. A
put option is "covered" if the Fund maintains cash, Treasury bills, or other
high-grade short-term obligations with a value equal to the exercise price in a
segregated account with its custodian, or owns on a share-for-share or equal
principal amount basis a put on the same security as the put written where the
exercise price of the put held is equal to or greater than the exercise price of
the put written.
The principal reason for writing call options is to attempt to realize,
through the receipt of premiums, a greater current return than would be realized
on the underlying securities alone. In return for the premium, the Fund would
give up the opportunity for profit from a price increase in the underlying
security above the exercise price so long as the option remains open, but
retains the risk of loss should the price of the security decline. Upon exercise
of a call option when the market value of the security exceeds the exercise
price, the Fund would receive less total return for its portfolio than it would
have if the call had not been written, but only if the premium received for
writing the option is less than the difference between the exercise price and
the market value. Put options are purchased in an effort to protect the value of
a security owned against an anticipated decline in market value. The Fund may
forego the benefit of appreciation on securities sold or be subject to
depreciation on securities acquired pursuant to call or put options,
respectively, written by the Fund. The Fund may experience a loss if the value
of the securities remains at or below
<PAGE>
the exercise price, in the case of a call option, or at or above the exercise
price, in the case of a put option.
The Fund may purchase put options in an effort to protect the value of
a security owned against an anticipated decline in market value. Exercise of a
put option will generally be profitable only if the market price of the
underlying security declines sufficiently below the exercise price to offset the
premium paid and the transaction costs. If the market price of the underlying
security increases, the Fund's profit upon the sale of the security will be
reduced by the premium paid for the put option less any amount for which the put
is sold.
The staff of the Securities and Exchange Commission (the "Commission")
has taken the position that purchased options not traded on registered domestic
securities exchanges and the assets used as cover for written options not traded
on such exchanges are illiquid securities. The Company has agreed that, pending
resolution of the issue, the Fund will treat such options and assets as subject
to such Fund's limitation on investment in securities that are not readily
marketable.
Writing of options involves the risk that there will be no market in
which to effect a closing transaction. An exchange-traded option may be closed
out only on an exchange that provides a secondary market for an option of the
same series, and there is no assurance that a liquid secondary market on an
exchange will exist.
REPURCHASE AGREEMENTS. The Fund may purchase portfolio securities
subject to the seller's agreement to repurchase them at a mutually agreed upon
time and price, which includes an amount representing interest on the purchase
price. The Fund may enter into repurchase agreements only with respect to
obligations that could otherwise be purchased by the Fund. The seller will be
required to maintain in a segregated account for the Fund cash or cash
equivalent collateral equal to at least 100% of the repurchase price (including
accrued interest). Default or bankruptcy of the seller would expose the Fund to
possible loss because of adverse market action, delays in connection with the
disposition of the underlying obligations or expenses of enforcing its rights.
The Fund may not enter into a repurchase agreement if, as a result,
more than 10% of the market value of the Fund's total net assets would be
invested in repurchase agreements with a maturity of more than seven days and in
other illiquid securities. The Fund will enter into repurchase agreements only
with registered broker/dealers and commercial banks that meet guidelines
established by the Board of Directors.
The Fund also may enter into reverse repurchase agreements, which are
detailed in the Prospectus.
SECURITIES WITH PUTS. A put is not transferable by the Fund, although
the Fund may sell the underlying securities to a third party at any time. If
necessary and advisable, the Fund may pay for certain puts either separately, in
cash or by paying a higher price for
<PAGE>
portfolio securities that are acquired subject to such a put (thus reducing the
yield to maturity otherwise available for the same securities). The Fund
expects, however, that puts generally will be available without the payment of
any direct or indirect consideration.
The Fund intends to enter into puts solely to maintain liquidity and
does not intend to exercise its rights thereunder for trading purposes. The puts
will only be for periods substantially less than the life of the underlying
security. The acquisition of a put will not affect the valuation by the Fund of
the underlying security. Where the Fund pays directly or indirectly for a put,
its costs will be reflected as an unrealized loss of the period during which the
put is held by the Fund and will be reflected in realized gain or loss when the
put is exercised or expires. If the value of the underlying security increases,
the potential for unrealized or realized gain is reduced by the cost of the put.
The maturity of a municipal obligation purchased by the Fund will not be
considered shortened by any put to which the obligation is subject.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS (DELAYED-DELIVERY).
When-issued purchases and forward commitments (delayed-delivery) are commitments
by the Fund to purchase or sell particular securities with payment and delivery
to occur at a future date (perhaps one or two months later). These transactions
permit the Fund to lock-in a price or yield on a security, regardless of future
changes in interest rates.
When the Fund agrees to purchase securities on a when-issued or forward
commitment basis, the Custodian will segregate on the books of the Fund the
liquid assets of the Fund. Normally, the Custodian will set aside portfolio
securities to satisfy a purchase commitment, and in such a case the Fund may be
required subsequently to place additional assets in the separate account in
order to ensure that the value of the account remains equal to the amount of the
Fund's commitments. Because the Fund's liquidity and ability to manage its
portfolio might be affected when it sets aside cash or portfolio securities to
cover such purchase commitments, the Investment Adviser expects that its
commitments to purchase when-issued securities and forward commitments will not
exceed 25% of the value of the Fund's total assets absent unusual market
conditions.
The Fund will purchase securities on a when-issued or forward
commitment basis only with the intention of completing the transaction and
actually purchasing the securities. If deemed advisable as a matter of
investment strategy, however, the Fund may dispose of or renegotiate a
commitment after it is entered into, and may sell securities it has committed to
purchase before those securities are delivered to the Fund on the settlement
date. In these cases the Fund may realize a capital gain or loss for federal
income tax purposes.
When the Fund engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
<PAGE>
The market value of the securities underlying a when-issued purchase or
a forward commitment to purchase securities, and any subsequent fluctuations in
their market value, are taken into account when determining the market value of
the Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
RATINGS
After purchase by the 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 securities exceeds permissible limits established in the Prospectuses.
However, the Portfolio Management Agent will reassess promptly whether the
security presents minimal credit risks and determine whether continuing to hold
the security is in the best interests of the Fund. To the extent the ratings
given by any nationally recognized statistical rating organization may change as
a result of changes in such organizations or in their rating systems, the Fund
will attempt to use comparable ratings as standards for investments in
accordance with the investment policies contained in the Prospectuses and in
this Statement of Additional Information.
For additional information on ratings, see Appendix A to this Statement
of Additional Information.
INVESTMENT RESTRICTIONS
The Fund may not:
(1) issue senior securities or borrow money (except that the Fund may
borrow from banks up to 10% of the current value of the Fund's net assets for
temporary purposes only in order to meet redemptions, and these borrowings may
be secured by the pledge of not more than 10% of the current value of the Fund's
total assets, but investments may not be purchased by the Fund while any such
borrowing exists.
(2) pledge or mortgage its assets (except that the Fund may pledge its
assets as described in (1) above and (i) to secure letters of credit solely for
the purpose of participating in a captive insurance company sponsored by the
Investment Company Institute to provide fidelity and directors' and officers'
liability insurance or (ii) to a broker for the purpose of collateralizing
investments, such as stock index futures contracts and put options);
(3) make loans, except loans of portfolio securities and except that
the Fund may purchase or hold a portion of an issue of publicly distributed
bonds, debentures or other obligations, purchase negotiable certificates of
deposit and bankers' acceptances and enter into repurchase agreements with
respect to its portfolio securities;
(4) invest an amount in excess of 10% of the current value of the
Fund's net assets in repurchase agreements having maturities of more than seven
days, variable amount master
<PAGE>
demand notes having notice periods of more than seven days, fixed time deposits
that are subject to withdrawal penalties and have maturities of more than seven
days, securities that are not readily marketable and other illiquid securities
(including certain GICs and BICs);
(5) purchase or sell real estate (other than securities secured by real
estate or interests therein, securities backed by mortgages or securities issued
by companies that invest in real estate or interests therein), real estate
limited partnerships, commodities or commodity contracts except stock index
futures and options on stock indices;
(6) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions and margin payments in connection
with transactions in stock index futures contracts) or make short sales of
securities;
(7) underwrite securities of other issuers, except to the extent that
the purchase of municipal obligations or other permitted investments directly
from the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with the Fund's investment program
may be deemed to be an underwriting;
(8) make investments for the purpose of exercising control or
management; or
(9) purchase securities of other investment companies, except
securities of certain money market funds in accordance with the Fund's
investment objectives and policies and to the extent permissible under the 1940
Act, and except in connection with a merger, consolidation, acquisition,
spin-off or reorganization.
Each of the foregoing investment restrictions is a fundamental policy
of the Fund that may be changed only when permitted by law and approved by the
holders of a majority of the Fund's outstanding voting securities, as described
under "Capital Stock."
In addition to the above fundamental investment policies, each of the
following investment restrictions may be changed at any time by the Board of
Directors, as the case may be.
The Fund may not: (1) invest more than 5% of its net assets in
warrants, valued at the lower of cost or market, and no more than 2% of its net
assets may be invested in warrants that are not listed on the New York or
American Stock Exchanges. (Warrants acquired in units or attached to securities
may be deemed to be without value.);
(2) invest in oil, gas and other mineral leases, exploration or
development programs; or
(3) purchase or retain the securities of any issuer if the officers,
directors or partners of the Company, its Investment Adviser, Portfolio
Management Agent or Administrator
<PAGE>
owning beneficially more than one-half of 1% of the securities of each issuer
together own beneficially more than 5% of such securities.
Whenever any investment restriction states a maximum percentage of the
Fund's assets, it is intended that if the percentage limitation is met at the
time the action is taken, subsequent percentage changes resulting from
fluctuating asset values will not be considered a violation of such
restrictions.
For purposes of these investment restrictions as well as for purposes
of diversification under the 1940 Act, the identification of the issuer of a
municipal obligation depends on the terms and conditions of the obligation. If
the assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the government creating the
subdivision and the obligation is backed only by the assets and revenues of the
subdivision, such subdivision would be regarded as the sole issuer. Similarly,
in the case of a "private activity bond," if the bond is backed only by the
assets and revenues of the non-governmental user, the non-governmental user
would be deemed to be the sole issuer. If in either case the creating government
or another entity guarantees an obligation, the guarantee would be considered a
separate security and be treated as an issue of such government or entity.
MANAGEMENT
DIRECTORS AND OFFICERS
The principal occupations of the executive officers of the Company for
the past five years and their ages are listed below. The address of each, unless
otherwise indicated, is One Exchange Place, Boston, Massachusetts 02109.
Directors deemed to be "interested persons" of the Company, as the case may be,
for purposes of the 1940 Act are indicated by an asterisk.
*EDGAR R. FIEDLER, Director - 845 Third Avenue, New York, New York 10022. Age
65. Vice President and Economic Counsellor, The Conference Board since 1975;
Director or Trustee, The Stanley Works, AARP Income Trust, AARP Insured Tax Free
Income Trust, AARP Cash Investment Fund, Brazil Fund, Scudder Institutional
Fund, Scudder Fund, Inc., Zurich American Insurance Company, Emerging Mexico
Fund and Center for Policy Research of the American Council for Capital
Formation. Formerly Assistant Secretary of the Treasury for Economic Policy
(1971-1975).
C. GARY GERST, Chairman of the Board of Directors; Director - 11 South La Salle
Street, Chicago, Illinois 60603. Age 56. Chairman Emeritus since 1993 and
formerly Co-Chairman, La Salle Partners Ltd. (Real Estate Developer and
Manager). Director, Trustee or Partner, La Salle Street Fund Inc., La Salle
Street Fund Inc. of Delaware, DEL-LPL Limited Partnership and DEL-LPAML Limited
Partnership.
<PAGE>
JOHN W. McCARTER, JR., Director - 225 West Wacker Drive, Suite 1700, Chicago,
Illinois 60606. Age 57. Senior Vice President and former Director of Boozo Allen
& Hamilton, Inc. (Consulting Firm); Director of W.W. Grainger, Inc. and A.M.
Castle, Inc.
ERNEST M. ROTH, Director - 205 Abingdon Avenue, Kenilworth, Illinois 60043. Age
67. Consultant since 1992. Formerly, Senior Vice President and Chief Financial
Officer, Commonwealth Edison Company. Director of LaRabida Children's Hospital
and Chairman of LaRabida Children's Foundation.
RICHARD H. ROSE, Treasurer of the Company - Age 39. Vice President, First Data
Investor Services Group, Inc., since May 6, 1994. Formerly Senior Vice
President, The Boston Company Advisors, Inc.
PATRICIA L. BICKIMER, President and Secretary of the Company - Age 42. Vice
President and Associate General Counsel, First Data Investor Services Group,
Inc., since May 6, 1994; Formerly, Vice President and Associate General Counsel,
The Boston Company Advisors, Inc.
LISA A. ROSEN, Assistant Secretary of the Company - Age 28. Counsel, First Data
Investor Services Group, Inc., since May 6, 1994. Formerly, Assistant Vice
President and Counsel with The Boston Company Advisors, Inc.; Associate with
Hutchins, Wheeler & Dittmar.
Directors of the Company receive from the Company, an annual fee in
addition to a fee for each Board of Directors meeting, and Board committee
meeting attended and are reimbursed for all out-of-pocket expenses relating to
attendance at meetings.
The following table summarizes the compensation paid by the Company to
the Directors of the Company for the fiscal year ended December 31, 1995:
<PAGE>
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Benefits Estimated Annual Total Compensation
Name of Person, Compensation Accrued as Part Benefits upon from the Company
Position from the Company of Fund Expenses Retirement and Fund Complex
- -------- ---------------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Edgar R. Fiedler, $20,000 (1) None None $20,000
Director
C. Gary Gerst, $20,000 None None $20,000
Director
John W. $ 0 None None $ 0
McCarter, Jr.
Director(2)
Ernest M. Roth, $20,000 None None $20,000
Director
- --------------------------
</TABLE>
(1) For the period June 1988 through December 31, 1994, the total amount of
compensation (including interest) payable or accrued for Mr. Fiedler was
$171,192.07 pursuant to the Company's Deferred Compensation Plan for its
Independent Directors.
(2) Mr. McCarter became a Director of the Company in October, 1995.
As of January 31, 1996, the principal holders of the Fund were Harris
Trust & Savings Bank, Chicago, Illinois 60603, BMS/Central Trust, Jefferson
City, Missouri 65102, National Financial Services Company, 200 Liberty Street,
New York, New York and Mary Morse Cargill, c/o Russ Felton, P.O. Box 9300, dept.
28, Minneapolis, MN 55440-9300 held of record, 35,249, 34,510, 25,872 and 19,316
shares, respectively, equal to 29.47%, 28.85%, 21.63% and 16.15%, respectively
of the outstanding shares of the Convertible Fund.
The shareholders described above have indicated that they each hold
their shares on behalf of various accounts and not as beneficial owners. To the
extent that any shareholder is the beneficial owner of more than 25% of the
outstanding shares of any Fund, such shareholder may be deemed to be a "control
person" of that Fund for purposes of the 1940 Act.
As of January 31, 1996, Directors and officers of the Company as a
group beneficially owned less than 1% of the outstanding shares of each of the
Company's Funds.
<PAGE>
Investment Adviser, Investment Sub-Adviser and Portfolio Management Agent. The
Fund is advised by Harris Trust. Harris Trust has entered into Portfolio
Management Contracts with Harris Investment Management, Inc. ("HIM") under which
HIM is responsible for all Fund purchase and sale transactions and for providing
all such daily portfolio management services to the Fund. Under the Portfolio
Management Contracts, Harris Trust remains responsible for the supervision and
oversight of HIM's performance.
Harris Trust or HIM provides to the Fund, among other things, money
market security and fixed income research, analysis and statistical and economic
data and information concerning interest rate and security market trends,
portfolio composition and credit conditions. HIM analyzes key financial ratios
that measure the growth, profitability, and leverage of issuers in order to help
maintain a portfolio of above-average quality. Emphasis placed on a particular
type of security will depend on an interpretation of underlying economic,
financial and security trends. The selection and performance of securities is
monitored by a team of analysts dedicated to evaluating the quality of each
portfolio holding.
The Advisory Contract and the Portfolio Management Contract will
continue in effect from year to year, provided that such continuance is
specifically approved as described in the immediately preceding paragraph.
For the fiscal years ended December 31, 1995, 1994 and 1993, the
Investment Adviser was entitled to receive fees from the Fund in the following
amounts: $9,134, $26,524 and $51,186, respectively. Waivers of investment
advisory fees and expense reimbursements by the Investment Adviser from the Fund
for each period amounted to: $23,094, $16,347 and $28,451.
Administrators. First Data Investor Services Group, Inc. ("First Data")
and PFPC Inc. ("PFPC") (the "Administrators") serve as the Fund's administrators
pursuant to an Administration Agreement and an Administration and Accounting
Services Agreement, respectively. First Data has agreed to maintain office
facilities for the Fund; furnish clerical support and stationery and office
supplies; prepare and file various reports with the appropriate regulatory
agencies; and prepare various materials required by the Commission or any state
securities commission having jurisdiction over the Company. PFPC has agreed to
provide accounting and bookkeeping services for the Fund, including the
computation of the Fund's net asset value, net income and realized capital
gains, if any.
Distributor. Funds Distributor, Inc. (the "Distributor") has entered
into a Distribution Agreement with the Company pursuant to which it has the
responsibility of distributing shares of the Fund. Fees for services rendered by
the Distributor will be paid by the Administrators.
Other Information Pertaining to Distribution, Administration, Custodian
and Transfer Agency Agreements. PFPC Inc., the Fund's Transfer Agent and one of
the Fund's two administrators, is an affiliate of PNC Bank, N.A., the Company's
Custodian. PFPC
<PAGE>
Inc. and PNC Bank, N.A. are not affiliates of First Data and Funds Distributor,
Inc., and none of the aforenamed entities is an affiliate of Harris Investment
Management, Inc.
The Company's contracts with the Investment Adviser, Portfolio
Management Agent, Administrators, Transfer Agent and Custodian (the
"Contractors") provide that if, in any fiscal year, the total expenses of the
Fund incurred by, or allocated to, the Fund (excluding taxes, interest,
brokerage commissions and other portfolio transaction expenses, other
expenditures that are capitalized in accordance with generally accepted
accounting principles and extraordinary expenses and payments under plans of the
Fund adopted pursuant to Rule 12b-1 under the Act (the "Service Plans"), but
including the fees provided for in the Advisory Contract and the Administration
Agreement) exceed the most restrictive expense limitation applicable to the Fund
imposed by the securities laws or regulations of the states in which the Fund's
shares are registered for sale, such parties shall waive their fees
proportionately under the Portfolio Management Contract with respect to the Fund
and fee agreement with the Fund's Administrators, Transfer Agent and Custodian
for the fiscal year to the extent of the excess or reimburse the excess, but
only to the extent of their respective fees. The Company believes that currently
the most restrictive applicable expense limitation is 2.5% of the first $30
million of average net assets, 2% of the next $70 million of average net assets
and 1.5% of average net assets in excess of $100 million. No such waivers were
necessary in 1995.
SERVICE PLAN
As indicated in the Prospectuses, the Fund has adopted a Service Plan
under Section 12(b) of the 1940 Act and Rule 12b-1 promulgated thereunder ("Rule
12b-1") with respect to its shares. The Service Plan has been adopted by the
Board of Directors, including a majority of the Directors who were not
"interested persons" (as defined by the 1940 Act) of the Company, and who had no
direct or indirect financial interest in the operation of the Service Plan or in
any agreement related to the Plan (the "Qualified Directors"). The Service Plan
will continue in effect from year to year if such continuance is approved by a
majority vote of both the Directors of the Company and the Qualified Directors.
Agreements related to the Service Plan must also be approved by such vote of the
Directors and the Qualified Directors. The Service Plan will terminate
automatically if assigned, and may be terminated at any time, without payment of
any penalty, by a vote of a majority of the outstanding voting securities of the
Fund. The Service Plan may not be amended to increase materially the amounts
payable to Service Agents without the approval of a majority of the outstanding
voting securities of the Fund, and no material amendment to the Service Plan may
be made except by a majority of both the Directors of the Company and the
Qualified Directors.
The Service Plan requires that certain service providers furnish to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefore) under such Service Plan. Rule
12b-1 also requires that the selection and nomination of the Directors who are
not "interested persons" of the Company be made by such disinterested Directors.
<PAGE>
The 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 advisors, accountants and estate planning firms
(collectively, "Service Agents") for servicing activities, as described below,
at a rate of up to 0.25% per annum of the value of the Fund's average daily net
assets.
Servicing activities provided by Service Agents to their customers
investing in shares of the Fund may include, among other things, one or more of
the following: establishing and maintaining shareholder accounts and records;
processing purchase and redemption transactions; answering customer inquiries
regarding the Fund; assisting customers in changing dividend options; account
designations and addresses; performing sub-accounting; investing customer cash
account balances automatically in Fund shares; providing periodic statements
showing a customer's account balance and integrating 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 the Fund may request, to the extent the Service Agent is permitted
by applicable statute, rule or regulation.
To date, no payments have been made pursuant to the Fund's Service
Plan.
CALCULATION OF YIELD AND TOTAL RETURN
The Company makes available 30-day yield quotations with respect to
shares of the Fund. As required by regulations of the Commission, the 30-day
yield is computed by dividing the Fund's net investment income per share earned
during the period by the net asset value on the last day of the period. The
average daily number of shares outstanding during the period that are eligible
to receive dividends is used in determining the net investment income per share.
Income is computed by totaling the interest earned on all debt obligations
during the period and subtracting from that amount the total of all recurring
expenses incurred during the period. The 30-day yield is then annualized
assuming semi-annual reinvestment and compounding of net investment income.
The 30-day yield for the period ended December 31, 1995, was 5.60% for
the Fund.
The Company also makes available total return quotations for shares of
the Fund. Average annual total return for the Fund for the period from February
24, 1988 (commencement of operations) through December 31, 1995 was 7.43% and
the annual total return for the fiscal years ended December 31, 1994 and 1995
were (8.30%) and 13.23%, respectively. Each of these amounts is computed by
assuming a hypothetical initial investment of $10,000 and reflects the
imposition of the maximum sales charge. It is assumed that all of the dividends
and distributions by the Fund over the specified period of time were reinvested.
It was then assumed that at the end of the specified period, the entire amount
was redeemed. The average annual total return was then calculated by calculating
the annual rate required for the initial investment to grow to the amount that
would have been received upon redemption.
<PAGE>
The Fund may also calculate an aggregate total return which reflects
the cumulative percentage change in value over the measuring period. The
aggregate total return can be calculated by dividing the amount received upon
redemption by the initial investment and subtracting one from the result. The
aggregate total return for the Fund from February 24, 1988 (commencement of
operations) through December 31, 1995 and the aggregate total return for the
fiscal years ended December 31, 1994 and 1995, respectively were 75.63%, (8.30%)
and 13.23%, respectively.
Current yield and total return for the Fund will fluctuate from time to
time, unlike bank deposits or other investments which pay a fixed yield for a
stated period of time, and do not provide a basis for determining future yields.
Yield (or total return) is a function of portfolio quality, composition,
maturity and market conditions as well as expenses allocated to the Fund.
Performance data of the Fund may be compared to those of other mutual
funds with similar investment objectives and to other relevant indices, such as
those prepared by Salomon Brothers Inc. or Lehman Brothers Inc., or any of their
affiliates or to ratings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
such data is reported in national financial publications such as IBC/Donoghue's
Money Fund Report and Bank Rate Monitor (for money market deposit accounts
offered by the 50 leading banks and thrift institutions in the top five
metropolitan statistical areas). Money Magazine, Forbes, Barron's, The Wall
Street Journal and The New York Times, reports prepared by Lipper Analytical
Services and publications of a local or regional nature. Performance information
may be quoted numerically or may be presented in a table, graph or other
illustrations. All performance information advertised by the Funds is historical
in nature and is not intended to represent or guarantee future results.
In addition, investors should recognize that changes in the net asset
value of shares of the Fund will affect the yield of the Fund for any specified
period, and such changes should be considered together with the Fund's yield in
ascertaining the Fund's total return to shareholders for the period. Yield
information for the Fund may be useful in reviewing the performance of the Fund
and for providing a basis for comparison with investment alternatives. The yield
of the Fund, however, may not be comparable to other investment alternatives
because of differences in the foregoing variables and differences in the methods
used to value portfolio securities, compute expenses and calculate yield.
DETERMINATION OF NET ASSET VALUE
As described under "Determination of Net Asset Value" in the
Prospectuses, net asset value per share is determined at least as often as each
day that the Federal Reserve Board of Philadelphia and the New York Stock
Exchange are open, i.e., each weekday other than New Year's Day, Martin Luther
King, Jr.'s Day, Presidents' Day (the third Monday in February), Good Friday,
Memorial Day (the last Monday in May), Independence Day,
<PAGE>
Labor Day (the first Monday in September), Columbus Day, Veteran's Day,
Thanksgiving Day and Christmas Day (each, a "Holiday").
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors HIM is responsible for
the Fund's portfolio decisions and the placing of portfolio transactions. In
placing orders, it is the policy of the Company to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While HIM generally seeks reasonably
competitive spreads or commissions, the Fund will not necessarily be paying the
lowest spread or commission available.
Purchases and sales of securities for the Fund will usually be
principal transactions. Portfolio securities normally will be purchased or sold
from or to dealers serving as market makers for the securities at a net price.
The Fund will also purchase portfolio securities in underwritten offerings and
will, on occasion, purchase securities directly from the issuer. Generally,
municipal obligations and taxable money market securities are traded on a net
basis and do not involve brokerage commissions. The cost of executing the Fund's
portfolio securities transactions will consist primarily of dealer spreads, and
underwriting commissions. Under the 1940 Act, persons affiliated with the
Company are prohibited from dealing with the Company as a principal in the
purchase and sale of securities unless an exemptive order allowing such
transactions is obtained from the Commission.
HIM may, in circumstances in which two or more dealers are in a
position to offer comparable results for the Fund, give preference to a dealer
that has provided statistical or other research services to such adviser. By
allocating transactions in this manner, HIM is able to supplement its own
research and analysis with the views and information of other securities firms.
Information so received will be in addition to, and not in lieu of, the services
required to be performed under the Portfolio Management Contract, and the
expenses of such adviser will not necessarily be reduced as a result of the
receipt of this supplemental research information. Furthermore, research
services furnished by dealers through whom HIM effects securities transactions
for the Fund may be used by HIM in servicing its other accounts, and not all of
these services may be used by HIM in connection with advising the Fund.
Total brokerage commissions and the total dollar amount of transactions
on which commissions were paid during 1993 were $2,865 and $2,139,170,
respectively, for the Fund. Total brokerage commissions and the total dollar
amount of transactions on which commissions were paid during 1994 were $1,030
and $875,988, respectively, for the Fund. Total brokerage commissions and the
total dollar amount of such transactions were paid during 1995 were $157 and
$1,724,179, respectively for the Fund.
<PAGE>
With respect to transactions directed to brokers because of research
services provided, total brokerage commissions, and the total dollar amount of
the transactions on which such commissions were paid during 1993, 1994 and 1995,
no such commissions were paid for the Fund.
Purchases and sales of securities on a securities exchange are effected
through brokers who charge a negotiated commission for their services. Orders
may be directed to any broker including, to the extent and in the manner
permitted by applicable law, Harris Investors Direct, Inc. ("HID") In the
over-the-counter market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price that includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. The Fund will not deal with the
Distributor or HID in any transaction in which either one acts as principal
except as may be permitted by the Commission.
In placing orders for portfolio securities of the Fund, HIM is required
to give primary consideration to obtaining the most favorable price and
efficient execution. This means that HIM will seek to execute each transaction
at a price and commission, if any, that provide the most favorable total cost or
proceeds reasonably attainable in the circumstances. While HIM will generally
seek reasonably competitive spreads or commissions, the Fund will not
necessarily be paying the lowest spread or commission available. Commission
rates are established pursuant to negotiations with the broker based on the
quality and quantity of execution services provided by the broker in the light
of generally prevailing rates. The allocation of orders among brokers and the
commission rates paid are reviewed periodically by the Board of Directors.
Subject to the above considerations, HID may act as a main broker for
the Fund. For it to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration received by it must be reasonable and
fair compared to the commissions, fees or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time. This standard would allow HID to receive no more than the remuneration
that would be expected to be received by an unaffiliated broker on a
commensurate arm's-length transaction. Furthermore, the Directors of the
Company, including a majority who are not "interested" Directors have adopted
procedures that are reasonably designed to provide that any commissions, fees or
other remuneration paid to either one are consistent with the foregoing
standard. Brokerage transactions with either one are also subject to such
fiduciary standards as may be imposed upon each of them by applicable law.
<PAGE>
FEDERAL INCOME TAXES
The Prospectuses describe generally the tax treatment of distributions
by the Company. This section of the Statement includes additional information
concerning federal taxes.
The Fund will be treated as a separate entity for federal income tax
purposes and thus the provisions of the Internal Revenue Code of 1986, as
amended (the "Code") generally will be applied to the Fund separately, rather
than to the Company as a whole.
Qualification as a regulated investment company under the Code
generally requires, among other things, that (a) at least 90% of the Fund's
annual gross income (without offset for losses) be derived from interest,
payments with respect to securities loans, dividends and gains from the sale or
other disposition of stocks, securities or options thereon and certain other
income including, but not limited to, gains from futures contracts; (b) the Fund
derives less than 30% of its gross income from gains (without offset for losses)
from the sale or other disposition of stocks, securities or options thereon and
certain futures contracts held for less than three months; and (c) the Fund
diversifies its holdings so that, at the end of each quarter of the taxable
year, (i) at least 50% of the market value of the Fund's assets is represented
by cash, government securities and other securities, with such other securities
limited in respect of any one issuer to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government securities). As a regulated
investment company, the Fund will not be subject to federal income tax on its
net investment income and net capital gains distributed to its shareholders,
provided that it distributes to its shareholders at least 90% of its net
investment income (including net short-term capital gains) earned in each year.
For Federal income tax purposes, gain or loss on the futures contracts
and options described above (collectively referred to as "section 1256
contracts") is taxed pursuant to a special "mark-to-market" system. Under the
mark-to-market system, the Fund may be treated as realizing a greater or lesser
amount of gains or losses than actually realized. As a general rule, gain or
loss on section 1256 contracts is treated as 60% long-term capital gain or loss
and 40% short-term capital gain or loss, and, accordingly, the mark-to-market
system will generally affect the amount of capital gains or losses taxable to
the Fund and the amount of distributions taxable to a shareholder. Moreover, if
the Fund invests in both section 1256 contracts and offsetting positions in such
contracts, then the Fund might not be able to receive the benefit of certain
recognized losses for an indeterminate period of time. The Fund expects that its
activities with respect to section 1256 contracts and offsetting positions in
such contracts (a) will not cause it or its shareholders to be treated as
receiving a materially greater amount of capital gains or distributions than
actually realized or received and (b) will permit it to use substantially all of
the losses of the Fund for the fiscal years in which the losses actually occur.
<PAGE>
The Fund will generally be subject to an excise tax of 4% of the amount
of any income or capital gains distributed to shareholders on a basis such that
such income or gain is not taxable to shareholders in the calendar year in which
it was earned by the Fund. The Fund intends that it will distribute
substantially all of its net investment income and net capital gains in
accordance with the foregoing requirements, and, thus, expects not to be subject
to the excise tax. Dividends declared by the Fund in October, November or
December payable to shareholders of record on a specified date in such a month
and paid in the following January will be treated as having been paid by the
Fund and received by shareholders on December 31 of the calendar year in which
declared.
Income received by the Fund from sources within foreign countries may
be subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Fund's assets to be invested in
various countries is not known.
Gains or losses on sales of securities by the Fund generally will be
long-term capital gains or losses if the securities have been held by it for
more than one year, except in certain cases where the Fund acquires a put or
writes a call thereon. Other gains or losses on the sale of securities will be
short-term capital gains or losses.
If an option written by the Fund lapses or is terminated through a
closing transaction, such as a repurchase by the Fund of the option from its
holder, the Fund may realize a short-term capital gain or loss, depending on
whether the premium income is greater or less than the amount paid by the Fund
in the closing transaction. If securities are sold by the Fund pursuant to the
exercise of a call option written by it, such Fund will add the premium received
to the sale price of the securities delivered in determining the amount of gain
or loss on the sale. If securities are purchased by the Fund pursuant to the
exercise of a put option written by it, the Fund will subtract the premium
received from its cost basis in the securities purchased. The requirement that
the Fund derive less than 30% of its gross income from gains from the sale of
securities held for less than three months may limit the Fund's ability to write
options.
If, in the opinion of the Company, ownership of its shares has or may
become concentrated to an extent that could cause the Company to be deemed a
personal holding company within the meaning of the Code, the Company may require
the redemption of shares or reject any order for the purchase of shares in an
effort to prevent such concentration.
CAPITAL STOCK
The authorized capital stock of the Company consists of an aggregate of
10,000,000,000 shares ("Shares"), par value of $.001 per share. With respect to
the Fund, the Company's capital stock is currently classified as "Class D,"
referred to as the Harris Insight Convertible Fund, consisting of 100,000,000
Shares.
<PAGE>
Generally, all shares of the Company have equal voting rights and will
be voted in the aggregate, and not by class, except where voting by class is
required by law or where the matter involved affects only one class. As used in
the Prospectuses and in this Statement of Additional Information, the term
"majority," when referring to the approvals to be obtained from shareholders in
connection with general matters affecting the Fund (e.g., election of Directors
and ratification of independent accountants), means the vote of the lesser of
(i) 67% of the Company's shares represented at a meeting if the holders of more
than 50% of the outstanding shares are present in person or by proxy, or (ii)
more than 50% of the Company's outstanding shares. The term "majority," when
referring to the approvals to be obtained from shareholders in connection with
matters affecting a single fund or any other single fund (e.g., annual approval
of advisory contracts), means the vote of the lesser of (i) 67% of the shares of
the Fund represented at a meeting if the holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy or (ii) more
than 50% of the outstanding shares of the Fund. Shareholders are entitled to one
vote for each full share held and fractional votes for fractional shares held.
Each share of the Fund represents an equal proportionate interest in
that Fund with each other share of the Fund and is entitled to such dividends
and distributions out of the income earned on the assets belonging to that Fund
as are declared in the discretion of the Company's Board of Directors.
Notwithstanding the foregoing, each class of shares of each fund bears
exclusively the expense of fees paid to Service Organizations with respect to
that class of shares. In the event of the liquidation or dissolution of the
Company (or the Fund), shareholders of the Fund (or the Fund being dissolved)
are entitled to receive the assets attributable to that Fund that are available
for distribution, and a distribution of any general assets not attributable to
the particular Fund that are available for distribution in such manner and on
such basis as the Directors in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Company.
OTHER
The Registration Statement, including the Prospectuses, the Statement
of Additional Information and the exhibits filed therewith, may be examined at
the office of the Commission in Washington, D.C. Statements contained in the
Prospectuses or this Statement of Additional Information as to the contents of
any contract or other document referred to herein or in the Prospectuses are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
CUSTODIAN
As the Fund's custodian, PNC Bank, N.A., among other things, maintains
a custody account or accounts in the name of each Fund, receives and delivers
all assets for the Fund
<PAGE>
upon purchase and upon sale or maturity, collects and receives all income and
other payments and distributions on account of the assets of the Fund, and pays
all expenses of the Fund.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP has been selected as the independent accountants
for the Company. Price Waterhouse LLP provides audit services and assistance and
consultation in connection with review of certain Commission filings. Price
Waterhouse LLP's address is 30 South 17th Street, Philadelphia, Pennsylvania
19103.
EXPERTS
The financial statements incorporated by reference into the
Prospectuses and included in this Statement of Additional Information have been
incorporated by reference or included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of that firm as
experts in auditing and accounting.
<PAGE>
Specimen Computations of Net Asset
Values and Offering Prices Per Share
Convertible Fund (specimen computations)
Net Asset Value and Redemption Price per
Share of Capital Stock at December 31, 1995................... $9.52
Maximum Offering Price per Share ($9.52 divided by .955)
---- ----
(reduced on purchases of $100,000 or more)............ $9.97
=====
<PAGE>
FINANCIAL STATEMENTS
The financial statements for the year ended December 31, 1995 including
the notes thereto, have been audited by Price Waterhouse LLP and are
incorporated by reference in this Statement of Additional Information from the
Annual Report of the Company dated December 31, 1995.
<PAGE>
APPENDIX A
Description of Bond Ratings
The following summarizes the highest four ratings used by Standard &
Poor's Corporation ("S&P") for corporate and municipal debt:
AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from AAA issues only in a small
degree.
A - Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than for those in higher rated categories.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the highest four ratings used by Moody's
Investors Service, Inc. ("Moody's") for corporate and municipal long-term debt:
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds that are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger
than in Aaa securities.
A-1
<PAGE>
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds that are rated Baa are considered medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
corporate bonds rated Aa, A and Baa. The modifier 1 indicates that the bond
being rated ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category. With regard to municipal
bonds, those bonds in the Aa, A and Baa groups which Moody's believes possess
the strongest investment attributes are designated by the symbols Aa1, A1 or
Baa1, respectively.
The following summarizes the highest four ratings used by Duff & Phelps
Credit Rating Co. ("D&P") for bonds:
AAA - Debt rated AAA is of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA - Debt rated AA is of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from
time to time because of economic conditions.
A - Bonds that are rated A have protection factors which are
average but adequate. However risk factors are more variable and
greater in periods of economic stress.
BBB - Bonds that are rated BBB have below average protection
factors but are still considered sufficient for prudent
investment. Considerable variability in risk during economic
cycles.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major categories.
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The following summarizes the ratings used by IBCA Limited and IBCA Inc.
("IBCA") for bonds:
Obligations rated AAA by IBCA have the lowest expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial, such that adverse changes in business,
economic or financial conditions are unlikely to increase
investment risk significantly.
IBCA also assigns a rating to certain international and U.S.
banks. An IBCA bank rating represents IBCA's current assessment
of the strength of the bank and whether such bank would receive
support should it experience difficulties. In its assessment of a
bank, IBCA uses a dual rating system comprised of Legal Ratings
and Individual Ratings. In addition, IBCA assigns banks Long and
Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5,
address the question of whether the bank would receive support
provided by central banks or shareholders if it experienced
difficulties, and such ratings are considered by IBCA to be a
prime factor in its assessment of credit risk. Individual
Ratings, which range in gradations from A through E, represent
IBCA's assessment of a bank's economic merits and address the
question of how the bank would be viewed if it were entirely
independent and could not rely on support from state authorities
or its owners.
Description of Municipal Notes Ratings
The following summarizes the two highest ratings used by Moody's for
short-term notes and variable rate demand obligations:
MIG-1/VMIG-1. Obligations bearing these designations are of the
best quality, enjoying strong protection by established cash
flows, superior liquidity support or demonstrated broad-based
access to the market for refinancing.
MIG-2/VMIG-2. Obligations bearing these designations are of high
quality with margins of protection ample although not as large as
in the preceding group.
The following summarizes the two highest ratings by Standard & Poor's
for short-term municipal notes:
SP-1 - Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics are given a "plus" (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest.
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The three highest rating categories of D&P for short-term debt are Duff
1, Duff 2, and Duff 3. D&P employs three designations, Duff 1+, Duff 1 and Duff
1-, within the highest rating category. Duff 1+ indicates highest certainty of
timely payment. Short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." Duff 1
indicates very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
considered to be minor. Duff 1- indicates high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small. Duff 2 indicates good certainty of timely
payment. Liquidity factors and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small. Duff 3 indicates satisfactory liquidity
and other protection factors qualify issue as to investment grade. Risk factors
are larger and subject to more variation.
Nevertheless, timely payment is expected.
D&P uses the fixed-income ratings described above under "Description of
Bond Ratings" for tax-exempt notes and other short-term obligations.
Description of Commercial Paper Ratings
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted in A-1+. Capacity for timely payment
on commercial paper rated A-2 is satisfactory but the relative degree of safety
is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
The highest rating of D&P for commercial paper is Duff 1. D&P employs
three designations, Duff 1 plus, Duff 1 and Duff 1 minus, within the highest
rating category.
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Duff 1 plus indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or ready access to
alternative sources of funds, is judged to be "outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations" Duff 1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
strong fundamental protection factors. Risk factors are considered to be minor.
Duff 1 minus indicates high certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk factors are
very small.
The following summarizes the highest ratings used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
F-1 securities possess exceptionally strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated F-1+.
Commercial paper rated A-1 by Standard & Poor's indicates that the
degree of safety regarding timely payment is strong. Those issued determined to
possess extremely strong safety characteristics are denoted A-1+.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations.
D&P uses the short-term ratings described above for commercial paper.
Fitch uses the short-term ratings described above for commercial paper.
Thomson BankWatch, Inc. (TBW") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.
BankWatch Ratings do not constitute a recommendation to buy or sell
securities of any of these companies. Further, BankWatch does not suggest
specific investment criteria for individual clients.
The TBW Short-Term Ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned.
The TBW Short-Term Ratings specifically assess the likelihood of an
untimely payment of principal or interest.
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TBW-1 The highest category; indicates a very high degree
of likelihood that principal and interest will be
paid on a timely basis.
TBW-2 The second highest category; while the degree of
safety regarding timely repayment of principal and
interest is strong, the relative degree of safety
is not as high as for issues rated "TBW-1".
TBW-3 The lowest investment grade category; indicates
that while more susceptible to adverse developments
(both internal and external) than obligations with
higher ratings, capacity to service principal and
interest in a timely fashion is considered
adequate.
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
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