As filed electronically with the Securities and Exchange Commission on
February 27, 1997
Securities Act File No. 33-17957
Investment Company Act File No. 811-5366
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 27
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 28
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HT INSIGHT FUNDS, INC. d/b/a HARRIS INSIGHT FUNDS
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(Exact Name of Registrant as Specified in Charter)
60 State Street, Suite 1300, Boston, MA 02109
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(Address of Principal Executive Offices including Zip Code)
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Registrant's Telephone Number, including Area Code: (617) 557-0700
Name and Address of Agent for Service: Copies to:
John E. Pelletier, Esq. Cameron S. Avery, Esq.
HT Insight Funds, Inc. Bell, Boyd & Lloyd
d/b/a Harris Insight Funds Three First National Plaza
60 State Street 70 West Madison Street
Suite 1300 Chicago, IL 60602-4207
Boston, MA 02109
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It is proposed that this filing will become effective:
___immediately upon filing pursuant to paragraph (b)
___ on _______________ pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ 75 days after filing pursuant to paragraph (a)
_X_ on May 1, 1997 pursuant to paragraph (a) of Rule 485
If appropriate, check the following box:
____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
The Registrant has filed a declaration registering an indefinite amount of
securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. The Registrant filed the notice required by Rule 24f-2 for its most
recent fiscal year on February 25, 1997.
HT INSIGHT FUNDS, INC.
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495 (b)
under the Securities Act of 1933
(Prospectus offering Class A and Institutional Shares of Money Market Fund,
Government Money Market Fund, Tax-Exempt Money Market
Fund, Equity Fund and Short/Intermediate Bond Fund)
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Part A
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<TABLE>
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N-1A Item No. Location
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Item 1. Cover Page Cover Page
Item 2. Synopsis Expense Information; Financial Highlights
Item 3. Condensed Financial Information General Information - How Performance is Reported
Item 4. General Description of Registrant Cover Page; Investment Objectives and Policies;
Additional Investment Information; Fund Summary;
General Information - More Information About the
Trust and the Company
Item 5. Management of the Fund Management
Item 5A. Management's Discussion of Fund Not Applicable
Performance
Item 6. Capital Stock and Other Securities Cover Page; How Distributions Are Made; Tax
Information; Shareholder Services and Policies;
General Information - More Information About the
Trust and the Company
Item 7. Purchase of Securities Being Offered Management; General Information - How Share Value is
Determined; How to Buy Shares; How to Sell Shares;
Shareholder Services and Policies
Item 8. Redemption or Repurchase How to Buy Shares; How to Sell Shares; Shareholder
Services and Policies
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
(Prospectus offering Class A and Institutional Shares of Hemisphere Free Trade
Fund and Prospectus offering Convertible Fund)
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Part A
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<TABLE>
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N-1A Item No. Location
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<S> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Expense Information; Financial Highlights
Item 3. Condensed Financial Information General Information - How Performance is Reported
Item 4. General Description of Registrant Cover Page; Investment Objectives and Policies;
Additional Investment Information; Fund Summary;
General Information - More Information About the
Trust and the Company
Item 5. Management of the Fund Management
Item 5A. Management's Discussion of Fund
Performance Not Applicable
Item 6. Capital Stock and Other Securities Cover Page; How Distributions Are Made; Tax
Information; Shareholder Services and Policies;
General Information - More Information About the
Trust and the Company
Item 7. Purchase of Securities Being Offered Management; General Information - How Share Value is
Determined; How to Buy Shares; How to Sell Shares;
Shareholder Services and Policies
Item 8. Redemption or Repurchase How to Buy Shares; How to Sell Shares; Shareholder
Services and Policies
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
(SAI offering Class A Shares and Institutional Shares of Money Market Fund,
Government Money Market Fund, Tax-Exempt Money Market
Fund, Equity Fund and Short/Intermediate Bond Fund)
Part B
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<TABLE>
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N-1A Item No. Location
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<S> <C>
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Not Applicable
Item 13. Investment Objectives and Policies Investment Strategies; Investment Restrictions;
Portfolio Transactions
Item 14. Management of the Fund Management
Item 15. Control Persons and Principal Holders of Management
Securities
Item 16. Investment Advisory and Other Services Management; Service Plans; Custodian; Independent
Accountants
Item 17. Brokerage Allocation and Other Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities Capital Stock and Beneficial Interest
Item 19. Purchase, Redemption and Pricing of Determination of Net Asset Value
Securities Being Offered
Item 20. Tax Status Federal Income Taxes
Item 21. Underwriters Management; Service Plans
Item 22. Calculation of Performance Data Calculation of Yield and Total Return
Item 23. Financial Statements Not Applicable
</TABLE>
(SAI offering Class A Shares and Institutional Shares
of Hemisphere Free Trade Fund and SAI offering Convertible Fund)
Part B
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<TABLE>
<CAPTION>
N-1A Item No. Location
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<S> <C>
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Not Applicable
Item 13. Investment Objectives and Policies Investment Strategies; Investment Restrictions;
Portfolio Transactions
Item 14. Management of the Fund Management
Item 15. Control Persons and Principal Holders of Management
Securities
Item 16. Investment Advisory and Other Services Management; Service Plan; Custodian; Independent
Accountants
Item 17. Brokerage Allocation and Other Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities Capital Stock and Beneficial Interest
Item 19. Purchase, Redemption and Pricing of Determination of Net Asset Value
Securities Being Offered
Item 20. Tax Status Federal Income Taxes
Item 21. Underwriters Management; Service Plan
Item 22. Calculation of Performance Data Calculation of Yield and Total Return
Item 23. Financial Statements Not Applicable
</TABLE>
HARRIS INSIGHT(R) FUNDS CLASS A SHARES
60 State Street, Suite 1300
Boston, Massachusetts 02109
Telephone: (800) 982-8782
This Prospectus offers Class A shares ("Class A Shares") of each of following
investment portfolios (collectively, the "Funds"):
HARRIS INSIGHT INTERNATIONAL FUND
HARRIS INSIGHT SMALL-CAP OPPORTUNITY FUND
HARRIS INSIGHT SMALL-CAP VALUE FUND
HARRIS INSIGHT GROWTH FUND
HARRIS INSIGHT EQUITY FUND
HARRIS INSIGHT EQUITY INCOME FUND
HARRIS INSIGHT INDEX FUND
HARRIS INSIGHT BALANCED FUND
HARRIS INSIGHT CONVERTIBLE SECURITIES FUND
HARRIS INSIGHT TAX-EXEMPT BOND FUND
HARRIS INSIGHT BOND FUND
HARRIS INSIGHT INTERMEDIATE TAX-EXEMPT BOND FUND
HARRIS INSIGHT SHORT/INTERMEDIATE BOND FUND
HARRIS INSIGHT INTERMEDIATE GOVERNMENT BOND FUND
HARRIS INSIGHT TAX-EXEMPT MONEY MARKET FUND
HARRIS INSIGHT MONEY MARKET FUND
HARRIS INSIGHT GOVERNMENT MONEY MARKET FUND
The Equity Fund, the Short/Intermediate Bond Fund, the Tax-Exempt Money Market
Fund, the Money Market Fund and the Government Money Market Fund are investment
portfolios of HT Insight Funds, Inc., doing business as Harris Insight Funds
(the "Company"). Each other Fund is an investment portfolio of Harris Insight
Funds Trust (the "Trust"). The Company and the Trust are registered as open-end
management investment companies (mutual funds). The Funds, together with the
other investment portfolios offered by the Trust and the Company, are known as
the Harris Insight Funds.
Harris Trust and Savings Bank ("Harris Trust" or the "Adviser") serves as each
Fund's investment adviser. Harris Investment Management, Inc. ("HIM" or the
"Portfolio Management Agent") acts as portfolio management agent for each Fund
(except the Tax-Exempt Money Market Fund).
Please read this Prospectus before investing and keep it on file for future
reference. The Prospectus contains the information that a prospective investor
should know before investing, including how each Fund invests and the many
services available to shareholders.
To learn more about the Funds and their investments, you may obtain a copy of
the Harris Insight Funds' most recent financial report and portfolio listing or
Statement of Additional Information (the "SAI") simply by calling (800)
982-8782. The SAI has been filed with the Securities and Exchange Commission
(the "SEC") and (as supplemented from time to time) is incorporated by reference
into this Prospectus. The SEC maintains a Web site (http://www.sec.gov) that
contains the SAI and other information regarding the Funds.
THE HARRIS INSIGHT FUNDS ARE A FAMILY OF OPEN-END INVESTMENT COMPANIES COMMONLY
KNOWN AS MUTUAL FUNDS. SHARES OF MUTUAL FUNDS ARE NOT INSURED OR GUARANTEED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF THE FUNDS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, HARRIS TRUST AND SAVINGS BANK OR
ANY OTHER BANK OR BANK AFFILIATE.
AN INVESTMENT IN SHARES OF ANY MUTUAL FUND IS SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO ASSURANCE THAT THE
TAX-EXEMPT MONEY MARKET FUND, THE MONEY MARKET FUND OR THE GOVERNMENT MONEY
MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
May 1, 1997
TABLE OF CONTENTS
Page
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Expense Information.....................................................
Fund Summary............................................................
Financial Highlights....................................................
Investment Objectives and Policies......................................
International Fund.............................................
Small-Cap Opportunity Fund.....................................
Small-Cap Value Fund...........................................
Growth Fund....................................................
Equity Fund....................................................
Equity Income Fund.............................................
Index Fund.....................................................
Balanced Fund..................................................
Convertible Securities Fund....................................
Tax-Exempt Bond Fund...........................................
Bond Fund......................................................
Intermediate Tax-Exempt Bond Fund..............................
Short/Intermediate Bond Fund...................................
Intermediate Government Bond Fund..............................
Tax-Exempt Money Market Fund...................................
Money Market Fund..............................................
Government Money Market Fund...................................
Additional Investment Information ......................................
Additional Investment Policies.................................
Risk Considerations............................................
Management..............................................................
How to Buy Shares.......................................................
How to Sell Shares......................................................
Shareholder Services and Policies.......................................
How Distributions are Made; Tax Information.............................
General Information.....................................................
Banking Law Matters............................................
How Share Value Is Determined..................................
How Performance Is Reported....................................
More Information About the Trust and the Company...............
Appendix A: Permitted Investments......................................
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the SAI and/or in
the Funds' official sales literature in connection with the offering of the
Funds' shares and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Trust or the Company.
This Prospectus does not constitute an offer in any jurisdiction in which, or to
any person to whom, such offer may not lawfully be made.
-3-
EXPENSE INFORMATION
The following tables illustrate information concerning shareholder transaction
expenses and annual fund operating expenses for Class A Shares of the Funds.
Shareholder transaction expenses are charges you pay when you buy, sell or hold
shares of a Fund. Annual operating expenses are factored into each Fund's share
price and are not charged directly to shareholder accounts.
<TABLE>
<CAPTION>
EQUITY FUNDS Small-Cap Equity
International Opportunity Small-Cap Growth Equity Income Index Balanced
Fund Fund Value Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
ANNUAL FUND OPERATING EXPENSES*:
(as a percentage of average net
assets)
Advisory Fees
Rule 12b-1 Fees
Other Expenses+
Total Fund Operating Expenses
</TABLE>
<TABLE>
<CAPTION>
FIXED INCOME FUNDS Intermediate Short/ Intermediate
Convertible Tax-Exempt Tax-Exempt Intermediate Government
Securities Bond Bond Bond Bond Bond
Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
ANNUAL FUND OPERATING EXPENSES*:
(as a percentage of average net
assets)
Advisory Fees
Rule 12b-1 Fees
Other Expenses+
Total Fund Operating Expenses
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET FUNDS Tax-Exempt Government
Money Money Money
Market Market Market
Fund Fund Fund
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases None None None
ANNUAL FUND OPERATING EXPENSES*:
(as a percentage of average net
assets)
Advisory Fees
Rule 12b-1 Fees
Other Expenses+
Total Fund Operating Expenses
</TABLE>
* Customers of a financial institution, such as Harris Trust, also may be
charged certain fees and expenses by the institution. These fees may vary
depending on the capacity in which the institution provides fiduciary and
investment services to the particular client (such as trust, estate
settlement, advisory and custodian services).
+ Other Expenses for the Balanced Fund, Small-Cap Value Fund, Convertible
Securities Fund and Intermediate Government Bond Fund are based on
estimated expenses and projected assets for the current fiscal year. Other
Expenses for the other Funds are based on amounts incurred during the
fiscal year ended December 31, 1996.
-4-
EXAMPLE
The tables below shows what you would pay if you invested $1,000 over the time
frames indicated. The example assumes you reinvested all dividends and that the
average annual return was 5%.
<TABLE>
<CAPTION>
EQUITY FUNDS Small-Cap Equity
International Opportunity Small-Cap Growth Equity Income Fund Index Balanced
Fund Fund Value Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $- $- $- $- $- $- $- $-
3 years - - - - - - - -
5 years - - - - - - - -
10 years - - - - - - - -
FIXED INCOME Intermediate Short/ Intermediate
FUNDS Convertible Tax-Exempt Tax-Exempt Intermediate Government
Securities Bond Bond Bond Bond Bond
Fund Fund Fund Fund Fund Fund
1 year $- $- $- $- $- $-
3 years - - - - - -
5 years - - - - - -
10 years - - - - - -
MONEY MARKET
FUNDS Tax-Exempt Government
Money Money Money
Market Market Market
Fund Fund Fund
1 year $- $- $-
3 years - - -
5 years - - -
10 years - - -
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
The purpose of the expense tables is to help you understand the various costs
and expenses that an investor in a Fund will bear directly or indirectly. For
more information concerning these costs and expenses, see MANAGEMENT.
-5-
FUND SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
WHAT ARE THE OBJECTIVES OF THE FUNDS? HOW DO THE FUNDS ATTEMPT TO ACHIEVE THEIR
OBJECTIVES?
Each of the Funds has distinct investment objectives and policies, which are
summarized below in order of descending risk. For more complete information, see
INVESTMENT OBJECTIVES and POLICIES and ADDITIONAL INVESTMENT INFORMATION. While
no single Fund is intended to provide a complete or balanced investment program,
each can serve as a component of an investor's investment program.
INTERNATIONAL FUND seeks to provide international diversification and
capital appreciation by investing primarily in common stocks of foreign
companies. Current income is a secondary objective.
SMALL-CAP OPPORTUNITY FUND seeks to provide long-term capital
appreciation by investing primarily in equity securities of smaller to
medium capitalization companies that the Portfolio Management Agent
believes have above-average growth potential.
SMALL-CAP VALUE FUND seeks to provide capital appreciation by investing
primarily in equity securities of smaller to medium capitalization
companies that the Portfolio Management Agent believes have
above-average growth potential and appear to be undervalued.
GROWTH FUND seeks to provide capital appreciation and, secondarily,
current income by investing primarily in common stocks and convertible
securities of companies that the Portfolio Management Agent believes
have above-average growth potential.
EQUITY FUND seeks to provide capital appreciation and current income by
investing primarily in common stocks.
EQUITY INCOME FUND seeks to provide current income and, secondarily,
capital appreciation by investing primarily in common stocks and
convertible securities.
INDEX FUND seeks to provide the return and risk characteristics of the
Standard & Poor's 500 Index, by investing primarily in securities of
companies that comprise that index.
BALANCED FUND seeks to provide current income and capital appreciation
by investing in a balanced portfolio of fixed income and equity
securities.
CONVERTIBLE SECURITIES FUND seeks to provide capital appreciation and
current income by investing primarily in securities such as bonds,
debentures, notes, preferred stocks or warrants that are convertible
into common stocks.
-6-
TAX-EXEMPT BOND FUND seeks to provide a high level of current income
that is exempt from federal income tax by investing, under normal
market conditions, at least 80% of its assets in municipal obligations
of varying maturities.
BOND FUND seeks to provide a high level of total return, including a
competitive level of current income, by investing primarily in
investment grade debt securities of varying maturities.
INTERMEDIATE TAX-EXEMPT BOND FUND seeks to provide a high level of
current income that is exempt from federal income tax by investing,
under normal market conditions, at least 80% of its assets in municipal
obligations with an intermediate-term average maturity.
SHORT/INTERMEDIATE BOND FUND seeks to provide a high level of total
return, including a competitive level of current income, by investing
primarily in investment grade debt securities with a
short/intermediate-term average maturity.
INTERMEDIATE GOVERNMENT BOND FUND seeks to provide a high level of
current income, consistent with preservation of capital, by investing
primarily in U.S. Government Securities having an intermediate-term
average maturity.
TAX-EXEMPT MONEY MARKET FUND (a money market fund) seeks to provide
investors with as high a level of current income as is consistent with
its investment policies and with preservation of capital and liquidity,
by investing primarily in high-quality, short-term municipal
obligations.
MONEY MARKET FUND (a money market fund) seeks to provide investors with
as high a level of current income as is consistent with its investment
policies and with preservation of capital and liquidity, by investing
in a broad range of short-term money market instruments.
GOVERNMENT MONEY MARKET FUND (a money market fund) seeks to provide
investors with as high a level of current income as is consistent with
its investment policies and with preservation of capital and liquidity,
by investing exclusively in short-term U.S. Government Securities and
repurchase agreements backed by those securities.
WHO MANAGES EACH FUND'S INVESTMENTS?
Harris Trust and Savings Bank serves as the investment adviser for each Fund.
Harris Trust and its predecessors have provided investment management services
to clients for over 100 years. In addition to the services it performs for the
Funds, Harris Trust provides investment management services for pension,
profit-sharing and personal portfolios. As of December 31, 1996, assets under
management totaled approximately $[ ] billion.
-7-
Harris Investment Management, Inc. provides daily portfolio management services
for each of the Funds except for the Tax-Exempt Money Market Fund. As of [ ],
HIM had a staff of [ ], including [ ] professionals, providing investment
expertise to the management of the Harris Insight Funds and for pension,
profit-sharing and institutional portfolios. As of that date, assets under
management were approximately $[ ] billion.
Harris Trust and HIM are subsidiaries of Harris Bankcorp., Inc. See MANAGEMENT.
WHO SHOULD INVEST IN THE FUNDS?
The EQUITY FUNDS - the International Fund, the Small-Cap Opportunity Fund, the
Small-Cap Value Fund, the Growth Fund, the Equity Fund, the Equity Income Fund,
the Index Fund and the Balanced Fund - are designed for long-term investors who
can tolerate changes in the value of their investments in return for the
possibility of higher returns. The FIXED INCOME FUNDs - the Convertible
Securities Fund, the Tax-Exempt Bond Fund, the Bond Fund, the Intermediate
Tax-Exempt Bond Fund, the Short/Intermediate Bond Fund and the Intermediate
Government Bond Fund are designed for investors seeking current income. The
MONEY MARKET FUNDS - the Tax-Exempt Money Market Fund, the Money Market Fund and
the Government Money Market Fund - are designed for conservative investors
seeking stability of principal, current income at money market rates, and
liquidity. The Tax-Exempt Bond Fund, the Intermediate Tax-Exempt Bond Fund,
Tax-Exempt Money Market Fund are specifically designed for those investors who
seek income that is exempt from federal income tax.
In making your investment decisions, consider your investment goals, your time
horizon to achieve them, and your tolerance for risk.
WHAT ADVANTAGES DO THE FUNDS OFFER?
An investment gives the investor benefits customarily available only to large
investors, such as diversification, greater liquidity, professional management,
and relief from bookkeeping, safekeeping of securities and other administrative
details.
WHEN ARE DIVIDENDS PAID?
Dividends from the International Fund, the Small-Cap Opportunity Fund and the
Small-Cap Value Fund are declared and paid semi-annually. Dividends from the
Growth Fund, the Equity Income Fund, the Equity Fund, the Index Fund, the
Balanced Fund and the Convertible Securities Fund are declared and paid
quarterly. Dividends from the Tax-Exempt Bond Fund, the Bond Fund, the
Intermediate Tax-Exempt Bond Fund, the Short/Intermediate Bond Fund and the
Intermediate Government Bond Fund are declared daily and paid monthly. Dividends
from each of the Money Market Funds are declared daily and paid monthly. Any net
capital gains will be declared and paid at least annually. See HOW DISTRIBUTIONS
ARE MADE; TAX INFORMATION.
-8-
HOW ARE SHARES BOUGHT AND SOLD?
Class A Shares are offered through this Prospectus at a price equal to their net
asset value plus any applicable sales charge.
Shares may be bought or sold by mail, by bank wire or through your broker-dealer
or other financial institution. The minimum initial investment in Class A Shares
is $1,000. The minimum subsequent investment is $50. See HOW TO BUY SHARES AND
HOW TO SELL SHARES.
WHAT RISKS ARE ASSOCIATED WITH THE FUNDS?
There can be no assurance that any Fund will achieve its investment objective or
that the Money Market Funds will be able to maintain a stable net asset value.
The net asset value of each of the Equity Funds and the Fixed Income Funds will
fluctuate based upon changes in the value of the Fund's portfolio securities
and, when shares are sold, an investment may be worth more or less than the
investment's original value. As with any mutual fund, the fundamental risk is
that the value of securities that a Fund holds may decrease. Each Fund's
performance and price per share changes daily based on many factors, including
the perceived quality of the Fund's investments, U.S. and international economic
conditions and general market conditions.
The market value of equity securities is based upon the market's perception of
the issuing company's value. Normally, the values of the fixed income securities
vary inversely with changes in prevailing interest rates. However, the potential
for appreciation in mortgage-backed fixed income securities in the event of a
decline in interest rates may be limited or negated by increased principal
prepayments on these securities. Fixed income securities also are subject to
"credit risk" relating to the financial condition of the issuer of the
securities.
Certain investments and investment techniques entail additional risks, such as
investments in foreign issuers, issuers with limited market capitalization,
mortgage- or asset-backed securities, zero coupon bonds and options, futures
contracts, forward contracts and swap agreements. The use of leverage by certain
Funds through borrowings, margin transactions, short sales, reverse repurchase
agreements and other investment techniques involves additional risks.
The policy of investing in smaller companies employed by the Small-Cap Value
Fund, the Small-Cap Opportunity Fund and other Funds that invest in small
company securities entails certain risks in addition to those normally
associated with equity securities. Similarly, the International Fund's policy of
investing in foreign securities entails certain risks in addition to those
normally associated with equity securities.
For more information about each Fund and its investments, see INVESTMENT
OBJECTIVES AND POLICIES. For more information about particular risks, see
ADDITIONAL INVESTMENT INFORMATION - RISK CONSIDERATIONS.
-9-
FINANCIAL HIGHLIGHTS
The following financial highlights represent selected data for a single Class A
Share of each Fund for the periods shown. This information has been audited by [
], independent accountants. The Funds' financial statements for the year ended
December 31, 1996 and independent accountants' report thereon are included in
the Funds' Annual Report and are incorporated by reference into (are legally a
part of) the Funds' SAI. Further information about each Fund's performance is
contained in the Annual Report, which may be obtained from the Harris Insight
Funds without charge. Financial highlights are not provided for the Small-Cap
Value Fund, the Balanced Fund, the Convertible Securities Fund and the
Intermediate Government Bond Fund because, as of December 31, 1996, those Funds
had not yet commenced operations.
[Financial Highlights Tables]
-10-
INVESTMENT OBJECTIVES AND POLICIES
Each of the Funds has distinct investment objectives and policies, which are set
forth below. Investments that may be made by all of the Funds are listed under
ADDITIONAL INVESTMENT INFORMATION - COMMON INVESTMENT POLICIES. For a further
description of each Fund's investments and investment techniques, see ADDITIONAL
INVESTMENT INFORMATION, APPENDIX A: PERMITTED INVESTMENTS ("Appendix A") and the
SAI. There is no assurance that any Fund will achieve its investment objective
or that the Money Market Funds will be able to maintain a stable net asset
value.
INTERNATIONAL FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide international diversification
and capital appreciation. Current income is a secondary objective.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
investing in securities that are typical of those comprising the Morgan Stanley
Capital International Europe, Australia, Far East (EAFE) Index. Securities are
selected based on their value as well as the relative valuation of their base
currencies. Thus, the Fund may be more or less reflective of the EAFE universe
at any point in time.
Under normal circumstances, the Fund invests at least 65% of the value of its
total assets in securities of foreign issuers (i.e., issuers organized outside
the United States or whose principal trading market is outside the United
States). The Fund invests in the securities of issuers located in at least three
foreign countries. The Fund seeks to manage risk through the diversification of
its investments.
The Fund also may invest in exchange rate-related securities, securities
convertible into or exchangeable for foreign equity securities, and custodial
receipts for Treasury securities. In addition, the Fund may engage in the
purchase and sale of foreign currency for hedging purposes.
SMALL-CAP OPPORTUNITY FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide long-term capital appreciation.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
investing primarily in smaller to medium capitalization companies (i.e.,
companies with market capitalizations of between $100 million and $2.5 billion
at the time of the Fund's investment) that the Portfolio Management Agent
believes are attractively valued in the market. Market capitalization refers to
the total market value of a company's outstanding shares of common stock. In
investing the Fund's assets, the Portfolio Management Agent follows an
investment management discipline that seeks to identify companies offering
above-average earnings, sales and asset value growth. These securities will tend
to be represented in the Russell 2000 Index, an unmanaged index comprising the
securities of 2000 small capitalization companies.
-11-
Under normal circumstances, the Fund invests at least 65% of the value of its
total assets in securities of smaller to medium capitalization companies.
SMALL-CAP VALUE FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide capital appreciation.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
investing primarily in the securities of smaller to medium capitalization
companies (i.e., companies with market capitalizations of between $100 million
and $2.5 billion at the time of the Fund's investment) that are conservatively
valued in the marketplace. Market capitalization refers to the total market
value of a company's outstanding shares of common stock. In managing the Fund's
assets, the Portfolio Management Agent seeks to invest in securities that are
undervalued relative to the securities of comparable companies, as determined by
price/earnings ratios, earnings expectations or other fundamental measures.
Under normal circumstances, the Fund invests at least 65% of the value of its
total assets in securities of smaller to medium capitalization companies.
GROWTH FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide capital appreciation and,
secondarily, current income.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
investing in securities that the Portfolio Management Agent believes are
undervalued but represent growth opportunities. The Fund also may invest in
securities issued by medium to larger capitalized companies that provide returns
more closely aligned with the Lipper Growth Fund Index. The Fund's investment
management discipline emphasizes growth in sales, earnings and asset values.
Under normal circumstances, the Fund invests at least 65% of the value of its
total assets in equity securities.
EQUITY FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide investors with capital
appreciation and current income.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
investing primarily in the securities of large capitalization companies (i.e.,
companies with market capitalization in excess of $500 million at the time of
the Fund's investment) and is managed to provide equity-based returns
characteristic of these securities. Market capitalization refers to the total
market value of a company's outstanding shares of common stock. The selected
issuers will be representative of those sectors found within the Standard &
Poor's 500 Index (the "S&P 500 Index"). Using both "quantitative" and
"fundamental" analysis, the Portfolio Management
-12-
Agent believes that these investments will provide returns greater than the
securities comprising the S&P 500 Index over the long-term with a risk level
approximating that of the index, with risk measured by volatility.
The Fund's investment process considers current valuation and improving
fundamentals. The Fund's investments are expected to encompass all major sectors
of the market, resulting in a diversified portfolio. The Fund's Portfolio
Management Agent believes that an investment process which combines carefully
monitored risk control with an emphasis on value and fundamental research is
better suited for long-term equity investing. The Fund's portfolio is generally
comprised of approximately 50 different issues. Risk is managed by
diversification of investments.
Under normal circumstances, the Fund invests at least 65% of the value of its
total assets in common stocks of larger capitalization companies.
EQUITY INCOME FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide current income and, secondarily,
capital appreciation.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
investing in equities that are found within the Standard & Poor's 500 Index (the
"S&P 500 Index"), or other attractive issues. Convertible securities may also be
utilized. The Portfolio Management Agent believes that the combination of these
securities should produce returns that are similar to the performance of the S&P
500 Index and its corresponding sectors, yet with a higher income yield.
Under normal circumstances, the Fund invests at least 65% of the value of its
total assets in common stocks and convertible securities that the Fund's
Portfolio Management Agent believes offer good value, an attractive yield and
dividend growth potential. The Fund is managed with a disciplined investment
process designed to maintain a diversified portfolio of high quality equity
securities. The Fund generally emphasizes securities with higher than average
dividend yields and/or stronger than average growth characteristics. The result
of this investment process is a diversified portfolio that the Portfolio
Management Agent believes provides attractive long-term growth potential, while
offering an attractive current yield.
INDEX FUND
INVESTMENT OBJECTIVE. The Index Fund seeks to provide the return and risk
characteristics of the Standard & Poor's 500 Index.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
investing, under normal market conditions, primarily in securities of companies
that comprise the Standard & Poor's 500 Index (the "S&P 500 Index"), an
unmanaged index that emphasizes large capitalization companies. As of December
31, 1996, the index represented approximately [ ]% of the market capitalization
of publicly owned stocks in the United States.
-13-
The Fund is managed through the use of a "quantitative" or "indexing" investment
discipline, which attempts to duplicate the investment composition and
performance of the S&P 500 Index through statistical procedures. As a result,
the Portfolio Management Agent does not employ traditional methods of fund
investment management, such as selecting securities on the basis of economic,
financial and market analysis. The Fund seeks quarterly performance within a
0.95 correlation to the index. On at least a monthly basis, the Portfolio
Management Agent compares the correlation of the Fund's performance to that of
the index. In the event the Fund's performance for the preceding three-month
period is not within a 0.95 correlation to the performance of the index, the
Portfolio Management Agent may adjust the Fund's holdings in issues included in
the index to seek a closer performance correlation.
The Fund seeks to closely match the weight of each security in the portfolio to
its approximate weight in the S&P 500 Index. Although the Fund may not hold all
500 securities included in the index, it will generally hold at least 90% of
these securities. The Fund also may maintain positions in S&P 500 Index futures
contracts. Index futures contracts are bilateral agreements pursuant to which
two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the index value at the
close of trading of the contract and the price at which the futures contract is
originally struck. As no physical delivery of securities comprising the index is
made, a purchaser of index futures contracts may participate in the performance
of the securities contained in the index without the required capital
commitment. The Fund may use S&P 500 Index futures contracts for several
reasons: to simulate full investment in the index while retaining a cash balance
for fund management purposes, to facilitate trading or to reduce transaction
costs.
Standard & Poor's ("S&P") makes no representation or warranty, expressed or
implied, to the purchasers of the Fund or any member of the public regarding the
advisability of investing in either the Index Fund or the ability of the S&P 500
Index to track general stock market performance. The Fund is not sponsored,
endorsed, sold or promoted by S&P. S&P does not guarantee the accuracy and/or
completeness of its index or any data included therein. Furthermore, S&P makes
no warranty, express or implied, as to the results to be obtained by the Fund,
owners of the Fund, any person or any entity from the use of the index sponsored
by S&P or any data included therein. S&P makes no express or implied warranties
and expressly disclaims all such warranties of merchantability or fitness for a
particular purpose for use with respect to its index or any data included
therein.
BALANCED FUND
INVESTMENT OBJECTIVE. The Balanced Fund seeks to provide current income and
capital appreciation by investing in a balanced portfolio of fixed income and
equity securities.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
utilizing an active asset allocation approach. Through utilizing this approach,
the Fund seeks to provide capital appreciation similar to larger-capitalization
equities, with a portion of the Fund's total return resulting from investment in
fixed income securities. The Fund seeks to provide an overall
-14-
return comprising between 40% and 65% of the Standard & Poor's 500 Index (a
broad U.S. stock market index) and between 35% and 60% of the Lehman Brothers
Aggregate Index (a broad U.S. bond market index).
The Fund's investment process considers, on a continuing basis, the
attractiveness of equities versus fixed income securities. Under normal market
conditions, equity securities are expected to comprise between 40% and 65% of
the Fund's total assets and fixed income securities are expected to comprise at
least 25% of the Fund's total assets.
CONVERTIBLE SECURITIES FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide capital appreciation and current
income.
INVESTMENT POLICIES. Convertible securities have unique return characteristics.
Convertible securities tend to rise in price when overall equity markets rise
and, conversely, tend to decline relatively less when interest rates rise. The
Fund strives to reflect these unique performance characteristics while seeking
to provide income that is more characteristic of short/intermediate maturity
corporate bonds.
The Fund seeks to achieve its investment objective by investing primarily in
convertible securities, which are bonds, debentures, notes or preferred stock
that are convertible into common stock, or warrants, which are options to
purchase common stock at a specified price.
The Fund also may invest in equity securities of U.S. corporations. The Fund
seeks to diversify among issuers in a manner that will enable the Fund to
minimize the volatility of the Fund's net asset value in erratic or declining
markets. Under normal circumstances, the Fund invests at least 65% of the value
of its total assets in convertible securities.
Under normal market conditions, the Fund will invest without limitation in
convertible securities of U.S. corporations and in Eurodollar securities
convertible into common stocks of U.S. corporations that are rated "B" or better
by Standard & Poor's ("S&P") or "B" ("b" in the case of preferred stocks) or
better by Moody's Investors Service ("Moody's") at the time of purchase, or, if
not rated, considered by the 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 invest up to 35% of its total assets in "synthetic convertibles"
created by combining separate securities that together possess the two principal
components of a convertible security: fixed income and the right to acquire
equity securities. In addition, the Fund may invest up to 15% of its net assets
in convertible securities offered in "private placements" and other illiquid
securities; up to 15% of its total assets in common stocks; and up to 5% of its
net assets
-15-
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.
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) U.S. Government Securities; (b) non-convertible debt obligations of domestic
corporations, including bonds, debentures, notes or preferred stock rated "BBB"
or better by S&P or "Baa" or better by Moody's at the time of purchase, which
ordinarily are less volatile in price than convertible securities and serve to
increase diversification of risk; and (c) short-term money market instruments,
including U.S. Government, bank and commercial obligations with remaining
maturities of 397 days or less. During such periods, the Fund will continue to
seek current income but will put less emphasis on capital appreciation.
RISK FACTORS AND OTHER CONSIDERATIONS RELATING TO LOW-RATED SECURITIES.
Low-rated and comparable unrated securities (a) will likely have some quality
and protective characteristics that, in the judgment of the rating organization,
are outweighed by large uncertainties or major risk exposures to adverse
conditions and (b) are predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation.
The market values of low-rated and comparable unrated securities are less
sensitive to interest rate changes but more sensitive to economic changes or
individual corporate developments than higher-rated securities; they present a
higher degree of credit risk and their yields will fluctuate over time. During
economic downturns or sustained periods of rising interest rates, the ability of
highly leveraged issuers to service debt obligations may be impaired.
The existence of limited or no established trading markets for low-rated and
comparable unrated securities may result in thin trading of such securities and
diminish the Fund's ability to dispose of such securities or to obtain accurate
market quotations for valuing such securities and calculating net asset value.
The responsibility of the Trust's Board of Trustees to value such securities
becomes greater and judgment plays a greater role in valuation because there is
less reliable objective data available. In addition, adverse publicity and
investor perceptions may decrease the values and liquidity of low-rated and
comparable unrated securities bonds, especially in a thinly traded market.
A major economic recession would likely disrupt the market for such securities,
adversely affect their value and the ability of issuers to repay principal and
pay interest, and result in a higher incidence of defaults.
The ratings of S&P and Moody's represent the opinions of those organizations as
to the quality of securities. Such ratings are relative and subjective, not
absolute standards of quality and do not evaluate the market risk of the
securities. Although the Fund's Portfolio Management Agent uses these ratings as
a criterion for the selection of securities for the Fund, it also relies on its
own independent analysis to evaluate potential investments for the Fund. The
Fund's achievement of
-16-
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.
TAX-EXEMPT BOND FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide a high level of current income
that is exempt from federal income tax.
INVESTMENT POLICIES. The Fund seeks to achieve its objective by investing in
municipal securities with varying maturities. As a result, the Fund seeks to
generate a higher level of income than that of short or intermediate average
maturity municipal bond funds, although it will experience corresponding higher
volatility of principal during periods of changing interest rates.
The Fund attempts to anticipate changes in interest rates, analyzing yield
differentials for different types of bonds, and analyzing credit for specific
issues and municipalities. As a matter of fundamental policy, the Fund invests
at least 80% of its assets, under normal market conditions, in a broad range of
municipal bonds and other obligations issued by state and local governments to
finance their operations or special projects. These securities make interest
payments that are exempt from federal income tax.
The Fund also may invest in U.S. Government Obligations (as defined in the
Appendix) and securities secured by letters of credit. In addition, the Fund may
purchase and sell covered put and call options on securities and on indices.
BOND FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide a high level of total return,
including a competitive level of current income, by investing primarily in
investment grade debt securities of varying maturities.
INVESTMENT POLICIES. The Fund seeks to provide the higher income generally
associated with a broad range of longer-term bonds typically having 5 to 10
years remaining to maturity. As a result, principal value of these longer-term
bonds is likely to fluctuate more than that of bonds with shorter maturities.
The Fund seeks to achieve its objective by utilizing a highly-disciplined,
quantitative process designed to identify fixed income securities that are
undervalued and are positioned to offer the best relative value to enable the
Fund to benefit from anticipated changes in interest rates.
Under normal circumstances, the Fund invests at least 65% of the value of its
total assets in bonds. For purposes of this 65% limitation, the term "bond"
shall include debt obligations such as bonds and debentures, U.S. Government
Securities, debt obligations of domestic and foreign corporations, debt
obligations of foreign governments and their political subdivisions,
asset-backed securities, various mortgage-related securities (including those
issued or collateralized by
-17-
U.S. Government agencies and inverse floating rate mortgage-backed securities),
other floating/variable rate obligations, municipal obligations and zero coupon
securities.
INTERMEDIATE TAX-EXEMPT BOND FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide a high level of current income
that is exempt from federal income tax.
INVESTMENT POLICIES. The Fund seeks to achieve its objective by investing in
municipal securities with a dollar-weighted average portfolio maturity, under
normal market conditions, of between 3 and 10 years. The Portfolio Management
Agent believes that this income will generally be higher than that provided by
shorter term municipal funds, although the Fund will reflect greater share price
volatility during periods of changing interest rates than comparable
shorter-term funds. Individual portfolio securities will have varying
maturities.
As a matter of fundamental policy, the Fund invests at least 80% of its assets,
under normal market conditions, in a broad range of municipal bonds and other
obligations issued by state and local governments to finance their operations or
special projects. These securities make interest payments that are exempt from
federal income tax.
The Fund's selection of individual securities is based on a number of factors,
including anticipated changes in interest rates, the assessment of the yield
advantages of different classes of bonds, and an independent analysis of credit
quality of individual issues by the Fund's Portfolio Management Agent.
The Fund also may invest in U.S. Government Obligations (as defined in the
Appendix) and securities secured by letters of credit. In addition, the Fund may
purchase and sell covered put and call options on securities and on indices.
SHORT/INTERMEDIATE BOND FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide a high level of total return,
including a competitive level of current income, by investing primarily in
investment grade debt securities with a short/intermediate-term average
maturity.
INVESTMENT POLICIES. The Fund (which was formerly known as Harris Insight
Managed Fixed Income Fund) seeks to provide income and share price volatility of
a 2- to 5-year average maturity taxable bond portfolio. Thus, it is anticipated
that when interest rates rise, share price of the Fund will tend to fall less
than longer-term bond funds and appreciate less when interest rates fall.
The Fund seeks to achieve its objective by utilizing a combination of investment
disciplines, including the assessment of yield advantages among different
classes of bonds and among different maturities, independent review by the
Portfolio Management Agent of the credit quality
-18-
of individual issues, and the analysis by the Portfolio Management Agent of
economic and market conditions affecting the fixed income markets.
The Fund may invest in a broad range of fixed income obligations, including
fixed and variable rate bonds, debentures, U.S. Government Securities, and
Government Stripped Mortgage-Backed Securities. The Fund also may invest in U.S.
Government Securities placed into irrevocable trusts and evidenced by a trust
receipt. Under normal circumstances, the Fund invests at least 65% of the value
of its total assets in bonds. For purposes of this 65% limitation, the term
"bond" shall include debt obligations such as bonds and debentures, U.S.
Government Securities, debt obligations of domestic and foreign corporations,
debt obligations of foreign governments and their political subdivisions,
asset-backed securities, various mortgage-related securities (including those
issued or collateralized by U.S. Government agencies and inverse floating rate
mortgage-backed securities), other floating/variable rate obligations, municipal
obligations and zero coupon securities.
The Fund also may hold short-term U.S. Government Obligations, "high-quality"
money market instruments (i.e., those within the two highest rating categories
or, if unrated, determined by the Portfolio Management Agent to be comparable in
quality to instruments so rated) and cash. Such obligations may include those
issued by foreign banks and foreign branches of U.S. banks. These investments
may be in such proportions as, in the Portfolio Management Agent's opinion,
existing circumstances warrant.
The Fund's dollar-weighted average portfolio maturity (or average life with
respect to mortgage-related and asset-backed securities), under normal market
conditions, will be between 2 and 5 years.
INTERMEDIATE GOVERNMENT BOND FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide a high level of current income,
consistent with preservation of capital.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
investing primarily in U.S. Government Securities, including mortgage-backed
securities, having an intermediate-term average maturity. Under normal
circumstances, at least 65% of the Fund's total assets will be invested in U.S.
Government Securities and in repurchase agreements collateralized by U.S.
Government Securities. The average portfolio maturity (or average life with
respect to mortgage-related securities) generally will be between 3 and 10
years.
The Fund also may invest in asset-backed securities collateralized by U.S.
Government Securities. In addition, the Fund may invest in foreign debt
securities guaranteed by the U.S. Government, its agencies or instrumentalities
(with respect to 10% of the Fund's total assets), as well as covered put and
call options on securities and indices.
-19-
TAX-EXEMPT MONEY MARKET FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide investors with as high a level
of current income that is exempt from federal income taxes as is consistent with
its investment policies and with preservation of capital and liquidity.
INVESTMENT POLICIES. The Fund (which was formerly known as Harris Insight
Tax-Free Money Market Fund) invests only in high quality, short-term money
market instruments that are determined by the Adviser, pursuant to procedures
established by the Company's Board of Directors, to be eligible for purchase and
to present minimal credit risks. The Fund invests primarily in high-quality
municipal obligations. Municipal obligations are debt obligations issued by or
on behalf of states, cities, municipalities and other public authorities. Except
for temporary investments in taxable obligations described below, the Fund will
invest only in municipal obligations that are exempt from federal income taxes
in the opinion of bond counsel. Such obligations include municipal bonds,
municipal notes and municipal commercial paper.
The Fund will not purchase a security (other than a U.S. Government Security)
unless the security is rated by at least two nationally recognized rating
agencies (such as Standard & Poor's or Moody's) within the two highest ratings
assigned to short-term debt securities (or, if not rated or rated by only one
rating agency, is determined to be of comparable quality). Determinations of
comparable quality shall be made in accordance with procedures established by
the Company's Board of Directors.
The Fund invests only in U.S. dollar-denominated securities that have a
remaining maturity of 397 days or less (as calculated pursuant to Rule 2a-7
under the Investment Company Act of 1940, as amended) and maintains a
dollar-weighted average maturity of 90 days or less. Current income provided by
the securities in which the Fund invests is not likely to be as high as that
provided by securities with longer maturities or lower quality, which may
involve greater risk and price volatility.
Under ordinary market conditions, the Fund will maintain as a fundamental policy
at least 80% of the value of its total assets in obligations that are exempt
from federal income tax and not subject to the alternative minimum tax. The Fund
may, pending the investment of proceeds of sales of its shares or proceeds from
the sale of portfolio securities, in anticipation of redemptions, or to maintain
a "defensive" posture when, in the opinion of the Investment Adviser, it is
advisable to do so because of market conditions, elect to hold temporarily up to
20% of the current value of its total assets in cash reserves or invest in
securities whose interest income is subject to taxation.
From time to time, the Fund may invest 25% or more of its assets in municipal
obligations that are related in such a way that an economic, business or
political development or change affecting one of these obligations would also
affect the other obligations, for example, municipal obligations the interest on
which is paid from revenues of similar type projects or municipal obligations
whose issuers are located in the same state.
-20-
MONEY MARKET FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide investors with as high a level
of current income as is consistent with its investment policies and with
preservation of capital and liquidity.
INVESTMENT POLICIES. The Fund (which was formerly known as Harris Insight Cash
Management Fund) invests only in high quality, short-term money market
instruments that are determined by the Adviser, pursuant to procedures
established by the Company's Board of Directors, to be eligible for purchase and
to present minimal credit risks. The Fund invests in a broad range of short-term
money market instruments, including U.S. Government Securities and bank and
commercial obligations. The commercial paper purchased by the Fund will consist
of U.S. dollar-denominated direct obligations of domestic and foreign corporate
issuers, including bank holding companies.
The Fund invests only in U.S. dollar-denominated securities that have a
remaining maturity of 397 days or less (as calculated pursuant to Rule 2a-7
under the Investment Company Act of 1940, as amended) and maintains a
dollar-weighted average maturity of 90 days or less. Current income provided by
the securities in which the Fund invests is not likely to be as high as that
provided by securities with longer maturities or lower quality, which may
involve greater risk and price volatility.
The Fund will not purchase a security (other than U.S. Government Securities)
unless the security is rated by at least two nationally recognized rating
agencies (such as Standard & Poor's or Moody's) within the two highest ratings
assigned to short-term debt securities (or, if not rated or rated only by one
rating agency, is determined to be of comparable quality), and not more than 5%
of the total assets of the Fund would be invested in securities bearing the
second highest rating. Determinations of comparable quality shall be made in
accordance with procedures established by the Company's Board of Directors.
The Fund also may invest in guaranteed investment contracts ("GICs") issued by
U.S. and Canadian insurance companies, and convertible and non-convertible debt
securities of domestic corporations and of foreign corporations and governments
that are denominated, and pay interest, in U.S. dollars. In addition, the Fund
may invest in tax-exempt municipal obligations when the yields on such
obligations are higher than the yields on taxable investments. See INVESTMENT
OBJECTIVES AND POLICIES - TAX-EXEMPT MONEY MARKET FUND.
GOVERNMENT MONEY MARKET FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide investors with as high a level
of current income as is consistent with its investment policies and with
preservation of capital and liquidity.
INVESTMENT POLICIES. The Fund (formerly known as Harris Insight Government
Assets Fund) invests only in high quality, short-term money market instruments
that are determined by the Adviser, pursuant to procedures established by the
Company's Board of Directors, to be eligible
-21-
for purchase and to present minimal credit risks. The Fund invests exclusively
in U.S. Government Securities and repurchase agreements backed by those
securities.
The Fund invests only in securities that have a remaining maturity of 397 days
or less (as calculated pursuant to Rule 2a-7 under the Investment Company Act of
1940, as amended) and maintains a dollar-weighted average maturity of 90 days or
less. Current income provided by the securities in which the Fund invests is not
likely to be as high as that provided by securities with longer maturities or
lower quality, which may involve greater risk and price volatility.
The Fund invests in obligations of U.S. Government agencies and
instrumentalities only when the Portfolio Management Agent is satisfied that the
credit risk with respect to the issuer is minimal.
ADDITIONAL INVESTMENT INFORMATION
Unless otherwise noted, each Fund's investment objective and policies are not
fundamental and may be changed by the Board of Trustees of the Trust (or Board
of Directors of the Company) without shareholder approval. If there is a change
in a Fund's investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their financial position and needs
at that time.
For a further description of the Funds' investment policies, including
additional fundamental policies, please see Appendix A and the SAI.
COMMON INVESTMENT POLICIES
Each Fund may invest in the securities of other investment companies,
when-issued securities and forward commitments, floating/variable rate
obligations (and inverse floating rate obligations with respect to the Fixed
Income Funds), as well as commercial paper, short-term money market instruments
and cash equivalents, such as certificates of deposit, demand and time deposits
and banker's acceptance notes. In addition, each Fund may enter into repurchase
agreements. In addition, each of the Equity Funds and the Fixed Income Funds may
lend its portfolio securities with respect to up to one-third of its net assets
and may enter into reverse repurchase agreements.
In addition, each of the Equity Funds may invest in securities purchased in an
initial public offering. Each of these Funds also may invest in American
Depository Receipts, European Depository Receipts and, with respect to 10% (100%
for the International Fund) of each Fund's total assets, debt and equity
securities of foreign issuers. Further, each of the Equity Funds may purchase
and sell covered put and call options on securities, index and interest rate
futures contracts and options on futures contracts.
RATING MATTERS. Each of the Equity Funds and the Fixed Income Funds may invest
in securities convertible into or exchangeable for common stocks or preferred
stocks, as well as U.S. Government Securities and debt obligations of domestic
corporations rated "BBB" or better by
-22-
Standard & Poor's ("S&P") or "Baa" or better by Moody's Investors Service
("Moody's"), or that have an equivalent rating by another nationally recognized
statistical rating organization ("NRSRO") at the time of purchase or, if not
rated, are considered by the Portfolio Management Agent to be of comparable
quality. Debt obligations rated in the lowest categories of investment grade
(that is, BBB by S&P or Baa by Moody's) and equivalent securities may have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher-grade bonds. The Convertible
Securities Fund may invest in securities that are less than investment grade.
See INVESTMENT OBJECTIVES AND POLICIES - CONVERTIBLE SECURITIES FUND.
Each Fund may purchase debt obligations that are not rated if, in the opinion of
the Portfolio Management Agent or Adviser, they are of investment quality at
least comparable to other rated investments that may be purchased by the Fund.
After purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event will
require a Fund (other than a Money Market Fund) to sell the security unless the
amount of the security exceeds permissible limits. However, the Portfolio
Management Agent will reassess promptly whether the security presents minimal
credit risks and determine whether continuing to hold the security is in the
best interests of the Fund. To the extent that the ratings given by Moody's, S&P
or another NRSRO for securities may change as a result of changes in the rating
systems or due to the corporate reorganization of an NRSRO, each Fund will
attempt to use comparable ratings as standards for its investments in accordance
with the investment objectives and policies of that Fund. The ratings of Moody's
and S&P are more fully described in the Appendix to the SAI. A Money Market Fund
may be required to sell a security downgraded below the minimum required for
purchase, absent a specific finding by the Company's Board of Directors that a
sale is not in the best interests of the Fund.
PORTFOLIO TRANSACTIONS. Portfolio securities of each Fund are kept under
continuing supervision and changes may be made whenever, in the judgment of the
Portfolio Management Agent (or Adviser in the case of the Tax-Exempt Money
Market Fund), a security no longer seems to meet the objective of the Fund.
Portfolio changes also may be made to increase or decrease investments in
anticipation of changes in security prices in general or to provide the cash
necessary for redemptions, distributions to shareholders or other fund
management purposes. Portfolio changes are made without regard to the length of
time a particular security may have been held or the frequency of portfolio
transactions of a Fund (the portfolio turnover rate).
The realization of taxable capital gains and, with respect to equity securities,
the amount of brokerage commissions will tend to increase as the level of
portfolio activity increases. The portfolio turnover rates for each Fund are
included in the Financial Highlights for that Fund. The annual portfolio
turnover rate for the Small-Cap Value Fund is not expected to exceed 100%. The
annual portfolio turnover rate for the Balanced Fund is not expected to exceed
100% with respect to that portion of the Fund investing in equity securities,
and is not expected to exceed [ ]% with respect to that portion of the Fund
investing in fixed income securities. The annual portfolio turnover rate for
each of the Convertible Securities Fund and the Intermediate Government Bond
Fund is not expected to exceed [ ]%.
-23-
The Portfolio Management Agent and the Adviser seek "best execution" for all
portfolio transactions, but a Fund may pay higher than the lowest available
commission rates when the Portfolio Management Agent or Adviser believes it is
reasonable to do so in light of the value of the brokerage, research and other
services provided by the broker effecting the transaction. Purchase and sale
orders of securities on behalf of each of the Funds may be combined with those
of other accounts that the Portfolio Management Agent or Adviser manages, and
for which it has brokerage placement authority, in the interest of seeking the
most favorable overall net results. When the Portfolio Management Agent or
Adviser determines that a particular security should be bought or sold for any
of the Funds and other accounts it manages, the Portfolio Management Agent or
Adviser undertakes to allocate the transactions among the participants
equitably.
The Trust, the Company, the Adviser, the Portfolio Management Agent and other
service providers to the Funds have adopted codes of ethics which contain
policies on personal securities transactions by "access persons," including
portfolio managers and investment analysts. These policies substantially comply
in all material respects with the recommendations set forth in the May 9, 1994
Report of the Advisory Group on Personal Investing of the Investment Company
Institute.
INVESTMENT LIMITATIONS
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 SAI, no Fund may: (1) purchase the securities of issuers
conducting their principal business activity in the same industry if,
immediately after the purchase and as a result thereof, the value of its
investments in that industry would exceed 25% of the current value of its total
assets, provided that there is no limitation with respect to investments (a) in
municipal obligations (for the purpose of this restriction, private activity
bonds shall not be deemed municipal obligations if the payment of principal and
interest on such bonds is the ultimate responsibility of non-governmental
users); (b) in obligations of the U.S. Government, its agencies or
instrumentalities; or (c) in the case of the Money Market Fund, in certain bank
obligations in which the Fund may invest, as set forth in this Prospectus; (2)
invest more than 5% of the current value of its total assets in the securities
of any one issuer, other than obligations of the U.S. Government, its agencies
or instrumentalities, except that up to 25% of the value of the total assets of
a Fund (other than the Money Market Fund and the Government Money Market Fund)
may be invested without regard to this limitation; (3) purchase securities of an
issuer if, as a result, with respect to 75% of its total assets, it would own
more than 10% of the voting securities of such issuer; or (4) borrow from banks,
except that a Fund may borrow up to 10% of the current value of its total assets
for temporary purposes only in order to meet redemptions, and these borrowings
may be secured by the pledge of up to 10% of the current value of the Fund's net
assets (but investments may not be purchased while borrowings are in excess of
5%). Although not a matter of fundamental policy, the Funds consider the
securities of foreign governments to be a separate industry for purposes of the
25% asset limitation on investments in the securities of issuers conducting
their principal business activity in the same industry. As a matter of
fundamental policy, each Fund may make loans of portfolio securities.
-24-
In addition, as a fundamental policy of the Equity Fund, the Short/Intermediate
Bond Fund and the Money Market Funds, each of those Funds may 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. See Appendix A.
With respect to the second investment limitation set forth above, each of the
Money Market Fund and the Government Money Market Fund may invest more than 5%
of its total assets in the securities of a single issuer for a period of up to
three business days after the purchase thereof, so long as it does not make more
than one such investment at any one time.
RISK CONSIDERATIONS
THE RISKS OF INVESTING IN EACH FUND VARY DEPENDING UPON THE NATURE OF THE
SECURITIES HELD, AND THE INVESTMENT PRACTICES EMPLOYED, ON ITS BEHALF. THE
FUNDAMENTAL RISK ASSOCIATED WITH THE FUNDS, LIKE OTHER MUTUAL FUNDS THAT INVEST
IN FIXED INCOME AND EQUITY SECURITIES, IS "MARKET RISK." Market risk is the risk
that the market value of a security that a Fund holds will decrease. The market
value of a security may move up and down, sometimes rapidly and unpredictably.
These fluctuations may cause a security to be worth less than it was worth at
the time of purchase. Market risk may affect a single issuer, industry, sector
of the economy or the market as a whole.
Certain specific risks are described in this section. If you would like to know
more about risks associated with a particular type of security, see Appendix A.
RISKS OF EQUITY SECURITIES. Stock values may fluctuate in response to the
activities of an individual company or in response to general market and/or
economic conditions. Historically, common stocks have provided greater long-term
returns and have entailed greater short-term risks than other investment
choices. Smaller or newer issuers are more likely to realize more substantial
growth as well as suffer more significant losses than larger or more established
issuers. Investments in such companies can be both more volatile and more
speculative. THE SMALL-CAP OPPORTUNITY FUND AND THE SMALL-CAP VALUE FUND HAVE
HEIGHTENED EXPOSURE TO THESE RISKS DUE TO THEIR POLICY OF INVESTING IN SMALLER
COMPANIES.
RISKS OF DEBT SECURITIES. The value of debt securities generally goes down when
interest rates go up, and up when interest rates go down. Changes in interest
rates will generally cause larger changes in the prices of longer-term
securities than in the prices of shorter-term securities. The risk of market
losses attributable to changes in interest rates is known as "interest rate
risk."
Debt securities are subject to "credit risk" relating to the financial condition
of the issuers of the securities. Prices of debt securities may fluctuate based
on changes in the actual and perceived creditworthiness of issuers. The prices
of lower-rated securities often fluctuate more than those of higher-rated
securities.
-25-
It is possible that some issuers will not make payments on debt securities held
by a Fund. Investors should be aware that securities offering above-average
yields may involve above-average risks. Securities rated in the lowest
categories of investment grade (that is, BBB or Baa by S&P or Moody's) and
equivalent securities may have speculative characteristics. In adverse economic
or other circumstances, issuers of these securities are more likely to have
difficulty making principal and interest payments than issuers of higher-grade
obligations.
RISKS OF INVESTING IN FOREIGN MARKETS. Investments in the securities of foreign
(non-U.S.) issuers may involve risks in addition to those normally associated
with investments in the securities of U.S. issuers. All foreign investments are
subject to risks of foreign political and economic instability, adverse
movements in foreign exchange rates, the imposition or tightening of exchange
controls or other limitations on repatriation of foreign capital, and changes in
foreign governmental attitudes towards private investment, possibly leading to
nationalization, increased taxation or confiscation of foreign investors'
assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available for distribution to a
Fund's shareholders; commission rates payable on foreign transactions are
generally higher than in the United States; foreign accounting, auditing and
financial reporting standards differ from those in the United States and,
accordingly, less information may be available about foreign companies than is
available about issuers of comparable securities in the United States; and
foreign securities may trade less frequently and with lower volume and may
exhibit greater price volatility than United States securities. THE
INTERNATIONAL FUND HAS HEIGHTENED EXPOSURE TO THESE RISKS DUE TO ITS POLICY OF
INVESTING PRIMARILY IN THE SECURITIES OF FOREIGN ISSUERS.
RISKS OF FOREIGN CURRENCY. Changes in foreign exchange rates will also affect
the value in U.S. dollars of all foreign currency-denominated securities held by
the Funds. Exchange rates are influenced generally by the forces of supply and
demand in the foreign currency markets and by numerous other political and
economic events occurring outside the United States, many of which may be
difficult, if not impossible, to predict.
Income from foreign securities will be received and realized in foreign
currencies, while each Fund is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign currency
against the U.S. dollar occurring after a Fund's income has been earned and
computed in U.S. dollars may require the Fund to liquidate portfolio securities
to acquire sufficient U.S. dollars to make a distribution. Similarly, if the
exchange rate declines between the time that a Fund incurs expenses in U.S.
dollars and the time such expenses are paid, the Fund may be required to
liquidate additional foreign securities to purchase the U.S. dollars required to
meet such expenses. THE INTERNATIONAL FUND HAS HEIGHTENED EXPOSURE TO THESE
RISKS DUE TO ITS POLICY OF INVESTING PRIMARILY IN THE SECURITIES OF FOREIGN
ISSUERS.
RISKS OF DERIVATIVE SECURITIES. To the extent permitted by its investment
objectives and policies, each of the funds may invest in securities that are
commonly referred to as "derivative" securities. Generally, a derivative is a
financial instrument the value of which is based on, or
-26-
"derived" from, a traditional security, asset, or market index. Certain
derivative securities are more accurately described as "index/structured"
securities. Index/structured securities are derivative securities whose value or
performance is linked to other equity securities (such as depository receipts),
currencies, interest rates, indices or other financial indicators.
Some "derivatives" such as mortgage-backed and other asset-backed securities are
in many respects like any other investment, although they may be more volatile
or less liquid than more traditional debt securities.
There are many different types of derivatives and many different ways to use
them. Futures and options are commonly used for traditional hedging purposes to
attempt to protect a fund from exposure to changing interest rates, securities
prices, or currency exchange rates and for cash management purposes as a
low-cost method of gaining exposure to a particular securities market without
investing directly in those securities.
There is a range of risks associated with derivatives. These risks include:
* the possibility that the underlying security, interest rate, or market
index will not move in the direction the portfolio manager anticipates;
* the risk that changes in the value of a derivative being used for hedging
will not match those of the asset being hedged, which may cause a given
hedge not to achieve its objective;
* the possibility that there may be no liquid secondary market, which, among
other things, may hinder a Fund's ability to limit exposures by closing its
positions;
* the risk that adverse price movements in an instrument can result in a
loss substantially greater than a Fund's initial investment; and
* the risk that the counterparty will fail to perform its obligations.
RISKS OF MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are generally
"backed" or collateralized by a pool of mortgages. The Funds may purchase
mortgage-backed securities issued or guaranteed by the U.S. Government or one of
its agencies and backed by the full faith and credit of the U.S. Government, as
well as mortgage-backed securities supported primarily or solely by the
creditworthiness of the issuing U.S. Government agency.
Even if the U.S. Government or one of its agencies guarantees principal and
interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market volatility.
When interest rates decline, mortgage-backed securities experience higher rates
of prepayment because the underlying mortgages are refinanced to take advantage
of the lower rates. The prices of mortgage-backed securities may not increase as
much as prices of other debt obligations when interest rates decline, and
mortgage-backed securities may not be an effective means of locking in a
particular interest rate. In addition, any premium paid for a mortgage-backed
security may be lost when it is prepaid. When interest rates go up,
mortgage-backed securities experience lower rates of prepayment. This has the
effect of lengthening the expected maturity of a mortgage-backed security. As a
result, prices of
-27-
mortgage-backed securities may decrease more than prices of other debt
obligations when interest rates go up.
BORROWING RISK. Borrowing also involves special risk considerations. Interest
costs on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on the borrowed funds (or on the
assets that were retained rather than sold to meet the needs for which funds
were borrowed). Under adverse market conditions, the Fund might have to sell
portfolio securities to meet interest or principal payments at a time when
fundamental investment considerations would not favor such sales. To the extent
a Fund enters into reverse repurchase agreements, the Fund is subject to risks
that are similar to those associated with borrowing.
COUNTERPARTY RISK. A number of transactions in which the Funds may engage are
subject to the risks of default by the other party to the transaction. When a
Fund engages in repurchase, reverse repurchase, derivative, when-issued, forward
commitment, delayed settlement and securities lending transactions, it relies on
the other party to consummate the transaction. Failure of the other party to do
so may result in the Fund's incurring a loss or missing an opportunity to obtain
a price believed to be advantageous.
LIQUIDITY RISK. Certain securities may be difficult or impossible to sell at the
time and the price that the seller would like. The seller may have to lower the
price, sell other securities instead, or forego an investment opportunity, any
of which could have a negative effect on fund management or performance.
INFORMATION RISK. Certain key information about a security or market may be
inaccurate or unavailable, which may limit the investment adviser's ability to
make an appropriate investment decision with regard to the security or market.
OBJECTIVE RISK. Returns from the particular type of security that a Fund
emphasizes in its investments may trail returns from the overall stock or bond
market. For example, the growth stocks in which the Growth Fund invests tend to
go through cycles of relative underperformance and outperformance in comparison
to other types of equity securities. These periods may last for as long as
several years.
MANAGEMENT RISK. A strategy used by a Fund's investment adviser may fail to
produce the intended result, which could have a negative effect on fund
performance.
-28-
MANAGEMENT
TRUSTEES AND DIRECTORS
The Trust and the Company are managed under the direction of their governing
Boards of Trustees and Directors, respectively. Each individual listed below is
a member of both the Trust's Board of Trustees and the Company's Board of
Directors. The principal occupation of each individual is also listed below.
<TABLE>
<CAPTION>
<S> <C>
C. Gary Gerst Chairman of the Board of Trustees and Board of Directors;
Chairman Emeritus LaSalle Partners, Ltd. (real estate developer
and manager).
Edgar R. Fiedler Senior Fellow and Economic Counsellor, The Conference
Board.
John W. McCarter, Jr. President and Chief Executive Officer, The Field Museum of
Natural History (Chicago); Formerly, Senior Vice President and Director,
Booz-Allen & Hamilton, Inc. (consulting firm).
Ernest M. Roth Consultant; Formerly, Retired Senior Vice President and Chief
Financial Officer, Commonwealth Edison Company.
</TABLE>
INVESTMENT ADVISER
Harris Trust is the investment adviser for each of the Funds pursuant to
Advisory Contracts with the Trust and the Company. Harris Trust, located at 111
West Monroe Street, Chicago, Illinois, is the successor to the investment
banking firm of N.W. Harris & Co. that was organized in 1882 and was
incorporated in 1907 under the present name of the bank. It is an Illinois
state-chartered bank and a member of the Federal Reserve System. At December 31,
1996, Harris Trust had assets of more than $[ ] billion and was the largest of [
] banks owned by Harris Bankcorp, Inc. Harris Bankcorp, Inc. is a wholly-owned
subsidiary of Bankmont Financial Corp., which is a wholly-owned subsidiary of
Bank of Montreal, a publicly-traded Canadian banking institution.
As of December 31, 1996, Harris Trust managed more than $[ ] billion in personal
trust assets, and acted as custodian of more than $[ ] billion in assets.
With respect to the Tax-Exempt Money Market Fund, the Advisory Contract provides
that Harris Trust shall make investments for the Fund in accordance with its
best judgment. With respect to the remaining Funds, the Advisory Contracts
provide that Harris Trust is responsible for the supervision and oversight of
the Portfolio Management Agent's performance (as discussed below).
-29-
The investment advisory fees payable to Harris Trust with respect to each Fund
are based on the average daily net assets of the respective Fund at the
following annual rates:
International Fund 1.05%
Small-Cap Opportunity Fund 1.00%
Small-Cap Value Fund 0.80%
Growth Fund 0.90%
Equity Fund 0.70%
Equity Income Fund 0.70%
Index Fund 0.25%
Balanced Fund 0.60%
Convertible Securities Bond Fund 0.70%
Tax-Exempt Bond Fund 0.60%
Bond Fund 0.65%
Intermediate Tax-Exempt Bond Fund 0.60%
Short/Intermediate Bond Fund 0.70%
Intermediate Government Bond Fund 0.65%
Tax-Exempt Money Market Fund 0.14% of each Fund's first
Money Market Fund $100 million of assets plus
Government Money Market Fund 0.10% of the Fund's remaining assets
PORTFOLIO MANAGEMENT AGENT
Harris Trust has entered into Portfolio Management Contracts with Harris
Investment Management, under which HIM undertakes to furnish investment guidance
and policy direction in connection with the daily portfolio management of all of
the Funds except for the Tax-Exempt Money Market Fund. For the services provided
by HIM, Harris Trust pays HIM the advisory fees it receives from the Funds. As
of December 31, 1996, HIM managed an estimated $[ ] billion in assets.
To the extent permitted by the SEC, the Funds may pay brokerage commissions to
certain affiliated persons. During the last fiscal year, no Fund paid
commissions to these persons.
PORTFOLIO MANAGEMENT
Many persons on the staffs of the Adviser and the Portfolio Management Agent
contribute to the investment management services provided to the Funds. The
following persons, however, are primarily responsible for the day-to-day
investment management of the Funds:
[Portfolio manager biographies]
-30-
ADMINISTRATORS, CUSTODIAN AND TRANSFER AGENT
Harris Trust (in this capacity, the "Administrator") is the administrator of the
Funds and, as such, generally assists the Funds in all aspects of their
administration and operation.
The Administrator has a Sub-Administration Agreement with Funds Distributor,
Inc. ("FDI"), whereby FDI performs certain administrative services for the
Funds. The Administrator has Sub-Administration and Accounting Services
Agreements with PFPC Inc. ("PFPC"), whereby PFPC performs certain administrative
and accounting services for the Funds. Under these agreements, the Administrator
compensates FDI and PFPC for providing their services. The Administrator, FDI
and PFPC are referred to collectively as the "Administrators."
Harris Trust is also the transfer and dividend disbursing agent of the Funds (in
this capacity, the "Transfer Agent"). The Transfer Agent has entered into
Sub-Transfer Agency Services Agreements with PFPC (the "Sub-Transfer Agent")
whereby the Sub-Transfer Agent performs certain transfer agency and dividend
disbursing agency services.
PNC Bank, N.A. (the "Custodian") serves as custodian of the assets of the Funds.
PFPC and the Custodian are indirect, wholly-owned subsidiaries of PNC Bank Corp.
As compensation for their services, the Administrator, the Transfer Agent and
the Custodian are entitled to receive a combined fee based on the aggregate
average daily net assets of the portfolios of the Company and the Trust, payable
monthly at an annual rate of 0.17% of the first $300 million of average daily
net assets; 0.15% of the next $300 million; and 0.13% of average daily net
assets in excess of $600 million. In addition, the Funds pay a separate fee to
the Sub-Transfer Agent for certain retail sub-transfer agent services and
reimburses the Custodian for various custody transactional expenses.
DISTRIBUTOR
Funds Distributor, Inc. (the "Distributor") has entered into Distribution
Agreements with the Trust and the Company pursuant to which it has the
responsibility for distributing shares of the Funds. Fees for services rendered
by the Distributor are paid by the Administrator. The Distributor bears the cost
of printing and mailing prospectuses to potential investors and any advertising
expenses incurred by it in connection with the distribution of shares, subject
to the terms of the Service Plans described below, if implemented pursuant to
contractual arrangements between the Distributor and each of the Trust and the
Company and approved by the Board of Trustees of the Trust (or the Board of
Directors of the Company).
See "Management" and "Custodian" in the SAI for additional information regarding
the Adviser, Portfolio Management Agent, Administrators, Custodian, Transfer
Agent and Distributor.
-31-
SERVICE PLAN
Under each Fund's Service Plan relating to Class A Shares, each Fund bears the
costs and expenses connected with advertising and marketing the Fund's shares
and pays the fees of financial institutions (which may include banks),
securities dealers and other industry professionals, such as investment
advisers, accountants and estate planning firms (collectively, "Service Agents")
for servicing activities, as described below, at a rate up to 0.25% per annum of
the average daily net asset value of the Fund's Class A Shares. From their own
resources, Harris Trust and HIM from time to time may voluntarily pay fees to
certain Service Agents. The Administrators and the Distributor may act as
Service Agents and receive fees under a Service Plan. For more information
concerning expenses pursuant to the Service Plans, see "Management."
Servicing activities provided by Service Agents to their customers investing in
the Funds may include establishing and maintaining shareholder accounts and
records; processing purchase and redemption transactions; answering customer
inquiries; assisting customers in changing dividend options, account
designations and addresses; sub-accounting; investing customer cash account
balances automatically in Fund shares; providing periodic account balance
statements and integrating these statements with those of other transactions and
balances in the customer's other accounts serviced by the Service Agent;
arranging for bank wires; and performing other services to the extent permitted
by applicable statute, rule or regulation.
EXPENSES
Except for certain expenses borne by the Distributor, Harris Trust, or HIM, the
Trust and the Company bear all costs of their operations, including the
compensation of their Trustees or Directors who are not affiliated with Harris
Trust, HIM or the Distributor or any of their affiliates; advisory and
administration fees; payments pursuant to any Service Plan (with respect to only
Class A Shares); interest charges; taxes; fees and expenses of independent
accountants, legal counsel, transfer agent and dividend disbursing agent;
expenses of preparing and printing prospectuses (except the expense of printing
and mailing prospectuses used for promotional purposes, unless otherwise payable
pursuant to a Service Plan), shareholders' reports, notices, proxy statements
and reports to regulatory agencies; insurance premiums and certain expenses
relating to insurance coverage; trade association membership dues; brokerage and
other expenses connected with the execution of portfolio securities
transactions; fees and expenses of the Funds' custodian including those for
keeping books and accounts; expenses of shareholders' meetings and meetings of
Boards of Trustees and Directors; expenses relating to the issuance,
registration and qualification of shares of the Funds; fees of pricing services;
organizational expenses; and any extraordinary expenses. Expenses attributable
to each Fund are borne by that Fund. Other general expenses of the Trust or the
Company are allocated among the Funds in an equitable manner as determined by
the Boards of Trustees and Directors.
-32-
HOW TO BUY SHARES
OPENING AN ACCOUNT. To open an account, complete and sign an application and
mail it along with your check. You also may open your account by wire, as
described below. Please be sure to furnish your taxpayer identification number.
(You must also certify whether you are subject to withholding for failing to
report income to the IRS.) Investments received without a certified taxpayer
identification number will be returned.
If you register your account as belonging to multiple owners (e.g., as joint
tenants), you must provide specific authorization on your application in order
for us to accept instructions from a single owner. Otherwise, all owners will
have to agree to any transactions that involve the account.
MINIMUM INVESTMENTS. The Funds have the following minimum investments:
To open an account $1,000
To open a retirement account 250
To add to an existing account $ 50
Investing through an Automatic Investment Plan 50
[Minimum account balance $1,000]
[Minimum balance for retirement accounts 250]
If you are opening an account through a financial institution or other
intermediary, this organization may have different minimum initial and
subsequent investment requirements. Please contact this organization if you have
questions. See BUYING SHARES - THROUGH FINANCIAL INSTITUTIONS BELOW.
BUYING SHARES. Shares may be purchased by investing automatically (see AUTOMATIC
INVESTING below) or by any of the following three methods:
1. BY MAIL. Make your check payable to the Fund of your choice. If you are
adding to your existing account, indicate your Fund account number
directly on the check and send to:
Harris Insight Funds
c/o PFPC Inc.
P.O. Box 8952
Wilmington, Delaware 19899-8952
2. BY BANK WIRE. Call the Funds at (800) 625-7073 to set up your account.
Then wire your investment to:
-33-
PNC Bank, N.A.
Philadelphia, Pennsylvania
ABA #0310-0005-3
For Credit to: Harris Insight Funds
85-5093-2950
Re: [Name of Fund] - Class A Shares
Account No.:
Account Name:
If you are opening an account, please promptly complete and mail the account
application form to the Funds at the address above under "By Mail." The Funds
currently do not charge investors for the receipt of wire transfers, although
your bank may charge you for their wiring services.
3. THROUGH FINANCIAL INSTITUTIONS. Shares of any of the Funds may be purchased
through authorized broker/dealers, financial institutions and service agents
with whom the Distributor has a selling agreement, including Harris Trust and
HIM and their affiliates ("Institutions") on any day the Funds are open for
business. See GENERAL PURCHASE INFORMATION. Institutions are responsible for the
prompt transmission of buy, exchange or sell orders.
Each Institution may establish its own terms with respect to the requirement of
a minimum initial investment and minimum subsequent investments. Depending upon
the terms of your account, Institutions may charge account fees for automatic
investment and other services they provide, including account maintenance fees,
compensating balance requirements, or fees based upon account transactions,
assets, or income, which would reduce the your yield or return. Please read this
Prospectus in connection with any information received from your Institution.
AUTOMATIC INVESTING. Automatic investing is an easy way to add to your Harris
Insight Funds and can help you achieve your financial goals as simply and
conveniently as possible. Through the Harris Insight Funds Automatic Investment
Plan you can have as little as $50 a month electronically withdrawn from your
checking account and invested in the Fund of your choice. This feature can be
established when you open your account. For more information or to receive an
application, please call (800) 982-8792.
GENERAL PURCHASE INFORMATION
The Funds are open for business each day the New York Stock Exchange (the
"Exchange") and the Federal Reserve Bank of Philadelphia are both open for
business (i.e., each weekday other than New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day) ("Fund Business
Day"). Except for the Money Market Funds, each Fund normally calculates its net
asset value (NAV) and offering price at the close of business of the Exchange,
which is normally 4:00 p.m., Eastern time. Each of the Money Market Funds
normally calculates its NAV on or before 12:00 Noon, Eastern time. Shares are
purchased at the next share price calculated after your investment is received
and accepted.
-34-
Orders placed directly with the Funds must be paid for by check or bank wire on
the same day. Payment for the shares purchased through an Institution will not
be due until settlement date, normally three business days after the order has
been executed. The Company and Trust, as applicable, reserve the right to reject
any purchase order.
SALES CHARGES
Class A Shares of the Funds (except for the Money Market Funds) are sold with a
sales load of up to 4.50% (applied when your investment is made). There are ways
to reduce or eliminate this charge, however. See REDUCED SALES CHARGES BELOW.
When Class A Shares of the Funds are purchased through an Institution, the
Distributor reallows a portion of the sales charge to the Institution, except as
described below. No sales charge is assessed on the reinvestment of
distributions.
Sales charges for Class A Shares of the Funds are as follows:
<TABLE>
<CAPTION>
Sales Charge Dealer Allowance
Sales as % of Net as % of
Amount of Purchase Charges Amount Invested Offering Price
- ------------------ ------- --------------- --------------
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.25%
$100,000 up to (but less than) $200,000 4.50 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 0.075
$1,000,000 and over .00 .00 .00
</TABLE>
No sales charge is assessed on Class A Shares that are purchased directly from
the Funds (i.e., not purchased through an Institution). In addition, no sales
charge is assessed on purchases by: (a) any bank, trust company, or other
institution acting on behalf of a fiduciary customer account or any other trust
account (including a pension, profit-sharing or other employee benefit trust
created pursuant to a plan qualified under Section 401 of the Internal Revenue
Code of 1986, as amended (the "Code")); (b) any individual with an investment
account or relationship with HIM; (c) directors, trustees or officers of the
Trust or Company; (d) any director, current or retired employee of Harris
Bankcorp, Inc. or any of its affiliates or an immediate family member of such
individual (spouses and children under 21); (e) any broker, dealer or agents who
has a sales agreement with the Distributor, and their employees (and the
immediate family members of such individuals); and (f) financial institutions,
financial planners, employee benefit plan consultants or registered investment
advisers acting for the accounts of their clients.
REDUCED SALES CHARGES
AN INVESTOR IN A FUND MAY BE ENTITLED TO REDUCED SALES CHARGES. To qualify for a
reduced sales charge, you must notify the Funds at the time of purchase. If you
invest through an Institution, you should notify the Institution, which in turn
must notify the Funds. Programs that allow for reduced sales charges may be
changed or eliminated at any time.
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RIGHT OF ACCUMULATION. The Right of Accumulation allows an investor to combine
the amount invested in Class A Shares of a Fund with the total net asset value
of Class A Shares currently purchased or already owned by that investor of other
non-Money Market Funds of the Trust and the Company to determine the applicable
sales charge. To obtain such discount, the purchaser must provide sufficient
information at the time of purchase to permit verification that the purchase
qualifies for the reduced sales charge, and confirmation of the order is subject
to such verification. The Right of Accumulation may be modified or discontinued
at any time by the Funds with respect to all Class A Shares purchased
thereafter.
LETTER OF INTENT. A Letter of Intent allows an investor to purchase Class A
Shares of the non-Money Market Funds of the Trust and the Company over a
13-month period at reduced sales charges based on the total amount intended to
be purchased plus the total net asset value of Class A Shares already owned.
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.
REINSTATEMENT PRIVILEGE. If you sell Class A Shares of a Fund, you may, within [
] days following the redemption, invest some or all of the proceeds in Class A
Shares in the Fund or a non-Money Market Fund of the Harris Insight Fund
offering those shares. All accounts involved must have the same registration.
Call (800) 982-8782 for more information.
HOW TO SELL SHARES
Shares may be sold (redeemed) at their next determined net asset value after
receipt of a proper request by the Funds directly or through any Institution.
1. BY MAIL. Shareholders may sell shares by writing the Funds at the
following address:
Harris Insight Funds
c/o PFPC Inc.
P.O. Box 8952
Wilmington, Delaware 19899-8952
Certain requests for redemption must be signed by the shareholder with signature
guaranteed. See SHAREHOLDER SERVICES AND POLICIES - SIGNATURE GUARANTEES.
2. BY TELEPHONE. If you have chosen the telephone redemption privilege,
you may make a telephone redemption request by calling the Funds at (800)
625-7073 and providing the your account number, the exact name of your account
and your social security or taxpayer identification number. The Fund then will
mail a check to your account address or, if you have elected wire redemption
privileges, wire the proceeds on the following business day.
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3. BY BANK WIRE. If you have chosen the wire redemption privilege, you may
request the Funds to transmit your proceeds by federal funds wire to a bank
account previously designated by you in writing.
4. THROUGH FINANCIAL INSTITUTIONS. If you bought your shares through an
Institution, you may redeem your shares through the Institution. Please contact
the Institution for this service.
GENERAL REDEMPTION INFORMATION
There is no charge for redemptions, but if you bought your shares through an
Institution, the Institution may charge an account-based service fee. A
redemption order received by an Institution or the Funds before the close of the
Exchange and before the close of the Fund Business Day will be executed at the
Fund's net asset value per share next determined on that day. A redemption order
received after the close of the Exchange, or not received by the Funds prior to
the close of the Fund Business Day, will be executed at the Fund's net asset
value next determined on the next Fund Business Day.
Proceeds of a redemption order for a Fund received in good order by 4:00,
Eastern time (12:00 Noon in the case of the Money Market Funds) will normally be
remitted within five but not more than seven business days, except that if a
redemption request is made shortly after a recent purchase by check, proceeds
will be distributed once the check used to purchase the Fund's shares clears,
which may take up to 15 days or more after the investment. The proceeds may be
more or less than the amount originally invested and, therefore, a redemption
may result in a gain or loss for federal income tax purposes.
The Funds intend to pay redemption proceeds in cash, but reserve the right to
pay in kind by delivery of investment securities equal in value to the
redemption price to the extent permitted by applicable laws and regulations. In
these cases, you might incur brokerage costs in converting the securities to
cash. The right of any shareholder to receive payment of redemption proceeds may
be suspended, or payment may be postponed, in certain circumstances. These
circumstances include any period when the Exchange is closed (other than
weekends or holidays) or trading on the Exchange is restricted, any period when
an emergency exists and any time the SEC permits mutual funds to postpone
payments for the protection of investors.
SYSTEMATIC WITHDRAWAL PLAN. You can arrange for periodic, automatic redemptions
from your account. For more information or to sign up for this service, please
call (800) 982-8782.
SHAREHOLDER SERVICES AND POLICIES
EXCHANGING SHARES. YOU CAN EXCHANGE CLASS A SHARES OF A FUND FOR CLASS A SHARES
OF THE OTHER HARRIS INSIGHT FUNDS OFFERING THOSE SHARES. Class A Shares of any
of the Funds that you have held for seven days or more may be exchanged for
shares of any other Harris Insight Fund in an identically registered account,
provided that Class A Shares of the Fund to be acquired are registered for sale
in the your state of residence, on the following terms: Class A Shares of the
non-Money Market Funds of the Trust and the Company may be exchanged for Class A
Shares
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of one another and for Class A Shares of each of the Money Market Funds of the
Company, all at respective net asset values. In addition, Class A Shares of a
Fund that have been exchanged pursuant to this privilege may be re-exchanged at
respective net asset values of Class A Shares of the Fund in which they were
originally invested upon notification.
Procedures applicable to redemption of a Fund's shares are also applicable to
exchanging shares. If you would like the ability to exchange shares by
telephone, please choose this option when you complete your application. The
Funds reserve the right to limit the number of exchanges between Funds, to
reject any telephone exchange order or otherwise to modify or discontinue
exchange privileges at any time upon 60 days' written notice. A capital gain or
loss for tax purposes may be realized upon an exchange, depending upon the cost
or other basis of shares redeemed.
DIRECTED DIVIDEND OPTION. You may choose to have all your dividend and capital
gain distributions automatically invested in shares of another, identically
registered Harris Insight Fund, provided that those shares are eligible for sale
in your jurisdiction of residence. If you would like to add the Directed
Dividend Option to your account, please call (800) 982-8782 for information.
SIGNATURE GUARANTEES. A signature guarantee assures that a signature is genuine
and protects shareholders from unauthorized account transfers. In addition to
certain signature requirements, a signature guarantee is required in any of the
following circumstances:
* A redemption check is to be made payable to anyone other than the
shareholder(s) of record.
* A redemption check is to be mailed to an address other than the address of
record.
At the Funds' discretion, signature guarantees also may be required for other
redemptions. Banks, savings and loan associations, trust companies, credit
unions, broker-dealers and member firms of a national securities exchange may
guarantee signatures. Call your financial institution to see if it has this
capability.
TELEPHONE TRANSACTIONS. Investors may buy (by bank wire), sell and exchange
shares by telephone. Shareholders engaging in telephone transactions should be
aware that they may be foregoing some of the security associated with written
requests. A shareholder may bear the risk of any resulting losses from a
telephone transaction. The Funds will employ reasonable procedures to confirm
that telephonic instructions are genuine. If the Funds or their service
providers fail to employ these measures, they may be liable for any losses
arising from unauthorized or fraudulent instructions. In addition, the Funds
reserve the right to record all telephone conversations. Please verify the
accuracy of telephone instructions immediately upon receipt of confirmation
statements.
During times of drastic economic or market changes, telephone redemption and
exchange privileges may be difficult to implement. In the event that you are
unable to reach the Funds by
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telephone, requests may be mailed or hand-delivered to the Funds at the address
listed in HOW TO SELL SHARES.
REDEMPTION OF SHARES IN SMALLER ACCOUNTS. Because of the high cost of
maintaining small accounts, each Fund reserves the right to redeem all shares in
an account whose value falls below $500 ($250 in the case of a retirement
account) unless this is a result of a decline in the market value of the shares.
Prior to such a redemption, a shareholder will be notified in writing and
permitted 30 days to make additional investments to raise the account balance to
the specified minimum.
SHARE CERTIFICATES. Share certificates are not issued.
ELIGIBILITY BY STATE. You may only invest in, or exchange into, Class A Shares
legally available in your state.
CHECKWRITING. Checkwriting privileges are available to shareholders of the Money
Market Funds. For more information or to receive a checkwriting application,
please call (800) 982-8782.
REPORTS TO SHAREHOLDERS. You will receive an account statement after every
transaction that affects your share balance, except for reinvestments of
dividend and capital gain distributions, or at least annually. In addition, each
year you will receive an annual and semi-annual report to shareholders of each
Fund in which you invest. If you would like copies of these reports, please call
(800) 982-8782.
HOW THE FUNDS MAKE DISTRIBUTIONS TO SHAREHOLDERS;
TAX INFORMATION
Dividends from the International Fund, the Small-Cap Opportunity Fund and the
Small-Cap Value Fund are declared and paid semi-annually. Dividends from each of
the Growth Fund, the Equity Income Fund, the Equity Fund, the Index Fund, the
Balanced Fund and the Convertible Securities Fund are declared and paid
quarterly. Dividends from the Tax-Exempt Bond Fund, the Bond Fund, the
Intermediate Tax-Exempt Bond Fund, the Short/Intermediate Bond Fund and the
Intermediate Government Bond Fund are declared daily and paid monthly. Dividends
from each of the Money Market Funds are declared daily and paid monthly. Any net
capital gains will be declared and paid at least annually (to the extent
required to avoid imposition of the 4% excise tax described below). Dividend and
capital gain distributions may be invested in additional shares of the same Fund
at net asset value and credited to the shareholder's account on the payment date
or paid in cash (no sales charge is assessed on the reinvestment of dividends or
distributions). Distribution checks and account statements will be mailed
approximately two business days after the payment date.
Each Fund is treated as a separate entity for tax purposes and thus the
provisions of the Internal Revenue Code (the "Code") generally are applied to
each Fund separately, rather than to the Trust or the Company as a whole. As a
result, net capital gains, net investment income, and
-39-
operating expenses are determined separately for each Fund. The Trust and the
Company intend to qualify each Fund as a regulated investment company under the
Code and to distribute to the shareholders of each Fund sufficient net
investment income and net realized capital gains of that Fund so that the Fund
will not be subject to federal income taxes.
Dividends (including net short-term capital gains), except "exempt-interest
dividends" (described below), will be taxable to shareholders as ordinary
income.
Distributions of net long-term capital gains, if any, will be taxable as
long-term capital gains, whether received in cash or reinvested in additional
shares, regardless of how long the shareholder has held the shares, and will not
qualify for the dividends-received deductions.
A taxable gain or loss also may be realized by a shareholder upon the redemption
or transfer of shares depending on the tax basis of the shares and their price
at the time of the transaction. Any loss realized on a sale or exchange of
shares of a Fund will be disallowed to the extent shares of that Fund are
acquired within the 61-day period beginning 30 days before and ending 30 days
after disposition of the shares.
Dividends paid by each of the Tax-Exempt Bond Fund, the Intermediate Tax-Exempt
Bond and the Tax-Exempt Money Market Fund (the "Tax-Exempt Funds") out of
tax-exempt interest income earned by the Fund ("exempt-interest dividends")
generally will not be subject to Federal income tax in the hands of the Fund's
shareholders. However, persons who are substantial users or related persons
thereof of facilities financed by private activity bonds held by a Fund may be
subject to Federal income tax on their pro rata share of the interest income
from such bonds and should consult their tax advisers before purchasing shares
of such Fund.
Interest on indebtedness incurred by shareholders to purchase or carry shares of
a Fund generally is not deductible for Federal income tax purposes. Under rules
of the Internal Revenue Service for determining when borrowed funds are used for
purchasing or carrying particular assets, shares of a Fund may be considered to
have been purchased or carried with borrowed funds even though those funds are
not directly linked to the shares. Substantially all of the dividends paid by
each Tax-Exempt Fund are anticipated to be exempt from Federal income taxes.
Shareholders of the Tax-Exempt Funds may be exempt from state and local taxes on
distributions of tax-exempt interest income derived from obligations of the
state and/or municipalities of the state in which they reside but may be subject
to tax on income derived from the municipal securities of other jurisdictions.
Shareholders are advised to consult with their tax advisers concerning the
application of state and local taxes to investments in the Fund which may differ
from the Federal income tax consequences described above.
The Trust and the Company, as applicable, will be required to withhold, subject
to certain exemptions, a portion (currently 31%) from dividends paid or credited
to individual shareholders and from redemption proceeds, if a correct taxpayer
identification number, certified when required, is not on file with the Trust
(or the Company) or Transfer Agent.
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GENERAL INFORMATION
BANKING LAW MATTERS
Federal banking laws and regulations generally prohibit federally chartered or
supervised banks from engaging directly in the business of issuing,
underwriting, selling or distributing securities, although subsidiaries of bank
holding companies, such as Harris Trust and HIM, are permitted to purchase and
sell securities upon the order and for the account of their customers.
Harris Trust and HIM believe that they may perform the services contemplated by
this Prospectus and their respective agreements with the Company and Trust
without violating applicable federal banking laws or regulations. It is noted,
however, that there are no controlling judicial or administrative
interpretations or decisions and that future judicial or administrative
interpretations of, or decisions relating to, present federal statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in federal statutes or
regulations and judicial or administrative decisions or interpretations thereof,
could prevent Harris Trust or HIM from continuing to perform, in whole or in
part, these services. If this were to happen, the Funds would seek alternative
sources for these services.
HOW SHARE VALUE IS DETERMINED
Net asset value per share is the value of one share of a Fund, which is
determined on each Fund Business Day. Net asset value per share is determined by
dividing the value of a Fund's net assets (i.e., the value of its securities and
other assets less its liabilities) by the number of shares of the Fund
outstanding.
The net asset value per share of each of the non-Money Market Funds is
determined at the close of regular trading on the Exchange (currently 4:00 p.m.,
Eastern time) on each Fund Business Day. The value of securities held by the
non-Money Market Funds (other than bonds and debt obligations maturing in 60
days or less) is determined based on the last sale price on the principal
exchange on which the securities are traded as of the time of valuation. In the
absence of any sale on the valuation date, the securities are valued at the
closing bid price. Securities traded only on over-the-counter markets are valued
at closing over-the-counter bid prices. Portfolio securities that are primarily
traded on foreign securities exchanges are generally valued at their closing
values on the exchange. Bonds are valued at the mean of the last bid and asked
prices. In the absence of readily available market quotations (or when, in the
view of the Portfolio Management Agent, available market quotations do not
accurately reflect a security's fair value), securities are valued at their fair
value as determined by the Trust's Board of Trustees or Company's Board of
Directors. Prices used for valuations of securities are provided by independent
pricing services. Debt obligations with remaining maturities of 60 days or less
generally are valued at amortized cost. The amortized cost method involves
valuing a security at its cost and amortizing any discount or premium over the
period until maturity, regardless of the impact of fluctuating interest rates on
the market value of the security.
-41-
The net asset value per share of each of the Money Market Funds is determined at
12:00 Noon, Eastern time. In order to maintain a stable net asset value of $1.00
per share, each of the Funds uses the amortized cost method to value its
portfolio securities.
HOW PERFORMANCE IS REPORTED
From time to time, each of the Funds may advertise its performance. Performance
may be quoted in terms of total return, yield, effective yield and
tax-equivalent yield. All performance information is based on historical results
and is not intended to indicate future performance.
Total return refers to the amount an investment in a Fund would have earned,
including any increase or decrease in net asset value, over a specified period
of time and assumes the payment of the maximum sales load and the reinvestment
of all dividends and distributions. The total return of each Fund shows what an
investment in Class A Shares of the Fund would have earned over a specified
period of time (such as one, five or ten years, or the period of time since
commencement of operations, if shorter) assuming that the maximum sales load was
paid and that all distributions and dividends by the Fund were reinvested on
their reinvestment dates during the period less all recurring fees. When a Fund
compares its total return to that of other mutual funds or relevant indices, its
total return also may be computed without reflecting the sales load so long as
the sales load is stated separately in connection with the comparison.
A Fund's yield is a way of showing the rate of income the Fund earns on its
investments as a percentage of the Fund's share price. To calculate standardized
yield, a Fund divides the interest income it earned from its investments for a
30-day period (net of expenses) by the average number of shares entitled to
receive dividends. The result is then expressed as an annualized percentage rate
based on the Fund's share price at the end of the 30-day period (which period
will be stated in the advertisement). The yield of any investment is generally a
function of portfolio quality and maturity, type of instrument and operating
expenses.
The effective yield is calculated similarly but, when annualized, the income
earned by an investment in shares of the Fund is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment. The "tax-equivalent yield,"
which will calculated only for the Intermediate Tax-Exempt Bond Fund, the
Tax-Exempt Bond Fund and the Tax-Exempt Money Market Fund, refers to the yield
on a taxable investment necessary to produce an after-tax yield equal to a
Fund's tax-exempt yield, and is calculated by increasing the yield shown for the
Fund to the extent necessary to reflect the payment of specified tax rates.
Thus, the tax-equivalent yield for a Fund will always exceed that Fund's yield.
From time to time the Money Market Funds advertise "30-day average yield" and
"monthly average yield." Such yields refer to the average daily income generated
by an investment in such Fund over a 30-day or monthly period, as appropriate
(which period will be stated in the advertisement).
-42-
The Funds' advertisements may reference ratings and rankings among similar
mutual funds by independent evaluators such as Morningstar, Inc. and Lipper
Analytical Services, Inc. The comparative material found in the Funds'
advertisements, sales literature or reports to shareholders may contain
performance ratings. That material is not to be considered an indication of
future performance. All performance information for a Fund is calculated on a
class basis. In addition, a Fund may use a benchmark securities index as a
measure of the Fund's performance. The Balanced Fund may measure performance
using a composite of securities indices to reflect that Fund's policy of
investing in both equity and fixed income securities. The Funds may from time to
time advertise a comparison of their performance against relevant indices.
MORE INFORMATION ABOUT THE TRUST AND THE COMPANY
The Trust is an open-end management investment company which was organized on
December 6, 1995 as a business trust under the laws of the Commonwealth of
Massachusetts. The Trust offers shares of beneficial interest, $.001 par value,
for sale to the public. Currently, the Trust has 12 portfolios in operation. The
Board has authorized each Fund of the Trust to issue two classes of shares,
Class A Shares and Institutional Shares.
The Company, which was incorporated in Maryland on September 16, 1987, is an
open-end management investment company. The authorized capital stock of the
Company consists of 10,000,000,000 shares having a par value of $.001 per share.
Currently, the Company has 7 portfolios in operation, including two portfolios
not offered in this Prospectus: Harris Insight Hemisphere Free Trade Fund and
Harris Insight Convertible Fund. The Company's Board has authorized the Money
Market Funds to issue three classes of shares, Class A, Class B and
Institutional Shares. Class B Shares currently are not offered. The Company's
Board has authorized the other Funds of the Company to issue two classes of
shares, Class A and Institutional Shares, except with respect to Harris Insight
Convertible Fund, which offers a single class.
Each Fund is a diversified mutual fund. Under the Investment Company Act of
1940, as amended (the "1940 Act"), a diversified mutual fund must manage at
least 75% of its total assets so that no more than 5% of those assets are
invested in any one company at the time of investment.
Institutional Shares of the Funds, which are offered only to certain classes of
investors, do not impose any sales charges or bear any sales, marketing or
distribution expenses. In the future, the Board of Trustees of the Trust and the
Board of Directors of the Company may authorize the issuance of shares of
additional investment portfolios and additional classes of shares of any
portfolio. Different classes of shares of a single portfolio may bear different
sales charges and other expenses (including distribution fees) which may affect
their relative performance. Information regarding other classes of shares may be
obtained by calling the Funds at please call (800) 982-8782 or from any
institution that makes available shares of the Funds. All shares of the Trust
and all shares of the Company have equal voting rights and will be voted in the
aggregate, and not by class, except where voting by class is required by law or
where the matter
-43-
involved affects only one class. A more detailed statement of the voting rights
of shareholders is contained in the SAI. All shares of the Trust and all shares
of the Company, when issued, will be fully paid and non-assessable.
[CONTROLLING SHAREHOLDERS ... ] [Harris Trust has indicated that it holds its
shares on behalf of various client accounts and not as beneficial owner.] From
time to time, certain shareholders may own a large percentage of the shares of a
Fund. Accordingly, those shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote.
The Trust and the Company may dispense with annual meetings of shareholders in
any year in which Trustees and Directors are not required to be elected by
shareholders. It is anticipated generally that shareholder meetings will be held
only when specifically required by federal or state law. Shareholders have
available certain procedures for the removal of Trustees and Directors.
There is a possibility that the Trust might become liable for any misstatement,
inaccuracy or incomplete disclosure in this Prospectus concerning the Company.
Likewise, there is a possibility that the Company might become liable for any
misstatement, inaccuracy or incomplete disclosure in this Prospectus concerning
the Trust.
-44-
APPENDIX A: PERMITTED INVESTMENTS
ASSET-BACKED SECURITIES. The Equity Funds, the Short/Intermediate Bond Fund, the
Bond Fund, the Government Bond Fund, the Intermediate Tax-Exempt Bond Fund, the
Tax-Exempt Bond Fund and the Money Market Fund may purchase asset-backed
securities, which represent direct or indirect participations in, or are secured
by and payable from, assets other than mortgage-backed assets such as motor
vehicle installment sales contracts, installment loan contracts, leases of
various types of real and personal property and receivables from revolving
credit (credit card) agreements. In accordance with guidelines established by
the Boards of Trustees and Directors, asset-backed securities may be considered
illiquid securities and, therefore, may be subject to a Fund's 15% (10% with
respect to the Equity Fund, the Short/Intermediate Bond Fund and the Money
Market Funds) limitation on such investments. Asset-backed securities, including
adjustable rate asset-backed securities, have yield characteristics similar to
those of mortgage-backed securities and, accordingly, are subject to many of the
same risks, including prepayment risk.
Assets are securitized through the use of trusts and special purpose
corporations that issue securities that are often backed by a pool of assets
representing the obligations of a number of different parties. Payments of
principal and interest may be guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution.
Asset-backed securities do not always have the benefit of a security interest in
collateral comparable to the security interests associated with mortgage-backed
securities. As a result, the risk that recovery on repossessed collateral might
be unavailable or inadequate to support payments on asset-backed securities is
greater for asset-backed securities than for mortgage-backed securities. In
addition, because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of an interest rate or economic cycle has not been
tested.
BANK OBLIGATIONS. A Fund may invest in obligations of bank obligations,
including negotiable certificates of deposit, bankers' acceptances and time
deposits of U.S. banks (including savings banks and savings associations),
foreign branches of U.S. banks, foreign banks and their non-U.S. branches
(Eurodollars), U.S. branches and agencies of foreign banks (Yankee dollars), and
wholly-owned banking-related subsidiaries of foreign banks.
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers' acceptances are negotiable obligations of a bank to pay a draft which
has been drawn by a customer and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution that
earn a specified interest rate over a given period. Certificates of deposit and
fixed time deposits, which are payable at the stated maturity date and bear a
fixed rate of interest, generally may be withdrawn on demand but may be subject
to early withdrawal penalties which could reduce the Fund's yield. Deposits
subject to early withdrawal penalties or that mature in more than 7 days are
treated as illiquid securities if there is no readily available market for the
securities. A Fund's investments in the obligations of foreign banks and their
branches, agencies or subsidiaries may be obligations of the parent, of the
issuing branch, agency or subsidiary, or both.
-45-
The profitability of the banking industry is largely dependent upon the
availability and cost of funds to finance lending operations and the quality of
underlying bank assets. In addition, domestic and foreign banks are subject to
extensive but different government regulation which may limit the amount and
types of their loans and the interest rates that may be charged. Obligations of
foreign banks involve somewhat different investment risks from those associated
with obligations of U.S. banks. See "Foreign Securities."
COMMON AND PREFERRED STOCK. The Equity Funds and the Convertible Securities Fund
may invest in common and preferred stock. Common stockholders are the owners of
the company issuing the stock and, accordingly, usually have the right to vote
on various corporate governance matters such as mergers. They are not creditors
of the company, but rather, upon liquidation of the company, are entitled to
their pro rata share of the company's assets after creditors (including fixed
income security holders) and, if applicable, preferred stockholders are paid.
Preferred stock is a class of stock having a preference over common stock as to
dividends or upon liquidation. A preferred stockholder is a shareholder in the
company and not a creditor of the company as is a holder of the company's fixed
income securities. Dividends paid to common and preferred stockholders are
distributions of the earnings or other surplus of the company and not interest
payments, which are expenses of the company. Equity securities owned by a Fund
may be traded in the over-the-counter market or on a securities exchange and may
not be traded every day or in the volume typical of securities traded on a major
U.S. national securities exchange. As a result, disposition by a Fund of a
portfolio security to meet redemptions by shareholders or otherwise may require
the Fund to sell the security at less than the reported value of the security,
to sell during periods when disposition is not desirable, or to make many small
sales over a lengthy period of time. The market value of all securities,
including equity securities, is based upon the market's perception of value and
not necessarily the book value of an issuer or other objective measure of a
company's worth.
CONVERTIBLE SECURITIES. The Equity Funds, the Convertible Securities Fund and
the Bond Fund may invest in convertible preferred stock and bonds, which are
fixed income securities that are convertible into common stock at a specified
price or conversion ratio. Because these securities have the characteristics of
both fixed income and equity securities, they sometimes are called "hybrid"
securities. In general, the value of a convertible security is the higher of its
investment value (its value as a fixed income security) and its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the value of a convertible security
generally increases when interest rates decline and generally decreases when
interest rates rise. The value of convertible securities, however, is also
influenced by the value of the underlying common stock. Thus, convertible
securities ordinarily will provide opportunities for producing both current
income and longer-term capital appreciation. Convertible securities rank senior
to common stock in a corporation's capital structure but are usually subordinate
to any nonconvertible fixed income securities.
EXCHANGE RATE-RELATED SECURITIES. The International Fund may invest in
securities for which the principal repayment at maturity, while paid in U.S.
dollars, is determined by reference to the exchange rate between the U.S. dollar
and the currency of one or more foreign countries
-46-
("Exchange Rate-Related Securities"). The interest payable on these securities
generally is paid at rates higher than most other similarly rated securities in
recognition of the foreign currency risk component of Exchange Rate-Related
Securities.
Investments in Exchange Rate-Related Securities entail certain risks. There is
the possibility of significant changes in rates of exchange between the U.S.
dollar and any foreign currency to which an Exchange Rate-Related Security is
linked. In addition, there is no assurance that sufficient trading interest to
create a liquid secondary market will exist for a particular Exchange
Rate-Related Security due to conditions in the debt and foreign currency
markets.
FLOATING AND VARIABLE RATE SECURITIES. Each Fund may purchase securities having
a floating or variable rate of interest. These securities pay interest at rates
that are adjusted periodically according to a specified formula, usually with
reference to a some interest rate index or market interest rate. These
adjustments tend to decrease the security's price sensitivity to changes in
interest rates. Certain of these obligations may carry a demand feature that
would permit the holder to tender them back to the issuer at par value prior to
maturity. Each Fund will limit its purchases of floating and variable rate
obligations to those of the same quality as it otherwise is allowed to purchase.
Similar to fixed rate debt instruments, variable and floating rate instruments
are subject to changes in value based on changes in market interest rates or
changes in the issuer's creditworthiness.
Certain variable rate securities pay interest at a rate that varies inversely to
prevailing short-term interest rates (sometimes referred to as inverse
floaters). For example, upon reset the interest rate payable on a security may
go down when the underlying index has risen. During periods when short-term
interest rates are relatively low as compared to long-term interest rates, a
Fund may attempt to enhance its yield by purchasing inverse floaters. Certain
inverse floaters may have an interest rate reset mechanism that multiplies the
effects of changes in the underlying index. While this form of leverage may
increase the security's yield, it may also increase the volatility of the
security's market value.
A floating or variable rate instrument may be subject to the Fund's percentage
limitation on illiquid investments if there is no reliable trading market for
the instrument or if the Fund may not demand payment of the principal amount
within seven days.
FOREIGN SECURITIES. The International Fund may invest in dollar-denominated and
non-dollar-denominated foreign equity and debt securities. Each of the other
Equity Funds may invest up to 10% of its total assets in dollar-denominated
foreign equity and debt securities. Each of the Equity Funds also may invest in
American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs").
ADRs are certificates issued by a U.S. depository (usually a bank) and represent
a specified quantity of shares of an underlying non-U.S. stock on deposit with a
custodian bank as collateral. EDRs are typically issued by foreign banks and
trust companies (although they also may be issued by U.S. banks or trust
companies) and evidence ownership of underlying securities issued by either a
foreign or a U.S. corporation.
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The Short/Intermediate Bond Fund and the Bond Fund (each with respect to 20% of
its total assets) as well as the Money Market Fund may invest in non-convertible
(and convertible in the case of the Bond Fund) debt of foreign banks, foreign
corporations and foreign governments which obligations are denominated in and
pay interest in U.S. dollars. The Convertible Securities Fund may invest in
dollar-denominated Eurodollar securities convertible into the common stock of
domestic corporations. The Government Fund may invest in dollar-denominated
Eurodollar securities that are guaranteed by the U.S. Government or its agencies
or instrumentalities. Investments in foreign securities involve certain
considerations that are not typically associated with investing in domestic
securities. For example, investments in foreign securities typically involve
higher transaction costs than investments in U.S. securities. Foreign
investments may have risks associated with currency exchange rates, political
instability, less complete financial information about the issuers and less
market liquidity than domestic securities. Future political and economic
developments, possible imposition of withholding taxes on income, seizure or
nationalization of foreign holdings, establishment of exchange controls or the
adoption of other governmental restrictions might adversely affect the payment
of principal and interest on foreign obligations. In addition, foreign banks and
foreign branches of domestic banks may be subject to less stringent reserve
requirements and to different accounting, auditing and recordkeeping
requirements than domestic banks.
FORWARD CONTRACTS. Each of the Equity Funds may enter into forward foreign
currency exchange contracts for the purchase and sale of a fixed quantity of a
foreign currency at a future date ("Forward Contracts"). A Fund may enter into
Forward Contracts for hedging purposes as well as non-hedging purposes. By
entering into transactions in Forward Contracts, however, a Fund may be required
to forego the benefits of advantageous changes in exchange rates and, in the
case of Forward Contracts entered into for non-hedging purposes, the Fund may
sustain losses which will reduce its gross income. A Fund also may enter into a
Forward Contract on one currency in order to hedge against risk of loss arising
from fluctuations in the value of a second currency (referred to as a "cross
hedge") if, in the judgment of the Portfolio Management Agent, a reasonable
degree of correlation can be expected between movements in the values of the two
currencies. Forward Contracts are traded over-the-counter, and not on organized
commodities or securities exchanges. As a result, such contracts operate in a
manner distinct from exchange-traded instruments, and their use involves certain
risks beyond those associated with transactions in futures contracts or options
traded on exchanges. Each Fund has established procedures consistent with
statements of the SEC and its staff regarding the use of Forward Contracts by
registered investment companies, which require use of segregated assets or
"cover" in connection with the purchase and sale of such contracts.
GUARANTEED INVESTMENT CONTRACTS. The Short/Intermediate Bond Fund, the Bond Fund
and the Money Market Fund may invest in guaranteed investment contracts ("GICs")
issued by U.S. and Canadian insurance companies. GICs require a Fund to make
cash contributions to a deposit fund of an insurance company's general account.
The insurance company then makes payments to the Fund based on negotiated,
floating or fixed interest rates. A GIC is a general obligation of the issuing
insurance company and not a separate account. The purchase price paid for a GIC
becomes part of the general assets of the insurance company, and the contract is
paid from the insurance company's general assets. Generally, GICs are not
assignable or transferable without
-48-
the permission of the issuing insurance companies, and an active secondary
market in GICs does not currently exist.
ILLIQUID SECURITIES. Each Fund may invest up to 15% (10% with respect to the
Equity Fund, the Short/Intermediate Bond Fund and the Money Market Funds) of its
net assets in securities that are considered illiquid. Under the supervision of
the Trust's Board of Trustees (or the Company's Board of Directors), the
Portfolio Management Agent or Adviser determines and monitors the liquidity of
portfolio securities.
Repurchase agreements and time deposits that do not provide for payment to the
Fund within seven days after notice or which have a term greater than seven days
are deemed illiquid securities for this purpose unless such securities are
variable amount master demand notes with maturities of nine months or less or
unless the Portfolio Management Agent or Adviser has determined that an adequate
trading market exists for such securities or that market quotations are readily
available.
Each Fund also may purchase Rule 144A securities sold to institutional investors
without registration under the Securities Act of 1933 and commercial paper
issued in reliance upon the exemption in Section 4(2) of the Securities Act of
1933. These securities may be determined to be liquid in accordance with
guidelines established by the Trust's Board of Trustees (or the Company's Board
of Directors). The Board of Trustees or Directors will monitor the Portfolio
Management Agent's or Adviser's implementation of these guidelines on a periodic
basis.
INDEX FUTURES CONTRACTS; OPTIONS ON INDICES; OPTIONS ON SECURITIES. The Equity
Funds, the Convertible Securities Fund, the Bond Fund, the Tax-Exempt Bond Fund,
the Intermediate Tax-Exempt Bond Fund and the Intermediate Government Bond Fund
may attempt to reduce the risk of investment in securities by hedging a portion
of its portfolio through the use of futures contracts on indices and options on
such indices traded on national securities exchanges. These Funds also may
attempt to reduce the risk of investment in debt securities by hedging a portion
of its portfolio through the use of interest rate futures and options on such
futures contracts. Except for the Index Fund, a Fund will use futures contracts
and options on such futures contracts only as a hedge against anticipated
changes in the values of securities held in its portfolio or in the values of
securities that it intends to purchase. The Index Fund also may use S&P 500
Index futures contracts to simulate full investment in the underlying index
while retaining a cash balance for fund management purposes, to facilitate
trading or to reduce transaction costs.
Each Fund may invest in covered put and covered call options and may write
covered put and covered call options on securities in which it may invest
directly and that are traded on registered domestic securities exchanges or
over-the-counter.
The use of index and interest rate futures contracts and options may expose a
Fund to additional risks and transaction costs. Risks inherent in the use of
such instruments include: (1) the risk that interest rates, securities prices or
currency markets will not move in the direction that the Portfolio Management
Agent anticipates; (2) the existence of an imperfect correlation between
-49-
the price of such instruments and movements in the prices of the securities,
interest rates or currencies being hedged; (3) the fact that skills needed to
use these strategies are different than those needed to select portfolio
securities; (4) the possible inability to close out certain hedged positions may
result in adverse tax consequences; (5) the possible absence of a liquid
secondary market for any particular instrument and possible exchange-imposed
price fluctuation limits, either of which may make it difficult or impossible to
close out a position when desired; (6) the leverage risk, that is, the risk that
adverse price movements in an instrument can result in a loss substantially
greater than a Fund's initial investment in that instrument (in some cases, the
potential loss is unlimited); and (7) particularly in the case of
privately-negotiated instruments, the risk that the counterparty will fail to
perform its obligations, which could leave a Fund worse off than if it had not
entered into the position.
When a Fund invests in index and interest rate futures contracts and options, it
may be required to segregate cash and other appropriate assets or certain
portfolio securities to "cover" the Fund's position. Assets segregated or set
aside generally may not be disposed of so long as a Fund maintains the positions
requiring segregation or cover. Segregating assets could diminish a Fund's
return due to the opportunity losses of foregoing other potential investments
with the segregated assets. See "Investment Strategies" in the SAI.
INVESTMENT COMPANY SECURITIES. In connection with the management of its daily
cash positions, each Fund may invest in securities issued by investment
companies that invest in short-term, debt securities (which may include
municipal obligations that are exempt from federal income taxes) and which seek
to maintain a $1.00 net asset value per share. Each Fund, other than the Equity
Fund and the Short/Intermediate Bond Fund, also may invest in securities issued
by investment companies that invest in securities in which the Fund could invest
directly.
Securities of investment companies may be acquired by any of the Funds within
the limits prescribed by the 1940 Act. These limit each such Fund so that: (i)
not more than 5% of its total assets will be invested in the securities of any
one investment company; (ii) not more than 10% of its total assets will be
invested in the aggregate in securities of investment companies as a group; and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Fund or by the Trust or the Company as a whole. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
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 or Adviser, are of
investment quality comparable to other permitted investments of a Fund, may be
used for letter of credit-backed investments.
LOANS OF PORTFOLIO SECURITIES. Each Fund (except the Money Market Funds) may
lend to brokers, dealers and financial institutions securities from its
portfolio representing up to one-third
-50-
of the Fund's net assets. However, such loans may be made only if cash or cash
equivalent collateral, including letters of credit, marked-to-market daily and
equal to at least 100% of the current market value of the securities loaned
(including accrued interest and dividends thereon) plus the interest payable to
the Fund with respect to the loan is maintained by the borrower in a segregated
account. In determining whether to lend a security to a particular broker,
dealer or financial institution, the Portfolio Management Agent will consider
all relevant facts and circumstances, including the creditworthiness of the
broker, dealer or financial institution. No Fund will enter into any portfolio
security lending arrangement having a duration longer than one year. Any
securities that a Fund may receive as collateral will not become part of the
Fund's portfolio at the time of the loan and, in the event of a default by the
borrower, the Fund will, if permitted by law, dispose of such collateral except
for such part thereof that is a security in which the Fund is permitted to
invest. During the time securities are on loan, the borrower will pay the Fund
any accrued income on those securities, and the Fund may invest the cash
collateral and earn additional income or receive an agreed upon fee from the
borrower. Loans of securities by a Fund will be subject to termination at the
Fund's or the borrower's option. Each Fund may pay reasonable administrative and
custodial fees in connection with a securities loan and may pay a negotiated fee
to the borrower or the placing broker. Borrowers and placing brokers may not be
affiliated, directly or indirectly, with the Trust, the Company, the Adviser,
the Portfolio Management Agent or the Distributor.
MORTGAGE-RELATED SECURITIES. The Equity Funds, the Bond Fund, the
Short/Intermediate Bond Fund and the Intermediate Government Bond Fund may
invest in mortgage-backed securities, including collateralized mortgage
obligations ("CMOs") and Government Stripped Mortgage-Backed Securities. CMOs
are types of bonds secured by an underlying pool of mortgages or mortgage
pass-through certificates that are structured to direct payments on underlying
collateral to different series or classes of obligations.
Government Stripped Mortgage-Backed Securities are mortgage-backed securities
issued or guaranteed by Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA"), or Federal Home Loan Mortgage
Corporation ("FHLMC"). These securities represent beneficial ownership interests
in either periodic principal distributions ("principal-only") or interest
distributions ("interest-only") on mortgage-backed certificates issued by GNMA,
FNMA or FHLMC, as the case may be. The certificates underlying the Government
Stripped Mortgage-Backed Securities represent all or part of the beneficial
interest in pools of mortgage loans.
MUNICIPAL LEASES. The Tax-Exempt Bond Fund and the Intermediate Tax-Exempt Bond
Fund may each invest in municipal leases, which are generally participations in
intermediate- and short-term debt obligations issued by municipalities and
consisting of leases or installment purchase contracts for property or
equipment. Although lease obligations do not constitute general obligations of
the municipality for which the municipality's taxing power is pledged, a lease
obligation is ordinarily backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for
-51-
such purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure may prove difficult. Municipal lease obligations may be considered
illiquid securities and may be subject to each Fund's 15% limitation on such
investments. See "Investment Strategies - Municipal Leases" in the SAI.
MUNICIPAL OBLIGATIONS. The Balanced Fund, the Tax-Exempt Bond Fund, the Bond
Fund, the Intermediate Tax-Exempt Bond Fund, the Short/Intermediate Bond Fund
and the Tax-Exempt Money Market Fund may invest in municipal obligations.
Municipal bonds generally have a maturity at the time of issuance of up to 30
years. Municipal notes generally have maturities at the time of issuance of
three years or less. These notes are generally issued in anticipation of the
receipt of tax funds, the proceeds of bond placements or other revenues. The
ability of an issuer to make payments is therefore dependent on these tax
receipts, proceeds from bond sales or other revenues, as the case may be.
Municipal commercial paper is a debt obligation with an effective maturity or
put date of 270 days or less that is issued to finance seasonal working capital
needs or as short-term financing in anticipation of longer-term debt.
The two principal classifications of municipal obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or from other specific
revenue sources such as the user of the facility being financed. Revenue
securities include private activity bonds (also known as industrial revenue
bonds), which may be purchased only by the Tax-Exempt Bond Fund and the
Intermediate Tax-Exempt Bond Fund and which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
Certain other of the municipal obligations in which the Funds may invest are:
TANs. The Tax-Exempt Bond Fund and the Intermediate Tax-Exempt Bond
Fund may invest in tax anticipation notes ("TANs"). The possible inability or
failure of a municipal issuer to raise taxes as a result of such events as a
decline in its tax base or a rise in delinquencies could adversely affect the
issuer's ability to meet its obligations on outstanding TANs. Furthermore, some
municipal issuers include various tax proceeds in a general fund that is used to
meet obligations other than those of the outstanding TANs. Use of such a general
fund to meet various obligations could affect the likelihood of making payments
on TANs.
BANs. The Tax-Exempt Bond Fund and the Intermediate Tax-Exempt Bond
Fund may invest in bond anticipation notes ("BANs"). The ability of a municipal
issuer to meet its obligations on its BANs is primarily dependent on the
issuer's adequate access to the longer term municipal bond market and the
likelihood that the proceeds of such bond sales will be used to pay the
principal of, and interest on, BANs.
-52-
RANs. The Tax-Exempt Bond Fund and the Intermediate Tax-Exempt Bond
Fund may invest in revenue anticipation notes ("RANs"). A decline in the receipt
of certain revenues, such as anticipated revenues from another level of
government, could adversely affect an issuer's ability to meet its obligations
on outstanding RANs. In addition, the possibility that the revenues would, when
received, be used to meet other obligations could adversely affect the ability
of the issuer to pay the principal of, and interest on, RANs.
See "Investment Strategies" in the SAI.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. Each Fund may purchase
portfolio securities subject to the seller's agreement to repurchase them at a
mutually agreed upon time and price, which includes an amount representing
interest on the purchase price. A Fund may enter into repurchase agreements only
with respect to obligations that could otherwise be purchased by the Fund. The
seller will be required to maintain in a segregated account for the Fund cash or
cash equivalent collateral equal to at least 100% of the repurchase price
(including accrued interest). Default or bankruptcy of the seller would expose a
Fund to possible loss because of adverse market action, delays in connection
with the disposition of the underlying obligations or expenses of enforcing its
rights.
The Equity Funds and the Fixed Income Funds may borrow funds for temporary
purposes by selling portfolio securities to financial institutions such as banks
and broker/dealers and agreeing to repurchase them at a mutually specified date
and price ("reverse repurchase agreements"). Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the repurchase price. A Fund would pay interest on amounts
obtained pursuant to a reverse repurchase agreement.
A Fund may not enter into a repurchase agreement or reverse repurchase
agreements if, as a result, more than 15% (10% with respect to the Equity Fund,
the Short/Intermediate Bond Fund and the Money Market Funds) of the Fund's net
assets would be invested in repurchase agreements or reverse repurchase
agreements with a maturity of more than seven days and in other illiquid
securities. The Funds will enter into repurchase agreements and reverse
repurchase agreements only with registered broker/dealers and commercial banks
that meet guidelines established by the Trust's Board of Trustees (or the
Company's Board of Directors).
SECURITIES WITH PUTS. In order to maintain liquidity, the Equity Funds, the
Tax-Exempt Bond Fund, the Bond Fund, the Intermediate Tax-Exempt Bond Fund, the
Short/Intermediate Bond Fund, the Intermediate Government Bond Fund, and the
Money Market Funds may enter into puts with respect to portfolio securities with
banks or broker/dealers that, in the opinion of the Portfolio Management Agent
or Adviser present minimal credit risks. The ability of these Funds to exercise
a put will depend on the ability of the bank or broker/dealer to pay for the
underlying securities at the time the put is exercised. In the event that a bank
or broker/dealer defaults on its obligation to repurchase an underlying
security, the Fund might be unable to recover all or a portion of any loss
sustained by having to sell the security elsewhere.
-53-
STAND-BY COMMITMENTS. The Balanced Fund, the Tax-Exempt Bond Fund and the
Intermediate Tax-Exempt Bond Fund may acquire "stand-by commitments" with
respect to obligations held by it. Under a stand-by commitment, a dealer agrees
to purchase, at the Fund's option, specified obligations at a specified price.
The acquisition of a stand-by commitment may increase the cost, and thereby
reduce the yield, of the obligations to which the commitment relates. The
Balanced Fund will acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. Stand-by commitments acquired by a Fund will be valued at zero in
determining the Fund's net asset value.
U.S. GOVERNMENT OBLIGATIONS. Each of the Funds may invest in U.S. Government
Obligations, which consist of bills, notes and bonds issued by the U.S.
Treasury. They are direct obligations of the U.S. Government and differ
primarily in the length of their maturities.
U.S. GOVERNMENT SECURITIES. Each of the Funds may invest in U.S. Government
Securities. As used in this Prospectus, the term U.S. Government Securities
means obligations issued or guaranteed by the U.S. Government, its agencies,
instrumentalities or sponsored enterprises. The U.S. Government Securities in
which a Fund may invest include U.S. Treasury securities and obligations issued
or guaranteed by U.S. Government agencies and instrumentalities and backed by
the full faith and credit of the U.S. Government, such as those guaranteed by
the Small Business Administration or issued by the Government National Mortgage
Association. In addition, the U.S. Government Securities in which the Funds may
invest include securities supported primarily or solely by the creditworthiness
of the issuer, such as securities of the Federal National Mortgage Association,
the Federal Home Loan Mortgage Corporation and the Tennessee Valley Authority.
There is no guarantee that the U.S. Government will support securities not
backed by its full faith and credit. Accordingly, although these securities have
historically involved little risk of loss of principal if held to maturity, they
may involve more risk than securities backed by the U.S. Government's full faith
and credit.
WARRANTS. The Equity Funds and the Convertible Securities Fund may invest in
warrants, which are options to purchase an equity security at a specified price
(usually representing a premium over the applicable market value of the
underlying equity security at the time of the warrant's issuance) and usually
during a specified period of time. Unlike convertible securities and preferred
stocks, warrants do not pay a fixed dividend. Investments in warrants involve
certain risks, including the possible lack of a liquid market for the resale of
the warrants, potential price fluctuations as a result of speculation or other
factors and failure of the price of the underlying security to reach a level at
which the warrant can be prudently exercised (in which case the warrant may
expire without being exercised, resulting in the loss of the Fund's entire
investment therein).
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES. Each Fund may
purchase securities (including securities issued pursuant to an initial public
offering) on a "when-issued," "delayed delivery" or "forward commitment" basis,
in which case delivery and payment normally take place within 45 days after the
date of the commitment to purchase. A Fund will make a commitment to purchase
securities on a when-issued basis only with the intention of actually acquiring
the securities, but may sell them before the settlement date, if deemed
-54-
advisable. The Funds do not earn income on such securities until settlement and
bear the risk of market value fluctuations in between the purchase and
settlement dates. New issues of stocks and bonds, private placements and
Government Securities may be sold in this manner.
ZERO COUPON SECURITIES. Each of the Funds other than the Convertible Securities
Fund and the Money Market Funds may invest in separately traded principal and
interest components of securities issued or guaranteed by the U.S. Treasury.
These components are traded independently under the U.S. Treasury's Separate
Trading of Registered Interest and Principal of Securities ("STRIPS") program or
as Coupons Under Book Entry Safekeeping ("CUBES").
The International Fund and the Money Market Funds may invest in other types of
related zero coupon securities commonly known as "stripped" securities. For
instance, a number of banks and brokerage firms separate the principal and
interest portions of U.S. Treasury securities and sell them separately in the
form of receipts or certificates representing undivided interests in these
instruments. These instruments are generally held by a bank in a custodial or
trust account on behalf of the owners of the securities and are known by various
names, including Treasury Receipts ("TRs"), Treasury Investment Growth Receipts
("TIGRs") and Certificates of Accrual on Treasury Securities ("CATS"). Stripped
securities also may be issued by corporations and municipalities. Stripped
securities will normally be considered illiquid investments and will be acquired
subject to the limitations on illiquid investments.
Zero coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity, but a Fund holding a zero coupon security must
include a portion of the original issue discount of the security as income.
Because of this, zero coupon securities may be subject to greater fluctuation of
market value than the other securities in which the Funds may invest. The Funds
distribute all of their net investment income, and may have to sell portfolio
securities to distribute imputed income, which may occur at a time when the
Portfolio Management Agent or Adviser would not have chosen to sell such
securities and which may result in a taxable gain or loss.
-55-
INVESTMENT ADVISER, ADMINISTRATOR,
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
PORTFOLIO MANAGEMENT AGENT
Harris Investment Management, Inc.
190 South LaSalle Street
Chicago, Illinois 60603
SUB-ADMINISTRATOR AND ACCOUNTING
SERVICES AGENT, SUB-TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809
SUB-ADMINISTRATOR AND DISTRIBUTOR
Funds Distributor, Inc.
60 State Street, Suite 1300
Boston, Massachusetts 02109
CUSTODIAN
PNC Bank, N.A.
Broad & Chestnut Streets
Philadelphia, Pennsylvania 19101
INDEPENDENT ACCOUNTANTS
[ ]
LEGAL COUNSEL
Bell, Boyd & Lloyd
Three First National Plaza
Chicago, Illinois 60602-4207
-56-
HARRIS INSIGHT(R) FUNDS INSTITUTIONAL SHARES
60 State Street, Suite 1300
Boston, Massachusetts 02109
Telephone: (800) 982-8782
This Prospectus offers Institutional shares ("Institutional Shares") of each of
following investment portfolios (collectively, the "Funds"):
HARRIS INSIGHT INTERNATIONAL FUND
HARRIS INSIGHT SMALL-CAP OPPORTUNITY FUND
HARRIS INSIGHT SMALL-CAP VALUE FUND
HARRIS INSIGHT GROWTH FUND
HARRIS INSIGHT EQUITY FUND
HARRIS INSIGHT EQUITY INCOME FUND
HARRIS INSIGHT INDEX FUND
HARRIS INSIGHT BALANCED FUND
HARRIS INSIGHT CONVERTIBLE SECURITIES FUND
HARRIS INSIGHT TAX-EXEMPT BOND FUND
HARRIS INSIGHT BOND FUND
HARRIS INSIGHT INTERMEDIATE TAX-EXEMPT BOND FUND
HARRIS INSIGHT SHORT/INTERMEDIATE BOND FUND
HARRIS INSIGHT INTERMEDIATE GOVERNMENT BOND FUND
HARRIS INSIGHT TAX-EXEMPT MONEY MARKET FUND
HARRIS INSIGHT MONEY MARKET FUND
HARRIS INSIGHT GOVERNMENT MONEY MARKET FUND
The Equity Fund, the Short/Intermediate Bond Fund, the Tax-Exempt Money Market
Fund, the Money Market Fund and the Government Money Market Fund are investment
portfolios of HT Insight Funds, Inc., doing business as Harris Insight Funds
(the "Company"). Each other Fund is an investment portfolio of Harris Insight
Funds Trust (the "Trust"). The Company and the Trust are registered as open-end
management investment companies (mutual funds). The Funds, together with the
other investment portfolios offered by the Trust and the Company, are known as
the Harris Insight Funds.
Harris Trust and Savings Bank ("Harris Trust" or the "Adviser") serves as each
Fund's investment adviser. Harris Investment Management, Inc. ("HIM" or the
"Portfolio Management Agent") acts as portfolio management agent for each Fund
(except the Tax-Exempt Money Market Fund).
Please read this Prospectus before investing and keep it on file for future
reference. The Prospectus contains the information that a prospective investor
should know before investing, including how each Fund invests and the many
services available to shareholders.
To learn more about the Funds and their investments, you may obtain a copy of
the Harris Insight Funds' most recent financial report and portfolio listing or
Statement of Additional Information (the "SAI") simply by calling (800)
982-8782. The SAI has been filed with the Securities and Exchange Commission
(the "SEC") and (as supplemented from time to time) is incorporated by reference
into this Prospectus. The SEC maintains a Web site (http://www.sec.gov) that
contains the SAI and other information regarding the Funds.
THE HARRIS INSIGHT FUNDS ARE A FAMILY OF OPEN-END INVESTMENT COMPANIES COMMONLY
KNOWN AS MUTUAL FUNDS. SHARES OF MUTUAL FUNDS ARE NOT INSURED OR GUARANTEED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF THE FUNDS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, HARRIS TRUST AND SAVINGS BANK OR
ANY OTHER BANK OR BANK AFFILIATE.
AN INVESTMENT IN SHARES OF ANY MUTUAL FUND IS SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO ASSURANCE THAT THE
TAX-EXEMPT MONEY MARKET FUND, THE MONEY MARKET FUND OR THE GOVERNMENT MONEY
MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
May 1, 1997
-2-
TABLE OF CONTENTS
Page
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Expense Information.............................................
Fund Summary....................................................
Financial Highlights............................................
Investment Objectives and Policies..............................
International Fund.....................................
Small-Cap Opportunity Fund.............................
Small-Cap Value Fund...................................
Growth Fund............................................
Equity Fund............................................
Equity Income Fund.....................................
Index Fund.............................................
Balanced Fund..........................................
Convertible Securities Fund............................
Tax-Exempt Bond Fund...................................
Bond Fund..............................................
Intermediate Tax-Exempt Bond Fund......................
Short/Intermediate Bond Fund...........................
Intermediate Government Bond Fund......................
Tax-Exempt Money Market Fund...........................
Money Market Fund......................................
Government Money Market Fund...........................
Additional Investment Information ..............................
Additional Investment Policies.........................
Risk Considerations....................................
Management......................................................
How to Buy Shares...............................................
How to Sell Shares..............................................
Shareholder Services and Policies...............................
How Distributions are Made; Tax Information.....................
General Information.............................................
Banking Law Matters....................................
How Share Value Is Determined..........................
How Performance Is Reported............................
More Information About the Trust and the Company.......
Appendix A: Permitted Investments..............................
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the SAI and/or in
the Funds' official sales literature in connection with the offering of the
Funds' shares and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Trust or the Company.
This Prospectus does not constitute an offer in any jurisdiction in which, or to
any person to whom, such offer may not lawfully be made.
-3-
EXPENSE INFORMATION
The following tables illustrate information concerning shareholder transaction
expenses and annual fund operating expenses for Institutional Shares of the
Funds. Shareholder transaction expenses are charges you pay when you buy, sell
or hold shares of a Fund. Annual operating expenses are factored into each
Fund's share price and are not charged directly to shareholder accounts.
<TABLE>
<CAPTION>
EQUITY FUNDS Small-Cap Equity
International Opportunity Small-Cap Growth Equity Income Index Balanced
Fund Fund Value Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases None None None None None None None None
ANNUAL FUND OPERATING EXPENSES*:
(as a percentage of average net
assets)
Advisory Fees
Rule 12b-1 Fees
Other Expenses+
Total Fund Operating Expenses
</TABLE>
<TABLE>
<CAPTION>
FIXED INCOME FUNDS Intermediate Short/ Intermediate
Convertible Tax-Exempt Tax-Exempt Intermediate Government
Securities Bond Bond Bond Bond Bond
Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases None None None None None None
ANNUAL FUND OPERATING EXPENSES*:
(as a percentage of average net
assets)
Advisory Fees
Rule 12b-1 Fees
Other Expenses+
Total Fund Operating Expenses
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET FUNDS Tax-Exempt Government
Money Money Money
Market Market Market
Fund Fund Fund
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases None None None
ANNUAL FUND OPERATING EXPENSES*:
(as a percentage of average net
assets)
Advisory Fees
Rule 12b-1 Fees
Other Expenses+
Total Fund Operating Expenses
</TABLE>
* Customers of a financial institution, such as Harris Trust, also may be
charged certain fees and expenses by the institution. These fees may vary
depending on the capacity in which the institution provides fiduciary and
investment services to the particular client (such as trust, estate
settlement, advisory and custodian services).
+ Other Expenses for the Balanced Fund, Small-Cap Value Fund, Convertible
Securities Fund and Intermediate Government Bond Fund are based on
estimated expenses and projected assets for the current fiscal year. Other
Expenses for the other Funds are based on amounts incurred during the
fiscal year ended December 31, 1996.
-4-
EXAMPLE
The tables below shows what you would pay if you invested $1,000 over the time
frames indicated. The example assumes you reinvested all dividends and that the
average annual return was 5%.
<TABLE>
<CAPTION>
EQUITY FUNDS Small-Cap Equity
International Opportunity Small-Cap Growth Fund Equity Income Fund Index Balanced
Fund Fund Value Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $- $- $- $- $- $- $- $-
3 years - - - - - - - -
5 years - - - - - - - -
10 years - - - - - - - -
FIXED INCOME Intermediate Short/ Intermediate
FUNDS Convertible Tax-Exempt Tax-Exempt Intermediate Government
Securities Bond Bond Bond Bond Bond
Fund Fund Fund Fund Fund Fund
1 year $- $- $- $- $- $-
3 years - - - - - -
5 years - - - - - -
10 years - - - - - -
MONEY MARKET
FUNDS Tax-Exempt Government
Money Money Money
Market Market Market
Fund Fund Fund
1 year $- $- $-
3 years - - -
5 years - - -
10 years - - -
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
The purpose of the expense tables is to help you understand the various costs
and expenses that an investor in a Fund will bear directly or indirectly. For
more information concerning these costs and expenses, see MANAGEMENT.
-5-
FUND SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
WHAT ARE THE OBJECTIVES OF THE FUNDS? HOW DO THE FUNDS ATTEMPT TO ACHIEVE THEIR
OBJECTIVES?
Each of the Funds has distinct investment objectives and policies, which are
summarized below in order of descending risk. For more complete information, see
INVESTMENT OBJECTIVES AND POLICIES and ADDITIONAL INVESTMENT INFORMATION. While
no single Fund is intended to provide a complete or balanced investment program,
each can serve as a component of an investor's investment program.
INTERNATIONAL FUND seeks to provide international diversification and
capital appreciation by investing primarily in common stocks of foreign
companies. Current income is a secondary objective.
SMALL-CAP OPPORTUNITY FUND seeks to provide long-term capital
appreciation by investing primarily in equity securities of smaller to
medium capitalization companies that the Portfolio Management Agent
believes have above-average growth potential.
SMALL-CAP VALUE FUND seeks to provide capital appreciation by investing
primarily in equity securities of smaller to medium capitalization
companies that the Portfolio Management Agent believes have
above-average growth potential and appear to be undervalued.
GROWTH FUND seeks to provide capital appreciation and, secondarily,
current income by investing primarily in common stocks and convertible
securities of companies that the Portfolio Management Agent believes
have above-average growth potential.
EQUITY FUND seeks to provide capital appreciation and current income by
investing primarily in common stocks.
EQUITY INCOME FUND seeks to provide current income and, secondarily,
capital appreciation by investing primarily in common stocks and
convertible securities.
INDEX FUND seeks to provide the return and risk characteristics of the
Standard & Poor's 500 Index, by investing primarily in securities of
companies that comprise that index.
BALANCED FUND seeks to provide current income and capital appreciation
by investing in a balanced portfolio of fixed income and equity
securities.
CONVERTIBLE SECURITIES FUND seeks to provide capital appreciation and
current income by investing primarily in securities such as bonds,
debentures, notes, preferred stocks or warrants that are convertible
into common stocks.
-6-
TAX-EXEMPT BOND FUND seeks to provide a high level of current income
that is exempt from federal income tax by investing, under normal
market conditions, at least 80% of its assets in municipal obligations
of varying maturities.
BOND FUND seeks to provide a high level of total return, including a
competitive level of current income, by investing primarily in
investment grade debt securities of varying maturities.
INTERMEDIATE TAX-EXEMPT BOND FUND seeks to provide a high level of
current income that is exempt from federal income tax by investing,
under normal market conditions, at least 80% of its assets in municipal
obligations with an intermediate-term average maturity.
SHORT/INTERMEDIATE BOND FUND seeks to provide a high level of total
return, including a competitive level of current income, by investing
primarily in investment grade debt securities with a
short/intermediate-term average maturity.
INTERMEDIATE GOVERNMENT BOND FUND seeks to provide a high level of
current income, consistent with preservation of capital, by investing
primarily in U.S. Government Securities having an intermediate-term
average maturity.
TAX-EXEMPT MONEY MARKET FUND (a money market fund) seeks to provide
investors with as high a level of current income as is consistent with
its investment policies and with preservation of capital and liquidity,
by investing primarily in high-quality, short-term municipal
obligations.
MONEY MARKET FUND (a money market fund) seeks to provide investors with
as high a level of current income as is consistent with its investment
policies and with preservation of capital and liquidity, by investing
in a broad range of short-term money market instruments.
GOVERNMENT MONEY MARKET FUND (a money market fund) seeks to provide
investors with as high a level of current income as is consistent with
its investment policies and with preservation of capital and liquidity,
by investing exclusively in short-term U.S. Government Securities and
repurchase agreements backed by those securities.
WHO MANAGES EACH FUND'S INVESTMENTS?
Harris Trust and Savings Bank serves as the investment adviser for each Fund.
Harris Trust and its predecessors have provided investment management services
to clients for over 100 years. In addition to the services it performs for the
Funds, Harris Trust provides investment management services for pension,
profit-sharing and personal portfolios. As of December 31, 1996, assets under
management totaled approximately $[ ] billion.
-7-
Harris Investment Management, Inc. provides daily portfolio management services
for each of the Funds except for the Tax-Exempt Money Market Fund. As of [ ],
HIM had a staff of [ ], including [ ] professionals, providing investment
expertise to the management of the Harris Insight Funds and for pension,
profit-sharing and institutional portfolios. As of that date, assets under
management were approximately $[ ] billion.
Harris Trust and HIM are subsidiaries of Harris Bankcorp., Inc. See MANAGEMENT.
WHO SHOULD INVEST IN THE FUNDS?
The EQUITY FUNDS - the International Fund, the Small-Cap Opportunity Fund, the
Small-Cap Value Fund, the Growth Fund, the Equity Fund, the Equity Income Fund,
the Index Fund and the Balanced Fund - are designed for long-term investors who
can tolerate changes in the value of their investments in return for the
possibility of higher returns. The FIXED INCOME FUNDS - the Convertible
Securities Fund, the Tax-Exempt Bond Fund, the Bond Fund, the Intermediate
Tax-Exempt Bond Fund, the Short/Intermediate Bond Fund and the Intermediate
Government Bond Fund are designed for investors seeking current income. The
MONEY MARKET FUNDS - the Tax-Exempt Money Market Fund, the Money Market Fund and
the Government Money Market Fund - are designed for conservative investors
seeking stability of principal, current income at money market rates, and
liquidity. The Tax-Exempt Bond Fund, the Intermediate Tax-Exempt Bond Fund,
Tax-Exempt Money Market Fund are specifically designed for those investors who
seek income that is exempt from federal income tax.
In making your investment decisions, consider your investment goals, your time
horizon to achieve them, and your tolerance for risk.
WHAT ADVANTAGES DO THE FUNDS OFFER?
An investment gives the investor benefits customarily available only to large
investors, such as diversification, greater liquidity, professional management,
and relief from bookkeeping, safekeeping of securities and other administrative
details.
WHEN ARE DIVIDENDS PAID?
Dividends from the International Fund, the Small-Cap Opportunity Fund and the
Small-Cap Value Fund are declared and paid semi-annually. Dividends from the
Growth Fund, the Equity Income Fund, the Equity Fund, the Index Fund, the
Balanced Fund and the Convertible Securities Fund are declared and paid
quarterly. Dividends from the Tax-Exempt Bond Fund, the Bond Fund, the
Intermediate Tax-Exempt Bond Fund, the Short/Intermediate Bond Fund and the
Intermediate Government Bond Fund are declared daily and paid monthly. Dividends
from each of the Money Market Funds are declared daily and paid monthly. Any net
capital gains will be declared and paid at least annually. See HOW DISTRIBUTIONS
ARE MADE; TAX INFORMATION.
-8-
HOW ARE SHARES BOUGHT AND SOLD?
Institutional Shares are offered primarily to institutional investors and do not
impose a a sales charge. Shares may be bought or sold by mail, by bank wire or
through your broker-dealer or other financial institution. There is no minimum
initial or subsequent investment. See HOW TO BUY SHARES and HOW TO SELL SHARES.
WHAT RISKS ARE ASSOCIATED WITH THE FUNDS?
There can be no assurance that any Fund will achieve its investment objective or
that the Money Market Funds will be able to maintain a stable net asset value.
The net asset value of each of the Equity Funds and the Fixed Income Funds will
fluctuate based upon changes in the value of the Fund's portfolio securities
and, when shares are sold, an investment may be worth more or less than the
investment's original value. As with any mutual fund, the fundamental risk is
that the value of securities that a Fund holds may decrease. Each Fund's
performance and price per share changes daily based on many factors, including
the perceived quality of the Fund's investments, U.S. and international economic
conditions and general market conditions.
The market value of equity securities is based upon the market's perception of
the issuing company's value. Normally, the values of the fixed income securities
vary inversely with changes in prevailing interest rates. However, the potential
for appreciation in mortgage-backed fixed income securities in the event of a
decline in interest rates may be limited or negated by increased principal
prepayments on these securities. Fixed income securities also are subject to
"credit risk" relating to the financial condition of the issuer of the
securities.
Certain investments and investment techniques entail additional risks, such as
investments in foreign issuers, issuers with limited market capitalization,
mortgage- or asset-backed securities, zero coupon bonds and options, futures
contracts, forward contracts and swap agreements. The use of leverage by certain
Funds through borrowings, margin transactions, short sales, reverse repurchase
agreements and other investment techniques involves additional risks.
The policy of investing in smaller companies employed by the Small-Cap Value
Fund, the Small-Cap Opportunity Fund and other Funds that invest in small
company securities entails certain risks in addition to those normally
associated with equity securities. Similarly, the International Fund's policy of
investing in foreign securities entails certain risks in addition to those
normally associated with equity securities.
For more information about each Fund and its investments, see INVESTMENT
OBJECTIVES AND POLICIES. For more information about particular risks, see
ADDITIONAL INVESTMENT INFORMATION - RISK CONSIDERATIONS.
-9-
FINANCIAL HIGHLIGHTS
The following financial highlights represent selected data for a single
Institutional Share of each Fund for the periods shown. This information has
been audited by [ ], independent accountants. The Funds' financial statements
for the year ended December 31, 1996 and independent accountants' report thereon
are included in the Funds' Annual Report and are incorporated by reference into
(are legally a part of) the Funds' SAI. Further information about each Fund's
performance is contained in the Annual Report, which may be obtained from the
Harris Insight Funds without charge. Financial highlights are not provided for
the Small-Cap Value Fund, the Balanced Fund, the Convertible Securities Fund and
the Intermediate Government Bond Fund because, as of December 31, 1996, those
Funds had not yet commenced operations. Institutional Shares of the Money Market
Funds were formerly known as Class C Shares.
[Financial Highlights Tables]
-10-
INVESTMENT OBJECTIVES AND POLICIES
Each of the Funds has distinct investment objectives and policies, which are set
forth below. Investments that may be made by all of the Funds are listed under
ADDITIONAL INVESTMENT INFORMATION - COMMON INVESTMENT POLICIES. For a further
description of each Fund's investments and investment techniques, see ADDITIONAL
INVESTMENT INFORMATION, APPENDIX A: PERMITTED INVESTMENTS ("Appendix A") and the
SAI. There is no assurance that any Fund will achieve its investment objective
or that the Money Market Funds will be able to maintain a stable net asset
value.
INTERNATIONAL FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide international diversification
and capital appreciation. Current income is a secondary objective.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
investing in securities that are typical of those comprising the Morgan Stanley
Capital International Europe, Australia, Far East (EAFE) Index. Securities are
selected based on their value as well as the relative valuation of their base
currencies. Thus, the Fund may be more or less reflective of the EAFE universe
at any point in time.
Under normal circumstances, the Fund invests at least 65% of the value of its
total assets in securities of foreign issuers (i.e., issuers organized outside
the United States or whose principal trading market is outside the United
States). The Fund invests in the securities of issuers located in at least three
foreign countries.
The Fund seeks to manage risk through the diversification of its investments.
The Fund also may invest in exchange rate-related securities, securities
convertible into or exchangeable for foreign equity securities, and custodial
receipts for Treasury securities. In addition, the Fund may engage in the
purchase and sale of foreign currency for hedging purposes.
SMALL-CAP OPPORTUNITY FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide long-term capital appreciation.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
investing primarily in smaller to medium capitalization companies (i.e.,
companies with market capitalizations of between $100 million and $2.5 billion
at the time of the Fund's investment) that the Portfolio Management Agent
believes are attractively valued in the market. Market capitalization refers to
the total market value of a company's outstanding shares of common stock. In
investing the Fund's assets, the Portfolio Management Agent follows an
investment management discipline that seeks to identify companies offering
above-average earnings, sales and asset value growth. These securities will tend
to be represented in the Russell 2000 Index, an unmanaged index comprising the
securities of 2000 small capitalization companies.
-11-
Under normal circumstances, the Fund invests at least 65% of the value of its
total assets in securities of smaller to medium capitalization companies.
SMALL-CAP VALUE FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide capital appreciation.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
investing primarily in the securities of smaller to medium capitalization
companies (i.e., companies with market capitalizations of between $100 million
and $2.5 billion at the time of the Fund's investment) that are conservatively
valued in the marketplace. Market capitalization refers to the total market
value of a company's outstanding shares of common stock. In managing the Fund's
assets, the Portfolio Management Agent seeks to invest in securities that are
undervalued relative to the securities of comparable companies, as determined by
price/earnings ratios, earnings expectations or other fundamental measures.
Under normal circumstances, the Fund invests at least 65% of the value of its
total assets in securities of smaller to medium capitalization companies.
GROWTH FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide capital appreciation and,
secondarily, current income.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
investing in securities that the Portfolio Management Agent believes are
undervalued but represent growth opportunities. The Fund also may invest in
securities issued by medium to larger capitalized companies that provide returns
more closely aligned with the Lipper Growth Fund Index. The Fund's investment
management discipline emphasizes growth in sales, earnings and asset values.
Under normal circumstances, the Fund invests at least 65% of the value of its
total assets in equity securities.
EQUITY FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide investors with capital
appreciation and current income.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
investing primarily in the securities of large capitalization companies (i.e.,
companies with market capitalization in excess of $500 million at the time of
the Fund's investment) and is managed to provide equity-based returns
characteristic of these securities. Market capitalization refers to the total
market value of a company's outstanding shares of common stock. The selected
issuers will be representative of those sectors found within the Standard &
Poor's 500 Index (the "S&P 500 Index"). Using both "quantitative" and
"fundamental" analysis, the Portfolio Management
-12-
Agent believes that these investments will provide returns greater than the
securities comprising the S&P 500 Index over the long-term with a risk level
approximating that of the index, with risk measured by volatility.
The Fund's investment process considers current valuation and improving
fundamentals. The Fund's investments are expected to encompass all major sectors
of the market, resulting in a diversified portfolio. The Fund's Portfolio
Management Agent believes that an investment process which combines carefully
monitored risk control with an emphasis on value and fundamental research is
better suited for long-term equity investing. The Fund's portfolio is generally
comprised of approximately 50 different issues. Risk is managed by
diversification of investments.
Under normal circumstances, the Fund invests at least 65% of the value of its
total assets in common stocks of larger capitalization companies.
EQUITY INCOME FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide current income and, secondarily,
capital appreciation.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
investing in equities that are found within the Standard & Poor's 500 Index (the
"S&P 500 Index"), or other attractive issues. Convertible securities may also be
utilized. The Portfolio Management Agent believes that the combination of these
securities should produce returns that are similar to the performance of the S&P
500 Index and its corresponding sectors, yet with a higher income yield.
Under normal circumstances, the Fund invests at least 65% of the value of its
total assets in common stocks and convertible securities that the Fund's
Portfolio Management Agent believes offer good value, an attractive yield and
dividend growth potential. The Fund is managed with a disciplined investment
process designed to maintain a diversified portfolio of high quality equity
securities. The Fund generally emphasizes securities with higher than average
dividend yields and/or stronger than average growth characteristics. The result
of this investment process is a diversified portfolio that the Portfolio
Management Agent believes provides attractive long-term growth potential, while
offering an attractive current yield.
INDEX FUND
INVESTMENT OBJECTIVE. The Index Fund seeks to provide the return and risk
characteristics of the Standard & Poor's 500 Index.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
investing, under normal market conditions, primarily in securities of companies
that comprise the Standard & Poor's 500 Index (the "S&P 500 Index"), an
unmanaged index that emphasizes large capitalization companies. As of December
31, 1996, the index represented approximately [ ]% of the market capitalization
of publicly owned stocks in the United States.
-13-
The Fund is managed through the use of a "quantitative" or "indexing" investment
discipline, which attempts to duplicate the investment composition and
performance of the S&P 500 Index through statistical procedures. As a result,
the Portfolio Management Agent does not employ traditional methods of fund
investment management, such as selecting securities on the basis of economic,
financial and market analysis. The Fund seeks quarterly performance within a
0.95 correlation to the index. On at least a monthly basis, the Portfolio
Management Agent compares the correlation of the Fund's performance to that of
the index. In the event the Fund's performance for the preceding three-month
period is not within a 0.95 correlation to the performance of the index, the
Portfolio Management Agent may adjust the Fund's holdings in issues included in
the index to seek a closer performance correlation.
The Fund seeks to closely match the weight of each security in the portfolio to
its approximate weight in the S&P 500 Index. Although the Fund may not hold all
500 securities included in the index, it will generally hold at least 90% of
these securities. The Fund also may maintain positions in S&P 500 Index futures
contracts. Index futures contracts are bilateral agreements pursuant to which
two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the index value at the
close of trading of the contract and the price at which the futures contract is
originally struck. As no physical delivery of securities comprising the index is
made, a purchaser of index futures contracts may participate in the performance
of the securities contained in the index without the required capital
commitment. The Fund may use S&P 500 Index futures contracts for several
reasons: to simulate full investment in the index while retaining a cash balance
for fund management purposes, to facilitate trading or to reduce transaction
costs.
Standard & Poor's ("S&P") makes no representation or warranty, expressed or
implied, to the purchasers of the Fund or any member of the public regarding the
advisability of investing in either the Index Fund or the ability of the S&P 500
Index to track general stock market performance. The Fund is not sponsored,
endorsed, sold or promoted by S&P. S&P does not guarantee the accuracy and/or
completeness of its index or any data included therein. Furthermore, S&P makes
no warranty, express or implied, as to the results to be obtained by the Fund,
owners of the Fund, any person or any entity from the use of the index sponsored
by S&P or any data included therein. S&P makes no express or implied warranties
and expressly disclaims all such warranties of merchantability or fitness for a
particular purpose for use with respect to its index or any data included
therein.
BALANCED FUND
INVESTMENT OBJECTIVE. The Balanced Fund seeks to provide current income and
capital appreciation by investing in a balanced portfolio of fixed income and
equity securities.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
utilizing an active asset allocation approach. Through utilizing this approach,
the Fund seeks to provide capital appreciation similar to larger-capitalization
equities, with a portion of the Fund's total return resulting from investment in
fixed income securities. The Fund seeks to provide an overall
-14-
return comprising between 40% and 65% of the Standard & Poor's 500 Index (a
broad U.S. stock market index) and between 35% and 60% of the Lehman Brothers
Aggregate Index (a broad U.S. bond market index).
The Fund's investment process considers, on a continuing basis, the
attractiveness of equities versus fixed income securities. Under normal market
conditions, equity securities are expected to comprise between 40% and 65% of
the Fund's total assets and fixed income securities are expected to comprise at
least 25% of the Fund's total assets.
CONVERTIBLE SECURITIES FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide capital appreciation and current
income.
INVESTMENT POLICIES. Convertible securities have unique return characteristics.
Convertible securities tend to rise in price when overall equity markets rise
and, conversely, tend to decline relatively less when interest rates rise. The
Fund strives to reflect these unique performance characteristics while seeking
to provide income that is more characteristic of short/intermediate maturity
corporate bonds.
The Fund seeks to achieve its investment objective by investing primarily in
convertible securities, which are bonds, debentures, notes or preferred stock
that are convertible into common stock, or warrants, which are options to
purchase common stock at a specified price.
The Fund also may invest in equity securities of U.S. corporations. The Fund
seeks to diversify among issuers in a manner that will enable the Fund to
minimize the volatility of the Fund's net asset value in erratic or declining
markets. Under normal circumstances, the Fund invests at least 65% of the value
of its total assets in convertible securities.
Under normal market conditions, the Fund will invest without limitation in
convertible securities of U.S. corporations and in Eurodollar securities
convertible into common stocks of U.S. corporations that are rated "B" or better
by Standard & Poor's ("S&P") or "B" ("b" in the case of preferred stocks) or
better by Moody's Investors Service ("Moody's") at the time of purchase, or, if
not rated, considered by the 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 invest up to 35% of its total assets in "synthetic convertibles"
created by combining separate securities that together possess the two principal
components of a convertible security: fixed income and the right to acquire
equity securities. In addition, the Fund may invest up to 15% of its net assets
in convertible securities offered in "private placements" and other illiquid
securities; up to 15% of its total assets in common stocks; and up to 5% of its
net assets
-15-
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.
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) U.S. Government Securities; (b) non-convertible debt obligations of domestic
corporations, including bonds, debentures, notes or preferred stock rated "BBB"
or better by S&P or "Baa" or better by Moody's at the time of purchase, which
ordinarily are less volatile in price than convertible securities and serve to
increase diversification of risk; and (c) short-term money market instruments,
including U.S. Government, bank and commercial obligations with remaining
maturities of 397 days or less. During such periods, the Fund will continue to
seek current income but will put less emphasis on capital appreciation.
RISK FACTORS AND OTHER CONSIDERATIONS RELATING TO LOW-RATED AND COMPARABLE
UNRATED SECURITIES. Low-rated and comparable unrated securities (a) will likely
have some quality and protective characteristics that, in the judgment of the
rating organization, are outweighed by large uncertainties or major risk
exposures to adverse conditions and (b) are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation.
The market values of low-rated and comparable unrated securities are less
sensitive to interest rate changes but more sensitive to economic changes or
individual corporate developments than higher-rated securities; they present a
higher degree of credit risk and their yields will fluctuate over time. During
economic downturns or sustained periods of rising interest rates, the ability of
highly leveraged issuers to service debt obligations may be impaired.
The existence of limited or no established trading markets for low-rated and
comparable unrated securities may result in thin trading of such securities and
diminish the Fund's ability to dispose of such securities or to obtain accurate
market quotations for valuing such securities and calculating net asset value.
The responsibility of the Trust's Board of Trustees to value such securities
becomes greater and judgment plays a greater role in valuation because there is
less reliable objective data available. In addition, adverse publicity and
investor perceptions may decrease the values and liquidity of low-rated and
comparable unrated securities bonds, especially in a thinly traded market.
A major economic recession would likely disrupt the market for such securities,
adversely affect their value and the ability of issuers to repay principal and
pay interest, and result in a higher incidence of defaults.
The ratings of S&P and Moody's represent the opinions of those organizations as
to the quality of securities. Such ratings are relative and subjective, not
absolute standards of quality and do not evaluate the market risk of the
securities. Although the Fund's Portfolio Management Agent uses these ratings as
a criterion for the selection of securities for the Fund, it also relies on its
own independent analysis to evaluate potential investments for the Fund. The
Fund's achievement of
-16-
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.
TAX-EXEMPT BOND FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide a high level of current income
that is exempt from federal income tax.
INVESTMENT POLICIES. The Fund seeks to achieve its objective by investing in
municipal securities with varying maturities. As a result, the Fund seeks to
generate a higher level of income than that of short or intermediate average
maturity municipal bond funds, although it will experience corresponding higher
volatility of principal during periods of changing interest rates.
The Fund attempts to anticipate changes in interest rates, analyzing yield
differentials for different types of bonds, and analyzing credit for specific
issues and municipalities. As a matter of fundamental policy, the Fund invests
at least 80% of its assets, under normal market conditions, in a broad range of
municipal bonds and other obligations issued by state and local governments to
finance their operations or special projects. These securities make interest
payments that are exempt from federal income tax.
The Fund also may invest in U.S. Government Obligations (as defined in the
Appendix) and securities secured by letters of credit. In addition, the Fund may
purchase and sell covered put and call options on securities and on indices.
BOND FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide a high level of total return,
including a competitive level of current income, by investing primarily in
investment grade debt securities of varying maturities.
INVESTMENT POLICIES. The Fund seeks to provide the higher income generally
associated with a broad range of longer-term bonds typically having 5 to 10
years remaining to maturity. As a result, principal value of these longer-term
bonds is likely to fluctuate more than that of bonds with shorter maturities.
The Fund seeks to achieve its objective by utilizing a highly-disciplined,
quantitative process designed to identify fixed income securities that are
undervalued and are positioned to offer the best relative value to enable the
Fund to benefit from anticipated changes in interest rates.
Under normal circumstances, the Fund invests at least 65% of the value of its
total assets in bonds. For purposes of this 65% limitation, the term "bond"
shall include debt obligations such as bonds and debentures, U.S. Government
Securities, debt obligations of domestic and foreign corporations, debt
obligations of foreign governments and their political subdivisions,
asset-backed securities, various mortgage-related securities (including those
issued or collateralized by
-17-
U.S. Government agencies and inverse floating rate mortgage-backed securities),
other floating/variable rate obligations, municipal obligations and zero coupon
securities.
INTERMEDIATE TAX-EXEMPT BOND FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide a high level of current income
that is exempt from federal income tax.
INVESTMENT POLICIES. The Fund seeks to achieve its objective by investing in
municipal securities with a dollar-weighted average portfolio maturity, under
normal market conditions, of between 3 and 10 years. The Portfolio Management
Agent believes that this income will generally be higher than that provided by
shorter term municipal funds, although the Fund will reflect greater share price
volatility during periods of changing interest rates than comparable
shorter-term funds. Individual portfolio securities will have varying
maturities.
As a matter of fundamental policy, the Fund invests at least 80% of its assets,
under normal market conditions, in a broad range of municipal bonds and other
obligations issued by state and local governments to finance their operations or
special projects. These securities make interest payments that are exempt from
federal income tax.
The Fund's selection of individual securities is based on a number of factors,
including anticipated changes in interest rates, the assessment of the yield
advantages of different classes of bonds, and an independent analysis of credit
quality of individual issues by the Fund's Portfolio Management Agent.
The Fund also may invest in U.S. Government Obligations (as defined in the
Appendix) and securities secured by letters of credit. In addition, the Fund may
purchase and sell covered put and call options on securities and on indices.
SHORT/INTERMEDIATE BOND FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide a high level of total return,
including a competitive level of current income, by investing primarily in
investment grade debt securities with a short/intermediate-term average
maturity.
INVESTMENT POLICIES. The Fund (which was formerly known as Harris Insight
Managed Fixed Income Fund) seeks to provide income and share price volatility of
a 2- to 5-year average maturity taxable bond portfolio. Thus, it is anticipated
that when interest rates rise, share price of the Fund will tend to fall less
than longer-term bond funds and appreciate less when interest rates fall.
The Fund seeks to achieve its objective by utilizing a combination of investment
disciplines, including the assessment of yield advantages among different
classes of bonds and among different maturities, independent review by the
Portfolio Management Agent of the credit quality
-18-
of individual issues, and the analysis by the Portfolio Management Agent of
economic and market conditions affecting the fixed income markets.
The Fund may invest in a broad range of fixed income obligations, including
fixed and variable rate bonds, debentures, U.S. Government Securities, and
Government Stripped Mortgage-Backed Securities. The Fund also may invest in U.S.
Government Securities placed into irrevocable trusts and evidenced by a trust
receipt. Under normal circumstances, the Fund invests at least 65% of the value
of its total assets in bonds. For purposes of this 65% limitation, the term
"bond" shall include debt obligations such as bonds and debentures, U.S.
Government Securities, debt obligations of domestic and foreign corporations,
debt obligations of foreign governments and their political subdivisions,
asset-backed securities, various mortgage-related securities (including those
issued or collateralized by U.S. Government agencies and inverse floating rate
mortgage-backed securities), other floating/variable rate obligations, municipal
obligations and zero coupon securities.
The Fund also may hold short-term U.S. Government Obligations, "high-quality"
money market instruments (i.e., those within the two highest rating categories
or, if unrated, determined by the Portfolio Management Agent to be comparable in
quality to instruments so rated) and cash. Such obligations may include those
issued by foreign banks and foreign branches of U.S. banks. These investments
may be in such proportions as, in the Portfolio Management Agent's opinion,
existing circumstances warrant.
The Fund's dollar-weighted average portfolio maturity (or average life with
respect to mortgage-related and asset-backed securities), under normal market
conditions, will be between 2 and 5 years.
INTERMEDIATE GOVERNMENT BOND FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide a high level of current income,
consistent with preservation of capital.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
investing primarily in U.S. Government Securities, including mortgage-backed
securities, having an intermediate-term average maturity. Under normal
circumstances, at least 65% of the Fund's total assets will be invested in U.S.
Government Securities and in repurchase agreements collateralized by U.S.
Government Securities. The average portfolio maturity (or average life with
respect to mortgage-related securities) generally will be between 3 and 10
years.
The Fund also may invest in asset-backed securities collateralized by U.S.
Government Securities. In addition, the Fund may invest in foreign debt
securities guaranteed by the U.S. Government, its agencies or instrumentalities
(with respect to 10% of the Fund's total assets), as well as covered put and
call options on securities and indices.
-19-
TAX-EXEMPT MONEY MARKET FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide investors with as high a level
of current income that is exempt from federal income taxes as is consistent with
its investment policies and with preservation of capital and liquidity.
INVESTMENT POLICIES. The Fund (which was formerly known as Harris Insight
Tax-Free Money Market Fund) invests only in high quality, short-term money
market instruments that are determined by the Adviser, pursuant to procedures
established by the Company's Board of Directors, to be eligible for purchase and
to present minimal credit risks. The Fund invests primarily in high-quality
municipal obligations. Municipal obligations are debt obligations issued by or
on behalf of states, cities, municipalities and other public authorities. Except
for temporary investments in taxable obligations described below, the Fund will
invest only in municipal obligations that are exempt from federal income taxes
in the opinion of bond counsel. Such obligations include municipal bonds,
municipal notes and municipal commercial paper.
The Fund will not purchase a security (other than a U.S. Government Security)
unless the security is rated by at least two nationally recognized rating
agencies (such as Standard & Poor's or Moody's) within the two highest ratings
assigned to short-term debt securities (or, if not rated or rated by only one
rating agency, is determined to be of comparable quality). Determinations of
comparable quality shall be made in accordance with procedures established by
the Company's Board of Directors.
The Fund invests only in U.S. dollar-denominated securities that have a
remaining maturity of 397 days or less (as calculated pursuant to Rule 2a-7
under the Investment Company Act of 1940, as amended) and maintains a
dollar-weighted average maturity of 90 days or less. Current income provided by
the securities in which the Fund invests is not likely to be as high as that
provided by securities with longer maturities or lower quality, which may
involve greater risk and price volatility.
Under ordinary market conditions, the Fund will maintain as a fundamental policy
at least 80% of the value of its total assets in obligations that are exempt
from federal income tax and not subject to the alternative minimum tax. The Fund
may, pending the investment of proceeds of sales of its shares or proceeds from
the sale of portfolio securities, in anticipation of redemptions, or to maintain
a "defensive" posture when, in the opinion of the Investment Adviser, it is
advisable to do so because of market conditions, elect to hold temporarily up to
20% of the current value of its total assets in cash reserves or invest in
securities whose interest income is subject to taxation.
From time to time, the Fund may invest 25% or more of its assets in municipal
obligations that are related in such a way that an economic, business or
political development or change affecting one of these obligations would also
affect the other obligations, for example, municipal obligations the interest on
which is paid from revenues of similar type projects or municipal obligations
whose issuers are located in the same state.
-20-
MONEY MARKET FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide investors with as high a level
of current income as is consistent with its investment policies and with
preservation of capital and liquidity.
INVESTMENT POLICIES. The Fund (which was formerly known as Harris Insight Cash
Management Fund) invests only in high quality, short-term money market
instruments that are determined by the Adviser, pursuant to procedures
established by the Company's Board of Directors, to be eligible for purchase and
to present minimal credit risks. The Fund invests in a broad range of short-term
money market instruments, including U.S. Government Securities and bank and
commercial obligations. The commercial paper purchased by the Fund will consist
of U.S. dollar-denominated direct obligations of domestic and foreign corporate
issuers, including bank holding companies.
The Fund invests only in U.S. dollar-denominated securities that have a
remaining maturity of 397 days or less (as calculated pursuant to Rule 2a-7
under the Investment Company Act of 1940, as amended) and maintains a
dollar-weighted average maturity of 90 days or less. Current income provided by
the securities in which the Fund invests is not likely to be as high as that
provided by securities with longer maturities or lower quality, which may
involve greater risk and price volatility.
The Fund will not purchase a security (other than U.S. Government Securities)
unless the security is rated by at least two nationally recognized rating
agencies (such as Standard & Poor's or Moody's) within the two highest ratings
assigned to short-term debt securities (or, if not rated or rated only by one
rating agency, is determined to be of comparable quality), and not more than 5%
of the total assets of the Fund would be invested in securities bearing the
second highest rating. Determinations of comparable quality shall be made in
accordance with procedures established by the Company's Board of Directors.
The Fund also may invest in guaranteed investment contracts ("GICs") issued by
U.S. and Canadian insurance companies, and convertible and non-convertible debt
securities of domestic corporations and of foreign corporations and governments
that are denominated, and pay interest, in U.S. dollars. In addition, the Fund
may invest in tax-exempt municipal obligations when the yields on such
obligations are higher than the yields on taxable investments. See INVESTMENT
OBJECTIVES AND POLICIES - TAX-EXEMPT MONEY MARKET FUND.
GOVERNMENT MONEY MARKET FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide investors with as high a level
of current income as is consistent with its investment policies and with
preservation of capital and liquidity.
INVESTMENT POLICIES. The Fund (formerly known as Harris Insight Government
Assets Fund) invests only in high quality, short-term money market instruments
that are determined by the Adviser, pursuant to procedures established by the
Company's Board of Directors, to be eligible
-21-
for purchase and to present minimal credit risks. The Fund invests exclusively
in U.S. Government Securities and repurchase agreements backed by those
securities.
The Fund invests only in securities that have a remaining maturity of 397 days
or less (as calculated pursuant to Rule 2a-7 under the Investment Company Act of
1940, as amended) and maintains a dollar-weighted average maturity of 90 days or
less. Current income provided by the securities in which the Fund invests is not
likely to be as high as that provided by securities with longer maturities or
lower quality, which may involve greater risk and price volatility.
The Fund invests in obligations of U.S. Government agencies and
instrumentalities only when the Portfolio Management Agent is satisfied that the
credit risk with respect to the issuer is minimal.
ADDITIONAL INVESTMENT INFORMATION
Unless otherwise noted, each Fund's investment objective and policies are not
fundamental and may be changed by the Board of Trustees of the Trust (or Board
of Directors of the Company) without shareholder approval. If there is a change
in a Fund's investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their financial position and needs
at that time.
For a further description of the Funds' investment policies, including
additional fundamental policies, please see Appendix A and the SAI.
COMMON INVESTMENT POLICIES
Each Fund may invest in the securities of other investment companies,
when-issued securities and forward commitments, floating/variable rate
obligations (and inverse floating rate obligations with respect to the Fixed
Income Funds), as well as commercial paper, short-term money market instruments
and cash equivalents, such as certificates of deposit, demand and time deposits
and banker's acceptance notes. In addition, each Fund may enter into repurchase
agreements. In addition, each of the Equity Funds and the Fixed Income Funds may
lend its portfolio securities with respect to up to one-third of its net assets
and may enter into reverse repurchase agreements.
In addition, each of the Equity Funds may invest in securities purchased in an
initial public offering. Each of these Funds also may invest in American
Depository Receipts, European Depository Receipts and, with respect to 10% (100%
for the International Fund) of each Fund's total assets, debt and equity
securities of foreign issuers. Further, each of the Equity Funds may purchase
and sell covered put and call options on securities, index and interest rate
futures contracts and options on futures contracts.
RATING MATTERS. Each of the Equity Funds and the Fixed Income Funds may invest
in securities convertible into or exchangeable for common stocks or preferred
stocks, as well as U.S. Government Securities and debt obligations of domestic
corporations rated "BBB" or better by
-22-
Standard & Poor's ("S&P") or "Baa" or better by Moody's Investors Service
("Moody's"), or that have an equivalent rating by another nationally recognized
statistical rating organization ("NRSRO") at the time of purchase or, if not
rated, are considered by the Portfolio Management Agent to be of comparable
quality. Debt obligations rated in the lowest categories of investment grade
(that is, BBB by S&P or Baa by Moody's) and equivalent securities may have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher-grade bonds. The Convertible
Securities Fund may invest in securities that are less than investment grade.
See INVESTMENT OBJECTIVES AND POLICIES - CONVERTIBLE SECURITIES FUND.
Each Fund may purchase debt obligations that are not rated if, in the opinion of
the Portfolio Management Agent or Adviser, they are of investment quality at
least comparable to other rated investments that may be purchased by the Fund.
After purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event will
require a Fund (other than a Money Market Fund) to sell the security unless the
amount of the security exceeds permissible limits. However, the Portfolio
Management Agent will reassess promptly whether the security presents minimal
credit risks and determine whether continuing to hold the security is in the
best interests of the Fund. To the extent that the ratings given by Moody's, S&P
or another NRSRO for securities may change as a result of changes in the rating
systems or due to the corporate reorganization of an NRSRO, each Fund will
attempt to use comparable ratings as standards for its investments in accordance
with the investment objectives and policies of that Fund. The ratings of Moody's
and S&P are more fully described in the Appendix to the SAI. A Money Market Fund
may be required to sell a security downgraded below the minimum required for
purchase, absent a specific finding by the Company's Board of Directors that a
sale is not in the best interests of the Fund.
PORTFOLIO TRANSACTIONS. Portfolio securities of each Fund are kept under
continuing supervision and changes may be made whenever, in the judgment of the
Portfolio Management Agent (or Adviser in the case of the Tax-Exempt Money
Market Fund), a security no longer seems to meet the objective of the Fund.
Portfolio changes also may be made to increase or decrease investments in
anticipation of changes in security prices in general or to provide the cash
necessary for redemptions, distributions to shareholders or other fund
management purposes. Portfolio changes are made without regard to the length of
time a particular security may have been held or the frequency of portfolio
transactions of a Fund (the portfolio turnover rate).
The realization of taxable capital gains and, with respect to equity securities,
the amount of brokerage commissions will tend to increase as the level of
portfolio activity increases. The portfolio turnover rates for each Fund are
included in the Financial Highlights for that Fund. The annual portfolio
turnover rate for the Small-Cap Value Fund is not expected to exceed 100%. The
annual portfolio turnover rate for the Balanced Fund is not expected to exceed
100% with respect to that portion of the Fund investing in equity securities,
and is not expected to exceed [ ]% with respect to that portion of the Fund
investing in fixed income securities. The annual portfolio turnover rate for
each of the Convertible Securities Fund and the Intermediate Government Bond
Fund is not expected to exceed [ ]%.
-23-
The Portfolio Management Agent and the Adviser seek "best execution" for all
portfolio transactions, but a Fund may pay higher than the lowest available
commission rates when the Portfolio Management Agent or Adviser believes it is
reasonable to do so in light of the value of the brokerage, research and other
services provided by the broker effecting the transaction. Purchase and sale
orders of securities on behalf of each of the Funds may be combined with those
of other accounts that the Portfolio Management Agent or Adviser manages, and
for which it has brokerage placement authority, in the interest of seeking the
most favorable overall net results. When the Portfolio Management Agent or
Adviser determines that a particular security should be bought or sold for any
of the Funds and other accounts it manages, the Portfolio Management Agent or
Adviser undertakes to allocate the transactions among the participants
equitably.
The Trust, the Company, the Adviser, the Portfolio Management Agent and other
service providers to the Funds have adopted codes of ethics which contain
policies on personal securities transactions by "access persons," including
portfolio managers and investment analysts. These policies substantially comply
in all material respects with the recommendations set forth in the May 9, 1994
Report of the Advisory Group on Personal Investing of the Investment Company
Institute.
INVESTMENT LIMITATIONS
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 SAI, no Fund may: (1) purchase the securities of issuers
conducting their principal business activity in the same industry if,
immediately after the purchase and as a result thereof, the value of its
investments in that industry would exceed 25% of the current value of its total
assets, provided that there is no limitation with respect to investments (a) in
municipal obligations (for the purpose of this restriction, private activity
bonds shall not be deemed municipal obligations if the payment of principal and
interest on such bonds is the ultimate responsibility of non-governmental
users); (b) in obligations of the U.S. Government, its agencies or
instrumentalities; or (c) in the case of the Money Market Fund, in certain bank
obligations in which the Fund may invest, as set forth in this Prospectus; (2)
invest more than 5% of the current value of its total assets in the securities
of any one issuer, other than obligations of the U.S. Government, its agencies
or instrumentalities, except that up to 25% of the value of the total assets of
a Fund (other than the Money Market Fund and the Government Money Market Fund)
may be invested without regard to this limitation; (3) purchase securities of an
issuer if, as a result, with respect to 75% of its total assets, it would own
more than 10% of the voting securities of such issuer; or (4) borrow from banks,
except that a Fund may borrow up to 10% of the current value of its total assets
for temporary purposes only in order to meet redemptions, and these borrowings
may be secured by the pledge of up to 10% of the current value of the Fund's net
assets (but investments may not be purchased while borrowings are in excess of
5%). Although not a matter of fundamental policy, the Funds consider the
securities of foreign governments to be a separate industry for purposes of the
25% asset limitation on investments in the securities of issuers conducting
their principal business activity in the same industry. As a matter of
fundamental policy, each Fund may make loans of portfolio securities.
-24-
In addition, as a fundamental policy of the Equity Fund, the Short/Intermediate
Bond Fund and the Money Market Funds, each of those Funds may 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. See Appendix A.
With respect to the second investment limitation set forth above, each of the
Money Market Fund and the Government Money Market Fund may invest more than 5%
of its total assets in the securities of a single issuer for a period of up to
three business days after the purchase thereof, so long as it does not make more
than one such investment at any one time.
RISK CONSIDERATIONS
THE RISKS OF INVESTING IN EACH FUND VARY DEPENDING UPON THE NATURE OF THE
SECURITIES HELD, AND THE INVESTMENT PRACTICES EMPLOYED, ON ITS BEHALF. THE
FUNDAMENTAL RISK ASSOCIATED WITH THE FUNDS, LIKE OTHER MUTUAL FUNDS THAT INVEST
IN FIXED INCOME AND EQUITY SECURITIES, IS "MARKET RISK." Market risk is the risk
that the market value of a security that a Fund holds will decrease. The market
value of a security may move up and down, sometimes rapidly and unpredictably.
These fluctuations may cause a security to be worth less than it was worth at
the time of purchase. Market risk may affect a single issuer, industry, sector
of the economy or the market as a whole.
Certain specific risks are described in this section. If you would like to know
more about risks associated with a particular type of security, see Appendix A.
RISKS OF EQUITY SECURITIES. Stock values may fluctuate in response to the
activities of an individual company or in response to general market and/or
economic conditions. Historically, common stocks have provided greater long-term
returns and have entailed greater short-term risks than other investment
choices. Smaller or newer issuers are more likely to realize more substantial
growth as well as suffer more significant losses than larger or more established
issuers. Investments in such companies can be both more volatile and more
speculative. THE SMALL-CAP OPPORTUNITY FUND AND THE SMALL-CAP VALUE FUND HAVE
HEIGHTENED EXPOSURE TO THESE RISKS DUE TO THEIR POLICY OF INVESTING IN SMALLER
COMPANIES.
RISKS OF DEBT SECURITIES. The value of debt securities generally goes down when
interest rates go up, and up when interest rates go down. Changes in interest
rates will generally cause larger changes in the prices of longer-term
securities than in the prices of shorter-term securities. The risk of market
losses attributable to changes in interest rates is known as "interest rate
risk."
Debt securities are subject to "credit risk" relating to the financial condition
of the issuers of the securities. Prices of debt securities may fluctuate based
on changes in the actual and perceived creditworthiness of issuers. The prices
of lower-rated securities often fluctuate more than those of higher-rated
securities.
-25-
It is possible that some issuers will not make payments on debt securities held
by a Fund. Investors should be aware that securities offering above-average
yields may involve above-average risks. Securities rated in the lowest
categories of investment grade (that is, BBB or Baa by S&P or Moody's) and
equivalent securities may have speculative characteristics. In adverse economic
or other circumstances, issuers of these securities are more likely to have
difficulty making principal and interest payments than issuers of higher-grade
obligations.
RISKS OF INVESTING IN FOREIGN MARKETS. Investments in the securities of foreign
(non-U.S.) issuers may involve risks in addition to those normally associated
with investments in the securities of U.S. issuers. All foreign investments are
subject to risks of foreign political and economic instability, adverse
movements in foreign exchange rates, the imposition or tightening of exchange
controls or other limitations on repatriation of foreign capital, and changes in
foreign governmental attitudes towards private investment, possibly leading to
nationalization, increased taxation or confiscation of foreign investors'
assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available for distribution to a
Fund's shareholders; commission rates payable on foreign transactions are
generally higher than in the United States; foreign accounting, auditing and
financial reporting standards differ from those in the United States and,
accordingly, less information may be available about foreign companies than is
available about issuers of comparable securities in the United States; and
foreign securities may trade less frequently and with lower volume and may
exhibit greater price volatility than United States securities. THE
INTERNATIONAL FUND HAS HEIGHTENED EXPOSURE TO THESE RISKS DUE TO ITS POLICY OF
INVESTING PRIMARILY IN THE SECURITIES OF FOREIGN ISSUERS.
RISKS OF FOREIGN CURRENCY. Changes in foreign exchange rates will also affect
the value in U.S. dollars of all foreign currency-denominated securities held by
the Funds. Exchange rates are influenced generally by the forces of supply and
demand in the foreign currency markets and by numerous other political and
economic events occurring outside the United States, many of which may be
difficult, if not impossible, to predict.
Income from foreign securities will be received and realized in foreign
currencies, while each Fund is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign currency
against the U.S. dollar occurring after a Fund's income has been earned and
computed in U.S. dollars may require the Fund to liquidate portfolio securities
to acquire sufficient U.S. dollars to make a distribution. Similarly, if the
exchange rate declines between the time that a Fund incurs expenses in U.S.
dollars and the time such expenses are paid, the Fund may be required to
liquidate additional foreign securities to purchase the U.S. dollars required to
meet such expenses. THE INTERNATIONAL FUND HAS HEIGHTENED EXPOSURE TO THESE
RISKS DUE TO ITS POLICY OF INVESTING PRIMARILY IN THE SECURITIES OF FOREIGN
ISSUERS.
RISKS OF DERIVATIVE SECURITIES. To the extent permitted by its investment
objectives and policies, each of the funds may invest in securities that are
commonly referred to as "derivative" securities. Generally, a derivative is a
financial instrument the value of which is based on, or
-26-
"derived" from, a traditional security, asset, or market index. Certain
derivative securities are more accurately described as "index/structured"
securities. Index/structured securities are derivative securities whose value or
performance is linked to other equity securities (such as depository receipts),
currencies, interest rates, indices or other financial indicators.
Some "derivatives" such as mortgage-backed and other asset-backed securities are
in many respects like any other investment, although they may be more volatile
or less liquid than more traditional debt securities.
There are many different types of derivatives and many different ways to use
them. Futures and options are commonly used for traditional hedging purposes to
attempt to protect a fund from exposure to changing interest rates, securities
prices, or currency exchange rates and for cash management purposes as a
low-cost method of gaining exposure to a particular securities market without
investing directly in those securities.
There is a range of risks associated with derivatives. These risks include:
* the possibility that the underlying security, interest rate, or market
index will not move in the direction the portfolio manager anticipates;
* the risk that changes in the value of a derivative being used for hedging
will not match those of the asset being hedged, which may cause a given
hedge not to achieve its objective;
* the possibility that there may be no liquid secondary market, which, among
other things, may hinder a Fund's ability to limit exposures by closing its
positions;
* the risk that adverse price movements in an instrument can result in a loss
substantially greater than a Fund's initial investment; and
* the risk that the counterparty will fail to perform its obligations.
RISKS OF MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are generally
"backed" or collateralized by a pool of mortgages. The Funds may purchase
mortgage-backed securities issued or guaranteed by the U.S. Government or one of
its agencies and backed by the full faith and credit of the U.S. Government, as
well as mortgage-backed securities supported primarily or solely by the
creditworthiness of the issuing U.S. Government agency.
Even if the U.S. Government or one of its agencies guarantees principal and
interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market volatility.
When interest rates decline, mortgage-backed securities experience higher rates
of prepayment because the underlying mortgages are refinanced to take advantage
of the lower rates. The prices of mortgage-backed securities may not increase as
much as prices of other debt obligations when interest rates decline, and
mortgage-backed securities may not be an effective means of locking in a
particular interest rate. In addition, any premium paid for a mortgage-backed
security may be lost when it is prepaid. When interest rates go up,
mortgage-backed securities experience lower rates of prepayment. This has the
effect of lengthening the expected maturity of a mortgage-backed security. As a
result, prices of
-27-
mortgage-backed securities may decrease more than prices of other debt
obligations when interest rates go up.
BORROWING RISK. Borrowing also involves special risk considerations. Interest
costs on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on the borrowed funds (or on the
assets that were retained rather than sold to meet the needs for which funds
were borrowed). Under adverse market conditions, the Fund might have to sell
portfolio securities to meet interest or principal payments at a time when
fundamental investment considerations would not favor such sales. To the extent
a Fund enters into reverse repurchase agreements, the Fund is subject to risks
that are similar to those associated with borrowing.
COUNTERPARTY RISK. A number of transactions in which the Funds may engage are
subject to the risks of default by the other party to the transaction. When a
Fund engages in repurchase, reverse repurchase, derivative, when-issued, forward
commitment, delayed settlement and securities lending transactions, it relies on
the other party to consummate the transaction. Failure of the other party to do
so may result in the Fund's incurring a loss or missing an opportunity to obtain
a price believed to be advantageous.
LIQUIDITY RISK. Certain securities may be difficult or impossible to sell at the
time and the price that the seller would like. The seller may have to lower the
price, sell other securities instead, or forego an investment opportunity, any
of which could have a negative effect on fund management or performance.
INFORMATION RISK. Certain key information about a security or market may be
inaccurate or unavailable, which may limit the investment adviser's ability to
make an appropriate investment decision with regard to the security or market.
OBJECTIVE RISK. Returns from the particular type of security that a Fund
emphasizes in its investments may trail returns from the overall stock or bond
market. For example, the growth stocks in which the Growth Fund invests tend to
go through cycles of relative underperformance and outperformance in comparison
to other types of equity securities. These periods may last for as long as
several years.
MANAGEMENT RISK. A strategy used by a Fund's investment adviser may fail to
produce the intended result, which could have a negative effect on fund
performance.
-28-
MANAGEMENT
TRUSTEES AND DIRECTORS
The Trust and the Company are managed under the direction of their governing
Boards of Trustees and Directors, respectively. Each individual listed below is
a member of both the Trust's Board of Trustees and the Company's Board of
Directors. The principal occupation of each individual is also listed below.
<TABLE>
<CAPTION>
<S> <C>
C. Gary Gerst Chairman of the Board of Trustees and Board of Directors;
Chairman Emeritus LaSalle Partners, Ltd. (real estate developer and manager).
Edgar R. Fiedler Senior Fellow and Economic Counsellor, The Conference
Board.
John W. McCarter, Jr. President and Chief Executive Officer, The Field Museum of
Natural History (Chicago); Formerly, Senior Vice President and Director,
Booz-Allen & Hamilton, Inc. (consulting firm).
Ernest M. Roth Consultant; Formerly, Retired Senior Vice President and Chief
Financial Officer, Commonwealth Edison Company.
</TABLE>
INVESTMENT ADVISER
Harris Trust is the investment adviser for each of the Funds pursuant to
Advisory Contracts with the Trust and the Company. Harris Trust, located at 111
West Monroe Street, Chicago, Illinois, is the successor to the investment
banking firm of N.W. Harris & Co. that was organized in 1882 and was
incorporated in 1907 under the present name of the bank. It is an Illinois
state-chartered bank and a member of the Federal Reserve System. At December 31,
1996, Harris Trust had assets of more than $[ ] billion and was the largest of [
] banks owned by Harris Bankcorp, Inc. Harris Bankcorp, Inc. is a wholly-owned
subsidiary of Bankmont Financial Corp., which is a wholly-owned subsidiary of
Bank of Montreal, a publicly-traded Canadian banking institution.
As of December 31, 1996, Harris Trust managed more than $[ ] billion in personal
trust assets, and acted as custodian of more than $[ ] billion in assets.
With respect to the Tax-Exempt Money Market Fund, the Advisory Contract provides
that Harris Trust shall make investments for the Fund in accordance with its
best judgment. With respect to the remaining Funds, the Advisory Contracts
provide that Harris Trust is responsible for the supervision and oversight of
the Portfolio Management Agent's performance (as discussed below).
-29-
The investment advisory fees payable to Harris Trust with respect to each Fund
are based on the average daily net assets of the respective Fund at the
following annual rates:
International Fund 1.05%
Small-Cap Opportunity Fund 1.00%
Small-Cap Value Fund 0.80%
Growth Fund 0.90%
Equity Fund 0.70%
Equity Income Fund 0.70%
Index Fund 0.25%
Balanced Fund 0.60%
Convertible Securities Bond Fund 0.70%
Tax-Exempt Bond Fund 0.60%
Bond Fund 0.65%
Intermediate Tax-Exempt Bond Fund 0.60%
Short/Intermediate Bond Fund 0.70%
Intermediate Government Bond Fund 0.65%
Tax-Exempt Money Market Fund 0.14% of each Fund's first
Money Market Fund $100 million of assets plus
Government Money Market Fund 0.10% of the Fund's remaining assets
PORTFOLIO MANAGEMENT AGENT
Harris Trust has entered into Portfolio Management Contracts with Harris
Investment Management, under which HIM undertakes to furnish investment guidance
and policy direction in connection with the daily portfolio management of all of
the Funds except for the Tax-Exempt Money Market Fund. For the services provided
by HIM, Harris Trust pays HIM the advisory fees it receives from the Funds. As
of December 31, 1996, HIM managed an estimated $[ ] billion in assets.
To the extent permitted by the SEC, the Funds may pay brokerage commissions to
certain affiliated persons. During the last fiscal year, no Fund paid
commissions to these persons.
PORTFOLIO MANAGEMENT
Many persons on the staffs of the Adviser and the Portfolio Management Agent
contribute to the investment management services provided to the Funds. The
following persons, however, are primarily responsible for the day-to-day
investment management of the Funds:
[Portfolio manager biographies]
-30-
ADMINISTRATORS, CUSTODIAN AND TRANSFER AGENT
Harris Trust (in this capacity, the "Administrator") is the administrator of the
Funds and, as such, generally assists the Funds in all aspects of their
administration and operation.
The Administrator has a Sub-Administration Agreement with Funds Distributor,
Inc. ("FDI"), whereby FDI performs certain administrative services for the
Funds. The Administrator has Sub-Administration and Accounting Services
Agreements with PFPC Inc. ("PFPC"), whereby PFPC performs certain administrative
and accounting services for the Funds. Under these agreements, the Administrator
compensates FDI and PFPC for providing their services. The Administrator, FDI
and PFPC are referred to collectively as the "Administrators."
Harris Trust is also the transfer and dividend disbursing agent of the Funds (in
this capacity, the "Transfer Agent"). The Transfer Agent has entered into
Sub-Transfer Agency Services Agreements with PFPC (the "Sub-Transfer Agent")
whereby the Sub-Transfer Agent performs certain transfer agency and dividend
disbursing agency services.
PNC Bank, N.A. (the "Custodian") serves as custodian of the assets of the Funds.
PFPC and the Custodian are indirect, wholly-owned subsidiaries of PNC Bank Corp.
As compensation for their services, the Administrator, the Transfer Agent and
the Custodian are entitled to receive a combined fee based on the aggregate
average daily net assets of the portfolios of the Company and the Trust, payable
monthly at an annual rate of 0.17% of the first $300 million of average daily
net assets; 0.15% of the next $300 million; and 0.13% of average daily net
assets in excess of $600 million. In addition, the Funds pay a separate fee to
the Sub-Transfer Agent for certain retail sub-transfer agent services and
reimburses the Custodian for various custody transactional expenses.
DISTRIBUTOR
Funds Distributor, Inc. (the "Distributor") has entered into Distribution
Agreements with the Trust and the Company pursuant to which it has the
responsibility for distributing shares of the Funds. Fees for services rendered
by the Distributor are paid by the Administrator. The Distributor bears the cost
of printing and mailing prospectuses to potential investors and any advertising
expenses incurred by it in connection with the distribution of shares, subject
to the terms of the Service Plans described below, if implemented pursuant to
contractual arrangements between the Distributor and each of the Trust and the
Company and approved by the Board of Trustees of the Trust (or the Board of
Directors of the Company).
See "Management" and "Custodian" in the SAI for additional information regarding
the Adviser, Portfolio Management Agent, Administrators, Custodian, Transfer
Agent and Distributor.
-31-
EXPENSES
Except for certain expenses borne by the Distributor, Harris Trust, or HIM, the
Trust and the Company bear all costs of their operations, including the
compensation of their Trustees or Directors who are not affiliated with Harris
Trust, HIM or the Distributor or any of their affiliates; advisory and
administration fees; payments pursuant to any Service Plan; interest charges;
taxes; fees and expenses of independent accountants, legal counsel, transfer
agent and dividend disbursing agent; expenses of preparing and printing
prospectuses (except the expense of printing and mailing prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Service Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio securities transactions; fees and
expenses of the Funds' custodian including those for keeping books and accounts;
expenses of shareholders' meetings and meetings of Boards of Trustees and
Directors; expenses relating to the issuance, registration and qualification of
shares of the Funds; fees of pricing services; organizational expenses; and any
extraordinary expenses. Expenses attributable to each Fund are borne by that
Fund. Other general expenses of the Trust or the Company are allocated among the
Funds in an equitable manner as determined by the Boards of Trustees and
Directors.
HOW TO BUY SHARES
OPENING AN ACCOUNT. To open an account, complete and sign an application and
mail it along with your check. You also may open your account by wire, as
described below. Please be sure to furnish your taxpayer identification number.
(You must also certify whether you are subject to withholding for failing to
report income to the IRS.) Investments received without a certified taxpayer
identification number will be returned.
If you register your account as belonging to multiple owners (e.g., as joint
tenants), you must provide specific authorization on your application in order
for us to accept instructions from a single owner. Otherwise, all owners will
have to agree to any transactions that involve the account.
If you are opening an account through a financial institution or other
intermediary, this organization may have different minimum initial and
subsequent investment requirements. Please contact this organization if you have
questions. See BUYING SHARES - THROUGH FINANCIAL INSTITUTIONS BELOW.
BUYING SHARES. Shares may be purchased by investing automatically (see AUTOMATIC
INVESTING below) or by any of the following three methods:
-32-
1. BY MAIL. Make your check payable to the Fund of your choice. If you are
adding to your existing account, indicate your Fund account number directly on
the check and send to:
Harris Insight Funds
c/o PFPC Inc.
P.O. Box 8952
Wilmington, Delaware 19899-8952
2. BY BANK WIRE. Call the Funds at (800) 625-7073 to set up your account.
Then wire your investment to:
PNC Bank, N.A.
Philadelphia, Pennsylvania
ABA #0310-0005-3
For Credit to: Harris Insight Funds
85-5093-2950
Re: [Name of Fund] - Institutional Shares
Account No.:
Account Name:
If you are opening an account, please promptly complete and mail the account
application form to the Funds at the address above under "By Mail." The Funds
currently do not charge investors for the receipt of wire transfers, although
your bank may charge you for their wiring services.
3. THROUGH FINANCIAL INSTITUTIONS. Shares of any of the Funds may be
purchased through authorized broker/dealers, financial institutions and service
agents with whom the Distributor has a selling agreement, including Harris Trust
and HIM and their affiliates ("Institutions") on any day the Funds are open for
business. See GENERAL PURCHASE INFORMATION. Institutions are responsible for the
prompt transmission of buy, exchange or sell orders.
Each Institution may establish its own terms with respect to the requirement of
a minimum initial investment and minimum subsequent investments. Depending upon
the terms of your account, Institutions may charge account fees for automatic
investment and other services they provide, including account maintenance fees,
compensating balance requirements, or fees based upon account transactions,
assets, or income, which would reduce the your yield or return. Please read this
Prospectus in connection with any information received from your Institution.
GENERAL PURCHASE INFORMATION
Institutional Shares are sold to fiduciary and discretionary accounts of
institutions, "institutional investors," Directors, Trustees, officers and
employees of the Company, the Trust, the Adviser, the Portfolio Management
Agent, and the Distributorand the Adviser's investment advisory clients.
"Institutional investors" may include financial institutions (such as banks,
savings institutions and credit unions); pension and profit sharing and employee
benefit plans and trusts;
-33-
insurance companies; investment companies; investment advisers; and
broker/dealers acting for their own accounts or for the accounts of such
institutional investors.
The Funds are open for business each day the New York Stock Exchange (the
"Exchange") and the Federal Reserve Bank of Philadelphia are both open for
business (i.e., each weekday other than New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day) ("Fund Business
Day"). Except for the Money Market Funds, each Fund normally calculates its net
asset value (NAV) and offering price at the close of business of the Exchange,
which is normally 4:00 p.m., Eastern time. Each of the Money Market Funds
normally calculates its NAV on or before 12:00 Noon, Eastern time. Shares are
purchased at the next share price calculated after your investment is received
and accepted.
Orders placed directly with the Funds must be paid for by check or bank wire on
the same day. Payment for the shares purchased through an Institution will not
be due until settlement date, normally three business days after the order has
been executed. The Company and Trust, as applicable, reserve the right to reject
any purchase order.
No sales charge will be assessed on purchases of Institutional Shares of the
Funds. Neither the Company or the Trust imposes any minimum on initial or
subsequent investments.
HOW TO SELL SHARES
Shares may be sold (redeemed) at their next determined net asset value after
receipt of a proper request by the Funds directly or through any Institution.
1. BY MAIL. Shareholders may sell shares by writing the Funds at the
following address:
Harris Insight Funds
c/o PFPC Inc.
P.O. Box 8952
Wilmington, Delaware 19899-8952
Certain requests for redemption must be signed by the shareholder with signature
guaranteed. See SHAREHOLDER SERVICES AND POLICIES - SIGNATURE GUARANTEES.
2. BY TELEPHONE. If you have chosen the telephone redemption privilege,
you may make a telephone redemption request by calling the Funds at (800)
625-7073 and providing the your account number, the exact name of your account
and your social security or taxpayer identification number. The Fund then will
mail a check to your account address or, if you have elected wire redemption
privileges, wire the proceeds on the following business day.
3. BY BANK WIRE. If you have chosen the wire redemption privilege, you may
request the Funds to transmit your proceeds by federal funds wire to a bank
account previously designated by you in writing.
-34-
4. THROUGH FINANCIAL INSTITUTIONS. If you bought your shares through an
Institution, you may redeem your shares through the Institution. Please contact
the Institution for this service.
GENERAL REDEMPTION INFORMATION
There is no charge for redemptions, but if you bought your shares through an
Institution, the Institution may charge an account-based service fee. A
redemption order received by an Institution or the Funds before the close of the
Exchange and before the close of the Fund Business Day will be executed at the
Fund's net asset value per share next determined on that day. A redemption order
received after the close of the Exchange, or not received by the Funds prior to
the close of the Fund Business Day, will be executed at the Fund's net asset
value next determined on the next Fund Business Day.
Proceeds of a redemption order for a Fund received in good order by 4:00,
Eastern time (12:00 Noon in the case of the Money Market Funds) will normally be
remitted within five but not more than seven business days, except that if a
redemption request is made shortly after a recent purchase by check, proceeds
will be distributed once the check used to purchase the Fund's shares clears,
which may take up to 15 days or more after the investment. The proceeds may be
more or less than the amount originally invested and, therefore, a redemption
may result in a gain or loss for federal income tax purposes.
The Funds intend to pay redemption proceeds in cash, but reserve the right to
pay in kind by delivery of investment securities equal in value to the
redemption price to the extent permitted by applicable laws and regulations. In
these cases, you might incur brokerage costs in converting the securities to
cash. The right of any shareholder to receive payment of redemption proceeds may
be suspended, or payment may be postponed, in certain circumstances. These
circumstances include any period when the Exchange is closed (other than
weekends or holidays) or trading on the Exchange is restricted, any period when
an emergency exists and any time the SEC permits mutual funds to postpone
payments for the protection of investors.
SYSTEMATIC WITHDRAWAL PLAN. You can arrange for periodic, automatic redemptions
from your account. For more information or to sign up for this service, please
call (800) 982-8782.
SHAREHOLDER SERVICES AND POLICIES
EXCHANGING SHARES. YOU CAN EXCHANGE INSTITUTIONAL SHARES OF A FUND FOR
INSTITUTIONAL SHARES OF THE OTHER HARRIS INSIGHT FUNDS OFFERING THOSE SHARES.
Institutional Shares of any of the Funds that you have held for seven days or
more may be exchanged for shares of any other Harris Insight Fund in an
identically registered account, provided that Institutional Shares of the Fund
to be acquired are registered for sale in the your state of residence.
If you would like the ability to exchange shares by telephone, please choose
this option when you complete your application. The Funds reserve the right to
limit the number of exchanges between Funds, to reject any telephone exchange
order or otherwise to modify or discontinue
-35-
exchange privileges at any time upon 60 days' written notice. A capital gain or
loss for tax purposes may be realized upon an exchange, depending upon the cost
or other basis of shares redeemed.
DIRECTED DIVIDEND OPTION. You may choose to have all your dividend and capital
gain distributions automatically invested in shares of another, identically
registered Harris Insight Fund, provided that those shares are eligible for sale
in your jurisdiction of residence. If you would like to add the Directed
Dividend Option to your account, please call (800) 982-8782 for information.
SIGNATURE GUARANTEES. A signature guarantee assures that a signature is genuine
and protects shareholders from unauthorized account transfers. In addition to
certain signature requirements, a signature guarantee is required in any of the
following circumstances:
* A redemption check is to be made payable to anyone other than the
shareholder(s) of record.
* A redemption check is to be mailed to an address other than the address of
record.
At the Funds' discretion, signature guarantees also may be required for other
redemptions. Banks, savings and loan associations, trust companies, credit
unions, broker-dealers and member firms of a national securities exchange may
guarantee signatures. Call your financial institution to see if it has this
capability.
TELEPHONE TRANSACTIONS. Investors may buy (by bank wire), sell and exchange
shares by telephone. Shareholders engaging in telephone transactions should be
aware that they may be foregoing some of the security associated with written
requests. A shareholder may bear the risk of any resulting losses from a
telephone transaction. The Funds will employ reasonable procedures to confirm
that telephonic instructions are genuine. If the Funds or their service
providers fail to employ these measures, they may be liable for any losses
arising from unauthorized or fraudulent instructions. In addition, the Funds
reserve the right to record all telephone conversations. Please verify the
accuracy of telephone instructions immediately upon receipt of confirmation
statements.
During times of drastic economic or market changes, telephone redemption and
exchange privileges may be difficult to implement. In the event that you are
unable to reach the Funds by telephone, requests may be mailed or hand-delivered
to the Funds at the address listed in HOW TO SELL SHARES.
REDEMPTION OF SHARES IN SMALLER ACCOUNTS. Because of the high cost of
maintaining small accounts, each Fund reserves the right to redeem all shares in
an account whose value falls below $500 ($250 in the case of a retirement
account) unless this is a result of a decline in the market value of the shares.
Prior to such a redemption, a shareholder will be notified in writing and
permitted 30 days to make additional investments to raise the account balance to
the specified minimum.
-36-
SHARE CERTIFICATES. Share certificates are not issued.
ELIGIBILITY BY STATE. You may only invest in, or exchange into, Institutional
Shares legally available in your state.
CHECKWRITING. Checkwriting privileges are available to shareholders of the Money
Market Funds. For more information or to receive a checkwriting application,
please call (800) 982-8782.
REPORTS TO SHAREHOLDERS. You will receive an account statement after every
transaction that affects your share balance, except for reinvestments of
dividend and capital gain distributions, or at least annually. In addition, each
year you will receive an annual and semi-annual report to shareholders of each
Fund in which you invest. If you would like copies of these reports, please call
(800) 982-8782.
HOW THE FUNDS MAKE DISTRIBUTIONS TO SHAREHOLDERS;
TAX INFORMATION
Dividends from the International Fund, the Small-Cap Opportunity Fund and the
Small-Cap Value Fund are declared and paid semi-annually. Dividends from each of
the Growth Fund, the Equity Income Fund, the Equity Fund, the Index Fund, the
Balanced Fund and the Convertible Securities Fund are declared and paid
quarterly. Dividends from the Tax-Exempt Bond Fund, the Bond Fund, the
Intermediate Tax-Exempt Bond Fund, the Short/Intermediate Bond Fund and the
Intermediate Government Bond Fund are declared daily and paid monthly. Dividends
from each of the Money Market Funds are declared daily and paid monthly. Any net
capital gains will be declared and paid at least annually (to the extent
required to avoid imposition of the 4% excise tax described below). Dividend and
capital gain distributions may be invested in additional shares of the same Fund
at net asset value and credited to the shareholder's account on the payment date
or paid in cash (no sales charge is assessed on the reinvestment of dividends or
distributions). Distribution checks and account statements will be mailed
approximately two business days after the payment date.
Each Fund is treated as a separate entity for tax purposes and thus the
provisions of the Internal Revenue Code (the "Code") generally are applied to
each Fund separately, rather than to the Trust or the Company as a whole. As a
result, net capital gains, net investment income, and operating expenses are
determined separately for each Fund. The Trust and the Company intend to qualify
each Fund as a regulated investment company under the Code and to distribute to
the shareholders of each Fund sufficient net investment income and net realized
capital gains of that Fund so that the Fund will not be subject to federal
income taxes.
Dividends (including net short-term capital gains), except "exempt-interest
dividends" (described below), will be taxable to shareholders as ordinary
income.
-37-
Distributions of net long-term capital gains, if any, will be taxable as
long-term capital gains, whether received in cash or reinvested in additional
shares, regardless of how long the shareholder has held the shares, and will not
qualify for the dividends-received deductions.
A taxable gain or loss also may be realized by a shareholder upon the redemption
or transfer of shares depending on the tax basis of the shares and their price
at the time of the transaction. Any loss realized on a sale or exchange of
shares of a Fund will be disallowed to the extent shares of that Fund are
acquired within the 61-day period beginning 30 days before and ending 30 days
after disposition of the shares.
Dividends paid by each of the Tax-Exempt Bond Fund, the Intermediate Tax-Exempt
Bond and the Tax-Exempt Money Market Fund (the "Tax-Exempt Funds") out of
tax-exempt interest income earned by the Fund ("exempt-interest dividends")
generally will not be subject to Federal income tax in the hands of the Fund's
shareholders. However, persons who are substantial users or related persons
thereof of facilities financed by private activity bonds held by a Fund may be
subject to Federal income tax on their pro rata share of the interest income
from such bonds and should consult their tax advisers before purchasing shares
of such Fund.
Interest on indebtedness incurred by shareholders to purchase or carry shares of
a Fund generally is not deductible for Federal income tax purposes. Under rules
of the Internal Revenue Service for determining when borrowed funds are used for
purchasing or carrying particular assets, shares of a Fund may be considered to
have been purchased or carried with borrowed funds even though those funds are
not directly linked to the shares. Substantially all of the dividends paid by
each Tax-Exempt Fund are anticipated to be exempt from Federal income taxes.
Shareholders of the Tax-Exempt Funds may be exempt from state and local taxes on
distributions of tax-exempt interest income derived from obligations of the
state and/or municipalities of the state in which they reside but may be subject
to tax on income derived from the municipal securities of other jurisdictions.
Shareholders are advised to consult with their tax advisers concerning the
application of state and local taxes to investments in the Fund which may differ
from the Federal income tax consequences described above.
The Trust and the Company, as applicable, will be required to withhold, subject
to certain exemptions, a portion (currently 31%) from dividends paid or credited
to individual shareholders and from redemption proceeds, if a correct taxpayer
identification number, certified when required, is not on file with the Trust
(or the Company) or Transfer Agent.
GENERAL INFORMATION
BANKING LAW MATTERS
Federal banking laws and regulations generally prohibit federally chartered or
supervised banks from engaging directly in the business of issuing,
underwriting, selling or distributing securities, although subsidiaries of bank
holding companies, such as Harris Trust and HIM, are permitted to purchase and
sell securities upon the order and for the account of their customers.
-38-
Harris Trust and HIM believe that they may perform the services contemplated by
this Prospectus and their respective agreements with the Company and Trust
without violating applicable federal banking laws or regulations. It is noted,
however, that there are no controlling judicial or administrative
interpretations or decisions and that future judicial or administrative
interpretations of, or decisions relating to, present federal statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in federal statutes or
regulations and judicial or administrative decisions or interpretations thereof,
could prevent Harris Trust or HIM from continuing to perform, in whole or in
part, these services. If this were to happen, the Funds would seek alternative
sources for these services.
HOW SHARE VALUE IS DETERMINED
Net asset value per share is the value of one share of a Fund, which is
determined on each Fund Business Day. Net asset value per share is determined by
dividing the value of a Fund's net assets (i.e., the value of its securities and
other assets less its liabilities) by the number of shares of the Fund
outstanding.
The net asset value per share of the non-Money Market Funds is determined at the
close of regular trading on the Exchange (currently 4:00 p.m., Eastern time) on
each Fund Business Day. The value of securities held by the non-Money Market
Funds (other than bonds and debt obligations maturing in 60 days or less) is
determined based on the last sale price on the principal exchange on which the
securities are traded as of the time of valuation. In the absence of any sale on
the valuation date, the securities are valued at the closing bid price.
Securities traded only on over-the-counter markets are valued at closing
over-the-counter bid prices. Portfolio securities that are primarily traded on
foreign securities exchanges are generally valued at their closing values on the
exchange. Bonds are valued at the mean of the last bid and asked prices. In the
absence of readily available market quotations (or when, in the view of the
Portfolio Management Agent, available market quotations do not accurately
reflect a security's fair value), securities are valued at their fair value as
determined by the Trust's Board of Trustees or Company's Board of Directors.
Prices used for valuations of securities are provided by independent pricing
services. Debt obligations with remaining maturities of 60 days or less
generally are valued at amortized cost. The amortized cost method involves
valuing a security at its cost and amortizing any discount or premium over the
period until maturity, regardless of the impact of fluctuating interest rates on
the market value of the security.
The net asset value per share of each of the Money Market Funds is determined at
12:00 Noon, Eastern time. In order to maintain a stable net asset value of $1.00
per share, each of the Funds uses the amortized cost method to value its
portfolio securities.
HOW PERFORMANCE IS REPORTED
From time to time, each of the Funds may advertise its performance. Performance
may be quoted in terms of total return, yield, effective yield and
tax-equivalent yield. All performance information is based on historical results
and is not intended to indicate future performance.
-39-
Total return refers to the amount an investment in a Fund would have earned,
including any increase or decrease in net asset value, over a specified period
of time and assumes the payment of the maximum sales load and the reinvestment
of all dividends and distributions. The total return of each Fund shows what an
investment in Institutional Shares of the Fund would have earned over a
specified period of time (such as one, five or ten years, or the period of time
since commencement of operations, if shorter) assuming that all distributions
and dividends by the Fund were reinvested on their reinvestment dates during the
period less all recurring fees. When a Fund compares its total return to that of
other mutual funds or relevant indices, its total return also may be computed
without reflecting the sales load so long as the sales load is stated separately
in connection with the comparison.
A Fund's yield is a way of showing the rate of income the Fund earns on its
investments as a percentage of the Fund's share price. To calculate standardized
yield, a Fund divides the interest income it earned from its investments for a
30-day period (net of expenses) by the average number of shares entitled to
receive dividends. The result is then expressed as an annualized percentage rate
based on the Fund's share price at the end of the 30-day period (which period
will be stated in the advertisement). The yield of any investment is generally a
function of portfolio quality and maturity, type of instrument and operating
expenses.
The effective yield is calculated similarly but, when annualized, the income
earned by an investment in shares of the Fund is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment. The "tax-equivalent yield,"
which will calculated only for the Intermediate Tax-Exempt Bond Fund, the
Tax-Exempt Bond Fund and the Tax-Exempt Money Market Fund, refers to the yield
on a taxable investment necessary to produce an after-tax yield equal to a
Fund's tax-exempt yield, and is calculated by increasing the yield shown for the
Fund to the extent necessary to reflect the payment of specified tax rates.
Thus, the tax-equivalent yield for a Fund will always exceed that Fund's yield.
From time to time the Money Market Funds advertise "30-day average yield" and
"monthly average yield." Such yields refer to the average daily income generated
by an investment in such Fund over a 30-day or monthly period, as appropriate
(which period will be stated in the advertisement).
The Funds' advertisements may reference ratings and rankings among similar
mutual funds by independent evaluators such as Morningstar, Inc. and Lipper
Analytical Services, Inc. The comparative material found in the Funds'
advertisements, sales literature or reports to shareholders may contain
performance ratings. That material is not to be considered an indication of
future performance. All performance information for a Fund is calculated on a
class basis. In addition, a Fund may use a benchmark securities index as a
measure of the Fund's performance. The Balanced Fund may measure performance
using a composite of securities indices to reflect that Fund's policy of
investing in both equity and fixed income securities. The Funds may from time to
time advertise a comparison of their performance against relevant indices.
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MORE INFORMATION ABOUT THE TRUST AND THE COMPANY
The Trust is an open-end management investment company which was organized on
December 6, 1995 as a business trust under the laws of the Commonwealth of
Massachusetts. The Trust offers shares of beneficial interest, $.001 par value,
for sale to the public. Currently, the Trust has 12 portfolios in operation. The
Board has authorized each Fund of the Trust to issue two classes of shares,
Class A Shares and Institutional Shares.
The Company, which was incorporated in Maryland on September 16, 1987, is an
open-end management investment company. The authorized capital stock of the
Company consists of 10,000,000,000 shares having a par value of $.001 per share.
Currently, the Company has 7 portfolios in operation, including two portfolios
not offered in this Prospectus: Harris Insight Hemisphere Free Trade Fund and
Harris Insight Convertible Fund. The Company's Board has authorized the Money
Market Funds to issue three classes of shares, Class A, Class B and
Institutional Shares. Class B Shares currently are not offered. The Company's
Board has authorized the other Funds of the Company to issue two classes of
shares, Class A and Institutional Shares, except with respect to Harris Insight
Convertible Fund, which offers a single class.
Each Fund is a diversified mutual fund. Under the Investment Company Act of
1940, as amended (the "1940 Act"), a diversified mutual fund must manage at
least 75% of its total assets so that no more than 5% of those assets are
invested in any one company at the time of investment.
Class A Shares of the Funds, which are offered primarily to retail investors,
are sold with front-end sales charge (except with respect to the Money Market
Funds). In the future, the Board of Trustees of the Trust and the Board of
Directors of the Company may authorize the issuance of shares of additional
investment portfolios and additional classes of shares of any portfolio.
Different classes of shares of a single portfolio may bear different sales
charges and other expenses (including distribution fees) which may affect their
relative performance. Information regarding other classes of shares may be
obtained by calling the Funds at please call (800) 982-8782 or from any
institution that makes available shares of the Funds. All shares of the Trust
and all shares of the Company have equal voting rights and will be voted in the
aggregate, and not by class, except where voting by class is required by law or
where the matter involved affects only one class. A more detailed statement of
the voting rights of shareholders is contained in the SAI. All shares of the
Trust and all shares of the Company, when issued, will be fully paid and
non-assessable.
[CONTROLLING SHAREHOLDERS ... ] [Harris Trust has indicated that it holds its
shares on behalf of various client accounts and not as beneficial owner.] From
time to time, certain shareholders may own a large percentage of the shares of a
Fund. Accordingly, those shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote.
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The Trust and the Company may dispense with annual meetings of shareholders in
any year in which Trustees and Directors are not required to be elected by
shareholders. It is anticipated generally that shareholder meetings will be held
only when specifically required by federal or state law. Shareholders have
available certain procedures for the removal of Trustees and Directors.
There is a possibility that the Trust might become liable for any misstatement,
inaccuracy or incomplete disclosure in this Prospectus concerning the Company.
Likewise, there is a possibility that the Company might become liable for any
misstatement, inaccuracy or incomplete disclosure in this Prospectus concerning
the Trust.
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APPENDIX A: PERMITTED INVESTMENTS
ASSET-BACKED SECURITIES. The Equity Funds, the Short/Intermediate Bond Fund, the
Bond Fund, the Government Bond Fund, the Intermediate Tax-Exempt Bond Fund, the
Tax-Exempt Bond Fund and the Money Market Fund may purchase asset-backed
securities, which represent direct or indirect participations in, or are secured
by and payable from, assets other than mortgage-backed assets such as motor
vehicle installment sales contracts, installment loan contracts, leases of
various types of real and personal property and receivables from revolving
credit (credit card) agreements. In accordance with guidelines established by
the Boards of Trustees and Directors, asset-backed securities may be considered
illiquid securities and, therefore, may be subject to a Fund's 15% (10% with
respect to the Equity Fund, the Short/Intermediate Bond Fund and the Money
Market Funds) limitation on such investments. Asset-backed securities, including
adjustable rate asset-backed securities, have yield characteristics similar to
those of mortgage-backed securities and, accordingly, are subject to many of the
same risks, including prepayment risk.
Assets are securitized through the use of trusts and special purpose
corporations that issue securities that are often backed by a pool of assets
representing the obligations of a number of different parties. Payments of
principal and interest may be guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution.
Asset-backed securities do not always have the benefit of a security interest in
collateral comparable to the security interests associated with mortgage-backed
securities. As a result, the risk that recovery on repossessed collateral might
be unavailable or inadequate to support payments on asset-backed securities is
greater for asset-backed securities than for mortgage-backed securities. In
addition, because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of an interest rate or economic cycle has not been
tested.
BANK OBLIGATIONS. A Fund may invest in obligations of bank obligations,
including negotiable certificates of deposit, bankers' acceptances and time
deposits of U.S. banks (including savings banks and savings associations),
foreign branches of U.S. banks, foreign banks and their non-U.S. branches
(Eurodollars), U.S. branches and agencies of foreign banks (Yankee dollars), and
wholly-owned banking-related subsidiaries of foreign banks.
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers' acceptances are negotiable obligations of a bank to pay a draft which
has been drawn by a customer and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution that
earn a specified interest rate over a given period. Certificates of deposit and
fixed time deposits, which are payable at the stated maturity date and bear a
fixed rate of interest, generally may be withdrawn on demand but may be subject
to early withdrawal penalties which could reduce the Fund's yield. Deposits
subject to early withdrawal penalties or that mature in more than 7 days are
treated as illiquid securities if there is no readily available market for the
securities. A Fund's investments in the obligations of foreign banks and their
branches, agencies or subsidiaries may be obligations of the parent, of the
issuing branch, agency or subsidiary, or both.
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The profitability of the banking industry is largely dependent upon the
availability and cost of funds to finance lending operations and the quality of
underlying bank assets. In addition, domestic and foreign banks are subject to
extensive but different government regulation which may limit the amount and
types of their loans and the interest rates that may be charged. Obligations of
foreign banks involve somewhat different investment risks from those associated
with obligations of U.S. banks. See "Foreign Securities."
COMMON AND PREFERRED STOCK. The Equity Funds and the Convertible Securities Fund
may invest in common and preferred stock. Common stockholders are the owners of
the company issuing the stock and, accordingly, usually have the right to vote
on various corporate governance matters such as mergers. They are not creditors
of the company, but rather, upon liquidation of the company, are entitled to
their pro rata share of the company's assets after creditors (including fixed
income security holders) and, if applicable, preferred stockholders are paid.
Preferred stock is a class of stock having a preference over common stock as to
dividends or upon liquidation. A preferred stockholder is a shareholder in the
company and not a creditor of the company as is a holder of the company's fixed
income securities. Dividends paid to common and preferred stockholders are
distributions of the earnings or other surplus of the company and not interest
payments, which are expenses of the company. Equity securities owned by a Fund
may be traded in the over-the-counter market or on a securities exchange and may
not be traded every day or in the volume typical of securities traded on a major
U.S. national securities exchange. As a result, disposition by a Fund of a
portfolio security to meet redemptions by shareholders or otherwise may require
the Fund to sell the security at less than the reported value of the security,
to sell during periods when disposition is not desirable, or to make many small
sales over a lengthy period of time. The market value of all securities,
including equity securities, is based upon the market's perception of value and
not necessarily the book value of an issuer or other objective measure of a
company's worth.
CONVERTIBLE SECURITIES. The Equity Funds, the Convertible Securities Fund and
the Bond Fund may invest in convertible preferred stock and bonds, which are
fixed income securities that are convertible into common stock at a specified
price or conversion ratio. Because these securities have the characteristics of
both fixed income and equity securities, they sometimes are called "hybrid"
securities. In general, the value of a convertible security is the higher of its
investment value (its value as a fixed income security) and its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the value of a convertible security
generally increases when interest rates decline and generally decreases when
interest rates rise. The value of convertible securities, however, is also
influenced by the value of the underlying common stock. Thus, convertible
securities ordinarily will provide opportunities for producing both current
income and longer-term capital appreciation. Convertible securities rank senior
to common stock in a corporation's capital structure but are usually subordinate
to any nonconvertible fixed income securities.
EXCHANGE RATE-RELATED SECURITIES. The International Fund may invest in
securities for which the principal repayment at maturity, while paid in U.S.
dollars, is determined by reference to the exchange rate between the U.S. dollar
and the currency of one or more foreign countries ("Exchange Rate-Related
Securities"). The interest payable on these securities generally is paid
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at rates higher than most other similarly rated securities in recognition of the
foreign currency risk component of Exchange Rate-Related Securities.
Investments in Exchange Rate-Related Securities entail certain risks. There is
the possibility of significant changes in rates of exchange between the U.S.
dollar and any foreign currency to which an Exchange Rate-Related Security is
linked. In addition, there is no assurance that sufficient trading interest to
create a liquid secondary market will exist for a particular Exchange
Rate-Related Security due to conditions in the debt and foreign currency
markets.
FLOATING AND VARIABLE RATE SECURITIES. Each Fund may purchase securities having
a floating or variable rate of interest. These securities pay interest at rates
that are adjusted periodically according to a specified formula, usually with
reference to a some interest rate index or market interest rate. These
adjustments tend to decrease the security's price sensitivity to changes in
interest rates. Certain of these obligations may carry a demand feature that
would permit the holder to tender them back to the issuer at par value prior to
maturity. Each Fund will limit its purchases of floating and variable rate
obligations to those of the same quality as it otherwise is allowed to purchase.
Similar to fixed rate debt instruments, variable and floating rate instruments
are subject to changes in value based on changes in market interest rates or
changes in the issuer's creditworthiness.
Certain variable rate securities pay interest at a rate that varies inversely to
prevailing short-term interest rates (sometimes referred to as inverse
floaters). For example, upon reset the interest rate payable on a security may
go down when the underlying index has risen. During periods when short-term
interest rates are relatively low as compared to long-term interest rates, a
Fund may attempt to enhance its yield by purchasing inverse floaters. Certain
inverse floaters may have an interest rate reset mechanism that multiplies the
effects of changes in the underlying index. While this form of leverage may
increase the security's yield, it may also increase the volatility of the
security's market value.
A floating or variable rate instrument may be subject to the Fund's percentage
limitation on illiquid investments if there is no reliable trading market for
the instrument or if the Fund may not demand payment of the principal amount
within seven days.
FOREIGN SECURITIES. The International Fund may invest in dollar-denominated and
non-dollar-denominated foreign equity and debt securities. Each of the other
Equity Funds may invest up to 10% of its total assets in dollar-denominated
foreign equity and debt securities. Each of the Equity Funds also may invest in
American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs").
ADRs are certificates issued by a U.S. depository (usually a bank) and represent
a specified quantity of shares of an underlying non-U.S. stock on deposit with a
custodian bank as collateral. EDRs are typically issued by foreign banks and
trust companies (although they also may be issued by U.S. banks or trust
companies) and evidence ownership of underlying securities issued by either a
foreign or a U.S. corporation.
The Short/Intermediate Bond Fund and the Bond Fund (each with respect to 20% of
its total assets) as well as the Money Market Fund may invest in non-convertible
(and convertible in the
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case of the Bond Fund) debt of foreign banks, foreign corporations and foreign
governments which obligations are denominated in and pay interest in U.S.
dollars. The Convertible Securities Fund may invest in dollar-denominated
Eurodollar securities convertible into the common stock of domestic
corporations. The Government Fund may invest in dollar-denominated Eurodollar
securities that are guaranteed by the U.S. Government or its agencies or
instrumentalities. Investments in foreign securities involve certain
considerations that are not typically associated with investing in domestic
securities. For example, investments in foreign securities typically involve
higher transaction costs than investments in U.S. securities. Foreign
investments may have risks associated with currency exchange rates, political
instability, less complete financial information about the issuers and less
market liquidity than domestic securities. Future political and economic
developments, possible imposition of withholding taxes on income, seizure or
nationalization of foreign holdings, establishment of exchange controls or the
adoption of other governmental restrictions might adversely affect the payment
of principal and interest on foreign obligations. In addition, foreign banks and
foreign branches of domestic banks may be subject to less stringent reserve
requirements and to different accounting, auditing and recordkeeping
requirements than domestic banks.
FORWARD CONTRACTS. Each of the Equity Funds may enter into forward foreign
currency exchange contracts for the purchase and sale of a fixed quantity of a
foreign currency at a future date ("Forward Contracts"). A Fund may enter into
Forward Contracts for hedging purposes as well as non-hedging purposes. By
entering into transactions in Forward Contracts, however, a Fund may be required
to forego the benefits of advantageous changes in exchange rates and, in the
case of Forward Contracts entered into for non-hedging purposes, the Fund may
sustain losses which will reduce its gross income. A Fund also may enter into a
Forward Contract on one currency in order to hedge against risk of loss arising
from fluctuations in the value of a second currency (referred to as a "cross
hedge") if, in the judgment of the Portfolio Management Agent, a reasonable
degree of correlation can be expected between movements in the values of the two
currencies. Forward Contracts are traded over-the-counter, and not on organized
commodities or securities exchanges. As a result, such contracts operate in a
manner distinct from exchange-traded instruments, and their use involves certain
risks beyond those associated with transactions in futures contracts or options
traded on exchanges. Each Fund has established procedures consistent with
statements of the SEC and its staff regarding the use of Forward Contracts by
registered investment companies, which require use of segregated assets or
"cover" in connection with the purchase and sale of such contracts.
GUARANTEED INVESTMENT CONTRACTS. The Short/Intermediate Bond Fund, the Bond Fund
and the Money Market Fund may invest in guaranteed investment contracts ("GICs")
issued by U.S. and Canadian insurance companies. GICs require a Fund to make
cash contributions to a deposit fund of an insurance company's general account.
The insurance company then makes payments to the Fund based on negotiated,
floating or fixed interest rates. A GIC is a general obligation of the issuing
insurance company and not a separate account. The purchase price paid for a GIC
becomes part of the general assets of the insurance company, and the contract is
paid from the insurance company's general assets. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
-46-
ILLIQUID SECURITIES. Each Fund may invest up to 15% (10% with respect to the
Equity Fund, the Short/Intermediate Bond Fund and the Money Market Funds) of its
net assets in securities that are considered illiquid. Under the supervision of
the Trust's Board of Trustees (or the Company's Board of Directors), the
Portfolio Management Agent or Adviser determines and monitors the liquidity of
portfolio securities.
Repurchase agreements and time deposits that do not provide for payment to the
Fund within seven days after notice or which have a term greater than seven days
are deemed illiquid securities for this purpose unless such securities are
variable amount master demand notes with maturities of nine months or less or
unless the Portfolio Management Agent or Adviser has determined that an adequate
trading market exists for such securities or that market quotations are readily
available.
Each Fund also may purchase Rule 144A securities sold to institutional investors
without registration under the Securities Act of 1933 and commercial paper
issued in reliance upon the exemption in Section 4(2) of the Securities Act of
1933. These securities may be determined to be liquid in accordance with
guidelines established by the Trust's Board of Trustees (or the Company's Board
of Directors). The Board of Trustees or Directors will monitor the Portfolio
Management Agent's or Adviser's implementation of these guidelines on a periodic
basis.
INDEX FUTURES CONTRACTS; OPTIONS ON INDICES; OPTIONS ON SECURITIES. The Equity
Funds, the Convertible Securities Fund, the Bond Fund, the Tax-Exempt Bond Fund,
the Intermediate Tax-Exempt Bond Fund and the Intermediate Government Bond Fund
may attempt to reduce the risk of investment in securities by hedging a portion
of its portfolio through the use of futures contracts on indices and options on
such indices traded on national securities exchanges. These Funds also may
attempt to reduce the risk of investment in debt securities by hedging a portion
of its portfolio through the use of interest rate futures and options on such
futures contracts. Except for the Index Fund, a Fund will use futures contracts
and options on such futures contracts only as a hedge against anticipated
changes in the values of securities held in its portfolio or in the values of
securities that it intends to purchase. The Index Fund also may use S&P 500
Index futures contracts to simulate full investment in the underlying index
while retaining a cash balance for fund management purposes, to facilitate
trading or to reduce transaction costs.
Each Fund may invest in covered put and covered call options and may write
covered put and covered call options on securities in which it may invest
directly and that are traded on registered domestic securities exchanges or
over-the-counter.
The use of index and interest rate futures contracts and options may expose a
Fund to additional risks and transaction costs. Risks inherent in the use of
such instruments include: (1) the risk that interest rates, securities prices or
currency markets will not move in the direction that the Portfolio Management
Agent anticipates; (2) the existence of an imperfect correlation between the
price of such instruments and movements in the prices of the securities,
interest rates or currencies being hedged; (3) the fact that skills needed to
use these strategies are different than those needed to select portfolio
securities; (4) the possible inability to close out certain hedged positions may
result in adverse tax consequences; (5) the possible absence of a liquid
secondary market for any particular instrument and possible exchange-imposed
price fluctuation limits,
-47-
either of which may make it difficult or impossible to close out a position when
desired; (6) the leverage risk, that is, the risk that adverse price movements
in an instrument can result in a loss substantially greater than a Fund's
initial investment in that instrument (in some cases, the potential loss is
unlimited); and (7) particularly in the case of privately-negotiated
instruments, the risk that the counterparty will fail to perform its
obligations, which could leave a Fund worse off than if it had not entered into
the position.
When a Fund invests in index and interest rate futures contracts and options, it
may be required to segregate cash and other appropriate assets or certain
portfolio securities to "cover" the Fund's position. Assets segregated or set
aside generally may not be disposed of so long as a Fund maintains the positions
requiring segregation or cover. Segregating assets could diminish a Fund's
return due to the opportunity losses of foregoing other potential investments
with the segregated assets. See "Investment Strategies" in the SAI.
INVESTMENT COMPANY SECURITIES. In connection with the management of its daily
cash positions, each Fund may invest in securities issued by investment
companies that invest in short-term, debt securities (which may include
municipal obligations that are exempt from federal income taxes) and which seek
to maintain a $1.00 net asset value per share. Each Fund, other than the Equity
Fund and the Short/Intermediate Bond Fund, also may invest in securities issued
by investment companies that invest in securities in which the Fund could invest
directly.
Securities of investment companies may be acquired by any of the Funds within
the limits prescribed by the 1940 Act. These limit each such Fund so that: (i)
not more than 5% of its total assets will be invested in the securities of any
one investment company; (ii) not more than 10% of its total assets will be
invested in the aggregate in securities of investment companies as a group; and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Fund or by the Trust or the Company as a whole. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
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 or Adviser, are of
investment quality comparable to other permitted investments of a Fund, may be
used for letter of credit-backed investments.
LOANS OF PORTFOLIO SECURITIES. Each Fund (except the Money Market Funds) may
lend to brokers, dealers and financial institutions securities from its
portfolio representing up to one-third of the Fund's net assets. However, such
loans may be made only if cash or cash equivalent collateral, including letters
of credit, marked-to-market daily and equal to at least 100% of the current
market value of the securities loaned (including accrued interest and dividends
thereon) plus the interest payable to the Fund with respect to the loan is
maintained by the borrower in a segregated account. In determining whether to
lend a security to a particular broker, dealer or
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financial institution, the Portfolio Management Agent will consider all relevant
facts and circumstances, including the creditworthiness of the broker, dealer or
financial institution. No Fund will enter into any portfolio security lending
arrangement having a duration longer than one year. Any securities that a Fund
may receive as collateral will not become part of the Fund's portfolio at the
time of the loan and, in the event of a default by the borrower, the Fund will,
if permitted by law, dispose of such collateral except for such part thereof
that is a security in which the Fund is permitted to invest. During the time
securities are on loan, the borrower will pay the Fund any accrued income on
those securities, and the Fund may invest the cash collateral and earn
additional income or receive an agreed upon fee from the borrower. Loans of
securities by a Fund will be subject to termination at the Fund's or the
borrower's option. Each Fund may pay reasonable administrative and custodial
fees in connection with a securities loan and may pay a negotiated fee to the
borrower or the placing broker. Borrowers and placing brokers may not be
affiliated, directly or indirectly, with the Trust, the Company, the Adviser,
the Portfolio Management Agent or the Distributor.
MORTGAGE-RELATED SECURITIES. The Equity Funds, the Bond Fund, the
Short/Intermediate Bond Fund and the Intermediate Government Bond Fund may
invest in mortgage-backed securities, including collateralized mortgage
obligations ("CMOs") and Government Stripped Mortgage-Backed Securities. CMOs
are types of bonds secured by an underlying pool of mortgages or mortgage
pass-through certificates that are structured to direct payments on underlying
collateral to different series or classes of obligations.
Government Stripped Mortgage-Backed Securities are mortgage-backed securities
issued or guaranteed by Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA"), or Federal Home Loan Mortgage
Corporation ("FHLMC"). These securities represent beneficial ownership interests
in either periodic principal distributions ("principal-only") or interest
distributions ("interest-only") on mortgage-backed certificates issued by GNMA,
FNMA or FHLMC, as the case may be. The certificates underlying the Government
Stripped Mortgage-Backed Securities represent all or part of the beneficial
interest in pools of mortgage loans.
MUNICIPAL LEASES. The Tax-Exempt Bond Fund and the Intermediate Tax-Exempt Bond
Fund may each invest in municipal leases, which are generally participations in
intermediate- and short-term debt obligations issued by municipalities and
consisting of leases or installment purchase contracts for property or
equipment. Although lease obligations do not constitute general obligations of
the municipality for which the municipality's taxing power is pledged, a lease
obligation is ordinarily backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. Although "non-appropriation" lease obligations are secured by the
leased property, disposition of the property in the event of foreclosure may
prove difficult. Municipal lease obligations may be considered illiquid
securities and may be subject to each Fund's 15% limitation on such investments.
See "Investment Strategies - Municipal Leases" in the SAI.
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MUNICIPAL OBLIGATIONS. The Balanced Fund, the Tax-Exempt Bond Fund, the Bond
Fund, the Intermediate Tax-Exempt Bond Fund, the Short/Intermediate Bond Fund
and the Tax-Exempt Money Market Fund may invest in municipal obligations.
Municipal bonds generally have a maturity at the time of issuance of up to 30
years. Municipal notes generally have maturities at the time of issuance of
three years or less. These notes are generally issued in anticipation of the
receipt of tax funds, the proceeds of bond placements or other revenues. The
ability of an issuer to make payments is therefore dependent on these tax
receipts, proceeds from bond sales or other revenues, as the case may be.
Municipal commercial paper is a debt obligation with an effective maturity or
put date of 270 days or less that is issued to finance seasonal working capital
needs or as short-term financing in anticipation of longer-term debt.
The two principal classifications of municipal obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or from other specific
revenue sources such as the user of the facility being financed. Revenue
securities include private activity bonds (also known as industrial revenue
bonds), which may be purchased only by the Tax-Exempt Bond Fund and the
Intermediate Tax-Exempt Bond Fund and which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
Certain other of the municipal obligations in which the Funds may invest are:
TANs. The Tax-Exempt Bond Fund and the Intermediate Tax-Exempt Bond
Fund may invest in tax anticipation notes ("TANs"). The possible inability or
failure of a municipal issuer to raise taxes as a result of such events as a
decline in its tax base or a rise in delinquencies could adversely affect the
issuer's ability to meet its obligations on outstanding TANs. Furthermore, some
municipal issuers include various tax proceeds in a general fund that is used to
meet obligations other than those of the outstanding TANs. Use of such a general
fund to meet various obligations could affect the likelihood of making payments
on TANs.
BANs. The Tax-Exempt Bond Fund and the Intermediate Tax-Exempt Bond
Fund may invest in bond anticipation notes ("BANs"). The ability of a municipal
issuer to meet its obligations on its BANs is primarily dependent on the
issuer's adequate access to the longer term municipal bond market and the
likelihood that the proceeds of such bond sales will be used to pay the
principal of, and interest on, BANs.
RANs. The Tax-Exempt Bond Fund and the Intermediate Tax-Exempt Bond
Fund may invest in revenue anticipation notes ("RANs"). A decline in the receipt
of certain revenues, such as anticipated revenues from another level of
government, could adversely affect an issuer's ability to meet its obligations
on outstanding RANs. In addition, the possibility that the revenues would, when
received, be used to meet other obligations could adversely affect the ability
of the issuer to pay the principal of, and interest on, RANs.
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See "Investment Strategies" in the SAI.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. Each Fund may purchase
portfolio securities subject to the seller's agreement to repurchase them at a
mutually agreed upon time and price, which includes an amount representing
interest on the purchase price. A Fund may enter into repurchase agreements only
with respect to obligations that could otherwise be purchased by the Fund. The
seller will be required to maintain in a segregated account for the Fund cash or
cash equivalent collateral equal to at least 100% of the repurchase price
(including accrued interest). Default or bankruptcy of the seller would expose a
Fund to possible loss because of adverse market action, delays in connection
with the disposition of the underlying obligations or expenses of enforcing its
rights.
The Equity Funds and the Fixed Income Funds may borrow funds for temporary
purposes by selling portfolio securities to financial institutions such as banks
and broker/dealers and agreeing to repurchase them at a mutually specified date
and price ("reverse repurchase agreements"). Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the repurchase price. A Fund would pay interest on amounts
obtained pursuant to a reverse repurchase agreement.
A Fund may not enter into a repurchase agreement or reverse repurchase
agreements if, as a result, more than 15% (10% with respect to the Equity Fund,
the Short/Intermediate Bond Fund and the Money Market Funds) of the Fund's net
assets would be invested in repurchase agreements or reverse repurchase
agreements with a maturity of more than seven days and in other illiquid
securities. The Funds will enter into repurchase agreements and reverse
repurchase agreements only with registered broker/dealers and commercial banks
that meet guidelines established by the Trust's Board of Trustees (or the
Company's Board of Directors).
SECURITIES WITH PUTS. In order to maintain liquidity, the Equity Funds, the
Tax-Exempt Bond Fund, the Bond Fund, the Intermediate Tax-Exempt Bond Fund, the
Short/Intermediate Bond Fund, the Intermediate Government Bond Fund, and the
Money Market Funds may enter into puts with respect to portfolio securities with
banks or broker/dealers that, in the opinion of the Portfolio Management Agent
or Adviser present minimal credit risks. The ability of these Funds to exercise
a put will depend on the ability of the bank or broker/dealer to pay for the
underlying securities at the time the put is exercised. In the event that a bank
or broker/dealer defaults on its obligation to repurchase an underlying
security, the Fund might be unable to recover all or a portion of any loss
sustained by having to sell the security elsewhere.
STAND-BY COMMITMENTS. The Balanced Fund, the Tax-Exempt Bond Fund and the
Intermediate Tax-Exempt Bond Fund may acquire "stand-by commitments" with
respect to obligations held by it. Under a stand-by commitment, a dealer agrees
to purchase, at the Fund's option, specified obligations at a specified price.
The acquisition of a stand-by commitment may increase the cost, and thereby
reduce the yield, of the obligations to which the commitment relates. The
Balanced Fund will acquire stand-by commitments solely to facilitate portfolio
liquidity and does not
-51-
intend to exercise its rights thereunder for trading purposes. Stand-by
commitments acquired by a Fund will be valued at zero in determining the Fund's
net asset value.
U.S. GOVERNMENT OBLIGATIONS. Each of the Funds may invest in U.S. Government
Obligations, which consist of bills, notes and bonds issued by the U.S.
Treasury. They are direct obligations of the U.S. Government and differ
primarily in the length of their maturities.
U.S. GOVERNMENT SECURITIES. Each of the Funds may invest in U.S. Government
Securities. As used in this Prospectus, the term U.S. Government Securities
means obligations issued or guaranteed by the U.S. Government, its agencies,
instrumentalities or sponsored enterprises. The U.S. Government Securities in
which a Fund may invest include U.S. Treasury securities and obligations issued
or guaranteed by U.S. Government agencies and instrumentalities and backed by
the full faith and credit of the U.S. Government, such as those guaranteed by
the Small Business Administration or issued by the Government National Mortgage
Association. In addition, the U.S. Government Securities in which the Funds may
invest include securities supported primarily or solely by the creditworthiness
of the issuer, such as securities of the Federal National Mortgage Association,
the Federal Home Loan Mortgage Corporation and the Tennessee Valley Authority.
There is no guarantee that the U.S. Government will support securities not
backed by its full faith and credit. Accordingly, although these securities have
historically involved little risk of loss of principal if held to maturity, they
may involve more risk than securities backed by the U.S. Government's full faith
and credit.
WARRANTS. The Equity Funds and the Convertible Securities Fund may invest in
warrants, which are options to purchase an equity security at a specified price
(usually representing a premium over the applicable market value of the
underlying equity security at the time of the warrant's issuance) and usually
during a specified period of time. Unlike convertible securities and preferred
stocks, warrants do not pay a fixed dividend. Investments in warrants involve
certain risks, including the possible lack of a liquid market for the resale of
the warrants, potential price fluctuations as a result of speculation or other
factors and failure of the price of the underlying security to reach a level at
which the warrant can be prudently exercised (in which case the warrant may
expire without being exercised, resulting in the loss of the Fund's entire
investment therein).
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES. Each Fund may
purchase securities (including securities issued pursuant to an initial public
offering) on a "when-issued," "delayed delivery" or "forward commitment" basis,
in which case delivery and payment normally take place within 45 days after the
date of the commitment to purchase. A Fund will make a commitment to purchase
securities on a when-issued basis only with the intention of actually acquiring
the securities, but may sell them before the settlement date, if deemed
advisable. The Funds do not earn income on such securities until settlement and
bear the risk of market value fluctuations in between the purchase and
settlement dates. New issues of stocks and bonds, private placements and
Government Securities may be sold in this manner.
ZERO COUPON SECURITIES. Each of the Funds other than the Convertible Securities
Fund and the Money Market Funds may invest in separately traded principal and
interest components of
-52-
securities issued or guaranteed by the U.S. Treasury. These components are
traded independently under the U.S. Treasury's Separate Trading of Registered
Interest and Principal of Securities ("STRIPS") program or as Coupons Under Book
Entry Safekeeping ("CUBES").
The International Fund and the Money Market Funds may invest in other types of
related zero coupon securities commonly known as "stripped" securities. For
instance, a number of banks and brokerage firms separate the principal and
interest portions of U.S. Treasury securities and sell them separately in the
form of receipts or certificates representing undivided interests in these
instruments. These instruments are generally held by a bank in a custodial or
trust account on behalf of the owners of the securities and are known by various
names, including Treasury Receipts ("TRs"), Treasury Investment Growth Receipts
("TIGRs") and Certificates of Accrual on Treasury Securities ("CATS"). Stripped
securities also may be issued by corporations and municipalities. Stripped
securities will normally be considered illiquid investments and will be acquired
subject to the limitations on illiquid investments.
Zero coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity, but a Fund holding a zero coupon security must
include a portion of the original issue discount of the security as income.
Because of this, zero coupon securities may be subject to greater fluctuation of
market value than the other securities in which the Funds may invest. The Funds
distribute all of their net investment income, and may have to sell portfolio
securities to distribute imputed income, which may occur at a time when the
Portfolio Management Agent or Adviser would not have chosen to sell such
securities and which may result in a taxable gain or loss.
-53-
INVESTMENT ADVISER, ADMINISTRATOR,
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
PORTFOLIO MANAGEMENT AGENT
HARRIS INVESTMENT MANAGEMENT, INC.
190 South LaSalle Street
Chicago, Illinois 60603
SUB-ADMINISTRATOR AND ACCOUNTING
SERVICES AGENT, SUB-TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809
SUB-ADMINISTRATOR AND DISTRIBUTOR
Funds Distributor, Inc.
60 State Street, Suite 1300
Boston, Massachusetts 02109
CUSTODIAN
PNC Bank, N.A.
Broad & Chestnut Streets
Philadelphia, Pennsylvania 19101
INDEPENDENT ACCOUNTANTS
[ ]
LEGAL COUNSEL
Bell, Boyd & Lloyd
Three First National Plaza
Chicago, Illinois 60602-4207
-54-
HARRIS INSIGHT HEMISPHERE FREE TRADE FUND
HARRIS INSIGHT(R) FUNDS
60 State Street, Suite 1300, Boston, Massachusetts 02109
Telephone: (800) 982-8782
HT Insight Funds, Inc., doing business as Harris Insight Funds (the
"Company"), currently offers shares representing interests in seven mutual
funds. This Prospectus describes two classes of shares, Class A Shares and
Institutional Shares, of the Company's Harris Insight Hemisphere Free Trade Fund
(the "Fund"), a global fund investing in equity securities, fixed income
securities and/or cash equivalents of issuers in Canada, Mexico and the United
States. The Fund's investment objective is to provide capital appreciation.
Current income is a secondary objective.
Harris Trust and Savings Bank ("Harris Trust" or the "Investment Adviser")
is the Fund's investment adviser and Harris Investment Management, Inc. ("HIM"
or the "Portfolio Management Agent") acts as the Fund's portfolio management
agent. Jones Heward Investment Counsel Inc., a subsidiary of Bank of Montreal,
and Bancomer Asesora de Fondos, S.A. de C.V., a subsidiary of Casa de Bolsa
Bancomer, S.A. de C.V. ("Investment Sub-Advisers") act as investment
sub-advisers to the Fund. Shares of the Fund are offered by Funds Distributor,
Inc., the distributor of the Company's Shares.
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 May 1, 1997, containing
more detailed information about the Fund has been filed with the Securities and
Exchange Commission (the "Commission") and (together with any supplements
thereto) is incorporated by reference into this Prospectus. The Statement of
Additional Information and the most recent financial statements may be obtained
without charge by writing or calling the Company at the address and telephone
number printed above. The Commission maintains a Web site (http://www.sec.gov)
that contains the Statement of Additional Information and other information
regarding the Fund. Separate Prospectuses for the other investment portfolios
offered by the Company may be obtained without charge by writing or calling the
Company at the address and telephone number printed above.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY HARRIS TRUST AND 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 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.
May 1, 1997
1
TABLE OF CONTENTS
PAGE
----
Expense Table ..........................................................
Highlights .............................................................
Financial Highlights ...................................................
Investment Objectives and Policies .....................................
Investment Strategies ..................................................
Investment Limitations .................................................
Management .............................................................
Determination of Net Asset Value .......................................
Purchase of Shares .....................................................
Redemption of Shares ...................................................
Service Plan ...........................................................
Dividends and Distributions ............................................
Taxes ..................................................................
Account Services .......................................................
Organization and Capital Stock .........................................
Reports to Shareholders ................................................
Calculation of Yield and Total Return ..................................
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 JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
2
EXPENSE TABLE
Expenses and fees payable by Class A and Institutional shareholders are
summarized in this table and presented as a percentage of average net assets.
The following table illustrates information concerning shareholder
transaction expenses and annual Fund operating expenses for Class A and
Institutional Shares of the Fund. Shareholder transaction expenses are charges
you pay when you buy, sell or hold shares of a Fund. Annual operating expenses
are factored into the Fund's share price and are not charged directly to
shareholder accounts.
<TABLE>
<CAPTION>
CLASS A INSTITUTIONAL
SHARES SHARES
------ ------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Load Imposed on Purchases 4.50% None
ANNUAL FUND OPERATING EXPENSES*:
(as a percentage of average net assets)
Advisory Fees (after fee waivers)+ .% .%
Rule 12b-1 Fees .% None
Other Expenses (after expense reimbursements)+ .% .%
---- ----
Total Fund Operating Expenses (after fee
waivers and expense reimbursements)+ % %
==== ====
</TABLE>
- ------------------------
*. Customers of a financial institution, such as Harris Trust , may also be
charged certain fees and expenses by the institution. These fees may vary
depending on the capacity in which the institution provides fiduciary and
investment services to the particular client (such as personal trust, estate
settlement, advisory and custodian services).
+Without any fee waivers and expense reimbursements, advisory fees, other
expenses and total operating expenses for the fiscal year ended December 31,
1996 for the Fund would have been ___%, ___% and ___%, respectively. Expenses
are based on amounts incurred during the most recent fiscal year.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) a
hypothetical 5% gross annual return and (2) redemption at the end of each time
period:
CLASS A INSTITUTIONAL
SHARES SHARES
------ ------
1 year $ $
3 years $ $
5 years $ $
10 years $ $
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."
3
HIGHLIGHTS
At least 65% of the Fund's assets will be invested in companies that the
Portfolio Management Agent and/or Sub-Advisers believe will benefit from
increased trade opportunities among Canada, Mexico and the United States.
HARRIS INSIGHT HEMISPHERE FREE TRADE FUND seeks to provide capital
appreciation and, secondarily, current income by investing, under normal
circumstances, at least 20% of its assets in equity securities, fixed income
securities and/or cash equivalents of issuers in each of Canada and Mexico and
at least 30% of its assets in such securities of issuers in the United States.
Under normal circumstances, the Fund will limit its investment in securities of
issuers in each of Canada, Mexico and the United States to no more than 40%, 40%
and 60%, of its assets, respectively. Under normal circumstances, the Fund will
invest at least 65% of its assets in companies which the Portfolio Management
Agent and/or Investment Sub-Advisers believe will benefit from increased trade
opportunities among Canada, Mexico and the United States.
WHO MANAGES THE FUND'S INVESTMENTS?
Harris Investment Management, Inc. determines the portions of the portfolio
to be allocated among issuers in Canada, Mexico and the
United States.
Harris Trust and Savings Bank is the investment adviser for the Fund.
Harris Trust and its affiliates have provided investment management services to
clients for over 100 years. Harris Trust provides investment services for
pension, profit-sharing and personal portfolios. As of December 31, 1996, assets
under management totaled approximately $__ billion.
Harris Investment Management, Inc. provides daily portfolio management
services to the Fund. HIM determines the portions of the portfolio to be
allocated among issuers in Canada, Mexico and the United States. HIM also
selects and manages the U.S. securities in which the Fund invests. HIM and its
predecessors have managed client assets for over 80 years. As of December 31,
1996, HIM had a staff of __, including __ professionals, providing investment
expertise to the management of Harris Insight Funds and for pension,
profit-sharing and institutional portfolios. At that date, assets under
management were approximately $__ billion. Harris Trust and HIM are subsidiaries
of Harris Bankcorp, Inc., which in turn is a subsidiary of Bank of Montreal. See
page __.
Jones Heward Investment Counsel Inc. ("JHICI") and Bancomer Asesora de
Fondos, S.A. de C.V. ("Bancomer") serve as Investment Sub-Advisers to the Fund.
JHICI selects and manages the Canadian securities in which the Fund invests and
Bancomer selects and manages the Mexican securities in which the Fund invests.
JHICI is a subsidiary of Bank of Montreal. Bancomer is a subsidiary of Casa de
Bolsa Bancomer, S.A. de C.V. See page __.
WHAT ADVANTAGES DOES THE FUND OFFER?
The Fund is designed for individual and institutional investors. An
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 and
relief from bookkeeping, safekeeping of securities and other administrative
details.
WHEN ARE DIVIDENDS PAID?
Dividends from the Fund are paid annually. Any capital gains distributions
will be paid at least annually. See page __.
4
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 Sub-Transfer Agent, or through any Service Agent. See page __.
WHAT RISKS ARE ASSOCIATED WITH THE FUND?
The Fund's performance and price per share changes daily based on many factors,
including economic, market and exchange rate factors.
The Fund's performance and price per share changes daily based on many
factors, including the quality of the Fund's investments, U.S. and international
economic conditions, general market conditions and international exchange rates.
The Fund seeks to achieve its investment objective through investments in
securities of foreign issuers that involve risks not typically associated with
U.S. issuers. There is no assurance that the Fund will achieve its investment
objective. See "Investment Strategies."
FINANCIAL HIGHLIGHTS
The following financial highlights represent selected data for a single
outstanding Share of the Fund for the period shown. This information has been
audited by _________, independent accountants. The Fund's financial statements
for the year ended December 31, 1996 and independent accountants' report thereon
are included in the Fund's Annual Report and are incorporated by reference into
(are legally a part of) the Fund's Statement of Additional Information. Further
information about the Fund's performance is contained in the Annual Report,
which may be obtained from the Harris Insight Funds without charge.
[Financial Highlights Table]
INVESTMENT OBJECTIVES AND POLICIES
This section describes some of the securities that the Fund may purchase and
certain investment techniques that may be used to pursue its investment
objectives.
The investment objective of the Fund is to provide investors with capital
appreciation. Current income is a secondary objective. Although the allocations
among countries will vary, under normal circumstances the Fund will invest in
equity securities, fixed income securities and/or cash equivalents and will
invest at least 20% of its assets in securities of issuers in each of Canada and
Mexico and at least 30% of its assets in securities of issuers in the United
States. Under normal circumstances, the Fund will limit its investments in
securities of issuers in each of Canada, Mexico and the United States to no more
than 40%, 40% and 60% of its assets, respectively. Under normal circumstances,
the Fund will invest at least 65% of its assets in companies which the Portfolio
Management Agent and/or Investment Sub-Advisers believe will benefit from
increased trade opportunities among Canada, Mexico and the United States.
It is anticipated that investments will be spread among equities, fixed income
securities and/or cash equivalents of issuers in Canada, Mexico and the United
States.
It is anticipated that investments will be spread among equity securities,
fixed income securities or cash equivalents of issuers in Canada and Mexico, as
well as in the United States. Investments may include securities of companies of
varying sizes, measured by assets, sales or capitalization. The Fund may invest
in equity securities of established companies listed on U.S. or foreign
securities exchanges or traded in over-the-counter markets. The selection of
portfolio securities by the Portfolio Management Agent and/or Investment
Sub-Advisers will emphasize companies which the Portfolio Management Agent
and/or Investment Sub-Advisers believe will benefit from increased trade
opportunities among Canada, Mexico and the United States. In selecting
investments for the Fund, the Investment Adviser and Investment Sub-Advisers
seek to identify sources of foreign income for companies, the types of goods and
services sold and overall trade flows among Canada, Mexico and the United
States. In selecting investments for the Fund, the Portfolio Management Agent
and Investment Sub-Advisers will not hedge country or currency risk as part of
the normal
5
investment process. The relative performance of foreign currencies is an
important factor in the Fund's performance.
The Fund will be managed as a global portfolio. The Fund seeks to provide
enhanced returns using a systematic, value-oriented approach to selecting
securities issued in the United States, Canada and Mexico. The Portfolio
Management Agent will use quantitative models to track various capital market
factors and to identify undervalued and overvalued asset classes. The Portfolio
Management Agent expects that under normal circumstances the Fund's average
distribution of investments will be as follows: cash equivalents, 0-30%; bonds,
0-50%; and equity securities, 20-100%.
The Fund may invest in U.S. and foreign debt securities, including fixed
income securities of governments, government agencies, instrumentalities or
political subdivisions; supranational agencies; corporate debt securities; bank
or bank holding company debt securities; and other debt securities, including
asset-backed securities and those securities convertible into common stock.
Similarly, the Fund may invest in short-term obligations denominated in either
U.S. or foreign currencies including, but not limited to, bank deposits,
bankers' acceptances, certificates of deposit, commercial paper, short-term
government obligations, government agency obligations, supranational agency
obligations, corporate obligations, and repurchase agreements.
The Fund will limit its fixed income investments to those determined to be of
investment grade quality by the Portfolio Management Agent and/or Investment
Sub-Advisers.
The Fund will limit its fixed income investments to securities considered
to be investment grade quality (equivalent to securities rated within the four
highest rating categories of Moody's Investors Service ("Moody's") or Standard &
Poor's ("S&P") or, if unrated, determined by the Portfolio Management Agent
and/or Investment Sub-Adviser to be of comparable quality based upon publicly
available information and inquiries made of the issuing entities). Obligations
rated in the lowest of the top four rating categories of ratings agencies in
Canada, Mexico or the United States (equivalent to "BBB" by S&P or "Baa" by
Moody's) may have certain speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than in the case of higher grade
obligations. 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 aggregate
amount of such securities exceeds permissible limits. However, the Portfolio
Management Agent or an Investment Sub-Adviser will reassess promptly whether the
security presents minimal credit risks and determine whether continuing to hold
the security is in the best interest of the Fund. The ratings of Moody's and S&P
are more fully described in the Appendix to the Statement of Additional
Information.
Under adverse market, economic, political or currency conditions in North
America or in the world generally, the Fund may assume a temporary defensive
posture and without limitation hold cash and/or U.S. securities as determined by
the Portfolio Management Agent.
Holdings of the Fund are continuously supervised and changes may be made if a
security no longer seems to meet the objectives of the Fund.
Securities owned by the Fund are kept under continuing supervision, and
changes may be made whenever a security no longer seems to meet the objectives
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. See "Investment Strategies -- Portfolio Turnover."
6
INVESTMENT STRATEGIES
The Fund may invest in Canadian equity and fixed income securities.
CANADIAN SECURITIES. The Fund may invest in Canadian securities, consisting
of the following:
CANADIAN EQUITY SECURITIES. The Fund may invest in Canadian equity
securities consisting of equity securities issued by the following: (1)
companies organized under the laws of Canada or the securities of which are
principally traded in Canada; (2) companies that derive at least 50% of their
revenues from goods or services produced or provided in Canada or from sales
made in Canada; or (3) issuers of depository shares for equity securities which
are listed on the Toronto Stock Exchange, the Montreal Exchange, the Vancouver
Stock Exchange, the Alberta Stock Exchange, the Winnipeg Stock Exchange or a
recognized Canadian over-the-counter market.
CANADIAN FIXED INCOME SECURITIES. The Fund may invest in fixed income
securities of Canadian issuers consisting of: (1) debt securities issued or
guaranteed by the Government of Canada or by the government of a province or
municipality of Canada, their agencies or instrumentalities ("Canadian
Government Securities"); (2) corporate obligations; (3) bank obligations, such
as certificates of deposit, bankers' acceptances or time deposits; and (4)
repurchase agreements.
RISKS AND SPECIAL CONSIDERATIONS RELATING TO CANADIAN SECURITIES. JHICI and
the Fund's Portfolio Management Agent believe that the Canadian dollar does not
have the same level of risk relative to the United States dollar as the
currencies of other countries outside the United States. The markets in which
Canadian dollar-denominated instruments trade, for example, are generally more
liquid than many other foreign markets, and share many characteristics with U.S.
markets. The political system in Canada is also more stable than those in some
other foreign countries, and the Canadian dollar historically has been less
volatile than other currencies relative to the U.S. dollar.
In the recent past, various governmental actions have been proposed in
Canada that would recognize the Province of Quebec as having a distinct status
within Canada. If adopted, such a governmental initiative could result in the
withdrawal of Quebec as a part of Canada. The current uncertainty relating to
the status of Quebec may have implications for the Canadian economy, as Quebec's
withdrawal from Canada could have material adverse effects on the Canadian
economy and the value of securities of Canadian issuers.
The relative performance of foreign currencies is an important factor in the
Fund's performance.
CURRENCY EXCHANGE RATES. The relative performance of foreign currencies is
an important factor in the Fund's performance. The value of shares may change
significantly when the Canadian dollar or Mexican peso strengthens or weakens
against the U.S. dollar. Currency exchange rates generally are determined by the
forces of supply and demand in the foreign exchange markets and the relative
merits of investments in different countries as seen from an international
perspective. Currency exchange rates can also be unpredictably affected by
intervention by U.S. or foreign governments, central banks, or by currency
controls or political developments in the United States or other countries.
The Fund may purchase instruments having a floating or variable rate of
interest.
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. The Fund will limit its
purchases of floating and variable rate obligations to those of the same quality
as it otherwise is allowed to purchase.
7
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.
Investment in foreign securities involves certain considerations not typically
associated with investing in U.S. securities.
FOREIGN SECURITIES. Investment in foreign securities involves certain
considerations that are not typically associated with investing in U.S.
securities. Investments in foreign securities typically involve higher
transaction costs than investments in U.S. securities. Foreign investments may
have risks associated with currency exchange rates, less complete financial
information about the issuers, less market liquidity and political instability.
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 will not invest more than 10% of the value of its net assets in
securities that are considered illiquid.
ILLIQUID SECURITIES. The Fund will not invest more than 10% of the value of
its net assets in securities that are considered illiquid. Repurchase agreements
and time deposits that do not provide for payment to the Fund within seven days
after notice or which have a term greater than seven days are deemed illiquid
securities for this purpose (unless such securities are variable amount master
demand notes with maturities of nine months or less or unless the Portfolio
Management Agent or an Investment Sub-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).
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 Investment Adviser and Investment Sub-Advisers and
approved by the Company's Board of Directors. The Board of Directors will
monitor the Investment Adviser's and Investment Sub-Advisers' implementation of
these guidelines on a periodic basis.
The Fund may invest in securities issued by other investment companies that
invest primarily in securities of Canadian, Mexican or U.S. issuers.
INVESTMENT COMPANY SECURITIES. The Fund may invest in securities issued by
other investment companies that invest primarily in securities of Canadian,
Mexican or U.S. issuers in which the Fund may invest directly. Securities of
other investment companies will 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.
MEXICAN SECURITIES. The Fund may invest in Mexican securities, consisting
of the following:
8
MEXICAN EQUITY SECURITIES. The Fund may invest in Mexican equity securities
consisting of equity securities issued by the following: (1) companies organized
under the laws of Mexico or the securities of which are principally traded in
Mexico; (2) companies that derive at least 50% of their revenues from goods or
services produced or provided in Mexico or from sales made in Mexico; or (3)
issuers of depository shares for equity securities, which securities are listed
on the Bolsa Mexicana de Valores, S.A. de C.V. (the "Mexican Exchange") or a
recognized Mexican over-the-counter market.
Under Mexican law, the Fund may generally acquire only equity securities
listed on the Mexican Exchange or traded in a recognized Mexican
over-the-counter market that are available for investment directly by
foreigners. In general, foreign investment in a Mexican issuer is limited to a
maximum of 49% of the issuer's capital stock, although more restrictive
provisions may be contained in the company's corporate documents or may be
provided by law in the case of companies engaged in certain industries.
Securities of Mexican issuers available for foreign investment are generally
issued as a separate class of either Series B voting stock, shares of which
generally count toward any applicable percentage limitation on foreign
investment, or Series N, Series L or Series C stock, shares of which are
considered "neutral" shares providing foreign investors with monetary and
economic rights, but not voting rights, with respect to the shares and which are
not subject to any percentage limitations.
Although foreigners, such as the Fund, may not directly acquire listed
securities of a Mexican issuer reserved for Mexican nationals, foreigners may
instruct a trust to acquire those shares for their accounts so long as the
Mexican issuer has received proper authorization from the Mexican Ministry of
Commerce. This type of trust, which is arranged with a Mexican bank, typically
Nacional Financiera, SNC ("Nafin"), a Mexican government development finance
bank, would acquire equity securities that have been determined to be
appropriate for the Fund to purchase. Nafin would then issue Ordinary
Certificates of Participation ("CPOs") that represent the amount and kind of
shares acquired by the trust on behalf of the Fund, but the Fund would have no
voting rights with respect to those shares.
The introduction of the sort of trust arrangement described above has
resulted in the effective elimination of any differential in price between those
shares of Mexican issuers reserved for Mexican nationals and shares that may be
directly held by non-Mexicans. The Fund currently anticipates entering into such
a trust arrangement with Nafin or another suitable Mexican bank.
MEXICAN FIXED INCOME SECURITIES. The Fund may invest in Mexican fixed
income securities consisting of the following:
The Fund may invest in Mexican government bonds and notes and government-backed
bonds and notes.
OBLIGATIONS OF MEXICAN GOVERNMENTAL ENTITIES. The Fund may invest in bonds
and notes issued by the Mexican government and government-backed bonds and
notes. These instruments are insured by the Mexican federal government and
various federal instrumentalities. Mexican government debt instruments are
frequently listed on stock exchanges but most trading is by authorized dealers
in the Mexican secondary market. Peso-denominated debt obligations currently
issued by the Mexican government in which the Fund may invest are limited to:
Cetes (Certificados de Tesoreria or Treasury Bills), Bondes (Bonos de Desarrollo
or medium-term development bonds) and Ajustabonos (adjustable bonds).
The Fund may invest in "Brady Bonds" which are debt securities generally
denominated in U.S. dollars.
The Fund may also invest in "Brady Bonds." Brady Bonds are debt securities,
generally denominated in U.S. dollars, issued under the framework of the "Brady
Plan," an initiative announced by former U.S. Treasury Secretary Nicholas F.
Brady in 1989 as a mechanism for debtor nations to restructure their outstanding
external commercial bank indebtedness. The Brady Plan framework, as it has
developed, contemplates the exchange of external commercial bank debt for newly
issued bonds (Brady Bonds). Brady Bonds may also be issued with respect to new
money being advanced by existing lenders in connection with the debt
restructuring. Investors should recognize that Brady Bonds have been issued only
9
recently, and accordingly do not have a long payment history. Brady Bonds issued
to date generally have maturities of between 15 and 30 years from the date of
issuance and have traded at a deep discount from their face value. A substantial
portion of the Brady Bonds in which the Fund may invest are likely to be
acquired at a discount which involves certain considerations discussed below
under "Zero Coupon Securities."
Agreements implemented under the Brady Plan to date are designed to achieve
debt and debt-service reduction through specific options negotiated by a debtor
nation with its creditors. These options have included the exchange of
outstanding commercial bank debt for bonds issued at 100% of the face value of
such debt which carry a below-market stated rate of interest (generally known as
par bonds), bonds issued at a discount from the face value of such debt
(generally known as discount bonds), bonds bearing an interest rate which
increases over time and bonds issued in exchange for the advancement of new
money by existing lenders. Discount bonds issued to date under the framework of
the Brady Plan have generally borne interest computed semi-annually at a rate
equal to 13/16 of one percent above the then current six month LIBOR. Regardless
of the stated face amount and stated interest rate of the various types of Brady
Bonds, the Fund will purchase Brady Bonds in secondary markets, as described
below, in which the price and yield to the investor reflect market conditions at
the time of purchase. Certain sovereign bonds are entitled to "value recovery
payments" in certain circumstances, which in effect constitute supplemental
interest payments but generally are not collateralized. Certain Brady Bonds have
been collateralized as to principal due at maturity by U.S. Treasury zero coupon
bonds with a maturity equal to the final maturity of such Brady Bonds, although
the collateral is not available to the investors until the final maturity of the
Brady Bonds. Collateral purchases are financed by the International Monetary
Fund (the "IMF"), the World Bank and the debtor nation's reserves. In addition,
interest payments on certain types of Brady Bonds may be collateralized by cash
or high grade securities in amounts that typically represent between 12 and 18
months of interest accruals on these instruments with the balance of the
interest accruals being uncollateralized. The Fund may purchase Brady Bonds with
no or limited collateralization, and will be relying for payment of interest and
(except in the case of principal collateralized Brady Bonds) principal primarily
on the willingness and ability of the foreign government to make payment in
accordance with the terms of the Brady Bonds. Brady Bonds issued to date are
purchased and sold in secondary markets through U. S. securities dealers and
other financial institutions and are generally maintained through European
transnational securities depositories.
The Fund may invest in obligations of Mexican banks.
OBLIGATIONS OF MEXICAN BANKS. The Fund is permitted to invest in bank bonds
or "bonos bancarios," bills of exchange, certificates of deposit, time deposits
and promissory notes issued by or guaranteed, as to payment of principal and
interest, by Mexican banks. Bonos bancarios generally have maturities greater
than one year. Bills of exchange are negotiable instruments, issued by Mexican
private entities to finance current transactions, that generally mature within
six months and that are accepted or endorsed by a bank and carry the bank's
credit. Certificates of deposit are negotiable instruments issued by banks with
maturities ranging from a few days to several years. These instruments are not
generally insured or guaranteed by a Mexican governmental agency, but are
obligations of the issuing banks. Promissory notes are negotiable instruments
which generally have maximum maturities of 728 days. Certificates of deposit and
promissory notes are usually issued at face value, pay interest periodically or
at maturity, and are traded by dealers in the secondary market in Mexico.
Peso-denominated money market instruments currently issued by Mexican banks in
which the Fund may invest include: "pagares" (promissory notes), certificates of
deposit and public bankers' acceptances.
10
The Fund may invest in investment grade commercial paper issued by Mexican
companies.
OBLIGATIONS OF MEXICAN COMPANIES. The Fund may invest in commercial paper
issued by Mexican companies and determined by Bancomer to be investment grade or
better (equivalent to securities within the four highest rating categories of
S&P or Moody's or, if unrated, of comparable quality). Generally, commercial
paper issued by Mexican companies has a maturity of 28 days, although in some
cases, it may have a maturity of up to 360 days. The Fund may also invest in
"pagares de mediano plazo" or medium-term promissory notes which will generally
have a maturity of three years. Although most Mexican commercial paper is
peso-denominated, currently less than 5% of such commercial paper is "Papel
comercial Indizado," which is denominated in pesos but includes a foreign
exchange adjustment factor to its face value based on the foreign exchange rate
of the peso at issuance and at maturity. The foreign exchange adjustment factor
is intended to act as a partial hedge against the devaluation of the peso. The
Fund may also invest in "obligaciones" or corporate debentures issued by Mexican
companies. Obligaciones may be issued in secured (hipotecarias) or unsecured
form (quirografarias). Obligaciones generally have one to seven year maturities
and varying amortization schedules.
The Mexican government exercises significant influence over many aspects of the
private sector in Mexico.
RISKS AND SPECIAL CONSIDERATIONS RELATING TO MEXICAN SECURITIES. The
Mexican government has exercised and continues to exercise a significant
influence over many aspects of the private sector in Mexico. Mexican government
actions concerning the economy could, for that reason, have an important effect
on private sector entities and the Fund, as well as on market conditions for the
equity securities of Mexican issuers and the market conditions and prices and
yields of Mexican fixed income securities. The value of the Fund's underlying
investments in Mexico may be affected by changes in inflation, foreign exchange
rates, interest rates, expropriation, taxation, social instability and other
political, economic or diplomatic developments in Mexico. The Fund can provide
no assurance that future developments in the Mexican economy, over which the
Fund has no control, may not impair the Fund' s investment flexibility and
operations.
The Mexican securities markets are not as large or as active as the markets
in certain other countries and Mexican equity and debt securities may be less
liquid and subject to greater price volatility than securities of comparable
issuers in other countries. The limited liquidity and potential trading
volatility of the market for Mexican securities may affect the Fund's ability to
acquire or dispose of those securities at a price and time that the Fund deems
advantageous. As a result, in periods of rising market prices, the Fund may be
unable to participate in price increases fully to the extent that it is unable
to acquire desired positions quickly; the Fund's inability in declining markets
to dispose fully and promptly of positions may conversely cause its net asset
value to decline as the value of unsold positions is marked to lower prices.
Certain sectors of the Mexican economy such as oil, gas, electricity and
railroads are reserved to the Mexican national patrimony, and equity investments
in those sectors currently are not permitted. Under Mexican law, Petroleos
Mexicanos, S.A. ("Pemex") may not issue equity securities and is the only entity
permitted to engage in oil, gas and most basic petrochemical-related activities
in Mexico.
The Portfolio Management Agent and Investment Sub-Advisers monitor the
creditworthiness of issuers of master demand notes on an ongoing basis.
OTHER SHORT-TERM CORPORATE OBLIGATIONS INCLUDING VARIABLE AMOUNT MASTER
DEMAND NOTES. The Fund may invest in convertible and non-convertible debt
securities of U.S. corporations and of foreign corporations and governments that
are denominated in and pay interest in U.S. dollars, consisting of notes, bonds
and debentures that are rated "Baa" or better by Moody's or "BBB" or better by
S&P, and in variable amount master demand notes. Variable amount master demand
notes differ from ordinary commercial paper in that they are issued pursuant to
a written agreement between the issuer and the holder. Their amounts may from
time to time be increased by the holder (subject to an agreed maximum) or
decreased by the holder or the issuer; they are payable on demand or after an
agreed-upon notice period, e.g., seven days; and the rates of interest vary
pursuant to an agreed-upon formula. Generally, master demand notes are not rated
by a rating agency. The Portfolio Management Agent and Investment Sub-Advisers
monitor the creditworthiness of issuers of master
11
demand notes on an ongoing basis. Transfer of these notes is usually restricted
by the issuer, and there is no secondary trading market for these notes.
PORTFOLIO TURNOVER. High portfolio turnover rates can result in
corresponding increases in brokerage commissions and other transaction costs,
which are borne directly by the Fund, and may result in the realization of
short-term capital gains that are taxable to shareholders as ordinary income.
The Portfolio Management Agent and Investment Sub-Advisers will not consider the
rate of portfolio turnover a limiting factor in making investment decisions
consistent with the Fund's investment objective and policies.
The Fund may invest in repurchase agreements.
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 the value of the collateral held pursuant to
the repurchase agreement at not less than 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
broker/dealers and commercial banks that meet guidelines established by the
Company's Board of Directors.
UNITED STATES EQUITY SECURITIES. The Fund may invest in United States
equity securities consisting of equity securities issued by the following: (1)
companies organized under the laws of the United States or the securities of
which are principally traded in the United States and (2) companies that derive
at least 50% of their revenues from goods or services produced or provided in
the United States or from sales made in the United States.
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 and
payment of interest.
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., the investor must look principally to the agency issuing or guaranteeing
the obligation for ultimate repayment.
The Fund may invest up to 5% of its net assets in warrants.
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.
WHEN-ISSUED SECURITIES. The Fund may purchase securities on a when-issued
basis, in which case delivery and payment normally take place within 45 days
after the date of the commitment to purchase. The Fund will make commitments to
purchase securities on a when-issued basis only with the intention of actually
acquiring the securities, but may sell
12
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 bas
is can involve a risk that the market price at the time of delivery may be lower
than the agreed upon purchase price.
The Fund will establish a segregated account in which it will maintain
liquid assets in an amount at least equal in value to the Fund's commitments to
purchase when-issued securities. If the value of these assets declines, the Fund
will place additional liquid assets in the account on a daily basis so that the
value of the assets in the account is at least equal to the amount of the Fund's
commitments.
The Fund may invest in debt obligations that do not entitle the holder to
periodic interest payments prior to maturity and are issued and traded at a
discount.
ZERO COUPON SECURITIES. The Fund may invest in zero coupon securities,
which are debt obligations that do not entitle the holder to any periodic
payments of interest prior to maturity and are issued and traded at a discount.
The values of zero coupon securities are subject to greater fluctuations than
are the values of income securities that distribute income regularly. Zero
coupon securities (which are not issued or guaranteed by the U.S. Government)
may be created by separating the interest and principal component of U.S.
Government Obligations or securities issued by private corporate issuers. In
addition, the Fund's investment in zero coupon securities will result in special
tax consequences. Although zero coupon securities do not make interest payments,
for tax purposes, a portion of the difference between the security's maturity
value and its purchase price is imputed to be income to the Fund each year.
Because imputed income must be paid to shareholders annually, the Fund may need
to borrow money or sell securities to meet certain dividend and redemption
obligations. In addition, the sale of securities by the Fund may increase its
expense ratio and decrease its rate of return.
INVESTMENT LIMITATIONS
Unless otherwise noted, the foregoing investment objectives and related
policies and activities of the Fund are not fundamental and may be changed by
the Board of Directors of the Company without the approval of the shareholders.
If there is a change in the Fund's investment objectives, shareholders should
consider whether the Fund remains an appropriate investment in light of their
then current financial position and needs.
This paragraph 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 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 it may borrow up to 10% of
the current value of its total assets for temporary purposes only in order to
meet redemptions, and these borrowings may be secured by the pledge of up to 10%
of the current value of the Fund's net assets (but investments may not be
purchased while borrowings are in excess of 5%). It is also a fundamental policy
that the Fund may make loans of portfolio securities, and invest up to 15% 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. The Fund considers the securities of foreign
13
governments and supra-national entities to be separate industries for purposes
of the 25% asset limits on investments in the securities of issuers conducting
their principal business activity in the same industry.
MANAGEMENT
The Board of Directors has overall responsibility for the conduct of the
affairs of the Fund and Company. The members of the Board and their principal
occupations are as follows:
BOARD OF DIRECTORS
C. Gary Gerst Chairman of the Board of Directors; Chairman
Emeritus, LaSalle Partners, Ltd. (real
estate developer and manager).
Edgar R. Fiedler Senior Fellow and Economic Counsellor, The
Conference Board.
John W. McCarter, Jr. President and Chief Executive Officer, The
Field Museum of Natural History (Chicago) ;
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, located
at 111 West Monroe Street, Chicago, Illinois. The Advisory Contract provides
that Harris Trust is responsible for the supervision and oversight of the
Portfolio Management Agent's performance (as discussed below). Harris Trust is
the successor to the investment banking firm of N.W. Harris & Co., organized in
1882, and was incorporated in 1907 under the present name of the bank. It is an
Illinois state-chartered bank and a member of the Federal Reserve System. At
December 31, 1996, Harris Trust had estimated assets under management of more
than $___ billion and was the largest of 14 banks owned by Harris Bankcorp, Inc.
Harris Bankcorp, Inc. is a wholly-owned subsidiary of Bankmont Financial Corp.,
which is a wholly-owned subsidiary of Bank of Montreal, a publicly traded
Canadian banking institution.
As of December 31, 1996, Harris Trust managed more than $___ billion in
personal trust assets, and acted as custodian of more than $___ billion in
assets.
For its services under the Advisory Contract with the Fund, Harris Trust is
entitled to receive monthly advisory fees at the annual rate of 0.90% of the
average daily net assets of the Fund. An advisory fee of 0.90% is higher than
that paid by most mutual funds.
PORTFOLIO MANAGEMENT AGENT
14
The Portfolio Management Agent, Harris Investment Management, provides
investment expertise to various portfolios and manages over $ billion in assets.
Harris Trust has entered into a Portfolio Management Contract with Harris
Investment Management, Inc., located at 190 South LaSalle Street, Chicago,
Illinois. Under the Portfolio Management Contract, 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 pays HIM
the advisory fees it receives from the Fund. As of December 31, 1996, HIM
managed an estimated $__ billion in assets. HIM determines the allocation of the
Fund's assets among issuers in Canada, Mexico and the United States. HIM also
selects and manages the U.S. securities in which the Fund invests and is
responsible for the supervision and oversight of the Investment Sub-Advisers'
performance. HIM and its predecessors have managed client assets for over 80
years. As of December 31, 1996, HIM had a staff of__ , including __
professionals, providing investment expertise to the management of the Harris
Insight Funds and for pension, profit-sharing and institutional portfolios.
HIM is a subsidiary of Harris Bankcorp, Inc.
INVESTMENT SUB-ADVISERS
JHICI selects and manages the Canadian securities and Bancomer selects and
manages the Mexican securities.
Jones Heward Investment Counsel Inc. ("JHICI") and Bancomer Asesora de
Fondos, S.A. de C.V. ("Bancomer") have each entered into an Investment
Sub-Advisory Agreement (each an "Investment Sub-Advisory Contract") with HIM.
JHICI selects and manages the Canadian securities in which the Fund invests and
Bancomer selects and manages the Mexican securities in which the Fund invests.
JHICI is a Canadian corporation which was established in 1982. JHICI is a
subsidiary of Bank of Montreal and as of December 31, 1996, assets under
management were approximately $__ billion (Canadian). Bancomer is a Mexican
corporation which was established in 1994. Bancomer is a wholly-owned subsidiary
of Casa de Bolsa Bancomer, S.A. de C.V., which is a wholly-owned subsidiary of
Grupo Financiero Bancomer, S.A. de C.V., a Mexican financial services holding
company. Neither JHICI nor Bancomer has previously acted as an investment
adviser to a U.S. registered investment company.
For their services under their respective Investment Sub-Advisory
Contracts, HIM pays each of JHICI and Bancomer, from the advisory fees HIM
receives from Harris Trust, a monthly fee at the annual rate of 0.375% of the
first $25 million in average daily net assets of the Fund under its management,
plus 0.325% of the next $25 million in such assets, plus 0.275% of the next $50
million in such net assets, plus 0.250% of such net assets in excess of $100
million.
Purchase and sale orders of the securities held by the Fund may be combined
with those of other accounts that HIM, JHICI or Bancomer manage and for which
they have brokerage placement authority, in the interest of seeking the most
favorable overall net results. When HIM, JHICI or Bancomer determine that a
particular security should be bought or sold for the Fund and for other accounts
managed by HIM, JHICI or Bancomer, each party undertakes to allocate those
transactions among the participants equitably.
PORTFOLIO MANAGEMENT
Many persons on the staffs of the Investment Adviser, Portfolio Management
Agent and the Investment Sub-Advisers contribute to the investment management
services provided to the Fund. The following persons, however, are primarily
responsible for the day-to-day management of the portfolio of the Fund:
[Portfolio Manager Biographies]
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
15
or distributing securities, although bank holding company subsidiaries 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 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 a new agreement 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. During the last fiscal year, the Fund
did not pay commissions to such persons.
ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
Harris Trust (the "Administrator") serves as the administrator of the Fund
and in that capacity generally assists the Fund in all aspects of its
administration and operation. Harris Trust also serves as the transfer and
dividend disbursing agent of the Fund (the "Transfer Agent").
The Administrator has entered into a Sub-Administration Agreement with
Funds Distributor, Inc. (the "Sub-Administrator"), pursuant to which the
Sub-Administrator performs certain administrative services for the Fund. The
Administrator has also entered into a Sub-Administration and Accounting Services
Agreement with PFPC Inc. ("PFPC" or the "Sub-Administrator and Accounting
Services Agent"). Under these Agreements, the Administrator compensates the
Sub-Administrator and the Sub-Administrator and Accounting Services Agent for
providing such services.
The Transfer Agent has entered into a Sub-Transfer Agency Services
Agreement with PFPC (the "Sub-Transfer Agent"), pursuant to which the
Sub-Transfer Agent performs certain transfer agency and dividend disbursing
agency services. Under this Agreement, the Transfer Agent compensates the
Sub-Transfer Agent for providing such services.
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 Administrator, the Transfer Agent
and the Custodian are entitled to receive a combined fee based on the aggregate
average daily net assets of the portfolios of the Company and Harris Insight
Funds Trust, 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, the Fund pays a separate fee
to the Sub-Transfer Agent for certain retail sub-transfer agent services and
reimburses the Custodian for various custody transactional expenses.
DISTRIBUTOR
16
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 for by the Administrator. The Distributor bears the cost of
printing and mailing prospectuses to potential investors and any advertising
expenses incurred by it in connection with the distribution of shares, subject
to the terms of the Service Plan described below pursuant to a contractual
arrangement between the Company and the Distributor and approved by the Board of
Directors of the Company.
See "Management" and "Custodian" in the Statement of Additional Information
for additional information regarding the Company's Investment Adviser, Portfolio
Management Agent, Administrator, Custodian, Transfer Agent and Distributor.
EXPENSES
Except for certain expenses borne by the Distributor, Harris Trust or HIM,
the Company bears all costs of its operations, including the compensation of its
directors who are not affiliated with Harris Trust, HIM or the Distributor or
any of their affiliates; advisory and administration fees; payments pursuant to
any Service Plan; interest charges; taxes; fees and expenses of independent
accountants, legal counsel, transfer agent and dividend disbursing agent;
expenses of preparing and printing prospectuses (except the expense of printing
and mailing prospectuses used for promotional purposes, unless otherwise payable
pursuant to a Service Plan), shareholders' reports, notices, proxy statements
and reports to regulatory agencies; insurance premiums and certain expenses
relating to insurance coverage; trade association membership dues; brokerage and
other expenses connected with the execution of portfolio securities
transactions; fees and expenses of the Fund's custodian including those for
keeping books and accounts and calculating the net asset value per share of the
Fund; expenses of directors' and shareholders' meetings; expenses relating to
the issuance, registration and qualification of shares of the Fund; fees of
pricing services; organizational expenses; and any extraordinary expenses.
Expenses attributable to the Fund are borne by that 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.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share is determined daily.
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 (i.e., each weekday other than New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and
Christmas Day). 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 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 owned by the Fund (other than bonds purchased by the Fund 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., Eastern
time). In the absence of any sale on the valuation date, the securities are
valued at the closing bid price. Securities traded only on over-the-counter
markets are valued at closing over-the-counter bid prices. Portfolio securities
which are primarily traded on foreign securities exchanges are generally valued
at the 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, the fair
value of those securities will be determined through the consideration of other
factors by or under the direction of the Board of Directors. Bonds purchased by
the Fund are valued at the mean of
17
the last bid and asked prices. In the event that such prices are not readily
available, securities are valued at fair value as determined in good faith by
the Board of 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 is fair value.
The different expenses borne by each class of Shares will result in
different net asset values and dividends. The per share net asset value of Class
A Shares of the Fund generally will be lower than that of the Institutional
Shares of the Fund because of the higher expenses borne by Class A Shares.
PURCHASE OF SHARES
Fund shares may be purchased any day the New York Stock Exchange and the Federal
Reserve are open for business.
Shares of the Fund may be purchased on any day the NYSE and the Fed are
open for business through authorized broker/dealers, financial institutions and
service agents with whom the Distributor has a selling agreement, including
Harris Trust and HIM and their affiliates ("Institutions") on any day the Funds
are open for business. Institutions are responsible for the prompt transmission
to the Sub-Transfer Agent of purchase, exchange or redemption orders, and may
independently establish and charge additional fees to their customers for such
services, which would reduce the customers' yield or return. The Company does
not impose any minimum initial or subsequent investment limitations. Each
Institution through which shares may be purchased ma y establish its own terms
with respect to the requirement of a minimum initial investment and minimum
subsequent investments.
Depending upon the terms of the particular customer account, Institutions,
including Harris Trust, HIM and their affiliates, 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 related information received
from financial institutions.
The Company reserves the right to reject any purchase order. All funds net
of sales charge with respect to Class A Shares, received from a share purchase
will be invested in full and fractional shares at their offering price next
determined after receipt of a purchase order by the Sub-Transfer Agent. 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 Company at the
address and telephone number on page one of this Prospectus.
Purchase orders for shares of the Fund received in good order by the
Sub-Transfer Agent prior to the close of regular trading (4:00 P.M., Eastern
time) on the NYSE will be executed at the offering price, which includes a sales
charge for Class A Shares, next determined on that day. Orders placed directly
with the Sub-Transfer Agent must be paid for by check or bank wire on the next
business day. Payment for the shares purchased through an Institution will not
be due until settlement date, normally three business days after the order has
been executed.
Although Class A Shares of the Fund are sold with a sales load of up to 4.50%,
there are a number of ways to reduce the sales load.
Class A Shares. When Class A Shares of the Fund are purchased through an
Institution, the Distributor reallows to the Institution a portion of the sales
charge to the Institution except as described below. No sales charge will be
assessed on the reinvestment of distributions.
Sales charges for Class A Shares of the Fund are as follows:
<TABLE>
<CAPTION>
SALES
CHARGE DEALER
AS % OF ALLOWANCE
18
SALES NET AMOUNT AS % OF
AMOUNT OF PURCHASE CHARGE INVESTED OFFERING PRICE
------------------ ------ -------- --------------
<S> <C> <C> <C>
Less than $100,000.................................... 4.50% 4.71% 4.25%
$100,000 up to (but less than) $200,000............... 4.00 4.17 3.75
$200,000 up to (but less than) $400,000............... 3.50 3.63 3.25
$400,000 up to (but less than) $600,000............... 2.50 2.56 2.25
$600,000 up to (but less than) $800,000............... 2.00 2.04 1.75
$800,000 up to (but less than) $1,000,000............. 1.00 1.01 0.75
$1,000,000 and over................................... .00 .00 .00
</TABLE>
No sales charge is assessed on Class A Shares that are purchased directly
from the Funds (i.e., not purchased through an Institution). In addition, no
sales charge will be assessed on purchases by (a) any bank, trust company, or
other institution acting on behalf of a fiduciary customer account or any other
trust account maintained (including a pension, profit-sharing or other employee
benefit trusts created pursuant to a plan qualified under Section 401 of the
Internal Revenue Code of 1986, as amended (the "Code")); (b) any individual with
an investment account or relationship with HIM; (c) directors and officers of
the Company; (d) any director, current or retired employee of Harris Bankcorp,
Inc. or any of its affiliates or an immediate family member of such individual
(spouses and children under 21); (e) any broker, dealer, or agent who has a
sales agreement with the Distributor, and their employees (and the immediate
family members of such individuals); and (f) financial institutions, financial
planners, employee benefit plan consultants or registered investment advisers
acting for the accounts of their clients.
The Right of Accumulation allows an investor to combine the amount being
invested in Class A Shares of the non-money market funds of the Company with the
total net asset value of Class A Shares currently being purchased or already
owned of such funds to determine reduced sales charges in accordance with the
above sales charge schedule. To obtain such discount, the purchaser must provide
sufficient information at the time of purchase to permit verification that the
purchase qualifies for the reduced sales charge, and confirmation of the order
is subject to such verification. The Right of Accumulation may be modified or
discontinued at any time by the Fund with respect to all Class A Shares
purchased thereafter.
A Letter of Intent allows an investor to purchase Class A Shares of the
non-money market funds of the Company and Harris Insight Funds Trust, an
affiliated investment company, over a 13-month period at reduced sales charges
based on the total amount intended to be purchased plus the total net asset
value of Class A Shares already owned pursuant to the terms of the letter of
such Fund. Each investment made during the period receives the reduced sales
charge applicable to the total amount of the intended investment. If such amount
is not invested within the period, the investor must pay the difference between
the sales charges applicable to the purchases made and the charges previously
paid.
INSTITUTIONAL SHARES. Institutional Shares are sold to fiduciary and
discretionary accounts of institutions, "institutional investors," Directors,
Trustees, officers and employees of the Company, the Trust, the Adviser, the
Portfolio Management Agent, and the Distributorand the Adviser's investment
advisory clients. "Institutional investors" may include financial institutions
(such as banks, savings institutions and credit unions); pension and profit
sharing and employee benefit plans and trusts; insurance companies; investment
companies; investment advisers; and broker/dealers acting for their own accounts
or for the accounts of such institutional investors.
REDEMPTION OF SHARES
19
Shares may be redeemed at their next determined net asset value after receipt of
proper request by the Sub-Transfer Agent.
Shares may be redeemed at their next determined net asset value after
receipt of a proper request by the Sub-Transfer Agent directly or through any
Institution.
The Company makes no charge for redemption transactions, but an Institution
may charge an account-based service fee. Redemption orders received by an
Institution before the close of the NYSE with respect to shares of the Fund and
received by the Sub-Transfer Agent 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 Sub-Transfer Agent prior to the close of business, will
be executed at the Fund's net asset value next determined on the next business
day.
Redemption orders for shares of the Fund that are received in good order by
4:00 P.M. (Eastern 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 only upon
clearance of the shareholder's check used to purchase the Company's shares; such
clearance 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 a redemption made through an authorized Institution will be credited
to the shareholder's account with the Institution.
Proceeds of a redemption made through an authorized Institution 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.
Due to the high cost of maintaining small accounts, the Company reserves
the right to redeem accounts involuntarily on behalf of shareholders whose share
balances fall below $500 in value unless this is due to 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.
SERVICE PLAN
Class A Shares of the Fund pay advertising and marketing expenses in addition to
other shareholder servicing costs.
Under its Service Plan, Class A Shares of the Fund bear the costs and
expenses in connection with advertising and marketing the Fund's shares and pay
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 Class A Shares of the Fund. However, Harris Trust or HIM, from
time to time in its sole discretion, may voluntarily bear the costs of such fees
to certain Service Agents that would otherwise be borne by Class A Shares of the
Fund. The Administrator, Sub-Administrators and the Distributor may act as
Service Agents and receive fees under the Service Plan. In addition to the fees
paid by Class A Shares of the Fund, the Fund may, pursuant to the Service Plan,
defray all or part of the cost of preparing and printing brochures
20
and other promotional materials and of delivering prospectuses and those
materials to prospective shareholders of Class A Shares of the Fund by paying on
an annual basis up to the greater of $100,000 or 0.05% of the average daily net
asset value of Class A Shares of the Fund (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 Class A 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 Class A Shares of the Fund; assisting customers in changing
dividend options, account designations and addresses; performing sub-accounting;
investing customer cash account balances automatically in Class A Shares of the
Fund; 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 provide such services by applicable
statute, rule or regulation.
DIVIDENDS AND DISTRIBUTIONS
The Fund pays dividends annually.
Dividends from net investment income of the Fund are declared and paid
annually. The Fund's net 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 other distributions paid by the Fund with
respect to its Class A and Institutional Shares are calculated at the same time.
Dividends and distributions paid by the Fund are invested in additional shares
of the same class 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 are mailed approximately
two business days after the dividend payment date. The Fund forwards to the
Transfer Agent the monies for dividends to be paid in cash on the payment date.
TAXES
UNITED STATES TAX. The Fund is treated as a separate entity for tax
purposes and thus the provisions of the Code generally are 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 and to distribute to the
shareholders of the Fund sufficient investment income and net realized capital
gains of the Fund so that the Fund will not be subject to federal income taxes.
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 of corporate shareholders.
A taxable gain or loss may also be realized by a shareholder upon the
redemption or exchange of Shares of the Fund 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 of the Fund are acquired within the 61-day
period beginning 30 days before and ending 30 days after the disposition of
Shares.
21
Income or gain from investments in foreign securities may be subject to foreign
withholding or other taxes.
Income or gain from investments in foreign securities may be subject to
foreign withholding or other taxes. If more than 50% of the value of the Fund's
total assets at the close of any taxable year consists of stock or other
securities of foreign corporations, the Fund may elect, for U.S. federal income
tax purposes, to treat certain foreign taxes paid by it, including generally any
withholding taxes and other foreign income taxes, as paid by its shareholders.
If the Fund makes this election, the amount of such foreign taxes paid by the
Fund will be included in its shareholders' income pro rata (in addition to
taxable distributions actually received by them), and the shareholders would be
entitled (a) to credit their proportionate amount of such taxes against their
U.S. federal income tax liabilities subject to certain limitations described in
the Statement of Additional Information, or (b) if they itemize their
deductions, to deduct such proportionate amount from their U.S. income.
If you have not furnished us with a correct tax identification number, you may
be subject to a withholding of 31% of dividends and redemption proceeds.
The Company will be required to withhold, subject to certain exemptions,
currently at a rate of 31%, a portion of dividends paid or credited to
individual shareholders and of redemption proceeds, if a correct taxpayer
identification number, certified when required, is not on file with the Company
or Sub-Transfer Agent.
CANADIAN TAX. Interest received by, or credited to, the Fund from Canadian
sources will generally be subject to a 25% withholding tax in Canada. No
Canadian withholding tax is applicable, however, to a debt obligation issued by
the government of Canada a province of Canada or an agency of a province; a
municipality in Canada certain corporations of which at least 90% of the shares
are owned by a province or a Canadian municipality or an educational institution
or hospital, if the repayment of principal and payment of interest with respect
to the obligation is guaranteed by a province. In addition, interest payable to
the Fund in a currency other than a Canadian currency is generally exempt from
withholding taxes if the principal amount is deposited with a Canadian financial
institution and is not repayable in Canadian currency, and the Fund deals at
arms' length with the institution. The holder of certain Canadian debt
obligations on which interest income has accrued, but has not been paid, may be
deemed to have received the accrued interest and may be subject to a 25%
withholding tax on the amount of the interest.
Gains derived from the disposition of securities will generally be exempt
from Canadian tax so long as the Fund does not carry on business in Canada. The
mere holding of securities usually does not constitute doing business in Canada.
MEXICAN TAX. Profits derived from the sale of equity securities listed on
the Mexican Stock Exchange that are either directly available to foreign
investors or only available to foreign investors through a trust are generally
not subject to tax in Mexico. Gains from off-exchange transactions in both
listed and unlisted equity securities are subject to a 20% withholding tax on
the appreciated value of the equity securities at the time of sale. Dividends
paid to the Fund by a company that has paid Mexican corporate tax are not
subject to tax. In the event the company has not paid Mexican corporate tax,
dividends paid by the company will be subject to a tax, which tax is payable by
the company at a rate of 34% of the amount that results from multiplying the
amount of the dividend by 1.515.
Interest earned by the Fund from debt obligations that are listed on the
Mexican Stock Exchange with the exceptions of debt obligations of the Mexican
federal government, its agencies and instrumentalities, including money market
instruments issued by the Mexican federal government, are generally subject to a
withholding tax on the gross amount at a rate of 4.9%. Interest earned on
unlisted debt securities is subject to a 15% to 21% withholding tax if the
obligor is a credit institution and to a 35% withholding tax in all other cases.
All these taxes are paid directly by the Fund and not its shareholders.
22
ACCOUNT SERVICES
Shareholders receive a statement of account whenever a share transaction,
dividend or capital gain distribution is effected in the accounts, or at least
annually. Shareholders can write or call the 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 was incorporated in Maryland on September 16, 1987 as an
open-end, diversified management investment company.
The authorized capital stock of the Company consists of 10,000,000,000
Shares having a par value of $.001 per share. Currently the Company has seven
portfolios in operation. The Board has authorized the Fund to issue two classes
of shares. The Board has also authorized each of the three Harris Insight money
market funds to issue three classes of Shares ( Class A, Class B and
Institutional Shares). Each Harris Insight non-money market fund currently
offers two classes of Shares (except for the Harris Insight Convertible Fund,
which offers only one class of Shares). In the future, the Board of Directors
may authorize the issuance of other classes of capital stock representing shares
of additional investment portfolios. All shares of the Company have equal voting
rights and will be voted in the aggregate, and not by class, except where voting
by class is required by law or where the matter involved affects only one class.
A more detailed statement of the voting right s of shareholders is contained in
the Statement of Additional Information. All shares of the Company, when issued,
will be fully paid and non-assessable.
The Company may dispense with annual meetings of shareholders in any year
in which Directors are not required to be elected by shareholders. The
Directors, when requested by holders of 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. The Company does not hold annual meetings of shareholders.
As of _______, 1997, Harris Trust held of record ___ shares, equal to ___%
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.
From time to time, certain shareholders may own a large percentage of the Shares
of the Fund. Accordingly, those shareholders may be able to greatly affect (if
not determine) the outcome of a shareholder vote.
REPORTS TO SHAREHOLDERS
The fiscal year of the Company ends on December 31. The Company sends to
its shareholders a semi-annual report showing the investments by the Fund and
other information (including unaudited financial statements) pertaining to the
Company. An annual report, containing financial statements audited by the
Company's independent accountants, is also sent to shareholders.
CALCULATION OF YIELD AND TOTAL RETURN
"Yield" refers to the amount of income generated over a 30-day period which is
then "annualized."
23
"Total return" shows what would have been earned over a specified period of time
assuming payment of the maximum sales load and reinvestment of dividends and
distributions less recurring fees.
From time to time the Fund may advertise the yield and total return of each
class of the Fund. These figures are based on historical earnings and are not
intended to indicate future performance. The yield of a class of the Fund refers
to the income generated by an investment in that class 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 total return of a class of the Fund shows what an investment
in that class 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 reinvestment of all distributions and
dividends by the class of Fund shares on their reinvestment dates during the
period less all recurring fees and, with respect to Class A Shares, the payment
of the maximum sales load when the investment was first made. 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 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.
24
<TABLE>
<S> <C>
INVESTMENT ADVISER, ADMINISTRATOR,
TRANSFER AGENT AND DIVIDEND SUB-ADMINISTRATOR
DISBURSING AGENT AND DISTRIBUTOR
Harris Trust and Savings Bank Funds Distributor, Inc.
111 West Monroe Street 60 State Street, Suite 1300
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
INVESTMENT SUB-ADVISERS INDEPENDENT ACCOUNTANTS
Jones Heward Investment
Counsel Inc.
77 King Street West
Suite 4200
P.O. Box 279
Toronto, Canada
Ontario M5K 1J5 LEGAL COUNSEL
Bell, Boyd & Lloyd
Bancomer Asesora de Fondos, Three First National Plaza
S.A. de C.V. Chicago, Illinois 60602-4207
Av. Insurgentes Sur 1811
01020, Mexico, D.F.
SUB-ADMINISTRATOR AND ACCOUNTING
SERVICES AGENT, SUB-TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809
</TABLE>
25
HARRIS INSIGHT(R) FUNDS
HARRIS INSIGHT CONVERTIBLE FUND
60 State Street, Suite 1300, Boston, Massachusetts 02109
Telephone: (800) 982-8782
HT Insight Funds, Inc., doing business as (the "Company"), is an
open-end, diversified management investment company that currently offers seven
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 and Savings Bank ("Harris Trust" or the "Investment
Adviser") is the investment adviser to the Fund and Harris Investment
Management, Inc ("HIM" or the "Portfolio Management Agent") 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 May 1, 1997,
containing more detailed information about the Fund has been filed with the
Securities and Exchange Commission (the "Commission") and (together with any
supplements thereto) is incorporated by reference into this Prospectus. The
Statement of Additional Information and the most recent financial statements may
be obtained without charge by writing or calling the Company at the address and
telephone number printed above. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information and
other information regarding the Fund. 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 Company 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 AND 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 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.
May 1, 1997
TABLE OF CONTENTS
PAGE
----
Expense Table...........................................................
Highlights..............................................................
Financial Highlights....................................................
Investment Objective and Policies.......................................
Investment Strategies...................................................
Management..............................................................
Determination of Net Asset Value........................................
Purchase of Shares......................................................
Redemption of Shares....................................................
Exchange Privilege......................................................
Service Plan............................................................
Dividends and Distributions.............................................
Federal Income Taxes....................................................
Account Services........................................................
Organization and Description of Shares..................................
Reports to Shareholders.................................................
Calculation of Yield and Total Return...................................
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 JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
2
EXPENSE TABLE
The following table illustrates information concerning shareholder
transaction expenses and annual Fund operating expenses for Shares of the Fund.
Shareholder transaction expenses are charges you pay when you buy, sell or hold
shares of the Fund. Annual operating expenses are factored into the Fund's share
price and are not charged directly to shareholder accounts.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases 4.50%
ANNUAL FUND OPERATING EXPENSES*:
(as a percentage of average net assets)
Advisory Fees (after fee waivers)+ %
Rule 12b-1 Fees %
Other Expenses (after expense
reimbursements)+ %
Total Fund Operating Expenses (after fee ------
waivers and %
expense reimbursements)+ ======
- -----------------------------------------------------------
*Customers of a financial institution, such as Harris Trust, may also
be charged certain fees and expenses by the institution. These fees may vary
depending on the capacity in which the institution provides fiduciary and
investment services to the particular client (such as, personal trust, estate
settlement, advisory and custodian services).
+Without any fee waivers and expense reimbursements, advisory fees,
other expenses and total operating expenses for the fiscal year ended December
31, 1996 for the Fund would have been ___%, ___% and ___%, respectively.
Expenses are based on amounts incurred during the most recent fiscal year.
3
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 $
3 years
5 years
10 years
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
HIGHLIGHTS
The Harris Insight Convertible Fund seeks to provide capital
appreciation and current income by investing, at least 65% of its assets in
securities such as bonds, debentures, notes, preferred stocks or warrants that
are convertible into common stocks. See page __ below.
WHO MANAGES THE FUND'S INVESTMENTS?
Harris Trust and Savings Bank is the investment adviser for the Fund.
Harris Trust and its affiliates have provided investment management services to
clients for over 100 years. Harris Trust provides investment services for
pension, profit-sharing and personal portfolios. As of December 31, 1996, assets
under management totaled approximately $__ billion. See page __.
Harris Investment Management, Inc. provides daily portfolio management
services for the Fund. HIM and its predecessors have managed client assets for
over 80 years. As of December 31, 1996, HIM had a staff of __, including __
professionals, providing investment expertise to the management of Harris
Insight Funds and for pension, profit-sharing and institutional portfolios. At
that date, assets under management were approximately $__ billion. See page __.
Harris Trust and HIM are subsidiaries of Harris Bankcorp., Inc., which
in turn is a subsidiary of Bank of Montreal.
WHAT ADVANTAGES DOES THE FUND OFFER?
The Fund is designed for individual and institutional investors. An
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 paid quarterly. Any capital gains
distributions will be paid annually. See page __.
HOW ARE SHARES REDEEMED?
Shares may be redeemed at their next determined net asset value after
receipt of a proper request by the Registered Representative servicing your
account, the Sub-Transfer Agent, or through any Service Agent. See page __.
WHAT RISKS ARE ASSOCIATED WITH THE FUND?
5
The Fund's performance and price per share changes 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."
FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the financial
statements of the Fund for the year ended December 31, 1996 and have been
audited by ______, independent accountants. This information should be read in
conjunction with the Fund's financial statements. These financial statements,
along with the independent accountants' report thereon, are contained in the
Company's Annual Report and are incorporated by reference into the Statement of
Additional Information. Further information about the Fund's performance is
contained in the Annual Report, which may be obtained from the Company without
charge.
[FINANCIAL HIGHLIGHTS TABLE]
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.
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 &
6
Poor's ("S&P"), "B" ("b" in the case of preferred stocks) or better by Moody's
Investors Service ("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
10% 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.
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.
7
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 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
8
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.
During the most recent fiscal year, the average monthly dollar-weighted
market value of the Fund's portfolio securities, including corporate bonds and
commercial paper, was rated as follows: AA, %; A, %; BBB/Baa, %; BB/Ba, %; B, %.
--------------
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 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
9
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.
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.
A floating or variable rate instrument may be subject to the Fund's
percentage limitation on illiquid investments if there is no reliable trading
market for the investment or if the Fund may not demand payment of the principal
amount within seven days.
FOREIGN SECURITIES. The 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
10
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.
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.
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
11
of providing investment leverage and may be more volatile than long-term,
fixed-rate, tax-exempt obligations.
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.
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.
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
12
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.
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.
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 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.
13
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.
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.
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
14
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.
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.
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.
15
BOARD OF DIRECTORS
C. Gary Gerst Chairman of the Board of Directors; Chairman
Emeritus, LaSalle Partners, Ltd. (real estate
developer and manager).
Edgar R. Fiedler Senior Fellow and Economic Counsellor, The
Conference Board.
John W. McCarter, Jr. President and Chief Executive Officer, The Field
Museum of Natural History (Chicago); 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, 1996, Harris Trust had assets of more than $__ billion and was the
largest of 14 banks owned by Harris Bankcorp, Inc. Harris Bankcorp, Inc. is a
wholly-owned subsidiary of Bankmont Financial Corp., which is a wholly-owned
subsidiary of Bank of Montreal, a publicly traded Canadian banking institution.
As of December 31, 1996, Harris Trust managed more than $__ billion in
personal trust assets, and acted as custodian of more than $__ 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 fee at the annual rate of 0.70%,
of the average daily net assets of the Fund. For the fiscal year ended December
31, 1996, 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.]
16
PORTFOLIO MANAGEMENT AGENT
Harris Trust has entered into a Portfolio Management Contract with
Harris Investment Management, Inc. 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 December 31, 1996, HIM
managed an estimated $__ 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
Many persons on the staffs of the Investment Adviser and the Portfolio
Management Agent contribute to the investment management services provided to
the Fund. The following person, however, is primarily responsible for the
day-to-day management of the portfolio of the Fund:
[Portfolio Manager Biography]
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
17
their subsidiaries or affiliates, as well as future changes in federal statutes
or regulations and judicial or administrative decisions or interpretations
thereof, could prevent Harris Trust or HIM from continuing to perform, in whole
or in part, such services. If Harris Trust or HIM were prohibited from
performing any of such services, it is expected that the Board of Directors of
the Company would recommend to the 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.
ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
Harris Trust (the "Administrator") serves as the administrator of the
Fund and in that capacity generally assists the Fund in all aspects of its
administration and operation. Harris Trust also serves as the transfer and
dividend disbursing agent of the Fund (the "Transfer Agent").
The Administrator has entered into a Sub-Administration Agreement with
Funds Distributor, Inc. (the "Sub-Administrator"), pursuant to which the
Sub-Administrator performs certain administrative services for the Fund. The
Administrator has also entered into a Sub-Administration and Accounting Services
Agreement with PFPC Inc. ("PFPC" or the "Sub-Administrator and Accounting
Services Agent"). Under these Agreements, the Administrator compensates the
Sub-Administrator and the Sub-Administrator and Accounting Services Agent for
providing such services.
The Transfer Agent has entered into a Sub-Transfer Agency Services
Agreement with PFPC (the "Sub-Transfer Agent"), pursuant to which the
Sub-Transfer Agent performs certain transfer agency and dividend disbursing
agency services. Under this Agreement, the Transfer Agent compensates the
Sub-Transfer Agent for providing such services.
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 Administrator, the Transfer
Agent and the Custodian are entitled to receive a combined fee based on the
aggregate average daily net assets of the portfolios of the
18
Company and Harris Insight Funds Trust, 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, the Fund pays a separate fee to the Sub-Transfer Agent for certain
retail sub-transfer agent services and reimburses the Custodian for various
custody transactional expenses.
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 Administrator. The Distributor bears the
cost of printing and mailing prospectuses to potential investors and any
advertising expenses incurred by it in connection with the distribution of 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.
See "Management" and "Custodian" in the Statement of Additional
Information for additional information regarding the Fund's Investment Adviser,
Portfolio Management Agent, Administrator, Custodian, Transfer Agent and
Distributor.
EXPENSES
Except for certain expenses borne by the Distributor, Harris Trust or
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 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; fees of pricing services; organizational
expenses; and any
19
extraordinary expenses. Expenses attributable to the Fund are borne by that
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.
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 (i.e., each weekday other than New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day
and Christmas Day). 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 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., Eastern 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
20
transmit purchase orders directly to the Sub-Transfer Agent. Institutions are
responsible for the prompt transmission of purchase, exchange or redemption
orders, and may independently establish and charge additional fees to their
customers for such services, which would reduce the customers' yield or return.
No minimum initial or subsequent investment limitations have been imposed. Each
Institution through which shares may be purchased may establish its own terms
with respect to the requirement of a minimum initial investment and minimum
subsequent investments.
The 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
Sub-Transfer Agent prior to the close of regular trading (4:00 P.M., Eastern
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
Sub-Transfer Agent 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 to the Institution except as
described below. No sales charge will be assessed on the reinvestment of
distributions.
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 is assessed on Class A Shares that are purchased
directly from the Funds (i.e., not purchased through an Institution). In
21
addition, no sales charge will be assessed on purchases by (a) any bank, trust
company, or other institution acting on behalf of a fiduciary customer account
or any other trust account (including a pension, profit-sharing or other
employee benefit trust created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code of 1986, as amended (the "Code")); (b) any individual
with an investment account or relationship with HIM; (c) directors and officers
of the Company; (d) any director, current or retired employee of Harris
Bankcorp, Inc. or any of its affiliates or an immediate family member of such
individual (spouses and children under 21); (e) any broker, dealer, or agent who
has a sales agreement with the Distributor, and their employees (and the
immediate family members of such individuals); and (f) financial institutions,
financial planners, employee benefit plan consultants or registered investment
advisers acting for the accounts of their clients.
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 Company and Harris
Insight Funds Trust, an affiliated investment 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
22
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 Sub-Transfer Agent 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 Sub-Transfer Agent 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 Sub-Transfer Agent prior to the close of business, will
be executed at the Fund's net asset value next determined on the next business
day.
Redemption orders for the Fund that are received in good order by 4:00
P.M. (Eastern 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
23
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 investment portfolio of the Company or
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.
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 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 voluntarily bear the costs of such
fees to certain Service Agents. The Administrator, Sub-Administrators and the
Distributor may act as Service Agents and receive fees under the Service Plan.
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
24
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.
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.
FEDERAL INCOME TAXES
The Fund is treated as a separate entity for tax purposes and thus the
provisions of the Internal Revenue Code (the "Code") generally are applied to
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 and to distribute to the
shareholders of the Fund sufficient investment income and net realized capital
gains of the Fund so that the Fund will not be subject to federal income taxes
25
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 of corporate shareholders.
A taxable gain or loss may also be realized by shareholders 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 Sub-Transfer Agent.
ACCOUNT SERVICES
Shareholders receive a statement of account whenever a share
transaction, dividend or capital gain distribution is effected in the accounts,
or at least annually. Shareholders 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 seven portfolios in operation. The
Board has authorized each of the three Harris Insight money market funds to
issue three classes of Shares (Class A, Class B and Institutional Shares). Each
Harris Insight non-money market fund offers two classes of Shares (except the
Fund, which offers only 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
26
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 , Harris Trust held of record shares, equal to % 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. From
time to time, certain shareholders may own a large percentage of the Shares of
the Fund. Accordingly, those shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote.
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.
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
27
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
<TABLE>
<S> <C>
INVESTMENT ADVISER, ADMINISTRATOR,
TRANSFER AGENT AND DIVIDEND DISBURSING
AGENT SUB-ADMINISTRATOR AND DISTRIBUTOR
Harris Trust and Savings Bank Funds Distributor, Inc.
111 West Monroe Street 60 State Street, Suite 1300
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
SUB-ADMINISTRATOR AND ACCOUNTING SERVICES AGENT,
INDEPENDENT ACCOUNTANTS SUB-TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
PFPC Inc.
103 Bellevue Parkway LEGAL COUNSEL
Wilmington, Delaware 19809 Bell, Boyd & Lloyd
Three First National Plaza
Chicago, Illinois 60602-4207
</TABLE>
29
HARRIS INSIGHT(R) FUNDS
STATEMENT OF ADDITIONAL INFORMATION
60 State Street, Suite 1300, Boston, Massachusetts 02109
Telephone: (800) 982-8782
May 1, 1997
The Harris Insight Funds Trust (the "Trust") is an open-end,
diversified management investment company that currently offers a selection of
twelve investment portfolios. HT Insight Funds, Inc. d/b/a Harris Insight Funds
(the "Company") is an open-end, diversified management investment company that
currently offers a selection of seven investment portfolios. The twelve
portfolios of the Trust and five of the seven portfolios of the Company
(collectively, the "Funds") are detailed in this Statement of Additional
Information. The investment objectives of the Funds are described in the
Prospectus. See "Investment Objectives and Policies." The Funds are as follows:
<TABLE>
<CAPTION>
<S> <C>
* Harris Insight International Fund (the "International Fund")
* Harris Insight Small-Cap Opportunity Fund (the "Small-Cap Fund")
* Harris Insight Small-Cap Value Fund (the "Small-Cap Value Fund")
* Harris Insight Growth Fund (the "Growth Fund")
* Harris Insight Equity Fund (the "Equity Fund")
* Harris Insight Equity Income Fund (the "Equity Income Fund")
* Harris Insight Index Fund (the "Index Fund")
* Harris Insight Balanced Fund (the "Balanced Fund")
* Harris Insight Convertible Securities Fund (the "Convertible Securities Fund")
* Harris Insight Tax-Exempt Bond Fund (the "Tax-Exempt Fund")
* Harris Insight Bond Fund (the "Bond Fund")
* Harris Insight Intermediate Tax-Exempt Bond Fund (the "Intermediate Tax-Exempt Fund")
* Harris Insight Short/Intermediate Bond Fund (the "Short/Intermediate Fund")
* Harris Insight Intermediate Government Bond Fund (the "Government Fund")
* Harris Insight Tax-Exempt Money Market Fund (the "Tax-Exempt Money Fund")
* Harris Insight Money Market Fund (the "Money Fund")
* Harris Insight Government Money Market Fund (the "Government Money Fund")
</TABLE>
Each of the Trust's twelve Funds has two classes of shares, Class A
Shares and Institutional Shares. Each of the two Funds of the Company described
in this Statement of Additional Information, the Equity Fund and the
Short/Intermediate Fund, also have two classes of shares, Class A Shares and
Institutional Shares. The remaining three Funds of the Company described in this
Statement of Additional Information, the Government Money Fund, the Money Fund
and the Tax-Exempt Money Fund (collectively, the "Money Market Funds") each have
three classes of Shares, Class A, Class B and Institutional Shares.
This Statement of Additional Information is not a prospectus and is
authorized for distribution only when preceded or accompanied by the Funds'
related Prospectuses dated May 1, 1997 and any supplement thereto (the
"Prospectuses"). This Statement of Additional Information
1
contains additional information that should be read in conjunction with each of
the Prospectuses, additional copies of which may be obtained without charge from
the Company's and the Trust's distributor, Funds Distributor, Inc., by writing
or calling the Funds at the address or telephone number given above.
2
TABLE OF CONTENTS
Investment Strategies Federal Income Taxes
Ratings Capital Stock and
Investment Restrictions Beneficial Interest
Management Other
Service Plans Custodian
Calculation of Yield and Total Return Independent Accountants
Determination of Net Asset Value Financial Statements
Portfolio Transactions Appendix A-1
3
INVESTMENT STRATEGIES
ASSET-BACKED SECURITIES. Asset-backed securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in the underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations and are generally issued as the debt of
a special purpose entity organized solely for the purpose of owning such assets
and issuing such debt. Asset-backed securities are often backed by a pool of
assets representing the obligations of a number of different parties. Payments
of principal and interest may be guaranteed up to certain amounts and for a
certain time period by a letter of credit issued by a financial institution
unaffiliated with the entities issuing the securities.
The estimated life of an asset-backed security varies with the
prepayment experience with respect to the underlying debt instruments. The rate
of such prepayments, and hence the life of the asset-backed security, will be
primarily a function of current market interest rates, although other economic
and demographic factors may be involved.
CONVERTIBLE SECURITIES. Because they have the characteristics of both
fixed-income securities and common stock, convertible securities sometimes are
called "hybrid" securities. Convertible bonds, debentures and notes are debt
obligations offering a stated interest rate; convertible preferred stocks are
senior securities offering a stated dividend rate. Convertible securities will
at times be priced in the market like other fixed income securities: that is,
their prices will tend to rise when interest rates decline and will tend to fall
when interest rates rise. However, because a convertible security provides an
option to the holder to exchange the security for either a specified number of
the issuer's common shares at a stated price per share or the cash value of such
common shares, the security market price will tend to fluctuate in relationship
to the price of the common shares into which it is convertible. Thus,
convertible securities ordinarily will provide opportunities both for producing
current income and longer-term capital appreciation. Because convertible
securities are usually viewed by the issuer as future common stock, they are
generally subordinated to other senior securities and therefore are rated one
category lower than the issuer's non-convertible debt obligations or preferred
stock. Securities rated "B" or "CCC" (or "Caa") are regarded as having
predominantly speculative characteristics with respect to the issuer's capacity
to pay interest and repay principal, with "B" indicating a lesser degree of
speculation than "CCC" (or "Caa"). While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions. Securities rated "CCC" (or "Caa") have a
currently identifiable vulnerability to default and are dependent upon favorable
business, financial, and economic conditions to meet timely payment of interest
and repayment of principal. In the event of adverse business, financial, or
economic conditions, they are not likely to have the capacity to pay interest
and repay principal.
While the market values of low-rated and comparable unrated securities
tend to react less to fluctuations in interest rate levels than the market
values of higher-rated securities, the market values of certain low-rated and
comparable unrated securities also tend to be 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
4
methods of financing available to them so that their ability to service their
debt obligations during an economic downturn or during sustained periods of
rising interest rates may be impaired. The risk of loss due to default by such
issuers is significantly greater because low-rated and comparable unrated
securities generally are unsecured and frequently are subordinated to the prior
payment of senior indebtedness. A Fund may incur additional expenses to the
extent that it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings. The existence of limited
markets for low-rated and comparable unrated securities may diminish the Fund's
ability to obtain accurate market quotations for purposes of valuing such
securities and calculating its net asset value.
Fixed-income securities, including low-rated securities and comparable
unrated securities, frequently have call or buy-back features that permit their
issuers to call or repurchase the securities from their holders, such as a Fund.
If an issuer exercises these rights during periods of declining interest rates,
the Fund may have to replace the security with a lower yielding security, thus
resulting in a decreased return to the Fund.
To the extent that there is no established retail secondary market for
low-rated and comparable unrated securities, there may be little trading of such
securities in which case the responsibility of the Trust's Board of Trustees or
the Company's Board of Directors, as the case may be, to value such securities
becomes more difficult and judgment plays a greater role in valuation because
there is less reliable, objective data available. In addition, a Fund's ability
to dispose of the bonds may become more difficult. Furthermore, adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield bonds, especially
in a thinly traded market.
The market for certain low-rated and comparable unrated securities is
relatively new and has not weathered a major economic recession. The effect that
such a recession might have on such securities is not known. Any such recession,
however, could likely disrupt severely the market for such securities and
adversely affect the value of such securities. Any such economic downturn also
could adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and could result in a higher incidence of
defaults.
FLOATING AND VARIABLE RATE OBLIGATIONS. Harris Investment Management,
Inc. ("HIM" or the "Portfolio Management Agent") or Harris Trust and Savings
Bank ("Harris Trust" or the "Investment Adviser") with respect to the Tax-Exempt
Money Fund will monitor, on an ongoing basis, the ability of an issuer of a
floating or variable rate demand instrument to pay principal and interest on
demand. A Fund's right to obtain payment at par on a demand instrument could be
affected by events occurring between the date the Fund elects to demand payment
and the date payment is due that may affect the ability of the issuer of the
instrument to make payment when due, except when such demand instrument permits
same day settlement. To facilitate settlement, these same day demand instruments
may be held in book entry form at a bank other than the Funds' custodian subject
to a sub-custodian agreement between the bank and the Funds' custodian.
The floating and variable rate obligations that the Funds may purchase
include certificates of participation in such obligations purchased from banks.
A certificate of participation gives a Fund an undivided interest in the
underlying obligations in the proportion that the Fund's interest bears to
5
the total principal amount of the obligation. Certain certificates of
participation may carry a demand feature that would permit the holder to tender
them back to the issuer prior to maturity. The Money Market Funds may invest in
certificates of participation even if the underlying obligations carry stated
maturities in excess of thirteen months upon compliance with certain conditions
contained in a rule of the Securities and Exchange Commission (the
"Commission"). The income received on certificates of participation in
tax-exempt municipal obligations constitutes interest from tax-exempt
obligations.
FOREIGN SECURITIES. As discussed in the Prospectus, investing in
foreign securities generally represents a greater degree of risk than investing
in domestic securities, due to possible exchange rate fluctuations, less
publicly available information, more volatile markets, less securities
regulation, less favorable tax provisions, war or expropriation. As a result of
its investments in foreign securities, a Fund may receive interest or dividend
payments, or the proceeds of the sale or redemption of such securities, in the
foreign currencies in which such securities are denominated.
The International Fund may purchase non-dollar securities denominated
in the currency of countries where the interest rate environment as well as the
general economic climate provide an opportunity for declining interest rates and
currency appreciation. If interest rates decline, such non-dollar securities
will appreciate in value. If the currency also appreciates against the dollar,
the total investment in such non-dollar securities would be enhanced further.
(For example, if United Kingdom bonds yield 14% during a year when interest
rates decline causing the bonds to appreciate by 5% and the pound rises 3%
versus the dollar, then the annual total return of such bonds would be 22%. This
example is illustrative only.) Conversely, a rise in interest rates or decline
in currency exchange rates would adversely affect the Fund's return.
Investments in non-dollar securities are evaluated primarily on the
strength of a particular currency against the dollar and on the interest rate
climate of that country. Currency is judged on the basis of fundamental economic
criteria (e.g., relative inflation levels and trends, growth rate forecasts,
balance of payments status and economic policies) as well as technical and
political data. In addition to the foregoing, interest rates are evaluated on
the basis of differentials or anomalies that may exist between different
countries.
FORWARD CONTRACTS. Forward Contracts may be entered into by the Equity
Fund, the Equity Income Fund, the Growth Fund, the Small-Cap Fund, the Small-Cap
Value Fund, the Index Fund, the International Fund and the Balanced Fund
(collectively, the "Equity Funds") for hedging purposes as well as for
non-hedging purposes. Forward Contracts may also be entered into for "cross
hedging" as noted in the Prospectus. Transactions in Forward Contracts entered
into for hedging purposes will include forward purchases or sales of foreign
currencies for the purpose of protecting the dollar value of securities
denominated in a foreign currency or protecting the dollar equivalent of
interest or dividends to be paid on such securities. By entering into such
transactions, however, the Fund may be required to forego the benefits of
advantageous changes in exchange rates. A Fund may also enter into transactions
in Forward Contracts for other than hedging purposes which presents greater
profit potential but also involves increased risk. For example, if the Adviser
believes that the value of a particular foreign currency will increase or
decrease relative to the value of the U.S. dollar, a Fund may purchase or sell
such currency, respectively, through a Forward Contract. If the expected changes
in the value of the currency occur, a Fund will realize
6
profits which will increase its gross income. Where exchange rates do not move
in the direction or to the extent anticipated, however, a Fund may sustain
losses which will reduce its gross income. Such transactions, therefore, could
be considered speculative.
The Equity Funds have established procedures consistent with statements
by the Commission and its staff regarding the use of Forward Contracts by
registered investment companies, which require the use of segregated assets or
"cover" in connection with the purchase and sale of such contracts. In those
instances in which a Fund satisfies this requirement through segregation of
assets, it will maintain, in a segregated account, cash, cash equivalents or
high grade debt securities, which will be marked to market on a daily basis, in
an amount equal to the value of its commitments under Forward Contracts.
GOVERNMENT SECURITIES. Government securities consist of obligations
issued or guaranteed by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises ("Government Securities"). Obligations of the United
States Government agencies and instrumentalities are debt securities issued by
United States Government-sponsored enterprises and federal agencies. Some of
these obligations are supported by: (a) the full faith and credit of the United
States Treasury (such as Government National Mortgage Association participation
certificates); (b) the limited authority of the issuer to borrow from the United
States Treasury (such as securities of the Federal Home Loan Bank); (c) the
discretionary authority of the United States Government to purchase certain
obligations (such as securities of the Federal National Mortgage Association);
or (d) the credit of the issuer only. In the case of obligations not backed by
the full faith and credit of the United States, the investor must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment. In cases where United States Government support of agencies or
instrumentalities is discretionary, no assurance can be given that the United
States Government will provide financial support, since it is not lawfully
obligated to do so.
INTEREST RATE FUTURES CONTRACTS AND RELATED OPTIONS. All Equity Funds,
the Convertible Securities Fund, the Bond Fund, the Government Fund, the
Intermediate Tax-Exempt Fund and the Tax-Exempt Fund may invest in interest rate
futures contracts and options on such contracts that are traded on a domestic
exchange or board of trade. Such investments may be made by a Fund solely for
the purpose of hedging against changes in the value of its portfolio securities
due to anticipated changes in interest rates and market conditions, and not for
purposes of speculation. A public market exists for interest rate futures
contracts covering a number of debt securities, including long-term United
States Treasury Bonds, ten-year United States Treasury Notes, three-month U.S.
Treasury Bills and three-month domestic bank certificates of deposit. Other
financial futures contracts may be developed and traded. The purpose of the
acquisition or sale of an interest rate futures contract by a Fund, as the
holder of municipal or other debt securities, is to protect the Fund from
fluctuations in interest rates on securities without actually buying or selling
such securities.
Unlike the purchase or sale of a security, no consideration is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially, a
Fund will be required to deposit with the broker an amount of cash or cash
equivalents equal to approximately 10% of the contract amount (this amount is
subject to change by the board of trade on which the contract is traded and
members of such board of trade may charge a higher amount). This amount is known
as initial margin and is in the nature of a performance bond or good faith
deposit on the contract which is returned to the
7
Fund upon termination of the futures contract, assuming that all contractual
obligations have been satisfied. Subsequent payments, known as variation margin,
to and from the broker, will be made on a daily basis as the price of the index
fluctuates making the long and short positions in the futures contract more or
less valuable, a process known as marking-to-market. At any time prior to the
expiration of the contract, a Fund may elect to close the position by taking an
opposite position, which will operate to terminate the Fund's existing position
in the futures contract.
A Fund may not purchase or sell futures contracts or purchase options
on futures contracts if, immediately thereafter, more than one-third of its net
assets would be hedged, or the sum of the amount of margin deposits on the
Fund's existing futures contracts and premiums paid for options would exceed 5%
of the value of the Fund's total assets. When a Fund enters into futures
contracts to purchase an index or debt security or purchase call options, an
amount of cash, U.S. government securities or other appropriate assets equal to
the national market value of the underlying contract will be deposited and
maintained in a segregated account with the Fund's custodian to collateralize
the positions, thereby insuring that the use of the contract is unleveraged.
Although a Fund will enter into futures contracts only if an active
market exists for such contracts, there can be no assurance that an active
market will exist for the contract at any particular time. Most domestic futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular contract, no trades may be made
that day at a price beyond that limit. The daily limit governs only price
movement during a particular trading day and therefore does not limit potential
losses because the limit may prevent the liquidation of unfavorable positions.
It is possible that futures contract prices could move to the daily limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and subjecting some futures traders to
substantial losses. In such event, it will not be possible to close a futures
position and, in the event of adverse price movements, a Fund would be required
to make daily cash payments of variation margin. In such circumstances, an
increase in the value of the portion of the portfolio being hedged, if any, may
partially or completely offset losses on the futures contract. As described
above, however, there is no guarantee the price of municipal bonds or of other
debt securities will, in fact, correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract.
If a Fund has hedged against the possibility of an increase in interest
rates adversely affecting the value of municipal bonds or other debt securities
held in its portfolio and rates decrease instead, the Fund will lose part or all
of the benefit of the increased value of the securities it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if a Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. Such sales of securities may, but will
not necessarily, be at increased prices which reflect the decline in interest
rates. A Fund may have to sell securities at a time when it may be
disadvantageous to do so.
8
In addition, the ability of a Fund to trade in futures contracts and
options on futures contracts may be materially limited by the requirements of
the Internal Revenue Code of 1986, as amended (the "Code"), applicable to a
regulated investment company. See "Federal Income Taxes" below.
A Fund may purchase put and call options on interest rate futures
contracts which are traded on a domestic exchange or board of trade as a hedge
against changes in interest rates, and may enter into closing transactions with
respect to such options to terminate existing positions. There is no guarantee
such closing transactions can be effected.
Options on futures contracts, as contrasted with the direct investment
in such contracts, give the purchaser the right, in return for the premium paid,
to assume a position in futures contracts at a specified exercise price at any
time prior to the expiration date of the options. Upon exercise of an option,
the delivery of the futures position by the writer of the option to the holder
of the option will be accompanied by delivery of the accumulated balance in the
writer's futures margin account, which represents the amount by which the market
price of the futures contract exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the futures contract.
The potential loss related to the purchase of an option on interest rate futures
contracts is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there are
no daily cash payments to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and that change
would be reflected in the net asset value of a Fund.
There are several risks in connection with the use of interest rate
futures contracts and options on such futures contracts as hedging devices.
Successful use of these derivative securities by a Fund is subject to the
Portfolio Management Agent's ability to predict correctly movements in the
direction of interest rates. Such predictions involve skills and techniques
which may be different from those involved in the management of long-term
municipal bond portfolio. There can be no assurance that there will be a
correlation between price movements in interest rate futures, or related
options, on the one hand, and price movements in the municipal bond or other
debt securities which are the subject to the hedge, on the other hand. Positions
in futures contracts and options on futures contracts may be closed out only on
an exchange or board of trade that provides an active market, therefore, there
can be no assurance that a liquid market will exist for the contract or the
option at any particular time. Consequently, a Fund may realize a loss on a
futures contract that is not offset by an increase in the price of the municipal
bonds or other debt securities being hedged or may not be able to close a
futures position in the event of adverse price movements. Any income earned from
transactions in futures contracts and options on futures contracts will be
taxable. Accordingly, it is anticipated that such investments will be made only
in unusual circumstances, such as when the Portfolio Management Agent
anticipates an extreme change in interest rates or market conditions.
See additional risk disclosure below under "Index Futures Contracts and
Options on Index Futures Contracts."
LETTERS OF CREDIT. Debt obligations, including municipal obligations,
certificates of participation, commercial paper and other short-term
obligations, may be backed by an irrevocable letter of credit of a bank that
assumes the obligation for payment of principal and interest in the
9
event of default by the issuer. Only banks that, in the opinion of the Portfolio
Management Agent, or the Investment Adviser with respect to the Tax-Exempt Money
Fund, are of investment quality comparable to other permitted investments of a
Fund, may be used for letter of credit backed investments.
LOANS OF PORTFOLIO SECURITIES. Each Fund, except the Money Market
Funds, may lend to brokers, dealers and financial institutions securities from
its portfolio representing up to one-third of the Fund's net assets if cash or
cash equivalent collateral, including letters of credit, marked-to-market daily
and equal to at least 100% of the current market value of the securities loaned
(including accrued interest and dividends thereon) plus the interest payable to
the Fund with respect to the loan is maintained by the borrower with the Fund in
a segregated account. In determining whether to lend a security to a particular
broker, dealer or financial institution, the Portfolio Management Agent will
consider all relevant facts and circumstances, including the creditworthiness of
the broker, dealer or financial institution. No Fund will enter into any
portfolio security lending arrangement having a duration of longer than one
year. Any securities that a Fund may receive as collateral will not become part
of the Fund's portfolio at the time of the loan and, in the event of a default
by the borrower, the Fund will, if permitted by law, dispose of such collateral
except for such part thereof that is a security in which the Fund is permitted
to invest. During the time securities are on loan, the borrower will pay the
Fund any accrued income on those securities, and the Fund may invest the cash
collateral and earn additional income or receive an agreed upon fee from a
borrower that has delivered cash equivalent collateral. Loans of securities by a
Fund will be subject to termination at the Fund's or the borrower's option. Each
Fund may pay reasonable administrative and custodial fees in connection with a
securities loan and may pay a negotiated fee to the borrower or the placing
broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with the Company, the Trust, the Investment Adviser, the Portfolio
Management Agent or the Distributor.
MORTGAGE-RELATED SECURITIES. All Equity Funds, the Short/Intermediate
Fund, the Bond Fund and the Government Fund may invest in mortgage-backed
securities, including collateralized mortgage obligations ("CMOs") and
Government Stripped Mortgage-Backed Securities. The Government Fund may purchase
such securities only if they represent interests in an asset-backed trust
collateralized by the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA"), or the Federal Home Loan
Mortgage Corporation ("FHLMC").
CMOs are types of bonds secured by an underlying pool of mortgages or
mortgage pass-through certificates that are structured to direct payments on
underlying collateral to different series or classes of the obligations. To the
extent that CMOs are considered to be investment companies, investments in such
CMOs will be subject to the percentage limitations described under "Investment
Company Securities" in the Prospectus.
Government Stripped Mortgage-Backed Securities are mortgage-backed
securities issued or guaranteed by GNMA, FNMA, or FHLMC. These securities
represent beneficial ownership interests in either periodic principal
distributions ("principal-only") or interest distributions ("interest-only") on
mortgage-backed certificates issued by GNMA, FNMA or FHLMC, as the case
10
may be. The certificates underlying the Government Stripped Mortgage-Backed
Securities represent all or part of the beneficial interest in pools of mortgage
loans.
Mortgage-backed securities provide a monthly payment consisting of
interest and principal payments. Additional payments may be made out of
unscheduled repayments of principal resulting from the sale of the underlying
residential property, refinancing or foreclosure, net of fees or costs that may
be incurred. Prepayments of principal on mortgage-related securities may tend to
increase due to refinancing of mortgages as interest rates decline. Prompt
payment of principal and interest on GNMA mortgage pass-through certificates is
backed by the full faith and credit of the United States. FNMA guaranteed
mortgage pass-through certificates and FHLMC participation certificates are
solely the obligations of those entities but are supported by the discretionary
authority of the U.S. Government to purchase the agencies' obligations.
Investments in interest-only Government Stripped Mortgage-Backed
Securities will be made in order to enhance yield or to benefit from anticipated
appreciation in value of the securities at times when the Portfolio Management
Agent believes that interest rates will remain stable or increase. In periods of
rising interest rates, the value of interest-only Government Stripped
Mortgage-Backed Securities may be expected to increase because of the diminished
expectation that the underlying mortgages will be prepaid. In this situation the
expected increase in the value of interest-only Government Stripped
Mortgage-Backed Securities may offset all or a portion of any decline in value
of the portfolio securities of the Fund. Investing in Government Stripped
Mortgage-Backed Securities involves the risks normally associated with investing
in mortgage-backed securities issued by government or government-related
entities. In addition, the yields on interest-only and principal-only Government
Stripped Mortgage-Backed Securities are extremely sensitive to the prepayment
experience on the mortgage loans underlying the certificates collateralizing the
securities. If a decline in the level of prevailing interest rates results in a
rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on
interest-only Government Stripped Mortgage-Backed Securities and increasing the
yield to maturity on principal-only Government Stripped Mortgage-Backed
Securities. Conversely, if an increase in the level of prevailing interest rates
results in a rate of principal prepayments lower than anticipated, distributions
of principal will be deferred, thereby increasing the yield to maturity on
interest-only Government Stripped Mortgage-Backed Securities and decreasing the
yield to maturity on principal-only Government Stripped Mortgage-Backed
Securities. Sufficiently high prepayment rates could result in a Fund's not
fully recovering its initial investment in an interest-only Government Stripped
Mortgage-Backed Security. Government Stripped Mortgage-Backed Securities are
currently traded in an over-the-counter market maintained by several large
investment banking firms. There can be no assurance that a Fund will be able to
effect a trade of a Government Stripped Mortgage-Backed Security at a time when
it wishes to do so.
MUNICIPAL LEASES. Each of the Intermediate Tax-Exempt Fund and the
Tax-Exempt Fund may acquire participations in lease obligations or installment
purchase contract obligations (hereinafter collectively called "lease
obligations") of municipal authorities or entities. Although lease obligations
do not constitute general obligations of the municipality for which the
municipality's taxing power is pledged, a lease obligation is ordinarily backed
by the municipality's covenant to budget for, appropriate, and make the payments
due under the lease obligation.
11
However, certain lease obligations contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. In addition to the "non-appropriation" risk, these securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional bonds. In the case of a
"non-appropriation" lease, a Fund's ability to recover under the lease in the
event of non-appropriation or default will be limited solely to the repossession
of the leased property in the event foreclosure might prove difficult.
In evaluating the credit quality of a municipal lease obligation and
determining whether such lease obligation will be considered "liquid," the
Portfolio Management Agent will consider: (1) whether the lease can be canceled;
(2) what assurance there is that the assets represented by the lease can be
sold; (3) the strength of the lessee's general credit (e.g., its debt,
administrative, economic, and financial characteristics); (4) the likelihood
that the municipality will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to the operations of
the municipality (e.g., the potential for an "event of non-appropriation"); and,
(5) the legal recourse in the event of failure to appropriate.
MUNICIPAL OBLIGATIONS. As discussed in the applicable Prospectus, the
Balanced Fund, the Short/Intermediate Fund, the Bond Fund, the Intermediate
Tax-Exempt Fund, the Tax-Exempt Fund and the Tax-Exempt Money Fund may invest in
tax exempt obligations to the extent consistent with each Fund's investment
objective and policies. Notes sold as interim financing in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuer.
TANs. An uncertainty in a municipal issuer's capacity to raise taxes as
a result of such events as a decline in its tax base or a rise in delinquencies
could adversely affect the issuer's ability to meet its obligations on
outstanding TANs. Furthermore, some municipal issuers mix various tax proceeds
into a general fund that is used to meet obligations other than those of the
outstanding TANs. Use of such a general fund to meet various obligations could
affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations on its
BANs is primarily dependent on the issuer's adequate access to the longer term
municipal bond market and the likelihood that the proceeds of such bond sales
will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as anticipated
revenues from another level of government, could adversely affect an issuer's
ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
The Short/Intermediate Fund, the Balanced Fund, the Bond Fund, the
Intermediate Tax-Exempt Fund and the Tax-Exempt Fund may also invest in: (1)
municipal bonds having a maturity at the time of issuance of up to 40 years that
are rated at the date of purchase "Baa" or better by
12
Moody's Investors Service ("Moody's") or "BBB" or better by Standard & Poor's
("S&P"); (2) municipal notes having maturities at the time of issuance of 15
years or less that are rated at the date of purchase "MIG 1" OR "MIG 2" (or
"VMIG 1" or "VMIG 2" in the case of an issue having a variable rate with a
demand feature) by Moody's or "SP-1+," "SP-1," or "SP-2" by S&P; and (3)
municipal commercial paper with a stated maturity of one year or less that is
rated at the date of purchase "P-2" or better by Moody's or "A-2" or better by
S&P.
PUT AND CALL OPTIONS. All Equity Funds, the Convertible Securities
Fund, the Bond Fund, the Government Fund, the Intermediate Tax-Exempt Fund and
the Tax-Exempt Fund may invest in covered put and covered call options and write
covered put and covered call options on securities in which they may invest
directly and that are traded on registered domestic securities exchanges. The
writer of a call option, who receives a premium, has the obligation, upon
exercise of the option, to deliver the underlying security against payment of
the exercise price during the option period. The writer of a put, who receives a
premium, has the obligation to buy the underlying security, upon exercise, at
the exercise price during the option period.
These Funds each may write put and call options on securities only if
they are "covered," and such options must remain "covered" as long as the Fund
is obligated as a writer. A call option is "covered" if a Fund owns the
underlying security or its equivalent covered by the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or for additional cash consideration if held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if a Fund holds on a share-for-share or
equal principal amount basis a call on the same security as the call written
where the exercise price of the call held is equal to or less than the exercise
price of the call written or greater than the exercise price of the call written
if the difference is maintained by the Fund in cash, Treasury bills or other
appropriate assets in a segregated account with its custodian. A put option is
"covered" if a Fund maintains cash, Treasury bills, or other appropriate assets
with a value equal to the exercise price in a segregated account with its
custodian, or owns on a share-for-share or equal principal amount basis a put on
the same security as the put written where the exercise price of the put held is
equal to or greater than the exercise price of the put written.
The principal reason for writing call options is to attempt to realize, through
the receipt of premiums, a greater current return than would be realized on the
underlying securities alone. In return for the premium, a Fund would give up the
opportunity for profit from a price increase in the underlying security above
the exercise price so long as the option remains open, but retains the risk of
loss should the price of the security decline. Upon exercise of a call option
when the market value of the security exceeds the exercise price, a Fund would
receive less total return for its portfolio than it would have if the call had
not been written, but only if the premium received for writing the option is
less than the difference between the exercise price and the market value. Put
options are purchased in an effort to protect the value of a security owned
against an anticipated decline in market value. A Fund may forego the benefit of
appreciation on securities sold or be subject to depreciation on securities
acquired pursuant to call or put options, respectively, written by the Fund. A
Fund may experience a loss if the value of the securities remains at or below
the exercise price, in the case of a call option, or at or above the exercise
price, in the case of a put option.
13
Each Fund may purchase put options in an effort to protect the value of
a security owned against an anticipated decline in market value. Exercise of a
put option will generally be profitable only if the market price of the
underlying security declines sufficiently below the exercise price to offset the
premium paid and the transaction costs. If the market price of the underlying
security increases, a Fund's profit upon the sale of the security will be
reduced by the premium paid for the put option less any amount for which the put
is sold.
The staff of the Commission has taken the position that purchased
options not traded on registered domestic securities exchanges and the assets
used as cover for written options not traded on such exchanges are illiquid
securities. The Trust and the Company have agreed that, pending resolution of
the issue, each of the Funds will treat such options and assets as subject to
such Fund's limitation on investment in securities that are not readily
marketable.
Writing of options involves the risk that there will be no market in
which to effect a closing transaction. An exchange-traded option may be closed
out only on an exchange that provides a secondary market for an option of the
same series, and there is no assurance that a liquid secondary market on an
exchange will exist.
REPURCHASE AGREEMENTS. A Fund may purchase portfolio securities subject
to the seller's agreement to repurchase them at a mutually agreed upon time and
price, which includes an amount representing interest on the purchase price. A
Fund may enter into repurchase agreements only with respect to obligations that
could otherwise be purchased by the Fund. The seller will be required to
maintain in a segregated account for the Fund cash or cash equivalent collateral
equal to at least 100% of the repurchase price (including accrued interest).
Default or bankruptcy of the seller would expose a Fund to possible loss because
of adverse market action, delays in connection with the disposition of the
underlying obligations or expenses of enforcing its rights.
A Fund may not enter into a repurchase agreement if, as a result, more
than 15% (10% with respect to the Equity Fund, the Short/Intermediate Fund and
the Money Market Funds) of the market value of the Fund's total net assets would
be invested in repurchase agreements with a maturity of more than seven days and
in other illiquid securities. A Fund will enter into repurchase agreements only
with registered broker/dealers and commercial banks that meet guidelines
established by the Board of Directors or Board of Trustees, as the case may be.
Certain of the Funds may enter into reverse repurchase agreements,
which are detailed in the Prospectus.
SECURITIES WITH PUTS. A put is not transferable by a Fund, although a
Fund may sell the underlying securities to a third party at any time. If
necessary and advisable, any Fund may pay for certain puts either separately, in
cash or by paying a higher price for portfolio securities that are acquired
subject to such a put (thus reducing the yield to maturity otherwise available
for the same securities). The Funds expect, however, that puts generally will be
available without the payment of any direct or indirect consideration.
14
All Equity Funds, the Short/Intermediate Fund, the Bond Fund, the
Government Fund, the Intermediate Tax-Exempt Fund, the Tax-Exempt Fund, the
Government Money Fund, the Money Fund and the Tax-Exempt Money Fund intend to
enter into puts solely to maintain liquidity and do not intend to exercise their
rights thereunder for trading purposes. The puts will only be for periods
substantially less than the life of the underlying security. The acquisition of
a put will not affect the valuation by a Fund of the underlying security. The
actual put will be valued at zero in determining net asset value in the case of
the Money Market Funds. Where a Fund pays directly or indirectly for a put, its
costs will be reflected as an unrealized loss of the period during which the put
is held by the Fund and will be reflected in realized gain or loss when the put
is exercised or expires. If the value of the underlying security increases, the
potential for unrealized or realized gain is reduced by the cost of the put. The
maturity of a municipal obligation purchased by a Fund will not be considered
shortened by any put to which the obligation is subject.
INDEX FUTURES CONTRACTS AND OPTIONS ON INDEX FUTURES CONTRACTS. All
Equity Funds, the Convertible Securities Fund, the Bond Fund, the Government
Fund, the Intermediate Tax-Exempt Fund and the Tax-Exempt Fund may attempt to
reduce the risk of investment in equity and other securities by hedging a
portion of its portfolio through the use of futures contracts on indices and
options on such indices traded on national securities exchanges. Each of these
Funds may hedge a portion of its portfolio by selling index futures contracts to
limit exposure to decline. During a market advance or when the Portfolio
Management Agent anticipates an advance, a Fund may hedge a portion of its
portfolio by purchasing index futures or options on indices. This affords a
hedge against the Fund's not participating in a market advance at a time when it
is not fully invested and serves as a temporary substitute for the purchase of
individual securities that may later by purchased in a more advantageous manner.
The Index Fund may maintain Standard & Poor's 500 Index futures contracts to
simulate full investment in that index while retaining a cash position for fund
management purposes, to facilitate trading or to reduce transaction costs. A
Fund will sell options on indices only to close out existing hedge positions.
A securities index assigns relative weightings to the securities in the
index, and the index generally fluctuates with changes in the market values of
these securities. A securities index futures contract is an agreement in which
one party agrees to deliver to the other an amount of cash equal to a specific
dollar amount times the difference between the value of a specific securities
index at the close of the last trading day of the contract and the price at
which the agreement is made. Unlike the purchase or sale of an underlying
security, no consideration is paid or received by a Fund upon the purchase or
sale of a securities index futures contract. When the contract is executed, each
party deposits with a broker or in a segregated custodial account a percentage
of the contract amount which may be as low as 5%, called the "initial margin."
During the term of the contract, the amount of this deposit is adjusted based on
the current value of the futures contract by payments of variation margin to or
from the broker or segregated account.
Municipal bond index futures contracts, which are based on an index of
40 tax-exempt, municipal bonds with an original issue size of at least $50
million and a rating of A or higher by S&P or A or higher by Moody's, began
trading in mid-1985. No physical delivery of the underlying municipal bonds in
the index is made. The Fund may utilize any such contracts and associated put
and call options for which there is an active trading market.
15
Except for the Index Fund, a Fund will use index futures contracts only
as a hedge against changes resulting from market conditions in the values of
securities held in the Fund's portfolio or which it intends to purchase and
where the transactions are economically appropriate to the reduction of risks
inherent in the ongoing management of the Fund. A Fund will sell index futures
only if the amount resulting from the multiplication of the then current level
of the indices upon which its futures contracts which would be outstanding, do
not exceed one-third of the value of the Fund's net assets. Also, a Fund may not
purchase or sell index futures if, immediately thereafter, the sum of the
premiums paid for unexpired options on futures contracts and margin deposits on
the Fund's outstanding futures contracts would exceed 5% of the market value of
the Fund's total assets. When a Fund purchases index futures contracts, it will
deposit an amount of cash and cash equivalents equal to the market value of the
futures contracts in a segregated account with its custodian.
There are risks that are associated with the use of futures contracts
for hedging purposes. The price of a futures contract will vary from day to day
and should parallel (but not necessarily equal) the changes in price of the
underlying securities that are included in the index. The difference between
these two price movements is called "basis." There are occasions when basis
becomes distorted. For instance, the increase in value of the hedging
instruments may not completely offset the decline in value of the securities in
the portfolio. Conversely, the loss in the hedged position may be greater than
the capital appreciation that a Fund experiences in its securities positions.
Distortions in basis are more likely to occur when the securities hedged are not
part of the index covered by the futures contract. Further, if market values do
not fluctuate, a Fund will sustain a loss at least equal to the commissions on
the financial futures transactions.
All investors in the futures market are subject to initial margin and
variation margin requirements. Rather than providing additional variation
margin, an investor may close out a futures position. Changes in the initial and
variation margin requirements may influence an investor's decision to close out
the position. The normal relationship between the securities and futures markets
may become distorted if changing margin requirements do not reflect changes in
value of the securities. The margin requirements in the futures market are
substantially lower than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary basis distortion.
In the futures market, it may not always be possible to execute a buy
or sell order at the desired price, or to close out an open position due to
market conditions limits on open positions, and/or daily price fluctuation
limits. Each market establishes a limit on the amount by which the daily market
price of a futures contract may fluctuate. Once the market price of a futures
contract reaches its daily price fluctuation limit, positions in the commodity
can be neither taken nor liquidated unless traders are willing to effect trades
at or within the limit. The holder of a futures contract (including a Fund) may
therefore be locked into its position by an adverse price movement for several
days or more, which may be to its detriment. If a Fund could not close its open
position during this period, it would continue to be required to make daily cash
payments of variation margin. The risk of loss to a Fund is theoretically
unlimited when it writes (sells) a futures contract because it is obligated to
settle for the value of the contract unless it is closed out, regardless of
fluctuations in the price of the underlying index. When a Fund purchases a put
option or call
16
option, however, unless the option is exercised, the maximum risk of loss to the
Fund is the price of the put option or call option purchased.
Options on securities indices are similar to options on securities
except that, rather than the right to take or make delivery of securities at a
specified price, an option on a securities index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the securities index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
This amount of cash is equal to the difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. Unlike options
on securities, all settlements are in cash, and gain or loss depends on price
movements in the securities market generally (or in a particular industry or
segment of the market) rather than price movements in individual securities. A
Fund will write put options on indices only if they are covered by segregating
with the Fund's custodian an amount of cash or short-term investments equal to
the aggregate exercise price of the puts.
Except as described below, a Fund will write call options on indices
only if on such date it holds a portfolio of securities at least equal to the
value of the index times the multiplier times the number of contracts. When a
Fund writes a call option on a broadly based stock market index, it will
segregate or put into escrow with its custodian, or pledge to a broker as
collateral for the option, "qualified securities" with a market value at the
time the option is written of not less than 100% of the current index value
times the multiplier times the number of contracts. If a Fund has written an
option on an industry or market segment index, it will segregate, escrow, or
pledge "qualified securities," all of which are stocks of issuers in such
industry or market segment, with a market value at the time the option is
written of not less than 100% of the current index value times the multiplier
times the number of contracts. These stocks will include stocks that represent
at least 50% of the weighting of the industry or market segment index and will
represent at least 50% of a Fund's holdings in that industry or market segment.
No individual security will represent more than 15% of the amount segregated,
pledged or escrowed in the case of broadly based stock market index options or
25% of this amount in the case of industry or market segment index options. If
at the close of business on any day the market value of the qualified securities
so segregated, escrowed or pledged falls below 100% of the current index value
times the multiplier times the number of contracts, a Fund will segregate,
escrow or pledge an amount in cash, Treasury bills or other appropriate assets
equal in value to the difference. In addition, when a Fund writes a call on an
index that is in-the-money at the time the call is written, a Fund will
segregate with its custodian or pledge to the broker as collateral cash, U.S.
Government or other appropriate assets equal in value to the amount by which the
call is in-the-money times the multiplier times the number of contracts. Any
amount segregated pursuant to the foregoing sentence may be applied to a Fund's
obligation to segregate additional amounts in the event that the market value of
the qualified securities falls below 100% of the current index value times the
multiplier times the number of contracts. A "qualified security" is an equity
security that is listed on a national securities exchange or traded on the
National Association of Securities Dealers Automated Quotation System against
which the Equity Fund has not written a stock call option. However, if a Fund
owns a call on the same index as the call written where the exercise price of
the call owned is equal to or less than the exercise price of the call written,
or greater than the call written if the difference is maintained by the Fund in
17
cash, Treasury bills or other appropriate assets in a segregated account with
its custodian, it will not be subject to the requirements described in this
paragraph.
A Fund's successful use of index futures contracts and options on
indices depends upon the Portfolio Management Agent's ability to predict the
direction of the market and is subject to various additional risks. The
correlation between movements in the price of the index future and the price of
the securities being hedged is imperfect and the risk from imperfect correlation
increases as the composition of a Fund's portfolio diverges from the composition
of the relevant index. In addition, if a Fund purchases futures to hedge against
market advances before it can invest in a security in an advantageous manner and
the market declines, the Fund might create a loss on the futures contract.
Particularly in the case of options on stock indices, a Fund's ability to
establish and maintain positions will depend on market liquidity. In addition,
the ability of a Fund to close out an option depends on a liquid secondary
market. The risk of loss to a Fund is theoretically unlimited when it writes
(sells) a futures contract because a Fund is obligated to settle for the value
of the contract unless it is closed out, regardless of fluctuations in the
underlying index. There is no assurance that liquid secondary markets will exist
for any particular option at any particular time.
Although no Fund has a present intention to invest 5% or more of its
assets in index futures and options on indices, a Fund has the authority to
invest up to 25% of its net assets in such securities.
See additional risk disclosure above under "Interest Rate Futures
Contracts and Related Options".
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS (DELAYED-DELIVERY).
When-issued purchases and forward commitments (delayed-delivery) are commitments
by a Fund to purchase or sell particular securities with payment and delivery to
occur at a future date (perhaps one or two months later). These transactions
permit the Fund to lock-in a price or yield on a security, regardless of future
changes in interest rates.
When a Fund agrees to purchase securities on a when-issued or forward
commitment basis, PNC Bank, N.A. (the "Custodian") will segregate on the books
of the Fund the liquid assets of the Fund. Normally, the Custodian will set
aside portfolio securities to satisfy a purchase commitment, and in such a case
the Fund may be required subsequently to place additional assets in the separate
account in order to ensure that the value of the account remains equal to the
amount of the Fund's commitments. Because a Fund's liquidity and ability to
manage its portfolio might be affected when it sets aside cash or portfolio
securities to cover such purchase commitments, the Investment Adviser expects
that its commitments to purchase when-issued securities and forward commitments
will not exceed 25% of the value of a Fund's total assets absent unusual market
conditions.
A Fund will purchase securities on a when-issued or forward commitment
basis only with the intention of completing the transaction and actually
purchasing the securities. If deemed advisable as a matter of investment
strategy, however, a Fund may dispose of or renegotiate a commitment after it is
entered into, and may sell securities it has committed to purchase before those
securities are delivered to the Fund on the settlement date. In these cases the
Fund may realize a capital gain or loss for federal income tax purposes.
18
When a Fund engages in when-issued and forward commitment transactions,
it relies on the other party to consummate the trade. Failure of such party to
do so may result in the Fund's incurring a loss or missing an opportunity to
obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase or
a forward commitment to purchase securities, and any subsequent fluctuations in
their market value, are taken into account when determining the market value of
a Fund starting on the day the Fund agrees to purchase the securities. A Fund
does not earn interest on the securities it has committed to purchase until they
are paid for and delivered on the settlement date.
ZERO COUPON SECURITIES. A zero coupon security, which may be purchased
by each of the Funds except the Convertible Securities Fund, is a debt
obligation that does not entitle the holder to any periodic payments of interest
prior to maturity and therefore is issued and traded at a discount from its face
amount. Zero coupon securities may be created by separating the interest and
principal components of securities issued or guaranteed by the United States
Government or one of its agencies or instrumentalities or issued by private
corporate issuers. These securities may not be issued or guaranteed by the
United States Government. Typically, an investment brokerage firm or other
financial intermediary holding the security has separated ("stripped") the
unmatured interest coupons from the underlying principal. The holder may then
resell the stripped securities. The stripped coupons are sold separately from
the underlying principal, usually at a deep discount because the buyer receives
only the right to receive a fixed payment on the security upon maturity and does
not receive any rights to reinvestment of periodic interest (cash) payments.
Because the rate to be earned on these reinvestments may be higher or lower than
the rate quoted on the interest-paying obligations at the time of the original
purchase, the investor's return on investments is uncertain even if the
securities are held to maturity. This uncertainty is commonly referred to as
reinvestment risk. With zero coupon securities, however, there are no cash
distributions to reinvest, so investors bear no reinvestment risk if they hold
the zero coupon securities to maturity; holders of zero coupon securities,
however, forego the possibility of reinvesting at a higher yield than the rate
paid on the originally issued security. With both zero coupon securities and
interest-paying securities there is no reinvestment risk on the principal amount
of the investment. When held to maturity, the entire return from such
instruments is determined by the difference between such instrument's purchase
price and its value at maturity. Because interest on zero coupon securities is
not paid on a current basis, the values of securities of this type are subject
to greater fluctuations than are the values of securities that distribute income
regularly. In addition, a Fund's investment in zero coupon securities will
result in special tax consequences. Although zero coupon securities do not make
interest payments, for tax purposes, a portion of the difference between the
security's maturity value and its purchase price is imputed income to a Fund
each year. Under the federal tax laws applicable to investment companies, a Fund
will not be subject to tax on its income if it pays annual dividends to its
shareholders substantially equal to all the income received from, and imputed
to, its investments during the year. Because imputed income must be paid to
shareholders annually, a Fund may need to borrow money or sell securities to
meet certain dividend and redemption obligations. In addition, the sale of
securities by a Fund may increase its expense ratio and decrease its rate of
return.
RATINGS
19
After purchase by the Funds, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Funds.
Neither event will require the Funds to sell such security unless the amount of
such securities exceeds permissible limits established in the Prospectuses.
However, the Portfolio Management Agent will reassess promptly whether the
security presents minimal credit risks and determine whether continuing to hold
the security is in the best interests of the Fund. A Money Market Fund may be
required to sell a security downgraded below the minimum required for purchase,
absent a specific finding by the Company's Board of Directors that a sale is not
in the best interests of the Fund. To the extent the ratings given by any
nationally recognized statistical rating organization may change as a result of
changes in such organizations or in their rating systems, the Funds will attempt
to use comparable ratings as standards for investments in accordance with the
investment policies contained in the Prospectuses and in this Statement of
Additional Information.
For additional information on ratings, see Appendix A to this Statement
of Additional Information.
INVESTMENT RESTRICTIONS
No Fund may:
(1) issue senior securities or borrow money (except that each Fund may
borrow from banks up to 10% of the current value of such Fund's net assets for
temporary purposes only in order to meet redemptions, and these borrowings may
be secured by the pledge of not more than 10% of the current value of the Fund's
total assets, but investments may not be purchased by such Fund while, with
respect to the Equity Fund, the Short/Intermediate Fund and the Money Market
Funds, any such borrowing exists and, with respect to the remaining Funds, any
aggregate borrowings in excess of 5% exist);
(2) pledge or mortgage its assets (except that each Fund may pledge its
assets as described in (1) above and (i) to secure letters of credit solely for
the purpose of participating in a captive insurance company sponsored by the
Investment Company Institute to provide fidelity and directors' and officers'
liability insurance or (ii) to a broker for the purpose of collateralizing
investments, such as stock index futures contracts and put options);
(3) make loans, except loans of portfolio securities and except that
each Fund may purchase or hold a portion of an issue of publicly distributed
bonds, debentures or other obligations, purchase negotiable certificates of
deposit and bankers' acceptances and enter into repurchase agreements with
respect to its portfolio securities;
(4) if such Fund is the Equity Fund, the Short/Intermediate Fund or a
Money Market Fund, invest an amount in excess of 10% of the current value of
such Fund's net assets in repurchase agreements having maturities of more than
seven days, variable amount master demand notes having notice periods of more
than seven days, fixed time deposits that are subject to withdrawal penalties
and have maturities of more than seven days, securities that are not readily
marketable and other illiquid securities (including certain GICs and BICs);
20
(5) purchase or sell real estate (other than securities secured by real
estate or interests therein, securities backed by mortgages or securities issued
by companies that invest in real estate or interests therein), real estate
limited partnerships, commodities or commodity contracts (except (i) with
respect to the Short/Intermediate Fund, the Equity Fund and the Money Market
Funds, stock index futures and options on stock indices, (ii) with respect to
the International Fund, futures, options, options on futures and forward
contracts, and (iii) with respect to the remaining Funds, futures, options and
options on futures);
(6) purchase securities on margin (except (i) with respect to the
Equity Fund, the Short/Intermediate Fund and the Money Market Funds, for
short-term credits necessary for the clearance of transactions and margin
payments in connection with transactions in stock index futures contracts, and
(ii) with respect to the remaining Funds, for short-term credits necessary for
the clearance of transactions and margin payments in connection with
transactions in futures, options and options on futures) or make short sales of
securities;
(7) underwrite securities of other issuers, except to the extent that
the purchase of municipal obligations or other permitted investments directly
from the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with any Fund's investment program
may be deemed to be an underwriting;
(8) make investments for the purpose of exercising control or
management; or
(9) if the Fund is the Short/Intermediate Fund, the Equity Fund or a
Money Market Fund, purchase securities of other investment companies, except
securities of certain money market funds in accordance with the respective
Fund's investment objectives and policies and to the extent permissible under
the Investment Company Act of 1940, as amended (the "1940 Act"), and except in
connection with a merger, consolidation, acquisition, spin-off or
reorganization.
In addition, the Money Market Funds may not write, purchase, or sell
puts, calls, warrants or options or any combinations thereof, except that these
Funds may purchase securities with put rights in order to maintain liquidity,
nor may they purchase equity securities or securities convertible into equity
securities, except as provided in investment restriction number 9.
In addition, the Equity Fund may not invest in securities of companies
that have been in business less than three years.
In addition, the Short/Intermediate Fund may not invest more than 5% in
securities of issuers that have been in business less than three years. (For
purposes of the above-described investment limitation, issuers include
predecessors, sponsors, controlling persons, general partners, guarantors and
originators of underlying assets which have less than three years of continuous
operation or relevant business experience.)
Each of the foregoing investment restrictions is a fundamental policy
of each of the Funds that may be changed only when permitted by law and approved
by the holders of a majority of such Fund's outstanding voting securities, as
described under "Capital Stock and Beneficial Interest."
21
Whenever any investment restriction states a maximum percentage of a
Fund's assets, it is intended that if the percentage limitation is met at the
time the action is taken, subsequent percentage changes resulting from
fluctuating asset values will not be considered a violation of such
restrictions, except that at no time may the value of the illiquid securities
held by a Money Market Fund exceed 10% of the Fund's total assets.
For purposes of these investment restrictions as well as for purposes
of diversification under the 1940 Act, the identification of the issuer of a
municipal obligation depends on the terms and conditions of the obligation. If
the assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the government creating the
subdivision and the obligation is backed only by the assets and revenues of the
subdivision, such subdivision would be regarded as the sole issuer. Similarly,
in the case of a "private activity bond," if the bond is backed only by the
assets and revenues of the non-governmental user, the non-governmental user
would be deemed to be the sole issuer. If in either case the creating government
or another entity guarantees an obligation, the guarantee would be considered a
separate security and be treated as an issue of such government or entity.
MANAGEMENT
TRUSTEES, DIRECTORS AND OFFICERS
- --------------------------------
The principal occupations of the Trustees and executive officers of the
Trust and the Directors and executive officers of the Company for the past five
years and their ages are listed below. The address of each, unless otherwise
indicated, is 60 State Street, Suite 1300 Boston, Massachusetts 02109.
C. GARY GERST, Trustee and Director; Chairman of the Board of Directors and
Chairman of the Board of Trustees - 11 South LaSalle Street, Chicago, Illinois
60603. Age [56]. Chairman Emeritus since 1993 and formerly Co-Chairman, LaSalle
Partners Ltd. (real estate developer and manager). Director, Trustee or Partner,
LaSalle Street Fund Inc., LaSalle Street Fund Inc. of Delaware, DEL-LPL Limited
Partnership and DEL-LPAML Limited Partnership.
EDGAR R. FIEDLER, Trustee and Director - 50114 Manley, Chapel Hill, North
Carolina 27514. Age [65]. Senior Fellow and Economic Counsellor, The Conference
Board ; 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).
JOHN W. McCARTER, JR., Trustee and Director - Roosevelt Road at Lakeshore Drive,
Chicago, Illinois 60605. Age [57]. President and Chief Executive Officer, The
Field Museum of Natural History since _____. Senior Vice President and former
Director of Booz-Allen & Hamilton, Inc. (consulting firm) from _______ to April
1, 1997; Director of W.W. Grainger, Inc. and A.M. Castle, Inc.
22
ERNEST M. ROTH, Trustee and Director - 205 Abingdon Avenue, Kenilworth, Illinois
60043. Age [67]. Consultant since 1992. Formerly, Senior Vice President and
Chief Financial Officer, Commonwealth Edison Company. Director of LaRabida
Children's Hospital and Chairman of LaRabida Children's Foundation.
RICHARD W. INGRAM, President, Treasurer and Chief Financial Officer. Age [41].
Senior Vice President and Director of Client Services and Treasury
Administration of Funds Distributor, Inc. Senior Vice President of Premier
Mutual Fund Services, Inc., an affiliate of Funds Distributor ("Premier
Mutual"), and an officer of other investment companies advised or administered
by J.P. Morgan, Dreyfus Corporation ("Dreyfus"), Waterhouse Asset Management,
Inc. ("Waterhouse") and RCM Capital Management L.L.C. ("RCM") or their
respective affiliates. From March 1994 to November 1995, Mr. Ingram was Vice
President and Division Manager of First Data Investor Services Group, Inc. From
1989 to 1994, Mr. Ingram was Vice President, Assistant Treasurer and Tax
Director - Mutual Funds of The Boston Company, Inc.
JOHN E. PELLETIER, Vice President and Secretary. Age [32]. Senior Vice President
and General Counsel of Funds Distributor, Inc. and Premier Mutual, and an
officer of other investment companies advised or administered by J.P. Morgan,
Dreyfus, Waterhouse and RCM or their respective affiliates. From February 1992
to April 1994, Mr. Pelletier served as Counsel of The Boston Company Advisors,
Inc. From August 1990 to February 1992, Mr. Pelletier was employed as an
associate at Ropes & Gray.
Trustees of the Trust and Directors of the Company receive from the
Trust and the Company, respectively, an annual fee in addition to a fee for each
Board of Trustees or Directors meeting, as the case may be, and Board committee
meeting attended and are reimbursed for all out-of-pocket expenses relating to
attendance at meetings.
The following table summarizes the compensation paid by the Company to
the Directors of the Company and paid by the Trust to the Trustees of the Trust
for the fiscal year ended December 31, 1996:
<TABLE>
<CAPTION>
Aggregate Compensation Pension or Retirement Estimated Annual
Name of Person, Position from the Company and Benefit Accrued as Part Benefits upon Total Compensation
Trust of Fund Expenses Retirement from the Fund Complex*
- ------------------------------- ----------------------- ------------------------ ---------------------- -----------------------
<S> <C> <C> <C> <C>
Edgar R. Fiedler, $(1) None None $
Director
C. Gary Gerst, $ None None $
Director
John W. McCarter, Jr. $ None None $
23
Director
Ernest M. Roth, $ None None $
Director
- --------------------------
</TABLE>
*"Fund Complex" includes the Company and the Trust.
(1) For the period June 1988 through December 31, 1996, the total amount of
compensation (including interest) payable or accrued for Mr. Fiedler was $
pursuant to the Company's Deferred Compensation Plan for its independent
Directors.
As of ________________, the principal holders of each Fund of the
Company and the Trust were as follows:
[PRINCIPAL SHAREHOLDER INFORMATION]
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 _______________, Directors and officers of the Company as a group
beneficially owned less than 1% of the outstanding shares of each of the
Company's Funds.
As of _______________, Trustees and officers of the Trust as a group
beneficially owned less than 1% of the outstanding shares of the Trust's Funds.
Investment Adviser and Portfolio Management Agent. Each of the Funds is
advised by Harris Trust. With respect to the Tax-Exempt Money Fund, the Advisory
Contract with Harris Trust provides that Harris Trust is responsible for all
Fund purchase and sale transactions and that Harris Trust shall furnish to the
Fund investment guidance and policy direction in connection with the daily
portfolio management of the Fund. With respect to Funds other than the
Tax-Exempt Money Fund, Harris Trust has entered into Portfolio Management
Contracts with HIM under which HIM is responsible for all Fund purchase and sale
transactions and for providing all such daily portfolio management services to
such Funds. Under the Portfolio Management Contracts, Harris Trust remains
responsible for the supervision and oversight of HIM's performance.
Harris Trust or HIM provides to the Funds, among other things, money
market security and fixed income research, analysis and statistical and economic
data and information concerning interest rate and security market trends,
portfolio composition and credit conditions. HIM analyzes key financial ratios
that measure the growth, profitability, and leverage of issuers in order to help
maintain a portfolio of above-average quality. Emphasis placed on a particular
type of security will depend on an interpretation of underlying economic,
financial and security trends. The selection and performance of securities is
monitored by a team of analysts dedicated to evaluating the quality of each
portfolio holding.
24
The Advisory Contract and the Portfolio Management Contract with
respect to the Equity Income Fund, the Growth Fund, the Small-Cap Fund, the
Small-Cap Value Fund, the Index Fund, the International Fund, the Balanced Fund,
the Convertible Securities Fund, the Bond Fund, the Government Fund, the
Intermediate Tax-Exempt Fund and the Tax-Exempt Fund will continue in effect for
a period of two years from February 23, 1996, and thereafter from year to year
provided the continuance is approved annually (i) by the holders of a majority
of the respective Fund's outstanding voting securities or by the Board of
Trustees and (ii) by a majority of the Trustees of the Trust who are not parties
to the Advisory Contract or the Portfolio Management Contract or "interested
persons" (as defined in the 1940 Act) of any such party. Such Advisory Contract
may be terminated on 60 days' written notice by either party and will terminate
automatically if assigned.
With respect to the remaining Funds, the Advisory Contracts and, with
respect to the remaining Funds other than the Tax-Exempt Money Fund, the
Portfolio Management Contracts will continue in effect from year to year,
provided that such continuance is specifically approved as described in the
immediately preceding paragraph.
Portfolio Management. The skilled teams behind the Harris Insight Funds
believe that consistent investment performance requires discipline, focus,
knowledge, and excellent informational resources.
The money management philosophy that HIM employs focuses on two key
points:
* Active management is a key component of superior performance.
* A systematic investment process may increase both consistency and
levels of relative performance.
Experience and creativity, combined with technological support, are
most likely to result in successful investment decisions. HIM offers investors
that powerful combination for managing their money. More importantly, instead of
relying on individual stars to manage its mutual funds, HIM has established a
strong professional team of seasoned portfolio managers and analysts. Together,
they take a quantitatively-driven approach to investing, focusing on their
investors' needs, concerns and investment goals.
HIM is a leader in the application of analytic techniques used in the
selection of portfolios. HIM's equity investment process focuses on maintaining
a well-diversified portfolio of stocks whose prices are determined to be
attractively ranked based upon their future potential.
After identifying the appropriate type of universe for each Fund -
whether the stocks are issued by large, established companies, or by smaller
firms - HIM gathers fundamental, quality and liquidity data. A multi-factor
model then ranks and/or scores the stocks. Stocks which fail to meet HIM's
hurdles are removed from further consideration.
25
Attractive stocks are periodically identified and added to the
portfolio, while those that have become unattractive are systematically
replaced. Fund portfolio managers, in conjunction with HIM's experienced
research analysts, play a role throughout the process.
HIM actively manages taxable and tax-exempt fixed income securities
using a highly disciplined, quantitatively-based investment process. This
enables HIM to create portfolios of fixed income securities that it believes are
undervalued based upon their future potential. HIM seeks securities in specific
industries or areas of the country that, it believes, offer the best value and
stand to benefit from anticipated changes in interest rates.
Using quantitative models that attempt to ensure competitive results in
both rising and falling markets, bond portfolio managers select securities
within different industries while managing interest rate risk. These
quantitative models have the ability to measure changes in the economy, changes
in the prices of various goods and services, and changes in interest rates.
Potential purchases are finally reviewed with regard to their suitability,
credit assessment and the impact to the overall portfolio.
The following table shows the dollar amount of fees payable to the
Investment Adviser for its services with respect to each Fund, the amount of fee
that was waived by the Investment Adviser, if any, and the actual fee received
by the Investment Adviser. This data is for the past three fiscal years or
shorter period if the Fund has been in operation for a shorter period.
[TABLE]
Administrator. Harris Trust serves as the Funds' administrator
("Administrator") pursuant to Administration Agreements with the Company and the
Trust and in that capacity generally assists the Funds in all aspects of their
administration and operation. The Administrator has entered into a
Sub-Administration Agreement with Funds Distributor, Inc. ("Funds Distributor")
and Sub-Administration and Accounting Services Agreements with PFPC Inc.
("PFPC") (the "Sub-Administrators") on behalf of the Company and the Trust.
Funds Distributor has agreed to furnish officers for the Company and the Trust;
provide corporate secretarial services; prepare and file various reports with
the appropriate regulatory agencies; and prepare various materials required by
the Commission. PFPC has agreed to furnish officers for the Company and the
Trust; provide accounting and bookkeeping services for the Funds, including the
computation of each Fund's net asset value, net income and realized capital
gains, if any; and prepare various materials required by any state securities
commission having jurisdiction over the Company or the Trust.
The following table shows the dollar amount of fees payable to the
Administrator for its services with respect to each Fund, the amount of fee that
was waived by the Administrator, if any, and the actual fee received by the
Administrator. The data is for the past three fiscal years or shorter period if
the Fund has been in operation for a shorter period.
[TABLE]
26
Distributor. Funds Distributor, Inc. (the "Distributor") has entered
into a Distribution Agreement with the Company and with the Trust, as the case
may be, pursuant to which it has the responsibility of distributing shares of
the Funds.
The following table shows the dollar amount of fees payable to the
Distributor for its distribution services with respect to each Fund, the amount
of fee that was waived by the Distributor, if any, and the actual fee received
by the Distributor for the past three fiscal years (or shorter period if the
Fund has been in operation for a shorter period).
[TABLE]
The following table shows the dollar amount of sales charges payable to
the Distributor with respect to sales of Class A Shares of each Fund and the
amount of sales charges retained by the Distributor and not reallowed to other
persons. The data is for the past three fiscal years or shorter period if the
Fund has been in operation for a shorter period.
[TABLE]
Other Information Pertaining to Distribution, Administration,
Sub-Administration, Custodian, Transfer Agency and Sub-Transfer Agency
Agreements. Harris Trust serves as the transfer agent and dividend disbursing
agent ("Transfer Agent") of the Funds pursuant to Transfer Agency Services
Agreements with the Company and the Trust. The Transfer Agent has entered into
Sub-Transfer Agency Services Agreements with PFPC (the "Sub-Transfer Agent") on
behalf of the Company and the Trust. PFPC is an affiliate of PNC Bank, N.A., the
Custodian for the Company and the Trust. PFPC and PNC Bank, N.A. are not
affiliates of Funds Distributor, Harris Trust or HIM.
SERVICE PLANS
As indicated in the Prospectuses, the Funds have adopted Service Plans
under Section 12(b) of the 1940 Act and Rule 12b-1 promulgated thereunder ("Rule
12b-1"). With respect to the Money Market Funds, the Service Plans only relate
to Class A and Class B Shares of each such Fund. With respect to the remaining
Funds (the "Non-Money Market Funds"), the Service Plans only relate to Class A
Shares of each such Fund. Each Service Plan has been adopted by the Board of
Trustees or Directors, as the case may be, including a majority of the Trustees
or Directors who were not "interested persons" (as defined by the 1940 Act) of
the Trust or the Company, and who had no direct or indirect financial interest
in the operation of the Service Plan or in any agreement related to the Plan
(the "Qualified Trustees" or "Qualified Directors", as the case may be). Each
Service Plan will continue in effect from year to year if such continuance is
approved by a majority vote of both the Trustees of the Trust or the Directors
of the Company, as the case may be, and the Qualified Trustees or Directors.
Agreements related to the Service Plans must also be approved by such vote of
the Trustees or Directors and the Qualified Directors or Qualified Trustees. The
Service Plans will terminate automatically if assigned, and may be terminated at
any time, without payment of any penalty, by a vote of a majority of the
outstanding voting securities of the proper Fund. No Service Plan may be amended
to increase materially the amounts payable to Service Agents without the
approval of a majority of the outstanding voting securities of the proper Fund,
and no material
27
amendment to a Service Plan may be made except by a majority of both the
Trustees of the Trust or Directors of the Company, as the case may be, and the
Qualified Trustees or Directors.
Each Service Plan requires that certain service providers furnish to
the Trustees or Directors, as the case may be, and the Trustees or Directors
shall review, at least quarterly, a written report of the amounts expended (and
purposes therefore) under such Service Plan. Rule 12b-1 also requires that the
selection and nomination of the Trustees or Directors who are not "interested
persons" of the Trust or the Company, respectively, be made by such
disinterested Trustees or Directors.
Service Plan - Money Market Funds
Each Money Market Fund has entered into an agreement with each
institution ("Service Organization") which purchases Class A or Class B Shares
on behalf of its customers ("Customers"). In the case of Class A Shares, the
Service Organization is required to provide shareholder support services to its
Customers who beneficially own such Shares in consideration of the payment of up
to 0.35% (on an annualized basis) of the average daily net asset value of that
Money Market Fund's Class A Shares held by the Service Organization for the
benefit of Customers. Support services will include: (i) aggregating and
processing purchase and redemption requests from Customers and placing net
purchase and redemption orders with the Money Market Fund's Distributor; (ii)
processing dividend payments from the Money Market Fund on behalf of Customers;
(iii) providing information periodically to Customers showing their positions in
the Money Market Fund's shares; (iv) arranging for bank wires; (v) responding to
Customer inquiries relating to the services performed by the Service
Organization and handling correspondence; (vi) forwarding shareholder
communications from the Money Market Fund (such as proxies, shareholder reports,
annual and semi-annual financial statements, and dividend, distribution and tax
notices) to Customers; (vii) acting as shareholder of record and nominee; (viii)
arranging for the reinvestment of dividend payments; and (ix) other similar
account administrative services. In addition, the Service Organization will
provide assistance in connection with the distribution of shares to Customers,
including the forwarding to Customers of prospectuses, sales literature and
advertising materials provided by the Distributor of shares.
A Service Organization serving holders of Class B Shares of a Money
Market Fund will provide the services set forth in (i), (v) and (vii) and may
receive one or more of the services set forth in (ii), (iii), (iv) and (viii)
above. In consideration of the services to be rendered under the Servicing
Agreement with respect to Class B Shares, the Fund will pay the Service
Organization up to 0.25% (on an annualized basis) of the average daily net asset
value of the Class B Shares held by the Service Organization.
In addition, a Service Organization, at its option, may also provide to
its holders of either Class A or Class B Shares (a) a service that invests the
assets of their other accounts with the Service Organization in the Money Market
Fund's shares (sweep program); (b) sub-accounting with respect to shares owned
beneficially or the information necessary for sub-accounting; and (c)
checkwriting services.
The Money Market Funds do not currently offer Class B Shares for sale.
There is no Service Plan in existence with respect to the Class C Shares (known
herein as Institutional Shares) of the Money Market Funds.
28
Service Plan - Non-Money Market Funds
Each Non-Money Market Fund (i.e. the Equity Fund, the Equity Income
Fund, the Growth Fund, the Small-Cap Fund, the Index Fund, the International
Fund, the Balanced Fund, the Convertible Securities Fund, the Short/Intermediate
Fund, the Bond Fund, the Government Fund, the Intermediate Tax-Exempt Fund and
the Tax-Exempt Fund) bears the costs and expenses in connection with advertising
and marketing the Fund's Class A Shares and pays the fees of financial
institutions (which may include banks), securities dealers and other industry
professionals, such as investment advisors, accountants and estate planning
firms (collectively, "Service Agents") for servicing activities, as described
below, at a rate of up to 0.25% per annum of the value of the Fund's average
daily net assets with respect to its Class A Shares.
Servicing activities provided by Service Agents to their customers
investing in Class A Shares of the Non-Money Market Funds may include, among
other things, one or more of the following: establishing and maintaining
shareholder accounts and records; processing purchase and redemption
transactions; answering customer inquiries regarding the Fund; assisting
customers in changing dividend options; account designations and addresses;
performing sub-accounting; investing customer cash account balances
automatically in Fund shares; providing periodic statements showing a customer's
account balance and integrating such statements with those of other transactions
and balances in the customer's other accounts serviced by the Service Agent;
arranging for bank wires; distribution and such other services as a Fund may
request, to the extent the Service Agent is permitted by applicable statute,
rule or regulation.
There is no Service Plan in existence with respect to the Institutional
Shares of the Non-Money Market Funds.
The following table shows Service Organization fees paid to Harris
Trust with respect to each Fund. The data is for the past three fiscal years or
shorter period if the Fund has been in operation for a shorter period.
[TABLE]
CALCULATION OF YIELD AND TOTAL RETURN
The Company makes available various yield quotations with respect to
shares of each class of shares of the Money Market Funds. Each of these amounts
was calculated based on the 7-day period ended December 31, 1996, by calculating
the net change in value, exclusive of capital changes, of a hypothetical account
having a balance of one share at the beginning of the period, dividing the net
change in value by the value of the account at the beginning of the base period
to obtain the base period return, and multiplying the base period return by
365/7, with the resulting yield figure carried to the nearest hundredth of one
percent. The net change in value of an account consists of the value of
additional shares purchased with dividends from the original share plus
dividends declared on both the original share and any such additional shares
(not including realized gains or losses and unrealized appreciation or
depreciation) less applicable expenses. Effective yield quotations for Class A
Shares and Institutional Shares of each of the Money Market Funds are also made
available. These amounts are calculated in a similar fashion to yield, except
that the base
29
period return is compounded by adding 1, raising the sum to a power equal to 365
divided by 7, and subtracting 1 from the result, according to the following
formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) 365/7] -1
Current yield for all of the Money Market Funds will fluctuate from
time to time, unlike bank deposits or other investments that pay a fixed yield
for a stated period of time, and does not provide a basis for determining future
yields.
The yields of Class A Shares and Institutional Shares of each of the
following Money Market Funds for the 7-day period ended December 31, 1996, were
___% and ___% for the Government Money Fund, ___% and ____% for the Money Fund
and ____% and ___% for the Tax-Exempt Money Fund. The effective yields for the
same period were ___% and ___% for the Government Money Fund, ___% and ___% for
the Money Fund and ___% and ___% for the Tax-Exempt Money Fund, respectively.
Class A and Class B Shares of the Money Market Funds bear the expenses of fees
paid to Service Organizations. As a result, at any given time, the net yield of
Class A Shares could be up to 0.35% lower than the net yield of Institutional
Shares, and the net yield of Class B Shares could be up to 0.25% lower than the
net yield of Institutional Shares of the Money Market Funds. Class B Shares of
the Money Market Funds had not been issued as of December 31, 1996.
From time to time each of the Money Market Funds may advertise its
"30-day average yield" and its "monthly average yield." Such yields refer to the
average daily income generated by an investment in such Fund over a 30-day
period, as appropriate, (which period will be stated in the advertisement).
A standardized "tax-equivalent yield" may be quoted for the Tax-Exempt
Money Fund, the Tax-Exempt Fund and the Intermediate Tax-Exempt Fund, which is
computed by: (a) dividing the portion of the Fund's yield (as calculated above)
that is exempt from Federal income tax by one minus a stated Federal income
rate; and (b) adding the figure resulting from (a) above to that portion, if
any, of the yield that is not exempt from federal income tax. For the 7-day
period ended December 31, 1996, the effective tax equivalent yield of the Class
A Shares and Institutional Shares of the Tax-Exempt Money Fund, the Tax-Exempt
Fund and the Intermediate Tax-Exempt Fund were ____% and %, ___% and ____%, and
___% and ____%, respectively, based on a stated tax rate of 36%.
The Trust or the Company, as the case may be, makes available 30-day
yield quotations with respect to Class A Shares and Institutional Shares of the
Non-Money Market Funds. As required by regulations of the Commission, the 30-day
yield is computed by dividing a Fund's net investment income per share earned
during the period by the net asset value on the last day of the period. The
average daily number of shares outstanding during the period that are eligible
to receive dividends is used in determining the net investment income per share.
Income is computed by totaling the interest earned on all debt obligations
during the period and subtracting from that amount the total of all recurring
expenses incurred during the period. The 30-day yield is then annualized
assuming semi-annual reinvestment and compounding of net investment income.
30
The following table shows 30-day yields for the period ended December
31, 1996, for Class A Shares and Institutional Shares of the Non-Money Market
Funds:
[TABLE]
The Trust or the Company, as the case may be, also makes available
total return quotations for Class A and Institutional Shares of each of the
Non-Money Market Funds.
The following table shows average annual total return for the one year,
five year and since inception periods ended December 31, 1996 for Class A Shares
and Institutional Shares of the Non-Money Market Funds:
[TABLE]
Each of these amounts is computed by assuming a hypothetical initial
investment of $10,000 and reflects the imposition of the maximum sales charge.
It is assumed that all of the dividends and distributions by each Fund over the
specified period of time were reinvested. It was then assumed that at the end of
the specified period, the entire amount was redeemed. The average annual total
return was then calculated by calculating the annual rate required for the
initial investment to grow to the amount that would have been received upon
redemption.
The Funds may also calculate an aggregate total return which reflects
the cumulative percentage change in value over the measuring period. The
aggregate total return can be calculated by dividing the amount received upon
redemption by the initial investment and subtracting one from the result. The
following table shows aggregate total return for the one year, five year and
since inception periods ended December 31, 1996 for Class A Shares and
Institutional Shares of the Non-Money Market Funds:
[TABLE]
Current yield and total return for the Non-Money Market Funds will
fluctuate from time to time, unlike bank deposits or other investments which pay
a fixed yield for a stated period of time, and do not provide a basis for
determining future yields. Yield (or total return) is a function of portfolio
quality, composition, maturity and market conditions as well as expenses
allocated to the Funds.
Performance data of the Funds may be compared to those of other mutual
funds with similar investment objectives and to other relevant indices, such as
those prepared by Salomon Brothers Inc. or Lehman Brothers Inc., or any of their
affiliates or to ratings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
such data is reported in national financial publications such as IBC/Donoghue's
Money Fund Report and Bank Rate Monitor (for money market deposit accounts
offered by the 50 leading banks and thrift institutions in the top five
metropolitan statistical areas), Money Magazine, Forbes, Barron's, The Wall
Street Journal and The New York Times, reports prepared by Lipper Analytical
Services and publications of a local or regional nature. Performance information
may be quoted
31
numerically or may be presented in a table, graph or other illustrations. All
performance information advertised by the Funds is historical in nature and is
not intended to represent or guarantee future results.
In addition, investors should recognize that changes in the net asset
value of shares of the Non-Money Market Funds will affect the yield of such
Funds for any specified period, and such changes should be considered together
with each such Fund's yield in ascertaining the Fund's total return to
shareholders for the period. Yield information for all of the Funds may be
useful in reviewing the performance of the Fund and for providing a basis for
comparison with investment alternatives. The yield of a Fund, however, may not
be comparable to other investment alternatives because of differences in the
foregoing variables and differences in the methods used to value portfolio
securities, compute expenses and calculate yield.
Performance of Common and Collective Trust Funds
- ------------------------------------------------
The Convertible Securities Fund, Intermediate Government Bond Fund,
Small-Cap Value Fund Tax-Exempt Bond Fund, Intermediate Tax-Exempt Bond Fund,
Index Fund, Small-Cap Opportunity Fund, Equity Income Fund, Growth Fund and
International Fund commenced operations upon the investment of a substantial
amount of assets invested from collective and common trust funds operated by
Harris Trust. If a Fund's predecessor fund was operated with investment policies
substantially similar to those of the Fund, the Fund may include in quotations
of its performance the performance history of the predecessor fund in accordance
with interpretations of the Commission and as appropriate. Because collective
and common trust funds usually have an effective expense ratio of zero, in order
not to overstate performance, a predecessor fund's performance included in any
quotation of the Fund's performance will be calculated as if the predecessor
fund had operated with an expense ratio equal to the Fund's estimated expense
ratio for its first year of operations.
DETERMINATION OF NET ASSET VALUE
As described under "Determination of Net Asset Value" in the
Prospectuses, net asset value per share is determined at least as often as each
day that the Federal Reserve Board of Philadelphia and the New York Stock
Exchange are open, i.e., each weekday other than New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day , Good Friday, Memorial Day , Independence Day,
Labor Day , Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day
(each, a "Holiday").
As also indicated under "Determination of Net Asset Value" in the
Prospectuses, each of the Money Market Funds uses the amortized cost method to
determine the value of its portfolio securities pursuant to Rule 2a-7 under the
1940 Act ("Rule 2a-7"). The amortized cost method involves valuing a security at
its cost and amortizing any discount or premium over the period until maturity,
regardless of the impact of fluctuating interest rates on the market value of
the security. While this method provides certainty in valuation, it may result
in periods during which the value, as determined by amortized cost, is higher or
lower than the price that a Fund would receive if the security were sold. During
these periods the yield to a shareholder may differ somewhat from that which
could be obtained from a similar fund that uses a method of valuation based upon
market prices. Thus, during periods of declining interest rates, if the use of
the amortized cost method
32
resulted in a lower value of a Fund's portfolio on a particular day, a
prospective investor in that Fund would be able to obtain a somewhat higher
yield than would result from investments in a fund using solely market values,
and existing Fund shareholders would receive correspondingly less income. The
converse would apply during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, each of the Money Market Funds must maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase
securities having remaining maturities (as defined in Rule 2a-7) of thirteen
months or less and invest only in securities determined by the Board of
Directors to meet the quality and minimal credit risk requirements of Rule 2a-7.
The maturity of an instrument is generally deemed to be the period remaining
until the date when the principal amount thereof is due or the date on which the
instrument is to be redeemed. Rule 2a-7, however, provides that the maturity of
an instrument may be deemed shorter in the case of certain instruments,
including certain variable and floating rate instruments subject to demand
features. Pursuant to Rule 2a-7, the Board is required to establish procedures
designed to stabilize, to the extent reasonably possible, the price per share of
each of the Money Market Funds as computed for the purpose of sales and
redemptions at $1.00. Such procedures include review of the portfolio holdings
of each of the Money Market Funds by the Board of Directors, at such intervals
as it may deem appropriate, to determine whether a Fund's net asset value
calculated by using available market quotations deviates from $1.00 per share
based on amortized cost. The extent of any deviation will be examined by the
Board of Directors. If such deviation exceeds 1/2 of 1%, the Board will promptly
consider what action, if any, will be initiated. In the event the Board
determines that a deviation exists that may result in material dilution or other
unfair results to investors or existing shareholders, the Board will take such
corrective action as it regards as necessary and appropriate, including the sale
of portfolio instruments prior to maturity to realize capital gains or losses or
to shorten average portfolio maturity, withholding dividends or establishing a
net asset value per share by using available market quotations.
PORTFOLIO TRANSACTIONS
The Trust or the Company, as the case may be, has no obligation to deal
with any dealer or group of dealers in the execution of transactions in
portfolio securities. Subject to policies established by the Trust's Board of
Trustees and the Company's Board of Directors, as the case may be, Harris Trust,
with respect to the Tax-Exempt Money Fund, and HIM, with respect to all other
Funds, are responsible for each Fund's portfolio decisions and the placing of
portfolio transactions. In placing orders, it is the policy of the Company to
obtain the best results taking into account the dealer's general execution and
operational facilities, the type of transaction involved and other factors such
as the dealer's risk in positioning the securities involved. While Harris Trust
and HIM generally seek reasonably competitive spreads or commissions, the Funds
will not necessarily be paying the lowest spread or commission available.
Purchases and sales of securities for the fixed income Funds and the
Money Market Funds will usually be principal transactions. Portfolio securities
normally will be purchased or sold from or to dealers serving as market makers
for the securities at a net price. Each of the Funds will also purchase
portfolio securities in underwritten offerings and will, on occasion, purchase
securities directly from the issuer. Generally, municipal obligations and
taxable money market securities are traded on a net basis and do not involve
brokerage commissions. The cost of executing a Fund's
33
portfolio securities transactions will consist primarily of dealer spreads, and
underwriting commissions. Under the 1940 Act, persons affiliated with the
Company or the Trust are prohibited from dealing with the Company or the Trust
as a principal in the purchase and sale of securities unless an exemptive order
allowing such transactions is obtained from the Commission.
Harris Trust or HIM may, in circumstances in which two or more dealers
are in a position to offer comparable results for a Fund, give preference to a
dealer that has provided statistical or other research services to such adviser.
By allocating transactions in this manner, Harris Trust and/or HIM are able to
supplement their own research and analysis with the views and information of
other securities firms. Information so received will be in addition to, and not
in lieu of, the services required to be performed under the Advisory and
Portfolio Management Contracts, and the expenses of such adviser will not
necessarily be reduced as a result of the receipt of this supplemental research
information. Furthermore, research services furnished by dealers through whom
Harris Trust or HIM effect securities transactions for a Fund may be used by
Harris Trust or HIM in servicing its other accounts, and not all of these
services may be used by Harris Trust or HIM in connection with advising the
Funds.
The following table shows total brokerage commissions and the total
dollar amount of transactions on which commissions were paid. This information
is for the past three fiscal years (or shorter if the Fund has been in operation
for a shorter period).
[TABLE]
With respect to transactions directed to brokers because of research
services provided, the following table shows total brokerage commissions and the
total dollar amount of transactions on which commissions were paid. This
information is for the past three fiscal years (or shorter if the Fund has been
in operation for a shorter period).
[TABLE]
Purchases and sales of securities on a securities exchange are effected
through brokers who charge a negotiated commission for their services. Orders
may be directed to any broker including, to the extent and in the manner
permitted by applicable law, Harris Investors Direct, Inc. ("HID"). In the
over-the-counter market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price that includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. The Funds will not deal with the
Distributor or HID in any transaction in which either one acts as principal
except as may be permitted by the Commission.
In placing orders for portfolio securities of the Funds, HIM is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that HIM will seek to execute each transaction
at a price and commission, if any, that provide the most favorable total cost or
proceeds reasonably attainable in the circumstances. While HIM will generally
seek reasonably competitive spreads or commissions, the Funds will not
necessarily be paying the lowest spread or commission available. Commission
rates are established pursuant to
34
negotiations with the broker based on the quality and quantity of execution
services provided by the broker in the light of generally prevailing rates. The
allocation of orders among brokers and the commission rates paid are reviewed
periodically by the Board of Trustees and Board of Directors.
Subject to the above considerations, HID may act as a main broker for
the Funds. For it to effect any portfolio transactions for the Funds, the
commissions, fees or other remuneration received by it must be reasonable and
fair compared to the commissions, fees or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time. This standard would allow HID to receive no more than the remuneration
that would be expected to be received by an unaffiliated broker on a
commensurate arm's-length transaction. Furthermore, the Trustees of the Trust
and the Directors of the Company, including a majority who are not "interested"
Trustees or Directors, as the case may be, have adopted procedures that are
reasonably designed to provide that any commissions, fees or other remuneration
paid to either one are consistent with the foregoing standard. Brokerage
transactions with either one are also subject to such fiduciary standards as may
be imposed upon each of them by applicable law.
FEDERAL INCOME TAXES
The Prospectuses describe generally the tax treatment of distributions
by the Trust and the Company, as the case may be. This section of the Statement
of Additional Information includes additional information concerning federal
taxes.
Each Fund is treated as a separate entity for federal income tax
purposes and thus the provisions of the Code generally are applied to each Fund
separately, rather than to the Trust or the Company as a whole.
Qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code") generally requires, among other
things, that (a) at least 90% of the Fund's annual gross income (without offset
for losses) be derived from interest, payments with respect to securities loans,
dividends and gains from the sale or other disposition of stocks, securities or
options thereon and certain other income including, but not limited to, gains
from futures contracts; (b) the Fund derives less than 30% of its gross income
from gains (without offset for losses) from the sale or other disposition of
stocks, securities or options thereon and certain futures contracts held for
less than three months; and (c) the Fund diversifies its holdings so that, at
the end of each quarter of the taxable year, (i) at least 50% of the market
value of the Fund's assets is represented by cash, government securities and
other securities, with such other securities limited in respect of any one
issuer to an amount not greater than 5% of each Fund's assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
U.S. Government securities). As a regulated investment company, each Fund will
not be subject to federal income tax on its net investment income and net
capital gains distributed to its shareholders, provided that it distributes to
its shareholders at least 90% of its net investment income (including net
short-term capital gains) earned in each year and, in the case of the Tax-Exempt
Money Fund, the Intermediate Tax-Exempt Fund and the Tax-Exempt Fund, that it
distributes to its shareholders at least 90% of its net tax-exempt income
(including net short-term capital gains). In addition, the Tax-Exempt Money
Fund, the Intermediate Tax-Exempt
35
Fund and the Tax-Exempt Fund intend that at least 50% of the value of its total
assets at the close of each quarter of its taxable year will consist of
obligations the interest on which is exempt from federal income tax, so that
such Funds will qualify under the Code to pay "exempt-interest dividends."
As described in the relevant Prospectus, certain of the Funds may
invest in municipal bond index futures contracts and options on interest rate
futures contracts. The Funds do not anticipate that these investment activities
will prevent the Funds from qualifying as regulated investment companies. As a
general rule, these investment activities will increase or decrease the amount
of long-term and short-term capital gains or losses realized by a Fund and,
accordingly, will affect the amount of capital gains distributed to the Fund's
shareholders.
For Federal income tax purposes, gain or loss on the futures contracts
and options described above (collectively referred to as "section 1256
contracts") is taxed pursuant to a special "mark-to-market" system. Under the
mark-to-market system, a Fund may be treated as realizing a greater or lesser
amount of gains or losses than actually realized. As a general rule, gain or
loss on section 1256 contracts is treated as 60% long-term capital gain or loss
and 40% short-term capital gain or loss, and, accordingly, the mark-to-market
system will generally affect the amount of capital gains or losses taxable to a
Fund and the amount of distributions taxable to a shareholder. Moreover, if a
Fund invests in both section 1256 contracts and offsetting positions in such
contracts, then the Fund might not be able to receive the benefit of certain
recognized losses for an indeterminate period of time. Each Fund expects that
its activities with respect to section 1256 contracts and offsetting positions
in such contracts (a) will not cause it or its shareholders to be treated as
receiving a materially greater amount of capital gains or distributions than
actually realized or received and (b) will permit it to use substantially all of
the losses of the Fund for the fiscal years in which the losses actually occur.
Each Fund (except the Tax-Exempt Money Fund, the Intermediate
Tax-Exempt Fund and the Tax-Exempt Fund to the extent of this tax-exempt
interest) will generally be subject to an excise tax of 4% of the amount of any
income or capital gains distributed to shareholders on a basis such that such
income or gain is not taxable to shareholders in the calendar year in which it
was earned by the Fund. Each Fund intends that it will distribute substantially
all of its net investment income and net capital gains in accordance with the
foregoing requirements, and, thus, expects not to be subject to the excise tax.
Dividends declared by a Fund in October, November or December payable to
shareholders of record on a specified date in such a month and paid in the
following January will be treated as having been paid by the Fund and received
by shareholders on December 31 of the calendar year in which declared.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of a Fund's assets to be invested in
various countries is not known.
Gains or losses on sales of securities by a Fund generally will be
long-term capital gains or losses if the securities have been held by it for
more than one year, except in certain cases where the
36
Fund acquires a put or writes a call thereon. Other gains or losses on the sale
of securities will be short-term capital gains or losses.
In the case of the Growth Fund, the Equity Fund, the Small-Cap Fund,
the Small-Cap Value Fund, the Equity Income Fund, the Index Fund, the
International Fund, the Balanced Fund, the Convertible Securities Fund, the Bond
Fund, the Government Fund, the Intermediate Tax-Exempt Fund and the Tax-Exempt
Fund, if an option written by a Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder, the
Fund may realize a short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the Fund in the
closing transaction.
In the case of the Growth Fund, the Equity Fund, the Small-Cap Fund,
the Small-Cap Value Fund, the Equity Income Fund, the Index Fund, the
International Fund, the Balanced Fund, the Convertible Securities Fund, the Bond
Fund, the Government Fund, the Intermediate Tax-Exempt Fund and the Tax-Exempt
Fund, if securities are sold by the Fund pursuant to the exercise of a call
option written by it, such Fund will add the premium received to the sale price
of the securities delivered in determining the amount of gain or loss on the
sale. If securities are purchased by the Fund pursuant to the exercise of a put
option written by it, the Fund will subtract the premium received from its cost
basis in the securities purchased. The requirement that a Fund derive less than
30% of its gross income from gains from the sale of securities held for less
than three months may limit a Fund's ability to write options.
If, in the opinion of the Trust or the Company, as the case may be,
ownership of its shares has or may become concentrated to an extent that could
cause the Trust or the Company to be deemed a personal holding company within
the meaning of the Code, the Trust or the Company may require the redemption of
shares or reject any order for the purchase of shares in an effort to prevent
such concentration.
CAPITAL STOCK AND BENEFICIAL INTEREST
The authorized capital stock of the Company consists of an aggregate of
10,000,000,000 shares ("Shares"), par value of $.001 per share currently
classified as follows: "Government Money Market Fund - Class A," consisting of
1,000,000,000 Shares, "Government Money Market Fund - Class B," consisting of
200,000,000 Shares, "Government Money Market Fund - Institutional Shares,"
consisting of 500,000,000 Shares, "Money Market Fund - Class A," consisting of
1,000,000,000 Shares, "Money Market Fund - Class B," consisting of 200,000,000
Shares, "Money Market Fund - Institutional Shares," consisting of 750,000,000
Shares, "Tax-Exempt Money Market Fund - Class A," consisting of 500,000,000
Shares, "Tax-Exempt Money Market Fund - Class B," consisting of 200,000,000
Shares, "Tax-Exempt Money Market Fund - Institutional Shares," consisting of
1,000,000,000 Shares, "Class D," referred to as the Harris Insight Convertible
Fund, consisting of 100,000,000 Shares, "Equity Fund - Class A," consisting of
100,000,000 Shares, "Equity Fund - Institutional Shares" consisting of
100,000,000 Shares, "Short/Intermediate Bond Fund - Class A," consisting of
100,000,000 Shares, "Short/Intermediate Bond Fund - Institutional Shares,"
consisting of 100,000,000 Shares, "Class G," referred to as the Harris Insight
Intermediate Municipal Income Fund, consisting of 50,000,000 Shares, "Prime
Reserve Fund - Class A," consisting of 200,000,000 Shares, "Prime Reserve Fund -
Class B," consisting of 700,000,000
37
Shares, "Prime Reserve Fund - Institutional Shares," consisting of 300,000,000
Shares, "Hemisphere Free Trade Fund - Class A," consisting of 50,000,000 Shares
and "Hemisphere Free Trade Fund Institutional Shares, consisting of 50,000,000
Shares.
The Trust's Declaration of Trust authorizes the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest, $.001 par
value, and to create one or more classes of these shares. Pursuant thereto, the
Trustees have authorized the issuance of two classes of shares, Class A Shares
and Institutional Shares, for each of the twelve Funds of the Trust.
Generally, all shares of the Trust and all shares of the Company have
equal voting rights with other shares of the Trust or the Company, respectively,
and will be voted in the aggregate, and not by class, except where voting by
class is required by law or where the matter involved affects only one class. As
used in the Prospectuses and in this Statement of Additional Information, the
term "majority," when referring to the approvals to be obtained from
shareholders in connection with general matters affecting the Funds (e.g.,
election of Trustees or Directors and ratification of independent accountants),
means the vote of the lesser of (i) 67% of the Trust's or the Company's shares
represented at a meeting if the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (ii) more than 50% of the Trust's
or the Company's outstanding shares. The term "majority," when referring to the
approvals to be obtained from shareholders in connection with matters affecting
a single Fund or any other single Fund (e.g., annual approval of advisory
contracts), means the vote of the lesser of (i) 67% of the shares of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Fund are present in person or by proxy or (ii) more than 50% of
the outstanding shares of the Fund. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held.
Each share of a Fund represents an equal proportionate interest in that
Fund with each other share of the same Fund and is entitled to such dividends
and distributions out of the income earned on the assets belonging to that Fund
as are declared in the discretion of the Trust's Board of Trustees or the
Company's Board of Directors, as the case may be. Notwithstanding the foregoing,
each class of shares of each Fund bears exclusively the expense of fees paid to
Service Organizations with respect to that class of shares. In the event of the
liquidation or dissolution of the Trust or the Company (or a Fund), shareholders
of each Fund (or the Fund being dissolved) are entitled to receive the assets
attributable to that Fund that are available for distribution, and a
distribution of any general assets not attributable to a particular Fund that
are available for distribution in such manner and on such basis as the Trustees
or the Directors, as the case may be, in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Trust or the Company,
as the case may be.
OTHER
The Registration Statement, including the Prospectuses, the Statement
of Additional Information and the exhibits filed therewith, may be examined at
the office of the Commission in Washington, D.C. Statements contained in the
Prospectuses or this Statement of Additional Information as to the contents of
any contract or other document referred to herein or in the
38
Prospectuses are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
CUSTODIAN
As the Funds' custodian, PNC Bank, N.A., among other things, maintains
a custody account or accounts in the name of each Fund, receives and delivers
all assets for each Fund upon purchase and upon sale or maturity, collects and
receives all income and other payments and distributions on account of the
assets of each Fund, and pays all expenses of each Fund.
INDEPENDENT ACCOUNTANTS
____________- has been selected as the independent accountants for both
the Trust and the Company. ___________ provides audit services and assistance
and consultation in connection with review of certain Commission filings.
___________________'s address is ________________.
FINANCIAL STATEMENTS
The Financial Statements for the year ended December 31, 1996 including
the notes thereto, have been audited by _____________ and are incorporated by
reference in the Statement of Additional Information from the Annual Report of
the Company dated December 31, 1996.
39
APPENDIX A
Description of Bond Ratings
The following summarizes the highest four ratings used by Standard &
Poor's ("S&P") for corporate and municipal debt:
AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from AAA issues only in a
small degree.
A - Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay interest and repay
principal for debt in this category than for those in higher
rated categories.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the highest four ratings used by Moody's
Investors Service ("Moody's") for corporate and municipal long-term debt:
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments
are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of
such issues.
Aa - Bonds that are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A-1
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds that are rated Baa are considered medium grade
obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
corporate bonds rated Aa, A and Baa. The modifier 1 indicates that the bond
being rated ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category. With regard to municipal
bonds, those bonds in the Aa, A and Baa groups which Moody's believes possess
the strongest investment attributes are designated by the symbols Aa1, A1 or
Baa1, respectively.
The following summarizes the highest four ratings used by Duff & Phelps
Credit Rating Co. ("D&P") for bonds:
AAA - Debt rated AAA is of the highest credit quality. The
risk factors are considered to be negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA - Debt rated AA is of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from
time to time because of economic conditions.
A - Bonds that are rated A have protection factors which are
average but adequate. However risk factors are more variable
and greater in periods of economic stress.
BBB - Bonds that are rated BBB have below average protection
factors but are still considered sufficient for prudent
investment. Considerable variability in risk during economic
cycles.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major categories.
The following summarizes the ratings used by IBCA Limited and IBCA Inc.
("IBCA") for bonds:
A-2
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.
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
A-3
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.
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.
A-4
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.
TBW-1 The highest category; indicates a very high degree of
likelihood that principal and interest will be paid
on a timely basis.
TBW-2 The second highest category; while the degree of
safety regarding timely repayment of principal and
interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1".
TBW-3 The lowest investment grade category; indicates that
while more susceptible to adverse developments (both
internal and external) than obligations with higher
ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded
as non-investment grade and therefore speculative.
A-5
HARRIS INSIGHT(R) FUNDS
HARRIS INSIGHT HEMISPHERE FREE TRADE FUND
STATEMENT OF ADDITIONAL INFORMATION
60 State Street, Suite 1300, Boston, Massachusetts 02109
Telephone: (800) 982-8782
May 1, 1997
The Harris Insight Hemisphere Free Trade Fund (the "Fund") is one of
seven portfolios of HT Insight Funds, Inc., d/b/a Harris Insight Funds (the
"Company"), an open-end, diversified management investment company. The
investment objective of the Fund is described in the Prospectus. See "Investment
Objectives 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 May 1, 1997 and any supplement thereto (the "Prospectus"). This
Statement of Additional Information contains additional information that should
be read in conjunction with the Prospectus, additional copies of which may be
obtained without charge from the Company's distributor, Funds Distributor, Inc.,
by writing or calling the Company at the address or telephone number given
above.
TABLE OF CONTENTS
Investment Strategies......... 2 Capital Stock................. 20
Ratings....................... 9 Other......................... 21
Investment Restrictions....... 9 Custodian..................... 21
Management.................... 10 Independent Accountants....... 21
Service Plan.................. 14 Experts....................... 21
Calculation of Yield and Financial Statements.......... 21
Total Return................ 15 Appendix...................... A-1
Determination of Net
Asset Value ................ 16
Portfolio Transactions........ 16
Federal Income Taxes.......... 18
INVESTMENT STRATEGIES
ASSET-BACKED SECURITIES. Asset-backed securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in the underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations and are generally issued as the debt of
a special purpose entity organized solely for the purpose of owning such assets
and issuing such debt. Asset-backed securities are often backed by a pool of
assets representing the obligations of a number of different parties. Payments
of principal and interest may be guaranteed up to certain amounts and for a
certain time period by a letter of credit issued by a financial institution
unaffiliated with the entities issuing the securities.
The estimated life of an asset-backed security varies with the
prepayment experience with respect to the underlying debt instruments. The rate
of such prepayments, and hence the life of the asset-backed security, will be
primarily a function of current market interest rates, although other economic
and demographic factors may be involved.
CONVERTIBLE SECURITIES. Because they have the characteristics of both
fixed-income securities and common stock, convertible securities sometimes are
called "hybrid" securities. Convertible bonds, debentures and notes are debt
obligations offering a fixed interest rate; convertible preferred stocks are
senior securities offering a fixed 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 a specified number of the issuer's
common shares at a stated price per share, 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.
Fixed income 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.
FLOATING AND VARIABLE RATE OBLIGATIONS. The Investment Adviser, or
Investment Sub-Adviser with respect to Canadian or Mexican securities, 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 Company's custodian subject to a sub-custodian agreement approved
by the Company between the bank and the Company'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.
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.
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
3
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.
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 the value of the collateral held
pursuant to the repurchase agreement at not less than 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 Company's Board of Directors.
UNITED STATES GOVERNMENT OBLIGATIONS. United States Government
obligations are obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. 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 Investment
Adviser, or Investment Sub-Adviser with respect to Canadian or Mexican
securities, are of investment quality comparable to other permitted investments
of the Fund, may be used for letter of credit backed investments.
4
LOANS OF PORTFOLIO SECURITIES. The Fund may lend to brokers, dealers
and financial institutions securities from its portfolio representing up to 5%
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 Investment Adviser, will consider all relevant facts
and circumstances, including the creditworthiness of the broker, dealer or
financial institution. The Fund will not 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 Investment Sub-Advisers or the
Distributor.
UNITED STATES MORTGAGE-RELATED SECURITIES. The Fund may invest in
mortgage-backed securities, including collateralized mortgage obligations
("CMOs") and Government Stripped Mortgage-Backed Securities. Mortgage-backed
securities may be considered to be derivative instruments. CMOs are types of
bonds secured by an underlying pool of mortgages or mortgage pass-through
certificates that are structured to direct payments on underlying collateral to
different series or classes of the obligations. To the extent that CMOs are
considered to be investment companies, investments in such CMOs will be subject
to the percentage limitations described under "Investment Company Securities."
Government Stripped Mortgage-Backed Securities are mortgage-backed
securities issued or guaranteed by Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA"), or Federal Home Loan
Mortgage Corporation ("FHLMC"). These securities represent beneficial ownership
interests in either periodic principal distributions ("principal-only") or
interest distributions ("interest-only") on mortgage-backed certificates issued
by GNMA, FNMA or FHLMC, as the case may be. The certificates underlying the
Government Stripped Mortgage-Backed Securities represent all or part of the
beneficial interest in pools of mortgage loans.
Mortgage-backed securities provide a monthly payment consisting of
interest and principal payments. Additional payments may be made out of
unscheduled repayments of principal resulting from the sale of the underlying
residential property, refinancing or foreclosure, net of fees or costs that may
be incurred. Prepayments of principal on mortgage-
5
related securities may tend to increase due to refinancing of mortgages as
interest rates decline. Prompt payment of principal and interest on Government
National Mortgage Association ("GNMA") mortgage pass-through certificates is
backed by the full faith and credit of the United States. Federal National
Mortgage Association ("FNMA") guaranteed mortgage pass-through certificates and
Federal Home Loan Mortgage Corporation ("FHLMC") participation certificates are
solely the obligations of those entities but are supported by the discretionary
authority of the U.S. Government to purchase the agencies' obligations.
The Fund will invest in interest-only Government Stripped
Mortgage-Backed Securities in order to enhance yield or to benefit from
anticipated appreciation in value of the securities at times when the Investment
Adviser believes that interest rates will remain stable or increase. In periods
of rising interest rates, the value of interest-only Government Stripped
Mortgage-Backed Securities may be expected to increase because of the diminished
expectation that the underlying mortgages will be prepaid. In this situation the
expected increase in the value of interest-only Government Stripped
Mortgage-Backed Securities may offset all or a portion of any decline in value
of the portfolio securities of the Fund. Investing in Government Stripped
Mortgage-Backed Securities involves the risks normally associated with investing
in mortgage-backed securities issued by government or government-related
entities. In addition, the yields on interest-only and principal-only Government
Stripped Mortgage-Backed Securities are extremely sensitive to the prepayment
experience on the mortgage loans underlying the certificates collateralizing the
securities. If a decline in the level of prevailing interest rates results in a
rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on
interest-only Government Stripped Mortgage-Backed Securities and increasing the
yield to maturity on principal-only Government Stripped Mortgage-Backed
Securities. Conversely, if an increase in the level of prevailing interest rates
results in a rate of principal prepayments lower than anticipated, distributions
of principal will be deferred, thereby increasing the yield to maturity on
interest-only Government Stripped Mortgage-Backed Securities and decreasing the
yield to maturity on principal-only Government Stripped Mortgage-Backed
Securities. Sufficiently high prepayment rates could result in the Fund not
fully recovering its initial investment in an interest-only Government Stripped
Mortgage-Backed Security. Government Stripped Mortgage-Backed Securities are
currently traded in an over-the-counter market maintained by several large
investment banking firms. There can be no assurance that the Fund will be able
to effect a trade of a Government Stripped Mortgage-Backed Security at a time
when it wishes to do so. The Fund will acquire Government Stripped
Mortgage-Backed Securities only if a liquid secondary market for the securities
exists at the time of acquisition.
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 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.
6
The Fund intends to enter into puts solely to maintain liquidity and
does not intend to exercise its right 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 for 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.
PUT AND CALL OPTIONS. The Fund may invest up to 5% of its net assets in
covered put and covered call options and write covered put and covered call
options on securities in which it may invest directly and that are traded on
registered domestic securities exchanges. Put and call options may be considered
to be derivative instruments. 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 stocks 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 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 appropriate assets in
a segregated account with its custodian. A put option is "covered" if the Fund
maintains cash, Treasury bills, or other appropriate assets 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
7
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 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 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 the 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.
UNITED STATES ZERO COUPON SECURITIES. A zero coupon security, which may
be purchased by the Fund, is a debt obligation that does not entitle the holder
to any periodic payments of interest prior to maturity and therefore is issued
and traded at a discount from its face amount. Zero coupon securities may be
created by separating the interest and principal components of securities issued
or guaranteed by the United States Government or one of its agencies or
instrumentalities or issued by private corporate issuers. These securities are
not obligations issued or guaranteed by the United States Government. Typically,
a custodian bank or investment brokerage firm holding the security has separated
("stripped") the unmatured interest coupons from the underlying principal. The
holder may then resell the stripped securities. The stripped coupons are sold
separately from the underlying principal, usually at a deep discount because the
buyer receives only the right to receive a fixed payment on the security upon
maturity and does not receive any rights to reinvestment of periodic interest
(cash) payments. Because the rate to be earned on these reinvestments may be
higher or lower than the rate quoted on the interest-paying obligations at the
time of the original purchase, the investor's return on investments is uncertain
even if the securities are held to maturity. This uncertainty is commonly
referred to as reinvestment risk. With zero coupon securities, however, there
are no cash distributions to reinvest, so investors bear no reinvestment risk if
they hold the zero coupon securities to maturity; holders of zero coupon
securities, however, forego the possibility of reinvesting at a higher yield
than the rate paid on the originally issued security. With both zero coupon
securities and interest-paying securities there is no reinvestment risk on the
principal amount of the investment. When held to
8
maturity, the entire return from such instruments is determined by the
difference between such instrument's purchase price and its value at maturity.
Because interest on zero coupon securities is not paid on a current basis, the
values of securities of this type are subject to greater fluctuations than are
the values of securities that distribute income regularly.
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 Prospectus.
However, the Company's 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 Prospectus and in this
Statement of Additional Information.
For additional information on ratings, see Appendix A to this Statement
of Additional Information.
INVESTMENT RESTRICTIONS
In addition to the fundamental investment limitations disclosed in the
Fund's Prospectus, the Fund is subject to the investment limitations enumerated
in this section which 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."
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;
9
(4) 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 futures,
options and options on futures);
(5) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions and margin payments in connection
with transactions in futures, options and options on futures) or make short
sales of securities;
(6) 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; or
(7) make investments for the purpose of exercising control or
management.
In addition, the Fund may not invest more than 5% of the current value
of its net assets in securities of issuers that have been in business less than
three years. (For purposes of the above-described investment limitation, issuers
include predecessors, sponsors, controlling persons, general partners,
guarantors and originators of underlying assets which have less than three years
of continuous operation or relevant business experience.)
Each of the foregoing investment restrictions is a fundamental policy
of 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."
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.
MANAGEMENT
DIRECTORS AND OFFICERS
The principal occupations of the directors and executive officers of
the Company for the past five years are listed below. The address of each,
unless otherwise indicated, is 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
C. GARY GERST, Director; Chairman of the Board of Directors - 11 South LaSalle
Street, Chicago, Illinois 60603. Age [56]. Chairman Emeritus since 1993 and
formerly Co-Chairman, LaSalle Partners Ltd. (real estate developer and manager).
Director, Trustee or Partner, LaSalle Street Fund Inc., LaSalle Street Fund Inc.
of Delaware, DEL-LPL Limited Partnership and DEL-LPAML Limited Partnership
10
EDGAR R. FIEDLER, Director - 50114 Manley, Chapel Hill, North Carolina 25714.
Age [65]. Senior Fellow and Economic Counsellor, The Conference Board; 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).
JOHN W. MCCARTER, JR., Director - Roosevelt Road at Lakeshore Drive, Chicago,
Illinois 60605. Age [57]. President and Chief Executive Officer, The Field
Museum of Natural History (Chicago) since ____. Senior Vice President and former
Director of Booz-Allen & Hamilton, Inc. (consulting firm) from _____ to April 1,
1997; 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 W. INGRAM, President, Treasurer and Chief Financial Officer. Age [41].
Senior Vice President and Director of Client Services and Treasury
Administration of Funds Distributor, Inc. Senior Vice President of Premier
Mutual Fund Services, Inc., an affiliate of Funds Distributor ("Premier
Mutual"), and an officer of other investment companies advised or administered
by J.P. Morgan, Dreyfus Corporation ("Dreyfus"), Waterhouse Asset Management,
Inc. ("Waterhouse") and RCM Capital Management L.L.C. ("RCM") or their
respective affiliates. From March 1994 to November 1995, Mr. Ingram was Vice
President and Division Manager of First Data Investor Services Group, Inc. From
1989 to 1994, Mr. Ingram was Vice President, Assistant Treasurer and Tax
Director - Mutual Funds of The Boston Company, Inc.
JOHN E. PELLETIER, Vice President and Secretary. Age [32]. Senior Vice President
and General Counsel of Funds Distributor, Inc. and Premier Mutual, and an
officer of other investment companies advised or administered by J.P. Morgan,
Dreyfus, Waterhouse and RCM or their respective affiliates. From February 1992
to April 1994, Mr. Pelletier served as Counsel of The Boston Company Advisors,
Inc. From August 1990 to February 1992, Mr. Pelletier was employed as an
associate at Ropes & Gray.
Directors of the Company receive from the Company an annual fee in
addition to a fee for each Board of Directors 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, 1996:
11
<TABLE>
<CAPTION>
Aggregate Pension or Total
Compensation Retirement Benefit Estimated Compensation
Name of Person, from the Accrued as Part Annual Benefits from the Fund
Position Company of Fund Expenses upon Retirement Complex*
- ------------------------------- ----------------------- ------------------------ ---------------------- -----------------------
<S> <C> <C> <C> <C>
C. Gary Gerst, $ None None $
Chairman and Director
Edgar R. Fiedler, $ (1) None None $
Director
John W. McCarter, Jr. $ None None $
Director
Ernest M. Roth, $ None None $
Director
</TABLE>
- ----------
* In addition to the Company, "Fund Complex" includes Harris Insight Funds
Trust, an open-end management investment company.
(1) For the period June 1988 through December 31, 1996, the total amount of
compensation (including interest) payable or accrued for Mr. Fiedler was $____
pursuant to the Company's Deferred Compensation Plan for its independent
Directors.
As of _______, the principal holder[s] of the Fund was _____ who held
of record _____ shares, equal to ___% of the outstanding shares of the Fund. The
shareholder[s] described above has indicated that it holds its shares on behalf
of various accounts and not as beneficial owner. 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 _____, Directors and officers of the Company as a group
beneficially owned less than 1% of the outstanding shares of the Fund.
Investment Adviser, Portfolio Management Agent and Investment
Sub-Advisers. The Fund is advised by Harris Trust and Savings Bank ("Harris
Trust"). Harris Trust has entered into a Portfolio Management Contract with
Harris Investment Management, Inc. ("HIM"), under which HIM is responsible for
providing daily portfolio management services to the Fund. Under the Portfolio
Management Contract, Harris Trust remains responsible for the supervision and
oversight of HIM's performance. HIM controls the allocation of the Fund's assets
among issuers in Canada, Mexico and the United States. HIM selects and manages
the U.S. securities in which the Fund invests.
12
HIM has entered into Investment Sub-Advisory Agreements (the
"Investment Sub-Advisory Contracts") with Bancomer Asesora de Fondos, S.A. de
C.V. ("Bancomer") and Jones Heward Investment Counsel Inc. ("JHICI"). Bancomer
is responsible for all Fund purchase and sale transactions in Mexican
securities. Bancomer selects and manages the Mexican securities in which the
Fund invests. JHICI is responsible for all Fund purchase and sale transactions
in Canadian securities. JHICI selects and manages the Canadian securities in
which the Fund invests. Under the Investment Sub-Advisory Contracts HIM remains
responsible for the supervision and oversight of Bancomer's and JHICI's
performance.
The Advisory Contract, Portfolio Management Contract and Investment
Sub-Advisory Contracts with respect to the Fund will continue in effect for a
period of two years from the commencement of the Fund's operations, and
thereafter from year to year provided the continuance is approved annually (i)
by the holders of a majority of the Fund's outstanding voting securities or by
the Company's Board of Directors and (ii) by a majority of the Directors of the
Company who are not parties to the Advisory Contract or "interested persons" (as
defined in the 1940 Act) of any such party. Such Contracts may be terminated on
60 days' written notice by either party and will terminate automatically if
assigned.
For its services under the Advisory Contract with the Fund, Harris
Trust is entitled to receive a monthly advisory fee at the annual rate of 0.90%
of the average daily net assets of the Fund. For their services under the
Portfolio Management Contract and Investment Sub-Advisory Contracts, HIM pays
each of JHICI and Bancomer, from the advisory fees HIM receives from Harris
Trust, a monthly fee at the annual rate of 0.375% of the first $25 million of
average daily net assets, plus 0.325% of the next $25 million of average daily
net assets, plus 0.275% of the next $50 million of such assets, plus 0.250% of
such assets in excess of $100 million. For the period from commencement of
operations through December 31, 1996, the Investment Adviser, Bancomer and
JHICI, respectively, were entitled to receive fees from the Fund in the
following amounts: $____, $____ and $____. Waivers of investment advisory fees
and expense reimbursements by the Investment Adviser, Bancomer and JHICI,
respectively, for the Fund for the same period amounted to $____, $____ and
$____.
Administrator. Harris Trust serves as the Fund's administrator
("Administrator") pursuant to an Administration Agreement and in that capacity
generally assists the Fund in all aspects of its administration and operation.
The Administrator has entered into a Sub-Administration Agreement with Funds
Distributor, Inc. ("Funds Distributor") and a Sub-Administration and Accounting
Services Agreement with PFPC Inc. ("PFPC") (the "Sub-Administrators"). Funds
Distributor has agreed to furnish officers for the Company; provide corporate
secretarial services; prepare and file various reports with the appropriate
regulatory agencies; and prepare various materials required by the Commission.
PFPC has agreed to furnish officers for the Company; 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; and prepare various
materials required by any state securities commission having jurisdiction over
the Company.
13
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.
Other Information Pertaining to Distribution, Administration,
Sub-Administration, Custodian, Transfer Agency and Sub-Transfer Agency
Agreements. Harris Trust serves as the transfer agent and dividend disbursing
agent ("Transfer Agent") of the Fund pursuant to a Transfer Agency Services
Agreement. The Transfer Agent has entered into a Sub-Transfer Agency Services
Agreement with PFPC (the "Sub-Transfer Agent"). PFPC is an affiliate of PNC
Bank, N.A., the Custodian for the Company. PFPC and PNC Bank, N.A. are not
affiliates of Funds Distributor, Harris Trust or HIM.
SERVICE PLAN
As indicated in the Prospectus, 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 Class A Shares of the Fund. 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 the Service Plan. Rule
12b-1 also requires that the selection and nomination of Directors who are not
"interested persons" of the Company be made by such disinterested directors.
Class A Shares of the Fund bear the costs and expenses in connection
with advertising and marketing the Fund's Class A Shares and pay 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 Class A
Shares of the Fund's average daily net assets.
14
Servicing activities provided by Service Agents to their customers
investing in Class A 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 Class A Shares of the Fund; assisting customers in changing
dividend options; account designations and addresses; performing sub-accounting;
investing customer cash account balances automatically in Class A Shares of the
Fund; 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.
Payments made pursuant to the Fund's Service Plan for the period ended
December 31, 1996 were $___.
CALCULATION OF YIELD AND TOTAL RETURN
The Company may make available 30-day yield quotations with respect to
each class of shares of the Fund. As required by regulations of the Securities
and Exchange 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, 1996 was ___% for
the Fund.
The Company may also make available total return quotations for the
Fund. Average annual total return for the period April 9, 1996 (commencement of
operations) through December 31, 1996 for Institutional Shares of the Fund was
___%. Average annual total return for the period April 11, 1996 (commencement of
operations) through December 31, 1996 for Class A Shares of the Fund was ___%.
Total return 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 is then assumed that at the end of the
specified period, the entire amount was redeemed. The average annual total
return is then calculated by calculating the annual rate required for the
initial investment to grow to the amount that would have been received upon
redemption.
The 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.
Aggregate total return for the period April 9, 1996
15
(commencement of operations) through December 31, 1996 for Institutional Shares
of the Fund was ___%. Aggregate total return for the period April 11, 1996
(commencement of operations) through December 31, 1996 for Class A Shares of the
Fund was ___%.
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, 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 Fund 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
Prospectus, net asset value per share is determined at least as often as each
day that the Federal Reserve Board of Philadelphia and the New York Stock
Exchange are open, i.e., each weekday other than New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day , Good Friday, Memorial Day , Independence Day,
Labor Day , Columbus Day, Veterans' 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
16
placing of such portfolio transactions with respect to U.S. securities. Bancomer
and JHICI are responsible for the Fund's portfolio decisions and the placing of
such portfolio transactions with respect to Mexican and Canadian securities,
respectively. 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, Bancomer and
JHICI generally seek reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commission available.
Purchases and sales of securities 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, Bancomer and/or JHICI 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, Bancomer and/or
JHICI are able to supplement their own research and analysis with the views and
information of other securities firms. Information so received will be in
addition to, and not in lieu of, the services required to be performed under the
Portfolio Management and Investment Sub-Advisory Contracts, and the expenses of
such adviser will not necessarily be reduced as a result of the receipt of this
supplemental research information. Furthermore, research services furnished by
dealers through whom HIM, Bancomer or JHICI effect securities transactions for
the Fund may be used by HIM, Bancomer or JHICI in servicing their other
accounts, and not all of these services may be used by HIM, Bancomer or JHICI in
connection with advising the Fund.
Total brokerage commissions and the total dollar amount of transactions
on which commissions were paid for the period from commencement of operations
through December 31, 1996 were $____ and $____, respectively, for the Fund.
With respect to transactions directed to brokers because of research
services provided, total brokerage commissions, and the total dollar amount of
the transactions on which such commissions were paid for the period from
commencement of operations through December 31, 1996 were $_____ and $_____,
respectively, 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.
17
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, Harris Investors Direct, or an affiliate of Bancomer or JHICI in
any transaction in which either one acts as principal except as may be permitted
by the Securities and Exchange Commission.
In placing orders for portfolio securities of the Fund, HIM, Bancomer
and JHICI are required to give primary consideration to obtaining the most
favorable price and efficient execution. This means that HIM, Bancomer and JHICI
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, Bancomer and JHICI 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.
FEDERAL INCOME TAXES
The Prospectus describes generally the tax treatment of distributions
by the Company. This section of the Statement of Additional Information includes
additional information concerning federal taxes.
The Fund is treated as a separate entity for federal income tax
purposes and thus the provisions of the Code are applied to the Fund separately,
rather than to the Company as a whole.
Qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code") generally requires, among other
things, that (a) at least 90% of the Fund's annual gross income (without offset
for losses) be derived from interest, payments with respect to securities loans,
dividends and gains from the sale or other disposition of stocks, securities or
options thereon and certain other income including, but not limited to, gains
from futures contracts; (b) the Fund derives less than 30% of its gross income
from gains (without offset for losses) from the sale or other disposition of
stocks, securities or options thereon and certain futures contracts held for
less than three months; and (c) the Fund diversifies its holdings so that, at
the end of each quarter of the taxable year, (i) at least 50% of the market
value of the Fund's assets is represented by cash, government securities and
other securities, with such other securities limited in respect of any one
issuer to an amount not greater than 5% of each Fund's assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
U.S. Government securities). As a regulated investment company, each Fund will
not be subject to federal income tax on its net investment income and net
capital
18
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.
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, the 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.
19
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 currently
classified as follows: "Government Money Market Fund - Class A," consisting of
1,000,000,000 Shares, "Government Money Market Fund - Class B," consisting of
200,000,000 Shares, "Government Money Market Fund - Institutional Shares,"
consisting of 500,000,000 Shares, "Money Market Fund Class A," consisting of
1,000,000,000 Shares, "Money Market Fund - Class B," consisting of 200,000,000
Shares, "Money Market Fund - Institutional Shares," consisting of 750,000,000
Shares, "Tax-Exempt Money Market Fund Class A," consisting of 500,000,000
Shares, "Tax-Exempt Money Market Fund - Class B," consisting of 200,000,000
Shares, "Tax-Exempt Money Market Fund - Institutional Shares," consisting of
1,000,000,000 Shares, "Class D," referred to as the Harris Insight Convertible
Fund, consisting of 100,000,000 Shares, "Equity Fund - Class A," consisting of
100,000,000 Shares, "Equity Fund - Institutional Shares" consisting of
100,000,000 Shares, "Short/Intermediate Bond Fund - Class A," consisting of
100,000,000 Shares, "Short/Intermediate Bond Fund Institutional Shares,"
consisting of 100,000,000 Shares, "Class G," referred to as the Harris Insight
Intermediate Municipal Income Fund, consisting of 50,000,000 Shares, "Prime
Reserve Fund - Class A," consisting of 200,000,000 Shares, "Prime Reserve Fund -
Class B," consisting of 700,000,000 Shares, "Prime Reserve Fund Institutional
Shares," consisting of 300,000,000 Shares, "Hemisphere Free Trade Fund - Class
A," consisting of 50,000,000 Shares and "Hemisphere Free Trade Fund -
Institutional Shares, consisting of 50,000,000 Shares.
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 Prospectus and in this Statement of Additional Information, the term
"majority," when referring to the approvals to be obtained from shareholders in
connection with general matters affecting the Funds (e.g., annual 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
the 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 the Fund as
are declared in the discretion of the Company's Board of Directors.
Notwithstanding the foregoing, the Fund's Class A Shares bear exclusively the
expense of fees paid to Service Organizations with respect to Class A Shares. In
the event of the liquidation or dissolution of the Company (or the Fund),
shareholders of the
20
Fund are entitled to receive the assets attributable to the Fund that are
available for distribution, and a distribution of any general assets not
attributable to a particular Fund that are available for distribution in such
manner and on such basis as the 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 Prospectus, 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 Company'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 each Fund upon purchase and upon sale or maturity,
collects and receives all income and other payments and distributions on account
of the assets of each Fund, and pays all expenses of each Fund.
INDEPENDENT ACCOUNTANTS
________ has been selected as the independent accountants for the
Company. ______ provides audit services and assistance and consultation in
connection with review of certain Commission filings. _______ address is
___________.
EXPERTS
The financial statements included or incorporated by reference into the
Prospectuses and included in this Statement of Additional Information have been
included or incorporated by reference in reliance on the report of , independent
accountants, given on the authority of that firm as experts in auditing and
accounting.
FINANCIAL STATEMENTS
The financial statements for the year ended December 31, 1996 including
the notes thereto, have been audited by and are incorporated by reference in
this Statement of Additional Information from the Annual Report of the Company
dated December 31, 1996
21
APPENDIX A
Description of Bond Ratings (Including Convertible Bonds)
The following summarizes the highest four ratings used by Standard &
Poor's ("S&P") for corporate and municipal debt:
AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from AAA issues only in a small
degree.
A - Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than for those in higher rated categories.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the highest four ratings used by Moody's
Investors Service ("Moody's") for corporate and municipal long-term debt:
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds that are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger
than in Aaa securities.
A-1
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds that are rated Baa are considered medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
corporate bonds rated Aa, A and Baa. The modifier 1 indicates that the bond
being rated ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category. With regard to municipal
bonds, those bonds in the Aa, A and Baa groups which Moody's believes possess
the strongest investment attributes are designated by the symbols Aa1, A1 or
Baa1, respectively.
The following summarizes the highest four ratings used by Duff & Phelps
Credit Rating Co. ("D&P") for bonds:
AAA - Debt rated AAA is of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA - Debt rated AA is of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from
time to time because of economic conditions.
A - Bonds that are rated A have protection factors which are
average but adequate. However risk factors are more variable and
greater in periods of economic stress.
BBB - Bonds that are rated BBB have below average protection
factors but are still considered sufficient for prudent
investment. Considerable variability in risk during economic
cycles.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major categories.
A-2
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 Longand
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.
A-3
SP-2 - Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt are Duff
1, Duff 2, and Duff 3. D&P employs three designations, Duff 1+, Duff 1 and Duff
1-, within the highest rating category. Duff 1+ indicates highest certainty of
timely payment. Short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." Duff 1
indicates very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
considered to be minor. Duff 1- indicates high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small. Duff 2 indicates good certainty of timely
payment. Liquidity factors and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small. Duff 3 indicates satisfactory liquidity
and other protection factors qualify issue as to investment grade. Risk factors
are larger and subject to more variation. Nevertheless, timely payment is
expected.
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.
A-4
The highest rating of D&P for commercial paper is Duff 1. D&P employs
three designations, Duff 1 plus, Duff 1 and Duff 1 minus, within the highest
rating category. Duff 1 plus indicates highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or ready access
to alternative sources of funds, is judged to be "outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations" Duff 1 indicates very
high certainty of timely payment. Liquidity factors are excellent and supported
by strong fundamental protection factors. Risk factors are considered to be
minor. Duff 1 minus indicates high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
The following summarizes the highest ratings used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
F-1 securities possess exceptionally strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated F-1+.
Commercial paper rated A-1 by Standard & Poor's indicates that the
degree of safety regarding timely payment is strong. Those issued determined to
possess extremely strong safety characteristics are denoted A-1+.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations.
D&P uses the short-term ratings described above for commercial paper.
Fitch uses the short-term ratings described above for commercial paper.
Thomson BankWatch, Inc. (TBW") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.
BankWatch Ratings do not constitute a recommendation to buy or sell
securities of any of these companies. Further, BankWatch does not suggest
specific investment criteria for individual clients.
The TBW Short-Term Ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned.
The TBW Short-Term Ratings specifically assess the likelihood of an
untimely payment of principal or interest.
A-5
TBW-1 The highest category; indicates a very high degree
of likelihood that principal and interest will be
paid on a timely basis.
TBW-2 The second highest category; while the degree of
safety regarding timely repayment of principal and
interest is strong, the relative degree of safety
is not as high as for issues rated "TBW-1".
TBW-3 The lowest investment grade category; indicates
that while more susceptible to adverse developments
(both internal and external) than obligations with
higher ratings, capacity to service principal and
interest in a timely fashion is considered
adequate.
TBW-4 The lowest rating category; this rating is regarded
as non-investment grade and therefore speculative.
A-6
HARRIS INSIGHT(R) FUNDS
HARRIS INSIGHT CONVERTIBLE FUND
STATEMENT OF ADDITIONAL INFORMATION
60 State Street, Suite 1300, Boston, Massachusetts 02109
Telephone: (800) 982-8782
May 1, 1997
The Harris Insight Convertible Fund (the "Fund") is one of seven
portfolios of HT Insight Funds, Inc. d/b/a Harris Insight Funds (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 May 1, 1997 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 Company at the address or telephone
number given above.
TABLE OF CONTENTS
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 Financial Statements................ 22
and Total Return.................... 15 Appendix............................A-1
Determination of Net
Asset Value........................ 16
Portfolio Transactions.............. 16
Federal Income Taxes................ 18
1
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.
2
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.
3
FOREIGN SECURITIES. As discussed in the Prospectus, investing in
foreign securities generally represents a greater degree of risk than investing
in domestic securities, due to possible exchange rate fluctuations, less
publicly available information, more volatile markets, less securities
regulation, less favorable tax provisions, war or expropriation. As a result of
its investments in foreign securities, 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
4
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.
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
appropriate assets in a segregated account with its custodian. A put option is
"covered" if the Fund maintains cash, Treasury bills, or other appropriate
assets 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
5
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
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.
6
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 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
7
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.
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
In addition to the fundamental investment limitations disclosed in the
Fund's Prospectuses, the Fund is subject to the investment limitations
enumerated in this section which 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."
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.
8
(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 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."
9
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 60 State Street, Suite 1300, Boston, Massachusetts
02109. .
C. GARY GERST, Director; Chairman of the Board of Directors - 11 South LaSalle
Street, Chicago, Illinois 60603. Age [56]. Chairman Emeritus since 1993 and
formerly Co-Chairman, LaSalle Partners Ltd. (real estate developer and manager).
Director, Trustee or Partner, LaSalle Street Fund Inc., LaSalle Street Fund Inc.
of Delaware, DEL-LPL Limited Partnership and DEL-LPAML Limited Partnership.
EDGAR R. FIEDLER, Director - 50114 Manley, Chapel Hill, North Carolina 27514.
Age [65]. Senior Fellow and Economic Counsellor, The Conference Board; 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).
JOHN W. McCARTER, JR., Director - Roosevelt Road at Lakeshore Drive, Chicago,
Illinois 60605. Age [57]. President and Chief Executive Officer, The Field
Museum of Natural History (Chicago) since _______. Senior Vice President and
former Director of
10
Booz-Allen & Hamilton, Inc. (consulting firm) from _____ to April 1, 1997;
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 W. INGRAM, President, Treasurer and Chief Financial Officer. Age [41].
Senior Vice President and Director of Client Services and Treasury
Administration of Funds Distributor, Inc. Senior Vice President of Premier
Mutual Fund Services, Inc., an affiliate of Funds Distributor ("Premier
Mutual"), and an officer of other investment companies advised or administered
by J.P. Morgan, Dreyfus Corporation ("Dreyfus"), Waterhouse Asset Management,
Inc. ("Waterhouse") and RCM Capital Management L.L.C. ("RCM") or their
respective affiliates. From March 1994 to November 1995, Mr. Ingram was Vice
President and Division Manager of First Data Investor Services Group, Inc. From
1989 to 1994, Mr. Ingram was Vice President, Assistant Treasurer and Tax
Director - Mutual Funds of The Boston Company, Inc.
JOHN E. PELLETIER, Vice President and Secretary. Age [32]. Senior Vice President
and General Counsel of Funds Distributor, Inc. and Premier Mutual, and an
officer of other investment companies advised or administered by J.P. Morgan,
Dreyfus, Waterhouse and RCM or their respective affiliates. From February 1992
to April 1994, Mr. Pelletier served as Counsel of The Boston Company Advisors,
Inc. From August 1990 to February 1992, Mr. Pelletier was employed as an
associate at Ropes & Gray.
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, 1996:
11
<TABLE>
<CAPTION>
Aggregate Pension or Total
Compensation Retirement Benefit Estimated Compensation
Name of Person, from the Accrued as Part Annual Benefits from the Fund
Position Company of Fund Expenses upon Retirement Complex*
- ----------------------------- ----------------------- ------------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
C. Gary Gerst, $ None None $
Chairman and Director
Edgar R. Fiedler, Director $ (1) None None $
John W. McCarter, Jr. $ None None $
Director
Ernest M. Roth, Director $ None None $
</TABLE>
- ----------
* In addition to the Company, "Fund Complex" includes Harris Insight Funds
Trust, an open-end management investment company.
(1) For the period June 1988 through December 31, 1996, the total amount of
compensation (including interest) payable or accrued for Mr. Fiedler was $____
pursuant to the Company's Deferred Compensation Plan for its independent
Directors.
As of _____, the principal holders of the Fund were [Harris Trust and
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] which held of record ___, ___, ___, and shares,
respectively, equal to __%, __%, __% and __%, respectively of the outstanding
shares of the Fund.
The shareholders described above have indicated that they each hold
their shares on behalf of various accounts and not as beneficial owners. To the
extent that any shareholder is the beneficial owner of more than 25% of the
outstanding shares of any Fund, such shareholder may be deemed to be a "control
person" of that Fund for purposes of the 1940 Act.
As of ___________ , Directors and officers of the Company as a group
beneficially owned less than 1% of the outstanding shares of the Fund.
Investment Adviser and Portfolio Management Agent. The Fund is advised
by Harris Trust and Savings Bank ("Harris Trust"). Harris Trust has entered into
a Portfolio Management Contract with Harris Investment Management, Inc. ("HIM")
under which HIM is responsible for
12
all Fund purchase and sale transactions and for providing all such daily
portfolio management services to the Fund. Under the Portfolio Management
Contract, 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 its services under the Advisory Contract with the Fund, Harris
Trust is entitled to receive a monthly advisory fee at the annual rate of 0.70%
of the average daily net assets of the Fund. For the fiscal years ended December
31, 1996, 1995 and 1994, the Investment Adviser was entitled to receive fees
from the Fund in the following amounts: $____; $9,134 and $26,524, respectively.
Waivers of investment advisory fees and expense reimbursements by the Investment
Adviser for the Fund for each period amounted to: $______; $23,094 and $16,347,
respectively.
Administrator. Harris Trust serves as the Fund's administrator
("Administrator") pursuant to an Administration Agreement and in that capacity
generally assists the Fund in all aspects of its administration and operation.
The Administrator has entered into a Sub-Administration Agreement with Funds
Distributor, Inc. ("Funds Distributor") and a Sub-Administration and Accounting
Services Agreement with PFPC Inc. ("PFPC") (the "Sub-Administrators"). Funds
Distributor has agreed to furnish officers for the Company; provide corporate
secretarial services; prepare and file various reports with the appropriate
regulatory agencies; and prepare various materials required by the Commission.
PFPC has agreed to furnish officers for the Company; 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; and prepare various
materials required by any state securities commission having jurisdiction over
the Company.
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.
13
Other Information Pertaining to Distribution, Administration,
Sub-Administration, Custodian, Transfer Agency and Sub-Transfer Agency
Agreements. Harris Trust serves as the transfer agent and dividend disbursing
agent ("Transfer Agent") of the Fund pursuant to a Transfer Agency Services
Agreement. The Transfer Agent has entered into a Sub-Transfer Agency Services
Agreement with PFPC (the "Sub-Transfer Agent"). PFPC is an affiliate of PNC
Bank, N.A., the Custodian for the Company. PFPC and PNC Bank, N.A. are not
affiliates of Funds Distributor, Harris Trust or HIM.
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.
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
14
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.
As of December 31, 1996, no payments had 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, 1996, was __% for
the Fund.
The Company also makes available total return quotations for shares of
the Fund. Average annual total return for the one year, five year and since
inception (February 24, 1988) periods ended December 31, 1996, respectively, for
the Fund were ___%, ___% and ___%. 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.
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.
Aggregate total return for the one year, five year and since inception (February
24, 1988) periods ended December 31, 1996, respectively, for the Fund were ___%,
___% and ___%.
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
15
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. Day, Presidents' Day , Good Friday, Memorial Day , Independence Day,
Labor Day , 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
16
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 1994 were $1,030 and $875,988,
respectively, for the Fund. Total brokerage commissions and the total dollar
amount of transactions on which commissions were paid during 1995 were $157 and
$1,724,179, respectively for the Fund. Total brokerage commissions and the total
dollar amount of transactions on which commissions were paid during 1996 were
$____ and $____, respectively, for the Fund.
No brokerage commissions were paid for the Fund during 1994, 1995 and
1996 with respect to transactions directed to brokers because of research
services provided.
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
17
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.
FEDERAL INCOME TAXES
The Prospectuses describe generally the tax treatment of distributions
by the Company. This section of the Statement of Additional Informationincludes
additional information concerning federal taxes.
The Fund is 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 are 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;
18
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.
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
19
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 currently
classified as follows: "Government Money Market Fund - Class A," consisting of
1,000,000,000 Shares, "Government Money Market Fund - Class B," consisting of
200,000,000 Shares, "Government Money Market Fund - Institutional Shares,"
consisting of 500,000,000 Shares, "Money Market Fund Class A," consisting of
1,000,000,000 Shares, "Money Market Fund - Class B," consisting of 200,000,000
Shares, "Money Market Fund - Institutional Shares," consisting of 750,000,000
Shares, "Tax-Exempt Money Market Fund Class A," consisting of 500,000,000
Shares, "Tax-Exempt Money Market Fund - Class B," consisting of 200,000,000
Shares, "Tax-Exempt Money Market Fund - Institutional Shares," consisting of
1,000,000,000 Shares, "Class D," referred to as the Harris Insight Convertible
Fund, consisting of 100,000,000 Shares, "Equity Fund - Class A," consisting of
100,000,000 Shares, "Equity Fund - Institutional Shares" consisting of
100,000,000 Shares, "Short/Intermediate Bond Fund - Class A," consisting of
100,000,000 Shares, "Short/Intermediate Bond Fund Institutional Shares,"
consisting of 100,000,000 Shares, "Class G," referred to as the Harris Insight
Intermediate Municipal Income Fund, consisting of 50,000,000 Shares, "Prime
Reserve Fund - Class A," consisting of 200,000,000 Shares, "Prime Reserve Fund -
Class B," consisting of 700,000,000 Shares, "Prime Reserve Fund Institutional
Shares," consisting of 300,000,000 Shares, "Hemisphere Free Trade Fund - Class
A," consisting of 50,000,000 Shares and "Hemisphere Free Trade Fund -
Institutional Shares, consisting of 50,000,000 Shares.
20
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 Company'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 upon
21
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
________ has been selected as the independent accountants for the
Company. _______ provides audit services and assistance and consultation in
connection with review of certain Commission filings. ________ address is
________________________-.
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 , independent
accountants, given on the authority of that firm as experts in auditing and
accounting.
FINANCIAL STATEMENTS
The financial statements for the year ended December 31, 1996 including
the notes thereto, have been audited by and are incorporated by reference in
this Statement of Additional Information from the Annual Report of the Company
dated December 31, 1996.
22
APPENDIX A
Description of Bond Ratings (Including Convertible Bonds)
The following summarizes the highest four ratings used by Standard &
Poor's ("S&P") for corporate and municipal debt:
AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from AAA issues only in a
small degree
A - Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay interest and repay
principal for debt in this category than for those in higher
rated categories.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the highest four ratings used by Moody's
Investors Service ("Moody's") for corporate and municipal long-term debt.
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments
are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of
such issues.
Aa - Bonds that are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A-1
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 adequatefor the present but certain protective elements
may be lacking ormay be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics
as well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
corporate bonds rated Aa, A and Baa. The modifier 1 indicates that the bond
being rated ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category. With regard to municipal
bonds, those bonds in the Aa, A and Baa groups which Moody's believes possess
the strongest investment attributes are designated by the symbols Aa1, A1 or
Baa1, respectively.
The following summarizes the highest four ratings used by Duff & Phelps
Credit Rating Co. ("D&P") for bonds:
AAA - Debt rated AAA is of the highest credit quality. The
risk factors are considered to be negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA - Debt rated AA is of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from
time to time because of economic conditions.
A - Bonds that are rated A have protection factors which are
average but adequate. However risk factors are more variable
and greater in periods of economic stress.
BBB - Bonds that are rated BBB have below average protection
factors but are still considered sufficient for prudent
investment. Considerable variability in risk during economic
cycles.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major categories.
A-2
The following summarizes the ratings used by IBCA Limited and IBCA Inc.
("IBCA") for bonds:
Obligations rated AAA by IBCA have the lowest expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial, such that adverse changes in
business, economic or financial conditions are unlikely to
increase investment risk significantly.
IBCA also assigns a rating to certain international and U.S.
banks. An IBCA bank rating represents IBCA's current
assessment of the strength of the bank and whether such bank
would receive support should it experience difficulties. In
its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In
addition, IBCA assigns banks Long and Short-Term Ratings as
used in the corporate ratings discussed above. Legal Ratings,
which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by
central banks or shareholders if it experienced difficulties,
and such ratings are considered by IBCA to be a prime factor
in its assessment of credit risk. Individual Ratings, which
range in gradations from A through E, represent IBCA's
assessment of a bank's economic merits and address the
question of how the bank would be viewed if it were entirely
independent and could not rely on support from state
authorities or its owners.
Description of Municipal Notes Ratings
The following summarizes the two highest ratings used by Moody's for
short-term notes and variable rate demand obligations:
MIG-1/VMIG-1. Obligations bearing these designations are of
the best quality, enjoying strong protection by established
cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2/VMIG-2. Obligations bearing these designations are of
high quality with margins of protection ample although not as
large as in the preceding group.
The following summarizes the two highest ratings by Standard & Poor's
for short-term municipal notes:
SP-1 - Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming
safety characteristics are given a "plus" (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest
A-3
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.
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
A-4
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.
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".
A-5
TBW-3 The lowest investment grade category; indicates that
while more susceptible to adverse developments (both
internal and external) than obligations with higher
ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded
as non-investment grade and therefore speculative.
A-6
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
- -------- ----------------------------------
(a) Included in Part A of this Registration Statement: Not
applicable to this filing.
Included in Part B of this Registration Statement: Not
applicable to this filing.
Financial statements are to be filed by subsequent
post-effective amendment prior to the effective date of this
Post-Effective Amendment No. 27.
(b) Exhibits
Note: As used herein the term "Registration Statement" refers to the
Registration Statement of Registrant under the Securities Act
of 1933 on Form N-1A, No. 33-17957. All references to a
Post-Effective Amendment ("PEA") or Pre-Effective Amendment
("PreEA") are to Post-Effective Amendments and Pre-Effective
Amendments to the Registration Statement.
(1) (a) Articles of Incorporation (incorporated by reference to
Exhibit No. 1 to the Registration Statement filed on October
15, 1987).
(b) Articles Supplementary to the Articles of Incorporation dated
September 21, 1990 (incorporated by reference to Exhibit
No.1(b) to PEA No. 5 filed on September 5, 1990).
(c) Articles Supplementary to the Articles of Incorporation dated
November 4, 1992 (incorporated by reference to Exhibit No.
1(c) to PEA No. 13 filed on April 19, 1993).
(d) Articles Supplementary to the Articles of Incorporation dated
August 6, 1993 (incorporated by reference to Exhibit No. 1(d)
to PEA No. 14 filed on August 20, 1993).
(e) Articles Supplementary to the Articles of Incorporation dated
May 27, 1994 (incorporated by reference to Exhibit 1(e) to PEA
No. 16 filed on June 1, 1994).
(f) Articles Supplementary to the Articles of Incorporation dated
July 19, 1994 (incorporated by reference to Exhibit 1(f) to
PEA No. 18 filed on July 29, 1994).
(g) Articles Supplementary to the Articles of Incorporation dated
January 9, 1995 (incorporated by reference to Exhibit 1(g) to
PEA No. 20 filed on January 23, 1995).
(h) Articles Supplementary to the Articles of Incorporation dated
February 21, 1996 (incorporated by reference to Exhibit 1(h)
to PEA No. 26 filed on September 10, 1996).
(i) Articles Supplementary to the Articles of Incorporation dated
July 18, 1996 (incorporated by reference to Exhibit 1(i) to
PEA No. 26 filed on September 10, 1996).
(2) (a) By-Laws (incorporated by reference to Exhibit No. 2 to the
Registration Statement filed on October 15, 1987).
(b) Addendum to By-Laws dated July 21, 1988 (incorporated by
reference to Exhibit No. 2(b) to PEA No. 12 filed on November
30, 1992).
(c) Addendum to By-Laws dated July 21, 1989 (incorporated by
reference to Exhibit No. 2(c) to PEA No. 12 filed on November
30, 1992).
(3) Not applicable.
(4) Forms of Stock Certificate (incorporated by reference to
Exhibit No. 4 to PreEA No. 2 to the Registration Statement
filed on January 29, 1988).
(5) (a)(i) Advisory Contract on behalf of Harris Insight Convertible Fund
(formerly named HT Insight Convertible Fund) dated May 1, 1990
between Registrant and Harris Trust and Savings Bank ("Harris
Trust") (incorporated by reference to Exhibit 5(h) to PEA No.
7 filed on April 1, 1991).
(a)(ii) Advisory Contract on behalf of Harris Insight Equity Fund
(formerly named HT Insight Equity Fund) dated May 1, 1990
between Registrant and Harris Trust (incorporated by reference
to Exhibit 5(i) to PEA No. 7 filed on April 1, 1991).
(a)(iii) Advisory Contract on behalf of Harris Insight
Short/Intermediate Bond Fund (formerly named HT Insight
Managed Fixed Income Fund) dated April 1, 1991 between
Registrant and Harris Trust (incorporated by reference to
Exhibit 5(j) to PEA No. 8 filed on October 1, 1991).
(a)(iv) Advisory Contract on behalf of Harris Insight Government Money
Market Fund (formerly named Harris Insight Government Assets
Fund) dated October 20, 1993 between Registrant and Harris
Trust (incorporated by reference to Exhibit 5(l) to PEA No. 15
filed on May 2, 1994).
(a)(v) Advisory Contract on behalf of Harris Insight Money Market
Fund (formerly named Harris Insight Cash Management Fund)
dated October 20, 1993 between Registrant and Harris Trust
(incorporated by reference to Exhibit 5(m) to PEA No. 15 filed
on May 2, 1994).
(a)(vi) Advisory Contract on behalf of Harris Insight Tax-Exempt Money
Market Fund (formerly named Harris Insight Tax-Free Money
Market Fund) dated October 20, 1993 between Registrant and
Harris Trust (incorporated by reference to Exhibit 5(n) to PEA
No. 15 filed on May 2, 1994).
(a)(vii) Advisory Contract on behalf of Harris Insight Hemisphere Free
Trade Fund dated April 9, 1996 between Registrant and Harris
Trust (filed herewith).
(b)(i) Portfolio Management Contract on behalf of Harris Insight
Convertible Fund (formerly named HT Insight Convertible Fund)
dated May 1, 1990 between Harris Trust and Harris Investment
Management, Inc. ("HIM") (incorporated by reference to Exhibit
5(m) to PEA No. 7 filed on April 1, 1991).
(b)(ii) Portfolio Management Contract on behalf of Harris Insight
Equity Fund (formerly named HT Insight Equity Fund) dated May
1, 1990 between Harris Trust and HIM (incorporated by
reference to Exhibit 5(n) to PEA No. 7 filed on April 1,
1991).
(b)(iii) Portfolio Management Contract on behalf of Harris Insight
Short/Intermediate Bond Fund (formerly named HT Insight
Managed Fixed Income Fund) dated April 1, 1991 between Harris
Trust and HIM (incorporated by reference to Exhibit 5(o) to
PEA No. 8 filed on October 1, 1991).
(b)(iv) Portfolio Management Contract on behalf of Harris Insight
Government Money Market Fund (formerly named Harris Insight
Government Assets Fund) dated October 20, 1993 between Harris
Trust and HIM (incorporated by reference to Exhibit 5(u) to
PEA No. 15 filed on May 2, 1994).
(b)(v) Portfolio Management Contract on behalf of Harris Insight
Money Market Fund (formerly named Harris Insight Cash
Management Fund) dated October 20, 1993 between Harris Trust
and HIM (incorporated by reference to Exhibit 5(v) to PEA No.
15 filed on May 2, 1994).
(b)(vi) Portfolio Management Contract on behalf of Harris Insight
Hemisphere Free Trade Fund dated April 9, 1996 between Harris
Trust and HIM (filed herewith).
(c)(i) Investment Sub-Advisory Contract on behalf of Harris Insight
Hemisphere Free Trade Fund dated April 9, 1996 between HIM and
Bancomer Asesora de Fondos, S.A. de C.V. (filed herewith).
(c)(ii) Investment Sub-Advisory Contract on behalf of Harris Insight
Hemisphere Free Trade Fund dated April 9, 1996 between HIM and
Jones Heward Investment Counsel Inc. (filed herewith).
(6) (a)(i) Distribution Agreement between Registrant and Funds
Distributor, Inc. dated April 13, 1994 (incorporated by
reference to Exhibit 6(k) to PEA No. 16 filed on June 1,
1994).
(a)(ii) Form of Notice to Distributor dated April 9, 1996 on behalf of
Harris Insight Hemisphere Free Trade Fund (filed herewith).
(7) Not applicable.
(8) (a)(i) Custodian Agreement between Registrant and Provident National
Bank dated December 1, 1989 (incorporated by reference to
Exhibit 8(b) to PEA No. 4 filed on March 2, 1990).
(a)(ii) Supplement dated July 24, 1990 to Custodian Agreement relating
to Harris Insight Short/Intermediate Bond Fund (formerly named
HT Insight Diversifed Income Fund) (incorporated by reference
to Exhibit 8(c) to PEA No. 6 filed on November 2, 1990).
(a)(iii) Form of Notice to Custodian dated April 9, 1996 on behalf of
Harris Insight Hemisphere Free Trade Fund (filed herewith).
(9) (a) Transfer Agency Services Agreement dated July 1, 1996 between
Registrant and Harris Trust (filed herewith).
(b) Sub-Transfer Agency Services Agreement dated July 1, 1996
between Harris Trust and PFPC Inc. (filed herewith).
(c) Administration Agreement dated July 1, 1996 between Registrant
and Harris Trust (filed herewith).
(d) Sub-Administration Agreement dated July 1, 1996 between Harris
Trust and Funds Distributor, Inc. (filed herewith).
(e) Sub-Administration and Accounting Services Agreement dated
July 1, 1996 between Harris Trust and PFPC Inc. (filed
herewith).
(f)(i) Form of Shareholder Servicing Agreement (incorporated by
reference to Exhibit 9(p) to PEA No. 12 filed on November 30,
1992).
(f)(ii) Form of Servicing Agreement Relating to Class A Shares of the
Harris Insight Government Assets, Cash Management and Tax-Free
Money Market Funds (incorporated by reference to Exhibit 9 (t)
to PEA No. 14 filed on August 20, 1993).
(f)(iii) Form of Servicing Agreement Relating to Class A Shares of the
Harris Insight Hemisphere Free Trade Fund (incorporated by
reference to Exhibit 9(ee) to PEA No. 18 filed on July 29,
1994).
(10) Not applicable.
(11) Not applicable.
(12) Not applicable.
(13) (a)(i) Purchase Agreement between Registrant and The Boston Company
Advisors, Inc. dated October 31, 1990 with respect to the HT
Insight Income Fund (now named "Harris Insight
Short/Intermediate Bond Fund") (incorporated by reference to
Exhibit 13(b) to PEA No. 7 filed on April 1, 1991).
(a)(ii) Purchase Agreement between Registrant and Funds Distributor,
Inc. with respect to Class B and Class C Shares of the Harris
Insight Government Assets, Cash Management and Tax-Free Money
Market Funds (incorporated by reference to Exhibit 13(d) to
PEA No. 15 filed on May 2, 1994).
(a)(iii) Form of Purchase Agreement between Registrant and Funds
Distributor, Inc. with respect to the Harris Insight
Hemisphere Free Trade Fund (filed herewith).
(14) Not applicable.
(15) (a)(i) Service Plan on behalf of Harris Insight Convertible Fund
(formerly named "HT Insight Convertible Fund") adopted as of
November 9, 1989 and as revised on April 24, 1991
(incorporated by reference to Exhibit 15(q) to PEA No. 9 filed
on April 29, 1992).
(a)(ii) Service Plan on behalf of Harris Insight Equity Fund (formerly
named "HT Insight Equity Fund") adopted as of November 9, 1989
and as revised on April 24, 1991 (incorporated by reference to
Exhibit 15(r) to PEA No. 9 filed on April 29, 1992).
(a)(iii) Service Plan on behalf of Harris Insight Short/Intermediate
Bond Fund (formerly named "HT Insight Managed Fixed Income
Fund") adopted as of July 20, 1990 and as revised on April 24,
1991 (incorporated by reference to Exhibit 15(s) to PEA No. 9
filed on April 29, 1992).
(a)(iv) Amended and Restated Service Plan on behalf of the Harris
Insight Government Assets, Cash Management and Tax-Free Money
Market Funds (incorporated by reference to Exhibit 15(u) to
PEA No. 15 filed on May 2, 1994).
(a)(v) Service Plan on behalf of Harris Insight Hemisphere Free Trade
Fund (filed herewith).
(b) Form of Selling Agreement (filed herewith).
(16) (a)(i) Certain schedules for computation of performance quotations
with respect to HT Insight Convertible Fund, HT Insight Equity
Fund and HT Insight Managed Fixed Income Fund (incorporated by
reference to Exhibit 16(b) to PEA No. 8 filed on October 1,
1991).
(a)(ii) Certain schedules for computation of performance quotations
with respect to Harris Insight Government Assets Fund - Class
A, Cash Management Fund - Class A and Tax-Free Money Market
Fund - Class A (incorporated by reference to Exhibit 16(d) to
PEA No. 15 filed on May 2, 1994).
(a)(iii) Certain schedules for computation of performance quotations
with respect to Harris Insight Government Money Market Fund -
Institutional Shares; Money Market Fund Institutional Shares;
Tax-Exempt Money Market Fund - Institutional Shares (to be
filed by amendment).
(a)(iv) Certain schedules for computation of performance quotations
with respect to Class A and Institutional Shares of Harris
Insight Hemisphere Free Trade Fund (to be filed by amendment).
(17) Financial Data Schedules (filed herewith).
(18) Multi-Class Plan (incorporated by reference to Exhibit 18 to
PEA No. 24 to the Registration Statement filed on February 9,
1996).
Other Exhibits: Powers of Attorney for C. Gary Gerst, Edgar R. Fielder, John
W. McCarter, Jr. and Ernest M. Roth dated November 4, 1996
(filed herewith).
Item 25. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
As of February 11, 1997, the number of record holders of each class of
securities of the Registrant was as follows:
Title of Series Number of Record Holders
- --------------- ------------------------
Institutional Class A
------------- -------
Government Money Market Fund 7 30
Money Market Fund 18 77
Tax-Exempt Money Market Fund 10 30
Short/Intermediate Bond Fund 33 17
Convertible Fund 0 17
Equity Fund 62 89
Hemisphere Free Trade Fund 6 9
Item 27. Indemnification.
Section 2-418 of the General Corporation Law of Maryland authorizes the
Registrant to indemnify its directors and officers under specified
circumstances. Article IV of the by-laws of the Registrant (Exhibit 2 to this
Registration Statement) provides in effect that the Registrant shall provide
certain indemnification of its directors and officers. In accordance with
Section 17(h) of the Investment Company Act, this provision of the by-laws shall
not protect any person against any liability to the Registrant or its
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. This description is modified in its entirety by Article IV of the
by-laws of the Registrant contained in the Registration Statement filed on
October 15, 1987 as Exhibit 2 and any addendums thereto, and incorporated herein
by reference.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Registrant and its directors, officers and employees are insured, under
a policy of insurance maintained by the Registrant, within the limits and
subject to the limitations of the policy, against certain expenses in connection
with the defense of actions, suits or proceedings, and certain liabilities that
might be imposed as a result of such actions, suits or proceedings, to which
they are parties by reason of being or having been such directors or officers.
The policy expressly excludes coverage for any director or officer for any claim
arising out of any fraudulent act or omission, any dishonest act or omission or
any criminal act or omission of the director or officer.
The Distribution Agreement, the Custodian Agreement, the Transfer
Agency Services Agreement and the Administration Agreement (the "Agreements"),
which have been or are filed herein, provide for indemnification. The general
effect of these provisions is to indemnify entities contracting with the Company
against liability and expenses in certain circumstances. This description is
modified in its entirety by the provisions of the Agreements as contained in
this Registration Statement and incorporated herein by reference.
Item 28. Business and Other Connections of Investment Adviser.
(a) Harris Trust and Savings Bank ("Harris Bank"), an indirect,
wholly-owned subsidiary of the Bank of Montreal, serves as investment adviser to
the Harris Insight Government Money Market Fund, Money Market Fund, Tax-Exempt
Money Market Fund, Convertible Fund, Equity Fund, Short/Intermediate Bond Fund
and Hemisphere Free Trade Fund. Harris Bank's business is that of an Illinois
state-chartered bank with respect to which it conducts a variety of commercial
banking and trust activities.
To the knowledge of Registrant, none of the directors or executive
officers of Harris Bank except those set forth below, is or has been at any time
during the past two fiscal years engaged in any other business, profession,
vocation or employment of a substantial nature. Set forth below are the names
and principal businesses of the directors and executive officers of Harris Bank
who are or during the past two fiscal years have been engaged in any other
business, profession, vocation or employment of a substantial nature for their
own account or in the capacity or director, officer, employee, partner or
trustee. All directors of Harris Bank also serve as directors of Harris
Bankcorp, Inc., the immediate parent of Harris Bank.
<TABLE>
<CAPTION>
Position(s) with Harris Trust and Principal Business(es) During the
Name Savings Bank Last Two Fiscal Years
- ------------------------------------ ----------------------------------- -----------------------------------
<S> <C> <C>
Alan G. McNally Chairman and Chief Executive Chairman of the Board and Chief
Officer Executive Officer of Harris Trust
and Savings Bank and Harris
Bankcorp, Inc. Formerly, Vice
Chairman of Personal and
Commercial Financial Services of
Bank of Montreal.
Matthew W. Barrett Director Chairman of the Board and Chief
Executive Officer of the Bank of
Montreal.
F. Anthony Comper Director President and Chief Operating
Officer of the Bank of Montreal.
Susan T. Congalton Director Managing Director of Lupine
Partners. Formerly General
Counsel and Chief Financial
Officer, Finance and Law of
Carson Pierre Scott Company.
Roxanne J. Decyk Director Vice President - Corporate
Planning, Amoco Chemical
Company. Formerly, Senior Vice
President of Commercial and
Industrial Sales, Amoco Chemical
Corporation.
Wilbur H. Gantz Director President and Chief Executive
Officer, PathoGenesis
Corporation.
James J. Glasser Director Retired Chairman, President and
Chief Executive Officer of GATX
Corporation.
Daryl F. Grisham Director President and Chief Executive
Officer of Parker House Sausage
Company.
Dr. Leo M. Henikoff Director President and Chief Executive
Officer of Rush-Presbyterian -
St. Luke's Medical Center.
Dr. Stanley O. Ikenberry Director President of the University of
Illinois.
Edward W. Lyman, Jr. Director Vice Chairman and Senior
Executive Vice President -
Corporate and Institutional
Financial Services, Harris Trust
and Savings Bank. Formerly,
Department Executive, Corporate
Banking, Harris Trust and Savings
Bank.
Charles H. Shaw Director Chairman of the Shaw Company.
Richard E. Terry Director Chairman and Chief Executive
Officer of Peoples Energy
Corporation.
James O. Webb Director President, James O. Webb &
Associates Inc.
William J. Weisz Director Chairman of the Board of
Motorola, Inc.
Maribeth S. Rahe Director Vice Chairman and Senior
Executive Vice President -
Personal & Commercial Services,
Harris Trust and Savings Bank.
Formerly, Department Executive,
Personal Financial Services,
Harris Trust and Savings Bank.
</TABLE>
(b) Harris Investment Management, Inc. ("HIM"), an indirect subsidiary
of the Bank of Montreal, serves as the Portfolio Management Agent of the
Government Money Market Fund, Money Market Fund, Convertible Fund, Equity Fund,
Short/Intermediate Bond Fund and Hemisphere Free Trade Fund pursuant to
Portfolio Management Agreements with Harris Bank. HIM's business is that of a
Delaware corporation registered as an investment adviser under the Investment
Advisers Act of 1940.
To the knowledge of the Registrant, none of the directors or executive
officers of HIM, except those set forth below, is or has been at anytime during
the past two fiscal years engaged in any other business, profession, vocation or
employment of a substantial nature with respect to publicly traded companies for
their own account or in the capacity of director, officer, employees, partner or
trustee.
<TABLE>
<CAPTION>
Principal Business(es) During the Last Two
Name Position(s) with HIM Fiscal Years
- -------------------------- ------------------------------------- ---------------------------------------------
<S> <C> <C>
Brian J. Steck Director and Chairman of the Board Chairman of the Board of Harris Investment
Management, Inc. Vice- Chairman of
Investment Banking of Bank of Montreal,
President of the Bank of Montreal
Investment Management Limited.
Donald G.M. Coxe Director, President and Chief President and Chief Investment Officer of
Investment Officer Harris Investment Management, Inc.
Formerly, Chief Strategist of Nesbitt
Thomson, Inc.
Terry A. Jackson Director Executive Vice President, Bank of Montreal
Asset Management Services, President of the
Trust Company of the Bank of Montreal and
President of the Bank of Montreal
Investment Management. Vice President of
Nesbitt Thompson, Inc. Formerly, Executive
Vice President - Retail and Institutional
Sales, Bank of Montreal.
William O. Leszinske President, Chief Investment Officer Manager of Equities, Harris Investment
Management, Inc.
Edward W. Lyman, Jr. Director Senior Executive Vice President - Corporate
& Institutional Financial Services, Harris
Trust and Savings Bank. Formerly,
Department Executive of Corporate Banking,
Harris Trust and Savings Bank.
Maribeth S. Rahe Director Senior Executive Vice President - -Personal
& Commercial Services, Harris Trust and
Savings Bank. Prior to January, 1994
Personal Financial Services Department
Executive of Harris Trust and Savings Bank.
Wayne Thomas Director Senior Vice President - Personal Investment
Management, Harris Trust and Savings Bank.
Nancy B. Wolcott Director Executive Vice President - Corporate &
Institutional Trust, Harris Trust and
Savings Bank. Formerly, Senior Vice
President, Harris Trust and Savings Bank.
Carla Eyre Chief Financial and Chief Operating Senior Partner, Harris Investment
Officer Management, Inc.
Blanche Hurt Secretary Director of Harris Trust and Savings Bank
Trust and Investment Compliance Office.
Formerly, Corporate Fiduciary Officer of
Harris Trust and Savings Bank.
</TABLE>
(c) Bancomer Asesora de Fondos, S.A. de C.V. ("Bancomer") is a wholly
owned subsidiary of Casa de Bolsa Bancomer, S.A. de C.V., a Mexican
broker-dealer registered with the Comision Nacional de Valores, the securities
regulatory body of Mexico and a wholly owned subsidiary of Grupo Financiero
Bancomer, S.A. de C.V., a Mexican financial services holding company. Bancomer's
business is that of an investment adviser to banks or thrift institutions,
investment companies, pension and profit sharing plans, trusts, estates,
charitable institutions, corporations or individuals with respect to investments
in Latin America. Bancomer serves as an investment sub-adviser to the Hemisphere
Free Trade Fund pursuant to the Investment Sub-Advisory Agreement with HIM and
the Portfolio Management Contract between Harris Bank and HIM.
To the knowledge of the Registrant, none of the directors or executive
officers of Bancomer, except those set forth below, is or has been at anytime
during the past two fiscal years engaged in any other business, profession,
vocation or employment of a substantial nature with respect to publicly traded
companies for their own account or in the capacity of director, officer,
employees, partner or trustee.
<TABLE>
<CAPTION>
Principal Business(es) During the Last
Name Position(s) with Bancomer Two Fiscal Years
- --------------------------- ------------------------------------ -------------------------------------------
<S> <C> <C>
Emilio Illanes Director and President Director of Mutual Funds Division,
Grupo Financiero Bancomer. Formerly, Director
General of the Mexican Broker Dealers
Association.
Enrique Garduno Director Senior Vice President of International
Funds, Casa de Bolsa Bancomer, S.A. de
C.V. Formerly, Senior Vice President of
Mutual Funds Division, Bancomer, S.A.
Ruben Marquez Director Vice President of Development and
Analytical Support for Investment
Strategies, Casa de Bolsa Bancomer S.A.
de C.V. Formerly, Senior Analyst of
Economics Division, Grupo Financiero
Bancomer.
Miguel Angel Noriega Director Director General of Casa de Bolsa
Bancomer, S.A. de C.V. Formerly, Managing
Director of Investment Banking, Bankers
Trust Company.
Mario Osorio Director and Chief Administrative Chief Administrative Officer, Casa de
Officer Bolsa Bancomer, S.A. de C.V. Formerly,
Senior Vice President Casa de Bolsa
Bancomer, S.A. de C. V.
</TABLE>
(d) Jones Heward Investment Counsel Inc. ("Jones"), a subsidiary of
Bank of Montreal, serves as an investment sub-adviser to the Hemisphere Free
Trade Fund pursuant to the Investment Sub-Advisory Agreement between Jones and
HIM and the Portfolio Management Contract between Harris Bank and HIM. Jones'
business is that of a Canadian corporation, and as of December 31, 1996 assets
under management were approximately $__ billion (Canadian).
To the knowledge of the Registrant, none of the directors or executive
officers of Jones, except those set forth below, is or has been at anytime
during the past two fiscal years engaged in any other business, profession,
vocation or employment of a substantial nature with respect to publicly traded
companies for their own account or in the capacity of director, officer,
employees, partner or trustee.
<TABLE>
<CAPTION>
Principal Business(es) During the
Name Position(s) with Jones Last Two Fiscal Years
- ------------------------------------ ----------------------------------- -----------------------------------
<S> <C> <C>
A. Donald Mutch Director and Chairman of the Board Senior Vice President, Asset
Management Services of the Bank
of Montreal and President of the
Bank of Montreal Investment
Management Limited
Barbara G. Stymiest Director Senior Vice President and Chief
Financial Officer of Nesbitt
Thomson Inc.
Brian J. Steck Director Vice President of Investment
Banking of the Bank of Montreal
and President and Chief
Executive Officer of Nesbitt
Thomson Inc.
Philip Heitner Director and President President of the Bank of Montreal
Investment Counsel Limited.
Aubrey W. Baillie Director President and Chief Operating
Officer of Nesbitt Thomson Inc.
Terry A. Jackson Director Vice Chairman of Nesbitt Thomson
Inc.
</TABLE>
Item 29. Principal Underwriter.
(a) In addition to the HT Insight Funds Inc., Funds Distributor, Inc.
currently acts as distributor for BJB Investment Funds, Burridge Funds, Foreign
Fund, Inc., Fremont Mutual Funds, Inc., Harris Insight Funds Trust, The JPM
Advisor Funds, The JPM Institutional Funds, The JPM Pierpont Funds, The JPM
Series Trust, LKCM Fund, Monetta Fund, Inc., Monetta Trust, The Munder
Framlington Funds Trust, The Munder Funds Trust, The Munder Funds, Inc., The
PanAgora Institutional Funds, RCM Capital Funds, Inc., RCM Equity Funds, Inc.,
St. Clair Money Market Fund, The Skyline Funds and Waterhouse Investors Cash
Management Fund, Inc. Funds Distributor, Inc. is registered with the Securities
and Exchange Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. Funds Distributor, Inc. is an indirect
wholly-owned subsidiary of Boston Institutional Group, Inc., a holding company
all of whose outstanding shares are owned by key employees.
(b) The information required by this Item 29 (b) with respect to each
director, officer, or partner of Funds Distributor is incorporated by reference
to Schedule A of Form BD filed by Funds Distributor with the Securities and
Exchange Commission pursuant to the Securities Act of 1934 (File No. 8-20518).
(c) Not applicable.
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules promulgated thereunder are
maintained at one or more of the following offices: HT Insight Funds, Inc.,
d/b/a Harris Insight Funds, 60 State Street, Boston, Massachusetts 02109; PNC
Bank, N.A., Broad and Chestnut Streets, Philadelphia, Pennsylvania 19107; PFPC
Inc., 103 Bellevue Parkway, Wilmington, Delaware 19809; or Harris Trust and
Savings Bank, 111 West Monroe Street, Chicago, Illinois 60603.
Item 31. Management Services.
Other than as set forth under the captions "Management," in the
Prospectuses constituting Part A of this Post-Effective Amendment to the
Registration Statement and "Management" in the Statements of Additional
Information constituting Part B of this Registration Statement, Registrant is
not a party to any management-related service contracts.
Item 32. Undertakings.
(a) Not applicable.
(b) Not applicable.
(c) The Registrant will furnish each person to whom a Prospectus is
delivered with a copy of the Registrant's latest Annual Report to shareholders,
upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Post-Effective Amendment No. 27 to the Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Boston and Commonwealth of Massachusetts on the 25th day of February, 1997.
HT Insight Funds, Inc. d/b/a
Harris Insight Funds
By: /s/ Richard W. Ingram
----------------------------
Richard W. Ingram, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 27 to the Registration Statement has been
signed below by the following persons in the capacities and on the date
indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------ -------------------------- ----
<S> <C> <C>
/s/ Richard W. Ingram President, Treasurer and February 25, 1997
- ------------------------ Chief Financial Officer
Richard W. Ingram
C. Gary Gerst* Chairman of the February 25, 1997
Board of Directors;
Director
Edgar R. Fiedler* Director February 25, 1997
John W. McCarter, Jr.* Director February 25, 1997
Ernest M. Roth* Director February 25, 1997
</TABLE>
* By: /s/ Christopher J. Kelley
-------------------------
Christopher J. Kelley
Attorney-in-Fact pursuant to powers of attorney dated November 4, 1996
(filed herewith).
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
Number
- ------
<S> <C> <C>
5(a)(vii) Advisory Contract on behalf of Hemisphere Free Trade Fund dated April 9, 1996
5(b)(vi) Portfolio Management Contract on behalf of Hemisphere Free Trade Fund dated April 9, 1996
5(c)(i) Investment Sub-Advisory Contract on behalf of Hemisphere Free Trade Fund dated April 9,
1996
5(c)(ii) Investment Sub-Advisory Contract on behalf of Hemisphere Free Trade Fund dated April 9,
1996
6(a)(ii) Form of Notice to the Distributor dated April 9, 1996
8(a)(iii) Form of Notice to the Custodian dated April 9, 1996
9(a) Transfer Agency Services Agreement dated July 1, 1996
9(b) Sub-Transfer Agency Services Agreement dated July 1, 1996
9(c) Administration Agreement dated July 1, 1996
9(d) Sub-Administration Agreement dated July 1, 1996
9(e) Sub-Administration and Accounting Services Agreement dated July 1, 1996
13(a)(iii) Form of Purchase Agreement for Hemisphere Free Trade Fund
15(a)(v) Service Plan for Hemisphere Free Trade Fund
15(b) Form of Selling Agreement
17 Financial Data Schedules
Other
Exhibits
Power of Attorney for C. Gary Gerst
Power of Attorney for Edgar R. Fiedler
Power of Attorney for John W. McCarter, Jr.
Power of Attorney for Ernest M. Roth
</TABLE>
EXHIBIT 5(a)(vii)
INVESTMENT ADVISORY CONTRACT
HT Insight Funds, Inc. d/b/a Harris Insight Funds (the "Company"), a
Maryland Corporation registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end diversified management investment
company, and Harris Trust and Savings Bank, an Illinois bank (the "Adviser"),
agree as follows:
1. APPOINTMENT OF ADVISER. The Company appoints the Adviser to furnish
investment advisory and other services to the Company for its Hemisphere Free
Trade Fund, and the Adviser accepts that appointment, for the period and on the
terms set forth below. In the event that the Company establishes more portfolios
other than the Fund named above with respect to which it desires to retain the
Adviser to act as investment adviser hereunder, it shall notify the Adviser in
writing. If the Adviser is willing to render such services under this Agreement,
it shall notify the Company in writing whereupon such portfolio shall become a
Fund hereunder and shall be subject to the provisions of this Agreement to the
same extent as the Fund named above except to the extent that said provisions
(including those relating to the compensation payable by the Fund to the
Adviser) are modified with respect to such Fund in writing by the Company and
the Adviser at the time.
2. SERVICES OF ADVISER.
(a) INVESTMENT MANAGEMENT. Subject to the overall supervision and
control of the Board of Directors of the Company (the "Board of Directors"), the
Adviser shall have supervisory responsibility for the general management and
investment of the Fund's assets, giving due consideration to the investment
policies and restrictions, portfolio transaction policies and the other
statements concerning the Fund in the Company's Articles of Incorporation,
by-laws and registration statements under the 1940 Act and the Securities Act of
1933, as amended (the "1933 Act"), to the provisions of the 1933 Act and the
1940 Act and rules and regulations thereunder, to the provisions of the Internal
Revenue Code applicable to the Fund as a regulated investment company and to
other applicable law (the "Investment Policies and Restrictions"). It is
understood that the Adviser intends to enter into a portfolio management
contract (a "Portfolio Management Contract") with Harris Investment Management,
Inc. (the "Portfolio Management Agent"). The Portfolio Management Agent or any
successor to a Portfolio Management Agent shall have the responsibilities and
duties set forth in Section 3 below and in its respective Portfolio Management
Contract. As long as the Portfolio Management Contract is in effect, the
services provided by the Adviser will be limited to the supervision and
oversight of the Portfolio Management Agent's performance under the Portfolio
Management Contract.
(b) MONITORING PORTFOLIO MANAGEMENT AGENT. The Adviser shall monitor
and evaluate the investment performance of the Portfolio Management Agent; and
shall monitor the investment activities of the Portfolio Management Agent to
ensure compliance with the Investment Policies and Restrictions.
(c) REPORTS AND INFORMATION. The Adviser shall furnish to the Board of
Directors periodic reports on the investment strategy and performance of the
Funds and such additional reports and information as the Board of Directors or
the officers of the Company may reasonably request.
(d) CUSTOMERS OF FINANCIAL INSTITUTIONS. It is understood that the
Adviser may, but shall not be obligated to, provide, either directly or through
agents, administrative and other services with respect to shareholders who are
customers of the Adviser or its affiliates, including establishing shareholder
accounts, assisting the Company's transfer agent with respect to recording
purchase and redemption transactions, advising shareholders about the status of
their accounts, current yield and dividends declared and such related services
as the shareholders or the Fund may request. It is further understood that the
Adviser may, but shall not be obligated to, make payments from its own resources
to other financial institutions that provide similar services to shareholders of
the Fund that are customers of such institutions. Notwithstanding the foregoing,
the Adviser shall not provide any distribution services to the Company that the
Adviser is legally precluded from providing under the Glass-Steagall Act or
other applicable law.
(e) UNDERTAKINGS OF ADVISER. The Adviser further agrees that it will:
(i) Comply with the 1940 Act and with all applicable rules and
regulations of the Securities and Exchange Commission, the provisions of the
Internal Revenue Code relating to regulated investment companies, applicable
banking laws and regulations, and policy decisions and procedures adopted by the
Board of Directors from time to time;
(ii) Select broker-dealers in accordance with guidelines established by
the Board of Directors from time to time and in accordance with applicable law
(consistent with this obligation, when the execution and price offered by two or
more brokers or dealers are comparable, the Adviser may, in its discretion,
purchase and sell portfolio securities to and from brokers and dealers who
provide the Adviser with research advice and other services);
(iii) Maintain books and records with respect to the securities
transactions of the Fund; and
(iv) Treat confidentially and as proprietary information of the Company
all records and other information relative to the Company or to prior, present
or potential shareholders, and will not use such records or information for any
purpose other than in the performance of its responsibilities and duties
hereunder, except (A) after prior notification to and approval in writing by the
Company, which approval shall not be unreasonably withheld, (B) when so
requested by the Company, (C) as required by tax authorities or (D) pursuant to
a judicial request, requirement or order, provided that the Adviser takes
reasonable steps to provide the Company with prior notice in order to allow the
Company to contest such request, requirement or order.
(f) BOOKS AND RECORDS. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Adviser agrees that all records that it maintains
for the Company are the
property of the Company and further agrees to surrender promptly to the Company
any of such records upon the Company's request. The Adviser further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act.
(g) INDEPENDENT CONTRACTOR. The Adviser shall for all purposes herein
be deemed to be an independent contractor and not an agent of the Company and
shall, unless otherwise expressly provided or authorized, have no authority to
act for or represent the Company in any way.
3. SERVICES OF PORTFOLIO MANAGEMENT AGENT. Subject to the overall
supervision and control of the Board of Directors and the Adviser and pursuant
to the terms of its Portfolio Management Contract, the Portfolio Management
Agent shall manage the investment and reinvestment of the Fund's assets giving
due consideration to the Investment Policies and Restrictions. The Adviser shall
not be responsible or liable for the investment merits of any decision by a
Portfolio Management Agent to purchase, hold or sell a security for the
portfolio of a Fund.
4. EXPENSES BORNE BY THE COMPANY. Except as otherwise provided in this
Agreement or any other contract to which the Company is a party, the Company
shall pay all expenses incidental to its organization, operations and business
including, without limitation: all charges of depositories, custodians,
sub-custodians and other agencies for the safekeeping and servicing of its cash,
securities and other property, and of its transfer, shareholder recordkeeping,
dividend disbursing and redemption agents, if any; all charges for equipment or
services used for obtaining price quotations; all charges for accounting
services provided to the Company by the custodian, the Adviser or any other
provider of accounting services; all expenses of portfolio pricing, net asset
value computation and reporting portfolio information to the Adviser or
Portfolio Management Agent; all charges for services of administration; all
charges of independent auditors and legal counsel; all compensation of the
Directors other than those affiliated with any entity providing advisory or
administrative services to the Company, and all expenses incurred in connection
with their services to the Company; all expenses of preparing, printing and
distributing notices, proxy solicitation material and reports to shareholders of
the Fund; all expenses of meetings of shareholders; all expenses of preparation
and printing of annual or more frequent and of supplying each then existing
shareholder or beneficial owner of shares of the Fund with a copy of a revised
prospectus; all expenses related to preparing and transmitting certificates
representing shares of the Fund, if any; all expenses of bond and insurance
coverage required by law or deemed advisable by the Board of Directors; all
costs of borrowing money; all taxes and corporate fees payable to Federal, state
or other governmental agencies, domestic or foreign; all stamp or other transfer
taxes; all expenses of registering and maintaining the registration of the
Company under the 1940 Act and of shares of the Fund under the 1933 Act, of
qualifying and maintaining qualification of the Company and of shares of the
Fund for sale under securities laws of various states or other jurisdictions and
of registration and qualification of the Trust under all other laws applicable
to the Company or its business activities; all payments pursuant to a plan
adopted on behalf of the Fund pursuant to Rule 12b-1 under the 1940 Act; all
fees, dues and other expenses incurred by the Company in connection
with membership of the Company in any trade association or other investment
company organization; and extraordinary expenses. In addition the Fund shall pay
all broker's commissions and other charges relating to the purchase and sale of
portfolio securities or other assets of the Fund.
5. ALLOCATION OF EXPENSES BORNE BY COMPANY. Any expenses borne by the
Company that are attributable solely to the organization, operation or business
of the Fund shall be paid solely out of assets of the Fund. Any expense borne by
the Company that is not solely attributable to the Fund, nor solely to any other
portfolio of the Company, shall be apportioned in such manner as the Company or
an administrator for the Company determines is fair and appropriate, or as
otherwise specified by the Board of Directors.
6. EXPENSES BORNE BY ADVISER. The Adviser at its own expense shall
furnish personnel, office space and office facilities and equipment required to
render its services pursuant to this Agreement and shall be responsible for
payment of the fees of the Portfolio Management Agent pursuant to the Portfolio
Management Contract (but the Adviser shall not be responsible for any expenses
such Portfolio Management Agent may incur in connection with their performance
of services for the Company).
7. COMPENSATION OF ADVISER. For the services to be rendered and the
expenses to be assumed and to be paid by the Adviser under this Agreement, the
Company shall pay to the Adviser a fee, computed and accrued daily and payable
on the first business day of each month, at an annual rate of 0.90% of the
average daily net assets of the Fund. Such fee is attributable to the Fund shall
be a separate charge to the Fund and shall be the several (and not joint or
joint and several) obligation of the Fund.
8. EXPENSE LIMITATION. If for any fiscal year of the Fund the total
expenses allocated to the Fund pursuant to paragraph 5 (including fees paid to
the Adviser and any other service provider but excluding taxes, interest,
commissions and other normal charges incident to the purchase and sale of
portfolio securities, extraordinary charges such as litigation costs, and
payments pursuant to a Fund's Rule 12b-1 Plan) exceed the most restrictive
applicable limits prescribed by any state in which shares of the Fund are then
being offered for sale to the public, the Adviser agrees to reimburse the
Company in an amount equal to such excess, provided that the Adviser shall not
be required to reimburse the Fund for any year in an amount greater than the
amount of fees received by it with respect to management of the Fund for that
year. Any such reimbursement by the Adviser, or refund by the Fund of an excess
reimbursement, shall be paid monthly on an estimated basis.
9. NON-EXCLUSIVITY. The services of the Adviser to the Company under
this Agreement are not to be deemed exclusive and the Adviser shall be free to
render similar services to others so long as its services under this Agreement
are not impaired by such other activities.
10. STANDARD OF CARE. Neither the Adviser, nor any Portfolio Management
Agent, nor any of their respective directors, officers, agents or employees
shall be liable or responsible
to the Company or its shareholders for any error of judgment, or any loss
arising out of any investment, or for any other act or omission in the
performance by the Adviser or a Portfolio Management Agent of its duties under
this Agreement or a Portfolio Management Contract, respectively, except for
liability resulting from willful misfeasance, bad faith or gross negligence on
the part of the Adviser or Portfolio Management Agent, respectively, or from
reckless disregard by the Adviser or the Portfolio Management Agent of its
obligations and duties under this Agreement or the Portfolio Management
Contract, respectively.
11. AMENDMENT. This Agreement may not be amended with respect to the
Fund without the affirmative votes (a) of a majority of the Directors of the
Directors, including a majority of those Directors who are not "interested
persons" of the Company or the Adviser and (b) of a "majority of the outstanding
shares" of the Fund. The terms "interested person" and "vote of a majority of
the outstanding shares" shall be construed in accordance with their respective
definitions in Sections 2(a)(19) and 2(a)(42) of the 1940 Act and, with respect
to the latter term, in accordance with Rule 18f-2 under the 1940 Act.
12. TERMINATION. This Agreement may be terminated as to the Fund, at
any time, without payment of any penalty, by the Board of Directors, or by a
vote of a majority of the outstanding shares of the Fund, upon at least 60 days'
written notice to the Adviser. This Agreement may be terminated by the Adviser
at any time upon at least 60 days' written notice to the Company. This Agreement
shall terminate automatically in the event of its "assignment" (as defined in
Section 2(a)(4) of the 1940 Act). Unless terminated as hereinbefore provided,
this Agreement shall continue in effect with respect to the Fund for a period of
two years from the date hereof and thereafter from year to year only so long as
such continuance is specifically approved at least annually (a) by a majority of
those Directors who are not interested persons of the Company or of the Adviser,
voting in person at a meeting called for the purpose of voting on such approval,
and (b) by either the Board of Directors or by a vote of a majority of the
outstanding shares of the Fund.
13. NOTICE. Any notice, demand, change of address or other
communication to be given in connection with this Agreement shall be given in
writing and shall be given by personal delivery, by registered or certified mail
or by transmittal by facsimile or other electronic medium addressed to the
recipient as follows:
To the Adviser: Harris Trust and Savings Bank
111 W. Monroe Street Suite 6W
Chicago, IL 60604
Telephone: 312-461-4088
Fax: 312-293-4291
To the Company: HT Insight Funds, Inc.
Telephone:
Fax:
All notices shall be conclusively deemed to have been given on the day
of actual delivery thereof and, if given by registered or certified mail, on the
fifth business day following the deposit thereof in the mail and, if given by
facsimile or other electronic medium, on the day of transmittal thereof.
14. GOVERNING LAW. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Illinois and the laws of the United
States of America applicable to contracts executed and to be performed therein.
15. REFERENCES AND HEADINGS. In this Agreement and in any such
amendment, references to this Agreement and all expressions such as "herein,"
"hereof," and "under this Agreement" shall be deemed to refer to this Agreement
or this Agreement as amended or affected by any such amendments. Headings are
placed herein for convenience of reference only and shall not be taken as a part
hereof or control or affect the meaning, construction or effect of this
Agreement. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
Dated: April 9, 1996
HT INSIGHT FUNDS, INC.
By /s/ Patricia L. Bickimer
----------------------------
Name: Patricial L. Bickimer
Title: President
ATTEST:
..................................
Patricia L. Bickimer, Secretary
HARRIS TRUST AND SAVINGS BANK
By /s/ Peter P. Capaccio
----------------------------
Name: Peter P. Capaccio
Title: Senior Vice President
ATTEST:
............................
______________________, Assistant Secretary
EXHIBIT 5(B)(VI)
PORTFOLIO MANAGEMENT CONTRACT
Harris Trust and Savings Bank (the "Adviser"), an Illinois bank and
Harris Investment Management, Inc., (the "Portfolio Management Agent") a
Delaware corporation registered as an investment adviser under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), agree as follows:
1. APPOINTMENT OF PORTFOLIO MANAGEMENT AGENT. The Adviser appoints the
Portfolio Management Agent to furnish investment advisory and other services to
HT Insight Funds, Inc. d/b/a Harris Insight Funds for its Hemisphere Free Trade
Fund (the "Fund") and the Portfolio Management Agent accepts that appointment
for the period and on the terms set forth below.
2. SERVICES OF PORTFOLIO MANAGEMENT AGENT.
(a) INVESTMENT MANAGEMENT. Subject to the overall control of the Board
of Directors of the Company (the "Board of Directors") and the Adviser, the
Portfolio Management Agent shall have supervisory responsibility for the general
management and investment of the assets of the Fund giving due consideration to
the investment policies and restrictions, portfolio transaction policies and the
other statements concerning the Fund in the Company's Articles of Incorporation,
by-laws and registration statements under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the Securities Act of 1933, as amended (the "1933
Act"), to the provisions of the 1933 Act and the 1940 Act and rules and
regulations thereunder, to the provisions of the Internal Revenue Code
applicable to the Fund as regulated investment companies and to other applicable
law (the "Investment Policies and Restrictions"). It is understood that the
Portfolio Management Agent intends to enter into an investment subadvisory
contract (a "Subadvisory Contract") with each of Bancomer Asesora de Fondos,
S.A. de C.V. and Jones Heward Investment Counsel Inc.. Each Subadviser shall
have the responsibilities and duties set forth in Section 3 below and in its
respective Subadvisory Contract.
(b) ALLOCATION AMONG COUNTRIES The Portfolio Management Agent shall
allocate and reallocate the portion of the Fund's assets to be invested in
various countries, including the United States, Canada and Mexico, to be managed
by it and the respective Subadvisers.
(c) MONITORING SUBADVISER. The Adviser shall monitor and evaluate the
investment performance of the Subadvisers; and shall monitor the investment
activities of the Subadvisers to ensure compliance with the Investment Policies
and Restrictions.
(d) REPORTS AND INFORMATION. The Portfolio Management Agent shall
furnish to the Adviser periodic reports on the investment strategy and
performance of the Fund and such additional reports and information as the
Adviser or the Board of Directors or the officers of the Company may reasonably
request.
(e) UNDERTAKINGS OF PORTFOLIO MANAGEMENT AGENT. The Portfolio
Management Agent further agrees that it will:
(i) At all times be duly registered as an investment adviser
under the Investment Advisers Act of 1940 and be duly registered and qualified
under other securities legislation in each jurisdiction where such registration
or qualification is required, whether as portfolio manager, investment counsel
or such other category as may be required;
(ii) Comply with the 1940 Act and with all applicable rules
and regulations of the Securities and Exchange Commission, the provisions of the
Internal Revenue Code relating to regulated investment companies, applicable
banking laws and regulations, and policy decisions and procedures adopted by the
Board of Directors from time to time;
(iii) Select broker-dealers in accordance with guidelines
established by the Board of Directors from time to time and in accordance with
applicable law (consistent with this obligation, when the execution and price
offered by two or more brokers or dealers are comparable, the Portfolio
Management Agent may, in its discretion, purchase and sell portfolio securities
to and from brokers and dealers who provide the Portfolio Management Agent with
research advice and other services);
(iv) Maintain books and records with respect to the securities
transactions of the Funds;
(v) Treat confidentially and as proprietary information of the
Company all records and other information relative to the Company or to prior,
present or potential shareholders, and will not use such records or information
for any purpose other than in the performance of its responsibilities and duties
hereunder, except (A) after prior notification to and approval in writing by the
Company, which approval shall not be unreasonably withheld, (B) when so
requested by the Company, (C) as required by tax authorities or (D) pursuant to
a judicial request, requirement or order, provided that the Portfolio Management
Agent takes reasonable steps to provide the Company with prior notice in order
to allow the Company to contest such request, requirement or order.
(f) BOOKS AND RECORDS. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Portfolio Management Agent agrees that all records
that it maintains for the Company are the property of the Company and further
agrees to surrender promptly to the Company any of such records upon the
Company's request. The Portfolio Management Agent further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act the records required to
be maintained by Rule 31a-1 under the 1940 Act.
(g) INDEPENDENT CONTRACTOR. The Portfolio Management Agent shall for
all purposes herein be deemed to be an independent contractor and not an agent
of the Company and shall, unless otherwise expressly provided or authorized,
have no authority to act for or represent the Company in any way.
3. SERVICES OF SUBADVISERS. Subject to the overall control of the Board
of Directors, the Adviser, the Portfolio Management Agent and pursuant to the
terms of its Subadvisory Contract, each Subadviser shall manage the investment
and reinvestment of the portion of the Fund's assets allocated to it by the
Portfolio Management Agent, giving due consideration to the Investment Policies
and Restrictions. The Portfolio Management Agent shall not be responsible or
liable for the investment merits of any decision by a Subadviser to purchase,
hold or sell a security for the portfolio of the Fund.
4. UNDERTAKINGS OF ADVISER. The Adviser will:
(a) Furnish to the Portfolio Management Agent promptly a copy of each
amendment to the registration statement of the Trust under the 1940 Act and the
1933 Act and of each prospectus and statement of additional information relating
to the Fund and any supplement thereto;
(b) Inform the principal custodian of the Funds (the "Custodian")
(currently PNC Bank, N.A.) of the appointment of the Portfolio Management Agent
as investment Portfolio Management Agent and portfolio manager of the Funds;
(c) Instruct the Custodian to cooperate with the Portfolio Management
Agent in the provision of custodial services to the Funds; and
(d) Provide the Portfolio Management Agent with all information that
the Portfolio Management Agent may reasonably require insofar as it relates to
the custodial arrangements in connection with this Agreement.
5. EXPENSES BORNE BY PORTFOLIO MANAGEMENT AGENT. The Portfolio
Management Agent at its own expense shall furnish personnel, office space and
office facilities and equipment required to render its services pursuant to this
Agreement.
6. COMPENSATION OF PORTFOLIO MANAGEMENT AGENT. For the services to be
rendered and the expenses to be assumed and to be paid by the Adviser under this
Agreement, the Adviser shall pay to the Portfolio Management Agent the advisory
fees is receives from the Fund.
7. NON-EXCLUSIVITY. The services of the Portfolio Management Agent to
the Company under this Agreement are not to be deemed exclusive and the
Portfolio Management Agent shall be free to render similar services to others so
long as its services under this Agreement are not impaired by such other
activities.
8. STANDARD OF CARE. Neither the Portfolio Management Agent, nor any of
its directors, officers, agents or employees shall be liable or responsible to
the Company or its shareholders for any error of judgment, or any loss arising
out of any investment, or for any other act or omission in the performance by
the Portfolio Management Agent of its duties under this Agreement, except for
liability resulting from willful misfeasance, bad faith or gross negligence on
its part or from reckless disregard of its obligations and duties under this
Agreement.
9. INSPECTION. The Adviser (or any authorized agent of the Adviser as
advised in writing to the Portfolio Management Agent) shall have a right to
audit, inspect and photocopy documents (and remove such photocopies) relating to
investment subadvisory and portfolio management services performed under this
Agreement, during normal business hours of the Portfolio Management Agent.
10. AUTHORIZED PERSONS.
(a) The Portfolio Management Agent is authorized to accept instructions
and directions with respect to this Agreement signed by any one of
______________ of the Adviser. The Adviser will notify the Portfolio Management
Agent of any changes in its officers empowered to act under this Agreement.
(b) The Adviser is authorized to accept instructions and directions
with respect to this Agreement signed by any Senior Partner or Partner of the
Portfolio Management Agent. The Portfolio Management Agent will notify the
Adviser of any changes in its officers empowered to act under this Agreement.
(c) The Portfolio Management Agent will advise the Custodian of the
names of persons from whom the Custodian is authorized to accept instructions
regarding investment transactions.
11. USE OF PORTFOLIO MANAGEMENT AGENT'S NAME AND MARKS. The Portfolio
Management Agent grants to the Adviser and the Company the right to use, in
marketing, promotional and advertising materials of the Adviser or the Company,
any registered trademarks, logos or other marks that the Portfolio Management
Agent uses in advertising and publicizing itself and its services as a portfolio
manager or investment counsel. Any such material shall be subject to the
approval by the Portfolio Management Agent as to form and content prior to its
use by the Adviser or the Company. The Portfolio Management Agent consents to
the disclosure, in documents relating to the Fund, of its name as the investment
sub-adviser and portfolio manager of the assets of the Fund.
12. AMENDMENT. This Agreement may not be amended with respect to a
particular Fund without the affirmative votes (a) of a majority of the Directors
of the directors, including a majority of those Directors who are not
"interested persons" of the Company, the Adviser or the Portfolio Management
Agent and (b) of a "majority of the outstanding shares" of such Fund. The terms
"interested person" and "vote of a majority of the outstanding shares" shall be
construed in accordance with their respective definitions in Sections 2(a)(19)
and 2(a)(42) of the 1940 Act and, with respect to the latter term, in accordance
with Rule 18f-2 under the 1940 Act.
13. TERMINATION. This Agreement may be terminated as to any Fund, at
any time, without payment of any penalty, by the Board of Directors, or by a
vote of a majority of the outstanding shares of the Fund, upon at least 60 days'
written notice to the Adviser. This Agreement may be terminated by the Adviser
at any time upon at least 60 days' written notice to the Company. This Agreement
shall terminate automatically in the event of its "assignment" (as defined in
Section 2(a)(4) of the 1940 Act). Unless terminated as hereinbefore provided,
this Agreement shall continue in effect with respect to the Fund for a period of
two years from the date hereof and thereafter from year to year only so long as
such continuance is specifically approved at least annually (a) by a majority of
those Directors who are not interested persons of the Trust, the Adviser or the
Portfolio Management Agent, voting in person at a meeting called for the purpose
of voting on such approval, and (b) by either the Board of Directors or by a
vote of a majority of the outstanding shares of the Fund.
14. NOTICE. Any notice, demand, change of address or other
communication to be given in connection with this Agreement shall be given in
writing and shall be given by personal delivery, by registered or certified mail
or by transmittal by facsimile or other electronic medium addressed to the
recipient as follows:
To the Portfolio
Management Agent: Harris Investment Management, Inc.
190 S. LaSalle 4th Floor
Chicago, IL 60603
Telephone: 312-461-7699
Fax: 312-461-6268
To the Adviser: Harris Trust and Savings Bank
111 W. Monroe 6W
Chicago, IL 60603
Telephone: 312-461-4088
Fax: 312-293-4291
To the Company: HT Insight Funds, Inc.
Telephone:
Fax:
All notices shall be conclusively deemed to have been given on the day
of actual delivery thereof and, if given by registered or certified mail, on the
fifth business day following the deposit thereof in the mail and, if given by
facsimile or other electronic medium, on the day of transmittal thereof.
15. THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the Company, which shall have all rights against the Portfolio
Management Agent as would pertain to it if this Agreement were directly between
the Company and the Portfolio Management Agent.
16. GOVERNING LAW. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Illinois and the laws of the United
States of America applicable to contracts executed and to be performed therein.
17. REFERENCES AND HEADINGS. In this Agreement and in any such
amendment, references to this Agreement and all expressions such as "herein,"
"hereof," and "under this Agreement" shall be deemed to refer to this Agreement
or this Agreement as amended or affected by any such amendments. Headings are
placed herein for convenience of reference only and shall not be taken as a part
hereof or control or affect the meaning, construction or effect of this
Agreement. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
Dated: April 9, 1996
HARRIS TRUST AND SAVINGS BANK
By /s/ Peter P. Capaccio
-------------------------------
Name: Peter P. Capaccio
Title: Senior Vice President
ATTEST:
........................................
______________________, Secretary
HARRIS INVESTMENT MANAGEMENT, INC.
By /s/ W.O. Leszinske
--------------------------------
Name: W.O. Leszinske
Title:
ATTEST:
.......................................
______________________, Secretary
EXHIBIT 5(C)(I)
INVESTMENT SUB-ADVISORY CONTRACT
FOR
HARRIS INSIGHT HEMISPHERE FREE TRADE FUND
WITH
BANCOMER ASESORA DE FONDOS, S.A. DE C.V.
Harris Investment Management, Inc., (the "Portfolio Management Agent")
a Delaware corporation registered as an investment adviser under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), and Bancomer Asesora de
Fondos, S.A. de C.V., (the "Subadviser") a Mexican Corporation registered as an
investment adviser under the Advisers Act, agree as follows:
1. APPOINTMENT OF SUBADVISER. The Portfolio Management Agent appoints
the Subadviser to act as manager of that portion of the assets of the Harris
Insight Hemisphere Free Trade Fund (the "Fund"), a portfolio of HT Insight
Funds, Inc. doing business as Harris Insight Funds (the "Company"), allocated by
the Portfolio Management Agent to be invested in Mexico, including interest and
dividends earned thereon and capital accretions or other additions thereto (the
"Mexican Assets"), and the Subadviser accepts that appointment for the period
and on the terms set forth below.
2. SERVICES OF SUBADVISER.
(a) INVESTMENT MANAGEMENT. Subject to the overall control of the Board
of Directors of the Company (the "Board of Directors") and the Portfolio
Management Agent, the Subadviser shall have supervisory responsibility for the
general management and investment of the Mexican Assets in "Mexican Equity
Securities" and "Mexican Fixed Income Securities," as defined from time to time
in the Fund's prospectus giving due consideration to the investment policies and
restrictions, portfolio transaction policies and the other statements concerning
the Fund in the Company's Articles of Incorporation, by-laws and registration
statements under the Investment Company Act of 1940, as amended (the "1940
Act"), and the Securities Act of 1933, as amended (the "1933 Act"), to the
provisions of the 1933 Act and the 1940 Act and rules and regulations
thereunder, to the provisions of the Internal Revenue Code applicable to the
Fund as regulated investment company and to other applicable law (the
"Investment Policies and Restrictions"). The Subadviser shall not lend or pledge
any of the Mexican Assets without the prior written consent of the Portfolio
Management Agent.
(b) ALLOCATION AMONG COUNTRIES. The Portfolio Management Agent (i) has
the responsibility and authority to allocate and reallocate the portion of the
Fund's assets to be invested in Mexico and may from time to time make
withdrawals from or additions to the Mexican Assets and (ii) shall promptly
notify the Subadviser of any such allocation or reallocation.
(c) MONITORING SUBADVISER. The Portfolio Management Agent shall monitor
and evaluate the investment performance of the Subadviser; and shall monitor the
investment activities of the Subadviser to ensure compliance with the Investment
Policies and Restrictions.
(d) REPORTS AND INFORMATION. The Subadviser shall furnish to the
Portfolio Management Agent periodic reports on the investment strategy and
performance of the Fund and such additional reports and information as the
Portfolio Management Agent or the Board of Directors or the officers of the
Company may reasonably request.
(e) UNDERTAKINGS OF SUBADVISER. The Subadviser further agrees that it
will:
(i) At all times be duly registered as an investment adviser
under the Investment Advisers Act of 1940 and be duly registered and qualified
under other securities legislation in each jurisdiction where such registration
or qualification is required, whether as portfolio manager, investment counsel
or such other category as may be required;
(ii) Comply with the 1940 Act and with all applicable rules
and regulations of the Securities and Exchange Commission, the provisions of the
Internal Revenue Code relating to regulated investment companies, applicable
banking laws and regulations, and policy decisions and procedures adopted by the
Board of Trustees from time to time;
(iii) Select broker-dealers in accordance with guidelines
established by the Board of Directors from time to time and in accordance with
applicable law (consistent with this obligation, when the execution and price
offered by two or more brokers or dealers are comparable, the Subadviser may, in
its discretion, purchase and sell portfolio securities to and from brokers and
dealers who provide the Subadviser with research advice and other services);
(iv) Maintain books and records with respect to the securities
transactions of the Funds;
(v) Treat confidentially and as proprietary information of the
Company all records and other information relative to the Company or to prior,
present or potential shareholders, and not use such records or information for
any purpose other than in the performance of its responsibilities and duties
hereunder, except (A) after prior notification to and approval in writing by the
Company, which approval shall not be unreasonably withheld, (B) when so
requested by the Company, (C) as required by tax authorities or (D) pursuant to
a judicial request, requirement or order, provided that the Subadviser takes
reasonable steps to provide the Company with prior notice in order to allow the
Company to contest such request, requirement or order.
(f) BOOKS AND RECORDS. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Subadviser agrees that all records that it
maintains for the Company are the property of the Company and further agrees to
surrender promptly to the Company any of such records upon the Company's
request. The Subadviser further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act the records required to be maintained by Rule
31a-1 under the 1940 Act.
(g) INDEPENDENT CONTRACTOR. The Subadviser shall for all purposes
herein be deemed to be an independent contractor and not an agent of the Company
and shall, unless otherwise expressly provided or authorized, have no authority
to act for or represent the Company in any way.
3. UNDERTAKINGS OF PORTFOLIO MANAGEMENT AGENT. The Portfolio Management
Agent will:
(a) Furnish to the Subadviser promptly a copy of each amendment to the
registration statement of the Company under the 1940 Act and the 1933 Act and of
each prospectus and statement of additional information relating to the Fund and
any supplement thereto;
(b) Inform the principal custodian of the Funds (the "Custodian")
(currently PNC Bank, N.A.) of the appointment of the Subadviser as investment
subadviser and portfolio manager of the Funds;
(c) Instruct the Custodian to cooperate with the Subadviser in the
provision of custodial services to the Funds; and
(d) Provide the Subadviser with all information that the Subadviser may
reasonably require insofar as it relates to the custodial arrangements in
connection with this Agreement.
4. EXPENSES BORNE BY SUBADVISER. The Subadviser at its own expense
shall furnish personnel, office space and office facilities and equipment
required to render its services pursuant to this Agreement.
5. COMPENSATION OF SUBADVISER. For the services to be rendered and the
expenses to be assumed and to be paid by the Portfolio Management Agent under
this Agreement, the Portfolio Management Agent shall pay to the Subadviser a
monthly fee, computed and accrued on each day on which the Fund's net asset
value is determined and payable on the first business day of each month, at the
annual rate of 0.375% of the first $25 million of the average net asset value of
the Mexican Assets, 0.325% of the next $25 million of such net asset value,
0.275% of the next $50 million of such net asset value and 0.25% of such net
asset value in excess of $100 million. The fee payable under this Agreement
shall be reduced proportionately during any month in which this Agreement is not
in effect for the entire month.
6. NON-EXCLUSIVITY. The services of the Subadviser to the Company under
this Agreement are not to be deemed exclusive and the Subadviser shall be free
to render similar services to others so long as its services under this
Agreement are not impaired by such other activities.
7. STANDARD OF CARE. Neither the Subadviser, nor any of its directors,
officers, agents or employees shall be liable or responsible to the Company or
its shareholders for any error of judgment, or any loss arising out of any
investment, or for any other act or omission in the performance by the
Subadviser of its duties under this Agreement, except for liability resulting
from willful misfeasance, bad faith or gross negligence on its part or from
reckless disregard of its obligations and duties under this Agreement.
8. INSPECTION. The Portfolio Management Agent (or any authorized agent
of the Portfolio Management Agent as advised in writing to the Subadviser) shall
have a right to audit, inspect and photocopy documents (and remove such
photocopies) relating to investment subadvisory and portfolio management
services performed under this Agreement, during normal business hours of the
Subadviser.
9. AUTHORIZED PERSONS.
(a) The Subadviser is authorized to accept instructions and directions
with respect to this Agreement signed by any Senior Partner or Partner of the
Portfolio Management Agent. The Portfolio Management Agent will notify the
Subadviser of any changes in its officers empowered to act under this Agreement.
(b) The Portfolio Management Agent is authorized to accept instructions
and directions with respect to this Agreement signed by any authorized persons
of the Subadviser as listed in Schedule A of this Agreement. The Subadviser will
notify the Portfolio Management Agent of any changes in its officers empowered
to act under this Agreement.
(c) The Subadviser will advise the Custodian of the names of persons
from whom the Custodian is authorized to accept instructions regarding
investment transactions.
10. USE OF SUBADVISER'S NAME AND MARKS. The Subadviser grants to the
Portfolio Management Agent and the Company the right to use, in marketing,
promotional and advertising materials of the Portfolio Management Agent or the
Company, any registered trademarks, logos or other marks that the Subadviser
uses in advertising and publicizing itself and its services as a portfolio
manager or investment counsel. Any such material shall be subject to approval by
the Subadviser as to form and content prior to its use by the Portfolio
Management Agent or the Company. The Subadviser consents to the disclosure, in
documents relating to the Fund, of its name as the investment sub-adviser and
portfolio manager of the assets of the Fund.
11. AMENDMENT. This Agreement may not be amended without the
affirmative votes (a) of a majority of the Directors of the Company, including a
majority of those Directors who are not "interested persons" of the Company, the
Investment Adviser, the Portfolio Management Agent or the Subadviser and (b) of
a "majority of the outstanding shares" of such Fund. The terms "interested
person" and "vote of a majority of the outstanding shares" shall be construed in
accordance with their respective definitions in Sections 2(a)(19) and 2(a)(42)
of the 1940 Act and, with respect to the latter term, in accordance with Rule
18f-2 under the 1940 Act.
12. TERMINATION. This Agreement may be terminated, at any time, without
payment of any penalty, by the Board of Directors, or by a vote of a majority of
the outstanding shares of the Fund, upon at least 60 days' written notice to the
Portfolio Management Agent and the Subadviser. This Agreement may be terminated
by the Portfolio Management Agent and the Subadviser at any time upon at least
60 days' written notice to the Company. This Agreement shall terminate
automatically in the event of its "assignment" (as defined in Section 2(a)(4) of
the 1940 Act). Unless terminated as hereinbefore provided, this Agreement shall
continue in effect with respect to the Fund for a period of two years from the
date hereof and thereafter from year to year only so long as such continuance is
specifically approved at least annually (a) by a majority of those Directors who
are not interested persons of the Company, the Investment Adviser, the Portfolio
Management Agent or the Subadviser, voting in person at a meeting called for the
purpose of voting on such approval, and (b) by either the Board of Directors or
by a vote of a majority of the outstanding shares of the Fund.
13. NOTICE. Any notice, demand, change of address or other
communication to be given in connection with this Agreement shall be given in
writing and shall be given by personal delivery, by registered or certified mail
or by transmittal by facsimile or other electronic medium addressed to the
recipient as follows:
To the Subadviser: Bancomer Asesora de Fondos, S.A. de C.V.
Telephone: 525-226-9466
Fax: 525-226-9507
To the Portfolio
Management Agent: Harris Investment Management, Inc.
Telephone:
Fax:
To the Company: HT Insight Funds, Inc.
Telephone:
Fax:
All notices shall be conclusively deemed to have been given on the day
of actual delivery thereof and, if given by registered or certified mail, on the
fifth business day following the deposit thereof in the mail and, if given by
facsimile or other electronic medium, on the day of transmittal thereof.
14. THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the Company, which shall have all rights against the Subadviser as
would pertain to it if this Agreement were directly between the Company and the
Subadviser.
15. GOVERNING LAW. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Illinois and the laws of the United
States of America applicable to contracts executed and to be performed therein.
16. REFERENCES AND HEADINGS. In this Agreement and in any such
amendment, references to this Agreement and all expressions such as "herein,"
"hereof," and "under this Agreement" shall be deemed to refer to this Agreement
or this Agreement as amended or affected by any such amendments. Headings are
placed herein for convenience of reference only and shall not be taken as a part
hereof or control or affect the meaning, construction or effect of this
Agreement. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
Dated: April 9, 1996
HARRIS INVESTMENT MANAGEMENT, INC.
By /s/ W.O. Leszinske
----------------------------
Name: W.O. Leszinske
Title:
ATTEST:
.....................................
______________________, Secretary
BANCOMER ASESORA de FONDOS, S.A. de C.V.
By /s/ Enrique Roberto Garduno
-----------------------------
Name: Enrique Roberto Garduno
Title: Director
ATTEST:
/s/ Mario Osorio
- -----------------------
Mario Osorio, Secretary
SCHEDULE A
----------
Yuri Rodriguez Ballesteros
Enrique Garduno Curiel
Mario Pina Valadez
EXHIBIT 5(C)(II)
INVESTMENT SUB-ADVISORY CONTRACT
FOR
HARRIS INSIGHT HEMISPHERE FREE TRADE FUND
WITH
JONES HEWARD INVESTMENT COUNSEL INC.
Harris Investment Management, Inc., (the "Portfolio Management Agent")
a Delaware corporation registered as an investment adviser under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), and Jones Heward
Investment Counsel Inc., (the "Subadviser"), a Canadian corporation registered
as an investment adviser under the Advisers Act agree as follows:
1. APPOINTMENT OF SUBADVISER. The Portfolio Management Agent appoints
the Subadviser to act as manager of that portion of the assets of the Harris
Insight Hemisphere Free Trade Fund (the "Fund"), a portfolio of HT Insight
Funds, Inc. doing business as Harris Insight Funds (the "Company"), allocated by
the Portfolio Management Agent to be invested in Canada, including interest and
dividends thereon and capital accretions or other additions thereto (the
"Canadian Assets"), and the Subadviser accepts that appointment for the period
and on the terms set forth below.
2. SERVICES OF SUBADVISER.
(a) INVESTMENT MANAGEMENT. Subject to the overall control of the Board
of Directors of the Company (the "Board of Directors") and the Portfolio
Management Agent, the Subadviser shall have supervisory responsibility for the
general management and investment of the Canadian Assets in "Canadian Equity
Securities" and "Canadian Fixed Income Securities," as defined from time to time
in the Fund's prospectus giving due consideration to the investment policies and
restrictions, portfolio transaction policies and the other statements concerning
the Fund in the Company's Articles of Incorporation, by-laws and registration
statements under the Investment Company Act of 1940, as amended (the "1940
Act"), and the Securities Act of 1933, as amended (the "1933 Act"), to the
provisions of the 1933 Act and the 1940 Act and rules and regulations
thereunder, to the provisions of the Internal Revenue Code applicable to the
Fund as regulated investment companies and to other applicable law (the
"Investment Policies and Restrictions"). The Subadviser shall not lend or pledge
any of the Canadian Assets without the prior written consent of the Portfolio
Management Agent.
(b) ALLOCATION AMONG COUNTRIES. The Portfolio Management Agent (i) has
the responsibility and authority to allocate and reallocate the portion of the
Fund's assets to be invested in Canada and may from time to time make
withdrawals from or additions to the Canadian Assets; (ii) shall promptly notify
the Subadviser of any such allocation or reallocation; (iii) shall monitor and
evaluate the investment performance of the Subadviser; and (iv) shall monitor
the investment activities of the Subadviser to ensure compliance with the
Investment Policies and Restrictions.
(c) MONITORING SUBADVISER. The Portfolio Management Agent shall monitor
and evaluate the investment performance of the Subadviser; and shall monitor the
investment activities of the Subadviser to ensure compliance with the Investment
Policies and Restrictions.
(d) REPORTS AND INFORMATION. The Subadviser shall furnish to the
Portfolio Management Agent periodic reports on the investment strategy and
performance of the Fund and such additional reports and information as the
Portfolio Management Agent or the Board of Directors or the officers of the
Company may reasonably request.
(e) UNDERTAKINGS OF SUBADVISER. The Subadviser further agrees that it
will:
(i) At all times be duly registered as an investment adviser
under the Investment Advisers Act of 1940 and be duly registered and qualified
under other securities legislation in each jurisdiction where such registration
or qualification is required, whether as portfolio manager, investment counsel
or such other category as may be required;
(ii) Comply with the 1940 Act and with all applicable rules
and regulations of the Securities and Exchange Commission, the provisions of the
Internal Revenue Code relating to regulated investment companies, applicable
banking laws and regulations, and policy decisions and procedures adopted by the
Board of Trustees from time to time;
(iii) Select broker-dealers in accordance with guidelines
established by the Board of Directors from time to time and in accordance with
applicable law (consistent with this obligation, when the execution and price
offered by two or more brokers or dealers are comparable, the Subadviser may, in
its discretion, purchase and sell portfolio securities to and from brokers and
dealers who provide the Subadviser with research advice and other services);
(iv) Maintain books and records with respect to the securities
transactions of the Funds;
(v) Treat confidentially and as proprietary information of the
Company all records and other information relative to the Company or to prior,
present or potential shareholders, and will not use such records or information
for any purpose other than in the performance of its responsibilities and duties
hereunder, except (A) after prior notification to and approval in writing by the
Company, which approval shall not be unreasonably withheld, (B) when so
requested by the Company, (C) as required by tax authorities or (D) pursuant to
a judicial request, requirement or order, provided that the Subadviser takes
reasonable steps to provide the Company with prior notice in order to allow the
Company to contest such request, requirement or order.
(f) BOOKS AND RECORDS. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Subadviser agrees that all records that it
maintains for the Company are the property of the Company and further agrees to
surrender promptly to the Company any of such records upon the Company's
request. The Subadviser further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act the records required to be maintained by Rule
31a-1 under the 1940 Act.
(g) INDEPENDENT CONTRACTOR. The Subadviser shall for all purposes
herein be deemed to be an independent contractor and not an agent of the Company
and shall, unless otherwise expressly provided or authorized, have no authority
to act for or represent the Company in any way.
3. UNDERTAKINGS OF PORTFOLIO MANAGEMENT AGENT. The Portfolio Management
Agent will:
(a) Furnish to the Subadviser promptly a copy of each amendment to the
registration statement of the Company under the 1940 Act and the 1933 Act and of
each prospectus and statement of additional information relating to the Fund and
any supplement thereto;
(b) Inform the principal custodian of the Funds (the "Custodian")
(currently PNC Bank, N.A.) of the appointment of the Subadviser as investment
subadviser and portfolio manager of the Funds;
(c) Instruct the Custodian to cooperate with the Subadviser in the
provision of custodial services to the Funds; and
(d) Provide the Subadviser with all information that the Subadviser may
reasonably require insofar as it relates to the custodial arrangements in
connection with this Agreement.
4. EXPENSES BORNE BY SUBADVISER. The Subadviser at its own expense
shall furnish personnel, office space and office facilities and equipment
required to render its services pursuant to this Agreement.
5. COMPENSATION OF SUBADVISER. For the services to be rendered and the
expenses to be assumed and to be paid by the Portfolio Management Agent under
this Agreement, the Portfolio Management Agent shall pay to the Subadviser a
monthly fee, computed and accrued on each day on which the Fund's net asset
value is determined and payable on the first business day of each month, at the
annual rate of 0.375% of the first $25 million of the average net asset value of
the Canadian Assets, 0.325% of the next $25 million of such net asset value,
0.275% of the next $50 million of such net asset value and 0.25% of such net
asset value in excess of $100 million. The fee payable under this Agreement
shall be reduced proportionately during any month in which this Agreement is not
in effect for the entire month.
6. NON-EXCLUSIVITY. The services of the Subadviser to the Company under
this Agreement are not to be deemed exclusive and the Subadviser shall be free
to render similar services to others so long as its services under this
Agreement are not impaired by such other activities.
7. STANDARD OF CARE. Neither the Subadviser, nor any of its directors,
officers, agents or employees shall be liable or responsible to the Company or
its shareholders for any error of judgment, or any loss arising out of any
investment, or for any other act or omission in the performance by the
Subadviser of its duties under this Agreement, except for liability resulting
from willful misfeasance, bad faith or gross negligence on its part or from
reckless disregard of its obligations and duties under this Agreement.
8. INSPECTION. The Portfolio Management Agent (or any authorized agent
of the Portfolio Management Agent as advised in writing to the Subadviser) shall
have a right to audit, inspect and photocopy documents (and remove such
photocopies) relating to investment subadvisory and portfolio management
services performed under this Agreement, during normal business hours of the
Subadviser.
9. AUTHORIZED PERSONS.
(a) The Subadviser is authorized to accept instructions and directions
with respect to this Agreement signed by any one of ______________ of the
Portfolio Management Agent. The Portfolio Management Agent will notify the
Subadviser of any changes in its officers empowered to act under this Agreement.
(b) The Portfolio Management Agent is authorized to accept instructions
and directions with respect to this Agreement signed by any Senior Partner or
Partner of the Subadviser. The Subadviser will notify the Portfolio Management
Agent of any changes in its officers empowered to act under this Agreement.
(c) The Subadviser will advise the Custodian of the names of persons
from whom the Custodian is authorized to accept instructions regarding
investment transactions.
10. USE OF SUBADVISER'S NAME AND MARKS. The Subadviser grants to the
Portfolio Management Agent and the Company the right to use, in marketing,
promotional and advertising materials of the Portfolio Management Agent or the
Company, any registered trademarks, logos or other marks that the Subadviser
uses in advertising and publicizing itself and its services as a portfolio
manager or investment counsel. Any such material shall be subject to the
approval by the Subadviser as to form and content prior to its use by the
Portfolio Management Agent or the Company. The Subadviser consents to the
disclosure, in documents relating to the Fund, of its name as the investment
sub-adviser and portfolio manager of the assets of the Fund.
11. AMENDMENT. This Agreement may not be amended with respect to a
particular Fund without the affirmative votes (a) of a majority of the Directors
of the directors, including a majority of those Directors who are not
"interested persons" of the Company, the Portfolio Management Agent or the
Subadviser and (b) of a "majority of the outstanding shares" of such Fund. The
terms "interested person" and "vote of a majority of the outstanding shares"
shall be construed in accordance with their respective definitions in Sections
2(a)(19) and 2(a)(42) of the 1940 Act and, with respect to the latter term, in
accordance with Rule 18f-2 under the 1940 Act.
12. TERMINATION. This Agreement may be terminated as to any Fund, at
any time, without payment of any penalty, by the Board of Directors, or by a
vote of a majority of the outstanding shares of the Fund, upon at least 60 days'
written notice to the Portfolio Management Agent. This Agreement may be
terminated by the Portfolio Management Agent at any time upon at least 60 days'
written notice to the Company. This Agreement shall terminate automatically in
the event of its "assignment" (as defined in Section 2(a)(4) of the 1940 Act).
Unless terminated as hereinbefore provided, this Agreement shall continue in
effect with respect to the Fund for a period of two years from the date hereof
and thereafter from year to year only so long as such continuance is
specifically approved at least annually (a) by a majority of those Directors who
are not interested persons of the Company, the Portfolio Management Agent or the
Subadviser, voting in person at a meeting called for the purpose of voting on
such approval, and (b) by either the Board of Directors or by a vote of a
majority of the outstanding shares of the Fund.
13. NOTICE. Any notice, demand, change of address or other
communication to be given in connection with this Agreement shall be given in
writing and shall be given by personal delivery, by registered or certified mail
or by transmittal by facsimile or other electronic medium addressed to the
recipient as follows:
To the Subadviser: Jones Heward Investment Counsel Inc.
Telephone:
Fax:
To the Portfolio: Harris Investment Management, Inc.
Management
Agent
Telephone:
Fax:
To the Company: HT Insight Funds, Inc.
Telephone:
Fax:
All notices shall be conclusively deemed to have been given on the day
of actual delivery thereof and, if given by registered or certified mail, on the
fifth business day following the deposit thereof in the mail and, if given by
facsimile or other electronic medium, on the day of transmittal thereof.
14. THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the Company, which shall have all rights against the Subadviser as
would pertain to it if this Agreement were directly between the Company and the
Subadviser.
15. GOVERNING LAW. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Illinois and the laws of the United
States of America applicable to contracts executed and to be performed therein.
16. REFERENCES AND HEADINGS. In this Agreement and in any such
amendment, references to this Agreement and all expressions such as "herein,"
"hereof," and "under this Agreement" shall be deemed to refer to this Agreement
or this Agreement as amended or affected by any such amendments. Headings are
placed herein for convenience of reference only and shall not be taken as a part
hereof or control or affect the meaning, construction or effect of this
Agreement. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
Dated: April 9, 1996
HARRIS INVESTMENT MANAGEMENT, INC.
By /s/ W.O. Leszinske
---------------------------
Name: W.O. Leszinske
Title:
ATTEST:
........................................
______________________, Secretary
JONES HEWARD INVESTMENT
COUNSEL INC.
By /s/ M. Stanley
---------------------------
Name: M. Stanley
Title:
ATTEST:
.......................................
______________________, Secretary
EXHIBIT 6(a)(ii)
HT INSIGHT FUNDS, INC.
ONE EXCHANGE PLACE
TENTH FLOOR
BOSTON, MA 02109
April 9, 1996
Funds Distributor, Inc.
One Exchange Place
Boston, Massachusetts, 02109
To Whom It May Concern:
Reference is made to the Distribution Agreement between us dated as of
April 13, 1994 (the "Agreement").
Pursuant to the first paragraph of the Agreement, this letter is to
provide notice of the creation of an additional portfolio, the Harris Insight
Hemisphere Free Trade Fund (the "New Fund").
We request that you act as Distributor under the Agreement with respect
to the New Fund.
If the foregoing is in accordance with your understanding, please so
indicate by signing and returning to us the enclosed copy hereof.
Sincerely,
HT Insight Funds, Inc.
-------------------------
Patricia L. Bickimer
President
Accepted: Funds Distributor, Inc.
-----------------------------
By:
EXHIBIT 8(a)(iii)
HT INSIGHT FUNDS, INC.
ONE EXCHANGE PLACE
TENTH FLOOR
BOSTON, MA 02109
April 9, 1996
PNC Bank, N.A.
Broad & Chestnut Streets
Philadelphia, Pennsylvania 19103
To Whom It May Concern:
Reference is made to the Custodian Agreement between us dated as of
December 1, 1989 (the "Agreement").
Pursuant to the first paragraph of the Agreement, this letter is to
provide notice of the creation of an additional portfolio, the Harris Insight
Hemisphere Free Trade Fund (the "New Fund").
We request that you act as Custodian under the Agreement with respect
to the New Fund.
If the foregoing is in accordance with your understanding, please so
indicate by signing and returning to us the enclosed copy thereof.
Sincerely,
HT Insight Funds, Inc.
--------------------------
Patricia L. Bickimer
President
Accepted: PNC Bank, N.A.
----------------------------
By:
EXHIBIT 9(a)
TRANSFER AGENCY SERVICES AGREEMENT
THIS AGREEMENT is made as of July 1, 1996 by and between HARRIS TRUST
AND SAVINGS BANK, an Illinois corporation ("Harris"), and THE HARRIS INSIGHT
FUNDS, INC., a Maryland corporation (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain Harris to serve as transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to its
investment portfolios listed on Exhibit A attached hereto and made a part
hereof, as such Exhibit A may be amended from time to time (each a "Portfolio"),
and Harris wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(c) "Authorized Person" means any officer of the Fund and any
other person duly authorized by the Fund's Board of Directors to give Oral
Instructions and Written Instructions on behalf of the Fund and listed on the
Authorized Persons Appendix attached hereto and made a part hereof or any
amendment thereto
as may be received by Harris. An Authorized Person's scope of authority may be
limited by the Fund by setting forth such limitation in the Authorized Persons
Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "Oral Instructions" mean oral instructions received by
Harris from an Authorized Person or from a person reasonably believed by Harris
to be an Authorized Person.
(f) "SEC" means the Securities and Exchange Commission.
(g) "Securities Laws" mean the 1933 Act, the 1934 Act, the
1940 Act and the CEA.
(h) "Shares" mean the shares of common stock of any series or
class of the Fund.
(i) "Written Instructions" mean written instructions signed by
an Authorized Person and received by Harris. The instructions may be delivered
by hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Fund hereby appoints Harris to serve as transfer
agent, registrar, dividend disbursing agent and shareholder servicing agent to
the Fund in accordance with the terms set forth in this Agreement. Harris
accepts such appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable,
will provide Harris with the following:
(a) Certified or authenticated copies of the
resolutions of the Fund's Board of
Directors, approving the appointment of
Harris or its affiliates to provide
services to the Fund and approving this
Agreement;
(b) A copy of the Fund's most recent effective
registration statement;
(c) A copy of the advisory agreement with
respect to each investment Portfolio of
the Fund (each, a Portfolio);
(d) A copy of the distribution agreement with
respect to each class of Shares of the
Fund;
(e) A copy of each Portfolio's administration
agreements if Harris is not providing the
Portfolio with such services;
(f) Copies of any shareholder servicing
agreements made in respect of the Fund or
a Portfolio; and
(g) Copies (certified or authenticated where
applicable) of any and all amendments or
supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS. Harris undertakes to comply
with all applicable requirements of the Securities Laws and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by Harris hereunder. Except as specifically set forth
herein, Harris assumes no responsibility for such compliance by the Fund or any
of its investment portfolios.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, Harris shall
act only upon Oral Instructions and Written Instructions.
(b) Harris shall be entitled to rely upon any Oral
Instructions and Written Instructions it receives from an Authorized Person (or
from a person reasonably believed by Harris
to be an Authorized Person) pursuant to this Agreement. Harris may assume that
any Oral Instruction or Written Instruction received hereunder is not in any way
inconsistent with the provisions of organizational documents or this Agreement
or of any vote, resolution or proceeding of the Fund's Board of Directors or of
the Fund's shareholders, unless and until Harris receives Written Instructions
to the contrary.
(c) The Fund agrees to forward to Harris Written Instructions
confirming Oral Instructions so that Harris receives the Written Instructions by
the close of business on the same day that such Oral Instructions are received.
The fact that such confirming Written Instructions are not received by Harris
shall in no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions. Where Oral Instructions or
Written Instructions reasonably appear to have been received from an Authorized
Person, Harris shall incur no liability to the Fund in acting upon such Oral
Instructions or Written Instructions provided that Harris's actions comply with
the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Fund. If Harris is in doubt as to any action
it should or should not take, Harris may request directions or advice, including
Oral Instructions or Written Instructions, from the Fund.
(b) Advice of Counsel. If Harris shall be in doubt as to any
question of law pertaining to any action it should or should not take, Harris
may request advice at its own cost from such counsel of its own choosing (who
may be counsel for the Fund, the Fund's investment adviser or Harris, at the
option of Harris).
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral Instructions or Written Instructions Harris receives
from the Fund, and the advice it receives from counsel, Harris may rely upon and
follow the advice of counsel. In the event Harris so relies on the advice of
counsel, Harris remains liable for any action or omission on the part of Harris
which constitutes willful misfeasance, bad faith, negligence or reckless
disregard by Harris of any duties, obligations or responsibilities set forth in
this Agreement.
(d) Protection of Harris. Harris shall be protected in any
action it takes or does not take in reliance upon directions, advice or Oral
Instructions or Written Instructions it receives from the Fund or from counsel
and which Harris believes, in good faith, to be consistent with those
directions, advice or Oral Instructions or Written Instructions. Nothing in this
section shall be construed so as to impose an obligation upon Harris (i) to seek
such directions, advice or Oral Instructions or Written Instructions, or (ii) to
act in accordance with such directions, advice or Oral Instructions or Written
Instructions unless, under the terms of another provision of this Agreement, the
same is a condition of Harris's properly taking or not taking such action.
Nothing in this subsection shall excuse Harris when an action or omission on the
part of Harris constitutes willful misfeasance, bad faith, negligence or
reckless disregard by Harris of any duties, obligations or responsibilities set
forth in this Agreement.
7. RECORDS; VISITS. The books and records pertaining to the Fund, which
are in the possession or under the control of
Harris, shall be the property of the Fund. Such books and records shall be
prepared and maintained as required by the 1940 Act and other applicable
securities laws, rules and regulations. The Fund and Authorized Persons shall
have access to such books and records at all times during Harris's normal
business hours. Upon the reasonable request of the Fund, copies of any such
books and records shall be provided by Harris to the Fund or to an Authorized
Person, at the Fund's expense.
8. CONFIDENTIALITY. Harris agrees to keep confidential all records of
the Fund and information relating to the Fund and its shareholders, unless the
release of such records or information is otherwise consented to, in writing, by
the Fund. The Fund agrees that such consent shall not be unreasonably withheld
and may not be withheld where Harris may be exposed to civil or criminal
contempt proceedings or when required to divulge such information or records to
duly constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. Harris shall cooperate with the Fund's
independent public accountants and shall take all reasonable actions in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Fund.
10. DISASTER RECOVERY. Harris shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provisions for emergency use of electronic data processing equipment. In the
event of equipment failures, Harris shall, at no additional expense to the Fund,
exercise its best efforts in good faith to minimize service interruptions.
Harris shall have no liability with respect to the loss of data or service
interruptions caused by equipment
failure, provided such loss or interruption is not caused by Harris's own
willful misfeasance, bad faith, negligence or reckless disregard of its duties
or obligations under this Agreement.
11. COMPENSATION. As compensation for services rendered by Harris
during the term of this Agreement, the Fund will pay to Harris a fee or fees as
may be agreed to from time to time in writing by the Fund and Harris.
12. INDEMNIFICATION. The Fund agrees to indemnify and hold harmless
Harris from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the Securities Laws
and any state and foreign securities and blue sky laws, and amendments thereto),
and expenses, including reasonable attorneys' fees and disbursements, arising
directly or indirectly from any action or omission to act which Harris takes (i)
at the request or on the direction of or in reliance on the advice of the Fund
or (ii) upon Oral Instructions or Written Instructions. Harris shall not,
however, be indemnified against any liability (or any expenses incident to such
liability) arising out of Harris's or its affiliates' own willful misfeasance,
bad faith, negligence or reckless disregard of its duties and obligations under
this Agreement.
13. RESPONSIBILITY OF HARRIS.
(a) Harris shall be under no duty to take any action on behalf
of the Fund except as specifically set forth herein or as may be specifically
agreed to by Harris in writing. Harris shall be obligated to exercise care and
diligence in the performance of its duties hereunder, to act in good faith and
to use its best efforts, within reasonable limits, in performing
services provided for under this Agreement. Harris shall be liable for any
damages arising out of Harris's failure to perform its duties under this
Agreement to the extent such damages arise out of Harris's willful misfeasance,
bad faith, negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing or of any
other provision of this Agreement, (i) Harris, shall not be liable for losses
beyond its control, provided that Harris has acted in accordance with the
standard of care set forth above; and (ii) Harris shall not be under any duty or
obligation to inquire into and shall not be liable for (A) the validity or
invalidity or authority or lack thereof of any Oral Instruction or Written
Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, and which Harris reasonably believes to be
genuine; or (B) subject to Section 10, delays or errors or loss of data
occurring by reason of circumstances beyond Harris's control, including acts of
civil or military authority, national emergencies, labor difficulties, fire,
flood, catastrophe, acts of God, insurrection, war, riots or failure of the
mails, transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the
contrary, Harris shall not be liable to the Fund for any consequential, special
or indirect losses or damages which the Fund may incur or suffer by or as a
consequence of Harris's performance of the services provided hereunder, whether
or not the likelihood of such losses or damages was known by Harris or its
affiliates.
14. DESCRIPTION OF SERVICES.
(a) Services Provided on an Ongoing Basis, If Applicable.
(i) Furnish state-by-state registration
reports to the Fund;
(ii) Calculate sales load, if any, or
compensation payment, if applicable, and
provide such information to the Fund;
(iii) Calculate dealer commissions, if any,
for the Fund, if applicable;
(iv) Calculate 12b-1 payments;
(v) Maintain proper shareholder
registrations;
(vi) Review new applications and correspond
with shareholders to complete or correct
information;
(vii) Direct payment processing of checks or
wires;
(viii) Prepare and certify stockholder lists in
conjunction with proxy solicitations;
(ix) Countersign share certificates;
(x) Prepare and mail to shareholders
confirmation of activity;
(xi) Provide toll-free lines for direct
shareholder use, plus customer liaison
staff for on-line inquiry response;
(xii) Mail duplicate confirmations to
broker-dealers of their clients'
activity, whether executed through the
broker-dealer or directly with Harris;
(xiii) Provide periodic shareholder lists and
statistics to the clients;
(xiv) Provide detailed data for
underwriter/broker confirmations;
(xv) Prepare periodic mailing of year-end tax
and statement information;
(xvi) Notify on a timely basis the
administrator, investment adviser,
accounting agent, and custodian of fund
activity; and
(xvii) Perform other participating
broker-dealer shareholder services as
may be agreed upon from time to time.
(b) Services Provided by Harris Under Oral Instructions or
Written Instructions.
(i) Accept and post daily Fund purchases and
redemptions;
(ii) Accept, post and perform shareholder
transfers and exchanges;
(iii) Pay dividends and other distributions;
(iv) Solicit and tabulate proxies; and
(v) Issue and cancel certificates (when
requested in writing by the
shareholder).
(c) Purchase of Shares. Harris shall issue and credit an
account of an investor, in the manner described in the Fund's prospectus, once
it receives:
(i) A purchase order;
(ii) Proper information to establish a
shareholder account; and
(iii) Confirmation of receipt or crediting of
funds for such order to the Fund's
custodian.
(d) Redemption of Shares. Harris shall redeem Shares only if
that function is properly authorized by the certificate of incorporation or
resolution of the Fund's Board of Directors. Shares shall be redeemed and
payment therefor shall be made in accordance with the Fund's prospectus, when
the recordholder tenders Shares in proper form and directs the method of
redemption. If the recordholder has not directed that redemption proceeds be
wired, when the Custodian provides Harris with funds, the redemption check shall
be sent to and made payable to the recordholder, unless:
(i) the surrendered certificate is drawn to
the order of an assignee or holder and
transfer authorization is signed by the
recordholder; or
(ii) Transfer authorizations are signed by
the recordholder when Shares are held in
book-entry form.
When a broker-dealer notifies Harris of a redemption desired by a customer, and
the Custodian provides Harris with funds, Harris shall prepare and send the
redemption check to the broker-dealer and made payable to the broker-dealer on
behalf of its customer.
(e) Dividends and Distributions. Upon receipt of a resolution
of the Fund's Board of Directors authorizing the declaration and payment of
dividends and distributions, Harris shall issue dividends and distributions
declared by the Fund in Shares, or, upon shareholder election, pay such
dividends and distributions in cash, if provided for in the Fund's prospectus.
Such issuance or payment, as well as payments upon redemption as described
above, shall be made after deduction and payment of the required amount of funds
to be withheld in accordance with any applicable tax laws or other laws, rules
or regulations. Harris
shall mail to the Fund's shareholders such tax forms and other information, or
permissible substitute notice, relating to dividends and distributions paid by
the Fund as are required to be filed and mailed by applicable law, rule or
regulation.
Harris shall prepare, maintain and file with the IRS and other
appropriate taxing authorities reports relating to all dividends above a
stipulated amount paid by the Fund to its shareholders as required by tax or
other law, rule or regulation.
(f) Shareholder Account Services.
(i) Harris may arrange, in accordance with
the prospectus, for issuance of Shares
obtained through:
- Any pre-authorized check plan; and
- Direct purchases through broker wire
orders, checks and applications.
(ii) Harris may arrange, in accordance with
the prospectus, for a shareholder's:
- Exchange of Shares for shares of another
fund with which the Fund has exchange
privileges;
- Automatic redemption from an account
where that shareholder participates in a
automatic redemption plan; and/or
- Redemption of Shares from an account
with a checkwriting privilege.
(g) Communications to Shareholders. Upon timely Written
Instructions, Harris shall mail all communications by the Fund to its
shareholders, including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of
Fund shares;
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices;
(v) Proxy material; and
(vi) Tax form information.
In addition, Harris will receive and tabulate the proxy cards
for the meetings of the Fund's shareholders.
(h) Records. Harris shall maintain records of the accounts for
each shareholder showing the following information:
(i) Name, address and United States Tax
Identification or Social Security
number;
(ii) Number and class of Shares held and
number and class of Shares for which
certificates, if any, have been issued,
including certificate numbers and
denominations;
(iii) Historical information regarding the
account of each shareholder, including
dividends and distributions paid and the
date and price for all transactions on a
shareholder's account;
(iv) Any stop or restraining order placed
against a shareholder's account;
(v) Any correspondence relating to the
current maintenance of a shareholder's
account;
(vi) Information with respect to
withholdings; and
(vii) Any information required in order for
the transfer agent to perform any
calculations contemplated or required by
this Agreement.
(i) Lost or Stolen Certificates. Harris shall place a stop
notice against any certificate reported to be lost or stolen and comply with all
applicable federal regulatory requirements
for reporting such loss or alleged misappropriation. A new certificate shall be
registered and issued only upon:
(i) The shareholder's pledge of a lost instrument bond or
such other appropriate indemnity bond issued by a
surety company approved by Harris; and
(ii) Completion of a release and indemnification agreement
signed by the shareholder to protect Harris and its
affiliates.
(j) Shareholder Inspection of Stock Records. Upon a request
from any Fund shareholder to inspect stock records, Harris will notify the Fund
and the Fund will issue instructions granting or denying each such request.
Unless Harris has acted contrary to the Fund's instructions, the Fund agrees to
and does hereby, release Harris from any liability for refusal of permission for
a particular shareholder to inspect the Fund's stock records.
(k) Withdrawal of Shares and Cancellation of Certificates.
Upon receipt of Written Instructions, Harris shall cancel
outstanding certificates surrendered by the Fund to reduce the total amount of
outstanding shares by the number of shares surrendered by the Fund.
(l) In providing for any or all of the services in section 14
hereof, and in satisfaction or its obligations to provide such services, Harris
may enter into agreements with one or more other persons to provide such
services to the Fund, provided that any such agreement shall have been approved
by the Board of Directors of the Fund and provided further that Harris shall be
as fully responsible to the Funds for the acts and omissions of any such service
providers as it would be for its own acts or omissions hereunder.
15. DURATION AND TERMINATION. This Agreement shall continue until
terminated by the Fund or by Harris on sixty (60) days' prior written notice to
the other party.
16. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notices shall be addressed (a) if to Harris, at 111
West Monroe Street, Chicago, IL 60690; (b) if to the Fund, at One Exchange
Place, Tenth Floor, Boston, Massachusetts 02109 or (c) if to neither of the
foregoing, at such other address as shall have been given by like notice to the
sender of any such notice or other communication by the other party. If notice
is sent by confirming telegram, cable, telex or facsimile sending device, it
shall be deemed to have been given immediately. If notice is sent by first-class
mail, it shall be deemed to have been given three days after it has been mailed.
If notice is sent by messenger, it shall be deemed to have been given on the day
it is delivered.
17. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
18. DELEGATION; ASSIGNMENT. Subject to approval by the Fund's Board of
Directors, Harris may assign its rights and delegate its duties hereunder to any
wholly-owned direct or indirect subsidiary of Harris Bankcorp, Inc., provided
that (i) Harris gives the Fund sixty (60) days' prior written notice; (ii) the
delegate (or assignee) agrees with the Fund and Harris to comply with all
relevant provisions of the 1940 Act; (iii) Harris remains responsible for the
performance of its duties hereunder by such delegate (or assignee); (iv) the
delegate (or assignee)
possesses expertise comparable to or greater than that of Harris in providing
the services required hereunder; and (v) Harris and such delegate (or assignee)
promptly provide such information as the Fund or Harris may request, and respond
to such questions as the Fund or Harris may ask, relative to the delegation (or
assignment), including (without limitation) the capabilities of the delegate (or
assignee).
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
21. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof, provided
that the parties may embody in one or more separate documents their agreement,
if any, with respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a
contract made in Delaware and governed by Delaware law, without regard to
principles of conflicts of law.
(d) Partial Invalidity. If any provision of this Agreement
shall be held or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party
to this Agreement shall constitute the valid and binding execution hereof by
such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
HARRIS TRUST AND SAVINGS BANK
By: /s/ Peter P. Capaccio
---------------------------
Title: Senior Vice President
---------------------------
THE HARRIS INSIGHT FUNDS, INC.
By: /s/ Richard W. Ingram
---------------------------
Title: President
---------------------------
EXHIBIT A
---------
THIS EXHIBIT A, dated as of July 1, 1996, is Exhibit A to that certain
Transfer Agency Services Agreement dated as of July 1, 1996 between Harris Trust
and Savings Bank and The Harris Insight Funds, Inc..
PORTFOLIOS
----------
Money Market Fund
Government Money Market Fund
Tax Exempt Money Market Fund
Equity Fund
Short Intermediate Bond Fund
Convertible Securities Fund
Hemisphere Fund
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
Peter P. Capaccio /s/ Peter P. Cappacio
---------------------
Lynn M. Gannon /s/ Lynn M. Gannon
------------------
Ishwar D. Gupta /s/ Ishwar D. Gutpa
-------------------
Donald G. Coxe /s/ Donald G. Coxe
------------------
Thomas M. Corkill /s/ Thomas M. Corkill
---------------------
James E. Depies /s/ James E. Depies
-------------------
William O. Leszinske /s/ William O. Leszinske
------------------------
Douglas G. Madigan /s/ Douglas G. Madigan
----------------------
Daniel L. Sido /s/ Daniel L. Sido
------------------
Laura D. Alter /s/ Laura D. Alter
------------------
Kathleen Bramlage /s/ Kathleen Bramlage
---------------------
Fred Duda /s/ Fred Duda
-------------
Randall T. Royther /s/ Randall T. Royther
----------------------
Maureen Svagera /s/ Maureen Svagera
-------------------
EXHIBIT 9(b)
SUB-TRANSFER AGENCY SERVICES AGREEMENT
--------------------------------------
THIS AGREEMENT is made as of July 1, 1996 by and among HARRIS TRUST AND
SAVINGS BANK, an Illinois corporation ("Harris") and PFPC INC., a Delaware
corporation ("PFPC").
W I T N E S S E T H:
WHEREAS, the Harris Insight Funds Inc., a Maryland corporation (the
"Company") is registered as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, Harris has entered into a Transfer Agency Services Agreement
dated July 1, 1996, with the Company (the "Transfer Agency Services Agreement"),
concerning the provision of services as transfer agent, registrar, dividend
disbursing agent and shareholder servicing agent to its investment portfolios;
WHEREAS, Harris wishes to retain PFPC to serve as sub-transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to the
Company's investment portfolios listed on Exhibit A attached hereto and made a
part hereof, as such Exhibit A may be amended from time to time (each a
"Portfolio"), and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(c) "Authorized Person" means any officer of the Company and
any other person duly authorized by the Company's Board of Directors to give
Oral Instructions and Written Instructions on behalf of the Company and listed
on the Authorized Persons Appendix attached hereto and made a part hereof or any
amendment thereto as may be received by PFPC. An Authorized Person's scope of
authority may be limited by the Company by setting forth such limitation in the
Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "Oral Instructions" mean oral instructions received by
PFPC from an Authorized Person or from a person reasonably believed by PFPC to
be an Authorized Person.
(f) "SEC" means the Securities and Exchange Commission.
(g) "Securities Laws" mean the 1933 Act, the 1934 Act, the
1940 Act and the CEA.
(h) "Shares" mean the shares of common stock of any series or
class of the Company.
(i) "Written Instructions" mean written instructions signed by
an Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. Harris hereby appoints PFPC to serve as sub-transfer
agent, registrar, dividend disbursing agent and shareholder servicing agent to
the Company's Portfolios in accordance with the terms set forth in this
Agreement. PFPC accepts such appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Company or Harris has provided or, where
applicable, will provide PFPC with the following:
(a) Certified or authenticated copies of the
resolutions of the Board of Directors,
approving the appointment of PFPC or its
affiliates to provide services to the Fund
and approving this Agreement;
(b) A copy of the Company's most recent
effective registration statement;
(c) A copy of the advisory agreement with
respect to each Portfolio;
(d) A copy of the distribution agreement with
respect to each class of Shares of the
Company;
(e) A copy of each Portfolio's administration
agreements if PFPC is not providing the
Portfolio with such services;
(f) Copies of any shareholder servicing
agreements made in respect of a Portfolio;
and
(g) Copies (certified or authenticated where
applicable) of any and all amendments or
supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply
with all applicable requirements of the Securities Laws and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by PFPC hereunder. Except as specifically set forth
herein, PFPC assumes no responsibility for such compliance by the Company or any
of its investment portfolios.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall
act only upon Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral Instructions
and Written Instructions it receives from an Authorized Person (or from a person
reasonably believed by PFPC to be an Authorized Person) pursuant to this
Agreement. PFPC may assume that any Oral Instruction or Written Instruction
received hereunder is not in any way inconsistent with the provisions of
organizational documents or this Agreement or of any vote, resolution or
proceeding of the Company's Board of Directors or of the Company's shareholders,
unless and until PFPC receives Written Instructions to the contrary.
(c) The Company will forward to PFPC Written Instructions
confirming Oral Instructions so that PFPC receives the Written Instructions by
the close of business on the same day that such Oral Instructions are received.
The fact that such confirming Written Instructions are not received by PFPC
shall in no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions. Where Oral Instructions or
Written Instructions reasonably appear to have been received from an Authorized
Person, PFPC shall incur no liability to Harris in acting upon such Oral
Instructions or Written Instructions provided that PFPC's actions comply with
the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Fund. If PFPC is in doubt as to any action
it should or should not take, PFPC may request directions or advice, including
Oral Instructions or Written Instructions, from Harris.
(b) Advice of Counsel. If PFPC shall be in doubt as to any
question of law pertaining to any action it should or should not take, PFPC may
request advice at its own cost from such counsel of its own choosing (who may be
counsel for Harris, or PFPC, at the option of PFPC).
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral Instructions or Written Instructions PFPC receives
from Harris, and the advice it receives from counsel, PFPC may rely upon and
follow the advice of counsel. In the event PFPC so relies on the advice of
counsel, PFPC remains liable for any action or omission on the part of PFPC
which constitutes willful misfeasance, bad faith, negligence or reckless
disregard by PFPC of any duties, obligations or responsibilities set forth in
this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action
it takes or does not take in reliance upon directions, advice or Oral
Instructions or Written Instructions it receives from Harris or from counsel and
which PFPC believes, in good faith, to be consistent with those directions,
advice or Oral Instructions or Written Instructions. Nothing in this section
shall be construed so as to impose an obligation upon PFPC (i) to seek such
directions, advice or Oral Instructions or Written Instructions, or (ii) to act
in accordance with such directions, advice or Oral Instructions or Written
Instructions unless, under the terms of another provision of this Agreement, the
same is a condition of PFPC's properly taking or not taking such action. Nothing
in this subsection shall excuse PFPC when an action or omission on the part of
PFPC constitutes willful misfeasance, bad faith, negligence or reckless
disregard by PFPC of any duties, obligations or responsibilities set forth in
this Agreement.
7. RECORDS; VISITS. The books and records pertaining to the Company,
which are in the possession or under the control of PFPC, shall be the property
of the Company. Such books and records shall be prepared and maintained as
required by the 1940 Act and other applicable securities laws, rules and
regulations. The Company and Authorized Persons shall have access to such books
and records at all times during PFPC's normal business hours. Upon the
reasonable request of Harris or the Company, copies of any such books and
records shall be provided by PFPC to Harris or the Company or to an Authorized
Person, at the Company's expense.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the
Company and information relating to the Company and its shareholders, unless the
release of such records or information is otherwise consented to, in writing, by
Harris. Harris agrees that such consent shall not be unreasonably withheld and
may not be withheld where PFPC may be exposed to civil or criminal contempt
proceedings or when required to divulge such information or records to duly
constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PFPC shall cooperate with the
Company's independent public accountants and shall take all reasonable actions
in the performance of its obligations under this Agreement to ensure that the
necessary information is made available to such accountants for the expression
of their opinion, as required by the Company.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provisions for emergency use of electronic data processing equipment. In the
event of equipment
failures, PFPC shall, at no additional expense to Harris, exercise its best
efforts in good faith to minimize service interruptions. PFPC shall have no
liability with respect to the loss of data or service interruptions caused by
equipment failure, provided such loss or interruption is not caused by PFPC's
own willful misfeasance, bad faith, negligence or reckless disregard of its
duties or obligations under this Agreement.
11. COMPENSATION. As compensation for services rendered by PFPC during
the term of this Agreement, Harris will pay to PFPC a fee or fees as may be
agreed to from time to time in writing by Harris and PFPC.
12. INDEMNIFICATION. Harris agrees to indemnify and hold harmless PFPC
from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the Securities Laws
and any state and foreign securities and blue sky laws, and amendments thereto),
and expenses, including reasonable attorneys' fees and disbursements, arising
directly or indirectly from any action or omission to act which PFPC takes (i)
at the request or on the direction of or in reliance on the advice of Harris or
(ii) upon Oral Instructions or Written Instructions. PFPC shall not, however, be
indemnified against any liability (or any expenses incident to such liability)
arising out of PFPC's or its affiliates' own willful misfeasance, bad faith,
negligence or reckless disregard of its duties and obligations under this
Agreement.
13. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf
of Harris or any Portfolio except as specifically set forth herein or as may be
specifically agreed to by PFPC in
writing. PFPC shall be obligated to exercise care and diligence in the
performance of its duties hereunder, to act in good faith and to use its best
efforts, within reasonable limits, in performing services provided for under
this Agreement. PFPC shall be liable for any damages arising out of PFPC's
failure to perform its duties under this Agreement to the extent such damages
arise out of PFPC's willful misfeasance, bad faith, negligence or reckless
disregard of such duties.
(b) Without limiting the generality of the foregoing or of any
other provision of this Agreement, (i) PFPC, shall not be liable for losses
beyond its control, provided that PFPC has acted in accordance with the standard
of care set forth above; and (ii) PFPC shall not be under any duty or obligation
to inquire into and shall not be liable for (A) the validity or invalidity or
authority or lack thereof of any Oral Instruction or Written Instruction, notice
or other instrument which conforms to the applicable requirements of this
Agreement, and which PFPC reasonably believes to be genuine; or (B) subject to
Section 10, delays or errors or loss of data occurring by reason of
circumstances beyond PFPC's control, including acts of civil or military
authority, national emergencies, labor difficulties, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
(c) Notwithstanding anything in this Agreement to the
contrary, PFPC shall not be liable to Harris, the Company or any Portfolio for
any consequential, special or indirect losses or damages which Harris may incur
or suffer by or as a consequence of PFPC's performance of the services provided
hereunder, whether
or not the likelihood of such losses or damages was known by PFPC or its
affiliates.
14. DESCRIPTION OF SERVICES.
(a) Services Provided on an Ongoing Basis, If Applicable.
(i) Calculate 12b-1 payments;
(ii) Maintain proper shareholder
registrations;
(iii) Review new applications and correspond
with shareholders to complete or correct
information;
(iv) Direct payment processing of checks or
wires;
(v) Prepare and certify stockholder lists in
conjunction with proxy solicitations;
(vi) Countersign share certificates;
(vii) Prepare and mail to shareholders
confirmation of activity;
(viii) Provide toll-free lines for direct
shareholder use, plus customer liaison
staff for on-line inquiry response;
(ix) Mail duplicate confirmations to
broker-dealers of their clients'
activity, whether executed through the
broker-dealer or directly with PFPC;
(x) Provide periodic shareholder lists and
statistics to the clients;
(xi) Provide detailed data for
underwriter/broker confirmations;
(xii) Prepare periodic mailing of year-end tax
and statement information;
(xiii) Notify on a timely basis the
administrator, investment adviser,
accounting agent, and custodian of fund
activity; and
(xiv) Perform other participating
broker-dealer shareholder services as
may be agreed upon from time to time.
(b) Services Provided by PFPC Under Oral Instructions or
Written Instructions.
(i) Accept and post daily Portfolio purchases
and redemptions;
(ii) Accept, post and perform shareholder
transfers and exchanges;
(iii) Pay dividends and other distributions;
(iv) Solicit and tabulate proxies; and
(v) Issue and cancel certificates (when
requested in writing by the shareholder).
(c) Purchase of Shares. PFPC shall issue and credit an account of an
investor, in the manner described in the Company's prospectus, once it receives:
(i) A purchase order;
(ii) Proper information to establish a
shareholder account; and
(iii) Confirmation of receipt or crediting of
funds for such order to the Company's
custodian.
(d) Redemption of Shares. PFPC shall redeem Shares only if
that function is properly authorized by the certificate of incorporation or
resolution of the Company's Board of Directors. Shares shall be redeemed and
payment therefor shall be
made in accordance with the Company's prospectus, when the recordholder tenders
Shares in proper form and directs the method of redemption. If the recordholder
has not directed that redemption proceeds be wired, when the Custodian provides
PFPC with funds, the redemption check shall be sent to and made payable to the
recordholder, unless:
(i) the surrendered certificate is drawn to the
order of an assignee or holder and transfer
authorization is signed by the recordholder;
or
(ii) Transfer authorizations are signed by the
recordholder when Shares are held in
book-entry form.
When a broker-dealer notifies PFPC of a redemption desired by a customer, and
the Custodian provides PFPC with funds, PFPC shall prepare and send the
redemption check to the broker-dealer and made payable to the broker-dealer on
behalf of its customer.
(e) Dividends and Distributions. Upon receipt of a resolution
of the Company's Board of Directors authorizing the declaration and payment of
dividends and distributions, PFPC shall issue dividends and distributions
declared by the Company in Shares, or, upon shareholder election, pay such
dividends and distributions in cash, if provided for in the Company's
prospectus. Such issuance or payment, as well as payments upon redemption as
described above, shall be made after deduction and payment of the required
amount of funds to be withheld in accordance with any applicable tax laws or
other laws, rules or regulations. PFPC shall mail to the Company's shareholders
such tax forms and other information, or permissible substitute notice, relating
to dividends and distributions paid by the Company as are required to be filed
and mailed by applicable law,
rule or regulation. PFPC shall prepare, maintain and file with the IRS and other
appropriate taxing authorities reports relating to all dividends above a
stipulated amount paid by the Company to its shareholders as required by tax or
other law, rule or regulation.
(f) Shareholder Account Services.
(i) PFPC may arrange, in accordance with the
prospectus, for issuance of Shares obtained
through:
- Any pre-authorized check plan; and
- Direct purchases through broker wire orders,
checks and applications.
(ii) PFPC may arrange, in accordance with the
prospectus, for a shareholder's:
- Exchange of Shares for shares of another
fund with which the Company has exchange
privileges;
- Automatic redemption from an account where
that shareholder participates in a automatic
redemption plan; and/or
- Redemption of Shares from an account with a
checkwriting privilege.
(g) Communications to Shareholders. Upon timely Written
Instructions, PFPC shall mail all communications by the Company to its
shareholders, including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of
Company shares;
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices;
(v) Proxy material; and
(vi) Tax form information.
In addition, PFPC will receive and tabulate the proxy cards
for the meetings of the Company's shareholders.
(h) Records. PFPC shall maintain records of the accounts for
each shareholder showing the following information:
(i) Name, address and United States Tax
Identification or Social Security number;
(ii) Number and class of Shares held and number
and class of Shares for which
certificates, if any, have been issued,
including certificate numbers and
denominations;
(iii) Historical information regarding the
account of each shareholder, including
dividends and distributions paid and the
date and price for all transactions on a
shareholder's account;
(iv) Any stop or restraining order placed
against a shareholder's account;
(v) Any correspondence relating to the current
maintenance of a shareholder's account;
(vi) Information with respect to withholdings;
and
(vii) Any information required in order for the
transfer agent to perform any calculations
contemplated or required by this
Agreement.
(i) Lost or Stolen Certificates. PFPC shall place a stop
notice against any certificate reported to be lost or stolen and comply with all
applicable federal regulatory requirements for reporting such loss or alleged
misappropriation. A new certificate shall be registered and issued only upon:
(i) The shareholder's pledge of a lost instrument bond or
such other appropriate indemnity bond issued by a
surety company approved by PFPC; and
(ii) Completion of a release and indemnification agreement
signed by the shareholder to protect PFPC and its
affiliates.
(j) Shareholder Inspection of Stock Records. Upon a request
from any Company shareholder to inspect stock records, PFPC will notify Harris
and Harris will issue instructions granting or denying each such request. Unless
PFPC has acted contrary to Harris' instructions, Harris agrees to and does
hereby, release PFPC from any liability for refusal of permission for a
particular shareholder to inspect the Company's stock records.
(k) Withdrawal of Shares and Cancellation of Certificates.
Upon receipt of Written Instructions, PFPC shall cancel
outstanding certificates surrendered by the Company to reduce the total amount
of outstanding shares by the number of shares surrendered by the Company.
15. DURATION AND TERMINATION. This Agreement shall continue until
terminated by Harris or by PFPC on sixty (60) days' prior written notice to the
other party.
16. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notices shall be addressed (a) if to PFPC, at 400
Bellevue Parkway, Wilmington, Delaware 19809; (b) if to Harris, at Harris Trust
and Savings Bank, 111 West Monroe Street, Chicago, IL 60690, Attention: Peter P.
Capaccio, Senior Vice President, with a copy to the Company at One Exchange
Place, Tenth Floor, Boston,
Massachusetts 02109 or (c) if to neither of the foregoing, at such other address
as shall have been given by like notice to the sender of any such notice or
other communication by the other party. If notice is sent by confirming
telegram, cable, telex or facsimile sending device, it shall be deemed to have
been given immediately. If notice is sent by first-class mail, it shall be
deemed to have been given three days after it has been mailed. If notice is sent
by messenger, it shall be deemed to have been given on the day it is delivered.
17. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
18. DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives Harris
ninety (90) days' prior written notice; (ii) the delegate (or assignee) agrees
with PFPC and Harris to comply with all relevant provisions of the 1940 Act;
(iii) PFPC remains responsible for the performance of its duties hereunder by
such delegate (or assignee); (iv) the delegate (or assignee) possesses expertise
comparable to or greater than that of PFPC in providing the services required
hereunder; and (v) PFPC and such delegate (or assignee) promptly provide such
information as Harris or the Company may request, and respond to such questions
as Harris or the Company may ask, relative to the delegation (or assignment),
including (without limitation) the capabilities of the delegate (or assignee).
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
20. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
21. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof, provided
that the parties may embody in one or more separate documents their agreement,
if any, with respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a
contract made in Delaware and governed by Delaware law, without regard to
principles of conflicts of law.
(d) Partial Invalidity. If any provision of this Agreement
shall be held or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party
to this Agreement shall constitute the valid and binding execution hereof by
such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
HARRIS TRUST AND SAVINGS BANK
By: /s/ Peter P. Capaccio
-------------------------
Title: Senior Vice President
-------------------------
PFPC INC.
By: /s/ Robert J. Perlsweig
-------------------------
Title: Executive Vice President
-------------------------
EXHIBIT A
THIS EXHIBIT A, dated as of July 1, 1996, is Exhibit A to that certain
Sub-Transfer Agency Services Agreement dated as of July 1, 1996 between HARRIS
TRUST AND SAVINGS BANK and PFPC INC.
PORTFOLIOS
Money Market Fund
Government Money Market Fund
Tax Exempt Money Market Fund
Equity Fund
Short Intermediate Bond Fund
Convertible Securities Fund
Hemisphere Fund
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
Peter P. Capaccio /s/ Peter P. Cappacio
---------------------
Lynn M. Gannon /s/ Lynn M. Gannon
------------------
Ishwar D. Gupta /s/ Ishwar D. Gutpa
-------------------
Donald G. Coxe /s/ Donald G. Coxe
------------------
Thomas M. Corkill /s/ Thomas M. Corkill
---------------------
James E. Depies /s/ James E. Depies
-------------------
William O. Leszinske /s/ William O. Leszinske
------------------------
Douglas G. Madigan /s/ Douglas G. Madigan
----------------------
Daniel L. Sido /s/ Daniel L. Sido
------------------
Laura D. Alter /s/ Laura D. Alter
------------------
Kathleen Bramlage /s/ Kathleen Bramlage
---------------------
Fred Duda /s/ Fred Duda
-------------
Randall T. Royther /s/ Randall T. Royther
----------------------
Maureen Svagera /s/ Maureen Svagera
-------------------
EXHIBIT 9(C)
ADMINISTRATION AGREEMENT
AGREEMENT made as of the 1st day of July, 1996 by and between
HT Insight Funds, Inc., d/b/a Harris Insight Funds, a Maryland corporation (the
"Company"), on its own behalf and on behalf of each of the Funds listed on
Schedule A, as shall be amended from time to time (each, a "Fund," together, the
"Funds"), and Harris Trust & Savings Bank, an Illinois Corporation (the
"Administrator").
WITNESSETH:
WHEREAS, the Company is registered as an open-end diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Company, on behalf of each individual Fund, and
Harris Trust & Savings Bank are also parties to Advisory Contracts (the
"Advisory Contracts") pursuant to which Harris Trust & Savings Bank serves as
investment adviser (the "Investment Adviser") to the Funds; and
WHEREAS, the Company desires to retain the Administrator to
render or otherwise provide for administrative services in the manner and on the
terms and conditions hereafter set forth; and
WHEREAS, the Administrator desires to be so retained on said
terms and conditions.
NOW, THEREFORE, in consideration of the promises and the
mutual covenants hereinafter contained, the Company and the Administrator agree
as follows:
1. Appointment and Acceptance. The Company hereby appoints Harris Trust
& Savings Bank to act as Administrator of the Funds, subject to the supervision
and direction of the Board of Directors of the Company, as hereinafter set
forth. The Administrator hereby accepts
such appointment and agrees to furnish or cause to be furnished the services
contemplated by this Agreement.
2. Duties of the Administrator.
(a) The Administrator shall perform or arrange for the
performance of the following administrative and clerical services: (i) maintain
and preserve the books and records, including financial and corporate records,
of the Company as required by law or otherwise for the proper operation of the
Company; (ii) prepare and, subject to approval by the Company, file registration
statements, notices, reports, tax returns and other documents required by U.S.
Federal, state and other applicable laws and regulations (other than state "blue
sky" laws), including proxy materials and periodic reports to Fund shareholders,
oversee the preparation and filing of registration statements, notices, reports
and other documents required by state "blue sky" laws, and oversee the
monitoring of sales of shares of the Funds for compliance with state securities
laws; (iii) calculate and publish the net asset value of each Fund's shares;
(iv) calculate dividends and distributions and performance data, and prepare
other financial information regarding the Company; (v) oversee and assist in the
coordination of, and, as the Board may reasonably request or deem appropriate,
make reports and recommendations to the Board on, the performance of
administrative and professional services rendered to the Funds by others,
including the custodian, registrar, transfer agent and dividend disbursing
agent, shareholder servicing agents, accountants, attorneys, underwriters,
brokers and dealers, corporate fiduciaries, insurers, banks and such other
persons in any such other capacity deemed to be necessary or desirable; (vi)
furnish corporate secretarial services to the Company, including, without
limitation, preparation of materials necessary in connection with meetings of
the Company's Board of Directors, including minutes, notices of meetings,
agendas and other Board materials; (vii) provide the Company with the services
of an adequate number of persons competent to perform the administrative and
clerical functions described herein; (viii) provide the Company with
administrative office and data processing facilities; (ix) arrange for payment
of each Fund's expenses; (x) provide routine accounting services to the Funds,
and consult with the Company's officers, independent accountants, legal counsel,
custodian, accounting agent and transfer and dividend disbursing agent in
establishing the accounting policies of the Company; (xi) prepare such financial
information and reports as may be required by any banks from which
the Company borrows funds; (xii) develop and implement procedures to monitor
each Fund's compliance with regulatory requirements and with each Fund's
investment policies and restrictions as set forth in each Fund's currently
effective Prospectus and Statement of Additional Information filed under the
Securities Act of 1933, as amended; (xiii) arrange for the services of persons
who may be appointed as officers of the Company, including the President, Vice
Presidents, Treasurer, Secretary and one or more assistant officers; and (xiv)
provide such assistance to the Investment Adviser, the custodian, other Company
service providers and the Fund counsel and auditors as generally may be required
to carry on properly the business and operations of the Company. The Company
agrees to cause the portfolio management agent to deliver to the Administrator,
on a timely basis, such information as may be necessary or appropriate for the
Administrator's performance of its duties and responsibilities hereunder,
including but not limited to, shareholder reports, records of transactions,
valuations of investments (which may be based on information provided by a
pricing service) and records of expenses borne by each Fund, and the
Administrator shall be entitled to rely on the accuracy and completeness of such
information in performing its duties hereunder. Notwithstanding anything to the
contrary herein contained, the Company, and not the Administrator, shall be
responsible for and bear the cost of any third party pricing services and any
third party blue sky services.
(b) In providing for any or all of the services listed in
section 2(a) hereof, and in satisfaction of its obligations to provide such
services, the Administrator may enter into agreements with one or more other
persons to provide such services to the Company, provided that any such
agreement shall have been approved by the Board of Directors of the Company, and
provided further that the Administrator shall be as fully responsible to the
Funds for the acts and omissions of any such service providers as it would be
for its own acts or omissions hereunder.
(c) All activities of the Administrator shall be conducted in
accordance with the Company's Articles of Incorporation, By-laws and prospectus,
under the supervision and direction of the Board of Directors, and in conformity
with the 1940 Act and other applicable federal and state securities laws and
regulations.
3. Expenses of the Administrator. The Administrator assumes the
expenses of and shall pay for maintaining the staff and personnel necessary to
perform its obligations under this
Agreement, and shall at its own expense provide office space, facilities,
equipment and the necessary personnel which it is obligated to provide under
section 2 hereof, except that the Company shall pay the expenses of legal
counsel and accountants. In addition, the Administrator shall be responsible for
the payment of any persons engaged pursuant to section 2(b) hereof. The Company
shall assume and pay or cause to be paid all other expenses of the Funds.
4. Compensation of the Administrator. For the services provided to the
Company and each Fund by the Administrator pursuant to this Agreement, each Fund
shall pay the Administrator for its services, a fee in accordance with the terms
set forth in the Fee Letter Agreement dated as of July 1, 1996 relating to
services to be provided to the Company and The Harris Insight Funds Trust, a
Massachusetts business trust (the "Trust"), and executed by the Company, the
Trust, the Administrator, Funds Distributor, Inc.(the sub-administrator), PFPC,
Inc. (the sub-administrator and accounting services agent) and PNC Bank, N.A.
(the custodian), as the same may be amended from time to time.
5. Limitation of Liability of the Administrator; Indemnification. The
Administrator shall not be liable to the Company or any Fund for any error of
judgment or mistake of law or for any loss arising out of any act or omission by
the Administrator, or any persons engaged pursuant to section 2(b) hereof,
including officers, agents and employees of the Administrator and its
affiliates, in the performance of its duties hereunder. Nothing herein contained
shall be construed to protect the Administrator against any liability to the
Company, a Fund, or shareholders to which the Administrator shall otherwise be
subject by reason of willful misfeasance, bad faith, or negligence in the
performance of its duties, or reckless disregard of its obligations and duties
hereunder.
6. Activities of the Administrator. The services of the Administrator
under this Agreement are not to be deemed exclusive, and the Administrator and
any person controlled by or under common control with the Administrator shall be
free to render similar services to others and services to the Company in other
capacities.
7. Duration and Termination of this Agreement.
(a) This Agreement shall become effective as of the date first
above written and shall continue in effect with respect to each Fund for a
period of two (2) years from the date hereof, and thereafter from year to year
so long as such continuation is specifically approved at least annually by the
Board of Directors of the Company, including a majority of the directors who are
not "interested persons" of the Company within the meaning of the 1940 Act and
who have no direct or indirect interest in this Agreement; provided, however,
that this Agreement may be terminated at any time without the payment of any
penalty, on behalf of any or all of the Funds, by the Company, by the Board or,
with respect to any Fund, by "vote of a majority of the outstanding voting
securities" (as defined in the 1940 Act) of that Fund, or by the Administrator
on not less than 60 days' written notice to the other party. This Agreement
shall automatically terminate in the event of its "assignment" as defined in the
1940 Act.
(b) The Administrator hereby agrees that the books and records
prepared hereunder with respect to the Company are the property of the Company
and further agrees that upon the termination of this Agreement or otherwise upon
request the Administrator will surrender promptly to the Company copies of the
books and records maintained or required to be maintained hereunder, including
in such machine-readable form as agreed upon by the parties, in accordance with
industry practice, where applicable.
8. Amendments of this Agreement. This Agreement may be amended by the
parties hereto only if such amendment is specifically approved by the Board of
Directors of the Company and such amendment is set forth in a written instrument
executed by each of the parties hereto.
9. Governing Law. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of Illinois as at the
time in effect and the applicable provisions of the 1940 Act. To the extent that
the applicable law of the State of Illinois, or any provisions herein, conflict
with the applicable provisions of the 1940 Act, the latter shall control.
10. Counterparts. This Agreement may be executed by the parties hereto
in counterparts and if so executed, the separate instruments shall constitute
one agreement.
11. Notices. All notices or other communications hereunder to either
party shall be in writing and shall be deemed to be received on the earlier date
of the date actually received or on the fourth day after the postmark if such
notice is mailed first class postage prepaid. Notice shall be addressed: (a) if
to the Administrator, to the attention of: Peter P. Capaccio, Senior Vice
President, Harris Trust & Savings Bank, 111 West Monroe Street, Chicago, IL
60603; or (b) if to the Company, to the attention of: President, HT Insight
Funds, Inc. d/b/a Harris Insight Funds, One Exchange Place, Tenth Floor, Boston,
MA 02109 or at such other address as either party may designate by written
notice to the other. Notice shall also be deemed sufficient if given by telex,
telecopier, telegram or similar means of same day delivery (with a confirming
copy by mail as provided herein).
12. Separate Funds. This Agreement shall be construed to be made by the
Company as a separate agreement with respect to each Fund, and under no
circumstances shall the rights, obligations or remedies with respect to a
particular Fund be deemed to constitute a right, obligation or remedy applicable
to any other Fund.
13. Entire Agreement. This Agreement constitutes the entire agreement
of the parties with respect to the subject matter hereof and supersedes any
prior arrangements, agreements or understandings.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
HT INSIGHT FUNDS, INC.
By: /s/Richard W. Ingram
-----------------------
Name: Richard W. Ingram
-----------------------
Title: President
----------------------
HARRIS TRUST & SAVINGS BANK
By: /s/ Peter P. Capaccio
-----------------------
Name Peter P. Capaccio
-----------------------
Title: Senior Vice President
-----------------------
Dated: July 1, 1996
SCHEDULE A
TO THE AGREEMENT
BETWEEN
HT INSIGHT FUNDS, INC. AND
HARRIS TRUST & SAVINGS BANK
NAME OF FUND
- ------------
HT INSIGHT FUNDS, INC.
Harris Insight Equity Fund
Harris Insight Short/Intermediate Bond Fund
Harris Insight Government Money Market Fund
Harris Insight Money Market Fund
Harris Insight Tax-Exempt Money Market Fund
Harris Insight Convertible Fund
Harris Insight Hemisphere Free Trade Fund
HT INSIGHT FUNDS, INC.
By: /s/Richard W. Ingram
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Name: Richard W. Ingram
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Title: President
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HARRIS TRUST & SAVINGS BANK
By: /s/ Peter P. Capaccio
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Name Peter P. Capaccio
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Title: Senior Vice President
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EXHIBIT 9(D)
SUB-ADMINISTRATION AGREEMENT
SUB-ADMINISTRATION AGREEMENT made this 1st day of July, 1996 between Harris
Trust & Savings Bank ("Harris"), an Illinois corporation, and Funds Distributor,
Inc. ("FDI"), a Massachusetts corporation.
WHEREAS, Harris has entered into an Administration Agreement, dated July 1,
1996, with HT Insight Funds, Inc. d/b/a Harris Insight Funds (the "Company"), a
Maryland corporation and Harris has entered into an Administration Agreement,
dated July 1, 1996, with Harris Insight Funds Trust (the "Trust"), a
Massachusetts business trust (collectively, the "Administration Agreements"),
concerning the provision of administrative services for those certain investment
portfolios of the Company and Trust identified on Schedule A hereto, as such
Schedule shall be amended from time to time (each, a "Fund," together, the
"Funds"). The Company and the Trust are collectively referred to herein as the
"Companies";
WHEREAS, Harris has also entered into a Sub-Administration and Accounting
Services Agreement, dated July 1, 1996, with PFPC, Inc. ("PFPC"), whereby PFPC
shall perform certain administration and transfer agency services with respect
to the Shares of the Funds;
WHEREAS, Harris desires to retain FDI to assist it in performing certain
administrative services with respect to the Companies, and shares of the common
stock or beneficial interest (the "Shares") of the Funds and FDI is willing to
perform such services on the terms and conditions set forth in this Agreement;
WHEREAS, in furtherance of FDI's duties and responsibilities as set forth
herein, one or more employees of Harris (who shall be registered with the
National Association of Securities Dealers ("NASD") as representatives of FDI),
shall be based in the Harris office in Chicago (such Harris employees shall
hereinafter be referred to as a "Registered Representative");
NOW THEREFORE, in consideration of the mutual agreements herein contained, the
parties agree as follows:
1. Appointment and Acceptance. Harris hereby appoints FDI to act as
Sub-Administrator of the Funds in accordance with the terms set forth in this
Agreement. FDI hereby accepts such appointment and agrees to furnish the
services contemplated by the Agreement.
2. Services Provided by FDI. FDI will assist Harris by providing to each of the
Companies and Funds the services as listed in Exhibit A.
3. Services Provided by Harris. In furtherance of the responsibilities under
this Agreement Harris will:
(a) Cause the Companies' other service providers to furnish any and all
information and assist FDI in taking any other actions that may be
reasonably necessary in connection with FDI providing those services
listed in Exhibit A;
(b) Cause the Companies' blue sky administrator to monitor sales of the
Shares to assure compliance with applicable state securities laws;
(c) Report or cause the Companies' transfer agent to provide
sales-related complaints to FDI and consult with FDI concerning the
manner in which such complaints will be addressed;
(d) Cause the Companies' transfer agent to give necessary information
for the preparation of quarterly reports in a form satisfactory to FDI
regarding Rule 12b-1 fees, front-end sales loads, back-end sales loads,
if applicable, and other data regarding sales and sales loads as
required by the Investment Company Act of 1940, as amended (the "1940
Act"), or as requested by the Board of Directors or Board of Trustees
of each Fund (collectively, the "Boards");
(e) Cause the Companies' transfer agent to provide FDI with all
necessary historical information so that FDI can calculate the maximum
sales charges payable by the Companies pursuant to Article III, Section
26 of the Rules of Fair Practice of the NASD and the actual sales
charges paid by each Fund, if applicable; and cause the Companies'
transfer agent to provide such information in a form satisfactory to
FDI no less often than monthly for every Fund and on a more frequent
basis for any Fund, where applicable;
(f) Support or cause the Companies' transfer agent to support the
servicing of shareholders and, in connection therewith, provide or
cause the Companies' transfer agent to provide one or more persons
during normal business hours to respond to telephone questions
concerning the Companies' shareholders' accounts;
(g) Provide FDI with copies of, or access to, any documents that FDI
may reasonably request in connection with the services contemplated by
this Agreement and notify FDI as soon as possible of any matter
materially affecting the services to be provided by FDI under this
Agreement;
(h) Report to FDI, to the extent that Harris is aware (except that
Harris shall not report to FDI any information available in the general
public domain), any and all actions or inactions by any Registered
Representative or securities dealers, financial institutions and other
industry professionals such as investment advisers and estate planning
firms that have entered into agreements with FDI for the solicitation
of Shares (collectively referred to herein as "Selling Broker-Dealers")
relating to the Shares that constitute a (i) failure to comply with the
terms of any selling agreements, (ii) violation of any applicable laws
of any governmental authorities, including the NASD's Rules of Fair
Practice, or (iii) violation of any other agreements or procedures with
which such Selling Broker-Dealer is required to comply; and
(i) (i) Submit the form of confirmation statement to be used for sale
of the Shares to FDI for its approval and provide or cause to be
provided to customers of the Selling Broker-Dealers ("Customers") and
to the Selling Broker-Dealers such confirmations of all transactions in
the Shares as may be required by the Securities Exchange Act of 1934
(the "1934 Act") and the selling agreements, and (ii) use reasonable
efforts to monitor the Fund's transfer agent in its preparation and
mailing of such confirmations regarding the sales of the Shares and
report to FDI any deficiencies of which Harris is aware in the transfer
agent's performance of such activities.
4. Compensation; Reimbursement of Expenses. Harris shall pay to FDI, for its
services, a fee in accordance with the terms set forth in the Fee Letter
Agreement dated as of July 1, 1996 relating to services to be provided to the
Companies, and executed by FDI, Harris and PFPC, Inc., as the same may be
amended from time to time.
5. Effective Date and Term. This Agreement shall become effective with respect
to each Fund as of the date first written above. This Agreement will continue
for an initial two-year term and will continue thereafter so long as such
continuance is specifically approved at least annually (i) by the Companies'
Boards or (ii) by a vote of a majority (as defined in the 1940 Act) of the
Shares of the Funds, provided that in either event its continuance also is
approved by a majority of the Boards' members who are not "interested persons"
(as defined in said Act) of any party to this Agreement and who have no direct
or indirect financial interest in this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. This Agreement is
terminable with respect to any Fund, without penalty, on not less than sixty
days' notice, by that Fund's Board, by vote of a majority (as defined in the
1940 Act) of the outstanding voting securities of such Fund. This Agreement
shall terminate automatically in the event of its "assignment" (as defined in
the 1940 Act). This Agreement may be terminated by either party, on not less
than 60 days written notice, or upon any material breach of this Agreement by
the other party. If FDI ceases to be the Sub-Administrator of any Fund before
the fifth anniversary of the date the Fund began its investment activities,
Harris shall reimburse FDI an amount equal to the number resulting from
multiplying that Fund's total unamortized organizational expenses by a fraction,
the numerator of which is equal to the number of initial shares redeemed by FDI
or its affiliate and the denominator of which is equal to the number of initial
shares still outstanding as of the date of such redemption, as long as the
administrative position of the staff of the Securities and Exchange Commission
requires FDI to reimburse that Fund such amount. (Initial shares shall mean the
shares purchased by FDI or an affiliate to provide the initial seed capital to a
Fund pursuant to Section 14 of the 1940 Act.)
6. Standard of Care and Indemnification.
(a) Harris will indemnify and hold harmless FDI, its officers, employees
and agents and any persons who control FDI (together "FDI and its
employees") and hold each of them harmless from any losses, claims, damages
or liabilities, or actions in respect thereof, to which FDI and its
employees may become subject, including amounts paid in settlement with the
prior written consent of Harris, insofar as such losses, claims, damages or
liabilities, or actions in
respect thereof, arise out of or result from the failure of Harris to
comply with the terms of this Agreement;
Harris will reimburse FDI and its employees for reasonable legal or other
expenses reasonably incurred by FDI and its employees in connection with
investigating or defending against any such loss, claim, damage, liability
or action. Harris shall not be liable to FDI for any action taken or
omitted by FDI in bad faith, with willful misfeasance or gross negligence,
or with reckless disregard by FDI of its obligations and duties hereunder.
The indemnities in this Section shall, upon the same terms and conditions,
extend to and inure to the benefit of each of the employees of FDI that
serve as officers or directors of the Fund and to each of the directors and
officers of FDI and any person controlling FDI within the meaning of
Section 15 of the Securities Act of 1933 ("1933 Act") or Section 20 of the
1934 Act.
(b) FDI will indemnify and hold harmless Harris, its officers, employees
and agents and any persons who control Harris (together "Harris and its
employees") and hold each of them harmless from any losses, claims, damages
or liabilities, or actions in respect thereof, to which Harris and its
employees may become subject, including amounts paid in settlement with the
prior written consent of FDI, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or result from the
failure of FDI to comply with the terms of this Agreement;
FDI will reimburse Harris for reasonable legal or other expenses reasonably
incurred by Harris in connection with investigating or defending against
any such loss, claim, damage, liability or action. FDI shall not be liable
to Harris for any action taken or omitted by Harris in bad faith, with
willful misfeasance or gross negligence, or with reckless disregard by
Harris of its obligations and duties hereunder. The indemnities in this
Section shall, upon the same terms and conditions, extend to and inure to
the benefit of each of the directors and officers of Harris and any person
controlling Harris within the meaning of Section 15 for the 1933 Act or
Section 20 of the 1934 Act.
(c) The obligation to indemnify and provide contribution pursuant to this
Section 6 shall survive the termination of this Agreement.
7. Record Retention and Confidentiality. FDI shall keep and maintain on behalf
of each Fund all books and records which the Companies and FDI are, or may be,
required to keep and maintain in connection with the services to be provided
hereunder pursuant to any applicable statutes, rules and regulations, including
without limitation Rules 31a-1 and 31a-2 under the 1940 Act. FDI further agrees
that all such books and records shall be the property of the Companies and to
make such books and records available for inspection by the Companies, by
Harris, or by the Securities and Exchange Commission at reasonable times and
otherwise to keep confidential all books and records and other information
relative to the Companies and its shareholders; except when requested to divulge
such information by duly-constituted authorities or court process; provided,
however, that upon receiving notice to divulge any such information which is not
in the opinion of FDI or its counsel clearly required to be disclosed by the
1940 Act and the rules and regulations thereunder, FDI shall promptly provide
notice to the Boards of the
Companies and shall cooperate with the Companies' efforts, if any, to contest
the request to divulge such information.
8. Rights of Ownership. All computer programs and procedures developed to
perform the services to be provided by FDI under this Agreement are the property
of FDI. All records and other data except such computer programs and procedures
are the exclusive property of the Companies and all such other records and data
will be furnished to Harris and/or the Companies in machine-readable form as
agreed upon by the parties in accordance with industry practice as soon as
practicable after termination of this Agreement for any reason.
9. Return of Records. FDI may at its option at any time, and shall promptly upon
the demand of Harris and/or the Companies, turn over to Harris and/or the
Companies, in such machine-readable form as agreed upon by the parties in
accordance with industry practice, and cease to retain FDI's files, records and
documents created and maintained by FDI pursuant to this Agreement so long as
FDI shall be able to retain photocopies of such documents to the extent needed
by FDI in the performance of its services or for its legal protection. If not so
turned over to Harris and/or the Companies, such documents and records will be
retained by FDI for six years from the end of the fiscal year of the Fund for
which they were created. At the end of such six-year period, such records and
documents will be turned over to Harris and/or the Companies unless the
Companies authorize in writing the destruction of such records and documents.
10. Representations of Harris. Harris represents and warrants to FDI that this
Agreement has been duly authorized by Harris and, when executed and delivered by
Harris, will constitute a legal, valid and binding obligation of Harris,
enforceable against Harris in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
11. Representations of FDI. FDI represents and warrants that this Agreement has
been duly authorized by FDI and, when executed and delivered by FDI, will
constitute a legal, valid and binding obligation of FDI, enforceable against FDI
in accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties.
12. Notices. All notices or other communications hereunder to either party shall
be in writing and shall be deemed sufficient if mailed to Harris at the
following address: Harris Trust & Savings Bank, 111 West Monroe Street, Chicago,
IL 60603, Attention: Peter P. Capaccio, Senior Vice President; and to FDI at the
following address: 60 State Street, Suite 1300, Boston, MA 02109, Attention:
President with a copy to General Counsel or at such other address as such party
may designate by written notice to the other, or in either case if sent by
telex, telecopier, telegram or similar means of same day delivery (with a
confirming copy by mail as provided herein).
13. Headings. Paragraph headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
14. Assignment. This Agreement and the rights and duties hereunder shall not be
assignable by either of the parties hereto except by the specific written
consent of the other party.
15. Governing Law. This Agreement shall be governed by and provisions shall be
construed in accordance with the laws of The Commonwealth of Massachusetts.
16. Counterparts. This Agreement may be executed by the parties hereto in
counterparts and if so executed, the separate instruments shall constitute one
agreement.
17. Entire Agreement. This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof and supersedes any prior
arrangements, agreements or understandings.
18. Amendments of this Agreement. This Agreement may be amended by the parties
hereto only if such amendment is specifically approved by the Boards of the
Companies and such amendment is set forth in a written instrument executed by
each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed all as of the day and year first above written.
HARRIS TRUST & SAVINGS BANK
By: /s/ Peter P. Capaccio
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Name: Peter P. Cappacio
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Title: Senior Vice President
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FUNDS DISTRIBUTOR, INC.
By: /s/ John E. Pelletier
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Name: John E. Pelletier
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Title: Senior Vice President and
General Counsel
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Dated: July 1, 1996
SCHEDULE A
TO THE AGREEMENT
BETWEEN
HARRIS TRUST & SAVINGS BANK AND
FUNDS DISTRIBUTOR, INC.
NAME OF FUND
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HT INSIGHT FUNDS, INC.
Harris Insight Equity Fund
Harris Insight Short/Intermediate Bond Fund
Harris Insight Government Money Market Fund
Harris Insight Money Market Fund
Harris Insight Tax-Exempt Money Market Fund
Harris Insight Convertible Fund
Harris Insight Hemisphere Free Trade Fund
HARRIS INSIGHT FUNDS TRUST
Harris Insight Equity Income Fund
Harris Insight Growth Fund
Harris Insight Small-Cap Opportunity Fund
Harris Insight Index Fund
Harris Insight International Fund
Harris Insight Balanced Fund
Harris Insight Convertible Securities Fund
Harris Insight Bond Fund
Harris Insight Intermediate Government Bond Fund
Harris Insight Intermediate Tax-Exempt Bond Fund
Harris Insight Tax-Exempt Bond Fund
HARRIS TRUST & SAVINGS BANK
By: /s/ Peter P. Capaccio
---------------------------
Name: Peter P. Capaccio
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Title: Senoir Vice President
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FUNDS DISTRIBUTOR, INC.
By: /s/ John E. Pelletier
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Name: John E. Pelletier
---------------------------
Title: Senior Vice President and
General Counsel
---------------------------
EXHIBIT A
Administrative Services
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Funds Distributor will provide the following administrative services:
Corporate and Secretarial Services
o Provide Secretary and the necessary complement of Assistant
Secretaries for the Companies.
o Maintain general corporate calendar. Track all legal and
compliance requirements through annual cycles.
o Board materials for quarterly board meetings and board committee
meetings: o Prepare agenda and background materials for legal
approval o Make presentations o Monitor annual approval
requirements o Prepare extensive background material for annual
review of advisory fees o Prepare minutes o Follow-up on matters
raised at meetings
o Maintain Articles of Incorporation and By-Laws of the Company
o Maintain Declaration of Trust and By-Laws of the Trust
o Prepare organizational board meeting materials for new Funds
o Draft contracts, assisting in negotiation and planning, as
appropriate. For example negotiate, draft and keep current the
following contracts: (i) investment advisory and sub-advisory
contracts; (ii) Distribution Agreement; (iii) Bank Selling
Agreements; (iv) Broker Dealer Selling Agreements; (v) Transfer
Agency Agreement; (vi) Custody Agreement; (vii) Administration
Agreement and Sub-Administration Agreement; (viii) 12b-1 Plans and
related agreements; (ix) Shareholder Servicing Plans and Related
Agreements; (x) IRA Custodian Agreements; (xi) Bi-Party Repurchase
Agreements; (xii) Tri-Party Repurchase Agreements; (xiii) Futures
Account Agreement and Procedural Safekeeping Agreement; (xiv) loan
agreements; and (xv) various other agreements and amendments.
o Shareholder Meetings
o Draft Proxy Solicitation Materials
o Organize, attend and keep minutes
o Work with the Transfer Agent on Solicitations and Vote Tabulation
o Provide legal presence at meetings SEC and Public Disclosure
Assistance
o Prepare and file three or fewer amendments per year to the
Companies' registration statement, including updating prospectuses
and SAIs.
o Coordinate/monitor, with assistance from PFPC and any other
relevant fund service providers, all EDGAR (Electronic Data
Gathering Analysis and Retrieval System) on-line filings
including, but not limited, to those related to post-effective
amendments, N-SARs, Rule 24f-2, Rule 24e-2 annual and semi-annual
shareholders reports.
o Review and file annual and semi-annual Shareholder Reports
prepared by PFPC.
o Review and file semi-annual N-SAR prepared by PFPC, after joint
review by FDI and PFPC.
o File Rule 24f-2 notices prepared by PFPC.
o Negotiate, obtain and file fidelity bond policies, and monitor the
Companies' compliance with Rule 17g-1 of the 1940 Act and with the
terms of the Companies' policies and agreements.
o Negotiate, obtain and monitor directors' and officers' errors and
omissions policies.
o Prepare and file shareholder meeting materials and assist with all
shareholder communications.
o Monitor the Companies' compliance with Rule 17d-1(7) under the
1940 Act.
Legal Consulting and Planning
o Provide general legal advice on matters relating to portfolio
management, Fund operations, mutual fund sales, development of
advertising materials, changing or improving prospectus
disclosure, and any potential changes in each Fund's investment
policies, operations, or structure.
o Maintain a continuing awareness of significant emerging regulatory
and legislative developments which may affect the Companies,
update the adviser on those developments, and provide related
planning assistance.
o Develop or assist in developing guidelines and procedures to
improve overall compliance by the Companies and their various
agents.
o Provide advice with regard to the Companies' litigation matters,
routine fund examinations and investigations by regulatory
agencies.
o Provide advice regarding long term planning for the Companies
including the creation of new funds or portfolios, corporate
structural changes, mergers, acquisitions, and other asset
gathering plans including new distribution methods.
o Maintain effective communications with fund counsel, counsel to
the "non-interested" board members and to the Companies' local
counsel.
o Create and implement timing and responsibility system for outside
legal counsel when necessary to implement major projects and the
legal management of such projects.
o Monitor activities and billing practices of outside counsel
performing services for the fund or in connection with related
fund activities.
Compliance
o Review of all testing that is done by fund accountant to assist
the adviser in complying with fund prospectus guidelines and
limitations, 1940 Act requirements, and Internal Revenue Code
requirements.
o Review of monthly testing and compliance report created by fund
accountant and PFPC, including:
o Tax compliance testing for gross income, short three,
diversification, and single issuer,
o 5% diversification testing for tax and 1940 Act compliance based
on current market value and acquisition cost testing, if required,
o Income available for distribution report, which includes capital
gains and interest income, and
o Net investment income calculated on per-share basis each month.
o Insure on a joint basis with PFPC that prospectus and 1940 Act
compliance tests are tailored to each individual Fund's prospectus
and that each tests against the type and amount of securities
held.
o Provide legal/compliance review of all sales literature and
advertisements prepared for the Funds. FDI will file such
materials and obtain such approvals for their use as may be
required by the Securities and Exchange Commission, the National
Association of Securities Dealers, Inc. or state securities
administrators.
o Jointly with PFPC create Compliance Manuals and workshops for
advisory personnel.
o Consultation and advice for resolution of compliance questions
along with the investment advisor and its counsel, the fund
administrator, the fund counsel and the fund accountant.
o Be actively involved with the management of SEC and other
regulatory examinations.
o Review with the investment adviser and fund administrator summary
reports created by the fund accountant of all compliance issues to
assure immediate compliance adjustments.
o Assist portfolio managers with compliance matters including
reviewing the Compliance Manual on a regular basis and attending
compliance meetings with the portfolio managers.
o Assist in developing guidelines and procedures to improve overall
compliance by the fund and its various agents.
o Maintain legal liaison with and provide legal advice and counsel
to fund regarding its relationships, contractual or otherwise,
with the various fund agents, such as the adviser, custodian,
transfer agent, and auditor with respect to their activities on
behalf of each Fund.
o Advice regarding all Companies distribution arrangements for
compliance with applicable banking and broker-dealer regulations.
o Provide other officers of the Companies as requested (e.g.,
President and Vice President).
o Maintaining the Companies' code of ethics and monitoring
compliance.
Funds Distributor is willing to provide any extraordinary administration
services ("Extraordinary Administrative Services") to the Companies. All of the
extraordinary administrative functions set forth below may be accomplished
wholly or partially by Funds Distributor, with the assistance of Companies
counsel or other counsel as designated by the Administrator, depending
upon the circumstances and timing constraints surrounding each request.
Extraordinary Administrative Services may, depending upon the circumstances,
include the following:
o Draft Proxy/Solicitation Documents on Form N-14 (Fund Mergers).
o An Annual Post-Effective Amendment that involves major prospectus
revisions or the addition of new investment portfolios.
o Board Meeting Materials for significant corporate restructuring or
other major changes as well as more than four board meetings
during a twelve month period.
o More than three Post-Effective Amendments in any twelve month
period.
o Drafting and Filing of Exemptive Orders (e.g., Joint Repurchase
Account), Revenue Rulings (e.g., Multi-Class) and other state
specific regulatory orders (e.g., Florida Request for Technical
Assistance).
o Drafting and Filing No-Action Letter requests with the SEC.
EXHIBIT 9(e)
SUB-ADMINISTRATION AND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made as of July 1, 1996 by and between HARRIS TRUST
AND SAVINGS BANK, an Illinois corporation ("Harris"), and PFPC INC., a Delaware
corporation ("PFPC"), which is an indirect wholly owned subsidiary of PNC Bank
Corp.
W I T N E S S E T H :
WHEREAS, Harris has entered into an Administration Agreement dated July
1, 1996, with Harris Insight Funds, Inc., a Maryland corporation (the "Company")
(the "Administration Agreement"), concerning the provision of administrative
services to the portfolios listed on Exhibit A attached hereto and made a part
hereof, as such Exhibit A may be amended from time to time (each, a "Portfolio"
and collectively, the "Portfolios"), subject to Board of Director approval;
WHEREAS, Harris has also entered into a Sub-Administration Agreement
dated July 1, 1996, with Funds Distributor, Inc. ("FDI"), whereby FDI shall
perform certain administration services with respect to shares of the
Portfolios;
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, Harris wishes to retain PFPC to provide sub-administration and
accounting services to the Company's investment Portfolios and PFPC wishes to
furnish such services.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and intending to be legally bound hereby the parties
hereto agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(c) "Authorized Person" means any officer of the Company and any other
person duly authorized by the Company's Board of Directors to give Oral
Instructions and Written Instructions on behalf of the Company and listed on the
Authorized Persons Appendix attached hereto and made a part hereof or any
amendment thereto as may be received by PFPC. An Authorized Person's scope of
authority may be limited by the Company by setting forth such limitation in the
Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "Oral Instructions" mean oral instructions received by PFPC from an
Authorized Person or from a person reasonably believed by PFPC to be an
Authorized Person.
(f) "SEC" means the Securities and Exchange Commission.
(g) "Securities Law" means the 1933 Act, the 1934 Act, the 1940 Act and
the CEA.
(h) "Shares" mean the shares of common stock of any series or class of
the Company.
(i) "Written Instructions" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. Harris hereby appoints PFPC to provide
sub-administration and accounting services to the each of the Portfolios, in
accordance with the terms set forth in this Agreement. PFPC accepts such
appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Company or Harris has provided or, where
applicable, will provide PFPC with the following:
(a) certified or authenticated copies of the resolutions of
the Company's Board of Directors, approving the
appointment of PFPC or its affiliates to provide services
to each Portfolio and approving this Agreement;
(b) a copy of the Company's most recent effective
registration statement;
(c) a copy of each Portfolio's advisory agreement or
agreements;
(d) a copy of the distribution agreement with respect to each
class of Shares representing an interest in a Portfolio;
(e) a copy of any additional administration agreement with
respect to a Portfolio;
(f) a copy of any shareholder servicing agreement made in
respect of the Company or a Portfolio; and
(g) copies (certified or authenticated, where applicable) of
any and all amendments or supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS.
PFPC undertakes to comply with all applicable requirements of the
Securities Laws, and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by PFPC
hereunder. Except as specifically set forth herein, PFPC assumes no
responsibility for such compliance by the Company or any Portfolio.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall
act only upon Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral Instructions
and Written Instructions it receives from an Authorized Person (or from a person
reasonably believed by PFPC to be an Authorized Person) pursuant to this
Agreement. PFPC may assume that any Oral Instruction or Written Instruction
received hereunder is not in any way inconsistent with the provisions of
organizational documents or this Agreement or of any vote, resolution or
proceeding of the Company's Board of Directors or of the Company's shareholders,
unless and until PFPC receives Written Instructions to the contrary.
(c) Harris will cause the Company to forward to PFPC Written
Instructions confirming Oral Instructions so that PFPC receives the Written
Instructions by the close of business on the same day that such Oral
Instructions are received. The fact that such confirming Written Instructions
are not received by PFPC shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral Instructions. Where
Oral Instructions or Written Instructions reasonably appear to have been
received from an Authorized Person, PFPC shall incur no liability to Harris in
acting upon such Oral Instructions or Written Instructions provided that PFPC's
actions comply with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Company. If PFPC is in doubt as to any
action it should or should not take, PFPC may request directions or advice,
including Oral Instructions or Written Instructions, from Harris.
(b) Advice of Counsel. If PFPC shall be in doubt as to any
question of law pertaining to any action it should or should not take, PFPC may
request advice at its own cost from such counsel of its own choosing (who may be
counsel for Harris or PFPC, at the option of PFPC).
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral Instructions or Written Instructions PFPC receives
from Harris and the advice PFPC receives from counsel, PFPC may rely upon and
follow the advice of counsel. In the event PFPC so relies on the advice of
counsel, PFPC remains liable for any action or omission on the part of PFPC
which constitutes willful misfeasance, bad faith, gross negligence or reckless
disregard by PFPC of any duties, obligations or responsibilities set forth in
this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action
it takes or does not take in reliance upon directions, advice
or Oral Instructions or Written Instructions it receives from Harris or from
counsel and which PFPC believes, in good faith, to be consistent with those
directions, advice and Oral Instructions or Written Instructions. Nothing in
this section shall be construed so as to impose an obligation upon PFPC (i) to
seek such directions, advice or Oral Instructions or Written Instructions, or
(ii) to act in accordance with such directions, advice or Oral Instructions or
Written Instructions unless, under the terms of another provision of this
Agreement, the same is a condition of PFPC's properly taking or not taking such
action. Nothing in this subsection shall excuse PFPC when an action or omission
on the part of PFPC constitutes willful misfeasance, bad faith, gross negligence
or reckless disregard by PFPC of any duties, obligations or responsibilities set
forth in this Agreement.
7. RECORDS; VISITS.
(a) The books and records pertaining to the Company and the
Portfolios which are in the possession or under the control of PFPC shall be the
property of the Company. Such books and records shall be prepared and maintained
as required by the 1940 Act and other applicable securities laws, rules and
regulations. The Company and Authorized Persons shall have access to such books
and records at all times during PFPC's normal business hours. Upon the
reasonable request of Harris or the Company, copies of any such books and
records shall be provided by PFPC to Harris or the Company or to an Authorized
Person, at the Company's expense.
(b) PFPC shall keep the following records:
(i) all books and records with respect to each
Portfolio's books of account;
(ii) records of each Portfolio's securities
transactions;
(iii)all other books and records as PFPC is required
to maintain pursuant to Rule 3la-1 of the 1940
Act in connection with the services provided
hereunder.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the
Company and information relating to the Company and its shareholders, unless the
release of such records or information is otherwise consented to, in writing, by
Harris. Harris agrees that such consent shall not be unreasonably withheld and
may not be withheld where PFPC may be exposed to civil or criminal contempt
proceedings or when required to divulge such information or records to duly
constituted authorities.
9. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the
Company's independent public accountants and shall provide account analyses,
fiscal year summaries, and other audit-related schedules with respect to each
Portfolio. PFPC shall take all reasonable action in the performance of its
duties under this Agreement to assure that the necessary information is made
available to such accountants for the expression of their opinion, as required
by the Company.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provisions for emergency use of electronic data processing equipment. In the
event of equipment failures, PFPC shall, at no additional expense to Harris,
exercise its best efforts in good faith to minimize service interruptions. PFPC
shall have no liability with respect to the loss of data or service
interruptions caused by equipment failure, provided such loss or interruption is
not caused by PFPC's own willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties or obligations under this Agreement.
11. COMPENSATION. As compensation for services rendered by PFPC during
the term of this Agreement, the Harris, on behalf of each Portfolio, will pay to
PFPC a fee or fees as may be agreed to in writing by Harris and PFPC.
12. INDEMNIFICATION. Harris agrees to indemnify and hold harmless PFPC
from all taxes, charges, expenses, assessments, claims
and liabilities (including, without limitation, liabilities arising under the
Securities Laws and any state or foreign securities and blue sky laws, and
amendments thereto), and expenses, including reasonable attorneys' fees and
disbursements arising directly or indirectly from any action or omission to act
which PFPC takes (i) at the request or on the direction of or in reliance on the
advice of Harris or (ii) upon Oral Instructions or Written Instructions. PFPC
shall not, however, be indemnified against any liability (or any expenses
incident to such liability) arising out of PFPC's own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties and obligations
under this Agreement.
13. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf
of Harris or any Portfolio except as specifically set forth herein or as may be
specifically agreed to by PFPC in writing. PFPC shall be obligated to exercise
care and diligence in the performance of its duties hereunder, to act in good
faith and to use its best efforts, within reasonable limits, in performing
services provided for under this Agreement. PFPC shall be liable for any damages
arising out of PFPC's failure to perform its duties under this Agreement to the
extent such damages arise out of PFPC's willful misfeasance, bad faith, gross
negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing or of any
other provision of this Agreement, (i) PFPC shall not be liable for losses
beyond its control, provided that PFPC has acted in accordance with the standard
of care set forth above; and (ii) PFPC shall not be liable for (A) the validity
or invalidity or authority or lack thereof of any Oral Instruction or Written
Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, and which PFPC reasonably believes to be
genuine; or (B) subject to Section 10, delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control,
including acts of civil or military authority, national emergencies, labor
difficulties, fire, flood, catastrophe, acts of God, insurrection, war, riots or
failure of the mails, transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the
contrary, PFPC shall not be liable to Harris, the Company or to any Portfolio
for any consequential, special or indirect losses or damages which the Company
or any Portfolio may incur or suffer by or as a consequence of PFPC's
performance of the services provided hereunder, whether or not the likelihood of
such losses or damages WAS known by PFPC.
14. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS.
PFPC will perform the following accounting services with respect to
each Portfolio:
(i) Journalize investment, capital share and
income and expense activities;
(ii) Verify investment buy/sell trade tickets
when received from the investment
adviser or portfolio management agent
for a Portfolio (the "Adviser") and
transmit trades to the Company's
custodian (the "Custodian") for proper
settlement;
(iii) Maintain individual ledgers for
investment securities;
(iv) Maintain historical tax lots for each
security;
(v) Reconcile cash and investment balances
of the Company with the Custodian, and
provide the Adviser with the beginning
cash balance available for investment
purposes;
(vi) Update the cash availability throughout
the day as required by the Adviser;
(vii) Post to and prepare the Statement of
Assets and Liabilities and the Statement
of Operations;
(viii) Calculate various contractual expenses
(e.g., advisory and custody fees);
(ix) Monitor the expense accruals and notify
an officer of the Company of any
proposed adjustments;
(x) Control all disbursements and authorize
such disbursements upon Written
Instructions;
(xi) Calculate capital gains and losses;
(xii) Determine net income;
(xiii) Obtain security market quotes from
independent pricing services approved by
the Adviser, or if such quotes are
unavailable, then obtain such prices
from the Adviser, and in either case
calculate the market value of each
Portfolio's Investments;
(xiv) Transmit or mail a copy of the daily
portfolio valuation to the Adviser;
(xv) Compute net asset value;
(xvi) As appropriate, compute yields, total
return, expense ratios, portfolio
turnover rate, and, if required,
portfolio average dollar-weighted
maturity; and
(xvii) Prepare a monthly financial statement,
which will include the following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses.
15. Description of Sub-Administration Services on a Continuous Basis.
PFPC will perform the following sub-administration services
with respect to each Portfolio:
(i) Prepare quarterly broker security
transactions summaries;
(ii) Prepare monthly security transaction
listings;
(iii) Supply various normal and customary
Portfolio and Company statistical data as
requested on an ongoing basis;
(iv) Prepare for execution and file the
Company's Federal and state tax returns;
(v) Prepare and file the Company's
Semi-Annual Reports with the SEC on Form
N-SAR;
(vi) Prepare and file with the SEC the
Company's annual and semi-annual
shareholder reports;
(vii) Assist in the preparation of registration
statements and other filings relating to
the registration of Shares;
(viii) Monitor each Portfolio's status as a
regulated investment company under
Sub-chapter M of the Internal Revenue
Code of 1986, as amended;
(ix) Coordinate contractual relationships and
communications between the Company and
its contractual service providers; and
(x) Monitor and maintain the Company's
compliance with the amounts and
conditions of each state qualification.
16. DURATION AND TERMINATION. This Agreement shall continue until
terminated by either party on sixty (60) days' prior written notice to the other
party.
17. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. If notice is sent by confirming telegram, cable, telex
or facsimile sending device, it shall be deemed to have been given immediately.
If notice is sent by first-class mail, it shall be deemed to have been given
three days
after it has been mailed. If notice is sent by messenger, it shall be deemed to
have been given on the day it is delivered. Notices shall be addressed (a) if to
PFPC, at 400 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to Harris at
Harris Trust and Savings Bank, 111 West Monroe Street, Chicago, IL 60690,
Attention: Peter P. Capaccio, Senior Vice President, with a copy to the Company,
at One Exchange Place, Tenth Floor, Boston, Massachusetts 02109; or (c) if to
neither of the foregoing, at such other address as shall have been provided by
like notice to the sender of any such notice or other communication by the other
party.
18. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
19. DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives Harris
ninety (90) days' prior written notice; (ii) the delegate (or assignee) agrees
with PFPC and Harris to comply with all relevant provisions of the 1940 Act;
(iii) PFPC remains responsible for the performance of its duties hereunder by
such delegate (or assignee); (iv) the delegate (or assignee) possesses expertise
comparable to or greater than that of PFPC in providing the services required
hereunder; and (v) PFPC and such delegate (or assignee) promptly provide such
information as Harris or the Company may request, and respond to such questions
as Harris or the Company may ask, relative to the delegation (or assignment),
including (without limitation) the capabilities of the delegate (or assignee).
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
21. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
22. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof, provided
that the parties may embody in one or more separate documents their agreement,
if any, with respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a
contract made in Delaware and governed by Delaware law, without regard to
principles of conflicts of law.
(d) Partial Invalidity. If any provision of this Agreement
shall be held or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party
to this Agreement shall constitute the valid and binding execution hereof by
such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By: /s/ Stephen M. Wyman
-------------------------
Title: Executive Vice President
-------------------------
HARRIS TRUST AND SAVINGS BANK
By: /s/ Peter P. Capaccio
-------------------------
Title: Senior Vice President
-------------------------
EXHIBIT A
THIS EXHIBIT A, dated as of July 1, 1996, is Exhibit A to that certain
Sub-Administration and Accounting Services Agreement dated as of July 1, 1996
between PFPC INC. and HARRIS TRUST AND SAVINGS BANK.
PORTFOLIOS
Money Market Fund
Government Money Market Fund
Tax Exempt Money Market Fund
Equity Fund
Short Intermediate Bond Fund
Convertible Securities Fund
Hemisphere Free Trade Fund
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
Peter P. Capaccio /s/ Peter P. Cappacio
---------------------
Lynn M. Gannon /s/ Lynn M. Gannon
------------------
Ishwar D. Gupta /s/ Ishwar D. Gutpa
-------------------
Donald G. Coxe /s/ Donald G. Coxe
------------------
Thomas M. Corkill /s/ Thomas M. Corkill
---------------------
James E. Depies /s/ James E. Depies
-------------------
William O. Leszinske /s/ William O. Leszinske
------------------------
Douglas G. Madigan /s/ Douglas G. Madigan
----------------------
Daniel L. Sido /s/ Daniel L. Sido
------------------
Laura D. Alter /s/ Laura D. Alter
------------------
Kathleen Bramlage /s/ Kathleen Bramlage
---------------------
Fred Duda /s/ Fred Duda
-------------
Randall T. Royther /s/ Randall T. Royther
----------------------
Maureen Svagera /s/ Maureen Svagera
-------------------
EXHIBIT 13(a)(iii)
FORM OF PURCHASE AGREEMENT
The HT Insight Funds, Inc. d/b/a Harris Insight Funds (the "Company"),
a Maryland Corporation, on behalf of its Harris Insight Hemisphere Free Trade
Fund (the "Fund"), and Funds Distributor, Inc. ("Funds Distributor"), a
Massachusetts Corporation, hereby agree as follows:
1. The Company hereby offers Funds Distributor and Funds Distributor hereby
purchases one (1) share of each of Class A and Class B Shares of the Fund
(par value $.001 per Share) at $10.00 per share (hereafter "Shares"). Funds
Distributor hereby acknowledges receipt of a purchase confirmation
reflecting the purchase of one (1) Share of each of the classes of Shares,
and the Company hereby acknowledges receipt from Funds Distributor of funds
in the amount of $20.00 in full payment for the Shares.
2. Funds Distributor represents and warrants to the Company that the Share is
being acquired for investment purposes and not with a view to the
distribution thereof.
3. Funds Distributor agrees that if it or any direct or indirect transferee
of the Shares redeems the Shares prior to the fifth anniversary of the date
the Company begins its investment activities, Funds Distributor will pay to
the Company an amount equal to the number resulting from multiplying the
Company's total unamortized organizational expenses by a fraction, the
numerator of which is equal to the number of Shares redeemed by Funds
Distributor or such transferee and the denominator of which is equal to the
number of Shares outstanding as of the date of such redemption, as long as
the administrative position of the Staff of the Securities and Exchange
Commission requires such reimbursement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
____ day of __________, 1996.
Attest:
________________________ By: _____________________
(SEAL) HT INSIGHT FUNDS, INC. d/b/a
HARRIS INSIGHT FUNDS
Attest:
________________________ By: ______________________
(SEAL) FUNDS DISTRIBUTOR, INC.
EXHIBIT 15(A)(V)
SERVICE PLAN
WHEREAS, HT Insight Funds, Inc. d/b/a Harris Insight Funds (the
"Company") is an open-end management investment company and is registered as
such under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Company desires to adopt a Service Plan (the "Plan")
pursuant to Rule 12b-1 under the Act on behalf of the Harris Insight Hemisphere
Free Trade Fund, a portfolio of the Company (the "Fund"), and the Board of
Directors has determined that there is a reasonable likelihood that adoption of
this Plan will benefit the Fund and its stockholders;
WHEREAS, the Fund employs Harris Trust & Savings Bank ("Harris") as its
Adviser pursuant to an Investment Advisory Contract dated April 9, 1996;
WHEREAS, Harris employs Harris Investment Management, Inc. ("HIM") as
its Portfolio Management Agent pursuant to a Portfolio Management Contract dated
April 9, 1996; and
WHEREAS, HIM employs Jones Heward Investment Counsel Inc. ("Jones") as
its Sub-Adviser pursuant to an Investment Sub-Advisory Contract dated April 9,
1996; and
WHEREAS, HIM employs Bancomer Asesora de Fondos, S.A. de C.V.
("Bancomer") as its Sub-Adviser pursuant to an Investment Sub-Advisory Contract
dated April 9, 1996; and
WHEREAS, the Distributor of the Fund's shares (the "Distributor") may
wish to make payments pursuant to the Plan from time to time;
NOW THEREFORE, the Fund hereby adopts this Plan in accordance with Rule
12b-1 under the Act on the following terms and conditions:
Section 1. Pursuant to this Plan, the Company, HIM, Jones or Bancomer
may pay to financial institutions, securities dealers or other industry
professionals, such as investment advisers, accountants and estate planning
firms ("Service Agents"), up to .25% on an annual basis of the average daily net
asset value of the Class A Shares of the Fund for shareholder service,
administration or distribution assistance. In addition the Distributor may pay
up to .05% on an annual basis of the average net asset value of the Class A
Shares of the Fund to Service Agents. Payments made by HlM, Jones, Bancomer and
the Distributor, respectively, shall be made from their own resources, which may
include their respective advisory and administrative fees received from the Fund
and any other sources available to them. To the extent a Service Agent provides
shareholder services and administration, the portion of the fee paid, if any, by
the Company, HIM, Jones, Bancomer or the Distributor shall be deemed to include
compensation for such services. The fees payable to Service Agents from time to
time shall, within such limits, be determined by the Board of Directors of the
Company.
Section 2. In addition to such fee, the Fund may 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 Class A
shareholders of the Fund by paying on an annual basis up to the greater of
$100,000 or .05% of the average daily net assets of the Class A Shares of the
Fund.
Section 3. Prior to making payments described in Sections 1 and 2 of
this Plan, the Company, HIM, Jones, Bancomer and the Distributor, as the case
may be, will enter into written agreements, in form satisfactory to the
Company's Board of Directors, with Service Agents pursuant to which such
payments may be made for shareholder service, administration and distribution
assistance to the Fund.
Section 4. This Plan shall be effective on the date upon which it has
been approved by "vote of a majority of the outstanding voting securities" (as
defined below) of the Fund and a majority of the Directors of the Company,
including a majority of the Qualified Directors (as defined below), pursuant to
a vote cast in person at a meeting (or meetings) called for the purpose of
voting on the approval of the Plan.
Section 5. This Plan (and each related agreement) will continue in
effect for one year from its effective date, unless earlier terminated in
accordance with its terms, and will remain in effect from year to year
thereafter if such continuance is specifically approved at least annually by
vote of a majority of both (a) the Directors of the Company and (b) the
Qualified Directors, cast in person at a meeting (or meetings) called for the
purpose of voting on such approval.
Section 6. The Company, HIM, Jones, Bancomer and the Distributor shall
provide to the Company's Board of Directors and the Directors shall review, at
least quarterly, a written report of the amounts expended by the Company, HIM,
Jones, Bancomer and the Distributor under this Plan and each related agreement
and the purposes for which such expenditures were made.
Section 7. This Plan may be terminated at any time by vote of a
majority of the Qualified Directors or by vote of a majority of the outstanding
voting securities of the Fund.
Section 8. All agreements related to this Plan shall be in writing and
shall be approved by vote of a majority of both (a) the Directors of the Company
and (b) the Qualified Directors, cast in person at a meeting called for the
purpose of voting on such approval; provided however, that the identity of a
particular Service Agent executing any such agreement may be ratified by such a
vote within 90 days of such execution. Any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Qualified Directors or by vote of a
majority of the outstanding voting securities of the Fund, on not more than 60
days' written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of
its "assignment" (as defined below).
Section 9. This Plan may not be amended to increase materially the
amount that may be expended by the Company, HIM, Jones, Bancomer and the
Distributor pursuant to this Plan without the approval by vote of a majority of
the outstanding voting securities of the Fund, and no material amendment to this
Plan shall be made unless approved by vote of a majority of both (a) the
Directors of the Company and (b) the Qualified Directors, cast in person at a
meeting (or meetings) called for the purpose of on such approval.
Section 10. While this Plan is in effect the selection and nomination
of each Director who is not an "interested person" (as defined below) of the
Company shall be committed to the discretion of the Directors who are not
interested persons.
Section 11. The Company shall preserve copies of this Plan, each
related agreement and each report made pursuant to Section 6 hereof, for a
period of not less than six years from the date of this Plan, such agreement or
such report, as the case may be, the first two years in an easily accessible
place.
Section 12. As used in this Plan, (a) the terms "assignment,"
"interested person" and "vote of a majority of the outstanding voting
securities" shall have the respective meanings specified in the Act and the
rules and regulations thereunder, subject to such exemption as may be granted by
the Securities and Exchange Commission and (b) the term "Qualified Directors"
shall mean the Directors of the Company who are not interested persons of the
Company and have no direct or indirect financial interest in the operation of
this Plan or in any agreements related to this Plan.
Dated: July 19, 1994
EXHIBIT 15(B)
Dear Sirs:
As the principal underwriter of shares of certain registered
investment companies presently or hereafter managed, advised or administered by
Harris Trust and Savings Bank or its affiliates, shares of which companies are
distributed by us at their respective net asset values plus sales charges as
applicable, pursuant to our Distribution Agreements with such companies (the
"Funds"), we invite you to participate as a non-exclusive principal in the
distribution of shares of any and all of the Funds upon the following terms and
conditions:
1. You are to offer and sell such shares only at the public offering prices
which shall be currently in effect, in accordance with the terms of the
then current prospectuses and statements of additional information of the
Funds subject in each case to the delivery prior to or at the time of
such sales of the then current prospectus. You agree to act only as
principal in such transactions and nothing in this Agreement shall
constitute either of us the agent of the other or shall constitute you or
the Fund the agent of the other. In all transactions in these shares
between you and us, we are acting as agent for the Fund and not as
principal. All orders are subject to acceptance by us and become
effective only upon confirmation by us. We reserve the right in our sole
discretion to reject any order. The minimum dollar purchase of shares of
the Funds shall be the applicable minimum amounts described in the then
current prospectuses and statements of additional information and no
order for less than such amounts will be accepted.
2. On each purchase of shares by you from us, the total sales charges and
discount to selected dealer, if any, shall be as stated in each Fund's
then current prospectus.
Such sales charges and discount to selected dealers are subject to
reductions under a variety of circumstances as described in each Fund's
then current prospectus and statement of additional information. To
obtain these reductions, we must be notified when the sale takes place
which would qualify for the reduced charge.
There is no sales charge or discount to selected dealers on the
reinvestment of any dividends or distributions.
3. All purchases of shares of a Fund made under any cumulative purchase
privilege as set forth in a Fund's then current effective prospectus
shall be considered an individual transaction for the purpose of
determining the concession from the public offering price to which you
are entitled as set forth in paragraph 2 hereof.
4. As a member of the selling group, you agree to purchase shares of the
Funds only through us or from your customers. Purchases through us shall
be made only for your own investment purposes or for the purpose of
covering purchase orders already received from your customers, and we
agree that we will not place orders for the purchase of shares from a
Fund except to cover purchase orders already received by us. Purchases
from your
customers shall be at a price not less than the net asset value quoted by
each such Fund at the time of such purchase. Nothing herein contained
shall prevent you from selling any shares of a Fund for the account of a
record holder to us or to such Fund at the net asset value quoted by us
and charging your customer a fair commission for handling the
transaction.
5. You agree that you will not withhold placing customers' orders so as to
profit yourself as a result of such withholding.
6. You agree to sell shares of the Funds only (a) to your customers at the
public offering prices then in effect or (b) to us as agent for the Funds
or to each such Fund itself at the redemption price, as described in each
Fund's then current effective prospectus.
7. Settlement shall be made promptly, but in no case later than the time
customary for such payments after our acceptance of the order or, if so
specified by you, we will make delivery by draft on you, the amount of
which draft you agree to pay on presentation to you. If payment is not so
received or made, the right is reserved forthwith to cancel the sale or
at our option to resell the shares to the applicable Fund, at the then
prevailing net asset value in which latter case you agree to be
responsible for any loss resulting to such Fund or to us from your
failure to make payment as aforesaid.
8. If any shares sold to you under the terms of this Agreement are
repurchased by a Fund or by us as agent, or for the account of that Fund
or are tendered to that Fund for purchase at liquidating value under the
terms of the Articles of Incorporation or Declaration of Trust or other
document governing such Fund within seven (7) business days after the
date of confirmation to you of your original purchase order therefor, you
agree to pay forthwith to us the full amount of the concession allowed to
you on the original sale and we agree to pay such amount to the Fund when
received by us. We shall notify you of such repurchase within ten (10)
days of the effective date of such repurchase.
9. All sales will be subject to receipt of shares by us from the Funds. We
reserve the right in our discretion without notice to you to suspend
sales or withdraw the offering of shares entirely, or to modify or cancel
this Agreement.
10. From time to time during the term of this Agreement we may make payments
to you pursuant to one or more of the distribution and/or service plans
adopted by certain of the Funds pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Act") in consideration of your
furnishing distribution and/or shareholder services hereunder with
respect to each such Fund. We have no obligation to make any such
payments and you waive any such payments until we receive monies therefor
from the Fund. Any such payments made pursuant to this Section 10 shall
be subject to the following terms and conditions:
(a) Any such payments shall be in such amounts as we may from time to
time advise you in writing but in any event not in excess of the amounts
permitted by the plan in effect with
respect to each particular Fund and will be based on the dollar amount of
Fund shares which are owned of record by your firm as nominee for your
customers or which are owned by those customers of your firm whose
records, as maintained by the Funds or their agents, designate your firm
as the customer's dealer of record. Any such payments shall be in
addition to the selling concession, if any, allowed to you pursuant to
this Agreement. No such fee will be paid to you with respect to shares
purchased by you and redeemed by the funds or by us as agent within seven
business days after the dates of confirmation of such purchase.
(b) The provisions of this Section 10 relate to the plan adopted by a
particular Fund pursuant to Rule 12b-1. In accordance with Rule 12b-1,
any person authorized to direct the disposition of monies paid or payable
by a Fund pursuant to this Section 10 shall provide the Fund's Board, and
the Board shall review, at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures were
made.
(c) The provisions of this Section 10 applicable to each Fund shall
remain in effect for not more than a year and thereafter for successive
annual periods only so long as such continuance is specifically approved
at least annually in conformity with Rule 12b-1 and the Act. The
provisions of this Section 10 shall automatically terminate with respect
to a particular Plan, in the event such Plan terminates or is not
continued or in the event this Agreement terminates or ceases to remain
in effect. In addition, the provisions of this Section 10 may be
terminated at any time, without penalty, by either party with respect to
any particular Plan or not more than 60 days' nor less than 30 days'
written notice delivered or mailed by registered mail, postage prepaid,
to the other party.
11. No person is authorized to make any representations concerning the Funds
or shares of the Funds except those contained in each Fund's then current
effective prospectus or statement of additional information and any such
information as may be released by a Fund as information supplemental to
such prospectus or statement of additional information. In purchasing
shares through us you shall rely solely on the representations contained
in each Fund's then current effective prospectus or statement of
additional information and supplemental information above-mentioned.
12. Additional copies of each such prospectus or statement of additional
information and any printed information issued as supplemental to each
such prospectus or statement of additional information will be supplied
by us to members of the selling group in reasonable quantities upon
request.
13. With respect to Funds offering shares subject to a front-end sales
charge, shares subject to a contingent deferred sales charge, and/or
class shares not subject to a sales charge, you shall conform to such
written compliance standards as we have provided you in the past or may
from time to time provide to you in the future.
14. We, our affiliates and the Funds shall not be liable for any loss,
expense, damages, costs or other claim arising out of any redemption or
exchange pursuant to telephone instructions from any person or our
refusal to execute such instructions for any reason.
15. All communications to us shall be sent to us at Funds Distributor Inc.,
60 State Street, Suite 1300, Boston, MA 02109. Any notice to you shall be
duly given if mailed or telegraphed to you at your address as registered
from time to time with the National Association of Securities Dealers,
Inc.
16. This Agreement may be terminated upon written notice by either party at
any time, and shall automatically terminate upon its attempted assignment
by you, whether by operation of law or otherwise, or by us otherwise than
by operation of law.
17. By accepting this Agreement, you represent that you are registered as a
broker-dealer under the Securities Exchange Act of 1934, are qualified to
act as a dealer in the states or other jurisdictions where you transact
business, and are a member in good standing of the National Association
of Securities Dealers, Inc., and you agree that you will maintain such
registrations, qualifications, and membership in good standing and in
full force and effect throughout the term of this Agreement. You further
agree to comply with all applicable Federal laws, the laws of the states
or other jurisdictions concerned, and the rules and regulations
promulgated thereunder and with the Constitution, By-Laws and Rules of
Fair Practice of the National Association of Securities Dealers, Inc.,
and that you will not offer or sell shares of the Funds in any state or
jurisdiction where they may not lawfully be offered and/or sold.
If you are offering and selling shares of the Funds in jurisdictions
outside the several states, territories, and possessions of the United
States and are not otherwise required to be registered, qualified, or a
member of the National Association of Securities Dealers, Inc., as set
forth above you, you nevertheless agree to observe the applicable laws of
the jurisdiction in which such offer and/or sale is made, to comply with
the full disclosure requirements of the Securities Act of 1933 and the
regulations promulgated thereunder, to conduct your business in
accordance with the spirit of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. You agree to indemnify and hold
the Funds, their investment advisor, and us harmless from loss or damage
resulting from any failure on your part to comply with applicable laws.
18. You agree to maintain records of all sales of shares made through you and
to furnish us with copies of each record on request.
19. This Agreement and all amendments to this Agreement shall take effect
with respect to and on the date of any orders placed by you after the
date set forth below or, as applicable, after the date of the notice of
amendment sent to you by the undersigned.
20. This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts and shall be binding upon both parties
hereto when signed and accepted by you in the space provided below.
FOR FUNDS DISTRIBUTOR INC.:
- ----------------------------------- -------------------
By: Date
FOR:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Address of Principal Office
- --------------------------------------------------------------------------------
City State Zip Code
BY: ITS:
- -------------------------------------- -------------------- ---------------
Authorized Signature Title Date
- --------------------------------------
Print Name
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<TABLE> <S> <C>
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<CIK> 0000823871
<NAME> HT INSIGHT FUNDS, INC.
<SERIES>
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<NAME> HARRIS INSIGHT EQUITY FUND - INSTITUTIONAL CLASS
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000823871
<NAME> HT INSIGHT FUNDS, INC.
<SERIES>
<NUMBER> 061
<NAME> HARRIS INSIGHT SHORT/INTERMEDIATE BOND FUND - CLASS A
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<TABLE> <S> <C>
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<CIK> 0000823871
<NAME> HT INSIGHT FUNDS, INC.
<SERIES>
<NUMBER> 062
<NAME> HARRIS INSIGHT SHORT/INTERMED. BOND FUND-INSTITUTIONAL CLASS
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<PERIOD-TYPE> 6-MOS
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000823871
<NAME> HT INSIGHT FUNDS, INC.
<SERIES>
<NUMBER> 071
<NAME> HARRIS INSIGHT HEMISPHERE FUND - CLASS A
<S> <C>
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<PERIOD-END> DEC-31-1996
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000823871
<NAME> HT INSIGHT FUNDS, INC.
<SERIES>
<NUMBER> 072
<NAME> HARRIS INSIGHT HEMISPHERE FUND - INSTITUTIONAL CLASS
<S> <C>
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</TABLE>
POWER OF ATTORNEY
Each of the undersigned hereby constitutes and appoints Karen
Jacoppo-Wood, Christopher J. Kelley, John E. Pelletier, and each of them, with
full power to act, his true and lawful attorneys-in-fact and agents with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities (until revoked in writing) to sign any or all
amendments to the Registration Statement on Form N-1A of Harris Insight Funds
Trust and of HT Insight Funds, Inc., and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and any states securities commissions, granting unto said
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing, and ratifying and confirming all that said
attorneys-in-fact and agents or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
/s/ C. Gary Gerst
- ----------------------- -----------------------
C. Gary Gerst Edgar R. Fiedler
- ----------------------- -----------------------
John W. McCarter, Jr. Ernest M. Roth
Dated: November 4, 1996
POWER OF ATTORNEY
Each of the undersigned hereby constitutes and appoints Karen
Jacoppo-Wood, Christopher J. Kelley, John E. Pelletier, and each of them, with
full power to act, his true and lawful attorneys-in-fact and agents with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities (until revoked in writing) to sign any or all
amendments to the Registration Statement on Form N-1A of Harris Insight Funds
Trust and of HT Insight Funds, Inc., and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and any states securities commissions, granting unto said
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing, and ratifying and confirming all that said
attorneys-in-fact and agents or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
/s/ Edgar R. Fielder
- ----------------------- -----------------------
C. Gary Gerst Edgar R. Fiedler
- ----------------------- -----------------------
John W. McCarter, Jr. Ernest M. Roth
Dated: November 4, 1996
POWER OF ATTORNEY
Each of the undersigned hereby constitutes and appoints Karen
Jacoppo-Wood, Christopher J. Kelley, John E. Pelletier, and each of them, with
full power to act, his true and lawful attorneys-in-fact and agents with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities (until revoked in writing) to sign any or all
amendments to the Registration Statement on Form N-1A of Harris Insight Funds
Trust and of HT Insight Funds, Inc., and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and any states securities commissions, granting unto said
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing, and ratifying and confirming all that said
attorneys-in-fact and agents or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
- ----------------------- -----------------------
C. Gary Gerst Edgar R. Fiedler
/s/ John W. McCarter, Jr.
- ----------------------- -----------------------
John W. McCarter, Jr. Ernest M. Roth
Dated: November 4, 1996
POWER OF ATTORNEY
Each of the undersigned hereby constitutes and appoints Karen
Jacoppo-Wood, Christopher J. Kelley, John E. Pelletier, and each of them, with
full power to act, his true and lawful attorneys-in-fact and agents with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities (until revoked in writing) to sign any or all
amendments to the Registration Statement on Form N-1A of Harris Insight Funds
Trust and of HT Insight Funds, Inc., and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and any states securities commissions, granting unto said
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing, and ratifying and confirming all that said
attorneys-in-fact and agents or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
- ----------------------- -----------------------
C. Gary Gerst Edgar R. Fiedler
/s/ Ernest M. Roth
- ----------------------- -----------------------
John W. McCarter, Jr. Ernest M. Roth
Dated: November 4, 1996