GREAT HALL
INSTITUTIONAL PRIME MONEY MARKET FUND
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INSTITUTIONAL TAX-FREE MONEY MARKET FUND
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60 South Sixth Street
Minneapolis, Minnesota 55402
(800) 934-6674
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STATEMENT OF ADDITIONAL INFORMATION
dated October 1, 1998
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Great Hall Institutional Prime Money Market Fund ("Prime Fund") and Great
Hall Institutional Tax-Free Money Market Fund ("Tax-Free Fund") (together, the
"Funds") are diversified series of Great Hall Investment Funds, Inc. ("Great
Hall"), an open-end management investment company which currently offers its
shares of common stock in five series. This Statement of Additional
Information relates only to the Funds and does not relate to any other series
of Great Hall.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of the Funds, dated October 1, 1998,
which has been filed with the Securities and Exchange Commission (the "SEC").
To obtain a copy of the Prospectus, please call Great Hall or your investment
executive. This Statement of Additional Information incorporates by reference
the audited financial statements of Prime Fund for the year ended July 31, 1998
and the related schedule of Investments in Securities contained in Great Hall's
Annual Report to Shareholders for the year ended July 31, 1998 (a copy of which
accompanies this Statement of Additional Information).
TABLE OF CONTENTS
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Page
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Investment Policies...................................... B-2
Investment Restrictions.................................. B-8
Taxes.................................................... B-9
Portfolio Transactions................................... B-10
Management and Distribution Agreements................... B-11
Determination of Net Asset Value......................... B-12
Calculation of Performance Data.......................... B-13
Directors and Officers................................... B-14
General Information...................................... B-16
Counsel and Auditors..................................... B-17
Financial and Other Information.......................... B-17
Appendix--Ratings of Investments......................... A-1
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information or the Prospectus dated October 1, 1998, and, if given or made,
such information or representations may not be relied upon as having been
authorized by Great Hall or the Distributor (as defined herein). This
Statement of Additional Information does not constitute an offer to sell, or a
solicitation of an offer to buy, securities in any state or jurisdiction in
which such offering or solicitation may not lawfully be made. The delivery of
this Statement of Additional Information at any time shall not imply that there
has been no change in the affairs of any of the Funds since the date hereof.
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INVESTMENT POLICIES
The following information supplements that set forth under "Investment
Objectives and Policies" and "Certain Investment Strategies" in the Prospectus
and does not, standing alone, present a complete explanation of the matters
disclosed. You must also refer to the Prospectus to obtain information on the
matters disclosed below.
Both Funds
Government Securities. Each Fund may invest without limitation in
obligations of the United States Government or agencies or instrumentalities of
the United States Government ("Government Obligations"). Government Obligations
are backed in a variety of ways by the U.S. Government or its agencies or
instrumentalities. Some Government Obligations, such as U.S. Treasury bills,
notes and bonds and securities issued by the Government National Mortgage
Association ("GNMA"), are backed by the full faith and credit of the United
States Treasury. Others, such as those of the Federal Home Loan Banks, are
backed by the right of the issuer to borrow from the U.S. Treasury. Still
other Government Obligations, such as those issued by the Federal National
Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC") and the Student Loan Marketing Association, are backed only by the
credit of the agency or instrumentality issuing the obligations and, in certain
instances, by the discretionary authority of the U.S. Government to purchase
certain obligations of the agency or instrumentality. In none of these cases,
however, does the United States Government guarantee the value or yield of the
Government Obligations themselves or the net asset value of any Fund's shares.
Repurchase Agreements. Each Fund may enter into repurchase agreements
with respect to any of the securities in which the Fund may invest directly.
A repurchase agreement is an agreement under which a Fund will purchase a
security subject to resale to a bank or dealer at an agreed-upon price and
date. The transaction requires the collateralization of the seller's
obligation by the transfer to the Fund's custodian of eligible securities with
an initial market value, including accrued interest, equal to at least the
dollar amount invested by the Fund in each agreement, and with the value of the
underlying securities marked to market daily to maintain at least 100%
collateralization of the repurchase price (including accrued interest).A
default by the seller might cause the Fund to experience a loss or delay in the
liquidation of the collateral securing the repurchase obligation and might also
cause the Fund to incur disposition costs in liquidating the collateral.
However, each Fund intends to enter into repurchase agreements only with
primary dealers that report to the Federal Reserve Bank of New York or with the
100 largest U.S. commercial banks (as measured by domestic deposits).
Additionally, each Fund intends to follow the collateral custody, protection
and perfection guidelines recommended by the Comptroller of the Currency for
the use of national banks in their direct repurchase agreement activities. As
a non-fundamental policy, no Fund will invest more than 10% of its net assets
in repurchase agreements maturing in more than seven days and other illiquid
investments.
Illiquid Investments; Liquidity Guidelines. Each Fund is permitted to
invest up to 10% of its assets in all forms of "illiquid" investments and may
invest without limitation in "restricted" securities which Insight Investment
Management, Inc., each Fund's investment adviser ("Insight"), pursuant to
liquidity standards established by Great Hall's Board of Directors, has
determined are liquid. An investment is generally deemed to be "illiquid" if
it cannot be disposed of within seven days in the ordinary course of business
at approximately the amount at which the investment company is valuing the
investment. "Restricted securities" are securities which were originally sold
in private placements or to foreign purchasers pursuant to Regulation S and
which have not been registered under the Securities Act of 1933 (the "1933
Act"). Such securities generally have been considered illiquid by the staff of
the SEC, since such securities may be resold only subject to statutory
restrictions and delays or if registered under the 1933 Act. However, the SEC
has acknowledged that a market exists for certain restricted securities (for
example, securities qualifying for resale to certain "qualified institutional
buyers" pursuant to Rule 144A under the 1933 Act). Additionally, Insight
believes that a similar market exists for commercial paper issued pursuant to
the private placement exemption of Section 4(2) of the 1933 Act. Each Fund may
invest without limitation in these forms of restricted securities if such
securities are deemed by Insight to be liquid in accordance with liquidity
guidelines established by Great Hall's Board of Directors. Under these
guidelines, Insight must consider (a) the frequency of trades and quotes for
the security, (b) the number of dealers willing to purchase or sell the
security and the number of other potential purchasers, (c) dealer undertakings
to make a market in the security, and (d) the nature of the security and the
nature of the marketplace trades (for example, the time needed to dispose of
the security, the method of soliciting offers and the mechanics of transfer).
Investing in restricted securities could have the effect of increasing the
level of each Fund's illiquidity to the extent that qualified purchasers of the
securities become, for a time, uninterested in purchasing these securities.
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Great Hall Institutional Prime Money Market Fund
Prime Fund invests in high quality, domestic money market instruments,
including but not limited to marketable obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities (described below); corporate
debt obligations that are rated AA or better by Standard & Poor's Corporation
("S&P"), or Aa or better by Moody's Investors Service, Inc. ("Moody's");
obligations of banks and savings and loans that are members of the Federal
Deposit Insurance Corporation (the "FDIC"), which obligations may include, but
are not limited to, certificates of deposit, bankers' acceptances and
documented discount notes and letters of credit; high-grade commercial paper
guaranteed or issued by domestic corporations; and instruments (including
repurchase agreements) secured by such obligations.
Investments in obligations of banks and savings and loans are limited to:
(a) certificates of deposit issued by banks with assets in excess of
$500,000,000 or branches of such banks; (b) certificates of deposit or other
deposit obligations of savings and loans with assets in excess of $500,000,000;
and (c) bankers' acceptances, letters of credit or other obligations guaranteed
by banks meeting the above criteria. Bankers' acceptances are short-term
credit instruments used to finance the import, export, transfer or storage of
goods. They are termed "accepted" when a bank guarantees their payment at
maturity. Obligations issued or guaranteed by FDIC member institutions are not
necessarily guaranteed by the FDIC. Deposit obligations of domestic banks and
savings and loans are only insured by the FDIC up to a maximum of $100,000,
which limitation applies to all funds that Prime Fund may have on deposit at
any one bank or savings and loan. Bankers' acceptances and letters of credit
are not so insured. Deposit obligations of foreign banks or foreign branches
of domestic banks also are not covered by FDIC insurance; in addition, such
investments may involve other risks different from risks associated with
investments in deposit obligations of domestic banks, such as future political
and economic developments and the possible imposition of governmental
restrictions.
Permissible commercial paper investments generally consist of obligations
rated Prime-1 or A-1, or their subsequent equivalents, by Moody's or S&P, or
unrated commercial paper issued by companies with an unsecured debt issue
outstanding that is rated Aa or better by Moody's or AA or better by S&P.
Commercial paper constitutes unsecured indebtedness of business or banking
firms issued to finance their short-term financial needs. Prime Fund may also
purchase corporate debt obligations maturing within 397 days from the date of
acquisition with a minimum rating of Aa or AA.
Great Hall Institutional Tax-Free Money Market Fund
Tax-Free Fund invests in debt obligations issued by or on behalf of any
state, territory or possession of the United States or the District of Columbia
or their political subdivisions, agencies or instrumentalities, and
participation interests therein, the interest on which is, in the opinion of
counsel for the issuer, wholly exempt from federal income taxation.
The types of obligations that Tax-Free Fund may purchase include bond
anticipation notes, construction loan notes, revenue anticipation notes and tax
anticipation notes that are Eligible Securities. Tax-Free Fund may also invest
in municipal bonds and participation interests therein, including industrial
development revenue bonds and pollution control revenue bonds, and other types
of tax-exempt municipal obligations, such as short-term discount notes, all of
which must be Eligible Securities.
Securities purchased by Tax-Free Fund mature within 397 days from the date
of purchase or carry variable or floating rates that are adjusted at least
every 397 days and have demand features and quality characteristics that under
applicable law and interpretations of such law permit the securities to be
treated as if they mature in 397 days or less from the date of purchase.
Bond anticipation notes are issued in anticipation of a later issuance of
bonds and are usually payable from the proceeds of the sale of the bonds
anticipated or of renewal notes. Construction loan notes, issued to provide
construction financing for specific projects, are often redeemed after the
projects are completed and accepted with funds obtained from the Federal
Housing Administration under "Fannie Mae" (Federal National Mortgage
Association) or "Ginnie Mae" (Government National Mortgage Association).
Revenue anticipation notes are issued by governmental entities in anticipation
of revenues to be received later in the then current fiscal year. Tax
anticipation notes are issued by state and local governments in anticipation of
collection of taxes to finance the current operations of such governments.
These notes are generally repayable only from tax collections and often
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only from the proceeds of the specific tax levy whose collection they
anticipate.
Municipal bonds are usually issued to obtain funds for various public
purposes, to refund outstanding obligations, to meet general operating expenses
or to obtain funds to lend to other public institutions and facilities. They
are generally classified as either "general obligation" or "revenue" bonds and
frequently have maturities in excess of 397 days at the time of issuance,
although a number of such issues now have variable or floating interest rates
and demand features that may permit Tax-Free Fund to treat them as having
maturities of less than 397 days. There are many variations in the terms of,
and the underlying security for, the various types of municipal bonds. General
obligation bonds are issued by states, counties, regional districts, cities,
towns and school districts for a variety of purposes including mass
transportation, highway, bridge, school, road, and water and sewer system
construction, repair or improvement. Payment of these bonds is secured by a
pledge of the issuer's full faith and credit and taxing (usually property tax)
power.
Revenue bonds are payable solely from the revenues generated from the
operations of the facility or facilities being financed or from other non-tax
sources. These bonds are often secured by debt service revenue funds, rent
subsidies and/or mortgage collateral to finance the construction of housing,
highways, bridges, tunnels, hospitals, university and college buildings, port
and airport facilities, and electric, water, gas and sewer systems. Industrial
development revenue bonds and pollution control revenue bonds are usually
issued by local government bodies or their authorities to provide funding for
commercial or industrial facilities, privately operated housing, sports
facilities, health care facilities, convention and trade show facilities, port
facilities and facilities for controlling or eliminating air and water
pollution. Payment of principal and interest on such bonds is not secured by
the taxing power of the governmental body. Rather, payment is dependent solely
upon the ability of the users of the facilities financed by the bonds to meet
their financial obligations and the pledge, if any, of real and personal
property financed as security for payment.
Although Tax-Free Fund may invest more than 25% of its net assets in:
(a) municipal obligations whose issuers are in the same state; (b) municipal
obligations the interest upon which is paid solely from revenues of similar
projects; and (c) industrial development and pollution control revenue bonds
that are not variable or floating rate demand municipal obligations, it does
not presently intend to do so on a regular basis. The identification of the
issuer of a tax-exempt security for purposes of the 1940 Act depends on the
terms and conditions of the security. When 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 security is
backed only by the assets and revenues of the subdivision, such subdivision
would be deemed to be the sole issuer. Similarly, in the case of an industrial
development bond, if that bond is backed by the assets and revenues of the non-
governmental user, then such non-governmental user would be deemed to be the
sole issuer. Generally, the District of Columbia, each state, each of its
political subdivisions, agencies, instrumentalities and authorities, and each
multi-state agency of which a state is a member, is a separate "issuer" as that
term is used in the Prospectus and this Statement of Additional Information
with respect to Tax-Free Fund, and the non-governmental user of facilities
financed by industrial development or pollution control revenue bonds is also
considered to be an issuer.
Legislation to restrict or eliminate the federal income tax exemption for
interest on certain municipal obligations that may be purchased by Tax-Free
Fund has been introduced in Congress; other such legislation also may be
introduced in the future by Congress or by state legislatures. If enacted, any
such legislation could adversely affect the availability of municipal
obligations for Tax-Free Fund's portfolio. Upon the effectiveness of any such
legislation that materially affects the Tax-Free Fund's ability to achieve its
investment objective, the Board of Directors of Great Hall will reevaluate the
Fund's investment objective and submit to its shareholders for approval
necessary changes in its objectives and policies.
Variable and Floating Rate Demand Municipal Obligations. Variable and
floating rate demand municipal obligations are tax-exempt obligations that
provide for a periodic adjustment in the interest rate paid on the obligations
and permit the holder to demand payment of the unpaid principal balance plus
accrued interest upon a specified number of days' notice either from the issuer
or by drawing on a bank letter of credit or comparable guarantee issued with
respect to such obligations. The issuer of such an obligation may have a
corresponding right to prepay in its discretion the outstanding principal of
the obligation plus accrued interest upon notice comparable to that required
for the holder to demand payment.
The variable or floating rate demand municipal obligations in which Tax-
Free Fund may invest are payable on demand at any time on no more than 30 days'
notice or at specified intervals not exceeding 397 days and upon no
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more than 30 days' notice. The terms of such obligations must provide that
interest rates are adjustable at intervals ranging from weekly up to annually.
The adjustments are based upon the prime rate of a bank or other appropriate
interest rate adjustment index as provided in the respective obligations. Such
obligations are subject to the quality characteristics for municipal
obligations set forth above and described in the Prospectus. Tax-Free Fund may
invest, without limitation, in such obligations.
The principal and accrued interest payable to Tax-Free Fund on demand will
be supported by an irrevocable letter of credit or comparable guarantee of a
financial institution (generally a commercial bank) whose short-term taxable
debt meets the quality criteria for investment by Tax-Free Fund in municipal
obligations, except in cases where the security itself meets the credit
criteria of the Fund without such letter of credit or comparable guarantee.
Thus, although the underlying variable or floating rate demand obligation may
be unrated, Tax-Free Fund in such cases will have at all times an alternate
credit source to draw upon for payment with respect to such security.
Tax-Free Fund may also purchase participation interests in variable or
floating rate obligations. Such participation interests will have, as part of
the participation agreement between the Fund and the selling financial
institution, a demand feature that permits Tax-Free Fund to demand payment from
the seller of the principal amount of the Fund's participation plus accrued
interest thereon. This demand feature always will be supported by a letter of
credit or comparable guarantee provided by the selling financial institution.
Such financial institution will retain a service fee, a letter of credit fee
and a fee for issuing commitments to purchase on demand in an amount equal to
the excess of the interest paid on the variable or floating rate obligation in
which Tax-Free Fund has a participation interest over the negotiated yield at
which the participation interest was purchased. Accordingly, Tax-Free Fund
will purchase such participation interests only when the yield to the Fund, net
of such fees, is equal to or greater than the yield then available on other
variable rate demand securities or short-term, fixed rate, tax-exempt
securities of comparable quality and where the fees are reasonable in relation
to the services provided by the financial institution and the security and
liquidity provided by the letter of credit or guarantee.
While variable and floating rate demand municipal obligations are expected
to have maturities in excess of 397 days, Great Hall currently expects that
Tax-Free Fund will exercise its right to demand payment of principal and
accrued interest on such an obligation if it no longer meets the Fund's quality
standards, unless, of course, the obligation can be sold for a greater amount
in the market.
Stand-By Commitments. Consistent with the requirement of Rule 2a-7, Tax-
Free Fund may also acquire "stand-by commitments" with respect to obligations
held in its portfolio. Under a "stand-by commitment," a dealer agrees to
purchase, at Tax-Free Fund's option, specified obligations at a specified
price. "Stand-by commitments" are the equivalent of a "put" option acquired by
Tax-Free Fund with respect to particular obligations held in its portfolio.
The amount payable to Tax-Free Fund upon its exercise of a "stand-by
commitment" will normally be: (a) Tax-Free Fund's acquisition cost of the
obligation (excluding any accrued interest that Tax-Free Fund paid on its
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period Tax-Free Fund owned the obligation;
plus (b) all interest accrued on the obligations since the last interest
payment date during the period such obligation is owned by Tax-Free Fund.
"Stand-by commitments" may be acquired when the remaining maturity of the
underlying obligation is greater than 60 days, but will be exercisable by Tax-
Free Fund only during the 60 day period before the maturity of such obligation.
Absent unusual circumstances, Tax-Free Fund will value the underlying
obligation on an amortized cost basis. Accordingly, the amount payable by a
dealer during the time a "stand-by commitment" is exercisable is substantially
the same as the value of the underlying obligation. Tax-Free Fund's right to
exercise "stand-by commitments" must be unconditional and unqualified. A
"stand-by commitment" is not transferable by Tax-Free Fund, although it may
sell the underlying obligation to a third party at any time.
Tax-Free Fund expects that "stand-by commitments" will generally be
available without the payment of any direct or indirect consideration.
However, if necessary and advisable, it may pay for "stand-by commitments"
either separately in cash or by paying a higher price for obligations that are
acquired subject to such a commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding "stand-by commitments" held in Tax-Free Fund's portfolio
may not exceed 1/2 of 1% of the value of Tax-Free Fund's total assets
calculated immediately after each "stand-by commitment" is acquired.
Tax-Free Fund intends to enter into "stand-by commitments" only with
dealers, banks and broker-dealers
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that, in the opinion of Insight, present minimum credit risks. Tax-Free Fund's
reliance upon the credit of these dealers, banks and broker-dealers is secured
by the value of the underlying obligations that are subject to the commitment.
However, the failure of a party to honor a "stand-by commitment" could have an
adverse impact on the liquidity of Tax-Free Fund during periods of rising
interest rates.
Tax-Free Fund intends to acquire "stand-by commitments" solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. The acquisition of a "stand-by commitment"
will not affect the valuation or maturity of the underlying obligation, which
will continue to be valued in accordance with the amortized cost method.
"Stand-by commitments" will be valued at zero in determining net asset value.
Where Tax-Free Fund pays directly or indirectly for a "stand-by commitment,"
its cost will be reflected as unrealized depreciation for the period during
which the commitment is held. "Stand-by commitments" will not affect the
average weighted maturity of Tax-Free Fund's portfolio.
"When-lssued" Obligations. Tax-Free Fund may make commitments to purchase
municipal obligations on a "when-issued" basis, i.e., delivery and payment for
the obligations normally takes place at a date after the commitment to purchase
although the payment obligation and the coupon rate have been established
before the time the Fund enters into the commitment. The settlement date
usually occurs within one week of the purchase of notes and within one month of
the purchase of bonds. Great Hall intends that Tax-Free Fund will make
commitments to purchase obligations with the intention of actually acquiring
them, but may sell the obligations before settlement date if such action is
advisable or necessary as a matter of investment strategy. At the time the
Fund makes a commitment to purchase an obligation, it will record the
transaction and reflect the value of the obligation in determining its net
asset value. The Custodian will maintain on a daily basis a separate account
for the Fund consisting of cash or liquid debt securities with a value at least
equal to the amount of the Fund's commitments to purchase "when-issued"
obligations.
Obligations purchased on a "when-issued" basis or held in Tax-Free Fund's
portfolio are subject to changes in market value based not only upon the
public's perception of the creditworthiness of the issuer but also upon changes
in the level of interest rates. In the absence of a change in credit
characteristics, which, of course, will cause changes in value, the value of
portfolio investments can be expected to decline in periods of rising interest
rates and to increase in periods of declining interest rates. Therefore, if to
achieve higher interest income Tax-Free Fund remains substantially fully
invested at the same time that it has purchased obligations on a "when-issued"
basis, there will be a greater possibility that the market value of Tax-Free
Fund's assets will vary from $1.00 per share. See "Net Asset Value." However,
Tax-Free Fund does not believe that under normal circumstances its net asset
value or income will be affected by its purchase of obligations on a "when-
issued" basis.
When payment is made for "when-issued" securities, Tax-Free Fund will meet
its obligations from its then available cash flow, sale of securities held in
the separate account, sale of other securities or, although it would normally
not expect to do so, from sale of the "when-issued" securities themselves
(which may have a market value greater or less than the Fund's obligation).
Sale of securities to meet such obligations would involve a greater potential
for the realization of capital gains, which could cause Tax-Free Fund to
realize income not exempt from federal income taxation.
State and Municipal Lease Obligations. Tax-Free Fund is permitted to
invest in state and municipal lease obligations ("municipal leases").
Traditionally, municipal leases have been viewed by the SEC staff as illiquid
investments. However, subject to Board standards similar to the standards
applicable to restricted securities (as discussed in the Prospectus), Insight
may treat certain municipal leases as liquid investments and not subject to the
policy limiting investments in illiquid investments.
Municipal leases are issued by state and local governments or authorities
to finance the acquisition of equipment and facilities. Municipal leases may
take the form of a lease, an installment purchase or conditional sale contract
or a participation certificate in such a lease or contract. Municipal leases
frequently have the special risks described below which are not associated with
general obligation or revenue bonds issued by public bodies. In determining
municipal leases in which the Fund will invest, Insight will evaluate the
credit rating of the lessee and the terms of the lease. Additionally, Insight
may require that certain municipal leases be secured by a letter of credit or
put arrangement with an independent financial institution.
The constitution and statutes of many states contain requirements with
which the state and municipalities must comply whenever incurring debt. These
requirements may include approving voter referendums, debt limits,
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interest rate limits and public sale requirements. Municipal leases have
evolved as a means for public bodies to acquire property and equipment without
needing to comply with all of the constitutional and statutory requirements for
the issuance of debt. The debt-issuance limitations may be inapplicable for
one or more of the following reasons: (a) the inclusion in many municipal
leases of a "nonappropriation clause" that provides that the public body has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly
or other periodic basis; (b) the exclusion of a municipal lease from the
definition of indebtedness under relevant state law; or (c) the provision in
the municipal lease for termination at the option of the public body at the end
of each fiscal year for any reason or, in some cases, automatically if not
affirmatively renewed.
If a municipal lease is terminated by the public body for nonappropriation
or other reason not constituting a default under the lease, the rights of the
lessor or holder of a participation interest therein are limited to
repossession of the leased property without any recourse to the general credit
of the public body. The disposition of the leased property by the lessor in
the event of termination of the lease might, in many cases, prove difficult or
result in a loss.
Municipal leases represent a relatively new type of financing that has not
yet developed the depth of marketability associated with more conventional
municipal obligations. Therefore, as mentioned above, municipal leases held by
Tax-Free Fund will be treated as illiquid unless they are determined to be
liquid pursuant to the aforementioned liquidity guidelines. Additionally, the
lack of an established trading market for municipal leases may make the
determination of fair market value more difficult.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. In addition to the Funds' investment
objectives and those policies identified as fundamental in the Prospectus, each
of the Funds has adopted the following fundamental investment restrictions,
which may not be changed without approval of shareholders owning a majority of
such Fund's outstanding shares, which as used in the Prospectus and this
Statement of Additional Information means the lesser of: (a) 67% or more of
such Fund's shares present at a shareholders' meeting if more than 50% of such
Fund's shares are represented at the meeting in person or by proxy; or (b) more
than 50% of such Fund's outstanding shares. Neither of the Funds may:
(1) borrow money or issue senior securities (as defined the Investment
Company Act of 1940, as amended), except for temporary or emergency non-
investment purposes such as to accommodate abnormally heavy redemption
requests, and then only in an amount not exceeding 5% of the value of its total
assets at the time of borrowing;
(2) underwrite securities issued by other persons, except insofar as a
Fund may be deemed an underwriter under the Securities Act of 1933, as amended,
in selling portfolio securities;
(3) invest more than 25% of its total assets in any one industry,
except that (i) with respect to Tax-Free Fund, this restriction shall not apply
to municipal obligations; (ii) with respect to Prime Fund and Tax-Free Fund
this restriction shall not apply to securities issued or guaranteed by United
States banks or United States branches of foreign banks that are subject to the
same regulation as United States banks; and (iii) this restriction shall not
apply to securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities;
(4) purchase or sell real estate or real estate mortgage loans
(although a Fund may invest in obligations secured by interests in real
estate), commodities, commodity contracts (including futures contracts), real
estate partnership interests and oil, gas and mineral leases; or
(5) make loans, other than by entering into repurchase agreements and
through the purchase of other permitted investments in accordance with its
investment objective and policies.
If the issuer of a security is within a given industry and the security is
guaranteed by an entity within a different industry, the industry of the
guarantor rather than that of the issuer shall be deemed to be the industry for
purposes of applying the test in investment restriction number 3 above.
Non-Fundamental Investment Restrictions. In addition, each Fund has
adopted certain non-fundamental investment restrictions, which may be changed
by the Board of Directors of Great Hall without approval by such Fund's
shareholders. As non-fundamental policies, neither Fund may:
(1) invest in companies for the purpose of exercising control or
management;
(2) invest in securities issued by other investment companies in excess
of limits imposed by applicable law;
(3) invest more than 10% of its net assets in illiquid investments,
including but not limited to repurchase agreements maturing in more than seven
days;
(4) pledge, mortgage or hypothecate its assets, except that to secure
permitted borrowings; or
(5) sell securities short or purchase any securities on margin, except
for such short-term credits as are necessary for clearance of portfolio
transactions.
Percentage Restrictions. If a fundamental or a non-fundamental percentage
restriction or limitation is adhered to at the time of investment, a later
increase or decrease in such percentage resulting from a change in values or
net assets will not be considered a violation thereof.
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TAXES
Taxation of the Funds-In General
Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). To
so qualify, a Fund must, among other things; (a) derive in each taxable year at
least 90% of its gross income from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies, or other income derived with respect to its
business of investing in such stock, securities or currencies (the "90% test");
and (b) satisfy certain diversification requirements at the close of each
quarter of such Fund's taxable year. Furthermore, in order to be entitled to
pay exempt-interest dividends to shareholders, Tax-Free Fund must satisfy the
requirement that, at the close of each quarter of its taxable year, at least
50% of the value of its total assets consists of obligations the interest on
which is exempt from federal income tax ("tax-exempt obligations").
As a regulated investment company, a Fund will not be liable for federal
income taxes on the part of its taxable net investment income and net capital
gains, if any, that it distributes to shareholders if at least 90% of its net
investment income (including tax-exempt income net of any disallowed deductions
relating thereto) and net short-term capital gain for the taxable year is
distributed. However, if for any taxable year a Fund does not satisfy the
requirements of Subchapter M of the Code, all of its taxable income will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to
shareholders as ordinary income to the extent of such Fund's current or
accumulated earnings and profits.
Each Fund will be liable for a nondeductible 4% excise tax on amounts not
distributed on a timely basis in accordance with a calendar year distribution
requirement. To avoid the tax, during each calendar year a Fund must
distribute: (a) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year; (b) at least 98% of its
capital gain net income for the twelve-month period ending on October 31 (or
December 31, if such Fund so elects); and (c) any portion (not taxed to such
Fund) of the respective balances from the prior year. Each Fund intends to
make sufficient distributions to avoid this 4% excise tax.
If Tax-Free Fund disposes of a tax-exempt obligation at a market discount,
it must recognize any gain it realizes on the disposition as ordinary income
(and not as capital gain) to the extent of the accrued market discount.
If a shareholder receives an exempt-interest dividend with respect to any
share and sells or exchanges such share after holding it for six months or
less, any loss on the sale or exchange of such share will be disallowed to the
extent of the amount of such exempt-interest dividend. In certain limited
instances, the portion of Social Security benefits received by shareholders
that are subject to federal income tax may be affected by the amount of tax-
exempt interest income, including exempt-interest dividends, received by
shareholders of the Fund.
Distributions of exempt-interest dividends by Tax-Free Fund may be subject
to state and local taxes even though a substantial portion of such
distributions may be derived from interest on tax-exempt obligations that, if
realized by the shareholder directly, would be exempt from such taxes. Tax-
Free Fund will report to its shareholders annually after the close of its
taxable year the percentage and source, on a state-by-state basis, of interest
income earned on tax-exempt obligations held by such Fund during the preceding
year. Shareholders of Tax-Free Fund are advised to consult their tax advisers
concerning the application of state and local taxes.
Under the Code, investors will not be allowed to deduct interest on
indebtedness incurred or continued to purchase or carry shares of an investment
company paying exempt-interest dividends to the extent such interest expenses
relate to exempt-interest dividends received by the shareholder. State laws
may also restrict the deductibility of interest on indebtedness incurred or
continued to purchase or carry shares of a Fund. Indebtedness may be allocated
to shares of a Fund even though not directly traceable to the purchase of such
shares.
Tax-Free Fund may acquire variable and floating rate demand municipal
obligations and "stand-by commitments" or "puts" from banks and municipal
securities dealers. See "Great Hall Institutional Tax-Free Money Market Fund -
Variable and Floating Rate Demand Municipal Obligations" and "Stand-By
Commitments" in this Statement of Additional Information. With respect to each
such acquisition, an opinion of issuer's counsel will be issued that Tax-Free
Fund will be treated for federal income tax purposes as the owner of the
municipal obligations acquired subject to such demand features or to such
stand-by commitments; the interest on such municipal obligations will be tax-
exempt to Tax-Free Fund; and the purchase prices of municipal obligations
subject to stand-by commitments must be allocated between such securities and
stand-by commitments based upon their relative fair market values.
<PAGE>
A Fund, or a shareholder's broker with respect to a Fund, is required to
withhold federal income tax at a rate of 31% of the dividends, capital gains
distributions and proceeds of redemptions if a shareholder fails to furnish
such Fund with a correct taxpayer identification number ("TIN") or to certify
that the shareholder is exempt from such withholding or if the Internal Revenue
Service notifies such Fund or broker that the shareholder has provided such
Fund with an incorrect TIN or failed to properly report dividend or interest
income for federal income tax purposes. Any such withheld amount will be fully
creditable on each shareholder's individual federal income tax return. An
individual's TIN is his or her social security number.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Funds and their shareholders. No
attempt is made to present a detailed explanation of the federal or state
income tax treatment of the Funds or their shareholders, and this discussion is
not intended as a substitute for careful tax planning.
Each investor is advised to consult his or her tax adviser regarding
specific questions as to federal, state, local and foreign taxation.
PORTFOLIO TRANSACTIONS
As provided in the investment advisory agreement in effect between Insight
and the Funds, Insight makes investment decisions and decisions as to the
execution of portfolio transactions for the Funds, subject to the general
supervision of the Board of Directors of Great Hall. At times, investment
decisions may be made to purchase or sell the same investment security for more
than one Fund, in which case the transactions will be allocated as to amount
and price in a manner considered equitable to each Fund. In some cases this
procedure may possibly have a detrimental effect on the price or volume of the
security as far as one or more Funds are concerned. On the other hand, the
ability of the Funds to participate in volume transactions may produce better
executions for the Funds in some cases. It is the opinion of the Board of
Directors that the benefits available because of Insight's organization
outweigh any disadvantages that may arise from exposure to simultaneous
transactions.
Under the 1940 Act, persons affiliated with Great Hall are prohibited from
dealing with Great Hall as a principal in the purchase and sale of investments.
Since over-the-counter transactions are usually principal transactions,
affiliated persons of Great Hall may not serve as a dealer in connection with
such transfers or commitments. The 1940 Act also prohibits Great Hall from
purchasing a security being publicly underwritten from a syndicate in which any
affiliated person is a principal underwriter except in accordance with certain
limitations. Furthermore, Great Hall may not use any affiliated person as a
broker or dealer in executing portfolio transactions without complying with the
limitations imposed by the rules of the SEC, which rules require the
commissions, fees or other remuneration received by such affiliated broker or
dealer be: (a) reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers or dealers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time; and (b) at least as
favorable as commissions contemporaneously charged by such affiliated broker or
dealer on comparable transactions for its most favored comparable unaffiliated
customers.
Most purchase and sale transactions with respect to a Fund are with the
issuer or an underwriter or with major dealers of securities acting as
principals. Such transactions are normally on a net basis and generally do not
involve payment of brokerage commissions. However, the cost of securities
purchased from an underwriter normally includes a commission paid by the issuer
to the underwriter. Purchases or sales from or to dealers will normally
reflect the spread between bid and ask prices.
Insight, in effecting purchases and sales of portfolio securities for the
accounts of the Funds, will place orders in such manner as in its opinion will
offer the best price and market for the execution of each transaction. Given
the best price and market obtainable, it is the practice of the Funds when
purchasing through dealers to select them primarily on the basis of the
furnishing by such dealers, in addition to satisfactory execution of the
transaction, of research information and statistical and other services to
Insight. It is not always possible to place a dollar value on information and
services received from dealers. Since it is only supplementary to Insight's
own research efforts, the receipt of research information is not expected to
reduce significantly Insight's expenses. Such Funds may also consider, subject
to the requirement of best execution, dealers' sales of the Funds' shares when
selecting dealers to execute portfolio transactions. While Insight will be
primarily responsible for the placement of such Funds'
<PAGE>
business, the policies and practices of the Funds in this regard must be
consistent with the foregoing and will at all times be subject to review by the
Board of Directors of Great Hall.
Because brokerage commissions as such are not usually paid in connection
with the purchase or sale of the securities in which the Funds invest and
because transactional costs are small, portfolio turnover is not expected to
materially affect net asset value or yields. Prime Fund did not pay any
brokerage commission during the period ended July 31, 1998. Securities with
maturities of less than one year are excluded from required portfolio turnover
rate calculations, and therefore, each Fund's turnover rate for reporting
purposes will be zero.
MANAGEMENT AND DISTRIBUTION AGREEMENTS
Investment Adviser; Investment Advisory Agreement
Insight serves as each Fund's investment adviser. Insight is a wholly-
owned subsidiary of Dain Rauscher Corporation ("DRC").
Pursuant to an investment advisory agreement (the "Advisory Agreement"),
Insight performs and bears the internal cost of research, statistical analysis
and continuous supervision of the investment portfolio of each Fund and
furnishes office facilities and certain clerical and administrative services to
the Funds. In addition, Insight bears all promotional expenses, including the
cost of printing and distributing prospectuses utilized for promotional
purposes. Other expenses are borne by whichever Fund incurs the expense and
such expenses include, but are not limited to, taxes, interest, brokerage fees
and commissions, and costs and expenses associated with the following matters
and services: registration and qualification of Great Hall, the Funds and their
shares with the SEC and the various states; services of custodians, transfer
agent, dividend disbursing agent, accounting services agents, shareholder
services agents, independent auditors and outside legal counsel; maintenance of
corporate existence; preparation, printing and distribution of prospectuses to
existing Fund shareholders; services of Great Hall directors who are not
employees of Insight or of the Distributor or any of their affiliates;
directors' and shareholders' meetings, including the printing and mailing of
proxy materials; insurance premiums for fidelity and other coverage; issuance
and sale of Fund shares (to the extent not borne by the Distributor under its
agreement with Great Hall); redemption of Fund shares; printing and mailing of
stock certificates representing shares of the Funds; association membership
dues; preparation, printing and mailing of shareholder reports; and portfolio
pricing services, if any. Expenses borne by Great Hall and attributable to
only one Fund will be allocated to that Fund; expenses that are not
specifically allocable will be allocated to each Fund in a manner and on a
basis determined in good faith by the Board of Directors of Great Hall,
including a majority of the Directors who are not "interested" persons of Great
Hall or Insight, to be fair and equitable.
Under the Advisory Agreement, Insight receives a monthly advisory fee
based upon the average value of each Fund's daily net assets. Each Fund pays
Insight a fee at an annual rate of .25% of its average daily net assets.
During the period ended July 31, 1998, Prime Fund paid advisory fees of
$237,858.
The Advisory Agreement continues in effect from year to year, if
specifically approved at least annually by a vote cast in person at a meeting
called for such purpose by a majority of the Directors of Great Hall, and a
majority of the Directors who are not "interested persons" (as defined in the
1940 Act) of Great Hall or Insight ("Independent Directors"). The Advisory
Agreement may be terminated by either party thereto, by the Independent
Directors or by a vote of the holders of a majority of the outstanding
securities of Great Hall, at any time, without penalty, upon 60 days' written
notice, and automatically terminates in the event of an assignment.
Termination will not affect the right of Insight to receive payment of any
unpaid balance of the compensation earned prior to termination.
The Distributor
The Funds are distributed by Dain Rauscher Incorporated, a member firm of
the New York Stock Exchange (the "NYSE"), the National Association of
Securities Dealers, Inc. and a wholly owned subsidiary of DRC (the
"Distributor"). The Funds have agreed to indemnify the Distributor and its
affiliates, to the extent permitted by applicable law, against certain
liabilities under the Securities Act of 1933.
DETERMINATION OF NET ASSET VALUE
<PAGE>
The net asset value per share of each Fund is calculated separately for
each Fund. The assets and liabilities of each Fund are determined in
accordance with generally accepted accounting principles and the applicable
rules and regulations of the SEC. Assets and liabilities attributable to a
specific Fund are allocated to that Fund. Assets and liabilities not readily
identifiable to a Fund will be allocated among the Funds in a manner and on a
basis determined in good faith pursuant to procedures established by the Board
of Directors, including a majority of the Directors who are not "interested
persons" of Great Hall or Insight, to be fair and equitable.
The Funds value their portfolio securities using the amortized cost
method. This method involves valuing a security at its cost and thereafter
accruing any discount or premium at a constant rate to maturity. By declaring
these accruals to a Fund's shareholders in the daily dividend, the value of
such Fund's assets and, thus, its net asset value per share, will generally
remain constant. Although this method provides certainty in valuation, it may
result in periods during which the value of a Fund's securities, as determined
by amortized cost, is higher or lower than the price such Fund would receive if
it sold the securities. During such periods, the yields on shares of such Fund
may differ somewhat from that obtained in similar funds with identical
investments utilizing a method of valuation based upon market prices and
estimates of market prices for all of their portfolio securities.
In connection with the use of the amortized cost method, the Funds
maintain a dollar-weighted average portfolio maturity of 90 days or less and
purchase only portfolio securities having remaining maturities of 397 days or
less. With respect to Tax-Free Fund, and as described under "Great Hall
Institutional Tax-Free Money Market Fund - Variable and Floating Rate Demand
Municipal Obligations" in this Statement of Additional Information, securities
having a stated maturity of more than 397 days may be purchased by Tax-Free
Fund if they have demand and variable or floating rate features, together with
appropriate quality characteristics, that permit determination that such
securities may be deemed to have a maturity of less than 397 days. The Board
of Directors of Great Hall has also established procedures designed to
stabilize, to the extent reasonably possible, each Fund's net asset value per
share, as computed for purposes of sales and redemptions, at $1.00. Such
procedures include review of each Fund's portfolio holdings by the Board of
Directors of Great Hall at such intervals as it may deem appropriate to
determine whether each Fund's net asset value calculated by using available
market quotations deviates from $1.00 per share and, if so, whether such
deviation may result in material dilution or may be otherwise unfair to
existing shareholders. With respect to Tax-Free Fund, these procedures also
include a review by Insight, in accordance with policies established by the
Board of Directors of Great Hall and not less frequently than monthly, of the
quality of certain municipal obligations having variable or floating interest
rates and demand features that permit Tax-Free Fund to calculate the maturity
of such obligations to a point in time prior to their stated maturity. In the
event that the Board of Directors of Great Hall determines that a material
deviation from net asset value exists, the Board will take such corrective
action as it deems necessary and appropriate, which action might include
selling portfolio securities prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity, withholding dividends, or
establishing net asset values per share by using available market quotations.
The portfolio securities in which each Fund invests fluctuate in value,
and hence the net asset value per share (and therefore, the public offering
price) of each Fund may also fluctuate. On July 31, 1998, the net asset value
and the maximum public offering price per share for Prime Fund were calculated
as follows:
Net Assets ($213,785,210)
----------------------------------- = Net Asset Value Per Share ($1.00)
Shares Outstanding ($213,785,210)
CALCULATION OF PERFORMANCE DATA
Yield
As stated in the Prospectus, each Fund from time to time may advertise its
yield.
The current yield of the Funds is computed by determining the change,
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of a seven-day period,
and dividing the change by the value of the account at the beginning of the
base period to obtain the base period return, and then multiplying the base
period return by (365/7), with the resulting yield figure carried to at least
the nearest hundredth of one percent.
<PAGE>
For the seven-day period ended July 31, 1998, the current yield of Prime
Fund was 5.25%.
The effective or compounded yield for the Funds is computed by determining
the change, exclusive of capital changes, in the value of a hypothetical pre-
existing account having a balance of one share at the beginning of a seven-day
period, and dividing the change by the value of the account at the beginning of
the base period to obtain the base period return, and then compounding the base
period return 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
For the seven-day period ended July 31, 1998, the effective yield of Prime
Fund was 5.39%.
The taxable equivalent yield of Tax-Free Fund is calculated by applying
the stated income tax rate only to that portion of the Tax-Free Fund's seven-
day yield or effective yield that is exempt from taxation. The stated income
tax rate is subtracted from the number 1 (e.g., 1 minus 36% equals 64%), and
the tax-exempt portion of the yield is divided by the difference. The result
is then added to that portion of the Tax-Free Fund's yield, if any, that is not
tax-exempt.
<PAGE>
DIRECTORS AND OFFICERS
Directors and officers of Great Hall, together with information as to
their principal occupations during the past five years, are set forth below.
Except as otherwise set forth below, the address of each officer and director
is the same as that of Great Hall - 60 South Sixth Street, Minneapolis,
Minnesota 55402.
<PAGE>
DIRECTORS AND OFFICERS
Directors and officers of Great Hall, together with information as to
their principal occupations during the past five years, are set forth below.
Except as otherwise set forth below, the address of each officer and director
is the same as that of Great Hall - 60 South Sixth Street, Minneapolis,
Minnesota 55402.
Principal Occupations During the
Name and Address Position Past Five Years and Other Affiliations
- ---------------- -------- --------------------------------------
T. Geron ("Jerry") Bell Director President of the Minnesota Twins
34 Puckett Place Baseball Club
Minneapolis, MN 55415 Incorporated since 1987.
Sandra J. Hale Director President of Enterprise Management,
2308 West Lake of the Int'l. since 1991; Minnesota
Isles Pkwy. Commissioner of Administration from
Minneapolis, MN 55405 1982 to 1990.
Ron James Director Formerly President and Chief Executive
300 Sycamore Lane Officer of Ceridian Corporation-Human
Plymouth, MN 55441 Resources Group (January 1996-January
1998); Vice-President - Minnesota of
U.S. West Communications from 1990 to
December 1995; Vice President and
General Manager-Large Business Markets
of U.S. West Communications from 1987
to 1990.
Jay H. Wein Director Independent consultant since April
5305 Elm Ridge Circle 1995; Director of Information
Excelsior, MN 55331 Advantage, Inc. since 1992 and
Chairman from 1992 to April 1995;
Retired in August 1989 after 15 years
as Office Managing Partner of the
Minneapolis/St. Paul Office of Arthur
Andersen & Co.
J. Scott Spiker Chief Executive Senior Executive Vice President of the
Officer Distributor; Chief Executive Officer
and Director of Insight; Senior Vice
President and Business Manager,
Employee Benefit Services, of Norwest
Corporation from 1990 through January
1994; Product Manager, Institutional
Collective Funds, of Norwest
Corporation from 1989 through January
1994.
Raye C. Kanzenbach Chief Investment Managing Director and Chief Investment
Officer Officer of Insight; prior to 1991,
Director, Senior Vice President and
Secretary of Insight Bond Management,
Inc. since 1983.
Julie K. Getchell Chief Financial President and Chief Operating Officer
Officer of Insight and Senior Vice President
of the Distributor.
<PAGE>
Principal Occupations During the
Name and Address Position Past Five Years and Other Affiliations
- ---------------- -------- --------------------------------------
Matthew L. Thompson Secretary Partner of Faegre & Benson LLP, Great
2200 Norwest Center Hall's general counsel, since May
90 South Seventh Street 1995; Vice President, Assistant
Minneapolis, MN 55402 Secretary and Corporate/Fund Counsel
of DRC from January 1994 to May 1995;
prior thereto, Partner of Dorsey &
Whitney since 1993 and Associate of
Dorsey & Whitney from 1985 through
1992.
Thomas D. Vogel Compliance Vice President and Controller of
Office Insight and the Distributor's Business
Services Group; Assistant Controller
of Insight from 1993 to 1995.
The annual compensation of each Director is $6,000 plus $1,000 for each
meeting attended. No compensation is paid by Great Hall to its officers. The
following table sets forth for such period the aggregate compensation
(excluding expenses) paid by Great Hall to its directors during the fiscal
year ended July 31, 1998:
COMPENSATION TABLE
------------------
Pensions or Retirement
Aggregate Benefits Accrued
Compensation as part of
Name of Director from Great Hall Great Hall Expenses
---------------- --------------- -------------------
T. Geron (Jerry) Bell $10,000 None
Sandra J. Hale $10,000 None
Ron James $10,000 None
Jay H. Wein $10,000 None
Additional directors of Insight are as follows:
Name Other Positions
- ----------------------- -------------------------------------
Irving Weiser Chairman, Chief Executive Officer and
President of the Distributor
John C. Appel Vice Chairman and Chief Financial
Officer of the Distributor
Ronald A. Tschetter Senior Executive Vice President of
the Distributor (Private Client Group)
Nelson D. Civello Senior Executive Vice President of
the Distributor (Fixed Income Capital
Markets Group)
Kenneth J. Wessels Senior Executive Vice President of the
Distributor (Dain Rauscher Wessels)
<PAGE>
GENERAL INFORMATION
Under the terms of the Custodian Agreement, Norwest Bank Minnesota, N.A.
(the "Custodian") holds and safekeeps all of the assets of each Fund. For its
services, the Custodian receives from each Fund a monthly fee based upon the
average market value of such Fund's securities held in custody plus securities
transaction charges; it is also reimbursed for certain out-of-pocket expenses.
Under the terms of an Investment Account Agreement, Investors Fiduciary
Trust Company (the "Fund Accounting Agent") performs necessary investment
accounting and recordkeeping services for the Fund. For its services, the Fund
Accounting Agent is paid a monthly fee and is reimbursed for certain out-of-
pocket expenses.
Under the terms of the Transfer Agency Agreement, PFPC Inc. (the "Transfer
Agent") maintains the shareholder account records for each Fund, handles
certain communications between shareholders and each Fund, distributes
dividends and distributions payable by each Fund and produces statements with
respect to account activity for each Fund and its shareholders. For these
services, the Transfer Agent receives a flat monthly fee and is also reimbursed
for certain out-of-pocket expenses.
The Distributor also performs certain shareholder account services for the
Funds pursuant to a Shareholder Account Service Agreement. Under the terms of
the Shareholder Account Service Agreement, the Distributor disburses or credits
all proceeds of redemptions, dividends and other distributions to shareholders,
handles certain communications between shareholders and each Fund, prepares
shareholder records, maintains a master account with the Transfer Agent on
behalf of shareholders and performs other related services. For its services,
the Distributor receives a monthly fee computed on the basis of the number of
shareholder accounts that are maintained for each Fund during the month and
also is reimbursed for certain out-of-pocket expenses.
Great Hall maintains accounting records that specifically allocate assets
and liabilities on a series by series basis. The shares of each series
represent an undivided interest in the assets and liabilities specifically
allocated to that series. Creditors and other persons contracting with Great
Hall with respect to a series may look solely to the assets of that series to
satisfy claims against Great Hall.
All Fund shares are the same class and are freely transferable. Each
share has equal dividend rights and is entitled to one vote at all shareholder
meetings. Separate votes are taken by each series of Great Hall except to the
extent that the 1940 Act requires shares of all series to be voted in the
aggregate. Shares have non-cumulative voting rights, so that the holders of
more than 50% of the shares can, if they choose to do so, elect all the
directors of Great Hall, in which event the holders of the remaining shares
will be unable to elect any person as a director. Whenever the approval of a
majority of the outstanding shares of a series of Great Hall is required in
connection with shareholder approval of an investment advisory agreement,
changes in the investment objectives, policies or limitations of that series,
or changes in the distribution expense plan, a "majority" shall mean the vote
of the lesser of: (a) 67% or more of the shares of such series present at a
meeting, if the holders of more than 50% of the outstanding shares of such
series are present in person or by proxy; or (b) more than 50% of the
outstanding shares of such series. Dain Rauscher Incorporated is the record
owner of all the shares of each Fund. As of July 31, 1998, Kenneth J. Wessels,
60 South Sixth Street, Minneapolis, Minnesota 55402, was the beneficial owner
of 5.9% of Prime Fund's shares. As of the date of this Statement of Additional
Information, the sole beneficial shareholder of Tax-Free Fund was Insight.
Great Hall is not required under Minnesota law to hold annual or
periodically scheduled regular meetings of shareholders, and does not intend to
hold such meetings. The Board of Directors may convene shareholder meetings
when it deems appropriate. In addition, if a regular meeting of shareholders
has not been held during the immediately preceding 15 months, a shareholder or
shareholders holding three percent or more of the voting shares of Great Hall
may demand a regular meeting of shareholders by written notice of demand given
to the chief executive officer or the chief financial officer of Great Hall.
Within 90 days after receipt of the demand, a regular meeting of shareholders
must be held at the expense of Great Hall. Irrespective of whether a regular
meeting of shareholders has been held during the immediately preceding
15 months, in accordance with Section 16(c) of the 1940 Act, the Board of
Directors of Great Hall shall promptly call a meeting of shareholders for the
purpose of voting upon the question of removal of any director when requested
in writing to do so by the record holders of not less than 10% of the
outstanding shares, and Great Hall will assist in communications with other
shareholders as required by the 1940 Act.
Under Minnesota law, the Board of Directors has overall responsibility for
managing Great Hall in good
<PAGE>
faith, in a manner reasonably believed to be in the best interests of Great
Hall, and with the care an ordinarily prudent person in a like position would
exercise in similar circumstances.
Under Minnesota law, directors owe Great Hall and its shareholders certain
fiduciary duties, including a duty of "loyalty" (to act in good faith and in
the best interests of Great Hall) and a duty of "care" (to act with the care
that a reasonably prudent person would exercise under similar circumstances).
Minnesota law authorizes corporations to eliminate the personal monetary
liability of directors to the corporation or its shareholders for breach of the
duty of "care." Directors of corporations adopting such a limitation provision
still owe the corporation this duty of "care," but under most circumstances
cannot be sued for monetary damages for breaches of such duty. The Articles of
Incorporation of Great Hall limit the liability of directors to the fullest
extent permitted by law.
The directors of Great Hall remain fully liable (including possibly for
monetary damages) for breaches of their duty of "loyalty," for self-dealing,
for bad faith and intentional misconduct, and for violations of the 1933 Act,
the Securities Exchange Act of 1934, and certain provisions of Minnesota
corporation law. Additionally, the 1940 Act prohibits limiting a director's
liability for willful misfeasance, bad faith, gross negligence, or reckless
disregard of the director's duties in the conduct of the director's office, and
it is uncertain whether and to what extent directors remain liable for monetary
damages for violations of the 1940 Act. The SEC staff has taken the position
that investment company directors remain liable for monetary damages under
certain circumstances.
Upon issuance and sale in accordance with the terms of the Funds'
Prospectus and Statement of Additional Information, each share of a Fund will
be fully paid and non-assessable. Shares have no preemptive, subscription or
conversion rights and are redeemable as set forth under "How To Redeem Shares"
in the Prospectus. In the event of the dissolution or liquidation of Great
Hall, the holders of the shares of any Fund are entitled to receive, as a
class, the underlying assets of such Fund available for distribution to
shareholders.
COUNSEL AND AUDITORS
Faegre & Benson LLP, 2200 Norwest Center, 90 South Seventh Street,
Minneapolis, Minnesota 55402, serves as Great Hall's general counsel.
Lindquist & Vennum PLLP, 4200 IDS Center, 80 South Eighth Street, Minneapolis,
Minnesota 55402, serves as counsel to Great Hall's disinterested directors.
KPMG Peat Marwick LLP, 90 South Seventh Street, 4200 Norwest Tower,
Minneapolis, Minnesota 55402, has been selected as the independent auditors of
Great Hall for its fiscal year ending July 31, 1999.
FINANCIAL AND OTHER INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information included in Great Hall's Registration Statement filed with
the SEC under the 1933 Act and the 1940 Act (the "Registration Statement") with
respect to the securities offered by the Prospectus and this Statement of
Additional Information. Certain portions of the Registration Statement have
been omitted from the Prospectus and this Statement of Additional Information
pursuant to the rules and regulations of the SEC. The Registration Statement
including the exhibits thereto may be examined at the office of the SEC in
Washington, D.C.
The audited financial statements of Prime Fund for the year ended July 31,
1998 and the related schedule of Investments in Securities contained in Great
Hall's Annual Report to Shareholders for the year ended July 31, 1998 (a copy
of which accompanies this Statement of Additional Information) are hereby
incorporated by reference into this Statement of Additional Information.
Statements contained in the Prospectus or in this Statement of Additional
Information as to any contract or other document referred to 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 of which the Prospectus and this Statement of Additional Information
form a part, each such statement being qualified in all respects by such
reference.
<PAGE>
APPENDIX
RATINGS OF INVESTMENTS
The following is a description of Standard & Poor's Corporation ("S&P")
and Moody's Investors Service, Inc. ("Moody's") commercial paper, loan, note
and bond ratings. To the extent that ratings accorded by S&P or Moody's may
change as a result of changes in such organizations, the Funds will attempt to
use comparable rating standards for their permissible investments.
Description of Moody's Commercial Paper, Loan and Note Ratings.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Repayment capacity will normally be evidenced by the following
characteristics:
bullet Leading market positions in well established industries.
bullet High rates of return on funds employed.
bullet Conservative capitalization structures with moderate reliance
on debt and ample asset protection.
bullet Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
bullet Well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above 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 alternative
liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.
Loans bearing the designation MIG-1 by Moody's are of the best quality,
enjoying strong protection from established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing.
Loans bearing the designation of MIG-2 are of high quality, with margins
of protection ample although not so large as the preceding group.
Loans bearing the designation of MIG-3 are of favorable quality. All
security elements are accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well
established.
Description of S&P's Commercial Paper and Municipal Note Ratings
The rating A is the highest commercial paper rating assigned by S&P.
Issues in this category have the greatest capacity for timely payment and are
delineated with the numbers 1, 2 and 3 to indicate the relative degree of
safety.
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The designation A-1 indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
The designation A-2 indicates that the capacity for timely payment is
strong. However, the relative degree of safety is not as high as for issues
designated "A-1."
The designation A-3 indicates a satisfactory capacity for timely
payment. However, issues with this designation are somewhat more vulnerable
to the adverse effects of changes in circumstances than issues carrying the
higher designations.
Municipal notes rated SP-1 have a very strong or strong capacity to pay
principal and interest. Those issuers determined to possess overwhelming
safety characteristics will be given a plus (+) designation.
Municipal notes rated SP-2 have a satisfactory capacity to pay principal
and interest.
Municipal notes rated SP-3 have a speculative capacity to pay principal
and interest.
Description of S&P's Bond Ratings
AAA-Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from AAA issues only in a small degree.
A-Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Although they normally exhibit 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 bonds in this category than for bonds in higher-rated
categories.
BB, B, CCC, CC, C-Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Plus (+) or (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Description of Moody's Bond Ratings
Aaa-Bonds which 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-edged." 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.
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Aa-Bonds which 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
with respect to Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as 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 which are rated Baa are considered as 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.
Ba-Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Within each rating classification from Aa through B, Moody's has
assigned the numerical modifiers 1, 2 and 3. The modifier 1 indicates that a
security ranks in the high end of that rating category, 2 in the mid-range of
a category and 3 nearer the low end of a category.
