-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H8h/7kwbB5vd3gmN5xcWuQAzJUhBZl4E8hntbkHSsfTZPOEoKYPOHdSWq9NBgDa/ vlcp+O0yPJ7DX0yX+GggSA== 0000891804-04-000631.txt : 20040308 0000891804-04-000631.hdr.sgml : 20040308 20040308171806 ACCESSION NUMBER: 0000891804-04-000631 CONFORMED SUBMISSION TYPE: N-14AE PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20040308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARRIS INSIGHT FUNDS TRUST CENTRAL INDEX KEY: 0001003859 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-14AE SEC ACT: 1933 Act SEC FILE NUMBER: 333-113404 FILM NUMBER: 04655429 BUSINESS ADDRESS: STREET 1: C/O PFPC INC. STREET 2: 760 MOORE ROAD CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 BUSINESS PHONE: 6103828667 MAIL ADDRESS: STREET 1: C/O PFPC INC. STREET 2: 760 MOORE ROAD CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 N-14AE 1 file002.txt HARRIS INSIGHT FUNDS As filed electronically with the Securities and Exchange Commission on 8 March 2004 Securities Act File No. ____________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- Form N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. ____ Post-Effective Amendment No. ____ HARRIS INSIGHT FUNDS TRUST* -------------------------- (Exact Name of Registrant as Specified in Charter) 760 Moore Road, King of Prussia, PA 19406 ----------------------------------------- (Address of Principal Executive Offices including Zip Code) ---------------- Registrant's Telephone Number, including Area Code: 610.239.4590
Name and Address of Agent for Service: Copies to: Thomas J. Ryan Cameron S. Avery, Esq. and G. Nicholas Bullat, Esq. Harris Insight Funds Trust Bell, Boyd & Lloyd LLC Harris Trust & Savings Bank PFPC Inc. Three First National Plaza 111 West Monroe Street 400 Bellevue Parkway 70 West Madison Street 21st Floor East Wilmington, DE 19809 Chicago, IL 60602-4207 Chicago, IL 60603
---------------- Approximate Date of Proposed Public Offering: As soon as practicable after the Registration Statement becomes effective under the Securities Act of 1933. It is proposed that this filing become effective on April 7, 2004, pursuant to Rule 488. Title of Securities Being Registered: Shares of Beneficial Interest, $0.001 par value per share An indefinite amount of the Registrant's securities has been registered under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940. In reliance upon such Rule, no filing fee is being paid at this time. *On behalf of the Harris Insight High Yield Bond Fund HARRIS INSIGHT HIGH YIELD SELECT BOND FUND 760 MOORE ROAD KING OF PRUSSIA, PA 19406 Special Shareholder Meeting on May 14, 2004 Dear Shareholder: As a shareholder of Harris Insight High Yield Select Bond Fund (the "Select Fund"), a series of Harris Insight Funds Trust (the "Trust"), you are requested to vote on a proposal to merge the Select Fund into Harris Insight High Yield Bond Fund (the "High Yield Bond Fund"), another series of the Trust in which the Select Fund invests all of its investable assets. The Select Fund will hold a special meeting of shareholders on May 14, 2004 to vote on the proposed merger. The specific details and reasons for the proposed merger are contained in the enclosed Combined Prospectus and Proxy Statement. YOUR BOARD OF TRUSTEES HAS UNANIMOUSLY APPROVED THE PROPOSAL AND RECOMMENDED THAT YOU VOTE "FOR" THE PROPOSAL. Your vote is important, regardless of the number of shares you own. IT IS IMPORTANT THAT WE RECEIVE YOUR VOTE NO LATER THAN THE TIME OF THE MEETING. If you have more than one account registered in your name, you will receive a separate proxy card for each account. PLEASE VOTE AND RETURN EACH PROXY CARD THAT YOU RECEIVE TO AVOID THE EXPENSE OF A FOLLOW-UP MAILING BY VOTING TODAY! If you have any questions regarding the enclosed Combined Prospectus and Proxy Statement, please call us at 1-800-982-8782. We appreciate your participation and prompt response in these matters and thank you for your continued support. Sincerely, Peter P. Capaccio, President Harris Insight Funds Trust April __, 2004 HARRIS INSIGHT HIGH YIELD SELECT BOND FUND 760 MOORE ROAD KING OF PRUSSIA, PA 19406 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS ON MAY 14, 2004 A Special Meeting of the shareholders of Harris Insight High Yield Select Bond Fund (the "Select Fund") has been called to be held at 10:00 a.m. Central Time on May 14, 2004, at the offices of Harris Trust and Savings Bank, 111 West Monroe, Chicago, Illinois for the following purposes: 1. To approve an Agreement and Plan of Reorganization providing for the sale of all of the assets of the Select Fund to, and the assumption of all of the liabilities of the Select Fund by, Harris Insight High Yield Bond Fund (the "High Yield Bond Fund") in return for shares of the High Yield Bond Fund and the distribution of such shares to the shareholders of the Select Fund in complete liquidation of the Select Fund. 2. To consider and act upon any other matters that may properly come before the meeting and any adjourned session of the meeting. Shareholders of record at the close of business on March 19, 2004, are entitled to notice of and to vote at the meeting and any adjourned session. By order of the Board of Trustees, David Lebisky, Secretary April __, 2004 YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. YOU CAN VOTE EASILY AND QUICKLY BY MAIL OR IN PERSON. SEE THE ENCLOSED PROXY CARD FOR INSTRUCTIONS. PLEASE HELP AVOID THE EXPENSE OF A FOLLOW-UP MAILING BY VOTING TODAY! COMBINED PROSPECTUS AND PROXY STATEMENT APRIL __, 2004 ACQUISITION OF THE ASSETS AND LIABILITIES OF HARRIS INSIGHT HIGH YIELD SELECT BOND FUND BY AND IN EXCHANGE FOR SHARES OF HARRIS INSIGHT HIGH YIELD BOND FUND C/O HARRIS INSIGHT FUNDS TRUST 760 MOORE ROAD KING OF PRUSSIA, PA 19406 800-982-8782 TABLE OF CONTENTS Page QUESTIONS AND ANSWERS..........................................................1 PROPOSED ACQUISITION OF THE SELECT FUND BY THE HIGH YIELD BOND FUND............7 The Proposal..........................................................7 Principal Investment Risks............................................7 Information About the Acquisition.....................................8 INFORMATION ABOUT SHAREHOLDER MEETING.........................................17 Voting Information...................................................17 Information About the Proxies and the Conduct of the Meeting.........18 ADDITIONAL INFORMATION ABOUT THE HIGH YIELD BOND FUND.........................20 Investment Adviser and Sub-Adviser...................................20 Pricing of Fund Shares...............................................21 Shareholder Services.................................................21 Dividends and Tax Considerations.....................................31 Distribution Arrangements............................................32 Financial Highlights.................................................33 APPENDIX A - AGREEMENT AND PLAN OF REORGANIZATION...........................A-1 APPENDIX B - MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE OF HIGH YIELD BOND FUND....................................B-1 This Combined Prospectus and Proxy Statement ("Prospectus/Proxy") contains information you should know before voting on the Agreement and Plan of Reorganization dated as of February 24, 2004 (the "Plan"), relating to the proposed acquisition (the "Proposal") of the Harris Insight High Yield Select Bond Fund (the "Select Fund") by the Harris Insight High Yield Bond Fund (the "High Yield Bond Fund" and, together with the Select Fund, the "Funds") (the "Acquisition") at a Special Meeting of Shareholders of the Select Fund (the "Meeting"), which has been called to be held at 10:00 a.m., Central Time, on May 14, 2004, at the offices of Harris Trust and Savings Bank, 111 West Monroe, Chicago, Illinois. Each Fund is a series of Harris Insight Funds Trust (the "Trust"), a registered, open-end management investment company. Each Fund seeks to provide a high level of total return through a combination of income and capital appreciation. The Select Fund invests all of its investable assets in the Institutional Shares class of the High Yield Bond Fund. You should read this Prospectus/Proxy, which contains important information you should know, and keep it for future reference. The meeting notice, this Prospectus/Proxy and proxy cards are being mailed to shareholders beginning on or about April 12, 2004. The Proposal relates to the proposed acquisition of the Select Fund by the High Yield Bond Fund. If the Acquisition occurs, you will become a shareholder of the High Yield Bond Fund unless you redeem your shares before the Acquisition. If the Plan is approved by the shareholders of the Select Fund and the Acquisition occurs, the Select Fund will transfer all of the assets and liabilities attributable to each class of its shares to the High Yield Bond Fund in return for shares of a similar class of the High Yield Bond Fund with the same aggregate net asset value as the net value of the assets and liabilities transferred. Shares of each class received by the Select Fund will be distributed pro rata to the Select Fund's shareholders of the corresponding class. Shareholders of the Select Fund are being asked to vote on the Proposal. Please review this Proposal carefully. The following documents have been filed with the Securities and Exchange Commission (the "SEC") and are incorporated into this Prospectus/Proxy by reference: o The combined Prospectuses for the Trust's A, B and N shares and Institutional Shares each dated May 1, 2003, pertaining to the Select Fund, as supplemented (Accession Numbers 0000891804-03-000997, 0000891804-03-001467, 0000891804-03-002672, and 0000891804-04-000284); o The Statement of Additional Information for the Trust dated May 1, 2003, as supplemented which contains information about the Select Fund and the High Yield Bond Fund (attached as Appendix A to the Statement of Additional Information dated April __, 2004, pertaining to the Prospectus/Proxy ; o The Statement of Additional Information dated April __, 2004, pertaining to this Prospectus/Proxy; and o Management's Discussion of Fund Performance, the Report of Independent Accountants and the financial statements for the High Yield Bond Fund and Select Fund, included in the Annual Report to shareholders of the Trust dated December 31, 2003. The High Yield Bond Fund and the Select Fund have previously sent their Annual Report to their shareholders. For a free copy of that Report or any of the documents listed above, you may write to the Trust at Harris Insight Funds Trust, 400 Bellevue Parkway, Wilmington, Delaware 19809 or by call the Trust toll-free at 1-800-982-8782. Text-only versions of the documents can be viewed online or downloaded from the EDGAR database on the SEC's Internet site at www.sec.gov. You can review and copy information about the Funds by visiting the Public Reference Room, U.S. Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, DC 20549-0102. In addition, these materials can be inspected and copied at the SEC's regional offices at The Woolworth Building, 233 Broadway, New York, New York 10279, 1801 California Street, Suite 4800, Denver, Colorado 80202, and 175 W. Jackson Boulevard, Suite 900, Chicago, Illinois 60604. You can obtain copies, upon payment of a duplicating fee, by sending an e-mail request to publicinfo@sec.gov or by writing to the Public Reference Room at the address above. ii Information on the operation of the Public Reference Room may be obtained by calling 202-942-8090. THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS/PROXY IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. iii QUESTIONS AND ANSWERS THE FOLLOWING QUESTIONS AND ANSWERS PROVIDE AN OVERVIEW OF KEY FEATURES OF THE ACQUISITION AND OF THE INFORMATION CONTAINED IN THIS PROSPECTUS/PROXY. PLEASE REVIEW THE FULL PROSPECTUS/PROXY PRIOR TO CASTING YOUR VOTE. 1. WHAT IS BEING PROPOSED? The Board of Trustees of the Trust is recommending approval of a transaction in which the High Yield Bond Fund would acquire the Select Fund. This means that the High Yield Bond Fund would acquire all of the assets and liabilities of the Select Fund in return for shares of the High Yield Bond Fund that would be distributed to shareholders of the Select Fund. The High Yield Bond Fund and the Select Fund are each a series of the Trust and have the same investment objectives, policies and strategies, except that the Select Fund seeks to meet its investment objective by investing all of its investable assets in the Institutional Shares class of the High Yield Bond Fund. Please see the answer to Question 4 below for more information comparing the investment objectives, strategies and policies of the Funds. If the Acquisition relating to the Select Fund is approved and the Acquisition is consummated, your shares of the Select Fund will be cancelled and you will receive shares of the corresponding class of the High Yield Bond Fund with an aggregate net asset value equal to the aggregate net asset value of your Select Fund shares as of the business day before the closing of the Acquisition. The Acquisition is currently scheduled to take place on or around May 17, 2004. 2. WHY IS THE ACQUISITION BEING PROPOSED? The Board of Trustees of the Trust recommends approval of the Acquisition because it offers shareholders of the Select Fund the opportunity to invest in a larger fund (allowing the potential for more efficient operations by spreading relatively fixed costs, such as audit and legal fees, over a larger asset base). In reviewing the Acquisition, the Trustees also considered the following factors, among others: o the Select Fund invests all of its investable assets in the High Yield Bond Fund, and thus is invested in the same portfolio of securities as the High Yield Bond Fund; o based on estimated expense ratios calculated using each Fund's net assets and numbers of shareholders as of December 31, 2003, shareholders of the Select Fund are expected to experience the same or lower net expenses; and o the Acquisition is expected to be tax-free for shareholders of the Select Fund who choose to remain shareholders of the High Yield Bond Fund, while liquidation or shareholder redemption would be a realization event for tax purposes. Please review "Reasons for the Acquisition" in the "Information About the Acquisition" section under "Proposal" in this Prospectus/Proxy for more information regarding the factors considered by the Trustees. 3. HOW DO THE MANAGEMENT FEES AND EXPENSES OF THE FUNDS COMPARE, AND WHAT ARE THEY ESTIMATED TO BE FOLLOWING THE ACQUISITION? The following tables allow you to compare the sales charges and management fees and expenses of the Select Fund and the High Yield Bond Fund and to analyze the estimated expenses that Harris Investment Management, Inc., the investment adviser to the High Yield Bond Fund (the "Adviser") expects will be applicable to the combined fund in the first year following the Acquisition. As part of the Acquisition, holders of Class A Shares of the Select Fund will receive Class A Shares of the High Yield Bond Fund; holders of Class N Shares of the Select Fund will receive Class N Shares of the High Yield Bond Fund; and holders of Institutional Shares of the Select Fund will receive Institutional Shares of the High Yield Bond Fund. The shareholder fees presented below for the High Yield Bond Fund apply both before and after giving effect to the Acquisition. Sales charges, if applicable, are paid directly by shareholders to the relevant Fund's distributor. Annual Fund Operating Expenses are paid by each Fund. The Annual Fund Operating Expenses shown in the tables below represent expenses for each Fund for its last fiscal year (ended December 31, 2003) and those expected to be incurred by the combined fund on a pro forma basis (after giving effect to the Acquisition) and based on pro forma combined net assets as of December 31, 2003. Shareholders of the Select Fund will not pay additional sales charges as a result of the Acquisition, although any contingent deferred sales charge ("CDSC") will continue to apply. However, they will be charged a 2.00% redemption fee if they redeem shares from the High Yield Bond Fund within any period during which the redemption fee applies. This redemption fee will not apply to shares of the High Yield Bond Fund received by shareholders as a result of the Acquisition. SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT)
Select Fund High Yield Bond Fund ---------------------------------------- ------------------------------------------ Institutional Institutional Class A N Shares Shares Class A N Shares Shares ------- -------- ------ ------- -------- ------ - --------------------------------------- ------------- ------------- ------------ -------------- ------------- ------------- Maximum sales charge (load) imposed 4.50%* None None 4.50%* None None on purchases Maximum deferred sales charge (load or CDSC) on redemptions (as a percentage of the lower net asset value at the time of purchase or at redemption) 1.00%* None None 1.00%* None None Maximum sales charge (load) imposed on reinvested dividends None None None None None None Redemption fee None None None 2.00%** 2.00%** 2.00%** Exchange fee None None None None None None
* Sales charge waivers and reduced sales charge plans are available for A Shares. If A Shares purchased without an initial sales charge (purchases of $1,000,000 or more) are redeemed within two years after purchase, a contingent deferred sales charge of up to 1.00% will be applied to the redemption. 2 ** To discourage short-term trading, shareholders are charged a 2.00% fee if they redeem shares from the High Yield Bond Fund within 90 days of purchase. ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS) Select Fund /1/ - --------------- Class A N Shares Institutional ------- -------- ------------- Shares ------ Investment Advisory Fees 0.45% 0.45% 0.45% Rule 12b-1 Fees 0.25% None None Shareholder Servicing Fees None 0.25% None Other Expenses 0.96% 1.00% 1.00% - ---------------------------------- -------------- --------------- -------------- Total Operating Expenses 1.66% 1.70% 1.45% /1/ The Select Fund's annual operating expenses consist of Select Fund expenses plus the Select Fund's share of expenses of the Institutional Shares class of the High Yield Bond Fund. The expenses of the High Yield Bond Fund are based on expenses incurred by the High Yield Bond Fund during its most recent fiscal year. Expenses do not reflect voluntary waivers of investment advisory fees by the Adviser, administrative fees by Harris Trust and Savings Bank ("Harris Trust") and sub-administration fees by PFPC, Inc. These waivers are expected to remain in effect until at least December 31, 2004 and may be decreased by the Adviser, Harris Trust and/or PFPC, Inc. After these waivers, annual Fund operating expenses were: Class A N Shares Institutional ------- -------- ------------- Shares ------ Investment Advisory Fees 0.34% 0.34% 0.34% Rule 12b-1 Fees 0.25% None None Shareholder Servicing Fees None 0.25% None Other Expenses 0.41% 0.41% 0.41% - ---------------------------------- -------------- --------------- -------------- Total Operating Expenses 1.00% 1.00% 0.75% High Yield Bond Fund /1/ - ------------------------ Class A N Shares Institutional ------- -------- ------------- Shares ------- Investment Advisory Fees 0.45% 0.45% 0.45% Rule 12b-1 Fees 0.25% None None Shareholder Servicing Fees None 0.25% None Other Expenses 0.28% 0.28% 0.28% - ---------------------------------- ------------- -------------- ---------------- Total Operating Expenses 0.98% 0.98% 0.73% /1/ Expenses for Class A Shares and Class N Shares are based on expenses incurred by the Institutional Shares class of the Fund during its most recent fiscal year. Expenses do not reflect voluntary waivers of investment advisory fees by the Adviser, administrative fees by Harris Trust and sub-administration fees by PFPC, Inc. These waivers are expected to remain in effect until at least December 31, 2004 and may be decreased by the Adviser, Harris Trust and/or PFPC, Inc. After these waivers, annual fund operating expenses were: 3 Class A N Shares Institutional ------- -------- ------------- Shares ------- Investment Advisory Fees 0.34% 0.34% 0.34% Rule 12b-1 Fees 0.25% None None Shareholder Servicing Fees None 0.25% None Other Expenses 0.27% 0.27% 0.27% - ---------------------------------- ------------- -------------- ---------------- Total Operating Expenses 0.86% 0.86% 0.61% High Yield Bond Fund (pro forma estimated combined) - --------------------------------------------------- Class A N Shares Institutional ------- -------- ------------- Shares ------- Investment Advisory Fees 0.45% 0.45% 0.45% Rule 12b-1 Fees 0.25% None None Shareholder Servicing Fees None 0.25% None Other Expenses /1/ 0.40% 0.40% 0.40% - ---------------------------------- ------------- -------------- ---------------- Total Operating Expenses /1/ 1.10% 1.10% 0.85% /1/ Expenses are estimated based on expenses incurred by the High Yield Bond Fund and the Select Fund during their most recent fiscal years, and adjusted for certain expenses expected to be incurred. Expenses do not reflect voluntary waivers of investment advisory fees by the Adviser, administrative fees by Harris Trust and sub-administration fees by PFPC, Inc. These waivers are expected to remain in effect until at least December 31, 2004 and may be decreased by the Adviser, Harris Trust and/or PFPC, Inc. After these waivers, annual fund operating expenses were: Class A N Shares Institutional ------- -------- ------------- Shares ------- Investment Advisory Fees 0.26% 0.26% 0.26% Rule 12b-1 Fees 0.25% None None Shareholder Servicing Fees None 0.25% None Other Expenses 0.35% 0.35% 0.35% - ---------------------------------- ------------- -------------- ---------------- Total Operating Expenses 0.86% 0.86% 0.61% EXPENSE EXAMPLE This example is intended to help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs and the return on your investment may be higher or lower, based on these assumptions your costs would be: 4 SELECT FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A 611 950 1,312 2,327 N Shares 173 536 923 2,009 Institutional Shares 148 459 792 1,735 HIGH YIELD BOND FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A 545 748 967 1,597 N Shares 100 312 542 1,201 Institutional Shares 75 233 406 906 SELECT FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS (PRO FORMA ESTIMATED COMBINED) Class A 557 784 1,029 1,730 N Shares 112 350 606 1,340 Institutional Shares 87 271 471 1,049 The projected post-Acquisition pro forma Annual Fund Operating Expenses and Expense Example presented above are based upon numerous material assumptions, including (1) that the current contractual agreements will remain in place and (2) certain fixed costs involved in operating the Select Fund are eliminated. Although these projections represent good faith estimates, there can be no assurance that any particular level of expenses or expense savings will be achieved, because expenses depend on a variety of factors, including the future level of fund assets, many of which are beyond the control of the High Yield Bond Fund or the Adviser. 4. HOW DO THE INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES OF THE FUNDS COMPARE? The Select Fund and the High Yield Bond Fund have the same investment objective and substantially similar investment strategies. Each Fund seeks to provide a high level of total return through a combination of income and capital appreciation. The Select Fund seeks to achieve its investment objective by investing all of its investable assets in Institutional Shares of the High Yield Bond Fund. The High Yield Bond Fund seeks to achieve its investment objective as follows: o The High Yield Bond Fund invests at least 80% of its assets in domestic and foreign bonds, commonly known as "junk bonds", that have a credit quality rated below "Baa" by Moody's Investors Service, Inc. ("Moody's') and "BBB" by Standard and Poor's Corporation ("Standard & Poor's"). The High Yield Bond Fund may also invest in a broad range of interest-rate sensitive securities, including preferred stocks, interest-rate futures contracts, and foreign currency futures and forwards for the purposes of hedging. The High Yield Bond Fund may also invest up to 20% of its assets in common stocks and convertible securities. Convertible securities are bonds, debentures, notes, preferred stock or other securities that are convertible into common stock. Convertible securities have some unique return characteristics relative to market fluctuations: (a) when equity markets go up, they tend to rise in price; and (b) when interest rates rise, they tend to decline relatively less in price than long-term bonds 5 A bond's credit quality depends on the issuer's ability to pay interest on the bond and ultimately, to repay the principal. Credit quality is evaluated by one of the independent bond-rating agencies (for example, Moody's or Standard & Poor's) or by a fund adviser's independent analysis. The lower the rating, the greater the chance - in the rating agency's or adviser's opinion - that the bond issuer will default, or fail to meet its payment obligations. All things being equal, the lower a bond's credit rating, the higher its yield should be to compensate investors for assuming additional risk. Bonds rated in one of the four highest rating categories are considered "investment-grade"; other bonds may be considered by the Adviser to be investment grade. o Achievement of the High Yield Bond Fund's investment objective will be more dependent on the Adviser's credit analysis than would be the case if this Fund were investing in higher-quality debt securities. The Adviser's analysis may take into consideration such quantitative factors as an issuer's present and potential liquidity, profitability, internal capability to generate funds, debt/equity ratio and debt servicing capabilities, and such qualitative factors as an assessment of management, industry characteristics, accounting methodology, and foreign business exposure. o During periods of adverse market conditions, the High Yield Bond Fund may temporarily invest a substantial portion of its assets in investment-grade fixed income securities and money market instruments, and, during that period, the High Yield Bond Fund may not be able to meet its investment objective. High yield bonds, or "junk bonds", are bonds issued by companies or other entities whose ability to pay interest and principal on their debts in a timely manner is considered questionable. Such bonds are rated "below investment-grade" by independent rating agencies. Because they are riskier than investment grade bonds, high yield bonds typically must pay more interest to attract investors. Some high yield bonds are issued by smaller, less-seasoned companies, while others are issued as part of a corporate restructuring, such as an acquisition, merger, or leveraged buyout. Some high yield bonds were once rated as investment-grade but have been downgraded to junk-bond status because of financial difficulties experienced by their issuers. Conversely, an issuer's improving financial condition may result in an upgrading of its junk bonds to investment-grade status. For more information concerning investment policies and restrictions, see each Fund's Statement of Additional Information. 6 5. WHAT CLASS OF HIGH YIELD BOND FUND SHARES WILL I RECEIVE IF THE ACQUISITION RELATING TO THE SELECT FUND OCCURS? If the Acquisition occurs, you will receive shares of the High Yield Bond Fund of the same class as the shares that you currently own in the Select Fund. In comparison with the shares that you currently own in the Select Fund, the shares you receive will have the following characteristics: o They will have an aggregate net asset value equal to the aggregate net asset value of your current shares as of the business day before the closing of the Acquisition; o The procedures for purchasing and redeeming your shares will not change as a result of the Acquisition (except that a 2% redemption fee is charged on shares of the High Yield Bond Fund that are redeemed within 90 days of purchase); and o You will have the same exchange options you currently have. For purposes of determining the CDSC applicable to any redemption of shares you acquire in the Acquisition, the new shares will continue to age from the date you purchased the Select Fund shares. For more information on the characteristics of the High Yield Bond Fund shares you will receive in comparison to the Select Fund shares you currently own, please see the section "Additional Information About the High Yield Bond Fund" of this Prospectus/Proxy. 6. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION? The Acquisition is expected to be tax-free to you for federal income tax purposes. This means that neither you nor the Select Fund is expected to recognize a gain or loss as a result of the Acquisition. Immediately prior to the Acquisition, the Select Fund will declare and pay a distribution of all net investment company taxable income, if any, and net realized capital gains (after reduction by any available capital loss carryforwards), if any, to its shareholders. Your cost basis and holding period in your Select Fund shares are expected to carry over to your new shares of the High Yield Bond Fund. PROPOSED ACQUISITION OF THE SELECT BOND FUND BY THE HIGH YIELD BOND FUND THE PROPOSAL Shareholders of the Select Fund are being asked to approve the Plan and by approving the Plan, you are also approving the Acquisition of the Select Fund by the High Yield Bond Fund under the Plan. The Plan is attached as Appendix A to this Prospectus/Proxy. PRINCIPAL INVESTMENT RISKS 7 The Select Fund invests all of its investable assets in the High Yield Bond Fund. Accordingly, an investment in the Select Fund involves risks that are similar to those to which an investment in the High Yield Bond Fund is subject. The principal investment risks of investment in the Funds are: o CREDIT RISK. The risk that the issuer of a security or the counterparty to a contract will default or otherwise be unable to honor a financial obligation. Debt securities rated below investment-grade are especially susceptible to this risk. o FOREIGN SECURITIES RISK. The risk that the prices of foreign securities may be more volatile than those of their domestic counterparts owing in part to possible political or economic instability; limits on repatriation of capital; exchange controls or exchange rate fluctuations; less publicly available information as a result of accounting, auditing, and financial reporting standards different from those used in the U.S.; more volatile markets; less securities regulation; less favorable tax provisions; war or expropriation. o HIGH YIELD SECURITIES (JUNK BOND) RISK. Securities rated "BB" or below by S&P or "Ba" or below by Moody's are known as "high yield" securities and are commonly referred to as "junk bonds". These securities involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make the payment of interest or principal. o INTEREST RATE RISK. The risk that changing interest rates may adversely affect the value of an investment. With fixed rate securities, an increase in prevailing interest rates typically causes the value of those securities to fall, while a decline in prevailing interest rates generally produces an increase in the market value of the securities. Changes in interest rates will affect the value of longer-term fixed income securities more than shorter-term securities and lower quality securities more than higher quality securities. o LEVERAGE RISK. The risk that downward price changes in a security may result in a loss greater than a fund's investment in the security. This risk exists through the use of certain securities or techniques (e.g., forward or futures contracts, derivative securities or purchases on margin) that tend to magnify changes in an index or market. o PREPAYMENT RISK. The risk that issuers will prepay fixed rate obligations when interest rates fall, forcing a fund to re-invest in obligations with lower interest rates than the original obligations. Because of the speculative nature of each Fund's investments, you should carefully consider the risks associated with the Funds. As with any mutual fund, the value of each Fund's shares will change, and you could lose money on your investment. INFORMATION ABOUT THE ACQUISITION GENERAL 8 Shareholders who object to the Acquisition of the Select Fund by the High Yield Bond Fund will not be entitled under Massachusetts law or the Trust's Declaration of Trust to demand payment for, or an appraisal of, their shares. However, you may redeem or exchange your Select Fund shares at any time prior to the closing of the Acquisition. In addition, shareholders should be aware that the Acquisition as proposed is not expected to result in recognition of gain or loss to shareholders for federal income tax purposes and that, if the Acquisition closes, shareholders will be free to redeem the shares of the High Yield Bond Fund that they receive in the transaction at their current net asset value, less any applicable CDSC. SHARES YOU WILL RECEIVE If the Acquisition occurs, you will receive shares of the High Yield Bond Fund of the same class as the shares that you currently own in the Select Fund. In comparison with the shares that you currently own in the Select Fund, the shares you receive will have the following characteristics: o They will have an aggregate net asset value equal to the aggregate net asset value of your current shares as of the business day before the closing of the Acquisition; o The procedures for purchasing and redeeming your shares will not change as a result of the Acquisition (except that a 2% redemption fee is charged on shares of the High Yield Bond Fund which are redeemed within 90 days of purchase); and o You will have the same exchange options you currently have. For purposes of determining the CDSC applicable to any redemption of shares you acquire in the Acquisition, the new shares will continue to age from the date you purchased the Select Fund shares. After the Acquisition, the shares acquired in the Acquisition may be exchanged for shares of the same class of any other fund in the Harris Insight Funds Trust without the payment of an additional sales charge or CDSC. REASONS FOR THE ACQUISITION At the time the Board of Trustees established the Master Fund/Feeder Fund structure, the Board of Trustees believed that the Select Fund would be able to realize certain economies of scale by investing its assets in the High Yield Bond Fund. The Board of Trustees anticipated that the High Yield Bond Fund would have a larger investment portfolio resulting from multiple feeder funds and, consequently, be able to achieve a lower ratio of operating expenses to net assets than the individual feeder funds would have been able to achieve. Since the time the Master Fund/Feeder Fund structure was implemented, the High Yield Bond Fund has not realized the lower expense ratio that had been expected. The relatively small asset bases of each of the Funds make them uneconomical to operate as separate portfolios. At a meeting held on February 24, 2004, the Board of Trustees, including all of the trustees who are not "interested persons" of the Trust (as defined by the Investment Company Act of 1940), determined that the Acquisition would be in the best interests of the shareholders of the Select Fund and the High Yield Bond Fund and that the interests of the shareholders of the Select Fund and High Yield Bond Fund would not be diluted as result of the proposed 9 transaction. The Board of Trustees of the Trust has unanimously approved the Acquisition and recommends that you vote in favor of the Acquisition by approving the Plan, a form of which is attached as Appendix A to this Prospectus/Proxy. In proposing the Acquisition, the Trust's officers presented to the Trust's Board of Trustees, at meetings held on January 28, 2004, the following reasons for the Select Fund to enter into the Acquisition: o The Select Fund and the High Yield Bond Fund are invested in the same portfolio of securities. o Based on estimated expense ratios calculated using each Fund's net assets and numbers of shareholders as of December 31, 2003, shareholders of the Select Fund are expected to experience the same or lower net expenses. o The Acquisition is intended to create a larger fund, and this will permit fixed costs to be spread over a larger asset base, potentially resulting in economies of scale over time. o The Acquisition is intended to permit the Select Fund's shareholders to exchange their investment for an investment in the High Yield Bond Fund without recognizing gain or loss for federal income tax purposes. By contrast, if a Select Fund shareholder were to redeem his or her shares to invest in another fund, such as the High Yield Bond Fund, the transaction would be a taxable event for such shareholder. Similarly, if the Select Fund were liquidated or reorganized in a taxable transaction, the transaction would be a taxable event for the Select Fund's shareholders. After the Acquisition, shareholders may redeem any or all of their High Yield Bond Fund shares at net asset value (subject to any applicable CDSC, as with a redemption of their Select shares) at any time, at which point they would recognize a taxable gain or loss. The Board of Trustees carefully evaluated the information they deemed necessary to enable them to determine whether the Acquisition will be in the best interests of the shareholders. In addition to the reasons above, the Board also considered the following: o Shareholders of the Select Fund will receive shares of the High Yield Bond Fund having an aggregate net asset value equal to that of their Select Fund shares and will not bear any costs of the Acquisition; o The Funds have the same investment objective, strategies and policies (except that the Select Fund invests substantially all of its investable assets in the High Yield Bond Fund). The Acquisition would permit shareholders of the Select Fund to pursue substantially the same investment goals in a larger combined Fund. o Merging the Select Fund and the High Yield Bond Fund is expected to result in various operating efficiencies, and that the elimination of the dual structure within the same fund family would also alleviate shareholder confusion. 10 o The Acquisition also is expected to result in economies for the Adviser, and may reduce the expense reimbursements payable by the Adviser, Harris Trust or PFPC, Inc. to the Funds. o In addition, the Board considered that shareholders of the Select Fund who do not want to become shareholders of the High Yield Bond Fund, whether because they wish to realize an unrealized loss on their shares or otherwise, could exchange their shares in the Select Fund for shares in another Harris Insight Fund or redeem their shares in the Select Fund prior to the Acquisition. o The Trustees also considered the fact that if the Acquisition occurs, the Select Fund's capital loss carryovers will be available to the High Yield Bond Fund to offset its capital gains, although the amount of those losses that may offset the High Yield Bond Fund's capital gains in any given year may be limited. As a result of that limitation, it is possible that the High Yield Bond Fund may not be able to use those losses as rapidly as the Select Fund might have, and part of those losses may not be usable at all. The ability of the Select Fund or the High Yield Bond Fund to absorb losses in the future depends on a variety of factors that cannot be known in advance, including the existence of capital gains against which those losses may be offset. Net capital losses of regulated investment companies generally expire at the end of the eighth taxable year after they arise, if not previously absorbed by that time; therefore, it is possible that some or all of the Select Fund's losses will expire unused. In addition, the benefits of any capital loss carryovers currently are available only to the shareholders of the Select Fund, but after the Acquisition these benefits will inure to all the shareholders of the High Yield Bond Fund. If shareholders do not approve the Proposal, the Trustees of the Trust will consider what alternatives may then be available. TERMS OF THE PLAN If approved by the shareholders of the Select Fund, the Acquisition is expected to occur on or around May 17, 2004. A form of the Plan is attached as Appendix A to this Prospectus/Proxy for your review. The following is a brief summary of the principal terms of the Plan: o The Select Fund will transfer all of the assets and liabilities attributable to each class of its shares to the High Yield Bond Fund in return for shares of the same class of the High Yield Bond Fund with an aggregate net asset value equal to the net value of such assets and liabilities. o The Acquisition will occur on the next business day after the time (currently scheduled to be prior to 3:00 p.m. central time on May 17, 2004, or such other date and time as the parties may determine) when the assets of each Fund are valued for purposes of the Acquisition. o The shares of each class of the High Yield Bond Fund received by the Select Fund will be distributed to the shareholders of the Select Fund's corresponding class pro rata in accordance with their percentage ownership of such class of the Select Fund in full liquidation of the Select Fund. 11 o After the Acquisition, the Select Fund will be terminated, and its affairs will be wound up in an orderly fashion. o The Acquisition requires approval by the Select Fund's shareholders and satisfaction of a number of other conditions; the Acquisition may be terminated at any time with the approval of the Board of Trustees of the Trust. FEDERAL INCOME TAX CONSEQUENCES The Acquisition is intended to be a tax-free reorganization. It is expected that Bell, Boyd & Lloyd LLC will deliver to the Select Fund and the High Yield Bond Fund an opinion, and the closing of the Acquisition will be conditioned on receipt of a letter from Bell, Boyd & Lloyd LLC confirming such opinion, to the effect that, on the basis of existing law under specified sections of the Internal Revenue Code of 1986, as amended (the "Code"), although not entirely free from doubt, for federal income tax purposes: o Under Section 361 or Section 354 of the Code, respectively, no gain or loss will be recognized by the Select Fund or the shareholders of the Select Fund as a result of the Acquisition; o Under Section 358 of the Code, the tax basis of the High Yield Bond Fund shares you receive will be the same, in the aggregate, as the aggregate tax basis of your Select Fund shares exchanged therefor, as applicable; o Under Section 1223(1) of the Code, your holding period for the High Yield Bond Fund shares you receive will include the holding period for your Select Fund shares exchanged therefor, as applicable, if you hold your shares as a capital asset; o Under Section 1032 of the Code, no gain or loss will be recognized by the High Yield Bond Fund as a result of the Acquisition; o Under Section 362(b) of the Code, the High Yield Bond Fund's tax basis in the assets that the High Yield Bond Fund receives from the Select Fund will be the same as the Select Fund's basis in such assets; and o Under Section 1223(2) of the Code, the High Yield Bond Fund's holding period in such assets will include the Select Fund's holding period in such assets. The opinion and the confirmation letter will be based on certain factual certifications made by officers of the Trust. No opinion or confirmation letter is a guarantee that the tax consequences of the Acquisition will be as described above. Prior to the closing of the Acquisition, the Select Fund will distribute to its shareholders all of its respective net investment company taxable income, if any, and net realized capital gains (after reduction by any available capital loss carryforwards), if any, that have not previously been distributed to shareholders. Such distributions will be taxable to shareholders. This description of the federal income tax consequences of the Acquisition does not take into account your particular facts and circumstances. Consult your own tax adviser about the effect of state, local, foreign, and other tax laws. 12 PERFORMANCE INFORMATION The charts and tables below give an indication of each Fund's risks and performance. Each chart shows you how the performance of the Fund's Institutional Shares has varied from year to year. Each Fund also offers Class A Shares and Class N Shares, which are subject to sales charges, 12b-1 fees and different expenses that are not reflected in the bar chart. If those amounts were included, returns would be less than shown. Each table compares the Fund's performance over time to those of broad measures of market performance. Each table also includes after-tax returns for the Fund's Institutional Shares. After-tax returns are intended to show the impact of assumed federal income taxes on an investment in the Fund's Institutional Shares. After-tax returns of A Shares and N Shares classes will vary. After-tax returns have been calculated using the highest individual federal marginal income tax rate in effect at the time of each distribution and assumed sale of Fund shares, but do not reflect the impact of state and local taxes. Your actual after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns reflect past tax effects and are not predictive of future tax effects. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts or to investors who are tax-exempt. When you consider this information, please remember that the Fund's past performance, before and after taxes, is not necessarily an indication of how it will perform in the future. SELECT FUND PERFORMANCE INFORMATION YEAR-BY-YEAR TOTAL RETURN /1/ (as of 12/31 each year)
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 - -3.09% 19.18% 21.05% 18.68% -1.80% 32.07% -6.48% -15.35% -11.89% 17.11%
- ------------------ ----------- ---------- ----------------- ---------- --------- Best Quarter: Q4 1999 25.25% Worst Quarter: Q3 2001 -19.36% - ------------------ ----------- ---------- ----------------- ---------- --------- 13 AVERAGE ANNUAL TOTAL RETURN /1/, /2/ (for the periods ending 12/31/03) - ----------------------------------------------------------------- SELECT FUND Life of Fund 1 Year 5 Years (3/24/97) Institutional Shares Return Before Taxes 17.11% 1.53% 2.85% Return After Taxes on Distributions 14.34% -0.69% -0.11% Return After Taxes on Distributions and Sale of Fund Shares 11.00% 0.22% 0.98% A Shares 11.41% 0.32% 1.81% N Shares 16.82% 1.28% 2.52% CS FIRST BOSTON CONVERTIBLE SECURITIES INDEX 27.99% 7.63% 9.00% BEAR STEARNS HIGH YIELD BOND INDEX 28.92% 5.10% 5.90% 1 Prior to January 2, 2003, the Fund was named the Harris Insight Convertible Securities Fund and had a different investment objective, strategy and policies. The Fund is the successor, effective March 24, 1997, to a collective investment fund managed by Harris Trust with investment objectives and policies that were, in all material respects, equivalent to those of the Fund. The performance of the Fund shown in the bar chart includes the performance of the predecessor fund from its inception on January 1, 1985 until its conversion into a mutual fund. The predecessor fund's performance was adjusted to reflect the Fund's estimate of its expense ratio for the first year of operation as a mutual fund. The predecessor fund was not registered under the 1940 Act nor was it subject to certain investment limitations, diversification requirements, and other restrictions imposed by the 1940 Act and the Internal Revenue Code, which, if applicable, may have adversely affected the performance results. The Fund's average annual total returns in the table do not include the performance of the predecessor collective investment fund. The Fund's returns for the period ended 12/31/03, including the performance of the predecessor fund, are ____% and ____% for 10 Years for the Fund's N Shares and Institutional Shares, respectively. The performance of the CS First Boston Convertible Securities Index and the Bear Stearns High Yield Bond Index for the same period are ____%, and____%, respectively. 2 Performance in the table, for periods before the inception of the Fund's A Shares on January 13, 2000, reflects performance of the Fund's N Shares, adjusted for A Shares sales charge and expenses. The Fund does not offer B Shares. HIGH YIELD BOND FUND PERFORMANCE INFORMATION Total Return and Average Annual Total Return information is for the Fund's Institutional Shares because the A Shares and N Shares classes have not commenced operations as of the date of this Prospectus/Proxy. YEAR-BY-YEAR TOTAL RETURN /1/ (as of 12/31 each year) 2000 2001 2002 2003 6.02% 8.02% 0.09% 18.15% - ------------------ ----------- ---------- ----------------- ---------- --------- Best Quarter: Q2 2003 6.71% Worst Quarter: Q2 2002 -3.71% - ------------------ ----------- ---------- ----------------- ---------- --------- 14 AVERAGE ANNUAL TOTAL RETURN /1/ (for the periods ending 12/31/03) - ----------------------------------------------------------------- Life of Fund 1 Year (9/23/02) HIGH YIELD BOND FUND Return Before Taxes 18.15% 17.38% Return After Taxes on Distributions 15.06% 14.22% Return After Taxes on Distributions and Sale of Fund Shares 11.75% 12.89% BEAR STEARNS HIGH YIELD BOND INDEX 28.92% 29.94% 1 The Fund is the successor, effective September 23, 2002, to a collective investment fund managed by Harris Trust with investment objectives and policies that were, in all material respects, equivalent to those of the Fund. The performance of the Fund shown in the bar chart includes the performance of the predecessor fund from its inception on July 12, 1999 until its conversion into a mutual fund. The predecessor fund's performance was adjusted to reflect the Fund's estimate of its expense ratio for the first year of operation as a mutual fund. The predecessor fund was not registered under the 1940 Act nor was it subject to certain investment limitations, diversification requirements, and other restrictions imposed by the 1940 Act and the Internal Revenue Code, which, if applicable, may have adversely affected the performance results. The Fund's average annual total returns in the table do not include the performance of the predecessor collective investment fund. The Fund's Institutional Shares returns for the period ended 12/31/03, including the performance of the predecessor fund, is 7.63% for Life of Fund (7/12/99). The performance of the Bear Stearns High Yield Bond Index for the same period is 5.30%. Additional discussion of the manner of calculation of total return is contained in each Fund's Statement of Additional Information. CAPITALIZATION The following table shows on an unaudited basis the capitalization of each of the Select Fund and the High Yield Bond Fund as of March 1, 2004, and on a pro forma basis, giving effect to the acquisition of the assets and liabilities of Select Fund by the High Yield Bond Fund at net asset value as of that date.
HIGH YIELD BOND FUND PRO FORMA COMBINED SELECT FUND HIGH YIELD BOND FUND+ PRO FORMA ADJUSTMENTS (1) (2) Class A Shares(3) Net asset value 216,897 216,897 Shares outstanding 11,952 16,791 Net asset value per share 18.15 12.92 Class N Shares(3) Net asset value 459,850 459,850 Shares outstanding 25,328 35,599 Net asset value per share 18.16 12.92 Institutional Shares (3) Net asset value 17,476,554 64,690,691 -18,059,118 64,108,127 15 Shares outstanding 962,531 5,008,024 -1,397,764 4,962,925 Net asset value per share 18.16 12.92 12.92
- ------------------------ + The High Yield Bond Fund will be the accounting survivor for financial statement purposes. (1) Assumes the Acquisition closed on March 1, 2004, and is for information purposes only. No assurance can be given as to how many shares of the High Yield Bond Fund will be received by the shareholders of the Select Fund on the date the Acquisition takes place, and the foregoing should not be relied upon to reflect the number of shares of the High Yield Bond Fund that actually will be received on or after such date. (2) Select Fund shareholders will receive new Class A Shares, Class N Shares, and Institutional Shares of the High Yield Bond Fund in return for Class A Shares, Class N Shares and Institutional Shares, respectively, of the Select Fund upon closing of the Acquisition. (3) Capitalization information is for Class A Shares, Class N Shares, and Institutional Shares of the Select Fund; Institutional Shares of the High Yield Bond Fund; and Class A Shares, Class N Shares, and Institutional Shares of the High Yield Bond Fund pro forma combined. OWNERSHIP OF SHARES The Trust believes that as of February 10, 2004, its Trustees and officers, as a group, owned less than one percent of each class of shares of each Fund and of the Trust as a whole, except for 5.2% of the N Shares class of the Select Fund. As of February 10, 2004, the only persons known to hold beneficially more than 5% of the outstanding A Shares, N Shares, or Institutional Shares of the High Yield Bond Fund or of the Select Fund (with sole or shared voting or investment power) were as follows: High Yield Bond Fund - Institutional Shares Harris Trust and Savings Bank (including Trust Customers), 111 West Monroe Street, Chicago, IL 60603, 3,161,660 shares (64.1%); Harris Insight High Yield Select Bond Fund, 1,385,601 shares (28.1%); and MAC & Co., Mellon Bank 33565 Red Oak Court, Grove City, OH 43123, 384,319 shares (7.8%). Select Fund - A Shares Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of McPherson Tr, 5,423 shares (45.5%); Parker Hunter, Inc., 600 Grant Street, Pittsburgh, PA 15219, on behalf of Keystone Conference Loan Fund, 880 Chestnut Avenue, Dubois, PA 15801, 1,808 shares (15.2%); Robert E. Young, Custodian FBO Ashley Laura Young UTMA, 2506 Center Circle, Clearfield, PA 16830, 768 shares (6.4%); Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303, 609 shares (5.1%); and National Financial Services Corp., PO Box 3908, Church Street Station, New York, NY 10008, on behalf of Mark L. Mengel Rollover IRA, 141 Biskup Lane, Monaca, PA 15061, 597 shares (5.0%). Select Fund - N Shares Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303, 3,599 shares (14.3%); Phyllis R. Goodfriend, 6 Wedgewood Court, Great Neck, NY 11023, 2,834 shares 16 (11.2%); PFPC Trust Company, 400 Bellevue Parkway, Suite 108, Wilmington, DE 19806, Custodian FBO Herbert A. Bernhard IRA, 78557 Alliance Way, Palm Desert, CA 92211, 2,682 shares (10.6%); Southwest Securities, Inc., PO Box 509002, Dallas, TX 75250, on behalf of Jairus E. Meilahn IRA, 1,410 shares (5.6%); and Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Ralston IRA, 1,406 shares (5.6%). Select Fund - Institutional Shares Harris Trust and Savings Bank (including Trust Customers), 111 West Monroe Street, Chicago, IL 60603, 859,927 shares (89.9%). Some of the shares described above as held by Harris Trust and Savings Bank were held as fiduciary on behalf of various accounts. 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. OWNERSHIP OF SHARES UPON CLOSING OF THE ACQUISITION The beneficial owners of 5% or more of the outstanding shares of the Institutional Shares class of the High Yield Bond Fund as of February 10, 2004 would own the following percentages of the High Yield Bond Fund noted below upon closing of the Acquisition, assuming that the Acquisition closed on February 10, 2004.
Percentage of outstanding Percentage of outstanding shares shares of High Yield Bond of High Yield Bond Fund as of Fund upon closing of the February 10, 2004 Acquisition Harris Trust and Savings Bank (including Trust 64.1% 91.9% Customers) Harris Insight High Yield Select Bond Fund 28.1% 0.0% MAC & Co. 7.8% 8.1%
Beneficial owners of 5% or more of the outstanding shares of the A Shares and N Shares classes of the Select Fund as of February 10, 2004 would own the same percentage of the outstanding shares of the A Shares and N Shares classes of the High Yield Bond Fund, respectively, upon closing of the Acquisition, assuming that the Acquisition closed on February 10, 2004. THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN INFORMATION ABOUT SHAREHOLDER MEETING VOTING INFORMATION The Board of Trustees is soliciting proxies from the shareholders of the Select Fund in connection with the Meeting, which has been called to be held at 10:00 a.m. Central Time on May 12, 2004, at the offices of Harris Trust and Savings Bank, 111 West Monroe, Chicago, 17 Illinois. The meeting notice, this Prospectus/Proxy and proxy cards are being mailed to shareholders beginning on or about April , 2004. SHARES OUTSTANDING AND ENTITLED TO VOTE OF THE SELECT FUND Only the shareholders of record of the Select Fund at the close of business on March 19, 2004 (the "Record Date") will be entitled to vote at the Meeting. On that date the number of shares outstanding of the Select Fund were as follows: [Insert table] REQUIRED VOTE FOR THE PROPOSAL Approval of the Plan, by and between the Trust, on behalf of the Select Fund and the High Yield Bond Fund, will require the affirmative vote of a "majority of the outstanding voting securities" of the Select Fund as that term is defined under the 1940 Act. The term "majority of the outstanding voting securities" is defined under the 1940 Act to mean the lesser of (a) 67% or more of the outstanding shares of the Select Fund present at the Meeting, if the holders of more than 50% of the outstanding shares of the Select Fund are present or represented by proxy, or (b) more than 50% of the outstanding shares of the Select Fund. Approval by the shareholders of the High Yield Bond Fund is not required. INFORMATION ABOUT THE PROXIES AND THE CONDUCT OF THE MEETING Solicitation of Proxies. Proxies will be solicited primarily by mailing this Prospectus/Proxy and its enclosures, but proxies may also be solicited through further mailings, telephone calls, personal interviews or e-mail by officers of the Trust or by employees or agents of its service contractors. Voting Process. You can vote in any one of the following ways: (a) By mail, by filling out and returning the enclosed proxy card; or (b) In person at the Meeting. Shareholders of record of the Select Fund at the Record Date are entitled to vote at the Meeting and any adjournment thereof. Each whole share or fractional share outstanding on the Record Date is entitled to a number of votes equal to the net asset value of such whole or fractional share determined at the close of business on the Record Date. For example, on the Record Date, the net asset value of a Class A Share of the Select Fund was $__ so the holder of that a Class A Share would be entitled to __ votes for each Class A Share held. Costs. The High Yield Bond Fund will bear the transfer agency costs related to the Acquisition and costs of registration of its shares to be issued to shareholders of the Select Fund upon the closing of the Acquisition. All other costs of the Meeting, including the costs of soliciting proxies, and the costs of the Acquisition will be borne by Harris Trust. In the event that shareholders of the Select Fund do not approve the Plan or the Acquisition does not close for any reason, Harris Trust will bear the costs of the failed Acquisition, which would otherwise have been borne by the Select Fund. 18 Voting and Tabulation of Proxies. Your properly executed proxy received prior to the Meeting will be voted at the Meeting and any adjournment thereof in accordance with your instructions marked on the proxy. If there are no voting instructions on a proxy, your proxy will be voted FOR the approval of the Proposals described in this Proxy Statement. You may revoke your proxy at any time prior to the Meeting by giving written notice to David Lebisky, the Trust's secretary, at 760 Moore Road, King of Prussia, PA 19406, by signing and mailing another proxy of a later date or by personally casting a vote at the Meeting. The Trust will reimburse brokers, custodians, nominees and fiduciaries for the reasonable expenses incurred by them in connection with forwarding solicitation material to the beneficial owner of shares held of record by such persons. Outstanding Shares and Significant Shareholders. See the section "Fund Information" in this Prospectus/Proxy for a list of the total number of shares outstanding as of March 19, 2004 for each class of the Select Fund entitled to vote at the Meeting. It also identifies holders of more than 5% or 25% of any class of shares of each Fund, and contains information about the executive officers and Trustees of the Trust and their holdings in the Select Fund and in the Trust. Adjournments and Other Business. If a quorum of shareholders of the Select Fund is not present or represented at the Meeting, or if sufficient votes to approve the Proposals are not received, the persons named as proxies may propose one or more adjournments of the Meeting to permit further solicitation of proxies. Any adjournment will require the affirmative vote of a majority of shares of the Select Fund represented in person or by proxy at the Meeting. In that case, the persons named as proxies will vote all proxies that they are entitled to vote FOR such an adjournment; provided, however, any proxies required to be voted against the Proposals will be voted AGAINST such adjournment. A shareholder vote may be taken on any Proposal prior to such adjournment if sufficient votes have been received and it is otherwise appropriate. In the event of any adjournment, the Trust will continue to solicit proxies. Abstentions and broker non-votes will be counted as shares present for purposes of determining whether a quorum is present but will not be voted FOR or AGAINST any adjournment. Accordingly, abstentions and broker non-votes effectively will be votes AGAINST adjournment. Abstentions and broker non-votes will not be counted, however, as votes cast for purposes of determining whether sufficient votes have been received to approve the Proposals. Broker non-votes are shares held in a broker's name for which the broker indicates that instructions have not been received from the beneficial owners or other persons entitled to vote and the broker does not have discretionary voting authority. Broker non-votes will result in the shares covered by the proxy being treated as if they were voted AGAINST the Proposals. In completing proxies, shareholders should be aware that checking the box labeled ABSTAIN will also result in the shares covered by the proxy being treated as if they were voted AGAINST the Proposals. Shareholder Proposals. The Trust is not required to hold annual meetings of shareholders and currently does not intend to hold such meetings unless shareholder action is required in accordance with the 1940 Act or the Trust's Declaration of Trust or Bylaws. A shareholder proposal to be considered for inclusion in the proxy statement at any subsequent meeting of shareholders must be submitted a reasonable time before the proxy statement for that meeting is mailed. Whether a proposal submitted will be included in the proxy statement will be determined in accordance with applicable federal and state laws. 19 ADDITIONAL INFORMATION ABOUT THE HIGH YIELD BOND FUND INVESTMENT ADVISER AND SUB-ADVISER INVESTMENT ADVISER Harris Investment Management, Inc. ("HIM") is the investment adviser for the Fund. HIM is a wholly-owned subsidiary of Harris Bankcorp, Inc. Harris Bankcorp, Inc. is a wholly-owned subsidiary of Harris Financial Corp., which is a wholly-owned subsidiary of Bank of Montreal, a publicly-traded Canadian banking institution. As of December 31, 2003, HIM managed approximately $21.0 billion in assets. The investment advisory fee payable, before fee waivers, to HIM for the Fund is based upon the average daily net assets of the Fund at the annual rate of 0.45%. HIM may waive any portion of its investment advisory fee or reimburse Fund expenses from time to time. These arrangements are voluntary and may be terminated at any time. INVESTMENT SUB-ADVISER HIM Monegy, Inc. ("Monegy") serves as investment sub-adviser to, and makes all the investment decisions for, the Fund. Monegy was originally formed in 1997 as a unit within the Bank of Montreal (the ultimate parent of HIM) to manage credit risk portfolios for third parties, focusing on U.S. high yield bonds. Monegy was separately incorporated and became a subsidiary of HIM in 2003. INVESTMENT ADVISER Harris Investment Management, Inc. 190 South LaSalle Street Chicago, Illinois 60690 INVESTMENT SUB-ADVISER HIM Monegy, Inc. 302 Bay Street Toronto, Ontario M5X 1A1, Canada PORTFOLIO MANAGERS DAN ATACK, SENIOR PORTFOLIO MANAGER (MONEGY) Mr. Atack has served as co-manager of the Fund since December 2003. He joined Monegy's predecessor business unit in 1997 and has 11 years experience in managing and trading credit risk assets, focusing on high yield securities for the last seven years. SADHANA VALIA, PRESIDENT AND SENIOR PORTFOLIO MANAGER (MONEGY) 20 Ms. Valia has served as co-manager of the Fund since December 2003. She joined Monegy's predecessor business unit in 1998 and has 19 years experience in managing and trading credit risk assets, focusing on high yield securities for the last five years. PRICING OF FUND SHARES SHARES OF THE FUND ARE BOUGHT AND SOLD AT NET ASSET VALUE The Fund calculates its net asset value per share ("NAV") on each day on which the New York Stock Exchange (the "NYSE") is open for regular session trading. HOW THE FUND CALCULATES NAV The NAV of a class of shares of the Fund is determined by dividing the value of the securities and other assets, less liabilities, allocated to the class by the number of outstanding shares of the class. The NAV is calculated as of the close of regular session trading on the NYSE (normally 4:00 p.m., Eastern time). The Fund's securities and assets are valued chiefly by quotations from the primary market in which they are traded. Where market quotations are not readily available, securities are based on fair value as determined in good faith by or under the direction of the Fund's Board of Trustees. Foreign securities are valued on the basis of quotations from the primary markets in which they are traded, and are translated from the local currency into U.S. dollars using current exchange rates. If the value of a foreign security has been materially affected by events occurring after the close of a foreign market, it may be valued by another method that the Board believes reflects fair value. Foreign securities may trade in their local markets on weekends or other days when a Fund does not price its shares. Therefore, the NAV of Funds holding foreign securities may change on days when shareholders will not be able to buy or sell their Fund shares. SHAREHOLDER SERVICES HOW TO BUY SHARES OPENING A NEW ACCOUNT There are three convenient ways to invest in the Harris Insight Funds. - -------------------------------------------------------------------------------- By mail Complete and sign an application for A Shares, N Shares or Institutional Shares. Make your check payable to the Harris Insight Funds. If you are adding to your existing account, indicate your Fund account number directly on the check. Mail your application and check to: Harris Insight Funds, c/o PFPC Inc., P.O. Box 9829, Providence, RI 02940-8029 - -------------------------------------------------------------------------------- 21 - -------------------------------------------------------------------------------- By bank wire Call the Funds at 800.625.7073, during business hours, to initiate your purchase. Please be sure to furnish your taxpayer identification number. Then wire your investment to: PNC Bank, N.A., Philadelphia, PA, ABA #0310-0005-3 For Credit To: Harris Insight Funds 85-5093-2950 Re: High Yield Bond Fund--[indicate A Shares, N Shares or Institutional Shares] Account No.: Account Name: Taxpayer ID No.: If you are opening a new account, please complete and mail the account application form to the Funds at the address given under "By mail." The Funds currently do not charge investors for the receipt of wire transfers, although your bank may charge you for their wiring services. - -------------------------------------------------------------------------------- Through financial institution/professional Contact your financial institution or professional for more information. Important note: Each institution or professional may have its own procedures and requirements for buying shares and may charge fees. - -------------------------------------------------------------------------------- Orders placed directly with the Funds must be paid for by check or bank wire before the order will be executed. Shares are purchased at the NAV next calculated after your investment is received. The Funds do not accept third-party checks. For orders placed through a financial institution, shares are purchased at the NAV next calculated after your order has been received by the Funds. Payment for shares purchased through a financial institution will not be due until settlement date, normally three business days after the order has been executed. The Funds reserve the right to reject any purchase order. Please indicate whether you would like the ability to buy, redeem or exchange shares by telephone or wire when you complete your application. INSTITUTIONAL SHARES Institutional shares are sold to the following investors: o Fiduciary and discretionary accounts of institutions o Financial institutions, such as banks, savings institutions and credit unions o Pension and profit sharing and employee benefit plans and trusts 22 o Insurance companies o Investment companies o Investment advisers o Broker/dealers investing for their own accounts or for the accounts of other institutional investors Institutional shares may also be sold to directors, trustees, officers and employees of the Funds, the investment adviser, Harris Trust and its affiliated banks, the distributor and the investment adviser's other investment advisory clients. The Harris Insight Funds' Institutional Shares class requires a minimum investment of $250,000 to initiate an investment program. This minimum investment is waived for directors, trustees, officers and employees of the Funds, HIM, Harris Trust and its affiliated banks, the distributor and HIM's other investment advisory clients. This minimum investment is also waived for (a) rollover accounts from existing clients of HIM or Harris Trust for which retirement plan services are currently provided; and (b) certain mutual fund wrap programs that offer asset allocation services and whose clients will, in the aggregate, invest at least $250,000. At the discretion of Fund management, advisory clients' accounts may be aggregated to meet the minimum requirement. A SHARES - SALES CHARGES A Shares of the Fund are generally sold with a sales charge of up to 4.50% (applied when your investment is made). When you purchase A Shares of the Fund 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. 23 Sales charges for A Shares of the Fund are as follows:
- ------------------------------------------------------------------------------------------------- SALES CHARGE AS A % OF DEALER ALLOWANCE AS AMOUNT OF PURCHASE SALES CHARGE NET AMOUNT INVESTED % OF OFFERING PRICE* - ------------------------------------------------------------------------------------------------- Less than $50,000 4.50% 4.71% 4.25% $50,000 to $99,999 4.25 4.43 4.00 $100,000 to $249,999 3.50 3.63 3.25 $250,000 to $499,999 2.50 2.56 2.25 $500,000 to $999,999 2.00 2.04 1.75 $1,000,000 and over 0.00 0.00 1.00++ - -------------------------------------------------------------------------------------------------
++ The dealer allowance for these purchases is 1.00% on purchases of $1 million to $2 million, 0.80% on the next $1 million, 0.50% on the next $47 million, and 0.25% on purchases in excess of $50 million. * Dealers receive the following allowances for aggregate purchases in any twelve-month period by a qualified employee benefit plan, including employer-sponsored 401(k), 403(b), or other qualified retirement plans, provided that the plan sponsor demonstrates at the time of the initial purchase of shares that there are at least 75 eligible employees or that the plan has assets of at least $500,000: 1.00% on purchases up to $2 million, 0.80% on the next $1 million, 0.50% on the next $47 million, and 0.25% on purchases in excess of $50 million. The twelve-month period commences on the plan's initial purchase date and is reset on each anniversary thereof. A sales charge is not assessed on purchases of $1 million or more, or on purchases by: o Any bank, trust company, or other institution acting on behalf of a fiduciary customer account or any other trust account (including plans under Section 401 of the Internal Revenue Code). o Registered representatives and employees of broker-dealers having selling-group agreements with the distributor for the Funds relating to the Funds, and any trust, pension, profit-sharing, or other benefit plan sponsored by such a broker-dealer for its representatives and employees. o Any individual with an investment account or advisory relationship with HIM. o Trustees of the Fund. A SHARES - REDUCED SALES CHARGES You may be eligible to buy A Shares with a reduced sales charge in three ways, but these purchases may be subject to a contingent deferred sales charge, or CDSC, described below: o RIGHT OF ACCUMULATION Allows you to include your existing investments in A Shares of the Funds as part of your current investment for purposes of calculating sales charges. o LETTER OF INTENT Allows you to count all investments in A Shares of the Funds over the next thirteen months as if you were making them all at once for purposes of calculating sales charges. o FAMILY PURCHASES Allows purchases by family members over a thirteen-month period to be combined as if they were made at the same time for purposes of calculating sales charges. ("Family" includes any person considered to be a part of an extended family, including but not limited to parents, grandparents, children, 24 grandchildren, god-parents, in-laws, aunts, uncles, brothers, sisters, nephews, nieces, and cousins, including step- and adopted relatives.) To qualify for a reduced sales charge, you must notify and provide sufficient information to the Funds at the time of purchase. If you invest through an institution, you should notify the institution which, in turn, must notify the Funds. Programs that allow for reduced sales charges may be changed or eliminated at any time. A SHARES - CONTINGENT DEFERRED SALES CHARGE A Shares of a Fund that are redeemed within two years after purchase will be subject to a CDSC when no initial sales charge was assessed on their purchases because they were purchased: o in a transaction involving at least $1,000,000, or o pursuant to the right of accumulation, a letter of intent, or a family purchase. The amount of the CDSC and the period for which it applies are as follows: CDSC AS A % OF DOLLAR AMOUNT PERIOD SHARES HELD SUBJECT TO CHARGE Less than one year 1.00% One to two years 0.50 The CDSC, which will be used to recover commissions paid to institutions, will be assessed on an amount equal to the lesser of the cost of the shares being redeemed and the net asset value of the shares at the time of redemption. No CDSC will be imposed on o increases in net asset value above the initial purchase price o redemptions of shares acquired through the reinvestment of dividends and distributions o involuntary redemptions by a Fund of shareholder accounts with low account balances. Redemptions of shares will be effected in the manner that results in the imposition of the lowest CDSC. Redemptions will be made: o first, from A Shares held for more than two years; o second, from A Shares acquired through the reinvestment of dividends and distributions; o third, from A Shares held between one and two years; 25 o fourth, from A Shares held for less than one year. The imposition of a CDSC on shares purchased through an exchange from A Shares of another Fund is based upon the original purchase date and price of the other Fund's shares. The CDSC will be waived by the Funds for redemptions: o pursuant to a systematic withdrawal plan; o that are shown to have resulted from the death or disability of the accountholder; o by qualified retirement plans upon plan termination or dissolution; o from IRAs, if made pursuant to death or disability of the accountholder, or for minimum distributions required after attaining age 70 1/2. AUTOMATIC INVESTMENT PLAN: A CONVENIENT OPTION Through automatic investing, you can invest equal amounts of money on a regular basis. At the time you open your account or any time afterward, you can elect Harris Insight Funds' Automatic Investment Plan by so indicating on the Harris Insight Funds New Account Application. The Plan lets you invest as little as $50 a month in the Fund of your choice through electronic withdrawals from your checking or savings account. (If your checking or savings account does not have sufficient assets to permit the Automatic Investment in any month, your participation in the Plan will cease and a new application will be needed to reinstate your Plan.) CHOOSE YOUR INVESTMENT AMOUNT The Harris Insight Funds offer a flexible range of minimum investment amounts to initiate or add to your investment program. MINIMUM PER FUND To open a regular account................................ $1,000 To open a retirement account............................. $250 To open an account using the Automatic Investment Plan .. $50 To add to an existing account............................ $50 MORE ABOUT BUYING SHARES Taxpayer identification You must certify whether you are subject to withholding for failing to report income to the Internal Revenue Service. Investments received without a certified taxpayer identification number may be returned. Hours of operation 26 The Funds are open for business each day the NYSE is open for regular session trading. The Funds are closed for business on: New Year's Day Good Friday Labor Day Martin Luther King, Jr. Day Memorial Day Thanksgiving Day Presidents' Day Independence Day Christmas Day You may call 800-982-8782 to speak with a Fund representative Monday through Friday from 8:00 a.m. to 5:00 p.m., Central time. HOW TO SELL SHARES ACCESSING YOUR MONEY You may sell or redeem some or all of your shares when the Fund is open for business by doing one of the following. - -------------------------------------------------------------------------------- By mail and check You may sell shares by writing the Funds at: Harris Insight Funds, c/o PFPC Inc., P.O. Box 9829, Providence, RI 02940-8029 A check for your proceeds will be mailed to you. - -------------------------------------------------------------------------------- By telephone and check If you have chosen the telephone redemption privilege, you may call 800.625.7073, during business hours, to sell your shares. A check for your proceeds will be mailed to you. - -------------------------------------------------------------------------------- By telephone and bank wire If you have chosen the wire redemption privilege, you may call 800.625.7073, during business hours, to sell your shares and have your proceeds wired to a pre-designated bank account. - -------------------------------------------------------------------------------- Through financial institution/professional Contact your financial institution or professional for more information. Important note: Each institution or professional may have its own procedures and requirements for selling shares and may charge fees. - -------------------------------------------------------------------------------- A redemption request should be accompanied by your account number, the exact name(s) on your account and your social security or taxpayer identification number. Some redemption requests require a signature guarantee. (See below for more information.) 27 The Fund reserves the right to pay redemptions "in kind" - payment in portfolio securities rather than cash - if the amount you are redeeming is large enough to affect a Fund's operations (limited to amounts more than $250,000 or representing more than 1% of the Fund's assets). In these cases, you might incur brokerage costs in converting the securities to cash. REDEMPTION FEE The Fund is intended for long-term investors. In the Fund, short-term "market timers" who engage in frequent purchases and redemptions can disrupt the Fund's investment program and create additional transaction costs that are borne by all shareholders. For these reasons, the Fund assesses a redemption fee in the amount of 2.00% on redemptions of A Shares and N Shares of the Fund that have been held for 90 days or less from the time of purchase. The redemption fee will be paid to the Fund to help offset brokerage and other Fund costs associated with redemptions. The Fund will use the "First-in, First-out" (FIFO) method to determine the holding period of an investor's shares. Under this method, the date of the redemption will be compared with the earliest purchase date of Fund shares held in the account. If this holding period is 90 days or less, the redemption fee will be assessed. Redemption fees are not sales loads or contingent deferred sales loads. The redemption fee does not apply to any shares purchased through the reinvestment of dividends or capital gains or to shares received upon closing of the Acquisition transaction. Upon satisfactory documentation confirming eligibility for a waiver, the redemption fee will be waived for any redemption due to: (a) the death or disability of the accountholder after the date of purchase; (b) compliance with a court order; (c) termination or dissolution of a qualified retirement plan; or (d) hardship withdrawal under applicable laws and regulations. If you believe you qualify for a waiver from the redemption fee, you will need to provide documentation to the Funds. For more information, you should contact you financial institution or professional, or the Funds directly at 800-982-8782. MORE ABOUT REDEMPTIONS WHEN ORDERS ARE PROCESSED Your shares will be sold at the NAV next calculated after your order is received in good order by the Fund's transfer agent. Your order will be processed and a check for the proceeds, less any CDSC that may be applicable to redemptions of A Shares, will be mailed to you promptly. Payment by wire will generally be sent the following business day. Please note that proceeds for redemption requests made shortly after a recent purchase by check will be distributed only after the check clears, which may take up to 15 days. Under law, a fund may suspend redemptions or postpone the payment of redemption proceeds when the NYSE is closed (other than customary weekend and holiday closings), when trading on the NYSE is restricted, during an emergency (as determined by the SEC) that makes disposal or valuation of portfolio securities not reasonably practicable, or at other times as the SEC may permit. MINIMUM AMOUNT REQUIRED FOR WIRE SALES 28 The minimum amount of redemption proceeds that may be wired is $1,000. Otherwise, a check for redemption proceeds is mailed to your address of record. The Fund reserves the right to change this minimum or to terminate the privilege. SYSTEMATIC WITHDRAWAL PLAN (NOT AVAILABLE FOR IRAS OR OTHER RETIREMENT ACCOUNTS) - FOR A SHARES AND N SHARES You may enroll in the Systematic Withdrawal Plan ("SWP") by so indicating on the Harris Insight Funds New Account Application. Using the SWP, you may redeem a specific dollar amount (not less than $100) from your Harris Insight Funds account each month, quarter, six months or year. To enroll in the SWP, you must meet the following conditions: o you must have elected to reinvest your Fund dividends, o your shares of the Fund account from which you want shares redeemed must have a value of at least $10,000 at the time of each withdrawal, and o if you are redeeming A Shares, your shares must not be subject to the Contingent Deferred Sales Load that applies to certain purchases of A Shares. Plan redemptions can be processed on a date you choose of the applicable month (or on the next business day if the normal processing day is not a business day) and are paid promptly thereafter. You should know that, if your SWP withdrawals are greater than the amount of dividends from your Fund, the withdrawals reduce the principal invested. (If your Fund account does not have a sufficient balance to permit a Systematic Withdrawal, your participation in the SWP will cease and a new application will be needed to reinstate your Plan.) SIGNATURE GUARANTEES The Fund uses signature guarantees on certain redemption requests to protect you and the Fund from unauthorized account transfers. A signature guarantee is required when a redemption check is: o a redemption of shares acquired through the reinvestment of dividends and distributions; o payable to anyone other than the shareholder(s) of record; o to be mailed to an address other than the address of record; or o to be wired to a bank other than one previously authorized. Signature guarantees may be obtained from a domestic bank or trust company, broker, dealer, clearing agency or savings association that participates in a medallion program recognized by the Securities Transfer Association. REDEMPTION OF SHARES IN SMALLER ACCOUNTS 29 The Fund reserves the right to close a shareholder's account and mail the proceeds to the shareholder if the value of the account is reduced below $500, unless the reduction is due to market activity. However, the shareholder will first be notified in writing and permitted 30 days to increase the balance. EXCHANGING SHARES You may exchange, in each case without a sales charge: o your A Shares of the Fund for A Shares of any other Harris Insight Fund or for N Shares of any Harris Insight Money Market Fund; o your Institutional Shares of the Fund for Institutional Shares of any other Harris Insight Fund; and o your N Shares of the Fund for N Shares of any other Harris Insight Fund, provided that: o your shares have been held for at least seven days; o your account registration for both Funds is the same; o the shares you wish to buy are registered for sale in your home state; and o you make no more than five "round trips" through a non-money market fund during a calendar year. A "round trip" is a redemption from a Fund followed by a purchase back into the same Fund. Fund management reserves the right to waive this limitation for specific transactions that are determined to be for de minimis amounts or are otherwise determined not to be detrimental to the management of a Fund. If you purchased N Shares of a Harris Insight Money Market Fund by an exchange of A Shares of another Fund, those N Shares (but not other N Shares, as described below) may be exchanged for and invested in A Shares of any Fund without a sales charge. A sales charge will apply to exchanges of N Shares from a Harris Insight Money Market Fund to A Shares of another Fund if those N Shares (a) were not purchased through a previous exchange from A Shares of a Fund or (b) are attributable to dividends and interest earned on Harris Insight Money Market Funds N Shares. Each Fund reserves the right to terminate temporarily or permanently the exchange privilege of any investor who makes more than five exchanges out of a Fund in a calendar year. Accounts under common ownership or control, including accounts with the same taxpayer identification number, will be counted together for purposes of the five-exchange limit. The exchange limit may be modified for accounts in certain institutional retirement plans to conform to plan exchange limits and Department of Labor regulations. See your plan materials for further information. 30 Each Fund reserves the right to refuse an exchange by any person or group if, in HIM's or Fund management's judgment, the Fund to be purchased might be unable to invest the money effectively in accordance with its investment objective and policies or might otherwise be adversely affected. Also, each Fund reserves the right to modify or discontinue the exchange privilege for any reason, upon 60 days' written notice. The procedures that apply to redeeming shares also apply to exchanging shares. DIRECTED DIVIDEND PLAN ("DDP") You may direct your dividends and/or distributions from one Harris Insight Fund to be invested automatically in another Harris Insight Fund without any fee or sales charge, provided that both Funds have identical ownership registration and are in the same share class. (Holders of A Shares of a Fund may also direct dividends from that Fund to N Shares of the Money Market Funds and the Index Fund without any fee or sales charge.) To use the DDP, you must maintain a balance of at least $1,000 in the Fund account from which dividends are paid at the time each DDP payment is made. (If your Fund account does not have a sufficient balance to permit a Directed Dividend payment, your participation in the DDP will cease and a new application will be needed to reinstate your Plan.) TELEPHONE TRANSACTIONS You may give up some level of security by choosing to buy or sell shares by telephone rather than by mail. The Fund will employ reasonable procedures to confirm that telephone instructions are genuine. If the Fund or its service providers follow these procedures, they will not be liable for any losses arising from unauthorized or fraudulent instructions and you may be responsible for unauthorized requests. Please verify the accuracy of instructions immediately upon receipt of confirmation statements. You may bear the risk of loss from an unauthorized telephone transaction. During times of drastic economic or market changes, telephone redemption and exchange privileges may be difficult to implement. In the event that you are unable to reach the Funds by telephone, requests may be mailed or hand delivered to the Funds c/o PFPC Inc., 103 Bellevue Parkway, Wilmington, DE 19809. REGULAR REPORTS Your investment will be easy to track. During the year, you will receive: o an annual account statement; o a quarterly consolidated statement; o a confirmation statement, each time you buy, sell or exchange shares; and o annual and semi-annual reports to shareholders for each Fund in which you invest. DIVIDENDS AND TAX CONSIDERATIONS 31 Dividends of net investment income, if any, are declared daily and paid monthly by the Fund. Any capital gains are declared and paid at least annually. All distributions may be invested in additional shares of the Fund at NAV and credited to your account on the ex-date, or paid in cash on the payment date. Distribution checks and account statements will be mailed approximately two business days after the payment date. TAX CONSIDERATIONS Following is a brief discussion of the general tax treatment of various distributions from the Fund. It is not an exhaustive discussion, and your particular tax status may be different. We encourage you to consult with your own tax adviser about federal, state and local tax considerations. The tax status of any distribution is the same regardless of how long you have held shares of the Fund and whether you reinvest in additional shares or take it in cash: o All dividends paid, including net short-term capital gains (except "exempt-interest dividends") are taxable to you as ordinary income. Exempt-interest dividends are dividends paid by tax-exempt funds that are exempt from federal income tax. Exempt-interest dividends are not necessarily exempt from state and local income taxes. o Distributions of net long-term capital gains, if any, are taxable to you as long-term capital gains regardless of how long you have held the shares. o You may realize a taxable gain or loss when you sell shares or exchange shares between Funds, depending on your tax basis in the shares and the value of those shares at the time of the transaction. Investment income received by the Fund from sources within foreign countries may be subject to foreign income taxes withheld at the source. If the Fund pays nonrefundable taxes to foreign governments during the year, the taxes will reduce the Fund's dividends but will still be included in your taxable income. However, you may be able to claim an offsetting credit or deduction on your tax return for your share of foreign taxes paid by the Fund. DISTRIBUTION ARRANGEMENTS A SHARES SERVICE PLANS Under a service plan adopted under Rule 12b-1, the High Yield Bond Fund bears the costs and expenses connected with advertising and marketing A Shares and may pay the fees of financial institutions, securities dealers and other industry professionals (which may include Harris Trust and its affiliates) for shareholder support services at a rate of up to 0.25% of the average daily net asset value of the High Yield Bond Fund's A Shares. Because these expenses are paid out of the Fund's assets on an on-going basis, over time these expenses will increase the cost of your investment and may cost you more than paying other types of sales charges. 32 N SHARES SERVICE PLANS The High Yield Bond Fund may pay fees, at a rate of up to 0.25% of the average daily net asset value of the Fund's N Shares, to financial institutions, securities dealers and other industry professionals (which may include Harris Trust and its affiliates) for shareholder support services that they provide. Because these expenses are paid out of the Fund's assets on an on-going basis, over time those expenses will increase the cost of your investment and may cost you more than paying other types of sales charges. MULTIPLE CLASSES The High Yield Bond Fund offers three classes of shares: A Shares, N Shares and Institutional Shares. MASTER FUND/FEEDER FUND STRUCTURE The Board of Trustees has the authority to convert any Fund to a "feeder" fund in a Master Fund/Feeder Fund Structure in which the Fund, instead of investing in portfolio securities directly, would seek to achieve its investment objective by investing all of its investable assets in a separate "master" fund having the same investment objectives and substantially similar investment restrictions. Other funds with similar objectives and restrictions could also invest in the same Master Fund. The purpose of such an arrangement is to achieve greater operational efficiencies and reduce costs. The Statement of Additional Information for each Fund contains more information about the Funds, the Master Fund/Feeder Fund Structure and the types of securities in which the Funds may invest. FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand the Fund's financial performance for the fiscal year ended December 31, 2003 and fiscal period ended December 31, 2002. Because the A Shares and N Shares are new classes of shares, information shown is for the Fund's Institutional Shares. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in Institutional Shares of the Fund, assuming reinvestment of all dividends and distributions, and does not reflect the effect of the A Shares' and N Shares' higher expenses. This information has been derived from the financial statements audited by KPMG LLP, independent accountants, whose report, along with the Fund's financial statements, is included in the Funds' annual report, which is available upon request. These financial highlights should be read with the financial statements. HARRIS INSIGHT FUNDS FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
NET NET NET ASSET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS ASSET VALUE NET UNREALIZED FROM NET FROM NET VALUE BEGINNING INVESTMENT GAIN/(LOSS) INVESTMENT REALIZED END OF TOTAL OF PERIOD INCOME ON INVESTMENTS INCOME GAINS PERIOD RETURN --------- ------ -------------- ------ ----- ------ ------ HIGH YIELD BOND FUND INSTITUTIONAL SHARES 12/31/03 $11.74 $0.887 $ 1.175 $ (0.887) $ (0.085) $12.83 18.15% 9/23/02(3) to 12/31/02 11.55 0.256 0.190 (0.256) -- 11.74 3.90(2) NET RATIO OF EXPENSES ASSETS RATIO OF TO AVERAGE RATIO OF NET END OF EXPENSES TO NET ASSETS INVESTMENT INCOME PORTFOLIO PERIOD AVERAGE NET (EXCLUDING TO AVERAGE NET TURNOVER (000) ASSETS WAIVERS) ASSETS RATE --- ------ -------- ------ ---- HIGH YIELD BOND FUND INSTITUTIONAL SHARES 12/31/03 $62,926 0.61% 0.73% 7.11% 81.50% 9/23/02(3) to 12/31/02 18,088 0.61(1) 1.41(1) 8.11(1) 38.03
(1) Annualized. (2) Total returns for periods of less than one year are not annualized. (3) Date commenced operations. 33 APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of ________________, 2004 by and between (i) Harris Insight Funds Trust (the "Trust"), a Massachusetts business trust established under an Agreement and Declaration of Trust dated December 6, 1995, as amended and in effect on the date hereof, on behalf of the High Yield Select Bond Fund (the "Acquired Fund"), a series of the Trust, and (ii) the Trust, on behalf of the High Yield Bond Fund (the "Acquiring Fund"), a series of the Trust. This Agreement is intended to be and is adopted as a plan of reorganization within the meaning of the regulations under Section 368(a) of the United States Internal Revenue Code of 1986, as amended (the "Code"). The reorganization will consist of the transfer of all of the assets of the Acquired Fund in exchange for Class A Shares, Class N Shares, and Institutional Shares of beneficial interest of the Acquiring Fund (the "Acquiring Shares"), and the assumption by the Acquiring Fund of the liabilities of the Acquired Fund (other than certain expenses of the reorganization contemplated hereby) and the distribution of such shares of the Acquiring Fund to the shareholders of the Acquired Fund in liquidation of the Acquired Fund, all upon the terms and conditions set forth in this Agreement. In consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows: 1. TRANSFER OF ASSETS OF ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF LIABILITIES AND ACQUIRING SHARES AND LIQUIDATION OF ACQUIRED FUND. 1.1 Subject to the terms and conditions herein set forth and on the basis of the representations and warranties contained herein, (a) The Trust, on behalf of the Acquired Fund, will transfer and deliver to the Trust, on behalf of the Acquiring Fund, and the Acquiring Fund will acquire, all the assets of the Acquired Fund as set forth in paragraph 1.2. (b) The Acquiring Fund will assume all of the Acquired Fund's liabilities and obligations of any kind whatsoever, whether absolute, accrued, contingent or otherwise in existence on the Closing Date (as defined in paragraph 1.2 hereof) (collectively, the "Obligations"). (c) The Acquiring Fund will issue and deliver to the Acquired Fund in exchange for the assets transferred pursuant to paragraph 1.1(a) and the assumption of liabilities pursuant to paragraph 1.1(b) the number of full and fractional (rounded to the third decimal place) Class A Shares, Class N Shares, and Institutional Shares, respectively, of the Acquiring Fund having a net asset value ("NAV"), computed in the manner and as of the time and date set forth in paragraph 2.2, equal to the NAV of the shares of the same class of the Acquired Fund, computed in the manner and as of the time and date set forth in paragraph 2.1. Such transactions shall take place at the closing provided for in paragraph 3.1 (the "Closing"). The aggregate NAV of the Acquiring Shares as of the Valuation Date is referred to as the Acquired Fund Value. 1.2 The assets of the Acquired Fund to be acquired by the Acquiring Fund shall consist of all cash, Institutional Shares of the Acquiring Fund and any other securities, dividends and interest receivable, receivables for shares sold and all other assets which are owned by the Acquired Fund on the closing date provided in paragraph 3.1 (the "Closing Date"), including any deferred expenses, other than unamortized organizational expenses, shown as an asset on the books of the Acquired Fund on the Closing Date. 1.3 As provided in paragraph 3.4, as soon after the Closing Date as is conveniently practicable (the "Liquidation Date"), the Acquired Fund will liquidate and distribute pro rata to its shareholders of record (the "Acquired Fund Shareholders"), determined as of the close of business on the Valuation Date (as defined in paragraph 2.1), the Acquiring Shares received by the Acquired Fund pursuant to paragraph 1.1(c). Such liquidation and distribution will be accomplished by the transfer of the Acquiring Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the names of the Acquired Fund Shareholders and representing the respective pro rata number of full and fractional (rounded to the A-1 third decimal place) Acquiring Shares due such shareholders, by class. The Acquiring Fund shall not be obligated to issue certificates representing Acquiring Shares in connection with such exchange. 1.4 With respect to Acquiring Shares distributable pursuant to paragraph 1.3 to an Acquired Fund Shareholder holding a certificate or certificates for shares of the Acquired Fund, if any, on the Valuation Date, the Trust will not permit such shareholder to receive Acquiring Share certificates therefor, exchange such Acquiring Shares for shares of other investment companies, effect an account transfer of such Acquiring Shares, or pledge or redeem such Acquiring Shares until such shareholder has surrendered all his or her outstanding certificates for Acquired Fund shares or, in the event of lost certificates, posted adequate bond. 1.5 Any obligation of the Acquired Fund to make filings with governmental authorities is and shall remain the responsibility of the Acquired Fund through the Closing Date and up to and including such later date on which the Acquired Fund is terminated. 1.6 As promptly as possible after the Closing Date, the Acquired Fund shall be terminated pursuant to the provisions of the Trust's Declaration of Trust and the laws of the Commonwealth of Massachusetts, and, after the Closing Date, the Acquired Fund shall not conduct any business except in connection with its liquidation. 2. VALUATION. 2.1 For the purpose of paragraph 1.1(c), the NAV of each class of the Acquired Fund shall be computed as of the close of regular trading on the New York Stock Exchange on the business day next preceding the Closing (such time and date being herein called the "Valuation Date") using the valuation procedures as adopted by the Board of Trustees of the Trust and as set forth in the then-current prospectus or prospectuses or statement or statements of additional information of the Trust (collectively, as amended or supplemented from time to time, the "Acquiring Fund Prospectus") and shall be certified by an authorized officer of the Trust. 2.2 For the purpose of paragraph 1.1(c), the NAV of each class of Acquiring Shares shall be computed as of the close of regular trading on the New York Stock Exchange on the Valuation Date, using the valuation procedures as adopted by the Board of Trustees of the Trust and as set forth in the Acquiring Fund Prospectus. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by or under the direction of Harris Trust and Savings Bank. 3. CLOSING AND CLOSING DATE. 3.1 The Closing Date shall be on May 17, 2004, or on such other date as the parties may agree in writing. The Closing shall be held prior to the close of business on the Closing Date at the offices of Harris Trust and Savings Bank, located at 111 West Monroe Street, Chicago, Illinois, or at such other time and/or place as the parties may agree. 3.2 The portfolio securities of the Acquired Fund shall be made available by the Acquired Fund to PFPC Trust Company, as custodian for the Acquiring Fund (the "Custodian")], for examination no later than five business days preceding the Valuation Date. On the Closing Date, the portfolio securities of the Acquired Fund and all the Acquired Fund's cash shall be delivered by the Acquired Fund to the Custodian for the account of the Acquiring Fund, such portfolio securities to be duly endorsed in proper form for transfer in such manner and condition as to constitute good delivery thereof in accordance with the custom of brokers or, in the case of portfolio securities held in the U.S. Treasury Department's book-entry system or by the Depository Trust Company, Participants Trust Company or other third party depositories, by transfer to the account of the Custodian in accordance with Rule 17f-4, Rule 17f-5 or Rule 17f-7, as the case may be, under the Investment Company Act of 1940, as amended (the "1940 Act"), and accompanied by all necessary federal and state stock transfer stamps or a check for the appropriate purchase price of such transfer stamps. The cash delivered shall be in the form of currency or certified or official bank checks, payable to the order of "PFPC Trust Company, custodian for Harris Insight High Yield Bond Fund, a series of Harris Insight Funds Trust." 3.3 In the event that on the Valuation Date (a) the New York Stock Exchange shall be closed to trading or general trading thereon shall be restricted, or (b) trading or the reporting of trading on said Exchange or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of the Acquired Fund is impracticable, the Valuation Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored; in which case the Closing Date shall be the next day thereafter on A-2 which said exchange is open for unrestricted trading; provided that if trading shall not be fully resumed and reporting restored within three business days after the original Valuation Date, this Agreement may be terminated by either Fund upon the giving of written notice to the other Fund. 3.4 At the Closing, the Acquired Fund or its transfer agent shall deliver to the Acquiring Fund or its designated agent a list of the names and addresses of the Acquired Fund Shareholders and the number of outstanding shares of beneficial interest of each class of the Acquired Fund owned by each Acquired Fund Shareholder, all as of the close of business on the Valuation Date, certified by the Secretary or Assistant Secretary of the Trust. The Trust shall provide to the Acquired Fund evidence satisfactory to the Acquired Fund that the Acquiring Shares issuable pursuant to paragraph 1.1(c) have been credited to the Acquired Fund's account on the books of the Acquiring Fund. On the Liquidation Date, the Trust shall provide to the Acquired Fund evidence satisfactory to the Acquired Fund that such Acquiring Shares have been credited pro rata to open accounts in the names of the Acquired Fund Shareholders as provided in paragraph 1.3. 3.5 At the Closing, each party shall deliver to the other such bills of sale, instruments of assumption of liabilities, checks, assignments, stock certificates, receipts or other documents as such other party or its counsel may reasonably request in connection with the transfer of assets, assumption of liabilities and liquidation contemplated by paragraph 1. 4. REPRESENTATIONS AND WARRANTIES. 4.1 The Trust, on behalf of the Acquired Fund, represents and warrants the following to the Acquiring Fund as of the date hereof and agrees to confirm the continuing accuracy and completeness in all material respects of the following on the Closing Date: (a) The Trust is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has the power to own all of its property and assets and to conduct its business as currently conducted; (b) The Trust is a duly registered investment company classified as a management company of the open-end type and its registration with the Securities and Exchange Commission (the "SEC") as an investment company under the 1940 Act is in full force and effect, and the Acquired Fund is a separate series thereof duly established, designated and existing in accordance with the applicable provisions of the Declaration of Trust of the Trust and the 1940 Act; (c) The Acquired Fund's current prospectus or prospectuses and statement of additional information or statements of additional information (collectively, as amended or supplemented from time to time, the "Acquired Fund Prospectus") conform in all material respects with the applicable requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the rules and regulations of the SEC thereunder and does not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and there are no material contracts to which the Acquired Fund is a party that are not referred to in the Acquired Fund Prospectus or in the registration statement of which it is a part; (d) The Trust is not in violation in any material respect of any provision of its Declaration of Trust or By-laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Trust is a party or by which the Acquired Fund is bound, and the execution, delivery and performance of this Agreement will not result in any such violation; (e) The Trust has no material contracts or other commitments (other than this Agreement and such other contracts as may be entered into in the ordinary course of its business) which if terminated may result in material liability to the Acquired Fund or under which (whether or not terminated) any material payments for periods subsequent to the Closing Date will be due from the Acquired Fund; (f) No litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened against the Acquired Fund, any of its properties or assets or any person whom the Acquired Fund may be obligated to indemnify in connection with such litigation, proceeding or investigation. The Acquired Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a A-3 party to or subject to any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions contemplated hereby; (g) The statement of assets and liabilities, the statement of operations, the statement of changes in net assets and the schedule of investments at, as of and for the two years ended December 31, 2003, of the Acquired Fund, audited by KPMG LLP, copies of which have been furnished to the Acquiring Fund, fairly reflect the financial condition and results of operations of the Acquired Fund as of such dates and the results of its operations for the periods then ended in accordance with generally accepted accounting principles consistently applied, and the Acquired Fund has no known liabilities of a material amount, contingent or otherwise, other than those shown on the statement of net assets referred to above or those incurred in the ordinary course of its business since December 31, 2003; (h) Since December 31, 2003, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities or business (other than changes occurring in the ordinary course of business), or any incurrence by the Acquired Fund of indebtedness, except as disclosed in writing to the Acquiring Fund. For the purposes of this subparagraph (h), distributions of net investment income and net realized capital gains, changes in portfolio securities, changes in the market value of portfolio securities or net redemptions shall be deemed to be in the ordinary course of business; (i) By the Closing Date, all federal and other tax returns and reports of the Acquired Fund required by law to have been filed by such date (giving effect to extensions) shall have been filed, and all federal and other taxes shown to be due on said returns and reports shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquired Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to any such return; (j) For all taxable years and all applicable quarters of such years from the date of its inception, the Acquired Fund has met, and for the taxable year ending on the Closing Date, will meet the requirements of Subchapter M of the Code for treatment as a "regulated investment company" within the meaning of Section 851 of the Code, and the Acquired Fund has no earnings and profits accumulated in any taxable year in which the provisions of Subchapter M did not apply to it. Neither the Trust nor the Acquired Fund has at any time since its inception been liable for nor is now liable for any material tax pursuant to Sections 852 or 4982 of the Code, except as previously disclosed in writing to and accepted by the Acquiring Fund. The Acquired Fund has duly filed all federal, state, local and foreign tax returns which are required to have been filed, and all taxes of the Acquired Fund which are due and payable have been paid except for amounts that alone or in the aggregate would not reasonably be expected to have a material adverse effect. The Acquired Fund is in compliance in all material respects with applicable regulations of the Internal Revenue Service pertaining to the reporting of dividends and other distributions on and redemptions of its capital stock and to withholding in respect of dividends and other distributions to shareholders, and is not liable for any material penalties which could be imposed thereunder; (k) The authorized capital of the Trust consists of an unlimited number of shares of beneficial interest, no par value, of such number of different series as the Board of Trustees of the Trust may authorize from time to time. The outstanding shares of beneficial interest in the Acquired Fund are, and at the Closing Date will be, divided into Class A Shares, Class N Shares, and Institutional Shares, each having the characteristics described in the Acquired Fund Prospectus. All issued and outstanding shares of the Acquired Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and (except as set forth in the Acquired Fund Prospectus), nonassessable by the Acquired Fund and will have been issued in compliance with all applicable registration or qualification requirements of federal and state securities laws. No options, warrants or other rights to subscribe for or purchase, or securities convertible into, any shares of beneficial interest of the Acquired Fund are outstanding and none will be outstanding on the Closing Date; (l) The Acquired Fund's investment operations from inception to the date hereof have been in compliance in all material respects with the investment policies and investment restrictions applicable to the Acquired Fund set forth in its prospectus and statement of additional information as in effect from time to time, except as previously disclosed in writing to and accepted by the Acquiring Fund; (m) The execution, delivery and performance of this Agreement has been duly authorized by the Trustees of the Trust, and, upon approval thereof by the required majority of the shareholders of the Acquired Fund, this Agreement will constitute the valid and binding obligation of the Acquired Fund, enforceable in accordance with its terms, A-4 except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and other equitable principles; (n) The Acquiring Shares to be issued to the Acquired Fund pursuant to paragraph 1.1(c) will not be acquired for the purpose of making any distribution thereof other than to the Acquired Fund Shareholders as provided in paragraph 1.3; (o) The information provided by the Acquired Fund for use in the Registration Statement and Proxy Statement referred to in paragraph 5.3 and any information provided by the Acquired Fund for use in any governmental filings in connection with the transactions contemplated hereby, including without limitation applications for exemption orders or no-action letters, shall be accurate and complete in all material respects and shall comply with federal securities and other laws and regulations applicable thereto; (p) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquired Fund of the transactions contemplated by this Agreement, except such as may be required under the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act and state insurance, securities or blue sky laws (which term as used in this Agreement shall include the laws of the District of Columbia and of Puerto Rico); (q) At the Closing Date, the Trust, on behalf of the Acquired Fund, will have good and marketable title to its assets to be transferred to the Acquiring Fund pursuant to paragraph 1.1(a) and will have full right, power and authority to sell, assign, transfer and deliver the Investments (as defined below) and any other assets of the Acquired Fund to be transferred to the Acquiring Fund pursuant to this Agreement. At the Closing Date, subject only to the delivery of the Investments and any such other assets and payment therefor as contemplated by this Agreement, the Acquiring Fund will acquire good and marketable title thereto and will acquire the Investments and any such other assets subject to no encumbrances, liens or security interests whatsoever and without any restrictions upon the transfer thereof, except as previously disclosed to and accepted by the Acquiring Fund. As used in this Agreement, the term "Investments" shall mean the Acquired Fund's investments shown on the schedule of its investments as of December 31, 2003, referred to in Section 4.1(f) hereof, as supplemented with such changes in the portfolio as the Acquired Fund shall make, and changes resulting from stock dividends, stock splits, mergers and similar corporate actions through the Closing Date; (r) At the Closing Date, the Acquired Fund will have sold such of its assets, if any, as are necessary to assure that, after giving effect to the acquisition of the assets of the Acquired Fund pursuant to this Agreement, the Acquiring Fund will remain a "diversified company" within the meaning of Section 5(b)(1) of the 1940 Act and in compliance with such other mandatory investment restrictions as are set forth in the Acquiring Fund Prospectus, as amended through the Closing Date; and (s) No registration of any of the Investments under the 1933 Act or under any state securities or blue sky laws would be required if they were, as of the time of such transfer, the subject of a public distribution by either of the Acquiring Fund or the Acquired Fund, except as previously disclosed by the Acquired Fund to and accepted by the Acquiring Fund. 4.2 The Trust, on behalf of the Acquiring Fund, represents and warrants the following to the Acquired Fund as of the date hereof and agrees to confirm the continuing accuracy and completeness in all material respects of the following on the Closing Date: (a) The Trust is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has the power to own all of its property and assets and to conduct its business as currently conducted; (b) The Trust is a duly registered investment company classified as a management company of the open-end type and its registration with the SEC as an investment company under the 1940 Act is in full force and effect, and the Acquiring Fund is a separate series thereof duly established, designated and existing in accordance with the applicable provisions of the Declaration of Trust of the Trust and the 1940 Act; (c) The Acquiring Fund Prospectus conforms in all material respects with the applicable requirements of the 1933 Act and the rules and regulations of the SEC thereunder and does not include any untrue statement of a material fact A-5 or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and there are no material contracts to which the Acquiring Fund is a party that are not referred to in the Acquiring Fund Prospectus or in the registration statement of which it is a part; (d) At the Closing Date, the Acquiring Fund will have good and marketable title to its assets; (e) The Trust is not in violation in any material respect of any provisions of its Declaration of Trust or By-laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Trust is a party or by which the Acquiring Fund is bound, if any, and the execution, delivery and performance of this Agreement will not result in any such violation; (f) No litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened against the Acquiring Fund or any of its properties or assets. The Acquiring Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions contemplated hereby; (g) The statement of assets and liabilities, the statement of operations, the statement of changes in net assets and the schedule of investments at, as of and for the year ended December 31, 2003 and the fiscal period ended December 31, 2002, of the Acquiring Fund, audited by KPMG LLP, copies of which have been furnished to the Acquired Fund, fairly reflect the financial condition and results of operations of the Acquiring Fund as of such dates and the results of its operations for the periods then ended in accordance with generally accepted accounting principles consistently applied, and the Acquiring Fund has no known liabilities of a material amount, contingent or otherwise, other than those shown on the statement of net assets referred to above or those incurred in the ordinary course of its business since December 31, 2003. (h) Since December 31, 2003, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business (other than changes occurring in the ordinary course of business), or any incurrence by the Acquiring Fund of indebtedness, except as disclosed in writing to the Acquired Fund. For the purposes of this subparagraph (h), changes in portfolio securities, changes in the market value of portfolio securities or net redemptions shall be deemed to be in the ordinary course of business; (i) By the Closing Date, all federal and other tax returns and reports of the Acquiring Fund required by law to have been filed by such date (giving effect to extensions) shall have been filed, and all federal and other taxes shown to be due on said returns and reports shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquiring Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns; (j) For all taxable years and all applicable quarters of such years from the date of its inception, the Acquiring Fund has met, and for the current taxable year will meet, the requirements of Subchapter M of the Code for treatment as a "regulated investment company" within the meaning of Section 851 of the Code. Neither the Trust nor the Acquiring Fund has at any time since its inception been liable for nor is now liable for any material tax pursuant to Sections 852 or 4982 of the Code, except as previously disclosed in writing to and accepted by the Acquired Fund. The Acquiring Fund has duly filed all federal, state, local and foreign tax returns which are required to have been filed, and all taxes of the Acquiring Fund which are due and payable have been paid except for amounts that alone or in the aggregate would not reasonably be expected to have a material adverse effect. The Acquiring Fund is in compliance in all material respects with applicable regulations of the Internal Revenue Service pertaining to the reporting of dividends and other distributions on and redemptions of its capital stock and to withholding in respect of dividends and other distributions to shareholders, and is not liable for any material penalties which could be imposed thereunder; (k) The authorized capital of the Trust consists of an unlimited number of shares of beneficial interest, no par value, of such number of different series as the Board of Trustees of the Trust may authorize from time to time. The outstanding shares in the Acquiring Fund at the Closing Date will be divided into Class A Shares, Class N Shares, and Institutional Shares, each having the characteristics described in the Acquiring Fund Prospectus, which will be effective at the time of the Closing. All issued and outstanding shares of the Acquiring Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and (except as set forth in the Acquiring Fund A-6 Prospectus) non-assessable by the Trust, and will have been issued in compliance with all applicable registration or qualification requirements of federal and state securities laws. No options, warrants or other rights to subscribe for or purchase, or securities convertible into, any shares of common stock in the Acquiring Fund of any class are outstanding and none will be outstanding on the Closing Date (except such rights as the Acquiring Fund may have pursuant to this Agreement); (l) The Acquiring Fund's investment operations from inception to the date hereof have been in compliance in all material respects with the investment policies and investment restrictions applicable to the Acquiring Fund set forth in its prospectus or prospectuses and statement or statements of additional information as in effect from time to time; (m) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Trust, and this Agreement constitutes the valid and binding obligation of the Trust and the Acquiring Fund enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and other equitable principles; (n) The Acquiring Shares to be issued and delivered to the Acquired Fund pursuant to the terms of this Agreement will at the Closing Date have been duly authorized and, when so issued and delivered, will be duly and validly issued Class A Shares, Class N Shares, or Institutional Shares of beneficial interest, as the case may be, in the Acquiring Fund, and will be fully paid and (except as set forth in the Acquiring Fund Prospectus) non-assessable by the Trust, and no shareholder of the Trust will have any preemptive right of subscription or purchase in respect thereof; (o) The information to be furnished by the Acquiring Fund for use in the Registration Statement and Proxy Statement referred to in paragraph 5.3 and any information furnished by the Acquiring Fund for use in any governmental filings in connection with the transactions contemplated hereby, including without limitation applications for exemption orders or no-action letters, shall be accurate and complete in all material respects and shall comply with federal securities and other laws and regulations applicable thereto; and (p) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquiring Fund of the transactions contemplated by this Agreement, except such as may be required under 1933 Act, the 1934 Act, the 1940 Act and state insurance, securities or blue sky laws. 5. COVENANTS OF THE ACQUIRED FUND AND THE ACQUIRING FUND. The Trust, on behalf of the Acquiring Fund on the one hand and the Acquired Fund on the other hand, hereby covenants and agrees as follows: 5.1 The Acquired Fund will operate its business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business may include paying regular and customary periodic dividends and other distributions. 5.2 The Acquired Fund will call a meeting of its shareholders to be held prior to the Closing Date to consider and approve this Agreement and take all other reasonable action necessary to obtain the required shareholder approval of the transactions contemplated hereby. 5.3 In connection with the Acquired Fund Shareholders' meeting referred to in paragraph 5.2, the Acquired Fund will prepare a Proxy Statement for such meeting, to be included in a Registration Statement on Form N-14 (the "Registration Statement"), which the Trust will prepare and file for registration under the 1933 Act the Acquiring Shares to be distributed to the Acquired Fund Shareholders pursuant hereto, all in compliance with the applicable requirements of the 1933 Act, 1934 Act, and the 1940 Act. 5.4 The information to be furnished by the Acquired Fund for use in the Registration Statement and the information to be furnished by the Acquiring Fund for use in the Proxy Statement, each as referred to in paragraph 5.3, shall be accurate and complete in all material respects and shall comply with federal securities and other laws and regulations thereunder applicable thereto. A-7 5.5 The Acquiring Fund will advise the Acquired Fund promptly if at any time prior to the Closing Date the Acquiring Fund becomes aware that the assets of the Acquired Fund include any securities which the Acquiring Fund is not permitted to acquire. 5.6 Subject to the provisions of this Agreement, the Acquired Fund and the Acquiring Fund will each take or cause to be taken all actions, and do or cause to be done all things reasonably necessary, proper or advisable to cause the conditions to the other party's obligations to consummate the transactions contemplated hereby to be met or fulfilled and otherwise to consummate and make effective such transactions. 5.7 The Acquiring Fund will use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state securities or blue sky laws as it may deem appropriate in order to continue its operations after the Closing Date. 5.8 At the Closing, the Trust will turn over to the Acquiring Fund all its books and records regarding the Acquired Fund, including all books and records required to be maintained under the 1940 Act and the rules and regulations thereunder. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND. The obligations of the Acquired Fund to consummate the transactions provided for herein shall be subject, at its election, to the performance by the Trust, on behalf of the Acquiring Fund, of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, to the following further conditions: 6.1 The Trust, on behalf of the Acquiring Fund, shall have delivered to the Acquired Fund a certificate executed in its name by its President or Vice President and its Treasurer or Assistant Treasurer, in form satisfactory to the Acquired Fund and dated as of the Closing Date, to the effect that the representations and warranties of the Trust on behalf of the Acquiring Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and that the Trust and the Acquiring Fund have complied with all the covenants and agreements and satisfied all of the conditions on their parts to be performed or satisfied under this Agreement at or prior to the Closing Date. 6.2 The Trust shall have received a favorable opinion from Bell, Boyd & Lloyd LLC, counsel to the Trust, dated the Closing Date and in a form reasonably satisfactory to the Trust, substantially to the following effect (for purposes of rendering opinions with respect to matters of Massachusetts law, Bell, Boyd & Lloyd LLC may rely on an opinion of Bingham McCutcheon LLP): (a) The Trust is a business trust duly organized and validly existing under the laws of the State of Massachusetts and has corporate power and authority necessary to own all of its properties and assets and to carry on its business as presently conducted, and the Acquiring Fund is a separate series of the Trust duly constituted in accordance with the applicable provisions of the 1940 Act and the Declaration of Trust of the Trust; (b) this Agreement has been duly authorized, executed and delivered on behalf of the Acquiring Fund and, assuming the Proxy Statement and the Registration Statement referred to in paragraph 5.3 comply with all applicable provisions of federal securities laws, this Agreement constitutes the valid and binding obligation of the Acquiring Fund enforceable against the Acquiring Fund in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights and general principles of equity; (c) the Acquiring Fund has the power to assume the liabilities to be assumed by it hereunder and upon consummation of the transactions contemplated hereby the Acquiring Fund will have duly assumed such liabilities; (d) the Acquiring Shares to be issued for transfer to the shareholders of the Acquired Fund as provided by this Agreement are duly authorized and upon such transfer and delivery will be validly issued and outstanding and fully paid and nonassessable Class A Shares, Class N Shares, and Institutional Shares of the Acquiring Fund, assuming that as consideration for such shares not less than the net asset value and the par value of such shares has been paid and that the conditions set forth in this Agreement have been satisfied; and no shareholder of the Acquiring Fund has any preemptive right of subscription or purchase in respect of such shares; (e) the execution and delivery by the Trust on behalf of the Acquiring Fund of this Agreement did not, and the performance by the Trust and the Acquiring Fund of their respective obligations hereunder will not, violate the Trust's Declaration of Trust or By-laws, or any provision of any agreement filed as an exhibit to the Trust's Registration Statement on Form N-1A, as amended to date, and to which the Trust or the Acquiring Fund is a party or by which either of them is bound, or, to the knowledge of such counsel, result in the acceleration of any obligation or the A-8 imposition of any penalty under any such agreement or any judgment or decree to which the Trust or the Acquiring Fund is a party or by which either of them is bound; (f) to the knowledge of such counsel, no consent, approval, authorization or order of any United States federal or Massachusetts state court or governmental authority is required for the consummation by the Trust or the Acquiring Fund of the transactions contemplated by this Agreement, except such as may be required under state securities or blue sky laws or such as have been obtained; (g) after inquiry of officers of the Trust by such counsel, but without having made any other investigation, there is no legal or governmental proceeding relating to the Trust or the Acquiring Fund on or before the date of mailing of the Proxy Statement referred to in paragraph 5.3 or the date hereof which is required to be described in the Registration Statement referred to in paragraph 5.3 which is not disclosed therein; (h) the Trust is duly registered with the SEC as an investment company under the 1940 Act; and (i) to the knowledge of such counsel, after having made inquiry of officers of the Trust but without having made any other investigation, there is no litigation or administrative proceeding or investigation of or before any court or governmental body presently pending or threatened as to the Trust or the Acquiring Fund or any of their respective properties or assets that places in question the validity or enforceability of, or seeks to enjoin the performance of, the Trust's obligations under this Agreement, and neither the Trust nor the Acquiring Fund is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body, which materially and adversely affects either of their respective businesses. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND. The obligations of the Acquiring Fund to consummate the transactions provided for herein shall be subject, at its election, to the performance by the Trust, on behalf of the Acquired Fund, of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, to the following further conditions: 7.1 The Trust, on behalf of the Acquired Fund, shall have delivered to the Acquiring Fund a certificate executed in its name by its President or Vice President and its Treasurer or Assistant Treasurer, in form and substance satisfactory to the Acquiring Fund and dated the Closing Date, to the effect that the representations and warranties of the Trust, on behalf of the Acquired Fund, made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and that the Trust and the Acquired Fund have complied with all the covenants and agreements and satisfied all of the conditions on their part to be performed or satisfied under this Agreement at or prior to the Closing Date; 7.2 The Trust shall have received a favorable opinion from Bell, Boyd & Lloyd LLC, counsel to the Trust, dated the Closing Date and in a form reasonably satisfactory to the Trust, substantially to the following effect (for purposes of rendering opinions with respect to matters of Massachusetts law, Bell, Boyd & Lloyd LLC may rely on an opinion of Bingham McCutcheon LLP): (a) The Trust is a business trust duly organized and validly existing under the laws of the Commonwealth of Massachusetts and has the power and authority necessary to own all of its properties and assets and to carry on its business as presently conducted, and the Acquired Fund is a separate series of the Trust duly constituted in accordance with the applicable provisions of the 1940 Act and the Declaration of Trust and By-laws of the Trust; (b) this Agreement has been duly authorized, executed and delivered on behalf of the Acquired Fund and, assuming the Proxy Statement and the Registration Statement referred to in paragraph 5.3 comply with all applicable provisions of federal securities laws, this Agreement constitutes the valid and binding obligation of the Acquired Fund enforceable against the Acquired Fund in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights and general principles of equity; (c) the Acquired Fund has the power to sell, assign, transfer and deliver the assets to be transferred by it under this Agreement, and, upon consummation of the transactions contemplated by this Agreement, the Acquired Fund will have duly transferred such assets to the Acquiring Fund; (d) the execution and delivery by the Trust on behalf of the Acquired Fund of this Agreement did not, and the performance by the Trust and the Acquired Fund of their respective obligations hereunder will not, violate the Trust's Declaration of Trust or By-laws, or any provision of any agreement filed as an exhibit to the Trust's Registration Statement on Form N-1A, as amended to date, and to which the Trust or the Acquired Fund is a party or by which either of them is bound, or, to the knowledge of such counsel, result in the acceleration of any obligation or the imposition of any penalty under any such agreement or any judgment or decree to which the Trust or the Acquired Fund is a party or by which either of them is bound; (e) to the knowledge of such counsel, no consent, approval, authorization or order of any United States federal or Massachusetts state court or governmental authority is required for the consummation by the Trust or the Acquired Fund of the transactions A-9 contemplated by this Agreement, except such as may be required under state securities or blue sky laws or such as have been obtained; (f) after inquiry of officers of the Trust by such counsel, but without having made any other investigation, there is no legal or governmental proceeding relating to the Trust or the Acquired Fund on or before the date of mailing of the Proxy Statement referred to in paragraph 5.3 or the date of such opinion which is required to be described in the Registration Statement referred to in paragraph 5.3 which is not disclosed therein; (g) the Trust is duly registered with the SEC as an investment company under the 1940 Act; (h) to the knowledge of such counsel, after having made inquiry of officers of the Trust but without having made any other investigation, there is no litigation or administrative proceeding or investigation of or before any court or governmental body presently pending or threatened as to the Trust or the Acquired Fund or any of their respective properties or assets that places in question the validity or enforceability of, or seeks to enjoin the performance of, the Trust's obligations under this Agreement, and neither the Trust nor the Acquired Fund is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body, which materially and adversely affects either of their respective businesses; and (i) all issued and outstanding shares of the Acquired Fund are validly issued, fully paid and non-assessable, assuming that as consideration for such shares not less than the net asset value of such shares has been paid, and assuming that such shares were issued in accordance with the Acquired Fund's registration statement, or any amendments thereto, in effect at the time of such issuance. 7.3 The Acquired Fund shall have furnished to the Acquiring Fund tax returns, signed by the Trust's Treasurer, for the fiscal year ended December 31, 2003 and signed pro forma tax returns for the period from December 31, 2003 to the Closing Date (which pro forma tax returns shall be furnished promptly after the Closing Date). 7.4 Prior to the Closing Date, the Acquired Fund shall have declared a dividend or dividends which, together with all previous dividends, shall have the effect of distributing all of the Acquired Fund's investment company taxable income for its taxable years ending on or after December 31, 2003 and on or prior to the Closing Date (computed without regard to any deduction for dividends paid), and all of its net capital gains realized in each of its taxable years ending on or after December 31, 2003 and on or prior to the Closing Date. 7.5 The Acquired Fund shall have furnished to the Acquiring Fund a certificate, signed by the President (or any Vice President) and the Treasurer of the Trust, as to the adjusted tax basis in the hands of the Acquired Fund of the securities delivered to the Acquiring Fund pursuant to this Agreement. 7.6 The custodian of the Acquired Fund shall have delivered to the Acquiring Fund a certificate identifying all of the assets of the Acquired Fund held by such custodian as of the Valuation Date, and the Acquired Fund shall have delivered to the Acquiring Fund a statement of assets and liabilities of the Acquired Fund as of the Valuation Date, prepared in accordance with generally accepted accounting principles consistently applied from the prior audited period, certified by the Treasurer of the Acquired Fund. 8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE ACQUIRING FUND AND THE ACQUIRED FUND. The obligations of the Trust on behalf of the Acquired Fund on the one hand and on behalf of the Acquiring Fund on the other hand hereunder are subject to the further conditions that on or before the Closing Date: 8.1 This Agreement and the transactions contemplated herein shall have been approved by the vote of the required majority of the holders of the outstanding shares of the Acquired Fund of record on the record date for the meeting of its shareholders referred to in paragraph 5.2; 8.2 On the Closing Date no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated hereby; 8.3 All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities (including those of the SEC and of state blue sky and securities authorities) deemed necessary by the Trust to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund; A-10 8.4 The Registration Statement referred to in paragraph 5.3 shall have become effective under the 1933 Act and no stop order suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties thereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act; 8.5 The Trust on behalf of each of the Acquired Fund and the Acquiring Fund shall have received a favorable opinion of Bell, Boyd & Lloyd LLC satisfactory to the Trust substantially to the effect that, for federal income tax purposes: (a) The acquisition by the Acquiring Fund of the assets of the Acquired Fund in exchange for the Acquiring Fund's assumption of the Obligations of the Acquired Fund and issuance of the Acquiring Shares, followed by the distribution by the Acquired Fund of such Acquiring Shares to the shareholders of the Acquired Fund in exchange for their shares of the Acquired Fund, all as provided in paragraph 1 hereof, will constitute a reorganization within the meaning of Section 368(a) of the Code, and the Acquired Fund and the Acquiring Fund will each be "a party to a reorganization" within the meaning of Section 368(b) of the Code; (b) No gain or loss will be recognized to the Acquired Fund (i) upon the transfer of its assets to the Acquiring Fund in exchange for the Acquiring Shares and the Acquiring Fund's assumption of the Obligations or (ii) upon the distribution of the Acquiring Shares to the shareholders of the Acquired Fund as contemplated in paragraph 1 hereof; (c) No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the Acquired Fund in exchange for the assumption of the Obligations and issuance of the Acquiring Shares as contemplated in paragraph 1 hereof; (d) The tax basis of the assets of the Acquired Fund acquired by the Acquiring Fund will be the same as the basis of those assets in the hands of the Acquired Fund immediately prior to the transfer, and the holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund; (e) The Acquired Fund Shareholders will recognize no gain or loss upon the exchange of their shares of the Acquired Fund for the Acquiring Shares; (f) The tax basis of the Acquiring Shares to be received by each Acquired Fund Shareholder will be the same in the aggregate as the aggregate tax basis of the shares of the Acquired Fund surrendered in exchange therefor; (g) The holding period of the Acquiring Shares to be received by each Acquired Fund Shareholder will include the period during which the shares of the Acquired Fund surrendered in exchange therefor were held by such shareholder, provided such shares of the Acquired Fund were held as a capital asset on the date of the exchange; and (h) The Acquiring Fund will succeed to and take into account the items of the Acquired Fund described in Section 381(c) of the Code, subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code and the regulations thereunder. 8.6 At any time prior to the Closing, any of the foregoing conditions of this paragraph 8 may be waived by the Board of Trustees of the Trust if, in their judgment, such waiver will not have a material adverse effect on the interests of the shareholders of the Acquired Fund and the Acquiring Fund. 9. FEES AND EXPENSES. 9.1 All fees paid to governmental authorities for the registration or qualification of the Acquiring Shares and all transfer agency costs related to the Acquiring Shares shall be allocated to the Trust, on behalf of the Acquiring Fund. All of the other expenses of the transactions, including without limitation, fees and expenses related to printing, mailing, solicitation of proxies, tabulation of votes and accounting, legal and custodial expenses, contemplated by this Agreement shall be borne by Harris Trust and Savings Bank. Neither Fund will be reimbursed for any expenses incurred by it or on its behalf in connection with the reorganization contemplated by this Agreement unless those A-11 expenses are solely and directly related to the reorganization contemplated by this Agreement (determined in accordance with the guidelines set forth in Rev. Rul. 73-54, 1973-1 C.B. 187). 9.2 In the event the transactions contemplated by this Agreement are not consummated, then Harris Trust and Savings Bank agrees that it shall bear all of the costs and expenses incurred by both the Acquiring Fund and the Acquired Fund in connection with such transactions. 9.3 Notwithstanding any other provisions of this Agreement, if for any reason the transactions contemplated by this Agreement are not consummated, neither the Acquiring Fund nor the Acquired Fund shall be liable to the other for any damages resulting therefrom, including, without limitation, consequential damages. 9.4 Notwithstanding any of the foregoing, costs and expenses will in any event be paid by the party directly incurring them if and to the extent that the payment by another party of such costs and expenses would result in the disqualification of such party as a "regulated investment company" within the meaning of Section 851 of the Code. 10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES. 10.1 The Trust on behalf of the Acquired Fund and the Trust on behalf of the Acquiring Fund agree that neither party has made any representation, warranty or covenant to the other not set forth herein and that this Agreement constitutes the entire agreement between the parties. 10.2 The representations, warranties and covenants contained in this Agreement or in any document delivered pursuant hereto or in connection herewith shall not survive the consummation of the transactions contemplated hereunder except paragraphs 1.1, 1.3, 1.4, 1.5, 1.6, 3.4, 5.4, 7.3, 9, 10, 13 and 14. 11. TERMINATION. 11.1 The Trust may at its option terminate this Agreement at or prior to the Closing Date: (a) Because of a material breach by the Acquired Fund or Acquiring Fund of any representation, warranty, covenant or agreement contained herein to be performed by the other party at or prior to the Closing Date; (b) If a condition herein expressed to be precedent to the obligations of the terminating party has not been met and it reasonably appears that it will not or cannot be met; or (c) Any governmental authority of competent jurisdiction shall have issued any judgment, injunction, order, ruling or decree or taken any other action restraining, enjoining or otherwise prohibiting this Agreement or the consummation of any of the transactions contemplated herein and such judgment, injunction, order, ruling, decree or other action becomes final and non-appealable; provided that the party seeking to terminate this Agreement pursuant to this Section 11.1(c) shall have used its reasonable best efforts to have such judgment, injunction, order, ruling, decree or other action lifted, vacated or denied. 11.2 If the Closing has not been completed by December 31, 2004, this Agreement shall automatically terminate on that date unless a later date is agreed to by the Trust on behalf of the Acquired Fund and the Acquiring Fund. 12. AMENDMENTS. This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by the authorized officers of the Trust on behalf of the Acquiring Fund and the Trust on behalf of the Acquiring Fund; provided, however, that following the shareholders' meeting called by the Acquired Fund pursuant to paragraph 5.2, no such amendment may have the effect of changing the provisions for determining the number of the Acquiring Shares to be issued to the Acquired Fund Shareholders under this Agreement to the detriment of such shareholders without their further approval. 13. NOTICES. A-12 Any notice, report, statement or demand required or permitted by any provisions of this Agreement shall be in writing and shall be given by prepaid courier, telecopy or certified mail addressed to: Harris Insight Funds Trust, c/o PFPC, Inc., 760 Moore Road, King of Prussia, Pennsylvania 19406, attn: Secretary. 14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; NON-RECOURSE; FINDERS' FEES. 14.1 The article and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 14.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 14.3 This Agreement shall be governed by and construed in accordance with the domestic substantive laws of the Commonwealth of Massachusetts, without giving effect to any choice or conflicts of law rule or provision that would result in the application of the domestic substantive laws of any other jurisdiction. 14.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 14.5 A copy of the Declaration of Trust of the Trust is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that no trustee, director, officer, agent or employee of the Trust shall have any personal liability under this Agreement, and that this Agreement is binding only upon the assets and properties of the Acquired Fund and the Acquiring Fund. 14.6 The Trust, on behalf of the Acquired Fund, and the Trust, on behalf of the Acquiring Fund, represents and warrants that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein. A-13 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed as a sealed instrument by its President or Vice President and its corporate seal to be affixed thereto and attested by its Secretary or Assistant Secretary. HARRIS INSIGHT FUNDS TRUST, on behalf of its Harris Insight High Yield Select Bond Fund ATTEST: By: By: ------------------------------- ----------------------------- Name: Name: ----------------------------- --------------------------- Title: Title: ---------------------------- -------------------------- HARRIS INSIGHT FUNDS TRUST, on behalf of its Harris Insight High Yield Bond Fund ATTEST: By: By: ----------------------------- ------------------------------- Name: Name: --------------------------- ----------------------------- Title: Title: -------------------------- ---------------------------- Agreed and accepted as to paragraph 9 only: HARRIS TRUST AND SAVINGS BANK ATTEST: By: By: ----------------------------- ------------------------------- Name: Name: --------------------------- ----------------------------- Title: Title: -------------------------- ---------------------------- A-14 APPENDIX B MANAGEMENT DISCUSSION OF FUND PERFORMANCE OF HIGH YIELD BOND FUND HIGH YIELD BOND FUND - -------------------------------------------------------------------------------- PERFORMANCE BENCHMARK: Bear Stearns High Yield Bond Index -- an index comprised of below investment grade U.S. dollar-denominated corporate bonds. Qualifying bonds must have at least one year remaining term to maturity and a minimum amount outstanding of $100 million. INVESTMENT OBJECTIVE: The Fund seeks to provide a high level of total return through a combination of income and capital appreciation. MANAGER'S OVERVIEW: The high-yield bond market continued the rally that began in the 4th quarter of 2002 and posted its best return in over 10 years, with the Merrill Lynch High Yield Index up 27.23% in 2003. With the exception of a brief period in July, the market was very strong throughout the year with 11 of 12 months showing positive returns. Market strength can be attributed to a combination of several factors. On the technical side, high levels of cash inflows into mutual funds, coupled with increased high-yield allocations by hedge funds and other investors, led to very high demand for bonds. While new issuance in the primary market was high, much of this issuance was used for refinancing old debt. The result was a year-long imbalance between supply and demand that saw the net new supply of bonds overwhelmed by the strong investor appetite for bonds, and bond prices were bid up accordingly. On the fundamental side, credit quality improved throughout the year as the improving economic environment and better access to the capital markets allowed several previously distressed credits to avoid liquidity crises by issuing new debt. The result was an overall improvement in credit quality that can be seen in declining default rates and a year-long rally in the riskiest/lowest quality issues in the market (the Merrill Lynch CCC Index returned 56.76% for the year versus 27.23% for the High Yield Index). Although returns for the year were very attractive at 18.15%, the Fund's defensive strategy did not allow it to keep pace with the market in 2003. Relative performance was affected by underweight positions in the utilities and telecommunications sectors, as well as an underweight position in the lowest quality, CCC-rated credits. On the positive side, diversification in the Fund improved vastly during the year as the number of positions in the portfolio more than doubled by year-end and large positions were reduced substantially. GROWTH OF A $10,000 INVESTMENT IN THE HIGH YIELD BOND FUND AND THE BEAR STEARNS HIGH YIELD BOND INDEX FROM INCEPTION THROUGH DECEMBER 31, 2003. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: Institutional Index Shares ----- ------------- Jul-99 $10,000 $10,000 Dec-99 10,018 10,265 Dec-00 9,336 10,882 Dec-01 9,841 11,755 Dec-02 9,742 11,765 Dec-03 12,560 13,900 AVERAGE ANNUAL TOTAL RETURNS* For the Period Ended 12/31/03 1 Year Inception** ------ ----------- Institutional Shares 18.15% 7.63% * Total returns include changes in share price and the reinvestment of income dividends and capital gains distributions. ** The inception date for the Fund's performance with respect to the Institutional Shares is July 12, 1999. Inception for the Index begins on the month-end closest to the inception date of the Fund (or class thereof). Performance information includes the performance of the High Yield Bond Fund's predecessor collective fund for periods before the Fund commenced operations. Performance for the collective fund has been adjusted to reflect the Fund's estimate of its expense ratio for the first year of operations as a mutual fund. The collective fund was not registered under the Investment Company Act of 1940, as amended (the "1940 Act"), or subject to certain investment restrictions that are imposed by the 1940 Act. If the collective fund had been registered under the 1940 Act, its performance may have been adversely affected. The collective fund did not impose any charges that correspond to the advisory and other fees of the High Yield Bond Fund. Therefore, the quoted performance figures for the collective fund have been reduced to reflect expenses of 0.61%, the estimated expense ratio of the Institutional Shares, at the inception of its operations. Performance figures represent past performance and are not a guarantee of future results. The investment return and principal value of shares will fluctuate and shares, when redeemed, may be worth more or less than the original amount invested. B-1 HARRIS INSIGHT FUNDS TRUST 760 MOORE ROAD KING OF PRUSSIA, PA 19406 1-800-982-8782 FORM N-14 PART B STATEMENT OF ADDITIONAL INFORMATION APRIL ___, 2004 This Statement of Additional Information (the "SAI") relates to the proposed Acquisition (the "Acquisition") of the Harris Insight High Yield Select Bond Fund, a series of the Harris Insight Funds Trust ("Trust") (the "Acquired Fund") by the Harris Insight High Yield Bond Fund, also a series of the Trust (the "Acquiring Fund"). This SAI contains information which may be of interest to shareholders but which is not included in the Combined Prospectus and Proxy Statement dated April ___, 2004 (the "Prospectus/Proxy Statement") of the Acquiring Fund which relates to the Acquisition. As described in the Prospectus/Proxy Statement, the Acquisition would involve the transfer of all the assets of the Acquired Fund in exchange for shares of the Acquiring Fund and the assumption of all the liabilities of the Acquired Fund. The Acquired Fund would distribute the Acquiring Fund shares it receives to its shareholders in complete liquidation of the Acquired Fund. This SAI is not a prospectus and should be read in conjunction with the Prospectus/Proxy Statement. The Prospectus/Proxy Statement has been filed with the Securities and Exchange Commission and is available upon request and without charge by writing to or calling the Fund at the address or telephone number set forth above. Unless otherwise indicated, capitalized terms used herein and not otherwise defined have the same meanings as are given to them in the Prospectus/Proxy Statement. Table of Contents I. Additional Information about the Acquiring Fund and the Acquired Fund.....1 II. Financial Statements......................................................2 I. Additional Information about the Acquiring Fund and the Acquired Fund. --------------------------------------------------------------------- Attached hereto as Appendix A is additional information for the Acquiring Fund and Acquired Fund. Class A is a newly created class of shares of the Acquiring Fund. Class N Shares have previously been established but not yet publicly offered prior to the date of this Part B. II. Financial Statements. -------------------- The audited financial statements and related Report of Independent Auditors included in the Annual Report for the year ended December 31, 2003, for each of the Acquired Fund and the Acquiring Fund are incorporated herein by reference. No other parts of the Annual Report are incorporated herein by reference. HARRIS INSIGHT HIGH YIELD BOND FUND HARRIS INSIGHT HIGH YIELD SELECT BOND FUND PRO FORMA COMBINED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 (UNAUDITED) The following unaudited Pro Forma Combined Statement of Assets and Liabilities, including the unaudited Pro Forma Combined Investments of the Acquiring Fund and the Acquired Fund as of December 31, 2003 has been derived from the respective statements of assets and liabilities, including the schedules of investments, of the Acquiring Fund and the Acquired Fund as of December 31, 2003. The pro forma statements give effect to the proposed transfer of all of the assets of the Acquired Fund to the Acquiring Fund in exchange for the assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund and for a number of the Acquiring Fund's shares equal in value to the value of the net assets of the Acquired Fund transferred to the Acquiring Fund. Assuming the shareholders of the Acquired Fund approve the combination, the Acquiring Fund will be the accounting survivor for financial statement purposes. The unaudited Pro Forma Combined Statement of Assets and Liabilities is presented for informational purposes only and does not purport to be indicative of future operations or the actual financial condition that would have resulted if the Reorganization had closed on December 31, 2003. The unaudited Pro Forma Financial Statements should be read in conjunction with the respective financial statements and related notes of the Acquiring Fund and the Acquired Fund incorporated by reference in this Statement of Additional Information. 2 HARRIS INSIGHT HIGH YIELD BOND FUND AND HARRIS INSIGHT HIGH YIELD SELECT BOND FUND PRO FORMA SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 2003 Coupon Par Rate Maturity (000) Value --------- -------- ------ ------------ CORPORATE BONDS -- 97.1% CABLE & MEDIA -- 3.5% EchoStar DBS Corp. Series 144A 6.375% 10/01/11 $500 $ 515,000 Gray Television, Inc. 9.250% 12/15/11 500 560,000 Lin Television Corp. Series 144A 6.500% 05/15/13 550 553,437 Sinclair Broadcast Group 8.000% 03/15/12 500 542,500 ------------ 2,170,937 ------------ CONSUMER CYCLICAL -- 6.7% Argosy Gaming Co. 9.000% 09/01/11 500 556,250 Ingles Markets, Inc. Series 144A 8.875% 12/01/11 575 580,750 Intrawest Corp. Series 144A 7.500% 10/15/13 550 574,750 MGM Mirage, Inc. 9.750% 06/01/07 525 601,125 Park Place Entertainment Corp. 8.125% 05/15/11 450 506,812 Penn National Gaming, Inc. Series 144A 6.875% 12/01/11 500 497,500 Penney (JC) Co., Inc. 9.000% 08/01/12 500 600,625 Smithfield Foods, Inc. Series B 7.750% 05/15/13 207 216,315 ------------ 4,134,127 ------------ CONSUMER-NON-CYCLICAL -- 17.5% Aviall, Inc. 7.625% 07/01/11 165 172,837 Bluegreen Corp. 10.500% 04/01/08 335 343,375 Boyd Gaming Corp. 7.750% 12/15/12 350 376,250 Central Garden & Pet Co. 9.125% 02/01/13 500 557,500 Constellation Brands, Inc. Series B 8.125% 01/15/12 440 484,000 Corus Entertainment, Inc. 8.750% 03/01/12 250 276,250 Extended Stay America, Inc. 9.875% 06/15/11 475 534,375 Gaylord Entertainment Co. Series 144A 8.000% 11/15/13 165 174,900 Host Marriott L.P. Series I 9.500% 01/15/07 625 698,437 Jacuzzi Brands, Inc. Series 144A 9.625% 07/01/10 500 552,500 Mandalay Resort Group Series 144A 6.375% 12/15/11 500 516,250 O'Charley's, Inc. Series 144A 9.000% 11/01/13 575 580,750 Coupon Par Rate Maturity (000) Value --------- -------- ------ ------------ CORPORATE BONDS (CONTINUED) CONSUMER-NON-CYCLICAL (CONTINUED) Payless Shoesource, Inc. 8.250% 08/01/13 $525 $ 507,938 Perry Ellis International, Inc. Series 144A 8.875% 09/15/13 575 608,063 Phillips Van-Heusen Series 144A 8.125% 05/01/13 575 613,813 Playtex Products, Inc. 9.375% 06/01/11 350 355,250 Potlatch Corp. 10.000% 07/15/11 575 644,000 PPC Escrow Corp. Series 144A 9.250% 11/15/13 500 520,000 Rayovac Corp. 8.500% 10/01/13 500 532,500 Scotts Co. Series 144A 6.625% 11/15/13 300 309,750 Unifi, Inc. Series B 6.500% 02/01/08 440 393,250 Warnaco, Inc. Series 144A 8.875% 06/15/13 550 569,250 Winn-Dixie Stores, Inc. 8.875% 04/01/08 500 510,000 ------------ 10,831,238 ------------ ENERGY -- 4.5% Chesapeake Energy Corp. 7.750% 01/15/15 500 545,000 Compton Petroleum Corp. 9.900% 05/15/09 500 547,500 Energy Partners, Ltd. 8.750% 08/01/10 310 323,950 Gulfterra Energy Partners 10.625% 12/01/12 251 312,495 Houston Exploration Co. Series 144A 7.000% 06/15/13 510 529,125 Pogo Producing Co. Series B 8.250% 04/15/11 200 224,000 Westport Resources Corp. Series 144A 8.250% 11/01/11 250 276,250 ------------ 2,758,320 ------------ FINANCE -- 3.4% Alimentation Couche-Tard, Inc. Series 144A 7.500% 12/15/13 205 215,763 Corrections Corp. of America 7.500% 05/01/11 140 147,700 Corrections Corp. of America Series 144A 7.500% 05/01/11 360 379,800 LNR Property Corp. 7.625% 07/15/13 550 581,625 Sovereign Bancorp, Inc. 10.500% 11/15/06 660 781,275 ------------ 2,106,163 ------------ 3 Coupon Par Rate Maturity (000) Value --------- -------- ------ ------------ CORPORATE BONDS (CONTINUED) HEALTHCARE -- 8.0% Alpharma, Inc. Series 144A 8.625% 05/01/11 $525 $ 534,188 Biovail Corp. 7.875% 04/01/10 500 512,500 Rotech Healthcare, Inc. 9.500% 04/01/12 425 446,250 Select Medical Corp. 7.500% 08/01/13 310 330,150 Senior Housing Properties Trust 7.875% 04/15/15 600 633,000 Tenet Healthcare Corp. 7.375% 02/01/13 575 580,750 US Oncology, Inc. 9.625% 02/01/12 500 551,250 Valeant Pharmaceuticals International Series 144A 7.000% 12/15/11 245 253,575 Ventas Reality L.P. / Ventas Capital Corp. 9.000% 05/01/12 525 585,375 Vicar Operating, Inc. 9.875% 12/01/09 500 557,500 ------------ 4,984,538 ------------ INDUSTRIAL-CYCLICAL -- 17.7% Apogent Technologies, Inc. 6.500% 05/15/13 230 240,925 Ball Corp. 6.875% 12/15/12 500 525,000 Cummins, Inc. Series 144A 9.500% 12/01/10 530 612,150 Forest City Enterprises, Inc. 7.625% 06/01/15 325 346,531 Georgia-Pacific Corp. 9.375% 02/01/13 625 721,875 Hollinger International Publishing Corp. 9.000% 12/15/10 575 613,812 Iron Mountain, Inc. 7.750% 01/15/15 375 394,687 6.625% 01/01/16 250 244,375 JLG Industries, Inc. 8.375% 06/15/12 510 528,488 Lear Corp. Series B 8.110% 05/15/09 250 295,313 Lyondell Chemical Co. 10.500% 06/01/13 575 629,625 Marsh Supermarket, Inc. Series B 8.875% 08/01/07 575 546,250 Navistar International Series B 8.000% 02/01/08 500 516,250 Oxford Industries, Inc. Series 144A 8.875% 06/01/11 500 549,375 Coupon Par Rate Maturity (000) Value --------- -------- ------ ------------ CORPORATE BONDS (CONTINUED) INDUSTRIAL-CYCLICAL (CONTINUED) Paramount Resources, Ltd. 7.875% 11/01/10 $500 $ 500,000 Rent-A-Center Series B 7.500% 05/01/10 375 397,500 Royal Caribbean Cruises, Ltd. 8.000% 05/15/10 500 547,500 Speedway Motorsports, Inc. 6.750% 06/01/13 100 103,750 Tembec Industries, Inc. 8.500% 02/01/11 625 650,000 Texas Industries, Inc. 10.250% 06/15/11 510 578,850 United Rentals, N.A. Inc. Series 144A 7.750% 11/15/13 575 590,094 United States Steel Corp. 9.750% 05/15/10 560 632,800 Wolverine Tube, Inc. 10.500% 04/01/09 166 170,150 ------------ 10,935,300 ------------ INDUSTRIAL-NON-CYCLICAL & SERVICES-- 35.8% Abitibi Consolidated, Inc. 8.550% 08/01/10 500 557,650 Allied Waste N.A., Inc. Series B 10.000% 08/01/09 500 542,500 Alltrista Corp. 9.750% 05/01/12 575 635,375 Bowater, Inc. 6.500% 06/15/13 650 631,922 Cascades, Inc. 7.250% 02/15/13 525 556,500 CP Ships, Ltd. 10.375% 07/15/12 315 366,975 Crescent Real Estate Equities L.P. 9.250% 04/15/09 575 635,375 D.R. Horton, Inc. 6.875% 05/01/13 375 401,250 Dana Corp. 9.000% 08/15/11 500 605,000 Del Monte Corp. 8.625% 12/15/12 650 715,000 Felcor Lodging L.P. 10.000% 09/15/08 625 678,125 Fisher Scientific International, Inc. 8.000% 09/01/13 250 269,375 GenCorp, Inc. Series 144A 9.500% 08/15/13 500 521,250 General Motors Corp. 7.125% 07/15/13 490 538,309 Greif, Inc. 8.875% 08/01/12 575 635,375 4 Coupon Par Rate Maturity (000) Value --------- -------- ------ ------------ CORPORATE BONDS (CONTINUED) INDUSTRIAL-NON-CYCLICAL & SERVICES (CONTINUED) GulfMark Offshore, Inc. 8.750% 06/01/08 $500 $ 520,000 Imax Corp. Series 144A 9.625% 12/01/10 250 264,062 Ipsco, Inc. Series 144A 8.750% 06/01/13 500 555,000 Jefferson Smurfit Corp. 7.500% 06/01/13 560 588,000 KB Home 9.500% 02/15/11 500 560,000 L-3 Communications Corp. 6.125% 07/15/13 325 329,062 Longview Fibre Co. 10.000% 01/15/09 575 633,938 Manitowoc Co., Inc. 7.125% 11/01/13 330 342,787 Mobile Mini, Inc. 9.500% 07/01/13 500 552,500 NCI Building Systems, Inc. Series B 9.250% 05/01/09 330 348,975 Norske Skog Canada, Ltd. 8.625% 06/15/11 575 606,625 Omi Corp. Series 144A 7.625% 12/01/13 500 506,875 Overseas Shipholding Group Series 144A 8.250% 03/15/13 625 672,656 Pope & Talbot, Inc. 8.375% 06/01/13 500 501,250 Premcor Refining Group Series 144A 6.750% 02/01/11 330 335,775 7.750% 02/01/12 80 82,800 Prime Hospitality Corp. Series B 8.375% 05/01/12 955 990,813 R.H. Donnelley Finance Corp. I Series 144A 8.875% 12/15/10 175 197,750 10.875% 12/15/12 425 506,281 Russell Corp. 9.250% 05/01/10 525 546,656 Standard Pacific Corp. 8.500% 04/01/09 250 261,250 Star Gas Partners L.P. 10.250% 02/15/13 520 569,400 Steel Dynamics, Inc. 9.500% 03/15/09 510 568,650 Steinway Musical Instruments, Inc. 8.750% 04/15/11 525 559,125 Suburban Propane Partners Series 144A 6.875% 12/15/13 245 248,675 Terex Corp. Series 144A 7.375% 01/15/14 575 590,813 Coupon Par Rate Maturity (000) Value --------- -------- ------ ------------ CORPORATE BONDS (CONTINUED) INDUSTRIAL-NON-CYCLICAL & SERVICES (CONTINUED) Thomas & Betts Corp. 7.250% 06/01/13 $530 $ 548,550 Tom Brown, Inc. Series Unit. 7.250% 09/15/13 175 185,938 URS Corp. 11.500% 09/15/09 425 482,906 Westinghouse Air Brake Technologies Corp. Series 144A 6.875% 07/31/13 250 260,312 ------------ 22,207,405 ------------ TOTAL CORPORATE BONDS 60,128,028 (Cost $57,633,023) ------------ Shares --------- COMMON STOCK -- 0.1% DIVERSIFIED FINANCIALS -- 0.1% Medical Office Properties, Inc. (Cost $218,100) 10,905 81,461 ------------ TEMPORARY INVESTMENTS -- 2.8% AIM Short-Term Investment Co. Liquid Assets Prime Portfolio 679,497 679,497 Dreyfus Cash Management Plus #719 1,062,703 1,062,703 ------------ TOTAL TEMPORARY INVESTMENTS (Cost $1,742,200) 1,742,200 ------------ TOTAL INVESTMENTS-- 100% (Cost $59,593,323) $61,951,689 ============ 5
HARRIS INSIGHT HIGH YIELD BOND FUND AND HARRIS INSIGHT HIGH YIELD SELECT BOND FUND NOTES TO PRO FORMA STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) DECEMBER 31, 2003 High Yield High Yield Pro Forma High Yield Bond Select Bond Adjustments Bond Combined ASSETS Investments at Value $ 61,870,228 $ 17,809,072 (17,727,611) $ 61,951,689 Receivable for Capital Stock Sold 26,000 1,779 - 27,779 Interest Receivable 1,099,527 103,065 - 1,202,592 Prepaid Expenses 9,658 20,553 - 30,211 ------------ ------------ ------------ ------------ TOTAL ASSETS 63,005,413 17,934,469 (17,727,611) 63,212,271 LIABILITIES Dividends Payable 17,370 1,430 - 18,800 Accrued Expenses 26,153 (3,390) - 22,763 Payable Capital Stock Redeemed 35,642 17,942 - 53,584 ------------ ------------ ------------ ------------ TOTAL LIABILITIES 79,165 15,982 - 95,147 ------------ ------------ ------------ ------------ NET ASSETS applicable to shares outstanding $ 62,926,248 $ 17,918,487 (17,727,611) $ 63,117,124 ============ ============ ============ ============ A Shares Net Assets 219,177 219,177 Shares Outstanding 12,161 17,078 Net Asset Value per share $ $ 18.02 $ 12.83 ============ ============ ============ Public Offering Price per share $ $ 18.87 $ 13.44 ============ ============ ============ Institutional Net Assets 62,926,248 17,284,019 62,482,656 Shares Outstanding 4,903,227 958,567 (1,381,731) 4,868,677 Net Asset Value per share $ 12.83 $ 18.03 $ 12.83 ============ ============ ============ N Shares Net Assets 415,291 415,291 Shares Outstanding 23,031 32,360 Net Asset Value per share $ $ 18.03 $ 12.83 ============ ============ ============ Total Assets $ 62,926,248 $ 17,918,487 63,117,124 ============ ============ ============ Total Shares 4,903,227 993,759 4,918,115 ============ ============ ============
6 The following unaudited Pro Forma Combined Statement of Operations for the Acquiring Fund and the Acquired Fund has been derived from the Statements of Operations of the Acquiring Fund and the Acquired Fund for the fiscal year ended December 31, 2003. Such information has been adjusted to give effect to the Reorganization as if it had occurred on January 1, 2003, and reflects Pro Forma adjustments that are directly attributable to the transaction and are expected to have a continuing impact. The unaudited Pro Forma Statement of Operations is presented for informational purposes only and does not purport to be indicative of future operations or the actual results of operations that would have occurred if the Reorganization had been consummated on January 1, 2003. The unaudited Pro Forma Financial Statements should be read in conjunction with the financial statements and related notes of the respective funds incorporated by reference in this Statement of Additional Information. The Pro Forma Combined Statements of Operations do not reflect the expenses of the Acquired Fund or the Acquiring Fund in carrying out their obligations under the Agreement and Plan of Reorganization. 7
HARRIS INSIGHT HIGH YIELD BOND FUND AND HARRIS INSIGHT HIGH YIELD SELECT BOND FUND NOTES TO PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, 2003 High Yield High Yield Pro Forma High Yield Bond Select Bond Adjustments Bond Combined ---- ----------- ----------- ------------- INVESTMENT INCOME: Interest $3,545,119 $1,101,988 $ (1,101,988)(a) $3,545,119 ---------- ---------- ------------ ---------- Total Investment Income 3,545,119 1,101,988 (1,101,988) 3,545,119 ---------- ---------- ------------ ---------- EXPENSES: Investment Advisory Fee 206,771 - - 206,771 Rule 12b-1 Fee - 444 (444)(a) - Shareholder services fee - 933 (933)(a) - Commitment fee 633 - - 633 Transfer agency fee 1,539 19,631 (1,631)(b) 19,539 Administration fee 84,675 41,960 (41,960)(a) 84,675 Custodian fee 9,315 - - 9,315 Directors' fees and expenses 638 - - 638 Audit Fee 10,773 - - 10,773 Legal Fee 620 44,252 (44,252)(a) 620 Reports to shareholders 753 - - 753 Registration fees 10,610 27,017 (12,017)(b) 25,610 Miscellaneous 8,959 1,904 (1,904)(a) 8,959 ---------- ---------- ------------ ---------- Total Expenses 335,286 136,141 (103,141) 368,286 Less fee waivers and expense reimbursements (54,996) (111,721) 78,721 (87,996) ---------- ---------- ------------ ---------- Net Expenses 280,290 24,420 (24,420) 280,290 ---------- ---------- ------------ ---------- NET INVESTMENT INCOME 3,264,829 1,077,568 (1,077,568) 3,264,829 NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS: Net Realized Gain (Loss) from: Investment Transactions 1,252,546 707,566 (707,566) 1,252,546 Net Change in Unrealized Appreciation (Depreciation) on Investments 2,637,553 745,340 (745,340) 2,637,553 --------- ------- --------- --------- (a) Reflects decrease due to the elimination of duplicative expenses achieved by merging the funds. (b) Reflects net decrease in expenses due to the elimination of duplicative expenses achieved by merging the funds offset by an increase in certain expenses to be incurred upon merging of the funds. 8 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 3,890,099 1,452,906 (1,452,906) 3,890,099 ---------- ---------- ------------ ---------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $7,154,928 $2,530,474 ($2,530,474) $7,154,928 ========== ========== ============ ==========
9 HARRIS INSIGHT HIGH YIELD BOND FUND AND HARRIS INSIGHT HIGH YIELD SELECT BOND FUND NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 2003 1. Organization Harris Insight Funds Trust (the "Trust") was organized as a business trust under the laws of The Commonwealth of Massachusetts on December 6, 1995. The Trust is an open-end management investment company and currently offers nineteen diversified investment portfolios. The portfolios of the Trust are each referred to as a "Fund" and, collectively, as the "Funds" and are as follows: Equity Funds: Harris Insight Equity Fund ("Equity Fund") Harris Insight Core Equity Fund ("Core Equity Fund") Harris Insight Small-Cap Opportunity Fund ("Small-Cap Opportunity Fund") Harris Insight Small-Cap Value Fund ("Small-Cap Value Fund") Harris Insight Index Fund ("Index Fund") Harris Insight International Fund ("International Fund") Harris Insight Small-Cap Aggressive Growth Fund ("Small-Cap Aggressive Growth Fund") Harris Insight Balanced Fund ("Balanced Fund") Harris Insight Emerging Markets Fund ("Emerging Markets Fund") Fixed Income Funds: Harris Insight Short/Intermediate Bond Fund ("Short/Intermediate Bond Fund") Harris Insight High Yield Select Bond Fund ("High Yield Select Bond Fund") Harris Insight Bond Fund ("Bond Fund") Harris Insight Intermediate Government Bond Fund ("Intermediate Government Bond Fund") Harris Insight High Yield Bond Fund ("High Yield Bond Fund") Harris Insight Intermediate Tax-Exempt Bond Fund ("Intermediate Tax-Exempt Bond Fund") Harris Insight Tax-Exempt Bond Fund ("Tax-Exempt Bond Fund") Money Market Funds: Harris Insight Government Money Market Fund ("Government Money Market Fund") Harris Insight Money Market Fund ("Money Market Fund") Harris Insight Tax-Exempt Money Market Fund ("Tax-Exempt Money Market Fund") The Trust offers six classes of shares: A shares, N shares, B shares, Service shares, Exchange shares, and Institutional shares. Institutional shares are offered by each Fund. A shares are offered by each Fund, except for the Index Fund, the Small-Cap Aggressive Growth Fund, the High Yield Bond Fund and each of the Money Market Funds. N shares are offered by each Fund, except for the Small-Cap Aggressive Growth Fund and the High Yield Bond Fund. B shares are offered by each Fund, except for the International Fund, the Emerging Markets Fund, the Small-Cap Aggressive Growth Fund, the High Yield Select Bond Fund, the High Yield Bond Fund, the Tax-Exempt Money Market Fund, 10 and the Government Money Market Fund. Service shares are offered only by each of the Money Market Funds. Exchange shares are offered only by the Money Market Fund. Shares of all classes of a Fund have equal voting rights except on class-specific matters. Investment income, realized and unrealized gains and losses and certain fund-level expenses are borne pro rata on the basis of relative net assets of all classes, except that each class bears any expenses unique to that class. N shares, A shares, B shares, Service shares, and Exchange shares are subject to certain service organization/agent fees as described in Note 4, and the A shares are sold subject to a sales load (Note 5). Institutional shares are not subject to service organization/agent fees or sales loads. The High Yield Select Bond Fund seeks to achieve its investment objective by investing substantially all of its investable assets in the High Yield Bond Fund. The financial statements of the High Yield Bond Fund are included in this report and should be read in conjunction with the financial statements of the High Yield Select Bond Fund. 2. Significant Accounting Policies The following is a summary of significant accounting policies used by the Funds in the preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. (a) Debt obligations and fixed-income securities, including asset-backed and mortgage-backed securities, are valued at the mean of the last bid and asked prices. In the event that market prices are not readily available, or where last sale prices are considered not reflective of market values as of the valuation time, securities are valued at fair value as determined in good faith by or under the direction of the Board of Trustees. (b) Federal Income Taxes -- Each Fund intends to continue to qualify as a regulated investment company under the Internal Revenue Code and to distribute substantially all of its net investment income and net realized capital gains to shareholders. Accordingly, no provision for federal income tax is required. (c) Distributions -- Each of the Funds declares dividends from net investment income. Dividends from the Fixed Income Funds are declared daily and paid monthly. Each Fund's net realized capital gains, if any, are distributed at least annually. Distributions to shareholders are recorded on the ex-dividend dates. The amounts of distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from those amounts determined under generally accepted accounting principles in the United States of America. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they are reclassified within the capital accounts to conform to their tax treatment in the period in which the difference arises. (d) Futures Contracts -- The Funds may seek to hedge all or a portion of their investments through the use of securities index and other financial futures contracts. Upon entering into a futures contract, a Fund is required to deposit an amount ("initial margin") equal to a certain percentage of the contract value. Subsequent payments ("variation margin") are made or received by the Fund each day, reflecting the daily 11 change in the value of the contracts and are recorded as an unrealized gain or loss. When the contract is closed the Fund will recognize a realized gain or loss. Futures contracts are subject to the risk associated with the imperfect correlation between movements in the price of the futures contract and the price of the securities being hedged. The risk of imperfect correlation increases with respect to securities index futures as the composition of the Fund's portfolio diverges from composition of the index underlying such index futures. In addition, there is no assurance that a liquid secondary market will exist at the time the Fund elects to close out a futures position. (e) Allocation of Expenses -- Expenses which have not been directly charged to a specific Fund are generally allocated among the Funds primarily on the basis of relative net assets. Expenses relating to a particular class of shares of a Fund are charged to that class. Non-class specific expenses of a Fund are allocated among the classes of shares of the Fund based upon the relative net assets of the classes. (f) Repurchase Agreements -- Certain Funds invest in repurchase agreements. Securities pledged as collateral for repurchase agreements are held by a custodian bank until maturity of the repurchase agreements. Provisions of the repurchase agreements require that the market value of the collateral, including accrued interest thereon, be sufficient in the event of default by the counterparty. If the counterparty defaults and the value of the collateral declines, or if the counterparty enters an insolvency proceeding, realization on the collateral by the Fund may be delayed or limited. (g) Other -- Investment transactions are recorded on trade date. Interest income, including the amortization of discount or premium, is recorded as earned. Discounts and premiums on securities purchased are amortized over the lives of the respective securities using the effective-yield method for non-Money Market. Dividend income is recorded on the ex-dividend date. 3. Advisory, Administration and Distribution Arrangements The Trust retains Harris Investment Management ("HIM") as investment adviser (the "Adviser") for each Fund, pursuant to an advisory contract for each Fund. As Adviser, HIM is entitled to receive fees payable monthly, based upon the average daily net asset value of each Fund, at the following annual rates: High Yield Bond Fund 0.45% High Yield Select Bond Fund --* *The Fund pays an advisory fee indirectly as a shareholder of the High Yield Bond Fund. HIM may, at its discretion, voluntarily waive all or any portion of its advisory fee for any Fund. For the year ended December 31, 2003, advisory fees and waivers for certain Funds were as follows: Gross Net Advisory Fee Waiver Advisory Fee ------------ ------- ------------ High Yield Bond Fund $206,771 $49,708 $157,063 HIM has also entered into an Investment Sub-Advisory Agreement with HIM Monegy, Inc. ("Monegy"), a wholly-owned subsidiary of HIM, with respect to the High Yield Bond Fund. Pursuant to the agreement, Monegy selects and manages the securities in which the Fund invests. Monegy, as sub-adviser, receives a fee directly from HIM and not from the Funds. 12 The Trust has an Administration Agreement with Harris Trust and Savings Bank ("Harris Trust" or the "Administrator"). In this capacity, the Administrator generally assists the Funds in all aspects of their administration and operation. The Administrator has entered into Sub-Administration and Accounting Services Agreements with PFPC Inc. ("PFPC"), pursuant to which PFPC performs certain administrative services for the Funds. Under these Agreements, the Administrator compensates PFPC for providing such services. The Administrator also serves as the transfer and dividend disbursing agent of the Funds (the "Transfer Agent"). The Administrator 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. The Administrator compensates the Sub-Transfer Agent for providing such services. PFPC Trust Co. (the "Custodian") serves as the Custodian of the assets of the Funds. As compensation for their services, the Administrator and the Transfer Agent are entitled to receive from the Trust a fee based on the aggregate average daily net assets of the Trust, payable monthly at an aggregate annual rate of 0.1665% of the first $300 million of average daily net assets; 0.1465% of the next $300 million of average daily net assets; and 0.1265% of average daily net assets in excess of $600 million. Certain employees of Harris Trust and PFPC are officers of the Funds. PFPC Distributors, Inc. (the "Distributor") provides distribution services in connection with sales of shares of the Funds. No compensation is payable by the Funds to the Distributor for its distribution services. Fees for services rendered by the Distributor were paid by the Administrator. 4. Service Plans Shares of all classes of a Fund represent equal pro rata interests in such Fund except that each class bears different expenses, which reflect the differences in the charges for the different services provided to them. The following tables provide a list of the Funds included in this report along with a summary of fees paid pursuant to their respective class-specific fee arrangements under the Funds' Service and Distribution Plans (the "Plans"). Fees are calculated as a percentage (on an annualized basis) of average daily net asset values of the respective classes. 13 Shareholder Service Fees 12b-1 Fees ------------ ---------- N Shares A Shares (0.25%) (0.25%) ------------ ---------- High Yield Select Bond Fund $933 $444 5. Public Offering Price Class A shares of the Funds are sold at a public offering price which is equal to the current net asset value of such shares with a maximum front-end sales load of 4.50% for the High Yield Select Bond Fund. 6. Capital Shares
High Yield High Yield Bond Select Bond Fund Fund --------------- ----------- Year Period Year Year Ended Ended Ended Ended 12/31/03 12/31/2002(1) 12/31/03 12/31/02 -------- ------------- -------- -------- AMOUNT INSTITUTIONAL SHARES: Sold $52,848,751 $17,492,262 $12,707,211 $3,339,742 Issued as reinvestment of dividends 3,583,074 388,982 1,058,206 705,988 Redeemed (15,073,126) (100,017) (8,839,682) (20,337,125) ------------ ------------ ----------- ------------ Net increase/(decrease) $41,358,699 $17,781,227 $4,925,735 ($16,291,395) ============ ============ =========== ============ N SHARES : Sold $191,272 $159,779 Issued as reinvestment of dividends 16,818 9,132 Redeemed (177,107) (83,708) ------------ ------------ ----------- ------------ Net increase/(decrease) $30,983 $85,203 =========== ============ A SHARES : Sold $1,629,933 $6,301 Issued as reinvestment of dividends 5,525 1,350 Redeemed (1,495,507) (95,807) ------------ ------------ ----------- ------------ Net increase/(decrease) $139,951 ($88,156) =========== ============ SHARES INSTITUTIONAL SHARES: Sold 4,280,262 1,516,335 737,893 190,804 Issued as reinvestment of dividends 286,545 33,378 60,874 41,623 Redeemed (1,204,766) (8,527) (507,175) (1,179,591) ------------ ------------ ----------- ------------ Net increase/(decrease) 3,362,041 1,541,186 291,592 (947,164) =========== ========== =========== ============
14
N SHARES : Sold 10,918 9,213 Issued as reinvestment of dividends 971 548 Redeemed (10,105) (4,581) ----------- ------------ Net increase/(decrease) 1,784 5,180 =========== ============ A SHARES : Sold 94,705 351 Issued as reinvestment of dividends 316 80 Redeemed (85,375) (5,446) ----------- ------------ Net increase/(decrease) 9,646 (5,015) =========== ============ - ----------- (1) For the period 09/23/02 (commencement of operations) to 12/31/02.
7. Investment Transactions Purchases and sales of investment securities of the non-Money Market Funds (excluding short-term investments, U.S. government securities, and mortgage-dollar-roll transactions) during the year ended December 31, 2003, were as follows: Purchases Sales ----------- ----------- High Yield Bond Fund $74,017,141 $34,142,692 8. Composition of Net Assets At December 31, 2003, net assets of each Fund consisted of:
High Yield High Yield Select Bond Bond Fund Fund ---------- ----------- Beneficial Interest at Par Value..................... $ 4,564 $ 993 Paid-in Capital...................................... 60,099,010 27,943,066 Undistributed Net Investment Income.................. - - Accumulated Net Realized Gain/(Loss)................. 327,504 (10,684,950) Unrealized Appreciation/(Depreciation) on Investment Transactions, Futures Contracts and Foreign Currency Translations................ 2,495,170 659,378 --------- ------- Net Assets........................................... $ 62,926,248 $ 17,918,487 ============ ============
9. Federal Tax Information Each Fund intends to continue to qualify as a regulated investment company under the Internal Revenue Code and to distribute substantially all of its net investment income and net realized capital gains to shareholders. Accordingly, no provision for federal income tax is required. 15 The tax character of distributions paid during the last two fiscal years were as follows:
Short-Term Long-Term Ordinary Tax-Exempt Capital Capital Total Income Income Gain Gain Distributions ----------------------------------------------------------------------- High Yield Bond Fund 12/31/03 $3,264,829 $ -- $130,868 $279,670 $3,675,367 12/31/02 388,989 -- -- -- 388,989 High Yield Select Bond Fund 12/31/03 1,099,934 -- -- -- 1,099,934 12/31/02 725,153 -- -- -- 725,153
As of December 31, 2003, the components of distributable earnings/(accumulated losses) were as follows: Undistributed Undistributed Capital Ordinary Long-Term Loss Income Capital Gain Carryforwards --------------------------------------------- High Yield Bond Fund $206,026 $121,478 $ -- High Yield Select Bond Fund -- -- (10,683,399) The differences between the components of distributable earnings on a tax basis and the amounts reflected in the Composition of Net Assets are primarily due to wash sales. For federal income tax purposes, capital-loss carryforwards may be carried forward and applied against future capital gains. At December 31, 2003, the Funds had capital-loss carryforwards available to offset future realized capital gains through the indicated expiration dates: Expiring December 31 ------------------------------------------------- 2009 2010 2011 Total ------------------------------------------------- High Yield Select Bond Fund $3,844,603 $2,175,201 $4,663,595 $10,683,399 10. Concentration of Risks The High Yield Bond Fund invests in high-yield instruments and is subject to certain credit and market risks. The yields of high-yield debt obligations reflect, among other things, perceived credit risk. The Fund's investment in securities rated below investment grade typically involves risks not associated with higher-rated securities, including, among others, greater risks of timely and ultimate payment of interest and principal, greater market-price volatility and less liquid secondary market trading. 11. Line of Credit The Trust, on behalf of each of the Funds except for the High Yield Select Bond Fund, has a 364-day $200,000,000 aggregate Revolving Credit Facility ("Credit Facility") with the Bank of Montreal, the ultimate parent of Harris Trust. The Credit Facility permits one or more of the Funds to borrow for temporary or emergency 16 purposes, including, without limitation, funding of shareholder redemptions. Under the terms of the Credit Facility, each Fund pays a quarterly commitment fee at a rate of 0.09% per annum on the average daily balance of the Credit Facility that is available during each quarter ("Commitment Fee"). The Commitment Fee is allocated among the Funds based on relative net assets of the Funds. In addition, the Funds will pay interest on any borrowings at the Federal Funds rate plus 0.50%. For the year ended December 31, 2003, none of the Funds had borrowings under the Credit Facility. APPENDIX A ADDITIONAL INFORMATION ABOUT THE HARRIS INSIGHT HIGH YIELD BOND FUND AND THE HARRIS INSIGHT HIGH YIELD SELECT BOND FUND Harris Insight(R) Funds Supplement dated December 11, 2003 to the Statement of Additional Information dated May 1, 2003 This Supplement replaces the Supplement dated December 10, 2003 to the SAI. The following chart replaces the corresponding chart on page 33 in the section entitled Trustees and Executive Officers.
TERM OF NUMBER OF OFFICE AND PORTFOLIOS YEAR FIRST IN FUND ELECTED OR COMPLEX NAME, POSITION(S) WITH TRUST APPOINTED PRINCIPAL OCCUPATION(S) DURING OVERSEEN OTHER AND AGE TO OFFICE1 PAST FIVE YEARS BY TRUSTEE DIRECTORSHIPS - ---------------------------- ---------- ------------------------------ ----------- -------------- TRUSTEES OF THE TRUST (NONE OF WHOM ARE INTERESTED PERSONS OF THE TRUST): C. Gary Gerst, 64, Trustee Since 1995 Chairman Emeritus, Jones Lang 19 Director, Florida Office and Chairman of the Board of LaSalle, formerly named LaSalle Property Company, Inc. (real Trustees Partners Ltd. (real estate estate investment fund); 200 E. Randolph Drive investment manager and Trustee, Henderson Global 43rd Floor consulting firm). Funds (7 portfolios); and Chicago, IL 60601 President, KCI Inc. (Private S Corporation investing in non-public investments). Faris F. Chesley, 65, Trustee Since 2003 Chairman, Chesley, Taft & 19 Trustee, Henderson Global 10 S. LaSalle Street Associates, LLC (investment Funds (4 portfolios). Chicago, IL 60603 advisory firm) since 2001; formerly Vice-Chairman, ABN-AMRO, Inc. (financial services company). Valerie B. Jarrett, 47, Since 1999 Executive Vice President, The 19 Director, USG Corporation Trustee Habitat Company (residential (building materials 350 W. Hubbard Street property developer). manufacturer), The Chicago Chicago, IL 60610 Stock Exchange, and Navigant Consulting, Inc.; Trustee, University of Chicago. John W. McCarter, Jr., 65, Since 1995 President and Chief Executive 19 Chairman, Divergence L.L.C. Trustee Officer, The Field Museum of (biotechnology firm); 1400 S. Lake Shore Drive Natural History; formerly Senior Director, W.W. Grainger, Inc. Chicago, IL 60605 Vice President and Director, (industrial distributor) and Booz-Allen & Hamilton, Inc. A.M. Castle, Inc. (metals (consulting firm). distributor); and Trustee, Janus Adviser Series, Janus Aspen Series and Janus Investment Fund (52 portfolios). Paula Wolff , 58, Trustee Since 1998 Senior Executive, Chicago 19 Vice Chair, University of 30 W. Monroe Street Metropolis 2020 (civic Chicago Board of Trustees; 18th Floor organization), since 2000. Chair, University of Chicago Chicago, IL 60603 President, Governors State Hospitals; and Director, Ariel University, prior thereto. Capital Management, Inc. (investment manager).
- ----------------------- 1 A Trustee shall retire at the end of the calendar year in which the Trustee attains the age of 72 years. The President, Treasurer and Secretary shall each hold office until his successor shall have been duly elected and qualified, and all other officers shall hold office at the pleasure of the Trustees. HARRIS INSIGHT(R) FUNDS 760 Moore Road King of Prussia, Pennsylvania 19406 Telephone: (800) 982-8782 STATEMENT OF ADDITIONAL INFORMATION May 1, 2003 This Statement of Additional Information (the "SAI") is not a prospectus. It should be read in conjunction with the corresponding prospectuses dated May 1, 2003 and any supplement thereto (the "Prospectuses") for the series of Harris Insight Funds Trust (the "Trust") listed below (each a "Fund" and collectively the "Funds"). The Funds are as follows:
Equity Funds Fixed Income Funds o Harris Insight Balanced Fund o Harris Insight Bond Fund o Harris Insight Core Equity Fund o Harris Insight High Yield Bond Fund o Harris Insight Emerging Markets Fund o Harris Insight High Yield Select Bond Fund o Harris Insight Equity Fund (formerly named Convertible Securities o Harris Insight Equity Income Fund Fund) o Harris Insight Index Fund o Harris Insight Intermediate Government Bond o Harris Insight International Fund Fund o Harris Insight Small-Cap o Harris Insight Intermediate Tax-Exempt Bond Aggressive Growth Fund Fund o Harris Insight Small-Cap o Harris Insight Short/Intermediate Bond Fund Opportunity Fund o Harris Insight Tax-Exempt Bond Fund o Harris Insight Small-Cap Value Fund Money Market Funds o Harris Insight Government Money Market Fund o Harris Insight Money Market Fund o Harris Insight Tax-Exempt Money Market Fund
The financial statements and financial highlights for each Fund for the fiscal period ended December 31, 2002, including the independent auditors' report thereon, are included in the Funds' Annual Report, and are incorporated herein by reference. To obtain a free copy of the Prospectuses or Annual Report, please write or call the Funds at the address or telephone number given above. Capitalized terms not defined herein are defined in the Prospectuses. HIF 1150 5/03 1 TABLE OF CONTENTS PAGE General Information About the Trust............................................1 Investment Strategies..........................................................1 Ratings.......................................................................27 Investment Restrictions.......................................................27 Master Fund/Feeder Fund Structure.............................................29 Trustees and Executive Officers...............................................32 Control Persons and Principal Holders of Securities...........................36 Investment Management, Distribution and Other Services........................43 Service and Distribution Plans................................................50 Calculation of Yield and Total Return.........................................55 Additional Purchase and Redemption Information................................61 Determination of Net Asset Value..............................................64 Portfolio Transactions .......................................................65 Tax Information...............................................................69 Shares of Beneficial Interest.................................................72 Other.........................................................................73 Independent Accountants and Reports to Shareholders...........................74 Appendix A....................................................................75 2 GENERAL INFORMATION ABOUT THE TRUST The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The Trust was organized as a Massachusetts business trust on December 6, 1995. Because the Trust offers multiple investment portfolios (the "Funds"), it is known as a "series" company. The Trust currently offers twenty Funds, with various investment objectives and policies, and offers six classes of shares, A Shares, N Shares, B Shares, Service Shares, Exchange Shares and Institutional Shares. Institutional Shares are offered by each Fund. A Shares are offered by each Fund, except for the Index Fund, the Small-Cap Aggressive Growth Fund, the High Yield Bond Fund, and each of the Money Market Funds. N Shares are offered by each Fund, except for the Small-Cap Aggressive Growth Fund and the High Yield Bond Fund. B Shares are offered by each Fund, except for the Emerging Markets Fund, the International Fund, the Small-Cap Aggressive Growth Fund, the High Yield Bond Fund, the Government Money Market Fund, and the Tax-Exempt Money Market Fund. Service Shares are offered only by each of the Money Market Funds. Exchange Shares are offered only by the Money Market Fund. The High Yield Select Bond Fund invests all of its investable assets in the High Yield Bond Fund. For purposes of the discussion below in "Investment Strategies", the High Yield Select Bond Fund is also included. The investment objectives of the Funds are described in the Prospectuses. Harris Investment Management, Inc. ("HIM" or the "Adviser") is the adviser to the Funds and Hansberger Global Investors, Inc. ("Hansberger" or the "Sub-Adviser") is the sub-adviser to the International Fund and the Emerging Markets Fund. See "Investment Management, Distribution and Other Services" below. INVESTMENT STRATEGIES ASSET-BACKED SECURITIES. Each Fund may purchase asset-backed securities, which represent direct or indirect participation in, or are secured by and payable from, assets other than mortgage-backed assets such as installment loan contracts, leases of various types of real and personal property, motor vehicle installment sales contracts and receivables from revolving credit (credit card) agreements. In accordance with guidelines established by the Board of Trustees, asset-backed securities may be considered illiquid securities and, therefore, may be subject to a Fund's 15% (10% with respect to 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. BANK OBLIGATIONS. Each Fund may invest in 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), 3 U.S. branches and agencies of foreign banks (Yankee dollars), and wholly-owned banking-related subsidiaries of foreign banks. The Money Market Fund limits its investments in domestic bank obligations to obligations of U.S. banks (including foreign branches and thrift institutions) that have more than $1 billion in total assets at the time of investment and are members of the Federal Reserve System, are examined by Comptroller of the Currency or whose deposits are insured by the Federal Deposit Insurance Corporation ("U.S. banks"). The Money Market Fund limits its investments in foreign bank obligations to U.S. dollar-denominated obligations of foreign banks (including U.S. branches): (a) which banks at the time of investment (i) have more than $10 billion, or the equivalent in other currencies, in total assets and (ii) are among the 100 largest banks in the world, as determined on the basis of assets, and have branches or agencies in the U.S.; and (b) which obligations, in the opinion of HIM, are of an investment quality comparable to obligations of U.S. banks that may be purchased by the Money Market Fund. Each of the Short/Intermediate Bond Fund and the Money Market Fund may invest more than 25% of the current value of its total assets in obligations (including repurchase agreements) of: (a) U.S. banks; (b) U.S. branches of foreign banks that are subject to the same regulation as U.S. banks by the U.S. Government or its agencies or instrumentalities; or (c) foreign branches of U.S. banks if the U.S. banks would be unconditionally liable in the event the foreign branch failed to pay on such obligations for any reason. Certificates of deposit represent an institution's obligation to repay funds deposited with it that earn a specified interest rate over a given period. Bankers' acceptances are negotiable obligations of a bank to pay a draft which has been drawn by a customer and are usually backed by goods in international trade. Time deposits are non-negotiable deposits with a banking institution that earn a specified interest rate over a given period. Certificates of deposit and fixed time deposits, which are payable at the stated maturity date and bear a fixed rate of interest, generally may be withdrawn on demand but may be subject to early withdrawal penalties which could reduce the Fund's yield. Deposits subject to early withdrawal penalties or that mature in more than seven days are treated as illiquid securities if there is no readily available market for the securities. A Fund's investments in the obligations of foreign banks and their branches, agencies or subsidiaries may be obligations of the parent, of the issuing branch, agency or subsidiary, or both. The profitability of the banking industry is largely dependent upon the availability and cost of funds to finance lending operations and the quality of underlying bank assets. In addition, domestic and foreign banks are subject to extensive but different government regulation which may limit the amount and types of their loans and the interest rates that may be charged. Obligations of foreign banks involve somewhat different investment risks from those associated with obligations of U.S. banks. BORROWING. Each Fund may borrow up to 10% of the current value of its net assets for temporary purposes only in order to meet redemptions, which borrowing may be secured by the pledge of up to 10% of the current value of the Fund's net assets. Investments may not be purchased while any aggregate borrowings in excess of 5% exist. COMMON AND PREFERRED STOCK. The Equity Funds, the High Yield Bond Fund and the High Yield Select Bond Fund may invest in common and preferred stock. Common stockholders are the owners of the company issuing the stock and, accordingly, usually have the right to vote on various corporate governance matters such as mergers. They are not creditors of the company, but rather, in the event of liquidation of the company, would be entitled to their pro rata shares of the company's assets after creditors (including fixed income security holders) and, if applicable, preferred stockholders are paid. Preferred stock is a class of stock having a preference over common stock as to dividends or upon liquidation. A preferred stockholder is a shareholder in the company and not a creditor of the company as is a holder of the company's fixed income securities. Dividends paid to common and preferred 4 stockholders are distributions of the earnings or other surplus of the company and not interest payments, which are expenses of the company. Equity securities owned by a Fund may be traded in the over-the-counter market or on a securities exchange and may not be traded every day or in the volume typical of securities traded on a major U.S. national securities exchange. As a result, disposition by a Fund of a portfolio security to meet redemptions by shareholders or otherwise may require the Fund to sell the security at less than the reported value of the security, to sell during periods when disposition is not desirable, or to make many small sales over a lengthy period of time. The market value of all securities, including equity securities, is based upon the market's perception of value and not necessarily the book value of an issuer or other objective measure of a company's worth. Stock values may fluctuate in response to the activities of an individual company or in response to general market and/or economic conditions. Historically, common stocks have provided greater long-term returns and have entailed greater short-term risks than other types of securities. Smaller or newer issuers are more likely to realize more substantial growth or suffer more significant losses than larger or more established issuers. Investments in these companies can be both more volatile and more speculative. The Small-Cap Aggressive Growth Fund, 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. CONVERTIBLE SECURITIES. The Equity Funds and the Fixed Income Funds may invest in convertible preferred stock and bonds, which are fixed income securities that are convertible into common stock at a specified price or conversion ratio. Because they have the characteristics of both fixed-income securities and common stock, convertible securities sometimes are called "hybrid" securities. Convertible bonds, debentures and notes are debt obligations offering a stated interest rate; convertible preferred stocks are senior securities offering a stated dividend rate. Convertible securities will at times be priced in the market like other fixed income securities: that is, their prices will tend to rise when interest rates decline and will tend to fall when interest rates rise. However, because a convertible security provides an option to the holder to exchange the security for either a specified number of the issuer's common shares at a stated price per share or the cash value of such common shares, the security market price will tend to fluctuate in relationship to the price of the common shares into which it is convertible. Thus, convertible securities ordinarily will provide opportunities for producing both 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. See additional information on ratings and debt obligations below under "Debt Securities" and in Appendix A of this SAI. DEBT SECURITIES. Each Fund may invest in debt, or fixed income, securities. Debt, or fixed income, securities (which include corporate bonds, debentures, notes, Government securities, municipal obligations, state- or state agency-issued obligations, obligations of foreign issuers, asset- or mortgage-backed securities, and other obligations) are used by issuers to borrow money and thus are debt obligations of the issuer. Holders of debt securities are creditors of the issuer, normally ranking ahead of holders of both common and preferred stock as to dividends or upon liquidation. The issuer usually pays a fixed, variable, or floating rate of interest and must repay the amount borrowed at the security's maturity. Some debt securities, such as zero-coupon securities (discussed below), do not pay interest but are sold at a deep discount from their face value. 5 Yields on debt securities depend on a variety of factors, including the general conditions of the money, bond, and note markets, the size of a particular offering, the maturity date of the obligation, and the rating of the issue. Debt securities with longer maturities tend to produce higher yields and are generally subject to greater price fluctuations in response to changes in market conditions than obligations with shorter maturities. An increase in interest rates generally will reduce the market value of portfolio debt securities, while a decline in interest rates generally will increase the value of the same securities. The achievement of a Fixed Income Fund's investment objective depends in part on the continuing ability of the issuers of the debt securities in which a Fund invests to meet their obligations for the payment of principal and interest when due. Obligations of issuers of debt securities are subject to the provisions of bankruptcy, insolvency, and other laws that affect the rights and remedies of creditors. There is also the possibility that, as a result of litigation or other conditions, the ability of an issuer to pay, when due, the principal of and interest on its debt securities may be materially affected. The rating or quality of a debt security refers to the issuer's creditworthiness, i.e., its ability to pay principal and interest when due. Higher ratings indicate better credit quality, as rated by independent rating organizations such as Moody's Investors Service, Standard & Poor's, or Fitch, which publish their ratings on a regular basis. Appendix A provides a description of the various ratings provided for bonds (including convertible bonds), municipal bonds, and commercial paper. High Yield Debt Securities. Securities rated "BB", "B", or "CCC" by Standard & Poor's ("Ba" or lower by Moody's) 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". Such securities are frequently referred to as "high yield" securities or "junk bonds". 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" ("Caa" by Moody's) have a currently identifiable vulnerability to default and are dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, they are not likely to have the capacity to pay interest and repay principal. While the market values of low-rated and comparable unrated securities tend to react less to fluctuations in interest rate levels than the market values of higher-rated securities, the market values of certain low-rated and comparable unrated securities also tend to be more sensitive to individual corporate developments and changes in economic conditions than higher-rated securities. In addition, low-rated securities and comparable unrated securities generally present a higher degree of credit risk, and yields on such securities will fluctuate over time. Issuers of low-rated and comparable unrated securities are often highly leveraged and may not have more traditional methods of financing available to them so that their ability to service their debt obligations during an economic downturn or during sustained periods of rising interest rates may be impaired. The risk of loss due to default by such issuers is significantly greater because low-rated and comparable unrated securities generally are unsecured and frequently are subordinated to the prior payment of senior indebtedness. A Fund may incur additional expenses to the extent that it is required to seek recovery upon a default in the payment of principal or interest on its portfolio holdings. The existence of limited markets for low-rated and comparable unrated securities may diminish the Fund's ability to obtain accurate market quotations for purposes of valuing such securities and calculating its net asset value. Fixed-income securities, including low-rated securities and comparable unrated securities, frequently have call or buy-back features that permit their issuers to call or repurchase the securities from their holders, such as a Fund. If an issuer exercises these rights during periods of declining interest 6 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 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 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. DOLLAR ROLLS. A Fund may enter into a mortgage dollar roll in which the Fund sells mortgage-backed securities for delivery in the current month and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. During the roll period, the Fund forgoes principal and interest paid on the securities. The Fund is compensated by the interest earned on the cash proceeds of the initial sale and by the lower repurchase price at the future date. Realized gains and losses are deferred until the ultimate sale of the security (without repurchase). FLOATING AND VARIABLE RATE OBLIGATIONS. Each Fund may purchase securities having a floating or variable rate of interest. These securities pay interest at rates that are adjusted periodically according to a specified formula, usually with reference to an interest rate index or market interest rate. These adjustments tend to decrease the sensitivity of the security's market value to changes in interest rates. The Adviser or Sub-Adviser will monitor, on an ongoing basis, the ability of an issuer of a floating or variable rate demand instrument to pay principal and interest on demand. A Fund's right to obtain payment at par on a demand instrument could be affected by events occurring between the date the Fund elects to demand payment and the date payment is due that may affect the ability of the issuer of the instrument to make payment when due, except when such demand instrument permits same day settlement. To facilitate settlement, these same day demand instruments may be held in book entry form at a bank other than the Funds' custodian subject to a sub-custodian agreement between the bank and the Funds' custodian. The floating and variable rate obligations that the Funds may purchase include certificates of participation in such obligations purchased from banks. A certificate of participation gives a Fund an undivided interest in the underlying obligations in the proportion that the Fund's interest bears to the total principal amount of the obligation. Certain certificates of participation may carry a demand feature that would permit the holder to tender them back to the issuer prior to maturity. The Money Market Funds may invest in certificates of participation even if the underlying obligations carry stated maturities in excess of thirteen months upon compliance with certain conditions contained in a rule of the Securities and Exchange Commission (the "Commission"). The income received on certificates of participation in tax-exempt municipal obligations constitutes interest from tax-exempt obligations. Each Fund will limit its purchases of floating and variable rate obligations to those of the same quality as it otherwise is allowed to purchase. Similar to fixed rate debt instruments, variable and 7 floating rate instruments are subject to changes in value based on changes in prevailing 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 securities if there is no reliable trading market for the instrument or if the Fund may not demand payment of the principal amount within seven days. FOREIGN CURRENCY AND FOREIGN CURRENCY FORWARD CONTRACTS, FUTURES, AND OPTIONS. When investing in foreign securities, a Fund usually effects currency exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange market. The Fund incurs expenses in converting assets from one currency to another. Forward Contracts. Each of the Equity Funds and the Fixed Income Funds, except for the Tax-Exempt Bond Fund and the Intermediate Tax-Exempt Bond Fund, may enter into foreign currency forward contracts for the purchase or sale of a fixed quantity of a foreign currency at a future date ("forward contracts"). Forward contracts may be entered into by the Fund for hedging purposes, either to "lock-in" the U.S. dollar purchase price of the securities denominated in a foreign currency or the U.S. dollar value of interest and dividends to be paid on such securities, or to hedge against the possibility that the currency of a foreign country in which a Fund has investments may suffer a decline against the U.S. dollar, as well as for non-hedging purposes. A Fund may also enter into a forward contract on one currency in order to hedge against risk of loss arising from fluctuations in the value of a second currency ("cross hedging"), if in the judgment of the Adviser or Sub-Adviser, a reasonable degree of correlation can be expected between movements in the values of the two currencies. By entering into such transactions, however, the Fund may be required to forego the benefits of advantageous changes in exchange rates. Forward contracts are traded over-the-counter, and not on organized commodities or securities exchanges. As a result, such contracts operate in a manner distinct from exchange-traded instruments and their use involves certain risks beyond those associated with transactions in futures contracts or options traded on an exchange. Each of the Emerging Markets Fund and the International Fund may also enter into transactions in forward contracts for other than hedging purposes that present greater profit potential but also involve increased risk. For example, if the Adviser or Sub-Adviser believes that the value of a particular foreign currency will increase or decrease relative to the value of the U.S. dollar, the Funds may purchase or sell such currency, respectively, through a forward contract. If the expected changes in the value of the currency occur, the Funds will realize profits which will increase their gross income. Where exchange rates do not move in the direction or to the extent anticipated, however, the Funds may sustain losses which will reduce their gross income. Such transactions, therefore, could be considered speculative. The Funds have established procedures consistent with statements by the Commission and its staff regarding the use of forward contracts by registered investment companies, which require the use of segregated assets or "cover" in connection with the purchase and sale of such contracts. In those instances in which the Funds satisfy this requirement through segregation of assets, they will segregate 8 appropriate liquid securities, which will be marked to market on a daily basis, in an amount equal to the value of their commitments under forward contracts. Only a limited market, if any, currently exists for hedging transactions relating to currencies in many emerging market countries, or to securities of issuers domiciled or principally engaged in business in emerging market countries, in which the Emerging Markets Fund or the International Fund may invest. This may limit a Fund's ability to effectively hedge its investments in those emerging markets. Foreign Currency Futures. Generally, foreign currency futures provide for the delivery of a specified amount of a given currency, on the exercise date, for a set exercise price denominated in U.S. dollars or other currency. Foreign currency futures contracts would be entered into for the same reason and under the same circumstances as forward contracts. The Adviser or Sub-Adviser will assess such factors as cost spreads, liquidity and transaction costs in determining whether to utilize futures contracts or forward contracts in its foreign currency transactions and hedging strategy. Purchasers and sellers of foreign currency futures contracts are subject to the same risks that apply to the buying and selling of futures generally. In addition, there are risks associated with foreign currency futures contracts and their use as a hedging device similar to those associated with options on foreign currencies described below. Further, settlement of a foreign currency futures contract must occur within the country issuing the underlying currency. Thus, the Fund must accept or make delivery of the underlying foreign currency in accordance with any U.S. or foreign restrictions or regulations regarding the maintenance of foreign banking arrangements by U.S. residents and may be required to pay any fees, taxes or charges associated with such delivery which are assessed in the issuing country. Foreign Currency Options. Each of the Emerging Markets Fund, the International Fund and the Small-Cap Aggressive Growth Fund may purchase and write options on foreign currencies for purposes similar to those involved with investing in forward contracts. For example, in order to protect against declines in the dollar value of portfolio securities which are denominated in a foreign currency, the Fund may purchase put options on an amount of such foreign currency equivalent to the current value of the portfolio securities involved. As a result, the Fund would be able to sell the foreign currency for a fixed amount of U.S. dollars, thereby securing the dollar value of the portfolio securities (less the amount of the premiums paid for the options). Conversely, the Fund may purchase call options on foreign currencies in which securities it anticipates purchasing are denominated to secure a set U.S. dollar price for such securities and protect against a decline in the value of the U.S. dollar against such foreign currency. The Fund may also purchase call and put options to close out written option positions. A Fund may also write covered call options on foreign currency to protect against potential declines in its portfolio securities which are denominated in foreign currencies. If the U.S. dollar value of the portfolio securities falls as a result of a decline in the exchange rate between the foreign currency in which it is denominated and the U.S. dollar, then a loss to the Fund occasioned by such value decline would be ameliorated by receipt of the premium on the option sold. At the same time, however, the Fund gives up the benefit of any rise in value of the relevant portfolio securities above the exercise price of the option and, in fact, only receives a benefit from the writing of the option to the extent that the value of the portfolio securities falls below the price of the premium received. A Fund may also write options to close out long call option positions. A covered put option on a foreign currency would be written by the Fund for the same reason it would purchase a call option, namely, to hedge against an increase in the U.S. dollar value of a foreign security which the Fund anticipates purchasing. Here, the receipt of the premium would offset, to the extent of the size of the premium, any increased cost to the Fund resulting from an increase in the U.S. dollar value of the foreign security. However, the Fund could not benefit from any decline in the cost of the foreign security which is greater than the price of 9 the premium received. A Fund may also write options to close out long put option positions. The markets in foreign currency options are relatively new and the Fund's ability to establish and close out positions on such options is subject to the maintenance of a liquid secondary market. The value of a foreign currency option depends upon the value of the underlying currency relative to the U.S. dollar. As a result, the price of the option position may vary with changes in the value of either or both currencies and have no relationship to the investment merits of a foreign security, including foreign securities held in a "hedged" investment portfolio. Because foreign currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the use of foreign currency options, investors may be disadvantaged by having to deal in an odd lot market (generally consisting of transactions of less than $1 million) for the underlying foreign currencies at prices that are less favorable than for round lots. As in the case of other kinds of options, the use of foreign currency options constitutes only a partial hedge and a Fund could be required to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on a foreign currency may constitute an effective hedge against fluctuations in exchange rates although, in the event of rate movements adverse to the Fund's position, the Fund may forfeit the entire amount of the premium plus related transaction costs. Options on foreign currencies written or purchased by a Fund may be traded on U.S. or foreign exchanges or over-the-counter. There is no systematic reporting of last sale information for foreign currencies or any regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Quotation information available is generally representative of very large transactions in the interbank market and thus may not reflect relatively smaller transactions (i.e., less than $1 million) where rates may be less favorable. The interbank market in foreign currencies is a global, around-the-clock market. To the extent that the U.S. options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that are not reflected in the options market. FOREIGN INVESTMENT COMPANIES. Some of the countries in which the Emerging Markets Fund, the International Fund or the Small-Cap Aggressive Growth Fund may invest, may not permit, or may place economic restrictions on, direct investment by outside investors. Investments in such countries may be permitted only through foreign government-approved or -authorized investment vehicles, which may include other investment companies. These Funds may also invest in other investment companies that invest in foreign securities. Investing through such vehicles may involve frequent or layered fees or expenses and may also be subject to limitation under the 1940 Act. Under the 1940 Act, a Fund may invest up to 10% of its assets in shares of investment companies and up to 5% of its assets in any one investment company as long as the Fund does not own more than 3% of the voting stock of any one investment company. As a shareholder of another investment company, a Fund would bear, along with other shareholders, its pro rata portion of the other investment company's expenses, including advisory fees. Those expenses would be in addition to the advisory and other expenses that the Fund bears directly in connection with its own operations. FOREIGN SECURITIES. Investing in foreign securities generally represents a greater degree of risk than investing in domestic securities, due to possible exchange controls or exchange rate fluctuations, limits on repatriation of capital, less publicly available information as a result of accounting, auditing, and financial reporting standards different from those used in the U.S., more volatile markets, less securities regulation, less favorable tax provisions, political or economic instability, war or expropriation. As a result of its investments in foreign securities, a Fund may receive interest or 10 dividend payments, or the proceeds of the sale or redemption of such securities, in the foreign currencies in which such securities are denominated. The Emerging Markets Fund, the International Fund, the Small-Cap Aggressive Growth Fund, the High Yield Bond Fund, and the High Yield Select Bond Fund may purchase sponsored and unsponsored American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and similar securities ("Depositary Receipts"). Each of the Equity Funds also may invest in ADRs and EDRs. Depositary Receipts are typically issued by a financial institution ("depository") and evidence ownership interests in a security or a pool of securities ("underlying securities") that have been deposited with the depository. For ADRs, the depository is typically a U.S. financial institution and the underlying securities are issued by a foreign issuer. For other Depositary Receipts, the depository may be a foreign or a U.S. entity, and the underlying securities may have a foreign or a U.S. issuer. Depositary Receipts will not necessarily be denominated in the same currency as their underlying securities. Depositary Receipts may be issued pursuant to sponsored or unsponsored programs. In sponsored programs, an issuer has made arrangements to have its securities traded in the form of Depositary Receipts. In unsponsored programs, the issuer may not be directly involved in the creation of the program. Although regulatory requirements with respect to sponsored and unsponsored programs are generally similar, in some cases it may be easier to obtain financial information from an issuer that has participated in the creation of a sponsored program. Accordingly, there may be less information available regarding issuers of securities underlying unsponsored programs and there may not be a correlation between such information and the market value of the Depositary Receipts. For purposes of a Fund's investment policies, investments in Depositary Receipts will be deemed to be investments in the underlying securities. Thus, a Depositary Receipt representing ownership of common stock will be treated as common stock. Each of the Emerging Markets Fund, the International Fund, the High Yield Bond Fund, and the High Yield Select Bond Fund may invest a portion of its assets in certain sovereign debt obligations known as "Brady Bonds." Brady Bonds are issued under the framework of the Brady Plan, an initiative announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their outstanding external indebtedness. The Brady Plan contemplates, among other things, the debtor nation's adoption of certain economic reforms and the exchange of commercial bank debt for newly issued bonds. In restructuring its external debt under the Brady Plan framework, a debtor nation negotiates with its existing bank lenders as well as the World Bank or the International Monetary Fund (the "IMF"). The World Bank or IMF supports the restructuring by providing funds pursuant to loan agreements or other arrangements that enable the debtor nation to collateralize the new Brady Bonds or to replenish reserves used to reduce outstanding bank debt. Under these loan agreements or other arrangements with the World Bank or IMF, debtor nations have been required to agree to implement certain domestic monetary and fiscal reforms. The Brady Plan sets forth only general guiding principles for economic reform and debt reduction, emphasizing that solutions must be negotiated on a case-by-case basis between debtor nations and their creditors. Agreements implemented under the Brady Plan are designed to achieve debt and debt-service reduction through specific options negotiated by a debtor nation with its creditors. As a result, each country offers different financial packages. Options have included the exchange of outstanding commercial bank debt for bonds issued at 100% of face value of such debt, bonds issued at a discount of face value of such debt, and bonds bearing an interest rate that increases over time and the advancement of the new money for bonds. The principal of certain Brady Bonds has been collateralized by U.S. Treasury zero coupon bonds with a maturity equal to the final maturity of the Brady Bonds. Collateral purchases are financed by the IMF, World Bank and the debtor nations' reserves. Interest payments may also be collateralized in part in various ways. 11 Brady Bonds are often viewed as having three or four valuation components: (i) the collateralized repayment of principal at final maturity; (ii) the collateralized interest payments; (iii) the uncollateralized interest payments; and (iv) any uncollateralized repayment of principal at maturity (these uncollateralized amounts constitute the "residual risk"). In light of the residual risk of Brady Bonds and, among other factors, the history of defaults with respect to commercial bank loans by public and private entities of countries issuing Brady Bonds, investments in Brady Bonds can be viewed as speculative. Each of the other Equity Funds, except for the Balanced Fund, may invest up to 10% of its total assets in dollar-denominated foreign equity and debt securities. The Balanced Fund, the Bond Fund, the High Yield Bond Fund, the High Yield Select Bond Fund and the Short/Intermediate Bond Fund (each with respect to 20% of its total assets) may invest in non-convertible and convertible debt of foreign banks, foreign corporations and foreign governments which obligations are denominated in and pay interest in U.S. dollars. The Money Market Fund may invest in non-convertible debt of foreign banks, foreign corporations and foreign governments which obligations are denominated in and pay interest in U.S. dollars. The Intermediate Government Bond Fund may invest in dollar-denominated Eurodollar securities that are guaranteed by the U.S. Government or its agencies or instrumentalities. On January 1, 1999, the European Monetary Union introduced a new single currency, the Euro, which replaced the national currencies of participating member nations. The adoption of the Euro does not reduce the currency risk presented by the fluctuations in value of the U.S. dollar relative to other currencies and, in fact, currency risk may be magnified. Also, increased market volatility may result. FUNDING AGREEMENTS. Funding agreements are insurance contracts between an investor and the issuing insurance company. For the issuer, they represent senior obligations under an insurance product. For the investor, and from a regulatory perspective, these agreements are treated as securities. These agreements, like other insurance products, are backed by claims on the general assets of the issuing entity and rank on the same priority level as other policy holder claims. Funding agreements typically are issued with a one-year final maturity and a variable interest rate, which may adjust weekly, monthly, or quarterly. Some agreements carry a seven-day put feature. A funding agreement without this feature is considered illiquid. These agreements are regulated by the state insurance board of the state where they are executed. GOVERNMENT SECURITIES. Government securities consist of obligations issued or guaranteed by the U.S. Government, its agencies, instrumentalities or sponsored enterprises ("Government Securities"). Obligations of the U.S. Government agencies and instrumentalities are debt securities issued by U. S. Government-sponsored enterprises and federal agencies. Some of these obligations are supported by: (a) the full faith and credit of the U.S. Treasury (such as Government National Mortgage Association participation certificates); (b) the limited authority of the issuer to borrow from the U.S. Treasury (such as securities of the Federal Home Loan Bank); (c) the discretionary authority of the U.S. Government to purchase certain obligations (such as securities of the Federal National Mortgage Association); or (d) the credit of the issuer only. In the case of obligations not backed by the full faith and credit of the United States, the investor must look principally to the agency issuing or guaranteeing the obligation for ultimate repayment. In cases where U.S. Government support of agencies or instrumentalities is discretionary, no assurance can be given that the U.S. Government will provide financial support, since it is not legally obligated to do so. GUARANTEED INVESTMENT CONTRACTS. Each of the Bond Fund, the Short/Intermediate Bond Fund, and the Money Market Fund may invest in guaranteed investment contracts ("GICs") issued by 12 U.S. and Canadian insurance companies. A GIC requires the investor to make cash contributions to a deposit fund of an insurance company's general account. The insurance company then makes payments to the investor based on negotiated, floating or fixed interest rates. A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the insurance company, and the contract is paid from the insurance company's general assets. Generally, a GIC is not assignable or transferable without the permission of the issuing insurance company, and an active secondary market in GICs does not currently exist. ILLIQUID SECURITIES AND RESTRICTED SECURITIES. Each Fund may invest up to 15% (10% with respect to the Money Market Funds) of its net assets in securities that are considered illiquid. Historically, illiquid securities have included securities subject to contractual or legal restrictions on resale because they have not been registered under the Securities Act of 1933, as amended (the "1933 Act") ("restricted securities"), securities that are otherwise not readily marketable, such as over-the-counter options, and repurchase agreements not entitling the holder to payment of principal in seven days. Under the supervision of the Trust's Board of Trustees, the Adviser and Sub-Adviser determine and monitor the liquidity of portfolio securities. Repurchase agreements, reverse 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 Adviser has determined that an adequate trading market exists for such securities or that market quotations are readily available. The Funds may purchase Rule 144A securities sold to institutional investors without registration under the 1933 Act and commercial paper issued in reliance upon the exemption in Section 4(2) of the 1933 Act, for which an institutional market has developed. Institutional investors depend on an efficient institutional market in which the unregistered security can be readily resold or on the issuer's ability to honor a demand for repayment of the unregistered security. A security's contractual or legal restrictions on resale to the general public or to certain institutions may not be indicative of the liquidity of the security. These securities may be determined to be liquid in accordance with guidelines established by the Trust's Board of Trustees. Those guidelines take into account trading activity in the securities and the availability of reliable pricing information, among other factors. The Board of Trustees monitors implementation of those guidelines on a periodic basis. INDEX FUTURES CONTRACTS AND OPTIONS ON INDEX FUTURES CONTRACTS. Each Equity Fund and Fixed Income Fund may attempt to reduce the risk of investment in equity and other securities by hedging a portion of each 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 Adviser or the Sub-Adviser anticipates an advance, a Fund may hedge a portion of its portfolio by purchasing index futures or options on indices. This affords a hedge against the Fund's not participating in a market advance at a time when it is not fully invested and serves as a temporary substitute for the purchase of individual securities that may later be purchased in a more advantageous manner. The Index Fund may maintain Standard & Poor's 500 Index futures contracts to simulate full investment in that index while retaining a cash position for fund management purposes, to facilitate trading or to reduce transaction costs. A Fund will sell options on indices only to close out existing hedge positions. A securities index assigns relative weightings to the securities in the index, and the index generally fluctuates with changes in the market values of those securities. A securities index futures 13 contract is an agreement in which one party agrees to deliver to the other an amount of cash equal to a specific dollar amount times the difference between the value of a specific securities index at the close of the last trading day of the contract and the price at which the agreement is made. Unlike the purchase or sale of an underlying security, no consideration is paid or received by a Fund upon the purchase or sale of a securities index futures contract. When the contract is executed, each party deposits with a broker or in a segregated custodial account a percentage of the contract amount, which may be as low as 5%, called the "initial margin." During the term of the contract, the amount of this deposit is adjusted, based on the current value of the futures contract, by payments of variation margin to or from the broker or segregated account. Municipal bond index futures contracts, which are based on an index of 40 tax-exempt, municipal bonds with an original issue size of at least $50 million and a rating of A or higher by Standard & Poor's ("S&P") or A or higher by Moody's Investors Service ("Moody's"), began trading in mid-1985. No physical delivery of the underlying municipal bonds in the index is made. The Fixed Income Funds may utilize any such contracts and associated put and call options for which there is an active trading market. Except for the Index Fund, a Fund will use index futures contracts only as a hedge against changes resulting from market conditions in the values of securities held in the Fund's portfolio or which it intends to purchase and where the transactions are economically appropriate to the reduction of risks inherent in the ongoing management of the Fund. A Fund will sell index futures only if the amount resulting from the multiplication of the then-current level of the indices upon which its futures contracts which would be outstanding do not exceed one-third of the value of the Fund's net assets. Also, a Fund may not purchase or sell index futures if, immediately thereafter, the sum of the premiums paid for unexpired options on futures contracts and margin deposits on the Fund's outstanding futures contracts would exceed 5% of the market value of the Fund's total assets. When a Fund purchases index futures contracts, it will segregate appropriate liquid securities equal to the market value of the futures contracts. There are risks that are associated with the use of futures contracts for hedging purposes. The price of a futures contract will vary from day to day and should parallel (but not necessarily equal) the changes in price of the underlying securities that are included in the index. The difference between these two price movements is called "basis." There are occasions when basis becomes distorted. For instance, the increase in value of the hedging instruments may not completely offset the decline in value of the securities in the portfolio. Conversely, the loss in the hedged position may be greater than the capital appreciation that a Fund experiences in its securities positions. Distortions in basis are more likely to occur when the securities hedged are not part of the index covered by the futures contract. Further, if market values do not fluctuate, a Fund will sustain a loss at least equal to the commissions on the financial futures transactions. All investors in the futures market are subject to initial margin and variation margin requirements. Rather than providing additional variation margin, an investor may close out a futures position. Changes in the initial and variation margin requirements may influence an investor's decision to close out the position. The normal relationship between the securities and futures markets may become distorted if changing margin requirements do not reflect changes in value of the securities. The margin requirements in the futures market are substantially lower than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market may cause temporary basis distortion. 14 In the futures market, it may not always be possible to execute a buy or sell order at the desired price, or to close out an open position due to market conditions, limits on open positions, and/or daily price fluctuation limits. Each market establishes a limit on the amount by which the daily market price of a futures contract may fluctuate. Once the market price of a futures contract reaches its daily price fluctuation limit, positions in the commodity can be neither taken nor liquidated unless traders are willing to effect trades at or within the limit. The holder of a futures contract (including a Fund) may therefore be locked into its position by an adverse price movement for several days or more, which may be to its detriment. If a Fund could not close its open position during this period, it would continue to be required to make daily cash payments of variation margin. The risk of loss to a Fund is theoretically unlimited when it writes (sells) a futures contract because it is obligated to settle for the value of the contract unless it is closed out, regardless of fluctuations in the price of the underlying index. When a Fund purchases a put option or call option, however, unless the option is exercised, the maximum risk of loss to the Fund is the price of the put option or call option purchased. Options on securities indices are similar to options on securities except that, rather than the right to take or make delivery of securities at a specified price, an option on a securities index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the securities index upon which the option is based is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. This amount of cash is equal to the difference between the closing price of the index and the exercise price of the option expressed in dollars times a specified multiple (the "multiplier"). The writer of the option is obligated, in return for the premium received, to make delivery of this amount. Unlike options on securities, all settlements are in cash, and gain or loss depends on price movements in the securities market generally (or in a particular industry or segment of the market) rather than price movements in individual securities. A Fund's successful use of index futures contracts and options on indices depends upon the Adviser's or Sub-Adviser's ability to predict the direction of the market and is subject to various additional risks. The correlation between movements in the price of the index future and the price of the securities being hedged is imperfect and the risk from imperfect correlation increases as the composition of a Fund's portfolio diverges from the composition of the relevant index. In addition, if a Fund purchases futures to hedge against market advances before it can invest in a security in an advantageous manner and the market declines, the Fund might create a loss on the futures contract. Particularly in the case of options on stock indices, a Fund's ability to establish and maintain positions will depend on market liquidity. In addition, the ability of a Fund to close out an option depends on a liquid secondary market. The risk of loss to a Fund is theoretically unlimited when it writes (sells) a futures contract because a Fund is obligated to settle for the value of the contract unless it is closed out, regardless of fluctuations in the underlying index. There is no assurance that liquid secondary markets will exist for any particular option at any particular time. Although no Fund has a present intention to invest 5% or more of its assets in index futures and options on indices, a Fund has the authority to invest up to 25% of its net assets in such securities. See additional risk disclosure below under "Interest Rate Futures Contracts and Related Options." INTEREST RATE FUTURES CONTRACTS AND RELATED OPTIONS. Each Equity Fund and Fixed Income 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 15 futures contracts covering a number of debt securities, including long-term U. S. Treasury Bonds, ten-year U.S. Treasury Notes, three-month U.S. Treasury Bills, Eurobonds, 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 Fund upon termination of the futures contract, assuming that all contractual obligations have been satisfied. Subsequent payments, known as variation margin, to and from the broker, will be made on a daily basis as the price of the index fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as marking-to-market. At any time prior to the expiration of the contract, a Fund may elect to close the position by taking an opposite position, which will operate to terminate the Fund's existing position in the futures contract. A Fund may not purchase or sell futures contracts or purchase options on futures contracts if, immediately thereafter, more than one-third of its net assets would be hedged, or the sum of the amount of margin deposits on the Fund's existing futures contracts and premiums paid for options would exceed 5% of the value of the Fund's total assets. When a Fund enters into futures contracts to purchase an index or debt security or purchase call options, an amount of cash or appropriate liquid securities equal to the notional market value of the underlying contract will be segregated to cover the positions, thereby insuring that the use of the contract is unleveraged. Although a Fund will enter into futures contracts only if an active market exists for such contracts, there can be no assurance that an active market will exist for the contract at any particular time. Most domestic futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses because the limit may prevent the liquidation of unfavorable positions. It is possible that futures contract prices could move to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting some futures traders to substantial losses. In such event, it will not be possible to close a futures position and, in the event of adverse price movements, a Fund would be required to make daily cash payments of variation margin. In such circumstances, an increase in the value of the portion of the portfolio being hedged, if any, may partially or completely offset losses on the futures contract. As described above, however, there is no guarantee the price of municipal bonds or of other debt securities will, in fact, correlate with the price movements in the futures contract and thus provide an offset to losses on a futures contract. If a Fund has hedged against the possibility of an increase in interest rates that would adversely affect 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 16 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. 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 "Tax Information" 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 Adviser's or Sub-Adviser's ability to predict correctly the direction of movements in interest rates. Such predictions involve skills and techniques which may be different from those involved in the management of a long-term 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 debt securities which are the subject of 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 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 Adviser or Sub-Adviser anticipates an extreme change in interest rates or market conditions. See additional risk disclosure above under "Index Futures Contracts and Options on Index Futures Contracts." INVESTMENT COMPANY SECURITIES AND INVESTMENT FUNDS. In connection with the management of its daily cash positions, each Fund may invest in securities issued by investment companies that invest in short-term debt securities (which may include municipal obligations that are exempt from Federal income taxes) and that seek to maintain a $1.00 net asset value per share. 17 Each non-Money Market Fund also may invest in securities issued by investment companies that invest in securities in which the Fund could invest directly, within the limits prescribed by the 1940 Act. These limit each such Fund so that, except as provided below in the section "Master Fund/Feeder Fund Structure", (i) not more than 5% of its total assets will be invested in the securities of any one investment company; (ii) not more than 10% of its total assets will be invested in the aggregate in securities of investment companies as a group; and (iii) not more than 3% of the outstanding voting stock of any one investment company will be owned by the Fund. As a shareholder of another investment company, a Fund would bear, along with other shareholders, its pro rata portion of the other investment company's expenses, including advisory fees. Those expenses would be in addition to the advisory and other expenses that the Fund bears directly in connection with its own operations. See additional information concerning permitted investments in non-U.S. investment companies above under "Foreign Investment Companies". LETTERS OF CREDIT. Debt obligations, including municipal obligations, certificates of participation, commercial paper and other short-term obligations, may be backed by an irrevocable letter of credit of a bank 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 Adviser or Sub-Adviser, are of investment quality comparable to other permitted investments of a Fund may be used for Letter of Credit-backed investments. MORTGAGE-RELATED SECURITIES. All Equity Funds, the Bond Fund, the High Yield Bond Fund, the High Yield Select Bond Fund, the Intermediate Government Bond Fund, and the Short/Intermediate Bond Fund and may invest in mortgage-backed securities, including collateralized mortgage obligations ("CMOs") and Government Stripped Mortgage-Backed Securities. The Intermediate Government Bond Fund may purchase such securities 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"), and may invest up to 20% of its assets in non-government, 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 the underlying collateral to different series or classes of the obligations. To the extent that CMOs are considered to be investment companies, investments in such CMOs will be subject to the percentage limitations described under "Investment Company Securities" in this SAI. Government Stripped Mortgage-Backed Securities are mortgage-backed securities issued or guaranteed by GNMA, FNMA, or FHLMC. These securities represent beneficial ownership interests in either periodic principal distributions ("principal-only") or interest distributions ("interest-only") on mortgage-backed certificates issued by GNMA, FNMA or FHLMC, as the case may be. The certificates underlying the Government Stripped Mortgage-Backed Securities represent all or part of the beneficial interest in pools of mortgage loans. Mortgage-backed securities generally 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 18 solely the obligations of those entities but are supported by the discretionary authority of the U.S. Government to purchase the agencies' obligations. Even if the U.S. Government or one of its agencies guarantees principal and interest payments of a mortgage-backed security, the market price of a mortgage-backed security is not insured and may be subject to market volatility. When interest rates decline, mortgage-backed securities experience higher rates of prepayment because the underlying mortgages are refinanced to take advantage of the lower rates. The prices of mortgage-backed securities may not increase as much as prices of other debt obligations when interest rates decline, and mortgage-backed securities may not be an effective means of locking in a particular interest rate. In addition, any premium paid for a mortgage-backed security may be lost if the security is prepaid. When interest rates rise, mortgage-backed securities experience lower rates of prepayment. This has the effect of lengthening the expected maturity of a mortgage-backed security. As a result, prices of mortgage-backed securities may decrease more than prices of other debt obligations when interest rates rise. Investments in interest-only Government Stripped Mortgage-Backed Securities will be made in order to enhance yield or to benefit from anticipated appreciation in value of the securities at times when the Adviser or Sub-Adviser believes that interest rates will remain stable or increase. In periods of rising interest rates, the value of interest-only Government Stripped Mortgage-Backed Securities may be expected to increase because of the diminished expectation that the underlying mortgages will be prepaid. In this situation the expected increase in the value of interest-only Government Stripped Mortgage-Backed Securities may offset all or a portion of any decline in value of the portfolio securities of the Fund. Investing in Government Stripped Mortgage-Backed Securities involves the risks normally associated with investing in mortgage-backed securities issued by government or government-related entities. In addition, the yields on interest-only and principal-only Government Stripped Mortgage-Backed Securities are extremely sensitive to the prepayment experience on the mortgage loans underlying the certificates collateralizing the securities. If a decline in the level of prevailing interest rates results in a rate of principal prepayments higher than anticipated, distributions of principal will be accelerated, thereby reducing the yield to maturity on interest-only Government Stripped Mortgage-Backed Securities and increasing the yield to maturity on principal-only Government Stripped Mortgage-Backed Securities. Conversely, if an increase in the level of prevailing interest rates results in a rate of principal prepayments lower than anticipated, distributions of principal will be deferred, thereby increasing the yield to maturity on interest-only Government Stripped Mortgage-Backed Securities and decreasing the yield to maturity on principal-only Government Stripped Mortgage-Backed Securities. Sufficiently high prepayment rates could result in a Fund's not fully recovering its initial investment in an interest-only Government Stripped Mortgage-Backed Security. Government Stripped Mortgage-Backed Securities are currently traded in an over-the-counter market maintained by several large investment banking firms. There can be no assurance that a Fund will be able to effect a trade of a Government Stripped Mortgage-Backed Security at a time when it wishes to do so. MUNICIPAL LEASES. Each of the Intermediate Tax-Exempt Bond Fund and the Tax-Exempt Bond Fund may acquire participations in lease obligations or installment purchase contract obligations (hereinafter collectively called "lease obligations") of municipal authorities or entities. Although lease obligations do not constitute general obligations of the municipality for which the municipality's taxing power is pledged, a lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate, and make the payments due under the lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In addition to the "non-appropriation" risk, these securities represent a relatively new type of financing that has not yet developed the depth of marketability associated with more conventional 19 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 Adviser will consider: (1) whether the lease can be canceled; (2) what assurance there is that the assets represented by the lease can be sold; (3) the strength of the lessee's general credit (e.g., its debt, administrative, economic, and financial characteristics); (4) the likelihood that the municipality will discontinue appropriating funding for the leased property because the property is no longer deemed essential to the operations of the municipality (e.g., the potential for an "event of non-appropriation"); and, (5) the legal recourse in the event of failure to appropriate. MUNICIPAL OBLIGATIONS. The Balanced Fund, the Bond Fund, the High Yield Bond Fund, the High Yield Select Bond Fund, the Intermediate Tax-Exempt Bond Fund, the Short/Intermediate Bond Fund, the Tax-Exempt Bond Fund and the Tax-Exempt Money Market Fund may invest in tax-exempt obligations to the extent consistent with each Fund's investment objective and policies. Notes sold as interim financing in anticipation of collection of taxes, a bond sale or receipt of other revenues are usually general obligations of the issuer. TAX ANTICIPATION NOTES (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 commingle 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 other obligations could affect the likelihood of making payments on TANs. 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. 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 affect the ability of the issuer to pay the principal of, and interest on, RANs. The Balanced Fund, the Bond Fund, the Intermediate Tax-Exempt Bond Fund, the Short/Intermediate Bond Fund and the Tax-Exempt Bond Fund may also invest in: (1) municipal bonds that are rated at the date of purchase "Baa" or better by Moody's or "BBB" or better by S & P; (2) municipal notes having maturities at the time of issuance of 15 years or less that are rated at the date of purchase "MIG 1" or "MIG 2" (or "VMIG 1" or "VMIG 2" in the case of an issue having a variable rate with a demand feature) by Moody's or "SP-1+," "SP-1," or "SP-2" by S & P; and (3) municipal commercial paper with a stated maturity of one year or less that is rated at the date of purchase "P-2" or better by Moody's or "A-2" or better by S&P. PUT AND CALL OPTIONS. Each Equity Fund and Fixed Income 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 20 option, who receives a premium, has the obligation, upon exercise of the option, to deliver the underlying security against payment of the exercise price during the option period. The writer of a put, who receives a premium, has the obligation to buy the underlying security, upon exercise, at the exercise price during the option period. These Funds each may write put and call options on securities only if they are "covered," and such options must remain "covered" as long as the Fund is obligated as a writer. A call option is "covered" if a Fund owns the underlying security or its equivalent covered by the call or has an absolute and immediate right to acquire that security without additional cash consideration (or for additional cash consideration if such cash is segregated) upon conversion or exchange of other securities held in its portfolio. A call option is also covered if a Fund holds on a share-for-share or equal principal amount basis a call on the same security as the call written where the exercise price of the call held is equal to or less than the exercise price of the call written or greater than the exercise price of the call written if appropriate liquid assets representing the difference are segregated by the Fund. A put option is "covered" if a Fund maintains appropriate liquid securities with a value equal to the exercise price, or owns on a share-for-share or equal principal amount basis a put on the same security as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written. The principal reason for writing call options is to attempt to realize, through the receipt of premiums, a greater current return than would be realized on the underlying securities alone. In return for the premium, a Fund would give up the opportunity for profit from a price increase in the underlying security above the exercise price so long as the option remains open, but retains the risk of loss should the price of the security decline. Upon exercise of a call option when the market value of the security exceeds the exercise price, a Fund would receive less total return for its portfolio than it would have if the call had not been written, but only if the premium received for writing the option is less than the difference between the exercise price and the market value. Put options are purchased in an effort to protect the value of a security owned against an anticipated decline in market value. A Fund may forego the benefit of appreciation on securities sold or be subject to depreciation on securities acquired pursuant to call or put options, respectively, written by the Fund. A Fund may experience a loss if the value of the securities remains at or below the exercise price, in the case of a call option, or at or above the exercise price, in the case of a put option. 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 has 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. 21 REAL ESTATE INVESTMENT TRUSTS (REITS). Each Fund may invest in REITs. REITs are pooled investment vehicles that invest primarily in income producing real estate or real estate related loans or interests. Investing in REITs involves certain unique risks in addition to those risks associated with investing in the real estate industry in general. REITs may be affected by changes in the value of the underlying property owned by the REITs or the quality of loans held by the REIT. REITs are dependent upon management skills, are not diversified, and are subject to the risks of financing projects. REITs are also subject to interest rate risks. When interest rates decline, the value of a REIT's investment in fixed rate obligations can be expected to rise. Conversely, when interest rates rise, the value of a REIT's investment in fixed rate obligations can be expected to decline. Investing in REITs involves risks similar to those associated with investing in small capitalization companies. REITs may have limited financial resources, may trade less frequently and in a limited volume and may be subject to more abrupt or erratic price movements than securities of larger companies. REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements by which the Fund purchases portfolio securities subject to the seller's agreement to repurchase them at a mutually agreed upon time and price, which includes an amount representing interest on the purchase price. A repurchase agreement must be collateralized by obligations that could otherwise be purchased by the Fund (except with respect to maturity), and these must be maintained by the seller in a segregated account for the Fund cash or cash equivalents equal to at least 102% of the repurchase price (including accrued interest). Default or bankruptcy of the seller would expose a Fund to possible loss because of adverse market action, delays in connection with the disposition of the underlying obligations or expenses of enforcing its rights. A Fund may not enter into a repurchase agreement if, as a result, more than 15% (10% with respect to a Money Market Fund) of the market value of the Fund's total net assets would be invested in repurchase agreements with a maturity of more than seven days and 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 Trustees. REVERSE REPURCHASE AGREEMENTS. Each of the Equity Funds and the Fixed Income Funds may borrow funds for temporary purposes by entering into an agreement to sell portfolio securities to a financial institution such as a bank or broker-dealer and to repurchase them at a mutually specified date and price ("reverse repurchase agreement"). A reverse repurchase agreement involves the risk that the market value of the securities sold by the Fund may decline below the repurchase price. The Fund would pay interest on the amount obtained pursuant to the reverse repurchase agreement. A Fund may not enter into a reverse repurchase agreement if, as a result, more than 15% (10% with respect to a Money Market Fund) of the Fund's net assets would be invested in reverse repurchase agreements with a maturity of more than seven days and in other illiquid securities. The Funds will enter into reverse repurchase agreements only with registered broker-dealers and commercial banks that meet guidelines established by the Trust's Board of Trustees. RULE 2A-7 MATTERS. Each of the Money Market Funds must comply with the requirements of Rule 2a-7 under the 1940 Act ("Rule 2a-7"). Under the applicable quality requirements of Rule 2a-7, the Funds may purchase only U.S. dollar-denominated instruments that are determined to present minimal credit risks and that are at the time of acquisition "eligible securities" as defined in Rule 2a-7. Generally, eligible securities are divided into "first tier" and "second tier" securities. First tier securities 22 are generally those in the highest rating category (e.g., A-1 by S&P) or unrated securities deemed to be comparable in quality, government securities and securities issued by other money market funds. Second tier securities are generally those in the second highest rating category (e.g., A-2 by S&P) or unrated securities deemed to be comparable in quality. See Appendix A for more information. The Money Market Fund may not invest more than 5% of its total assets in second tier securities nor more than the greater of 1% of its total assets or $1 million in the second tier securities of a single issuer. The Tax-Exempt Money Market Fund may not invest more than 5% of its total assets in second tier "conduit securities" (as defined in Rule 2a-7), nor more than 1% of its total assets or $1 million (whichever is greater) in second tier conduit securities issued by a single issuer. Generally, conduit securities are securities issued to finance non-governmental private projects, such as retirement homes, private hospitals, local housing projects, and industrial development projects, with respect to which the ultimate obligor is not a government entity. Each Money Market Fund will maintain a dollar-weighted average maturity of 90 days or less and will limit its investments to securities that have remaining maturities of 397 calendar days or less or other features that shorten maturities in a manner consistent with the requirements of Rule 2a-7, such as interest rate reset and demand features. SECURITIES LENDING. Each Fund, except the Money Market Funds, may lend to brokers, dealers and financial institutions securities from its portfolio representing up to one-third of the Fund's total assets if cash or cash-equivalent collateral, including letters of credit, marked-to-market daily and 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 Adviser or Sub-Adviser will consider all relevant facts and circumstances, including the creditworthiness of the broker, dealer or financial institution. No Fund will enter into any portfolio security lending arrangement having a duration of longer than one year. Any securities that a Fund may receive as collateral will not become part of the Fund's portfolio at the time of the loan and, in the event of a default by the borrower, the Fund will, if permitted by law, dispose of such collateral except for such part thereof that is a security in which the Fund is permitted to invest. During the time securities are on loan, the borrower will pay the Fund any accrued income on those securities, and the Fund may invest the cash collateral and earn additional income or receive an agreed upon fee from a borrower that has delivered cash equivalent collateral. Loans of securities by a Fund will be subject to termination at the Fund's or the borrower's option. Each Fund may pay reasonable administrative and custodial fees in connection with a securities loan and may pay a negotiated fee to the borrower or the placing broker. Borrowers and placing brokers may not be affiliated, directly or indirectly, with the Trust, the Adviser, the Sub-Adviser or the Distributor. SHORT SALES. With respect to the Emerging Markets Fund and the International Fund, when a Fund sells short, it borrows the securities that it needs to deliver to the buyer. A Fund must arrange through a broker to borrow these securities and will become obligated to replace the borrowed securities at whatever their market price may be at the time of replacement. A Fund may have to pay a premium to borrow the securities and must pay any dividends or interest payable on the securities until they are replaced. A Fund's obligation to replace the securities borrowed in connection with a short sale will be secured. The proceeds a Fund receives from the short sale will be held on behalf of the broker until the Fund replaces the borrowed securities, and the Fund will deposit collateral with the broker; this 23 collateral will consist of cash or liquid, high-grade debt obligations. In addition, a Fund will deposit collateral in a segregated account with the Fund's custodian; this collateral will consist of cash or liquid, high grade debt obligations equal to any difference between the market value of (1) the securities sold at the time they were sold short and (2) any collateral deposited with the broker in connection with the short sale (not including the proceeds of the short sale). The Emerging Markets Fund and the International Fund may sell securities short-against-the-box to hedge unrealized gains on portfolio securities. If a Fund sells securities short-against-the-box, it may protect unrealized gains, but will lose the opportunity to profit on such securities if the price rises. SOVEREIGN DEBT. The Emerging Markets Fund, the International Fund, the High Yield Bond Fund and the High Yield Select Bond Fund may invest in "sovereign debt," which is issued or guaranteed by foreign governments (including countries, provinces and municipalities) or their agencies and instrumentalities. Sovereign debt may trade at a substantial discount from face value. The Funds may hold and trade sovereign debt of foreign countries in appropriate circumstances to participate in debt conversion programs. Emerging-market country sovereign debt involves a high degree of risk, is generally lower-quality debt, and is considered speculative in nature. The issuer or governmental authorities that control sovereign-debt repayment ("sovereign debtors") may be unable or unwilling to repay principal or interest when due in accordance with the terms of the debt. A sovereign debtor's willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash-flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the sovereign debtor's policy towards the IMF, and the political constraints to which the sovereign debtor may be subject. Sovereign debtors may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearage on their debt. The commitment of these third parties to make such disbursements may be conditioned on the sovereign debtor's implementation of economic reforms or economic performance and the timely service of the debtor's obligations. The sovereign debtor's failure to meet these conditions may cause these third parties to cancel their commitments to provide funds to the sovereign debtor, which may further impair the debtor's ability or willingness to timely service its debts. In certain instances, the Funds may invest in sovereign debt that is in default as to payments of principal or interest. In the event that the Funds hold non-performing sovereign debt, the Funds may incur additional expenses in connection with any restructuring of the issuer's obligations or in otherwise enforcing their rights thereunder. The Fixed Income Funds may invest in "sovereign debt" that is U.S. dollar-denominated and investment-grade. STAND-BY COMMITMENTS. Each of the Balanced Fund, the Intermediate Tax-Exempt Bond Fund and the Tax-Exempt Bond Fund may purchase municipal securities together with the right to resell them to the seller or a third party at an agreed-upon price or yield within specified periods prior to their maturity dates. Such a right to resell is commonly known as a stand-by commitment, and the aggregate price which a Fund pays for securities with a stand-by commitment may increase the cost, and thereby reduce the yield, of the security. The primary purpose of this practice is to permit a Fund to be as fully invested as practicable in municipal securities while preserving the necessary flexibility and liquidity to meet unanticipated redemptions. The Balanced Fund will acquire stand-by commitments solely to facilitate portfolio liquidity and does not intend to exercise its rights thereunder for trading purposes. Stand-by commitments acquired by a Fund are valued at zero in determining the Fund's net asset value. Stand-by commitments involve certain expenses and risks, including the inability of the issuer of the commitment to pay for the securities at the time the commitment is exercised, non-marketability of the 24 commitment, and differences between the maturity of the underlying security and the maturity of the commitment. TEMPORARY INVESTMENTS. When business or financial conditions warrant, each of the non-Money Market Funds may assume a temporary defensive position by investing in money-market investments. These money-market investments include obligations of the U.S. Government and its agencies and instrumentalities, obligations of foreign sovereigns, other debt securities, commercial paper including bank obligations, certificates of deposit (including Eurodollar certificates of deposit) and repurchase agreements. For temporary defensive purposes, during periods in which the Adviser or Sub-Adviser believes changes in economic, financial or political conditions make it advisable, the Funds may reduce their holdings in equity and other securities and may invest up to 100% of their assets in certain short-term (less than twelve months to maturity) and medium-term (not greater than five years to maturity) debt securities and in cash (U.S. dollars, foreign currencies, or multicurrency units). In the case of the International Fund and the Emerging Markets Fund, these short-term and medium-term debt securities consist of (a) obligations of governments, agencies or instrumentalities of any member state of the Organization for Economic Cooperation and Development ("OECD"); (b) bank deposits and bank obligations (including certificates of deposit, time deposits and bankers' acceptances) of banks organized under the laws of any member state of the OECD, denominated in any currency; (c) floating rate securities and other instruments denominated in any currency issued by international development agencies; (d) finance company and corporate commercial paper and other short-term corporate debt obligations of corporations organized under the laws of any member state of the OECD meeting the Fund's credit quality standards; and (e) repurchase agreements with banks and broker-dealers covering any of the foregoing securities. The short-term and medium-term debt securities in which the Fund may invest for temporary defensive purposes will be those that the Adviser or Sub-Adviser believes to be of high quality, i.e., subject to relatively low risk of loss of interest or principal (there is currently no rating system for debt securities in most emerging countries). If rated, these securities will be rated in one of the three highest rating categories by rating services such as Moody's or S&P (i.e., rated at least A). WARRANTS. The Equity Funds, the High Yield Bond Fund, and the High Yield Select Bond Fund may invest in warrants, which are options to purchase an equity security at a specified price (usually representing a premium over the applicable market value of the underlying equity security at the time of the warrant's issuance) and usually during a specified period of time. Unlike convertible securities and preferred stocks, warrants do not pay a fixed dividend. Investments in warrants involve certain risks, including the possible lack of a liquid market for the resale of the warrants, potential price fluctuations as a result of speculation or other factors and failure of the price of the underlying security to reach a level at which the warrant can be prudently exercised (in which case the warrant may expire without being exercised, resulting in the loss of the Fund's entire investment therein). WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS (DELAYED-DELIVERY). When-issued purchases and forward commitments (delayed-delivery) are commitments by a Fund to purchase or sell particular securities with payment and delivery to occur at a future date (perhaps one or two months later). These transactions permit the Fund to lock in a price or yield on a security, regardless of future changes in interest rates. When a Fund agrees to purchase securities on a when-issued or forward commitment basis, the Trust's 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 25 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 Adviser expects that its commitments to purchase when-issued securities and forward commitments will not exceed 25% of the value of a Fund's total assets absent unusual market conditions. A Fund will purchase securities on a when-issued or forward commitment basis only with the intention of completing the transaction and actually purchasing the securities. If deemed advisable as a matter of investment strategy, however, a Fund may dispose of or renegotiate a commitment after it is entered into, and may sell securities it has committed to purchase before those securities are delivered to the Fund on the settlement date. In these cases the Fund may realize a capital gain or loss for Federal income tax purposes. When a Fund engages in when-issued and forward commitment transactions, it relies on the other party to consummate the trade. Failure of such party to do so may result in the Fund's incurring a loss or missing an opportunity to obtain a price considered to be advantageous. The market value of the securities underlying a when-issued purchase or a forward commitment to purchase securities, and any subsequent fluctuations in their market value, are taken into account when determining the market value of a Fund starting on the day the Fund agrees to purchase the securities. A Fund does not earn interest on the securities it has committed to purchase until they are paid for and delivered on the settlement date. ZERO COUPON SECURITIES. Each Fund may invest in zero coupon securities. Zero coupon securities are debt securities that are issued and traded at a discount and do not entitle the holder to any periodic payments of interest prior to maturity. Zero coupon securities may be created by separating the interest and principal components of securities issued or guaranteed by the U.S. Government or one of its agencies or instrumentalities or issued by private corporate issuers. These securities may not be issued or guaranteed by the U.S. Government. Typically, an investment brokerage firm or other financial intermediary holding the security has separated ("stripped") the unmatured interest coupons from the underlying principal. The holder may then resell the stripped securities. The stripped coupons are sold separately from the underlying principal, usually at a deep discount because the buyer receives only the right to receive a fixed payment on the security upon maturity and does not receive any rights to reinvestment of periodic interest (cash) payments. Because the rate to be earned on these reinvestments may be higher or lower than the rate quoted on the interest-paying obligations at the time of the original purchase, the investor's return on investments is uncertain even if the securities are held to maturity. This uncertainty is commonly referred to as reinvestment risk. With zero coupon securities, however, there are no cash distributions to reinvest, so investors bear no reinvestment risk if they hold the zero coupon securities to maturity; holders of zero coupon securities, however, forego the possibility of reinvesting at a higher yield than the rate paid on the originally issued security. With both zero coupon securities and interest-paying securities there is no reinvestment risk on the principal amount of the investment. When held to maturity, the entire return from such 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 26 imputed to, its investments during the year. Because imputed income must be paid to shareholders annually, a Fund may need to borrow money or sell securities to meet certain dividend and redemption obligations. In addition, the sale of securities by a Fund may increase its expense ratio and decrease its rate of return. RATINGS After purchase by a Fund, a security may cease to be rated or its rating may be reduced below the minimum required for purchase by the Fund. Neither event will require the Fund for such type of security to sell the security unless the amount of the security exceeds the Fund's permissible limit. However, the Adviser or the Sub-Adviser will reassess promptly whether the security presents minimal credit risks and determine whether continuing to hold the security is in the best interests of the Fund. A Money Market Fund may be required to sell a security downgraded below the minimum required for purchase, absent a specific finding by the Trust's Board of Trustees that a sale is not in the best interests of the Fund. To the extent the ratings given by any nationally recognized statistical rating organization may change as a result of changes in the organization or in its rating system, the Fund will attempt to use comparable ratings as standards for investments in accordance with the investment policies contained in the Prospectuses and in this SAI. For additional information on ratings, see Appendix A to this SAI. INVESTMENT RESTRICTIONS (1) No diversified Fund may, with respect to 75% of its assets, invest more than 5% of its assets (valued at the time of investment) in securities of any one issuer, except for securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities or repurchase agreements for such securities, and except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies. (2) No Fund may, with respect to 75% of its assets, acquire securities of any one issuer that at the time of investment represent more than 10% of the voting securities of the issuer, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies. (3) No Fund may invest more than 25% of its assets (valued at the time of investment) in securities of companies in any one industry, except that (a) this restriction does not apply to investments in (i) securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities, (ii) municipal obligations (for purposes 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 (iii) in the case of the Money Market Fund, bank obligations that are otherwise permitted as investments, and (b) all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies. (4) No Fund may borrow money except to the extent permitted by applicable law, regulation or order. 27 (5) No Fund may issue any senior security except to the extent permitted by applicable law, regulation or order. (6) No Fund may underwrite the distribution of securities of other issuers; however, (a) the Fund may acquire "restricted" securities that, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the Fund could be regarded as an underwriter as defined by that act with respect to such resale and (b) all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies. (7) No Fund may make loans, but this restriction shall not prevent the Fund from (a) investing in debt obligations, (b) investing in money market instruments or repurchase agreements, (c) participating in an interfund lending program among Funds having a common investment adviser or distributor to the extent permitted by applicable law or (d) lending its portfolio securities. The Fund will not lend securities having a value in excess of 33-1/3% of its assets, including collateral received for loaned securities (valued at the time of any loan). (8) No Fund may purchase or sell real estate or interests in real estate, although it may invest in securities secured by interests in real estate and securities of enterprises that invest in real estate or interests in real estate, and may acquire and dispose of real estate or interests in real estate acquired through the exercise of rights as a holder of debt obligations secured by real estate or interests therein. (9) No Fund may purchase or sell commodities or commodity contracts, except that it may enter into (a) futures, options, and options on futures, (b) forward contracts, and (c) other financial transactions not requiring the delivery of physical commodities. (10) No Fund may invest in the securities of other investment companies except to the extent permitted by applicable law, regulation or order or rule of the SEC. (11) No Fund may purchase securities on margin (except for use of short-term credits as are necessary for the clearance of transactions) or participate in a joint or on a joint or several basis in any trading account in securities. (12) No Fund may invest more than 15% (10% in the case of a Money Market Fund) of its net assets (valued at the time of investment) in illiquid securities, including repurchase agreements maturing in more than seven days. (13) No Fund may make short sales of securities unless (a) the Fund owns at least an equal amount of such securities, or owns securities that are convertible or exchangeable, without payment of further consideration, into at least an equal amount of such securities or (b) the securities sold are "when issued" or "when distributed" securities that the Fund expects to receive in a recapitalization, reorganization or other exchange for securities that it contemporaneously owns or has the right to obtain and provided that transactions in options, futures and options on futures are not treated as short sales. (14) As a matter of fundamental policy, none of the foregoing investment policies or restrictions of the Fund shall prohibit the Fund from investing all or substantially all of its assets in the shares of another registered open-end investment company having the same investment objective and substantially similar policies and restrictions. 28 (15) The High Yield Bond Fund may not invest in the securities of another registered investment company or registered unit investment trust in reliance on sub-paragraph (F) or (G) of Section 12(d)(1) of the 1940 Act. The investment restrictions numbered 3 - 10 and number 14 are fundamental policies 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 "Beneficial Interest". Investment restriction number 14 permits the Funds to adopt a Master Fund/Feeder Fund structure, as described in the next section. 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. Certain Funds have an investment policy to invest, under normal circumstances, at least 80% of the value of their assets, in a particular type of investment or investment concentration that is suggested by their names (as described in the Funds' prospectus). If any one of those Funds changes its investment policy, it will notify its shareholders in writing at least 60 days prior to any change in that policy. MASTER FUND/FEEDER FUND STRUCTURE The Shareholders and the Board of Trustees have approved a proposal that permits each Fund to invest substantially all of its investable assets in another open-end management investment company having the same investment objective and substantially similar policies and restrictions (a "Master Fund/Feeder Fund Structure"). Prior to any such actual investment, however, the Board of Trustees would be required to approve the transaction and shareholders would be notified. Although the Board of Trustees has not determined that any of the Funds (other than the High Yield Bond Fund and the High Yield Select Bond Fund (see below)) should convert to a Master Fund/Feeder Fund Structure at this time, the Board of Trustees believes it could be in the best interests of some or all of the Funds at some future date and could vote at some time in the future to convert the Fund into a "Feeder Fund" under which all of the assets of the Fund would be invested in a Master Fund. The Feeder Fund would transfer its assets to a Master Fund in exchange for shares of beneficial interest in the Master Fund having the same net asset value as the value of the assets transferred. (The ownership interests of the Fund's shareholders would not be altered by this change.) 29 Any Master Fund in which a Feeder Fund would invest would be registered as an open-end management investment company under the 1940 Act and would be required to have the same investment objective and substantially similar policies and restrictions as the Feeder Fund. Accordingly, by investing in a Master Fund, the Feeder Fund would continue to pursue its then current investment objective and policies in substantially the same manner, except that it would pursue that objective through its investment in the Master Fund rather than through direct investments in the types of securities dictated by its investment objectives and policies. The Master Fund, whose shares could be offered to other feeder funds or other investors in addition to the Feeder Fund, would invest in the same type of securities in which the Fund would have directly invested, providing substantially the same investment results to the Feeder Fund's shareholders. However, the expense ratios, the yields, and the total returns of other investors in the Master Fund may be different from those of the Feeder Fund due to differences in Feeder Fund expenses. By investing substantially all of its assets in a Master Fund, a Feeder Fund could expect to be in a position to realize directly or indirectly certain economies of scale, in that a larger investment portfolio resulting from multiple Feeder Funds is expected to achieve a lower ratio of operating expenses to net assets. A Master Fund may be offered to an undetermined number of other Feeder Funds. However, there can be no assurance that any such additional investments in a Master Fund by other Feeder Funds will take place. If a Fund invests substantially all of its assets in a Master Fund, the Fund would no longer require portfolio management services. For this reason, if the Board of Trustees were to convert a Fund into a Feeder Fund, the existing investment advisory agreement between the Trust and the Adviser relating to that Fund would be terminated, although the Feeder Fund would continue to have an administration agreement with the Adviser or another party for the provision of certain administrative services on terms approved by the non-interested Trustees of the Trust. A Feeder Fund may withdraw its investment in a Master Fund at any time if the Board of Trustees determines that it is in the best interests of the shareholders of the Feeder Fund to do so or if the investment policies or restrictions of the Master Fund were changed so that they were inconsistent with the policies and restriction of the Feeder Fund. Upon any such withdrawal, the Board of Trustees of the Trust would consider what action might be taken, including the investment of all of the assets of the Feeder Fund in another pooled investment entity having substantially the same investment objective as the Feeder Fund or the retaining of an investment adviser to directly invest the Feeder Fund's assets in accordance with its investment objective and policies. Whenever a Feeder Fund is asked to vote on a proposal by the Master Fund, the Feeder Fund will hold a meeting of its shareholders if required by applicable law or its policies, and cast its vote with respect to the Master Fund in the same proportion as its shareholders vote on the proposal. Once its assets are invested in a Master Fund, a Feeder Fund will value its holdings (i.e., shares issued by the Master Fund) at their fair value, which will be based on the daily net asset value of the Master Fund. The net income of the Feeder Fund will be determined at the same time and on the same days as the net income of the Master Fund is determined, which would be the same time and days that the Feeder Fund uses for this purpose. Investments in a Master Fund would have no preemptive or conversion rights and would be fully paid and non-assessable, except as set forth below. Similar to the Trust, a Master Fund would not be required to hold annual meetings of its shareholders, but the Master Fund would be required to hold special meetings of shareholders when, in the judgment of its trustees, it is necessary or desirable to 30 submit matters for a shareholder vote. Other shareholders in a Master Fund have rights similar to those of Feeder Fund shareholders; under certain circumstances (e.g., upon application and submission of certain specified documents to the Board of Trustees by a specified number of investors), they have the right to communicate with other shareholders in connection with requesting a meeting of shareholders for the purpose of removing one or more of the Master Fund's trustees. Shareholders also have the right to remove one or more trustees, without a meeting, by a declaration in writing by a specified number of shareholders. Upon liquidation of a Master Fund, investors would be entitled to share pro rata in the net assets of the Master Fund available for distribution to shareholders. Each Master Fund shareholder would be entitled to a vote in proportion to the share of its investment in the Master Fund. Investments in a Master Fund would not be transferable, but a shareholder (such as a Feeder Fund) could redeem all or any portion of its investment at any time at net asset value. Tax Considerations. The implementation of a Master Fund/Feeder Fund structure is not expected to have any adverse tax effects on the Funds or their shareholders. As a condition of and prior to implementation of conversion of a Fund to a Master Fund/Feeder Fund Structure, the Trust would either obtain a private letter ruling from the Internal Revenue Service or receive an opinion of counsel that no gain or loss for Federal income tax purposes would be recognized by the Feeder Fund, the Master Fund, or the shareholders of the Feeder Fund in connection with the transfer of the Feeder Fund's assets to the Master Fund in exchange for shares of beneficial interest in the Master Fund. A Feeder Fund would continue to qualify and elect to be treated as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). To so qualify, a Feeder Fund must meet certain income, distribution, and diversification requirements. It is expected that any Feeder Fund's investment in a Master Fund will satisfy these requirements. Provided that each Feeder Fund meets these requirements and distributes all of its net investment income and realized capital gains to its shareholders in accordance with the timing requirements imposed by the Code, the Feeder Fund would not pay any Federal income or excise taxes. A Master Fund may qualify and elect to be treated as a "partnership" under the Code and, therefore, would also not expect to be required to pay any Federal income or excise taxes. Income dividends and any capital gain distributions by a Master Fund to a Feeder Fund will be distributed by the Feeder Fund to its shareholders, and such payments will be subject to Federal and applicable state income taxes on that Feeder Fund's shareholders. High Yield Bond Fund and High Yield Select Bond Fund. The High Yield Select Bond Fund (the "Feeder") seeks to achieve its objective by investing all of its investable assets in the High Yield Bond Fund (the "Master"), which has an investment objective identical to that of the Feeder. The Board of Trustees has approved this Master Fund/Feeder Fund structure. The Master is a series of the Trust. The Declaration of Trust of the Trust provides that the Feeder and other investors in the Master will be liable for all obligations of the Master that are not satisfied by the Master. However, the risk of the Feeder incurring financial loss on account of such liability is limited to circumstances in which liability was inadequately insured and the Master was unable to meet its obligations. Accordingly, the Trustees of the Trust believe that neither the Feeder nor its shareholders will be adversely affected by reason of the Feeder's investing in the Master. The common investment objectives of the Feeder and the Master are non-fundamental and may be changed without shareholder approval, subject, however, to at least 60 days' advance written notice to each Fund's shareholders. 31 The fundamental investment policies of the Feeder and the Master can be changed only with shareholder approval. If the Feeder, as an investor in the Master, is requested to vote on a change in a fundamental policy of the Master or any other matter pertaining to the Master, the Feeder will solicit proxies from its shareholders and vote its interest in the Master for and against such matters proportionately to the instructions to vote for and against such matters received from Feeder shareholders. The Feeder will vote shares for which it receives no voting instructions in the same proportion as the shares for which it receives voting instructions. There can be no assurance that any matter receiving a majority of votes cast by Feeder shareholders will receive a majority of votes cast by all investors in the Master. If other investors hold a majority interest in the Master, they could have voting control over the Master. The Feeder may withdraw its investment in the Master at any time if the Board of Trustees determines that it is in the best interests of the shareholders of the Feeder to do so or if the investment policies or restrictions of the Master were changed so that they were inconsistent with the policies and restriction of the Feeder. Upon any such withdrawal, the Board of Trustees of the Trust would consider what action might be taken, including the investment of all of the assets of the Feeder in another pooled investment entity having substantially the same investment objective as the Feeder or the retaining of an investment adviser to directly invest the Feeder's assets in accordance with its investment objective and policies. The Feeder's inability to find a substitute Master or comparable investment management could have a significant impact upon its shareholders' investments. Any withdrawal of the Feeder's assets could result in a distribution in kind of portfolio securities (as opposed to a cash distribution) to the Feeder. Should such a distribution occur, the Feeder would incur brokerage fees or other transaction costs in converting such securities to cash. In addition, a distribution in kind could result in a less diversified portfolio of investments for the Feeder and could affect the liquidity of the Feeder. TRUSTEES AND EXECUTIVE OFFICERS Responsibility for overall management of the Trust and the Funds rests with the Board of Trustees in accordance with Massachusetts law. The names of the Trustees and officers of Trust, the date each was first elected or appointed to office, their principal business occupations and other directorships they have held during at least the last five years, are shown below. 32
TERM OF NUMBER OF OFFICE AND PORTFOLIOS YEAR FIRST IN FUND ELECTED OR COMPLEX NAME, POSITION(S) WITH TRUST APPOINTED TO PRINCIPAL OCCUPATION(S) DURING OVERSEEN OTHER AND AGE OFFICE/1/ PAST FIVE YEARS BY TRUSTEE DIRECTORSHIPS - ------------------------------------------------------------------------------------------------------------------------ TRUSTEES OF THE TRUST (NONE OF WHOM ARE INTERESTED PERSONS OF THE TRUST): C. Gary Gerst, 64, Trustee Since 1995 Chairman Emeritus, Jones Lang 22 Director, Florida and Chairman of the Board of LaSalle, formerly named LaSalle Office Property Trustees Partners Ltd. (real estate Company, Inc. (real 200 E. Randolph Drive investment manager and consulting estate investment 43rd Floor firm). fund); Trustee, Chicago, IL 60601 Henderson Global Funds (7 portfolios); and President, KCI Inc. (Private S Corporation investing in non-public investments). Valerie B. Jarrett, 47, Since 1999 Executive Vice President, The 22 Director, USG Trustee Habitat Company (residential Corporation (building 350 W. Hubbard Street property developer), and Chairman materials Chicago, IL 60610 and Chief Executive Officer, Chicago manufacturer), The Transit Authority. Chicago Stock Exchange, and Navigant Consulting, Inc.; Trustee, University of Chicago. John W. McCarter, Jr., 65, Since 1995 President and Chief Executive 22 Chairman, Divergence Trustee Officer, The Field Museum of Natural L.L.C. (biotechnology 1400 S. Lake Shore Drive History; formerly Senior Vice firm); Director, W.W. Chicago, IL 60605 President and Director, Booz-Allen & Grainger, Inc. Hamilton, Inc. (consulting firm). (industrial distributor) and A.M. Castle, Inc. (metals distributor); and Trustee, Janus Adviser Series, Janus Aspen Series and Janus Investment Fund (52 portfolios). Paula Wolff ,58, Trustee Since 1998 Senior Executive, Chicago Metropolis 22 Vice Chair, 30 W. Monroe Street 2020 (civic organization), since University of Chicago 18th Floor 2000. President, Governors State Board of Trustees; Chicago, IL 60603 University, prior thereto. Chair, University of Chicago Hospitals; and Director, Ariel Capital Management, Inc. (investment manager). - ---------------------------------- /1/ A Trustee shall retire at the end of the calendar year in which the Trustee attains the age of 72 years. The President, Treasurer and Secretary shall each hold office until his successor shall have been duly elected and qualified, and all other officers shall hold office at the pleasure of the Trustees. 33 TERM OF NUMBER OF OFFICE AND PORTFOLIOS YEAR FIRST IN FUND ELECTED OR COMPLEX NAME, POSITION(S) WITH TRUST APPOINTED TO PRINCIPAL OCCUPATION(S) DURING OVERSEEN OTHER AND AGE OFFICE/1/ PAST FIVE YEARS BY TRUSTEE DIRECTORSHIPS - ------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE TRUST: Peter P. Capaccio, 46, Since 2001 Senior Vice President, Harris Trust N/A N/A President and Savings Bank. 111 W. Monroe Street Chicago, IL 60603 Ishwar D. Gupta, 60, Vice Since 2001 Senior Vice President, Harris Trust N/A N/A President and Assistant and Savings Bank. Secretary 111 W. Monroe Street Chicago, IL 60603 Merrill J. Sklenar, 57, Vice Since 2001 Vice President, Harris Trust and N/A N/A President and Assistant Savings Bank. Secretary 111 W. Monroe Street Chicago, IL 60603 David C. Lebisky, 30, Since 2001 Assistant Vice President, PFPC Inc. N/A N/A Secretary (mutual fund administrator). 103 Bellevue Parkway Wilmington, DE 19809 Thomas J. Ryan, 61, Since 2001 Vice President and Director of N/A N/A Treasurer and Principal Accounting, PFPC Inc. Financial and Accounting Officer 103 Bellevue Parkway Wilmington, DE 19809 L. Linn Solano, 51, Since 2001 Assistant Vice President, PFPC Inc. N/A N/A Assistant Treasurer 103 Bellevue Parkway Wilmington, DE 19809
Mr. Gerst, Mr. McCarter, Ms. Jarrett and Ms. Wolff serve as members of the Audit Committee and Governance Committee. The Audit Committee selects the auditors and confers with the auditors regarding the scope and results of the audit. The Governance Committee makes recommendations to the Board of Trustees regarding candidates for election as non-interested Trustees. Neither the Governance Committee nor the Board of Trustees will consider shareholder recommendations regarding candidates for election as Trustees; however, such recommendations may be made in the form of a shareholder proposal to be presented at any future meeting of shareholders of Trust. During the 2002 fiscal year, the Audit Committee met three times and the Governance Committee did not meet. The Trustees of the Trust receive from the Trust an annual aggregate retainer of $20,000 ($30,000 in the case of the Chairman of the Board) and a fee of $3,500 for each meeting of the Board of Trustees attended (or $500 if attendance is by telephone) and a fee for attendance at a meeting of a committee of the Board of Trustees of $1,000 (or $250 if attendance is by telephone), and are reimbursed for all out-of-pocket expenses relating to attendance at such meetings. The Trust has not adopted any form of retirement plan covering Trustees or officers. 34 The following table summarizes the compensation for the year ended December 31, 2002 paid by the Trust to the Trustees of the Trust: - -------------------------------------------------------------------------------- Aggregate Average Compensation from Compensation per Name of Person, Position the Trust Fund - -------------------------------------------------------------------------------- C. Gary Gerst, Chairman and Trustee $61,250 $2,784 - -------------------------------------------------------------------------------- Edgar R. Fiedler, Trustee (1), (2) $48,250 $2,193 - -------------------------------------------------------------------------------- Valerie B. Jarrett, Trustee (1) $51,250 $2,330 - -------------------------------------------------------------------------------- John W. McCarter, Jr., Trustee $57,250 $2,602 - -------------------------------------------------------------------------------- Paula Wolff, Trustee (1) $50,000 $2,273 - -------------------------------------------------------------------------------- - ---------------------------- (1) For the period ended December 31, 2002, the total amount of compensation payable or accrued pursuant to the Trust's Deferred Compensation Plan for its independent Trustees was $395,985.24 for Mr. Fiedler, $109,404.51 for Ms. Jarrett and $94,514.85 for Ms. Wolff. (2) Mr. Fiedler was a Trustee until his death on March 15, 2003. The Trust has a deferred compensation plan (the "Plan") that permits any Trustee who is not an "interested person" of the Trust to elect to defer receipt of 100% or 50% of his or her compensation as a Trustee for two or more years. The deferred compensation of a participating Trustee is credited to a book reserve account of the Trust when the compensation would otherwise have been paid to the Trustee. The value of the Trustee's deferred account at any time is equal to the value that the account would have had if contributions to the account had been invested and reinvested in shares of one or more of the Funds as designated by the Trustee. At the time for commencing distributions from a Trustee's deferral account, which is no later than when the Trustee ceases to be a member of the Board of Trustees, the Trustee may elect to receive distributions in a lump sum or over a period of five years. Each Fund's obligation to make distributions under the Plan is a general obligation of that Fund. No Fund will be liable for any other Fund's obligations to make distributions under the Plan. As of April 4, 2003, Trustees and officers of the Trust collectively did not hold more than 1% of the outstanding shares of any Class of any Fund with sole or shared power over investment or voting except the N Shares class of the Emerging Markets Fund (5.5%), the Equity Income Fund (1.2%), the International Fund (2.3%) and the High Yield Select Bond Fund (5.3%). The following table illustrates the dollar range of any equity securities "beneficially" owned (within the meaning of that term as defined in rule 16a-1(a)(2) under the Securities Exchange Act of 1934) by the Trustees in each Fund and in the aggregate in the Trust as of December 31, 2002.
- ----------------------------------------------------------------------------------------------------------------------- Dollar Range of Equity Aggregate Dollar Range of Each Fund Securities in each Fund Equity Securities in the Trust Name of Trustee Beneficially Owned Beneficially Owned* Beneficially Owned* --------------- ------------------ ------------------ ------------------ - ----------------------------------------------------------------------------------------------------------------------- C.Gary Gerst Equity $1-$10,000 Over $100,000 Emerging Markets $1-$10,000 Small-Cap Value $50,001-$100,000 Small-Cap Aggressive Growth $50,001-$100,000 - ----------------------------------------------------------------------------------------------------------------------- 35 - ----------------------------------------------------------------------------------------------------------------------- Edgar R. Fielder (1) Short/Intermediate Bond $10,001-$50,000 $10,001-$50,000 - ----------------------------------------------------------------------------------------------------------------------- John W. McCarter, Jr. Equity $10,001-$50,000 $50,001-$100,000 Equity Income $10,001-$50,000 International $10,001-$50,000 High Yield Select Bond (formerly named Convertible Securities) $10,001-$50,000 - ----------------------------------------------------------------------------------------------------------------------- Paula Wolff International $1-$10,000 $10,001-$50,000 Emerging Markets $1-$10,000 - -----------------------------------------------------------------------------------------------------------------------
(1) Mr. Fiedler was a Trustee until his death on March 15, 2003. * The dollar range for the securities in the table was determined using the net asset value of a Fund as of the close of business on December 31, 2002. No Trustee owns beneficially or of record, any security of the Adviser, PFPC Distributors, Inc. (the "Distributor") or any person (other than a registered investment company) directly or indirectly controlling, controlled by or under common control with the Adviser or the Distributor. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As of April 4, 2003, the principal holders of the A Shares, B Shares, N Shares, Service Shares, Exchange Shares and Institutional Shares of each Fund of the Trust were as follows: The principal holders of A Shares of the Balanced Fund were Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Mar Nenon Trust; Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; PFPC Trust Company, 400 Bellevue Parkway, Suite 108, Wilmington, DE 19806, Custodian FBO Mark E. Regole IRA, PO Box 3411, St. Charles, IL 60174; Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of D. P. Scalf; and PFPC Trust Company, 400 Bellevue Parkway, Suite 108, Wilmington, DE 19806, Custodian FBO Electa Himmelberger IRA, 4 Valley Forge Circle, West Boyleston, MA 01583, which held of record 4,747 shares (21.9%); 4,078 shares (18.8%); 2,977 shares (13.7%); 2,904 shares (13.4%); and 1,771 shares (8.2%), respectively, of the outstanding A Shares of the Fund. The principal holders of the B Shares of the Balanced Fund were First Clearing Corp., 717 17th Street, Suite 2600, Denver, CO 80202, on behalf of Jacob Bernard Abrams Estate, 1809 Brewton Court, Wilmington, NC 28403; Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Farabaugh-Hood; National Financial Services Corp., PO Box 3908, Church Street Station, New York, NY 10008, on behalf of Alice M. Rosile, 38 Sugar Cane Drive, Boardman, OH 44512; and Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303, which held of record 2,562 shares (24.1%); 2,192 shares (20.6%); 1,236 shares (11.6%); and 545 shares (5.1%), respectively, of the outstanding B Shares of the Fund. The principal holders of the N Shares of the Balanced Fund were PFPC Trust Company, 400 Bellevue Parkway, Suite 108, Wilmington, DE 19806, Custodian FBO David P. Sanes Money Purchase Plan, 9451 N. Lockwood Avenue, Skokie, IL 60077; Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603; Fidelity Investments - FIIOC, 100 Magellan Way, Covington, KY 41015, as agent for the Kroeschell Inc. Contributory Profit Sharing/401(k) Plan; and PFPC Trust Company, 400 Bellevue Parkway, Suite 108, Wilmington, DE 19806, Custodian FBO Kathy Richland Photography Profit Sharing Plan, 839 W. Wrightwood Avenue, Chicago, IL 60614, which held of record 29,799 shares (18.1%); 23,619 shares (14.3%); 17,881 shares (10.8%); and 10,947 shares (6.6%), respectively, of the outstanding N Shares of the Fund. The principal holder of Institutional Shares of the Balanced Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, 36 Chicago, IL 60603, which held of record 4,048,043 shares (99.8%) of the outstanding Institutional Shares of the Fund. The principal holders of A Shares of the Core Equity Fund were PFPC Trust Company, 400 Bellevue Parkway, Suite 108, Wilmington, DE 19806, Custodian FBO Lorraine A. Gorski IRA, PO Box 1418, Barrington, IL 60011; and the Carlee Family Limited Partnership, 5040 Arbor Lane, Northfield, IL 60093, which held of record 4,073 shares (14.5%); and 3,661 shares (13.0%), respectively, of the outstanding A Shares of the Fund. The principal holders of B Shares of the Core Equity Fund were Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf Farabaugh-Hood; and Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303, which held of record 1,546 shares (38.9%); and 1,084 shares (29.8%), respectively, of the outstanding B Shares of the Fund. The principal holder of N Shares of the Core Equity Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 45,471 shares (20.4%) of the outstanding N Shares of the Fund. The principal holder of Institutional Shares of the Core Equity Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 5,823,329 shares (97.1%) of the outstanding Institutional Shares of the Fund. The principal holders of A Shares of the Emerging Markets Fund were Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Herring IRA; Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Archacki IRA; Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Carrion IRA; Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Miles IRA; and Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Coe IRA, which held of record 5,412 shares (30.7%); 1,812 shares (10.3%); 1,221 shares (6.9%); 1,221 shares (6.9%); 1,208 shares (6.8%); and 906 shares (5.1%), respectively, of the outstanding A Shares of the Fund. The principal holders of N Shares of the Emerging Markets Fund were Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; Thomas H. Ruben, 55 E. Bellevue Place, Chicago, IL 60611; Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603; and National Financial Services Corp., PO Box 3908, Church Street Station, New York, NY 10008, on behalf of Ruth Ochs, 1617 St. Anne Road, Charlottesville, VA 22901, which held of record 14,645 shares (29.4%); 6,702 shares (13.5%); 5,968 shares (12.0%); and 3,351 shares (6.7%), respectively, of the outstanding N Shares of the Fund. The principal holder of Institutional Shares of the Emerging Markets Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 16,687,204 shares (95.9%) of the outstanding Institutional Shares of the Fund. The principal holders of A Shares of the Equity Fund were Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf P. Nenon; Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Valda Perkins; Julia Berger Revocable Living Trust, 11349 S. Roberts Road, Palos Hills, IL 60465; and PFPC Trust Company, 400 Bellevue Parkway, Suite 108, Wilmington, DE 19806, Custodian FBO Lori Schrall IRA, 234 Iroquois Avenue, Pittsburgh, PA 15237, which held of record 4,654 shares (19.9%); 4,058 shares (17.3%); 2,796 shares (11.9%); 1,724 shares (7.4%); and 1,320 shares (5.6%), respectively, of the outstanding A Shares of the Fund. The principal holders of B Shares of the Equity Fund were Bear Stearns Securities Corp., Benefit of Customers, 1 Metrotech Center North, Brooklyn, NY 11201; and Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf Farabaugh-Hood, which held of record 15,863 shares (60.7%); and 2,572 shares (9.9%), respectively, of the outstanding B Shares of the Fund. The principal holders of N Shares of the Equity Fund were Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603; and Fidelity 37 Investments - FIIOC, Agent for Hollinee LLC 401(k) Savings Plan, 100 Magellan Way, Covington, KY 41015, which held of record 199,298 shares (16.6%); 118,038 shares (9.8%); and 61,850 shares (5.2%), respectively, of the outstanding N Shares of the Fund. The principal holder of Institutional Shares of the Equity Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 23,541,010 shares (87.5%) of the outstanding Institutional Shares of the Fund. The principal holders of A Shares of the Equity Income Fund were Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of J. Meyer; Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Sfeir IRA; Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Darrell I. Bullard IRA, 1003 Fairway Drive, Effingham, IL 62401; National Financial Services Corp., PO Box 3908, Church Street Station, New York, NY 10008, on behalf of Dale G. and Patti J. Ochs, RR 1 Box 264, New Bethlehem, PA 16242; Parker Hunter Inc., 600 Grant Street, Pittsburgh, PA 15219, on behalf of Robert A. Miller IRA, 4953 Cline Hollow Road, Murrysville, PA 15668; and Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303, which held of record 3,029 shares (12.9%); 2,492 shares (10.6%); 2,220 shares (9.5%); 1,934 shares (8.2%); 1,302 shares (5.5%); and 1,280 shares (5.5%), respectively, of the outstanding A Shares of the Fund. The principal holder of B Shares of the Equity Income Fund were Bear Stearns Securities Corp., Benefit of Customers, 1 Metrotech Center North, Brooklyn, NY 11201; National Financial Services Corp., PO Box 3908, Church Street Station, New York, NY 10008, on behalf of Torrance J. Greco IRA, 100 Lynne Haven Drive, Beaver, PA 15009; and Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Sandfry IRA, which held of record 4,845 shares (39.4%); 4,212 shares (34.3%); and 2,020 shares (16.4%), respectively, of the outstanding B Shares of the Fund. The principal holder of N Shares of the Equity Income Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 134,279 shares (56.8%) of the outstanding N Shares of the Fund. The principal holder of Institutional Shares of the Equity Income Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 2,651,347 shares (97.6%) of the outstanding Institutional Shares of the Fund. The principal holder of B Shares of the Index Fund was Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of T. Tullio Family; Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of N. McPherson IRA; Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Farabaugh-Hood; Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of J. Archacki IRA; Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Herring IRA; Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Justin Exca; and Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Rehner IRA, which held of record 4,348 shares (13.7%); 3,948 shares (12.4%); 2,748 shares (8.7%); 2,606 shares (8.2%); 2,580 shares (8.1%); 1,782 shares (5.6%); and 1,770 shares (5.6%) of the outstanding B Shares of the Fund. The principal holder of N Shares of the Index Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 225,487 shares (25.6%) of the outstanding N Shares of the Fund. The principal holders of the Institutional Shares of the Index Fund were Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603; and The University of Chicago Hospitals, 5841 S. Maryland Avenue, Chicago, IL 60637, which held of record 16,240,082 shares (86.1%) and 2,312,876 shares (12.3%), respectively, of the outstanding Institutional Shares of the Fund. The principal holders of A Shares of the International Fund were Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; and PFPC Trust Company, 400 Bellevue Parkway, Suite 108, Wilmington, DE 19806, Custodian FBO Martin P. Olszowy IRA, 73 Denise Drive, 38 Cheektowaga, NY 14227, which held of record 321 shares (70.7%); and 132 shares (29.1), respectively, of the outstanding A Shares of the Fund. The principal holders of N Shares of the International Fund were Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603; Thomas H. Ruben, 55 E. Bellevue Place, Chicago, IL 60611; Karen Toole Verbica Revocable Trust, PO Box 7933, San Jose, CA 95150; and M & I Trust Company, PO Box 2977, Milwaukee, WI 53201, on behalf of Chicago Trust Company, FBO DuPage Radiologist SC, which held of record 19,499 shares (16.4%); 17,380 shares (14.6%); 8,211 shares (6.9%); and 6,846 shares (5.8%), respectively, of the outstanding N Shares of the Fund. The principal holder of Institutional Shares of the International Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 12,935,098 shares (92.8%) of the outstanding Institutional Shares of the Fund. The principal holder of Institutional Shares of the Small-Cap Aggressive Growth Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 737,493 shares (90.9%) of the outstanding Institutional Shares of the Fund. The principal holder of A Shares of the Small-Cap Opportunity Fund was Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303, which held of record 10,254 shares (17.2%) of the outstanding A Shares of the Fund. The principal holders of B Shares of the Small-Cap Opportunity Fund were Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; National Financial Services Corp., PO Box 3908, Church Street Station, New York, NY 10008, FBO of Peter A. Kazmierczak IRA, 3565 Red Oak Court, Grove City, OH 43123; and Bear Stearns Securities Corp., 1 Metrotech Center North, Brooklyn, NY 11201, which held of record 6,728 shares (33.6%); 1,439 shares (7.2%); and 1,232 shares (6.2%), respectively, of the outstanding B Shares of the Fund. The principal holder of N Shares of the Small-Cap Opportunity Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 181,446 shares (12.4%) of the outstanding N Shares of the Fund. The principal holder of Institutional Shares of the Small-Cap Opportunity Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 20,342,449 shares (97.1%) of the outstanding Institutional Shares of the Fund. The principal holder of A Shares of the Small-Cap Value Fund was Rodney M. and Mary S. Chopp, 46640 Pilgrim Road, Houghton, MI 49931, which held of record 1,355 shares (5.7%) of the outstanding A Shares of the Fund. The principal holders of B Shares of the Small-Cap Value Fund were Paine Webber, Inc., 100 Harbor Boulevard, Weehawken, NJ 07087, on behalf of the Michael J. Roberts Trust, 245 Linden Drive, Boulder, CO 80304; and National Financial Services Corp., PO Box 3908, Church Street Station, New York, NY 10008, on behalf of Torrance J. Greco IRA, 100 Lynne Haven Drive, Beaver, PA 15009, which held of record 3,215 shares (17.0%); and 1,072 shares (5.7%), respectively, of the outstanding B Shares of the Fund. The principal holders of N Shares of the Small-Cap Value Fund were Charles Schwab & Co., Inc., Benefit of Customers, 101 Montgomery Street, San Francisco, CA 94110; and Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303, which held of record 29,468 shares (20.1%); and 9,030 shares (6.1%), respectively, of the outstanding N Shares of the Fund. The principal holder of Institutional Shares of the Small-Cap Value Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 6,563,293 shares (93.6%) of the outstanding Institutional Shares of the Fund. The principal holders of A Shares of the Bond Fund were Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; and Parker Hunter, Inc., 600 Grant Street, Pittsburgh, PA 15219, on behalf of Keystone Conference Loan Fund, 1423 Keller Avenue, Williamsport, PA 17701, which held of record 33,199 shares (39.4%); and 14,386 shares (17.1%), respectively, of the outstanding shares of A Shares of the Fund. The principal holders of B Shares of the Bond Fund were Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; National Financial Services Corp., PO Box 39 3908, Church Street Station, New York, NY 10008, on behalf of Frank P. Paoli, Sr. Rollover IRA, 1944 SE 21st Street, Cape Coral, FL 33990; National Financial Services Corp., PO Box 3908, Church Street Station, New York, NY 10008, on behalf of Stephen J. Jr. and Brenda J. Worob, 101 Grandview Avenue, Morrisville, PA 19067; and National Financial Services Corp., PO Box 3908, Church Street Station, New York, NY 10008, on behalf of George J. Jr. and Margaret M. Zimmer, 14 Red Cedar Drive, Hamilton, NJ 08690, which held of record 8,513 shares (16.9%); 6,556 shares (13.0%); 4,031 shares (8.0%); and 2,589 shares (5.1%), respectively, of the outstanding shares of B Shares of the Fund. The principal holders of the N Shares of the Bond Fund were Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603; Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; and DARHAP CO, c/o Horizon Trust, 515 Franklin Street, Michigan City, IN 46360, which held of record 129,435 shares (26.8%); 92,137 shares (19.1%); and 40,481 shares (8.4%), respectively, of the outstanding shares of the N Shares of the Fund. The principal holder of Institutional Shares of the Bond Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 18,254,229 shares (88.4%) of the outstanding Institutional Shares of the Fund. The principal holders of Institutional Shares of the High Yield Bond Fund were Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603; and Harris Insight High Yield Select Bond Fund, which held of record 1,498,492 shares (57.6%); and 1,102,809 shares (42.4%), respectively, of the outstanding Institutional Shares of the Fund. The principal holders of A Shares of the High Yield Select Bond Fund were Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; Bear Stearns Securities Corp., Benefit of Customers, 1 Metrotech Center North, Brooklyn, NY 11201; National Financial Services Corp., PO Box 3908, Church Street Station, New York, NY 10008, on behalf of Mark L. Mengel Rollover IRA, 141 Biskup Lane, Monaca, PA 15061; and National Financial Services Corp., PO Box 3908, Church Street Station, New York, NY 10008, on behalf of Marilee E. Alexander, 1138 Walnut Street, Monaca, PA 15061, which held of record 1,451 shares (38.9%); 731 shares (19.6%); 566 shares (15.2%); and 465 shares (12.5%) of the outstanding A Shares of the Fund. The principal holders of N Shares of the High Yield Select Bond Fund were Penfirn Company, FBO 500632 Corporation Partnership, PO Box 3327, Omaha, NE 68103; Penfirn Company, FBO 500633 Corporation Partnership, PO Box 3327, Omaha, NE 68103; Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; PFPC Trust Company, 400 Bellevue Parkway, Suite 108, Wilmington, DE 19806, Custodian FBO Herbert A. Bernhard IRA, 1900 Avenue of the Stars, Los Angeles, CA 90067; Southwest Securities, Inc., PO Box 509002, Dallas, TX 75250, on behalf of Jairus E. Meilahn IRA; and John W. McCarter Jr. Trust, 575 Thornwood Lane, Northfield, IL 60093, which held of record 3,010 shares (14.0%); 3,010 shares (14.0%); 2,402 shares (11.2%); 1,380 shares (6.4%); 1,336 shares (6.2%); and 1,135 shares (5.3%), respectively, of the outstanding N Shares of the Fund. The principal holder of Institutional Shares of the High Yield Select Bond Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 727,355 shares (94.0%) of the outstanding Institutional Shares of the Fund. The principal holders of A Shares of the Intermediate Government Bond Fund were National Financial Services Corp., PO Box 3908, Church Street Station, New York, NY 10008, on behalf of Credit Lyonnais Money Purchase Plan, 1301 Avenue of the Americas, New York, NY 10019; Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Pickering Trust; and Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303, which held of record 27,526 shares (19.0%); 16,138 shares (11.1%); and 9,809 shares (6.8%), respectively, of the outstanding A Shares of the Fund. The principal holder of B Shares of the Intermediate Government Bond Fund was U.S Clearing Corp., Benefit of Customers, 26 Broadway, New York, NY 10004; Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; and PFPC Trust Company, 400 Bellevue Parkway, Suite 108, Wilmington, DE 19806, Custodian FBO Kathyleen Hedrick IRA, 503 Tomahawk 40 Trail, Brandon, FL 33511, which held of record 11,344 shares (15.3%); 7,586 shares (10.3%); and 3,826 shares (5.2%), respectively, of the outstanding B Shares of the Fund. The principal holders of N Shares of the Intermediate Government Bond Fund were Fidelity Investments - FIIOC, Agent for DoAll Group Profit Sharing Plan, 100 Magellan Way, Covington, KY 41015; Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603; and Fidelity Investments - - FIIOC, Agent for Gerber Profit Sharing Retirement and Savings Plan, 100 Magellan Way, Covington, KY 41015, which held of record 400,739 shares (36.4%); 329,348 shares (29.9%); and 95,808 shares (8.7%), respectively, of the outstanding N Shares of the Fund. The principal holder of the Institutional Shares of the Intermediate Government Bond Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 3,883,459 shares (92.2%) of the outstanding Institutional Shares of the Fund. The principal holder of A Shares of the Intermediate Tax-Exempt Bond Fund was Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303, which held of record 78,305 shares (42.0%) of the outstanding A Shares of the Fund. The principal holders of B Shares of the Intermediate Tax-Exempt Bond Fund were Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; and Wayne and Sandra Mazur Revocable Trust, 8509 Barn Owl Lane, San Antonio, TX 78255, which held of record 30,467 shares (60.0%); and 4,472 shares (8.8%), respectively, of the outstanding B Shares of the Fund. The principal holders of N Shares of the Intermediate Tax-Exempt Bond Fund were Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; and Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Templeton Trust, which held of record 442,275 shares (45.4%); and 56,729 shares (5.8%), respectively, of the outstanding N Shares of the Fund. The principal holder of the Institutional Shares of the Intermediate Tax-Exempt Bond Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 21,969,819 shares (95.5%) of the outstanding Institutional Shares of the Fund. The principal holders of A Shares of the Short/Intermediate Bond Fund were Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; and Raymond James Associates Inc., 880 Carillon Parkway, St. Petersburg, FL 33716, on behalf of Trinter Family, which held of record 60,649 shares (22.2%); and 17,474 shares (6.4%), respectively, of the outstanding A Shares of the Fund. The principal holders of B Shares of the Short/Intermediate Bond Fund were Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; and PFPC Trust Company, 400 Bellevue Parkway, Suite 108, Wilmington, DE 19806, Custodian FBO James D. Gray SEP IRA, 14 Kimberly Drive, Latrobe, PA 15650, which held of record 4,332 shares (7.6%); and 3,042 shares (5.4%), respectively, of the outstanding B Shares of the Fund. The principal holders of N Shares of the Short/Intermediate Bond Fund were Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603; and Charles Schwab & Co., Inc., Benefit of Customers, 101 Montgomery Street, San Francisco, CA 94110, which held of record 154,177 shares (17.2%); and 134,496 shares (15.0%), respectively, of the outstanding N Shares of the Fund. The principal holder of Institutional Shares of the Short/Intermediate Bond Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 21,194,192 shares (92.6%) of the outstanding Institutional Shares of the Fund. The principal holders of A Shares of the Tax-Exempt Bond Fund were Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; Gary J. Gabel Revocable Living Trust, 4079 Old Dominion, West Bloomfield, MI 48323; and Lisa A. Gabel Revocable Living Trust, 4079 Old Dominion, West Bloomfield, MI 48323, which held of record 90,675 shares (16.9%); 90,469 shares (16.9%); and 89,915 shares (16.8%), respectively, of the outstanding A Shares of the Fund. The principal holders of B Shares of the Tax-Exempt Bond Fund were Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; First Clearing Corp., 717 17th Street, Suite 2600, Denver, CO 80202, on behalf of Betty Keen, 188A Hunter Road, Titusville, NJ 08560; Wayne and Sandra Mazur Revocable Trust, 8509 Barn Owl Lane, San Antonio, TX 78255; and Mark P. Nahin Trust, 315 Aspen 41 Lane, Highland Park, IL 60035, which held of record 28,286 shares (35.3%); 5,415 shares (6.8%); 4,617 shares (5.8%); and 4,529 shares (5.7%) of the outstanding B Shares of the Fund. The principal holder of N Shares of the Tax-Exempt Bond Fund was Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303, which held of record 733,814 shares (34.7%) of the outstanding N Shares of the Fund. The principal holder of Institutional Shares of the Tax-Exempt Bond Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 8,836,985 shares (95.0%) of the outstanding Institutional Shares of the Fund. The principal holders of N Shares of the Government Money Market Fund were Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603; Harris Bank Barrington, 2000 S. Finley Road, Lombard, IL 60148; Harris Bank Hinsdale, 200 S. Finley Road, Lombard, IL 60148 and The Harris Bank N.A., 2000 S. Finley Road, Lombard, IL 60148, which held of record 185,191,782 shares (69.3%); 21,184,694 shares (7.9%); 15,084,259 shares (5.7%); and 14,676,494 shares (5.5%), respectively, of the outstanding N Shares of the Fund. The sole holder of Service Shares of the Government Money Market Fund was Pershing LLC, Exclusive Benefit of Harris Insight Money Fund Customer Accounts, 1 Pershing Plaza, Jersey City, NJ 07399, which held of record 242,303,646 shares (100.0%) of the outstanding Service Shares of the Fund. The principal holder of Institutional Shares of the Government Money Market Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 224,353,642 shares (98.3%) of the outstanding Institutional Shares of the Fund. The principal holders of B Shares of the Money Market Fund were Pershing LLC, Benefit of Customers, PO Box 2052, Jersey City, NJ 07303; and McDonald Investments Inc., Benefit of Customers, 4900 Tiedeman Road, Brooklyn, OH 44144, which held of record 15,129 shares (86.9%); and 2,290 shares (13.1%), respectively, of the outstanding B Shares of the Fund. The principal holder of the N Shares of the Money Market Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 932,161,350 shares (78.3%) of the outstanding N Shares of the Fund. The sole holder of Service Shares of the Money Market Fund was Pershing LLC, Exclusive Benefit of Harris Insight Money Fund Customer Accounts, 1 Pershing Plaza, Jersey City, NJ 07399, which held of record 1,266,219,589 shares (100.0%) of the outstanding Service Shares of the Fund. The principal holders of the Exchange Shares of the Money Market Fund were the Chicago Mercantile Exchange Inc., Customer Segregated Account, 30 S. Wacker Drive, Chicago, IL 60606; the Chicago Mercantile Exchange Inc., Firm Account, 30 S. Wacker Drive, Chicago, IL 60606; and BMO Nesbitt Burns Corp., PO Box 71940, Chicago, IL 60694, on behalf of Harris FCM Client Group, which held of record 324,956,970 shares (62.0%); 120,146,054 shares (23.0%); and 78,304,000 shares (15.0%), respectively, of the outstanding Exchange Shares of the Fund. The principal holders of Institutional Shares of the Money Market Fund were Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603; Motorola Inc., 1303 E. Algonquin Road, Schaumburg, IL 60196; and Sears Roebuck Acceptance Corp., 3711 Kennett Pike, Greenville, DE 19807, which held of record 1,638,158,510 shares (37.2%); 700,200,000 shares (15.9%); and 276,089,000 shares (6.3%), respectively, of the outstanding Institutional Shares of the Fund. The principal holder of N Shares of the Tax-Exempt Money Market Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 60603, which held of record 209,338,480 shares (89.1%) of the outstanding N Shares of the Fund. The sole holder of Service Shares of the Tax-Exempt Money Market Fund was Pershing LLC, Exclusive Benefit of Harris Insight Money Fund Customer Accounts, 1 Pershing Plaza, Jersey City, NJ 07399, which held of record 88,294,155 shares (100.0%) of the outstanding Service Shares of the Fund. The principal holder of Institutional Shares of the Tax-Exempt Money Market Fund was Harris Trust and Savings Bank, 111 W. Monroe Street, Chicago, IL 42 60603, which held of record 858,089,218 shares (98.1%) of the outstanding Institutional Shares of the Fund. The shares described above as held by Harris Trust and Savings Bank, Harris Bank Barrington, Harris Bank Hinsdale, and The Harris Bank N.A. are being held 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. INVESTMENT MANAGEMENT, DISTRIBUTION AND OTHER SERVICES INVESTMENT MANAGEMENT. Each of the Funds is advised by Harris Investment Management, Inc. ("HIM" or the "Adviser"). HIM, an investment adviser registered under the Advisers Act, is a wholly-owned subsidiary of Harris Bankcorp, Inc., which is a wholly-owned subsidiary of Bankmont Financial Corp., which is a wholly-owned subsidiary of Bank of Montreal, a publicly-traded Canadian banking institution. HIM, subject to review and approval by the Board of Trustees, sets each Fund's investment objective and overall investment strategies and, as more fully described below, provides general management services to each Fund, including overall supervisory responsibility for the management and investment of each Fund's portfolio. An affiliate of HIM, Harris Trust and Savings Bank ("Harris Trust"), an Illinois-state chartered bank and a member of the Federal Reserve System and a wholly-owned subsidiary of Harris Bankcorp, Inc., has overall responsibility, subject to the ongoing supervision of the Trust's Board of Trustees, for administering all operations of the Trust and for providing or arranging for the provision of the overall business management and administrative services necessary for the Trust's operations. HIM has entered into a sub-advisory contract with Hansberger Global Investors, Inc. ("Hansberger"). Hansberger, a wholly-owned subsidiary of Hansberger Group, Inc., is an investment adviser registered under the Advisers Act and provides a broad range of portfolio management services to clients in the U.S. and abroad. Hansberger Group, Inc. is majority-controlled by Thomas L. Hansberger, who founded the firm in 1994. Under the sub-advisory contract, Hansberger manages the investment of assets of the Emerging Markets Fund and the International Fund. In carrying out its obligations, Hansberger (i) obtains and evaluates pertinent economic, statistical, financial and other information affecting the economic regions and individual national economies generally, together with information specific to individual companies or industries, the securities of which are included in those Funds' investment portfolios or may be under consideration for inclusion therein; and (ii) formulates, recommends, and executes an ongoing program of investment for those Funds consistent with those Funds' investment objectives, policies, strategy, and restrictions. HIM remains responsible for the supervision and oversight of Hansberger's performance. HIM, Harris Trust, or Hansberger provides to the Funds, among other things, money market, equity and fixed income security research, analysis and statistical and economic data and information concerning interest rate and security market trends, portfolio composition and credit conditions. HIM and Hansberger analyze key financial ratios that measure the growth, profitability, and leverage of issuers in order to help maintain a portfolio of above-average quality. Emphasis placed on a particular type of security will depend on an interpretation of underlying economic, financial and security trends. The selection and performance of securities is monitored by a team of analysts dedicated to evaluating the quality of each portfolio holding. 43 The investment advisory agreement for each Fund was for an initial term that expired on August 31, 2001. Each agreement continues from year to year thereafter so long as such continuation is approved at least annually by (1) the Board of Trustees or the vote of a majority of the outstanding voting securities of the Fund, and (2) a majority of the Trustees who are not interested persons of any party to the Agreement, cast in person at a meeting called for the purpose of voting on such approval. At a meeting of the Board of Trustees of the Trust held on August 5, 2002, called in part for the purpose of voting on the renewal of the Agreements, the Agreements were renewed through August 31, 2003 by the unanimous vote of the Trustees, all whom were "non-interested" trustees of the Trust. The Trustees, considered, among other things, the nature and quality of services provided by the Adviser, including the performance of the respective Funds over various time periods in relation to various indices and comparative fund groups, the profitability to the Adviser of its relationship with the Funds, fall-out benefits from that relationship, economies of scale and comparative fees and expense ratios. Each Agreement may be terminated at any time, without penalty, by either the Trust or the Adviser upon 60 days' written notice, and automatically terminates in the event of its assignment as defined in the 1940 Act. HIM or Harris Trust from time to time may offer programs under which it may make payments from its own resources to certain non-profit organizations based on shares of the Funds held by members of the organizations and in an amount up to 0.10% of the value of those shares. Those payments are expenses of HIM or Harris Trust and are not Fund expenses, and thus will not affect Fund performance. HIM or Harris Trust from time to time may make payments from its own resources to certain service organizations and financial intermediaries for their services in connection with investments in the Funds made by their clients or customers. Those payments are expenses of HIM or Harris Trust and are not Fund expenses, and thus will not affect Fund performance. Portfolio Management. The skilled portfolio management teams behind the Harris Insight Funds believe that consistent investment performance requires discipline, focus, knowledge, and excellent informational resources. The money management philosophy that HIM employs focuses on two key points: o Active portfolio management is a key component of superior performance. o A systematic investment process may increase both consistency and levels of relative performance. Experience and creativity, combined with technological support, are most likely to result in successful investment decisions. HIM offers investors that powerful combination for managing their money. More importantly, instead of relying on individual stars to manage its mutual funds, HIM has established a strong professional team of seasoned portfolio managers and analysts. Together, they take a quantitatively-driven approach to investing, focusing on their investors' needs, concerns and investment goals. HIM is a leader in the application of analytic techniques used in the selection of portfolios. HIM's equity investment process focuses on maintaining a well-diversified portfolio of stocks whose prices are determined to be attractively ranked based upon their future potential. After identifying the appropriate type of universe for each Fund - whether the stocks are issued by large, established companies, or by smaller firms - HIM gathers fundamental, quality and liquidity 44 data. A multi-factor model then ranks and/or scores the stocks. Stocks that fail to meet HIM's hurdles are removed from further consideration. Attractive stocks are periodically identified and added to the portfolio, while those that have become unattractive are systematically replaced. Fund portfolio managers, in conjunction with 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 to, credit assessment of and impact on the overall portfolio. The following table shows the dollar amount of fees payable to the Adviser for its services with respect to each Fund, the amount of fee that was waived by the Adviser, if any, and the actual fee received by the Adviser. This data is for the past three fiscal years or shorter period if the Fund has been in operation for a shorter period. (Prior to May 1, 2001, Harris Trust was the Adviser to the Funds, and HIM served as Portfolio Management Agent pursuant to a Portfolio Management Contract approved by the Trust's Board of Trustees and approved by each Fund's shareholders.)
- ------------------------------------------------------------------------------------------------------------------------ Gross Advisory Fee ($) Advisory Fee Waived ($) Net Advisory Fee ($) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 2000 2001 2002 2000 2001 2002 2000 2001 2002 - ------------------------------------------------------------------------------------------------------------------------ Government Money Market Fund 560,738 590,468 632,623 -- -- -- 560,738 590,468 632,623 Money Market Fund 3,221,825 4,566,238 6,265,444 -- -- -- 3,221,825 4,566,238 6,265,444 Tax-Exempt Money Market Fund 945,132 1,068,822 1,124,855 -- -- -- 945,132 1,068,822 1,124,855 Bond Fund 968,407 1,449,157 1,437,315 472,047 685,780 727,965 496,360 763,377 709,350 High Yield Bond Fund -- -- 21,588 -- -- 21,356 -- -- 232 High Yield Select Bond Fund (formerly named Convertible Securities Fund) 364,297 259,855 149,718 66,501 74,948 67,417 297,796 184,907 82,301 Intermediate Government Bond Fund 515,516 455,517 522,454 371,103 368,542 413,020 144,413 86,975 109,434 Intermediate Tax-Exempt Bond Fund 1,127,475 1,240,633 1,465,340 1,127,475 1,240,633 1,465,340 -- -- -- Short/Intermediate Bond Fund 2,154,888 1,662,239 1,689,430 1,002,796 825,709 912,360 1,152,092 836,530 777,070 Tax-Exempt Bond Fund 651,356 661,577 689,770 651,356 661,577 689,770 -- -- -- Balanced Fund 225,053 340,504 320,157 81,552 105,493 80,038 143,501 235,011 240,119 Core Equity Fund 1,703,197 1,453,143 1,151,598 87,078 137,154 131,401 1,616,119 1,315,989 1,020,197 45 - ------------------------------------------------------------------------------------------------------------------------ Gross Advisory Fee ($) Advisory Fee Waived ($) Net Advisory Fee ($) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 2000 2001 2002 2000 2001 2002 2000 2001 2002 - ------------------------------------------------------------------------------------------------------------------------ Emerging Markets Fund 517,193 421,074 946,607 -- 30,507 -- 517,193 390,567 946,607 Equity Fund 3,578,653 2,485,532 2,088,572 -- -- -- 3,578,653 2,485,532 2,088,572 Equity Income Fund 528,888 462,126 380,156 48,950 73,390 94,059 479,938 388,736 286,097 Index Fund 1,419,356 1,243,284 991,143 110,014 246,103 257,806 1,309,342 997,181 733,337 International Fund 2,688,199 2,387,081 1,611,693 -- -- -- 2,688,199 2,387,081 1,611,693 Small-Cap Aggressive Growth -- 31,352 64,337 -- 30,961 29,856 -- 391 34,481 Fund Small-Cap Opportunity Fund 4,898,369 4,336,457 3,981,517 68,658 185,496 221,323 4,829,711 4,150,961 3,760,194 Small-Cap Value Fund 925,458 1,656,406 2,098,113 79,315 160,222 215,952 846,143 1,496,184 1,882,161 - ------------------------------------------------------------------------------------------------------------------------
HIM has agreed with the Small-Cap Aggressive Growth Fund to waive fees otherwise payable to it, or to reimburse the Fund, to the extent that the annualized ordinary operating expenses of the Institutional Shares of the Fund as a percentage of average daily net assets of the Fund ("Expense Ratio") exceed 1.00% ("Expense Cap"). For any fiscal year of the Fund in which the Expense Ratio of the class would otherwise be less than the lowest Expense Cap applicable to the class in effect since the beginning of the preceding three fiscal years of the Fund, the Fund will pay to HIM any amount so waived or reimbursed by HIM during such preceding three years and not previously paid by the Fund to HIM, except to the extent that such payment would cause the Expense Ratio of the class for the fiscal year to exceed such lowest Expense Cap. The Trust, HIM, Hansberger, Harris Trust, and the Distributor have each adopted codes of ethics under Rule 17j-1 under the 1940 Act. These codes of ethics limit the circumstances under which persons subject to the respective code invest in securities, including certain securities that may be purchased or held by a Fund or Funds. Each code of ethics has been filed with and is available from the Commission at the address, telephone number, and Internet site given on the back cover of the Trust's prospectus. ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN. Harris Trust serves as the Funds' administrator ("Administrator") pursuant to Administration Agreement with the Trust and in that capacity generally assists the Funds in all aspects of their administration and operation. The Administrator has entered into a Sub-Administration and Accounting Services Agreement with PFPC Inc. ("PFPC" or the "Sub-Administrator") on behalf of the Trust. PFPC has agreed to furnish officers for the Trust; provide corporate secretarial services; prepare and file various reports with the appropriate regulatory agencies; assist in preparing various materials required by the Commission; provide accounting and bookkeeping services for the Funds, including the computation of each Fund's net asset value, net income and realized capital gains, if any; and prepare various materials required by any state securities commission having jurisdiction over the Trust. Harris Trust serves as the transfer agent and dividend disbursing agent ("Transfer Agent") of the Funds pursuant to Transfer Agency Services Agreement with the Trust. The Transfer Agent has entered into Sub-Transfer Agency Services Agreement with PFPC (the "Sub-Transfer Agent") on behalf of the Trust whereby the Sub-Transfer Agent performs certain transfer agency and dividend disbursing agency services. PFPC is an indirect, wholly-owned subsidiary of PNC Bank Corp. 46 PFPC Trust Company ("PFPC Trust" or the "Custodian"), 8800 Tinicum Boulevard, Philadelphia, PA 19153, serves as custodian of the assets of the Funds and, among other things, maintains a custody account or accounts in the name of each Fund, receives and delivers all assets for each Fund upon purchase and upon sale or maturity, collects and receives all income and other payments and distributions on account of the assets of each Fund, and pays all expenses of each Fund. The Custodian has entered into Sub-Custodian Services Agreement with PNC Bank, N.A. ("PNC" or the "Sub-Custodian") on behalf of the Trust whereby the Sub-Custodian performs certain sub-custodian services. PFPC Trust and PNC are indirect, wholly-owned subsidiaries of PNC Bank Corp. As compensation for their services, the Administrator and the Transfer Agent are entitled to receive a combined fee based on the aggregate average daily net assets of the Funds of the Trust, payable monthly at an annual rate of 0.1665% of the first $300 million of average daily net assets; 0.1465% of the next $300 million; and 0.1265% of average daily net assets in excess of $600 million. As compensation for its services, the Custodian is entitled to receive a fee based on the aggregate average daily gross assets of the Funds of the Trust, payable monthly at an annual rate of 0.0035% of the average daily gross assets. In addition, the Funds pay a separate fee to the Sub-Transfer Agent for certain retail sub-transfer agent services and reimburse the Custodian for various custody transactional expenses. The following table shows the dollar amount of fees payable to the Administrator for its services with respect to each Fund, the amount of fee that was waived by the Administrator, if any, and the actual fee paid to the Administrator. The data is for the past three fiscal years or shorter period if the Fund has been in operation for a shorter period.
- ----------------------------------------------------------------------------------------------------------------------- Administration Fee ($) Reduction by Administrator ($) Net Administration Fee ($) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 2000 2001 2002 2000 2001 2002 2000 2001 2002 - ----------------------------------------------------------------------------------------------------------------------- Government Money Market Fund 453,586 473,189 571,036 238,015 265,732 344,355 215,571 207,457 226,681 Money Market Fund 2,770,302 4,055,641 5,969,278 1,457,380 2,128,063 3,303,371 1,312,922 1,927,578 2,665,907 Tax-Exempt Money Market Fund 791,935 879,899 1,035,816 -- -- 92,571 791,935 879,899 943,245 Bond Fund 253,648 414,801 495,379 18,001 24,001 54,361 235,647 390,800 441,018 High Yield Bond Fund -- -- 10,835 -- -- 543 -- -- 10,292 High Yield Select Bond Fund (formerly named Convertible 99,641 83,511 61,457 17,081 18,001 19,529 82,560 65,510 41,928 Securities Fund) Intermediate Government Bond Fund 144,451 152,083 204,305 18,001 28,501 43,041 126,450 123,582 161,264 Intermediate Tax-Exempt Bond 298,524 383,554 546,176 -- 18,678 56,840 298,524 364,876 489,336 Fund Short/Intermediate Bond Fund 507,408 441,378 538,723 18,001 22,501 56,327 489,407 418,877 482,396 Tax-Exempt Bond Fund 172,854 219,590 275,913 -- 25,501 45,784 172,854 194,089 230,129 Balanced Fund 77,075 117,052 144,961 18,001 18,001 38,888 59,074 99,051 106,073 Core Equity Fund 316,788 311,008 299,592 18,001 28,501 46,021 298,787 282,507 253,571 Emerging Markets Fund 85,672 77,360 190,549 18,001 18,001 37,010 67,671 59,359 153,539 47 - ----------------------------------------------------------------------------------------------------------------------- Administration Fee ($) Reduction by Administrator ($) Net Administration Fee ($) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 2000 2001 2002 2000 2001 2002 2000 2001 2002 - ----------------------------------------------------------------------------------------------------------------------- Equity Fund 831,450 648,560 614,829 18,001 25,501 59,869 813,449 623,059 554,960 Equity Income Fund 137,684 142,173 147,808 18,001 27,001 40,323 119,683 115,172 107,485 Index Fund 898,366 880,390 838,065 -- 6,000 49,773 898,366 874,390 788,292 International Fund 442,722 444,033 360,986 18,001 25,501 48,284 424,721 418,532 312,702 Small-Cap Aggressive Growth Fund -- 7,500 18,027 -- -- 702 -- 7,500 17,325 Small-Cap Opportunity Fund 791,872 790,517 861,470 18,001 27,001 68,390 773,871 763,516 793,080 Small-Cap Value Fund 201,299 391,286 579,575 18,001 28,501 57,791 183,298 362,785 521,784 - -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTOR. PFPC Distributors, Inc. (the "Distributor"), 760 Moore Road, King of Prussia, PA 19406, is the distributor of shares of the Funds. Prior to January 2, 2001, the Distributor for the Funds was Provident Distributors, Inc. Fees for services rendered by the Distributor (not including sales charges) are paid by the Sub-Administrator. The Distributor bears the cost of printing and mailing prospectuses to potential investors and any advertising expenses incurred by it in connection with the distribution of shares, subject to the terms of the Service Plans described below, if implemented pursuant to contractual arrangements between the Trust and the Distributor and approved by the Board of Trustees of the Trust. The Distributor has agreed to furnish officers for the Trust, as required. A Shares of the Funds are sold with a maximum front-end sales charge of 5.50%, as described in the Prospectuses relating to those shares and under "Additional Purchase and Redemption Information" in this SAI. A Shares of the Funds may be subject to a contingent deferred sales charge (CDSC) of up to 1.00%, which is described in those Prospectuses and under "Additional Purchase and Redemption Information" in this SAI. B Shares of the Funds are sold without a front-end sales charge but are subject to a CDSC of up to 5.00%, which is described in the Prospectuses relating to those shares and under "Additional Purchase and Redemption Information" in this SAI. The following table shows the dollar amount of sales charges payable to the distributor with respect to sales of 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. There were no sales charges payable to the distributor with respect to A Shares of the Funds not mentioned below.
- ----------------------------------------------------------------------------------------------------------------------- Aggregate Underwriting Amount Retained by the Commissions ($) Distributor ($) Amount Reallowed ($) --------- --------- --------- --------- -------- -------- --------- --------- ------- 2000 2001 2002 2000 2001 2002 2000 2001 2002 - ----------------------------------------------------------------------------------------------------------------------- Bond Fund 90 5,131 22,979 5 91 1,130 85 5,040 21,849 High Yield Select Bond Fund (formerly named Convertible Securities Fund) -- 1,521 294 -- 81 1 -- 1,440 293 Intermediate Government Bond Fund 54 9,080 23,824 4 435 2,169 50 8,645 21,655 48 - ----------------------------------------------------------------------------------------------------------------------- Aggregate Underwriting Amount Retained by the Commissions ($) Distributor ($) Amount Reallowed ($) --------- --------- --------- --------- -------- -------- --------- --------- ------- 2000 2001 2002 2000 2001 2002 2000 2001 2002 - ----------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Bond Fund -- 1,869 11,814 -- 54 678 -- 1,815 11,136 Short/Intermediate Bond Fund 811 7,848 8,541 61 420 707 750 7,428 7,834 Tax-Exempt Bond Fund -- 21,002 49,962 -- 830 3,160 -- 20,172 46,802 Balanced Fund 2,536 10,173 1,948 224 496 188 2,312 9,677 1,760 Core Equity Fund 13,665 3,513 5,909 1,158 304 398 12,507 3,209 5,511 Emerging Markets Fund 579 -- 8,505 50 -- 15 529 -- 8,490 Equity Fund 1,518 2,155 5,738 136 100 125 1,382 2,055 5,613 Equity Income Fund 10,789 3,253 5,589 969 138 515 9,820 3,115 5,074 International Fund 110 104 388 10 9 35 100 95 353 Small-Cap Opportunity Fund 817 1,694 16,625 75 145 593 742 1,549 16,032 Small-Cap Value Fund 1,430 16,906 20,099 117 1,435 798 1,313 15,471 19,301 - -----------------------------------------------------------------------------------------------------------------------
The following table shows the dollar amount of CDSCs payable to the distributor with respect to sales of B Shares of each Fund and the amount of CDSCs retained by the distributor and not reallowed to other persons. The data is for the past three fiscal years or shorter period if the Fund has been in operation for a shorter period. There were no sales charges payable to the distributor with respect to B Shares of the Funds not mentioned below.
- ----------------------------------------------------------------------------------------------------------------------- Amount Retained by the Aggregate CDSCs ($) Distributor ($) Amount Reallowed ($) --------- --------- --------- --------- -------- -------- --------- --------- ------- 2000 2001 2002 1999 2000 2002 2000 2001 2002 - ----------------------------------------------------------------------------------------------------------------------- Money Market Fund -- 228 421 -- -- -- -- 228 421 Bond Fund -- -- 631 -- -- -- -- -- 631 Intermediate Government Bond Fund -- 505 5 -- -- -- -- 505 5 Intermediate Tax-Exempt Bond Fund -- -- 125 -- -- -- -- -- 125 Short/Intermediate Bond Fund -- -- 495 -- -- -- -- -- 495 Tax-Exempt Bond Fund -- -- 160 -- -- -- -- -- 160 Core Equity Fund -- -- 156 -- -- -- -- -- 156 Small-Cap Opportunity Fund -- -- 423 -- -- -- -- -- 423 Small-Cap Value Fund -- -- 1,229 -- -- -- -- -- 1,229 - -----------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES. Except for certain expenses borne by the Distributor, Harris Trust, or HIM, the Trust bears all costs of its operations, including: the compensation of its Trustees who are not affiliated with HIM or the Distributor or any of their affiliates; advisory and administration fees; payments pursuant to any Service Plan (with respect to A Shares, N Shares, B Shares and Service 49 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 the Board of Trustees; 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 any Fund or class are borne by that Fund or class. Other general expenses of the Trust are allocated among the Funds in an equitable manner as determined by the Board of Trustees. SERVICE AND DISTRIBUTION PLANS A SHARES. Each Fund, except for the Index Fund, the Small-Cap Aggressive Growth Fund, the High Yield Bond Fund and each of the Money Market Funds, has adopted a Service Plan for A Shares under Section 12(b) of the 1940 Act and Rule 12b-1 promulgated thereunder ("Rule 12b-1") that provides for distribution/service fees of up to 0.25% per annum of the average daily net asset value of the Fund's A Shares. Each such Fund bears the costs and expenses connected with advertising and marketing the Fund's A Shares and may pay the fees of each institution ("Service Organization") that purchases A Shares of the Fund on behalf of its customers ("Customers") for servicing activities, as described below, at a rate of up to 0.25% per annum of the average daily net asset value of the Fund's A Shares. Servicing activities provided by Service Organizations to their Customers investing in A Shares of the Fund may include, among other things, one or more of the following: (i) establishing and maintaining shareholder accounts and records; (ii) processing purchase and redemption transactions; (iii) answering Customer inquiries; (iv) assisting Customers in changing dividend options, account designations and addresses; (v) performing sub-accounting; (vi) investing Customer cash account balances automatically in Fund shares; (vii) providing periodic statements showing a Customer's account balance and integrating such statements with those of other transactions and balances in the Customer's other accounts serviced by the Service Agent; (viii) arranging for bank wires; (ix) distribution and such other services as the Fund may request, to the extent the Service Organization is permitted by applicable statute, rule or regulation. N SHARES. Each non-Money Market Fund, except for the Small-Cap Aggressive Growth Fund and the High Yield Bond Fund, has adopted a Service Plan for N Shares of the Fund that provides for the Fund to pay service fees of up to 0.25% per annum of the average daily net asset value of the Fund's N Shares. This Service Plan does not authorize payments under the Plan to be made for distribution purposes and was not adopted under Rule 12b-1. Each Money Market Fund has adopted a Service Plan for N Shares of the Fund that provides for the Fund to pay fees for shareholder subaccounting, statement, communications, and processing services ("Subaccounting Services") of 0.10% per annum of the average daily net asset value of the Fund's N Shares, and fees for shareholder support services ("Support Services") of up to 0.15% per annum of the average daily net asset value of the Fund's N Shares. This Service Plan does not authorize payments under the Plan to be made for distribution purposes and was not adopted under Rule 12b-1. Additionally, each Money Market Fund has adopted a 50 Service Plan relating to N Shares pursuant to Rule 12b-1 that provides for the Fund to pay distribution fees of up to 0.10% per annum of the average daily net asset value of the Fund's N Shares. NON-MONEY MARKET FUNDS. Each such Fund has entered into an agreement with each Service Organization that purchases N Shares of the Fund on behalf of its Customers. The Service Organization is required to provide shareholder support services to its Customers who beneficially own such Shares in consideration of the payment by the Fund of up to 0.25% per annum of the average daily net asset value of that Fund's N Shares held by the Service Organization for the benefit of Customers. Support services will include: (i) aggregating and processing purchase and redemption requests from Customers and placing net purchase and redemption orders with the Fund's Distributor; (ii) processing dividend payments from the Fund on behalf of Customers; (iii) providing information periodically to Customers showing their positions in the Fund's shares; (iv) arranging for bank wires; (v) responding to Customer inquiries relating to the services performed by the Service Organization and handling correspondence; (vi) forwarding shareholder communications from the Fund (such as proxies, shareholder reports, annual and semi-annual financial statements, and dividend, distribution and tax notices) to Customers; (vii) acting as shareholder of record and nominee; (viii) arranging for the reinvestment of dividend payments; and (ix) other similar account administrative services. In addition, a Service Organization, at its option, may also provide to its holders of N Shares (a) a service that invests the assets of their other accounts with the Service Organization in the Fund's shares (sweep program); (b) sub-accounting with respect to shares owned beneficially or the information necessary for sub-accounting; and (c) checkwriting services. MONEY MARKET FUNDS. Each such Fund has entered into an agreement with each Service Organization that purchases N Shares of the Fund on behalf of its Customers. The Service Organization is required to provide Subaccounting Services and Support Services to its Customers who beneficially own such Shares in consideration of the payment by the Fund of up to 0.10% per annum for Subaccounting Services and of up to 0.15% per annum for Support Services, respectively, of the average daily net asset value of that Fund's N Shares held by the Service Organization for the benefit of Customers. Subaccounting Services include (i) establishing and maintaining shareholder accounts and records; (ii) processing purchase, exchange and redemption transactions; (iii) 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 Agent; (iv) performing subaccounting with respect to Fund shares beneficially owned by the customer; (v) investing customer cash account balances automatically in Fund shares; (vi) forwarding shareholder communications; and (vii) such other services as may be reasonably requested. Support Services include (i) responding to inquiries from customers concerning their investment in N Shares; (ii) arranging for bank wires; (iii) assisting customers in changing dividend options, account designations, and addresses; and (iv) providing such other similar services as may be reasonably requested. Under the Service Plan adopted pursuant to Rule 12b-1 that relates only to the Money Market Funds, each Money Market Fund may make additional payments to Service Organizations for shareholder services described above and also may (i) bear the costs and expenses in connection with advertising and marketing the Fund's N Shares and (ii) make payments to Service Organizations for assistance in connection with the distribution of shares to Customers, including the forwarding to Customers of Prospectuses, sales literature and advertising materials provided by the Distributor of shares, at a rate of up to 0.10% per annum of the average daily net asset value of the Fund's N Shares. B SHARES. Each Fund, except for the Emerging Markets Fund, the International Fund, the Small-Cap Aggressive Growth Fund, the High Yield Bond Fund, the High Yield Select Bond Fund, the 51 Government Money Market Fund and the Tax-Exempt Money Market Fund, has adopted a Service Plan for B Shares of the Fund that provides for the Fund to pay service fees of up to 0.25% per annum of the average daily net asset value of the Fund's B Shares. This Service Plan does not authorize payments under the Plan to be made for distribution purposes and was not adopted under Rule 12b-1. Additionally, each such Fund has adopted a plan of distribution ("Distribution Plan") relating to B Shares pursuant to Rule 12b-1 that provides for the Fund to pay distribution fees of up to 0.75% per annum of the average daily net asset value of the Fund's B Shares. SERVICE PLAN. Each such Fund has entered into an agreement with each Service Organization that purchases B Shares of the Fund on behalf of its Customers, pursuant to which each Fund that issues B Shares may pay the fees of each Service Organization for servicing activities at a rate of up to 0.25% per annum of the average daily net asset value of the Fund's B Shares held by the Service Organization for the benefit of Customers. Servicing activities will include: (i) aggregating and processing purchase and redemption requests from Customers and placing net purchase and redemption orders with the Fund's Distributor; (ii) processing dividend payments from the Fund on behalf of Customers; (iii) providing information periodically to Customers showing their positions in the Fund's shares; (iv) arranging for bank wires; (v) responding to Customer inquiries relating to the services performed by the Service Organization and handling correspondence; (vi) forwarding shareholder communications from the Fund (such as proxies, shareholder reports, annual and semi-annual financial statements, and dividend, distribution and tax notices) to Customers; (vii) acting as shareholder of record and nominee; (viii) arranging for the reinvestment of dividend payments; and (ix) other similar account administrative services. DISTRIBUTION PLAN. Each such Fund also has adopted a Distribution Plan for B Shares under Section 12(b) of the 1940 Act and Rule 12b-1, pursuant to which the Fund compensates the Distributor for its sales and distribution activities related to the Fund's B Shares (which include the services of the Distributor, its affiliates, and such other Service Organizations as it may select in connection with the sales and distribution of the Fund's shares and may be spent by the Distributor, its affiliates, and such Service Organizations on any activities or expenses related to the distribution and marketing of the Fund's shares, including financing of amounts borrowed by the Distributor to pay sales commissions) at a rate, calculated daily, of up to 0.75% of the average daily net asset value of the Fund's B Shares outstanding. (The CDSC applicable to Customers' sales of B Shares is discussed under "Additional Purchase and Redemption Information" in this SAI.) At the time of the sale of B Shares of a Fund, the Distributor pays to Service Organizations, from its own funds, commissions of up to 4.00% of the amount sold. These payments, together with the proceeds from CDSCs applicable to Customers' sales of the Fund's B Shares, in effect offset underwriting, distribution, sales, and marketing expenses (including commissions) incurred by the Distributor on behalf of the Fund's B Shares so that overall Fund assets are maintained or increased. This helps the Fund achieve economies of scale, reduce per share expenses, and provide cash for orderly portfolio management and share redemptions. The maximum Distribution Plan fee that can be paid by a Fund in any one year may not be sufficient to cover the marketing-related expenses the Distributor has incurred in connection with sales of the Fund's B Shares, so that it may take the Distributor a number of years to recoup these expenses. A Fund may compensate the Distributor more or less than the Distributor's actual marketing expenses, but in no event will the Fund pay more than the maximum Distribution Plan fee. The Adviser, the Distributor, and their affiliates may benefit from arrangements where the Distribution Plan fees related to B Shares may be paid to third parties who have advanced commissions to be paid to investment professionals. 52 At any given time, the expenses of distributing B Shares of a Fund may be more or less than the total of (i) the payments made by the Fund pursuant to the Distribution Plan and (ii) the proceeds of CDSCs paid by investors upon redemption of the Fund's B Shares. For example, if $1 million in expenses had been incurred in distributing B Shares of the Funds and $750,000 had been received as described in (i) and (ii) above, the excess expense would amount to $250,000. Because there is no requirement under the Distribution Plan that the Distributor be reimbursed for all distribution expenses with respect to B Shares or any requirement that the Distribution Plan be continued from year to year, this excess amount does not constitute a liability of the Fund. SERVICE SHARES. Each Money Market Fund has adopted a Service Plan for Service Shares of the Fund that provides for the Fund to pay fees for shareholder subaccounting, statement, communications, and processing services ("Subaccounting Services") of 0.15% per annum of the average daily net asset value of the Fund's Service Shares, and fees for shareholder support services ("Support Services") of up to 0.10% per annum of the average daily net asset value of the Fund's Service Shares. This Service Plan does not authorize payments under the Plan to be made for distribution purposes and was not adopted under Rule 12b-1. Additionally, each Money Market Fund has adopted a Service Plan relating to Service Shares pursuant to Rule 12b-1 that provides for the Fund to pay distribution fees of up to 0.15% per annum of the average daily net asset value of the Fund's Service Shares. Each Money Market Fund has entered into an agreement with each Service Organization that purchases Service Shares of the Fund on behalf of its Customers. The Service Organization is required to provide Subaccounting Services and Support Services to its Customers who beneficially own such Shares in consideration of the payment by the Fund of up to 0.15% per annum for Subaccounting Services and of up to 0.10% per annum for Support Services, respectively, of the average daily net asset value of that Fund's Service Shares held by the Service Organization for the benefit of Customers. Subaccounting Services include (i) establishing and maintaining shareholder accounts and records; (ii) processing purchase, exchange and redemption transactions; (iii) 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 Agent; (iv) performing subaccounting with respect to Fund shares beneficially owned by the customer; (v) investing customer cash account balances automatically in Fund shares; (vi) forwarding shareholder communications; and (vii) such other services as may be reasonably requested. Support Services include (i) responding to inquiries from customers concerning their investment in Service Shares; (ii) arranging for bank wires; (iii) assisting customers in changing dividend options, account designations, and addresses; and (iv) providing such other similar services as may be reasonably requested. Under the Service Plan adopted pursuant to Rule 12b-1, each Money Market Fund may make additional payments to Service Organizations for shareholder services described above and also may (i) bear the costs and expenses in connection with advertising and marketing the Fund's Service Shares and (ii) make payments to Service Organizations for assistance in connection with the distribution of shares to Customers, including the forwarding to Customers of Prospectuses, sales literature and advertising materials provided by the Distributor of shares, at a rate of up to 0.15% per annum of the average daily net asset value of the Fund's Service Shares. EXCHANGE SHARES (HARRIS INSIGHT MONEY MARKET FUND ONLY). The Money Market Fund has adopted a Service Plan for Exchange Shares of the Fund that provides for the Fund to pay service fees of up to 0.05% per annum of the average daily net asset value of the Fund's Exchange Shares. This Service Plan does not authorize payments under the Plan to be made for distribution purposes and was not adopted under Rule 12b-1. 53 SERVICE PLAN. Such Fund has entered into an agreement with each Service Organization that purchases Exchange Shares of the Fund on behalf of its Customers. The Service Organization is required to provide shareholder support services to its Customers who beneficially own such Shares in consideration of the payment by the Fund of up to 0.05% per annum of the average daily net asset value of the Fund's Exchange Shares held by the Service Organization for the benefit of Customers. Support services will include: (i) aggregating and processing purchase and redemption requests from Customers and placing net purchase and redemption orders with the Fund's Distributor; (ii) processing dividend payments from the Fund on behalf of Customers; (iii) providing information periodically to Customers showing their positions in the Fund's shares; (iv) arranging for bank wires; (v) responding to Customer inquiries relating to the services performed by the Service Organization and handling correspondence; (vi) forwarding shareholder communications from the Fund (such as proxies, shareholder reports, annual and semi-annual financial statements, and dividend, distribution and tax notices) to Customers; (vii) acting as shareholder of record and nominee; (viii) arranging for the reinvestment of dividend payments; and (ix) other similar account administrative services. In addition, a Service Organization, at its option, may also provide to its holders of Exchange Shares (a) a service that invests the assets of their other accounts with the Service Organization in the Fund's shares (sweep program); (b) sub-accounting with respect to shares owned beneficially or the information necessary for sub-accounting; and (c) checkwriting services. INSTITUTIONAL SHARES. Each Fund has adopted a Service Plan for Institutional Shares of the Fund that provides for payments on behalf of the Fund by the Funds' distributor, investment adviser and/or administrator of service fees of up to 0.25% per annum of the average daily net asset value of the Fund's Institutional Shares. This Service Plan does not authorize payments under the Plan to be made for distribution purposes and was not adopted under Rule 12b-1. Support services provided by Service Organizations may include (i) establishing and maintaining shareholder accounts and records; (ii) processing purchase, exchange and redemption transactions; (iii) 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 Agent; (iv) arranging for bank wires; (v) responding to Customer inquiries relating to the Fund; (vi) performing subaccounting with respect to Fund shares beneficially owned by the customer or providing the information necessary for sub-accounting; (vii) investing customer cash account balances automatically in Fund shares; (viii) assisting Customers in changing dividend options, account designations and addresses; and (ix) such other similar services as may reasonably be requested. GENERAL. Each Service Plan and, in the case of B Shares, the Distribution Plan (each a "Plan", and collectively, the "Plans") have been adopted by the Board of Trustees, including a majority of the Trustees who were not "interested persons" (as defined by the 1940 Act) of the Trust, and who had no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan (the "Qualified Trustees"). Each 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 and the Qualified Trustees. Agreements related to the Plans must also be approved by such vote of the Trustees and the Qualified Trustees. A 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 relevant class of shares of the Fund or by a vote of a majority of the Qualified Trustees. No Plan may be amended to increase materially the amounts payable to Service Organizations without the approval of a majority of the outstanding voting securities of the relevant class of shares of the Fund, and no material amendment to a Plan may be made except by a majority of both the Trustees of the Trust and the Qualified Trustees. 54 Each Plan requires that certain service providers furnish to the Trustees, and the Trustees shall review, at least quarterly, a written report of the amounts expended (and purposes therefor) under such Plan. Rule 12b-1 also requires that the selection and nomination of the Trustees who are not "interested persons" of the Trust be made by such disinterested Trustees. From their own resources, HIM and Harris Trust from time to time may pay fees to certain Service Organizations. Additionally, Harris Trust and the Distributor may act as Service Organizations and receive fees under a Service Plan. The following table shows Service Organization fees paid by the Funds to Harris Trust with respect to A Shares, N Shares, B Shares, Service Shares and Exchange Shares of each Fund for which such fees were paid for the period ended December 31, 2002.
- ------------------------------------------------------------------------------------------------------------------------ Shareholder Shareholder Rule 12b-1 Fees Rule 12b-1 Fees Servicing Plan Servicing Plan Paid ($) Waived ($) Fees Paid ($) Fees Waived ($) - ------------------------------------------------------------------------------------------------------------------------ Government Money Market Fund 918,183 -- 401,120 -- Money Market Fund 5,276,377 -- 2,274,127 -- Tax-Exempt Money Market Fund 668,274 -- 286,968 -- Bond Fund 17,854 -- 3,782 -- High Yield Select Bond Fund (formerly named Convertible Securities Fund) 699 -- 208 -- Intermediate Government Bond Fund 36,864 -- 4,929 -- Intermediate Tax-Exempt Bond Fund 22,425 -- 2,340 -- Short/Intermediate Bond Fund 16,464 -- 6,502 -- Tax-Exempt Bond Fund 17,818 -- 5,987 -- Balanced Fund 5,219 -- 966 -- Core Equity Fund 10,969 -- 1,809 -- Emerging Markets Fund 856 -- 281 -- Equity Fund 35,756 -- 1,057 -- Equity Income Fund 8,918 -- 1,472 -- Index Fund 49,358 -- 1,078 -- International Fund 4,513 -- 170 -- Small-Cap Aggressive Growth Fund 7 -- 19 -- Small-Cap Opportunity Fund 21,237 -- 2,101 -- Small-Cap Value Fund 12,483 -- 4,391 -- - ------------------------------------------------------------------------------------------------------------------------
CALCULATION OF YIELD AND TOTAL RETURN The Trust 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 55 December 31, 2002, by calculating the net change in value, exclusive of capital changes, of a hypothetical account having a balance of one share at the beginning of the period, dividing the net change in value by the value of the account at the beginning of the base period to obtain the base period return, and multiplying the base period return by 365/7, with the resulting yield figure carried to the nearest hundredth of one percent. The net change in value of an account consists of the value of additional shares purchased with dividends from the original share plus dividends declared on both the original share and any such additional shares (not including realized gains or losses and unrealized appreciation or depreciation) less applicable expenses. Effective yield quotations for N Shares, Service Shares and Institutional Shares of each of the Money Market Funds and for B Shares and Exchange Shares of the Harris Insight Money Market Fund are also made available. These amounts are calculated in a similar fashion to yield, except that the base period return is compounded by adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the result, according to the following formula: EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) 365/7] -1 Current yield for all of the Money Market Funds will fluctuate from time to time, unlike bank deposits or other investments that pay a fixed yield for a stated period of time, and does not provide a basis for determining future yields. The yields of the N Shares, B Shares, Service Shares, Exchange Shares and Institutional Shares of each of the following Money Market Funds for the 7-day period ended December 31, 2002 are listed below.
--------------------------------------------------------------------------------- Current Yield (%) Effective Yield (%) --------------------------------------------------------------------------------- N B Svc. Exch. Inst N B Svc. Exch. Inst --------------------------------------------------------------------------------- Government Money Market Fund 0.92 -- 0.52 -- 1.27 0.92 -- 0.52 -- 1.27 Money Market Fund 1.07 0.42 0.67 1.37 1.42 1.07 0.42 0.67 1.38 1.43 Tax-Exempt Money Market Fund 0.99 -- 0.64 -- 1.34 0.99 -- 0.64 -- 1.34
N Shares and Service Shares of the Money Market Funds and B Shares and Exchange Shares of the Harris Insight Money Market Fund bear the expenses of fees paid to Service Organizations. As a result, at any given time, the net yield of N Shares or Service Shares of each of the Money Market Funds could be up to 0.35% or 0.90%, respectively, lower than the net yield of Institutional Shares of each of those Funds, and the net yields of B Shares and Exchange Shares of the Harris Insight Money Market Fund could be up to 1.00% or 0.05%, respectively, lower than the net yield of Institutional Shares of the Harris Insight Money Market Fund. From time to time each of the Money Market Funds may advertise its "30-day average yield" and its "monthly average yield." Such yields refer to the average daily income generated by an investment in such Fund over a 30-day period, as appropriate, (which period will be stated in the advertisement). The yields of N Shares, B Shares, Exchange Shares, Service Exchange Shares and Institutional Shares of each of the following Money Market Funds for the 30-day period ended December 31, 2002 are:
------------------------------------------------------------------------- 30-day Yield (%) ------------------------------------------------------------------------- N B Service Exchange Institutional ------------------------------------------------------------------------- Government Money Market Fund 0.91 -- 0.51 -- 1.26 Money Market Fund 1.08 0.43 0.68 1.38 1.43 Tax-Exempt Money Market Fund 0.75 -- 0.39 -- 1.10
56 A standardized "tax-equivalent yield" may be quoted for the Intermediate Tax-Exempt Bond Fund, the Tax-Exempt Bond Fund and the Tax-Exempt Money Market 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, 2002, the effective tax equivalent yield of the N Shares, Service Shares and Institutional Shares of the Tax-Exempt Money Market Fund was 1.38%, 0.89% and 1.86%, respectively. For the 30-day period ended December 31, 2002, the 30-day tax equivalent yield for the A Shares, N Shares, B Shares and Institutional Shares of the Intermediate Tax-Exempt Bond Fund and the A Shares, N Shares, B Shares and Institutional Shares of the Tax-Exempt Bond Fund were 4.97%, 5.15%, 4.11% and 5.50%, and 5.39%, 5.65%, 4.61% and 6.00%, respectively, based on a stated tax rate of 28%. The Trust makes available 30-day yield quotations with respect to A Shares, N Shares, B Shares and Institutional Shares of the Non-Money Market Funds. As required by regulations of the Commission, the 30-day yield is computed by dividing a Fund's net investment income per share earned during the period by the net asset value on the last day of the period. The average daily number of shares outstanding during the period that are eligible to receive dividends is used in determining the net investment income per share. Income is computed by totaling the interest earned on all debt obligations during the period and subtracting from that amount the total of all recurring expenses incurred during the period. The 30-day yield is then annualized assuming semi-annual reinvestment and compounding of net investment income. The following table shows 30-day yields for the period ended December 31, 2002, for A Shares, N Shares, B Shares and Institutional Shares of the Non-Money Market Funds.
----------------------------------------------------------------------- 30-day Yield (%) ----------------------------------------------------------------------- A N B Institutional ----------------------------------------------------------------------- Bond Fund 4.15 4.36 3.61 4.61 High Yield Bond Fund -- -- -- 7.85 High Yield Select Bond Fund (formerly named Convertible Securities Fund) 3.85 4.03 -- 4.28 Intermediate Government Bond Fund 3.53 3.66 2.91 3.91 Intermediate Tax-Exempt Bond Fund 3.58 3.71 2.96 3.96 Short/Intermediate Bond Fund 3.94 4.09 3.34 4.34 Tax-Exempt Bond Fund 3.88 4.07 3.32 4.32 Balanced Fund 1.75 1.86 1.11 2.11 Core Equity Fund 0.26 0.27 (0.48) 0.52 Equity Fund 0.37 0.39 (0.36) 0.64 Equity Income Fund 1.07 1.13 -- 1.38 Index Fund -- 1.12 0.37 1.37 Small-Cap Aggressive Growth Fund -- -- -- (0.31) Small-Cap Opportunity Fund (0.60) (0.64) (1.39) (0.39) Small-Cap Value Fund 0.29 0.31 (0.44) 0.56
The Trust also makes available total return quotations for A Shares, N Shares, B Shares and Institutional Shares of each of the Non-Money Market Funds. The following table shows average annual total return for the one-year, five-year, ten-year and since inception periods (or shorter period if the Fund has been in operation for a shorter period) ended December 31, 2002 for A Shares, N Shares, B Shares and Institutional Shares of the Non-Money Market Funds. The actual date of the commencement of each Fund's operations, or the commencement of the offering of each Class' Shares, is listed in the Funds' financial statements. 57
- ------------------------------------------------------------------------------------------------------------------------------ 1 Year (%) 5 Year (%) 10 Year (%) Inception to 12/31/02 (%) ---------------------------------- ----------------- ---------------- ----------------------------------- Fund A N B Inst. N Inst. N Inst. A N B Inst. - ------------------------------------------------------------------------------------------------------------------------------ Bond 2.13 6.91 1.12 7.18 6.59 6.86 -- -- 5.50 7.07 2.14 7.32 High Yield Bond -- -- -- 0.09 -- -- -- -- -- -- -- 4.78 High Yield Select Bond (formerly named Convertible Securities) (16.09) (12.12) -- (11.89) (2.23) (1.99) 5.24 5.50 (11.91) 7.75 -- 8.02 Intermediate Government Bond 6.27 10.12 4.30 10.39 7.22 7.49 6.62 6.88 6.55 8.06 6.34 8.33 Intermediate Tax-Exempt Bond 5.67 9.55 3.58 9.82 5.88 6.14 5.41 5.67 4.88 5.76 2.72 6.02 Short/Intermediate Bond 2.46 6.14 0.35 6.40 6.19 6.45 6.32 -- 5.82 6.76 0.60 6.27 Tax-Exempt Bond 6.11 11.15 5.32 11.42 6.29 6.56 6.10 6.37 6.03 7.53 5.64 7.81 Balanced (14.27) (9.18) (14.25) (9.02) 1.82 2.08 -- -- (0.66) 5.15 (15.65) 5.10 Core Equity (27.88) (23.73) (28.00) (23.54) (2.30) (2.04) 8.12 8.38 (10.28) 8.42 (22.88) 8.69 Emerging Markets (7.56) (2.36) -- (1.84) (4.94) (4.62) -- -- (5.03) (7.60) -- (7.28) Equity (25.51) (21.10) (25.65) (20.99) (1.67) (1.41) 9.33 -- (6.57) 10.30 (20.96) 5.45 Equity Income (26.41) (22.19) (26.54) (21.92) (2.65) (2.39) -- -- (9.63) 6.98 (22.91) 7.26 Index -- (22.43) (26.75) (22.21) (1.18) (0.92) 8.66 8.93 -- 8.76 (20.22) 9.02 International (23.61) (14.79) -- (14.41) (5.60) (5.33) 0.02 0.29 (7.42) 0.95 -- 1.21 Small-Cap Aggressive Growth -- -- -- (20.66) -- -- -- -- -- -- -- (12.49) Small-Cap Opportunity (19.47) (14.85) (19.66) (14.58) 2.91 3.15 9.05 9.32 3.75 11.86 (14.90) 12.14 Small-Cap Value (17.76) (12.98) (17.93) (12.76) 3.39 3.64 9.41 9.69 6.00 11.82 (13.26) 12.10 - ------------------------------------------------------------------------------------------------------------------------------
Each of these amounts is computed by assuming a hypothetical initial investment of $10,000. It is assumed that all of the dividends and distributions by each Fund over the specified period of time were reinvested. It was then assumed that at the end of the specified period, the entire amount was redeemed. The average annual total return was then calculated by calculating the annual rate required for the initial investment to grow to the amount that would have been received upon redemption. The Funds may also calculate an aggregate total return that reflects the cumulative percentage change in value over the measuring period. The aggregate total return can be calculated by dividing the amount received upon redemption by the initial investment and subtracting one from the result. The following table shows aggregate total return for the one year, five year, ten year and since inception (if less than ten years) periods ended December 31, 2002 for A Shares, N Shares, B Shares and Institutional Shares of the Non-Money Market Funds.
- ------------------------------------------------------------------------------------------------------------------------------ 1 Year (%) 5 Year (%) 10 Year (%) Inception to 12/31/02 (%) ---------------------------------- ----------------- ---------------- ----------------------------------- Fund A N B Inst. N Inst. N Inst. A N B Inst. - ------------------------------------------------------------------------------------------------------------------------------ Bond 2.13 6.91 1.12 7.18 37.60 39.33 -- -- 23.03 58.08 2.94 60.67 High Yield Bond -- -- -- 0.09 -- -- -- -- -- -- -- 17.65 58 - ------------------------------------------------------------------------------------------------------------------------------ 1 Year (%) 5 Year (%) 10 Year (%) Inception to 12/31/02 (%) ---------------------------------- ----------------- ---------------- ----------------------------------- Fund A N B Inst. N Inst. N Inst. A N B Inst. - ------------------------------------------------------------------------------------------------------------------------------ High Yield Select Bond (formerly named Convertible Securities) (16.09) (12.12) -- (11.89) (10.64) (9.54) 66.61 70.85 (31.38) 283.09 -- 300.56 Intermediate Government Bond 6.27 10.12 4.30 10.39 41.71 43.47 89.78 94.48 27.97 303.52 10.26 321.79 Intermediate Tax-Exempt Bond 5.67 9.55 3.58 9.82 33.06 34.73 69.29 73.52 9.76 159.00 3.03 170.00 Short/Intermediate Bond 2.46 6.14 0.35 6.40 35.01 36.70 84.55 -- 21.51 115.73 0.78 51.77 Tax-Exempt Bond 6.11 11.15 5.32 11.42 35.69 37.39 80.71 85.48 11.89 269.45 8.76 286.79 Balanced (14.27) (9.18) (14.25) (9.02) 9.46 10.85 -- -- (2.55) 33.23 (14.38) 33.29 Core Equity (27.88) (23.73) (28.00) (23.54) (11.00) (9.78) 118.21 123.71 (34.52) 137.70 (33.83) 144.06 Emerging Markets (7.56) (2.36) -- (1.84) (22.37) (21.05) -- -- (16.06) (33.71) -- (32.50) Equity (25.51) (21.10) (25.65) (20.99) (8.06) (6.86) 143.96 -- (23.21) 328.83 (28.38) 43.86 Equity Income (26.41) (22.19) (26.54) (21.92) (12.54) (11.40) -- -- (32.56) 83.47 (32.77) 87.81 Index -- (22.43) (26.75) (22.21) (5.75) (4.52) 129.47 135.18 -- 145.79 (26.48) 152.34 International (23.61) (14.79) -- (14.41) (25.05) (23.95) 0.20 2.96 (25.55) 16.19 -- 21.09 Small-Cap Aggressive Growth -- -- -- (20.66) -- -- -- -- -- -- -- (23.20) Small-Cap Opportunity (19.47) (14.85) (19.66) (14.58) 15.42 16.80 137.91 143.89 15.14 648.86 (21.82) 682.87 Small-Cap Value (17.76) (12.98) (17.93) (12.76) 18.15 19.55 145.79 152.11 21.73 646.91 (20.23) 681.57 - ------------------------------------------------------------------------------------------------------------------------------
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 with those of other mutual funds with similar investment objectives and with other relevant indices, such as those prepared by Salomon Brothers Inc. or Lehman Brothers Inc., or any of their affiliates or to ratings prepared by independent services or other financial or industry publications that monitor the performance of mutual funds. For example, such data is reported in national financial publications such as IBC/Donoghue's Money Fund Report and Bank Rate Monitor (for money market deposit accounts offered by the 50 leading banks and thrift institutions in the top five metropolitan statistical areas), Money Magazine, Forbes, Barron's, The Wall Street Journal and The New York Times, reports prepared by Lipper Analytical Services and publications of a local or regional nature. Performance information may be quoted numerically or may be presented in a table, graph or other illustrations. All performance information advertised by the Funds is historical in nature and is not intended to represent or guarantee future results. In addition, investors should recognize that changes in the net asset value of shares of the Non-Money Market Funds will affect the yield of such Funds for any specified period, and such changes should be considered together with each such Fund's yield in ascertaining the Fund's total return to shareholders for the period. Yield information for all of the Funds may be useful in reviewing the 59 performance of a Fund and for providing a basis for comparison with investment alternatives. The yield of a Fund may not be comparable to other investment alternatives, however, because of differences in the foregoing variables and differences in the methods used to value portfolio securities, compute expenses, and calculate yield. After-Tax Returns. A Fund's total return "after taxes on distributions" shows the effect of taxable distributions, but not any taxable gain or loss, on an investment in shares of the Fund for a specified period of time. A Fund's total return "after taxes on distributions and sale of Fund shares" shows the effect of both taxable distributions and any taxable gain or loss realized by the shareholder upon the sale of fund shares at the end of a specified period. To determine these figures, all income, short-term capital gain distributions, and long-term capital gain distributions are assumed to have been taxed at the actual historical federal maximum tax rate. Those maximum tax rates are applied to distributions prior to reinvestment and the after-tax portion is assumed to have been reinvested in the Fund. State and local taxes are ignored. Actual after-tax returns depend on a shareholder's tax situation and may differ from those shown. After-tax returns reflect past tax effects and are not predictive of future tax effects. Average Annual Total Return (After Taxes on Distributions) is computed as follows: ATVD = P(l+T)n Where: P = the amount of an assumed initial investment in shares of the Fund T = average annual total return (after taxes on distributions) n = number of years from initial investment to the end of the period ATVD = ending value of shares held at the end of the period after taxes on fund distributions but not after taxes on redemptions. Average Annual Total Return (After Taxes on Distributions and Sale of Fund Shares) is computed as follows: ATVDR = P(l+T)n Where: P = the amount of an assumed initial investment in shares of the Fund T = average annual total return (after taxes on distributions and redemptions) n = number of years from initial investment to the end of the period ATVDR = ending value of shares held at the end of the period after taxes on fund distributions and redemptions. Performance of Common and Collective Trust Funds. The Core Equity Fund, the Equity Income Fund, the Index Fund, the International Fund, the Small-Cap Opportunity Fund, the Small-Cap Value Fund, the High Yield Bond Fund, the High Yield Select Bond Fund (formerly named Convertible Securities Fund), the Intermediate Government Bond Fund, the Intermediate Tax-Exempt Bond Fund and the Tax-Exempt Bond 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 60 as if the predecessor fund had operated with an expense ratio equal to the Fund's estimated expense ratio for its first year of operations. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION ALL CLASSES. Each Fund has authorized one or more brokers to accept purchase and redemption orders on its behalf. Such brokers are authorized to designate other intermediaries to accept purchase and redemption orders on the Fund's behalf. The Fund will be deemed to have received a purchase or redemption order when an authorized broker or, if applicable, a broker's authorized designee, accepts the order, which will be priced at the Fund's net asset value next calculated after it is so accepted. Redemption proceeds normally are paid in cash. However, the Trust has filed formal elections with the Commission pursuant to which a non-Money Market Fund may effect a redemption in kind in portfolio securities only if a shareholder is redeeming more than $250,000 or 1% of the Fund's total net assets, whichever is less, during any 90-day period. If payment for shares redeemed is made wholly or partially in portfolio securities, brokerage costs may be incurred by the shareholder in converting the securities to cash. For an additional administrative fee, paid separately by the shareholder and not as an expense of the Funds, a shareholder may participate in the College In-Sight(R) Program. Through the Program, a participating private college or university reduces the undergraduate tuition for a student, designated by the shareholder, in an amount based on the shareholder's account balance during the time the shareholder participates in the Program. Participation in the Program may begin any time before a designated student graduates from high school. However, no tuition reduction rewards can be earned after June 30th of the student's high school graduation year. Program details and an application are available from the Funds at the address or telephone number given above. For employees of HIM, Harris Trust and their affiliates, Sage Scholars, Inc. (the program coordinator on behalf of the participating colleges) has waived the College In-Sight Program administrative fee until further notice. Any participant in the Employees' Savings and Profit Sharing Plan of Bank of Montreal/Harris Trust and Savings Bank ("Harris Plan"), through his or her Harris Plan account balances invested in the Funds, may also act as a College In-Sight Program sponsor (with administrative fees waived) for students affiliated with the Carole Robertson Center for Learning, a nonprofit organization offering child, youth, and family development programs to members of Chicago's inner-city communities. Harris Plan participants may obtain more information and an application by calling the telephone number given above. A SHARES. An investor in A Shares of a Fund may be entitled to reduced sales charges. To qualify for a reduced sales charge, an investor must notify and provide sufficient information to the Funds at the time of purchase. If an investor invests through an institution, the investor should notify the institution, which in turn must notify the Funds. Programs that allow for reduced sales charges, such as the Right of Accumulation, a Letter of Intent, or Family Purchases (each of which is explained below), may be changed or eliminated at any time. The Right of Accumulation allows an investor to combine the amount invested in A Shares of a Fund with the total net asset value of A Shares currently purchased or already owned by that investor of all Funds to determine the applicable sales charge. To obtain such discount, the purchaser must provide sufficient information at the time of purchase to permit verification that the purchase qualifies for the reduced sales charge, and confirmation of the order is subject to such verification. The Right of 61 Accumulation may be modified or discontinued at any time by the Funds with respect to all A Shares purchased thereafter. A Letter of Intent allows an investor to purchase A Shares of the Funds over a 13-month period at reduced sales charges based on the total amount intended to be purchased plus the total net asset value of A Shares already owned. Each investment made during the period receives the reduced sales charge applicable to the total amount of the intended investment. If such amount is not invested within the period, the investor must pay the difference between the sales charges applicable to the purchases made and the charges previously paid. Family Purchases allow family members to purchase A Shares of the Funds over a thirteen-month period at reduced sales charges based on the combined purchases of a family as if they were purchased at the same time for purposes of calculating sales charges. ("Family" includes any person considered to be a part of an extended family, including but not limited to parents, grandparents, children, grandchildren, god-parents, in-laws, aunts, uncles, brothers, sisters, nephews, nieces, and cousins, including step- and adopted relatives.) In order to recover commissions paid to institutions, A Shares of a Fund on which no initial sales charge was assessed due to a purchase amount of $1,000,000 or more in a single transaction or pursuant to the Right of Accumulation, a Letter of Intent, or Family Purchases that are redeemed within one year of the purchase date will be subject to contingent deferred sales charges equal to 1.00% of the dollar amount subject to the charge. Redemptions made within one to two years of the purchase will be subject to contingent deferred sales charges equal to 0.50% of the dollar amount subject to the charge. The charge will be assessed on an amount equal to the lesser of the cost of the shares being redeemed or their net asset value at the time of redemption. Accordingly, no sales charge will be imposed on increases in net asset value above the initial purchase price. In addition, no charge will be assessed on redemptions of shares acquired through the reinvestment of dividends and distributions or involuntary redemptions by a Fund of shareholder accounts with low account balances. Redemptions of shares will be effected in the manner that results in the imposition of the lowest deferred sales charge. Redemptions with respect to a shareholder's investment in a Fund will automatically be made first from any A Shares in a Fund held for more than two years, second from A Shares of the Fund acquired pursuant to reinvestment of dividends and distributions, third from A Shares held within one and two years, and fourth from A Shares of the Fund held for less than one year. The contingent deferred sales charge on shares purchased through an exchange from A Shares of another Fund is based upon the original purchase date and price of the other Fund's shares. For a shareholder with a Letter of Intent who does not purchase $1,000,000 of A Shares under the letter, no contingent deferred sales charge is imposed, but a sales load adjustment will be imposed on the account of such shareholder at the expiration of the period set forth in the Letter of Intent. A Letter of Intent may provide for a contingent deferred sales charge in some cases. The contingent deferred sales charge applicable to A Shares will be waived by the Funds for redemptions (a) pursuant to a systematic withdrawal plan, (b) that are shown to have resulted from the death or disability of the accountholder, (c) by qualified retirement plans upon plan termination or dissolution, (d) directed by participants in qualified retirement plans, or (e) from IRAs, if made pursuant to death or disability of the accountholder, or for minimum distributions required after attaining age 70-1/2. 62 B SHARES. CDSC. B Shares are sold without an initial sales charge but are subject to a CDSC payable upon redemption, subject to certain waivers described below and in the prospectus. Any applicable CDSC will be assessed on an amount equal to the lesser of the original cost of the shares being redeemed or their net asset value at the time of redemption. B Shares being redeemed will not be subject to a CDSC to the extent that the value of those shares represents (a) capital appreciation of fund assets, (b) reinvestment of dividends or capital gain distributions, (c) involuntary redemptions by a Fund of shareholder accounts with low account balances, or (d) shares redeemed more than six years after their purchase. The CDSC declines the longer B Shares are held, as shown in the following table. CDSC as a % of Dollar Amount For B Shares sold within the: Subject to Charge - ---------------------------- ----------------- First year after purchase 5.00% Second year after purchase 4.00 Third year after purchase 3.00 Fourth year after purchase 3.00 Fifth year after purchase 2.00 Sixth year after purchase 1.00 Seventh year after purchase 0.00 Eighth year after purchase 0.00 For each redemption order, shares with no CDSC will be sold first, followed by those shares that have been held for the longest period since purchase. CDSC WAIVERS. The CDSC applied to redemptions of B Shares will be waived in the following circumstances, provided that the Distributor receives adequate documentation confirming the selling shareholder's qualification for and entitlement to the waiver. o Sales of shares in connection with the Systematic Withdrawal Plan ("SWP") of up to 12% annually of a shareholder's Initial Account Balance in a Fund from which the shareholder makes SWP sales. The "Initial Account Balance" is the amount of a shareholder's investment in a Fund at the time the shareholder elects to participate in the SWP with respect to the Fund. (The Funds reserve the right to change the terms and conditions of the SWP and the continued availability of the SWP.) Shares with no CDSC will be sold first, followed by those with the lowest CDSC. Therefore, the benefit of this waiver will be reduced by the value of shares that are not subject to a CDSC. o The Funds will waive the CDSC on redemptions following the death or disability of a B Share shareholder. An individual will be considered disabled for this purpose if he or she meets the definition set forth in Section 72(m)(7) of the Code. In cases of death or disability, the CDSC will be waived whether the decedent or disabled person (a) is an individual shareholder or (b) owns the shares as a joint tenant with right of survivorship or (c) is the beneficial owner of a custodial or fiduciary account, provided that the redemption is made within one year of the death or initial determination of disability. This waiver of the CDSC applies to a total or partial redemption, but only to redemptions of shares held at the time of the death or initial determination of disability. o Sales in connection with the following retirement plan "distributions": (a) lump-sum or other distributions from a qualified corporate or self-employed retirement plan or 403(b) custodial account following retirement (or, in the case of a "key employee" of a "top heavy" plan, following attainment of age 59-1/2); (b) minimum distributions from an IRA custodial account following attainment of age 70-1/2; (c) a tax-free return of an excess IRA contribution (a "distribution" does 63 not include a direct transfer of IRA, 403(b) custodial account or retirement plan assets to a successor custodian or trustee); (d) any redemption which results from (i) the return of an excess contribution pursuant to Section 408(d)(4) or (5) of the Code, (ii) the return of excess deferral amounts pursuant to Section 401(k)(8) or 402(g)(2) of the Code, (iii) the financial hardship of the employee pursuant to U.S. Treasury Regulations Section 1.401(k)-1(d)(2), or (iv) the death or disability of the employee (see Section 72(m)(7) and 72(t)(2)(A)(ii) of the Code). CONVERSION OF B SHARES. B Shares of a Fund will automatically convert to A Shares of that Fund on the business day following the eighth anniversary of the purchase date and may, in the discretion of the Board of Trustees, convert to A Shares on an earlier date. B Shares acquired by an exchange from B Shares of another Fund will convert into A Shares based on the date of the purchase of the initial Fund's B Shares. B Shares acquired through reinvestment of distributions will convert into A Shares based upon the date of the initial B-Share purchase to which such shares relate. For purposes of the preceding sentence, B Shares acquired through reinvestment of distributions will be attributed to particular purchases of B Shares in accordance with such procedures as the Board of Trustees may determine from time to time. The conversion of B Shares to A Shares is subject to the condition that such conversions will not constitute taxable events for Federal tax purposes. ANTI-MONEY LAUNDERING LAWS AND FUND SHARES. The Funds are required to comply with various anti-money laundering laws and regulations. Consequently, the Funds may request additional information from you to verify your identity. If at any time a Fund believes a shareholder may be involved in suspicious activity or if certain account information matches information on government lists of suspicious persons, the Fund may choose not to establish a new account or may be required to "freeze" a shareholder's account. A Fund also may be required to provide a governmental agency with information about transactions that have occurred in a shareholder's account or to transfer monies received to establish a new account, transfer an existing account or transfer the proceeds of an existing account to a governmental agency. In some circumstances, the law may not permit a Fund to inform the shareholder that it has taken the actions described above. DETERMINATION OF NET ASSET VALUE The net asset value per share is determined at least as often as each day that the New York Stock Exchange is open for regular session 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, Thanksgiving Day and Christmas Day (each, a "Holiday"). A security held by a Non-Money Market Fund (other than a debt obligation or fixed-income security or a security for which the primary market is the National Association of Securities Dealers' Automatic Quotation System ("NASDAQ"), discussed below) is valued at the last reported sale price on the principal exchange on which the security is traded as of the time of valuation. In the absence of any sale on the valuation date, the security is valued at the closing bid price. A security for which the primary market is NASDAQ will be valued at the NASDAQ Official Closing Price as defined by NASDAQ, or in the absence of any reported Official Closing Price on the valuation date, the last reported sale price, or in the absence of any sale on the valuation date, at closing price. A security that is traded only on the over-the-counter market generally is valued at the last reported bid price. Debt obligations and fixed-income securities, including asset-backed and mortgage-backed securities (but not including securities with remaining maturities of 60 days or less or securities held by the Money Market Funds), are valued at the mean of the last bid and asked prices. In the absence of a readily available market quotation (or when, in the view of the Adviser, an available market quotation does not accurately 64 reflect the security's fair value), the security is valued at a fair value as determined by or under the direction of the Trust's Board of Trustees. Prices used for valuations of securities are provided by independent pricing services. Debt obligations and fixed-income securities with remaining maturities of 60 days or less generally are valued at amortized cost, as discussed below. Shares of the High Yield Bond Fund owned by the High Yield Select Bond Fund will be valued at their current net asset value. Each of the Money Market Funds uses the amortized cost method to determine the value of its portfolio securities pursuant to Rule 2a-7. The amortized cost method involves valuing a security at its cost and amortizing any discount or premium over the period until maturity, regardless of the impact of fluctuating interest rates on the market value of the security. While this method provides certainty in valuation, it may result in periods during which the value, as determined by amortized cost, is higher or lower than the price that a Fund would receive if the security were sold. During these periods the yield to a shareholder may differ somewhat from that which could be obtained from a similar fund that uses a method of valuation based upon market prices. Thus, during periods of declining interest rates, if the use of the amortized cost method resulted in a lower value of a Fund's portfolio on a particular day, a prospective investor in that Fund would be able to obtain a somewhat higher yield than would result from investments in a fund using solely market values, and existing Fund shareholders would receive correspondingly less income. The converse would apply during periods of rising interest rates. Rule 2a-7 provides that in order to value its portfolio using the amortized cost method, each of the Money Market Funds must maintain a dollar-weighted average portfolio maturity of 90 days or less, purchase securities having remaining maturities (as defined in Rule 2a-7) of 397 days or less and invest only in securities determined by the Board of Trustees 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 provides, however, 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 at $1.00, 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. Such procedures include review of the portfolio holdings of each of the Money Market Funds by the Board of Trustees, 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 Trustees. If such deviation exceeds 1/2 of 1%, the Board will promptly consider what action, if any, will be initiated. In the event the Board determines that a deviation exists that may result in material dilution or other unfair results to investors or existing shareholders, the Board will take such corrective action as it regards as necessary and appropriate, including the sale of portfolio instruments prior to maturity to realize capital gains or losses or to shorten average portfolio maturity, withholding dividends or establishing a net asset value per share by using available market quotations. PORTFOLIO TRANSACTIONS Portfolio securities of each Fund are kept under continuing supervision and changes may be made whenever, in the judgment of the Adviser or Sub-Adviser, a security no longer is deemed 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, 65 distributions to shareholders or other Fund management purposes. Portfolio changes may be made without regard to the length of time a particular security has been held or the frequency of portfolio transactions of a Fund (the portfolio turnover rate). A high rate of portfolio turnover would result in increased transaction expenses, which must be borne by the Fund. High portfolio turnover may also result in the realization of capital gains or losses and, to the extent net short-term capital gains are realized, any distributions resulting from such gains will be considered ordinary income for federal income tax purposes. The portfolio turnover rates for the Funds are set forth in the prospectus under "Financial Highlights." Portfolio transactions for each Fund are placed with those securities brokers and dealers that the Adviser or Sub-Adviser believes will provide the best value in transaction and research services for that Fund, either in a particular transaction or over a period of time. In valuing brokerage services, the Adviser or Sub-Adviser makes a judgment as to which brokers are capable of providing the most favorable net price (not necessarily the lowest commission) and the best execution in a particular transaction. Best execution connotes not only general competence and reliability of a broker, but specific expertise and effort of a broker in overcoming the anticipated difficulties in fulfilling the requirements of particular transactions, because the problems of execution and the required skills and effort vary greatly among transactions. Although some transactions involve only brokerage services, many involve research services as well. In valuing research services, the Adviser or Sub-Adviser makes a judgment of the usefulness of research and other information provided by a broker to the Adviser or Sub-Adviser in managing a Fund's investment portfolio. In some cases, the information, e.g., data or recommendations concerning particular securities, relates to the specific transaction placed with the broker, but for the greater part the research consists of a wide variety of information concerning companies, industries, investment strategy and economic, financial and political conditions and prospects, useful to the Adviser or Sub-Adviser or in advising the Funds. The Adviser or Sub-Adviser is the principal source of information and advice to the Funds, and is responsible for making and initiating the execution of the investment decisions for each Fund. However, the board of trustees recognizes that it is important for the Adviser or Sub-Adviser, in performing its responsibilities to the Funds, to continue to receive and evaluate the broad spectrum of economic and financial information that many securities brokers have customarily furnished in connection with brokerage transactions, and that in compensating brokers for their services, it is in the interest of the Funds to take into account the value of the information received for use in advising the Funds. Consequently, the commission paid to brokers (other than an affiliate of the Trust) providing research services may be greater than the amount of commission another broker would charge for the same transaction. The extent, if any, to which the obtaining of such information may reduce the expenses of the Adviser or Sub-Adviser in providing management services to the Funds is not determinable. In addition, it is understood by the board of trustees that other clients of the Adviser or Sub-Adviser might also benefit from the information obtained for the Funds, in the same manner that the Funds might also benefit from information obtained by the Adviser or Sub-Adviser in performing services to others. Twice a year, the Sub-Adviser, through its securities analysts and trading personnel, will consider the amount and nature of research services provided by brokers, as well as the extent to which such services are relied upon, and attempt to allocate a portion of the brokerage business of the Emerging Markets Fund and the International Fund and other advisory clients on the basis of that consideration. In addition, brokers may suggest a level of business they would like to receive in order to 66 continue to provide such services. The actual brokerage business received by brokers may be more or less than the suggested allocations, depending upon the Sub-Adviser's evaluation of all applicable considerations, including, but not limited to, the Sub-Adviser's best execution undertaking. An affiliate of the Trust or the Adviser or Sub-Adviser may act as broker for a Fund in connection with the purchase or sale of securities by or to the Fund if and to the extent permitted by procedures adopted from time to time by the Board of Trustees of the Trust. The Board of Trustees, including a majority of the Trustees who are not "interested persons", has determined that portfolio transactions for a Fund may be executed through if, in the judgment of the Adviser or Sub-Adviser, the use of such affiliated broker is likely to result in prices and execution at least as favorable to the Fund as those available from other qualified brokers and if, in such transactions, the affiliated broker charges the Fund commission rates at least as favorable to the Fund as those charged by the affiliated broker to comparable unaffiliated customers in similar transactions. The Board of Trustees has also adopted procedures that are reasonably designed to provide that any commissions, fees or other remuneration paid to an affiliated broker are consistent with the foregoing standard. The Funds will not effect principal transactions with an affiliate of the Trust or the Adviser or Sub-Adviser. In executing transactions through an affiliated broker the Funds will be subject to, and intend to comply with, section 17(e) of the 1940 Act and rules thereunder. The reasonableness of brokerage commissions paid by the Funds in relation to transaction and research services received is evaluated by the staff of the Adviser and Sub-Adviser on an ongoing basis. The general level of brokerage charges and other aspects of the Funds' portfolio transactions are reviewed periodically by the board of trustees. Transactions of the Funds in the over-the-counter market and the third market are executed with primary market makers acting as principal except where it is believed that better prices and execution may be obtained otherwise. 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 portfolio securities transactions will consist primarily of dealer spreads, and underwriting commissions. Purchase and sale orders for securities on behalf of any Fund may be combined with those of other accounts that the Adviser or Sub-Adviser manages, and for which it has brokerage placement authority, in the interest of seeking the most favorable overall net results. When the Adviser or Sub-Adviser determines that a particular security should be bought or sold for any of the Funds and other accounts it manages, it allocates the transactions among the participants equitably. Although investment decisions for the Funds are made independently from those for other investment advisory clients of the Adviser or Sub-Adviser, it may develop that the same investment decision is made for both a Fund and one or more other advisory clients. If both a Fund and other clients purchase or sell the same class of securities on the same day, the transactions will be allocated as to amount and price in a manner considered equitable to each over time. The following table shows aggregate amount of brokerage commissions paid by each Fund. This information is for the past three fiscal years (or shorter if the Fund has been in operation for a shorter period). 67
- ---------------------------------------------------------------------------------------------------------------------- Aggregate Amount of Brokerage Commissions ($) --------------------------------------------------------------------- 2000 2001 2002 - ---------------------------------------------------------------------------------------------------------------------- High Yield Select Bond Fund (formerly named Convertible Securities Fund) 17,754 13,457 18,248 Balanced Fund 48,020 51,155 66,501 Core Equity Fund 171,862 184,612 304,391 Emerging Markets Fund 192,252 60,240 254,696 Equity Fund 972,289 633,895 532,437 Equity Income Fund 48,611 50,472 99,840 Index Fund 76,300 46,639 71,168 International Fund 1,107,354 430,029 202,486 Small-Cap Aggressive Growth Fund -- -- 24,274 Small-Cap Opportunity Fund 959,698 916,513 929,822 Small-Cap Value Fund 257,117 529,734 1,237,738 - ----------------------------------------------------------------------------------------------------------------------
During the last three fiscal years, the Emerging Markets Fund and the International Fund paid brokerage commissions to Salomon Smith Barney, Inc. ("SSB"), which was a second-tier affiliate of the Sub-Adviser until June 2, 2000. From January 1, 2000 to June 2, 2000, the aggregate amount of brokerage commissions paid to SSB, as a dollar amount and as a percent of the aggregate amount of brokerage commissions paid by each Fund, and the percent of each Fund's aggregate dollar amount of transactions involving the payment of brokerage commissions effected through SSB are shown in the following table.
- ---------------------------------------------------------------------------------------------------------------------- Aggregate Brokerage % of Aggregate Dollar Aggregate Brokerage Commissions Commissions Paid to SSB Amount of Transactions Paid to SSB ($) as a % of Aggregate Involving Payment of Commissions Commissions to SSB --------------------------------- ---------------------------- --------------------------- 2000 2000 2000 - --------------------------- --------------------------------- ---------------------------- --------------------------- Emerging Markets Fund 5,214 6.8% 4.7% International Fund 44,182 7.6% 10.6% - ----------------------------------------------------------------------------------------------------------------------
With respect to transactions directed to brokers because of research services provided, the following table shows total brokerage commissions and the total dollar amount of such transactions on which commissions were paid for the fiscal year ended December 31, 2002.
- ---------------------------------------------------------------------------------------------------------------------- Total Dollar Amount of Transactions on Total Brokerage Commissions which Commissions were paid (Research-related) ($) (Research-related) ($) - ---------------------------------------------------------------------------------------------------------------------- Balanced Fund 16,878 11,255,829 Core Equity Fund 193,748 115,246,752 Emerging Markets Fund 14,128 5,303,424 Equity Fund 127,559 90,033,212 68 - ---------------------------------------------------------------------------------------------------------------------- Total Dollar Amount of Transactions on Total Brokerage Commissions which Commissions were paid (Research-related) ($) (Research-related) ($) - ---------------------------------------------------------------------------------------------------------------------- Equity Income Fund 67,503 45,838,886 International Fund 24,035 12,316,527 Small-Cap Aggressive Growth Fund 519 622,298 Small-Cap Opportunity Fund 48,607 48,605,458 Small-Cap Value Fund 83,686 44,072,983 - ----------------------------------------------------------------------------------------------------------------------
TAX INFORMATION Each Fund is treated as a separate entity for Federal income tax purposes and thus the provisions of the Code generally are applied to each Fund separately, rather than to the Trust as a whole. As a result, net capital gains, net investment income, and operating expenses are determined separately for each Fund. The Trust intends to qualify each Fund as a regulated investment company under the Code and to distribute to the shareholders of each Fund sufficient net investment income and net realized capital gains of that Fund so that the Fund will not be subject to Federal income taxes. Qualification as a regulated investment company under the Code generally requires, among other things, that (a) at least 90% of the Fund's annual gross income (without offset for losses) be derived from interest, payments with respect to securities loans, dividends and gains from the sale or other disposition of stocks, securities or options thereon and certain other income including, but not limited to, gains from futures contracts and (b) the Fund diversifies its holdings so that, at the end of each quarter of the taxable year, (i) at least 50% of the market value of the Fund's assets is represented by cash, government securities, securities in other regulated investment companies, and other securities, with such other securities limited in respect of any one issuer to an amount not greater than 5% of each Fund's assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. Government securities). As a regulated investment company, each Fund will not be subject to Federal income tax on its net investment income and net capital gains distributed to its shareholders, provided that it distributes to its shareholders at least 90% of its net investment income (including net short-term capital gains) earned in each year and, in the case of the Tax-Exempt Money Market Fund, the Intermediate Tax-Exempt Bond Fund and the Tax-Exempt Bond Fund, that it distributes to its shareholders at least 90% of its net tax-exempt income (including net short-term capital gains). In addition, the Tax-Exempt Money Market Fund, the Intermediate Tax-Exempt Bond Fund and the Tax-Exempt Bond Fund intend that at least 50% of the value of its total assets at the close of each quarter of its taxable year will consist of obligations the interest on which is exempt from Federal income tax, so that such Funds will qualify under the Code to pay "exempt-interest dividends" (described below). Dividends (including net short-term capital gains), except exempt-interest dividends, will be taxable to shareholders as ordinary income. Distributions of net long-term capital gains, if any, will be taxable as long-term capital gains, whether received in cash or reinvested in additional shares, regardless of how long the shareholder has held the shares, and will not qualify for the dividends-received deduction. 69 A taxable gain or loss also may be realized by a shareholder upon the redemption or transfer of shares depending on the tax basis of the shares and their value at the time of the transaction. Any loss realized on a sale or exchange of shares of a Fund will be disallowed to the extent other shares of that Fund are acquired within the 61-day period beginning 30 days before and ending 30 days after disposition of the shares. At December 31, 2002, the Funds had capital loss carryforwards available to offset future realized capital gains.
- ----------------------------------------------------------------------------------------------------------------- Capital Loss Carryforwards - ----------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market Fund $1,796 - ----------------------------------------------------------------------------------------------------------------- Bond Fund $3,396,959 - ----------------------------------------------------------------------------------------------------------------- High Yield Bond Fund $514,504 - ----------------------------------------------------------------------------------------------------------------- High Yield Select Bond Fund (formerly named Convertible Securities Fund) $6,019,804 - ----------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Bond Fund $725,479 - ----------------------------------------------------------------------------------------------------------------- Short/Intermediate Bond Fund $4,637,128 - ----------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond Fund $824,262 - ----------------------------------------------------------------------------------------------------------------- Balanced Fund $3,073,568 - ----------------------------------------------------------------------------------------------------------------- Core Equity Fund $987 - ----------------------------------------------------------------------------------------------------------------- Emerging Markets Fund $14,958,050 - ----------------------------------------------------------------------------------------------------------------- Equity Fund $22,712,152 - ----------------------------------------------------------------------------------------------------------------- Equity Income Fund $624,601 - ----------------------------------------------------------------------------------------------------------------- Index Fund $1,691,429 - ----------------------------------------------------------------------------------------------------------------- International Fund $43,489,091 - ----------------------------------------------------------------------------------------------------------------- Small-Cap Aggressive Growth Fund $1,759,211 - ----------------------------------------------------------------------------------------------------------------- Small-Cap Opportunity Fund $28,386,031 - ----------------------------------------------------------------------------------------------------------------- Small-Cap Value Fund $6,158,670 - -----------------------------------------------------------------------------------------------------------------
Dividends paid by each of the Tax-Exempt Bond Fund, the Intermediate Tax-Exempt Bond Fund and the Tax-Exempt Money Market Fund (the "Tax-Exempt Funds") out of tax-exempt interest income earned by the Fund ("exempt-interest dividends") generally will not be subject to Federal income tax in the hands of the Fund's shareholders. However, persons who are substantial users or related persons thereof of facilities financed by private activity bonds held by a Fund may be subject to Federal income tax on their pro rata share of the interest income from such bonds and should consult their tax advisers before purchasing shares of such Fund. 70 Interest on indebtedness incurred by shareholders to purchase or carry shares of a Tax-Exempt Fund generally is not deductible for Federal income tax purposes. Under the IRS rules for determining when borrowed funds are used for purchasing or carrying particular assets, shares of a Fund may be considered to have been purchased or carried with borrowed funds even though those funds are not directly linked to the shares. Substantially all of the dividends paid by each Tax-Exempt Fund are anticipated to be exempt from Federal income taxes. Shareholders of the Tax-Exempt Funds may be exempt from state and local taxes on distributions of tax-exempt interest income derived from obligations of the state and/or municipalities of the state in which they reside but may be 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 will be required to withhold, subject to certain exemptions, a portion (currently 30%) 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 Transfer Agent. Certain of the Funds may invest in municipal bond index futures contracts and options on interest rate futures contracts. The Funds do not anticipate that these investment activities will prevent the Funds from qualifying as regulated investment companies. As a general rule, these investment activities will increase or decrease the amount of long-term and short-term capital gains or losses realized by a Fund and, accordingly, will affect the amount of capital gains distributed to the Fund's shareholders. For Federal income tax purposes, gain or loss on the futures contracts and options described above (collectively referred to as "section 1256 contracts") is taxed pursuant to a special "mark-to-market" system. Under the mark-to-market system, a Fund may be treated as realizing a greater or lesser amount of gains or losses than actually realized. As a general rule, gain or loss on section 1256 contracts is treated as 60% long-term capital gain or loss and 40% short-term capital gain or loss, and, accordingly, the mark-to-market system will generally affect the amount of capital gains or losses taxable to a Fund and the amount of distributions taxable to a shareholder. Moreover, if a Fund invests in both section 1256 contracts and offsetting positions in such contracts, then the Fund might not be able to receive the benefit of certain recognized losses for an indeterminate period of time. Each Fund expects that its activities with respect to section 1256 contracts and offsetting positions in such contracts (a) will not cause it or its shareholders to be treated as receiving a materially greater amount of capital gains or distributions than actually realized or received and (b) will permit it to use substantially all of the losses of the Fund for the fiscal years in which the losses actually occur. In order to avoid a 4% federal excise tax, a Fund must distribute or be deemed to have distributed by December 31 of each calendar year at least 98% of its taxable ordinary income for such year, at least 98% of its capital gain net income (the excess of its realized capital gains over its realized capital losses, generally computed on the basis of the one-year period ending on October 31 of such year) and 100% of any taxable ordinary income and any excess of realized capital gains over realized capital losses for the prior year that was not distributed during such year and on which the Fund paid no federal income tax. For purposes of the excise tax, a regulated investment company may reduce its capital gain net income (but not below its net capital gain) by the amount of any net ordinary loss for the calendar year. Each of the Funds intends to make timely distributions in compliance with these requirements and consequently it is anticipated that it generally will not be required to pay the excise tax. Each Fund intends that it will distribute substantially all of its net investment income and net 71 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 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 Equity Funds and the Fixed Income Funds, 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 Equity Funds and the Fixed Income Funds, if securities are sold by the Fund pursuant to the exercise of a call option written by it, such Fund will add the premium received to the sale price of the securities delivered in determining the amount of gain or loss on the sale. If securities are purchased by the Fund pursuant to the exercise of a put option written by it, the Fund will subtract the premium received from its cost basis in the securities purchased. If, in the opinion of the Trust, ownership of its shares has or may become concentrated to an extent that could cause the Trust to be deemed a personal holding company within the meaning of the Code, the Trust may require the redemption of shares or reject any order for the purchase of shares in an effort to prevent such concentration. SHARES OF BENEFICIAL INTEREST 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 six classes of shares, A Shares, N Shares, B Shares, Service Shares, Exchange Shares and Institutional Shares for the Funds of the Trust as follows: Institutional Shares are offered by each Fund. A Shares are offered by each Fund, except for the Index Fund, the Small-Cap Aggressive Growth Fund, the High Yield Bond Fund, and each of the Money Market Funds. N Shares are offered by each Fund, except for the Small-Cap Aggressive Growth Fund, and the High Yield Bond Fund. B Shares are offered by each Fund, except for the Emerging Market Fund, the International Fund, the Small-Cap Aggressive Growth Fund, the High Yield Bond Fund, the High Yield Select Bond Fund, the Tax-Exempt Money Market Fund, and the Government Money Market Fund. Service Shares are offered only by the Money Market Funds. Exchange Shares are offered only by the Money Market Fund. Shareholders of a Fund are entitled to that number of votes that is equal to the number of whole shares and fractional shares held multiplied by the net asset value of one share of that Fund in United 72 States dollars determined at the close of business on the record date (for example, a share having a net asset value of $10.50 would be entitled to 10.5 votes). Generally, all shares of the Trust will be voted with other shares of the Trust and will be voted in the aggregate, and not by Fund or class, except where voting by Fund or class is required by law or where the matter involved affects only one Fund or 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, means the vote of the lesser of (i) 67% of the Trust'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 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, 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. 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. 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 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 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. The Trust may dispense with annual meetings of shareholders in any year in which Trustees 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. Under Massachusetts law, shareholders of a business trust may, under certain circumstances, be held personally liable for the trust's obligations. However, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both the trust itself was unable to meet its obligations and inadequate insurance existed. To guard against this risk, the Trust's Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Trust and provides for indemnification out of Trust property of any shareholder held personally liable for obligations of the Trust. OTHER The Registration Statement, including the Prospectuses, this SAI and the exhibits filed therewith, may be examined at the office of the Commission in Washington, D.C. Statements contained in the Prospectuses or this SAI as to the contents of any contract or other document referred to herein or in the Prospectuses are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. 73 INDEPENDENT ACCOUNTANTS AND REPORTS TO SHAREHOLDERS KPMG LLP, 1601 Market Street, Philadelphia, Pennsylvania 19103 are the independent accountants for the Trust and audit and report on the Trust's annual financial statements and review certain regulatory reports. Shareholders will receive annual audited financial statements and semi-annual unaudited financial statements. The Funds' December 31, 2002 financial statements and the report thereon of KPMG LLP from the Funds' December 31, 2002 Annual Report (as filed with the Commission on March 10, 2003 pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder (Accession Number 0000935069-99-000038)) are incorporated herein by reference. For periods prior to December 31, 2001, the financial statements and the report thereon were audited by other independent accountants. 74 APPENDIX A DESCRIPTION OF BOND RATINGS (INCLUDING CONVERTIBLE BONDS) The following summarizes ratings used by Standard & Poor's ("S&P") for corporate and municipal debt: AAA - An obligation rated AAA has the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA - An obligation rated AA differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A - An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB - An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. BB - An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. B - An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC - An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC - An obligation rated CC is currently highly vulnerable to nonpayment. C - Any subordinated debt or preferred stock obligation rated C is currently highly vulnerable to nonpayment. The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. A C rating also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying. 75 To provide more detailed indications of credit quality, 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. The following summarizes 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 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. 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 that make the long-term risk appear somewhat larger than in Aaa securities. A - Bonds that 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 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. Ba - Bonds that 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. B - Bonds that are rated B generally lack characteristics of 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 that 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 and interest. Ca - Bonds that are rated Ca represent obligations that are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C - Bonds that are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. 76 Moody's applies numerical modifiers (1, 2 and 3) in each generic rating classification from Aa through Caa. 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. The following summarizes ratings used by Fitch, Inc. ("Fitch") for bonds: AAA - Highest credit quality. Ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. AA - Very high credit quality. Ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. A - High credit quality. Ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. BBB - Good credit quality. Ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category. BB - Speculative. Ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade. B - Highly speculative. Ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. CCC, CC, C - High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. A CC rating indicates that default of some kind appears probable. C ratings signal imminent default. A "+" or "-" may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the AAA long-term rating category or to categories below CCC. DESCRIPTION OF MUNICIPAL NOTES RATINGS The following summarizes the ratings used by Moody's for short-term notes and variable rate demand obligations: 77 MIG 1/VMIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. MIG 2/VMIG 2. This designation denotes high quality. Margins of protection are ample although not as large as in the preceding group. MIG 3/VMIG 3. This designation denotes favorable quality. All security elements are accounted for but the undeniable strength of the preceding grades is lacking. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established. MIG 4/VMIG 4. This designation denotes adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or predominantly speculative, there is specific risk. The following summarizes the ratings by Standard & Poor's for short-term municipal notes: SP-1 - Strong capacity to pay principal and interest. An issue determined to possess overwhelming safety characteristics is given a "plus" (+) designation. SP-2 - Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes. SP-3 - Speculative capacity to pay principal and interest. 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. Issues carrying the A-3 designation have an adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. Issues rated B are regarded as having only speculative capacity for payment. 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 debt obligations. Issuers rated Prime-2 (or related supporting institutions) are considered to have strong ability for repayment of short-term debt 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. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternative liquidity is maintained. 78 The following summarizes the ratings used by Fitch for short-term obligations: F-1 - Highest credit quality. Indicates the strongest capacity for timely payment of financial commitments; may have an added "+" to denote any exceptionally strong credit feature. F-2 - Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings. F-3 - Fair credit quality. The capacity for timely payment of financial commitments is adequate; however, near-term adverse changes could result in a reduction to non-investment grade. B - Speculative. Minimal capacity for the payment of financial commitments, plus vulnerability to near-term adverse changes in financial and economic conditions 79 PART C OTHER INFORMATION Item 15. Indemnification. - ------- --------------- Under Section 4.3 of the Registrant's Declaration of Trust, any past or present Trustee or officer of the Registrant (including persons who serve at the Registrant's request as directors, officers or trustees of another organization in which the Registrant has any interest as a shareholder, creditor or otherwise) (hereinafter referred to as a "Covered Person") shall be indemnified to the fullest extent permitted by law against all liability and all expenses reasonably incurred by him or her in connection with any claim, action, suit or proceeding to which he or she may be a party or otherwise involved by reason of his or her being or having been a Covered Person. That provision does not authorize indemnification when it is determined, in the manner specified in the Declaration of Trust, that such Covered Person has not acted in good faith in the reasonable belief that his or her actions were in or not opposed to the best interests of the Registrant. Moreover, that provision does not authorize indemnification when it is determined, in the manner specified in the Declaration of Trust, that such covered person would otherwise be liable to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. Expenses may be paid by the Registrant in advance of the final disposition of any claim, action, suit or proceeding upon receipt of an undertaking by such Covered Person to repay such expenses to the Registrant in the event that it is ultimately determined that indemnification of such expenses is not authorized under the Declaration of Trust and the Covered Person either provides security for such undertaking or insures the Registrant against losses from such advances or the disinterested Trustees or independent legal counsel determines, in the manner specified in the Declaration of Trust, that there is reason to believe the Covered Person will be found to be entitled to indemnification. This description is modified in its entirety by the provision of Section 4.3 of the Registrant's Declaration of Trust contained in the Registration Statement filed on December 12, 1995 as Exhibit No. 1 and incorporated herein by reference. The Distribution Agreement, the Custodian Agreement, the Transfer Agency Services Agreement and the Administration Agreement (the "Agreements") contained in various post-effective amendments and incorporated herein by reference, provide for indemnification. The general effect of these provisions is to indemnify entities contracting with the Trust against liability and expenses in certain circumstances. This description is modified in its entirety by the provisions of the Agreements as contained in this Registration Statement and incorporated herein by reference. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to Trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Trustee, officer or controlling person of the Registrant in connection with the successful defense of any claim, action, suit or proceeding) is asserted against the Registrant by such Trustee, officer or controlling person in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. Registrant and its Trustees, officers and employees are insured, under a policy of insurance maintained by the Registrant, within the limits and subject to the limitations of the policy, against certain expenses in connection with the defense of actions, suits or proceedings, and certain liabilities that might be imposed as a result of such actions, suits or proceedings, to which they are parties by reason of being or having been such Trustees or officers. The policy expressly excludes coverage for any Trustee or officer for any claim arising out of any fraudulent act or omission, any dishonest act or omission or any criminal act or omission of the Trustee or officer. Item 16. Exhibits. - ------- -------- (1) Declaration of Trust (a) Declaration of Trust dated December 6, 1995 (incorporated by reference to Registration Statement filed on December 12, 1995). (b) Amendment to Declaration of Trust dated November 4, 1996 (incorporated by reference to Post-Effective Amendment ("PEA") No. 3 filed on February 28, 1997). (c) Amendment to Declaration of Trust dated June 6, 1997 (incorporated by reference to PEA No. 5 filed on June 13, 1997). (d) Amendment to Declaration of Trust dated November 2, 1998 (incorporated by reference to PEA No. 9 filed on November 9, 1998). (e) Amendment to Declaration of Trust dated February 18, 1999 (incorporated by reference to PEA No. 10 filed on March 2, 1999). (f) Amendment to Declaration of Trust dated 1 May 2000 (incorporated by reference to PEA No. 14 filed on April 28, 2000). (g) Amendment to Declaration of Trust dated 5 September 2000 (incorporated by reference to PEA No. 16 filed on September 5, 2000). (h) Establishment and Designation of Series and Classes of Shares dated 5 December 2000 (incorporated by reference to PEA No. 18 filed on 28 December 2000). (i) Amendment No. 1 to Establishment and Designation of Series and Classes of Shares dated 27 April 2001 (incorporated by reference to PEA No. 22 filed on 1 June 2001). (j) Amendment No. 2 to Establishment and Designation of Series and Classes of Shares dated 6 August 2001 (incorporated by reference to PEA No. 24 filed on 14 August 2001). (k) Amended and Restated Establishment and Designation of Series and Classes of Shares dated 28 March 2002 (incorporated by reference to PEA No. 27 filed on 5 April 2002). (l) Amended and Restated Establishment and Designation of Series and Classes of Shares dated 26 June 2002 (incorporated by reference to PEA No. 29 filed on 28 June 2002). (m) Amended and Restated Establishment and Designation of Series and Classes of Shares dated 2 January 2003 (incorporated by reference to PEA No. 34 filed on 15 December 2003). (n) Termination of Certain Series and Classes dated 30 May 2003 (incorporated by reference to PEA No. 34 filed on 15 December 2003). (o) Termination of Certain Series and Classes dated 30 June 2003 (incorporated by reference to PEA No. 34 filed on 15 December 2003). (p) Amended and Restated Establishment and Designation of Series and Classes of Shares dated 30 June 2003 (incorporated by reference to PEA No. 34 filed on 15 December 2003). (q) Amended and Restated Establishment and Designation of Series and Classes of Shares dated 7 August 2003 (incorporated by reference to PEA No. 34 filed on 15 December 2003). (2) By-Laws (a) By-Laws (incorporated by reference to Registration Statement filed on December 12, 1995). (b) Amendment to By-Laws dated October 31, 1995 (incorporated by reference to PEA No. 3 filed on February 28, 1997). (c) Amendment to By-Laws dated January 23, 1996 (incorporated by reference to PEA No. 3 filed on February 28, 1997). (d) Amendment to By-Laws dated November 4, 1996 (incorporated by reference to PEA No. 3 filed on February 28, 1997). (e) Amendment to By-Laws dated 27 April 2001 (incorporated by reference to PEA No. 21 filed on 1 May 2001). (f) Amendment to By-Laws dated 1 May 2003 (incorporated by reference to PEA No. 34 filed on 15 December 2003). (g) Amendment to By-Laws dated 7 August 2003 (incorporated by reference to PEA No. 34 filed on 15 December 2003). (3) Not applicable. (4) Agreement and Plan of Reorganization dated as of February 24, 2004 (filed as Appendix A to Part A of this Form N-14). (5) Not applicable. (6) Investment Advisory Contracts (a) Advisory Contract dated April 28, 2000 between Registrant and Harris Trust and Savings Bank ("Harris Trust" or the "Adviser") (incorporated by reference to PEA No. 14 filed on April 28, 2000). (b) Notice to the Adviser dated 5 September 2000 on behalf of Harris Insight Large-Cap Aggressive Growth Fund, Harris Insight Small-Cap Aggressive Growth Fund, and Harris Insight Technology Fund (incorporated by reference to PEA No. 16 filed on September 5, 2000). (c) Notice to the Adviser dated 9 September 2002 on behalf of Harris Insight High Yield Bond Fund (incorporated by reference to PEA No. 30 filed on 10 September 2002). (d) Notice to the Adviser dated 2 January 2003 on behalf of Harris Insight Convertible Securities Fund, Harris Insight Tax-Exempt Bond Fund and Harris Insight Intermediate Tax-Exempt Bond Fund (incorporated by reference to PEA No. 33 filed on 30 April 2003). (e) Notice to the Adviser dated 1 May 2003 on behalf of Harris Insight Balanced Fund, Harris Insight Index Fund, Harris Insight Small-Cap Value Fund, and Harris Insight Intermediate Government Bond Fund (incorporated by reference to PEA No. 33 filed on 30 April 2003). (f) Notice to the Adviser dated 30 June 2003 regarding termination of Harris Insight Equity Income, Technology and Large-Cap Aggressive Growth Fund (incorporated by reference to PEA No. 34 filed on 15 December 2003). (g) Assignment and Assumption Agreement dated 30 April 2001 among Registrant, Harris Trust, and Harris Investment Management, Inc. ("HIM") (incorporated by reference to PEA No. 21 filed on 1 May 2001). (h) Amendment dated 29 June 2001 to Investment Advisory Contract between Registrant and Harris Trust, as assigned to and assumed by HIM (incorporated by reference to PEA No. 24 filed on 14 August 2001). (i) Amendment dated 29 October 2002 to Investment Advisory Contract between Registrant and Harris Trust, as assigned to and assumed by HIM (incorporated by reference to PEA No. 33 filed on 30 April 2003). (j) Investment Sub-Advisory Contract dated August 6, 1997 between HIM and Hansberger Global Investors, Inc. on behalf of Harris Insight International Fund (incorporated by reference to PEA No. 6 filed on September 15, 1997). (k) Investment Sub-Advisory Contract dated October 1, 1997 between HIM and Hansberger Global Investors, Inc. on behalf of Harris Insight Emerging Markets Fund (incorporated by reference to PEA No. 7 filed on February 27, 1998). (l) Amendment of Investment Sub-Advisory Contracts for Harris Insight International Fund and Harris Insight Emerging Markets Fund with Hansberger Global Investors, Inc. dated as of 30 April 2001 (incorporated by reference to PEA No. 21 filed on 1 May 2001). (m) Investment Sub-Advisory Contract dated 1 December 2003 between HIM and HIM Monegy, Inc. on behalf of the Harris Insight High Yield Bond Fund (incorporated by reference to PEA No. 34 filed on 15 December 2003). (7) Underwriting and Distribution Agreements (a) Distribution Agreement dated 16 March 2001 between the Registrant and PFPC Distributors, Inc. ("PFPCDI") (incorporated by reference to PEA No. 20 filed on 2 April 2001). (b) Amendment dated 29 June 2001 to the Distribution Agreement dated 16 March 2001 between the Registrant and PFPCDI (incorporated by reference to PEA No. 24 filed on 14 August 2001). (c) Notice to the Distributor dated 9 September 2002 on behalf of Harris Insight High Yield Bond Fund (incorporated by reference to PEA No. 30 filed on 10 September 2002). (d) Notice to the Distributor dated 30 June 2003 regarding termination of Harris Insight Equity Income, Technology and Large-Cap Aggressive Growth Fund (incorporated by reference to PEA No. 34 filed on 15 December 2003). (e) Form of Selling Agreement (incorporated by reference to PEA No. 27 filed on 5 April 2002). (8) Not applicable. (9) Custodian Agreements (a) Custodian Agreement dated February 23, 1996 between Registrant and PNC Bank, N.A. (incorporated by reference to PEA No. 3 filed on February 28, 1997). (b) Notice to the Custodian dated January 21, 1997 on behalf of Harris Insight Small-Cap Value Fund (incorporated by reference to PEA No. 3 filed on February 28, 1997). (c) Notice to the Custodian dated June 6, 1997 on behalf of Harris Insight Emerging Markets Fund (incorporated by reference to PEA No. 6 filed on September 15, 1997). (d) Consent to Assignment of Custodian Agreement dated February 18, 1999 between Registrant and PNC Bank, N.A. (incorporated by reference to PEA No. 11 filed on May 3, 1999). (e) Sub-Custodian Services Agreement dated February 18, 1999 by and between PFPC Trust Company, PNC Bank, N.A. and Registrant (incorporated by reference to PEA No. 11 filed on May 3, 1999). (f) Foreign Custody Manager Delegation Agreement dated February 18, 1999 by and between PFPC Trust Company, PNC Bank, N.A. and Registrant (incorporated by reference to PEA No. 11 filed on May 3, 1999). (g) Notice to the Custodian dated April 28, 2000 on behalf of Harris Insight Equity Fund, Harris Insight Short/Intermediate Bond Fund, Harris Insight Money Market Fund, Harris Insight Tax-Exempt Money Market Fund, and Harris Insight Government Money Market Fund (incorporated by reference to PEA No. 14 filed on April 28, 2000). (h) Notice to the Custodian dated 5 September 2000 on behalf of Harris Insight Large-Cap Aggressive Growth Fund, Harris Insight Small-Cap Aggressive Growth Fund, and Harris Insight Technology Fund (incorporated by reference to PEA No. 16 filed on September 5, 2000). (i) Notice to the Custodian dated 9 September 2002 on behalf of Harris Insight High Yield Bond Fund (incorporated by reference to PEA No. 30 filed on 10 September 2002). (j) Notice to the Sub-Custodian dated 9 September 2002 on behalf of Harris Insight High Yield Bond Fund (incorporated by reference to PEA No. 30 filed on 10 September 2002). (k) Notice to the Custodian dated 30 June 2003 regarding termination of Harris Insight Equity Income, Technology and Large-Cap Aggressive Growth Fund (incorporated by reference to PEA No. 34 filed on 15 December 2003). (l) Notice to the Sub-Custodian dated 30 June 2003 regarding termination of Harris Insight Equity Income, Technology and Large-Cap Aggressive Growth Fund (incorporated by reference to PEA No. 34 filed on 15 December 2003). (m) Form of Amended and Restated Custodian Services Agreement between Registrant and PFPC Trust Company (incorporated by reference to PEA No. 34 filed on 15 December 2003). (10) Rule 12b-1 Plans and Rule 18f-3 Plans (a)(i) Service Plans and related Forms of Shareholder Servicing Agreement dated April 28, 2000 relating to N Shares, as amended 2 January 2003, 6 August 2002 and 26 June 2002 (incorporated by reference to PEA No. 32 filed on 20 December 2002). (a)(iii) Service Plan and related Form of Shareholder Servicing Agreement dated November 1, 2000 relating to B Shares, as amended 2 January 2003 and 6 August 2001 (incorporated by reference to PEA No. 32 filed on 20 December 2002). (a)(iv) Distribution Plan pursuant to Rule 12b-1 dated 16 March 2001 relating to B Shares, as amended 2 January 2003 and 6 August 2001 (incorporated by reference to PEA No. 32 filed on 20 December 2002). (a)(v) Service Plan and related Form of Shareholder Servicing Agreement dated 27 April 2001 relating to Exchange Shares, as amended 6 August 2001 (incorporated by reference to PEA No. 24 filed on 14 August 2001). (a)(vi) Service Plan and related Form of Shareholder Servicing Agreement dated 6 August 2001 relating to Institutional Shares, as amended 2 January 2003 and 26 June 2002 (incorporated by reference to PEA No. 32 filed on 20 December 2002). (a)(vii) Service Plans and related Form of Shareholder Servicing Agreement dated 28 March 2002, relating to Service Shares (incorporated by reference to PEA No. 27 filed on 5 April 2002). (b)(i) Multi-Class Plan (incorporated by reference to PEA No. 3 filed on February 28, 1997). (b)(ii) Multi-Class Plan dated November 2, 1998 (incorporated by reference to PEA No. 9 filed on November 9, 1998). (b)(iii) Multi-Class Plan dated February 18, 1999 (incorporated by reference to PEA No. 10 filed on March 2, 1999). (b)(iv) Multi-Class Plan dated November 1, 2000 (incorporated by reference to PEA No. 17 filed on 1 November 2000). (b)(v) Multi-Class Plan dated 27 April 2001 (incorporated by reference to PEA No. 21 filed on 1 May 2001). (b)(vi) Multi-Class Plan dated 6 August 2001 (incorporated by reference to PEA No. 24 filed on 14 August 2001). (b)(vii) Multi-Class Plan dated 28 March 2002 (incorporated by reference to PEA No. 27 filed on 5 April 2002). (b)(viii) Multi-Class Plan dated 26 June 2002 (incorporated by reference to PEA No. 29 filed on 28 June 2002). (b)(ix) Multi-Class Plan dated 2 January 2003 (incorporated by reference to PEA No. 32 filed on 20 December 2002). (b)(x) Multi-Class Plan dated 7 August 2003 (incorporated by reference to PEA No. 34 filed on 15 December 2003). (11) (a) Legal opinion and consent of Bell, Boyd & Lloyd LLC (filed herewith). (b) Legal opinion and consent of Bingham McCutchen LLP (filed herewith). (12) Legal opinion and consent of Bell, Boyd & Lloyd LLC on tax matters (to be filed by amendment). (13) Other Material Contracts (a) Transfer Agency Services Agreement dated July 1, 1996 between Registrant and Harris Trust (incorporated by reference to PEA No. 3 filed on February 28, 1997). (a)(i) Amendment dated 29 June 2001 to the Transfer Agency Services Agreement dated July 1, 1996 between Registrant and Harris Trust (incorporated by reference to PEA No. 24 filed on 14 August 2001). (a)(ii) Amendment effective 24 July 2002 to the Transfer Agency Services Agreement dated July 1, 1996 between Registrant and Harris Trust (incorporated by reference to PEA No. 33 filed on 30 April 2003). (a)(iii) Notice to the Transfer Agent dated January 21, 1997 on behalf of Harris Insight Small-Cap Value Fund (incorporated by reference to PEA No. 5 filed on June 13, 1997). (a)(iv) Notice to the Transfer Agent dated June 6, 1997 on behalf of Harris Insight Emerging Markets Fund (incorporated by reference to PEA No. 7 filed on February 27, 1998). (a)(v) Notice to the Transfer Agent dated April 28, 2000 on behalf of Harris Insight Equity Fund, Harris Insight Short/Intermediate Bond Fund, Harris Insight Money Market Fund, Harris Insight Tax-Exempt Money Market Fund, and Harris Insight Government Money Market Fund (incorporated by reference to PEA No. 14 filed on April 28, 2000). (a)(vi) Notice to the Transfer Agent dated 5 September 2000 on behalf of Harris Insight Large-Cap Aggressive Growth Fund, Harris Insight Small-Cap Aggressive Growth Fund, and Harris Insight Technology Fund (incorporated by reference to PEA No. 16 filed on September 5, 2000). (a)(vii) Notice to the Transfer Agent dated 9 September 2002 on behalf of Harris Insight High Yield Bond Fund (incorporated by reference to PEA No. 30 filed on 10 September 2002). (a)(viii) Notice to the Transfer Agent dated 30 June 2003 regarding termination of Harris Insight Equity Income, Technology and Large-Cap Aggressive Growth Fund (incorporated by reference to PEA No. 34 filed on 15 December 2003). (b) Sub-Transfer Agency Services Agreement dated July 1, 1996 between Harris Trust and PFPC Inc. (incorporated by reference to PEA No. 3 filed on February 28, 1997). (b)(i) Amendment dated 29 June 2001 to the Sub-Transfer Agency Services Agreement dated July 1, 1996 between Harris Trust and PFPC Inc. (incorporated by reference to PEA No. 24 filed on 14 August 2001). (b)(ii) Amendment effective 24 July 2002 to the Sub-Transfer Agency Services Agreement dated July 1, 1996 between Harris Trust and PFPC Inc. (incorporated by reference to PEA No. 33 filed on 30 April 2003). (b)(iii) Notice to the Sub-Transfer Agent dated January 21, 1997 on behalf of Harris Insight Small-Cap Value Fund (incorporated by reference to PEA No. 3 filed on February 28, 1997). (b)(iv) Notice to the Sub-Transfer Agent dated April 28, 2000 on behalf of Harris Insight Equity Fund, Harris Insight Short/Intermediate Bond Fund, Harris Insight Money Market Fund, Harris Insight Tax-Exempt Money Market Fund, and Harris Insight Government Money Market Fund (incorporated by reference to PEA No. 14 filed on April 28, 2000). (b)(v) Notice to the Sub-Transfer Agent dated 5 September 2000 on behalf of Harris Insight Large-Cap Aggressive Growth Fund, Harris Insight Small-Cap Aggressive Growth Fund, and Harris Insight Technology Fund (incorporated by reference to PEA No. 16 filed on September 5, 2000). (b)(vi) Notice to the Sub-Transfer Agent dated June 6, 1997 on behalf of Harris Insight Emerging Markets Fund (incorporated by reference to PEA No. 6 filed on September 15, 1997). (b)(vii) Notice to the Sub-Transfer Agent dated 9 September 2002 on behalf of Harris Insight High Yield Bond Fund (incorporated by reference to PEA No. 30 filed on 10 September 2002). (b)(viii) Notice to the Sub-Transfer Agent dated 30 June 2003 regarding termination of Harris Insight Equity Income, Technology and Large-Cap Aggressive Growth Fund (incorporated by reference to PEA No. 34 filed on 15 December 2003). (b)(ix) Amendment dated 1 October 2003 to the Sub-Transfer Agency Services Agreement dated July 1, 1996 between Harris Trust and PFPC Inc. (incorporated by reference to PEA No. 34 filed on 15 December 2003). (c) Administration Agreement dated July 1, 1996 between Registrant and Harris Trust (incorporated by reference to PEA No. 3 filed on February 28, 1997). (c)(i) Amendment dated 29 June 2001 to the Administration Agreement dated July 1, 1996 between Registrant and Harris Trust (incorporated by reference to PEA No. 24 filed on 14 August 2001). (c)(ii) Notice to the Administrator dated January 21, 1997 on behalf of Harris Insight Small-Cap Value Fund (incorporated by reference to PEA No. 5 filed on June 13, 1997). (c)(iii) Notice to the Administrator dated June 6, 1997 on behalf of Harris Insight Emerging Markets Fund (incorporated by reference to PEA No. 6 filed on September 15, 1997). (c)(iv) Notice to the Administrator dated April 28, 2000 on behalf of Harris Insight Equity Fund, Harris Insight Short/Intermediate Bond Fund, Harris Insight Money Market Fund, Harris Insight Tax-Exempt Money Market Fund, and Harris Insight Government Money Market Fund (incorporated by reference to PEA No. 14 filed on April 28, 2000). (c)(v) Notice to the Administrator dated 5 September 2000 on behalf of Harris Insight Large-Cap Aggressive Growth Fund, Harris Insight Small-Cap Aggressive Growth Fund, and Harris Insight Technology Fund (incorporated by reference to PEA No. 16 filed on September 5, 2000). (c)(vi) Notice to the Administrator dated 9 September 2002 on behalf of Harris Insight High Yield Bond Fund (incorporated by reference to PEA No. 30 filed on 10 September 2002). (c)(vii) Notice to the Administrator dated 30 June 2003 regarding termination of Harris Insight Equity Income, Technology and Large-Cap Aggressive Growth Fund (incorporated by reference to PEA No. 34 filed on 15 December 2003). (d) Sub-Administration and Accounting Services Agreement dated July 1, 1996 between Harris Trust and PFPC Inc. (incorporated by reference to PEA No. 3 filed on February 28, 1997). (d)(i) Amendment dated 1 May 1999 of Sub-Administration and Accounting Services Agreement dated July 1, 1996 between Harris Trust and PFPC, Inc. (incorporated by reference to PEA No. 12 filed on May 7, 1999). (d)(ii) Amendment dated 29 June 2001 to the Sub-Administration and Accounting Services Agreement dated July 1, 1996 between Harris Trust and PFPC Inc. (incorporated by reference to PEA No. 24 filed on 14 August 2001). (d)(iii) Notice to the Sub-Administrator and Accounting Services Agent dated January 21, 1997 on behalf of Harris Insight Small-Cap Value Fund (incorporated by reference to PEA No. 3 filed on February 28, 1997). (d)(iv) Notice to the Sub-Administrator and Accounting Services Agent dated June 6, 1997 on behalf of Harris Insight Emerging Markets Fund (incorporated by reference to PEA No. 6 filed on September 15, 1997). (d)(v) Notice to the Sub-Administrator and Accounting Services Agent dated April 28, 2000 on behalf of Harris Insight Equity Fund, Harris Insight Short/Intermediate Bond Fund, Harris Insight Money Market Fund, Harris Insight Tax-Exempt Money Market Fund, and Harris Insight Government Money Market Fund (incorporated by reference to PEA No. 14 filed on April 28, 2000). (d)(vi) Notice to the Sub-Administrator and Accounting Services Agent dated 5 September 2000 on behalf of Harris Insight Large-Cap Aggressive Growth Fund, Harris Insight Small-Cap Aggressive Growth Fund, and Harris Insight Technology Fund (incorporated by reference to PEA No. 16 filed on September 5, 2000). (d)(vii) Notice to the Sub-Administrator and Accounting Services Agent dated 9 September 2002 on behalf of Harris Insight High Yield Bond Fund (incorporated by reference to PEA No. 30 filed on 10 September 2002). (d)(viii) Notice of the Sub-Administrator and Accounting Services Agent dated 30 June 2003 regarding termination of Harris Insight Equity Income, Technology and Large-Cap Aggressive Growth Fund (incorporated by reference to PEA No. 34 filed on 15 December 2003). (e) Organizational Expenses Agreement between Harris Trust and the Registrant, on behalf of Harris Insight Large-Cap Aggressive Growth Fund, Harris Insight Small-Cap Aggressive Growth Fund and Harris Insight Technology Fund dated 27 April 2001 (incorporated by reference to PEA No. 23 filed on 8 June 2001). (f) Agreement for Fee Waivers and Expense Reimbursements dated 1 January 2001 (incorporated by reference to PEA No. 23 filed on 8 June 2001). (g) Financial Services Program Administration Agreement, relating to Service Shares (incorporated by reference to PEA No. 29 filed on 28 June 2002). (14) Consent of KPMG LLP (filed herewith). (15) Not applicable. (16) Powers of Attorney (a) Powers of Attorney for C. Gary Gerst, John W. McCarter, Jr. and Paula Wolff dated February 24, 2000 (incorporated by reference to PEA No. 14 filed on May 1, 2000). (b) Power of Attorney for Valerie B. Jarrett dated February 1, 2000 (incorporated by reference to PEA No. 13 filed on February 16, 2000). (c) Power of Attorney for Thomas J. Ryan dated February 7, 2000 (incorporated by reference to PEA No. 13 filed on February 16, 2000). (d) Power of Attorney for Peter P. Capaccio dated 23 February 2001 (incorporated by reference to PEA No. 19 filed on 2 March 2001). (e) Power of Attorney for Faris Chesley dated 8 December 2003 (incorporated by reference to PEA No. 34 filed on 15 December 2003). (17) Additional Exhibits (a) Code of Ethics of Harris Insight Funds Trust (incorporated by reference to PEA No. 13 filed on February 16, 2000). (b) Statement of Principles and Code of Ethics of Harris Trust and Savings Bank, Harris Investment Management, Inc. and HIM Monegy, Inc., as amended 13 June 2001 and 11 October 2002 (incorporated by reference to PEA No. 32 filed on 20 December 2002). (c) Form of proxy card of Harris Insight High Yield Select Bond Fund (filed herewith) (d) Annual Report for the Funds dated December 31, 2003 (filed herewith). ITEM 17. Undertakings. (1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act, the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to this Registration Statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. SIGNATURES As required by the Securities Act of 1933, this registration statement has been signed on behalf of the Registrant, in the City of Chicago and State of Illinois on the 5th day of March 2004. Harris Insight Funds Trust By: Peter P. Capaccio, President* As required by the Securities Act of 1933, this registration statement has been signed by the following persons in their capacities and on the dates indicated. Signature Title Date - --------- --------- --------- Peter P. Capaccio* President and Chief 5 March 2004 Executive Officer Thomas J. Ryan* Treasurer and Principal 5 March 2004 Financial and Accounting Officer C. Gary Gerst* Chairman of the 5 March 2004 Board of Trustees; Trustee John W. McCarter, Jr.* Trustee 5 March 2004 Paula Wolff* Trustee 5 March 2004 Valerie B. Jarrett* Trustee 5 March 2004 Faris F. Chesley* Trustee 5 March 2004 * By: /s/ G. Nicholas Bullat ------------------------------- G. Nicholas Bullat Attorney-in-Fact pursuant to powers of attorney dated 1 February 2000, 7 February 2000, 24 February 2000, 23 February 2001 and 8 December 2003. Index of Exhibits Filed with this Registration Statement EXHIBIT NUMBER DESCRIPTION (11)(a) Legal opinion and consent of Bell, Boyd & Lloyd LLC. (11)(b) Legal opinion and consent of Bingham McCutchen LLP. (14) Consent of KPMG LLP. (17)(c) Form of proxy card of Harris Insight High Yield Select Bond Fund. (17)(f) Annual Report for the Funds dated December 31, 2003. EX-99.(11)(A) 4 file003.txt LEGAL OPINION AND CONSENT EXHIBIT (11)(a) March 5, 2004 Harris Insight Funds Trust 760 Moore Road King of Prussia, PA 19406 Ladies and Gentlemen: We have acted as counsel for Harris Insight Funds Trust (the "Trust") in connection with the proposed acquisition by Harris Insight High Yield Bond Fund, a series of the Trust (the "Acquiring Fund"), of substantially all of the assets and the assumption of substantially all of the liabilities of Harris Insight High Yield Select Bond Fund, another series of the Trust (the "Acquired Fund"), in exchange for authorized but previously unissued shares of Class A Shares, Class N Shares and Institutional Shares of beneficial interest of the Acquiring Fund, $0.001 par value per share (collectively, the "Shares") (the "Reorganization"). This opinion is furnished in connection with the filing of the Trust's Registration Statement on Form N-14 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"). In this connection, we have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate and other records, certificates and other papers as we deemed it necessary to examine for the purpose of this opinion, including the amended and restated declaration of trust of the Trust, as amended (the "Declaration of Trust"); the bylaws of the Trust; a copy of the Amended and Restated Establishment and Designation of Series and Classes of Shares of the Trust, dated January 28, 2004, as filed with the Secretary of the Commonwealth of Massachusetts on February 11, 2004; the actions of the board of trustees of the Trust authorizing the Reorganization and the filing of the Registration Statement; the Registration Statement; and the form of Agreement and Plan of Reorganization by and between the Acquired Fund and the Acquiring Fund included as Appendix A to the joint proxy statement and prospectus constituting a part of the Registration Statement referred to above (the "Plan"). In such examination, we have assumed the genuineness of all signatures, the conformity to the originals of all of the documents reviewed by us as copies, the authenticity and completeness of all original documents reviewed by us in original or copy form and the legal competence of each individual executing any document. Based on such examination, we are of the opinion that subsequent to receipt of Acquired Fund shareholder approval of the Plan, as set forth in the joint proxy statement and prospectus constituting a part of the Registration Statement, the Shares, upon issuance as described in the Registration Statement, for consideration not less than the par value thereof, will be legally issued, fully paid and nonassessable shares of beneficial interest of the Harris Insight Funds Trust March 5, 2004 Page Two Acquiring Fund, except that shareholders of a Fund may under certain circumstances be held personally liable for a Fund's obligations. The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders of a business trust may, under certain circumstances, be held personally liable for the trust's obligations. However, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both the trust itself was unable to meet its obligations and inadequate insurance existed. To guard against this risk, the Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Trust and provides for indemnification out of Trust property of any shareholder held personally liable for obligations of the Trust. In giving this opinion, we have relied upon the opinion of Bingham McCutchen LLP dated March 5, 2004. We consent to the filing of this opinion as an exhibit to the Registration Statement. In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Act. Very truly yours, Bell, Boyd & Lloyd LLC EX-99.(11)(B) 5 file004.txt LEGAL OPINION AND CONSENT EXHIBIT (11)(b) March 5, 2004 Harris Insight Funds Trust 760 Moore Road King of Prussia, PA 19406 Ladies and Gentlemen: We have acted as special Massachusetts counsel for Harris Insight Funds Trust (the "Trust"), a Massachusetts business trust, in connection with the proposed acquisition by Harris Insight High Yield Bond Fund, a series of the Trust (the "Acquiring Fund") of substantially all of the assets and assumption by the Fund of substantially all of the liabilities of Harris Insight High Yield Select Bond Fund, another series of the Trust (the "Acquired Fund"), in return for authorized but previously unissued shares of Class A Shares, Class N Shares and Institutional Shares of beneficial interest of the Acquiring Fund, $0.001 par value per share (collectively, the "Shares") (the "Reorganization"). This opinion is furnished in connection with the filing of the Trust's Registration Statement on Form N-14 under the Securities Act of 1933, as amended (the "Registration Statement"). In connection with this opinion, we have examined the following described documents: (a) a certificate of the Secretary of the Commonwealth of Massachusetts as to the existence of the Trust; (b) copies, certified by the Secretary of the Commonwealth of Massachusetts, of the Trust's Declaration of Trust and all amendments thereto on file in the office of the Secretary of the Commonwealth; (c) copies of the Trust's Amended and Restated Establishment and Designation of Shares and Classes of Shares dated January 28, 2004 as filed with the Secretary of the Commonwealth of Massachusetts on February 11, 2004 (the "Designation"); (d) a certificate executed by David C. Lebisky, Secretary of the Trust, certifying as to, and attaching copies of, the Trust's Declaration of Trust, By-laws, the Designation and certain votes of the Trustees of the Trust at a Special Meeting held on February 24, 2004; (e) a draft received on March 4, 2004 of the Registration Statement; and Harris Insight Funds Trust March 5, 2004 Page 2 (f) the form of Agreement and Plan of Reorganization by and between the Acquired Fund and the Acquiring Fund included as Appendix A to the Registration Statement referred (e) above (the "Plan"). In such examination, we have assumed the genuineness of all signatures, the conformity to the originals of all of the documents reviewed by us as copies, the authenticity and completeness of all original documents reviewed by us in original or copy form and the legal competence of each individual executing any document. We have assumed that the Registration Statement, as filed with the Securities and Exchange Commission, will be in substantially the form of the draft referred to in paragraph (e) above. We also have assumed that the resolutions adopted by the Board of Trustees of the Trust on February 24, 2004 and referenced in the certificate referred to in paragraph (d) above will be included in the minutes of the meeting of the Board of Trustees of the Trust substantially as described in such certificate. This opinion is based entirely on our review of the documents listed above. We have made no other review or investigation of any kind whatsoever, and we have assumed, without independent inquiry, the accuracy of the information set forth in such documents. This opinion is limited solely to the laws of the Commonwealth of Massachusetts (other than the Massachusetts Uniform Securities Act, as to which we express no opinion) as applied by courts in such Commonwealth. We understand that all of the foregoing assumptions and limitations are acceptable to you. Based upon and subject to the foregoing, please be advised that it is our opinion that subsequent to receipt of Acquired Fund shareholder approval of the Plan, as set forth in the joint proxy statement and prospectus constituting a part of the Registration Statement, the Shares, upon issuance as described in the Registration Statement, for consideration not less than the par value thereof, will be legally issued, fully paid and nonassessable shares of beneficial interest of the Acquiring Fund, except that shareholders of a Fund may under certain circumstances be held personally liable for a Fund's obligations. The Trust's Declaration of Trust, as amended, and By-laws require compliance with various provisions of the Investment Company Act of 1940. We express no opinion with respect to such compliance. We understand that Bell, Boyd & Lloyd LLC, counsel to the Trust, will rely on this opinion in order to prepare an opinion to the Trust, which will be filed with the Securities and Exchange Commission. We hereby consent to Harris Insight Funds Trust March 5, 2004 Page 3 such use of this opinion. This opinion is given as of the date hereof and is based on present law and the facts described in the documents referred to above. We do not assume any responsibility to update this opinion to reflect facts that subsequently come to our attention or to reflect changes in law. Very truly yours, BINGHAM McCUTCHEN LLP EX-99.(14) 6 file005.txt CONSENT OF KPMG LLP Exhibit (14) Independent Auditors' Consent The Board of Trustees Harris Insight Funds Trust: We consent to the use of our report dated February 13, 2004 with respect to the financial statements of the Harris Insight Government Money Market Fund, Money Market Fund, Tax-Exempt Money Market Fund, High Yield Select Bond Fund, High Yield Bond Fund, Intermediate Tax-Exempt Bond Fund, Tax-Exempt Bond Fund, International Fund, Small-Cap Aggressive Growth Fund, Emerging Markets Fund, Short/Intermediate Bond Fund, Bond Fund, Intermediate Government Bond Fund, Equity Fund, Core Equity Fund, Small-Cap Opportunity Fund, Small-Cap Value Fund, Index Fund, and the Balanced Fund, (the nineteen portfolios constituting the Harris Insight Funds Trust) collectively "the Funds," included herein and to the reference to our firm under the heading "Financial Highlights" in the Registration Statement on Form N-14 of the Harris Insight Funds Trust - High Yield Bond Fund and to the references to our firm under the heading "Financial Highlights" in the Prospectuses dated May 1, 2003 and under the heading "Independent Accountants and Reports to Shareholders" in the Statement of Additional Information dated May 1, 2003 in the Registration Statement of the Harris Insight Funds Trust. /s/ KPMG LLP Philadelphia, Pennsylvania March 5, 2004 EX-99.(17)(C) 7 file006.txt FORM OF PROXY CARD Exhibit (17)(c) PROXY CARD PROXY CARD HARRIS INSIGHT FUNDS TRUST HARRIS INSIGHT HIGH YIELD SELECT BOND FUND This proxy is solicited by the Board of Trustees of Harris Insight Funds Trust (the "Trust") for use at a special meeting of shareholders of the Harris Insight High Yield Select Bond Fund (the "Fund") called to be held on May 14, 2004 (the "Meeting"). The undersigned hereby appoints Russell Buckley and Brian McDonald, and each of them, attorneys and proxies of the undersigned, each with the power of substitution and resubstitution, to attend, and to vote all shares of the Fund at the above-referenced Meeting of Shareholders and any adjournment or adjournments thereof and to vote all shares of the Fund that the undersigned may be entitled to vote with respect to the following proposals, in accordance with the specifications indicated, if any, and with all the powers that the undersigned would possess if personally present, hereby revoking any prior proxy to vote at such Meeting. The undersigned hereby acknowledges receipt of the notice of Meeting and the Combined Prospectus and Proxy Statement dated April __, 2004. CONTROL NUMBER: 999 9999 9999 999 NOTE: PLEASE SIGN EXACTLY AS NAME(S) APPEAR(S) HEREON. CORPORATE OR PARTNERSHIP PROXIES SHOULD BE SIGNED IN FULL CORPORATE OR PARTNERSHIP NAME BY AN AUTHORIZED OFFICER. EACH JOINT OWNER SHOULD SIGN PERSONALLY. WHEN SIGNING AS A FIDUCIARY, PLEASE GIVE FULL TILTLE AS SUCH. ---------------------------------------- Signature ---------------------------------------- Signature of joint owner, if any , 2004 ---------------------------------------- Date 10009B VOTE THIS PROXY CARD TODAY! This proxy will be voted as specified below with respect to the action to be taken on the following proposal. In the absence of any specification, this proxy will be voted in favor of the proposal. The Board of Trustees recommends that you vote FOR the proposal set forth below. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS. Example: [X] To approve an Agreement and Plan of Reorganization providing for the sale of all of the assets of Harris Insight High Yield Select Bond Fund to, and the assumption of all of the liabilities of the Harris Insight High Yield Select Bond Fund by, the Harris Insight High Yield Bond Fund in return for shares of the Harris Insight High Yield Bond Fund and the distribution of such shares to the shareholders of the Harris Insight High Yield Select Bond Fund in complete liquidation of the Harris Insight High Yield Select Bond Fund. FOR [ ] AGAINST [ ] ABSTAIN [ ] In their discretion, the proxies are authorized to vote upon such other business as may properly come before the Meeting or any adjournment thereof. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. EX-99.(17)(F) 8 file007.txt ANNUAL REPORT FOR THE FUNDS [LOGO OMITTED] HARRIS INSIGHT FUNDS(TM) ANNUAL REPORT - -------------------------------------------------------------------------------- DECEMBER 31, 2003 - -------------------------------------------------------------------------------- --------------------------------------------------------------------- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --------------------------------------------------------------------- LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- DEAR SHAREHOLDER: We are pleased to present the annual report of the Harris Insight Funds for the year ending December 31, 2003. This annual report differs from annual reports that we have provided to shareholders in the past in that it provides no commentary on broader issues that affected the markets or any commentary on future developments or trends. In the past we cited economic information, industry information and other socio-economic developments and their effect or potential effect on the relevant markets. Our commentary represented informed professional opinions and observations that would prove very difficult to certify under current law. A change in legislation, the Sarbanes-Oxley Act of 2002, requires that the Funds' principal executive and financial officers certify all information provided in current annual reports. As a result of this law, the portfolio manager commentary focuses specifically on those factors that affected the portfolios in 2003 and does not address potential market developments that may influence the economy and the Funds in the future. Please take a few minutes to review the report as it provides information about your investment. We wish to thank you for continuing to invest in the Harris Insight Funds. You should contact the Funds or your financial advisor with any questions. Sincerely, /s/ PETER P. CAPACCIO Peter P. Capaccio President THE HARRIS INSIGHT FAMILY OF MUTUAL FUNDS INVESTMENT ADVISER: HARRIS INVESTMENT MANAGEMENT, INC. DISTRIBUTOR: PFPC DISTRIBUTORS, INC. 1 [THIS PAGE INTENTIONALLY LEFT BLANK.] TABLE OF CONTENTS - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS PAGE 1 PORTFOLIO MANAGEMENT REVIEW Fund Summaries Page 4-21 TAX INFORMATION PAGE 22 STATEMENTS OF NET ASSETS MONEY MARKET FUNDS: Government Money Market Fund Page 23 Money Market Fund Page 24 Tax-Exempt Money Market Fund Page 27 FIXED INCOME FUNDS: Short/Intermediate Bond Fund Page 33 Bond Fund Page 38 Intermediate Government Bond Fund Page 42 High Yield Bond Fund Page 45 Intermediate Tax-Exempt Bond Fund Page 48 Tax-Exempt Bond Fund Page 53 High Yield Select Bond Fund Page 56 EQUITY FUNDS: Equity Fund Page 57 Core Equity Fund Page 60 Small-Cap Opportunity Fund Page 63 Small-Cap Value Fund Page 67 Index Fund Page 70 Small-Cap Aggressive Growth Fund Page 78 Balanced Fund Page 80 International Fund Page 87 Emerging Markets Fund Page 89 STATEMENTS OF OPERATIONS PAGE 92 STATEMENTS OF CHANGES IN NET ASSETS PAGE 96 FINANCIAL HIGHLIGHTS PAGE 104 NOTES TO FINANCIAL STATEMENTS PAGE 124 INDEPENDENT AUDITORS' REPORT PAGE 145 FUND MANAGEMENT PAGE 146 - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT REVIEW - -------------------------------------------------------------------------------- MONEY MARKET FUNDS - -------------------------------------------------------------------------------- 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. The Fund invests exclusively in short-term securities issued by the U.S. Government, its agencies or instrumentalities, and repurchase agreements backed by these securities, that have remaining maturities of 397 days or less. MANAGER'S OVERVIEW: The key factor affecting the performance of money-market mutual funds was the generational-low level of the Fed Funds Rate. On June 25, the Federal Open Market Committee ("FOMC") of the Federal Reserve Board lowered the Fed Funds Rate to 1.00%. This is the lowest rate level the FOMC has targeted in 45 years. Since money market funds tend to track the Fed Funds Rate, the return on money market funds fell during the year, and current yields are generally just below the 1.00% target rate. Another trend affecting the returns on money market funds that purchase Treasury and Agency debt was the increased supply of short-maturity instruments in these sectors. The growth of supply in these instrument's, particularly in Agency debt, reduced the traditional yield disadvantage relative to corporate securities. The Fund actively shifted strategies throughout the year to exploit opportunities provided by these trends. The amount of floating-rate obligations held by the Fund was increased during the year, as these securities provided additional yield relative to instruments with similar maturity characteristics. The Fund also purchased callable Agency debt on several occasions as a substitute for the fixed-rate securities typically held by the Fund. These securities provided significant yield enhancement and benefited from the relatively low levels of interest-rate volatility. 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. The Fund invests in a broad range of money market instruments that have remaining maturities of 397 days or less. MANAGER'S OVERVIEW: The key factor affecting the performance of money-market mutual funds was the generational-low level of the Fed Funds Rate. On June 25, the Federal Open Market Committee ("FOMC") of the Federal Reserve Board lowered the Fed Funds Rate to 1.00%. This is the lowest rate level the FOMC has targeted in 45 years. Since money market funds tend to track the Fed Funds Rate, the return on money market funds fell during the year, and current yields are generally just below the 1.00% target rate. Another trend affecting the return on money market funds that purchase corporate debt was the overall reduction in the amount of short-term debt issued by these entities. The lack of supply in corporate commercial paper and short-maturity bonds reduced the traditional yield advantage these securities provide relative to Treasury or Agency securities. The Fund actively shifted strategies throughout the year to minimize the negative effects of these trends on performance. The amount of floating-rate obligations held by the Fund was increased during the year, as these securities provided additional yield relative to instruments with similar maturity characteristics. The Fund also 4 purchased Agency debt on several occasions as a substitute for the corporate securities typically held by the Fund. Another attractive alternative to corporate debt was municipal securities. During the year, these instruments occasionally produced higher absolute yields than other money market instruments. TAX-EXEMPT MONEY MARKET FUND INVESTMENT OBJECTIVE: The Fund seeks to provide investors with as high a level of current income (exempt from federal income taxes) as is consistent with its investment policies and with preservation of capital and liquidity. The Fund invests primarily in high-quality municipal obligations that have remaining maturities of 397 days or less. MANAGER'S OVERVIEW: Tax-exempt money fund yields were at extreme lows throughout 2003. The significant, contributing factor to this situation was the Federal Reserve Board lowering its target rate to a 45-year low of 1.00%. The Fed's June 25 easing coincided with the start of the annual tax-exempt note issuance season, resulting in the issuance of new tax-exempt municipal notes at unattractively low yields. This provided little incentive for funds to extend their average days-to-maturity. Many fund managers anticipated the Fed's easing and attempted to extend their portfolios during the first two quarters of the year. During the second half of the year, the variable-rate sector of the municipal market provided the most value. Consistent with the typical seasonal demand cycle of the municipal market, the tax-exempt money markets experienced large cash outflows during the fourth quarter. This created a lack of demand and an abundance of supply in variable-rate securities. Yields soared to levels that, at times, exceeded those of taxable securities. The Fund rotated strategies throughout the year to take advantage of market opportunities, extending the portfolio during the first quarter with an expectation that the Fed would ease in the following months. By year-end, all maturities and cash inflows in the Fund were invested in variable-rate securities, and, with heavy supply and little demand in this sector, rates rose to attractive levels. The Fund closed the year with over 70% of its portfolio in floating- and variable-rate instruments. 5 SHORT/INTERMEDIATE BOND FUND - -------------------------------------------------------------------------------- PERFORMANCE BENCHMARK: Lehman Brothers Intermediate Government/Credit Bond Index - -- a weighted composite of (i) the Lehman Brothers Intermediate Government Bond Index, which is comprised of all publicly issued, non-convertible debt of the U.S. Government or any agency thereof, quasi-federal corporations, and corporate debt guaranteed by the U.S. Government with a maturity of between one and ten years and (ii) the Lehman Brothers Corporate Bond Index, which is comprised of all public fixed-rate, non-convertible investment-grade domestic corporate debt with a maturity of between one and ten years excluding collateralized mortgage obligations. INVESTMENT OBJECTIVE: The Fund seeks to provide a high level of total return, including a competitive level of current income. The Fund seeks to achieve its investment objective by investing primarily in investment-grade debt securities with a short/intermediate-term average maturity. MANAGER'S OVERVIEW: Despite a rise in Treasury yields for the two-year note and longer, the Fund posted another year of positive results. Aided by coupon income and a narrowing in yield spreads between comparable Treasury and non-Treasury alternatives, the investment-grade bond market, as measured by the Lehman Brothers Aggregate Index, returned 4.10% in 2003. While the apparent rebound in economic activity had the potential to pressure interest rates dramatically upward, the actual impact was a modest 43 basis-point year-over-year increase in the 10-year Treasury yield. However, the return advantage offered by corporate bonds generally was not so modest. A post-Sarbanes-Oxley rebound in investor confidence, combined with improved profit margins and a rosier economic backdrop, led to 527 basis points of excess returns for investment-grade credit as reported by Lehman Brothers. Against this environment of higher rates and corporate bond relative outperformance, the Fund was positioned, on average, duration neutral to its benchmark, with an overweight to the non-Treasury sectors, primarily asset-backed and corporate bonds. While duration management proved to be neutral from a value-added perspective, the Fund's sector positioning worked in its favor. Likewise, its focus on the BBB-rated sub-sector of the investment-grade universe was a plus, as BBBs in general outperformed. - -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT IN THE SHORT/INTERMEDIATE BOND FUND AND THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CREDIT BOND INDEX FROM INCEPTION THROUGH OR FOR THE 10 YEARS ENDED DECEMBER 31, 2003. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: Index Institutional Shares ------- -------------------- Feb-96 $10,000 $10,000 Dec-96 10,439 10,361 Dec-97 11,260 11,102 Dec-98 12,208 11,881 Dec-99 12,256 11,978 Dec-00 13,496 13,223 Dec-01 14,705 14,263 Dec-02 16,152 15,176 Dec-03 16,848 15,800 [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: Index N Shares A Shares B Shares ----- -------- -------- -------- 1-Jan-94 $10,000 $10,000 $10,000 $10,000 Dec-94 9,649 9,871 9,521 9,846 Dec-95 11,505 11,242 10,843 11,182 Dec-96 11,839 11,636 11,223 11,543 Dec-97 12,770 12,437 11,997 12,303 Dec-98 13,845 13,277 12,806 13,098 Dec-99 13,899 13,351 12,878 13,137 Dec-00 15,306 14,703 14,182 14,425 Dec-01 16,677 15,820 15,260 15,454 Dec-02 18,318 16,791 16,196 16,281 Dec-03 19,108 17,438 16,820 16,782 AVERAGE ANNUAL TOTAL RETURNS* For the Period Ended 12/31/03 1 Year 5 Year 10 Year/Inception** ------ ------ ------------------- Institutional Shares 4.11% 5.87% 6.00% N Shares 3.85% 5.60% 5.72% A Shares 0.19% 4.86% 5.34% B Shares -1.91% 4.75% 5.31% * Total returns include changes in share price and the reinvestment of income dividends and capital gain distributions. The results for the A Shares of the Fund assume an initial sales charge of 3.50%. The results for B Shares of the Fund assume a deduction of a contingent deferred sales charge applied for a complete redemption on the last business day of the period. ** The inception date for the Fund's performance is February 26, 1996 with respect to the Institutional Shares. Inception for the Index begins on the month-end closest to the inception date of the Fund (or class thereof). Performance figures represent past performance and are not a guarantee of future results. The investment return and principal value of shares will fluctuate and shares, when redeemed, may be worth more or less than the original amount invested. 6 BOND FUND - -------------------------------------------------------------------------------- PERFORMANCE BENCHMARK: Lehman Brothers Aggregate Bond Index -- an index composed of the Lehman Brothers Government/Credit Index and the Lehman Brothers Mortgage-Backed Securities Index including Treasury issues, agency issues, corporate bond issues and mortgage-backed securities. INVESTMENT OBJECTIVE: The Fund seeks to provide a high level of total return, including a competitive level of current income. The Fund seeks to achieve its investment objective by investing primarily in investment grade debt securities of varying maturities. MANAGER'S OVERVIEW: Despite a rise in Treasury yields for the two-year note and longer, the Fund posted another year of positive results. Aided by coupon income and a narrowing in yield spreads between comparable Treasurys and non-Treasury alternatives, the investment-grade bond market, as measured by the Lehman Brothers Aggregate Index, returned 4.10% in 2003. While the apparent rebound in economic activity had the potential to pressure interest rates dramatically upward, the actual impact was a modest 43 basis-point year-over-year increase in the 10-year Treasury yield. However, the return advantage offered by corporate bonds was not so modest. A post-Sarbanes-Oxley rebound in investor confidence, combined with improved profit margins and a rosier economic backdrop, led to 527 basis points of excess returns for investment-grade credit as reported by Lehman Brothers. Against this environment of higher rates and corporate bond relative outperformance, the Fund, was positioned, on average, duration neutral to its benchmark, with an overweight to the non-Treasury sectors, primarily asset-backed and corporate bonds. While duration management proved to be neutral from a value-added perspective, the Fund's sector positioning worked in its favor. Likewise, its focus on the BBB-rated sub-sector of the investment-grade universe was a plus, as BBBs in general outperformed. GROWTH OF A $10,000 INVESTMENT IN THE BOND FUND AND THE LEHMAN BROTHERS AGGREGATE BOND INDEX FROM INCEPTION THROUGH DECEMBER 31, 2003. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: Institutional Index Shares N Shares A Shares B Shares ----- ------------- -------- -------- -------- Apr-96 $10,000 $10,000 $10,000 $10,000 $10,000 Dec-96 10,609 10,540 10,527 10,054 10,507 Dec-97 11,636 11,532 11,489 10,972 11,435 Dec-98 12,645 12,354 12,276 11,725 12,187 Dec-99 12,541 12,241 12,134 11,589 12,011 Dec-00 14,000 13,839 13,685 13,070 13,506 Dec-01 15,182 14,991 14,787 14,122 14,528 Dec-02 16,740 16,067 15,808 15,098 15,416 Dec-03 17,426 16,698 16,388 15,652 15,862 AVERAGE ANNUAL TOTAL RETURNS* For the Period Ended 12/31/03 1 Year 5 Year Inception** ------ ------ ----------- Institutional Shares 3.93% 6.21% 6.88% N Shares 3.67% 5.95% 6.62% A Shares -1.01% 4.98% 5.99% B Shares -2.05% 5.09% 6.17% * Total returns include changes in share price and the reinvestment of income dividends and capital gain distributions. The results for the A Shares of the Fund assume an initial sales charge of 4.50%. The results for B Shares of the Fund assume a deduction of a contingent deferred sales charge applied for a complete redemption on the last business day of the period. ** The inception date for the Fund's performance is April 16, 1996 with respect to the Institutional Shares, and April 22, 1996 with respect to the N Shares, A Shares and B Shares. Inception for the Index begins on the month-end closest to the inception date of the Fund (or class thereof). Performance figures represent past performance and are not a guarantee of future results. The investment return and principal value of shares will fluctuate and shares, when redeemed, may be worth more or less than the original amount invested. 7 INTERMEDIATE GOVERNMENT BOND FUND - -------------------------------------------------------------------------------- PERFORMANCE BENCHMARK: Lehman Brothers Intermediate Government Bond Index -- an index comprised of all public obligations of the U.S. Treasury, excluding flower bonds and foreign targeted issues, all publicly issued debt of U.S. Government agencies and quasi-federal corporations and corporate debt guaranteed by the U.S. Government. All issues have maturities between 1 and 9.9997 years and an outstanding par value of at least $100 million dollars. Price, coupon and total return are reported on a month-end to month-end basis. INVESTMENT OBJECTIVE: The Fund seeks to provide a high level of current income, consistent with the preservation of capital, by investing primarily in U.S. Government securities having an intermediate-term average maturity. MANAGER'S OVERVIEW: Global events, including the Iraq war and SARS epidemic, combined with Federal Reserve Bank policy concerns, an exploding Treasury issuance calendar and mortgage refinancing fever were the key drivers of Treasury rates in 2003. Bond investors were treated to a roller-coaster interest-rate ride this year, with 10-year Treasury yields hitting a low of 3.11% in June and a high of 4.61% in September, the highest level of volatility since 1986. The net result was a year-over-year increase of 43 basis points in 10-year yields which translated to a passable return of 2.24% for the Lehman Brothers Treasury Index, the lowest since 1999. In spite of the modest return in Treasuries, investor appetite for additional yield soared, creating a huge demand for non-Treasury securities. As a result, investment-grade spread sectors posted positive excess returns to Treasuries as reported by Lehman Brothers. Asset-backed bonds and commercial mortgages posted the strongest excess returns of 181 and 201 basis points, respectively. Agencies, due to negative headlines earlier in the year, and mortgage-backed securities provided more modest 27- and 11-basis-point excess returns, respectively. Against this backdrop, the Fund posted another year of positive results. The Fund's duration was neutral throughout most of the year, and was thus unaffected by wildly fluctuating interest rates. Duration was shortened modestly heading into year-end, as economic conditions improved. An allocation to the AAA-rated spread sectors, asset-backed securities and commercial mortgage-backed securities in particular, positively added to the Fund's performance. GROWTH OF A $10,000 INVESTMENT IN THE INTERMEDIATE GOVERNMENT BOND FUND AND THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX FOR THE 10 YEARS ENDED DECEMBER 31, 2003. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: Institutional Index Shares N Shares A Shares B Shares ----- ------------- -------- -------- -------- 1-Jan-94 $10,000 $10,000 $10,000 $10,000 $10,000 Dec-94 9,825 9,835 9,807 9,463 9,735 Dec-95 11,243 11,158 11,091 10,702 10,296 Dec-96 11,699 11,612 11,519 11,115 11,260 Dec-97 12,602 12,520 12,390 11,955 12,067 Dec-98 13,671 13,453 13,280 12,814 12,896 Dec-99 13,738 13,345 13,141 12,679 12,725 Dec-00 15,176 15,104 14,835 14,314 14,322 Dec-01 16,454 16,273 15,944 15,384 15,299 Dec-02 18,040 17,964 17,557 16,941 16,722 Dec-03 18,453 18,396 17,935 17,306 16,954 AVERAGE ANNUAL TOTAL RETURNS* For the Period Ended 12/31/03 1 Year 5 Year 10 Year ------ ------ ------- Institutional Shares 2.40% 6.46% 6.28% N Shares 2.15% 6.19% 6.02% A Shares -1.42% 5.44% 5.64% B Shares -3.47% 5.30% 5.42% * Total returns include changes in share price and the reinvestment of income dividends and capital gains distributions. The results for the A Shares of the Fund assume an initial sales charge of 3.50%. The results for B Shares of the Fund assume a deduction of a contingent deferred sales charge applied for a complete redemption on the last business day of the period. Performance information includes the performance of the Intermediate Government Bond Fund's predecessor collective fund for periods before the Fund commenced operations. Performance for the collective fund has been adjusted to reflect the Fund's estimate of its expense ratio for the first year of operations as a mutual fund. The collective fund was not registered under the Investment Company Act of 1940, as amended (the "1940 Act"), or subject to certain investment restrictions that are imposed by the 1940 Act. If the collective fund had been registered under the 1940 Act, its performance may have been adversely affected. The collective fund did not impose any charges that correspond to the advisory and other fees of the Intermediate Government Bond Fund. Therefore, the quoted performance figures for the collective fund have been reduced to reflect expenses of 0.50%, 0.75%, 0.75% and 1.50%, the estimated expense ratios of the Institutional Shares, N Shares, A Shares and B Shares of the Intermediate Government Bond Fund, respectively, at the inception of its operations. Performance figures represent past performance and are not a guarantee of future results. The investment return and principal value of shares will fluctuate and shares, when redeemed, may be worth more or less than the original amount invested. 8 HIGH YIELD BOND FUND - -------------------------------------------------------------------------------- PERFORMANCE BENCHMARK: Bear Stearns High Yield Bond Index -- an index comprised of below investment grade U.S. dollar-denominated corporate bonds. Qualifying bonds must have at least one year remaining term to maturity and a minimum amount outstanding of $100 million. INVESTMENT OBJECTIVE: The Fund seeks to provide a high level of total return through a combination of income and capital appreciation. MANAGER'S OVERVIEW: The high-yield bond market continued the rally that began in the 4th quarter of 2002 and posted its best return in over 10 years, with the Merrill Lynch High Yield Index up 27.23% in 2003. With the exception of a brief period in July, the market was very strong throughout the year with 11 of 12 months showing positive returns. Market strength can be attributed to a combination of several factors. On the technical side, high levels of cash inflows into mutual funds, coupled with increased high-yield allocations by hedge funds and other investors, led to very high demand for bonds. While new issuance in the primary market was high, much of this issuance was used for refinancing old debt. The result was a year-long imbalance between supply and demand that saw the net new supply of bonds overwhelmed by the strong investor appetite for bonds, and bond prices were bid up accordingly. On the fundamental side, credit quality improved throughout the year as the improving economic environment and better access to the capital markets allowed several previously distressed credits to avoid liquidity crises by issuing new debt. The result was an overall improvement in credit quality that can be seen in declining default rates and a year-long rally in the riskiest/lowest quality issues in the market (the Merrill Lynch CCC Index returned 56.76% for the year versus 27.23% for the High Yield Index). Although returns for the year were very attractive at 18.15%, the Fund's defensive strategy did not allow it to keep pace with the market in 2003. Relative performance was affected by underweight positions in the utilities and telecommunications sectors, as well as an underweight position in the lowest quality, CCC-rated credits. On the positive side, diversification in the Fund improved vastly during the year as the number of positions in the portfolio more than doubled by year-end and large positions were reduced substantially. GROWTH OF A $10,000 INVESTMENT IN THE HIGH YIELD BOND FUND AND THE BEAR STEARNS HIGH YIELD BOND INDEX FROM INCEPTION THROUGH DECEMBER 31, 2003. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: Institutional Index Shares ----- ------------- Jul-99 $10,000 $10,000 Dec-99 10,018 10,265 Dec-00 9,336 10,882 Dec-01 9,841 11,755 Dec-02 9,742 11,765 Dec-03 12,560 13,900 AVERAGE ANNUAL TOTAL RETURNS* For the Period Ended 12/31/03 1 Year Inception** ------ ----------- Institutional Shares 18.15% 7.63% * Total returns include changes in share price and the reinvestment of income dividends and capital gains distributions. ** The inception date for the Fund's performance with respect to the Institutional Shares is July 12, 1999. Inception for the Index begins on the month-end closest to the inception date of the Fund (or class thereof). Performance information includes the performance of the High Yield Bond Fund's predecessor collective fund for periods before the Fund commenced operations. Performance for the collective fund has been adjusted to reflect the Fund's estimate of its expense ratio for the first year of operations as a mutual fund. The collective fund was not registered under the Investment Company Act of 1940, as amended (the "1940 Act"), or subject to certain investment restrictions that are imposed by the 1940 Act. If the collective fund had been registered under the 1940 Act, its performance may have been adversely affected. The collective fund did not impose any charges that correspond to the advisory and other fees of the High Yield Bond Fund. Therefore, the quoted performance figures for the collective fund have been reduced to reflect expenses of 0.61%, the estimated expense ratio of the Institutional Shares, at the inception of its operations. Performance figures represent past performance and are not a guarantee of future results. The investment return and principal value of shares will fluctuate and shares, when redeemed, may be worth more or less than the original amount invested. 9 INTERMEDIATE TAX-EXEMPT BOND FUND - -------------------------------------------------------------------------------- PERFORMANCE BENCHMARK: Lehman Brothers 3-15 Year Blend Municipal Bond Index -- an index comprised of 31,231 bonds. The bonds are investment-grade or better, have maturities between 2 and 17 years, and are selected from issues larger than $50 million dated since 1991. INVESTMENT OBJECTIVE: The Fund seeks to provide a high level of current income that is exempt from federal income tax. The Fund seeks to achieve its investment objective by investing, under normal market conditions, at least 80% of its assets in municipal securities with a dollar weighted average portfolio maturity of between 3 and 10 years. MANAGER'S OVERVIEW: Despite record new municipal-bond issuance in 2003, the municipal-bond market significantly outperformed U.S. Treasury bonds. In fact, the Fund's benchmark returned 5.11%, as measured by the Lehman Brothers 3-15 year Blend Municipal Index. In general, longer maturities outperformed as the yield curve flattened throughout the year. The intermediate maturity range, where the Fund is overweight, proved optimal. Moreover, the bulk of returns was generated from coupon income. Security selection played an important role as the Fund's hospital bond returns performed impressively. Volatility remained high against a background of mixed signals on the timing and magnitude of the U.S. recovery and the unpredictability of world events. GROWTH OF A $10,000 INVESTMENT IN THE INTERMEDIATE TAX-EXEMPT BOND FUND AND THE LEHMAN BROTHERS 3-15 YEAR BLEND MUNICIPAL BOND INDEX FOR THE 10 YEARS ENDED DECEMBER 31, 2003. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: Institutional Index Shares N Shares A Shares B Shares ----- ------------- -------- -------- -------- 1-Jan-94 $10,000 $10,000 $10,000 $10,000 $10,000 Dec-94 9,642 9,691 9,668 9,329 9,595 Dec-95 11,119 10,823 10,770 10,393 10,609 Dec-96 11,615 11,155 11,072 10,684 10,881 Dec-97 12,583 11,869 11,752 11,340 11,530 Dec-98 13,383 12,455 12,301 11,870 12,051 Dec-99 13,320 12,401 12,217 11,789 11,950 Dec-00 14,643 13,792 13,553 13,079 13,230 Dec-01 15,415 14,561 14,274 13,774 13,897 Dec-02 16,904 15,991 15,637 15,089 15,089 Dec-03 17,768 16,734 16,322 15,751 15,633 AVERAGE ANNUAL TOTAL RETURNS* For the Period Ended 12/31/03 1 Year 5 Year 10 Year ------ ------ ------- Institutional Shares 4.64% 6.08% 5.28% N Shares 4.38% 5.82% 5.02% A Shares 0.70% 5.07% 4.65% B Shares -1.39% 5.02% 4.57% * Total returns include changes in share price and the reinvestment of income dividends and capital gain distributions. The results for the A Shares of the Fund assume an initial sales charge of 3.50%. The results for B Shares of the Fund assume a deduction of a contingent deferred sales charge applied for a complete redemption on the last business day of the period. Performance information includes the performance of the Intermediate Tax-Exempt Bond Fund's predecessor common trust fund for periods before the Fund commenced operations. Performance for the common trust fund has been adjusted to reflect the Fund's estimate of its expense ratio for the first year of operations as a mutual fund. The common trust fund was not registered under the Investment Company Act of 1940, as amended (the "1940 Act"), or subject to certain investment restrictions that are imposed by the 1940 Act. If the common trust fund had been registered under the 1940 Act, its performance may have been adversely affected. The common trust fund did not impose any charges that correspond to the advisory and other fees of the Intermediate Tax-Exempt Bond Fund. Therefore, the quoted performance figures for the common trust fund have been reduced to reflect expenses of 0.80%, 1.05%, 1.05% and 1.80%, the estimated expense ratios of the Institutional Shares, N Shares, A Shares and B Shares of the Intermediate Tax-Exempt Bond Fund, respectively, at commencement of operations. Performance figures represent past performance and are not a guarantee of future results. The investment return and principal value of shares will fluctuate and shares, when redeemed, may be worth more or less than the original amount invested. A portion of income may be subject to some state and/or local taxes and, for certain investors, a portion may be subject to the federal alternative minimum tax. 10 TAX-EXEMPT BOND FUND - -------------------------------------------------------------------------------- PERFORMANCE BENCHMARK: Lehman Brothers Municipal Bond Index -- an index comprised of 42,102 bonds. The bonds are all investment-grade, fixed-rate, long-term maturities (greater than two years) and are selected from issues larger than $50 million dated since January 1980. INVESTMENT OBJECTIVE: The Fund seeks to provide a high level of current income that is exempt from federal income tax. The Fund seeks to achieve its investment objective by investing at least 80% of its assets, under normal market conditions, in a broad range of municipal bonds and other obligations issued by state and local governments to finance their operations or special projects. MANAGER'S OVERVIEW: Despite record new municipal-bond issuance in 2003, the municipal-bond market significantly outperformed U.S. Treasury bonds EN-ROUTE to posting a 5.31% total return, as measured by the Lehman Brothers Municipal Bond Index. In general, longer maturities outperformed as the yield curve flattened throughout the year. In fact, the intermediate maturity range, where the Fund is overweight, was optimal. Moreover, the bulk of returns was generated from coupon income. Security selection was important as the Fund's hospital bonds returns performed impressively. Volatility remained high against a background of mixed signals on the timing and magnitude of the U.S. recovery and the unpredictability of world events. GROWTH OF A $10,000 INVESTMENT IN THE TAX-EXEMPT BOND FUND AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX FOR THE 10 YEARS ENDED DECEMBER 31, 2003. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: Institutional Index Shares N Shares A Shares B Shares ------- ------------- -------- -------- -------- 1-Jan-94 $10,000 $10,000 $10,000 $10,000 $10,000 Dec-94 9,483 9,270 9,247 8,831 9,178 Dec-95 11,138 10,609 10,556 10,082 10,399 Dec-96 11,631 11,008 10,919 10,428 10,729 Dec-97 12,700 11,948 11,822 11,291 11,596 Dec-98 13,523 12,532 12,368 11,812 12,112 Dec-99 13,244 12,147 11,959 11,421 11,690 Dec-00 14,791 13,897 13,648 13,034 13,310 Dec-01 15,550 14,734 14,433 13,784 13,992 Dec-02 17,043 16,416 16,041 15,320 15,435 Dec-03 17,948 17,369 16,931 16,170 16,170 AVERAGE ANNUAL TOTAL RETURNS* For the Period Ended 12/31/03 1 Year 5 Year 10 Year ------ ------ ------- Institutional Shares 5.81% 6.75% 5.67% N Shares 5.55% 6.48% 5.41% A Shares 0.77% 5.50% 4.92% B Shares -0.24% 5.63% 4.92% * Total returns include changes in share price and the reinvestment of income dividends and capital gain distributions. The results for the A Shares of the Fund assume an initial sales charge of 4.50%. The results for B Shares of the Fund assume a deduction of a contingent deferred sales charge applied for a complete redemption on the last business day of the period. Performance information includes the performance of the Tax-Exempt Bond Fund's predecessor common trust fund for periods before the Fund commenced operations. Performance for the common trust fund has been adjusted to reflect the Fund's estimate of its expense ratio for the first year of operations as a mutual fund. The common trust fund was not registered under the Investment Company Act of 1940, as amended (the "1940 Act"), or subject to certain investment restrictions that are imposed by the 1940 Act. If the common trust fund had been registered under the 1940 Act, its performance may have been adversely affected. The common trust fund did not impose any charges that correspond to the advisory and other fees of the Tax-Exempt Bond Fund. Therefore, the quoted performance figures for the common trust fund have been reduced to reflect expenses of 0.80%, 1.05%, 1.05% and 1.80%, the estimated expense ratios of the Institutional Shares, N Shares, A Shares and B Shares of the Tax-Exempt Bond Fund, respectively, at commencement of operations. Performance figures represent past performance and are not a guarantee of future results. The investment return and principal value of shares will fluctuate and shares, when redeemed, may be worth more or less than the original amount invested. A portion of income may be subject to some state and/or local taxes and, for certain investors, a portion may be subject to the federal alternative minimum tax. 11 HIGH YIELD SELECT BOND FUND - -------------------------------------------------------------------------------- PERFORMANCE BENCHMARK: Credit Suisse First Boston Convertible Securities Index - -- an index comprised of an unmanaged group of domestic convertible bonds and preferred stocks with a Standard & Poor's rating of B- or better and a minimum issue size of $50 million, and dollar-denominated Euroconvertibles issued by U.S.-domiciled companies and having a Standard & Poor's rating of B- or better and a minimum issue size of $100 million. Bear Stearns High Yield Bond Index -- an index comprised of below investment grade U.S. dollar-denominated corporate bonds. Qualifying bonds must have at least one year remaining term to maturity and a minimum amount outstanding of $100 million. INVESTMENT OBJECTIVE: The Fund seeks to provide a high level of total return through a combination of income and capital appreciation. MANAGER'S OVERVIEW: Please see the comments for the High Yield Bond Fund in which the High Yield Select Bond Fund invests all of its investable assets. GROWTH OF A $10,000 INVESTMENT IN THE HIGH YIELD SELECT BOND FUND AND THE CREDIT SUISSE FIRST BOSTON CONVERTIBLE SECURITIES INDEX AND THE BEAR STEARNS HIGH YIELD BOND INDEX FOR THE 10 YEARS ENDED DECEMBER 31, 2003. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: Credit Suisse First Boston Convertible Bear Stearns Securities High Yield Institutional Index Bond Index Shares N Shares A Shares ------------- ---------- ------------- -------- -------- 1-Jan-94 $10,000 $10,000 $10,000 $10,000 $10,000 Dec-94 9,783 9,984 9,691 9,644 9,230 Dec-95 12,029 11,898 11,550 11,493 10,977 Dec-96 13,430 13,380 13,981 13,880 13,258 Dec-97 15,360 15,205 16,592 16,423 15,687 Dec-98 16,366 15,521 16,293 16,088 15,367 Dec-99 23,287 15,878 21,518 21,196 20,245 Dec-00 21,464 14,797 20,123 19,777 18,891 Dec-01 20,105 15,598 17,034 16,699 15,949 Dec-02 18,468 15,442 15,008 14,676 14,015 Dec-03 23,637 19,908 17,575 17,144 16,353 AVERAGE ANNUAL TOTAL RETURNS* For the Period Ended 12/31/03 1 Year 5 Year 10 Year ------ ------ ------- Institutional Shares 17.11% 1.53% 5.80% N Shares 16.82% 1.28% 5.54% A Shares 11.41% 0.32% 5.04% * Total returns include changes in share price and the reinvestment of income dividends and capital gain distributions. The results for the A Shares of the Fund assume an initial sales charge of 4.50%. Performance information includes the performance of the High Yield Select Bond Fund's predecessor collective fund for periods before the Fund commenced operations. Performance for the collective fund has been adjusted to reflect the Fund's estimate of its expense ratio for the first year of operations as a mutual fund. The collective fund was not registered under the Investment Company Act of 1940, as amended (the "1940 Act"), or subject to certain investment restrictions that are imposed by the 1940 Act. If the collective fund had been registered under the 1940 Act, its performance may have been adversely affected. The collective fund did not impose any charges that correspond to the advisory and other fees of the High Yield Select Bond Fund. Therefore, the quoted performance figures for the collective fund have been reduced to reflect expenses of 0.92%, 1.17% and 1.17%, the estimated expense ratios of the Institutional Shares, N Shares and A Shares of the High Yield Select Bond Fund, respectively, at the inception of its operations. Performance figures represent past performance and are not a guarantee of future results. The investment return and principal value of shares will fluctuate and shares, when redeemed, may be worth more or less than the original amount invested. ** The Fund's primary benchmark is now the Bear Stearns High Yield Bond Index. This index better reflects the investment objectives and policies of the Fund. 12 EQUITY FUND - -------------------------------------------------------------------------------- PERFORMANCE BENCHMARK: S&P 500(R) Stock Index -- an index comprised of an unmanaged group of 500 widely held common stocks traded on the New York Stock Exchange, the American Stock Exchange and the over-the-counter market. Russell 1000 Value Index -- an index that measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. INVESTMENT OBJECTIVE: The Fund seeks to provide capital appreciation and current income. The Fund seeks to achieve its investment objective by investing primarily in common stocks of larger capitalization companies. MANAGER'S OVERVIEW: Last year at this time, gloom about the economy and geopolitical events negatively affected investment performance. An unusually sluggish recovery finally gave way to long-awaited growth in economic activity. The cumulative effects of unprecedented and sizable stimulus packages, both fiscal (tax cut) and monetary (lower interest rates), and the effects of a lower U.S. dollar were credited with jumpstarting growth. Among the key pieces missing, however, were employment growth and significant corporate capital spending. As the year ended, the S&P 500 Index showed strong positive returns for 2003, the best returns since the bear market began over three years ago and the first positive year since 1999. For the year, the equity markets were led by cyclical sectors such as technology, materials and consumer discretionary. Sectors that lagged the broader markets were "quality of earnings" sectors such as healthcare, telecommunications and consumer staples. Smaller-capitalization issues within the S&P 500 Index continued to outperform the larger issues. Issue selection continued to contribute positively to the Fund's results, particularly in the financials, technology and consumer discretionary sectors. GROWTH OF A $10,000 INVESTMENT IN THE EQUITY FUND, THE S&P 500 STOCK INDEX, AND THE RUSSELL 1000 VALUE INDEX FROM INCEPTION THROUGH OR FOR THE 10 YEARS ENDED DECEMBER 31, 2003. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: S&P 500 Russell 1000 Institutional Index Value Index*** Shares ------- --------------- ------------- Feb-96 $10,000 $10,000 $10,000 Dec-96 1,1785 1,1708 1,1366 Dec-97 15,716 15,827 15,445 Dec-98 20,208 18,301 17,577 Dec-99 24,460 19,646 17,302 Dec-00 22,232 21,023 18,770 Dec-01 19,591 19,848 18,207 Dec-02 15,261 16,768 14,386 Dec-03 19,638 21,803 18,511 [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: S&P 500 Russell 1000 Index Value Index*** N Shares A Shares B Shares ----- -------------- -------- -------- -------- Jan-94 $10,000 $10,000 $10,000 $10,000 $10,000 Dec-94 10,131 9,801 9,795 9,201 9,702 Dec-95 13,923 13,560 13,346 12,476 13,101 Dec-96 17,135 16,494 16,570 15,469 16,138 Dec-97 22,851 22,297 22,443 20,896 22,244 Dec-98 29,382 25,782 25,455 23,677 24,889 Dec-99 35,564 27,677 25,012 23,252 24,214 Dec-00 32,324 29,617 27,058 25,153 25,961 Dec-01 28,484 27,961 26,149 24,330 24,881 Dec-02 22,189 23,621 20,633 19,185 19,473 Dec-03 28,553 30,714 26,471 24,631 24,816 AVERAGE ANNUAL TOTAL RETURNS* For the Period Ended 12/31/03 1 Year 5 Year 10 Year/Inception** ------ ------ ------------------- Institutional Shares 28.68% 1.04% 8.16% N Shares 28.29% 0.79% 10.22% A Shares 21.39% -0.34% 9.43% B Shares 22.44% -0.32% 9.51% * Total returns include changes in share price and the reinvestment of income dividends and capital gain distributions. The results for the A Shares of the Fund assume an initial sales charge of 5.50%. The results for B Shares of the Fund assume a deduction of a contingent deferred sales charge applied for a complete redemption on the last business day of the period. ** The inception date for the Fund's performance is February 26, 1996 with respect to the Institutional Shares. Inception for the Index begins on the month-end closest to the inception date of the Fund (or class thereof). *** The Fund's primary benchmark is now the Russell 1000 Value Index. This index better reflects the investment objectives and policies of the Fund. Performance figures represent past performance and are not a guarantee of future results. The investment return and principal value of shares will fluctuate and shares, when redeemed, may be worth more or less than the original amount invested. 13 CORE EQUITY FUND - -------------------------------------------------------------------------------- PERFORMANCE BENCHMARK: S&P 500(R) Stock Index -- an index comprised of an unmanaged group of 500 widely held common stocks traded on the New York Stock Exchange, the American Stock Exchange and the over-the-counter market. INVESTMENT OBJECTIVE: The Fund seeks to provide capital appreciation and, secondarily, current income. The Fund seeks to achieve its investment objective by investing primarily in common stocks and convertible securities believed to offer above-average growth potential. MANAGER'S OVERVIEW:The S&P 500 Index's total return for the year was excellent, finishing up over 28%. Potentially problematic for a large-capitalization focus was smaller companies' outperformance. The year began with an overall slow pace of economic activity and a low-inflationary environment, making it difficult for companies to develop sequential earnings growth. However, the earnings picture continued to improve throughout the year. Further, both the consumer and industrial sectors continued to move forward, and the lagging technology sector also began picking up. The biggest impediments to a sustained and robust recovery are the high debt levels for both business and the consumer. Offsetting the current low pricing-power environment for companies may well be the "importation of inflation" -- a probable effect of the lower value of the U.S. dollar. Companies operating outside the U.S. are benefiting from the positive impact of currency fluctuations on their income statements, as well as providing the potential for increased pricing power within the U.S. The Fund's quantitative evaluation process drives both security selection and portfolio construction, so that purchases and sales are based upon stock-specific factors such as a company's fundamentals and earnings, relative valuation, and its price momentum and forward earnings estimates. This investment strategy benefited the Fund by overweighting the energy, consumer discretion, healthcare and financial sectors over the year. GROWTH OF A $10,000 INVESTMENT IN THE CORE EQUITY FUND AND THE S&P 500 STOCK INDEX FOR THE 10 YEARS ENDED DECEMBER 31, 2003. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: Index Institutional Shares N Shares A Shares B Shares ----- -------------------- -------- -------- -------- Jan.'94 $10,000 $10,000 $10,000 $10,000 $10,000 Dec.'94 10,131 9,995 9,970 9,415 9,828 Dec.'95 13,923 13,636 13,574 12,814 13,272 Dec.'96 17,135 17,579 17,457 16,475 18,018 Dec.'97 22,851 23,347 23,138 21,826 22,188 Dec.'98 29,382 29,190 28,847 27,205 27,416 Dec.'99 35,564 34,024 33,527 31,632 31,606 Dec.'00 32,324 31,413 30,880 29,134 28,888 Dec.'01 28,484 27,546 27,000 25,484 25,092 Dec.'02 22,189 21,063 20,593 19,453 19,001 Dec.'03 28,553 27,484 26,812 25,334 24,566 AVERAGE ANNUAL TOTAL RETURNS* For the Period Ended 12/31/03 1 Year 5 Year 10 Year ------ ------ ------- Institutional Shares 30.49% -1.20% 10.64% N Shares 30.20% -1.45% 10.37% A Shares 23.04% -2.52% 9.74% B Shares 24.29% -2.50% 9.40% * Total returns include changes in share price and the reinvestment of income dividends and capital gain distributions. The results for the A Shares of the Fund assume an initial sales charge of 5.50%. The results for B Shares of the Fund assume a deduction of a contingent deferred sales charge applied for a complete redemption on the last business day of the period. Performance information includes the performance of the Core Equity Fund's predecessor common trust fund for periods before the Fund commenced operations. Performance for the common trust fund has been adjusted to reflect the Fund's estimate of its expense ratio for the first year of operations as a mutual fund. The common trust fund was not registered under the Investment Company Act of 1940, as amended (the "1940 Act"), or subject to certain investment restrictions that are imposed by the 1940 Act. If the common trust fund had been registered under the 1940 Act, its performance may have been adversely affected. The common trust fund did not impose any charges that correspond to the advisory and other fees of the Core Equity Fund. Therefore, the quoted performance figures for the common trust fund have been reduced to reflect expenses of 1.10%, 1.35%, 1.45% and 2.10%, the estimated expense ratios of the Institutional Shares, N Shares, A Shares and B Shares of the Core Equity Fund, respectively, at commencement of operations. Performance figures represent past performance and are not a guarantee of future results. The investment return and principal value of shares will fluctuate and shares, when redeemed, may be worth more or less than the original amount invested. 14 SMALL-CAP OPPORTUNITY FUND - -------------------------------------------------------------------------------- PERFORMANCE BENCHMARK: Russell 2000 Small Stock Index -- an index of the 2,000 smallest stocks in the Russell 3000 Index. The smallest companies have market capitalizations approximating $117 million, whereas the largest company has a market capitalization of $1.20 billion. The total adjusted market capitalization of the Russell 2000 Index was $670 billion at the time of reconstruction in June 2003. INVESTMENT OBJECTIVE: The Fund seeks to provide long-term capital appreciation. The Fund seeks to achieve its investment objective by investing primarily in equity securities of smaller capitalization companies. MANAGER'S OVERVIEW: The benchmark's total return for the year was excellent, finishing up over 47%. Smaller-cap stocks generated the highest rate of return of any segment in the U.S. equity market. The Fund's quantitative evaluation process drives both security selection and portfolio construction strategies, so that purchases and sales are based upon stock-specific factors such as a company's fundamentals and earnings, relative valuation, and price momentum and forward earnings estimates. This investment strategy benefited the Fund by overweighting the technology and healthcare sectors and underweighting the financials sector over the year. The year began with an overall slow pace of economic activity and a low inflationary environment, making it difficult for companies to drive sequential earnings growth. However, the earnings picture continued to improve throughout the year, especially the outlook for the lagging technology sector. The biggest impediments to a sustained and robust recovery are the high debt levels for both business and the consumer. Offsetting the current low pricing-power environment for companies may well be the "importation of inflation" -- a potential effect of the lower value of the U.S. dollar. GROWTH OF A $10,000 INVESTMENT IN THE SMALL-CAP OPPORTUNITY FUND AND THE RUSSELL 2000 SMALL STOCK INDEX FOR THE 10 YEARS ENDED DECEMBER 31, 2003. [GRAPHIC OMITTED] EDGAR REPRESENATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: Index Institutional Shares N Shares A Shares B Shares ----- -------------------- -------- -------- -------- Jan-94 $10,000 $10,000 $10,000 $10,000 $10,000 Dec-94 9,817 9,629 9,604 9,068 9,531 Dec-95 12,610 12,161 12,100 11,413 11,921 Dec-96 14,689 14,448 14,343 13,517 14,436 Dec-97 17,973 18,128 17,948 16,898 18,026 Dec-98 17,515 18,338 18,126 17,056 18,060 Dec-99 21,239 25,698 25,332 23,876 25,049 Dec-00 20,598 27,434 26,981 25,420 26,446 Dec-01 21,111 24,786 24,329 22,921 23,667 Dec-02 16,787 21,173 20,716 19,528 20,015 Dec-03 24,719 32,187 31,423 29,608 30,119 AVERAGE ANNUAL TOTAL RETURNS* For the Period Ended 12/31/03 1 Year 5 Year 10 Year ------ ------ ------- Institutional Shares 52.02% 11.91% 12.40% N Shares 51.68% 11.63% 12.13% A Shares 43.32% 10.41% 11.47% B Shares 45.48% 10.50% 11.66% * Total returns include changes in share price and the reinvestment of income dividends and capital gain distributions. The results for the A Shares of the Fund assume an initial sales charge of 5.50%. The results for B Shares of the Fund assume a deduction of a contingent deferred sales charge applied for a complete redemption on the last business day of the period. Performance information includes the performance of the Small-Cap Opportunity Fund's predecessor common trust fund for periods before the Fund commenced operations. Performance for the common trust fund has been adjusted to reflect the Fund's estimate of its expense ratio for the first year of operations as a mutual fund. The common trust fund was not registered under the Investment Company Act of 1940, as amended (the "1940 Act"), or subject to certain investment restrictions that are imposed by the 1940 Act. If the common trust fund had been registered under the 1940 Act, its performance may have been adversely affected. The common trust fund did not impose any charges that correspond to the advisory and other fees of the Small-Cap Opportunity Fund. Therefore, the quoted performance figures for the common trust fund have been reduced to reflect expenses of 1.20%, 1.45%, 1.55% and 2.20%, the estimated expense ratios of the Institutional Shares, N Shares, A Shares and B Shares of the Small-Cap Opportunity Fund, respectively, at commencement of operations. Performance figures represent past performance and are not a guarantee of future results. The investment return and principal value of shares will fluctuate and shares, when redeemed, may be worth more or less than the original amount invested. Historically, small company stocks have been more volatile than large company stocks, U.S. Government bonds and Treasury bills. 15 SMALL-CAP VALUE FUND - -------------------------------------------------------------------------------- PERFORMANCE BENCHMARK: Russell 2000 Value Index -- an index comprised of stocks in the Russell 2000 Small Stock Index that have a lower price-to-book ratio and/or forecasted earnings growth. INVESTMENT OBJECTIVE: The Fund seeks to provide capital appreciation by investing primarily in equity securities of companies with smaller capitalizations that the portfolio management agent believes are conservatively valued in the marketplace. MANAGER'S OVERVIEW: Reversing last years losses, the benchmark ended the year in the black, up 46.03; the Fund trailed this performance. This year, the largest stocks in the benchmark were up 39%, while the smallest stocks were up 71%. This worked against the Fund because, for liquidity reasons, the Fund does not invest in micro-cap names. In addition to the micro-cap trend, stocks with a price below $5 were up more than 95% for the year, and the Fund also does not invest in these stocks. Non-earnings-producing stocks outperformed all other stocks for the year, but the Fund's strategy resulted in a portfolio dominated by companies that are actually earning money, so this trend also hurt the Fund for the year. The materials, healthcare, technology and telecom sectors were the best performing sectors for the benchmark, while the energy, consumer staples and utilities sectors were the worst performing sectors. We lagged the benchmark in the materials, industrials and technology sectors but outperformed it in the energy, consumer staples and financials sectors. GROWTH OF A $10,000 INVESTMENT IN THE SMALL-CAP VALUE FUND AND THE RUSSELL 2000 VALUE INDEX FOR THE 10 YEARS ENDED DECEMBER 31, 2003. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: Index Institutional Shares N Shares A Shares B Shares ----- -------------------- -------- -------- -------- 1-Jan-94 $10,000 $10,000 $10,000 $10,000 $10,000 Dec-94 9,846 9,679 9,656 9,118 9,583 Dec-95 12,381 12,306 12,242 11,550 12,064 Dec-96 15,027 14,158 14,054 13,243 13,745 Dec-97 19,803 18,347 18,141 17,090 17,557 Dec-98 18,526 17,625 17,388 16,369 16,655 Dec-99 18,250 17,712 17,426 16,404 16,533 Dec-00 22,416 23,813 23,377 22,005 22,001 Dec-01 25,561 25,140 24,629 23,174 23,016 Dec-02 22,639 21,932 21,432 20,167 19,876 Dec-03 33,060 31,371 30,582 28,775 28,152 AVERAGE ANNUAL TOTAL RETURNS* For the Period Ended 12/31/03 1 Year 5 Year 10 Year ------ ------ ------- Institutional Shares 43.04% 12.22% 12.11% N Shares 42.70% 11.96% 11.83% A Shares 34.85% 10.68% 11.15% B Shares 36.64% 10.81% 10.90% * Total returns include changes in share price and the reinvestment of income dividends and capital gain distributions. The results for the A Shares of the Fund assume an initial sales charge of 5.50%. The results for B Shares of the Fund assume a deduction of a contingent deferred sales charge applied for a complete redemption on the last business day of the period. Performance information includes the performance of the Small-Cap Value Fund's predecessor collective fund for periods before the Fund commenced operations. Performance for the collective fund has been adjusted to reflect the Fund's estimate of its expense ratio for the first year of operations as a mutual fund. The collective fund was not registered under the Investment Company Act of 1940, as amended (the "1940 Act"), or subject to certain investment restrictions that are imposed by the 1940 Act. If the collective fund had been registered under the 1940 Act, its performance may have been adversely affected. The collective fund did not impose any charges that correspond to the advisory and other fees of the Small-Cap Value Fund. Therefore, the quoted performance figures for the collective fund have been reduced to reflect expenses of 1.00%, 1.24%, 1.34% and 2.00%, the estimated expense ratios of the Institutional Shares, N Shares, A Shares and B Shares of the Small-Cap Value Fund, respectively, at the inception of its operations. Performance figures represent past performances and are not a guarantee of future results. The investment return and principal value of shares will fluctuate and shares, when redeemed, may be worth more or less than the original amount invested. Historically, small company stocks have been more volatile than large company stocks, U.S. Government bonds and Treasury bills. 16 INDEX FUND - -------------------------------------------------------------------------------- PERFORMANCE BENCHMARK: S&P 500(R) Stock Index -- an index comprised of an unmanaged group of 500 widely held common stocks traded on the New York Stock Exchange, the American Stock Exchange and the over-the-counter market. INVESTMENT OBJECTIVE: The Fund seeks to provide the return and risk characteristics of the S&P 500 Index, which emphasizes large capitalization companies. MANAGER'S OVERVIEW: The S&P 500 finally posted a gain for the year, up 28.68%, ending a three-year losing streak, and the Fund slightly lagged the benchmark for the year. This lag is due primarily to the cost of holding and trading futures, the cost of trading Index additions and deletions, and the lagged effect of re-investing dividends in an up-market. The benchmark's rise was led by the technology, materials, industrials and consumer discretionary sectors. The telecom, consumer staples and healthcare sectors provided relative drags, but every sector managed to post gains for the year. Despite the large returns, large-cap stocks trailed small-cap stocks for the year. Because the Fund's investment objective is to provide the risk and return characteristics of the S&P 500 Index, the Fund does not overweight or underweight specific sectors. The index is constructed and its returns are calculated without subtracting fees or operational costs. The Fund, an actual investment portfolio, inescapably incurs operational and transactional costs in striving to replicate the Index. GROWTH OF A $10,000 INVESTMENT IN THE INDEX FUND AND THE S&P 500 STOCK INDEX FOR THE 10 YEARS ENDED DECEMBER 31, 2003. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: Index Institutional Shares N Shares B Shares ------- -------------------- -------- -------- Jan.'94 $10,000 $10,000 $10,000 $10,000 Dec.'94 10,131 10,078 10,053 9,977 Dec.'95 13,923 13,803 13,734 13,530 Dec.'96 17,135 16,938 16,820 16,453 Dec.'97 22,851 22,491 22,288 21,683 Dec.'98 29,382 28,838 28,503 27,601 Dec.'99 35,564 34,720 34,243 33,015 Dec.'00 32,324 31,482 30,974 29,757 Dec.'01 28,484 27,609 27,081 25,897 Dec.'02 22,189 21,477 21,008 19,945 Dec.'03 28,553 27,515 26,853 25,291 AVERAGE ANNUAL TOTAL RETURNS* For the Period Ended 12/31/03 1 Year 5 Year 10 Year ------ ------ ------- Institutional Shares 28.11% -0.94% 10.65% N Shares 27.82% -1.18% 10.38% B Shares 21.81% -2.06% 9.72% * Total returns include changes in share price and the reinvestment of income dividends and capital gain distributions. The results for B Shares of the Fund assume a deduction of a contingent deferred sales charge applied for a complete redemption on the last business day of the period. Performance information includes the performance of the Index Fund's predecessor common trust fund for periods before the Fund commenced operations. Performance for the common trust fund has been adjusted to reflect the Fund's estimate of its expense ratio for the first year of operations as a mutual fund. The common trust fund was not registered under the Investment Company Act of 1940, as amended (the "1940 Act"), or subject to certain investment restrictions that are imposed by the 1940 Act. If the common trust fund had been registered under the 1940 Act, its performance may have been adversely affected. The common trust fund did not impose any charges that correspond to the advisory and other fees of the Index Fund. Therefore, the quoted performance figures for the common trust fund have been reduced to reflect expenses of 0.45%, 0.70% and 1.45%, the estimated expense ratios of the Institutional Shares, N Shares and B Shares of the Index Fund, respectively, at commencement of operations. Performance figures represent past performance and are not a guarantee of future results. The investment return and principal value of shares will fluctuate and shares, when redeemed, may be worth more or less than the original amount invested. 17 SMALL-CAP AGGRESSIVE GROWTH FUND - -------------------------------------------------------------------------------- PERFORMANCE BENCHMARK: Russell 2000 Growth Index -- an index comprised of stocks in the Russell 2000 Small Stock Index that have a higher price-to-book ratio and/or forecasted earnings growth. INVESTMENT OBJECTIVE: The Fund seeks to provide long-term capital appreciation. The Fund seeks to achieve its investment objective by investing primarily in equity securities of companies that fall in the lowest 75% of U.S. publicly traded companies (determined by market capitalization) and are believed to offer superior prospects for aggressive growth. MANAGER'S OVERVIEW: The Fund was up 48.31% for the year, comparing well with its benchmark's 48.54% performance. For the year, the Fund overweighted the materials, consumer discretionary, healthcare, financials and utilities sectors while underweighting the energy, industrials, consumer staples and technology sectors, and outperformed in all of its sectors except technology, healthcare and telecom. The Fund's best performance was in financials and energy. The Fund seeks to buy stocks which show increased market interest as evidenced by price momentum. The Fund looks for an expansion in business prospects, as evidenced by increases in earnings, earnings estimates, earnings surprise and net margins. GROWTH OF A $10,000 INVESTMENT IN THE SMALL-CAP AGGRESSIVE GROWTH FUND AND THE RUSSELL 2000 GROWTH INDEX FROM INCEPTION THROUGH DECEMBER 31, 2003. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: Index Institutional Shares ----- -------------------- 1-Jan-01 $10,000 $10,000 Jun-01 10,004 10,510 Dec-01 9,077 9,680 Jun-02 7,502 8,770 Dec-02 6,330 7,680 Jun-03 7,553 9,020 Dec-03 9,402 11,390 AVERAGE ANNUAL TOTAL RETURNS* For the Period Ended 12/31/03 1 Year Inception** ------ ----------- Institutional Shares 48.31% 4.47% * Total returns include changes in share price and the reinvestment of income dividends and capital gain distributions. ** The inception date for the Fund's performance is January 9, 2001 with respect to the Institutional Shares. Inception for the Index begins on the month-end closest to the inception date of the Fund (or class thereof). Performance figures represent past performance and are not a guarantee of future results. The investment return and principal value of shares will fluctuate and shares, when redeemed, may be worth more or less than the original amount invested. Historically, small company stocks have been more volatile than large company stocks, U.S. Government bonds and Treasury bills. 18 BALANCED FUND - -------------------------------------------------------------------------------- PERFORMANCE BENCHMARK: S&P 500(R) Stock Index -- an index comprised of an unmanaged group of 500 widely held common stocks listed on the New York Stock Exchange, the American Stock Exchange and the over-the-counter market. Lehman Brothers Aggregate Bond Index -- an index composed of the Lehman Brothers/Corporate Index and the Mortgage-Backed Securities Index including Treasury issues, agency issues, corporate bond issues and mortgage-backed securities. Russell 1000 Index -- an index of the 1,000 largest stocks in the Russell 3000 Index. The smallest companies have a market capitalization approximating $1.2 billion, whereas the largest company has a market capitalization of $287 billion. The total adjusted market capitalization of the Russell 1000 Index was $76.2 billion at the time of reconstruction in June 2003. INVESTMENT OBJECTIVE: The Fund seeks to provide current income and capital appreciation by investing in a balanced portfolio of fixed income and equity securities. MANAGER'S OVERVIEW: While our outlook for real GDP growth and corporate profit improvement brightened, stock prices declined during the first quarter, causing equity valuations to become more attractive. These developments led to a reassessment of the Fund's conservative posture toward stocks, and the Fund's exposure to stocks was increased in the belief that equity valuations had reached reasonable levels and that the economic environment would continue to improve. This change proved to be beneficial as equities recorded their largest gains since the late 1990s. At the same time stocks soared, bonds were recording their smallest gains since 1999, so that our shift in asset mix from bonds to stocks aided returns. Asset allocation within the equity portion of the Fund also contributed positively to the Fund's return. Relative to the Fund's normal exposure to small-cap equities, the Fund was overweight small-cap issues because management believed this segment of the market offered attractive opportunities. This was a beneficial decision because smaller-cap stocks did, in fact, generate higher rates of return than other segments of the U.S. equity market. The final result was that the Fund outperformed the average fund in the Lipper universe of balanced funds and posted the highest return in its history. GROWTH OF A $10,000 INVESTMENT IN THE BALANCED FUND, S&P 500 STOCK INDEX, RUSSELL 1000 INDEX, AND LEHMAN BROTHERS AGGREGATE BOND INDEX FROM INCEPTION THROUGH DECEMBER 31, 2003. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS:
Russell LB Aggregate S&P 500 1000 Institutional Bond Index Index Index*** Shares N Shares A Shares B Shares ---------- ----- --------- ------------- -------- -------- -------- Mar-97 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 Dec-97 11,030 12,996 13,081 12,024 12,172 11,426 12,102 Dec-98 11,986 16,710 16,615 13,059 13,181 12,270 13,003 Dec-99 11,888 20,226 20,089 12,889 12,980 12,074 12,684 Dec-00 13,271 18,383 18,524 14,476 14,542 13,520 14,092 Dec-01 14,391 16,199 16,218 14,650 14,669 13,652 14,084 Dec-02 15,868 12,619 12,707 13,329 13,323 12,388 12,701 Dec-03 16,519 16,238 16,505 15,905 15,859 14,751 15,015
AVERAGE ANNUAL TOTAL RETURNS* For the Period Ended 12/31/03 1 Year 5 Year Inception** ------ ------ ----------- Institutional Shares 19.33% 4.02% 7.09% N Shares 19.04% 3.77% 7.11% A Shares 12.54% 2.59% 5.96% B Shares 13.22% 2.58% 6.24% * Total returns include changes in share price and the reinvestment of income dividends and capital gain distributions. The results for the A Shares of the Fund assume an initial sales charge of 5.50%. The results for B Shares of the Fund assume a deduction of a contingent deferred sales charge applied for a complete redemption on the last business day of the period. ** The inception date of the Fund's Institutional Shares is March 24, 1997 and for the N Shares, A Shares, and B Shares is April 16, 1997. Inception for the Index begins on the month-end closest to the inception date of the fund (or class thereof). *** The Fund's primary equity benchmark is now the Russell 1000 Index. This index better reflects the investment objectives and policies of the Fund. Performance figures represent past performance and are not a guarantee of future results. The investment return and principal value of shares will fluctuate and shares, when redeemed, may be worth more or less than the original amount invested. 19 INTERNATIONAL FUND - -------------------------------------------------------------------------------- PERFORMANCE BENCHMARK: MSCI EAFE Index -- an index consisting of companies listed on the stock exchanges of Europe, Australasia and the Far East. The Index is capitalization weighted and replicates the industry composition and sampling of the large, medium and small capitalization companies of each local market. INVESTMENT OBJECTIVE: The Fund seeks to provide international diversification and capital appreciation. Current income is a secondary objective. The Fund seeks to achieve its investment objective by investing primarily in securities of foreign issuers. MANAGER'S OVERVIEW: While 2003's rally was broad-based, several specific areas contributed positively to the Fund's absolute performance relative to the benchmark during the period. Leading the way were investments in emerging-market countries, which benefited not only from an increase in global economic activity, but also from rising domestic consumption trends. Outside of emerging markets, key holdings in the consumer discretionary and industrials sectors in the United Kingdom and Europe were also among the Fund's best performers. In the industrials sector, companies with exposure to the aerospace industry were particularly strong as investors seemed to believe the cycle had bottomed. Despite delivering positive overall performance for the year, the Fund's Japanese holdings detracted from relative performance. Concerns about an increase in the value of the yen VIS-A-VIS the dollar and its potential impact on the competitiveness of Japanese exports led to negative returns for many of the Fund's holdings there. Our disciplined research process continues to focus on identifying value at the company and sector levels and to invest in companies with sensible, sustainable, long-term businesses. As the new year begins, we currently maintain a significant exposure to companies in economically sensitive areas such as the industrials, materials, and consumer discretionary sectors. However, we also retain substantial holdings in the more "defensive" sectors like consumer staples, utilities, healthcare, and financials. Our current weighting in emerging markets reflects our continued enthusiasm for the well-managed and inexpensive companies that happen to be headquartered in developing countries. GROWTH OF A $10,000 INVESTMENT IN THE INTERNATIONAL FUND AND THE MSCI EAFE INDEX FOR THE 10 YEARS ENDED DECEMBER 31, 2003. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: Institutional Index Shares N Shares A Shares ----- ------------- -------- -------- 1-Jan-94 $10,000 $10,000 $10,000 $10,000 Dec-94 10,806 10,429 10,411 9,829 Dec-95 12,054 10,865 10,814 10,197 Dec-96 12,821 11,421 11,342 10,680 Dec-97 13,085 10,865 10,751 10,112 Dec-98 15,745 10,361 10,231 9,593 Dec-99 20,043 13,193 12,974 12,165 Dec-00 17,245 11,960 11,741 11,009 Dec-01 13,587 9,653 9,456 8,866 Dec-02 11,459 8,262 8,058 7,165 Dec-03 15,947 11,603 11,296 10,197 AVERAGE ANNUAL TOTAL RETURNS* For the Period Ended 12/31/03 1 Year 5 Year 10 Year ------ ------ ------- Institutional Shares 40.44% 2.29% 1.50% N Shares 40.19% 2.00% 1.23% A Shares 34.56% 0.09% 0.19% * Total returns include changes in share price and the reinvestment of income dividends and capital gain distributions. The results for the A Shares of the Fund assume an initial sales charge of 5.50%. Performance information includes the performance of the International Fund's predecessor common trust fund for periods before the Fund commenced operations. Performance for the common trust fund has been adjusted to reflect the Fund's estimate of its expense ratio for the first year of operations as a mutual fund. The common trust fund was not registered under the Investment Company Act of 1940, as amended (the "1940 Act"), or subject to certain investment restrictions that are imposed by the 1940 Act. If the common trust fund had been registered under the 1940 Act, its performance may have been adversely affected. The common trust fund did not impose any charges that correspond to the advisory and other fees of the International Fund. Therefore, the quoted performance figures for the common trust fund have been reduced to reflect expenses of 1.40%, 1.65%, and 1.75%, the estimated expense ratios of the Institutional Shares, N Shares, and A Shares of the International Fund, respectively, at commencement of operations. Performance figures represent past performance and are not a guarantee of future results. The investment return and principal value of shares will fluctuate and shares, when redeemed, may be worth more or less than the original amount invested. International investing, especially in emerging markets, poses greater potential risks as well as rewards when compared to U.S. investing, as a result of market and currency fluctuations caused by political and financial factors abroad. 20 EMERGING MARKETS FUND - -------------------------------------------------------------------------------- PERFORMANCE BENCHMARK: MSCI Emerging Markets Free Index -- an index that measures the total returns of equity securities in all emerging markets followed by Morgan Stanley Capital International. Securities included in the index are weighted according to their market capitalization. INVESTMENT OBJECTIVE: The Fund seeks to provide capital appreciation by investing primarily in a diversified portfolio of publicly traded equity securities of companies located in emerging markets. MANAGER'S OVERVIEW: A key component of our disciplined research process is our focus on identifying value at the company and sector levels. While we evaluate markets in the three main emerging regions of the world, our research continues to be driven by our sector work. As a result, we invest in those companies that we believe have sensible, sustainable, long-term businesses, whether they operate in the global markets or their own domestic economies. Although 2003's rally was broad-based, several specific areas contributed positively to the Fund's absolute performance during the period. Leading the way were investments in the materials sector in all three regions. Holdings in this sector benefited from an increase in global economic activity and strong demand for commodities, particularly in China. Rising domestic consumption trends were paramount in the performance of service-related stocks such as telecommunication and financial issues in all three regions, with wireless operators in Thailand, Brazil and Russia among the best-performing stocks in the Fund during the year. Pure consumption plays in Asia, such as automobile producers also provided important returns for the Fund. In the industrials sector, companies with exposure to the aerospace industry were particularly strong as investors seemed to believe the cycle had bottomed and companies in the emerging world could offer significant competitive advantages. Despite delivering positive overall performance for the year, the Fund's European, African, and Latin American holdings detracted from relative performance. On the African side, the strength of the South African currency coupled with our underweight positions there hurt U.S. dollar returns. In Latin America, a strengthening Brazilian Real also had a negative effect on U.S. dollar returns. GROWTH OF A $10,000 INVESTMENT IN THE EMERGING MARKETS FUND AND THE MSCI EMERGING MARKETS FREE INDEX FROM INCEPTION THROUGH DECEMBER 31, 2003. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: Index Institutional Shares N Shares A Shares ----- -------------------- -------- -------- Oct-97 $10,000 $10,000 $10,000 $10,000 Dec-97 9,867 8,550 8,540 8,072 Dec-98 7,367 5,885 5,850 5,510 Dec-99 12,259 9,683 9,598 9,072 Dec-00 8,507 6,918 6,813 6,458 Dec-01 8,305 6,876 6,790 6,410 Dec-02 7,807 6,750 6,629 6,268 Dec-03 12,201 10,200 9,990 9,456 AVERAGE ANNUAL TOTAL RETURNS* For the Period Ended 12/31/03 1 Year 5 Year Inception** ------ ------ ----------- Institutional Shares 51.11% 11.63% 0.32% N Shares 50.70% 11.30% -0.02% A Shares 42.66% 10.15% -0.90% * Total returns include changes in share price and the reinvestment of income dividends and capital gain distributions. The results for the A Shares of the Fund assume an initial sales charge of 5.50%. ** The inception date for the Fund's performance is October 21, 1997. Inception for the Index begins on the month-end closest to the inception date of the Fund. Performance figures represent past performance and are not a guarantee of future results. The investment return and principal value of shares will fluctuate and shares, when redeemed, may be worth more or less than the original amount invested. International investing, especially in emerging markets, poses greater potential risks as well as rewards when compared to U.S. investing, as a result of market and currency fluctuations caused by political and financial factors abroad. 21 TAX INFORMATION - -------------------------------------------------------------------------------- (UNAUDITED) For the year ended December 31, 2003, the following Harris Insight Funds declared dividends from net realized capital gains:
SHORT-TERM LONG-TERM CAPITAL GAIN CAPITAL GAIN PER SHARE PER SHARE ------------ -------------------------------------------- FUNDS: 12/16/03 6/20/03 12/16/03 ------------ ----------- ------------------------------ 10%(1) 20%(2) 15%(3) ----------- -------------- ------------- Intermediate Government Bond Fund .... $0.1103 $0.0052 $0.0795 $0.0219 High Yield Bond Fund ................. 0.0270 -- 0.0398 0.0179 Small-Cap Opportunity Fund ........... -- -- -- 0.2375 Index Fund ........................... 0.0099 -- 0.9933 0.2323 (1) Per share amount of long-term capital gain that is "qualified 5-year gains". The Taxpayer Relief Act of 1997 reduced the maximum rate to 10% (8% for taxpayers in the 15% and below tax bracket). (2) Long-term capital gains at the rate of 20% (10% for taxpayers in the 15% and below tax bracket). (3) Long-term capital gains that qualify for the tax rate of 15% (5% for taxpayers in the 15% and below tax bracket).
The percentage of dividends from net investment income declared for the year ended December 31, 2003, representing qualified dividend income and which qualify for the corporate dividends received deduction is as follows: QUALIFIED DIVIDENDS DIVIDEND INCOME(4) RECEIVED DEDUCTION(5) ------------------ --------------------- Equity Fund .................... 100% 100% Small-Cap Value Fund ........... 100% 100% Core Equity Fund ............... 100% 100% Index Fund ..................... 100% 100% Balanced Fund .................. 36% 32% International Fund ............. 100% N/A Emerging Markets Fund .......... 100% N/A (4) Percentage of dividends paid from net investment income that is qualified dividend income ("QDI") that will be taxed at a maximum rate of 15% (5% for taxpayers in the 15% and below tax bracket). Shareholders must consult with their Tax Advisors or the instructions to Form 1040/1040A to determine their eligibility for the lower benefit. (5) Percentage of dividends paid from net investment income of each Harris Insight Fund that qualifies for the dividends received deduction available to corporations. FOR SHAREHOLDERS OF THE INTERNATIONAL FUND AND EMERGING MARKETS FUND: For the year ended December 31, 2003, the International Fund and Emerging Markets Fund distributed $2,012,643 and $926,938, respectively, of foreign source income on which the International Fund and Emerging Markets Fund paid foreign taxes of $484,226 and $268,047, respectively. This information is being furnished to you pursuant to notice requirements of Section 853(a) and 855(d) of the Internal Revenue Code, as amended, and the Treasury Regulations thereunder. 22 HARRIS INSIGHT GOVERNMENT MONEY MARKET FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - -------------------------------------------------------------------------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- -------- -------------- AGENCY OBLIGATIONS -- 18.4% FEDERAL HOME LOAN BANK -- 1.4% 1.180% 07/27/04 $ 25,000 $ 25,000,000 -------------- FEDERAL HOME LOAN MORTGAGE CORP. -- 15.9% 1.060% 01/27/04 100,000 99,923,444 1.200% 07/27/04 25,000 25,000,000 1.250% 08/27/04 100,000 100,000,000 1.500% 11/16/04 55,000 55,000,000 -------------- 279,923,444 -------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 1.1% 1.180% 07/27/04 18,000 17,997,567 -------------- TOTAL AGENCY OBLIGATIONS (Cost $322,921,011) 322,921,011 -------------- VARIABLE RATE OBLIGATIONS++ -- 67.7% FEDERAL FARM CREDIT BANK -- 13.1% 1.010% 01/02/04* 40,000 39,997,642 1.045% 01/07/04* 25,000 24,997,262 1.060% 01/12/04* 25,000 24,997,797 1.070% 01/12/04* 35,000 34,997,869 1.054% 01/16/04* 30,000 30,000,000 1.021% 01/26/04* 51,000 50,989,775 1.061% 01/29/04* 25,000 24,997,942 -------------- 230,978,287 -------------- FEDERAL HOME LOAN BANK -- 4.6% 1.031% 01/27/04* 40,000 39,991,114 1.035% 02/25/04* 40,000 39,990,875 -------------- 79,981,989 -------------- FEDERAL HOME LOAN MORTGAGE CORP. -- 11.3% 1.110% 01/02/04* 99,500 99,478,303 1.069% 02/04/04* 99,500 99,445,727 -------------- 198,924,030 -------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 32.5% 1.000% 01/02/04* 134,500 134,442,753 1.003% 01/02/04* 42,000 41,991,996 1.050% 01/20/04* 59,500 59,481,230 1.054% 01/20/04* 52,790 52,767,014 1.056% 01/28/04* 84,500 84,477,245 1.091% 02/18/04* 100,000 99,977,267 1.100% 03/23/04* 99,500 99,478,557 -------------- 572,616,062 -------------- OVERSEAS PRIVATE INVESTMENT CORP. -- 6.2% 1.100% 01/07/04* 108,605 108,604,651 -------------- TOTAL VARIABLE RATE OBLIGATIONS (Cost $1,191,105,019) 1,191,105,019 -------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- -------- -------------- REPURCHASE AGREEMENTS -- 13.9% Bank of America Corp. 1.000% Agreement dated 12/31/03, proceeds at maturity $245,250,652 (Collateralized by $295,705,135 FHLMC and FNMA 4.500% to 6.000%, due from 09/01/23 to 12/01/33. The market value is $250,141,769.) 01/02/04 $245,237 $ 245,237,028 (Cost $245,237,028) -------------- TOTAL INVESTMENTS -- 100.0% (Cost $1,759,263,058 a) 1,759,263,058 -------------- OTHER ASSETS AND LIABILITIES -- 0.0% Interest receivable and other assets 2,151,003 Dividends payable (736,928) Accrued expenses (1,044,164) -------------- 369,911 -------------- NET ASSETS -- 100.0% Applicable to 249,827,879 Institutional Shares, 374,303,758 N Shares, and 1,135,493,103 Service Shares of beneficial interest outstanding, $.001 par value (Note 8) $1,759,632,969 ============== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER SHARE EACH FOR INSTITUTIONAL SHARES, N SHARES, AND SERVICE SHARES $1.00 ===== - ---------- + See Note 2a to the Financial Statements. ++ Rate in effect on 12/31/03. * Date of next interest rate reset. a Aggregate cost for federal tax purposes. See Notes to Financial Statements. 23 HARRIS INSIGHT MONEY MARKET FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - -------------------------------------------------------------------------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- -------- -------------- AGENCY OBLIGATIONS -- 8.9% Federal Home Loan Bank 1.180% 07/27/04 $125,000 $ 125,000,000 Federal Home Loan Mortgage Corp. 1.200% 07/27/04 125,000 125,000,000 1.250% 08/27/04 200,000 200,000,000 1.500% 11/16/04 44,550 44,550,000 Federal National Mortgage Association 1.180% 07/27/04 90,000 89,987,834 1.250% 08/27/04 100,000 100,000,000 -------------- TOTAL AGENCY OBLIGATIONS (Cost $684,537,834) 684,537,834 -------------- ASSET-BACKED SECURITIES -- 3.5% G-Star, Ltd. Series 2002-2A 144A, Class A1MA 1.201% 01/26/04* 49,930 49,929,938 G-Star, Ltd. Series 2002-2A 144A, Class A1MB 1.181% 01/26/04* 60,166 60,165,588 Putnam Structured Product Funding Series 2002-1A 144A, Class A1MG 1.263% 01/15/04* 126,000 126,000,000 Winston Funding, Ltd. Series 2003-1 144A, Class A1MA 1.210% 01/23/04* 37,400 37,400,000 -------------- TOTAL ASSET-BACKED SECURITIES (Cost $273,495,526) 273,495,526 -------------- COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.9% Residential Mortgage Securities Corp. Series 14A 144A, Class A1 1.200% 01/12/04* 71,765 71,765,360 Residential Mortgage Securities Corp. Series 16A 144A, Class A1 1.189% 01/12/04* 77,975 77,975,040 -------------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $149,740,400) 149,740,400 -------------- COMMERCIAL PAPER -- 20.2% Alaska State Housing Finance Corp. TECP 1.140% 01/16/04 45,645 45,623,319 Amstel Funding Corp. 1.110% 02/02/04 60,228 60,168,575 ASAP Funding, Ltd. 1.120% 01/26/04 37,000 36,971,222 1.120% 01/29/04 210,000 209,817,067 1.130% 02/04/04 50,000 49,946,639 Compass Securitization Corp., L.L.C. 1.100% 01/09/04 24,090 24,084,111 Crown Point Capital Corp., L.L.C. 1.140% 01/09/04 80,550 80,529,594 1.100% 01/12/04 11,976 11,971,975 1.110% 01/12/04 50,000 49,983,042 Giro Funding Corp. 1.120% 02/09/04 30,179 30,142,383 Giro Multi-Funding Corp. 1.130% 01/20/04 30,000 29,982,108 ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- -------- -------------- COMMERCIAL PAPER (CONTINUED) HBOS Treasury Services P.L.C. 1.120% 02/12/04 $ 20,540 $ 20,513,161 Municipal Electrical Authority, Georgia TECP 1.160% 01/14/04 52,891 52,891,000 Paradigm Funding Corp., L.L.C. 1.120% 01/20/04 86,000 85,949,164 1.120% 02/10/04 50,000 49,937,778 Park Granada Corp., L.L.C. 0.970% 01/02/04 18,852 18,851,492 1.150% 01/06/04 50,000 49,992,014 1.110% 01/07/04 60,180 60,168,867 1.130% 01/09/04 50,000 49,987,445 1.110% 02/18/04 40,000 39,940,800 Santa Clara Water District, California Series B 1.150% 01/15/04 4,145 4,143,146 Scaldis Capital Corp., L.L.C. 1.110% 02/02/04 70,137 70,067,798 1.120% 02/23/04 10,000 9,983,511 Sunshine State Governmental Financing Commission 1.150% 01/15/04 3,000 2,998,658 Surrey Funding Corp. 1.110% 01/15/04 240,000 239,896,603 1.110% 01/16/04 50,000 49,976,875 Thames Asset Global Securitization, Inc. 1.120% 01/13/04 7,052 7,049,367 1.110% 01/15/04 5,106 5,103,796 1.100% 01/20/04 10,457 10,450,929 Ticonderoga Master Funding, Ltd. 1.105% 01/28/04 78,456 78,390,980 UBS Finance Corp., L.L.C. 0.950% 01/02/04 22,845 22,844,397 -------------- TOTAL COMMERCIAL PAPER (Cost $1,558,357,816) 1,558,357,816 -------------- MUNICIPAL BONDS -- 8.3% Alaska State Housing Finance Corp. Revenue Bonds Series B VR 1.250% 01/02/04 8,055 8,055,000 California State Department of Water Resources Power Supply Revenue Bonds Series C-13 VR 1.070% 01/02/04 125,075 125,073,599 Chicago, Illinois, Metropolitan Water Reclamation District Greater Chicago General Obligation Bonds Series A 1.070% 01/07/04 38,500 38,499,569 Colorado State Housing & Finance Authority Revenue Bonds Series 1, Class A1 VR 1.250% 01/07/04 12,600 12,600,000 Colorado State Housing & Finance Authority Revenue Bonds Series B-1 VR 1.250% 01/07/04 15,000 15,000,000 Colorado State Housing & Finance Authority Revenue Bonds Series B-2 VR 1.250% 01/07/04 50,000 50,000,000 See Notes to Financial Statements. 24 HARRIS INSIGHT MONEY MARKET FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- -------- -------------- MUNICIPAL BONDS (CONTINUED) Connecticut State Health & Educational Facilities Authority Revenue Bonds (Yale University) Series V-1 VR 1.250% 01/02/04 $ 6,300 $ 6,300,000 Connecticut State Health & Educational Facilities Authority Revenue Bonds (Yale University) Series V-2 VR 1.250% 01/02/04 28,350 28,350,000 Connecticut State Housing Finance Authority Revenue Bonds VR 1.100% 01/01/04 8,666 8,666,000 Los Angeles, California, Water & Power Revenue Bonds Series A-4 VR 1.070% 01/02/04 32,000 31,999,641 Madison, Wisconsin, Community Development Authority Revenue Bonds VR 1.260% 01/07/04 8,355 8,355,000 Metropolitan Water District of Southern California Waterworks Revenue Bonds Series B-4 VR 1.030% 01/07/04 28,800 28,799,539 Riverside County, California, Asset Leasing Corp. Leasehold Revenue Bonds (Southwest Justice Center) Series B VR 1.040% 01/07/04 29,400 29,400,000 Southern California Public Power Authority Revenue Bonds (Palo Verde Power Project) Series C VR 1.030% 01/07/04 28,650 28,649,542 Southern California Public Power Authority Revenue Bonds (Southern Transmission Power Project) VR 1.030% 01/07/04 87,805 87,803,595 Triborough Bridge & Tunnel Authority, New York Revenue Bonds Series B VR 1.080% 01/07/04 35,100 35,099,635 Triborough Bridge & Tunnel Authority, New York Revenue Bonds Series C VR 1.080% 01/07/04 40,400 40,399,580 Triborough Bridge & Tunnel Authority, New York Special Obligation Revenue Bonds Series C VR 1.080% 01/07/04 36,285 36,284,637 Washington State Public Power Supply Revenue Bonds (Nuclear Project Number 1) Series 1A-2 VR 1.070% 01/07/04 23,960 23,959,732 -------------- TOTAL MUNICIPAL BONDS (Cost $643,295,069) 643,295,069 -------------- TIME DEPOSITS -- 5.1% Fifth Third Bank 0.906% 01/02/04 122,472 122,471,635 UBS Finance Corp., L.L.C. 0.938% 01/02/04 270,000 270,000,000 -------------- TOTAL TIME DEPOSITS (Cost $392,471,635) 392,471,635 -------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- -------- -------------- VARIABLE RATE OBLIGATIONS++ -- 47.5% American Express Centurion Corp. 1.133% 01/14/04* $ 50,000 $ 50,000,000 American Express Credit Corp. Series 144A 1.169% 01/20/04* 250,000 250,000,000 American General Finance Corp. 1.370% 01/09/04 4,000 4,000,198 Bank of America Securities Corp., L.L.C. 1.190% 01/02/04* 150,000 150,000,000 Beta Finance, Inc. Series 144A 1.080% 01/02/04* 80,000 79,989,445 1.130% 01/12/04* 32,000 31,999,649 Bradford & Bingley P.L.C. Series 144A 1.150% 01/08/04* 250,000 250,000,000 CC USA, Inc. Series 144A 1.074% 01/02/04* 18,000 17,997,550 1.129% 01/12/04* 14,000 13,999,839 1.123% 01/14/04* 15,000 14,999,808 1.180% 01/20/04* 50,000 50,016,555 1.104% 01/22/04* 74,500 74,489,880 CFM International, Inc. 1.170% 01/05/04* 34,325 34,325,000 Compass Securitization Corp., L.L.C. Series 144A 1.119% 01/12/04* 200,000 199,995,344 Crown Point Capital Corp., L.L.C. Series 144A 1.120% 01/08/04* 100,000 99,994,538 First USA Bank 1.380% 01/08/04* 20,000 20,041,614 FleetBoston Financial Corp. 1.410% 01/05/04* 55,600 55,739,400 General Electric Capital Corp. 1.250% 01/09/04* 15,000 15,000,000 1.269% 01/20/04* 5,000 5,003,110 1.361% 01/27/04* 8,500 8,516,737 1.320% 03/15/04* 5,035 5,041,074 Goldman Sachs Group, Inc. 1.180% 03/15/04* 125,000 125,190,593 Goldman Sachs Group, Inc. Series 144A 1.243% 01/15/04* 100,000 100,000,000 1.400% 01/15/04* 54,000 54,010,992 1.126% 01/20/04* 22,000 22,000,000 HBOS Treasury Services P.L.C. Series 144A 1.150% 01/23/04* 30,500 30,502,509 1.176% 01/23/04* 100,000 100,042,131 Household Finance Corp. 1.520% 03/01/04* 2,250 2,253,518 2.668% 03/16/04* 49,350 50,077,646 1.470% 03/24/04* 54,800 54,930,632 J.P. Morgan, Chase & Co. 1.285% 02/05/04 15,000 15,002,174 K2 Corp., L.L.C. Series 144A 1.090% 01/02/04* 100,000 99,995,424 1.105% 01/29/04* 45,000 44,997,932 1.130% 01/30/04* 100,000 99,990,799 Lehman Brothers Holdings, Inc. 1.550% 01/05/04* 12,650 12,678,837 1.420% 01/09/04* 52,500 52,516,209 1.189% 01/22/04* 102,500 102,500,000 See Notes to Financial Statements. 25 HARRIS INSIGHT MONEY MARKET FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- -------- -------------- VARIABLE RATE OBLIGATIONS++ (CONTINUED) Money Market Trust Series A-1 144A 1.313% 01/15/04* $173,000 $ 173,000,000 Morgan Stanley Dean Witter & Co. 1.283% 01/15/04* 38,200 38,200,000 1.420% 01/22/04* 24,600 24,619,961 National City Bank 1.249% 01/21/04* 5,000 5,003,089 Nationwide Building Society Series 144A 1.140% 01/23/04* 72,000 72,000,000 Northern Rock P.L.C. Series 144A 1.250% 02/19/04* 9,500 9,503,951 1.270% 03/18/04 12,200 12,202,874 Paradigm Funding Corp., L.L.C. Series 144A 1.130% 01/05/04* 150,000 149,993,689 Racers Trust Series 2002-07-MM 144A 1.363% 01/15/04* 132,000 132,000,015 Rural Electric Cooperative Grantor Trust (Kansas Electric Power Cooperative) 1.170% 01/07/04* 11,140 11,140,000 Tango Finance Corp. Series 144A 1.070% 01/02/04* 29,000 29,000,000 1.080% 01/02/04* 60,000 60,000,000 1.135% 01/02/04* 31,000 30,999,324 1.085% 01/05/04* 20,000 19,999,326 1.134% 01/12/04* 43,000 42,998,869 1.139% 01/12/04* 30,000 30,000,000 1.123% 01/15/04* 25,000 24,999,417 1.128% 01/15/04* 50,000 49,998,695 1.114% 01/22/04* 30,000 29,999,168 Volkswagen Credit, Inc. Series 144A 1.350% 01/22/04 35,000 35,003,861 White Pine Finance Corp., L.L.C. Series 144A 1.100% 01/05/04* 30,000 29,996,694 1.130% 01/07/04* 57,000 56,991,866 1.124% 01/12/04* 10,000 9,998,933 1.123% 01/15/04* 142,000 141,989,578 1.111% 01/26/04* 50,000 49,998,863 -------------- TOTAL VARIABLE RATE OBLIGATIONS (Cost $3,667,477,310) 3,667,477,310 -------------- YANKEE BONDS -- 0.8% Canadian Imperial Bank of Commerce 1.114% 01/22/04* 25,000 24,998,870 1.111% 01/26/04* 40,000 39,993,495 -------------- TOTAL YANKEE BONDS (Cost $64,992,365) 64,992,365 -------------- REPURCHASE AGREEMENTS -- 0.6% Bank of America Corp. 1.000% Agreement dated 12/31/03, proceeds at maturity $48,585,671 (Collateralized by $48,727,563 FNMA 5.500%, due 12/01/33. The market value is $49,554,632.) 01/02/04 48,583 48,582,972 (Cost $48,582,972) -------------- SHARES VALUE+ ----------- ------ TEMPORARY INVESTMENTS -- 3.9% AIM Short-Term Investment Co. Liquid Assets Prime Portfolio (Cost $300,826,089) 300,826,089 $ 300,826,089 -------------- TOTAL INVESTMENTS -- 100.7% (Cost $7,783,777,016 a) 7,783,777,016 -------------- OTHER ASSETS AND LIABILITIES-- (0.7%) Interest receivable and other assets 8,565,416 Payable for securities purchased (56,991,866) Dividends payable (4,612,926) Accrued expenses (2,722,912) -------------- (55,762,288) -------------- NET ASSETS -- 100.0% Applicable to 3,789,247,811 Institutional Shares, 1,301,264,146 N Shares, 44,942 B Shares, 478,632,702 Exchange Shares, and 2,159,416,520 Service Shares of beneficial interest outstanding, $.001 par value (Note 8) $7,728,014,728 ============== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER SHARE EACH FOR INSTITUTIONAL SHARES, N SHARES, B SHARES (SUBJECT TO A MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 5.0%), EXCHANGE SHARES, AND SERVICE SHARES $1.00 ===== - ---------- + See Note 2a to the Financial Statements. ++ Rate in effect on 12/31/03. * Date of next interest rate reset. a Aggregate cost for federal tax purposes. VR -- Variable rate demand note; interest rate in effect on 12/31/03. Maturity date is the later of the next interest rate change or exercise of the demand feature. TECP -- Tax-Exempt Commercial Paper. See Notes to Financial Statements. 26 HARRIS INSIGHT TAX-EXEMPT MONEY MARKET FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - -------------------------------------------------------------------------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- -------- -------------- MUNICIPAL BONDS -- 101.3% ALABAMA -- 4.7% Chatom, Alabama, Industrial Development Board Pollution Control Revenue Bonds (Alabama Electric Project) VR 1.450% 01/07/04 $ 3,430 $ 3,430,000 Columbia, Alabama, Industrial Development Board Pollution Control Revenue Bonds (Alabama Power Co. Project) Series C VR 1.350% 01/02/04 14,200 14,200,000 Jefferson County, Alabama, Sewer Revenue Bonds (Eagle) Series 20026020 144A, Class A VR 1.300% 01/02/04 9,830 9,830,000 Jefferson County, Alabama, Sewer Revenue Bonds (Eagle) Series 20030029 144A, Class A VR 1.300% 01/02/04 9,900 9,900,000 Jefferson County, Alabama, Sewer Revenue Bonds Series C-2 VR 1.270% 01/02/04 12,000 12,000,000 Jefferson County, Alabama, Sewer Revenue Bonds Series C-4 VR 1.270% 01/02/04 10,000 10,000,000 -------------- 59,360,000 -------------- ALASKA -- 2.2% Alaska State Housing Finance Corp. Governmental Purpose Revenue Bonds (University of Alaska) Series A VR 1.280% 01/07/04 27,600 27,600,000 -------------- ARIZONA -- 0.8% Salt River Project, Arizona, Agricultural Improvement & Power District Electrical Systems Revenue Bonds Series 144A, Class A VR 1.300% 01/02/04 9,900 9,900,000 -------------- COLORADO -- 3.2% Colorado Health Facilities Authority Revenue Bonds (Catholic Health) Series B VR 1.150% 01/07/04 11,000 11,000,000 Moffat County, Colorado, Pollution Control Revenue Bonds (National Rural Utilities Co-Op) VR 1.450% 01/07/04 29,135 29,135,000 -------------- 40,135,000 -------------- DISTRICT OF COLUMBIA -- 0.3% District of Columbia General Obligation Bonds Series 144A VR 1.170% 01/02/04 4,100 4,100,000 -------------- FLORIDA -- 2.9% Florida State Board of Education General Obligation Bonds (Eagle) Series 2003025 144A, Class A VR 1.300% 01/02/04 4,900 4,900,000 ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- -------- -------------- MUNICIPAL BONDS (CONTINUED) FLORIDA (CONTINUED) Jea, Florida, Water & Sewer System Revenue Bonds Series B VR 1.070% 01/07/04 $ 9,700 $ 9,700,000 Orange County, Florida, School Board Certificates of Participation (STARS) Series 2 144A VR 1.160% 01/01/04 1,500 1,500,000 Orlando & Orange County, Florida, Expressway Authority Revenue Bonds Series C-4 VR 1.200% 01/02/04 5,000 5,000,000 Orlando & Orange County, Florida, Expressway Authority Revenue Bonds Series D VR 1.200% 01/02/04 5,000 5,000,000 Putnam County, Florida, Development Authority Pollution Control Revenue Bonds (Seminole Electric Co-Op, Inc.) PS 1.020% 03/15/04 3,000 3,000,000 1.250% 03/15/04 7,000 7,000,000 -------------- 36,100,000 -------------- GEORGIA -- 8.0% Atlanta, Georgia, Metropolitan Rapid Transit Authority Sales Tax Revenue Bonds Series A VR 1.200% 01/07/04 19,350 19,350,000 Burke County, Georgia, Development Authority Pollution Control Revenue Bonds (Georgia Power Co. Plant Vogtle Project) 1st Series PS 1.250% 03/25/04 10,000 10,000,000 Gwinnett County, Georgia, Water & Sewer Authority Revenue Bonds (Eagle) Series 2003021 144A, Class A VR 1.300% 01/02/04 16,325 16,325,000 Monroe County, Georgia, Development Authority Pollution Control Revenue Bonds (Georgia Power Co. Plant Scherer Project) 2nd Series PS 1.200% 04/12/04 11,000 11,000,000 Municipal Electric Authority, Georgia TECP 1.080% 01/14/04 3,000 3,000,000 1.100% 01/15/04 18,300 18,300,000 1.130% 01/15/04 1,700 1,700,000 Municipal Electric Authority, Georgia Revenue Bonds (Project One) Series E VR 1.200% 01/07/04 15,365 15,365,000 Putnam County, Georgia, Development Authority Pollution Control Revenue Bonds (Georgia Power Co. Plant Branch Project) 1st Series PS 1.200% 04/12/04 6,700 6,700,000 -------------- 101,740,000 -------------- See Notes to Financial Statements. 27 HARRIS INSIGHT TAX-EXEMPT MONEY MARKET FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- -------- -------------- MUNICIPAL BONDS (CONTINUED) HAWAII -- 0.8% ABN AMRO Munitops Certificates Trust (Hawaii) Series 11 144A PS 1.200% 10/13/04 $ 9,980 $ 9,980,000 -------------- ILLINOIS -- 17.7% ABN AMRO Munitops Certificates Trust (Multistate) Series 2 144A VR 1.210% 01/07/04 10,000 10,000,000 ABN AMRO Munitops Certificates Trust (Multistate) Series 3 144A VR 1.210% 01/07/04 15,000 15,000,000 Cary, Illinois, Special Tax Revenue Bonds (Foxford Special Service Area No. 2) VR 1.200% 01/07/04 5,630 5,630,000 Chicago, Illinois, General Obligation Bonds (Eagle) Series 20030006-A 144A VR 1.300% 01/02/04 4,800 4,800,000 Chicago, Illinois, General Obligation Notes (Neighborhoods Alive 21-B) VR 1.300% 01/07/04 15,000 15,000,000 Chicago, Illinois, General Obligation Tender Notes PS 1.220% 01/07/04 7,000 7,000,000 Cook County, Illinois, Community Consolidated School District No. 21 (Wheeling) Educational Purposes Tax Anticipation Warrants 1.500% 04/12/04 6,510 6,520,967 Cook County, Illinois, East Maine School District No. 63 (Des Plaines) General Obligation Bonds 1.850% 12/01/04 1,300 1,307,062 Cook County, Illinois, General Obligation Bonds (Capital Improvement) Series B VR 1.280% 01/07/04 10,000 10,000,000 Illinois Development Finance Authority Revenue Bonds (Elmhurst College) Series A RANS 3.000% 08/16/04 4,350 4,395,571 Illinois Development Finance Authority Revenue Bonds (Lake Forest Academy) VR 1.200% 01/07/04 4,000 4,000,000 Illinois Development Finance Authority Revenue Bonds (McGaw YMCA Evanston Project) VR 1.380% 01/02/04 4,000 4,000,000 Illinois Development Finance Authority Revenue Bonds (North Park University) VR 1.150% 01/07/04 23,000 23,000,000 Illinois Development Finance Authority Revenue Bonds (Presbyterian Home Lake) Series A VR 1.200% 01/07/04 28,000 28,000,000 ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- -------- -------------- MUNICIPAL BONDS (CONTINUED) ILLINOIS (CONTINUED) Illinois Development Finance Authority Revenue Bonds (Provena Health Project) Series C VR 0.770% 01/02/04 $ 21,000 $ 21,000,000 Illinois Development Finance Authority Revenue Bonds (Sacred Heart Schools Project) VR 1.000% 01/07/04 2,300 2,300,000 Illinois Educational Facilities Authority Revenue Bonds (Field Museum of Natural History) VR 1.150% 01/07/04 15,400 15,400,000 Illinois Educational Facilities Authority Revenue Bonds (Northwestern University) VR 1.150% 01/07/04 2,900 2,900,000 Illinois Health Facilities Authority TECP 1.000% 03/25/04 13,000 13,000,000 1.200% 11/15/04 5,000 5,000,000 Illinois Health Facilities Authority Revenue Bonds (Advocate Health Care Network) Series A PS 1.050% 07/06/04 11,130 11,130,000 Illinois State General Obligation Bonds (Eagle) Tax-Exempt Trust Series 20026002 144A, Class A VR 1.300% 01/07/04 10,840 10,840,000 Winnebago & Boone Counties, Illinois, Rockland School District No. 205 Tax Anticipation Warrants 2.270% 10/28/04 4,000 4,018,464 -------------- 224,242,064 -------------- INDIANA -- 6.9% ABN AMRO Munitops Certificates Trust (Multistate) Series 5 144A VR 1.210% 01/07/04 10,746 10,746,000 ABN AMRO Munitops Certificates Trust (Multistate) Series 7 144A PS 1.200% 05/12/04 5,000 5,000,000 ABN AMRO Munitops Certificates Trust (Multistate) Series 21 144A PS 1.000% 05/19/04 12,020 12,020,000 Indiana Health Facility Financing Authority Hospital Revenue Bonds (Clarian Health Obligated Group) Series H VR 1.100% 01/07/04 14,000 14,000,000 Indiana Health Facility Financing Authority Revenue Bonds (Ascension Health Credit Group) Series A-1 PS 0.980% 07/02/04 20,000 20,000,000 Indiana Health Facility Financing Authority Revenue Bonds (Ascension Health Credit Group) Series A-3 PS 1.150% 03/02/04 4,000 4,000,000 See Notes to Financial Statements. 28 HARRIS INSIGHT TAX-EXEMPT MONEY MARKET FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- -------- -------------- MUNICIPAL BONDS (CONTINUED) INDIANA (CONTINUED) Indiana Health Facility Financing Authority Revenue Bonds (Union Hospital, Inc. Project) VR 1.330% 01/07/04 $ 7,800 $ 7,800,000 Indiana Municipal Power Agency, Power Supply Systems Revenue Bonds Series B 144A PS 1.000% 02/12/04 6,755 6,755,000 Indiana State Educational Facilities Authority Revenue Bonds (Wabash College Project) VR 1.350% 01/02/04 3,000 3,000,000 Indiana University Revenue Bonds Series 144A VR 1.300% 01/02/04 4,285 4,285,000 -------------- 87,606,000 -------------- KENTUCKY -- 1.8% Jefferson County, Kentucky, School District Finance Corp. School Building Revenue Bonds Series B 3.125% 06/01/04 2,145 2,162,397 Kentucky Economic Development Finance Authority Hospital Facilities Revenue Bonds (Baptist Healthcare System) Series B VR 1.100% 01/07/04 9,250 9,250,000 Mason County, Kentucky, Pollution Control Revenue Bonds (East Kentucky Power Co-Op) Series B-2 VR 1.450% 01/07/04 6,920 6,920,000 Mason County, Kentucky, Pollution Control Revenue Bonds (East Kentucky Power Co-Op) Series B-3 VR 1.450% 01/07/04 4,860 4,860,000 -------------- 23,192,397 -------------- LOUISIANA -- 1.4% Lake Charles, Louisiana, Harbor Terminal District Revenue Bonds (Conoco, Inc. Project) Series A VR 1.100% 01/07/04 12,100 12,100,000 Louisiana Offshore Terminal Authority Deepwater Port Revenue Bonds (Loop L.L.C. Project) Series B VR 1.200% 01/07/04 5,700 5,700,000 -------------- 17,800,000 -------------- MASSACHUSETTS -- 1.6% Gill-Montague, Massachusetts, Regional School District BANS 2.000% 07/29/04 5,000 5,024,098 Massachusetts Water Resources Authority TECP 1.100% 02/09/04 15,000 15,000,000 -------------- 20,024,098 -------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- -------- -------------- MUNICIPAL BONDS (CONTINUED) MICHIGAN -- 4.2% Detroit, Michigan, City School District General Obligation Bonds (Eagle) Series 20026013 144A, Class A VR 1.300% 01/07/04 $ 7,680 $ 7,680,000 Detroit, Michigan, City School District General Obligation Bonds (Eagle) Series 20026014 144A, Class A VR 1.300% 01/07/04 7,200 7,200,000 Grand Valley State University, Michigan Revenue Bonds Series A VR 1.300% 01/07/04 16,600 16,600,000 Grand Valley State University, Michigan Revenue Bonds Series B VR 1.300% 01/02/04 7,000 7,000,000 Kalamazoo, Michigan, Hospital Finance Authority Revenue Bonds (Bronson Methodist Hospital) VR 1.320% 01/02/04 7,000 7,000,000 Michigan State Strategic Fund Limited Obligation Revenue Bonds (Southgate Properties Project) VR 1.320% 01/02/04 7,245 7,245,000 -------------- 52,725,000 -------------- MISSISSIPPI -- 1.9% Claiborne County, Mississippi TECP 1.150% 02/13/04 1,900 1,900,000 Jackson County, Mississippi, Pollution Control Revenue Bonds (Chevron, Inc. Project) VR 1.300% 01/01/04 8,000 8,000,000 Jackson County, Mississippi, Port Facility Revenue Bonds (Chevron, Inc. Project) VR 1.300% 01/02/04 10,000 10,000,000 Mississippi State General Obligation Bonds (Eagle) Series 20026018 144A, Class A VR 1.300% 01/07/04 4,000 4,000,000 -------------- 23,900,000 -------------- MISSOURI -- 1.6% Bi State Development Agency, Missouri-Illinois Metropolitan District Mass Transit Revenue Bonds (MetroLink Cross County Project) Series A VR 1.100% 01/07/04 7,000 7,000,000 Missouri State Health & Educational Facilities Authority Revenue Bonds (Eagle) Series 20026026 144A, Class A VR 1.300% 01/02/04 2,700 2,700,000 Missouri State Health & Educational Facilities Authority Revenue Bonds (Washington University) (Eagle) Series 20030003 144A, Class A VR 1.300% 01/02/04 9,900 9,900,000 -------------- 19,600,000 -------------- See Notes to Financial Statements. 29 HARRIS INSIGHT TAX-EXEMPT MONEY MARKET FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- -------- -------------- MUNICIPAL BONDS (CONTINUED) NEVADA -- 0.9% ABN AMRO Munitops Certificates Trust (Multistate) Series 19 144A PS 1.120% 06/16/04 $ 10,950 $ 10,950,000 -------------- NEW MEXICO -- 4.0% Farmington, New Mexico, Pollution Control Revenue Bonds (Arizona Public Service Co.) Series A VR 1.300% 01/02/04 25,000 25,000,000 Farmington, New Mexico, Pollution Control Revenue Bonds (Arizona Public Service Co.) Series B VR 1.300% 01/02/04 25,000 25,000,000 -------------- 50,000,000 -------------- NEW YORK -- 4.4% New York City, New York, Transitional Finance Authority Certificates (STARS) Series 1 144A VR 1.150% 01/01/04 1,000 1,000,000 New York City, New York, Transitional Finance Authority Certificates (STARS) Series 7 144A VR 1.270% 01/02/04 3,205 3,205,000 New York State Dormitory Authority Revenue Bonds Series 144A PS 1.000% 02/05/04 5,995 5,995,000 New York State Thruway Authority General Revenue Bonds Series A BANS 1.125% 03/25/04 5,000 5,000,288 New York State Thruway Authority Second General Highway & Bridge Trust Fund Certificates (STARS) Series 4 144A VR 1.250% 01/02/04 1,015 1,015,000 Triborough Bridge & Tunnel Authority, New York, Revenue Bonds Series B VR 1.130% 01/07/04 40,000 40,000,000 -------------- 56,215,288 -------------- OHIO -- 0.7% Ohio State Higher Educational Facility Commission Revenue Bonds (Pooled Financing 2002 Program) Series A VR 1.300% 01/07/04 7,155 7,155,000 Ohio State Higher Educational Facility Commission Revenue Bonds (Pooled Financing 2003 Program) Series A VR 1.100% 01/01/04 1,945 1,945,000 -------------- 9,100,000 -------------- OKLAHOMA -- 0.7% Tulsa, Oklahoma, Industrial Authority Revenue Bonds (University of Tulsa) Series B VR 1.250% 01/07/04 9,270 9,270,000 -------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- -------- -------------- MUNICIPAL BONDS (CONTINUED) OREGON -- 2.8% Clakamas County, Oregon, Hospital Facility Authority Revenue Bonds (Legacy Health System) VR 1.100% 01/07/04 $ 20,000 $ 20,000,000 Eugene, Oregon, Electric Utiltity Revenue Bonds (Eagle) Series 2003002 144A, Class A VR 1.300% 01/02/04 5,880 5,880,000 Oregon State TANS 2.250% 11/15/04 10,000 10,101,753 -------------- 35,981,753 -------------- PENNSYLVANIA -- 2.8% Pennsylvania Intergovernmental Cooperation Authority Special Tax Revenue Refunding Bonds (City of Philadelphia Funding Program) VR 1.240% 01/07/04 25,000 25,000,000 Pennsylvania State Turnpike Revenue Bonds (Commonwealth Turnpike) Series A-3 VR 1.150% 01/07/04 10,000 10,000,000 -------------- 35,000,000 -------------- SOUTH CAROLINA -- 0.6% Oconee County, South Carolina, Pollution Control Facilities Revenue Bonds (Duke Energy Corp. Project) VR 1.350% 01/02/04 7,000 7,000,000 -------------- TENNESSEE -- 0.1% Metropolitan Government of Nashville & Davidson County, Tennessee Health & Educational Facilities Board Revenue Bonds (Ascension Health) PS 1.250% 01/05/04 1,200 1,200,000 -------------- TEXAS -- 12.0% ABN AMRO Munitops Certificates Trust (Multistate) Series 8 144A VR 1.210% 01/07/04 5,000 5,000,000 ABN AMRO Munitops Certificates Trust (Multistate) Series 13 144A VR 1.170% 01/07/04 6,000 6,000,000 ABN AMRO Munitops Certificates Trust (Multistate) Series 15 144A PS 1.200% 02/25/04 15,925 15,925,000 Denton, Texas, Independent School District General Obligation Bonds Series B PS 1.150% 08/15/04 10,000 10,000,000 Harris County, Texas, Health Facilities Development Corp. Revenue Bonds Series 144A PS 1.050% 02/05/04 6,095 6,095,000 Houston, Texas, Water & Sewer System Revenue Bonds (STARS) Series 14 144A VR 1.280% 01/02/04 1,000 1,000,000 See Notes to Financial Statements. 30 HARRIS INSIGHT TAX-EXEMPT MONEY MARKET FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- -------- -------------- MUNICIPAL BONDS (CONTINUED) TEXAS (CONTINUED) Lower Colorado River Authority, Texas Transmission Certificates (STARS) Series 3 144A VR 1.280% 01/02/04 $ 1,495 $ 1,495,000 Nueces County, Texas, Health Facilities Development Corp. Revenue Bonds (Driscoll Children's Foundation Project) VR 1.380% 01/07/04 17,600 17,600,000 San Antonio, Texas, Electric & Gas Revenue Bonds VR 1.280% 01/07/04 11,000 11,000,000 Texas Small Business Industrial Development Revenue Bonds VR 1.280% 01/07/04 25,200 25,200,000 Texas State General Obligation Bonds (Eagle) Series 200030026 144A, Class A VR 1.300% 01/02/04 2,410 2,410,000 Texas State TRANS 2.000% 08/31/04 40,000 40,227,779 Texas State Turnpike Authority, Central Texas Turnpike System Revenue Bonds (Eagle) Series 20030008 144A, Class A VR 1.300% 01/02/04 9,900 9,900,000 -------------- 151,852,779 -------------- VIRGINIA -- 1.9% Clarke County, Virginia, Industrial Development Authority Hospital Facilities Revenue Bonds (Winchester Medical Center, Inc.) VR 1.350% 01/07/04 22,600 22,600,000 Loudoun County, Virginia, Industrial Development Authority Revenue Bonds (Howard Hughes Medical Institution) Series C VR 1.070% 01/02/04 1,500 1,500,000 -------------- 24,100,000 -------------- WASHINGTON -- 2.5% Issaquah, Washington, Community Properties Revenue Bonds Series A VR 1.350% 01/07/04 15,000 15,000,000 Washington State General Obligation Bonds Series 144A VR 1.300% 01/02/04 2,285 2,285,000 Washington State Public Power Supply Systems Revenue Bonds (Nuclear Project No. 1) VR 1.100% 01/07/04 14,960 14,960,000 -------------- 32,245,000 -------------- WEST VIRGINIA -- 1.2% ABN AMRO Munitops Certificates Trust (Multistate) Series 12 144A VR 1.210% 01/07/04 15,000 15,000,000 -------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- -------- -------------- MUNICIPAL BONDS (CONTINUED) WISCONSIN -- 5.3% Antigo Unified School District , Wisconsin TRANS 1.500% 10/29/04 $ 4,100 $ 4,110,691 Kettle Moraine School District, Wisconsin (Waukesha & Jefferson Counties) BANS 1.100% 09/03/04 5,500 5,500,704 Kohler School District, Wisconsin BANS 1.250% 04/15/04 3,535 3,536,974 Luxemburg-Casco School District, Wisconsin TRANS 1.500% 10/29/04 3,055 3,063,468 Menomonee Falls School District, Wisconsin TRANS 1.750% 08/19/04 5,750 5,770,809 Milwaukee, Wisconsin, Redevelopment Authority Revenue Bonds (American Society for Quality) VR 1.330% 01/07/04 2,000 2,000,000 Monona Grove School District, Wisconsin TRANS 1.500% 10/28/04 2,050 2,055,494 Monroe School District, Wisconsin TRANS 1.500% 10/15/04 5,350 5,362,469 New Berlin School District, Wisconsin TANS 1.875% 02/01/04 1,500 1,501,094 Nicolet High School District, Wisconsin TRANS 1.500% 10/29/04 1,500 1,504,025 Oconomowoc Area School District, Wisconsin TRANS 1.750% 09/23/04 6,000 6,021,951 Verona Area School District, Wisconsin TRANS 1.500% 08/25/04 7,550 7,570,761 Waukesha County, Wisconsin TANS 1.375% 07/15/04 3,000 3,002,093 Wisconsin Health & Educational Facilities Authority Revenue Bonds (Wheaton Franciscan Services, Inc. System) Series B VR 1.100% 01/01/04 12,700 12,700,000 Wisconsin State General Obligation Bonds Series B PS 5.500% 05/01/04 3,470 3,521,933 -------------- 67,222,466 -------------- WYOMING -- 1.4% Platte County, Wyoming, Pollution Control Revenue Bonds (Tri-State Generation & Transmission Association) Series A VR 1.350% 01/02/04 10,000 10,000,000 See Notes to Financial Statements. 31 HARRIS INSIGHT TAX-EXEMPT MONEY MARKET FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- -------- -------------- MUNICIPAL BONDS (CONTINUED) WYOMING (CONTINUED) Platte County, Wyoming, Pollution Control Revenue Bonds (Tri-State Generation & Transmission Association) Series B VR 1.350% 01/01/04 $ 8,000 $ 8,000,000 -------------- 18,000,000 -------------- TOTAL MUNICIPAL BONDS (Cost $1,281,141,845) 1,281,141,845 -------------- SHARES ----------- TEMPORARY INVESTMENTS -- 0.8% AIM Tax-Free Investment Co. Cash Reserve Portfolio 5,181,028 5,181,028 Dreyfus Tax-Exempt Cash Management #264 206,261 206,261 Goldman Sachs Financial Square Tax-Exempt Money Market Portfolio 5,351,976 5,351,976 -------------- TOTAL TEMPORARY INVESTMENTS (Cost $10,739,265) 10,739,265 -------------- TOTAL INVESTMENTS -- 102.1% (Cost $1,291,881,110 a) 1,291,881,110 -------------- OTHER ASSETS AND LIABILITIES -- (2.1%) Interest receivable and other assets 2,989,874 Payable for securities purchased (28,571,809) Dividends payable (798,254) Accrued expenses (465,349) -------------- (26,845,538) -------------- NET ASSETS -- 100.0% Applicable to 847,273,218 Institutional Shares, 237,876,436 N Shares, and 180,073,648 Service Shares of beneficial interest outstanding, $.001 par value (Note 8) $1,265,035,572 ============== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER SHARE EACH FOR INSTITUTIONAL SHARES, N SHARES, AND SERVICE SHARES $1.00 ===== - ---------- + See Note 2a to the Financial Statements. a Aggregate cost for federal tax purposes. PS -- Security with a "put" feature; date shown is when security may be put back for redemption. VR -- Variable rate demand note; interest rate in effect on 12/31/03. Maturity date is the later of the next interest rate change or exercise of the demand feature. BANS -- Bond Anticipation Note. RANS -- Revenue Anticipation Note. TANS -- Tax Anticipation Note. TECP -- Tax-Exempt Commercial Paper. TRANS -- Tax and Revenue Anticipation Note. See Notes to Financial Statements. 32 HARRIS INSIGHT SHORT/INTERMEDIATE BOND FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - ------------------------------------------------------------------------------ COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- -------- ------------ AGENCY OBLIGATIONS -- 3.3% Federal National Mortgage Association 2.000% 08/26/05 $ 2,200 $ 2,202,957 6.000% 05/15/08 195 216,366 6.250% 02/01/11 2,600 2,878,333 5.500% 03/15/11 3,900 4,212,078 ------------ TOTAL AGENCY OBLIGATIONS (Cost $9,071,952) 9,509,734 ------------ ASSET-BACKED SECURITIES -- 18.2% Americredit Automobile Receivables Trust Series 2001-D, Class A4 4.410% 11/12/08 2,000 2,063,421 Ameriquest Mortgage Securities, Inc. Series 2003-5, Class A3 3.027% 07/25/33 3,365 3,358,942 Bank One Issuance Trust Series 2003-C1, Class C1 4.540% 09/15/10 2,000 2,044,554 Capital One Multi-Asset Execution Trust Series 2003-C2, Class C2 4.320% 04/15/09 2,700 2,753,612 Capital One Multi-Asset Execution Trust Series 2003-C4, Class C4 6.000% 08/15/13 1,965 2,037,156 Citibank Credit Card Issuance Trust Series 2000-A3, Class A3 6.875% 11/16/09 3,080 3,507,211 Citibank Credit Card Issuance Trust Series 2000-C1, Class C1 7.450% 09/15/07 1,600 1,730,316 Citibank Credit Card Issuance Trust Series 2001-A6, Class A6 5.650% 06/16/08 1,350 1,449,875 Credit Card Receivable Trust Series 1998-IA 144A, Class A 6.478% 12/22/04 1,020 1,051,345 First National Master Note Trust Series 2003-2, Class B 3.080% 04/15/09 3,000 3,009,375 Green Tree Financial Corp. Series 1999-5, Class A4 7.330% 04/01/31 2,400 2,498,689 MBNA Master Credit Card Trust Series 1999-M 144A, Class C 7.450% 04/16/07 1,400 1,463,066 Morgan Stanley ABS Capital I Series 2003-HE1, Class A3 1.230% 05/25/33 1,618 1,617,319 Onyx Acceptance Auto Trust Series 2002-C, Class A4 4.070% 04/15/09 5,000 5,152,667 Permanent Financing P.L.C. Series 1, Class 2A 4.200% 06/10/07 3,500 3,635,625 Residential Funding Mortgage Securities Series 2001-HS2, Class A5 6.920% 04/25/31 3,160 3,222,025 COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- -------- ------------ ASSET-BACKED SECURITIES (CONTINUED) Sears Credit Account Master Trust Series 1999-1, Class A 5.650% 03/17/09 $ 4,044 $ 4,149,406 Structured Asset Investment Loan Trust Series 2003-BC4, Class 2A2 1.910% 05/25/33 2,620 2,619,181 Volkswagen Auto Lease Trust Series 2002-A, Class A4 2.750% 12/20/07 1,895 1,914,011 Volkswagen Auto Loan Enhanced Trust Series 2003-2, Class A4 2.940% 03/22/10 1,405 1,406,620 William Street Funding Corp. Series 2003-1 144A, Class A 1.470% 04/23/06 2,600 2,602,384 ------------ TOTAL ASSET-BACKED SECURITIES (Cost $52,770,616) 53,286,800 ------------ COLLATERALIZED MORTGAGE OBLIGATIONS -- 16.5% Citicorp Mortgage Securities, Inc. Series 1993-13, Class A4 3.189% 11/25/08 896 912,313 Citicorp Mortgage Securities, Inc. Series 1993-13, Class A5 15.147% 11/25/08 301 341,403 Citicorp Mortgage Securities, Inc. Series 1993-13, Class A6 8.500% 11/25/08 181 193,779 CS First Boston Mortgage Securities Corp. Series 1998-C1, Class AX IO 1.024% 05/17/40 48,955 2,215,830 DLJ Commercial Mortgage Corp. Series 1998-CF2, Class A1A 5.880% 11/12/31 1,465 1,547,712 DLJ Mortgage Acceptance Corp. Series 1996-M 144A, Class 1 3.849% 11/28/11 683 688,255 DLJ Mortgage Acceptance Corp. Series 1997-CF2 144A, Class CP IO 1.364% 11/15/04 51,000 623,883 Federal Home Loan Mortgage Corp. Series 150, Class IO 7.500% 07/01/23 214 40,396 Federal Home Loan Mortgage Corp. Series 1385, Class J 7.000% 10/15/07 2,135 2,306,638 Federal Home Loan Mortgage Corp. Series 2100, Class GA 6.000% 04/15/12 340 343,124 Federal Home Loan Mortgage Corp. Series 2513, Class JE 5.000% 10/15/17 5,105 5,047,042 Federal National Mortgage Association Series 1993-197, Class SB 12.824% 10/25/08 841 908,956 Federal National Mortgage Association Series 1997-20, Class IO 1.840% 03/25/27 6,347 445,990 See Notes to Financial Statements. 33 HARRIS INSIGHT SHORT/INTERMEDIATE BOND FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - ------------------------------------------------------------------------------ COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- -------- ------------ COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED) Federal National Mortgage Association Series 1997-70, Class PE PO 9.000% 04/25/22 $ 986 $ 871,970 Federal National Mortgage Association Series 1998-61, Class PB 5.500% 12/25/08 76 76,229 Federal National Mortgage Association Series 1998-T1, Class A 10.341% 12/28/28 273 303,263 Federal National Mortgage Association Series 1999-55, Class PA 7.000% 06/18/13 11 11,552 Federal National Mortgage Association Series 2001-69, Class PE 6.000% 11/25/15 3,000 3,133,815 Federal National Mortgage Association Series 2002-73, Class OE 5.000% 11/25/17 1,000 986,785 Federal National Mortgage Association Series 2003-35, Class BC 5.000% 05/25/18 1,500 1,495,218 Federal National Mortgage Association Series 2003-57, Class KL 3.500% 03/25/09 1,715 1,739,984 J.P. Morgan Commercial Mortgage Finance Corp. Series 1999-C7, Class X IO 0.659% 10/15/35 80,935 2,107,467 LB-UBS Commercial Mortgage Trust Series 2000-C4, Class A1 7.180% 09/15/19 1,734 1,922,447 LB-UBS Commercial Mortgage Trust Series 2001-C2, Class A1 6.270% 06/15/20 1,850 2,012,443 LB-UBS Commercial Mortgage Trust Series 2003-C1, Class A4 4.394% 03/17/32 780 758,029 Merrill Lynch Mortgage Investors, Inc. Series 1998-C2, Class A1 6.220% 02/15/30 12 12,256 Morgan Stanley Capital I Series 1998-WF2, Class A2 6.540% 07/15/30 2,775 3,093,763 PNC Mortgage Securities Corp. Series 1996-2, Class A4 6.600% 02/25/11 3,821 3,814,085 Residential Accredit Loans, Inc. Series 2001-QS10, Class NB4 6.750% 08/25/31 1,374 1,401,488 Structured Asset Securities Corp. Series 1998-RF3, Class AIO IO 6.100% 06/15/28 4,446 511,284 Structured Asset Securities Corp. Series 2003-28XS, Class A3 4.060% 09/25/33 4,622 4,654,498 Structured Asset Securities Corp. Series 2003-34A, Class 6A 5.145% 11/25/33 3,996 4,035,334 TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $48,825,775) 48,557,231 COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- -------- ------------ MORTGAGE-BACKED SECURITIES-- 1.4% Federal Home Loan Mortgage Corp. Pool #C00515 7.500% 05/01/27 $ 52 $ 55,442 Federal National Mortgage Association Pool #124783 10.500% 12/01/16 8 8,826 Federal National Mortgage Association Pool #305189 9.000% 01/01/25 13 14,165 Federal National Mortgage Association Pool #305555 9.000% 01/01/25 15 16,910 Federal National Mortgage Association Pool #306031 9.000% 02/01/25 44 49,406 Federal National Mortgage Association Pool #306674 9.000% 03/01/25 8 8,400 Federal National Mortgage Association Pool #317306 9.000% 07/01/25 43 47,766 Federal National Mortgage Association Pool #338001 9.000% 10/01/25 2 1,904 Federal National Mortgage Association Pool #585727 6.000% 05/01/16 1,599 1,679,606 Federal National Mortgage Association Pool #695910 5.000% 05/01/18 988 1,012,202 Government National Mortgage Association Pool #326150 7.000% 09/15/23 46 49,782 Government National Mortgage Association Pool #333668 7.000% 07/15/23 84 90,193 Government National Mortgage Association Pool #345039 7.000% 09/15/23 149 159,617 Government National Mortgage Association Pool #345536 7.000% 01/15/24 75 80,696 Government National Mortgage Association Pool #351638 7.000% 06/15/23 129 138,968 Government National Mortgage Association Pool #377553 7.000% 07/15/25 104 111,777 Government National Mortgage Association Pool #383330 7.000% 07/15/25 16 17,630 Government National Mortgage Association Pool #391901 7.000% 07/15/25 71 75,617 Government National Mortgage Association Pool #397755 7.000% 05/15/24 126 135,153 Government National Mortgage Association Pool #406568 7.000% 07/15/25 107 114,224 See Notes to Financial Statements. 34 HARRIS INSIGHT SHORT/INTERMEDIATE BOND FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - ------------------------------------------------------------------------------ COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- -------- ------------ MORTGAGE-BACKED SECURITIES (CONTINUED) Government National Mortgage Association Pool #407660 7.000% 07/15/25 $ 84 $ 90,018 Government National Mortgage Association Pool #780023 7.000% 09/15/24 127 136,695 Government National Mortgage Association Pool #780389 9.000% 08/15/09 30 33,137 ------------ TOTAL MORTGAGE-BACKED SECURITIES (Cost $3,940,993) 4,128,134 ------------ CORPORATE BONDS -- 47.0% ELECTRIC -- 2.5% Consolidated Edison, Inc. 3.625% 08/01/08 1,285 1,286,585 Constellation Energy Corp. 6.125% 09/01/09 1,000 1,099,657 Exelon Generation Co., L.L.C. 6.950% 06/15/11 1,000 1,124,986 FPL Group Capital, Inc. 3.250% 04/11/06 700 712,692 Southern Co. Capital Funding Corp. 5.300% 02/01/07 3,000 3,238,902 ------------ 7,462,822 ------------ FINANCE - BANK -- 5.4% Bank of America Corp. 5.250% 02/01/07 2,000 2,140,450 4.375% 12/01/10 1,000 1,004,004 Capital One Bank 4.250% 12/01/08 1,000 996,757 Manufacturers & Traders Trust Co. 8.000% 10/01/10 2,080 2,503,729 Mercantile Bancorp, Inc. 7.050% 06/15/04 1,670 1,712,887 Sovereign Bank 4.375% 08/01/13 1,300 1,311,060 Union Planters Corp. 7.750% 03/01/11 1,750 2,067,375 Washington Mutual Bank F.A. 5.500% 01/15/13 1,920 1,984,086 Washington Mutual, Inc. 4.000% 01/15/09 480 481,377 Wells Fargo & Co. 6.375% 08/01/11 1,525 1,702,919 ------------ 15,904,644 ------------ FINANCE - NON-BANK -- 14.6% Allstate Corp. 7.875% 05/01/05 2,800 3,021,659 American Express Credit Corp. a 3.000% 05/16/08 1,615 1,582,157 CIT Group, Inc. 2.875% 09/29/06 2,000 2,006,622 7.750% 04/02/12 710 840,138 Countrywide Home Loan, Inc. 4.250% 12/19/07 1,760 1,816,799 COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- -------- ------------ CORPORATE BONDS (CONTINUED) FINANCE - NON-BANK (CONTINUED) EOP Operating L.P. 8.375% 03/15/06 $ 260 $ 291,279 ERP Operating L.P. 7.100% 06/23/04 2,500 2,561,938 Ford Motor Credit Corp. 7.250% a 10/25/11 2,320 2,519,965 7.000% 10/01/13 540 570,535 General Electric Capital Corp. 5.000% 06/15/07 360 383,756 General Motors Acceptance Corp. 4.500% 07/15/06 1,100 1,132,313 6.875% 09/15/11 2,000 2,157,490 Goldman Sachs Group, Inc. 7.625% 08/17/05 2,200 2,405,429 Household Finance Corp. 6.400% 06/17/08 2,005 2,225,135 International Lease Finance Corp. 4.000% 01/17/06 3,206 3,306,854 John Hancock Financial Services Corp. 5.625% 12/01/08 2,320 2,508,781 Lehman Brothers Holdings, Inc. 6.250% 05/15/06 810 880,471 4.000% 01/22/08 1,115 1,138,295 Morgan Stanley Dean Witter & Co. 5.625% 01/20/04 535 535,936 National Rural Utilities Cooperative Finance Corp. 5.750% 08/28/09 1,900 2,061,232 Prudential Financial, Inc. 4.500% 07/15/13 750 717,355 Simon Property Group L.P. 5.375% 08/28/08 1,340 1,417,093 SLM Corp. 4.000% 01/15/09 3,000 3,024,024 Textron Financial Corp. 5.875% 06/01/07 2,400 2,603,851 6.000% 11/20/09 1,000 1,098,723 ------------ 42,807,830 ------------ INDUSTRIAL -- 16.1% AOL Time Warner, Inc. 6.875% 05/01/12 1,235 1,392,438 Boeing Capital Corp. 6.500% 02/15/12 1,270 1,390,753 Centex Corp. 4.750% 01/15/08 1,500 1,549,030 Comcast Cable Communications, Inc. 7.125% 06/15/13 625 713,191 Comcast Corp. 5.300% 01/15/14 690 689,298 ConAgra Foods, Inc. 6.750% 09/15/11 1,350 1,515,480 Cox Communications, Inc. 3.875% 10/01/08 1,500 1,503,139 Delphi Auto Systems Corp. 6.550% 06/15/06 1,000 1,073,648 Federated Department Stores, Inc. 8.500% 06/01/10 2,000 2,455,376 See Notes to Financial Statements. 35 HARRIS INSIGHT SHORT/INTERMEDIATE BOND FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - ------------------------------------------------------------------------------ COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- -------- ------------ CORPORATE BONDS (CONTINUED) INDUSTRIAL -- (CONTINUED) Gannett Co., Inc. 5.500% 04/01/07 $ 1,250 $ 1,355,889 General Electric Co. 5.000% 02/01/13 265 268,489 General Mills, Inc. 6.000% 02/15/12 2,305 2,468,865 Goodrich Corp. 6.450% 12/15/07 1,700 1,843,641 H.J. Heinz Co. 6.000% 03/15/08 1,700 1,861,135 Harrahs Operating Co., Inc. Series 144A 5.375% 12/15/13 1,250 1,243,286 John Deere Capital Corp. 5.100% 01/15/13 750 769,763 Kellogg Co. 2.875% 06/01/08 1,200 1,159,854 Kinder Morgan Energy Corp. 6.750% 03/15/11 1,860 2,090,854 Kohls Corp. 6.300% 03/01/11 3,325 3,736,539 Kroger Co. 5.500% 02/01/13 1,500 1,528,347 Lockheed Martin Corp. 8.200% 12/01/09 1,300 1,580,562 News America, Inc. a 6.625% 01/09/08 1,120 1,246,818 PHH Corp. 6.000% 03/01/08 1,390 1,497,244 Safeway, Inc. 6.850% 09/15/04 3,805 3,933,259 Schering-Plough Corp. 5.300% 12/01/13 1,135 1,157,462 TCI Communications, Inc. 8.750% 08/01/15 570 722,752 Unilever Capital Corp. 6.875% 11/01/05 1,740 1,887,780 7.125% 11/01/10 1,500 1,746,789 Viacom, Inc. 7.700% 07/30/10 1,460 1,747,306 Walt Disney Co. 6.750% 03/30/06 1,000 1,088,214 ------------ 47,217,201 ------------ NATURAL GAS -- 0.5% Duke Energy Field Services 7.875% 08/16/10 1,380 1,619,309 ------------ OIL -- 2.9% Anadarko Petroleum Corp. 5.000% 10/01/12 1,860 1,868,355 Burlington Resources Finance Co. 5.600% 12/01/06 1,800 1,938,159 ChevronTexaco Capital Corp. 3.375% 02/15/08 2,215 2,227,632 Phillips Petroleum Co. 8.500% 05/25/05 2,300 2,508,111 ------------ 8,542,257 ------------ COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- -------- ------------ CORPORATE BONDS (CONTINUED) TELEPHONES -- 4.3% AT&T Wireless Services, Inc. 7.875% 03/01/11 $ 1,310 $ 1,518,404 Deutsche Telekom International Finance 3.875% 07/22/08 1,130 1,135,131 France Telecom S.A. 9.000% 03/01/11 980 1,178,986 Telecom Italia Capital Series 144A a 4.000% 11/15/08 750 755,741 Verizon Global Funding Corp. 6.125% 06/15/07 3,100 3,395,647 Verizon Wireless Capital, L.L.C. 5.375% 12/15/06 2,300 2,456,343 Vodafone Group P.L.C. 7.750% 02/15/10 1,830 2,172,151 ------------ 12,612,403 ------------ TRANSPORTATION -- 0.7% Burlington Northern Santa Fe Corp. 6.750% 07/15/11 690 783,358 CSX Corp. 2.750% 02/15/06 1,000 1,003,150 6.750% 03/15/11 145 163,468 ------------ 1,949,976 ------------ TOTAL CORPORATE BONDS (Cost $132,129,907) 138,116,442 ------------ YANKEE BONDS -- 1.4% Banco Santander Chile 7.375% 07/18/12 2,730 3,078,793 United Mexican States 6.375% 01/16/13 1,000 1,040,000 ------------ TOTAL YANKEE BONDS (Cost $3,712,547) 4,118,793 ------------ U.S. TREASURY OBLIGATIONS -- 7.1% U.S. Treasury Notes 6.500% 08/15/05 6,241 6,734,919 7.000% 07/15/06 4,525 5,069,946 3.250% a 08/15/07 6,700 6,836,358 4.250% 08/15/13 2,275 2,278,556 ------------ TOTAL U.S. TREASURY OBLIGATIONS (Cost $20,964,319) 20,919,779 ------------ SHARES -------- TEMPORARY INVESTMENTS -- 4.3% Goldman Sachs Financial Square Money Market Portfolio 5,815,269 5,815,269 J.P. Morgan Institutional Prime Money Market Portfolio 6,922,451 6,922,451 ------------ TOTAL TEMPORARY INVESTMENTS (Cost $12,737,720) 12,737,720 ------------ See Notes to Financial Statements. 36 HARRIS INSIGHT SHORT/INTERMEDIATE BOND FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - ------------------------------------------------------------------------------ COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- -------- ------------ INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED -- 4.3% COMMERCIAL PAPER -- 0.6% Concord Minuteman Capital Co., L.L.C. 1.100% 02/10/04 $ 1,751 $ 1,746,670 ------------ REPURCHASE AGREEMENTS -- 0.7% Merrill Lynch & Co., Inc. 1.000% Agreement dated 12/31/03, proceeds at maturity $1,971,248 (Collateralized by $2,418,501 FHLMC, FNMA and GNMA 1.450% to 6.000%, due from 11/01/17 to 12/01/33. The market value is $2,030,309.) 01/02/04 1,971 1,971,138 ------------ TIME DEPOSITS -- 2.5% Canadian Imperial Bank 0.938% 01/02/04 2,382 2,381,962 Chase Manhattan Bank 0.875% 01/02/04 133 133,367 Merrill Lynch & Co., Inc. Master Notes 1.130% 01/02/04 4,764 4,763,924 ------------ 7,279,253 ------------ VARIABLE RATE OBLIGATIONS -- 0.5% Natexis Banques 1.035% 01/14/04 1,531 1,530,864 ------------ TOTAL INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED (Cost $12,527,925) 12,527,925 ------------ TOTAL INVESTMENTS -- 103.5% (Cost $296,681,754) 303,902,558 ------------ OTHER ASSETS AND LIABILITIES -- (3.5%) Interest receivable and other assets 3,188,810 Receivable for capital stock sold 226,885 Payable upon return of collateral on securities loaned (12,527,925) Payable for capital stock redeemed (157,993) Dividends payable (739,426) Accrued expenses (164,068) ------------ (10,173,717) ------------ NET ASSETS -- 100.0% Applicable to 26,881,305 Institutional Shares, 871,181 N Shares, 437,932 A Shares, and 98,972 B Shares of beneficial interest outstanding, $.001 par value (Note 8) $293,728,841 ============ NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER INSTITUTIONAL SHARE ($279,109,061/26,881,305) $10.38 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER N SHARE ($9,045,279/871,181) $10.38 ====== NET ASSET VALUE AND REDEMPTION PRICE PER A SHARE ($4,546,894/437,932) $10.38 ====== MAXIMUM PUBLIC OFFERING PRICE PER A SHARE ($10.38/0.965) (NOTE 5) $10.76 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE (SUBJECT TO A MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 5.0%) PER B SHARE ($1,027,607/98,972) $10.38 ====== The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows: Basis $296,683,809 ============ Gross Appreciation $ 8,759,054 Gross Depreciation (1,540,305) ------------ Net Appreciation $ 7,218,749 ============ - ---------- + See Note 2a to the Financial Statements. a Total or partial security on loan. At December 31, 2003, the total market value of the portfolio's securities on loan is $12,273,046, and the total market value of the collateral held by the portfolio is $12,527,925. IO -- Interest Only Security. PO -- Principal Only Security. See Notes to Financial Statements. 37 HARRIS INSIGHT BOND FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - -------------------------------------------------------------------------------- COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ------------ ASSET-BACKED SECURITIES -- 13.7% Americredit Automobile Receivables Trust Series 2001-D, Class A4 4.410% 11/12/08 $ 1,910 $ 1,970,567 Ameriquest Mortgage Securities, Inc. Series 2003-5, Class A3 3.027% 07/25/33 2,310 2,305,841 Bank One Issuance Trust Series 2003-C1, Class C1 4.540% 09/15/10 2,000 2,044,554 Capital One Multi-Asset Execution Trust Series 2003-C2, Class C2 4.320% 04/15/09 2,300 2,345,670 Capital One Multi-Asset Execution Trust Series 2003-C4, Class C4 6.000% 08/15/13 910 943,416 Green Tree Financial Corp. Series 1999-5, Class A4 7.330% 04/01/31 2,200 2,290,464 Permanent Financing P.L.C. Series 1, Class 2A 4.200% 06/10/07 2,000 2,077,500 Structured Asset Investment Loan Trust Series 2003-BC4, Class 2A2 1.910% 05/25/33 2,250 2,249,297 Volkswagen Auto Lease Trust Series 2002-A, Class A4 2.750% 12/20/07 1,450 1,464,547 ------------ TOTAL ASSET-BACKED SECURITIES (Cost $17,460,662) 17,691,856 ------------ COLLATERALIZED MORTGAGE OBLIGATIONS-- 31.3% Citicorp Mortgage Securities, Inc. Series 1993-13, Class A4 3.189% 11/25/08 468 476,495 Citicorp Mortgage Securities, Inc. Series 1993-13, Class A5 15.147% 11/25/08 157 178,312 Citicorp Mortgage Securities, Inc. Series 1993-13, Class A6 8.500% 11/25/08 95 101,210 CS First Boston Mortgage Securities Corp. Series 1998-C1, Class AX IO 1.024% 05/17/40 43,075 1,949,693 DLJ Commercial Mortgage Corp. Series 1998-CF2, Class A1A 5.880% 11/12/31 3,086 3,260,136 DLJ Mortgage Acceptance Corp. Series 1996-M 144A, Class 1 3.849% 11/28/11 91 91,767 Federal Home Loan Mortgage Corp. Series 199, Class IO 6.500% 08/01/28 885 146,226 Federal Home Loan Mortgage Corp. Series 1848, Class PG 7.000% 05/15/26 4,773 5,126,651 COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ------------ COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED) Federal Home Loan Mortgage Corp. Series 2131, Class VD 6.000% 05/15/14 $ 2,412 $ 2,517,767 Federal Home Loan Mortgage Corp. Series 2390, Class PW 6.000% 04/15/15 5,195 5,437,076 Federal Home Loan Mortgage Corp. Series 2443, Class TD 6.500% 10/15/30 2,425 2,520,253 Federal National Mortgage Association Series 145, Class 1 PO 9.000% 06/25/22 373 336,326 Federal National Mortgage Association Series 1993-197, Class SB 12.824% 10/25/08 1,088 1,176,296 Federal National Mortgage Association Series 1997-20, Class IO 1.840% 03/25/27 3,210 225,600 Federal National Mortgage Association Series 2002-73, Class OE 5.000% 11/25/17 5,522 5,449,027 Federal National Mortgage Association Series 2003-35, Class BC 5.000% 05/25/18 1,500 1,495,218 Federal National Mortgage Association Series 2003-W6, Class 2A2 3.110% 09/25/42 2,200 2,202,798 J.P. Morgan Commercial Mortgage Finance Corp. Series 1999-C7, Class X IO 0.659% 10/15/35 73,369 1,910,452 LB-UBS Commercial Mortgage Trust Series 2000-C4, Class A1 7.180% 09/15/19 939 1,040,934 Merrill Lynch Mortgage Investors, Inc. Series 1998-C2, Class A1 6.220% 02/15/30 110 110,778 Morgan Stanley Capital I Series 1998-WF2, Class A2 6.540% 07/15/30 1,270 1,415,885 PNC Mortgage Securities Corp. Series 1998-9, Class 2A2 PO 7.010% 09/25/13 144 143,161 PNC Mortgage Securities Corp. Series 1998-11, Class 2A2 PO 6.990% 11/25/13 378 366,003 PNC Mortgage Securities Corp. Series 1999-2, Class 5X IO 6.250% 02/25/14 247 15,874 Residential Funding Mortgage Security I Series 1993-S20, Class A11 7.250% 06/25/08 436 435,067 Structured Asset Securities Corp. Series 1998-RF3, Class AIO IO 6.100% 06/15/28 2,126 244,452 See Notes to Financial Statements. 38 HARRIS INSIGHT BOND FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ------------ COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED) Structured Asset Securities Corp. Series 2003-34A, Class 6A 5.145% 11/25/33 $ 1,648 $ 1,664,575 Wells Fargo Mortgage-Backed Securities Trust Series 2002-8, Class 2A3 6.000% 05/25/17 478 479,209 ------------ TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $40,305,440) 40,517,241 ------------ MORTGAGE-BACKED SECURITIES -- 7.1% Federal National Mortgage Association Pool #250888 7.000% 04/01/12 194 207,542 Federal National Mortgage Association Pool #305555 9.000% 01/01/25 15 17,279 Federal National Mortgage Association Pool #359740 7.000% 10/01/26 36 38,449 Federal National Mortgage Association Pool #364248 7.000% 01/01/27 74 78,540 Federal National Mortgage Association Pool #695910 5.000% 05/01/18 1,797 1,840,367 Federal National Mortgage Association Pool #756294 5.500% 12/01/33 2,695 2,732,056 Government National Mortgage Association Pool #442138 8.000% 11/15/26 430 469,591 Government National Mortgage Association Pool #555127 7.000% 09/15/31 781 833,148 Government National Mortgage Association Pool #780167 7.000% 12/15/24 1,186 1,272,796 Government National Mortgage Association Pool #781040 7.500% 11/15/17 1,554 1,676,890 ------------ TOTAL MORTGAGE-BACKED SECURITIES (Cost $8,906,883) 9,166,658 ------------ CORPORATE BONDS -- 41.2% ELECTRIC -- 2.9% Constellation Energy Group, Inc. 7.600% 04/01/32 375 440,293 Duke Capital Corp. 8.000% 10/01/19 1,000 1,166,616 Exelon Generation Co., L.L.C. 6.950% 06/15/11 1,000 1,124,986 Public Service Electric & Gas Co. 6.500% 05/01/04 1,000 1,016,345 ------------ 3,748,240 ------------ COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ------------ CORPORATE BONDS (CONTINUED) FINANCE - BANK -- 7.3% BankAmerica Capital II 8.000% 12/15/26 $ 835 $ 959,940 Manufacturers & Traders Trust Co. 8.000% 10/01/10 1,000 1,203,716 Mercantile Bancorp, Inc. 7.050% 06/15/04 1,500 1,538,522 Royal Bank of Scotland Group P.L.C. 5.000% 10/01/14 1,160 1,151,817 Sovereign Bank 4.375% 08/01/13 1,300 1,311,061 Union Planters Corp. 7.750% 03/01/11 715 844,670 Wells Fargo & Co. 6.375% 08/01/11 2,175 2,428,753 ------------ 9,438,479 ------------ FINANCE - NON-BANK -- 12.1% American Express Credit Corp. a 3.000% 05/16/08 30 29,390 Anadarko Finance Co. 7.500% 05/01/31 1,000 1,175,191 CIT Group, Inc. 7.750% 04/02/12 130 153,828 EOP Operating L.P. 7.750% 11/15/07 1,570 1,801,316 Ford Motor Credit Corp. 5.800% 01/12/09 675 695,903 7.000% 10/01/13 490 517,708 General Electric Capital Corp. 5.000% 06/15/07 700 746,193 General Motors Acceptance Corp. 4.500% 07/15/06 1,485 1,528,622 Goldman Sachs Group, Inc. 7.625% 08/17/05 2,000 2,186,754 6.125% 02/15/33 1,000 1,010,467 Household Finance Corp. 6.500% 11/15/08 955 1,065,702 Lehman Brothers Holdings, Inc. 6.250% 05/15/06 350 380,450 4.000% 01/22/08 350 357,312 Morgan Stanley 5.300% 03/01/13 300 307,005 Prudential Financial, Inc. 4.500% 07/15/13 700 669,531 Simon Property Group L.P. 5.375% 08/28/08 740 782,573 Textron Financial Corp. 5.875% 06/01/07 2,065 2,240,397 ------------ 15,648,342 ------------ INDUSTRIAL -- 12.0% Boeing Co. 8.750% 09/15/31 590 787,341 Comcast Corp. 5.300% 01/15/14 600 599,390 See Notes to Financial Statements. 39 HARRIS INSIGHT BOND FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ------------ CORPORATE BONDS (CONTINUED) INDUSTRIAL (CONTINUED) ConAgra Foods, Inc. 6.750% 09/15/11 $ 425 $ 477,096 Delphi Corp. 6.500% 08/15/13 1,000 1,052,040 General Mills, Inc. 6.000% 02/15/12 1,000 1,071,091 Goodrich Corp. a 7.625% 12/15/12 935 1,082,046 H.J. Heinz Co. 6.000% 03/15/08 1,000 1,094,785 John Deere Capital Corp. 5.100% 01/15/13 645 661,996 Kinder Morgan, Inc. 6.500% 09/01/12 1,000 1,105,348 Kroger Co. 6.800% 04/01/11 500 560,398 Lockheed Martin Corp. 8.200% 12/01/09 1,000 1,215,817 News America, Inc. 6.550% 03/15/33 750 781,701 PHH Corp. 6.000% 03/01/08 1,000 1,077,154 Procter & Gamble Co. -- Guaranteed ESOP Debentures Series A 9.360% 01/01/21 500 672,605 TCI Communications, Inc. 8.750% 08/01/15 500 633,993 Time Warner, Inc. 6.875% 06/15/18 765 843,628 Viacom, Inc. 5.625% 05/01/07 495 535,596 7.875% 07/30/30 1,000 1,247,836 ------------ 15,499,861 ------------ OIL -- 1.1% Burlington Resources Finance Co. 6.500% 12/01/11 1,000 1,118,566 Conoco, Inc. 6.950% 04/15/29 335 381,105 ------------ 1,499,671 ------------ TELEPHONES -- 5.1% AT&T Wireless Services, Inc. 7.875% 03/01/11 850 985,224 Deutsche Telekom International Finance 3.875% 07/22/08 700 703,179 France Telecom S.A. 9.000% 03/01/11 1,000 1,203,047 Verizon Global Funding Corp. a 6.125% 06/15/07 1,480 1,621,148 Verizon Wireless Capital, L.L.C. 5.375% 12/15/06 1,000 1,067,975 Vodafone Group P.L.C. 7.750% 02/15/10 860 1,020,792 ------------ 6,601,365 ------------ COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ------------ CORPORATE BONDS (CONTINUED) TRANSPORTATION -- 0.7% Burlington Northern Santa Fe Corp. 7.950% 08/15/30 $ 700 $ 866,613 Federal Express Corp. 6.720% 01/15/22 3 2,813 ------------ 869,426 ------------ TOTAL CORPORATE BONDS (Cost $49,772,717) 53,305,384 ------------ YANKEE BONDS -- 2.3% Banco Santander Chile 7.375% 07/18/12 1,610 1,815,698 United Mexican States 6.375% 01/16/13 1,030 1,071,200 ------------ TOTAL YANKEE BONDS (Cost $2,625,443) 2,886,898 ------------ U.S. TREASURY OBLIGATIONS -- 2.4% U.S. TREASURY BILLS* -- 0.0% 0.910% 06/03/04 45 44,825 ------------ U.S. TREASURY BONDS -- 2.4% 7.250% 08/15/22 2,400 3,029,719 ------------ TOTAL U.S. TREASURY OBLIGATIONS (Cost $3,099,372) 3,074,544 ------------ SHARES --------- TEMPORARY INVESTMENTS -- 1.3% Goldman Sachs Financial Square Money Market Portfolio 1,096,982 1,096,982 J.P. Morgan Institutional Prime Money Market Portfolio 615,431 615,431 ------------ TOTAL TEMPORARY INVESTMENTS (Cost $1,712,413) 1,712,413 ------------ COUPON PAR RATE MATURITY (000) - ------ -------- ------- INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED -- 2.0% COMMERCIAL PAPER -- 1.1% Concord Minuteman Capital Co., L.L.C. 1.100% 02/10/04 $ 1,456 1,452,020 ------------ REPURCHASE AGREEMENTS -- 0.2% Merrill Lynch & Co., Inc. 1.000% Agreement dated 12/31/03, proceeds at maturity $240,572 (Collateralized by $295,156 FHLMC, FNMA and GNMA 1.450% to 6.000%, due from 11/01/17 to 12/01/33. The market value is $247,780.) 01/02/04 241 240,559 ------------ See Notes to Financial Statements. 40 HARRIS INSIGHT BOND FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ------------ INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED (CONTINUED) TIME DEPOSITS -- 0.7% Canadian Imperial Bank 0.938% 01/02/04 $ 291 $ 290,697 Chase Manhattan Bank 0.875% 01/02/04 29 29,363 Merrill Lynch & Co., Inc. Master Notes 1.130% 01/02/04 581 581,394 ------------ 901,454 ------------ VARIABLE RATE OBLIGATIONS -- 0.0% Natexis Banques 1.035% 01/14/04 28 28,437 ------------ TOTAL INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED (Cost $2,622,470) 2,622,470 ------------ TOTAL INVESTMENTS -- 101.3% (Cost $126,505,400) 130,977,464 ------------ OTHER ASSETS AND LIABILITIES -- (1.3%) Interest receivable and other assets 1,442,167 Receivable for capital stock sold 112,893 Payable upon return of collateral on securities loaned (2,622,470) Payable for capital stock redeemed (242,920) Dividends payable (245,788) Accrued expenses (78,528) ------------ (1,634,646) ------------ NET ASSETS -- 100.0% Applicable to 12,009,870 Institutional Shares, 468,282 N Shares, 69,543 A Shares, and 44,131 B Shares of beneficial interest outstanding, $.001 par value (Note 8) $129,342,818 ============ NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER INSTITUTIONAL SHARE ($123,365,035/12,009,870) $10.27 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER N SHARE ($4,810,135/468,282) $10.27 ====== NET ASSET VALUE AND REDEMPTION PRICE PER A SHARE ($714,339/69,543) $10.27 ====== MAXIMUM PUBLIC OFFERING PRICE PER A SHARE ($10.27/0.955) (NOTE 5) $10.75 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE (SUBJECT TO A MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 5.0%) PER B SHARE ($453,309/44,131) $10.27 ====== - ---------- The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows: Basis $126,505,400 ============ Gross Appreciation $ 5,753,249 Gross Depreciation (1,281,185) ------------ Net Appreciation $ 4,472,064 ============ + See Note 2a to the Financial Statements. * Security pledged as collateral for futures contracts. a Total or partial security on loan. At December 31, 2003, the total market value of the portfolio's securities on loan is $2,562,538, and the total market value of the collateral held by the portfolio is $2,622,470. IO -- Interest Only Security. PO -- Principal Only Security. NUMBER OF UNREALIZED CONTRACTS APPRECIATION --------- ------------ Futures Contracts -- Long Position U.S. Treasury Notes, March 2004 (Notional value at 12/31/03 is $3,031,172.) 27 $24,047 == ======= See Notes to Financial Statements. 41 HARRIS INSIGHT INTERMEDIATE GOVERNMENT BOND FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - -------------------------------------------------------------------------------- COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ------------ AGENCY OBLIGATIONS -- 38.0% AID-Israel 5.500% 09/18/23 $ 1,500 $ 1,523,031 AID-Peru 9.980% 08/01/08 1,700 1,946,975 Federal Home Loan Bank 1.875% a 06/15/06 3,000 2,973,705 Federal Home Loan Mortgage Corp. 6.250% 07/15/04 1,000 1,027,259 3.625% a 09/15/08 2,500 2,519,245 7.000% 03/15/10 495 578,363 5.500% 09/15/11 2,500 2,692,072 6.000% 05/25/12 2,380 2,420,205 4.875% 11/15/13 2,925 2,962,379 Federal National Mortgage Association 4.375% 10/15/06 3,195 3,358,354 5.250% a 04/15/07 2,000 2,154,368 6.250% 02/01/11 750 830,288 6.000% 05/15/11 2,500 2,775,018 Housing & Urban Development 1.740% 08/01/05 2,225 2,225,983 Rowan Cos., Inc. 6.150% 07/01/10 2,567 2,817,670 Small Business Administration Participation Certificates Series 1997-10C, Class 1 6.950% 05/01/07 395 398,803 ----------- TOTAL AGENCY OBLIGATIONS (Cost $32,096,190) 33,203,718 ----------- ASSET-BACKED SECURITIES -- 8.4% AESOP Funding II L.L.C. Series 2002-1A 144A, Class A1 3.850% 10/20/06 1,500 1,535,977 Americredit Automobile Receivables Trust Series 2001-D, Class A4 4.410% 11/12/08 1,000 1,031,710 California Infrastructure Southern California Edison Co. Series 1997-1, Class A7 6.420% 12/26/09 1,260 1,394,496 Citibank Credit Card Issuance Trust Series 2000-A3, Class A3 6.875% 11/16/09 210 239,128 Citibank Credit Card Issuance Trust Series 2001-A6, Class A6 5.650% 06/16/08 1,480 1,589,492 Contimortgage Home Equity Loan Trust Series 1997-4, Class A7 6.630% 09/15/16 945 944,295 Indymac Home Equity Loan Asset-Backed Trust Series 2001-B, Class AF5 7.005% 04/25/31 125 125,060 Volkswagen Auto Lease Trust Series 2002-A, Class A4 2.750% 12/20/07 490 494,916 ----------- TOTAL ASSET-BACKED SECURITIES (Cost $7,253,827) 7,355,074 ----------- COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ------------ COLLATERALIZED MORTGAGE OBLIGATIONS -- 25.1% CS First Boston Mortgage Securities Corp. Series 1998-C1, Class AX IO 1.024% 05/17/40 $ 9,787 $ 442,968 Federal Home Loan Mortgage Corp. Series 150, Class IO 7.500% 07/01/23 162 30,564 Federal Home Loan Mortgage Corp. Series 202, Class IO 6.500% 04/01/29 327 55,156 Federal National Mortgage Association Grantor Trust Series 2002-T3, Class B 5.763% 12/25/11 2,000 2,163,547 Federal National Mortgage Association Grantor Trust Series 2002-T11, Class IO 0.746% 04/25/12 34,203 1,812,771 Federal National Mortgage Association Series 1997-20, Class IO 1.840% 03/25/27 2,165 152,137 Federal National Mortgage Association Series 1998-T1, Class A 10.341% 12/28/28 221 245,638 Federal National Mortgage Association Series 2000-M1, Class B 7.377% 11/17/18 1,500 1,704,617 Federal National Mortgage Association Series 2001-T2, Class A 5.780% 11/25/10 2,333 2,511,969 Federal National Mortgage Association Series 2002-73, Class OE 5.000% 11/25/17 1,200 1,184,142 Federal National Mortgage Association Series 2003-W6, Class 2A2 3.110% 09/25/42 1,500 1,501,908 Government National Mortgage Association Series 2001-12, Class A 5.430% 01/16/15 1,216 1,284,077 Government National Mortgage Association Series 2002-28, Class A 4.776% 02/16/18 724 758,464 Government National Mortgage Association Series 2003-5, Class A 3.202% 04/16/19 2,391 2,411,450 J.P. Morgan Commercial Mortgage Finance Corp. Series 1999-C7, Class X IO 0.659% 10/15/35 31,899 830,631 LB-UBS Commercial Mortgage Trust Series 2003-C1, Class A4 4.394% 03/17/32 1,000 971,832 LB-UBS Commercial Mortgage Trust Series 2003-C8, Class A3 4.830% 11/15/27 2,000 2,035,167 Structured Asset Securities Corp. Series 1998-RF3, Class AIO IO 6.100% 06/15/28 1,766 203,136 Structured Asset Securities Corp. Series 2003-28XS, Class A3 4.060% 09/25/33 1,624 1,635,419 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $22,127,654) 21,935,593 ----------- See Notes to Financial Statements. 42 HARRIS INSIGHT INTERMEDIATE GOVERNMENT BOND FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ------------ MORTGAGE-BACKED SECURITIES -- 2.0% Federal Home Loan Mortgage Corp. Pool #865008 5.970% 02/01/18 $ 9 $ 9,517 Federal National Mortgage Association Pool #8217 11.000% 12/01/15 267 298,564 Government National Mortgage Association Pool #8720 5.625% 10/20/25 34 35,245 Government National Mortgage Association Pool #162989 9.000% 05/15/16 2 1,797 Government National Mortgage Association Pool #227125 9.000% 07/15/17 13 14,574 Government National Mortgage Association Pool #346458 8.000% 03/15/23 37 40,149 Government National Mortgage Association Pool #352110 7.000% 08/15/23 326 349,692 Government National Mortgage Association Pool #442138 8.000% 11/15/26 348 380,465 Government National Mortgage Association Pool #780389 9.000% 08/15/09 560 611,759 ----------- TOTAL MORTGAGE-BACKED SECURITIES (Cost $1,627,751) 1,741,762 ----------- U.S. TREASURY OBLIGATIONS -- 20.4% U.S. TREASURY BONDS -- 4.6% 5.500% 08/15/28 3,825 3,985,325 ----------- U.S. TREASURY NOTES -- 8.9% 5.750% a 11/15/05 1,230 1,321,002 7.000% 07/15/06 4,400 4,929,892 6.500% 10/15/06 1,390 1,548,710 ----------- 7,799,604 ----------- U.S. TREASURY STRIPS -- 6.9% 0.000% 11/15/09 7,500 6,036,877 ----------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $17,789,044) 17,821,806 ----------- SHARES VALUE+ --------- ---------- TEMPORARY INVESTMENTS -- 5.3% Goldman Sachs Financial Square Treasury Obligation Portfolio 2,246,567 $ 2,246,567 J.P. Morgan Institutional Prime Money Market Portfolio 2,322,086 2,322,086 ----------- TOTAL TEMPORARY INVESTMENTS (Cost $4,568,653) 4,568,653 ----------- COUPON PAR RATE MATURITY (000) - ------ -------- ------- INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED -- 10.5% REPURCHASE AGREEMENTS -- 2.3% Merrill Lynch & Co., Inc. 1.000% Agreement dated 12/31/03, proceeds at maturity $1,975,440 (Collateralized by $2,423,645 FHLMC, FNMA and GNMA 1.450% to 6.000%, due from 11/01/17 to 12/01/33. The market value is $2,034,627.) 01/02/04 $ 1,975 1,975,330 ----------- TIME DEPOSITS -- 8.2% Canadian Imperial Bank 0.938% 01/02/04 2,387 2,387,027 Merrill Lynch & Co., Inc. Master Notes 1.130% 01/02/04 4,774 4,774,055 ----------- 7,161,082 ----------- TOTAL INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED (Cost $9,136,412) 9,136,412 ----------- TOTAL INVESTMENTS -- 109.7% (Cost $94,599,531) 95,763,018 ----------- OTHER ASSETS AND LIABILITIES -- (9.7%) Interest receivable and other assets 884,672 Receivable for capital stock sold 49,332 Payable upon return of collateral on securities loaned (9,136,412) Payable for capital stock redeemed (180,195) Dividends payable (18,169) Accrued expenses (49,000) ----------- (8,449,772) ----------- NET ASSETS -- 100.0% Applicable to 3,864,194 Institutional Shares, 1,028,157 N Shares, 139,824 A Shares, and 67,373 B Shares of beneficial interest outstanding, $.001 par value (Note 8) $87,313,246 =========== See Notes to Financial Statements. 43 HARRIS INSIGHT INTERMEDIATE GOVERNMENT BOND FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER INSTITUTIONAL SHARE ($66,161,771/3,864,194) $17.12 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER N SHARE ($17,603,917/1,028,157) $17.12 ====== NET ASSET VALUE AND REDEMPTION PRICE PER A SHARE ($2,394,041/139,824) $17.12 ====== MAXIMUM PUBLIC OFFERING PRICE PER A SHARE ($17.12/0.965) (NOTE 5) $17.74 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE (SUBJECT TO A MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 5.0%) PER B SHARE ($1,153,517/67,373) $17.12 ====== - ---------- The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows: Basis $94,599,531 =========== Gross Appreciation $ 1,963,075 Gross Depreciation (799,588) ----------- Net Appreciation $ 1,163,487 =========== + See Note 2a to the Financial Statements. a Total or partial security on loan. At December 31, 2003, the total market value of the portfolio's securities on loan is $8,973,250, and the market value of the collateral held by the portfolio is $9,136,412. IO -- Interest Only Security. PO -- Principal Only Security. See Notes to Financial Statements. 44 HARRIS INSIGHT HIGH YIELD BOND FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - -------------------------------------------------------------------------------- COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ----------- CORPORATE BONDS -- 95.5% CABLE & MEDIA -- 3.4% EchoStar DBS Corp. Series 144A 6.375% 10/01/11 $ 500 $ 515,000 Gray Television, Inc. 9.250% 12/15/11 500 560,000 Lin Television Corp. Series 144A 6.500% 05/15/13 550 553,437 Sinclair Broadcast Group 8.000% 03/15/12 500 542,500 ----------- 2,170,937 ----------- CONSUMER CYCLICAL -- 6.6% Argosy Gaming Co. 9.000% 09/01/11 500 556,250 Ingles Markets, Inc. 8.875% 12/01/11 575 580,750 Intrawest Corp. Series 144A 7.500% 10/15/13 550 574,750 J.C. Penney Co., Inc. 9.000% 08/01/12 500 600,625 MGM Mirage, Inc. 9.750% 06/01/07 525 601,125 Park Place Entertainment Corp. 8.125% 05/15/11 450 506,812 Penn National Gaming, Inc. Series 144A 6.875% 12/01/11 500 497,500 Smithfield Foods, Inc. Series B 7.750% 05/15/13 207 216,315 ----------- 4,134,127 ----------- CONSUMER - NON-CYCLICAL -- 17.2% Aviall, Inc. 7.625% 07/01/11 165 172,837 Bluegreen Corp. 10.500% 04/01/08 335 343,375 Boyd Gaming Corp. 7.750% 12/15/12 350 376,250 Central Garden & Pet Co. 9.125% 02/01/13 500 557,500 Constellation Brands, Inc. Series B 8.125% 01/15/12 440 484,000 Corus Entertainment, Inc. 8.750% 03/01/12 250 276,250 Extended Stay America, Inc. 9.875% 06/15/11 475 534,375 Gaylord Entertainment Co. Series 144A 8.000% 11/15/13 165 174,900 Host Marriott L.P. Series I 9.500% 01/15/07 625 698,437 Jacuzzi Brands, Inc. Series 144A 9.625% 07/01/10 500 552,500 Mandalay Resort Group Series 144A 6.375% 12/15/11 500 516,250 O'Charley's, Inc. Series 144A 9.000% 11/01/13 575 580,750 Payless Shoesource, Inc. 8.250% 08/01/13 525 507,938 COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ----------- CORPORATE BONDS (CONTINUED) CONSUMER - NON-CYCLICAL (CONTINUED) Perry Ellis International, Inc. Series 144A 8.875% 09/15/13 $ 575 $ 608,063 Phillips Van-Heusen Corp. 8.125% 05/01/13 575 613,813 Playtex Products, Inc. 9.375% 06/01/11 350 355,250 Potlatch Corp. 10.000% 07/15/11 575 644,000 PPC Escrow Corp. Series 144A 9.250% 11/15/13 500 520,000 Rayovac Corp. 8.500% 10/01/13 500 532,500 Scotts Co. Series 144A 6.625% 11/15/13 300 309,750 Unifi, Inc. Series B 6.500% 02/01/08 440 393,250 Warnaco, Inc. Series 144A 8.875% 06/15/13 550 569,250 Winn-Dixie Stores, Inc. 8.875% 04/01/08 500 510,000 ----------- 10,831,238 ----------- ENERGY -- 4.4% Chesapeake Energy Corp. 7.750% 01/15/15 500 545,000 Compton Petroleum Corp. 9.900% 05/15/09 500 547,500 Energy Partners, Ltd. 8.750% 08/01/10 310 323,950 Gulfterra Energy Partners 10.625% 12/01/12 251 312,495 Houston Exploration Co. Series 144A 7.000% 06/15/13 510 529,125 Pogo Producing Co. Series B 8.250% 04/15/11 200 224,000 Westport Resources Corp. Series 144A 8.250% 11/01/11 250 276,250 ----------- 2,758,320 ----------- FINANCE -- 3.3% Alimentation Couche-Tard, Inc. Series 144A 7.500% 12/15/13 205 215,763 Corrections Corp. of America 7.500% 05/01/11 140 147,700 Corrections Corp. of America Series 144A 7.500% 05/01/11 360 379,800 LNR Property Corp. 7.625% 07/15/13 550 581,625 Sovereign Bancorp, Inc. 10.500% 11/15/06 660 781,275 ----------- 2,106,163 ----------- HEALTHCARE -- 7.9% Alpharma, Inc. Series 144A 8.625% 05/01/11 525 534,188 Biovail Corp. 7.875% 04/01/10 500 512,500 See Notes to Financial Statements. 45 HARRIS INSIGHT HIGH YIELD BOND FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ----------- CORPORATE BONDS (CONTINUED) HEALTHCARE (CONTINUED) Rotech Healthcare, Inc. 9.500% 04/01/12 $ 425 $ 446,250 Select Medical Corp. 7.500% 08/01/13 310 330,150 Senior Housing Properties Trust 7.875% 04/15/15 600 633,000 Tenet Healthcare Corp. 7.375% 02/01/13 575 580,750 US Oncology, Inc. 9.625% 02/01/12 500 551,250 Valeant Pharmaceuticals International Series 144A 7.000% 12/15/11 245 253,575 Ventas Realty L.P. / Ventas Capital Corp. 9.000% 05/01/12 525 585,375 Vicar Operating, Inc. 9.875% 12/01/09 500 557,500 ----------- 4,984,538 ----------- INDUSTRIAL - CYCLICAL -- 17.4% Apogent Technologies, Inc. 6.500% 05/15/13 230 240,925 Ball Corp. 6.875% 12/15/12 500 525,000 Cummins, Inc. Series 144A 9.500% 12/01/10 530 612,150 Forest City Enterprises, Inc. 7.625% 06/01/15 325 346,531 Georgia-Pacific Corp. 9.375% 02/01/13 625 721,875 Hollinger International Publishing Corp. 9.000% 12/15/10 575 613,812 Iron Mountain, Inc. 7.750% 01/15/15 375 394,687 6.625% 01/01/16 250 244,375 JLG Industries, Inc. 8.375% 06/15/12 510 528,488 Lear Corp. Series B 8.110% 05/15/09 250 295,313 Lyondell Chemical Co. 10.500% 06/01/13 575 629,625 Marsh Supermarket, Inc. Series B 8.875% 08/01/07 575 546,250 Navistar International Series B 8.000% 02/01/08 500 516,250 Oxford Industries, Inc. Series 144A 8.875% 06/01/11 500 549,375 Paramount Resources, Ltd. 7.875% 11/01/10 500 500,000 Rent-A-Center, Inc. Series B 7.500% 05/01/10 375 397,500 Royal Caribbean Cruises, Ltd. 8.000% 05/15/10 500 547,500 Speedway Motorsports, Inc. 6.750% 06/01/13 100 103,750 Tembec Industries, Inc. 8.500% 02/01/11 625 650,000 COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ----------- CORPORATE BONDS (CONTINUED) INDUSTRIAL - CYCLICAL (CONTINUED) Texas Industries, Inc. 10.250% 06/15/11 $ 510 $ 578,850 United Rentals N.A., Inc. Series 144A 7.750% 11/15/13 575 590,094 United States Steel Corp. 9.750% 05/15/10 560 632,800 Wolverine Tube, Inc. 10.500% 04/01/09 166 170,150 ----------- 10,935,300 ----------- INDUSTRIAL - NON-CYCLICAL & SERVICES -- 35.3% Abitibi Consolidated, Inc. 8.550% 08/01/10 500 557,650 Allied Waste N.A., Inc. Series B 10.000% 08/01/09 500 542,500 Alltrista Corp. 9.750% 05/01/12 575 635,375 Bowater, Inc. 6.500% 06/15/13 650 631,922 Cascades, Inc. 7.250% 02/15/13 525 556,500 CP Ships, Ltd. 10.375% 07/15/12 315 366,975 Crescent Real Estate Equities L.P. 9.250% 04/15/09 575 635,375 D.R. Horton, Inc. 6.875% 05/01/13 375 401,250 Dana Corp. 9.000% 08/15/11 500 605,000 Del Monte Corp. 8.625% 12/15/12 650 715,000 Felcor Lodging L.P. 10.000% 09/15/08 625 678,125 Fisher Scientific International, Inc. 8.000% 09/01/13 250 269,375 GenCorp, Inc. Series 144A 9.500% 08/15/13 500 521,250 General Motors Corp. 7.125% 07/15/13 490 538,309 Greif, Inc. 8.875% 08/01/12 575 635,375 GulfMark Offshore, Inc. 8.750% 06/01/08 500 520,000 Imax Corp. Series 144A 9.625% 12/01/10 250 264,062 IPSCO, Inc. 8.750% 06/01/13 500 555,000 Jefferson Smurfit Corp. 7.500% 06/01/13 560 588,000 KB Home 9.500% 02/15/11 500 560,000 L-3 Communications Corp. 6.125% 07/15/13 325 329,062 Longview Fibre Co. 10.000% 01/15/09 575 633,938 Manitowoc Co., Inc. 7.125% 11/01/13 330 342,787 See Notes to Financial Statements. 46 HARRIS INSIGHT HIGH YIELD BOND FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ----------- CORPORATE BONDS (CONTINUED) INDUSTRIAL - NON-CYCLICAL & SERVICES (CONTINUED) Mobile Mini, Inc. 9.500% 07/01/13 $ 500 $ 552,500 NCI Building Systems, Inc. Series B 9.250% 05/01/09 330 348,975 Norske Skog Canada, Ltd. 8.625% 06/15/11 575 606,625 Omi Corp. Series 144A 7.625% 12/01/13 500 506,875 Overseas Shipholding Group 8.250% 03/15/13 625 672,656 Pope & Talbot, Inc. 8.375% 06/01/13 500 501,250 Premcor Refining Group Series 144A 6.750% 02/01/11 330 335,775 7.750% 02/01/12 80 82,800 Prime Hospitality Corp. Series B 8.375% 05/01/12 955 990,813 R.H. Donnelley Finance Corp. I Series 144A 8.875% 12/15/10 175 197,750 10.875% 12/15/12 425 506,281 Russell Corp. 9.250% 05/01/10 525 546,656 Standard Pacific Corp. 8.500% 04/01/09 250 261,250 Star Gas Partners L.P. 10.250% 02/15/13 520 569,400 Steel Dynamics, Inc. 9.500% 03/15/09 510 568,650 Steinway Musical Instruments, Inc. 8.750% 04/15/11 525 559,125 Suburban Propane Partners Series 144A 6.875% 12/15/13 245 248,675 Terex Corp. Series 144A 7.375% 01/15/14 575 590,813 Thomas & Betts Corp. 7.250% 06/01/13 530 548,550 Tom Brown, Inc. Series Unit 7.250% 09/15/13 175 185,938 URS Corp. 11.500% 09/15/09 425 482,906 Westinghouse Air Brake Technologies Corp. Series 144A 6.875% 07/31/13 250 260,313 ----------- 22,207,406 ----------- TOTAL CORPORATE BONDS (Cost $57,632,859) 60,128,029 ----------- SHARES VALUE+ --------- ----------- TEMPORARY INVESTMENTS -- 2.8% AIM Short-Term Investment Co. Liquid Assets Prime Portfolio 679,497 $ 679,497 Dreyfus Cash Management Plus #719 1,062,703 1,062,703 ----------- TOTAL TEMPORARY INVESTMENTS (Cost $1,742,200) 1,742,200 ----------- TOTAL INVESTMENTS -- 98.3% (Cost $59,375,059) 61,870,229 ----------- OTHER ASSETS AND LIABILITIES -- 1.7% Interest receivable and other assets 1,109,184 Receivable for capital stock sold 26,000 Payable for capital stock redeemed (35,642) Dividends payable (17,370) Accrued expenses (26,153) ----------- 1,056,019 ----------- NET ASSETS -- 100.0% Applicable to 4,903,227 Institutional Shares of beneficial interest outstanding, $.001 par value (Note 8) $62,926,248 =========== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER INSTITUTIONAL SHARE ($62,926,248/4,903,227) $12.83 ====== - ---------- The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows: Basis $59,375,059 =========== Gross Appreciation $ 2,568,060 Gross Depreciation (72,890) ----------- Net Appreciation $ 2,495,170 =========== + See Note 2a to the Financial Statements. See Notes to Financial Statements. 47 HARRIS INSIGHT INTERMEDIATE TAX-EXEMPT BOND FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - -------------------------------------------------------------------------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- ------- ------------ MUNICIPAL BONDS -- 100.2% ALABAMA -- 1.7% Alabama Drinking Water Finance Authority Revenue Bonds (Revolving Fund Loan) Series A 5.000% 08/15/14 $ 3,145 $ 3,447,486 Marshall County, Alabama, Health Care Authority Revenue Bonds Series A 6.250% 01/01/22 770 820,058 ------------ 4,267,544 ------------ ARIZONA -- 8.8% Glendale, Arizona, Water & Sewer Revenue Bonds 5.500% 07/01/08 2,700 3,051,513 5.500% 07/01/09 5,000 5,728,650 Phoenix, Arizona, Civic Improvement Corp. Wastewater Systems Revenue Bonds 6.250% 07/01/16 4,945 6,011,439 Phoenix, Arizona, Civic Plaza Building Corporate Excise Tax Revenue Bonds 6.000% 07/01/12 1,000 1,071,050 Surprise, Arizona, Municipal Property Corporate Excise Tax Revenue Bonds 5.375% 07/01/14 1,000 1,119,720 University of Arizona Certificates of Participation Series A 4.125% 06/01/07 750 803,445 5.250% 06/01/10 3,505 4,002,850 ------------ 21,788,667 ------------ ARKANSAS -- 1.9% Little Rock, Arkansas, Capital Improvement General Obligation Bonds 4.000% 04/01/11 1,000 1,059,230 4.000% 04/01/12 1,000 1,043,480 4.000% 04/01/14 2,500 2,593,575 ------------ 4,696,285 ------------ CALIFORNIA -- 12.9% California State Department of Water Resources Power Supply Revenue Bonds Series A 5.000% 05/01/08 2,500 2,774,875 5.500% 05/01/08 2,500 2,772,725 5.750% 05/01/17 5,000 5,529,950 Los Angeles County, California, Unified School District General Obligation Bonds 5.500% 07/01/12 5,000 5,796,350 Sacramento County, California, Sanitation District Financing Authority Revenue Bonds Series A 6.000% 12/01/20 3,450 3,733,107 University of California Revenue Bonds Series A 5.000% 05/15/12 10,000 11,206,200 ------------ 31,813,207 ------------ ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- ------- ------------ MUNICIPAL BONDS (CONTINUED) CONNECTICUT -- 1.2% New Haven, Connecticut, General Obligation Bonds Series B 5.500% 11/01/12 $ 2,550 $ 2,968,812 DELAWARE -- 0.5% Delaware River & Bay Authority Revenue Bonds Series A 5.700% 01/01/19 1,000 1,125,430 FLORIDA -- 0.9% Jacksonville, Florida, Electric Authority Electric Systems Revenue Bonds Series 3A 5.800% 10/01/18 1,080 1,152,641 Miami-Dade County, Florida, Educational Facilities Authority Revenue Bonds Series A 5.750% 04/01/14 1,000 1,157,420 ------------ 2,310,061 ------------ GEORGIA -- 3.0% College Park, Georgia, Business & Industrial Development Authority Revenue Bonds (Civic Center Project) 5.500% 09/01/09 1,855 2,130,783 Fayette County, Georgia, Public Facilities Authority Criminal Justice Center Revenue Bonds 6.000% 06/01/16 1,500 1,797,945 6.250% 06/01/17 1,000 1,213,210 Forsyth County, Georgia, Water & Sewer Authority Revenue Bonds 6.250% 04/01/18 1,000 1,208,340 Municipal Electric Authority, Georgia Revenue Bonds (Project One) 5.000% 01/01/26 1,000 1,104,160 ------------ 7,454,438 ------------ ILLINOIS -- 7.5% Chicago, Illinois, General Obligation Bonds (Neighborhoods Alive 21) 6.125% 01/01/22 2,265 2,636,868 Cook County, Illinois, Glencoe School District No. 035 General Obligation Bonds 5.750% 12/01/16 1,210 1,395,662 Illinois Educational Facilities Authority Revenue Bonds (University of Chicago) Series A 5.250% 07/01/22 3,000 3,203,190 Illinois Health Facilities Authority Revenue Bonds (Advocate Health Care Network) 6.250% 11/15/14 2,500 2,794,600 6.375% 11/15/15 1,580 1,755,017 Illinois Health Facilities Authority Revenue Bonds (Elmhurst Memorial Healthcare) 6.250% 01/01/17 5,000 5,629,050 See Notes to Financial Statements. 48 HARRIS INSIGHT INTERMEDIATE TAX-EXEMPT BOND FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- ------- ------------ MUNICIPAL BONDS (CONTINUED) ILLINOIS (CONTINUED) Illinois State Sales Tax Revenue Bonds Series V 6.375% 06/15/20 $ 1,000 $ 1,092,480 ------------ 18,506,867 ------------ INDIANA -- 3.3% Anderson, Indiana, Economic Development Revenue Bonds (Anderson University Project) 5.000% 10/01/07 1,010 1,060,409 5.000% 10/01/08 1,015 1,064,481 Indiana Bond Bank Revenue Bonds (Guarantee State Revolving Fund) 6.000% 02/01/16 2,205 2,256,024 Indiana University Revenue Bonds (Student Fee) Series M 6.000% 08/01/14 3,170 3,711,468 ------------ 8,092,382 ------------ KANSAS -- 0.9% Kansas State Development Finance Authority Public Water Supply Revenue Bonds 5.200% 04/01/12 1,000 1,110,040 Olathe, Kansas, Health Facilities Revenue Bonds (Olathe Medical Center Project) Series A 5.375% 09/01/08 1,000 1,121,300 ------------ 2,231,340 ------------ KENTUCKY -- 0.3% Hartford County, Kentucky, School District Financial Corp. School Building Revenue Bonds 5.700% 06/01/20 550 613,530 ------------ MASSACHUSETTS -- 7.6% Lowell, Massachusetts, General Obligation Bonds 6.000% 02/15/14 1,160 1,372,524 6.000% 02/15/15 1,070 1,263,402 Massachusetts Health & Educational Facilities Authority Revenue Bonds Series C 6.000% 07/01/16 1,000 1,117,820 Massachusetts Health & Educational Facilities Authority Revenue Bonds Series D 5.750% 07/01/24 1,500 1,564,320 Massachusetts State General Obligation Bonds Series B 6.000% 06/01/15 2,000 2,374,000 6.000% 06/01/16 5,000 5,935,000 Massachusetts State General Obligation Bonds Series C 5.375% 12/01/15 425 493,914 ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- ------- ------------ MUNICIPAL BONDS (CONTINUED) MASSACHUSETTS (CONTINUED) Springfield, Massachusetts, General Obligation Bonds (Municipal Purposes Loan) 6.000% 10/01/14 $ 1,000 $ 1,183,970 6.000% 10/01/15 2,000 2,363,260 Sterling, Massachusetts, General Obligation Bonds 6.000% 02/15/18 1,000 1,167,890 ------------ 18,836,100 ------------ MICHIGAN -- 4.6% Chippewa County, Michigan, Hospital Finance Revenue Bonds (Chippewa County War Memorial Hospital) Series A 5.000% 11/01/04 380 387,926 Chippewa County, Michigan, Hospital Finance Revenue Bonds (Chippewa County War Memorial Hospital) Series B 5.000% 11/01/04 480 488,597 Michigan State Hospital Finance Authority Revenue Bonds (Ascension Health Credit) Series A 5.300% 11/15/33 2,500 2,724,375 Michigan State Hospital Finance Authority Revenue Bonds (Chelsea Community Hospital) 5.000% 05/15/12 2,380 2,400,492 Rochester, Michigan, Community School District General Obligation Bonds Series I 5.500% 05/01/07 1,240 1,376,983 Saline, Michigan, Area Schools General Obligation Bonds Series A 5.750% 05/01/16 2,000 2,347,060 Walled Lake, Michigan, Consolidated School District General Obligation Bonds 5.750% 05/01/14 1,290 1,488,763 ------------ 11,214,196 ------------ MINNESOTA -- 1.0% St. Cloud, Minnesota, Health Care Revenue Bonds (St. Cloud Hospital Obligation Group A) 5.250% 05/01/05 1,080 1,134,734 5.500% 05/01/15 1,080 1,220,616 ------------ 2,355,350 ------------ MISSISSIPPI -- 0.4% Mississippi State General Obligation Bonds 5.000% 06/01/05 1,000 1,051,830 ------------ MISSOURI -- 2.9% Missouri State Health & Educational Facilities Authority Revenue Bonds (St. Anthony's Medical Center) 6.000% 12/01/06 1,445 1,587,853 6.250% 12/01/08 750 844,673 6.250% 12/01/09 1,725 1,962,136 See Notes to Financial Statements. 49 HARRIS INSIGHT INTERMEDIATE TAX-EXEMPT BOND FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- ------- ------------ MUNICIPAL BONDS (CONTINUED) MISSOURI (CONTINUED) St. Louis County, Missouri, Pattonville R-3 School District General Obligation Bonds 5.500% 03/01/12 $ 1,240 $ 1,408,280 5.750% 03/01/17 450 516,492 5.750% 03/01/18 655 749,418 ------------ 7,068,852 ------------ NEBRASKA -- 0.4% University of Nebraska, Lincoln, Student Fees & Facilities Revenue Bonds Series B 4.000% 07/01/10 1,000 1,063,390 ------------ NEW HAMPSHIRE -- 1.7% Nashua, New Hampshire, Capital Improvements General Obligation Bonds Series A 5.500% 07/15/16 1,155 1,309,423 5.500% 07/15/18 1,500 1,676,085 New Hampshire State Health & Educational Facilities Revenue Bonds (Concord Hospital) 5.500% 10/01/21 1,000 1,091,600 ------------ 4,077,108 ------------ NEW JERSEY -- 3.8% Essex County, New Jersey, Improvement Authority Lease Revenue General Obligation Bonds (County Correctional Facilities Project) 5.750% 10/01/13 2,000 2,338,420 New Jersey State Transportation Trust Fund Revenue Bonds (Transit Systems) Series A 5.125% 06/15/08 2,000 2,244,420 New Jersey State Transportation Trust Fund Revenue Bonds (Transit Systems) Series B 6.000% 12/15/18 4,000 4,826,600 ------------ 9,409,440 ------------ NEW YORK -- 8.6% New York Metropolitan Transportation Authority Dedicated Tax Fund Revenue Bonds Series A 6.125% 04/01/16 3,000 3,587,850 6.125% 04/01/17 2,000 2,391,900 New York State Environmental Facilities Corp. State Clean Water & Drinking Revolving Funds Revenue Bonds Series B 5.875% 01/15/17# 600 710,826 New York State Environmental Facilities Corp. State Clean Water & Drinking Revolving Funds Revenue Bonds Series B 5.875% 01/15/17 400 456,928 ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- ------- ------------ MUNICIPAL BONDS (CONTINUED) NEW YORK (CONTINUED) New York State Thruway Authority Highway & Bridge Trust Fund Revenue Bonds Series A 6.000% 04/01/14 $ 1,000 $ 1,197,280 6.000% 04/01/15 1,000 1,177,720 6.000% 04/01/16 1,000 1,197,280 New York State Thruway Authority Service Contract Revenue Bonds (Local Highway & Bridge) Series A 5.000% 03/15/09 3,000 3,315,210 Suffolk County, New York, Longwood Central School District General Obligation Bonds 5.625% 06/15/08 1,080 1,232,258 5.625% 06/15/09 1,580 1,825,374 5.700% 06/15/14 1,670 1,975,944 5.700% 06/15/15 1,895 2,242,164 ------------ 21,310,734 ------------ NORTH CAROLINA -- 0.5% Charlotte, North Carolina, Storm Water Fee Revenue Bonds 5.650% 06/01/14 1,000 1,178,200 ------------ OHIO -- 14.2% Cuyahoga County, Ohio, General Obligation Bonds 5.750% 12/01/15 4,000 4,619,080 Cuyahoga County, Ohio, Hospital Revenue Improvement Bonds (Metrohealth System Project) Series A 5.500% 02/15/12 1,000 1,150,750 6.150% 02/15/29 5,000 5,221,400 Franklin County, Ohio, Development Revenue Bonds (American Chemical Society Project) 5.500% 10/01/12 4,600 5,096,616 Franklin County, Ohio, Revenue Bonds (Online Computer Library Center) 5.000% 04/15/11 1,000 1,088,180 Hamilton County, Ohio, Sales Tax Revenue Bonds Subseries B 5.750% 12/01/17 4,000 4,608,400 Ohio State Higher Educational Facility Revenue Bonds (John Carroll University Project) 4.750% 11/15/11 500 545,825 Ohio State University General Receipts Revenue Bonds Series A 6.000% 12/01/17 1,000 1,169,540 Plain, Ohio, Local School District General Obligation Bonds 6.000% 12/01/20# 4,070 4,875,005 Plain, Ohio, Local School District General Obligation Bonds 6.000% 12/01/20 930 1,085,719 See Notes to Financial Statements. 50 HARRIS INSIGHT INTERMEDIATE TAX-EXEMPT BOND FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- ------- ------------ MUNICIPAL BONDS (CONTINUED) OHIO (CONTINUED) Toledo, Ohio, City School District School Facilities Improvements General Obligation Bonds Series B 5.000% 12/01/22 $ 3,755 $ 3,946,430 University of Akron General Receipts Revenue Bonds 5.750% 01/01/12 1,295 1,483,539 ------------ 34,890,484 ------------ PENNSYLVANIA -- 3.7% Delaware River Port Authority of Pennsylvania & New Jersey Revenue Bonds 5.750% 01/01/15 1,000 1,150,250 6.000% 01/01/17 5,500 6,394,685 Pottsville, Pennsylvania, Hospital Authority Revenue Bonds (Ascension Health Credit) Series A 5.200% 11/15/09 1,335 1,509,271 ------------ 9,054,206 ------------ PUERTO RICO -- 4.2% Puerto Rico Housing Finance Authority Revenue Bonds (Capital Fund Program) 5.000% 12/01/12 2,500 2,776,575 5.000% 12/01/16 5,000 5,413,850 Puerto Rico Municipal Finance Agency Revenue Bonds Series A 6.000% 08/01/16 1,000 1,175,330 Puerto Rico Public Buildings Authority Government Facilities Revenue Bonds Series D 5.375% 07/01/14# 825 956,761 ------------ 10,322,516 ------------ RHODE ISLAND -- 0.5% Rhode Island Economic Development Corp. Grant Anticipation Revenue Bonds (Rhode Island Department of Transportation) Series A 5.250% 06/15/11 1,000 1,137,610 ------------ TEXAS -- 0.9% North Texas Tollway Authority, Dallas North Tollway System Revenue Bonds Series C 5.000% 07/01/08 1,000 1,107,260 Texas Technical University Financing Systems Revenue Bonds Series 7 5.500% 08/15/15 1,000 1,133,300 ------------ 2,240,560 ------------ ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- ------- ------------ MUNICIPAL BONDS (CONTINUED) VIRGINIA -- 1.0% Norfolk, Virginia, Water System Revenue Bonds 5.875% 11/01/15 $ 2,300 $ 2,518,063 ------------ WASHINGTON -- 1.3% Snohomish County, Washington, School District No. 201 General Obligation Bonds 5.625% 12/01/07 2,000 2,253,200 Washington State General Obligation Bonds Series A 6.000% 09/01/15 1,000 1,032,440 ------------ 3,285,640 ------------ TOTAL MUNICIPAL BONDS (Cost $224,200,497) 246,882,842 ------------ SHARES --------- TEMPORARY INVESTMENTS -- 0.9% AIM Tax-Free Investment Co. Cash Reserve Portfolio 886,417 886,417 Goldman Sachs Financial Square Tax-Exempt Money Market Portfolio 1,296,325 1,296,325 ------------ TOTAL TEMPORARY INVESTMENTS (Cost $2,182,742) 2,182,742 ------------ TOTAL INVESTMENTS -- 101.1% (Cost $226,383,239) 249,065,584 ------------ OTHER ASSETS AND LIABILITIES -- (1.1%) Interest receivable and other assets 3,031,945 Receivable for capital stock sold 30,000 Payable for securities purchased (4,587,665) Payable for capital stock redeemed (209,388) Dividends payable (771,299) Accrued expenses (99,929) ------------ (2,606,336) ------------ NET ASSETS -- 100.0% Applicable to 20,450,210 Institutional Shares, 635,394 N Shares, 181,961 A Shares, and 63,543 B Shares of beneficial interest outstanding, $.001 par value (Note 8) $246,459,248 ============ See Notes to Financial Statements. 51 HARRIS INSIGHT INTERMEDIATE TAX-EXEMPT BOND FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER INSTITUTIONAL SHARE ($236,281,558/20,450,210) $11.55 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER N SHARE ($7,341,137/635,394) $11.55 ====== NET ASSET VALUE AND REDEMPTION PRICE PER A SHARE ($2,102,397/181,961) $11.55 ====== MAXIMUM PUBLIC OFFERING PRICE PER A SHARE ($11.55/0.965) (NOTE 5) $11.97 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE (SUBJECT TO A MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 5.0%) PER B SHARE ($734,156/63,543) $11.55 ====== - ---------- The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows: Basis $226,383,239 ============ Gross Appreciation $ 22,682,345 Gross Depreciation -- ------------ Net Appreciation $ 22,682,345 ============ + See Note 2a to the Financial Statements. # These securities are subject to a demand feature which reduces the remaining maturity. See Notes to Financial Statements. 52 HARRIS INSIGHT TAX-EXEMPT BOND FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - -------------------------------------------------------------------------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- ------- ------------ MUNICIPAL BONDS -- 98.4% ALABAMA -- 0.5% University of Alabama Hospital Revenue Bonds Series A 5.625% 09/01/16 $ 500 $ 565,565 ------------ ARIZONA -- 2.1% Phoenix, Arizona, Civic Improvement Corp. Wastewater Systems Revenue Bonds 6.250% 07/01/16# 2,000 2,431,320 ------------ CALIFORNIA -- 2.2% California State Department Water Reserve Power Supply Revenue Bonds Series A 5.375% 05/01/22 2,500 2,603,000 ------------ COLORADO -- 6.7% Colorado Water Reserve Power Development Authority, Clean Water Revenue Bonds Series A 6.250% 09/01/16 1,000 1,193,310 Pueblo, Colorado, Board of Waterworks Water Improvement Revenue Bonds Series A 6.000% 11/01/17 2,370 2,787,831 Pueblo County, Colorado, School District No. 070 Pueblo Rural General Obligation Bonds 6.000% 12/01/18 3,170 3,756,165 ------------ 7,737,306 ------------ DELAWARE -- 0.7% Delaware River & Bay Authority Revenue Bonds Series A 5.750% 01/01/29 750 837,045 ------------ FLORIDA -- 1.0% Miami-Dade County, Florida, Expressway Authority Toll System Revenue Bonds 6.000% 07/01/14 1,000 1,179,980 ------------ GEORGIA -- 3.0% Chatham County, Georgia, Hospital Authority Revenue Bonds (Memorial Health Medical Center) Series A 6.125% 01/01/24 1,025 1,083,620 Forsyth County, Georgia, School District General Obligation Bonds 6.000% 02/01/14 1,000 1,175,280 6.000% 02/01/15 1,000 1,173,460 ------------ 3,432,360 ------------ ILLINOIS -- 10.9% Chicago, Illinois, General Obligation Bonds (Neighborhoods Alive 21) 6.125% 01/01/22 2,000 2,328,360 Chicago, Illinois, General Obligation Bonds Series A 6.000% 01/01/19 1,835 2,140,509 6.000% 01/01/20 1,000 1,163,300 ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- ------- ------------ MUNICIPAL BONDS (CONTINUED) ILLINOIS (CONTINUED) Illinois Health Facilities Authority Revenue Bonds (Elmhurst Memorial Healthcare) 5.500% 01/01/22 $ 1,000 $ 1,037,300 Illinois State General Obligation Bonds 6.125% 01/01/16 5,000 5,928,550 ------------ 12,598,019 ------------ MASSACHUSETTS -- 15.3% Brockton, Massachusetts, General Obligation Bonds 5.750% 06/01/16 750 869,332 6.000% 06/01/19 1,000 1,168,440 Holden, Massachusetts, General Obligation Bonds (Municipal Purposes Loan) 6.000% 03/01/16 1,000 1,175,690 Massachusetts Development Finance Agency Higher Education Revenue Bonds (Smith College Issue) 5.750% 07/01/23 1,000 1,186,130 Massachusetts State General Obligation Bonds Series B 6.000% 06/01/14 3,000 3,541,710 Massachusetts State Port Authority Revenue Bonds Series C 6.125% 07/01/17 1,000 1,154,050 Pittsfield, Massachusetts, General Obligation Bonds 5.000% 04/15/19 1,000 1,072,620 5.125% 04/15/22 1,500 1,592,625 Springfield, Massachusetts, General Obligation Bonds (Municipal Purposes Loan) 6.250% 10/01/19 5,000 5,921,400 ------------ 17,681,997 ------------ MICHIGAN -- 5.0% Michigan State Hospital Finance Authority Revenue Bonds (Chelsea Community Hospital) 5.375% 05/15/19 3,000 2,939,910 Oakland County, Michigan, Economic Development Corp. Limited Obligation Revenue Bonds (Cranbrook Educational Community) Series C 6.900% 11/01/14 2,725 2,908,719 ------------ 5,848,629 ------------ MINNESOTA -- 3.6% St. Cloud, Minnesota, Health Care Revenue Bonds (St. Cloud Hospital Obligation Group A) 6.250% 05/01/19 3,530 4,168,048 ------------ See Notes to Financial Statements. 53 HARRIS INSIGHT TAX-EXEMPT BOND FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- ------- ------------ MUNICIPAL BONDS (CONTINUED) MISSOURI -- 2.7% Missouri State Health & Educational Facilities Revenue Bonds (St. Anthony's Medical Center) 6.125% 12/01/19 $ 2,000 $ 2,125,180 6.250% 12/01/30 1,000 1,058,640 ------------ 3,183,820 ------------ NEW HAMPSHIRE -- 0.7% New Hampshire Health & Educational Facilities Revenue Bonds (Exeter Project) 6.000% 10/01/24 750 791,318 ------------ NEW YORK -- 5.3% New York City, New York, General Obligation Bonds Series A 6.500% 05/15/17# 4,450 5,457,524 New York City, New York, General Obligation Bonds Series A 6.500% 05/15/17 550 634,783 ------------ 6,092,307 ------------ NORTH CAROLINA -- 8.0% Broad River, North Carolina Water Authority System Revenue Bonds 5.750% 06/01/17 635 732,441 5.375% 06/01/20 1,000 1,094,800 Charlotte, North Carolina, Storm Water Fee Revenue Bonds 6.000% 06/01/20 3,175 3,805,650 Harnett County, North Carolina, Certificates of Participation 5.125% 12/01/23 1,000 1,060,950 Iredell County, North Carolina, Public Facilities Corp. Installment Revenue Bonds 6.000% 06/01/15 2,180 2,613,013 ------------ 9,306,854 ------------ OHIO -- 11.4% Akron, Ohio, General Obligation Bonds 6.500% 11/01/15 865 1,093,230 Avon Lake, Ohio, City School District General Obligation Bonds 5.750% 12/01/14 1,000 1,172,830 Marysville, Ohio, General Obligation Bonds 6.000% 12/01/29 1,000 1,205,010 Plain, Ohio, Local School District General Obligation Bonds 6.000% 12/01/25# 1,220 1,461,304 Plain, Ohio, Local School District General Obligation Bonds 6.000% 12/01/25 280 323,143 Rickenbacker, Ohio, Port Authority Revenue Bonds Series A 5.375% 01/01/32 1,500 1,617,480 ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- ------- ------------ MUNICIPAL BONDS (CONTINUED) OHIO (CONTINUED) Steubenville, Ohio, Hospital Revenue Bonds 6.375% 10/01/20 $ 1,000 $ 1,065,370 6.500% 10/01/30 1,250 1,329,550 University of Akron, Ohio, General Receipts Revenue Bonds 6.000% 01/01/15 2,235 2,632,048 6.000% 01/01/16 1,110 1,296,513 ------------ 13,196,478 ------------ OREGON -- 1.0% Linn County, Oregon, Community School District General Obligation Bonds 6.125% 06/15/25 1,000 1,198,630 ------------ PENNSYLVANIA -- 2.0% Chester County, Pennsylvania, Health & Educational Authority Hospital Revenue Bonds 6.750% 07/01/31 1,000 963,770 Erie, Pennsylvania, School District General Obligation Bonds 5.800% 09/01/29 1,150 1,354,988 ------------ 2,318,758 ------------ RHODE ISLAND -- 1.5% Cranston, Rhode Island, General Obligation Bonds 6.375% 11/15/14 500 602,295 6.375% 11/15/17 1,000 1,191,410 ------------ 1,793,705 ------------ TENNESSEE -- 1.0% White House Utility District, Tennessee, Robertson & Sumner Counties Water Revenue Bonds 6.000% 01/01/26 1,000 1,178,850 ------------ TEXAS -- 9.3% Birdville, Texas, Independent School District General Obligation Bonds 6.000% 02/15/21 2,135 2,455,271 Clint, Texas, Independent School District General Obligation Bonds 6.000% 02/15/16 1,710 1,987,413 Leander, Texas, Independent School District General Obligation Bonds 0.000% 08/15/24 5,000 1,513,850 Lewisville, Texas, Independent School District Refunding General Obligation Bonds 6.000% 08/15/17 3,130 3,620,033 Northside, Texas, Independent School District General Obligation Bonds 6.000% 08/15/14 1,000 1,183,190 ------------ 10,759,757 ------------ See Notes to Financial Statements. 54 HARRIS INSIGHT TAX-EXEMPT BOND FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- ANNUALIZED PAR YIELD/RATE MATURITY (000) VALUE+ - ---------- -------- ------- ------------ MUNICIPAL BONDS (CONTINUED) VIRGINIA -- 4.5% Henrico County, Virginia, Economic Development Authority Public Facilities Lease Revenue Bonds (Regional Jail Project) 6.000% 11/01/16 $ 1,000 $ 1,181,770 6.125% 11/01/17 2,405 2,851,007 Virginia State Reservoir Authority Clean Water Revenue Bonds (State Revolving Fund) 6.000% 10/01/17 1,000 1,174,360 ------------ 5,207,137 ------------ TOTAL MUNICIPAL BONDS (Cost $99,419,944) 114,110,883 ------------ SHARES ------ TEMPORARY INVESTMENTS -- 0.6% AIM Tax-Free Investment Co. Cash Reserve Portfolio 407,534 407,534 Goldman Sachs Financial Square Tax-Exempt Money Market Portfolio 262,345 262,345 ------------ TOTAL TEMPORARY INVESTMENTS (Cost $669,879) 669,879 ------------ TOTAL INVESTMENTS -- 99.0% (Cost $100,089,823) 114,780,762 ------------ OTHER ASSETS AND LIABILITIES -- 1.0% Interest receivable and other assets 1,574,985 Receivable for capital stock sold 257,190 Payable for capital stock redeemed (239,636) Dividends payable (346,892) Accrued expenses (59,872) ------------ 1,185,775 ------------ NET ASSETS -- 100.0% Applicable to 7,661,010 Institutional Shares, 2,195,028 N Shares, 273,346 A Shares, and 104,501 B Shares of beneficial interest outstanding, $.001 par value (Note 8) $115,966,537 ============ NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER INSTITUTIONAL SHARE ($86,811,809/7,661,010) $11.33 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER N SHARE ($24,873,250/2,195,028) $11.33 ====== NET ASSET VALUE AND REDEMPTION PRICE PER A SHARE ($3,097,368/273,346) $11.33 ====== MAXIMUM PUBLIC OFFERING PRICE PER A SHARE ($11.33/0.955) (NOTE 5) $11.86 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE (SUBJECT TO A MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 5.0%) PER B SHARE ($1,184,110/104,501) $11.33 ====== - ---------- The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows: Basis $100,089,823 ============ Gross Appreciation $ 14,708,793 Gross Depreciation (17,854) ------------ Net Appreciation $ 14,690,939 ============ + See Note 2a to the Financial Statements. # These securities are subject to a demand feature which reduces the remaining maturity. See Notes to Financial Statements. 55 HARRIS INSIGHT HIGH YIELD SELECT BOND FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ----------- MUTUAL FUNDS -- 98.9% Harris Insight High Yield Bond Fund (Cost $16,931,594) 1,381,731 $17,727,611 ----------- COMMON STOCK -- 0.5% DIVERSIFIED FINANCIALS Medical Office Properties, Inc.* (Cost $218,100) 10,905 81,461 ----------- TOTAL INVESTMENTS -- 99.4% (Cost $17,149,694) 17,809,072 ----------- OTHER ASSETS AND LIABILITIES -- 0.6% Interest receivable and other assets 123,618 Receivable for capital stock sold 1,779 Payable for capital stock redeemed (17,942) Dividends payable (1,430) Accrued expenses 3,390 ----------- 109,415 ----------- NET ASSETS -- 100.0% Applicable to 958,567 Institutional Shares, 23,031 N Shares, and, 12,161 A Shares of beneficial interest outstanding, $.001 par value (Note 8) $17,918,487 =========== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER INSTITUTIONAL SHARE ($17,284,019/958,567) $18.03 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER N SHARE ($415,291/23,031) $18.03 ====== NET ASSET VALUE AND REDEMPTION PRICE PER A SHARE ($219,177/12,161) $18.02 ====== MAXIMUM PUBLIC OFFERING PRICE PER A SHARE ($18.02/0.955) (NOTE 5) $18.87 ====== - ---------- The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows: Basis $17,151,245 =========== Gross Appreciation $ 794,466 Gross Depreciation (136,639) ----------- Net Appreciation $ 657,827 =========== + See Note 2a to the Financial Statements. * Security fair valued using methods determined in good faith by the Pricing Committee of the Board of Trustees. See Notes to Financial Statements. 56 HARRIS INSIGHT EQUITY FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK -- 99.0% ALCOHOLIC BEVERAGES -- 1.0% Anheuser-Busch Cos., Inc. 48,900 $ 2,576,052 ------------ AUTO COMPONENTS -- 0.5% Gentex Corp. 29,000 1,280,640 ------------ AUTOMOBILES -- 4.0% AutoNation, Inc.* 98,100 1,802,097 General Motors Corp. a 150,700 8,047,380 ------------ 9,849,477 ------------ BANKS -- 13.3% Bank of America Corp. a 30,100 2,420,943 Banknorth Group, Inc. 40,300 1,310,959 Huntington Bancshares, Inc. 121,900 2,742,750 Southtrust Corp. 231,900 7,590,087 Sovereign Bancorp, Inc. 233,200 5,538,500 U.S. Bancorp 154,600 4,603,988 Wachovia Corp. 64,950 3,026,020 Washington Mutual, Inc. 129,800 5,207,576 ------------ 32,440,823 ------------ BIOTECHNOLOGY -- 0.7% Genzyme Corp.* a 34,100 1,682,494 ------------ CASINOS -- 0.6% Park Place Entertainment Corp.* 135,000 1,462,050 ------------ CHEMICALS -- 0.6% Monsanto Co. 49,500 1,424,610 ------------ COMMERCIAL SERVICES & SUPPLIES -- 4.1% Cendant Corp.* 285,900 6,366,993 Manpower, Inc. 25,800 1,214,664 Republic Services, Inc. 92,600 2,373,338 ------------ 9,954,995 ------------ COMPUTERS & PERIPHERALS -- 5.5% Dell, Inc.* 162,700 5,525,292 EMC Corp.* 236,400 3,054,288 Hewlett-Packard Co. 210,400 4,832,888 ------------ 13,412,468 ------------ DIVERSIFIED FINANCIALS -- 8.4% Capital One Financial Corp. a 65,000 3,983,850 Citigroup, Inc. 183,090 8,887,189 J.P. Morgan Chase & Co. 92,600 3,401,198 Lehman Brothers Holdings, Inc. 22,900 1,768,338 Moody's Corp. 39,100 2,367,505 ------------ 20,408,080 ------------ DIVERSIFIED TELECOMMUNICATIONS SERVICES -- 5.3% AT&T Corp. 76,900 1,561,070 CenturyTel, Inc. a 121,800 3,973,116 Sprint Corp. (FON Group) 280,800 4,610,736 Verizon Communications, Inc. 78,400 2,750,272 ------------ 12,895,194 ------------ SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) ELECTRIC UTILITIES -- 3.9% Entergy Corp. 50,000 $ 2,856,500 Exelon Corp. 47,100 3,125,556 TXU Corp. a 145,800 3,458,376 ------------ 9,440,432 ------------ ELECTRONIC EQUIPMENT & INSTRUMENTS -- 2.7% Flextronics International, Ltd.* a 266,900 3,960,796 PerkinElmer, Inc. 149,600 2,553,672 ------------ 6,514,468 ------------ FOOD PRODUCTS -- 1.4% Dean Foods Co.* 100,750 3,311,652 ------------ GAS UTILITIES -- 0.5% UGI Corp. 36,100 1,223,790 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 2.5% Beckman Coulter, Inc. 90,100 4,579,783 Becton, Dickinson & Co. 34,800 1,431,672 ------------ 6,011,455 ------------ HEALTH CARE PROVIDERS & SERVICES -- 3.6% AdvancePCS* 27,700 1,458,682 Aetna, Inc. 18,700 1,263,746 Humana, Inc.* 144,550 3,302,967 Invitrogen Corp.* a 41,300 2,891,000 ------------ 8,916,395 ------------ HOTELS, RESTAURANTS & LEISURE -- 4.0% Applebee's International, Inc. a 63,145 2,479,704 CBRL Group, Inc. 53,600 2,050,736 Yum! Brands, Inc.* 153,400 5,276,960 ------------ 9,807,400 ------------ INDUSTRIAL CONGLOMERATES -- 1.5% General Electric Co. 118,400 3,668,032 ------------ INSURANCE -- 10.3% AFLAC, Inc. 157,100 5,683,878 John Hancock Financial Services, Inc. 71,400 2,677,500 MetLife, Inc. 199,900 6,730,633 Protective Life Corp. 107,300 3,631,032 Prudential Financial, Inc. a 93,550 3,907,584 Torchmark Corp. 56,100 2,554,794 ------------ 25,185,421 ------------ IT CONSULTING & SERVICES -- 1.4% Accenture, Ltd. Class A* a 130,900 3,445,288 ------------ MACHINERY -- 1.5% Donaldson Co., Inc. 38,900 2,301,324 Pall Corp. 54,400 1,459,552 ------------ 3,760,876 ------------ MEDIA -- 0.9% Time Warner, Inc.* a 117,100 2,106,629 ------------ See Notes to Financial Statements. 57 HARRIS INSIGHT EQUITY FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) METALS & MINING -- 1.0% Freeport-McMoRan Copper & Gold, Inc. Class B a 56,300 $ 2,371,919 ------------ MULTILINE RETAIL -- 2.0% Amazon.com, Inc.* a 23,600 1,242,304 Dollar General Corp. 82,725 1,736,398 Federated Department Stores, Inc. 40,900 1,927,617 ------------ 4,906,319 ------------ OIL & GAS -- 8.2% ConocoPhillips 81,300 5,330,841 Exxon Mobil Corp. 171,200 7,019,200 Marathon Oil Corp. 120,300 3,980,727 Valero Energy Corp. 28,400 1,316,056 XTO Energy, Inc. a 88,400 2,501,720 ------------ 20,148,544 ------------ PERSONAL PRODUCTS -- 1.5% Avon Products, Inc. 56,300 3,799,687 ------------ PHARMACEUTICALS -- 1.2% Pfizer, Inc. 80,400 2,840,532 ------------ ROAD & RAIL -- 1.8% Burlington Northern Santa Fe Corp. 139,200 4,503,120 ------------ SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 1.0% Intel Corp. 73,700 2,373,140 ------------ SOFTWARE -- 0.6% Oracle Corp.* 108,600 1,433,520 ------------ SPECIALTY RETAIL -- 1.2% Staples, Inc.* 109,600 2,992,080 ------------ TEXTILES & APPAREL -- 1.1% Liz Claiborne, Inc. 76,400 2,709,144 ------------ WIRELESS TELECOMMUNICATIONS SERVICES -- 1.2% Vodafone Group P.L.C. ADR a 116,500 2,917,160 ------------ TOTAL COMMON STOCK (Cost $205,241,168) 241,773,886 ------------ TEMPORARY INVESTMENTS -- 1.0% Dreyfus Cash Management Plus #719 20 20 Goldman Sachs Financial Square Money Market Portfolio 2,234,985 2,234,985 J.P. Morgan Institutional Prime Money Market Portfolio 74,118 74,118 ------------ TOTAL TEMPORARY INVESTMENTS (Cost $2,309,123) 2,309,123 ------------ COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ----------- INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED -- 13.9% COMMERCIAL PAPER -- 3.1% Cancara Asset Securitization, Ltd. 1.110% 01/12/04 $ 152 $ 151,453 General Electric Capital Funding, Inc. 1.110% 02/05/04 552 549,986 Silver Tower Fund 1.130% 02/02/04 2,740 2,732,337 Tulip Funding Corp. 1.100% 01/21/04 4,152 4,148,652 ------------ 7,582,428 ------------ REPURCHASE AGREEMENTS -- 1.1% Merrill Lynch & Co., Inc. 1.000% Agreement dated 12/31/03, proceeds at maturity $2,586,901 (Collateralized by $3,173,839 FHLMC, FNMA and GNMA 1.450% to 6.000%, due from 11/01/17 to 12/01/33. The market value is $2,664,408.) 01/02/04 2,587 2,586,757 ------------ TIME DEPOSITS -- 4.4% Canadian Imperial Bank 0.938% 01/02/04 3,126 3,125,888 Chase Manhattan Bank 0.875% 01/02/04 1,290 1,290,157 Merrill Lynch & Co., Inc. Master Notes 1.130% 01/02/04 6,252 6,251,775 UBS Bank 0.938% 01/02/04 206 206,407 ------------ 10,874,227 ------------ VARIABLE RATE OBLIGATIONS -- 5.3% American Express Centurion Bank Medium-Term Note 1.131% 01/27/04 1,930 1,929,807 American Express Credit Corp. Medium-Term Note 1.144% 04/16/04 801 801,079 Canadian Imperial Bank 1.096% 05/28/04 985 984,804 Merrill Lynch & Co., Inc. Master Notes 1.130% 01/05/04 1,513 1,513,375 1.130% 01/08/04 531 531,314 Monumental Global Funding II Senior Secured Notes Series 144A 1.301% 05/28/04 2,266 2,271,328 Morgan Stanley 1.080% 01/16/04 25 25,095 Natexis Banques 1.055% 12/13/04 1,613 1,612,733 Societe Generale 1.055% 12/04/04 2,843 2,842,170 See Notes to Financial Statements. 58 HARRIS INSIGHT EQUITY FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ----------- INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED (CONTINUED) VARIABLE RATE OBLIGATIONS (CONTINUED) Westdeutsche Landesbank A.G. 1.091% 09/23/04 $ 383 $ 383,097 ------------ 12,894,802 ------------ TOTAL INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED (Cost $33,938,214) 33,938,214 ------------ TOTAL INVESTMENTS -- 113.9% (Cost $241,488,505) 278,021,223 ------------ OTHER ASSETS AND LIABILITIES -- (13.9%) Dividends receivable and other assets 293,844 Receivable for capital stock sold 97,806 Payable upon return of collateral on securities loaned (33,938,214) Payable for capital stock redeemed (83,285) Accrued expenses (215,136) ------------ (33,844,985) ------------ NET ASSETS -- 100.0% Applicable to 20,002,823 Institutional Shares, 1,198,001 N Shares, 29,352 A Shares, and 28,318 B Shares of beneficial interest outstanding, $.001 par value (Note 8) $244,176,238 ============ NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER INSTITUTIONAL SHARE ($229,673,114/20,002,823) $11.48 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER N SHARE ($13,841,650/1,198,001) $11.55 ====== NET ASSET VALUE AND REDEMPTION PRICE PER A SHARE ($339,285/29,352) $11.56 ====== MAXIMUM PUBLIC OFFERING PRICE PER A SHARE ($11.56/0.945) (NOTE 5) $12.23 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE (SUBJECT TO A MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 5.0%) PER B SHARE ($322,189/28,318) $11.38 ====== - ---------- The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows: Basis $241,671,816 ============ Gross Appreciation $ 38,437,863 Gross Depreciation (2,088,456) ------------ Net Appreciation $ 36,349,407 ============ + See Note 2a to the Financial Statements. * Non-income producing security. a Total or partial security on loan. At December 31, 2003, the total market value of the portfolio's securities on loan is $32,809,289, and the total market value of the collateral held by the portfolio is $33,938,214. ADR -- American Depositary Receipt. See Notes to Financial Statements. 59 HARRIS INSIGHT CORE EQUITY FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK -- 98.8% AEROSPACE & DEFENSE -- 0.4% Raytheon Co. 15,740 $ 472,830 ------------ ALCOHOLIC BEVERAGES -- 0.9% Anheuser-Busch Cos., Inc. 21,832 1,150,110 ------------ AUTO COMPONENTS -- 0.6% Lear Corp. 13,300 815,689 ------------ AUTOMOBILES -- 1.8% General Motors Corp. a 44,030 2,351,202 ------------ BANKS -- 6.3% Southtrust Corp. 19,380 634,307 U.S. Bancorp 127,820 3,806,480 Wachovia Corp. 44,200 2,059,278 Washington Mutual, Inc. 46,910 1,882,029 ------------ 8,382,094 ------------ BIOTECHNOLOGY -- 1.8% Amgen, Inc.* 38,370 2,371,266 ------------ CHEMICALS -- 1.7% Monsanto Co. 27,600 794,328 Praxair, Inc. 38,100 1,455,420 ------------ 2,249,748 ------------ COMMERCIAL SERVICES & SUPPLIES -- 1.9% Cendant Corp.* 114,800 2,556,596 ------------ COMMUNICATIONS EQUIPMENT -- 4.2% Cisco Systems, Inc.* 198,195 4,814,157 Motorola, Inc. 56,700 797,769 ------------ 5,611,926 ------------ COMPUTERS & PERIPHERALS -- 3.4% Dell, Inc.* 70,260 2,386,029 EMC Corp.* 95,500 1,233,860 International Business Machines Corp. 9,510 881,387 ------------ 4,501,276 ------------ DIVERSIFIED FINANCIALS -- 11.5% Capital One Financial Corp. a 10,712 656,539 Citigroup, Inc. 42,104 2,043,728 Countrywide Credit Industries, Inc. a 21,433 1,625,693 J.P. Morgan Chase & Co. 104,900 3,852,977 Lehman Brothers Holdings, Inc. a 47,700 3,683,394 Merrill Lynch & Co., Inc. 26,800 1,571,820 Principal Financial Group, Inc. 54,900 1,815,543 ------------ 15,249,694 ------------ DIVERSIFIED TELECOMMUNICATIONS SERVICES -- 2.3% SBC Communications, Inc. 21,458 559,410 Sprint Corp. (FON Group) 150,500 2,471,210 ------------ 3,030,620 ------------ ELECTRIC UTILITIES -- 1.6% Southern Co. 69,480 2,101,770 SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) FOOD & DRUG RETAILING -- 1.6% Wal-Mart Stores, Inc. 40,625 $ 2,155,156 ------------ FOOD PRODUCTS -- 0.8% Dean Foods Co.* 32,750 1,076,492 ------------ GAS UTILITIES -- 0.8% UGI Corp. 32,500 1,101,750 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 5.5% Beckman Coulter, Inc. 32,160 1,634,693 Boston Scientific Corp.* 31,800 1,168,968 Guidant Corp. 44,200 2,660,840 Medtronic, Inc. 19,670 956,158 Stryker Corp. a 10,600 901,106 ------------ 7,321,765 ------------ HEALTH CARE PROVIDERS & SERVICES -- 2.5% AdvancePCS* 10,200 537,132 Caremark Rx, Inc.* a 38,200 967,606 Humana, Inc.* 29,000 662,650 Invitrogen Corp.* a 16,000 1,120,000 ------------ 3,287,388 ------------ HOTELS, RESTAURANTS & LEISURE -- 2.2% Starbucks Corp.* a 18,750 619,875 Yum! Brands, Inc.* 67,600 2,325,440 ------------ 2,945,315 ------------ HOUSEHOLD PRODUCTS -- 2.3% Procter & Gamble Co. 30,320 3,028,362 ------------ INDUSTRIAL CONGLOMERATES -- 3.7% General Electric Co. 159,052 4,927,431 ------------ INSURANCE -- 5.2% AFLAC, Inc. 34,429 1,245,641 American International Group, Inc. 8,738 579,155 Fidelity National Financial, Inc. 18,250 707,735 MetLife, Inc. 90,200 3,037,034 Prudential Financial, Inc. 30,500 1,273,985 ------------ 6,843,550 ------------ IT CONSULTING & SERVICES -- 2.4% Accenture, Ltd. Class A* a 70,500 1,855,560 First Data Corp. a 17,400 714,966 Fiserv, Inc.* 16,690 659,422 ------------ 3,229,948 ------------ MACHINERY -- 3.3% Danaher Corp. a 24,500 2,247,875 Donaldson Co., Inc. 24,500 1,449,420 Pall Corp. 23,900 641,237 ------------ 4,338,532 ------------ MEDIA -- 1.0% Viacom, Inc. Class B 29,720 1,318,974 ------------ See Notes to Financial Statements. 60 HARRIS INSIGHT CORE EQUITY FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) METALS & MINING -- 0.5% Freeport-McMoRan Copper & Gold, Inc. Class B a 14,800 $ 623,524 ------------ MULTILINE RETAIL -- 1.3% Amazon.com, Inc.* a 8,500 447,440 Dollar General Corp. 23,100 484,869 Sears, Roebuck & Co. 15,800 718,742 ------------ 1,651,051 ------------ OIL & GAS -- 6.7% Exxon Mobil Corp. 109,890 4,505,490 Marathon Oil Corp. 111,875 3,701,944 Valero Energy Corp. 15,100 699,734 ------------ 8,907,168 ------------ PERSONAL PRODUCTS -- 1.2% Avon Products, Inc. 23,200 1,565,768 ------------ PHARMACEUTICALS -- 3.7% Abbott Laboratories 14,800 689,680 Bristol-Myers Squibb Co. 17,200 491,920 Merck & Co., Inc. 17,985 830,907 Pfizer, Inc. 29,070 1,027,043 Watson Pharmaceuticals, Inc.* a 40,600 1,867,600 ------------ 4,907,150 ------------ SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 3.8% Intel Corp. 129,905 4,182,941 Linear Technology Corp. 19,400 816,158 ------------ 4,999,099 ------------ SOFTWARE -- 5.6% Citrix Systems, Inc.* 33,500 710,535 Microsoft Corp. 127,960 3,524,018 Oracle Corp.* 136,200 1,797,840 VERITAS Software Corp.* a 37,900 1,408,364 ------------ 7,440,757 ------------ SPECIALTY RETAIL -- 3.9% Home Depot, Inc. 58,800 2,086,812 Lowe's Cos., Inc. 38,400 2,126,976 Staples, Inc.* 34,500 941,850 ------------ 5,155,638 ------------ TEXTILES & APPAREL -- 1.4% Coach, Inc.* 28,300 1,068,325 Liz Claiborne, Inc. 20,700 734,022 ------------ 1,802,347 ------------ WIRELESS TELECOMMUNICATIONS SERVICES -- 1.0% Vodafone Group P.L.C. ADR a 54,400 1,362,176 ------------ TOTAL COMMON STOCK (Cost $112,693,692) 130,834,162 ------------ SHARES VALUE+ --------- ------------ TEMPORARY INVESTMENTS -- 2.0% Dreyfus Cash Management Plus #719 3,489 $ 3,489 Goldman Sachs Financial Square Money Market Portfolio 2,583,866 2,583,866 J.P. Morgan Institutional Prime Money Market Portfolio 32,275 32,275 ------------ TOTAL TEMPORARY INVESTMENTS (Cost $2,619,630) 2,619,630 ------------ COUPON PAR RATE MATURITY (000) - ------ -------- ------- INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED -- 14.5% CERTIFICATES OF DEPOSIT -- 0.5% Svenska Handelsbanken AB 1.390% 10/27/04 $ 691 691,322 ------------ COMMERCIAL PAPER -- 2.1% Cancara Asset Securitization, Ltd. 1.110% 01/12/04 9 9,209 General Electric Capital Funding, Inc. 1.110% 02/05/04 540 538,030 Silver Tower Fund 1.130% 02/02/04 1,275 1,271,182 Tulip Funding Corp. 1.100% 01/21/04 1,008 1,006,853 ------------ 2,825,274 ------------ REPURCHASE AGREEMENTS -- 0.7% Merrill Lynch & Co., Inc. 1.000% Agreement dated 12/31/03, proceeds at maturity $858,530 (Collateralized by $1,053,320 FHLMC, FNMA and GNMA 1.450% to 6.000%, due from 11/01/17 to 12/01/33. The market value is $884,253.) 01/02/04 858 858,482 ------------ TIME DEPOSITS -- 3.0% Canadian Imperial Bank 0.938% 01/02/04 1,037 1,037,406 Chase Manhattan Bank 0.875% 01/02/04 617 617,254 Merrill Lynch & Co., Inc. Master Notes 1.130% 01/02/04 2,075 2,074,812 UBS Bank 0.938% 01/02/04 232 232,163 ------------ 3,961,635 ------------ VARIABLE RATE OBLIGATIONS -- 8.2% American Express Credit Corp. Medium-Term Senior Notes Series 144A 1.119% 05/13/04 3,639 3,638,729 Bear Stearns Cos., Inc. Medium-Term Notes Series B 1.120% 01/16/04 4 4,472 Canadian Imperial Bank 1.096% 05/28/04 82 82,486 See Notes to Financial Statements. 61 HARRIS INSIGHT CORE EQUITY FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ----------- INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED (CONTINUED) VARIABLE RATE OBLIGATIONS (CONTINUED) Merrill Lynch & Co., Inc. Master Notes 1.130% 01/05/04 $ 1,466 $ 1,465,689 1.130% 01/08/04 1,851 1,850,826 Monumental Global Funding II Senior Secured Notes Series 144A 1.301% 05/28/04 11 10,811 Morgan Stanley 1.030% 01/12/04 11 10,614 Natexis Banques 1.055% 12/13/04 1,161 1,161,137 Societe Generale 1.055% 12/04/04 1,102 1,102,208 Westdeutsche Landesbank A.G. 1.091% 09/23/04 855 855,038 1.120% 10/12/04 730 730,104 ------------ 10,912,114 ------------ TOTAL INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED (Cost $19,248,827) 19,248,827 ------------ TOTAL INVESTMENTS -- 115.3% (Cost $134,562,149) 152,702,619 ------------ OTHER ASSETS AND LIABILITIES -- (15.3%) Dividends receivable and other assets 139,168 Receivable for capital stock sold 73,732 Payable upon return of collateral on securities loaned (19,248,827) Payable for securities purchased (400,049) Payable for capital stock redeemed (728,419) Accrued expenses (129,055) ------------ (20,293,450) ------------ NET ASSETS -- 100.0% Applicable to 6,224,278 Institutional Shares, 223,390 N Shares, 26,234 A Shares, and 6,393 B Shares of beneficial interest outstanding, $.001 par value (Note 8) $132,409,169 ============ NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER INSTITUTIONAL SHARE ($127,233,217/6,224,278) $20.44 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER N SHARE ($4,517,788/223,390) $20.22 ====== NET ASSET VALUE AND REDEMPTION PRICE PER A SHARE ($530,894/26,234) $20.24 ====== MAXIMUM PUBLIC OFFERING PRICE PER A SHARE ($20.24/0.945) (NOTE 5) $21.42 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE (SUBJECT TO A MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 5.0%) PER B SHARE ($127,270/6,393) $19.91 ====== - ---------- The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows: Basis $135,386,166 ============ Gross Appreciation $ 19,499,338 Gross Depreciation (2,182,885) ------------ Net Appreciation $ 17,316,453 ============ + See Note 2a to the Financial Statements. * Non-income producing security. a Total or partial security on loan. At December 31, 2003, the total market value of the portfolio's securities on loan is $18,676,535, and the total market value of the collateral held by the portfolio is $19,248,827. ADR -- American Depositary Receipt. See Notes to Financial Statements. 62 HARRIS INSIGHT SMALL-CAP OPPORTUNITY FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK -- 97.7% AEROSPACE & DEFENSE -- 1.9% Engineered Support Systems, Inc. 127,450 $ 7,017,397 United Defense Industries, Inc.* 105,300 3,356,964 ------------ 10,374,361 ------------ AIRLINES -- 0.9% America West Holdings Corp. Class B* a 400,900 4,971,160 ------------ AUTO COMPONENTS -- 1.0% Visteon Corp. a 508,900 5,297,649 ------------ AUTOMOBILES -- 0.7% Monaco Coach Corp.* 90,100 2,144,380 Thor Industries, Inc. 30,600 1,720,332 ------------ 3,864,712 ------------ BANKS -- 8.4% American Home Mortgage Investment Corp. 252,500 5,683,775 Bankunited Financial Corp. Class A* 178,300 4,598,357 Chittenden Corp. 38,700 1,301,868 Dime Community Bancshares, Inc. 108,700 3,343,612 East West Bancorp, Inc. 62,400 3,349,632 Flagstar Bancorp, Inc. 307,800 6,593,076 Irwin Financial Corp. 169,300 5,316,020 MAF Bancorp, Inc. 98,500 4,127,150 Silicon Valley Bancshares* 33,400 1,205,740 Texas Regional Bancshares, Inc. Class A 60,900 2,253,300 UCBH Holdings, Inc. 48,500 1,890,045 Washington Federal, Inc. 55,339 1,571,628 Wintrust Financial Corp. 81,250 3,664,375 ------------ 44,898,578 ------------ BUILDING PRODUCTS -- 0.7% Hovnanian Enterprises, Inc. Class A* a 45,400 3,952,524 ------------ CASINOS -- 1.5% GTECH Holdings Corp. a 55,200 2,731,848 Penn National Gaming, Inc.* a 237,400 5,479,192 ------------ 8,211,040 ------------ CHEMICALS -- 1.0% Cytec Industries, Inc.* 135,400 5,198,006 ------------ COMMERCIAL SERVICES & SUPPLIES -- 4.9% Corinthian Colleges, Inc.* 42,800 2,377,968 Corporate Executive Board Co.* a 104,000 4,853,680 FTI Consulting, Inc.* a 85,100 1,988,787 InterCept, Inc.* 166,900 1,884,301 Right Management Consultants, Inc.* 242,800 4,530,648 United Stationers, Inc.* 100,300 4,104,276 University of Phoenix Online* 94,500 6,513,885 ------------ 26,253,545 ------------ COMMUNICATIONS EQUIPMENT -- 1.1% Andrew Corp.* a 501,155 5,768,294 ------------ SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) COMPUTERS & PERIPHERALS -- 3.6% Advanced Digital Information Corp.* 408,000 $ 5,712,000 Hutchinson Technology, Inc.* a 201,400 6,191,036 Intergraph Corp.* 243,300 5,819,736 Komag, Inc.* 123,400 1,805,342 ------------ 19,528,114 ------------ CONSTRUCTION & ENGINEERING -- 0.7% Washington Group International, Inc.* 107,500 3,651,775 ------------ CONSTRUCTION MATERIALS -- 0.5% Florida Rock Industries, Inc. 51,300 2,813,805 ------------ DIVERSIFIED FINANCIALS -- 5.8% Arch Capital Group, Ltd.* a 77,700 3,097,122 Charter Municipal Mortgage Acceptance Co. 128,300 2,710,979 Commercial Net Lease Realty 121,000 2,153,800 CompuCredit Corp.* 108,952 2,318,499 Doral Financial Corp. a 89,725 2,896,323 Impac Mortgage Holdings, Inc. 412,900 7,518,909 New Century Financial Corp. a 195,050 7,737,633 Saxon Capital, Inc.* 121,300 2,541,235 ------------ 30,974,500 ------------ DIVERSIFIED TELECOMMUNICATIONS SERVICES -- 0.9% Aspect Communications Corp.* 308,700 4,865,112 ------------ ELECTRIC UTILITIES -- 0.8% OGE Energy Corp. 167,400 4,049,406 ------------ ELECTRONIC EQUIPMENT & INSTRUMENTS -- 7.3% Anixter International, Inc. 119,700 3,097,836 Arrow Electronics, Inc.* a 167,000 3,864,380 Avnet, Inc.* 121,600 2,633,856 Benchmark Electronics, Inc.* 125,950 4,384,319 Checkpoint Systems, Inc.* 107,400 2,030,934 Daktronics, Inc.* 114,000 2,868,240 DSP Group, Inc.* 139,400 3,472,454 Fisher Scientific International, Inc.* a 62,000 2,564,940 Metrologic Instruments, Inc.* 192,300 5,192,100 Network Engines, Inc.* 544,900 2,375,764 PerkinElmer, Inc. 178,800 3,052,116 Planar Systems, Inc.* 70,700 1,719,424 Teledyne Technologies, Inc.* 110,800 2,088,580 ------------ 39,344,943 ------------ ENERGY EQUIPMENT & SERVICES -- 0.8% Headwaters, Inc.* 220,000 4,316,400 ------------ FOOD PRODUCTS -- 0.6% Ralcorp Holdings, Inc.* 105,500 3,308,480 ------------ GAS UTILITIES -- 0.8% AGL Resources, Inc. 148,000 4,306,800 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 5.1% Cooper Cos., Inc. a 158,300 7,460,679 Dade Behring Holdings, Inc.* 224,500 8,023,630 Gen-Probe, Inc.* 213,300 7,779,051 Sybron Dental Specialties, Inc.* 145,000 4,074,500 ------------ 27,337,860 ------------ See Notes to Financial Statements. 63 HARRIS INSIGHT SMALL-CAP OPPORTUNITY FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) HEALTH CARE PROVIDERS & SERVICES -- 9.8% Amerigroup Corp.* 139,400 $ 5,945,410 Coventry Health Care, Inc.* 46,100 2,972,989 Cyberonics, Inc.* a 149,800 4,795,098 Digene Corp.* 127,200 5,100,720 Hanger Orthopedic Group, Inc.* 161,700 2,517,669 Kindred Healthcare, Inc.* 107,199 5,572,204 Medifast, Inc.* a 103,600 1,460,760 Mid Atlantic Medical Services, Inc.* 44,700 2,896,560 Owens & Minor, Inc. 122,000 2,673,020 Select Medical Corp.* 304,700 4,960,516 Sierra Health Services, Inc.* a 276,300 7,584,435 Tanox, Inc.* 256,248 3,805,283 VistaCare, Inc. Class A* 69,000 2,425,350 ------------ 52,710,014 ------------ HOTELS, RESTAURANTS & LEISURE -- 0.6% Applebee's International, Inc. a 81,300 3,192,651 ------------ HOUSEHOLD DURABLES -- 2.3% Lancaster Colony Corp. 98,900 4,466,324 Meritage Corp.* 55,600 3,686,836 Toro Co. 96,400 4,472,960 ------------ 12,626,120 ------------ INSURANCE -- 2.9% Fremont General Corp. 210,300 3,556,173 IPC Holdings, Ltd. 63,200 2,461,008 LandAmerica Financial Group, Inc. 131,900 6,893,094 Stewart Information Services Corp. 60,400 2,449,220 ------------ 15,359,495 ------------ INTERNET SOFTWARE & SERVICES -- 2.5% Digital River, Inc.* 213,600 4,720,560 United Online, Inc.* a 259,550 4,357,844 ValueClick, Inc.* 490,800 4,456,464 ------------ 13,534,868 ------------ IT CONSULTING & SERVICES -- 1.0% Cognizant Technology Solutions Corp.* 91,400 4,171,496 Syntel, Inc. 52,500 1,297,275 ------------ 5,468,771 ------------ LEISURE EQUIPMENT & PRODUCTS -- 1.2% Callaway Golf Co. 153,900 2,593,215 Marvel Enterprises, Inc.* a 131,800 3,836,698 ------------ 6,429,913 ------------ MACHINERY -- 2.9% A.S.V., Inc.* 11,385 425,344 Briggs & Stratton Corp. 112,400 7,575,760 Reliance Steel & Aluminum Co. 71,600 2,377,836 UNOVA, Inc.* 229,000 5,255,550 ------------ 15,634,490 ------------ SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) MEDIA -- 1.5% ADVO, Inc.* 108,850 $ 3,457,076 R.H. Donnelley Corp.* 114,500 4,561,680 ------------ 8,018,756 ------------ METALS & MINING -- 2.8% Metal Management, Inc.* 65,900 2,433,687 Randgold Resources, Ltd. ADR * a 259,100 7,073,430 Schnitzer Steel Industries, Inc. Class A 91,800 5,553,900 ------------ 15,061,017 ------------ OIL & GAS -- 2.9% OMI Corp.* 248,400 2,218,212 Patina Oil & Gas Corp. 160,043 7,840,507 Tesoro Petroleum Corp.* 385,000 5,609,450 ------------ 15,668,169 ------------ PAPER & FOREST PRODUCTS -- 0.8% Potlatch Corp. 123,900 4,308,003 ------------ PERSONAL PRODUCTS -- 0.8% Helen of Troy, Ltd.* 188,700 4,368,405 ------------ PHARMACEUTICALS -- 1.5% Endo Pharmaceutical Holdings, Inc.* 149,000 2,869,740 Eon Labs, Inc.* 97,700 4,977,815 ------------ 7,847,555 ------------ REAL ESTATE -- 2.7% LNR Property Corp. a 154,500 7,649,295 MFA Mortgage Investments, Inc. 234,400 2,285,400 Redwood Trust, Inc. 89,900 4,571,415 ------------ 14,506,110 ------------ ROAD & RAIL -- 0.5% Dollar Thrifty Automotive Group, Inc.* 110,600 2,868,964 ------------ SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 1.4% August Technology Corp.* 143,200 2,642,040 Entegris, Inc.* 272,200 3,497,770 Standard Microsystems Corp.* 64,300 1,626,790 ------------ 7,766,600 ------------ SOFTWARE -- 3.7% ANSYS, Inc.* 91,500 3,632,550 Kronos, Inc.* 92,150 3,650,062 RSA Security, Inc.* 339,700 4,823,740 Transaction Systems Architects, Inc. Class A* 245,000 5,544,350 Verint Systems, Inc.* 90,000 2,030,400 ------------ 19,681,102 ------------ SPECIALTY RETAIL -- 1.0% Aeropostale, Inc.* 195,800 5,368,836 ------------ See Notes to Financial Statements. 64 HARRIS INSIGHT SMALL-CAP OPPORTUNITY FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) TEXTILES & APPAREL -- 3.7% K-Swiss, Inc. Class A 194,200 $ 4,672,452 Kellwood Co. 125,000 5,125,000 Quiksilver, Inc.* 401,500 7,118,595 Tommy Hilfiger Corp.* 188,300 2,788,723 ------------ 19,704,770 ------------ WIRELESS TELECOMMUNICATIONS SERVICES -- 2.2% NII Holdings, Inc. Class B* a 85,523 6,382,581 Western Wireless Corp. Class A* 297,500 5,462,100 ------------ 11,844,681 ------------ TOTAL COMMON STOCK (Cost $378,701,539) 525,256,354 ------------ TEMPORARY INVESTMENTS -- 2.2% Dreyfus Cash Management Plus #719 21,393 21,393 Goldman Sachs Financial Square Money Market Portfolio 11,562,787 11,562,787 J.P. Morgan Institutional Prime Money Market Portfolio 91,631 91,631 ------------ TOTAL TEMPORARY INVESTMENTS (Cost $11,675,811) 11,675,811 ------------ COUPON PAR RATE MATURITY (000) - ------ -------- ------- INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED -- 14.2% CERTIFICATES OF DEPOSIT -- 0.3% Svenska Handelsbanken AB 1.390% 10/27/04 $ 1,704 1,703,853 ------------ COMMERCIAL PAPER -- 1.7% Amsterdam Funding Corp. 1.100% 01/05/04 844 842,931 Cancara Asset Securitization, Ltd. 1.110% 01/12/04 1,524 1,522,608 Tulip Funding Corp. 1.100% 01/21/04 6,814 6,807,388 ------------ 9,172,927 ------------ REPURCHASE AGREEMENTS -- 1.1% Merrill Lynch & Co., Inc. 1.000% Agreement dated 12/31/03, proceeds at maturity $6,053,781 (Collateralized by $7,427,316 FHLMC, FNMA and GNMA 1.450% to 6.000%, due from 11/01/17 to 12/01/33. The market value is $6,235,162.) 01/02/04 6,053 6,053,445 ------------ TIME DEPOSITS -- 4.6% Canadian Imperial Bank 0.938% 01/02/04 7,315 7,315,103 Chase Manhattan Bank 0.875% 01/02/04 2,063 2,062,604 COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ----------- INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED (CONTINUED) TIME DEPOSITS (CONTINUED) Merrill Lynch & Co., Inc. Master Notes 1.130% 01/02/04 $14,630 $ 14,630,205 UBS Bank 0.938% 01/02/04 445 445,029 ------------ 24,452,941 ------------ VARIABLE RATE OBLIGATIONS -- 6.5% American Express Centurion Bank Medium-Term Note 1.131% 01/27/04 2,310 2,309,656 American Express Credit Corp. Medium-Term Note 1.144% 04/16/04 9 9,163 American Express Credit Corp. Medium-Term Senior Notes Series 144A 1.119% 05/13/04 3,142 3,141,982 Canadian Imperial Bank 1.096% 05/28/04 4,623 4,622,175 Goldman Sachs Group, Inc. 1.140% 03/08/04 12,312 12,311,761 Merrill Lynch & Co., Inc. Master Notes 1.130% 01/05/04 3,616 3,615,829 Monumental Global Funding II Senior Secured Notes Series 144A 1.301% 05/28/04 865 866,821 Morgan Stanley 1.030% 07/16/04 436 435,792 Natexis Banques 1.055% 12/13/04 5,504 5,502,354 Societe Generale 1.055% 12/04/04 1,843 1,842,260 Westdeutsche Landesbank A.G. 1.091% 09/23/04 281 280,724 ------------ 34,938,517 ------------ TOTAL INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED (Cost $76,321,683) 76,321,683 ------------ TOTAL INVESTMENTS -- 114.1% (Cost $466,699,033) 613,253,848 ------------ OTHER ASSETS AND LIABILITIES -- (14.1%) Dividends receivable and other assets 468,130 Receivable for securities sold 5,952,987 Receivable for capital stock sold 382,778 Payable upon return of collateral on securities loaned (76,321,683) Payable for securities purchased (5,371,105) Payable for capital stock redeemed (440,595) Accrued expenses (564,685) ------------ (75,894,173) ------------ NET ASSETS -- 100.0% Applicable to 20,769,302 Institutional Shares, 2,763,880 N Shares, 136,818 A Shares, and 23,124 B Shares of beneficial interest outstanding, $.001 par value (Note 8) $537,359,675 ============ See Notes to Financial Statements. 65 HARRIS INSIGHT SMALL-CAP OPPORTUNITY FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER INSTITUTIONAL SHARE ($472,228,090/20,769,302) $22.74 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER N SHARE ($61,578,859/2,763,880) $22.28 ====== NET ASSET VALUE AND REDEMPTION PRICE PER A SHARE ($3,047,180/136,818) $22.27 ====== MAXIMUM PUBLIC OFFERING PRICE PER A SHARE ($22.27/0.945) (NOTE 5) $23.57 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE (SUBJECT TO A MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 5.0%) PER B SHARE ($505,546/23,124) $21.86 ====== - ---------- The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows: Basis $466,747,012 ============ Gross Appreciation $153,021,930 Gross Depreciation (6,515,094) ------------ Net Appreciation $146,506,836 ============ + See Note 2a to the Financial Statements. * Non-income producing security. a Total or partial security on loan. At December 31, 2003, the total market value of the portfolio's securities on loan is $73,464,650, and the total market value of the collateral held by the portfolio is $76,321,683. ADR -- American Depositary Receipt. See Notes to Financial Statements. 66 HARRIS INSIGHT SMALL-CAP VALUE FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK -- 98.1% AEROSPACE & DEFENSE -- 2.8% Curtiss-Wright Corp. 48,760 $ 2,194,688 United Defense Industries, Inc.* 159,600 5,088,048 World Fuel Services Corp. 45,000 1,527,750 ------------ 8,810,486 ------------ AIRLINES -- 0.9% AirTran Holdings, Inc.* 82,100 976,990 Mesa Air Group, Inc.* a 155,000 1,940,600 ------------ 2,917,590 ------------ AUTO COMPONENTS -- 0.4% Bandag, Inc. 29,800 1,227,760 ------------ AUTOMOBILES -- 0.4% Asbury Automotive Group, Inc.* 67,100 1,201,761 ------------ BANKS -- 8.1% BancorpSouth, Inc. 75,150 1,782,558 BankAtlantic Bancorp, Inc. Class A 106,400 2,021,600 Colonial BancGroup, Inc. 114,200 1,977,944 Downey Financial Corp. 62,650 3,088,645 East West Bancorp, Inc. 54,550 2,928,244 First BanCorp 38,750 1,532,562 Flagstar Bancorp, Inc. a 173,900 3,724,938 Irwin Financial Corp. 136,650 4,290,810 Netbank, Inc. 127,550 1,702,793 Pacific Capital Bancorp 32,700 1,204,014 R & G Financial Corp. Class B 42,700 1,699,460 ------------ 25,953,568 ------------ BUILDING PRODUCTS -- 0.9% M/I Schottenstein Homes, Inc. 74,150 2,895,557 ------------ CASINOS -- 0.4% Ameristar Casinos, Inc.* 53,150 1,300,580 ------------ COMMERCIAL SERVICES & SUPPLIES -- 1.4% Banta Corp. 110,050 4,457,025 ------------ COMMUNICATIONS EQUIPMENT -- 0.8% Ditech Communications Corp.* 130,000 2,483,000 ------------ COMPUTERS & PERIPHERALS -- 2.0% Advanced Digital Information Corp.* 273,650 3,831,100 Intergraph Corp.* 109,250 2,613,260 ------------ 6,444,360 ------------ CONTAINERS & PACKAGING -- 1.2% Owens-Illinois, Inc.* 310,900 3,696,601 ------------ DISTRIBUTORS -- 0.8% Brightpoint, Inc.* 38,000 655,500 Handleman Co. 92,550 1,900,051 ------------ 2,555,551 ------------ DIVERSIFIED FINANCIALS -- 10.1% Accredited Home Lenders Holding Co.* 83,000 2,539,800 Arch Capital Group, Ltd.* a 48,450 1,931,217 CompuCredit Corp.* 93,850 1,997,128 SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) DIVERSIFIED FINANCIALS (CONTINUED) Friedman, Billings, Ramsey Group, Inc. Class A 269,580 $ 6,221,906 Hugoton Royalty Trust 112,250 2,456,030 Impac Mortgage Holdings, Inc. 106,100 1,932,081 New Century Financial Corp. a 163,650 6,491,995 San Juan Basin Royalty Trust 279,550 6,063,440 Westcorp 69,850 2,553,018 ------------ 32,186,615 ------------ DIVERSIFIED TELECOMMUNICATIONS SERVICES -- 1.1% Commonwealth Telephone Enterprises, Inc.* a 53,200 2,008,300 Embratel Participacoes S.A. ADR a 88,150 1,464,171 ------------ 3,472,471 ------------ ELECTRIC UTILITIES -- 1.7% Cleco Corp. a 190,000 3,416,200 Westar Energy, Inc. 105,450 2,135,362 ------------ 5,551,562 ------------ ELECTRICAL EQUIPMENT -- 0.6% Acuity Brands, Inc. 77,000 1,986,600 ------------ ELECTRONIC EQUIPMENT & INSTRUMENTS -- 4.3% Analogic Corp. 23,000 943,000 Benchmark Electronics, Inc.* 140,100 4,876,881 Checkpoint Systems, Inc.* 116,900 2,210,579 KEMET Corp.* 198,300 2,714,727 Trimble Navigation, Ltd.* 77,100 2,871,204 ------------ 13,616,391 ------------ ENERGY EQUIPMENT & SERVICES -- 1.2% Denbury Resources, Inc.* 104,800 1,457,768 Kinder Morgan Management, L.L.C.* 38,292 1,645,034 Veritas DGC, Inc.* 67,600 708,448 ------------ 3,811,250 ------------ FOOD PRODUCTS -- 2.1% Chiquita Brands International, Inc.* a 225,000 5,069,250 Pilgrim's Pride Corp. 106,550 1,739,961 ------------ 6,809,211 ------------ GAS UTILITIES -- 3.5% ONEOK, Inc. a 213,300 4,709,664 Peoples Energy Corp. 79,950 3,361,098 WGL Holdings, Inc. 107,150 2,977,698 ------------ 11,048,460 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 2.3% American Medical Systems Holdings, Inc.* 73,000 1,591,400 Cooper Cos., Inc. a 120,650 5,686,234 ------------ 7,277,634 ------------ HEALTH CARE PROVIDERS & SERVICES -- 6.5% Kindred Healthcare, Inc.* 86,650 4,504,067 Owens & Minor, Inc. 125,150 2,742,036 PacifiCare Health Systems, Inc.* a 68,100 4,603,560 See Notes to Financial Statements. 67 HARRIS INSIGHT SMALL-CAP VALUE FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) HEALTH CARE PROVIDERS & SERVICES (CONTINUED) Sierra Health Services, Inc.* 85,950 $ 2,359,328 Sunrise Senior Living, Inc.* a 55,950 2,167,503 Tanox, Inc.* 121,800 1,808,730 VISX, Inc.* 116,150 2,688,873 ------------ 20,874,097 ------------ HOTELS, RESTAURANTS & LEISURE -- 2.3% Bob Evans Farms, Inc. 59,250 1,923,255 Landry's Restaurants, Inc. 123,800 3,184,136 Papa John's International, Inc.* 67,900 2,266,502 ------------ 7,373,893 ------------ HOUSEHOLD DURABLES -- 1.6% Toro Co. 110,750 5,138,800 ------------ INSURANCE -- 7.3% AmerUs Group Co. a 164,200 5,742,074 Delphi Financial Group, Inc. Class A 59,535 2,143,260 Fremont General Corp. 295,850 5,002,824 IPC Holdings, Ltd. 47,100 1,834,074 LandAmerica Financial Group, Inc. 84,900 4,436,874 Stewart Information Services Corp. 70,400 2,854,720 UICI* 100,850 1,339,288 ------------ 23,353,114 ------------ INTERNET SOFTWARE & SERVICES -- 0.3% United Online, Inc.* a 47,975 805,500 ------------ IT CONSULTING & SERVICES -- 0.8% Gartner, Inc. Class B* 232,850 2,533,408 ------------ MACHINERY -- 2.9% Graco, Inc. 81,655 3,274,365 JLG Industries, Inc. 123,350 1,878,621 UNOVA, Inc.* 179,950 4,129,853 ------------ 9,282,839 ------------ MARINE -- 3.5% Frontline, Ltd. 213,000 5,425,110 General Maritime Corp.* 166,650 2,933,040 Overseas Shipholding Group, Inc. 78,650 2,678,033 ------------ 11,036,183 ------------ METALS & MINING -- 2.5% Cleveland-Cliffs, Inc.* 110,000 5,604,500 Steel Dynamics, Inc.* 100,600 2,363,094 ------------ 7,967,594 ------------ MULTILINE RETAIL -- 0.8% ShopKo Stores, Inc.* 173,100 2,639,775 ------------ OFFICE ELECTRONICS -- 1.7% Ikon Office Solutions, Inc. 443,850 5,264,061 ------------ OIL & GAS -- 6.6% Houston Exploration Co.* 73,350 2,678,742 Nuevo Energy Co.* 124,850 3,017,624 SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) OIL & GAS (CONTINUED) Patina Oil & Gas Corp. 82,493 $ 4,041,332 Stone Energy Corp.* 119,350 5,066,408 Tesoro Petroleum Corp.* 420,000 6,119,400 ------------ 20,923,506 ------------ PAPER & FOREST PRODUCTS -- 0.4% Potlatch Corp. 40,000 1,390,800 PHARMACEUTICALS -- 1.6% Alpharma, Inc. Class A 168,100 3,378,810 Impax Laboratories, Inc.* 118,150 1,700,179 ------------ 5,078,989 ------------ REAL ESTATE -- 2.5% Corporate Office Properties Trust 73,800 1,549,800 LNR Property Corp. a 40,610 2,010,601 Pan Pacific Retail Properties, Inc. 29,650 1,412,822 Redwood Trust, Inc. 29,350 1,492,448 Winston Hotels, Inc. 144,450 1,473,390 ------------ 7,939,061 ------------ ROAD & RAIL -- 2.0% Dollar Thrifty Automotive Group, Inc.* 93,950 2,437,063 Landstar System, Inc.* 67,800 2,579,112 UTI Worldwide, Inc. 39,500 1,498,235 ------------ 6,514,410 ------------ SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 0.6% Standard Microsystems Corp.* 77,700 1,965,810 ------------ SPECIALTY RETAIL -- 5.4% PETCO Animal Supplies, Inc.* 169,950 5,174,978 United Auto Group, Inc.* 135,150 4,230,195 United Rentals, Inc.* 288,150 5,549,769 Zale Corp.* 42,350 2,253,020 ------------ 17,207,962 ------------ TEXTILES & APPAREL -- 1.1% Tommy Hilfiger Corp.* 230,000 3,406,300 ------------ TOBACCO -- 0.7% Universal Corp. 54,050 2,387,389 ------------ TOTAL COMMON STOCK (Cost $237,540,138) 312,787,524 ------------ TEMPORARY INVESTMENTS -- 1.9% Dreyfus Cash Management Plus #719 27,982 27,982 Goldman Sachs Financial Square Money Market Portfolio 6,046,539 6,046,539 J.P. Morgan Institutional Prime Money Market Portfolio 54,272 54,272 ------------ TOTAL TEMPORARY INVESTMENTS (Cost $6,128,793) 6,128,793 ------------ See Notes to Financial Statements. 68 HARRIS INSIGHT SMALL-CAP VALUE FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ----------- INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED -- 13.2% COMMERCIAL PAPER -- 0.8% Amsterdam Funding Corp. 1.100% 01/05/04 $ 84 $ 83,876 Concord Minuteman Capital Co., L.L.C. 1.110% 01/12/04 1,442 1,439,068 Lexington Parker Capital Co. 1.100% 01/12/04 1,048 1,045,589 ------------ 2,568,533 ------------ REPURCHASE AGREEMENTS -- 1.2% Merrill Lynch & Co., Inc. 1.000% Agreement dated 12/31/03, proceeds at maturity $3,960,113 (Collateralized by $4,858,618 FHLMC, FNMA and GNMA 1.450% to 6.000%, due from 11/01/17 to 12/01/33. The market value is $4,078,764.) 01/02/04 3,960 3,959,893 ------------ TIME DEPOSITS -- 4.8% Canadian Imperial Bank 0.938% 01/02/04 4,785 4,785,212 Chase Manhattan Bank 0.875% 01/02/04 856 855,787 Merrill Lynch & Co., Inc. Master Notes 1.130% 01/02/04 9,570 9,570,424 UBS Bank 0.938% 01/02/04 99 99,330 ------------ 15,310,753 ------------ VARIABLE RATE OBLIGATIONS -- 6.4% American Express Credit Corp. Medium-Term Note 1.144% 04/16/04 1,544 1,543,910 Bear Stearns Cos., Inc. Medium-Term Notes Series B 1.120% 01/16/04 525 525,389 Goldman Sachs Group, Inc. 1.140% 03/08/04 1,684 1,684,196 Merrill Lynch & Co., Inc. Master Notes 1.130% 01/05/04 3,961 3,960,899 1.130% 01/08/04 1,817 1,816,614 Morgan Stanley 1.080% 03/12/04 140 140,289 Societe Generale 1.055% 12/04/04 6,770 6,768,873 Westdeutsche Landesbank A.G. 1.091% 09/23/04 2,906 2,905,110 1.120% 10/12/04 899 898,972 ------------ 20,244,252 ------------ TOTAL INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED (Cost $42,083,431) 42,083,431 ------------ TOTAL INVESTMENTS -- 113.2% (Cost $285,752,362) 360,999,748 ------------ VALUE+ ------------ OTHER ASSETS AND LIABILITIES -- (13.2%) Dividends receivable and other assets $ 427,363 Receivable for capital stock sold 177,035 Payable upon return of collateral on securities loaned (42,083,431) Payable for capital stock redeemed (323,692) Accrued expenses (265,954) ------------ (42,068,679) ------------ NET ASSETS -- 100.0% Applicable to 6,843,918 Institutional Shares, 171,197 N Shares, 34,658 A Shares, and 22,011.203 B Shares of beneficial interest outstanding, $.001 par value (Note 8) $318,931,069 ============ NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER INSTITUTIONAL SHARE ($308,693,315/6,843,918) $45.10 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER N SHARE ($7,701,592/171,197) $44.99 ====== NET ASSET VALUE AND REDEMPTION PRICE PER A SHARE ($1,557,001/34,658) $44.92 ====== MAXIMUM PUBLIC OFFERING PRICE PER A SHARE ($44.92/0.945) (NOTE 5) $47.53 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE (SUBJECT TO A MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 5.0%) PER B SHARE ($979,161/22,011.203) $44.48 ====== - ---------- The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows: Basis $286,398,886 ============ Gross Appreciation $ 77,978,145 Gross Depreciation (3,377,283) ------------ Net Appreciation $ 74,600,862 ============ + See Note 2a to the Financial Statements. * Non-income producing security. a Total or partial security on loan. At December 31, 2003, the total market value of the portfolio's securities on loan is $40,357,120, and the total market value of the collateral held by the portfolio is $42,083,431. ADR -- American Depositary Receipt. See Notes to Financial Statements. 69 HARRIS INSIGHT INDEX FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK -- 98.7% AEROSPACE & DEFENSE -- 1.8% Boeing Co. 30,189 $ 1,272,164 General Dynamics Corp. 7,116 643,215 Goodrich Corp. 4,240 125,885 Honeywell International, Inc. 30,946 1,034,525 Lockheed Martin Corp. a 16,187 832,012 Northrop Grumman Holdings Corp. a 6,551 626,276 Raytheon Co. 14,995 450,450 Rockwell Collins, Inc. 6,323 189,880 United Technologies Corp. 16,946 1,605,972 ------------ 6,780,379 ------------ AIR FREIGHT & COURIERS -- 1.0% FedEx Corp. a 10,751 725,693 United Parcel Service Class B a 40,400 3,011,820 ------------ 3,737,513 ------------ AIRLINES -- 0.1% Delta Air Lines, Inc. 4,396 51,917 Southwest Airlines Co. 28,308 456,891 ------------ 508,808 ------------ ALCOHOLIC BEVERAGES -- 0.4% Anheuser-Busch Cos., Inc. 29,255 1,541,153 Coors Adolph Co. Class B 1,345 75,455 ------------ 1,616,608 ------------ AUTO COMPONENTS -- 0.2% Cooper Tire & Rubber Co. 2,667 57,020 Dana Corp. 5,304 97,328 Delphi Automotive Systems Corp. 20,084 205,058 Goodyear Tire & Rubber Co.* 6,325 49,715 Johnson Controls, Inc. 3,215 373,326 Visteon Corp. 4,690 48,823 ------------ 831,270 ------------ AUTOMOBILES -- 0.8% AutoNation, Inc.* a 9,900 181,863 Ford Motor Co. a 65,722 1,051,552 General Motors Corp. a 20,169 1,077,025 Harley-Davidson, Inc. a 10,925 519,265 ------------ 2,829,705 ------------ BANKS -- 7.2% AmSouth Bancorp 12,608 308,896 Bank of America Corp. a 53,339 4,290,056 Bank of New York Co., Inc. a 27,787 920,305 Bank One Corp. 40,110 1,828,615 BB&T Corp. 19,646 759,121 Charter One Financial, Inc. 8,012 276,815 Comerica, Inc. 6,273 351,664 Fifth Third Bancorp 20,384 1,204,694 First Tennessee National Corp. 4,517 199,200 FleetBoston Financial Corp. 37,897 1,654,204 Golden West Financial Corp. 5,495 567,029 Huntington Bancshares, Inc. 8,173 183,892 Keycorp 15,018 440,328 Marshall & Ilsley Corp. 8,170 312,502 Mellon Financial Corp. 15,410 494,815 SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) BANKS (CONTINUED) National City Corp. 21,825 $ 740,740 North Fork Bancorp., Inc. 5,400 218,538 Northern Trust Corp. 7,923 367,786 PNC Financial Services Group, Inc. 9,972 545,768 Regions Financial Corp. 7,934 295,145 Southtrust Corp. 11,930 390,469 Suntrust Banks, Inc. 10,097 721,936 Synovus Financial Corp. a 10,837 313,406 U.S. Bancorp 69,293 2,063,546 Union Planters Corp. 6,732 211,991 Wachovia Corp. 47,567 2,216,147 Washington Mutual, Inc. 32,302 1,295,956 Wells Fargo & Co. 60,769 3,578,686 Zions Bancorp 3,276 200,917 ------------ 26,953,167 ------------ BEVERAGES -- 2.2% Brown-Forman Corp. Class B a 2,144 200,357 Coca-Cola Co. 88,074 4,469,755 Coca-Cola Enterprises, Inc. 16,333 357,203 Pepsi Bottling Group, Inc. 9,466 228,888 Pepsico, Inc. 61,655 2,874,356 ------------ 8,130,559 ------------ BIOTECHNOLOGY -- 1.2% Amgen, Inc.* 46,291 2,860,784 Biogen IDEC, Inc.* a 11,803 434,114 Chiron Corp.* a 6,694 381,491 Genzyme Corp.* a 8,062 397,779 MedImmune, Inc.* 8,934 226,924 ------------ 4,301,092 ------------ BUILDING PRODUCTS -- 0.1% Crane Co. 2,098 64,492 Masco Corp. 16,663 456,733 ------------ 521,225 ------------ CASINOS -- 0.2% Harrah's Entertainment, Inc. 4,007 199,428 International Game Technology a 12,404 442,823 ------------ 642,251 ------------ CHEMICALS -- 1.5% Air Products & Chemicals, Inc. 8,125 429,244 Dow Chemical Co. 33,021 1,372,683 E.I. du Pont de Nemours & Co. 35,790 1,642,403 Eastman Chemical Co. a 2,761 109,142 Ecolab, Inc. 9,256 253,337 Engelhard Corp. 4,458 133,517 Great Lakes Chemical Corp. a 1,831 49,785 Hercules, Inc.* 4,021 49,056 International Flavors & Fragrances, Inc. 3,404 118,868 Monsanto Co. 9,367 269,582 P.P.G. Industries, Inc. 6,071 388,666 Praxair, Inc. 11,672 445,870 Rohm & Haas Co. 8,037 343,260 Sigma-Aldrich Corp. a 2,484 142,035 ------------ 5,747,448 ------------ See Notes to Financial Statements. 70 HARRIS INSIGHT INDEX FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) COMMERCIAL SERVICES & SUPPLIES -- 1.0% Allied Waste Industries, Inc.* 11,490 $ 159,481 Apollo Group, Inc. Class A* a 6,343 431,324 Avery Dennison Corp. 3,997 223,912 Cendant Corp.* 36,419 811,051 Cintas Corp. a 6,110 306,294 Deluxe Corp. 1,802 74,477 Equifax, Inc. 5,022 123,039 H & R Block, Inc. a 6,390 353,814 Pitney Bowes, Inc. 8,352 339,258 R.R. Donnelley & Sons Co. 4,098 123,555 Robert Half International, Inc.* 6,166 143,915 Waste Management, Inc. 20,921 619,262 ------------ 3,709,382 ------------ COMMUNICATIONS EQUIPMENT -- 2.9% ADC Telecommunications, Inc.* 28,900 85,833 Andrew Corp.* a 5,495 63,248 Avaya, Inc.* 15,000 194,100 CIENA Corp.* a 17,058 113,265 Cisco Systems, Inc.* 247,925 6,022,098 Comverse Technology, Inc.* 6,931 121,916 Corning, Inc.* 47,700 497,511 JDS Uniphase Corp.* 51,515 188,030 Lucent Technologies, Inc.* 150,600 427,704 Motorola, Inc. 83,566 1,175,774 Qualcomm, Inc. 28,740 1,549,948 Scientific-Atlanta, Inc. 5,448 148,730 Tellabs, Inc.* 15,019 126,610 ------------ 10,714,767 ------------ COMPUTERS & PERIPHERALS -- 3.8% Apple Computer, Inc.* 13,037 278,601 Dell, Inc.* 91,923 3,121,705 EMC Corp.* 86,307 1,115,087 Gateway, Inc.* 11,669 53,677 Hewlett-Packard Co. 109,457 2,514,227 International Business Machines Corp. 61,764 5,724,288 Lexmark International, Inc. Class A* 4,597 361,508 NCR Corp.* a 3,351 130,019 Network Appliance, Inc.* a 12,395 254,469 Sun Microsystems, Inc.* 117,268 526,533 ------------ 14,080,114 ------------ CONSTRUCTION & ENGINEERING -- 0.0% Fluor Corp. a 2,914 115,511 ------------ CONSTRUCTION MATERIALS -- 0.1% Vulcan Materials Co. 3,688 175,438 ------------ CONTAINERS & PACKAGING -- 0.2% Ball Corp. 2,059 122,654 Bemis Co., Inc. 1,867 93,350 Pactiv Corp.* 5,662 135,322 Sealed Air Corp.* 3,021 163,557 Temple Inland, Inc. 1,904 119,324 ------------ 634,207 ------------ DISTRIBUTORS -- 0.1% Genuine Parts Co. 6,286 208,695 ------------ SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) DIVERSIFIED FINANCIALS -- 8.3% AMBAC Financial Group, Inc. 3,822 $ 265,208 American Express Co. 46,190 2,227,744 Bear Stearns Cos., Inc. a 3,559 284,542 Capital One Financial Corp. a 8,302 508,829 Charles Schwab Corp. 48,720 576,845 Citigroup, Inc. 185,228 8,990,967 Countrywide Credit Industries, Inc. 6,633 503,113 Equity Residential Properties Trust 9,923 292,828 Fannie Mae 34,849 2,615,766 Federated Investors, Inc. Class B 3,900 114,504 Franklin Resources, Inc. 9,016 469,373 Freddie Mac 24,978 1,456,717 Goldman Sachs Group, Inc. a 17,000 1,678,410 J.P. Morgan Chase & Co. 73,215 2,689,187 Janus Capital Group, Inc. 8,658 142,078 Lehman Brothers Holdings, Inc. a 9,768 754,285 MBNA Corp. 45,843 1,139,198 Merrill Lynch & Co., Inc. 33,984 1,993,162 Moody's Corp. 5,303 321,097 Morgan Stanley a 38,936 2,253,226 Principal Financial Group, Inc. 11,600 383,612 Providian Financial Corp.* 10,423 121,324 SLM Corp. 16,183 609,775 State Street Corp. 11,997 624,804 T. Rowe Price Group, Inc. a 4,499 213,298 ------------ 31,229,892 ------------ DIVERSIFIED TELECOMMUNICATIONS SERVICES -- 2.9% Alltel Corp. 11,181 520,811 AT&T Corp. a 28,355 575,606 BellSouth Corp. 66,382 1,878,611 CenturyTel, Inc. 5,154 168,123 Citizens Communications Co.* 10,225 126,994 Qwest Communications International, Inc.* 63,449 274,100 SBC Communications, Inc. 118,883 3,099,280 Sprint Corp. (FON Group) 32,487 533,437 Verizon Communications, Inc. 99,210 3,480,287 ------------ 10,657,249 ------------ ELECTRIC UTILITIES -- 2.4% AES Corp.* 22,400 211,456 Allegheny Energy, Inc.* a 4,567 58,275 Ameren Corp. 5,799 266,754 American Electric Power Co., Inc. 14,183 432,723 Calpine Corp.* 14,800 71,188 Centerpoint Energy, Inc. 11,014 106,726 Cinergy Corp. a 6,371 247,258 CMS Energy Corp.* a 5,809 49,493 Consolidated Edison, Inc. 8,064 346,833 Constellation Energy Group, Inc. 5,960 233,394 Dominion Resources, Inc. 11,629 742,279 DTE Energy Co. 6,017 237,070 Duke Energy Corp. a 32,594 666,547 Edison International* 11,738 257,414 Entergy Corp. 8,245 471,037 Exelon Corp. 11,710 777,076 F.P.L. Group, Inc. 6,600 431,772 FirstEnergy Corp. 11,819 416,029 PG&E Corp.* a 14,942 414,939 See Notes to Financial Statements. 71 HARRIS INSIGHT INDEX FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) ELECTRIC UTILITIES (CONTINUED) Pinnacle West Capital Corp. 3,266 $ 130,705 PPL Corp. a 6,389 279,519 Progress Energy, Inc. 8,756 396,296 Public Service Enterprise Group, Inc. a 8,482 371,512 Southern Co. 26,275 794,819 Teco Energy, Inc. a 6,781 97,714 TXU Corp. a 11,671 276,836 Xcel Energy, Inc. a 14,307 242,933 ------------ 9,028,597 ------------ ELECTRICAL EQUIPMENT -- 0.4% American Power Conversion Corp. 7,133 174,402 Cooper Industries, Ltd. Class A 3,385 196,093 Emerson Electric Co. a 15,078 976,300 Power-One, Inc.* 3,031 32,826 Rockwell International Corp. 6,658 237,025 Thomas & Betts Corp.* 2,126 48,664 ------------ 1,665,310 ------------ ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.6% Agilent Technologies, Inc.* a 17,060 498,834 Applera Corp.-Applied Biosystems Group a 7,477 154,849 Jabil Circuit, Inc.* 7,132 201,836 Millipore Corp.* 1,751 75,381 Molex, Inc. a 6,876 239,904 PerkinElmer, Inc. 4,577 78,129 Sanmina-SCI Corp.* 18,536 233,739 Solectron Corp.* 30,063 177,672 Symbol Technologies, Inc. 8,289 140,001 Tektronix, Inc. 3,022 95,495 Thermo Electron Corp.* 5,862 147,722 Waters Corp.* 4,329 143,550 ------------ 2,187,112 ------------ ENERGY EQUIPMENT & SERVICES -- 0.7% Baker Hughes, Inc. 12,071 388,203 BJ Services Co.* 5,700 204,630 Halliburton Co. 15,760 409,760 Nabors Industries, Ltd.* a 5,263 218,415 Rowan Cos., Inc.* 3,348 77,573 Schlumberger, Ltd. 21,068 1,152,841 Transocean Sedco Forex, Inc.* a 11,536 276,979 ------------ 2,728,401 ------------ FOOD & DRUG RETAILING -- 3.4% Albertson's, Inc. a 13,156 297,983 Costco Wholesale Corp.* a 16,466 612,206 CVS Corp. 14,190 512,543 Kroger Co.* 26,760 495,327 Safeway, Inc.* 15,837 346,989 SUPERVALU, Inc. 4,779 136,632 Sysco Corp. 23,254 865,746 Wal-Mart Stores, Inc. 155,379 8,242,856 Walgreen Co. a 36,856 1,340,821 Winn-Dixie Stores, Inc. a 5,127 51,014 ------------ 12,902,117 ------------ SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) FOOD PRODUCTS -- 1.2% Archer-Daniels-Midland Co. 23,219 $ 353,393 Campbell Soup Co. a 14,706 394,121 ConAgra Foods, Inc. 19,272 508,588 General Mills, Inc. a 13,377 605,978 H.J. Heinz Co. 12,604 459,164 Hershey Foods Corp. 4,720 363,393 Kellogg Co. 14,645 557,681 McCormick & Co., Inc. 5,000 150,500 Sara Lee Corp. 28,331 615,066 Wm. Wrigley Jr., Co. 8,047 452,322 ------------ 4,460,206 ------------ GAS UTILITIES -- 0.3% El Paso Corp. a 21,816 178,673 KeySpan Corp. 5,692 209,466 Kinder Morgan, Inc. 4,409 260,572 Nicor, Inc. 1,586 53,987 NiSource, Inc. 9,464 207,640 Peoples Energy Corp. 1,298 54,568 Sempra Energy a 8,146 244,869 ------------ 1,209,775 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 1.9% Bausch & Lomb, Inc. 1,877 97,416 Baxter International, Inc. 21,914 668,815 Becton, Dickinson & Co. 9,108 374,703 Biomet, Inc. 9,193 334,717 Boston Scientific Corp.* a 29,442 1,082,288 C.R. Bard, Inc. 1,860 151,125 Guidant Corp. 11,204 674,481 Medtronic, Inc. 43,489 2,114,000 St. Jude Medical, Inc.* 6,160 377,916 Stryker Corp. a 7,176 610,032 Zimmer Holdings, Inc.* a 8,666 610,087 ------------ 7,095,580 ------------ HEALTH CARE PROVIDERS & SERVICES -- 1.7% Aetna, Inc. 5,439 367,568 AmerisourceBergen Corp. 4,000 224,600 Anthem, Inc.* a 5,000 375,000 Cardinal Health, Inc. a 15,539 950,365 Cigna Corp. 5,017 288,478 Express Scripts, Inc.* a 2,800 186,004 HCA, Inc. a 17,791 764,301 Health Management Associates, Inc. Class A a 8,569 205,656 Humana, Inc.* 5,768 131,799 IMS Health, Inc. a 8,620 214,293 Manor Care, Inc. 3,177 109,829 McKesson Corp. 10,459 336,361 Quest Diagnostics, Inc.* a 3,700 270,507 Tenet Healthcare Corp.* 16,692 267,907 UnitedHealth Group, Inc. a 21,036 1,223,874 WellPoint Health Networks, Inc.* 5,503 533,736 ------------ 6,450,278 ------------ See Notes to Financial Statements. 72 HARRIS INSIGHT INDEX FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) HOTELS, RESTAURANTS & LEISURE -- 1.1% Carnival Corp. a 22,625 $ 898,891 Darden Restaurants, Inc. a 5,875 123,610 Hilton Hotels Corp. 13,636 233,585 Marriott International, Inc. Class A a 8,339 385,262 McDonald's Corp. 45,574 1,131,602 Starbucks Corp.* 14,021 463,534 Starwood Hotels & Resorts Worldwide, Inc. 7,256 260,998 Wendy's International, Inc. 4,073 159,825 Yum! Brands, Inc.* 10,540 362,576 ------------ 4,019,883 ------------ HOUSEHOLD DURABLES -- 0.5% American Greetings Corp. Class A* 2,365 51,722 Black & Decker Corp. a 2,782 137,208 Centex Corp. 2,264 243,720 Fortune Brands, Inc. 5,203 371,962 KB Home 1,628 118,063 Leggett & Platt, Inc. 6,871 148,620 Maytag Corp. 2,849 79,345 Newell Rubbermaid, Inc. 9,871 224,763 Pulte Homes, Inc. 2,230 208,773 Snap-On, Inc. 2,133 68,768 Stanley Works, Inc. 2,913 110,315 Tupperware Corp. 2,110 36,587 Whirlpool Corp. a 2,522 183,223 ------------ 1,983,069 ------------ HOUSEHOLD PRODUCTS -- 1.9% Clorox Co. a 7,581 368,133 Colgate-Palmolive Co. 19,316 966,766 Kimberly-Clark Corp. 18,139 1,071,833 Procter & Gamble Co. 46,529 4,647,317 ------------ 7,054,049 ------------ INDUSTRIAL CONGLOMERATES -- 4.2% General Electric Co. 360,592 11,171,140 Textron, Inc. 4,871 277,939 3M Co. 28,182 2,396,315 Tyco International, Ltd. a 71,829 1,903,469 ------------ 15,748,863 ------------ INSURANCE -- 4.5% ACE, Ltd. 10,043 415,981 AFLAC, Inc. 18,408 666,001 Allstate Corp. 25,266 1,086,943 American International Group, Inc. 93,665 6,208,116 Aon Corp. a 11,278 269,995 Chubb Corp. 6,711 457,019 Cincinnati Financial Corp. 5,749 240,768 Hartford Financial Services Group, Inc. 10,205 602,401 Jefferson-Pilot Corp. 5,066 256,593 John Hancock Financial Services, Inc. 10,364 388,650 Lincoln National Corp. 6,392 258,045 Loews Corp. 6,673 329,980 Marsh & McLennan Cos., Inc. 19,020 910,868 MBIA, Inc. 5,196 307,759 SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) INSURANCE (CONTINUED) MetLife, Inc. 27,256 $ 917,710 MGIC Investment Corp. 3,490 198,721 Progressive Corp. 7,735 646,569 Prudential Financial, Inc. a 19,400 810,338 Safeco Corp. 4,974 193,638 St. Paul Cos., Inc. 8,160 323,544 Torchmark Corp. 4,032 183,617 Travelers Property Casualty Corp. Class B 36,123 613,007 UnumProvident Corp. 10,665 168,187 XL Capital, Ltd. Class A 4,903 380,228 ------------ 16,834,678 ------------ INTERNET & CATALOG RETAIL -- 0.4% eBay, Inc.* 23,200 1,498,488 ------------ INTERNET SOFTWARE & SERVICES -- 0.3% Sabre Holdings Corp. Class A 5,156 111,318 Yahoo!, Inc.* a 23,601 1,066,057 ------------ 1,177,375 ------------ IT CONSULTING & SERVICES -- 1.1% Automatic Data Processing, Inc. 21,305 843,891 Computer Sciences Corp.* 6,754 298,729 Concord EFS, Inc.* 16,719 248,110 Convergys Corp.* 5,135 89,657 Electronic Data Systems Corp. 17,298 424,493 First Data Corp. a 26,176 1,075,572 Fiserv, Inc.* 6,918 273,330 Paychex, Inc. 13,577 505,064 SunGard Data Systems, Inc.* 10,300 285,413 Unisys Corp.* a 11,877 176,374 ------------ 4,220,633 ------------ LEISURE EQUIPMENT & PRODUCTS -- 0.2% Brunswick Corp. 3,320 105,676 Eastman Kodak Co. a 10,259 263,348 Hasbro, Inc. 6,249 132,979 Mattel, Inc. 15,462 297,953 ------------ 799,956 ------------ MACHINERY -- 1.5% American Standard Cos., Inc.* 2,644 266,251 Caterpillar, Inc. 12,509 1,038,497 Cummins Engine Co., Inc. a 1,486 72,725 Danaher Corp. a 5,516 506,093 Deere & Co. 8,573 557,674 Dover Corp. 7,251 288,227 Eaton Corp. 2,719 293,598 Illinois Tool Works, Inc. 11,019 924,604 Ingersoll-Rand Co. Class A 6,240 423,571 ITT Industries, Inc. 3,349 248,529 Navistar International Corp.* a 2,482 118,863 Paccar, Inc. 4,141 352,482 Pall Corp. 4,441 119,152 Parker-Hannifin Corp. 4,303 256,029 ------------ 5,466,295 ------------ See Notes to Financial Statements. 73 HARRIS INSIGHT INDEX FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) MEDIA -- 4.0% Clear Channel Communications, Inc. 22,106 $ 1,035,224 Comcast Corp. Class A* 80,784 2,655,370 Dow Jones & Co., Inc. 2,885 143,817 Gannett Co., Inc. 9,688 863,782 Interpublic Group of Cos., Inc.* 14,901 232,456 Knight-Ridder, Inc. 2,840 219,731 McGraw-Hill Cos., Inc. 6,849 478,882 Meredith Corp. 1,817 88,688 Monster Worldwide, Inc.* 4,025 88,389 New York Times Co. Class A 5,390 257,588 Omnicom Group, Inc. 6,815 595,154 Time Warner, Inc.* 162,335 2,920,407 Tribune Co. a 11,220 578,952 Univision Communications, Inc. Class A* 11,625 461,396 Viacom, Inc. Class B 62,797 2,786,931 Walt Disney Co. 73,425 1,713,005 ------------ 15,119,772 ------------ METALS & MINING -- 0.8% Alcoa, Inc. 31,037 1,179,406 Allegheny Technologies, Inc. 2,913 38,510 Freeport-McMoRan Copper & Gold, Inc. Class B a 6,586 277,468 Newmont Mining Corp. a 15,511 753,990 Nucor Corp. a 2,789 156,184 Phelps Dodge Corp.* a 3,180 241,966 United States Steel Corp. a 3,676 128,734 Worthington Industries, Inc. 3,100 55,893 ------------ 2,832,151 ------------ MULTI-UTILITIES -- 0.1% Dynegy, Inc. Class A* 13,500 57,780 Williams Cos., Inc. 18,600 182,652 ------------ 240,432 ------------ MULTILINE RETAIL -- 1.0% Big Lots, Inc.* 4,210 59,824 Dillard's, Inc. Class A 3,018 49,676 Dollar General Corp. 12,127 254,546 Family Dollar Stores, Inc. 6,149 220,626 Federated Department Stores, Inc. 6,480 305,403 J.C. Penney Co., Inc. (Holding Co.) 9,812 257,859 Kohls Corp.* a 12,238 549,976 May Department Stores Co. a 10,316 299,886 Nordstrom, Inc. 4,952 169,854 Sears, Roebuck & Co. 9,081 413,095 Target Corp. 32,761 1,258,022 ------------ 3,838,767 ------------ OFFICE ELECTRONICS -- 0.1% Xerox Corp.* a 28,456 392,693 ------------ OIL & GAS -- 5.0% Amerada Hess Corp. 3,179 169,027 Anadarko Petroleum Corp. 8,968 457,458 Apache Corp. 5,829 472,732 Ashland, Inc. 2,496 109,974 SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) OIL & GAS (CONTINUED) Burlington Resources, Inc. 7,170 $ 397,074 ChevronTexaco Corp. 38,402 3,317,549 ConocoPhillips 24,463 1,604,039 Devon Energy Corp. 8,307 475,659 EOG Resources, Inc. 4,154 191,790 Exxon Mobil Corp. 237,328 9,730,448 Kerr-McGee Corp. 3,580 166,434 Marathon Oil Corp. 11,106 367,497 Noble Corp.* 4,767 170,563 Occidental Petroleum Corp. 13,840 584,602 Sunoco, Inc. a 2,804 143,425 Unocal Corp. 9,265 341,230 ------------ 18,699,501 ------------ PAPER & FOREST PRODUCTS -- 0.6% Boise Cascade Corp. 3,106 102,063 Georgia Pacific Corp. a 9,145 280,477 International Paper Co. 17,263 744,208 Louisiana-Pacific Corp.* a 3,821 68,319 MeadWestvaco Corp. 7,170 213,308 Plum Creek Timber Co., Inc. 6,587 200,574 Weyerhaeuser Co. 7,914 506,496 ------------ 2,115,445 ------------ PERSONAL PRODUCTS -- 0.5% Alberto-Culver Co. Class B 2,121 133,793 Avon Products, Inc. 8,517 574,812 Gillette Co. 36,320 1,334,034 ------------ 2,042,639 ------------ PHARMACEUTICALS -- 8.3% Abbott Laboratories 56,131 2,615,705 Allergan, Inc. a 4,732 363,465 Bristol-Myers Squibb Co. 69,664 1,992,390 Eli Lilly & Co. 40,310 2,835,002 Forest Laboratories, Inc.* 13,092 809,086 Johnson & Johnson 106,559 5,504,838 King Pharmaceuticals, Inc.* 8,623 131,587 Medco Health Solutions, Inc.* 9,688 329,295 Merck & Co., Inc. 79,912 3,691,934 Pfizer, Inc. 274,031 9,681,515 Schering Plough Corp. 52,790 918,018 Watson Pharmaceuticals, Inc.* a 3,863 177,698 Wyeth 47,857 2,031,530 ------------ 31,082,063 ------------ REAL ESTATE -- 0.3% Apartment Investment & Management Co. Class A 3,400 117,300 Equity Office Properties Trust 14,391 412,302 ProLogis 6,500 208,585 Simon Property Group, Inc. 6,900 319,746 ------------ 1,057,933 ------------ ROAD & RAIL -- 0.5% Burlington Northern Santa Fe Corp. 13,302 430,320 CSX Corp. 7,656 275,156 See Notes to Financial Statements. 74 HARRIS INSIGHT INDEX FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) ROAD & RAIL (CONTINUED) Norfolk Southern Corp. 13,978 $ 330,580 Ryder System, Inc. 2,326 79,433 Union Pacific Corp. 9,168 636,993 ------------ 1,752,482 ------------ SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 4.2% Advanced Micro Devices, Inc.* 12,566 187,233 Altera Corp.* 13,634 309,492 Analog Devices, Inc.* 13,159 600,708 Applied Materials, Inc.* a 59,671 1,339,614 Applied Micro Circuits Corp.* 10,990 65,720 Broadcom Corp. Class A* a 10,853 369,979 Intel Corp. 234,516 7,551,415 KLA-Tencor Corp.* a 6,963 408,519 Linear Technology Corp. 11,173 470,048 LSI Logic Corp.* 13,640 120,987 Maxim Integrated Products, Inc. 11,843 589,781 Micron Technology, Inc.* a 21,943 295,572 National Semiconductor Corp.* a 6,656 262,313 Novellus Systems, Inc.* 5,460 229,593 NVIDIA Corp.* a 5,810 135,083 PMC-Sierra, Inc.* a 6,224 125,414 QLogic Corp.* a 3,345 172,602 Teradyne, Inc.* a 6,907 175,783 Texas Instruments, Inc. 62,167 1,826,467 Xilinx, Inc.* a 12,261 474,991 ------------ 15,711,314 ------------ SOFTWARE -- 4.6% Adobe Systems, Inc. a 8,447 331,967 Autodesk, Inc. 4,004 98,418 BMC Software, Inc.* a 8,111 151,270 Citrix Systems, Inc.* 5,889 124,906 Computer Associates International, Inc. a 20,833 569,574 Compuware Corp.* 13,832 83,545 Electronic Arts, Inc.* 10,700 511,246 Intuit, Inc.* a 7,082 374,709 Mercury Interactive Corp.* a 3,189 155,113 Microsoft Corp. 388,274 10,693,066 Novell, Inc.* 13,437 141,357 Oracle Corp.* 187,634 2,476,769 Parametric Technology Corp.* 9,561 37,670 PeopleSoft, Inc.* a 13,430 306,204 Siebel Systems, Inc.* a 17,816 247,108 Symantec Corp.* a 11,100 384,615 VERITAS Software Corp.* a 15,403 572,376 ------------ 17,259,913 ------------ SPECIALTY RETAIL -- 2.3% Autozone, Inc.* a 3,175 270,542 Bed, Bath & Beyond, Inc.* 10,603 459,640 Best Buy Co., Inc. a 11,662 609,223 Circuit City Stores, Inc. 7,525 76,228 Gap, Inc. a 32,186 747,037 Home Depot, Inc. 81,699 2,899,498 SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) SPECIALTY RETAIL (CONTINUED) Limited Brands 18,509 $ 333,717 Lowe's Cos., Inc. 28,224 1,563,327 Office Depot, Inc.* a 11,228 187,620 RadioShack Corp. a 5,919 181,595 Sherwin Williams Co. 5,235 181,864 Staples, Inc.* 17,769 485,094 Tiffany & Co., Inc. a 5,222 236,034 TJX Cos., Inc. a 18,068 398,399 Toys "R" Us, Inc.* a 7,617 96,279 ------------ 8,726,097 ------------ TEXTILES & APPAREL -- 0.3% Jones Apparel Group, Inc. 4,583 161,459 Liz Claiborne, Inc. 3,913 138,755 Nike, Inc. Class B a 9,413 644,414 Reebok International, Ltd. a 2,073 81,511 V.F. Corp. 3,917 169,371 ------------ 1,195,510 ------------ TOBACCO -- 1.2% Altria Group, Inc. 72,900 3,967,218 R.J. Reynolds Tobacco Holdings, Inc. 3,000 174,450 UST, Inc. 5,953 212,463 ------------ 4,354,131 ------------ TRADING COMPANIES & DISTRIBUTORS -- 0.0% Grainger W.W., Inc. a 3,283 155,581 ------------ WIRELESS TELECOMMUNICATIONS SERVICES -- 0.6% AT&T Wireless Services, Inc.* 97,510 779,105 Nextel Communications, Inc. Class A* a 39,443 1,106,770 Sprint Corp. (PCS Group)* a 37,208 209,109 ------------ 2,094,984 ------------ TOTAL COMMON STOCK (Cost $358,649,983) 369,327,353 RIGHTS & WARRANTS -- 0.0% Seagate Technology Tax Refund Rights* (Cost $0) 12,500 0 COUPON PAR RATE MATURITY (000) - ------ -------- ------- U.S. TREASURY OBLIGATIONS -- 0.3% U.S. Treasury Bills ** (Cost $997,084) 1.000% 04/15/04 $ 1,000 997,458 ------------ See Notes to Financial Statements. 75 HARRIS INSIGHT INDEX FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ TEMPORARY INVESTMENTS -- 1.0% Dreyfus Cash Management Plus #719 39,669 $ 39,669 Goldman Sachs Financial Square Money Market Portfolio 3,886,372 3,886,372 J.P. Morgan Institutional Prime Money Market Portfolio 15,310 15,310 ------------ TOTAL TEMPORARY INVESTMENTS (Cost $3,941,351) 3,941,351 ------------ COUPON PAR RATE MATURITY (000) - ------ -------- ------- INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED -- 13.5% CERTIFICATES OF DEPOSIT -- 0.2% Svenska Handelsbanken AB 1.390% 10/27/04 $ 694 693,450 ------------ COMMERCIAL PAPER -- 2.2% Amsterdam Funding Corp. 1.100% 01/05/04 24 23,548 Cancara Asset Securitization, Ltd. 1.110% 01/12/04 2,228 2,226,369 Concord Minuteman Capital Co., L.L.C. 1.110% 01/09/04 29 29,361 1.110% 01/12/04 6 6,241 1.130% 02/09/04 731 729,113 1.130% 02/12/04 447 445,922 Crown Point Capital Co. 1.110% 01/16/04 583 581,093 General Electric Capital Funding, Inc. 1.110% 02/05/04 350 349,134 Lexington Parker Capital Co. 1.100% 01/12/04 1,093 1,090,624 Silver Tower Fund 1.130% 02/02/04 978 975,126 Tannehill Capital Co., L.L.C. 1.100% 01/08/04 851 848,344 1.110% 01/13/04 942 940,664 ------------ 8,245,539 ------------ REPURCHASE AGREEMENTS -- 0.6% Merrill Lynch & Co., Inc. 1.000% Agreement dated 12/31/03, proceeds at maturity $2,421,123 (Collateralized by $2,970,448 FHLMC, FNMA and GNMA 1.450% to 6.000%, due from 11/01/17 to 12/01/33. The market value is $2,493,663.) 01/02/04 2,421 2,420,988 ------------ TIME DEPOSITS -- 2.9% Canadian Imperial Bank 0.938% 01/02/04 2,926 2,925,570 Chase Manhattan Bank 0.875% 01/02/04 1,109 1,109,171 Merrill Lynch & Co., Inc. Master Notes 1.130% 01/02/04 5,851 5,851,139 UBS Bank 0.938% 01/02/04 828 827,853 ------------ 10,713,733 ------------ COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ------------ INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED (CONTINUED) VARIABLE RATE OBLIGATIONS -- 7.6% American Express Centurion Bank Medium-Term Note 1.131% 01/27/04 $ 1,006 $ 1,005,880 American Express Credit Corp. Medium-Term Note 1.144% 04/16/04 510 509,961 American Express Credit Corp. Medium-Term Senior Notes Series 144A 1.119% 05/13/04 1,460 1,460,130 Bear Stearns Cos., Inc. Medium-Term Notes Series B 1.120% 01/15/04 1,683 1,683,176 1.120% 01/16/04 3,228 3,228,464 Canadian Imperial Bank 1.096% 05/28/04 143 143,312 General Electric Capital Corp. Global Medium-Term Notes Series A 1.290% 05/10/04 20 19,934 Goldman Sachs Group, Inc. 1.140% 03/08/04 1,369 1,368,916 Merrill Lynch & Co., Inc. Master Notes 1.130% 01/05/04 3,546 3,545,791 1.130% 01/08/04 1,698 1,698,218 Monumental Global Funding II Senior Secured Notes Series 144A 1.301% 05/28/04 1,368 1,370,933 Morgan Stanley 1.030% 01/12/04 1,859 1,859,170 1.080% 01/16/04 1,280 1,280,456 1.080% 03/12/04 1,862 1,861,802 1.030% 07/16/04 1,186 1,185,895 Natexis Banques 1.035% 01/14/04 2,143 2,143,432 1.055% 12/13/04 1,806 1,805,596 Societe Generale 1.055% 12/04/04 605 604,649 Westdeutsche Landesbank A.G. 1.091% 09/23/04 508 508,084 1.089% 09/29/04 442 442,154 1.120% 10/12/04 769 769,361 ------------ 28,495,314 ------------ TOTAL INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED (Cost $50,569,024) 50,569,024 ------------ TOTAL INVESTMENTS -- 113.5% (Cost $414,157,442) 424,835,186 ------------ OTHER ASSETS AND LIABILITIES -- (13.5%) Dividends receivable and other assets 544,044 Receivable for capital stock sold 65,394 Payable upon return of collateral on securities loaned (50,569,024) Payable for capital stock redeemed (356,130) Accrued expenses (161,861) ------------ (50,477,577) ------------ See Notes to Financial Statements. 76 HARRIS INSIGHT INDEX FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- NET ASSETS -- 100.0% Applicable to 16,425,006 Institutional Shares, 927,947 N Shares, and 22,505 B Shares of beneficial interest outstanding, $.001 par value (Note 8) $374,357,609 ============ NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER INSTITUTIONAL SHARE ($353,888,392/16,425,006) $21.55 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER N SHARE ($19,986,029/927,947) $21.54 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE (SUBJECT TO A MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 5.0%) PER B SHARE ($483,188/22,505) $21.47 ====== - ---------- The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows: Basis $414,858,152 ============ Gross Appreciation $ 65,090,788 Gross Depreciation (55,113,754) ------------ Net Appreciation $ 9,977,034 ============ + See Note 2a to the Financial Statements. * Non-income producing security. ** Security pledged as collateral for futures contracts. a Total or partial security on loan. At December 31, 2003, the total market value of the portfolio's securities on loan is $48,885,683, and the total market value of the collateral held by the portfolio is $50,569,024. NUMBER OF UNREALIZED CONTRACTS APPRECIATION --------- ------------ Futures Contracts -- Long Position S&P 500 Index, March 2004 (Notional value at 12/31/03 is $4,997,700.) 18 $164,700 == ======== See Notes to Financial Statements. 77 HARRIS INSIGHT SMALL-CAP AGGRESSIVE GROWTH FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ---------- COMMON STOCK -- 97.7% AIRLINES -- 0.3% AirTran Holdings, Inc.* 2,300 $ 27,370 ---------- AUTOMOBILES -- 1.7% Monaco Coach Corp.* 6,200 147,560 ---------- BANKS -- 4.8% Independent Bank Corp. 7,610 215,819 Prosperity Bancshares, Inc. 8,407 189,326 ---------- 405,145 ---------- CHEMICALS -- 0.9% RPM International, Inc. 4,620 76,045 ---------- COMMERCIAL SERVICES & SUPPLIES -- 4.2% Corinthian Colleges, Inc.* 750 41,670 Corporate Executive Board Co.* 4,910 229,150 Navigant Consulting, Inc.* 4,590 86,567 ---------- 357,387 ---------- COMMUNICATIONS EQUIPMENT -- 3.2% Bel Fuse, Inc. Class B 4,640 151,403 Mastec, Inc.* 3,500 51,835 Tekelec* 4,260 66,243 ---------- 269,481 ---------- COMPUTERS & PERIPHERALS -- 3.1% Electronics for Imaging, Inc.* 5,760 149,875 SanDisk Corp.* 1,800 110,052 ---------- 259,927 ---------- CONSTRUCTION & ENGINEERING -- 0.3% URS Corp.* 920 23,009 ---------- DIVERSIFIED FINANCIALS -- 4.0% BlackRock, Inc. 1,350 71,699 CompuCredit Corp.* 12,780 271,958 ---------- 343,657 ---------- ELECTRIC UTILITIES -- 3.1% IDACORP, Inc. 8,900 266,288 ---------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 7.7% FARO Technologies, Inc.* 1,100 27,478 Lexar Media, Inc.* 6,580 114,689 Metrologic Instruments, Inc.* 2,450 66,150 Silicon Laboratories, Inc.* 1,290 55,754 Teledyne Technologies, Inc.* 15,600 294,060 Trimble Navigation, Ltd.* 2,700 100,548 ---------- 658,679 ---------- ENERGY EQUIPMENT & SERVICES -- 1.7% Headwaters, Inc.* 7,560 148,327 ---------- FOOD & DRUG RETAILING -- 0.3% Pantry, Inc.* 1,300 29,510 ---------- FOOD PRODUCTS -- 3.0% Lance, Inc. 17,170 258,065 ---------- SHARES VALUE+ --------- ---------- COMMON STOCK (CONTINUED) GAS UTILITIES -- 2.0% Laclede Group, Inc. 6,050 $ 172,727 ---------- HEALTH CARE EQUIPMENT & SUPPLIES -- 3.5% ALARIS Medical Systems, Inc.* 3,110 47,303 Cytyc Corp.* 8,850 121,776 EPIX Medical, Inc.* 950 15,466 Thoratec Corp.* 3,140 40,852 Wright Medical Group, Inc.* 2,230 67,881 ---------- 293,278 ---------- HEALTH CARE PROVIDERS & SERVICES -- 4.3% AdvancePCS* 890 46,868 Covance, Inc.* 1,330 35,644 IDEXX Laboratories, Inc.* 2,630 121,716 Mid Atlantic Medical Services, Inc.* 690 44,712 Tanox, Inc.* 5,000 74,250 United Surgical Partners International, Inc.* 1,240 41,515 ---------- 364,705 ---------- HOTELS, RESTAURANTS & LEISURE -- 2.1% P.F. Chang's China Bistro, Inc.* 1,060 53,933 Panera Bread Co. Class A* 3,100 122,543 ---------- 176,476 ---------- INSURANCE -- 3.3% Allmerica Financial Corp.* 600 18,462 Max Re Capital, Ltd. 11,660 261,650 ---------- 280,112 ---------- INTERNET SOFTWARE & SERVICES -- 3.9% Activision, Inc.* 5,150 93,730 Ask Jeeves, Inc.* 3,150 57,078 At Road, Inc.* 3,010 40,033 Centillium Communications, Inc.* 5,090 28,657 ManTech International Corp. Class A* 810 20,209 NetScreen Technologies, Inc.* 1,550 38,362 United Online, Inc.* 3,025 50,790 ---------- 328,859 ---------- IT CONSULTING & SERVICES -- 6.6% Cognizant Technology Solutions Corp.* 5,100 232,764 Priceline.com, Inc.* 1,000 17,900 SRA International, Inc. Class A* 1,100 47,410 Syntel, Inc. 6,150 151,967 Titan Corp.* 5,010 109,268 ---------- 559,309 ---------- MACHINERY -- 1.0% A.S.V., Inc.* 2,350 87,796 ---------- MEDIA -- 2.9% SBS Broadcasting Systems S.A.* 4,100 133,660 XM Satellite Radio Holdings, Inc.* 4,263 112,373 ---------- 246,033 ---------- METALS & MINING -- 2.4% Joy Global, Inc. 7,800 203,970 ---------- See Notes to Financial Statements. 78 HARRIS INSIGHT SMALL-CAP AGGRESSIVE GROWTH FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ---------- COMMON STOCK (CONTINUED) MULTILINE RETAIL -- 2.8% Fred's, Inc. 5,090 $ 157,688 Tuesday Morning Corp.* 2,700 81,675 ---------- 239,363 ---------- OIL & GAS -- 3.0% Ultra Petroleum Corp.* 10,290 253,340 ---------- PERSONAL PRODUCTS -- 2.0% Chattem, Inc.* 2,150 38,485 Helen of Troy, Ltd.* 5,820 134,733 ---------- 173,218 ---------- PHARMACEUTICALS -- 3.9% American Pharmaceutical Partners, Inc.* 1,800 60,480 Endo Pharmaceutical Holdings, Inc.* 4,640 89,366 ILEX Oncology, Inc.* 60 1,275 Nektar Therapeutics* 7,050 95,951 Pharmaceutical Resources, Inc.* 1,340 87,301 ---------- 334,373 ---------- SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 3.8% ESS Technology, Inc.* 7,450 126,724 Micrel, Inc.* 4,880 76,030 OmniVision Technologies, Inc.* 1,170 64,643 Power Integrations, Inc.* 1,610 53,871 ---------- 321,268 ---------- SOFTWARE -- 5.1% FileNET Corp.* 1,600 43,328 Jack Henry & Associates, Inc. 2,700 55,566 MicroStrategy, Inc. Class A* 2,300 120,704 RSA Security, Inc.* 3,220 45,724 Secure Computing Corp.* 2,350 42,089 Ulticom, Inc.* 13,300 128,345 ---------- 435,756 ---------- SPECIALTY RETAIL -- 1.7% Cost Plus, Inc.* 1,620 66,420 PETCO Animal Supplies, Inc.* 2,430 73,994 ---------- 140,414 ---------- TEXTILES & APPAREL -- 4.7% Columbia Sportswear Co.* 1,340 73,030 Fossil, Inc.* 5,717 160,133 Quiksilver, Inc.* 9,220 163,471 ---------- 396,634 ---------- WIRELESS TELECOMMUNICATIONS SERVICES -- 0.4% Intrado, Inc.* 1,600 35,120 ---------- TOTAL COMMON STOCK (Cost $6,421,209) 8,313,201 ---------- SHARES VALUE+ --------- ---------- TEMPORARY INVESTMENTS -- 2.2% Dreyfus Cash Management Plus #719 2,381 $ 2,381 Goldman Sachs Financial Square Money Market Portfolio 180,906 180,906 J.P. Morgan Institutional Prime Money Market Portfolio 805 805 ---------- TOTAL TEMPORARY INVESTMENTS (Cost $184,092) 184,092 ---------- TOTAL INVESTMENTS -- 99.9% (Cost $6,605,301) 8,497,293 ---------- OTHER ASSETS AND LIABILITIES -- 0.1% Dividends receivable and other assets 14,718 Receivable for securities sold 283,524 Receivable for capital stock sold 14,000 Payable for securities purchased (296,625) Accrued expenses (7,189) ---------- 8,428 ---------- NET ASSETS -- 100.0% Applicable to 747,013 Institutional Shares of beneficial interest outstanding, $.001 par value (Note 8) $8,505,721 ========== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER INSTITUTIONAL SHARE ($8,505,721/747,013) $11.39 ====== - ---------- The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows: Basis $6,606,879 ========== Gross Appreciation $2,027,323 Gross Depreciation (136,909) ---------- Net Appreciation $1,890,414 ========== + See Note 2a to the Financial Statements. * Non-income producing security. See Notes to Financial Statements. 79 HARRIS INSIGHT BALANCED FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ---------- COMMON STOCK -- 62.3% AEROSPACE & DEFENSE -- 0.5% United Defense Industries, Inc.* 4,730 $ 150,792 World Fuel Services Corp. 3,410 115,770 ------------ 266,562 ------------ ALCOHOLIC BEVERAGES -- 0.3% Anheuser-Busch Cos., Inc. 3,700 194,916 ------------ AUTOMOBILES -- 1.3% General Motors Corp. a 14,600 779,640 ------------ BANKS -- 5.2% Bank of America Corp. a 2,000 160,860 Flagstar Bancorp, Inc. a 4,080 87,394 Huntington Bancshares, Inc. 9,100 204,750 Irwin Financial Corp. 6,225 195,465 Pacific Capital Bancorp 4,110 151,330 Southtrust Corp. 15,400 504,042 Sovereign Bancorp, Inc. 17,800 422,750 U.S. Bancorp 20,060 597,387 Wachovia Corp. 4,850 225,961 Washington Mutual, Inc. 8,400 337,008 Webster Financial Corp. 2,960 135,746 Wells Fargo & Co. 1,550 91,279 ------------ 3,113,972 ------------ BEVERAGES -- 0.1% Coca-Cola Enterprises, Inc. 3,550 77,638 ------------ BIOTECHNOLOGY -- 0.3% Amgen, Inc.* 1,200 74,160 Genzyme Corp.* a 2,400 118,416 ------------ 192,576 ------------ CASINOS -- 1.0% International Game Technology a 9,500 339,150 Park Place Entertainment Corp.* 22,300 241,509 ------------ 580,659 ------------ CHEMICALS -- 0.5% Methanex Corp. 15,070 169,236 Monsanto Co. 4,400 126,632 ------------ 295,868 ------------ COMMERCIAL SERVICES & SUPPLIES -- 1.4% Apollo Group, Inc. Class A* 600 40,800 Career Education Corp.* a 2,400 96,168 Cendant Corp.* a 21,500 478,805 Deluxe Corp. 2,700 111,591 Heidrick & Struggles International, Inc.* 3,120 68,016 Total System Services, Inc. 1,700 52,921 ------------ 848,301 ------------ COMMUNICATIONS EQUIPMENT -- 2.1% Cisco Systems, Inc.* a 39,050 948,524 Ditech Communications Corp.* 3,490 66,659 Juniper Networks, Inc.* a 3,500 65,380 Qualcomm, Inc. 1,350 72,806 UTStarcom, Inc.* a 3,200 118,624 ------------ 1,271,993 ------------ SHARES VALUE+ --------- ---------- COMMON STOCK (CONTINUED) COMPUTERS & PERIPHERALS -- 3.0% Dell, Inc.* a 25,190 $ 855,452 EMC Corp.* a 26,400 341,088 Hewlett-Packard Co. 15,800 362,926 Intergraph Corp.* 3,740 89,461 International Business Machines Corp. 1,250 115,850 ------------ 1,764,777 ------------ CONTAINERS & PACKAGING -- 0.1% Sealed Air Corp.* 800 43,312 ------------ DISTRIBUTORS -- 0.1% Brightpoint, Inc.* 3,260 56,235 ------------ DIVERSIFIED FINANCIALS -- 3.9% Arch Capital Group, Ltd.* 2,585 103,038 Capital One Financial Corp. a 3,230 197,967 Citigroup, Inc. a 6,000 291,240 CompuCredit Corp.* 9,290 197,691 Lehman Brothers Holdings, Inc. 6,100 471,042 Moody's Corp. 7,900 478,345 Morgan Stanley 2,900 167,823 New Century Financial Corp. a 2,417 95,883 San Juan Basin Royalty Trust 14,470 313,854 Westcorp 740 27,047 ------------ 2,343,930 ------------ DIVERSIFIED TELECOMMUNICATIONS SERVICES -- 1.8% AT&T Corp. a 8,400 170,520 CenturyTel, Inc. a 13,300 433,846 Sprint Corp. (FON Group) a 16,600 272,572 Verizon Communications, Inc. 5,842 204,937 ------------ 1,081,875 ------------ ELECTRIC UTILITIES -- 0.7% Cleco Corp. a 4,745 85,315 Exelon Corp. 3,500 232,260 TXU Corp. a 5,000 118,600 ------------ 436,175 ------------ ELECTRICAL EQUIPMENT -- 0.2% AMETEK, Inc. 2,150 103,759 ------------ ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.1% Anixter International, Inc.* 740 19,151 Flextronics International, Ltd.* 7,200 106,848 Jabil Circuit, Inc.* 8,300 234,890 PerkinElmer, Inc. 13,200 225,324 Sanmina-SCI Corp.* 5,700 71,877 ------------ 658,090 ------------ ENERGY EQUIPMENT & SERVICES -- 0.2% Denbury Resources, Inc.* 9,800 136,318 ------------ FOOD & DRUG RETAILING -- 0.7% CVS Corp. 1,800 65,016 Ruddick Corp. 6,265 112,143 Wal-Mart Stores, Inc. 4,950 262,598 ------------ 439,757 ------------ See Notes to Financial Statements. 80 HARRIS INSIGHT BALANCED FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) FOOD PRODUCTS -- 0.7% Dean Foods Co.* 7,800 $ 256,386 Fresh Del Monte Produce, Inc. a 5,850 139,406 ------------ 395,792 ------------ GAS UTILITIES -- 1.1% AGL Resources, Inc. 4,915 143,027 Kinder Morgan, Inc. 1,000 59,100 ONEOK, Inc. a 15,005 331,310 UGI Corp. 3,000 101,700 ------------ 635,137 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 2.9% ALARIS Medical Systems, Inc.* 5,040 76,658 Beckman Coulter, Inc. 11,700 594,711 Becton, Dickinson & Co. 14,400 592,416 Cytyc Corp.* 4,600 63,296 Hillenbrand Industries, Inc. 2,900 179,974 Medtronic, Inc. 1,000 48,610 Stryker Corp. a 1,160 98,612 Zimmer Holdings, Inc.* 1,150 80,960 ------------ 1,735,237 ------------ HEALTH CARE PROVIDERS & SERVICES -- 3.2% AdvancePCS* 5,060 266,459 Aetna, Inc. 4,500 304,110 Anthem, Inc.* a 500 37,500 Caremark Rx, Inc.* a 5,030 127,410 Community Health Systems, Inc.* 4,000 106,320 Genentech, Inc.* a 1,300 121,641 Health Management Associates, Inc. Class A a 3,200 76,800 Health Net, Inc.* a 900 29,430 Humana, Inc.* 14,700 335,895 Invitrogen Corp.* a 3,600 252,000 Kindred Healthcare, Inc.* 1,570 81,609 PacifiCare Health Systems, Inc.* a 960 64,896 Tanox, Inc.* 6,060 89,991 ------------ 1,894,061 ------------ HOTELS, RESTAURANTS & LEISURE -- 1.7% Applebee's International, Inc. a 6,300 247,401 CBRL Group, Inc. 2,600 99,476 Kerzner International, Ltd.* 3,925 152,918 Starbucks Corp.* a 1,550 51,243 Yum! Brands, Inc.* 13,000 447,200 ------------ 998,238 ------------ HOUSEHOLD DURABLES -- 0.1% Pulte Homes, Inc. 650 60,853 ------------ HOUSEHOLD PRODUCTS -- 0.2% Procter & Gamble Co. 1,040 103,875 ------------ INDUSTRIAL CONGLOMERATES -- 1.8% General Electric Co. 33,890 1,049,912 ------------ INSURANCE -- 3.6% AFLAC, Inc. 18,600 672,948 AmerUs Group Co. 4,610 161,212 Delphi Financial Group, Inc. Class A 1,935 69,660 SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) INSURANCE (CONTINUED) LandAmerica Financial Group, Inc. 2,030 $ 106,088 MetLife, Inc. 15,000 505,050 Protective Life Corp. 6,800 230,112 Prudential Financial, Inc. a 7,200 300,744 Stewart Information Services Corp. 2,930 118,811 ------------ 2,164,625 ------------ INTERNET SOFTWARE & SERVICES -- 0.1% Yahoo!, Inc.* a 1,700 76,789 ------------ IT CONSULTING & SERVICES -- 0.9% Accenture, Ltd. Class A* a 13,700 360,584 Computer Sciences Corp.* 2,400 106,152 Fiserv, Inc.* 2,300 90,873 ------------ 557,609 ------------ MACHINERY -- 0.6% Donaldson Co., Inc. 2,600 153,816 Flowserve Corp.* 2,915 60,865 Pall Corp. 4,100 110,003 UNOVA, Inc.* 1,660 38,097 ------------ 362,781 ------------ MARINE -- 0.8% Frontline, Ltd. 8,845 225,282 General Maritime Corp.* 12,690 223,344 ------------ 448,626 ------------ MEDIA -- 0.5% Time Warner, Inc.* a 12,800 230,272 Viacom, Inc. Class B 1,140 50,593 ------------ 280,865 ------------ METALS & MINING -- 1.1% Alliance Resource Partners L.P. 6,380 219,344 Cleveland-Cliffs, Inc.* 2,670 136,037 Freeport-McMoRan Copper & Gold, Inc. Class B a 7,600 320,188 ------------ 675,569 ------------ MULTI-UTILITIES -- 0.1% Williams Cos., Inc. 6,000 58,920 ------------ MULTILINE RETAIL -- 1.8% Amazon.com, Inc.* a 5,300 278,992 Dollar General Corp. 14,850 311,701 Federated Department Stores, Inc. a 7,100 334,623 ShopKo Stores, Inc.* 9,610 146,553 ------------ 1,071,869 ------------ OIL & GAS -- 2.9% ConocoPhillips a 6,800 445,876 Exxon Mobil Corp. 13,990 573,590 Marathon Oil Corp. 1,800 59,562 Patina Oil & Gas Corp. 2,508 122,867 Tesoro Petroleum Corp.* 10,720 156,191 XTO Energy, Inc. a 13,134 371,692 ------------ 1,729,778 ------------ See Notes to Financial Statements. 81 HARRIS INSIGHT BALANCED FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) PERSONAL PRODUCTS -- 0.5% Avon Products, Inc. 4,300 $ 290,207 ------------ PHARMACEUTICALS -- 3.2% Abbott Laboratories 5,200 242,320 Eli Lilly & Co. 3,800 267,254 Forest Laboratories, Inc.* a 600 37,080 Johnson & Johnson 5,190 268,116 Merck & Co., Inc. 600 27,720 Pfizer, Inc. 25,710 908,334 Watson Pharmaceuticals, Inc.* a 2,200 101,200 Wyeth 940 39,903 ------------ 1,891,927 ------------ REAL ESTATE -- 0.5% Redwood Trust, Inc. 1,300 66,105 Town & Country Trust 3,740 94,809 Winston Hotels, Inc. 15,365 156,723 ------------ 317,637 ------------ ROAD & RAIL -- 1.1% Burlington Northern Santa Fe Corp. 10,600 342,910 Dollar Thrifty Automotive Group, Inc.* 6,230 161,606 Landstar System, Inc.* 4,620 175,745 ------------ 680,261 ------------ SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 2.3% Altera Corp.* 2,200 49,940 Intel Corp. 26,720 860,384 National Semiconductor Corp.* a 1,500 59,115 OmniVision Technologies, Inc.* 1,785 98,622 Rambus, Inc.* 2,990 91,793 Semtech Corp.* 2,100 47,733 Texas Instruments, Inc. 4,450 130,741 Varian Semiconductor Equipment Associates, Inc.* 1,125 49,151 ------------ 1,387,479 ------------ SOFTWARE -- 2.2% Adobe Systems, Inc. a 1,000 39,300 Citrix Systems, Inc.* 7,300 154,833 Microsoft Corp. a 26,640 733,666 Oracle Corp.* 15,610 206,052 Sybase, Inc.* 4,600 94,668 VERITAS Software Corp.* a 1,600 59,456 ------------ 1,287,975 ------------ SPECIALTY RETAIL -- 2.5% Bed, Bath & Beyond, Inc.* 2,800 121,380 CarMax, Inc.* 1,400 43,302 Chico's FAS, Inc.* 1,400 51,730 Foot Locker, Inc. a 3,700 86,765 Home Depot, Inc. a 5,000 177,450 Lowe's Cos., Inc. 10,250 567,747 PETCO Animal Supplies, Inc.* 2,450 74,603 Staples, Inc.* 14,450 394,485 ------------ 1,517,462 ------------ SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) TEXTILES & APPAREL -- 0.5% Coach, Inc.* 2,370 $ 89,468 Liz Claiborne, Inc. 6,300 223,398 ------------ 312,866 ------------ TOBACCO -- 0.2% Universal Corp. 2,700 119,259 ------------ WIRELESS TELECOMMUNICATIONS SERVICES -- 0.7% Nextel Communications, Inc. Class A* 2,400 67,344 Vodafone Group P.L.C. a 14,000 350,560 ------------ 417,904 ------------ TOTAL COMMON STOCK (Cost $30,765,455) 37,209,866 ------------ COUPON PAR RATE MATURITY (000) - ------ -------- ------- AGENCY OBLIGATIONS -- 2.4% Federal National Mortgage Association 2.000% 08/26/05 $ 1,195 1,196,606 6.250% 02/01/11 220 243,551 ------------ TOTAL AGENCY OBLIGATIONS (Cost $1,431,231) 1,440,157 ------------ ASSET-BACKED SECURITIES -- 3.0% California Infrastructure Pacific Gas & Electric Series 1997-1, Class A8 6.480% 12/26/09 215 238,755 Citibank Credit Card Issuance Trust Series 2000-C1, Class C1 7.450% 09/15/07 150 162,217 Conseco Finance Series 2001-A, Class IIA2 6.520% 03/15/32 45 45,530 Residential Funding Mortgage Securities Series 2001-HS2, Class A5 6.920% 04/25/31 400 407,851 Volkswagen Auto Lease Trust Series 2002-A, Class A4 2.750% 12/20/07 700 707,023 Volkswagen Auto Loan Enhanced Trust Series 2003-2, Class A4 2.940% 03/22/10 220 220,254 ------------ TOTAL ASSET-BACKED SECURITIES (Cost $1,771,565) 1,781,630 ------------ COLLATERALIZED MORTGAGE OBLIGATIONS -- 9.1% DLJ Commercial Mortgage Corp. Series 1998-CF2, Class A1A 5.880% 11/12/31 11 11,359 Federal Home Loan Mortgage Corp. Series 1385, Class J 7.000% 10/15/07 300 324,118 Federal Home Loan Mortgage Corp. Series 2513, Class JE 5.000% 10/15/17 450 444,891 See Notes to Financial Statements. 82 HARRIS INSIGHT BALANCED FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ------------ COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED) Federal National Mortgage Association Series 145, Class 1 PO 9.000% 06/25/22 $ 124 $ 112,109 Federal National Mortgage Association Series 1993-197, Class SB 12.824% 10/25/08 111 120,303 Federal National Mortgage Association Series 1997-20, Class IO 1.840% 03/25/27 778 54,707 Federal National Mortgage Association Series 1997-84, Class PL IO 6.500% 02/25/09 272 19,590 Federal National Mortgage Association Series 1998-61, Class PB 5.500% 12/25/08 222 223,768 Federal National Mortgage Association Series 2000-M1, Class B 7.377% 11/17/18 375 426,154 Federal National Mortgage Association Series 2000-T8, Class A 7.446% 12/25/30 88 92,289 Federal National Mortgage Association Series 2001-68, Class PV 6.000% 11/25/18 485 511,184 Federal National Mortgage Association Series 2001-69, Class PE 6.000% 11/25/15 680 710,331 Federal National Mortgage Association Series 2002-73, Class OE 5.000% 11/25/17 400 394,714 Federal National Mortgage Association Series 2003-57, Class KL 3.500% 03/25/09 210 213,059 Federal National Mortgage Association Series 2003-W6, Class 2A2 3.110% 09/25/42 420 420,534 LB-UBS Commercial Mortgage Trust Series 2003-C1, Class A4 4.394% 03/17/32 440 427,606 Nationsbanc Montgomery Funding Corp. Series 1998-1, Class A16 6.750% 06/25/28 58 58,502 PNC Mortgage Securities Corp. Series 1994-4, Class A3 6.850% 08/25/09 377 378,643 Structured Asset Securities Corp. Series 1998-RF3, Class AIO IO 6.100% 06/15/28 225 25,822 Structured Asset Securities Corp. Series 2003-34A, Class 6A 5.145% 11/25/33 350 353,092 Wells Fargo Mortgage-Backed Securities Trust Series 2002-8, Class 2A3 6.000% 05/25/17 91 91,278 ------------ TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $5,395,009) 5,414,053 ------------ COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ------------ MORTGAGE-BACKED SECURITIES -- 5.5% Federal Home Loan Mortgage Corp. Pool #A15284 5.500% 10/01/33 $ 659 $ 666,973 Federal National Mortgage Association b 5.000% 12/15/34 1,310 1,295,058 6.000% 12/15/34 530 547,473 Federal National Mortgage Association Pool #345739 7.500% 03/01/27 5 4,893 Federal National Mortgage Association Pool #363317 7.500% 11/01/26 0 272 Federal National Mortgage Association Pool #368941 7.500% 12/01/26 62 66,167 Federal National Mortgage Association Pool #371323 7.500% 03/01/27 42 45,459 Federal National Mortgage Association Pool #739460 4.500% 09/01/33 214 205,078 Federal National Mortgage Association Pool #756294 5.500% 12/01/33 125 126,719 Government National Mortgage Association Pool #354675 6.500% 10/15/23 147 155,834 Government National Mortgage Association Pool #442138 8.000% 11/15/26 104 113,085 Government National Mortgage Association Pool #555127 7.000% 09/15/31 44 47,159 ------------ TOTAL MORTGAGE-BACKED SECURITIES (Cost $3,239,854) 3,274,170 ------------ CORPORATE BONDS -- 13.5% ELECTRIC -- 1.3% AEP Texas Central Co. 5.500% 02/15/13 100 102,623 Constellation Energy Group, Inc. 7.600% 04/01/32 110 129,153 Duke Capital Corp. 8.000% 10/01/19 85 99,162 PECO Energy Co. 3.500% 05/01/08 200 199,662 Public Service Electric & Gas Co. 5.375% 09/01/13 220 227,347 ------------ 757,947 ------------ FINANCE - BANK -- 1.6% Bank of America Corp. 4.375% 12/01/10 220 220,881 Capital One Bank 4.250% 12/01/08 160 159,481 Manufacturers & Traders Trust Co. 8.000% 10/01/10 125 150,464 See Notes to Financial Statements. 83 HARRIS INSIGHT BALANCED FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ------------ CORPORATE BONDS (CONTINUED) FINANCE - BANK (CONTINUED) Royal Bank of Scotland Group P.L.C. 5.000% 10/01/14 $ 100 $ 99,295 Union Planters Corp. 7.750% 03/01/11 105 124,042 Washington Mutual, Inc. 4.000% 01/15/09 200 200,574 ------------ 954,737 ------------ FINANCE - NON-BANK -- 3.1% Boeing Capital Corp. 7.375% 09/27/10 180 207,182 CIT Group, Inc. 2.875% 09/29/06 150 150,497 7.750% 04/02/12 55 65,081 Ford Motor Credit Corp. 5.800% 01/12/09 150 154,645 Goldman Sachs Group, Inc. 7.625% 08/17/05 500 546,688 Household Finance Corp. 6.500% 11/15/08 100 111,592 Lehman Brothers Holdings, Inc. 6.250% 05/15/06 60 65,220 4.000% 01/22/08 55 56,149 National Rural Utilities Cooperative Finance Corp. 5.750% 08/28/09 75 81,364 Prudential Financial, Inc. 4.500% 07/15/13 150 143,471 Simon Property Group L.P. 5.375% 08/28/08 35 37,014 Textron Financial Corp. 5.875% 06/01/07 200 216,988 ------------ 1,835,891 ------------ INDUSTRIAL -- 5.1% Boeing Co. 8.750% 09/15/31 100 133,448 Centex Corp. 4.750% 01/15/08 130 134,249 Comcast Cable Communications, Inc. 7.125% 06/15/13 75 85,583 Comcast Corp. 5.300% 01/15/14 90 89,908 Delphi Corp. 6.500% 08/15/13 100 105,204 E.I. Dupont de Nemours & Co. 6.750% 10/15/04 300 312,452 General Electric Co. 5.000% 02/01/13 90 91,185 General Mills, Inc. 6.000% 02/15/12 125 133,886 General Motors Corp. 8.375% 07/15/33 90 104,787 Goodrich Corp. a 6.450% 12/15/07 75 81,337 7.625% 12/15/12 75 86,795 H.J. Heinz Co. 6.000% 03/15/08 225 246,327 COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ------------ CORPORATE BONDS (CONTINUED) INDUSTRIAL (CONTINUED) Harrahs Operating Co., Inc. Series 144A 5.375% 12/15/13 $ 150 $ 149,194 John Deere Capital Corp. 5.100% 01/15/13 150 153,952 Kellogg Co. 2.875% 06/01/08 100 96,655 Kohls Corp. 6.300% 03/01/11 220 247,230 Kroger Co. 6.800% 04/01/11 85 95,268 News America, Inc. 6.550% 03/15/33 100 104,227 PHH Corp. 6.000% 03/01/08 100 107,715 Procter & Gamble Co. - Guaranteed ESOP Debentures Series A 9.360% 01/01/21 150 201,782 TCI Communications, Inc. 8.750% 08/01/15 100 126,799 Time Warner, Inc. 6.875% 06/15/18 120 132,334 ------------ 3,020,317 ------------ NATURAL GAS -- 0.6% Duke Energy Field Services 7.875% 08/16/10 150 176,012 Kinder Morgan, Inc. 6.650% 03/01/05 200 211,285 ------------ 387,297 ------------ OIL -- 0.8% Anadarko Petroleum Corp. 5.000% 10/01/12 100 100,449 Conoco, Inc. 6.950% 04/15/29 165 187,708 Phillips Petroleum Co. 8.500% 05/25/05 200 218,097 ------------ 506,254 ------------ TELEPHONES -- 0.9% AT&T Wireless Services, Inc. 7.875% 03/01/11 40 46,364 Deutsche Telekom International Finance 3.875% 07/22/08 60 60,272 France Telecom S.A. 9.000% 03/01/11 100 120,305 Verizon Global Funding Corp. 7.750% 12/01/30 30 35,372 Vodafone Group P.L.C. 7.750% 02/15/10 250 296,742 ------------ 559,055 ------------ TRANSPORTATION -- 0.1% CSX Corp. 6.750% 03/15/11 50 56,368 ------------ TOTAL CORPORATE BONDS (Cost $7,624,805) 8,077,866 ------------ See Notes to Financial Statements. 84 HARRIS INSIGHT BALANCED FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ------------ YANKEE BONDS -- 0.2% United Mexican States (Cost $105,657) 6.375% 01/16/13 $ 100 $ 104,000 ------------ U.S. TREASURY OBLIGATIONS -- 3.8% U.S. TREASURY BONDS -- 2.2% 8.750% 08/15/20 240 343,275 8.000% 11/15/21 372 502,520 7.625% 02/15/25 370 488,762 ------------ 1,334,557 ------------ U.S. TREASURY NOTES -- 1.6% 6.000% 08/15/09 125 141,626 5.000% 02/15/11 75 80,569 4.000% a 11/15/12 190 188,234 4.250% a 08/15/13 540 540,844 ------------ 951,273 ------------ TOTAL U.S. TREASURY OBLIGATIONS (Cost $2,269,852) 2,285,830 ------------ SHARES --------- TEMPORARY INVESTMENTS -- 2.9% Dreyfus Cash Management Plus #719 17,847 17,847 Goldman Sachs Financial Square Money Market Portfolio 1,710,649 1,710,649 J.P. Morgan Institutional Prime Money Market Portfolio 23,440 23,440 ------------ TOTAL TEMPORARY INVESTMENTS (Cost $1,751,936) 1,751,936 ------------ COUPON PAR RATE MATURITY (000) - ------ -------- ------- INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED -- 21.2% COMMERCIAL PAPER -- 5.2% Amsterdam Funding Corp. 1.100% 01/05/04 $ 187 187,269 Cancara Asset Securitization, Ltd. 1.110% 01/12/04 183 183,045 Concord Minuteman Capital Co., L.L.C. 1.130% 02/12/04 155 154,754 General Electric Capital Funding, Inc. 1.110% 02/05/04 994 990,883 Silver Tower Fund 1.130% 02/02/04 329 328,349 Tannehill Capital Co., L.L.C. 1.100% 01/08/04 307 306,330 1.110% 01/13/04 679 678,090 Tulip Funding Corp. 1.100% 01/21/04 247 246,982 ------------ 3,075,702 ------------ COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ------------ INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED (CONTINUED) REPURCHASE AGREEMENTS -- 1.0% Merrill Lynch & Co., Inc. 1.000% Agreement dated 12/31/03, proceeds at maturity $621,620 (Collateralized by $762.658 FHLMC, FNMA and GNMA 1.450% to 6.000%, due from 11/01/17 to 12/01/33. The market value is $640,244.) 01/02/04 $ 622 $ 621,585 ------------ TIME DEPOSITS -- 4.8% Canadian Imperial Bank 0.938% 01/02/04 751 751,136 Chase Manhattan Bank 0.875% 01/02/04 251 250,815 Merrill Lynch & Co., Inc. Master Notes 1.130% 01/02/04 1,502 1,502,271 UBS Bank 0.938% 01/02/04 340 340,268 ------------ 2,844,490 ------------ VARIABLE RATE OBLIGATIONS -- 10.2% American Express Centurion Bank Medium-Term Note 1.131% 01/27/04 190 189,894 Bear Stearns Cos., Inc. Medium-Term Notes Series B 1.120% 01/15/04 100 100,043 1.120% 01/16/04 382 381,945 Canadian Imperial Bank 1.096% 05/28/04 95 94,904 Goldman Sachs Group, Inc. 1.140% 03/08/04 93 92,866 Merrill Lynch & Co., Inc. Master Notes 1.130% 01/05/04 677 677,205 1.130% 01/08/04 530 530,401 Monumental Global Funding II Senior Secured Notes Series 144A 1.301% 05/28/04 336 337,294 Morgan Stanley 1.030% 01/12/04 60 60,148 1.080% 03/12/04 1,914 1,913,642 Natexis Banques 1.035% 01/14/04 398 397,675 1.055% 12/13/04 429 428,797 Societe Generale 1.055% 12/04/04 133 133,097 Westdeutsche Landesbank A.G. 1.091% 09/23/04 106 106,116 1.089% 09/29/04 362 361,948 1.120% 10/12/04 272 271,487 ------------ 6,077,462 ------------ TOTAL INVESTMENT OF CASH COLLATERAL FOR SECURITIES LOANED (Cost $12,619,239) 12,619,239 ------------ TOTAL INVESTMENTS -- 123.9% (Cost $66,974,603) 73,958,747 ------------ See Notes to Financial Statements. 85 HARRIS INSIGHT BALANCED FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- VALUE+ ------------ OTHER ASSETS AND LIABILITIES -- (23.9%) Dividends receivable and other assets $ 292,882 Receivable for capital stock sold 11,103 Payable upon return of collateral on securities loaned (12,619,239) Payable for securities purchased (1,843,673) Payable for capital stock redeemed (62,661) Accrued expenses (49,925) ------------ (14,271,513) ------------ NET ASSETS -- 100.0% Applicable to 4,188,670 Institutional Shares, 168,859 N Shares, 32,797 A Shares, and 30,685 B Shares of beneficial interest outstanding, $.001 par value (Note 8) $ 59,687,234 ============ NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER INSTITUTIONAL SHARE ($56,553,230/4,188,670) $13.50 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER N SHARE ($2,279,068/168,859) $13.50 ====== NET ASSET VALUE AND REDEMPTION PRICE PER A SHARE ($442,319/32,797) $13.49 ====== MAXIMUM PUBLIC OFFERING PRICE PER A SHARE ($13.49/0.945) (NOTE 5) $14.28 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE (SUBJECT TO A MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 5.0%) PER B SHARE ($412,617/30,685) $13.45 ====== - ---------- The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows: Basis $67,337,482 =========== Gross Appreciation $ 7,061,444 Gross Depreciation (440,179) ----------- Net Appreciation $ 6,621,265 =========== + See Note 2a to the Financial Statements. * Non-income producing security. a Total or partial security on loan. At December 31, 2003, the total market value of the portfolio's securities on loan is $12,189,724, and the total market value of the collateral held by the portfolio is $12,619,239. b Represents "to-be-announced" (TBA) transactions. IO -- Interest Only Security. PO -- Principal Only Security. See Notes to Financial Statements. 86 HARRIS INSIGHT INTERNATIONAL FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK -- 96.3% CHINA -- 2.2% China Mobile, Ltd. 504,000 $ 1,548,302 Denway Motors, Ltd. 2,081,000 2,211,378 ------------ 3,759,680 ------------ DENMARK -- 0.9% Group 4 Falck A/S 75,000 1,537,315 ------------ FINLAND -- 2.2% Tietoenator Oyj 80,000 2,189,707 UPM-Kymmene Oyj 89,000 1,697,377 ------------ 3,887,084 ------------ FRANCE -- 16.0% Arcelor 102,000 1,778,052 Aventis S.A. 50,000 3,304,743 Axa S.A. 140,000 2,996,720 BNP Paribas S.A. 37,000 2,329,768 European Aeronautic Defence & Space Co. 90,000 2,139,884 Groupe Danone 17,000 2,774,723 Lafarge S.A. 14,102 1,255,804 Schneider Electric S.A. 42,000 2,749,495 Societe Generale 24,500 2,163,219 Suez S.A. 87,100 1,750,130 Total S.A. 24,000 4,462,159 ------------ 27,704,697 ------------ GERMANY -- 8.7% Adidas-Salomon A.G. 15,000 1,708,501 BASF A.G. 43,000 2,417,936 Celesio A.G. 51,000 2,473,449 Deutsche Bank A.G. 23,700 1,964,039 E.On A.G. 52,000 3,393,643 Linde A.G. 44,300 2,385,986 Volkswagen A.G. 13,000 723,953 ------------ 15,067,507 ------------ GREECE -- 0.1% Hellenic Telecommunications Organization (OTE) S.A. 11,975 158,297 ------------ HONG KONG -- 5.1% HSBC Holdings P.L.C. 253,901 4,006,244 Hutchison Whampoa, Ltd. 460,000 3,392,112 Wing Hang Bank, Ltd. 254,000 1,511,515 ------------ 8,909,871 ------------ ITALY -- 4.4% ENI S.P.A. 226,000 4,264,581 Luxottica Group S.P.A. ADR 110,000 1,914,000 Saipem S.P.A. 187,000 1,511,945 ------------ 7,690,526 ------------ JAPAN -- 15.6% Asahi Glass Co., Ltd. 321,000 2,635,812 Canon, Inc. 55,000 2,560,884 Kao Corp. 102,000 2,074,834 Kyushu Electric Power Co., Inc. 90 1,548 Mabuchi Motor Co., Ltd. 22,000 1,693,571 SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) JAPAN (CONTINUED) Mazda Motor Corp. 880,000 $ 2,356,630 NEC Corp. 340,000 2,503,126 Rohm Co., Ltd. 18,000 2,109,546 Sony Corp. 77,000 2,665,578 Sumitomo Trust & Banking Co., Ltd. 722,000 4,244,285 Takeda Chemical Industries, Ltd. 60,000 2,379,397 Tostem Inax Holding Corp. 93,000 1,796,305 ------------ 27,021,516 ------------ KOREA -- 2.7% Kookmin Bank ADR 76,000 2,875,840 Samsung Electronics Co., Ltd. 4,600 1,741,167 ------------ 4,617,007 ------------ MEXICO -- 1.4% Cemex S.A. de C.V. ADR 59,000 1,545,800 Telefonos de Mexico S.A. de C.V. ADR 28,000 924,840 ------------ 2,470,640 ------------ NETHERLANDS -- 5.8% ABN AMRO Holdings N.V. 77,000 1,801,652 Akzo Nobel N.V. 66,000 2,547,427 DSM N.V. 33,000 1,624,609 ING Groep N.V. 81,708 1,905,627 Philips Electronics N.V. 73,500 2,146,222 ------------ 10,025,537 ------------ SINGAPORE -- 2.9% DBS Group Holdings, Ltd. 333,000 2,882,353 Singapore Airlines, Ltd. 325,000 2,143,320 ------------ 5,025,673 ------------ SPAIN -- 1.0% Telefonica Moviles, S.A.* 170,000 1,775,479 ------------ SWEDEN -- 2.1% Atlas Copco AB-B 47,000 1,531,764 Volvo AB-B 70,000 2,140,286 ------------ 3,672,050 ------------ SWITZERLAND -- 3.6% Nestle S.A. 12,088 3,020,167 Novartis A.G. 48,000 2,179,260 Swisscom A.G. 3,220 1,062,268 ------------ 6,261,695 ------------ TAIWAN -- 0.6% Taiwan Semiconductor Manufacturing Co., Ltd. ADR* 108,000 1,105,920 ------------ THAILAND -- 1.0% Advanced Information Service Public Co., Ltd. 810,000 1,727,428 ------------ UNITED KINGDOM -- 20.0% Amvescap P.L.C. 259,000 1,881,262 Barclays P.L.C. 169,534 1,512,151 Boots Group P.L.C. 130,000 1,608,098 See Notes to Financial Statements. 87 HARRIS INSIGHT INTERNATIONAL FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) UNITED KINGDOM (CONTINUED) Compass Group P.L.C. 219,000 $ 1,489,769 GlaxoSmithKline P.L.C. 169,117 3,875,149 GUS P.L.C. 176,500 2,443,972 HBOS P.L.C. 135,000 1,748,491 Kesa Electricals P.L.C. 379,130 1,745,961 Kingfisher P.L.C. 470,395 2,345,195 Lloyds TSB Group P.L.C. 211,263 1,694,309 Rolls-Royce P.L.C. 560,000 1,776,910 Royal Bank of Scotland Group P.L.C. 62,000 1,826,891 Signet Group P.L.C. 990,000 1,825,423 Standard Chartered P.L.C. 100,000 1,651,420 Tesco P.L.C. 434,000 2,002,532 Unilever P.L.C. 230,000 2,144,116 Vodafone Group P.L.C. 1,297,249 3,216,357 ------------ 34,788,006 ------------ TOTAL COMMON STOCK (Cost $133,318,931) 167,205,928 ------------ PREFERRED STOCK -- 1.1% GERMANY Volkswagen A.G. (Cost $1,482,403) 51,500 1,867,590 ------------ COUPON PAR RATE MATURITY (000) - ------ -------- ------- CONVERTIBLE BONDS -- 0.1% FRANCE Axa S.A. (Cost $130,689) 0.000% 12/21/04 $ 112 176,313 ------------ U.S. TREASURY OBLIGATIONS -- 1.3% U.S. Treasury Bills 0.700% 03/18/04 1,000 998,241 0.760% 03/18/04 1,294 1,291,724 ------------ TOTAL U.S. TREASURY OBLIGATIONS (Cost $2,290,399) 2,289,965 ------------ SHARES VALUE+ --------- ------------ TEMPORARY INVESTMENTS -- 0.4% BlackRock Provident Institutional Funds -- TempCash (Cost $658,162) 658,162 $ 658,162 ------------ TOTAL INVESTMENTS -- 99.2% (Cost $137,880,584) 172,197,958 ------------ CURRENCY -- 0.0% Euro Currency (Cost $2) 2 3 ------------ OTHER ASSETS AND LIABILITIES -- 0.8% Dividends receivable and other assets 445,377 Receivable for securities sold 602,804 Receivable for capital stock sold 478,540 Receivable from affiliate 152,997 Payable for capital stock redeemed (93,480) Accrued expenses (210,839) ------------ 1,375,399 ------------ NET ASSETS -- 100.0% Applicable to 12,616,330 Institutional Shares, 116,945 N Shares, and 4,326 A Shares of beneficial interest outstanding, $.001 par value (Note 8) $173,573,360 ============ NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER INSTITUTIONAL SHARE ($171,920,883/12,616,330) $13.63 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER N SHARE ($1,595,438/116,945) $13.64 ====== NET ASSET VALUE AND REDEMPTION PRICE PER A SHARE ($57,039/4,326) $13.19 ====== MAXIMUM PUBLIC OFFERING PRICE PER A SHARE ($13.19/0.945) (NOTE 5) $13.96 ====== - ---------- The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows: Basis $138,140,531 ============ Gross Appreciation $ 38,155,034 Gross Depreciation (4,097,604) ------------ Net Appreciation $ 34,057,430 ============ + See Note 2a to the Financial Statements. * Non-income producing security. ADR -- American Depositary Receipt. See Notes to Financial Statements. 88 HARRIS INSIGHT EMERGING MARKETS FUND STATEMENT OF NET ASSETS DECEMBER 31, 2003 - -------------------------------------------------------------------------------- SHARES VALUE+ --------- ------------ COMMON STOCK -- 96.8% ARGENTINA -- 1.7% Tenaris S.A. ADR 150,471 $ 5,013,694 ------------ BRAZIL -- 10.7% Companhia Vale do Rio Doce ADR 148,400 7,644,084 Empresa Brasileira de Aeronautica S.A. ADR 301,781 10,571,388 Petroleo Brasileiro S.A. ADR 279,000 8,157,960 Telesp Celular Participacoes S.A.* 720,000 4,737,600 ------------ 31,111,032 ------------ CHINA -- 5.7% Beijing Datang Power Generation Co., Ltd. 8,162,000 5,834,806 China Mobile, Ltd. 1,623,000 4,985,902 Denway Motors, Ltd. 5,321,000 5,654,368 ------------ 16,475,076 ------------ CROATIA -- 1.2% Pliva D.D. GDR 210,500 3,431,150 ------------ HONG KONG -- 6.3% HSBC Holdings P.L.C. 353,092 5,571,355 Hutchison Whampoa, Ltd. 1,131,600 8,344,595 Wing Hang Bank, Ltd. 760,000 4,522,644 ------------ 18,438,594 ------------ HUNGARY -- 3.7% Gedeon Richter Rt. 25,700 3,042,491 Magyar Tavkozlesi Rt. ADR 267,000 4,995,570 OTP Bank Rt.* 200,000 2,579,349 ------------ 10,617,410 ------------ INDIA -- 6.6% Gujarat Ambuja Cements, Ltd. 783,500 5,217,895 Hindustan Lever, Ltd. 1,750,000 7,851,507 Zee Telefilms, Ltd. 1,875,000 6,166,438 ------------ 19,235,840 ------------ ISRAEL -- 1.5% Check Point Software Technologies, Ltd.* 267,000 4,490,940 ------------ KOREA -- 22.6% Hyundai Motor Co., Ltd. 150,000 6,357,533 Kookmin Bank ADR 205,581 7,779,185 Korea Electric Power Corp. ADR 150,700 1,565,773 KT Corp. ADR 149,100 2,843,337 LG Chem, Ltd. 145,000 6,693,244 POSCO ADR 110,200 3,743,494 Samsung Electronics Co., Ltd. GDR 70,300 13,216,400 Samsung Fire & Marine Insurance Co., Ltd. 100,000 5,749,056 Shinsegae Co., Ltd. 42,300 10,295,426 SK Telecom Co., Ltd. 45,000 7,515,736 ------------ 65,759,184 ------------ MALAYSIA -- 3.0% Maxis Communications BHD 2,665,000 5,294,934 Road Builder (M) Holdings BHD 3,801,000 3,560,937 ------------ 8,855,871 ------------ SHARES VALUE+ --------- ------------ COMMON STOCK (CONTINUED) MEXICO -- 8.5% Cemex S.A. de C.V. ADR 237,011 $ 6,209,688 Grupo Financiero Banorte S.A. de C.V. 1,161,000 4,029,367 Grupo Financiero BBVA Bancomer S.A. de C.V.-B* 4,104,500 3,506,481 Kimberly-Clark de Mexico S.A. de C.V.-A 1,425,400 3,653,164 Telefonos de Mexico S.A. de C.V. ADR 137,900 4,554,837 TV Azteca S.A. de C.V. ADR 300,000 2,730,000 ------------ 24,683,537 ------------ POLAND -- 1.0% Agora S.A.* 220,000 3,003,553 ------------ RUSSIA -- 5.0% Lukoil Holding ADR 52,000 4,836,000 Mobile Telesystems ADR 28,200 2,334,960 Norilsk Nickel Mining and Metallurgical Co. ADR 46,600 3,035,990 Wimm-Bill-Dann Foods ADR* 260,600 4,430,200 ------------ 14,637,150 ------------ SINGAPORE -- 4.0% DBS Group Holdings, Ltd. 893,590 7,734,660 Singapore Airlines, Ltd. 584,000 3,851,381 ------------ 11,586,041 ------------ SOUTH AFRICA -- 4.5% Old Mutual P.L.C. 3,579,500 5,895,238 Standard Bank Group, Ltd. 1,207,000 7,084,683 ------------ 12,979,921 ------------ TAIWAN -- 6.3% Chinatrust Financial Holding Co., Ltd. 7,437,695 7,470,557 President Chain Store Corp. 2,545,356 3,898,631 Taiwan Semiconductor Manufacturing Co., Ltd.* 3,731,462 6,979,318 ------------ 18,348,506 ------------ THAILAND -- 3.2% Advanced Information Service Public Co., Ltd. 4,337,300 9,249,842 ------------ TURKEY -- 1.3% Haci Omer Sabanci Holding A.S. 805,870,000 3,814,260 ------------ TOTAL COMMON STOCK (Cost $215,248,234) 281,731,601 ------------ RIGHTS & WARRANTS -- 0.0% MEXICO Cemex S.A. de C.V. ADR* (Cost $2,205) 1,260 3,339 ------------ See Notes to Financial Statements. 89 HARRIS INSIGHT EMERGING MARKETS FUND STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2003 - -------------------------------------------------------------------------------- COUPON PAR RATE MATURITY (000) VALUE+ - ------ -------- ------- ------------ U.S. TREASURY OBLIGATIONS -- 2.9% U.S. Treasury Bills 0.700% 03/18/04 $ 2,000 $ 261,539 0.750% 03/18/04 1,000 1,996,482 0.760% 03/18/04 5,329 998,241 0.780% 03/18/04 262 5,319,627 ------------ TOTAL U.S. TREASURY OBLIGATIONS (Cost $8,577,302) 8,575,889 ------------ SHARES ------ TEMPORARY INVESTMENTS -- 0.2% BlackRock Provident Institutional Funds -- TempCash (Cost $581,536) 581,536 581,536 ------------ TOTAL INVESTMENTS -- 99.9% (Cost $224,409,277) 290,892,365 ------------ CURRENCY -- 0.0% Taiwanese Dollar (Cost $62,249) 21,184 62,397 ------------ OTHER ASSETS AND LIABILITIES -- 0.1% Dividends receivable and other assets 887,224 Receivable for capital stock sold 567,234 Receivable from affiliate 18,407 Payable for capital stock redeemed (31,000) Payable for foreign taxes (805,690) Accrued expenses (403,844) ------------ 232,331 ------------ NET ASSETS -- 100.0% Applicable to 28,855,313 Institutional Shares, 133,897 N Shares, and 36,631 A Shares of beneficial interest outstanding, $.001 par value (Note 8) $291,187,093 ============ NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER INSTITUTIONAL SHARE ($289,491,979/28,855,313) $10.03 ====== NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER N SHARE ($1,331,137/133,897) $ 9.94 ====== NET ASSET VALUE AND REDEMPTION PRICE PER A SHARE ($363,977/36,631) $ 9.94 ====== MAXIMUM PUBLIC OFFERING PRICE PER A SHARE ($9.94/0.945) (NOTE 5) $10.52 ====== - ---------- The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows: Basis $224,471,526 ============ Gross Appreciation $ 67,705,284 Gross Depreciation (1,222,048) ------------ Net Appreciation $ 66,483,236 ============ + See Note 2a to the Financial Statements. * Non-income producing security. ADR -- American Depositary Receipt. GDR -- Global Depositary Receipt. See Notes to Financial Statements. 90 [THIS PAGE INTENTIONALLY LEFT BLANK.] HARRIS INSIGHT FUNDS STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003
MONEY MARKET FUNDS ------------------------------------------- GOVERNMENT TAX-EXEMPT MONEY MARKET MONEY MARKET MONEY MARKET FUND FUND FUND ----------- ----------- ----------- INVESTMENT INCOME: Interest ......................................................... $14,939,746 $97,102,215 $13,657,469 Dividends ........................................................ -- -- -- Securities lending income ........................................ -- -- -- Foreign taxes withheld ........................................... -- -- -- ----------- ----------- ----------- Total investment income ........................................ 14,939,746 97,102,215 13,657,469 ----------- ----------- ----------- EXPENSES (NOTE 2f): Investment advisory fee (Note 3) ................................. 1,327,810 7,733,692 1,266,709 Rule 12b-1 fee (Note 4) .......................................... 1,332,668 3,823,391 420,746 Shareholder services fee (Note 4) ................................ 2,479,269 7,684,210 890,351 Program fee (Note 4) ............................................. 3,409,602 8,704,409 646,059 Commitment fee (Note 11) ......................................... 17,639 108,050 17,229 Transfer agency fee (Note 3) ..................................... 53,481 363,674 57,148 Administration fee (Note 3) ...................................... 1,451,182 8,295,156 1,350,316 Custodian fee (Note 3) ........................................... 59,207 332,768 51,120 Directors' fees and expenses ..................................... 17,944 128,677 22,778 Audit fee ........................................................ 38,302 173,476 25,242 Legal fee ........................................................ 13,388 72,426 10,696 Reports to shareholders .......................................... 21,142 218,549 27,925 Registration fees ................................................ 34,176 77,876 33,624 Miscellaneous .................................................... (13,636) 231,527 (9,350) ----------- ----------- ----------- Total expenses ................................................. 10,242,174 37,947,881 4,810,593 ----------- ----------- ----------- Less fee waivers and expense reimbursements (Notes 3,4) .......... (2,541,654) (9,280,171) (506,215) ----------- ----------- ----------- Net expenses ................................................... 7,700,520 28,667,710 4,304,378 ----------- ----------- ----------- NET INVESTMENT INCOME/(LOSS) ..................................... 7,239,226 68,434,505 9,353,091 ----------- ----------- ----------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTE 7): Net realized gain/(loss) from: Investment transactions ........................................ 8,229 (22,026) (4,393) Futures contracts .............................................. -- -- -- Foreign currency translations .................................. -- -- -- Net change in unrealized appreciation/(depreciation) on: Investments .................................................... -- -- -- Futures contracts .............................................. -- -- -- Foreign currency translations .................................. -- -- -- ----------- ----------- ----------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS ............. 8,229 (22,026) (4,393) ----------- ----------- ----------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS .................. $ 7,247,455 $68,412,479 $ 9,348,698 =========== =========== =========== FIXED INCOME FUNDS ----------------------------------------------------------------- SHORT/ INTERMEDIATE HIGH YIELD INTERMEDIATE BOND BOND GOVERNMENT BOND BOND FUND FUND FUND FUND ----------------- ----------- --------------- ---------- INVESTMENT INCOME: Interest ...................................................... $12,626,916 $10,508,472 $4,232,292 $3,545,119 Dividends ..................................................... -- -- -- -- Securities lending income ..................................... 22,955 9,060 10,147 -- Foreign taxes withheld ........................................ -- -- -- -- ----------- ----------- ---------- ---------- Total investment income ..................................... 12,649,871 10,517,532 4,242,439 3,545,119 ----------- ----------- ---------- ---------- EXPENSES (NOTE 2f): Investment advisory fee (Note 3) .............................. 1,892,556 1,255,395 489,948 206,771 Rule 12b-1 fee (Note 4) ....................................... 15,158 6,287 16,367 -- Shareholder services fee (Note 4) ............................. 25,121 14,169 51,496 -- Program fee (Note 4) .......................................... -- -- -- -- Commitment fee (Note 11) ...................................... 3,794 2,742 1,332 633 Transfer agency fee (Note 3) .................................. 60,279 47,893 56,853 1,539 Administration fee (Note 3) ................................... 560,341 426,785 223,020 84,675 Custodian fee (Note 3) ........................................ 17,610 13,699 10,482 9,315 Directors' fees and expenses .................................. 5,008 3,710 1,780 638 Audit fee ..................................................... 5,555 4,013 1,951 10,773 Legal fee ..................................................... 3,184 2,351 1,132 620 Reports to shareholders ....................................... 5,402 3,893 1,879 753 Registration fees ............................................. 35,155 37,780 39,718 10,610 Miscellaneous ................................................. 28,936 25,893 11,923 8,959 ----------- ----------- ---------- ---------- Total expenses .............................................. 2,658,099 1,844,610 907,881 335,286 ----------- ----------- ---------- ---------- Less fee waivers and expense reimbursements (Notes 3,4) ....... (995,629) (665,328) (367,861) (54,996) ----------- ----------- ---------- ---------- Net expenses ................................................ 1,662,470 1,179,282 540,020 280,290 ----------- ----------- ---------- ---------- NET INVESTMENT INCOME/(LOSS) .................................. 10,987,401 9,338,250 3,702,419 3,264,829 ----------- ----------- ---------- ---------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTE 7): Net realized gain/(loss) from: Investment transactions ..................................... 266,166 881,821 1,829,701 1,252,546 Futures contracts ........................................... (483,361) (777,018) (123,399) -- Foreign currency translations ............................... -- -- -- -- Net change in unrealized appreciation/(depreciation) on: Investments ................................................. (10,736) (3,548,406) (3,361,986) 2,637,553 Futures contracts ........................................... 179,688 545,531 70,312 -- Foreign currency translations ............................... -- -- -- -- ----------- ----------- ---------- ---------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS .......... (48,243) (2,898,072) (1,585,372) 3,890,099 ----------- ----------- ---------- ---------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS ............... $10,939,158 $ 6,440,178 $2,117,047 $7,154,928 =========== =========== ========== ========== FIXED INCOME FUNDS --------------------------------------------------- INTERMEDIATE HIGH YIELD ITAX-EXEMPT BOND TAX-EXEMPT BOND SELECT BOND FUND FUND FUND ---------------- --------------- ----------- INVESTMENT INCOME: Interest ......................................................... $11,694,355 $6,293,487 $1,101,967(1) Dividends ........................................................ -- -- -- Securities lending income ........................................ -- -- 21 Foreign taxes withheld ........................................... -- -- -- ----------- ---------- ---------- Total investment income ........................................ 11,694,355 6,293,487 1,101,988 ----------- ---------- ---------- EXPENSES (NOTE 2f): Investment advisory fee (Note 3) ................................. 1,200,190 577,100 -- Rule 12b-1 fee (Note 4) .......................................... 11,267 18,288 444 Shareholder services fee (Note 4) ................................ 30,114 62,797 933 Program fee (Note 4) ............................................. -- -- -- Commitment fee (Note 11) ......................................... 3,756 1,808 -- Transfer agency fee (Note 3) ..................................... 54,572 59,612 19,631 Administration fee (Note 3) ...................................... 559,997 290,036 41,960 Custodian fee (Note 3) ........................................... 13,769 6,187 -- Directors' fees and expenses ..................................... 5,003 2,417 -- Audit fee ........................................................ 4,998 2,646 -- Legal fee ........................................................ 2,172 1,084 44,252 Reports to shareholders .......................................... 6,274 2,747 -- Registration fees ................................................ 51,801 47,452 27,017 Miscellaneous .................................................... 27,465 15,584 1,904 ----------- ---------- ---------- Total expenses ................................................. 1,971,378 1,087,758 136,141 ----------- ---------- ---------- Less fee waivers and expense reimbursements (Notes 3,4) .......... (722,504) (358,624) (111,721) ----------- ---------- ---------- Net expenses ................................................... 1,248,874 729,134 24,420 ----------- ---------- ---------- NET INVESTMENT INCOME/(LOSS) ..................................... 10,445,481 5,564,353 1,077,568 ----------- ---------- ---------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTE 7): Net realized gain/(loss) from: Investment transactions ........................................ (135,836) 456,497 707,566 Futures contracts .............................................. -- -- -- Foreign currency translations .................................. -- -- -- Net change in unrealized appreciation/(depreciation) on: Investments .................................................... 1,465,807 1,392,398 745,340 Futures contracts .............................................. -- -- -- Foreign currency translations .................................. -- -- -- ----------- ---------- ---------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS ............. 1,329,971 1,848,895 1,452,906 ----------- ---------- ---------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS .................. $11,775,452 $7,413,248 $2,530,474 =========== ========== ========== (1) Includes distribution of net investment income from the High Yield Bond Fund.
See Notes to Financial Statements. 92 and 93 HARRIS INSIGHT FUNDS STATEMENTS OF OPERATIONS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2003
EQUITY FUNDS ----------------------------------------- CORE SMALL-CAP EQUITY EQUITY OPPORTUNITY FUND FUND FUND ----------- ----------- ------------ INVESTMENT INCOME: Interest ......................................................... $ 69,338 $ 17,972 $ 152,571 Dividends ........................................................ 3,952,229 1,755,027 4,280,796 Securities lending income ........................................ 27,202 14,069 115,787 Foreign taxes withheld ........................................... -- -- -- ----------- ----------- ------------ Total investment income ........................................ 4,048,769 1,787,068 4,549,154 ----------- ----------- ------------ EXPENSES (NOTE 2f): Investment advisory fee (Note 3) ................................. 1,799,413 1,023,289 4,238,707 Rule 12b-1 fee (Note 4) .......................................... 2,674 1,869 6,262 Shareholder services fee (Note 4) ................................ 29,135 10,069 89,200 Commitment fee (Note 11) ......................................... 3,625 1,595 5,919 Transfer agency fee (Note 3) ..................................... 48,558 48,138 74,601 Administration fee (Note 3) ...................................... 538,510 254,848 837,505 Custodian fee (Note 3) ........................................... 19,630 21,438 37,229 Directors' fees and expenses ..................................... 4,818 2,099 7,712 Audit fee ........................................................ 5,304 2,335 9,766 Legal fee ........................................................ 3,053 1,334 4,901 Reports to shareholders .......................................... 5,079 1,723 6,290 Registration fees ................................................ 31,709 37,416 40,889 Miscellaneous .................................................... 12,024 9,012 19,264 ----------- ----------- ------------ Total expenses ................................................. 2,503,532 1,415,165 5,378,245 ----------- ----------- ------------ Less fee waivers and expense reimbursements (Notes 3,4) .......... (48,762) (152,540) (196,334) ----------- ----------- ------------ Net expenses ................................................... 2,454,770 1,262,625 5,181,911 ----------- ----------- ------------ NET INVESTMENT INCOME/(LOSS) ..................................... 1,593,999 524,443 (632,757) ----------- ----------- ------------ NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTE 7): Net realized gain/(loss) from: Investment transactions ........................................ 8,416,491 873,569 57,367,389 Futures contracts .............................................. -- -- -- Foreign currency translations .................................. -- -- -- Net change in unrealized appreciation/(depreciation) on: Investments .................................................... 54,868,158 29,193,446 123,574,574 Futures contracts .............................................. -- -- -- Foreign currency translations .................................. -- -- -- ----------- ----------- ------------ NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS ............. 63,284,649 30,067,015 180,941,963 ----------- ----------- ------------ INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS .................. $64,878,648 $30,591,458 $180,309,206 =========== =========== ============ EQUITY FUNDS -------------------------------------------------------- SMALL-CAP SMALL-CAP AGGRESSIVE VALUE INDEX GROWTH FUND FUND FUND ----------- ----------- ---------- INVESTMENT INCOME: Interest ......................................................... $ 72,271 $ 87,268 $ 1,831 Dividends ........................................................ 5,237,365 6,342,475 35,582 Securities lending income ........................................ 75,577 31,952 -- Foreign taxes withheld ........................................... -- -- -- ----------- ----------- ---------- Total investment income ........................................ 5,385,213 6,461,695 37,413 ----------- ----------- ---------- EXPENSES (NOTE 2f): Investment advisory fee (Note 3) ................................. 1,933,332 778,912 53,935 Rule 12b-1 fee (Note 4) .......................................... 7,788 4,012 10 Shareholder services fee (Note 4) ................................ 15,848 45,215 4 Commitment fee (Note 11) ......................................... 3,721 5,060 99 Transfer agency fee (Note 3) ..................................... 54,908 48,453 571 Administration fee (Note 3) ...................................... 541,570 721,605 13,895 Custodian fee (Note 3) ........................................... 32,408 42,359 6,759 Directors' fees and expenses ..................................... 4,875 6,715 132 Audit fee ........................................................ 6,146 8,117 147 Legal fee ........................................................ 2,396 3,580 84 Reports to shareholders .......................................... 5,166 7,913 141 Registration fees ................................................ 36,368 34,545 23,127 Miscellaneous .................................................... 20,252 33,102 4,670 ----------- ----------- ---------- Total expenses ................................................. 2,664,778 1,739,588 103,574 ----------- ----------- ---------- Less fee waivers and expense reimbursements (Notes 3,4) .......... (122,211) (154,369) (31,646) ----------- ----------- ---------- Net expenses ................................................... 2,542,567 1,585,219 71,928 ----------- ----------- ---------- NET INVESTMENT INCOME/(LOSS) ..................................... 2,842,646 4,876,476 (34,515) ----------- ----------- ---------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTE 7): Net realized gain/(loss) from: Investment transactions ........................................ 21,586,613 26,881,122 280,932 Futures contracts .............................................. -- 326,932 -- Foreign currency translations .................................. -- -- -- Net change in unrealized appreciation/(depreciation) on: Investments .................................................... 73,898,637 54,956,096 2,473,000 Futures contracts .............................................. -- 774,500 -- Foreign currency translations .................................. -- -- -- ----------- ----------- ---------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS ............. 95,485,250 82,938,650 2,753,932 ----------- ----------- ---------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS .................. $98,327,896 $87,815,126 $2,719,417 =========== =========== ========== EQUITY FUNDS ------------------------------------------------------ EMERGING BALANCED INTERNATIONAL MARKETS FUND FUND FUND ---------- ------------- ----------- INVESTMENT INCOME: Interest ......................................................... $1,042,836 $ 35,672 $ 86,788 Dividends ........................................................ 486,406 4,643,334 4,281,039 Securities lending income ........................................ 9,165 -- -- Foreign taxes withheld ........................................... -- (484,226) (268,047) ---------- ----------- ----------- Total investment income ........................................ 1,538,407 4,194,780 4,099,780 ---------- ----------- ----------- EXPENSES (NOTE 2f): Investment advisory fee (Note 3) ................................. 282,356 1,560,663 2,095,350 Rule 12b-1 fee (Note 4) .......................................... 2,415 149 548 Shareholder services fee (Note 4) ................................ 5,712 3,276 1,408 Commitment fee (Note 11) ......................................... 747 2,085 2,319 Transfer agency fee (Note 3) ..................................... 42,006 32,604 32,823 Administration fee (Note 3) ...................................... 138,787 315,720 333,081 Custodian fee (Note 3) ........................................... 22,283 80,508 156,559 Directors' fees and expenses ..................................... 987 2,745 2,613 Audit fee ........................................................ 1,095 3,052 5,748 Legal fee ........................................................ 627 1,746 2,687 Reports to shareholders .......................................... 1,345 2,909 2,368 Registration fees ................................................ 36,593 40,802 44,446 Miscellaneous .................................................... 24,700 20,631 68,655 ---------- ----------- ----------- Total expenses ................................................. 559,653 2,066,890 2,748,605 ---------- ----------- ----------- Less fee waivers and expense reimbursements (Notes 3,4) .......... (82,982) (42,532) (44,760) ---------- ----------- ----------- Net expenses ................................................... 476,671 2,024,358 2,703,845 ---------- ----------- ----------- NET INVESTMENT INCOME/(LOSS) ..................................... 1,061,736 2,170,422 1,395,935 ---------- ----------- ----------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTE 7): Net realized gain/(loss) from: Investment transactions ........................................ 786,234 (5,084,107) 9,189,744 Futures contracts .............................................. (75,157) -- -- Foreign currency translations .................................. -- (94,762) (77,967) Net change in unrealized appreciation/(depreciation) on: Investments .................................................... 7,778,566 55,857,494 66,010,070 (1) Futures contracts .............................................. 52,188 -- -- Foreign currency translations .................................. -- (20,124) 955 ---------- ----------- ----------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS ............. 8,541,831 50,658,501 75,122,802 ---------- ----------- ----------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS .................. $9,603,567 $52,828,923 $76,518,737 ========== =========== =========== (1) Net of estimated deferred capital gain taxes of $805,690.
See Notes to Financial Statements. 94 and 95 HARRIS INSIGHT FUNDS STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 2003
MONEY MARKET FUNDS -------------------------------------------------- GOVERNMENT TAX-EXEMPT MONEY MARKET MONEY MARKET MONEY MARKET FUND FUND FUND -------------- --------------- -------------- INCREASE/(DECREASE) IN NET ASSETS OPERATIONS: Net investment income/(loss) ........................................ $ 7,239,226 $ 68,434,505 $ 9,353,091 Net realized gain/(loss) on investment transactions, futures contracts and foreign currency translations ............... 8,229 (22,026) (4,393) Net change in unrealized appreciation/(depreciation) of investment transactions, futures contracts, and foreign currency translations ..................................... -- -- -- -------------- --------------- -------------- Increase/(decrease) in net assets from operations ................... 7,247,455 68,412,479 9,348,698 -------------- --------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTES 2c AND 2d): Net investment income: Institutional Shares .............................................. (2,987,191) (45,629,443) (7,758,569) N Shares .......................................................... (2,059,530) (8,934,202) (1,231,710) A Shares .......................................................... -- -- -- B Shares .......................................................... -- (56) -- Exchange Shares ................................................... -- (6,674,094) -- Service Shares .................................................... (2,217,561) (7,224,173) (362,812) -------------- --------------- -------------- Total distributions from net investment income ...................... (7,264,282) (68,461,968) (9,353,091) -------------- --------------- -------------- Net realized gains on investments: Institutional Shares .............................................. -- -- -- N Shares .......................................................... -- -- -- A Shares .......................................................... -- -- -- B Shares .......................................................... -- -- -- -------------- --------------- -------------- Total distributions from net realized gains ......................... -- -- -- -------------- --------------- -------------- CAPITAL SHARE TRANSACTIONS (NOTE 6): Increase/(decrease) in net assets from capital share transactions in: Institutional Shares .............................................. (11,648,271) (1,120,051,626) 31,971,540 N Shares .......................................................... 72,185,141 3,869,787 27,158,348 A Shares .......................................................... -- -- -- B Shares .......................................................... -- 29,828 -- Exchange Shares ................................................... -- (955,889,825) -- Service Shares .................................................... 937,704,598 891,519,748 101,291,767 -------------- --------------- -------------- Increase/(decrease) in net assets from capital share transactions ...................................................... 998,241,468 (1,180,522,088) 160,421,655 -------------- --------------- -------------- Total increase/(decrease) in net assets ............................. 998,224,641 (1,180,571,577) 160,417,262 NET ASSETS: Beginning of period ................................................. 761,408,328 8,908,586,305 1,104,618,310 -------------- --------------- -------------- End of period ....................................................... $1,759,632,969 $ 7,728,014,728 $1,265,035,572 ============== =============== ============== FIXED INCOME FUNDS --------------------------------------------------------------- SHORT/ INTERMEDIATE INTERMEDIATE BOND BOND GOVERNMENT BOND HIGH YIELD BOND FUND FUND FUND FUND ----------------- ------------ --------------- --------------- INCREASE/(DECREASE) IN NET ASSETS OPERATIONS: Net investment income/(loss) ........................................ $ 10,987,401 $ 9,338,250 $ 3,702,419 $ 3,264,829 Net realized gain/(loss) on investment transactions, futures contracts and foreign currency translations ............... (217,195) 104,803 1,706,302 1,252,546 Net change in unrealized appreciation/(depreciation) of investment transactions, futures contracts, and foreign currency translations ..................................... 168,952 (3,002,875) (3,291,674) 2,637,553 ------------ ------------ ----------- ----------- Increase/(decrease) in net assets from operations ................... 10,939,158 6,440,178 2,117,047 7,154,928 ------------ ------------ ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS (NOTES 2c AND 2d): Net investment income: Institutional Shares .............................................. (10,767,804) (9,125,876) (2,893,266) (3,264,829) N Shares .......................................................... (369,703) (239,690) (736,723) -- A Shares .......................................................... (151,903) (42,246) (102,823) -- B Shares .......................................................... (23,163) (21,003) (38,929) -- Exchange Shares ................................................... -- -- -- -- Service Shares .................................................... -- -- -- -- ------------ ------------ ----------- ----------- Total distributions from net investment income ...................... (11,312,573) (9,428,815) (3,771,741) (3,264,829) ------------ ------------ ----------- ----------- Net realized gains on investments: Institutional Shares .............................................. -- -- (811,895) (410,538) N Shares .......................................................... -- -- (217,492) -- A Shares .......................................................... -- -- (30,120) -- B Shares .......................................................... -- -- (14,540) -- ------------ ------------ ----------- ----------- Total distributions from net realized gains ......................... -- -- (1,074,047) (410,538) ------------ ------------ ----------- ----------- CAPITAL SHARE TRANSACTIONS (NOTE 6): Increase/(decrease) in net assets from capital share transactions in: Institutional Shares .............................................. 41,885,696 (89,818,476) (7,420,619) 41,358,699 N Shares .......................................................... 463,529 (978,801) (1,552,672) -- A Shares .......................................................... (213,637) (101,331) 158,909 -- B Shares .......................................................... 635,581 (34,923) 286,105 -- Exchange Shares ................................................... -- -- -- -- Service Shares .................................................... -- -- -- -- ------------ ------------ ----------- ----------- Increase/(decrease) in net assets from capital share transactions ...................................................... 42,771,169 (90,933,531) (8,528,277) 41,358,699 ------------ ------------ ----------- ----------- Total increase/(decrease) in net assets ............................. 42,397,754 (93,922,168) (11,257,018) 44,838,260 NET ASSETS: Beginning of period ................................................. 251,331,087 223,264,986 98,570,264 18,087,988 ------------ ------------ ----------- ----------- End of period ....................................................... $293,728,841 $129,342,818 $87,313,246 $62,926,248 ============ ============ =========== =========== FIXED INCOME FUNDS ------------------------------------------------ INTERMEDIATE HIGH YIELD TAX-EXEMPT BOND TAX-EXEMPT BOND SELECT BOND FUND FUND FUND ---------------- --------------- ----------- INCREASE/(DECREASE) IN NET ASSETS OPERATIONS: Net investment income/(loss) ........................................ $ 10,445,481 $ 5,564,353 $ 1,077,568 Net realized gain/(loss) on investment transactions, futures contracts and foreign currency translations ............... (135,836) 456,497 707,566 Net change in unrealized appreciation/(depreciation) of investment transactions, futures contracts, and foreign currency translations ..................................... 1,465,807 1,392,398 745,340 ------------ ------------ ----------- Increase/(decrease) in net assets from operations ................... 11,775,452 7,413,248 2,530,474 ------------ ------------ ----------- DISTRIBUTIONS TO SHAREHOLDERS (NOTES 2c AND 2d): Net investment income: Institutional Shares .............................................. (9,905,463) (4,340,103) (1,063,773) N Shares .......................................................... (422,160) (1,007,258) (24,732) A Shares .......................................................... (100,351) (184,441) (11,429) B Shares .......................................................... (17,507) (32,551) -- Exchange Shares ................................................... -- -- -- Service Shares .................................................... -- -- -- ------------ ------------ ----------- Total distributions from net investment income ...................... (10,445,481) (5,564,353) (1,099,934) ------------ ------------ ----------- Net realized gains on investments: Institutional Shares .............................................. -- -- -- N Shares .......................................................... -- -- -- A Shares .......................................................... -- -- -- B Shares .......................................................... -- -- -- ------------ ------------ ----------- Total distributions from net realized gains ......................... -- -- -- ------------ ------------ ----------- CAPITAL SHARE TRANSACTIONS (NOTE 6): Increase/(decrease) in net assets from capital share transactions in: Institutional Shares .............................................. (11,173,274) (21,517,591) 4,925,735 N Shares .......................................................... (3,004,116) 10,207,963 30,983 A Shares .......................................................... 424,574 (1,211,648) 139,951 B Shares .......................................................... 424,876 487,126 -- Exchange Shares ................................................... -- -- -- Service Shares .................................................... -- -- -- ------------ ------------ ----------- Increase/(decrease) in net assets from capital share transactions ...................................................... (13,327,940) (12,034,150) 5,096,669 ------------ ------------ ----------- Total increase/(decrease) in net assets ............................. (11,997,969) (10,185,255) 6,527,209 NET ASSETS: Beginning of period ................................................. 258,457,217 126,151,792 11,391,278 ------------ ------------ ----------- End of period ....................................................... $246,459,248 $115,966,537 $17,918,487 ============ ============ ===========
See Notes to Financial Statements. 96 and 97 HARRIS INSIGHT FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2003
EQUITY FUNDS ------------------------------------------- CORE SMALL-CAP EQUITY EQUITY OPPORTUNITY FUND FUND FUND ------------ ------------ ------------ INCREASE/(DECREASE) IN NET ASSETS OPERATIONS: Net investment income/(loss) ........................................ $ 1,593,999 $ 524,443 $ (632,757) Net realized gain/(loss) on investment transactions, futures contracts and foreign currency translations ............... 8,416,491 873,569 57,367,389 Net change in unrealized appreciation/(depreciation) of investment transactions, futures contracts, and foreign currency translations ..................................... 54,868,158 29,193,446 123,574,574 ------------ ------------ ------------ Increase/(decrease) in net assets from operations ................... 64,878,648 30,591,458 180,309,206 ------------ ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS (NOTES 2c AND 2d): Net investment income: Institutional Shares .............................................. (1,564,684) (512,368) -- N Shares .......................................................... (22,147) (8,010) -- A Shares .......................................................... (412) (937) -- B Shares .......................................................... -- -- -- ------------ ------------ ------------ Total distributions from net investment income ...................... (1,587,243) (521,315) -- ------------ ------------ ------------ Net realized gains on investments: Institutional Shares .............................................. -- -- (4,884,269) N Shares .......................................................... -- -- (647,538) A Shares .......................................................... -- -- (31,112) B Shares .......................................................... -- -- (5,316) ------------ ------------ ------------ Total distributions from net realized gains ......................... -- -- (5,568,235) ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS (NOTE 6): Increase/(decrease) in net assets from capital share transactions in: Institutional Shares .............................................. (68,882,522) (134,868) (10,718,343) N Shares .......................................................... (134,628) (140,864) 32,854,474 A Shares .......................................................... 64,811 (148,954) 1,675,085 B Shares .......................................................... 34,341 50,918 129,236 ------------ ------------ ------------ Increase/(decrease) in net assets from capital share transactions ...................................................... (68,917,998) (373,768) 23,940,452 ------------ ------------ ------------ Redemption Fees ..................................................... -- -- 27,459 ------------ ------------ ------------ Total increase/(decrease) in net assets ............................. (5,626,593) 29,696,375 198,708,882 NET ASSETS: Beginning of period ................................................. 249,802,831 102,712,794 338,650,793 ------------ ------------ ------------ End of period ....................................................... $244,176,238 $132,409,169 $537,359,675 ============ ============ ============ EQUITY FUNDS -------------------------------------------------------- SMALL-CAP SMALL-CAP AGGRESSIVE VALUE INDEX GROWTH FUND FUND FUND ------------ ------------ ---------- INCREASE/(DECREASE) IN NET ASSETS OPERATIONS: Net investment income/(loss) ........................................ $ 2,842,646 $ 4,876,476 $ (34,515) Net realized gain/(loss) on investment transactions, futures contracts and foreign currency translations ............... 21,586,613 27,208,054 280,932 Net change in unrealized appreciation/(depreciation) of investment transactions, futures contracts, and foreign currency translations ..................................... 73,898,637 55,730,596 2,473,000 ------------ ------------ ---------- Increase/(decrease) in net assets from operations ................... 98,327,896 87,815,126 2,719,417 ------------ ------------ ---------- DISTRIBUTIONS TO SHAREHOLDERS (NOTES 2c AND 2d): Net investment income: Institutional Shares .............................................. (2,461,186) (4,678,032) -- N Shares .......................................................... (47,397) (198,813) -- A Shares .......................................................... (9,647) -- -- B Shares .......................................................... (777) (1,933) -- ------------ ------------ ---------- Total distributions from net investment income ...................... (2,519,007) (4,878,778) -- ------------ ------------ ---------- Net realized gains on investments: Institutional Shares .............................................. -- (19,801,291) -- N Shares .......................................................... -- (1,113,641) -- A Shares .......................................................... -- -- -- B Shares .......................................................... -- (25,978) -- ------------ ------------ ---------- Total distributions from net realized gains ......................... -- (20,940,910) -- ------------ ------------ ---------- CAPITAL SHARE TRANSACTIONS (NOTE 6): Increase/(decrease) in net assets from capital share transactions in: Institutional Shares .............................................. (1,353,390) (59,512,257) (1,491,244) N Shares .......................................................... 1,236,767 (354,607) -- A Shares .......................................................... 507,587 -- -- B Shares .......................................................... 247,853 (180,267) (4,007) ------------ ------------ ---------- Increase/(decrease) in net assets from capital share transactions ...................................................... 638,817 (60,047,131) (1,495,251) ------------ ------------ ---------- Redemption Fees ..................................................... 11,906 -- -- ------------ ------------ ---------- Total increase/(decrease) in net assets ............................. 96,459,612 1,948,307 1,224,166 NET ASSETS: Beginning of period ................................................. 222,471,457 372,409,302 7,281,555 ------------ ------------ ---------- End of period ....................................................... $318,931,069 $374,357,609 $8,505,721 ============ ============ ========== EQUITY FUNDS ------------------------------------------------------ EMERGING BALANCED INTERNATIONAL MARKETS FUND FUND FUND ----------- ------------- ------------ INCREASE/(DECREASE) IN NET ASSETS OPERATIONS: Net investment income/(loss) ........................................ $ 1,061,736 $ 2,170,422 $ 1,395,935 Net realized gain/(loss) on investment transactions, futures contracts and foreign currency translations ............... 711,077 (5,178,869) 9,111,777 Net change in unrealized appreciation/(depreciation) of investment transactions, futures contracts, and foreign currency translations ..................................... 7,830,754 55,837,370 66,011,025 ----------- ------------ ------------ Increase/(decrease) in net assets from operations ................... 9,603,567 52,828,923 76,518,737 ----------- ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS (NOTES 2c AND 2d): Net investment income: Institutional Shares .............................................. (1,025,834) (1,997,140) (924,080) N Shares .......................................................... (36,476) (14,965) (2,309) A Shares .......................................................... (5,581) (538) (549) B Shares .......................................................... (2,800) -- -- ----------- ------------ ------------ Total distributions from net investment income ...................... (1,070,691) (2,012,643) (926,938) ----------- ------------ ------------ Net realized gains on investments: Institutional Shares .............................................. -- -- -- N Shares .......................................................... -- -- -- A Shares .......................................................... -- -- -- B Shares .......................................................... -- -- -- ----------- ------------ ------------ Total distributions from net realized gains ......................... -- -- -- ----------- ------------ ------------ CAPITAL SHARE TRANSACTIONS (NOTE 6): Increase/(decrease) in net assets from capital share transactions in: Institutional Shares .............................................. 1,437,844 (19,652,309) 117,576,658 N Shares .......................................................... 40,205 (55,133) 745,223 A Shares .......................................................... 131,641 19,532 148,445 B Shares .......................................................... 297,205 (11,413) (8,904) ----------- ------------ ------------ Increase/(decrease) in net assets from capital share transactions ...................................................... 1,906,895 (19,699,323) 118,461,422 ----------- ------------ ------------ Redemption Fees ..................................................... -- 203,298 45,354 ----------- ------------ ------------ Total increase/(decrease) in net assets ............................. 10,439,771 31,320,255 194,098,575 NET ASSETS: Beginning of period ................................................. 49,247,463 142,253,105 97,088,518 ----------- ------------ ------------ End of period ....................................................... $59,687,234 $173,573,360 $291,187,093 =========== ============ ============
See Notes to Financial Statements. 98 and 99 HARRIS INSIGHT FUNDS STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 2002
MONEY MARKET FUNDS --------------------------------------------- GOVERNMENT TAX-EXEMPT MONEY MARKET MONEY MARKET MONEY MARKET FUND FUND FUND ------------ -------------- -------------- INCREASE/(DECREASE) IN NET ASSETS OPERATIONS: Net investment income/(loss) ........................................ $ 8,000,224 $ 101,505,277 $ 13,408,248 Net realized gain/(loss) on investment transactions, futures contracts and foreign currency translations ............... 25,056 (513,865) (179,553) Net change in unrealized appreciation/(depreciation) of investment transactions, futures contracts, and foreign currency translations ..................................... -- -- -- ------------ -------------- -------------- Increase/(decrease) in net assets from operations ................... 8,025,280 100,991,412 13,228,695 ------------ -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTES 2c AND 2d): Net investment income: Institutional Shares .............................................. (3,649,156) (63,542,612) (10,926,944) N Shares .......................................................... (3,837,382) (19,984,265) (2,253,788) A Shares .......................................................... -- -- -- B Shares .......................................................... -- (56) -- Exchange Shares ................................................... -- (12,117,933) -- Service Shares .................................................... (526,327) (5,933,386) (227,516) ------------ -------------- -------------- Total distributions from net investment income ...................... (8,012,865) (101,578,252) (13,408,248) ------------ -------------- -------------- Net realized gains on investments: Institutional Shares .............................................. -- -- -- N Shares .......................................................... -- -- -- A Shares .......................................................... -- -- -- B Shares .......................................................... -- -- -- ------------ -------------- -------------- Total distributions from net realized gains ......................... -- -- -- ------------ -------------- -------------- CAPITAL SHARE TRANSACTIONS (NOTE 6): Increase/(decrease) in net assets from capital share transactions in: Institutional Shares .............................................. 12,041,732 2,671,757,632 27,141,601 N Shares .......................................................... 19,339,678 (244,987,936) (19,820,589) A Shares .......................................................... -- -- -- B Shares .......................................................... -- 15,113 -- Exchange Shares ................................................... -- 1,090,915,269 -- Service Shares .................................................... 197,788,505 1,267,896,772 78,781,881 ------------ -------------- -------------- Increase/(decrease) in net assets from capital share transactions ...................................................... 229,169,915 4,785,596,850 86,102,893 ------------ -------------- -------------- Total increase/(decrease) in net assets ............................. 229,182,330 4,785,010,010 85,923,340 NET ASSETS: Beginning of period ................................................. 532,225,998 4,123,576,295 1,018,694,970 ------------ -------------- -------------- End of period ....................................................... $761,408,328 $8,908,586,305 $1,104,618,310 ============ ============== ============== FIXED INCOME FUNDS --------------------------------------------------------------- SHORT/ INTERMEDIATE INTERMEDIATE BOND BOND GOVERNMENT BOND HIGH YIELD BOND FUND FUND FUND FUND(1) ----------------- ------------ --------------- --------------- INCREASE/(DECREASE) IN NET ASSETS OPERATIONS: Net investment income/(loss) ........................................ $ 12,852,467 $ 12,278,415 $ 3,980,419 $ 388,989 Net realized gain/(loss) on investment transactions, futures contracts and foreign currency translations ............... (2,938,630) (1,310,308) 637,616 (514,504) Net change in unrealized appreciation/(depreciation) of investment transactions, futures contracts, and foreign currency translations ..................................... 5,165,303 4,238,203 3,313,322 821,265 ------------ ------------ ----------- ----------- Increase/(decrease) in net assets from operations ................... 15,079,140 15,206,310 7,931,357 695,750 ------------ ------------ ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS (NOTES 2c AND 2d): Net investment income: Institutional Shares .............................................. (12,439,684) (12,147,235) (3,270,099) (388,989) N Shares .......................................................... (327,854) (369,953) (686,876) -- A Shares .......................................................... (108,084) (23,169) (40,896) -- B Shares .......................................................... (5,430) (16,561) (14,095) -- Exchange Shares ................................................... -- -- -- -- Service Shares .................................................... -- -- -- -- ------------ ------------ ----------- ----------- Total distributions from net investment income ...................... (12,881,052) (12,556,918) (4,011,966) (388,989) ------------ ------------ ----------- ----------- Net realized gains on investments: Institutional Shares .............................................. -- -- -- -- N Shares .......................................................... -- -- -- -- A Shares .......................................................... -- -- -- -- B Shares .......................................................... -- -- -- -- ------------ ------------ ----------- ----------- Total distributions from net realized gains ......................... -- -- -- -- ------------ ------------ ----------- ----------- CAPITAL SHARE TRANSACTIONS (NOTE 6): Increase/(decrease) in net assets from capital share transactions in: Institutional Shares .............................................. 4,996,755 (5,454,564) 11,041,072 17,781,227 N Shares .......................................................... 2,122,793 (355,306) 13,471,006 -- A Shares .......................................................... 3,747,986 590,765 1,740,023 -- B Shares .......................................................... 361,312 285,659 682,079 -- Exchange Shares ................................................... -- -- -- -- Service Shares .................................................... -- -- -- -- ------------ ------------ ----------- ----------- Increase/(decrease) in net assets from capital share transactions ...................................................... 11,228,846 (4,933,446) 26,934,180 17,781,227 ------------ ------------ ----------- ----------- Total increase/(decrease) in net assets ............................. 13,426,934 (2,284,054) 30,853,571 18,087,988 NET ASSETS: Beginning of period ................................................. 237,904,153 225,549,040 67,716,693 -- ------------ ------------ ----------- ----------- End of period ....................................................... $251,331,087 $223,264,986 $98,570,264 $18,087,988 ============ ============ =========== =========== FIXED INCOME FUNDS ------------------------------------------------ INTERMEDIATE CONVERTIBLE TAX-EXEMPT BOND TAX-EXEMPT BOND SECURITIES FUND FUND FUND --------------- --------------- ------------ INCREASE/(DECREASE) IN NET ASSETS OPERATIONS: Net investment income/(loss) ........................................ $ 10,446,511 $ 5,537,764 $ 763,416 Net realized gain/(loss) on investment transactions, futures contracts and foreign currency translations ............... 131,508 351,444 (7,581,229) Net change in unrealized appreciation/(depreciation) of investment transactions, futures contracts, and foreign currency translations ..................................... 11,842,734 6,549,550 3,341,991 ------------ ------------ ------------ Increase/(decrease) in net assets from operations ................... 22,420,753 12,438,758 (3,475,822) ------------ ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS (NOTES 2c AND 2d): Net investment income: Institutional Shares .............................................. (10,060,940) (5,158,368) (713,187) N Shares .......................................................... (357,287) (305,738) (9,818) A Shares .......................................................... (25,027) (60,372) (2,148) B Shares .......................................................... (3,257) (13,286) -- Exchange Shares ................................................... -- -- -- Service Shares .................................................... -- -- -- ------------ ------------ ------------ Total distributions from net investment income ...................... (10,446,511) (5,537,764) (725,153) ------------ ------------ ------------ Net realized gains on investments: Institutional Shares .............................................. -- -- -- N Shares .......................................................... -- -- -- A Shares .......................................................... -- -- -- B Shares .......................................................... -- -- -- ------------ ------------ ------------ Total distributions from net realized gains ......................... -- -- -- ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS (NOTE 6): Increase/(decrease) in net assets from capital share transactions in: Institutional Shares .............................................. 15,700,144 (4,886,338) (16,291,395) N Shares .......................................................... 2,338,530 12,294,358 85,203 A Shares .......................................................... 1,486,330 3,407,281 (88,156) B Shares .......................................................... 295,607 536,793 -- Exchange Shares ................................................... -- -- -- Service Shares .................................................... -- -- -- ------------ ------------ ------------ Increase/(decrease) in net assets from capital share transactions ...................................................... 19,820,611 11,352,094 (16,294,348) ------------ ------------ ------------ Total increase/(decrease) in net assets ............................. 31,794,853 18,253,088 (20,495,323) NET ASSETS: Beginning of period ................................................. 226,662,364 107,898,704 31,886,601 ------------ ------------ ------------ End of period ....................................................... $258,457,217 $126,151,792 $ 11,391,278 ============ ============ ============ (1) For the period 09/23/02 (commencement of operations) to 12/31/02.
See Notes to Financial Statements. 100 and 101 HARRIS INSIGHT FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2002
EQUITY FUNDS -------------------------------------------- CORE SMALL-CAP EQUITY EQUITY OPPORTUNITY FUND FUND FUND ------------ ------------- ------------ INCREASE/(DECREASE) IN NET ASSETS OPERATIONS: Net investment income/(loss) ........................................ $ 1,545,926 $ 337,655 $ (2,063,094) Net realized gain/(loss) on investment transactions, futures contracts and foreign currency translations ............... (30,111,183) (330,430) (16,073,248) Net change in unrealized appreciation/(depreciation) of investment transactions, futures contracts, and foreign currency translations ..................................... (40,499,700) (35,078,406) (44,725,890) ------------ ------------- ------------ Increase/(decrease) in net assets from operations ................... (69,064,957) (35,071,181) (62,862,232) ------------ ------------- ------------ DISTRIBUTIONS TO SHAREHOLDERS (NOTES 2c AND 2d): Net investment income: Institutional Shares .............................................. (1,539,764) (334,524) -- N Shares .......................................................... (12,004) (1,281) -- A Shares .......................................................... (237) (290) -- B Shares .......................................................... -- -- -- ------------ ------------- ------------ Total distributions from net investment income ...................... (1,552,005) (336,095) -- ------------ ------------- ------------ Net realized gains on investments: Institutional Shares .............................................. -- (1,879,698) -- N Shares .......................................................... -- (67,633) -- A Shares .......................................................... -- (10,282) -- B Shares .......................................................... -- (525) -- ------------ ------------- ------------ Total distributions from net realized gains ......................... -- (1,958,138) -- ------------ ------------- ------------ CAPITAL SHARE TRANSACTIONS (NOTE 6): Increase/(decrease) in net assets from capital share transactions in: Institutional Shares .............................................. (7,443,790) (15,828,856) (26,318,911) N Shares .......................................................... (2,007,656) (689,428) 6,980,744 A Shares .......................................................... 97,184 98,114 632,304 B Shares .......................................................... 213,797 50,213 223,482 ------------ ------------- ------------ Increase/(decrease) in net assets from capital share transactions ...................................................... (9,140,465) (16,369,957) (18,482,381) ------------ ------------- ------------ Redemption Fees ..................................................... -- -- 39,702 ------------ ------------- ------------ Total increase/(decrease) in net assets ............................. (79,757,427) (53,735,371) (81,304,911) NET ASSETS: Beginning of period ................................................. 329,560,258 156,448,165 419,955,704 ------------ ------------- ------------ End of period ....................................................... $249,802,831 $ 102,712,794 $338,650,793 ============ ============= ============ EQUITY FUNDS --------------------------------------------------------- SMALL-CAP SMALL-CAP AGGRESSIVE VALUE INDEX GROWTH FUND FUND FUND ------------ ------------- ----------- INCREASE/(DECREASE) IN NET ASSETS OPERATIONS: Net investment income/(loss) ........................................ $ 1,104,015 $ 4,631,554 $ (32,640) Net realized gain/(loss) on investment transactions, futures contracts and foreign currency translations ............... (14,836,700) (1,458,664) (1,400,734) Net change in unrealized appreciation/(depreciation) of investment transactions, futures contracts, and foreign currency translations ..................................... (24,072,373) (100,897,608) (662,573) ------------ ------------- ----------- Increase/(decrease) in net assets from operations ................... (37,805,058) (97,724,718) (2,095,947) ------------ ------------- ----------- DISTRIBUTIONS TO SHAREHOLDERS (NOTES 2c AND 2d): Net investment income: Institutional Shares .............................................. (937,900) (4,429,455) -- N Shares .......................................................... (6,543) (176,423) -- A Shares .......................................................... (1,320) -- -- B Shares .......................................................... -- (1,663) -- ------------ ------------- ----------- Total distributions from net investment income ...................... (945,763) (4,607,541) -- ------------ ------------- ----------- Net realized gains on investments: Institutional Shares .............................................. (2,269,423) (5,949,182) -- N Shares .......................................................... (41,212) (329,787) -- A Shares .......................................................... (5,333) -- -- B Shares .......................................................... (3,825) (658) -- ------------ ------------- ----------- Total distributions from net realized gains ......................... (2,319,793) (6,279,627) -- ------------ ------------- ----------- CAPITAL SHARE TRANSACTIONS (NOTE 6): Increase/(decrease) in net assets from capital share transactions in: Institutional Shares .............................................. 9,003,079 24,606,879 1,519,480 N Shares .......................................................... 1,651,632 (1,571,420) -- A Shares .......................................................... 451,774 -- -- B Shares .......................................................... 234,412 587,337 3,488 ------------ ------------- ----------- Increase/(decrease) in net assets from capital share transactions ...................................................... 11,340,897 23,622,796 1,522,968 ------------ ------------- ----------- Redemption Fees ..................................................... 50,509 -- -- ------------ ------------- ----------- Total increase/(decrease) in net assets ............................. (29,679,208) (84,989,090) (572,979) NET ASSETS: Beginning of period ................................................. 252,150,665 457,398,392 7,854,534 ------------ ------------- ----------- End of period ....................................................... $222,471,457 $ 372,409,302 $ 7,281,555 ============ ============= =========== EQUITY FUNDS ---------------------------------------------------- EMERGING BALANCED INTERNATIONAL MARKETS FUND FUND FUND ----------- ------------- ----------- INCREASE/(DECREASE) IN NET ASSETS OPERATIONS: Net investment income/(loss) ........................................ $ 1,331,163 $ 1,291,751 $ 310,527 Net realized gain/(loss) on investment transactions, futures contracts and foreign currency translations ............... (3,176,398) (18,387,444) (4,407,479) Net change in unrealized appreciation/(depreciation) of investment transactions, futures contracts, and foreign currency translations ..................................... (3,189,940) (5,541,817) (1,338,062) ----------- ------------ ----------- Increase/(decrease) in net assets from operations ................... (5,035,175) (22,637,510) (5,435,014) ----------- ------------ ----------- DISTRIBUTIONS TO SHAREHOLDERS (NOTES 2c AND 2d): Net investment income: Institutional Shares .............................................. (1,273,724) (930,478) (214,416) N Shares .......................................................... (45,408) (3,766) -- A Shares .......................................................... (6,204) -- -- B Shares .......................................................... (813) (12) -- ----------- ------------ ----------- Total distributions from net investment income ...................... (1,326,149) (934,256) (214,416) ----------- ------------ ----------- Net realized gains on investments: Institutional Shares .............................................. -- -- -- N Shares .......................................................... -- -- -- A Shares .......................................................... -- -- -- B Shares .......................................................... -- -- -- ----------- ------------ ----------- Total distributions from net realized gains ......................... -- -- -- ----------- ------------ ----------- CAPITAL SHARE TRANSACTIONS (NOTE 6): Increase/(decrease) in net assets from capital share transactions in: Institutional Shares .............................................. 550,476 (13,521,848) 62,151,678 N Shares .......................................................... (118,546) (4,149,222) (32,515) A Shares .......................................................... (3,084) 52,099 146,081 B Shares .......................................................... 81,033 10,395 9,250 ----------- ------------ ----------- Increase/(decrease) in net assets from capital share transactions ...................................................... 509,879 (17,608,576) 62,274,494 ----------- ------------ ----------- Redemption Fees ..................................................... -- 756,684 42,009 ----------- ------------ ----------- Total increase/(decrease) in net assets ............................. (5,851,445) (40,423,658) 56,667,073 NET ASSETS: Beginning of period ................................................. 55,098,908 182,676,763 40,421,445 ----------- ------------ ----------- End of period ....................................................... $49,247,463 $142,253,105 $97,088,518 =========== ============ ===========
See Notes to Financial Statements. 102 and 103 HARRIS INSIGHT FUNDS FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET NET NET ASSET REALIZED AND DISTRIBUTIONS ASSET VALUE NET UNREALIZED FROM NET VALUE BEGINNING INVESTMENT GAIN/(LOSS) INVESTMENT END OF OF PERIOD INCOME ON INVESTMENTS INCOME PERIOD - ----------------------------------------------------------------------------------------------------------- - ---------------------------- GOVERNMENT MONEY MARKET FUND - ---------------------------- INSTITUTIONAL SHARES 12/31/03 $1.00 $0.010 $ -- $(0.010) $ 1.00 12/31/02 1.00 0.016 -- (0.016) 1.00 12/31/01 1.00 0.040 -- (0.040) 1.00 12/31/00 1.00 0.061 -- (0.061) 1.00 12/31/99 1.00 0.049 -- (0.049) 1.00 N SHARES 12/31/03 $1.00 $0.007 $ -- $(0.007) $ 1.00 12/31/02 1.00 0.013 -- (0.013) 1.00 12/31/01 1.00 0.036 -- (0.036) 1.00 12/31/00 1.00 0.057 -- (0.057) 1.00 12/31/99 1.00 0.046 -- (0.046) 1.00 SERVICE SHARES 12/31/03 $1.00 $0.004 $ -- $(0.004) $ 1.00 05/07/02 (3) to 12/31/02 1.00 0.006 -- (0.006) 1.00 - ----------------- MONEY MARKET FUND - ----------------- INSTITUTIONAL SHARES 12/31/03 $1.00 $0.011 $ -- $(0.011) $ 1.00 12/31/02 1.00 0.018 -- (0.018) 1.00 12/31/01 1.00 0.041 -- (0.041) 1.00 12/31/00 1.00 0.063 -- (0.063) 1.00 12/31/99 1.00 0.052 -- (0.052) 1.00 N SHARES 12/31/03 $1.00 $0.007 $ -- $(0.007) $ 1.00 12/31/02 1.00 0.015 -- (0.015) 1.00 12/31/01 1.00 0.038 -- (0.038) 1.00 12/31/00 1.00 0.059 -- (0.059) 1.00 12/31/99 1.00 0.048 -- (0.048) 1.00 B SHARES 12/31/03 $1.00 $0.002 $ -- $(0.002) $ 1.00 07/26/02 to 12/31/02 1.00 0.003 -- (0.003) 1.00 06/29/01 (3) to 12/31/01 1.00 0.004 -- (0.004) 1.00 EXCHANGE SHARES 12/31/03 $1.00 $0.010 $ -- $(0.010) $ 1.00 12/31/02 1.00 0.018 -- (0.018) 1.00 07/12/01 (3) to 12/31/01 1.00 0.014 -- (0.014) 1.00 SERVICE SHARES 12/31/03 $1.00 $0.004 $ -- $(0.004) $ 1.00 05/02/02 (3) to 12/31/02 1.00 0.007 -- (0.007) 1.00 NET RATIO OF EXPENSES ASSETS RATIO OF TO AVERAGE RATIO OF NET END OF EXPENSES TO NET ASSETS INVESTMENT INCOME TOTAL PERIOD AVERAGE NET (EXCLUDING TO AVERAGE NET RETURN (000) ASSETS WAIVERS) ASSETS - --------------------------------------------------------------------------------------------------------------- - ---------------------------- GOVERNMENT MONEY MARKET FUND - ---------------------------- INSTITUTIONAL SHARES 12/31/03 1.02% $ 249,842 0.19% 0.24% 1.01% 12/31/02 1.65 261,492 0.20 0.26 1.62 12/31/01 4.04 249,444 0.20 0.25 4.01 12/31/00 6.24 314,497 0.20 0.25 6.11 12/31/99 5.04 210,521 0.20 0.24 4.93 N SHARES 12/31/03 0.67% $ 374,310 0.54% 0.59% 0.66% 12/31/02 1.30 302,126 0.55 0.61 1.27 12/31/01 3.68 282,782 0.55 0.60 3.62 12/31/00 5.87 333,934 0.55 0.60 5.72 12/31/99 4.67 289,651 0.55 0.59 4.58 SERVICE SHARES 12/31/03 0.37% $1,135,481 0.80% 1.13% 0.32% 05/07/02 (3) to 12/31/02 0.57 (2) 197,790 0.94 (1) 1.16 (1) 0.78 (1) - ----------------- MONEY MARKET FUND - ----------------- INSTITUTIONAL SHARES 12/31/03 1.10% $3,788,967 0.17% 0.23% 1.10% 12/31/02 1.83 4,909,006 0.17 0.23 1.79 12/31/01 4.21 2,237,567 0.19 0.23 4.16 12/31/00 6.46 2,066,227 0.18 0.23 6.26 12/31/99 5.29 2,084,723 0.19 0.24 5.20 N SHARES 12/31/03 0.74% $1,301,168 0.52% 0.58% 0.75% 12/31/02 1.48 1,297,318 0.52 0.58 1.44 12/31/01 3.85 1,542,392 0.54 0.58 3.81 12/31/00 6.09 1,293,794 0.53 0.58 5.91 12/31/99 4.92 1,053,228 0.54 0.59 4.85 B SHARES 12/31/03 0.24% (5) $ 45 0.98% 1.22% 0.25% 07/26/02 to 12/31/02 0.30 (2)(5) 15 1.17 (1) 1.23 (1) 0.73 (1) 06/29/01 (3) to 12/31/01 N/A (6) -- 1.19 (1) 1.23 (1) 2.84 (1) EXCHANGE SHARES 12/31/03 1.05% $ 478,586 0.22% 0.28% 1.10% 12/31/02 1.79 1,434,436 0.22 0.28 1.70 07/12/01 (3) to 12/31/01 1.41 (2) 343,617 0.24 (1) 0.28 (1) 2.69 (1) SERVICE SHARES 12/31/03 0.44% $2,159,249 0.82% 1.14% 0.41% 05/02/02 (3) to 12/31/02 0.69 (2) 1,267,811 0.91 (1) 1.12 (1) 0.97 (1)
See Notes to Financial Statements. 104 and 105 HARRIS INSIGHT FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET NET NET ASSET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS ASSET VALUE NET UNREALIZED FROM NET FROM NET VALUE BEGINNING INVESTMENT GAIN/(LOSS) INVESTMENT REALIZED END OF OF PERIOD INCOME ON INVESTMENTS INCOME GAINS PERIOD - ---------------------------------------------------------------------------------------------------------- - ---------------------------- TAX-EXEMPT MONEY MARKET FUND - ---------------------------- INSTITUTIONAL SHARES 12/31/03 $ 1.00 $0.009 $ -- $(0.009) $ -- $ 1.00 12/31/02 1.00 0.013 -- (0.013) -- 1.00 12/31/01 1.00 0.027 -- (0.027) -- 1.00 12/31/00 1.00 0.039 -- (0.039) -- 1.00 12/31/99 1.00 0.030 -- (0.030) -- 1.00 N SHARES 12/31/03 $ 1.00 $0.005 $ -- $(0.005) $ -- $ 1.00 12/31/02 1.00 0.010 -- (0.010) -- 1.00 12/31/01 1.00 0.023 -- (0.023) -- 1.00 12/31/00 1.00 0.035 -- (0.035) -- 1.00 12/31/99 1.00 0.027 -- (0.027) -- 1.00 SERVICE SHARES 12/31/03 $ 1.00 $0.003 $ -- $(0.003) $ -- $ 1.00 05/06/02 (3) to 12/31/02 1.00 0.004 -- (0.004) -- 1.00 - ---------------------------- SHORT/INTERMEDIATE BOND FUND - ---------------------------- INSTITUTIONAL SHARES 12/31/03 $10.40 $0.440 $(0.020) $(0.440) $ -- $10.38 12/31/02 10.31 0.549 0.090 (0.549) -- 10.40 12/31/01 10.12 0.592 0.190 (0.592) -- 10.31 12/31/00 9.77 0.628 0.350 (0.628) -- 10.12 12/31/99 10.30 0.595 (0.515) (0.595) (0.015) 9.77 N SHARES 12/31/03 $10.40 $0.414 $(0.020) $(0.414) $ -- $10.38 12/31/02 10.31 0.524 0.090 (0.524) -- 10.40 12/31/01 10.12 0.566 0.190 (0.566) -- 10.31 12/31/00 9.77 0.603 0.350 (0.603) -- 10.12 12/31/99 10.30 0.570 (0.515) (0.570) (0.015) 9.77 A SHARES 12/31/03 $10.40 $0.414 $(0.020) $(0.414) $ -- $10.38 12/31/02 10.31 0.524 0.090 (0.524) -- 10.40 12/31/01 10.12 0.566 0.190 (0.566) -- 10.31 12/31/00 9.77 0.603 0.350 (0.603) -- 10.12 07/22/99 (3) to 12/31/99 10.02 0.258 (0.250) (0.258) -- 9.77 B SHARES 12/31/03 $10.40 $0.336 $(0.020) $(0.336) $ -- $10.38 12/31/02 10.31 0.447 0.090 (0.447) -- 10.40 09/18/01 (3) to 12/31/01 10.50 0.130 (0.190) (0.130) -- 10.31 NET RATIO OF EXPENSES ASSETS RATIO OF TO AVERAGE RATIO OF NET END OF EXPENSES TO NET ASSETS INVESTMENT INCOME PORTFOLIO TOTAL PERIOD AVERAGE NET (EXCLUDING TO AVERAGE NET TURNOVER RETURN (000) ASSETS WAIVERS) ASSETS RATE - -------------------------------------------------------------------------------------------------------------------------- - ---------------------------- TAX-EXEMPT MONEY MARKET FUND - ---------------------------- INSTITUTIONAL SHARES 12/31/03 0.90% $ 847,140 0.22% 0.23% 0.89% --% 12/31/02 1.35 815,171 0.22 0.23 1.34 -- 12/31/01 2.70 788,162 0.23 0.23 2.62 -- 12/31/00 3.94 830,879 0.24 0.24 3.88 -- 12/31/99 3.07 515,987 0.23 0.23 3.01 -- N SHARES 12/31/03 0.54% $ 237,835 0.57% 0.58% 0.54% --% 12/31/02 0.99 210,678 0.57 0.58 0.99 -- 12/31/01 2.34 230,533 0.58 0.58 2.35 -- 12/31/00 3.58 237,521 0.58 0.59 3.54 -- 12/31/99 2.75 240,132 0.55 0.58 2.71 -- SERVICE SHARES 12/31/03 0.30% $ 180,061 0.81% 1.14% 0.28% --% 05/06/02 (3) to 12/31/02 0.39 (2) 78,769 0.96 (1) 1.14 (1) 0.58 (1) -- - ---------------------------- SHORT/INTERMEDIATE BOND FUND - ---------------------------- INSTITUTIONAL SHARES 12/31/03 4.11% $ 279,109 0.60% 0.97% 4.20% 61.21% 12/31/02 6.40 237,566 0.60 1.00 5.35 66.14 12/31/01 7.86 230,499 0.60 0.96 5.73 56.36 12/31/00 10.40 227,766 0.60 0.93 6.39 77.42 12/31/99 0.81 297,977 0.60 0.92 5.93 72.86 N SHARES 12/31/03 3.85% $ 9,045 0.85% 1.22% 3.95% 61.21% 12/31/02 6.14 8,617 0.85 1.25 5.10 66.14 12/31/01 7.60 6,419 0.85 1.21 5.48 56.36 12/31/00 10.13 3,842 0.85 1.18 6.14 77.42 12/31/99 0.56 7,525 0.85 1.17 5.68 72.86 A SHARES 12/31/03 3.85% (4) $ 4,547 0.85% 1.22% 3.95% 61.21% 12/31/02 6.14 (4) 4,756 0.85 1.25 4.89 66.14 12/31/01 7.60 (4) 960 0.85 1.21 5.37 56.36 12/31/00 10.13 (4) 178 0.85 1.18 6.14 77.42 07/22/99 (3) to 12/31/99 0.09 (2)(4) 140 0.85 (1) 1.17 (1) 5.68 (1) 72.86 B SHARES 12/31/03 3.08% (5) $ 1,028 1.60% 1.97% 3.12% 61.21% 12/31/02 5.35 (5) 392 1.60 2.00 4.13 66.14 09/18/01 (3) to 12/31/01 (0.59) (2)(5) 26 1.55 (1) 1.91 (1) 4.12 (1) 56.36
See Notes to Financial Statements. 106 and 107 HARRIS INSIGHT FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET NET NET ASSET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS ASSET VALUE NET UNREALIZED FROM NET FROM NET VALUE BEGINNING INVESTMENT GAIN/(LOSS) INVESTMENT REALIZED END OF OF PERIOD INCOME ON INVESTMENTS INCOME GAINS PERIOD - --------------------------------------------------------------------------------------------------------- - --------- BOND FUND - --------- INSTITUTIONAL SHARES 12/31/03 $10.38 $0.508 $(0.110) $(0.508) $ -- $10.27 12/31/02 10.25 0.582 0.130 (0.582) -- 10.38 12/31/01 10.06 0.631 0.190 (0.631) -- 10.25 12/31/00 9.49 0.623 0.570 (0.623) -- 10.06 12/31/99 10.20 0.611 (0.702) (0.611) (0.008) 9.49 N SHARES 12/31/03 $10.38 $0.483 $(0.110) $(0.483) $ -- $10.27 12/31/02 10.25 0.556 0.130 (0.556) -- 10.38 12/31/01 10.06 0.605 0.190 (0.605) -- 10.25 12/31/00 9.49 0.599 0.570 (0.599) -- 10.06 12/31/99 10.20 0.586 (0.702) (0.586) (0.008) 9.49 A SHARES 12/31/03 $10.38 $0.483 $(0.110) $(0.483) $ -- $10.27 12/31/02 10.25 0.556 0.130 (0.556) -- 10.38 12/31/01 10.06 0.605 0.190 (0.605) -- 10.25 12/31/00 9.49 0.599 0.570 (0.599) -- 10.06 02/18/99 (3) to 12/31/99 10.11 0.503 (0.612) (0.503) (0.008) 9.49 B SHARES 12/31/03 $10.38 $0.405 $(0.110) $(0.405) $ -- $10.27 12/31/02 10.25 0.479 0.130 (0.479) -- 10.38 08/20/01 (3) to 12/31/01 10.36 0.192 (0.110) (0.192) -- 10.25 - --------------------------------- INTERMEDIATE GOVERNMENT BOND FUND - --------------------------------- INSTITUTIONAL SHARES 12/31/03 $17.63 $0.711 $(0.293) $(0.711) $(0.217) $17.12 12/31/02 16.79 0.870 0.840 (0.870) -- 17.63 12/31/01 16.55 1.005 0.240 (1.005) -- 16.79 12/31/00 15.56 0.986 0.990 (0.986) -- 16.55 12/31/99 16.61 0.916 (1.050) (0.916) -- 15.56 N SHARES 12/31/03 $17.63 $0.667 $(0.293) $(0.667) $(0.217) $17.12 12/31/02 16.79 0.828 0.840 (0.828) -- 17.63 12/31/01 16.55 0.963 0.240 (0.963) -- 16.79 12/31/00 15.56 0.947 0.990 (0.947) -- 16.55 12/31/99 16.61 0.876 (1.050) (0.876) -- 15.56 A SHARES 12/31/03 $17.63 $0.667 $(0.293) $(0.667) $(0.217) $17.12 12/31/02 16.79 0.828 0.840 (0.828) -- 17.63 12/31/01 16.55 0.963 0.240 (0.963) -- 16.79 12/31/00 15.56 0.947 0.990 (0.947) -- 16.55 02/12/99 (3) to 12/31/99 16.44 0.761 (0.880) (0.761) -- 15.56 NET RATIO OF EXPENSES ASSETS RATIO OF TO AVERAGE RATIO OF NET END OF EXPENSES TO NET ASSETS INVESTMENT INCOME PORTFOLIO TOTAL PERIOD AVERAGE NET (EXCLUDING TO AVERAGE NET TURNOVER RETURN (000) ASSETS WAIVERS) ASSETS RATE - ---------------------------------------------------------------------------------------------------------------------------- - --------- BOND FUND - --------- INSTITUTIONAL SHARES 12/31/03 3.93% $ 123,365 0.60% 0.94% 4.89% 66.64% 12/31/02 7.18 216,106 0.60 0.96 5.69 65.39 12/31/01 8.32 218,944 0.60 0.92 6.15 84.37 12/31/00 13.06 210,902 0.60 0.93 6.48 94.61 12/31/99 (0.91) 157,587 0.60 0.90 6.20 92.79 N SHARES 12/31/03 3.67% $ 4,810 0.85% 1.19% 4.64% 66.64% 12/31/02 6.91 5,838 0.85 1.21 5.44 65.39 12/31/01 8.05 6,165 0.85 1.17 5.90 84.37 12/31/00 12.78 3,965 0.85 1.18 6.23 94.61 12/31/99 (1.16) 4,455 0.85 1.15 5.95 92.79 A SHARES 12/31/03 3.67% (4) $ 715 0.85% 1.19% 4.64% 66.64% 12/31/02 6.91 (4) 824 0.85 1.21 5.36 65.39 12/31/01 8.05 (4) 235 0.85 1.17 5.80 84.37 12/31/00 12.78 (4) 32 0.85 1.18 6.23 94.61 02/18/99 (3) to 12/31/99 (1.09) (2)(4) 26 0.85 (1) 1.15 (1) 5.95 (1) 92.79 B SHARES 12/31/03 2.90% (5) $ 453 1.60% 1.94% 3.89% 66.64% 12/31/02 6.12 (5) 497 1.60 1.96 4.59 65.39 08/20/01 (3) to 12/31/01 0.78 (2)(5) 205 1.60 (1) 1.92 (1) 4.94 (1) 84.37 - --------------------------------- INTERMEDIATE GOVERNMENT BOND FUND - --------------------------------- INSTITUTIONAL SHARES 12/31/03 2.40% $ 66,162 0.50% 0.89% 4.07% 58.97% 12/31/02 10.39 75,573 0.50 1.07 5.05 61.56 12/31/01 7.74 61,383 0.50 1.08 5.98 52.17 12/31/00 13.18 62,969 0.50 0.99 6.22 26.42 12/31/99 (0.80) 94,360 0.50 0.93 5.72 76.50 N SHARES 12/31/03 2.15% $ 17,604 0.75% 1.14% 3.82% 58.97% 12/31/02 10.12 19,769 0.75 1.32 4.80 61.56 12/31/01 7.47 5,577 0.75 1.33 5.73 52.17 12/31/00 12.90 5,530 0.75 1.24 5.97 26.42 12/31/99 (1.05) 4,870 0.75 1.18 5.47 76.50 A SHARES 12/31/03 2.15% (4) $ 2,394 0.75% 1.14% 3.82% 58.97% 12/31/02 10.12 (4) 2,324 0.75 1.32 4.58 61.56 12/31/01 7.47 (4) 552 0.75 1.33 5.68 52.17 12/31/00 12.90 (4) 49 0.75 1.24 5.97 26.42 02/12/99 (3) to 12/31/99 (0.72) (2)(4) 232 0.75 (1) 1.18 (1) 5.47 (1) 76.50
See Notes to Financial Statements. 108 and 109 HARRIS INSIGHT FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET NET NET ASSET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS ASSET VALUE NET UNREALIZED FROM NET FROM NET VALUE BEGINNING INVESTMENT GAIN/(LOSS) INVESTMENT REALIZED END OF OF PERIOD INCOME ON INVESTMENTS INCOME GAINS PERIOD - ------------------------------------------------------------------------------------------------------------- - --------------------------------------------- INTERMEDIATE GOVERNMENT BOND FUND (CONTINUED) - --------------------------------------------- B SHARES 12/31/03 $17.63 $0.536 $(0.293) $(0.536) $(0.217) $17.12 12/31/02 16.79 0.699 0.840 (0.699) -- 17.63 05/31/01 (3) to 12/31/01 16.53 0.479 0.260 (0.479) -- 16.79 - -------------------- HIGH YIELD BOND FUND - -------------------- INSTITUTIONAL SHARES 12/31/03 $11.74 $0.887 $ 1.175 $(0.887) $(0.085) $12.83 9/23/02 (3) to 12/31/02 11.55 0.256 0.190 (0.256) -- 11.74 - --------------------------------- INTERMEDIATE TAX-EXEMPT BOND FUND - --------------------------------- INSTITUTIONAL SHARES 12/31/03 $11.48 $0.452 $ 0.070 $(0.452) $ -- $11.55 12/31/02 10.91 0.481 0.570 (0.481) -- 11.48 12/31/01 10.82 0.506 0.090 (0.506) -- 10.91 12/31/00 10.22 0.513 0.600 (0.513) -- 10.82 12/31/99 10.70 0.423 (0.467) (0.423) (0.013) 10.22 N SHARES 12/31/03 $11.48 $0.424 $ 0.070 $(0.424) $ -- $11.55 12/31/02 10.91 0.453 0.570 (0.453) -- 11.48 12/31/01 10.82 0.478 0.090 (0.478) -- 10.91 12/31/00 10.22 0.487 0.600 (0.487) -- 10.82 12/31/99 10.70 0.396 (0.467) (0.396) (0.013) 10.22 A SHARES 12/31/03 $11.48 $0.424 $ 0.070 $(0.424) $ -- $11.55 12/31/02 10.91 0.453 0.570 (0.453) -- 11.48 01/17/01 (3) to 12/31/01 10.95 0.456 (0.040) (0.456) -- 10.91 B SHARES 12/31/03 $11.48 $0.338 $ 0.070 $(0.338) $ -- $11.55 12/31/02 10.91 0.353 0.570 (0.353) -- 11.48 11/21/01 (3) to 12/31/01 11.11 0.042 (0.200) (0.042) -- 10.91 - -------------------- TAX-EXEMPT BOND FUND - -------------------- INSTITUTIONAL SHARES 12/31/03 $11.19 $0.496 $ 0.140 $(0.496) $ -- $11.33 12/31/02 10.54 0.527 0.650 (0.527) -- 11.19 12/31/01 10.45 0.528 0.090 (0.528) -- 10.54 12/31/00 9.63 0.525 0.820 (0.525) -- 10.45 12/31/99 10.39 0.449 (0.760) (0.449) -- 9.63 NET RATIO OF EXPENSES ASSETS RATIO OF TO AVERAGE RATIO OF NET END OF EXPENSES TO NET ASSETS INVESTMENT INCOME PORTFOLIO TOTAL PERIOD AVERAGE NET (EXCLUDING TO AVERAGE NET TURNOVER RETURN (000) ASSETS WAIVERS) ASSETS RATE - ---------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------- INTERMEDIATE GOVERNMENT BOND FUND (CONTINUED) - --------------------------------------------- B SHARES 12/31/03 1.39% (5) $ 1,153 1.50% 1.89% 3.07% 58.97% 12/31/02 9.30 (5) 904 1.50 2.07 3.91 61.56 05/31/01 (3) to 12/31/01 4.54 (2)(5) 205 1.50 (1) 2.14 (1) 4.82 (1) 52.17 - -------------------- HIGH YIELD BOND FUND - -------------------- INSTITUTIONAL SHARES 12/31/03 18.15% $ 62,926 0.61% 0.73% 7.11% 81.50% 9/23/02 (3) to 12/31/02 3.90 (2) 18,088 0.61 (1) 1.41 (1) 8.11 (1) 38.03 - --------------------------------- INTERMEDIATE TAX-EXEMPT BOND FUND - --------------------------------- INSTITUTIONAL SHARES 12/31/03 4.64% $ 236,282 0.45% 0.72% 3.94% 40.20% 12/31/02 9.82 246,217 0.27 0.89 4.29 61.27 12/31/01 5.58 218,956 0.25 0.86 4.60 100.00 12/31/00 11.21 196,980 0.23 0.83 4.95 200.55 12/31/99 (0.43) 177,813 0.69 0.82 4.03 191.27 N SHARES 12/31/03 4.38% $ 7,341 0.70% 0.97% 3.69% 40.20% 12/31/02 9.55 10,287 0.52 1.14 4.04 61.27 12/31/01 5.32 7,573 0.50 1.11 4.24 100.00 12/31/00 10.94 659 0.48 1.08 4.63 200.55 12/31/99 (0.68) 2,743 0.94 1.07 3.78 191.27 A SHARES 12/31/03 4.38% (4) $ 2,102 0.70% 0.97% 3.69% 40.20% 12/31/02 9.55 (4) 1,648 0.52 1.14 3.96 61.27 01/17/01 (3) to 12/31/01 3.85 (2)(4) 131 0.50 (1) 1.11 (1) 4.19 (1) 100.00 B SHARES 12/31/03 3.61% (5) $ 734 1.45% 1.72% 2.94% 40.20% 12/31/02 8.58 (5) 305 1.27 1.89 3.20 61.27 11/21/01 (3) to 12/31/01 (1.42) (2)(5) 2 1.25 (1) 1.86 (1) 3.60 (1) 100.00 - -------------------- TAX-EXEMPT BOND FUND - -------------------- INSTITUTIONAL SHARES 12/31/03 5.81% $ 86,812 0.51% 0.79% 4.40% 42.58% 12/31/02 11.42 106,975 0.31 0.95 4.84 86.76 12/31/01 6.02 105,448 0.27 0.91 4.99 168.31 12/31/00 14.41 110,321 0.25 0.85 5.31 164.85 12/31/99 (3.07) 126,027 0.70 0.83 4.44 225.82
See Notes to Financial Statements. 110 and 111 HARRIS INSIGHT FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET NET ASSET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS REDEMPTION VALUE NET UNREALIZED FROM NET FROM NET FEES ADDED TO BEGINNING INVESTMENT GAIN/(LOSS) INVESTMENT REALIZED PAID-IN OF PERIOD INCOME ON INVESTMENTS INCOME GAINS CAPITAL - --------------------------------------------------------------------------------------------------------- - -------------------------------- TAX-EXEMPT BOND FUND (CONTINUED) - -------------------------------- N SHARES 12/31/03 $11.19 $0.468 $ 0.140 $(0.468) $ -- $ -- 12/31/02 10.54 0.500 0.650 (0.500) -- -- 12/31/01 10.45 0.502 0.090 (0.502) -- -- 12/31/00 9.63 0.500 0.820 (0.500) -- -- 12/31/99 10.39 0.424 (0.760) (0.424) -- -- A SHARES 12/31/03 $11.19 $0.468 $ 0.140 $(0.468) $ -- $ -- 12/31/02 10.54 0.500 0.650 (0.500) -- -- 01/31/01 (3) to 12/31/01 10.44 0.457 0.100 (0.457) -- -- B SHARES 12/31/03 $11.19 $0.384 $ 0.140 $(0.384) $ -- $ -- 12/31/02 10.54 0.418 0.650 (0.418) -- -- 06/21/01 (3) to 12/31/01 10.52 0.215 0.020 (0.215) -- -- - --------------------------- HIGH YIELD SELECT BOND FUND - --------------------------- INSTITUTIONAL SHARES 12/31/03 $16.49 $1.157 $ 1.575 $(1.192) $ -- $ -- 12/31/02 19.47 0.737 (3.055) (0.662) -- -- 12/31/01 24.27 0.756 (4.466) (0.756) (0.334) -- 12/31/00 30.55 0.923 (2.851) (0.922) (3.430) -- 12/31/99 24.14 0.983 6.544 (0.978) (0.139) -- N SHARES 12/31/03 $16.49 $1.132 $ 1.557 $(1.149) $ -- $ -- 12/31/02 19.47 0.634 (2.996) (0.618) -- -- 12/31/01 24.27 0.707 (4.466) (0.707) (0.334) -- 12/31/00 30.54 0.844 (2.841) (0.843) (3.430) -- 12/31/99 24.14 0.902 6.559 (0.922) (0.139) -- A SHARES 12/31/03 $16.50 $1.149 $ 1.520 $(1.149) $ -- $ -- 12/31/02 19.46 0.695 (3.057) (0.598) -- -- 12/31/01 24.26 0.706 (4.466) (0.706) (0.334) -- 01/13/00 (3) to 12/31/00 29.42 0.857 (1.731) (0.856) (3.430) -- - ----------- EQUITY FUND - ----------- INSTITUTIONAL SHARES 12/31/03 $ 8.98 $0.065 $ 2.501 $(0.066) $ -- $ -- 12/31/02 11.43 0.056 (2.449) (0.057) -- -- 12/31/01 12.55 0.062 (0.426) (0.062) (0.694) -- 12/31/00 14.63 0.049 1.113 (0.047) (3.195) -- 12/31/99 17.03 0.049 (0.339) (0.050) (2.060) -- NET NET RATIO OF EXPENSES ASSET ASSETS RATIO OF TO AVERAGE RATIO OF NET VALUE END OF EXPENSES TO NET ASSETS INVESTMENT INCOME PORTFOLIO END OF TOTAL PERIOD AVERAGE NET (EXCLUDING TO AVERAGE NET TURNOVER PERIOD RETURN (000) ASSETS WAIVERS) ASSETS RATE - ------------------------------------------------------------------------------------------------------------------------------------ - -------------------------------- TAX-EXEMPT BOND FUND (CONTINUED) - -------------------------------- N SHARES 12/31/03 $11.33 5.55% $ 24,873 0.76% 1.04% 4.15% 42.58% 12/31/02 11.19 11.15 14,194 0.56 1.20 4.51 86.76 12/31/01 10.54 5.76 1,522 0.52 1.16 4.74 168.31 12/31/00 10.45 14.13 1,117 0.50 1.10 5.10 164.85 12/31/99 9.63 (3.31) 1,109 0.95 1.08 4.19 225.82 A SHARES 12/31/03 $11.33 5.55% (4) $ 3,098 0.76% 1.04% 4.15% 42.58% 12/31/02 11.19 11.15 (4) 4,296 0.56 1.20 4.52 86.76 01/31/01 (3) to 12/31/01 10.54 5.40 (2)(4) 796 0.52 (1) 1.16 (1) 4.60 (1) 168.31 B SHARES 12/31/03 $11.33 4.76% (5) $ 1,184 1.51% 1.79% 3.40% 42.58% 12/31/02 11.19 10.32 (5) 687 1.31 1.95 3.75 86.76 06/21/01 (3) to 12/31/01 10.54 2.22 (2)(5) 133 1.31 (1) 1.95 (1) 3.77 (1) 168.31 - --------------------------- HIGH YIELD SELECT BOND FUND - --------------------------- INSTITUTIONAL SHARES 12/31/03 $18.03 17.11% $ 17,284 0.75% (9) 1.45% (9) 6.70% --%(10) 12/31/02 16.49 (11.89) 10,999 0.92 1.33 3.57 24.98 12/31/01 19.47 (15.35) 31,427 0.92 1.17 3.52 33.53 12/31/00 24.27 (6.48) 45,557 0.92 1.09 3.02 52.40 12/31/99 30.55 32.07 52,100 0.92 1.01 3.73 20.14 N SHARES 12/31/03 $18.03 16.82% $ 415 1.00% (9) 1.70% (9) 6.45% --%(10) 12/31/02 16.49 (12.12) 350 1.17 1.58 3.39 24.98 12/31/01 19.47 (15.56) 313 1.17 1.42 3.27 33.53 12/31/00 24.27 (6.69) 260 1.17 1.34 2.77 52.40 12/31/99 30.54 31.75 375 1.17 1.26 3.48 20.14 A SHARES 12/31/03 $18.02 16.68% (4) $ 219 1.00% (9) 1.66% (9) 6.38% --%(10) 12/31/02 16.50 (12.13) (4) 42 1.17 1.54 3.23 24.98 12/31/01 19.46 (15.57) (4) 147 1.17 1.52 3.15 33.53 01/13/00 (3) to 12/31/00 24.26 (3.14) (2)(4) 18 1.17 (1) 1.34 (1) 2.95 (1) 52.40 - ----------- EQUITY FUND - ----------- INSTITUTIONAL SHARES 12/31/03 $11.48 28.68% $ 229,673 0.94% 0.96% 0.63% 81.21% 12/31/02 8.98 (20.99) 238,301 0.95 0.97 0.53 61.83 12/31/01 11.43 (3.00) 313,186 0.94 0.95 0.51 77.79 12/31/00 12.55 8.48 346,111 0.93 0.93 0.31 68.09 12/31/99 14.63 (1.57) 579,754 0.90 0.91 0.29 65.13
See Notes to Financial Statements. 112 and 113 HARRIS INSIGHT FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET NET ASSET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS REDEMPTION VALUE NET UNREALIZED FROM NET FROM NET FEES ADDED TO BEGINNING INVESTMENT GAIN/(LOSS) INVESTMENT REALIZED PAID-IN OF PERIOD INCOME ON INVESTMENTS INCOME GAINS CAPITAL - --------------------------------------------------------------------------------------------------------- - ----------------------- EQUITY FUND (CONTINUED) - ----------------------- N SHARES 12/31/03 $ 9.02 $ 0.038 $ 2.510 $(0.018) $ -- $ -- 12/31/02 11.44 0.035 (2.446) (0.009) -- -- 12/31/01 12.55 0.010 (0.416) (0.010) (0.694) -- 12/31/00 14.63 0.007 1.113 (0.005) (3.195) -- 12/31/99 17.02 0.005 (0.323) (0.012) (2.060) -- A SHARES 12/31/03 $ 9.02 $ 0.034 $ 2.523 $(0.017) $ -- $ -- 12/31/02 11.45 0.021 (2.440) (0.011) -- -- 12/31/01 12.55 0.011 (0.406) (0.011) (0.694) -- 12/31/00 14.63 0.007 1.114 (0.006) (3.195) -- 02/12/99 (3) to 12/31/99 16.97 (0.002) (0.275) (0.003) (2.060) -- B SHARES 12/31/03 $ 8.93 $(0.035) $ 2.485 $ -- $ -- $ -- 12/31/02 11.41 (0.034) (2.446) -- -- -- 08/01/01 (3) to 12/31/01 11.97 (0.020) (0.540) -- -- -- - ---------------- CORE EQUITY FUND - ---------------- INSTITUTIONAL SHARES 12/31/03 $15.73 $ 0.083 $ 4.710 $(0.083) $ -- $ -- 12/31/02 20.96 0.053 (4.953) (0.052) (0.278) -- 12/31/01 24.84 0.031 (3.031) (0.025) (0.855) -- 12/31/00 29.14 (1.903) (0.310) -- (2.087) -- 12/31/99 26.25 (0.042) 4.319 -- (1.387) -- N SHARES 12/31/03 $15.56 $ 0.040 $ 4.657 $(0.037) $ -- $ -- 12/31/02 20.73 0.004 (4.891) (0.005) (0.278) -- 12/31/01 24.62 (0.024) (3.011) -- (0.855) -- 12/31/00 28.97 (1.903) (0.360) -- (2.087) -- 12/31/99 26.18 (0.119) 4.296 -- (1.387) -- A SHARES 12/31/03 $15.57 $ 0.035 $ 4.671 $(0.036) $ -- $ -- 12/31/02 20.73 0.009 (4.883) (0.008) (0.278) -- 12/31/01 24.61 (0.025) (3.000) -- (0.855) -- 12/31/00 28.96 (1.903) (0.360) -- (2.087) -- 02/05/99 (3) to 12/31/99 27.00 (0.073) 3.420 -- (1.387) -- B SHARES 12/31/03 $15.40 $(0.093) $ 4.603 $ -- $ -- $ -- 12/31/02 20.66 (0.107) (4.875) -- (0.278) -- 05/31/01 (3) to 12/31/01 23.62 (0.102) (2.003) -- (0.855) -- NET NET RATIO OF EXPENSES ASSET ASSETS RATIO OF TO AVERAGE RATIO OF NET VALUE END OF EXPENSES TO NET ASSETS INVESTMENT INCOME PORTFOLIO END OF TOTAL PERIOD AVERAGE NET (EXCLUDING TO AVERAGE NET TURNOVER PERIOD RETURN (000) ASSETS WAIVERS) ASSETS RATE - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------------- EQUITY FUND (CONTINUED) - ----------------------- N SHARES 12/31/03 $11.55 28.29% $ 13,842 1.19% 1.21% 0.38% 81.21% 12/31/02 9.02 (21.10) 11,082 1.20 1.22 0.28 61.83 12/31/01 11.44 (3.36) 16,193 1.19 1.20 0.26 77.79 12/31/00 12.55 8.18 16,025 1.18 1.18 0.06 68.09 12/31/99 14.63 (1.74) 19,685 1.15 1.16 0.04 65.13 A SHARES 12/31/03 $11.56 28.39% (4) $ 339 1.19% 1.21% 0.38% 81.21% 12/31/02 9.02 (21.15) (4) 199 1.20 1.22 0.28 61.83 12/31/01 11.45 (3.27) (4) 161 1.19 1.20 0.26 77.79 12/31/00 12.55 8.17 (4) 161 1.18 1.18 0.06 68.09 02/12/99 (3) to 12/31/99 14.63 (1.50) (2)(4) 161 1.23 (1) 1.24 (1) (0.04) (1) 65.13 B SHARES 12/31/03 $11.38 27.44% (5) $ 322 1.94% 1.96% (0.37)% 81.21% 12/31/02 8.93 (21.74) (5) 221 1.95 1.97 (0.35) 61.83 08/01/01 (3) to 12/31/01 11.41 (4.68) (2)(5) 20 1.94 (1) 1.95 (1) (0.45) (1) 77.79 - ---------------- CORE EQUITY FUND - ---------------- INSTITUTIONAL SHARES 12/31/03 $20.44 30.49% $ 127,233 1.10% 1.23% 0.47% 76.15% 12/31/02 15.73 (23.54) 98,487 1.10 1.24 0.27 67.66 12/31/01 20.96 (12.31) 150,175 1.10 1.21 0.14 41.63 12/31/00 24.84 (7.67) 166,310 1.10 1.16 (0.22) 43.74 12/31/99 29.14 16.56 182,283 1.10 1.14 (0.16) 35.11 N SHARES 12/31/03 $20.22 30.20% $ 4,518 1.35% 1.48% 0.22% 76.15% 12/31/02 15.56 (23.73) 3,621 1.35 1.49 0.02 67.66 12/31/01 20.73 (12.56) 5,611 1.35 1.46 (0.11) 41.63 12/31/00 24.62 (7.89) 6,313 1.35 1.41 (0.47) 43.74 12/31/99 28.97 16.22 7,800 1.35 1.39 (0.41) 35.11 A SHARES 12/31/03 $20.24 30.23% (4) $ 531 1.35% 1.48% 0.22% 76.15% 12/31/02 15.57 (23.67) (4) 552 1.35 1.49 0.02 67.66 12/31/01 20.73 (12.53) (4) 649 1.35 1.46 (0.11) 41.63 12/31/00 24.61 (7.90) (4) 758 1.35 1.41 (0.47) 43.74 02/05/99 (3) to 12/31/99 28.96 12.65 (2)(4) 710 1.42 (1) 1.46 (1) (0.48) (1) 35.11 B SHARES 12/31/03 $19.91 29.29% (5) $ 127 2.10% 2.23% (0.53)% 76.15% 12/31/02 15.40 (24.27) (5) 53 2.10 2.24 (0.64) 67.66 05/31/01 (3) to 12/31/01 20.66 (9.17) (2)(5) 13 2.10 (1) 2.21 (1) (0.86) (1) 41.63
See Notes to Financial Statements. 114 and 115 HARRIS INSIGHT FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET NET ASSET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS REDEMPTION VALUE NET UNREALIZED FROM NET FROM NET FEES ADDED TO BEGINNING INVESTMENT GAIN/(LOSS) INVESTMENT REALIZED PAID-IN OF PERIOD INCOME ON INVESTMENTS INCOME GAINS CAPITAL - --------------------------------------------------------------------------------------------------------- - -------------------------- SMALL-CAP OPPORTUNITY FUND - -------------------------- INSTITUTIONAL SHARES 12/31/03 $15.12 $(0.024) $ 7.881 $ -- $(0.238) $0.001 (7) 12/31/02 17.70 (0.086) (2.496) -- -- 0.002 (7) 12/31/01 19.88 (0.119) (1.792) -- (0.269) -- 12/31/00 24.17 (0.145) 1.528 -- (5.673) -- 12/31/99 17.85 (0.039) 7.124 -- (0.765) -- N SHARES 12/31/03 $14.85 $(0.060) $ 7.727 $ -- $(0.238) $0.001 (7) 12/31/02 17.44 (0.119) (2.473) -- -- 0.002 (7) 12/31/01 19.62 (0.161) (1.750) -- (0.269) -- 12/31/00 23.99 (0.145) 1.448 -- (5.673) -- 12/31/99 17.77 (0.057) 7.042 -- (0.765) -- A SHARES 12/31/03 $14.85 $(0.057) $ 7.714 $ -- $(0.238) $0.001 (7) 12/31/02 17.43 (0.118) (2.463) -- -- 0.001 (7) 12/31/01 19.62 (0.154) (1.767) -- (0.269) -- 12/31/00 23.99 (0.145) 1.448 -- (5.673) -- 03/05/99 (3) to 12/31/99 16.67 (0.092) 8.177 -- (0.765) -- B SHARES 12/31/03 $14.69 $(0.195) $ 7.602 $ -- $(0.238) $0.001 (7) 12/31/02 17.37 (0.230) (2.451) -- -- 0.001 (7) 06/25/01 (3) to 12/31/01 18.32 (0.138) (0.543) -- (0.269) -- - -------------------- SMALL-CAP VALUE FUND - -------------------- INSTITUTIONAL SHARES 12/31/03 $31.79 $ 0.408 $13.260 $(0.360) $ -- $0.002 (7) 12/31/02 36.88 0.154 (4.814) (0.131) (0.306) 0.007 (7) 12/31/01 37.35 0.117 1.931 (0.117) (2.401) -- 12/31/00 30.29 0.031 9.854 (0.030) (2.795) -- 12/31/99 30.69 0.124 0.015 (0.122) (0.417) -- N SHARES 12/31/03 $31.73 $ 0.279 $13.257 $(0.278) $ -- $0.002 (7) 12/31/02 36.81 0.059 (4.791) (0.048) (0.306) 0.006 (7) 12/31/01 37.28 0.037 1.931 (0.037) (2.401) -- 12/31/00 30.28 0.001 9.794 -- (2.795) -- 12/31/99 30.69 0.031 0.029 (0.053) (0.417) -- A SHARES 12/31/03 $31.69 $ 0.271 $13.243 $(0.286) $ -- $0.002 (7) 12/31/02 36.78 0.042 (4.767) (0.064) (0.306) 0.005 (7) 12/31/01 37.28 0.049 1.901 (0.049) (2.401) -- 12/31/00 30.28 0.001 9.794 -- (2.795) -- 08/18/99 (3) to 12/31/99 29.09 0.008 1.368 (0.051) (0.135) -- NET NET RATIO OF EXPENSES ASSET ASSETS RATIO OF TO AVERAGE RATIO OF NET VALUE END OF EXPENSES TO NET ASSETS INVESTMENT INCOME PORTFOLIO END OF TOTAL PERIOD AVERAGE NET (EXCLUDING TO AVERAGE NET TURNOVER PERIOD RETURN (000) ASSETS WAIVERS) ASSETS RATE - ---------------------------------------------------------------------------------------------------------------------------------- - -------------------------- SMALL-CAP OPPORTUNITY FUND - -------------------------- INSTITUTIONAL SHARES 12/31/03 $22.74 52.02% $ 472,228 1.20% 1.25% (0.13)% 83.34% 12/31/02 15.12 (14.58) 323,683 1.20 1.27 (0.51) 76.97 12/31/01 17.70 (9.65) 411,368 1.20 1.25 (0.67) 85.04 12/31/00 19.88 6.75 465,215 1.20 1.22 (0.70) 86.88 12/31/99 24.17 40.14 432,071 1.20 1.21 (0.50) 59.99 N SHARES 12/31/03 $22.28 51.68% $ 61,579 1.45% 1.50% (0.32)% 83.34% 12/31/02 14.85 (14.85) 13,954 1.45 1.52 (0.76) 76.97 12/31/01 17.44 (9.83) 8,301 1.45 1.50 (0.92) 85.04 12/31/00 19.62 6.51 8,995 1.45 1.47 (0.95) 86.88 12/31/99 23.99 39.75 6,397 1.45 1.46 (0.75) 59.99 A SHARES 12/31/03 $22.27 51.62% (4) $ 3,047 1.45% 1.50% (0.30)% 83.34% 12/31/02 14.85 (14.80) (4) 777 1.45 1.52 (0.76) 76.97 12/31/01 17.43 (9.83) (4) 246 1.45 1.50 (0.92) 85.04 12/31/00 19.62 6.46 (4) 50 1.45 1.47 (0.95) 86.88 03/05/99 (3) to 12/31/99 23.99 48.98 (2)(4) 28 1.49 (1) 1.50 (1) (0.79) (1) 59.99 B SHARES 12/31/03 $21.86 50.48% (5) $ 506 2.20% 2.25% (1.09)% 83.34% 12/31/02 14.69 (15.43) (5) 237 2.20 2.27 (1.47) 76.97 06/25/01 (3) to 12/31/01 17.37 (3.77) (2)(5) 41 2.20 (1) 2.25 (1) (1.67) (1) 85.04 - -------------------- SMALL-CAP VALUE FUND - -------------------- INSTITUTIONAL SHARES 12/31/03 $45.10 43.04% $ 308,693 0.95% 0.99% 1.08% 106.69% 12/31/02 31.79 (12.76) 216,922 0.99 1.09 0.43 134.99 12/31/01 36.88 5.57 248,031 0.99 1.08 0.36 80.85 12/31/00 37.35 34.45 149,791 0.99 1.08 0.10 80.97 12/31/99 30.29 0.49 115,544 0.99 1.04 0.37 70.84 N SHARES 12/31/03 $44.99 42.70% $ 7,702 1.20% 1.24% 0.83% 106.69% 12/31/02 31.73 (12.98) 4,414 1.24 1.34 0.18 134.99 12/31/01 36.81 5.36 3,477 1.24 1.33 0.11 80.85 12/31/00 37.28 34.15 1,247 1.24 1.33 (0.15) 80.97 12/31/99 30.28 0.22 743 1.24 1.29 0.12 70.84 A SHARES 12/31/03 $44.92 42.68% (4) $ 1,557 1.20% 1.24% 0.83% 106.69% 12/31/02 31.69 (12.98) (4) 669 1.24 1.34 0.18 134.99 12/31/01 36.78 5.31 (4) 341 1.24 1.33 0.11 80.85 12/31/00 37.28 34.15 (4) 61 1.24 1.33 (0.15) 80.97 08/18/99 (3) to 12/31/99 30.28 4.77 (2)(4) 12 1.24 (1) 1.29 (1) 0.12 (1) 70.84
See Notes to Financial Statements. 116 and 117 HARRIS INSIGHT FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET NET ASSET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS REDEMPTION VALUE NET UNREALIZED FROM NET FROM NET FEES ADDED TO BEGINNING INVESTMENT GAIN/(LOSS) INVESTMENT REALIZED PAID-IN OF PERIOD INCOME ON INVESTMENTS INCOME GAINS CAPITAL - --------------------------------------------------------------------------------------------------------- - -------------------------------- SMALL-CAP VALUE FUND (CONTINUED) - -------------------------------- B SHARES 12/31/03 $31.43 $ 0.099 $12.985 $(0.036) $ -- $0.002 (7) 12/31/02 36.69 (0.200) (4.760) -- (0.306) 0.006 (7) 05/31/01 (3) to 12/31/01 40.77 (0.087) (1.592) -- (2.401) -- - ---------- INDEX FUND - ---------- INSTITUTIONAL SHARES 12/31/03 $18.06 $ 0.275 $ 4.726 $(0.275) $(1.236) $ -- 12/31/02 23.91 0.244 (5.501) (0.243) (0.350) -- 12/31/01 28.39 0.241 (3.742) (0.242) (0.737) -- 12/31/00 33.21 0.274 (3.337) (0.270) (1.487) -- 12/31/99 28.35 0.307 5.420 (0.305) (0.562) -- N SHARES 12/31/03 $18.05 $ 0.224 $ 4.728 $(0.226) $(1.236) $ -- 12/31/02 23.90 0.194 (5.503) (0.191) (0.350) -- 12/31/01 28.39 0.177 (3.752) (0.178) (0.737) -- 12/31/00 33.21 0.191 (3.333) (0.191) (1.487) -- 12/31/99 28.35 0.249 5.413 (0.240) (0.562) -- B SHARES 12/31/03 $18.00 $ 0.069 $ 4.705 $(0.068) $(1.236) $ -- 12/31/02 23.90 0.081 (5.535) (0.096) (0.350) -- 08/22/01 (3) to 12/31/01 24.77 0.038 (0.238) (0.041) (0.629) -- - -------------------------------- SMALL-CAP AGGRESSIVE GROWTH FUND - -------------------------------- INSTITUTIONAL SHARES 12/31/03 $ 7.68 $(0.044) $ 3.754 $ -- $ -- $ -- 12/31/02 9.68 (0.032) (1.968) -- -- -- 01/09/01 (3) to 12/31/01 10.00 (0.014) (0.306) -- -- -- B SHARES 01/01/03 to 05/30/03 (8) $ 7.60 $(0.044) $ 1.024 $ -- $ -- $ -- 12/31/02 9.68 (0.102) (1.978) -- -- -- 12/20/01 (3) to 12/31/01 9.36 (0.009) 0.329 -- -- -- - ------------- BALANCED FUND - ------------- INSTITUTIONAL SHARES 12/31/03 $11.54 $ 0.251 $ 1.958 $(0.249) $ -- $ -- 12/31/02 13.01 0.310 (1.470) (0.310) -- -- 12/31/01 13.27 0.362 (0.216) (0.364) (0.042) -- 12/31/00 12.38 0.389 1.115 (0.391) (0.223) -- 12/31/99 14.44 0.444 (0.668) (0.435) (1.401) -- NET NET RATIO OF EXPENSES ASSET ASSETS RATIO OF TO AVERAGE RATIO OF NET VALUE END OF EXPENSES TO NET ASSETS INVESTMENT INCOME PORTFOLIO END OF TOTAL PERIOD AVERAGE NET (EXCLUDING TO AVERAGE NET TURNOVER PERIOD RETURN (000) ASSETS WAIVERS) ASSETS RATE - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------- SMALL-CAP VALUE FUND (CONTINUED) - -------------------------------- B SHARES 12/31/03 $44.48 41.64% (5) $ 979 1.95% 1.99% 0.08% 106.69% 12/31/02 31.43 (13.65) (5) 466 1.99 2.09 (0.57) 134.99 05/31/01 (3) to 12/31/01 36.69 (4.06) (2)(5) 302 1.99 (1) 2.08 (1) (0.64) (1) 80.85 - ---------- INDEX FUND - ---------- INSTITUTIONAL SHARES 12/31/03 $21.55 28.11% $ 353,889 0.43% 0.47% 1.37% 1.72% 12/31/02 18.06 (22.21) 354,499 0.45 0.53 1.18 6.42 12/31/01 23.91 (12.30) 432,923 0.45 0.50 0.93 4.26 12/31/00 28.39 (9.33) 532,044 0.45 0.47 0.85 8.39 12/31/99 33.21 20.40 549,696 0.45 0.46 1.04 2.17 N SHARES 12/31/03 $21.54 27.82% $ 19,986 0.68% 0.72% 1.12% 1.72% 12/31/02 18.05 (22.43) 17,339 0.70 0.78 0.93 6.42 12/31/01 23.90 (12.57) 24,449 0.70 0.75 0.68 4.26 12/31/00 28.39 (9.55) 25,291 0.70 0.72 0.60 8.39 12/31/99 33.21 20.14 24,056 0.70 0.71 0.79 2.17 B SHARES 12/31/03 $21.47 26.81% (5) $ 483 1.43% 1.47% 0.37% 1.72% 12/31/02 18.00 (22.99) (5) 571 1.45 1.53 0.40 6.42 08/22/01 (3) to 12/31/01 23.90 (0.75) (2)(5) 26 1.45 (1) 1.50 (1) 0.04 (1) 4.26 - -------------------------------- SMALL-CAP AGGRESSIVE GROWTH FUND - -------------------------------- INSTITUTIONAL SHARES 12/31/03 $11.39 48.31% $ 8,506 1.00% 1.44% (0.48)% 124.27% 12/31/02 7.68 (20.66) 7,278 1.00 1.36 (0.38) 107.48 01/09/01 (3) to 12/31/01 9.68 (3.20) (2) 7,854 1.00 (1) 2.53 (1) (0.15) (1) 59.94 (1) B SHARES 01/01/03 to 05/30/03 (8) $ 8.58 12.90% (2)(5) $ -- 2.00% (1) 2.54% (1) (1.41)% (1) 61.84% 12/31/02 7.60 (21.49) (5) 4 2.00 2.36 (1.25) 107.48 12/20/01 (3) to 12/31/01 9.68 3.42 (2)(5) 1 2.00 (1) 3.37 (1) (1.62) (1) 59.94 (1) - ------------- BALANCED FUND - ------------- INSTITUTIONAL SHARES 12/31/03 $13.50 19.33% $ 56,553 0.88% 1.04% 2.05% 76.53% 12/31/02 11.54 (9.02) 47,015 0.88 1.12 2.50 69.89 12/31/01 13.01 1.21 52,552 0.88 1.10 2.77 65.21 12/31/00 13.27 12.31 56,197 0.88 1.14 2.99 141.47 12/31/99 12.38 (1.30) 21,871 0.88 1.05 2.84 67.77
See Notes to Financial Statements. 118 and 119 HARRIS INSIGHT FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET NET ASSET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS REDEMPTION VALUE NET UNREALIZED FROM NET FROM NET FEES ADDED TO BEGINNING INVESTMENT GAIN/(LOSS) INVESTMENT REALIZED PAID-IN OF PERIOD INCOME ON INVESTMENTS INCOME GAINS CAPITAL - -------------------------------------------------------------------------------------------------------- - ------------------------- BALANCED FUND (CONTINUED) - ------------------------- N SHARES 12/31/03 $11.54 $ 0.223 $ 1.955 $(0.218) $ -- $ -- 12/31/02 13.00 0.277 (1.459) (0.278) -- -- 12/31/01 13.27 0.331 (0.226) (0.333) (0.042) -- 12/31/00 12.38 0.356 1.114 (0.357) (0.223) -- 12/31/99 14.44 0.386 (0.641) (0.404) (1.401) -- A SHARES 12/31/03 $11.53 $ 0.230 $ 1.950 $(0.220) $ -- $ -- 12/31/02 13.00 0.278 (1.469) (0.279) -- -- 12/31/01 13.26 0.333 (0.216) (0.335) (0.042) -- 12/31/00 12.38 0.356 1.107 (0.360) (0.223) -- 02/10/99 (3) to 12/31/99 14.14 0.340 (0.305) (0.394) (1.401) -- B SHARES 12/31/03 $11.51 $ 0.158 $ 1.927 $(0.145) $ -- $ -- 02/04/02 (3) to 12/31/02 13.02 0.186 (1.471) (0.225) -- -- - ------------------ INTERNATIONAL FUND - ------------------ INSTITUTIONAL SHARES 12/31/03 $ 9.81 $ 0.165 $ 3.800 $(0.160) $ -- $0.015 (7) 12/31/02 11.54 0.092 (1.808) (0.068) -- 0.054 (7) 12/31/01 14.36 0.055 (2.825) (0.050) -- -- 12/31/00 15.89 0.120 (1.606) (0.044) -- -- 12/31/99 12.55 0.117 3.309 (0.086) -- -- N SHARES 12/31/03 $ 9.82 $ 0.121 $ 3.815 $(0.131) $ -- $0.015 (7) 12/31/02 11.55 0.039 (1.789) (0.031) -- 0.051 (7) 12/31/01 14.36 0.026 (2.815) (0.021) -- -- 12/31/00 15.89 0.076 (1.606) -- -- -- 12/31/99 12.55 0.101 3.262 (0.023) -- -- A SHARES 12/31/03 $ 9.35 $ 0.030 $ 3.928 $(0.132) $ -- $0.014 (7) 12/31/02 11.57 0.079 (2.311) -- -- 0.012 (7) 12/31/01 14.38 0.016 (2.815) (0.011) -- -- 12/31/00 15.89 0.076 (1.586) -- -- -- 03/05/99 (3) to 12/31/99 11.90 (0.009) 4.022 (0.023) -- -- B SHARES 01/01/03 to 05/30/03 (8) $ 9.77 $ 0.098 $ 0.452 $ -- $ -- $ -- 12/31/02 11.55 0.041 (1.826) (0.018) -- 0.023 (7) 07/23/01 (3) to 12/31/01 12.49 (0.057) (0.883) -- -- -- NET NET RATIO OF EXPENSES ASSET ASSETS RATIO OF TO AVERAGE RATIO OF NET VALUE END OF EXPENSES TO NET ASSETS INVESTMENT INCOME PORTFOLIO END OF TOTAL PERIOD AVERAGE NET (EXCLUDING TO AVERAGE NET TURNOVER PERIOD RETURN (000) ASSETS WAIVERS) ASSETS RATE - ----------------------------------------------------------------------------------------------------------------------------------- - ------------------------- BALANCED FUND (CONTINUED) - ------------------------- N SHARES 12/31/03 $13.50 19.04% $ 2,279 1.13% 1.29% 1.80% 76.53% 12/31/02 11.54 (9.18) 1,897 1.13 1.37 2.25 69.89 12/31/01 13.00 0.88 2,253 1.13 1.35 2.52 65.21 12/31/00 13.27 12.03 2,073 1.13 1.57 2.69 141.47 12/31/99 12.38 (1.52) 2,311 1.13 1.30 2.59 67.77 A SHARES 12/31/03 $13.49 19.07% (4) $ 442 1.13% 1.29% 1.80% 76.53% 12/31/02 11.53 (9.26) (4) 260 1.13 1.37 2.25 69.89 12/31/01 13.00 0.97 (4) 294 1.13 1.16 2.52 65.21 12/31/00 13.26 11.97 (4) 131 1.13 1.51 2.74 141.47 02/10/99 (3) to 12/31/99 12.38 0.50 (2)(4) 84 1.21 (1) 1.38 (1) 2.51 (1) 67.77 B SHARES 12/31/03 $13.45 18.22% (5) $ 413 1.88% 2.04% 1.01% 76.53% 02/04/02 (3) to 12/31/02 11.51 (9.96) (2)(5) 75 1.88 (1) 2.12 (1) 1.50 (1) 69.89 - ------------------ INTERNATIONAL FUND - ------------------ INSTITUTIONAL SHARES 12/31/03 $13.63 40.44% $171,921 1.36% 1.39% 1.40% 35.15% 12/31/02 9.81 (14.41) 141,034 1.40 1.43 0.85 22.38 12/31/01 11.54 (19.29) 177,337 1.36 1.37 0.75 38.32 12/31/00 14.36 (9.34) 254,642 1.35 1.36 0.82 76.86 12/31/99 15.89 27.33 272,886 1.35 1.35 0.86 48.49 N SHARES 12/31/03 $13.64 40.19% $ 1,595 1.61% 1.64% 1.11% 35.15% 12/31/02 9.82 (14.79) 1,202 1.60 1.63 0.36 22.38 12/31/01 11.55 (19.46) 5,336 1.61 1.62 0.50 38.32 12/31/00 14.36 (9.50) 2,525 1.60 1.61 0.57 76.86 12/31/99 15.89 26.81 2,531 1.60 1.60 0.61 48.49 A SHARES 12/31/03 $13.19 42.33% (4) $ 57 1.57% 1.60% 0.27% 35.15% 12/31/02 9.35 (19.19) (4) 6 1.65 1.68 0.71 22.38 12/31/01 11.57 (19.47) (4) 3 1.61 1.62 0.18 38.32 12/31/00 14.38 (9.50) (4) 2 1.60 1.61 0.57 76.86 03/05/99 (3) to 12/31/99 15.89 33.73 (2)(4) 5 1.65 (1) 1.65 (1) 0.56 (1) 48.49 B SHARES 01/01/03 to 05/30/03 (8) $10.32 5.63% (2)(5) $ -- 2.35% (1) 2.37% (1) 2.50% (1) 18.70% 12/31/02 9.77 (15.26) (5) 11 2.40 2.43 (0.97) 22.38 07/23/01 (3) to 12/31/01 11.55 (7.53) (2)(5) 1 2.19 (1) 2.19 (1) (1.10) (1) 38.32
See Notes to Financial Statements. 120 and 121 HARRIS INSIGHT FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET NET ASSET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS REDEMPTION VALUE NET UNREALIZED FROM NET FROM NET FEES ADDED TO BEGINNING INVESTMENT GAIN/(LOSS) INVESTMENT REALIZED PAID-IN OF PERIOD INCOME ON INVESTMENTS INCOME GAINS CAPITAL - ----------------------------------------------------------------------------------------------------------- - --------------------- EMERGING MARKETS FUND - --------------------- INSTITUTIONAL SHARES 12/31/03 $ 6.66 $ 0.046 $ 3.355 $(0.033) $ -- $0.002 (7) 12/31/02 6.80 0.019 (0.148) (0.015) -- 0.004 (7) 12/31/01 6.88 0.043 (0.085) (0.038) -- -- 12/31/00 9.64 0.033 (2.786) (0.007) -- -- 12/31/99 5.87 (0.004) 3.790 (0.016) -- -- N SHARES 12/31/03 $ 6.61 $ 0.047 $ 3.300 $(0.020) $ -- $0.003 (7) 12/31/02 6.75 0.009 (0.154) -- -- 0.005 (7) 12/31/01 6.80 0.012 (0.055) (0.007) -- -- 12/31/00 9.58 0.025 (2.805) -- -- -- 12/31/99 5.85 (0.027) 3.773 (0.016) -- -- A SHARES 12/31/03 $ 6.60 $ 0.040 $ 3.315 $(0.017) $ -- $0.002 (7) 12/31/02 6.75 0.002 (0.154) -- -- 0.002 (7) 12/31/01 6.82 0.024 (0.075) (0.019) -- -- 12/31/00 9.58 0.025 (2.785) -- -- -- 08/12/99 (3) to 12/31/99 7.47 (0.024) 2.150 (0.016) -- -- B SHARES 01/01/03 to 05/30/03 (8) $ 6.58 $ 0.008 $ 0.632 $ -- $ -- $ -- 04/18/02 (3) to 12/31/02 7.76 (0.040) (1.142) -- -- 0.002 (7) NET NET RATIO OF EXPENSES ASSET ASSETS RATIO OF TO AVERAGE RATIO OF NET VALUE END OF EXPENSES TO NET ASSETS INVESTMENT INCOME PORTFOLIO END OF TOTAL PERIOD AVERAGE NET (EXCLUDING TO AVERAGE NET TURNOVER PERIOD RETURN (000) ASSETS WAIVERS) ASSETS RATE - ----------------------------------------------------------------------------------------------------------------------------------- - --------------------- EMERGING MARKETS FUND - --------------------- INSTITUTIONAL SHARES 12/31/03 $10.03 51.11% $289,492 1.58% 1.61% 0.83% 19.99% 12/31/02 6.66 (1.84) 96,652 1.66 1.71 0.41 34.20 12/31/01 6.80 (0.60) 40,063 1.74 1.89 0.78 26.93 12/31/00 6.88 (28.55) 32,313 1.67 1.71 0.37 78.65 12/31/99 9.64 64.53 38,155 1.70 1.76 (0.17) 53.69 N SHARES 12/31/03 $ 9.94 50.70% $ 1,331 1.83% 1.86% 0.58% 19.99% 12/31/02 6.61 (2.36) 311 1.91 1.96 0.12 34.20 12/31/01 6.75 (0.33) 352 1.99 2.14 0.75 26.93 12/31/00 6.80 (29.02) 297 1.96 2.00 0.18 78.65 12/31/99 9.58 64.06 322 1.95 2.01 (0.42) 53.69 A SHARES 12/31/03 $ 9.94 50.87% (4) $ 364 1.83% 1.86% 0.62% 19.99% 12/31/02 6.60 (2.22) (4) 118 1.91 1.96 0.03 34.20 12/31/01 6.75 (0.74) (4) 6 1.99 2.08 0.68 26.93 12/31/00 6.82 (28.81) (4) 8 1.92 1.96 0.16 78.65 08/12/99 (3) to 12/31/99 9.58 28.48 (2)(4) 5 1.95 (1) 2.01 (1) (0.42) (1) 53.69 B SHARES 01/01/03 to 05/30/03 (8) $ 7.22 9.73% (2)(5) $ -- 2.64% (1) 2.66% (1) 0.33% (1) 10.32% 04/18/02 (3) to 12/31/02 6.58 (15.21) (2)(5) 8 2.62 (1) 2.65 (1) (0.85) (1) 34.20 (1) Annualized. (2) Total returns for periods of less than one year are not annualized. (3) Date commenced operations. (4) Sales load is not reflected in total return. (5) Contingent deferred sales load is not reflected in total return. (6) Not meaningful given short period. (7) Fund assesses a redemption fee in the amount of 2.00% on redemptions of shares that have been held 90 days or less from time of purchase. Fees collected are retained by the Fund for the benefit of the remaining shareholders. (8) Date ceased operations. (9) Represents combined ratio for the Fund and its respective pro-rata share of the High Yield Bond Fund. (10) N.A. -- refer to portfolio turnover rate of the High Yield Bond Fund.
See Notes to Financial Statements. 122 and 123 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 1. ORGANIZATION Harris Insight Funds Trust (the "Trust") was organized as a business trust under the laws of The Commonwealth of Massachusetts on December 6, 1995. The Trust is an open-end management investment company and currently offers nineteen diversified investment portfolios. The portfolios of the Trust are each referred to as a "Fund" and, collectively, as the "Funds" and are as follows: EQUITY FUNDS: Harris Insight Equity Fund ("Equity Fund") Harris Insight Core Equity Fund ("Core Equity Fund") Harris Insight Small-Cap Opportunity Fund ("Small-Cap Opportunity Fund") Harris Insight Small-Cap Value Fund ("Small-Cap Value Fund") Harris Insight Index Fund ("Index Fund") Harris Insight International Fund ("International Fund") Harris Insight Small-Cap Aggressive Growth Fund ("Small-Cap Aggressive Growth Fund") Harris Insight Balanced Fund ("Balanced Fund") Harris Insight Emerging Markets Fund ("Emerging Markets Fund") FIXED INCOME FUNDS: Harris Insight Short/Intermediate Bond Fund ("Short/Intermediate Bond Fund") Harris Insight High Yield Select Bond Fund ("High Yield Select Bond Fund") Harris Insight Bond Fund ("Bond Fund") Harris Insight Intermediate Government Bond Fund ("Intermediate Government Bond Fund") Harris Insight High Yield Bond Fund ("High Yield Bond Fund") Harris Insight Intermediate Tax-Exempt Bond Fund ("Intermediate Tax-Exempt Bond Fund") Harris Insight Tax-Exempt Bond Fund ("Tax-Exempt Bond Fund") MONEY MARKET FUNDS: Harris Insight Government Money Market Fund ("Government Money Market Fund") Harris Insight Money Market Fund ("Money Market Fund") Harris Insight Tax-Exempt Money Market Fund ("Tax-Exempt Money Market Fund") The Trust offers six classes of shares: A shares, N shares, B shares, Service shares, Exchange shares, and Institutional shares. Institutional shares are offered by each Fund. A shares are offered by each Fund, except for the Index Fund, the Small-Cap Aggressive Growth Fund, the High Yield Bond Fund and each of the Money Market Funds. N shares are offered by each Fund, except for the Small-Cap Aggressive Growth Fund and the High Yield Bond Fund. B shares are offered by each Fund, except for the International Fund, the Emerging Markets Fund, the Small-Cap Aggressive Growth Fund, the High Yield Select Bond Fund, the High Yield Bond Fund, the Tax-Exempt Money Market Fund, and the Government Money Market Fund. Service shares are offered only by each of the Money Market Funds. Exchange shares are offered only by the Money Market Fund. Shares of all classes of a Fund have equal voting rights except on class-specific matters. Investment income, realized and unrealized gains and losses and certain fund-level expenses are borne PRO RATA on the basis of relative net assets of all classes, except that each class bears any expenses unique to that class. N shares, A shares, B shares, Service shares, and Exchange shares are subject to certain service organization/agent fees as described in Note 4, and the A shares are sold subject to a sales load (Note 5). Institutional shares are not subject to service organization/agent fees or sales loads. 124 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 The High Yield Select Bond Fund seeks to achieve its investment objective by investing substantially all of its investable assets in the High Yield Bond Fund. The financial statements of the High Yield Bond Fund are included in this report and should be read in conjunction with the financial statements of the High Yield Select Bond Fund. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies used by the Funds in the preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. (a) SECURITY VALUATION -- Equity securities, other than securities for which the primary market is the National Association of Securities Dealers' Automatic Quotation System ("NASDAQ"), are valued at the last sales price on the primary market where traded as of the close of regular trading on the New York Stock Exchange (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. A security for which the primary market is the NASDAQ will be valued at the NASDAQ Official Closing Price as defined by the NASDAQ, or in the absence of any reported Official Closing Price on the valuation date, the last reported sales price, or in the absence of any sale on the valuation date, at closing price. Securities traded only on the over-the-counter markets are valued at the closing over-the-counter bid prices. Debt obligations and fixed-income securities, including asset-backed and mortgage-backed securities (but not including securities with remaining maturities of 60 days or less or securities held by the Money Market Funds), are valued at the mean of the last bid and asked prices. In the event that market prices are not readily available, or where last sale prices are considered not reflective of market values as of the valuation time (e.g., from foreign markets), securities are valued at fair value as determined in good faith by or under the direction of the Board of Trustees. Debt obligations with remaining maturities of 60 days or less and securities held by the Money Market Funds are valued at amortized cost. Each of the Money Market Funds values its investments using the amortized cost method as permitted by Rule 2a-7 of the Investment Company Act of 1940, which involves initially valuing investments at cost and thereafter assuming a constant amortization to maturity of any premium or discount. This method approximates market value. (b) FOREIGN CURRENCY TRANSLATION -- The books and records of the International Fund and the Emerging Markets Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis: (i) market value of investment securities, other assets and liabilities at the current rate of exchange on the valuation date; and (ii) purchases and sales of investment securities, income and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions. The International Fund and the Emerging Markets Fund do not isolate that portion of gains and losses on investments in securities which is due to changes in the foreign exchange rates from that which is due to changes in the market prices of such securities. The International Fund and the Emerging Markets Fund report gains and losses on foreign currency-related transactions as realized and unrealized gains and losses for financial reporting purposes, whereas such gains and losses, to the extent realized, are treated as ordinary income or loss for federal income tax purposes. (c) FEDERAL INCOME TAXES -- Each Fund intends to continue to qualify as a regulated investment company under the Internal Revenue Code and to distribute substantially all of its net investment income and net realized capital gains to shareholders. Accordingly, no provision for federal income tax is required. 125 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 (d) DISTRIBUTIONS -- Each of the Funds declares dividends from net investment income. Dividends from the Money Market Funds and the Fixed Income Funds are declared daily and paid monthly. Dividends from the Equity Fund, Index Fund, and Balanced Fund are declared and paid quarterly. Dividends from the Core Equity Fund, Small-Cap Opportunity Fund, Small-Cap Value Fund, Small-Cap Aggressive Growth Fund, International Fund and the Emerging Markets Fund are declared and paid annually. Each Fund's net realized capital gains, if any, are distributed at least annually. Distributions to shareholders are recorded on the ex-dividend dates. The amounts of distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from those amounts determined under generally accepted accounting principles in the United States of America. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they are reclassified within the capital accounts to conform to their tax treatment in the period in which the difference arises. (e) FUTURES CONTRACTS -- The Funds may seek to hedge all or a portion of their investments through the use of securities index and other financial futures contracts. 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. Upon entering into a futures contract, a Fund is required to deposit an amount ("initial margin") equal to a certain percentage of the contract value. Subsequent payments ("variation margin") are made or received by the Fund each day, reflecting the daily change in the value of the contracts and are recorded as an unrealized gain or loss. When the contract is closed the Fund will recognize a realized gain or loss. Futures contracts are subject to the risk associated with the imperfect correlation between movements in the price of the futures contract and the price of the securities being hedged. The risk of imperfect correlation increases with respect to securities index futures as the composition of the Fund's portfolio diverges from composition of the index underlying such index futures. In addition, there is no assurance that a liquid secondary market will exist at the time the Fund elects to close out a futures position. (f) ALLOCATION OF EXPENSES -- Expenses which have not been directly charged to a specific Fund are generally allocated among the Funds primarily on the basis of relative net assets. Expenses relating to a particular class of shares of a Fund are charged to that class. Non-class specific expenses of a Fund are allocated among the classes of shares of the Fund based upon the relative net assets of the classes. (g) DOLLAR ROLLS -- A Fund may enter into mortgage dollar rolls in which the Fund sells mortgage-backed securities for delivery in the current month and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. During the roll period the Fund forgoes principal and interest paid on the securities. The Fund is compensated by the interest earned on the cash proceeds of the initial sale and by the lower repurchase price at the future date. During 2003, the Funds began classifying income earned from dollar rolls as realized gains. Such income was previously recorded in interest income. (h) REPURCHASE AGREEMENTS -- Certain Funds invest in repurchase agreements. Securities pledged as collateral for repurchase agreements are held by a custodian bank until maturity of the repurchase agreements. Provisions of the repurchase agreements require that the market value of the collateral, including accrued interest thereon, be sufficient in the event of default by the counterparty. If the counterparty defaults and the value of the collateral declines, or if the counterparty enters an insolvency proceeding, realization on the collateral by the Fund may be delayed or limited. (i) SECURITIES LENDING -- The non-Money Market Funds may participate in a securities-lending program with certain counterparties whereby a Fund may loan securities to an organization that provides collateral. The lending Fund continues to own the loaned securities and the securities remain in the investment portfolio. However, in the event of default or bankruptcy by the counterparty to the agreement, realization on and/or retention of the collateral may be subject to legal proceedings. 126 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 (j) OTHER -- Investment transactions are recorded on trade date. Interest income, including the amortization of discount or premium, is recorded as earned. Discounts and premiums on securities purchased are amortized over the lives of the respective securities using the effective-yield method for non-Money Market Funds and the straight-line method for the Money Market Funds. Dividend income is recorded on the ex-dividend date. 3. ADVISORY, ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS The Trust retains Harris Investment Management ("HIM") as investment adviser (the "Adviser") for each Fund, pursuant to an advisory contract for each Fund. As Adviser, HIM is entitled to receive fees payable monthly, based upon the average daily net asset value of each Fund, at the following annual rates: Each Money Market Fund 0.14% of the first $100 million of net assets and 0.10% of net assets over $100 million Short/Intermediate Bond Fund 0.70% Bond Fund 0.65% Intermediate Government Bond Fund 0.45% High Yield Bond Fund 0.45% Intermediate Tax-Exempt Bond Fund 0.45% Tax-Exempt Bond Fund 0.45% High Yield Select Bond Fund --* Equity Fund 0.70% Core Equity Fund 0.90% Small-Cap Opportunity Fund 1.00% Small-Cap Value Fund 0.70% Index Fund 0.20% Small-Cap Aggressive Growth Fund 0.75% Balanced Fund 0.50% International Fund 1.05% Emerging Markets Fund 1.25% *The Fund pays an advisory fee indirectly as a shareholder of the High Yield Bond Fund. HIM may, at its discretion, voluntarily waive all or any portion of its advisory fee for any Fund. For the year ended December 31, 2003, advisory fees and waivers for certain Funds were as follows:
GROSS NET ADVISORY FEE WAIVER ADVISORY FEE ------------ --------- ------------ Short/Intermediate Bond Fund .................... $1,892,556 $ 933,062 $ 959,494 Bond Fund ....................................... 1,255,395 613,182 642,213 Intermediate Government Bond Fund ............... 489,948 331,520 158,428 High Yield Bond Fund ............................ 206,771 49,708 157,063 Intermediate Tax-Exempt Bond Fund ............... 1,200,190 668,654 531,536 Tax-Exempt Bond Fund ............................ 577,100 321,530 255,570 Core Equity Fund ................................ 1,023,289 118,733 904,556 Small-Cap Opportunity Fund ...................... 4,238,707 140,096 4,098,611 Small-Cap Value Fund ............................ 1,933,332 77,726 1,855,606 Index Fund ...................................... 778,912 115,188 663,724 Small-Cap Aggressive Growth Fund ................ 53,935 30,819 23,116 Balanced Fund ................................... 282,356 40,864 241,492
There were no advisory fee waivers for the other Funds. 127 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 HIM has entered into Investment Sub-Advisory Agreements with Hansberger Global Investors, Inc. ("Hansberger") with respect to the International Fund and the Emerging Markets Fund. Pursuant to those agreements, Hansberger selects and manages the securities in which those Funds invest. Hansberger, as sub-adviser, receives a fee directly from HIM and not from the Funds. HIM has also entered into an Investment Sub-Advisory Agreement with HIM Monegy, Inc. ("Monegy"), a wholly-owned subsidiary of HIM, with respect to the High Yield Bond Fund. Pursuant to the agreement, Monegy selects and manages the securities in which the Fund invests. Monegy, as sub-adviser, receives a fee directly from HIM and not from the Funds. The Trust has an Administration Agreement with Harris Trust and Savings Bank ("Harris Trust" or the "Administrator"). In this capacity, the Administrator generally assists the Funds in all aspects of their administration and operation. The Administrator has entered into Sub-Administration and Accounting Services Agreements with PFPC Inc. ("PFPC"), pursuant to which PFPC performs certain administrative services for the Funds. Under these Agreements, the Administrator compensates PFPC for providing such services. The Administrator also serves as the transfer and dividend disbursing agent of the Funds (the "Transfer Agent"). The Administrator 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. The Administrator compensates the Sub-Transfer Agent for providing such services. PFPC Trust Co. (the "Custodian") serves as the Custodian of the assets of the Funds. As compensation for their services, the Administrator and the Transfer Agent are entitled to receive from the Trust a fee based on the aggregate average daily net assets of the Trust, payable monthly at an aggregate annual rate of 0.1665% of the first $300 million of average daily net assets; 0.1465% of the next $300 million of average daily net assets; and 0.1265% of average daily net assets in excess of $600 million. Certain employees of Harris Trust and PFPC are officers of the Funds. PFPC Distributors, Inc. (the "Distributor") provides distribution services in connection with sales of shares of the Funds. No compensation is payable by the Funds to the Distributor for its distribution services. Fees for services rendered by the Distributor were paid by the Administrator. During the year ended December 31, 2003, Harris Trust received $10,976,153 in fees (net of waivers of $5,618,878) from the Funds for services as Administrator and Transfer Agent, of which Harris Trust paid to PFPC $3,874,908 in fees for services rendered under the agreements described above. In addition, PFPC and PFPC Trust Co. received $2,085,465 in fees and expenses (net of waivers of $389,166) from the Funds for other transfer agency, custodian, and administrative and accounting services. 4. SERVICE PLANS Shares of all classes of a Fund represent equal PRO RATA interests in such Fund except that each class bears different expenses, which reflect the differences in the charges for the different services provided to them. The following tables provide a list of the Funds included in this report along with a summary of fees paid pursuant to their respective class-specific fee arrangements under the Funds' Service and Distribution Plans (the "Plans"). Fees are calculated as a percentage (on an annualized basis) of average daily net asset values of the respective classes. 128 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 SHAREHOLDER SERVICE FEES: NON-MONEY MARKET FUNDS N SHARES B SHARES (0.25%) (0.25%) -------- -------- Short/Intermediate Bond Fund ................. $23,263 $1,858 Bond Fund .................................... 12,827 1,342 Intermediate Government Bond Fund ............ 48,294 3,202 Intermediate Tax-Exempt Bond Fund ............ 28,622 1,492 Tax-Exempt Bond Fund ......................... 60,418 2,379 High Yield Select Bond Fund .................. 933 -- Equity Fund .................................. 28,477 658 Core Equity Fund ............................. 9,854 215 Small-Cap Opportunity Fund ................... 88,348 852 Small-Cap Value Fund ......................... 14,084 1,764 Index Fund ................................... 43,878 1,337 Small-Cap Aggressive Growth Fund ............. -- 4 Balanced Fund ................................ 5,155 557 International Fund ........................... 3,264 12 Emerging Markets Fund ........................ 1,400 8 MONEY MARKET FUNDS
N SHARES B SHARES EXCHANGE SHARES SERVICE SHARES (0.25%) (0.25%) (0.05%) (0.25%) ---------- -------- --------------- -------------- Government Money Market Fund .................. $ 774,468 $1,704,801 Money Market Fund ............................. 3,029,741 $57 $277,237* 4,352,205 Tax-Exempt Money Market Fund .................. 567,321 323,030 *Net of waivers of $24,970.
RULE 12B-1 FEES (DISTRIBUTION FEES PURSUANT TO RULE 12B-1 UNDER THE 1940 ACT): NON-MONEY MARKET FUNDS A SHARES B SHARES (0.25%) (0.75%) -------- -------- Short/Intermediate Bond Fund .................. $ 9,582 $5,576 Bond Fund ..................................... 2,260 4,027 Intermediate Government Bond Fund ............. 6,763 9,604 Intermediate Tax-Exempt Bond Fund ............. 6,792 4,475 Tax-Exempt Bond Fund .......................... 11,149 7,139 High Yield Select Bond Fund ................... 444 -- Equity Fund ................................... 701 1,973 Core Equity Fund .............................. 1,226 643 Small-Cap Opportunity Fund .................... 3,707 2,555 Small-Cap Value Fund .......................... 2,498 5,290 Index Fund .................................... -- 4,012 Small-Cap Aggressive Growth Fund .............. -- 10 Balanced Fund ................................. 745 1,670 International Fund ............................ 115 34 Emerging Markets Fund ......................... 524 24 129 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 MONEY MARKET FUNDS
N SHARES B SHARES SERVICE SHARES (0.10%) (0.75%) (0.15%) ---------- -------- -------------- Government Money Market Fund .............. $ 309,787 $1,022,881 Money Market Fund ......................... 1,211,897 $130* 2,611,323 Tax-Exempt Money Market Fund .............. 226,928 193,818 *Net of waivers of $41.
For the year ended December 31, 2003, Harris Trust received $5,874,635 in fees for services rendered under the terms of the service plans described above. The Service shares class of each of the Money Market Funds may pay Program Service fees to financial institutions to provide check-writing, debit or credit card bill payment, and other auxiliary services to participants in a cash management program, at a rate of up to 0.50% (on an annualized basis) of the average daily net assets attributable to Service shares. For the year ended December 31, 2003, fees paid under the Program were $1,469,857, $4,144,764, and $232,465 (net of voluntary waivers of $1,939,745, $4,559,645 and $413,594) for the Service shares of the Government Money Market Fund, Money Market Fund, and Tax-Exempt Money Market Fund, respectively. 5. PUBLIC OFFERING PRICE Class A shares of the Funds are sold at a public offering price which is equal to the current net asset value of such shares with a maximum front-end sales load of 5.50% for the Equity Funds, 4.50% for the High Yield Select Bond Fund,Tax-Exempt Bond Fund, and Bond Fund, and 3.50% for the Intermediate Tax-Exempt Bond Fund, Short/Intermediate Bond Fund, and Intermediate Government Bond Fund. 130 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 6. CAPITAL SHARES Since the Money Market Funds have sold and redeemed shares only at a constant net asset value of $1.00 per share, the number of shares represented by such sales and redemptions is the same as the amounts shown below for such transactions.
MONEY MARKET FUNDS --------------------------------------------------------------------------- GOVERNMENT MONEY MARKET FUND MONEY MARKET FUND -------------------------------- ------------------------------------ YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED 12/31/03 12/31/02 12/31/03 12/31/02 -------------- --------------- ---------------- ---------------- AMOUNT - ------ INSTITUTIONAL SHARES: Sold .................................. $1,361,479,489 $ 929,495,246 $ 21,422,067,258 $ 19,651,013,334 Issued as reinvestment of dividends ... 267,228 96,685 12,703,696 14,833,773 Redeemed .............................. (1,373,394,988) (917,550,199) (22,554,822,580) (16,994,089,475) -------------- --------------- ---------------- ---------------- Net increase/(decrease) ............... $ (11,648,271) $ 12,041,732 $ (1,120,051,626) $ 2,671,757,632 ============== =============== ================ ================ N SHARES: Sold .................................. $2,032,634,666 $ 1,799,881,714 $ 3,967,152,198 $ 3,694,404,666 Issued as reinvestment of dividends ... 1,925,957 3,405,809 8,969,044 19,697,845 Redeemed .............................. (1,962,375,482) (1,783,947,845) (3,972,251,455) (3,959,090,447) -------------- --------------- --------------- ---------------- Net increase/(decrease) ............... $ 72,185,141 $ 19,339,678 $ 3,869,787 $ (244,987,936) ============== =============== ================ ================ B SHARES: Sold .................................. $ 44,067 $ 23,731 Issued as reinvestment of dividends ... 52 49 Redeemed .............................. (14,291) (8,667) ---------------- ---------------- Net increase/(decrease) ............... $ 29,828 $ 15,113 ================ ================ EXCHANGE SHARES: Sold .................................. $ 1,836,736,364 $ 4,745,856,284 Issued as reinvestment of dividends ... 5,936,599 8,835,230 Redeemed .............................. (2,798,562,788) (3,663,776,245) ---------------- ---------------- Net increase/(decrease) ............... $ (955,889,825) $ 1,090,915,269 ================ ================ SERVICE SHARES: Sold .................................. $1,172,487,808 $ 238,599,232 $ 1,536,808,319 $ 1,453,010,664 Issued as reinvestment of dividends ... 2,014,061 442,810 7,329,563 5,193,262 Redeemed .............................. (236,797,271) (41,253,537) (652,618,134) (190,307,154) -------------- --------------- ---------------- ---------------- Net increase/(decrease) ............... $ 937,704,598 $ 197,788,505 $ 891,519,748 $ 1,267,896,772 ============== =============== ================ ================ MONEY MARKET FUNDS ---------------------------------- TAX-EXEMPT MONEY MARKET FUND ---------------------------------- YEAR YEAR ENDED ENDED 12/31/03 12/31/02 --------------- -------------- AMOUNT - ------ INSTITUTIONAL SHARES: Sold .................................. $ 2,274,388,814 $1,168,417,090 Issued as reinvestment of dividends ... 38,537 205,307 Redeemed .............................. (2,242,455,811) (1,141,480,796) --------------- -------------- Net increase/(decrease) ............... $ 31,971,540 $ 27,141,601 =============== ============== N SHARES: Sold .................................. $ 559,034,432 $ 462,394,802 Issued as reinvestment of dividends ... 979,453 1,851,619 Redeemed .............................. (532,855,537) (484,067,010) --------------- -------------- Net increase/(decrease) ............... $ 27,158,348 $ (19,820,589) =============== ============== B SHARES: Sold .................................. Issued as reinvestment of dividends ... Redeemed .............................. Net increase/(decrease) ............... EXCHANGE SHARES: Sold .................................. Issued as reinvestment of dividends ... Redeemed .............................. Net increase/(decrease) ............... SERVICE SHARES: Sold .................................. $ 217,491,515 $ 118,086,124 Issued as reinvestment of dividends ... 351,611 201,759 Redeemed .............................. (116,551,359) (39,506,002) --------------- -------------- Net increase/(decrease) ............... $ 101,291,767 $ 78,781,881 =============== ==============
131 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003
FIXED INCOME FUNDS ----------------------------------------------------------- SHORT/ INTERMEDIATE BOND BOND FUND FUND ----------------------------- ---------------------------- YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED 12/31/03 12/31/02 12/31/03 12/31/02 ------------ ------------ ------------- ------------ AMOUNT - ------ INSTITUTIONAL SHARES: Sold ..................................................... $100,545,970 $ 50,512,508 $ 23,803,172 $ 41,715,179 Issued as reinvestment of dividends ...................... 1,766,964 1,813,469 4,586,905 4,234,837 Redeemed ................................................. (60,427,238) (47,329,222) (118,208,553) (51,404,580) ------------ ------------ ------------- ------------ Net increase/(decrease) .................................. $ 41,885,696 $ 4,996,755 $ (89,818,476) $ (5,454,564) ============ ============ ============= ============ N SHARES: Sold ..................................................... $ 6,045,892 $ 6,669,803 $ 1,752,303 $ 7,348,035 Issued as reinvestment of dividends ...................... 264,197 212,624 191,695 312,698 Redeemed ................................................. (5,846,560) (4,759,634) (2,922,799) (8,016,039) ------------ ------------ ------------- ------------ Net increase/(decrease) .................................. $ 463,529 $ 2,122,793 $ (978,801) $ (355,306) ============ ============ ============= ============ A SHARES: Sold ..................................................... $ 4,687,307 $ 6,726,767 $ 209,419 $ 1,285,718 Issued as reinvestment of dividends ...................... 105,361 86,758 29,072 21,150 Redeemed ................................................. (5,006,305) (3,065,539) (339,822) (716,103) ------------ ------------ ------------- ------------ Net increase/(decrease) .................................. $ (213,637) $ 3,747,986 $ (101,331) $ 590,765 ============ ============ ============= ============ B SHARES: Sold ..................................................... $ 761,397 $ 379,842 $ 162,632 $ 290,271 Issued as reinvestment of dividends ...................... 21,669 5,247 19,365 15,616 Redeemed ................................................. (147,485) (23,777) (216,920) (20,228) ------------ ------------ ------------- ------------ Net increase/(decrease) .................................. $ 635,581 $ 361,312 $ (34,923) $ 285,659 ============ ============ ============= ============ - --------------------------------------------------------------------------------------------------------------------------- SHARES - ------ INSTITUTIONAL SHARES: Sold ..................................................... 9,681,782 4,913,623 2,292,214 4,074,481 Issued as reinvestment of dividends ...................... 169,831 176,562 443,862 413,280 Redeemed ................................................. (5,806,153) (4,603,925) (11,554,783) (5,026,986) ------------ ------------ ------------- ------------ Net increase/(decrease) .................................. 4,045,460 486,260 (8,818,707) (539,225) ============ ============ ============= ============ N SHARES: Sold ..................................................... 579,218 648,105 169,529 715,898 Issued as reinvestment of dividends ...................... 25,374 20,694 18,558 30,577 Redeemed ................................................. (561,744) (462,860) (282,535) (785,399) ------------ ------------ ------------- ------------ Net increase/(decrease) .................................. 42,848 205,939 (94,448) (38,924) ============ ============ ============= ============ A SHARES: Sold ..................................................... 451,754 653,431 20,207 125,066 Issued as reinvestment of dividends ...................... 10,129 8,429 2,818 2,069 Redeemed ................................................. (481,108) (297,744) (32,892) (70,701) ------------ ------------ ------------- ------------ Net increase/(decrease) .................................. (19,225) 364,116 (9,867) 56,434 ============ ============ ============= ============ B SHARES: Sold ..................................................... 73,431 36,907 15,691 28,292 Issued as reinvestment of dividends ...................... 2,083 510 1,876 1,525 Redeemed ................................................. (14,199) (2,320) (21,300) (1,964) ------------ ------------ ------------- ------------ Net increase/(decrease) .................................. 61,315 35,097 (3,733) 27,853 ============ ============ ============= ============
132 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003
FIXED INCOME FUNDS ----------------------------------------------------------------------------------- INTERMEDIATE INTERMEDIATE GOVERNMENT BOND HIGH YIELD BOND TAX-EXEMPT BOND FUND FUND FUND ----------------------------------------------------------------------------------- YEAR YEAR YEAR PERIOD YEAR YEAR ENDED ENDED ENDED ENDED ENDED ENDED 12/31/03 12/31/02 12/31/03 12/31/02(1) 12/31/03 12/31/02 ------------ ------------ ------------ ----------- ------------ ------------ AMOUNT - ------ INSTITUTIONAL SHARES: Sold ................................. $ 24,132,691 $ 40,720,804 $ 52,848,751 $17,492,262 $ 61,435,211 $ 54,728,389 Issued as reinvestment of dividends .. 3,516,134 3,072,889 3,583,074 388,982 1,142,699 690,351 Redeemed ............................. (35,069,444) (32,752,621) (15,073,126) (100,017) (73,751,184) (39,718,596) ------------ ------------ ------------ ----------- ------------ ------------ Net increase/(decrease) .............. $ (7,420,619) $ 11,041,072 $ 41,358,699 $17,781,227 $(11,173,274) $ 15,700,144 ============ ============ ============ =========== ============ ============ N SHARES: Sold ................................. $ 6,884,418 $ 17,259,324 $ 7,134,440 $ 11,877,266 Issued as reinvestment of dividends .. 834,485 598,952 306,695 284,072 Redeemed ............................. (9,271,575) (4,387,270) (10,445,251) (9,822,808) ------------ ------------ ------------ ------------ Net increase/(decrease) .............. $ (1,552,672) $ 13,471,006 $ (3,004,116) $ 2,338,530 ============ ============ ============ ============ A SHARES: Sold ................................. $ 1,995,405 $ 2,216,675 $ 4,324,208 $ 1,730,785 Issued as reinvestment of dividends .. 91,317 31,218 85,461 21,618 Redeemed ............................. (1,927,813) (507,870) (3,985,095) (266,073) ------------ ------------ ------------ ------------ Net increase/(decrease) .............. $ 158,909 $ 1,740,023 $ 424,574 $ 1,486,330 ============ ============ ============ ============ B SHARES: Sold ................................. $ 745,610 $ 690,226 $ 440,028 $ 297,252 Issued as reinvestment of dividends .. 40,061 11,206 10,380 886 Redeemed ............................. (499,566) (19,353) (25,532) (2,531) ------------ ------------ ------------ ------------ Net increase/(decrease) .............. $ 286,105 $ 682,079 $ 424,876 $ 295,607 ============ ============ ============ ============ - ---------------------------------------------------------------------------------------------------------------------------- SHARES - ------ INSTITUTIONAL SHARES: Sold ................................. 1,383,505 2,369,554 4,280,262 1,516,335 5,342,379 4,882,753 Issued as reinvestment of dividends .. 201,879 178,907 286,545 33,378 99,494 61,255 Redeemed ............................. (2,007,788) (1,916,859) (1,204,766) (8,527) (6,440,861) (3,555,073) ------------ ------------ ------------ ----------- ------------ ------------ Net increase/(decrease) .............. (422,404) 631,602 3,362,041 1,541,186 (998,988) 1,388,935 ============ ============ ============ =========== ============ ============ N SHARES: Sold ................................. 391,822 1,009,510 624,164 1,048,562 Issued as reinvestment of dividends .. 47,909 34,848 26,702 25,239 Redeemed ............................. (532,897) (255,127) (911,626) (871,439) ------------ ------------ ------------ ------------ Net increase/(decrease) .............. (93,166) 789,231 (260,760) 202,362 ============ ============ ============ ============ A SHARES: Sold ................................. 113,644 126,760 378,177 152,996 Issued as reinvestment of dividends .. 5,250 1,806 7,444 1,903 Redeemed ............................. (110,881) (29,615) (347,249) (23,342) ------------ ------------ ------------ ------------ Net increase/(decrease) .............. 8,013 98,951 38,372 131,557 ============ ============ ============ ============ B SHARES: Sold ................................. 42,468 39,536 38,336 26,461 Issued as reinvestment of dividends .. 2,301 650 903 78 Redeemed ............................. (28,687) (1,116) (2,235) (227) ------------ ------------ ------------ ------------ Net increase/(decrease) .............. 16,082 39,070 37,004 26,312 ============ ============ ============ ============ (1) For the period 09/23/02 (commencement of operations) to 12/31/02.
133 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003
FIXED INCOME FUNDS ----------------------------------------------------------- HIGH YIELD TAX-EXEMPT BOND SELECT BOND FUND FUND ---------------------------- --------------------------- YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED 12/31/03 12/31/02 12/31/03 12/31/02 ------------ ------------ ----------- ------------ AMOUNT - ------ INSTITUTIONAL SHARES: Sold .................................................... $ 14,788,046 $ 18,496,103 $12,707,211 $ 3,339,742 Issued as reinvestment of dividends ..................... 160,006 109,998 1,058,206 705,988 Redeemed ................................................ (36,465,643) (23,492,439) (8,839,682) (20,337,125) ------------ ------------ ----------- ------------ Net increase/(decrease) ................................. $(21,517,591) $ (4,886,338) $ 4,925,735 $(16,291,395) ============ ============ =========== ============ N SHARES: Sold .................................................... $ 36,470,363 $ 27,029,564 $ 191,272 $ 159,779 Issued as reinvestment of dividends ..................... 844,226 201,882 16,818 9,132 Redeemed ................................................ (27,106,626) (14,937,088) (177,107) (83,708) ------------ ------------ ----------- ------------ Net increase/(decrease) ................................. $ 10,207,963 $ 12,294,358 $ 30,983 $ 85,203 ============ ============ =========== ============ A SHARES: Sold .................................................... $ 3,000,754 $ 3,504,968 $ 1,629,933 $ 6,301 Issued as reinvestment of dividends ..................... 124,218 52,015 5,525 1,350 Redeemed ................................................ (4,336,620) (149,702) (1,495,507) (95,807) ------------ ------------ ----------- ------------ Net increase/(decrease) ................................. $ (1,211,648) $ 3,407,281 $ 139,951 $ (88,156) ============ ============ =========== ============ B SHARES: Sold .................................................... $ 610,742 $ 531,661 Issued as reinvestment of dividends ..................... 22,521 9,499 Redeemed ................................................ (146,137) (4,367) ------------ ------------ Net increase/(decrease) ................................. $ 487,126 $ 536,793 ============ ============ - --------------------------------------------------------------------------------------------------------------------------- SHARES - ------ INSTITUTIONAL SHARES: Sold .................................................... 1,327,652 1,696,235 737,893 190,804 Issued as reinvestment of dividends ..................... 14,222 10,079 60,874 41,623 Redeemed ................................................ (3,242,066) (2,153,236) (507,175) (1,179,591) ------------ ------------ ----------- ------------ Net increase/(decrease) ................................. (1,900,192) (446,922) 291,592 (947,164) ============ ============ =========== ============ N SHARES: Sold .................................................... 3,264,633 2,470,946 10,918 9,213 Issued as reinvestment of dividends ..................... 75,059 18,310 971 548 Redeemed ................................................ (2,413,270) (1,365,058) (10,105) (4,581) ------------ ------------ ----------- ------------ Net increase/(decrease) ................................. 926,422 1,124,198 1,784 5,180 ============ ============ =========== ============ A SHARES: Sold .................................................... 267,318 317,473 94,705 351 Issued as reinvestment of dividends ..................... 11,065 4,747 316 80 Redeemed ................................................ (389,005) (13,754) (85,375) (5,446) ------------ ------------ ----------- ------------ Net increase/(decrease) ................................. (110,622) 308,466 9,646 (5,015) ============ ============ =========== ============ B SHARES: Sold .................................................... 54,301 48,263 Issued as reinvestment of dividends ..................... 2,003 869 Redeemed ................................................ (13,205) (400) ------------ ------------ Net increase/(decrease) ................................. 43,099 48,732 ============ ============
134 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003
EQUITY FUNDS ------------------------------------------------------------------------ CORE EQUITY EQUITY FUND FUND ------------------------------------------------------------------------ YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED 12/31/03 12/31/02 12/31/03 12/31/02 ------------- ------------ ------------ ------------ AMOUNT - ------ INSTITUTIONAL SHARES: Sold ..................................... $ 34,695,848 $ 57,326,737 $ 28,595,379 $ 15,986,652 Issued as reinvestment of dividends ...... 887,421 782,266 123,720 919,212 Redeemed ................................. (104,465,791) (65,552,793) (28,853,967) (32,734,720) ------------- ------------ ------------ ------------ Net increase/(decrease) .................. $ (68,882,522) $ (7,443,790) $ (134,868) $(15,828,856) ============= ============ ============ ============ N SHARES: Sold ..................................... $ 4,259,551 $ 9,848,688 $ 799,713 $ 541,014 Issued as reinvestment of dividends ...... 19,282 10,225 6,808 61,481 Redeemed ................................. (4,413,461) (11,866,569) (947,385) (1,291,923) ------------- ------------ ------------ ------------ Net increase/(decrease) .................. $ (134,628) $ (2,007,656) $ (140,864) $ (689,428) ============= ============ ============ ============ A SHARES: Sold ..................................... $ 133,390 $ 149,168 $ 30,712 $ 226,262 Issued as reinvestment of dividends ...... 410 237 900 10,571 Redeemed ................................. (68,989) (52,221) (180,566) (138,719) ------------- ------------ ------------ ------------ Net increase/(decrease) .................. $ 64,811 $ 97,184 $ (148,954) $ 98,114 ============= ============ ============ ============ B SHARES: Sold ..................................... $ 47,660 $ 213,797 $ 55,683 $ 52,853 Issued as reinvestment of dividends ...... -- -- -- 525 Redeemed ................................. (13,319) -- (4,765) (3,165) ------------- ------------ ------------ ------------ Net increase/(decrease) .................. $ 34,341 $ 213,797 $ 50,918 $ 50,213 ============= ============ ============ ============ - ---------------------------------------------------------------------------------------------------------------------- SHARES - ------ INSTITUTIONAL SHARES: Sold ..................................... 3,611,471 5,330,623 1,634,234 893,816 Issued as reinvestment of dividends ...... 87,749 78,978 6,264 52,020 Redeemed ................................. (10,226,899) (6,289,238) (1,678,595) (1,849,745) ------------- ------------ ------------ ------------ Net increase/(decrease) .................. (6,527,679) (879,637) (38,097) (903,909) ============= ============ ============ ============ N SHARES: Sold ..................................... 437,862 865,436 45,211 29,639 Issued as reinvestment of dividends ...... 1,992 878 348 3,503 Redeemed ................................. (470,673) (1,052,520) (54,863) (71,115) ------------- ------------ ------------ ------------ Net increase/(decrease) .................. (30,819) (186,206) (9,304) (37,973) ============= ============ ============ ============ A SHARES: Sold ..................................... 13,998 12,835 1,819 12,743 Issued as reinvestment of dividends ...... 43 20 46 603 Redeemed ................................. (6,732) (4,888) (11,070) (9,210) ------------- ------------ ------------ ------------ Net increase/(decrease) .................. 7,309 7,967 (9,205) 4,136 ============= ============ ============ ============ B SHARES: Sold ..................................... 4,878 22,941 3,195 2,997 Issued as reinvestment of dividends ...... -- -- -- 30 Redeemed ................................. (1,289) -- (261) (197) ------------- ------------ ------------ ------------ Net increase/(decrease) .................. 3,589 22,941 2,934 2,830 ============= ============ ============ ============ EQUITY FUNDS -------------------------------- SMALL-CAP OPPORTUNITY FUND -------------------------------- YEAR YEAR ENDED ENDED 12/31/03 12/31/02 ------------- ------------- AMOUNT - ------ INSTITUTIONAL SHARES: Sold ..................................... $ 97,410,102 $ 83,852,191 Issued as reinvestment of dividends ...... 3,325,696 -- Redeemed ................................. (111,454,141) (110,171,102) ------------- ------------- Net increase/(decrease) .................. $ (10,718,343) $ (26,318,911) ============= ============= N SHARES: Sold ..................................... $ 37,471,069 $ 9,968,769 Issued as reinvestment of dividends ...... 360,913 -- Redeemed ................................. (4,977,508) (2,988,025) ------------- ------------- Net increase/(decrease) .................. $ 32,854,474 $ 6,980,744 ============= ============= A SHARES: Sold ..................................... $ 2,064,717 $ 739,465 Issued as reinvestment of dividends ...... 28,845 -- Redeemed ................................. (418,477) (107,161) ------------- ------------- Net increase/(decrease) .................. $ 1,675,085 $ 632,304 ============= ============= B SHARES: Sold ..................................... $ 218,323 $ 252,490 Issued as reinvestment of dividends ...... 5,187 -- Redeemed ................................. (94,274) (29,008) ------------- ------------- Net increase/(decrease) .................. $ 129,236 $ 223,482 ============= ============= - ------------------------------------------------------------------------------ SHARES - ------ INSTITUTIONAL SHARES: Sold ..................................... 5,438,280 4,877,498 Issued as reinvestment of dividends ...... 151,099 -- Redeemed ................................. (6,231,119) (6,703,716) ------------- ------------- Net increase/(decrease) .................. (641,740) (1,826,218) ============= ============= N SHARES: Sold ..................................... 2,070,515 638,082 Issued as reinvestment of dividends ...... 16,732 -- Redeemed ................................. (262,820) (174,638) ------------- ------------- Net increase/(decrease) .................. 1,824,427 463,444 ============= ============= A SHARES: Sold ..................................... 105,372 45,439 Issued as reinvestment of dividends ...... 1,338 -- Redeemed ................................. (22,200) (7,243) ------------- ------------- Net increase/(decrease) .................. 84,510 38,196 ============= ============= B SHARES: Sold ..................................... 11,919 15,738 Issued as reinvestment of dividends ...... 245 -- Redeemed ................................. (5,155) (1,970) ------------- ------------- Net increase/(decrease) .................. 7,009 13,768 ============= =============
135 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003
EQUITY FUNDS -------------------------------------------------------------------------------------------- SMALL-CAP SMALL-CAP AGGRESSIVE VALUE INDEX GROWTH FUND FUND FUND ---------------------------- ------------------------------ -------------------------- YEAR YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED ENDED 12/31/03 12/31/02 12/31/03 12/31/02 12/31/03 12/31/02 ------------ ------------ ------------- ------------- ----------- ----------- AMOUNT - ------ INSTITUTIONAL SHARES: Sold .............................. $ 88,206,111 $ 88,589,289 $ 54,842,184 $ 131,416,092 $ 692,169 $ 4,106,927 Issued as reinvestment of dividends 1,030,950 2,170,579 15,760,377 5,456,445 -- -- Redeemed .......................... (90,590,451) (81,756,789) (130,114,818) (112,265,658) (2,183,413) (2,587,447) ------------ ------------ ------------- ------------- ----------- ----------- Net increase/(decrease) ........... $ (1,353,390) $ 9,003,079 $ (59,512,257) $ 24,606,879 $(1,491,244) $ 1,519,480 ============ ============ ============= ============= =========== =========== N SHARES: Sold .............................. $ 3,697,109 $ 5,895,429 $ 6,581,014 $ 4,695,337 Issued as reinvestment of dividends 45,086 44,712 1,171,291 448,578 Redeemed .......................... (2,505,428) (4,288,509) (8,106,912) (6,715,335) ------------ ------------ ------------- ------------- Net increase/(decrease) ........... $ 1,236,767 $ 1,651,632 $ (354,607) $ (1,571,420) ============ ============ ============= ============= A SHARES: Sold .............................. $ 667,133 $ 575,858 Issued as reinvestment of dividends 9,377 6,486 Redeemed .......................... (168,923) (130,570) ------------ ------------ Net increase/(decrease) ........... $ 507,587 $ 451,774 ============ ============ B SHARES: Sold .............................. $ 314,606 $ 293,112 $ 159,828 $ 585,206 $ 800 $ 3,488 Issued as reinvestment of dividends 575 3,416 26,248 2,131 -- -- Redeemed .......................... (67,328) (62,116) (366,343) -- (4,807) -- ------------ ------------ ------------- ------------- ----------- ----------- Net increase/(decrease) ........... $ 247,853 $ 234,412 $ (180,267) $ 587,337 $ (4,007) $ 3,488 ============ ============ ============= ============= =========== =========== - ---------------------------------------------------------------------------------------------------------------------------------- SHARES - ------ INSTITUTIONAL SHARES: Sold .............................. 2,470,328 2,405,739 2,789,440 6,622,131 74,483 441,906 Issued as reinvestment of dividends 23,613 58,591 761,976 275,172 -- -- Redeemed .......................... (2,473,849) (2,365,141) (6,760,531) (5,368,798) (275,498) (305,261) ------------ ------------ ------------- ------------- ----------- ----------- Net increase/(decrease) ........... 20,092 99,189 (3,209,115) 1,528,505 (201,015) 136,645 ============ ============ ============= ============= =========== =========== N SHARES: Sold .............................. 98,608 160,823 331,280 239,195 Issued as reinvestment of dividends 1,035 1,201 56,577 22,425 Redeemed .......................... (67,594) (117,330) (420,492) (323,859) ------------ ------------ ------------- ------------- Net increase/(decrease) ........... 32,049 44,694 (32,635) (62,239) ============ ============ ============= ============= A SHARES: Sold .............................. 17,807 15,833 Issued as reinvestment of dividends 216 176 Redeemed .......................... (4,472) (4,183) ------------ ------------ Net increase/(decrease) ........... 13,551 11,826 ============ ============ B SHARES: Sold .............................. 8,921 8,318 8,035 30,550 109 403 Issued as reinvestment of dividends 13 90 1,270 114 -- -- Redeemed .......................... (1,740) (1,831) (18,548) -- (621) -- ------------ ------------ ------------- ------------- ----------- ----------- Net increase/(decrease) ........... 7,194 6,577 (9,243) 30,664 (512) 403 ============ ============ ============= ============= =========== ===========
136 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003
EQUITY FUNDS ------------------------------------------------------------------------------------------- EMERGING BALANCED INTERNATIONAL MARKETS FUND FUND FUND --------------------------- ---------------------------- ----------------------------- YEAR YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED ENDED 12/31/03 12/31/02 12/31/03 12/31/02 12/31/03 12/31/02 ----------- ------------ ------------ ------------ ------------ ------------- AMOUNT - ------ INSTITUTIONAL SHARES: Sold .............................. $ 9,988,460 $ 8,355,167 $ 37,039,397 $ 46,989,959 $148,543,198 $ 72,596,440 Issued as reinvestment of dividends 1,022,981 1,273,724 1,280,712 581,916 262,975 75,387 Redeemed .......................... (9,573,597) (9,078,415) (57,972,418) (61,093,723) (31,229,515) (10,520,149) ----------- ------------ ------------ ------------ ------------ ------------- Net increase/(decrease) ........... $ 1,437,844 $ 550,476 $(19,652,309) $(13,521,848) $117,576,658 $ 62,151,678 =========== ============ ============ ============ ============ ============= N SHARES: Sold .............................. $ 2,271,256 $ 104,613 $ 1,729,584 $ 18,298,569 $ 1,276,830 $ 708,437 Issued as reinvestment of dividends 34,945 43,530 11,672 2,875 2,174 -- Redeemed .......................... (2,265,996) (266,689) (1,796,389) (22,450,666) (533,781) (740,952) ----------- ------------ ------------ ------------ ------------ ------------- Net increase/(decrease) ........... $ 40,205 $ (118,546) $ (55,133) $ (4,149,222) $ 745,223 $ (32,515) =========== ============ ============ ============ ============ ============= A SHARES: Sold .............................. $ 185,248 $ 39,543 $ 1,176,808 $ 3,130,874 $ 222,799 $ 226,910 Issued as reinvestment of dividends 5,560 6,196 238 -- 507 -- Redeemed .......................... (59,167) (48,823) (1,157,514) (3,078,775) (74,861) (80,829) ----------- ------------ ------------ ------------ ------------ ------------- Net increase/(decrease) ........... $ 131,641 $ (3,084) $ 19,532 $ 52,099 $ 148,445 $ 146,081 =========== ============ ============ ============ ============ ============= B SHARES: Sold .............................. $ 312,108 $ 80,267 $ 1,000 $ 10,383 $ -- $ 9,250 Issued as reinvestment of dividends 2,736 766 -- 12 -- -- Redeemed .......................... (17,639) -- (12,413) -- (8,904) -- ----------- ------------ ------------ ------------ ------------ ------------- Net increase/(decrease) ........... $ 297,205 $ 81,033 $ (11,413) $ 10,395 $ (8,904) $ 9,250 =========== ============ ============ ============ ============ ============= - ------------------------------------------------------------------------------------------------------------------------------------ SHARES - ------ INSTITUTIONAL SHARES: Sold .............................. 806,987 675,024 3,385,133 4,315,397 18,228,757 10,142,851 Issued as reinvestment of dividends 81,690 104,646 98,289 58,898 27,223 11,353 Redeemed .......................... (774,071) (745,730) (5,246,953) (5,362,120) (3,912,715) (1,531,126) ----------- ------------ ------------ ------------ ------------ ------------- Net increase/(decrease) ........... 114,606 33,940 (1,763,531) (987,825) 14,343,265 8,623,078 =========== ============ ============ ============ ============ ============= N SHARES: Sold .............................. 185,620 8,337 154,323 1,657,610 146,620 95,772 Issued as reinvestment of dividends 2,794 3,578 894 290 227 -- Redeemed .......................... (183,970) (20,767) (160,684) (1,997,410) (60,050) (100,749) ----------- ------------ ------------ ------------ ------------ ------------- Net increase/(decrease) ........... 4,444 (8,852) (5,467) (339,510) 86,797 (4,977) =========== ============ ============ ============ ============ ============= A SHARES: Sold .............................. 14,770 3,321 110,405 291,841 27,336 30,537 Issued as reinvestment of dividends 442 509 19 -- 53 -- Redeemed .......................... (4,954) (3,926) (106,732) (291,441) (8,569) (13,622) ----------- ------------ ------------ ------------ ------------ ------------- Net increase/(decrease) ........... 10,258 (96) 3,692 400 18,820 16,915 =========== ============ ============ ============ ============ ============= B SHARES: Sold .............................. 25,363 6,475 106 1,009 -- 1,250 Issued as reinvestment of dividends 217 64 -- 1 -- -- Redeemed .......................... (1,434) -- (1,204) -- (1,250) -- ----------- ------------ ------------ ------------ ------------ ------------- Net increase/(decrease) ........... 24,146 6,539 (1,098) 1,010 (1,250) 1,250 =========== ============ ============ ============ ============ =============
137 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 7. INVESTMENT TRANSACTIONS Purchases and sales of investment securities of the non-Money Market Funds (excluding short-term investments, U.S. government securities, and mortgage-dollar-roll transactions) during the year ended December 31, 2003, were as follows:
PURCHASES SALES ------------ ------------ Short/Intermediate Bond Fund ..................... $157,889,009 $ 91,599,287 Bond Fund ........................................ 57,476,887 84,029,083 Intermediate Government Bond Fund ................ 9,510,183 6,046,675 High Yield Bond Fund ............................. 74,017,141 34,142,692 Intermediate Tax-Exempt Bond Fund ................ 109,758,586 100,612,285 Tax-Exempt Bond Fund ............................. 53,264,367 59,442,094 Equity Fund ...................................... 203,178,262 272,242,053 Core Equity Fund ................................. 85,593,561 85,167,191 Small-Cap Opportunity Fund ....................... 346,217,243 342,304,248 Small-Cap Value Fund ............................. 278,220,837 274,737,190 Index Fund ....................................... 6,006,227 76,378,331 Small-Cap Aggressive Growth Fund ................. 8,715,413 10,324,457 Balanced Fund .................................... 34,005,157 31,006,581 International Fund ............................... 50,524,096 65,574,200 Emerging Markets Fund ............................ 155,083,373 31,911,454
Purchases and sales of U.S. government securities (excluding short-term securities) of the non-Money Market Funds during the year ended December 31, 2003, were as follows:
PURCHASES SALES ----------- ----------- Short/Intermediate Bond Fund ..................... $78,803,168 $62,110,924 Bond Fund ........................................ 62,538,477 90,594,633 Intermediate Government Bond Fund ................ 43,750,431 48,731,466 Balanced Fund .................................... 9,757,257 7,613,209
8. COMPOSITION OF NET ASSETS At December 31, 2003, net assets of each Fund consisted of:
GOVERNMENT TAX-EXEMPT MONEY MARKET MONEY MARKET MONEY MARKET FUND FUND FUND -------------- -------------- -------------- Beneficial Interest at Par Value .......... $ 1,759,625 $ 7,728,606 $ 1,265,224 Paid-in Capital ........................... 1,757,865,115 7,720,877,515 1,263,958,078 Undistributed Net Investment Income ....... -- (1) -- Accumulated Net Realized Gain/(Loss) ...... 8,229 (591,392) (187,730) -------------- -------------- -------------- Net Assets ................................ $1,759,632,969 $7,728,014,728 $1,265,035,572 ============== ============== ==============
138 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003
SHORT/ INTERMEDIATE INTERMEDIATE GOVERNMENT HIGH YIELD BOND FUND BOND FUND BOND FUND BOND FUND ------------ ------------ ------------- ----------- Beneficial Interest at Par Value .............. $ 28,289 $ 12,591 $ 5,099 $ 4,564 Paid-in Capital ............................... 291,479,556 128,209,645 85,565,534 60,099,010 Undistributed Net Investment Income ........... -- 32,465 -- -- Accumulated Net Realized Gain/(Loss) .......... (4,999,808) (3,407,994) 579,126 327,504 Unrealized Appreciation/(Depreciation) on Investment Transactions, Futures Contracts and Foreign Currency Translations .......... 7,220,804 4,496,111 1,163,487 2,495,170 ------------ ------------ ----------- ----------- Net Assets .................................... $293,728,841 $129,342,818 $87,313,246 $62,926,248 ============ ============ =========== =========== INTERMEDIATE HIGH YIELD TAX-EXEMPT TAX-EXEMPT SELECT BOND EQUITY BOND FUND BOND FUND FUND FUND ------------ ------------ ------------ ----------- Beneficial Interest at Par Value .............. $ 21,331 $ 10,606 $ 993 $ 21,258 Paid-in Capital ............................... 224,616,887 101,632,757 27,943,066 233,957,862 Undistributed Net Investment Income ........... -- -- -- 51,851 Accumulated Net Realized Gain/(Loss) .......... (861,315) (367,765) (10,684,950) (26,387,451) Unrealized Appreciation/(Depreciation) on Investment Transactions, Futures Contracts and Foreign Currency Translations .......... 22,682,345 14,690,939 659,378 36,532,718 ------------ ------------ ------------ ------------ Net Assets .................................... $246,459,248 $115,966,537 $ 17,918,487 $244,176,238 ============ ============ ============ ============ CORE SMALL-CAP SMALL-CAP EQUITY OPPORTUNITY VALUE INDEX FUND FUND FUND FUND ------------ ------------ ------------ ----------- Beneficial Interest at Par Value .............. $ 6,476 $ 23,680 $ 7,071 $ 17,353 Paid-in Capital ............................... 113,787,990 368,038,694 236,441,646 359,192,186 Undistributed Net Investment Income ........... 38,377 -- 31,344 46,157 Accumulated Net Realized Gain/(Loss) .......... 435,856 22,742,486 7,203,622 4,259,469 Unrealized Appreciation/(Depreciation) on Investment Transactions, Futures Contracts and Foreign Currency Translations .......... 18,140,470 146,554,815 75,247,386 10,842,444 ------------ ------------ ------------ ------------ Net Assets .................................... $132,409,169 $537,359,675 $318,931,069 $374,357,609 ============ ============ ============ ============ SMALL-CAP AGGRESSIVE EMERGING GROWTH BALANCED INTERNATIONAL MARKETS FUND FUND FUND FUND ----------- ----------- ------------- ------------ Beneficial Interest at Par Value .............. $ 747 $ 4,421 $ 12,747 $ 29,053 Paid-in Capital ............................... 8,091,716 56,237,134 189,744,267 230,853,095 Undistributed Net Investment Income ........... -- 32,669 69,532 410,426 Accumulated Net Realized Gain/(Loss) .......... (1,478,734) (3,571,134) (50,610,495) (5,783,982) Unrealized Appreciation/(Depreciation) on Investment Transactions, Futures Contracts and Foreign Currency Translations .......... 1,891,992 6,984,144 34,357,309 65,678,501 ----------- ----------- ------------ ------------ Net Assets .................................... $ 8,505,721 $59,687,234 $173,573,360 $291,187,093 =========== =========== ============ ============
139 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 9. FEDERAL TAX INFORMATION Each Fund intends to continue to qualify as a regulated investment company under the Internal Revenue Code and to distribute substantially all of its net investment income and net realized capital gains to shareholders. Accordingly, no provision for federal income tax is required. The Funds adjust the classification of distributions to shareholders to reflect the differences between financial statement amounts and distributions determined in accordance with income tax regulations. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in capital or accumulated net realized gain, as appropriate, in the period that the differences arise. The following permanent differences as of December 31, 2003, attributable to short-term capital gains distributions reported as ordinary income, realized foreign currency gains/(losses), real estate investment trust adjustments, paydown reclassifications and certain net operating losses, which for tax purposes are not available to offset future income, were reclassified to the following accounts:
INCREASE/ INCREASE/ (DECREASE) (DECREASE) ACCUMULATED UNDISTRIBUTED DECREASE NET REALIZED NET INVESTMENT PAID-IN CAPITAL GAIN/(LOSS) INCOME --------------- ------------ ------------- Government Money Market Fund ................ $ -- $ (25,056) $ 25,056 Money Market Fund ........................... -- (27,465) 27,465 Short/Intermediate Bond Fund ................ -- (325,172) 325,172 Bond Fund ................................... -- (123,030) 123,030 Intermediate Government Bond Fund ........... -- (69,324) 69,324 Small-Cap Opportunity Fund .................. -- (632,757) 632,757 Small-Cap Value Fund ........................ -- 352,330 (352,330) Index Fund .................................. -- 13,250 (13,250) Small-Cap Aggressive Growth Fund ............ (34,515) -- 34,515 Balanced Fund ............................... -- (29,749) 29,749 International Fund .......................... -- 94,762 (94,762) Emerging Markets Fund ....................... -- 77,967 (77,967)
These reclassifications had no effect on net assets or net asset value per share. The tax character of distributions paid during the last two fiscal years were as follows:
SHORT-TERM LONG-TERM ORDINARY TAX-EXEMPT CAPITAL CAPITAL TOTAL INCOME INCOME GAIN GAIN DISTRIBUTIONS ----------- ----------- ---------- ---------- ------------- Government Money Market Fund 12/31/03 ........................ $ 7,264,282 $ -- $ -- $-- $ 7,264,282 12/31/02 ........................ 8,012,865 -- -- -- 8,012,865 Money Market Fund 12/31/03 ........................ 68,461,968 -- -- -- 68,461,968 12/31/02 ........................ 101,578,252 -- -- -- 101,578,252 Tax-Exempt Money Market Fund 12/31/03 ........................ -- 9,353,091 -- -- 9,353,091 12/31/02 ........................ -- 13,408,248 -- -- 13,408,248 Short/Intermediate Bond Fund 12/31/03 ........................ 11,312,573 -- -- -- 11,312,573 12/31/02 ........................ 12,881,052 -- -- -- 12,881,052
140 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003
SHORT-TERM LONG-TERM ORDINARY TAX-EXEMPT CAPITAL CAPITAL TOTAL INCOME INCOME GAIN GAIN DISTRIBUTIONS ----------- ----------- ---------- ----------- ------------- Bond Fund 12/31/03 ............................ $ 9,428,815 $ -- $ -- $ -- $ 9,428,815 12/31/02 ............................ 12,556,918 -- -- -- 12,556,918 Intermediate Government Bond Fund 12/31/03 ............................ 3,771,741 -- 544,847 529,200 4,845,788 12/31/02 ............................ 4,011,966 -- -- -- 4,011,966 High Yield Bond Fund 12/31/03 ............................ 3,264,829 -- 130,868 279,670 3,675,367 12/31/02 ............................ 388,989 -- -- -- 388,989 Intermediate Tax-Exempt Bond Fund 12/31/03 ............................ -- 10,445,481 -- -- 10,445,481 12/31/02 ............................ -- 10,446,511 -- -- 10,446,511 Tax-Exempt Bond Fund 12/31/03 ............................ -- 5,564,353 -- -- 5,564,353 12/31/02 ............................ -- 5,537,764 -- -- 5,537,764 High Yield Select Bond Fund 12/31/03 ............................ 1,099,934 -- -- -- 1,099,934 12/31/02 ............................ 725,153 -- -- -- 725,153 Equity Fund 12/31/03 ............................ 1,587,243 -- -- -- 1,587,243 12/31/02 ............................ 1,552,005 -- -- -- 1,552,005 Core Equity Fund 12/31/03 ............................ 521,315 -- -- -- 521,315 12/31/02 ............................ 336,095 -- -- 1,958,138 2,294,233 Small-Cap Opportunity Fund 12/31/03 ............................ -- -- -- 5,568,235 5,568,235 12/31/02 ............................ -- -- -- -- -- Small-Cap Value Fund 12/31/03 ............................ 2,519,007 -- -- -- 2,519,007 12/31/02 ............................ 945,763 -- -- 2,319,793 3,265,556 Index Fund 12/31/03 ............................ 4,878,778 -- 167,798 20,773,112 25,819,688 12/31/02 ............................ 4,607,541 -- -- 6,279,627 10,887,168 Small-Cap Aggressive Growth Fund 12/31/03 ............................ -- -- -- -- -- 12/31/02 ............................ -- -- -- -- -- Balanced Fund 12/31/03 ............................ 1,070,691 -- -- -- 1,070,691 12/31/02 ............................ 1,326,149 -- -- -- 1,326,149 International Fund 12/31/03 ............................ 2,012,643 -- -- -- 2,012,643 12/31/02 ............................ 934,256 -- -- -- 934,256 Emerging Markets Fund 12/31/03 ............................ 926,938 -- -- -- 926,938 12/31/02 ............................ 214,416 -- -- -- 214,416
141 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 As of December 31, 2003, the components of distributable earnings/(accumulated losses) were as follows:
POST- UNDISTRIBUTED UNDISTRIBUTED CAPITAL POST- OCTOBER ORDINARY LONG-TERM LOSS OCTOBER CURRENCY INCOME CAPITAL GAIN CARRYFORWARDS LOSSES LOSSES ------------- ------------ ------------- ----------- -------- Government Money Market ................ $ 8,229 $ -- $ -- $ -- $ -- Money Market Fund ...................... -- -- (591,392) -- -- Tax-Exempt Money Market Fund ........... -- -- (187,730) -- -- Short/Intermediate Bond Fund ........... -- -- (4,869,162) (128,591) -- Bond Fund .............................. 32,465 -- (3,383,947) -- -- Intermediate Government Bond Fund ...... -- 579,126 -- -- -- High Yield Bond Fund ................... 206,026 121,478 -- -- -- Intermediate Tax-Exempt Bond Fund ...... -- -- (861,315) -- -- Tax-Exempt Bond Fund ................... -- -- (367,765) -- -- High Yield Select Bond Fund ............ -- -- (10,683,399) -- -- Equity Fund ............................ 51,851 -- (26,204,140) -- -- Core Equity Fund ....................... 1,298,250 -- -- -- -- Small-Cap Opportunity Fund ............. 9,749,722 13,040,743 -- -- -- Small-Cap Value Fund ................... 31,344 7,850,147 -- -- -- Index Fund ............................. 158,501 5,012,535 -- -- -- Small-Cap Aggressive Growth Fund ....... -- -- (1,477,156) -- -- Balanced Fund .......................... 32,669 -- (3,208,255) -- -- International Fund ..................... 83,140 -- (49,148,594) (1,201,955) (13,609) Emerging Markets Fund .................. 410,426 -- (5,783,982) -- --
The differences between the components of distributable earnings on a tax basis and the amounts reflected in the Composition of Net Assets are primarily due to wash sales, real estate investment trust adjustments, paydown reclassifications, and certain net operating losses. Post-October losses represent losses realized on investment transactions from November 1, 2003 through December 31, 2003 that, in accordance with federal income tax regulations, the Funds defer and treat as having arisen in the following fiscal year. For federal income tax purposes, capital-loss carryforwards may be carried forward and applied against future capital gains. 142 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 At December 31, 2003, the Funds had capital-loss carryforwards available to offset future realized capital gains through the indicated expiration dates:
EXPIRING DECEMBER 31 ----------------------------------------------------------------------------------------------- 2006 2007 2008 2009 2010 2011 TOTAL ---------- -------- ---------- ----------- ----------- ---------- ----------- Money Market Fund .......... $ -- $ -- $ -- $ -- $ -- $ 591,392 $ 591,392 Tax-Exempt Money Market Fund ............. -- 1,265 531 -- -- 185,934 187,730 Short/Intermediate Bond Fund ............... -- -- 1,503,684 -- 3,133,444 232,034 4,869,162 Bond Fund .................. -- 115,020 1,661,935 -- 1,606,992 -- 3,383,947 Intermediate Tax-Exempt Bond Fund ............... -- 549,553 -- -- 175,926 135,836 861,315 Tax-Exempt Bond Fund .................... -- 367,765 -- -- -- -- 367,765 High Yield Select Bond Fund .................... -- -- -- 3,844,603 2,175,201 4,663,595 10,683,399 Equity Fund ................ -- -- -- 1,557,903 21,154,249 3,491,988 26,204,140 Small-Cap Aggressive Growth Fund ............. -- -- -- 76,877 1,400,279 -- 1,477,156 Balanced Fund .............. -- -- -- 723,310 2,350,258 134,687 3,208,255 International Fund ......... 1,268,678 -- 19,547 21,497,210 20,703,656 5,659,503 49,148,594 Emerging Markets Fund .................... -- -- -- 1,441,177 4,342,805 -- 5,783,982
10. CONCENTRATION OF RISKS The Tax-Exempt Money Market Fund, Intermediate Tax-Exempt Bond Fund and Tax-Exempt Bond Fund invest primarily in diversified portfolios of municipal securities, including municipal bonds and debentures. The Fixed Income Funds and the Money Market Funds invest in debt instruments. The issuers' abilities to meet their obligations may be affected by political and economic developments in a specific state or region or their respective industries. The High Yield Bond Fund invests in high-yield instruments and is subject to certain credit and market risks. The yields of high-yield debt obligations reflect, among other things, perceived credit risk. The Fund's investment in securities rated below investment grade typically involves risks not associated with higher-rated securities, including, among others, greater risks of timely and ultimate payment of interest and principal, greater market-price volatility and less liquid secondary market trading. Each of the International Fund and the Emerging Markets Fund invests in securities of foreign issuers in various countries. These investments may involve certain considerations and risks not typically associated with investments in the U.S. as a result of, among other factors, the possibility of future adverse political and economic developments and the level of governmental supervision and regulation of securities markets in the respective countries. 143 HARRIS INSIGHT FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 11. LINE OF CREDIT The Trust, on behalf of each of the Funds except for the High Yield Select Bond Fund, has a 364-day $200,000,000 aggregate Revolving Credit Facility ("Credit Facility") with the Bank of Montreal, the ultimate parent of Harris Trust. The Credit Facility permits one or more of the Funds to borrow for temporary or emergency purposes, including, without limitation, funding of shareholder redemptions. Under the terms of the Credit Facility, each Fund pays a quarterly commitment fee at a rate of 0.09% per annum on the average daily balance of the Credit Facility that is available during each quarter ("Commitment Fee"). The Commitment Fee is allocated among the Funds based on relative net assets of the Funds. In addition, the Funds will pay interest on any borrowings at the Federal Funds rate plus 0.50%. For the year ended December 31, 2003, none of the Funds had borrowings under the Credit Facility. 144 INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF HARRIS INSIGHT FUNDS TRUST: We have audited the accompanying statements of net assets of the Harris Insight Government Money Market Fund, Money Market Fund, Tax-Exempt Money Market Fund, High Yield Select Bond Fund, High Yield Bond Fund, Intermediate Tax-Exempt Bond Fund, Tax-Exempt Bond Fund, International Fund, Small-Cap Aggressive Growth Fund, Emerging Markets Fund, Short/Intermediate Bond Fund, Bond Fund, Intermediate Government Bond Fund, Equity Fund, Core Equity Fund, Small-Cap Opportunity Fund, Small-Cap Value Fund, Index Fund, and the Balanced Fund, (the nineteen portfolios constituting the Harris Insight Funds Trust), collectively "the Funds," as of December 31, 2003, and the related statements of operations for the year then ended, and the statements of changes in net assets and financial highlights for each of the years in the two-year period then ended. These financial statements and the financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. The financial highlights for the periods presented through December 31, 2001, were audited by other auditors, whose report dated February 15, 2002, expressed an unqualified opinion thereon. We conducted our audits in accordance with the auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003 by correspondence with the custodian and brokers, or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the portfolios constituting the Harris Insight Funds Trust as of December 31, 2003, the results of their operations for the year then ended and the changes in their net assets, and the financial highlights for each of the years in the two-year period then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Philadelphia, Pennsylvania February 13, 2004 145 FUND MANAGEMENT Information pertaining to the Trustees and officers of the Trust is set forth below. The statement of additional information includes additional information about the Trustees and is available without charge, upon request, by calling (800) 982-8782.
- ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF PORTFOLIOS IN OTHER TERM OF OFFICE 1 FUND COMPLEX TRUSTEESHIPS/ NAME, (AGE AT 12/31/03), AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS ADDRESS AND POSITION(S) WITH TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE - ------------------------------------------------------------------------------------------------------------------------------------ DISINTERESTED TRUSTEES - ------------------------------------------------------------------------------------------------------------------------------------ C. Gary Gerst (64) Since 1995 Formerly Co-Chairman, Jones Lang 19 Director, Florida Office Chairman and Trustee LaSalle, formerly named LaSalle Property Company, Inc. (real 200 East Randolph Drive Partners Ltd. (real estate estate investment fund); Floor 43 investment manager and Trustee, Henderson Global Funds Chicago, Illinois 60601 consulting firm). (4 Portfolios); and President, KCI Inc. (Private S-Corporation investing in non-public investments). - ------------------------------------------------------------------------------------------------------------------------------------ Faris F. Chesley (65) Since 2003 Chairman, Chesley, Taft & 19 Trustee, Henderson Global Funds Trustee Associates, LLC (investment (4 portfolios). 10 S. LaSalle Street advisory firm) since 2001; Chicago, Illinois 60603 formerly Vice-Chairman, ABN-AMRO, Inc. (financial services company). - ------------------------------------------------------------------------------------------------------------------------------------ Valerie B. Jarrett (47) Since 1999 Executive Vice President, The 19 Director, USG Corporation Trustee Habitat Company (residential (building materials 350 West Hubbard Street property developer). manufacturer), The Chicago Chicago, Illinois 60610 Stock Exchange, and Navigant Consulting Inc.; Trustee, University of Chicago. - ------------------------------------------------------------------------------------------------------------------------------------ John W. McCarter, Jr. (65) Since 1995 President and Chief Executive 19 Chairman, Divergence L.L.C. Trustee Officer, The Field Museum of (biotechnology firm); Director, 1400 South Lake Shore Drive Natural History; formerly W.W. Grainger, Inc. (industrial Chicago, Illinois 60605 Senior Vice President and distributor) and A.M. Castle, Director, Booz-Allen & Inc. (metals distributor); and Hamilton, Inc.(consulting Trustee, Janus Adviser Series, firm). Janus Aspen Series and Janus Investment Fund (52 portfolios). - ------------------------------------------------------------------------------------------------------------------------------------ Paula Wolff (58) Since 1998 Senior Executive, Chicago 19 Vice Chair, University of Trustee Metropolis 2020 (civic Chicago Board of Trustees; 30 West Monroe Street organization), since 2000. Chair, University of Chicago 18th Floor President, Governors Hospitals; and Director, Ariel Chicago, Illinois 60603 State University, prior Capital Management, Inc. thereto. (investment manager). - ------------------------------------------------------------------------------------------------------------------------------------ 1 A Trustee shall retire at the end of the calendar year in which the Trustee attains the age of 72 years.
146 FUND MANAGEMENT (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF PORTFOLIOS IN OTHER TERM OF OFFICE 1 FUND COMPLEX TRUSTEESHIPS/ NAME, (AGE AT 12/31/03), AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS ADDRESS AND POSITION(S) WITH TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS - ------------------------------------------------------------------------------------------------------------------------------------ Peter P. Capaccio (47) Since 2001 Senior Vice President, Harris N/A N/A President Trust and Savings Bank. 111 West Monroe Street, 6W Chicago, Illinois 60603 - ------------------------------------------------------------------------------------------------------------------------------------ Ishwar D. Gupta (60) Since 2001 Senior Vice President, Harris N/A N/A Vice President and Assistant Trust and Savings Bank. Secretary 111 West Monroe Street, 6W Chicago, Illinois 60603 - ------------------------------------------------------------------------------------------------------------------------------------ Merrill J. Sklenar (58) Since 2001 Vice President, Harris Trust N/A N/A Vice President and Assistant and Savings Bank. Secretary 111 West Monroe Street, 6W Chicago, Illinois 60603 - ------------------------------------------------------------------------------------------------------------------------------------ David C. Lebisky (31) Since 2001 Vice President and Director, N/A N/A Secretary PFPC Inc. (mutual fund 103 Bellevue Parkway administrator). Wilmington, Delaware 19809 - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Ryan (62) Since Vice President and Director N/A N/A Treasurer and Principal May 2003 of Accounting, PFPC Inc. Financial and Accounting Officer Also from 103 Bellevue Parkway 1999 to 2002 Wilmington, Delaware 19809 - ------------------------------------------------------------------------------------------------------------------------------------ L. Linn Solano (52) Assistant Treasurer Since 1999 Assistant Vice President, N/A N/A 103 Bellevue Parkway PFPC Inc. Wilmington, Delaware 19809 - ------------------------------------------------------------------------------------------------------------------------------------
The President, Treasurer and Secretary shall each hold office until his successor shall have been duly elected and qualified, and all other officers shall hold office at the pleasure of the Trustees. 147 [THIS PAGE INTENTIONALLY LEFT BLANK.] HARRIS INSIGHT(R) FUNDS - -------------------------------------------------------------------------------- 760 MOORE ROAD KING OF PRUSSIA, PA 19406 TELEPHONE: (800) 982-8782 INVESTMENT ADVISER Harris Investment Management, Inc. 190 South LaSalle Street Chicago, Illinois 60690 ADMINISTRATOR, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT Harris Trust and Savings Bank 111 West Monroe Street Chicago, Illinois 60603 INVESTMENT SUB-ADVISERS Hansberger Global Investors, Inc. 515 East Las Olas Boulevard, Suite 1300 Fort Lauderdale, Florida 33301 HIM Monegy, Inc. 302 Bay Street Toronto, Ontario M5X 1A1 Canada SUB-ADMINISTRATOR AND ACCOUNTING SERVICES AGENT, SUB-TRANSFER AGENT AND DIVIDEND DISBURSING AGENT PFPC Inc. 103 Bellevue Parkway Wilmington, Delaware 19809 DISTRIBUTOR PFPC Distributors, Inc. 760 Moore Road King of Prussia, Pennsylvania 19406 CUSTODIAN PFPC Trust Co. 8800 Tinicum Boulevard Philadelphia, Pennsylvania 19153 INDEPENDENT ACCOUNTANTS KPMG LLP 1601 Market Street Philadelphia, Pennsylvania 19103-2499 LEGAL COUNSEL Bell, Boyd & Lloyd LLC Three First National Plaza 70 West Madison Street Chicago, Illinois 60602 BOARD OF TRUSTEES C. GARY GERST Chairman of the Board of Trustees FARIS F. CHESLEY Trustee VALERIE B. JARRETT Trustee JOHN W. MCCARTER, JR. Trustee PAULA WOLFF Trustee OFFICERS PETER P. CAPACCIO President ISHWAR D. GUPTA Vice President and Assistant Secretary MERRILL J. SKLENAR Vice President and Assistant Secretary DAVID C. LEBISKY Secretary THOMAS J. RYAN Treasurer and Principal Financial and Accounting Officer L. LINN SOLANO Assistant Treasurer THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE HARRIS INSIGHT FUNDS. IT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS ACCOMPANIED OR PRECEDED BY A PROSPECTUS OF THE HARRIS INSIGHT FUNDS. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY. INVESTMENT ADVISER: Harris Investment Management, Inc. DISTRIBUTOR: PFPC Distributors, Inc. HIF 1001 12/03 -----END PRIVACY-ENHANCED MESSAGE-----