<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
February 13, 1997
1933 Act File No. 87762
1940 Act File No. 811-8918
Form N-1A
Securities and Exchange Commission
Washington, D.C. 20549
Form N-1A
Registration Statement Under the Securities Act of 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 5 [x]
and/or
Registration Statement Under the Investment Company Act of 1940 [x]
Amendment No. 7
(Check appropriate box or boxes.)
THE HIRTLE CALLAGHAN TRUST
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(Exact Name of Registrant as Specified in Charter)
575 E. Swedesford Road, Wayne PA 19087
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(Address of Principal Executive Offices) (Zip Code)
610-254-9596
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(Registrant's Telephone Number, including Area Code)
Laura Anne Corsell, Esq (With Copy To):
c/o Hirtle Callaghan & Co. Inc. Audrey Talley, Esq.
575 Swedesford Road Stradley Ronan Stevens & Young
Wayne, PA 19087 2600 One commerce Square
Philadelphia, PA, 19103-7098
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(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this
Registration Statement
It is proposed that this filing will become effective (check appropriate box)
[x] Immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i) of rule 485
[ ] 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485
An indefinite number of Registrant's securities has been registered pursuant to
Rule 24f-2 under the Investment Company Act of 1940.
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<PAGE>
CROSS REFERENCE SHEET
(Required by Rule 481(a) under the Securities Act of 1933)
<TABLE>
<S> <C>
Part A -- Information required in a Prospectus Prospectus Heading
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Item 1. Cover Page Cover Page
Item 2. Synopsis Expense Information
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Cover Page;
Management of the
Trust; General
Item 5. Management of the Fund Management of the
Trust
Item 6. Capital Stock and other Securities General
Item 7. Purchase of Securities Being Offered Purchases and Redemptions
Item 8. Redemption or Repurchase Purchases and Redemptions
Item 9. Legal Proceedings Not Applicable
Part B -- Information required in a Statement Statement of Additional
of Additional Information Heading
-------------------------------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information and History Cover Page; Management of
the Trust
Item 13. Investment Objectives and Policies Further Information on
Investment Policies;
Hedging through the use
of Options; Hedging
through the use of Futures
Contracts; Hedging
through the use of
Currency-related
Instruments; Investment
Restrictions
Item 14. Management of the Registrant Management of the Trust
Item 15. Control Persons and Principal Management of the Trust
Holders of Securities
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Item 16. Investment Advisory and Other Management of the Trust
Services
Item 17. Brokerage Allocation Portfolio Transactions and
Valuation
Item 18. Capital Stock and Other Securities General (in Prospectus)
Item 19. Purchase, Redemption and Pricing of Additional Purchase and
Securities Being Offered Redemption Information;
Portfolio Transactions
and Valuation
Item 20. Tax Status Dividends, Distributions
and Taxes
Item 21. Underwriters Management of the Trust
Item 22. Calculation of Performance Date Not Applicable
Item 23. Financial Statements Independent Accountants
and Financial Statements
</TABLE>
Part C - Other Information
Information required to be included in Part C is set forth under the
appropriate item so numbered in Part C of this Registration Statement.
<PAGE>
<PAGE>
THE HIRTLE CALLAGHAN TRUST
575 E. Swedesford Road
Wayne, PA 19087
February 14, 1997
The Hirtle Callaghan Trust ("Trust"), a diversified, open-end management
investment company, was organized in 1994 by Hirtle, Callaghan & Co., Inc.
("Hirtle Callaghan") to enhance Hirtle Callaghan's ability to acquire the
services of independent specialist money management organizations for the
clients Hirtle Callaghan serves. The Trust currently consists of five separate
investment portfolios (each a "Portfolio"). Day-to-day portfolio management
services are provided to each of the Trust's five Portfolios by one or more
independent investment advisory organizations ("Investment Managers"),
selected by, and under the general supervision of, the Trust's Board of Trustees
("Board"). Shares of the Trust are available exclusively to investors
("Eligible Investors") who are clients of Hirtle Callaghan or clients of
financial intermediaries, such as investment advisers, acting in a fiduciary
capacity with investment discretion, that have established relationships with
Hirtle Callaghan.
The Trust currently consists of five separate Portfolios, as listed below:
The Value Equity Portfolio seeks total return by investing in equity
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securities.
The Growth Equity Portfolio seeks capital appreciation by investing in equity
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securities.
The Small Capitalization Equity Portfolio seeks long term capital appreciation
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by investing primarily in equity securities of smaller companies.
The International Equity Portfolio seeks total return by investing in a
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diversified portfolio of equity securities of non-U.S. issuers.
The Limited Duration Municipal Bond Portfolio seeks a high level of current
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income exempt from Federal income tax, consistent with the preservation of
capital.
This prospectus contains concise information about the Trust that a prospective
investor needs to know before investing in any of the Portfolios. Please read
it carefully and keep it for future reference. A Statement of Additional
Information, dated February 14, 1997, has been filed with the Securities and
Exchange Commission and is incorporated by reference in this prospectus. It may
be obtained upon request free of charge by contacting the Trust at 610-254-9596.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
<PAGE>
EXPENSE INFORMATION
Table 1: Shareholder Transaction Expenses: NONE
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Table 2: Annual Operating Expenses (as a percentage of average net assets) *
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Portfolio Value Growth Small Cap International Limited Duration
Equity Equity Equity Equity Municipal Bond
Management 0.35% 0.35% 0.50% 0.45% 0.25%
Fees
Other Expenses** 0.28% 0.28% 0.28% 0.36% 0.28%
(after waivers)
Total Portfolio 0.63% 0.63% 0.78% 0.81% 0.53%
Operating Expenses
(after waivers)
*Figures show reflect expenses incurred during the fiscal year ended June
30, 1996.
** The caption "Other Expenses" does not include extraordinary expenses as
determined by the use of generally accepted accounting principles. Amounts
shown reflect certain waivers and fee reimbursements by certain of the
Trust's service providers. Without these waivers, the expenses that appear
under the caption "Other Expenses" would be .33% for The Value Equity and
Growth Equity Portfolios, .40% for The Small Capitalization Equity
Portfolio, .47% for The International Equity Portfolio and .56% for The
Limited Duration Municipal Bond Portfolio. Similarly, the amounts shown
under the caption "Total Portfolio Operating Expenses," absent such waivers
and fee reimbursements, would be: for The Value Equity, .68%; for The
Growth Equity Portfolio, .68%%; for The Small Capitalization Equity
Portfolio, .90% for The International Equity Portfolio and .92% for The
Limited Duration Municipal Bond Portfolio, .81%.
The preceding table of annual operating expenses is designed to assist
investors in understanding expenses borne by
investors as shareholder of the Trust, either directly or indirectly.
Example: An investor would pay the following expenses on a $1,000 investment,
- -------
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Small
Value Growth Capitalization International Limited Duration
Portfolio Equity Equity Equity Equity Municipal Bond
- --------- ------ ------ ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
1 year $ 6 $ 6 $ 8 $ 8 $ 5
3 years $20 $20 $25 $26 $17
</TABLE>>
The preceding example assumes that all dividends and distributions are
reinvested and that the percentage totals listed under "Estimated Annual Trust
Operating Expenses" remain the same in the years shown. The example should not
be considered a representation of future expenses and actual expenses may be
greater or less than those shown.
As shown above in Table 1, none of the Trust's Portfolios impose any shareholder
transaction fees in connection with either the purchase or redemption of shares.
Investors who acquire shares of the Trust through a program of services offered
by a financial intermediary, such as an investment adviser or bank, may be
subject to charges for services. All such charges are in addition to those
expenses borne by the Trust and described in the foregoing tables, or reflected
in the Example shown. Investors should contact any such financial intermediary
for information concerning what, if any, additional fees may be charged. For
more complete descriptions of the various costs and expenses, see "Management of
the Trust," in this prospectus.
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<PAGE>
Financial Highlights
(Selected per share data and rations for a share outstanding throughtout each
period)
The following information has been audited by Coopers & Lybrand L.L.P.,
the Trust's independent accountants, whose report thereon appears in the
Trust's Annual Report to Shareholders for the period ended June 30, 1996.
The Annual Report to Shareholders is incorporated by reference in the
Trust's Statement of Additional Information, which is available, without
charge, upon request.
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<TABLE>
<CAPTION>
VALUE GROWTH SMALL CAPITALIZATION INTERNATIONAL LIMITED DURATION
AUGUST 25, 1995 AUGUST 8, 1995 SEPTEMBER 5, 1995 AUGUST 17, 1995 OCTOBER 10, 1995
(COMMENCEMENT (COMMENCEMENT (COMMENCEMENT (COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) OF OPERATIONS) OF OPERATIONS) OF OPERATIONS) OF OPERATIONS)
THROUGH THROUGH THROUGH THROUGH THROUGH
JUNE 30, 1996 JUNE 30, 1996 JUNE 30, 1996 JUNE 30, 1996 JUNE 30, 1996
--------------- -------------- -------------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
------- -------- ------- ------- -------
Income from Investment
Operations:
Net investment income..... 0.22 0.04 0.10 0.16 0.35
Net realized and
unrealized gain on
investments and foreign
currency transactions.... 1.51 1.13 1.07 1.35 0.01
------- -------- ------- ------- -------
Total from investment
operations............... 1.73 1.17 1.17 1.51 0.36
------- -------- ------- ------- -------
Less Distributions:
From net investment
income................... (0.22) (0.04) (0.10) (0.24) (0.36)
From realized gains....... (0.03) 0.00 0.00 (0.01) 0.00
------- -------- ------- ------- -------
Total distributions....... (0.25) (0.04) (0.10) (0.25) (0.36)
------- -------- ------- ------- -------
Net Asset Value, End of
Period.................... $ 11.48 $ 11.13 $ 11.07 $ 11.26 $ 10.00
======= ======== ======= ======= =======
Total Return............... 17.28% 11.69% 11.82% 15.15% 3.60%
Net Assets End of Period
(in thousands)............ $71,503 $110,537 $61,503 $77,732 $29,485
Ratios to Average Net
Assets of:
Net investment income*.... 2.55% 0.46% 1.33% 1.75% 4.78%
Expenses net of
waivers/reimbursements*.. 0.63% 0.63% 0.78% 0.81% 0.53%
Expenses before
waivers/reimbursements*.. 0.68% 0.68% 0.90% 0.92% 0.81%
Portfolio Turnover Rate.... 92% 80% 38% 15% 116%
</TABLE>
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* Annualized.
<PAGE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Set forth below is a brief description of the investment objective and policies
of each of the Trust's Portfolios, as well as the identity of the Investment
Manager(s) responsible for making day-to-day investment decisions for each
Portfolio. More detailed information about the Investment Managers appears in
this prospectus under the heading "Management of the Trust." Further
information about the types of instruments in which each Portfolio may invest,
and the risks associated with such investments, appears in this prospectus under
the heading "Investment Practices and Risk Considerations" and in the related
Statement of Additional Information. The Statement of Additional Information
also lists those investment restrictions to which the various Portfolios are
subject under the Investment Company Act of 1940 ("Investment Company Act").
Unless otherwise noted, the investment objectives and policies of the respective
Portfolios as set forth below are not fundamental and may be changed or modified
by the Trust's Board without a shareholder vote.
As further described in this prospectus under the heading "Management of the
Trust," investment discretion with respect to the assets of each Portfolio is
vested with one or more Investment Managers retained by the Trust. While the
Trust's Board is ultimately responsible for all matters relating to the Trust,
day-to-day decisions with respect to the purchase and sale of securities in
accordance with a Portfolio's investment objectives and policies are the
responsibility of the Investment Managers retained from time to time by the
Trust on behalf of the respective Portfolios. As is the case with any
investment in securities, an investment in any of the Portfolios involves
certain risks and there can be no assurance that any Portfolio will achieve its
objective.
The Value Equity Portfolio. The investment objective of this Portfolio is to
- --------------------------
provide total return consisting of capital appreciation and current income. The
Portfolio seeks to achieve this objective primarily through investment in a
diversified portfolio of equity securities. In selecting securities for the
Portfolio, the Investment Managers will generally emphasize equity securities
with a relatively lower price-earnings ratio but higher dividend income than the
average range for stocks included in the Standard & Poor's 500 Stock Index;
dividends paid by The Value Equity Portfolio can generally be expected to be
higher than those paid by The Growth Equity Portfolio. Up to 15% of the
Portfolio's assets may be invested in convertible securities; up to 15% of the
Portfolio's assets may be invested in American Depositary Receipts. Further
information about equity related securities appears in this prospectus under the
heading "Investment Practices and Risk Considerations: About Equity Securities."
Hotchkis and Wiley and Institutional Capital Corporation currently serve as
Investment Managers for The Value Equity Portfolio.
The Growth Equity Portfolio. The investment objective of this Portfolio is to
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provide capital appreciation, with income as a secondary consideration. The
Portfolio will seek to achieve this objective by investing primarily in a
diversified portfolio of equity securities traded on registered exchanges or in
the over-the-counter market in the U.S. In selecting securities for the
Portfolio, the Investment Managers will generally emphasize equity securities
with long-term earnings growth potential and relatively higher price-earnings
ratios than the average range for stocks included in the Standard & Poor's 500
Stock Index. Although dividend paying securities will be considered for
<PAGE>
<PAGE>
inclusion in the Portfolio, dividends paid by The Growth Equity Portfolio can
generally be expected to be lower than those paid by The Value Equity Portfolio.
Up to 10% of the Portfolio's assets may be invested in convertible securities.
Further information about investments in equity related investments appears in
this prospectus under the heading "Investment Practices and Risk Considerations:
About Equity Securities." In addition, a maximum of 20% of the Portfolio's
assets may be invested in securities of non-U.S. issuers. Further information
about the special considerations applicable to international investments appears
in this prospectus under the heading "Investment Practices and Risk
Considerations: About Foreign Securities." Jennison Associates Capital Corp.
and Westfield Capital Management Company, Inc. currently serve as Investment
Managers for The Growth Equity Portfolio.
The Small Capitalization Equity Portfolio. The investment objective of this
- -----------------------------------------
Portfolio is to provide long term capital appreciation by investing primarily in
equity securities of smaller companies. Companies in which the Portfolio may
invest are those which, in the view of one or more of the Portfolio's Investment
Managers, have demonstrated, or have the potential for, strong capital
appreciation potential due to their relative market position, anticipated
earnings, changes in management or other factors. Under normal market
conditions, at least 65% of the Portfolio's total assets will be invested in
equity securities of companies with capitalizations of less than $1.0 billion at
the time of purchase; up to 35% of the Portfolio's assets may be invested in
the equity securities of companies with larger capitalizations. Further
information about the special considerations applicable to equity investments in
smaller companies appears in this prospectus under the heading "Investment
Practices and Risk Considerations: About Equity Securities." Clover Capital
Management, Inc. and Frontier Capital Management Company currently serve as
Investment Managers for The Small Capitalization Equity Portfolio.
The International Equity Portfolio. The investment objective of this
- ----------------------------------
Portfolio is to maximize total return, consisting of capital appreciation and
current income, by investing primarily in a diversified portfolio of equity
securities of non-U.S. issuers. Under normal market conditions, at least 65% of
the Portfolio's total assets will be invested in equity securities of issuers
located in at least three countries other than the United States. Further
information about the special considerations applicable to international
investments appears in this prospectus under the heading "Investment Practices
and Risk Considerations: About Foreign Securities." Brinson Partners, Inc.
currently serves as Investment Manager for The International Equity Portfolio.
The International Equity Portfolio is designed to invest in the equity
securities of non-U.S. issuers that are believed to be undervalued in relation
to the issuer's assets, cash flow, earnings and revenues based upon the
Investment Manager's research and proprietary valuation systems. Although the
Portfolio may invest anywhere in the world, the Portfolio is expected to invest
primarily in the equity markets included in the Morgan Stanley Capital
International Europe, Australia, Far East Index ("EAFE"). Currently, these
markets are Japan, the United Kingdom, Germany, France, Canada, Italy, the
Netherlands, Australia, Switzerland, Spain, Hong Kong, Belgium, Singapore,
Malaysia, Sweden, Denmark, Norway, New Zealand, Austria, Finland and Ireland.
Securities of non-U.S. issuers purchased by the Portfolio may be purchased on
U.S. registered exchanges, the over-the-counter markets or in the form of
sponsored or unsponsored American Depositary Receipts traded on registered
exchanges or NASDAQ or sponsored or unsponsored European Depositary Receipts.
<PAGE>
<PAGE>
Securities may also be purchased on recognized foreign exchanges or on over-the-
counter markets overseas. In addition, the Portfolio may enter into forward
foreign currency exchange contracts, buy or sell options, futures or options on
futures relating to foreign currencies and may purchase securities indexed to
currency baskets in order to hedge against fluctuations in the relative value of
the currencies in which securities held by the Portfolio are denominated.
Further information about the Portfolio's use of these instruments appears in
this prospectus under the heading "Investment Practices and Risk Considerations:
About Hedging Strategies." The International Equity Portfolio may also invest
in high-quality short-term debt instruments (including repurchase agreements)
denominated in U.S. or foreign currencies for temporary purposes. Further
information about the Portfolio's temporary investment practices appears in this
prospectus under the heading "Investment Practices and Risk Considerations:
About Temporary Investment Practices."
The Limited Duration Municipal Bond Portfolio. The investment objective of this
- ---------------------------------------------
Portfolio is to provide a high level of current income exempt from Federal
income tax, consistent with the preservation of capital. The Portfolio seeks to
achieve this objective by investing primarily in a diversified portfolio of
municipal bonds (i.e., debt securities issued by municipalities and related
entities, the interest on which is exempt from Federal income tax). It is a
fundamental policy of the Portfolio that, under normal circumstances, at least
80% of its net assets will be invested in such securities (collectively, "Tax-
Exempt Securities"). Tax-Exempt Securities may include general obligation bonds
and notes, revenue bonds and notes (including industrial revenue bonds and
municipal lease obligations), as well as participation interests relating to
such securities. In order to maintain liquidity, the Portfolio is authorized to
invest up to 20% of its total assets in taxable instruments. Further
information about such investments appears in this prospectus under the heading
"Investment Practices and Risk Considerations: About Temporary Investment
Practices." Morgan Grenfell Capital Management Incorporated currently serves as
Investment Manager for The Limited Duration Municipal Bond Portfolio.
It is anticipated that the average credit quality of all Tax-Exempt Securities
purchased for the Portfolio will be comparable to securities rated "Aa" by
Moody's Investors Service ("Moody's"), or "AA" by Standard & Poor's Corporation
("S&P"), respectively (or, in the case of municipal notes and commercial paper,
corresponding ratings assigned to such instruments). The Portfolio is also,
however, authorized to invest in Tax-Exempt Securities that, at the time of
investment, are rated at least investment grade (e.g. "Baa" or better by
Moody's, "BBB" by S&P or, if unrated, are determined by the Portfolio's
Investment Manager to be of comparable quality to securities that have
received such ratings). Securities rated "Baa" or "BBB" may be said to have
speculative characteristics in that changes in economic conditions or other
circumstances may be more likely to weaken the issuer's capacity to make
principal and interest payments than is the case with respect to securities that
have received higher ratings. The municipal notes in which the Portfolio may
invest will be limited to those obligations which are rated, at the time of
purchase, at least MIG-1 or V-MIG-1 by Moody's or SP-1 by S&P or, if unrated,
are determined by the Investment Manager to be of comparable quality to
securities that have received such ratings. Tax-exempt commercial paper must be
rated at least A-1 by S&P or Prime -1 by Moody's at the time of investment or,
if not rated, determined by the Portfolio's Investment Manager to be of
comparable quality to issues that have received such ratings. Taxable
investments, if any, will be limited to those rated "Aa" or "AA" by Moody's or
<PAGE>
<PAGE>
S&P, respectively (or, in the case of securities not rated by these services or
unrated, of comparable quality). Further information about ratings appears in
this prospectus under the heading "Investment Practices and Risk Considerations:
About Debt Securities and Ratings Organizations."
Tax-Exempt Securities purchased for the Portfolio will have varying maturities,
but under normal circumstances the Portfolio will have an overall duration of
less than 4 years. Duration is a concept that incorporates a bond's yield,
coupon interest payments, final maturity and call features into one measure that
is used by investment professionals as a more precise alternative to the concept
of term-to-maturity. As a point of reference, the maturity of a current coupon
bond with a 3 year duration is approximately 3.5 years and the maturity of a
current coupon bond with a 6 year duration is approximately 9 years. Changes in
interest rates can adversely affect the value of an investment in the Portfolio.
As an example, a one percent increase in interest rates could result in a four
percent decrease in the value of a portfolio with a duration of four years.
When interest rates are falling, a fixed income portfolio with a shorter
duration generally will not generate as high a level of total return as one with
a longer duration. When interest rates are flat, shorter duration portfolios
generally will not generate as high a level of total return as longer duration
portfolios. In determining whether to invest in a particular Tax Exempt
Security, the Portfolio's Investment Manager will rely on the opinion of bond
counsel for the issuer as to the validity of the security and the exemption of
interest on such security from Federal and relevant state income taxes, and will
not make an independent investigation of the basis for any such opinion.
INVESTMENT PRACTICES AND RISK CONSIDERATIONS
Although the Trust's Portfolios have different investment objectives and
policies, certain investment practices may be used by one or more of the
Portfolios. A general description of each such practice is set forth below,
together with the Portfolios to which each practice is available.
About Equity Securities. The Value Equity, Growth Equity, Small Capitalization
- -----------------------
Equity and International Equity Portfolios invest primarily in equity
securities. For purposes of the investment policies of these Portfolios, the
term "equity securities" includes common and preferred stock and rights and
warrants to purchase other equity securities. A maximum of 15% of the assets of
The Value Equity Portfolio and up to 10% of the assets of The Growth Equity
Portfolio may be invested in convertible issues, the market value of which tend
to move together with the market value of the underlying common stock as a
result of the conversion feature. Both The International Equity Portfolio and
The Small Capitalization Equity Portfolio are also authorized to invest up to 5%
of their respective assets in similar convertible issues, although these
Portfolios have no present intention of doing so. In general, investments in
equity securities and convertible issues are subject to market risks that may
cause their prices to fluctuate over time. Additionally, the value of
securities, such as warrants and convertible issues, is also affected by
prevailing interest rates, the credit quality of the issuer and any call
provisions. Convertible issues purchased for any Portfolio will be limited to
those issues that are either rated (or, unrated securities that, in the judgment
of the relevant Investment Manager, are comparable in quality to securities
rated) investment grade or better by Moody's or S&P or other ratings
organization. Please refer to "Debt Securities and Ratings Organizations" in
this section of the prospectus for further information about such organizations
<PAGE>
<PAGE>
and their ratings. Fluctuations in the value of equity securities in which a
Portfolio invests will cause the net asset value of that Portfolio to
fluctuate.
An investment in those Portfolios of the Trust that invest primarily in equity
securities may be more suitable for long-term investors who can bear the risk of
short-term principal fluctuation. The Small Capitalization Equity Portfolio
invests primarily in equity securities issued by smaller companies, generally
with a capitalization of less than $1.0 billion. Equity securities of smaller
companies involve greater risk than that customarily associated with
investments in larger, more established companies. This increased risk may be
due to the fact that such companies often have limited markets and financial
resources, narrow product lines and lack of depth of management. The securities
of smaller companies are often traded in the over-the-counter markets and, if
listed on national or regional exchanges, may not be traded in volumes typical
for such exchanges. Thus, the securities of smaller companies are likely to be
less liquid, and subject to more abrupt or erratic price movements than larger,
more established companies. Further information about securities that may be
illiquid is included in this section under the heading
"About Illiquid Securities."
About Debt Securities and Ratings Organizations. Ratings of debt securities and
- ------------------------------------------------
rated convertible issues represent the judgment of the nationally recognized
rating organization, such as S&P and Moody's, that assigns the
rating (each an "NRSRO"), regarding the rated instrument. Such ratings are not
a guarantee of quality, and may be subject to change even
after the Trust has acquired the security. If a
security's rating is reduced while it is held by the Trust, the appropriate
Investment Manager will consider whether the Trust should continue to hold the
security but is not required to dispose of it. Credit ratings attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, an NRSRO may fail to make timely
changes in credit ratings in response to subsequent events, so that an issuer's
current financial conditions may be better or worse than the rating indicates. A
summary of the ratings categories of Moody's and S&P appears in the Appendix to
the Statement of Additional Information.
Certain of the Portfolios may purchase debt securities that have not been
assigned ratings by any NRSRO but are determined by the relevant Investment
Manager to be of a quality comparable to rated securities that the Portfolio is
permitted to purchase. The quality of unrated securities will be determined by
an Investment Manager in accordance with guidelines adopted by the Board.
About Foreign Securities. The International Equity Portfolio invests primarily
- ------------------------
in equity securities of non-U.S. issuers, which securities may be traded in the
U.S. or abroad and which may be denominated in foreign currencies. In addition
and as noted earlier in this prospectus, The Growth Equity Portfolio may also
invest in such securities. The International Equity Portfolio may also invest
in short-term debt instruments denominated in foreign currencies under unusual
market conditions. Equity securities of overseas issuers are subject to the
same risks, described above, applicable to equity securities in general. In
addition, both debt and equity securities of foreign issuers may involve risks
which are not ordinarily associated with investing in domestic securities. Such
factors include the unavailability of financial information or the difficulty of
interpreting financial information prepared under foreign accounting standards;
<PAGE>
<PAGE>
less liquidity and more volatility in foreign securities markets; the
possibility of expropriation; the imposition of foreign withholding and other
taxes; the impact of foreign political, social or diplomatic developments;
limitations on the movement of funds or other assets between different
countries; difficulties in invoking legal process abroad and enforcing
contractual obligations; and the difficulty of assessing economic trends in
foreign countries. In addition, changes in foreign exchange rates will affect
the value of securities denominated or quoted in foreign currencies relative to
the U.S. dollar. Exchange rate movements can be large and can endure for
extended periods of time, affecting either favorably or unfavorably the value of
securities held in the Portfolio and, thus, the Portfolio's net asset value per
share. Securities transactions effected in markets overseas are generally
subject to higher fixed commissions than may be negotiated on U.S. exchanges.
Custody arrangements for the Portfolio's foreign securities will be more costly
than those associated with domestic securities of equal value. Certain foreign
governments levy withholding taxes against dividend and interest income.
Although in some countries a portion of these taxes is recoverable, the non-
recovered portion of foreign withholding taxes will reduce the Portfolio's
income.
The Value Equity Portfolio may invest in American Depositary Receipts ("ADRs").
ADRs are dollar-denominated receipts generally issued in registered form by
domestic banks, that represent the deposit with the bank of a security of a
foreign issuer. ADRs, which are publicly traded on U.S. exchanges and in the
over-the-counter markets, may be sponsored by the foreign issuer of the
underlying security or may be unsponsored. The International Equity Portfolio
and The Growth Equity Portfolio are also permitted to invest in ADRs.
Additionally, these portfolios may invest in European Depositary Receipts
("EDRs"). EDRs are similar to ADRs but are issued and traded in Europe. EDRs
are generally issued in bearer form and denominated in foreign currencies and,
for this reason, are subject to the currency risks described above. For
purposes of the Trust's investment policies, ADRs and EDRs are deemed to have
the same classification as the underlying securities they represent. Thus, an
ADR or EDR representing ownership of common stock will be treated as common
stock. ADR or EDR programs may be sponsored or unsponsored. Unsponsored
programs are subject to certain risks. In contrast to sponsored programs,
where the foreign issuer of the underlying security works with the depository
institution to ensure a centralized source of information about the underlying
company, including any annual or other similar reports to shareholders,
dividends and other corporate actions, unsponsored programs are based on a
service agreement between the depository institution and holders of ADRs or
EDRs issued by the program; thus investors bear expenses associated with
certificate transfer, custody and dividend payments. In addition, there may be
several depository institutions involved in issuing unsponsored ADRs or EDRs for
the same underlying issuer. Such duplication may lead to market confusion
because there would be no central source of information for buyers, sellers and
intermediaries, and delays in the payment of dividends and information about the
underlying issuer or its securities could result.
About Tax-Exempt Securities. The Limited Duration Municipal Bond Portfolio
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intends to invest substantially all of its assets in Tax-Exempt Securities,
including municipal bonds, notes and related instruments. The performance of
this Portfolio depends primarily on interest rate risk and credit risk.
Interest rate risk is the risk that the value of an investment will fluctuate in
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response to changes in interest rates. Credit risk is the risk that an issuer
will be unable to make principal and interest payments when due. The credit
quality of municipal obligations held by the Portfolio can be affected, among
other things, by the financial condition of the issuer or guarantor of a Tax-
Exempt Security, the issuer's future borrowing plans and sources of revenue, the
economic feasibility of the underlying project and regional political or
economic developments.
Generally, the value of debt securities such as Tax-Exempt Securities, will tend
to decrease in value when interest rates rise and increase in value when
interest rates fall, with shorter term securities generally less sensitive to
interest rate changes than longer term securities. Municipal bonds are debt
obligations which are typically issued with maturities of five years or more,
issued by local, state and regional governments or other governmental
authorities. Municipal bonds may be issued for a wide range of purposes,
including construction of public facilities, funding operating expenses, funding
of loans to public institutions; or refunding outstanding municipal debt.
Municipal bonds may be "general obligations" of their issuers, the repayment of
which is secured by the issuer's pledge of full faith, credit and taxing power.
"Revenue" or "special tax" bonds, such as municipal lease obligations and
industrial revenue bonds are obligations that are payable from revenues derived
from a particular facility or a special excise or other tax. Trusts for
repayment of revenue bonds are generally limited to revenues from the underlying
project or facility. As a consequence, the credit quality of such obligations
is ordinarily dependent on the credit quality of the private user or operator of
the project or facility rather than the governmental issuer of the obligation.
Municipal lease obligations likewise may not be backed by the issuing
municipality's credit and may involve risks not normally associated with
investments in Tax-Exempt Securities. For example, interest on muniicpal lease
obligations may become taxable if the lease is assigned. The Portfolio may
also incur losses if the municipal issuer does not appropriate funds for lease
payments on an annual basis, which may result in termination of the lease and
possible default. Municipal leases may also be illiquid. Further information
about securities that may be illiquid is included in this section under the
heading "About Illiquid Securities."
The Limited Duration Municipal Bond Portfolio may also invest in Tax-Exempt
Securities, the proceeds of which are directed, at least in part, to private,
for-profit organizations. Although the interest from such bonds is exempt from
regular Federal income tax, the interest may be treated as tax preference
items for purposes of the alternative minimum tax if the bond was issued after
August 7, 1986; such bonds are often referred to as "AMT Bonds." The alternative
minimum tax is a special separate tax that applies to a limited number of
taxpayers who have certain adjustments to income or tax preference items.
Municipal notes are obligations issued by local, state and regional governments
to meet their short-term funding requirements. Municipal notes may be short-
term debt obligations which are issued pending receipt of taxes or other
revenues, and retired upon receipt of such revenues. Such securities include
bond anticipation notes, revenue anticipation notes and tax and revenue
anticipation notes. Other types of municipal notes in which the Portfolio may
invest are issued to fund municipal operations on a temporary or revolving basis
and may include construction loan notes, short-term discount notes, tax-exempt
commercial paper demand notes and similar instruments.
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Long term fixed rate municipal bonds that have been coupled with puts granted by
a third party financial institution may also be purchased for the Portfolio.
Such instruments, which may be represented by custodial receipts or trust
certificates, are designed to enhance the liquidity and shorten the duration of
the underlying bond. Under certain circumstances, however, such as the
downgrading of the underlying bond or a change in its tax-exempt status, the
associated put will terminate automatically and the weighted average maturity
of the Portfolio may increase. A "Participation interest" is a floating or
variable rate security issued by a financial institution. These instruments
represent interests in municipal bonds or other municipal obligations held by
the issuing financial institution. Participation interests are generally backed
by an irrevocable letter of credit or guarantee by a bank (which may or may not
be the issuing financial institution). The letter of credit feature is usually
designed to enhance the credit quality of the underlying municipal obligations.
In addition, participation interests generally carry a demand feature. These
demand features permit the Portfolio to tender the participation interest back
to the issuing financial institution and are usually designed to provide
liquidity for the Portfolio in the event of a downgrade in the credit quality
of the instrument or default in the underlying municipal obligation. The
Portfolio may acquire stand-by commitments, also known as "liquidity puts"
solely for the purpose of facilitating portfolio liquidity. These instruments
give the Portfolio the right to sell specified securities back to the seller,
at the option of the Portfolio, at a specified price. It is expected that such
stand-by commitments will be available without the payment of any direct or
indirect consideration. However, if advisable in the judgment of the Investment
Manager of the Portfolio, the Portfolio may pay for such commitments at the time
the underlying security is acquired.
Tax-Exempt Securities may be purchased on a "when-issued" basis. When
securities are purchased on a when-issued or delayed delivery basis, the
Portfolio must maintain, in a segregated account until the settlement date,
cash, U.S. Government Securities or high-grade debt obligations in an amount
sufficient to meet the purchase price (or enter into offsetting contracts for
the forward sale of other securities it owns). The purchase of securities on a
when-issued or delayed delivery basis involves a risk of loss if the value of
the security to be purchased declines prior to the settlement date. Although
purchases of securities on a when-issued or delayed delivery basis are expected
to be made only with the intention of acquiring those securities for the
investment portfolio of the purchasing Portfolio, when-issued or delayed
delivery securities may be sold prior to settlement if the purchasing
Portfolio's Investment Manager deems it appropriate to do so. The market value
of when-issued securities may increase or decrease prior to settlement as a
result of changes in interest rates or other factors and short-term gains or
losses may be realized on any sales of such when-issued securities.
About Temporary Investment Practices. It is the intention of the Trust
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that each of the Portfolios be fully invested in accordance with its respective
investment objectives and policies at all times. To maintain liquidity pending
investment, however, The Value Equity, Growth Equity, Small Capitalization
Equity and Limited Duration Municipal Bond Portfolios are authorized to
invest up to 20% of their respective assets in short-term money market
instruments issued, sponsored or guaranteed by the U.S. Government, its
agencies or instrumentalities or repurchase agreements secured by such
securities (collectively, "U.S. Government Securities"),
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or short-term money market instruments of other issuers, which may
include corporate commercial paper, and variable and floating rate debt
instruments, that have received, or are comparable in quality to securities that
have received, one of the two highest ratings assigned by at least one NRSRO.
The International Equity Portfolio is also permitted to invest in U.S.
Government Securities or short-term money market instruments of other issuers
denominated in U.S. dollars or other currencies to maintain liquidity pending
investment. Investments in short-term instruments denominated in foreign
currencies are subject to the same risk considerations as described above under
the heading "About Foreign Securities." All such investments will be subject to
the same quality standards as those applicable to short-term investments made on
behalf of the Trust's domestic portfolios. Under extraordinary market or
economic conditions, all or any portion of a Portfolio's assets may be invested
in short-term money market instruments for temporary defensive purposes.
Further information about those instruments that each of the Portfolios may use
for temporary investment purposes appears in the Statement of Additional
Information, under the heading "Further Information on Investment Policies."
About Illiquid Securities. A Portfolio may not purchase illiquid securities if,
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at the time of such purchase, more than 15% of the value of the Portfolio's net
assets will be invested in illiquid securities. Illiquid securities are those
that cannot be disposed of promptly within seven days and in the usual course of
business at the prices at which they are valued. Such securities include, but
are not limited to, time deposits and repurchase agreements with maturities
longer than seven days. Variable rate demand notes with demand periods in
excess of seven days, securities issued with restrictions on their disposition
("restricted issues") and municipal lease obligations, which may be unrated,
will be deemed illiquid unless a Portfolio's Investment Manager determines that
such securities are readily marketable and could be disposed of within seven
days promptly at the prices at which they are valued. In the case of municipal
lease obligations, this determination will be made by the Portfolio's Investment
Manager in accordance with guidelines established by the Trust's Board. The
liquidity of restricted issues and, in particular, the availability of an
adequate dealer or institutional trading market for those restricted issues
("Rule 144A Securities") that are not registered for sale to the general public
but can be resold to institutional investors, will be determined by each
Portfolio's Investment Manager in accordance with guidelines established by
the Trust's Board. The institutional market for Rule 144A Securities is
relatively new and liquidity of the investments in such securities could be
impaired if trading does not further develop or declines. Factors relevant to
the liquidity of a particular instrument include the frequency of trades and
availability of dealer quotes, the number of dealers and market makers active in
the issue and the nature of marketplace trades (e.g. mechanics of transfer and
solicitation of offers).
About Hedging Strategies. Each of the Portfolios may engage in certain
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strategies ("Hedging Strategies") designed to reduce certain risks that would
otherwise be associated with their respective securities investments, and/or in
anticipation of futures purchases. These strategies include the use of options
on securities and securities indices, options on stock index and interest rate
futures contracts and options on such futures contracts. The Growth Equity and
International Equity Portfolios may also use forward foreign currency contracts
in connection with the purchase and sale of those securities, denominated in
foreign currencies, in which each is permitted to invest. The International
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Equity Portfolio may use foreign currency options and foreign currency futures
to hedge against fluctuations in the relative value of the currencies in which
securities held by The International Equity Portfolio are denominated. A
Portfolio may invest in the instruments noted above (collectively, "Hedging
Instruments") only in a manner consistent with its investment objective and
policies. A Portfolio may not invest more than 10% of its total assets in option
purchases and may not commit more than 5% of its net assets to margin deposits
on futures contracts and premiums for options on futures contracts. In
addition, each Portfolio may use the Hedging Instruments only for the purpose of
reducing investment risk and not for speculative purposes. Further information
relating to the use of Hedging Instruments, and the limitations on their use,
appears in the Statement of Additional Information.
There are certain overall considerations to be aware of in connection with the
use of Hedging Instruments in any of the Portfolios. The ability to predict the
direction of the securities or currency markets and interest rates involves
skills different from those used in selecting securities. Although the use of
various Hedging Instruments is intended to enable each of the Portfolios to
hedge against certain investment risks, there can be no guarantee that this
objective will be achieved. For example, in the event that an anticipated
change in the price of the securities (or currencies) that are the subject of
the strategy does not occur, it may be that the Portfolio employing the Hedging
Strategy would have been in a better position had it not used such a strategy at
all. Moreover, even if the Investment Manager correctly predicts interest rate
or market price movements, a hedge could be unsuccessful if changes in the value
of the option or futures position do not correspond to changes in the value of
investments that the position was designed to hedge. Liquid markets do not
always exist for certain Hedging Instruments and lack of a liquid market for any
reason may prevent a Portfolio from liquidating an unfavorable position. In the
case of an option, the option could expire before it can be sold, with the
resulting loss of the premium paid by a Portfolio for the option. In the case
of a futures contract, a Portfolio would remain obligated to meet margin
requirements until the position is closed. In addition, options that are traded
over-the-counter differ from exchanged traded options in that they are two-party
contracts with price and other terms negotiated between the parties. For this
reason, the liquidity of these instruments may depend on the willingness of the
counterparty to enter into a closing transaction. In the case of currency
related instruments, such as foreign currency options, options on foreign
currency futures, and forward foreign currency contracts, it is generally not
possible to structure transactions to match the precise value of the securities
involved since the future value of the securities will change during the period
that the arrangement is outstanding. As a result, such transactions may
preclude or reduce the opportunity for gain if the value of the hedged currency
changes relative to the U.S. dollar. Like over-the-counter options, such
instruments are essentially contracts between the parties and the liquidity of
these instruments may depend on the willingness of the counterparty to enter
into a closing transaction.
About Other Permitted Instruments. Each of the Portfolios may borrow money from
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a bank for temporary emergency purposes, and may enter into reverse repurchase
agreements. A reverse repurchase agreement, which is considered a borrowing for
purposes of the Investment Company Act, involves the sale of a security by the
Trust and its agreement to repurchase the instrument at a specified time and
price. Accordingly, the Trust will maintain a segregated account consisting of
cash, U.S. Government securities or high-grade debt obligations, maturing not
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later than the expiration of the reverse repurchase agreement, to cover its
obligations under reverse repurchase agreements. To avoid potential leveraging
effects of a Portfolio's borrowings, additional investments will not be made
while aggregate borrowings, including reverse repurchase agreements, are in
excess of 5% of a Portfolio's total assets. Borrowings outstanding at any time
will be limited to no more than one-third of a Portfolio's total assets.
Each of the Portfolios may lend portfolio securities to brokers, dealers and
financial institutions provided that cash, or equivalent collateral, equal to at
least 100% of the market value (plus accrued interest) of the securities loaned
is maintained by the borrower with the lending Portfolio. During the time
securities are on loan, the borrower will pay to the Portfolio any income that
may accrue on the securities. The Portfolio may invest the cash collateral
and earn additional income or may receive an agreed upon fee from the
borrower who has delivered equivalent collateral. No Portfolio will enter
into any securities lending transaction if, at the time the loan is made,
the value of all loaned securities, together with any other borrowings,
equals more than one-third of the value of that Portfolio's total assets.
MANAGEMENT OF THE TRUST
The Board of Directors. The Trust's Board is responsible for the overall
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supervision and management of the business and affairs of the Trust, including
(i) the selection and general supervision of the Investment Managers that
provide day-to-day portfolio management services to the Trust's several
Portfolios; and (ii) for Portfolios for which more than one Investment Manager
has been retained, allocation of that Portfolio's assets among such Investment
Managers. In particular, the Board may, from time to time, allocate portions of
a Portfolio's assets between or among several Investment Managers, each of whom
may have a different investment style and/or security selection discipline.
The Board also may reallocate a Portfolio's assets among such Investment
Managers or terminate particular Investment Managers, if the Board deems it
appropriate to do so in order to achieve the overall objectives of the Portfolio
involved. The Board may also retain additional Investment Managers on behalf
of a Portfolio subject to the approval of the shareholders of that Portfolio in
accordance with the Investment Company Act.
The Investment Managers. As indicated above, day-to-day investment decisions
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for each of the Portfolios are the responsibility of one or more Investment
Managers retained by the Trust. In accordance with the terms of individual
investment advisory contracts relating to the respective Portfolios, and subject
to the general supervision of the Trust's Board, each of the Investment Managers
is responsible for providing a continuous program of investment management to,
and placing all orders for, the purchase and sale of securities and other
instruments on behalf of the respective Portfolios they serve.
Brinson Partners, Inc. ("Brinson") serves as Investment Manager for The
International Equity Portfolio. For its services to the Portfolio, Brinson
receives a fee, based on the average daily net asset value of that portion of
the Portfolio's assets managed by it, at an annual rate of 0.40%. Brinson, the
principal offices of which are located at 209 South LaSalle Street, Chicago,
Illinois 60604-1295, and its predecessor entities have provided investment
management services for international equity assets since 1974. The day-to-day
management of The International Equity Portfolio is the responsibility of a team
of Brinson's investment professionals; investment decisions are made by
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committee and no person has primary responsibility for making recommendations to
the committee. Brinson had assets of approximately $57.9 billion under
management as of June 30, 1996, of which approximately $1.1 billion
represented assets of mutual funds. Brinson is a wholly-owned indirect
subsidiary of Swiss Bank Corporation, an internationally diversified
organization with operations in many aspects of the financial services industry.
Clover Capital Management, Inc. ("Clover Capital") serves an Investment Manager
for The Small Capitalization Equity Portfolio. For its services to the
Portfolio, Clover Capital receives a fee, based on the average daily net asset
value of that portion of the Portfolio's assets managed by it, at an annual rate
of 0.45%. Clover Capital, the principal offices of which are located at 11 Tobey
Village Office Park, Pittsford, New York 14534, was incorporated in 1986.
Michael E. Jones and Geoffrey H. Rosenberger are primarily responsible for
making day-to-day investment decisions for that portion of the Portfolio's
assets assigned to Clover Capital. Mr. Jones and Mr. Rosenberger are the
founders of Clover Capital and have served as Managing Directors of Clover
Capital since the firm's inception. Mr. Jones, a chartered financial analyst, is
a research analyst and portfolio manager. Mr. Rosenberger, also a chartered
financial analyst, manages Clover Capital's overall research effort. Clover
Capital had, as of September 30, 1996, assets of approximately $1.7 billion
under management, of which approximately $139 million represented
assets of mutual funds.
Hotchkis and Wiley ("Hotchkis") has served as an Investment Manager for The
Value Equity Portfolio since August 1996. For its services to the Portfolio,
Hotchkis receives a fee, based on the average daily net asset value of that
portion of the Portfolio's assets managed by it, at an annual rate of 0.30%.
Hotchkis, the principal offices of which are located at 800 West Sixth Street,
Los Angeles, California, 90017, and its predecessor entities have provided
investment management services for equity assests since 1980. Sheldon
Lieberman is responsible for making day-to-day investment
decisions for that portion of The Value Equity Portfolio allocated to
Hotchkis and Wiley. Before joining Hotchkis and Wiley in 1994, Mr.
Lieberman was the Chief Investment Officer for the Los Angeles County
Employees Retirement Association. Prior to that, he was Manager of
Trust Investments at Lockheed Corporation. As of September 30, 1996, Hotchkis
and Wiley managed total assets of approximately $9.8 billion, of which
approximately $1.4 billion represent assets of mutual funds. Hotchkis,
a division of Merrill Lynch Asset Management LP, is controlled by
Merrill Lynch & Co., Inc.
Frontier Capital Management Company ("Frontier") serves as an Investment Manager
for The Small Capitalization Equity Portfolio. For its services to the
Portfolio, Frontier receives a fee based on the average daily net asset value of
that portion of the Portfolio's assets managed by it, at an annual rate of
0.45%. Frontier, the principal offices of which are located at 99 Summer
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Street, Boston, Massachusetts 02110, was established in 1980. Michael
Cavarretta is responsible for making the day-to-day investment decisions for
that portion of the Portfolio's assets assigned to Frontier. Mr. Cavarretta has
been an investment professional with Frontier since 1988. Before joining
Frontier, Mr. Cavarretta was a financial analyst with General Electric Co. and
attended Harvard Business School (M.B.A. 1988). Frontier had, as ofSeptember 30,
1996, assets of approximately $2.5 billion under management, of which
approximately $16 million represented assets of mutual funds.
Institutional Capital Corporation ("ICAP") serves as an Investment Manager for
The Value Equity Portfolio. For its services to the Portfolio, ICAP receives a
fee, based on the average daily net asset value of that portion of the
Portfolio's assets managed by it, at an annual rate of 0.30%. ICAP, the
principal offices of which are located at 225 West Wacker, Chicago, Illinois
60606, has provided investment management services for equity assets since 1970.
Investment decisions for those assets of the Portfolio assigned to ICAP are made
by a team of ICAP investment professionals; investment decisions are made by
committee and no single individual has primary responsibility for making
recommendations to the committee. ICAP had assets of approximately $5 billion
under management as of September 30, 1996, of which approximately $497 million
represented assets of mutual funds.
Jennison Associates Capital Corp. ("Jennison") serves as an Investment Manager
for The Growth Equity Portfolio. For its services to the Portfolio, Jennison
receives a fee, based on the average daily net asset value of that portion of
the Portfolio's assets managed by it, at an annual rate of 0.30%. Jennison, the
principal offices of which are located at 466 Lexington Avenue, New York, New
York 10017, was established in 1969. Robert B. Corman, Senior Vice-President and
a director of Jennison, is responsible for making day-to-day investment
decisions for the portion of the Portfolio's assets assigned to Jennison. Mr.
Corman, who is a chartered financial analyst, has been an officer and investment
professional with Jennison since 1981. As of September 30, 1996, Jennison had
approximately $31.3 billion under management, of which approximately $3.5
billion represented assets of mutual funds. Jennison is a wholly-owned
subsidiary of Prudential Insurance Company of America.
Morgan Grenfell Capital Management Incorporated ("Morgan Grenfell") serves as
Investment Manager for The Limited Duration Municipal Bond Portfolio. For its
services to the Portfolio, Morgan Grenfell receives a fee, based on the average
daily net asset value of that portion of the Portfolio's assets managed by it,
at an annual rate of 0.20%. Morgan Grenfell, whose principal offices are
located at 885 Third Avenue, New York, New York 10022, has been active in
managing municipal securities since 1989. David Baldt, who is Morgan Grenfell's
Fixed Income Manager, is primarily responsible for making the day-to-day
investment decisions for the Portfolio. Mr. Baldt has managed fixed income
investments since 1973, and has been with Morgan Grenfell since 1989. As of
October 31, 1996, Morgan Grenfell had assets of approximately $8.5 billion of
which approximately $1.1 billion represented assets of mutual funds. Morgan
Grenfell is an indirect, wholly-owned subsidiary of Deutschebank, A.G., a German
financial services conglomerate.
Westfield Capital Management Company, Inc. ("Westfield") serves as an Investment
Manager for The Growth Equity Portfolio. For its services to the Portfolio,
Westfield receives a fee, based on the average daily net asset value of that
portion of the Portfolio's assets managed by it, at an annual rate of 0.30%.
Westfield, established in 1989, is owned 100% by the active members of its
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professional staff. The firm maintains its principal offices at One Financial
Center, Boston, Massachusetts, 02111. C. Michael Hazard, Arthur J. Bauernfeind
and Michael J. Chapman are responsible for making the day-to-day investment
decisions for the Portfolio. Mr. Hazard is Chairman of the Board and Chief
Executive Officer of Westfield. Prior to founding Westfield in 1989, he was
Executive Vice President of Essex Investment Management Company, Inc. in Boston
Massachusetts. Mr. Bauernfeind, President and Chief Operating Officer of
Westfield, is a chartered financial analyst and chartered investment counselor.
Before joining Westfield in 1990, he was a Managing Partner and Vice-President
of Loomis Sayles & Co. in Boston, Massachusetts. Mr. Chapman, Westfield's
Director of Research and Chief Investment Officer, has been an officer and
portfolio manager with Westfield since 1990. He joined Westfield after nine
years with Eaton Vance Corporation in Boston, Massachusetts, where he was a
Vice-President and headed the Emerging Growth Department. Mr. Chapman is also
a chartered financial analyst. Westfield had, as of September 30, 1996,
assets of approximately $1.2 million under management, of which approximately
$141 million represented assets of mutual funds.
Consulting Arrangement. Pursuant to an agreement with the Trust, ("HCCI
Consulting Agreement"), Hirtle Callaghan continuously monitors the performance
of various investment management organizations, including the Investment
Managers. The HCCI Consulting Agreement provides that Hirtle Callaghan will make
its officers available to serve as officers and/or Trustees of the Trust, and
maintain office space sufficient for the Trust's principal office. For its
services under The HCCI Consulting Agreement, Hirtle Callaghan is entitled to
receive an annual fee of .05% of each Portfolio's average net assets. Hirtle
Callaghan's principal offices are located at 575 East Swedesford Road, Wayne,
Pennsylvania 19087. Hirtle Callaghan was organized in 1988 and has no history of
operation prior to that date. Hirtle Callaghan is
registered as an investment adviser under the Investment Advisers Act of 1940
and, as of December 31, 1996, had approximately $1.2 billion of assets under
management. Hirtle Callaghan is controlled by Jonathan Hirtle and Donald E.
Callaghan, each of whom also serves on the Trust's Board and as an officer of
the Trust.
Administration, Distribution, and Related Services. BISYS Fund Services
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("BISYS")3435 Stelzer Road, Columbus, Ohio 43219 has been retained, pursuant to
a separate Administrative Services Contract with the Trust, to serve as
the Trust's administrator. Services performed by BISYS in that capacity
include, but are not limited to: (a) general supervision of the operation of the
Trust and coordination of services performed by the various service
organizations retained by the Trust; (b) regulatory compliance, including the
compilation of information for documents and reports furnished to the Securities
and Exchange Commission and corresponding state agencies; (c) assistance in
connection with the preparation and filing of the Trust's registration statement
and amendments thereto; and (d) maintenance of the Trust's registration in the
various states in which shares of the Trust are offered. For its services as the
Trust's administrator, BISYS is entitled to receive a fee, payable monthly
by the Trust, at the annual rate of 0.10% of the Trust's average daily net
assets up to $1 billion and 0.060% on such assets in excess of $1 billion.
Pursuant to separate contracts, BISYS or its affiliates also serve as the
Trust's transfer and dividend disbursing agent, as well as the Trust's
accounting agent and receives fees for such services. BISYS also serves
as the Trust's distributor.
BISYS performs similar services for mutual funds other than the Trust.
BISYS and its affiliated companies are wholly-owned by The BISYS Group,
Inc., a publicly-held company which is a provider of information processing,
loan servicing and 401(k) administration and recordkeeping services to
and through banking and other financial organizations. Bankers Trust Company
has been retained by the Trust to serve as custodian for the assets of each
of the Portfolios.
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Expenses. The Trust pays all expenses incurred in its operation, other than
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those expenses expressly assumed by Hirtle Callaghan, the Investment Managers or
other service organizations. Those Trust expenses that can be readily identified
as belonging to a particular Portfolio will be paid by that Portfolio. General
expenses of the Trust that are not so identified will be allocated among the
Portfolios based on their relative net assets at the time those expenses are
accrued. The Trust's principal expenses are the fees payable to the Investment
Managers; fees for administration, transfer agency and portfolio accounting
payable to BISYS; fees for domestic and international custody of the
Trust's assets payable to Bankers Trust Company; fees for independent auditing
and for legal services; fees for filing reports and registering shares with
regulatory bodies; and consulting fees payable to Hirtle Callaghan.
PURCHASES AND REDEMPTIONS
General Information About Purchases. Shareholder accounts in the Trust may be
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established only by, and shares of each of the Portfolios are available
exclusively to, Eligible Investors. Shares are sold at net asset value and
without sales charge. Payment for purchases of Trust shares may be made by
wire transfer or by check drawn on a U.S. bank. All purchases must be made in
U.S. dollars. The Trust reserves the right to reject any purchase order.
Purchase orders may be received by the Trust's Transfer Agent on any day the
Trust is open for business ("Business Day"). The Trust is open every day,
Monday through Friday, that the New York Stock Exchange is open for
trading, which excludes the following business holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The Trust reserves the right to reject any
purchase order and will not issue share certificates. Purchases of shares of the
Portfolios will be executed at the net asset value per share next computed after
receipt by the Trust of a purchase order placed on behalf of an Eligible
Investor and after the order has been accepted by the Trust. If such a purchase
order is received prior to 4 P.M. Eastern Time on any Business Day, the purchase
will be executed at the net asset value per share determined as of the close of
trading on the New York Stock Exchange on that Business Day--normally 4:00 P.M.
Eastern Time. Purchase orders received after 4 P.M. Eastern Time will be
executed at the net asset value per share as determined on the following
Business Day.
General Information About Redemptions. Shares may be redeemed on any Business
- -------------------------------------
Day. Shares will be redeemed at the net asset value next computed after receipt
of a redemption request in proper form by the Transfer Agent. The Trust
reserves the right to redeem the account of any shareholder if as a result of
redemptions, the aggregate value of shares held in a Portfolio falls below a
minimum of $5,000 after 30 days notice and provided that, during such 30 day
period, such aggregate value is not increased to at least such minimum level.
Under extraordinary conditions, as provided under the rules of the Securities
and Exchange Commission, payment for shares redeemed may be postponed, or the
right of redemption suspended.
<PAGE>
<PAGE>
Redemptions may be made in number of shares or a stated dollar amount by sending
a written request to the Trust's Transfer Agent at the address shown on the
first page of this prospectus. Redemption requests must be signed in the exact
name in which the shares are registered; redemption requests for joint accounts
require the signature of each joint owner. For redemption requests of $25,000
or more, each signature must be guaranteed by a commercial bank or trust company
which is a member of the Federal Deposit Insurance Corporation, a member firm of
a national securities exchange and certain other securities dealers and credit
unions. Guarantees must be signed by an authorized signatory of the guarantor
institution and "Signature Guaranteed" must appear with the signature.
Proceeds of redemption requests transmitted by mail will normally be paid by
check and mailed to the shareholder's address as indicated on the Trust's books.
Redemption proceeds of $2,500 or more may be transferred electronically to the
bank account number, if any, recorded on the Trust's books. Wire redemption
requests received prior to 1:00 P.M. on any Business Day will be effected on
that Business Day and wired to your bank on the following Business Day. The
Trust ordinarily will make payment for all shares redeemed within seven days
after receipt of a redemption request in proper form. Payment of redemption
proceeds for shares purchased by check may be delayed for a period of up to
fifteen days after their purchase, pending a determination that the check has
cleared.
Additional Information About Purchases and Redemptions. The Trust does not
- ------------------------------------------------------
impose investment minimums or sales charges of any kind. It is expected,
however, that shares of the Trust will be acquired through a program of services
offered by a financial intermediary, such as an investment adviser or bank, and
that shares will be held, of record, in the name of such intermediary or a
related entity. Intermediaries may impose service or advisory fees, which are
in addition to those expenses borne by the Trust and described in this
prospectus under the heading "Expense Information." Investors should contact
such intermediary for information concerning what, if any, additional fees may
be charged.
The Trust may, at its discretion, permit investors to purchase shares of a
Portfolio through an exchange of securities. Any securities exchanged must meet
the investment objectives, policies and limitations of the Portfolio involved,
must have a readily ascertainable market value, must be liquid and must not be
subject to restrictions on resale. The market value of any securities exchanged
plus any cash, must be at least $250,000. Shares acquired through any such
exchange will not be redeemed until the transfer of securities to the Trust has
settled -- usually within 15 days following the purchase by exchange. The Trust
may, at its discretion, pay any portion of the redemption amount by a
distribution "in kind" of securities held in a Portfolio's investment portfolio.
Investors will incur brokerage charges on the sale of these portfolio
securities.
Shareholder Reports and Inquiries. Shareholders will receive semi-annual
- ---------------------------------
reports containing unaudited financial statements as well as annual reports
containing financial statements which have been audited by the Trust's
independent accountants. Each shareholder will be notified annually as to the
Federal tax status of distributions made by the Portfolios in which such
shareholder is invested. Shareholders may contact the Trust by calling the
telephone number, or by writing to the Trust at the address, shown on the first
page of this prospectus.
<PAGE>
<PAGE>
PORTFOLIO TRANSACTIONS AND VALUATION
Portfolio Transactions. Subject to the general supervision of the Board, each
- ----------------------
of the Investment Managers is responsible for placing orders for securities
transactions for the Portfolio they serve. Purchases and sales of equity
securities will normally be conducted through brokerage firms entitled to
receive commissions for effecting such transactions. In placing orders, it is
the policy of the Trust to ensure that the most favorable execution for its
transactions is obtained. Where such execution may be obtained from more than
one broker or dealer, securities transactions may be directed to those who
provide research, statistical and other information to the Trust or the
Investment Managers. Purchases and sales of debt securities are expected to
occur primarily with issuers, underwriters or major dealers acting as
principals. Such transactions are normally effected on a net basis and do not
involve payment of brokerage commissions. The Trust has no obligation to enter
into securities transactions with any particular dealer, issuer, underwriter or
other entity. In addition, the Board may, to the extent consistent with the
Investment Company Act and other applicable law, authorize Investment Managers
to direct transactions to service organizations retained by the Trust or their
affiliates; under appropriate circumstances, such transactions may be used for
the purpose of offsetting fees otherwise payable by the Trust for custody,
transfer agency or other services.
Valuation. The net asset value per share of the Portfolios is determined once
- ---------
on each Business Day as of the close of the New York Stock Exchange, which is
normally 4 P.M. Eastern Time. Each Portfolio's net asset value per share is
calculated by adding the value of all securities and other assets of the
Portfolio, subtracting its liabilities and dividing the result by the number of
its outstanding shares. Those assets that are traded on an exchange or in the
over-the-counter market are valued based upon market quotations. Short-term
obligations with maturities of 60 days or less are valued at amortized cost,
which constitutes fair value as determined by the Trust's Board. Other assets
for which market quotations are not readily available are valued at their fair
value as determined in good faith by the Trust's Directors. With the approval
of the Board, any of the Portfolios may use a pricing service, bank or broker-
dealer experienced in such matters to value the Portfolio's securities. A more
detailed discussion of net asset value and security valuation is contained in
the Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividend and Capital Gain Distribution Options. It is anticipated that The
- ----------------------------------------------
Value Equity Portfolio, The Growth Equity Portfolio and The Small Capitalization
Equity Portfolio will declare and distribute dividends from net investment
income on a quarterly basis. The Limited Duration Municipal Bond Portfolio will
declare dividends from net investment income daily, with payments on a monthly
basis. The International Equity Portfolio will declare dividends from net
investment income semi-annually. Net realized capital gains, if any, will be
distributed at least annually for each Portfolio. Unless another distribution
option is elected, dividends and capital gain distributions will be credited to
shareholder accounts in additional shares of the Portfolio with respect to which
<PAGE>
<PAGE>
they are paid. Elections may be made by writing to the Trust c/o its Transfer
Agent. Elections must be received in writing by the Transfer Agent at least
five days prior to the payable date of the dividend in order for the election to
be effective for that dividend and on or before the record date of a
distribution in order to be effective for that distribution. In the event that
a shareholder redeems all shares in an account between the record date and the
payable date, the value of dividends or gain distributions declared and payable
will be paid in cash regardless of the existing election.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders on December 31 of such year, provided
such dividends are paid during January of the following year. Investors should
also be careful to consider the tax implications of buying shares just prior to
a distribution. The price of shares purchased at that time may reflect the
amount of the forthcoming distribution. Those investors purchasing just prior
to a distribution may nevertheless be taxed on the entire amount of the
distribution received, although the distribution may have the effect of reducing
the market value of shares below the shareholder's cost.
The Trust will provide written notices to shareholders annually regarding the
tax status of distributions made by each Portfolio.
Federal Taxes. The following discussion is only a brief summary of some of the
- -------------
important Federal tax considerations generally affecting the Portfolios and
their shareholders and is not intended as a substitute for careful tax planning.
Dividends and distributions may also be taxable under state and local tax laws.
In addition, shareholders who are nonresident alien individuals, foreign trusts
or estates, foreign corporations or foreign partnerships may be subject to
different tax treatment under U.S. Federal income tax laws than shareholders who
are U.S. residents. Furthermore, future legislative or administrative changes
or court decisions may materially affect the tax consequences of investing in
one or more Portfolios of the Trust. Accordingly, shareholders are urged to
consult their tax advisers with specific reference to his or her particular tax
situation.
Each Portfolio intends to qualify annually to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended ("Code"). In order to do so, each Portfolio must distribute at least
90% of its taxable income annually, and must derive at least 90% of its gross
income from its investment activities, provided that not more than 30% of such
income is derived from the disposition of securities held for less than three
months. So long as a Portfolio qualifies for this tax treatment, that Portfolio
will be not be subject to Federal income tax on amounts distributed to
shareholders.
Shareholders, however, will be subject to income or capital gains taxes on
distributed amounts (except for dividends that are treated as tax-exempt
dividends such as those expected to be paid by The Limited Duration Municipal
Bond Portfolio), regardless of whether such dividends and/or distributions are
paid in cash or reinvested in additional shares. Distributions paid by a
Portfolio out of long term capital gains are taxable to those investors subject
to income tax as long-term capital gains, regardless of the length of time an
investor has owned shares in the Portfolio. All other distributions, to the
extent they are taxable, are taxed to shareholders as ordinary income. A
redemption of shares of any Portfolio may also result in a capital gain or loss
to the redeeming shareholder. A loss incurred upon redemption of shares of any
Portfolio of the Trust (other than The Limited Duration Municipal Bond
Portfolio) held for six months or less will be treated as long-term capital loss
to the extent of capital gain dividends received with respect to such shares.
<PAGE>
<PAGE>
Tax Matters Relating to The Limited Duration Municipal Bond Portfolio. As a
- ---------------------------------------------------------------------
matter of fundamental policy, The Limited Duration Municipal Bond Portfolio
intends to invest a sufficient portion of its assets in municipal bonds and
notes so that it will qualify to pay "exempt-interest dividends." Exempt-
interest dividends distributed to shareholders are excluded from a shareholder's
gross income for Federal tax purposes. Under certain circumstances, receipt of
exempt-interest dividends may be relevant to shareholders in determining their
tax liability. Dividends paid from gains realized by the Portfolio from the
disposition of a tax-exempt bond that was acquired after April 30, 1993 for a
price less than the principal amount of the bond is taxable to shareholders as
ordinary income to the extent of the accrued market discount. Exempt interest
dividends paid by The Limited Duration Municipal Bond Portfolio, although exempt
from regular income tax in the hands of a shareholder of the Portfolio, are
includable in the tax base for determining the extent to which a shareholder's
Social Security Benefits would be subject to Federal income tax. Shareholders
are required to disclose their receipt of tax-exempt interest on their Federal
income tax returns. In addition, a portion of The Limited Duration Municipal
Bond Portfolio's dividends may be derived from income on "private activity"
municipal bonds and therefore may be a preference item under Federal tax law and
subject to the Federal alternative minimum tax. A loss incurred upon the
redemption of shares of The Limited Duration Municipal Bond Portfolio held for
six months or less will be disallowed to the extent of exempt-interest dividends
paid with respect to such shares; any loss not so disallowed will be treated as
a long-term capital loss to the extent of capital gain dividends received with
respect to such shares.
Tax Matters Relating to International Investments. Foreign currency gains and
- -------------------------------------------------
losses realized by a Portfolio, including those from forward currency exchange
contracts and certain futures and options on foreign currencies, will increase
or decrease the Portfolio's investment company taxable income available to be
distributed to shareholders as ordinary income. If foreign currency losses
exceed other investment company taxable income during a taxable year, the
Portfolio would not be able to make any ordinary dividend distributions, and any
distributions made before the losses were realized but in the same taxable year
would be recharacterized as a return of capital to shareholders, thereby
reducing each shareholder's basis in shares of that Portfolio. A Portfolio may
be subject to foreign withholding taxes on income from certain foreign
securities, if any, held. If more than 50% of the total assets of this
Portfolio is invested in securities of foreign corporations, the Portfolio may
elect to pass-through to its shareholders their pro rata share of foreign taxes
paid by such Portfolio. If this election is made, shareholders will be (i)
required to include in their gross income their pro rata share of foreign source
income (including any foreign taxes paid by the Portfolio), and (ii) entitled
to either deduct (as an itemized deduction in the case of individuals) their
share of such foreign taxes in computing their taxable income or to claim a
credit for such taxes against their U.S. income tax, subject to certain
limitations under the Code.
<PAGE>
<PAGE>
Back-up Withholding; Dividends-Received Deduction. The Trust is required to
- --------------------------------------------------
withhold 31% of taxable dividends, capital gains distributions, and redemptions
paid to shareholders who have not provided the Trust with their certified
taxpayer identification number in compliance with regulations adopted by the
Internal Revenue Service. Dividends paid from net investment income by The
Value Equity, Growth Equity and Small Capitalization Equity Portfolios will
generally qualify in part for the corporate dividends-received deduction
available to corporate investors. The portion of the dividends so qualified,
however, depends on the aggregate qualifying dividend income received by each
such Portfolio from domestic (U.S.) sources.
Further information about tax matters relating to the Trust, including its
foreign investments, appears in the Statement of Additional Information under
the heading "Dividends, Distributions and Taxes."
PERFORMANCE INFORMATION
Yield and Effective Yield. From time to time, each of the Portfolios may quote
- -------------------------
its "yield" and/or its "total return" in sales literature and in presentations
to prospective investors. These figures are based on historical earnings and
are not intended to indicate future performance. To arrive at a Portfolio's
"yield," the net investment income generated by an investment in the Portfolio
during a 30 day (or one month) period, is determined and the resulting figure is
annualized, (i.e. assumed to be the amount of income generated each week over a
52-week period) and expressed as a percentage of the initial investment. The
"effective yield" of a Portfolio is calculated in a similar manner but, when
annualized, the income earned by an investment in the Portfolio is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The yield of
any investment is generally a function of prevailing interest rates, portfolio
quality and maturity, type of investment and operating expenses. The yield on
shares of the Portfolio will fluctuate and is not necessarily representative of
future results. The Limited Duration Municipal Bond Portfolio may also quote
its tax-equivalent yield; this figure is calculated by determining the pre-tax
yield which, after being taxed at a stated rate, would be equivalent to the
yield determined as described above.
Average Annual Total Return. This figure shows the average percentage change in
- ---------------------------
value of a particular investment from the beginning date of the measuring period
to the end of the measuring period. The calculations required to determine
average total return will reflect changes in net asset value per share and
assume that any income dividends and/or capital gains distributions made during
the period were reinvested. Figures will be given for recent one, five and ten
year periods (if applicable), and may be given for other periods as well (such
as from commencement of operations, or on a year-by-year basis). In addition,
each Portfolio may present its total return over different periods by means of
aggregate, average, year-by-year or other types of total return figures, or
compare the yield or total return of a Portfolio to those of other mutual funds
with similar investment objectives and to other relevant indices. For example,
the performance of any of the Portfolios may be compared to the data prepared by
Lipper Analytical Services, Inc., a widely-recognized independent service that
monitors the performance of mutual funds. The Portfolios may also compare their
individual performance records to those of relevant indices, such as the
Standard & Poor's 500 Stock Index, the Russell 5000 Small Cap Stock Index, and
the Morgan Stanley Capital International Europe, Australia, Far East Index
("EAFE").
<PAGE>
<PAGE> GENERAL
The Trust was organized as a Delaware business trust on December 15, 1994, and
is registered with the Securities and Exchange Commission as an open-end
diversified, series, management investment company. The Trust currently offers
shares of five investment portfolios, each with a different objective and
differing investment policies. The Trust may organize additional investment
portfolios in the future. The Trust is authorized to issue an unlimited number
of shares, each with a par value of $.001. Under the Trust's Amended and
Restated Declaration of Trust, the Board has the power to classify or reclassify
any unissued shares from time to time, and to increase the number of authorized
shares. Each share of the respective Portfolios represents an equal
proportionate interest in that Portfolio. Each share is entitled to one vote for
the election of Trustees and any other matter submitted to a shareholder vote.
Voting rights are not cumulative and, accordingly, the holders of more than 50%
of the aggregate shares of the Trust may elect all of the Trustees. Shares of
the Trust do not have preemptive or conversion rights and, when issued for
payment as described in this prospectus, shares of the Trust will be fully paid
and non-assessable.
As a Delaware business trust, the Trust is not required, and currently does not
intend, to hold annual meetings of shareholders except as required by the
Investment Company Act or other applicable law. The Investment Company Act
requires initial shareholder approval of each of the investment advisory
agreements, election of Trustees and, if the Trust holds an annual meeting,
ratification of the Board's selection of the Trust's independent public
accountants. Under certain circumstances, the law provides shareholders with
the right to call for a meeting of shareholders to consider the removal of one
or more Trustees. To the extent required by law, the Trust will assist in
shareholder communication in such matters.
<PAGE>
<PAGE>
THE HIRTLE CALLAGHAN TRUST
TABLE OF CONTENTS
INFORMATION ABOUT:
Expense Information
Financial Highlights
Investment Objectives and Policies
The Value Equity Portfolio
The Growth Equity Portfolio
The Small Capitalization Equity Portfolio
The International Equity Portfolio
The Limited Duration Municipal
Bond Portfolio
Investment Practices and Risk Considerations
About Equity Securities
About Debt Securities and Ratings
Organizations
About Foreign Securities
About Tax-Exempt Securities
About Temporary Investment Practices
About Illiquid Securities
About Hedging Strategies
About Other Permitted Instruments
Management of the Trust
Purchases and Redemptions
Portfolio Transactions and Valuation
Dividends, Distributions and Taxes
Performance Information
General
No person has been authorized to give any information or to make representations
not contained in this prospectus in connection with any offering made by this
prospectus and, if given or made, such information must not be relied upon as
having been authorized by the Trust or its distributor. This prospectus does
not constitute an offering by the Trust or by its distributor in any
jurisdiction in which such offering may not lawfully be made.
<PAGE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
The Hirtle Callaghan Trust
575 E. Swedesford Road
Wayne, PA 19087
This statement of additional information is designed to supplement information
contained in the prospectus relating to The Hirtle Callaghan Trust ("Trust"), an
open-end, diversified, series, management investment company registered under
the Investment Company Act of 1940 ("Investment Company Act"). This document,
although not a prospectus, is incorporated by reference in its entirety in the
Trust's prospectus and should be read in conjunction with the Trust's prospectus
dated February 14, 1997. A copy of that prospectus is available by contacting
the Trust at 610-254-9596.
<TABLE>
<CAPTION>
Statement of Additional Information Heading Corresponding Prospectus Heading
- ------------------------------------------- --------------------------------
Item
<S> <C>
Management of the Trust Management of the Trust; General;
Expense Information
Further Information About the Trust's Investment Investment Objectives and Policies
Policies Investment Practices and Risk
Considerations
Hedging through the Use of Options Investment Practices and Risk
Considerations: About Hedging
Strategies
Hedging through the Use of Investment Practices and Risk
Futures Contracts and Related Instruments Considerations: About Hedging
Strategies
Hedging through the Use of Investment Practices and Risk
Currency-Related Instruments Considerations: About Hedging
Strategies
Investment Restrictions Investment Objectives and Policies
Investment Practices and Risk
Considerations
Additional Purchases and Redemption Information Purchases and Redemptions
Portfolio Transactions and Valuation Portfolio Transactions and Valuation
Dividends, Distributions and Taxes Dividends, Distributions and Taxes
Performance Information Performance Information
Financial Statements and Independent Accountants
Ratings Appendix
</TABLE>
This statement of additional information does not contain all of the information
set forth in the registration statement filed by the Trust with the Securities
and Exchange Commission under the Securities Act of 1933. Copies of the
registration statement may be obtained at a reasonable charge from the
Securities and Exchange Commission or may be examined, without charge, at its
offices in Washington, D.C.
The date of this Statement of Additional Information is February 14, 1997.
<PAGE>
<PAGE>
MANAGEMENT OF THE TRUST
Trustees and Officers. The Trust's Board of Trustees ("Board") is responsible
- ---------------------
for the overall supervision and management of the business and affairs of the
Trust, including (i) the selection and general supervision of those investment
advisory organizations ("Investment Managers") retained by the Trust to provide
portfolio management services to each of its separate investment portfolios
(each a "Portfolio"); and (ii) for Portfolios for which more than one Investment
Manager has been retained, allocation of that Portfolio's assets among such
Investment Managers. In particular, the Board may, from time to time, allocate
portions of a Portfolio's assets between or among several Investment Managers,
each of whom may have a different investment style and/or investment selection
discipline. The Board also may reallocate a Portfolio's assets among such
Investment Managers, or terminate particular Investment Managers, if the Board
deems it appropriate to do so in order to achieve the overall objectives of the
Portfolio involved. In addition, the Board may retain additional Investment
Managers on behalf of a Portfolio subject to the approval of the shareholders of
that Portfolio in accordance with the Investment Company Act. Day-to-day
operations of the Trust are the responsibility of the Trust's officers, who are
elected by, and serve at the pleasure of, the Board. The name and principal
occupation for the past five years of each of the Trust's current officers and
directors are set forth below; unless otherwise indicated, the business address
of each is 575 East Swedesford Road Wayne, PA 19087.
<TABLE>
<CAPTION>
Name, Business Address and Age Position with the Trust Principal Occupation for
the Last Five Years
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*Donald E. Callaghan 50 Chairman For more than the past five years,
President Principal, Hirtle Callaghan & Co., Inc.
Ross H. Goodman 48 Trustee For more than the past five years,
Mr. Goodman has been Vice
President of American Industrial
Management & Sales, Inc.
*Jonathan J. Hirtle 44 Trustee For more than the past five years,
Principal, Hirtle Callaghan & Co., Inc.
Jarrett Burt Kling 52 Trustee For more than the past five years,
Mr. Kling has been associated with CRA
Real Estate Securities, L.P. and its
affiliate, Radnor Advisers, Inc. a
Mr. Kling is general partner of TDH II
and a special limited partner of TDH III
(venture capital) since 1983.
*David M. Spungen 34 Trustee For more than the past five years,
1926 Arch Street Mr. Spungen has been associated
Philadelphia, PA 19103-1484 with The CMS Companies (financial services).
Mr. Spungen currently serves as Director of CMS
Capital Management, (a division of CMS
Investment Resources, Inc.)
Richard W. Wortham 57 Trustee For more than the past five years,
President, Video Rental of
Pennsylvania, Inc. and its parent,
Houston VMC, Inc. Mr.
Wortham is also a trustee of the
Wortham Foundation and
the Museum of Fine Arts, Houston.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Robert Zion 42 Vice President Mr. Zion is a Principal of Hirtle
and Treasurer Callaghan, and has been
employed by that firm
for more than the last
five years.
Laura Anne Corsell, Esq. 48 Secretary Ms. Corsell is an attorney in
237 Park Avenue private practice. From 1989
New York, N.Y. 10017 through 1994, Ms. Corsell was
associated with the law firm of
Ballard Spahr Andrews and
Ingersoll, as counsel.
W. Anthony Turner 36 Assistant Vice President Senior Vice President and Regional Client
125 West 55th Street Executive for BISYS Fund Services, Inc.
New York, N.Y. 10019 Prior to that, Mr. Turner was Senior
President for First Union Brokerage
Services, Inc.(1995); Senior Vice President,
Global Finance Group, NationsBanc Markets,
Inc., (1993-1995); Exectuive Vice President
and Principal, The Selbst Group, Inc.
(1988-1993) and President, Putnam
Investments,(1987-1988).
James White 43 Assistant Treasurer Client Services Manager, BISYS Fund
3435 Stelzer Road Services, Inc. (1995-present). Prior
Columbus, Ohio 43219 to that, Sales Director/Variable
Products, Financial Horizons Distributors,
Inc. (1991-1995).
Michal Sakala 31 Assistant Treasurer Vice President and Treasures, BISYS Fund
125 West 55th Street Services, Inc. (1996-present). Associate
New York, N.Y. 10019 Director of Fund Accounting, head of world
wide fund Administration, Banque Paribas
Luxemburg (1994-1996); Account Manager,
Fidelity Investments June 1989-April 1994
Theresa Donovan 46 Assistant Secretary Manager, Legal Services,
125 West 55th Street BISYS Fund Servies, Inc. From 1995-1996,
New York, N.Y. 10019 Director, Corporate Secretary Services,
Furman Selz LLC; from 1990 to 1995,
Assistant Director, Corporate Secretary
Services, Furman Selz LLC.
Alfred Miller 34 Assistant Treasurer Fund Accounting Manager, BISYS Fund
125 West 55th Street Services. Prior to that, Associate
New York, N.Y. 10019 Director of Fund Accounting, Furman Selz,
LLC. From 1993 to 1996, Supervisor,
Fund Accounting Services Furman Selz LLC.
From 1990 to 1993, Supervisor in fund
of National Securities, Inc.
Alaina Metz 28 Assistant Secretary Since 1995, Chief Administrative Officer
3435 Stelzer Road BISYS Fund Services. From 1989 to 1995,
Columbus, Ohio 43219 Superviser of Blue Sky Department at
Alliance Capital Management.
</TABLE>
*Indicates a Trustee who is an "interested person" of the Trust within the
meaning of the Investment Company Act.
<PAGE>
<PAGE>
Each of those members of the Board who are not "interested persons" of the Trust
within the meaning of the Investment Company Act ("Independent Trustees")
receive from the Trust a fee of $1,000.00 per meeting of the Board
attended and are reimbursed for expenses incurred in connection with each
such meeting. Those members of the Board who are "interested persons" of the
Trust and the Trust's officers receive no compensation from the Trust for
performing the duties of their respective offices. The table below, which is
required to be included in this Statement of Additional by the Securities and
Exchange Commission, shows the aggregate compensation received from the Trust
by each of the Independent Trustees during the fiscal year ending June 30, 1996
(excluding reimbursed expenses).
<TABLE>
<S> <C> <C> <C> <C>
Pension/ Estimated
Aggregate Retirement Benefits Upon
Name and Compensation Benefits Retirement From Total Compensation
Position From Trust From Trust From Trust From Trust
- ---------------------- ------------ ---------- --------------- ------------------
Ross H. Goodman $4000.00 $0.0 $0.0 $4000.00
Jarrett Burt Kling 3000.00 0.0 0.0 3000.00
Richard W. Wortham, III 3000.00 0.0 0.0 3000.00
</TABLE>
As permitted under the Trust's Amended and Restated Declaration and
Agreement of Trust and by-laws, the Board has established an executive committee
and has appointed Messrs. Callaghan, Hirtle and Spungen to serve on that
committee. Under the Trust's by-laws, the executive committee is authorized to
act for the full Board in all matters for which the affirmative vote of a
majority of the Board of the Trust's Independent Trustees is not required
under the Investment Company Act or other applicable law. All of the officers
and trustees of the Trust own in the aggregate, less than one percent of the
outstanding shares of The Value Equity, Growth Equity, Small Capitalization
Equity, Limited Duration Municipal Bond and International Equity Portfolios,
respectively. During the fiscal year ended June 30, 1996, Ms. Corsell received
fees for legal services rendered to the Trust of approximately $42,000.
Investment Advisory Arrangements. As described in the prospectus, Hirtle,
- ---------------------------------
Callaghan & Co., Inc. ("Hirtle Callaghan") has entered into a written consulting
agreement with the Trust ("HCCI Consulting Agreement"). The HCCI Consulting
Agreement was approved by the Trust's initial shareholder on July 21, 1995,
following the approval of the Trust's Board (including a majority of the Trust's
Independent Trustees) at a meeting of the Board held on July 20, 1995. The HCCI
Consulting Agreement will remain in effect until its second anniversary, unless
sooner terminated and will continue from year to year so long as such
continuation is approved, at a meeting called for the purpose of voting on such
continuance, at least annually (i) by vote of a majority of the Trust's Board or
the vote of the holders of a majority of the outstanding securities of the
Trust; and (ii) by a majority of the Independent Trustees, by vote cast in
person. The HCCI Consulting Agreement may be terminated at any time, without
penalty, either by the Trust or by Hirtle Callaghan, upon sixty days' written
notice and will automatically terminate in the event of its assignment as
defined in the Investment Company Act. The HCCI Consulting Agreement permits
<PAGE>
<PAGE>
the Trust to use the name "Hirtle Callaghan." In the event, however, the HCCI
Consulting Agreement is terminated, Hirtle Callaghan has the right to require
the Trust to discontinue any references to the name "Hirtle Callaghan" and to
change the name of the Trust as soon as is reasonably practicable. The HCCI
Consulting Agreement further provides that HCCI will not be liable to the Trust
for any error, mistake of judgment or of law, or loss suffered by the Trust in
connection with the matters to which the HCCI Consulting Agreement relates
(including any action of any Hirtle Callaghan officer or employee in connection
with the service of any such officer or employee as an officer of the Trust),
whether or not any such action was taken in reliance upon information provided
to the Trust by Hirtle Callaghan, except losses that may be sustained
as a result of willful misfeasance, reckless disregard of its duties, bad faith
or gross negligence on the part of Hirtle Callaghan.
The Trust has also entered into investment advisory contracts ("Portfolio
Management Contracts") on behalf of each of the Portfolios with one or more of
the Investment Managers. Other than the agreement between the Trust and
Hotchkis and Wiley ("Hotchkis") relating to The Value Equity Portfolio, each
of the Portfolio Management Contracts was approved by the Trust's initial
shareholder on July 21, 1995, following that approval of the Trust's Board
(including the Independent Trustees) at a meeting of the Board held on July 20,
1995. Each such contract will remain in effect until its second anniversary,
and will continue in effect thereafter from year to year so long as such
continuation is approved, at a meeting called for the purpose of voting on such
continuance, at least annually (i) by vote of a majority of the Trust's Board or
the vote of the holders of a majority of the outstanding securities of the
Trust; and (ii) by a majority of the Independent Trustees, by vote cast in
person. Each of the Portfolio Management Contracts may be terminated at any
time, without penalty, either by the Trust or by the respective Investment
Managers named in the contract, in each case upon sixty days' written notice,
and each will automatically terminate in the event of its assignment, as that
term is defined in the Investment Company Act.
Each of the Portfolio Management Contracts provides that the named Investment
Manager will, subject to the overall supervision of the Board, provide a
continuous investment program for the assets of the Portfolio to which such
contract relates, or that portion of such assets as may be, from time to time
allocated to such Investment Manager. The Portfolio Managers are responsible,
among other things, for the provision of investment research and management of
all investments and other instruments and the selection of brokers and dealers
through which securities transactions are executed. Each of the Portfolio
Management Contracts provides that the named Investment Manager will not be
liable to the Trust for any error of judgment or mistake of law on the part of
the Investment Manager, or for any loss sustained by the Trust in connection
with the purchase or sale of any instrument on behalf of the named Portfolio,
except losses that may be sustained as a result of willful misfeasance,
reckless disregard of its duties, misfeasance, bad faith or gross negligence on
the part of the named Investment Manager.
<PAGE>
<PAGE>
Hotchkis serves as an Investment Manager for The Value Equity Portfolio
pursuant to a contract ("Hotchkis Agreement") that was approved by the Board
(including the Independent Trustees) on July 19, 1996, and by the shareholders
of The Value Equity Portfolio on October 23, 1996. The Hotchkis contract
first became effective on November 12, 1996. The terms and conditions set
forth in the Hotchkis Agreement are identical to those contained in the
Portfolio Management Contracts except for the description of the portfolio
manager, the effective and termination dates, and the modification of certain
notice provisions relating to the obligation of Hotchkis to indemnify the
Trust under certain circumstances. Specifically, Section 5 of the Hotchkis
Agreement provides that the indemnification obligation of the portfolio manager
with respect to information provided to the Trust by Hotchkis L.P. in writing
for use in the Trust's registration statement and certain other documents shall
not apply unless the portfolio manager has had an opportunity to review such
documents for a specified period of time prior to the date on which they are
filed with the Securities and Exchange Commission and unless the portfolio
manager is notified in writing of any claim for indemnification within
specified periods.
From July 29, 1996, until November 12, 1996, Hotchkis'
predecessor limited partnership served as a portfolio manager of The Value
Equity Portfolio pursuant to an agreement ("15a-4 Agreement") approved by the
Board at a meeting held on July 19, 1996. The 15a-4 Agreement became effective
on July 29, 1996, the date on which a similar contract("Prior Agreement") with
a former portfolio manager for the Portfolio was terminated, and was approved
by the shareholders of The Value Equity Portfolio on October 23, 1996, in the
manner contemplated under rule 15a-4 of the Investment Company Act. The 15a-4
Agreement is identical to the Hotchkis Agreement except for the name of the
advisory organization and the terms relating to effective dates. The Hotchkis
Agreement is identical to the Prior Agreement except for the name of the
advisory organization, effective dates and the modification of notice
provisions relating to the Trust's right of indemnification, as noted above.
The Hotchkis Agreement will remain in effect for two years from its effective
date, unless sooner terminated, and thereafter from year to year for so long as
its continuance is specifically approved, at least annually, by (i) a majority
of the Board or the vote of the holders of a majority of the Portfolio's
outstanding voting securities; and (ii) by a majority of the Independent
Trustees, by vote cast in person.
Prior to November 12, 1996, Hotchkis was an independent California limited
partnership. On November 11, 1996, all of the interests in that partnership
were acquired by Merrill Lynch & Co., ("ML") and the limited partnership
became a division of Merrill Lynch Asset Management LP., a company controlled
ML. In accordance with the Investment Company Act, the consummation of
that acquisition terminated the 15a-4 Agreement; at the same time,
and in accordance with the terms of the 15a-4 Agreement and the Hotchkis
Agreement, the Hotchkis Agreement became effective. ML is a public
company whose shares are traded on the New York Stock Exchange.
<PAGE>
<PAGE>
During the fiscal year ended June 30, 1996, Hirtle Callaghan received advisory
fees from each of the Portfolios, calculated at an annual rate of .05%, as
follows: The Value Equity Portfolio, $24,343; The Growth Equity Portfolio,
$34,071; The Small Capitalization Portfolio, $16,940; The International Equity,
Portfolio, $24,436; and The Limited Duration Municipal Bond Portfolio, $7,628.
The following table sets forth the investment advisory fee
received from the specified Portfolio by each of its respective Investment
Managers during the fiscal year ended June 30, 1996:
<TABLE>
<CAPTION>
Investment Manager Portfolio Advisory Fee Rate 1 Actual Fee Paid
- ----------------- --------- ----------------- ---------------
<S> <C> <C> <C>
Institutional Value Equity .30% of average $94,103
Capital Corporation net assets
Cowen Asset Value Equity .30% of average 51,954
Management 2 net assets
Jennison Associates Growth Equity .30% of average 102,397
Capital Corp. net assets
Westfield Capital Growth Equity .30% of average 102,030
Management Co. net assets
Clover Capital Small Cap .45% of average 86,448
Management, Inc. net assets
Frontier Capital Small Cap .45% of average 66,017
Management Co. net assets
Brinson Partners International .40% of average 95,488
net assets
Morgan Grenfell Limited .20% of average 30,513
Capital Management Duration net assets
Incorporated
- -------------------
1 Rate shown applies to that portion of the specified portfolio's assets
allocated to the specified Investment Manager.
2 Effective July 29, 1996, Hotchkis and Wiley replaced Cowen Asset Management.
</TABLE>
Other Matters. As noted in the prospectus, BISYS Fund
Services LP ("BISYS") serves as the Trust's principal underwriter
pursuant to an agreement approved by the Board on July 19, 1996.
BISYS does not receive any underwriting fees or other compensaton
for servicing as the distributor of the Trust's shares. Certain affiliates
of BISYS provides administrative, transfer agency and accounting services
for the Trust and receive fees for such services.
FURTHER INFORMATION ABOUT THE TRUST'S INVESTMENT POLICIES
The following discussion supplements the discussion of the investment policies
of each of the Portfolios as set forth in the prospectus and the types of
securities and other instruments in which the respective Portfolios may invest.
Repurchase Agreements. As noted in the prospectus, among the instruments that
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each of the Portfolios may use for temporary investment purposes are repurchase
agreements. Under the terms of a typical repurchase agreement, a Portfolio
would acquire an underlying debt security for a relatively short period (usually
not more than one week), subject to an obligation of the seller to repurchase
that security and the obligation of the Portfolio to resell that security at an
agreed-upon price and time. Repurchase agreements could involve certain risks
<PAGE>
<PAGE>
in the event of default or insolvency of the other party, including possible
delays or restrictions upon the Portfolio's ability to dispose of the underlying
securities. The Investment Manager for each Portfolio, in accordance with
guidelines adopted by the Board, monitors the creditworthiness of those banks
and non-bank dealers with which the respective Portfolios may enter into
repurchase agreements. The Trust also monitors the market value of the
securities underlying any repurchase agreement to ensure that the repurchase
obligation of the seller is adequately collateralized.
Repurchase agreements may be entered into with primary dealers in U.S.
Government Securities who meet credit guidelines established by the Board (each
a "repo counterparty"). Under each repurchase agreement, the repo counterparty
will be required to maintain, in an account with the Trust's custodian bank,
securities that equal or exceed the repurchase price of the securities subject
to the repurchase agreement. A Portfolio will generally enter into repurchase
agreements with short durations, from overnight to one week, although securities
subject to repurchase agreements generally have longer maturities. A Portfolio
may not enter into a repurchase agreement with more than seven days to maturity
if, as a result, more than 15% of the value of its net assets would be invested
in illiquid securities including such repurchase agreements.
For purposes of the Investment Company Act, a repurchase agreement may be deemed
a loan to the repo counterparty. It is not clear whether, in the context of a
bankruptcy proceeding involving a repo counterparty, a court would consider a
security acquired by a Portfolio subject to a repurchase agreement as being
owned by that Portfolio or as being collateral for such a "loan." If a court
were to characterize the transaction as a loan, and a Portfolio has not
perfected a security interest in the security acquired, that Portfolio could be
required to turn the security acquired over to the bankruptcy trustee and be
treated as an unsecured creditor of repo counterparty. As an unsecured creditor,
the Portfolio would be at the risk of losing some or all of the principal and
income involved in the transaction. In the event of any such bankruptcy or
insolvency proceeding involving a repo counterparty with whom a Portfolio has
outstanding repurchase agreements a Portfolio may encounter delays and incur
costs before being able to sell securities acquired subject to such repurchase
agreements. Any such delays may involve loss of interest or a decline in price
of the security so acquired.
Apart from the risk of bankruptcy or insolvency proceedings, there is also the
risk that the repo counterparty may fail to repurchase the security. However,
a Portfolio will always receive as collateral for any repurchase agreement to
which it is a party securities acceptable to it, the market value of which is
equal to at least 100% of the repurchase price, and the Portfolio will make
payment against such securities only upon physical delivery or evidence of book
entry transfer of such collateral to the account of its custodian bank. If the
market value of the security subject to the repurchase agreement falls below the
repurchase price the Trust will direct the repo counterparty to deliver to the
Trust's custodian additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price.
Variable and Floating Rate Instruments. As noted in the prospectus, among the
- --------------------------------------
instruments that each of the Portfolios may use for temporary investment
purposes are variable rate demand notes (including floating rate instruments)
from banks and other issuers. A "variable rate instrument" is one whose terms
provide for the adjustment of its interest rate on set dates and which, upon
such adjustment, can reasonably be expected to have a market value that
approximates its par value. A "floating rate instrument" is one whose terms
provide for the adjustment of its interest rate whenever a specified interest
rate changes and which, at any time, can reasonably be expected to have a
market
<PAGE>
<PAGE>
value that approximates its par value. The Portfolios will be able (at any time
or during specified periods generally not exceeding one year, depending upon the
instrument involved) to demand payment of the principal of a note. The notes are
not typically rated by credit rating agencies. If an issuer of a variable rate
demand note defaulted on its payment obligation, a Portfolio might be unable to
dispose of the note and a loss would be incurred to the extent of the default.
The continuing creditworthiness of issuers of variable rate instruments, if any,
held by a Portfolio will be monitored by its Investment Managers to determine
whether such notes should continue to be held.
When-Issued Securities. As noted in the prospectus, Tax-Exempt Securities may
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be purchased on a "when-issued" basis. The price of securities purchased on a
when-issued basis, which may be expressed in yield terms, is fixed at the time
the commitment to purchase is made, but delivery and payment for the when-
issued securities takes place at a later date. Normally, the settlement date
occurs within one month of the purchase. During the period between purchase and
settlement, no payment is made by the purchaser to the issuer and no interest
accrues to the purchaser. Thus, to the extent that assets are held in cash
pending the settlement of a purchase of securities, the purchaser would earn no
income. At the time a commitment to purchase a security on a when-issued basis
is made, the transaction is recorded and the value of the security will be
reflected in determining net asset value. The market value of the when-issued
securities may be more or less than the purchase price. The Trust does not
believe that net asset value or income will be adversely affected by the
purchase of securities on a when-issued basis.
HEDGING THROUGH THE USE OF OPTIONS.
As indicated in the prospectus, each of the Portfolios may, consistent with its
investment objectives and policies, use options on securities and securities
indexes to reduce the risks associated with the types of securities in which
each is authorized to invest and/or in anticipation of future purchases. A
Portfolio may use options only in a manner consistent with its investment
objective and policies and may not invest more than 10% of its total assets in
option purchases. Options may be used only for the purpose of reducing
investment risk and not for speculative purposes. The following discussion sets
forth certain information relating to the types of options that the Portfolios
may use, together with the risks that may be associated with their use.
About Options on Securities. A call option is a short-term contract pursuant to
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which the purchaser of the option, in return for a premium, has the right to buy
the security underlying the option at a specified price at any time during the
term of the option. The writer of the call option, who receives the premium,
has the obligation, upon exercise of the option during the option period, to
deliver the underlying security against payment of the exercise price. A put
option is a similar contract that gives its purchaser, in return for a premium,
the right to sell the underlying security at a specified price during the term
of the option. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option during the option period, to buy the
underlying security at the exercise price.
<PAGE>
<PAGE>
Options may be based on a security, a securities index or a currency. Options on
securities are generally settled by delivery of the underlying security whereas
options on a securities index or currency are settled in cash. Options may be
traded on an exchange or in the over-the-counter markets.
Option Purchases. Call options on securities may be purchased in order to fix
- -----------------
the cost of a future purchase. In addition, call options may be used as a means
of participating in an anticipated advance of a security on a more limited risk
basis than would be possible if the security itself were purchased. In the
event of a decline in the price of the underlying security, use of this strategy
would serve to limit the amount of loss, if any, to the amount of the option
premium paid. Conversely, if the market price of the underlying security rises
and the call is exercised or sold at a profit, that profit will be reduced by
the amount initially paid for the call.
Put options may be purchased in order to hedge against a decline in market value
of a security held by the purchasing portfolio. The put effectively guarantees
that the underlying security can be sold at the predetermined exercise price,
even if that price is greater than the market value at the time of exercise. If
the market price of the underlying security increases, the profit realized on
the eventual sale of the security will be reduced by the premium paid for the
put option. Put options may also be purchased on a security that is not held by
the purchasing portfolio in anticipation of a price decline in the underlying
security. In the event the market value of such security declines below the
designated exercise price of the put, the purchasing portfolio would then be
able to acquire the underlying security at the market price and exercise its put
option, thus realizing a profit. In order for this strategy to be successful,
however, the market price of the underlying security must decline so that the
difference between the exercise price and the market price is greater than the
option premium paid.
Option Writing. Call options may be written (sold) by the Portfolios.
- ---------------
Generally, calls will be written only when, in the opinion of a Portfolio's
Investment Manager, the call premium received, plus anticipated appreciation in
the market price of the underlying security up to the exercise price of the
call, will be greater than the appreciation in the price of the underlying
security.
Put options may also be written. This strategy will generally be used when it
is anticipated that the market value of the underlying security will remain
higher than the exercise price of the put option or when a temporary decrease in
the market value of the underlying security is anticipated and, in the view of a
Portfolio's Investment Manager, it would not be appropriate to acquire the
underlying security. If the market price of the underlying security rises or
stays above the exercise price, it can be expected that the purchaser of the put
will not exercise the option and a profit, in the amount of the premium received
for the put, will be realized by the writer of the put. However, if the market
price of the underlying security declines or stays below the exercise price, the
put option may be exercised and the portfolio that sold the put will be
obligated to purchase the underlying security at a price that may be higher than
its current market value.
<PAGE>
<PAGE>
All option writing strategies will be employed only if the option is "covered."
For this purpose, "covered" means that, so long as the Portfolio that has
written (sold) the option is obligated as the writer of a call option, it will
(1) own the security underlying the option; or (2) hold on a share-for-share
basis a call on the same security, the exercise price of which is equal to or
less than the exercise price of the call written. In the case of a put option,
the Portfolio that has written (sold) the put option will (1) maintain cash or
cash equivalents in an amount equal to or greater than the exercise price; or
(2) hold on a share-for share basis, a put on the same security as the put
written provided that the exercise price of the put held is equal to or greater
than the exercise price of the put written.
Options on Securities Indices. Options on securities indices may by used in
- ------------------------------
much the same manner as options on securities. Index options may serve as a
hedge against overall fluctuations in the securities markets or market sectors,
rather than anticipated increases or decreases in the value of a particular
security. Thus, the effectiveness of techniques using stock index options will
depend on the extent to which price movements in the securities index selected
correlate with price movements of the portfolio to be hedged. Options on stock
indices are settled exclusively in cash.
Risk Factors Relating to the Use of Options Strategies. The premium paid or
- -------------------------------------------------------
received with respect to an option position will reflect, among other things,
the current market price of the underlying security, the relationship of the
exercise price to the market price, the historical price volatility of the
underlying security, the option period, supply and demand, and interest rates.
Moreover, the successful use of options as a hedging strategy depends upon the
ability to forecast the direction of market fluctuations in the underlying
securities, or in the case of index options, in the market sector represented by
the index selected.
Under normal circumstances, options traded on one or more of the several
recognized options exchanges may be closed by effecting a "closing purchase
transaction," i.e. by purchasing an identical option with respect to the
underlying security in the case of options written and by selling an identical
option on the underlying security in the case of options purchased. A closing
purchase transaction will effectively cancel an option position, thus permitting
profits to be realized on the position, to prevent an underlying security from
being called from, or put to, the writer of the option or, in the case of a call
option, to permit the sale of the underlying security. A profit or loss may be
realized from a closing purchase transaction, depending on whether the overall
cost of the closing transaction (including the price of the option and actual
transaction costs) is less or more than the premium received from the writing of
the option. It should be noted that, in the event a loss is incurred in a
closing purchase transaction, that loss may be partially or entirely offset by
the premium received from a simultaneous or subsequent sale of a different call
or put option. Also, because increases in the market price of an option will
generally reflect increases in the market price of the underlying security, any
loss resulting from a closing purchase transaction is likely to be offset in
whole or in part by appreciation of the underlying security held.
<PAGE>
<PAGE>
Options will normally have expiration dates between three and nine months from
the date written. The exercise price of the options may be below, equal to, or
above the current market values of the underlying securities at the time the
options are written. Options that expire unexercised have no value. Unless an
option purchased by a Portfolio is exercised or a closing purchase transaction
is effected with respect to that position, a loss will be realized in the amount
of the premium paid.
HEDGING THROUGH THE USE OF FUTURES CONTRACTS AND RELATED INSTRUMENTS.
As indicated in the prospectus, each of the Portfolios may, consistent with its
investment objectives and policies, use futures contracts and options on futures
contracts to reduce the risks associated with the types of securities in which
each is authorized to invest and/or in anticipation of future purchases. A
Portfolio may invest in futures-related instruments only for hedging purposes
and not for speculation and only in a manner consistent with its investment
objective and policies. In particular, a Portfolio may not commit more than 5%
of its net assets, in the aggregate, to margin deposits on futures contracts or
premiums for options on futures contracts. The following discussion sets forth
certain information relating to the types of futures contracts that the
Portfolios may use, together with the risks that may be associated with their
use.
About Futures Contracts and Options on Futures Contracts. A futures contract is
- --------------------------------------------------------
a bilateral agreement pursuant to which one party agrees to make, and the other
party agrees to accept, delivery of the specified type of security or currency
called for in the contract at a specified future time and at a specified price.
In practice, however, contracts relating to financial instruments or currencies
are closed out through the use of closing purchase transactions before the
settlement date and without delivery or the underlying security or currency. In
the case of futures contracts based on a securities index, the contract provides
for "delivery" of an amount of cash equal to the dollar amount specified
multiplied by the difference between the value of the underlying index on the
settlement date and the price at which the contract was originally fixed.
Stock Index Futures Contracts. A Portfolio may sell stock index futures
- ------------------------------
contracts in anticipation of a general market or market sector decline that may
adversely affect the market values of securities held. To the extent that
securities held correlate with the index underlying the contract, the sale of
futures contracts on that index could reduce the risk associated with a market
decline. Where a significant market or market sector advance is anticipated,
the purchase of a stock index futures contract may afford a hedge against not
participating in such advance at a time when a Portfolio is not fully invested.
This strategy would serve as a temporary substitute for the purchase of
individual stocks which may later be purchased in an orderly fashion.
Generally, as such purchases are made, positions in stock index futures
contracts representing an equivalent securities would be liquidated.
Futures Contracts on Debt Securities. Futures contracts on debt securities,
- -------------------------------------
often referred to as "interest rate futures," obligate the seller to deliver a
specific type of debt security called for in the contract, at a specified future
time. A public market now exists for futures contracts covering a number of
debt securities, including long-term U.S. Treasury bonds, ten-year U.S. Treasury
<PAGE>
<PAGE>
notes, and three-month U.S. Treasury bills, and additional futures contracts
based on other debt securities or indices of debt securities may be developed
in the future. Such contracts may be used to hedge against changes in the
general level of interest rates. For example, a Portfolio may purchase such
contracts when it wishes to defer a purchase of a longer-term bond because
short-term yields are higher than long-term yields. Income would thus be earned
on a short-term security and minimize the impact of all or part of an increase
in the market price of the long-term debt security to be purchased in the
future. A rise in the price of the long-term debt security prior to its
purchase either would be offset by an increase in the value of the contract
purchased by the Portfolio or avoided by taking delivery of the debt securities
underlying the futures contract. Conversely, such a contract might be sold in
order to continue to receive the income from a long-term debt security, while
at the same time endeavoring to avoid part or all of any decline in market value
of that security that would occur with an increase in interest rates. If
interest rates did rise, a decline in the value of the debt security would be
substantially offset by an increase in the value of the futures contract sold.
Options on Futures Contracts. An option on a futures contract gives the
- ----------------------------
purchaser the right, in return for the premium, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified price at any time during the period of
the option. The risk of loss associated with the purchase of an option on a
futures contract is limited to the premium paid for the option, plus transaction
cost. The seller of an option on a futures contract is obligated to a broker
for the payment of initial and variation margin in amounts that depend on the
nature of the underlying futures contract, the current market value of the
option, and other futures positions held by the Portfolio. Upon exercise of the
option, the option seller must deliver the underlying futures position to the
holder of the option, together with the accumulated balance in the seller's
futures margin account that represents the amount by which the market price of
the underlying 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 involved. If an option
is exercised on the last trading day prior to the expiration date of the option,
settlement will be made entirely in cash equal to the difference between the
exercise price of the option and the value at the close of trading on the
expiration date.
Risk Considerations Relating to Futures Contracts and Related Instruments.
- -------------------------------------------------------------------------
Participants in the futures markets are subject to certain risks. Positions in
futures contracts may be closed out only on the exchange on which they were
entered into (or through a linked exchange): no secondary market exists for
such contracts. In addition, there can be no assurance that a liquid market
will exist for the contracts at any particular time. Most futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that
limit. 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, and in the event of adverse price
movements, a Portfolio would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of that
portion of the securities being hedged, if any, may partially or completely
offset losses on the futures contract.
<PAGE>
<PAGE>
As noted above, there can be no assurance that price movements in the futures
markets will correlate with the prices of the underlying securities positions.
In particular, there may be an imperfect correlation between movements in the
prices of futures contracts and the market value of the underlying securities
positions being hedged. In addition, the market prices of futures contracts may
be affected by factors other than interest rate changes and, as a result, even a
correct forecast of interest rate trends might not result in a successful
hedging strategy. If participants in the futures market elect to close out
their contracts through offsetting transactions rather than by meeting margin
deposit requirements, distortions in the normal relationship between debt
securities and the futures markets could result. Price distortions could also
result if investors in the futures markets opt to make or take delivery of the
underlying securities rather than engage in closing transactions because such
trend might result in a reduction in the liquidity of the futures market. In
addition, an increase in the participation of speculators in the futures market
could cause temporary price distortions.
The risks associated with options on futures contracts are similar to those
applicable to all options and are summarized above under the heading "Hedging
Through the Use of Options: Risk Factors Relating to the Use of Options
Strategies." In addition, as is the case with futures contracts, there can be
no assurance that (1) there will be a correlation between price movements in the
options and those relating to the underlying securities; (2) a liquid market for
options held will exist at the time when a Portfolio may wish to effect a
closing transaction; or (3) predictions as to anticipated interest rate or other
market trends on behalf of a Portfolio will be correct.
Margin Requirements and Limitations Applicable to Futures Related Transactions.
- ------------------------------------------------------------------------------
When a purchase or sale of a futures contract is made by a Portfolio, that
Portfolio is required to deposit with its custodian (or broker, if legally
permitted) a specified amount of cash or U.S. Government securities ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Portfolio upon
termination of the contract, assuming all contractual obligations have been
satisfied. The Portfolio expects to earn interest income on its initial margin
deposits. A futures contract held by a Portfolio is valued daily at the
official settlement price of the exchange on which it is traded. Each day
the Portfolio pays or receives cash, called "variation margin" equal to the
<PAGE>
<PAGE>
in daily change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing
or loan by the Portfolio but is instead a settlement between the
Portfolio and the broker of the amount one would owe the other if
the futures contract expired. In computing daily net asset value,
the Portfolio will value its open futures positions at market.
A Portfolio will not enter into a futures contract or an option on a futures
contract if, immediately thereafter, the aggregate initial margin deposits
relating to such positions plus premiums paid by it for open futures option
positions, less the amount by which any such options are "in-the-money," would
exceed 5% of the Portfolio's total assets. A call option is "in-the-money" if
the value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds
the value of the futures contract that is the subject of the option.
Segregation Requirements.
- ------------------------
Futures Contracts. When purchasing a futures contract, a Portfolio will
- -----------------
maintain, either with its custodian bank or, if permitted, a broker, and will
mark-to-market on a daily basis, cash, U.S. Government securities, or other
highly liquid debt securities that, when added to the amounts deposited with a
futures commission merchant as margin, are equal to the market value of the
futures contract. Alternatively, a Portfolio may "cover" its position by
purchasing a put option on the same futures contract with a strike price as high
or higher than the price of the contract held by the Portfolio.
When selling a futures contract, a Portfolio will similarly maintain liquid
assets that, when added to the amount deposited with a futures commission
merchant as margin, are equal to the market value of the instruments underlying
the contract. Alternatively, a Portfolio may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting a Portfolio to purchase the same futures contract at a price no
higher than the price of the contract written by that Portfolio (or at a higher
price if the difference is maintained in liquid assets with the Trust's
custodian).
Options on Futures Contracts. When selling a call option on a futures contract,
- ----------------------------
a Portfolio will maintain, either with its custodian bank or, if permitted, a
broker, and will mark-to-market on a daily basis, cash, U. S. Government
securities, or other highly liquid debt securities that, when added to the
amounts deposited with a futures commission merchant as margin, equal the total
market value of the futures contract underlying the call option. Alternatively,
the Portfolio may cover its position by entering into a long position in the
same futures contract at a price no higher than the strike price of the call
option, by owning the instruments underlying the futures contract, or by holding
a separate call option permitting the Portfolio to purchase the same futures
contract at a price not higher than the strike price of the call option sold by
the Portfolio.
<PAGE>
<PAGE>
When selling a put option on a futures contract, the Portfolio will similarly
maintain cash, U.S. Government securities, or other highly liquid debt
securities that equal the purchase price of the futures contract, less any
margin on deposit. Alternatively, the Portfolio may cover the position either by
entering into a short position in the same futures contract, or by owning a
separate put option permitting it to sell the same futures contract so long as
the strike price of the purchased put option is the same or higher than the
strike price of the put option sold by the Portfolio.
HEDGING THROUGH THE USE OF CURRENCY RELATED INSTRUMENTS.
As indicated in the prospectus, The Growth Portfolio may use forward foreign
currency exchange contracts in connection with permitted purchases and sales of
securities of non-U.S. issuers. In addition, The International Equity Portfolio
may, consistent with its investment objectives and policies, use such contracts
as well as certain other currency related instruments to reduce the risks
associated with the types of securities in which it is authorized to invest and
to hedge against fluctuations in the relative value of the currencies in which
securities held by The International Equity Portfolio are denominated. The
following discussion sets forth certain information relating to forward currency
contracts and other currency related instruments, together with the risks that
may be associated with their use.
About Currency Transactions and Hedging. The International Equity Portfolio is
- ---------------------------------------
authorized to purchase and sell options, futures contracts and options thereon
relating to foreign currencies and securities denominated in foreign currencies.
Such instruments may be traded on foreign exchanges, including foreign over-the-
counter markets. Transactions in such instruments may not be regulated as
effectively as similar transactions in the United States, may not involve a
clearing mechanism and related guarantees, and are subject to the risk of
governmental actions affecting trading in, or the prices of, foreign securities.
The value of such positions also could be adversely affected by: (i) foreign
political, legal and economic factors; (ii) lesser availability than in the
United States of data on which to make trading decisions; (iii) delays in a
Portfolio's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States; and (iv) lesser trading volume.
Foreign currency exchange transactions may be entered into for the purpose of
hedging against foreign currency exchange risk arising from the Portfolio's
investment or anticipated investment in securities denominated in foreign
currencies. The International Equity Portfolio may also purchase and sell
options relating to foreign currencies to increase exposure to a foreign
currency or to shift foreign currency exposure from one country to another.
Foreign Currency Options and Related Risks. The International Equity Portfolio
- ------------------------------------------
may take positions in options on foreign currencies to hedge against the risk of
foreign exchange rate fluctuations on foreign securities the Portfolio holds in
its portfolio or intends to purchase. For example, if the Portfolio were to
enter into a contract to purchase securities denominated in a foreign currency,
it could effectively fix the maximum U.S. dollar cost of the securities by
purchasing call options on that foreign currency. Similarly, if the Portfolio
held securities denominated in a foreign currency and anticipated a decline in
the value of that currency against the U.S. dollar, it could hedge against such
a decline by purchasing a put option on the currency involved. The markets in
foreign currency options are relatively new, and the Portfolio's ability to
establish and close out positions in such options is subject to the maintenance
<PAGE>
<PAGE>
of a liquid secondary market. There can be no assurance that a liquid
secondary market will exist for a particular option at any specific time.
In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.
The quantities of currencies underlying option contracts represent odd
lots in a market dominated by transactions between banks, and as a result
extra transaction costs may be incurred upon exercise of an option.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations be firm or revised
on a timely basis. Quotation information is generally representative of
very large transactions in the interbank market and may not reflect smaller
transactions where rates may be less favorable. Option markets may be
closed while round-the-clock interbank currency markets are open,
and this can create price and rate discrepancies.
Forward Foreign Currency Exchange Contracts. The Growth Portfolio may use
- -------------------------------------------
forward contracts to protect against uncertainty in the level of future exchange
rates in connection with specific transactions. For example, when the Portfolio
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, or when the Portfolio anticipates the receipt in a foreign
currency of dividend or interest payments on a security that it holds, the
Portfolio may desire to "lock in" the U.S. dollar price of the security or the
U.S. dollar equivalent of the payment, by entering into a forward contract for
the purchase or sale of the foreign currency involved in the underlying
transaction in exchange for a fixed amount of U.S. dollars or foreign currency.
This may serve as a hedge against a possible loss resulting from an adverse
change in the relationship between the currency exchange rates during the period
between the date on which the security is purchased or sold, or on which the
payment is declared, and the date on which such payments are made or received.
The International Equity Portfolio may also use forward contracts in connection
with specific transactions. In addition, it may use such contracts to lock in
the U.S. dollar value of those positions, to increase the Portfolio's exposure
to foreign currencies that the Investment Manager believes may rise in value
relative to the U.S. dollar or to shift the Portfolio's exposure to foreign
currency fluctuations from one country to another. For example, when the
Investment Manager believes that the currency of a particular foreign country
may suffer a substantial decline relative to the U.S. dollar or another
currency, it may enter into a forward contract to sell the amount of the former
foreign currency approximating the value of some or all of the Portfolio's
portfolio securities denominated in such foreign currency. This investment
practice generally is referred to as "cross-hedging."
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Accordingly, it may be necessary for a
Portfolio to purchase additional foreign currency on the spot (i.e., cash)
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Portfolio is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency. Conversely, it may be necessary to sell on the spot
market some of the foreign currency received upon the sale of the portfolio
security if its market value exceeds the amount of foreign currency the
Portfolio is obligated to deliver. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. Forward contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing the
Portfolio to sustain losses on these contracts and transaction costs. A
<PAGE>
<PAGE>
Portfolio may enter into forward contracts or maintain a net exposure to such
contracts only if: (1) the consummation of the contracts would not obligate the
Portfolio to deliver an amount of foreign currency in excess of the value of the
Portfolio's securities and other assets denominated in that currency; or (2) the
Portfolio maintains cash, U.S. Government securities or other liquid securities
in a segregated account in an amount which, together with the value of all the
Portfolio's securities denominated in such currency, equals or exceeds the value
of such contracts.
At or before the maturity date of a forward contract that requires the Portfolio
to sell a currency, the Portfolio may either sell a portfolio security and use
the sale proceeds to make delivery of the currency or retain the security and
offset its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Portfolio will obtain, on the same maturity date,
the same amount of the currency that it is obligated to deliver. Similarly, the
Portfolio may close out a forward contract requiring it to purchase a specified
currency by entering into another contract entitling it to sell the same amount
of the same currency on the maturity date of the first contract. As a result of
such an offsetting transaction, a Portfolio would realize a gain or a loss to
the extent of any change in the exchange rate between the currencies involved
between the execution dates of the first and second contracts.
The cost to a Portfolio of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
prevailing market conditions. Because forward contracts are usually entered
into on a principal basis, no fees or commissions are involved. The use of
forward contracts does not eliminate fluctuations in the prices of the
underlying securities the Portfolio owns or intends to acquire, but it does fix
a rate of exchange in advance. In addition, although forward contracts limit
the risk of loss due to a decline in the value of the hedged currencies, they
also limit any potential gain that might result should the value of the
currencies increase.
Although The International Equity Portfolio values its assets daily in terms of
U.S. dollars, it does not intend to convert its holdings of foreign currencies
into U.S. dollars on a daily basis. The Portfolio may convert foreign currency
from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference between the prices
at which they are buying and selling various currencies. Thus, a dealer may
offer to sell a foreign currency to the Portfolio at one rate, while offering
a lesser rate of exchange should the Portfolio desire to resell that currency
to the dealer.
INVESTMENT RESTRICTIONS
In addition to the investment objectives and policies of the Portfolios, each
Portfolio is subject to certain investment restrictions both in accordance with
various provisions of the Investment Company Act and guidelines adopted by the
Trust's Board. These investment restrictions are summarized below.
<PAGE>
<PAGE>
The following investment restrictions (1 though 9) are fundamental and cannot be
changed with respect to any Portfolio without the affirmative vote of a majority
of the Portfolio's outstanding voting securities as defined in the Investment
Company Act.
A Portfolio may not:
1. Purchase the securities of any issuer, if as a result of such purchase,
more than 5% of the total assets of the Portfolio would be invested in the
securities of that issuer, or purchase any security if, as a result of such
purchase, a Portfolio would hold more than 10% of the outstanding voting
securities of an issuer, provided that up to 25% of the value of the
Trust's assets may be invested without regard to this limitation, and
provided further that this restriction shall not apply to investments in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, repurchase agreements secured by such obligations, or
securities issued by other investment companies.
2. Borrow money, except that a Portfolio (i) may borrow amounts, taken in the
aggregate, equal to up to 5% of its total assets, from banks for temporary
purposes (but not for leveraging or investment) and (ii) may engage in
reverse repurchase agreements for any purpose, provided that (i) and (ii)
in combination do not exceed 33 1/3% of the value of the Portfolio's total
assets (including the amount borrowed) less liabilities (other than
borrowings).
3. Mortgage, pledge or hypothecate any of its assets except in connection with
any permitted borrowing, provided that this restriction does not prohibit
escrow, collateral or margin arrangements in connection with a Portfolio's
permitted use of options, futures contracts and similar derivative
financial instruments described in the Trust's prospectus.
4. Issue senior securities, as defined in the Investment Company Act, provided
that this restriction shall not be deemed to prohibit a Portfolio from
making any permitted borrowing, mortgage or pledge, and provided further
that the permitted use of options, futures contracts and similar derivative
financial instruments described in the Trust's prospectus shall not
constitute issuance of a senior security.
5. Underwrite securities issued by others, provided that this restriction
shall not be violated in the event that the Portfolio may be considered an
underwriter within the meaning of the Securities Act of 1933 in the
disposition of portfolio of securities.
6. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments, provided that this shall not prevent a
Portfolio from investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate business.
7. Purchase or sell commodities or commodity contracts, unless acquired as a
result of ownership of securities or other instruments, provided that a
Portfolio may purchase and sell futures contracts relating to financial
instruments and currencies and related options in the manner described in
the Trust's prospectus.
8. Make loans to others, provided that this restriction shall not be construed
to limit (a) purchases of debt securities or repurchase agreements in
accordance with a Portfolio's investment objectives and policies; and (b)
loans of portfolio securities in the manner described in the Trust's
prospectus.
<PAGE>
<PAGE>
9. Invest more than 25% of the market value of its assets in the securities of
companies engaged in any one industry provided that this restriction does
not apply to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, repurchase agreements secured by such
obligations or securities issued by other investment companies.
The following investment restrictions (10 through 15) reflect policies that have
been adopted by the Trust, but they are not fundamental and may be changed by
the Trust's Board, without shareholder vote.
A Portfolio may not:
10. Invest in any issuer for purposes of exercising control or management.
11. Make short sales of securities or maintain a short position, or purchase
securities on margin, provided that this restriction shall not preclude
the Trust from obtaining such short-term credits as may be necessary for
the clearance of purchases and sales of its portfolio securities, and
provided further that this restriction will not be applied to limit the
use by a Portfolio of options, futures contracts and similar derivative
financial instruments in the manner described in the Trust's prospectus.
12. Invest in securities of other investment companies except as permitted
under the Investment Company Act.
13. Buy or sell interests in oil, gas or mineral exploration or development
programs or related leases, provided that this restriction shall not
preclude investments in marketable securities of issuers engaged in such
activities.
14. Purchase any security if, as a result, the Portfolio would have more than
5% of its total assets (taken at current value) invested in securities of
companies (including predecessors) less than three years old.
15. Invest more than 5% of the market value of a Portfolio's total assets in
warrants or invest more than 2% of such value in warrants that are not
listed on the New York or American Stock Exchange.
An investment restriction applicable to a particular Portfolio shall not be
deemed violated as a result of a change in the market value of an investment,
the net or total assets of that Portfolio, or any other later change provided
that the restriction was satisfied at the time the relevant action was taken.
In order to permit the sale of its shares in certain states, the Trust may make
commitments more restrictive than those described above. Should the Trust
determine that any such commitment may no longer be appropriate, the Board will
consider whether to revoke the commitment and terminate sales of its shares in
the state involved.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Trust reserves the right in its sole discretion to suspend the continued
offering of the Trust's shares and to reject purchase orders in whole or in part
when in the judgment of the Board such action is in the best interest of the
Trust.
Payments to shareholders for shares of the Trust redeemed directly from the
Trust will be made as promptly as possible but no later than seven days after
receipt by the Trust's Transfer Agent of the written request in proper form,
with the appropriate documentation as stated in the prospectus, except that the
Trust may suspend the right of redemption or postpone the date of payment during
any period when (a) trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission or such Exchange is closed
for other than weekends and holidays; (b) an emergency exists as determined by
the Securities and Exchange Commission making disposal of portfolio securities
or valuation of net assets of the Trust not reasonably practicable; or for such
other period as the Securities and Exchange Commission may permit for the
protection of the Trust's shareholders.
<PAGE>
<PAGE>
Each of the Portfolios reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase of the
Trust's shares by making payment in whole or in part in readily marketable
securities chosen by the Trust and valued in the same way as they would
be valued for purposes of computing each Portfolio's net asset value. If
such payment were made, an investor may incur brokerage costs in converting such
securities to cash. The value of shares on redemption or repurchase may be more
or less than the investor's cost, depending upon the market value of the Trust's
portfolio securities at the time of redemption or repurchase.
PORTFOLIO TRANSACTIONS AND VALUATION
Subject to the general supervision of the Board, the Investment Managers of the
respective Portfolios are responsible for placing orders for securities
transactions for each of the Portfolios. Securities transactions involving
stocks will normally be conducted through brokerage firms entitled to receive
commissions for effecting such transactions. In placing portfolio transactions,
an Investment Manager will use its best efforts to choose a broker or dealer
capable of providing the services necessary to obtain the most favorable price
and execution available. The full range and quality of services available will
be considered in making these determinations, such as the size of the order, the
difficulty of execution, the operational facilities of the firm involved, the
firm's risk in positioning a block of securities, and other factors. In placing
brokerage transactions, the respective Investment Managers may, however,
consistent with the interests of the Portfolios they serve, select brokerage
firms on the basis of the research, statistical and pricing services they
provide to the Investment Manager. In such cases, a Portfolio may pay a
commission that is higher than the commission that another qualified broker
might have charged for the same transaction, providing the Investment Manager
involved determines in good faith that such commission is reasonable in terms
either of that transaction or the overall responsibility of the Investment
Manager to the Portfolio and such manager's other investment advisory clients.
Transactions involving debt securities and similar instruments are expected to
occur primarily with issuers, underwriters or major dealers acting as
principals. Such transactions are normally effected on a net basis and do not
involve payment of brokerage commissions. The price of the security, however,
usually includes a profit to the dealer. Securities purchased in underwritten
offerings include a fixed amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. When securities are
purchased directly from or sold directly to an issuer, no commissions or
discounts are paid.
<PAGE>
<PAGE>
During the fiscal year ended June 30, 1996, the respective portfolios of the
Trust paid the following aggregate brokerage commissions: The Value Equity
Portfolio, $137,963; The Growth Equity Portfolio, $238,948; The Small
Capitalization Portfolio, $147,928; and The International Equity Portfolio,
$144,359. The Limited Duraton Municipal Bond Portfolio paid no brokerage
commissions during the period.
The Trust has adopted procedures pursuant to which each portfolio is permitted
to allocate brokerage transactions to affiliates of the various Investment
Managers. Under such procedures, commissions paid to any such affiliate must
be fair and reasonable compared to the commission, fees or other remuneration
paid to other brokers in connection with comparable transactions. Several of
the Trust's Investment Managers are affiliated with brokerage firms to which
brokerage transactions may, from time to time, be allocated.
The table below reflects the aggregate dollar amount of commissions
paid to each such firm, as well as similar information about transactions
allocated to Furman Selz, LLC, (which servced as the Trust's principal
underwriter prior to January 1, 1997) by The Value Equity Portfolio
and The Growth Equity Portfolios during the period. None of the other
portfolios of the Trust effected brokerage transactions through brokers
affiliated with the Trust. Information shown is expressed both as a
percentage of the total amount of commission dollars paid by each
portfolio and as a percentage of the total value of all brokerage
transactions effected on behalf of each portfolio.
<TABLE>
<CAPTION>
Portfolio1 Affiliated Broker2
----------------------------------------------
Cowen & Co.3 Prudential Furman Selz LLC5
Securities4
- --------- ------------ ------------ ----------------
<S> <C> <C> <C>
Value Equity
% of commissions .34% none none
% of transactions .94%
Growth Equity
% of commissions .02% 1.45% 4.20%
% of transactions .05% .70% 1.26%
</TABLE>
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1. The Trust's other portfolios did not direct brokerage transaction to any
affiliated broker during the period.
2. Other brokers deemed to be affiliated with certain Portfolios are:
with respect to The International Portfolio, companies affiliated with
Swiss Bank, of which Brinson Partners is a wholly-owned subsidiary;
with respect to The Limited Duration Municipal Bond Portofolio, companies
affiliated with Deutchebank, the parent company of Morgan Grenfell Capital
Management Incorporated; and after November 12, 1996, with respect to
The Value Equity Portfolio, companies affiliated with Merrill Lynch
Asset Management LLP, of which Hotchkis and Wiley is a division.
No brokerage transactions were affected through such companies
during the period reflected in the above table by the relevant Portfolios.
3. Cowen Asset Management, formerly an Investment Manager of The Value
Equity Portfolio, is a division of Cowen & Co.
4. Both Prudential Securities and Jennison Associates Capital Management Corp.,
which serves as an Investment Manager of The Value Equity Portfolio,
are wholly-owned subsidiaries of Prudential Insurance
Company of America.
5. Furman Selz LLC served as the Trust's principal underwriter
prior to January 1, 1997.
In no instance will portfolio securities be purchased from or sold to Investment
Managers, Hirtle Callaghan or any affiliated person of the foregoing entities
except to the extent permitted by applicable law or an order of the Securities
and Exchange Commission. Investment decisions for the several Portfolios are
made independently from those of any other client accounts (which may include
mutual funds) managed or advised by an Investment Manager. Nevertheless, it is
possible that at times identical securities will be acceptable for both a
Portfolio of the Trust and one or more of such client accounts. In such cases,
simultaneous transactions are inevitable. Purchases and sales are then averaged
as to price and allocated as to amount according to a formula deemed equitable
to each such account. While in some cases this practice could have a
detrimental effect upon the price or value of the security as far as a Portfolio
is concerned, in other cases it is believed that the ability of a Portfolio to
participate in volume transactions may produce better executions for such
Portfolio.
<PAGE>
<PAGE>
Portfolio Turnover. Changes may be made in the holdings of any of the
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Portfolios consistent with their respective investment objectives and policies
whenever, in the judgment of the relevant Investment Manager, such changes are
believed to be in the best interests of the Portfolio involved. It is
anticipated that the annual portfolio turnover rate for a Portfolio will not
exceed 100% under normal circumstances. The portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio securities
by the average monthly value of a Portfolio's securities. For purposes of this
calculation, portfolio securities exclude all securities having a maturity when
purchased of one year or less. The portfolio turnover rate for each of the
Portfolios that has more than one Investment Manager will be an aggregate of the
rates for each individually managed portion of that Portfolio. Rates for each
portion, however, may vary significantly. The portfolio turnover rate for each
of the Trust's Portfolios for the fiscal year ended June 30, 1996, is as
follows: The Value Equity Portfolio, 92%; The Growth Equity Portfolio,
80%; The Small Capitalization Portfolio, 38%; and The International
Equity Portfolio, 15%; and The Limited Duraton Municipal Bond Portfolio, 116%.
Valuation. The net asset value per share of the Portfolios is determined once
- -----------
on each Business Day as of the close of the New York Stock Exchange, which is
normally 4 P.M. New York City time, on each day the New York Stock Exchange is
open for trading. It is expected that such Exchange will be closed on Saturdays
and Sundays and on New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas. The Trust does not
expect to determine the net asset value of its shares on any day when the
Exchange is not open for trading even if there is sufficient trading in its
portfolio securities on such days to materially affect the net asset value per
share.
In valuing the Trust's assets for calculating net asset value, readily
marketable portfolio securities listed on a national securities exchange or on
NASDAQ are valued at the last sale price on the business day as of which such
value is being determined. If there has been no sale on such exchange or on
NASDAQ on such day, the security is valued at the closing bid price on such day.
Readily marketable securities traded only in the over-the-counter market and not
on NASDAQ are valued at the current or last bid price. If no bid is quoted on
such day, the security is valued by such method as the Board shall determine in
good faith to reflect the security's fair value. All other assets of each
Portfolio are valued in such manner as the Board in good faith deems
appropriate to reflect their fair value.
The net asset value per share of each of the Trust's Portfolios is calculated as
follows: All liabilities incurred or accrued are deducted from the valuation of
total assets which includes accrued but undistributed income; the resulting net
asset value is divided by the number of shares outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions. As noted in the prospectus, each Portfolio will
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distribute substantially all of its net investment income and net realized
capital gains, if any. It is anticipated that The Value Portfolio, The Growth
Portfolio and The Small Capitalization Equity Portfolio will declare and
distribute dividends from net investment income on a quarterly basis. The
Limited Duration Municipal Bond Portfolio will declare dividends daily, with
payments on a monthly basis. The International Equity Portfolio will declare
dividends semi-annually. The Trust expects to distribute any undistributed net
investment income and capital gains for the 12-month period ended each October
31, on or about December 31 of each year.
<PAGE>
<PAGE>
Tax Information. Each of the Trust's Portfolios is treated as a separate entity
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for federal income tax purposes. Each Portfolio intends 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") for the fiscal year ending June
30, 1996 and intends to continue to so qualify. Accordingly, it is the policy
of each Portfolio to distribute to its shareholders by December 31 of each
calendar year (i) at least 98% of its ordinary income for such year; (ii) at
least 98% of the excess of its realized capital gains over its realized capital
losses for the 12-month period ending on October 31 during such year; and (iii)
any amounts from the prior calendar year that were not distributed.
The following discussion and related discussion in the prospectus do not purport
to be a complete description of all tax implications of an investment in the
Trust. In addition, such information relates solely to the application of that
law to U.S. citizens or residents and U.S. domestic corporations, partnerships,
trusts and estates. A shareholder should consult with his or her own tax
adviser for more information about Federal, state, local or foreign taxes. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Trust, including the possibility that
such a shareholder may be subject to a U.S. withholding tax on amounts
constituting ordinary income.
Distributions of net investment income and short-term capital gains are taxable
to shareholders as ordinary income. Distributions paid by a Portfolio out of
long-term capital gain are taxable to those investors who are subject to income
tax as long term capital gain. In the case of corporate shareholders,
a portion of the distributions may qualify for the dividends-received deduction
to the extent the Trust designates the amount distributed by any Portfolio as a
qualifying dividend. The aggregate amount so designated cannot, however, exceed
the aggregate amount of qualifying dividends received by that Portfolio for its
taxable year. It is expected that dividends from domestic corporations will be
part of the gross income for one or more of the Portfolios and, accordingly,
that part of the distributions by such Portfolios may be eligible for the
dividends-received deduction for corporate shareholders. However, the portion of
a particular Portfolio's gross income attributable to qualifying dividends is
largely dependent on that Portfolio's investment activities for a particular
year and therefore cannot be predicted with any certainty. The deduction may be
reduced or eliminated if shares of such Portfolio held by a corporate investor
are treated as debt-financed or are held for less than 46 days.
Distributions of net investment income and short-term capital gains are taxable
to shareholders as long-term capital gains, regardless of the length of time
they have held their shares. Capital gains distributions are not eligible for
the dividends-received deduction referred to in the previous paragraph.
Distributions of any net investment income and net realized capital gains will
be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date. Distributions
are generally taxable when received. However, distributions declared in
October, November or December to shareholders of record on a date in such a
month and paid the following January are taxable as if received on December 31.
Distributions are includable in alternative minimum taxable income in computing
a shareholder's liability for the alternative minimum tax.
<PAGE>
<PAGE>
A redemption of Trust shares may result in recognition of a taxable gain or
loss. Any loss realized upon a redemption of shares within six months from the
date of their purchase will be treated as a long-term capital loss to the
extent of any amounts treated as distributions of long-term capital gains
during such six-month period. Any loss realized upon a redemption may be
disallowed under certain wash sale rules to the extent shares of the same Trust
are purchased (through reinvestment of distributions or otherwise) within 30
days before or after the redemption or exchange.
The Trust is required to report to the Internal Revenue Service all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Trust shares, except in the case of exempt
shareholders, which includes most corporations. Pursuant to the backup
withholding provisions of the Code, distributions of any taxable income and
capital gains and proceeds from the redemption of Trust shares may be subject to
withholding of federal income tax at the rate of 31 percent in the case of non-
exempt shareholders who fail to furnish the Trust with their taxpayer
identification numbers and with required certifications regarding their status
under the federal income tax law. If the withholding provisions are applicable,
any such distributions and proceeds, whether taken in cash or reinvested in
additional shares, will be reduced by the amounts required to be withheld.
Corporate and other exempt shareholders should provide the Trust with their
taxpayer identification numbers or certify their exempt status in order to
avoid possible erroneous application of backup withholding. The Trust reserves
the right to refuse to open an account for any person failing to provide a
certified taxpayer identification number.
Tax Matters Relating to the Use of Certain Hedging Instruments and Foreign
- --------------------------------------------------------------------------
Investments. Certain of the Portfolios may write, purchase or sell certain
- -----------
options, futures and foreign currency contracts. Such transactions are subject
to special tax rules that may affect the amount, timing and character of
distributions to shareholders. Unless a Portfolio is eligible to make, and
makes, a special election, any such contract that is a "Section 1256 contract"
will be "marked-to-market" for Federal income tax purposes at the end of each
taxable year, i.e., each contract will be treated for tax purposes as though it
<PAGE>
<PAGE>
had been sold for its fair market value on the last day of the taxable year. In
general, unless the special election referred to in the previous sentence is
made, gain or loss from transactions in Section 1256 contracts will be 60% long
term and 40% short term capital gain or loss. Additionally, Section 1092 of the
Code, which applies to certain "straddles," may affect the tax treatment of
income derived by a Portfolio from transactions in option, futures and foreign
currency contracts. In particular, under this provision, a Portfolio may, for
tax purposes, be required to postpone recognition of losses incurred in certain
closing transactions.
Section 988 of the Code contains special tax rules applicable to certain foreign
currency transactions that may affect the amount, timing, and character of
income, gain or loss recognized by the Trust. Under these rules, foreign
exchange gain or loss realized with respect to foreign currency-denominated debt
instruments, foreign currency forward contracts, foreign currency-denominated
payables and receivables, and foreign currency options and futures contracts
(other than options, futures, and foreign currency contracts that are governed
by the mark-to-market and 60%-40% rules of Section 1256 of the Code and for
which no election is made) is treated as ordinary income or loss. Under the
Code, dividends or gains derived by a Portfolio from any investment in a
"passive foreign investment company" ("PFIC")-- a foreign corporation 75 percent
or more of the gross income of which consists of interest, dividends, royalties,
rents, annuities or other "passive income" or 50 percent or more of the assets
of which produce "passive income" -- may subject a Portfolio to U.S. federal
income tax even with respect to income distributed by the Portfolio to its
shareholders. In addition, any such tax will not itself give rise to a
deduction or credit to the Portfolio or to any shareholder. In order to avoid
the tax consequences described above, those Portfolios authorized to invest
in foreign securities will attempt to avoid investments in PFICs.
PERFORMANCE INFORMATION
From time to time, a Portfolio may state its total return in sales literature
and investor presentations. Total return may be stated for any relevant period
specified. Any statements of total return will be accompanied by information on
that Portfolio's average annual compounded rate of return over the most recent
four calendar quarters and the period from the inception of that Portfolio's
operations. The Trust may also advertise aggregate and average total return
information over different periods of time for the various Portfolios.
The average annual compounded rate of return for a Portfolio is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the formula P(1+T)/n/ =
ERV. For purposes of this formula, the variables represent the following
values:
P = a hypothetical initial purchase of $1,000
T = average annual total return
n = number of years
ERV = redeemable value of hypothetical $1,000 initial purchase
at the end of the period.
Aggregate total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period and gives effect to the maximum applicable sales charge.
From time to time, evaluations of a Trust's performance by independent sources
may also be used in advertisements and in information furnished to present or
prospective investors in the Trusts. Investors should note that the investment
results of each of the Trust's Portfolios will fluctuate over time, and any
presentation of a Portfolio's total return for any period should not be
considered as a representation of what an investment may earn or what an
investor's total return may be in any future period.
<PAGE>
<PAGE>
The table below shows names and address of record of each person known to the
Trust to hold, as of record or beneficially, 5% or more of shares of the Trust
as January 31, 1997. (Address of record for each individually listed account
is the same as that of the respective nominees as show in the table.)
Hirtle Callaghan may be deemed to have, or share, investment and/or voting
power with respect to more than 50% of the shares of the Trust's portfolios,
with respect to which shares Hirtle Callaghan disclaims beneficial ownership.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Small
Name and Address of Value Growth Capitalization International Limited Duration
Record Holder Equity Equity Equity Equity Municipal Bond
- -----------------------------------------------------------------------------------------------------------------
Bankers Trust Company 76.55% 83.47% 82.81% 68.65% 77.91%
1 Bankers Trust Plaza
New York, N.Y. 10006
PNC Bank, N.A. 7.95% 4.81% 3.14% 19.85% (1) 14.98%
P.O. Box 7780-1888
Philadelphia, PA 19182
Northern Trust Company 12.78% (2) 8.96% (3) 10.11% (4) 6.98% (5) 7.11% (6)(7)
P.O. Box 92956
Chicago, IL 60675
- ----------------------------
(1) Shares include 14.47% held FBO 78 Pgh Pension. -- -- --
(2) Shares include 12.00% held FBO SFTRS 26-31827.
(3) Shares include 8.15% held FBO SFTRS HC.
(4) Shares include 9.26% held FBO SFTRS HC.
(5) Shares include 6.31% held FBO SFTRS HC.
(6) Shares include 12.17% held FBO Diamond Investments.
(7) Shares include 7.10% held FBO SF Ltd. Partnership.
</TABLE>
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS.
Coopers and Lybrand, L.L.P., serves as the Trust's independent accountants.
The Trust's financial statements as of June 30, 1996, have been audited by
Coopers and Lybrand, L.L.P, whose address is 2400 Eleven Penn Center,
Philadelphia, PA 19103. Such statement and accompanying report are set
forth in the Trust's Annual Report to Shareholders, which accompanies this
Statement of Additional Information and is incorporated herein by reference.
<PAGE>
<PAGE>
Ratings Appendix
Ratings for Corporate Debt Securities
<TABLE>
<CAPTION>
Moody's Investors Service, Inc. Standard & Poor's Corporation
<S> <C>
Aaa AAA
Judged to be of the best quality; smallest This is the highest rating assigned by S&P to a
degree of investment risk debt obligation and indicates an extremely strong
capacity to pay principal and interest.
Aa AA
Judged to be of high quality by all Also qualify as high-quality debt obligations.
standards; together with Aaa group, Capacity to pay principal and interest is very
comprise what are generally known as strong
"high grade bonds"
A A
Possess many favorable investment Strong capacity to pay principal and interest,
attributes and are to be considered as although securities in this category are somewhat
upper medium grade obligations more susceptible to the adverse effects of changes
in circumstances and economic conditions.
Baa BBB
Medium grade obligations, i.e. Bonds rated BBB are regarded as having an adequate
they are neither highly protected nor capacity to pay principal and interest. Although
poorly secured. Interest payments they normally exhibit adequate protection
and principal security appear parameters, adverse economic conditions or
adequate for present but certain changing circumstances are more likely to lead to
protective elements may be lacking or a weakened capacity to pay principal and interest
unreliable over time. Lacking in for bonds in this category than for bonds in the A
outstanding investment characteristics and category.
have speculative characteristics as well
Ba BB
Judged to have speculative elements: their Bonds rated BB are regarded, on balance, as
future cannot be considered as well predominantly speculative with respect to the
assured. Often the protection of issuer's capacity to pay interest and repay
interest and principal payments principal in accordance with the terms of the
may every moderate and thereby not well obligation. While such bonds will likely have some
safeguarded during both good and bad quality and protective characteristics, these are
times over the future. Uncertainty outweighed by large uncertainties or major risk
of position characterize bonds exposures to adverse conditions.
in this class
</TABLE>
<PAGE>
<PAGE>
RATINGS FOR MUNICIPAL SECURITIES
The following summarizes the two highest ratings used by Standard & Poor's
Corporation for short term notes:
SP-1 -- Loans bearing this designation evidence a very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics will be given a (+) designation.
SP-2 -- Loans bearing this designation evidence a satisfactory capacity to
pay principal and interest.
The following summarizes the two highest ratings used by Moody's Investors
Service, Inc. for short term notes:
MIG-1/VIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows of funds
for their servicing or from established and broad-based access to the
market for refinancing, or both.
MIG-1/VIG-2 -- Obligations bearing these designations are of the high
quality, with margins of protection ample although not so large as in the
preceding group.
The following summarizes the two highest ratings used by Standard & Poor's
Corporation for commercial paper:
Commercial Paper rated A-1 by Standard & Poor's Corporation indicated that
the degree of safety regarding timely payment is either overwhelming or
very strong. Those issues determined to possess overwhelming safety
characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is strong, but the relative degree of safety is
not as high as for issues designated A-1.
The following summarizes the two highest ratings used by Moody's Investors
Service, Inc. for commercial paper:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of
short-term promissory obligations. This will normally be evidenced by many
of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is
maintained.
<PAGE>
<PAGE>
Part C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Included in Part A of the Registration Statement:
Expense Information
Condensed Financial Information
(b) Included in Part B of the Registration Statement:
Audited Financial Statement for the period ended June 30, 1996
(Incorporated by reference from prior filing; see
Item 12 below.)
(c) Auditors' Report and Consent FILED HEREWITH
(b) Exhibits:
(1)(a)Certificate of Trust filed on December 15, 1994 with the
Secretary of State of Delaware
(Incorporated herein by reference to Items (b)(i) contained in
Registrant's Registration Statement (No. 33-87636) as filed with
the Securities and Exchange Commission on December 19, 1994.)
(1)(b)Amended and Restated Declaration and Agreement of Trust (as
amended November 9, 1995)
(Incorporated herein by reference to Item 1(b)
contained in Post-effective Amendment No. 4, filed
with the Securities and Exchange Commission on
December 16, 1996.)
(2) Bylaws of the Trust (as amended November 9, 1995)
(Incorporated herein by reference to Item 2
contained in Post-effective Amendment No. 4, filed
with the Securities and Exchange Commission on
December 16, 1996.)
(3) /[voting trust agreement]/
Not Applicable.
(4) /[instruments defining right of securityholders]/
Not Applicable.
(5) (a) Portfolio Management Contracts with certain
Investment Managers for the several Portfolios of the Trust.
(Incorporated herein by reference to Items (b)(5) contained in
Registrant's Registration Statement (No. 33-87636) as filed
with the Securities and Exchange Commission on July 24, 1995.)
(b) Consulting Agreement between the Trust and Hirtle, Callaghan
& Co., Inc.
(Incorporated herein by reference to Items (b)(5) contained in
Registrant's Registration Statement (No. 33-87636) as filed with
the Securities and Exchange Commission on July 24, 1995.)
(c)Portfolio Management Contracts between the Trust and Hotchkis
and Wiley. (Incorporated herein by reference to Item 5(c)(A
and B) contained in Post-effective Amendment No. 3, filed
with the Securities and Exchange Commission on October
18, 1996.
<PAGE>
<PAGE>
(6)(a) Distribution Agreement between Furman, Selz LLC
(formerly, Furman Selz, Incorporated) and the Trust.
(Incorporated herein by reference to Items (b)(6) contained in
Registrant's Registration Statement (No. 33-87636) as filed with
the Securities and Exchange Commission on July 24, 1995.)
(b) Distribution Agreement between BISYS Fund Services
(Incorporated herein by reference to Item 1(b)
contained in Post-effective Amendment No. 4, filed
with the Securities and Exchange Commission on
December 16, 1996.)
(7) [bonus, pension and profit-sharing plans]
Not Applicable.
(8) Custodian Agreement between Bankers Trust Company and the Trust.
(Incorporated herein by reference to Items (b)(8) contained in
Registrant's Registration Statement (No. 33-87636) as filed with
the Securities and Exchange Commission on July 24, 1995.)
(9) (a)(i) Administration Agreement between the Trust and Furman,
Selz LLC (formerly, Furman Selz, Incorporated).
(Incorporated herein by reference to Items (b)(9) contained in
Registrant's Registration Statement (No. 33-87636) as filed with
the Securities and Exchange Commission on July 24, 1995.)
(a)(ii) Transfer Agency and Service Agreement between the Trust
and Furman, Selz LLC (formerly, Furman Selz, Incorporated)
(Incorporated herein by reference to Items (b)(9) contained in
Registrant's Registration Statement (No. 33-87636) as filed with
the Securities and Exchange Commission on July 24, 1995.)
(a)(iii) Accounting Services Agreement between Furman Selz LLC
(formerly, Furman Selz, Incorporated) and the Trust.
(Incorporated herein by reference to Items (b)(5) contained in
Registrant's Registration Statement (No. 33-87636) as filed with
the Securities and Exchange Commission on July 24, 1995.)
(9)(b) Registrant's Agreements with BISYS Fund Services
(i) Adminstration Agreement
(ii) Transfer Agency Agreement
(iii) Fund Accounting Agreement
(Incorporated herein by reference to Item 9(b)
contained in Post-effective Amendment No. 4, filed
with the Securities and Exchange Commission on
December 16, 1996.)
(iv) Amendement to Fund Accounting Agreement FILED HEREWITH
(10) Opinion of Stradley, Ronon, Stevens & Young.
(Incorporated herein by reference to Items (b)(5) contained in
Registrant's Registration Statement (No. 33-87636) as filed with
the Securities and Exchange Commission on July 24, 1995.)
(11) Consent of Accountants.
FILED HEREWITH
(12) Audited Financial Statement for the period ended June 30, 1996
were filed on September 10, 1996, pursuant to Rule 30(d) under
Investment Company Act of 1940 and are incorporated by
reference in Part B of this Post-Effective amendement No. 5.
Auditors Report with respect to such financials FILED HEREWITH.
(13) [agreements regarding initial capital]
Not Applicable.
<PAGE>
<PAGE>
(14) [model retirement plans]
Not Applicable.
(15) [Rule 12b-1 plan]
Not Applicable.
(16) [computation for Item 22 performance]
Not Applicable.
(17) Financial Data Schedule [See Item 27, below]
(18) [plan pursuant to rule 18f-3]
Not Applicable.
(24) Powers of Attorney
(Incorporated herein by reference to Item 24
contained in Post-effective Amendment No. 4, filed
with the Securities and Exchange Commission on
December 16, 1996.)
(27) Financial Data Schedules (Rule 483 under the Securities
Act of 1933) (Incorporated herein by reference to Item
27 contained in Post-effective Amendment No. 3, filed
with the Securities and Exchange Commission on October
18, 1996.
Item 25. Persons Controlled by or Under Common Control with Registrant.
--------------------------------------------------------------
None.
Item 26. Number of Holders of Securities.
--------------------------------
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
as of January 31, 1996
-------------- -----------------------------------------
<S> <C> <C>
Units of beneficial
interest, par value $.001 The Value Equity Portfolio 37
The Growth Equity Portfolio 39
The Small Capitalization Equity 42
Portfolio
The International Equity Portfolio 46
The Limited Duration Municipal
Bond Portfolio 14
</TABLE>
<PAGE>
Item 27. Indemnification.
----------------
Reference is made to Article VII of the Trust's Amended and Restated
Agreement and Declaration of Trust and to Article VI of the Trust's By-Laws,
which are incorporated herein by reference. Pursuant to Rule 484 under the
Securities Act of 1933 (the "Act"), as amended, the Trust furnishes the
following undertaking:
<PAGE>
Insofar as indemnification for liabilities arising under the Act may be
permitted to trustees, officers and controlling persons of the Trust pursuant to
the foregoing provisions, or otherwise, the Trust has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Trust of expenses incurred or paid by a trustee, officer
or controlling person of the Trust in the successful defense of any action, suit
or proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Trust will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisers.
------------------------------------------------------
Information relating to the business and other connections of each of the
Trust's Investment Managers and each director, officer or partner of such
managers are hereby incorporated by reference from each such manager's Form ADV,
as filed with the Securities and Exchange Commission, as follows:
<TABLE>
<CAPTION>
Investment Manager SEC File No. 801- ADV Item No.
- ------------------------------------------------------------------------------
<S> <C> <C>
Brinson Partners, Inc. 34910 Part I (8, 10 & 12)
Part II (6 - 9, 13)
Frontier Capital Management Co. 15724 Part I (8, 10 & 12)
Part II (6 - 9, 13)
Jennison Associates Capital Corp. 5608 Part I (8, 10 & 12)
Part II (6 - 9, 13)
Institutional Capital Corporation 40779 Part I (8, 10 & 12)
Part II (6 - 9, 13)
Westfield Capital Management, Inc. 34350 Part I (8, 10 & 12)
Part II (6 - 9, 13)
Clover Capital Management Inc. 27041 Part I (8, 10 & 12)
Part II (6 - 9, 13)
Morgan Grenfell Capital Management Inc. 27291 Part I (8, 10 & 12)
Part II (6 - 9, 13)
Hotchkis and Wiley, (a division of
Merrill Lynch Asset Management LP 11583 Part I (8, 10 & 12)
Part II (6 - 9, 13)
</TABLE>
Hirtle, Callaghan & Co., Inc. ("HCCI") has entered into a Consulting
Agreement with the Trust. Although HCCI is a registered investment adviser,
HCCI does not have investment discretion with regard to the assets of the Trust.
Information regarding the business and other connections of HCCI's officers and
directors is incorporated by reference to Part I (Items 8, 10 and 12) and Part
II (Items 6 - 9 and 13) of HCCI's Form ADV, File No. 801-32688 which has been
filed with the Securities and Exchange Commission.
<PAGE>
<PAGE>
Item 29. Principal Underwriters.
-----------------------
(a) BISYS Fund Services, Inc. ("BISYS") serves as the principal
underwriter for the Trust. BISYS also serves as a principal underwriter for the
the following investment companies:
The American Performance Funds, AmSouth Mutual funds, The ARCH Fund, Inc.,
The BB&T Mutual Funds Group, The Coventry Group, First Choice Funds,
Fountain Square Funds, HSBC Family of Funds, The HighMark Group,
The Infinity Mutual Fudns, Inc., The Kent Funds, Marketwatch Funds, MMA
Praxis Mutual Funds, M.S.C.&T. Funds, Pacific Capital Funds, Parkstone
Group of Funds, The Parkstone Riverfront Funds, Inc., Pegasus Funds, Qualivest
Funds, The Republic Funds The SBSF Funds, Inc. (dba Key Mutual Funds), The
Sessions Group, Summit Investment Trust, The Time Horizon Funds, and
The Victory Portfolios.
(b) The following table sets forth the indicated information with
respect to each director and officer of BISYS. Unless otherwise noted, the
business address for each such person is 3435 Stelzer Road, Columbus, Ohio
43219:
Name Positions and Offices with Positions with Trust
- ---- Underwriter --------------------
-----------
The BISYS Group, Inc. Sole shareholder None
150 Clove Road Sole Limited Partner
Little Falls, NJ 07424
BISYS Fund Services, Inc.
3435 Stlezer Road
Columbus Ohio 53219 Sole General Partner None
(c) Not Applicable.
Item 30. Location of Accounts and Records.
---------------------------------
(a) Bankers Trust Company, 130 Liberty Street, One Bankers Trust Plaza,
New York, New York 10006 (records relating to its function as custodian.)
(b) BISYS Fund Services, 125 West 55th Street, New York, New York 10119
(records relating to its function as administrator, accounting agent,
transfer and dividend disbursing agent and distributor.)
(c) BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219.
<PAGE>
<PAGE>
(d) Records relating to the activities of each of the investment managers
on behalf of the indicated portfolio are maintained as follows:
Investment Manager Location of Accounts and
------------------ Records
------------------------
The International Equity Portfolio
- ----------------------------------
Brinson Partners, Inc. 209 South LaSalle Street
Chicago, IL 60604-1295
The Small Capitalization Equity Portfolio
- ------------------------------------------
Clover Capital Management, Inc. 11 Tobey Village Office Park
Pittsford, NY 14534
Frontier Capital Management 99 Summer Street
Company Boston, MA 02110
The Value Equity Portfolio
- --------------------------
Hotchkis and Wiley 800 West Sixth Street
Los Angeles, California 90017
Institutional Capital 225 West Wacker
Corporation Suite 2400
Chicago, IL 60606
The Growth Equity Portfolio:
- ---------------------------
Jennison Associates Capital Corp. 466 Lexington Ave.
New York, NY 10017
Westfield Capital Management One Financial Center
Company, Inc. Boston, MA 02111
The Limited Duration Municipal Bond Portfolio:
- ---------------------------------------------
Morgan Grenfell Capital 885 Third Avenue
Management Incorporated New York, NY 10022-4802
and 1435 Walnut Street
(4th Fl.) Philadelphia, PA
19102
Item 31. Management Services.
--------------------
None.
Item 32. Undertakings.
-------------
Not Applicable.
--------------
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 5 to be signed on its behalf by the undersigned,
thereto duly authorized in the City of Wayne, and the Commonwealth of
Pennsylvania on February 10, 1997.
THE HIRTLE CALLAGHAN TRUST
BY: /s/
---------------------------
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
<TABLE>
<S> <C> <C>
/s/ Treasurer and Vice-President December 10, 1996
------------------------- (Principal Financial Officer)
Robert Zion
/s/ Trustee December 10, 1996
-------------------------
Donald E. Callaghan
/s/ * Trustee December 10, 1996
-------------------------
Richard W. Wortham, III
/s/ * Trustee December 10, 1996
-------------------------
Ross H. Goodman
/s/ * Trustee December 10, 1996
-------------------------
Jarrett Burt Kling
/s/ * Trustee December 10, 1996
-------------------------
David M. Spungen
/s/ * Trustee December 10, 1996
-------------------------
Jonathan J. Hirtle
</TABLE>
* signed by Donald E. Callaghan, pursuant
to powers of attorney filed as Exhibits to Post-effective Amendment No 4,
filed with the Commission on December 16, 1996 and incorporated by reference
herein.
Exhibit Index
Exhibit 1 [This exhibit list]
Exhibit 2 Auditors Consent
Exhibit 3 Auditors Report
Consent of Independent Accountants
We consent to the incorporation by reference in this Post-Effective Amendment
No. 5 to the Registration Statement under the Securities Act of 1933 on
Form N-1A (File No. 33-87762) of our report date August 23, 1996 on our
audit of the financial statments and financial highlights of The Hirtle
Callaghan Trust. We also consent to the reference to our Firm under
the caption "Financial Highlights" in the Prospectus and under the caption
"Independent Accountants and Financial Statements" in the
Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, PA
February 10, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees
of the Hirtle Callaghan Trust:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Value Equity, Growth Equity,
Small Capitalization, International Equity and Limited Duration Municipal Bond
Portfolios of the Hirtle Callaghan Trust (the "Trust") as of June 30, 1996,
and the related statements of operations, changes in net assets and financial
highlights for each of the respective periods then ended. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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. Our procedures included confirmation of securities
owned as of June 30, 1996, by correspondence with the custodian and brokers.
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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios comprising the Hirtle Callaghan Trust as of
June 30, 1996, and the results of their operations, the changes in their net
assets and their financial highlights for each of the respective periods then
ended, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
August 23, 1996
<PAGE>
