Filing pursuant to Rule 497(e)
for The Hirtle Callaghan Trust
1933 Act File No. 33-87762
1940 Act File No. 811-8918
THE HIRTLE CALLAGHAN TRUST
Supplement to the Statement of Additional Information
dated September 15, 1997.
The date of this Supplement is January 13, 1998
Portfolio Management Agreements
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GSAM serves as an Investment Manager for The Growth Equity Portfolio
pursuant to a contract ("GSAM Agreement") that was approved by the
Board (including the Independent Trustees) on September 12, 1997, and by the
shareholders of The Growth Equity Portfolio on January 12, 1998. The GSAM
Agreement first became effective on October 1, 1997, the day on which
a corresponding portfolio management agreement between the Trust and
Westfield Capital Management was terminated. The GSAM Agreement 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. The terms and
conditions set forth in the GSAM 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 GSAM to indemnify the Trust
under certain circumstances. Specifically, Section 5 of the GSAM Agreement
provides that the indemnification obligation of the portfolio manager with
respect to information provided to the Trust by GSAM 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
SEC and unless the portfolio manager is notified in writing of any claim for
indemnification within specified periods. That section also provides that the
Trust will indemnify the Portfolio Manager with respect to information
included in filings made with the SEC by the Trust, other than information
relating to, and provided in writing by, the Portfolio Manager.
The Board, at its meeting held on November 21, 1997, and the shareholders of
The Growth Equity Portfolio, at a meeting held on January 12, 1997, also
conditionally approved an amendment ("Performance Fee Amendment"). Under the
Performance Fee Amendment, GSAM would be entitled to receive a base fee ("Base
Fee") calculated at the annual rate of .30% (or 30 basis points) of the
average net assets of that portion of the Growth Portfolio's assets assigned
to GSAM ("GSAM Account"). After an initial one year period, the Base Fee
would be increased or decreased at an annual rate of 25% of the net value
added by GSAM over the total return of the Russell 1000 Growth Index plus 30
basis points during the 12 months immediately preceding the calculation date.
This 30 basis point "performance hurdle" is designed to assure that GSAM will
earn a performance adjustment only with respect to the value that its
portfolio management adds to the GSAM Account. GSAM's total compensation
under the Performance Fee Amendment could not exceed 50 basis points with
respect to any 12 month period; the minimum annual fee that would be payable
to GSAM under the amended agreement is 10 basis points. In addition, the
Performance Fee Amendment will not take effect unless and until certain relief
is obtained from the SEC from certain rules adopted by the SEC. The relief
sought would permit the proposed performance compensation to be based on the
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gross performance of that portion of the Portfolio's assets assigned by the
Board to GSAM. There can be no assurance that the SEC will grant such
relief. If the Performance Fee Amendment is implemented, it could increase or
decrease the fee currently payable to GSAM and GSAM could earn a positive
performance adjustment in declining markets if the decline in the total return
of GSAM Account is less than the decline in the total return of the Russell
1000 Growth Index.
An amendment to the Portfolio Management Agreement between
the Trust and Institutional Capital Corporation ("ICAP") was approved by
shareholders of The Value Equity Portfolio on January 12, 1998, and by the
Trust's Board on November 21, 1997. Pursuant to the amendment, the fee payable
to ICAP by The Value Equity Portfolio was increased from .30% of the average
net assets of that portion of the Portfolio managed by ICAP to .35% of such
assets. The amendment first became effective on February 2, 1998.
Other Hedging Instruments
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As permitted under the Investment Company Act, a
Portfolio may invest up to 5% of its net assets in securities of other
investment companies but may not acquire more than 3% of the voting securities
of the investment company. Generally, the Portfolios do not make such
investments. The Growth Equity Portfolio does, however, invest in certain
instruments known as Standard & Poor's Depositary Receipts or "SPDRs" as part
of its overall hedging strategies. Such strategies are designed to reduce
certain risks that would otherwise be associated with the investments in the
types of securities in which the Portfolio invests and/or in anticipation of
future purchases, including to achieve market exposure pending
direct investment in securities, provided that the
use of such strategies are not for speculative purposes and
are otherwise consistent with the investment policies and restrictions adopted
by the Portfolio. SPDRs are interests in a unit investment trust ("UIT") that
may be obtained from the UIT or purchased in the secondary market (SPDRs are
listed on the American Stock Exchange). The UIT will issue SPDRs in
aggregations known as "Creation Units" in exchange for a "Portfolio Deposit"
consisting of (a) a portfolio of securities substantially similar to the
component securities ("Index Securities") of the Standard & Poor's 500
Composite Stock Price Index (the "S&P Index"), (b) a cash payment equal to a
pro rata portion of the dividends accrued on the UIT's portfolio securities
since the last dividend payment by the UIT, net of expenses and liabilities,
and (c) a cash payment or credit, called a "Balancing Amount") designed to
equalize the net asset value of the S&P Index and the net asset value of a
Portfolio Deposit. SPDRs are not individually redeemable, except upon
termination of the UIT. To redeem, the Portfolio must accumulate enough SPDRs
to reconstitute a Creation Unit. The liquidity of small holdings of SPDRs,
therefore, will depend upon the existence of a secondary market. Upon
redemption of a Creation Unit, the Portfolio will receive Index Securities and
cash identical to the Portfolio Deposit required of an investor wishing to
purchase a Creation Unit that day. The price of SPDRs is derived from and
based upon the securities held by the UIT. Accordingly, the level of risk
involved in the purchase or sale of a SPDR is similar to the risk involved in
the purchase or sale of traditional common stock, with the exception that the
pricing mechanism for SPDRs is based on a basket of stocks. Disruptions in
the markets for the securities underlying SPDRs purchased or sold by the Funds
could result in losses on SPDRs. Trading in SPDRs involves risks similar to
those risks involved in the writing of options on securities.
