<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
April 13, 1998
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. 9 [x]
and/or
Registration Statement Under the Investment Company Act of 1940 [x]
Amendment No. 10
(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 Drinker Biddle & Reath
Wayne, PA 19087 1345 Chestnut Street
Philadelphia, PA, 19107-2700
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(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: NA
It is proposed that this filing will become effective (check appropriate box)
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on _______ pursuant to paragraph (a)(1) of rule 485
[ ] 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
[x] on July 16, 1998 pursuant to paragraph (a)(2) of Rule 485
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CROSS REFERENCE SHEET
(Required by Rule 481(a) under the Securities Act of 1933)
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;Investment Objectives
and Policies; Investment
Practices and Risk
Considerations; General
Item 5. Management of the Fund Management of the
Trust
Item 5A. Management Discussion and Analysis [Annual Report]
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
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Part B -- Information required in a Statement Statement of Additional
of Additional Information Heading
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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
Restriction
Item 14. Management of the Registrant Management of the Trust
Item 15. Control Persons and Principal Management of the Trust;
Holders of Securities Performance and Other
Information
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 Data Not Applicable
Item 23. Financial Statements Independent Accountants
and Financial Statements
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.
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THE HIRTLE CALLAGHAN TRUST
575 E. Swedesford Road
Wayne PA 19087
July 1, 1998
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 seven
separate investment portfolios (each a "Portfolio"). Day-to-day portfolio
management services are provided to each of the Trust's 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 seven separate Portfolios, as listed below:
The Value Equity Portfolio seeks total return by investing in equity
securities.
The Growth Equity Portfolio seeks capital appreciation by investing in equity
securities.
The Small Capitalization Equity Portfolio seeks long term capital
appreciation by investing primarily in equity securities of smaller companies.
The International Equity Portfolio seeks total return by investing in a
diversified portfolio of equity securities of non-U.S. issuers.
The Limited Duration Municipal Bond Portfolio seeks a high level of current
income exempt from Federal income tax, consistent with the preservation of
capital by investing primarily in a diversified portfolio of securities issued
by municipalities and related entities. The Portfolio expects to maintain an
overall duration of less than 4 years.
The Fixed Income Portfolio seeks a high level of current income by investing
primarily in a diversified portfolio of debt securities, including U.S. and
non-U.S. government securities, corporate debt securities and asset-backed
issues. The Portfolio expects to maintain a dollar weighted effective average
portfolio maturity of between five and ten years.
The Intermediate Term Municipal Bond Portfolio seeks a high level of current
income exempt from Federal income tax, consistent with the preservation of
capital by investing primarily in securities issued by municipalities and
related entities. The Portfolio expects to maintain a dollar weighted
effective average portfolio maturity of between five and ten years.
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 July 1, 1998, 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 575 E. Swedesford Road, Suite 205, Wayne, PA 19087, (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.
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EXPENSE INFORMATION
Table 1: Shareholder Transaction Expenses: NONE
Table 2: Annual Operating Expenses (as a percentage of average net assets) (1)*
The preceding table of annual operating expenses is designed to assist investors
in understanding expenses borne by investors as shareholders of the Trust,
either directly or indirectly. Except as noted, figures shown reflect actual
expenses incurred during the fiscal year ended June 30, 1997.
Portfolio Portfolio Other Total Portfolio
Management Expenses (1) Operating Expenses
Fees
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Value Equity(2) 0.38% 0.21% 0.59%
Growth Equity 0.35% 0.17% 0.52%
Small Cap Equity (3) 0.44% 0.23% 0.67%
International Equity 0.45% 0.27% 0.72%
Limited Duration
Municipal Bond 0.25% 0.25% 0.50%
Fixed Income (4) 0.33% 0.24% 0.57%
Intermediate Term
Municipal Bond (4) 0.33% 0.21% 0.54%
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(1) The caption "Other Expenses" does not include extraordinary expenses as
determined by the use of generally accepted accounting principles.
Figures shown have been restated to reflect the impact of the
implementation of a revised fee schedule for certain of the Trust's
service providers, had such new schedule been in effect during
the fiscal year ended June 30, 1997.
(2) Effective February 2, 1998, the fee payable to Institutional Capital
Corporation by The Value Equity Portfolio was increased from .30% of
that Portfolio's average net assets to .35% of such assets. Figures
shown have been restated to reflect the impact of this increase, had
it been in effect during the fiscal year ended June 30, 1997.
(3) Effective April 1, 1998, a new investment manager assumed responsibility
for managing a portion of the assets of The Small Capitalization Equity
Portfolio. The fee payable to the new manager is .30% of that Portfolio's
average net assets and represents a reduction in the amount of the fee
payable to the replaced manager. Figures shown have been restated to
reflect the impact of this reduction, had it been in effect during the
fiscal year ended June 30, 1997.
(4) The expense figures for "Management Fees" and "Other Expenses" shown
for this Portfolio are based upon estimated costs and estimated fees
to be charged to the Portfolio during the current fiscal year, taking
into account the projected size of the Portfolio. Actual expenses may
greater of less than such estimates.
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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:
Portfolio 1 Year 3 Years 5 Years 10 Years
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Value Equity $6 $19 $33 $74
Growth Equity $5 $17 $29 $65
Small Cap Equity $7 $21 $37 $83
International Equity $7 $23 $40 $89
Limited Duration
Municipal Bond $5 $16 $28 $63
Fixed Income $6 $18 $32 $71
Intermediate Term
Municipal Bond $6 $17 $30 $68
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The preceding example assumes that all dividends and distributions are
reinvested and that the percentage totals shown in Table 2: "Annual 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.
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios for a share outstanding throughout each
period)
The following information has been audited with respect to the periods ended
June 30, 1996 and June 30, 1997 by Coopers & Lybrand, LLP, the Trust's
independent accountants, whose report thereon appears in the Trust's Annual
Report to Shareholders for the period ended June 30, 1997. The Annual Report
to Shareholders is incorporated by reference in the Trust's Statement of
Additional Information, which is available, without charge, upon request.
Information with respect to the six month period ended December 31, 1997 is
unaudited. No information is presented for the fixed income or Intermediate
Bond Portfolio, of the date of this prospectus, these portfolios have not
commenced operations.
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THE HIRTLE CALLAGHAN TRUST
Financial Highlights
For a share outstanding throughout each period
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
VALUE EQUITY PORTFOLIO GROWTH EQUITY PORTFOLIO
------------------------------------ ------------------------------------
SIX MONTHS YEAR PERIOD SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1996(A) 1997 1997 1996(B)
------------ -------- -------- ------------ -------- --------
Net Asset Value,
Beginning of Period..... $ 14.41 $ 11.48 $ 10.00 $ 13.67 $ 11.13 $ 10.00
-------- -------- ------- -------- -------- --------
Investment Activities
Net investment income... 0.11 0.23 0.22 0.03 0.06 0.04
Net realized and
unrealized gain on
investments
and foreign currency
transactions........... 1.26 3.65 1.51 1.80 2.58 1.13
-------- -------- ------- -------- -------- --------
Total from Investment
Activities............. 1.37 3.88 1.73 1.83 2.64 1.17
-------- -------- ------- -------- -------- --------
Distributions
From net investment
income................. (0.13) (0.21) (0.22) (0.03) (0.05) (0.04)
From net realized
gains.................. (1.20) (0.74) (0.03) (2.40) (0.05) --
In excess of realized
capital gains.......... (0.58) -- -- (0.37) -- --
-------- -------- ------- -------- -------- --------
Total Distributions..... (1.91) (0.95) (0.25) (2.80) (0.10) (0.04)
-------- -------- ------- -------- -------- --------
Net Asset Value, End of
Period.................. $ 13.87 $ 14.41 $ 11.48 $ 12.70 $ 13.67 $ 11.13
======== ======== ======= ======== ======== ========
Total Return............. 9.60%(d) 35.28%(d) 17.28%(d) 13.86%(d) 23.83%(d) 11.69%(d)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $140,089 $117,092 $71,503 $180,232 $160,961 $110,537
Ratio of expenses to
average net assets..... 0.52%(c) 0.63% 0.63%(c) 0.50%(c) 0.55% 0.63%(c)
Ratio of net investment
income to average net
assets................. 1.59%(c) 1.89% 2.55%(c) 0.36%(c) 0.49% 0.46%(c)
Ratio of expenses to
average net assets*.... 0.53%(c) 0.65% 0.68%(c) 0.50%(c) 0.55% 0.68%(c)
Portfolio Turnover
Rate................... 44.23%(d) 97.39% 92.00%(d) 64.44%(d) 80.47% 80.00%(d)
Average commission rate
paid (e)............... $ 0.0345 $ 0.0386 $ -- $ 0.0647 $ 0.0592 $ --
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</TABLE>
* During the period, certain fees were voluntarily reduced. In addition,
certain fees were voluntarily reimbursed. If such voluntary fee reductions
and reimbursements had not occurred, the ratios would have been as
indicated.
(a) For the period August 25, 1995 (commencement of operations) through June
30, 1996.
(b) For the period August 8, 1995 (commencement of operations) through June
30, 1996.
(c) Annualized.
(d) Not annualized
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by the total number of shares purchased and sold by
the Portfolio for which commissions were charged. Disclosure is not
required for prior periods.
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THE HIRTLE CALLAGHAN TRUST
Financial Highlights
For a share outstanding throughout each period
(Unaudited)
SMALL CAPITALIZATION
EQUITY PORTFOLIO
------------------------------------
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1996(A)
------------ -------- --------
Net Asset Value, Beginning of Period.. $ 12.95 $ 11.07 $ 10.00
-------- -------- -------
Investment Activities
Net investment income................ 0.02 0.07 0.10
Net realized and unrealized gain on
investments and foreign currency
transactions........................ 1.50 2.11 1.07
-------- -------- -------
Total from Investment Activities..... 1.52 2.18 1.17
-------- -------- -------
Distributions
From net investment income........... (0.01) (0.07) (0.10)
From net realized gains.............. (0.97) (0.23) --
In excess of realized capital gains.. (0.39) -- --
-------- -------- -------
Total Distributions.................. (1.37) (0.30) (0.10)
-------- -------- -------
Net Asset Value, End of Period........ $ 13.10 $ 12.95 $ 11.07
======== ======== =======
Total Return.......................... 12.05%(c) 19.88%(c) 11.82%(c)
Ratios/Supplementary Data:
Net Assets at end of period (000).... $134,851 $113,480 $61,503
Ratio of expenses to average net
assets.............................. 0.67%(b) 0.78% 0.78%(b)
Ratio of net investment income to
average net assets.................. 0.41%(b) 0.68% 1.33%(b)
Ratio of expenses to average net
assets*............................. 0.67%(b) 0.78% 0.90%(b)
Portfolio Turnover Rate.............. 32.27%(c) 54.16% 38.00%(c)
Average commission rate paid (d)..... $0.0521 $ 0.0528 $ --
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* During the period, certain fees were voluntarily reduced. In addition,
certain fees were voluntarily reimbursed. If such voluntary fee reductions
and reimbursements had not occurred, the ratios would have been as
indicated.
(a) For the period September 5, 1995 (commencement of operations) through June
30, 1996.
(b) Annualized.
(c) Not annualized
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by the total number of shares purchased and sold by
the Portfolio for which commissions were charged. Disclosure is not
required for prior periods.
<PAGE>
<PAGE>
THE HIRTLE CALLAGHAN TRUST
Financial Highlights
For a share outstanding throughout each period
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
LIMITED DURATION MUNICIPAL
INTERNATIONAL EQUITY PORTFOLIO BOND PORTFOLIO
---------------------------------- ---------------------------------
SIX MONTHS YEAR PERIOD SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1996(A) 1997 1997 1996(B)
------------ -------- -------- ------------ -------- --------
Net Asset Value,
Beginning of Period..... $ 12.84 $ 11.26 $ 10.00 $ 10.04 $ 10.00 $ 10.00
-------- -------- ------- ------- ------- -------
Investment Activities
Net investment income.. 0.02 0.22 0.16 0.24 0.48 0.35
Net realized and
unrealized gain on
investments
and foreign currency
transactions.......... (0.87) 1.92 1.35 0.09 0.04 0.01
-------- -------- ------- ------- ------- -------
Total from Investment
Activities............. (0.85) 2.14 1.51 0.33 0.52 0.36
-------- -------- ------- ------- ------- -------
Distributions
From net investment
income................. (0.32) (0.22) (0.24) (0.24) (0.48) (0.36)
In excess of net
investment income...... -- (0.04) -- -- -- --
From realized gains.... (0.11) (0.30) (0.01) -- -- --
In excess of realized
capital gains.......... (0.21) -- -- -- -- --
-------- -------- ------- ------- ------- -------
Total Distributions.... (0.64) (0.56) (0.25) (0.24) (0.48) (0.36)
-------- -------- ------- ------- ------- -------
Net Asset Value, End of
Period.................. $ 11.35 $ 12.84 $ 11.26 $ 10.13 $ 10.04 $ 10.00
======== ======== ======= ======= ======= =======
Total Return............ (6.56%)(e) 19.61% 15.15%(e) 3.31%(e) 5.34% 3.60%(e)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $156,274 $146,122 $77,732 $50,371 $40,963 $29,485
Ratio of expenses to
average net assets..... 0.70%(c) 0.78% 0.81%(c) 0.44%(c) 0.52% 0.53%(c)
Ratio of net investment
income to average net
assets................ 1.24%(c) 1.97% 1.75%(c) 4.70%(c) 4.78% 4.78%(c)
Ratio of expenses to
average net assets*.... 0.70%(c) 0.78% 0.92%(c) 0.51%(c) 0.68% 0.81%(c)
Portfolio Turnover
Rate................... 18.11%(e) 29.85% 15.00%(e) 14.60%(e) 44.57% 116.00%(e)
Average commission rate
paid (d)............... $ 0.0269 $ 0.0254 $ -- $ -- $ -- $ --
- --------
</TABLE>
* During the period, certain fees were voluntarily reduced. In addition,
certain fees were voluntarily reimbursed. If such voluntary fee reductions
and reimbursements had not occurred, the ratios would have been as
indicated.
(a) For the period August 17, 1995 (commencement of operations) through June
30, 1996.
(b) For the period October 10, 1995 (commencement of operations) through June
30, 1996.
(c) Annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by the total number of shares purchased and sold by
the Portfolio for which commissions were charged. Disclosure is not
required for prior periods.
(e) Not annualized.
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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 Equity Portfolios. Each of the Portfolios described below ("Equity
Portfolios") seeks to achieve its investment objective by investing primarily
in equity securities. In general, the prices of equity securities fluctuate
over time and, accordingly, an investment in any of the Equity Portfolios may
be more suitable for long-term investors who can bear the risk of short-term
principal fluctuation. Further information about equity related securities
appears in this prospectus under the heading "Investment Practices and Risk
Considerations: About Equity Securities.
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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 total assets may be invested in
convertible securities; up to 15% of the Portfolio's total assets may be
invested in American Depository Receipts. 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 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
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 total assets may be invested in
convertible securities. In addition, a maximum of 20% of the Portfolio's
total 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
LLC and Goldman Sachs Asset 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 total
assets may be invested in the equity securities of companies with larger
capitalizations. Geewax Terker and Co. and Frontier Capital
Management Company currently serve as Investment Managers for The Small
Capitalization Equity Portfolio.
<PAGE>
<PAGE>
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.
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."
<PAGE>
<PAGE>
The Fixed-Income Portfolios. Each of the Portfolios
described below ("Fixed Income Portfolios")
seeks to achieve its investment objective by investing primarily
in fixed income securities. Morgan Grenfell Capital Management Incorporated
currently serves as Investment Manager for each of these Portfolios. In
selecting fixed income investments (including municipal securities), the
Investment Manager seeks to identify fixed income securities and sectors which
it believes to be undervalued relative to the market and alternative sectors
rather than forecasting changes in the interest rate environment. Fixed
income securities may be undervalued for a variety of reasons, such as market
inefficiencies relating to lack of market information about particular
securities and sectors, supply and demand shifts and lack of market
penetration by some issuers. Further information about investing in fixed
income securities, including the impact of maturity policies on investment
risk, appears in this prospectus in the section entitled "Investment Practices
and Risk Considerations." Relevant subheadings include, "About Fixed Income
Securities," and "About Temporary Investment Practices." Information
relating to the municipal securities in which The Limited Duration Municipal
Bond and the Intermediate Term Municipal Bond Portfolios ("Municipal
Portfolios") invest appears under the heading ""Investment Practices and Risk
Considerations: About Tax-Exempt Securities."
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 debt securities issued by municipalities and related
entities, the interest on which is exempt from regular 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. Although exempt from
regular Federal income tax, dividends paid by the securities in which this
portfolio invests may be tax preference items for purposes of computing Federal
alternative minimum taxes. In order to maintain liquidity or in the event that
the Investment Manager determines that securities meeting the Portfolio's
investment objective and policies are not otherwise readily available for
purchase, the Portfolio is authorized to
invest up to 20% of its total assets in taxable instruments.
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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 VMIG-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
S&P, respectively (or, in the case of securities not rated by these services
or unrated, of comparable quality).
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. Because of its
shorter portfolio maturity, The Limited Duration Municipal Bond Portfolio can
be expected to be less volatile in response to changes in interest rates than
The Intermediate Term Municipal Bond Portfolio. Its yield, however, can also
be expected to be lower than its longer term counterpart.
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The Intermediate Term Municipal Bond Portfolio. The investment objective
of The Intermediate Term Municipal Bond 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 its objective by
investing primarily in a diversified portfolio of Tax-Exempt Securities with
characteristics similar to those in which The Limited Duration Municipal Bond
Portfolio invests, except that the Intermediate Term Municipal Bond Portfolio
expects to maintain a dollar weighted effective average remaining portfolio
maturity of 5 to 10 years. It is a fundamental policy of the Portfolio that,
under normal circumstances, at least 80% of its net assets will be invested in
Tax-Exempt Securities. Although exempt from regular Federal income tax,
dividends paid by the securities in which this Portfolio invests may be tax
preference item for purposes of computing Federal alternative minimum
taxes. The Portfolio is, however, authorized to invest up to 20% of its total
assets in taxable instruments to maintain liquidity or in the event that the
Investment Manager determines that securities meeting the Portfolio's
investment objective and policies are not otherwise readily available for
purchase. Because of its longer portfolio maturity, The Intermediate Term
Municipal Bond Portfolio can be expected to be more volatile in response to
changes in interest rates than The Limited Duration Municipal
Bond Portfolio. Its yield, however, can also be expected to be higher than
its shorter-term counterpart.
The Fixed Income Portfolio. The investment objective of the Fixed Income
Portfolio is to seek a high level of income consistent with the preservation
of capital. The Fixed Income Portfolio expects to maintain a dollar weighted
effective average remaining portfolio maturity of 5 to 10 years, but may
purchase securities with any stated remaining maturity. The Fixed Income
Portfolio will normally invest at least 80% of its net assets in fixed income
securities of all types, including U.S. Government securities; custodial
receipts evidencing interests in such securities; corporate bonds and
debentures; mortgage-backed securities and asset-backed securities; U.S.
dollar denominated securities of foreign governments, their political
subdivisions, agencies or instrumentalities, as U.S. dollar denominated
obligations of supra-national entities; taxable municipal securities, and
state, municipal or private activity bonds; equipment lease and trust
certificates; and repurchase agreements involving any of the foregoing.
Certain of these securities may have floating or variable rates of interest or
include put features that afford their holders the right to sell the security
at face value prior to maturity. Investments in U.S. dollar denominated
securities of non-U.S. issuers will not exceed 25% of its total assets. Under
normal conditions the Fixed Income Portfolio may hold up to 20% of its total
assets in cash or money market instruments in order to maintain liquidity, or
in the event that the Investment Manager determines that securities meeting
the Portfolio's investment objective and policies are not otherwise readily
available for purchase.
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The Fixed Income Portfolio invests primarily in fixed income securities that,
at the time of purchase, are either rated in one of three highest rating
categories assigned by Moody's, S&P or other ratings organizations, or
unrated securities determined by the Investment Manager to be of comparable
quality. However, the Portfolio may also invest up to 15% of its assets in
fixed income securities that are, at the time of purchase, either rated within
the fourth highest rating category assigned by Moody's or S&P, or, if unrated
by these, determined by the Investment Manager to be of comparable quality.
See "About Fixed Income Securities". In the event any security held by the
Fixed Income Portfolio is downgraded below the rating categories set forth
above, the Investment Manager will review the security and determine whether
to retain or dispose of that security. Fixed income securities rated in one of
the four highest ratings categories and unrated securities determined by the
Investment Manager to be of comparable quality are referred herein as
"investment grade fixed income securities." Fixed income securities in the
lowest investment grade category are considered medium grade securities. Such
securities have speculative characteristics, involve greater risk of loss than
higher quality securities, and are more sensitive to changes in the issuer's
capacity to pay.
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. Each of the Equity Portfolios invests primarily in
equity securities. For purposes of the investment policies of these
Portfolios, the term "equity securities" includes total 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 total
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 total 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
"About Fixed Income Securities" in this section of the prospectus for further
information about such organizations 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.
The Small Capitalization Equity Portfolio invests primarily in equity
securities issued by smaller companies, generally with capitalizations of less
than $1.0 billion. Equity securities of smaller companies involve greater risk
than is 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 appears
under the heading "About Illiquid Securities," below.
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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; it may also invest in short-term debt instruments denominated in
foreign currencies under unusual market conditions. The Growth Equity
Portfolio may also invest in non-U.S. equity issues. The Fixed-Income
Portfolio may invest up to 25% of its assets in debt securities of non-U.S.
issuers, which securities may be denominated in U.S. or foreign currencies.
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; 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.
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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 Fixed Income Securities. Each of the Fixed-Income Portfolios invests
primarily in fixed income securities (sometimes referred to as "debt
securities") and the performance of these Portfolios is subject to certain
risks associated with investments in such securities.
Interest rate risk is the risk that the value of an investment will fluctuate
in response to changes in interest rates. Generally, the value of debt
securities will tend to decrease when interest rates rise and increase when
interest rates fall, with shorter term securities generally less sensitive to
interest rate changes than longer term securities. In periods of declining
interest rates, the yield of a Portfolio that invests in fixed income
securities will tend to be higher than prevailing market rates, and in periods
of rising interest rates, the yield of the Portfolio will tend to be lower.
Also, when interest rates are falling, the inflow of net new money to such a
Portfolio will likely be invested in portfolio instruments producing lower
yields than the balance of the Portfolio; in periods of rising interest rates,
the opposite can be true. The net asset value of a Portfolio investing in
fixed income securities can generally be expected to change as general levels
of interest rates fluctuate. The value of fixed income securities held by a
Portfolio generally varies inversely with changes in interest rates. The
market value of fixed income securities with longer effective maturities are
more sensitive to interest rate changes than those with shorter effective
maturities.
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Credit risk is the risk that an issuer (or in the case of certain securities,
the guarantor or counterparty) will be unable to make principal and interest
payments when due. The creditworthiness of an issuer may be affected by a
number of factors including the financial condition of the issuer (or
guarantor) and, in the case of foreign issuers, the financial condition of the
region. Debt securities (including convertible issues) may be rated by one or
more nationally recognized rating organization, such as S&P and Moody's (each
an "NRSRO"). Such ratings represent the judgment of the relevant NRSRO with
regard to the safety of principal and interest payments; they do not, however,
evaluate the risks of fluctuations in market value, are not a guarantee of
quality and may be subject to change even after the Trust has acquired the
security. 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. 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. A summary of the ratings categories of
Moody's and S&P appears in the Appendix to the Statement of Additional
Information.
The creditworthiness of the issuers of fixed-income securities is monitored by
the Investment Manager of the Fixed-Income Portfolios with reference to
ratings, if any, assigned to individual fixed income issues by NRSROs, as well
as other factors deemed relevant to the Investment manager. The Fixed-Income
Portfolios may purchase debt securities that have not been assigned ratings by
an 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.
"When-issued Securities." Fixed-income 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, liquid
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.
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About Taxable Fixed Income Securities. Those instruments in which the Fixed
Income Portfolio may invest include those described below. Further information
is available in the Statement of Additional Information relating to the Trust.
U.S. Government Securities. U.S. Government securities are obligations
issued or guaranteed as to both principal and interest by the U.S. Government,
its agencies, instrumentalities or sponsored enterprises ("U.S. Government
securities"). Some U.S. Government securities, such as U.S. Treasury bills,
notes and bonds, are supported by the full faith and credit of the United
States. Others, such as obligations issued or guaranteed by U.S. Government
agencies or instrumentalities are supported either by (i) the full faith and
credit of the U.S. Government (such as securities of the GNMA), (ii) the
right of the issuer to borrow from the U.S. Treasury (such as securities of
the Federal Home Loan Banks), (iii) the discretionary authority of the U.S.
Government to purchase the agency's obligations (such as securities of the
Federal National Mortgage Association), or (iv) only the credit of the
issuer. Separately traded principal and interest components of securities
guaranteed or issued by the U.S. Government or its agencies, instrumentalities
or sponsored enterprises may also be acquired if such components are traded
independently under the Separate Trading of Registered Interest and Principal
of Securities program ("STRIPS") or any similar program sponsored by the U.S.
Government. STRIPS are sold as zero coupon securities. See "Zero Coupon
Securities."
Custodial Receipts. Custodial Receipts are interests in separately
traded interest and principal component parts of U.S. Government securities
that are issued by banks or brokerage firms and are created by depositing U.S.
Government securities into a special account at a custodian bank. The
custodian holds the interest and principal payments for the benefit of the
registered owners of the certificates or receipts. The custodian arranges for
the issuance of the certificates or receipts evidencing ownership and
maintains the register. Custodial receipts include Treasury Receipts ("TRs"),
Treasury Investment Growth Receipts ("TIGRs"), and Certificates of Accrual on
Treasury Securities ("CATS"). TIGRs and CATS are interests in private
proprietary accounts while TRs and STRIPS (see "U.S. Government Securities"
above) are interests in accounts sponsored by the U.S. Treasury. Receipts are
sold as zero coupon securities; for more information, see "Zero Coupon
Securities."
Zero Coupon Securities. STRIPS and custodial receipts (TRs, TIGRs and
CATS) are sold as zero coupon securities, that is, fixed income securities
that have been stripped of their unmatured interest coupons. Zero Coupon
Securities are sold at a (usually substantial) discount and redeemed at face
value at their maturity date without interim cash payments of interest or
principal. The amount of this discount is accreted over the life of the
security, and the accretion constitutes the income earned on the security for
both accounting and tax purposes. Because a Portfolio must distribute the
accreted amounts in order to qualify for favorable tax treatment, it may have
to sell portfolio securities to generate cash to satisfy the applicable
distribution requirements. As a result of these features, the market prices
of zero coupon securities are generally more volatile than the market prices
of securities that have similar maturity but that pay interest periodically.
Zero coupon securities are likely to respond to a greater degree to interest
rate changes than are non-zero coupon securities with similar maturity and
credit qualities.
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Mortgage-Backed and Asset-Backed Securities. Mortgage-backed securities
represent direct or indirect participation in, or are collateralized by and
payable from, mortgage loans secured by real property. Mortgage-backed
securities in which The Fixed Income Portfolio may invest include those issued
or guaranteed by U.S. Government agencies or instrumentalities such as the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation("FHLMC").
The Portfolio may also invest in mortgage-backed securities issued by
non-governmental entities, including collateralized mortgage obligations
("CMOs") and real estate mortgage investment conduits ("REMICS").
Asset-backed securities represent participation in, or are secured by and
payable from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property and
receivables from revolving credit (credit card) agreements and other
categories or receivables. Such securities are generally issued by trusts and
special purpose corporations. Asset-backed securities present certain risks
that are not presented by mortgage-backed securities because asset-backed
securities generally do not have the benefit of a security interest in
collateral that is comparable to mortgage assets. In addition, there is the
possibility that, in some cases, recoveries on repossessed collateral may not
be available to support payments on these securities. Many mortgage and
asset-backed securities may be considered derivative instruments.
Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans.
Accordingly, the market values of such securities will vary with changes in
market interest rates generally and in yield differentials among various kinds
of U.S. Government securities and other mortgage-backed and asset-backed
securities. For example, during periods of declining interest rates,
prepayment of loans underlying mortgage-backed and asset-backed securities can
be expected to accelerate, and thus impair a Portfolio's ability to reinvest
the returns of principal at comparable yields. In periods of rising interest
rates, however, the rate at which the underlying mortgages are pre-paid is
likely to be reduced. As a result, the effective maturity and volatility of
the mortgaged-backed security involved would increase, as would the value of
the security itself. Under unusual circumstances, the ability of a Portfolio
to dispose of such mortgage or asset-backed issues could be impaired.
Mortgage Dollar Rolls. The Fixed Income Portfolio may enter into
mortgage "dollar rolls." This transaction involved the sale of securities by
the Portfolio for delivery in the current month and a simultaneous contract to
repurchase substantially similar (same type, coupon and maturity) securities
on a specified future date. During the roll period, the Portfolio forgoes
principal and interest paid on the securities. The Portfolio is compensated,
however, by the difference between the current sales price and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income and by the interest earned on the cash proceeds of the initial sale. A
"covered roll" is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position that matures
on or before the forward settlement date of the dollar roll transaction. The
Portfolio may enter into both covered and uncovered rolls.
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Municipal Securities. The Fixed Income Portfolio may, consistent with
its investment policies, invest in the types of municipal securities listed
below under the heading "Tax-Exempt Securities." Unlike the Municipal
Portfolios, The Fixed Income Portfolio may acquire municipal securities
without regard to whether the interest paid on any such security is exempt from
regular Federal income tax.
Foreign Government Securities. The foreign government securities in
which The Fixed Income Portfolio may invest generally consist of debt
obligations issued or guaranteed by national, state or provincial governments
or similar political subdivisions. Foreign government securities also include
debt obligations of supranational or quasi-governmental entities.
Quasi-governmental and supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and international banking institutions
and related government agencies. Examples include the International Bank for
Reconstruction and Development (the "World Bank"), the Japanese Development
Bank, the Asian Development Bank and the InterAmerican Development Bank.
Foreign government securities also include mortgage-related securities issued
or guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies. Investment in debt obligations of a
government, its agencies or instrumentalities involve the risks associated
with any investment in debt securities as well as the risks associated with an
investment in foreign securities, as described above. In addition,
investments in foreign government securities involve the risk that the
governmental entity may not be willing or able to repay the principal and/or
interest when due in accordance with the terms of such debt. A governmental
entity's ability or willingness to repay principal and interest due in a
timely manner may be affected by, among other factors, its cash flow
situation, the availability of sufficient foreign exchange on the date a
payment is due, the extent of its foreign reserves, the relative size of the
debt service burden to the economy as a whole and the political constraints to
which a governmental entity may be subject.
About Tax-Exempt Securities. Each of the Municipal Portfolios intends to
invest substantially all of its assets in Tax-Exempt Securities, including
municipal bonds, notes and related instruments. As previously noted, dividends
paid by the Tax-Exempt securities in which the Municipal Portfolios primarily
invest are exempt from regular Federal income tax but may tax preference items
for purposes of computed Federal alternative tax. 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. 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 municipal 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."
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The Municipal Portfolios 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.
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 Municipal
Portfolios. 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 Portfolios 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 Portfolios 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 Portfolios, the Portfolios may pay for such
commitments at the time the underlying security is acquired.
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About Temporary Investment Practices. It is the intention of the Trust 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 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. Such securities are referred to in this prospectus as U.S.
Government Securities and are described above under the heading "About Taxable
Fixed-Income Securities: U.S. Government Securities". The portfolios may also
invest repurchase agreements secured by U.S Government Securities or repurchase
agreements secured by such securities, or short-term money market instruments
of other issuers, including 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 the short-term money market instruments of other
issuers noted above; in the case of the International Portfolio, such
investments may be 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, 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).
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About Hedging Strategies. Each of the Portfolios may engage in certain
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 and to gain market exposure pending direct
investment in securities. 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, International
Equity and Fixed Income 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. In
addition, The International Equity Portfolio and The Fixed Income 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 these Portfolios 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. The Portfolios may not use
Hedging Instruments 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 exchange 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 counter
party 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 counter
party to enter into a closing transaction.
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About Other Permitted Instruments. Each of the Portfolios may borrow money
from 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, liquid
obligations, maturing not 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.
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, which are listed on the American Stock Exchange, are
interests in a unit investment trust ("UIT") that may be obtained from the UIT
or purchased in the secondary market. Further information about these and
other derivative instruments is contained in the Statement of Additional
Information.
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MANAGEMENT OF THE TRUST
The Board of Trustees. The Trust's 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 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
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
committee and no person has primary responsibility for making recommendations
to the committee. Brinson had discretionary assets of approximately $142
billion under management as of December 31, 1997. 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.
Geewax, Terker and Co. ("Geewax"), a Pennsylvania partnership and registered
investment adviser, serves as an Investment Manager for The Small Capitalization
Equity Portfolio. For its services to the Portfolio, Geewax 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%. The principal offices of
Geewax are located at 99 Starr Road, Phoenixville, PA 19160. John Geewax
has been a general partner of the firm since its founding in 1982.
Mr. Geewax, who holds an MBA and JD from the University of Pennsylvania,
is primarily responsible for making day-to-day investment decisions for
that portion of the Portfolio's assets assigned to Geewax. He is supported
by Christopher P. Ouimet. Mr. Ouimet, who holds an MBA from St. Joseph's
University, joined Geewax 1994. Prior to that, Mr. Ouimet was at The
Vanguard Group as a quantitative analyst from 1992 to 1994, and as a marketing
analyst from 1990 to 1992. As of February 28, 1998, Geewax managed assets of
approximately $2,871 million, of which approximately $288 million represented
assets of mutual funds. Geewax is controlled by Mr. Geewax and Bruce Terker,
the firm's general partners.
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Hotchkis and Wiley ("Hotchkis") serves 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 assets 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
March 31, 1998, Hotchkis and Wiley managed total assets of approximately
$14.2 billion, of which approximately $3.6 billion represented 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 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 of March 31,
1998, approximately $3.9 billion in assets under management, of which
approximately $111 million represented assets of mutual funds.
Goldman Sachs Asset Management ("GSAM") serves as Investment Manager for the
Growth Equity Portfolio. For its services to the Portfolio, GSAM currently
receives a fee of 0.30%. The firm's principal offices of which are located at
One New York Plaza, New York, New York 10004, is a separate operating division
of Goldman Sachs. As of February 28 1998, GSAM, together with its affiliates,
managed total assets of in excess of $148 billion. Robert C. Jones, Victor
Pinter and Kent Clark will be responsible for making day-to-day investment
decisions for that portion of The Growth Equity Portfolio allocated to GSAM.
Mr. Jones, a chartered financial analyst and Managing Director of GSAM has
been an officer and investment professional with GSAM since 1989. Mr. Pinter
and Mr. Clark, each of whom is a Vice President of GSAM, joined GSAM in 1990
and 1992, respectively. GSAM is a separate operating subsidiary of Golman
Sachs & Co.
The Trust has conditionally approved an amendment to the GSAM Agreement
("Performance Fee Amendment"). Under the Performance Fee Amendment, GSAM would
be compensated based, in part, on the investment results achieved by it.
Implementation of the Performance Fee Amendment, however, is subject to receipt
of certain assurances from the staff of the SEC that such implementation will
not be viewed by the SEC staff as inconsistent with the requirements of the
Investment Advisers Act. There can be no assurance that such relief will be
granted by the SEC. If the Performance Fee Amendment is implemented, it could,
under certain circumstances, increase or decrease the fee paid to GSAM, when
compared to the current fixed fee arrangement and could result in the payment
of incentive compensation during periods of declining markets. Further
information about the Performance Fee Amendment appears in the Statement
of Additional Information.
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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 0.35%. 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
$12.2 billion under management as of March 31, 1998, of which approximately
$2.3 billion represented assets of mutual funds.
Jennison Associates LLC ("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
March 31,1998, Jennison had approximately $41.8 billion under management, of
which approximately $8.0 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, The
Intermediate Term Municipal Bond Portfolio and The Fixed Income Portfolio. For
its services to each of the Intermediate Term Municipal Bond Portfolio and the
Fixed Income Portfolio, Morgan Grenfell receives, based of the average daily
net assets value of each such portfolio an annual fee of 0.275% . For its
services to the Limited Duration Municipal Bond Portfolio, Morgan Grenfell
receives a fee of .20% of the average net asset value of that Portfolio..
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, an Executive Vice-President of Morgan Grenfell is
primarily responsible for making the day-to-day investment decisions for each
of the Trust's Fixed-Income Portfolios. Mr. Baldt has managed fixed income
investments since 1973, and has been with Morgan Grenfell since 1989. As of
September 30, 1997, Morgan Grenfell managed assets of approximately $11.8
billion, of which approximately $2.5 billion represented assets of mutual
funds. Morgan Grenfell is an indirect, wholly-owned subsidiary of
Deutschebank, A.G., a German financial services conglomerate.
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 August
31, 1997, had approximately $1.6 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.
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Administration, Distribution, and Related Services. BISYS Fund Services, L.P.
("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. 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. For its services, BISYS
receives a single all-inclusive fee ("Omnibus Fee"). The Omnibus
Fee is computed daily and paid monthly in arrears, at an annual rate of
.10% of the aggregate average daily net assets of the Value Equity, Growth
Equity, Small Capitalization Equity and International Equity Portfolios and of
any additional portfolios that invest primarily in equity securities that may
be created by the Trust in the future, and .08% of the aggregate average daily
net assets of the Limited Duration Municipal Bond, Fixed Income and
Intermediate Term Municipal Bond Portfolios and of any additional portfolios
that invest primarily in debt securities that may be created in the future by
the Trust.
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 record keeping services to and through
banking and other financial organizations. Affiliates of BISYS also serve as
the Trust's distributor. Bankers Trust Company has been retained by the Trust
to serve as custodian for the assets of each of the Portfolios.
Expenses. The Trust pays all expenses incurred in its operation, other than
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; the Omnibus fee payable to BISYS for
administration, transfer agency and portfolio accounting services; 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.
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PURCHASES AND REDEMPTIONS
General Information About Purchases. Shareholder accounts in the Trust may be
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, Martin Luther
King, Jr. 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.
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.
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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
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.
<PAGE>
<PAGE>
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
Trustees. 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,
Intermediate Term Municipal Bond and Fixed Income Portfolios will declare and
distribute 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 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 for
tax purposes 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.
<PAGE>
<PAGE>
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. 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 exempt from
regular Federal income taxes dividends such as those expected to be paid by the
Municipal Portfolios), 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; the rate at which such gains will be taxed,
however will depend on the length of time the Portfolio held the assets that
generated the gain. 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 Municipal Portfolios) 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.
Tax Matters Relating to the Municipal Portfolios. As a matter of fundamental
policy, The Limited Duration Municipal Bond and The Intermediate Term
Municipal Bond Portfolios intend 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 the purpose of calculating the
shareholder's regular Federal income taxes. Under certain circumstances,
however, receipt of exempt-interest dividends may be relevant to shareholders
in determining their tax liability. Exempt interest dividends paid by the
Municipal Portfolios, 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 such 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 Municipal Portfolios 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. Also, 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.
<PAGE>
<PAGE>
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.
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 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 Municipal
Portfolios 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.
<PAGE>
<PAGE>
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 1000 Growth Stock Index, and the Morgan Stanley Capital
International Europe, Australia, Far East Index ("EAFE").
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 seven 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.
The Trust is authorized to issue two classes of shares in each of its
portfolios. Class A shares and Class B shares have identical rights and
preferences; the only difference between the two classes is that each has
established a separate CUSIP number, which aids those investment managers
whose clients purchase shares of the Trust in tracking information relating to
their clients' accounts.
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 communications in such matters.
Like other financial and business organizations, the Trust could be adversely
affected if the computer systems upon which the Trust relies do not properly
process date-related information and data involving the years 2000 and after.
The Board is taking steps to evaluate the potential impact of this
on the Trust and to obtain assurance from each of the Trust's service
providers, including each of the several Investment Managers responsible
for making investment decisions for the Trust's portfolios,
that each such organization is taking all steps reasonably necessary assure
that their systems are able to process date-related information
for years after 1999. At this time, however, there can be no assurance that
these steps will be sufficient to avoid any impact on the Trust.
<PAGE>
<PAGE>
THE HIRTLE CALLAGHAN TRUST
TABLE OF CONTENTS
Expense Information
Financial Highlights
Investment Objectives and Policies
The Equity Portfolios
The Value Equity Portfolio
The Growth Equity Portfolio
The Small Capitalization Equity Portfolio
The International Equity Portfolio
The Fixed-Income Portfolios
The Limited Duration Municipal Bond Portfolio
The Intermediate Term Municipal Bond Portfolio
The Fixed Income Portfolio
Investment Practices and Risk Considerations
About Equity Securities
About Foreign Securities
About Fixed Income Securities
About Taxable Fixed Income 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").
The Trust is 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 July 1, 1998. A copy of that prospectus
is available by contacting the Trust at 610-254-9596.
<TABLE>
<CAPTION>
Statement of Additional Information Heading PAGE Corresponding Prospectus Heading
- ------------------------------------------- ---- --------------------------------
<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 ("SEC") under the Securities Act of
1933. Copies of the registration statement may be obtained at a reasonable
charge from the SEC or may be examined, without charge, at its offices in
Washington, D.C.
The Trust's Annual Report to Shareholders dated June 30, 1997 and
Semi-annual Report dated December 31, 1997 accompany this
Statement of Additional Information and are incorporated by reference herein.
The date of this Statement of Additional Information is July 1, 1998.
<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 trustees 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 51 Chairman of the Board of For more than the past five years,
Trustees and President Principal, Hirtle Callaghan & Co., Inc.
Ross H. Goodman 50 Trustee For more than the past five years,
Mr. Goodman has been Vice
President of American Industrial
Management & Sales, Inc.
*Jonathan J. Hirtle 45 Trustee For more than the past five years,
Principal, Hirtle Callaghan & Co., Inc.
Jarrett Burt Kling 55 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 limited partnerships)
since 1983.
*David M. Spungen 36 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, III 59 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 36 Vice President and Treasurer Mr. Zion is a Principal of Hirtle
Callaghan, and has been
employed by that firm
for more than the last
five years.
Laura Anne Corsell, Esq. 49 Secretary Ms. Corsell is an attorney in
7307 Elbow Lane private practice. From 1989
Philadelphia, PA 19119 through 1994, Ms. Corsell was
associated with the law firm of
Ballard Spahr Andrews and
Ingersoll, as counsel.
*Indicates a Trustee who is an "interested person" of the Trust within the
meaning of the Investment Company Act.
</TABLE>
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 SEC, shows the aggregate
compensation received from the Trust by each of the Independent Trustees
during the fiscal year ending June 30, 1997 (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 $3000.00 $0.0 $0.0 $3000.00
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 shares of the respective Portfolios of the Trust.
During the fiscal year ended June 30, 1997, Ms. Corsell received fees for
legal services rendered to the Trust (including related out-of-pocket
expenses) of $49,324.00.
<PAGE>
<PAGE>
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; that agreement was last approved by the Trust's Board on May 6, 1997.
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 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.
Portfolio Management Contracts. 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. Each
contract governs the relationship between the IM named in the contract and the
specific portfolio served by that merger. Such contracts and the portfolios to
which they are related are:
The Value Equity Portfolio Hotchkis and Wiley ("Hotchkis")
Institutional Capital Corporation ("ICAP")
The Growth Equity Portfolio Jennnison Associates LLC ("Jennison")
Goldman Sachs Asset Management ("GSAM")
The Small Capitalization
Equity Portfolio Geewax, Terker and Co. ("Geewax")
Frontier Capital Management Company ("Frontier")
The International
Equity Portfolio Brinson Partners, Inc. ("Brinson")
The Limited Duration
Municipal Bond Portfolio Morgan Grenfell Capital
Management Incorporated ("Morgan Grenfell")
The Intermediate Term
Municipal Bond Portfolio Morgan Grenfell
The Fixed Income Portfolio Morgan Grenfell
<PAGE>
<PAGE>
The Initial Contracts.
- ---------------------
Certain of these Portfolio Management Contracts have been in effect and
unchanged since the inception of the Trust. These Portfolio Management Contracts
(collectively the "Initial Contracts") are those between the Trust and
Jennison, Frontier and Brinson, as well as the contracts between Morgan Grenfell
and The Limited Duration Municipal Bond Portfolio. Each of the Initial 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 agreement was last approved by the
Trust's Board on May 6, 1997, and again on May 5, 1998. Each such contract
will remain in effect from year to year so long as such
continuation is approved, at a meeting called to vote 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 Initial 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 Initial 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 1995 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.
The Subsequent Agreements.
- -------------------------
The remaining Portfolio Management Contracts, each of
which first became effective after the Trust commenced operations (collectively
the " Subsequent Contracts") are the agreements between the Trust and
Hotchkis, Geewax and GSAM, as well as those between the Trust and
Morgan Grenfell relating to The Fixed Income and Intermediate Term Municipal
Bond Portfolios, respectively.
The agreement between Hotchkis and the Trust relating to The Value Equity
Portfolio ("Hotchkis Agreement") 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 Agreement first became
effective on November 12, 1996. The Hotchkis 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.
<PAGE>
<PAGE>
The terms and conditions set forth in the Hotchkis Agreement
are identical to those contained in the Initial 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 SEC 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. 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 by 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.
The agreement between ICAP and the Trust relating to The Value Equity
Portfolio ("ICAP Agreement") was first approved by the Trust's initial
shareholder on July 21, 1995, and by the Board on July 20, 1995.
An amendment to the ICAP Agreement 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. The ICAP Agreement, as
amended, was last approved by the Board of Trustees and by the Board on May
5, 1998. The terms and conditions of the ICAP Agreement are identical to those
of the Initial Contracts.
The agreement between GSAM and the Trust relating to The Growth Equity
Portfolio ("GSAM Agreement") 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
<PAGE>
<PAGE>
Agreement first became effective on October 1, 1997. 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, 1998, 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
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 the GSAM Account is less than the decline in the total return of the Russell
1000 Growth Index.
The Agreement between Geewax and the Trust relating to The Small Capitalization
Portfolio ("Geewax Agreement")was first approved by a majority of the Board,
including a majority of the Independent Trustees at a special meeting of the
Board held on March 18, 1998. The Geewax Agreement became effective as
permitted under Rule 15a-4 of the Investment company Act, on April 1, 1998.
Shareholders of The Small Capitalization Portfolio approved the Geewax Agreement
at a meeting held on June 15, 1998.
The Geewax Agreement will remain in effect until the second anniversary
of its effective date, 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
Geewax Agreement are identical to those contained in the Initial
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<PAGE>
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 Geewax to indemnify the Trust under
certain circumstances. Specifically, Section 5 of the Geewax Agreement
provides that the indemnification obligation of the portfolio manager with
respect to information provided to the Trust by Geewax 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 SEC and unless the portfolio manager is notified in writing of
any claim for indemnification within specified periods.
The agreements between Morgan Grenfell and the Trust relating to The Fixed
Income and Intermediate Term Municipal Bond Portfolios were first
approved by a majority of the Board, including a majority
of the Independent Trustees at a held on November 4, 1997 and by the initial
shareholder of such portfolios on May 5, 1998. Each such agreement first became
effective July 1, 1998. The Agreements between Morgan Grenfell
and the Trust relating to The Fixed Income and the
Intermediate Term Municipal Bond Portfolios will remain in effect until
until the second anniversary of each, and will continue in effect
thereafter from 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 these
agreements are identical to those contained in the Initial 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 Morgan Grenfell to indemnify the Trust under
certain circumstances. Specifically, Section 5 of the Morgan Grenfell Agreement
provides that the indemnification obligation of the portfolio manager with
respect to information provided to the Trust by Morgan Grenfell 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 SEC and unless the portfolio manager is notified in writing of
any claim for indemnification within specified periods.
Investment Advisory Fees. For the fiscal year ended June 30, 1997, Hirtle
Callaghan received advisory fees from each of the Portfolios, calculated at an
annual rate of .05%, as follows: The Value Equity Portfolio, $44,605; The
Growth Equity Portfolio, $ 65,417; The Small Capitalization Portfolio,
$41,020; The International Equity Portfolio, $52,703; and The Limited
Duration Municipal Bond Portfolio, $16,428. For 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 foregoing figures
reflect voluntary expense reimbursements by Hirtle Callaghan to the Small
Capitalization and Limited Duration Portfolios of $24,082 and $36,701,
respectively for the year ended June 30, 1996.
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The following table sets forth the investment advisory fee received from the
specified Portfolio by each of its respective Investment Managers during the
fiscal years ended June 30, 1997 and June 30, 1996, respectively:
<TABLE>
<CAPTION>
Actual Fee Paid for
Investment Manager Portfolio Advisory Fee Rate (1) fiscal year ended
1997 1996
- ----------------- --------- ----------------- ---------------------
<S> <C> <C> <C>
Institutional Value Equity .30% of average $150,281 $ 94,103
Capital Corporation net assets (2)
Hotchkis and Wiley (3) Value Equity .30% of average $118,592 -0-
net assets
Jennison Associates LLC Growth Equity .30% of average $210,125 $102,397
net assets
Westfield Capital Growth Equity .30% of average $179,941 $102,030
Management Co. (4) net assets
Clover Capital Small Cap .45% of average $185,827 $86,448
Management, Inc.(5) net assets
Frontier Capital Small Cap .45% of average $187,263 $66,017
Management Co. net assets
Brinson Partners International .40% of average $424,428 $195,488
net assets
Morgan Grenfell Limited .20% of average $64,927 $30,513
Capital Management Duration net assets
Incorporated (6)
- -------------------
(1) Rate shown applies to that portion of the indicated portfolio's assets
allocated to the specified Investment Manager.
(2) The fee payable to ICAP by The Value Equity Portfolio was increased .35%
of that portion of the average daily net assets of The Value Equity Portfolio
managed by ICAP. Such increase first became effective on February 2, 1998.
(3) Effective July 29, 1996, Hotchkis and Wiley replaced Cowen Asset
Management. For the fiscal year ended June 30, 1996, The Growth Equity
Portfolio paid advisory fees to Cowen Asset Management in the amount of
$51,954 of that portfolio's average net assets.
(4) Effective October 1, 1997, Goldman Sachs Asset Management replaced
Westfield Capital Management, Inc. GSAM received compensation from the Trust
with respect to the period from October 1, 1997 and ended December 31, 1997
of $45,563.54.
(5) Effective April 1, 1998, Geewax, Terker & Co. replaced Clover Capital
Management, Inc. Geewax received no compensation from the Trust during the periods
reflected in the table above.
(6) No information is provided for the Fixed Income Portfolio or the
Intermediate Term Municipal Bond Portfolio, neither of which had commenced
operations during the periods reflected in the table above.
</TABLE>
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<PAGE>
Other Matters. 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 compensation
for serving as the distributor of the Trust's shares. Pursuant to separate
agreements, BISYS has also, since January 1, 1997, provided administrative and
other services for the Trust; these services and relevant agreements are
described in the Trust's prospectus. For the fiscal year ended June 30, 1997,
BISYS received for such services, fees from each of the Portfolios, as
follows: The Value Equity Portfolio, $89,565; The Growth Equity Portfolio, $
130,138; The Small Capitalization Portfolio, $41,020; The International
Equity, Portfolio, $52,703; and The Limited Duration Municipal Bond Portfolio,
$31,952 (all of which was voluntarily waived by BISYS).
FURTHER INFORMATION ABOUT THE TRUST'S INVESTMENT POLICIES
As stated in the prospectus, the Trust currently consists of seven portfolios,
each with its own investment objectives and policies. These portfolios are
The Value Equity, Growth Equity, Small Capitalization Equity and International
Equity Portfolios (collectively, the "Equity Portfolios") and The Fixed
Income, Limited Duration Municipal Bond and Intermediate Municipal Bond
Portfolios (collectively, the "Fixed-Income Portfolios").
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
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 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 the 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.
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<PAGE>
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 short-term variable rate instruments (including floating rate
instruments) from banks and other issuers. In addition, each of the Income
Portfolios may purchase longer-term variable and floating rate instruments in
furtherance of the investment objectives of the respective Income
Portfolios. 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 value that
approximates its par value. These instruments may include variable amount
master demand notes that permit the indebtedness to vary in addition to
providing for periodic adjustments in the interest rates.
Variable rate instruments are generally not rated by nationally recognized
ratings organizations (each, an "NRSRO"). The appropriate Investment Manager
will consider the earning power, cash flows and other liquidity ratios of the
issuers and guarantors of such instruments and, if the instrument is subject
to a demand feature, will continuously monitor their financial ability to meet
payment on demand. Where necessary to ensure that a variable or floating rate
instrument is equivalent to the quality standards applicable to a Portfolio's
fixed income investments, the issuer's obligation to pay the principal of the
instrument will be backed by an unconditional bank letter or line of credit,
guarantee or commitment to lend. Any bank providing such a bank letter, line
of credit, guarantee or loan commitment will meet the Portfolio's investment
quality standards relating to investments in bank obligations. A Portfolio
will invest in variable and floating rate instruments only when the
appropriate Investment Manager deems the investment to involve minimal credit
risk. The Investment Manager will also continuously monitor the
creditworthiness of issuers of such instruments to determine whether a
Portfolio should continue to hold the investments.
The absence of an active secondary market for certain variable and floating
rate notes could make it difficult to dispose of the instruments, and a
Portfolio could suffer a loss if the issuer defaults or during periods in
which a Portfolio is not entitled to exercise its demand rights. Variable and
floating rate instruments held by a Portfolio will be subject to the
Portfolio's limitation on investments in illiquid securities when a reliable
trading market for the instruments does not exist and the Portfolio may not
demand payment of the principal amount of such instruments within seven days. 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.
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<PAGE>
Custodial Receipts. The Fixed Income Portfolio may acquire U.S. Government
Securities and their unmatured interest coupons that have been separated
("stripped") by their holder, typically a custodian bank or investment
brokerage firm. Having separated the interest coupons from the underlying
principal of the U.S. Government Securities, the holder will resell the
stripped securities in custodial receipt programs with a number of different
names, including "Treasury Income Growth Receipts" ("TIGRs") and "Certificate
of Accrual on Treasury Securities" ("CATS"). The stripped coupons are sold
separately from the underlying principal, which is usually sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. The underlying U.S. Treasury bonds and notes themselves are
generally held in book-entry form at a Federal Reserve Bank. Counsel to the
underwriters of these certificates or other evidences of ownership of U.S.
Treasury securities have stated that, in their opinion, purchasers of the
stripped securities most likely will be deemed the beneficial holders of the
underlying U.S. Government Securities for federal tax and securities purposes.
In the case of CATS and TIGRs, the Internal Revenue Service ( the "IRS") has
reached this conclusion for the purpose of applying the tax diversification
requirements applicable to regulated investment companies such as the
Portfolios. CATS and TIGRs are not considered U.S. Government Securities by
the staff of the Commission. Further, the IRS conclusion noted above is
contained only in a general counsel memorandum, which is an internal document
of no precedential value or binding effect, and a private letter ruling, which
also may not be relied upon by the Portfolios. The Trust is not aware of any
binding legislative, judicial or administrative authority on this issue.
When-Issued Securities. As noted in the prospectus, Fixed Income Securities
may 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.
Municipal Securities. As stated in the prospectus, The Limited Duration
Municipal Bond Portfolio and The Intermediate Term Municipal Bond Portfolio
(collective, the "Municipal Portfolios"), and to a lesser extent, The Fixed
Income Portfolio, may invest in municipal securities. Municipal securities
consist of bonds, notes and other instruments issued by or on behalf of states,
territories and possessions of the United States (including the district of
Columbia) and their political subdivisions, agencies or instrumentalities,
the interests on which is exempt from regular federal tax. Municipal
securities may also be issued on a taxable basis.
The two principal classifications of municipal securities are "general
obligations" and "revenue obligations." General obligations are secured by the
issuer's pledge of its full faith and credit for the payment of principal and
interest although the characteristics and enforcement of general obligations
may vary according to law applicable to the particular issuer. Revenue
obligations, which include, but are not limited to, private activity bonds,
resource recovery bonds, certificates of participation and certain municipal
notes, are not backed by the credit and taxing authority of the issuer and are
payable solely from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Nevertheless, the obligations of the issuers with
respect to "general obligations" and/or "revenue obligations. may be backed by
a letter of credit, guarantee or insurance. General obligations and revenue
obligations may be issued in a variety of forms, including commercial paper,
fixed, variable and floating rate securities, tender option bonds, auction
rate bonds and capital appreciation bonds. In addition to general obligations
and revenue obligations, there is a variety of hybrid and special types of
municipal securities. There are also numerous differences in the credit
backing of municipal securities both within and between these two principal
classifications. For the purpose of applying a Portfolio's investment
restrictions, the identification of the issuer of a municipal security which
is not a general obligation is made by the appropriate Investment Manager
based on the characteristics of the municipal security, the most important of
which is the source of funds for the payment of principal and interest on such
securities.
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<PAGE>
An entire issue of municipal securities may be purchased by one or a small
number of institutional investors such as a Portfolio. Thus, the issue may not
be said to be publicly offered. Unlike some securities that are not publicly
offered, a secondary market exists for many municipal securities that were not
publicly offered initially and such securities can be readily marketable. The
obligations of an issuer to pay the principal of and interest on a municipal
security are subject to the provisions of bankruptcy, insolvency and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Act, and laws, if any, that may be enacted by Congress or state
legislatures extending the time for payment of principal or interest or
imposing other constraints upon the enforcement of such obligations. There is
also the possibility that, as a result of litigation or other conditions, the
power or ability of the issuer to pay when due principal of or interest on a
municipal security may be materially affected.
Municipal Leases, Certificates of Participation and Other Participation
Interests. Municipal leases frequently involve special risks not normally
associated with general obligation or revenue bonds, some of which are
summarized in the prospectus. In addition, leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased
asset to pass eventually to the governmental issuer) have evolved as a means
for governmental issuers to acquire property and equipment without meeting the
constitutional and statutory requirements for the issuance of debt. The debt
issuance limitations are deemed to be inapplicable because of the inclusion in
many leases or contracts of "non-appropriation" clauses that relieve the
governmental issuer of any obligation to make future payments under the lease
or contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. Thus, a Portfolio's
investment in municipal leases will be subject to the special risk that the
governmental issuer may not appropriate funds for lease payments. In
addition, such leases or contracts may be subject to the temporary abatement
of payments in the event the issuer is prevented from maintaining occupancy of
the leased premises or utilizing the leased equipment. Although the
obligations may be secured by the leased equipment or facilities, the
disposition of the property in the event of nonappropriation or foreclosure
might prove difficult, time consuming and costly, and result in an
unsatisfactory or delayed recoupment of a Portfolio's original investment.
Certificates of participation represent undivided interests in municipal
leases, installment purchase contracts or other instruments. The certificates
are typically issued by a trust or other entity which has received an
assignment of the payments to be made by the state or political subdivision
under such leases or installment purchase contracts.
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Certain municipal lease obligations and certificates of participation may be
deemed illiquid for the purpose of the Portfolios' respective limitations on
investments in illiquid securities. Other municipal lease obligations and
certificates of participation acquired by a Portfolio may be determined by the
appropriate Investment Manager, pursuant to guidelines adopted by the Trustees
of the Trust, to be liquid securities for the purpose of such Portfolio's
limitation on investments in illiquid securities. In determining the liquidity
of municipal lease obligations and certificates of participation, the
appropriate Investment Manager will consider a variety of factors including:
(1) the willingness of dealers to bid for the security; (2) the number of
dealers willing to purchase or sell the obligation and the number of other
potential buyers; (3) the frequency of trades or quotes for the obligation;
and (4) the nature of the marketplace trades. In addition, the appropriate
Investment Manager will consider factors unique to particular lease
obligations and certificates of participation affecting the marketability
thereof. These include the general creditworthiness of the issuer, the
importance to the issuer of the property covered by the lease and the
likelihood that the marketability of the obligation will be maintained
throughout the time the obligation is held by a Portfolio. No Portfolio may
invest more than 5% of its net assets in municipal leases. Each of the Income
Portfolios may purchase participations in municipal securities held by a
commercial
bank or other financial institution. Such participations provide a
Portfolio with the right to a pro rata undivided interest in the underlying
municipal securities. In addition, such participations generally provide a
Portfolio with the right to demand payment, on not more than seven days
notice, of all or any part of the Portfolio's participation interest in the
underlying municipal security, plus accrued interest.
Municipal Notes. Municipal securities in the form of notes generally are
used to provide for short-term capital needs, in anticipation of an issuer's
receipt of other revenues or financing, and typically have maturities of up to
three years. Such instruments may include Tax Anticipation Notes, Revenue
Anticipation Notes, Bond Anticipation Notes, Tax and Revenue Anticipation
Notes and Construction Loan Notes. Tax Anticipation Notes are issued to
finance the working capital needs of governments. Generally, they are issued
in anticipation of various tax revenues, such as income, sales, property, use
and business taxes, and are payable from these specific future taxes. Revenue
Anticipation Notes are issued in expectation of receipt of other kinds of
revenue, such as federal revenues available under federal revenue sharing
programs. Bond Anticipation Notes are issued to provide interim financing
until long-term bond financing can be arranged. In most cases, the long-term
bonds then provide the funds needed for repayment of the notes. Tax and
Revenue Anticipation Notes combine the funding sources of both Tax
Anticipation Notes and Revenue Anticipation Notes. Construction Loan Notes are
sold to provide construction financing. These notes are secured by mortgage
notes insured by the Federal Housing Authority; however, the proceeds from the
insurance may be less than the economic equivalent of the payment of principal
and interest on the mortgage note if there has been a default. The obligations
of an issuer of municipal notes are generally secured by the anticipated
revenues from taxes, grants or bond financing. An investment in such
instruments, however, presents a risk that the anticipated revenues will not
be received or that such revenues will be insufficient to satisfy the issuer's
payment obligations under the notes or that refinancing will be otherwise
unavailable.
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Tax-Exempt Commercial Paper. Issues of tax-exempt commercial paper
typically represent short-term, unsecured, negotiable promissory notes. These
obligations are issued by state and local governments and their agencies to
finance working capital needs of municipalities or to provide interim
construction financing and are paid from general revenues of municipalities or
are refinanced with long-term debt. In most cases, tax-exempt commercial paper
is backed by letters of credit, lending agreements, note repurchase agreements
or other credit facility agreements offered by banks or other institutions.
Pre-Refunded Municipal Securities. The principal of and interest on
municipal securities that have been pre-refunded are no longer paid from the
original revenue source for the securities. Instead, after pre-refunding the
source of such payments is typically an escrow fund consisting of obligations
issued or guaranteed by the U.S. Government. The assets in the escrow fund are
derived from the proceeds of refunding bonds issued by the same issuer as the
pre-refunded municipal securities. Issuers of municipal securities use this
advance refunding technique to obtain more favorable terms with respect to
securities that are not yet subject to call or redemption by the issuer. For
example, advance refunding enables an issuer to refinance debt at lower market
interest rates, restructure debt to improve cash flow or eliminate restrictive
covenants in the indenture or other governing instrument for the pre-refunded
municipal securities. However, except for a change in the revenue source from
which principal and interest payments are made, the pre-refunded municipal
securities remain outstanding on their original terms until they mature or are
redeemed by the issuer. Pre-refunded municipal securities are usually
purchased at a price which represents a premium over their face value.
Tender Option Bonds. A tender option bond is a municipal security
(generally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than
prevailing short-term tax-exempt rates. The bond is typically issued in
conjunction with the agreement of a third party, such as a bank, broker-dealer
or other financial institution, pursuant to which such institution grants the
security holders the option, at periodic intervals, to tender their securities
to the institution and receive the face value thereof.
As consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the bond's fixed coupon rate and
the rate, as determined by a remarketing or similar agent at or near the
commencement of such period, that would cause the securities, coupled with the
tender option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand obligation
that bears interest at the prevailing short-term tax-exempt rate. However, an
institution will not be obligated to accept tendered bonds in the event of
certain defaults or a significant downgrade in the credit rating assigned to
the issuer of the bond. The liquidity of a tender option bond is a function of
the credit quality of both the bond issuer and the financial institution
providing liquidity. Tender option bonds are deemed to be liquid unless, in
the opinion of the appropriate Investment Manager, the credit quality of the
bond issuer and the financial institution is deemed, in light of the
Portfolio's credit quality requirements, to be inadequate. Each Municipal
Portfolio intends to invest only in tender option bonds the interest on which
will, in the opinion of bond counsel, counsel for the issuer of interests
therein or counsel selected by the appropriate Investment Manager, be exempt
from regular federal income tax. However, because there can be no assurance
that the IRS will agree with such counsel's opinion in any particular case,
there is a risk that a Municipal Portfolio will not be considered the owner of
such tender option bonds and thus will not be entitled to treat such interest
as exempt from such tax. Additionally, the federal income tax treatment of
certain other aspects of these investments, including the proper tax treatment
of tender option bonds and the associated fees, in relation to various
regulated investment company tax provisions is unclear. Each Municipal
Portfolio intends to manage its portfolio in a manner designed to eliminate or
minimize any adverse impact from the tax rules applicable to these
investments.
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Auction Rate Securities. Auction rate securities consist of auction rate
municipal securities and auction rate preferred securities issued by
closed-end investment companies that invest primarily in municipal securities.
Provided that the auction mechanism is successful, auction rate securities
usually permit the holder to sell the securities in an auction at par value at
specified intervals. The dividend is reset by "Dutch" auction in which bids
are made by broker-dealers and other institutions for a certain amount of
securities at a specified minimum yield. The dividend rate set by the auction
is the lowest interest or dividend rate that covers all securities offered for
sale. While this process is designed to permit auction rate securities to be
traded at par value, there is the risk that an auction will fail due to
insufficient demand for the securities.
Dividends on auction rate preferred securities issued by a closed-end fund may
be designated as exempt from federal income tax to the extent they are
attributable to tax-exempt interest income earned by the fund on the
securities in its portfolio and distributed to holders of the preferred
securities, provided that the preferred securities are treated as equity
securities for federal income tax purposes and the closed-end fund complies
with certain requirements under the Internal Revenue Code of 1986, as amended
(the "Code"). For purposes of complying with the 20% limitation on each
Municipal Portfolio's investments in taxable investments, auction rate
preferred securities will be treated as taxable investments unless
substantially all of the dividends on such securities are expected to be
exempt from regular federal income taxes.
A Portfolio's investments in auction rate preferred securities of closed-end
funds are subject to limitations on investments in other U.S. registered
investment companies, which limitations are prescribed by the 1940 Act. These
limitations include prohibitions against acquiring more than 3% of the voting
securities of any other such investment company, and investing more than 5% of
the Portfolio's assets in securities of any one such investment company or
more than 10% of its assets in securities of all such investment companies. A
Portfolio will indirectly bear its proportionate share of any management fees
paid by such closed-end funds in addition to the advisory fee payable directly
by the Portfolio.
Private Activity Bonds. Certain types of municipal securities, generally
referred to as industrial development bonds (and referred to under current tax
law as private activity bonds), are issued by or on behalf of public
authorities to obtain funds for privately-operated housing facilities,
airport, mass transit or port facilities, sewage disposal, solid waste
disposal or hazardous waste treatment or disposal facilities and certain local
facilities for water supply, gas or electricity. Other types of industrial
development bonds, the proceeds of which are used for the construction,
equipment, repair or improvement of privately operated industrial or
commercial facilities, may constitute municipal securities, although the
current federal tax laws place substantial limitations on the size of such
issues. The interest from certain private activity bonds owned by a Portfolio
(including a Municipal Portfolio's distributions attributable to such
interest) may be a preference item for purposes of the alternative minimum
tax.
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Mortgage-Backed Securities. As stated in the Prospectus, The Fixed Income
Portfolio may invest in mortgage-backed securities, including derivative
instruments. Mortgage-backed securities represent direct or indirect
participations in or obligations collateralized by and payable from mortgage
loans secured by real property. A Portfolio may invest in mortgage-backed
securities issued or guaranteed by U.S. Government agencies or
instrumentalities such as the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC"). Obligations of GNMA are backed by
the full faith and credit of the U.S. Government. Obligations of FNMA and
FHLMC are not backed by the full faith and credit of the U.S. Government but
are considered to be of high quality since they are considered to be
instrumentalities of the United States. The market value and yield of these
mortgage-backed securities can vary due to market interest rate fluctuations
and early prepayments of underlying mortgages. These securities represent
ownership in a pool of Federally insured mortgage loans with a maximum
maturity of 30 years. The scheduled monthly interest and principal payments
relating to mortgages in the pool will be "passed through" to investors.
Government mortgage-backed securities differ from conventional bonds in that
principal is paid back to the certificate holders over the life of the loan
rather than at maturity. As a result, there will be monthly scheduled payments
of principal and interest.
Only The Fixed Income Portfolio may invest in mortgage-backed securities
issued by non-governmental entities including collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs").
CMOs are securities collateralized by mortgages, mortgage pass-throughs,
mortgage pay-through bonds (bonds representing an interest in a pool of
mortgages where the cash flow generated from the mortgage collateral pool is
dedicated to bond repayment), and mortgage-backed bonds (general obligations
of the issuers payable out of the issuers' general funds and additionally
secured by a first lien on a pool of single family detached properties). Many
CMOs are issued with a number of classes or series which have different
maturities and are retired in sequence. Investors purchasing such CMOs in the
shortest maturities receive or are credited with their pro rata portion of the
unscheduled prepayments of principal up to a predetermined portion of the
total CMO obligation. Until that portion of such CMO obligation is repaid,
investors in the longer maturities receive interest only. Accordingly, the
CMOs in the longer maturity series are less likely than other mortgage
pass-throughs to be prepaid prior to their stated maturity. Although some of
the mortgages underlying CMOs may be supported by various types of insurance,
and some CMOs may be backed by GNMA certificates or other mortgage
pass-throughs issued or guaranteed by U.S. Government agencies or
instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs are private entities formed for the purpose of holding a fixed pool of
mortgages secured by an interest in real property. REMICs are similar to CMOs
in that they issue multiple classes of securities, including "regular"
interests and "residual" interests. The Portfolios do not intend to acquire
residual interests in REMICs under current tax law, due to certain
disadvantages for regulated investment companies that acquire such
interests.
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Mortgage-backed securities are subject to unscheduled principal payments
representing prepayments on the underlying mortgages. Although these
securities may offer yields higher than those available from other types of
securities, mortgage-backed securities may be less effective than other types
of securities as a means of "locking in" attractive long-term rates because of
the prepayment feature. For instance, when interest rates decline, the value
of these securities likely will not rise as much as comparable debt securities
due to the prepayment feature. In addition, these prepayments can cause the
price of a mortgage-backed security originally purchased at a premium to
decline in price to its par value, which may result in a loss.
Due to prepayments of the underlying mortgage instruments, mortgage-backed
securities do not have a known actual maturity. In the absence of a known
maturity, market participants generally refer to an estimated average life.
The appropriate Investment Manager believes that the estimated average life is
the most appropriate measure of the maturity of a mortgage-backed security.
Accordingly, in order to determine whether such security is a permissible
investment, it will be deemed to have a remaining maturity of three years or
less if the average life, as estimated by the appropriate Investment Manager,
is three years or less at the time of purchase of the security by a Portfolio.
An average life estimate is a function of an assumption regarding anticipated
prepayment patterns. The assumption is based upon current interest rates,
current conditions in the appropriate housing markets and other factors. The
assumption is necessarily subjective, and thus different market participants
could produce somewhat different average life estimates with regard to the
same security. Although the appropriate Investment Manager will monitor the
average life of the portfolio securities of each Portfolio with a portfolio
maturity policy and make needed adjustments to comply with such Portfolios'
policy as to average dollar weighted portfolio maturity, there can be no
assurance that the average life of portfolio securities as estimated by the
appropriate Investment Manager will be the actual average life of such
securities.
Asset-Backed Securities. As stated in the Prospectus, the Fixed Income
Portfolio may invest in asset-backed securities, which represent
participations in, or are secured by and payable from, pools of assets
including company receivables, truck and auto loans, leases and credit card
receivables. The asset pools that back asset-backed securities are securitized
through the use of privately-formed trusts or special purpose corporations.
Payments or distributions of principal and interest may be guaranteed up to
certain amounts and for a certain time period by a letter of credit or a pool
insurance policy issued by a financial institution unaffiliated with the trust
or corporation, or other credit enhancements may be present. Certain asset
backed securities may be considered derivative instruments. As stated in the
Prospectus, no Portfolio will invest 25% or more of its total assets in
asset-backed securities.
Foreign Government Securities. The foreign government securities in which The
Fixed Income Portfolio may invest generally consist of debt obligations issued
or guaranteed by national, state or provincial governments or similar
political subdivisions. The Portfolio may invest in foreign government
securities
in the form of American Depositary Receipts. Foreign government securities
also include debt securities of supranational entities. Currently, the Fixed
Income Portfolio intends to invest only in obligations issued or guaranteed by
the Asian Development Bank, the Inter-American Development Bank, the
International Bank for Reconstruction and Development (the "World Bank"), the
African Development Bank, the European Coal and Steel Community, the European
Economic Community, the European Investment Bank and the Nordic Investment
Bank. Foreign government securities also include mortgage-related securities
issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies.
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Commercial Paper. Commercial paper is a short-term, unsecured negotiable
promissory note of a U.S. or non-U.S. issuer. Each of the Portfolios may
purchase commercial paper for temporary purposes; the Fixed-Income Portfolios
may acquire these instruments as described in the Prospectus. Each Portfolio
may
similarly invest in variable rate master demand notes which typically are
issued by large corporate borrowers and which provide for variable amounts of
principal indebtedness and periodic adjustments in the interest rate. Demand
notes are direct lending arrangements between a Portfolio and an issuer, and
are not normally traded in a secondary market. A Portfolio, however, may
demand payment of principal and accrued interest at any time. In addition,
while demand notes generally are not rated, their issuers must satisfy the
same criteria as those that apply to issuers of commercial paper. The
appropriate Investment Manager will consider the earning power, cash flow and
other liquidity ratios of issuers of demand notes and continually will monitor
their financial ability to meet payment on demand. See also Variable and
Floating Rate Instruments," above.
Bank Obligations. Each of the Portfolios may purchase certain bank obligations
for temporary purposes;the Fixed-Income Portfolios may acquire these
instruments as described in the Prospectus. Such instruments may include
certificates of deposit, time deposits and bankers' acceptances. Certificates
of Deposit ("CDs") are short-term negotiable obligations of commercial banks.
Time Deposits ("TDs") are non-negotiable deposits maintained in banking
institutions for specified periods of time at stated interest rates. Bankers'
acceptances are time drafts drawn on commercial banks by borrowers usually in
connection with international transactions. U.S. commercial banks organized
under federal law are supervised and examined by the Comptroller of the
Currency and are required to be members of the Federal Reserve System and to
be insured by the Federal Deposit Insurance Corporation (the "FDIC"). U.S.
banks organized under state law are supervised and examined by state banking
authorities but are members of the Federal Reserve System only if they elect
to join. Most state banks are insured by the FDIC (although such insurance may
not be of material benefit to a Portfolio, depending upon the principal amount
of CDs of each bank held by the Portfolio) and are subject to federal
examination and to a substantial body of federal law and regulation. As a
result of governmental regulations, U.S. branches of U.S. banks, among other
things, generally are required to maintain specified levels of reserves, and
are subject to other supervision and regulation designed to promote financial
soundness. U.S. savings and loan associations, the CDs of which may be
purchased by the Portfolios, are supervised and subject to examination by the
Office of Thrift Supervision. U.S. savings and loan associations are insured
by the Savings Association Insurance Portfolio which is administered by the
FDIC and backed by the full faith and credit of the U.S. Government.
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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, including to achieve market exposure, pending direct investment
in securities. 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 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. 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.
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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. 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.
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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. 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.
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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 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.
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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.
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 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.
<PAGE>
<PAGE>
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 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 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.
When selling a put option on a futures contract, the Portfolio will similarly
maintain cash, U.S. Government securities, or other highly liquid 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.
<PAGE>
<PAGE>
HEDGING THROUGH THE USE OF CURRENCY RELATED INSTRUMENTS.
As indicated in the prospectus, The Growth Equity 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 and The Fixed Income Portfolio may, consistent with
their respective 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
and The Fixed Income Portfolio are 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 and The Fixed Income 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 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.
<PAGE>
<PAGE>
Forward Foreign Currency Exchange Contracts. The Growth Equity and Fixed
Income Portfolios 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 securities held by the Portfolio that are 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 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.
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<PAGE>
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.
Other Hedging Instruments. 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.
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.
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.
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<PAGE>
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
Portfolio'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
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.
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.
<PAGE>
<PAGE>
The following investment restrictions (10 through 11) reflect policies that
have been adopted by the Trust, but which are not fundamental and may be
changed by the Trust's Board, without shareholder vote.
A Portfolio may not:
10. 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.
11. Invest in securities of other investment companies except as permitted
under the Investment Company Act.
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 SEC or such Exchange is closed for other than
weekends and holidays; (b) an emergency exists as determined by the SEC making
disposal of portfolio securities or valuation of net assets of the Trust not
reasonably practicable; or for such other period as the SEC may permit for the
protection of the Trust's shareholders.
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
<PAGE>
<PAGE>
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.
The table below reflects the aggregate dollar amount of brokerage commissions
paid by each of the portfolios of the Trust paid the during the fiscal years
indicated.
Portfolio Aggregate Brokerage Commissions
for the Fiscal Years ended
1997 1996
- ----------------- ----------- -------------
[S] [C] [C]
Value Equity $179,053 $137,963
Growth Equity 258,337 238,948
Small Cap 227,730 147,928
International Equity 250,705 144,359
Limited Duration -0- -0-
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 served as the Trust's principal underwriter prior to January 1, 1997)
by the Portfolios during the fiscals years shown. In addition, transactions
placed through Goldman Sach & Co. (of which Goldman Sachs Asset Management
is a separate operating division) by each of the Portfolios for the period
October 1, 1997 through December 31, 1997 are also shown. 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. "NA" indicates that during
the relevant period, indicated broker was not considered an affiliate of the
specified Portfolio.
<TABLE>
<CAPTION>
Affiliated Portfolio
Broker 1 -------------------------------------------------------
For Value For Growth For Small For Int'l For Limited
Equity Equity Cap Equity Equity Duration
1997 1996 1997 1996 1997 1996 1997 1996 1997 1996
- --------- ------------ --------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cowen & Co.(2)
% of commissions -0- 34% -0- .02% -0- -0- -0- -0- -0- -0-
% of transactions -0- .94% -0- .05% -0- -0- -0- -0- -0- -0-
Prudential
Securities(3)
% of commissions NA NA 1.36 1.45% NA NA NA NA NA NA
% of transactions NA NA 1.38% .70% NA NA NA NA NA NA
Merrill Lynch & Co.(4)
% of commissions .80% NA 2.21% NA 1.51% NA 2.08% NA -0- NA
% of transactions .61% NA 5.47% NA 1.56% NA 2.74% NA -0- NA
Furman Selz LLC(5)
% of commissions -0- -0- -0- 4.20% -0- -0- -0- -0- -0- -0-
% of transactions -0- -0- -0- 1.26% -0- -0- -0- -0- -0- -0-
Goldman Sachs & Co.(6)
% of commissions 9.5% NA .4% NA -0- NA 4.90% NA NA NA
% of transactions 16.5% NA 3% NA -0- NA 3.67% NA NA NA
- -------
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<PAGE>
1. 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, and
with respect to the Income Portfolios, companies
affiliated with Deutchebank, the parent company of Morgan Grenfell Capital
Management Incorporated. No brokerage transactions were
affected through such companies during the periods reflected in the
above table by the relevant Portfolios.
2. Cowen Asset Management, which served as an Investment Manager of The Value
Equity Portfolio prior to August 1, 1996, is a division of Cowen & Co.
3. Both Prudential Securities and Jennison Associates LLC
Corp., which serves as an Investment Manager of The Value Equity Portfolio,
are wholly-owned subsidiaries of Prudential Insurance Company of America.
4. Figures shown include all brokers affiliated with Merrill Lynch & Co.
Merrill Lynch Asset Management, LLP, ("MLAM") of which Hotchkis and Wiley
is a division. MLAM is a wholly, indirect subsidiary of Merrill Lynch & Co.
5. Furman Selz LLC served as the Trust's principal underwriter
prior to January 1, 1997.
6. Effective October 1, 1997, Goldman Sachs Asset Management served as a
Investment Manager of the Growth Equity Portfolio. GSAM is a separate
operating division of Goldman Sachs & Co.
</TABLE>
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 SEC. 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.
Portfolio Turnover. Changes may be made in the holdings of any of the
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, 1997 were: for the Value Equity Portfolio, 97.30%; for the
Growth Equity Portfolio, 80.47%; for the Small Capitalization Equity
Portfolio, 54.16%; for the International Portfolio, 29.85% and for the Limited
Duration Municipal Bond Portfolio, 44.57%. The portfolio turnover rates for
the portfolios for the period beginning with the commencement of the
respective portfolio's operations and ending on June 30, 1996, were as
follows: for the Value Equity Portfolio, 92.00%; for the Growth Equity
Portfolio, 80.00%; for the Small Capitalization Equity Portfolio, 38.00%;
and for the International Portfolio, 15.00%.
The portfolio turnover rate for the Limited Duration Municipal
Bond Portfolio for the same period was 116.00%. This rate is
due to the fact that securities may be sold by the Investment Manager
in order to adjust the overall duration or average effective of the
overall portfolio. The portfolio turnover rate for The Fixed Income
and Intermediate Term Municipal Bond Portfolios is similarly expected
to exceed 100%.
<PAGE>
<PAGE>
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. 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
distribute substantially all of its net investment income and net realized
capital gains, if any. The Value Equity Portfolio, The Growth Equity
Portfolio and The Small Capitalization Equity Portfolios will declare and
distribute dividends from net investment income on a quarterly basis. The
Limited Duration Municipal Bond Portfolio, The Intermediate Municipal Bond
Portfolio and the Fixed-Income 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.
Tax Information. Each of the Trust's Portfolios is treated as a separate
entity 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.
<PAGE>
<PAGE>
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, regardless of the length of time the
investor has owned shares in the portfolio. The rate at which such gains will
be taxed, however, will depend on the length of time the Portfolio held the
assets that generated the 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.
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.
<PAGE>
<PAGE>
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 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, or will elect to mark-to-market and
recognize ordinary income each year with respect to any such investments.
PERFORMANCE AND OTHER 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
<PAGE>
<PAGE>
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.
The table below shows the name 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 March 31, 1998. 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 62.9% 74.6% 81.9% 60.0% 84.8%
1 Bankers Trust Plaza
New York, N.Y. 10006
PNC Bank, N.A. -- -- -- 17.2% 7.0%(1)
P.O. Box 7780-1888
Philadelphia, PA 19182
Northern Trust Company 88.0% 7.1% 5.6% -- 6.6%%
P.O. Box 92956
Chicago, IL 60675
- ----------------------------
(1) Shares held FBO Diamond Investments, Ltd.
</TABLE>
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Coopers and Lybrand, LLP, serves as the Trust's independent accountants.
The Trust's financial statements as of June 30, 1997, have been audited by
Coopers and Lybrand, LLP, whose address is 2400 Eleven Penn Center,
Philadelphia, PA 19103. Such statements 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.
The Trust's financial statements for the six month period ended December 31,
1997, which are unaudited, are included in the Trust's Semi-Annual Report to
Shareholders. That report likewise accompanies this Statement of Additional
Information and is incorporated by reference herein.
<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
Financial Highlights
(b) Included in Part B of the Registration Statement:
Audited Financial Statements and related report for
the fiscal year ended June 30, 1997
INCORPORATED BY REFERENCE IN THIS FILING [See Item 12 below]
(c) Auditors' Consent FILED HEREWITH [See Item 11 below]
(b) Exhibits:
(1)(a)Certificate of Trust filed on December 15, 1994 with the
Secretary of State of Delaware.
Incorporated herein by reference to corresponding item
contained in Post-Effective amendment No. 7 filed on January
2, 1998.
(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) Investment Advisory Agreements
(a) Consulting Agreement between the Trust and Hirtle,
Callaghan & Co., Inc.
Incorporated herein by reference to corresponding item
contained in Post-Effective amendment No. 7 filed on January
2, 1998.
(b)(1) Portfolio Management Contract between the
Trust and Institutional Capital Corporation related to the
Value Equity Portfolio.
Incorporated herein by reference to corresponding item
contained in Post-Effective amendment No. 7 filed on January
2, 1998
(b)(2) Amendment to the Portfolio Management Contract between
Trust and Institutional Capital Corporation related to the
Value Equity Portfolio.
FILED HEREWITH
(c) Portfolio Management Contract between the Trust and
Hotchkis and Wiley related to the Value Equity Portfolio.
(Incorporated herein by reference to Item 5(c)(A-B) i
n Post-effective Amendment No. 3, filed with the Commission
on October 18, 1996.)
(d) Portfolio Management Contracts between the Trust and Goldman
Sachs Asset Management and Jennison Associates LLC
related to the Growth Equity Portfolio.
Incorporated herein by reference to corresponding item
contained in Post-Effective amendment No. 7 filed on January
2, 1998.
(e) Portfolio Management Contract between the Trust and
Frontier Capital Management Co. related to
The Small Capitalization Equity Portfolio.
Incorporated herein by reference to corresponding item
contained in Post-Effective amendment No. 7 filed on January
2, 1998.
<PAGE>
<PAGE>
(f) Portfolio Management Contract between the Trust and Brinson
Partners, Inc. related to the International Equity Portfolio.
Incorporated herein by reference to corresponding item
contained in Post-Effective amendment No. 7 filed on January
2, 1998.
(g) Portfolio Management Contract between the Trust and Morgan
Grenfell Capital Management Inc. related to the Limited
Duration Municipal Bond Portfolio.
Incorporated herein by reference to corresponding item
contained in Post-Effective amendment No. 7 filed on January
2, 1998.
(h) Portfolio Management Contract between the Trust and Morgan
Grenfell Capital Management Inc. related to the Fixed Income
Portfolio.
Incorporated herein by reference to corresponding item
contained in Post-Effective amendment No. 7 filed on January
2, 1998.
(i) Portfolio Management Contract between the Trust and Morgan
Grenfell Capital Management Inc. related to the Intermediate
Term Portfolio.
Incorporated herein by reference to corresponding item
contained in Post-Effective amendment No. 7 filed on January
2, 1998.
(j) Portfolio Management Contract between the Trust and Geewax,
Terker and Co.
FILED HEREWITH
(6) 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 corresponding item
contained in Post-Effective amendment No. 7 filed on January
2, 1998.
(9) Registrant's Agreements with BISYS Fund Services
(i) Amendment to Administration Agreement
(ii) Amendment to Transfer Agency Agreement
(iii) Amendment to 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) Omnibus Fee Agreement.
Incorporated herein by reference to corresponding item
contained in Post-Effective amendment No. 7 filed on January
2, 1998.
(10) Opinion of Counsel and related consent.
FILED HEREWITH
(11) Consent of Accountants.
FILED HEREWITH
(12)(i) Audited Financial Statements
(Incorporated herein by reference to
filing made by Registrant on September 10, 1997, with the
Securities and Exchange Commission, pursuant to Rule 30(d)
under Investment Company Act of 1940.)
(12)(ii) Unaudited Financial Statement for the six months ended
December 31, 1997
(Incorporated herein by reference to
filing made by Registrant on March 4, 1998 with the
Securities and Exchange Commission, pursuant to Rule 30(d)
under Investment Company Act of 1940.)
(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
FILED HEREWITH
(27) Financial Data Schedules (Rule 483 under the Securities
Act of 1933) Schedule filed with the Securities
and Exchange Commission, together with Registrant's
Semi-annual report to Shareholders, on March 4, 1998
pursuant to Rule 30(d) under Investment Company Act of 1940.)
Item 25. Persons Controlled by or Under Common Control with Registrant.
--------------------------------------------------------------
None.
Item 26. Number of Holders of Securities.
--------------------------------
Title of Class Number of Record Holders
as of March 31, 1998
Units of beneficial
interest, par value $.001 The Value Equity Portfolio 90
The Growth Equity Portfolio 76
The Small Capitalization Equity 76
Portfolio
The International Equity Portfolio 97
The Limited Duration Municipal
Bond Portfolio 10
The Fixed Income Portfolio -0-
The Intermediate Term Portfolio -0-
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>
<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:
Investment Manager SEC File No. 801- ADV Item No.
- ------------------------------------------------------------------------------
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 LLC 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)
Goldman Sachs Asset Management 16048 Part I (8, 10 & 12)
Part II (6 - 9, 13)
Geewax Terker & Co. 16965 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)
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:
American Performance Funds
Am South Mutual Funds
The ARCH Fund, Inc.
The BB&T Mutual Fund, Inc.
The Coventry Group
ESC Strategic funds, Inc.
Fountain Square Funds
HBSC Family of funds
The Infinity Mutual Funds, Inc.
INTRUST Funds Trust
The Kent Funds
Magna Funds
Meyers Investment Trust
MMA Praxis Mutual Funds
M.S.D.& T. Funds
Pacific Capital Funds
Parkstone Group of Funds
Parkstone Advantage Fund
Pegasus Funds
The Republic Funds Trust
The Republic Advisors funds Trust
The Riverfront Funds, Inc.
SBSF Funds, Inc. (dba Key Mutual Funds)
Sefton Funds
The Sessions Group
Summit Investment Trust Variable Insurance funds
The Victory Portfolios
Vintage Mutual Funds, Inc.
(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 Stelzer 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, 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
- ------------------------------------------
Geewax Terker & Co.. 99 Starr Street
Phoenixville, PA 19460
Frontier Capital Management 99 Summer Street
Company Boston, MA 02110
The Value Equity Portfolio
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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:
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Jennison Associates LLC 466 Lexington Ave.
New York, NY 10017
Goldman Sachs Asset Management 85 Broad Street
New York, NY 10004
The Limited Duration Municipal Bond Portfolio
The Fixed Income Portfolio
The Intermediate Term Municipal Bond Portfolio:
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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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 9 to be signed on its behalf by the undersigned,
thereto duly authorized in the City of Wayne, and the Commonwealth of
Pennsylvania on April 13, 1998.
THE HIRTLE CALLAGHAN TRUST
BY:/s
---------------------------
Donald E. Callaghan
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.
/s Treasurer and Vice-President April 13, 1998
------------------------- (Principal Financial Officer)
Robert Zion
/s Trustee April 13, 1998
-------------------------
Donald E. Callaghan
Trustee* April 13, 1998
-------------------------
Richard W. Wortham, III
/s Trustee* April 13, 1998
-------------------------
Ross H. Goodman
/s Trustee* April 13, 1998
-------------------------
Jarrett Burt Kling
Trustee April 13, 1998
-------------------------
David M. Spungen
/s Trustee April 13, 1998
-------------------------
Jonathan J. Hirtle
* signed by Donald E. Callaghan, pursuant to powers of attorney
dated February 3, 1998 and filed as Exhibits to this Post-effective
Amendment No. 9.
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Exhibit 1 -- Exhibit List
(1) Exhibit List
(2) Amendment to Portfolio Management Contract between the Trust and
Institutional Capital Corporation related to the Value Equity
Portfolio.
(3) Portfolio Management Contract between the Trust and Geewax Terker
and Co. related to the Small Capitalization Equity
Portfolio.
(4) Auditors Consent
(5) Opinion of Counsel and related consent
(6) Powers of Attorney
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Exhibit 2 -- Amendment to Portfolio Management Agreement
AMENDMENT of January 12, 1998, to that certain Portfolio Management
Agreement dated August 15, 1995, ("Agreement") between Institutional Capital
Corporation ("Portfolio Manager") and The Hirtle Callaghan Trust, a Delaware
business trust ("Trust").
WHEREAS, the Trust has retained the Portfolio Manager to provide to a
continuous program of investment management for a portion of the assets of The
Value Equity Portfolio of the Trust ("Account") pursuant to the Agreement and
the parties have agreed to increase the rate at which the advisory fee
payable to the Portfolio Manager for its services is calculated;
NOW THEREFORE, in consideration of the promises and covenants set forth herein
and intending to be legally bound hereby, it is agreed between the parties as
follows:
1. The Agreement shall be amended by deleting paragraph 4 of the Agreement
in its entirety and substituting therefor the following:
Expenses and Compensation.
Portfolio Manager shall pay all of its expenses incurred in the performance of
its duties under this Agreement and shall not be required to pay any other
expenses of the Trust, including without limitation, brokerage expenses. For
its services under this Agreement, Portfolio Manager shall be entitled to
receive a fee at the annual rate of .35% of the average daily net asset value
of the Account, which fee shall be payable monthly.
2. This Amendment shall become effective as of the first business day of
the month following the date on which the shareholders of The Value Equity
Portfolio shall have approved this Amendment in accordance with the provisions
of the Investment Company Act of 1940 by the Board of Trustees of the Trust
and by the shareholders of The Value Equity Portfolio.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their officers thereunto duly authorized as of the day and year
first written above.
Institutional Capital Corporation
By: _______________________
Title: _______________________
The Hirtle Callaghan Trust
By: _______________________
Title: _______________________
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Exhibit 3 -- Contract with Geewax Terker & Co.
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 1st day of April, 1998, between Geewax, Terker
& Co., a Pennsylvania partnership ("Portfolio Manager") and THE HIRTLE
CALLAGHAN TRUST, a Delaware business trust ("Trust").
WHEREAS, the Trust is registered as an open-end, diversified, management
series investment company under the Investment Company Act of 1940, as amended
("Investment Company Act") which currently offers seven series of beneficial
interests ("shares") representing interests in separate investment portfolios,
and may offer additional portfolios in the future; and
WHEREAS, the Trust desires to retain the Portfolio Manager to provide a
continuous program of investment management for The Small Capitalization
Equity Portfolio of the Trust ("Portfolio") and Portfolio Manager is willing,
in accordance with the terms and conditions hereof, to provide such services
to the Trust;
NOW THEREFORE, in consideration of the promises and covenants set forth herein
and intending to be legally bound hereby, it is agreed between the parties as
follows:
1. Appointment of Portfolio Manager.
(a) The Trust hereby retains Portfolio Manager to provide the investment
services set forth herein and Portfolio Manager agrees to accept such
appointment. In carrying out its responsibilities under this Agreement, the
Portfolio Manager shall at all times act in accordance with the investment
objectives, policies and restrictions applicable to the Portfolio as set forth
in the then current Registration Statement of the Trust, applicable provisions
of the Investment Company Act and the rules and regulations promulgated under
that Act and other applicable federal securities laws.
(b) The Trust further agrees that it will provide to Portfolio Manager a copy
of the agreement between the Trust's custodian bank and the Trust and will
take such actions as may be necessary to assure that such custodian bank will
accept instruction from the Portfolio Manager with respect to that portion of
the assets of the Portfolio ("Account") that may, from time to time be
allocated to it by the Trust's Board of Trustees.
2. Duties of Portfolio Manager.
(a) Portfolio Manager shall provide a continuous program of investment
management for the Account. It is understood that the Account may consist of
all, a portion of or none of the assets of the Portfolio, and that the Board
of Trustees has the right to allocate and reallocate such assets to the
Account at any time, and from time to time, upon such notice to the Portfolio
Manager as may be reasonably necessary, in the view of the Trust, to ensure
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orderly management of the Account or the Portfolio.
(b) Subject to the general supervision of the Trust's Board of Trustees,
Portfolio Manager shall have sole investment discretion with respect to the
Account, including investment research, selection of the securities to be
purchased and sold and the portion of the Account, if any, that shall be held
uninvested, and the selection of brokers and dealers through which securities
transactions in the Account shall be executed. Portfolio Manager shall
also be responsbilt for voting all proxies received on behalf of those
securities held in the Account. Specifically, and without limiting the
generality of the foregoing, Portfolio Manager agrees that it
will:
(i) promptly advise the Portfolio's designated custodian bank and
administrator or accounting agent of each purchase and sale, as the case may
be, made on behalf of the Account, specifying the name and quantity of the
security purchased or sold, the unit and aggregate purchase or sale price,
commission paid, the market on which the transaction was effected, the trade
date, the settlement date, the identity of the effecting broker or dealer
and/or such other information, and in such manner, as may from time to time be
reasonably requested by the Trust;
(ii) maintain all applicable books and records with respect to the
securities transactions of the Account. Specifically, Portfolio Manager
agrees to maintain with respect to the Account those records required to be
maintained under Rule 31a-1(b)(1), (b)(5) and (b)(6) under the Investment
Company Act with respect to transactions in the Account including, without
limitation, records which reflect securities purchased or sold in the Account,
showing for each such transaction, the name and quantity of securities, the
unit and aggregate purchase or sale price, commission paid, the market on
which the transaction was effected, the trade date, the settlement date, and
the identity of the effecting broker or dealer. Portfolio Manager will
preserve such records in the manner and for the periods prescribed by Rule
31a-2 under the Investment Company Act. Portfolio Manager acknowledges and
agrees that all records it maintains for the Trust are the property of the
Trust and Portfolio Manager will surrender promptly to the Trust any such
records upon the Trust's request;
(iii) provide, in a timely manner, such information as may be reasonably
requested by the Trust or its designated agents in connection with, among
other things, the daily computation of the Portfolio's net asset value and net
income, preparation of proxy statements or amendments to the Trust's
registration statement and monitoring investments made in the Account to
ensure compliance with the various limitations on investments applicable to
the Portfolio and to ensure that the Portfolio will continue to qualify for
the special tax treatment accorded to regulated investment companies under
Subchapter M of the Internal Revenue Code of 1986, as amended; and
(iv) render regular reports to the Trust concerning the performance of
Portfolio Manager of its responsibilities under this Agreement. In
particular, Portfolio Manager agrees that it will, at the reasonable request
of the Board of Trustees, attend meetings of the Board or its validly
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constituted committees and will, in addition, make its officers and employees
available to meet with the officers and employees of the Trust at least
quarterly and at other times upon reasonable notice, to review the investments
and investment program of the Account.
3. Portfolio Transaction and Brokerage. In placing orders for portfolio
securities with brokers and dealers, Portfolio Manager shall use its best
efforts to execute securities transactions on behalf of the Account in such a
manner that the total cost or proceeds in each transaction is the most
favorable under the circumstances. Portfolio Manager may, however, in its
discretion, direct orders to brokers that provide to Portfolio Manager
research, analysis, advice and similar services, and Portfolio Manager may
cause the Account to pay to those brokers a higher commission than may be
charged by other brokers for similar transactions, provided that Portfolio
Manager determines in good faith that such commission is reasonable in terms
either of the particular transaction or of the overall responsibility of the
Portfolio Manager to the Account and any other accounts with respect to which
Portfolio Manager exercises investment discretion, and provided further that
the extent and continuation of any such practice is subject to review by the
Trust's Board of Trustees. Portfolio Manager shall not execute any portfolio
transactions for the Trust with a broker or dealer which is an "affiliated
person" of the Trust or Portfolio Manager, including any other investment
advisory organization that may, from time to time act as a portfolio manager
for the Portfolio or any of the Trust's other Portfolios, without prior
written approval of the Trust. The Trust shall provide a list of such
affiliated brokers and dealers to Portfolio Manager and will promptly advise
Portfolio Manager of any changes in such list.
4. Expenses and Compensation.
Portfolio Manager shall pay all of its expenses incurred in the performance of
its duties under this Agreement and shall not be required to pay any other
expenses of the Trust. For its services under this Agreement, Portfolio
Manager shall be entitled to receive a fee at the annual rate of .30% of the
average daily net asset value of the Account, which fee shall be payable
monthly.
5. Limitation of Liability and Indemnification.
(a) Portfolio Manager shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Trust in connection with the matters to
which this Agreement relates including, without limitation, losses that may be
sustained in connection with the purchase, holding, redemption or sale of any
security or other investment by the Trust except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Portfolio Manager in
the performance of its duties or from reckless disregard by it of its duties
under this Agreement.
(b) Notwithstanding the foregoing, Portfolio Manager expressly agrees that the
Trust may rely upon information provided, in writing, by Portfolio Manager to
the Trust (including, without limitation, information contained in Portfolio
Manager's then current Form ADV) in accordance with Section 9 of the Agreement
or otherwise, in preparing the Trust's registration statement and amendments
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thereto and certain periodic reports relating to the Trust and its Portfolios
that are required to be furnished to shareholders of the Trust and/or filed
with the Securities and Exchange Commission ("SEC Filings"), provided that a
copy of any such filing is provided to Portfolio Manager (i) at least 10
business days prior to the date on which it will become effective, in the case
of a registration statement; (ii) at least 10 business days prior to the date
upon which it is filed with the SEC in the case of the Trust's semi-annual
report on Form N-SAR or any shareholder report or proxy statement.
(c) Portfolio Manager agrees to indemnify and hold harmless the Trust and each
of its Trustees, officers and employees from any claims, liabilities and
expenses, including reasonable attorneys' fees, (collectively, "Losses") to
the extent that Losses are incurred as a result of statements contained in an
SEC Filing ("Disputed Statements") that are misleading either because they are
(i) untrue statements of material fact; or (ii) omitted to state any material
fact necessary in order to make the statements made, in the light of the
circumstances under which they are made, not misleading. For purposes of the
indemnification obligation set forth in this Section 5(c), a Disputed
Statement will be deemed misleading if so declared by a decision of a court or
administrative law judge or in an order of settlement issued by any court or
administrative body.
(d) Portfolio Manager further agrees to indemnify and hold harmless the Trust
and each of its Trustees, from any Losses to the extent that such Losses are
incurred as a result of Disputed Statements that are alleged (i) to be untrue
statements of material fact; or (ii) to have omitted to state any material
fact necessary in order to make the statements made, in the light of the
circumstances under which they are made, provided that the indemnification
obligation set forth in this Section 5(d) is expressly limited to Losses
arising from Disputed Statements that accurately reflect information provided
to the Trust in writing by the Portfolio Manager and that cannot be
independently verified by the Trust. Further, the indemnification set forth
in this Section 5(d) will not require reimbursement of fees or expenses other
than those incurred by the Trust's regular counsel in connection with such
counsel's representation of the Trust or its Trustees.
(e) The indemnification obligations set forth in Sections 5(c) and (d) shall
not apply unless (i) Disputed Statements accurately reflect information
provided to the Trust in writing by the Portfolio Manager; (ii) Disputed
Statements were included in an SEC Filing in reliance upon written information
provided to the Trust by the Portfolio Manager; (iii) the Portfolio Manager
was afforded the opportunity to review Disputed Statements in connection with
the 10 business day review requirement set forth in Section 5(b) above; and
(iv) upon receipt by the Trust of any notice of the commencement of any action
or the assertion of any claim to which the indemnification obligations set
forth in Section 5(c) and (d) may apply, the Trust notifies the Portfolio
Manager, within 30 days and in writing, of such receipt and provides to
Portfolio Manager the opportunity to participate in the defense and/or
settlement of any such action or claim. Further, Portfolio Manager will not
be required to indemnify any person under this Section 5 to the extent that
Portfolio Manager relied upon statements or information furnished to the
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Portfolio Manager, in writing, by any officer, employee or Trustee of the
Trust, or by the Trust's Custodian, Administrator or Accounting Agent or any
other agent of the Trust, in preparing written information provided to the
Trust and upon which the Trust relied in preparing any Disputed Statement.
6. Permissible Interest.
Subject to and in accordance with the Trust's Declaration of Trust and By-laws
and corresponding governing documents of Portfolio Manager, Trustees ,
officers, agents and shareholders of the Trust may have an interest in the
Portfolio Manager as officers, directors, agents and/or shareholders or
otherwise. Portfolio Manager may have similar interests in the Trust. The
effect of any such interrelationships shall be governed by said governing
documents and the provisions of the Investment Company Act.
7. Duration, Termination and Amendments.
This Agreement shall become effective as of the date first written above and
shall continue in effect for two years, provided that this Agreement shall
terminate automatically if not approved by the holders of a majority of the
outstanding voting securities of the Portfolio on or before the 120th day
following such effective date. Thereafter, this Agreement shall
continue in effect from year to year for so long as its continuance is
specifically approved, at least annually, by (i) a majority of the Board of
Trustees or the vote of the holders of a majority of the Portfolio's
outstanding voting securities; and (ii) the affirmative vote, cast in person
at a meeting called for the purpose of voting on such continuance, of a
majority of those members of the Board of Trustees ("Independent Trustees ")
who are not "interested persons" of the Trust or any investment adviser to the
Trust.
This Agreement may be terminated by the Trust or by Portfolio Manager at any
time and without penalty upon sixty days written notice to the other party,
which notice may be waived by the party entitled to it. This Agreement may
not be amended except by an instrument in writing and signed by the party to
be bound thereby provided that if the Investment Company Act requires that
such amendment be approved by the vote of the Board, the Independent Trustees
and/or the holders of the Trust's or the Portfolio's outstanding shareholders,
such approval must be obtained before any such amendment may become
effective. This Agreement shall terminate upon its assignment.
For purposes of this Agreement, the terms "majority of the outstanding voting
securities, "assignment" and "interested person" shall have the meanings set
forth in the Investment Company Act.
8. Confidentiality; Use of Name.
Portfolio Manager and the Trust acknowledge and agree that during the term of
this Agreement the parties may have access to certain information that is
proprietary to the Trust or Portfolio Manager, respectively (or to their
affiliates and/or service providers). The parties agree that their respective
officers and employees shall treat all such proprietary information as
confidential and will not use or disclose information contained in, or derived
from such material for any purpose other than in connection with the carrying
out of their responsibilities under this Agreement and the management of the
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Trust's assets, provided, however, that this shall not apply in the case of
(i) information that is publicly available; and (ii) disclosures required by
law or requested by any regulatory authority that may have jurisdiction over
Portfolio Manager or the Trust, as the case may be, in which case such party
shall request such confidential treatment of such information as may be
reasonably available. In addition, each party shall use its best efforts to
ensure that its agents or affiliates who may gain access to such proprietary
information shall be made aware of the proprietary nature and shall likewise
treat such materials as confidential.
It is acknowledged and agreed that the names "Hirtle Callaghan," "Hirtle
Callaghan Chief Investment Officers" (which is a registered trademark of
Hirtle Callaghan & Co., Inc. ("HCCI")), and derivative of either, as well as
any logo that is now or shall later become associated with either name
("Marks") are valuable property of HCCI and that the use of the Marks, or any
one of them, by the Trust or its agents is subject to the license granted to
the Trust by HCCI. Portfolio Manager agrees that it will not use any Mark
without the prior written consent of the Trust. Portfolio Manager consents to
use of its name, performance data, biographical data and other pertinent data
by the Trust for use in marketing and sales literature, provided that any such
marketing and sales literature shall not be used by the Trust without the
prior written consent of Portfolio Manager, which consent shall not be
unreasonably withheld. The provisions of this Section 8 shall survive
termination of this Agreement.
9. Representation, Warranties and Agreements of Portfolio Manager.
Portfolio Manager represents and warrants that:
(a) It is registered as an investment adviser under the Investment Advisers
Act of 1940 ("Investment Advisers Act"), it will maintain such registration in
full force and effect and will promptly report to the Trust the commencement
of any formal proceeding that could render the Portfolio Manager ineligible to
serve as an investment adviser to a registered investment company under
Section 9 of the Investment Company Act.
(b) It understands that, as a result of its services hereunder, certain of its
employees and officers may be deemed "access persons" of the Trust within the
meaning of Rule 17j-1 under the Investment Company Act and that each such
access person is subject to the provisions of the code of ethics ("Trust's
Code") adopted by the Trust in compliance with such rule. Portfolio Manager
further represents that it is subject to a written code of ethics ("Portfolio
Manager's Code") complying with the requirements of Rule 204-2(a)(12) under
the Investment Advisers Act and will provide the Trust with a copy of such
code of ethics. During the period that this Agreement is in effect, an
officer or director of Portfolio Manager shall certify to the Trust, on a
quarterly basis, that Portfolio Manager has complied with the requirements of
the Portfolio Manager's Code during the prior year; and that either (i) that
no violation of such code occurred or (ii) if such a violation occurred, that
appropriate action was taken in response to such violation. In addition,
Portfolio Manager acknowledges that the Trust may, in response to regulations
or recommendations issued by the Securities and Exchange Commission or other
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regulatory agencies, from time to time, request additional information
regarding the personal securities trading of its directors, partners, officers
and employees and the policies of Portfolio Manager with regard to such
trading. Portfolio Manager agrees that it make every effort to respond to the
Trust's reasonable requests in this area.
(c) Upon request of the Trust, Portfolio Manager shall promptly supply the
Trust with any information concerning Portfolio Manager and its stockholders,
employees and affiliates that the Trust may reasonably require in connection
with the preparation of its registration statements, proxy materials, reports
and other documents required, under applicable state or Federal laws, to be
filed with state or Federal agencies or to be provided to shareholders of the
Trust.
(d) The Portfolio Manager shall promptly notify the Trust, in writing, of any
material change in the senior management or the identity of the Portfolio
Manager' partners and of any change in the identity of those individuals
within the Portfolio Manager's organization who are responsible for making
investment decisions on behalf of the Account. Portfolio Manager shall also
promptly notify the Trust of any material change in the nature of Portfolio
Manager's principal business activities.
10. Status of Portfolio Manager.
The Trust and Portfolio Manager acknowledge and agree that the relationship
between Portfolio Manager and the Trust is that of an independent contractor
and under no circumstances shall any employee of Portfolio Manager be deemed
an employee of the Trust or any other organization that the Trust may, from
time to time, engage to provide services to the Trust, its Portfolios or its
shareholders. The parties also acknowledge and agree that nothing in this
Agreement shall be construed to restrict the right of Portfolio Manager or its
affiliates to perform investment management or other services to any person or
entity, including without limitation, other investment companies and persons
who may retain Portfolio Manager to provide investment management services and
the performance of such services shall not be deemed to violate or give rise
to any duty or obligations to the Trust. It is further acknowledged and
agreed that Portfolio Manager may give advice exercise investment discretion
and take other action with respect to the accounts of such persons or entities
which may differ from the advice given or the timing or nature of action taken
with respect to the Account, provided that Portfolio Manager acts in a manner
that is consistent with its fiduciary duties under Section 206 of the
investment Advisers Act and the standard set forth in Section 5(a) of this
Agreement.
11. Counterparts and Notice.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original. Any notice required to be given under this
Agreement shall be deemed given when received, in writing addressed and
delivered, by certified mail, by hand or via overnight delivery service as
follows:
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If to the Trust:
Mr. Donald E. Callaghan, President
The Hirtle Callaghan Trust
575 East Swedesford Road
Wayne, PA 19087
If to Portfolio Manager:
John Geewax
Geewax Terker & Co.
99 Starr Street
Phoenixville, PA 19460
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the law of the state of Delaware provided that nothing herein
shall be construed as inconsistent with the Investment Company Act or the
Investment Advisers Act.
Portfolio Manager is hereby expressly put on notice of the limitations of
shareholder and Trustee liability set forth in the Declaration of Trust of the
Trust and agrees that obligations assumed by the Trust pursuant to this
Agreement shall be limited in all cases to the assets of The Limited Duration
Municipal Bond Portfolio. Portfolio Manager further agrees that it will not
seek satisfaction of any such obligations from the shareholders or any
individual shareholder of the Trust, or from the Trustees of the Trust or any
individual Trustee of the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized as of the day and year
first written above.
Geewax, Terker & Co.
By: /S/ John J. Geewax
The Hirtle Callaghan Trust
(on behalf of The Small Capitalization Equity Portfolio)
By: /S/ Donald E. Callaghan
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Exhibit 4 Consent of Independent Accountants
We consent to the inclusion in Post-Effective Amendment No. 9 to the
Registration Statement (File No. 87762) under the Securities Act of 1933 of the
Hirtle Callaghan Trust, comprised of the Value Equity Portfolio, Growth Equity
Portfolio, Small Capitalization Equity Portfolio, International Equity
Portfolio, Limited Duration Municipal Bond Portfolio and Fixed Income
Portfolio on Form N-1A of our report dated August 15, 1997, on our audit of
the financial statements and financial highlights of the Value Equity
Portfolio, Growth Equity Portfolio, Small Capitalization Equity Portfolio,
International Equity Portfolio, and Limited Duration Municipal Bond Portfolio,
which report is included in the Annual Report to Shareholders for the year
ended June 30, 1997. We also consent to the reference to our Firm under the
heading "Financial Statements" in the Prospectus and "Independent Accountants"
and "Financial Statements" in the Statement of Additional Information.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 9, 1998
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Exhibit 5 -- Opinion of Counsel and Related Consent
DRINKER BIDDLE & REATH LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Direct Dial:
(215) 988-2719
April 10, 1998
The Hirtle Callaghan Trust
575 East Swedesford Road
Wayne, PA 19087
Gentlemen:
You have requested our opinion with respect to the shares of
beneficial interest (the "Shares") to be offered pursuant to Post-Effective
Amendment No. 9 to your registration statement to be filed with the Securities
and Exchange Commission under the Securities Act of 1933 and the Investment
Company Act of 1940 (the "Amendment").
We have reviewed the Declaration of Trust of Hirtle Callaghan Trust
(the "Trust"), its By-Laws, resolutions adopted by its Board of Trustees and
shareholders, and such other legal and factual matters as we have deemed
appropriate. This opinion is based exclusively on the Delaware Business Trust
Act and the federal laws of the United States of America.
Based on the foregoing, we are of the opinion that the Shares to be
sold and issued by the Trust, upon issuance, sale and payment in accordance
with the terms of sale contained in the Prospectus, will be legally issued,
fully paid and nonassessable by the Trust, and that the holders of the Shares
are entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the general
corporation law of the State of Delaware (except that we express no opinion as
to such holders who are also trustees of the Trust).
We hereby consent to the filing of this opinion as an exhibit to the
Amendment and any notice filings required pursuant to the securities laws of
the various states in which shares of the Trust will be offered, and we
further consent to reference to our firm in the prospectus of the Trust.
Very truly yours,
/s/ DRINKER BIDDLE & REATH LLP
DRINKER BIDDLE & REATH LLP
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Exhibit 6(a) -- Limited Power of Attorney
The Hirtle Callaghan Trust
Ross H. Goodman, whose signature appears below, does hereby
constitute and appoint Donald E. Callaghan and Robert J. Zion,
and each of them, his true and lawful attorney and agent, with
power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments which said attorney
and agent may deem necessary or advisable or which may be
required to enable The Hirtle Callaghan Trust ("Trust")
to comply with the Investment Company Act of 1940,
as amended, and the Securiti es Act of 1933, as amended,
(collectively, "Acts"), and any rules, regulations or requirements
of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of
any and all amendments to the Registration Statement of the
Trust on Form N-1A pursuant to said Acts, including, without
limitation, the power and authority to sign in the name and on
behalf of the undersigned as a trustee and/or officer of the Trust
and all such amendments filed with the Securities and Exchange Commission
under said Acts, and any other instruments or documents related thereto,
and the undersigned does hereby ratify and confirm all that
said attorney and agent shall do or cause to be done by virtue hereof.
/S/ Ross H. Goodman
Dated: February 3, 1998
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Exhibit 6(b) -- Limited Power of Attorney
The Hirtle Callaghan Trust
Donald E. Callaghan, whose signature appears below, does hereby
constitute and appoint Donald E. Callaghan and Robert J. Zion,
and each of them, his true and lawful attorney and agent, with
power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments which said attorney
and agent may deem necessary or advisable or which may be
required to enable The Hirtle Callaghan Trust ("Trust")
to comply with the Investment Company Act of 1940,
as amended, and the Securiti es Act of 1933, as amended,
(collectively, "Acts"), and any rules, regulations or requirements
of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of
any and all amendments to the Registration Statement of the
Trust on Form N-1A pursuant to said Acts, including, without
limitation, the power and authority to sign in the name and on
behalf of the undersigned as a trustee and/or officer of the Trust
and all such amendments filed with the Securities and Exchange Commission
under said Acts, and any other instruments or documents related thereto,
and the undersigned does hereby ratify and confirm all that
said attorney and agent shall do or cause to be done by virtue hereof.
/S/ Donald E. Callaghan
Dated: February 3, 1998
<PAGE>
<PAGE>
<PAGE>
Exhibit 6(c) -- Limited Power of Attorney
The Hirtle Callaghan Trust
Jarrett Burt Kling, whose signature appears below, does hereby
constitute and appoint Donald E. Callaghan and Robert J. Zion,
and each of them, his true and lawful attorney and agent, with
power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments which said attorney
and agent may deem necessary or advisable or which may be
required to enable The Hirtle Callaghan Trust ("Trust")
to comply with the Investment Company Act of 1940,
as amended, and the Securiti es Act of 1933, as amended,
(collectively, "Acts"), and any rules, regulations or requirements
of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of
any and all amendments to the Registration Statement of the
Trust on Form N-1A pursuant to said Acts, including, without
limitation, the power and authority to sign in the name and on
behalf of the undersigned as a trustee and/or officer of the Trust
and all such amendments filed with the Securities and Exchange Commission
under said Acts, and any other instruments or documents related thereto,
and the undersigned does hereby ratify and confirm all that
said attorney and agent shall do or cause to be done by virtue hereof.
/S/ Jarrett Burt Kling
Dated: February 3, 1998
<PAGE>
<PAGE>
<PAGE>
Exhibit 6(d) -- Limited Power of Attorney
The Hirtle Callaghan Trust
Jonathan J. Hirtle, whose signature appears below, does hereby
constitute and appoint Donald E. Callaghan and Robert J. Zion,
and each of them, his true and lawful attorney and agent, with
power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments which said attorney
and agent may deem necessary or advisable or which may be
required to enable The Hirtle Callaghan Trust ("Trust")
to comply with the Investment Company Act of 1940,
as amended, and the Securiti es Act of 1933, as amended,
(collectively, "Acts"), and any rules, regulations or requirements
of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of
any and all amendments to the Registration Statement of the
Trust on Form N-1A pursuant to said Acts, including, without
limitation, the power and authority to sign in the name and on
behalf of the undersigned as a trustee and/or officer of the Trust
and all such amendments filed with the Securities and Exchange Commission
under said Acts, and any other instruments or documents related thereto,
and the undersigned does hereby ratify and confirm all that
said attorney and agent shall do or cause to be done by virtue hereof.
/S/ Jonathan J. Hirtle
Dated: February 3, 1998
