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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No.
Post-Effective Amendment No.
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No.
(Check appropriate box or boxes)
KOBRICK-HFS INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
101 Federal Street
Boston, Massachusetts 02111
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 342-3500
Frederick R. Kobrick
President
Kobrick-HFS Investment Trust
101 Federal Street
Boston, Massachusetts 02111
(Name and Address of Agent for Service)
Copies to:
Thomas J. Kelly, Esq.
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Title of Securities Being Offered: Shares of Beneficial Ownership
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective.
Registrant hereby declares its intention to register an indefinite number of
shares of beneficial interest pursuant to Rule 24f-2 under the Investment
Company Act of 1940.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
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KOBRICK-HFS INVESTMENT TRUST
Cross Reference Sheet
Pursuant to Rule 481(a)
Under the Securities Act of 1933
PART A
Item No. Registration Statement Caption Caption in Prospectus
1. Cover Page Cover Page
2. Synopsis Expense Information
3. Condensed Financial Information Performance Information
4. General Description of Registrant Investment Objective,
Investment Policies and
Risk Considerations;
Operation of the Fund
5. Management of the Fund Operation of the Fund
6. Capital Stock and Other Securities Cover Page; Operation of
the Fund; Dividends and
Distributions; Taxes
7. Purchase of Securities Being Offered How to Purchase Shares;
Shareholder Services;
Exchange Privilege;
Distribution Plan;
Calculation of Share Price;
Application
8. Redemption or Repurchase How to Redeem Shares;
Shareholder Services;
Exchange Privilege
9. Legal Proceedings Inapplicable
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PART B
Caption in Statement
of Additional
Item No. Registration Statement Caption Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History The Trust
13. Investment Objectives and Policies Definitions, Policies and
Risk Considerations;
Quality Ratings of
Corporate Bonds
and Preferred Stocks;
Investment Limitations;
Securities Transactions;
Portfolio Turnover
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal Holders Inapplicable
of Securities
16. Investment Advisory and Other Services The Investment Adviser;
Distribution Plan;
Custodian; Auditors; ___
Service Corp.
17. Brokerage Allocation and Other Securities Transactions
Practices
18. Capital Stock and Other Securities The Trust
19. Purchase, Redemption and Pricing of Calculation of Share
Securities Being Offered Price; Redemption in Kind
20. Tax Status Taxes
21. Underwriters Inapplicable
22. Calculation of Performance Data Historical Performance
Information
23. Financial Statements Statements of Assets and
Liabilities
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PART C
The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
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MLCFG&P Draft of 10-9-97
KOBRICK-HFS CAPITAL FUND
101 Federal Street
Boston, Massachusetts 02111
Prospectus
_______________, 1997
The investment objective of Kobrick-HFS Capital Fund (the "Fund") is to
seek maximum capital appreciation by investing primarily in common stocks (and
preferred stocks and debt securities convertible into or carrying the right to
acquire common stocks) of emerging growth companies and of companies considered
to be undervalued special situations, as determined by the Fund's investment
manager.
Kobrick-HFS, Inc. (the "Investment Manager") serves as investment adviser
to the Fund. The Investment Manager was organized in October, 1997; and its
principals are Frederick R. Kobrick and Michael T. Carmen.
Shareholders may have their shares redeemed directly by the fund at net
asset value; redemptions processed through securities dealers may be subject to
processing charges.
There are risks in any investment program, including the risk of changing
economic and market conditions, and there is no assurance that the Fund will
achieve its investment objective. The net asset value of the Fund's shares
fluctuates as market conditions change.
Because of the Fund's investment policies, the Fund is subject to
above-average risks. The Fund generally is designed for investors who want
an aggressive investment and can tolerate volatility and possible losses. An
investment in the Fund should be part of a balanced investment program which
includes more conservative investments.
This Prospectus sets forth concisely the information a prospective investor
ought to know about the fund before investing. It should be retained for future
reference. A Statement of Additional Information about the Fund dated
______________, 1997 has been filed with the Securities and Exchange Commission
and is incorporated by reference into this Prospectus. It is available at no
charge upon request to the fund at the address indicated on the cover or by
calling 1-800-______________.
The Fund is a diversified series of Kobrick-HFS Investment Trust (the
"Trust"), an open-end management investment company.
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
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STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE FUND MAY ENGAGE IN SHORT-TERM TRADING, WHICH MAY BE CONSIDERED A
SPECULATIVE ACTIVITY AND INVOLVE GREATER RISK AND ADDITIONAL COST TO THE FUND.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
TABLE OF CONTENTS
Table of Expenses
The Fund's Investments
Limiting Investment Risk
How to Purchase Shares
Shareholder Services
How to Redeem Shares
Dividends and Distributions
The Fund and its Shares
Management of the Fund
Taxes
Distribution Plan
Calculation of Share Price
Calculation of Performance Data
TABLE OF EXPENSES
Shareholder Transaction Expenses
Sales Charge Imposed on Purchases. . . . . . . . . . . . . . None
Sales Charge Imposed on Reinvested Dividends . . . . . . . . None
Deferred Sales Charge. . . . . . . . . . . . . . . . . . . . None
----
Redemption Fees (a). . . . . . . . . . . . . . . . . . . . . None
----
Exchange Fee . . . . . . . . . . . . . . . . . . . . . . . . None
----
Annual Fund Operating Expenses (estimated as a percentage of average net assets)
Management Fees. . . . . . . . . . . . . . . . . . . . . . . 1.00%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . 0.25%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . 0.50%
-----
Total Fund Operating Expenses . . . . . . . . . . . . . 1.75%
-----
-----
_____________
(a) Remittance of redemption proceeds by wire is subject to a $8.00 fee.
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EXAMPLE
THE EXAMPLE SHOULD NOT BE CONSIDERED AS A REPRESENTATION OF PAST OR FUTURE
RETURN OR EXPENSES. ACTUAL RETURN AND EXPENSES MAY BE GREATER OR LESS THAN
SHOWN.
1 Year 3 Years 5 Years 10 Years
You would pay the
following expenses on
a $1,000 investment
assuming 5%
annual return: $18 $57 $98 $212
The purpose of the table above is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or
indirectly. The percentage expense level shown in the table as "Other Expenses"
is based on projected expenses for the current fiscal year ending December 31,
1998. Actual expense levels for the current fiscal year or for future years may
vary from the amounts shown.
THE FUND'S INVESTMENTS
The Fund's investment objective is to seek maximum capital appreciation by
investing primarily in common stocks (and preferred stocks and debt securities
convertible into or carrying the right to acquire common stocks) of emerging
growth companies and of companies determined to be undervalued special
situations, as determined by the Fund's investment manager. The investment
objective is a fundamental policy that may not be changed without approval of
the Fund's shareholders.
In seeking to achieve its investment objective, the Fund invests at least
65% of its total assets under normal circumstances in the common stock (and
preferred stocks and debt securities convertible into or carrying the right to
acquire common stocks) of emerging growth companies and companies considered to
be undervalued special situations. The Investment Manager considers emerging
growth companies to be those companies which are less mature and have the
potential to grow substantially faster than the economy. The Investment Manager
considers undervalued special situations to include common stocks of companies,
such as larger, more mature companies, which trade at prices believed by the
Investment Manager to be below the companies' intrinsic values and which
therefore offer the potential for above-average investment returns. A special
situation company is one which, because of unique circumstances such as, for
example, a particular business niche it fills, is an attractive investment even
through it is not in the emerging growth stage. In selecting such investments,
the Investment Manager considers a variety of factors, any one of which may be
determinative. These include a company's expected growth in earnings, relative
financial condition and cash flow, competitive position, management and business
strategy, overall potential as an enterprise, entrepreneurial character, and new
or innovative products, services or processes. The capitalization of the
companies in which the Fund invests can range across the full spectrum from
small to large capitalization, with varying or high proportions from time to
time in different capitalization segments.
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Under normal circumstances, the Fund expects to by fully invested in equity
securities as described above. However, the Fund may, consistent with its
investment objective, invest at any time up to 35% of its total assets in other
equity securities and debt securities, such as those issued by more mature
companies, and U.S. Government securities. The Fund will purchase investment
grade debt (i.e., rated at the time of purchase AAA, AA, A or BBB categories by
Standard & Poor's Corporation ("S&P") or Aaa, Aa, A or Baa categories by Moody's
Investors Service, Inc. ("Moody's")), or securities that are not rated but
considered by the Investment Manager to be of equivalent investment quality.
The debt securities, which may have differing maturites and fixed or floating
interest rates, will be U.S. Government securities or issued by larger
capitalization issuers. For more information on debt ratings, see the Statement
of Additional Information.
INVESTMENT PRACTICES
FOREIGN INVESTMENTS
The Fund reserves the right to invest without limitation in securities of
non-U.S. issuers directly, or indirectly in the form of American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") or similar securities
representing interests in the securities of foreign issuers. Under current
policy, however, the Fund limits such investments, including ADRs and EDRs, to a
maximum of 35% of its total assets.
ADRs are receipts, typically issued by a U.S. bank or trust company, which
evidence ownership of underlying securities issued by a foreign corporation or
other entity. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs in registered form are designed for use
in U.S. securities markets and EDRs are designed for use in European securities
markets. The underlying securities are not always denominated in the same
currency as the ADRs or EDRs. Although investment in the form of ADRs or EDRs
facilities trading in foreign securities, it does not mitigate all the risks
associated with investing in foreign securities.
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder communications. In an unsponsored arrangement, the foreign
issuer is not involved, and the ADR holders pay the fees of the depository.
Sponsored ADRs are generally more advantageous to the ADR holders and the issuer
than are unsponsored ADRs. More and higher fees are generally charged in an
unsponsored program compared to a sponsored facility. Only sponsored ADRs may
be listed on the New York or American Stock Exchanges. Unsponsored ADRs may
prove to be more risky, due to (a) the additional costs involved to the Fund;
(b) the relative illiquidity of the issue in U.S. markets ; and (c) the
possibility of higher trading costs in the over-the-counter market as opposed to
exchange based trading. The Fund will take these and other risk considerations
into account before making an investment in an unsponsored ADR.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks of
nationalization or expropriation, the possible imposition of
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currency exchange blockages, higher operating expenses, foreign withholding and
other taxes which may reduce investment return, reduced availability of public
information concerning issuers, the difficulties in obtaining and enforcing a
judgment against a foreign issuer and the fact that foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to those
applicable to domestic issuers. Moreover, securities of many foreign issuers
may be less liquid and their prices more volatile than those of securities of
comparable domestic issuers.
It is anticipated that a majority of the foreign investments by the Fund
will consist of securities of issuers in countries with developed economies.
However, the Fund may also invest in the securities of issuers in countries with
less developed economies as deemed appropriate by the Investment Manager,
although the Fund does not presently expect to invest more than 5% of its total
assets in issuers in such less developed countries. Such countries include
countries that have any emerging stock market that trades a small number of
securities; countries with low-to middle-income economies; and/or countries with
economies that are based on only a few industries. Eastern European countries
are considered to have less developed capital markets.
For further information regarding foreign investments, see the Statement of
Additional Information.
CURRENCY TRANSACTIONS
In order to protect against the effect of uncertain future exchange rates
on securities denominated in foreign currencies, the Fund may engage in currency
exchange transactions either on a spot (i.e., cash) basis at the rate prevailing
in the currency exchange market or by entering into forward contracts to
purchase or sell currencies. Although such contracts tend to minimize the risk
of loss resulting from a correctly predicted decline in value of hedged
currency, they tend to limit any potential gain that might result should the
value of such currency increase. In entering a forward currency transaction,
the Fund is dependent upon the creditworthiness and good faith of the
counterparty. The Fund will attempt to reduce the risks of nonperformance by a
counterparty by dealing only with established, large institutions. For further
information, see the Statement of Additional Information.
OTHER INVESTMENT POLICIES
The Fund may lend portfolio securities with a value of up to 33 1/3 % of
its total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of the loaned securities plus accrued interest. Collateral
received by the Fund will generally be held in the form tendered, although cash
may be invested in securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, irrevocable stand-by letters of credit issued by
a bank, or any combination thereof. The investing of cash collateral received
from loaning portfolio securities involves leverage which magnifies the
potential for gain or loss on monies invested and, therefore, results in an
increase in the volatility of the Fund's outstanding securities. Such loans may
be terminated at any time.
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The Fund will retain most rights of ownership including rights to
dividends, interest or other distributions on the loaned securities. Voting
rights pass with the lending, although the Fund may call loans to vote proxies
if desired. Should the borrower of the securities fail financially, there is a
risk of delay in recovery of the securities or loss of rights in the collateral.
Loans are made only to borrowers which are deemed by the Investment Manager to
be of good financial standing.
The Fund may, subject to certain limitations, buy and sell options, futures
contracts and options on futures contracts on securities and securities
indicies, enter into repurchase agreements and purchase securities on a "when
issued" or forward commitment basis. The Fund may not establish a position in a
commodity futures contract or purchase or sell a commodity option contract for
other than bona fide hedging purposes if immediately thereafter the sum of the
amount of initial margin deposits and premiums on open positions with respect to
futures and options used for such nonhedging purposes would exceed 5% of the
market value of the Fund's net assets; similar policies apply to options which
are not commodities. The Fund may enter various forms of swap arrangements,
which have simultaneously the characteristics of a security and futures
contract, although the Fund does not presently expect to invest more than 5% of
its total assets in such items. These swap arrangements include interest rate
swaps, currency swaps and index swaps. See the Statement of Additional
Information.
The Fund may invest in restricted securities in accordance with Rule 144A
under the Securities Act of 1933, which allows for the resale of such securities
among certain qualified institutional buyers. Because the market for such
securities is still developing, such securities could possibly become illiquid
in particular circumstances. See the Statement of Additional Information.
The Fund may engage in short-term trading of securities and reserves full
freedom with respect to portfolio turnover. In periods when there are rapid
changes in economic conditions or security price levels or when investment
strategy changes significantly, portfolio turnover may be higher than during
times of economic and market price stability or when investment strategy remains
relatively constant. The Fund's portfolio turnover rate involves greater
transaction costs, relative to other funds in general, and may have tax and
other consequences as well. See the Statement of Additional Information.
Because the Fund invests primarily in emerging growth and special situation
companies, an investment in the Fund involves greater than average risks and the
value of the Fund's shares may fluctuate more widely than the value of shares of
a fund that invests in more established companies. Securities held by the Fund,
particularly those traded over-the-counter, may have limited marketability and
may be subject to more abrupt or erratic market movements over time than
securities of larger, more seasoned companies or the market as a whole. The
issuers of the over-the-counter securities may have limited product lines,
markets and financial resources, may be dependent on entrepreneurial management,
typically reinvest most of their net income in the enterprise and typically do
not pay dividends
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LIMITING INVESTMENT RISK
In seeking to lessen investment risk, the Fund operates under certain
fundamental and nonfundamental investment restrictions. Under the fundamental
restrictions the Fund may not (a) purchase a security of any one issuer (other
than the United States or its instrumentalities) if such purchase at the time
would cause more than 5% of the Fund's total assets to be invested in the
securities of such issuer; (b) purchase for its portfolio a security of any one
issuer if such purchase at the time thereof would cause more than 10% of any
class of securities of such issuer to be held by the Fund; or (c) invest more
than 25% of the Fund's total assets in securities of issues principally engaged
in any one industry with certain designated exceptions such as in the case of
the U.S. Government.
The foregoing fundamental investment restrictions may not be changed except
by vote of the holders of a majority of the outstanding voting securities of the
Fund. The vote of a majority of the outstanding voting securities of the Fund
means the vote (A) of 67 per centum or more of the voting securities present at
a meeting, if the holders of more than 50 per centum of the outstanding voting
securities of the Trust are present or represented by proxy; or (B) of more than
50 per centum of the outstanding voting securities of the Trust, whichever is
less.
Under the nonfundamental investment restrictions, the Fund may not invest
more than 15% of the Fund's net assets in illiquid securities including
repurchase agreements extending for more than seven days and may not invest more
than 10% of the Fund's net assets in restricted securities (excluding securities
eligible for resale under Rule 144A under the Securities Act of 1933). Although
many illiquid securities may also be restricted, and vice versa, compliance with
each of these policies will be determined independently. The foregoing
nonfundamental investment restrictions may be changed without a shareholder
vote.
For further information on the above and other fundamental and
nonfundamental investment restrictions, see the Statement of Additional
Information.
The Fund may hold up to 100% of its assets in cash or certain short-term
securities for temporary defensive purposes. The Fund will adopt a temporary
defensive position when, in the opinion of the Investment Manager, such a
position is more likely to provide protection against adverse market conditions
than adherence to the Fund's other investment policies. To the extent that the
Fund's assets are held in a temporary defensive position the Fund will not be
achieving its investment goals. The types of short-term instruments in which
the Fund may invest for such purposes are, as more fully described in the
Statement of Additional Information: securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, (U.S. Treasury bills, notes,
bonds, Government National Mortgage Association certificates), custodial
receipts, certificates of deposit, time deposits and banker's acceptances of
certain qualified financial institutions and corporate commercial paper rated at
least "A" by S&P or "Prime" by Moody's (or, if not rated, issued by companies
having an outstanding long-term unsecured debt issue rated at least "A" by S&P
or Moody's). See the Statement of Additional Information.
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HOW TO PURCHASE SHARES
Your initial investment in the Fund ordinarily must be at least $2,000
($1,000 for tax-deferred retirement plans). The Fund may, in the Investment
Manager's sole discretion, accept certain accounts with less than the stated
minimum initial investment. Shares of the Fund are sold on a continuous basis
at the net asset value next determined after receipt of a purchase order by the
Trust. Purchase orders received by dealers prior to 4:00 p.m., Eastern time, on
any business day and transmitted to the Trust's transfer agent, ___ Service
Corp., by 5:00 p.m., Eastern time, that day are confirmed at the net asset value
determined as of the close of the regular session of trading on the New York
Stock Exchange on that day. It is the responsibility of dealers to transmit
properly completed orders so that they will be received by ___ Service Corp. by
5:00 p.m., Eastern time. Dealers may charge a fee for effecting purchase
orders. Direct purchase orders received by ___ Service Corp. by 4:00 p.m.,
Eastern time, are confirmed at that day's net asset value. Direct investments
received by ___ Service Corp. after 4:00 p.m., Eastern time, and orders received
from dealers after 5:00 p.m., Eastern time, are confirmed at the net asset value
next determined on the following business day.
You may open an account and make an initial investment in the Fund by
sending a check and a completed account application form to ___ Service
Corp.,________. Checks should be made payable to the "Kobrick-HFS Capital
Fund". An account application is included in this Prospectus.
The Trust mails you confirmations of all purchases or redemptions of Fund
shares. Certificates representing shares are not issued. The Trust reserves
the rights to limit the amount of investments and to refuse to sell to any
person.
Investors should be aware that the Fund's account application contains
provisions in favor of the Trust, ___ Service Corp. and certain of their
affiliates, excluding such entities from certain liabilities (including, among
others, losses resulting from authorized shareholder transactions) relating to
the various services (for example, telephone exchanges) made available to
investors.
Should an order to purchase shares be canceled because your check does not
clear, you will be responsible for any resulting losses or fees incurred by the
Trust or ___ Service Corp. in the transaction.
You may also purchase shares of the Fund by wire. Please telephone ___
Service Corp. (Nationwide call toll-free 800-___-____) for instructions. You
should be prepared to give the name in which the account is to be established,
the address, telephone number and taxpayer identification number for the
account, and the name of the bank which will wire the money.
Your investment will be made at the net asset value next determined after
your wire is received together with the account information indicated above. If
the Trust does not receive timely and complete account information, there may be
a delay in the investment of your money and any accrual of dividends. To make
your initial wire purchase, you are required to mail a completed account
application to ___ Service Corp.. Your bank may impose a charge for
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sending your wire. There is presently no fee for receipt of wired funds, but
___ Service Corp. reserves the right to charge shareholders for this service
upon thirty days' prior notice to shareholders.
You may purchase and add shares to your account by mail or by bank wire.
Checks should be sent to ___ Service Corp., ____________________. Checks should
be made payable or endorsed to the "Kobrick-HFS Capital Fund". Bank wires
should be sent as outlined above. Each additional purchase request must contain
the name of your account and your account number to permit proper crediting to
your account. While there is no minimum amount required for subsequent
investments, the Trust reserves the right to impose such a requirement.
SHAREHOLDER SERVICES
Contact ___ Service Corp. (Nationwide call toll-free 800-___-____) for
additional information about the shareholder services described below.
AUTOMATIC WITHDRAWAL PLAN
If the shares in your account have a value of at least $5,000, you may
elect to receive, or may designate another person to receive, monthly or
quarterly payments in a specified amount of not less than $50 each. There is no
charge for this service.
TAX-DEFERRED RETIREMENT PLANS
Shares of the Fund are available for purchase in connection with the
following tax-deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for
individuals and their non-employed spouses
-- Qualified pension and profit-sharing plans for
employees, including those profit-sharing plans
with a 401(k) provision
-- 403(b)(7) custodial accounts for employees of
public school systems, hospitals, colleges and
other non-profit organizations meeting certain
requirements of the Internal Revenue Code
DIRECT DEPOSIT PLANS
Shares of the Fund may be purchased through direct deposit plans offered by
certain employers and government agencies. These plans enable a shareholder to
have all or a portion of his or her payroll or social security checks
transferred automatically to purchase shares of the Fund.
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AUTOMATIC INVESTMENT PLAN
You may make automatic monthly investments in the Fund from your bank,
savings and loan or other depository institution account. The minimum initial
and subsequent investments must be $50 under the plan. ___ Service Corp. pays
the costs associated with these transfers, but reserves the right, upon thirty
days' written notice, to make reasonable charges for this service. Your
depository institution may impose its own charge for debiting your account which
would reduce your return from an investment in the Fund.
HOW TO REDEEM SHARES
You may redeem shares of the Fund on each day that the Trust is open for
business by sending a written request to the Fund. The request must state the
number of shares or the dollar amount to be redeemed and your account number.
The request must be signed exactly as your name appears on the Trust's account
records. If the shares to be redeemed have a value of $25,000 or more, your
signature must be guaranteed by any eligible guarantor institution, including
banks, brokers and dealers, municipal securities brokers and dealers, government
securities brokers and dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations.
Redemption requests may direct that the proceeds be wired directly to your
existing account in any commercial bank or brokerage firm in the United States.
If your instructions request a redemption by wire, you will be charged an $8
processing fee by the Trust's Custodian. The Trust reserves the right, upon
thirty days' written notice, to change the processing fee. All charges will be
deducted from your account by redemption of shares in your account. Your bank or
brokerage firm may also impose a charge for processing the wire. In the event
that wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You may also redeem shares by placing a wire redemption request through a
securities broker or dealer. Unaffiliated broker-dealers may impose a fee on the
shareholder for this service. You will receive the net asset value per share
next determined after receipt by the Trust or its agent of your wire redemption
request. It is the responsibility of broker-dealers to properly transmit wire
redemption orders.
You will receive the net asset value per share next determined after
receipt by ___ Service Corp. of your redemption request in the form described
above. Payment is made within three business days after tender in such form,
provided that payment in redemption of shares purchased by check will be
effected only after the check has been collected, which may take up to fifteen
days from the purchase date. To eliminate this delay, you may purchase shares of
the Fund by certified check or wire. At the discretion of the Trust or ___
Service Corp., corporate investors and other associations may be required to
furnish an appropriate certification authorizing redemptions to ensure proper
authorization.
The Trust reserves the right to suspend the right of redemption or to
postpone the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.
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EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the other series of the
Trust, the Kobrick-HFS Emerging Growth Fund, at net asset value [Shares of the
Fund may also be exchanged for shares at net asset value of the Short Term
Government Income Fund (a series of _________________), which invests in
short-term U.S. Government obligations backed by the "full faith and credit" of
the United States and seeks high current income consistent with protection of
capital. Shares of the Short Term Government Income Fund acquired via exchange
may be re-exchanged for shares of the Fund at net asset value.]
You may request an exchange by sending a written request to ___ Service
Corp. The request must be signed exactly as your name appears on the Trust's
account records. Exchanges may also be requested by telephone. An exchange will
be effected at the next determined net asset value after receipt of a request by
___ Service Corp.
Exchanges may only be made for shares of funds then offered for sale in
your state of residence and are subject to the applicable minimum initial
investment requirements. The exchange privilege may be modified or terminated by
the Board of Trustees upon 60 days' prior notice to shareholders. An exchange
results in a sale of fund shares, which may cause you to recognize a capital
gain or loss. Before making an exchange, contact ___ Service Corp. to obtain a
current prospectus and more information about exchanges among the funds.
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to distribute any net realized capital gains and net
investment income at least once each year. Management will determine the timing
and frequency of the distributions of any net realized short-term capital gains.
Distributions are paid according to one of the following options:
Share Option - income distributions and capital gains distributions
reinvested in additional shares.
Income Option - income distributions and short-term capital gains
distributions paid in cash; long-term capital gains
distributions reinvested in additional shares.
Cash Option income distributions and capital gains distributions paid in
cash.
You should indicate your choice of option on your application. If no option
is specified on your application, distributions will automatically be reinvested
in additional shares. All distributions will be based on the net asset value in
effect on the payable date.
If you select the Income Option or the Cash Option and the U.S. Postal
Service cannot deliver your checks or if your checks remain uncashed for six
months, your dividends may be reinvested in your account at the then current net
asset value and your account will be converted to the Share Option.
11
<PAGE>
SHAREHOLDER ACCOUNT INQUIRIES:
PLEASE CALL 1-800-____________
Call this number for assistance in answering general servicing questions on
your account, including account balance, available shareholder services and
statement information. Account inquiries may also be made in writing to
________________.
THE FUND AND ITS SHARES
The Fund was organized in October 1997 as a series of Kobrick-HFS
Investment Trust, a Massachusetts business trust and is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940 as
an open-end management investment company. Kobrick-HFS Investment Trust was
organized on _______, 1997. The Fund's fiscal year ends on December 31.
Shortly prior to the effective time of this Prospectus, a share
distribution of four shares for each then outstanding share was declared.
Shares of the Trust have equal dividend, redemption and liquidation rights and
when issued are fully paid and nonassessable by the Master Trust. Each share
has one vote (with proportionate voting for fractional shares) irrespective of
net asset value.
Under the Master Trust Agreement of the Master Trust, no annual or regular
meeting of shareholders is required. Thus, there will ordinarily be no
shareholder meetings unless required by the Investment Company Act of 1940.
Except as otherwise provided under said Act, the Board of Trustees will be a
self-perpetuating body until fewer than 50% of the Trustees serving as such are
Trustees who were elected by shareholders of the Master Trust. At that time
another meeting of shareholders will be called to elect Trustees. Under the
Master Trust Agreement, any Trustee may be removed by vote of two-thirds of the
outstanding Master Trust shares; holders of 10% or more of the outstanding
shares of the Master Trust can require that the Trustees call a meeting of
shareholders for purposes of voting on the removal of one or more Trustees. In
connection with such meetings called by shareholders, shareholders will be
assisted in shareholder communications.
Under Massachusetts law, the shareholders of the Master Trust could, under
certain circumstances, be held personally liable for the obligations of the
Master Trust. However, the Master Trust Agreement of the Master Trust disclaims
shareholder liability for acts or obligations of the Master Trust and provides
for indemnification for all losses and expenses of any shareholder of the Trust
held personally liable for the obligations of the Master Trust. Thus, the risk
of a shareholder's incurring financial loss on account of shareholder liability
is limited to circumstances in which the Trust would be unable to meet its
obligations. The Investment Manager believes that, in view of the above, the
risk of personal liability to shareholders is remote.
12
<PAGE>
MANAGEMENT OF THE FUND
Under the provisions of the Master Trust Agreement and the laws of
Massachusetts, primary responsibility for the management and supervision of the
Fund rests with the Trustees.
The Fund's investment manager is Kobrick-HFS, Inc., 101 Federal Street,
Boston, Massachusetts 02111. Kobrick-HFS, Inc. was founded in October, 1997
principally by Frederick R. Kobrick and Michael T. Carmen. HFS Incorporated of
Parsippany, New Jersey, also has an interest in non-voting preferred stock of
the Investment Manager. Messrs Kobrick and Carmen have combined over 30 years
of experience in the management of investments under objective similar to those
of the Fund. The Fund's portfolio manager is Frederick R. Kobrick, who for 12
years was an equity portfolio manager at State Street Research & Management
Company where he served as Senior Vice President and a member of the firm's
Equity Investment Committee.
Under the Investment Advisory Contract between the Trust and the Investment
Manager, the Fund pays a quarterly advisory fee to the Investment Manager. The
advisory fee is computed as a percentage of the average of the values of the net
assets of the Fund as determined at the close of each business day during the
quarter at the following annual rates:
1% of the first $1,000,000,000 of such assets;
3/4% of the next $500,000,000 of such assets;
1/2% of the next $1,000,000,000 of such assets; and
3/8% of the average market value of such assets in
excess of $2,500,000,000.
The Investment Advisory Contract provides that the Investment Manager shall
furnish the Trust with suitable office space and facilities and such management,
investment advisory, statistical and research facilities and services as may be
required from time to time by the Trust and the Fund is responsible for its
other expenses and services. In view of the requirements for management of the
Fund's particular investment program, this fee is higher than those charges for
many other funds.
As of the date of this Prospectus, Kobrick-HFS, Inc. is the sole
shareholder of the Fund.
TAXES
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, however, it cannot give complete
assurance that it will do so. As long as it so qualifies, it will not be
subject to federal income taxes on its taxable income (including realized
capital gains, if any) distributed to its shareholders. Consequently, the
Fund intends to distribute annually to its shareholders substantially all of
its net investment income and any capital gain net income (capital gains net
of capital losses).
The Fund declares dividends from net investment income quarterly and pays
such dividends, if any, two times each year. Distributions of capital gain net
income will generally be made after the end of the fiscal year or as otherwise
required for compliance with applicable tax
13
<PAGE>
regulations. Both dividends from net investment income and distributions of
capital gain net income will be declared and paid to shareholders in additional
shares of the Fund at net asset value on the record date of that dividend or
distribution, except in the case of shareholders who elect a different available
distribution method.
The Fund will provide its shareholders with annual information on a timely
basis concerning the federal tax status of dividends and distributions during
the preceding calendar year.
Dividends paid by the Fund from taxable net investment income and
distributions of net short-term capital gains, whether paid in cash or
reinvested in additional shares, will be taxable for federal income tax purposes
to shareholders as ordinary income, and a portion may be eligible for the 70%
dividends-received deduction for corporations. The percentage of the Fund's
dividends eligible for such tax treatment may be less than 100% to the extent
that less than 100% of the Trust's gross income consist of qualified dividends
of domestic corporations. Distributions of net capital gains (the excess of net
long-term capital gains over short-term capital losses) which are designated as
capital gains distributions, whether paid in cash or reinvested in additional
shares, will be taxable for federal income tax purposes to shareholders as
long-term or mid-term capital gains, regardless of how long shareholders have
held their shares, and are not eligible for the dividends-received deduction.
If shares of the Fund which are sold at a loss have been held six months or
less, the loss will be considered as a long-term capital loss to the extent of
any capital gains distributions received.
Dividends and other distributions and proceeds of redemptions of Fund
shares paid to individuals and other nonexempt payees will be subject to a 31%
federal backup withholding tax if the Transfer Agent is not provided with the
shareholder's correct taxpayer identification number and certification that the
shareholder is not subject to such backup withholding.
The foregoing discussion relates only to generally applicable federal
income tax provisions in effect as of the date of this Prospectus. Therefore,
prospective shareholders are urged to consult their own tax advisors regarding
tax matters, including state and local tax consequences.
DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
has adopted a plan of distribution (the "Plan") under which the Fund may
directly incur or reimburse the Adviser for certain distribution-related
expenses, including: payments to securities dealers and others who are engaged
in the sale of shares of the Fund and who may be advising investors regarding
the purchase, sale or retention of such shares; expenses of maintaining
personnel who engage in or support distribution of shares or who render
shareholder support services not otherwise provided by _____ Service Corp.;
expenses of formulating and implementing marketing and promotional activities,
including direct mail promotions and mass media advertising; expenses of
preparing, printing and distributing sales literature and prospectuses and
statements of additional information and reports for recipients other than
existing shareholders of the Fund; expenses of obtaining such information,
analyses and reports with respect to marketing
14
<PAGE>
and promotional activities as the Trust may, from time to time, deem advisable;
and, any other expenses related to the distribution of the Fund's shares.
The annual limitation for payment of expenses pursuant to the Plan is .25%
of the Fund's average daily net assets. Unreimbursed expenditures will not be
carried over from year to year. In the event the Plan is terminated by the Fund
in accordance with its terms, the Fund will not be required to make any payments
for expenses incurred by the Adviser after the date the Plan terminates.
Pursuant to the Plan, the Fund may also make payments to banks or other
financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act prohibits banks from engaging in
the business of underwriting, selling or distributing securities. Although the
scope of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, management of the
Trust believes that the Glass-Steagall Act should not preclude a bank from
providing such services. However, state securities laws on this issue may
differ from the interpretations of federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to state
law. If a bank were prohibited from continuing to perform all or a part of such
services, management of the Trust believes that there would be no material
impact on the Fund or its shareholders. Banks may charge their customers fees
for offering these services to the extent permitted by regulatory authorities,
and the overall return to those shareholders availing themselves of the bank
services will be lower than to those shareholders who do not. The Fund may from
time to time purchase securities issued by banks which provide such services;
however, in selecting investments for the Fund, no preference will be shown for
such securities.
CALCULATION OF SHARE PRICE
On each day that the Trust is open for business, the share price (net asset
value) of the shares of the Fund is determined as of the close of the regular
session of trading on the New York Stock Exchange, currently 4:00 p.m., Eastern
time. The Trust is open for business on each day the New York Stock Exchange is
open for business and on any other day when there is sufficient trading in the
Fund's investments that its net asset value might be materially affected. The
net asset value per share of the Fund is calculated by dividing the sum of the
value of the securities held by the Fund plus cash or other assets minus all
liabilities (including estimated accrued expenses) by the total number of shares
outstanding of the Fund, rounded to the nearest cent.
Portfolio securities are valued as follows: (i) securities which are
traded on stock exchanges or are quoted by NASDAQ are valued at the last
reported sale price as of the close of the regular session of trading on the New
York Stock Exchange on the day the securities are being valued, or, if not
traded on a particular day, at the closing bid price, (ii) securities traded in
the over-the-counter market, and which are not quoted by NASDAQ, are valued at
the last sale price (or, if the last sale price is not readily available, at the
last bid price as quoted by brokers that make markets in the securities) as of
the close of the regular session of trading on the New York Stock Exchange on
the day the securities are being valued, (iii) securities which are traded
15
<PAGE>
both in the over-the-counter market and on a stock exchange are valued according
to the broadest and most representative market, and (iv) securities (and other
assets) for which market quotations are not readily available are valued at
their fair value as determined in good faith in accordance with consistently
applied procedures established by and under the general supervision of the Board
of Trustees. The net asset value per share of the Fund will fluctuate with the
value of the securities it holds.
CALCULATION OF PERFORMANCE DATA
From time to time, in advertisements or in communications to shareholders
or prospective investors, the Fund may compare its performance to that of other
mutual funds with similar investment objectives, to rankings or averages such as
those compiled by Lipper Analytical Services, Inc. for the capital appreciation
category and/or to other financial alternatives.
The Fund's average annual total return ("standard total return") is
computed by determining the average annual compounded rate of return for a
designated period that, if applied to a hypothetical $1,000 initial investment
would produce the redeemable value of that investment at the end of the period,
assuming reinvestment of all dividends and distributions and with recognition of
all recurring charges. Standard total return would be calculated for the
periods specified in applicable regulations and may be accompanied by
nonstandard total return information for differing periods computed in the same
manner with or without annualizing the total return or taking sales charges into
account.
The Fund's yield is computed by dividing the net investment income, after
recognition of all recurring charges, per share earned during the most recent
month or other specified thirty-day period by the applicable maximum offering
price per share on the last day of such period and annualizing the result.
The standard total return and yield results do not take into account
recurring and nonrecurring charges for optional services which only certain
shareholders elect and which involve nominal fees, such as the $8 fee for wire
redemptions.
The Fund's distribution rate is calculated by annualizing the latest
distribution and dividing the result by the maximum offering price per share as
of the end of the period to which the distribution relates. The distribution
rate is not computed in the same manner as the above described yield, and
therefore can be significantly different from it. In its supplemental sales
literature, the Fund may quote its distribution rate together with the above
described standard total return and yield information. The use of such
distribution rates would be subject to an appropriate explanation of how the
components of the distribution rate differ from the above described yield.
Performance information may be useful in evaluating the Fund and for
providing a basis for comparison with other financial alternatives. Since the
performance of the Fund changes in response to fluctuations in economic and
market conditions, interest rates and Fund expenses, among other things, no
performance quotation should be considered a representation as to the Fund's
performance for any future period. In addition, the net asset value of shares
of the Fund
16
<PAGE>
will fluctuate so that shares of the Fund, when redeemed, may be worth more or
less than their original cost.
17
<PAGE>
MLCFG&P Draft of 10-9-97
KOBRICK-HFS EMERGING GROWTH FUND
101 Federal Street
Boston, Massachusetts 02111
Prospectus
_______________, 1997
The investment objective of Kobrick-HFS Emerging Growth Fund (the "Fund")
is to provide growth in capital. In seeking to achieve its investment
objectives, the Fund invests primarily in equity securities of emerging growth
and small capitalization companies.
Kobrick-HFS, Inc. (the "Investment Manager") serves as investment adviser
to the Fund. The Investment Manager was organized in October, 1997; and its
principals are Frederick R. Kobrick and Michael T. Carmen.
Shareholders may have their shares redeemed directly by the fund at net
asset value; redemptions processed through securities dealers may be subject to
processing charges.
There are risks in any investment program, including the risk of changing
economic and market conditions, and there is no assurance that the Fund will
achieve its investment objective. The net asset value of the Fund's shares
fluctuates as market conditions change.
Because of the Fund's investment policies, the Fund is subject to
above-average risks. The Fund generally is designed for investors who want an
aggressive investment and can tolerate volatility and possible losses. An
investment in the Fund should be part of a balanced investment program which
includes more conservative investments.
This Prospectus sets forth concisely the information a prospective investor
ought to know about the fund before investing. It should be retained for future
reference. A Statement of Additional Information about the Fund dated
______________, 1997 has been filed with the Securities and Exchange Commission
and is incorporated by reference into this Prospectus. It is available at no
charge upon request to the fund at the address indicated on the cover or by
calling 1-800-______________.
The Fund is a diversified series of Kobrick-HFS Investment Trust (the
"Trust"), an open-end management investment company.
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 ON
THE ACCURACY OR ADEQUACY OF
<PAGE>
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE FUND MAY ENGAGE IN SHORT-TERM TRADING, WHICH MAY BE CONSIDERED A
SPECULATIVE ACTIVITY AND INVOLVE GREATER RISK AND ADDITIONAL COST TO THE FUND.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
TABLE OF CONTENTS
Table of Expenses
The Fund's Investments
Limiting Investment Risk
How to Purchase Shares
Shareholder Services
How to Redeem Shares
Dividends and Distributions
The Fund and its Shares
Management of the Fund
Taxes
Distribution Plan
Calculation of Share Price
Calculation of Performance Data
TABLE OF EXPENSES
Shareholder Transaction Expenses
Sales Charge Imposed on Purchases. . . . . . . . . . . . . . . . . . None
Sales Charge Imposed on Reinvested Dividends . . . . . . . . . . . . None
Deferred Sales Charge. . . . . . . . . . . . . . . . . . . . . . . . None
Redemption Fees (a). . . . . . . . . . . . . . . . . . . . . . . . . None
Exchange Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Annual Fund Operating Expenses (estimated as a percentage of average net assets)
Management Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 1.00%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.25%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.50%
-----
Total Fund Operating Expenses . . . . . . . . . . . . . . . . . . 1.75%
-----
-----
_____________
(a) Remittance of redemption proceeds by wire is subject to a $8.00 fee.
2
<PAGE>
EXAMPLE
THE EXAMPLE SHOULD NOT BE CONSIDERED AS A REPRESENTATION OF PAST OR FUTURE
RETURN OR EXPENSES. ACTUAL RETURN AND EXPENSES MAY BE GREATER OR LESS THAN
SHOWN.
1 Year 3 Years 5 Years 10 Years
You would pay the
following expenses on
a $1,000 investment
assuming 5%
annual return: $18 $57 $98 $212
The purpose of the table above is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or
indirectly. The percentage expense level shown in the table as "Other Expenses"
is based on projected expenses for the current fiscal year ending December 31,
1998. Actual expense levels for the current fiscal year or for future years may
vary from the amounts shown.
THE FUND'S INVESTMENTS
The Fund's investment objective is to provide growth of capital. The
investment objective is a fundamental policy that may not be changed without
approval of the Fund's shareholders.
In seeking to achieve its investment objective, the Fund invests at least
65% of its total assets under normal circumstances in equity securities of small
capitalization companies and companies in the emerging growth stage of
development. A company's market capitalization is the total market value of its
publicly traded equity securities. The Fund invests in companies with market
capitalization ranging as high as those included in the Russell 2000 Growth
Index, although the capitalizations or index could vary over time because of
market conditions, changes in the parameters of indices, etc. While a company's
market capitalization may be small at the time the Fund first invests in the
Company the Fund may continue to hold and acquire shares of a company after its
market capitalization increases.
The Investment Manager considers emerging growth companies to be those
companies which are less mature and have the potential to grow substantially
faster than the economy. In selecting such investments, the Investment Manager
considers a variety of factors, any one of which may be determinative. These
include a company's expected growth in earnings, relative financial condition
and cash flow, competitive position, management and business strategy, overall
potential as an enterprise, entrepreneurial character, and new or innovative
products, services or processes.
The equity securities in which the Fund will invest consist of common
stocks, or securities (preferred stock, bond and debentures) convertible into
common stocks, or which carry the right to acquire equity securities (warrants).
The Fund anticipates that more than half of the
3
<PAGE>
total value, at the time of investment, of the equity securities held by the
Fund will be included on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") system or listed on a major securities exchange.
Under normal circumstances, the Fund expects to by fully invested in equity
securities as described above. However, the Fund may, consistent with its
investment objective, invest at any time up to 35% of its total assets in other
equity and debt securities, such as those issued by larger capitalization, more
mature, or special situation companies, and U.S. Government securities. A
special situation company is one which, because of unique circumstances such as,
for example, a particular business niche it fills, is an attractive investment
even though it is not a small capitalization issuer or in the emerging growth
stage. The Fund will purchase investment grade debt (i.e., rated at the time of
purchase AAA, AA, A or BBB categories by Standard & Poor's Corporation ("S&P")
or Aaa, Aa, A or Baa categories by Moody's Investors Service, Inc. ("Moody's")),
or securities that are not rated but considered by the Investment Manager to be
of equivalent investment quality. The debt securities, which may have differing
maturites and fixed or floating interest rates, will be U.S. Government
securities or issued by larger capitalization issuers. For more information on
debt ratings, see the Statement of Additional Information.
Because the Fund invests primarily in small capitalization and emerging
growth companies, an investment in the Fund involves greater than average risks
and the value of the Fund's shares may fluctuate more widely than the value of
shares of a fund that invests in larger, more established companies. Securities
held by the Fund, particularly those traded over-the-counter, may have limited
marketability and may be subject to more abrupt or erratic market movements over
time than securities of larger, more seasoned companies or the market as a
whole. The issuers of over-the-counter securities may have limited product
lines, markets and financial resources, may be dependent on entrepreneurial
management, typically reinvest most of their net income in the enterprise and
typically do not pay dividends.
INVESTMENT PRACTICES
FOREIGN INVESTMENTS
The Fund reserves the right to invest without limitation in securities of
non-U.S. issuers directly, or indirectly in the form of American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") or similar securities
representing interests in the securities of foreign issuers. Under current
policy, however, the Fund limits such investments, including ADRs and EDRs, to a
maximum of 35% of its total assets.
ADRs are receipts, typically issued by a U.S. bank or trust company, which
evidence ownership of underlying securities issued by a foreign corporation or
other entity. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs in registered form are designed for use
in U.S. securities markets and EDRs are designed for use in European securities
markets. The underlying securities are not always denominated in the same
currency as the ADRs or EDRs. Although investment in the form of ADRs or EDRs
facilities trading in foreign securities, it does not mitigate all the risks
associated with investing in foreign securities.
4
<PAGE>
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder communications. In an unsponsored arrangement, the foreign
issuer is not involved, and the ADR holders pay the fees of the depository.
Sponsored ADRs are generally more advantageous to the ADR holders and the issuer
than are unsponsored ADRs. More and higher fees are generally charged in an
unsponsored program compared to a sponsored facility. Only sponsored ADRs may
be listed on the New York or American Stock Exchanges. Unsponsored ADRs may
prove to be more risky, due to (a) the additional costs involved to the Fund;
(b) the relative illiquidity of the issue in U.S. markets ; and (c) the
possibility of higher trading costs in the over-the-counter market as opposed to
exchange based trading. The Fund will take these and other risk considerations
into account before making an investment in an unsponsored ADR.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks of
nationalization or expropriation, the possible imposition of currency exchange
blockages, higher operating expenses, foreign withholding and other taxes which
may reduce investment return, reduced availability of public information
concerning issuers, the difficulties in obtaining and enforcing a judgment
against a foreign issuer and the fact that foreign issuers are not generally
subject to uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements comparable to those applicable to
domestic issuers. Moreover, securities of many foreign issuers may be less
liquid and their prices more volatile than those of securities of comparable
domestic issuers.
It is anticipated that a majority of the foreign investments by the Fund
will consist of securities of issuers in countries with developed economies.
However, the Fund may also invest in the securities of issuers in countries with
less developed economies as deemed appropriate by the Investment Manager,
although the Fund does not presently expect to invest more than 5% of its total
assets in issuers in such less developed countries. Such countries include
countries that have any emerging stock market that trades a small number of
securities; countries with low-to middle-income economies; and/or countries with
economies that are based on only a few industries. Eastern European countries
are considered to have less developed capital markets.
For further information regarding foreign investments, see the Statement of
Additional Information.
CURRENCY TRANSACTIONS
In order to protect against the effect of uncertain future exchange rates
on securities denominated in foreign currencies, the Fund may engage in currency
exchange transactions either on a spot (i.e., cash) basis at the rate prevailing
in the currency exchange market or by entering into forward contracts to
purchase or sell currencies. Although such contracts tend to minimize the risk
of loss resulting from a correctly predicted decline in value of hedged
currency, they tend to limit any potential gain that might result should the
value of such currency increase. In entering a forward currency transaction,
the Fund is dependent upon the
5
<PAGE>
creditworthiness and good faith of the counterparty. The Fund will attempt to
reduce the risks of nonperformance by a counterparty by dealing only with
established, large institutions. For further information, see the Statement of
Additional Information.
OTHER INVESTMENT POLICIES
The Fund may lend portfolio securities with a value of up to 33 1/3 % of
its total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of the loaned securities plus accrued interest. Collateral
received by the Fund will generally be held in the form tendered, although cash
may be invested in securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, irrevocable stand-by letters of credit issued by
a bank, or any combination thereof. The investing of cash collateral received
from loaning portfolio securities involves leverage which magnifies the
potential for gain or loss on monies invested and, therefore, results in an
increase in the volatility of the Fund's outstanding securities. Such loans may
be terminated at any time.
The Fund will retain most rights of ownership including rights to
dividends, interest or other distributions on the loaned securities. Voting
rights pass with the lending, although the Fund may call loans to vote proxies
if desired. Should the borrower of the securities fail financially, there is a
risk of delay in recovery of the securities or loss of rights in the collateral.
Loans are made only to borrowers which are deemed by the Investment Manager to
be of good financial standing.
The Fund may, subject to certain limitations, buy and sell options, futures
contracts and options on futures contracts on securities and securities
indicies, enter into repurchase agreements and purchase securities on a "when
issued" or forward commitment basis. The Fund may not establish a position in a
commodity futures contract or purchase or sell a commodity option contract for
other than bona fide hedging purposes if immediately thereafter the sum of the
amount of initial margin deposits and premiums on open positions with respect to
futures and options used for such nonhedging purposes would exceed 5% of the
market value of the Fund's net assets; similar policies apply to options which
are not commodities. The Fund may enter various forms of swap arrangements,
which have simultaneously the characteristics of a security and futures
contract, although the Fund does not presently expect to invest more than 5% of
its total assets in such items. These swap arrangements include interest rate
swaps, currency swaps and index swaps. See the Statement of Additional
Information.
The Fund may invest in restricted securities in accordance with Rule 144A
under the Securities Act of 1933, which allows for the resale of such securities
among certain qualified institutional buyers. Because the market for such
securities is still developing, such securities could possibly become illiquid
in particular circumstances. See the Statement of Additional Information.
The Fund may engage in short-term trading of securities and reserves full
freedom with respect to portfolio turnover. In periods when there are rapid
changes in economic conditions or security price levels or when investment
strategy changes significantly, portfolio turnover may
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be higher than during times of economic and market price stability or when
investment strategy remains relatively constant. The Fund's portfolio turnover
rate involves greater transaction costs, relative to other funds in general, and
may have tax and other consequences as well. See the Statement of Additional
Information.
Because the Fund invests primarily in emerging growth and special situation
companies, an investment in the Fund involves greater than average risks and the
value of the Fund's shares may fluctuate more widely than the value of shares of
a fund that invests in more established companies. Securities held by the Fund,
particularly those traded over-the-counter, may have limited marketability and
may be subject to more abrupt or erratic market movements over time than
securities of larger, more seasoned companies or the market as a whole. The
issuers of the over-the-counter securities may have limited product lines,
markets and financial resources, may be dependent on entrepreneurial management,
typically reinvest most of their net income in the enterprise and typically do
not pay dividends
LIMITING INVESTMENT RISK
In seeking to lessen investment risk, the Fund operates under certain
fundamental and nonfundamental investment restrictions. Under the fundamental
restrictions the Fund may not (a) purchase a security of any one issuer (other
than the United States or its instrumentalities) if such purchase at the time
would cause more than 5% of the Fund's total assets to be invested in the
securities of such issuer; (b) purchase for its portfolio a security of any one
issuer if such purchase at the time thereof would cause more than 10% of any
class of securities of such issuer to be held by the Fund; or (c) invest more
than 25% of the Fund's total assets in securities of issues principally engaged
in any one industry with certain designated exceptions such as in the case of
the U.S. Government.
The foregoing fundamental investment restrictions may not be changed except
by vote of the holders of a majority of the outstanding voting securities of the
Fund. The vote of a majority of the outstanding voting securities of the Fund
means the vote (A) of 67 per centum or more of the voting securities present at
a meeting, if the holders of more than 50 per centum of the outstanding voting
securities of the Trust are present or represented by proxy; or (B) of more than
50 per centum of the outstanding voting securities of the Trust, whichever is
less.
Under the nonfundamental investment restrictions, the Fund may not invest
more than 15% of the Fund's net assets in illiquid securities including
repurchase agreements extending for more than seven days and may not invest more
than 10% of the Fund's net assets in restricted securities (excluding securities
eligible for resale under Rule 144A under the Securities Act of 1933). Although
many illiquid securities may also be restricted, and vice versa, compliance with
each of these policies will be determined independently. The foregoing
nonfundamental investment restrictions may be changed without a shareholder
vote.
For further information on the above and other fundamental and
nonfundamental investment restrictions, see the Statement of Additional
Information.
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The Fund may hold up to 100% of its assets in cash or certain short-term
securities for temporary defensive purposes. The Fund will adopt a temporary
defensive position when, in the opinion of the Investment Manager, such a
position is more likely to provide protection against adverse market conditions
than adherence to the Fund's other investment policies. To the extent that the
Fund's assets are held in a temporary defensive position the Fund will not be
achieving its investment goals. The types of short-term instruments in which
the Fund may invest for such purposes are, as more fully described in the
Statement of Additional Information: securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, (U.S. Treasury bills, notes,
bonds, Government National Mortgage Association certificates), custodial
receipts, certificates of deposit, time deposits and banker's acceptances of
certain qualified financial institutions and corporate commercial paper rated at
least "A" by S&P or "Prime" by Moody's (or, if not rated, issued by companies
having an outstanding long-term unsecured debt issue rated at least "A" by S&P
or Moody's). See the Statement of Additional Information.
HOW TO PURCHASE SHARES
Your initial investment in the Fund ordinarily must be at least $2,000
($1,000 for tax-deferred retirement plans). The Fund may, in the Investment
Manager's sole discretion, accept certain accounts with less than the stated
minimum initial investment. Shares of the Fund are sold on a continuous basis
at the net asset value next determined after receipt of a purchase order by the
Trust. Purchase orders received by dealers prior to 4:00 p.m., Eastern time, on
any business day and transmitted to the Trust's transfer agent, ___ Service
Corp., by 5:00 p.m., Eastern time, that day are confirmed at the net asset value
determined as of the close of the regular session of trading on the New York
Stock Exchange on that day. It is the responsibility of dealers to transmit
properly completed orders so that they will be received by ___ Service Corp. by
5:00 p.m., Eastern time. Dealers may charge a fee for effecting purchase
orders. Direct purchase orders received by ___ Service Corp. by 4:00 p.m.,
Eastern time, are confirmed at that day's net asset value. Direct investments
received by ___ Service Corp. after 4:00 p.m., Eastern time, and orders received
from dealers after 5:00 p.m., Eastern time, are confirmed at the net asset value
next determined on the following business day.
You may open an account and make an initial investment in the Fund by
sending a check and a completed account application form to ___ Service Corp.,
___________________. Checks should be made payable to the "Kobrick-HFS Emerging
Growth Fund". An account application is included in this Prospectus.
The Trust mails you confirmations of all purchases or redemptions of Fund
shares. Certificates representing shares are not issued. The Trust reserves
the rights to limit the amount of investments and to refuse to sell to any
person.
Investors should be aware that the Fund's account application contains
provisions in favor of the Trust, ___ Service Corp. and certain of their
affiliates, excluding such entities from certain liabilities (including, among
others, losses resulting from authorized shareholder
8
<PAGE>
transactions) relating to the various services (for example, telephone
exchanges) made available to investors.
Should an order to purchase shares be canceled because your check does not
clear, you will be responsible for any resulting losses or fees incurred by the
Trust or ___ Service Corp. in the transaction.
You may also purchase shares of the Fund by wire. Please telephone ___
Service Corp. (Nationwide call toll-free 800-___-____) for instructions. You
should be prepared to give the name in which the account is to be established,
the address, telephone number and taxpayer identification number for the
account, and the name of the bank which will wire the money.
Your investment will be made at the net asset value next determined after
your wire is received together with the account information indicated above. If
the Trust does not receive timely and complete account information, there may be
a delay in the investment of your money and any accrual of dividends. To make
your initial wire purchase, you are required to mail a completed account
application to ___ Service Corp.. Your bank may impose a charge for sending
your wire. There is presently no fee for receipt of wired funds, but ___
Service Corp. reserves the right to charge shareholders for this service upon
thirty days' prior notice to shareholders.
You may purchase and add shares to your account by mail or by bank wire.
Checks should be sent to ___ Service Corp., ____________________. Checks should
be made payable or endorsed to the "Kobrick-HFS Emerging Growth Fund". Bank
wires should be sent as outlined above. Each additional purchase request must
contain the name of your account and your account number to permit proper
crediting to your account. While there is no minimum amount required for
subsequent investments, the Trust reserves the right to impose such a
requirement.
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<PAGE>
SHAREHOLDER SERVICES
Contact ___ Service Corp. (Nationwide call toll-free 800-___-____) for
additional information about the shareholder services described below.
AUTOMATIC WITHDRAWAL PLAN
If the shares in your account have a value of at least $5,000, you may
elect to receive, or may designate another person to receive, monthly or
quarterly payments in a specified amount of not less than $50 each. There is no
charge for this service.
TAX-DEFERRED RETIREMENT PLANS
Shares of the Fund are available for purchase in connection with the
following tax-deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for individuals and their
non-employed spouses
-- Qualified pension and profit-sharing plans for employees, including
those profit-sharing plans with a 401(k) provision
-- 403(b)(7) custodial accounts for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting certain
requirements of the Internal Revenue Code
DIRECT DEPOSIT PLANS
Shares of the Fund may be purchased through direct deposit plans offered by
certain employers and government agencies. These plans enable a shareholder to
have all or a portion of his or her payroll or social security checks
transferred automatically to purchase shares of the Fund.
AUTOMATIC INVESTMENT PLAN
You may make automatic monthly investments in the Fund from your bank,
savings and loan or other depository institution account. The minimum initial
and subsequent investments must be $50 under the plan. ___ Service Corp. pays
the costs associated with these transfers, but reserves the right, upon thirty
days' written notice, to make reasonable charges for this service. Your
depository institution may impose its own charge for debiting your account which
would reduce your return from an investment in the Fund.
10
<PAGE>
HOW TO REDEEM SHARES
You may redeem shares of the Fund on each day that the Trust is open for
business by sending a written request to the Fund. The request must state the
number of shares or the dollar amount to be redeemed and your account number.
The request must be signed exactly as your name appears on the Trust's account
records. If the shares to be redeemed have a value of $25,000 or more, your
signature must be guaranteed by any eligible guarantor institution, including
banks, brokers and dealers, municipal securities brokers and dealers, government
securities brokers and dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations.
Redemption requests may direct that the proceeds be wired directly to your
existing account in any commercial bank or brokerage firm in the United States.
If your instructions request a redemption by wire, you will be charged an $8
processing fee by the Trust's Custodian. The Trust reserves the right, upon
thirty days' written notice, to change the processing fee. All charges will be
deducted from your account by redemption of shares in your account. Your bank or
brokerage firm may also impose a charge for processing the wire. In the event
that wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You may also redeem shares by placing a wire redemption request through a
securities broker or dealer. Unaffiliated broker-dealers may impose a fee on the
shareholder for this service. You will receive the net asset value per share
next determined after receipt by the Trust or its agent of your wire redemption
request. It is the responsibility of broker-dealers to properly transmit wire
redemption orders.
You will receive the net asset value per share next determined after
receipt by ___ Service Corp. of your redemption request in the form described
above. Payment is made within three business days after tender in such form,
provided that payment in redemption of shares purchased by check will be
effected only after the check has been collected, which may take up to fifteen
days from the purchase date. To eliminate this delay, you may purchase shares of
the Fund by certified check or wire. At the discretion of the Trust or ___
Service Corp., corporate investors and other associations may be required to
furnish an appropriate certification authorizing redemptions to ensure proper
authorization.
The Trust reserves the right to suspend the right of redemption or to
postpone the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the other series of the
Trust, the Kobrick-HFS Capital Fund, at net asset value [Shares of the Fund may
also be exchanged for shares at net asset value of the Short Term Government
Income Fund (a series of _________________), which invests in short-term U.S.
Government obligations backed by the "full faith and credit" of the United
States and seeks high current income consistent with
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<PAGE>
protection of capital. Shares of the Short Term Government Income Fund acquired
via exchange may be re-exchanged for shares of the Fund at net asset value.]
You may request an exchange by sending a written request to ___ Service
Corp. The request must be signed exactly as your name appears on the Trust's
account records. Exchanges may also be requested by telephone. An exchange will
be effected at the next determined net asset value after receipt of a request by
___ Service Corp.
Exchanges may only be made for shares of funds then offered for sale in
your state of residence and are subject to the applicable minimum initial
investment requirements. The exchange privilege may be modified or terminated by
the Board of Trustees upon 60 days' prior notice to shareholders. An exchange
results in a sale of fund shares, which may cause you to recognize a capital
gain or loss. Before making an exchange, contact ___ Service Corp. to obtain a
current prospectus and more information about exchanges among the funds.
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to distribute any net realized capital gains and net
investment income at least once each year. Management will determine the timing
and frequency of the distributions of any net realized short-term capital gains.
Distributions are paid according to one of the following options:
Share Option - income distributions and capital gains distributions
reinvested in additional shares.
Income Option - income distributions and short-term capital gains
distributions paid in cash; long-term capital gains
distributions reinvested in additional shares.
Cash Option income distributions and capital gains distributions paid in
cash.
You should indicate your choice of option on your application. If no
option is specified on your application, distributions will automatically be
reinvested in additional shares. All distributions will be based on the net
asset value in effect on the payable date.
If you select the Income Option or the Cash Option and the U.S. Postal
Service cannot deliver your checks or if your checks remain uncashed for six
months, your dividends may be reinvested in your account at the then current
net asset value and your account will be converted to the Share Option.
SHAREHOLDER ACCOUNT INQUIRIES:
PLEASE CALL 1-800-____________
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Call this number for assistance in answering general servicing questions on
your account, including account balance, available shareholder services and
statement information. Account inquiries may also be made in writing to
________________.
THE FUND AND ITS SHARES
The Fund was organized in October 1997 as a series of Kobrick-HFS
Investment Trust, a Massachusetts business trust and is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940 as
an open-end management investment company. Kobrick-HFS Investment Trust was
organized on _______, 1997. The Fund's fiscal year ends on December 31.
Shortly prior to the effective time of this Prospectus, a share
distribution of four shares for each then outstanding share was declared.
Shares of the Trust have equal dividend, redemption and liquidation rights and
when issued are fully paid and nonassessable by the Master Trust. Each share
has one vote (with proportionate voting for fractional shares) irrespective of
net asset value.
Under the Master Trust Agreement of the Master Trust, no annual or regular
meeting of shareholders is required. Thus, there will ordinarily be no
shareholder meetings unless required by the Investment Company Act of 1940.
Except as otherwise provided under said Act, the Board of Trustees will be a
self-perpetuating body until fewer than 50% of the Trustees serving as such are
Trustees who were elected by shareholders of the Master Trust. At that time
another meeting of shareholders will be called to elect Trustees. Under the
Master Trust Agreement, any Trustee may be removed by vote of two-thirds of the
outstanding Master Trust shares; holders of 10% or more of the outstanding
shares of the Master Trust can require that the Trustees call a meeting of
shareholders for purposes of voting on the removal of one or more Trustees. In
connection with such meetings called by shareholders, shareholders will be
assisted in shareholder communications.
Under Massachusetts law, the shareholders of the Master Trust could, under
certain circumstances, be held personally liable for the obligations of the
Master Trust. However, the Master Trust Agreement of the Master Trust disclaims
shareholder liability for acts or obligations of the Master Trust and provides
for indemnification for all losses and expenses of any shareholder of the Trust
held personally liable for the obligations of the Master Trust. Thus, the risk
of a shareholder's incurring financial loss on account of shareholder liability
is limited to circumstances in which the Trust would be unable to meet its
obligations. The Investment Manager believes that, in view of the above, the
risk of personal liability to shareholders is remote.
MANAGEMENT OF THE FUND
Under the provisions of the Master Trust Agreement and the laws of
Massachusetts, primary responsibility for the management and supervision of the
Fund rests with the Trustees.
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The Fund's investment manager is Kobrick-HFS, Inc., 101 Federal Street,
Boston, Massachusetts 02111. Kobrick-HFS, Inc. was founded in October, 1997
principally by Frederick R. Kobrick and Michael T. Carmen. HFS Incorporated of
Parsippany, New Jersey, also has an interest in non-voting preferred stock of
the Investment Manager. Messrs Kobrick and Carmen have combined over 30 years
of experience in the management of investments under objective similar to those
of the Fund. The Fund's portfolio manager is Frederick R. Kobrick, who for 12
years was an equity portfolio manager at State Street Research & Management
Company where he served as Senior Vice President and a member of the firm's
Equity Investment Committee.
Under the Investment Advisory Contract between the Trust and the Investment
Manager, the Fund pays a quarterly advisory fee to the Investment Manager. The
advisory fee is computed as a percentage of the average of the values of the net
assets of the Fund as determined at the close of each business day during the
quarter at the following annual rates:
1% of the first $1,000,000,000 of such assets;
3/4% of the next $500,000,000 of such assets;
1/2% of the next $1,000,000,000 of such assets; and
3/8% of the average market value of such assets in
excess of $2,500,000,000.
The Investment Advisory Contract provides that the Investment Manager shall
furnish the Trust with suitable office space and facilities and such management,
investment advisory, statistical and research facilities and services as may be
required from time to time by the Trust and the Fund is responsible for its
other expenses and services. In view of the requirements for management of the
Fund's particular investment program, this fee is higher than those charges for
many other funds.
As of the date of this Prospectus, Kobrick-HFS, Inc. is the sole
shareholder of the Fund.
TAXES
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, however, it cannot give complete
assurance that it will do so. As long as it so qualifies, it will not be
subject to federal income taxes on its taxable income (including realized
capital gains, if any) distributed to its shareholders. Consequently, the Fund
intends to distribute annually to its shareholders substantially all of its net
investment income and any capital gain net income (capital gains net of capital
losses).
The Fund declares dividends from net investment income quarterly and pays
such dividends, if any, two times each year. Distributions of capital gain net
income will generally be made after the end of the fiscal year or as otherwise
required for compliance with applicable tax regulations. Both dividends from
net investment income and distributions of capital gain net income will be
declared and paid to shareholders in additional shares of the Fund at net asset
value on the record date of that dividend or distribution, except in the case of
shareholders who elect a different available distribution method.
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The Fund will provide its shareholders with annual information on a
timely basis concerning the federal tax status of dividends and distributions
during the preceding calendar year.
Dividends paid by the Fund from taxable net investment income and
distributions of net short-term capital gains, whether paid in cash or
reinvested in additional shares, will be taxable for federal income tax purposes
to shareholders as ordinary income, and a portion may be eligible for the 70%
dividends-received deduction for corporations. The percentage of the Fund's
dividends eligible for such tax treatment may be less than 100% to the extent
that less than 100% of the Trust's gross income consist of qualified dividends
of domestic corporations. Distributions of net capital gains (the excess of net
long-term capital gains over short-term capital losses) which are designated as
capital gains distributions, whether paid in cash or reinvested in additional
shares, will be taxable for federal income tax purposes to shareholders as
long-term or mid-term capital gains, regardless of how long shareholders have
held their shares, and are not eligible for the dividends-received deduction.
If shares of the Fund which are sold at a loss have been held six months or
less, the loss will be considered as a long-term capital loss to the extent of
any capital gains distributions received.
Dividends and other distributions and proceeds of redemptions of Fund
shares paid to individuals and other nonexempt payees will be subject to a 31%
federal backup withholding tax if the Transfer Agent is not provided with the
shareholder's correct taxpayer identification number and certification that the
shareholder is not subject to such backup withholding.
The foregoing discussion relates only to generally applicable federal
income tax provisions in effect as of the date of this Prospectus. Therefore,
prospective shareholders are urged to consult their own tax advisors regarding
tax matters, including state and local tax consequences.
DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the
Fund has adopted a plan of distribution (the "Plan") under which the Fund may
directly incur or reimburse the Adviser for certain distribution-related
expenses, including: payments to securities dealers and others who are
engaged in the sale of shares of the Fund and who may be advising investors
regarding the purchase, sale or retention of such shares; expenses of
maintaining personnel who engage in or support distribution of shares or who
render shareholder support services not otherwise provided by _____ Service
Corp.; expenses of formulating and implementing marketing and promotional
activities, including direct mail promotions and mass media advertising;
expenses of preparing, printing and distributing sales literature and
prospectuses and statements of additional information and reports for
recipients other than existing shareholders of the Fund; expenses of
obtaining such information, analyses and reports with respect to marketing
and promotional activities as the Trust may, from time to time, deem
advisable; and, any other expenses related to the distribution of the Fund's
shares.
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<PAGE>
The annual limitation for payment of expenses pursuant to the Plan is
.25% of the Fund's average daily net assets. Unreimbursed expenditures will
not be carried over from year to year. In the event the Plan is terminated
by the Fund in accordance with its terms, the Fund will not be required to
make any payments for expenses incurred by the Adviser after the date the
Plan terminates.
Pursuant to the Plan, the Fund may also make payments to banks or other
financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act prohibits banks from engaging
in the business of underwriting, selling or distributing securities.
Although the scope of this prohibition under the Glass-Steagall Act has not
been clearly defined by the courts or appropriate regulatory agencies,
management of the Trust believes that the Glass-Steagall Act should not
preclude a bank from providing such services. However, state securities laws
on this issue may differ from the interpretations of federal law expressed
herein and banks and financial institutions may be required to register as
dealers pursuant to state law. If a bank were prohibited from continuing to
perform all or a part of such services, management of the Trust believes that
there would be no material impact on the Fund or its shareholders. Banks may
charge their customers fees for offering these services to the extent
permitted by regulatory authorities, and the overall return to those
shareholders availing themselves of the bank services will be lower than to
those shareholders who do not. The Fund may from time to time purchase
securities issued by banks which provide such services; however, in selecting
investments for the Fund, no preference will be shown for such securities.
CALCULATION OF SHARE PRICE
On each day that the Trust is open for business, the share price (net
asset value) of the shares of the Fund is determined as of the close of the
regular session of trading on the New York Stock Exchange, currently 4:00
p.m., Eastern time. The Trust is open for business on each day the New York
Stock Exchange is open for business and on any other day when there is
sufficient trading in the Fund's investments that its net asset value might
be materially affected. The net asset value per share of the Fund is
calculated by dividing the sum of the value of the securities held by the
Fund plus cash or other assets minus all liabilities (including estimated
accrued expenses) by the total number of shares outstanding of the Fund,
rounded to the nearest cent.
Portfolio securities are valued as follows: (i) securities which are
traded on stock exchanges or are quoted by NASDAQ are valued at the last
reported sale price as of the close of the regular session of trading on the
New York Stock Exchange on the day the securities are being valued, or, if
not traded on a particular day, at the closing bid price, (ii) securities
traded in the over-the-counter market, and which are not quoted by NASDAQ,
are valued at the last sale price (or, if the last sale price is not readily
available, at the last bid price as quoted by brokers that make markets in
the securities) as of the close of the regular session of trading on the New
York Stock Exchange on the day the securities are being valued, (iii)
securities which are traded both in the over-the-counter market and on a
stock exchange are valued according to the broadest and most representative
market, and (iv) securities (and other assets) for which market quotations
are not readily available are valued at their fair value as determined in
good faith in accordance
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<PAGE>
with consistently applied procedures established by and under the general
supervision of the Board of Trustees. The net asset value per share of the Fund
will fluctuate with the value of the securities it holds.
CALCULATION OF PERFORMANCE DATA
From time to time, in advertisements or in communications to shareholders
or prospective investors, the Fund may compare its performance to that of other
mutual funds with similar investment objectives, to rankings or averages such as
those compiled by Lipper Analytical Services, Inc. for the small capitalization
category and/or to other financial alternatives.
The Fund's average annual total return ("standard total return") is
computed by determining the average annual compounded rate of return for a
designated period that, if applied to a hypothetical $1,000 initial investment
would produce the redeemable value of that investment at the end of the period,
assuming reinvestment of all dividends and distributions and with recognition of
all recurring charges. Standard total return would be calculated for the
periods specified in applicable regulations and may be accompanied by
nonstandard total return information for differing periods computed in the same
manner with or without annualizing the total return or taking sales charges into
account.
The Fund's yield is computed by dividing the net investment income, after
recognition of all recurring charges, per share earned during the most recent
month or other specified thirty-day period by the applicable maximum offering
price per share on the last day of such period and annualizing the result.
The standard total return and yield results do not take into account
recurring and nonrecurring charges for optional services which only certain
shareholders elect and which involve nominal fees, such as the $8 fee for wire
redemptions.
The Fund's distribution rate is calculated by annualizing the latest
distribution and dividing the result by the maximum offering price per share as
of the end of the period to which the distribution relates. The distribution
rate is not computed in the same manner as the above described yield, and
therefore can be significantly different from it. In its supplemental sales
literature, the Fund may quote its distribution rate together with the above
described standard total return and yield information. The use of such
distribution rates would be subject to an appropriate explanation of how the
components of the distribution rate differ from the above described yield.
Performance information may be useful in evaluating the Fund and for
providing a basis for comparison with other financial alternatives. Since the
performance of the Fund changes in response to fluctuations in economic and
market conditions, interest rates and Fund expenses, among other things, no
performance quotation should be considered a representation as to the Fund's
performance for any future period. In addition, the net asset value of shares
of the Fund will fluctuate so that shares of the Fund, when redeemed, may be
worth more or less than their original cost.
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Draft of 10-9-97
KOBRICK-HFS INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
_______, 1997
Kobrick-HFS Capital Fund
Kobrick-HFS Emerging Growth Fund
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus of the applicable Fund of
Kobrick-HFS Investment Trust dated _______, 1997. A copy of a Fund's
Prospectus can be obtained by writing the Trust at 101 Federal Street,
Boston, Massachusetts 02111, or by calling the Trust nationwide
toll-free 800-___-____.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Kobrick-HFS Investment Trust
101 Federal Street
Boston, Massachusetts 02111
TABLE OF CONTENTS
PAGE
THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES. . . . . . . . . . . . . . . . . . . . . . .
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS. . . . . . . . . . . . . .
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS. . . . . . . . . .
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . .
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . .
THE INVESTMENT ADVISER . . . . . . . . . . . . . . . . . . . . . . . . . .
DISTRIBUTION PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECURITIES TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . .
PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CALCULATION OF SHARE PRICE . . . . . . . . . . . . . . . . . . . . . . . .
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REDEMPTION IN KIND . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HISTORICAL PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . .
CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
___ SERVICE CORP . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
STATEMENTS OF ASSETS AND LIABILITIES . . . . . . . . . . . . . . . . . . .
i
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THE TRUST
Kobrick-HFS Investment Trust (the "Trust") was organized as a Massachusetts
business trust on _________, 1997. The Trust currently offers two series of
shares to investors: the Kobrick-HFS Capital Fund and the Kobrick-HFS Emerging
Growth Fund (referred to individually as a "Fund" and collectively as the
"Funds"). Each Fund has its own investment objective and policies.
Each share of a Fund represents an equal proportionate interest in the
assets and liabilities belonging to that Fund with each other share of that Fund
and is entitled to such dividends and distributions out of the income belonging
to the Fund as are declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of any Fund into a
greater or lesser number of shares of that Fund so long as the proportionate
beneficial interest in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of
a Fund, the holders of shares of the Fund being liquidated will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to that Fund. Expenses attributable to any Fund are borne by that
Fund. Any general expenses of the Trust not readily identifiable as belonging
to a particular Fund are allocated by or under the direction of the Trustees in
such manner as the Trustees determine to be fair and equitable. Generally, the
Trustees allocate such expenses on the basis of relative net assets or number of
shareholders. No shareholder is liable to further calls or to assessment by the
Trust without his express consent.
Under Massachusetts law, under certain circumstances, shareholders of a
Massachusetts business trust could be deemed to have the same type of personal
liability for the obligations of the Trust as does a partner of a partnership.
However, numerous investment companies registered under the Investment Company
Act of 1940 have been formed as Massachusetts business trusts and the Trust is
not aware of any instance where such result has occurred. In addition, the
Master Trust Agreement disclaims shareholder liability for acts or obligations
of the Trust and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or the
Trustees. The Master Trust Agreement also provides for the indemnification out
of the Trust property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Moreover, it provides that
the Trust will, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. As a result, and particularly because the Trust assets are readily
marketable and ordinarily substantially exceed liabilities, management believes
that the risk of shareholder liability is slight and limited to circumstances in
which the Trust itself would be unable to meet its obligations. Management
believes that, in view of the above, the risk of personal liability is remote.
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES
Among other investments described below, each Fund may buy and sell
domestic and foreign options, futures contracts, and options on futures
contracts with respect to securities,
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securities indices, and currencies, and may enter into closing transactions with
respect to each of the foregoing, and invest in other derivatives, under
circumstances in which such instruments and techniques are expected by
Kobrick-HFS, Inc. (the "Investment Manager") to aid in achieving the investment
objective of the Funds. Each Fund on occasion may also purchase instruments
with characteristics of both futures and securities (e.g., debt instruments with
interest and principal payments determined by reference to the value of a
commodity or a currency at a future time) and which, therefore, possess the
risks of both futures and securities investments.
Futures Contracts
Futures contracts are publicly traded contracts to buy or sell underlying
assets, such as certain securities, currencies, or an index of securities, at a
future time at a specified price. A contract to buy establishes a "long"
position while a contract to sell establishes a "short" position.
The purchase of a futures contract on securities or an index of securities
normally enables a buyer to participate in the market movement of underlying
asset or index after paying a transaction charge and posting margin in an amount
equal to a small percentage of the value of the underlying asset or index. Each
Fund will initially be required to deposit with the Trust's custodian or the
broker effecting the futures transaction an amount of "initial margin" in cash
or U.S. Treasury obligations.
Initial margin in futures transactions is different from margin in
securities transactions in that the former does not involve the borrowing of
funds by the customer to finance the transaction. Rather, the initial margin is
like a performance bond or good faith deposit on the contract. Subsequent
payments (called "maintenance margin") to and from the broker will be made on a
daily basis as the price of the underlying assets fluctuates. This process is
known as "marking to market." For example, when a Fund has taken a long
position in a futures contract and the value of the underlying asset has risen,
that position will have increased in value and the applicable Fund will receive
from the broker a maintenance margin payment equal to the increase in value of
the underlying asset. Conversely, when a Fund has taken a long position in a
futures contract and the value of the underlying instrument has declined, the
position would be less valuable, and the applicable Fund would be required to
make a maintenance margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will terminate the
Fund's position in the futures contract. A final determination of maintenance
margin is then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. While futures contracts with
respect to securities do provide for the delivery and acceptance of such
securities, such delivery and acceptance are seldom made.
Futures contracts will be executed primarily (a) to establish a short
position, and thus protect the Fund from experiencing the full impact of an
expected decline in market value of portfolio holdings without requiring the
sale of holdings, or (b) to establish a long position, and
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thus to participate in an expected rise in market value of securities or
currencies which the Fund intends to purchase. Subject to the limitations
described below, each Fund may also enter into futures contracts for purposes of
enhancing return. In transactions establishing a long position in a futures
contract, money market instruments equal to the face value of the futures
contract will be identified by the Fund to the Trust's custodian for maintenance
in a separate account to insure that the use of such futures contracts is
unleveraged. Similarly, a representative portfolio of securities having a value
equal to the aggregate face value of the futures contract will be identified
with respect to each short position. Each Fund will employ any other
appropriate method of cover which is consistent with applicable regulatory and
exchange requirements.
Options on Securities
Each Fund may use options on securities to implement its investment
strategy. A call option on a security, for example, gives the purchaser of the
option the right to buy, and the writer the obligation to sell, the underlying
asset at the exercise price during the option period. Conversely, a put option
on a security gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying asset at the exercise price during the option
period.
Purchased options have defined risk, i.e., the premium paid for the option,
no matter how adversely the price of the underlying asset moves, while affording
an opportunity for gain corresponding to the increase or decrease in the value
of the optioned asset.
Written options have varying degrees of risk. An uncovered written call
option theoretically carries unlimited risk, as the market price of the
underlying asset could rise far above the exercise price before its expiration.
This risk is tempered when the call option is covered, i.e., when the option
writer owns the underlying asset. In this case, the writer runs the risk of the
lost opportunity to participate in the appreciation in value of the asset rather
than the risk of an out-of-pocket loss. A written put option has defined risk,
i.e., the difference between the agreed-upon price that a Fund must pay to the
buyer upon exercise of the put and the value, which could be zero, of the asset
at the time of exercise.
The obligation of the writer of an option continues until the writer
effects a closing purchase transaction or until the option expires. To secure
his obligation to deliver the underlying asset in the case of a call option, or
to pay for the underlying asset in the case of a put option, a covered writer is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the' applicable clearing corporation and exchanges.
Options on Securities Indices
Each Fund may engage in transactions in call and put options on securities
indices. For example, a Fund may purchase put options on indices of securities
in anticipation of or during a market decline to attempt to offset the decrease
in market value of its securities that might otherwise result.
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Put options on indices of securities are similar to put options on the
securities themselves except that the delivery requirements are different.
Instead of giving the right to make delivery of a security at a specified price,
a put option on an index of securities gives the holder the right to receive an
amount of cash upon exercise of the option if the value of the underlying index
has fallen below the exercise price. The amount of cash received will be equal
to the difference between the closing price of the index and the exercise price
of the option expressed in dollars times a specified multiple. As with options
on securities, a Fund may offset its position in index options prior to
expiration by entering into a closing transaction on an exchange or it may let
the option expire unexercised.
A securities index assigns relative values to the securities included in
the index and the index options are based on a broad market index. Although
there are at present few available options on indices of fixed income
securities, other than tax-exempt securities, or futures and related options
based on such indices, such instruments may become available in the future. In
connection with the use of such options, a Fund may cover its position by
identifying a representative portfolio of securities having a value equal to the
aggregate face value of the option position taken. However, a Fund may employ
any appropriate method to cover its positions that is consistent with applicable
regulatory and exchange requirements.
Options on Futures Contracts
An option on a futures contract gives the purchaser the right, in return
for the premium paid, 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 exercise price at any time during the period of the option.
Options Strategy
A basic option strategy for protecting a Fund against a decline in
securities prices could involve (a) the purchase of a put - - thus "locking in"
the selling price of the underlying securities or securities indices -- or (b)
the writing of a call on securities or securities indices held by the Fund -
- -thereby generating income (the premium paid by the buyer) by giving the holder
of such call the option to buy the underlying asset at a fixed price. The
premium will offset, in whole or in part, a decline in portfolio value; however,
if prices of the relevant securities or securities indices rose instead of
falling, the call might be exercised, thereby resulting in a potential loss of
appreciation in the underlying securities or securities indices.
A basic option strategy when a rise in securities prices is anticipated is
the purchase of a call - - thus "locking in" the purchase price of the
underlying security or other asset. In transactions involving the purchase of
call options by a Fund, money market instruments equal to the aggregate exercise
price of the options will be identified by the Fund to the Trust's custodian to
insure that the use of such investments is unleveraged.
Each Fund may write options in connection with buy-and-write transactions;
that is, the Fund may purchase a security and concurrently write a call option
against that security. If the
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call option is exercised in such a transaction, the Fund's maximum gain will be
the premium received by it for writing the option, adjusted upward or downward
by the difference between the Fund's purchase price of the security and the
exercise price of the option. If the option is not exercised and the price of
the underlying security declines, the amount of such decline will be offset in
part, or entirely, by the premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Fund's return will be the premium received from
writing the put option minus the amount by which the market price of the
security is below the exercise price.
Limitations and Risks of Options and Futures Activity
Each Fund will engage in transactions in futures contracts or options only
as a hedge against changes resulting from market conditions which produce
changes in the values of its securities or the securities which it intends to
purchase (e.g., to replace portfolio securities which will mature in the near
future) or subject to the limitations described below, to enhance return. No
Fund will purchase any futures contract or purchase any call option if,
immediately thereafter, more than one third of such Fund's net assets would be
represented by long futures contracts or call options. No Fund will write a
covered call or put option if, immediately thereafter, the aggregate value of
the assets (securities in the case of written calls and cash or cash equivalents
in the case of written puts) underlying all such options, determined as of the
dates such options were written, would exceed 25% of such Fund's net assets. In
addition, no Fund may establish a position in a commodity futures contract or
purchase or sell a commodity option contract for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial margin
deposits and premiums required to establish such positions for such nonhedging
purposes would exceed 5% of the market value of such Fund's net assets.
Although effective hedging can generally capture the bulk of a desired risk
adjustment, no hedge is completely effective. A Fund's ability to hedge
effectively through transactions in futures and options depends on the degree to
which price movements in its holdings correlate with price movements of the
futures and options.
Some positions in futures and options may be closed out only on an exchange
which provides a secondary market therefor. There can be no assurance that a
liquid secondary market will exist for any particular futures contract or option
at any specific time. Thus, it may not be possible to close such an option or
futures position prior to maturity. The inability to close options and futures
positions also could have an adverse impact on the Fund's ability to effectively
hedge its securities and might in some cases require the Fund to deposit cash to
meet applicable margin requirements. The Funds will enter into an option or
futures position only if it appears to be a liquid investment.
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Each Fund has undertaken with a state securities authority that, for so
long as its shares are required to be registered for sale in such state, the
Fund will invest only in options and futures that are issued by the Options
Clearing Corporation or offered through the facilities of a national securities
association or listed on a national securities or commodities exchange, except
that a Fund may invest in unlisted options or futures when the desired options
or futures are unavailable on a national securities or commodities exchange.
Furthermore, each Fund will engage in such transactions in unlisted options or
futures only with dealers who have high credit standing as determined by the
Investment Manager.
Foreign Investments
To the extent a Fund invests in securities of issuers in less developed
countries or emerging foreign markets, it will be subject to a variety of
additional risks, including risks associated with political instability,
economies based on relatively few industries, lesser market liquidity, high
rates of inflation, significant price volatility of portfolio holdings and high
levels of external debt in the relevant country.
Although each Fund may invest in securities denominated in foreign
currencies, each Fund values its securities and other assets in U.S. dollars.
As a result, the net asset value of a Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which a Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
prices of the Fund's securities in their local markets. Conversely, a decrease
in the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of a
Fund's securities in the local markets.
Currency Transactions
Each Fund's dealings in forward currency exchange contracts will be limited
to hedging involving either specific transactions or aggregate portfolio
positions. A forward currency contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are not commodities and are entered into
in the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers. Although spot and forward
contracts will be used primarily to protect the Fund from adverse currency
movements, they also involve the risk that anticipated currency movements will
not be accurately predicted, which may result in losses to each Fund. This
method of protecting the value of a Fund's portfolio securities against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. It simply establishes a rate of exchange
that can be achieved at some future point in time. Although such contracts tend
to minimize the risk of loss due to a decline in the value of hedged currency,
they tend to limit any potential gain that might result should the value of such
currency increase.
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Repurchase Agreements
Each Fund may enter into repurchase agreements. Repurchase agreements
occur when a Fund acquires a security and the seller, which may be either (i) a
primary dealer in U.S. Government securities or (ii) an FDIC-insured bank having
gross assets in excess of $500 million, simultaneously commits to repurchase it
at an agreed-upon price on an agreed-upon date within a specified number of days
(usually not more than seven) from the date of purchase. The repurchase price
reflects the purchase price plus an agreed-upon market rate of interest which is
unrelated to the coupon rate or maturity of the acquired security. A Fund will
only enter into repurchase agreements involving U.S. Government securities.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities. Repurchase
agreements will be limited to 30% of each Fund's total assets, except that
repurchase agreements extending for more than seven days when combined with
other illiquid securities will be limited to 10% of each Fund's total assets.
Reverse Repurchase Agreements
Each Fund may enter into reverse repurchase agreements. However, a Fund
may not engage in reverse repurchase agreements in excess of 5% of the
applicable Fund's total assets. In a reverse repurchase agreement the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed-upon rate. The ability to use
reverse repurchase agreements may enable, but does not ensure the ability of, a
Fund to avoid selling portfolio instruments at a time when a sale may be deemed
to be disadvantageous.
When effecting reverse repurchase agreements, assets of the applicable Fund
in a dollar amount sufficient to make payment of the obligations to be purchased
are segregated on the applicable Fund's records at the trade date and maintained
until the transaction is settled.
Swap Arrangements
Each Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates or indices,
including purchase of caps, floors and collars as described below. In an
interest rate swap a Fund could agree for a specific period to pay a bank or
investment banker the floating rate of interest on a so-called notional
principal amount (i.e., an assumed figure selected by the parties for this
purpose) in exchange for agreement by the bank or investment banker to pay the
Fund a fixed rate of interest on the notional principal amount. In a currency
swap a Fund would agree with the other party to exchange cash flows based on the
relative differences in values of a notional amount of two (or more) currencies;
in an index swap, a Fund would agree to exchange cash flows on a notional amount
based on changes in the values of the selected indices. Purchase of a cap
entitles the purchaser to receive payments from the seller on a notional amount
to the extent that the selected index exceeds an agreed upon
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interest rate or amount whereas purchase of a floor entitles the purchaser to
receive such payments to the extent the selected index falls below an agreed
upon interest rate or amount. A collar combines a cap and a floor.
Most swaps entered into by a Fund will be on a net basis; for example, in
an interest rate swap, amounts generated by application of the fixed rate and
the floating rate to the notional principal amount would first offset one
another, with the Fund either receiving or paying the difference between such
amounts. In order to be in a position to meet any obligations resulting from
swaps, the applicable Fund will set up a segregated custodial account to hold
appropriate liquid assets, including cash; for swaps entered into on a net
basis, assets will be segregated having a daily net asset value equal to any
excess of the applicable Fund's accrued obligations over the accrued obligations
of the other party, while for swaps on other than a net basis assets will be
segregated having a value equal to the total amount of the applicable Fund's
obligations.
These arrangements will be made primarily for hedging purposes, to preserve
the return on an investment or on a portion of the applicable Fund's portfolio.
However, a Fund may enter into such arrangements for income purposes to the
extent permitted by the Commodities Futures Trading Commission for entities
which are not commodity pool operators, such as the Fund. In entering a swap
arrangement, a Fund is dependent upon the creditworthiness and good faith of the
counterparty. Each Fund attempts to reduce the risks of nonperformance by the
counterparty by dealing only with established, reputable institutions. The swap
market is still relatively new and emerging; positions in swap arrangements may
become illiquid to the extent that nonstandard arrangements with one
counterparty are not readily transferable to another counterparty or if a market
for the transfer of swap positions does not develop. The use of interest rate
swaps is a highly specialized activity which involves investment techniques and
risks different from those associated with ordinary portfolio securities
transactions. If the Investment Manager is incorrect in its forecasts of market
values, interest rates and other applicable factors, the investment performance
of the applicable Fund would diminish compared with what it would have been if
these investment techniques were not used. Moreover, even if the Investment
Manager is correct in its forecast, there is a risk that the swap position may
correlate imperfectly with the price of the asset or liability being hedged.
When-Issued Securities
Each Fund may purchase "when-issued" equity securities, which are traded on
a price basis prior to actual issuance. Such purchases will be made only to
achieve a Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to months, or over a year or
more; during this period dividends on equity securities are not payable. No
income accrues to the Fund prior to the time it takes delivery. A frequent form
of when-issued trading occurs when corporate securities to be created by a
merger of companies are traded prior to the actual consummation of the merger.
Such transactions may involve a risk of loss if the value of the securities fall
below the price committed to prior to the actual issuance. The Trust's
custodian will establish a segregated account for each Fund when it purchases
securities on a when- issued basis consisting of cash or liquid securities equal
to the amount of the when-issued commitments. Securities transactions involving
delayed deliveries or forward
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commitments are frequently characterized as when-issued transactions and are
similarly treated by each Fund.
Rule 144A Securities
Subject to the percentage limitation on illiquid and restricted securities
noted above, each Fund may buy or sell restricted securities in accordance with
Rule 144A under the Securities Act of 1933 ("Rule 144A Securities"). Securities
may be resold pursuant to Rule 144A under certain circumstances only to
qualified institutional buyers as defined in the rule, and the markets and
trading practices for such securities are relatively new and still developing;
depending on the development of such markets, such Rule 144A Securities may be
deemed to be liquid as determined by or in accordance with methods adopted by
the Trustees. Under such methods the following factors are considered, among
others: the frequency of trades and quotes for the security, the number of
dealers and potential purchasers in the market, marketmaking activity, and the
nature of the security and marketplace trades. Investments in Rule 144A
Securities could have the effect of increasing the level of a Fund's illiquidity
to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing such securities. Also, a Fund may be adversely
impacted by the possible illiquidity and subjective valuation of such securities
in the absence of a market for them.
Each Fund has undertaken with a state securities authority that, for so
long as the Fund's shares are required to be registered for sale in such state,
the Fund's investments in restricted securities, excluding restricted securities
eligible for resale pursuant to Rule 144A or Regulation S under the Securities
Act of 1933, will be limited to 5% of total assets of the applicable Fund.
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS
As indicated in each Fund's Prospectus, a Fund may invest in long-term and
short-term debt securities. Each Fund may invest in cash and short-term
securities for temporary defensive purposes when, in the opinion of the
Investment Manager, such a position is more likely to provide protection against
unfavorable market conditions than adherence to other investment policies.
Certain debt securities and money market instruments in which a Fund may invest
are described below.
U.S. Government and Related Securities. U.S. Government securities are
securities which are issued or guaranteed as to principal or interest by the
U.S. Government, a U.S. Government agency or instrumentality, or certain
mixed-ownership Government corporations as described herein. The U.S.
Government securities in which each Fund invests include, among others:
- direct obligations of the U.S. Treasury, i.e., U.S. Treasury bills,
notes, certificates and bonds;
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- obligations of U.S. Government agencies or instrumentalities such as
the Federal Home Loan Banks, the Federal Farm Credit Banks, the
Federal National Mortgage Association, the Government National
Mortgage Association and the Federal Home Loan Mortgage Corporation;
and
- obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which each Fund may buy are backed in a variety
of ways by the U.S. Government, its agencies or instrumentalities. Some of
these obligations, such as Government National Mortgage Association
mortgage-backed securities, are backed by the full faith and credit of the U.S.
Treasury. Other obligations, such as those of the Federal National Mortgage
Association, are backed by the discretionary authority of the U.S. Government to
purchase certain obligations of agencies or instrumentalities, although the U.S.
Government has no legal obligation to do so. Obligations such as those of the
Federal Home Loan Banks, the Federal Farm Credit Banks, the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation are backed
by the credit of the agency or instrumentality issuing the obligations. Certain
obligations of Resolution Funding Corporation, a mixed-ownership Government
corporation, are backed with respect to interest payments by the U.S. Treasury,
and with respect to principal payments by U.S. Treasury obligations held in a
segregated account with a Federal Reserve Bank. Except for certain
mortgage-related securities, each Fund will only invest in obligations issued by
mixed-ownership Government corporations where such securities are guaranteed as
to payment of principal or interest by the U.S. Government or a U.S. Government
agency or instrumentality, and any unguaranteed principal or interest is
otherwise supported by U.S. Government obligations held in a segregated account.
U.S. Government securities may be acquired by each Fund in the form of
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") program. Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Obligations of Resolution Funding Corporation are similarly divided into
principal and interest components and maintained as such on the book entry
records of the Federal Reserve Banks.
In addition, each Fund may invest in custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds in connection with programs sponsored by banks and
brokerage firms. Such notes and bonds are held in custody by a bank on behalf
of the owners of the receipts. These custodial receipts are known by various
names, including "Treasury Receipts" ("TRs"), "Treasury Investment Growth
Receipts" ("TIGRs") and "Certificates of Accrual on Treasury Securities"
("CATS") , and may not be deemed U.S. Government securities.
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Each Fund may also invest from time to time in collective investment
vehicles, the assets of which consist principally of U.S. Government securities
or other assets substantially collateralized or supported by such securities,
such as Government trust certificates.
Bank Money Investments. Bank money investments include but are not limited
to certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are generally short-term (i.e., less than one year),
interest-bearing negotiable certificates issued by commercial banks or savings
and loan associations against funds deposited in the issuing institution. A
banker's acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction (to finance
the import, export, transfer or storage of goods). A banker's acceptance may be
obtained from a domestic or foreign bank, including a U.S. branch or agency of a
foreign bank. The borrower is liable for payment as well as the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity. Time deposits are nonnegotiable deposits
for a fixed period of time at a stated interest rate. The Funds will not invest
in any such bank money investment unless the investment is issued by a U.S. bank
that is a member of the Federal Deposit Insurance Corporation ("FDIC"),
including any foreign branch thereof, a U.S. branch or agency of a foreign bank,
a foreign branch of a foreign bank, or a savings bank or savings and loan
association that is a member of the FDIC and which at the date of investment has
capital, surplus and undivided profits (as of the date of its most recently
published financial statements) in excess of $50 million. The Funds will not
invest in time deposits maturing in more than seven days and will not invest
more than 10% of the total assets of the applicable Fund in time deposits
maturing in two to seven days.
U.S. branches and agencies of foreign banks are offices of foreign banks
and are not separately incorporated entities. They are chartered and regulated
either federally or under state law. U.S. federal branches or agencies of
foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective states or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however, not
all such branches elect FDIC insurance. Unlike U.S. branches of foreign banks,
U.S. agencies of foreign banks may not accept deposits and thus are not eligible
for FDIC insurance. Both branches and agencies can maintain credit balances,
which are funds received by the office incidental to or arising out of the
exercise of their banking powers and can exercise other commercial functions,
such as lending activities.
Short-Term Corporate Debt Instruments. Short-term corporate debt
instruments include commercial paper to finance short-term credit needs (i.e.,
short-term, unsecured promissory notes) issued by corporations including but not
limited to (a) domestic or foreign bank holding companies or (b) their
subsidiaries or affiliates where the debt instrument is guaranteed by the bank
holding company or an affiliated bank or where the bank holding company or the
affiliated bank is unconditionally liable for the debt instrument. Commercial
paper is usually sold on a discounted basis and has a maturity at the time of
issuance not exceeding nine months.
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Commercial Paper Ratings. Commercial paper investments at the time of
purchase will be rated A by Standard & Poor's Corporation ("S&P") or Prime by
Moody's Investor's Service, Inc. ("Moody's"), or, if not rated, issued by
companies having an outstanding long-term unsecured debt issue rated at least A
by S&P or by Moody's. The money market investments in corporate bonds and
debentures (which must have maturities at the date of settlement of one year or
less) must be rated at the time of purchase at least A by S&P or by Moody's.
Commercial paper rated A (highest quality) by S&P is issued by entities which
have liquidity ratios which are adequate to meet cash requirements. Long-term
senior debt is rated A or better, although in some cases BBB credits may be
allowed. The issuer has access to at least two additional channels of borrowing
Basic earnings and cash flow have an upward trend with allowance made for
unusual circumstances. Typically, the issuer's industry is well established and
the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. The relative strength or weakness of
the above factors determines whether the issuer's commercial paper is rated A-l,
A-2 or A-3. (Those A-l issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign: A-l+.)
The rating Prime is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: evaluation of the management of the issuer; economic evaluation of
the issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
Prime-l, Prime-2 or Prime-3.
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for corporate bonds in which the Funds may invest are as follows:
Moody's Investors Service, Inc.
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
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A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Standard & Poor's Ratings Group
AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for preferred stocks in which the Funds may invest are as follows:
Moody's Investors Service, Inc.
aaa - An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa - An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
a - An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
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baa - An issue which is rated baa is considered to be medium grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
Standard & Poor's Ratings Group
AAA - This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
INVESTMENT LIMITATIONS
The Trust has adopted certain fundamental investment limitations designed
to reduce the risk of an investment in the Funds. These limitations may not be
changed with respect to either Fund without the affirmative vote of a majority
of the outstanding shares of that Fund.
The limitations applicable to each Fund are:
1. Borrowing Money. The Fund will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is asset coverage of
300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that, when made, such temporary borrowings are
in an amount not exceeding 5% of the Fund's total assets.
2. Pledging. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings. Deposit of payment
by the Fund of initial or maintenance margin in connection with futures
contracts and related options is not considered a pledge or hypothecation of
assets.
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3. Margin Purchases. The Fund will not purchase any securities on
"margin" (except such short-term credits as are necessary for the clearance of
transactions). The deposit of funds in connection with transactions in options,
futures contracts, and options on such contracts will not be considered a
purchase on "margin."
4. Short Sales. The Fund will not make short sales of securities, or
maintain a short position, other than short sales "against the box,"
5. Commodities; Put or Call Options. The Fund will not purchase or sell
commodities or commodity contracts including futures, or purchase or write put
or call options, except that the Fund may purchase or sell financial futures
contracts and related options.
6. Underwriting. The Fund will not act as underwriter of securities
issued by other persons. This limitation is not applicable to the extent that,
in connection with the disposition of portfolio securities, a Fund may be deemed
an underwriter under certain federal securities laws.
7. Real Estate. The Fund will not purchase, hold or deal in real estate
or real estate mortgage loans, including real estate limited partnership
interests, except that the Fund may purchase (a) securities of companies (other
than limited partnerships) which deal in real estate or (b) securities which are
secured by interests in real estate or by interests in mortgage loans including
securities secured by mortgage-backed securities.
8. Loans. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, or (b) by engaging in repurchase agreements. For
purposes of this limitation, the term "loans" shall not include the purchase of
bonds, debentures, commercial paper or corporate notes, and similar marketable
evidences of indebtedness.
9. Industry Concentration. The Fund will not invest more than 25% of its
total assets in any particular industry.
10. Senior Securities. The Fund will not issue or sell any senior
security as defined by the Investment Company Act of 1940 except in so far as
any borrowing that the Fund may engage in may be deemed to be an issuance of a
senior security.
The Trust does not intend to pledge, mortgage or hypothecate the assets of
either Fund. The Trust does not intend to make short sales of securities
"against the box" as described in investment limitation 4. The statements of
intention in this paragraph reflect nonfundamental policies which may be changed
by the Board of Trustees without shareholder approval.
Other current investment policies of each of the Funds, which are not
fundamental and which may be changed by action of the Board of Directors without
shareholder approval, are as follows:
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1. Illiquid Investments. The Fund will not purchase securities for
which no readily available market exists or engage in a repurchase agreement
maturing in more than seven days if, as a result thereof, more than 15% of the
value of the net assets of the Fund would be invested in such securities and the
Fund will not purchase restricted securities (excluding securities eligible for
resale under Rule 144A under the Securities Act of 1933) if, as a result
thereof, more than 5% of the value of the net assets of the Fund would be
invested in such securities.
2. Investing for Control. The Fund will not invest in companies for the
purpose of exercising control or management.
3. Other Investment Companies. The Fund will not invest more than
10% of its total assets in securities of other investment companies. The Fund
will not invest more than 5% of its total assets in the securities of any single
investment company. The Fund will not hold more than 3% of the outstanding
voting stock of any single investment company.
4. Voting Securities of Any Issuer. The Fund will not purchase more
than 10% of the outstanding voting securities of any one issuer.
With respect to the percentages adopted by the Trust as maximum limitations
on a Fund's investment policies and restrictions, an excess above the fixed
percentage (except for the percentage limitations relative to the borrowing of
money and the holding of illiquid securities) will not be a violation of the
policy or restriction unless the excess results immediately and directly from
the acquisition of any security or the action taken.
TRUSTEES AND OFFICERS
The following is a list of the Trustees and executive officers of the
Trust. Each Trustee who is an "interested person" of the Trust, as defined by
the Investment Company Act of 1940, is indicated by an asterisk.
NAME AGE POSITION HELD
*Frederick R. Kobrick 54 President/Trustee
*Michael T. Carmen 35 Secretary-Treasurer/Trustee
The principal occupations of the Trustees and executive officers of the
Trust during the past five years are set forth below:
*Frederick R. Kobrick, 101 Federal Street, Boston, MA 02111, serves as
President of the Trust. He is 54. His principal occupation currently is
President of Kobrick-HFS, Inc. During the past five years he served as a senior
vice president of State Street Research & Management Company.
*Michael T. Carmen, 101 Federal Street, Boston, MA 02111, serves as
Secretary-Treasurer of the Trust. He is 35. His principal occupation currently
is Secretary-Treasurer of
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Kobrick-HFS, Inc. During the past five years he served as a vice president and
analyst for State Street Research & Management Company and a portfolio manager
for Montgomery Asset Management.
*Messrs. Kobrick and Carmen, as principals of Kobrick-HFS, Inc., the
Trust's investment adviser, are "interested persons" of the Trust within the
meaning of Section 2(a)(19) of the Investment Company Act of 1940.
As of October __, 1997, Kobrick-HFS, Inc. was the record hold of all shares
of the Funds. Ownership of 25% or more of a voting security is deemed "control"
as defined in the 1940 Act. So long as 25% of each Funds shares are so owned,
such owners will be presumed to be in control of such shares for purposes of
voting on certain matters submitted to a vote of shareholders.
Each non-interested Trustee will receive an annual retainer of $2,000 and a
$250 fee for each Board meeting attended and will be reimbursed for travel and
other expenses incurred in the performance of their duties.
THE INVESTMENT ADVISER
Kobrick-HFS, Inc. (the "Adviser") is the Trust's investment manager. Messrs.
Kobrick and Carmen, as principals of the Adviser, may directly or indirectly
receive benefits from the advisory fees paid to the Adviser. Under the terms of
the investment advisory agreement between the Trust and the Adviser, the Adviser
manages the Funds' investments. Each Fund pays the Adviser a quarterly advisory
fee computed as a percentage of the average of the values of the net assets of
the Fund as determined at the close of each business day during the quarter at
the following annual rates:
1% of the first $1,000,000,000 of such assets;
3/4% of the next $500,000,000 of such assets;
1/2% of the next $1,000,000,000 of such assets; and
3/8% of the average market value of such assets in excess of
$2,500,000,000.
The Funds are responsible for the payment of all expenses incurred in
connection with the organization, registration of shares and operations of the
Funds, including such extraordinary or non-recurring expenses as may arise, such
as litigation to which the Trust may be a party. The Funds may have an
obligation to indemnify the Trust's officers and Trustees with respect to such
litigation, except in instances of willful misfeasance, bad faith, gross
negligence or reckless disregard by such officers and Trustees in the
performance of their duties. The compensation and expenses of any officer,
Trustee or employee of the Trust who is an officer, director or employee of the
Adviser are paid by the Adviser.
By its terms, the Trust's investment advisory agreement will remain in
force until ___________, 1999 and from year to year thereafter, subject to
annual approval by (a) the Board of Trustees or (b) a vote of the majority of a
Fund's outstanding voting securities; provided that
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in either event continuance is also approved by a majority of the Trustees who
are not interested persons of the Trust, by a vote cast in person at a meeting
called for the purpose of voting on such approval. The Trust's investment
advisory agreement may be terminated at any time, on sixty days' written notice,
without the payment of any penalty, by the Board of Trustees, by a vote of the
majority of a Fund's outstanding voting securities, or by the Adviser. The
investment advisory agreement automatically terminates in the event of its
assignment, as defined by the Investment Company Act of 1940 and the rules
thereunder.
The name "Kobrick-HFS" is the property right of the Adviser. The Adviser
may use the name "Kobrick-HFS" in other connections and for other purposes,
including in the name of other investment companies. The Trust has agreed to
discontinue any use of the name "Kobrick-HFS" if the Adviser ceases to be
employed as the Trust's investment manager.
DISTRIBUTION PLAN
As stated in each Fund's Prospectus, the Funds have adopted a plan of
distribution (the "Plan") pursuant to Rule 12b-1 under the Investment Company
Act of 1940 which permits each Fund to pay for expenses incurred in the
distribution and promotion of the Funds' shares, including but not limited to,
the printing of prospectuses, statements of additional information and reports
used for sales purposes, advertisements, expenses of preparation and printing of
sales literature, promotion, marketing and sales expenses and other
distribution-related expenses, including any distribution fees paid to
securities dealers or other firms who have executed a distribution or service
agreement with the Trust. The Plan expressly limits payment of the distribution
expenses listed above in any fiscal year to a maximum of .25% of the average
daily net assets of each Fund. Unreimbursed expenses will not be carried over
from year to year.
Agreements implementing the Plan (the "Implementation Agreements"),
including agreements with dealers wherein such dealers agree for a fee to act as
agents for the sale of the Funds' shares, are in writing and have been approved
by the Board of Trustees. All payments made pursuant to the Plan are made in
accordance with written agreements.
The continuance of the Plan and the Implementation Agreements must be
specifically approved at least annually by a vote of the Trust's Board of
Trustees and by a vote of the Trustees who are not interested persons of the
Trust and have no direct or indirect financial interest in the Plan or any
Implementation Agreement (the "Independent Trustees") at a meeting called for
the purpose of voting on such continuance. The Plan may be terminated at any
time by a vote of a majority of the Independent Trustees or by a vote of the
holders of a majority of the outstanding shares of a Fund. In the event the
Plan is terminated in accordance with its terms, the affected Fund will not be
required to make any payments for expenses incurred by the Adviser after the
termination date. Each Implementation Agreement terminates automatically in the
event of its assignment and may be terminated at any time by a vote of a
majority of the Independent Trustees or by a vote of the holders of a majority
of the outstanding shares of a Fund on not more than 60 days' written notice to
any other party to the Implementation Agreement. The Plan may not be amended to
increase materially the amount to be spent for distribution
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without shareholder approval. All material amendments to the Plan must be
approved by a vote of the Trust's Board of Trustees and by a vote of the
Independent Trustees.
In approving the Plan, the Trustees determined, in the exercise of their
business judgment and in light of their fiduciary duties as Trustees, that there
is a reasonable likelihood that the Plan will benefit the Funds and their
shareholders. The Board of Trustees believes that expenditure of the Funds'
assets for distribution expenses under the Plan should assist in the growth of
the Funds which will benefit the Funds and their shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification and less chance of disruption of planned investment strategies.
The Plan will be renewed only if the Trustees make a similar determination for
each subsequent year of the Plan. There can be no assurance that the benefits
anticipated from the expenditure of the Funds' assets for distribution will be
realized. While the Plan is in effect, all amounts spent by the Funds pursuant
to the Plan and the purposes for which such expenditures were made must be
reported quarterly to the Board of Trustees for its review. In addition, the
selection and nomination of those Trustees who are not interested persons of the
Trust are committed to the discretion of the Independent Trustees during such
period.
As principals of the Adviser, Messrs. Kobrick and Carmen may be deemed to
have a financial interest in the operation of the Plan and the Implementation
Agreements.
SECURITIES TRANSACTIONS
The Investment Manager's policy is to seek for its clients, including the
Funds, what in the Investment Manager's judgment will be the best overall
execution of purchase or sale orders and the most favorable net prices in
securities transactions consistent with its judgment as to the business
qualifications of the various broker or dealer firms with whom the Investment
Manager may do business, and the Investment Manager may not necessarily choose
the broker offering the lowest available commission rate. Decisions with
respect to the market where the transaction is to be completed, to the form of
transaction (whether principal or agency) and to the allocation of orders among
brokers or dealers are made in accordance with this policy. In selecting
brokers or dealers to effect portfolio transactions, consideration is given to
their proven integrity and financial responsibility, their demonstrated
execution experience and capabilities both generally and with respect to
particular markets or securities, the competitiveness of their commission rates
in agency transactions (and their net prices in principal transactions), their
willingness to commit capital, and their clearance and settlement capability.
The Investment Manager makes every effort to keep informed of commission rate
structures and prevalent bid/ask spread characteristics of the markets and
securities in which transactions for the Funds occur. Against this background,
the Investment Manager evaluates the reasonableness of a commission or a net
price with respect to a particular transaction by considering such factors as
difficulty of execution or security positioning by the executing firm. The
Investment Manager may or may not solicit competitive bids based on its judgment
of the expected benefit or harm to the execution process for that transaction.
When it appears that a number of firms could satisfy the required standards
in respect of a particular transaction, consideration may also be given to
services other than execution services
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which certain of such firms have provided in the past or may provide in the
future. Negotiated commission rates and prices, however, are based upon the
Investment Manager's judgment of the rate which reflects the execution
requirements of the transaction without regard to whether the broker provides
services in addition to execution. Among such other services are the supplying
of supplemental investment research; general economic, political and business
information; analytical and statistical data; relevant market information,
quotation equipment and services; reports and information about specific
companies, industries and securities; purchase and sale recommendations for
stocks and bonds; portfolio strategy services; historical statistical
information; market data services providing information on specific issues and
prices; financial publications; proxy voting data and analysis services;
technical analysis of various aspects of the securities markets, including
technical charts; computer hardware used for brokerage and research purposes;
computer software and databases, including those used for portfolio analysis and
modeling; and portfolio evaluation services and relative performance of
accounts.
Certain nonexecution services provided by broker-dealers may in turn be
obtained by the broker-dealers from third parties who are paid for such services
by the broker-dealers.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. Some services may be used for research and
investment decision-making purposes, and also for marketing or administrative
purposes. Under these circumstances, the Investment Manager allocates the cost
of such services to determine the appropriate proportion of the cost which is
allocable to purposes other than research or investment decision-making and is
therefore paid directly by the Investment Manager. Some research and execution
services may benefit the Investment Manager's clients as a whole, while others
may benefit a specific segment of clients. Not all such services will
necessarily be used exclusively in connection with the accounts which pay the
commissions to the broker-dealer producing the services.
The Investment Manager has no fixed agreements or understanding with any
broker-dealer as to the amount of brokerage business which that firm may expect
to receive for services supplied to the Investment Manager or otherwise. There
may be, however, understandings with certain firms that in order for such firms
to be able to continuously supply certain services, they need to receive
allocation of a specified amount of brokerage business. These understandings
are honored to the extent possible in accordance with the policies set forth
above.
It is not the Investment Manager's policy to intentionally pay a firm a
brokerage commission higher that that which another firm would charge for
handling the same transaction in recognition of services (other than execution
services) provided, however, the Investment Manager is aware that this is an
area where differences of opinion as to fact and circumstances may exist, and in
such circumstances, if any, the Investment Manager relies on the provisions of
Section 28(e) of the Securities Act of 1934, to the extent applicable.
In the case of the purchase of fixed income securities in underwriting
transactions, the Investment Manager follows any instructions received from its
clients as to the allocation of new issue discounts, selling concessions and
designations to brokers or dealers which provide the client with research,
performance evaluation, master trustee and other services. In the absence of
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instructions from the client, the Investment Manager may make such allocations
to broker-dealers which have provided the Investment Manager with research and
brokerage services.
When more than one client of the Investment Manager is seeking to buy or
sell the same security, the sale or purchase is carried out in a manner which is
considered fair and equitable to all accounts. In allocating investments among
various clients (including in what sequence orders for trades are placed), the
Investment Manager will use its best business judgment and will take into
account such factors as the investment objectives of the clients, the amount of
investment funds available to each, the amount already committed for each client
to a specific investment and the relative risks of the investments, all in order
to provide on balance a fair and equitable result to each client over time.
Although sharing in large transactions may sometimes affect price or volume of
shares acquired or sold, overall it is believed there may be an advantage in
execution. The Investment Manager may follow the practice of grouping orders of
various clients for execution to get the benefit of lower prices or commission
rates. In certain cases where the aggregate order may be executed in a series
of transactions at various prices, the transactions are allocated as to amount
and price in a manner considered equitable to each so that each receives, to the
extent practicable, the average price of such transactions. Exceptions may be
made based on such factors as the size of the account and the size of the trade.
For example, the Investment Manager may not aggregate trades where it believes
that it is in the best interests of clients not to do so, including situations
where aggregation might result in a large number of small transactions with
consequent increased custodial and other transactional costs which may
disproportionately impact smaller accounts. Such disaggregation, depending on
the circumstances, may or may not result in such accounts receiving more or less
favorable execution relative to other clients.
Code of Ethics. The Trust and the Adviser have each adopted a Code of
Ethics under Rule 17j-1 of the Investment Company Act of 1940. The Code
significantly restricts the personal investing activities of all employees of
the Adviser and, as described below, imposes additional, more onerous,
restrictions on investment personnel of the Adviser. The Code requires that all
employees of the Adviser preclear any personal securities (with limited
exceptions, such as U.S. Government obligations). The preclearance requirement
and associated procedures are designed to identify any substantive prohibition
or limitation applicable to the proposed investment. In addition, no employee
may purchase or sell any security which, at that time, is being purchased or
sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by either Fund. The substantive restrictions
applicable to investment personnel of the Adviser include a ban on acquiring any
securities in an initial public offering. Furthermore, the Code provides for
trading "blackout periods" which prohibit trading by investment personnel of the
Adviser within periods of trading by either Fund in the same (or equivalent)
security.
PORTFOLIO TURNOVER
A Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves
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correspondingly greater brokerage commissions and other transaction costs, which
will be borne directly by the Funds. The Adviser anticipates that the portfolio
turnover rate for each Fund normally will not exceed 100%. A 100% turnover rate
would occur if all of a Fund's portfolio securities were replaced once within a
one year period.
Generally, each Fund intends to invest for long-term purposes. However,
the rate of portfolio turnover will depend upon market and other conditions, and
it will not be a limiting factor when the Adviser believes that portfolio
changes are appropriate.
CALCULATION OF SHARE PRICE
The share price (net asset value) of the shares of each Fund is determined
as of the close of the regular session of trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time) on each day the Trust is open for business.
The Trust is open for business on every day except Saturdays, Sundays and the
following holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. The Trust may also be
open for business on other days in which there is sufficient trading in either
Fund's portfolio securities that its net asset value might be materially
affected. For a description of the methods used to determine the share price,
see "Calculation of Share Price" in the Prospectus.
TAXES
Each Fund's Prospectus describes generally the tax treatment of
distributions by the Funds. This section of the Statement of Additional
Information includes additional information concerning federal taxes.
Each Fund intends to qualify annually for the special tax treatment
afforded a "regulated investment company" under Subchapter M of the Internal
Revenue Code so that it does not pay federal taxes on income and capital gains
distributed to shareholders. To so qualify a Fund must, among other things, (i)
derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currency, or certain other
income (including but not limited to gains from options, futures and forward
contracts) derived with respect to its business of investing in stock,
securities or currencies; (ii) derive less than 30% of its gross income in each
taxable year from the sale or other disposition of the following assets held for
less than three months: (a) stock or securities, (b) options, futures or forward
contracts not directly related to its principal business of investing in stock
or securities; and (iii) diversify its holdings so that at the end of each
quarter of its taxable year the following two conditions are met: (a) at least
50% of the value of the Fund's total assets is represented by cash, U.S.
Government securities, securities of other regulated investment companies and
other securities (for this purpose such other securities will qualify only if
the Fund's investment is limited in respect to any issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer) and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies).
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A Fund's net realized capital gains from securities transactions will be
distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction.
A federal excise tax at the rate of 4% will be imposed on the excess, if
any, of a Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of a Fund's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on November 30 of the calendar year
plus undistributed amounts from prior years. The Funds intend to make
distributions sufficient to avoid imposition of the excise tax.
The Trust is required to withhold and remit to the U.S. Treasury a portion
(31%) of dividend income on any account unless the shareholder provides a
taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding or demonstrates an
exemption from withholding.
REDEMPTION IN KIND
Under unusual circumstances, when the Board of Trustees deems it in the
best interests of a Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. If any such redemption in kind is to be made, each Fund intends
to make an election pursuant to Rule 18f-1 under the Investment Company Act of
1940. This election will require the Funds to redeem shares solely in cash up
to the lesser of $250,000 or 1% of the net asset value of each Fund during any
90 day period for any one shareholder. Should payment be made in securities,
the redeeming shareholder will generally incur brokerage costs in converting
such securities to cash. Portfolio securities which are issued in an in-kind
redemption will be readily marketable.
HISTORICAL PERFORMANCE INFORMATION
From time to time, each Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P (1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
24
<PAGE>
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 and 10 year periods at the end of the
1, 5 or 10 year periods (or fractional portion thereof)
The calculation of average annual total return assumes the reinvestment of
all dividends and distributions. If a Fund has been in existence less than one,
five or ten years, the time period since the date of the initial public offering
of shares will be substituted for the periods stated. Each Fund may also
advertise total return (a "nonstandardized quotation") which is calculated
differently from average annual total return. A nonstandardized quotation of
total return may be a cumulative return which measures the percentage change in
the value of an account between the beginning and end of a period, assuming no
activity in the account other than reinvestment of dividends and capital gains
distributions. A nonstandardized quotation may also indicate average annual
compounded rates of return over periods other than those specified for average
annual total return. A nonstandardized quotation of total return will always be
accompanied by a Fund's average annual total return as described above.
From time to time, each of the Funds may also advertise its yield. A yield
quotation is based on a 30-day (or one month) period and is computed by dividing
the net investment income per share earned during the period by the maximum
offering price per share on the last day of the period, according to the
following formula:
Yield = 2[(a-b/cd + 1)6 - 1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that a Fund
owns the security. Generally, interest earned (for the purpose of "a" above) on
debt obligations is computed by reference to the yield to maturity of each
obligation held based on the market value of the obligation (including actual
accrued interest) at the close of business on the last business day prior to the
start of the 30-day (or one month) period for which yield is being calculated,
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest). With respect to the treatment of discount and
premium on mortgage or other receivables-backed obligations which are expected
to be subject to monthly paydowns of principal and interest, gain or loss
attributable to actual monthly paydowns is accounted for as an increase or
decrease to interest income during the period and discount or premium on the
remaining security is not amortized.
The performance quotations described above are based on historical earnings
and are not intended to indicate future performance.
25
<PAGE>
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements regarding each Fund may discuss
various measures of Fund performance, including current performance ratings
and/or rankings appearing in financial magazines, newspapers and publications
which track mutual fund performance. Advertisements may also compare
performance (using the calculation methods set forth in the Prospectus) to
performance as reported by other investments, indices and averages. When
advertising current ratings or rankings, the Funds may use the following
publications or indices to discuss or compare Fund performance:
Lipper Mutual Fund Performance Analysis and Lipper Fixed Income Fund
Performance Analysis measure total return and average current yield for the
mutual fund industry and rank individual mutual fund performance over specified
time periods assuming reinvestment of all distributions, exclusive of sales
loads. The Capital Fund may provide comparative performance information
appearing in the Capital Appreciation Funds category and the Emerging Growth
Fund may provide comparative performance information appearing in the Small
Capitalization Funds category. In addition, the Funds may use comparative
performance information of relevant indices, including the S&P 500 Index and the
Dow Jones Industrial Average. The S&P 500 Index is an unmanaged index of 500
stocks, the purpose of which is to portray the pattern of common stock price
movement. The Dow Jones Industrial Average is a measurement of general market
price movement for 30 widely held stocks listed on the New York Stock Exchange.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Fund's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
performance. In addition, there can be no assurance that the Fund will continue
this performance as compared to such other averages.
CUSTODIAN
___________ Bank, ________________________, __________, ____, has been
retained to act as Custodian for the Funds' investments. The ___________ Bank
acts as each Fund's depository, safekeeps its portfolio securities, collects all
income and other payments with respect thereto, disburses funds as instructed
and maintains records in connection with its duties.
AUDITORS
The firm of Ernst & Young LLP has been selected as independent public
accountants for the Trust for the fiscal year ending December 31, 1998. Ernst &
Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116, performs an annual
audit of the Trust's financial statements and advises the Funds as to certain
accounting matters.
___ SERVICE CORP.
26
<PAGE>
The Trust's transfer agent, ___ Service Corp. ("___"), maintains the
records of each shareholder's account, answers shareholders' inquiries
concerning their accounts, processes purchases and redemptions of the Funds'
shares, acts as dividend and distribution disbursing agent and performs other
shareholder service functions. ___ receives for its services as transfer agent
a fee payable monthly at an annual rate of $__ per account from the Capital Fund
and $__ per account from the Emerging Growth Fund, provided, however, that the
minimum fee is $_,000 per month for each Fund. In addition, the Funds pay
out-of-pocket expenses, including but not limited to, postage, envelopes,
checks, drafts, forms, reports, record storage and communication lines.
___ also provides accounting and pricing services to the Funds. For
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable ___ to perform its duties, each Fund pays ___
a fee in accordance with the following schedule:
Average Monthly Net Assets Monthly Fee
0 - $ 50,000,000 $_,000
50 - 100,000,000
100 - 250,000,000
Over 250,000,000
In addition, each Fund pays all costs of external pricing services.
In addition, ___ is retained to provide administrative services to the
Funds. In this capacity, ___ supplies non-investment related statistical and
research data, internal regulatory compliance services and executive and
administrative services. ___ supervises the preparation of tax returns, reports
to shareholders of the Funds, reports to and filings with the Securities and
Exchange Commission and state securities commissions, and materials for meetings
of the Board of Trustees. For the performance of these administrative services,
each Fund pays ___ a fee at the annual rate of .15% of the average value of its
daily net assets up to $50,000,000, .125% of such assets from $50,000,000 to
$100,000,000 and .10% of such assets in excess of $100,000,000; provided,
however, that the minimum fee is $1,000 per month for each Fund.
STATEMENTS OF ASSETS AND LIABILITIES
The Funds' Statements of Assets and Liabilities as of ___________, 1997,
which have been audited by Ernst & Young LLP, are attached to this Statement of
Additional Information.
27
<PAGE>
KOBRICK-HFS INVESTMENT TRUST
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) (i) Financial Statements included in Part A:
None
(ii) Financial Statements included in Part B:
Statements of Assets and Liabilities, ___________, 1997*
Notes to Financial Statements*
Report of Independent Accountants*
(b) Exhibits
(1) Agreement and Declaration of Trust
(2) Bylaws
(3) Inapplicable
(4) Inapplicable
(5) Form of Advisory Agreement with Kobrick-HFS, Inc.
(6) Inapplicable
(7) Inapplicable
(8) Form of Custody Agreement with ___________*
(9) (i) Form of Administrative Services Agreement with ___ Service
Corp.*
(ii) Form of Accounting Services Agreement with ___ Service
Corp.*
(iii) Form of Transfer, Dividend Disbursing, Shareholder Service
and Plan Agency Agreement with ___ Service Corp.*
(10) Opinion and Consent of Counsel*
5
<PAGE>
(11) Consent of Independent Public Accountants*
(12) Inapplicable
(13) Form of Agreement Relating to Initial Capital
(14) Inapplicable
(15) Inapplicable
(16) Financial Data Schedule*
(17) Inapplicable
_________________
* To be filed by Amendment
Item 25. Persons Controlled by or Under Common Control with Registrant
As of October 10, 1997, Kobrick-HFS, Inc. was the recordholder of all
shares of the Registrant. After commencement of the public offering
of the Registrant's shares, the Registrant expects that no person will
be directly or indirectly controlled by or under common control with
the Registrant.
Item 26. Number of Holders of Securities
As of October 10, 1997, all shares of beneficial interest of the
Registrant were held by Kobrick-HFS, Inc.
Item 27. Indemnification
Article VI of the Registrant's Agreement and Declaration of Trust
provides for indemnification of officers and Trustees as follows:
"Section 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS, ETC.
Subject to and except as otherwise provided in the Securities
Exchange Act of 1933, as amended, and the 1940 Act, the Trust
shall indemnify each of its Trustees and officers (including
persons who serve at the Trust's request as directors, officers
or trustees of another organization in which the Trust has any
interest as a shareholder, creditor or otherwise (hereinafter
referred to as a "Covered Person")) against all liabilities,
including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and expenses,
including reasonable accountants' and counsel fees, incurred by
any Covered Person in connection with the defense or disposition
of any action, suit or other proceeding, whether civil or
criminal,
6
<PAGE>
before any court or administrative or legislative body, in which
such Covered Person may be or may have been involved as a party
or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being or
having been such a Trustee or officer, director or trustee,
except with respect to any matter as to which it has been
determined that such Covered Person had acted with willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's
office (such conduct referred to hereafter as "Disabling
Conduct"). A determination that the Covered Person is entitled
to indemnification may be made by (i) a final decision on the
merits by a court or other body before whom the proceeding was
brought that the person to be indemnified was not liable by
reason of Disabling Conduct, (ii) dismissal of a court action or
an administrative proceeding against a Covered Person for
insufficiency of evidence of Disabling Conduct, or (iii) a
reasonable determination, based upon a review of the facts, that
the indemnitee was not liable by reason of Disabling Conduct by
(a) a vote of a majority of a quorum of Trustees who are neither
"interested persons" of the Trust as defined in section 2(a) (19)
of the 1940 Act nor parties to the proceeding, or (b) an
independent legal counsel in a written opinion. Expenses,
including accountants' and counsel fees so incurred by any such
Covered Person (but excluding amounts paid in satisfaction of
judgments, in compromise or as fines or penalties), may be paid
from time to time by the Trust in advance of the final
disposition of any such action, suit or proceeding, provided that
the Covered Person shall have undertaken to repay the amounts so
paid to the Trust if it is ultimately determined that
indemnification of such expenses is not authorized under this
Article VI and (i) the Covered Person shall have provided
security for such undertaking, (ii) the Trust shall be insured
against losses arising by reason of any lawful advances, or (iii)
a majority of a quorum of the disinterested Trustees who are not
a party to the proceeding, or an independent legal counsel in a
written opinion, shall have determined, based on a review of
readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the Covered Person
ultimately will be found entitled to indemnification.
Section 6.5 COMPROMISE PAYMENT. As to any matter disposed of
by a compromise payment by any such Covered Person referred to in
Section 6.4, pursuant to a consent decree or otherwise, no such
indemnification either for said payment or for any other expenses
shall be provided unless such indemnification shall be approved
(a) by a majority of the disinterested Trustees who are not
parties to the proceeding or (b) by an independent legal counsel
in a written opinion. Approval by the Trustees pursuant to
clause (a) or by independent legal counsel pursuant to clause (b)
shall not prevent the recovery from any Covered Person of any
amount paid to such Covered Person in accordance with any of such
clauses as indemnification if such
7
<PAGE>
Covered Person is subsequently adjudicated by a court of
competent jurisdiction to have been liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
Section 6.6 INDEMNIFICATION NOT EXCLUSIVE, ETC. The right of
indemnification provided by this Article VI shall not be
exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article VI, "Covered
Person" shall include such person's heirs, executors and
administrators, an "interested Covered Person" is one against
whom the action, suit or other proceeding in question or another
action, suit or other proceeding on the same or similar grounds
is then or has been pending or threatened, and a "disinterested"
person is a person against whom none of such actions, suits or
other proceedings or another action, suit or other proceeding on
the same or similar grounds is then or has been pending or
threatened. Nothing contained in this Article shall affect any
rights to indemnification to which personnel of the Trust, other
than Trustees and officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to
purchase and maintain liability insurance on behalf of any such
person."
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of the
Registrant in 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 Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The Registrant expects to maintain a standard mutual fund and
investment advisory professional and directors and officers liability
policy. The policy will provide coverage to the Registrant, its
Trustees and officers, and Kobrick-HFS, Inc. (the "Adviser").
Coverage under the policy will include losses by reason of any act,
error, omission, misstatement, misleading statement, neglect or breach
of duty.
The Advisory Agreement with the Adviser provides that the Adviser
shall not be liable for any action taken, omitted or suffered to be
taken by it in its reasonable
8
<PAGE>
judgment, in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by the Advisory
Agreement, or in accordance with (or in the absence of) specific
directions or instructions from the Trust, provided, however, that
such acts or omissions shall not have resulted from the Adviser's
willful misfeasance, bad faith or gross negligence, a violation of the
standard of care established by and applicable to the Adviser in its
actions under the Advisory Agreement or breach of its duty or of its
obligations under the Advisory Agreement.
Item 28. Business and Other Connections of the Investment Adviser
(a) The Adviser is a recently formed independent counsel firm.
(b) The directors and officers of the Adviser and any other business,
profession, vocation or employment of a substantial nature
engaged in at any time during the past two years:
(i) Frederick R. Kobrick - President of the Adviser
President and Chief Executive Officer of the Registrant
(ii) Michael T. Carmen - Secretary - Treasurer of the Adviser
Treasurer and Chief Financial Officer of the Registrant
Item 29. Principal Underwriters
(a) Inapplicable
(b) Inapplicable
(c) Inapplicable
Item 30. Location of Accounts and Records
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder will be maintained by the Registrant at its
offices located at One Financial Center, Boston, Massachusetts 02111
as well as at the offices of the Registrant's transfer agent located
at ____________, _________, _____ _______.
Item 31. Management Services Not Discussed in Parts A or B
Inapplicable
Item 32. Undertakings
9
<PAGE>
(a) Inapplicable
(b) The Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six
months from the effective date of this Registration Statement.
(c) Inapplicable
(d) The Registrant undertakes to call a meeting of shareholders, if
requested to do so by holders of at least 10% of the Fund's
outstanding shares, for the purpose of voting upon the question of
removal of a trustee or trustees and to assist in communications with
other shareholders as required by Section 16(c) of the Investment
Company Act of 1940.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed below on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston and Commonwealth of Massachusetts, on the 10th
day of October, 1997.
KOBRICK-HFS INVESTMENT TRUST
By: \s\ Frederick R. Kobrick
-------------------------------
Frederick R. Kobrick
President
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 dates indicated.
Signature Title Date
\s\ Frederick R. Kobrick President and Trustee October 10, 1997
- ----------------------------
Frederick R. Kobrick
\s\ Michael T. Carmen Secretary -Treasurer October 10, 1997
- ---------------------------- and Trustee
Michael T. Carmen
11
<PAGE>
INDEX TO EXHIBITS
(1) Agreement and Declaration of Trust
(2) Bylaws
(3) Inapplicable
(4) Inapplicable
(5) Form of Advisory Agreement
(6) Inapplicable
(7) Inapplicable
(8) Form of Custody Agreement*
(9)(i) Form of Administrative Services Agreement*
(9)(ii) Form of Accounting Services Agreement*
(9)(iii) Form of Transfer, Dividend Disbursing, Shareholder Service and Plan
Agency Agreement*
(10) Opinion and Consent of Counsel*
(11) Consent of Independent Public Accountants*
(12) Inapplicable
(13) Form of Agreement Relating to Initial Capital
(14) Inapplicable
(15) Inapplicable
(16) Financial Data Schedule*
(17) Inapplicable
- -----------------------------
* To be filed by Amendment
12
<PAGE>
KOBRICK-HFS INVESTMENT TRUST
MASTER TRUST AGREEMENT
AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts this 10th
day of October, 1997, by the Trustees hereunder, and by the holders of shares of
beneficial interest to be issued hereunder as hereinafter provided.
WITNESSETH
WHEREAS this Trust has been formed to carry on the business of an
investment company; and
WHEREAS this Trust is authorized to issue its shares of beneficial interest
in separate series, all in accordance with the provisions hereinafter set forth;
and
WHEREAS the Trustees have agreed to manage all property coming into their
hands as trustees of a Massachusetts business trust in accordance with the
provisions hereinafter set forth;
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets which they may from time to time acquire in any
manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the
following terms and conditions for the benefit of the holders from time to time
of shares of beneficial interest in this Trust as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 NAME. This Trust shall be known as Kobrick-HFS Investment
Trust and the Trustees shall conduct the business of the Trust under that name
or any other name or names as they may from time to time determine.
Section 1.2 DEFINITIONS. Whenever used herein, unless
otherwise required by the context or specifically provided:
(a) "By-Laws" shall mean the By-Laws of the Trust as amended from time to
time;
(b) "Commission" shall have the meaning given it in the 1940 Act;
(c) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust as amended or restated from time to time;
(d) "1940 Act" refers to the Investment Company Act of 1940 and the Rules
and Regulations thereunder, all as amended from time to time;
(e) "Shareholder" means a record owner of Shares;
(f) "Shares" refers to the transferable units of interest into which the
beneficial interest in the Trust shall be divided from time to time;
(g) "Series" refers to a series of Shares established and designated under
or in
<PAGE>
accordance with the provisions of Article IV;
(h) "Trust" refers to the Massachusetts business trust established by this
Declaration of Trust, as amended from time to time, inclusive of each and every
Series established hereunder; and
(i) "Trustees" refers to the Trustees of the Trust named herein or elected
in accordance with Article III.
ARTICLE II
PURPOSE OF TRUST
The purpose of the Trust is to operate as an investment company and to
offer Shareholders one or more investment programs primarily in securities and
debt instruments and to engage in any and all lawful acts or activities.
ARTICLE III
THE TRUSTEES
Section 3.1 NUMBER, DESIGNATION, ELECTION, TERM, ETC.
(a) INITIAL TRUSTEES. Upon execution of this Declaration of Trust or a
counterpart hereof or some other writing in which he accepts such Trusteeship
and agrees to the provisions hereof, Frederick R. Kobrick, 33 Phillips Road,
Sudbury, Massachusetts 01776 and Michael T. Carmen, 7 Lothrop Way, Sharon,
Massachusetts 02067, shall become Trustees.
(b) NUMBER. The Trustees serving as such, whether named above or
hereafter becoming Trustees, may increase or decrease (to not less than two at
any time after the effective date of the Trust's Registration Statement on Form
N-1A with the Commission) the number of Trustees to a number other than the
number theretofore determined. No decrease in the number of Trustees shall have
the effect of removing an Trustee from office prior to the expiration of his
term, but t e number of Trustees may be decreased in conjunction with the
removal of a Trustee pursuant to subsection (e) of this Section 3.1.
(c) ELECTION AND TERM. The Shareholders shall elect a Board of Trustees a
the first meeting of Shareholders following the initial Acquisition of Shares by
the public. Each Trustee, whether name above or hereafter becoming a Trustee,
shall serve as a Trustee during the lifetime of this Trust and until its
termination as hereinafter provided or until such Trustee sooner dies, resigns
or is removed. The Trustees may elect their own successors, and may, pursuant
to Section 3.1(f) hereof, appoint Trustees to fill vacancies; provided, however,
that the Shareholders shall have the right to elect Trustees subsequent to the
initial election contemplated by this Section 3.1(c) in the event there shall at
any time be no Trustees in office or when and to the extent otherwise required
by Section 16(a) of the 1940 Act.
(d) RESIGNATION AND RETIREMENT. Any Trustee may resign his trust or
retire as a Trustee,
- 2 -
<PAGE>
by written instrument signed by him and delivered to the other Trustees or to
any officer of the Trust, and such resignation or retirement shall take effect
upon such delivery or upon such later date as is specified in such instrument.
(e) REMOVAL. Any Trustee may be removed with or without cause at any
time: (i) by written instrument, signed by at least two-thirds of the number of
Trustees in office immediately prior to such removal, specifying the date upon
which such removal will become effective; (ii) by vote of Shareholders holding
not less than two-thirds of the shares then outstanding, cast in person or by
proxy at any meeting called for the purpose; or (iii) by a declaration in
writing signed by Shareholders holding not less than two-thirds of the Shares
then outstanding and filed with the Trust's Custodian.
(f) VACANCIES. Any vacancy or anticipated vacancy resulting from any
reason, including without limitation the death, resignation, retirement, removal
or incapacity of any of the Trustees, or resulting from an increase in the
number of Trustees by the other Trustees may (but so long as there are at least
three remaining Trustees, need not unless required by the 1940 Act) be filled by
either (i) a majority of the remaining Trustees through the appointment in
writing of such other person as such remaining Trustees in their discretion
shall determine (unless a Shareholder election is required by the 1940 Act) or
(ii) by the election by the Shareholders, at a meeting called for the purpose,
of a person to fill such vacancy, and such appointment or election shall be
effective upon the written acceptance of the person named therein to serve as a
Trustee and agreement by such person to be bound by the provisions of this
Declaration of Trust, except that any such appointment or election in
anticipation of a vacancy to occur by reason of retirements resignation or
increase in number of Trustees to be effective at a later date shall become
effective only at or after the effective date of said retirement, resignation or
increase in number of Trustees. As soon as any Trustee so appointed or elect
shall have accepted such appointment or election and shall have agreed in
writing to be bound by this Declaration of Trust and the appointment or election
is effective, the Trust estate shall vest in the new Trustee, together with the
continuing Trustees, without any further act or conveyance.
(g) EFFECT OF DEATH, RESIGNATION, ETC. The death, resignation,
retirement, removal or incapacity of the Trustees, or any one of them, shall not
operate to annul or terminate the Trust, or to revoke or terminate any existing
agency or contract created or entered into pursuant to the terms of this
Declaration of Trust.
(h) NO ACCOUNTING. Except to the extent required by the 1940 Act or under
circumstances which would justify his removal for cause, no person ceasing to be
a Trustee as a result of his death, resignation, retirement, removal or
incapacity (nor the estate of such person) shall be required to make an
accounting to the Shareholders or remaining Trustees upon such cessation.
Section 3.2 POWERS OF TRUSTEES. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed by the
Trustees, and they shall have all powers necessary or convenient to carry out
that responsibility and the purpose of the Trust. The Trustees in all instances
shall act as principals, and are and shall be free from the control of the
Shareholders. The Trustees shall have full power and authority to do any and all
acts and to make and execute any and all contracts and instruments that they may
consider necessary or appropriate in connection with the management of the
Trust. The Trustees shall not be bound or limited by present or future laws or
- 3 -
<PAGE>
customs with regard to investment by trustees or fiduciaries, but shall have
full authority and absolute power and control over the assets of the Trust
and the business of the Trust to the same extent as if the Trustees were sole
owners of the assets of the Trust and the business in their own right,
including such authority, power and control to do all acts and things as
they, in their uncontrolled discretion, shall deem proper to accomplish the
purposes of this Trust. Without limiting the foregoing, the Trustees may:
adopt By-Laws not inconsistent with this Declaration of Trust providing for
the conduct of the business and affairs of the Trust and may amend and repeal
them to the extent that such By-Laws do not reserve that right to the
Shareholders; they may sue or be sued in the name of the Trust; they may from
time to time in accordance with the provisions of Section 4.1 hereof
establish Series, each such Series to operate as a separate and distinct
investment medium and with separately defined investment objectives and
policies and distinct investment purposes; they may, as they consider
appropriate elect and remove officers and appoint and terminate agents and
consultants and hire and terminate employees, any one or more of the
foregoing of whom may be a Trustee, and may provide for the compensation of
all of the foregoing; they may appoint from their own number, and terminate,
any one or more committees consisting of two or more Trustees, including
without implied limitation an executive committee, which may when the
Trustees are not in session and subject to the 1940 Act, exercise some or all
of the power and authority of the Trustees as the Trustees may determine; in
accordance with Section 3.3 they may employ one or more advisers,
administrators, depositories and custodians and may authorize any depository
or custodian to employ sub-custodians or agents and to deposit all or any
part of such assets in a system or systems for the central handling of
securities and debt instruments, retain transfer, dividend, accounting or
Shareholder servicing agents or any of the foregoing, provide for the
distribution of Shares by the Trust through one or more distributors,
principal underwriters or otherwise, and set record dates or times for the
determination of Shareholders or various of them with respect to various
matters; they may compensate or provide for the compensation of the Trustees,
officers, advisers, administrators, custodians, other agents, consultants and
employees of the Trust or the Trustees on such terms as they deem
appropriate; and in general they may delegate to any officer of the Trust, to
any committee of the Trustees and to any employee, adviser, administrator,
distributor, depository, custodian, transfer and dividend disbursing agent,
or any other agent or consultant of the Trust such authority, powers,
functions and duties as they consider desirable or appropriate for the
conduct of the business and affairs of the Trust, including without implied
limitation the power and authority to act in the name of the Trust and of the
Trustees, to sign documents and to act as attorney-in-fact for the Trustees.
Without limiting the foregoing and to the extent not inconsistent with the
1940 Act or other applicable law, the Trustees shall have power and authority:
(a) INVESTMENTS. To invest and reinvest cash and other property, and to
hold cash or other property uninvested without in any event being bound or
limited by any present or future law or custom in regard to investments by
trustees;
(b) DISPOSITION OF ASSETS. To sell, exchange, lend, pledge, mortgage,
hypothecate, write options on and lease any or all of the assets of the Trust;
(c) OWNERSHIP POWERS. To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities, debt instruments or
property; and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities, debt instruments
or
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property as the Trustees shall deem proper;
(d) SUBSCRIPTION. To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of securities or debt
instruments;
(e) FORM OF HOLDING. To hold any security, debt instrument or property in
a form not indicating any trust, whether in bearer, unregistered or other
negotiable form, or in the name of the Trustees or of the Trust or in the name
of a custodian, sub-custodian or other depository or a nominee or nominees or
otherwise;
(f) REORGANIZATION, ETC. To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or issuer, any
security or debt instrument of which is or was held in the Trust; to consent to
any contract, lease, mortgage, purchase or sale of property by such corporation
or issuer, and to pay calls or subscriptions with respect to any security or
debt instrument held in the Trust;
(g) VOTING TRUSTS, ETC. To join with other holders of any securities or
debt instruments in acting through a committee, depository, voting trustee or
otherwise, and in that connection to deposit any security or debt instrument
with, or transfer any security or debt instrument to, any such committee,
depository or trustee, and to delegate to them such power and authority with
relation to any security or debt instrument (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and to pay,
such Portion of the expenses and compensation of such committee, depository or
trustee as the Trustees shall deem proper;
(h) COMPROMISE. To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any matter in controversy, including but not
limited to claims for taxes;
(i) PARTNERSHIPS, ETC. To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(j) BORROWING AND SECURITY. To borrow funds and to mortgage and pledge
the assets of the Trust or any part thereof to secure obligations arising in
connection with such borrowing;
(k) GUARANTEES, ETC. To endorse or guarantee the payment of any notes or
other obligations of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge the
Trust property or any part thereof to secure any of or all such obligations;
(l) INSURANCE. To purchase and pay for entirely out of Trust property
such insurance as they may deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies insuring the assets
of the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, consultants, investment advisers, managers,
administrators, distributors, principal underwriters, or independent
contractors, or any thereof (or any person connected therewith), of the Trust
individually against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such person in
any such capacity, including any action taken or omitted that may be determined
to constitute negligence, whether or not the Trust
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would have the power to indemnify such person against such liability; and
(m) PENSIONS, ETC. To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust; and
Except as otherwise provided by the 1940 Act or other applicable law, this
Declaration of Trust or the By-Laws, any action to be taken by the Trustees on
behalf of the Trust may be taken by a majority of the Trustees present at a
meeting of Trustees (a quorum, consisting of at least one-half of the Trustees
then in the office, being present), within or without Massachusetts, including
any meeting held by means of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time, and participation by such means shall constitute
presence in person at a meeting, or by written consents of a majority of the
Trustees then in office (or such larger or different number as may be required
by the 1940 Act or other applicable law).
Section 3.3 CERTAIN CONTRACTS. Subject to compliance with the
provisions of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and from time to time and without limiting the
generality of their powers and authority otherwise set forth herein, enter into
one or more contracts with any one or more corporations, trusts, associations,
partnerships, limited partnerships, other types of organizations, or individuals
(a "Contracting Party"), to provide for the performance and assumption of some
or all of the following services, duties and responsibilities to, for or on
behalf of the Trust, and/or the Trustees, and to provide for the performance and
assumption of such other services, duties and responsibilities in addition to
those set forth below as the Trustees may determine appropriate:
(a) ADVISORY. Subject to the general supervision of the Trustees and in
conformity with the stated policy of the Trustees with respect to the
investments of the Trust or of the assets belonging to any Series of Shares of
the Trust (as that phrase is defined in subsection (a) of Section 4.2), to
manage such investments and assets, make investment decisions with respect
thereto, and to place purchase and sale orders for portfolio transactions
relating to such investments and assets;
(b) ADMINISTRATION. Subject to the general supervision of the Trustees
and in conformity with any policies of the Trustees with respect to the
operations of the Trust, to supervise all or any part of the operations of the
Trust, and to provide all or any part of the administrative and clerical
personnel, office space and office equipment and services appropriate for the
efficient administration and operations of the Trust;
(c) DISTRIBUTION. To distribute the Shares of the Trust, to be principal
underwriter of such Shares, and/or to act as agent of the Trust in the sale of
Shares and the acceptance or rejection of orders for the purchase of Shares;
(d) CUSTODIAN AND DEPOSITORY. To act as depository for and to maintain
custody of the property of the Trust and accounting records in connection
therewith;
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(e) TRANSFER AND DIVIDEND DISBURSING AGENT. To maintain records of the
ownership of outstanding Shares, the issuance and redemption and the transfer
thereof; and to disburse any dividends declared by the Trustees and in
accordance with the policies of the Trustees and/or the instructions of any
particular Shareholder to reinvest any such dividends;
(f) SHAREHOLDER SERVICING. To provide service with respect to the
relationship of the Trust and its Shareholders, records with respect to
Shareholders and their Shares, and similar matters; and
(g) LEGAL, ACCOUNTING, TAXES AND OTHERS. To handle all or any part of the
legal, accounting, tax or other responsibilities, whether with respect to the
Trust's properties, Shareholders or otherwise.
The same person may be the Contracting Party for some or all of the services,
duties and responsibilities to, for and of the Trust and/or the Trustees, and
the contracts with respect thereto may contain such terms interpretive of or in
addition to the delineation of the services, duties and responsibilities
provided for, including provisions that are not inconsistent with the 1940 Act
relating to the standard of duty of and the rights to indemnification of the
Contracting Party and others, as the Trustees may determine. Nothing herein
shall preclude, prevent or limit the Trust or a Contracting Party from entering
into sub-contractual arrangements relating to any of the matters referred to in
Sections 3.3(a) through (g) hereof.
Subject to the provisions of the 1940 Act, the fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter or distributor or agent
of or for any Contracting Party, or of or for any parent or
affiliate of any Contracting Party, or that the Contracting Party
or any parent or affiliate thereof is a Shareholder or has an
interest in the Trust, or that
(ii) any Contracting Party may have a contract providing for the
rendering of any similar services to one or more other
corporations, trusts, associations, partnerships, limited
partnerships or other organizations, or have other business or
interests,
shall not affect the validity of any contract for the performance and assumption
of services, duties and responsibilities to, for or of the Trust and/or the
Trustees or disqualify any Shareholder, Trustee or officer of the Trust from
voting upon or executing the same or create any liability or accountability to
the Trust or its Shareholders, provided that in the case of any relationship or
interest referred to in the preceding clause (i) on the part of any Trustee or
officer of the Trust either (1) the material facts as to such relationship or
interest have been disclosed to or are known by the Trustees not having any such
relationship or interest and the contract involved is approved in good faith by
a majority of such Trustees not having any such relationship or interest (even
though such unrelated or disinterested Trustees are less than a quorum of all of
the Trustees), (2) the specific contract involved is fair to the Trust as of the
time it is authorized, approved or ratified by the Trustees or by the
Shareholders.
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Section 3.4 PAYMENT OF TRUST EXPENSES AND COMPENSATION OF TRUSTEES. The
Trustees are authorize to pay or to cause to be paid out of the principal or
income of the Trust, or partly out of principal and partly out of income, and to
charge or allocate the same to, between or among such one or more of the Series
that may be established and designated pursuant to Article IV, as the Trustees
deem fair, all expenses, fees, charges, taxes and liabilities incurred or
arising in connection with the Trust, or in connection with the management
thereof, including, but not limited to, the Trustees' compensation and such
expenses and charges for the services of the Trust's officers, employees,
investment adviser, administrator, distributor, principal underwriter, auditor,
counsel, depository, custodian, transfer agent, dividend disbursing agent,
accounting agent, Shareholder servicing agent, and such other agents,
consultants and independent contractors and such other expenses and charges as
the Trustees may deem necessary or proper to incur. Without limiting the
generality of any other provision hereof, the Trustees shall be entitled to
reasonable compensation from the Trust for their services as Trustees and may
fix the amount of such compensation.
Section 3.5 OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the
assets of the Trust shall at all times be considered as vested in the Trustees.
ARTICLE IV
SHARES
Section 4.1 DESCRIPTION OF SHARES. The beneficial interest in the Trust
shall be divided into Shares, all without par value, but the Trustees shall have
the authority from time to time to divide the class of Shares into two or more
Series of Shares, as they deem necessary or desirable to establish and designate
such Series, and to fix and determine the relative rights and preferences as
between the shares of the different Series of Shares as to right of redemption
and the price, terms and manner of redemption, special and relative rights as to
dividends and other distributions and on liquidation, sinking or purchase fund
provisions, conversion rights, and conditions under which the several Series
shall have separate voting rights or no voting rights.
The Shares of each Series may be issued or reissued from time to time in
one or more classes ("Classes"), as determined by the Board of Trustees pursuant
to resolution. Each Class shall be appropriately designated, prior to the
issuance of any shares thereof, by some distinguishing letter, number or title.
All shares within a Class shall be alike in every particular. All Shares of
each Series shall be of equal rank and have the same powers, preferences and
rights, and shall be subject to the same qualifications, limitations and
restrictions without distinction between the shares of different Classes
thereof, except with respect to such differences among such Classes, as the
Board of Trustees shall from time to time determine to b necessary or desirable,
including differences in the rate or rates of dividends or distributions. The
Board of Trustees may from time to time increase the number of Shares allocated
to any Class already created by providing that any unissued Shares of the
applicable Series shall constitute part of such Class, or may decrease the
number of Shares allocated to any Class already created by providing that any
unissued Shares previously assigned to such Class shall no longer constitute
part thereof. The Board of Trustees is hereby empowered to classify or
reclassify from time to time any unissued Shares of each Series by fixing or
altering the terms thereof and by assigning such unissued shares to an existing
or newly created Class. Notwithstanding anything to the contrary in this
paragraph the Board of Trustees is hereby empowered (i) to redesignate any
issued Shares of any Series by
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assigning a distinguishing letter, number or title to such shares and (ii) to
reclassify all or any part of the issued Shares of any Series to make them part
of an existing or newly created Class.
The number of authorized Shares and the number of Shares of each Series
that may be issued is unlimited, and the Trustees may issue Shares of any Series
for such consideration and on such terms as they may determine (or for no
consideration if pursuant to a Share dividend or split-up), all without action
or approval of the Shareholders. All Shares when so issued on the terms
determined by the Trustees shall be fully paid and nonassessable (but may be
subject to mandatory contribution back to the Trust as provided in subsection
(h) of Section 4.2). The Trustees may classify or reclassify any unissued
Shares or any Shares previously issued and reacquired of any Series into one or
more Series that may be established and designated from time to time. The
Trustees may hold as treasury Shares (of the same or some other Series), reissue
for such consideration and on such terms as they may determine, or cancel, at
their discretion from time to time, any Shares of any Series reacquired by the
Trust.
The Trustees may from time to time close the transfer books or establish
record dates and times for the purposes of determining the holders of Shares
entitled to be treated as such, to the extent provided or referred to in Section
5.3.
The establishment and designation of any Series of Shares in addition to
those established and designated in Section 4.2, or of any Class of Shares,
shall be effective (i) upon the execution by a majority of the then Trustees of
an instrument setting forth such establishment and designation and the relative
rights and preferences of such Series or Class, (ii) upon the execution of an
instrument in writing by an officer of the Trust pursuant to the vote of a
majority of the Trustees, or (iii) as otherwise provided in either such
instrument. At any time that there are no Shares outstanding of any particular
Series or Class previously established and designated the Trustees may by an
instrument executed by a majority of their number abolish that Series or Class
and the establishment and designation thereof. Each instrument referred to in
this paragraph shall have the status of an amendment to this Declaration of
Trust.
Any Trustee, officer or other agent of the Trust, and any organization in
which any such person is interested may acquire, own, hold and dispose of Shares
of any Series of the Trust to the same extent as if such person were not a
Trustee, officer or other agent of the Trust; and the Trust may issue and sell
or cause to be issued and sold and may purchase Shares of any Series from any
such person or any such organization subject only to the general limitations,
restrictions or other provisions applicable to the sale or purchase of Shares of
such Series generally.
Section 4.2 ESTABLISHMENT AND DESIGNATION OF SERIES. Without limiting
the authority of the Trustees set forth in Section 4.1 to establish and
designate further Series, the Trustees hereby establish and designate two Series
of Shares: the "Kobrick-HFS Emerging Growth Fund" and the "Kobrick-HFS Capital
Fund." The Shares of the Kobrick-HFS Emerging Growth Fund and the Kobrick-HFS
Capital Fund and any Shares of any further Series that may from time to time be
established and designated by the Trustees shall (unless the Trustees otherwise
determine with respect to some further Series at the time of establishing and
designating the same) have the following relative rights and preferences:
(a) ASSETS BELONGING TO SERIES. All consideration received by the Trust
for the issue or sale of Shares of a particular Series, together with all assets
in which such consideration is invested
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or reinvested, all income, earnings, profits, and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation of such assets, and
any funds or payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall be held by the Trustees in trust for the benefit of
the holders of Shares of that Series and shall irrevocably belong to that Series
for all purposes, and shall be so recorded upon the books of account of the
Trust. Such consideration, assets, income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, together with any General Items (as
hereinafter defined) allocated to that Series as provided in the following
sentence, are herein referred to as "assets belonging to" that Series. In the
event that there are any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging to
any particular Series (collectively "General Items"), the Trustees shall
allocate such General Items to and among any one or more of the Series
established and designated from time to time in such manner and on such basis as
they, in their sole discretion, deem fair and equitable; and any General Items
so allocated to a particular Series shall belong to that Series. Each such
allocation by the Trustees shall be conclusive and binding upon the Shareholders
of all Series for all purposes.
(b) LIABILITIES BELONGING TO SERIES. The assets belonging to each
particular Series shall be charged with the liabilities in respect of that
Series and all expenses, costs, charges and reserves belonging to that Series,
and any general liabilities, expenses, costs, charges or reserves of the Trust
which are not readily identifiable as belonging to any particular Series shall
be allocated and charged by the Trustees to and among any one or more of the
Series established and designated from time to time in such manner and on such
basis as the Trustees in their sole discretion deem fair and equitable. The
liabilities, expenses, costs, charges and reserves allocated and so charged to a
Series are herein referred to as "liabilities belonging to" that Series. Each
allocation of liabilities, expenses, costs, charges and reserves by the Trustees
shall be conclusive and binding upon the Shareholders of all Series for all
purposes. Any creditor of any Series may look only to the assets of that Series
to satisfy such creditor's debt.
The Trustees shall have full discretion, to the extent not inconsistent
with the 1940 Act, to determine which items shall be treated as income and which
items as capital; and each such determination and allocation shall be conclusive
and binding upon she Shareholders.
(c) DIVIDENDS. Dividends and distributions on Shares of a particular
Series may be paid with such frequency as the Trustees may determine, which may
be daily or otherwise pursuant to a standing resolution or resolutions adopted
only once or with such frequency as the Trustees may determine, to the holders
of Shares of that Series, from such of the income and capital gains, accrued or
realized, from the assets belonging to that Series, as the Trustees may
determine, after providing for actual and accrued liabilities belonging to that
Series. All dividends and distributions on Shares of a particular Series shall
be distributed pro rata to the holders of Shares of that Series in proportion to
the number of Shares of that Series held by such holders at the date and time of
record established for the payment of such dividends or distributions, except
that in connection with any dividend or distribution program or procedure the
Trustees may determine that no dividend or distribution shall be payable on
Shares as to which the Shareholder's purchase order and/or payment have not been
received by the time or times established by the Trustees under such program or
procedure. Such dividends and distributions may be made in cash or Shares of
that Series or a combination thereof as determined by the Trustees or pursuant
to any program that the
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Trustees may have in effect at the time for the election by each Shareholder of
the mode of the making of such dividend or distribution to that Shareholder.
Any such dividend or distribution paid in Shares will be paid at the net asset
value thereof as determined in accordance with subsection (h) of Section 4.2.
The Trust intends to qualify each Series as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended, or any successor
or comparable statute thereto, and regulations promulgated thereunder. Inasmuch
as the computation of net income and gains for federal income tax purposes may
vary from the computation thereof on the books of the Trust, the Board of
Trustees shall have the power, in its sole discretion, to distribute in any
fiscal year as dividends, including dividends designated in whole or in part as
capital gains distributions, amounts sufficient, in the opinion of the Board of
Trustees, to enable each Series to qualify as a regulated investment company and
to avoid liability of the Series for federal income tax in respect of that year.
However, nothing in the foregoing shall limit the authority of the Board of
Trustees to make distributions greater than or less than the amount necessary to
qualify as a regulated investment company and to avoid liability of each Series
for such tax.
(d) LIQUIDATION. In the event of the liquidation or dissolution of the
Trust, the Shareholders of each Series that has been established and designated
shall be entitled to receive, when and as declared by the Trustees, the excess
of the assets belonging to that Series over the liabilities belonging to that
Series. The assets so distributable to the Shareholders of any particular
Series shall be distributed among such Shareholders in proportion to the number
of Shares of that Series held by them and recorded on the books of the Trust.
The liquidation of any particular Series may be authorized at any time by vote
of a majority of the Trustees then in office, subject to the approval of a
majority of the outstanding voting Shares of that Series, as defined in the 1940
Act.
(e) VOTING. All Shares of all Series shall have "equal voting rights" as
such term is defined in the 1940 Act and except as otherwise provided by the
1940 Act or rules, regulations or orders promulgated thereunder. On each matter
submitted to a vote of the Shareholders, each holder of a Share shall be
entitled to one vote for each whole Share standing in his name on the books of
the Trust, irrespective of the series thereof, and all Shares of all series
shall vote as a single class ("Single Class Voting"); provided, however, that
(a) as to any matter with respect to which a separate vote of any Series is
required by the 1940 Act or rules and regulations promulgated thereunder, or
would be required under the Massachusetts Business Corporation Law if the Trust
were a Massachusetts corporation, such requirements as to a separate vote by
that Series shall apply in lieu of Single Class Voting as described above; (b)
in the event that the separate vote requirements referred to in (a) above apply
with respect to one or more Series, then, subject to (c) below, the Shares of
all other Series shall vote as a single class; and (c) as to any matter which
does not affect the interest of a particular Series, only the holders of Shares
of the one or more affected Series shall be entitled to vote.
(f) REDEMPTION BY SHAREHOLDER. Each holder of Shares of a particular
Series shall have the right at such times as may be permitted by the Trust, but
no less frequently than once each week, to require the Trust to redeem all or
any part of his Shares of that Series at a redemption price equal to the net
asset value per Share of that Series next determined in accordance with
subsection (h) of this Section 4.2 after the Shares are properly tendered for
redemption, subject to any contingent deferred sales charge in effect at the
time of redemption. Payment of the redemption
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price shall be in cash; provided, however, that if the Trustees determine, which
determination shall be conclusive, that conditions exist which make payment
wholly in cash unwise or undesirable, the Trust may, subject to the requirements
of the 1940 Act, make payment wholly or partly in securities or other assets
belonging to the Series of which the Shares being redeemed are part at the value
of such securities or assets used in such determination of net asset value.
Notwithstanding the foregoing, the Trust may postpone payment of the
redemption price and may suspend the right of the holders of Shares of any
Series to require the Trust to redeem Shares of that Series during any period or
at any time when and to the extent permissible under the 1940 Act, and such
redemption is conditioned upon the Trust having funds or property legally
available therefor.
(g) REDEMPTION BY TRUST. Each Share of each Series that has been
established and designated is subject to redemption by the Trust at the
redemption price which would be applicable if such Share was then being redeemed
by the Shareholder pursuant to subsection (f) of this Section 4.2: (a) at any
time, if the Trustees determine in their sole discretion that failure to so
redeem may have materially adverse consequences to all or any of the holders of
the Shares, or any Series thereof, of the Trust, or (b) upon such other
conditions as may from time to time be determined by the Trustees and set forth
in the then current Prospectus of the Trust with respect to maintenance of
Shareholder accounts of a minimum amount. Upon such redemption the holders of
the Shares so redeemed shall have no further right with respect thereto other
than to receive payment of such redemption price.
(h) NET ASSET VALUE. The net asset value per Share of any Series shall be
the quotient obtained by dividing the value of the net assets of that Series
(being the value of the assets belonging to that Series less the liabilities
belonging to that Series) by the total number of Shares of that Series
outstanding, all determined in accordance with the methods and procedures,
including without limitation those with respect to rounding, established by the
Trustees from time to time.
The Trustees may determine to maintain the net asset value per Share of any
Series at a designated constant dollar amount and in connection therewith may
adopt procedures not inconsistent with the 1940 Act for the continuing
declarations of income attributable to that Series as dividends payable in
additional Shares of that Series at the designated constant dollar amount and
for the handling of any losses attributable to that Series. Such procedures may
provide that in the event of any loss each Shareholder shall be deemed to have
contributed to the capital of the Trust attributable to that Series his pro rata
portion of the total number of Shares required to be canceled in order to permit
the net asset value per Share of that Series to be maintained, after reflecting
such loss, at the designated constant dollar amount. Each Shareholder of the
Trust shall be deemed to have agreed, by his investment in any Series with
respect to which the Trustees shall have adopted any such procedure, to make the
contribution referred to in the preceding sentence in the event of any such
loss.
(i) TRANSFER. All Shares of each particular Series shall be transferable,
but transfers of Shares of a particular Series will be recorded on the Share
transfer records of the Trust applicable to that Series only at such times as
Shareholders shall have the right to require the Trust to redeem Shares of that
Series and at such other times as may be permitted by the Trustees.
(j) EQUALITY. All Shares of each particular Series shall represent an
equal proportionate
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interest in the assets belonging to that Series (subject to the liabilities
belonging to that Series), and each Share of any particular Series shall be
equal to each other Share of that Series; but the provisions of this sentence
shall not restrict any distinctions permissible under subsection (c) of this
Section 4.2 that may exist with respect to dividends and distributions on Shares
of the same Series. The Trustees may from time to time divide or combine the
Shares of any particular Series into a greater or lesser number of Shares of
that Series without thereby changing the proportionate beneficial interest in
the assets belonging to that Series or in any way affecting the rights of Shares
of any other Series.
(k) FRACTIONS. Any fractional Share of any Series or Class, if any such
fractional Share is outstanding, shall carry proportionately all the rights and
obligations of a whole Share of that Series or Class, including rights and
obligations with respect to voting, receipt of dividends and distributions,
redemption of Shares, and liquidation of the Trust.
(l) CONVERSION RIGHTS. Subject to compliance with the requirements of the
1940 Act, the Trustees shall have the authority to provide that holders of
Shares of any Series shall have the right to convert said Shares into Shares of
one or more other Series in accordance with such requirements and procedures as
may be established by the Trustees.
Section 4.3 OWNERSHIP OF SHARES. The ownership of Shares shall be
recorded on the books of the Trust or of a transfer or similar agent for the
Trust, which books shall be maintained separately for the Shares of each Series
that has been established and designated. No certificates certifying the
ownership of Shares need be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, the use of facsimile
signatures, the transfer of Shares and similar matters. The record books of the
Trust as kept by the Trust or any transfer or similar agent, as the case may be,
shall be conclusive as to who are the Shareholders and as to the number of
Shares of each Series held from time to time by each such Shareholder.
Section 4.4 INVESTMENTS IN THE TRUST. The Trustees may accept
investments in the Trust from such persons and on such terms and for such
consideration, not inconsistent with the provisions of the 1940 Act, as they
from time to time authorize. The Trustees may authorize any distributor,
principal underwriter, custodian, transfer agent or other person to accept
orders for the purchase of Shares that conform to such authorized terms and to
reject any purchase orders for Shares whether or not conforming to such
authorized terms.
Section 4.5 NO PRE-EMPTIVE RIGHTS. Shareholders shall have no
pre-emptive or other right to subscribe to any additional Shares or other
securities issued by the Trust.
Section 4.6 STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. The death of a Shareholder during the continuance
of the Trust shall not operate to terminate the Trust nor entitle the
representative of any deceased Shareholder to an accounting or take any action
in court or elsewhere against the Trust or the Trustees, but only to the rights
of said decedent under this Trust. Ownership of Shares shall not entitle the
Shareholder to any title in or to the whole or any part of the Trust property or
right to call for a partition or division of the same or for an accounting, nor
shall the ownership of
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Shares constitute the Shareholders partners. Neither the Trust nor the Trustees,
nor any officer, employee or agent of the Trust shall have any power to bind
personally any Shareholder, nor except as specifically provided herein to call
upon any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time personally agree
to pay.
Section 4.7 NO APPRAISAL RIGHTS. Shareholders shall have no right to
demand payment for their shares or to any other rights of dissenting
Shareholders in the event the Trust participates in any transaction which would
give rise to appraisal or dissenters' rights by a Shareholder of a corporation
organized under Chapter 156B of the General Laws of the Commonwealth of
Massachusetts, or otherwise.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 5.1 VOTING POWERS. The Shareholders shall have power to vote
only (i) for the election or removal of Trustees as provided in Section 3.1,
(ii) with respect to any contract with a Contracting Party as provided in
Section 3.3 as to which Shareholder approval is as required by the 1940 Act,
(iii) with respect to any termination or reorganization of the Trust or any
Series to the extent and as provided in Sections 7.1 and 7.2, (iv) with respect
to any amendment of this Declaration of Trust to the extent and as provided in
Section 7.3, (v) to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or the Shareholders and (vi) with respect to such
additional matters relating to the Trust as may be required by the 1940 Act,
this Declaration of Trust, the By-Laws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. There shall be no cumulative voting in the
election of any Trustee or Trustees. Shares may be voted in person or by proxy.
A proxy with respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the proxy
the Trust receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a Shareholder shall
be deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action
required by law, this Declaration of Trust or the By-Laws to be taken by
Shareholders.
Section 5.2 MEETINGS. No annual or regular meeting of Shareholders is
required. Special meetings (including meetings involving only the holders of
Shares of one or more but less than all Series) of Shareholders may be called by
the Trustees from time to time for the purpose of taking action upon any matter
requiring the vote or authority of the Shareholders as herein provided or upon
any other matter deemed by the Trustees to be necessary or desirable. Written
notice of any meeting of Shareholders shall be given or caused to be given by
the Trustees by mailing such notice at least seven days before such meeting,
postage prepaid, stating the time, place and purpose of the meeting, to each
Shareholder at the Shareholder's address as it appears on the records of the
Trust. The Trustees shall promptly call and give notice of a meeting of
Shareholders for the purpose of voting upon removal of any Trustee of the Trust
when requested to do so in writing by
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Shareholders holding not less than 10% of the Shares then outstanding. If
the Trustees shall fail to call or give notice of any meeting of Shareholders
for a period of 30 days after written application by Shareholders holding at
least 10% of the Shares then outstanding requesting a meeting be called for
any other purpose requiring action by the Shareholders as provided herein or
in the By-Laws, then Shareholders holding at least 10% of the Shares then
outstanding may call and give notice of such meeting, and thereupon the
meeting shall be held in the manner provided for herein in case of call
thereof by the Trustees.
Section 5.3 RECORD DATES. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution, or
for the purpose of any other action, the Trustees may from time to time close
the transfer books for such period, not exceeding 30 days (except at or in
connection with the termination of the Trust), as the Trustees may determine; or
without closing the transfer books the Trustees may fix a reasonable date and
time prior to the date of any meeting of Shareholders or other action as the
date and time of record for the determination of Shareholders entitled to vote
at such meeting or any adjournment thereof or to be treated as Shareholders of
record for purposes of such other action, and any Shareholder who was a
Shareholder at the date and time so fixed shall be entitled to vote at such
meeting or any adjournment thereof or (subject to any provisions permissible
under subjection (c) of Section 4.2 with respect to dividends or distributions
on Shares that have not been ordered and/or paid for by the time or times
established by the Trustees under the applicable dividend or distribution
program or procedure then in effect) to be treated as a Shareholder of record
for purposes of such other action, even though he has since that date and time
disposed of his Shares, and no Shareholder becoming such after that date and
time shall be so entitled to vote at such meeting or any adjournment thereof or
to be treated as a Shareholder of record for purposes of such other action.
Section 5.4 QUORUM AND REQUIRED VOTE. A majority of the Shares entitled
to vote shall be a quorum for the transaction of business at a Shareholders'
meeting, but any lesser number shall be sufficient for adjournments. Any
adjourned session or sessions may be held, within a reasonable time after the
date set for the original meeting without the necessity of further notice. A
majority of the Shares voted, at a meeting of which a quorum is present shall
decide any questions and a plurality shall elect a Trustee, except when a
different vote is required or permitted by any provision of the 1940 Act or
other applicable law or by this Declaration of Trust or the By-Laws.
Section 5.5 ACTION BY WRITTEN CONSENT. Subject to the provisions of the
1940 Act and other applicable law, any action taken by Shareholders may be taken
without a meeting if a majority of Shareholders entitled to vote on the matter
(or such larger proportion thereof as shall be required by the 1940 Act or by
any express provision of this Declaration of Trust or the By-Laws) consent to
the action in writing and such written consents are filed with the records of
the meetings of Shareholders. Such consent shall be treated for all purposes as
a vote taken at a meeting of Shareholders.
Section 5.6 INSPECTION OF RECORDS. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
stockholders of a Massachusetts business corporation under the Massachusetts
Business Corporation Law.
Section 5.7 ADDITIONAL PROVISIONS. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
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Section 5.8 SHAREHOLDER COMMUNICATIONS. Whenever ten or more shareholders
of record who have been such for at least six months preceding the date of
application, and who hold in the aggregate either Shares having a net asset
value of at least $25,000 or at least 1% of the outstanding shares, whichever is
less, shall apply to the Trustees in writing, stating that they wish to
communicate with other Shareholders with a view to obtaining signatures to a
request for a Shareholder meeting and accompanied by a form of communication and
request which they wish to transmit, the Trustees shall within five business
days after receipt of such application either (1) afford to such applicants
access to a list of the names and addresses of all Shareholders as recorded upon
the books of the Trust; or (2) inform such applicants as to the approximate
number of Shareholders of record, and the approximate cost of mailing to them
the proposed communication and form of request.
If the Trustees elect to follow the course specified in clause (2) above,
the Trustees, upon the written request of such applicants, accompanied by a
tender of the material to be mailed and of the reasonable expenses of mailing,
shall, with reasonable promptness, mail such material to all Shareholders of
record at their addresses as recorded on the books, unless within five business
days after such tender the Trustees shall mail to such applicants and file with
the Commission, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Trustees to the effect that in
their opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion. The Trustees shall thereafter comply with any order entered by
the Commission and the requirements of the 1940 Act and the Securities Exchange
Act of 1934.
ARTICLE VI
LIMITATION OF LIABILITY; INDEMNIFICATION
Section 6.1 TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE.
All persons extending credit to, contracting with or having any claim against
the Trust shall look only to the assets of the Series with which such person
dealt for payment under such credit, contract or claim; and neither the
Shareholders of any Series nor the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, nor any other Series shall
be personally liable therefor. Every note, bond, contract, instrument,
certificate or undertaking and every other act or thing whatsoever executed or
done by or on behalf of the Trust or the Trustees or any of them in connection
with the Trust shall be conclusively deemed to have been executed or done only
by or for the Trust or the Trustees and not personally. Nothing in this
Declaration of Trust shall protect any Trustee or officer against any liability
to the Trust or the Shareholders to which such Trustee or officer would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee or of such officer.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officers or officer shall give notice that this
Declaration of Trust is on file with the Secretary of the Commonwealth of
Massachusetts and shall recite to the effect that the same was executed or made
by or on behalf of the Trust or by them as Trustees or Trustee or as officers or
officer and not individually and that the obligations of such instrument are not
binding upon any
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of them or the Shareholders individually but are binding only upon the assets
and property of the Trust, but the omission thereof shall not operate to bind
any Trustees or Trustee or officers or officer or Shareholders or Shareholder
individually.
Section 6.2 TRUSTEE'S GOOD FAITH ACTION; EXPERT ADVICE; NO BOND OR
SURETY. The exercise by the Trustees of their powers and discretion hereunder
shall be binding upon everyone interested. A Trustee shall be liable for his own
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee, and for nothing else,
and shall not be liable for errors of judgment or mistakes of fact or law.
Subject to the foregoing, (a) the Trustees shall not be responsible or liable in
any event for any neglect or wrongdoing of any officer, agent, employee,
consultant, adviser, administrator, distributor or principal underwriter,
custodian or transfer, dividend disbursing, Shareholder servicing or accounting
agent of the Trust, nor shall any Trustee be responsible for the act or omission
of any other Trustee; (b) the Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration of Trust
and their duties as Trustees, and shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice;
and (c) in discharging their duties, the Trustees shall be entitled to rely upon
the books of account of the Trust and upon written reports made to the Trustees
by any officer appointed by them, any independent public accountant, and (with
respect to the subject matter of the contract involved) any officer, partner or
responsible employee of a Contracting Party appointed by the Trustees pursuant
to Section 3.3. The Trustees as such shall not be required to give any bond or
surety or any other security for the performance of their duties.
Section 6.3 INDEMNIFICATION OF SHAREHOLDERS. In case any Shareholder
(or former Shareholder) shall be charged or held to be personally liable for any
obligation or liability of the Trust solely by reason of being or having been a
Shareholder and not because of such Shareholder's acts or omissions or for some
other reason, the Trust (upon proper and timely request by the Shareholder)
shall assume the defense against such charge and satisfy any judgment thereon,
and the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled out of
the assets of the Trust estate to be held harmless from and indemnified against
all loss and expense arising from such liability.
Section 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS, ETC. Subject to and
except as otherwise provided in the Securities Exchange Act of 1933, as amended,
and the 1940 Act, the Trust shall indemnify each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise (hereinafter referred to as a "Covered
Person")) against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such person may be or
may have been threatened, while in office or thereafter, by reason of being or
having been such a Trustee or officer, director or trustee, except with respect
to any matter as to which it has been determined that such Covered Person had
acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office
(such conduct referred to hereafter as "Disabling Conduct"). A
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determination that the Covered Person is entitled to indemnification may be made
by (i) a final decision on the merits by a court or other body before whom the
proceeding was brought that the person to be indemnified was not liable by
reason of Disabling Conduct, (ii) dismissal of a court action or an
administrative proceeding against a Covered Person for insufficiency of evidence
of Disabling Conduct, or (iii) a reasonable determination, based upon a review
of the facts, that the indemnitee was not liable by reason of Disabling Conduct
by (a) a vote of a majority of a quorum of Trustees who are neither "interested
persons" of the Trust as defined in section 2(a) (19) of the 1940 Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. Expenses, including accountants' and counsel fees so incurred by any
such Covered Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from time to time by the Trust
in advance of the final disposition of any such action, suit or proceeding,
provided that the Covered Person shall have undertaken to repay the amounts so
paid to the Trust if it is ultimately determined that indemnification of such
expenses is not authorized under this Article VI and (i) the Covered Person
shall have provided security for such undertaking, (ii) the Trust shall be
insured against losses arising by reason of any lawful advances, or (iii) a
majority of a quorum of the disinterested Trustees who are not a party to the
proceeding, or an independent legal counsel in a written opinion, shall have
determined, based on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the Covered Person
ultimately will be found entitled to indemnification.
Section 6.5 COMPROMISE PAYMENT. As to any matter disposed of by a
compromise payment by any such Covered Person referred to in Section 6.4,
pursuant to a consent decree or otherwise, no such indemnification either for
said payment or for any other expenses shall be provided unless such
indemnification shall be approved (a) by a majority of the disinterested
Trustees who are not parties to the proceeding or (b) by an independent legal
counsel in a written opinion. Approval by the Trustees pursuant to clause (a)
or by independent legal counsel pursuant to clause (b) shall not prevent the
recovery from any Covered Person of any amount paid to such Covered Person in
accordance with any of such clauses as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction to have been
liable to the Trust or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
Section 6.6 INDEMNIFICATION NOT EXCLUSIVE, ETC. The right of
indemnification provided by this Article VI shall not be exclusive of or affect
any other rights to which any such Covered Person may be entitled. As used in
this Article VI, "Covered Person" shall include such person's heirs, executors
and administrators, an "interested Covered Person" is one against whom the
action, suit or other proceeding in question or another action, suit or other
proceeding on the same or similar grounds is then or has been pending or
threatened, and a "disinterested" person is a person against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending or threatened.
Nothing contained in this Article shall affect any rights to indemnification to
which personnel of the Trust, other than Trustees and officers, and other
persons may be entitled by contract or otherwise under law, nor the power of the
Trust to purchase and maintain liability insurance on behalf of any such person.
Section 6.7 LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property
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transferred to the Trust or upon its order.
ARTICLE VII
MISCELLANEOUS
Section 7.1 DURATION AND TERMINATION OF TRUST. Unless terminated as
provided herein, the Trust shall continue without limitation of time. The Trust
may be terminated at any time by a majority of the Trustees then in office
subject to a favorable vote of a majority of the outstanding voting securities,
as defined in the 1940 Act (Shares of each Series voting separately by Series).
Any Series liquidated pursuant to Section 4.2(d) or whose shares have been
redeemed pursuant to Section 4.2(g), may be terminated at any time by a majority
of the Trustees then in office, except that any such Series which is the last
remaining Series may only be so terminated by the Trustees with the favorable
vote of a majority of the outstanding voting securities, as defined in the 1940
Act, in conformity with the provisions of subsection (d) of Section 4.2.
Upon termination, after paying or otherwise providing for all charges,
taxes, expenses and liabilities, whether due or accrued or anticipated as may be
determined by the Trustees, the Trust shall in accordance with such procedures
as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, securities or other property, or any combination
thereof, and distribute the proceeds to the Shareholders.
Section 7.2 REORGANIZATION. The Trustees may sell, convey, merge and
transfer the assets of the Trust, or the assets belonging to any one or more
Series, to another trust, partnership, association or corporation organized
under the laws of any state of the United States, or to the Trust to be held as
assets belonging to another Series of the Trust, in exchange for cash, shares or
other securities (including, in the case of a transfer to another Series of the
Trust, Shares of such other Series) with such transfer either (l) being made
subject to, or with the assumption by the transferee of, the liabilities
belonging to each Series the assets of which are so transferred, or (2) not
being made subject to, or not with the assumption of, such liabilities;
provided, however, that no assets belonging to any particular Series shall be so
transferred unless the terms of such transfer shall have first been approved at
a meeting called for the purpose by the affirmative vote of the holders of a
majority of the outstanding voting Shares, as defined in the 1940 Act, of that
Series. Following such transfer, the Trustees shall distribute such cash, shares
or other securities (giving due effect to the assets and liabilities belonging
to and any other differences among the various Series the assets belonging to
which have so been transferred) among the Shareholders of the Series the assets
belonging to which have been so transferred; and if all of the assets of the
Trust have been so transferred, the Trust shall be terminated.
The Trust, or any one or more Series, may, either as the successor,
survivor, or non-survivor, (l) consolidate with one or more other trusts,
partnerships, associations or corporations organized under the laws of the
Commonwealth of Massachusetts or any other state of the United States, to form a
new consolidated trust, partnership, association or corporation under the laws
of which any one of the constituent entities is organized, or (2) merge into one
or more other trusts, partnerships, associations or corporations organized under
the laws of the Commonwealth of Massachusetts or any other state of the United
States, or have one or more such trusts, partnerships, associations or
corporations merged into it, any such consolidation or merger to be upon such
terms
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and conditions as are specified in an agreement and plan of reorganization
entered into by the Trust, or one or more Series as the case may be, in
connection therewith. The terms "merge" or "merger" as used herein shall also
include the purchase or acquisition of any assets of any other trust,
partnership, association or corporation which is an investment company organized
under the laws of the Commonwealth of Massachusetts or any other state of the
United States. Any such consolidation or merger, other than the purchase or
acquisition of assets of an investment company or other collective investment
entity which is not registered under the 1940 Act, shall require the affirmative
vote of the holders of a majority of the outstanding voting Shares, as defined
in the 1940 Act, of each Series affected thereby.
Section 7.3 AMENDMENTS. All rights granted to the Shareholders under
this Declaration of Trust are granted subject to the reservation of the right to
amend this Declaration of Trust as herein provided, except that no amendment
shall repeal the limitations on personal liability of any Shareholder or Trustee
or repeal the prohibition of assessment upon the Shareholders without the
express consent of each Shareholder or Trustee involved. Subject to the
foregoing, the provisions of this Declaration of Trust (whether or not related
to the rights of Shareholders) may be amended at any time, so long as such
amendment does not have a material adverse effect on the rights of any
Shareholder with respect to which such amendment is or purports to be applicable
and so long as such amendment is not in contravention of applicable law,
including the 1940 Act, by an instrument in writing signed by a majority of the
then Trustees (or by an officer of the Trust Pursuant to the vote of a majority
of such Trustees). Any amendment to this Declaration of Trust that does have a
material adverse effect on the rights of Shareholders may be adopted at any time
by an instrument in writing signed by a majority of the then Trustees (or by an
officer of the Trust pursuant to a vote of a majority of such Trustees) when
authorized to do so by the vote in accordance with subsection (e) of Section 4.2
of Shareholders holding a majority of the Shares entitled to vote. Subject to
the foregoing, any such amendment shall be effective as provided in the
instrument containing the terms of such amendment or, if there is no provision
therein with respect to effectiveness, upon the execution of such instrument and
of a certificate (which may be a part of such instrument) executed by a Trustee
or officer of the Trust to the effect that such amendment has been duly adopted.
Section 7.4 FILING OF COPIES; REFERENCES; HEADINGS. The original or a
copy of the instrument and of each amendment hereto shall be kept at the office
of the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each amendment hereto shall be filed by the Trust with the
Secretary of the Commonwealth of Massachusetts as well as any other governmental
office where such filing may from time to time be required, but the failure to
make any such filing shall not impair the effectiveness of this instrument or
any such amendment. Anyone dealing with the Trust may rely on a certificate by
an officer of the Trust as to whether or not any such amendments have been made,
as to the identities of the Trustees and officers, and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument or of any such amendments. In this instrument and in any
such amendment, references to this instrument, and all expressions like
"herein", "hereof" and "hereunder" shall be deemed to refer to this instrument
as a whole as the same may be amended or affected by any such amendments. The
masculine gender shall include the feminine and neuter genders. Headings are
placed herein for convenience of reference only and shall not be taken as a part
hereof or control or affect the meaning, construction or effect of this
instrument. This instrument may be executed in any number of counterparts each
of which shall be deemed an original.
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Section 7.5 APPLICABLE LAW. This Declaration of Trust is made in The
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth.
Reference herein to Massachusetts Business Corporation Law is not intended to
give the Trust, the Trustees, the Shareholders or any other person any right,
power, authority or responsibility applicable only to or in connection with an
entity organized in corporate form. The Trust shall be of the type referred to
in Section l of Chapter 182 of the Massachusetts General Laws and of the type
commonly called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand in the City of
Boston, Massachusetts, as of the day and year first above written.
\s\ Frederick R. Kobrick
----------------------------------
Frederick R. Kobrick
\s\ Michael T. Carmen
-----------------------------------
Michael T. Carmen
Principal office of the Trust: 101 Federal Street
Boston, MA 02111
TRADOCS: 1049340.3 (mh_c03!.doc)
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BYLAWS
OF
KOBRICK-HFS INVESTMENT TRUST
ARTICLE 1
Agreement and Declaration of Trust and Offices
1.1 Agreement and Declaration of Trust. These Bylaws shall be subject
to the Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of Kobrick-HFS Investment Trust, the Massachusetts
business trust established by the Declaration of Trust (the "Trust").
1.2 Offices. The Trust may maintain one or more other offices,
including its principal office, in or outside of Massachusetts, in such cities
as the Trustees may determine from time to time. Unless the Trustees otherwise
determine, the principal office of the Trust shall be located in Boston,
Massachusetts.
ARTICLE 2
Meetings of Trustees
2.1 Regular Meetings. Regular meetings of the Trustees may be held
without call or notice at such places and at such times as the Trustees may from
time to time determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Trustees. A regular
meeting of the Trustees may be held without call or notice immediately after and
at the same place as any meeting of the shareholders.
2.2 Special Meetings. Special meetings of the Trustees may be held at
any time and at any place designated in the call of the meeting when called by
the President or the Treasurer or by two or more Trustees, sufficient notice
thereof being given to each Trustee by the Secretary or an Assistant Secretary
or by the officer or the Trustees calling the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a special
meeting to send notice by mail at least forty-eight hours or by telegram or
telecopy at least twenty-four hours before the meeting addressed to the Trustee
at his or her usual or last known business or residence address or to give
notice to him or her in person or by telephone at least twenty-four hours before
the meeting. Notice of a meeting need not be given to any Trustee if a written
waiver of notice, executed by him or her before or after the meeting, is filed
with the records of the meeting, or to any Trustee who attends the meeting
without protesting, prior thereto or at its
<PAGE>
commencement, the lack of notice to him or her. Neither notice of a meeting nor
a waiver of a notice need specify the purposes of the meeting.
2.4 Quorum. At any meeting of the Trustees a majority of the Trustees
then in office shall constitute a quorum. Any meeting may be adjourned from
time to time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.
2.5 Participation by Telephone. One or more of the Trustees or of any
committee of the Trustees may participate in a meeting thereof by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting except as
otherwise provided by the Investment Company Act of 1940.
2.6 Action by Consent. Any action required or permitted to be taken at
any meeting of the Trustees or any committee thereof may be taken without a
meeting, if a written consent of such action is signed by a majority of the
Trustees then in office or a majority of the members of such committee, as the
case may be, and such written consent is filed with the minutes of the
proceedings of the Trustees or such committee.
ARTICLE 3
Officers
3.1 Enumeration; Qualification. The officers of the Trust shall be a
President, a Treasurer, a Secretary and such other officers, including Vice
Presidents, if any, as the Trustees from time to time may in their discretion
elect. The Trust may also have such agents as the Trustees from time to time
may in their discretion appoint. The President of the Trust shall be a Trustee
and may but need not be a shareholder; and any other officer may be but none
need be a Trustee or shareholder. Any two or more offices may be held by the
same person.
3.2 Election. The President, the Treasurer and the Secretary shall be
elected annually by the Trustees. Other officers, if any, may be elected or
appointed by the Trustees at any time. Vacancies in any office may be filled at
any time.
3.3 Tenure. The President, the Treasurer and the Secretary shall hold
office for one year and until their respective successors are chosen and
qualified, or in each case until he or she sooner dies, resigns, is removed or
becomes disqualified. Each other officer shall hold office and each agent shall
retain authority at the pleasure of the Trustees.
3.4 Powers. Subject to the other provisions of these Bylaws, each
officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to the office occupied by him or her as if the Trust were organized as a
Massachusetts business corporation and such other duties and powers as the
Trustees may from time to time designate.
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3.5 President. Unless the Trustees otherwise provide, the President,
or in the absence of the President, any other Trustee chosen by the Trustees,
shall preside at all meetings of the shareholders and of the Trustees. The
President shall be the chief executive officer of the Trust.
3.6 Treasurer. The Treasurer shall be the chief financial and
accounting officer of the Trust, and shall, subject to the provisions of the
Declaration of Trust and to any arrangement made by the Trustees with a
custodian, investment adviser or manager, or transfer, shareholder servicing or
similar agent, be in charge of the valuable papers, books of account and
accounting records of the Trust, and shall have such other duties and powers as
may be designated from time to time by the Trustees or by the President.
3.7 Secretary. The Secretary shall record all proceedings of the
shareholders and the Trustees in books to be kept therefor, which books or a
copy thereof shall be kept at the principal office of the Trust. In the absence
of the Secretary from any meeting of the shareholders or Trustees, an assistant
secretary, or if there be none or if he or she is absent, a temporary secretary
chosen at such meeting shall record the proceedings thereof in the aforesaid
books.
3.8 Resignations and Removals. Any Trustee or officer may resign at
any time by written instrument signed by him or her and delivered to the
President or the Secretary or to a meeting of the Trustees. Such resignation
shall be effective upon receipt unless specified to be effective at some other
time. The Trustees may remove any officer elected by them with or without
cause. Except to the extent expressly provided in a written agreement with the
Trust, no Trustee or officer resigning and no officer removed shall have any
right to any compensation for any period following his or her resignation or
removal, or any right to damages on account of such removal.
ARTICLE 4
Committees
4.1 General. The Trustees, by vote of a majority of the Trustees then
in office, may elect from their number an Executive Committee or other
committees and may delegate thereto some or all of their powers except those
which by law, by the Declaration of Trust, or by these Bylaws may not be
delegated. Except as the Trustees may otherwise determine, any such committee
may make rules for the conduct of its business, but unless otherwise provided by
the Trustees or in such rules, its business shall be conducted so far as
possible in the same manner as is provided by these Bylaws for the Trustees
themselves. All members of such committees shall hold such offices at the
pleasure of the Trustees. The Trustees may abolish any such committee at any
time. Any committee to which the Trustees delegate any of their powers or
duties shall keep records of its meetings and shall report its action to the
Trustees. The Trustees shall have power to rescind any action of any committee,
but no such rescission shall have retroactive effect.
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ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render reports at the
time and in the manner required by the Declaration of Trust or any applicable
law. Officers and committees shall render such additional reports as they may
deem desirable or as may from time to time be required by the Trustees.
ARTICLE 6
Fiscal Year
6.1 General. The fiscal year of the Trust shall be fixed, and shall be
subject to change by the Trustees.
ARTICLE 7
Seal
7.1 General. If required by applicable law, the seal of the Trust
shall consist of a flat-faced die with the word "Massachusetts", together with
the name of the Trust and the year of its organization cut or engraved thereon,
but, unless otherwise required by the Trustees, the seal shall not be necessary
to be placed on, and its absence shall not impair the validity of, any document,
instrument or other paper executed and delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees may generally or in particular
cases authorize the execution thereof in some other manner, all deeds, leases,
contracts, notes and other obligations made by the Trustees shall be signed by
the President, any Vice President, the Secretary or the Treasurer and need not
bear the seal of the Trust, but shall state the substance of or make reference
to the provisions of Section 6.1 of the Declaration of Trust.
ARTICLE 9
Issuance of Share Certificates
9.1 Share Certificates. In lieu of issuing certificates for shares,
the Trustees or the transfer agent may either issue receipts therefor or may
keep accounts upon the books of the Trust for the record holders of such shares,
who shall in either case be deemed, for all purposes hereunder, to be the
holders of certificates for such shares as if they had accepted such
certificates and shall be held to have expressly assented and agreed to the
terms hereof.
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The Trustees may at any time authorize the issuance of share certificates.
In that event, each shareholder shall be entitled to a certificate stating the
number of shares owned by him, in such form as shall be prescribed from time to
time by the Trustees. Such certificate shall be signed by the President and by
the Treasurer or Assistant Treasurer. Such signatures may be facsimiles if the
certificate is signed by a transfer agent, or by a registrar, other than a
Trustee, officer or employee of the Trust. In case any officer who has signed
or whose facsimile signature has been placed on such certificate shall cease to
be such officer before such certificate is issued, it may be issued by the Trust
with the same effect as if he were such officer at the time of its issue.
9.2 Loss of Certificates. In case of the alleged loss or destruction
or the mutilation of a share certificate, a duplicate certificate may be issued
in place thereof, upon such terms as the Trustees shall prescribe.
9.3 Issuance of New Certificate to Pledgee. In the event certificates
have been issued, a pledgee of shares transferred as collateral security shall
be entitled to a new certificate if the instrument of transfer substantially
describes the debt or duty that is intended to be secured thereby. Such new
certificate shall express on its face that it is held as collateral security,
and the name of the pledgor shall be stated thereon, who alone shall be liable
as a shareholder, and entitled to vote thereon.
9.4 Discontinuance of Issuance of Certificates. The Trustees may at
any time discontinue the issuance of share certificates and may, by written
notice to each shareholder, require the surrender of share certificates to the
Trust for cancellation. Such surrender and cancellation shall not affect the
ownership of shares in the Trust.
ARTICLE 10
Custodian
10.1 General. The Trust shall at all times employ a bank or trust
company having a capital, surplus and undivided profits of at least Five Hundred
Thousand ($500,000) Dollars as Custodian of the capital assets of the Trust.
The Custodian shall be compensated for its services by the Trust and upon such
basis as shall be agreed upon from time to time between the Trust and the
Custodian.
ARTICLE 11
Dealings with Trustees and Officers
11.1 General. Any Trustee, officer or other agent of the Trust may
acquire, own and dispose of shares of the Trust to the same extent as if he were
not a Trustee, officer or agent; and the Trustees may accept subscriptions to
shares or repurchase shares from any firm or company in which he is interested.
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ARTICLE 12
Shareholders
12.1 Meetings. A meeting of the shareholders of the Trust shall be held
whenever called by the Trustees, whenever election of a Trustee or Trustees by
shareholders is required by the provisions of Section 16(a) of the Investment
Company Act of 1940 for that purpose or whenever otherwise required pursuant to
the Declaration of Trust. Any meeting shall be held on such day and at such
time as the President or the Trustees may fix in the notice of the meeting.
12.2 Record Dates. For the purpose of determining the shareholders who
are entitled to vote or act at any meeting or any adjournment thereof, or who
are entitled to receive payment of any dividend or of any other distribution,
the Trustees may from time to time fix a time, which shall be not more than 60
days before the date of any meeting of shareholders or the date for the payment
of any dividend or of any other distribution, as the record date for determining
the shareholders having the right to notice of and to vote at such meeting and
any adjournment thereof or the right to receive such dividend or distribution,
and in such case, only shareholders of record on such record date shall have
such right, notwithstanding any transfer of shares on the books of the Trust
after the record date; or without fixing such record date the Trustees may for
any such purposes close the register or transfer books for all or any part of
such period.
ARTICLE 13
Amendments to the Bylaws
13.1 General. These Bylaws may be amended or repealed, in whole or in
part, by a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such a majority.
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MLCFG&P Draft of 10-9-97
Kobrick-HFS Investment Trust
101 Federal Street
Boston, Massachusetts 02111
_____________, 1997
Kobrick-HFS, Inc.
101 Federal Street
Boston, Massachusetts 02111
Re: Advisory Agreement
Ladies and Gentlemen:
Kobrick-HFS Investment Trust (the "Trust") is a diversified open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "Act"), and subject to the rules and regulations
promulgated thereunder. The Trust's shares of beneficial interest are divided
into two separate series, the Kobrick-HFS Capital Fund and the Kobrick-HFS
Emerging Growth Fund (the "Funds"). Each such share of a Fund represents an
undivided interest in the assets, subject to the liabilities, allocated to that
Fund. Each Fund has a separate investment objective and separate investment
policies.
1. Appointment as Adviser. The Trust being duly authorized hereby
appoints and employs Kobrick-HFS, Inc. ("Adviser") as discretionary portfolio
manager, on the terms and conditions set forth herein, of the Funds.
2. Acceptance of Appointment; Standard of Performance. Adviser accepts
the appointment as discretionary portfolio manager and agrees to use its best
professional judgment to make timely investment decisions for the Funds in
accordance with the provisions of this Agreement.
3. Portfolio Management Services of Adviser. Adviser is hereby employed
and authorized to select portfolio securities for investment by the Trust on
behalf of the Funds, to purchase and sell securities of the Funds, and upon
making any purchase or sale decision, to place orders for the execution of such
portfolio transactions in accordance with paragraphs 5 and 6 hereof. In
providing portfolio management services to the Funds, Adviser shall be subject
to such investment restrictions as are set forth in the Act and the rules
thereunder, the Internal Revenue Code of 1986, the supervision and control of
the Trustees of the Trust, such specific instructions as the Trustees may adopt
and communicate to Adviser and the investment objectives, policies and
restrictions of the Trust applicable to the Funds furnished pursuant to
<PAGE>
paragraph 4. Adviser is not authorized by the Trust to take any action,
including the purchase or sale of securities for the Funds, in contravention of
any restriction, limitation, objective, policy or instruction described in the
previous sentence. Adviser shall maintain on behalf of the Trust the records
listed in Schedule A hereto (as amended from time to time). At the Trust's
reasonable request, Adviser will consult with the Trust with respect to any
decision made by it with respect to the investments of the Funds.
4. Investment Objectives, Policies and Restrictions. The Trust will
provide Adviser with the statement of investment objectives, policies and
restrictions applicable to the Funds as contained in the Trust's registration
statements under the Act and the Securities Act of 1933, and any instructions
adopted by the Trustees supplemental thereto. The Trust will provide Adviser
with such further information concerning the investment objectives, policies and
restrictions applicable thereto as Adviser may from time to time reasonably
request. The Trust retains the right, on written notice to Adviser from the
Trust, to modify any such objectives, policies or restrictions in any manner at
any time.
5. Transaction Procedures. All transactions will be consummated by
payment to or delivery by ___________ Bank or any successor custodian (the
"Custodian"), or such depositories or agents as may be designated by the
Custodian in writing, as custodian for the Trust, of all cash and/or securities
due to or from the Funds, and Adviser shall not have possession or custody
thereof. Adviser shall advise Custodian and confirm in writing to the Trust and
to ________ Service Corp., or any other designated agent of the Trust, all
investment orders for the Funds placed by it with brokers and dealers. Adviser
shall issue to the Custodian such instructions as may be appropriate in
connection with the settlement of any transaction initiated by the Adviser.
6. Allocation of Brokerage. Adviser shall have authority and discretion
to select brokers and dealers to execute portfolio transactions initiated by
Adviser and to select the markets on or in which the transactions will be
executed.
In doing so, the Adviser will give primary consideration to securing the
most favorable price and efficient execution. Consistent with this policy, the
Adviser may consider the financial responsibility, research and investment
information and other services provided by brokers or dealers who may effect or
be a party to any such transaction or other transactions to which other clients
of the Adviser may be a party. It is understood that neither the Trust nor the
Adviser has adopted a formula for allocation of the Trust's investment
transaction business. It is also understood that it is desirable for the Trust
that the Adviser have access to supplemental investment and market research and
security and economic analyses provided by certain brokers who may execute
brokerage transactions at a higher commission to the Trust than may result when
allocating brokerage to other brokers on the basis of seeking the lowest
commission. Therefore, the Adviser is authorized to place orders for the
purchase and sale of securities for the Funds with such certain brokers, subject
to review by the Trust's Trustees from time to time with respect to the extent
and continuation of this practice. It is understood that the services provided
by such brokers may be useful to the Adviser in connection with its services to
other clients.
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On occasions when the Adviser deems the purchase or sale of a security to
be in the best interest of the Funds as well as other clients, the Adviser, to
the extent permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities to be sold or purchased in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or sold, as
well as expenses incurred in the transaction, will be made by the Adviser in the
manner it considers to be the most equitable and consistent with its fiduciary
obligations to the Trust and to such other clients.
For each fiscal quarter of the Trust, Adviser shall prepare and render
reports to the Trust's Trustees of the total brokerage business placed and the
manner in which the allocation has been accomplished. Such reports shall set
forth at a minimum the information required to be maintained by Rule 31a-1(b)(9)
under the Act.
7. Proxies. The Trust will vote all proxies solicited by or with respect
to the issuers of securities in which assets of the Funds may be invested from
time to time. At the request of the Trust, Adviser shall provide the Trust with
its recommendations as to the voting of such proxies.
8. Reports to Adviser. The Trust will provide Adviser with such periodic
reports concerning the status of the Funds as Adviser may reasonably request.
9. Fees for Services. For all of the services to be rendered and
payments made as provided in this Agreement, the Kobrick-HFS Capital Fund and
Kobrick-HFS Emerging Growth Fund will each pay the Adviser a quarterly advisory
fee computed as a percentage of the average of the values of the net assets of
the Fund as determined at the close of each business day during the quarter at
the following annual rates:
1% of the first $1,000,000,000 of such assets;
3/4% of the next $500,000,000 of such assets;
1/2% of the next $1,000,000,000 of such assets; and
3/8% of the average market value of such assets in excess of
$2,500,000,000.
10. Allocation of Charges and Expenses. Adviser shall employ or provide
and compensate the executive, administrative, secretarial and clerical personnel
necessary to provide the services set forth herein, and shall bear the expense
thereof. Adviser shall compensate all Trustees, officers and employees of the
Trust who are also shareholders or employees of Adviser. Adviser will pay all
expenses incurred in connection with the sale or distribution of the Funds'
shares.
The Funds will be responsible for the payment of all operating expenses of
the Trust, including fees and expenses incurred by the Trust in connection with
membership in investment company organizations, brokerage fees and commissions,
legal, auditing and accounting expenses, expenses of registering shares under
federal and state securities laws, insurance expenses, taxes or governmental
fees, fees and expenses of the custodian, the transfer,
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shareholder service and dividend disbursing agent and the accounting and pricing
agent of the Funds, expenses including clerical expenses of issue, sale,
redemption or repurchase of shares of the Funds, the fees and expenses of
Trustees of the Trust who are not interested persons of the Trust, the cost of
preparing, printing and distributing prospectuses, statements, reports and other
documents to shareholders, expenses of shareholders' meetings and proxy
solicitations, and such extraordinary or non-recurring expenses as may arise,
including litigation to which the Trust may be a party and indemnification of
the Trust's officers and Trustees with respect thereto, or any other expense not
specifically described above incurred in the performance of the Trust's
obligations. All other expenses not expressly assumed by Adviser herein
incurred in connection with the organization, registration of shares and
operations of the Funds will be borne by the Funds.
11. Other Investment Activities of Adviser. The Trust acknowledges that
Adviser or one or more of its affiliates may have investment responsibilities or
render investment advice to or perform other investment advisory services for
other individuals or entities and that Adviser, its affiliates or any of its or
their directors, officers, agents or employees may buy, sell or trade in any
securities for its or their respective accounts ("Affiliated Accounts").
Subject to the provisions of paragraph 2 hereof, the Trust agrees that Adviser
or its affiliates may give advice or exercise investment responsibility and take
such other action with respect to other Affiliated Accounts which may differ
from the advice given or the timing or nature of action taken with respect to
the Funds, provided that Adviser acts in good faith, and provided further, that
it is Adviser's policy to allocate, within its reasonable discretion, investment
opportunities to the Funds over a period of time on a fair and equitable basis
relative to the Affiliated Accounts, taking into account the investment
objectives and policies of the Funds and any specific investment restrictions
applicable thereto. The Trust acknowledges that one or more of the Affiliated
Accounts may at any time hold, acquire, increase, decrease, dispose of or
otherwise deal with positions in investments in which the Funds may have an
interest from time to time, whether in transactions which involve the Funds or
otherwise. Adviser shall have no obligation to acquire for the Funds a position
in any investment which any Affiliated Account may acquire, and the Trust shall
have no first refusal, co-investment or other rights in respect of any such
investment, either for the Funds or otherwise.
12. Certificate of Authority. The Trust and the Adviser shall furnish to
each other from time to time certified copies of the resolutions of their
Trustees or Board of Directors or executive committees, as the case may be,
evidencing the authority of officers and employees who are authorized to act on
behalf of the Trust, the Funds and/or the Adviser.
13. Limitation of Liability. Adviser shall not be liable for any action
taken, omitted or suffered to be taken by it in its reasonable judgment, in good
faith and believed by it to be authorized or within the discretion or rights or
powers conferred upon it by this Agreement, or in accordance with (or in the
absence of) specific directions or instructions from the Trust, provided,
however, that such acts or omissions shall not have resulted from Adviser's
willful misfeasance, bad faith or gross negligence, a violation of the standard
of care established by and applicable to Adviser in its actions under this
Agreement or breach of its duty or of its
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obligations hereunder. Nothing in this paragraph 12 shall be construed in a
manner inconsistent with Sections 17(h) and (i) of the Act.
14. Confidentiality. Subject to the duty of Adviser and the Trust to
comply with applicable law, including any demand of any regulatory or taxing
authority having jurisdiction, the parties hereto shall treat as confidential
all information pertaining to the Funds and the actions of Adviser and the Trust
in respect thereof.
15. Assignment. No assignment of this Agreement shall be made by Adviser,
and this Agreement shall terminate automatically in the event of such
assignment. Adviser shall notify the Trust in writing sufficiently in advance
of any proposed change of control, as defined in Section 2(a)(9) of the Act, as
will enable the Trust to consider whether an assignment will occur, and to take
the steps necessary to enter into a new contract with Adviser.
16. Representation, Warranties and Agreements of the Trust. The Trust
represents, warrants and agrees that:
A. Adviser has been duly appointed by the Trustees of the Trust to
provide investment services to the Funds as contemplated hereby.
B. The Trust will deliver to Adviser true and complete copies of its then
current prospectuses and statements of additional information as
effective from time to time and such other documents or instruments
governing the investments of the Funds and such other information as
is necessary for Adviser to carry out its obligations under this
Agreement.
C. The Trust is currently in compliance and shall at all times comply
with the requirements imposed upon the Trust by applicable law and
regulations.
17. Representations, Warranties and Agreements of Adviser. Adviser
represents, warrants and agrees that:
A. Adviser is registered as an investment adviser under the Investment
Advisers Act of 1940.
B. Adviser will maintain, keep current and preserve on behalf of the
Trust, in the manner and for the time periods required or permitted by
the Act, the records identified in Schedule A. Adviser agrees that
such records (unless otherwise indicated on Schedule A) are the
property of the Trust, and will be surrendered to the Trust promptly
upon request.
C. Adviser will complete such reports concerning purchases or sales of
securities on behalf of the Funds as the Trust may from time to time
require to ensure compliance with the Act, the Internal Revenue Code
of 1986 and applicable state securities laws.
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D. Adviser has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the Act and will provide the Trust
with a copy of the code of ethics and evidence of its adoption.
Within forty-five (45) days of the end of the last calendar quarter of
each year while this Agreement is in effect, a partner of Adviser
shall certify to the Trust that Adviser has complied with the
requirements of Rule 17j-1 during the previous year and that there has
been no violation of the Adviser's code of ethics or, if such a
violation has occurred, that appropriate action was taken in response
to such violation. Upon the written request of the Trust, Adviser
shall permit the Trust, its employees or its agents to examine the
reports required to be made to Adviser by Rule 17j-1(c)(1).
E. Adviser will, promptly after filing with the Securities and Exchange
Commission an amendment to its Form ADV, furnish a copy of such
amendment to the Trust.
F. Upon request of the Trust, Adviser will provide assistance to the
Custodian in the collection of income due or payable to the Funds.
G. Adviser will immediately notify the Trust of the occurrence of any
event which would disqualify Adviser from serving as an investment
adviser of an investment company pursuant to Section 9(a) of the Act
or otherwise.
18. Amendment. This Agreement may be amended at any time, but only by
written agreement between Adviser and the Trust, which amendment, other than
amendments to Schedule A, is subject to the approval of the Trustees and the
shareholders of the Funds in the manner required by the Act and the rules
thereunder, subject to any applicable exemptive order of the Securities and
Exchange Commission modifying the provisions of the Act with respect to approval
of amendments to this Agreement.
19. Effective Date; Term. This Agreement shall become effective on the
date of its execution and shall remain in force for a period of two (2) years
from such date, and from year to year thereafter but only so long as such
continuance is specifically approved at least annually by the vote of a majority
of the Trustees who are not interested persons of the Trust or the Adviser, cast
in person at a meeting called for the purpose of voting on such approval, and by
a vote of the Board of Trustees or of a majority of the outstanding voting
securities of the Funds. The aforesaid requirement that this Agreement may be
continued "annually" shall be construed in a manner consistent with the Act and
the rules and regulations thereunder.
20. Termination. This Agreement may be terminated by either party hereto,
without the payment of any penalty, immediately upon written notice to the other
in the event of a breach of any provision thereof by the party so notified, or
otherwise upon sixty (60) days' written notice to the other, but any such
termination shall not affect the status, obligations or liabilities of any party
hereto to the other.
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21. Limitation of Liability. It is expressly agreed that the obligations
of the Trust hereunder shall not be binding upon any of the trustees,
shareholders, nominees, officers, agents or employees of the Trust, personally,
but bind only the trust property of the Trust. The execution and delivery of
this Agreement have been authorized by the trustees of the Trust and signed by
an officer of the Trust, acting as such, and neither such authorization by such
trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Trust.
22. Use of Names. The name "Kobrick-HFS" is property right of the
Adviser. The Adviser may use the name "Kobrick-HFS" in other connections and
for other purposes, including without limitation in the name of other investment
companies, corporations or business that it may manage, advise, sponsor or own,
or in which it may have a financial interest. The Trust will discontinue any
use of the name "Kobrick-HFS" if the Adviser ceases to be
employed as the Trust's portfolio manager.
23. Definitions. As used in paragraphs 15 and 19 of this Agreement, the
terms "assignment," "interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in the Act and
the rules and regulations thereunder.
24. Applicable Law. To the extent that state law is not preempted by the
provisions of any law of the United States heretofore or hereafter enacted, as
the same may be amended from time to time, this Agreement shall be administered,
construed and enforced according to the laws of The Commonwealth of
Massachusetts.
KOBRICK-HFS INVESTMENT TRUST
By:
----------------------------------------
Title:
Date: ___________, 1997
ACCEPTANCE
The foregoing Agreement is hereby accepted.
KOBRICK-HFS, INC.
By:
------------------------------
Title:
Date: ___________, 1997
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SCHEDULE A
RECORDS TO BE MAINTAINED BY THE ADVISER
1. (Rule 31a-1(b)(5) and (6)) A record of each brokerage order, and all other
portfolio purchases or sales, given by the Adviser on behalf of the Funds
for, or in connection with, the purchase or sale of securities, whether
executed or unexecuted. Such records shall include:
A. The name of the broker;
B. The terms and conditions of the order and of any modification or
cancellation thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. The time of receipt of a report of execution; and
F. The name of the person who placed the order on behalf of the Trust.
2. (Rule 31a-1(b)(9)) A record for each fiscal quarter, completed within ten
(10) days after the end of the quarter, showing specifically the basis or
bases upon which the allocation of orders for the purchase and sale of
portfolio securities to named brokers or dealers was effected, and the
division of brokerage commissions or other compensation on such purchase
and sale orders. Such record:
A. Shall include the consideration given to:
(i) The sale of shares of the Trust by brokers or dealers.
(ii) The supplying of services or benefits by brokers or dealers
to:
(a) The Trust;
(b) The Adviser; and,
(c) Any person affiliated with the foregoing persons.
(iii) Any other consideration other than the technical
qualifications of the brokers and dealers as such.
B. Shall show the nature of the services or benefits made available.
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C. Shall describe in detail the application of any general or specific
formula or other determinant used in arriving at such allocation of
purchase and sale orders and such division of brokerage commissions or
other compensation.
D. The name of the person responsible for making the determination of
such allocation and such division of brokerage commissions or other
compensation.
3. (Rule 31a-1(b)(10)) A record in the form of an appropriate memorandum
identifying the person or persons, committees or groups authorizing the
purchase or sale of portfolio securities. Where an authorization is made
by a committee or group, a record shall be kept of the names of its members
who participate in the authorization. There shall be retained as part of
this record any memorandum, recommendation or instruction supporting or
authorizing the purchase or sale of portfolio securities and such other
information as is appropriate to support the authorization.*
4. (Rule 31a-1(f)) Such accounts, books and other documents as are required
to be maintained by registered investment advisers by rule adopted under
Section 204 of the Investment Advisers Act of 1940, to the extent such
records are necessary or appropriate to record the Adviser's transactions
with respect to the Funds.
- ------------------------
* Such information might include: the current Form 10-K, annual and
quarterly reports, press releases, reports by analysts and from brokerage
firms (including their recommendation; i.e., buy, sell, hold) or any
internal reports or portfolio adviser reviews.
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MLCFG&P Draft of 10-9-97
AGREEMENT RELATING TO INITIAL CAPITAL
______________, 1997
KOBRICK-HFS INVESTMENT TRUST
101 Federal Street
Boston, Massachusetts 02111
Dear Sir/Madam:
In conjunction with the purchase by Kobrick-HFS, Inc. (the "Purchaser") of
______ shares of beneficial interest of the Kobrick-HFS Capital Fund and ______
shares of beneficial interest of the Kobrick-HFS Emerging Growth Fund of the
Kobrick-HFS Investment Trust (The "Shares"), the Purchaser hereby represents
that it is acquiring the Shares for investment with no intention of reselling or
otherwise distributing the Shares. The Purchaser hereby further agrees that any
transfer of any of the Shares or any interest therein shall be subject to the
following conditions:
1. The Purchaser shall furnish you and counsel satisfactory to you prior
to the time of transfer, a written description of the proposed
transfer specifying its nature and consequence and giving the name of
the proposed transferee.
2. You shall have obtained from your counsel a written opinion stating
whether in the opinion of such counsel the proposed transfer may be
effected without registration under the Securities Act of 1933. If
such opinion states that such transfer may be so effected, the
Purchaser shall then be entitled to transfer the Shares in accordance
with the terms specified in its description of the transaction to you.
If such opinion states that the proposed transfer may not be so
effected, the Purchaser will not be entitled to transfer the Shares
unless the Shares are registered.
The Purchaser hereby authorizes you to take such action as you shall
reasonably deem appropriate to prevent any violation of the Securities Act of
1933 in connection with the transfer of the Shares, including the imposition of
a requirement that any transferee of the Shares sign a letter agreement similar
to this one. The Purchaser agrees that in the event the Shares are redeemed by
the Purchaser or its successors or any current holder prior to the complete
amortization of organization expenses by the Kobrick-HFS Capital Fund or the
Kobrick-HFS Emerging Growth Fund, the redemption proceeds payable in respect of
the Shares so redeemed
<PAGE>
shall be reduced by the pro-rata share (based on the proportionate share of the
Shares redeemed to the total number of the Shares outstanding at the time of
redemption) of the then unamortized deferred organization expenses as of the
date of such redemption.
Very truly yours,
Kobrick-HFS, Inc.
By:
-------------------------
Its: President
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