Securities Act of 1933 Registration No. 333-37727
Investment Act of 1940 Registration No. 881-8436
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. 1
Post-Effective Amendment No.
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 1
(Check appropriate box or boxes)
KOBRICK-HFS INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
101 Federal Street
Boston, Massachusetts 02110
(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 02110
(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 Table of Expenses
3. Condensed Financial Information Inapplicable
4. General Description of Registrant The Fund's Investments,
Limiting Investment Risk;
Management of the Fund
5. Management of the Fund Management of the Fund
6. Capital Stock and Other Securities Cover Page; Management of the
Fund; Dividends and
Distributions; Taxes
7. Purchase of Securities Being Offered How to Purchase Shares;
Shareholder Services;
Exchange Privileges;
Distribution Plan;
Calculation of Share Price;
The Fund and its Shares
8. Redemption or Repurchase How to Redeem Shares;
Shareholder Services;
Exchange Privileges; The Fund
and its Shares
9. Legal Proceedings Inapplicable
PART B
Caption in Statement
Item No. Registration Statement Caption of Additional Information
10. Cover Page Cover Page
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11. Table of Contents Table of Contents
12. General Information and History The Trust
13. Investment Objectives and Policies Additional Information
Concerning Certain Investment
Techniques; Debt Instruments
and Permitted Cash
Investments; 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 Trustees and Officers
of Securities
16. Investment Advisory and Other Services The Investment Adviser;
Distribution Plan; Custodian;
Auditors; Transfer Agent;
Distributor
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 Distributor
22. Calculation of Performance Data Historical Performance
Information Information
23. Financial Statements Statements of Assets and
Liabilities
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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KOBRICK-HFS CAPITAL FUND
101 Federal Street
Boston, Massachusetts 02110
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 Funds, 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. Funds
Distributor, Inc., 60 State Street, Suite 1300, Boston, MA 02109 serves as
distributor (the "Distributor") of the Fund's shares.
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 should 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 (together with any supplement to it) 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 1-888-KCFUND1 (1-888-523-8631).
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 THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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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
How to Redeem Shares
Exchange Privileges
Shareholder Services
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%
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Total Fund Operating Expenses...................................... 1.75%
=====
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(a) Remittance of redemption proceeds by wire is subject to a wire transfer fee
(currently $10). Redemptions processed through securities dealers may be subject
to a processing charge by such securities dealers.
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EXAMPLE
The following example illustrates the expenses that you would pay on a
$1,000 investment in the Fund over various time periods assuming (1) a 5% annual
rate of return, (2) the operating expenses listed in the table above remain the
same through each of the periods, and (3) reinvestment of all dividends and
capital gain distributions:
After 1 year $18
After 3 years $57
THIS 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.
The purpose of the tables 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 September 30,
1998. Actual expense levels for the current fiscal year or for future years may
vary from the amounts shown. For further information on management fees, see
"Management of the Fund" and for further information on 12b-1 fees, see
"Distribution Plan."
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 Fund is not
intended to be a complete investment program, and there is no assurance that its
investment objective can be achieved. 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
though 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
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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.
Under normal circumstances, the Fund expects to be 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 may 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 maturities 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
General
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 Investment Manager currently anticipates that the
portfolio turnover rate for the Fund will be between 100% and 150%. 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.
Investments in special situation companies involve the additional risk if the
unique circumstances on which the investment decisions are made turn out not to
exist or come to fruition or not to be as important to the investment
performance as perceived by the Investment Manager. 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.
Foreign Investments
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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
facilitates 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 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
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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.
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
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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 up to 15% of its net assets in illiquid securities
including 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 restricted
securities is still developing, such securities could possibly become illiquid
in particular circumstances. Under the nonfundamental investment restrictions,
the Fund may not invest more than 5% of the Fund's net assets in securities
eligible for resale under Rule 144A under the Securities Act of 1933. See the
Statement of Additional Information.
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, among other things, (a) borrow money, except (i)
from a bank, but not in an amount exceeding 1/3 of its total assets or (ii) for
temporary purposes only, but not in an amount exceeding 5% of its total assets;
or (b) invest more than 25% of the Fund's total assets in securities of issuers
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% or more of the voting securities present at a
meeting, if the holders of more than 50% of the outstanding voting securities of
the Trust are present or represented by proxy; or (B) of more than 50% 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. Other
nonfundamental investment restrictions include that, 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. The foregoing nonfundamental investment restrictions may
be changed by the Board of Trustees without a shareholder vote.
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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.
HOW TO PURCHASE SHARES
Initial Investment.
Your initial investment in the Fund must be at least $2,500 ($1,000 for
tax deferred retirement plans and accounts opened with the Automatic Investment
Plan). The Fund may, in the Investment Manager's sole discretion, accept certain
accounts with less than the stated minimum initial investment. You may open an
account and make an initial investment in the Fund by sending a completed and
executed account application (a copy of which is included in this prospectus)
together with a check for the total purchase amount to one of the following
addresses:
First Class Mail: Kobrick-HFS Capital Fund
c/o State Street Bank and Trust Company
P.O. Box ____
Boston, Massachusetts 02266-____
Overnight Mail: Kobrick-HFS Capital Fund
c/o State Street Bank and Trust Company
Two Heritage Drive
Quincy, Massachusetts 02171-____
Checks should be in U.S. Dollars, drawn on a U.S. Bank and made payable to
"Kobrick-HFS Capital Fund." You may also purchase shares by instructing your
bank to wire transfer money to the Fund's custodian bank (not available for IRA
accounts). Your bank may charge you a fee for sending the wire transfer. If you
are opening a new account by wire transfer, you must first call the Fund at
1-888-KCFUND1 (1-888-523-8631) to request a new account number and wire transfer
instructions. The name of the Fund must appear on the wire for proper credit.
Neither the Fund nor the Trust will be responsible
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for the consequences of delays, including delays in the banking or Federal
Reserve wire transfer systems.
Subsequent Investments.
Subsequent purchases of shares in the Fund may be made for a minimum of at
least $50 per purchase (or such higher amount as the Investment Manager may from
time to time determine) in any of the following ways:
By Mail: You may send a check made payable to Kobrick-HFS Capital Fund
with either the stub from your Fund account confirmation statement or a
note indicating the amount of the purchase, your account number and the
name in which your account is registered to Kobrick-HFS Capital Fund at
one of the addresses listed above for initial investments.
By Wire Transfer: You may instruct your bank to wire transfer money to the
Fund's custodian bank (not available for IRA accounts). Your bank may
charge you a fee for sending the wire transfer. Neither the Fund nor the
Trust will be responsible for the consequences of delays, including delays
in the banking or Federal Reserve wire transfer systems.
By Telephone: If you have an established Fund account with established
electronic transfer privileges, you may make electronic transfers from
your designated bank account by calling the Fund at 1-888-KCFUND1
(1-888-523-8631) over the telephone. This election may be made on your
initial application or by subsequently writing to the Fund, with your
signature guaranteed (see further discussion below).
By Automatic Investment: You can make subsequent investments automatically
by electing the Automatic Investment Plan on your initial application or
later upon request. Purchases may be made monthly or quarterly by
automatically deducting $50.00 or more from your bank checking or savings
account. The minimum initial investment required to establish an Automatic
Investment Plan is $1,000. You may cancel the Automatic Investment Plan at
any time and the Fund reserves the right to immediately terminate your
Automatic Investment Plan in the event that any item is returned unpaid by
your financial institution. The Fund reserves the right, upon 30 days
written notice, to make reasonable charges for this service. Your bank or
other financial institution may impose its own charge for debiting your
account which would reduce your return from an investment in the Fund.
Exchange
You may establish an account and make subsequent purchases of shares of
the Fund by exchanging shares of other series of the Trust, which currently
consists of the Kobrick-HFS Emerging Growth Fund, at net asset value. Shares of
the Fund may also be purchased by exchanging your shares at net asset value of
the Kobrick-HFS US Government Money Market Fund (a series of the SSGA US
Government Money Market Fund). The establishment of an account and subsequent
purchases are subject to the
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minimum requirements described above and to other restrictions described below
under "Exchange Privileges." Purchases by exchange may be made by mail or by
telephone in the manner described above. An exchange results in a sale of fund
shares, which may cause you to recognize a capital gain or loss.
Points to Remember for all Initial and Subsequent Investments.
Shares of the Fund are sold on a continuous basis at the net asset value
next determined after receipt of a purchase order in good order by the Fund.
Purchase orders received by the Fund's Transfer Agent, either directly or
through a dealer, by the close of the regular session of trading on the New York
Stock Exchange (traditionally, 4:00 p.m., Eastern time), 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 the Fund's
Transfer Agent by the close of the regular session of trading on the New York
Stock Exchange on that day. Dealers may charge a fee for effecting purchase
orders. Direct investments, or purchase orders through dealers, received by the
Fund's Transfer Agent after the close of the regular session of trading on the
New York Stock Exchange on that day are confirmed at the net asset value next
determined on the following business day.
You may purchase or redeem shares of the Fund through certain investment
dealers, banks or other institutions. Any such purchase or redemption generally
will not be effective until the order or request is received by the Fund; it is
the responsibility of the dealer to transmit your order or request promptly.
These institutions may impose charges for their services. You may purchase or
redeem shares of the Fund directly from or with the Fund without imposition of
any charges other than those described in this prospectus.
The Fund will not accept cash, drafts, third party checks or checks drawn
on banks outside of the United States. The Fund considers all requests for
purchases, checks and other forms of payment to be received when they are
received in good order by the Fund. Good order means, among other things, that
the Fund has verified that your application is properly completed or your
transaction request includes your Fund account number, the amount of the
transaction (in dollars or shares), signatures of all owners exactly as
registered on the account and any other supporting legal documentation that may
be required. If your order to purchase shares of the Fund is canceled because
your check does not clear, you will be responsible for any resulting losses or
fees incurred by the Fund or its Transfer Agent.
HOW TO REDEEM SHARES
You may redeem shares of the Fund on each day that the Fund is open for
business. The Fund will make redemptions at the net asset value next calculated
after your request is received in good order by the Transfer Agent. Redemptions
must be for at least $250 or the balance of your investment in the Fund.
Redemption proceeds will generally be sent within seven days after a request in
good order is received. If you attempt to redeem shares within 15 days after
they have been purchased, the Fund may delay payment of the redemption proceeds
to you until it can verify the payment for the purchase of those shares
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has been (or will be) collected. To reduce such delays, the Fund recommends that
you purchase your shares by certified check or wire.
You may redeem shares in any of the following ways:
By Mail: You may redeem all or any part of your shares upon your
written request delivered to one of the following addresses:
First Class Mail: Kobrick-HFS Capital Fund
c/o State Street Bank and Trust Company
P.O. Box ____
Boston, Massachusetts 02266-____
Overnight Mail: Kobrick-HFS Capital Fund
c/o State Street Bank and Trust Company
Two Heritage Drive
Quincy, Massachusetts 02171-____
Your redemption request must include account number, transaction amount
(in dollars or shares), signatures of all owners exactly as registered on
the account, signature guarantees (if required, as described below) and
any other supporting legal documentation. Once mailed to us, your
redemption request is irrevocable and cannot be modified or canceled.
By Telephone: You may redeem shares (for less than $50,000) by telephone
by calling the Fund at 1-888-KCFUND1 (1-888-523-8631). Once made, your
telephone request cannot be modified or canceled. You will automatically
have the telephone redemption plan unless you decline it on your
application. You may not redeem shares by telephone held in an IRA
account.
By Automatic Redemption: You may automatically redeem a fixed dollar
amount of shares each month or quarter and have the proceeds sent by check
to you or deposited by electronic transfer into your bank account by so
electing on your new account purchase application or by contacting the
Fund's Transfer Agent to establish such an arrangement. You can elect this
feature only if the balance in the Fund is at least $10,000. You may
cancel the Automatic Redemption Plan at any time. The Fund reserves the
right, upon 30 days written notice, to cancel this Plan or to make
reasonable charges for this service.
Signature Guarantee: A request for redemption must be made in writing
and include a signature guarantee if any of the following situations
applies:
o You wish to redeem more than $50,000 worth of shares;
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o Your name has changed by marriage or divorce (send a letter
indicating your account number and old and new names, signing the
letter in both the old and new names and having both signatures
guaranteed);
o Your address has changed within the last 30 days;
o You have requested that the check be mailed to an address different
from the one on your account (address of record);
o You request that the check be made payable to someone other than the
account owner; or
o You are instructing the Fund to wire the proceeds to a bank or
brokerage account and have not signed up for the telephone
redemption by wire plan.
You should be able to obtain a signature guarantee from a bank,
broker-dealer, credit union (if authorized under state law), securities
exchange or association, clearing agency or savings association. A notary
public can't provide a signature guarantee.
If you elect on your application to participate in the Redemption by Wire
Plan or such request is subsequently made in writing accompanied by a signature
guarantee, the proceeds of your redemption may be made by wire transfer to your
existing account in any commercial bank or brokerage firm in the United States.
If you request a redemption by wire, a processing fee (currently $10) will be
deducted from the redemption proceeds. Your bank or brokerage firm may also
impose a fee for processing the wire. In the event the wire transfer of funds is
impossible or impractical, the redemption proceeds will be sent by mail to the
designated account.
Redemptions may be suspended or payment dates postponed on days when the
New York Stock Exchange is closed (other than weekends or holidays), when
trading on the New York Stock Exchange is restricted or as permitted by the
Securities and Exchange Commission. Certain accounts (such as trust accounts,
corporate accounts and custodial accounts) may be required to furnish additional
documentation to complete a redemption. Call the Fund at 1-888-KCFUND1
(1-888-523-8631) for more information.
If a check representing redemption proceeds cannot be delivered by the
U.S. Postal Service or if your check remains uncashed for six months, the check
will be canceled and the proceeds will be reinvested in your account at the then
current net asset value, In addition, if you have an Automatic Redemption Plan,
it will automatically be canceled and future withdrawals will be permitted only
when requested.
The Fund reserves the right at any time without prior written notice to
suspend, limit, modify or terminate any redemption privilege or its use in any
manner by any person. The Fund also reserves the right, due to the expenses of
maintaining small accounts, to redeem shares in any account and send the
proceeds to the owner if the shares in the account do not have a value of at
least $2,500 ($1,000 for tax-deferred retirement
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plans and accounts opened with the Automatic Investment Plan). A shareholder
would be notified that the account is below the minimum and allowed 30 days to
bring the account value up to the minimum.
EXCHANGE PRIVILEGES
Shares of the Fund may be exchanged for shares of other series of the
Trust, which currently consists of 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 Kobrick-HFS US Government Money Market Fund (a series of the SSGA
US Government Money Market Fund). The SSGA US Government Money Market Fund is a
registered, open-end investment company with multiple portfolios, advised by
State Street Bank and Trust Company and not affiliated with the Fund or the
Trust. The Kobrick-HFS US Government Money Market Fund's fundamental investment
objective is to maximize current income to the extent consistent with the
preservation of capital and liquidity, and the maintenance of a stable $1.00 per
share net asset value, by investing in obligations of the US Government or its
agencies and instrumentalities with remaining maturities of one year or less.
You may request an exchange by mail or by telephone by following the
redemption procedures described above under "How to Redeem Shares" and
indicating the shares of the Fund to be purchased by exchange. Exchanges between
accounts can be made only if the accounts are registered in the same name(s),
address and social security or tax identification number. The Fund requires each
exchange to be a minimum of $50 subject to any higher amount required by the
Fund in which the shares are being acquired. An exchange will be effected at the
next determined net asset value after receipt of a request by the Fund's
Transfer Agent. The Fund reserves the right to limit the number of times an
exchange may be made by any shareholder within a specified period of time and
the exchange privileges with respect to any or all of the funds may be
terminated at any time.
Exchanges are subject to applicable requirements, including any minimum
initial investments and may only be made for shares of funds then offered for
sale in your state of residence. The exchange privilege may be modified or
terminated by the Board of Trustees upon 30 days prior notice to shareholders,
provided that the Fund reserves the right at any time to limit the number of
times an exchange may be made by any shareholder within a specified period of
time. 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 the
transfer agent to obtain a current prospectus and more information about
exchanges among the funds. This exchange privilege is not an offering or
recommendation of any other securities.
SHAREHOLDER SERVICES
You may contact the Fund concerning your account or for additional
information about the shareholder services described in this prospectus by
calling 1-888-KCFUND1 (1-888-532-8631) during the Fund's business hours from
8:30 to 5:00 p.m., Eastern time, Monday through Friday. In addition to the
Automatic Investment Plan, the Automatic Redemption Plan, the exchange
privileges and the other services described in this prospectus, the Fund offers
the following shareholder services:
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<PAGE>
Retirement Plans and IRA Accounts. Shares of the Fund may be purchased
directly by existing retirement plans which allow such investments. In addition,
qualified individuals may establish a regular IRA, Roth IRA or 403(b) Plans to
be funded with shares of the Fund. State Street Bank and Trust Company acts as
custodian for any IRAs and 403(b) Plans thus created. For further information,
call the Fund at 1-888-KCFUND1 (1-888-523-8631).
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. This
plan can be established with a minimum initial investment of $1,000 and
subsequent investments of at least $50. For more information please call the
Fund at 1-888-KCFUND1 (1-888-532-8631).
Reporting to Shareholders. You will receive a confirmation statement each
time you purchase, redeem or exchange shares. Shares purchased by reinvestment
of dividends or pursuant to an automatic plan will be confirmed to you
quarterly. The Fund will send you quarterly reports showing the value of your
account at the close of the preceding quarter and showing all distributions,
purchases, exchanges and redemptions during the quarter. The Fund will provide
you annually with tax information. There will also be sent to you audited annual
financial statements and semi-annual financial reports on the Fund's operations
and performance and a new prospectus each year.
Telephone Transactions. As described in this prospectus, the Fund allows
you to transact much of your business by telephone. Neither the Trust, the Fund,
the Transfer Agent nor their respective officers, trustees, directors, employees
or agents will be responsible for any losses, fees or expenses resulting from
unauthorized transactions initiated by telephone if the Transfer Agent follows
reasonable procedures designed to verify the identity of the caller. These
procedures may include recording the call, requesting additional information and
sending written confirmations of telephone transactions. You should verify the
accuracy of telephone conversations immediately upon receipt of your
confirmation.
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to distribute any net realized capital gains and net
investment income at least once each year. The Investment manager will determine
the timing and the frequency of distributions of any net realized short-term
capital gains. Distributions are paid according to one of the following options:
Reinvestment Option Income distributions and capital gains
distributions will automatically be reinvested in
additional shares of the Fund.
Income Option Income distributions and short-term
capital gains distributions will be paid in cash
to you; long-term capital
14
<PAGE>
gains distributions will automatically be
reinvested in additional shares of the Fund.
Cash Option Income distributions and capital gains
distributions will be paid to you 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 of the Fund. All reinvestments will be based on
the net asset value in effect on the record date of the distribution.
If you select the Income Option or the Cash Option and the U.S. Postal
Service cannot deliver your check or if your check remains uncashed for six
months, the check will be canceled and the distributions may be reinvested in
your account at the then current net asset value and your account will be
converted to the Reinvestment Option.
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 October 10, 1997. The Trust may issue an unlimited number of
shares, in one or more series, each with its own investment objectives, policies
and restrictions, as the Board of Trustees may authorize. The Fund's fiscal year
ends on September 30.
Shares of the Trust have equal dividend, redemption and liquidation rights
and when issued are fully paid and nonassessable by the Trust. Each share has
one vote (with proportionate voting for fractional shares) irrespective of net
asset value.
Under the Master Trust Agreement of the 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 Trust. At that time a meeting
of shareholders will be called to elect additional Trustees. Under the Master
Trust Agreement, any Trustee may be removed by vote of two-thirds of the
outstanding Trust shares; holders of 10% or more of the outstanding shares of
the 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 to the extent required by applicable law.
Under Massachusetts law, the shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement of the Trust disclaims shareholder
liability for acts or obligations of the Trust and provides for indemnification
for all losses and expenses of any shareholder of the Trust
15
<PAGE>
held personally liable for the obligations of the 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.
The Fund's investment manager is Kobrick-HFS Funds, Inc., 101 Federal
Street, Boston, Massachusetts 02110. The Investment Manager is charged with the
overall responsibility for managing the investments and business affairs of the
Fund, subject to the authority of the Board of Trustees.
Kobrick-HFS Funds, 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 and warrants which, if exercised, could result in HFS Incorporated
owning a majority of the total common stock in the Investment Manager.. Messrs
Kobrick and Carmen have combined over 25 years of experience in the management
of investments under objectives similar to those of the Fund.
The Fund's portfolio manager is Frederick R. Kobrick, who for the 12 years
immediately prior to becoming President of Kobrick-HFS Funds Inc. was an equity
portfolio manager at State Street Research & Management Company where he served
as Senior Vice President since 1989 and a member of the firm's Equity Investment
Committee since 1985. Mr. Kobrick has investment discretion over the entire
portfolio of the Fund. The portfolio manager may use a team approach on behalf
of the Fund and delegate purchase and sale authority for portions of the
portfolio to Mr. Carmen.
Under the Investment Advisory Agreement between the Trust and the
Investment Manager, the Fund pays a monthly management fee to the Investment
Manager. The management fee is equal to 1.00% of the average of the values of
the net assets of the Fund as determined at the close of each business day
during the month.
In addition to the management fee, the Fund is responsible for the
payment of all operating expenses, including fees and expenses 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, expenses related to the
distribution of the Fund's shares (which expenses will be paid from the 12b-1
fees under the Distribution Plan; see "Distribution Plan"), insurance expenses,
taxes or governmental fees, fees and expenses of the custodian, transfer agent,
administrator, and accounting and pricing agent of the Fund, fees and expenses
of members of the Board of Trustees who are not interested persons of the Trust,
the cost of preparing 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
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<PAGE>
Fund may be a party and indemnification of the Trust's officers and Trustees
with respect thereto.
The Investment Advisory Agreement 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.
Messrs. Kobrick and Carmen, in addition to serving as the senior officers
of the Investment Manager, are also the principals in a private investment
partnership, and may act in that capacity with respect to other similar
investment partnerships. One or more of such accounts, may from time to time,
purchase or sell securities or have securities under consideration for purchase
or sale, that are also being sold or purchased or considered for sale or
purchase by the Fund. In those instances where securities transactions are
carried on at the same time on behalf of the Fund and such other accounts,
transactions in such securities for such accounts may be grouped with securities
transactions carried out on behalf of the Fund. The practice of grouping orders
of various accounts will be followed to get the benefit of best prices or
commission rates. In certain cases where the aggregate order may be executed in
a series of transactions at various prices the transactions will be allocated as
to amount and price in a manner considered equitable to each account so that
each receives, to the extent practicable the average price for such
transactions. Transactions will not be grouped unless it is the judgment of the
Investment Manager that such aggregation is consistent with its duty to seek
best execution (which includes the duty to seek best price), for the Fund and in
each case the books and records of the Fund and any such other account will
separately reflect, for each account the orders of which are aggregated, the
securities held by and bought and sold for that account.
The Investment Manager has a Code of Ethics governing personal securities
transactions of its employees; see the Statement of Additional Information.
As of the date of this Prospectus, Kobrick-HFS Funds , Inc. is the sole
shareholder of the Fund. Accordingly, Kobrick-HFS Funds, Inc. and their
respective affiliates directly or indirectly control the Fund.
TAXES
The Fund intends to qualify annually 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 annually and pays
such dividends, if any, after year end. Distributions of capital gain net income
will generally be
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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 (see "Dividends and
Distributions").
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 Fund'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 Fund 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 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 the Distributor; 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
18
<PAGE>
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 expenses pursuant to the Plan is .25% of the
Fund's average daily net assets.
CALCULATION OF SHARE PRICE
On each day that the Fund 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 Fund is open for business on each day the New York Stock Exchange is
open for business 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 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.
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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 net asset value 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 fee for wire
redemptions.
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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<PAGE>
KOBRICK-HFS EMERGING GROWTH FUND
101 Federal Street
Boston, Massachusetts 02110
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 Funds, 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. Funds
Distributor, Inc., 60 State Street, Suite 1300, Boston, MA 02109 serves as
distributor (the "Distributor") of the Fund's shares.
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 should 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 (together with any supplement to it) 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- 888-KCFUND1 (1-888-523-8631).
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 THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
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
How to Redeem Shares
Exchange Privileges
Shareholder Services
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%
=====
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(a) Remittance of redemption proceeds by wire is subject to a wire transfer fee
(currently $10.00). Redemptions processed through securities dealers may be
subject to a processing charge by such securities dealers.
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EXAMPLE
The following example illustrates the expenses that you would pay on a
$1,000 investment in the Fund over various time periods assuming (1) a 5% annual
rate of return, (2) the operating expenses listed in the table above remain the
same through each of the periods, and (3) reinvestment of all dividends and
capital gain distributions:
After 1 year $18
After 3 years $57
THIS 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.
The purpose of the tables 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 September 30,
1998. Actual expense levels for the current fiscal year or for future years may
vary from the amounts shown. For further information on management fees, see
"Management of the Fund" and for further information on 12b-1 fees, see
"Distribution Plan."
THE FUND'S INVESTMENTS
The Fund's investment objective 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. The
Fund is not intended to be a complete investment program, and there is no
assurance that its investment objective can be achieved. 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
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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 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 be 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 may 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
General
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 Investment Manager currently anticipates that the
portfolio turnover rate for the Fund will be between 100% and 150%. The Fund's
portfolio turnover rate involves greater transaction costs, relative
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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, 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. Investments in special situation companies involve
the additional risk if the unique circumstances on which the investment
decisions are made turn out not to exist or come to fruition or not to be as
important to the investment performance as perceived by the Investment Manager.
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.
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
facilitates 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.
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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 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,
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<PAGE>
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 up to 15% of its net assets in illiquid securities,
including 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. Under the nonfundamental investment restrictions, the
Fund may not invest more than 5% of the Fund's net assets in securities eligible
for resale under Rule 144A under the Securities Act of 1933. See the Statement
of Additional Information.
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, among other things, (a) borrow money, except (i)
from a bank, but not in an amount exceeding 1/3 of its total assets or (ii) for
temporary purposes only, but not in an amount exceeding 5% of its total assets;
or (b) invest more than 25% of the Fund's total assets in securities of issuers
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% or more of the voting securities present at a
meeting, if the holders of more than 50% of the outstanding voting securities of
the Trust are present or represented by proxy; or (B) of more than 50% of the
outstanding voting securities of the Trust, whichever is less.
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<PAGE>
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. Other
nonfundamental investment restrictions include that, 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. The foregoing nonfundamental investment restrictions may
be changed by the Board of Trustees 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.
HOW TO PURCHASE SHARES
Initial Investment.
Your initial investment in the Fund must be at least $2,500 ($1,000 for
tax deferred retirement plans and accounts opened with the Automatic Investment
Plan). The Fund may, in the Investment Manager's sole discretion, accept certain
accounts with less than the stated minimum initial investment. You may open an
account and make an initial investment in the Fund by sending a completed and
executed account application (a copy of which is included in this prospectus)
together with a check for the total purchase amount to one of the following
addresses:
First Class Mail: Kobrick-HFS Emerging Growth Fund
c/o State Street Bank and Trust Company
P.O. Box ____
Boston, Massachusetts 02266-____
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Overnight Mail: Kobrick-HFS Emerging Growth Fund
c/o State Street Bank and Trust Company
Two Heritage Drive
Quincy, Massachusetts 02171-____
Checks should be in U.S. Dollars, drawn on a U.S. Bank and made payable to
"Kobrick-HFS Emerging Growth Fund." You may also purchase shares by instructing
your bank to wire transfer money to the Fund's custodian bank (not available for
IRA accounts). Your bank may charge you a fee for sending the wire transfer. If
you are opening a new account by wire transfer, you must first call the Fund at
1-888-KCFUND1 (1-888-523-8631) to request a new account number and wire transfer
instructions. The name of the Fund must appear on the wire for proper credit.
Neither the Fund nor the Trust will be responsible for the consequences of
delays, including delays in the banking or Federal Reserve wire transfer
systems.
Subsequent Investments.
Subsequent purchases of shares in the Fund may be made for a minimum of at
least $50 per purchase (or such higher amount as the Investment Manager may from
time to time determine) in any of the following ways:
By Mail: You may send a check made payable to Kobrick-HFS Emerging Growth
Fund with either the stub from your Fund account confirmation statement or
a note indicating the amount of the purchase, your account number and the
name in which your account is registered to Kobrick-HFS Emerging Growth
Fund at one of the addresses listed above for initial investments.
By Wire Transfer: You may instruct your bank to wire transfer money to the
Fund's custodian bank (not available for IRA accounts). Your bank may
charge you a fee for sending the wire transfer. Neither the Fund nor the
Trust will be responsible for the consequences of delays, including delays
in the banking or Federal Reserve wire transfer systems.
By Telephone: If you have an established Fund account with established
electronic transfer privileges, you may make electronic transfers from
your designated bank account by calling the Fund at 1-888-KCFUND1
(1-888-523-8631) over the telephone. This election may be made on your
initial application or by subsequently writing to the Fund, with your
signature guaranteed (see further discussion below).
By Automatic Investment: You can make subsequent investments automatically
by electing the Automatic Investment Plan on your initial application or
later upon request. Purchases may be made monthly or quarterly by
automatically deducting $50.00 or more from your bank checking or savings
account. The minimum initial investment required to establish an Automatic
Investment Plan is $1,000. You may cancel the Automatic Investment Plan at
any time and the Fund reserves the right to immediately terminate your
Automatic Investment Plan in the event that any item is returned unpaid by
your financial institution. The Fund reserves the right, upon 30
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<PAGE>
days written notice, to make reasonable charges for this service. Your
bank or other financial institution may impose its own charge for debiting
your account which would reduce your return from an investment in the
Fund.
Exchange
You may establish an account and make subsequent purchases of shares of
the Fund by exchanging shares of other series of the Trust, which currently
consists of the Kobrick-HFS Emerging Growth Fund, at net asset value. Shares of
the Fund may also be purchased by exchanging your shares at net asset value of
the Kobrick-HFS US Government Money Market Fund (a series of the SSGA US
Government Money Market Fund). The establishment of an account and subsequent
purchases are subject to the minimum requirements described above and to other
restrictions described below under "Exchange Privileges." Purchases by exchange
may be made by mail or by telephone in the manner described above. An exchange
results in a sale of fund shares, which may cause you to recognize a capital
gain or loss.
Points to Remember for all Initial and Subsequent Investments.
Shares of the Fund are sold on a continuous basis at the net asset value
next determined after receipt of a purchase order in good order by the Fund.
Purchase orders received by the Fund's Transfer Agent, either directly or
through a dealer, by the close of the regular session of trading on the New York
Stock Exchange (traditionally, 4:00 p.m., Eastern time), 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 the Fund's
Transfer Agent by the close of the regular session of trading on the New York
Stock Exchange on that day. Dealers may charge a fee for effecting purchase
orders. Direct investments, or purchase orders through dealers, received by the
Fund's Transfer Agent after the close of the regular session of trading on the
New York Stock Exchange on that day are confirmed at the net asset value next
determined on the following business day.
You may purchase or redeem shares of the Fund through certain investment
dealers, banks or other institutions. Any such purchase or redemption generally
will not be effective until the order or request is received by the Fund; it is
the responsibility of the dealer to transmit your order or request promptly.
These institutions may impose charges for their services. You may purchase or
redeem shares of the Fund directly from or with the Fund without imposition of
any charges other than those described in this prospectus.
The Fund will not accept cash, drafts, third party checks or checks drawn
on banks outside of the United States. The Fund considers all requests for
purchases, checks and other forms of payment to be received when they are
received in good order by the Fund. Good order means, among other things, that
the Fund has verified that your application is properly completed or your
transaction request includes your Fund account number, the amount of the
transaction (in dollars or shares), signatures of all owners exactly as
registered on the account and any other supporting legal documentation that may
be required. If your order to purchase shares of the Fund is canceled because
your
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<PAGE>
check does not clear, you will be responsible for any resulting losses or fees
incurred by the Fund or its Transfer Agent.
HOW TO REDEEM SHARES
You may redeem shares of the Fund on each day that the Trust is open for
business. The Fund will make redemptions at the net asset value next calculated
after your request is received in good order by the Transfer Agent. Redemptions
must be for at least $250 or the balance of your investment in the Fund.
Redemption proceeds will generally be sent within seven days after a request in
good order is received. If you attempt to redeem shares within 15 days after
they have been purchased, the Fund may delay payment of the redemption proceeds
to you until it can verify the payment for the purchase of those shares has been
(or will be) collected. To reduce such delays, the Fund recommends that you
purchase your shares by certified check or wire.
You may redeem shares in any of the following ways:
By Mail: You may redeem all or any part of your shares upon your
written request delivered to one of the following addresses:
First Class Mail: Kobrick-HFS Emerging Growth Fund
c/o State Street Bank and Trust Company
P.O. Box ____
Boston, Massachusetts 02266-____
Overnight Mail: Kobrick-HFS Emerging Growth Fund
c/o State Street Bank and Trust Company
Two Heritage Drive
Quincy, Massachusetts 02171-____
Your redemption request must include account number, transaction amount
(in dollars or shares), signatures of all owners exactly as registered on
the account, signature guarantees (if required, as described below) and
any other supporting legal documentation. Once mailed to us, your
redemption request is irrevocable and cannot be modified or canceled.
By Telephone: You may redeem shares (for less than $50,000) by telephone
by calling the Fund at 1-888-KCFUND1 (1-888-523-8631). Once made, your
telephone request cannot be modified or canceled. You will automatically
have the telephone redemption plan unless you decline it on your
application. You may not redeem shares by telephone held in an IRA
account.
By Automatic Redemption: You may automatically redeem a fixed dollar
amount of shares each month or quarter and have the proceeds sent by check
to you or deposited by electronic transfer into your bank account by so
electing on your new account purchase application or by contacting the
Fund's Transfer Agent to establish such an arrangement. You can elect this
feature only if the balance in the Fund is at least $10,000. You may
cancel the Automatic Redemption Plan at any
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<PAGE>
time. The Fund reserves the right, upon 30 days written notice, to cancel
this Plan or to make reasonable charges for this service.
Signature Guarantee: A request for redemption must be made in writing
and include a signature guarantee if any of the following situations
applies:
o You wish to redeem more than $50,000 worth of shares;
o Your name has changed by marriage or divorce (send a letter
indicating your account number and old and new names, signing the
letter in both the old and new names and having both signatures
guaranteed);
o Your address has changed within the last 30 days;
o You have requested that the check be mailed to an address different
from the one on your account (address of record);
o You request that the check be made payable to someone other than the
account owner; or
o You are instructing the Fund to wire the proceeds to a bank or
brokerage account and have not signed up for the telephone
redemption by wire plan.
You should be able to obtain a signature guarantee from a bank,
broker-dealer, credit union (if authorized under state law), securities
exchange or association, clearing agency or savings association. A notary
public can't provide a signature guarantee.
If you elect on your application to participate in the Redemption by Wire
Plan or such request is subsequently made in writing accompanied by a signature
guarantee, the proceeds of your redemption may be made by wire transfer to your
existing account in any commercial bank or brokerage firm in the United States.
If you request a redemption by wire, a processing fee (currently $10) will be
deducted from the redemption proceeds. Your bank or brokerage firm may also
impose a fee for processing the wire. In the event the wire transfer of funds is
impossible or impractical, the redemption proceeds will be sent by mail to the
designated account.
Redemptions may be suspended or payment dates postponed on days when the
New York Stock Exchange is closed (other than weekends or holidays), when
trading on the New York Stock Exchange is restricted or as permitted by the
Securities and Exchange Commission. Certain accounts (such as trust accounts,
corporate accounts and custodial accounts) may be required to furnish additional
documentation to complete a redemption. Call the Fund at 1-888-KCFUND1
(1-888-523-8631) for more information.
If a check representing redemption proceeds cannot be delivered by the
U.S. Postal Service or if your check remains uncashed for six months, the check
will be canceled and the proceeds will be reinvested in your account at the then
current net asset value, In
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<PAGE>
addition, if you have an Automatic Redemption Plan, it will automatically be
canceled and future withdrawals will be permitted only when requested.
The Fund reserves the right at any time without prior written notice to
suspend, limit, modify or terminate any redemption privilege or its use in any
manner by any person. The Fund also reserves the right, due to the expenses of
maintaining small accounts, to redeem shares in any account and send the
proceeds to the owner if the shares in the account do not have a value of at
least $2,500 ($1,000 for tax-deferred retirement plans and accounts opened with
the Automatic Investment Plan). A shareholder would be notified that the account
is below the minimum and allowed 30 days to bring the account value up to the
minimum.
EXCHANGE PRIVILEGES
Shares of the Fund may be exchanged for shares of other series of the
Trust, which currently consists of 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 Kobrick-HFS US Government Money Market Fund (a series of the SSGA US
Government Money Market Fund). The SSGA US Government Money Market Fund is a
registered, open-end investment company with multiple portfolios, advised by
State Street Bank and Trust Company and not affiliated with the Fund or the
Trust. The Kobrick-HFS US Government Money Market Fund's fundamental investment
objective is to maximize current income to the extent consistent with the
preservation of capital and liquidity, and the maintenance of a stable $1.00 per
share net asset value, by investing in obligations of the US Government or its
agencies and instrumentalities with remaining maturities of one year or less.
You may request an exchange by mail or by telephone by following the
redemption procedures described above under "How to Redeem Shares" and
indicating the shares of the Fund to be purchased by exchange. Exchanges between
accounts can be made only if the accounts are registered in the same name(s),
address and social security or tax identification number. The Fund requires each
exchange to be a minimum of $50 subject to any higher amount required by the
Fund in which the shares are being acquired. An exchange will be effected at the
next determined net asset value after receipt of a request by the Fund's
Transfer Agent. The Fund reserves the right to limit the number of times an
exchange may be made by any shareholder within a specified period of time and
the exchange privileges with respect to any or all of the funds may be
terminated at any time.
Exchanges are subject to applicable requirements, including any minimum
initial investments and may only be made for shares of funds then offered for
sale in your state of residence. The exchange privilege may be modified or
terminated by the Board of Trustees upon 30 days prior notice to shareholders,
provided that the Fund reserves the right at any time to limit the number of
times an exchange may be made by any shareholder within a specified period of
time. 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 the
transfer agent to obtain a current prospectus and more information about
exchanges among the funds. This exchange privilege is not an offering or
recommendation of any other securities.
SHAREHOLDER SERVICES
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You may contact the Fund's concerning your account or for additional
information about the shareholder services described in this prospectus by
calling 1-888-KCFUND1 (1-888-532-8631) during the Fund's business hours from
8:30 to 5:00 p.m., Eastern time, Monday through Friday. In addition to the
Automatic Investment Plan, the Automatic Redemption Plan, the exchange
privileges and the other services described in this prospectus, the Fund's
Transfer Agent offers the following shareholder services:
Retirement Plans and IRA Accounts. Shares of the Fund may be purchased
directly by existing retirement plans which allow such investments. In addition,
qualified individuals may establish a regular IRA, Roth IRA or 403(b) Plans to
be funded with shares of the Fund. State Street Bank and Trust Company acts as
custodian for any IRAs and 403(b) Plans thus created. For further information,
call the Fund at 1-888-KCFUND1 (1-888-523-8631).
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. This
plan can be established with a minimum initial investment of $1,000 and
subsequent investments of at least $50. For more information please call the
Fund at 1-888-KCFUND1 (1-888-532-8631).
Reporting to Shareholders. You will receive a confirmation statement each
time you purchase, redeem or exchange shares. Shares purchased by reinvestment
of dividends or pursuant to an automatic plan will be confirmed to you
quarterly. The Fund will send you quarterly reports showing the value of your
account at the close of the preceding quarter and showing all distributions,
purchases, exchanges and redemptions during the quarter. The Fund will provide
you annually with tax information. There will also be sent to you audited annual
financial statements and semi-annual financial reports on the Fund's operations
and performance and a new prospectus each year.
Telephone Transactions. As described in this prospectus, the Fund allows
you to transact much of your business by telephone. Neither the Trust, the Fund,
the Transfer Agent nor their respective officers, trustees, directors, employees
or agents will be responsible for any losses, fees or expenses resulting from
unauthorized transactions initiated by telephone if the Transfer Agent follows
reasonable procedures designed to verify the identity of the caller. These
procedures may include recording the call, requesting additional information and
sending written confirmations of telephone transactions. You should verify the
accuracy of telephone conversations immediately upon receipt of your
confirmation.
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to distribute any net realized capital gains and net
investment income at least once each year. The Investment manager will determine
the timing and the frequency of distributions of any net realized short-term
capital gains. Distributions are paid according to one of the following options:
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Reinvestment Option Income distributions and capital gains
distributions will automatically be
reinvested in additional shares of the Fund.
Income Option Income distributions and short-term capital
gains distributions will be paid in cash to you;
long-term capital gains distributions will
automatically be reinvested in additional shares
of the Fund.
Cash Option Income distributions and capital gains
distributions will be paid to you 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 of the Fund. All reinvestments will be based on
the net asset value in effect on the record date of the distribution.
If you select the Income Option or the Cash Option and the U.S. Postal
Service cannot deliver your check or if your check remains uncashed for six
months, the check will be canceled and the distributions may be reinvested in
your account at the then current net asset value and your account will be
converted to the Reinvestment Option.
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 October 10, 1997. The Trust may issue an unlimited number of
shares, in one or more series, each with its own investment objectives, policies
and restrictions, as the Board of Trustees may authorize. The Fund's fiscal year
ends on September 30.
Shares of the Trust have equal dividend, redemption and liquidation rights
and when issued are fully paid and nonassessable by the Trust. Each share has
one vote (with proportionate voting for fractional shares) irrespective of net
asset value.
Under the Master Trust Agreement of the 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 Trust. At that time a meeting
of shareholders will be called to elect additional Trustees. Under the Master
Trust Agreement, any Trustee may be removed by vote of two-thirds of the
outstanding Trust shares; holders of 10% or more of the outstanding shares of
the 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 to the extent required by applicable law.
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Under Massachusetts law, the shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Master Trust Agreement of the Trust disclaims shareholder
liability for acts or obligations of the Trust and provides for indemnification
for all losses and expenses of any shareholder of the Trust held personally
liable for the obligations of the 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.
The Fund's investment manager is Kobrick-HFS Funds, Inc., 101 Federal
Street, Boston, Massachusetts 02110. The Investment Manager is charged with the
overall responsibility for managing the investments and business affairs of the
Fund, subject to the authority of the Board of Trustees.
Kobrick-HFS Funds, 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 and warrants which, if exercised, could result in HFS Incorporated
owning a majority of the total common stock in the Investment Manager.. Messrs
Kobrick and Carmen have combined over 25 years of experience in the management
of investments under objectives similar to those of the Fund.
The Fund's portfolio manager is Frederick R. Kobrick, who for the 12 years
immediately prior to becoming President of Kobrick-HFS Funds Inc. was an equity
portfolio manager at State Street Research & Management Company where he served
as Senior Vice President since 1989 and a member of the firm's Equity Investment
Committee since 1985. Mr. Kobrick has investment discretion over the entire
portfolio of the Fund. The portfolio manager may use a team approach on behalf
of the Fund and delegate purchase and sale authority for portions of the
portfolio to Mr. Carmen.
Under the Investment Advisory Agreement between the Trust and the
Investment Manager, the Fund pays a monthly management fee to the Investment
Manager. The management fee is equal to 1.00% of the average of the values of
the net assets of the Fund as determined at the close of each business day
during the month.
In addition to the management fee, the Fund is responsible for the payment
of all operating expenses, including fees and expenses 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, expenses related to the distribution of the
Fund's shares (which expenses will be paid from the 12b-1 fees under the
Distribution Plan; see "Distribution Plan"), insurance expenses, taxes or
governmental fees, fees and expenses of the custodian, transfer agent,
administrator, and accounting and pricing agent of the Fund, fees and expenses
of members of the Board of Trustees who are not interested persons of the Trust,
the cost of
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preparing 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 Fund may be a party and indemnification of the Trust's officers and
Trustees with respect thereto.
The Investment Advisory Agreement 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.
Messrs. Kobrick and Carmen, in addition to serving as the senior officers
of the Investment Manager, are also the principals in a private investment
partnership, and may act in that capacity with respect to other similar
investment partnerships. One or more of such accounts, may from time to time,
purchase or sell securities or have securities under consideration for purchase
or sale, that are also being sold or purchased or considered for sale or
purchase by the Fund. In those instances where securities transactions are
carried on at the same time on behalf of the Fund and such other accounts,
transactions in such securities for such accounts may be grouped with securities
transactions carried out on behalf of the Fund. The practice of grouping orders
of various accounts will be followed to get the benefit of best prices or
commission rates. In certain cases where the aggregate order may be executed in
a series of transactions at various prices the transactions will be allocated as
to amount and price in a manner considered equitable to each account so that
each receives, to the extent practicable the average price for such
transactions. Transactions will not be grouped unless it is the judgment of the
Investment Manager that such aggregation is consistent with its duty to seek
best execution (which includes the duty to seek best price), for the Fund and in
each case the books and records of the Fund and any such other account will
separately reflect, for each account the orders of which are aggregated, the
securities held by and bought and sold for that account.
The Investment Manager has a Code of Ethics governing personal securities
transactions of its employees; see the Statement of Additional Information.
As of the date of this Prospectus, Kobrick-HFS Funds , Inc. is the sole
shareholder of the Fund. Accordingly, Kobrick-HFS Funds, Inc. and their
respective affiliates directly or indirectly control the Fund.
TAXES
The Fund intends to qualify annually 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).
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The Fund declares dividends from net investment income annually and pays
such dividends, if any, after year end. 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 (see "Dividends
and Distributions").
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 Fund'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 Fund 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 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 the Distributor; 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
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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.
The annual limitation for expenses pursuant to the Plan is .25% of the
Fund's average daily net assets.
CALCULATION OF SHARE PRICE
On each day that the Fund 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 Fund is open for business on each day the New York Stock Exchange is
open for business 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 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.
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<PAGE>
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 net asset value 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 fee for wire
redemptions.
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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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 Boston Financial Data Services, Inc. Two
Heritage Drive, Quincy, Massachusetts 02171, or by calling the Trust nationwide
toll-free 800-523-8631.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Kobrick-HFS Investment Trust
101 Federal Street
Boston, Massachusetts 02110
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 ....................................................................
TRANSFER AGENT ..............................................................
DISTRIBUTOR .................................................................
STATEMENTS OF ASSETS AND LIABILITIES ........................................
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THE TRUST
Kobrick-HFS Investment Trust (the "Trust") was organized as a
Massachusetts business trust on October 10, 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,
<PAGE>
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 Funds, 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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<PAGE>
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
4
<PAGE>
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.
Under the non-fundamental investment limitations, 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:
o direct obligations of the U.S. Treasury, i.e., U.S. Treasury bills,
notes, certificates and bonds;
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o 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
o 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 vote of a majority of the
outstanding voting shares of a Fund means the vote (A) of 67% or more of the
voting shares present at a meeting, if the holders of more than 50% of the
outstanding voting shares of the Trust are present or represented by proxy; or
(B) of more than 50% of the outstanding voting shares of the Trust, whichever is
less.
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 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.
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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.
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, except in the case of U.S. Government
securities.
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 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 Trustees 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. Issuer Concentration. The Fund will not purchase a security of any one
issuer if such purchase at the time thereof would cause (a) more than 5% of the
Fund's total assets to be invested in the securities of any one issuer or (b)
cause more than 10% of any class of securities of such issuer to be held by the
Fund.
4. 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.
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
Jay H. Atlas 53 Trustee
Joseph P. Paster 52 Trustee
The principal occupations of the Trustees and executive officers of the
Trust during the past five years are set forth below:
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*Frederick R. Kobrick, 101 Federal Street, Boston, MA 02110, serves as
President of the Trust. He is 54. His principal occupation currently is
President of Kobrick-HFS Funds, Inc. During the past five years he served as a
senior vice president of State Street Research & Management Company. He is also
currently a principal in a private investment partnership.
*Michael T. Carmen, 101 Federal Street, Boston, MA 02110, serves as
Secretary-Treasurer of the Trust. He is 35. His principal occupation currently
is Secretary-Treasurer of Kobrick-HFS Funds, 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. He is also
currently a principal in a private investment partnership.
Jay H. Atlas, 49 Raymond Road, Sudbury, MA 01776, serves as a Trustee of
the Trust. He is 53. His principal occupation is providing consulting services
as a sole proprietor to information technology businesses. During the past five
years, in addition to providing such consulting services, he has served as a
Vice President and General Manager of Sales and Marketing for Convex Computer
Corporation, a Vice President of Computervision Corporation and a Vice President
of Channels for Digital Equipment Corporation.
Joseph P. Paster, John Hancock Plaza, Boston, MA 02117, serves as a
Trustee of the Trust. He is 52. His principal occupation is as a Vice President
of John Hancock Mutual Life Insurance Corporation, where he has served in
various capacities since 1967.
*Messrs. Kobrick and Carmen, as principals of Kobrick-HFS Funds, Inc., the
Trust's Investment Manager, are "interested persons" of the Trust within the
meaning of Section 2(a)(19) of the Investment Company Act of 1940.
As of December 5, 1997, Kobrick-HFS Funds, 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 MANAGER
Kobrick-HFS Funds, Inc. (the "Investment Manager") is the Trust's
investment manager. Messrs. Kobrick and Carmen, as principals of the Investment
Manager, may directly or indirectly receive benefits from the advisory fees paid
to the Investment Manager. Under the terms of the investment advisory agreement
between the Trust and the Investment Manager, the Investment Manager manages the
Funds' investments. Each Fund pays the
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Investment Manager a monthly advisory fee computed as 1.00% of the average of
the values of the net assets of the Fund as determined at the close of each
business day during the month.
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
Investment Manager are paid by the Investment Manager.
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 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 Investment Manager. 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 Investment Manager.
The Investment Manager 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
Investment Manager 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.
The continuance of the Plan 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 (the "Independent Trustees") at
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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
Investment Manager after the termination date. The Plan may not be amended to
increase materially the amount to be spent for distribution 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 Investment Manager, Messrs. Kobrick and Carmen may be
deemed to have a financial interest in the operation of the Plan .
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
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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 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
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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.
Code of Ethics. The Trust and the Investment Manager 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 Investment Manager and, as described below, imposes additional, more
onerous, restrictions on investment personnel of the Investment Manager. The
Code requires that all employees of the Investment Manager 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 Investment
Manager 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 Investment Manager 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 correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Funds. The Investment Manager anticipates that the portfolio turnover rate for
each Fund normally will not exceed 150%. A 150% turnover rate would occur if all
of a Fund's portfolio securities were replaced once within a one year period and
one half of the Fund's portfolio securities were replaced again within such 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 Investment Manager 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 Fund is open for business.
Each Fund 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. For a description of
the methods used to determine the share price, see "Calculation of Share Price"
in the Prospectus.
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TAXES
Each Fund's Prospectus describes generally the tax treatment of
distributions by the Fund. 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; and (ii) 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).
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 October 31 of the calendar year
plus undistributed amounts from prior years. The Funds intend to make
distributions sufficient to avoid imposition of the excise tax.
Each Fund is required to withhold and remit to the U.S. Treasury a
portion (31%) of redemptions and 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
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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
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:
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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.
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
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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
State Street Bank and Trust Company ("SSBT"), 225 Franklin Street, Boston,
MA 02110, has been retained to act as Custodian for the Funds' investments. SSBT
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.
SSBT also provides accounting and pricing services to the Funds. This
includes calculating daily net asset value per share and maintaining such books
and records as are necessary to enable the Transfer Agent to perform its duties.
For these custodial, accounting and pricing services, each Fund pays an annual
fee based on an average monthly net assets in accordance with the following
schedule:
First $100 million 4 basis points
Next $100 million 2 basis points
Excess 1 basis point
The minimum monthly charge per Fund is $3,000, phased in during year one
at a rate of 1/12 in month one, 2/12 in month two, increasing incrementally per
month until the full minimum is in effect in month twelve. In addition, each
Fund pays all costs of external pricing services as well as transaction fees.
AUDITORS
The firm of Ernst & Young LLP has been selected as independent auditors
for the Trust for the fiscal year ending September 30, 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.
TRANSFER AGENT
The Trust's transfer agent, State Street Bank and Trust Company ("SSBT"),
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. SSBT receives for its services as transfer
agent a fee payable monthly at an annual rate of $20.00 per account from the
Capital Fund and $20.00 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
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out-of-pocket expenses, including but not limited to, postage, envelopes,
checks, drafts, forms, reports, record storage and communication lines.
In addition, SSBT is retained to provide administrative services to the
Funds. In this capacity, SSBT supplies non-investment related statistical and
research data, internal regulatory compliance services and executive and
administrative services. SSBT 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 SSBT a fee based on each Fund's average assets in accordance with
the following schedule:
First $200 million 8 basis points
Next $200 million 6 basis points
Excess 4 basis point
The minimum annual amount per Fund is $85,000, phased in during year one
at a rate of 1/12 in month one, 2/12 in month two, increasing incrementally per
month until the full minimum is in effect in month twelve.
DISTRIBUTOR
Funds Distributor, Inc. ("FDI"), 60 State Street, Suite 1300, Boston, MA
02109, acts as distributor of the Funds' shares pursuant to a distribution
agreement (the "Distribution Agreement") approved by the Board of Trustees. In
this regard, FDI has agreed at its own expense to qualify as a broker-dealer
under all applicable federal or state laws in those states which the Trust shall
from time to time identify to FDI as states in which it wishes to offer the
Funds' shares for sale. FDI does not receive any compensation under the
Distribution Agreement.
FDI is a broker-dealer registered with the SEC and a member in good
standing of the National Association of Securities Dealers, Inc.
The Distribution Agreement may be terminated by either party upon sixty
(60) days' prior written notice to the other party, and will automatically
terminate in the event of its assignment.
STATEMENTS OF ASSETS AND LIABILITIES
The Funds' Statements of Assets and Liabilities as of ___________, 1997,
which have been audited by Ernst & Young LLP, are included in this Statement of
Additional Information in reliance on their report given on their authority as
experts in accounting and auditing.
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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) Revised Form of Advisory Agreement with Kobrick-HFS Funds,
Inc.
(6) (i) Form of Distribution Agreement with Funds
Distributor, Inc.
(ii) Form of Selling Agreement
(7) Inapplicable
(8) Form of Custodian Agreement with State Street Bank and
Trust Company
(9) (i) Form of Administration Agreement with State Street
Bank and Trust Company
(ii) Form of Transfer Agency and Service Agreement with
State Street Bank and Trust Company
(10) Opinion and Consent of Counsel**
<PAGE>
(11) Consent of Independent Public Accountants**
(12) Inapplicable
(13) Form of Agreement Relating to Initial Capital*
(14) Inapplicable
(15) Form of Plan of Distribution Pursuant to Rule 12b-1
(16) Inapplicable
(17) Financial Data Schedule*
(18) Inapplicable
- -----------------
* Previously filed
** To be filed by Amendment
Item 25. Persons Controlled by or Under Common Control with Registrant
As of December 5, 1997, Kobrick-HFS Funds, 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 December 5, 1997, all shares of beneficial interest of the
Registrant were held by Kobrick-HFS Funds, 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,
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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
Covered Person is subsequently adjudicated by a court of
competent jurisdiction to have been liable to the Trust or its
Shareholders by reason of
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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 Funds, Inc.
(the "Investment Manager"). 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 Investment Manager provides that the
Investment Manager 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 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
4
<PAGE>
omissions shall not have resulted from the Investment Manager's
willful misfeasance, bad faith or gross negligence, a violation of
the standard of care established by and applicable to the Investment
Manager 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 Manager
(a) The Investment Manager is a recently formed independent
counsel firm.
(b) The directors and officers of the Investment Manager 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 Investment
Manager and President and Chief Executive Officer of the
Registrant since October 1997; Portfolio Manager and
Senior Vice President of State Street Research and
Management Company from March 1985 to August 1997.
(ii) Michael T. Carmen - Secretary - Treasurer of the
Investment Manager and Treasurer and Chief
Financial Officer of the Registrant since October
1997, Portfolio Manager, State Street Research and
Management Company from November 1996 to August 1997,
Portfolio Manager, Montgomery Asset Management, April
1996 to November 1996, Associate Portfolio Manager,
State Street Research and Management Company May 1992
to April 1996
(iii) Henry R. Silverman - Chairman of the Investment
Manager since October 1997 and Chairman and Chief
Executive Officer of HFS Incorporated since July 1990
(iv) Richard A. Goldman - Chief Operating Officer and a
Director of the Investment Manager since October
1997, Member, Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C. from April 1996 to October 1997 and
Associate, Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C. from August 1989 to March 1996.
(v) Thomas J. Kelly - a Director of the Investment
Manager since October 1997, Member of Mintz, Levin,
Cohn, Ferris, Glovsky and Popeo, P.C. since May 1985.
5
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(vi) James E. Buckman - a Director of the Investment
Manager since October 1997, Senior Executive Vice
President and General Counsel of HFS Incorporated
since July 1990.
(vii) Samuel L. Katz - a Director of the Investment Manager
since October 1997, Senior Vice President,
Acquisitions, HFS Incorporated since January 1996,
Vice President, Director, Dickstein Partners, Inc.
from July 1993 to December 1995.
(viii) Michael P Monaco - a Director of the Investment
Manager since October 1997, Vice Chairman and Chief
Financial Officer of HFS Incorporated since October
1996, Vice President and Chief Financial Officer,
American Express from 1981 to October 1996
Item 29. Principal Underwriters
(a) Funds Distributor, Inc. (the "Distributor") acts as principal
underwriter for the following investment companies other than the
Registrant:
BJB Investment Funds
Burridge Funds
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
The Brinson Funds
The JPM Institutional Funds
The JPM Pierpont Funds
The JPM Series Trust
The JPM Series Trust II
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
Orbitex Group of Funds
The PanAgora Institutional Funds
RCM Capital Funds, Inc.
RCM Equity Funds, Inc.
St. Clair Funds, Inc.
The Skyline Funds
Waterhouse Investors Cash Management Fund, Inc.
WEBS Index Fund, Inc.
Funds Distributor, Inc. is registered with the Securities and
Exchange Commission as a broker-dealer and is a member of the
National Association
6
<PAGE>
of Securities Dealers. Funds Distributor, Inc. is an indirect
wholly-owned subsidiary of Boston Institutional Group, Inc., a
holding company all of whose outstanding shares are owned by key
employees.
(b) The following is a list of the executive officers, directors and
partners of Funds Distributor, Inc., none of whom hold any positions
or offices with the Registrant:
President and Chief Executive Officer Marie E. Connolly
Executive Vice President Richard W. Ingram
Executive Vice President Donald R. Roberson
Senior Vice President Michael S. Petrucelli
Senior Vice President, Treasurer
and Chief Financial Officer Joseph F. Tower, III
Senior Vice President Paula R. David
Senior Vice President Bernard A. Whalen
Senior Vice President A. Bayard Closser
Director William J. Nutt
(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 101 Federal Street, Boston, Massachusetts 02110
as well as at the offices of the Registrant's transfer agent located
at Two Heritage Drive, Quincy, MA 02171.
Item 31. Management Services Not Discussed in Parts A or B
Inapplicable
Item 32. Undertakings
(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
7
<PAGE>
communications with other shareholders as required by Section 16(c)
of the Investment Company Act of 1940.
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 5th
day of December, 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 December 5, 1997
Frederick R. Kobrick
\s\ Michael T. Carmen Secretary-Treasurer and Trustee December 5, 1997
Michael T. Carmen
8
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INDEX TO EXHIBITS
(1) Agreement and Declaration of Trust*
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) Revised Form of Advisory Agreement
(6) (i) Form of Distribution Agreement
(ii) Form of Selling Agreement
(7) Inapplicable
(8) Form of Custodian Agreement
(9)(i) Form of Administration Agreement
(9)(ii) Form of Transfer Agency and Services 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) Form of Plan of Distribution Pursuant to Rule 12b-1
(16) Inapplicable
(17) Inapplicable
- ---------------------
* Previously filed
** To be filed by Amendment
9
<PAGE>
Kobrick-HFS Investment Trust
101 Federal Street
Boston, Massachusetts 02110
_____________, 1997
Kobrick-HFS Funds, Inc.
101 Federal Street
Boston, Massachusetts 02110
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 Funds, 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
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
<PAGE>
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 State Street Bank and Trust Company 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 Boston Financial Data Services, Inc., 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.
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
2
<PAGE>
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 monthly advisory fee computed
as 1.00% of the average of the values of the net assets of the Fund as
determined at the close of each business day during the month.
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, 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.
3
<PAGE>
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 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.
4
<PAGE>
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.
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.
5
<PAGE>
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.
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.
6
<PAGE>
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 FUNDS, INC.
By: __________________________
Title:
Date: ___________, 1997
7
<PAGE>
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.
<PAGE>
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.
2
DISTRIBUTION AGREEMENT
KOBRICK-HFS INVESTMENT TRUST
101 Federal Street
Boston, Massachusetts 02110
_________, 1997
Funds Distributor, Inc.
60 State Street
Suite 1300
Boston, Massachusetts 02109
Dear Sirs:
This is to confirm that, in consideration of the agreements hereinafter
contained, the above-named investment company (the "Fund") has agreed that you
shall be, for the period of this agreement, the distributor of (a) shares of
each Series of the Fund set forth on Exhibit A hereto, as such Exhibit may be
revised from time to time (each, a "Series") or (b) if no Series are set forth
on such Exhibit, shares of the Fund. For purposes of this agreement the term
"Shares" shall mean the authorized shares of the relevant Series, if any, and
otherwise shall mean the Fund's authorized shares.
1. Services as Distributor
1.1 You will act as agent for the distribution of Shares covered by, and
in accordance with, the registration statement and prospectus then in effect
under the Securities Act of 1933, as amended, and will transmit promptly any
orders received by you for purchase or redemption of Shares to the Transfer and
Dividend Disbursing Agent for the Fund of which the Fund has notified you in
writing.
1.2 You agree to use your best efforts to solicit orders for the sale of
Shares. It is contemplated that you may enter into sales or servicing agreements
with securities dealers, financial institutions and other industry
professionals, such as investment advisers, accountants and estate planning
firms, and in so doing you will act only on your own behalf as principal.
1.3 You shall act as distributor of Shares in compliance with all
applicable laws, rules and regulations, including, without limitations, the
Investment Company Act of 1940, as amended, the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended and the National
Association of Securities Dealers, Inc.'s (the "NASD") Conduct Rules,
Constitution and By-Laws. You represent and warrant that you are a broker-dealer
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registered with the Securities and Exchange Commission (the "SEC") and that you
are registered with the relevant securities regulatory agencies in all fifty
states, the District of Columbia and Puerto Rico. You also represent and warrant
that you are a member of the NASD.
1.4 You shall file Fund advertisements, sales literature and other
marketing and sales related materials with the appropriate regulatory agencies
and shall obtain such approvals for their use as may be required by the SEC, the
NASD and/or state securities administrators.
1.5 Whenever in their judgment such action is warranted by unusual market,
economic or political conditions, or by abnormal circumstances of any kind
deemed by the parties hereto to render sales of a Fund's Shares not in the best
interest of the Fund, the parties hereto may decline to accept any orders for,
or make any sales of, any Shares until such time as those parties deem it
advisable to accept such orders and to make such sales and each party shall
advise promptly the other party of any such determination.
1.6 The Fund agrees to pay all costs and expenses in connection with the
registration of Shares under the Securities Act of 1933, as amended, and all
expenses in connection with maintaining facilities for the issue and transfer of
Shares and for supplying information, prices and other data to be furnished by
the Fund hereunder, and all expenses in connection with the preparation and
printing of the Fund's prospectuses and statements of additional information for
regulatory purposes and for distribution to shareholders; provided however, that
the Fund shall not pay any of the costs of advertising or promotion for the sale
of Shares, except as authorized by a plan adopted pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended. You shall also be entitled to
compensation for your services as provided in any Distribution Plan adopted as
to any Series and class of the Fund's Shares pursuant to Rule 12b-1.
1.7 The Fund agrees to execute any and all documents and to furnish any
and all information and otherwise to take all actions which may be reasonably
necessary in the discretion of the Fund's officers in connection with the
qualification of Shares for sale in such states as you may designate to the Fund
and the Fund may approve, and the Fund agrees to pay all expenses which may be
incurred in connection with such qualification. You shall pay all expenses
connected with your own qualification as a dealer under state or Federal laws
and, except as otherwise specifically provided in this agreement, all other
expenses incurred by you in connection with the sale of Shares as contemplated
in this agreement.
1.8 The Fund shall furnish you from time to time, for use in connection
with the sale of Shares, such information with respect to the Fund or any
relevant Series and the Shares as you may reasonably request, all of which shall
be signed by one or more of the Fund's duly authorized officers; and the Fund
warrants that the statements contained in any such information, when so signed
by the Fund's officers, shall be true and correct. The Fund also shall furnish
you upon request with: (a) semi-annual reports and annual audited reports of the
Fund's books and accounts made by independent public accountants regularly
retained by the Fund, (b) quarterly earnings statements prepared by the Fund,
(c) a monthly itemized list of the securities in the Fund's or, if applicable,
each Series'
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portfolio, (d) monthly balance sheets as soon as practicable after the end of
each month, and (e) from time to time such additional information regarding the
Fund's financial condition as you may reasonably request.
1.9 The Fund represents to you that all registration statements and
prospectuses filed by the Fund with the SEC under the Securities Act of 1933, as
amended, and under the Investment Company Act of 1940, as amended, with respect
to the Shares have been carefully prepared in conformity with the requirements
of said Acts and rules and regulations of the SEC thereunder. As used in this
agreement the terms "registration statement" and "prospectus" shall mean any
registration statement and prospectus, including the statement of additional
information incorporated by reference therein, filed with the SEC and any
amendments and supplements thereto which at any time shall have been filed with
the SEC. The Fund represents and warrants to you that any registration statement
and prospectus, when such registration statement becomes effective, will contain
all statements required to be stated therein in conformity with said Acts and
the rules and regulations of the SEC; that all statements of fact contained in
any such registration statement and prospectus will be true and correct when
such registration statement becomes effective; and that neither any registration
statement nor any prospectus when such registration statement becomes effective
will include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading. The Fund may, but shall not be obligated to, propose from time
to time such amendment or amendments to any registration statement and such
supplement or supplements to any prospectus as, in the light of future
developments, may, in the opinion of the Fund's counsel, be necessary or
advisable. If the Fund shall not propose such amendment or amendments and/or
supplement or supplements within fifteen days after receipt by the Fund of a
written request from you to do so, you may, at your option, terminate this
agreement or decline to make offers of the Fund's securities until such
amendments are made. The Fund shall not file any amendment to any registration
statement or supplement to any prospectus without giving you reasonable notice
thereof in advance; provided, however, that nothing contained in this agreement
shall in any way limit the Fund's right to file at any time such amendments to
any registration statement and/or supplements to any prospectus, of whatever
character, as the Fund may deem advisable, such right being in all respects
absolute and unconditional.
1.10 The Fund authorizes you and any dealers with whom you have entered
into dealer agreements to use any prospectus in the form furnished by the Fund
in connection with the sale of Shares. The Fund agrees to indemnify, defend and
hold you, your several officers and directors, and any person who controls you
within the meaning of Section 15 of the Securities Act of 1933, as amended, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the reasonable cost of investigating or defending such
claims, demands or liabilities and any reasonable counsel fees incurred in
connection therewith) which you, your officers and directors, or any such
controlling persons, may incur under the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, or common law or otherwise, arising
out of or on the basis of any untrue statement, or alleged untrue statement, of
a material fact required to be stated in either any registration statement or
any prospectus or any statement of additional information, or arising out of or
based upon any omission, or alleged omission, to state a
3
<PAGE>
material fact required to be stated in any registration statement, any
prospectus or any statement of additional information or necessary to make the
statements in any of them not misleading, except that the Fund's agreement to
indemnify you, your officers or directors, and any such controlling person will
not be deemed to cover any such claim, demand, liability or expense to the
extent that it arises out of or is based upon any such untrue statement, alleged
untrue statement, omission or alleged omission made in any registration
statement, any prospectus or any statement of additional information in reliance
upon information furnished by you, your officers, directors or any such
controlling person to the Fund or its representatives for use in the preparation
thereof, and except that the Fund's agreement to indemnify you and the Fund's
representations and warranties set out in paragraph 1.9 of this Agreement will
not be deemed to cover any liability to the Funds or their shareholders to which
you would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of your duties, or by reason of your
reckless disregard of your obligations and duties under this Agreement
("Disqualifying Conduct"). The Fund's agreement to indemnify you, your officers
and directors, and any such controlling person, as aforesaid, is expressly
conditioned upon the Fund's being notified of any action brought against you,
your officers or directors, or any such controlling person, such notification to
be given by letter, by facsimile or by telegram addressed to the Fund at its
address set forth above within a reasonable period of time after the summons or
other first legal process shall have been served. The failure so to notify the
Fund of any such action shall not relieve the Fund from any liability which the
Fund may have to the person against whom such action is brought by reason of any
such untrue, or alleged untrue, statement or omission, or alleged omission,
otherwise than on account of the Fund's indemnity agreement contained in this
paragraph 1.10. The Fund will be entitled to assume the defense of any suit
brought to enforce any such claim, demand or liability, but, in such case, such
defense shall be conducted by counsel of good standing chosen by the Fund and
approved by you. In the event the Fund elects to assume the defense of any such
suit and retain counsel of good standing approved by you, the defendant or
defendants in such suit shall bear the fees and expenses of any additional
counsel retained by any of them; but in case the Fund does not elect to assume
the defense of any such suit, the Fund will reimburse you, your officers and
directors, or the controlling person or persons named as defendant or defendants
in such suit, for the reasonable fees and expenses of any counsel retained by
you or them. The Fund's indemnification agreement contained in this paragraph
1.10 and the Fund's representations and warranties in this Agreement shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of you, your officers and directors, or any controlling
person, and shall survive the delivery of any Shares. This agreement of
indemnity will inure exclusively to your benefit, to the benefit of your several
officers and directors, and their respective estates, and to the benefit of any
controlling persons and their successors. The Fund agrees promptly to notify you
of the commencement of any litigation or proceedings against the Fund or any of
its officers or Board members in connection with the issue and sale of Shares.
1.11 You agree to indemnify, defend and hold the Fund, its several
officers and Board members, and any person who controls the Fund within the
meaning of Section 15 of the Securities Act of 1933, as amended, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the reasonable cost of investigating or
4
<PAGE>
defending such claims, demands or liabilities and any reasonable counsel fees
incurred in connection therewith) which the Fund, its officers or Board members,
or any such controlling person, may incur under the Securities Act of 1933, as
amended, the Investment Company Act of 1940, as amended, or under common law or
otherwise, but only to the extent that such liability or expense incurred by the
Fund, its officers or Board members, or such controlling person resulting from
such claims or demands, (a) shall arise out of or be based upon any unauthorized
sales literature, advertisements, information, statements or representations or
any Disqualifying Conduct in connection with the offering and sale of any
Shares, or (b) shall arise out of or be based upon any untrue, or alleged
untrue, statement of a material fact contained in information furnished in
writing by you to the Fund specifically for use in the Fund's registration
statement and used in the answers to any of the items of the registration
statement or in the corresponding statements made in the prospectus or statement
of additional information, or shall arise out of or be based upon any omission,
or alleged omission, to state a material fact in connection with such
information furnished in writing by you to the Fund and required to be stated in
such answers or necessary to make such information not misleading. Your
agreement to indemnify the Fund, its officers and Board members, and any such
controlling person, as aforesaid, is expressly conditioned upon your being
notified of any action brought against the Fund, its officers or Board members,
or any such controlling person, such notification to be given by letter, by
facsimile or by telegram addressed to you at your address set forth above within
a reasonable period of time after the summons or other first legal process shall
have been served. You shall have the right to control the defense of such
action, with counsel of your own choosing, satisfactory to the Fund, if such
action is based solely upon such alleged misstatement or omission on your part,
and in any other event the Fund, its officers or Board members, or such
controlling person shall each have the right to participate in the defense or
preparation of the defense of any such action. The failure so to notify you of
any such action shall not relieve you from any liability which you may have to
the Fund, its officers or Board members, or to such controlling person by reason
of any such untrue, or alleged untrue, statement or omission, or alleged
omission, otherwise than on account of your indemnity agreement contained in
this paragraph 1.11. This agreement of indemnity will inure exclusively to the
Fund's benefit, to the benefit of the Fund's officers and Board members, and
their respective estates, and to the benefit of any controlling persons and
their successors. You agree promptly to notify the Fund of the commencement of
any litigation or proceedings against you or any of your officers or directors
in connection with the issue and sale of Shares.
1.12 No Shares shall be offered by either you or the Fund under any of the
provisions of this agreement and no orders for the purchase or sale of such
Shares hereunder shall be accepted by the Fund if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act of 1933, as amended, or if and so long as a current prospectus as
required by Section 10 of said Act, as amended, is not on file with the SEC;
provided, however, that nothing contained in this paragraph 1.12 shall in any
way restrict or have an application to or bearing upon the Fund's obligation to
repurchase any Shares from any shareholder in accordance with the provisions of
the Fund's prospectus or charter documents.
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1.13 The Fund agrees to advise you immediately in writing:
(a) of any request by the SEC for amendments to the registration
statement or prospectus then in effect or for additional information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the registration statement or prospectus
then in effect or the initiation of any proceeding for that purpose;
(c) of the happening of any event which makes untrue any statement
of a material fact made in the registration statement or prospectus then
in effect or which requires the making of a change in such registration
statement or prospectus in order to make the statements therein not
misleading; and
(d) of all actions of the SEC with respect to any amendments to any
registration statement or prospectus which may from time to time be filed
with the SEC.
2. Offering Price
Shares of any class of the Fund offered for sale by you shall be offered
at a price per share (the "offering price") approximately equal to (a) the net
asset value (determined in the manner set forth in the Fund's charter documents)
plus (b) a sales charge, if any and except to those persons set forth in the
then-current prospectus, which shall be the percentage of the offering price of
such Shares as set forth in the Fund's then-current prospectus. The offering
price, if not an exact multiple of one cent, shall be adjusted to the nearest
cent. In addition, Shares of any class of the Fund offered for sale by you may
be subject to a contingent deferred sales charge as set forth in the Fund's
then-current prospectus. You shall be entitled to receive any sales charge or
contingent deferred sales charge in respect of the Shares. Any payments to
dealers shall be governed by a separate agreement between you and such dealer
and the Fund's then-current prospectus.
3. Term
This Agreement shall become effective with respect to the Fund as of the
date hereof and will continue for an initial two-year term and will continue
thereafter so long as such continuance is specifically approved at least
annually (i) by the Fund's Board or (ii) by a vote of a majority of the Shares
of the Fund or the relevant Series, as the case may be, provided that in either
event its continuance also is approved by a majority of the Board members who
are not "interested persons" of any party to this Agreement, by vote cast in
person at a meeting called for the purpose of voting on such approval. This
agreement is terminable with respect to a Fund, without penalty, on not less
than sixty days' notice, by the Fund's Board of Trustees, by vote of a majority
of the outstanding voting securities of such Fund, or by you. This Agreement
will automatically and immediately terminate in the event of its "assignment."
(As used in this Agreement, the terms "majority of the outstanding voting
securities," "interested person" and "assignment" shall have the same meanings
as such terms have in the Investment Company Act of 1940). You agree to notify
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<PAGE>
the Fund immediately upon the event of your expulsion or suspension by the NASD.
This Agreement will automatically and immediately terminate in the event of your
expulsion or suspension by the NASD.
4. Miscellaneous
4.1 The Fund recognizes that, except to the extent otherwise agreed to by
the parties hereto, your directors, officers and employees may from time to time
serve as directors, trustees, officers and employees of corporations and
business trusts (including other investment companies), and that you or your
affiliates may enter into distribution or other agreements with such other
corporations and trusts.
4.2 No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
4.3 This Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts without giving effect to principles of conflicts
of laws.
4.4 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule, or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
Please confirm that the foregoing is in accordance with your
understanding and indicate your acceptance hereof by signing below, whereupon it
shall become a binding Agreement between us.
Very truly yours,
KOBRICK-HFS INVESTMENT TRUST
By: ____________________________
Name: _________________________
Title: __________________________
Accepted:
FUNDS DISTRIBUTOR, INC.
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By: ________________________________
Name: _____________________________
Title: ______________________________
8
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EXHIBIT A
Series of Funds
KOBRICK-HFS INVESTMENT TRUST
Kobrick-HFS Capital Fund
Kobrick-HFS Emerging Growth Fund
9
SELLING AGREEMENT
Dear Sirs:
As the principal underwriter of shares of certain registered
investment companies presently or hereafter managed, advised or administered by
Kobrick-HFS Funds, Inc., shares of which companies are distributed by us at
their respective net asset values plus sales charges as applicable, pursuant to
our Distribution Agreement with such companies (the "Funds"), we invite you to
participate as a non-exclusive agent in the distribution of shares of any and
all of the Funds upon the following terms and conditions:
1. You are to offer and sell such shares only at the public offering prices
that shall be currently in effect, in accordance with the terms of the
then current Prospectuses and Statements of Additional Information of
the Funds subject in each case to the delivery prior to or at the time
of such sales of the then current Prospectus. You agree to act only as
agent in such transactions and nothing in this Agreement shall
constitute either of us the agent of the other or shall constitute you
or the Fund the agent of the other. In all transactions in these shares
between you and us, we are acting as agent for the Fund and not as
principal. All orders are subject to acceptance by us and become
effective only upon confirmation by us. We reserve the right in our
sole discretion to reject any order. The minimum dollar purchase of
shares of the Funds shall be the applicable minimum amounts described in
the then current Prospectuses and Statements of Additional Information
and no order for less than such amounts will be accepted.
2. On each purchase of shares by you from us, the total sales charges and
discount to selected dealer, if any, shall be as stated in each Fund's then
current Prospectus.
Such sales charges and discount to selected dealers are subject to
reductions under a variety of circumstances as described in each Fund's
then current Prospectus and Statement of Additional Information. To obtain
these reductions, we must be notified when the sale takes place which would
qualify for the reduced charge.
There is no sales charge or discount to selected dealers on the
reinvestment of any dividends or distributions.
3. All purchases of shares of a Fund made under any cumulative purchase
privilege as set forth in a Fund's then current effective Prospectus shall
be considered an individual transaction for the purpose of determining the
concession from the public offering price to which you are entitled as set
forth in paragraph 2 hereof.
4. As an authorized agent to sell shares of the Fund, you agree to purchase
shares of the Funds only through us or from your customers. Purchases
through us shall be made only for your own investment purposes or for the
purpose of covering purchase
<PAGE>
orders already received from your customers, and we agree that we will not
place orders for the purchase of shares from a Fund except to cover
purchase orders already received by us. Purchases from your customers shall
be at a price not less than the net asset value quoted by each such Fund at
the time of such purchase. Nothing herein contained shall prevent you from
selling any shares of a Fund for the account of a record holder to us or to
such Fund at the net asset value quoted by us and charging your customer a
fair commission for handling the transaction.
5. You agree that you will not withhold placing customers' orders so as to
profit yourself as a result of such withholding.
6. You agree to sell shares of the Funds only (a) to your customers at the
public offering prices then in effect or (b) to us as agent for the Funds
or to each such Fund itself at the redemption price, as described in each
Fund's then current effective Prospectus.
7. Settlement shall be made promptly, but in no case later than the time
customary for such payments after our acceptance of the order or, if so
specified by you, we will make delivery by draft on you, the amount of
which draft you agree to pay on presentation to you. If payment is not so
received or made, the right is reserved forthwith to cancel the sale or at
our option to resell the shares to the applicable Fund, at the then
prevailing net asset value in which latter case you agree to be responsible
for any loss resulting to such Fund or to us from your failure to make
payment as aforesaid.
8. If any shares sold to you under the terms of this Agreement are repurchased
by a Fund or by us as agent, or purchased for the account of that Fund or
tendered to that Fund for purchase at liquidating value under the terms of
the Master Trust Agreement or other document governing such Fund within
seven (7) business days after the date of confirmation to you of your
original purchase order therefor, you agree to pay forthwith to us the full
amount of the concession allowed to you on the original sale and we agree
to pay such amount to the Fund when received by us. We shall notify you of
such repurchase within ten (10) days of the effective date of such
repurchase.
9. All sales will be subject to receipt of shares by us from the Funds. We
reserve the right in our discretion, without notice to you, to suspend
sales or withdraw the offering of shares entirely, or to modify or cancel
this Agreement.
10. From time to time during the term of this Agreement we may make payments to
you pursuant to a Distribution Plan (the "Plan") adopted by the Funds
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "Act")
in consideration of your furnishing distribution and/or shareholder
services hereunder with respect to each Fund. We have no obligation to make
any such payments and you waive any such
2
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payments until we receive monies therefor from the Funds. Any such payments
made pursuant to this Section 10 shall be subject to the following terms
and conditions:
(a) Any such payments shall be in such amounts as we may from time to time
advise you in writing but in any event not in excess of the amounts
permitted by the plan in effect with respect to each particular Fund and
will be based on the dollar amount of Fund shares which are owned of record
by your firm as nominee for your customers or which are owned by those
customers of your firm whose records, as maintained by the Funds or their
agents, designate your firm as the customer's dealer of record. Any such
payments shall be in addition to the selling concession, if any, allowed to
you pursuant to this Agreement. No such fee will be paid to you with
respect to shares purchased by you and redeemed by the Funds or by us as
agent within seven business days after the dates of confirmation of such
purchase.
(b) You represent that you will use all compensation received pursuant to
this Section 10 solely for activities related to the promotion and
marketing of shares of the Funds and for other services provided to Fund
Shareholders. You agree that you shall reimburse us to the extent that the
aggregate payments you receive pursuant to this Section 10 are not used for
the foregoing purpose.
(c) The provisions of this Section 10 relate to the Plan adopted by the
Funds pursuant to Rule 12b-1. In accordance with Rule 12b-1, any person
authorized to direct the disposition of monies paid or payable by a Fund
pursuant to this Section 10 shall provide the Funds' Board of Trustees, and
the Trustees shall review, at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures were made.
(e) The provisions of this Section 10 applicable to each Fund shall remain
in effect for not more than a year and thereafter for successive annual
periods only so long as such continuance is specifically approved at least
annually in conformity with Rule 12b-1 and the Act. The provisions of this
Section 10 shall automatically terminate with respect to a particular Plan
in the event of the assignment (as defined by the Act) of this Agreement,
in the event such Plan terminates or is not continued, in the event of any
amendment to the Plan that requires such termination, or in the event this
Agreement terminates or ceases to remain in effect. The provisions of this
Section 10 shall also terminate upon the vote of a majority of a Fund's
Trustees who are not "interested persons" of the Fund, as defined in the
Act, and have no direct or indirect financial interest in the operation of
the Plan or in this Agreement, or by a vote of a majority of the
outstanding voting securities of the Fund on not more than 60 days' notice.
In addition, the provisions of this Section 10 may be terminated at any
time, without penalty, by either party with respect to any particular Plan
on not more than 60 days' nor less than 30 days' written notice delivered
or mailed by registered mail, postage prepaid, to the other party.
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<PAGE>
11. No person is authorized to make any representations concerning the Funds or
shares of the Funds except those contained in each Fund's then current
effective Prospectus or Statement of Additional Information and any such
information as may be released by a Fund as information supplemental to
such Prospectus or Statement of Additional Information. In purchasing
shares through us you shall rely solely on the representations contained in
each Fund's then current effective Prospectus or Statement of Additional
Information and above-mentioned supplemental information.
12. Additional copies of each such Prospectus or Statement of Additional
Information and any printed information issued as supplemental to each such
Prospectus or Statement of Additional Information will be supplied by us to
you and your selling agents in reasonable quantities upon request.
13. We, our affiliates and the Funds shall not be liable for any losses,
expenses, damages, costs or other claims arising out of any redemption or
exchange pursuant to telephone instructions from any person, or our refusal
to execute such instructions for any reason.
14. All notices and other communications to us shall be sent to us at Funds
Distributor Inc., 60 State Street, Suite 1300, Boston, MA 02109. Any notice
to you shall be duly given if mailed or telegraphed to you at your address
as registered from time to time with the National Association of Securities
Dealers, Inc.
15. This Agreement may be terminated upon written notice by either party at any
time, and shall automatically terminate upon its attempted assignment by
you, whether by operation of law or otherwise, or by us otherwise than by
operation of law.
16. By accepting this Agreement, you represent that you are registered as a
broker-dealer under the Securities Exchange Act of 1934, are qualified to
act as a broker or dealer in the states or other jurisdictions where you
transact business, and are a member in good standing of the National
Association of Securities Dealers, Inc., and you agree that you will
maintain such registrations, qualifications, and membership in good
standing and in full force and effect throughout the term of this
Agreement. You further agree to comply with all applicable Federal laws,
the laws of the states or other jurisdictions concerned, and the rules and
regulations promulgated thereunder and with the Constitution, By-Laws and
Conduct Rules of the National Association of Securities Dealers, Inc., and
that you will not offer or sell shares of the Funds in any state or
jurisdiction where they may not lawfully be offered and/or sold.
If you are offering and selling shares of the Funds in jurisdictions
outside the several states, territories, and possessions of the United
States and are not otherwise required to be registered, qualified, or a
member of the National Association of Securities Dealers, Inc., as set
forth above, you nevertheless agree to observe the applicable laws of the
jurisdiction in which such offer and/or sale is made, to comply with the
full
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disclosure requirements of the Securities Act of 1933 and the regulations
promulgated thereunder, to conduct your business in accordance with the
spirit of the Conduct Rules of the National Association of Securities
Dealers, Inc. You agree to indemnify and hold the Funds, their investment
advisor, and us harmless from loss or damage resulting from any failure on
your part to comply with applicable laws.
17. You agree to maintain records of all sales of shares made through you and
to furnish us with copies of each record on request.
18. This Agreement and all amendments to this Agreement shall take effect with
respect to and on the date of any orders placed by you after the date set
forth below or, as applicable, after the date of the notice of amendment
sent to you by the undersigned.
19. This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts and shall be binding upon both parties hereto
when signed and accepted by you in the space provided below.
For: Funds Distributor, Inc.
60 State Street, Suite 1300
Boston, MA 02109
By: Date
For:
Address of Principal Office
City State Zip Code
By: Its:
Authorized Signature Title Date
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Print Name
6
CUSTODIAN AGREEMENT
This Agreement between KOBRICK-HFS INVESTMENT TRUST, a business trust
organized and existing under the laws of Massachusetts with its principal place
of business at 101 Federal Street, Boston, Massachusetts 02111 (the "Fund") and
STATE STREET BANK and TRUST COMPANY, a Massachusetts trust company with its
principal place of business at 225 Franklin Street, Boston, Massachusetts 02110
(the "Custodian"),
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends that this Agreement be applicable to two series,
the Kobrick-HFS Capital Fund and Kobrick-HFS Emerging Growth Fund (such series
together with all other series subsequently established by the Fund and made
subject to this Agreement in accordance with Section 18, be referred to herein
as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
SECTION 1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Fund's
Declaration of Trust. The Fund on behalf of the Portfolio(s) agrees to deliver
to the Custodian all securities and cash of the Portfolios, and all payments of
income, payments of principal or capital distributions received by it with
respect to all securities owned by the Portfolio(s) from time to time, and the
cash consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (as such term is defined in Section
6 hereof), the Custodian shall on behalf of the applicable Portfolio(s) from
time to time employ one or more sub-custodians located in the United States, but
only in accordance with an applicable vote by the Board of Trustees of the Fund
(the "Board of Trustees") on behalf of the applicable Portfolio(s), and provided
that the Custodian shall have no more or less responsibility or liability to the
Fund on account of any actions or omissions of any sub-custodian so employed
than any such sub-custodian has to the Custodian. The Custodian may employ as
sub-custodian for the Fund's foreign securities on behalf of the applicable
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Portfolio(s) the foreign banking institutions and foreign securities
depositories designated in Schedules A and B hereto but only in accordance with
the applicable provisions of Sections 3 and 4.
SECTION 2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD
BY THE CUSTODIAN IN THE UNITED STATES
SECTION 2.1 HOLDING SECURITIES. The Custodian shall hold and physically
segregate for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to Section
2.8 in a clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the Treasury (each, a
"U.S. Securities System") and (b) commercial paper of an issuer for which State
Street Bank and Trust Company acts as issuing and paying agent ("Direct Paper")
which is deposited and/or maintained in the Direct Paper System of the Custodian
(the "Direct Paper System") pursuant to Section 2.9.
SECTION 2.2 DELIVERY OF SECURITIES. The Custodian shall release and
deliver domestic securities owned by a Portfolio held by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("Direct Paper System Account") only upon
receipt of Proper Instructions on behalf of the applicable Portfolio, which may
be continuing instructions when deemed appropriate by the parties, and only in
the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities System,
in accordance with the provisions of Section 2.8 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Portfolio or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.7 or into the name or nominee name of any
sub-custodian appointed pursuant to Section 1; or for exchange for a
different number of bonds, certificates or
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other evidence representing the same aggregate face amount or number
of units; provided that, in any such case, the new securities are to
be delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Custodian shall have no responsibility or
liability for any loss arising from the delivery of such securities
prior to receiving payment for such securities except as may arise
from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary
securities for definitive securities; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
10) For delivery in connection with any loans of securities made by the
Portfolio, but only against receipt of adequate collateral as agreed
upon from time to time by the Custodian and the Fund on behalf of
the Portfolio, which may be in the form of cash or obligations
issued by the United States government, its agencies or
instrumentalities, except that in connection with any loans for
which collateral is to be credited to the Custodian's account in the
book-entry system authorized by the U.S. Department of the Treasury,
the Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the receipt
of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by the
Fund on behalf of the Portfolio, but only against receipt of amounts
borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of 1934
(the "Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with the
rules of The Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection
with transactions by the Portfolio of the Fund;
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13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian, and a
Futures Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity Futures
Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent for the Fund
(the "Transfer Agent") for delivery to such Transfer Agent or to the
holders of Shares in connection with distributions in kind, as may
be described from time to time in the currently effective prospectus
and statement of additional information of the Fund related to the
Portfolio (the "Prospectus"), in satisfaction of requests by holders
of Shares for repurchase or redemption; and
15) For any other proper trust purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a copy of a resolution of the Board of
Trustees or of the Executive Committee thereof signed by an officer
of the Fund and certified by the Secretary or an Assistant Secretary
thereof (a "Certified Resolution"), specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper trust
purpose, and naming the person or persons to whom delivery of such
securities shall be made.
SECTION 2.3 REGISTRATION OF SECURITIES. Domestic securities held by the
Custodian (other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the Portfolio
or of any nominee of the Custodian which nominee shall be assigned exclusively
to the Portfolio, unless the Fund has authorized in writing the appointment of a
nominee to be used in common with other registered investment companies having
the same investment adviser as the Portfolio, or in the name or nominee name of
any agent appointed pursuant to Section 2.7 or in the name or nominee name of
any sub-custodian appointed pursuant to Section 1. All securities accepted by
the Custodian on behalf of the Portfolio under the terms of this Agreement shall
be in "street name" or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls, maturities,
tender or exchange offers.
SECTION 2.4 BANK ACCOUNTS. The Custodian shall open and maintain a
separate bank account or accounts in the United States in the name of each
Portfolio of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this
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Agreement, and shall hold in such account or accounts, subject to the provisions
hereof, all cash received by it from or for the account of the Portfolio, other
than cash maintained by the Portfolio in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of 1940, as amended
(the "1940 Act"). Funds held by the Custodian for a Portfolio may be deposited
by it to its credit as Custodian in the Banking Department of the Custodian or
in such other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or trust company
shall be qualified to act as a custodian under the 1940 Act and that each such
bank or trust company and the funds to be deposited with each such bank or trust
company shall on behalf of each applicable Portfolio be approved by vote of a
majority of the Board of Trustees. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
SECTION 2.5 COLLECTION OF INCOME. Subject to the provisions of Section
2.3, the Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which each
Portfolio shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and other
payments with respect to bearer domestic securities if, on the date of payment
by the issuer, such securities are held by the Custodian or its agent thereof
and shall credit such income, as collected, to such Portfolio's custodian
account. Without limiting the generality of the foregoing, the Custodian shall
detach and present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest when due on
securities held hereunder. Income due each Portfolio on securities loaned
pursuant to the provisions of Section 2.2 (10) shall be the responsibility of
the Fund. The Custodian will have no duty or responsibility in connection
therewith, other than to provide the Fund with such information or data as may
be necessary to assist the Fund in arranging for the timely delivery to the
Custodian of the income to which the Portfolio is properly entitled.
SECTION 2.6 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions on
behalf of the applicable Portfolio, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out monies of a
Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Portfolio but
only (a) against the delivery of such securities or evidence of
title to such options, futures contracts or options on futures
contracts to the Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which is
qualified under the 1940 Act to act as a custodian and has been
designated by the Custodian as its agent for this purpose)
registered in the name of the Portfolio or in the name of a nominee
of the Custodian referred to in Section 2.3 hereof or in proper form
for transfer; (b) in the case of a
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purchase effected through a U.S. Securities System, in accordance
with the conditions set forth in Section 2.8 hereof; (c) in the case
of a purchase involving the Direct Paper System, in accordance with
the conditions set forth in Section 2.9; (d) in the case of
repurchase agreements entered into between the Fund on behalf of the
Portfolio and the Custodian, or another bank, or a broker-dealer
which is a member of NASD, (i) against delivery of the securities
either in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such securities
or (ii) against delivery of the receipt evidencing purchase by the
Portfolio of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for transfer to a time deposit
account of the Fund in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation from a
broker and/or the applicable bank pursuant to Proper Instructions
from the Fund as defined herein;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued as set forth in
Section 5 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments for
the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating expenses of
the Fund whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares declared pursuant to
the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper trust purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a copy of a Certified Resolution specifying the amount of
such payment, setting forth the purpose for which such payment is to
be made, declaring such purpose to be a proper trust purpose, and
naming the person or persons to whom such payment is to be made.
SECTION 2.7 APPOINTMENT OF AGENTS. The Custodian may at any time or times
in its discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the 1940 Act to act as a custodian, as
its agent to carry out such of the provisions of this Section 2 as the Custodian
may from time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or liabilities
hereunder.
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SECTION 2.8 DEPOSIT OF FUND ASSETS IN U.S. SECURITIES SYSTEMS. The
Custodian may deposit and/or maintain securities owned by a Portfolio in a
clearing agency registered with the United States Securities and Exchange
Commission (the "SEC") under Section 17A of the Exchange Act , which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively referred
to herein as "U.S. Securities System" in accordance with applicable Federal
Reserve Board and SEC rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are represented in
an account of the Custodian in the U.S. Securities System (the "U.S.
Securities System Account") which account shall not include any
assets of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the account of
the Portfolio upon (i) receipt of advice from the U.S. Securities
System that such securities have been transferred to the U.S.
Securities System Account, and (ii) the making of an entry on the
records of the Custodian to reflect such payment and transfer for
the account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon (i) receipt of
advice from the U.S. Securities System that payment for such
securities has been transferred to the U.S. Securities System
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of
the Portfolio. Copies of all advices from the U.S. Securities System
of transfers of securities for the account of the Portfolio shall
identify the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Fund at its request. Upon request,
the Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio in the form of a written advice or notice and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transactions in the U.S.
Securities System for the account of the Portfolio;
4) The Custodian shall provide the Fund with any report obtained by
the Custodian on the U.S. Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio
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the initial or annual certificate, as the case may be, required by
Section 15 hereof;
6) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from use
of the U.S. Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents or
of any of its or their employees or from failure of the Custodian or
any such agent to enforce effectively such rights as it may have
against the U.S. Securities System; at the election of the Fund, it
shall be entitled to be subrogated to the rights of the Custodian
with respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of any
such loss or damage if and to the extent that the Portfolio has not
been made whole for any such loss or damage.
SECTION 2.9 FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM. The
Custodian may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the
Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in the Direct
Paper System Account, which account shall not include any assets of
the Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities
sold for the account of the Portfolio upon the making of an entry on
the records of the Custodian to reflect such transfer and receipt of
payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct
Paper on the next business day following such transfer and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the Direct
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Paper System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio with
any report on its system of internal accounting control as the Fund
may reasonably request from time to time.
SECTION 2.10 SEGREGATED ACCOUNT. The Custodian shall upon receipt of
Proper Instructions on behalf of each applicable Portfolio establish and
maintain a segregated account or accounts for and on behalf of each such
Portfolio, into which account or accounts may be transferred cash and/or
securities, including securities maintained in an account by the Custodian
pursuant to Section 2.8 hereof, (i) in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Portfolio, (ii) for purposes of segregating cash or
government securities in connection with options purchased, sold or written by
the Portfolio or commodity futures contracts or options thereon purchased or
sold by the Portfolio, (iii) for the purposes of compliance by the Portfolio
with the procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the SEC relating to the maintenance of
segregated accounts by registered investment companies and (iv) for other proper
trust purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a copy of a Certified Resolution setting forth the purpose or
purposes of such segregated account and declaring such purpose(s) to be a proper
trust purpose.
SECTION 2.11 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall
execute ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in connection
with transfers of securities.
SECTION 2.12 PROXIES. The Custodian shall, with respect to the domestic
securities held hereunder, cause to be promptly executed by the registered
holder of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting materials
and all notices relating to such securities.
SECTION 2.13 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. Subject to
the provisions of Section 2.3, the Custodian shall transmit promptly to the Fund
for each Portfolio all written information (including, without limitation,
pendency of calls and maturities of domestic securities and expirations of
rights in connection therewith and
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notices of exercise of call and put options written by the Fund on behalf of the
Portfolio and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities being held
for the Portfolio. With respect to tender or exchange offers, the Custodian
shall transmit promptly to the Portfolio all written information received by the
Custodian from issuers of the securities whose tender or exchange is sought and
from the party (or his agents) making the tender or exchange offer. If the
Portfolio desires to take action with respect to any tender offer, exchange
offer or any other similar transaction, the Portfolio shall notify the Custodian
at least three business days prior to the date on which the Custodian is to take
such action.
SECTION 3. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER OF THE PORTFOLIOS
SECTION 3.1. DEFINITIONS. The following capitalized terms shall have the
indicated meanings:
"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure
(including financial institutions such as any Mandatory Securities Depositories
operating in the country); prevailing or developing custody and settlement
practices; and laws and regulations applicable to the safekeeping and recovery
of Foreign Assets held in custody in that country.
"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule
17f-5 promulgated under Section 17(f) of the 1940 Act ("Rule 17f-5"), except
that the term does not include Mandatory Securities Depositories.
"Foreign Assets" means any of the Portfolios' investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Portfolios'
transactions in such investments.
"Foreign Custody Manager" has the meaning set forth in section (a)(2) of Rule
17f-5.
"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if the
Fund, on the Portfolios' behalf, determines to place Foreign Assets in a country
outside the United States (i) because required by law or regulation; (ii)
because securities cannot be withdrawn from such foreign securities depository
or clearing agency; or (iii) because maintaining or effecting trades in
securities outside the foreign securities depository or clearing agency is not
consistent with prevailing or developing custodial or market practices.
SECTION 3.2. DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The
Fund, by resolution adopted by the Board of Trustees, hereby delegates to the
Custodian with respect to the Portfolios, subject to Section (b) of Rule 17f-5,
the responsibilities set forth in this Section 3 with respect to Foreign Assets
of the Portfolios held
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outside the United States, and the Custodian hereby accepts such delegation, as
Foreign Custody Manager with respect to the Portfolios.
SECTION 3.3. COUNTRIES COVERED. The Foreign Custody Manager shall be
responsible for performing the delegated responsibilities defined below only
with respect to the countries and custody arrangements for each such country
listed on Schedule A of this Contract, which may be amended from time to time by
the Foreign Custody Manager. The Foreign Custody Manager shall list on Schedule
A the Eligible Foreign Custodians selected by the Foreign Custody Manager to
maintain the assets of the Portfolios. Mandatory Securities Depositories are
listed on Schedule B to this Contract, which may be amended from time to time by
the Foreign Custody Manager. The Foreign Custody Manager will provide amended
versions of Schedules A and B in accordance with Section 3.7 hereof.
Upon the receipt by the Foreign Custody Manager of Proper Instructions to
open an account or to place or maintain Foreign Assets in a country listed on
Schedule A, and the fulfillment by the Fund on behalf of the Portfolios of the
applicable account opening requirements for the country, the Foreign Custody
Manager shall be deemed to have been delegated by the Board of Trustees on
behalf of the Portfolios responsibility as Foreign Custody Manager with respect
to that country and to have accepted such delegation. Following the receipt of
Proper Instructions directing the Foreign Custody Manager to close the account
of a Portfolio with the Eligible Foreign Custodian selected by the Foreign
Custody Manager in a designated country, the delegation by the Board of Trustees
on behalf of the Portfolios to the Custodian as Foreign Custody Manager for that
country shall be deemed to have been withdrawn and the Custodian shall
immediately cease to be the Foreign Custody Manager of the Portfolios with
respect to that country.
The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to the
Fund. Thirty days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to the Fund with respect to
the country as to which the Custodian's acceptance of delegation is withdrawn.
SECTION 3.4. SCOPE OF DELEGATED RESPONSIBILITIES.
3.4.1. Selection of Eligible Foreign Custodians. Subject to the provisions
of this Section 3, the Portfolios' Foreign Custody Manager may place and
maintain the Foreign Assets in the care of the Eligible Foreign Custodian
selected by the Foreign Custody Manager in each country listed on Schedule A, as
amended from time to time.
In performing its delegated responsibilities as Foreign Custody Manager to
place or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign
Custody Manager shall determine that the Foreign Assets will be subject to
reasonable care, based on the standards applicable to custodians in the country
in which the Foreign Assets will be held by that Eligible Foreign Custodian,
after considering all factors relevant to the safekeeping
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of such assets, including, without limitation:
(i) the Eligible Foreign Custodian's practices, procedures, and internal
controls, including, but not limited to, the physical protections
available for certificated securities (if applicable), its methods
of keeping custodial records, and its security and data protection
practices;
(ii) whether the Eligible Foreign Custodian has the financial strength
to provide reasonable care for Foreign Assets;
(iii) the Eligible Foreign Custodian's general reputation and standing
and, in the case of a foreign securities depository or clearing
agency which is not a Mandatory Securities Depository, the foreign
securities depository's or clearing agency's operating history and
the number of participants in the foreign securities depository or
clearing agency; and
(iv) whether the Fund will have jurisdiction over and be able to enforce
judgments against the Eligible Foreign Custodian, such as by virtue
of the existence of any offices of the Eligible Foreign Custodian in
the United States or the Eligible Foreign Custodian's consent to
service of process in the United States.
3.4.2. Contracts With Eligible Foreign Custodians. The Foreign Custody
Manager shall determine that the contract (or the rules or established practices
or procedures in the case of an Eligible Foreign Custodian that is a foreign
securities depository or clearing agency) governing the foreign custody
arrangements with each Eligible Foreign Custodian selected by the Foreign
Custody Manager will provide reasonable care for the Foreign Assets held by that
Eligible Foreign Custodian based on the standards applicable to custodians in
the particular country. Each such contract shall include provisions that
provide:
(i) for indemnification or insurance arrangements (or any combination of
the foregoing) such that each Portfolio will be adequately protected
against the risk of loss of the Foreign Assets held in accordance
with such contract;
(ii) that the Foreign Assets will not be subject to any right, security
interest, or lien or claim of any kind in favor of the Eligible
Foreign Custodian or its creditors except a claim of payment for
their safe custody or administration or, in the case of cash
deposits, liens or rights in favor of creditors of the Eligible
Foreign Custodian arising under bankruptcy, insolvency, or similar
laws;
(iii) that beneficial ownership of the Foreign Assets will be freely
transferable without the payment of money or value other than for
safe custody or administration;
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(iv) that adequate records will be maintained identifying the Foreign
Assets as belonging to the applicable Portfolio or as being held by
a third party for the benefit of such Portfolio;
(v) that the independent public accountants for each Portfolio will be
given access to those records or confirmation of the contents of
those records; and
(vi) that the Fund will receive periodic reports with respect to the
safekeeping of the Foreign Assets, including, but not limited to,
notification of any transfer of the Foreign Assets to or from a
Portfolio's account or a third party account containing the Foreign
Assets held for the benefit of the Portfolio,
or, in lieu of any or all of the provisions set forth in (i) through (vi) above,
such other provisions that the Foreign Custody Manager determines will provide,
in their entirety, the same or greater level of care and protection for the
Foreign Assets as the provisions set forth in (i) through (vi) above, in their
entirety.
3.4.3. Monitoring. In each case in which the Foreign Custody Manager
maintains Foreign Assets with an Eligible Foreign Custodian selected by the
Foreign Custody Manager, the Foreign Custody Manager shall establish a system to
monitor (i) the appropriateness of maintaining the Foreign Assets with such
Eligible Foreign Custodian and (ii) the contract governing the custody
arrangements established by the Foreign Custody Manager with the Eligible
Foreign Custodian. In the event the Foreign Custody Manager determines that the
custody arrangements with an Eligible Foreign Custodian it has selected are no
longer appropriate, the Foreign Custody Manager shall notify the Board of
Trustees in accordance with Section 3.7 hereunder.
SECTION 3.5. GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY. For
purposes of this Section 3, the Board of Trustees shall be deemed to have
considered and determined to accept such Country Risk as is incurred by placing
and maintaining the Foreign Assets in each country for which the Custodian is
serving as Foreign Custody Manager of the Portfolios. The Fund, on behalf of the
Portfolios, and the Custodian each expressly acknowledge that the Foreign
Custody Manager shall not be delegated any responsibilities under this Section 3
with respect to Mandatory Securities Depositories.
SECTION 3.6. STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF THE
PORTFOLIOS. In performing the responsibilities delegated to it, the Foreign
Custody Manager agrees to exercise reasonable care, prudence and diligence such
as a person having responsibility for the safekeeping of assets of management
investment companies registered under the 1940 Act would exercise.
SECTION 3.7. REPORTING REQUIREMENTS. The Foreign Custody Manager shall
report the withdrawal of the Foreign Assets from an Eligible Foreign Custodian
and the placement of such Foreign Assets with another Eligible Foreign Custodian
by providing to the Board of Trustees amended Schedules A or B at the end of the
calendar quarter in
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which an amendment to either Schedule has occurred. The Foreign Custody Manager
shall make written reports notifying the Board of Trustees of any other material
change in the foreign custody arrangements of the Portfolios described in this
Article 3 after the occurrence of the material change.
SECTION 3.8. REPRESENTATIONS WITH RESPECT TO RULE 17f-5. The Foreign
Custody Manager represents to the Fund that it is a U.S. Bank as defined in
section (a)(7) of Rule 17f-5. The Fund represents to the Custodian that the
Board of Trustees has determined that it is reasonable for the Board of Trustees
to rely on the Custodian to perform the responsibilities delegated pursuant to
this Agreement to the Custodian as the Foreign Custody Manager of the
Portfolios.
SECTION 3.9. EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN
CUSTODY MANAGER. The Board of Trustees' delegation to the Custodian as Foreign
Custody Manager of the Portfolios shall be effective as of the date of execution
of this Agreement and shall remain in effect until terminated at any time,
without penalty, by written notice from the terminating party to the
non-terminating party. Termination will become effective thirty (30) days after
receipt by the non-terminating party of such notice. The provisions of Section
3.3 hereof shall govern the delegation to and termination of the Custodian as
Foreign Custody Manager of the Portfolios with respect to designated countries.
SECTION 4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE
PORTFOLIOS HELD OUTSIDE OF THE UNITED STATES
SECTION 4.1 DEFINITIONS. Capitalized terms in this Section 4 shall have
the following meanings:
"Foreign Securities System" means either a clearing agency or a securities
depository listed on Schedule A hereto or a Mandatory Securities Depository
listed on Schedule B hereto.
"Foreign Sub-Custodian" means a foreign banking institution serving as an
Eligible Foreign Custodian or a Permissible Foreign Custodian.
"Permissible Foreign Custodian" means any person with whom property of the
Portfolios may be placed and maintained outside of the United States under (i)
section 17(f) or 26(a) of the 1940 Act without regard to Rule 17f-5 or (ii) an
order of the SEC.
SECTION 4.2. HOLDING SECURITIES. The Custodian shall identify on its books
as belonging to the Portfolios the foreign securities held by each Foreign
Sub-Custodian or Foreign Securities System. The Custodian may hold foreign
securities for all of its customers, including the Portfolios, with any Foreign
Sub-Custodian in an account that is identified as belonging to the Custodian for
the benefit of its customers, provided however, that (i) the records of the
Custodian with respect to foreign securities of the Portfolios
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which are maintained in such account shall identify those securities as
belonging to the Portfolios and (ii) the Custodian shall require that securities
so held by the Foreign Sub-Custodian be held separately from any assets of such
Foreign Sub-Custodian or of other customers of such Foreign Sub-Custodian.
SECTION 4.3. FOREIGN SECURITIES SYSTEMS. Foreign securities shall be
maintained in a Foreign Securities System in a designated country only through
arrangements implemented by the Foreign Sub-Custodian in such country pursuant
to the terms of this Agreement.
SECTION 4.4. HOLDING OF FOREIGN ASSETS WITH PERMISSIBLE FOREIGN
CUSTODIANS. Subject to the requirements of Sections 17(f) and 26(a) of the 1940
Act (and any other applicable law or order), the Custodian may place and
maintain Foreign Assets (as such term is defined in Section 3 hereof) in the
care of any Permissible Foreign Custodian. Section 3 hereof shall not apply to
placement of Foreign Assets by the Custodian with a Permissible Custodian.
SECTION 4.5. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
4.5.1. Delivery of Foreign Securities. The Custodian or a Foreign
Sub-Custodian shall release and deliver foreign securities of the Portfolios
held by such Foreign Sub-Custodian, or in a Foreign Securities System account,
only upon receipt of Proper Instructions, which may be continuing instructions
when deemed appropriate by the parties, and only in the following cases:
(i) upon the sale of such foreign securities for the Portfolios in
accordance with reasonable market practice in the country where such
foreign securities are held or traded, including, without
limitation: (A) delivery against expectation of receiving later
payment; or (B) in the case of a sale effected through a Foreign
Securities System in accordance with the rules governing the
operation of the Foreign Securities System;
(ii) in connection with any repurchase agreement related to foreign
securities;
(iii) to the depository agent in connection with tender or other
similar offers for foreign securities of the Portfolios;
(iv) to the issuer thereof or its agent when such foreign securities are
called, redeemed, retired or otherwise become payable;
(v) to the issuer thereof, or its agent, for transfer into the name of
the Custodian (or the name of the respective Foreign Sub-Custodian
or of any nominee of the Custodian or such Foreign Sub-Custodian) or
for exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units;
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(vi) to brokers, clearing banks or other clearing agents for examination
or trade execution in accordance with market custom; provided that
in any such case the Foreign Sub-Custodian shall have no
responsibility or liability for any loss arising from the delivery
of such securities prior to receiving payment for such securities
except as may arise from the Foreign Sub-Custodian's own negligence
or willful misconduct;
(vii) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement;
(viii) in the case of warrants, rights or similar foreign securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or temporary
securities for definitive securities;
(ix) or delivery as security in connection with any borrowings by the
Portfolios requiring a pledge of assets by the Portfolios;
(x) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(xi) in connection with the lending of foreign securities; and
(xii) for any other proper trust purpose, but only upon receipt of, in
addition to Proper Instructions, a copy of a Certified Resolution
specifying the foreign securities to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such
purpose to be a proper trust purpose, and naming the person or
persons to whom delivery of such securities shall be made.
4.5.2. Payment of Portfolio Monies. Upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the
respective Foreign Securities System to pay out, monies of a Portfolio in the
following cases only:
(i) upon the purchase of foreign securities for the Portfolio, unless
otherwise directed by Proper Instructions, by (A) delivering money
to the seller thereof or to a dealer therefor (or an agent for such
seller or dealer) against expectation of receiving later delivery of
such foreign securities; or (B) in the case of a purchase effected
through a Foreign Securities System, in accordance with the rules
governing the operation of such Foreign Securities System;
(ii) in connection with the conversion, exchange or surrender of
foreign securities of the Portfolio;
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(iii) for the payment of any expense or liability of the Portfolio,
including but not limited to the following payments: interest,
taxes, investment advisory fees, transfer agency fees, fees under
this Agreement, legal fees, accounting fees, and other operating
expenses;
(iv) for the purchase or sale of foreign exchange or foreign exchange
contracts for the Portfolio, including transactions executed with or
through the Custodian or its Foreign Sub-Custodians;
(v) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(vii) in connection with the borrowing or lending of foreign
securities; and
(viii) for any other proper trust purpose, but only upon receipt of, in
addition to Proper Instructions, a copy of a Certified Resolution
specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a
proper trust purpose, and naming the person or persons to whom such
payment is to be made.
4.5.3. Market Conditions. Notwithstanding any provision of this Agreement
to the contrary, settlement and payment for Foreign Assets received for the
account of the Portfolios and delivery of Foreign Assets maintained for the
account of the Portfolios may be effected in accordance with the customary
established securities trading or processing practices and procedures in the
country or market in which the transaction occurs, including, without
limitation, delivering Foreign Assets to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) with the expectation of
receiving later payment for such Foreign Assets from such purchaser or dealer.
SECTION 4.6. REGISTRATION OF FOREIGN SECURITIES. The foreign securities
maintained in the custody of a Foreign Custodian (other than bearer securities)
shall be registered in the name of the applicable Portfolio or in the name of
the Custodian or in the name of any Foreign Sub-Custodian or in the name of any
nominee of the foregoing, and the Fund on behalf of such Portfolio agrees to
hold any such nominee harmless from any liability as a holder of record of such
foreign securities. The Custodian or a Foreign Sub-Custodian shall not be
obligated to accept securities on behalf of a Portfolio under the terms of this
Agreement unless the form of such securities and the manner in which they are
delivered are in accordance with reasonable market practice.
SECTION 4.7. BANK ACCOUNTS. A bank account or bank accounts opened and
maintained outside the United States on behalf of a Portfolio with a Foreign
Sub-Custodian shall be subject only to draft or order by the Custodian or such
Foreign Sub-Custodian, acting pursuant to the terms of this Agreement to hold
cash received by or from or for the account of the Portfolio.
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SECTION 4.8. COLLECTION OF INCOME. The Custodian shall use reasonable
endeavors to collect all income and other payments in due course with respect to
the Foreign Assets held hereunder to which the Portfolios shall be entitled and
shall credit such income, as collected, to the applicable Portfolio. In the
event that extraordinary measures are required to collect such income, the Fund
and the Custodian shall consult as to such measures and as to the compensation
and expenses of the Custodian relating to such measures.
SECTION 4.9. PROXIES. The Custodian will generally with respect to the
foreign securities held under this Section 4 use its reasonable endeavors to
facilitate the exercise of voting and other shareholder proxy rights, subject
always to the laws, regulations and practical constraints that may exist in the
country where such securities are issued. The Fund acknowledges that local
conditions, including lack of regulation, onerous procedural obligations, lack
of notice and other factors may have the effect of severely limiting the ability
of the Fund to exercise shareholder rights.
SECTION 4.10. COMMUNICATIONS RELATING TO FOREIGN SECURITIES. The Custodian
shall transmit promptly to the Fund written information (including, without
limitation, pendency of calls and maturities of foreign securities and
expirations of rights in connection therewith) received by the Custodian via the
Foreign Sub-Custodians from issuers of the foreign securities being held for the
account of the Portfolios. With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Fund written information so received by
the Custodian from issuers of the foreign securities whose tender or exchange is
sought or from the party (or its agents) making the tender or exchange offer.
The Custodian shall not be liable for any untimely exercise of any tender,
exchange or other right or power in connection with foreign securities or other
property of the Portfolios at any time held by it unless (i) the Custodian or
the respective Foreign Sub-Custodian is in actual possession of such foreign
securities or property and (ii) the Custodian receives Proper Instructions with
regard to the exercise of any such right or power, and both (i) and (ii) occur
at least three (3) business days prior to the date on which such right or power
is to be exercised.
SECTION 4.11. LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN SECURITIES
SYSTEMS. Each agreement pursuant to which the Custodian employs as a Foreign
Sub-Custodian shall, to the extent possible, require the Foreign Sub-Custodian
to exercise reasonable care in the performance of its duties and, to the extent
possible, to indemnify, and hold harmless, the Custodian from and against any
loss, damage, cost, expense, liability or claim arising out of or in connection
with the Foreign Sub-Custodian's performance of such obligations. At the Fund's
election, the Portfolios shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a Foreign Sub-Custodian as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that the Portfolios have not been made whole for any such loss,
damage, cost, expense, liability or claim.
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SECTION 4.12. TAX LAW. The Custodian shall have no responsibility or
liability for any obligations now or hereafter imposed on the Fund, the
Portfolios or the Custodian as custodian of the Portfolios by the tax law of the
United States or of any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations imposed on
the Fund with respect to the Portfolios or the Custodian as custodian of the
Portfolios by the tax law of countries other than those mentioned in the above
sentence, including responsibility for withholding and other taxes, assessments
or other governmental charges, certifications and governmental reporting. The
sole responsibility of the Custodian with regard to such tax law shall be to use
reasonable efforts to assist the Fund with respect to any claim for exemption or
refund under the tax law of countries for which the Fund has provided such
information.
SECTION 4.13. CONFLICT. If the Custodian is delegated the responsibilities
of Foreign Custody Manager pursuant to the terms of Section 3 hereof, in the
event of any conflict between the provisions of Sections 3 and 4 hereof, the
provisions of Section 3 shall prevail.
SECTION 5. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent and deposit into the account of the appropriate Portfolio
such payments as are received for Shares thereof issued or sold from time to
time by the Fund. The Custodian will provide timely notification to the Fund on
behalf of each such Portfolio and the Transfer Agent of any receipt by it of
payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Fund's Declaration of Trust and any applicable votes of the
Board of Trustees pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares, the Custodian is authorized upon receipt of instructions
from the Transfer Agent to wire funds to or through a commercial bank designated
by the redeeming shareholders. In connection with the redemption or repurchase
of Shares, the Custodian shall honor checks drawn on the Custodian by a holder
of Shares, which checks have been furnished by the Fund to the holder of Shares,
when presented to the Custodian in accordance with such procedures and controls
as are mutually agreed upon from time to time between the Fund and the
Custodian.
SECTION 6. PROPER INSTRUCTIONS
Proper Instructions as used throughout this Agreement means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is
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requested. Oral instructions will be considered Proper Instructions if the
Custodian reasonably believes them to have been given by a person authorized to
give such instructions with respect to the transaction involved. The Fund shall
cause all oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the authorization
by the Board of Trustees accompanied by a detailed description of procedures
approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and the Custodian are satisfied that
such procedures afford adequate safeguards for the Portfolios' assets. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three - party agreement which requires
a segregated asset account in accordance with Section 2.10.
SECTION 7. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to
the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board of Trustees.
SECTION 8. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a Certified Resolution as conclusive evidence
(a) of the authority of any person to act in accordance with such resolution or
(b) of any determination or of any action by the Board of Trustees pursuant to
the Fund's Declaration of Trust as described in such resolution, and such
resolution may be considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.
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SECTION 9. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND
CALCULATION OF NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees to keep the books of
account of each Portfolio and/or compute the net asset value per Share of the
outstanding Shares or, if directed in writing to do so by the Fund on behalf of
the Portfolio, shall itself keep such books of account and/or compute such net
asset value per Share. If so directed, the Custodian shall also calculate daily
the net income of the Portfolio as described in the Prospectus and shall advise
the Fund and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Fund to do so, shall advise
the Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per Share and the
daily income of each Portfolio shall be made at the time or times described from
time to time in the Prospectus.
SECTION 10. RECORDS
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Agreement in such
manner as will meet the obligations of the Fund under the 1940 Act, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder.
All such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the SEC. The Custodian shall, at the Fund's request, supply the Fund with a
tabulation of securities owned by each Portfolio and held by the Custodian and
shall, when requested to do so by the Fund and for such compensation as shall be
agreed upon between the Fund and the Custodian, include certificate numbers in
such tabulations.
SECTION 11. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other annual reports to the SEC and with respect to any
other requirements thereof.
SECTION 12. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding
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securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a U.S. Securities System or a Foreign
Securities System (collectively referred to herein as the "Securities Systems"),
relating to the services provided by the Custodian under this Agreement; such
reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
SECTION 13. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
SECTION 14. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Agreement,
but shall be kept indemnified by and shall be without liability to the Fund for
any action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. The Custodian shall be
without liability to the Fund and the Portfolios for any loss, liability, claim
or expense resulting from or caused by anything which is (A) part of Country
Risk (as defined in Section 3 hereof), including without limitation
nationalization, expropriation, currency restrictions, or acts of war,
revolution, riots or terrorism, or (B) part of the "prevailing country risk" of
the Portfolios, as such term is used in SEC Release Nos. IC-22658; IS-1080 (May
12, 1997) or as such term or other similar terms are now or in the future
interpreted by the SEC or by the staff of the Division of Investment Management
thereof.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or
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interruptions, computer viruses or communications disruptions, work stoppages,
natural disasters, or other similar events or acts; (ii) errors by the Fund or
the Investment Advisor in their instructions to the Custodian provided such
instructions have been in accordance with this Agreement; (iii) the insolvency
of or acts or omissions by a Securities System; (iv) any delay or failure of any
broker, agent or intermediary, central bank or other commercially prevalent
payment or clearing system to deliver to the Custodian's sub-custodian or agent
securities purchased or in the remittance or payment made in connection with
securities sold; (v) any delay or failure of any company, corporation, or other
body in charge of registering or transferring securities in the name of the
Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or any
consequential losses arising out of such delay or failure to transfer such
securities including non-receipt of bonus, dividends and rights and other
accretions or benefits; (vi) delays or inability to perform its duties due to
any disorder in market infrastructure with respect to any particular security or
Securities System; and (vii) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or
any other country, or political subdivision thereof or of any court of competent
jurisdiction.
The Custodian shall be liable for the acts or omissions of a Foreign
Sub-Custodian (as defined in Section 4 hereof) to the same extent as set forth
with respect to sub-custodians generally in this Agreement.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement) or
in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Agreement, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor and should the Fund fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
SECTION 15. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
23
<PAGE>
This Agreement shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.8 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees has approved the
initial use of a particular Securities System by such Portfolio, as required by
Rule 17f-4 under the 1940 Act and that the Custodian shall not with respect to a
Portfolio act under Section 2.9 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has approved the initial use of the Direct Paper System by such
Portfolio; provided further, however, that the Fund shall not amend or terminate
this Agreement in contravention of any applicable federal or state regulations,
or any provision of the Fund's Declaration of Trust, and further provided, that
the Fund on behalf of one or more of the Portfolios may at any time by action of
its Board of Trustees (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Agreement, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
SECTION 16. SUCCESSOR CUSTODIAN
If a successor custodian for one or more Portfolios shall be appointed by
the Board of Trustees, the Custodian shall, upon termination, deliver to such
successor custodian at the office of the Custodian, duly endorsed and in the
form for transfer, all securities of each applicable Portfolio then held by it
hereunder and shall transfer to an account of the successor custodian all of the
securities of each such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a Certified Resolution, deliver at the office of
the Custodian and transfer such securities, funds and other properties in
accordance with such resolution.
In the event that no written order designating a successor custodian or
Certified Resolution shall have been delivered to the Custodian on or before the
date when such termination shall become effective, then the Custodian shall have
the right to deliver to a bank or trust company, which is a "bank" as defined in
the 1940 Act, doing business in
24
<PAGE>
Boston, Massachusetts, or New York, New York, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Agreement on behalf of each applicable Portfolio, and to
transfer to an account of such successor custodian all of the securities of each
such Portfolio held in any Securities System. Thereafter, such bank or trust
company shall be the successor of the Custodian under this Agreement.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the Certified Resolution to appoint a successor
custodian, the Custodian shall be entitled to fair compensation for its services
during such period as the Custodian retains possession of such securities, funds
and other properties and the provisions of this Agreement relating to the duties
and obligations of the Custodian shall remain in full force and effect.
SECTION 17. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Agreement, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Agreement as
may in their joint opinion be consistent with the general tenor of this
Agreement. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Fund's Declaration of Trust. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Agreement.
SECTION 18. ADDITIONAL FUNDS
In the event that the Fund establishes one or more series of Shares in
addition to Kobrick-HFS Capital Fund and Kobrick-HFS Emerging Growth Fund with
respect to which it desires to have the Custodian render services as custodian
under the terms hereof, it shall so notify the Custodian in writing, and if the
Custodian agrees in writing to provide such services, such series of Shares
shall become a Portfolio hereunder.
SECTION 19. MASSACHUSETTS LAW TO APPLY
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
25
<PAGE>
SECTION 20. PRIOR AGREEMENTS
This Agreement supersedes and terminates, as of the date hereof, all prior
Agreements between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
SECTION 21. NOTICES.
Any notice, instruction or other instrument required to be given hereunder
may be delivered in person to the offices of the parties as set forth herein
during normal business hours or delivered prepaid registered mail or by telex,
cable or telecopy to the parties at the following addresses or such other
addresses as may be notified by any party from time to time.
To the Fund: KOBRICK-HFS INVESTMENT TRUST
101 Federal Street
Boston, Massachusetts 02111
Attention:
Telephone: 617-342-3500
Telecopy:
To the Custodian: STATE STREET BANK AND TRUST COMPANY
1776 Heritage Drive
North Quincy, Massachusetts 02171
Attention:
Telephone:
Telecopy:
Such notice, instruction or other instrument shall be deemed to have been
served in the case of a registered letter at the expiration of five business
days after posting, in the case of cable twenty-four hours after dispatch and,
in the case of telex, immediately on dispatch and if delivered outside normal
business hours it shall be deemed to have been received at the next time after
delivery when normal business hours commence and in the case of cable, telex or
telecopy on the business day after the receipt thereof. Evidence that the notice
was properly addressed, stamped and put into the post shall be conclusive
evidence of posting.
SECTION 22. REPRODUCTION OF DOCUMENTS
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such
26
<PAGE>
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
SECTION 23. SHAREHOLDER COMMUNICATIONS ELECTION
SEC Rule 14b-2 requires banks which hold securities for the account of
customers to respond to requests by issuers of securities for the names,
addresses and holdings of beneficial owners of securities of that issuer held by
the bank unless the beneficial owner has expressly objected to disclosure of
this information. In order to comply with the rule, the Custodian needs the Fund
to indicate whether it authorizes the Custodian to provide the Fund's name,
address, and share position to requesting companies whose securities the Fund
owns. If the Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian "yes" or
does not check either "yes" or "no" below, the Custodian is required by the rule
to treat the Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established by the Fund.
For the Fund's protection, the Rule prohibits the requesting company from using
the Fund's name and address for any purpose other than corporate communications.
Please indicate below whether the Fund consents or objects by checking one of
the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [x] The Custodian is not authorized to release the Fund's
name, address, and share positions.
IN WITNESS WHEREOF, each of the parties has caused this instrument
to be executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed as of December , 1997].
KOBRICK-HFS INVESTMENT TRUST FUND SIGNATURE ATTESTED TO BY:
By: _________________________ By: ____________________
Name: _________________________ Name: ____________________
Title: _________________________ Title: ____________________
27
<PAGE>
STATE STREET BANK AND TRUST COMPANY SIGNATURE ATTESTED TO BY:
By: _________________________ By: ____________________
Name: Ronald E. Logue Name: ____________________
Title: Executive Vice President Title: ____________________
28
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND OPTIONAL DEPOSITORIES
Country Subcustodian Optional Depositories
Argentina Citibank, N.A. --
Australia Westpac Banking Corporation --
Austria GiroCredit Bank Aktiengesellschaft --
der Sparkassen
Bahrain The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Bangladesh Standard Chartered Bank --
Belgium Generale Bank --
Bermuda The Bank of Bermuda Limited --
Bolivia Banco Boliviano Americano --
Botswana Barclays Bank of Botswana Limited --
Brazil Citibank, N.A. --
Canada Canada Trustco Mortgage Company --
Chile Citibank, N.A. --
People's Republic The Hongkong and Shanghai --
of China Banking Corporation Limited,
Shanghai and Shenzhen branches
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND OPTIONAL DEPOSITORIES
Country Subcustodian Optional Depositories
Colombia Cititrust Colombia S.A. --
Sociedad Fiduciaria
Croatia Privredana banka Zagreb d.d --
Cyprus Barclays Bank PLC --
Cyprus Offshore Banking Unit
Czech Republic Ceskoslovenska Obchodni --
Banka A.S.
Denmark Den Danske Bank --
Ecuador Citibank, N.A. --
Egypt National Bank of Egypt --
Estonia Hansabank --
Finland Merita Bank Limited --
France Banque Paribas --
Germany Dresdner Bank AG --
Ghana Barclays Bank of Ghana Limited --
Greece National Bank of Greece S.A Bank of Greece
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND OPTIONAL DEPOSITORIES
Country Subcustodian Optional Depositories
Hong Kong Standard Chartered Bank --
Hungary Citibank Budapest Rt. --
India Deutsche Bank AG; --
The Hongkong and Shanghai
Banking Corporation Limited
Indonesia Standard Chartered Bank --
Ireland Bank of Ireland --
Israel Bank Hapoalim B.M. --
Italy Banque Paribas --
Ivory Coast Societe Generale de Banques --
en Cote d'Ivoire
Jamaica Scotiabank Trust and Merchant Bank --
Japan The Daiwa Bank, Limited; Japan Securities Depository
The Fuji Bank, Limited; Center;
The Sumitomo Trust
& Banking Co., Ltd.
Jordan The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Kenya Barclays Bank of Kenya Limited --
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND OPTIONAL DEPOSITORIES
Country Subcustodian Optional Depositories
Republic of Korea Citibank, N.A. --
Lebanon The British Bank of the Middle East
Custodian and Clearing Center of Financial
(as delegate of the Hongkong and Instruments for Lebanon
(MIDCLEAR) S.A.L.;
Shanghai Banking Corporation Limited)
Malaysia Standard Chartered Bank --
Malaysia Berhad
Mauritius The Hongkong and Shanghai --
Banking Corporation Limited
Mexico Citibank Mexico, S.A. --
Morocco Banque Commerciale du Maroc --
Namibia (via) Standard Bank of South Africa -
Netherlands MeesPierson N.V. --
New Zealand ANZ Banking Group --
(New Zealand) Limited
Norway Christiania Bank og --
Kreditkasse
Oman The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND OPTIONAL DEPOSITORIES
Country Subcustodian Optional Depositories
Pakistan Deutsche Bank AG --
Peru Citibank, N.A. --
Philippines Standard Chartered Bank --
Poland Citibank Poland S.A. --
Portugal Banco Comercial Portugues --
Romania ING Bank, N.V. --
Russia Credit Suisse First Boston, Zurich --
via Credit Suisse First Boston
Limited, Moscow
Singapore The Development Bank --
of Singapore Ltd.
Slovak Republic Ceskoslovenska Obchodna --
Banka A.S.
South Africa Standard Bank of South Africa Limited --
Spain Banco Santander, S.A. --
Sri Lanka The Hongkong and Shanghai --
Banking Corporation Limited
Swaziland Barclays Bank of Swaziland Limited --
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND OPTIONAL DEPOSITORIES
Country Subcustodian Optional Depositories
Sweden Skandinaviska Enskilda Banken --
Switzerland Union Bank of Switzerland --
Taiwan - R.O.C. Central Trust of China --
Thailand Standard Chartered Bank --
Trinidad & Tobago Republic Bank Ltd. --
Tunisia Banque Internationale Arabe de Tunisie --
Turkey Citibank, N.A. --
United Kingdom State Street Bank and Trust --
Uruguay Citibank, N.A. --
Venezuela Citibank, N.A. --
Zambia Barclays Bank of Zambia Limited --
Zimbabwe Barclays Bank of Zimbabwe Limited --
Euroclear (The Euroclear System)
Cedel (Cedel Bank, societe anonyme)
INTERSETTLE (for EASDAQ Securities)
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Argentina -Caja de Valores S.A.;
-CRYL
Australia -Austraclear Limited;
-Reserve Bank Information and
Transfer System
Austria -Oesterreichische Kontrollbank AG
(Wertpapiersammelbank Division)
Belgium -Caisse Interprofessionnelle de Depots
et de Virements de Titres S.A.;
-Banque Nationale de Belgique
Brazil -Bolsa de Valores de Sao Paulo;
-Bolsa de Valores de Rio de Janeiro
- All SSB clients presently use
Calispa
-Central de Custodia e de Liquidacao
Financeira de Titulos
-Banco Central do Brasil,
Systema Especial de Liquidacao e
Custodia
Canada -The Canadian Depository
for Securities Limited; West Canada
Depository Trust Company
[depositories linked]
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
People's Republic -Shanghai Securities Central Clearing
of China and Registration Corporation;
-Shenzhen Securities Central Clearing
Co., Ltd.
Croatia Ministry of Finance
Czech Republic -Stredisko cennych papiru;
-Czech National Bank
Denmark -Vaerdipapircentralen - The Danish
Securities Center
Egypt -Misr Company for Clearing,
Settlement, and Central Depository
Estonia Eesti Vaartpaberite Keskdepositooruim
Finland -The Finnish Central Securities
Depository
France -Societe Interprofessionnelle
pour la Compensation des
Valeurs Mobilieres;
-Banque de France,
Saturne System
Germany -The Deutscher Kassenverein AG
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Greece -The Central Securities Depository
(Apothetirion Titlon A.E.);
Hong Kong -The Central Clearing and
Settlement System;
-The Central Money Markets Unit
Hungary -The Central Depository and Clearing
House (Budapest) Ltd.
[Mandatory for Gov't Bonds only;
SSB does not use for other securities]
Indonesia -Bank of Indonesia
Ireland -The Central Bank of Ireland,
The Gilt Settlement Office
Israel -The Clearing House of the
Tel Aviv Stock Exchange;
-Bank of Israel
Italy -Monte Titoli S.p.A.;
-Banca d'Italia
Japan -Bank of Japan Net System
Republic of Korea -Korea Securities Depository
Lebanon -The Central Bank of Lebanon
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Malaysia -Malaysian Central Depository Sdn.
Bhd.;
-Bank Negara Malaysia,
Scripless Securities Trading and
Safekeeping Systems
Mauritius -The Central Depository & Settlement
System
Mexico -S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito de
Valores);
Netherlands -Nederlands Centraal Instituut voor
Giraal Effectenverkeer B.V.
("NECIGEF");
-De Nederlandsche Bank N.V. ("NBNV")**
** It is planned that as of 1/1/98 NBNV will no longer hold government
securities, all securities will be transferred to NECIGEF.
New Zealand -New Zealand Central Securities
Depository Limited
Norway -Verdipapirsentralen - The Norwegian
Registry of Securities
Oman -Muscat Securities Market
Peru -Caja de Valores y Liquidaciones
(CAVALI, S.A.)
Philippines -The Philippines Central Depository
Inc.
-The Book-Entry-System of Bangko
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Sentral ng Pilipinas;
-The Registry of Scripless Securities
of the Bureau of the Treasury
Poland -The National Depository of Securities
(Krajowy Depozyt Papierow
Wartosciowych);
-National Bank of Poland
Portugal -Central de Valores Mobiliarios
Romania -National Securities Clearing,
Settlement and Depository Co.;
-Bucharest Stock Exchange;
-National Bank of Romania
Singapore -The Central Depository (Pte)
Limited;
-Monetary Authority of Singapore
Slovak Republic -Stredisko Cennych Papierov;
-National Bank of Slovakia
South Africa -The Central Depository Limited
Spain -Servicio de Compensacion y
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Liquidacion de Valores, S.A.;
-Banco de Espana,
Anotaciones en Cuenta
Sri Lanka -Central Depository System
(Pvt) Limited
Sweden -Vardepapperscentralen VPC AB -
The Swedish Central Securities
Depository
Switzerland -Schweizerische Effekten - Giro AG;
Taiwan - R.O.C. -The Taiwan Securities Central
Depository Company, Ltd.
Thailand -Thailand Securities Depository
Company Limited
Tunisia -STICODEVAM;
-Central Bank of Tunisia;
-Tunisian Treasury
Turkey -Takas ve Saklama Bankasi A.S.;
-Central Bank of Turkey
United Kingdom -The Bank of England,
The Central Gilts Office;
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
The Central Moneymarkets Office;
The European Settlements Office;
-First Chicago Clearing Centre
Uruguay -Central Bank of Uruguay
Zambia -Lusaka Central Depository
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN AGREEMENT
AGREEMENT between Kobrick-HFS Investment Trust (the "Customer") and State
Street Bank and Trust Company ("State Street").
PREAMBLE
WHEREAS, State Street has been appointed as custodian of certain assets of
the Customer pursuant to a certain Custodian Agreement (the "Custodian
Agreement") dated as of December , 1997;
WHEREAS, State Street has developed and utilizes proprietary accounting
and other systems, including State Street's proprietary Multicurrency HORIZONSM
Accounting System, in its role as custodian of the Customer, and maintains
certain Customer-related data ("Customer Data") in databases under the control
and ownership of State Street (the "Data Access Services"); and
WHEREAS, State Street makes available to the Customer certain Data Access
Services solely for the benefit of the Customer, and intends to provide
additional services, consistent with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the parties
agree as follows:
1. SYSTEM AND DATA ACCESS SERVICES
(a) System. Subject to the terms and conditions of this Agreement, State
Street hereby agrees to provide the Customer with access to State Street's
Multicurrency HORIZONSM Accounting System and the other information systems
(collectively, the "System") as described in Attachment A, on a remote basis for
the purpose of obtaining reports and information, solely on computer hardware,
system software and telecommunication links as listed in Attachment B (the
"Designated Configuration") of the Customer, or certain third parties approved
by State Street that serve as investment advisors or investment managers of the
Customer (the "Investment Advisor"), and solely with respect to the Customer or
on any designated substitute or back-up equipment configuration with State
Street's written consent, such consent not to be unreasonably withheld.
(b) Data Access Services. State Street agrees to make available to the
Customer the Data Access Services subject to the terms and conditions of this
Agreement and data access operating standards and procedures as may be issued by
State Street from time to time. The ability of the Customer to originate
electronic instructions to State Street on behalf of the Customer in order to
(i) effect the transfer or movement of cash or securities held under custody by
State Street or (ii) transmit accounting or other information (such transactions
are referred to herein as "Client Originated Electronic Financial
Instructions"), and (iii) access data for the purpose of reporting and analysis,
shall be deemed to be Data Access Services for purposes of this Agreement.
(c) Additional Services. State Street may from time to time agree to make
available to the Customer additional Systems that are not described in the
attachments to this Agreement. In the absence of any other written agreement
concerning such additional systems, the term "System" shall include, and this
Agreement shall govern, the Customer's access to and use of any additional
System made available by State Street and/or accessed by the Customer.
2. NO USE OF THIRD PARTY SYSTEMS-LEVEL SOFTWARE
State Street and the Customer acknowledge that in connection with the Data
Access Services provided under this Agreement, the Customer will have access,
through the Data Access Services, to Customer Data and to functions of State
Street's proprietary systems; provided, however that in no event will the
Customer have direct access to any third party systems-level software that
retrieves data for, stores data from, or otherwise supports the System.
3. LIMITATION ON SCOPE OF USE
a. Designated Equipment; Designated Location. The System and the Data
Access Services shall be used and accessed solely on and through the Designated
Configuration at the offices of the Customer or the Investment Advisor located
in Boston, Massachusetts ("Designated Location").
b. Designated Configuration; Trained Personnel. State Street shall be
responsible for supplying, installing and maintaining the Designated
Configuration at the Designated Location. State Street and the Customer
<PAGE>
agree that each will engage or retain the services of trained personnel to
enable both parties to perform their respective obligations under this
Agreement. State Street agrees to use commercially reasonable efforts to
maintain the System so that it remains serviceable, provided, however, that
State Street does not guarantee or assure uninterrupted remote access use of the
System.
c. Scope of Use. The Customer will use the System and the Data Access Services
only for the processing of securities transactions, the keeping of books of
account for the Customer and accessing data for purposes of reporting and
analysis. The Customer shall not, and shall cause its employees and agents not
to (i) permit any third party to use the System or the Data Access Services,
(ii) sell, rent, license or otherwise use the System or the Data Access Services
in the operation of a service bureau or for any purpose other than as expressly
authorized under this Agreement, (iii) use the System or the Data Access
Services for any fund, trust or other investment vehicle without the prior
written consent of State Street, (iv) allow access to the System or the Data
Access Services through terminals or any other computer or telecommunications
facilities located outside the Designated Locations, (v) allow or cause any
information (other than portfolio holdings, valuations of portfolio holdings,
and other information reasonably necessary for the management or distribution of
the assets of the Customer) transmitted from State Street's databases, including
data from third party sources, available through use of the System or the Data
Access Services to be redistributed or retransmitted to another computer,
terminal or other device for other than use for or on behalf of the Customer or
(vi) modify the System in any way, including without limitation, developing any
software for or attaching any devices or computer programs to any equipment,
system, software or database which forms a part of or is resident on the
Designated Configuration.
d. Other Locations. Except in the event of an emergency or of a planned System
shutdown, the Customer's access to services performed by the System or to Data
Access Services at the Designated Location may be transferred to a different
location only upon the prior written consent of State Street. In the event of an
emergency or System shutdown, the Customer may use any back-up site included in
the Designated Configuration or any other back-up site agreed to by State
Street, which agreement will not be unreasonably withheld. The Customer may
secure from State Street the right to access the System or the Data Access
Services through computer and telecommunications facilities or devices complying
with the Designated Configuration at additional locations only upon the prior
written consent of State Street and on terms to be mutually agreed upon by the
parties.
e. Title. Title and all ownership and proprietary rights to the System,
including any enhancements or modifications thereto, whether or not made by
State Street, are and shall remain with State Street.
f. No Modification. Without the prior written consent of State Street, the
Customer shall not modify, enhance or otherwise create derivative works based
upon the System, nor shall the Customer reverse engineer, decompile or otherwise
attempt to secure the source code for all or any part of the System.
g. Security Procedures. The Customer shall comply with data access operating
standards and procedures and with user identification or other password control
requirements and other security procedures as may be issued from time to time by
State Street for use of the System on a remote basis and to access the Data
Access Services. The Customer shall have access only to the Customer Data and
authorized transactions agreed upon from time to time by State Street and, upon
notice from State Street, the Customer shall discontinue remote use of the
System and access to Data Access Services for any security reasons cited by
State Street; provided, that, in such event, State Street shall, for a period
not less than 180 days (or such other shorter period specified by the Customer)
after such discontinuance, assume responsibility to provide accounting services
under the terms of the Custodian Agreement.
h. Inspections. State Street shall have the right to inspect the use of the
System and the Data Access Services by the Customer and the Investment Advisor
to ensure compliance with this Agreement. The on-site inspections shall be upon
prior written notice to the Customer and the Investment Advisor and at
reasonably convenient times and frequencies so as not to result in an
unreasonable disruption of the Customer's or the Investment Advisor's business.
4. PROPRIETARY INFORMATION
a. Proprietary Information. The Customer acknowledges and State Street
represents that the System and the databases, computer programs, screen formats,
report formats, interactive design techniques, documentation and other
information made available to the Customer by State Street as part of the Data
Access Services and through the use of the System constitute copyrighted, trade
secret, or other proprietary information of substantial value to State Street.
Any and all such information provided by State Street to the Customer shall be
deemed proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). The Customer agrees that it will hold such
Proprietary Information in the strictest confidence and secure and protect it in
a manner consistent with its own procedures for the protection of its own
confidential information and to take appropriate action by instruction or
<PAGE>
agreement with its employees who are permitted access to the Proprietary
Information to satisfy its obligations hereunder. The Customer further
acknowledges that State Street shall not be required to provide the Investment
Advisor with access to the System unless it has first received from the
Investment Advisor an undertaking with respect to State Street's Proprietary
Information in the form of Attachment C to this Agreement. The Customer shall
use all commercially reasonable efforts to assist State Street in identifying
and preventing any unauthorized use, copying or disclosure of the Proprietary
Information or any portions thereof or any of the logic, formats or designs
contained therein.
b. Cooperation. Without limitation of the foregoing, the Customer shall
advise State Street immediately in the event the Customer learns or has reason
to believe that any person to whom the Customer has given access to the
Proprietary Information, or any portion thereof, has violated or intends to
violate the terms of this Agreement, and the Customer will, at its expense,
co-operate with State Street in seeking injunctive or other equitable relief in
the name of the Customer or State Street against any such person.
c. Injunctive Relief. The Customer acknowledges that the disclosure of any
Proprietary Information, or of any information which at law or equity ought to
remain confidential, will immediately give rise to continuing irreparable injury
to State Street inadequately compensable in damages at law. In addition, State
Street shall be entitled to obtain immediate injunctive relief against the
breach or threatened breach of any of the foregoing undertakings, in addition to
any other legal remedies which may be available.
d. Survival. The provisions of this Section 4 shall survive the
termination of this Agreement.
5. LIMITATION ON LIABILITY
a. Limitation on Amount and Time for Bringing Action. The Customer agrees that
any liability of State Street to the Customer or any third party arising out of
State Street's provision of Data Access Services or the System under this
Agreement shall be limited to the amount paid by the Customer for the preceding
24 months for such services. In no event shall State Street be liable to the
Customer or any other party for any special, indirect, punitive or consequential
damages even if advised of the possibility of such damages. No action,
regardless of form, arising out of this Agreement may be brought by the Customer
more than two years after the Customer has knowledge that the cause of action
has arisen.
b. Limited Warranties. NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, ARE MADE BY STATE STREET.
c. Third-Party Data. Organizations from which State Street may obtain certain
data included in the System or the Data Access Services are solely responsible
for the contents of such data, and State Street shall have no liability for
claims arising out of the contents of such third-party data, including, but not
limited to, the accuracy thereof.
d. Regulatory Requirements. As between State Street and the Customer, the
Customer shall be solely responsible for the accuracy of any accounting
statements or reports produced using the Data Access Services and the System
and the conformity thereof with any requirements of law.
e. Force Majeure. Neither party shall be liable for any costs or damages due to
delay or nonperformance under this Agreement arising out of any cause or event
beyond such party's control, including without limitation, cessation of services
hereunder or any damages resulting therefrom to the other party, or the Customer
as a result of work stoppage, power or other mechanical failure, computer virus,
natural disaster, governmental action, or communication disruption.
6. INDEMNIFICATION
The Customer agrees to indemnify and hold State Street harmless from any loss,
damage or expense including reasonable attorney's fees, (a "loss") suffered by
State Street arising from (i) the negligence or willful misconduct in the use by
the Customer of the Data Access Services or the System, including any loss
incurred by State Street resulting from a security breach at the Designated
Location or committed by the Customer's employees or agents or the Investment
Advisor and (ii) any loss resulting from incorrect Client Originated Electronic
Financial Instructions. State Street shall be entitled to rely on the validity
and authenticity of Client Originated Electronic Financial Instructions without
undertaking any further inquiry as long as such instruction is undertaken in
conformity with security procedures established by State Street from time to
time.
<PAGE>
7. FEES
Fees and charges for the use of the System and the Data Access Services and
related payment terms shall be as set forth in the Custody Fee Schedule in
effect from time to time between the parties (the "Fee Schedule"). Any tariffs,
duties or taxes imposed or levied by any government or governmental agency by
reason of the transactions contemplated by this Agreement, including, without
limitation, federal, state and local taxes, use, value added and personal
property taxes (other than income, franchise or similar taxes which may be
imposed or assessed against State Street) shall be borne by the Customer. Any
claimed exemption from such tariffs, duties or taxes shall be supported by
proper documentary evidence delivered to State Street.
8. TRAINING, IMPLEMENTATION AND CONVERSION
a. Training. State Street agrees to provide training, at a designated State
Street training facility or at the Designated Location, to the Customer's
personnel in connection with the use of the System on the Designated
Configuration. The Customer agrees that it will set aside, during regular
business hours or at other times agreed upon by both parties, sufficient time to
enable all operators of the System and the Data Access Services, designated by
the Customer, to receive the training offered by State Street pursuant to this
Agreement.
b. Installation and Conversion. State Street shall be responsible for the
technical installation and conversion ("Installation and Conversion") of the
Designated Configuration. The Customer shall have the following
responsibilities in connection with Installation and Conversion of the System:
(i) The Customer shall be solely responsible for the timely acquisition
and maintenance of the hardware and software that attach to the
Designated Configuration in order to use the Data Access Services at
the Designated Location.
(ii) State Street and the Customer each agree that they will assign
qualified personnel to actively participate during the Installation
and Conversion phase of the System implementation to enable both
parties to perform their respective obligations under this
Agreement.
9. SUPPORT
During the term of this Agreement, State Street agrees to provide the
support services set out in Attachment D to this Agreement.
10. TERM OF AGREEMENT
a. Term of Agreement. This Agreement shall become effective on the
date of its execution by State Street and shall remain in full force and effect
until terminated as herein provided.
b. Termination of Agreement. Either party may terminate this Agreement (i)
for any reason by giving the other party at least one-hundred and eighty days'
prior written notice in the case of notice of termination by State Street to the
Customer or thirty days' notice in the case of notice from the Customer to State
Street of termination; or (ii) immediately for failure of the other party to
comply with any material term and condition of the Agreement by giving the other
party written notice of termination. In the event the Customer shall cease doing
business, shall become subject to proceedings under the bankruptcy laws (other
than a petition for reorganization or similar proceeding) or shall be
adjudicated bankrupt, this Agreement and the rights granted hereunder shall, at
the option of State Street, immediately terminate with notice to the Customer.
This Agreement shall in any event terminate as to any Customer within 90 days
after the termination of the Custodian Agreement applicable to such Customer.
c. Termination of the Right to Use. Upon termination of this Agreement for any
reason, any right to use the System and access to the Data Access Services shall
terminate and the Customer shall immediately cease use of the System and the
Data Access Services. Immediately upon termination of this Agreement for any
reason, the Customer shall return to State Street all copies of documentation
and other Proprietary Information in its possession; provided, however, that in
the event that either party terminates this Agreement or the Custodian Agreement
for any reason other than the Customer's breach, State Street shall provide the
Data Access Services for a period of time and at a price to be agreed upon by
the parties.
11. MISCELLANEOUS
<PAGE>
a. Assignment; Successors. This Agreement and the rights and obligations of the
Customer and State Street hereunder shall not be assigned by either party
without the prior written consent of the other party, except that State Street
may assign this Agreement to a successor of all or a substantial portion of its
business, or to a party controlling, controlled by, or under common control with
State Street.
b. Survival. All provisions regarding indemnification, warranty,
liability and limits thereon, and confidentiality and/or protection of
proprietary rights and trade secrets shall survive the termination of this
Agreement.
c. Entire Agreement. This Agreement and the attachments hereto constitute
the entire understanding of the parties hereto with respect to the Data Access
Services and the use of the System and supersedes any and all prior or
contemporaneous representations or agreements, whether oral or written, between
the parties as such may relate to the Data Access Services or the System, and
cannot be modified or altered except in a writing duly executed by the parties.
This Agreement is not intended to supersede or modify the duties and liabilities
of the parties hereto under the Custodian Agreement or any other agreement
between the parties hereto except to the extent that any such agreement
specifically refers to the Data Access Services or the System. No single waiver
of any right hereunder shall be deemed to be a continuing waiver.
d. Severability. If any provision or provisions of this Agreement shall
be held to be invalid, unlawful, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired.
e. Governing Law. This Agreement shall be interpreted and construed in
accordance with the internal laws of The Commonwealth of Massachusetts without
regard to the conflict of laws provisions thereof.
<PAGE>
ATTACHMENT A
Multicurrency HORIZON(SM) Accounting System
System Product Description
I. The Multicurrency HORIZON(SM) Accounting System is designed to provide lot
level portfolio and general ledger accounting for SEC and ERISA type
requirements and includes the following services: 1) recording of general ledger
entries; 2) calculation of daily income and expense; 3) reconciliation of daily
activity with the trial balance, and 4) appropriate automated feeding mechanisms
to (i) domestic and international settlement systems, (ii) daily, weekly and
monthly evaluation services, (iii) portfolio performance and analytic services,
(iv) customer's internal computing systems and (v) various State Street provided
information services products.
II. GlobalQuest(R) is designed to provide customer access to the following
information maintained on The Multicurrency HORIZONSM Accounting System: 1)
cash transactions and balances; 2) purchases and sales; 3) income receivables;
4) tax refund receivables; 5) daily priced positions; 6) open trades; 7)
settlement status; 8) foreign exchange transactions; 9) trade history, and 10)
daily, weekly and monthly evaluation services.
<PAGE>
ATTACHMENT B
Designated Configuration
<PAGE>
ATTACHMENT C
Undertaking
The undersigned understands that in the course of its employment as
Investment Advisor to Kobrick-HFS Investment Trust (the "Customer") it will have
access to State Street Bank and Trust Company's ("State Street") Multicurrency
HORIZONSM Accounting System and other information systems (collectively, the
"System").
The undersigned acknowledges that the System and the databases, computer
programs, screen formats, report formats, interactive design techniques,
documentation and other information made available to the undersigned by State
Street as part of the Data Access Services provided to the Customer and through
the use of the System constitute copyrighted, trade secret, or other proprietary
information of substantial value to State Street. Any and all such information
provided by State Street to the Undersigned shall be deemed proprietary and
confidential information of State Street (hereinafter "Proprietary
Information"). The undersigned agrees that it will hold such Proprietary
Information in confidence and secure and protect it in a manner consistent with
its own procedures for the protection of its own confidential information and to
take appropriate action by instruction or agreement with its employees who are
permitted access to the Proprietary Information to satisfy its obligations
hereunder.
The undersigned will not attempt to intercept data, gain access to data in
transmission, or attempt entry into any system or files for which it is not
authorized. It will not intentionally adversely affect the integrity of the
System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System
and access to the Data Access Services shall terminate and the undersigned shall
immediately cease use of the System and the Data Access Services. Immediately
upon notice by State Street for any reason, the undersigned shall return to
State Street all copies of documentation and other Proprietary Information in
its possession.
KOBRICK-HFS, INC.
By:
Title:
Date:
<PAGE>
ATTACHMENT D
Support
During the term of this Agreement, State Street agrees to provide the
following on-going support services:
a. Telephone Support. The Customer Designated Persons may contact State
Street's Multicurrency HORIZONSM Help Desk and Customer Assistance Center
between the hours of 8 a.m. and 6 p.m. (Eastern time) on all business days for
the purpose of obtaining answers to questions about the use of the System, or to
report apparent problems with the System. From time to time, the Customer shall
provide to State Street a list of persons, not to exceed five in number, who
shall be permitted to contact State Street for assistance (such persons being
referred to as "the Customer Designated Persons").
b. Technical Support. State Street will provide technical support to
assist the Customer in using the System and the Data Access Services. The total
amount of technical support provided by State Street shall not exceed 10
resource days per year. State Street shall provide such additional technical
support as is expressly set forth in the fee schedule in effect from time to
time between the parties (the "Fee Schedule"). Technical support, including
during installation and testing, is subject to the fees and other terms set
forth in the Fee Schedule.
c. Maintenance Support. State Street shall use commercially reasonable
efforts to correct system functions that do not work according to the System
Product Description as set forth on Attachment A in priority order in the next
scheduled delivery release or otherwise as soon as is practicable.
d. System Enhancements. State Street will provide to the Customer any
enhancements to the System developed by State Street and made a part of the
System; provided that, sixty (60) days prior to installing any such enhancement,
State Street shall notify the Customer and shall offer the Customer reasonable
training on the enhancement. Charges for system enhancements shall be as
provided in the Fee Schedule. State Street retains the right to charge for
related systems or products that may be developed and separately made available
for use other than through the System.
e. Custom Modifications. In the event the Customer desires custom
modifications in connection with its use of the System, the Customer shall make
a written request to State Street providing specifications for the desired
modification. Any custom modifications may be undertaken by State Street in its
sole discretion in accordance with the Fee Schedule.
f. Limitation on Support. State Street shall have no obligation to support
the Customer's use of the System: (i) for use on any computer equipment or
telecommunication facilities which does not conform to the Designated
Configuration or (ii) in the event the Customer has modified the System in
breach of this Agreement.
<PAGE>
FUNDS TRANSFER [STATE STREET LOGO]
OPERATING GUIDELINES
1. OBLIGATION OF THE SENDER: State Street is authorized to promptly debit
client's account(s) upon the receipt of a payment order in compliance with the
selected Security Procedure chosen for funds transfer and in the amount of money
that State Street has been instructed to transfer. State Street shall execute
payment orders in compliance with the Security Procedure and with the
Client's/Investment Manager's instructions on the execution date provided that
such payment order is received by the customary deadline for processing such a
request, unless the payment order specifies a later time. All payment orders and
communications received after this time will be deemed to have been received on
the next business day.
2. SECURITY PROCEDURE: The Client acknowledges that the Security Procedure it
has designated on the Selection Form was selected by the Client from Security
Procedures offered by State Street. The Client shall restrict access to
confidential information relating to the Security Procedure to authorized
persons as communicated in writing to State Street. The Client must notify State
Street immediately if it has reason to believe unauthorized persons may have
obtained access to such information or of any change in the Client's authorized
personnel. State Street shall verify the authenticity of all instructions
according to the Security Procedure.
3. ACCOUNT NUMBERS: State Street shall process all payment orders on the basis
of the account number contained in the payment order. In the event of a
discrepancy between any name indicated on the payment order and the account
number, the account number shall take precedence and govern.
4. REJECTION: State Street reserves the right to decline to process or delay the
processing of a payment order which (a) is in excess of the collected balance in
the account to be charged at the time of State Street's receipt of such payment
order; (b) if initiating such payment order would cause State Street, in State
Street's sole judgment, to exceed any volume, aggregate dollar, network, time,
credit or similar limits upon wire transfers which are applicable to State
Street; or (c) if State Street, in good faith, is unable to satisfy itself that
the transaction has been properly authorized.
5. CANCELLATION OR AMENDMENT: State Street shall use reasonable efforts to act
on all authorized requests to cancel or amend payment orders received in
compliance with the Security Procedure provided that such requests are received
in a timely manner affording State Street reasonable opportunity to act.
However, State Street assumes no liability if the request for amendment or
cancellation cannot be satisfied.
6. ERRORS: State Street shall assume no responsibility for failure to detect any
erroneous payment order provided that State Street complies with the payment
order instructions as received and State Street complies with the Security
Procedure. The Security Procedure is established for the purpose of
authenticating payment orders only and not for the detection of errors in
payment orders.
7. INTEREST AND LIABILITY LIMITS: State Street shall assume no responsibility
for lost interest with respect to the refundable amount of any unauthorized
payment order, unless State Street is notified of the unauthorized payment order
within thirty (30) days of notification by State Street of the acceptance of
such payment order. In no event shall State Street be liable for special,
indirect or consequential damages, even if advised of the possibility of such
damages and even for failure to execute a payment order.
8. AUTOMATED CLEARING HOUSE ("ACH") CREDIT ENTRIES/PROVISIONAL PAYMENTS: When a
Client initiates or receives ACH credit and debit entries pursuant to these
Guidelines and the rules of the National Automated Clearing House Association
and the New England Clearing House Association, State Street will act as an
Originating Depository Financial Institution and/or Receiving Depository
Institution, as the case may be, with respect to such entries. Credits given by
State Street with respect to an ACH credit entry are provisional until State
Street receives final settlement for such entry from the Federal Reserve Bank.
If State Street does not receive such final settlement, the Client agrees that
State Street shall receive a refund of the amount credited to the Client in
connection with such entry, and the party making payment to the Client via such
entry shall not be deemed to have paid the amount of the entry.
9. CONFIRMATION STATEMENTS: Confirmation of State Street's execution of payment
orders shall ordinarily be provided within 24 hours notice which may be
delivered through State Street's proprietary information systems, such as, but
not limited to Horizon and GlobalQuest(R), or by facsimile or callback. The
Client must report any objections to the execution of a payment order within 30
days.
I understand and agree to the terms and conditions described above. I am
authorized to sign on behalf of each of the mutual funds or other entities named
on Schedule A attached.
EACH OF THE PARTIES NAMED ON SCHEDULE A ATTACHED HERETO
By:
Type or Print Name Authorized Signature Title Date
<PAGE>
FUNDS TRANSFER
SCHEDULE A
[STATE STREET LOGO]
Name of Management Company: Kobrick-HFS, Inc.
Fund Name(s): Kobrick-HFS Investment Trust
Kobrick-HFS Capital Fund
Kobrick-HFS Emerging Growth Fund
Authorized Signature:
Date:
<PAGE>
[STATE STREET LOGO]
FUNDS TRANSFER INSTRUCTIONS
TELEPHONE CONFIRMATION
Client / Investment Manager Kobrick-HFS, Inc. Company
Authorized Initiators
Please Type or Print
Please provide a listing of your staff members who are currently authorized to
INITIATE wire transfer instructions to State Street:
NAME TITLE SPECIMEN SIGNATURE
Authorized Verifiers
Please Type or Print
Please provide a listing of your staff members who will be CALLED BACK to verify
the initiation of repetitive wires of $10 million or more and all non repetitive
wire instructions:
NAME CALLBACK PHONE NUMBER DOLLAR LIMITATION (IF ANY)
Type or Print Name Authorized Signature
Title Date
<PAGE>
[STATE STREET LOGO]
FUNDS TRANSFER SECURITY PROCEDURES
IMPORTANT: SIGNATURE REQUIRED ON THE REVERSE SIDE
Selection Form
Please select one or more of the funds transfer security procedures indicated
below.
<*>SWIFT
SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a
cooperative society owned and operated by member financial institutions that
provides telecommunication services for its membership. Participation is limited
to securities brokers and dealers, clearing and depository institutions,
recognized exchanges for securities, and investment management institutions.
SWIFT provides a number of security features through encryption and
authentication to protect against unauthorized access, loss or wrong delivery of
messages, transmission errors, loss of confidentiality and fraudulent changes to
messages. SWIFT is considered to be one of the most secure and efficient
networks for the delivery of funds transfer instructions.
Selection of this security procedure would be most appropriate for existing
SWIFT members.
<*>Standing Instructions
Standing Instructions may be used where funds are transferred to a broker on the
Client's established list of brokers with which it engages in foreign exchange
transactions. Only the date, the currency and the currency amount are variable.
In order to establish this procedure, State Street will send to the Client a
list of the brokers that State Street has determined are used by the Client. The
Client will confirm the list in writing, and State Street will verify the
written confirmation by telephone. Standing Instructions will be subject to a
mutually agreed upon limit. If the payment order exceeds the established limit,
the Standing Instruction will be confirmed by telephone prior to execution.
<*>Remote Batch Transmission
Wire transfer instructions are delivered via Computer-to-Computer (CPU-CPU) data
communications between the Client and State Street. Security procedures include
encryption and or the use of a test key by those individuals authorized as
Automated Batch Verifiers.
Clients selecting this option should have an existing facility for completing
CPU-CPU transmissions. This delivery mechanism is typically used for high-volume
business.
<*>Global Horizon Interchangesm Funds Transfer Service Global Horizon
Interchange Funds Transfer Service (FTS) is a State Street proprietary
microcomputer-based wire initiation system. FTS enables Clients to
electronically transmit authenticated Fedwire, CHIPS or internal book transfer
instructions to State
Street.
This delivery mechanism is most appropriate for Clients with a low-to-medium
number of transactions (5-75 per day), allowing Clients to enter, batch, and
review wire transfer instructions on their PC prior to release to State Street.
<*>Telephone Confirmation (Callback)
Telephone confirmation will be used to verify all non-repetitive funds transfer
instructions received via untested facsimile or phone. This procedure requires
Clients to designate individuals as authorized initiators and authorized
verifiers. State Street will verify that the instruction contains the signature
of an authorized person and prior to execution, will contact someone other than
the originator at the Client's location to authenticate the instruction.
Selection of this alternative is appropriate for Clients who do not have the
capability to use other security procedures.
<*>Repetitive Wires
For situations where funds are transferred periodically (minimum of one
instruction per calendar quarter) from an existing authorized account to the
same payee (destination bank and account number) and only the date and currency
amount are variable, a repetitive wire may be implemented. Repetitive wires will
be subject to a mutually agreed upon limit. If the payment order exceeds the
established limit, the instruction will be confirmed by telephone prior to
execution. Telephone confirmation is used to establish this process. Repetitive
wire instructions must be reconfirmed annually.
This alternative is recommended whenever funds are frequently transferred
between the same two accounts.
<*>Transfers Initiated by Facsimile
The Client faxes wire transfer instructions directly to State Street Mutual Fund
Services. Standard security procedure requires the use of a random number test
key for all transfers. Every six months the Client receives test key logs from
State Street. The test key contains alpha-numeric characters, which the Client
puts on each document faxed to State Street. This procedure ensures all wire
instructions received via fax are authorized by the Client.
We provide this option for Clients who wish to batch wire instructions and
transmit these as a group to State Street Mutual Fund Services once or several
times a day.
IMPORTANT: SIGNATURE REQUIRED ON THE REVERSE SIDE
<PAGE>
FUNDS TRANSFER SECURITY PROCEDURES
<*>Automated Clearing House (ACH)
State Street receives an automated transmission or a magnetic tape from a Client
for the initiation of payment (credit) or collection (debit) transactions
through the ACH network. The transactions contained on each transmission or tape
must be authenticated by the Client. Clients using ACH must select one or more
of the following delivery options:
<*>Global Horizon Interchange Automated Clearing House Service
Transactions are created on a microcomputer, assembled into batches and
delivered to State Street via fully authenticated electronic transmissions in
standard NACHA formats.
<*>Transmission from Client PC to State Street Mainframe with Telephone Callback
<*>Transmission from Client Mainframe to State Street Mainframe with Telephone
Callback
<*>Transmission from DST Systems to State Street Mainframe with Encryption
<*>Magnetic Tape Delivered to State Street with Telephone Callback
State Street is hereby instructed to accept funds transfer instructions only via
the delivery methods and security procedures indicated. The selected delivery
methods and security procedure(s) will be effective for
payment orders initiated by our organization.
I am authorized to sign below on behalf of each of the mutual funds or other
entities named in Schedule A attached.
EACH OF THE PARTIES NAMED ON SCHEDULE A ATTACHED HERETO
By:
Type or Print Name Authorized Signature Title Date
Key Contact Information
Whom shall we contact to implement your selection(s)?
CLIENT OPERATIONS CONTACT ALTERNATE CONTACT
Name Name
Address Address
City/State/Zip Code City/State/Zip Code
Telephone Number Telephone Number
Facsimile Number Facsimile Number
SWIFT Number
Telex Number
<PAGE>
STATE STREET BANK AND TRUST COMPANY
Global Custody and Account Fee Schedule
================================================================================
- --------------------------------------------------------------------------------
GLOBAL CUSTODY
- --------------------------------------------------------------------------------
Maintain custody of fund assets. Settle portfolio purchases and sales. Report
buy and sell fails. Determine and collect portfolio income. Make cash
disbursements and report cash transactions in local and base currency. Withhold
foreign taxes. File foreign tax reclaims. Monitor corporate actions. Report
portfolio positions.
A. Country Grouping - Holdings
================================================================================
Group A Group B Group C Group D Group E Group F
================================================================================
USA Australia Austria Bolivia* Botswana Cyprus
- --------------------------------------------------------------------------------
Belgium Argentina Chile Bangladesh Ivory
Coast
- --------------------------------------------------------------------------------
Canada Brazil China Colombia Uruguay
- --------------------------------------------------------------------------------
Denmark Finland Czech Republic Ghana
- --------------------------------------------------------------------------------
Euroclear Indonesia Ecuador* Hungary
- --------------------------------------------------------------------------------
France Ireland Egypt India
- --------------------------------------------------------------------------------
Germany Philippine Greece Jamaica*
- --------------------------------------------------------------------------------
Hong Kong Portugal Israel Jordan
- --------------------------------------------------------------------------------
Italy So. Korea Luxembourg Kenya
- --------------------------------------------------------------------------------
Japan Spain Poland Mauritius
- --------------------------------------------------------------------------------
Malaysia Sweden Slovakia* Morocco
- --------------------------------------------------------------------------------
Mexico Thailand Sri Lanka Namibia
- --------------------------------------------------------------------------------
Netherlands Taiwan Pakistan
- --------------------------------------------------------------------------------
New Zealand Trinidad and Peru
Tobago*
- --------------------------------------------------------------------------------
Norway Turkey Russia
- --------------------------------------------------------------------------------
Singapore Tunisia*
- --------------------------------------------------------------------------------
So. Africa Venezuela
- --------------------------------------------------------------------------------
Switzerland Zambia
- --------------------------------------------------------------------------------
U.K. Zimbabwe
================================================================================
*Not 17f-5 eligible at this time.
<PAGE>
B. Country Grouping - Transaction
================================================================================
Group A Group B Group C Group D Group E Group F
================================================================================
USA Canada Australia Austria Brazil Bangladesh
- --------------------------------------------------------------------------------
Euroclear France Argentina Chile Botswana
- --------------------------------------------------------------------------------
Germany Hong Kong Belgium China Cyprus
- --------------------------------------------------------------------------------
Japan Italy Bolivia* Colombia Ghana
- --------------------------------------------------------------------------------
New Mexico Denmark Czech Kenya
Zealand Republic
- --------------------------------------------------------------------------------
So. Africa Netherlands Ecuador* Egypt India
- --------------------------------------------------------------------------------
U.K. Norway Finland Greece Ivory
Coast
- --------------------------------------------------------------------------------
Spain Hungary Jamaica* Russia
- --------------------------------------------------------------------------------
Sweden Indonesia Jordan Zambia
- --------------------------------------------------------------------------------
Switzerland Ireland Mauritius Zimbabwe
- --------------------------------------------------------------------------------
Thailand Malaysia Morocco
- --------------------------------------------------------------------------------
Israel Namibia
- --------------------------------------------------------------------------------
Luxembourg Pakistan
- --------------------------------------------------------------------------------
Singapore Philippines
- --------------------------------------------------------------------------------
So. Korea Peru
- --------------------------------------------------------------------------------
Taiwan Poland
- --------------------------------------------------------------------------------
Trinidad and Portugal
Tobago*
- --------------------------------------------------------------------------------
Turkey Slovakia*
- --------------------------------------------------------------------------------
Sri Lanka
- --------------------------------------------------------------------------------
Tunisia*
- --------------------------------------------------------------------------------
Uruguay
- --------------------------------------------------------------------------------
Venezuela
================================================================================
*Not 17f-5 eligible at this time.
C. Holdings Charges in Basis Points (Annual Fee)
================================================================================
Group A Group B Group C Group D Group E Group F
================================================================================
Refer to Domestic Fee 5.0 15.0 35.0 45.0 75.0
Schedule
================================================================================
<PAGE>
D. Transaction Charges
================================================================================
Group A Group B Group C Group D Group E Group F
================================================================================
Refer to Domestic Fee Schedule $25 $50 $80 $150 $200
================================================================================
<PAGE>
STATE STREET BANK AND TRUST COMPANY
Domestic Custody and Accounting Fee Schedule
================================================================================
KOBRICK - HFS INVESTMENT TRUST
- --------------------------------------------------------------------------------
I. CUSTODY, PORTFOLIO AND FUND ACCOUNTING
- --------------------------------------------------------------------------------
Custody: Maintain custody of fund assets. Settle portfolio purchases and
sales. Report buy and sell fails. Determine and collect portfolio income.
Make cash disbursements and report cash transactions. Monitor corporate
actions. Report portfolio positions.
Portfolio and Fund Accounting: Maintain investment ledgers, provide
selected portfolio transactions, position and income reports. Maintain
general ledger and capital stock accounts. Prepare daily trial balance.
Calculate net asset value daily. Provide selected general ledger reports.
Securities yield or market value quotations will be provided to State
Street via State Street's Automated Pricing System (see Section V) or by
the fund.
The fee shown below is an annual charge, billed and payable monthly, based
on average monthly net assets.
ANNUAL FEES PER PORTFOLIO
Fund Net Assets
First $100 million 4 basis points
Next $100 million 2 basis points
Excess 1 basis point
Minimum monthly charges $3,000
The minimum per fund will be applied at the rate of 1/12 in month one;
2/12 in month two increasing incrementally per month until the full
minimum is in effect in month twelve.
- --------------------------------------------------------------------------------
II. PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
State Street Bank Repos $7.00
DTC or Fed Book Entry $10.00
New York Physical Settlements $25.00
Maturity Collections $8.00
PTC Purchase, Sale, Deposit or Withdrawal $20.00
Per Paydown $10.00
All Other Trades $25.00
<PAGE>
Kobrick - HFS Investment Trust
Domestic Custody and Accounting Fee Schedule
Page 2
- --------------------------------------------------------------------------------
III. FUTURES AND OPTIONS
- --------------------------------------------------------------------------------
Option charge for each option written or closing contract,
per issue, per broker $25.00
Option expiration or exercised charge, per issue, per broker $15.00
Futures transactions - no security movement $8.00
- --------------------------------------------------------------------------------
IV. HOLDINGS CHARGE
- --------------------------------------------------------------------------------
For each issue maintained - monthly charge $5.00
- --------------------------------------------------------------------------------
V. NAVIGATOR AUTOMATED PRICING
- --------------------------------------------------------------------------------
Monthly Base Charge $375.00
Monthly Quote Charge:
o Municipal Bonds via Kenny/S&P or Muller Data $16.00
o Corporate, Municipal, Convertible, Government Bonds
and Adjustable Rate Preferred Stocks via IDSI $13.00
o Government, Corporate Bonds via Kenny/S&P or Muller $11.00
o Government, Corporate and Convertible Bonds
via Merrill Lynch $11.00
o Foreign Bonds via Extel $10.00
o Options, Futures and Private Placements $6.00
o Listed Equities (including International) and OTC Equities $6.00
For billing purposes, the monthly quote charge will be based on the
average number of positions in the portfolio at month end.
- --------------------------------------------------------------------------------
VI. SPECIAL SERVICES
- --------------------------------------------------------------------------------
Fees for activities of a non-recurring nature such as fund consolidations
or reorganizations, extraordinary security shipments and the preparation
of special reports will be subject to negotiation. Fees for SEC yield
calculation, fund administration activities, self-directed securities
lending transactions, SaFiRe financial reporting, multiple class and
core/feeder accounting and other special items not listed in this fee
schedule will be negotiated separately.
- --------------------------------------------------------------------------------
VII. OUT-OF-POCKET EXPENSES
- --------------------------------------------------------------------------------
A billing for the recovery of applicable out-of-pocket expenses will be
made as of the end of each month. Out-of-pocket expenses include, but are
not limited to the following:
o Telephone o Transfer Fees
o Wire Charges ($5.25 in and $5 out) o Sub-custodian Charges
o Postage and Insurance o Price Waterhouse Audit Letter
o Courier Service o Federal Reserve Fee for return
<PAGE>
Kobrick - HFS Investment Trust
Domestic Custody and Accounting Fee Schedule
Page 3
o Duplicating check items over $2,500 ($4.25 each)
o Legal Fees GNMA Transfer ($15 each)
o Supplies Related to Fund Records PTC Deposit/Withdrawal for same
o Rush Transfer ($8 each) day turnaround ($50 each)
o Items held in Street name over
record date at the request of
traders ($50 each)
- --------------------------------------------------------------------------------
VIII. PAYMENT
- --------------------------------------------------------------------------------
The above fees will be charged against the fund's custodian checking
account five (5) days after the invoice is mailed to fund's offices.
KOBRICK - HFS INVESTMENT TRUST STATE STREET BANK AND TRUST CO.
By: By:
------------------------------ ----------------------------
Title: Title:
------------------------------ ----------------------------
Date: Date:
------------------------------ ----------------------------
ADMINISTRATION AGREEMENT
Agreement dated as of , 199 by and between State Street Bank and
Trust Company, a Massachusetts trust company (the "Administrator"), and
Kobrick-HFS Investment Trust (the "Fund").
WHEREAS, the Fund is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to retain the Administrator to furnish
certain administrative services to the Fund, and the Administrator is willing to
furnish such services, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto agree as follows:
1. APPOINTMENT OF ADMINISTRATOR
The Fund hereby appoints the Administrator to act as administrator
with respect to the Fund for purposes of providing certain administrative
services for the period and on the terms set forth in this Agreement. The
Administrator accepts such appointment and agrees to render the services stated
herein.
The Fund will initially consist of the portfolio(s) and/or class(es)
of shares (each an "Investment Fund") listed in Schedule A to this Agreement. In
the event that the Fund establishes one or more additional Investment Funds with
respect to which it wishes to retain the Administrator to act as administrator
hereunder, the Fund shall notify the Administrator in writing. Upon written
acceptance by the Administrator, such Investment Fund shall become subject to
the provisions of this Agreement to the same extent as the existing Investment
Funds, except to the extent that such provisions (including those relating to
the compensation and expenses payable by the Fund and its Investment Funds) may
be modified with respect to each additional Investment Fund in writing by the
Fund and the Administrator at the time of the addition of the Investment Fund.
2. DELIVERY OF DOCUMENTS
The Fund will promptly deliver to the Administrator copies of each
of the following documents and all future amendments and supplements, if any:
a. The Fund's charter document and by-laws;
b. The Fund's currently effective registration statement under
the Securities Act of 1933, as amended (the "1933 Act"), and
the 1940 Act and the Fund's Prospectus(es) and Statement(s) of
Additional Information relating to all Investment Funds and
all amendments and supplements thereto as in effect from time
to time;
c. Certified copies of the resolutions of the Board of Trustees
of the Fund (the "Board") authorizing (1) the Fund to enter
into this Agreement and (2)
<PAGE>
certain individuals on behalf of the Fund to give instructions
to the Administrator pursuant to this Agreement;
d. A copy of the investment advisory agreement between the Fund
and its investment adviser; and
e. Such other certificates, documents or opinions which the
Administrator may, in its reasonable discretion, deem
necessary or appropriate in the proper performance of its
duties.
3. REPRESENTATION AND WARRANTIES OF THE ADMINISTRATOR
The Administrator represents and warrants to the Fund that:
a. It is a Massachusetts trust company, duly organized, existing
and in good standing under the laws of The Commonwealth of
Massachusetts;
b. It has the corporate power and authority to carry on its
business in The Commonwealth of Massachusetts;
c. All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement;
d. No legal or administrative proceedings have been instituted or
threatened which would impair the Administrator's ability to
perform its duties and obligations under this Agreement; and
e. Its entrance into this Agreement shall not cause a material
breach or be in material conflict with any other agreement or
obligation of the Administrator or any law or regulation
applicable to it.
4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to the Administrator that:
a. It is a business trust, duly organized and existing and in
good standing under the laws of The Commonwealth of
Massachusetts;
b. It has the corporate power and authority under applicable laws
and by its charter and by-laws to enter into and perform this
Agreement;
c. All requisite proceedings have been taken to authorize it to
enter into and perform this Agreement;
d. It is an investment company properly registered under the 1940
Act;
e. A registration statement under the 1933 Act and the 1940 Act
has been filed and will be effective and remain effective
during the term of this Agreement. The Fund also warrants to
the Administrator that as of the effective date of
2
<PAGE>
this Agreement, all necessary filings under the securities
laws of the states in which the Fund offers or sells its
shares have been made;
f. No legal or administrative proceedings have been instituted or
threatened which would impair the Fund's ability to perform
its duties and obligations under this Agreement;
g. Its entrance into this Agreement shall not cause a material
breach or be in material conflict with any other agreement or
obligation of the Fund or any law or regulation applicable to
it; and
h. As of the close of business on the date of this Agreement, the
Fund is authorized to issue an unlimited number of shares of
beneficial interest.
5. ADMINISTRATION SERVICES
The Administrator shall provide the following services, in each
case, subject to the control, supervision and direction of the Fund and the
review and comment by the Fund's auditors and legal counsel and in accordance
with procedures which may be established from time to time between the Fund and
the Administrator:
a. Oversee the determination and publication of the Fund's net
asset value in accordance with the Fund's policy as adopted
from time to time by the Board;
b. Oversee the maintenance by the Fund's custodian of certain
books and records of the Fund as required under Rule 31a-1(b)
of the 1940 Act;
c. Prepare the Fund's federal, state and local income tax returns
for review by the Fund's independent accountants and filing by
the Fund's treasurer;
d. Review calculation, submit for approval by officers of the
Fund and arrange for payment of the Fund's expenses;
e. Prepare for review and approval by officers of the Fund
financial information for the Fund's semi-annual and annual
reports, proxy statements and other communications required or
otherwise to be sent to Fund shareholders, and arrange for the
printing and dissemination of such reports and communications
to shareholders;
f. Prepare for review by an officer of and legal counsel for the
Fund the Fund's periodic financial reports required to be
filed with the Securities and Exchange Commission ("SEC") on
Form N-SAR and financial information required by Form N-1A and
such other reports, forms or filings as may be mutually agreed
upon;
g. Prepare reports relating to the business and affairs of the
Fund as may be mutually agreed upon and not otherwise prepared
by the Fund's investment adviser, custodian, legal counsel or
independent accountants;
3
<PAGE>
h. Make such reports and recommendations to the Board concerning
the performance of the independent accountants as the Board
may reasonably request;
i. Make such reports and recommendations to the Board concerning
the performance and fees of the Fund's custodian and transfer
and dividend disbursing agent ("Transfer Agent") as the Board
may reasonably request or deems appropriate;
j. Oversee and review calculations of fees paid to the Fund's
investment adviser, custodian and Transfer Agent;
k. Consult with the Fund's officers, independent accountants,
legal counsel, custodian and Transfer Agent in establishing
the accounting policies of the Fund;
l. Respond to, or refer to the Fund's officers or Transfer Agent,
shareholder inquiries relating to the Fund;
m. Provide periodic testing of portfolios to assist the Fund's
investment adviser in complying with Internal Revenue Code
mandatory qualification requirements, the requirements of the
1940 Act and Fund prospectus limitations as may be mutually
agreed upon;
n. Perform Blue Sky services pursuant to the specific
instructions of the Fund and as detailed in Schedule C to this
Agreement.
The Administrator shall provide the office facilities and the personnel required
by it to perform the services contemplated herein.
6. FEES; EXPENSES; EXPENSE REIMBURSEMENT
The Administrator shall receive from the Fund such compensation for
the Administrator's services provided pursuant to this Agreement as may be
agreed to from time to time in a written fee schedule approved by the parties
and initially set forth in Schedule B to this Agreement. The fees are accrued
daily and billed monthly and shall be due and payable upon receipt of the
invoice. Upon the termination of this Agreement before the end of any month, the
fee for the part of the month before such termination shall be prorated
according to the proportion which such part bears to the full monthly period and
shall be payable upon the date of termination of this Agreement. In addition,
the Fund shall reimburse the Administrator for its out-of-pocket costs incurred
in connection with this Agreement.
The Fund agrees promptly to reimburse the Administrator for any
equipment and supplies specially ordered by or for the Fund through the
Administrator and for any other expenses not contemplated by this Agreement that
the Administrator may incur on the Fund's behalf at the Fund's request or with
the Fund's consent.
The Fund will bear all expenses that are incurred in its operation
and not specifically assumed by the Administrator. Expenses to be borne by the
Fund, include, but are not limited to: organizational expenses; cost of services
of independent accountants and outside legal and tax counsel
4
<PAGE>
(including such counsel's review of the Fund's registration statement, proxy
materials, federal and state tax qualification as a regulated investment company
and other reports and materials prepared by the Administrator under this
Agreement); cost of any services contracted for by the Fund directly from
parties other than the Administrator; cost of trading operations and brokerage
fees, commissions and transfer taxes in connection with the purchase and sale of
securities for the Fund; investment advisory fees; taxes, insurance premiums and
other fees and expenses applicable to its operation; costs incidental to any
meetings of shareholders including, but not limited to, legal and accounting
fees, proxy filing fees and the costs of preparation, printing and mailing of
any proxy materials; costs incidental to Board meetings, including fees and
expenses of Board members; the salary and expenses of any officer,
director\trustee or employee of the Fund; costs incidental to the preparation,
printing and distribution of the Fund's registration statements and any
amendments thereto and shareholder reports; cost of typesetting and printing of
prospectuses; cost of preparation and filing of the Fund's tax returns, Form
N-1A and Form N-SAR, and all notices, registrations and amendments associated
with applicable federal and state tax and securities laws; all applicable
registration fees and filing fees required under federal and state securities
laws; fidelity bond and directors' and officers' liability insurance; and cost
of independent pricing services used in computing the Fund's net asset value.
The Administrator is authorized to and may employ or associate with such
person or persons as the Administrator may deem desirable to assist it in
performing its duties under this Agreement; provided, however, that the
compensation of such person or persons shall be paid by the Administrator and
that the Administrator shall be as fully responsible to the Fund for the acts
and omissions of any such person or persons as it is for its own acts and
omissions.
7. INSTRUCTIONS AND ADVICE
At any time, the Administrator may apply to any officer of the Fund
for instructions and may consult with its own legal counsel or outside counsel
for the Fund or the independent accountants for the Fund at the expense of the
Fund, with respect to any matter arising in connection with the services to be
performed by the Administrator under this Agreement. The Administrator shall not
be liable, and shall be indemnified by the Fund, for any action taken or omitted
by it in good faith in reliance upon any such instructions or advice or upon any
paper or document believed by it to be genuine and to have been signed by the
proper person or persons. The Administrator shall not be held to have notice of
any change of authority of any person until receipt of written notice thereof
from the Fund. Nothing in this paragraph shall be construed as imposing upon the
Administrator any obligation to seek such instructions or advice, or to act in
accordance with such advice when received.
8. LIMITATION OF LIABILITY AND INDEMNIFICATION
The Administrator shall be responsible for the performance of only
such duties as are set forth in this Agreement and, except as otherwise provided
under Section 6, shall have no responsibility for the actions or activities of
any other party, including other service providers. The Administrator shall have
no liability for any error of judgment or mistake of law or for any loss or
damage resulting from the performance or nonperformance of its duties hereunder
unless solely caused by or resulting from the gross negligence or willful
misconduct of the Administrator, its officers or employees. The Administrator
shall not be liable for any special, indirect, incidental, or consequential
damages of any kind whatsoever (including, without limitation, attorneys' fees)
under any provision of this Agreement or for any such damages arising out of any
act or failure to act
5
<PAGE>
hereunder. In any event, the Administrator's liability under this Agreement
shall be limited to its total annual compensation earned and fees paid hereunder
during the preceding twelve months for any liability or loss suffered by the
Fund including, but not limited to, any liability relating to qualification of
the Fund as a regulated investment company or any liability relating to the
Fund's compliance with any federal or state tax or securities statute,
regulation or ruling.
The Administrator shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its control,
including without limitation, work stoppage, power or other mechanical failure,
computer virus, natural disaster, governmental action or communication
disruption, nor shall any such failure or delay give the Fund the right to
terminate this Agreement.
The Fund shall indemnify and hold the Administrator harmless from
all loss, cost, damage and expense, including reasonable fees and expenses for
counsel, incurred by the Administrator resulting from any claim, demand, action
or suit in connection with the Administrator's acceptance of this Agreement, any
action or omission by it in the performance of its duties hereunder, or as a
result of acting upon any instructions reasonably believed by it to have been
duly authorized by the Fund, provided that this indemnification shall not apply
to actions or omissions of the Administrator, its officers or employees in cases
of its or their own gross negligence or willful misconduct.
The indemnification contained herein shall survive the termination
of this Agreement.
9. CONFIDENTIALITY
The Administrator agrees that, except as otherwise required by law
or in connection with any required disclosure to a banking or other regulatory
authority, it will keep confidential all records and information in its
possession relating to the Fund or its shareholders or shareholder accounts and
will not disclose the same to any person except at the request or with the
written consent of the Fund.
10. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS; RECORDS
The Fund assumes full responsibility for complying with all
securities, tax, commodities and other laws, rules and regulations applicable to
it.
In compliance with the requirements of Rule 31a-3 under the 1940
Act, the Administrator agrees that all records which it maintains for the Fund
shall at all times remain the property of the Fund, shall be readily accessible
during normal business hours, and shall be promptly surrendered upon the
termination of the Agreement or otherwise on written request. The Administrator
further agrees that all records which it maintains for the Fund pursuant to Rule
31a-1 under the 1940 Act will be preserved for the periods prescribed by Rule
31a-2 under the 1940 Act unless any such records are earlier surrendered as
provided above. Records shall be surrendered in usable machine-readable form.
11. SERVICES NOT EXCLUSIVE
The services of the Administrator to the Fund are not to be deemed
exclusive, and the Administrator shall be free to render similar services to
others. The Administrator shall be deemed to be an independent contractor and
shall, unless otherwise expressly provided herein or authorized
6
<PAGE>
by the Fund from time to time, have no authority to act or represent the Fund in
any way or otherwise be deemed an agent of the Fund.
12. TERM, TERMINATION AND AMENDMENT
This Agreement shall become effective on the date the Fund first
accepts money for investment and shall remain in full force and effect for an
initial term of three years. This Agreement shall automatically continue in full
force and effect after such initial term unless either party terminates this
Agreement by written notice to the other party at least sixty (60) days prior to
the expiration of the initial term. Either party may terminate this Agreement at
any time after the initial term upon at least sixty (60) days' prior written
notice to the other party. Termination of this Agreement with respect to any
given Investment Fund shall in no way affect the continued validity of this
Agreement with respect to any other Investment Fund. Upon termination of this
Agreement, the Fund shall pay to the Administrator such compensation and any
reimbursable expenses as may be due under the terms hereof as of the date of
such termination, including reasonable out-of-pocket expenses associated with
such termination. Upon termination of this Agreement by the Fund prior to the
expiration of the initial three-year term, the Fund shall reimburse the
Administrator for any fees waived by the administrator. This Agreement may be
modified or amended from time to time by mutual written agreement of the parties
hereto.
13. NOTICES
Any notice or other communication authorized or required by this
Agreement to be given to either party shall be in writing and deemed to have
been given when delivered in person or by confirmed facsimile, or posted by
certified mail, return receipt requested, to the following address (or such
other address as a party may specify by written notice to the other): if to the
Fund: Kobrick-HFS Investment Trust, 101 Federal Street, Boston, Massachusetts
02111, Attn: Richard Goldman, fax: ; if to the Administrator: State Street Bank
and Trust Company, 1776 Heritage Drive, North Quincy, Massachusetts 02171, Attn:
Fund Administration Legal Department.
14. NON-ASSIGNABILITY
This Agreement shall not be assigned by either party hereto without
the prior consent in writing of the other party, except that the Administrator
may assign this Agreement to a successor of all or a substantial portion of its
business, or to a party controlling, controlled by or under common control with
the Administrator.
15. SUCCESSORS
This Agreement shall be binding on and shall inure to the benefit of
the Fund and the Administrator and their respective successors and permitted
assigns.
16. ENTIRE AGREEMENT
This Agreement contains the entire understanding between the parties
hereto with respect to the subject matter hereof and supersedes all previous
representations, warranties or commitments regarding the services to be
performed hereunder whether oral or in writing.
17. WAIVER
7
<PAGE>
The failure of a party to insist upon strict adherence to any term
of this Agreement on any occasion shall not be considered a waiver nor shall it
deprive such party of the right thereafter to insist upon strict adherence to
that term or any term of this Agreement. Any waiver must be in writing signed by
the waiving party.
18. SEVERABILITY
If any provision of this Agreement is invalid or unenforceable, the
balance of the Agreement shall remain in effect, and if any provision is
inapplicable to any person or circumstance it shall nevertheless remain
applicable to all other persons and circumstances.
19. GOVERNING LAW
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
20. REPRODUCTION OF DOCUMENTS
This Agreement and all schedules, exhibits, attachments and
amendments hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
KOBRICK-HFS INVESTMENT TRUST
By:
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
By:
Name: Kathleen C. Cuocolo
Title: Senior Vice President
8
<PAGE>
ADMINISTRATION AGREEMENT
KOBRICK-HFS INVESTMENT TRUST
SCHEDULE A
Listing of Investment Funds and Authorized Shares
Investment Fund Authorized Shares
Kobrick-HFS Capital Fund
Kobrick-HFS Emerging Growth Fund
9
<PAGE>
ADMINISTRATION AGREEMENT
KOBRICK-HFS INVESTMENT TRUST
SCHEDULE B
Fees and Expenses
10
<PAGE>
ADMINISTRATION AGREEMENT
KOBRICK-HFS INVESTMENT TRUST
SCHEDULE C
Notice Filing with
State Securities Administrators
At the specific direction of the Fund, the Administrator will prepare required
documentation and make Notice Filings in accordance with the securities laws of
each jurisdiction in which Fund shares are to be offered or sold pursuant to
instructions given to the Administrator by the Fund.
The Fund shall be solely responsible for the determination (i) of those
jurisdictions in which Notice Filings are to be submitted and (ii) the number of
Fund shares to be permitted to be sold in each such jurisdiction. In the event
that the Administrator becomes aware of (a) the sale of Fund shares in a
jurisdiction in which no Notice Filing has been made or (b) the sale of Fund
shares in excess of the number of Fund shares permitted to be sold in such
jurisdiction, the Administrator shall report such information to the Fund, and
it shall be the Fund's responsibility to determine appropriate corrective action
and instruct the Administrator with respect thereto.
The Blue Sky services shall consist of the following:
1. Filing of Fund's Initial Notice Filings, as directed by the
Fund;
2. Filing of Fund's renewals and amendments as required;
3. Filing of amendments to the Fund's registration statement
where required;
4. Filing Fund sales reports where required;
5. Payment at the expense of the Fund of all Fund Notice
Filing fees;
6. Filing the Prospectuses and Statements of Additional
Information and any amendments or supplements thereto where
required;
7. Filing of annual reports and proxy statements where
required; and
8. The performance of such additional services as the
Administrator and the Fund may agree upon in writing.
Unless otherwise specified in writing by the Administrator, Blue Sky services by
the Administrator shall not include determining the availability of exemptions
under a jurisdiction's blue sky law. Any such determination shall be made by the
Fund or its legal counsel. In connection with the services described herein, the
Fund shall issue in favor of the Administrator a power of attorney to submit
Notice Filings on behalf of the Fund, which power of attorney shall be
substantially in the form of Exhibit I attached hereto.
11
<PAGE>
EXHIBIT I
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, as of , 199 that the
undersigned KOBRICK-HFS INVESTMENT TRUST with principal offices at 101 Federal
Street, Boston, Massachusetts (individually the "Fund") makes, constitutes, and
appoints STATE STREET BANK AND TRUST COMPANY (the "Administrator") with
principal offices at 225 Franklin Street, Boston, Massachusetts its lawful
attorney-in-fact for it to do as if it were itself acting, the following:
1. REGISTRATION OF FUND SHARES. The power to register shares of the Fund in
each jurisdiction in which Fund shares are offered or sold and in
connection therewith the power to prepare, execute, and deliver and file
any and all Fund applications, including without limitation, applications
to register shares, consents, including consents to service of process,
reports, including without limitation, all periodic reports, claims for
exemption, or other documents and instruments now or hereafter required or
appropriate in the judgment of the Administrator in connection with the
registration of Fund shares.
2. AUTHORIZED SIGNERS. Pursuant to this Limited Power of Attorney,
individuals holding the titles of Officer, Blue Sky Manager, or Senior
Blue Sky Administrator at the Administrator shall have authority to act on
behalf of the Fund with respect to item 1 above.
The execution of this limited power of attorney shall be deemed coupled with an
interest and shall be revocable only upon receipt by the Administrator of such
termination of authority. Nothing herein shall be construed to constitute the
appointment of the Administrator as or otherwise authorize the Administrator to
act as an officer, director or employee of the Fund.
IN WITNESS WHEREOF, the Fund has caused this Agreement to be executed in its
name and on its behalf by and through its duly authorized officer, as of the
date first written above.
KOBRICK-HFS INVESTMENT TRUST
By:
- ---------------------
Name:
- ---------------------
Title:
- ---------------------
12
<PAGE>
STATE STREET BANK AND TRUST COMPANY
Fund Administration Fee Schedule
- --------------------------------------------------------------------------------
KOBRICK - HFS INVESTMENT TRUST
- --------------------------------------------------------------------------------
I. FUND ADMINISTRATION SERVICES
- --------------------------------------------------------------------------------
Annual Fee
Average Assets Expressed in Basis Points: 1/100 of 1%
Administration
First $200 million 8
Next $200 million 6
Thereafter 4
Minimum/Fund $85,000
The basis points will be applied on a total complex basis.
The minimum per fund will be applied at the rate of 1/12 in month one
($590/fund), 2/12 in month two increasing incrementally per month until
the full minimum is in effect in month twelve.
Administration services include Treasurer's office support, financial
reporting, monthly compliance, tax reporting, and Blue Sky compliance
support.
- --------------------------------------------------------------------------------
II. MULTIPLE CLASSES OF SHARES
- --------------------------------------------------------------------------------
An additional $10,000 annual fee will be applied for each class of shares,
excluding the initial class of shares, if more than one class of shares is
operational in a fund.
- --------------------------------------------------------------------------------
III. BLUE SKY ADMINISTRATION SERVICES
- --------------------------------------------------------------------------------
The base blue sky fee is included. An additional fee of $2,500 will be
applied for each additional class of shares, excluding the initial class
of shares, if more than one class of shares is operational in a fund.
- --------------------------------------------------------------------------------
IV. LEVERAGE
- --------------------------------------------------------------------------------
An additional $10,000 annual fee will be applied if a fund engages in
leverage transactions other than temporary borrowing.
- --------------------------------------------------------------------------------
V. OUT-OF-POCKET EXPENSES - INCLUDE, BUT MAY NOT BE LIMITED TO:
- --------------------------------------------------------------------------------
o Printing for shareholder reports and SEC filings
o Legal fees, audit fees and other professional fees
1
<PAGE>
o Postage, telephone, fax, and photocopying
o Supplies related to Fund records
o Travel and lodging for Board and Operations meetings
o Preparation of financials other than Annual, Semi-Annual and
Quarterly Board Reporting - $3,000 per financial report.
- --------------------------------------------------------------------------------
VI. SPECIAL ARRANGEMENTS
- --------------------------------------------------------------------------------
Fees for activities of a non-recurring nature such as fund consolidations
or reorganizations, and/or preparation of special reports will be subject
to negotiation.
- --------------------------------------------------------------------------------
VII. TERM OF THE CONTRACT
- --------------------------------------------------------------------------------
The parties agree that this fee schedule shall remain in effect for an
initial period of three years from the date on which the funds commence
operations. If the agreement is terminated for any reason before the end
of its term, the fund and/or the adviser agree to reimburse State Street
for any waived fees. After the initial term, the agreement will continue
from year to year until it is revised as a result of negotiations
initiated by either party.
KOBRICK - HFS INVESTMENT TRUST STATE STREET BANK AND TRUST CO.
By: By:
------------------------------ ----------------------------
Title: Title:
------------------------------ ----------------------------
Date: Date:
------------------------------ ----------------------------
2
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the day of November, 1997, by and between KOBRICK-HFS
INVESTMENT TRUST, a Massachusetts business trust, having its principal office
and place of business at 101 Federal Street, Boston, Massachusetts 02111 (the
"Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company
having its principal office and place of business at 225 Franklin Street,
Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund intends to initially offer shares in two series, such series
shall be named in the attached Schedule A which may be amended by the parties
from time to time (each such series, together with all other series subsequently
established by the Fund and made subject to this Agreement in accordance with
Article 11, being herein referred to as a "Portfolio", and collectively as the
"Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as its
transfer agent, dividend disbursing agent, custodian of certain retirement plans
and agent in connection with certain other activities, and the Bank desires to
accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
l. Terms of Appointment; Duties of the Bank
1.1 Subject to the terms and conditions set forth in this Agreement, the
Fund, on behalf of the Portfolios, hereby employs and appoints the Bank
to act as, and the Bank agrees to act as its transfer agent for the
Fund's authorized and issued shares of its beneficial interest, $ par
value, ("Shares"), dividend disbursing agent, custodian of certain
retirement plans and agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of each of
the respective Portfolios of the Fund ("Shareholders") and set out in
the currently effective prospectus and statement of additional
information ("prospectus") of the Fund on behalf of the applicable
Portfolio, including without limitation any periodic investment plan or
periodic withdrawal program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as
applicable and the Bank, the Bank shall:
(i) receive for acceptance, orders for the purchase of Shares,
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promptly deliver payment and appropriate documentation
thereof to the Custodian of the Fund authorized pursuant to
the Declaration of Trust of the Fund (the "Custodian");
(ii) pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof
to the Custodian;
(iv) in respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund;
(v) at the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay
over or cause to be paid over in the appropriate manner such
monies as instructed by the redeeming Shareholders;
(vi) effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) prepare and transmit payments for dividends and
distributions declared by the Fund on behalf of the
applicable Portfolio;
(viii) issue replacement certificates for those certificates
alleged to have been lost, stolen or destroyed upon receipt
by the Bank of indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at its
option, may issue replacement certificates in place of
mutilated stock certificates upon presentation thereof and
without such indemnity;
(ix) maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) record the issuance of shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number
of shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. The
Bank shall also provide the Fund on a regular basis with the
total number of shares which are authorized and issued and
outstanding and shall have no obligation, when recording the
issuance of shares, to monitor the issuance of such shares
or to take cognizance of any laws relating to the issue or
sale of such Shares, which functions shall be the sole
responsibility of the Fund.
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(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i)
perform the customary services of a transfer agent, dividend
disbursing agent, custodian of certain retirement plans and, as
relevant, agent in connection with accumulation, open-account or
similar plans (including without limitation any periodic
investment plan or periodic withdrawal program), including but not
limited to: maintaining all Shareholder accounts, preparing
Shareholder meeting lists, mailing Shareholder proxies,
Shareholder reports and prospectuses to current Shareholders,
withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing U.S. Treasury Department Forms 1099
and other appropriate forms required with respect to dividends and
distributions by federal authorities for all Shareholders,
preparing and mailing confirmation forms and statements of account
to Shareholders for all purchases and redemptions of Shares and
other confirmable transactions in Shareholder accounts, preparing
and mailing activity statements for Shareholders, and providing
Shareholder account information and (ii) provide a system which
will enable the Fund to monitor the total number of Shares sold in
each State.
(c) In addition, the Fund shall (i) identify to the Bank in writing
those transactions and assets to be treated as from blue sky
reporting for each State and (ii) the establishment of
transactions for each State system prior to activation and
thereafter monitor daily activity for each State. The
responsibility of the Bank for the Fund's blue sky State
registration status is solely limited to the initial establishment
of transactions subject to blue sky compliance by the Fund and the
reporting of such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Section 1 may be established from time to time by agreement
between the Fund on behalf of each Portfolio and the Bank per the
attached service responsibility schedule. The Bank may at times
perform only a portion of these services and the Fund or its agent
may perform these services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the Fund
(e.g., escheatment services) which may be agreed upon in writing
between the Fund and the Bank.
2. Fees and Expenses
2.1 For the performance by the Bank pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the initial
fee schedule attached hereto. Such fees and out-of-pocket expenses and
advances identified under Section 2.2 below may be changed from time to
time subject to mutual written agreement between the Fund and the Bank.
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2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees on
behalf of each of the Portfolios to reimburse the Bank for out-of-pocket
expenses, including but not limited to confirmation production, postage,
forms, telephone, microfilm, microfiche, mailing and tabulating proxies,
records storage, or advances incurred by the Bank for the items set out
in the fee schedule attached hereto. In addition, any other expenses
incurred by the Bank at the request or with the consent of the Fund,
will be reimbursed by the Fund on behalf of the applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees and
reimbursable expenses within five days following the receipt of the
respective billing notice. Postage for mailing of dividends, proxies,
Fund reports and other mailings to all shareholder accounts shall be
advanced to the Bank by the Fund at least seven (7) days prior to the
mailing date of such materials.
3. Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in The Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4. Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.1 It is a business trust duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
4.2 It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
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4.4 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended on
behalf of each of the Portfolios is currently effective and will remain
effective, and appropriate state securities law filings have been made
and will continue to be made, with respect to all Shares of the Fund
being offered for sale.
5. Wire Transfer Operating Guidelines/Articles 4A of the Uniform Commercial
Code
5.1 The Bank is authorized to promptly debit the appropriate Fund account(s)
upon the receipt of a payment order in compliance with the selected
security procedure (the "Security Procedure") chosen for funds transfer
and in the amount of money that the Bank has been instructed to
transfer. The Bank shall execute payment orders in compliance with the
Security Procedure and with the Fund instructions on the execution date
provided that such payment order is received by the customary deadline
for processing such a request, unless the payment order specifies a
later time. All payment orders and communications received after this
the customary deadline will be deemed to have been received the next
business day.
5.2 The Fund acknowledges that the Security Procedure it has designated on
the Fund Selection Form was selected by the Fund from security
procedures offered by the Bank. The Fund shall restrict access to
confidential information relating to the Security Procedure to
authorized persons as communicated to the Bank in writing. The Fund must
notify the Bank immediately if it has reason to believe unauthorized
persons may have obtained access to such information or of any change in
the Fund's authorized personnel. The Bank shall verify the authenticity
of all Fund instructions according to the Security Procedure.
5.3 The Bank shall process all payment orders on the basis of the account
number contained in the payment order. In the event of a discrepancy
between any name indicated on the payment order and the account number,
the account number shall take precedence and govern.
5.4 The Bank reserves the right to decline to process or delay the
processing of a payment order which (a) is in excess of the collected
balance in the account to be charged at the time of the Bank's receipt
of such payment order; (b) if initiating such payment order would cause
the Bank, in the Bank's sole judgement, to exceed any volume, aggregate
dollar, network, time, credit or similar limits which are applicable to
the Bank; or (c) if the Bank, in good faith, is unable to satisfy itself
that the transaction has been properly authorized.
5.5 The Bank shall use reasonable efforts to act on all authorized requests
to cancel or amend payment orders received in compliance with the
Security Procedure provided that such requests are received in a timely
manner affording the Bank reasonable opportunity to act. However, the
Bank assumes no liability if the
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request for amendment or cancellation cannot be satisfied.
5.6 The Bank shall assume no responsibility for failure to detect any
erroneous payment order provided that the Bank complies with the payment
order instructions as received and the Bank complies with the Security
Procedure. The Security Procedure is established for the purpose of
authenticating payment orders only and not for the detection of errors
in payment orders.
5.7 The Bank shall assume no responsibility for lost interest with respect
to the refundable amount of any unauthorized payment order, unless the
Bank is notified of the unauthorized payment order within thirty (30)
days of notification by the Bank of the acceptance of such payment
order. In no event (including failure to execute a payment order) shall
the Bank be liable for special, indirect or consequential damages, even
if advised of the possibility of such damages.
5.8 When the Fund initiates or receives Automated Clearing House credit and
debit entries pursuant to these guidelines and the rules of the National
Automated Clearing House Association and the New England Clearing House
Association, the Bank will act as an Originating Depository Financial
Institution and/or receiving depository Financial Institution, as the
case may be, with respect to such entries. Credits given by the Bank
with respect to an ACH credit entry are provisional until the Bank
receives final settlement for such entry from the Federal Reserve Bank.
If the Bank does not receive such final settlement, the Fund agrees that
the Bank shall receive a refund of the amount credited to the Fund in
connection with such entry, and the party making payment to the Fund via
such entry shall not be deemed to have paid the amount of the entry.
5.9 Confirmation of Bank's execution of payment orders shall ordinarily be
provided within twenty four (24) hours notice of which may be delivered
through the Bank's proprietary information systems, or by facsimile or
call-back. Fund must report any objections to the execution of an order
within thirty (30) days.
6. Data Access and Proprietary Information
6.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and
documentation manuals furnished to the Fund by the Bank as part of the
Fund's ability to access certain Fund-related data ("Customer Data")
maintained by the Bank on data bases under the control and ownership of
the Bank or other third party ("Data Access Services") constitute
copyrighted, trade secret, or other proprietary information
(collectively, "Proprietary Information") of substantial value to the
Bank or other third party. In no event shall Proprietary Information be
deemed Customer Data. The Fund agrees to treat all Proprietary
Information as proprietary to the Bank and further agrees that it shall
not divulge any Proprietary Information to any person or organization
except as may be provided hereunder. Without limiting the foregoing, the
Fund agrees for itself and its employees and agents:
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(a) to access Customer Data solely from locations as may be designated
in writing by the Bank and solely in accordance with the Bank's
applicable user documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of
the Proprietary Information, and if such access is inadvertently
obtained, to inform in a timely manner of such fact and dispose of
such information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing the data acquired hereunder
from being retransmitted to any other computer facility or other
location, except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in
Proprietary Information at common law, under federal copyright law
and under other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 6. The obligations of this Section shall
survive any earlier termination of this Agreement.
6.2 If the Fund notifies the Bank that any of the Data Access Services do
not operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the Bank may
obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to make no
claim against the Bank arising out of the contents of such third-party
data, including, but not limited to, the accuracy thereof. DATA ACCESS
SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN
CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE
BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED
HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
6.3 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder
information or other information, then in such event the Bank shall be
entitled to rely on the validity and authenticity of such instruction
without undertaking any further inquiry as long as such instruction is
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undertaken in conformity with security procedures established by the
Bank from time to time.
7. Indemnification
7.1 The Bank shall not be responsible for, and the Fund shall on behalf of
the applicable Portfolio indemnify and hold the Bank harmless from and
against, any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to:
(a) all actions of the Bank or its agents or subcontractors required
to be taken pursuant to this Agreement, provided that such actions
are taken in good faith and without negligence or willful
misconduct;
(b) the Fund's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty of
the Fund hereunder;
(c) the reliance on or use by the Bank or its agents or subcontractors
of information, records, documents or services which (i) are
received by the Bank or its agents or subcontractors, and (ii)
have been prepared, maintained or performed by the Fund or any
other person or firm on behalf of the Fund including but not
limited to any previous transfer agent or registrar;
(d) the reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on
behalf of the applicable Portfolio;
(e) the offer or sale of Shares in violation of federal or state
securities laws or regulations requiring that such Shares be
registered or in violation of any stop order or other
determination or ruling by any federal or any state agency with
respect to the offer or sale of such Shares and
(f) the negotiations and processing of checks made payable to
prospective or existing Shareholders tendered to the Bank for the
purchase of Shares, such checks are commonly known as "third party
checks"; and
(g) upon the Fund's request entering into any agreements
required by the National Securities Clearing Corporation
(the "NSCC") required by the NSCC for the transmission of
Fund or Shareholder data through the NSCC clearing
systems.
7.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the
Bank under this Agreement, and the Bank and its agents or subcontractors
shall not be liable and shall be indemnified by the Fund on behalf of
the applicable Portfolio for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. The
Bank, its
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agents and subcontractors shall be protected and indemnified in acting
upon any paper or document, reasonably believed to be genuine and to
have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided the Bank
or its agents or subcontractors by machine readable input, telex, CRT
data entry or other similar means authorized by the Fund, and shall not
be held to have notice of any change of authority of any person, until
receipt of written notice thereof from the Fund. The Bank, its agents
and subcontractors shall also be protected and indemnified in
recognizing stock certificates which are reasonably believed to bear the
proper manual or facsimile signatures of the officers of the Fund, and
the proper countersignature of any former transfer agent or former
registrar, or of a co-transfer agent or co-registrar.
7.3 In order that the indemnification provisions contained in this Section 7
shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund
of such assertion, and shall keep the Fund advised with respect to all
developments concerning such claim. The Fund shall have the option to
participate with the Bank in the defense of such claim or to defend
against said claim in its own name or in the name of the Bank. The Bank
shall in no case confess any claim or make any compromise in any case in
which the Fund may be required to indemnify the Bank except with the
Fund's prior written consent.
8. Standard of Care
The Bank shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall
not be liable for loss or damage due to errors unless said errors are
caused by its negligence, bad faith, or willful misconduct or that of
its employees.
9. Covenants of the Fund and the Bank
9.1 The Fund shall on behalf of each of the Portfolios promptly furnish to
the Bank the following:
(a) a certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) a copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto.
9.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
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9.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Fund Act of 1940, as
amended, and the Rules thereunder, the Bank agrees that all such records
prepared or maintained by the Bank relating to the services to be
performed by the Bank hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such Section
and Rules, and will be surrendered promptly to the Fund on and in
accordance with its request.
9.4 The Bank and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged
or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
9.5 In case of any requests or demands for the inspection of the Shareholder
records of the Fund, the Bank will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit the Shareholder
records to such person.
10. Termination of Agreement
10.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
10.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund on behalf of the applicable Portfolio(s).
Additionally, the Bank reserves the right to charge for any other
reasonable expenses associated with such termination and a charge
equivalent to the average of three (3) months' fees.
11. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to the series named in the attached Schedule A with respect to
which it desires to have the Bank render services as transfer and
service agent under the terms hereof, it shall so notify the Bank in
writing, and if the Bank agrees in writing to provide such services,
such series of Shares shall become a Portfolio hereunder.
12. Assignment
12.1 Except as provided in Section 12.3 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
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12.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
12.3 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly
registered as a transfer agent pursuant to Section 17A(c)(2) of the
Securities Exchange Act of 1934, as amended ("Section 17A(c)(2)"), (ii)
a BFDS subsidiary duly registered as a transfer agent pursuant to
Section 17A(c)(2) or (iii) a BFDS affiliate; provided, however, that the
Bank shall be as fully responsible to the Fund for the acts and
omissions of any subcontractor as it is for its own acts and omissions.
13. Amendment
This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of
the Board of Trustees of the Fund.
14. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of The Commonwealth of
Massachusetts.
15. Force Majeure
In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to
perform or otherwise from such causes.
16. Consequential Damages
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act
hereunder.
17. Merger of Agreement
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
18. Limitations of Liability of the Trustees and Shareholders
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of The
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Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Trust as
Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or Shareholders
individually but are binding only upon the assets and property of the
Fund.
19. Counterparts
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
20. Reproduction of Documents
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties
hereto each agree that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or
not such reproduction was made by a party in the regular course of
business, and that any enlargement, facsimile or further reproduction
shall likewise be admissible in evidence.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
KOBRICK-HFS INVESTMENT TRUST
BY:
ATTEST:
STATE STREET BANK AND TRUST COMPANY
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BY:
Executive Vice President
ATTEST:
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STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
Bank Fund
1. Receives orders for the purchase X
of Shares.
2. Issue Shares and hold Shares in X
Shareholders accounts.
3. Receive redemption requests. X
4. Effect transactions 1-3 above N/A
directly with broker-dealers.
5. Pay over monies to redeeming X
Shareholders.
6. Effect transfers of Shares. X
7. Prepare and transmit dividends X
and distributions.
8. Issue Replacement Certificates. N/A
9. Reporting of abandoned property. N/A
10. Maintain records of account. X
11. Maintain and keep a current and X
accurate control book for each
issue of securities.
12. Mail proxies. X
13. Mail Shareholder reports. X
14. Mail prospectuses to current X
Shareholders.
15. Withhold taxes on U.S. resident X
and non-resident alien accounts.
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Service Performed Responsibility
Bank Fund
16. Prepare and file U.S. Treasury X
Department forms.
17. Prepare and mail account and X
confirmation statements for
Shareholders.
18. Provide Shareholder account X
information.
19. Blue sky reporting. X
* Such services are more fully described in Section 1.2 (a), (b) and (c) of the
Agreement.
KOBRICK-HFS INVESTMENT TRUST
BY:
ATTEST:
STATE STREET BANK AND TRUST COMPANY
BY:
Executive Vice President
ATTEST:
<PAGE>
SCHEDULE A
Kobrick-HFS Capital Fund
Kobrick-HFS Emerging Growth Fund
2
PLAN OF DISTRIBUTION
PURSUANT TO RULE 12B-1
WHEREAS, Kobrick-HFS Investment Trust (the "Trust"), an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts,
engages in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Trust is authorized to issue an unlimited number of shares of
beneficial interest without par value (the "Shares"), which may be divided into
two or more Series of Shares; and
WHEREAS, the Trustees of the Trust as a whole, and the Trustees who are
not interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreement relating hereto (the "Rule 12b-1 Trustees"), having determined, in the
exercise of reasonable business judgment and in light of their fiduciary duties
under state law and under Section 36(a) and (b) of the 1940 Act, that there is a
reasonable likelihood that this Plan will benefit the Trust and its
shareholders, have approved this Plan by votes cast in person at a meeting
called for the purpose of voting hereon and on any agreements related hereto;
and
WHEREAS, the Plan has been approved by the vote of at least a majority of
the outstanding voting securities (as defined in the 1940 Act) of each Series of
the Trust;
NOW, THEREFORE, the Trust hereby adopts this Plan in accordance with Rule
12b-1 under the 1940 Act, on the following terms and conditions:
1. Distribution Activities. Subject to the supervision of the Trustees of
the Trust, the Trust may, directly or indirectly, engage in any activities
related to the distribution of Shares, which activities may include, but are not
limited to, the following: (a) payments to securities dealers and others who are
engaged in the sale of Shares and who may be advising shareholders of the Trust
regarding the purchase, sale or retention of Shares; (b) expenses of maintaining
personnel (including personnel of organizations with which the Trust has entered
into agreements related to this Plan) who engage in or support distribution of
Shares or who render shareholder support services not otherwise provided by the
Trust's transfer agent, including, but not limited to, office space and
equipment, telephone facilities and expenses, answering routine inquiries
regarding the Trust, processing shareholder transactions, and providing such
other shareholder services as the Trust may reasonably request; (c) formulating
and implementing of marketing and promotional activities, including, but not
limited to, direct mail promotions and television, radio, newspaper, magazine
and other mass media advertising; (d) preparing, printing and distributing sales
literature; (e) preparing, printing and distributing prospectuses and statements
of additional information and reports of the Trust for recipients other than
<PAGE>
existing shareholders of the Trust; and (f) obtaining such information, analyses
and reports with respect to marketing and promotional activities as the Trust
may, from time to time, deem advisable. The Trust is authorized to engage in the
activities listed above, and in any other activities related to the distribution
of Shares, either directly or through other persons with which the Trust has
entered into agreements related to this Plan.
2. Maximum Expenditures. The expenditures to be made by the Trust pursuant
to this Plan and the basis upon which payment of such expenditures will be made
shall be determined by the Trustees of the Trust, but in no event may such
expenditures exceed in any fiscal year an amount calculated at the rate of 0.25%
of the average daily net asset value of any Series of the Trust. Such payments
for distribution activities may be made directly by the Trust or the Trust's
investment adviser may incur such expenses and obtain reimbursement from the
Trust.
3. Term and Termination. (a) This Plan shall become effective on the date
hereof. Unless terminated as herein provided, this Plan shall continue in effect
for one year from the date hereof and shall continue in effect for successive
periods of one year thereafter, but only so long as each such continuance is
specifically approved by votes of a majority of both (i) the Trustees of the
Trust and (ii) the Rule 12b-1 Trustees, cast in person at a meeting called for
the purpose of voting on such approval.
(b) This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Trustees or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Trust.
4. Amendments. This Plan may not be amended to increase materially the
amount of expenditures provided for in Section 2 hereof unless such amendment is
approved by a vote of the majority of the outstanding voting securities of the
Trust (as defined in the 1940 Act), and no material amendment to this Plan shall
be made unless approved in the manner provided for annual renewal of this Plan
in Section 3(a) hereof.
5. Selection and Nomination of Trustees. While this Plan is in effect, the
selection and nomination of Trustees who are not interested persons (as defined
in the 1940 Act) of the Trust shall be committed to the discretion of the
Trustees who are not interested persons of the Trust.
6. Quarterly Reports. The Treasurer of the Trust shall provide to the
Trustees and the Trustees shall review, at least quarterly, a written report of
the amounts expended pursuant to this Plan and any related agreement and the
purposes for which such expenditures were made.
7. Recordkeeping. The Trust shall preserve copies of this Plan and any
related agreement and all reports made pursuant to Section 6 hereof, for a
period of not
2
<PAGE>
less than six years from the date of this Plan, the agreements or
such reports, as the case may be, the first two years in an easily accessible
place.
8. Limitation of Liability. A copy of the Agreement and Declaration of
Trust of the Trust is on file with the Secretary of the Commonwealth of
Massachusetts and notice is hereby given that this Plan is executed on behalf of
the Trustees of the Trust as trustees and not individually and that the
obligations of this instrument are not binding upon the Trustees or shareholders
of the Trust individually but are binding only upon the assets and property of
the Trust.
IN WITNESS WHEREOF, the Trust has caused this Plan to be executed as of
the date set forth below.
Dated: _________, 1997
KOBRICK-HFS INVESTMENT TRUST
By:
-----------------------------
President
Attest:
-----------------------------
Secretary
3
