KOBRICK-CENDANT CAPITAL FUND
101 Federal Street
Boston, Massachusetts 02110
Prospectus
January 1, 1998
The investment objective of Kobrick-HFS Cendant 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-Cendant 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
January 1, 1998 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-Cendant 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 growth in earnings, relative
financial condition and cash flow, competitive position, management
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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 not exceed 150%. The Fund's portfolio
turnover rate involves greater transaction costs, including brokerage fees and
other expenses, relative to other funds in general, and may have tax and other
consequences, including the realization of taxable capital gains, 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.
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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.
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.
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 Government
or its instrumentalities) if such purchase at the time would cause more than 10%
of the Fund's total assets to be invested in the securities of such issuer; and
(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 (e.g., U.S.
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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 enclosed with this prospectus)
together with a check for the total purchase amount to one of the following
addresses:
First Class Mail: Kobrick-Cendant Capital Fund
c/o State Street Bank and Trust Company
P.O. Box 8075
Boston, Massachusetts 02266-8075
Overnight Mail: Kobrick-Cendant Capital Fund
c/o State Street Bank and Trust Company
66 Brooks Drive
Braintree, Massachusetts 02184-3839
Checks should be in U.S. dollars, drawn on a U.S. bank and made payable to
"Kobrick-Cendant Funds." 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. The instructions
for making a wire transfer are as follows:
State Street Bank & Trust Company
Attn: Kobrick-Cendant Capital Fund
Boston, MA 02110
Routing # 0110-0002-8
Deposit DDA # 9905-343-1
Specify the name and account number of your account
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.
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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-Cendant 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-Cendant 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 to purchase shares 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-Cendant 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 SSgA(SM) US Government Money Market Fund, a portfolio of the SSgA Funds.
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.
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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, 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 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 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, in
good order; 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 expenses or
fees incurred by the Fund or its Transfer Agent. Certain accounts (such as trust
accounts, corporate accounts and custodial accounts) may be required to furnish
additional documentation to make an initial investment.
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 has been
(or will be) collected. To reduce such delays, the Fund recommends that you
purchase your shares by certified check or wire.
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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-Cendant Capital Fund
c/o State Street Bank and Trust Company
P.O. Box 8075
Boston, Massachusetts 02266-8075
Overnight Mail: Kobrick-Cendant Capital Fund
c/o State Street Bank and Trust Company
66 Brooks Drive
Braintree, Massachusetts 02184-3839
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
contacting the Fund 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 $50,000 or more 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 a check be mailed to an address different
from the one on your account (address of record);
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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 make redemptions by wire 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, 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 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-Cendant Emerging Growth Fund, at
net asset value. Shares of the Fund may also be exchanged for shares at net
asset value of the SSgA US Government Money Market Fund, which is a portfolio of
the SSgA Funds. The SSgA Funds is an open-end management investment company with
multiple portfolios (commonly
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<PAGE>
known as a mutual fund), advised by State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, and not affiliated with the Fund,
the Trust, or the distributor of the Fund's shares. The SSgA 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 or instrumentalities with
remaining maturities of one year or less. Prior to making such an exchange, you
should obtain from the Fund's transfer agent and carefully read the prospectus
for the SSgA US Government Money Market Fund. The exchange privilege does not
constitute an offering or recommendation on the part of the Fund, the Trust or
the distributor of the Fund's shares of an investment in the SSgA US Government
Money Market Fund. Investments in the SSgA Funds are neither insured nor
guaranteed by the US Government. There is no assurance that the SSgA US
Government Money Market Fund will maintain a stable net asset value of $1.00 per
share. All shareholder services regarding your investment in the SSgA US
Government Money Market Fund will be handled by the Fund by calling
1-888-KCFUND1 (1-888-523-8631). You will not be permitted to exchange shares of
any fund of the Trust or of the SSgA US Government Money Market Fund to any
other portfolio of the SSgA Funds.
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. The Fund
reserves the right, on 30 days prior notice, 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.
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 (1-888-523-8631) during the Fund's business hours from
8:00 a.m. to 6:00 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>
24 Hour Services. You may obtain your account balances and certain other
information at any time by calling the Fund at 1-888-KCFUND1 (1-888-523-8631).
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 or Roth IRA to be funded with
shares of the Fund. State Street Bank and Trust Company acts as custodian for
any IRAs thus created and you will be charged an annual custodian fee (currently
$10 per fund). The Fund may in the future offer additional retirement savings
arrangements such as 403(b)(7) custodial accounts, SIMPLE IRA plans and
simplified employee pension (SEP) plans. 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 (1-888-523-8631).
Reporting to Shareholders. You will receive a confirmation statement each
time you purchase, redeem or exchange shares. Shares purchased by reinvestment
of dividends and shares purchased or redeemed 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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<PAGE>
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-Cendant
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-Cendant 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.
15
<PAGE>
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-Cendant 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-Cendant Funds, Inc. was founded in October, 1997 principally by
Frederick R. Kobrick and Michael T. Carmen. Cendant Corporation 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 Cendant Corporation
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-Cendant Funds, Inc. was an
equity portfolio manager at State Street Research & Management Company where he
served as Senior Vice President since 1989 and as 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 and to others. Prior to becoming Executive Vice
President and Secretary-Treasurer of Kobrick-Cendant Funds, Inc., Mr. Carmen
served as a portfolio manager for State Street Research & Management Company
from December 1996 to August 1997. From April 1996 to November 1996, he served
as a portfolio manager for Montgomery Asset Management and from May 1992 to
April 1996, he served as an associate portfolio manager for State Street
Research & Management Company.
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.
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<PAGE>
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 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, Cendant Corporation is the sole
shareholder of the Fund. Accordingly, Cendant Corporation and its respective
affiliates directly or indirectly control the Fund.
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<PAGE>
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 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
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<PAGE>
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
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 (traditionally 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
19
<PAGE>
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.
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.
20
<PAGE>
KOBRICK-CENDANT EMERGING GROWTH FUND
101 Federal Street
Boston, Massachusetts 02110
Prospectus
January 1, 1998
The investment objective of Kobrick-Cendant Emerging Growth Fund (the
"Fund") is to provide growth in capital. In seeking to achieve its investment
objective, the Fund invests primarily in equity securities of emerging growth
and small capitalization companies.
Kobrick-Cendant 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
January 1, 1998 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-Cendant 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%
=====
- ----------
(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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<PAGE>
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 objective, 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 financial condition
and cash flow, competitive position, management and business strategy,
3
<PAGE>
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 not exceed 150%. The Fund's portfolio
turnover rate involves greater transaction costs, including brokerage fees and
other expenses, relative to other funds in general, and may have tax and other
consequences, including the realization of taxable capital gains, as well. See
the Statement of Additional Information.
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Because the Fund invests primarily in 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 more established companies. Investments in emerging growth 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.
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
5
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issuers, the difficulties in obtaining and enforcing a judgment against a
foreign issuer and the fact that foreign issuers are not generally subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to domestic
issuers. Moreover, securities of many foreign issuers may be less liquid and
their prices more volatile than those of securities of comparable domestic
issuers.
It is anticipated that a majority of the foreign investments by the Fund
will consist of securities of issuers in countries with developed economies.
However, the Fund may also invest in the securities of issuers in countries with
less developed economies as deemed appropriate by the Investment Manager,
although the Fund does not presently expect to invest more than 5% of its total
assets in issuers in such less developed countries. Such countries include
countries that have any emerging stock market that trades a small number of
securities; countries with low-to middle-income economies; and/or countries with
economies that are based on only a few industries. Eastern European countries
are considered to have less developed capital markets.
For further information regarding foreign investments, see the Statement
of Additional Information.
Currency Transactions
In order to protect against the effect of uncertain future exchange rates
on securities denominated in foreign currencies, the Fund may engage in currency
exchange transactions either on a spot (i.e., cash) basis at the rate prevailing
in the currency exchange market or by entering into forward contracts to
purchase or sell currencies. Although such contracts tend to minimize the risk
of loss resulting from a correctly predicted decline in value of hedged
currency, they tend to limit any potential gain that might result should the
value of such currency increase. In entering a forward currency transaction, the
Fund is dependent upon the creditworthiness and good faith of the counterparty.
The Fund will attempt to reduce the risks of nonperformance by a counterparty by
dealing only with established, large institutions. For further information, see
the Statement of Additional Information.
Other Investment Policies
The Fund may lend portfolio securities with a value of up to 33 1/3 % of
its total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of the loaned securities plus accrued interest. Collateral
received by the Fund will generally be held in the form tendered, although cash
may be invested in securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, irrevocable stand-by letters of credit issued by
a bank, or any combination thereof. The investing of cash collateral received
from loaning portfolio securities involves leverage which magnifies the
potential for gain or loss on monies invested and, therefore, results in an
increase in the volatility of the Fund's outstanding securities. Such loans may
be terminated at any time.
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.
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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.
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 Government
or its instrumentalities) if such purchase at the time would cause more than 10%
of the Fund's total assets to be invested in the securities of such issuer; and
(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 (e.g., 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 enclosed with this prospectus)
together with a check for the total purchase amount to one of the following
addresses:
First Class Mail: Kobrick-Cendant Emerging Growth Fund
c/o State Street Bank and Trust Company
P.O. Box 8075
Boston, Massachusetts 02266-8075
Overnight Mail: Kobrick-Cendant Emerging Growth Fund
c/o State Street Bank and Trust Company
66 Brooks Drive
Braintree, Massachusetts 02184-3839
Checks should be in U.S. dollars, drawn on a U.S. bank and made payable to
"Kobrick-Cendant Funds." 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. The instructions
for making a wire transfer are as follows:
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<PAGE>
State Street Bank & Trust Company
Attn: Kobrick-Cendant Emerging Growth Fund
Boston, MA 02110
Routing # 0110-0002-8
Deposit DDA # 9905-343-1
Specify the name and account number of your account
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-Cendant 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-Cendant
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 to purchase shares 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.
9
<PAGE>
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-Cendant 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 SSgASM US Government Money Market Fund, a portfolio of the SSgA Funds.
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, 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 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 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, in
good order; 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 expenses or
fees incurred by the Fund or its Transfer Agent. Certain accounts (such as trust
accounts, corporate accounts and custodial accounts) may be required to furnish
additional documentation to make an initial investment.
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<PAGE>
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-Cendant Emerging Growth Fund
c/o State Street Bank and Trust Company
P.O. Box 8075
Boston, Massachusetts 02266-8075
Overnight Mail: Kobrick-Cendant Emerging Growth Fund
c/o State Street Bank and Trust Company
66 Brooks Drive
Braintree, Massachusetts 02184-3839
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
contacting the Fund 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:
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o You wish to redeem $50,000 or more 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 a 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 make redemptions by wire 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, 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
12
<PAGE>
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-Cendant Capital Fund, at net
asset value. Shares of the Fund may also be exchanged for shares at net asset
value of the SSgA US Government Money Market Fund, which are portfolio of the
SSgA Funds. The SSgA Funds is an open-end management investment company with
multiple portfolios (commonly known as a mutual fund), advised by State Street
Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, and
not affiliated with the Fund, the Trust, or the distributor of the Fund's
shares. The SSgA 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 or instrumentalities with remaining maturities of one year or less.
Prior to making such an exchange, you should obtain from the Fund's transfer
agent and carefully read the prospectus for the SSgA US Government Money Market
Fund. The exchange privilege does not constitute an offering or recommendation
on the part of the Fund, the Trust or the distributor of the Fund's shares of an
investment in the SSgA US Government Money Market Fund. Investments in the SSgA
Funds are neither insured nor guaranteed by the US Government. There is no
assurance that the SSgA US Government Money Market Funds will maintain a stable
net asset value of $1.00 per share. All shareholder services regarding your
investment in the SSgA US Government Money Market Fund will be handled by the
Fund by calling 1-888-KCFUND1 (1-888-523-8631). You will not be permitted to
exchange shares of any fund of the Trust or of the SSgA US Government Money
Market Fund to any other portfolio of the SSgA Funds.
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. The Fund
reserves the right, on 30 days prior notice, 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.
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
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<PAGE>
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 (1-888-523-8631) during the Fund's business hours from
8:00 a.m. to 6:00 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:
24 Hour Services. You may obtain your account balances and certain other
information at any time by calling the Fund at 1-888-KCFUND1 (1-888-523-8631).
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 or Roth IRA to be funded with
shares of the Fund. State Street Bank and Trust Company acts as custodian for
any IRAs thus created and you will be charged an annual custodian fee (currently
$10 per fund). The Fund may in the future offer additional retirement savings
arrangements such as 403(b)(7) custodial accounts, SIMPLE IRA plans and
simplified employee pension (SEP) plans. 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 (1-888-523-8631).
Reporting to Shareholders. You will receive a confirmation statement each
time you purchase, redeem or exchange shares. Shares purchased by reinvestment
of dividends and shares purchased or redeemed 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
14
<PAGE>
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 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-Cendant
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-Cendant 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
15
<PAGE>
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 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-Cendant 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-Cendant Funds, Inc. was founded in October, 1997 principally by
Frederick R. Kobrick and Michael T. Carmen. Cendant Corporation 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 Cendant Corporation
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-Cendant Funds, Inc. was an
equity portfolio manager at State Street Research & Management Company where he
served as Senior Vice President since 1989 and as 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 and to others. Prior to becoming Executive Vice
President and Secretary-Treasurer of Kobrick-Cendant Funds, Inc., Mr. Carmen
served as a portfolio manager for State Street Research & Management Company
from December 1996 to August 1997. From April 1996 to November 1996, he served
as a portfolio manager for Montgomery Asset Management and from May 1992 to
April 1996,
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he served as an associate portfolio manager for State Street Research &
Management Company.
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 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.
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As of the date of this Prospectus, Cendant Corporation is the sole
shareholder of the Fund. Accordingly, Cendant Corporation and its 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 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
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<PAGE>
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
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 (traditionally 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
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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.
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-CENDANT INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
January 1, 1998
Kobrick-Cendant Capital Fund
Kobrick-Cendant 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-Cendant
Investment Trust dated January 1, 1998. A copy of a Fund's Prospectus can be
obtained by writing the Trust at Boston Financial Data Services, Inc. 66 Brooks
Drive, Braintree, Massachusetts 02184-3839, or by
calling the Trust nationwide toll-free 888-523-8631.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Kobrick-Cendant Investment Trust
101 Federal Street
Boston, Massachusetts 02110
TABLE OF CONTENTS
PAGE
THE TRUST .................................................................. 1
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES .............................................. 2
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS ............................ 9
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS .................... 12
INVESTMENT LIMITATIONS ..................................................... 14
TRUSTEES AND OFFICERS ...................................................... 17
THE INVESTMENT MANAGER ..................................................... 18
DISTRIBUTION PLAN .......................................................... 19
SECURITIES TRANSACTIONS .................................................... 20
PORTFOLIO TURNOVER ......................................................... 22
CALCULATION OF SHARE PRICE ................................................. 22
TAXES ...................................................................... 23
REDEMPTION IN KIND ......................................................... 23
HISTORICAL PERFORMANCE INFORMATION ......................................... 24
CUSTODIAN .................................................................. 26
AUDITORS ................................................................... 26
TRANSFER AGENT ............................................................. 27
DISTRIBUTOR ................................................................ 27
STATEMENTS OF ASSETS AND LIABILITIES ....................................... 28
<PAGE>
THE TRUST
Kobrick-Cendant 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-Cendant Capital Fund and the
Kobrick-Cendant 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.
<PAGE>
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, 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-Cendant 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
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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 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.
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<PAGE>
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.
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.
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<PAGE>
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 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.
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<PAGE>
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.
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)
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<PAGE>
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.
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 net assets, except that
repurchase agreements extending for more than seven days when combined with
other illiquid securities will be limited to 15% of each Fund's net 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.
7
<PAGE>
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 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.
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<PAGE>
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 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 below under Investment Restrictions, 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.
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.
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<PAGE>
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;
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.
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<PAGE>
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.
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
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<PAGE>
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.
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.
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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.
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:
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<PAGE>
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.
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
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<PAGE>
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. 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.
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<PAGE>
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:
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 10% 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 10% 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.
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<PAGE>
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 36 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:
*Frederick R. Kobrick, 101 Federal Street, Boston, MA 02110, serves as a
Trustee and President of the Trust. He is 54. His principal occupation currently
is President of Kobrick-Cendant 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 a
Trustee and Treasurer of the Trust. He is 36. His principal occupation currently
is Executive Vice President and Secretary-Treasurer of Kobrick-Cendant Funds,
Inc. From May 1992 to April 1996, he served as an associate portfolio manager
for State Street Research & Management Company. From April 1996 to November
1996, he served as a portfolio manager for Montgomery Asset Management. From
December 1996 to August 1997, he served as a portfolio manager for State Street
Research & Management Company. 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 Place, Post Office Box 111, 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 Company, where he has
served in various capacities since 1967.
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<PAGE>
*Messrs. Kobrick and Carmen, as principals of Kobrick-Cendant 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 23, 1997, Cendant Corporation was the record holder 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 ( Messrs. Atlas and Paster) will receive an
annual retainer of $4,000 and a $500 fee for each Fund for each Board meeting
attended and will be reimbursed for travel and other expenses incurred in the
performance of their duties. No other compensation or pension or retirement
benefits will be paid or accrued to any other officer or trustee as part of the
expenses of the Funds.
<TABLE>
<CAPTION>
Compensation Table
Pension or Total
Aggregate Retirement Compensation
Name of Compensa- Benefits Accrued Estimated Annual From Registrant
Person tion From As Part of Fund Benefits Upon and Fund Complex
Position Registrant Expenses Retirement Paid to Directors
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jay H. Atlas $8,000* -0- -0- $8,000*
Trustee
Joseph P. Paster $8,000* -0- -0- $8,000*
Trustee
</TABLE>
- ------
* Annual compensation of $4,000 and assuming 4 meetings of the Trustees ($500
fee for each Fund for each meeting of the Trustees.
THE INVESTMENT MANAGER
Kobrick-Cendant 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 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.
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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 December 31, 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-Cendant" is the property right of the Investment
Manager. The Investment Manager may use the name "Kobrick-Cendant" 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-Cendant" 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 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
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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 positioning by the executing firm. The Investment Manager
may or may not solicit competitive
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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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<PAGE>
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 officers and
investment personnel of the Investment Manager including having to 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 officer or investment personnel 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 such person is being considered for
purchase or sale, by either Fund. The substantive restrictions applicable to
officers and 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 officers and
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
(traditionally 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 or in part in securities of the Fund taken at
current value. If any such redemption in kind is to be
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<PAGE>
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:
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Yield = 2[(a-b/cd + 1)6 - 1] Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Solely for the purpose of computing yield, dividend income is recognized
by accruing 1/360 of the stated dividend rate of the security each day that a
Fund owns the security. Generally, interest earned (for the purpose of "a"
above) on debt obligations is computed by reference to the yield to maturity of
each obligation held based on the market value of the obligation (including
actual accrued interest) at the close of business on the last business day prior
to the start of the 30-day (or one month) period for which yield is being
calculated, or, with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest). With respect to the treatment of
discount and premium on mortgage or other receivables-backed obligations which
are expected to be subject to monthly paydowns of principal and interest, gain
or loss attributable to actual monthly paydowns is accounted for as an increase
or decrease to interest income during the period and discount or premium on the
remaining security is not amortized.
The performance quotations described above are based on historical
earnings and are not intended to indicate future performance.
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
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common stock price movement. The Dow Jones Industrial Average is a measurement
of general market price movement for 30 widely held stocks listed on the New
York Stock Exchange.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Fund's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
performance. In addition, there can be no assurance that the Fund will continue
this performance as compared to such other averages.
CUSTODIAN
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:
Average Fee (expressed as a
Monthly Percentage of Average
Net Assets Monthly Net Assets)
---------- -------------------
First $100 million 0.04%
Next $100 million 0.02%
Excess 0.01%
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
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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 approximately $3,600 per month for each Fund,
50% of which fee shall be waived during the first six months. In addition, the
Funds pay out-of-pocket expenses, including but not limited to, postage,
envelopes, checks, drafts, forms, reports, record storage and communication
lines.
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:
Average Fee (expressed as a
Monthly Percentage of Average
Net Assets Monthly Net Assets)
---------- -------------------
First $200 million 0.08%
Next $200 million 0.06%
Excess 0.04%
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.
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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 December 23, 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-CENDANT INVESTMENT TRUST
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 23, 1997
Kobrick-Cendant
Kobrick-Cendant Emerging
Capital Fund Growth Fund
------------ -----------
ASSETS:
Cash ............................................. $100,000 $100,000
Deferred organization costs (Note A) ............. 35,000 35,000
Total Assets ..................................... 135,000 135,000
LIABILITIES:
Accrued organization costs (Note A) .............. 35,000 35,000
Total Liabilities ................................ 35,000 35,000
-------- --------
NET ASSETS ....................................... $100,000 $100,000
======== ========
SHARES OF BENEFICIAL INTEREST
OUTSTANDING ...................................... 10,000 10,000
Net Asset Value, offering and redemption price
per share of beneficial interest outstanding ..... $ 10.00 $ 10.00
======== ========
See Notes to Statements of Assets and Liabilities
<PAGE>
KOBRICK-CENDANT INVESTMENT TRUST
NOTES TO STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 23, 1997
A. Significant Accounting Policies
The Kobrick-Cendant Investment Trust (the "Trust") was organized as a
Massachusetts business trust on October 10, 1997, and is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end management
investment company. The Trust offers two series of shares: Kobrick-Cendant
Capital Fund and Kobrick-Cendant Emerging Growth Fund (individually, a "Fund,
collectively, the "Funds"). The investment objective of the Funds is to provide
shareholders with long-term capital appreciation. The preparation of the
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates. The Trust has had no operations other than organizational
matters and issuance and sale of initial shares of each of the Funds.
Organizational Costs: Costs and expenses of the Trust in connection with the
organization of the Trust and the initial offering of its shares have been
deferred by the Trust and are being amortized on a straight-line basis from the
date operations commenced over a period that it is expected a benefit will be
realized, not to exceed sixty months. If any of the initial shares are redeemed
during the amortization period by any holder thereof, the redemption proceeds
will be reduced by a pro rata portion of the then unamortized organization cost.
Expenses: General expenses of the Trust are allocated to the respective Fund
based upon relative net assets. Operating expenses directly attributable to a
Fund are charged to that Fund's operations.
B. Agreement and Transactions with Affiliates
The Trust has entered into an Investment Advisory Agreement (the "Agreement")
with Kobrick-Cendant Funds, Inc. (the "Advisor"). Under the Agreement, the
Advisor manages the investments of the Funds in accordance with their investment
objectives, policies and restrictions. The Advisor determines the securities,
instruments and other contracts relating to investments to be purchased, sold or
entered into by the Funds. For each Fund the Advisor has agreed to a fee,
computed daily and payable monthly, at an annual rate of 1.00% of the Fund's
average daily net assets.
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Report of Ernst & Young LLP, Independent Auditors
To the Board of Trustees of
Kobrick-Cendant Investment Trust
We have audited the accompanying statements of assets and liabilities of
Kobrick-Cendant Investment Trust (the "Trust") (comprising, respectively, the
Kobrick-Cendant Capital Fund and Kobrick-Cendant Emerging Growth Fund
(collectively, the "Funds"), as of December 23, 1997. These statements of assets
and liabilities are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these statements of assets and
liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statements of assets and liabilities are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statements of assets and liabilities referred to above
present fairly, in all material respects, the financial position of each of the
respective Funds constituting the Kobrick-Cendant Investment Trust at December
23, 1997 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
December 23, 1997
