<PAGE>
Securities Act of 1933 Registration No. 333-37727
Investment Act of 1940 Registration No. 881-8436
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. __ [_]
Post-Effective Amendment No. 2 [X]
--
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 4 [X]
---
KOBRICK-CENDANT INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
101 Federal Street
Boston, Massachusetts 02110
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 342-3500
Frederick R. Kobrick
President
Kobrick-Cendant Investment Trust
101 Federal Street
Boston, Massachusetts 02110
(Name and Address of Agent for Service)
Copies to:
Thomas J. Kelly, Esq.
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
It is proposed that this filing will become effective under Rule 485:
[_] Immediately upon filing pursuant to paragraph (b),
[X] On August 27, 1998 pursuant to paragraph (b),
[_] 60 days after filing pursuant to paragraph (a)(1),
[_] On ____________ pursuant to paragraph (a)(1),
[_] 75 days after filing pursuant to paragraph (a)(2),
[ ] On ___________, ____ pursuant to paragraph (a)(2).
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
KOBRICK-CENDANT INVESTMENT TRUST
Cross Reference Sheet
Pursuant to Rule 481(a)
Under the Securities Act of 1933
<TABLE>
<CAPTION>
PART A
<S> <C> <C>
Item No. Registration Statement Caption Caption in Prospectus
1. Cover Page Cover Page
2. Synopsis Table of Expenses
3. Condensed Financial Information Inapplicable
4. General Description of Registrant The Funds' Investment Objectives
and Policies, Limiting
Investment Risk; Management of
the Fund
5. Management of the Fund Management of the Fund
6. Capital Stock and Other Securities Cover Page; Management of the
Fund; Dividends and
Distributions; Taxes
7. Purchase of Securities Being Offered How to Purchase Shares;
Shareholder Services;
Exchange Privileges;
Distribution Plan;
Calculation of Share Price; The Fund
and its Shares
8. Redemption or Repurchase How to Redeem Shares;
Shareholder Services;
Exchange Privileges; The Fund
and its Shares
9. Legal Proceedings Inapplicable
PART B
Caption in Statement
Item No. Registration Statement Caption of Additional Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
12. General Information and History The Trust
13. Investment Objectives and Policies Additional Information Concerning Certain Investment
Techniques; Debt Instruments and Permitted Cash Investments;
Quality Ratings of Corporate Bonds and Preferred Stocks;
Investment Limitations; Securities Transactions; Portfolio
Turnover
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal Holders Trustees and Officers
of Securities
16. Investment Advisory and Other Services The Investment Adviser; Distribution Plan; Custodian;
Auditors; Transfer Agent; Administrator: Distributor
17. Brokerage Allocation and Other Securities Transactions
Practices
18. Capital Stock and Other Securities The Trust
19. Purchase, Redemption and Pricing of Calculation of Share
Securities Being Offered Price; Redemption in Kind
20. Tax Status Taxes
21. Underwriters Distributor
22. Calculation of Performance Data Historical Performance Information
Information
23. Financial Statements Statements of Assets and Liabilities
</TABLE>
PART C
The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
ii
<PAGE>
KOBRICK-CENDANT GROWTH FUND
KOBRICK-CENDANT CAPITAL FUND
KOBRICK-CENDANT EMERGING GROWTH FUND
Prospectus
September 1, 1998
The Kobrick-Cendant family of funds currently consists of three separate
funds designed to offer investors a range of growth-oriented equity investment
opportunities (collectively, the "Funds"); the Kobrick-Cendant Growth Fund (the
"Growth Fund"), the Kobrick-Cendant Capital Fund (the "Capital Fund") and the
Kobrick-Cendant Emerging Growth Fund (the "Emerging Growth Fund"). Each of the
Funds is a diversified series of the Kobrick-Cendant Investment Trust (the
"Trust"), an open-end management investment company.
GROWTH FUND: The investment objective of the Growth Fund is to provide
long-term growth of capital. In seeking to achieve its investment objective, the
Growth Fund invests primarily in equity securities of companies with large
capitalizations believed by the Fund's investment manager to have better than
average growth potential over the years.
The Growth Fund generally is designed for investors who seek growth over
the long term, can maintain their investment through changes in market cycles
without requiring current income and can afford the risks inherent in the
investment policies of the Growth Fund.
CAPITAL FUND: The investment objective of the Capital Fund is to seek
maximum capital appreciation. In seeking to achieve its investment objective,
the Capital Fund invests primarily in equity securities of companies with small,
medium and large capitalizations, including those considered by the Fund's
investment manager to be undervalued special situations and emerging growth
companies.
The Capital Fund generally is designed for investors who want a more
aggressive investment and can tolerate volatility and possible losses. The
Capital Fund's investment policies provide the flexibility to emphasize
different capitalizations of companies as market conditions change. Because of
the Capital Fund's investment policies, the Capital Fund is subject to above
average risks.
EMERGING GROWTH FUND: The investment objective of the Emerging Growth Fund
is to provide growth in capital. In seeking to achieve its investment objective,
the Emerging Growth Fund invests primarily in equity securities of emerging
growth and small capitalization companies.
The Emerging Growth Fund generally is designed for investors who want a
more aggressive investment and can tolerate volatility and possible losses.
Because of the Emerging Growth Fund's investment policies, the Emerging Growth
Fund is subject to above average risks.
Kobrick-Cendant Funds, Inc. (the "Investment Manager") serves as investment
manager to the Funds. 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 Funds' shares.
<PAGE>
An investment in any of the Funds should be part of a balanced investment
program. There are risks in any investment program, including the risk of
changing economic and market conditions, and there is no assurance that any of
the Funds will achieve its investment objectives. The net asset value of each
Fund's shares fluctuates as market conditions change.
This Prospectus sets forth concisely the information a prospective investor
should know about the Funds before investing. It should be retained for future
reference. A current Statement of Additional Information about the Funds has
been filed with the Securities and Exchange Commission (the "SEC") and (together
with any supplement to it) is incorporated by reference into this Prospectus. It
is available at no charge upon request to the Funds at P.O. Box 8075, Boston, MA
02266-8075 or by calling 1-888-KCFUND1 (1-888-523-8631). The SEC maintains a web
site (http://www.sec.gov) that contains the Funds' Statement of Additional
Information, material incorporated by reference and other information regarding
the Funds.
LIKE ALL MUTUAL FUNDS, 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.
SHARES OF THE FUNDS 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 for each Fund
The Funds' Investment Objectives and Policies
Growth Fund
Capital Fund
Emerging Growth
The Funds Investment Techniques
Limiting Investment Risk
How to Purchase Shares
How to Redeem Shares
Exchange Privileges
Shareholder Services
Dividends and Distributions
The Funds and their Shares
Management of the Funds
Taxes
Distribution Plan
Calculation of Share Prices
Calculation of Performance Data
2
<PAGE>
TABLE OF EXPENSES FOR EACH FUND
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
Kobrick-Cendant Kobrick-Cendant Kobrick-Cendant
Growth Fund Capital Fund Emerging Growth Fund
<S> <C> <C> <C>
Sales Charge Imposed on Purchases....................................... None None None
Sales Charge Imposed
on Reinvested Dividends............................................... None None None
Deferred Sales Charge................................................... None None None
Redemption Fees (a)..................................................... None None None
Exchange Fees........................................................... None None None
Annual Fund Operating Expenses (estimated as a percentage of average net assets)
<CAPTION>
Kobrick-Cendant Kobrick-Cendant Kobrick-Cendant
Growth Fund Capital Fund Emerging Growth Fund
<S> <C> <C> <C>
Management Fees......................................................... 1.00% 1.00% 1.00%
12b-1 Fees.............................................................. 0.25% 0.25% 0.25%
Other Expenses.......................................................... 0.15% 0.50% 0.50%
---- ---- ----
Total Fund Operating Expenses........................................... 1.40% 1.75% 1.75%
==== ==== ====
</TABLE>
- - -------------
(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.
EXAMPLE
The following example illustrates the expenses that you would pay on a
$1,000 investment in a 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:
<TABLE>
<CAPTION>
Kobrick-Cendant Kobrick-Cendant Kobrick-Cendant
Growth Fund Capital Fund Emerging Growth Fund
<S> <C> <C> <C>
After 1 year $14 $18 $18
After 3 years $45 $57 $57
</TABLE>
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"
for the Growth Fund (which commenced operations on September 1, 1998) is based
upon projected expenses for the fiscal year ending September 30, 1999 and
assumes, among other things, that the Investment Manager will for
3
<PAGE>
that year, to the extent necessary, voluntarily reduce its fees and/or reimburse
certain expenses charged to a Fund. The percentage expense level shown in the
table as "Other Expenses" for the Capital Fund and the Emerging Growth Fund is
based on projected expenses for the current fiscal year ending September 30,
1998, which reflects, among other things, that the Investment Manager has
voluntarily reduced its fees and/or reimbursed certain expenses charged to a
Fund. 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 Funds" and for further information on 12b-1 fees, see
"Distribution Plan."
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
The Growth Fund, the Capital Fund and the Emerging Growth Fund are separate
funds, each with its own portfolio of securities selected to achieve its
particular investment objective. The investment objective of each Fund is a
fundamental policy that may not be changed without approval of the Fund's
shareholders. An investment in a Fund is not intended to be a complete
investment program and there is no assurance that such Fund's investment
objective can be achieved.
GROWTH FUND
The Growth Fund's investment objective is to provide long-term growth of
capital. In seeking to achieve its investment objective, the Growth Fund
invests, under normal circumstances, at least 65% of its total assets in equity
securities of companies with large capitalizations believed by the Investment
Manager to have better than average growth potential over the years. The Growth
Fund invests in a diversified portfolio of securities of companies in a broad
range of industries. The Investment Manager seeks to identify those industries
which offer the greatest possibilities for profitable expansion and, within such
industries, those companies which appear most capable of sustained growth.
Potential income is not a major factor in the selection of investments, although
it is given consideration in varying degrees depending on particular issuers.
Investments will also be made in securities of companies believed by the
Investment Manager to be selling below their intrinsic values or in cyclical
companies believed by the Investment Manager to be at an attractive point in
their cycles. Although the focus of the Growth Fund is on companies with large
capitalizations, the capitalizations of the companies in which the Fund invests
can range across the full spectrum from small to large capitalizations.
Under normal circumstances, the Growth Fund expects to be fully invested in
equity securities as described above. The equity securities in which the Growth
Fund will invest consist of common stocks (and preferred stocks and debt
securities convertible into or carrying the right to acquire common stocks)
primarily traded or listed on a major securities exchange. However, the Growth
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
small capitalization or emerging growth companies.
CAPITAL FUND
The Capital Fund's investment objective is to provide maximum capital
appreciation. In seeking to achieve its investment objective, the Capital Fund
invests, under normal circumstances, at least 65% of its total assets in equity
securities of companies with small,
4
<PAGE>
medium and large capitalizations, including those considered by the Investment
Manager to be undervalued special situations and emerging growth companies.
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. 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 capitalizations of the companies
in which the Capital 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 Capital Fund expects to be fully invested
in equity securities as described above. The equity securities in which the
Growth Fund will invest consist of common stocks (and preferred stocks and debt
securities convertible into or carrying the right to acquire common stocks)
primarily traded or listed on a major securities exchange. However, the Capital
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
more mature companies.
Because the Capital Fund invests, among other things, in undervalued
special situations, emerging growth companies and companies with small
capitalizations, an investment in the Capital Fund involves greater than average
risks and the value of the Capital 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 Capital 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. Emerging growth and small capitalization
companies 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.
EMERGING GROWTH FUND
The Emerging Growth Fund's investment objective is to provide growth in
capital. In seeking to achieve its investment objective, the Emerging Growth
Fund invests, under normal circumstances, at least 65% of its total assets in
equity securities of emerging growth companies and small capitalization
companies. 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. A company's market capitalization is the
total market value of its publicly traded equity securities. The Emerging Growth
Fund invests in companies with market capitalization ranging as high as those
included in the Russell 2000 Index. As of the latest reconstitution of the
Russell 2000 Index on May 31, 1998, the largest market capitalization in the
Index was approximately $1.4 billion. Levels of capitalization and the Russell
2000 Index could vary over time because of market conditions, changes in the
parameters of indices, and other factors relating generally to small
capitalization companies and investments in such companies. While a company's
market capitalization may be small at the time the Emerging Growth Fund first
invests in the
5
<PAGE>
company, the Emerging Growth Fund may continue to hold and
acquire shares of a company after its market capitalization increases.
Under normal circumstances, the Emerging Growth Fund expects to be fully
invested in equity securities as described above. The equity securities in which
the Emerging Growth Fund will invest consist of common stocks (and preferred
stocks and debt securities convertible into or carrying the right to acquire
common stocks) primarily traded or listed on a major securities exchange.
However, the Emerging Growth 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.
Because the Emerging Growth Fund invests primarily in emerging growth and
small capitalization companies, an investment in the Emerging Growth Fund
involves greater than average risks and the value of the Emerging Growth 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 Emerging Growth
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. Emerging
growth and small capitalization companies 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.
THE FUNDS' INVESTMENT PRACTICES
GENERAL
In selecting investments for each Fund, the Investment Manager considers a
variety of factors. These include, but are not limited to, a company's
management, expected growth in earnings, relative financial condition, cash
flow, competitive position, business strategy, overall potential as an
enterprise, entrepreneurial character and new or innovative products, services
or processes. The Investment Manager's decision with respect to an investment
may be made based upon any one or more of these factors.
The Funds may engage in short-term trading of securities and reserve 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 Growth Fund will not exceed 100% and for each of
the Capital Fund and the Emerging Growth Fund will not exceed 200%. The
portfolio turnover rate for the Capital Fund and the Emerging Growth Fund
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.
6
<PAGE>
FOREIGN INVESTMENTS
The Funds reserve 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, each 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.
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 Funds
will consist of securities of issuers in countries with developed economies.
However, each Fund may also invest in the securities of issuers in countries
with less developed economies as deemed appropriate by the Investment Manager,
although each 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 Funds 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
7
<PAGE>
increase. In entering a forward currency transaction, the Funds are dependent
upon the creditworthiness and good faith of the counterparty. Each 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.
DEBT SECURITIES
Each Fund may purchase investment grade debt (i.e., rated at the time of
purchase AAA, AA, A or BBB by Standard & Poor's Corporation ("S&P") or Aaa, Aa,
A or Baa 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.
OTHER INVESTMENT POLICIES
Each Fund may lend portfolio securities with a value of up to 33 1/3 % of
its total assets. The applicable 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 each 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 Funds' outstanding securities.
Such loans may be terminated at any time.
Each 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 Funds 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.
Each 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. Each Fund may not establish a position in
commodities or commodity contracts, including futures, or purchase or write put
or call options on commodities, except that each Fund may purchase or sell
financial futures contracts and related options. The Funds may enter various
forms of swap arrangements, which have simultaneously the characteristics of a
security and futures contract, although each 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, each Fund operates under certain
fundamental and nonfundamental investment restrictions. Under the fundamental
restrictions a Fund may not,
8
<PAGE>
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
applicable Fund. The vote of a majority of the outstanding voting securities of
the applicable Fund means the vote (A) of 67% or more of the voting securities
of the applicable Fund present at a meeting, if the holders of more than 50% of
the outstanding voting securities of the applicable Fund are present or
represented by proxy; or (B) of more than 50% of the outstanding voting
securities of the applicable Fund, whichever is less.
Under the nonfundamental investment restrictions, a Fund may not invest
more than 15% of the Fund's net assets in illiquid securities, including
repurchase agreements with maturities greater 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, a 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.
Each Fund may hold up to 100% of its assets in cash or certain short-term
securities for temporary defensive purposes. Each 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 Funds will not be
achieving their investment goals. The types of short-term instruments in which
the Funds may invest for such purposes are, as more fully described in the
Statement of Additional Information: securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, (U.S. Treasury bills, notes,
bonds, Government National Mortgage Association certificates), custodial
receipts, certificates of deposit, time deposits, repurchase agreements 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.
9
<PAGE>
HOW TO PURCHASE SHARES
INITIAL INVESTMENT.
Your initial investment in a Fund must be at least $2,500 ($1,000 for tax
deferred retirement plans and accounts opened with the Automatic Investment
Plan). A 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 any or all of the Funds 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 Funds
c/o State Street Bank and Trust Company
P.O. Box 8075
Boston, Massachusetts 02266-8075
Overnight Mail: Kobrick-Cendant Funds
c/o State Street Bank and Trust Company
Two Heritage Drive
Quincy, Massachusetts 02171-2144
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 Funds' 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 Funds 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 Funds
Boston, MA 02110
Routing # 0110-0002-8
Deposit DDA # 9905-343-1
Specify the Fund, your name and the account number of your account
Neither the Funds 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 a Fund for which you have established an
account 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 Funds with
either the stub from your Fund account confirmation statement or a note
indicating the amount of the purchase, the Fund(s) name, your account
number and the name in which your
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account is registered to Kobrick-Cendant Funds at one of the addresses
listed above for initial investments.
BY WIRE TRANSFER: You may instruct your bank to wire transfer money to the
Funds' custodian bank (not available for IRA accounts). Your bank may
charge you a fee for sending the wire transfer. Neither the Funds 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 for a Fund is $1,000. You may cancel the Automatic
Investment Plan at any time and the Funds reserve the right to immediately
terminate your Automatic Investment Plan in the event that any item is
returned unpaid by your financial institution. The Funds reserve 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 Funds.
EXCHANGE.
You may establish an account for a Fund and make subsequent purchases of
shares of the Fund by exchanging shares of another Fund, at net asset value.
Shares of the Funds 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 each 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 each 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
of the Fund 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 Funds 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 Funds after the
close of
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the regular session of trading on the New York Stock Exchange on that day are
confirmed at the net asset value of the applicable Fund next determined on the
following business day.
You may purchase or redeem shares of the Funds 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 Funds, in
good order; it is the responsibility of the dealer, bank or other institution to
transmit your order or request promptly. These institutions may impose charges
for their services. You may purchase or redeem shares of the Funds directly from
or with the Funds without imposition of any charges other than those described
in this prospectus.
The Funds will not accept cash, drafts, third party checks or checks drawn
on banks outside of the United States. The Funds consider all requests for
purchases, checks and other forms of payment to be received when they are
received in good order by the applicable 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 name or
number of the applicable Fund(s), 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 any of the Funds is canceled because your check does not
clear, you will be responsible for any resulting expenses or fees incurred by
such 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 Funds on each day that the Funds are open for
business. The Funds will make redemptions at the applicable 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
applicable 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 Funds may delay payment of
the redemption proceeds to you until it can verify that the payment for the
purchase of those shares has been (or will be) collected. To reduce such delays,
the Funds recommend that you purchase your shares by certified check or
wire.
Shareholders may have their shares in each of the Funds redeemed directly
by the applicable Fund at net asset value; redemptions processed through
securities dealers may be subject to processing charges.
You may redeem shares directly 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 Funds
c/o State Street Bank and Trust Company
P.O. Box 8075
Boston, Massachusetts 02266-8075
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OVERNIGHT MAIL: Kobrick-Cendant Funds
c/o State Street Bank and Trust Company
Two Heritage Drive
Quincy, Massachusetts 02171-2144
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 Funds 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 Funds to establish such an arrangement. You can elect this
feature only if the balance in the applicable Fund is at least $10,000. You
may cancel the Automatic Redemption Plan at any time. The Funds reserve 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:
. You wish to redeem $50,000 or more worth of shares;
. 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);
. Your address has changed within the last 30 days;
. You request that the check be mailed to an address different from the
one on your account (address of record);
. You request that the check be made payable to someone other than the
account owner; or
. 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.
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If you elect on your application to participate in the Redemption by Wire
Plan or such request is subsequently made in writing accompanied by a signature
guarantee, the proceeds of your redemption may be made by wire transfer to your
existing account in any commercial bank or brokerage firm in the United States.
If you request a redemption by wire, a processing fee (currently $10) will be
deducted from the redemption proceeds. Your bank or brokerage firm may also
impose a fee for processing the wire. In the event the wire transfer of funds is
impossible or impractical, the redemption proceeds will be sent by mail to the
designated account.
Redemptions may be suspended or payment dates postponed on days when the
New York Stock Exchange is closed, 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 Funds 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 applicable 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 Funds reserve 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 Funds also reserve the right, due to the expenses of
maintaining small accounts, to redeem shares in any Fund 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 a Fund may be exchanged for shares of any other Fund, at net
asset value. Shares of the Funds 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 known as a mutual fund), advised by State Street
Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, and
not affiliated with the Funds, the Trust, or the distributor of the Funds'
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 Funds' 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 Funds, the Trust or the distributor of the Funds' 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
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investment in the SSgA US Government Money Market Fund will be handled by the
Funds by calling 1-888-KCFUND1 (1-888-523-8631). You will not be permitted to
exchange shares of any Fund or of the SSgA US Government Money Market Fund to
any other fund 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 Funds require each
exchange to be a minimum of $50 ($100 for exchanges into or out of the SSgA US
Government Money Market Fund) 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. Each 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 Funds 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 Funds' business hours from
8:00 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 Funds offer
the following shareholder services:
24 HOUR SERVICES. You may obtain your account balances, each Fund's daily
net asset value and certain other information at any time by calling the Funds
at 1-888-KCFUND1 (1-888-523-8631).
WEB SITE. You may visit the Funds' web site (http://www.kcfund.com) to
obtain each Fund's daily net asset value, manager profiles, market outlook,
applications, IRA material and additional information about the Funds.
RETIREMENT PLANS AND IRA ACCOUNTS. Shares of the Funds may be purchased
directly by existing retirement plans which allow such investments. In addition,
qualified individuals may establish a traditional IRA or Roth IRA to be funded
with shares of the Funds. 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). The Funds may in the future offer additional retirement savings
arrangements such as 403(b)(7) custodial accounts, simple IRA plans and
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simplified employee pension (SEP) plans. For further information, call the Funds
at 1-888-KCFUND1 (1-888-523-8631) or visit our web site at
http://www.kcfunds.com.
DIRECT DEPOSIT PLANS. Shares of the Funds 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 Funds. 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
Funds 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 Funds will send to 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 Funds will provide you annually with tax information. You will also
receive audited annual financial statements and semi-annual financial reports on
the Funds' operations and performance and a new prospectus each year.
TELEPHONE TRANSACTIONS. As described in this prospectus, the Funds allow
you to transact much of your business by telephone. Neither the Trust, the
Funds, 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
Each 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 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 applicable 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 applicable 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
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applicable 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 will be reinvested in
your account at the then current applicable net asset value and your account
will be converted to the Reinvestment Option.
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THE FUNDS AND THEIR SHARES
The Funds are organized as separate series of the Kobrick-Cendant
Investment Trust, a Massachusetts business trust. The Trust was organized on
October 10, 1997 and is registered with the Securities and Exchange Commission
under the Investment Company Act of 1940 as an open-end management investment
company. 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. Each 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. At that time, a
meeting of shareholders will be called. 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 FUNDS
Under the provisions of the Master Trust Agreement and the laws of
Massachusetts, primary responsibility for the management and supervision of the
Funds rests with the Trustees.
The Funds' 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
Funds, 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 35 years of experience in the management
of investments.
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The portfolio manager for each of the Funds 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 each Fund. The portfolio
manager may use a team approach on behalf of the Funds and delegate purchase and
sale authority for portions of the portfolios 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, each of the Funds pays a monthly management fee to the
Investment Manager. The annual management fee is equal to 1.00% of the average
net assets of the applicable Fund as determined at the close of each business
day during the month.
In addition to the management fee, the Funds are 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 Funds' 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 Funds, 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 Funds may be parties 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 Funds are
responsible for its other expenses and services. In view of the requirements for
management of the Funds' 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 private investment
partnerships, 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 Funds. In those instances where securities transactions are carried on at
the same time on behalf of any or all of the Funds and such other accounts,
transactions in such securities for such accounts may be grouped with securities
transactions carried out on behalf of the Funds. 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
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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 Funds and in
each case the books and records of the Funds and any such other account will
separately reflect, for each account, the orders of which are aggregated and 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 August 1, 1998, Cendant Corporation held more than 25% of the shares
of each of the Funds. Accordingly, Cendant Corporation and its respective
affiliates directly or indirectly control the Funds.
Like other financial and business organizations, the Funds could be
adversely affected if computer systems they rely on do not properly process
date-related information and data involving the year 2000 and after. The Funds
and the Investment Manager are taking steps that they believe are reasonable to
address this problem in their own computer systems and to obtain assurances that
reasonable steps are being taken by the Funds' major service providers. The
Investment Manager does not currently anticipate that the Year 2000 issue will
have a material impact on its ability to fulfill its duties as investment
manager.
TAXES
Each 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, each of
the Funds 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).
Each of the Funds declare dividends, if any, from net investment income
annually and pays any such dividends 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
applicable 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").
Each 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 each 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
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eligible for the 70% dividends-received deduction for corporations. The
percentage of each Fund's dividends eligible for such tax treatment may be less
than 100% to the extent that less than 100% of such 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 a 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 a Fund's
shares paid to individuals and other nonexempt payees will be subject to a 31%
federal backup withholding tax if the Fund is not provided with the
shareholder's correct taxpayer identification number and certification that the
shareholder is not subject to such backup withholding.
The foregoing discussion relates only to generally applicable federal
income tax provisions in effect as of the date of this Prospectus. Therefore,
prospective shareholders are urged to consult their own tax advisors regarding
tax matters, including state and local tax consequences.
DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Trust
has adopted a plan of distribution (the "Plan") under which each of the Funds
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
applicable Fund's average daily net assets.
CALCULATION OF SHARE PRICE
On each day that the Funds are open for business, the share price (net
asset value) of the shares of each of the Funds 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 Funds are open for business on each day the New
York Stock Exchange is open for business The net asset value per share of each
Fund is calculated by dividing the sum of the value of the securities held by
the applicable Fund plus cash or other assets minus all liabilities (including
estimated accrued
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expenses) by the total number of shares outstanding of the applicable 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
prices 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 prices, (ii) securities traded in the over-
the-counter market, and which are not quoted by NASDAQ, are valued at the last
sale prices (or, if a 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, (iv) short-term investments with maturities less
than 60 days are valued at amortized cost which approximates market value and
(v) 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
each of the Funds 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, a Fund may compare its performance to
that of other mutual funds with similar investment objectives or, to rankings or
averages such as those compiled by Lipper Analytical Services, Inc. for the
growth category and/or to other financial alternatives for the Growth Fund, for
the capital appreciation category and/or to other financial alternatives with
respect to the Capital Fund and for the small capitalization category and/or to
other financial alternatives for the Emerging Growth Fund.
Each 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.
Each 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.
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Performance information may be useful in evaluating a Fund and for
providing a basis for comparison with other financial alternatives. Since the
performance of each 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
each of the Funds will fluctuate so that shares of the Funds, when redeemed, may
be worth more or less than their original cost.
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KOBRICK-CENDANT INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
September 1, 1998
Kobrick-Cendant Growth Fund
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 current Prospectus for the Funds of Kobrick-Cendant
Investment Trust. A copy of the Funds' current 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
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE TRUST....................................................... 1
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES................................... 2
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS................. 11
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS......... 14
INVESTMENT LIMITATIONS.......................................... 16
TRUSTEES AND OFFICERS........................................... 18
THE INVESTMENT MANAGER.......................................... 20
DISTRIBUTION PLAN............................................... 21
SECURITIES TRANSACTIONS......................................... 22
PORTFOLIO TURNOVER.............................................. 24
CALCULATION OF SHARE PRICE...................................... 24
TAXES........................................................... 24
REDEMPTION IN KIND.............................................. 25
HISTORICAL PERFORMANCE INFORMATION.............................. 25
CUSTODIAN....................................................... 27
AUDITORS........................................................ 28
TRANSFER AGENT.................................................. 28
ADMINISTRATOR................................................... 28
DISTRIBUTOR..................................................... 29
STATEMENTS OF ASSETS AND LIABILITIES............................ 29
</TABLE>
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THE TRUST
Kobrick-Cendant Investment Trust (the "Trust") was organized as a
Massachusetts business trust on October 10, 1997. The Trust currently offers
three series of shares to investors: the Kobrick-Cendant Growth Fund, 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 or her 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 futures
contracts, options on securities, options on securities indices, options on
futures contracts, foreign investments, currencies, repurchase agreements,
reverse repurchase agreements, swap arrangements, and "when issued" securities
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 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 losing the ability to
participate in the appreciation of 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
primarily as a hedge against changes resulting from market conditions which
produce changes in the values of its securities or the securities which it
intends to purchase (e.g., to replace portfolio securities which will mature in
the near future) or subject to the limitations described below, to enhance
return. No Fund will purchase any futures contract or purchase any call option
if, immediately thereafter, more than one third of such Fund's net assets would
be represented by long futures contracts or call options. No Fund will write a
covered call or put option if, immediately thereafter, the aggregate value of
the assets (securities in the case of written calls and cash or cash equivalents
in the case of written puts) underlying all such options, determined as of the
dates such options were written, would exceed 25% of such Fund's net assets. In
addition, no Fund may establish a position in a commodity futures contract or
purchase or sell a commodity option contract for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial margin
deposits and premiums required to establish such positions for such nonhedging
purposes would exceed 5% of the market value of such Fund's net assets.
Although effective hedging can generally capture the bulk of a desired risk
adjustment, no hedge is completely effective. A Fund's ability to hedge
effectively through transactions in futures and options depends on the degree to
which price movements in its holdings correlate with price movements of the
futures and options.
Some positions in futures and options may be closed out only on an exchange
which provides a secondary market therefor. There can be no assurance that a
liquid secondary market
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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.
FOREIGN INVESTMENTS.
The Funds reserve 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, each 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 Funds; (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. Each Fund will take these and other risk considerations into account
before making an investment in an unsponsored ADR.
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
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Fund's shares may fluctuate with U.S. dollar exchange rates as well as with
price changes of the Fund's securities in the various local markets and
currencies. Thus, an increase in the value of the U.S. dollar compared to the
currencies in which a Fund makes its investments could reduce the effect of
increases and magnify the effect of decreases in the prices of the Fund's
securities in their local markets. Conversely, a decrease in the value of the
U.S. dollar will have the opposite effect of magnifying the effect of increases
and reducing the effect of decreases in the prices of a Fund's securities in the
local markets.
CURRENCY TRANSACTIONS.
Each Fund's dealings in forward currency exchange contracts will be limited
to hedging involving either specific transactions or aggregate portfolio
positions. A forward currency contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are not commodities and are entered into
in the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers. Although spot and forward
contracts will be used primarily to protect the Fund from adverse currency
movements, they also involve the risk that anticipated currency movements will
not be accurately predicted, which may result in losses to each Fund. This
method of protecting the value of a Fund's portfolio securities against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. It simply establishes a rate of exchange
that can be achieved at some future point in time. Although such contracts tend
to minimize the risk of loss due to a decline in the value of hedged currency,
they tend to limit any potential gain that might result should the value of such
currency increase.
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 with maturities greater 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
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person, such as a financial institution, broker or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed-upon rate.
The ability to use reverse repurchase agreements may enable, but does not ensure
the ability of, a Fund to avoid selling portfolio instruments at a time when a
sale may be deemed to be disadvantageous.
When effecting reverse repurchase agreements, assets of the applicable Fund
in a dollar amount sufficient to make payment of the obligations to be purchased
are segregated on the applicable Fund's records at the trade date and maintained
until the transaction is settled.
SWAP ARRANGEMENTS.
Each Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates, securities 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
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and emerging; positions in swap arrangements may become illiquid to the extent
that nonstandard arrangements with one counterparty are not readily transferable
to another counterparty or if a market for the transfer of swap positions does
not develop. The use of interest rate swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If the Investment Manager is
incorrect in its forecasts of market values, interest rates and other applicable
factors, the investment performance of the applicable Fund would diminish
compared with what it would have been if these investment techniques were not
used. Moreover, even if the Investment Manager is correct in its forecast, there
is a risk that the swap position may correlate imperfectly with the price of the
asset or liability being hedged.
WHEN-ISSUED SECURITIES.
Each Fund may purchase "when-issued" equity securities, which are traded on
a price basis prior to actual issuance. Such purchases will be made only to
achieve a Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to months, or over a year or
more; during this period dividends on equity securities are not payable. No
dividend 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 securities noted below
under Investment Limitations, 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.
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DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS
As indicated in the Funds' Prospectus, a Fund may invest in long-term and
short-term debt securities. Certain debt securities and money market instruments
in which a Fund may invest are described below.
U.S. GOVERNMENT AND RELATED SECURITIES.
U.S. Government securities are securities which are issued or guaranteed as
to principal or interest by the U.S. Government, a U.S. Government agency or
instrumentality, or certain mixed-ownership Government corporations as described
herein. The U.S. Government securities in which each Fund invests include, among
others:
. direct obligations of the U.S. Treasury, i.e., U.S. Treasury bills,
notes, certificates and bonds;
. obligations of U.S. Government agencies or instrumentalities such as
the Federal Home Loan Banks, the Federal Farm Credit Banks, the
Federal National Mortgage Association, the Government National
Mortgage Association and the Federal Home Loan Mortgage Corporation;
and
. obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which each Fund may buy are backed in a variety
of ways by the U.S. Government, its agencies or instrumentalities. Some of these
obligations, such as Government National Mortgage Association mortgage-backed
securities, are backed by the full faith and credit of the U.S. Treasury. Other
obligations, such as those of the Federal National Mortgage Association, are
backed by the discretionary authority of the U.S. Government to purchase certain
obligations of agencies or instrumentalities, although the U.S. Government has
no legal obligation to do so. Obligations such as those of the Federal Home Loan
Banks, the Federal Farm Credit Banks, the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation are backed by the credit of the
agency or instrumentality issuing the obligations. Certain obligations of
Resolution Funding Corporation, a mixed-ownership Government corporation, are
backed with respect to interest payments by the U.S. Treasury, and with respect
to principal payments by U.S. Treasury obligations held in a segregated account
with a Federal Reserve Bank. Except for certain mortgage-related securities,
each Fund will only invest in obligations issued by mixed-ownership Government
corporations where such securities are guaranteed as to payment of principal or
interest by the U.S. Government or a U.S. Government agency or instrumentality,
and any unguaranteed principal or interest is otherwise supported by U.S.
Government obligations held in a segregated account.
U.S. Government securities may be acquired by each Fund in the form of
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury.
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<PAGE>
The principal and interest components of selected securities are traded
independently under the Separate Trading of Registered Interest and Principal of
Securities ("STRIPS") program. Under the STRIPS program, the principal and
interest components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the component parts independently. Obligations of Resolution Funding Corporation
are similarly divided into principal and interest components and maintained as
such on the book entry records of the Federal Reserve Banks.
In addition, each Fund may invest in custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds in connection with programs sponsored by banks and
brokerage firms. Such notes and bonds are held in custody by a bank on behalf of
the owners of the receipts. These custodial receipts are known by various names,
including "Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts"
("TIGRs") and "Certificates of Accrual on Treasury Securities" ("CATS") , and
may not be deemed U.S. Government securities.
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
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<PAGE>
Comptroller of the Currency, while state branches and agencies are chartered and
regulated by authorities of the respective states or the District of Columbia.
U.S. branches of foreign banks may accept deposits and thus are eligible for
FDIC insurance; however, not all such branches elect FDIC insurance. Unlike U.S.
branches of foreign banks, U.S. agencies of foreign banks may not accept
deposits and thus are not eligible for FDIC insurance. Both branches and
agencies can maintain credit balances, which are funds received by the office
incidental to or arising out of the exercise of their banking powers and can
exercise other commercial functions, such as lending activities.
SHORT-TERM CORPORATE DEBT INSTRUMENTS.
Short-term corporate debt instruments include commercial paper to finance
short-term credit needs (i.e., short-term, unsecured promissory notes) issued by
corporations including but not limited to (a) domestic or foreign bank holding
companies or (b) their subsidiaries or affiliates where the debt instrument is
guaranteed by the bank holding company or an affiliated bank or where the bank
holding company or the affiliated bank is unconditionally liable for the debt
instrument. Commercial paper is usually sold on a discounted basis and has a
maturity at the time of issuance not exceeding nine months.
COMMERCIAL PAPER RATINGS.
Commercial paper investments at the time of purchase will be rated within
the "A" major rating category by Standard & Poor's Corporation ("S&P") or within
the "Prime" major rating category 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 within the "A" rating category 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 within the "A" rating category by S&P
or by Moody's.
Commercial paper rated within the "A" category (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 within the "A" category or better,
although in some cases credits within the BBB category 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
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<PAGE>
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
CORPORATE BONDS.
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for corporate bonds in which the Funds may invest are as follows:
Moody's Investors Service, Inc.
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
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.
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<PAGE>
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.
PREFERRED STOCKS.
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for preferred stocks in which the Funds may invest are as follows:
Moody's Investors Service, Inc.
aaa - An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa - An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
a - An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
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.
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<PAGE>
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 any Fund without the affirmative vote of a majority of
the outstanding shares of that Fund. The vote of a majority of the outstanding
voting shares of a Fund means the vote (A) of 67% or more of the voting shares
present at a meeting, if the holders of more than 50% of the outstanding voting
shares of the Trust are present or represented by proxy; or (B) of more than 50%
of the outstanding voting shares of the Trust, whichever is less.
The limitations applicable to each Fund are:
1. Borrowing Money. The Fund will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is asset coverage of
300% for all borrowings of the Fund; or (b) from a bank for temporary purposes
only, provided that, when made, such temporary borrowings are in an amount not
exceeding 5% of the Fund's total assets.
2. Pledging. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings. 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. The Fund will not purchase or sell commodities or
commodity contracts including futures, or purchase or write put or call options
on commodities, except that the Fund may purchase or sell financial futures
contracts and related options.
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<PAGE>
6. Underwriting. The Fund will not act as underwriter of securities
issued by other persons. This limitation is not applicable to the extent that,
in connection with the disposition of portfolio securities, a Fund may be deemed
an underwriter under certain federal securities laws.
7. Real Estate. The Fund will not purchase, hold or deal in real estate
or real estate mortgage loans, including real estate limited partnership
interests, except that the Fund may purchase (a) securities of companies (other
than limited partnerships) which deal in real estate or (b) securities which are
secured by interests in real estate or by interests in mortgage loans including
securities secured by mortgage-backed securities.
8. Loans. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, or (b) by engaging in repurchase agreements. For
purposes of this limitation, the term "loans" shall not include the purchase of
bonds, debentures, commercial paper or corporate notes, and similar marketable
evidences of indebtedness.
9. Industry Concentration. The Fund will not invest more than 25% of its
total assets in any particular industry, except in the case of U.S. Government
securities.
10. Senior Securities. The Fund will not issue or sell any senior
security as defined by the Investment Company Act of 1940 except in so far as
any borrowing that the Fund may engage in may be deemed to be an issuance of a
senior security.
The Trust does not intend to pledge, mortgage or hypothecate the assets of
either Fund. The statements of intention in this paragraph reflect
nonfundamental policies which may be changed by the Board of Trustees without
shareholder approval.
Other current investment policies of each of the Funds, which are not
fundamental and which may be changed by action of the Board of Trustees without
shareholder approval, are as follows:
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.
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<PAGE>
4. Other Investment Companies. The Fund will not invest more than 10% of
its total assets in securities of other investment companies. The Fund will not
invest more than 5% of its total assets in the securities of any single
investment company. The Fund will not hold more than 3% of the outstanding
voting stock of any single investment company.
With respect to the percentages adopted by the Trust as maximum limitations
on a Fund's investment policies and restrictions, an excess above the fixed
percentage (except for the percentage limitations relative to the borrowing of
money and the holding of illiquid securities) will not be a violation of the
policy or restriction unless the excess results immediately and directly from
the acquisition of any security or the action taken.
TRUSTEES AND OFFICERS
The following is a list of the Trustees and executive officers of the
Trust. Each Trustee who is an "interested person" of the Trust, as defined by
the Investment Company Act of 1940, is indicated by an asterisk.
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
<S> <C> <C>
*Frederick R. Kobrick 55 President/Trustee
*Michael T. Carmen 36 Treasurer/Trustee
Jay H. Atlas 53 Trustee
Samuel L. Hayes, III 63 Trustee
Joseph P. Paster 53 Trustee
</TABLE>
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 55. 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 certain private investment partnerships.
*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 certain
private investment partnerships.
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
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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 and a
Vice President of Computervision Corporation.
Samuel L. Hayes, III, Harvard University, Graduate School of Business
Administration, Soldiers Field Road, Boston, MA 02163, serves as a Trustee of
the Trust. He is 63. His principal occupation is as a Professor at the Harvard
Business School. Mr. Hayes has taught at Harvard since 1972.
Joseph P. Paster, John Hancock Place, Post Office Box 111, Boston, MA
02117, serves as a Trustee of the Trust. He is 53. His principal occupation is
as a Vice President of John Hancock Mutual Life Insurance Company, where he has
served in various capacities since 1967.
*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 July 31, 1998, Cendant Corporation was the record holder of 93.1% of
the shares of the Capital Fund and 91.9% of the shares of the Emerging Growth
Fund. No shares of the Growth Fund were outstanding as of July 31, 1998. Cendant
Corporation is incorporated under the laws of the State of Delaware and has its
principal corporate office in Parsippany, New Jersey. 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, Hayes 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.
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Compensation Table
<TABLE>
<CAPTION>
Pension or Total
Aggregate Retirement Estimated Compensation
Name of Compensa- Benefits Accrued 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 $9,000* -0- -0- $9,000*
Trustee
Samuel L. Hayes, III $8,000* -0- -0- $8,000*
Trustee
Joseph P. Paster $9,000* -0- -0- $9,000*
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 first and second
meeting of the Trustees occurred prior to the formation of the Kobrick-Cendant
Growth Fund. Mr. Hayes became a Trustee following the first 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. On a monthy basis, each Fund pays the Investment Manager an
annual 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
year.
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
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<PAGE>
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 the Funds' 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 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
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<PAGE>
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 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
22
<PAGE>
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, that the Investment Manager is aware that this is
an area where differences of opinion as to fact and circumstances may exist, and
in such circumstances, if any, the Investment Manager relies on the provisions
of Section 28(e) of the Securities Act of 1934, to the extent applicable.
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 any of the Funds. 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 any of the Funds in the same (or equivalent) security.
23
<PAGE>
PORTFOLIO TURNOVER
A Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities, excluding securities having maturity
dates at acquisition of one year or less, 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
the Growth Fund normally will not exceed 100% and for each of the Capital Fund
and the Emerging Growth Fund the portfolio turnover normally will not exceed
200%. For example, a 100% turnover rate would occur if all of a Fund's portfolio
securities were replaced once within a one year period.
Generally, each Fund intends to invest for long-term purposes. However, the
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when the 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, Martin Luther King 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.
TAXES
The Funds' Prospectus describes generally the tax treatment of
distributions by the Funds. This section of the Statement of Additional
Information includes additional information concerning federal taxes.
Each Fund intends to qualify annually for the special tax treatment
afforded a "regulated investment company" under Subchapter M of the Internal
Revenue Code so that it does not pay federal taxes on income and capital gains
distributed to shareholders. However, it cannot give complete assurance that it
will do so. 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
24
<PAGE>
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. The Funds have made an election pursuant to Rule 18f-1 under the
Investment Company Act of 1940 which requires 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
25
<PAGE>
n= number of years
ERV =ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 and 10 year periods at the end of the 1, 5 or 10
year periods (or fractional portion thereof)
The calculation of average annual total return assumes the reinvestment of
all dividends and distributions. If a Fund has been in existence less than one,
five or ten years, the time period since the date of the initial public offering
of shares will be substituted for the periods stated. Each Fund may also
advertise total return (a "nonstandardized quotation") which is calculated
differently from average annual total return. A nonstandardized quotation of
total return may be a cumulative return which measures the percentage change in
the value of an account between the beginning and end of a period, assuming no
activity in the account other than reinvestment of dividends and capital gains
distributions. A nonstandardized quotation may also indicate average annual
compounded rates of return over periods other than those specified for average
annual total return. A nonstandardized quotation of total return will always be
accompanied by a Fund's average annual total return as described above.
From time to time, each of the Funds may also advertise its yield. A yield
quotation is based on a 30-day (or one month) period and is computed by dividing
the net investment income per share earned during the period by the maximum
offering price per share on the last day of the period, according to the
following formula:
Yield = 2[(a-b/cd + 1)6 - 1]
Where:
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.
26
<PAGE>
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 Growth Fund may provide comparative performance information appearing
in the Growth Funds category, 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, the Dow Jones Industrial Average, and the Russell 2000 Index. The S&P
500 Index is an unmanaged index of 500 stocks, the purpose of which is to
portray the pattern of common stock price movement. The Dow Jones Industrial
Average is a measurement of general market price movement for 30 widely held
stocks listed on the New York Stock Exchange. The Russell 2000 Index is an
unmanaged index of 2000 small capitalization U.S. stocks and is a commonly used
index of U.S. small stock performance.
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
27
<PAGE>
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 PricewaterhouseCoopers LLC has been selected as independent
auditors for the Trust for the fiscal year ending September 30, 1998.
PricewaterhouseCoopers LLC, One Post Office Square, Boston, Massachusetts 02109,
performs an annual audit of the Trust's financial statements and advises the
Funds as to certain accounting matters.
TRANSFER AGENT
The Trust's transfer agent, State Street Bank and Trust Company ("SSBT"),
through its agent, Boston Financial Data Services, Inc., 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 each Fund,
provided, however, that the minimum fee is approximately $3,400 per month for
each Fund. In addition, the Funds pay out-of-pocket expenses, including but not
limited to, postage, envelopes, checks, drafts, forms, reports, record storage
and communication lines.
ADMINISTRATOR
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:
28
<PAGE>
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.
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 Unaudited Statements of Assets and Liabilities, Statements of
Operations and Statements of Changes in Net Assets for the Capital Fund and the
Emerging Growth Fund as of March 31, 1998 are included in this Statement of
Additional Information.
29
<PAGE>
- - --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Kobrick-Cendant Investment Trust
Statements of Assets and Liabilities
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Kobrick-Cendant Kobrick-Cendant
Capital Emerging Growth
Fund Fund
-------------- --------------
<S> <C> <C>
ASSETS
Investments, at value (Note 2)
Securities (cost $32,071,676 and
$32,046,841, respectively) ............... $ 35,686,426 $ 35,291,082
Repurchase Agreement...................... -- 492,000
------------ ------------
Total Investments........................ 35,686,426 35,783,082
Cash........................................ 436,171 916
Dividends and interest receivable........... 15,355 20,977
Receivable for securities sold.............. 2,345,044 1,885,578
Receivable for Trust shares sold............ 9,945 23,080
Deferred organizational costs (Note 2)...... 40,476 40,476
Deferred offering costs (Note 2)............ 17,651 17,651
Prepaid expenses............................ 11,101 11,102
------------ ------------
TOTAL ASSETS............................. 38,562,169 37,782,862
LIABILITIES
Payable for securities purchased............ 1,747,672 1,224,655
Investment advisory fee payable (Note 3).... 23,022 22,427
Distribution fees payable (Note 4).......... 14,878 14,538
Accounts payable and accrued expenses....... 26,367 27,907
------------ ------------
TOTAL LIABILITIES........................ 1,811,939 1,289,527
------------ ------------
NET ASSETS......................... $ 36,750,230 $ 36,493,335
============ ============
NET ASSETS
Paid-in capital............................. $ 32,422,647 $ 31,994,363
Net investment loss......................... (57,443) (42,113)
Accumulated net realized gain on investments 770,276 804,844
Net unrealized appreciation of investments.. 3,614,750 3,736,241
------------ ------------
NET ASSETS......................... $ 36,750,230 $ 36,493,335
============ ============
Total shares outstanding at end of period... 3,190,381 3,118,032
Net asset value, offering price, and
redemption price per share $ 11.52 $ 11.70
============ ============
</TABLE>
See Notes to Financial Statements
30
<PAGE>
- - --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Kobrick-Cendant Investment Trust
Statements of Operations
Three Months Ended March 31, 1998 (unaudited) (1)
<TABLE>
<CAPTION>
Kobrick-Cendant Kobrick-Cendant
Capital Emerging Growth
Fund Fund
-------------- --------------
<S> <C> <C>
INVESTMENT INCOME
Dividends (Net of foreign withholding taxes
of $696 and $0, respectively)............. $ 24,329 $ 24,504
Interest.................................... 22,375 35,150
------------ ------------
TOTAL INVESTMENT INCOME ................. 46,704 59,654
EXPENSES
Investment advisory fees (Note 3) .......... 59,513 58,152
Distribution fees (Note 4).................. 14,878 14,538
Administrative fees......................... 3,541 3,541
Custodian fees.............................. 6,145 6,145
Audit fees.................................. 6,568 6,568
Legal fees.................................. 6,568 6,568
Trustees fees (Note 3)...................... 1,951 1,951
Transfer agent fees......................... 2,688 2,688
Amortization of organizational costs (Note 2) 2,058 2,058
Amortization of offering costs (Note 2)..... 5,692 5,692
Registration fees........................... 10,828 10,828
Other....................................... 9,639 9,640
------------ ------------
TOTAL EXPENSES .......................... 130,069 128,369
Fees waived and/or expenses reimbursed by
investment advisor and transfer agent.... (25,922) (26,602)
------------ ------------
NET EXPENSES ............................ 104,147 101,767
------------ ------------
NET INVESTMENT LOSS ............... $ (57,443) $ (42,113)
------------ ------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net realized gain on investments............ $ 770,276 $ 804,844
Change in net unrealized appreciation of
investments ............................. 3,614,750 3,736,241
------------ ------------
Net realized and unrealized gain on
investments .......................... 4,385,026 4,541,085
------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS................... $ 4,327,583 $ 4,498,972
============ ============
</TABLE>
(1) For the period January 2, 1998 (commencement of investment operations)
through March 31, 1998.
See Notes to Financial Statements
31
<PAGE>
- - --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Kobrick-Cendant Investment Trust
Statements of Changes in Net Assets
Three Months Ended March 31, 1998 (unaudited)(1)
<TABLE>
<CAPTION>
Kobrick-Cendant Kobrick-Cendant
Capital Emerging Growth
Fund Fund
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
From operations:
Net investment loss...................... $ (57,443) $ (42,113)
Net realized gain on investments......... 770,276 804,844
Change in net unrealized appreciation
of investments......................... 3,614,750 3,736,241
------------ ------------
Net increase in net assets resulting
from operations........................ 4,327,583 4,498,972
Net increase from Trust share
transactions (Note 6).................. 32,322,647 31,894,363
------------ ------------
Net increase in net assets resulting
from operations........................ 36,650,230 36,393,335
Net Assets
Beginning of period...................... 100,000 100,000
------------ ------------
End of period............................ $ 36,750,230 $ 36,493,335
============ ============
Net investment loss......................... $ (57,443) $ (42,113)
============ ============
</TABLE>
(1) For the period January 2, 1998 (commencement of investment operations)
through March 31, 1998.
See Notes to Financial Statements
32
<PAGE>
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Kobrick-Cendant Investment Trust
Notes to Financial Statements
March 31, 1998 (unaudited)
NOTE 1 -- ORGANIZATION
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 consists presently of two separate Funds:
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.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements.
SECURITY VALUATION: Each Fund's investment securities which are traded on stock
exchanges or are quoted by the National Association of Security Dealers
Automated Quotation system ("NASDAQ") are valued at the last reported sale
prices as of the close of the regular session of the trading on the New York
Stock Exchange ("NYSE") on the day the securities are valued, or if not traded
on a particular day, at the closing bid prices. Securities traded in the
over-the-counter market, and which are not quoted by NASDAQ, are valued at the
last sale prices (or, if a last sale price is not readily available, at the last
bid price as quoted by the brokers that make markets in the security) as of the
close of the regular session of trading on the NYSE on the day the securities
are being valued. 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. Short-term investments with maturities less than 60 days
are valued at amortized cost which approximates market value. Securities for
which current market quotations are not readily available are valued at their
fair value as determined in good faith in accordance with procedures approved by
the Board of Trustees.
REPURCHASE AGREEMENTS: Each Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser, Kobrick-Cendant Funds, Inc.
("Kobrick-Cendant"), has determined are creditworthy pursuant to criteria
adopted by the Board of Trustees. The repurchase agreements are collateralized
by U.S. Government securities. The Fund's custodian takes possession of the
underlying securities. It is the policy of the Funds to value the underlying
collateral daily on a mark-to-market basis to determine that the value of the
collateral held, including accrued interest, is at least equal to the repurchase
price. In the event of default of the obligation to repurchase, the Funds have
the right to liquidate the collateral and apply the proceeds in satisfaction of
the obligation.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Investment security transactions
are recorded on a trade date basis. Realized gains and losses on investments
sold are recorded based on the specific identification method. Dividend income
on investment securities, less foreign taxes
33
<PAGE>
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Kobrick-Cendant Investment Trust
Notes to Financial Statements (continued)
March 31, 1998 (unaudited)
withheld, if any, is recorded on the ex-dividend date. Interest income on
investment securities is recorded on the accrual basis.
EXPENSES: Certain of the Trust's expenses are allocated equally to those Funds
which make up the Trust. Other expenses of the Trust are allocated to the
respective Funds based upon the relative net assets of each Fund. Operating
expenses directly attributable to a Fund are charged to the Fund's operations.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of each Fund to
declare and pay dividends from net investment income at least annually. Each
Fund will distribute net realized capital gains (including net short-term
capital gains) unless offset by any available capital loss carryforward, at
least annually. Income distributions and capital gain distributions are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These differences are due
primarily to differing treatments of income and gain on various investment
securities held by the Funds, timing differences and differing characterizations
of distributions made by the Funds.
FEDERAL INCOME TAXES: Each Fund intends to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), by complying with the provisions available to regulated investment
companies, as defined in applicable sections of the Code, and to make
distributions of taxable income to shareholders sufficient to relieve each Fund
from all or substantially all federal income taxes. Accordingly, no provision
for federal income tax has been made.
ORGANIZATION COSTS: Offering costs, including the fees and expenses of
registering and qualifying shares of each Fund for distribution under Federal
and state securities regulations, are being amortized over the one-year period
from the date upon which each Fund commenced its operations. Costs and expenses
of the Trust in connection with the organization of the Trust have been deferred
by the Trust and are being amortized on a straight-line basis from the date
operations commenced over a period that a benefit is expected 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 costs.
USE OF ESTIMATES: The preparation of 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.
34
<PAGE>
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Kobrick-Cendant Investment Trust
Notes to Financial Statements (continued)
March 31, 1998 (unaudited)
NOTE 3 -- INVESTMENT ADVISORY FEES AND OTHER
TRANSACTIONS WITH AFFILIATES
The Trust has entered into an investment advisory agreement (the "Advisory
Agreement") with Kobrick-Cendant. Under the agreement, Kobrick-Cendant provides
investment management services to the Trust and is entitled to receive a fee,
computed daily and paid monthly, at the annual rate of 1.00% based on average
daily net assets of each Fund.
Kobrick-Cendant may, from time to time, voluntarily waive its fees or
reimburse expenses charged to each Fund. Pursuant to the transfer agent
agreement, Boston Financial Data Services, Inc. ("BFDS") has agreed to waive a
portion of their fees for the first six months of fund operations. For the three
months ended March 31, 1998, Kobrick-Cendant and BFDS waived fees and/or
reimbursed expenses as follows:
<TABLE>
<CAPTION>
Kobrick-Cendant Kobrick-Cendant
Capital Emerging Growth
Fund Fund
-------------- --------------
<S> <C> <C>
Expenses Reimbursed by the Investment Adviser.. $ 12,022 $ 12,587
Investment Advisory Fees Waived................ 12,556 12,671
Transfer Agent Fees Waived..................... 1,344 1,344
-------- --------
Total Fees Waived and/or Reimbursed............ $ 25,922 $ 26,602
======== ========
</TABLE>
No officer, director or employee of Kobrick-Cendant, or any affiliate
thereof, receives any compensation from the Trust for serving as trustee or
officer of the Trust. Each Trustee who is not an "affiliated person" receives an
annual fee from each Fund of $2,000 plus $500 from each Fund for each board
meeting attended. The Trust also reimburses out-of-pocket expenses incurred by
each Trustee in attending such meetings.
NOTE 4 -- DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "plan"),
the Trust has adopted a plan of distribution (the "plan") under which each Fund
may directly incur certain distribution-related expenses, including: payments to
securities dealers and others who are engaged in the sale of shares of each Fund
and who may be advising shareholders of each Fund 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 Trust's transfer agent; expenses of formulating and
implementing marketing and promotional activities; expenses of preparing,
printing and distributing sales literature, prospectuses, statements of
additional information and reports for recipients other than existing
shareholders of
35
<PAGE>
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Kobrick-Cendant Investment Trust
Notes to Financial Statements (continued)
March 31, 1998 (unaudited)
each 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
Funds' shares. The annual limitation for expenses pursuant to the plan is .25%
of each Fund's average daily net assets.
NOTE 5 -- PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate amount of purchases and sales of investment securities,
excluding short-term investments, for the three months ended March 31, 1998,
were as follows:
Purchases Sales
------------ ------------
Kobrick-Cendant Capital Fund................... $ 61,834,765 $ 30,533,365
Kobrick-Cendant Emerging Growth Fund.......... 49,808,435 19,058,438
At March 31, 1998, the identified cost of investments for federal income tax
purposes of investments owned by each Fund and their respective gross unrealized
appreciation and unrealized depreciation were as follows:
<TABLE>
<CAPTION>
Gross Gross Net
Identified Unrealized Unrealized Unrealized
Cost Appreciation Depreciation Appreciation
----------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Kobrick-Cendant Capital Fund $ 32,071,676 $ 3,948,717 $ 333,967 $ 3,614,750
Kobrick-Cendant Emerging Growth Fund 32,046,841 4,143,879 407,638 3,736,241
</TABLE>
NOTE 6 - SCHEDULE OF CAPITAL STOCK ACTIVITY
As of March 31, 1998, an unlimited number of shares of beneficial interest,
having no par value, were authorized for the Trust. The capital stock activity
for the three months ended March 31, 1998 was as follows:
<TABLE>
<CAPTION>
Kobrick-Cendant Capital Fund:* Shares Amount
--------- -----------
<S> <C> <C>
Shares Sold 3,185,725 $32,382,647
Shares Redeemed (5,344) (60,000)
--------- -----------
Net Increase 3,180,381 $32,322,647
========= ===========
Kobrick-Cendant Emerging Growth Fund:*
Shares Sold 3,109,106 $31,906,895
Shares Redeemed (1,074) (12,532)
--------- -----------
Net Increase 3,108,032 $31,894,363
========= ===========
</TABLE>
* Kobrick-Cendant Capital Fund and Kobrick-Cendant Emerging Growth Fund
commenced operations on January 2, 1998.
36
<PAGE>
KOBRICK-CENDANT INVESTMENT TRUST
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) (i) Financial Statements included in Part A:
None
(ii) Financial Statements included in Part B:*
Unaudited Statements of Assets and Liabilities, March 31, 1998,
including
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
(b) Exhibits
(1) Amended and Restated Master Trust Agreement*
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) Form of Advisory Agreement*
(6) (i) Form of Distribution Agreement with Funds Distributor,
Inc.*
(ii) Form of Selling Agreement*
(7) Inapplicable
(8) Revised Form of Custodian Agreement with State Street Bank and
Trust Company*
(9) (i) Form of Administration Agreement with State Street Bank and
Trust Company*
<PAGE>
(ii) Form of Transfer Agency and Service Agreement with State
Street Bank and Trust Company*
(10) Opinion and Consent of Counsel
(11) Inapplicable
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Form of Plan of Distribution Pursuant to Rule 12b-1*
(16) Inapplicable
(17) Inapplicable
(18) Inapplicable
_________________
* Previously filed
Item 25. Persons Controlled by or Under Common Control with Registrant
Inapplicable
Item 26. Number of Holders of Securities
Number of Record
Fund Holders (at 7/31/98)
---- --------------------
Capital Fund 172
Emerging Growth 219
Item 27. Indemnification
Article VI of the Registrant's Agreement and Declaration of Trust
provides for indemnification of officers and Trustees as follows:
"Section 6.4 Indemnification of Trustees, Officers, etc.
------------------------------------------
Subject to and except as otherwise provided in the Securities
Exchange Act of 1933, as amended, and the 1940 Act, the Trust
shall indemnify each of its Trustees and officers (including
persons who serve at the Trust's request as directors, officers
or trustees of another organization in which the Trust has any
2
<PAGE>
interest as a shareholder, creditor or otherwise (hereinafter
referred to as a "Covered Person")) against all liabilities,
including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and expenses,
including reasonable accountants' and counsel fees, incurred by
any Covered Person in connection with the defense or disposition
of any action, suit or other proceeding, whether civil or
criminal, before any court or administrative or legislative body,
in which such Covered Person may be or may have been involved as
a party or otherwise or with which such person may be or may have
been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or
trustee, except with respect to any matter as to which it has
been determined that such Covered Person had acted with willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's
office (such conduct referred to hereafter as "Disabling
Conduct"). A determination that the Covered Person is entitled
to indemnification may be made by (i) a final decision on the
merits by a court or other body before whom the proceeding was
brought that the person to be indemnified was not liable by
reason of Disabling Conduct, (ii) dismissal of a court action or
an administrative proceeding against a Covered Person for
insufficiency of evidence of Disabling Conduct, or (iii) a
reasonable determination, based upon a review of the facts, that
the indemnitee was not liable by reason of Disabling Conduct by
(a) a vote of a majority of a quorum of Trustees who are neither
"interested persons" of the Trust as defined in section 2(a) (19)
of the 1940 Act nor parties to the proceeding, or (b) an
independent legal counsel in a written opinion. Expenses,
including accountants' and counsel fees so incurred by any such
Covered Person (but excluding amounts paid in satisfaction of
judgments, in compromise or as fines or penalties), may be paid
from time to time by the Trust in advance of the final
disposition of any such action, suit or proceeding, provided that
the Covered Person shall have undertaken to repay the amounts so
paid to the Trust if it is ultimately determined that
indemnification of such expenses is not authorized under this
Article VI and (i) the Covered Person shall have provided
security for such undertaking, (ii) the Trust shall be insured
against losses arising by reason of any lawful advances, or (iii)
a majority of a quorum of the disinterested Trustees who are not
a party to the proceeding, or an independent legal counsel in a
written opinion, shall have determined, based on a review of
readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the Covered Person
ultimately will be found entitled to indemnification.
Section 6.5 Compromise Payment. As to any matter disposed of by
------------------
a compromise payment by any such Covered Person referred to in
Section 6.4, pursuant to a consent decree or otherwise, no such
indemnification either for
3
<PAGE>
said payment or for any other expenses shall be provided unless
such indemnification shall be approved (a) by a majority of the
disinterested Trustees who are not parties to the proceeding or
(b) by an independent legal counsel in a written opinion.
Approval by the Trustees pursuant to clause (a) or by independent
legal counsel pursuant to clause (b) shall not prevent the
recovery from any Covered Person of any amount paid to such
Covered Person in accordance with any of such clauses as
indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to have been
liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's
office.
Section 6.6 Indemnification Not Exclusive, etc. The right of
----------------------------------
indemnification provided by this Article VI shall not be
exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article VI, "Covered
Person" shall include such person's heirs, executors and
administrators, an "interested Covered Person" is one against
whom the action, suit or other proceeding in question or another
action, suit or other proceeding on the same or similar grounds
is then or has been pending or threatened, and a "disinterested"
person is a person against whom none of such actions, suits or
other proceedings or another action, suit or other proceeding on
the same or similar grounds is then or has been pending or
threatened. Nothing contained in this Article shall affect any
rights to indemnification to which personnel of the Trust, other
than Trustees and officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to
purchase and maintain liability insurance on behalf of any such
person."
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
4
<PAGE>
The Registrant expects to maintain a standard mutual fund and
investment advisory professional and directors and officers liability
policy. The policy will provide coverage to the Registrant, its
Trustees and officers, and Kobrick-Cendant Funds, Inc. (the
"Investment Manager"). Coverage under the policy will include losses
by reason of any act, error, omission, misstatement, misleading
statement, neglect or breach of duty.
The Advisory Agreement with the Investment Manager provides that the
Investment Manager shall not be liable for any action taken, omitted
or suffered to be taken by it in its reasonable judgment, in good
faith and believed by it to be authorized or within the discretion or
rights or powers conferred upon it by the Advisory Agreement, or in
accordance with (or in the absence of) specific directions or
instructions from the Trust, provided, however, that such acts or
omissions shall not have resulted from the Investment Manager's
willful misfeasance, bad faith or gross negligence, a violation of the
standard of care established by and applicable to the Investment
Manager in its actions under the Advisory Agreement or breach of its
duty or of its obligations under the Advisory Agreement.
Item 28. Business and Other Connections of the Investment Manager
(a) The Investment Manager is a recently formed independent counsel
firm.
(b) The directors and officers of the Investment Manager and any
other business, profession, vocation or employment of a
substantial nature engaged in at any time during the past two
years:
(i) Frederick R. Kobrick - President and Chief Executive Officer
of the Investment Manager and President and Trustee of the
Registrant since October 1997; Portfolio Manager and Senior
Vice President of State Street Research and Management
Company from March 1985 to August 1997.
(ii) Michael T. Carmen - Secretary - Treasurer and Executive Vice
President of the Investment Manager and Treasurer and
Trustee of the Registrant since October 1997, Portfolio
Manager, State Street Research and Management Company from
November 1996 to August 1997, Portfolio Manager, Montgomery
Asset Management, April 1996 to November 1996, Associate
Portfolio Manager, State Street Research and Management
Company May 1992 to April 1996
5
<PAGE>
(iii) Henry R. Silverman - Chairman of the Investment Manager
since October 1997 and Chairman and Chief Executive
Officer of Cendant Corporation since July 1990
(iv) Richard A. Goldman - Chief Operating Officer and a
Director of the Investment Manager and Secretary of the
Registrant since October 1997, Member, Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, P.C. from April 1996 to October
1997 and Associate, Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C. from August 1989 to March 1996.
(v) Thomas J. Kelly - a Director of the Investment Manager
since October 1997, Member of Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C. since May 1985.
(vi) James E. Buckman - a Director of the Investment Manager
since October 1997, Senior Executive Vice President and
General Counsel of Cendant Corporation since July 1990.
(vii) Samuel L. Katz - a Director of the Investment Manager
since October 1997, Senior Vice President, Acquisitions,
Cendant Corporation since January 1996, and Vice
President, Director, Dickstein Partners, Inc. from July
1993 to December 1995.
(viii) Michael P. Monaco - a Director of the Investment Manager
since October 1997, Vice Chairman and Chief Financial
Officer of Cendant Corporation since October 1996, Vice
President and Chief Financial Officer, American Express
from 1981 to October 1996
Item 29. Principal Underwriters
(a) Funds Distributor, Inc. (the "Distributor") acts as principal
underwriter for the following investment companies other than the
Registrant:
American Century California Tax-Free And Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
6
<PAGE>
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
BJB Investment Funds
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
Founders Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
J.P. Morgan Institutional Funds
J.P. Morgan Funds
The JPM Series Trust
The JPM Series Trust II
Lasalle Partners Funds, Inc.
Merrimac Series
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds I
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
National Investors Cash Management Fund, Inc.
Orbitex Group of Funds
SG Cowen Funds, Inc.
SG Cowen Income + Growth Fund, Inc.
SG Cowen Standby Reserve Fund, Inc.
SG Cowen Tax-Exempt Reserve Fund, Inc.
SG Cowen Series Funds, Inc.
St. Clair Funds, Inc.
The Skyline Funds
Waterhouse Investors FAMILY OF FUNDS, Inc.
WEBS Index Fund, Inc.
Funds Distributor, Inc. is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. Funds Distributor, Inc. is located
at 60 State Street, Suite 1300, Boston, Massachusetts 02109. Funds
Distributor, Inc. is an indirect wholly-owned subsidiary of Boston
Institutional Group, Inc., a holding company all of whose outstanding
shares are owned by key employees.
7
<PAGE>
(b) The following is a list of the executive officers, directors and
partners of Funds Distributor, Inc., none of whom hold any positions
or offices with the Registrant:
<TABLE>
<S> <C>
Director, President and Chief Marie E. Connolly
Executive Officer
Executive Vice President George A. Rio
Executive Vice President Donald R. Roberson
Executive Vice President William S. Nichols
Senior Vice President, General Margaret W. Chambers
Counsel, Chief Compliance Officer,
Secretary and Clerk
Senior Vice President Michael S. Petrucelli
Director, Senior Vice President, Joseph F. Tower, III
Treasurer and Chief Financial
Officer
Senior Vice President Paula R. David
Senior Vice President Allen B. Closser
Senior Vice President Bernard A. Whalen
Chairman and Director William J. Nutt
</TABLE>
(c) Not applicable.
--------------
Item 30. Location of Accounts and Records
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder will be maintained by the Registrant at its
offices located at 101 Federal Street, Boston, Massachusetts 02110 as
well as at the offices of the Registrant's transfer agent located at
Two Heritage Drive, Quincy, MA 02171.
Item 31. Management Services Not Discussed in Parts A or B
Inapplicable
Item 32. Undertakings
(a) Inapplicable
(b) Inapplicable
(c) Inapplicable
8
<PAGE>
(d) The Registrant undertakes to call a meeting of shareholders, if
requested to do so by holders of at least 10% of the Fund's
outstanding shares, for the purpose of voting upon the question of
removal of a trustee or trustees and to assist in communications with
other shareholders as required by Section 16(c) of the Investment
Company Act of 1940.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed below on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston and Commonwealth of Massachusetts, on the 24th
day of August 1998.
KOBRICK-CENDANT INVESTMENT TRUST
By: \s\ Frederick R. Kobrick
--------------------------------------
Frederick R. Kobrick
President
Each person whose signature appears below constitutes and appoints
Frederick R. Kobrick and Richard A. Goldman and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution in each of them, for him and in his, place and stead, and in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement on Form N-1A of Kobrick-Cendant
Investment Trust, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as full to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them or their or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
\s\ Frederick R. Kobrick President and Trustee AUGUST 24, 1998
- - ------------------------------
Frederick R. Kobrick
\s\ Michael T. Carmen Secretary -Treasurer and Trustee AUGUST 24, 1998
- - ------------------------------
Michael T. Carmen
Jay H. Atlas* Trustee AUGUST 24, 1998
- - ------------------------------
Jay H. Atlas
Samuel L. Hayes, III* Trustee AUGUST 24, 1998
- - ------------------------------
Samuel L. Hayes, III
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Joseph P. Paster* Trustee AUGUST 24, 1998
- - ------------------------------
Joseph P. Paster
*By /s/ Frederick R. Kobrick
---------------------------
Frederick R. Kobrick
Attorney-in-fact
</TABLE>
11
<PAGE>
INDEX TO EXHIBITS
(1) Amended and Restated Master Trust Agreement
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) Form of Advisory Agreement*
(6) (i) Form of Distribution Agreement*
(ii) Form of Selling Agreement*
(7) Inapplicable
(8) Revised Form of Custodian Agreement*
(9)(i) Form of Administration Agreement*
(9)(ii) Form of Transfer Agency and Services Agreement*
(10) Opinion and Consent of Counsel
(11) Inapplicable
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Form of Plan of Distribution Pursuant to Rule 12b-1*
(16) Inapplicable
(17) Inapplicable
- - -----------------------------
* Previously file
12
<PAGE>
[LETTERHEAD OF MINTZ LEVIN COHN FERRIS GLOVSKY AND POPEO PC APPEARS HERE]
August 24, 1998
Kobrick-Cendant Investment Trust
101 Federal Street
Boston, Massachusetts 02110
Dear Sirs:
We are furnishing this opinion with a view to your filing the same or
duplicates thereof with the Securities and Exchange Commission, Washington,
D.C., in connection with the filing of an amendment to a Registration Statement
on Form N-1A/A, constituting Post-effective Amendment No. 2 to your 1933 Act
Registration Statement and Amendment No. 4 to your 1940 Act Registration
Statement, by you with said Commission with which this opinion or duplicates
thereof are to be filed. Said Registration Statement Amendment is being filed
by Kobrick-Cendant Investment Trust (the "Trust") to register under the
Securities Act of 1933, as amended, an indefinite number of shares of beneficial
interest ("Shares") in the Kobrick-Cendant Growth Fund series of the Trust, said
Shares to be in addition to Shares in the Kobrick-Cendant Capital Fund and the
Kobrick-Cendant Emerging Growth Fund series of the Trust, which were registered
pursuant to the Registration Statement as initially filed on Form N-1A.
We act as your legal counsel and have examined all such records, papers and
documents as we believe necessary in order to enable us to render the opinion
set forth below.
On the basis of the foregoing we are of the opinion that:
1. The Trust was duly organized and is a lawfully existing business trust
under the laws of the Commonwealth of Massachusetts.
2. The Trust has authorized capital stock consisting of an unlimited
number of shares of beneficial interest.
<PAGE>
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
Page 2
3. The Shares of Kobrick-Cendant Growth Fund to be sold pursuant to such
Registration Statement Amendment are duly authorized and, when issued and sold
as described in such Registration Statement Amendment will be, legally and
validly issued, fully paid and nonassessable.
Very truly yours,
\s\ Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
MINTZ, LEVIN, COHN, FERRIS,
GLOVSKY AND POPEO, P.C.
