<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. 1 [X]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 3 [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),
[_] On January 1, 1998 pursuant to paragraph (b),
[_] 60 days after filing pursuant to paragraph (a)(1),
[_] On ____________ pursuant to paragraph (a)(1),
[X] 75 days after filing pursuant to paragraph (a)(2),
[_] On September 1, 1998 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
PART A
Item No. Registration Statement Caption Caption in Prospectus
1. Cover Page Cover Page
2. Synopsis Table of Expenses
3. Condensed Financial Information Inapplicable
4. General Description of Registrant The 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
i
<PAGE>
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 The Investment Adviser;
Services 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
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
_____________ __, 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 to be undervalued
special situations and emerging growth companies by the Funds' investment
manager.
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: The investment objective of the Emerging Growth Fund is to
provide growth of 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.
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
<PAGE>
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:
Kobrick-Cendant Kobrick-Cendant Kobrick-Cendant
Growth Fund Capital Fund Emerging Growth Fund
After 1 year $14 $18 $18
After 3 years $45 $57 $57
THIS EXAMPLE SHOULD NOT BE CONSIDERED AS A REPRESENTATION OF PAST OR FUTURE
RETURN OR EXPENSES. ACTUAL RETURN AND EXPENSES MAY BE GREATER OR LESS THAN
SHOWN.
The purpose of the tables above is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or
indirectly. The percentage expense level shown in the table as "Other Expenses"
for the Growth Fund (which commenced operations on ___________, 1998) is based
upon projected expenses for the fiscal year ending September 30,
3
<PAGE>
1999 and assumes, among other things, that the Investment Manager may
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 may, from time to time,
result in the Investment Manager voluntarily reducing its fees and/or
reimbursing 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,
<PAGE>
medium and large capitalizations, including those considered to be undervalued
special situations and emerging growth companies by the Investment Manager.
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 securities 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, although the capitalizations or index could
vary over time because of market conditions, changes in the parameters of
indices, etc. While a company's market capitalization may be small at the time
the Emerging Growth Fund first invests in the company, the Emerging Growth Fund
may continue to hold and acquire shares of a company after its market
capitalization increases.
<PAGE>
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 exchanges.
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, any one of which may be determinative. 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 Funds may engage in short-term trading of securities and reserves full
freedom with respect to portfolio turnover. In periods when there are rapid
changes in economic conditions or security price levels or when investment
strategy changes significantly, portfolio turnover may be higher than during
times of economic and market price stability or when investment strategy remains
relatively constant. The Investment Manager currently anticipates that the
portfolio turnover rate for the 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.
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.
<PAGE>
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 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.
<PAGE>
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, 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
<PAGE>
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.
<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
<PAGE>
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 SSgA/SM/ US Government Money Market Fund, a portfolio of the SSgA
Funds. The establishment of an account and subsequent purchases are subject to
the minimum requirements described above and to other restrictions described
below under "Exchange Privileges." Purchases by exchange may be made by mail or
by telephone in the manner described above. An exchange results in a sale of
fund shares, which may cause you to recognize a capital gain or loss.
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.
<PAGE>
Direct investments, or purchase orders through dealers, received by the Funds
after the close of the regular session of trading on the New York Stock Exchange
on that day are confirmed at the net asset value 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 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:
<PAGE>
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
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.
<PAGE>
You should be able to obtain a signature guarantee from a bank, broker-
dealer, credit union (if authorized under state law), securities exchange
or association, clearing agency or savings association. A notary public
can't provide a signature guarantee.
If you elect on your application to participate in the Redemption by Wire
Plan or such request is subsequently made in writing accompanied by a signature
guarantee, the proceeds of your redemption may be made by wire transfer to your
existing account in any commercial bank or brokerage firm in the United States.
If you request a redemption by wire, a processing fee (currently $10) will be
deducted from the redemption proceeds. Your bank or brokerage firm may also
impose a fee for processing the wire. In the event the wire transfer of funds is
impossible or impractical, the redemption proceeds will be sent by mail to the
designated account.
Redemptions may be suspended or payment dates postponed on days when the
New York Stock Exchange is closed, 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 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
<PAGE>
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 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 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.
15
<PAGE>
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 regular 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
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 allows
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
16
<PAGE>
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 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.
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 to elect additional Trustees. Under the
Master Trust Agreement, any Trustee may be removed by vote of two-thirds of the
outstanding Trust shares; holders of 10% or more of the outstanding shares of
the Trust can require that the Trustees call a meeting of shareholders for
purposes of voting on the removal of one or more Trustees. In connection with
such meetings called by shareholders, shareholders will be assisted in
shareholder communications to the extent required by applicable law.
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Master Trust Agreement of the Trust disclaims shareholder liability
for acts or obligations of the Trust and provides for indemnification for all
losses and expenses of any shareholder of the Trust held personally liable for
the obligations of the Trust. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust would be unable to meet its obligations. The Investment
Manager believes that, in view of the above, the risk of personal liability to
shareholders is remote.
17
<PAGE>
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.
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.
18
<PAGE>
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 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 June __, 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.
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
<PAGE>
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 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.
<PAGE>
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 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 capital
appreciation category and/or to other financial alternatives with respect to the
Capital Fund, for the small capitalization category and/or to other financial
alternatives for the Emerging Growth Fund and for the growth category and/or to
other financial alternatives for the 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.
<PAGE>
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.
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.
<PAGE>
KOBRICK-CENDANT INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
________________,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........................... 10
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS................... 13
INVESTMENT LIMITATIONS.................................................... 15
TRUSTEES AND OFFICERS..................................................... 17
THE INVESTMENT MANAGER ................................................... 19
DISTRIBUTION PLAN......................................................... 20
SECURITIES TRANSACTIONS................................................... 21
PORTFOLIO TURNOVER........................................................ 23
CALCULATION OF SHARE PRICE................................................ 23
TAXES..................................................................... 23
REDEMPTION IN KIND........................................................ 24
HISTORICAL PERFORMANCE INFORMATION........................................ 24
CUSTODIAN................................................................. 27
AUDITORS.................................................................. 27
TRANSFER AGENT............................................................ 27
ADMINISTRATOR............................................................. 28
DISTRIBUTOR............................................................... 28
STATEMENTS OF ASSETS AND LIABILITIES...................................... 28
</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.
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<PAGE>
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will terminate the
Fund's position in the futures contract. A final determination of maintenance
margin is then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. While futures contracts with
respect to securities do provide for the delivery and acceptance of such
securities, such delivery and acceptance are seldom made.
Futures contracts will be executed primarily (a) to establish a short
position, and thus protect the Fund from experiencing the full impact of an
expected decline in market value of portfolio holdings without requiring the
sale of holdings, or (b) to establish a long position, and 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
3
<PAGE>
option, a covered writer is required to deposit in escrow the underlying
security or other assets in accordance with the rules of the applicable clearing
corporation and exchanges.
Options on Securities Indices.
Each Fund may engage in transactions in call and put options on securities
indices. For example, a Fund may purchase put options on indices of securities
in anticipation of or during a market decline to attempt to offset the decrease
in market value of its securities that might otherwise result.
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
4
<PAGE>
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.
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
5
<PAGE>
futures and options depends on the degree to which price movements in its
holdings correlate with price movements of the futures and options.
Some positions in futures and options may be closed out only on an exchange
which provides a secondary market therefor. There can be no assurance that a
liquid secondary market will exist for any particular futures contract or option
at any specific time. Thus, it may not be possible to close such an option or
futures position prior to maturity. The inability to close options and futures
positions also could have an adverse impact on the Fund's ability to effectively
hedge its securities and might in some cases require the Fund to deposit cash to
meet applicable margin requirements. The Funds will enter into an option or
futures position only if it appears to be a liquid investment.
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.
6
<PAGE>
Although each Fund may invest in securities denominated in foreign
currencies, each Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of a Fund's shares may fluctuate with U.S. dollar
exchange rates as well as with price changes of the Fund's securities in the
various local markets and currencies. Thus, an increase in the value of the U.S.
dollar compared to the currencies in which a Fund makes its investments could
reduce the effect of increases and magnify the effect of decreases in the prices
of the Fund's securities in their local markets. Conversely, a decrease in the
value of the U.S. dollar will have the opposite effect of magnifying the effect
of increases and reducing the effect of decreases in the prices of a Fund's
securities in the local markets.
Currency Transactions.
Each Fund's dealings in forward currency exchange contracts will be limited
to hedging involving either specific transactions or aggregate portfolio
positions. A forward currency contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are not commodities and are entered into
in the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers. Although spot and forward
contracts will be used primarily to protect the Fund from adverse currency
movements, they also involve the risk that anticipated currency movements will
not be accurately predicted, which may result in losses to each Fund. This
method of protecting the value of a Fund's portfolio securities against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. It simply establishes a rate of exchange
that can be achieved at some future point in time. Although such contracts tend
to minimize the risk of loss due to a decline in the value of hedged currency,
they tend to limit any potential gain that might result should the value of such
currency increase.
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.
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Each Fund may enter into reverse repurchase agreements. However, a Fund may
not engage in reverse repurchase agreements in excess of 5% of the applicable
Fund's total assets. In a reverse repurchase agreement the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed-upon rate. The ability to use reverse
repurchase agreements may enable, but does not ensure the ability of, a Fund to
avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous.
When effecting reverse repurchase agreements, assets of the applicable Fund
in a dollar amount sufficient to make payment of the obligations to be purchased
are segregated on the applicable Fund's records at the trade date and maintained
until the transaction is settled.
Swap Arrangements.
Each Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates, 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
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<PAGE>
into such arrangements for income purposes to the extent permitted by the
Commodities Futures Trading Commission for entities which are not commodity pool
operators, such as the Fund. In entering a swap arrangement, a Fund is dependent
upon the creditworthiness and good faith of the counterparty. Each Fund attempts
to reduce the risks of nonperformance by the counterparty by dealing only with
established, reputable institutions. The swap market is still relatively new and
emerging; positions in swap arrangements may become illiquid to the extent that
nonstandard arrangements with one counterparty are not readily transferable to
another counterparty or if a market for the transfer of swap positions does not
develop. The use of interest rate swaps is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If the Investment Manager is
incorrect in its forecasts of market values, interest rates and other applicable
factors, the investment performance of the applicable Fund would diminish
compared with what it would have been if these investment techniques were not
used. Moreover, even if the Investment Manager is correct in its forecast, there
is a risk that the swap position may correlate imperfectly with the price of the
asset or liability being hedged.
When-Issued Securities.
Each Fund may purchase "when-issued" equity securities, which are traded on
a price basis prior to actual issuance. Such purchases will be made only to
achieve a Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to months, or over a year or
more; during this period dividends on equity securities are not payable. No
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
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<PAGE>
Securities could have the effect of increasing the level of a Fund's illiquidity
to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing such securities. Also, a Fund may be adversely
impacted by the possible illiquidity and subjective valuation of such securities
in the absence of a market for them.
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS
As indicated in 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
<PAGE>
are guaranteed as to payment of principal or interest by the U.S. Government or
a U.S. Government agency or instrumentality, and any unguaranteed principal or
interest is otherwise supported by U.S. Government obligations held in a
segregated account.
U.S. Government securities may be acquired by each Fund in the form of
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") program. Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Obligations of Resolution Funding Corporation are similarly divided into
principal and interest components and maintained as such on the book entry
records of the Federal Reserve Banks.
In addition, each Fund may invest in custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds in connection with programs sponsored by banks and
brokerage firms. Such notes and bonds are held in custody by a bank on behalf of
the owners of the receipts. These custodial receipts are known by various names,
including "Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts"
("TIGRs") and "Certificates of Accrual on Treasury Securities" ("CATS"), and
may not be deemed U.S. Government securities.
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
<PAGE>
recently published financial statements) in excess of $50 million. The Funds
will not invest in time deposits maturing in more than seven days and will not
invest more than 10% of the total assets of the applicable Fund in time deposits
maturing in two to seven days.
U.S. branches and agencies of foreign banks are offices of foreign banks
and are not separately incorporated entities. They are chartered and regulated
either federally or under state law. U.S. federal branches or agencies of
foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective states or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however, not
all such branches elect FDIC insurance. Unlike U.S. branches of foreign banks,
U.S. agencies of foreign banks may not accept deposits and thus are not eligible
for FDIC insurance. Both branches and agencies can maintain credit balances,
which are funds received by the office incidental to or arising out of the
exercise of their banking powers and can exercise other commercial functions,
such as lending activities.
Short-Term Corporate Debt Instruments.
Short-term corporate debt instruments include commercial paper to finance
short-term credit needs (i.e., short-term, unsecured promissory notes) issued by
corporations including but not limited to (a) domestic or foreign bank holding
companies or (b) their subsidiaries or affiliates where the debt instrument is
guaranteed by the bank holding company or an affiliated bank or where the bank
holding company or the affiliated bank is unconditionally liable for the debt
instrument. Commercial paper is usually sold on a discounted basis and has a
maturity at the time of issuance not exceeding nine months.
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
<PAGE>
paper is rated A-1, A-2 or A-3. (Those A-1 issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign:
A-1+.)
The rating Prime is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: evaluation of the management of the issuer; economic evaluation of
the issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
Prime-1, 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.
<PAGE>
Standard & Poor's Ratings Group
AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
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.
<PAGE>
Standard & Poor's Ratings Group
AAA - This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
INVESTMENT LIMITATIONS
The Trust has adopted certain fundamental investment limitations designed
to reduce the risk of an investment in the Funds. These limitations may not be
changed with respect to either Fund without the affirmative vote of a majority
of the outstanding shares of that Fund. The vote of a majority of the
outstanding voting shares of a Fund means the vote (A) of 67% or more of the
voting shares present at a meeting, if the holders of more than 50% of the
outstanding voting shares of the Trust are present or represented by proxy; or
(B) of more than 50% of the outstanding voting shares of the Trust, whichever is
less.
The limitations applicable to each Fund are:
1. Borrowing Money. The Fund will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is asset coverage of
300% for all borrowings of the Fund; or (b) from a bank for temporary purposes
only, provided that, when made, such temporary borrowings are in an amount not
exceeding 5% of the Fund's total assets.
2. Pledging. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings. 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.
<PAGE>
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.
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,
<PAGE>
as a result thereof, more than 15% of the value of the net assets of the Fund
would be invested in such securities and the Fund will not purchase restricted
securities (excluding securities eligible for resale under Rule 144A under the
Securities Act of 1933) if, as a result thereof, more than 10% of the value of
the net assets of the Fund would be invested in such securities.
2. Investing for Control. The Fund will not invest in companies for the
purpose of exercising control or management.
3. Issuer Concentration. The Fund will not purchase a security of any
one issuer if such purchase at the time thereof would cause (a) more than 10% of
the Fund's total assets to be invested in the securities of any one issuer or
(b) cause more than 10% of any class of securities of such issuer to be held by
the Fund.
4. Other Investment Companies. The Fund will not invest more than 10%
of its total assets in securities of other investment companies. The Fund will
not invest more than 5% of its total assets in the securities of any single
investment company. The Fund will not hold more than 3% of the outstanding
voting stock of any single investment company.
With respect to the percentages adopted by the Trust as maximum limitations
on a Fund's investment policies and restrictions, an excess above the fixed
percentage (except for the percentage limitations relative to the borrowing of
money and the holding of illiquid securities) will not be a violation of the
policy or restriction unless the excess results immediately and directly from
the acquisition of any security or the action taken.
TRUSTEES AND OFFICERS
The following is a list of the Trustees and executive officers of the
Trust. Each Trustee who is an "interested person" of the Trust, as defined by
the Investment Company Act of 1940, is indicated by an asterisk.
NAME AGE POSITION HELD
*Frederick R. Kobrick 54 President/Trustee
*Michael T. Carmen 36 Treasurer/Trustee
Jay H. Atlas 53 Trustee
Samuel L. Hayes, III 63 Trustee
Joseph P. Paster 52 Trustee
The principal occupations of the Trustees and executive officers of the
Trust during the past five years are set forth below:
*Frederick R. Kobrick, 101 Federal Street, Boston, MA 02110, serves as a
Trustee and President of the Trust. He is 54. His principal occupation currently
is President of Kobrick-Cendant Funds, Inc. During the past five years he served
as a senior vice president of State
<PAGE>
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 information technology businesses. During the past five
years, in addition to providing such consulting services, he has served as a
Vice President and General Manager of Sales and Marketing for Convex Computer
Corporation, a Vice President of Computervision Corporation and a Vice President
of Channels for Digital Equipment Corporation.
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 1971.
Joseph P. Paster, John Hancock Place, Post Office Box 111, Boston, MA
02117, serves as a Trustee of the Trust. He is 52. His principal occupation is
as a Vice President of John Hancock Mutual Life Insurance Company, where he has
served in various capacities since 1967.
*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 May 31, 1998, Cendant Corporation was the record holder of 94.6% of
the shares of the Capital Fund, 94.1% of the shares of the Emerging Growth Fund
and ____% of the shares of the Growth Fund. 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
<PAGE>
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.
Compensation Table
Total
Pension or Compensation
Retirement From
Benefits Estimated Registrant
Aggregate Accrued Annual and Fund
Name of Compensa- As Part Benefits Complex
Person tion From of Fund Upon Paid to
Position Registrant Expenses Retirement Directors
- -------------------------------------------------------------------------------
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
______* 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 monthly 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
<PAGE>
of Trustees or (b) a vote of the majority of a Fund's outstanding voting
securities; provided that in either event continuance is also approved by a
majority of the Trustees who are not interested persons of the Trust, by a vote
cast in person at a meeting called for the purpose of voting on such approval.
The Trust's investment advisory agreement may be terminated at any time, on
sixty days' written notice, without the payment of any penalty, by the Board of
Trustees, by a vote of the majority of a Fund's outstanding voting securities,
or by the Investment Manager. The investment advisory agreement automatically
terminates in the event of its assignment, as defined by the Investment Company
Act of 1940 and the rules thereunder.
The name "Kobrick-Cendant" is the property right of the Investment Manager.
The Investment Manager may use the name "Kobrick-Cendant" in other connections
and for other purposes, including in the name of other investment companies. The
Trust has agreed to discontinue any use of the name "Kobrick-Cendant" if the
Investment Manager ceases to be employed as the Trust's investment manager.
DISTRIBUTION PLAN
As stated in 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
<PAGE>
which will benefit the Funds and their shareholders through increased economies
of scale, greater investment flexibility, greater portfolio diversification and
less chance of disruption of planned investment strategies. The Plan will be
renewed only if the Trustees make a similar determination for each subsequent
year of the Plan. There can be no assurance that the benefits anticipated from
the expenditure of the Funds' assets for distribution will be realized. While
the Plan is in effect, all amounts spent by the Funds pursuant to the Plan and
the purposes for which such expenditures were made must be reported quarterly to
the Board of Trustees for its review. In addition, the selection and nomination
of those Trustees who are not interested persons of the Trust are committed to
the discretion of the Independent Trustees during such period.
As principals of the Investment Manager, Messrs. Kobrick and Carmen may be
deemed to have a financial interest in the operation of the Plan.
SECURITIES TRANSACTIONS
The Investment Manager's policy is to seek for its clients, including the
Funds, what in the Investment Manager's judgment will be the best overall
execution of purchase or sale orders and the most favorable net prices in
securities transactions consistent with its judgment as to the business
qualifications of the various broker or dealer firms with whom the Investment
Manager may do business, and the Investment Manager may not necessarily choose
the broker offering the lowest available commission rate. Decisions with respect
to the market where the transaction is to be completed, to the form of
transaction (whether principal or agency) and to the allocation of orders among
brokers or dealers are made in accordance with this policy. In selecting brokers
or dealers to effect portfolio transactions, consideration is given to their
proven integrity and financial responsibility, their demonstrated execution
experience and capabilities both generally and with respect to particular
markets or securities, the competitiveness of their commission rates in agency
transactions (and their net prices in principal transactions), their willingness
to commit capital, and their clearance and settlement capability. The Investment
Manager makes every effort to keep informed of commission rate structures and
prevalent bid/ask spread characteristics of the markets and securities in which
transactions for the Funds occur. Against this background, the Investment
Manager evaluates the reasonableness of a commission or a net price with respect
to a particular transaction by considering such factors as difficulty of
execution or security positioning by the executing firm. The Investment Manager
may or may not solicit competitive 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;
<PAGE>
reports and information about specific companies, industries and securities;
purchase and sale recommendations for stocks and bonds; portfolio strategy
services; historical statistical information; market data services providing
information on specific issues and prices; financial publications; proxy voting
data and analysis services; technical analysis of various aspects of the
securities markets, including technical charts; computer hardware used for
brokerage and research purposes; computer software and databases, including
those used for portfolio analysis and modeling; and portfolio evaluation
services and relative performance of accounts.
Certain nonexecution services provided by broker-dealers may in turn be
obtained by the broker-dealers from third parties who are paid for such services
by the broker-dealers.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. Some services may be used for research and
investment decision-making purposes, and also for marketing or administrative
purposes. Under these circumstances, the Investment Manager allocates the cost
of such services to determine the appropriate proportion of the cost which is
allocable to purposes other than research or investment decision-making and is
therefore paid directly by the Investment Manager. Some research and execution
services may benefit the Investment Manager's clients as a whole, while others
may benefit a specific segment of clients. Not all such services will
necessarily be used exclusively in connection with the accounts which pay the
commissions to the broker-dealer producing the services.
The Investment Manager has no fixed agreements or understanding with any
broker-dealer as to the amount of brokerage business which that firm may expect
to receive for services supplied to the Investment Manager or otherwise. There
may be, however, understandings with certain firms that in order for such firms
to be able to continuously supply certain services, they need to receive
allocation of a specified amount of brokerage business. These understandings are
honored to the extent possible in accordance with the policies set forth above.
It is not the Investment Manager's policy to intentionally pay a firm a
brokerage commission higher than 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
<PAGE>
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.
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
<PAGE>
currency, or certain other income (including but not limited to gains from
options, futures and forward contracts) derived with respect to its business of
investing in stock, securities or currencies; and (ii) diversify its holdings so
that at the end of each quarter of its taxable year the following two conditions
are met: (a) at least 50% of the value of the Fund's total assets is represented
by cash, U.S. Government securities, securities of other regulated investment
companies and other securities (for this purpose such other securities will
qualify only if the Fund's investment is limited in respect to any issuer to an
amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer) and (b) not more than 25% of the value of the
Fund's assets is invested in securities of any one issuer (other than U.S.
Government securities or securities of other regulated investment
companies).
A Fund's net realized capital gains from securities transactions will be
distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction.
A federal excise tax at the rate of 4% will be imposed on the excess, if
any, of a Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of a Fund's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on October 31 of the calendar year
plus undistributed amounts from prior years. The Funds intend to make
distributions sufficient to avoid imposition of the excise tax.
Each Fund is required to withhold and remit to the U.S. Treasury a portion
(31%) of redemptions and dividend income on any account unless the shareholder
provides a taxpayer identification number and certifies that such number is
correct and that the shareholder is not subject to backup withholding or
demonstrates an exemption from withholding.
REDEMPTION IN KIND
Under unusual circumstances, when the Board of Trustees deems it in the
best interests of a Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. 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
<PAGE>
return over 1, 5 and 10 year periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
P (1 + T)/n/ = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 and 10 year periods at the end of the 1, 5 or
10 year periods (or fractional portion thereof)
The calculation of average annual total return assumes the reinvestment of
all dividends and distributions. If a Fund has been in existence less than one,
five or ten years, the time period since the date of the initial public offering
of shares will be substituted for the periods stated. Each Fund may also
advertise total return (a "nonstandardized quotation") which is calculated
differently from average annual total return. A nonstandardized quotation of
total return may be a cumulative return which measures the percentage change in
the value of an account between the beginning and end of a period, assuming no
activity in the account other than reinvestment of dividends and capital gains
distributions. A nonstandardized quotation may also indicate average annual
compounded rates of return over periods other than those specified for average
annual total return. A nonstandardized quotation of total return will always be
accompanied by a Fund's average annual total return as described above.
From time to time, each of the Funds may also advertise its yield. A yield
quotation is based on a 30-day (or one month) period and is computed by dividing
the net investment income per share earned during the period by the maximum
offering price per share on the last day of the period, according to the
following formula:
Yield = 2[(a-b/cd + 1)6 - 1]
Where:
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
<PAGE>
obligation (including actual accrued interest) at the close of business on the
last business day prior to the start of the 30-day (or one month) period for
which yield is being calculated, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest). With
respect to the treatment of discount and premium on mortgage or other
receivables-backed obligations which are expected to be subject to monthly
paydowns of principal and interest, gain or loss attributable to actual monthly
paydowns is accounted for as an increase or decrease to interest income during
the period and discount or premium on the remaining security is not amortized.
The performance quotations described above are based on historical earnings
and are not intended to indicate future performance.
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements regarding each Fund may discuss
various measures of Fund performance, including current performance ratings
and/or rankings appearing in financial magazines, newspapers and publications
which track mutual fund performance. Advertisements may also compare performance
(using the calculation methods set forth in the Prospectus) to performance as
reported by other investments, indices and averages. When advertising current
ratings or rankings, the Funds may use the following publications or indices to
discuss or compare Fund performance:
Lipper Mutual Fund Performance Analysis and Lipper Fixed Income Fund
Performance Analysis measure total return and average current yield for the
mutual fund industry and rank individual mutual fund performance over specified
time periods assuming reinvestment of all distributions, exclusive of sales
loads. The 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.
<PAGE>
CUSTODIAN
State Street Bank and Trust Company ("SSBT"), 225 Franklin Street, Boston,
MA 02110, has been retained to act as Custodian for the Funds' investments. SSBT
acts as each Fund's depository, safekeeps its portfolio securities, collects all
income and other payments with respect thereto, disburses funds as instructed
and maintains records in connection with its duties.
SSBT also provides accounting and pricing services to the Funds. This
includes calculating daily net asset value per share and maintaining such books
and records as are necessary to enable the Transfer Agent to perform its duties.
For these custodial, accounting and pricing services, each Fund pays an annual
fee based on an average monthly net assets in accordance with the following
schedule:
Average Fee (expressed as a
Monthly Percentage of Average
Net Assets Monthly Net Assets)
---------- -------------------
First $100 million 0.04%
Next $100 million 0.02%
Excess 0.01%
The minimum monthly charge per Fund is $3,000, phased in during year one at
a rate of 1/12 in month one, 2/12 in month two, increasing incrementally per
month until the full minimum is in effect in month twelve. In addition, each
Fund pays all costs of external pricing services as well as transaction fees.
AUDITORS
The firm of Ernst & Young LLP has been selected as independent auditors for
the Trust for the fiscal year ending September 30, 1998. Ernst & Young LLP, 200
Clarendon Street, Boston, Massachusetts 02116, performs an annual audit of the
Trust's financial statements and advises the Funds as to certain accounting
matters.
TRANSFER AGENT
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, 50% of which fee shall be waived during the first six months of each
Fund's operations. 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.
<PAGE>
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:
<TABLE>
Average Fee (expressed as a
Monthly Percentage of Average
Net Assets Monthly Net Assets)
---------- -------------------
<S> <C>
First $200 million 0.08%
Next $200 million 0.06%
Excess 0.04%
</TABLE>
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.
<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) First Amended and Restated 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
** Will be filed by subsequent amendment
Item 25. Persons Controlled by or Under Common Control with Registrant
Inapplicable
Item 26. Number of Holders of Securities
<TABLE>
Number of Record
Fund Holders (at 5/31/98)
---- --------------------
<S> <C>
Capital Fund 153
Emerging Growth 209
</TABLE>
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,
2
<PAGE>
officers or trustees of another organization in which the Trust
has any interest as a shareholder, creditor or otherwise
(hereinafter referred to as a "Covered Person")) against all
liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and
penalties, and expenses, including reasonable accountants' and
counsel fees, incurred by any Covered Person in connection with
the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person
may be or may have been involved as a party or otherwise or with
which such person may be or may have been threatened, while in
office or thereafter, by reason of being or having been such a
Trustee or officer, director or trustee, except with respect to
any matter as to which it has been determined that such Covered
Person had acted with willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office (such conduct referred to
hereafter as "Disabling Conduct"). A 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,
3
<PAGE>
pursuant to a consent decree or otherwise, no such
indemnification either for said payment or for any other expenses
shall be provided unless such indemnification shall be approved
(a) by a majority of the disinterested Trustees who are not
parties to the proceeding or (b) by an independent legal counsel
in a written opinion. Approval by the Trustees pursuant to
clause (a) or by independent legal counsel pursuant to clause (b)
shall not prevent the recovery from any Covered Person of any
amount paid to such Covered Person in accordance with any of such
clauses as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to have been
liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's
office.
Section 6.6 Indemnification Not Exclusive, etc. The right of
----------------------------------
indemnification provided by this Article VI shall not be
exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article VI, "Covered
Person" shall include such person's heirs, executors and
administrators, an "interested Covered Person" is one against
whom the action, suit or other proceeding in question or another
action, suit or other proceeding on the same or similar grounds
is then or has been pending or threatened, and a "disinterested"
person is a person against whom none of such actions, suits or
other proceedings or another action, suit or other proceeding on
the same or similar grounds is then or has been pending or
threatened. Nothing contained in this Article shall affect any
rights to indemnification to which personnel of the Trust, other
than Trustees and officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to
purchase and maintain liability insurance on behalf of any such
person."
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, 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:
BJB Investment Funds
Burridge Funds
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
The Brinson Funds
The JPM Institutional Funds
The JPM Pierpont Funds
The JPM Series Trust
The JPM Series Trust II
Monetta Fund, Inc.
6
<PAGE>
Monetta Trust
The Montgomery Funds
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
Orbitex Group of Funds
The PanAgora Institutional Funds
RCM Capital Funds, Inc.
RCM Equity Funds, Inc.
St. Clair Funds, Inc.
The Skyline Funds
Waterhouse Investors Cash Management Fund, Inc.
WEBS Index Fund, Inc.
Funds Distributor, Inc. is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. Funds Distributor, Inc. is an
indirect wholly-owned subsidiary of Boston Institutional Group, Inc.,
a holding company all of whose outstanding shares are owned by key
employees.
(b) The following is a list of the executive officers, directors and
partners of Funds Distributor, Inc., none of whom hold any positions
or offices with the Registrant:
President and Chief Executive Officer Marie E. Connolly
Executive Vice President Richard W. Ingram
Executive Vice President Donald R. Roberson
Senior Vice President Michael S. Petrucelli
Senior Vice President, Treasurer
and Chief Financial Officer Joseph F. Tower, III
Senior Vice President Paula R. David
Senior Vice President Bernard A. Whalen
Senior Vice President A. Bayard Closser
Director William J. Nutt
(c) Inapplicable.
Item 30. Location of Accounts and Records
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder will be maintained by the Registrant at its
offices located at 101 Federal Street, Boston, Massachusetts 02110 as
well as at the offices of the Registrant's transfer agent located at
Two Heritage Drive, Quincy, MA 02171.
7
<PAGE>
Item 31. Management Services Not Discussed in Parts A or B
Inapplicable
Item 32. Undertakings
(a) Inapplicable
(b) Inapplicable
(c) Inapplicable
(d) The Registrant undertakes to call a meeting of shareholders, if
requested to do so by holders of at least 10% of the Fund's
outstanding shares, for the purpose of voting upon the question of
removal of a trustee or trustees and to assist in communications with
other shareholders as required by Section 16(c) of the Investment
Company Act of 1940.
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 12th
day of June 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
8
<PAGE>
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>
Signature Title Date
<S> <C> <C>
\s\ Frederick R. Kobrick President and Trustee June 12, 1998
- -------------------------
Frederick R. Kobrick
\s\ Michael T. Carmen Secretary -Treasurer and Trustee June 12, 1998
- -------------------------
Michael T. Carmen
Jay H. Atlas* Trustee June 12, 1998
- -------------------------
Jay H. Atlas
Trustee June __, 1998
- -------------------------
Samuel L. Hayes, III
Joseph P. Paster* Trustee June 12, 1998
- -------------------------
Joseph P. Paster
*By /s/ Frederick R. Kobrick
---------------------------
Frederick R. Kobrick
Attorney-in-fact
</TABLE>
9
<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
10
<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
11
<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
12
<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
14
<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.
15
<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
16
<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.
17
<PAGE>
INDEX TO EXHIBITS
(1) Amended and Restated Master Trust Agreement
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) Revised Form of Advisory Agreement**
(6) (i) Form of Distribution Agreement*
(ii) Form of Selling Agreement*
(7) Inapplicable
(8) 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 filed
** Will be filed by subsequent amendment
10
<PAGE>
KOBRICK-CENDANT INVESTMENT TRUST
--------------------------------
MASTER TRUST AGREEMENT
----------------------
AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts this
10th day of October, 1997, by the Trustees hereunder, and by the holders of
shares of beneficial interest to be issued hereunder as hereinafter provided.
WITNESSETH
WHEREAS this Trust has been formed to carry on the business of an
investment company; and
WHEREAS this Trust is authorized to issue its shares of beneficial
interest in separate series, all in accordance with the provisions hereinafter
set forth; and
WHEREAS the Trustees have agreed to manage all property coming into
their hands as trustees of a Massachusetts business trust in accordance with the
provisions hereinafter set forth;
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets which they may from time to time acquire in
any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon
the following terms and conditions for the benefit of the holders from time to
time of shares of beneficial interest in this Trust as hereinafter set forth.
ARTICLE I
---------
NAME AND DEFINITIONS
--------------------
Section 1.1 Name. This Trust shall be known as Kobrick-Cendant
----
Investment Trust and the Trustees shall conduct the business of the Trust under
that name or any other name or names as they may from time to time determine.
Section 1.2 Definitions. Whenever used herein, unless otherwise
-----------
required by the context or specifically provided:
(a) "By-Laws" shall mean the By-Laws of the Trust as amended from
time to time;
(b) "Commission" shall have the meaning given it in the 1940 Act;
(c) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust as amended or restated from time to time;
(d) "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time;
(e) "Shareholder" means a record owner of Shares;
<PAGE>
(f) "Shares" refers to the transferable units of interest into
which the beneficial interest in the Trust shall be divided from time to time;
(g) "Series" refers to a series of Shares established and
designated under or in accordance with the provisions of Article IV;
(h) "Trust" refers to the Massachusetts business trust established
by this Declaration of Trust, as amended from time to time, inclusive of each
and every Series established hereunder; and
(i) "Trustees" refers to the Trustees of the Trust named herein or
elected in accordance with Article III.
ARTICLE II
----------
PURPOSE OF TRUST
----------------
The purpose of the Trust is to operate as an investment company and to
offer Shareholders one or more investment programs primarily in securities and
debt instruments and to engage in any and all lawful acts or activities.
ARTICLE III
-----------
THE TRUSTEES
------------
Section 3.1 Number, Designation, Election, Term, etc.
-----------------------------------------
(a) Initial Trustees. Upon execution of this Declaration of Trust
----------------
or a counterpart hereof or some other writing in which he accepts such
Trusteeship and agrees to the provisions hereof, Frederick R. Kobrick, 33
Phillips Road, Sudbury, Massachusetts 01776 and Michael T. Carmen, 7 Lothrop
Way, Sharon, Massachusetts 02067, shall become Trustees.
(b) Number. The Trustees serving as such, whether named above or
------
hereafter becoming Trustees, may increase or decrease (to not less than two at
any time after the effective date of the Trust's Registration Statement on Form
N-1A with the Commission) the number of Trustees to a number other than the
number theretofore determined. No decrease in the number of Trustees shall have
the effect of removing an Trustee from office prior to the expiration of his
term, but the number of Trustees may be decreased in conjunction with the
removal of a Trustee pursuant to subsection (e) of this Section 3.1.
(c) Election and Term. The Shareholders shall elect a Board of
-----------------
Trustees a the first meeting of Shareholders following the initial Acquisition
of Shares by the public. Each Trustee, whether name above or hereafter becoming
a Trustee, shall serve as a Trustee during the lifetime of this Trust and until
its termination as hereinafter provided or until such Trustee sooner dies,
resigns or is removed. The Trustees may elect their own successors, and may,
pursuant to Section 3.1(f)
-2-
<PAGE>
hereof, appoint Trustees to fill vacancies; provided, however, that the
Shareholders shall have the right to elect Trustees subsequent to the initial
election contemplated by this Section 3.1(c) in the event there shall at any
time be no Trustees in office or when and to the extent otherwise required by
Section 16(a) of the 1940 Act.
(d) Resignation and Retirement. Any Trustee may resign his trust
--------------------------
or retire as a Trustee, by written instrument signed by him and delivered to the
other Trustees or to any officer of the Trust, and such resignation or
retirement shall take effect upon such delivery or upon such later date as is
specified in such instrument.
(e) Removal. Any Trustee may be removed with or without cause at
-------
any time: (i) by written instrument, signed by at least two-thirds of the number
of Trustees in office immediately prior to such removal, specifying the date
upon which such removal will become effective; (ii) by vote of Shareholders
holding not less than two-thirds of the shares then outstanding, cast in person
or by proxy at any meeting called for the purpose; or (iii) by a declaration in
writing signed by Shareholders holding not less than two-thirds of the Shares
then outstanding and filed with the Trust's Custodian.
(f) Vacancies. Any vacancy or anticipated vacancy resulting from
---------
any reason, including without limitation the death, resignation, retirement,
removal or incapacity of any of the Trustees, or resulting from an increase in
the number of Trustees by the other Trustees may (but so long as there are at
least three remaining Trustees, need not unless required by the 1940 Act) be
filled by either (i) a majority of the remaining Trustees through the
appointment in writing of such other person as such remaining Trustees in their
discretion shall determine (unless a Shareholder election is required by the
1940 Act) or (ii) by the election by the Shareholders, at a meeting called for
the purpose, of a person to fill such vacancy, and such appointment or election
shall be effective upon the written acceptance of the person named therein to
serve as a Trustee and agreement by such person to be bound by the provisions of
this Declaration of Trust, except that any such appointment or election in
anticipation of a vacancy to occur by reason of retirements resignation or
increase in number of Trustees to be effective at a later date shall become
effective only at or after the effective date of said retirement, resignation or
increase in number of Trustees. As soon as any Trustee so appointed or elect
shall have accepted such appointment or election and shall have agreed in
writing to be bound by this Declaration of Trust and the appointment or election
is effective, the Trust estate shall vest in the new Trustee, together with the
continuing Trustees, without any further act or conveyance.
(g) Effect of Death, Resignation, etc. The death, resignation,
---------------------------------
retirement, removal or incapacity of the Trustees, or any one of them, shall not
operate to annul or terminate the Trust, or to revoke or terminate any existing
agency or contract created or entered into pursuant to the terms of this
Declaration of Trust.
(h) No Accounting. Except to the extent required by the 1940 Act
-------------
or under circumstances which would justify his removal for cause, no person
ceasing to be a Trustee as a result of his death, resignation, retirement,
removal or incapacity (nor the estate of such person)
-3-
<PAGE>
shall be required to make an accounting to the Shareholders or remaining
Trustees upon such cessation.
Section 3.2 Powers of Trustees. Subject to the provisions of this
------------------
Declaration of Trust, the business of the Trust shall be managed by the
Trustees, and they shall have all powers necessary or convenient to carry out
that responsibility and the purpose of the Trust. The Trustees in all instances
shall act as principals, and are and shall be free from the control of the
Shareholders. The Trustees shall have full power and authority to do any and all
acts and to make and execute any and all contracts and instruments that they may
consider necessary or appropriate in connection with the management of the
Trust. The Trustees shall not be bound or limited by present or future laws or
customs with regard to investment by trustees or fiduciaries, but shall have
full authority and absolute power and control over the assets of the Trust and
the business of the Trust to the same extent as if the Trustees were sole owners
of the assets of the Trust and the business in their own right, including such
authority, power and control to do all acts and things as they, in their
uncontrolled discretion, shall deem proper to accomplish the purposes of this
Trust. Without limiting the foregoing, the Trustees may: adopt By-Laws not
inconsistent with this Declaration of Trust providing for the conduct of the
business and affairs of the Trust and may amend and repeal them to the extent
that such By-Laws do not reserve that right to the Shareholders; they may sue or
be sued in the name of the Trust; they may from time to time in accordance with
the provisions of Section 4.1 hereof establish Series, each such Series to
operate as a separate and distinct investment medium and with separately defined
investment objectives and policies and distinct investment purposes; they may,
as they consider appropriate elect and remove officers and appoint and terminate
agents and consultants and hire and terminate employees, any one or more of the
foregoing of whom may be a Trustee, and may provide for the compensation of all
of the foregoing; they may appoint from their own number, and terminate, any one
or more committees consisting of two or more Trustees, including without implied
limitation an executive committee, which may when the Trustees are not in
session and subject to the 1940 Act, exercise some or all of the power and
authority of the Trustees as the Trustees may determine; in accordance with
Section 3.3 they may employ one or more advisers, administrators, depositories
and custodians and may authorize any depository or custodian to employ sub-
custodians or agents and to deposit all or any part of such assets in a system
or systems for the central handling of securities and debt instruments, retain
transfer, dividend, accounting or Shareholder servicing agents or any of the
foregoing, provide for the distribution of Shares by the Trust through one or
more distributors, principal underwriters or otherwise, and set record dates or
times for the determination of Shareholders or various of them with respect to
various matters; they may compensate or provide for the compensation of the
Trustees, officers, advisers, administrators, custodians, other agents,
consultants and employees of the Trust or the Trustees on such terms as they
deem appropriate; and in general they may delegate to any officer of the Trust,
to any committee of the Trustees and to any employee, adviser, administrator,
distributor, depository, custodian, transfer and dividend disbursing agent, or
any other agent or consultant of the Trust such authority, powers, functions and
duties as they consider desirable or appropriate for the conduct of the business
and affairs of the Trust, including without implied limitation the power and
authority to act in the name of the Trust and of the Trustees, to sign documents
and to act as attorney-in-fact for the Trustees.
-4-
<PAGE>
Without limiting the foregoing and to the extent not inconsistent with
the 1940 Act or other applicable law, the Trustees shall have power and
authority:
(a) Investments. To invest and reinvest cash and other property,
-----------
and to hold cash or other property uninvested without in any event being bound
or limited by any present or future law or custom in regard to investments by
trustees;
(b) Disposition of Assets. To sell, exchange, lend, pledge,
---------------------
mortgage, hypothecate, write options on and lease any or all of the assets of
the Trust;
(c) Ownership Powers. To vote or give assent, or exercise any
----------------
rights of ownership, with respect to stock or other securities, debt instruments
or property; and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities, debt instruments
or property as the Trustees shall deem proper;
(d) Subscription. To exercise powers and rights of subscription or
------------
otherwise which in any manner arise out of ownership of securities or debt
instruments;
(e) Form of Holding. To hold any security, debt instrument or
---------------
property in a form not indicating any trust, whether in bearer, unregistered or
other negotiable form, or in the name of the Trustees or of the Trust or in the
name of a custodian, sub-custodian or other depository or a nominee or nominees
or otherwise;
(f) Reorganization, etc. To consent to or participate in any plan
-------------------
for the reorganization, consolidation or merger of any corporation or issuer,
any security or debt instrument of which is or was held in the Trust; to consent
to any contract, lease, mortgage, purchase or sale of property by such
corporation or issuer, and to pay calls or subscriptions with respect to any
security or debt instrument held in the Trust;
(g) Voting Trusts, etc. To join with other holders of any
------------------
securities or debt instruments in acting through a committee, depository, voting
trustee or otherwise, and in that connection to deposit any security or debt
instrument with, or transfer any security or debt instrument to, any such
committee, depository or trustee, and to delegate to them such power and
authority with relation to any security or debt instrument (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to agree to
pay, and to pay, such Portion of the expenses and compensation of such
committee, depository or trustee as the Trustees shall deem proper;
(h) Compromise. To compromise, arbitrate or otherwise adjust
----------
claims in favor of or against the Trust or any matter in controversy, including
but not limited to claims for taxes;
(i) Partnerships, etc. To enter into joint ventures, general or
------------------
limited partnerships and any other combinations or associations;
-5-
<PAGE>
(j) Borrowing and Security. To borrow funds and to mortgage and
----------------------
pledge the assets of the Trust or any part thereof to secure obligations arising
in connection with such borrowing;
(k) Guarantees, etc. To endorse or guarantee the payment of any
---------------
notes or other obligations of any person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof; and to mortgage
and pledge the Trust property or any part thereof to secure any of or all such
obligations;
(l) Insurance. To purchase and pay for entirely out of Trust
---------
property such insurance as they may deem necessary or appropriate for the
conduct of the business, including, without limitation, insurance policies
insuring the assets of the Trust and payment of distributions and principal on
its portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, consultants, investment advisers,
managers, administrators, distributors, principal underwriters, or independent
contractors, or any thereof (or any person connected therewith), of the Trust
individually against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such person in
any such capacity, including any action taken or omitted that may be determined
to constitute negligence, whether or not the Trust would have the power to
indemnify such person against such liability; and
(m) Pensions, etc. To pay pensions for faithful service, as deemed
-------------
appropriate by the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust; and
Except as otherwise provided by the 1940 Act or other applicable law,
this Declaration of Trust or the By-Laws, any action to be taken by the Trustees
on behalf of the Trust may be taken by a majority of the Trustees present at a
meeting of Trustees (a quorum, consisting of at least one-half of the Trustees
then in the office, being present), within or without Massachusetts, including
any meeting held by means of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time, and participation by such means shall constitute
presence in person at a meeting, or by written consents of a majority of the
Trustees then in office (or such larger or different number as may be required
by the 1940 Act or other applicable law).
Section 3.3 Certain Contracts. Subject to compliance with the
-----------------
provisions of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and from time to time and without limiting the
generality of their powers and authority otherwise set forth herein, enter into
one or more contracts with any one or more corporations, trusts, associations,
partnerships, limited partnerships, other types of organizations, or individuals
(a "Contracting Party"), to provide for the performance and assumption of some
or all of the following services, duties and responsibilities to, for or on
behalf of the Trust, and/or the Trustees, and to provide for the performance and
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assumption of such other services, duties and responsibilities in addition to
those set forth below as the Trustees may determine appropriate:
(a) Advisory. Subject to the general supervision of the Trustees
--------
and in conformity with the stated policy of the Trustees with respect to the
investments of the Trust or of the assets belonging to any Series of Shares of
the Trust (as that phrase is defined in subsection (a) of Section 4.2), to
manage such investments and assets, make investment decisions with respect
thereto, and to place purchase and sale orders for portfolio transactions
relating to such investments and assets;
(b) Administration. Subject to the general supervision of the
--------------
Trustees and in conformity with any policies of the Trustees with respect to the
operations of the Trust, to supervise all or any part of the operations of the
Trust, and to provide all or any part of the administrative and clerical
personnel, office space and office equipment and services appropriate for the
efficient administration and operations of the Trust;
(c) Distribution. To distribute the Shares of the Trust, to be
------------
principal underwriter of such Shares, and/or to act as agent of the Trust in the
sale of Shares and the acceptance or rejection of orders for the purchase of
Shares;
(d) Custodian and Depository. To act as depository for and to
------------------------
maintain custody of the property of the Trust and accounting records in
connection therewith;
(e) Transfer and Dividend Disbursing Agent. To maintain records of
--------------------------------------
the ownership of outstanding Shares, the issuance and redemption and the
transfer thereof; and to disburse any dividends declared by the Trustees and in
accordance with the policies of the Trustees and/or the instructions of any
particular Shareholder to reinvest any such dividends;
(f) Shareholder Servicing. To provide service with respect to the
---------------------
relationship of the Trust and its Shareholders, records with respect to
Shareholders and their Shares, and similar matters; and
(g) Legal, Accounting, Taxes and Others. To handle all or any
-----------------------------------
part of the legal, accounting, tax or other responsibilities, whether with
respect to the Trust's properties, Shareholders or otherwise.
The same person may be the Contracting Party for some or all of the services,
duties and responsibilities to, for and of the Trust and/or the Trustees, and
the contracts with respect thereto may contain such terms interpretive of or in
addition to the delineation of the services, duties and responsibilities
provided for, including provisions that are not inconsistent with the 1940 Act
relating to the standard of duty of and the rights to indemnification of the
Contracting Party and others, as the Trustees may determine. Nothing herein
shall preclude, prevent or limit the Trust or a Contracting Party from entering
into sub-contractual arrangements relating to any of the matters referred to in
Sections 3.3(a) through (g) hereof.
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<PAGE>
Subject to the provisions of the 1940 Act, the fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter or distributor or agent
of or for any Contracting Party, or of or for any parent or
affiliate of any Contracting Party, or that the Contracting Party
or any parent or affiliate thereof is a Shareholder or has an
interest in the Trust, or that
(ii) any Contracting Party may have a contract providing for the
rendering of any similar services to one or more other
corporations, trusts, associations, partnerships, limited
partnerships or other organizations, or have other business or
interests,
shall not affect the validity of any contract for the performance and assumption
of services, duties and responsibilities to, for or of the Trust and/or the
Trustees or disqualify any Shareholder, Trustee or officer of the Trust from
voting upon or executing the same or create any liability or accountability to
the Trust or its Shareholders, provided that in the case of any relationship or
interest referred to in the preceding clause (i) on the part of any Trustee or
officer of the Trust either (1) the material facts as to such relationship or
interest have been disclosed to or are known by the Trustees not having any such
relationship or interest and the contract involved is approved in good faith by
a majority of such Trustees not having any such relationship or interest (even
though such unrelated or disinterested Trustees are less than a quorum of all of
the Trustees), (2) the specific contract involved is fair to the Trust as of the
time it is authorized, approved or ratified by the Trustees or by the
Shareholders.
Section 3.4 Payment of Trust Expenses and Compensation of Trustees. The
------------------------------------------------------
Trustees are authorize to pay or to cause to be paid out of the principal or
income of the Trust, or partly out of principal and partly out of income, and to
charge or allocate the same to, between or among such one or more of the Series
that may be established and designated pursuant to Article IV, as the Trustees
deem fair, all expenses, fees, charges, taxes and liabilities incurred or
arising in connection with the Trust, or in connection with the management
thereof, including, but not limited to, the Trustees' compensation and such
expenses and charges for the services of the Trust's officers, employees,
investment adviser, administrator, distributor, principal underwriter, auditor,
counsel, depository, custodian, transfer agent, dividend disbursing agent,
accounting agent, Shareholder servicing agent, and such other agents,
consultants and independent contractors and such other expenses and charges as
the Trustees may deem necessary or proper to incur. Without limiting the
generality of any other provision hereof, the Trustees shall be entitled to
reasonable compensation from the Trust for their services as Trustees and may
fix the amount of such compensation.
Section 3.5 Ownership of Assets of the Trust. Title to all of the assets
--------------------------------
of the Trust shall at all times be considered as vested in the Trustees.
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<PAGE>
ARTICLE IV
----------
SHARES
------
Section 4.1 Description of Shares. The beneficial interest in the
---------------------
Trust shall be divided into Shares, all without par value, but the Trustees
shall have the authority from time to time to divide the class of Shares into
two or more Series of Shares, as they deem necessary or desirable to establish
and designate such Series, and to fix and determine the relative rights and
preferences as between the shares of the different Series of Shares as to right
of redemption and the price, terms and manner of redemption, special and
relative rights as to dividends and other distributions and on liquidation,
sinking or purchase fund provisions, conversion rights, and conditions under
which the several Series shall have separate voting rights or no voting
rights.
The Shares of each Series may be issued or reissued from time to time
in one or more classes ("Classes"), as determined by the Board of Trustees
pursuant to resolution. Each Class shall be appropriately designated, prior to
the issuance of any shares thereof, by some distinguishing letter, number or
title. All shares within a Class shall be alike in every particular. All
Shares of each Series shall be of equal rank and have the same powers,
preferences and rights, and shall be subject to the same qualifications,
limitations and restrictions without distinction between the shares of different
Classes thereof, except with respect to such differences among such Classes, as
the Board of Trustees shall from time to time determine to b necessary or
desirable, including differences in the rate or rates of dividends or
distributions. The Board of Trustees may from time to time increase the number
of Shares allocated to any Class already created by providing that any unissued
Shares of the applicable Series shall constitute part of such Class, or may
decrease the number of Shares allocated to any Class already created by
providing that any unissued Shares previously assigned to such Class shall no
longer constitute part thereof. The Board of Trustees is hereby empowered to
classify or reclassify from time to time any unissued Shares of each Series by
fixing or altering the terms thereof and by assigning such unissued shares to an
existing or newly created Class. Notwithstanding anything to the contrary in
this paragraph the Board of Trustees is hereby empowered (i) to redesignate any
issued Shares of any Series by assigning a distinguishing letter, number or
title to such shares and (ii) to reclassify all or any part of the issued Shares
of any Series to make them part of an existing or newly created Class.
The number of authorized Shares and the number of Shares of each
Series that may be issued is unlimited, and the Trustees may issue Shares of any
Series for such consideration and on such terms as they may determine (or for no
consideration if pursuant to a Share dividend or split-up), all without action
or approval of the Shareholders. All Shares when so issued on the terms
determined by the Trustees shall be fully paid and nonassessable (but may be
subject to mandatory contribution back to the Trust as provided in subsection
(h) of Section 4.2). The Trustees may classify or reclassify any unissued
Shares or any Shares previously issued and reacquired of any Series into one or
more Series that may be established and designated from time to time. The
Trustees may hold as treasury Shares (of the same or some other Series), reissue
for such consideration and on such terms as they may determine, or cancel, at
their discretion from time to time, any Shares of any Series reacquired by the
Trust.
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<PAGE>
The Trustees may from time to time close the transfer books or
establish record dates and times for the purposes of determining the holders of
Shares entitled to be treated as such, to the extent provided or referred to in
Section 5.3.
The establishment and designation of any Series of Shares in addition
to those established and designated in Section 4.2, or of any Class of Shares,
shall be effective (i) upon the execution by a majority of the then Trustees of
an instrument setting forth such establishment and designation and the relative
rights and preferences of such Series or Class, (ii) upon the execution of an
instrument in writing by an officer of the Trust pursuant to the vote of a
majority of the Trustees, or (iii) as otherwise provided in either such
instrument. At any time that there are no Shares outstanding of any particular
Series or Class previously established and designated the Trustees may by an
instrument executed by a majority of their number abolish that Series or Class
and the establishment and designation thereof. Each instrument referred to in
this paragraph shall have the status of an amendment to this Declaration of
Trust.
Any Trustee, officer or other agent of the Trust, and any organization
in which any such person is interested may acquire, own, hold and dispose of
Shares of any Series of the Trust to the same extent as if such person were not
a Trustee, officer or other agent of the Trust; and the Trust may issue and sell
or cause to be issued and sold and may purchase Shares of any Series from any
such person or any such organization subject only to the general limitations,
restrictions or other provisions applicable to the sale or purchase of Shares of
such Series generally.
Section 4.2 Establishment and Designation of Series. Without
---------------------------------------
limiting the authority of the Trustees set forth in Section 4.1 to establish and
designate further Series, the Trustees hereby establish and designate two Series
of Shares: the "Kobrick-Cendant Emerging Growth Fund" and the "Kobrick-Cendant
Capital Fund." The Shares of the Kobrick-Cendant Emerging Growth Fund and the
Kobrick-Cendant Capital Fund and any Shares of any further Series that may from
time to time be established and designated by the Trustees shall (unless the
Trustees otherwise determine with respect to some further Series at the time of
establishing and designating the same) have the following relative rights and
preferences:
(a) Assets Belonging to Series. All consideration received by the
--------------------------
Trust for the issue or sale of Shares of a particular Series, together with all
assets in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be, shall
be held by the Trustees in trust for the benefit of the holders of Shares of
that Series and shall irrevocably belong to that Series for all purposes, and
shall be so recorded upon the books of account of the Trust. Such
consideration, assets, income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, together with any General Items (as
hereinafter defined) allocated to that Series as provided in the following
sentence, are herein referred to as "assets belonging to" that Series. In the
event that there are any assets,
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<PAGE>
income, earnings, profits, and proceeds thereof, funds, or payments which are
not readily identifiable as belonging to any particular Series (collectively
"General Items"), the Trustees shall allocate such General Items to and among
any one or more of the Series established and designated from time to time in
such manner and on such basis as they, in their sole discretion, deem fair and
equitable; and any General Items so allocated to a particular Series shall
belong to that Series. Each such allocation by the Trustees shall be conclusive
and binding upon the Shareholders of all Series for all purposes.
(b) Liabilities Belonging to Series. The assets belonging to each
-------------------------------
particular Series shall be charged with the liabilities in respect of that
Series and all expenses, costs, charges and reserves belonging to that Series,
and any general liabilities, expenses, costs, charges or reserves of the Trust
which are not readily identifiable as belonging to any particular Series shall
be allocated and charged by the Trustees to and among any one or more of the
Series established and designated from time to time in such manner and on such
basis as the Trustees in their sole discretion deem fair and equitable. The
liabilities, expenses, costs, charges and reserves allocated and so charged to a
Series are herein referred to as "liabilities belonging to" that Series. Each
allocation of liabilities, expenses, costs, charges and reserves by the Trustees
shall be conclusive and binding upon the Shareholders of all Series for all
purposes. Any creditor of any Series may look only to the assets of that Series
to satisfy such creditor's debt.
The Trustees shall have full discretion, to the extent not inconsistent
with the 1940 Act, to determine which items shall be treated as income and which
items as capital; and each such determination and allocation shall be conclusive
and binding upon the Shareholders.
(c) Dividends. Dividends and distributions on Shares of a particular
---------
Series may be paid with such frequency as the Trustees may determine, which may
be daily or otherwise pursuant to a standing resolution or resolutions adopted
only once or with such frequency as the Trustees may determine, to the holders
of Shares of that Series, from such of the income and capital gains, accrued or
realized, from the assets belonging to that Series, as the Trustees may
determine, after providing for actual and accrued liabilities belonging to that
Series. All dividends and distributions on Shares of a particular Series shall
be distributed pro rata to the holders of Shares of that Series in proportion to
the number of Shares of that Series held by such holders at the date and time of
record established for the payment of such dividends or distributions, except
that in connection with any dividend or distribution program or procedure the
Trustees may determine that no dividend or distribution shall be payable on
Shares as to which the Shareholder's purchase order and/or payment have not been
received by the time or times established by the Trustees under such program or
procedure. Such dividends and distributions may be made in cash or Shares of
that Series or a combination thereof as determined by the Trustees or pursuant
to any program that the Trustees may have in effect at the time for the election
by each Shareholder of the mode of the making of such dividend or distribution
to that Shareholder. Any such dividend or distribution paid in Shares will be
paid at the net asset value thereof as determined in accordance with subsection
(h) of Section 4.2.
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<PAGE>
The Trust intends to qualify each Series as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended, or any successor
or comparable statute thereto, and regulations promulgated thereunder. Inasmuch
as the computation of net income and gains for federal income tax purposes may
vary from the computation thereof on the books of the Trust, the Board of
Trustees shall have the power, in its sole discretion, to distribute in any
fiscal year as dividends, including dividends designated in whole or in part as
capital gains distributions, amounts sufficient, in the opinion of the Board of
Trustees, to enable each Series to qualify as a regulated investment company and
to avoid liability of the Series for federal income tax in respect of that year.
However, nothing in the foregoing shall limit the authority of the Board of
Trustees to make distributions greater than or less than the amount necessary to
qualify as a regulated investment company and to avoid liability of each Series
for such tax.
(d) Liquidation. In the event of the liquidation or dissolution of
-----------
the Trust, the Shareholders of each Series that has been established and
designated shall be entitled to receive, when and as declared by the Trustees,
the excess of the assets belonging to that Series over the liabilities belonging
to that Series. The assets so distributable to the Shareholders of any
particular Series shall be distributed among such Shareholders in proportion to
the number of Shares of that Series held by them and recorded on the books of
the Trust. The liquidation of any particular Series may be authorized at any
time by vote of a majority of the Trustees then in office, subject to the
approval of a majority of the outstanding voting Shares of that Series, as
defined in the 1940 Act.
(e) Voting. All Shares of all Series shall have "equal voting rights"
------
as such term is defined in the 1940 Act and except as otherwise provided by the
1940 Act or rules, regulations or orders promulgated thereunder. On each matter
submitted to a vote of the Shareholders, each holder of a Share shall be
entitled to one vote for each whole Share standing in his name on the books of
the Trust, irrespective of the series thereof, and all Shares of all series
shall vote as a single class ("Single Class Voting"); provided, however, that
(a) as to any matter with respect to which a separate vote of any Series is
required by the 1940 Act or rules and regulations promulgated thereunder, or
would be required under the Massachusetts Business Corporation Law if the Trust
were a Massachusetts corporation, such requirements as to a separate vote by
that Series shall apply in lieu of Single Class Voting as described above; (b)
in the event that the separate vote requirements referred to in (a) above apply
with respect to one or more Series, then, subject to (c) below, the Shares of
all other Series shall vote as a single class; and (c) as to any matter which
does not affect the interest of a particular Series, only the holders of Shares
of the one or more affected Series shall be entitled to vote.
(f) Redemption by Shareholder. Each holder of Shares of a particular
-------------------------
Series shall have the right at such times as may be permitted by the Trust, but
no less frequently than once each week, to require the Trust to redeem all or
any part of his Shares of that Series at a redemption price equal to the net
asset value per Share of that Series next determined in accordance with
subsection (h) of this Section 4.2 after the Shares are properly tendered for
redemption, subject to any contingent deferred sales charge in effect at the
time of redemption. Payment of the redemption price shall be in cash; provided,
however, that if the Trustees determine, which determination shall
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<PAGE>
be conclusive, that conditions exist which make payment wholly in cash unwise or
undesirable, the Trust may, subject to the requirements of the 1940 Act, make
payment wholly or partly in securities or other assets belonging to the Series
of which the Shares being redeemed are part at the value of such securities or
assets used in such determination of net asset value.
Notwithstanding the foregoing, the Trust may postpone payment of the
redemption price and may suspend the right of the holders of Shares of any
Series to require the Trust to redeem Shares of that Series during any period or
at any time when and to the extent permissible under the 1940 Act, and such
redemption is conditioned upon the Trust having funds or property legally
available therefor.
(g) Redemption by Trust. Each Share of each Series that has been
-------------------
established and designated is subject to redemption by the Trust at the
redemption price which would be applicable if such Share was then being redeemed
by the Shareholder pursuant to subsection (f) of this Section 4.2: (a) at any
time, if the Trustees determine in their sole discretion that failure to so
redeem may have materially adverse consequences to all or any of the holders of
the Shares, or any Series thereof, of the Trust, or (b) upon such other
conditions as may from time to time be determined by the Trustees and set forth
in the then current Prospectus of the Trust with respect to maintenance of
Shareholder accounts of a minimum amount. Upon such redemption the holders of
the Shares so redeemed shall have no further right with respect thereto other
than to receive payment of such redemption price.
(h) Net Asset Value. The net asset value per Share of any Series
---------------
shall be the quotient obtained by dividing the value of the net assets of that
Series (being the value of the assets belonging to that Series less the
liabilities belonging to that Series) by the total number of Shares of that
Series outstanding, all determined in accordance with the methods and
procedures, including without limitation those with respect to rounding,
established by the Trustees from time to time.
The Trustees may determine to maintain the net asset value per Share of any
Series at a designated constant dollar amount and in connection therewith may
adopt procedures not inconsistent with the 1940 Act for the continuing
declarations of income attributable to that Series as dividends payable in
additional Shares of that Series at the designated constant dollar amount and
for the handling of any losses attributable to that Series. Such procedures may
provide that in the event of any loss each Shareholder shall be deemed to have
contributed to the capital of the Trust attributable to that Series his pro rata
portion of the total number of Shares required to be canceled in order to permit
the net asset value per Share of that Series to be maintained, after reflecting
such loss, at the designated constant dollar amount. Each Shareholder of the
Trust shall be deemed to have agreed, by his investment in any Series with
respect to which the Trustees shall have adopted any such procedure, to make the
contribution referred to in the preceding sentence in the event of any such
loss.
(i) Transfer. All Shares of each particular Series shall be
--------
transferable, but transfers of Shares of a particular Series will be recorded on
the Share transfer records of the Trust applicable to
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<PAGE>
that Series only at such times as Shareholders shall have the right to require
the Trust to redeem Shares of that Series and at such other times as may be
permitted by the Trustees.
(j) Equality. All Shares of each particular Series shall represent an
--------
equal proportionate interest in the assets belonging to that Series (subject to
the liabilities belonging to that Series), and each Share of any particular
Series shall be equal to each other Share of that Series; but the provisions of
this sentence shall not restrict any distinctions permissible under subsection
(c) of this Section 4.2 that may exist with respect to dividends and
distributions on Shares of the same Series. The Trustees may from time to time
divide or combine the Shares of any particular Series into a greater or lesser
number of Shares of that Series without thereby changing the proportionate
beneficial interest in the assets belonging to that Series or in any way
affecting the rights of Shares of any other Series.
(k) Fractions. Any fractional Share of any Series or Class, if any
---------
such fractional Share is outstanding, shall carry proportionately all the rights
and obligations of a whole Share of that Series or Class, including rights and
obligations with respect to voting, receipt of dividends and distributions,
redemption of Shares, and liquidation of the Trust.
(l) Conversion Rights. Subject to compliance with the requirements of
-----------------
the 1940 Act, the Trustees shall have the authority to provide that holders of
Shares of any Series shall have the right to convert said Shares into Shares of
one or more other Series in accordance with such requirements and procedures as
may be established by the Trustees.
Section 4.3 Ownership of Shares. The ownership of Shares shall be
-------------------
recorded on the books of the Trust or of a transfer or similar agent for the
Trust, which books shall be maintained separately for the Shares of each Series
that has been established and designated. No certificates certifying the
ownership of Shares need be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, the use of facsimile
signatures, the transfer of Shares and similar matters. The record books of the
Trust as kept by the Trust or any transfer or similar agent, as the case may be,
shall be conclusive as to who are the Shareholders and as to the number of
Shares of each Series held from time to time by each such Shareholder.
Section 4.4 Investments in the Trust. The Trustees may accept
------------------------
investments in the Trust from such persons and on such terms and for such
consideration, not inconsistent with the provisions of the 1940 Act, as they
from time to time authorize. The Trustees may authorize any distributor,
principal underwriter, custodian, transfer agent or other person to accept
orders for the purchase of Shares that conform to such authorized terms and to
reject any purchase orders for Shares whether or not conforming to such
authorized terms.
Section 4.5 No Pre-emptive Rights. Shareholders shall have no pre-
---------------------
emptive or other right to subscribe to any additional Shares or other securities
issued by the Trust.
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<PAGE>
Section 4.6 Status of Shares and Limitation of Personal Liability.
-----------------------------------------------------
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. The death of a Shareholder during the continuance of
the Trust shall not operate to terminate the Trust nor entitle the
representative of any deceased Shareholder to an accounting or take any action
in court or elsewhere against the Trust or the Trustees, but only to the rights
of said decedent under this Trust. Ownership of Shares shall not entitle the
Shareholder to any title in or to the whole or any part of the Trust property or
right to call for a partition or division of the same or for an accounting, nor
shall the ownership of Shares constitute the Shareholders partners. Neither the
Trust nor the Trustees, nor any officer, employee or agent of the Trust shall
have any power to bind personally any Shareholder, nor except as specifically
provided herein to call upon any Shareholder for the payment of any sum of money
or assessment whatsoever other than such as the Shareholder may at any time
personally agree to pay.
Section 4.7 No Appraisal Rights. Shareholders shall have no right to
-------------------
demand payment for their shares or to any other rights of dissenting
Shareholders in the event the Trust participates in any transaction which would
give rise to appraisal or dissenters' rights by a Shareholder of a corporation
organized under Chapter 156B of the General Laws of the Commonwealth of
Massachusetts, or otherwise.
ARTICLE V
---------
SHAREHOLDERS' VOTING POWERS AND MEETINGS
----------------------------------------
Section 5.1 Voting Powers. The Shareholders shall have power to vote
-------------
only (i) for the election or removal of Trustees as provided in Section 3.1,
(ii) with respect to any contract with a Contracting Party as provided in
Section 3.3 as to which Shareholder approval is as required by the 1940 Act,
(iii) with respect to any termination or reorganization of the Trust or any
Series to the extent and as provided in Sections 7.1 and 7.2, (iv) with respect
to any amendment of this Declaration of Trust to the extent and as provided in
Section 7.3, (v) to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or the Shareholders and (vi) with respect to such
additional matters relating to the Trust as may be required by the 1940 Act,
this Declaration of Trust, the By-Laws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. There shall be no cumulative voting in the
election of any Trustee or Trustees. Shares may be voted in person or by proxy.
A proxy with respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the proxy
the Trust receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a Shareholder shall
be deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. Until Shares are issued, the
Trustees may exercise all rights of Shareholders
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<PAGE>
and may take any action required by law, this Declaration of Trust or the By-
Laws to be taken by Shareholders.
Section 5.2 Meetings. No annual or regular meeting of Shareholders is
--------
required. Special meetings (including meetings involving only the holders of
Shares of one or more but less than all Series) of Shareholders may be called by
the Trustees from time to time for the purpose of taking action upon any matter
requiring the vote or authority of the Shareholders as herein provided or upon
any other matter deemed by the Trustees to be necessary or desirable. Written
notice of any meeting of Shareholders shall be given or caused to be given by
the Trustees by mailing such notice at least seven days before such meeting,
postage prepaid, stating the time, place and purpose of the meeting, to each
Shareholder at the Shareholder's address as it appears on the records of the
Trust. The Trustees shall promptly call and give notice of a meeting of
Shareholders for the purpose of voting upon removal of any Trustee of the Trust
when requested to do so in writing by Shareholders holding not less than 10% of
the Shares then outstanding. If the Trustees shall fail to call or give notice
of any meeting of Shareholders for a period of 30 days after written application
by Shareholders holding at least 10% of the Shares then outstanding requesting a
meeting be called for any other purpose requiring action by the Shareholders as
provided herein or in the By-Laws, then Shareholders holding at least 10% of the
Shares then outstanding may call and give notice of such meeting, and thereupon
the meeting shall be held in the manner provided for herein in case of call
thereof by the Trustees.
Section 5.3 Record Dates. For the purpose of determining the
------------
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution, or
for the purpose of any other action, the Trustees may from time to time close
the transfer books for such period, not exceeding 30 days (except at or in
connection with the termination of the Trust), as the Trustees may determine; or
without closing the transfer books the Trustees may fix a reasonable date and
time prior to the date of any meeting of Shareholders or other action as the
date and time of record for the determination of Shareholders entitled to vote
at such meeting or any adjournment thereof or to be treated as Shareholders of
record for purposes of such other action, and any Shareholder who was a
Shareholder at the date and time so fixed shall be entitled to vote at such
meeting or any adjournment thereof or (subject to any provisions permissible
under subjection (c) of Section 4.2 with respect to dividends or distributions
on Shares that have not been ordered and/or paid for by the time or times
established by the Trustees under the applicable dividend or distribution
program or procedure then in effect) to be treated as a Shareholder of record
for purposes of such other action, even though he has since that date and time
disposed of his Shares, and no Shareholder becoming such after that date and
time shall be so entitled to vote at such meeting or any adjournment thereof or
to be treated as a Shareholder of record for purposes of such other action.
Section 5.4 Quorum and Required Vote. A majority of the Shares entitled
------------------------
to vote shall be a quorum for the transaction of business at a Shareholders'
meeting, but any lesser number shall be sufficient for adjournments. Any
adjourned session or sessions may be held, within a reasonable time after the
date set for the original meeting without the necessity of further notice. A
majority of the Shares voted, at a meeting of which a quorum is present shall
decide any questions and a
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<PAGE>
plurality shall elect a Trustee, except when a different vote is required or
permitted by any provision of the 1940 Act or other applicable law or by this
Declaration of Trust or the By-Laws.
Section 5.5 Action by Written Consent. Subject to the provisions of the
-------------------------
1940 Act and other applicable law, any action taken by Shareholders may be taken
without a meeting if a majority of Shareholders entitled to vote on the matter
(or such larger proportion thereof as shall be required by the 1940 Act or by
any express provision of this Declaration of Trust or the By-Laws) consent to
the action in writing and such written consents are filed with the records of
the meetings of Shareholders. Such consent shall be treated for all purposes as
a vote taken at a meeting of Shareholders.
Section 5.6 Inspection of Records. The records of the Trust shall be
---------------------
open to inspection by Shareholders to the same extent as is permitted
stockholders of a Massachusetts business corporation under the Massachusetts
Business Corporation Law.
Section 5.7 Additional Provisions. The By-Laws may include further
---------------------
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
Section 5.8 Shareholder Communications. Whenever ten or more
--------------------------
shareholders of record who have been such for at least six months preceding the
date of application, and who hold in the aggregate either Shares having a net
asset value of at least $25,000 or at least 1% of the outstanding shares,
whichever is less, shall apply to the Trustees in writing, stating that they
wish to communicate with other Shareholders with a view to obtaining signatures
to a request for a Shareholder meeting and accompanied by a form of
communication and request which they wish to transmit, the Trustees shall within
five business days after receipt of such application either (1) afford to such
applicants access to a list of the names and addresses of all Shareholders as
recorded upon the books of the Trust; or (2) inform such applicants as to the
approximate number of Shareholders of record, and the approximate cost of
mailing to them the proposed communication and form of request.
If the Trustees elect to follow the course specified in clause (2) above,
the Trustees, upon the written request of such applicants, accompanied by a
tender of the material to be mailed and of the reasonable expenses of mailing,
shall, with reasonable promptness, mail such material to all Shareholders of
record at their addresses as recorded on the books, unless within five business
days after such tender the Trustees shall mail to such applicants and file with
the Commission, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Trustees to the effect that in
their opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion. The Trustees shall thereafter comply with any order entered by
the Commission and the requirements of the 1940 Act and the Securities Exchange
Act of 1934.
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<PAGE>
ARTICLE VI
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LIMITATION OF LIABILITY; INDEMNIFICATION
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Section 6.1 Trustees, Shareholders, etc. Not Personally Liable; Notice.
----------------------------------------------------------
All persons extending credit to, contracting with or having any claim against
the Trust shall look only to the assets of the Series with which such person
dealt for payment under such credit, contract or claim; and neither the
Shareholders of any Series nor the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, nor any other Series shall
be personally liable therefor. Every note, bond, contract, instrument,
certificate or undertaking and every other act or thing whatsoever executed or
done by or on behalf of the Trust or the Trustees or any of them in connection
with the Trust shall be conclusively deemed to have been executed or done only
by or for the Trust or the Trustees and not personally. Nothing in this
Declaration of Trust shall protect any Trustee or officer against any liability
to the Trust or the Shareholders to which such Trustee or officer would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee or of such officer.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officers or officer shall give notice that this
Declaration of Trust is on file with the Secretary of the Commonwealth of
Massachusetts and shall recite to the effect that the same was executed or made
by or on behalf of the Trust or by them as Trustees or Trustee or as officers or
officer and not individually and that the obligations of such instrument are not
binding upon any of them or the Shareholders individually but are binding only
upon the assets and property of the Trust, but the omission thereof shall not
operate to bind any Trustees or Trustee or officers or officer or Shareholders
or Shareholder individually.
Section 6.2 Trustee's Good Faith Action; Expert Advice; No Bond or
------------------------------------------------------
Surety. The exercise by the Trustees of their powers and discretion hereunder
- ------
shall be binding upon everyone interested. A Trustee shall be liable for his own
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee, and for nothing else,
and shall not be liable for errors of judgment or mistakes of fact or law.
Subject to the foregoing, (a) the Trustees shall not be responsible or liable in
any event for any neglect or wrongdoing of any officer, agent, employee,
consultant, adviser, administrator, distributor or principal underwriter,
custodian or transfer, dividend disbursing, Shareholder servicing or accounting
agent of the Trust, nor shall any Trustee be responsible for the act or omission
of any other Trustee; (b) the Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration of Trust
and their duties as Trustees, and shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice;
and (c) in discharging their duties, the Trustees shall be entitled to rely upon
the books of account of the Trust and upon written reports made to the Trustees
by any officer appointed by them, any independent public accountant, and (with
respect to the subject matter of the contract involved) any officer, partner or
responsible employee of a Contracting Party appointed by the Trustees pursuant
to Section 3.3. The Trustees as such shall not be required to give any bond or
surety or any other security for the performance of their duties.
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<PAGE>
Section 6.3 Indemnification of Shareholders. In case any Shareholder (or
-------------------------------
former Shareholder) shall be charged or held to be personally liable for any
obligation or liability of the Trust solely by reason of being or having been a
Shareholder and not because of such Shareholder's acts or omissions or for some
other reason, the Trust (upon proper and timely request by the Shareholder)
shall assume the defense against such charge and satisfy any judgment thereon,
and the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled out of
the assets of the Trust estate to be held harmless from and indemnified against
all loss and expense arising from such liability.
Section 6.4 Indemnification of Trustees, Officers, etc. Subject to and
------------------------------------------
except as otherwise provided in the Securities Exchange Act of 1933, as amended,
and the 1940 Act, the Trust shall indemnify each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise (hereinafter referred to as a "Covered
Person")) against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such person may be or
may have been threatened, while in office or thereafter, by reason of being or
having been such a Trustee or officer, director or trustee, except with respect
to any matter as to which it has been determined that such Covered Person had
acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office
(such conduct referred to hereafter as "Disabling Conduct"). A 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
- 19 -
<PAGE>
available facts (as opposed to a full trial-type inquiry), that there is reason
to believe that the Covered Person ultimately will be found entitled to
indemnification.
Section 6.5 Compromise Payment. As to any matter disposed of by a
------------------
compromise payment by any such Covered Person referred to in Section 6.4,
pursuant to a consent decree or otherwise, no such indemnification either for
said payment or for any other expenses shall be provided unless such
indemnification shall be approved (a) by a majority of the disinterested
Trustees who are not parties to the proceeding or (b) by an independent legal
counsel in a written opinion. Approval by the Trustees pursuant to clause (a) or
by independent legal counsel pursuant to clause (b) shall not prevent the
recovery from any Covered Person of any amount paid to such Covered Person in
accordance with any of such clauses as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction to have been
liable to the Trust or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
Section 6.6 Indemnification Not Exclusive, etc. The right of
----------------------------------
indemnification provided by this Article VI shall not be exclusive of or affect
any other rights to which any such Covered Person may be entitled. As used in
this Article VI, "Covered Person" shall include such person's heirs, executors
and administrators, an "interested Covered Person" is one against whom the
action, suit or other proceeding in question or another action, suit or other
proceeding on the same or similar grounds is then or has been pending or
threatened, and a "disinterested" person is a person against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending or threatened.
Nothing contained in this Article shall affect any rights to indemnification to
which personnel of the Trust, other than Trustees and officers, and other
persons may be entitled by contract or otherwise under law, nor the power of the
Trust to purchase and maintain liability insurance on behalf of any such person.
Section 6.7 Liability of Third Persons Dealing with Trustees. No person
------------------------------------------------
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
ARTICLE VII
-----------
MISCELLANEOUS
-------------
Section 7.1 Duration and Termination of Trust. Unless terminated as
---------------------------------
provided herein, the Trust shall continue without limitation of time. The Trust
may be terminated at any time by a majority of the Trustees then in office
subject to a favorable vote of a majority of the outstanding voting securities,
as defined in the 1940 Act (Shares of each Series voting separately by Series).
Any Series liquidated pursuant to Section 4.2(d) or whose shares have been
redeemed pursuant to Section 4.2(g), may be terminated at any time by a majority
of the Trustees then in office, except that any such Series which is the last
remaining Series may only be so terminated by the Trustees
<PAGE>
with the favorable vote of a majority of the outstanding voting securities, as
defined in the 1940 Act, in conformity with the provisions of subsection (d) of
Section 4.2.
Upon termination, after paying or otherwise providing for all charges,
taxes, expenses and liabilities, whether due or accrued or anticipated as may be
determined by the Trustees, the Trust shall in accordance with such procedures
as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, securities or other property, or any combination
thereof, and distribute the proceeds to the Shareholders.
Section 7.2 Reorganization. The Trustees may sell, convey, merge and
--------------
transfer the assets of the Trust, or the assets belonging to any one or more
Series, to another trust, partnership, association or corporation organized
under the laws of any state of the United States, or to the Trust to be held as
assets belonging to another Series of the Trust, in exchange for cash, shares or
other securities (including, in the case of a transfer to another Series of the
Trust, Shares of such other Series) with such transfer either (l) being made
subject to, or with the assumption by the transferee of, the liabilities
belonging to each Series the assets of which are so transferred, or (2) not
being made subject to, or not with the assumption of, such liabilities;
provided, however, that no assets belonging to any particular Series shall be so
transferred unless the terms of such transfer shall have first been approved at
a meeting called for the purpose by the affirmative vote of the holders of a
majority of the outstanding voting Shares, as defined in the 1940 Act, of that
Series. Following such transfer, the Trustees shall distribute such cash, shares
or other securities (giving due effect to the assets and liabilities belonging
to and any other differences among the various Series the assets belonging to
which have so been transferred) among the Shareholders of the Series the assets
belonging to which have been so transferred; and if all of the assets of the
Trust have been so transferred, the Trust shall be terminated.
The Trust, or any one or more Series, may, either as the successor,
survivor, or non-survivor, (l) consolidate with one or more other trusts,
partnerships, associations or corporations organized under the laws of the
Commonwealth of Massachusetts or any other state of the United States, to form a
new consolidated trust, partnership, association or corporation under the laws
of which any one of the constituent entities is organized, or (2) merge into one
or more other trusts, partnerships, associations or corporations organized under
the laws of the Commonwealth of Massachusetts or any other state of the United
States, or have one or more such trusts, partnerships, associations or
corporations merged into it, any such consolidation or merger to be upon such
terms and conditions as are specified in an agreement and plan of reorganization
entered into by the Trust, or one or more Series as the case may be, in
connection therewith. The terms "merge" or "merger" as used herein shall also
include the purchase or acquisition of any assets of any other trust,
partnership, association or corporation which is an investment company organized
under the laws of the Commonwealth of Massachusetts or any other state of the
United States. Any such consolidation or merger, other than the purchase or
acquisition of assets of an investment company or other collective investment
entity which is not registered under the 1940 Act, shall require the affirmative
vote of the holders of a majority of the outstanding voting Shares, as defined
in the 1940 Act, of each Series affected thereby.
<PAGE>
Section 7.3 Amendments. All rights granted to the Shareholders under
----------
this Declaration of Trust are granted subject to the reservation of the right to
amend this Declaration of Trust as herein provided, except that no amendment
shall repeal the limitations on personal liability of any Shareholder or Trustee
or repeal the prohibition of assessment upon the Shareholders without the
express consent of each Shareholder or Trustee involved. Subject to the
foregoing, the provisions of this Declaration of Trust (whether or not related
to the rights of Shareholders) may be amended at any time, so long as such
amendment does not have a material adverse effect on the rights of any
Shareholder with respect to which such amendment is or purports to be applicable
and so long as such amendment is not in contravention of applicable law,
including the 1940 Act, by an instrument in writing signed by a majority of the
then Trustees (or by an officer of the Trust Pursuant to the vote of a majority
of such Trustees). Any amendment to this Declaration of Trust that does have a
material adverse effect on the rights of Shareholders may be adopted at any time
by an instrument in writing signed by a majority of the then Trustees (or by an
officer of the Trust pursuant to a vote of a majority of such Trustees) when
authorized to do so by the vote in accordance with subsection (e) of Section 4.2
of Shareholders holding a majority of the Shares entitled to vote. Subject to
the foregoing, any such amendment shall be effective as provided in the
instrument containing the terms of such amendment or, if there is no provision
therein with respect to effectiveness, upon the execution of such instrument and
of a certificate (which may be a part of such instrument) executed by a Trustee
or officer of the Trust to the effect that such amendment has been duly adopted.
Section 7.4 Filing of Copies; References; Headings. The original or a
--------------------------------------
copy of the instrument and of each amendment hereto shall be kept at the office
of the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each amendment hereto shall be filed by the Trust with the
Secretary of the Commonwealth of Massachusetts as well as any other governmental
office where such filing may from time to time be required, but the failure to
make any such filing shall not impair the effectiveness of this instrument or
any such amendment. Anyone dealing with the Trust may rely on a certificate by
an officer of the Trust as to whether or not any such amendments have been made,
as to the identities of the Trustees and officers, and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions like "herein",
"hereof" and "hereunder" shall be deemed to refer to this instrument as a whole
as the same may be amended or affected by any such amendments. The masculine
gender shall include the feminine and neuter genders. Headings are placed herein
for convenience of reference only and shall not be taken as a part hereof or
control or affect the meaning, construction or effect of this instrument. This
instrument may be executed in any number of counterparts each of which shall be
deemed an original.
Section 7.5 Applicable Law. This Declaration of Trust is made in The
--------------
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth.
Reference herein to Massachusetts Business Corporation Law is not intended to
give the Trust, the Trustees, the Shareholders or any other person any right,
power, authority or responsibility applicable only to or in connection with an
<PAGE>
entity organized in corporate form. The Trust shall be of the type referred to
in Section 1 of Chapter 182 of the Massachusetts General Laws and of the type
commonly called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand in the City of
Boston, Massachusetts, as of the day and year first above written.
\s\ Frederick R. Kobrick
------------------------------------
Frederick R. Kobrick
\s\ Michael T. Carmen
-----------------------------------
Michael T. Carmen
Principal office of the Trust: 101 Federal Street
Boston, MA 02110
