As filed with the Securities and Exchange Commission on May 7, 1999
Securities Act File No. 333-12075
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No.
KOBREN INSIGHT FUNDS
(Exact Name of Registrant as Specified in Charter)
20 William Street, Suite 310, Wellesley Hills, Massachusetts 02181
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code: (617) 535-0525
Name and Address of Agent for Service: Copies to:
Gail A. Hanson, Esq. Pamela Wilson, Esq.
Kobren Insight Funds Hale and Dorr LLP
101 Federal Street, 6th Floor 60 State Street
Boston, MA 02110 Boston, MA 02109
Title of Securities Being Registered:
Shares of beneficial interest, par value $.001 per share
No filing fee is due because an indefinite number of shares has previously been
registered pursuant to Rule 24f-2 under the Investment Company Act of 1940. This
Registration Statement relates to shares previously registered on Form N-1A
(File Nos. 333-12075, 811-07813).
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
It is proposed that this filing will become effective on the earliest possible
date.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until Registrant files a further
amendment that specifically states that this Registration Statement will
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933, as amended, or until this Registration Statement becomes effective
on such date as the Commission, acting pursuant to Section 8(a) of the
Securities Act of 1933, as amended, may determine.
PROSPECTUS DATED MAY , 1999 OF
KOBREN MODERATE GROWTH FUND
(a series of Kobren Insight Funds)
This prospectus contains the information about the proposed reorganization of
your fund, Kobren Conservative Allocation Fund, into Kobren Moderate Growth
Fund. Please read it carefully and retain it for future reference. This
prospectus is for information purposes only and does not require any action on
your part.
How the Reorganization Will Work
Your fund will transfer all of its assets to Moderate Growth Fund.
Moderate Growth Fund will assume your fund's liabilities.
Moderate Growth Fund will issue shares in a dollar amount equal to the value of
your fund's shares. These shares will be distributed to your fund's shareholders
in proportion to their holdings on the reorganization date.
The reorganization will be tax-free.
Your fund will be liquidated and you will end up as a shareholder of Moderate
Growth Fund.
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Investment Goals
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Conservative Allocation Moderate Growth
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Enough long-term growth of capital to offset Long-term growth of
the loss of the value of your investment capital without regard
due to inflation. Current income is a to income. A volatility
secondary objective. A volatility level level over a full market
over a full market cycle approximately cycle approximately 20%
30% below that of the S&P 500 Index. below that of the S&P
Index.
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Where to Get More Information
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Prospectus of your fund and Moderate In the same envelope as
Growth Fund dated 5/3/99. this prospectus.
Incorporated by reference
into this prospectus.
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Latest annual report to shareholders for
your fund and Moderate Growth Fund.
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A statement of additional information dated 5/__/99. It
contains additional information about your fund and Moderate
Growth Fund.
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To ask questions about this Call our toll-free telephone number:
prospectus and the reorganization. 1-800-4KOBREN (1-800-456-2736)
E-mail: kifcon@kobren.com
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The address of your fund and Moderate Growth Fund
is: 20 William Street, Suite 310, P.O. Box 9150, Wellesley
Hills, MA 02481.
An investment in Moderate Growth Fund is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Securities and Exchange Commission has not approved or disapproved shares of
Moderate Growth Fund or determined whether this prospectus is accurate or
complete. It is a criminal offense to state otherwise.
TABLE OF CONTENTS
Page
SUMMARY 1
FEES AND EXPENSES 6
THE REORGANIZATION 7
CAPITALIZATION 10
ADDITIONAL INFORMATION ABOUT THE FUNDS' BUSINESSES 10
BOARD'S EVALUATION 12
OWNERSHIP OF SHARES OF THE FUNDS 12
EXPERTS 12
AVAILABLE INFORMATION 12
EXHIBITS
A Agreement and Plan of Reorganization between Kobren Conservative Allocation
Fund and Kobren Moderate Growth Fund (attached to this document)
B Combined prospectus dated May 3, 1999 of Kobren Conservative Allocation Fund
and Kobren Moderate Growth Fund
C Statement of additional information ("SAI") of Kobren Moderate Growth
Fund dated May , 1999, incorporating the combined SAI dated May 3, 1999
of Kobren Conservative Allocation Fund and Kobren Moderate Growth Fund
D Combined annual report dated December 31, 1998 of Kobren Conservative
Allocation Fund and Kobren Moderate Growth Fund
SUMMARY
The following is a summary of more complete information appearing later in this
prospectus. You should read the entire prospectus, Exhibit A and the enclosed
documents carefully because they contain details that are not in the summary.
The prospectus and the other documents are for information purposes only and do
not require any action on your part.
Comparison of Conservative Allocation Fund to Moderate Growth Fund
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Conservative Allocation Moderate Growth
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Business Each fund is a diversified series of Kobren Insight
Funds, a Massachusetts business trust. The trust is
an open-end management investment company.
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Net assets as of $ 16,573,245 $ 31,664,239
April 30, 1999
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Investment adviser The funds' investment adviser is Kobren Insight Management, Inc. ("KIM"). Eric M. Kobren is
and portfolio manager the portfolio manager for each fund. Mr. Kobren has been the president of KIM and the funds'
distributor since their inception in 1987 and of Mutual Fund Investors Association, Inc.
since its inception in 1985. Mr. Kobren has been in the investment business since 1976.
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INVESTMENT OBJECTIVES AND POLICIES
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Investment goals Enough long-term growth of capital to offset Long-term growth of capital without regard to
the loss of the value of your investment due income. A volatility level over a full
to inflation. Current income is a secondary market cycle approximately 20% below that of
objective. A volatility level over a full the S&P 500 Index.
market cycle approximately 30% below that of
the S&P 500 Index.
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Volatility means price changeability. A full market cycle is the market's peak to
its trough.
The funds' board of trustees may change each
fund's investment goals without obtaining the
approval of the fund's shareholders.
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Principal investments At least 40% of assets in open-end At least 65% of assets in open-end
and closed-end, growth and growth and income and closed-end, growth and growth and income
funds. These may include both U.S. and funds. These may include both U.S. and
international funds. international funds.
At least 20% of assets in income Up to 35% of assets in fixed income
producing funds or securities. funds and direct investments in stocks, bonds
Up to 40% of assets in direct and other permitted investments.
investments in stocks, bonds and other
permitted investments.
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Principal investment 1. ASSET ALLOCATION--KIM begins with a "top down" fundamental analysis of the economy
strategy and investment markets in the U.S. and foreign countries. In deciding what percentage of the
funds' assets should be allocated to U.S. stocks, foreign stocks, U.S. bonds and cash
equivalents, KIM focuses on:
A fund's risk tolerance and its target
volatility relative to the S&P 500 Index
Economic factors such as inflation, employment and interest
rates
The outlook for corporate earnings
Current stock valuations (e.g., price to earnings
and price to book ratios)
Supply and demand for various asset classes
2. INVESTMENT STYLES--Next KIM determines the
percentage of fund assets allocated to each of the
following six global equity styles:
U.S. Growth--Large Cap In allocating among styles, KIM
first reviews
U.S. Growth--Small Cap the broad-based economic factors that will
U.S. Value--Large Cap influence the earnings prospects for each
U.S. Value--Small Cap style. Then, to
determine each style's # Diversified International
Equity relative attractiveness, KIM compares the #
Specialized International Equity resulting earnings
outlook for each style
with the style's current valuation in
relation to historical norms and other styles.
3. SELECTING FUNDS--KIM looks for funds appearing to offer the highest risk-adjusted
return potential for the style relative to each fund's target volatility. KIM applies its
internally developed screening process to virtually all publicly available mutual funds--a
risk-adjusted return analysis and the evaluation of each fund against its peers. Based on
interviews with and other information from fund portfolio managers, KIM evaluates each
portfolio fund's asset allocation, sector
weightings, individual holdings and risk
characteristics.
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Industry allocation process The funds' strategies are designed to identify and
avoid industries that appear overvalued.
KIM compares stock valuations for companies in a particular industry to current and
historical valuations for industries represented in the S&P 500 Index. When stock valuations
in a particular industry are outside their normal
range, that industry may be underweighted or
overweighted in a fund's portfolio.
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Investing in underlying Both funds invest primarily in other mutual funds,
including those whose investment funds objectives do not match those of the
funds. KIM believes that, by investing in a combination
of underlying funds with a broad range of goals and
offsetting risk characteristics, each Kobren
Insight fund can achieve a higher composite rate of
return while meeting its volatility targets.
Underlying funds may engage in all types of
investment practices, even those that the Kobren
Insight funds do not engage in directly. The funds
will bear all the risks associated with underlying
funds' investments.
Due to KIM's size and buying power, the funds can invest at net asset value in underlying
funds that would otherwise be sold with a front-end sale charge. A fund will not buy
underlying fund shares if the fund would have to pay a front-end sales charge on the
purchase. However, the funds may buy underlying fund shares that are subject to a deferred
sales charge or redemption fee.
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Equity investments The funds and the underlying funds in
their portfolios may invest in equity securities of
U.S. and foreign companies. These securities
include exchange-traded and over-the-counter (OTC)
common and preferred stocks, warrants, rights,
convertible debt securities, trust certificates,
partnership interests and equity participations.
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Fixed income investments The funds and the underlying
funds in their portfolios may invest in fixed
income securities of any maturity or duration.
These securities may be issued by the U.S.
government or any of its agencies, foreign
governments, supranational entities such as the
World Bank and U.S. and foreign companies.
The funds' investments in fixed income securities
may be of any credit quality and may have all types
of interest rate payment and reset terms. They may
include mortgage-backed, asset-backed and
derivative securities as well as junk bonds. Junk
bonds involve more credit risk and interest-rate
risk than investment grade bonds.
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Defensive investing Each fund (and each underlying fund in its portfolio) may depart from its principal
investment strategies by taking temporary defensive positions in short-term debt securities
in response to adverse market, economic or political conditions for up to 100% of the
portfolio. A fund could give up potential gains and minimize losses while defensively
invested.
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Derivative contracts The funds and the underlying funds in
their portfolios may, but are not required to, use
derivative contracts for any of the following
purposes:
To hedge against adverse changes in the market
value of securities held by or to be bought for a
fund. These changes may be caused by changing
interest rates, stock market prices or currency
exchange rates.
As a substitute for purchasing or selling securities or foreign currencies.
To shorten or lengthen the effective maturity or duration of a fund's fixed income
portfolio.
In non-hedging situations, to attempt to profit from anticipated market developments.
A derivative contract will obligate or entitle a
fund to deliver or receive an asset or a
cash payment that is based on the change in value of a designated security, index or
currency. Examples of derivative contracts are futures contracts, options, forward
contracts, swaps, caps, collars and floors.
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Principal investment risks You could lose money on your
investment in either fund or the fund could perform
less well than other possible investments if any of
the following occurs:
The U.S. or a foreign stock market goes down.
Interest rates go up, which will make bond prices and the value of the fund's
investments in fixed income funds and securities go down.
An adverse event, such as an unfavorable earnings report or credit downgrade,
depresses the value of a particular issuer's stocks or bonds that are held by the fund or an
underlying fund.
The adviser's judgments about the attractiveness and risk adjusted return potential
of particular asset classes, investment styles,
industries, underlying funds or other issuers prove
to be wrong.
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Special risks of investing The funds' practice of investing primarily in other mutual funds presents special risks.
in other mutual funds
You will bear, not just your proportionate share of the funds' operating expenses,
but also, indirectly, the operating expenses of the underlying funds.
One underlying fund may be buying the same securities that another underlying fund
is selling. You would indirectly bear the costs of these transactions without accomplishing
any investment purpose.
You may receive higher taxable capital gains
distributions than if you invested directly in the
underlying funds. # Because of regulatory
restrictions, a fund's ability to invest in an
attractive underlying fund may be limited to the
extent that the underlying fund's shares are
already held by the other Kobren Insight funds, KIM
or their affiliates.
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Foreign country and Prices of a fund's investments in foreign securities may go
currency risks down because of unfavorable foreign government actions, political
instability or the absence of accurate information
about foreign issuers. Also, a decline in the value of foreign currencies relative to the
U.S. dollar will reduce the value of securities denominated in those currencies. Foreign
securities are sometimes less liquid and harder to value than securities of U.S. issuers.
These risks are more severe for securities of issuers in emerging market countries.
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Credit risk An issuer of a debt security or OTC derivative
contract could default on its obligation to pay
principal and interest, or a rating organization
could downgrade the credit rating of the issuer.
Junk bonds involve more credit risk than higher
quality debt securities.
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Prepayment or call risk The issuer of a debt security may exercise its right when interest rates are falling to
prepay principal earlier than scheduled, forcing the fund to reinvest in lower yielding
securities. Prepayments will also depress the value of interest-only securities. Corporate
bonds, mortgage-backed securities and asset-backed securities are especially susceptible to
prepayment risk.
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Extension risk The issuer of a debt security may exercise its
right when interest rates are rising to extend the
time for paying principal. This will lock in a
below-market interest rate, increase the security's
duration and reduce the value of the security.
Mortgage-backed securities and asset-backed
securities are especially susceptible to extension
risk.
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Leverage risk Because of borrowing or investments in
derivative contracts or leveraged derivative
securities, a fund may suffer disproportionately
heavy losses relative to the amount of its
investment. Leverage can magnify the impact of poor
asset allocation or investment decisions.
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Correlation risk Changes in the value of a fund's derivative
contracts or other hedging instruments may not
match or fully offset changes in the value of the
hedged portfolio securities.
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Liquidity and valuation Securities that were liquid when purchased by a fund may
risks become temporarily illiquid and hard to value, especially in declining
markets.
Also, an underlying fund's obligation to redeem shares held by a Kobren Insight fund is
limited to 1% of the underlying fund's outstanding shares per 30-day period. Because the
Kobren Insight funds and their affiliates may together acquire up to 3% of an underlying
fund's shares, it may take up to 90 days for the
funds to completely dispose of their underlying
fund shares.
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Impact of high portfolio Each fund or any underlying fund in its portfolio may engage in active and frequent trading
turnover to achieve its principal investment strategies. As a result, a fund may realize and
distribute to shareholders higher capital gains,
which would increase their tax liability. Frequent
trading also increases transaction costs, which
could detract from a fund's performance. Each fund
anticipates that its annual turnover will be less
than 100%.
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BUYING, EXCHANGING AND REDEEMING SHARES
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Net asset value Each fund calculates its net asset value per share (NAV) at the close of regular trading on
the New York Stock Exchange (normally 4:00 p.m. eastern time) on each business day. Shares
of underlying funds are valued at their reported NAVs. Each fund's other portfolio
securities are valued on the basis of either market quotations or at fair value, which may
include the use of pricing services. Fair value means estimating a security's value at other
than the market quotation.
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Buying shares Conservative Allocation Fund is not
currently offering its shares except in connection
with dividend reinvestments. The procedures for
buying shares of Moderate Growth Fund are identical
to those previously in effect for Conservative
Allocation Fund. Individuals, institutions,
companies and fiduciaries may buy shares of
Moderate Growth Fund without a sales charge at its
NAV next calculated after the order has been
received in proper form.
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Minimum investment amounts Moderate Growth Fund has and Conservative Allocation
Fund had the same initial investment
minimums. These are $2,500 for regular accounts, $2,000 for Individual Retirement Accounts
and $2,500 for accounts with shares purchased through the following fund networks:
Charles Schwab Mutual Fund Marketplace
Fidelity FundsNetwork
Waterhouse Securities
Jack White Mutual Fund Network
Each fund's minimum subsequent investment is $500.
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Exchanging shares Shareholders of both funds may exchange
their shares at net asset value for shares of any
other Kobren Insight fund other than Conservative
Allocation Fund.
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Redeeming shares A shareholder may redeem shares of each fund
on any business day at the NAV next calculated
after the receipt of the redemption request in
proper form.
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FEES AND EXPENSES
This table describes the fees and expenses that you
may pay if you buy and hold shares of a fund. The
table also shows pro forma expenses of Moderate
Growth Fund as if the reorganization had occurred
on December 31, 1998. The fees and expenses shown
in the table are in addition to those paid by the
underlying funds in which a fund may invest.
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Pro Forma
For year ended 12/31/98 Moderate Growth Moderate Conservative
Growth Allocation
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Shareholder fees
(fees paid directly from your investment)
Maximum sales charge (load) imposed on None None None
purchases
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Maximum deferred sales charge (load) None None None
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Redemption fee None None None
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Exchange fee None None None
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Annual fund operating expenses before
expense limitation1
(expenses that are deducted from fund
assets)
Management fees 0.75% 0.75% 0.75%
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Distribution (12b-1) and/or service fees None None None
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Other expenses 0.32% 0.38% 0.69%
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Total annual fund operating expenses 1.07% 1.13% 1.44%
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1 Each fund has an expense limitation which
continues until January 1, 2001, but is voluntary
and may be revoked at any time. Under this expense
limitation, the maximum expenses other than
management fees for the funds is 0.25%. In
addition, payments made by an underlying fund or
its adviser will serve to reduce the total
operating expenses of the Kobren Insight funds. For
the year ended December 31, 1998, pro forma and
actual expense reductions and total annual fund
operating expenses would have been or were:
Expense reductions and limitations (0.16%) (0.22%) (0.44%)
Total annual fund operating expenses 0.91% 0.91% 1.00%
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This example is intended The example for each fund Although your actual costs may be higher or lower, under
to help you compare the assumes that: these assumptions your costs would be:
cost of investing in each
fund with the cost of You invest $10,000 in
investing in other mutual the fund for the time periods
funds. indicated;
Your investment has a 5% return each year;
The fund's operating expenses remain the same; and
You redeem your investment at the end of each
period.
Pro Forma Moderate Conservative
Moderate Growth Growth Allocation
1 year $109 $115 $147
3 years 340 $359 $456
5 years 590 $622 $787
10 years 1,306 $1,375 $1,724
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THE REORGANIZATION
Terms of the Reorganization
The funds' trustees have approved an Agreement and Plan of Reorganization, a
copy of which is attached as Exhibit A. The Agreement provides for a
reorganization on the following terms:
The reorganization is scheduled to occur at 4:00 p.m., Eastern time, on
May __, 1999, but may occur on any later date before December 31, 1999.
Your fund will transfer all of its assets to Moderate Growth Fund.
Moderate Growth Fund will assume your fund's liabilities. This will
result in the addition of your fund's assets to Moderate Growth Fund's
portfolio. The net asset value of both funds will be computed as of
4:00 p.m., Eastern time, on the reorganization date.
Moderate Growth Fund will issue shares in an amount equal to the
aggregate net asset value of your fund's shares. As part of the
liquidation of your fund, these shares will immediately be distributed
to your fund's shareholders in proportion to their holdings on the
reorganization date. As a result, shareholders of your fund will end up
as shareholders of Moderate Growth Fund.
After the reorganization is over, your fund will be terminated.
The following diagram shows how the reorganization will be carried out.
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Conservative Moderate Growth
Allocation Fund Fund receives
transfers its assets from and
assets and assumes
liabilities to liabilities of
Moderate Growth Fund Conservative
Allocation Fund
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Conservative Conservative Moderate Growth
Allocation Fund Allocation Fund Fund shares are
shareholders receives these issued
receive Moderate shares and
Growth Fund shares distributes them
to its shareholders
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Tax Status of the Reorganization
The reorganization will be tax-free for federal income tax purposes and will not
take place unless both funds receive a satisfactory opinion from Hale and Dorr
LLP, counsel to the funds, substantially to the effect that:
The reorganization described above will be a "reorganization" within
the meaning of Section 368(a)(1)(C) of the Internal Revenue Code of
1986 (the "Code"), and each fund will be "a party to a reorganization"
within the meaning of Section 368 of the Code;
No gain or loss will be recognized by your fund upon (1) the transfer
of all of its assets to Moderate Growth Fund as described above or (2)
the distribution by your fund of Moderate Growth Fund shares to your
fund's shareholders;
No gain or loss will be recognized by Moderate Growth Fund upon the
receipt of your fund's assets solely in exchange for the issuance of
Moderate Growth Fund shares and the assumption of all of your fund's
liabilities by Moderate Growth Fund;
The basis of the assets of your fund acquired by Moderate Growth Fund
will be the same as the basis of those assets in the hands of your fund
immediately before the transfer;
The tax holding period of the assets of your fund in the hands of
Moderate Growth Fund will include your fund's tax holding period for
those assets;
The shareholders of your fund will not recognize gain or loss upon the
exchange of all their shares of your fund solely for Moderate Growth
Fund shares as part of the reorganization;
The basis of Moderate Growth Fund shares received by your fund's
shareholders in the reorganization will be the same as the basis of the
shares of your fund surrendered in exchange; and
The tax holding period of the Moderate Growth Fund shares received by
your fund's shareholders will include, for each shareholder, the tax
holding period of the shares of your fund surrendered in exchange,
provided that the Moderate Growth Fund shares were held as capital
assets on the reorganization date.
Reasons for the Proposed Reorganization
The board of trustees of your fund believes that the proposed reorganization
will be advantageous to the shareholders of your fund and has considered the
following matters, among others, in approving the reorganization.
Possible Reduction in Expense Ratios
A combined fund offers economies of scale that may lead to better control over
expenses than is possible for either fund alone. Both funds incur substantial
expenses for accounting, legal, transfer agency services, insurance, and
custodial and administrative services. Many of these expenses are fixed, which
means that they do not depend on the level of the funds' assets.
KIM has voluntarily agreed to cap these expenses at no more than 0.25% annually
of each fund's average daily net assets. However, this cap will expire on
January 1, 2001 and may be revoked sooner by KIM. KIM estimates that the funds'
projected gross expense ratios (before reimbursement) will be approximately as
follows:
- -------------------------------- ------------------------------ ------------------------------ -----------------------------
If Assets Stay the Same
as on April 7, 1999 If Assets Decrease 10% If Assets Increase 10%
Conservative Allocation 1.65% 1.75% 1.57%
Moderate Growth 1.26% 1.31% 1.21%
Combined fund 1.19% 1.24% 1.16%
- -------------------------------- ------------------------------ ------------------------------ -----------------------------
Thus, the gross expense ratio (before reimbursement) of the combined fund after
the reorganization is expected to be at least 5 basis points (0.05%) lower than
that of Moderate Growth Fund alone and at least 40 basis points (0.40%) lower
than that of Conservative Allocation Fund alone.
Viability of Conservative Allocation Fund
Mutual fund investors have in general been channeling a relatively insignificant
portion of their investable assets into conservatively managed asset allocation
products, such as Conservative Allocation Fund. Based on current trends and
KIM's projections, your fund's board is not optimistic that the fund will grow
to a viable asset size in the near future.
Similarity to Moderate Growth Fund
Although Moderate Growth Fund and Conservative Allocation Fund have slightly
different investment goals, in practice, both funds have used almost identical
asset and style allocation strategies, have held similar investments and have
experienced similar returns. Thus, the board has concluded that the Moderate
Growth Fund shares received in the reorganization will provide your fund's
shareholders with substantially the same investment advantages as they currently
have at a comparable level of risk.
In addition, it is not advantageous to operate and market your fund separately
from Moderate Growth Fund. Offering each fund separately hinders the other
fund's potential for asset growth.
Benefits to Funds' Adviser and Distributor
The board considered that the adviser and the funds' distributor, Kobren Insight
Brokerage, Inc., will also benefit from the reorganization. For example, the
adviser would incur a lower cost to cap the funds' expenses and might be able to
reduce the time it spends managing the funds' portfolios and preparing
prospectuses, reports and regulatory filings.
Comparative Performance
The trustees also took into consideration the relative performance of your fund
and Moderate Growth Fund. For most periods shown in the table below, Moderate
Growth Fund has outperformed your fund.
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AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------ ---------------------------------------- ----------------------------------------
Conservative Allocation Moderate Growth
(Inception 12/30/96) (Inception 12/24/96)
- ------------------------------------------ ---------------------------------------- ----------------------------------------
1 year ended 3/31/99 -2.32% -3.78%
- ------------------------------------------ ---------------------------------------- ----------------------------------------
Inception to 3/31/99 10.08% 11.78%
- ------------------------------------------ ---------------------------------------- ----------------------------------------
1 year ended 12/31/98 3.36% 3.44%
- ------------------------------------------ ---------------------------------------- ----------------------------------------
Inception to 12/31/98 11.55% 13.12%
- ------------------------------------------ ---------------------------------------- ----------------------------------------
Additional Terms of Reorganization
Conditions to Closing the Reorganization
The obligation of both funds to consummate the reorganization is subject to the
satisfaction of certain conditions, including the receipt of all consents,
orders and permits necessary to consummate the reorganization. In addition, the
obligations of the funds are subject to the receipt of a favorable opinion of
Hale and Dorr LLP as to the federal income tax consequences of the
reorganization. (see Agreement, paragraph 3).
Termination of Agreement
The funds' board may terminate the Agreement on behalf of either fund at any
time before the reorganization occurs, if the board believes that proceeding
with the reorganization would no longer be advisable.
Expenses of the Reorganization
Moderate Growth Fund and your fund will each be responsible for its own expenses
incurred in connection with entering into and carrying out the provisions of the
Agreement, whether or not the reorganization occurs. These expenses are
estimated to be approximately $_______ per fund.
Dissenters' Rights
Massachusetts law does not give shareholders of your fund any dissenters'
rights.
CAPITALIZATION
The following table sets forth the capitalization of each fund as of April 30,
1999 and the pro forma combined capitalization of both funds as if the
reorganization had occurred on that date. The table reflects pro forma exchange
ratios of approximately 0.936 Moderate Growth Fund shares for each share of your
fund. If the reorganization is consummated, the actual exchange ratio on the
reorganization date may vary from the exchange ratio indicated due to changes in
any of the following:
The market value of the portfolio securities of both Moderate Growth Fund and
your fund between April 30, 1999 and the reorganization date.
Changes in the amount of undistributed net investment income and net realized
capital gains of Moderate Growth Fund and your fund during that period resulting
from income and distributions.
Changes in the accrued liabilities of Moderate Growth Fund and your fund during
the same period.
- ------------------------------------- ---------------------------- ---------------------------- ----------------------------
As of Conservative Allocation Moderate Pro Forma
April 30, 1999 Growth Combined1
Net assets $16,573,245 $31,664,239 $48,237,484
Net asset value per share $11.86 $12.67 $12.67
Shares outstanding 1,397,306 2,499,767 3,807,837
- ------------------------------------- ---------------------------- ---------------------------- ----------------------------
1 If the reorganization had taken place on April 30, 1999, your fund would have
received 1,308,070 shares of Moderate Growth Fund, which would have been
available for distribution to the shareholders of your fund.
It is impossible to predict how many shares of Moderate Growth Fund will
actually be received and distributed by your fund on the reorganization date.
You should not rely on the above table to determine the amount of Moderate
Growth Fund shares that you will actually receive.
ADDITIONAL INFORMATION ABOUT THE FUNDS' BUSINESSES
The following table shows where in the funds' combined prospectus you can find
additional information about the business of each fund.
- ------------------------------------------ ---------------------------------------------------------------------------------
Type of Information Headings in Combined Prospectus of Both Funds
- ------------------------------------------ ---------------------------------------------------------------------------------
Risk/return summary FACTORS EVERY INVESTOR SHOULD KNOW
- ------------------------------------------ ---------------------------------------------------------------------------------
Investment objectives/goals INVESTMENT GOALS
- ------------------------------------------ ---------------------------------------------------------------------------------
Principal investment strategies PRINCIPAL INVESTMENTS
KOBREN INSIGHT MANAGEMENT (KIM) INVESTMENT STRATEGY
- ------------------------------------------ ---------------------------------------------------------------------------------
Principal risks of investing in the PRINCIPAL INVESTMENT RISKS
funds: narrative disclosure WHO MAY WANT TO INVEST IN THE KOBREN INSIGHT FUNDS
- ------------------------------------------ ---------------------------------------------------------------------------------
Principal risks of investing in the Summary of Past Performance
funds: risk/return bar chart and table
- ------------------------------------------ ---------------------------------------------------------------------------------
Fee table Fees and Expenses
- ------------------------------------------ ---------------------------------------------------------------------------------
Body of prospectus
- ------------------------------------------ ---------------------------------------------------------------------------------
Investment objectives, principal THE FUND'S INVESTMENTS
investment strategies and related risks INDUSTRY ALLOCATION PROCESS
INVESTING IN UNDERLYING FUNDS
PRINCIPAL INVESTMENTS
DEFENSIVE INVESTING
DERIVATIVE CONTRACTS
ADDITIONAL INVESTMENT RISKS
IMPACT OF HIGH PORTFOLIO TURNOVER
THE FUNDS' INVESTMENT GOALS
- ------------------------------------------ ---------------------------------------------------------------------------------
Management: investment adviser and INVESTMENT ADVISER
portfolio manager KOBREN INSIGHT MANAGEMENT, INC.
- ------------------------------------------ ---------------------------------------------------------------------------------
Shareholder information: pricing of fund INVESTMENT AND ACCOUNT POLICIES
shares CALCULATION OF NET ASSET VALUE
- ------------------------------------------ ---------------------------------------------------------------------------------
Shareholder information: purchase of INVESTMENT AND ACCOUNT POLICIES
fund shares PURCHASING FUND SHARES
TAX-DEFERRED RETIREMENT PLANS
WIRE AND ACH TRANSFERS
TELEPHONE TRANSACTIONS
MINIMUM INVESTMENT AMOUNTS
HOW TO PURCHASE SHARES
- ------------------------------------------ ---------------------------------------------------------------------------------
Shareholder information: redemption of HOW TO EXCHANGE/REDEEM SHARES
fund shares INVESTMENT AND ACCOUNT POLICIES
REDEEMING FUND SHARES
SIGNATURE GUARANTEES
CLOSING SUB-MINIMUM ACCOUNTS
- ------------------------------------------ ---------------------------------------------------------------------------------
Shareholder information: dividends and INVESTMENT AND ACCOUNT POLICIES
distributions; DIVIDENDS, DISTRIBUTIONS AND TAXES
tax consequences
- ------------------------------------------ ---------------------------------------------------------------------------------
Financial highlights information FINANCIAL HIGHLIGHTS
- ------------------------------------------ ---------------------------------------------------------------------------------
BOARD'S EVALUATION
For the reasons described above, the board of trustees of the funds, including
the trustees who are not "interested persons" of either fund or the adviser,
approved the reorganization. In particular, the trustees determined that the
reorganization was in the best interests of each fund and that the interests of
each fund's shareholders would not be diluted as a result of the reorganization.
OWNERSHIP OF SHARES OF THE FUNDS
As of May 14, 1999, _______ shares of beneficial interest of your fund were
outstanding. To the knowledge of your fund, as of May 14, 1999, the following
persons owned or would have owned, of record or beneficially, 5% or more of the
outstanding shares of your fund, Moderate Growth Fund (before reorganization)
and Moderate Growth Fund (after reorganization).
- -------------------------------- ------------------------------ ------------------------------ -----------------------------
Names and Addresses of Owners Moderate Moderate
of More Than 5% of Shares Conservative Growth Fund Growth Fund
Allocation Fund (before reorganization) (after reorganization)
- -------------------------------- ------------------------------ ------------------------------ -----------------------------
Eric M. Kobren $_________* N/A $ ________
20 William Street
Suite 310, P.O. Box 9150
Wellesley Hills, MA 02481.
- -------------------------------- ------------------------------ ------------------------------ -----------------------------
* Mr. Kobren is/will be a controlling person of this fund.
As of May 14, 1999 the trustees and officers of the funds owned in the aggregate
the following amounts of each fund's shares:
- -------------------------------- ------------------------------ ---------------
Conservative Moderate
Allocation Fund Growth Fund
- -------------------------------- ------------------------------ ---------------
All trustees and officers as a $ $
group
- -------------------------------- ----------------------------------------------
EXPERTS
The financial statements and the financial highlights of each fund, as of
December 31, 1998 and for the years then ended, are incorporated by reference
into this prospectus. These financial statements and highlights have been
independently audited by PricewaterhouseCoopers LLP, as stated in its report
appearing in the statement of additional information. These financial statements
and highlights are included in reliance upon the reports given upon the
authority of such firms as experts in accounting and auditing.
AVAILABLE INFORMATION
Each fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 and files reports,
prospectuses and other information with the SEC. These reports, prospectuses and
other information filed by the funds can be inspected and copied (at prescribed
rates) at the public reference facilities of the SEC at 450 Fifth Street, N.W.,
Washington, D.C., and at the following regional offices: Chicago (500 West
Madison Street, Suite 1400, Chicago, Illinois); and New York (7 World Trade
Center, Suite 1300, New York, New York). Copies of this material can also be
obtained by mail from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, copies
of these documents may be viewed on-screen or downloaded from the SEC's Internet
site at http://www.sec.gov.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
this ___th day of May, 1999, between Kobren Conservative Allocation Fund (the
"Acquired Fund") and Kobren Moderate Growth Fund (the "Acquiring Fund"), each of
which is a series of Kobren Insight Funds, a Massachusetts business trust (the
"Trust").
1. Plan of Reorganization and Liquidation
(a) The Acquired Fund shall assign, sell, convey, transfer and deliver to the
Acquiring Fund at the Closing provided for in Section 2 (the "Closing") all of
its then existing assets of every kind and nature. In consideration therefor,
the Acquiring Fund agrees that at the Closing (i) the Acquiring Fund shall
assume all of the Acquired Fund's obligations and liabilities then existing,
whether absolute, accrued, contingent or otherwise, including all unpaid fees
and expenses of the Acquired Fund in connection with the transactions
contemplated hereby and (ii) the Acquiring Fund shall issue and deliver to the
Acquired full and fractional shares of beneficial interest of the Acquiring Fund
(the "Acquiring Fund Shares") that have an aggregate net asset value equal to
the value of the assets transferred to the Acquiring Fund by the Acquired Fund,
less the liabilities of Acquired Fund assumed by Acquiring Fund.
(b) Upon consummation of the transactions described in paragraph
(a) of this Section 1, the Acquired Fund shall distribute in
complete liquidation pro rata to its shareholders of record as
of the Closing Date the Acquiring Fund Shares received by the
Acquired Fund. This distribution shall be accomplished by
establishing an account on the share record books of the
Acquiring Fund in the name of each shareholder an amount of
full and fractional Acquiring Fund Shares equal to the amount
of shares of the Acquired Fund owned of record by the
shareholder at the Closing Date.
(c) As promptly as practicable after the above liquidation of the
Acquired Fund, the legal existence of the Acquired Fund shall
be terminated.
2. Closing and Closing Date. The Closing shall occur as of the close of business
on May ___, 1999 or at such other time and date as the parties may mutually
agree (the "Closing Date").
3. Conditions Precedent. The obligations of the Acquired Fund and the Acquiring
Fund to effect the transactions contemplated hereunder (the "Reorganization")
shall be subject to the satisfaction of each of the following conditions:
(a) All such filings shall have been made with, and all such authorizations and
orders shall have been received from, the Securities and Exchange Commission
(the "SEC") and state securities commissions as may be necessary to permit the
parties to carry out the transactions contemplated by this Agreement.
(b) Each party shall have received an opinion of counsel substantially to the
effect that for federal income tax purposes: (1) the acquisition of the assets
of the Acquired Fund by the Acquiring Fund in exchange for Acquiring Fund's
assumption of Acquired Fund's liabilities and Acquiring Fund's issuance of
Acquiring Fund Shares to the Acquired Fund, the distribution of such Acquiring
Fund Shares to the shareholders of the Acquired Fund in complete liquidation of
the Acquired Fund, and the termination of the Acquired Fund will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the Acquiring Fund and the Acquired
Fund will each be "a party to a reorganization" within the meaning of Section
368(b) of the Code; (2) no gain or loss will be recognized by the Acquired Fund
upon the transfer of all of its assets to the Acquiring Fund solely in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of the
liabilities of the Acquired Fund and the distribution by the Acquired Fund of
such Acquiring Fund Shares to the shareholders of the Acquired Fund; (3) no gain
or loss will be recognized by the Acquiring Fund upon the receipt of all of the
assets of the Acquired Fund in exchange solely for Acquiring Fund Shares and the
assumption by the Acquiring Fund of the liabilities of the Acquired Fund; (4)
the tax basis of the Acquiring Fund in the assets received from the Acquired
Fund will be the same as the tax basis of such assets in the hands of the
Acquired Fund immediately prior to the transfer of such assets to the Acquiring
Fund; (5) the Acquiring Fund's tax holding period for the assets acquired from
the Acquired Fund will include, in each instance, the Acquired Fund's tax
holding period for those assets; (6) no gain or loss will be recognized by the
Acquired Fund's shareholders upon the exchange of their shares of the Acquired
Fund solely for Acquiring Fund Shares as part of the reorganization; (7) the tax
basis of the Acquiring Fund Shares received by the Acquired Fund's shareholders
in the transaction will be, for each shareholder, the same as the tax basis of
the shares of the Acquired Fund exchanged therefor; and (8) the tax holding
period of the Acquiring Fund Shares received by the Acquired Fund's shareholders
will include, for each shareholder, the shareholder's tax holding period for the
shares of the Acquired Fund surrendered in exchange therefor, provided that the
surrendered shares were held as capital assets in the hands of the Acquired
Fund's shareholders on the date of the exchange. The opinion may cover any
additional matters deemed material by such counsel. At any time prior to the
Closing, any of the foregoing conditions may be waived by the Trustees of the
Trust if in their judgment, the waiver will not have a material adverse effect
on the interests of the shareholders of the Acquired Fund or Acquiring Fund.
4. Amendment. This Agreement may be amended at any time by action of the
Trustees of the Trust, provided that no amendment shall have a material adverse
effect on the interests of the shareholders of the Acquired Fund or Acquiring
Fund.
5. Termination. The Trustees of the Trust may terminate this Agreement and
abandon the Reorganization at any time prior to the Closing, if circumstances
should develop that, in their judgment, make proceeding with the Reorganization
inadvisable.
This Agreement shall be executed in any number of counterparts each of which
shall be deemed to be an original, but all counterparts together shall
constitute only one instrument.
IN WITNESS WHEREOF the parties have hereunto caused this Agreement to
be executed and delivered by their duly authorized officers as of the day and
year first above written.
- ----------------------------------------------------------- -------------------
KOBREN INSIGHT FUNDS on behalf of
Kobren Conservative Allocation Fund
Attest: _____________________
By: By: ___________________________
Its: Secretary Name:
Its:
- ----------------------------------------------------------- ------------------
- ----------------------------------------------------------- ------------------
KOBREN INSIGHT FUNDS on behalf of
Kobren Moderate Growth Fund
Attest: _____________________ By: ___________________________
By: Name:
Its: Secretary Its:
- ----------------------------------------------------------- -----------------
EXHIBIT B
[Logo appears in center of cover page]
Kobren Growth Fund
Kobren Moderate Growth Fund
Kobren Conservative Allocation Fund
[Picture depicting eyeglasses on a financial newspaper
page appears in center of page in a colored box]
P R O S P E C T U S
May 3, 1999
[The following statement appears in a colored box]
The Securities and Exchange Commission has not approved any fund's shares as an
investment or determined whether this prospectus is accurate or complete. It is
a criminal offense to state otherwise.
TABLE OF CONTENTS
FACTORS EVERY INVESTOR SHOULD KNOW 3
Investment goals 3
Principal investments 3
Investment strategy 3
Principal investment risks 4
Performance 4
Who may want to invest 5
Fees and expenses 5
THE FUNDS' INVESTMENTS 6
INVESTMENT ADVISER 8
INVESTMENT AND ACCOUNT POLICIES 9
Calculation of net asset value 9
How to purchase shares 10
How to exchange shares 11
How to redeem shares 11
Dividends, distributions and taxes 12
FINANCIAL HIGHLIGHTS 13
FOR MORE INFORMATION back cover
FACTORS EVERY INVESTOR SHOULD KNOW
The Fund
Growth Fund
Investment Goals:
Long term growth of capital without regard to income. A price changeability or
"volatility" level over a full market cycle approximating that of the S&P 500
Index. A full market cycle is the market's peak to its trough.
Principal Investments:
At least 65% of assets in open-end and closed-end, growth and growth and income
funds. These may include both U.S. and international funds.
Up to 35% of assets in fixed income funds and direct investments in stocks,
bonds and other permitted investments.
Moderate Growth Fund
Investment Goals:
Long term growth of capital without regard to income. A volatility level over a
full market cycle approximately 20% below that of the S&P 500 Index.
Principal Investments:
At least 65% of assets in open-end and closed-end, growth and growth and income
funds. These may include both U.S. and international funds.
Up to 35% of assets in fixed income funds and direct investments in stocks,
bonds and other permitted investments.
Conservative Allocation Fund
Investment Goals:
Enough long term growth of capital to offset the loss of the value of your
investment due to inflation. Current income is a secondary objective. Volatility
level over a full market cycle approximately 30% below that of the S&P 500
Index.
Principal Investments:
At least 40% of assets in open-end and closed-end, growth and growth and income
funds. These may include both U.S. and international funds.
At least 20% of assets in income producing funds or securities.
Up to 40% of assets in direct investments in stocks, bonds and other permitted
investments.
[Logo]
Kobren Insight Management (KIM) Investment Strategy
1. ASSET ALLOCATION -- KIM begins with a fundamental analysis of the economy and
investment markets in the U.S. and foreign countries. In deciding what
percentage of the funds' assets should be allocated to U.S. stocks, foreign
stocks, U.S. bonds and cash equivalents, KIM focuses on:
- - A fund's risk tolerance and its target volatility relative to the S&P 500
Index
- - Economic factors such as inflation, employment and interest rates
- - The outlook for corporate earnings
- - Current stock valuations (e.g., price to earnings and price to book ratios)
- - Supply and demand for various asset classes
2. INVESTMENT STYLES -- Next KIM determines the percentage of fund assets
allocated to each of the following seven global equity styles:
- - U.S. Growth--Large Cap
- - U.S. Growth--Small Cap
- - U.S. Value--Large Cap
- - U.S. Value--Small Cap
- - Diversified International Equity
- - Specialized International Equity
In allocating among styles, KIM first reviews the broad-based economic factors
that will influence the earnings prospects for each style. Then, to determine
each style's relative attractiveness, KIM compares the resulting earnings
outlook for each style with the style's current valuation in relation to
historical norms and other styles.
3. SELECTING FUNDS -- KIM looks for funds appearing to offer the highest
risk-adjusted return potential for the style relative to each fund's target
volatility. KIM applies its internally developed screening process to virtually
all publicly available mutual funds - a risk-adjusted return analysis and the
evaluation of each fund against its peers. Based on interviews with and other
information from fund portfolio managers, KIM evaluates each portfolio fund's
asset allocation, sector weightings, individual holdings and risk
characteristics.
FACTORS EVERY INVESTOR SHOULD KNOW
[Picture of a bull and a bear appears in upper left-hand corner]
PRINCIPAL INVESTMENT RISKS
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
You could lose money on your investment in a Kobren Insight fund or the fund
could perform worse than other possible investments if any of the following
occurs:
- - The U.S. or a foreign stock market goes down.
- - Interest rates go up, which will make bond prices and the value of the
fund's investments in fixed income funds and securities go down.
- - An adverse event, such as an unfavorable earnings report or credit
downgrade, depresses the value of a particular issuer's stocks or bonds
that are held by the fund or an underlying fund.
- - The adviser's judgments about the attractiveness and risk adjusted
return potential of particular asset classes, investment styles,
industries, underlying funds or other issuers prove to be wrong.
Special risks of investing in other mutual funds.
The funds' practice of investing primarily in other mutual funds presents
special risks.
- - You will bear, not just your proportionate share of the funds'
operating expenses, but also, indirectly, the operating expenses of the
underlying funds.
- - One underlying fund may be buying the same securities that another
underlying fund is selling. You would indirectly bear the costs of
these transactions without accomplishing any investment purpose.
- - You may receive higher taxable capital gains distributions than if you
invested directly in the underlying funds.
- - Because of regulatory restrictions, a fund's ability to invest in an
attractive underlying fund may be limited to the extent that the
underlying fund's shares are already held by the other Kobren Insight
funds, KIM or their affiliates.
Summary of Past Performance
[This section appears in a colored box]
The bar chart and table shown below may help illustrate the risks of investing
in the Kobren Insight funds. The bar chart shows the performance of the funds
for the periods indicated. The table shows how each fund's average annual
returns for the periods indicated compares to that of a widely recognized,
unmanaged index of common stock prices. A fund's past performance does not
necessarily indicate how the fund will perform in the future.
[Bar chart showing the performance of the funds for 1997 and 1998, respectively.
The plot points are 15.03% and 11.45% for Growth, 23.25% and 3.44% for Moderate
Growth, and 20.64% and 3.36% for Conservative Allocation, respectively.]
Average Annual Returns
For Periods Ended 12/31/98
Fund (Inception) 1 year Since Inception
Growth (12/16/96) 11.45% 14.26%
S&P 500 Index 28.66% 32.02%
Moderate Growth (12/24/96) 3.44% 13.12%
S&P 500 Index 28.66% 29.76%
Conservative Allocation (12/30/96) 3.36% 11.55%
S&P 500 Index 28.66% 29.72%
Footnote:
Growth Moderate Growth Conservative
Allocation
Best quarterly 16.94% in 4th 11.27% in 4th 8.51% in 4th
returns quarter 1998 quarter 1998 quarter 1998
Worst quarterly -14.83% in 3rd -13.08% in 3rd -8.59% in 3rd
Returns quarter 1998 quarter 1998 quarter 1998
FACTORS EVERY INVESTOR SHOULD KNOW
[Picture of people appears in upper left-hand corner]
WHO MAY WANT TO INVEST IN THE KOBREN INSIGHT FUNDS
Growth Fund
- - Investors seeking growth of capital and a volatility level approximating
that of the S&P 500 Index.
- - Investors with a minimum five year time horizon and no need for current
income.
Moderate Growth Fund
- - Investors seeking growth of capital and a volatility level below that of
the S&P 500 Index.
- - Investors with a minimum time horizon of three to five years and modest
income needs.
Conservative Allocation Fund
- - Investors seeking enough long-term growth of capital to offset the loss of
purchasing power due to inflation.
- - Conservative investors willing to sacrifice some growth potential in
exchange for less (but not zero) volatility.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of a Kobren Insight fund. These fees and expenses are in addition to
those paid by the underlying funds in which a fund may invest.
For year ended 12/31/98 Moderate Conservative
Growth Growth Allocation
Shareholder fees
(fees paid directly from your investment)
Maximum sales charge (load) imposed
on purchases None None None
Maximum deferred sales charge (load) None None None
Redemption fee None None None
Exchange fee None None None
Annual fund operating expenses before expense limitation 1 (expenses that are
deducted from fund assets)
Management fees 0.75% 0.75% 0.75%
Distribution (12b-1) and/or service fees None None None
Other expenses 0.32% 0.38% 0.69%
Total annual fund operating expenses 1.07% 1.13% 1.44%
1 Each fund has an expense limitation that continues until January 1,
2001, but is voluntary and may be revoked at any time. Under this
expense limitation, the maximum expenses other than management fees for
the funds is 0.25%. In addition, payments made by an underlying fund or
its advisor will serve to reduce the total annual operating expenses of
the Kobren Insight fund. For the year ended December 31, 1998, expense
reductions and total annual fund operating expenses were:
Expense reductions and
limitations (0.16%) (0.22%) (0.44%)
Total annual fund operating
expenses 0.91% 0.91% 1.00%
This example is intended to help you compare the cost of investing in each fund
with the cost of investing in other mutual funds.
The example for each fund assumes that:
- - You invest $10,000 in the fund for the time periods indicated;
- - Your investment has a 5% return each year;
- - The fund's operating expenses remain the same; and
- - You redeem your investment at the end of each period.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
Growth Moderate Conservative
Growth Allocation
1 year $109 $115 $147
3 years $340 $359 $456
5 years $590 $622 $787
10 years $1,306 $1,375 $1,724
THE FUND' INVESTMENTS
The Kobren Insight funds' strategies and investments.
INDUSTRY ALLOCATION PROCESS
The funds' strategies are designed to identify and avoid industries that appear
overvalued. KIM compares stock valuations for companies in a particular industry
to current and historical valuations for industries represented in the S&P 500
Index. When stock valuations in a particular industry are outside their normal
range, that industry may be underweighted or overweighted in a fund's portfolio.
INVESTING IN UNDERLYING FUNDS
The Kobren Insight funds invest primarily in other mutual funds, including those
whose investment objectives do not match those of the funds. KIM believes that,
by investing in a combination of funds with a broad range of goals and
offsetting risk characteristics, a Kobren Insight fund can achieve a higher
composite rate of return while meeting its volatility targets.
Underlying funds may engage in all types of investment practices, even those
that the Kobren Insight funds do not engage in directly. The funds will bear all
the risks associated with underlying funds' investments.
Due to KIM's size and buying power, the funds can invest at net asset value in
underlying funds that would otherwise be sold with a front-end sales charge. A
fund will not buy underlying fund shares if the fund would have to pay a
front-end sales charge on the purchase. However, the funds may buy underlying
fund shares subject to a deferred sales charge or redemption fee or 12b-1 fee.
PRINCIPAL INVESTMENTS
- - Equity
The funds and the underlying funds in their portfolios may invest in equity
securities of U.S. and foreign companies. These securities include
exchange-traded and over-the-counter (OTC) common and preferred stocks,
warrants, rights, convertible debt securities, trust certificates, partnership
interests and equity participations.
- - Fixed income
The funds and the underlying funds in their portfolios may invest in fixed
income securities of any maturity or duration. These securities may be issued by
the U.S. government or any of its agencies, foreign governments, supranational
entities such as the World Bank and U.S. and foreign companies.
The funds' investments in fixed income securities may be of any credit quality
and may have all types of interest rate payment and reset terms. They may
include mortgage-backed, asset-backed and derivative securities as well as junk
bonds. Junk bonds involve more credit risk and interest-rate risk than
investment grade bonds.
DEFENSIVE INVESTING
Each fund (and each underlying fund in its portfolio) may depart from its
principal investment strategies by taking temporary defensive positions in
short-term debt securities in response to adverse market, economic or political
conditions for up to 100% of the portfolio. A fund would give up potential gains
and minimize losses while defensively invested.
DERIVATIVE CONTRACTS
The funds and the underlying funds in their portfolios may, but are not required
to, use derivative contracts for any of the following purposes:
- - To hedge against adverse changes in the market value of securities held by
or to be bought for a fund. These changes may be caused by changing
interest rates, stock market prices or currency exchange rates.
- - As a substitute for purchasing or selling securities or foreign currencies.
- - To shorten or lengthen the effective maturity or duration of a fund's fixed
income portfolio.
- - In non-hedging situations, to attempt to profit from anticipated market
developments.
A derivative contract will obligate or entitle a fund to deliver or receive an
asset or a cash payment that is based on the change in value of a designated
security, index or currency. Examples of derivative contracts are futures
contracts, options, forward contracts, swaps, caps, collars and floors.
THE FUNDS' INVESTMENTS
More about the Kobren Insight funds' strategies and investments
ADDITIONAL INVESTMENT RISKS
The funds (and the underlying funds in their portfolios) could lose money or
underperform for the reasons listed in the "Factors Every Investor Should Know"
section or for the following additional reasons:
- - Foreign country and currency risks
Prices of a fund's investments in foreign securities may go down because of
unfavorable foreign government actions, political instability or the absence of
accurate information about foreign issuers. Also, a decline in the value of
foreign currencies relative to the U.S. dollar will reduce the value of
securities denominated in those currencies. Foreign securities are sometimes
less liquid and harder to value than securities of U.S. issuers. These risks are
more severe for securities of issuers in emerging market countries.
- - Credit risk
An issuer of a debt security or OTC derivative contract could default on its
obligation to pay principal and interest, or a rating organization could
downgrade the credit rating of the issuer. Junk bonds involve more credit risk
than higher quality debt securities.
- - Prepayment or call risk
The issuer of a debt security may exercise its right when interest rates are
falling to prepay principal earlier than scheduled, forcing the fund to
re-invest in lower yielding securities. Prepayments will also depress the value
of interest-only securities. Corporate bonds, mortgage-backed securities and
asset-backed securities are especially susceptible to prepayment risk.
- - Extension risk
The issuer of a debt security may exercise its right when interest rates are
rising to extend the time for paying principal. This will lock in a below-market
interest rate, increase the security's duration and reduce the value of the
security. Mortgage-backed securities and asset-backed securities are especially
susceptible to extension risk.
- - Leverage risk
Because of borrowing or investments in derivative contracts or leveraged
derivative securities, a fund may suffer disproportionately heavy losses
relative to the amount of its investment. Leverage can magnify the impact of
poor asset allocation or investment decisions.
- - Correlation risk
Changes in the value of a fund's derivative contracts or other hedging
instruments may not match or fully offset changes in the value of the hedged
portfolio securities.
- - Liquidity and valuation risks
Securities that were liquid when purchased by a fund may become temporarily
illiquid and hard to value, especially in declining markets.
Also, an underlying fund's obligation to redeem shares held by a Kobren Insight
fund is limited to 1% of the underlying fund's outstanding shares per 30-day
period. Because the Kobren Insight funds and their affiliates may together
acquire up to 3% of an underlying fund's shares, it may take up to 90 days for
the funds to completely dispose of their underlying fund shares.
IMPACT OF HIGH PORTFOLIO TURNOVER
Each fund or any underlying fund in its portfolio may engage in active and
frequent trading to achieve its principal investment strategies. As a result, a
fund may realize and distribute to shareholders higher capital gains, which
would increase their tax liability. Frequent trading also increases transaction
costs, which could detract from a fund's performance. Each fund anticipates its
annual turnover will be less than 100%.
THE FUNDS' INVESTMENT GOALS
The funds' board of trustees may change each fund's investment goals without
obtaining the approval of the fund's shareholders. A fund might not succeed in
achieving its goals.
INVESTMENT ADVISER
[Logo appears in upper left-hand corner]
KOBREN INSIGHT MANAGEMENT, INC.
Kobren Insight Management, Inc. (KIM) provides investment advice and portfolio
management services to the Kobren Insight funds. Under the supervision of the
funds' board of trustees, KIM makes the funds' day-to-day investment decisions,
arranges for the execution of portfolio transactions and generally manages the
funds' investments.
Kobren Insight Management, Inc., a registered investment adviser, was
established in 1987. KIM has historically used mutual funds, rather than
individual securities, as the primary investment vehicle for client accounts.
KIM has extensive experience managing mutual fund portfolios for high net worth
individuals and corporations with minimum $400,000 account sizes. KIM currently
manages over 1,000 client accounts with assets totaling over $1 billion.
Eric M. Kobren owns all of the stock of KIM and of the funds' distributor. Mr.
Kobren is also the principal shareholder of Mutual Fund Investors Association,
Inc., the publisher of Fidelity Insight and FundsNet Insight reports with over
100,000 paid subscribers.
Mr. Kobren is the primary portfolio manager for each of the Kobren Insight
funds. Mr. Kobren has been the president of KIM and the funds' distributor since
their inception in 1987 and of the Mutual Fund Investors Association, Inc. since
its inception in 1985. Mr. Kobren has been in the investment business since
1976.
Each fund has agreed to pay KIM a monthly advisory fee at the annual rate of
0.75% of the fund's average daily
net assets.
A Kobren Insight fund may invest in shares of an underlying mutual fund:
- - that makes payments of Rule 12b-1 or service fee revenues based on the
amount of shares held by the Kobren Insight fund or
- - whose investment adviser is willing to share a portion of the underlying
fund's advisory fee attributable to the underlying fund shares held by the
Kobren Insight fund.
Rule 12b-1, service fee or revenue sharing payments made as to shares of any
underlying fund will be applied to advisory fees owed to KIM by the affected
Kobren Insight fund. Each fund will pay a portion of the costs of participating
in various fund network programs.
KIM has voluntarily agreed to cap each fund's other expenses at no more than
0.25% annually of the fund's average daily net assets. This cap does not apply
to brokerage commissions, taxes, interest and litigation, indemnification and
other extraordinary expenses. Although this expense cap arrangement can be
revoked at any time, KIM plans to continue this arrangement until January 1,
2001.
YEAR 2000
[This section appears in a colored box.]
The funds' securities trades, pricing and accounting services and other
operations could be adversely affected if the computer systems of the adviser,
distributor, custodian or transfer agent were unable to recognize dates after
1999. The adviser and other service providers have told the funds that they are
taking action to prevent, and do not expect the funds to suffer from,
significant year 2000 problems. In addition, the companies in which the fund or
the underlying funds invest may have year 2000 computer problems. The value of
their securities could go down if they do not fix these problems on time or if
fixing them is very expensive.
INVESTMENT AND ACCOUNT POLICIES
[Picture depicting a calculator appears in upper left-hand corner]
The funds calculate their NAVs every business day.
CALCULATION OF NET ASSET VALUE
Each fund calculates its net asset value per share (NAV) at the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. eastern time) on each
business day. A business day is a weekday that is not a holiday listed in the
statement of additional information. If the New York Stock Exchange closes
early, the time for calculating the NAV and the deadlines for share transactions
will be accelerated to the earlier closing times.
Shares of underlying funds are valued at their reported NAVs. Each fund's other
portfolio securities are valued on the basis of either market quotations or at
fair value, which may include the use of pricing services. Fair value means
estimating a security's value at other than the market quotation. The effect of
such method may be that the price used may be different than other fund's
pricing using market quotations. Although each Kobren Insight fund's NAV will be
calculated every business day, the NAV reported to NASDAQ for distribution to
news agencies will be delayed by one business day.
PURCHASING FUND SHARES
Individuals, institutions, companies and authorized fiduciaries may buy shares
of each Kobren Insight fund without a sales charge at its NAV next calculated
after the order has been received in proper form.
TAX-DEFERRED RETIREMENT PLANS
Traditional individual retirement account (IRA) plans and Roth individual
retirement plans can invest in the funds through Investor Services Group. The
following retirement plans are available through the mutual fund networks listed
in the box below:
- - Keough plans for self-employed individuals.
- - SEP and SARSEP plans for corporations.
- - Qualified pension and profit-sharing plans for employees, including 401(k)
plans and 403(b)(7) custodial accounts for employees of public school
systems, hospitals, colleges and other non-profit organizations.
WIRE AND ACH TRANSFERS
The funds currently impose no fee for wire and Automated Clearing House (ACH)
transfers of purchase payments and redemption proceeds. However, the funds'
custodian may charge a fee in the future.
TELEPHONE TRANSACTIONS
The funds and Investor Services Group have procedures designed to verify that
telephone instructions are genuine. If they follow these procedures, they will
not be liable for any losses caused by acting on unauthorized telephone
instructions.
MINIMUM INVESTMENT AMOUNTS
[This section appears in a colored box]
The following minimum investment requirements apply to initial purchases:
TYPE OF ACCOUNT MINIMUM
Regular accounts $2,500
Individual Retirement Accounts $2,000
Accounts purchased through the following $2,500
fund networks:
- - Charles Schwab Mutual Fund Marketplace
- - Fidelity FundsNetwork
- - Waterhouse Securities
- - Jack White Mutual Fund Network
The minimum subsequent investment is $500. Fund officers have discretion to
waive or reduce any of the minimum investment requirements.
You can get prospectuses, sales literature and applications from the funds'
distributor at the address and telephone number listed on the back cover of this
prospectus.
The funds and their distributor may reject all or part of any order to buy fund
shares.
HOW TO PURCHASE SHARES
Method of Purchase
By Check [Picture of a check appears here]
Purchase Procedures
OPEN AN ACCOUNT
- - To open an account and make an initial investment, send a minimum $2,500
check and a completed account application to the address shown below.
- - An account application is included with this prospectus.
ADD TO AN ACCOUNT
- - Send a check for no less than $500 with your account name and number to
permit proper crediting. You can use the deposit slip attached to the
bottom of all account statements.
- - If you are adding to an IRA account, please provide the contribution year.
ALL PURCHASES
- - Your checks should be drawn on a U.S. bank or savings institution and
should be made payable to Kobren Insight Funds.
- - If an order to purchase shares is cancelled because your check does not
clear, you will be responsible for any resulting losses to the funds, their
distributor or Investor Services Group.
By Wire [Picture of a bank appears here]
OPEN AN ACCOUNT
- - To purchase shares by wire, call Investor Services Group for instructions
at the number shown below.
- - Be prepared to give the name in which the account will be opened, the
address, telephone number and taxpayer identification number for the
account and the name of the bank that will wire the purchase payment.
- - You will be assigned a new account number. You should write this number on
and complete an account application, which must be sent promptly to the
address shown below.
- - Your purchase order will not take effect until both the wire and the
purchase order are received by the funds.
- - You will be able to redeem shares of a fund, but not receive the proceeds,
until the fund has received your completed account application form. Also,
if a signed application form is not received within 60 days, your account
will be subject to backup tax withholding.
ADD TO AN ACCOUNT
- - When you purchase more shares by wire, provide your fund name, account name
and account number to permit proper crediting.
- - To receive timely credit, you must call and tell Investor Services Group
that your bank is sending a wire.
By Automated Clearing House Transfer (ACH)
- - If you want to purchase shares for non-retirement accounts via electronic
funds transfer, check this option in section 5 of your application.
- - Call Investor Services Group before 4:00 p.m. Eastern time.
By Automatic Investment Plan [Picture of a calendar appears here]
- - After your initial investment of $2,500 or more, you can make automatic
monthly, quarterly or annual purchases (on the day you choose in advance)
of $100 or more.
- - To use this plan, complete section 6 of the application. You can change the
purchase amount or terminate the plan at any time by notifying the funds in
writing.
Through Broker-Dealers and Fund Networks
- - Contact your dealer to find out about its procedures for processing orders
to purchase fund shares. Purchase orders received by your dealer or its
agent before 4:00 p.m. eastern time on any business day receive that day's
NAV. Your dealer is responsible for promptly transmitting properly
completed orders to Investor Services Group.
- - The Kobren Insight funds may also be purchased with a $2,500 minimum
through the following fund networks:
Fidelity Investments 800-544-9697 No transaction fee.
Jack White & Company 800-323-3263 No transaction fee.
Waterhouse Securities 800-934-4443 No transaction fee.
Charles Schwab & Company 800-266-5623 Transaction fee applies.
[This section appears in a box]
Send mail to
Kobren Insight Funds
P.O. Box 5146
4400 Computer Drive
Westborough, MA 01581
Call
Investor Services Group
toll-free at
800-895-9936
HOW TO EXCHANGE/REDEEM SHARES
Method of Exchange
All Exchanges [Picture of a dollar sign with arrow pointing to upper right
appears here]
Exchange Procedures
- - You may exchange shares of any Kobren Insight fund for shares of the other
funds at the NAV of each fund next determined after receipt of your
exchange request.
- - Exchanges must meet the applicable minimum initial investment requirements
for each fund.
- - To protect other shareholders of the funds, the funds may cancel the
exchange privileges of any person that, in the opinion of the funds, is
using market timing strategies or making more than four exchanges per owner
or controlling person per calendar year. The funds may also close the
accounts of shareholders whose exchange privilege has been cancelled.
- - The funds' trustees may change or terminate the exchange privilege on 60
days' prior notice to shareholders.
By Mail [Picture of an envelope appears here]
- - Send a written request to the address shown below.
- - Your request must state the number of shares or the dollar amount to be
exchanged, both funds' names and the applicable account numbers for both
funds.
- - The request must be signed exactly as your name appears on the account
registration.
By Telephone [Picture of a telephone appears here]
- - Call Investor Services Group at the toll-free number shown below.
- - If you are unable to execute a telephone exchange (for example during times
of unusual market activity), you should consider requesting an exchange by
mail.
Method of Redemption
By Mail [Picture of an envelope appears here]
Redemption Procedures
- - You may redeem shares of the funds by sending a written redemption request
to the Kobren Insight funds at the address shown below.
- - Your request must state the number of shares or dollar amount to be
redeemed and the applicable account number.
- - The request must be signed exactly as your name appears on the account
registration.
- - If the shares to be redeemed have a value of $50,000 or more, your
signature must be guaranteed by one of the eligible guarantor institutions
listed under "Signature Guarantees" on page 12.
- - If you want redemption proceeds deposited directly through an ACH transfer
in the bank account or brokerage account designated on your account
application, you should specify this in your written redemption request.
Call Investor Services Group for more information about ACH transfers.
By Telephone [Picture of a telephone appears here]
- - To redeem by telephone, call Investor Services Group at the number shown
below.
- - You can request that redemption proceeds be deposited directly through an
ACH transfer in the bank account or brokerage account designated on your
account application.
Through Broker-Dealers and Fund Networks
- - Contact your dealer to find out about its procedures for processing orders
to redeem fund shares. Redemption orders received by your dealers or its
agent before 4:00 p.m. eastern time on any business day receive that day's
NAV. Your dealer is responsible for promptly transmitting properly
completed orders to Investor Services Group.
Systematic Withdrawal Plan [Picture of a calendar appears here]
- - If shares in your account have a value of at least $5,000, you may elect to
receive, or may designate another person to receive, monthly, quarterly or
annual payments in a specified amount. There is no charge for this service.
- - Call Investor Services Group at the number shown below for more info.
[This section appears in a box]
Send mail to
Kobren Insight Funds
P.O. Box 5146
4400 Computer Drive
Westborough, MA 01581
Call
Investor Services Group
toll-free at
800-895-9936
INVESTMENT AND ACCOUNT POLICIES
You may redeem shares of the funds on any business day at the NAV next
calculated after the receipt of your redemption request in proper form.
REDEEMING FUND SHARES
Redemption proceeds are usually sent on the business day after the effective
date of a redemption. However, the payment of redemption proceeds for shares
purchased by check will be delayed until after the check has cleared, which may
take up to 15 days. Under unusual circumstances, the funds may suspend
redemptions, if allowed by the SEC, or postpone payment.
Redemption proceeds are paid by wire or, at your request, ACH transfer to the
bank or brokerage account designated on your account application. If you have
not designated an account or if it is impossible or impractical to wire
redemption proceeds, they will be sent by mail to your record address. You may
change your designated account by sending to the address on the previous page a
written request or supplemental telephone redemption authorization form
(available from Investor Services Group) that has been signature guaranteed by
an eligible guarantor institution.
SIGNATURE GUARANTEES
The funds will accept signature guarantees from the following institutions:
banks, broker-dealers, credit unions, savings institutions, national securities
exchanges, registered securities associations and clearing agencies.
Shareholders that are corporations, partnerships, trusts, estates or other
organizations may be required to provide documents evidencing that a request to
redeem shares or change a designated bank or brokerage account has been properly
authorized.
CLOSING SUB-MINIMUM ACCOUNTS
The funds may close your account if, for reasons other than market losses, the
value of your shares falls below $1,000, the applicable initial investment
minimum or any other minimum set by the funds' trustees. After the funds notify
you of their intention to close your account, you will have 60 days to bring the
account back to the minimum level.
DIVIDENDS, DISTRIBUTIONS AND TAXES
[This section appears in a colored box]
Each fund declares and pays dividends according to the schedule on the right.
Redemptions and exchanges of fund shares are taxable events on which you may
recognize a gain or loss. Dividends and distributions are also taxable, as
described in the chart below, whether they are received in additional shares or
cash.
Type of Distribution Name of Fund Declared Federal Tax Status
and Paid
Dividends from net Growth annually Taxable as ordinary
investment income Fund income.
Dividends from net Moderate Growth annually Taxable as ordinary
investment income Fund income.
Dividends from net Conservative quarterly Taxable as ordinary
investment income Allocation Fund income.
Distributions of short All Kobren annually Taxable as ordinary
term capital gain Insight Funds income.
Distributions of long All Kobren annually Taxable as capital
term capital gain Insight Funds gain.
Dividends are paid in additional shares of the same fund unless you elect to
receive them in cash.
You should generally avoid investing in a fund shortly before an expected
dividend or distribution. Otherwise, you may pay taxes on dividends or
distributions that are economically equivalent to a partial return of your
investment.
You should consult your tax adviser about particular federal, state, local and
other taxes that may apply to you.
Every January, the funds will send you information about the fund's dividends
and distributions during the previous calendar year.
If you do not provide the funds with a correct taxpayer identification number
and required certifications, you may be subject to federal backup withholding
tax.
FINANCIAL HIGHLIGHTS
Kobren Growth Fund
For a fund share outstanding throughout the year.
For the year For the Year For the Period
Ended Ended Ended
12/31/98 (f) 12/31/97 12/31/96 (a)
Net asset value - beginning of period $11.51 $10.24 $10.00
Net investment income/(loss) (0.02) 0.05 0.00 (d)
Short term capital gains 0.05 0.22 ----
Net realized and unrealized gain on
investments 1.29 1.27 0.24
------ ----- ------
Net increase in net assets resulting
from investment operations 1.32 1.54 0.24
Distributions from net investment
income ---- (0.05) ----
Distributions from net realized
short term capital gains (0.03) (0.22) ----
Distributions from net realized
long term capital gains (0.26) 0.00 (d) ----
------ ------
Total distributions (0.29) (0.27) ----
Net asset value - end of period $12.54 $11.51 $10.24
------ ------ ------
Total return (b) 11.45% 15.03% 2.40%
------ ------ ------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $64,507 $62,509 $251
Ratio of net investment income/(loss)
to average net assets (0.19)% 0.60% (0.97)% (c)(e)
Ratio of operating expenses to average
net assets before fees waived and/or
expenses reimbursed by investment
adviser and other reductions 1.07% 1.28% n/a (e)
Ratio of operating expenses to
average net assets after
reimbursements and reductions 0.91% 0.89% 1.00% (c)
Portfolio turnover rate 62% 43% n/a (e)
(a) Kobren Growth Fund commenced operations on December 16, 1996.
(b) Total return represents aggregate total return for the period indicated.
(c) Annualized.
(d) Amount represents less than $0.01 per share.
(e) Since Kobren Growth Fund was in operation for a short period of time, these
ratios are not meaningful.
(f) Per share net investment income has been calculated using the monthly
average share method.
FINANCIAL HIGHLIGHTS
Kobren Moderate Growth Fund
For a fund share outstanding throughout the year.
For the year For the Year For the Period
Ended Ended Ended
12/31/98 12/31/97 12/31/96 (a)
Net asset value - beginning of period $11.94 $10.06 $10.00
Net investment income 0.16 0.19 0.00 (d)
Short term capital gains 0.06 0.27 ----
Net realized and unrealized gain on
investments 0.20 1.88 0.06
------ ------ ----
Net increase in net assets resulting
from investment operations 0.42 2.34 0.06
------ ------ ----
Distributions from net investment
income (0.16) (0.19) ----
Distributions from net realized
short term capital gains (0.06) (0.27) ----
Distributions from net realized
long term capital gains (0.28) (0.00) (d) ----
------
Total distributions (0.50) (0.46) ----
------ ------
Net asset value - end of period $11.86 $11.94 $10.06
Total return (b) 3.44% 23.25% 0.60%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $46,958 $43,381 $190
Ratio of net investment income to
average net assets 1.15% 2.76% 8.95% (c) (e)
Ratio of operating expenses to average
net assets before fees waived and/or
expenses reimbursed by investment
adviser and other reductions 1.13% 1.58% n/a (e)
Ratio of operating expenses to
average net assets after
reimbursements and reductions 0.91% 0.92% 1.00% (c)
Portfolio turnover rate 50% 14% n/a (e)
(a) Kobren Moderate Growth Fund commenced operations on December 24, 1996.
(b) Total return represents aggregate total return for the period indicated.
(c) Annualized.
(d) Amount represents less than $0.01 per share.
(e) Since Kobren Moderate Growth Fund was in operation for a short period of
time, these ratios are not meaningful.
FINANCIAL HIGHLIGHTS
Kobren Conservative Allocation Fund
For a fund share outstanding throughout the year.
For the year For the Year For the Period
Ended Ended Ended
12/31/98 12/31/97 12/31/96 (a)
Net asset value - beginning of period $11.39 $9.98 $10.00
Net investment income 0.25 0.57 ---- (d)
Short term capital gains 0.08 0.04 ----
Net realized and unrealized gain/(loss)
on investments 0.05 (f) 1.44 (0.02)
------ ------ ------
Net increase/(decrease) in net assets
resulting from investment
operations 0.38 2.05 (0.02)
Distributions from net investment
income (0.25) (0.57) ----
Distributions from net realized
short term capital gains (0.08) (0.04) ----
Distributions from net realized
long term capital gains (0.25) (0.03) ----
------ ------
Total distributions (0.58) (0.64) ----
------ ------
Net asset value - end of period $11.19 $11.39 $9.98
------ ------ -----
Total return (b) 3.36% 20.64% (0.20)%
------ ------ -------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $19,710 $17,475 $1650
Ratio of net investment income/(loss)
to average net assets 2.01% 3.99% (1.00)% (c) (e)
Ratio of operating expenses to average
net assets before fees waived and/or
expenses reimbursed by investment
adviser and other reductions 1.44% 2.82% n/a (e)
Ratio of operating expenses to
average net assets after
reimbursements and reductions 1.00% 1.00% 1.00% (c)
Portfolio turnover rate 68% 13% n/a (e)
(a) Kobren Conservative Allocation Fund commenced operations on December 30,
1996.
(b) Total return represents aggregate total return for the period indicated.
(c) Annualized.
(d) Amount represents less than $0.01 per share.
(e) Since Kobren Conservative Allocation Fund was in operation for a short
period of time, these ratios are not meaningful.
(f) The amount shown for a share outstanding does not correspond with the
aggregate net loss on investments for the period ended due to the timing of
sales and repurchases of fund shares in relation to fluctuating market
values of the investments of the fund.
INVESTMENT ADVISER
Kobren Insight Management, Inc.
20 William Street, PO Box 9135
Wellesley Hills, MA 02481
Toll-free: 1-800-456-2736
LEGAL COUNSEL
Hale and Dorr LLP
ADMINISTRATOR
First Data Investor
Services Group, Inc.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRANSFER AGENT
First Data Investor
Services Group, Inc.
Toll-free: 1-800-895-9936
CUSTODIAN
Boston Safe Deposit & Trust Co.
FOR MORE INFORMATION
For investors who want more information about the Kobren Insight funds, the
following documents are available free upon request:
Annual/Semiannual Reports
Additional information about the funds' investments is available in the funds'
annual and semiannual reports to shareholders. These reports contain a
discussion of the market conditions and investment strategies that significantly
affected each fund's performance during its last fiscal year.
Statement of Additional Information (SAI)
The SAI provides more detailed information about the funds and is incorporated
into this prospectus by reference.
Contacting Principal Distributor
Investors can get free copies of reports and SAIs, request other information and
discuss their questions about the funds by contacting the funds' principal
distributor at:
Address: Kobren Insight Brokerage, Inc.
20 William Street, Suite 310
P.O. Box 9150
Wellesley Hills, MA 02481
Phone: 1-800-4KOBREN (1-800-456-2736)
E-mail: kifcon@kobren.com
Internet: http://www.kobren.com
Contacting the SEC
Investors can review the funds' reports and SAIs at the Public Reference Room of
the Securities and Exchange Commission. Information on the operation of the
Public Reference room may be obtained by calling the Commission at
1-800-SEC-0330. Investors can get text-only copies:
- - For a fee, by writing to or calling the Public Reference Room of the
Commission, Washington, D.C. 20549-6009
Telephone: 1-800-SEC-0330
- - Free from the Commission's Internet website at http://www.sec.gov.
Investment Company Act File No. 811-07813
EXHIBIT C
KOBREN MODERATE GROWTH FUND
STATEMENT OF ADDITIONAL INFORMATION
May , 1999
This statement of additional information is not a prospectus, but expands upon
and supplements the information contained in the prospectus of Kobren Moderate
Growth Fund, dated May , 1999. This statement of additional information should
be read in conjunction with the prospectus.
The Fund's prospectus is being delivered with this statement of additional
information. Additional copies of the prospectus may be obtained by writing to
the Fund at P.O. Box 5146, Westborough, Massachusetts 01581 or by telephoning
the Fund toll free at (800)-895-9936.
This statement of additional information is accompanied by and incorporates by
reference the combined statement of additional information dated May 3, 1999
(the "combined SAI") of Kobren Moderate Growth Fund and Kobren Conservative
Allocation Fund (collectively, the "Funds").
ADDITIONAL INFORMATION ABOUT
MODERATE GROWTH FUND AND
CONSERVATIVE ALLOCATION FUND
The following table shows where in the funds' combined SAI you can find
additional information about each Fund.
- ------------------------------------------ ---------------------------------------------------------------------------------
Type of Information Headings in Combined SAI of Both Funds
- ------------------------------------------ ---------------------------------------------------------------------------------
Fund history X. DESCRIPTION OF THE TRUST
- ------------------------------------------ ---------------------------------------------------------------------------------
Description of each Fund and its I. INVESTMENT OBJECTIVES AND POLICIES
investments, strategies, policies and II. INVESTMENT RESTRICTIONS
risks
- ------------------------------------------ ---------------------------------------------------------------------------------
Management of the Funds, including the III. MANAGEMENT OF THE TRUST AND THE FUNDS:
board of trustees, officers and trustee Trustees and Officers
compensation
- ------------------------------------------ ---------------------------------------------------------------------------------
Control persons, principal holders of III. MANAGEMENT OF THE TRUST AND THE FUNDS:
securities and management ownership Trustees and Officers: Control Persons and Principal Holders of Securities
- ------------------------------------------ ---------------------------------------------------------------------------------
Investment advisory and other services: III. MANAGEMENT OF THE TRUST AND THE FUNDS:
investment adviser, distributor and Investment Adviser
other service providers Distributor
Administrator, Transfer Agent and Dividend Paying Agent
IX. CUSTODIAN, COUNSEL AND INDEPENDENT ACCOUNTANTS
- ------------------------------------------ ---------------------------------------------------------------------------------
Brokerage allocation and other practices VI PORTFOLIO TRANSACTIONS
- ------------------------------------------ ---------------------------------------------------------------------------------
Shares of beneficial interest X. DESCRIPTION OF THE TRUST
- ------------------------------------------ ---------------------------------------------------------------------------------
Purchase, redemption and pricing of IV. PURCHASE, REDEMPTION AND DETERMINATION OF NET ASSET VALUE
shares V. SPECIAL REDEMPTIONS
- ------------------------------------------ ---------------------------------------------------------------------------------
Taxation of the Funds VIII. DIVIDENDS, DISTRIBUTIONS AND TAXES
- ------------------------------------------ ---------------------------------------------------------------------------------
Calculation of performance data VII. PERFORMANCE INFORMATION
A. Total Return
B. Non-Standardized Total Return
C. Other Information Concerning Fund Performance
- ------------------------------------------ ---------------------------------------------------------------------------------
Financial statements XII. FINANCIAL STATEMENTS
This section incorporates by
reference the Funds' annual report
dated December 31, 1998.
- ------------------------------------------ ---------------------------------------------------------------------------------
PRO FORMA COMBINED FINANCIAL STATEMENTS OF
MODERATE GROWTH FUND AND
CONSERVATIVE ALLOCATION FUND
AS OF DECEMBER 31, 1998
The combined pro forma financial statements of the funds as of December
31, 1998 are attached to this SAI.
Kobren Moderate Growth Fund - POST MERGER
December 31, 1998
- ----------------------------------------------------------------------------
Large Cap Value - 22.57%
- ---------------------------------------------------------------------------
42,228 Fidelity Value Fund 1,957,279
159,968 Franklin Mutual Beacon Fund, Class Z 2,098,775
102,569 Gabelli Westwood Equity Fund 1,030,815
216,105 Longleaf Partners Fund 5,270,795
324,037 MAS Pooled Value Fund 4,688,820
----------------
15,046,484
----------------
Large Cap Growth - 18.71%
- --------------------------------------------------------------------------------------------------------------------------
45,419 Fidelity Advisor Growth Opportunities Fund, Class T $ 2,280,486
437,678 Marsico Growth & Income Fund 6,276,305
157,184 PIMCo Cadence Capital Appreciation Fund, Institutional Class 3,920,164
----------------
12,476,955
----------------
International - 14.13%
- --------------------------------------------------------------------------------------------------------------------------
----------------
560,151 Tweedy, Browne Global Value Fund 9,421,743
----------------
Small Cap Value - 10.22
- --------------------------------------------------------------------------------------------------------------------------
44,857 Longleaf Partners Small Cap Fund 984,614
242,748 Skyline Special Equities Fund 4,801,565
31,717 Third Avenue Value Fund 1,024,152
----------------
----------------
6,810,331
----------------
Real Estate - 5.36%
- --------------------------------------------------------------------------------------------------------------------------
179,608 Longleaf Partners Realty Fund 2,613,292
75,320 Morgan Stanley Institutional Real Estate Fund, Class A 957,314
----------------
----------------
3,570,606
----------------
Bond - 2.07%
- --------------------------------------------------------------------------------------------------------------------------
53,508 PIMCo Total Return Institutional Fund 563,971
73,593 Vanguard Intermediate-Term Treasury Fund 819,825
----------------
1,383,796
----------------
Money Market Fund - 1.84%
- --------------------------------------------------------------------------------------------------------------------------
----------------
1,226,529 Dreyfus Cash Management Plus Fund 1,226,529
----------------
Total Mutual Funds (Cost $48,830,004) $ 49,936,444
----------------
U.S. Treasury Notes - 17.33%
- --------------------------------------------------------------------------------------------------------------------------
1,250,000 5.625% 11/30/99 1,261,621
3,150,000 7.250% 08/15/04 3,535,383
2,500,000 7.500% 02/15/05 2,857,617
2,000,000 6.500% 08/15/05 2,195,157
1,500,000 7.000% 07/15/06 1,704,960
----------------
11,554,738
----------------
U.S. Treasury Bonds - 7.46%
- --------------------------------------------------------------------------------------------------------------------------
1,500,000 6.000% 02/15/26 1,637,754
2,500,000 8.125% 08/15/19 3,334,767
----------------
4,972,521
----------------
Total U.S. Treasury Obligations
(Cost $15,524,372) 16,527,259
----------------
TOTAL INVESTMENTS
(Cost $64,354,376*) 99.69% 66,463,703
----------------
OTHER ASSETS AND LIABILITIES
(Net) 0.31% 204,264
-------------- ----------------
NET ASSETS 100% $ 66,667,967
============== ================
Statements of Assets and Liabilities
Kobren Insight Funds
December 31, 1998
Kobren Kobren
Moderate Conservative POST
Growth Fund Allocation Fund MERGER
Assets:
Investments, at value
See accompanying schedules $ 46,829,138 $ 19,634,565 $ 66,463,703
Cash -- -- --
Dividends receivable 6,775 2,772 9,547
Interest receivable 238,867 153,598 392,465
Receivable for fund shares sold 33,806 5,341 39,147
Unamortized organization costs 6,208 6,277 12,485
Prepaid expenses and other net assets 13,910 -- --
------------------
------------------ -------------------- --------------------
Total assets 47,128,704 19,802,553 66,931,257
------------------ -------------------- --------------------
Liabilities:
Payable to custodian 3,492 5,940 9,432
Payable for fund shares redeemed 60,114 24,212 84,326
Distributions payable 38,252 31,175 69,427
Investment advisory fee payable 20,511 3,485 23,996
Administration fee payable 5,625 5,625 11,250
Transfer agent fees payable 7,333 4,667 12,000
Accrued Trustees' fees and expenses 2,500 2,500 5,000
Accrued expenses and other payables 32,896 14,963 47,859
------------------ --------------------
------------------ -------------------- --------------------
Total liabilities 170,723 92,567 263,290
------------------ -------------------- --------------------
====================
Net Assets $ 46,957,981 $ 19,709,986 $ 66,667,967
================== ==================== ====================
Investments, at cost $ 45,219,048 $ 19,135,328 $ 64,354,376
================== ==================== ====================
NET ASSETS consist of:
Undistributed net investment income $ -- $ -- $ --
Accumulated net realized gain/(loss) on investments sold 897,914 (560,666) 337,248
Net unrealized appreciation of investments 1,610,090 499,237 2,109,327
Par value (Shares of beneficial interest, $.001 per 3,960 1,762 5,622
share)
Paid-in capital in excess of par value 44,446,017 19,769,653 64,215,770
------------------ --------------------
================== ==================== ====================
NET ASSETS $ 46,957,981 $ 19,709,986 $ 66,667,967
================== ==================== ====================
SHARES OUTSTANDING 3,959,727 1,761,910 5,621,770
================== ==================== ====================
====================
Net asset value, offering and redemption price per share $ 11.86 $ 11.19 $ 11.86
================== ==================== ====================
See Notes to Financial Statements
Statements of Operations
Kobren Insight Funds
For the Year Ended December 31, 1998
Kobren Kobren
Moderate Conservative
Growth Fund Allocation Fund ADJUSTMENTS PROFORMA
INVESTMENT INCOME:
Dividends $ 472,979 $ 323,338 $ 0 $ 796,317
Interest 598,393 342,871 0 941,264
-------------- -----------------
-------------- ----------------- --------------- ----------------
Total investment income 1,071,372 666,209 0 1,737,581
-------------- ----------------- --------------- ----------------
EXPENSES:
Investment advisory fee 388,684 165,999 0 554,683
Administration fee 67,500 67,500 (67,500) a 67,500
Transfer agent fees 55,704 42,076 (30,076) b 67,704
Custodian fees 3,599 3,441 0 7,040
Professional fees 31,264 10,828 0 42,092
Trustees' fees and expenses 9,874 5,059 0 14,933
Registration and filing fees 18,524 16,129 (10,129) c 24,524
Amortization of organization costs 2,100 2,100 (2,100) d 2,100
Other 10,173 4,624 (4,624) e 10,173
-------------- ----------------- --------------- ----------------
Total expenses 587,422 317,756 (114,429) 790,749
Expenses reimbursed
by investment adviser (69,479) (96,407) 114,715 f (51,171)
Other reductions (44,404) -- 0 (44,404)
-------------- -----------------
-------------- --------------- ----------------
Net expenses 473,539 221,349 286 695,174
-------------- ----------------- --------------- ----------------
-------------- ----------------- --------------- ----------------
NET INVESTMENT INCOME/(LOSS) 597,833 444,860 (286) 1,042,407
-------------- ----------------- --------------- ----------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) from security transactions (1,938,559) (1,178,310) 0 (3,116,869)
Short term capital gain distributions received 224,103 140,633 0 364,736
Long term capital gain distributions received 2,836,492 618,165 0 3,454,657
Change in unrealized appreciation/(depreciation) of (371,379) 346,115 0 (25,264)
securities
-------------- -----------------
--------------- ----------------
Net realized and unrealized gain/(loss) on investments 750,657 (73,397) 0 677,260
-------------- ----------------- --------------- ----------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 1,348,490 $ 371,463 $ (286) $ 1,719,667
============== ================= =============== ================
a - Per fund fixed annual fee has been eliminated post merger. b - Per fund
fixed annual fee portion has been eliminated post merger. c - Per fund fixed
annual fee has been eliminated post merger. d - Conservative Allocation's
remaining Organization Costs will be completely expensed prior to merger. e -
Per fund fixed annual fee portion has been eliminated post merger.
f - Reimbursement recalculated based on total proforma expenses.
See Notes to Financial Statements
Notes to Proforma Financial Statements
For the Year Ended December 31, 1998
1. Significant Accounting Policies
Kobren Insight Funds (the "Trust") was organized on September 13, 1996, as
a Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a no-load, open-end
diversified management investment company. As of December 31, 1998, the Trust
offers shares of four funds, Kobren Growth Fund, Kobren Moderate Growth Fund,
Kobren Conservative Allocation Fund and Kobren Delphi Value Fund (individually,
a "fund" and collectively, the "funds"). Information presented in these
financial statements pertains only to Kobren Moderate Growth Fund and Kobren
Conservative Allocation Fund. These funds seek to achieve their investment
objectives by investing primarily in shares of other investment companies
("underlying funds"), but also may invest directly in securities that are
suitable investments for that fund.
Pending SEC approval, the Kobren Conservative Allocation Fund and the Kobren
Moderate Growth Fund will be combined under a tax-free merger. Shares of the
Kobren Conservative Allocation Fund will be exchanged for shares into the Kobren
Moderate Growth Fund at the net asset value of the Moderate Growth Fund on merge
date.
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. The
following is a summary of significant accounting policies followed by the funds
in the preparation of their financial statements.
Portfolio Valuation -- The underlying funds are valued according to their stated
net asset value. Each fund's other investment securities are valued at the last
sale price on the securities exchange or national securities market on which
such securities primarily are traded. Securities not listed on an exchange or
national securities market, or securities in which there were no transactions,
are valued at the average of the most recent bid and asked prices. Bid price is
used when no asked price is available. Short-term investments are valued at
amortized cost, which approximates market value. Any securities or other assets
for which recent market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the board of
trustees.
Dividends and Distributions -- It is the policy of Kobren Moderate Growth Fund
to declare and pay dividends from net investment income annually. Kobren
Conservative Allocation Fund has a policy of paying such dividends quarterly.
Each fund will distribute net realized capital gains (including net short-term
capital gains), unless offset by any available capital loss carryforward,
annually. Additional distributions of net investment income and capital gains
for each fund may be made in order to avoid the application of a 4%
non-deductible excise tax on certain undistributed amounts of ordinary income
and capital gain. Income distributions and capital gain distributions are
determined in accordance with 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
a fund, timing differences and differing characterizations of distributions made
by a fund.
Securities Transactions and Investment Income -- Securities transactions are
recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on the specific identified cost basis. Dividend income
is recognized on the ex-dividend date. Interest income is recognized on the
accrual basis.
Federal Income Tax -- Each fund has qualified and intends to continue to qualify
as a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and by
distributing substantially all of its earnings to its shareholders. Therefore,
no Federal income or excise tax provision is applicable.
Expenses -- Expenses of the Trust which are directly identifiable to a specific
fund are allocated to that fund. Other expenses of the Trust are allocated among
the funds based upon relative net assets of each fund.
2. Investment Advisory Fee, Administration Fee and Other Transactions
The Trust has entered into an investment advisory agreement (the "Advisory
Agreement") with Kobren Insight Management, Inc. ("KIM"). The Advisory Agreement
provides that each fund pays KIM a fee, computed daily and paid monthly, at the
annual rate of 0.75% of each fund's average daily net assets. In addition,
certain 12b-1 fee and sub-transfer agent fee revenue will be used to defray the
costs associated with participation in certain no transaction fee programs. KIM
has voluntarily agreed to limit each fund's other operating expenses to 0.25% of
each fund's average daily net assets until January 1, 2001.
The Trust also has also entered into an administration agreement (the
"Administration Agreement") with First Data Investor Services Group, Inc. (the
"Administrator"), a wholly-owned subsidiary of First Data Corporation. The
Administrator also serves as the Trust's transfer agent and dividend paying
agent. Boston Safe Deposit and Trust Company, an indirect wholly-owned
subsidiary of Mellon Bank Corporation, serves as the Trust's custodian. Kobren
Insight Brokerage, Inc., an affiliate of KIM, serves as distributor of the
funds' shares and pays all distribution costs. No distribution fees are paid by
the funds.
For the year ended December 31, 1998, expense reimbursement and other
reductions are as follows:
Expenses Reimbursed
By Investment Advisor Other Reductions (1)
Kobren Moderate Growth Fund $ 69,479 $ 44,404
Kobren Conservative Allocation Fund 96,407 --
(1) Payments made by an underlying fund or its investment advisor, based on
shares held by a Kobren Insight Fund.
No officer, director or employee of KIM, Kobren Insight Brokerage, Inc.,
the Administrator, or any affiliate thereof, receives any compensation from the
Trust for serving as a trustee or officer of the Trust. Each Trustee who is not
an "affiliated person" receives an annual fee of $5,000 plus $1,000 for each
board meeting attended and $500 for each committee meeting attended. The Trust
also reimburses out-of-pocket expenses incurred by each trustee in attending
such meetings.
3. Purchases and Sales
The aggregate amounts of purchases and sales of underlying funds and
investment securities, other than U.S. government and short-term securities, for
the year ended December 31, 1998, were as follows:
Purchases Sales
Kobren Moderate Growth Fund $ 32,105,786 $ 25,154,303
Kobren Conservative Allocation Fund 18,394,556 14,481,960
4. Shares of Beneficial Interest
As of December 31, 1998, an unlimited number of shares of beneficial
interest, having a par value of $0.001, were authorized for the Trust. Changes
in shares of beneficial interest were as follows:
Year Ended Year Ended
December 31, 1998 December 31, 1997
Shares Amount Shares Amount
Kobren Moderate Growth Fund:
Shares Sold 1,885,448 $ 23,034,304 3,867,539 $ 43,059,814
Shares Issued as Reinvestment of Dividends 154,509 1,832,481 130,811 1,561,885
Shares Redeemed (1,713,953) (20,768,039) (383,530) (4,460,468)
---------- ------------ --------- -----------
Net Increase 326,004 $ 4,098,746 3,614,820 $ 40,161,231
=========== =========== ========= ============
Kobren Conservative Allocation Fund:
Shares Sold 1,260,211 $ 14,740,908 1,763,364 $ 19,397,323
Shares Issued as Reinvestment of Dividends 87,053 974,832 71,701 818,115
Shares Redeemed (1,120,082) (12,840,550) (316,837) (3,484,213)
----------- ------------ --------- -----------
Net Increase 227,182 $ 2,875,190 1,518,228 $ 16,731,225
=========== ============= ========= ============
At December 31, 1998, Kobren Insight Management, Inc. and its affiliates owned
485,712 and 369,573 shares of Kobren Moderate Growth Fund and Kobren
Conservative Allocation Fund, respectively.
5. Organization Expenses
Expenses incurred in connection with the organization of each fund are
being amortized on a straight-line basis over a period not to exceed sixty
months from the date upon which each fund commenced its operations.
6. Risk Factors of the Funds
Investing in underlying funds through a Kobren Insight Fund involves
additional and duplicative expenses and certain tax results that would not be
present if an investor were to make a direct investment in the underlying funds.
A fund, together with the other funds and any "affiliated persons" (as such term
is defined in the 1940 Act) may purchase only up to 3% of the total outstanding
securities of an underlying fund. Accordingly, when the Trust, KIM or their
affiliates hold shares of any of the underlying funds, each fund's ability to
invest fully in shares of such underlying funds may be restricted, and KIM must
then, in some instances, select alternative investments.
7. Capital Loss Carryforward
For the year ended December 31, 1998, the Kobren Conservative Allocation
Fund had a capital loss carryforward of $487,627 expiring December 31, 2006.
May 3, 1999
KOBREN INSIGHT FUNDS
STATEMENT OF ADDITIONAL INFORMATION
This statement of additional information is not a prospectus, but expands upon
and supplements the information contained in the prospectus of Kobren Insight
Funds (the "Trust"), dated May 3, 1999. The statement of additional
information should be read in conjunction with the prospectus. The Trust's
prospectus may be obtained by writing to the Trust at P.O. Box 5146,
Westborough, Massachusetts 01581 or by telephoning the Trust toll free at
800-895-9936. Capitalized terms not otherwise defined herein have the same
meaning as in the prospectus.
TABLE OF CONTENTS
PAGE
I. INVESTMENT OBJECTIVES AND POLICIES.................................2
II. INVESTMENT RESTRICTIONS...........................................17
III. MANAGEMENT OF THE TRUST AND THE FUNDS
A. Trustees and Officers......................................19
B. Investment Adviser.........................................22
C. Distributor................................................23
D.Administrator, Transfer Agent and Dividend Paying Agent....................23
IV. PURCHASE, REDEMPTION AND DETERMINATION
OF NET ASSET VALUE.........................................24
V. SPECIAL REDEMPTIONS...............................................25
VI. PORTFOLIO TRANSACTIONS............................................25
VII. PERFORMANCE INFORMATION
A. Total Return...............................................26
B. Non-Standardized Total Return..............................27
C. Other Information Concerning Fund Performance..............27
VIII. DIVIDENDS, DISTRIBUTIONS AND TAXES................................32
IX. CUSTODIAN, COUNSEL AND INDEPENDENT ACCOUNTANTS....................37
X. DESCRIPTION OF THE TRUST..........................................37
XI. ADDITIONAL INFORMATION............................................38
XII. FINANCIAL STATEMENTS..............................................38
APPENDIX - RATINGS OF DEBT INSTRUMENTS............................A-1
I. INVESTMENT OBJECTIVES AND POLICIES
Kobren Insight Funds (the "Trust") is a no-load open-end, diversified
investment company, registered under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Trust currently offers four separate series, each
with different investment objectives. This Statement of Additional Information
pertains only to the Kobren Growth Fund, Kobren Moderate Growth Fund and Kobren
Conservative Allocation Fund (each, a "fund" and collectively, the "funds"). The
funds seek to achieve their investment objectives by investing primarily in
shares of other investment companies ("underlying funds" or "mutual funds").
KOBREN GROWTH FUND, which seeks long-term growth of capital without
regard to current income and with a volatility level approximating that of the
S&P 500 Index;
KOBREN MODERATE GROWTH FUND, which seeks long-term growth of capital
without regard to current income and with a volatility level below that of the
S&P 500 Index; and
KOBREN CONSERVATIVE ALLOCATION FUND, which seeks enough long-term
growth of capital to maintain purchasing power in the face of inflation (as
measured by the Consumer Price Index) with a volatility level below that of the
S&P 500 Index.
Each fund will concentrate its investments in the shares of mutual
funds. Mutual funds pool the investments of many investors and use professional
management to select and purchase securities of different issuers for their
portfolios. Some mutual funds invest in particular types of securities (i.e.,
equity or debt), some concentrate in certain industries, and others may invest
in a variety of securities to achieve a particular type of return or tax result.
Some of the underlying funds are, like the funds, "open-end" funds and stand
ready to redeem their shares. Any investment in a mutual fund involves risk.
Even though the funds may invest in a number of mutual funds, this investment
strategy cannot eliminate investment risk. Investing in mutual funds through a
fund involves additional and duplicative expenses and certain tax results that
would not be present if an investor were to make a direct investment in the
underlying funds. See "Fees and Expenses" and "Dividends, Distributions and
Taxes" in the prospectus.
A fund, together with the other funds and any "affiliated persons" (as
defined in the 1940 Act) may purchase only up to 3% of the total outstanding
securities of an underlying mutual fund. Accordingly, when affiliated persons of
Kobren Insight Management, Inc. ("KIM" or the "Adviser") hold shares of any of
the underlying funds, each fund's ability to invest fully in shares of such
mutual funds is restricted, and the Adviser must then, in some instances, select
alternative investments for the fund that would not have been its first
investment choice.
The 1940 Act also provides that a mutual fund whose shares are
purchased by a fund is obliged to redeem shares held by the fund only in an
amount up to 1% of the underlying mutual fund's outstanding securities during
any period of less than 30 days. Accordingly, because the funds and their
affiliates may together acquire up to 3% of an underlying fund's shares, a fund
that has decided to sell its entire position in an underlying fund may need up
to 90 days to completely implement this decision. In addition, shares held by a
fund in excess of 1% of an underlying mutual fund's outstanding securities may
be considered not readily marketable securities. Together with other illiquid
securities, these mutual funds may not exceed 15% of net assets of each Kobren
Insight fund. However, since the funds have reserved the right to pay redemption
requests in portfolio securities, these positions may be treated as liquid.
These limitations are not fundamental and may therefore be changed by the Board
of Trustees of the Trust without shareholder approval.
Under certain circumstances an underlying fund may determine to make
payment of a redemption by a fund (wholly or in part) by a distribution in kind
of securities from its portfolio, instead of in cash. As a result, a fund may
hold securities distributed by an underlying fund until such time as KIM
determines it appropriate to dispose of such securities. Such disposition will
impose additional costs on the fund.
Industry Concentration. An underlying fund may concentrate its investments
within one industry. Since the investment alternatives within an industry are
limited, the value of the shares of such a fund may be subject to greater market
fluctuation than an investment in a fund that invests in a broader range of
securities.
Investment decisions by the investment advisers of the underlying funds
are made independently of the funds and the Adviser. At any particular time, one
underlying fund may be purchasing shares of an issuer whose shares are being
sold by another underlying fund. As a result, a fund would incur indirectly
certain transaction costs without accomplishing any investment purpose. Each
fund limits its investments in underlying funds to mutual funds whose shares a
fund may purchase without the imposition of an initial sales load. The
underlying funds may incur distribution expenses in the form of Rule 12b-1 fees.
An investor could invest directly in the underlying funds. By investing in
mutual funds indirectly through the funds, the investor bears not only his or
her proportionate share of the expenses of the funds (including operating costs
and investment advisory and administrative fees) but also, indirectly, similar
expenses of the underlying funds. An investor may indirectly bear expenses paid
by underlying funds related to the distribution of such mutual funds' shares. As
a result of the funds' policies of investing in other mutual funds, an investor
may receive taxable capital gains distributions to a greater extent than would
be the case if he or she invested directly in the underlying funds.
See "Dividends, Distributions and Taxes" below.
The types of securities that may be acquired by the funds and the
underlying funds and the various investment techniques which either may employ,
including the risks associated with these investments, are described below.
Foreign Securities. A fund or an underlying fund may invest a portion of its
assets in securities of foreign issuers. These investments may be in the form of
American Depositary Receipts ("ADRs") or similar securities representing
interests in an underlying foreign security. ADRs are not necessarily
denominated in the same currency as the underlying foreign securities. If an ADR
is not sponsored by the issuer of the underlying foreign security, the
institution issuing the ADR may have reduced access to information about the
issuer.
Investments in foreign securities involve special risks and considerations that
are not present when a fund invests in domestic securities. These risks include
less publicly-available financial and other information about foreign companies;
less rigorous securities regulation; the potential imposition of currency
controls, foreign withholding and other taxes; and war, expropriation or other
adverse governmental actions. Foreign equity markets may be less liquid than
United States markets and may be subject to delays in the settlement of
portfolio transactions. Brokerage commissions and other transaction costs in
foreign markets tend to be higher than in the United States. The value of
foreign securities denominated in a foreign currency will vary in accordance
with changes in currency exchange rates, which can be very volatile. In
addition, the value of foreign fixed income investments will fluctuate in
response to changes in U.S. and foreign interest rates.
Exchange Rates. Since a fund or an underlying fund may purchase securities
denominated in foreign currencies, changes in foreign currency exchange rates
will affect the value of the assets from the perspective of U.S. investors.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to the
investor by a mutual fund. The rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in foreign
exchange markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors. A fund or an underlying fund may seek to protect
itself against the adverse effects of currency exchange rate fluctuations by
entering into currency-forward, futures, options or swaps contracts. Hedging
transactions will not, however, always be fully effective in protecting against
adverse exchange rate fluctuations. Furthermore, hedging transactions involve
transaction costs and the risk that the fund or the underlying fund will lose
money, either because exchange rates move in an unexpected direction, because
another party to a hedging contract defaults, or for other reasons.
Exchange Controls. The value of foreign investments and the investment income
derived from them may also be affected (either favorably or unfavorably) by
exchange control regulations. It is expected that a fund or an underlying fund
will invest only in securities denominated in foreign currencies that are fully
exchangeable into U.S. dollars without legal restriction at the time of
investment. However, there is no assurance that currency controls will not be
imposed after the time of investment.
Limitations of Foreign Markets. There is often less information
publicly-available about a foreign issuer than about a U.S. issuer. Foreign
issuers are not generally subject to accounting, auditing, and financial
reporting standards and practices comparable to those in the United States. The
securities of some foreign issuers are less liquid and at times more volatile
than securities of comparable U.S. issuers. Foreign brokerage commissions,
custodial expenses, and other fees are also generally higher than for securities
traded in the United States. Foreign settlement procedures and trade regulations
may involve certain risks (such as delay in payment or delivery of securities or
in the recovery of a fund's assets held abroad) and expenses not present in the
settlement of domestic investments. A delay in settlement could hinder the
ability of a fund or an underlying fund to take advantage of changing market
conditions, with a possible adverse effect on net asset value. There may also be
difficulties in enforcing legal rights outside the United States.
Foreign Laws, Regulations and Economies. There may be a possibility of
nationalization or expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial instability, and
diplomatic developments that could affect the value of a fund's or an underlying
fund's investments in certain foreign countries. Legal remedies available to
investors in certain foreign countries may be more limited than those available
with respect to investments in the United States or in other foreign countries.
The laws of some foreign countries may limit a fund or an underlying fund's
ability to invest in securities of certain issuers located in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth or gross national product, inflation
rate, capital reinvestment, resource self-sufficiency and balance of payment
positions.
Foreign Tax Considerations. Income (possibly including, in some cases, capital
gains) received by a fund or an underlying fund from sources within foreign
countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes in some cases. Any such taxes paid by a fund will
reduce the net income of the fund available for distribution. Special tax
considerations apply to foreign securities.
Emerging Markets. Risks may be intensified in the case of investments by a fund
or an underlying fund in emerging markets or countries with limited or
developing capital markets. Security prices in emerging markets can be
significantly more volatile than in more developed nations, reflecting the
greater uncertainties of investing in less established markets and economies. In
particular, countries with emerging markets may have relatively unstable
governments, present the risk of nationalization of businesses, restrictions on
foreign ownership, or prohibitions on repatriation of assets, and may have less
protection of property rights than more developed countries. The economies of
countries with emerging markets may be predominantly based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt or inflation rates.
Local securities markets may trade a small number of securities and may be
unable to respond effectively to increases in trading volume, potentially making
prompt liquidation of substantial holdings difficult or impossible at times.
Securities of issuers located in emerging market countries may have limited
marketability and may be subject to more abrupt or erratic price movements. Debt
obligations of developing countries may involve a high degree of risk, and may
be in default or present the risk of default. Governmental entities responsible
for repayment of the debt may be unwilling to repay principal and interest when
due, and may require renegotiation or rescheduling of debt payments. In
addition, prospects for repayment of principal and interest may depend on
political as well as economic factors.
Foreign Currency Transactions. A fund or an underlying fund may enter into
forward contracts to purchase or sell an agreed-upon amount of a specific
currency at a future date that 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. Under such an arrangement, a fund could, at the time it enters into a
contract to acquire a foreign security for a specified amount of currency,
purchase with U.S. dollars the required amount of foreign currency for delivery
at the settlement date of the purchase; the fund could enter into similar
forward currency transactions in connection with the sale of foreign securities.
The effect of such transactions would be to fix a U.S. dollar price for the
security to protect against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the particular foreign currency
during the period between the date the security is purchased or sold and the
date on which payment is made or received (usually 3 to 14 days). These
contracts are traded in the interbank market between currency traders (usually
large commercial banks and other financial institutions) and their customers. A
forward contract usually has no deposit requirement and no commissions are
charged for trades. While forward contracts tend to minimize the risk of loss
due to a decline in the value of the currency involved, they also tend to limit
any potential gain that might result if the value of such currency were to
increase during the contract period.
Portfolio Securities Loans. A fund or an underlying fund may lend its portfolio
securities as long as: (1) the loan is continuously secured by collateral
consisting of U.S. government securities or cash or cash equivalents maintained
on a daily mark-to-market basis in an amount at least equal to the current
market value of the securities loaned; (2) the fund or the underlying fund may
at any time call the loan and obtain the securities loaned; (3) the fund or the
underlying fund will receive any interest or dividends paid on the loaned
securities; and (4) the aggregate market value of the securities loaned will not
at any time exceed one-third of the total assets of the fund or the underlying
fund. The funds may pay reasonable fees in connection with securities loans. KIM
will evaluate the credit-worthiness of prospective institutional borrowers and
monitor the adequacy of the collateral to reduce the risk of default by
borrowers from the Kobren Insight funds. Lending portfolio securities involves
risk of delay in the recovery of the loaned securities and in some cases, the
loss of rights in the collateral if the borrower fails.
Short Sales. A fund or an underlying fund may sell securities short. In a short
sale the fund sells stock it does not own and makes delivery with securities
"borrowed" from a broker. The fund then becomes obligated to replace the
security borrowed by purchasing it at the market-price at the time of
replacement. This price may be more or less than the price at which the security
was sold by the fund. Until the security is replaced, the fund is obligated to
pay to the lender any dividends or interest accruing during the period of the
loan. In order to borrow the security, the fund may be required to pay a premium
that would increase the cost of the security sold. The proceeds of the short
sale will be retained by the broker, to the extent necessary to meet margin
requirements, until the short position is closed out.
When it engages in short sales, a fund or an underlying fund must also
deposit in a segregated account an amount of cash or liquid securities equal to
the difference between (1) the market value of the securities sold short and (2)
the value of the collateral deposited with the broker in connection with the
short sale (not including the proceeds from the short sale). While the short
position is open, the fund must maintain daily the segregated account at such a
level that the amount deposited in the account plus the amount deposited with
the broker as collateral equals the current market value of the securities sold
short.
A fund will incur a loss as a result of a short sale if the price of
the security increases between the date of the short sale and the date on which
the fund replaces the borrowed security. The fund will realize a gain if the
security declines in price between such dates. The amount of any gain will be
decreased and the amount of any loss increased by the amount of any premium,
dividends or interest the fund may be required to pay in connection with a short
sale.
Short Sales "Against the Box". A short sale is "against the box" if at all times
when the short position is open the fund or an underlying fund owns an equal
amount of the securities or securities convertible into, or exchangeable without
further consideration for, securities of the same issue as the securities sold
short. The extent to which such a transaction may be used to defer a gain for
federal income tax purposes was significantly curtailed by federal tax
legislation enacted in 1997.
FUTURES, OPTIONS, SWAPS AND CURRENCY CONTRACTS
Futures, Options, Swaps and Currency Contracts and Their Risks. Any transactions
in derivative contracts involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, interest rates or currency
exchange rates. A fund incurs liability to a counterparty in connection with
transactions in futures contracts, swaps and forward contracts and the selling
of options, caps, floors and collars. As a result, the loss on these derivative
contracts may exceed a fund's initial investment. A fund may also lose the
entire premium paid for purchased options, caps, floors and collars that expire
before they can be profitably exercised by the fund. In addition, the funds
incur transaction costs in opening and closing positions in derivative
contracts.
Derivative contracts may sometimes increase or leverage a fund's
exposure to a particular market risk. Leverage magnifies the price volatility of
derivative contracts held by a fund. A fund may cover, or partially offset, the
leverage inherent in derivative contracts by maintaining a segregated account
consisting of cash and liquid securities, by holding offsetting portfolio
securities or contracts or by covering written options.
A fund's success in using derivative contracts to hedge portfolio
assets depends on the degree of price correlation between the derivative
contract and the hedged asset. Imperfect correlation may be caused by several
factors, including temporary price disparities among the trading markets for the
derivative contract, the assets underlying the derivative contract, and the
fund's portfolio assets.
During periods of extreme market volatility, a commodity or options
exchange may suspend or limit trading in an exchange-traded derivative contract,
which may make the contract temporarily illiquid and difficult to price. Some
over-the-counter options may be illiquid, while others may be determined to be
liquid in accordance with procedures established by the Trustees. The funds'
ability to terminate over-the-counter options, swaps, caps, floors, collars and
forward contracts may depend on the cooperation of the counterparties to such
contracts. For thinly traded derivative contracts, the only source of price
quotations may be the selling dealer or counterparty.
Options on Securities, Securities Indices and Currency. A fund or underlying
fund in its portfolio may purchase and write (sell) call and put options on any
securities in which it may invest, any securities index based on securities in
which it may invest or any currency in which fund investments may be
denominated. These options may be listed on U.S. or foreign securities exchanges
or traded in the over-the-counter market. A fund may write covered put and call
options and purchase put and call options to enhance total return, as a
substitute for the purchase or sale of securities or currency, or to protect
against declines in the value of portfolio securities and against increases in
the cost of securities to be acquired.
Writing Covered Options. A call option on securities or currency written by a
fund obligates the fund to sell specified securities or currency to the holder
of the option at a specified price if the option is exercised at any time before
the expiration date. A put option on securities or currency written by a fund
obligates the fund to purchase specified securities or currency from the option
holder at a specified price if the option is exercised at any time before the
expiration date. Options on securities indices are similar to options on
securities, except that the exercise of securities index options requires cash
settlement payments and does not involve the actual purchase or sale of
securities. In addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. Writing covered call options may
deprive a fund of the opportunity to profit from an increase in the market price
of the securities or foreign currency assets in its portfolio. Writing covered
put options may deprive a fund of the opportunity to profit from a decrease in
the market price of the securities or foreign currency assets to be acquired for
its portfolio.
All call and put options written by each fund are covered. A written
call option or put option may be covered by (i) maintaining cash or liquid
securities, either of which may be quoted or denominated in any currency, in a
segregated account with a value at least equal to the fund's obligation under
the option, (ii) entering into an offsetting forward commitment and/or (iii)
purchasing an offsetting option or any other option which, by virtue of its
exercise price or otherwise, reduces the fund's net exposure on its written
option position. A written call option on securities is typically covered by
maintaining the securities that are subject to the option in a segregated
account. A fund may cover call options on a securities index by owning
securities whose price changes are expected to be similar to those of the
underlying index.
A fund may terminate its obligations under an exchange traded call or
put option by purchasing an option identical to the one it has written.
Obligations under an over-the-counter option may be terminated only by entering
into an offsetting transaction with the counterparty to the option. These
purchases are referred to as "closing purchase transactions."
Purchasing Options. A fund would normally purchase call options in anticipation
of an increase, or put options in anticipation of a decrease ("protective
puts"), in the market value of securities or currencies of the type in which it
may invest. A fund may also sell call and put options to close out its purchased
options.
The purchase of a call option would entitle a fund, in return for the
premium paid, to purchase specified securities or currency at a specified price
during the option period. A fund would ordinarily realize a gain on the purchase
of a call option if, during the option period, the value of such securities or
currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the fund would realize either no gain or a loss on
the purchase of the call option.
The purchase of a put option would entitle a fund, in exchange for the
premium paid, to sell specified securities or currency at a specified price
during the option period. The purchase of protective puts is designed to offset
or hedge against a decline in the market value of a fund's portfolio securities
or the currencies in which they are denominated. Put options may also be
purchased by a fund for the purpose of affirmatively benefiting from a decline
in the price of securities or currencies which it does not own. A fund would
ordinarily realize a gain if, during the option period, the value of the
underlying securities or currency decreased below the exercise price
sufficiently to cover the premium and transaction costs; otherwise the fund
would realize either no gain or a loss on the purchase of the put option. Gains
and losses on the purchase of put options may be offset by countervailing
changes in the value of a fund's portfolio securities.
A fund's options transactions will be subject to limitations
established by each of the exchanges, boards of trade or other trading
facilities on which these options are traded. These limitations govern the
maximum number of options in each class which may be written or purchased by a
single investor or group of investors acting in concert, regardless of whether
the options are written or purchased on the same or different exchanges, boards
of trade or other trading facilities or are held or written in one or more
accounts or through one or more brokers. Thus, the number of options which a
fund may write or purchase may be affected by options written or purchased by
other investment advisory clients of the fund's adviser. An exchange, board of
trade or other trading facility may order the liquidation of positions found to
be in excess of these limits, and it may impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If a fund is unable
to effect a closing purchase transaction with respect to covered options it has
written, the fund will not be able to sell the underlying securities or
currencies or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if a fund is unable to effect a closing sale
transaction with respect to options it has purchased, it would have to exercise
the options in order to realize any profit and will incur transaction costs upon
the purchase or sale of underlying securities or currencies.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
A fund's ability to terminate over-the-counter options is more limited
than with exchange-traded options and may involve the risk that broker-dealers
participating in these transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each fund's over-the-counter options in
accordance with guidelines adopted by the Trustees.
The writing and purchase of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. The successful use of options
depends in part on the ability of a fund's adviser to predict future price
fluctuations and, for hedging transactions, the degree of correlation between
the options and securities or currency markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates, securities prices or currency
exchange rates, a fund or underlying fund in its portfolio may purchase and sell
various kinds of futures contracts, and purchase and write call and put options
on these futures contracts. A fund may also enter into closing purchase and sale
transactions with respect to any of these contracts and options. The futures
contracts may be based on various securities (such as U.S. government
securities), securities indices, foreign currencies and any other financial
instruments and indices. All futures contracts entered into by a fund are traded
on U.S. or foreign exchanges or boards of trade that are licensed, regulated or
approved by the Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract is an agreement between two parties to buy
and sell particular financial instruments or currencies for an agreed price
during a designated month (or to deliver the final cash settlement price, in the
case of a contract relating to an index or otherwise not calling for physical
delivery at the end of trading in the contract).
Positions taken in the futures markets are not normally held to
maturity but are instead liquidated through offsetting transactions which may
result in a profit or a loss. While futures contracts on securities or currency
will usually be liquidated in this manner, a fund may instead make, or take,
delivery of the underlying securities or currency whenever it appears
economically advantageous to do so. A clearing corporation associated with the
exchange on which futures contracts are traded guarantees that, if still open,
the sale or purchase will be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish the effective
price or rate of return on portfolio securities or securities that a fund
proposes to acquire or the exchange rate of currencies in which portfolio
securities are quoted or denominated. When interest rates are rising or
securities prices are falling, a fund can seek to offset a decline in the value
of its current portfolio securities through the sale of futures contracts. When
interest rates are falling or securities prices are rising, a fund, through the
purchase of futures contracts, can attempt to secure better rates or prices than
might later be available in the market when it effects anticipated purchases. A
fund may seek to offset anticipated changes in the value of a currency in which
its portfolio securities, or securities that it intends to purchase, are quoted
or denominated by purchasing and selling futures contracts on these currencies.
A fund may, for example, take a "short" position in the futures market
by selling futures contracts in an attempt to hedge against an anticipated rise
in interest rates or a decline in market prices or foreign currency rates that
would adversely affect the dollar value of the fund's portfolio securities.
These futures contracts may include contracts for the future delivery of
securities held by a fund or securities with characteristics similar to those of
the fund's portfolio securities. Similarly, a fund may sell futures contracts on
any currencies in which its portfolio securities are quoted or denominated or in
one currency to hedge against fluctuations in the value of securities
denominated in a different currency if there is an established historical
pattern of correlation between the two currencies.
If, in the opinion of the Adviser, there is a sufficient degree of
correlation between price trends for a fund's portfolio securities and futures
contracts based on other financial instruments, securities indices or other
indices, the fund may also enter into these futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
fund's portfolio may be more or less volatile than prices of these futures
contracts, the Adviser will attempt to estimate the extent of this volatility
difference based on historical patterns and compensate for any differential by
having the fund enter into a greater or lesser number of futures contracts or by
attempting to achieve only a partial hedge against price changes affecting the
fund's portfolio securities.
When a short hedging position is successful, any depreciation in the
value of portfolio securities will be substantially offset by appreciation in
the value of the futures position. On the other hand, any unanticipated
appreciation in the value of a fund's portfolio securities would be
substantially offset by a decline in the value of the futures position.
On other occasions, a fund may take a "long" position by purchasing
futures contracts. This would be done, for example, when a fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available. A fund may
also purchase futures contracts as a substitute for transactions in securities
or foreign currency, to alter the investment characteristics of or currency
exposure associated with portfolio securities or to gain or increase its
exposure to a particular securities market or currency.
Options on Futures Contracts. A fund may purchase and write options on futures
for the same purposes as its transactions in futures contracts. The purchase of
put and call options on futures contracts will give a fund the right (but not
the obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, a fund obtains the benefit of the
futures position if prices move in a favorable direction but limits its risk of
loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a fund's assets. By writing
a call option, a fund becomes obligated, in exchange for the premium (upon
exercise of the option) to sell a futures contract if the option is exercised,
which may have a value higher than the exercise price. Conversely, the writing
of a put option on a futures contract generates a premium which may partially
offset an increase in the price of securities that a fund intends to purchase.
However, a fund becomes obligated (upon exercise of the option) to purchase a
futures contract if the option is exercised, which may have a value lower than
the exercise price. The loss incurred by a fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate
its position by selling or purchasing an offsetting option of the same series.
There is no guarantee that these closing transactions can be effected. A fund's
ability to establish and close out positions on these options will be subject to
the development and maintenance of a liquid market.
Other Considerations. A fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that a fund is using futures and
related options for hedging purposes, futures contracts will be sold to protect
against a decline in the price of securities (or the currency in which they are
quoted or denominated) that the fund owns or futures contracts will be purchased
to protect the fund against an increase in the price of securities (or the
currency in which they are quoted or denominated) it intends to purchase. A fund
will determine that the price fluctuations in the futures contracts and options
on futures used for hedging purposes are substantially related to price
fluctuations in securities held by the fund or securities or instruments which
it expects to purchase. As evidence of a fund's hedging intent, on 75% or more
of the occasions on which it takes a long futures or option position (involving
the purchase of futures contracts), the fund must have purchased, or will be in
the process of purchasing, equivalent amounts of related securities (or assets
denominated in the related currency) in the cash market at the time when the
futures or option position is closed out. However, in particular cases, when it
is economically advantageous for a fund to do so, a long futures position may be
terminated or an option may expire without the corresponding purchase of
securities or other assets.
To the extent that a fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions may not exceed 5% of the net
asset value of the fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which these
options were in-the-money at the time of purchase.
Transactions in futures contracts and options on futures involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating a fund to purchase securities or currencies, require the fund
to establish a segregated account consisting of cash or liquid securities in an
amount equal to the underlying value of these contracts and options.
While transactions in futures contracts and options on futures may
reduce certain risks, these transactions themselves entail certain other risks.
For example, unanticipated changes in interest rates, securities prices or
currency exchange rates may result in a poorer overall performance for a fund
than if it had not entered into any futures contracts or options transactions.
Perfect correlation between a fund's futures positions and portfolio
positions will be impossible to achieve. In the event of an imperfect
correlation between a futures position and the portfolio position to be hedged,
the desired protection may not be obtained and a fund may be exposed to risk of
loss. In addition, it is not possible to hedge fully or protect against currency
fluctuations affecting the value of securities denominated in foreign currencies
because the value of these securities is likely to fluctuate as a result of
independent factors not related to currency fluctuations.
Some futures contracts or options on futures may become illiquid under
adverse market conditions. In addition, during periods of market volatility, a
commodity exchange may suspend or limit trading in a futures contract or related
option, which may make the instrument temporarily illiquid and difficult to
price. Commodity exchanges may also establish daily limits on the amount that
the price of a futures contract or related option can vary from the previous
day's settlement price. Once the daily limit is reached, no trades may be made
that day at a price beyond the limit. This may prevent a fund from closing out
positions and limiting its losses.
Restricted and Illiquid Securities. Each fund may invest up to 15% of its net
assets in illiquid securities, including certain restricted and private
placement securities. It may be difficult to dispose of illiquid securities
quickly or at a price that fully reflects their fair value. Restricted
securities that are eligible for resale in reliance on Rule 144A under the
Securities Act of 1933, as amended (the "1933 Act"), and commercial paper
offered under Section 4(2) of the 1993 Act are not subject to the funds' 15%
limit on illiquid investments, if they are determined to be liquid.
An underlying fund whose shares are held by a Kobren Insight fund is
obligated to redeem these shares only in an amount up to 1% of the underlying
fund's outstanding securities during any period of less than 30 days.
Accordingly, because the funds and their affiliates may together acquire up to
3% of an underlying fund's shares, a fund that has decided to sell its entire
position in an underlying fund may need up to 90 days to completely implement
this decision. In addition, a fund's holdings of underlying fund shares
representing more than 1% of the underlying fund's outstanding securities may be
subject to the 15% limitation on illiquid investments. However, the funds have
reserved the right to pay redemption requests in portfolio securities and
therefore, these positions may be treated as liquid.
An underlying fund may elect to pay the proceeds of a redemption by a
Kobren Insight fund through a distribution in kind of portfolio securities,
instead of cash. If a fund receives securities that are not considered by KIM to
be desirable investments, the fund will incur additional transaction costs in
disposing of the securities.
Borrowing, Reverse Repurchase Agreements and Leverage. An underlying fund in a
fund's portfolio may borrow money from banks or through reverse repurchase
agreements for emergency and/or leverage purposes. Using the cash proceeds of
reverse repurchase agreements to finance the purchase of additional investments
is a form of leverage. Leverage magnifies the sensitivity of a fund's net asset
value to changes in the market prices of the fund's portfolio securities.
However, each Kobren Insight fund will borrow solely for temporary or emergency
(and not for leverage) purposes. The aggregate amount of such borrowings and
reverse repurchase agreements may not exceed one-third of any fund's total
assets.
Under the 1940 Act, a fund is required to maintain continuous asset
coverage of 300% with respect to such borrowings and to sell (within three days)
sufficient portfolio holdings in order to restore such coverage if it should
decline to less than 300% due to market fluctuation or otherwise. Such sale must
occur even if disadvantageous from an investment point of view. Leveraging
aggregates the effect of any increase or decrease in the value of portfolio
securities on the underlying fund's net asset value. In addition, money borrowed
is subject to interest costs (which may include commitment fees and/or the cost
of maintaining minimum average balances) which may or may not exceed the income
and gains from the securities purchased with borrowed funds.
Defensive Investing. For temporary defensive purposes under abnormal market
conditions, Kobren Growth Fund and Kobren Moderate Growth Fund each may hold or
invest up to 100% of total assets in cash, investment grade fixed income
securities, repurchase agreements and/or money market fund shares. Kobren
Conservative Allocation Fund may hold more than 35% of total assets up to 100%
in these securities regardless of market conditions.
FIXED INCOME SECURITIES
Fixed Income Securities. The value of fixed income securities, including U.S.
government securities, varies inversely with changes in interest rates. When
interest rates decline, the value of fixed income securities tends to rise. When
interest rates rise, the value of fixed income securities tends to decline. The
market prices of zero coupon, delayed coupon and payment-in-kind securities are
affected to a greater extent by interest rate changes and tend to be more
volatile than the market prices of securities providing for regular cash
interest payments.
In addition, fixed income securities are subject to the risk that the
issuer may default on its obligation to pay principal and interest. The value of
fixed income securities may also be reduced by the actual or perceived
deterioration in an issuer's credit-worthiness, including credit rating
downgrades.
Fixed income securities may be subject to both call (prepayment) risk
and extension risk. Call risk is the risk that an issuer of a security will
exercise its right to pay principal on an obligation earlier than scheduled.
Early principal payments tend to be made during periods of declining interest
rates. This forces the affected fund to reinvest the unanticipated cash flow in
lower yielding securities. Extension risk is the risk that an issuer will
exercise its right to pay principal later than scheduled. This typically happens
during periods of rising interest rates and prevents the affected fund from
reinvesting in higher yielding securities. Unscheduled principal prepayments and
delays in payment can both reduce the value of an affected security. Unlike most
conventional fixed income securities, mortgage-backed and asset-backed
securities are generally subject to both call (prepayment) risk and extension
risk.
Money Market Instruments. Kobren Growth Fund, Kobren Moderate Growth Fund and
Kobren Conservative Allocation Fund each may invest up to 35%, 35% and 40%,
respectively, of their total assets directly in money market instruments. Money
market instruments in which the funds may invest include obligations issued or
guaranteed by the United States government, its agencies or instrumentalities;
certificates of deposit, time deposits and bankers' acceptances issued by or
maintained at U.S. and foreign banks; and commercial paper.
Master Demand Notes. An underlying fund (particularly an underlying money market
fund) may invest up to 100% of its assets in master demand notes. These are
unsecured obligations of U.S. corporations redeemable upon notice that permit
investment by a mutual fund of fluctuating amounts at varying rates of interest
pursuant to direct arrangements between the mutual fund and the issuing
corporation. Because master demand notes are direct arrangements between the
mutual fund and the issuing corporation, there is no secondary market for the
notes. The notes are, however, redeemable at face value plus accrued interest at
any time.
Repurchase Agreements. Each fund (and the underlying funds in its portfolio)
may, to the extent permitted by its investment policies, enter into repurchase
agreements. A repurchase agreement consists of the sale to a fund of a U.S.
government security or other debt obligation together with an agreement to have
the selling counterparty repurchase the security at a specified future date and
repurchase price. If a repurchase agreement counterparty defaults on its
repurchase obligation, a fund may, under some circumstances, be limited or
delayed in disposing of the repurchase agreement collateral, which could result
in a loss to the fund.
High Yield Securities and Their Risks. A fund will not invest directly more than
35% of its total assets in high yield, high-risk, lower-rated securities,
commonly known as "junk bonds." Junk bonds are securities rated below the top
four bond rating categories of Standard & Poor's Ratings Group, Moody's
Investors Service, Inc. or another nationally recognized statistical rating
organization or, if unrated, determined by the investment adviser to be of
comparable credit quality. Such fund's investment in such securities is subject
to the risk factors outlined below.
Growth of the High Yield Bond Market. The high yield, high risk market is at
times subject to substantial volatility. An economic downturn or increase in
interest rates may have a more significant effect on the high yield, high risk
securities in a fund's portfolio and their markets, as well as on the ability of
securities' issuers to repay principal and interest. Issuers of high yield, high
risk securities may be of low credit-worthiness and the high yield, high risk
securities may be subordinated to the claims of senior lenders. During periods
of economic downturn or rising interest rates, the issuers of high yield, high
risk securities may have greater potential for insolvency and a higher incidence
of high yield, high risk bond defaults may be experienced.
Sensitivity of Interest Rate and Economic Changes. The prices of high yield,
high risk securities may be more or less sensitive to interest rate changes than
higher-rated investments but are more sensitive to adverse economic changes or
individual corporate developments. During an economic downturn or substantial
period of rising interest rates, highly leveraged issuers may experience
financial stress that would adversely affect their ability to service their
principal and interest payment obligations, to meet projected business goals,
and to obtain additional financing. If the issuer of a high yield, high risk
security owned by an underlying fund defaults, the fund may incur additional
expenses in seeking recovery. Periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of high yield, high
risk securities and the fund's net asset value. Yields on high yield, high risk
securities will fluctuate over time. Furthermore, in the case of high yield,
high risk securities structured as zero coupon or pay-in-kind securities, their
market prices are affected to a greater extent by interest rate changes and
thereby tend to be more volatile than market prices of securities which pay
interest periodically and in cash.
Payment Expectations. Certain securities held by a fund or an underlying fund,
including high yield, high risk securities, may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, such fund would have to replace the security with a lower yielding
security, resulting in a decreased return for the investor. Conversely, a high
yield, high risk security's value will decrease in a rising interest rate
market.
Liquidity and Valuation. The secondary market may at times become less liquid or
respond to adverse publicity or investor perceptions, making it more difficult
for a fund or an underlying fund to accurately value high yield, high risk
securities or dispose of them. To the extent such fund owns or may acquire
illiquid or restricted high yield, high risk securities, these securities may
involve special registration responsibilities, liabilities and costs, and
liquidity difficulties, and judgment will play a greater role in valuation
because there is less reliable and objective data available.
Taxation. Special tax considerations are associated with investing in high yield
bonds structured as zero coupon or pay-in-kind securities or other securities
that have "original issue discount." A fund will report the accrued interest on
these securities as income each year even though it receives no cash interest
until the security's maturity or payment date. Further, a fund must distribute
substantially all of its income for each year to its shareholders to qualify for
pass-through treatment under the tax law. Accordingly, such a fund may have to
dispose of its portfolio securities under disadvantageous circumstances to
generate cash or may have to leverage itself by borrowing the cash to satisfy
distribution requirements.
Credit Ratings. Credit ratings evaluate the safety of principal and interest
payments, not the market value risk of high yield, high risk securities. Since
credit rating agencies may fail to change the credit ratings in a timely manner
to reflect subsequent events, the investment adviser to the funds or an
underlying fund must monitor the issuers of high yield, high risk securities in
the fund's portfolio to determine if the issuers will have sufficient cash flow
and profits to meet required principal and interest payments, and to attempt to
assure the securities' liquidity so the fund can meet redemption requests. To
the extent that an underlying fund invests in high yield, high risk securities,
the achievement of the fund's investment objective may be more dependent on the
underlying fund's own credit analysis than is the case for higher quality bonds.
A fund or an underlying fund may retain a portfolio security whose rating has
been changed. See "Appendix" for credit rating information.
Mortgage-Backed, Asset-Backed, Indexed and Derivative Securities. Each fund (and
the underlying funds in its portfolio) may invest in mortgage-backed,
asset-backed and indexed securities. Some of these securities are considered to
be derivative securities. Mortgage-backed securities represent participation
interests in pools of adjustable and fixed-rate mortgages. They may be issued by
agencies or instrumentalities of the U.S. government or may be privately issued.
Unlike conventional debt obligations, mortgage-backed securities provide monthly
payments derived from the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans.
A fund's investments in mortgage-backed securities may include
conventional mortgage pass through securities, stripped mortgage-backed
securities ("SMBS") and certain classes of multiple class collateralized
mortgage obligations ("CMOs"). Examples of SMBS include interest only ("IO") and
principal only ("PO") securities. Senior CMO classes typically have priority
over less senior and residual CMO classes as to the receipt of principal and/or
interest payments on the underlying mortgages. The CMO classes in which a fund
may invest include sequential and parallel pay CMOs, including planned
amortization class securities ("PACs").
The principal and interest on asset-backed securities are
collateralized by pools of assets such as auto loans, credit card receivables,
leases, installment contracts and personal property. Asset-backed securities
generally are not collateralized as securely as mortgage-backed securities.
A fund may invest in floating rate and other indexed securities. The
interest rate and/or the principal payable at the maturity of an indexed
security may change positively or inversely in relation to one or more interest
rates, financial indices, currency rates or other reference prices. In addition,
changes in the amount payable on a leveraged indexed security may be a multiple
of changes in the reference rate or price. Examples of indexed securities
include IOs, POs, inverse floaters, inverse IOs, super floaters, capped
floaters, range floaters, dual index or yield curve floaters and Cost of Funds
Index ("COFI") floaters.
Mortgage-backed, asset-backed and indexed securities are subject to
different combinations of call (prepayment), extension, interest-rate and other
market risks. These risks and the price volatility of a security are magnified
to the extent that a security has imbedded leverage. Under adverse market
conditions, any of these risks could lead to a decline in the yield on or market
value of these securities. In addition, these securities can at times be
difficult to price accurately or to liquidate at a fair price.
Conventional mortgage-backed securities and sequential pay CMOs are
subject to all of these risks, but are typically not leveraged. PACs and other
senior classes of sequential and parallel pay CMOs usually involve less exposure
to prepayment, extension and interest-rate risk than other mortgage-based
securities, provided that prepayment rates stay within expected prepayment
ranges or collars. Call or prepayment risk is the risk primarily associated with
mortgage IOs and superfloaters. Mortgage POs, inverse IOs, inverse floaters,
capped floaters and COFI floaters are especially susceptible to extension and
interest rate risk. Range floaters are subject to the risk that a designated
interest rate will float outside the specified interest rate collar. Dual index
floaters are subject to depreciation if there is an unfavorable change in the
spread between two designated interest rates.
REITs. Real estate investment trusts (REITs) are companies that invest directly
in real estate or in real estate mortgages. Investing in REITs would expose the
funds to the special risks of the real estate and mortgage sectors. These risks
include possible downturns in the real estate market, overbuilding, high vacancy
rates, reduced or regulated rents, increases in interest rates, unexpected
changes in prepayment rates for real estate mortgages, adverse governmental
actions, environmental liabilities and natural disasters.
Year 2000 Risks. Like other mutual funds, financial and business organizations
and individuals around the world, a fund could be adversely affected if the
computer systems used by the Adviser and other service providers do not properly
process and calculate date-related information from and after January 1, 2000.
This is commonly known as the "Year 2000 Problem." KIM is taking steps that it
believes are reasonably designed to address the Year 2000 Problem with respect
to the computer systems that it uses and to obtain satisfactory assurances that
comparable steps are being taken by each of the funds' other major service
providers. At this time, however, there can be no assurance that these steps
will be sufficient to avoid any adverse impact on the funds.
In addition, the underlying funds or the companies in which the funds
or the underlying funds may have Year 2000 computer problems. The value of their
securities could go down if they do not fix their problems in time or if fixing
them is very expensive.
II. INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT POLICIES. Each fund has adopted certain
fundamental investment policies. These fundamental investment policies cannot be
changed unless the change is approved by the lesser of (1) 67% or more of the
voting securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the fund are present or represented by proxy,
or (2) more than 50% of the outstanding voting securities of the fund. These
fundamental policies provide that a fund may not:
1. Invest 25% or more of its total assets in securities of issuers in any one
industry (securities issued or guaranteed by the United States government,
its agencies or instrumentalities are not considered to represent
industries) or in shares of underlying funds ("sector funds") that each
have a policy of concentrating in the same industry. This limitation does
not apply to underlying funds that have a policy against concentrating in
any one industry and does not preclude a fund from investing 25% or more of
its assets in sector funds generally, provided that cumulative investments
in sector funds that all concentrate as a matter of policy in the same
industry do not equal or exceed 25% of the fund's total assets. Each fund
will concentrate in the mutual fund industry.
2. Borrow money or issue senior securities except to the extent permitted by
the 1940 Act.
3. Make loans of securities to other persons, except loans of securities not
exceeding 33 1/3% of the fund's total assets, investments in debt
obligations and transactions in repurchase agreements.
4. Underwrite securities of other issuers, except insofar as the fund may be
deemed an underwriter under the Securities Act of 1933, as amended (the
"1933 Act") in selling portfolio securities.
5. Purchase or sell real estate or any interest therein, including interests
in real estate limited partnerships, except securities issued by companies
(including real estate investment trusts) that invest in real estate or
interests therein and real estate acquired as a result of owning
securities.
6. Invest in commodities or commodity futures contracts, provided that this
limitation shall not prohibit the purchase or sale by the fund of forward
currency contracts; financial futures contracts and options on financial
futures contracts; options on securities, currencies and securities
indices; and swaps, caps, floors and collars, as permitted by the fund's
prospectus.
The 1940 Act currently prohibits the funds from issuing senior
securities or borrowing money. However, each fund may borrow from banks or
pursuant to reverse repurchase agreements in an amount not exceeding one-third
of total assets (including the amount borrowed). If borrowings exceed this
one-third limitation, for any reason, a fund must reduce the amount of its
borrowings to not more than one-third of total assets within three business
days.
Additional investment restrictions adopted by the funds, which may be
changed by the Board of Trustees, provide that a fund may not:
1. With respect to 75% of the fund's assets, invest more than 5% of the fund's
assets (taken at market value at the time of purchase) in the outstanding
securities of any single issuer or own more than 10% of the outstanding
voting securities of any one issuer, in each case other than (1) securities
issued or guaranteed by the United States government, its agencies or
instrumentalities, or (2) securities of other investment companies.
2. Invest more than 15% of its net assets (taken at market value at the time
of purchase) in illiquid securities.
3. Make investments for the purpose of exercising control or management.
4. Invest in other investment companies except as permitted under the 1940
Act.
The mutual funds in which the funds may invest may, but need not, have
the same investment objectives or policies as a fund. Although all of the funds
may from time to time invest in shares of the same underlying mutual fund, the
percentage of each fund's assets so invested may vary, and KIM will determine
that such investments are consistent with the investment objective and policies
of each fund. The investments that may, in general, be made by underlying funds
in which the funds may invest, as well as the risks associated with such
investments, are described in the prospectus.
III. MANAGEMENT OF THE TRUST AND THE FUNDS
A. Trustees and Officers
The principal occupations of the Trustees and officers of the Trust
during the past five years are set forth below: Each Trustee who is deemed to be
an "interested person" of the Trust, as defined in the 1940 Act, is indicated by
an asterisk.
*ERIC M. KOBREN, 20 William Street, Suite 310, P.O. Box 9135, Wellesley Hills,
Massachusetts 02481 - Chairman of the Board, President and Trustee. Mr. Kobren
has served as President of Mutual Fund Investors Association, Inc. since 1985
and as President of Kobren Insight Management, Inc. and Kobren Insight
Brokerage, Inc. since 1987. These are a financial publishing concern, a
registered investment advisory firm and a registered broker-dealer,
respectively. Mr. Kobren is 45 years old.
*MICHAEL P. CASTELLANO, 134 Redspruce Drive, Lake Naomi, Pennsylvania, 18350 -
Trustee. Retired. From December 1994 to June 1997, Mr. Castellano served as
Chief Administrative Officer of Kobren Insight Management, Inc. and as a
registered representative of Kobren Insight Brokerage, Inc. From October 1993 to
December 1994, Mr. Castellano was employed as Executive Vice President and Chief
Administrative Officer of Wall Street Investor Services, a registered
broker-dealer. Prior to that time, he was a Senior Vice President with Fidelity
Investments, a registered investment advisory firm and broker-dealer. Mr.
Castellano is 57 years old.
EDWARD B. BLOOM, International Data Group Inc., 5 Speen Street, P.O. Box 9192,
Framingham, Massachusetts 01701 - Trustee. Mr. Bloom, Vice President and
Treasurer of International Data Group Inc., a publishing company, has been
employed there since November 1967. He is 49 years old.
ARTHUR DUBROFF, 335 Madison Avenue, 25th Floor, New York, New York 10017 -
Trustee. Since July 1996, Mr. Dubroff has served as Executive Vice President and
Chief Financial Officer of Enhance Financial Services Group, Inc. ("Enhance
Financial"). Mr. Dubroff also acted as a Director of Enhance Financial from 1986
to 1991 and 1992 to 1996. From November 1993 to July 1996, he was employed as a
Senior Vice President of First Data Corporation, a financial services company.
Mr. Dubroff is 48 years old.
ROBERT I. GOLDFARB, Hughes Hubbard & Reed LLP, 201 South Biscayne Boulevard,
Suite 2500, Miami, Florida 33131 - Trustee. Mr. Goldfarb, Partner of Hughes
Hubbard & Reed LLP, a law firm, has been employed there since July 1989. He is
43 years old.
STUART J. NOVICK, Children's Hospital, 300 Longwood Avenue, Boston,
Massachusetts 02115 - Trustee. Since April 1997, Mr. Novick has served as Senior
Vice President and General Counsel of Children's Hospital. From July 1984 to
April 1997, Mr. Novick served as Vice President and General Counsel of
Children's Hospital. He is 49 years old.
ERIC J. GODES, 20 William Street, Suite 310, P.O. Box 9135, Wellesley Hills,
Massachusetts 02481 - Vice President, Treasurer and Secretary. Mr. Godes, an
investment advisory representative of Kobren Insight Management, Inc. and Vice
President and a registered representative of Kobren Insight Brokerage, Inc., has
been associated with both companies since 1990. He is 38 years old.
EDWARD R. GOLDFARB, 20 William Street, Suite 310, P.O. Box 9135, Wellesley
Hills, Massachusetts 02481 - Vice President. Since September 1995, Mr. Goldfarb
has been Director of Research and Chief Strategist of Kobren Insight Management,
Inc. as well as a registered representative of Kobren Insight Brokerage, Inc.
From June 1992 to September 1995, he was employed as a registered representative
of Aeltus Capital, Inc. and, from March 1994 to September 1995, he also served
as Managing Director of Aeltus Investment Management, Inc. From September 1982
to September 1995, Mr. Goldfarb was employed as a Vice President of Aetna Life &
Casualty serving in various capacities. During that time, he was also a
registered representative of Aetna Financial Services, Inc. Mr. Goldfarb is
38 years old.
The Trustees who are not employed by the Adviser each receive a $5,000
annual retainer paid in quarterly installments, a $1,000 fee for each board
meeting attended and a $500 fee per committee meeting attended, plus
out-of-pocket expenses incurred in attending such meetings.
Compensation Table
The following table sets forth the compensation paid to the Trustees of
the Trust for the fiscal year ended December 31, 1998. No compensation is paid
to any officers of the Trust by the funds.
TOTAL COMPENSATION
AGGREGATE FROM THE TRUST
NAME OF PERSON COMPENSATION AND FUND COMPLEX
AND POSITION FROM THE TRUST PAID TO TRUSTEES
Eric M. Kobren, $ 0 $ 0
Chairman of the Board,
President and Trustee
Michael P. Castellano, $ 0 $ 0
Trustee
Edward B. Bloom, $ 9,000 $ 9,000
Trustee
Arthur Dubroff, $ 9,000 $ 9,000
Trustee
Robert I. Goldfarb*, $ 0 $ 0
Trustee
Stuart J. Novick, $ 9,000 $ 9,000
Trustee
* (Elected as a Trustee effective 02/05/99)
Control Persons and Principal Holders of Securities
As of April 21, 1999, the following entities/individuals owned of record or
beneficially 5% or more of the outstanding shares of the funds :
Kobren Growth Fund
Name and Address % of Fund Nature of Ownership
National Financial Services Corporation 23.34% Record (a)
One World Financial Center
200 Liberty Street
New York, NY 10281
Eric M. Kobren & Catherine S. Kobren JT WROS 9.58% Beneficial
20 William Street, Suite 310
P.O. Box 9135
Wellesley Hills, MA 02481
Mutual Fund Investors Association, Inc. 7.48% Beneficial
P.O. Box 9135
Wellesley, MA 02481
Kobren Moderate Growth Fund
Name and Address % of Fund Nature of Ownership
National Financial Services Corporation 24.88% Record (a)
One World Financial Center
200 Liberty Street
New York, NY 10281
Kobren Conservative Allocation Fund
Name and Address % of Fund Nature of Ownership
Eric M. Kobren & Catherine S. Kobren JT WROS 22.62% Beneficial
20 William Street, Suite 310
P.O. Box 9135
Wellesley Hills, MA 02481
National Financial Services Corporation 22.30% Record (a)
One World Financial Center
200 Liberty Street
New York, NY 10281
(a) National Financial Services Corporation disclaims beneficial ownership and
no one underlying shareholder owns beneficially more than 5% of the shares
of the fund.
The Trust's Declaration of Trust provides that the Trust will indemnify
its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved as a result of their
positions with the Trust, unless, as to liability to the Trust or its
shareholders, it is finally adjudicated that they engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in their offices, or unless with respect to any other matter it is
finally adjudicated that they did not act in good faith in the reasonable belief
that their actions were in the best interests of the Trust and its funds. In the
case of settlement, such indemnification will not be provided unless it has been
determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination, based upon a review of readily
available facts, by vote of a majority of disinterested Trustees or in a written
opinion of independent counsel, that such officers or Trustees have not engaged
in willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
B. Investment Adviser
KIM serves as investment adviser to the Trust and its funds pursuant to
a written investment advisory agreement. KIM is a Massachusetts corporation
organized in 1987, and is a registered investment adviser under the Investment
Advisers Act of 1940.
Certain services provided by KIM under the investment advisory
agreement are described in the prospectus. In addition to those services, KIM
may, from time to time, provide the funds with office space for managing their
affairs, with the services of required executive personnel, and with certain
clerical services and facilities. These services are provided without
reimbursement by the funds for any costs incurred. As compensation for its
services, each fund pays KIM a fee computed daily and paid monthly at the annual
rate of 0.75% of the fund's average daily net assets. This fee will be reduced
by agreements the Kobren Insight funds have structured with underlying funds to
receive Rule 12b-1 and service fees and to share in a portion of their advisory
fee revenue. For the years ended December 31, 1997 and the December 31, 1998,
the Adviser was paid $324,325 and $495,612, respectively, by Kobren Growth Fund;
$178,947 and $388,684, respectively, by Kobren Moderate Growth Fund; and $66,652
and $165,999, respectively, by Kobren Conservative Allocation Fund.
Each fund is responsible for all expenses not expressly assumed by KIM
or the administrator. These include, among other things, organization expenses,
legal fees, audit and accounting expenses, insurance costs, the compensation and
expenses of the Trustees, the expenses of printing and mailing reports, notices
and proxy statements to fund shareholders, registration fees under federal and
state securities laws, brokerage commissions, interest, taxes and extraordinary
expenses (such as for litigation).
KIM has agreed to reimburse each fund to the extent necessary to
maintain each fund's operating expenses (excluding investment advisory fees,
brokerage commissions, taxes, interest and litigation, indemnification and other
extraordinary expenses) at 0.25% annually of the fund's average daily net
assets. Although this expense cap arrangement can be revoked at any time, KIM
plans to continue this arrangement until January 1, 2001.
By its terms, the Trust's investment advisory agreement will remain in
effect through November 15, 1998 and from year to year thereafter, subject to
annual approval by (a) the Board of Trustees or, with respect to a particular
fund, (b) a vote of the majority of that fund's outstanding voting securities.
In either event, continuance must also be 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 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 particular fund's outstanding voting securities, or by KIM. The
investment advisory agreement automatically terminates in the event of its
assignment, as defined by the 1940 Act and the rules thereunder.
C. Distributor
Kobren Insight Brokerage, Inc., an affiliate of Kobren Insight
Management, 20 William Street, Suite 310, P.O. Box 9135, Wellesley Hills,
Massachusetts 02481, serves as each fund's distributor pursuant to an agreement
which is renewable annually. Each fund's shares are sold on a continuous basis
by Kobren Insight Brokerage, Inc. as agent, although Kobren Insight Brokerage,
Inc. is not obligated to sell any particular amount of shares. The distributor
pays the cost of printing and distributing prospectuses to persons who are not
shareholders of a fund (excluding preparation and printing expenses necessary
for the continued registration of a fund's shares) and of preparing, printing
and distributing all sales literature.
D. Administrator, Transfer Agent and Dividend Paying Agent
The Board of Trustees of the Trust has approved an Administration
Agreement between the Trust and First Data Investor Services Group, Inc.
("Investor Services Group"), a subsidiary of First Data Corporation, pursuant to
which Investor Services Group serves as administrator to the Trust and to each
of the funds. Investor Services Group is located at One Exchange Place, Boston,
Massachusetts 02109. The administrative services necessary for the operation of
the Trust and its funds provided by Investor Services Group include among other
things: (i) preparation of shareholder reports and communications, (ii)
regulatory compliance, such as reports to and filings with the Securities and
Exchange Commission ("SEC") and state securities commissions and (iii) general
supervision of the operation of the Trust and its funds, including coordination
of the services performed by the transfer agent, custodian, independent
accountants, legal counsel and others. For these services, Investor Services
Group is entitled to receive $67,500 annually for administration and fund
accounting on a per fund basis. Of the $67,500 payable by each fund for the
year ended December 31, 1997, $6,381 was waived for each fund by Investor
Services Group.
Investor Services Group also serves as the Trust's transfer and
dividend paying agent and performs shareholder service activities. The location
for these services is 4400 Computer Drive, Westborough, Massachusetts 01581. The
services of Investor Services Group are provided pursuant to a Transfer Agency
and Services Agreement between the Trust and Investor Services Group. Pursuant
to such Agreement, Investor Services Group receives from the Trust, with respect
to each fund, an annual fee of $14 per shareholder account (subject to a $32,000
annual minimum per fund). Investor Services Group also receives reimbursement
under the Transfer Agency and Services Agreement for certain out-of-pocket
expenses incurred in rendering such services.
IV. PURCHASE, REDEMPTION AND DETERMINATION
OF NET ASSET VALUE
Detailed information on purchase and redemption of shares is included
in the prospectus. The Trust may suspend the right to redeem its shares or
postpone the date of payment upon redemption for more than three business days
(i) for any period during which the NYSE is closed (other than customary weekend
or holiday closings) or trading on the exchange is restricted; (ii) for any
period during which an emergency exists as a result of which disposal by a fund
of securities owned by it is not reasonably practicable or it is not reasonably
practicable for a fund fairly to determine the value of its net assets; or (iii)
for such other periods as the SEC may permit for the protection of shareholders
of the Trust.
Each fund's underlying funds are valued according to the net asset
value per share ("NAV") furnished by that fund's accounting agent. Each fund's
investment securities are valued at the last sale price on the securities
exchange or national securities market on which such securities primarily are
traded. Securities not listed on an exchange or national securities market, or
securities in which there were no transactions, are valued at the average of the
most recent bid and asked prices. Bid price is used when no asked price is
available. Short-term investments are carried at amortized cost, which
approximates market value. Any securities or other assets for which recent
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees.
Income, expenses and fees, including the advisory and administration fees, are
accrued daily and taken into account for the purpose of determining the net
asset value of each fund's shares.
Each fund computes the NAV of its shares at the close of regular
trading on the NYSE (normally 4:00 p.m. New York time) on each weekday that is
not a holiday. The holidays (as observed) on which the NYSE is scheduled to be
closed currently are: New Year's Day, Martin Luther King's Birthday, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. If the NYSE closes early, the time of computing the NAV and the
deadlines for purchasing and redeeming shares will be accelerated to the earlier
closing time. The NAV of each fund's shares is determined by subtracting from
the value of the fund's total assets the amount of the fund's liabilities and
dividing the remainder by the number of outstanding fund shares. Although the
NAV will be calculated at the close of all regular trading days, the NAV
reported to NASDAQ for distribution to news agencies will be delayed by one
business day.
Foreign securities in which the funds or the underlying funds may
invest may be listed primarily on foreign stock exchanges that may trade on
other days (i.e., Saturday). Accordingly, the net asset value of a fund's or an
underlying fund's portfolio may be significantly affected by such trading on
days when KIM does not have access to the underlying funds and an investor does
not have access to the funds.
V. SPECIAL REDEMPTIONS
If the Board of Trustees of the Trust determines that it would be
detrimental to the best interests of the remaining shareholders of a fund to
make payment wholly or partly in cash, that fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the portfolio of
that fund, instead of in cash, in conformity with any applicable rules of the
SEC. The proceeds of redemption may be more or less than the amount invested
and, therefore, a redemption may result in a gain or loss for federal income tax
purposes.
VI. PORTFOLIO TRANSACTIONS
KIM is responsible for decisions to buy and sell securities for the
funds and for the placement of the funds' portfolio business and negotiation of
commissions, if any, paid on these transactions.
In placing portfolio transactions with brokers and dealers, KIM
attempts to obtain the best overall terms for the funds, taking into account
such factors as price (including dealer spread), the size, type and difficulty
of the transaction involved, and the financial condition and execution
capability of the broker or dealer. In selecting broker-dealers and to the
extent that the execution and price offered by more than one dealer are
comparable, KIM may consider research, including statistical or pricing
information, and brokerage services furnished to the funds or KIM. In addition,
the funds may pay brokerage commissions to brokers or dealers in excess of those
otherwise available upon a determination that the commission is reasonable in
relation to the value of the brokerage services provided, viewed in terms of
either a specific transaction or overall brokerage services provided with
respect to the funds' portfolio transactions by such broker or dealer. KIM may
use this research information in managing the funds' assets, as well as assets
of other clients.
Stocks, other equity securities and options may be traded through
brokers on an agency basis with a stated brokerage commission or on a principal
basis in the over-the-counter market. Fixed income securities are generally
traded on the over-the-counter market on a "net" basis without a stated
commission, through dealers acting for their own account and not as brokers.
Prices paid to a dealer on principal transactions will generally include a
"spread", which is the difference between the prices at which the dealer is
willing to purchase and sell the specific security at that time. Shares of
underlying funds may be purchased or redeemed in transactions with the funds,
their principal underwriters or independent dealers. Certain money market
instruments and government agency securities may be purchased directly from the
issuer, in which case no commissions or premiums are paid. Futures contracts are
traded on an agency basis with a futures commission merchant. Swaps and other
over-the-counter contracts are traded directly with the counterparty, which is
usually a dealer, a bank or other institution.
Other investment advisory clients advised by KIM may also invest in the
same securities as a fund. When these clients buy or sell the same securities at
substantially the same time, KIM may average the transactions as to price and
allocate the amount of available investments in a manner which KIM believes to
be equitable to each client, including the funds. In some instances, this
investment procedure may adversely affect the price paid or received by a fund
or the size of the position obtainable for it. On the other hand, to the extent
permitted by law, KIM may aggregate the securities to be sold or purchased for a
fund with those to be sold or purchased for other funds or clients managed by it
in order to obtain best execution.
The funds will arrange to be included within a class of investors
entitled not to pay sales charges by purchasing initial load fund shares under
letters of intent, rights of accumulation, cumulative purchase privileges and
other quantity discount programs.
VII. PERFORMANCE INFORMATION
A. Total Return
From time to time, quotations of a fund's performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures may be calculated in the following manner:
Total return is computed by finding the average annual compounded rates of
return over the designated 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 at the end of the designated period
assuming a hypothetical $1,000 payment made at the beginning of the
designated period
The calculation set forth above is based on the further assumptions
that: (i) all dividends and distributions of a fund during the period were
reinvested at the net asset value on the reinvestment dates; and (ii) all
recurring expenses that were charged to all shareholder accounts during the
applicable period were deducted.
Total returns quoted in advertising reflect all aspects of a fund's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the fund's net asset value per share (NAV) over
the period. Average annual returns are calculated by determining the growth or
decline in value of a hypothetical historical investment in a fund over a stated
period, and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady
annual return rate that would equal 100% growth on a compounded basis in ten
years. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that a fund's performance is
not constant over time, but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of the fund.
The funds' average annual total returns for the fiscal year ended December 31,
1998 were as follows:
Series One Year Life of Fund
Kobren Growth Fund 11.45% 14.26% (a)
Kobren Moderate Growth Fund 3.44% 13.12% (b)
Kobren Conservative Allocation Fund 3.36 11.55% (c)
(a) The fund commenced operations on December 16, 1996
(b) The fund commenced operations on December 24, 1996
(c) The fund commenced operations on December 30, 1996
B. Non-Standardized Total Return
In addition to the performance information described above, a fund may
provide total return information for designated periods, such as for the most
recent rolling six months or most recent rolling twelve months. A fund may quote
unaveraged or cumulative total returns reflecting the simple change in value of
an investment over a stated period. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount, and may be calculated for a
single investment, a series of investments, and/or a series of redemptions over
any time period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns and other performance information may be quoted
numerically or in a table, graph or similar illustration.
C. Other Information Concerning Fund Performance
A fund may quote its performance in various ways, using various types
of comparisons to market indices, other funds or investment alternatives, or to
general increases in the cost of living. All performance information supplied by
a fund in advertising is historical and is not intended to indicate future
returns. A fund's share prices and total returns fluctuate in response to market
conditions and other factors, and the value of a fund's shares when redeemed may
be more or less than their original cost.
A fund may compare its performance over various periods to various
indices or benchmarks or combinations of indices and benchmarks, including the
performance record of the Standard & Poor's 500 Composite Stock Price Index
("S&P"), the Dow Jones Industrial Average ("DJIA"), the NASDAQ Industrial Index,
the Ten Year Treasury Benchmark and the cost of living (measured by the Consumer
Price Index, or CPI) over the same period. Comparisons may also be made to
yields on certificates of deposit, treasury instruments or money market
instruments. The comparisons to the S&P and DJIA show how such fund's total
return compared to the record of a broad average of common stock prices (S&P)
and a narrower set of stocks of major industrial companies (DJIA). The fund may
have the ability to invest in securities or underlying funds not included in
either index, and its investment portfolio may or may not be similar in
composition to the indices. Figures for the S&P and DJIA are based on the prices
of unmanaged groups of stocks, and unlike the fund's returns, their returns do
not include the effect of paying brokerage commissions and other costs of
investing.
Comparisons may be made on the basis of a hypothetical initial
investment in the fund (such as $1,000), and reflect the aggregate cost of
reinvested dividends and capital gain distributions for the period covered (that
is, their cash value at the time they were reinvested). Such comparisons may
also reflect the change in value of such an investment assuming distributions
are not reinvested. Tax consequences of different investments may not be
factored into the figures presented.
A fund's performance may be compared in advertising to the performance
of other mutual funds in general or to the performance of particular types of
mutual funds, especially those with similar objectives.
Other groupings of funds prepared by Lipper Analytical Services, Inc.
("Lipper") and other organizations may also be used for comparison to the funds.
Although Lipper and other organizations such as Investment Company Data, Inc.
("ICD"), CDA Investment Technologies, Inc. ("CDA") and Morningstar Investors,
Inc. ("Morningstar"), include funds within various classifications based upon
similarities in their investment objectives and policies, investors should be
aware that these may differ significantly among funds within a grouping.
From time to time a fund may publish the ranking of the performance of
its shares by Morningstar, an independent mutual fund monitoring service that
ranks mutual funds, including the funds, in broad investment categories (equity,
taxable bond, tax-exempt and other) monthly, based upon each fund's one-,
three-, five- and ten-year average annual total returns (when available) and a
risk adjustment factor that reflects fund performance relative to three-month
U.S. Treasury bill monthly returns. Such returns are adjusted for fees and sales
loads. There are five ranking categories with a corresponding number of stars:
highest (5), above average (4), neutral (3), below average (2) and lowest (1).
Ten percent of the funds, series or classes in an investment category receive 5
stars, 22.5% receive 4 stars, 35% receive 3 stars, 22.5% receive 2 stars, and
the bottom 10% receive one star.
From time to time, in reports and promotional literature, a fund's
yield and total return will be compared to indices of mutual funds and bank
deposit vehicles such as Lipper's "Lipper - Fixed Income Fund Performance
Analysis," a monthly publication which tracks net assets, total return, and
yield on approximately 1,700 fixed income mutual funds in the United States.
Ibbotson Associates, CDA Wiesenberger and F.C. Towers are also used for
comparison purposes as well as the Russell and Wilshire Indices. Comparisons may
also be made to bank certificates of deposit ("CD"), which differ from mutual
funds, such as the funds, in several ways. The interest rate established by the
sponsoring bank is fixed for the term of a CD, there are penalties for early
withdrawal from CDs, and the principal on a CD is insured. Comparisons may also
be made to the 10 year Treasury Benchmark.
Performance rankings and ratings reported periodically in national
financial publications such as Money Magazine, Forbes, Business Week, The Wall
Street Journal, Micropal, Inc., Morningstar, Stanger's, Barron's, etc.
will also be used.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") and others
provide historical returns of the capital markets in the United States. A fund
may compare its performance to the long-term performance of the U.S. capital
markets in order to demonstrate general long-term risk versus reward investment
scenarios. Performance comparisons could also include the value of a
hypothetical investment in common stocks, long-term bonds or treasuries. A fund
may discuss the performance of financial markets and indices over various time
periods.
The capital markets tracked by Ibbotson are common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury bills, and the U.S. rate of
inflation. These capital markets are based on the returns of several different
indices. For common stocks the S&P is used. For small capitalization stocks,
return is based on the return achieved by Dimensional Fund Advisors Small
Company Fund. This fund is a market value-weighted index of the ninth and tenth
deciles of the NYSE, plus stocks listed on the American Stock Exchange and
over-the-counter with the same or less capitalization as the upper bound of the
NYSE ninth decile.
Long-term corporate bond returns are based on the performance of the
Salomon Brothers Long-Term High-Grade Corporate Bond Index which includes nearly
all Aaa- and Aa-rated bonds. Returns on intermediate-term government bonds are
based on a one-bond portfolio constructed each year, containing a bond which is
the shortest noncallable bond available with a maturity not less than five
years. This bond is held for the calendar year and returns are recorded. Returns
on long-term government bonds are based on a one-bond portfolio constructed each
year, containing a bond that meets several criteria, including having a term of
approximately 20 years. The bond is held for the calendar year and returns are
recorded. Returns on U.S. Treasury bills are based on a one-bill portfolio
constructed each month, containing the shortest-term bill having not less than
one month to maturity. The total return on the bill is the month-end price
divided by the previous month-end price, minus one. Data up to 1976 is from the
U.S. Government Bond file at the University of Chicago's Center for Research in
Security Prices; the Wall Street Journal is the source thereafter.
Inflation rates are based on the CPI. Ibbotson calculates total returns
in the same method as the fund.
Other widely used indices that the funds may use for comparison
purposes include the Lehman Bond Index, the Lehman Aggregate Bond Index, the
Lehman GNMA Single Family Index, the Lehman Government/Corporate Bond Index, the
Salomon Brothers Long-Term High Yield Index, the Salomon Brothers Non-Government
Bond Index, the Salomon Brothers Non-U.S. Government Bond Index, the Salomon
Brothers World Government Bond Index and the J.P. Morgan Government Bond Index.
The Salomon Brothers World Government Bond Index generally represents the
performance of government debt securities of various markets throughout the
world, including the United States. The Lehman Government/Corporate Bond Index
generally represents the performance of intermediate and long-term government
and investment grade corporate debt securities. The Lehman Aggregate Bond Index
measures the performance of U.S. corporate bond issues, U.S. government
securities and mortgage-backed securities. The J.P. Morgan Government Bond Index
generally represents the performance of government bonds issued by various
countries including the United States. The foregoing bond indices are unmanaged
indices of securities that do not reflect reinvestment of capital gains or take
investment costs into consideration, as these items are not applicable to
indices.
The funds may also discuss in advertising the relative performance of
various types of investment instruments, such as stocks, treasury securities and
bonds, over various time periods and covering various holding periods. Such
comparisons may compare these investment categories to each other or to changes
in the CPI. In addition, the funds may employ historical mutual fund performance
data and industry asset allocation studies in their advertisements.
A fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, the
investor invests a fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares had been purchased at those intervals. In evaluating
such a plan, investors should consider their ability to continue purchasing
shares through periods of low price levels.
The funds may be available for purchase through retirement plans or
other programs offering deferral of or exemption from income taxes, which may
produce superior after-tax returns over time. For example, a $1,000 investment
earning a taxable return of 10% annually, compounded monthly, would have an
after-tax value of $2,009 after ten years, assuming tax was deducted from the
return each year at a 31% rate. An equivalent tax-deferred investment would have
an after-tax value of $2,178 after ten years, assuming tax was deducted at a 31%
rate from the deferred earnings at the end of the ten year period.
Evaluations of fund performance made by independent sources may also be
used in advertisements concerning the funds, including reprints of, or
selections from, editorials or articles about the fund. These editorials or
articles may include quotations of performance from other sources such as Lipper
or Morningstar. Sources for fund performance information and articles about the
funds may include the following:
BANXQUOTE, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
BARRON'S, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
THE BOSTON GLOBE, a regional daily newspaper.
BUSINESS WEEK, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA INVESTMENT TECHNOLOGIES, INC., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
CONSUMER DIGEST, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
FINANCIAL WORLD, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
FORBES, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
FORTUNE, a national business publication that periodically rates the performance
of a variety of mutual funds.
IBC/DONOGHUES' MONEY FUND REPORT, a weekly publication of the Donoghue
Organization, Inc. of Holliston, Massachusetts, reporting on the performance of
the nation's money market funds, summarizing money market fund activity, and
including certain averages as performance benchmarks, specifically "Donoghue's
Money Fund Average," and "Donoghue's Government Money Fund Average."
IBBOTSON ASSOCIATES, INC., a company specializing in investment research and
data.
INVESTMENT COMPANY DATA, INC., an independent organization which provides
performance ranking information for broad classes of mutual funds.
INVESTORS BUSINESS DAILY, a daily newspaper that features financial, economic,
and business news.
KIPLINGER'S PERSONAL FINANCE, a monthly business publication.
LIPPER ANALYTICAL SERVICES, INC.'S MUTUAL FUND PERFORMANCE ANALYSIS, a weekly
publication of industry-wide mutual fund averages by type of fund.
MONEY, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
MORNINGSTAR INVESTOR and MORNINGSTAR PRINCIPIA, monthly mutual fund reporting
services.
MUTUAL FUND MAGAZINE, a monthly business magazine published by the Institute for
Econometric Research.
MUTUAL FUND VALUES, a bi-weekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
THE NEW YORK TIMES, a nationally distributed newspaper which regularly covers
financial news.
PERSONAL INVESTING NEWS, a monthly news publication that often reports on
investment opportunities and market conditions.
PERSONAL INVESTOR, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
SMART MONEY, a Dow Jones & Company, Inc. monthly business magazine.
SUCCESS, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
USA TODAY, a nationally distributed newspaper.
U.S. NEWS AND WORLD REPORT, a national business weekly that periodically reports
mutual fund performance data.
THE WALL STREET JOURNAL, a Dow Jones & Company, Inc. newspaper which regularly
covers financial news.
WIESENBERGER INVESTMENT COMPANIES SERVICES, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' background, management policies, salient features, management results,
income and dividend records, and price ranges.
WORTH MAGAZINE, a monthly business publication.
When comparing yield, total return and investment risk of shares of a
fund with other investments, investors should understand that certain other
investments have different risk characteristics than an investment in shares of
the funds. For example, certificates of deposit may have fixed rates of return
and may be insured as to principal and interest by the FDIC, while a fund's
returns will fluctuate and its share values and returns are not guaranteed.
Money market accounts offered by banks also may be insured by the FDIC and may
offer stability of principal. U.S. Treasury securities are guaranteed as to
principal and interest by the full faith and credit of the U.S. government.
Money market mutual funds may seek to offer a fixed price per share.
The performance of the funds is not fixed or guaranteed. Performance
quotations should not be considered to be representative of performance of a
fund for any period in the future. The performance of a fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions, purchases and sales of underlying funds, sales
and redemptions of shares of beneficial interest, and changes in operating
expenses are all examples of items that can increase or decrease a fund's
performance.
VIII. DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other delivery
service is unable to deliver checks to the shareholder's address of record, such
shareholder's distribution option will automatically be converted to having all
dividend and other distributions reinvested in additional shares. No interest
will accrue on amounts represented by uncashed distribution or redemption
checks.
Taxes. Each fund has qualified and intends to continue to qualify as a separate
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). In any year in which a fund qualifies as a
regulated investment company and distributes to its shareholders substantially
all of its investment company taxable income (which includes, among other items,
interest, dividends and the excess of net short-term capital gain over net
long-term capital loss) and its net capital gain (the excess of net long-term
capital gain over net short-term capital loss) the fund will not be subject to
federal income tax on the amounts distributed to shareholders in the manner
required under the Code. A fund would be taxed at regular corporate income tax
rates on any amounts not distributed to shareholders in accordance with these
requirements.
Amounts not distributed on a timely basis in accordance with a separate
calendar year distribution requirement are subject to a nondeductible 4% excise
tax. To avoid imposition of the excise tax, each fund must distribute for each
calendar year an amount equal to the sum of (1) at least 98% of its net ordinary
income (excluding any capital gains or losses) for the calendar year, (2) at
least 98% of the excess of its capital gains over capital losses (adjusted for
certain ordinary losses) realized during the one-year period ending October 31
of such year, and (3) all ordinary income and capital gains for the previous
year that were not distributed during such year and on which the fund has not
paid income tax. A distribution will be treated as paid by a fund, and taxable
to shareholders as if received, on December 31 of the year if it is declared by
a fund in October, November or December of that year with a record date in such
a month and paid by the fund during January of the following year. Each fund
intends to seek to distribute its income in accordance with this requirement to
avoid or minimize any excise tax. Shortly after the end of each year, the Trust
will notify shareholders of the federal tax status of dividends and
distributions for that year.
All income and capital gains received by a fund from a mutual fund in
that fund's portfolio will be distributed by the fund (after deductions for the
fund's allowable losses and expenses) and will be taxable to shareholders as
ordinary income, except for any distributions attributable to the fund's net
capital gain, which will be taxable to shareholders as long-term capital gains.
These long-term capital gains may be subject to tax at different maximum rates
for individual (noncorporate) investors, depending upon each investor's tax
bracket, the assets from which the fund or underlying mutual fund realized the
gains, and the fund's or underlying fund's holding periods for those assets.
Because each fund is actively managed and may realize taxable net short-term
capital gains by selling shares of a mutual fund in its portfolio with
unrealized appreciation, or capital losses that might be disallowed under wash
sale rules or recharacterized, investing in a fund rather than directly in the
underlying funds may result in increased tax liability to a shareholder since
the fund must distribute its net realized gains in accordance with the rules
described above.
Distributions of net capital gain received by a fund from the
underlying funds (as described above), as well as net capital gain realized by a
fund from the sale (or redemption) of mutual fund shares or other securities,
after reduction by allowable capital losses, will be taxable to a shareholder as
long-term capital gain (even if the shareholder has held the shares for less
than one year).
Redemptions and exchanges are taxable events for shareholders that are
subject to tax. Shareholders should consult their own tax advisers with
reference to their individual circumstances to determine whether any particular
transaction in fund shares is properly treated as a sale for tax purposes, as
the following discussion assumes, and the character of and tax rate applicable
to any gains or losses recognized in such transactions. If a shareholder who has
received a capital gain distribution suffers a loss on the redemption or other
sale of his or her fund shares that have a tax holding period of six months or
less, the loss on those shares will be treated as a long-term capital loss to
the extent of the capital gain distribution received on those shares. Also, any
loss realized on a redemption or other sale of fund shares may be disallowed to
the extent the shares disposed of are replaced with other shares of the same
fund within a period of 61 days beginning 30 days before and ending 30 days
after the shares are disposed of, such as pursuant to automatic dividend
reinvestments.
For purposes of determining the character of income received by a fund
when an underlying fund distributes net capital gain to a fund, the fund will
treat the distribution as a long-term capital gain, even if the fund has held
shares of the underlying fund for less than one year. Any loss incurred by a
fund on the redemption or other sale of such mutual fund's shares that have a
tax holding period of six months or less, however, if it is not disallowed under
wash sale rules, will be treated as a long-term capital loss to the extent of
the gain distribution received on the shares disposed of by the fund.
If a fund acquires any equity interest in certain foreign corporations
that receive at least 75% of their annual gross income from passive sources
(such as interest, dividends, certain rents and royalties, or capital gain) or
hold at least 50% of their assets in investments producing such passive income
("passive foreign investment companies"), the fund could be subject to federal
income tax and additional interest charges on "excess distributions" received
from such companies or gain from the sale of stock in such companies, even if
all income or gain actually received by the fund is timely distributed to its
shareholders. The fund would not be able to pass through to its shareholders any
credit or deduction for such a tax. An election may generally be available to
ameliorate these adverse tax consequences, but any such election could require
the fund to recognize taxable income or gain without the concurrent receipt of
cash. These investments could also result in the treatment of associated capital
gains as ordinary income. Each fund may limit and/or manage its holdings in
passive foreign investment companies to minimize its tax liability or maximize
its return from these investments.
Each fund may be subject to foreign withholding or other foreign taxes
imposed by foreign countries with respect to the fund's investments in foreign
securities. Tax conventions between certain countries and the U.S. may reduce or
eliminate such taxes in some cases. The funds do not expect to qualify to pass
such taxes or associated foreign tax credits or deductions through to their
shareholders, who consequently are not expected to take them into account on
their own tax returns.
Foreign exchange gains and losses realized by a fund in connection with
certain transactions involving foreign currency-denominated debt securities,
foreign currency forward contracts, certain options and futures contracts
relating to foreign currency, foreign currencies, or payables or receivables
denominated in foreign currency are subject to Section 988 of the Code, which
generally causes such gains and losses to be treated as ordinary income and
losses and may affect the amount, timing and character of distributions to
shareholders. Any such transactions that are not directly related to a fund's
investment in stock or securities, possibly including any such transaction not
used for hedging purposes, may under future Treasury regulations produce income
not among the types of "qualifying income" from which the fund must derive at
least 90% of its gross income for each taxable year. If the net foreign exchange
loss for a year treated as ordinary loss under Section 988 were to exceed the
fund's investment company taxable income computed without regard to such loss,
the resulting overall ordinary loss for such year would not be deductible by the
fund or its shareholders in future years.
Limitations imposed by the Code on regulated investment companies like
the funds may restrict each fund's ability to enter into options and futures
contracts, foreign currency positions and foreign currency forward contracts.
Certain of these transactions may cause a fund to recognize gains or losses from
marking to market even though its positions have not been sold or terminated and
may affect the character as long-term or short-term (or, in the case of certain
foreign currency options, futures and forward contracts, as ordinary income or
loss) of some capital gains and losses realized by the fund. A fund may also be
required to recognize gain if an option, futures contract, forward contract,
short sale or other transaction that is not subject to the mark to market rules
is treated as a "constructive sale" of an "appreciated financial position" held
by the fund under Section 1259 of the Code. Any net mark to market gains and/or
gains from constructive sales may also have to be distributed to satisfy the
distribution requirements referred to above even though no corresponding cash
amounts may concurrently be received, possibly requiring the disposition of
portfolio securities or borrowing to obtain the necessary cash. Additionally,
certain of a fund's losses on transactions involving options, futures, forward
contracts, and any offsetting or successor positions in its portfolio, may be
deferred rather than being taken into account currently in calculating the
fund's taxable income or gain. Certain of such transactions may also cause the
fund to dispose of investments sooner than would otherwise have occurred. These
transactions may therefore affect the amount, timing and character of a fund's
distributions to shareholders. The funds will take into account the special tax
rules applicable to options, futures or forward contracts, including
consideration of available elections, in order to seek to minimize any potential
adverse tax consequences.
The federal income tax rules applicable to interest rate swaps, caps,
floors and collars and currency swaps are unclear in certain respects, and a
fund may be required to account for these instruments under tax rules in a
manner that, under certain circumstances, may limit its transactions in these
instruments.
Investments in debt obligations that are at risk of or are in default
(i.e., junk bonds) present special tax issues for the funds. Tax rules are not
entirely clear about issues such as when the funds may cease to accrue interest,
original issue discount, or market discount, when and to what extent deductions
may be taken for bad debts or worthless securities, how payments received on
obligations in default should be allocated between principal and income, and
whether exchanges of debt obligations in a workout context are taxable. These
and other issues will be addressed by a fund that holds such obligations in
order to reduce the risk of distributing insufficient income to preserve its
status as a regulated investment company and seek to avoid becoming subject to
federal income or excise tax.
The tax treatment of distributions from a fund is the same whether the
distributions are received in additional shares or in cash. Shareholders
receiving distributions in the form of additional shares will have a cost basis
for federal income tax purposes in each share received equal to the amount of
cash that could have been received instead.
A fund may invest in mutual funds with capital loss carryforwards. If
such a mutual fund realizes capital gains, it will be able to offset the gains
to the extent of its loss carryforwards in determining the amount of capital
gains which must be distributed to shareholders. To the extent that gains are
offset in this manner, distributions to a fund and its shareholders will likely
be reduced. Similarly, a fund may incur capital losses that it may carry forward
to future taxable years, to the extent provided by the Code and applicable
regulations, to offset capital gains it may realize in such years.
Depending upon a shareholder's residence for tax purposes,
distributions and the value of fund shares may also be subject to state and
local taxes, or other taxes. Shareholders should consult their own tax advisers
regarding the tax consequences of ownership of shares of, and receipt of
distributions from, a fund in their particular circumstances.
The funds are generally required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends and other distributions,
including redemption proceeds, paid to individuals and other non-exempt
shareholders if (1) the shareholder fails to furnish the Trust with and to
certify his or her correct social security number or other taxpayer
identification number, (2) the Internal Revenue Service (the "IRS") or a broker
notifies the Trust that the shareholder is subject to withholding or (3) the
shareholder fails to certify that he or she is not subject to backup
withholding.
Each fund will distribute investment company taxable income and any net
capital gain at least annually. All dividends and distributions will be
reinvested automatically at net asset value in additional shares of the fund
making the distribution, unless the shareholder notifies the fund in writing of
his or her election to receive distributions in cash.
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as retirement plans, tax-exempt entities, insurance companies
and financial institutions.
Non-U.S. investors not engaged in a U.S. trade or business with which their fund
investment is effectively connected will be subject to U.S. federal income tax
treatment that is different from that described above. These investors may be
subject to non-resident alien withholding tax at the rate of 30% (or a lower
rate under an applicable tax treaty) on amounts treated as ordinary dividends
from a fund and, unless an effective Form W-8 is on file, 31% backup withholding
on certain other payments from the fund. Non-U.S. investors should consult their
tax advisers regarding such treatment and the applicability of foreign taxes to
an investment in the funds.
The funds are not subject to Massachusetts corporate excise or
franchise taxes. Provided that each fund qualifies as a regulated investment
company under the Code, the funds will also not be required to pay Massachusetts
income tax.
IX. CUSTODIAN, COUNSEL AND INDEPENDENT ACCOUNTANTS
Pursuant to a Custody Agreement between the Trust and Boston Safe
Deposit and Trust Company ("Boston Safe"), a subsidiary of Mellon Bank
Corporation, Boston Safe provides custodial services to the Trust and each of
the funds. The principal business address of Boston Safe is One Boston Place,
Boston, Massachusetts 02108.
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, is
counsel for the Trust.
PricewaterhouseCoopers LLP, 160 Federal Street, Boston,
Massachusetts 02110, are the independent accountants of the Trust.
X. DESCRIPTION OF THE TRUST
The Trust is an open-end, diversified series management investment
company established as a business trust under the laws of the Commonwealth of
Massachusetts pursuant to a Declaration of Trust dated September 13, 1996. The
name of the Trust, formerly Insight Premier Funds, was changed to Kobren Insight
Funds in November 1996 by amendment to the Declaration of Trust.
The Trustees of the Trust have authority to issue an unlimited number
of shares of beneficial interest in an unlimited number of series, each share
with a par value of $.001. Currently, the Trust consists of three series. Each
share in a particular series represents an equal proportionate interest in that
series with each other share of that series and is entitled to such dividends
and distributions as are declared by the Trustees of the Trust. Upon any
liquidation of a series, shareholders of that series are entitled to share pro
rata in the net assets of that series available for distribution. Shareholders
in one of the series have no interest in, or rights upon liquidation of, any of
the other series.
The Trust will normally not hold annual meetings of shareholders to
elect Trustees. If less than a majority of the Trustees of the Trust holding
office have been elected by shareholders, a meeting of shareholders of the Trust
will be called to elect Trustees. Under the Declaration of Trust and the 1940
Act, the recordholders of not less than two-thirds of the outstanding shares of
the Trust may remove a Trustee by votes cast in person or by proxy at a meeting
called for the purpose or by a written declaration filed with the Trust's
custodian bank. Except as described above, the Trustees will continue to hold
office and may appoint successor Trustees.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of this disclaimer be given in
each agreement, obligation or instrument entered into or executed by the funds
or the Trustees. The Declaration of Trust provides for indemnification out of
the Trust's property for all loss and expense of any shareholder held personally
liable for obligations of the Trust and its funds. Accordingly, the risk of a
shareholder of the Trust incurring a financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations. The likelihood of such circumstances is remote.
XI. ADDITIONAL INFORMATION
The prospectus and this statement of additional information do not
contain all of the information included in the Trust's registration statement
filed with the SEC under the 1933 Act, with respect to the securities offered
hereby. Certain portions of the registration statement have been omitted
pursuant to the rules and regulations of the SEC. This registration statement,
including the exhibits filed therewith, may be examined at the offices of the
SEC in Washington, D.C.
Statements contained in the prospectus and this statement of additional
information as to the contents of any agreement or other documents referred to
are not necessarily complete, and, in each instance, reference is made to the
copy of such agreement or other documents filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference.
XII. FINANCIAL STATEMENTS
The following financial statements for the fiscal year ended December
31, 1998 as well as the related Notes to Financial Statements and Report of
Independent Accountants are incorporated into this statement of additional
information by reference to the Trust's Annual Report for the fiscal year ended
December 31, 1998: Portfolios of Investment at December 31, 1998; Statements of
Assets and Liabilities at December 31, 1998; Statements of Operations for the
fiscal year ended December 31, 1998; and Statements of Changes in Net Assets for
the fiscal year ended December 31, 1998.
EXHIBIT D
Kobren Insight Management, Inc.
Kobren Insight Funds
Kobren Growth, Kobren Moderate Growth, Kobren Conservative Allocation
Annual Report
December 31, 1998
Message To Shareholders
Volatile Year Ends On A Good Note
Like the weather in New England, if you didn't like what was happening in
the stock market over the past year, all you had to do was wait. A very volatile
1998 closed with some positive news as the market and our funds recovered during
the fourth quarter, recouping all of the losses they suffered during the late
summer and early fall ... and then some.
[Picture of Eric M. Kobren]
In our third quarter report we wrote about the quick turn in investor
sentiment. As the market declined during the summer, many investors went from a
feeling of tremendous greed to outright fear. Then, in early October, the market
responded to another interest-rate cut and retraced its earlier losses. Once
again, it appears that investors are in the greed mode. We're not saying the
market is going to drop tomorrow, but it is a little disconcerting that a few
"hot stocks" have once again become the top subject of conversation.
It is important to understand that much of the market's gain last year
was the result of just a handful of high-growth technology companies. Fully 25%
of the market's gain, as measured by the S&P 500, came from just five stocks:
Intel, Cisco, Microsoft, Lucent and Dell. And even though small-cap stocks did
experience a surge last quarter, one-third of the small-cap stocks tracked by
Morningstar still declined 30% or more during 1998.
Managing Risk Through Asset Allocation
As large-cap stocks outperformed small caps, the disparity in
valuations have become even more pronounced. Indeed, the large-cap
stock-oriented S&P 500 ended the year with a price-earnings multiple of about 30
versus an historic average of 14. This is all the more remarkable given that
economic growth is slowing to a crawl and corporate earnings in 1999 are
expected to grow less than 5%.
For these reasons, we enter 1999 even more committed to managing risk
by diversifying each fund by asset class and investment style. Rather than
jumping on the bandwagon of high-growth technology-oriented funds, we've
maintained a healthy dose of stock exposure in areas that have (in our opinion)
less downside risk. This includes investing in value-oriented large- and
small-cap funds. Small caps, for example, are selling at only 20 times earnings
on average, despite having higher expected growth rates than their large-cap
cousins. And all funds include at least some exposure to the international
markets.
A Frustrating Year for Managers ...
With more than 90% of actively managed stock funds failing to beat the
S&P 500, 1998 was a particularly frustrating year for most fund managers.
Nevertheless, we spent the fourth quarter making sure that the managers
investing your money were sticking to their disciplines, and not allowing the
market's volatility and lack of breadth to blur their investment processes. We
are happy to report that in virtually all instances, our managers remained
focused and looked at the market's wide swings as great investment
opportunities.
... And for Us
We can point to the irrational behavior of the market for not meeting
our expectations for each fund. But the fact is that we had our share of
mistakes and frustrating moments over the past year. Despite a fairly accurate
economic analysis, in hindsight, we made some poor asset allocation decisions.
We also may have been overly concerned with current market valuations relative
to historic norms. This led to a lower allocation in the top-performing sectors
last year. We've taken steps to address these issues which we believe will
result in improved performance on both an absolute and a relative basis.
Despite this critical self-evaluation, we are very confident in the
quality and depth of our research. We continue to be applauded by fund managers
for our thorough and insightful research. Our staff continues to meet with
managers in their offices, at our office, at conferences, and via phone. Over
the past year we've installed numerous computer programs and developed a
database of fund information that allows us to quickly hone in on funds that
require our immediate attention.
We expect volatility to continue, and top stock pickers should be
rewarded going forward. Thank you for the confidence and trust you have shown in
our funds.
Sincerely,
/s/ ERIC
Eric M. Kobren
President and Portfolio Manager
Kobren Growth Fund (12/31/98)
Kobren Growth Fund (Ticker: KOGRX): Both large- and small- cap stocks
experienced a bounce in the fourth quarter as the S&P 500 rebounded 21.3% and
the Russell 2000 rose 16.3%. The recovery was very narrow as investors continued
to favor growth stocks over value stocks. For the year, Kobren Growth
underperformed the large-cap benchmarks due to our focus on smaller, value-
oriented funds. We committed to this area of the market for its attractive
pricing. However, this sector never received as much investor attention as we
felt it deserved. Trouble in Asia and slowing profit growth weakened investor
confidence, shifting focus to the larger and better-known growth companies
regardless of their lofty valuations.
Two star performers of 1998, Janus Twenty and Artisan International,
held top positions in the portfolio throughout the year. While accounting for
approximately 30% of assets, these two funds drove performance in the fourth
quarter as Janus Twenty surged 29.7% and Artisan International increased 24.9%.
Both funds are managed by pure bottom-up stock pickers, one concentrated in the
U.S. and the other in Europe.
Major changes throughout the past year were the elimination of our real
estate position as well as an increased emphasis on larger-cap growth and value
funds. We've continued to focus on concentrated funds run by savvy stock
pickers, and these managers know their holdings very well. We expect these funds
to excel in a choppy 1999.
[Double Line Chart]
Value of $10,000 invested 12/16/96
12 Months Annualized
Ended Since Inception
Total Return (%) 12/31/98 (12/16/96)
Kobren Growth +11.5 +14.3
S&P 500 +28.7 +32.0
[Pie Chart]
Asset Allocation*
Bonds 5%
Cash & Other Assets 7%
International 16%
U.S. Stocks 72%
[Pie Chart]
Style Allocation*
Sector 3%
Bonds 5%
Cash & Other Assets 7%
International 16%
Small Cap Value 17%
Large Cap Growth 20%
Large Cap Value 32%
Top Holdings*
Kobren Growth Style Alloc(%)
- ------------- ----- --------
Oakmark Large Cap Value 18.5
Janus Twenty Large Cap Growth 14.7
Longleaf Partners Large Cap Value 13.8
Longleaf Partners Small Cap Small Cap Value 9.4
Artisan International International 8.1
Artisan International Inst'l Class International 7.6
Marsico Growth & Income Large Cap Growth 5.7
U.S. Treasury Strip, 3.21% 8/15/20 Bonds 4.7
Dreyfus Cash Management Plus Money Market 4.4
Neuberger & Bergman Genesis Trust Small Cap Value 4.2
Oakmark Small Cap Small Cap Value 3.6
Fidelity Select Air Transportation Sector 2.7
Total Fund Assets $64,506,745
[Bar Chart]
Top Sectors**
(Total may not equal 100%)
Services 28.7
Financial 16.4
Ind. Cyclicals 13.6
Technology 11.7
Cons. Staples 8.7
Health 8.1
Cons. Durables 8.0
Energy 2.2
Retail 1.7
Utilities 0.9
* Based on total investments.
** Equities only.
Kobren Moderate Growth Fund (12/31/98)
Kobren Moderate Growth Fund (Ticker: KOMGX): After a very successful 1997
(+23.3%), Kobren Moderate Growth had a disappointing year (+3.4%) as our
aversion to overpriced market sectors largely kept us away from 1998's biggest
winners. Our 25% allocation to bonds (flat for the quarter), 5% in real estate,
and a more value-oriented approach did not pay off in a market where investors
bid technology-oriented and Internet stocks into the stratosphere.
Bright spots in the portfolio this year were Tweedy, Browne Global
Value, along with Marsico Growth & Income. The management team of Tweedy, Browne
Global Value concentrated in household finance and basic cyclicals, which are
trading at large discounts to book value. On the growth side, Tom Marsico of
Marsico Growth & Income favored pharmaceuticals and regional banks, leading to a
stellar first year (+43.4%) for this fund. Although we dramatically reduced our
exposure to real estate in the fourth quarter, this sector has not regained the
investor attention it had in 1996 and 1997. Also, the portfolio's allocation to
U.S. Treasuries, while minimizing volatility, could not keep pace with the
spectacular equity market returns.
Looking ahead to 1999, we expect volatility will remain, if not
increase. Given the more risk-averse charter of this fund, we remain committed
to staying well-diversified, while concentrating on managers who have proven
their stock-picking prowess. As evidenced by our 11% fourth quarter gain, this
fund contains plenty of firepower while remaining prudently invested.
[Double Line Chart]
Value of $10,000 invested 12/24/96
12 Months Annualized
Ended Since Inception
Total Return (%) 12/31/98 (12/24/96)
Kobren Moderate Growth +3.4 +13.1
S&P 500 +28.7 +29.7
[Pie Chart]
Asset Allocation*
Cash 2%
International 16%
Bonds 23%
U.S. Stocks 59%
[Pie Chart]
Style Allocation*
Cash 2%
Real Estate 6%
Small Cap Value 10%
International 16%
Large Cap Value 21%
Large Cap Growth 22%
Bonds 23%
Top Holdings*
Kobren Moderate Growth Style Alloc(%)
- ---------------------- ----- --------
Tweedy, Browne Global Value International 15.6
Longleaf Partners Large Cap Value 11.2
Skyline Special Equities Small Cap Value 10.2
MAS Pooled Value Large Cap Value 10.0
Marsico Growth & Income Large Cap Growth 8.6
PIMCo Cadence Capital App Inst'l Large Cap Growth 8.3
Longleaf Partners Realty Real Estate 5.6
Fidelity Adv Growth Opp'ty, CI.T Large Cap Growth 4.9
Treasury Note, 6.50% 08/15/05 Bond 4.1
Treasury Note, 7.50% 02/15/05 Bond 3.7
Treasury Note, 7.25% 08/15/04 Bond 3.6
Treasury Note, 8.125% 08/15/19 Bond 3.6
Treasury Note, 5.625% 11/30/99 Bond 2.7
Treasury Note, 6.00% 02/15/26 Bond 2.3
Treasury Note, 7.00% 07/15/06 Bond 1.8
Dreyfus Cash Management Plus Money Market 1.8
Vang. Interm-Term Treas. Bond 1.7
Total Fund Assets $46,957,981
[Bar Chart]
Top Sectors**
(Total may not equal 100%)
Services 22.9
Financial 18.8
Ind. Cyclicals 16.5
Cons. Staples 9.0
Technology 8.5
Health 8.4
Retail 8.2
Cons. Staples 3.7
Energy 2.8
Utilities 1.2
* Based on total investments.
** Equities only, excludes real estate funds.
Kobren Conservative Allocation Fund (12/31/98)
Kobren Conservative Allocation Fund (Ticker: KOCAX): Despite a very strong
fourth quarter for a fund with a conservative charter (+8.5%), we were only able
to eke out single digit gains for the year (+3.4%). Our value-oriented bias hurt
the fund as investors continued to flock to growth stocks at almost any price.
The largest contributions to performance in 1998 were from Marsico
Growth & Income (+43.4%), Gabelli Westwood Equity (+13.1%), and Longleaf
Partners Small Cap (+12.7%). Tom Marsico's approach for Marsico Growth & Income
combines a macro-economic analysis with bottom-up stock selection. Gabelli
Westwood Equity manager, Susan Byrne, has positioned her portfolio in more
defensive, less growth-oriented areas. Also, while small-cap value funds didn't
shine this year, we owned one of the best in Longleaf Partners Small Cap.
Although the bond holdings did not help during the strong fourth
quarter rally, we were pleased with their contribution to total return for most
of the year. We continue to hold bonds, as we don't expect interest rates to
dramatically increase and can enjoy the income and stability they bring to the
portfolio. If 1999 is as volatile as we expect, this portion of the portfolio
should serve as an anchor during a very uncertain period.
[Double Line Chart]
Value of $10,000 invested 12/30/96
12 Months Annualized
Ended Since Inception
Total Return (%) 12/31/98 (12/30/96)
Kobren Conservative Allocation +3.4 +11.5
S&P 500 +28.7 +29.7
[Pie chart]
Asset Allocation*
Cash 2%
International 11%
Bonds 35%
U.S. Stocks 52%
[Pie Chart]
Style Allocation*
Cash 2%
Real Estate 5%
International 11%
Large Cap Growth 11%
Small Cap Value 10%
Large Cap Value 26%
Bonds 35%
Top Holdings*
Kobren Conservative Allocation Style Alloc(%)
- ------------------------------ ----- --------
Marsico Growth & Income Large Cap Growth 11.3
Franklin Mutual Beacon, Cl. Z Large Cap Value 10.6
Tweedy, Browne Global Value International 10.6
Fidelity Value Large Cap Value 9.9
Treasury Note, 7.25% 08/15/04 Bond 9.4
Treasury Bond, 8.125% 08/15/19 Bond 8.5
Treasury Note, 7.50% 02/15/05 Bond 5.8
Gabelli Westwood Equity Large Cap Value 5.2
Third Avenue Value Small Cap Value 5.2
Longleaf Partners Small Cap Small Cap Value 5.0
Morgan Stanley Inst'l Real
Estate, Cl. A Real Estate 4.9
Treasury Note, 7.00% 07/15/06 Bond 4.3
PIMCo Total Return Inst'l Bond 2.9
Treasury Bond, 6.00% 02/15/26 Bond 2.8
Dreyfus Cash Management Plus Money Market 1.9
Treasury Note, 6.50% 08/15/05 Bond 1.4
Total Fund Assets $19,709,986
[Bar Chart]
Top Sectors**
(Total may not equal 100%)
Financial 20.9
Services 19.0
Ind. Cyclicals 17.4
Technology 10.4
Cons. Durables 10.2
Health 6.0
Energy 5.9
Retail 4.5
Cons. Staples 4.3
Utilities 1.4
* Based on total investments.
** Equities only, excludes real estate funds.
Kobren Insight Management, Inc. is the registered investment adviser for the
Kobren Insight Funds, and Kobren Insight Brokerage, Inc., a NASD broker/dealer,
is the distributor for the Funds. Performance data reflects past performance and
is not a guarantee of future results. Cumulative total return figures include
reinvestment of all distributions. Investment return and principal value will
fluctuate with market conditions and an investor's shares when redeemed may be
worth more or less than their original cost. International investing has special
risks, including currency fluctuation, political and economic instability, and
the volatility of emerging markets. The adviser absorbs certain expenses of each
Kobren Insight Fund, without which total return would have been lower. Portfolio
holdings are also subject to change. Copyright c1999. Reproductions in whole or
in part are prohibited except by permission. Data sources: Kobren Insight
Management, Inc. and Morningstar. Postmaster: Send address changes to Kobren
Insight Funds, PO Box 5146, Westborough, MA 01581-9936. This report must be
preceded or accompanied by a prospectus. Please read it carefully before
investing. You may obtain a prospectus by calling a Kobren Insight Fund
representative at 1-800-4KOBREN (1-800-456-2736) or by visiting www.kobren.com.
Portfolio of Investments
Kobren Growth Fund
December 31, 1998
SHARES MUTUAL FUNDS - 92.70% VALUE (Note 1)
Large Cap Value - 32.37%
366,091 Longleaf Partners Fund $8,928,967
333,601 Oakmark Fund 11,949,597
20,878,564
Large Cap Growth - 20.44%
178,093 Janus Twenty Fund 9,492,365
257,644 Marsico Growth & Income Fund 3,694,601
13,186,966
Small Cap Value - 17.11%
275,293 Longleaf Partners Small-Cap Fund 6,042,683
132,742 Neuberger & Berman Genesis Trust 2,699,979
155,147 Oakmark Small Cap Fund 2,291,527
11,034,189
International - 15.69%
325,193 Artisan International Fund 5,242,105
302,373 Artisan International Fund,
Institutional Class 4,877,277
10,119,382
Money Market Fund - 4.36%
2,815,251 Dreyfus Cash Management Plus Fund 2,815,251
Sector Fund - 2.66%
67,781 Fidelity Select Air Transportation Fund 1,714,867
Small Cap Growth - 0.07%
1,712 RBB Fund Inc. Numeric Growth Fund 22,579
1,479 RBB Fund Inc. Numeric Investors Micro Cap 24,873
47,452
Total Mutual Funds
(Cost $53,294,435) $59,796,671
PRINCIPAL AMT U.S. TREASURY STRIP - 4.71% (Cost $3,055,006)
$10,000,000 3.210%, 8/15/20 3,037,100
TOTAL INVESTMENTS
(Cost $56,349,501*) 97.41% 62,833,771
OTHER ASSETS AND LIABILITIES
(Net) 2.59% 1,672,974
NET ASSETS 100.00% $64,506,745
*For Federal income tax purposes, cost is $56,590,403 and
appreeciation/(depreciation) is as follows:
Unrealized appreciation: $7,596,392
Unrealized depreciation: (1,353,024)
Net unrealized appreciation: $6,243,368
Unaudited Tax Information
Kobren Growth Fund paid $1,309,372 in long term capital gains for the fiscal
year ended 12/31/98.
See Notes to Financial Statements
Portfolio of Investments
Kobren Moderate Growth Fund
December 31, 1998
SHARES MUTUAL FUNDS - 78.02% VALUE (Note 1)
Large Cap Growth - 21.83%
45,419 Fidelity Advisor Growth Opportunities
Fund, Class T $2,280,486
282,481 Marsico Growth & Income Fund 4,050,774
157,184 PIMCo Cadence Capital Appreciation
Fund, Institutional Class 3,920,164
10,251,424
Large Cap Value - 21.21%
216,105 Longleaf Partners Fund 5,270,795
324,037 MAS Pooled Value Fund 4,688,820
9,959,615
International - 15.63%
436,486 Tweedy, Browne Global Value Fund 7,341,689
Small Cap Value - 10.22%
242,748 Skyline Special Equities Fund 4,801,565
Real Estate - 5.57%
179,608 Longleaf Partners Realty Fund 2,613,292
Money Market Fund - 1.81%
849,560 Dreyfus Cash Management Plus Fund 849,560
Bond - 1.75%
73,593 Vanguard Intermediate-Term
Treasury Fund 819,825
Total Mutual Funds
(Cost $35,573,679) $36,636,970
PRINCIPAL AMT U.S. TREASURY OBLIGATIONS - 21.71%
U.S. Treasury Notes - 15.83%
$1,250,000 5.625% 11/30/99 1,261,621
1,500,000 7.250% 08/15/04 1,683,516
1,500,000 7.500% 02/15/05 1,714,570
1,750,000 6.500% 08/15/05 1,920,762
750,000 7.000% 07/15/06 852,480
7,432,949
U.S. Treasury Bonds - 5.88%
1,000,000 6.000% 02/15/26 1,091,836
1,250,000 8.125% 08/15/19 1,667,383
2,759,219
Total U.S. Treasury Obligations
(Cost $9,645,369) 10,192,168
TOTAL INVESTMENTS
(Cost $45,219,048*) 99.73% 46,829,138
OTHER ASSETS AND LIABILITIES
(Net) 0.27% 128,843
NET ASSETS 100.00% $46,957,981
*For Federal income tax purposes, cost is $45,373,673 and
appreciation/(depreciation) is as follows:
Unrealized appreciation: $2,775,778
Unrealized depreciation: (1,320,313)
Net unrealized appreciation: $1,455,465
Unaudited Tax Information
Kobren Moderate Growth Fund paid $1,048,296 in long term capital gains for the
fiscal year ended 12/31/98.
See Notes to Financial Statements
Portfolio of Investments
Kobren Conservative Allocation Fund
December 31, 1998
SHARES MUTUAL FUNDS - 67.48% VALUE (Note 1)
Large Cap Value - 25.81%
42,228 Fidelity Value Fund $1,957,279
159,968 Franklin Mutual Beacon Fund,
Class Z 2,098,775
102,569 Gabelli Westwood Equity Fund 1,030,815
5,086,869
Large Cap Growth - 11.29%
155,197 Marsico Growth & Income Fund 2,225,531
International - 10.55%
123,665 Tweedy, Browne Global Value Fund 2,080,054
Small Cap Value - 10.19%
31,717 Third Avenue Value Fund 1,024,152
44,857 Longleaf Partners Small Cap Fund 984,614
2,008,766
Real Estate - 4.86%
75,320 Morgan Stanley Institutional
Real Estate Fund, Class A 957,314
Bond - 2.86%
53,508 PIMCo Total Return Institutional Fund 563,971
Money Market Fund - 1.92%
376,969 Dreyfus Cash Management Plus Fund 376,969
Total Mutual Funds
(Cost $13,256,325) $13,299,474
PRINCIPAL AMT U.S. TREASURY OBLIGATIONS - 32.14%
U.S. Treasury Notes - 20.91%
1,650,000 7.250% 08/15/04 1,851,867
1,000,000 7.500% 02/15/05 1,143,047
250,000 6.500% 08/15/05 274,395
750,000 7.000% 07/15/06 852,480
4,121,789
U.S. Treasury Bonds - 11.23%
1,250,000 8.125% 08/15/19 1,667,384
500,000 6.000% 02/15/26 545,918
2,213,302
Total U.S. Treasury Obligations
(Cost $5,879,003) 6,335,091
TOTAL INVESTMENTS
(Cost $19,135,328*) 99.62% 19,634,565
OTHER ASSETS AND LIABILITIES
(Net) 0.38% 75,421
NET ASSETS 100.00% $19,709,986
*For Federal income tax purposes, cost is $19,208,366 and
appreciation/(depreciation) is as follows:
Unrealized appreciation: $857,527
Unrealized depreciation: ($431,328)
Net unrealized appreciation: $426,199
Unaudited Tax Information
Kobren Conservative Allocation Fund paid $426,542 in long term capital gains for
the fiscal year ended 12/31/98.
See Notes to Financial Statements
Statements of Assets and Liabilities
Kobren Insight Funds
December 31, 1998
Kobren Kobren Moderate Kobren Conservative
Growth Fund Growth Fund Allocation Fund
Assets:
Investments, at value
See accompanying
schedules $62,833,771 $46,829,138 $19,634,565
Cash 165 - -
Dividends receivable 13,724 6,775 2,772
Interest receivable - 238,867 153,598
Receivable for investment
securities sold 1,735,996 - -
Receivable for fund
shares sold 63,136 33,806 5,341
Unamortized organization
costs 12,416 6,208 6,277
Prepaid expenses and other
net assets 19,376 13,910 -
Total assets 64,678,584 47,128,704 19,802,553
Liabilities:
Payable to custodian - 3,492 5,940
Payable for fund shares
redeemed 67,616 60,114 24,212
Distributions payable 20,053 38,252 31,175
Investment advisory
fee payable 31,721 20,511 3,485
Administration fee payable 5,625 5,625 5,625
Transfer agent fees payable 8,000 7,333 4,667
Accrued trustees' fees
and expenses 2,500 2,500 2,500
Accrued expenses and other
payables 36,324 32,896 14,963
Total liabilities 171,839 170,723 92,567
Net Assets $64,506,745 $46,957,981 $19,709,986
- ----------
Investments, at cost $56,349,501 $45,219,048 $19,135,328
NET ASSETS consist of:
Undistributed net
investment income $- $- $-
Accumulated net realized
gain/(loss) on
investments sold 1,357,613 897,914 (560,666)
Net unrealized appreciation
of investments 6,484,270 1,610,090 499,237
Par value (shares of beneficial interest, $.001 per share)
5,144 3,960 1,762
Paid-in capital in excess of par value
56,659,718 44,446,017 19,769,653
NET ASSETS $64,506,745 $46,957,981 $19,709,986
SHARES OUTSTANDING 5,144,196 3,959,727 1,761,910
Net asset value, offering and redemption price per share
$12.54 $11.86 $11.19
See Notes to Financial Statements
Statements of Operations
Kobren Insight Funds
For the Year Ended December 31, 1998
Kobren Kobren Moderate Kobren Conservative
Growth Fund Growth Fund Allocation Fund
INVESTMENT INCOME:
Dividends $421,985 $472,979 $323,338
Interest 53,788 598,393 342,871
Total investment income 475,773 1,071,372 666,209
EXPENSES:
Investment advisory fee 495,612 388,684 165,999
Administration fee 67,500 67,500 67,500
Transfer agent fees 62,136 55,704 42,076
Custodian fees 3,130 3,599 3,441
Professional fees 36,027 31,264 10,828
Trustees' fees and
expenses 11,956 9,874 5,059
Registration and
filing fees 17,452 18,524 16,129
Amortization of organization
costs 4,200 2,100 2,100
Other 11,970 10,173 4,624
Total expenses 709,983 587,422 317,756
Expenses reimbursed
by investment adviser (49,566) (69,479) (96,407)
Other reductions (56,320) (44,404) -
Net expenses 604,097 473,539 221,349
NET INVESTMENT INCOME/
(LOSS) (128,324) 597,833 444,860
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) from
security transactions (1,711,222) (1,938,559) (1,178,310)
Short term capital gain
distributions received 266,876 224,103 140,633
Long term capital gain
distributions received 3,925,774 2,836,492 618,165
Change in unrealized
appreciation/(depreciation)
of securities 3,983,749 (371,379) 346,115
Net realized and unrealized
gain/(loss) on investments 6,465,177 750,657 (73,397)
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $6,336,853 $1,348,490 $371,463
See Notes to Financial Statements
Statements of Changes in Net Assets
Kobren Insight Funds
For the Year Ended December 31, 1998
Kobren Kobren Moderate Kobren Conservative
Growth Fund Growth Fund Allocation Fund
Net investment
income/(loss) $(128,324) $597,833 $444,860
Net realized gain/(loss)
from security transactions (1,711,222) (1,938,559) (1,178,310)
Short term capital gains
distributions received 266,876 224,103 140,633
Long term capital gains
distributions received 3,925,774 2,836,492 618,165
Change in unrealized
appreciation/(depreciation)
of investments 3,983,749 (371,379) 346,115
Net increase in net assets
resulting from operations 6,336,853 1,348,490 371,463
Distribution to shareholders from:
Net investment income and
short term capital gains (138,552) (821,936) (585,493)
Net realized gains
on investments (1,309,372) (1,048,296) (426,542)
Total distributions (1,447,924) (1,870,232) (1,012,035)
Net increase/(decrease)
in net assets from fund
share transactions (2,891,457) 4,098,746 2,875,190
Net increase in net assets 1,997,472 3,577,004 2,234,618
Net Assets:
Beginning of period 62,509,273 43,380,977 17,475,368
End of period $64,506,745 $46,957,981 $19,709,986
Undistributed net investment
income at end of period $- $- $-
Kobren Insight Funds
For the Year Ended December 31, 1998
Kobren Kobren Moderate Kobren Conservative
Growth Fund Growth Fund Allocation Fund
Net investment income $261,121 $656,855 $354,447
Net realized gain/(loss)
on investment (1,716,593) (52,046) 2,902
Short term capital gains
distributions received 1,165,983 946,535 459,166
Long term capital gains
distributions received 2,169,928 1,102,350 470,684
Change in unrealized appreciation
of investments 2,499,144 1,981,333 153,396
Net increase in net assets
resulting from operations 4,379,583 4,635,027 1,440,595
Distribution to shareholders from:
Net investment income (261,121) (656,929) (354,446)
Short term capital gains (1,165,983) (946,535) (459,166)
Net realized gain/(loss)
on investments (902) (2,027) (47,565)
Total distributions (1,428,006) (1,605,491) (861,177)
Net increase in net assets from
fund share transactions 59,306,348 40,161,231 16,731,225
Net increase in net assets 62,257,925 43,190,767 17,310,643
Net Assets:
Beginning of period 251,348 190,210 164,725
End of period $62,509,273 $43,380,977 $17,475,368
Undistributed net investment
income at end of period $- $- $-
See Notes to Financial Statements
Financial Highlights
Kobren Growth Fund
For the Year For the Year For the Period
Ended Ended Ended
12/31/98(f) 12/31/97 12/31/96(a)
Net asset value - beginning
of period $11.51 $10.24 $10.00
Net investment income/(loss) (0.02) 0.05 - (d)
Short term capital
gains received 0.05 0.22 -
Net realized and unrealized
gains on investments 1.29 1.27 0.24
Net increase in net assets
resulting from investment
operations 1.32 1.54 0.24
Distributions from net
investment income - (0.05) -
Distributions from short term
capital gains received (0.03) (0.22) -
Distributions from net realized
long term capital gains (0.26) 0.00 (d) -
Total distributions (0.29) (0.27) -
Net asset value - end of
period $12.54 $11.51 $10.24
Total return (b) 11.45% 15.03% 2.40%
Ratios to average net assets/supplemental data:
Net assets, end of period
(in 000's) $64,507 $62,509 $251
Ratio of net investment income/(loss)
to average net assets -0.19% 0.60% -0.97%(c)(e)
Ratio of operating expenses to
average net assets after
reimbursements and reductions 0.91% 0.89% 1.00% (c)
Portfolio turnover rate 62% 43% n/a (e)
Ratio of operating expenses to
average net assets before fees
waived and/or expenses reimbursed
by investment advisor
and other reductions 1.07% 1.28% n/a (e)
(a) Kobren Growth Fund commenced operations on December 16, 1996.
(b) Total return represents aggregate total return for the period indicated.
(c) Annualized.
(d) Amount represents less than $0.01 per share.
(e) Since Kobren Growth Fund was in operation for a short period of time, these
ratios are not meaningful. (f) Per share net investment income has been
calculated using the monthly average share method.
See Notes to Financial Statements
Financial Highlights
Kobren Moderate Growth Fund
For the Year For the Year For the Period
Ended Ended Ended
12/31/98 12/31/97 12/31/96(a)
Net asset value - beginning
of period $11.94 $10.06 $10.00
Net investment income/(loss) 0.16 0.19 0.00 (d)
Short term capital
gains received 0.06 0.27 -
Net realized and unrealized
gains on investments 0.20 1.88 0.06
Net increase in net assets
resulting from investment
operations 0.42 2.34 0.06
Distributions from net
investment income (0.16) (0.19) -
Distributions from short term
capital gains received (0.06) (0.27) -
Distributions from net realized
long term capital gains (0.28) 0.00(d) -
Total distributions (0.50) (0.46) -
Net asset value - end of
period $11.86 $11.94 $10.06
Total return (b) 3.44% 23.25% 0.60%
Ratios to average net assets/supplemental data:
Net assets, end of period
(in 000's) $46,958 $43,381 $190
Ratio of net investment income
to average net assets 1.15% 2.76% 8.95%(c)(e)
Ratio of operating expenses
to average net assets after
reimbursements and reductions 0.91% 0.92% 1.00%(c)
Portfolio turnover rate 50% 14% n/a (e)
Ratio of operating expenses to
average net assets before fees
waived and/or expenses reimbursed
by investment advisor
and other reductions 1.13% 1.58% n/a (e)
(a) Kobren Moderate Growth Fund commenced operations on December 24, 1996.
(b) Total return represents aggregate total return for the period indicated.
(c) Annualized.
(d) Amount represents less than $0.01 per share.
(e) Since Kobren Moderate Growth Fund was in operation for a short period
of time, these ratios are not meaningful.
See Notes to Financial Statements
Financial Highlights
Kobren Conservative Allocation Fund
For the Year For the Year For the Period
Ended Ended Ended
12/31/98 12/31/97 12/31/96(a)
Net asset value - beginning
of period $11.39 $9.98 $10.00
Net investment income/(loss) 0.25 0.57 0.00 (d)
Short term capital
gains received 0.08 0.04 -
Net realized and unrealized
gains on investments 0.05(f) 1.44 (0.02)
Net increase in net assets
resulting from investment
operations 0.38 2.05 (0.02)
Distributions from net
investment income (0.25) (0.57) -
Distributions from short term
capital gains received (0.08) (0.04) -
Distributions from net realized
long term capital gains (0.25) (0.03) -
Total distributions (0.58) (0.64) -
Net asset value - end of
period $11.19 $11.39 $9.98
Total return (b) 3.36% 20.64% -0.20%
Ratios to average net assets/supplemental data:
Net assets, end of period
(in 000's) $19,710 $17,475 $165
Ratio of net investment income/(loss)
to average net assets 2.01% 3.99% -1.00%(c)(e)
Ratio of operating expenses
to average net assets after
reimbursements and reductions 1.00% 1.00% 1.00%(c)
Portfolio turnover rate 68% 13% n/a (e)
Ratio of operating expenses to
average net assets before fees
waived and/or expenses reimbursed
by investment advisor 1.44% 2.82% n/a (e)
(a) Kobren Conservative Allocation Fund commenced operations on December 30,
1996.
(b) Total return represents aggregate total return for the period indicated.
(c) Annualized.
(d) Amount represents less than $0.01 per share.
(e) Since Kobren Conservative Allocation Fund was in operation for a short
period of time, these ratios are not meaningful.
(f) The amount shown for a share outstanding does not correspond with the
aggregate net loss on investments for the period ended due to the
timing of sales and repurchases of fund shares in relation to
fluctuating market values of the investments of the fund.
See Notes to Financial Statements
Notes to Financial Statements
Kobren Insight Funds
December 31, 1998
1. Significant Accounting Policies
Kobren Insight Funds (the "Trust") was organized on September 13, 1996,
as a Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a no-load, open-end
diversified management investment company. As of December 31, 1998, the Trust
offers shares of four funds, Kobren Growth Fund, Kobren Moderate Growth Fund,
Kobren Conservative Allocation Fund and Kobren Delphi Value Fund (individually,
a "fund" and collectively, the "funds"). Information presented in these
financial statements pertains only to Kobren Growth Fund, Kobren Moderate Growth
Fund and Kobren Conservative Allocation Fund. These funds seek to achieve their
investment objectives by investing primarily in shares of other investment
companies ("underlying funds"), but also may invest directly in securities that
are suitable investments for that fund.
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. The
following is a summary of significant accounting policies followed by the funds
in the preparation of their financial statements. Portfolio Valuation -- The
underlying funds are valued according to their stated net asset value. Each
fund's other investment securities are valued at the last sale price on the
securities exchange or national securities market on which such securities
primarily are traded. Securities not listed on an exchange or national
securities market, or securities in which there were no transactions, are valued
at the average of the most recent bid and asked prices. Bid price is used when
no asked price is available. Short-term investments are valued at amortized
cost, which approximates market value. Any securities or other assets for which
recent market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the board of trustees.
Dividends and Distributions -- It is the policy of Kobren Growth Fund and Kobren
Moderate Growth Fund to declare and pay dividends from net investment income
annually. Kobren Conservative Allocation Fund has a policy of paying such
dividends quarterly. Each fund will distribute net realized capital gains
(including net short-term capital gains), unless offset by any available capital
loss carryforward, annually. Additional distributions of net investment income
and capital gains for each fund may be made in order to avoid the application of
a 4% non-deductible excise tax on certain undistributed amounts of ordinary
income and capital gain. Income distributions and capital gain distributions are
determined in accordance with 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
a fund, timing differences and differing characterizations of distributions made
by a fund.
Securities Transactions and Investment Income -- Securities transactions are
recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on the specific identified cost basis. Dividend income
is recognized on the ex-dividend date. Interest income is recognized on the
accrual basis.
Federal Income Tax -- Each fund has qualified and intends to continue to qualify
as a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and by
distributing substantially all of its earnings to its shareholders. Therefore,
no federal income or excise tax provision is applicable.
Expenses -- Expenses of the Trust which are directly identifiable to a specific
fund are allocated to that fund. Other expenses of the Trust are allocated among
the funds based upon relative net assets of each fund.
2. Investment Advisory Fee, Administration Fee and Other Transactions
The Trust has entered into an investment advisory agreement (the
"Advisory Agreement") with Kobren Insight Management, Inc. ("KIM"). The Advisory
Agreement provides that each fund pays KIM a fee, computed daily and paid
monthly, at the annual rate of 0.75% of each fund's average daily net assets. In
addition, certain 12b-1 fee and sub-transfer agent fee reimbursement will be
used to defray the costs associated with participation in certain no transaction
fee programs. KIM has voluntarily agreed to limit each fund's other operating
expenses to 0.25% of each fund's average daily net assets until January 1, 2001.
The Trust also has also entered into an administration agreement (the
"Administration Agreement") with First Data Investor Services Group, Inc. (the
"Administrator"), a wholly-owned subsidiary of First Data Corporation. The
Administrator also serves as the Trust's transfer agent and dividend paying
agent. Boston Safe Deposit and Trust Company, an indirect wholly-owned
subsidiary of Mellon Bank Corporation, serves as the Trust's custodian. Kobren
Insight Brokerage, Inc., an affiliate of KIM, serves as distributor of the
funds' shares and pays all distribution costs. No distribution fees are paid by
the funds.
For the year ended December 31, 1998, expense reimbursement and other
reductions are as follows:
Expenses Reimbursed
By Investment
Advisor Other Reductions (1)
Kobren Growth Fund $49,566 $56,320
Kobren Moderate Growth Fund 69,479 44,404
Kobren Conservative Allocation Fund 96,407 -
(1) Payments made by an underlying fund or its investment advisor, based on
shares held by a Kobren Insight Fund.
No officer, director or employee of KIM, Kobren Insight Brokerage,
Inc., the Administrator, or any affiliate thereof, receives any compensation
from the Trust for serving as a trustee or officer of the Trust. Each trustee
who is not an "affiliated person" receives an annual fee of $5,000 plus $1,000
for each board meeting attended and $500 for each committee meeting attended.
The Trust also reimburses out-of-pocket expenses incurred by each trustee in
attending such meetings.
3. Purchases and Sales
The aggregate amounts of purchases and sales of underlying funds and
investment securities, other than U.S. government and short-term securities, for
the year ended December 31, 1998, were as follows:
Purchases Sales
Kobren Growth Fund $39,528,990 $42,122,247
Kobren Moderate Growth Fund 32,105,786 25,154,303
Kobren Conservative Allocation Fund 18,394,556 14,481,960
4. Shares of Beneficial Interest
As of December 31, 1998, an unlimited number of shares of beneficial
interest, having a par value of $0.001, were authorized for the Trust. Changes
in shares of beneficial interest were as follows:
Year Ended Year Ended
December 31, 1998 December 31, 1997
Shares Amount Shares Amount
Kobren Growth Fund:
Shares Sold 2,046,221 $24,949,435 6,040,941 $66,750,421
Shares Issued as Reinvestment
of Dividends 114,032 1,429,965 121,905 1,403,131
Shares Redeemed (2,448,666) (29,270,857) (754,794) (8,847,204)
Net Increase/
(Decrease) (288,413) $(2,891,457) 5,408,052 $59,306,348
Kobren Moderate Growth Fund:
Shares Sold 1,885,448 $23,034,304 3,867,539 $43,059,814
Shares Issued as Reinvestment
of Dividends 154,509 1,832,481 130,811 1,561,885
Shares Redeemed (1,713,953) (20,768,039) (383,530) (4,460,468)
Net Increase 326,004 $4,098,746 3,614,820 $40,161,231
Kobren Conservative Allocation Fund:
Shares Sold 1,260,211 $14,740,908 1,763,364 $19,397,323
Shares Issued as Reinvestment
of Dividends 87,053 974,832 71,701 818,115
Shares Redeemed (1,120,082) (12,840,550) (316,837) (3,484,213)
Net Increase 227,182 $2,875,190 1,518,228 $16,731,225
At December 31, 1998, Kobren Insight Management, Inc. and its
affiliates owned 838,024, 485,712 and 369,573 shares of Kobren Growth Fund,
Kobren Moderate Growth Fund and Kobren Conservative Allocation Fund,
respectively.
5. Organization Expenses
Expenses incurred in connection with the organization of each fund are
being amortized on a straight-line basis over a period not to exceed sixty
months from the date upon which each fund commenced its operations.
6. Risk Factors of the Funds
Investing in underlying funds through a Kobren Insight Fund involves
additional and duplicative expenses and certain tax results that would not be
present if an investor were to make a direct investment in the underlying funds.
A fund, together with the other funds and any "affiliated persons" (as such term
is defined in the 1940 Act) may purchase only up to 3% of the total outstanding
securities of an underlying fund. Accordingly, when the Trust, KIM or their
affiliates hold shares of any of the underlying funds, each fund's ability to
invest fully in shares of such underlying funds may be restricted, and KIM must
then, in some instances, select alternative investments.
7. Capital Loss Carryforward
For the year ended December 31, 1998, the Kobren Conservative
Allocation Fund had a capital loss carryforward of $487,627 expiring December
31, 2006.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees
of Kobren Insight Funds:
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Kobren Growth Fund, Kobren
Moderate Growth Fund and The Kobren Conservative Allocation Fund (The "Funds")
at December 31, 1998, and the results of their operations, the changes in net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 5, 1999
PART C: OTHER INFORMATION
Item 15. Indemnification.
The response to this Item 15 is incorporated by reference to Item 27 of
Pre-Effective Amendment No. 1 (Accession No. 0000927405-96-000432) to the
Registrant's Registration Statement on Form N-1A as filed with the SEC on
November 8, 1996.
Item 16. Exhibits.
(1)(a)(i) Declaration of Trust is incorporated by reference to Exhibit 1 of the
Registrant's Registration Statement on Form N-1A (File Nos. 333-12075,
811-07813) as filed with the SEC on September 16, 1996 (Accession No.
0000927405-96-000374)(the "Form N-1A Registration Statement").
(a)(ii) Amendment to the Declaration of Trust on behalf of Kobren Delphi Value
Fund is incorporated by reference to Exhibit 23(a) of Post-Effective Amendment
No. 9 to the Form N-1A Registration Statement as filed with the SEC on December
17, 1998 (Accession No. 0000927405-98-000378) ("Post-Effective Amendment No.
9").
(2) By-Laws are incorporated by reference to Exhibit 2 of the Form N-1A
Registration Statement.
(3) Not Applicable.
(4) Form of Agreement and Plan of Reorganization filed herewith.
(5) Not Applicable.
(6)(a) Investment Advisory Agreement with Kobren Insight Management, Inc. dated
November 15, 1996 is incorporated by reference to Exhibit 5 of Post-Effective
Amendment No. 2 to the Form N-1A Registration Statement filed with the SEC on
April 22, 1998 (Accession No. 0000927405-98-000133) ("Post-Effective Amendment
No. 2").
(b) Amendment to Investment Advisory Agreement with Kobren Insight Management,
Inc. on behalf of Kobren Delphi Value Fund is incorporated by reference to
Exhibit 23(d) of Post-Effective Amendment No. 9.
(c) Form of Amendment to Investment Advisory Agreement with Kobren Insight
Management, Inc. on behalf of Kobren Growth Fund and Kobren Moderate Growth Fund
is incorporated by reference to Exhibit (d) of Post-Effective Amendment No. 12
to the Form N-1A Registration Statement filed with the SEC on April 30, 1999
(Accession No. 0000927405-99-000161) ("Post-Effective Amendment No. 12").
(d) Subadvisory Agreement with Delphi Management, Inc. on behalf of Kobren
Delphi Value Fund is incorporated by reference to Exhibit 23(d) of
Post-Effective Amendment No. 9.
(7)(a) Distribution Agreement with Kobren Insight Brokerage, Inc. dated November
15, 1996 is incorporated by reference to Exhibit 6 of Post-Effective Amendment
No. 2.
(b) Amendment to Distribution Agreement with Kobren Insight Brokerage, Inc. on
behalf of Kobren Delphi Value Fund is incorporated by reference to Exhibit 23(e)
of Post-Effective Amendment No. 9.
(c) Form of Amendment to Distribution Agreement with Kobren Insight
Brokerage, Inc. on behalf of Kobren Growth Fund and Kobren Moderate
Growth Fund is incorporated by reference to Exhibit (e) of
Post-Effective Amendment No. 12 .
(8) Not Applicable.
(9)(a) Custody Agreement with Boston Safe Deposit and Trust Company dated
November 18, 1996 is incorporated by reference to Exhibit 8(a) of
Post-Effective Amendment No. 2.
(b) Amendment to Custody Agreement with Boston Safe Deposit and Trust
Company dated January 8, 1998 is incorporated by reference to Exhibit
8(b) of Post-Effective Amendment No. 2.
(c) Sub-Custodian Agreement with Boston Safe Deposit and Trust Company and
National Financial Services Corporation dated January 8, 1998 is
incorporated by reference to Exhibit 8(c) of Post-Effective Amendment
No.
2. .
(d) Amendment to Custody Agreement with Boston Safe Deposit and Trust Company on
behalf of Kobren Delphi Value Fund dated October 8, 1998 is incorporated by
reference to Exhibit 23(g) of Post-Effective Amendment No. 5 to the Form N-1A
Registration Statement as filed with the SEC on October 27, 1998 (Accession No.
0000927405-97-000313) ("Post-Effective Amendment No. 5").
(10)(a) Plan of Distribution pursuant to Rule 12b-1 on behalf of the Kobren
Delphi Value Fund is incorporated by reference to Exhibit 23(m) of
Post-Effective Amendment No. 5.
(b) Plan pursuant to Rule 18f-3 on behalf of Kobren Delphi Value Fund is
incorporated by reference to Exhibit 23(o) of Post-Effective Amendment
No. 5.
(11) Opinion of Hale and Dorr LLP concerning legality of shares of Kobren
Moderate Growth Fund is filed herewith.
(12) Opinion of Hale and Dorr LLP concerning the tax matters and consequences
to shareholders discussed in the prospectus will be filed by
post-effective
amendment after the closing of the reorganization.
(13)(a) Transfer Agency Agreement with First Data Investor Services Group, Inc.
dated November 15, 1996 is incorporated by reference to Exhibit 9(a) of
Post-Effective Amendment No. 1 to the Form N-1A Registration Statement as filed
with the SEC on June 13, 1997 (Accession No. 0000927405-97-000202)
("Post-Effective Amendment No. 1").
(b) Amendment to Transfer Agency Agreement with First Data Investor Services
Group, Inc. dated June 30, 1998 is incorporated by reference to Exhibit 9(b) of
Post-Effective Amendment No. 3 to the Form N-1A Registration Statement as filed
with the SEC on September 4, 1998 (Accession No. 0000927405-98-000293)
("Post-Effective Amendment No. 3").
(c) Amendment to Transfer Agency Agreement with First Data Investor
Services Group, Inc. on behalf of Kobren Delphi Value Fund is
incorporated by reference to Exhibit 23(h) of Post-Effective Amendment
No. 9.
(d) Administration Agreement with First Data Investor Services Group, Inc. dated
November 15, 1996 is incorporated by reference to Exhibit 9(b) of Post-Effective
Amendment No. 1.
(e) Amendment to Administration Agreement with First Data Investor
Services Group, Inc. on behalf of Kobren Delphi Value Fund is
incorporated by reference to Exhibit 23(h) of Post-Effective Amendment
No. 9.
(14) Consent of Independent Accountants is filed herewith.
(15) Not Applicable.
(16) Not Applicable.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is part of this
registration statement by any person or party which is deemed to be an
underwriter within the meaning of Rule 145(c) under the Securities Act of 1933,
the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as part of an amendment to the registration
statement and will not be used until the amendment is effective, and that, in
determining any liability under the Securities Act of 1933, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
(3) The undersigned Registrant undertakes to file with the SEC, by
post-effective amendment promptly after the closing of the reorganization, an
opinion of Hale and Dorr LLP concerning the tax matters and consequences to
shareholders discussed in the prospectus.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, KOBREN INSIGHT FUNDS, has duly caused this Registration Statement on
Form N-14 to be signed on its behalf by the undersigned, duly authorized, in the
City of Boston and Commonwealth of Massachusetts on the 7th day of May, 1999.
KOBREN INSIGHT FUNDS
By: /s/ Eric M. Kobren
Eric M. Kobren, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated.
Signatures Title Date
/s/ Eric M. Kobren President, Chairman of the Board and 05/07/99
Eric M. Kobren Trustee (Chief Executive Officer)
/s/ Eric J. Godes Treasurer, Chief Financial Officer and 05/07/99
Eric J. Godes Chief Accounting Officer
/s/ Edward B. Bloom Trustee 05/07/99
Edward B. Bloom
/s/ Michael P. Castellano Trustee 05/07/99
Michael P. Castellano
/s/ Arthur Dubroff Trustee 05/07/99
Arthur Dubroff
/s/ Robert I. Goldfarb Trustee 05/07/99
Robert I. Goldfarb
/s/ Stuart J. Novick Trustee 05/07/99
Stuart J. Novick
EXHIBIT INDEX
Exhibit
Number Description
(4) Form of Agreement and Plan of Reorganization
(11) Opinion of Hale and Dorr LLP concerning legality of shares of Kobren
Moderate Growth Fund
(14) Consent of Independent Accountants