Kobren Delphi Value Fund
Annual Report
December 31, 1998
Dear Shareholder,
Eric Kobren and I welcome you as investors in our new fund. For those
of you who are unfamiliar with my parent organization, Delphi Management was
organized in the 1980's to manage money for institutional clients employing a
rigorous Graham & Dodd value approach to equity investing. Like Warren Buffett,
we strive to purchase "good businesses" at excellent prices. In simple terms, we
favor companies with superior returns on equity, free cash generation from
internal operations, and easily under-stood accounting. Additionally, we either
visit or call management directly in our qualitative assessment of the company.
We expect senior management to be candid about the problem areas within their
businesses, to articulate their competitive strengths and weaknesses, and to
have in place a strategic plan.
[Picture of Scott M. Black]
After the research process, we subdivide the world of Benjamin Graham
into two categories - earning power and asset plays. Earning power plays are
companies with sustainable earnings year-to-year. In today's frothy market, we
attempt to purchase those stocks at or below one half the S&P 500 multiple of
27x 1999's expected earnings. While corporations like Microsoft and Cisco are
powerhouses, their multiples are far too expensive for value investing. Year-end
holdings such as American Greetings, Ross Stores, Hubbell, and Peoples Heritage
are solidly growing corporations with absolute low price/earnings ratios. Asset
plays are equities which sell at significant discounts to their respective
breakup valuations. For example, media holdings such as McClatchy, E.W. Scripps,
and US Cellular sell at cash flow multiples significantly below their intrinsic
worth.
Historically, Delphi Management has performed no market timing. Rather,
after committing the initial monies, we strive to remain "fully invested" at all
times, with 90%+ equity exposure; the residual in cash equivalents. It should be
noted that there are no leveraged bets on currency movements or gambling on
emerging market debt. Typically, we hold sixty to eighty-five positions in a
portfolio. For the record, the Kobren Delphi Value Fund can select from the full
spectrum of 11,500 U.S. equities. Over a full market cycle, we expect the median
market capitalization to approximate that of the Russell 2500 Index. At this
juncture, we are finding better opportunities in the small and midcap value
arena. Large cap companies with good earnings prospects like pharmaceuticals and
consumer non-durables have been well picked over. With commodity metal prices
plunging worldwide and capital spending ratcheting downward in the United
States, it is probably premature to invest in the big cyclicals like copper,
steel, farm equipment, or off-road construction vehicles.
While small cap equities have systematically lagged the S&P 500 over
the past five years, the historical data supports the Kobren Delphi Value
strategy. Over the past seventy- five years, stocks, as a whole, have returned
11% compounded annually. Concomitantly, small caps have returned 12.7% per
annum. Additionally, most university studies indicate that low price/earnings
and low price/book ratios produce superior returns over time. With our active
research commitment, and with our strict adherence to absolute valuation
criteria, we feel confident with our investment philosophy.
Eric Kobren and I thank you for your participation in the Kobren Delphi
Value Fund. We promise that we shall work hard to earn your trust.
Very truly yours,
/s/ SCOTT M. BLACK
Scott M. Black
<PAGE>
Portfolio of Investments
December 31, 1998
Value
Shares (Note 1)
COMMON STOCKS - 42.00%
Advertising - 1.37%
200 Grey Advertising $72,800
Banking - 5.99%
1,200 BankAmerica Corp. 72,150
2,100 BankAtlantic Bancorp. 13,519
5,000 Colonial BancGroup 60,000
1,900 Community Bank System 55,694
400 First Union Corp. 24,325
1,100 Peoples Heritage Financial Group 22,000
5,000 Sovereign Bancorp, Inc. 71,250
318,938
Diversified Manufacturing - 7.28%
3,000 Agrium 26,062
2,700 Big Flower Holdings (1) 59,569
2,500 Griffon Corp. (1) 26,562
1,300 Hubbell, Inc. (Class B) 49,400
1,500 LSI Logic (1) 24,187
4,000 Maxwell Shoe Co. (1) 43,750
1,500 National Service Industries 57,000
3,900 SIFCO Industries 48,506
900 Southdown, Inc. 53,269
388,305
Entertainment - 1.24%
2,200 Walt Disney Co. 66,000
Financial Services - 1.91%
1,300 Bear Stearns Co. 48,587
1,300 Donaldson Lufkin & Jenrette 53,300
101,887
Food & Beverage - 1.08%
1,000 Coca-Cola Bottling Co. 57,500
Insurance - 5.74%
5,500 Centris Group 53,625
500 Chubb Corp. 32,438
200 Exel Limited 15,000
2,000 Fremont General Corp. 49,500
2800 IPC Holdings, Ltd. 64,925
1000 Renaissance Re Holdings, Ltd. 36,625
1600 United Fire & Casualty 53,800
305,913
Value
Shares (Note 1)
Publishing - 4.28%
1000 E.W. Scripps Co. $49,750
1,000 Gannett Inc. 64,500
900 McClatchy Co. 31,838
2,000 News Corp. ADR 52,875
50 Washington Post 28,897
227,860
Real Estate- 3.17%
1,500 Charles E. Smith Residential Realty48,187
2,500 D.R. Horton 57,500
2,500 Lennar Corp. 63,125
168,812
Retail - 6.24%
1,600 American Greetings 65,700
2,400 Claire's Stores 49,200
2,700 Cracker Barrel Group, Inc. 62,944
1,100 May Department Stores 66,413
1,200 Ross Stores 47,250
2,500 Schultz Sav-O Stores, Inc. 41,250
332,757
Storage - 0.80%
1,700 Sovran Self Storage 42,712
Telecommunications - 1.80%
2,500 Cellular Comm. of Puerto Rico 46,250
1,300 United States Cellular Corp. (1) 49,400
95,650
Transportation- 1.10%
2,500 St. Joe Co. 58,594
Total Common Stocks $2,237,728
(Cost $2,179,168)
INVESTMENT COMPANY - 78.18%
4,165,015 Dreyfus Cash Mgmt Plus Fund 4,165,015
Total Investment Company 4,165,015
(Cost $4,165,015)
Total Investments - 120.18% 6,402,743
(Cost $6,344,183*)
Net Other Assets
and Liabilities - (20.18)% (1,075,144)
Total Net Assets - 100.00% $5,327,599
1) Non-income producing.
* For Federal income tax purposes, cost is $6,344,183 and
appreciation/(depreciation) is as follows:
Unrealized appreciation: $68,760
Unrealized depreciation: ($10,200)
Net unrealized appreciation: $58,560
See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities
December 31, 1998
Assets:
Investments, at value
See accompanying schedule $6,402,743
Cash 22,440
Dividends receivable 2,508
Receivable for fund shares sold 291,000
Receivable due from investment adviser 2,929
Prepaid expenses 4,822
Total assets 6,726,442
Liabilities:
Payable for investment securities purchased 1,394,262
Distribution fee payable 242
Accrued expenses and other payables 4,339
Total liabilities 1,398,843
Net Assets $5,327,599
Investments, at cost $6,344,183
NET ASSETS consist of:
Undistributed net investment income $5,678
Net unrealized appreciation of investments 58,560
Par value (shares of beneficial interest,
$.001 per share) 526
Paid-in capital in excess of par value 5,262,835
NET ASSETS $5,327,599
Computation of net asset value Retail Class Shares:
Net asset value, offering and redemption price
per share ($5,055,862 / 499,444 shares) $10.12
Institutional Class Shares:
Net asset value, offering and redemption price
per share ($271,737 / 26,849 shares) $10.12
See Notes to Financial Statements
<PAGE>
Statement of Operations
For the Period Ended December 31, 1998
INVESTMENT INCOME:
Dividends $2,508
Total investment income 2,508
EXPENSES:
Investment advisory fee 976
Administration fee 3,021
Transfer agent fees 2,016
Custodian fees 250
Professional fees 4,000
Distribution fee (Retail Class) 242
Other 142
Total expenses 10,647
Fees waived and/or expenses reimbursed
by investment advisor and administrator (8,942)
Net expenses 1,705
NET INVESTMENT INCOME 803
NET UNREALIZED GAIN ON INVESTMENTS :
Change in unrealized appreciation of securities 58,560
Net unrealized gain on investments $58,560
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 59,363
Statement of Changes in Net Assets for
the period ended December 31, 1998
Net investment income $803
Change in unrealized appreciation
of investments 58,560
Net increase in net assets resulting
from operations 59,363
Net increase in net assets
from fund share transactions 5,268,236
Net increase in net assets 5,327,599
Net Assets:
Beginning of period --
End of period $5,327,599
Undistributed net investment
income at end of period $5,678
See Notes to Financial Statements
<PAGE>
Financial Highlights
For a Fund Share Outstanding Throughout the Period
For the Period For the Period
December 23, 1998 December 23, 1998
to December 31, 1998 to December 31, 1998
(commencement of (commencement of
operations) to operations)
Class R Class I
Net asset value - beginning
of period $10.00 $10.00
Net investment income 0.01 0.01
Net unrealized gain on investments 0.11 0.11
Net increase in net assets resulting
From investment operations 0.12 0.12
Net asset value - end of period $10.12 $10.12
Total return (a) 1.20% 1.20%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $5,056 $272
Ratio of net investment income/(loss)
to average net assets 0.82% (b) 1.07% (b)
Ratio of operating expenses to
average net assets after waivers
and/or expense reimbursements 1.75% (b) 1.50% (b)
Portfolio turnover rate 0% 0%
Ratio of operating expenses to
average net assets before fees waived
and/or expenses reimbursed by investment
advisor and administrator 10.91% (b) 10.66% (b)
(a) Total return represents aggregate total return for the period indicated.
(b) Annualized.
See Notes to Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 (the "fund").
Information presented in these financial statements pertains only to Kobren
Delphi Value Fund. The fund is authorized to issue two classes of shares - the
Retail Class and the Institutional Class. Each class of shares outstanding bears
the same voting, dividend, liquidation and other rights and conditions, except
that the expenses incurred in the distribution and marketing of such shares are
different for each class. The Retail Class is subject to a 12b-1 fee up to 0.25%
of the class's average daily net assets. The fund seeks to achieve its
investment objective by investing primarily in equity securities of U.S.
companies.
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 -- Investment securities are valued at the last sale price
on the securities exchange or national securities market on which such
securities are primarily 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 securities with remaining
maturities of sixty days or less 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 the fund to declare and pay
dividends from net investment income annually. The 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 the 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 prepaid
expenses.
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. Dividend income on foreign securities is
recognized as soon as a fund is informed of the ex-dividend date. Interest
income is recognized on the accrual basis.
Federal Income Tax -- The fund has qualified and intends 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 -- Certain of the Trust's other expenses are allocated equally to those
funds which make up the Trust. Other expenses of the Trust are allocated among
the funds based upon relative net assets of each fund. Operating expenses
directly attributable to a fund are charged to that fund's operations.
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 the fund pays KIM a fee, computed daily and paid
monthly, at the annual rate of 1.00% of the fund's average daily net assets. KIM
has voluntarily agreed to limit the fund's total annual operating expenses of
the Retail Class and Institutional Class at no more than 1.75% and 1.50%,
respectively, of the fund's average daily net assets until January 1, 2000.
For the period ended December 31, 1998, the advisor reimbursed fees
amounting to $3,905.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 fund.
For the period ended December 31, 1998, the administrator and transfer
agent waived fees amounting to $5,037.
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. Distribution and Shareholder Servicing Fees
The Retail Class of the fund has adopted a shareholder servicing and
distribution plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Kobren Delphi Value Fund pays Kobren Insight Brokerage,
Inc., distributor of the fund and affiliate of KIM, a monthly fee for
distribution and/or shareholder services provided, at an annual rate of 0.25% of
the average daily net assets attributable to the Retail Class of shares.
4. Purchases and Sales
The aggregate amounts of purchases and sales of the fund's investment
securities, other than U.S. government and short-term securities, for the year
ended December 31, 1998, were $2,179,168 and $0, respectively.
5. 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 for the fund were as follows:
Period Ended
December 31, 1998
Shares Amount
Retail Class:
Shares Sold 499,444 $4,999,226
Shares Issued as
Reinvestment of Dividends ( -- ) ( -- )
Shares Redeemed ( -- ) ( -- )
Net Increase 499,444 $4,999,226
Institutional Class:
Shares Sold $26,849 $269,010
Shares Issued as Reinvestment
of Dividends ( -- ) ( -- )
Shares Redeemed ( -- ) ( -- )
Net Increase 26,849 $269,010
At December 31, 1998, KIM, Delphi Management, Inc. and its affiliates owned
406,902 Retail Class shares of the fund.
<PAGE>
Report Of Independent Accountants
To the Shareholders and Board of Trustees of Kobren insight Funds:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio 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 Delphi Value Fund (the "Fund")
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 Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We concluded 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
audit, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers, LLP
Boston, Massachusetts
February 5, 1999
