As filed with the Securities and Exchange Commission on May 1, 2000
Securities Act File No. 333-12075
Investment Company Act File No. 811-07813
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 14 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
----
Amendment No. 15 X
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
101 Federal Street, 6th Floor 60 State Street
Boston, MA 02110 Boston, MA 02109
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to Rule 485(b);or
X on May 1, 2000 pursuant to paragraph (b);or
60 days after filing pursuant to Rule 485(a)(1);or on (_______)
pursuant to paragraph (a)(1);or 75 days after filing pursuant to
Rule 485(a)(2);or
__ on (_______) pursuant to paragraph (a)(3)
If appropriate, check the following box:
__ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
[Logo appears in center of cover page]
Kobren Growth Fund
Kobren Moderate Growth Fund
[Picture depicting eyeglasses on a financial newspaper
page appears in center of cover page in a colored box]
P R O S P E C T U S
May 1, 2000
[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.
<PAGE>
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
<PAGE>
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.
[Kobren 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 six 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 another Kobren Insight
fund, 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 period indicated. The table shows how each fund's average annual returns
for the periods indicated compare 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, 1998 and 1999,
respectively. The plot points are 15.03%, 11.45% and 29.70% for Growth and
23.25%, 3.44% and 16.06% for Moderate Growth.]
Average Annual Returns
For Periods Ended 12/31/99
Fund (Inception) One year Since Inception
Growth (12/16/96) 29.70% 19.13%
S&P 500 Index 21.04% 28.31%
Moderate Growth (12/24/96) 16.06% 14.09%
S&P 500 Index 21.04% 26.80%
Footnote:
Growth Moderate Growth
Best quarterly 20.48% in 4th 13.11% in 4th
returns quarter 1999 quarter 1999
Worst quarterly (14.83)% in 3rd (13.08)% in 3rd
returns quarter 1998 quarter 1998
<PAGE>
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.
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.
<TABLE>
<S> <C> <C>
For year ended 12/31/99 Moderate
Growth Growth
Fund Fund
Shareholder fees
(fees paid directly from your investment)
Maximum sales charge (load) imposed
on purchases None None
Maximum deferred sales charge (load) None None
Redemption fee None None
Exchange fee None None
Annual fund operating expenses before expense limitation 1 (expenses that are
deducted from fund assets)
Management fees 0.75% 0.75%
Distribution (12b-1) and/or service fees None None
Other expenses 0.32% 0.46%
Total annual fund operating expenses 1.07% 1.21%
</TABLE>
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, 1999, expense
reductions and total annual fund operating expenses were:
Expense reductions and limitations (0.09%) (0.26%)
Total annual fund operating expenses 0.98% 0.95%
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 prior to reductions would be:
Growth Moderate
Growth
1 year $109 $123
3 years $340 $384
5 years $590 $665
10 years $1,306 $1,466
<PAGE>
THE FUNDS' 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, 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.
<PAGE>
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 prepay principal more slowly than expected
when interest rates are rising. 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.
<PAGE>
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.
<PAGE>
INVESTMENT ADVISER
[Kobren 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 800 client accounts with assets totaling over $750 million.
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.
Mr. Kobren is the primary portfolio manager for Kobren Growth and Kobren
Moderate Growth. 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 participation
in various 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.
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. Fair value
pricing may cause the price used by a fund to be different than other funds'
pricing derived from 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
Both traditional individual retirement accounts (IRA) and Roth individual
retirement accounts are offered directly through Kobren Insight funds. 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.
<PAGE>
TELEPHONE TRANSACTIONS
The funds 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
- - - - - TD Waterhouse Securities
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.
<PAGE>
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
($2,000 for IRAs) 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 transfer agent.
By Wire [Picture of a bank appears here]
OPEN AN ACCOUNT
- - - - - To purchase shares by wire, call customer service 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,
before 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 customer service 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 customer service 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 the
transfer agent.
- - - - - 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.
TD Waterhouse Securities 800-934-4448 No transaction fee.
Charles Schwab & Company, Inc. 800-435-4000 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
Customer Service
toll-free at
800-895-9936
<PAGE>
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 customer service 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 medallion programs 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 customer
service for more information about ACH transfers.
By Telephone [Picture of a telephone appears here]
- - - - - To redeem by telephone, call customer service 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 the
transfer agent.
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 customer service at the number shown below for more information.
[This section appears in a box]
Send mail to
Kobren Insight Funds
P.O. Box 5146
4400 Computer Drive
Westborough, MA 01581
Call
Customer Service
toll-free at
800-895-9936
<PAGE>
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 customer service) that has been signature guaranteed by an
eligible medallion program.
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, 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.
SIGNATURE GUARANTEES
A medallion signature guarantee may be obtained from a domestic bank or trust
company, broker, dealer, clearing agency, savings association, or other
financial institution which is participating in a medallion program recognized
by the Securities Transfer Association. The three recognized medallion programs
are Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges
Medallion Program (SEMP) and the New York Stock Exchange, Inc. Medallion
Signature Program (NYSE MSP). Signature guarantees from financial institutions
which are not participating in one of these programs will not be accepted.
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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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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 Declared Federal Tax Status
and Paid
Dividends from net annually Taxable as ordinary income.
investment income
Distributions of short annually Taxable as ordinary income.
term capital gain
Distributions of long annually Taxable as capital gain.
term capital 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. Most of the funds'
distributions are expected to be capital gains.
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.
<PAGE>
FINANCIAL HIGHLIGHTS
Kobren Growth Fund
For a fund share outstanding throughout the year.
<TABLE>
<S> <C> <C> <C> <C>
For the year For the year For the Year For the Period
Ended Ended Ended Ended
12/31/99 12/31/98 (f) 12/31/97 12/31/96 (a)
Net asset value - beginning of period $12.54 $11.51 $10.24 $10.00
Net investment income/(loss) (0.04) (0.02) 0.05 -- (d)
Short term capital gains 0.14 0.05 0.22 --
Net realized and unrealized gains on
investments 3.63 1.29 1.27 0.24
---- ---- ---- ----
Net increase in net assets resulting
from investment operations 3.73 1.32 1.54 0.24
Distributions from net investment
income -- -- (0.05) --
Distributions from net realized
short term capital gains (0.10) (0.03) (0.22) --
Distributions from net realized
long term capital gains (0.83) (0.26) -- (d) --
------ ------ ------
Total distributions (0.93) (0.29) (0.27) --
Net asset value - end of period $15.34 $12.54 $11.51 $10.24
------ ------ ------ ------
Total return (b) 29.70% 11.45% 15.03% 2.40%
------ ------ ------ -----
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $73,151 $64,507 $62,509 $251
Ratio of net investment income/(loss)
to average net assets (0.34)% (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% 1.07% 1.28% n/a (e)
Ratio of operating expenses to
average net assets after
reimbursements and reductions 0.98% 0.91% 0.89% 1.00% (c)
Portfolio turnover rate 66% 62% 43% n/a (e)
</TABLE>
(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.
<PAGE>
FINANCIAL HIGHLIGHTS
Kobren Moderate Growth Fund
For a fund share outstanding throughout the year.
<TABLE>
<S> <C> <C> <C> <C>
For the year For the year For the Year For the Period
Ended Ended Ended Ended
12/31/99 12/31/98 12/31/97 12/31/96 (a)
Net asset value - beginning of period $11.86 $11.94 $10.06 $10.00
Net investment income 0.09 0.16 0.19 -- (d)
Short term capital gains 0.07 0.06 0.27 --
Net realized and unrealized gains on
investments 1.75 0.20 1.88 0.06
---- ---- ---- ----
Net increase in net assets resulting
from investment operations 1.91 0.42 2.34 0.06
Distributions from net investment
income (0.08) (0.16) (0.19) --
Distributions from net realized
short term capital gains (0.08) (0.06) (0.27) --
Distributions from net realized
long term capital gains (0.59) (0.28) -- (d) --
------ ------ ------
Total distributions (0.75) (0.50) (0.46) --
Net asset value - end of period $13.02 $11.86 $11.94 $10.06
------ ----- ----- -----
Total return (b) 16.06% 3.44% 23.25% 0.60%
------ ----- ------ -----
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $40,784 $46,958 $43,381 $190
Ratio of net investment income to
average net assets 0.61% 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 1.21% 1.13% 1.58% n/a(e)
Ratio of operating expenses to
average net assets after
reimbursements and reductions 0.95% 0.91% 0.92% 1.00%(c)
Portfolio turnover rate 57% 50% 14% n/a (e)
</TABLE>
(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.
<PAGE>
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
PFPC Inc.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRANSFER AGENT
PFPC Inc.
Toll-free: 1-800-895-9936
CUSTODIAN
Boston Safe Deposit & Trust Co.
[Picture depicting eyeglasses on a financial newspaper
page appears in lower right hand corner of page
in a colored box]
<PAGE>
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: [email protected]
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 the Public Reference Room of the Commission,
Washington, D.C. 20549-6009
- - - - - Free from the Commission's Internet website at http://www.sec.gov.
Investment Company Act File No: 811-07813
<PAGE>
KOBREN INSIGHT FUNDS
KOBREN GROWTH FUND
KOBREN MODERATE GROWTH FUND
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 1, 2000. 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............................................15
III. MANAGEMENT OF THE TRUST AND THE FUNDS
A. Trustees and Officers.......................................16
B. Investment Adviser..........................................19
C. Distributor.................................................20
D.Administrator, Transfer Agent and Dividend Paying Agent.....................20
IV. PURCHASE, REDEMPTION AND DETERMINATION
OF NET ASSET VALUE..........................................21
V. SPECIAL REDEMPTIONS................................................22
VI. PORTFOLIO TRANSACTIONS.............................................22
VII. PERFORMANCE INFORMATION
A. Total Return................................................23
B. Non-Standardized Total Return...............................23
C. Other Information Concerning Fund Performance...............24
VIII. DIVIDENDS, DISTRIBUTIONS AND TAXES.................................29
IX. CUSTODIAN, COUNSEL AND INDEPENDENT ACCOUNTANTS.....................32
X. DESCRIPTION OF THE TRUST...........................................32
XI. ADDITIONAL INFORMATION.............................................33
XII. FINANCIAL STATEMENTS...............................................33
APPENDIX - RATINGS OF DEBT INSTRUMENTS............................A-1
<PAGE>
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 three separate series, each
with different investment objectives. This Statement of Additional Information
pertains only to the Kobren Growth Fund and Kobren Moderate Growth 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; and
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.
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 non-hedging transactions in
futures contracts and options on futures, the aggregate initial margin and
premiums required to establish these non-hedging 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.
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 and Kobren Moderate Growth Fund
each may invest up to 35% and 35%, 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.
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 46 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 58 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 50 years old.
ARTHUR DUBROFF, 8 Devore Drive, West Orange, New Jersey 07052 - Trustee.
Consultant. Mr. Dubroff , July 1996 to September 1999, 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 49 years old.
ROBERT I. GOLDFARB, Andrx Corporation, 4001 South West 47th Avenue, Fort
Lauderdale, Florida 33314 - Trustee. Since March 1, 2000, Mr. Goldfarb has
served as Counsel to Andrx Corporation and Vice President of Legal Affairs for
Anda Inc. Mr. Goldfarb also acts of Counsel to Hughes Hubbard & Reed LLP, a law
firm, and has been associated with the firm since July 1989. He is 44 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 50 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 39 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, 1999. No compensation is paid
to any officers of the Trust by the funds.
<PAGE>
<TABLE>
<S> <C> <C>
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, $9,500 $9,500
Trustee
Arthur Dubroff, $9,500 $9,500
Trustee
Robert I. Goldfarb*, $9,000 $9,000
Trustee
Stuart J. Novick, $9,500 $9,500
Trustee
</TABLE>
* (Elected as a Trustee effective 02/05/99)
Control Persons and Principal Holders of Securities
As of April 20, 2000, the following entities/individuals owned of
record or beneficially 5% or more of the outstanding shares of the funds:
<TABLE>
<S> <C> <C>
Kobren Growth Fund
------------------------------------------------------
Name and Address % of Fund Nature of Ownership
National Financial Services Corporation 23.94% Record (a)
One World Financial Center
200 Liberty Street
New York, NY 10281
Eric M. Kobren & Catherine S. Kobren JT WROS 11.15% Beneficial
20 William Street, Suite 310
P.O. Box 9135
Wellesley Hills, MA 02481
Mutual Fund Investors Association, Inc. 7.61% Beneficial
P.O. Box 9135
Wellesley, MA 02481
</TABLE>
<TABLE>
<S> <C> <C>
Kobren Moderate Growth Fund
------------------------------------------------------
Name and Address % of Fund Nature of Ownership
National Financial Services Corporation 21.62% Record (a)
One World Financial Center
200 Liberty Street
New York, NY 10281
Eric M. Kobren & Catherine S. Kobren JT WROS 10.69% Beneficial
20 William Street, Suite 310
P.O. Box 9135
Wellesley Hills, MA 02481
</TABLE>
(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.
Additionally, the Trust, its investment advisers and principal
underwriter have adopted codes of ethics (the "Codes of Ethics") under rule
17j-1 of the 1940 Act. The Codes of Ethics permit personnel, subject to the
Codes of Ethics and their provisions, to invest in securities, including
securities that may be purchased or held by the Trust.
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, December 31, 1998 and
December 31, 1999, the Adviser was paid $324,325, $495,612 and $493,644,
respectively, by Kobren Growth Fund; and $178,947, $388,684 and $302,425,
respectively, by Kobren Moderate Growth 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 PFPC Inc. ("PFPC"), an indirect wholly-owned
subsidiary of PNC Bank Corp., pursuant to which PFPC serves as administrator to
the Trust and to each of the funds. The principal business address of PFPC is
4400 Computer Drive, Westborough,, Massachusetts 01581. The administrative
services necessary for the operation of the Trust and its funds provided by PFPC
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, PFPC is entitled to receive $67,500 annually for administration and
fund accounting on a per fund basis.
The following administrative fees were paid to the administrator for
the three most recent fiscal years:
<TABLE>
<S> <C> <C> <C>
Fund December 31, 1997 December 31, 1998 December 31, 1999
- - - - ---- ----------------- ----------------- -----------------
Growth Fund .........$67,500 $67,500 $67,500
Moderate Growth Fund .........$67,500 $67,500 $67,500
</TABLE>
PFPC 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 PFPC are
provided pursuant to a Transfer Agency and Services Agreement between the Trust
and PFPC. Pursuant to such Agreement, PFPC 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). PFPC 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, Jr. Day, 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,
1999 were as follows:
<TABLE>
<S> <C> <C>
Series One Year Life of Fund
Kobren Growth Fund 29.70% 19.13% (a)
Kobren Moderate Growth Fund 16.06% 14.09% (b)
</TABLE>
(a) The fund commenced operations on December 16, 1996 (b) The fund commenced
operations on December 24, 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, 1999 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, 1999: Portfolios of Investment at December 31, 1999; Statements of
Assets and Liabilities at December 31, 1999; Statements of Operations for the
fiscal year ended December 31, 1999; and Statements of Changes in Net Assets for
the fiscal year ended December 31, 1999.
<PAGE>
P R O S P E C T U S
May 1, 2000
Delphi Value Fund
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.
<PAGE>
TABLE OF CONTENTS
Page
FACTORS EVERY INVESTOR SHOULD KNOW.............................................3
Investment goal...........................................................3
Principal investments.....................................................3
How the manager selects the fund's investments............................4
Principal investment risks................................................4
Summary of past performance...............................................4
Who may want to invest in the Delphi Value Fund...........................5
Fees and expenses.........................................................5
STRATEGIES AND INVESTMENTS.....................................................5
INVESTMENT ADVISER AND SUBADVISER..............................................6
INVESTMENT AND ACCOUNT POLICIES................................................7
Calculation of net asset value............................................7
How to purchase shares....................................................8
How to exchange shares....................................................9
How to redeem shares......................................................9
Dividends, distributions and taxes.......................................10
FINANCIAL HIGHLIGHTS..........................................................11
FOR MORE INFORMATION..................................................back cover
<PAGE>
FACTORS EVERY INVESTOR SHOULD KNOW
INVESTMENT GOAL
- - - - - Long term growth of capital.
PRINCIPAL INVESTMENTS
- - - - - At least 65% of assets in equity securities of U.S. companies. The fund may
invest in a mix of large, medium and small capitalization companies. The
fund may invest up to 35% of assets in securities of foreign issuers,
including emerging market issuers.
- - - - - Equity 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.
HOW THE MANAGER SELECTS THE FUND'S INVESTMENTS
In selecting stocks for the fund's portfolio, the manager, Delphi Management,
Inc., follows a strict value discipline evaluating each company on its own
merits.
The manager uses a quantitative model to identify attractive companies
that have some of the following characteristics:
At least a 15% return on equity
Low debt to equity ratios
Sound financial conditions and conservative accounting practices
Good businesses with sustainable franchises
The model also considers revenues, earnings and free cash flow levels.
- - - - - The manager engages in in-person visits or discussions with company management
before investing in a company.
- - - - - The manager looks for management that is capable and candid about problems and
that has a viable strategic plan.
- - - - - The manager selects for the fund's portfolio those attractive companies that
appear to be undervalued by the stock market. The measures of value used by the
manager include price/earnings multiples, cash flow multiples and low
price-to-liquidation values. These companies may be temporarily out of favor or
not closely followed by investors.
- - - - - The manager intends to keep the fund fully invested in equity securities and
does not attempt to "time the market."
PRINCIPAL INVESTMENT RISKS
You could lose money on your investment in the Delphi Value 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.
- - - - - The market favors growth stocks over value stocks or favors companies at a
particular capitalization level.
- - - - - An adverse event, such as an unfavorable earnings report, depresses the value
of a particular company's stock.
- - - - - Prices of the fund's foreign securities go down because of unfavorable changes
in foreign currency exchange rates, foreign government actions, political
instability or the more limited availability of accurate information about
foreign issuers. These risks are more severe for issuers in emerging market
countries.
- - - - - The manager's judgments about the attractiveness, value and potential
appreciation of particular companies' stocks prove to be incorrect.
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 Delphi Value Fund. The bar chart shows the performance of the fund for
the period indicated. The table shows how the fund's average annual returns for
the periods indicated compare 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 fund's Retail Class and Institutional
Class for 1999. The plot points are 11.30% for the fund's Retail Class and
11.61% for the Institutional Class.]
Average Annual Returns
For Periods Ended December 31, 1999
<TABLE>
<S> <C> <C>
Fund Inception One Year Since Inception
Retail Class (12/23/98) 11.30% 12.35%
Institutional Class (12/23/98) 11.61% 12.66%
Russell 2000 Value (1.49%) 2.02%
</TABLE>
<TABLE>
<S> <C> <C>
Footnote: Retail Class Institutional Class
Best quarterly returns 11.82% in 2nd quarter 1999 11.80% in 2nd quarter 1999
Worst quarterly returns (9.69%) in 3rd quarter 1999 (9.69%)in 3rd quarter 1999
</TABLE>
<PAGE>
FACTORS EVERY INVESTOR SHOULD KNOW
WHO MAY WANT TO INVEST IN THE DELPHI VALUE FUND
The fund may be appropriate for investors:
Seeking growth of capital.
With a long-term time horizon and no need for current income.
Willing to accept stock market risk in exchange for the opportunity to achieve
higher long-term returns.
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.
FEES AND EXPENSES
This table describes the estimated fees and expenses that you may pay if you buy
and hold shares of Delphi Value Fund.
<TABLE>
<S> <C> <C>
For year ended 12/31/99.... Retail Class Institutional Class
Shareholder fees (fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases None None
Maximum deferred sales charge (load) None None
Redemption fee or exchange fee None None
Annual fund operating expenses (expenses that are deducted from fund assets)
Management fees ......... 1.00% 1.00%
Distribution (12b-1) and/or service fees 0.25% None
Other expenses ......... 0.61% 0.57%
Total annual fund operating expenses 1.86% 1.57%
</TABLE>
Each class of the fund has an expense limitation which continues until January
1, 2001. This limitation is voluntary and may be revoked at any time. For the
year ended December 31, 1999, expense limitations and total annual operating
expense were
<TABLE>
<S> <C> <C>
Expense limitations: (0.11%) (0.07%)
Total annual fund operating expenses: 1.75% 1.50%
</TABLE>
The example 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.
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
<TABLE>
<S> <C> <C>
Retail Class Institutional Class
1 year ......... $189 $160
3 years ......... $585 $496
5 years ......... $1,006 $855
10 years ......... $2,180 $1,867
</TABLE>
<PAGE>
THE FUND'S INVESTMENTS, ADVISER AND SUBADVISER
More about the fund's strategies and investments.
DEFENSIVE INVESTING
The fund may depart from its principal investment strategies by taking temporary
defensive positions in debt securities in response to adverse market, economic
or political conditions for up to 100% of the portfolio. These securities may be
of any maturity or duration and 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. Defensive investing may prevent the fund from
achieving its goal of capital growth. The fund could give up potential gains and
minimize losses while defensively invested.
THE FUND'S INVESTMENT GOAL
The board of trustees may change the fund's investment goal without obtaining
the approval of the fund's shareholders. The fund might not succeed in achieving
its goal.
DERIVATIVE CONTRACTS
The fund may, but is 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 the fund. These changes may be caused by changing stock
market prices or currency exchange rates.
As a substitute for purchasing or selling securities or foreign currencies.
A derivative contract will obligate or entitle the 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.
ADDITIONAL INVESTMENT RISKS
The fund could lose money or underperform for the reasons listed in the "Factors
Every Investor Should Know" section or for the following additional reasons:
Small company risk - Securities of smaller companies may have more risks
than those of larger companies they may be more susceptible to market
downturns and their prices may be more volative.
Interest rate risk - If interest rates go up, bond prices and the
value of the fund's investments in fixed income securities go down.
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.
Leverage risk - If it enters into derivative contracts, the fund may
suffer disproportionately heavy losses relative to the amount of its investment.
Leverage can magnify the impact of poor investment decisions.
Correlation risk - Changes in the value of the 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 the fund may become temporarily illiquid and hard to value, especially in
declining markets.
Turnover risks - The fund may engage in active trading to achieve its
investment strategies. However, the fund anticipates an annual portfolio
turnover rate of less than 50%.
Adviser: KOBREN INSIGHT MANAGEMENT, INC.
Kobren Insight Management, Inc. (KIM) has engaged Delphi Management, Inc.
(Delphi) as the fund's subadviser. Under the supervision of KIM and the board of
trustees, Delphi makes the fund's day-to-day investment decisions, arranges for
the execution of portfolio transactions and generally manages the fund's
investments.
KIM, a registered investment adviser, was established in 1987. KIM currently
manages over 800 client accounts with assets totaling approximately $775
million. KIM is also the investment adviser of two funds of funds under the
Kobren Insight Funds' label.
Eric M. Kobren owns all of the stock of KIM and of the fund's distributor. Mr.
Kobren is also the principal shareholder of Mutual Fund Investors Association,
Inc., the publisher of Fidelity Insight and FundsNet Insight reports.
Subadviser: DELPHI MANAGEMENT, INC.
Delphi Management, Inc. is the fund's subadviser. Scott M. Black has been the
fund's portfolio manager since the fund's inception in 1998. Mr. Black has
been the president and controlling shareholder of Delphi since 1983.
Since 1980, Delphi (and its predecessor firm) has limited its management
services to institutional investors,including pensions, endowments and high
net worth individuals. Delphi currently manages approximately $1 billion
in assets.
The fund has agreed to pay KIM a monthly advisory fee at the annual rate of
1.00% of the fund's average daily net assets. KIM is responsible for Delphi's
subadvisory fee.
KIM has voluntarily agreed to cap the fund's total annual operating
expenses of the retail class at no more than 1.75% annually of the fund's
average daily net assets and of the institutional class at no more than 1.50%.
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. The retail class of the
fund will pay a portion of the fees associated with participation in
various network programs.
DISTRIBUTION ARRANGEMENTS
The fund has adopted a plan under rule 12b-1 for the retail class shares of the
fund. The plan allows the fund to use part of the fund's assets (up to .25% of
its average daily net assets) for the sale and distribution of its shares,
including advertising, marketing and other promotional activities. Because these
fees are paid out of fund assets, over time these fees will increase the cost of
your investment on an ongoing basis and may cost you more than paying other
types of sales charges.
INVESTMENT AND ACCOUNT POLICIES
The fund calculates its NAV every business day.
CALCULATION OF NET ASSET VALUE
The fund calculates the net asset value per share (NAV) for each class 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 NAV and the deadlines for share
transactions will be accelerated to the earlier closing times.
The fund's 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.
Fair value pricing may cause the price used by the fund to be different than
other funds' prices derived from market quotations.
PURCHASING FUND SHARES
Individuals, institutions, companies and fiduciaries may buy shares of the fund
without a sales charge at the NAV next calculated after the order has been
received in proper form.
CHOOSING A SHARE CLASS
The fund offers two share classes, each with its own expense structure. The
retail class has a 12b-1, or marketing fee. The fee allows the fund to pay for
certain activities and expenses intended primarily to result in the sale of the
retail class shares of the fund. The institutional class, available only to
qualified investors, does not have a marketing fee, but has substantial initial
and on-going minimum investment levels.
TAX-DEFERRED RETIREMENT PLANS
Both traditional individual retirement accounts (IRA) and Roth individual
retirement accounts are offered directly through Kobren Insight Funds. The
following retirement plans are available through the mutual fund networks listed
on page 8.
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 fund currently imposes no fee for wire and Automated Clearing House (ACH)
transfers of purchase payments and redemption proceeds. However, the fund's
custodian may charge a fee in the future.
TELEPHONE TRANSACTIONS
The fund has procedures designed to verify that telephone instructions are
genuine. If it follows these procedures, it will not be liable for any losses
caused by acting on unauthorized telephone instructions.
MINIMUM INVESTMENT AMOUNTS
The following minimum investment requirements apply to initial
purchases:
TYPE OF ACCOUNT ......... RETAIL INSTITUTIONAL
Regular Accounts ......... $2,500 $1 million
Individual Retirement Accounts $2,000 N/A
Through fund networks (see page 8) $2,500 $1 million
Subsequent Investments: There is a minimum for retail class (no minimum for
institutional class).
Institutional Class: The minimum investment requirement for the institutional
class is $1 million. For investors purchasing through registered investment
advisers, institutions such as trusts or foundations or other qualified
investors purchasing through an omnibus account, shareholder purchases may be
aggregated to meet this minimum. The minimum does not apply to employees of KIM
and its affiliates and their immediate families, KIM clients and employees of
Delphi and their immediate families.
Retail and Institutional Classes: You can get prospectuses, sales literature and
applications from the fund's distributor at the address and telephone number
listed on the back cover of this prospectus. The fund and its distributor may
reject all or part of any order to buy fund shares. The fund may be closed to
new investors, temporarily or permanently, without advance notice to investors.
Fund officers have discretion to waive or reduce any of the minimum investment
requirements.
HOW TO PURCHASE SHARES
Method of Purchase/Purchase Procedures
By Check
OPEN AN ACCOUNT
To open an account and make an initial investment in retail class shares,
send a minimum $2,500 check ($2,000 for IRAs) and account application to the
address shown below. The initial minimum investment in institutional class
shares is $1 million.
- - - - - An account application is included with this prospectus.
ADD TO AN ACCOUNT
Send a check ($500 minimum for retail class shares; no minimum for institutional
class shares) 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 fund, its distributor or
its transfer agent.
By Wire
OPEN AN ACCOUNT
To purchase shares by wire, call customer service 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 fund.
You will be able to redeem shares of the fund, but not receive the proceeds,
before 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 customer service 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 customer service before 4:00 p.m. eastern time.
By Automatic Investment Plan
After your initial investment, 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 sections 5 and 6 of the application. You can change
the purchase amount or terminate the plan at any time by notifying the fund in
writing.
Through Broker Dealers and Fund Networks
Contact your broker or dealer to find out about its procedures for processing
orders to purchase fund shares. Purchase orders received by your broker or
dealer or its authorized designees before 4:00 p.m. eastern time on any business
day receive that day's NAV. Your broker or dealer is responsible for promptly
transmitting properly completed orders to the transfer agent.
- - - - - The fund's retail class may also be purchased with no transaction fee through
the following fund networks (transaction fee applies to institutional class
purchases) subject to the policies of such networks and any other fees disclosed
to customers by such networks:
Fidelity Investments 800-544-9697
Charles Schwab & Co., Inc. 800-435-4000
TD Waterhouse Securities 800-934-4448
Send mail to:
Kobren Insight Funds
P.O. Box 5146
4400 Computer Drive
Westborough, MA 01581
Call:
Customer Service
toll-free at
800-895-9936
<PAGE>
HOW TO EXCHANGE/REDEEM SHARES
Method of Exchange/Exchange Procedures
All Exchanges
You may exchange shares of the fund for shares of any other Kobren Insight fund
at the NAV of the funds next determined after receipt of your exchange request.
Exchanges must meet the applicable minimum initial investment requirements for
the acquired fund.
To protect other shareholders of the fund, the fund may cancel the exchange
privileges of any person that, in the opinion of the fund, is using market
timing strategies or making more than four exchanges per owner or controlling
person per calendar year. The fund may also close the accounts of shareholders
whose exchange privilege has been cancelled.
The fund's trustees may change or terminate the exchange privilege on 60 days'
prior notice to shareholders.
By Mail
Send a written exchange request to the address shown below.
Your request must state the number of shares or 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
Call customer service 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/Redemption Procedures
By Mail
You may redeem shares of the fund 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 medallion programs listed under
"Signature Guarantees" on page 10.
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 customer
service for more information about ACH transfers.
By Telephone
To redeem by telephone, call customer service 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 broker or dealer to find out about its procedures for processing
orders to redeem fund shares. Redemption orders received by your broker or
dealer or its authorized designee before 4:00 p.m. eastern time on any business
day receive that day's NAV. Your broker or dealer is responsible for promptly
transmitting properly completed orders to the transfer agent and may charge a
transaction fee for this service.
Systematic Withdrawal Plan
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 customer service at the number shown below for more information.
Send mail to:
Kobren Insight Funds
P.O. Box 5146
4400 Computer Drive
Westborough, MA 01581
Call:
Customer Service
toll-free at
800-895-9936
<PAGE>
INVESTMENT AND ACCOUNT POLICIES
You may redeem shares of the fund 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 fund 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 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
customer service) that has been signature guaranteed by an eligible medallion
program.
CLOSING OF SUB-MINIMUM ACCOUNTS
The fund may close your retail class account if, for reasons other than market
losses, the value of your shares falls below $1,000, or any other minimum set by
the trustees. The fund may convert your institutional class shares to retail
class shares if the value of your account as a result of share redemptions falls
below $250,000. After the fund notifies you of its intention to close your
retail class account or convert your institutional shares, you will have 60 days
to bring the account back to the minimum level.
SIGNATURE GUARANTEES
A medallion signature guarantee may be obtained from a domestic bank or trust
company, broker, dealer, clearing agency, savings association, or other
financial institution which is participating in a medallion program recognized
by the Securities Transfer Association. The three recognized medallion programs
are Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges
Medallion Program (SEMP) and the New York Stock Exchange, Inc. Medallion
Signature Program (NYSE MSP). Signature guarantees from financial institutions
which are not participating in one of these programs will not be accepted.
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.
The fund declares and pays dividends according to the schedule on the right.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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.
<PAGE>
Dividends are paid in additional shares of the fund unless you elect to receive
them in cash.
<TABLE>
<S> <C> <C>
Type of Distribution....... Declared and Paid Federal Tax Status
- - - - -------------------- ----------------- ------------------
Dividends from net......... annually Taxable as ordinary gain.
investment income
Distributions of short..... annually Taxable as ordinary income.
term capital gain
Distributions of long ..... annually Taxable as capital gain.
term capital gain
</TABLE>
You should generally avoid investing in the 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 fund will send you information about the fund's dividends and
distributions during the previous calendar year. Most of the fund's
distributions are expected to be capital gains.
If you do not provide the fund with a correct taxpayer identification number and
required certifications, you may be subject to federal backup withholding tax.
<PAGE>
FINANCIAL HIGHLIGHTS
For a fund share outstanding throughout the year.
<TABLE>
<S> <C> <C> <C> <C>
Retail Class Shares Institutional Class Shares
For the year For the Period For the Year For the Period
Ended 12/23/98* to Ended 12/23/98* to
12/31/99 12/31/98 12/31/98 12/31/98
-------- -------- -------- --------
Net asset value - beginning of period $10.12 $10.00 $10.12 $10.00
Net investment income...... 0.00(c)(d) 0.01 0.03(c) 0.01
Net realized and unrealized gains on
investments ......... 1.14 0.11 1.14 0.11
Net increase in net assets resulting
from investment operations 1.14 0.12 1.17 0.12
Distributions from net investment
income ......... --(d) -- (0.02) --
Distributions from net realized
capital gains......... (0.03) -- (0.03) --
Distributions in excess of net realized
capital gains........ (0.04) -- (0.04) --
------ -- ------ --
Total distributions........ (0.07) -- (0.09) --
Net asset value - end of period $11.19 $10.12 $11.20 $10.12
------ ------ ----- -----
Total return (a) ......... 11.30% 1.20% 11.61% 1.20%
------ ----- ------ -----
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $31,055 $5,056 $22,763 $272
Ratio of net investment income (loss)
to average net assets. 0.00% 0.82%(b) 0.25% 1.07%(b)
Ratio of operating expenses to average
net assets before fees waived and/or
expenses reimbursed by investment
adviser and administrator 1.86% 10.91%(b) 1.57% 10.66(b)
Ratio of operating expenses to
average net assets after
waivers and/or expense
reimbursements........ 1.75% 1.75%(b) 1.50% 1.50%(b)
Portfolio turnover rate.... 17% 0% 17% 0
.........
</TABLE>
(a) Total return represents aggregate total return for the period indicated.
(b) Annualized.
(c) The selected per share data was calculated using the weighted average share
method for the year.
(d) The selected amounts are less than $0.005.
* Commencement of operations
<PAGE>
FOR MORE INFORMATION
For investors who want more information about Delphi Value Fund, the following
documents are available free upon request:
Annual/Semiannual Reports
Additional information about the fund's investments is available in the fund's
annual and semiannual reports to shareholders. These reports contain a
discussion of the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
Statement of Additional Information (SAI)
The SAI provides more detailed information about the fund and is incorporated
into this prospectus by reference.
Contacting Principal Distributor
Investors can get free copies of reports and SAI, request other information and
discuss their questions about the fund by contacting the fund's principal
distributor at:
Address: Kobren Insight Brokerage, Inc.
20 William Street, Suite 310
P.O. Box 9150
Wellesley Hills, MA 02181
Phone: 1-800-456-2736
E-mail: [email protected]
Internet: http://www.delphivalue.com
Contacting the SEC
Investors can review the fund's 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
Free from the Commission's Internet website at http://www.sec.gov.
Investment Company Act File No: 811-07813
INVESTMENT ADVISER
Kobren Insight Management, Inc.
20 William Street, PO Box 9135
Wellesley Hills, MA 02481
Toll-free: 1-800-456-2736
ADMINISTRATOR
PFPC Inc.
TRANSFER AGENT
PFPC Inc.
Toll-free: 1-800-895-9936
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
LEGAL COUNSEL
Hale and Dorr LLP
CUSTODIAN
Boston Safe Deposit
& Trust Company
<PAGE>
KOBREN INSIGHT FUNDS
DELPHI VALUE FUND
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 the Delphi Value
Fund (the "fund"), a series of Kobren Insight Funds (the "trust"), dated May 1,
2000. The statement of additional information should be read in conjunction with
the fund's prospectus. The fund'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. Terms not otherwise defined herein have the
same meaning as in the prospectus.
TABLE OF CONTENTS
PAGE
I. INVESTMENT OBJECTIVE AND POLICIES...................................2
II. INVESTMENT RESTRICTIONS............................................14
III. MANAGEMENT OF THE TRUST AND THE FUND
A. Trustees and Officers.......................................15
B. Investment Adviser..........................................18
C. Subadviser..................................................19
D. Distribution................................................19
E. Administrator, Transfer Agent and Dividend Paying Agent.....20
IV. PURCHASE, REDEMPTION AND DETERMINATION
OF NET ASSET VALUE..........................................21
V. IN-KIND REDEMPTIONS................................................22
VI. PORTFOLIO TRANSACTIONS.............................................22
VII. PERFORMANCE INFORMATION
A. Total Return................................................23
B. Non-Standardized Total Return...............................24
C. Other Information Concerning Fund Performance...............24
VIII. DIVIDENDS, DISTRIBUTIONS AND TAXES.................................29
IX. CUSTODIAN, COUNSEL AND INDEPENDENT ACCOUNTANTS............. .......33
X. DESCRIPTION OF THE TRUST...........................................33
XI. ADDITIONAL INFORMATION.............................................34
XII. FINANCIAL STATEMENTS...............................................34
<PAGE>
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 three separate series, each
with different investment objectives. This Statement of Additional Information
pertains to the Delphi Value Fund (the "fund") only. The fund's investment
objective is long term growth of capital. The fund seeks to achieve its
investment objective by investing at least 65% of its assets in equity
securities of U.S.
companies.
Investments in Small, Unseasoned Companies. The securities of small, unseasoned
companies may have a limited trading market, which may adversely affect their
disposition and can result in their being priced lower than what might otherwise
be the case. If other investment companies and investors who invest in these
issuers sell the same securities when the fund attempts to dispose of its
holdings, the fund may receive lower prices than what might otherwise be
obtained.
Foreign Securities. The 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 may not be 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 the 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.
The 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 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 the 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 the fund's assets held abroad) and expenses not present in
the settlement of domestic investments. A delay in settlement could hinder the
ability of the 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 the 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 the 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 the 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 the 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 the
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. The 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, the 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. The fund may lend its portfolio securities as long
as: (1) the loan is continuously secured by collateral consisting of U.S.
government securities, 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 may at any time call the loan and obtain the
securities loaned; (3) the 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.
The fund may pay reasonable fees in connection with securities loans. Kobren
Insight Management, Inc. ("KIM" or the "Adviser") and/or Delphi Management, Inc.
("Delphi" or the "Subadviser") 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 fund. 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. The 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, the 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.
The 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 owns an equal amount of the securities
or securities convertible into, or exchangeable without further consideration
for, securities of the same issuer 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. The 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 the fund's initial investment. The 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 fund
incurs transaction costs in opening and closing positions in derivative
contracts.
Derivative contracts may sometimes increase or leverage the fund's
exposure to a particular market risk. Leverage magnifies the price volatility of
derivative contracts held by the 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.
The 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 fund's
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. The fund 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.
The 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 the
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 the 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 the 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 the 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 the 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. The 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.
The 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. The 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. The fund may also sell call and put options to close out
its purchased options.
The purchase of a call option would entitle the fund, in return for the
premium paid, to purchase specified securities or currency at a specified price
during the option period. The 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 the 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 the fund's portfolio
securities or the currencies in which they are denominated. Put options may also
be purchased by the fund for the purpose of affirmatively benefiting from a
decline in the price of securities or currencies which it does not own. The 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 the fund's portfolio securities.
The 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 the
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 the 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 the 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.
The fund's ability to terminate over-the-counter options is more
limited than with exchange-traded options and may involve the risk that
counterparties participating in these transactions will not fulfill their
obligations. The Adviser will determine the liquidity of the 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 the fund's adviser or subadviser 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, the fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on these futures
contracts. The 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 the 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, the 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 the 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, the 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, the 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. The 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.
The 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 the fund or securities with
characteristics similar to those of the fund's portfolio securities. Similarly,
the 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 or Subadviser, there is a sufficient
degree of correlation between price trends for the 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 the fund's portfolio may be more or less volatile than prices of these
futures contracts, the Adviser or Subadviser 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 the fund's portfolio securities would be
substantially offset by a decline in the value of the futures position.
On other occasions, the fund may take a "long" position by purchasing
futures contracts. This would be done, for example, when the 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.
The 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. The 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 the 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 the fund's assets. By
writing a call option, the 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 the fund intends to
purchase. However, the 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 the 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. The
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. The 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 the 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.
The 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 the 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 the 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 the fund engages in non-hedging transactions in
futures contracts and options on futures, the aggregate initial margin and
premiums required to establish these non-hedging 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 the 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 the fund
than if it had not entered into any futures contracts or options transactions.
Perfect correlation between the 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 the 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 the fund from closing out
positions and limiting its losses.
Restricted and Illiquid Securities. The 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 fund's 15%
limit on illiquid investments, if they are determined to be liquid.
Borrowing, Reverse Repurchase Agreements and Leverage. The fund 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, the 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
the fund's total assets.
Under the 1940 Act, the 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 this coverage if it should
decline to less than 300% due to market fluctuation or otherwise. Such a sale
must occur even if disadvantageous from an investment point of view. Leveraging
exaggerates the effect of any increase or decrease in the value of portfolio
securities on the 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, the fund may hold or invest up to 100% of its total assets in cash,
investment grade fixed income securities, repurchase agreements and/or money
market fund shares.
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 expected. 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. The fund may invest in money market instruments,
including 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.
Repurchase Agreements. The fund may, to the extent permitted by its investment
policies, enter into repurchase agreements. A repurchase agreement consists of
the sale to the 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, the 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. The fund will not invest 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
long-term 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 Adviser or Subadviser to be of
comparable credit quality. The fund's investments in these securities is subject
to the risks 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 the 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 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 default.
Sensitivity to 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 the fund defaults, the fund may incur
additional expenses in seeking recovery of amounts owed. Periods of economic
uncertainty and changes can be expected to increase the 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, the market prices of high yield, high risk securities structured
as zero coupon or pay-in-kind securities are affected to a greater extent by
interest rate changes and therefore tend to be more volatile than market
prices of securities which pay interest periodically and in cash.
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 the fund to accurately value high yield, high risk securities
or dispose of them. To the extent the 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. The judgment of the Adviser or Subadviser will play a greater
role in valuation because there is less reliable and objective data
available.
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 Adviser or Subadviser must
monitor the issuers of high yield, high risk securities in the fund's
portfolio to determine if the issuers will have sufficient cash flows 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 the fund invests in high yield, high risk securities, the
achievement of the fund's investment objective may be more dependent on the
fund's own credit analysis than is the case for higher quality bonds. The
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. The fund
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 typically provide monthly payments
derived from the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans.
The 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.
The 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.
II. INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT POLICIES. The 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 the 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).
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 fund from issuing senior
securities or borrowing money. However, the 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, the 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 fund, which may be
changed by the Board of Trustees, provide that the 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.
III. MANAGEMENT OF THE TRUST AND THE FUND
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 46 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 58 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 50 years old.
ARTHUR DUBROFF, 8 Devore Drive, West Orange, New Jersey 07052 - Trustee.
Consultant. From July 1996 to September 1999, Mr. Dubroff 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 49 years old.
ROBERT I. GOLDFARB, Andrx Corporation, 4001 South West 47th Avenue, Fort
Lauderdale, Florida 33314 - Trustee. Since March 1, 2000, Mr. Goldfarb has
served as Counsel to Andrx Corporation and Vice President of Legal Affairs for
Anda Inc. Mr. Goldfarb also acts of Counsel to Hughes Hubbard & Reed LLP, a law
firm, and has been associated with the firm since July 1989. He is 44 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 50 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 39 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, 1999. No compensation is paid
to any officers of the trust by the funds.
<TABLE>
<S> <C> <C>
TOTAL COMPENSATION
AGGREGATE FROM THE FUND
NAME OF PERSON COMPENSATION AND FUND COMPLEX
AND POSITION FROM THE FUND PAID TO TRUSTEES
Eric M. Kobren, $ 0 $ 0
Chairman of the Board,
President and Trustee
Michael P. Castellano, $ 0 $ 0
Trustee
Edward B. Bloom, $ 9,500 $ 9,500
Trustee
Arthur Dubroff, $ 9,500 $ 9,500
Trustee
Robert I. Goldfarb*, $ 9,000 $ 9,000
Trustee
Stuart J. Novick, $ 9,500 $ 9,500
Trustee
</TABLE>
* Elected as a Trustee effective February 5, 1999.
Control Persons and Principal Holders of Securities
As of April 20, 2000, the following entities/individuals owned of
record or beneficially 5% or more of the outstanding shares of the funds:
<PAGE>
<TABLE>
<S> <C>
Delphi Value Fund - Institutional Class
------------------------------------------------------
Name and Address % of Fund Nature of Ownership
National Financial Services Corp. 90.99% Record(a)
One World Financial Center
200 Liberty Street
New York, N.Y. 10281-1003
5.65% Record
NICNAB & Co.
c/o All First Trust Co. N.A.
Attn: Security Processing 109-911
P.O. Box 1596
Baltimore, MD 21203-1596
</TABLE>
<TABLE>
<S> <C>
Delphi Value Fund - Retail Class
------------------------------------------------------
Name and Address % of Fund Nature of Ownership
National Financial Services Corp. 26.50% Record(a)
One World Financial Center
200 Liberty Street
New York, N.Y. 10281-1003
Charles Schwab & Co., Inc. 21.04% Record
101 Montgomery Street
San Francisco, CA 94104-4122
Eric M. Kobren & Catherine S. Kobren JT WROS 17.19% Beneficial
20 William Street, Suite 310
P.O. Box 9135
Wellesley Hills, MA 02481
</TABLE>
(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.
Additionally, the Trust, its investment advisers and principal
underwriter have adopted codes of ethics (the "Codes of Ethics") under rule
17j-1 of the 1940 Act. The Codes of Ethics permit personnel, subject to the
Codes of Ethics and their provisions, to invest in securities, including
securities that may be purchased or held by the Trust.
B. Investment Adviser
KIM serves as investment adviser to the trust and the fund 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. KIM has engaged Delphi as the fund's subadviser. Under the
supervision of KIM and the fund's Board of Trustees, Delphi makes the fund's
day-to-day investment decisions, arranges for the execution of portfolio
transactions and generally manages the fund's investments.
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 fund with office space for managing its
affairs, with the services of required executive personnel, and with certain
clerical services and facilities. These services are provided without
reimbursement by the fund for any costs incurred. As compensation for its
services, 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. For the period ended
December 31, 1998 and the year ended December 31, 1999 the Adviser was paid $976
and $400,343, respectively, by the fund. KIM is responsible for Delphi's
subadvisory fee at the annual rate of 0.50% of the fund's average daily net
assets which is computed daily and paid monthly. For the period ended December
31, 1998 and the year ended December 31, 1999, Delphi was paid investment
advisory fees in the amount of $488 and $200,171, respectively.
The fund is responsible for all expenses not expressly assumed by KIM
or the administrator. These include, among other things, 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 the fund to the extent necessary to
maintain the fund's operating expenses (excluding investment advisory fees,
distribution fees, brokerage commissions, taxes, interest and litigation,
indemnification and other extraordinary expenses) at 0.75% 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 with respect to
the fund will remain in effect through December 15, 2001 and from year to year
thereafter, subject to annual approval by (a) the Board of Trustees or, with
respect to the fund, (b) a vote of the majority of the 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 with respect to the fund may be terminated at any
time, on 60 days' written notice, without the payment of any penalty, by the
Board of Trustees, by a vote of the majority of the 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. Subadviser
Scott M. Black has been the fund's portfolio manager since the fund's inception
in 1998. Mr. Black has been the president and controlling shareholder of Delphi
since 1983. Since 1980, Delphi (and its predecessor firm) has limited its
management services to institutional investors, including pensions, endowments
and high net worth individuals. Delphi currently manages over $1 billion in
assets.
Additional Discussion of Portfolio Strategy. In addition to the information in
the prospectus, Mr. Black applies two principal questions when considering an
investment for the Delphi Value Fund. 1) Is the company being considered a good
business? and; 2) Can the business be purchased at a cheap price? The first
question is addressed using quantitative screening. Mr. Black likes companies
that grow revenues and earnings faster than inflation over three to five years.
He looks at the firm's free cash flow and determines if the company can finance
its growth through internally generated operating cash flow. He also analyzes
the areas of capital such as inventory turns, days of receivables, and sales to
fixed assets.
To determine if a business can be purchased at a cheap price, Mr. Black
considers businesses in two categories; earnings power plays and asset plays.
The earnings power play business consistently produces high returns on equity,
under normal circumstances. Mr. Black will not buy these companies for more than
13 times their forthcoming year's estimated earnings. Asset plays are companies
that can be depressed, but typically have earned 15% returns in the past and are
likely to do so again.
Although there is no restriction, Mr. Black intends to hold under 100
securities.
D. Distribution
Distributor
Kobren Insight Brokerage, Inc., an affiliate of KIM, 20 William Street,
Suite 310, P.O. Box 9135, Wellesley Hills, Massachusetts 02481, serves as the
fund's distributor pursuant to an agreement which is renewable annually. The
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 the fund
(excluding preparation and printing expenses necessary for the continued
registration of the fund's shares) and of preparing, printing and distributing
all sales literature.
Distribution Plan - (Retail Class Only)
The trust on behalf of the fund, has adopted a plan of distribution
pursuant to Rule 12b-1 under the 1940 Act with respect to the retail class
shares of the fund. Pursuant to the plan, the fund uses its assets to finance
activities relating to the distribution of retail class shares to investors and
provision of certain shareholder services. Certain categories of such
expenditures have been approved by the Board of Trustees and include, among
other things, compensation to and expenses (including overhead and telephone
expenses) of account executives and other employees of the Distributor or of
other broker-dealers who engage in or support the distribution of the fund's
shares, printing and mailing of prospectuses and other reports for other than
existing shareholders, advertising and allowances to other broker-dealers. The
fund compensates Kobren Insight Brokerage, Inc., distributor of the fund, at a
fee calculated at an annual rate of 0.25% of the fund's average daily net assets
attributable to retail class shares.
General In accordance with the terms of the plan, Kobren Insight
Brokerage, Inc. provides to the trust for review by the Trustees a quarterly
written report of the amounts expended under the plan and the purpose for which
such expenditures were made.
KIM and Delphi have assumed shared responsibility for any of the fund's
distribution expenses that exceed distribution fees payable under the plan. Eric
Kobren and Scott Black are the principle shareholders of KIM and Delphi,
respectively, and are also "interested" persons of the fund. As principles, they
benefit to the extent that payments under the plan reduce the distribution
expenses paid by KIM and Delphi.
The plan was adopted by a majority vote of the Board of Trustees,
including all of the Trustees who are not, and were not at the time they voted,
interested persons of the Trust, as defined in the 1940 Act (none of whom had or
have any direct or indirect financial interest in the operation of the plan),
cast in person at a meeting called for the purpose of voting on the plan. In
approving the plan, the Trustees identified and considered a number of potential
benefits which the plan may provide. The Board of Trustees believes that there
is a reasonable likelihood that the plan will benefit the fund and its future
shareholders. Under its terms, the plan remains in effect from year to year
provided such continuance is approved annually by vote of the Trustees in the
manner described above. The plan may not be amended to increase materially the
annual percentage limitation of average net assets which may be spent for the
services described therein without approval of the shareholders of the fund
affected thereby, and material amendments of the plan must also be approved by
the Trustees in the manner described above. The plan may be terminated at any
time, without payment of any penalty, by vote of the majority of the Trustees
who are not interested persons of the Trust and have no direct or indirect
financial interest in the operations of the plan, or by a vote of a majority of
the outstanding voting securities of the Retail Class (as defined in the 1940
Act). The plan will automatically terminate in the event of its assignment (as
defined in the 1940 Act).
For the fiscal year ended December 31, 1999, the following amounts were paid
under the Distribution Plan for the retail class shares of the fund: $8,497 for
printing; $8,782 for distribution services; and $30,265 for marketing. The total
amount paid under the Distribution Plan for the fiscal year ended December 31,
1999 was $55,975.
E. Administrator, Transfer Agent and Dividend Paying Agent
The Board of Trustees of the trust has approved an Administration
Agreement between the trust and PFPC, Inc. ("PFPC"), an indirect wholly owned
subsidiary of PNC Bank Corp., pursuant to which PFPC serves as administrator to
the trust and to the fund. The principal business address of PFPC is 4400
Computer Drive, Westborough, Massachusetts 01581. The administrative services
necessary for the operation of the trust and the fund provided by PFPC 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 the fund, including
coordination of the services performed by the transfer agent, custodian,
independent accountants, legal counsel and others. For these services, PFPC is
entitled to receive $67,500 annually for administration and fund accounting on a
per fund basis. For the period ended December 31, 1998 and the fiscal year ended
December 31, 1999 the administrator was paid $3,021 and $72,500, respectively,
for administrative services.
PFPC 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 PFPC are
provided pursuant to a Transfer Agency and Services Agreement between the trust
and PFPC. Pursuant to such Agreement, PFPC receives from the trust, with respect
to the fund, an annual fee of $14 per shareholder account (subject to a $32,000
annual minimum per fund). PFPC 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 the
fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the 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.
The 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 with remaining maturities of
60 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. 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 the fund's shares.
The fund computes the net asset value ("NAV") of its shares at the
close of regular trading on the NYSE (normally 4:00 p.m. Eastern 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, Jr.
Day, 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 the 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
Foreign securities in which the fund may invest may be listed primarily
on foreign stock exchanges that may trade on other days (i.e., Saturday).
Accordingly, the NAV of the fund's portfolio may be significantly affected by
such trading on days when investors do not have access to the funds.
V. IN-KIND REDEMPTIONS
If the Board of Trustees of the trust determines that it would be
detrimental to the best interests of the remaining shareholders of the fund to
make payment wholly or partly in cash, the fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the portfolio of
the 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
Under the supervision of KIM and the Board of Trustees, Delphi is
responsible for decisions to buy and sell securities for the fund and for the
placement of the fund's portfolio business and negotiation of commissions, if
any, paid on these transactions.
In placing portfolio transactions with brokers and dealers, Delphi
attempts to obtain the best overall terms for the fund, 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, Delphi may
consider research, including statistical or pricing information, and brokerage
services furnished to the funds or Delphi. In addition, the fund 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
fund's portfolio transactions by such broker or dealer. Delphi may use this
research 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. 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 and/or Delphi may also
invest in the same securities as the fund. When these clients buy or sell the
same securities at substantially the same time, KIM and/or Delphi may average
the transactions as to price and allocate the amount of available investments in
a manner which KIM and/or Delphi believes to be equitable to each client,
including the fund. In some instances, this investment procedure may adversely
affect the price paid or received by the fund or the size of the position
obtainable for it. On the other hand, to the extent permitted by law, KIM and/or
Delphi may aggregate the securities to be sold or purchased for the fund with
those to be sold or purchased for other funds or clients managed by it in order
to obtain best execution.
VII. PERFORMANCE INFORMATION
A. Total Return
From time to time, quotations of the 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 the 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 the 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 the 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 the 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 fund's average annual total returns for the fiscal year ended December 31,
1999 were as follows:
Delphi Value Fund One Year Life of Fund
Retail Class 11.30% 12.35%(a)
Institutional Class 11.61% 12.66%(b)
(a) Commenced operations December 23, 1998.
(b) Commenced operations December 23, 1998.
B. Non-Standardized Total Return
In addition to the performance information described above, the fund
may provide total return information for designated periods, such as for the
most recent rolling six months or most recent rolling twelve months. The 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
The 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
the fund in advertising is historical and is not intended to indicate future
returns. The 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.
The 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"), Russell 2000 Index, Russell Value Indices, 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 compare 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 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.
The 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, the 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 fund, 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, the fund's
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 fund, 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. The 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. The
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 fund 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 fund 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 fund may employ historical mutual fund performance
data and industry asset allocation studies in their advertisements.
The 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 the 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 fund 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
fund 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.
FRANK RUSSELL ANALYTIC SERVICES, an independent consultant to the financial
services industry.
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 total return and investment risk of shares of the fund
with other investments, investors should understand that certain other
investments have different risk characteristics than an investment in shares of
the fund. For example, certificates of deposit may have fixed rates of return
and may be insured as to principal and interest by the FDIC, while the 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 fund 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 the fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions, purchases and sales of the fund, sales and
redemptions of shares of beneficial interest, and changes in operating expenses
are all examples of items that can increase or decrease the 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
dividends and other distributions reinvested in additional shares. No interest
will accrue on amounts represented by uncashed distribution or redemption
checks.
The 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.
Taxes. The fund intends to qualify as a separate regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). To qualify as such, the fund must satisfy certain requirements relating
to the sources of its income, the diversification of its assets, and the
distribution of its income to shareholders. In any year in which the 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. The 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, the 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 the fund, and taxable
to shareholders as if received, on December 31 of the year if it is declared by
the 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. The 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 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 (as defined above), which will be taxable to
shareholders as long-term capital gains, regardless of how long shareholders
have held their shares. Dividends the fund pays to its corporate shareholders
that are attributable to qualifying dividends the fund receives from U.S.
domestic corporations may be eligible, in the hands of these shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. In certain cases,
receipt of dividends that qualify for this deduction may increase a corporate
shareholder's liability for the federal alternative minimum tax or, if these
dividends are "extraordinary dividends" under Section 1059 of the Code, result
in basis reductions or, to the extent the basis of fund shares would otherwise
be reduced below zero, income inclusions.
Investors should consider the adverse tax implications of buying fund
shares immediately before a dividend or capital gain distribution. Investors who
purchase shares shortly before the record date for such a dividend or
distribution will pay a per share price that includes the value of the
anticipated dividend or distribution and will be taxed on it even though it
economically represents a return of a portion of the amount paid to purchase the
shares.
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 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.
If the 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. The 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.
The 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 fund does not expect to qualify to pass
such taxes or associated foreign tax credits or deductions through to its
shareholders, who consequently are not expected to take them into account on
their own tax returns.
Foreign exchange gains and losses realized by the 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 the 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 fund may restrict the fund's ability to enter into options and futures
contracts, foreign currency positions and foreign currency forward contracts.
Certain of these transactions may cause the 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.
The 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 the 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 the fund's distributions to shareholders. The fund 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 the
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 fund. 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 the fund, if it 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.
If the fund invests in certain pay-in-kind securities ("PIKs"), zero
coupon securities, deferred interest securities or, in general, any other
securities with original issue discount (or with market discount if the fund
elects to include market discount in income currently), the fund must accrue
income on such investments for each taxable year, which generally will be prior
to the receipt of the corresponding cash payments. However, the fund must
distribute, at least annually, all or substantially all of its net income,
including such accrued income, to shareholders to qualify as a regulated
investment company under the Code and avoid federal income and excise taxes.
Therefore, the 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.
The tax treatment of distributions from the 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.
The 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, the fund in their particular circumstances.
The fund is 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.
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 the 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 fund.
The fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that each fund qualifies as a regulated investment company under
the Code, the fund 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 the trust Company ("Boston Safe"), a subsidiary of Mellon Bank
Corporation, Boston Safe provides custodial services to the trust and the fund.
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, One Post Office Square, Boston,
Massachusetts 02109, 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, 1999 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 fund's Annual Report for the fiscal year ended
December 31, 1999: Portfolios of Investment at December 31, 1999; Statements of
Assets and Liabilities at December 31, 1999; Statements of Operations for the
fiscal year ended December 31, 1999; and Statements of Changes in Net Assets for
the fiscal year ended December 31, 1999.
<PAGE>
PART C: OTHER INFORMATION
Item 23. Exhibits.
(a)(1) Declaration of Trust is incorporated by reference to Exhibit 1 of the
Registrant's Registration Statement on Form N-1A as filed with the SEC on
September 16, 1996 (the "Registration Statement").
(a)(2) 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 Registration Statement as filed with the SEC on December 17, 1998
(Accession No. 0000927405-98-000378)("Post-Effective Amendment No. 9").
(b) By-Laws are incorporated by reference to Exhibit 2 of the Registration
Statement.
(c) Not Applicable.
(d)(1) 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.
(d)(2) 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.
(d)(3) 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 herein by reference to Exhibit 23(d)(3) of Post-Effective
Amendment No. 13.
(d)(4) 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.
(e)(1) Distribution Agreement with Kobren Insight Management, Inc. dated
November 15, 1996 is incorporated by reference to Exhibit 6 of Post-Effective
Amendment No. 2.
(e)(2) Amendment to Distribution Agreement with Kobren Insight Management, Inc.
on behalf of Kobren Delphi Value Fund is incorporated by reference to Exhibit
23(e) of Post-Effective Amendment No. 9.
(e)(3) Form of Amendment to Distribution Agreement with Kobren Insight
Management, Inc. on behalf of Kobren Growth Fund and Kobren Moderate Growth Fund
is incorporated herein by reference to Exhibit 23(e)(3) of Post-Effective
Amendment No. 13.
(f) Not Applicable.
(g)(1) 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.
(g)(2) 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.
(g)(3) 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.
(g)(4) 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 Registration
Statement as filed with the SEC on October 27, 1998 (Accession No.
0000927405-97-000313)("Post-Effective Amendment No. 5").
(h)(1) 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 Registration Statement as filed with the
SEC on June 13, 1997 (Accession No. 0000927405-97-000202)("Post-Effective
Amendment No. 1").
(h)(2) 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 Registration Statement as filed with the
SEC on September 4, 1998 (Accession No. 0000927405-98-000293)("Post-Effective
Amendment No. 3").
(h)(3) 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.
(h)(4) 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.
(h)(5) 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.
(i)(1) Opinion of Counsel on behalf of Kobren Delphi Value Fund is incorporated
by reference to Exhibit 23(i) of Post-Effective Amendment No. 9.
(i)(2) Opinion of Counsel on behalf of Kobren Growth Fund and Kobren Moderate
Growth Fund is incorporated by reference to Exhibit 23(10) of Post-Effective
Amendment No. 1.
(j) Consent of Independent Accountants is filed herein.
(k) Not Applicable.
(l)(1) Purchase Agreement relating to Initial Capital between the Registrant, on
behalf of Kobren Growth Fund and Kobren Insight Management, Inc., dated November
6, 1996 is incorporated by reference to Exhibit 13(a) of Pre-Effective Amendment
No. 1 to the Registration Statement as filed with the SEC on November 8, 1996
("Pre-Effective Amendment No. 1").
(l)(2) Purchase Agreement relating to Initial Capital between the Registrant, on
behalf of Kobren Moderate Growth Fund and Kobren Insight Management, Inc., dated
November 6, 1996 is incorporated by reference to Exhibit 13(b) of Pre-Effective
Amendment No. 1.
(l)(3) Purchase Agreement relating to Initial Capital between the Registrant, on
behalf of Kobren Conservative Allocation and Kobren Insight Management, Inc.,
dated November 6, 1996 is incorporated by reference to Exhibit 13(c) of
Pre-Effective Amendment No. 1.
(m) 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.
(n) Plan pursuant to Rule 18f-3 on behalf of the Kobren Delphi Value Fund is
incorporated by reference to Exhibit 23(o) of Post-Effective Amendment No. 5.
(o) Not applicable.
(p)(1) Amended and Restated Code of Ethics for Kobren Insight Funds is filed
herein as Exhibit (p)(1).
(p)(2) Codes of Ethics for Kobren Insight Management, Inc. and Kobren Insight
Brokerage, Inc. are filed herein as Exhibit (p)(2).
(p)(3) Code of Ethics for Delphi Management, Inc. is filed herein as Exhibit
(p)(3).
Item 24. Persons Controlled by or Under Common Control with the Fund.
Not Applicable.
Item 25. Indemnification.
The response to this Item 25 is incorporated by reference to Item 27 of
Pre-Effective Amendment No. 1.
Item 26. Business and Other Connections of the Investment Adviser.
Kobren Insight Management, Inc. serves as adviser to the Registrant. For
information as to its business, profession, vocation or employment of a
substantial nature, reference is made to Form ADV filed by Kobren Insight
Management, Inc. under the Investment Advisers Act of 1940, as amended (the
"Advisers Act") (SEC File No. 801-30125).
Delphi Management, Inc. performs certain investment advisory services for the
Registrant, under the supervision of Kobren Insight Management, Inc. For
information as to its business, profession, vocation or employment of a
substantial nature, reference is made to Form ADV filed by Delphi Management,
Inc. under the Advisers Act.
Item 27. Principal Underwriters.
(a) Kobren Insight Brokerage, Inc., the Fund's Distributor,
does not act as principal underwriter, depositor or
investment adviser for any other mutual funds.
(b) For information with respect to each director, officer or
partner of Kobren Insight Brokerage, Inc., please refer to
the following:
<PAGE>
<TABLE>
<S> <C> <C>
Name and Principal Business Positions and Offices with Underwriter Position and
Address* Offices
with Fund
Eric M. Kobren Director, President and Treasurer President
Cathy Kobren Secretary None
</TABLE>
* The business address of the above-listed persons is 20 William Street, Suite
310, P.O. Box 9135, Wellesley Hills, Massachusetts 02181.
(c) Not Applicable.
Item 28. Location of Accounts and Records.
All accounts, books and other documents required by Section 31(a)
of the Investment Company Act of 1940, as amended, and Rules 31a-1
through 31a-3 thereunder are maintained at the offices of:
Kobren Insight Management, Inc.
20 William Street, Suite 310
P.O. Box 9135
Wellesley Hills, Massachusetts 02181
(records relating to its functions as investment adviser)
Delphi Management, Inc.
50 Rowes Wharf, Suite 540
Boston, Massachusetts 02110
(records relating to its functions as subadviser)
Kobren Insight Brokerage, Inc.
20 William Street, Suite 310
P.O. Box 9150
Wellesley Hills, Massachusetts 02181
(records relating to its functions as distributor)
PFPC Inc. (formerly First Data Investor Services Group, Inc.)
101 Federal Street
Boston, Massachusetts 02110
(records relating to its functions as administrator)
PFPC Inc. (formerly First Data Investor Services Group, Inc.)
4400 Computer Drive
Westborough, Massachusetts 01581
(records relating to its functions as transfer agent)
Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
(records relating to its functions as custodian)
Item 29. Management Services.
Not Applicable.
Item 30. Undertakings.
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets the requirements for effectiveness of this Registration Statement pursuant
to Rule 485(b) under the Securities Act of 1933, and has duly caused this
Post-Effective Amendment No. 14 to its Registration Statement to be signed on
its behalf by the undersigned on the 27th day of April, 2000.
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
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signatures Title Date
/s/ Eric M. Kobren President, Chairman of the Board and April 27, 2000
Eric M. Kobren Trustee (Chief Executive Officer)
/s/ Eric J. Godes Treasurer, Chief Financial Officer and April 27, 2000
Eric J. Godes Chief Accounting Officer
/s/ Edward B. Bloom Trustee April 27, 2000
Edward B. Bloom
/s/ Michael P. Castellano Trustee April 27, 2000
Michael P. Castellano
/s/ Arthur Dubroff Trustee April 27, 2000
Arthur Dubroff
/s/ Robert I. Goldfarb Trustee April 27, 2000
Robert I. Goldfarb
/s/ Stuart J. Novick Trustee April 27, 2000
Stuart J. Novick
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
23(j) Consent of Independent Accountants
23(p)(1) Amended and Restated Code of Ethics for Kobren Insight Funds
23(p)(2) Codes of Ethics for Kobren Insight Management, Inc. and
Kobren Insight Brokerage, Inc.
23(p)(3) Code of Ethics for Delphi Management, Inc.
<PAGE>
Exhibit 23(j)
CONSENT OF INDEPENDENT ACCOUNTANTS
RE: Kobren Growth Fund
Kobren Moderate Growth Fund
Delphi Value Fund
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our reports dated February 10, 2000, relating to the
financial statements and financial highlights which appear in the December 31,
1999 Annual Reports to Shareholders of the above referenced funds, which are
also incorporated by reference into the Registration Statement. We also consent
to the references to us under the headings "Independent Accountants" and
"Financial Statements" in such Registration Statement.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 27, 2000
<PAGE>
Exhibit 23(p)(1)
KOBREN INSIGHT FUNDS
(the "Trust")
KOBREN GROWTH FUND
KOBREN MODERATE GROWTH FUND
KOBREN DELPHI VALUE FUND
(each, a "Fund" and collectively, the "Funds")
AMENDED AND RESTATED CODE OF ETHICS
I. Introduction
A. General Principles
This Code of Ethics (the "Code") establishes rules of conduct for "Access
Persons" (as defined herein) of Kobren Insight Funds (the "Trust") and is
designed to govern the personal securities activities of Access Persons. In
general, in connection with personal securities transactions, Access Persons
should (1) always place the interests of a Fund's shareholders first; (2) ensure
that all personal securities transactions are conducted consistent with this
Code and in such a manner as to avoid any actual or potential conflict of
interest or any abuse of an Access Person's position of trust and
responsibility; and (3) not take inappropriate advantage of their positions.
B. Legal Requirement
Rule 17j-1(a) under the Investment Company Act of 1940 (the "1940 Act") makes it
unlawful for any Access Person, in connection with the purchase or sale by such
person of a security "held or to be acquired" by a Fund:
1. To employ any device, scheme or artifice to defraud the Trust;
2. To make to the Trust any untrue statement of a material fact or omit to state
to the Trust a material fact necessary in order to make the statements made, in
light of the circumstances under which they are made, not misleading;
3. To engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon the Trust; or
4. To engage in any manipulative practice with respect to the Trust.
A security is "held or to be acquired" if within the most recent 15 days it (i)
is or has been held by a Fund, or (ii) is being or has been considered by the
Trust or an investment adviser or subadviser for purchase by a Fund. A purchase
or sale includes the purchase or sale of an option to purchase or sell.
<PAGE>
C. Applicability
1. For purposes of this Code, "Access Person" shall mean:
a. Any officer or employee of the Trust, or any officer, director or general
partner of an investment adviser, subadviser or principal underwriter of any
company in a control relationship to the Trust who, in connection with his or
her regular functions or duties, makes, participates in or obtains information
regarding the purchase or sale of securities by a Fund or whose functions relate
to the making of any recommendation to a Fund regarding the purchase or sale of
securities.
b. Any natural person in a control relationship to the Trust who obtains
information concerning recommendations made to a Fund with regard to the
purchase or sale of a security; and
c. Any Trustee of the Trust.
2. For purposes of this Code, "Advisory Person" shall mean, the person or
persons with the direct responsibility and authority to make investment
decisions affecting a Fund, i.e., a portfolio manager or an assistant portfolio
manager. An Advisory Person is also an Access Person.
3. For purposes of this Code,
a. A person who normally assists in the preparation of public reports or who
receives public reports but who receives no information about current
recommendations or trading or who obtains knowledge of current recommendations
or trading activity once or infrequently or inadvertently shall not be deemed to
be either an Advisory Person or an Access Person.
b. An "Advisory Person" or "Access Person" of the Trust does not include an
employee, director, officer or general partner of an investment adviser,
subadviser or principal underwriter that has adopted pursuant to Section VI
hereof a code of ethics approved by the Board of Trustees of the Trust which
contains provisions reasonably necessary to prevent its covered persons from
engaging in any act, practice or course of business prohibited by Rule 17j-1(a)
under the 1940 Act, and such persons are required to report their security
transactions to such investment adviser, subadviser or principal underwriter.
II. Restrictions on Activities
A. Prohibited Trades
1. No Access Person shall purchase or sell, directly or indirectly, any security
(or related security) in which he or she has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership (as defined in Attachment
A to this Code) and which he or she knows or should have known at the time of
such purchase or sale:
a. is being considered for purchase or sale by a Fund; or
b. is being purchased or sold by a Fund.
If an Access Person other than an Advisory Person has contact with an adviser or
subadviser and the advisory person mentions he is currently trading a security,
or considering trading a security for a fund, such Access Person is restricted
from trading that security for fifteen (15) calendar days. If the Adviser
mentions to the public he is trading that security, prior to the end of the 15
days, this information is no longer inside information. Access Persons can trade
that security after the trading information has been released to the public,
however, doing so will require the Access Person to report trading of all
securities over the past quarter on a quarterly transaction report. If the
Access Person waits until the 15 day period is over, he is only required to
report whether he traded a security on the Blackout List.
2. No Access Person, other than those who are Access Persons only as to Kobren
Delphi Value Fund (the "Delphi Access Persons"), shall purchase directly or
indirectly, any security (or related security) on the Blackout List in which he
or she has, or by reason of such action acquires any direct or indirect
beneficial ownership.
The Blackout List is a list of investment companies maintained by the compliance
person or persons designated by the Trust ("Compliance Officer") shares of which
may not be purchased by Access Persons due to the constraints of Section
12(D)(1)(F) of the 1940 Act. The Compliance Officer will forward an updated copy
of the Blackout List containing any changes, additions or deletions to all
Access Persons except Delphi Access Persons.
3. No Advisory Person shall purchase or sell, directly or indirectly, any
security in which he or she has, or by reason of such transaction acquires, any
direct or indirect beneficial ownership within seven (7) calendar days before or
after a Fund with respect to which he/she has investment discretion trades in
that security.
B. Interested Transactions
No Access Person shall recommend any securities transactions by a Fund without
having disclosed his or her interest, if any, in such securities or the issuer
thereof, including without limitation:
1. any direct or indirect beneficial ownership (as defined in Attachment A to
this Code) of any securities of such issuer;
2. any contemplated transaction by such person in such securities;
3. any position with such issuer or its affiliates; and
4. any present or proposed business relationship between such issuer or its
affiliates and such person or any party in which such person has a significant
interest.
C. Initial Public Offerings
Advisory Persons may acquire securities of an initial public offering ("IPO")
for his or her personal account provided the following conditions are met:
1. Prior to purchasing the IPO shares, the Advisory Person shall preclear the
trade with the Compliance Officer. If applicable, the Compliance Officer will
disclose to the selling dealer that the buyer is a representative of Kobren
Insight Brokerage, Inc. and the firm's code of ethics permits such a purchase.
2. Once the IPO shares have been purchased, sales of such IPO shares are subject
to a 60 day short term trading profit prohibition.
D. Private Placements
No Advisory Person shall acquire, directly or indirectly, beneficial ownership
of any securities in a private placement without the prior approval of the
Compliance Officer who has been provided by such Advisory Person with full
details of the proposed transaction (including written certification that the
investment opportunity did not arise by virtue of the Advisory Person's
activities on behalf of a Fund) and has concluded after consultation with other
investment advisory personnel of the Trust that none of the Funds has any
foreseeable interest in purchasing such securities.
E. Short-Term Trading Patterns
Short-term trading may raise concerns regarding the conduct and activity of an
Advisory Person. Should such trading pattern be deemed detrimental to the Funds,
the Compliance Officer may require the affected Advisory Person to stop the
detrimental trading activity.
F. Gifts
No Access Person shall receive any gift or other things of more than de minimis
value from any person or entity that does business with or on behalf of the
Trust or the Funds.
G. Service as a Director
No Advisory Person shall serve on the board of directors of any publicly traded
company without prior authorization from the Compliance Officer based upon a
determination that such board service would be consistent with the interests of
the Trust and Fund shareholders.
III. Exempt Transactions
A. For purposes of this Code, the term "security" shall not include the
following:
1. direct obligations of the Government of the United States;
2. bankers' acceptances;
3. bank certificates of deposit;
4. commercial paper and high quality short-term debt instruments including
repos;
5. shares of registered open-end investment companies, except those companies on
the Blackout List.
B. The prohibitions described in paragraph (A) of Article II shall not
apply to:
1. Purchases or sales effected in any account over which the Access Person has
no direct or indirect influence or control;
2. Purchases or sales that are non-volitional on the part of
the Access Person;
3. Purchases that are part of an automatic dividend reinvestment plan;
4. Purchases effected upon the exercise of rights issued by an issuer pro rata
to all holders of a class of its securities, to the extent such rights were
acquired from the issuer, and sales of such rights so acquired; or
5. Purchases or sales which are only remotely potentially harmful to a Fund
because such purchases or sales would be unlikely to affect a highly
institutional market, or because such purchases or sales are clearly not related
economically to the securities held, purchased or sold by a Fund. These trades
are subject to the advance approval of the Compliance Officer.
IV. Compliance Procedures
A. Preclearance
An Advisory Person may directly or indirectly, acquire or dispose of beneficial
ownership of a security only if (1) such purchase or sale has been approved by
the Trust's Compliance Officer, (2) the approved transaction is completed by the
close of business on the next business day after approval is received and (3)
the Compliance Officer has not rescinded such approval prior to execution of the
transaction. All requests and responses will be documented and maintained in
accordance with the recordkeeping requirements of Rule 17j-1(f) under the 1940
Act.
B. Reporting Obligations
1. Unless excepted by Section 2 of this Paragraph B, every Access Person must
report to the Compliance Officer as described below.
(a) Initial Holdings Reports (Attachment B). Not later than 10 days after the
person becomes an Access Person, the following information:
(i) the title, number of shares and principal amount of each security in which
the Access Person had any direct or indirect beneficial ownership when the
person became an Access Person;
(ii) the name of any broker, dealer or bank with whom the Access Person
maintained an account in which any securities were held for the direct or
indirect benefit of the Access Person as of the date the person became an Access
Person; and
(iii) the date that the report is signed and submitted by the Access Person.
(b) Quarterly Transaction Reports (Attachment C). Not later than 10 days after
the end of each calendar quarter, the following information:
(i) With respect to any transaction during the quarter in a security in which
the Access Person had any direct or indirect beneficial ownership:
(1) the date of the transaction, the title, the interest rate and maturity date
(if applicable), the number of shares and the principal amount of each security
involved;
(2) the nature of the transaction (i.e., purchase, sale or any other type of
acquisition or disposition);
(3) the price of the security at which the transaction was effected;
(4) the name of the broker, dealer or bank with or through which the transaction
was effected; and
(5) the date that the report is signed and submitted by the Covered Person.
(ii) With respect to any account established by the Access Person in which any
securities were held during the quarter for the direct or indirect benefit of
the Access Person:
(1) the name of the broker, dealer or bank with whom the Access Person
established the account;
(2) the date that the account was established; and
(3) the date that the report is signed and submitted by the Access Person.
(iii) In the event that no reportable transactions occurred during the quarter,
the report should so note and be returned signed and dated.
(c) Annual Holdings Reports (Attachment D). Not later than each January 30th,
the following information (which information must be current as of a date no
more than 30 days before the report is submitted):
(i) the title, number of shares and principal amount of each security in which
the Access Person had any direct or indirect beneficial ownership;
(ii) the name of any broker, dealer or bank with whom the Access Person
maintains an account in which any securities are held for the direct or indirect
benefit of the Access Person; and
(iii) the date on which the report is signed and submitted by the Access Person.
2. The following are the exceptions to the reporting requirements outlined in
Section 1 of this Paragraph B:
(a) A person need not make any report required under Section 1 of this Paragraph
B with respect to transactions effected for, and securities held in, any account
over which the person has no direct influence or control, including such an
account in which the person has any beneficial ownership.
(b) A person need not make a quarterly transaction report under Section 1(b) of
this Paragraph B if the report would duplicate information contained in broker
trade confirmations or account statements received by the Compliance Officer
with respect to the person in the time period required under Section 1(b), if
all of the information required under Section 1(b) is contained in the broker
trade confirmations or account statements.
3. Any report delivered pursuant to this Paragraph B may contain a statement
that the report shall not be construed as an admission by the person making such
report that he or she has any direct or indirect beneficial ownership in the
securities to which the report relates.
C. Disinterested Trustees
A Disinterested Trustee is someone who is a Trustee of the Trust, but not an
"interested person" (as defined in the 1940 Act) of the Trust.
A Disinterested Trustee shall be required to comply with paragraph (A) of
Article II and paragraph (B) of this Article IV with respect to those securities
which were on the Blackout List.
1. With respect to any other transaction only if such Disinterested Trustee, at
the time of that transaction, knew, or in the ordinary course of fulfilling his
or her official duties as a Trustee of the Trust should have known, that during
the 15-day period immediately preceding the date of the transaction by such
person, the security such person purchased or sold was purchased or sold by a
Fund or was being considered for purchase or sale by a Fund or its investment
adviser or subadviser.
2. If the Disinterested Trustee did not trade a security while it appeared on
the Blackout List, he or she should confirm this by checking the appropriate box
on the Quarterly Transaction Report, Attachment C, and returning the report to
the Compliance Officer by the tenth day after each calendar quarter end.
D. Certification of Compliance
Each Access Person is required to certify annually in the form attached hereto
as Attachment D that he or she has read and understood the Code and recognizes
that he or she is subject to such Code. Further, each Access Person is required
to certify annually that he or she has complied with all the requirements of the
Code and that he or she has disclosed or reported all personal securities
transactions required to be disclosed or reported pursuant to the requirements
of the Code.
E. Review by the Board of Trustees
1. The Compliance Officer shall promptly furnish to the Board of Trustees all
material information regarding any violation of the Code of Ethics by any Access
Person or Advisory Person.
2. At least annually, the Compliance Officer shall report in writing to the
Board of Trustees: a. All existing procedures concerning Access Persons'
personal trading activities and any procedural changes made during the past
year; b. Any recommended changes to the Code or procedures; and c. A summary of
any violations which occurred during the past year with respect to which
significant remedial action was taken and which had not previously been reported
to the Board of Trustees. V. Sanctions
Upon discovering that an Access Person has not complied with the requirements of
this Code, the Compliance Officer or management personnel may impose on that
person appropriate remedial action including, disgorgement of profits, censure,
fines, suspension or termination of employment.
VI. Investment Advisers, Subadvisers and Principal Underwriter Code of Ethics
Each investment adviser, subadviser and principal underwriter shall:
A. Submit to the Board of Trustees of the Trust for approval a copy of its code
of ethics adopted pursuant to Rule 17j-1 of the 1940 Act together with
certification that it has adopted procedures reasonably necessary to prevent
violations of its code of ethics.
B. Promptly report to the Board of Trustees of the Trust in writing any material
amendments to such code of ethics.
C. Promptly furnish to the Board of Trustees of the Trust, upon request, copies
of any reports made pursuant to such code of ethics by any person who would be
an Access Person or Advisory Person hereunder if such person were not subject to
such code of ethics; and
D. Immediately furnish to the Board of Trustees of the Trust all material
information regarding any violation of such code of ethics by any person who
would be an Access Person or Advisory Person hereunder if such person were not
subject to such code of ethics.
VII. Confidentiality
All information obtained from any Access Person hereunder shall be kept in
strict confidence, except that reports of securities transactions hereunder may
be made available to the Securities and Exchange Commission or any other
regulatory or self-regulatory organization, and may otherwise be disclosed to
the extent required by law or regulation.
VIII. Other Laws, Rules, and Statements of Policy
Nothing contained in this Code shall be interpreted as relieving any Access
Person from acting in accordance with the provision of any applicable law, rule,
or regulation or any other statement of policy or procedures governing the
conduct of such person adopted by the Trust.
IX. Further Information
If any person has any questions with regard to the applicability of the
provisions of this Code generally or with regard to any securities transaction
or transactions he or she should consult the Compliance Officer.
<PAGE>
Exhibit 23(p)(2)
IV. CODE OF ETHICS
Kobren Insight Management, Inc.
Kobren Insight Brokerage, Inc.
Mutual Fund Investor Association
(collectively known as "Kobren Insight Group")
4.1 General Principles
This Code of Ethics (the "Code") establishes rules of conduct for all employees
of Kobren Insight Group, Inc. ("KIG") and its affiliated companies: Kobren
Insight Management, Inc. ("KIM"), Kobren Insight Brokerage, Inc. ("KIB") and
Mutual Fund Investor Association ("MFIA"). This Code is designed to govern the
personal securities activities of all employees. For purposes of this Code, all
employees are considered "Access Persons" (as defined below).
In connection with personal securities transactions, Access Persons should (1)
always place the interests of KIG's clients first; (2) ensure that all personal
securities transactions are conducted consistent with this Code and in such a
manner as to avoid any actual or potential conflict of interest or any abuse of
an Access Person's position of trust and responsibility; and (3) not take
inappropriate advantage of their positions.
4.2 Applicability
An "Access Person" is defined as: any officer, director or employee of KIM; any
full time employee of KIG; and any NASD registered representative associated
with KIB. A "KIG employee" is defined as a full time employee of either KIM, KIB
or MFIA.
It is the responsibility of the Compliance Officer to identify such access
persons on a continuing basis, to inform them of their duty to report their
personal trades and, to provide them with copies of this Code. A list of all
persons who are or who were in the past five years, access persons must be
preserved in an easily accessible place.
4.3 Kobren Insight Group, Inc.
KIM is an investment adviser registered with the SEC. Client accounts are
managed with an active asset allocation approach using primarily mutual funds as
the underlying investment. KIM also manages variable annuities for private
clients. KIM has limited trading (discretionary) authority over client accounts.
KIM does not have custody of client funds or securities and neither KIM nor KIB
sell variable annuities to clients or prospective clients.
KIB is a NASD member firm broker/dealer whose primary role is the Distributor of
the Kobren Insight Funds. KIB is a $5,000 net capital dealer limited to mutual
fund and variable contract business. Although there are a little over a dozen
registered representatives associated with the broker/dealer, very little retail
business is conducted.
MFIA is a publisher of two monthly financial newsletter reports, Fidelity
Insight and FundsNet Insight. It also publishes annual guides covering mutual
funds and other special reports.
In addition to the above companies, the Kobren Insight Funds ("KIF") is a family
of three mutual funds. Two are managed as "fund of funds" and the third is an
equity fund. KIF has its own separate Code from this document.
KIF Access Persons who are employees of KIG are subject to the KIG Code.
4.4 Legal Requirements
Investment advisers and broker/dealers must adopt a Code of Ethics which
communicate the company's policies and procedures regarding how employees and
associates must conduct themselves in an ethical and professional manner. This
Code also contains policies and procedures to prevent conflicts of interest
between the personal securities transactions of the employees and the securities
transactions of KIG's clients.
The Investment Company Act of 1940, the Investment Advisers Act of 1940, and
rules adopted under these Acts prohibit Access Persons of Insight from engaging
in fraudulent and manipulative practices with respect to managed investment
companies and other clients. The rules also require that each registered adviser
adopt and promulgate a code of ethics designed reasonably to prevent Access
Persons from engaging in prohibited practices.
Thus an employee must never:
1. Employ any device, scheme or artifice to defraud a client.
2. Make any untrue statement of material fact or material omission in
communications to clients or the public.
3. Engage in any act, practice or course of business that operates or
would operate as a fraud or deceit upon a client.
4. 4.5 Policy Statement Against Insider Trading
4.5.1 Insight's Policy
While Insight employees may own or purchase securities it recommends to its
clients, it will be considered a violation of KIG's Code of Ethics for its
officers, directors or employees to buy or sell such securities (with the
exception of mutual fund shares) immediately before or after the execution of
client transactions in such securities if the person has knowledge of KIM
trading the security for clients.
4.5.2 Insider Trading Regulation
It is a serious federal offense for any person to purchase or sell securities
while in possession of material nonpublic information about the securities or
the company that issued them. It is also unlawful to communicate inside
information to others who may trade on the basis of that information.
The Insider Trading and Security Fraud Enforcement Act of 1988 (ITSFEA) was
signed into law on November 18, 1988, giving federal authorities the power to
prosecute any individual, employee and/or employer who uses confidential client
information for his or her own benefit or who communicates confidential client
information to others. ITSFEA also provides for claims by those who were
disadvantaged by the insider trading.
4.5.3 Definition of Insider Trading
The term insider trading is not defined in the federal securities law, but
generally is used to refer to the use of material non-public information to
trade in securities (whether or not one is an "insider") or to communicate
material non-public information to others.
Insider trading consists of purchasing or selling a security while in possession
of material non-public information about the issuer of the security or the
market for the security. Most often, the securities that have been the subject
of insider trading are common stock of a publicly traded corporation. However,
trading in options on common stock or, in certain circumstances, even
convertible debt securities could violate the prohibition on insider trading.
Because Insight's research and securities trades involve mutual funds, many of
the typical insider trading scenarios do not exist. However, Insight employees
may obtain non-public information on the funds we monitor. Even though the
opportunity to profit from this information in a personal transaction is remote,
the opportunity may exist and employees must adhere to the policies in this
Code.
4.5.4 When is Non-Public Information Material?
Information is material if there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decision.
Information that is usually material includes, but is not limited to: dividend
changes, earnings estimates, changes in previously released earnings estimates,
significant merger or acquisition proposals or agreements, major litigation, and
extraordinary management developments.
If any person is unsure whether they obtained non-public material information,
they should consult the Compliance Officer.
4.5.5 What Is Non-Public Information?
Information is non-public until it has been effectively communicated to the
public. One must be able to point to some fact to show that the information is
generally public. For example, information found in a report filed with the SEC,
or appearing in Dow Jones, Reuters Economic Services, The Wall Street Journal or
other publications of general circulation would be considered public.
4.5.6 Penalties For Misuse Of Material Insider Information
Penalties for trading on or communicating material non-public information are
severe, both for individuals involved in such unlawful conduct and their
employers. A person can be subject to some or all of the penalties below even if
he or she does not personally benefit from the violation. Penalties include:
civil injunctions, treble damages, disgorgement of profits, and jail sentences,
fines for the person who committed the violation of up to three times the profit
gained or loss and avoided, whether or not the person actually benefited, fines
for the employer or other controlling person of up to the greater of $1,000,000
or three times the amount of the profit gained or loss avoided.
In addition, any violation of this policy statement can be expected to result in
serious sanctions by Insight, including dismissal of the persons involved.
4.6 Personal Trading Policy
4.6.1 General Principles That Govern Personal Trading Activities
The following five policies and procedures form the basis for the KIG Personal
Trading Policy.
1. Access Persons are prohibited from trading securities on the Blackout
List. Prior to placing a trade, check the Blackout List. Details on the
Blackout List Policy are in Section 4.6.2.
2. KIG employees must pre-clear their trade with the Compliance Officer
prior to placing a stock trade. Details on the Pre-Clearance Policy are
in Section 4.6.3.
3. Access Persons must report to Compliance any trading of individual
securities during the past calendar quarter. Here again, we encourage
employees to have duplicate statements forwarded to Compliance. Also,
any new brokerage account opened since the last quarter end, must be
disclosed on the Personal Trading Report. Details on the Quarterly
Transaction Report policy is in Section 4.6.4.
4. Each January all KIG employees must provide an Annual Securities
Holding Report listing all securities* he or she owns either directly
or through a "beneficial account". (*Mutual funds, U.S. Treasuries or
bank instruments like CDs are exempt from this reporting requirement.)
See Section 4.6.5 for details.
5. Any new Access Person must submit to Compliance an Initial Securities
Holding Report. Details on the Initial Securities Holding Report are in
Section 4.6.6.
4.6.2 Blackout List Policy
No Access Person shall trade any security in which he or she has, any direct or
indirect beneficial ownership (as defined in Exhibit A to this Code) that
appears on the Blackout List. The Blackout List is maintained on the "G" shared
drive as "blackout". The Black- out List identifies certain securities which any
KIF fund of funds portfolio is close to or at their maximum allowable percentage
of ownership.
The foregoing shall not apply to Directors of the Insight Group of Companies who
do not work in Insight's office and are not aware of Insight's trading activity.
How will you know when a security is removed from the Blackout List?
The list is updated by the Portfolio Managers and the Compliance Officer. The
Compliance Officer will send everyone an e-mail stating the list has been
updated and explain the changes. The list is also maintained on Insight's
computer network, on the "G" shared drive under the "blackout" file. You are
responsible for checking the list before you trade securities.
4.6.3 Pre-clearance Policy for Stock Trades
All employees (Access Persons) are subject to the pre-clearance procedures.
Prior to placing a trade for a stock, employees must email the Compliance
Officer with details of their intended trade. The Compliance Officer will
determine if the stock is cleared for trading. If the stock is available for
trading, the Compliance Officer will grant the pre-clearance notice by
responding to the email request. If the stock is not available for trading, the
Compliance Officer will inform the person he or she must wait. Access Persons
may not trade securities that are also being traded in the Kobren Delphi Value
portfolio until two days after Delphi finishes trading the security. The
pre-clearance notice is good until the close of the market the day after notice
is given.
All requests and responses will be documented and maintained with the quarterly
personal trading records. The Managing Director of KIB will pre-clear requests
in the absence of the Compliance Officer.
If an Access Person gives discretionary authority to trade his/her account,
these trades are not subject to the above pre-clearance policy. However, all
trades in this account are subject to the Quarterly Trade Reporting policy.
4.6.4 Quarterly Personal Trading Reports
All Insight employees must report their trading of individual securities
(stocks, bonds, etc....) during the past quarter in their personal or beneficial
accounts by either: 1. Authorizing the brokerage firm to send duplicate
statements to the Compliance Officer, or 2. Completing the attached Personal
Trading Report and returning it to the Compliance Officer before the 10th
calendar day following the quarter end. See Exhibit B for the report, or
3. If there are no transactions to report during the past quarter, the access
person should respond by sending an email to the Compliance Officer stating
"NONE" or "No transactions to report."
This deadline must be strictly adhered to as we must comply with SEC
regulations.
This policy includes trades in personal accounts, accounts owned by a family
member, or any trust, partnership or other entity under your direct influence or
control. These accounts are referred to as "beneficial accounts." See Exhibit A
for details on beneficial accounts.
4.6.5 Annual Securities Holdings Report
At the end of each year each Access Person must provide a listing of any
security he or she owns on the Annual Securities Holdings Report, see Exhibit C.
Mutual funds, U.S. Treasuries or bank instruments like CDs are exempt from this
reporting requirement.
4.6.6 Initial Securities Holdings Report
Within ten (10) days after a person becomes an employee, each Access Person must
provide a listing of any security he or she owns on the Annual Securities
Holdings Report, see Exhibit D. Mutual funds, U.S. Treasuries or bank
instruments like CDs are exempt from this reporting requirement.
4.6.7 Certification of Compliance
Each year all employees of KIG will complete an annual report (Exhibit C) to the
Compliance Officer to certify: 1. They understand KIG's Code and recognize they
are subject to the Code; 2. The transactions they are reporting represent all
transactions applicable to this policy; 3. They have complied with all the
requirements of this Code.
4.6.8 Short-Term Trading is Prohibited
Access Persons are prohibited from trading individual securities such that a
security is bought and sold (or sold short and bought) within 60 calendar days.
Should an unusual circumstance exist, the Access Person should consult the
Compliance Officer prior to trading and upon a review of the issues with Senior
Management an exception may be approved.
4.6.9 Trading Initial Public Offerings and Limited Offerings
Access Persons may acquire securities of an initial public offering ("IPO") or a
limited offering (i.e., a private placement of limited partnership) for his or
her personal account provided the following conditions are met: 1. Prior to
purchasing the securities, the Access Person shall preclear the trade with the
Compliance Officer who will disclose to the selling dealer that the buyer is a
representative of Kobren Insight Brokerage, Inc. and the firm's Code of Ethics
permits such a purchase.
2. Once the IPO shares have been purchased, sales of these IPO shares are
subject to the 60 day Short Term Trading policy. A purchase of a limited
offering is also subject to the 60 day Short Term Trading policy.
4.7 Outside Business Activities
4.7.1 Insight's Policy
Company policy requires all employees to report promptly in writing to the
Compliance Officer any employment or business relationship outside the scope of
their position with the Insight Group of Companies for which any compensation is
received. If an employee earns any money in connection with any activity, other
than passive investment income (e.g., dividends, interest, etc.) he/she must
promptly disclose this information. See Exhibit E for the disclosure form.
The Compliance Officer (and Senior Management, if appropriate) will review the
disclosure for potential conflicts of interest and determine whether to approve,
restrict or disapprove the activity or request additional information.
Disclose current part-time jobs and activities if compensated. Disclose all
activities in which you provide investment advice, whether you are compensated
or not.
4.7.2 Examples
Examples of outside business activities which must be reported to Compliance
include but, are not limited to: teaching, consulting for another company,
coaching a team, professional practices, any business association with an
individual not associated with The Insight Group.
Below are a few examples of unauthorized outside business activities: Any
activity which involves the raising of capital for business ventures,
Underwriting a private placement (registered or not),
Acting in the capacity of a Registered Representative for any account not
associated with The Kobren Insight Group. Compensation is NOT a factor in
this case.
4.7.3 Review For Potential Conflict of Interest
Due to the nature and potential liability of some activities, Senior Management
and/or Compliance may determine that these activities pose potential conflicts
of interest and may not be appropriate for an Insight employee. The Compliance
Officer will notify employees of any disapproval or restrictions regarding their
outside business activities.
These activities have greater potential for conflict of interest and as stated
above, employees must have written approval from the Compliance Officer prior to
participating in the activity.
4.8 Gifts
No KIG employee shall receive any gift or other things of more than de minimis
value from any person or entity that does business with or on behalf of Insight.
4.9 Review by the KIG Board of Directors
The Compliance Officer shall promptly furnish to the Board of Directors of
Insight all material information regarding any violation of Insight's Code of
Ethics. At least annually, the Compliance Officer shall report to the Board of
Directors:
1. All existing procedures concerning Access Persons' personal
trading activities and any procedural changes made during the past year;
2. Any recommended changes to the Code or procedures; and
3. A summary of any violations which occurred during the past year with respect
to which significant remedial action was taken and which had not previously been
reported to the Board of Directors.
4.10 Review by the KIF Board of Directors
SEC Rule 17j-1 under the Investment Company Act of 1940 requires:
1. The Board of Directors of the Kobren Insight Funds to approve KIG's Code;
2. The Compliance Officer for KIM and KIB must report annually to the KIF Board
any violations of this Code; 3. KIG's Code of Ethics must be filed with the SEC
as an exhibit to KIF's Statement of Additional Information
documents.
4.11 Sanctions
Upon discovering that an Access Person has not complied with the requirements of
this Code, the Compliance Officer or its management personnel may impose on that
person appropriate remedial sanctions including, in addition to sanctions
specifically delineated in other sections of this Code, censure, suspension or
termination of employment.
4.12 Confidentiality
All information obtained from any Access Person shall be kept in strict
confidence, except the reports of securities transactions which may be made
available to the Securities and Exchange Commission or any other regulatory or
self-regulatory organization, and may otherwise be disclosed to the extent
required by law or regulation. 4.13 Other Laws, Rules, and Statements of Policy
Nothing contained in this Code shall be interpreted as relieving any Access
Person from acting in accordance with the provision of any applicable law, rule,
or regulation or any other statement of policy or procedures governing the
conduct of such person adopted by Insight.
4.14 Further Information
If any person has any questions with regard to the applicability of the
provisions of this Code or with regard to any securities transaction he/she
should consult the Compliance Officer.
<PAGE>
Attachment A
Beneficial Ownership
"Beneficial ownership", for purposes of this Code, shall be determined in
accordance with the definition of "beneficial owner" set forth in Rule
16a-(a)(2) under the Securities Exchange Act of 1934, as amended, i.e., a person
must have a "direct or indirect pecuniary interest" to have "beneficial
ownership". Although the following list is not intended to be exhaustive,
pursuant to the rule, a person is generally regarded as the beneficial owner of
the following securities:
(i) securities held in the person's own name;
(ii) securities held with another in joint tenancy, community property or other
joint ownership;
(iii) securities held by a bank or broker as nominee or custodian on such
person's behalf of securities pledged as collateral for a loan;
(iv) securities held by members of the person's immediate family sharing the
same household ("immediate family" means any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, including adoptive relationships);
(v) securities held by a relative not residing in the person's home if the
person is a custodian, guardian or otherwise has controlling influence over the
purchase, sale or voting of such securities;
(vi) securities held by a trust in which the person is a beneficiary and has or
shares the power to make purchase or sales decisions;
(vii) securities held by a trust for which the person serves as a trustee and in
which the person has a pecuniary interest (including pecuniary interests by
virtue of performance fees and by virtue of holdings by the person's immediate
family);
(viii) securities held by a general partnership or limited partnership in which
the person is a general partner;
(ix) securities owned by a corporation in which the person has a control
position or in which the person has or shares investment control over the
portfolio securities (other than a registered investment company);
(x) securities in a portfolio giving the person certain performance related
fees; and
(xi) securities held by another person or entity pursuant to any agreement,
understanding, relationship or other arrangement giving the person any direct or
indirect pecuniary interest.
<PAGE>
Attachment B
KOBREN INSIGHT GROUP
Quarterly Transaction Report
For the Calendar Quarter Ended
(month/day/year)
To: KIG's Compliance Officer
1. During the quarter referred to above, the following transactions
were effected in securities of which I had, or by reason of such transactions
acquired, direct or indirect beneficial ownership, and which are required to be
reported pursuant to the KIG Code of Ethics:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Number of Nature of Broker/Dealer
Shares or Dollar Amount Transaction or Bank
Date of Principal of (Purchase) Through Whom
Security Transaction Amount Transaction Sale, Other) Price Effected
- - - - -------- ----------- ------ ----------- ------------ ----- --------
</TABLE>
2. During the quarter referred to above, the following are new accounts
with all brokers, dealers or banks with which I hold securities [whether or not
transactions in such securities are reportable under the Code]:
Broker\Dealer/Bank Date Account Established
This report (i) excludes transactions with respect to which I had no direct or
indirect influence or control, and (ii) excludes other transactions not required
to be reported.
Signature:
Print Name:
Date: __________________________
<PAGE>
Attachment C
KOBREN INSIGHT GROUP
ANNUAL SECURITIES HOLDINGS REPORT
All Access Persons must report any securities owned either directly (registered
in your name) or indirectly (in a beneficial ownership account). The reports
must be returned to the Compliance Officer by January 30th each year.
Access Person (name): _____________________________
Date of Report: ________________
<TABLE>
<S> <C> <C> <C>
Number of Shares/
Title of Security Principal Amount Broker/Dealer/Bank Direct/Indirect Ownership
- - - - ---------- ------------------------------------- ------------------------------
</TABLE>
Types of securities to report:
Stocks, bonds, UITs, LPs, REITs, options, and others
Excluded securities:
Mutual funds, bank instruments, i.e., CDs
<PAGE>
Attachment D
KOBREN INSIGHT GROUP, INC.
INITIAL SECURITIES HOLDINGS REPORT
This report should be completed and returned to the Compliance Officer within
ten (10 days) after a person becomes an Access Person. All terms have the same
meanings as in the Code of Ethics of KIG.
Access Person (name): _____________________________
Date of Report: ________________
1. The following are all securities in which I had a direct or indirect
beneficial interest when I became an Access Person:
<TABLE>
<S> <C> <C> <C>
Number of Shares/
Title of Security Principal Amount Broker/Dealer/Bank Direct/Indirect Ownership
</TABLE>
Types of securities to report:
Stocks, bonds, UITs, LPs, REITs, options, and others
Excluded securities:
Mutual funds, bank instruments, i.e., CDs
2. The following are all securities accounts with brokers, dealers or
banks in which I hold securities for my direct or indirect benefit [whether or
not transactions in such securities are reportable under the Code]:
A. I hereby acknowledge receipt of a copy of the Code of Ethics of KIG. B. I
have read and understand the Code and recognize that I am subject thereto in the
capacity of an "Access Person." Signature:
Print Name:
Date:_____________________
Exhibit E
Please complete the following information and return this form to the Compliance
Officer.
Name: ___________________________________
OUTSIDE BUSINESS ACTIVITIES DISCLOSURES
At a minimum, the disclosure should include:
1. the name of the business organization,
2. the nature of the activity, and
3. the Registered Representative's role in the organization.
Name of Organization/Company: ____________________________________
Your position: ___________________________________________________
Type of activity: __________________________________________________
- - - - -----------------------------------------------------------------------------
FORM U-4 UPDATES
It is each Registered Representative's responsibility to keep his/her Form U-4
updated. You may use this form to amend your current address or report other
updates.
New address: ______________________________________________________
- - - - ------------------------------------------------------------------
Other U-4 updates: __________________________________________________
- - - - ------------------------------------------------------------------
- - - - ------------------------------------- -----------------------
Registered Representative's signature Date
<PAGE>
Exhibit 23(p)(3)
DELPHI MANAGEMENT, INC.
CODE OF ETHICS PROCEDURES
General Principles
In accordance with Rule 17j-1(c)(2)(i) of the Investment Company Act of 1940, as
amended (the "1940 Act"), these Procedures have been designed to prevent "Access
Persons" (as defined in the Code of Ethics (the "Code")) of Delphi Management,
Inc. ("Delphi") from violating such Code. All capitalized terms used herein and
not defined shall have the meanings given to them in the Code, as in effect from
time to time.
Reporting Responsibilities
The Compliance Officer shall be responsible for identifying all Access Persons
who are required to make Quarterly Transaction Reports, Initial Holdings Reports
and Annual Holdings Reports to Delphi under the Code. The Compliance Officer
shall notify such Access Persons of their reporting obligations under the Code
and circulate periodic reminders of such reporting obligations.
The Compliance Officer shall be responsible for the review of all Quarterly
Transaction Reports, Initial Holdings Reports and Annual Holdings Reports
required to be submitted by Access Persons. The Compliance Officer shall have
his Reports reviewed by a person designated by Delphi.
The Compliance Officer shall be required to submit to the Board of Directors an
Annual Report containing the information set forth in Rule 17j-1(c)(2)(ii) of
the 1940 Act.
Recordkeeping Requirements
(1) The Compliance Officer shall maintain the records required by Rule
17j-1(f)(1) of the 1940 Act in an easily accessible place, including the
following documents:
(A) A copy of the Code that is in effect, as well as any code of ethics of
Delphi that within the past five years was in effect;
(B) A record of any violation of the Code, and of any action taken as a result
of the violation, to be maintained for at least five years after the end of the
fiscal year in which the violation occurs;
(C) A copy of each report made by an Access Person as required by Rule 17j-1, to
be maintained for at least five years after the end of the fiscal year in which
the report is made;
(D) A record of all persons, currently or within the past five years, who are or
were required to make reports under Rule 17j-1(d), or who are or were
responsible for reviewing such reports; and
(E) A copy of each report made to the Board of Directors by the Compliance
Officer pursuant to Rule 17j-1(c)(2)(ii), to be maintained for at least five
years after the end of the fiscal year in which the report is made.
(2) In addition, the Compliance Officer shall maintain a record of any decision,
and the reasons supporting the decision, to approve the acquisition of
securities in an Initial Public Offering or in a Private Placement by Delphi
employees for at least five years after the end of the fiscal year in which the
approval is granted.
Preclearance
The Compliance Officer shall be responsible for the prior approval of all
securities transactions of Delphi employees. Preclearance for the Compliance
Officer shall be done by a person designated by Delphi.
Receipt of Certification of Compliance
The Compliance Officer shall obtain from each Access Person a certification on
an annual basis that such Access Person has read and understood Delphi's Code
and recognizes that he or she is subject to such Code. Further, the Compliance
Officer shall obtain from each Access Person an annual certification that such
Access Person has complied with all the requirements of the Code and that he or
she has disclosed or reported all personal securities transactions required to
be disclosed or reported pursuant to the requirements of the Code.
Sanctions
Upon discovering that an Access Person has not complied with the requirements of
this Code, the Compliance Officer shall submit findings to Delphi's management.
Management may impose on that Access Person whatever sanctions it deems
appropriate, including, among other things, disgorgement of profits, revenue,
suspension or termination of employment.
Certification of Adequacy
The Compliance Officer shall provide to the Board of Directors of Delphi, no
less frequently than annually, a written certification that Delphi has adopted
procedures reasonably necessary to prevent Access Persons from violating the
Code. Confidentiality
All information obtained from any Access Person shall be kept in strict
confidence, except that reports of securities transactions may be made available
to the Securities and Exchange Commission or any other regulatory or
self-regulatory organization, and may otherwise be disclosed to the extent
required by law or regulation.
Amendments to the Code of Ethics
The Compliance Oficer may recommend to Delphi any changes to the Code. However,
any material changes to the Code of Ethics must be approved by the Board of
Directors of Delphi within six months of such change.
<PAGE>
Attachment A
"Beneficial ownership", for purposes of this Code, shall be determined in
accordance with the definition of "beneficial owner" set forth in Rule
16a-(a)(2) under the Securities Exchange Act of 1934, as amended, i.e., a person
must have a "direct or indirect pecuniary interest" to have "beneficial
ownership". Although the following list is not intended to be exhaustive,
pursuant to the rule, a person is generally regarded as the beneficial owner of
the following securities:
(i) securities held in the person's own name;
(ii) securities held with another in joint tenancy, community property or other
joint ownership;
(iii) securities held by a bank or broker as nominee or custodian on such
person's behalf of securities pledged as collateral for a loan;
(iv) securities held by members of the person's immediate family sharing the
same household ("immediate family" means any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including
adoptive relationships);
(v) securities held by a relative not residing in the person's home if the
person is a custodian, guardian or otherwise has controlling influence over the
purchase, sale or voting of such securities;
(vi) securities held by a trust in which the person is a beneficiary and has or
shares the power to make purchase or sales decisions;
(vii) securities held by a trust for which the person serves as a trustee and in
which the person has a pecuniary interest (including pecuniary interests by
virtue of performance fees and by virtue of holdings by the person's immediate
family);
(viii) securities held by a general partnership or limited partnership in which
the person is a general partner;
(ix) securities owned by a corporation in which the person has a control
position or in which the person has or shares investment control over the
portfolio securities (other than a registered investment company);
(x) securities in a portfolio giving the person certain performance related
fees; and
(xi) securities held by another person or entity pursuant to any agreement,
understanding, relationship or other arrangement giving the person any direct or
indirect pecuniary interest.
<PAGE>
Attachment B
KOBREN INSIGHT FUNDS
INITIAL SECURITIES HOLDINGS REPORT
This report should be completed and returned to the Compliance Officer within
ten (10 days) after a person becomes an Access Person. All terms have the same
meanings as in the Code of KIF.
Access Person (name): _____________________________
Date of Report: ________________
1. The following are all securities in which I had a direct or indirect
beneficial interest when I became an Access Person:
- - - - ----------- ------------------------------------ ------------------------------
Number of Shares/
Title of Security Principal Amount Broker/Dealer/Bank
Direct/Indirect Ownership
- - - - ------ ------------------------------------ ------------------------------
Types of securities to report: Stocks, bonds, UITs, LPs, REITs, options, and
others Excluded securities: Mutual funds, bank instruments, (i.e., CDs), Direct
Obligations of the U.S. Government
2. The following are all securities accounts with brokers, dealers or
banks in which I hold securities for my direct or indirect benefit whether or
not transactions in such securities are reportable under the Code:
- - - - ------------------------------------------------
A. I hereby acknowledge receipt of a copy of the Code of Ethics of KIF.
B. I have read and understand the Code and recognize that I am subject thereto
in the capacity of an "Access Person." Signature:
Print Name:
Date: ___________________
<PAGE>
Attachment C
KOBREN INSIGHT FUNDS
Quarterly Transaction Report
For the Calendar Quarter Ended
(month/day/year)
To: Kobren Insight Funds' Compliance Officer
1. During the quarter referred to above, the following transactions
were effected in securities of which I had, or by reason of such transactions
acquired, direct or indirect beneficial ownership, and which are required to be
reported pursuant to the KIF Code of Ethics:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Number of Nature of Broker/Dealer
Shares or Dollar Amount Transaction or Bank
Date of Principal of (Purchase) Through Whom
Security Transaction Amount Transaction Sale, Other) Price Effected
- - - - -------- ----------- ------ ----------- ------------ ----- --------
</TABLE>
2. During the quarter referred to above, the following are new accounts
with all brokers, dealers or banks with which I hold securities whether or not
transactions in such securities are reportable under the Code:
Broker/Dealer, Bank Date Account Established
3. I have not traded any of the securities that appeared on the Blackout List.
This report (i) excludes transactions with respect to which I had no direct or
indirect influence or control, and (ii) excludes other transactions not required
to be reported.
Signature:
Print Name:
Date: __________________________
<PAGE>
Attachment D
KOBREN INSIGHT FUNDS
ANNUAL SECURITIES HOLDINGS REPORT
All Access Persons must report any securities owned either directly (registered
in your name) or indirectly (in a beneficial ownership account). The reports
must be returned to the Compliance Officer by January 15th each year.
Access Person (name): _____________________________
Date of Report: ________________
- - - - - ------------------------------------- ------------------------------
Number/of Shares
Title of Security Principal Amount Broker/Dealer/Bank
Direct/Indirect Ownership
Types of securities to report: Stocks, bonds, UITs, LPs, REITs, options, and
others Excluded securities: Mutual funds, bank instruments, (i.e., CDs) or
direct obligations of the U.S. Government
