PROSPECTUS
THE DLB FUND GROUP
One Memorial Drive
Cambridge, Massachusetts 02142
(617) 225-3800
August 19, 1996
The DLB Fund Group (the "Trust") is an open-end management investment
company offering through this Prospectus four non-diversified portfolios with
different investment objectives and strategies. (Such portfolios are each
referred to as a "Fund," and, collectively, as the "Funds.") The Funds are
intended primarily to serve as investment vehicles for institutional investors.
Each Fund's investment manager is David L. Babson & Co., Inc. (the "Manager").
The DLB FIXED INCOME FUND (the "Fixed Income Fund") seeks to achieve a
high level of current income consistent with preservation of capital through
investment in a portfolio of fixed income securities.
The DLB GLOBAL SMALL CAPITALIZATION FUND (the "Global Small Cap Fund")
seeks long-term capital appreciation through investment primarily in common
stocks of smaller foreign and domestic companies.
The DLB VALUE FUND (the "Value Fund") seeks long-term capital
appreciation primarily through investment in a portfolio of common stocks of
established companies.
The DLB MID CAPITALIZATION FUND (the "Mid Cap Fund") seeks long-term
capital appreciation primarily through investment in a portfolio of common
stocks of small to medium-size companies.
Shares of each Fund are sold to investors by the Trust. The minimum
initial investment in a Fund is $100,000, and the minimum for each subsequent
investment is $10,000.
This Prospectus concisely describes the information which investors
ought to know before investing in any of the Funds. Please read this Prospectus
carefully and keep it for further reference.
A Statement of Additional Information dated August 19, 1996 is
available at no charge by writing to the Trust, c/o David L. Babson & Co., Inc.,
Marketing Department, Attention: Maureen A. Madden, One Memorial Drive,
Cambridge, Massachusetts, 02142 or by telephoning (617) 225-3800. The Statement,
which contains more detailed information about all of the Funds, has been filed
with the Securities and Exchange Commission and is incorporated by reference to
this Prospectus.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Page
SHAREHOLDER TRANSACTION AND FUND EXPENSES .................................. 3
FINANCIAL HIGHLIGHTS ....................................................... 7
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS ................... 11
PURCHASE OF SHARES ........................................................ 18
REDEMPTION OF SHARES ...................................................... 19
DETERMINATION OF NET ASSET VALUE .......................................... 20
DISTRIBUTIONS ............................................................. 21
TAXES ..................................................................... 21
MANAGEMENT OF THE TRUST ................................................... 22
PERFORMANCE INFORMATION ................................................... 24
ORGANIZATION AND CAPITALIZATION OF THE TRUST .............................. 24
SHAREHOLDER INQUIRIES ..................................................... 25
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SHAREHOLDER TRANSACTION AND FUND EXPENSES
1. FIXED INCOME FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee waiver) (a)......................... .20%
12b-1 Fees(b).................................................. 0
Other Expenses(c).............................................. .35%
====
Total Fund Operating Expenses (after fee waiver) (a)........... .55%
EXAMPLE:
You would pay the following Years
expenses on a $1,000 investment,
assuming a 5% annual return 1 3
with or without redemption at -- --
the end of each period: $6.00 $18.00
- ---------------
(a) The Manager has agreed with the Fund to reduce its management fee
and to bear certain expenses for the current fiscal year to the
extent that the Fund's total annual expenses, other than
brokerage commissions and transfer taxes, would otherwise exceed
.55% of the Fund's average daily net assets. Therefore, so long
as the Manager agrees to reduce its fee and to bear certain
expenses, total annual expenses of the Fund, other than brokerage
commissions and transfer taxes, will not exceed .55%. Absent such
agreement by the Manager to waive its fee and bear certain
expenses, management fees would be .40% and total Fund operating
expenses would be 2.50%.
(b) The Fund has adopted a distribution and services plan pursuant to
Rule 12b-1 that permits payments by the Fund at an annual rate of
up to .50% of the Fund's average net assets, but the Trustees do
not currently intend to implement such plan during the Fund's
current fiscal year. See "Purchase of Shares -- 12b-1 Plans."
(c) "Other Expenses" are based on estimated amounts for the Fund's
current fiscal year.
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2. GLOBAL SMALL CAP FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee waiver)(a).......................... .80%
12b-1 Fees(b).................................................. 0
Other Expenses(c).............................................. .70%
=====
Total Fund Operating Expenses (after fee waiver) (a)........... 1.50%
EXAMPLE:
You would pay the following Years
expenses on a $1,000 investment,
assuming a 5% annual return 1 3
with or without redemption at -- --
the end of each period: $15.00 $47.00
- ---------------
(a) The Manager has agreed with the Fund to reduce its management fee
and to bear certain expenses for the current fiscal year to the
extent that the Fund's total annual expenses, other than
brokerage commissions and transfer taxes, would otherwise exceed
1.50% of the Fund's average daily net assets. Therefore, so long
as the Manager agrees to reduce its fee and to bear certain
expenses, total annual expenses of the Fund, other than brokerage
commissions and transfer taxes, will not exceed 1.50%. Absent
such agreement by the Manager to waive its fee and bear certain
expenses, management fees would be 1.00% and total Fund operating
expenses would be 2.50%. The management fees paid by the Fund are
higher than the management fees paid by most other investment
companies, although not necessarily higher than other investment
companies investing in a global portfolio of small capitalization
stocks.
(b) The Fund has adopted a distribution and services plan pursuant to
Rule 12b-1 that permits payments by the Fund at an annual rate of
up to .50% of the Fund's average net assets, but the Trustees do
not currently intend to implement such plan during the Fund's
current fiscal year. See "Purchase of Shares -- 12b-1 Plans."
(c) "Other Expenses" are based on estimated amounts for the Fund's
current fiscal year.
-4-
3. VALUE FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee waiver)(a).......................... .35%
12b-1 Fees(b).................................................. 0
Other Expenses(c).............................................. .45%
=====
Total Fund Operating Expenses (after fee waiver) (a)........... .80%
EXAMPLE:
You would pay the following Years
expenses on a $1,000 investment,
assuming a 5% annual return 1 3
with or without redemption at
the end of each period: $8.00 $26.00
- ---------------
(a) The Manager has agreed with the Fund to reduce its management fee
and to bear certain expenses for the current fiscal year to the
extent that the Fund's total annual expenses, other than
brokerage commissions and transfer taxes, would otherwise exceed
.80% of the Fund's average daily net assets. Therefore, so long
as the Manager agrees to reduce its fee and to bear certain
expenses, total annual expenses of the Fund, other than brokerage
commissions and transfer taxes, will not exceed .80%. Absent such
agreement by the Manager to waive its fee and bear certain
expenses, management fees would be .55% and total Fund operating
expenses would be 2.43%.
(b) The Fund has adopted a distribution and services plan pursuant to
Rule 12b-1 that permits payments by the Fund at an annual rate of
up to .50% of the Fund's average net assets, but the Trustees do
not currently intend to implement such plan during the Fund's
current fiscal year. See "Purchase of Shares -- 12b-1 Plans."
(c) "Other Expenses" are based on estimated amounts for the Fund's
current fiscal year.
-5-
4. MID CAP FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee waiver)(a).......................... .30%
12b-1 Fees(b).................................................. 0
Other Expenses(c).............................................. .60%
====
Total Fund Operating Expenses (after fee waiver) (a)........... .90%
EXAMPLE:
You would pay the following Years
expenses on a $1,000 investment,
assuming a 5% annual return 1 3
with or without redemption at
the end of each period: $9.00 $29.00
- ---------------
(a) The Manager has agreed with the Fund to reduce its management fee
and to bear certain expenses for the current fiscal year to the
extent that the Fund's total annual expenses, other than
brokerage commissions and transfer taxes, would otherwise exceed
.90% of the Fund's average daily net assets. Therefore, so long
as the Manager agrees to reduce its fee and to bear certain
expenses, total annual expenses of the Fund, other than brokerage
commissions and transfer taxes, will not exceed .90%. Absent such
agreement by the Manager to waive its fee and bear certain
expenses, management fees would be .60% and total Fund operating
expenses would be 2.50%.
(b) The Fund has adopted a distribution and services plan pursuant to
Rule 12b-1 that permits payments by the Fund at an annual rate of
up to .50% of the Fund's average net assets, but the Trustees do
not currently intend to implement such plan during the Fund's
current fiscal year. See "Purchase of Shares -- 12b-1 Plans."
(c) "Other Expenses" are based on estimated amounts for the Fund's
current fiscal year.
The purpose of the foregoing tables is to assist an investor in
understanding the various costs and expenses of each of the Funds that are borne
by holders of Fund shares. THE FIVE PERCENT ANNUAL RETURN AND ESTIMATED EXPENSES
USED IN CALCULATING THE EXAMPLES ARE NOT REPRESENTATIONS OF PAST OR FUTURE
PERFORMANCE OR EXPENSES; ACTUAL PERFORMANCE AND/OR EXPENSES MAY BE MORE OR LESS
THAN SHOWN.
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FINANCIAL HIGHLIGHTS
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The following tables, which present per share financial information for
each of the Funds, have been audited by Deloitte & Touche LLP,
independent accountants. These tables should be read in conjunction
with the Funds' other audited financial statements and related notes
which are included in the Statement of Additional Information.
1. FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
PERIOD FROM JULY 25, 1995 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1995
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
Income from investment operations: ------
Net investment income 0.28
Net realized and unrealized gain on investments 0.37
------
Total from investment operations 0.65
------
Less distributions declared to shareholders:
From net investment income (0.28)
From net realized gain on investments (0.11)
------
Total distributions declared to shareholders (0.39)
------
Net asset value - end of period $10.26
======
Total return 14.75%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 0.55%*
Ratio of net investment income to average net assets 6.24%*
Portfolio turnover 42%
Net assets at end of period (000 omitted) $5,325
The Manager has agreed with the Fund to reduce its
management fee and bear certain expenses, such that
expenses do not exceed 0.55% of average daily net assets
on an annualized basis. If the fee and expenses had been
incurred by the Fund and had expenses been limited to
that required by state securities law, the net
investment income per share and ratios would have been:
Net investment income $0.19
Ratios (to average net assets):
Expenses 2.50%*
Net investment income 4.33%*
- --------------
*Annualized
-7-
2. GLOBAL SMALL CAP FUND
FINANCIAL HIGHLIGHTS
PERIOD FROM JULY 19, 1995
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
Income from investment operations: ------
Net investment income 0.07
Net realized and unrealized gain on investments 0.33
------
Total from investment operations 0.40
------
Less distributions declared to shareholders
from net investment income (0.07)
------
Net asset value - end of period $10.33
======
Total return 8.96%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 1.46%*
Ratio of net investment income to average net assets 1.46%*
Portfolio turnover 5%
Net assets at end of period (000 omitted) $10,509
The Manager has agreed with the Fund to reduce its
investment management fee and bear certain expenses,
such that expenses do not exceed 1.50% of average daily
net assets on an annualized basis. If the fee and
expenses had been incurred by the Fund and had expenses
been limited to that required by state securities law,
net investment income per share would have been:
Net investment income $0.02
Ratios (to average net assets):
Expenses 2.50%*
Net investment income 0.42%*
- --------------
*Annualized
-8-
3. VALUE FUND
FINANCIAL HIGHLIGHTS
PERIOD FROM JULY 25, 1995 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1995
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
Income from investment operations: ------
Net investment income 0.09
Net realized and unrealized gain on investments 0.73
------
Total from investment operations 0.82
------
Less distributions declared to shareholders:
From net investment income (0.09)
From net realized gain on investments (0.15)
------
Total distributions declared to shareholders (0.24)
------
Net asset value - end of period $10.58
======
Total return 18.64%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 0.80%*
Ratio of net investment income to average net assets 2.02%*
Portfolio turnover 7%
Net assets at end of period (000 omitted) $10,818
The Manager has agreed with the Fund to reduce its
management fee and bear certain expenses, such that
expenses do not exceed 0.80% of average daily net assets
on an annualized basis. If the fee and expenses had been
incurred by the Fund, the net investment income per
share and ratios would have been:
Net investment income $0.02
Ratios (to average net assets):
Expenses 2.43%*
Net investment income 0.40%*
- --------------
*Annualized
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4. MID CAP FUND
FINANCIAL HIGHLIGHTS
PERIOD FROM JULY 25, 1995 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1995
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
Income from investment operations: ------
Net investment income 0.08
Net realized and unrealized gain on investments 0.84
------
Total from investment operations 0.92
------
Less distributions declared to shareholders
From net investment income (0.08)
From net realized gain on investments (0.09)
------
Total distributions declared to shareholders (0.17)
------
Net asset value - end of period $10.75
======
Total return 21.17%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 0.90%*
Ratio of net investment income to average net assets 1.90%*
Portfolio turnover 6%
Net assets at end of period (000 omitted) $10,929
The Manager has agreed with the Fund to reduce its
management fee and bear certain expenses, such that
expenses do not exceed 0.90% of average daily net assets
on an annualized basis. If the fee and expenses had been
incurred by the Fund and had expenses been limited to
that required by state securities law, the net
investment income per share and ratios would have been:
Net investment income 0.01
Ratios (to average net assets):
Expenses 2.50%*
Net investment income 0.32%*
- --------------
*Annualized
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INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS
FIXED INCOME FUND
The Fixed Income Fund's investment objective is to achieve a high level
of current income consistent with preservation of capital through investment in
a portfolio of fixed income securities.
The Manager will pursue the Fixed Income Fund's objective by investing
the Fund's assets primarily in publicly traded domestic fixed income securities,
including U.S. Treasury and agency obligations, mortgage-backed and asset-backed
securities and corporate debt securities. The Fund will also invest in other
fixed income markets, such as corporate private placements, directly-placed
mortgage obligations and foreign currency denominated bonds. Substantially all
(but no less than 65%) of the Fund's total assets will at all times be invested
in fixed income securities. Pending investment and reinvestment in fixed income
securities, the Manager may invest the Fund's assets in money market
instruments. Allocations are made among a wide array of market sectors, such as
U.S. Treasury and agency obligations, corporate securities, mortgages and
mortgage-backed securities, private placement securities and non-U.S. dollar
denominated securities, based on the relative attractiveness of such sectors.
Following these sector allocations, the Manager will purchase those securities
deemed attractively valued in the desired sectors. The Fund may invest in any
fixed income security, including preferred stocks. The Fund may also hold a
portion of its assets in cash or money market instruments.
PORTFOLIO DURATION AND MATURITY. The Fund's portfolio will generally
have an average dollar weighted portfolio maturity of five to twelve years and a
duration of no less than three years and no more than ten years (excluding
short-term investments). The duration of a fixed income security is the weighted
average maturity, expressed in years, of the present value of all future cash
flows, including coupon payments and principal repayments. The Fund's portfolio
may include securities with maturities and durations outside of these ranges.
PORTFOLIO QUALITY. The Fund may invest in any security that is rated
investment grade at the time of purchase (i.e., at least Baa as determined by
Moody's Investors Service, Inc. ("Moody's") or BBB as determined by Standard &
Poor's ("S&P")), or in any unrated security that the Manager determines to be of
comparable quality. Securities rated Baa by Moody's or BBB by S&P and comparable
unrated securities have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments on such obligations than in the case of
higher-rated securities. In the event that any security held by the Fund ceases
to be of investment grade quality, the Fund will not be obligated to dispose of
such security and may continue to hold the obligation if, in the opinion of the
Manager, such investment is considered appropriate under the circumstances.
However, if more than 5% of the Fund's net assets are below investment grade
quality, the Manager will dispose of such securities as are necessary to reduce
such holdings to 5% or less.
INTEREST RATE RISK. The values of fixed income securities generally
vary inversely to changes in prevailing interest rates. Investments in lower
quality fixed income securities generally provide greater income than
investments in higher-rated securities but are subject to greater market
fluctuations and risks of loss of income and principal than are higher-rated
securities. Fluctuations in the value of portfolio securities will not affect
interest income on existing portfolio securities but will be reflected in the
Fund's net asset value.
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MORTGAGE-BACKED AND OTHER ASSET-BACKED SECURITIES. The Fund may invest
in mortgage-backed and other asset-backed securities issued by the U.S.
Government and its agencies and instrumentalities and by non-governmental
issuers. Interest and principal payments (including prepayments) on the
mortgages underlying mortgage-backed securities are passed through to the
holders of the mortgage-backed security. Prepayments occur when the mortgagor on
an individual mortgage prepays the remaining principal before the mortgage's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgages
vary, there can be no certainty as to the predicted yield or average life of a
particular issue of pass-through certificates. Prepayments are important because
of their effect on the yield and price of the securities. During periods of
declining interest rates, such prepayments can be expected to accelerate and the
Fund would be required to reinvest the proceeds at the lower interest rates then
available. In addition, prepayments of mortgages which underlie securities
purchased at a premium could result in capital losses because the premium may
not have been fully amortized at the time the obligation was prepaid. As a
result of these principal payment features, the values of mortgage-backed
securities generally fall when interest rates rise, but their potential for
capital appreciation in periods of falling interest rates is limited because of
the prepayment feature. The mortgage-backed securities purchased by the Fund may
include adjustable rate instruments. See "Adjustable Rate Securities" below.
The Fund may also invest in asset-backed securities such as securities
backed by pools of automobile loans, educational loans and credit card
receivables, both secured and unsecured. These assets are generally held by a
trust and payments of principal and interest or interest only are passed through
to certificate holders. The underlying assets are subject to prepayment, which
may reduce the overall return to certificate holders. Nevertheless, principal
repayment rates tend not to vary much with interest rates and the short-term
nature of the assets tends to dampen the impact of any change in the prepayment
level. Certificate holders may also experience delays in payment on the
certificates if the full amounts due on the underlying assets are not realized
by the trust because of unanticipated legal or administrative costs of enforcing
the contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors.
In addition to the risks described above, mortgage-backed and
asset-backed securities without a U.S. Government guarantee involve risk of loss
of principal if the obligors of the underlying obligations default in payment of
the obligations.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). The Fund may invest in
CMOs. A CMO is a security backed by a portfolio of mortgages or mortgage-backed
securities held under an indenture. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs are issued in multiple classes or series which
have different maturities representing interests in some or all of the interest
or principal on the underlying collateral or a combination thereof. CMOs of
different classes are generally retired in sequence as the underlying mortgage
loans in the mortgage pool are repaid. In the event of sufficient early
prepayments on such mortgages, the class or series of CMO first to mature
generally will be retired prior to its stated maturity. Thus, the early
retirement of a particular class or series of CMO held by the Fund would have
the same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security. CMOs also include securities ("Residuals") representing
the interest in any excess cash flow and/or the value of any collateral
remaining after the issuer has applied cash flow from the underlying mortgages
or mortgage-backed securities to the payment of principal of, and interest on,
all other CMOs and the administrative expenses of the issuer. Due to uncertainty
as whether any excess cash flow or the
-12-
underlying collateral will be available, there can be no assurances that
Residuals will ultimately have value. See the Statement of Additional
Information.
ADJUSTABLE RATE SECURITIES. The Fund may invest in adjustable rate
securities which are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. They may be U.S. Government securities or securities of other
issuers. Some adjustable rate securities are backed by pools of mortgage loans.
Although the rate adjustment feature may act as a buffer to reduce sharp changes
in the value of adjustable rate securities, these securities are still subject
to changes in value based on changes in market interest rates or changes in the
issuer's creditworthiness. Because the interest rate is reset only periodically,
changes in the interest rates on adjustable rate securities may lag changes in
prevailing market interest rates. Also, some adjustable rate securities (or the
underlying mortgages) are subject to caps or floors that limit the maximum
change in interest rate during a specified period or over the life of the
security. Because of the resetting of interest rates, adjustable rate securities
are less likely than non-adjustable rate securities of comparable quality and
maturity to increase significantly in value when market interest rates fall. The
Fund's investments in adjustable rate securities will not be included for
purposes of determining compliance with the Fund's policy of investing at least
65% of its total assets in fixed income securities discussed above.
OTHER INVESTMENT POLICIES. The Fund may also invest a limited portion
of its net assets (in all cases less than 5%) in IO/PO strips, zero coupon
securities, indexed securities, loans and other direct debt instruments, reverse
repurchase agreements and dollar roll agreements. See the Statement of
Additional Information for a description of each of these investment practices
and the related risks.
See "Investment Objectives And Policies and Associated Risks--General"
for additional information.
GLOBAL SMALL CAP FUND
The investment objective of the Global Small Cap Fund is to seek
long-term capital appreciation through investment primarily in common stocks of
foreign and domestic companies with market capitalizations at the time of
investment by the Fund of up to $1.5 billion. Such companies are referred to
herein as "small capitalization companies." Current income is only an incidental
consideration in selecting investments for the Fund. The Fund is designed for
investors seeking above-average capital growth potential through a global
portfolio of common stocks.
Under normal circumstances, substantially all (but no less than 65%) of
the Fund's total assets will at all times be invested in common stocks of small
capitalization companies. Such companies may present greater opportunities for
capital appreciation because of high potential earnings growth, but may also
involve greater risk. Small capitalization companies tend to be smaller than
other companies and may be dependent upon a single proprietary product or market
niche. They may have limited product lines, markets or financial resources or
may depend on a limited management group. Typically, small capitalization
companies have fewer securities outstanding, which may be less liquid than
securities of larger companies. Their common stock and other securities may
trade less frequently and in limited volume. The securities of small
capitalization companies are generally more sensitive to purchase and sale
transactions; therefore, the prices of such securities tend to be more volatile
than the securities of larger companies. As a result, the securities of small
capitalization companies may change in value more than those of larger, more
established companies.
-13-
In seeking capital appreciation, the Fund follows a global investment
strategy of investing primarily in common stocks traded in securities markets
located in a number of foreign countries and in the United States. The Fund
normally expects to invest approximately 40% to 60% of its assets outside the
United States and the remaining 60% to 40% of its assets inside the United
States. The weighting of the Fund's portfolio between foreign and domestic
investments will depend upon prevailing conditions in foreign and domestic
markets. Under certain market conditions, the Fund may invest more than 60% of
its assets either outside or inside the United States. In addition, the Fund
will always invest at least 65% of its total assets in at least three different
countries, one of which will be the United States. The selection of the Fund's
domestic investments will generally be based on value factors, while the
selection of the Fund's foreign investments will generally be based on growth
factors. In certain foreign countries, particularly the newly industrializing
countries described below, the Fund's market capitalization guideline of $1.5
billion may include companies which, when viewed on a relative basis, are not
considered "small cap" in the particular country. The Fund may hold a portion of
its assets in cash or money market instruments.
Consistent with the above policies, the Fund may at times invest more
than 25% of its assets in the securities of issuers located in a single country.
At such times, the Fund's performance will be directly affected by political,
economic, market and exchange rate conditions in such country. When the Fund
invests a substantial portion of its assets in a single country it is subject to
greater risk of adverse changes in any of these factors with respect to such
country than a Fund which does not invest as heavily in the country.
The Fund may invest up to 15% of its assets in stocks traded in the
securities markets of newly industrializing countries in Asia, Latin America,
the Middle East, Southern Europe, Eastern Europe (including the former Soviet
Union) and Africa. Investment in such countries involves a greater degree of
risk than investment in industrialized countries, as discussed below. In order
to gain exposure to certain foreign countries which prohibit or impose
restrictions on direct investment, the Fund may (subject to any applicable
regulatory requirements) invest in foreign and domestic investment companies and
other pooled investment vehicles that invest primarily or exclusively in such
countries. The Fund's investment through such vehicles will generally involve
the payment of indirect expenses (including advisory fees) which the Fund does
not incur when investing directly.
The Manager believes that the securities markets of many nations move
relatively independently of one another because business cycles and other
economic or political events that influence one country's securities markets may
have little effect on securities markets in other countries. By investing in a
global portfolio, the Fund attempts to reduce the risks associated with
investing in the economy of only one country. The countries that the Manager or
Babson-Stewart Ivory International, the Fund's sub-adviser (the "Sub-Adviser"),
believes offer attractive opportunities for investment may change from time to
time. The Fund will invest only in exchange-traded securities and securities
traded through established over-the-counter trading systems which the Manager or
the Sub-Adviser believes provide comparable liquidity to exchange-traded
securities.
Foreign investments can involve risks, however, that may not be present
in domestic securities. Because foreign securities are normally denominated and
traded in foreign currencies, the value of the assets of the Fund may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations. There may be less information publicly available about a
foreign company than about a U.S. company, and foreign companies 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 companies are less liquid and at times more volatile than securities of
comparable U.S. companies.
-14-
Foreign brokerage commissions and other fees are also generally higher than 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.
In addition, with respect to certain foreign countries, there is a
possibility of expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial instability and
diplomatic developments which could affect the value of investments in those
countries. In certain countries, legal remedies available to investors may be
more limited than those available with respect to investments in the United
States or other countries. The laws of some foreign countries may limit the
Fund's ability to invest in securities of certain issuers located in those
countries. Finally, special tax considerations apply to foreign securities.
See "Investment Objectives and Policies and Associated Risks--General"
for additional information.
VALUE FUND
The Value Fund's investment objective is to seek long-term capital
appreciation primarily through investment in a portfolio of common stocks of
established companies. Strong consideration is given to common stocks whose
current prices do not adequately reflect, in the opinion of the Manager, the
true value of the underlying company in relation to earnings, dividends and/or
assets.
The Fund will ordinarily invest in the securities of companies which
are listed on national securities exchanges or on the National Association of
Securities Dealers Automated Quotation System. The Manager will select which
issues to invest in based on its assessment of whether the issue is likely to
provide favorable capital appreciation over the long-term.
The Fund's investments may be made in companies which are currently of
below average quality but which, in the opinion of the Manager, are undervalued
by the market and offer attractive opportunities for long-term capital
appreciation. Such companies involve a greater degree of investment risk than
companies of average or above average quality, including the risk of a total
loss in the event of insolvency or bankruptcy. Investment quality is evaluated
using fundamental analysis emphasizing an issuer's historic financial
performance, balance sheet strength, management capability and competitive
position. Various valuation parameters are examined to determine the
attractiveness of individual securities. The Fund may also hold a portion of its
assets in cash or money market instruments.
See "Investment Objectives And Policies and Associated Risks--General"
for additional information.
MID CAP FUND
The investment objective of the Mid Cap Fund is to seek long-term
capital appreciation primarily through investment in small to medium-size
companies. Such companies are referred to herein as "mid capitalization
companies," which for these purposes means companies with a market
capitalization at the time of investment by the Fund of between $400 million and
$2 billion. Current income is only an incidental consideration. Strong
consideration is given to common stocks of mid capitalization companies whose
current prices do not adequately reflect, in the opinion of the Manager, the
ongoing business value of the underlying company.
-16-
The Mid Cap Fund invests primarily in common stocks. Under normal
circumstances, substantially all (but no less than 65%) of its total assets will
be invested in the common stock of mid capitalization companies. Such companies
may present greater opportunities for capital appreciation because of high
potential earnings growth, but may also involve greater risk. Mid capitalization
companies, when compared to larger capitalization issuers, may be more dependent
upon a single proprietary product or market niche, may have limited product
lines, markets or financial resources, or may depend on a limited management
group. Typically, mid capitalization companies have fewer securities outstanding
and are less liquid than securities of larger companies. Their common stock and
other securities may trade less frequently and in limited volume. The securities
of mid capitalization companies are generally more sensitive to purchase and
sale transactions; therefore, the prices of such securities tend to be more
volatile than the securities of larger companies. As a result, the securities of
mid capitalization companies may change in value more than those of larger, more
established companies. The Fund generally intends to stay fully invested in
equity securities, although the Fund may hold a portion of its assets in cash or
money market instruments.
See "Investment Objectives and Policies and Associated Risks--General"
for additional information.
GENERAL
ILLIQUID SECURITIES. Each of the Funds may purchase "illiquid
securities," which are securities that are not readily marketable, including
securities whose disposition is restricted by contract or under Federal
securities laws, so long as no more than 15% of a Fund's net assets would be
invested in such illiquid securities. A Fund may not be able to dispose of such
securities in a timely fashion and for a fair price, which could result in
losses to the Fund. In addition, illiquid securities are generally more
difficult to value.
PORTFOLIO TURNOVER. Although portfolio turnover is not a limiting
factor with respect to investment decisions for the Funds, the Funds expect to
experience relatively low portfolio turnover rates. It is not anticipated that
under normal circumstances the annual portfolio turnover rate of any Fund will
exceed 100%. However, in any particular year, market conditions may result in
greater rates than are currently anticipated. Portfolio turnover involves
brokerage commissions and other transaction costs, which will be borne directly
by the relevant Fund, and could involve realization of capital gains that would
be taxable when distributed to shareholders. See "Taxes" below and "Portfolio
Transactions" in the Statement of Additional Information for additional
information. The tax consequences of portfolio transactions may be a secondary
consideration for tax-exempt investors.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements
with banks and broker- dealers. Under repurchase agreements a Fund acquires a
security (usually an obligation of a Government under which the transaction is
initiated or in whose currency the agreement is denominated) for cash and
obtains a simultaneous commitment from the seller to repurchase the security at
an agreed-upon price and date. The resale price exceeds the acquisition price
and reflects an agreed-upon market rate unrelated to the coupon rate on the
purchased security. Such transactions afford an opportunity for a Fund to earn a
return on temporarily available cash at no market risk, although there is a risk
that the seller may default on its obligation to pay the agreed-upon sum on the
redelivery date. Such a default may subject a Fund to expenses, delays and risks
of loss. Repurchase agreements entered into with foreign brokers, dealers and
banks involve additional risks similar to those of investing in foreign
securities. For a discussion of these risks, see "Global Small Cap Fund," above.
-16-
FIRM COMMITMENTS. Each Fund may enter into firm commitment agreements
with banks or broker- dealers for the purchase of securities at an agreed-upon
price on a specified future date. A Fund will only enter into firm commitment
arrangements with banks and broker-dealers which the Manager or Sub-Adviser
determines present minimal credit risks. A Fund will maintain, in a segregated
account with its custodian, cash, U.S. Government Securities or other liquid
high grade debt obligations in an amount equal to the Fund's obligations under
firm commitment agreements. The Fund bears the risk that the other party will
fail to satisfy its obligations to the Fund. Such a default may subject the Fund
to expenses, delays and risks of loss.
LOANS OF PORTFOLIO SECURITIES. Each Fund may make secured loans of
portfolio securities on up to 33 1/3% of the Fund's total assets. The risks in
lending portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. However, such loans will be
made only to broker-dealers that are believed by the Manager or the Sub-Adviser
to be of relatively high credit standing. Securities loans are made to
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or U.S. Government securities at least equal at
all times to the market value of the securities lent. The borrower pays to the
lending Fund an amount equal to any dividends or interest received on the
securities lent. The Fund may invest the cash collateral received or may receive
a fee from the borrower. Although voting rights or rights to consent with
respect to the loaned securities pass to the borrower, the Fund retains the
right to call the loans at any time on reasonable notice. The Fund may also call
such loans in order to sell the securities involved. The Fund pays various fees
in connection with such loans including shipping fees and reasonable custodian
and placement fees.
DERIVATIVES. Certain of the instruments in which the Funds may invest,
such as mortgage-backed securities and indexed securities, are considered to be
"derivatives". Derivatives are financial instruments whose value depends upon,
or is derived from, the value of an underlying asset, such as a security or
currency. Further information about these instruments and the risks involved in
their use is included elsewhere in this prospectus and in the Statement of
Additional Information.
RISKS OF NON-DIVERSIFICATION. The Funds are "non-diversified" funds and
as such are not required to meet any diversification requirements under the
Investment Company Act of 1940. As a non-diversified fund, each Fund may invest
a relatively high percentage of its assets in the securities of relatively few
issuers, rather than invest in the securities of a large number of issuers
merely to satisfy diversification requirements. Investment in the securities of
a limited number of issuers may increase the risk of loss to a Fund should there
be a decline in the market value of any one portfolio security. Investment in a
non-diversified fund therefore entails greater risks than investment in a
"diversified" fund.
CHANGES TO INVESTMENT OBJECTIVES. The investment objective and policies
of each Fund may be changed by the Trustees without shareholder approval. Any
such change may result in a Fund having an investment objective and policies
different from the objective and policies which a shareholder considered
appropriate at the time of such shareholder's investment in the Fund.
Shareholders of the relevant Fund will be notified of any changes in a Fund's
investment objective or policies through a revised prospectus or other written
communication.
-17-
================================================================================
PURCHASE OF SHARES
================================================================================
Shares of each Fund may be purchased directly from the Trust on any day
when the New York Stock Exchange is open for business (a "business day"). The
minimum for an initial investment in a Fund is $100,000, and the minimum for
each subsequent investment is $10,000. The purchase price of a share of each
Fund is the net asset value next determined after a purchase order is received
in good order.
Shares of each Fund may be purchased either (i) in exchange for common
stocks on deposit at The Depository Trust Company ("DTC") or appropriate fixed
income securities, subject to the determination by the Manager that the
securities to be exchanged are acceptable, (ii) in cash (i.e., by wire transfer)
or (iii) by a combination of such securities and cash. In all cases, the Manager
reserves the right to reject any particular investment. Securities accepted by
the Manager in exchange for Fund shares will be acquired for investment only and
not for resale and will be valued as set forth under "Determination of Net Asset
Value" (generally the last quoted sale price) as of the time of the next
determination of net asset value after such acceptance. All dividends, interest,
subscription or other rights which are reflected in the market price of accepted
securities at the time of valuation become the property of the relevant Fund and
must be delivered to the Trust upon receipt by the investor from the issuer. A
gain or loss for federal income tax purposes may be realized by investors
subject to Federal income taxation upon the exchange, depending upon the
investor's basis in the securities tendered.
The Manager will not approve the acceptance of securities in exchange
for Fund shares unless (1) the Manager, in its sole discretion, believes the
securities are appropriate investments for the Fund; (2) the investor represents
and agrees that all securities offered to the Fund are not subject to any
restrictions upon their sale by the Fund under the Securities Act of 1933, or
otherwise; and (3) the securities may be acquired under the investment
restrictions applicable to the relevant Fund. Investors interested in purchases
through exchange should telephone the Manager at (617) 225-3800, Attn: Maureen
A. Madden.
Investors should call the offices of the Trust before attempting to
place an order for Trust shares. The Trust reserves the right at any time to
reject an order.
For purposes of calculating the purchase price of Trust shares, a
purchase order is received by the Trust on the day that it is "in good order"
unless it is rejected by the Trust. An order is "in good order" if the Trust has
received the consideration for Trust shares (cash or, in the case of in-kind
investments, securities). In the case of a cash investment, the deadline for
wiring federal funds to the Trust is 2:00 p.m.; in the case of an investment
in-kind, the investor's securities must be placed on deposit at DTC, and 4:00
p.m. is the deadline for transferring those securities to the account designated
by Investors Bank & Trust Company. If the consideration is not received by the
Trust before the relevant deadline, the purchase order is not considered to be
in good order and the purchase order and consideration are required to be
resubmitted on the following business day, unless Investors Bank & Trust Company
can credit the consideration to the account for a specific Fund.
All federal funds must be transmitted to Investors Bank & Trust Company
to Account No. 777777722 for the account of the specific Fund.
"Federal funds" are monies credited to Investors Bank & Trust Company's
account with the Federal Reserve Bank of Boston.
-18-
Purchases will be made in full and fractional shares of each Fund
calculated to three decimal places. The Trust will send to shareholders written
confirmation (including a statement of shares owned) at the time of each
transaction.
12B-1 PLANS. The Trust has adopted a distribution and services plan
(each a "Plan") for each Fund under Rule 12b-1 of the Investment Company Act of
1940, but the Trustees do not intend to implement such Plans during the Trust's
current fiscal year. The purposes of each Plan if implemented would be to
compensate and/or reimburse investment dealers and other persons for services
provided and expenses incurred in promoting sales of shares, reducing
redemptions or improving services provided to shareholders by such dealers and
other persons. Each Plan would permit payments by a Fund for such purposes at an
annual rate of up to .50% of the Fund's average net assets, subject to the
authority of the Trustees to reduce the amount of payments or to suspend the
Plan for such periods as they may determine. Subject to these limitations, the
amount of payments under each Plan and the specific purposes for which they are
made would be determined by the Trustees. At present, the Trustees have no
intention of implementing any Plan.
================================================================================
REDEMPTION OF SHARES
================================================================================
Shares of each Fund may be redeemed on any business day in cash or in
kind. The redemption price is the net asset value per share next determined
after receipt of the redemption request in good order. There is no redemption
fee for any of the Funds. Cash payments generally will be made by transfer of
Federal funds for payment into the investor's account the next business day
following the redemption request. Redemption requests should be sent to
Investors Bank & Trust Company. In order to help facilitate the timely payment
of redemption proceeds, it is recommended that investors telephone the Manager
at (617) 225-38700, Attn: Maureen A. Madden, at least two days prior to
submitting a request.
Payment on redemption will be made as promptly as possible and in any
event within seven days after the request for redemption is received by the
Trust in good order. A redemption request is in good order if it includes the
correct name in which shares are registered, the investor's account number and
the number of shares or the dollar amount of shares to be redeemed and if it is
signed correctly in accordance with the form of registration. Persons acting in
a fiduciary capacity, or on behalf of a corporation, partnership or trust must
specify, in full, the capacity in which they are acting. In-kind redemptions, as
described below, will be transferred and delivered as directed by the investor.
If the Manager determines, in its sole discretion, that it would be
detrimental to the best interests of the remaining shareholders of a 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 readily marketable securities held
by the Fund in lieu of cash. Securities used to redeem Fund shares in kind will
be valued in accordance with the relevant Fund's procedures for valuation
described under "Determination of Net Asset Value." Investors generally will
incur brokerage charges on the sale of any such securities so received in
payment of redemptions.
When opening an account with the Trust, shareholders will be required
to designate the account(s) to which funds or securities may be transferred upon
redemption. Designation of additional accounts and any change in the accounts
originally designated must be made in writing with the signature guaranteed by a
commercial bank, a member firm of a domestic securities exchange or one of
certain other financial institutions.
-19-
Each Fund may suspend the right of redemption and may postpone payment
for more than seven days when the New York Stock Exchange is closed for other
than weekends or holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange is restricted or
during an emergency which makes it reasonably impracticable for the Fund to
dispose of its securities or fairly to determine the value of the net assets of
the Fund, or during any other period permitted by the Securities and Exchange
Commission for the protection of investors.
================================================================================
DETERMINATION OF NET ASSET VALUE
================================================================================
The net asset value of a share of each Fund is determined at 4:15 p.m.,
Eastern time, on each day on which the New York Stock Exchange is open, other
than a day on which no shares of the Fund were tendered for redemption and no
order to purchase shares was received by the Fund. If no shares of the Fund are
tendered for redemption during a month and no order to purchase shares is
received by the Fund during such month, the net asset value of a share of such
Fund will be determined on the last business day of such month. The net asset
value per share for a Fund is determined by dividing the total value of the
Fund's portfolio investments and other assets, less any liabilities, by the
total outstanding shares of the Fund. Portfolio securities (including options
and futures contracts) for which market quotations are available are valued at
the last quoted sale price, or, if there is no such reported sale, at the
closing bid price. Securities traded in the over-the-counter market are valued
at the most recent bid price as obtained from one or more dealers that make
markets in the securities. Portfolio securities that are traded both in the
over-the-counter market and on one or more stock exchanges are valued according
to the broadest and most representative market. Unlisted securities for which
market quotations are not readily available are valued at the most recent quoted
bid price. Short term debt securities with a remaining maturity of 60 days or
less will be valued at amortized cost, unless conditions dictate otherwise.
Illiquid securities or restricted securities will be valued at fair value based
on information supplied by a broker. Other assets for which no quotations are
readily available are valued at fair value as determined in good faith in
accordance with procedures adopted by the Trustees of the Trust. Determination
of fair value will be based upon such factors as are deemed relevant under the
circumstances, including the financial condition and operating results of the
issuer, recent third party transactions (actual or proposed) relating to such
securities and, in extreme cases, the liquidation value of the issuer.
Because of time zone differences, foreign exchanges and securities
markets will usually be closed prior to the time of the closing of the New York
Stock Exchange and the value of foreign securities will be determined as of the
closing of such exchanges and securities markets. Events affecting the values of
such foreign securities, however, may occasionally occur between the closings of
such exchanges and securities markets and the time the Fund determines its net
asset value, which will not be reflected in the computation of such net asset
value. If an event materially affecting the value of such foreign securities
occurs during such period, then such securities will be valued at fair value as
determined in good faith in accordance with procedures adopted by the Trustees.
Because foreign securities are quoted in foreign currencies,
fluctuations in the value of such securities in relation to the U.S. dollar will
affect the net asset value of shares of the Fund even though there has not been
any change in the values of such securities measured in terms of the foreign
currencies in which they are denominated. The value of foreign securities is
converted into U.S. dollars at the rate of exchange prevailing at the time of
determination of net asset value.
-20-
================================================================================
DISTRIBUTIONS
================================================================================
Each Fund intends to pay out as dividends substantially all of its net
investment income (which comes from dividends and any interest it receives from
its investments and net short-term capital gains). Each Fund also intends to
distribute substantially all of its net long-term capital gains, if any, after
giving effect to any available capital loss carryover. Each Fund's present
policy is to declare and pay distributions of its dividends and interest at
least annually. Each Fund also intends to distribute net short-term capital
gains and net long-term capital gains at least annually.
All dividends and/or distributions will be paid in shares of the
relevant Fund, at net asset value, unless the shareholder elects to receive
cash. Shareholders may make this election by marking the appropriate box on the
application form or by writing to Investors Bank & Trust Company.
================================================================================
TAXES
================================================================================
Each Fund is treated as a separate taxable entity for federal income
tax purposes. Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended. By
so qualifying, a Fund itself will not pay federal income tax on the income and
gain distributed annually to its shareholders. Distributions of ordinary income
and short-term capital gains, whether received in cash or reinvested shares,
will be taxable as ordinary income to shareholders subject to federal income
tax. Designated distributions of any long-term capital gains are taxable as
such, regardless of how long a shareholder may have owned shares in the Fund or
whether received in cash or reinvested shares. Any loss recognized on the sale
or disposition of shares held for six months or less will be treated as
long-term capital loss to the extent of any long-term capital gain distributions
received by a shareholder with respect to those shares. A distribution paid to
shareholders in January generally is deemed to have been received by
shareholders on December 31 of the preceding year, if the distribution was
declared and payable to shareholders of record on a date in October, November or
December of that preceding year. The Trust will provide federal tax information
annually, including information about dividends and distributions paid during
the preceding year.
BACK-UP WITHHOLDING. The back-up withholding rules set forth below do
not apply to tax exempt entities or corporations that furnish the Trust with an
appropriate certification. For other shareholders, however, the Trust is
generally required to withhold and remit to the U.S. Treasury 31% of all
distributions, whether distributed in cash or reinvested in shares, and 31% of
the proceeds of any redemption paid or credited to the shareholder's account if
an incorrect or no taxpayer identification number has been provided, where
appropriate certification has not been provided for a foreign shareholder, or
where the Trust is notified that the shareholder has underreported income in the
past (or the shareholder fails to certify that he is not subject to such
withholding). Special withholding rules, described below, may apply to foreign
shareholders.
FOREIGN WITHHOLDING TAXES. The Global Small Cap Fund may be subject to
foreign withholding taxes on income and gains derived from foreign investments.
Such taxes would reduce the yield on such Fund's investments, but, as discussed
below, may be taken as either a deduction or a credit by U.S. investors if the
Fund makes the election described below.
-21-
If, at the end of the fiscal year, more than 50% of the total assets of
the Global Small Cap Fund are comprised of securities of foreign corporations,
the Trust intends to make an election which allows shareholders whose income
from the Fund is subject to U.S. taxation at the graduated rates applicable to
U.S. citizens, residents or domestic corporations to claim a foreign tax credit
or deduction (but not both) on their U.S. income tax return. In such case, the
amount of foreign income taxes paid by the Fund would be treated as additional
income to Fund shareholders from non-U.S. sources and as foreign taxes paid by
Fund shareholders. Investors should consult their tax advisors for further
information relating to the foreign tax credit and deduction, which are subject
to certain restrictions and limitations. Shareholders of the Global Small Cap
Fund whose income from the Fund is not subject to U.S. taxation at the graduated
rates applicable to U.S. citizens, residents or domestic corporations may
receive substantially different tax treatment on distributions by such Fund, and
may be disadvantaged as a result of the election described in this paragraph.
Organizations that are exempt from U.S. taxation will not be affected by the
election described above.
The foregoing is a general summary of the federal income tax consequences
for shareholders who are U.S. citizens or residents or domestic corporations.
Shareholders should consult their own tax advisors about the tax consequences of
investments in a Fund in light of their particular tax situations. Shareholders
should also consult their own tax advisors about consequences under foreign,
state, local or other applicable tax laws.
WITHHOLDING ON DISTRIBUTIONS TO FOREIGN INVESTORS. Dividend distributions
(including in general distributions derived from short-term capital gains,
dividends and interest) are in general subject to a U.S. withholding tax of 30%
when paid to a non-resident alien individual, foreign estate or trust, a foreign
corporation, or a foreign partnership ("foreign shareholder"). Persons who are
residents in a country, such as the United Kingdom, that has an income tax
treaty with the United States may be eligible for a reduced withholding rate
(upon filing of appropriate forms), and are urged to consult their tax advisors
regarding the applicability and effect of such a treaty. Distributions of net
long-term capital gains to a foreign shareholder and any gain realized upon the
sale of Fund shares by such a shareholder will ordinarily not be subject to U.S.
taxation, unless the recipient or seller is a nonresident alien individual who
is present in the United States for more than 182 days during the taxable year.
Foreign shareholders with respect to whom income from a Fund is "effectively
connected" with a U.S. trade or business carried on by such shareholder,
however, will in general be subject to U.S. federal income tax on the income
derived from the Fund at the graduated rates applicable to U.S. citizens,
residents or domestic corporations, whether such income is received in cash or
reinvested in shares, and may also be subject to a branch profits tax. Again,
foreign shareholders who are residents in a country with an income tax treaty
with the United States may obtain different tax results and all foreign
investors are urged to consult their tax advisors.
================================================================================
MANAGEMENT OF THE TRUST
================================================================================
Each Fund is advised and managed by David L. Babson & Co., Inc., One
Memorial Drive, Cambridge, Massachusetts 02142, which provides investment
advisory services to a substantial number of institutional and other investors,
including other registered investment companies. David L. Babson & Co., Inc. is
a wholly owned subsidiary of DLB Acquisition Corp., a holding company, which is
controlled by Mass Mutual Holding Company, a holding company and wholly owned
subsidiary of Massachusetts Mutual Life Insurance Company, a mutual life
insurance company.
-22-
Under separate Management Contracts relating to each Fund, the Manager
selects and reviews each Fund's investments and provides executive and other
personnel for the management of the Trust. Pursuant to the Trust's Agreement and
Declaration of Trust, the Board of Trustees supervises the affairs of the Trust
as conducted by the Manager. In the event that the Manager ceases to be the
manager of any Fund, the right of the Fund or of the Trust to use the
identifying name "DLB" may be withdrawn.
The Manager has entered into a Sub-Advisory Agreement (the
"Sub-Advisory Agreement") with Babson-Stewart Ivory International (the
"Sub-Adviser"), One Memorial Drive, Cambridge, Massachusetts 02142, with respect
to the management of the international component of the Global Small Cap Fund's
portfolio. The Sub-Adviser also provides investment advisory services to a
substantial number of institutional and other investors, including other
registered investment companies. The Sub-Adviser is a general partnership owned
50% by the Manager and 50% by Stewart-Ivory & Company (International) Limited,
an indirect wholly owned subsidiary of Stewart Ivory (Holdings) Ltd., which is
controlled by James G.D. Ferguson and John G.L. Wright.
Each of the Funds pays the Manager a monthly fee at the annual rate of the
relevant Fund's average daily net assets set forth below. The Manager, however,
has agreed to waive its fee and to bear certain expenses for the current fiscal
year to the extent each of the Fund's annual expenses (including the management
fee but excluding brokerage commissions and transfer taxes) would exceed the
percentage of the Fund's average daily net assets set forth below.
Management Fee Expense Limitation
(as a % of Average (as a % of Average
Daily Net Assets) Daily Net Assets)
Name of Fund
Fixed Income Fund .40% .55%
Global Small Cap Fund 1.00* 1.50
Value Fund .55 .80
Mid Cap Fund .60 .90
* Under the Sub-Advisory Agreement, the Manager pays the
Sub-Adviser a monthly fee at the annual rate of .50% of the
Global Small Cap Fund's average daily net assets, although the
Sub-Adviser has currently agreed to waive a portion of its fee.
Payments made to the Sub-Adviser by the Manager will not affect
the amounts payable by the Fund to the Manager or the Fund's
expense ratio. The management fees paid by the Fund are higher
than the management fees paid by most other investment companies,
although not necessarily higher than other investment companies
investing in a global portfolio of small capitalization stocks.
Edward L. Martin is primarily responsible for the day-to-day management
of the portfolio of the Fixed Income Fund. Peter C. Schliemann, James W. Burns
and John Wright are primarily responsible for the day-to-day management of the
portfolio of the Global Small Cap Fund. Roland W. Whitridge is primarily
responsible for the day-to-day management of the Value Fund. Eugene Gardner is
primarily responsible for the day-to-day management of the Mid Cap Fund. Mr.
Martin, Mr. Schliemann, Mr. Whitridge and Mr. Gardner have each been employed by
the Manager in portfolio management for the past five years. Mr. Burns and Mr.
Wright have each been employed by the Sub-Adviser in portfolio management for
the past five years.
-23-
================================================================================
PERFORMANCE INFORMATION
================================================================================
Yield (in the case of the Fixed Income Fund) and total return data (for
all Funds) may from time to time be included in advertisements about each Fund.
"Yield" for the Fixed Income Fund is calculated by dividing the Fund's
annualized net investment income per share during a recent 30-day period by the
maximum public offering price per share on the last day of that period. "Total
return" for the life of a Fund through the most recent calendar quarter
represents the average annual compounded rate of return on an investment of
$1,000 in the Fund at net asset value. Quotations of yield or total return for
any period when an expense limitation was in effect will be greater than if the
limitation had not been in effect.
All data is based on a Fund's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of a Fund's
portfolio, and a Fund's operating expenses. Investment performance also often
reflects the risks associated with a Fund's investment objective and policies.
These factors should be considered when comparing a Fund's investment results to
those of other mutual funds and other investment vehicles.
================================================================================
ORGANIZATION AND CAPITALIZATION OF THE TRUST
================================================================================
The Trust was established on August 1, 1994 as a business trust under
Massachusetts law. The Trust has an unlimited number of authorized shares of
beneficial interest which may, without shareholder approval, be divided into an
unlimited number of series of such shares and which are presently divided into
six series of shares. The Trust does not generally hold annual meetings of
shareholders and will do so only when required by law. Matters submitted to
shareholder vote must be approved by each series separately except (i) when
required by the Investment Company Act of 1940, shares shall be voted together
as a single class, and (ii) when the Trustees have determined that the matter
affects one or more series, then only shareholders of such series shall be
entitled to vote on the matter. Shares are freely transferable, are entitled to
dividends as declared by the Trustees, and, in liquidation of the Trust, are
entitled to receive the net assets of their series, but not of any other series.
Shareholders holding a majority of the outstanding shares of the Trust may
remove Trustees from office by votes cast in person or by proxy at a meeting of
shareholders or by written consent. Massachusetts Mutual Life Insurance Company
currently owns more than 25% of the outstanding shares of each Fund and
therefore is deemed to "control" each Fund within the meaning of the Investment
Company Act of 1940. In addition, each of David L. Babson & Co. Profit Sharing
Plan and Haley & Aldrich currently owns more than 25% of the outstanding shares
of the Fixed Income Fund and therefor each is deemed to "control" such Fund
within the meaning of the Investment Company Act of 1940.
Shareholders could, under certain circumstances, be held personally
liable for the obligations of the Trust. The risk of a shareholder incurring
financial loss on account of that liability, however, is considered remote
because liability may arise only in very limited circumstances and shareholders
are entitled to indemnification out of the assets of the relevant Fund for any
such liability.
-24-
================================================================================
SHAREHOLDER INQUIRIES
================================================================================
Shareholders may direct inquiries to the Trust c/o David L. Babson &
Co., Inc., Marketing Department, Attn: Maureen A. Madden, One Memorial Drive,
Cambridge, Massachusetts 02142 (1-617-225-3800).
When required by the Investment Company Act of 1940, the Manager's
discussion of the performance of each Fund in its most recent fiscal year as
well as a comparison of each Fund's performance over the life of the Fund with
that of a benchmark securities index selected by the Manager will be included in
the Trust's Annual Report for that fiscal year. Copies of the Annual Report will
be available upon request without charge.
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
CUSTODIAN
Investors Bank & Trust Company
89 South Street
P.O. Box 1537
Boston, MA 02205
TRANSFER AGENT
Investors Bank & Trust Company
89 South Street
P.O. Box 1537
Boston, MA 02205
-25-
================================================================================
PROSPECTUS
THE DLB QUANTITATIVE EQUITY FUND
One Memorial Drive
Cambridge, Massachusetts 02142
(617) 225-3800
August 19, 1996
The DLB Quantitative Equity Fund (the "Fund") is a portfolio of The DLB
Fund Group (the "Trust"), an open-end management investment company offering
non-diversified portfolios with different investment objectives and strategies.
The Fund is intended primarily to serve as an investment vehicle for
institutional investors. The Fund's investment manager is David L. Babson & Co.,
Inc. (the "Manager").
Shares of the Fund are sold to investors by the Trust. The minimum
initial investment in the Fund is $100,000, and the minimum for each subsequent
investment is $10,000.
This Prospectus concisely describes the information which investors
ought to know before investing in The DLB Quantitative Equity Fund. Please read
this Prospectus carefully and keep it for further reference.
A Statement of Additional Information dated August 19, 1996 is
available at no charge by writing to the Trust, c/o David L. Babson & Co., Inc.,
Marketing Department, Attention: Maureen A. Madden, One Memorial Drive,
Cambridge, Massachusetts 02142 or by telephoning (617) 225-3800. The Statement,
which contains more detailed information about the Fund, has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
Prospectus.
================================================================================
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
================================================================================
TABLE OF CONTENTS
Page
SHAREHOLDER TRANSACTION AND FUND EXPENSES ................................ 3
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS .................. 4
PURCHASE OF SHARES ....................................................... 6
REDEMPTION OF SHARES ..................................................... 8
DETERMINATION OF NET ASSET VALUE ......................................... 9
DISTRIBUTIONS ............................................................ 9
TAXES .................................................................... 9
MANAGEMENT OF THE TRUST ................................................. 11
PERFORMANCE INFORMATION ................................................. 11
ORGANIZATION AND CAPITALIZATION OF THE TRUST ............................ 12
SHAREHOLDER INQUIRIES ................................................... 12
-2-
================================================================================
SHAREHOLDER TRANSACTION AND FUND EXPENSES
================================================================================
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee waiver) (a)......................... .55%
12b-1 Fees(b).................................................. 0
Other Expenses(c).............................................. .35%
Total Fund Operating Expenses (after fee waiver) (a)........... .90%
EXAMPLE:
You would pay the following Years
expenses on a $1,000 investment,
assuming a 5% annual return, 1 3
with or without redemption at -- --
the end of each period: $9.00 $29.00
- ---------------
(a) The Manager has agreed with the Fund to reduce its management fee
and to bear certain expenses for the current fiscal year to the
extent that the Fund's total annual expenses, other than
brokerage commissions and transfer taxes, would otherwise exceed
.90% of the Fund's average daily net assets. Therefore, so long
as the Manager agrees to reduce its fee and to bear certain
expenses, total annual expenses of the Fund, other than brokerage
commissions and transfer taxes, will not exceed .90%. Absent such
agreement by the Manager to waive its fee and bear certain
expenses, management fees would be .75% and total Fund operating
expenses would be 1.10%.
(b) The Fund has adopted a distribution and services plan pursuant to
Rule 12b-1 that permits payments by the Fund at an annual rate of
up to .50% of the Fund's average net assets, but the Trustees do
not currently intend to implement such plan during the Fund's
current fiscal year. See "Purchase of Shares -- 12b-1 Plan."
(c)
"Other Expenses" are based on estimated amounts the Fund expects
to incur during its first fiscal year.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses of the Fund that are borne by
holders of Fund shares. THE FIVE PERCENT ANNUAL RETURN AND ESTIMATED EXPENSES
USED IN CALCULATING THE EXAMPLE ARE NOT A REPRESENTATION OF PAST OR FUTURE
PERFORMANCE OR EXPENSES; ACTUAL PERFORMANCE AND/OR EXPENSES MAY BE MORE OR LESS
THAN SHOWN.
-3-
================================================================================
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS
================================================================================
The Fund seeks long-term growth of capital. Under normal market
conditions, substantially all of the Fund's total assets (but no less than 65%
of its total assets) will be invested in common stocks and other equity
securities. Although common stocks of well-established, medium- to
large-capitalization companies will normally comprise the Fund's principal
investments, the Fund may also purchase convertible bonds, convertible preferred
stocks, preferred stocks and debt securities that are of investment grade
quality at the time of purchase if the Manager believes they would help achieve
the Fund's objective. The Fund may also hold a portion of its assets in cash or
money market instruments and may engage in the various investment practices
described below. The Fund is not intended to be a complete investment program,
and there is no assurance it will achieve its objective.
BASIC INVESTMENT STRATEGY. The Manager believes that there are
systematic mispricings in the securities markets that can be exploited by a
disciplined investment strategy based predominately on quantitative factors. The
Manager seeks to exploit these mispricings by constructing a portfolio using a
proprietary analytical model. A broad cross-section of securities is ranked
using both value factors and growth factors. Securities are then selected for
the Fund based on these rankings, with weight also given to the impact of
transaction costs and the portfolio's overall characteristics, including sector
weightings, beta, market capitalization, yield and liquidity.
DEFENSIVE STRATEGIES. At times the Manager may judge that market
conditions make pursuing the Fund's basic investment strategy inconsistent with
the best interests of its shareholders. At such times the Manager may
temporarily use "defensive" strategies designed primarily to reduce fluctuations
in the value of the Fund's assets. In implementing these defensive strategies,
the Fund may invest without limit in securities of any kind. It is not currently
anticipated that the Fund, when investing for such defensive purposes, will
invest in securities that entail greater overall risk than the Fund's typical
investments. It is impossible to predict when, or for how long, the Fund will
use these alternative strategies.
FINANCIAL FUTURES AND OPTIONS. The Fund may buy and sell financial
futures contracts on securities indexes and fixed income securities. A futures
contract is a contract to buy or sell units of a particular securities index, or
a certain amount of a fixed income security, at an agreed price on a specified
future date. Depending on the change in value of the index or security between
the time when a Fund enters into and terminates a futures contract, the Fund
realizes a gain or loss. The Fund may purchase and sell futures contracts for
hedging purposes and to adjust that Fund's exposure to relevant stock or bond
markets. For example, when the Manager wants to increase the Fund's exposure to
equity securities, it may do so by taking long positions in futures contracts on
equity indices such as futures contracts on the Standard & Poor's 500 Composite
Stock Price Index. Similarly, when the Manager wants to increase the Fund's
exposure to fixed income securities, it may do so by taking long positions in
futures contracts relating to fixed income securities such as futures contracts
on U.S. Treasury bonds or notes. The Fund may buy and sell call and put options
on futures contracts or on stock indices in addition to or as an alternative to
purchasing or selling futures contracts.
The use of futures and options involves certain special risks. Certain
risks arise because of the possibility of imperfect correlations between
movements in the prices of financial futures and options and movements in the
prices of the underlying securities index or securities or of the securities
which are the subject of the hedge. The successful use of futures and options
further depends on the Manager's ability to forecast market or interest rate
movements correctly. Other risks arise from the Fund's potential inability to
close out its futures or related options positions, and there can be no
assurance that a liquid
-4-
secondary market will exist for any futures contract or option at a particular
time. The Fund's ability to terminate option positions established in the
over-the-counter market may be more limited than for exchange-traded options and
may also involve the risk that securities dealers participating in such
transactions would fail to meet their obligations to the Fund. The use of
futures or options on futures for purposes other than hedging may be regarded as
speculative. Certain provisions of the Internal Revenue Code and certain
regulatory requirements may also limit the Fund's ability to engage in futures
and options transactions. See the Statement of Additional Information for
additional information regarding risks of financial futures and options.
OPTIONS. The Fund may purchase and sell call and put options on
securities it owns or in which it may invest. The Fund receives a premium from
writing a call or put option, which increases the Fund's return if the option
expires unexercised or is closed out at a net profit. When the Fund writes a
call option, it gives up the opportunity to profit from any increase in the
price of a security above the exercise price of the option; when it writes a put
option, the Fund takes the risk that it will be required to purchase a security
from the option holder at a price above the current market price of the
security. The Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. The Fund may also from
time to time buy and sell combinations of put and call options on the same
underlying security to earn additional income. The aggregate value of the
securities underlying the options written by the Fund may not exceed 25% of the
Fund's total assets. The Fund's use of these strategies may be limited by
applicable law.
ILLIQUID SECURITIES. The Fund may purchase "illiquid securities," which
are securities that are not readily marketable, including securities whose
disposition is restricted by contract or under Federal securities laws, so long
as no more than 15% of the Fund's net assets would be invested in such illiquid
securities. The Fund may not be able to dispose of such securities in a timely
fashion and for a fair price, which could result in losses. In addition,
illiquid securities are generally more difficult to value.
LOANS OF PORTFOLIO SECURITIES. The Fund may make secured loans of
portfolio securities on up to 33 1/3% of its total assets. The risks in lending
portfolio securities, as with other extensions of credit, consist of possible
delay in recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. However, such loans will be made only to
broker-dealers that are believed by the Manager to be of relatively high credit
standing. Securities loans are made to broker-dealers pursuant to agreements
requiring that loans be continuously secured by collateral in cash or U.S.
Government securities at least equal at all times to the market value of the
securities lent. The borrower pays to the Fund an amount equal to any dividends
or interest received on the securities lent. The Fund may invest the cash
collateral received or may receive a fee from the borrower. Although voting
rights or rights to consent with respect to the loaned securities pass to the
borrower, the Fund retains the right to call the loans at any time on reasonable
notice. The Fund may also call such loans in order to sell the securities
involved. The Fund pays various fees in connection with such loans including
shipping fees and reasonable custodian and placement fees.
PORTFOLIO TURNOVER. Portfolio turnover is not a limiting factor with
respect to investment decisions for the Fund. It is anticipated that under
normal circumstances the annual portfolio turnover rate of the Fund will not
exceed 200%. However, in any particular year, market conditions may result in
greater rates than are currently anticipated. Portfolio turnover involves
brokerage commissions and other transaction costs, which will be borne directly
by the Fund, and could involve realization of capital gains that would be
taxable when distributed to shareholders. See "Taxes" below and "Portfolio
Transactions" in the
-5-
Statement of Additional Information for additional information. The tax
consequences of portfolio transactions may be a secondary consideration for
tax-exempt investors.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements
with banks and broker- dealers. Under a repurchase agreement the Fund acquires a
security for cash and obtains a simultaneous commitment from the seller to
repurchase the security at an agreed-upon price and date. The resale price
exceeds the acquisition price and reflects an agreed-upon market rate unrelated
to the coupon rate on the purchased security. Such transactions afford an
opportunity for the Fund to earn a return on temporarily available cash at no
market risk, although there is a risk that the seller may default on its
obligation to pay the agreed-upon sum on the redelivery date. Such a default may
subject the Fund to expenses, delays and risks of loss.
FIRM COMMITMENTS. The Fund may enter into firm commitment agreements
with banks or broker- dealers for the purchase of securities at an agreed-upon
price on a specified future date. The Fund will only enter into firm commitment
arrangements with banks and broker-dealers which the Manager determines present
minimal credit risks. The Fund will maintain, in a segregated account with its
custodian, cash, U.S. Government Securities or other liquid high grade debt
obligations in an amount equal to the Fund's obligations under firm commitment
agreements. The Fund bears the risk that the other party will fail to satisfy
its obligation to the Fund. Such a default may subject the Fund to expenses,
delays and risks of loss.
DERIVATIVES. Certain of the instruments in which the Fund may invest,
such as futures contracts and options, are considered to be "derivatives".
Derivatives are financial instruments whose value depends upon, or is derived
from, the value of an underlying asset, such as a security or an index. Further
information about these instruments and the risks involved in their use is
included elsewhere in this prospectus and in the Statement of Additional
Information.
RISKS OF NON-DIVERSIFICATION. The Fund is "non-diversified" and as such
is not required to meet any diversification requirements under the Investment
Company Act of 1940. As a non-diversified fund, the Fund may invest a relatively
high percentage of its assets in the securities of relatively few issuers,
rather than invest in the securities of a large number of issuers merely to
satisfy diversification requirements. Investment in the securities of a limited
number of issuers may increase the risk of loss to the Fund should there be a
decline in the market value of any one portfolio security. Investment in a
non-diversified fund therefore entails greater risks than investment in a
"diversified" fund.
CHANGES TO INVESTMENT OBJECTIVE. The investment objective and policies
of the Fund may be changed by the Trustees without shareholder approval. Any
such change may result in the Fund having an investment objective and policies
different from the objective and policies which a shareholder considered
appropriate at the time of such shareholder's investment in the Fund.
Shareholders of the Fund will be notified of any changes in the Fund's
investment objective or policies through a revised prospectus or other written
communication.
================================================================================
PURCHASE OF SHARES
================================================================================
Shares of the Fund may be purchased directly from the Trust on any day
when the New York Stock Exchange is open for business (a "business day"). The
minimum for an initial investment in the Fund is
-6-
$100,000, and the minimum for each subsequent investment is $10,000. The
purchase price of a share of the Fund is the net asset value next determined
after a purchase order is received in good order. No sales charge is imposed on
purchases of Fund shares.
Shares of the Fund may be purchased either (i) in exchange for common
stocks on deposit at The Depository Trust Company ("DTC") or appropriate fixed
income securities, subject to the determination by the Manager that the
securities to be exchanged are acceptable, (ii) in cash (i.e., by wire transfer)
or (iii) by a combination of such securities and cash. In all cases, the Manager
reserves the right to reject any particular investment. Securities accepted by
the Manager in exchange for Fund shares will be acquired for investment only and
not for resale and will be valued as set forth under "Determination of Net Asset
Value" (generally the last quoted sale price) as of the time of the next
determination of net asset value after such acceptance. All dividends, interest,
subscription or other rights which are reflected in the market price of accepted
securities at the time of valuation become the property of the Fund and must be
delivered to the Trust upon receipt by the investor from the issuer. A gain or
loss for federal income tax purposes may be realized by investors subject to
Federal income taxation upon the exchange, depending upon the investor's basis
in the securities tendered.
The Manager will not approve the acceptance of securities in exchange
for Fund shares unless (1) the Manager, in its sole discretion, believes the
securities are appropriate investments for the Fund; (2) the investor represents
and agrees that all securities offered to the Fund are not subject to any
restrictions upon their sale by the Fund under the Securities Act of 1933, or
otherwise; and (3) the securities may be acquired under the investment
restrictions applicable to the Fund. Investors interested in purchases through
exchange should telephone the Manager at (617) 225-3800, Attn: Maureen A.
Madden.
Investors should call the offices of the Trust before attempting to
place an order for Trust shares. The Trust reserves the right at any time to
reject an order.
For purposes of calculating the purchase price of Trust shares, a
purchase order is received by the Trust on the day that it is "in good order"
unless it is rejected by the Trust. An order is "in good order" if the Trust has
received the consideration for Trust shares (cash or, in the case of in-kind
investments, securities). In the case of a cash investment, the deadline for
wiring federal funds to the Trust is 2:00 p.m.; in the case of an investment
in-kind, the investor's securities must be placed on deposit at DTC, and 4:00
p.m. is the deadline for transferring those securities to the account designated
by Investors Bank & Trust Company. If the consideration is not received by the
Trust before the relevant deadline, the purchase order is not considered to be
in good order and the purchase order and consideration are required to be
resubmitted on the following business day.
All federal funds must be transmitted to Investors Bank & Trust Company
to Account No. 777777722 for the account of the Fund.
"Federal funds" are monies credited to Investors Bank & Trust Company's
account with the Federal Reserve Bank of Boston.
Purchases will be made in full and fractional shares of the Fund
calculated to three decimal places. The Trust will send to shareholders written
confirmation (including a statement of shares owned) at the time of each
transaction.
-7-
12B-1 PLAN. The Trust has adopted a distribution and services plan (the
"Plan") for the Fund under Rule 12b-1 of the Investment Company Act of 1940, but
the Trustees do not intend to implement such Plan during the Trust's current
fiscal year. The purposes of the Plan if implemented would be to compensate
and/or reimburse investment dealers and other persons for services provided and
expenses incurred in promoting sales of shares, reducing redemptions or
improving services provided to shareholders by such dealers and other persons.
The Plan would permit payments by the Fund for such purposes at an annual rate
of up to .50% of the Fund's average net assets, subject to the authority of the
Trustees to reduce the amount of payments or to suspend the Plan for such
periods as they may determine. Subject to these limitations, the amount of
payments under the Plan and the specific purposes for which they are made would
be determined by the Trustees. At present, the Trustees have no intention of
implementing the Plan.
================================================================================
REDEMPTION OF SHARES
================================================================================
Shares of the Fund may be redeemed on any business day in cash or in
kind. The redemption price is the net asset value per share next determined
after receipt of the redemption request in good order. There is no redemption
fee for the Fund. Cash payments generally will be made by transfer of Federal
funds for payment into the investor's account the next business day following
the redemption request. Redemption requests should be sent to Investors Bank &
Trust Company. In order to help facilitate the timely payment of redemption
proceeds, it is recommended that investors telephone the Manager at (617)
225-38700, Attn: Maureen A. Madden, at least two days prior to submitting a
request.
Payment on redemption will be made as promptly as possible and in any
event within seven days after the request for redemption is received by the
Trust in good order. A redemption request is in good order if it includes the
correct name in which shares are registered, the investor's account number and
the number of shares or the dollar amount of shares to be redeemed and if it is
signed correctly in accordance with the form of registration. Persons acting in
a fiduciary capacity, or on behalf of a corporation, partnership or trust must
specify, in full, the capacity in which they are acting. In-kind redemptions, as
described below, will be transferred and delivered as directed by the investor.
If the Manager determines, in its sole discretion, 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 readily marketable securities held
by the Fund in lieu of cash. Securities used to redeem Fund shares in kind will
be valued in accordance with the Fund's procedures for valuation described under
"Determination of Net Asset Value." Investors generally will incur brokerage
charges on the sale of any such securities so received in payment of
redemptions.
When opening an account with the Trust, shareholders will be required
to designate the account(s) to which funds or securities may be transferred upon
redemption. Designation of additional accounts and any change in the accounts
originally designated must be made in writing with the signature guaranteed by a
commercial bank, a member firm of a domestic securities exchange or one of
certain other financial institutions.
The Fund may suspend the right of redemption and may postpone payment
for more than seven days when the New York Stock Exchange is closed for other
than weekends or holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange is
-8-
restricted or during an emergency which makes it reasonably impracticable for
the Fund to dispose of its securities or fairly to determine the value of the
net assets of the Fund, or during any other period permitted by the Securities
and Exchange Commission for the protection of investors.
================================================================================
DETERMINATION OF NET ASSET VALUE
================================================================================
The net asset value of a share of the Fund is determined at 4:15 p.m.,
Eastern time, on each day on which the New York Stock Exchange is open, other
than a day on which no shares of the Fund were tendered for redemption and no
order to purchase shares was received by the Fund. If no shares of the Fund are
tendered for redemption during a month and no order to purchase shares is
received by the Fund during such month, the net asset value of a share of the
Fund will be determined on the last business day of such month. The net asset
value per share for the Fund is determined by dividing the total value of the
Fund's portfolio investments and other assets, less any liabilities, by the
total outstanding shares of the Fund. Portfolio securities (including options
and futures contracts) for which market quotations are available are valued at
the last quoted sale price, or, if there is no such reported sale, at the
closing bid price. Securities traded in the over-the-counter market are valued
at the most recent bid price as obtained from one or more dealers that make
markets in the securities. Portfolio securities that are traded both in the
over-the-counter market and on one or more stock exchanges are valued according
to the broadest and most representative market. Unlisted securities for which
market quotations are not readily available are valued at the most recent quoted
bid price. Short term debt securities with a remaining maturity of 60 days or
less will be valued at amortized cost, unless conditions dictate otherwise.
Illiquid securities or restricted securities will be valued at fair value based
on information supplied by a broker. Other assets for which no quotations are
readily available are valued at fair value as determined in good faith in
accordance with procedures adopted by the Trustees of the Trust. Determination
of fair value will be based upon such factors as are deemed relevant under the
circumstances, including the financial condition and operating results of the
issuer, recent third party transactions (actual or proposed) relating to such
securities and, in extreme cases, the liquidation value of the issuer.
================================================================================
DISTRIBUTIONS
================================================================================
The Fund intends to pay out as dividends substantially all of its net
investment income (which comes from dividends and any interest it receives from
its investments and net short-term capital gains). The Fund also intends to
distribute substantially all of its net long-term capital gains, if any, after
giving effect to any available capital loss carryover. The Fund's present policy
is to declare and pay distributions of its dividends and interest at least
annually. The Fund also intends to distribute net short-term capital gains and
net long-term capital gains at least annually. All dividends and/or
distributions will be paid in shares of the Fund, at net asset value, unless the
shareholder elects to receive cash. Shareholders may make this election by
marking the appropriate box on the application form or by writing to Investors
Bank & Trust Company.
-9-
================================================================================
TAXES
================================================================================
The Fund is treated as a separate taxable entity for federal income tax
purposes. The Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended. By
so qualifying, the Fund itself will not pay federal income tax on the income and
gain distributed annually to its shareholders. Distributions of ordinary income
and short-term capital gains, whether received in cash or reinvested shares,
will be taxable as ordinary income to shareholders subject to federal income
tax. Designated distributions of any long-term capital gains are taxable as
such, regardless of how long a shareholder may have owned shares in the Fund or
whether received in cash or reinvested shares. Any loss recognized on the sale
or disposition of shares held for six months or less will be treated as
long-term capital loss to the extent of any long-term capital gain distributions
received by a shareholder with respect to those shares. A distribution paid to
shareholders in January generally is deemed to have been received by
shareholders on December 31 of the preceding year, if the distribution was
declared and payable to shareholders of record on a date in October, November or
December of that preceding year. The Fund will provide federal tax information
annually, including information about dividends and distributions paid during
the preceding year.
BACK-UP WITHHOLDING. The back-up withholding rules set forth below do
not apply to tax exempt entities or corporations that furnish the Trust with an
appropriate certification. For other shareholders, however, the Trust is
generally required to withhold and remit to the U.S. Treasury 31% of all
distributions, whether distributed in cash or reinvested in shares, and 31% of
the proceeds of any redemption paid or credited to the shareholder's account if
an incorrect or no taxpayer identification number has been provided, where
appropriate certification has not been provided for a foreign shareholder, or
where the Trust is notified that the shareholder has underreported income in the
past (or the shareholder fails to certify that he is not subject to such
withholding). Special withholding rules, described below, may apply to foreign
shareholders.
The foregoing is a general summary of the federal income tax
consequences for shareholders who are U.S. citizens or residents or domestic
corporations. Shareholders should consult their own tax advisors about the tax
consequences of investments in the Fund in light of their particular tax
situations. Shareholders should also consult their own tax advisors about
consequences under foreign, state, local or other applicable tax laws.
WITHHOLDING ON DISTRIBUTIONS TO FOREIGN INVESTORS. Dividend
distributions (including in general distributions derived from short-term
capital gains, dividends and interest) are in general subject to a U.S.
withholding tax of 30% when paid to a non-resident alien individual, foreign
estate or trust, a foreign corporation, or a foreign partnership ("foreign
shareholder"). Persons who are residents in a country, such as the United
Kingdom, that has an income tax treaty with the United States may be eligible
for a reduced withholding rate (upon filing of appropriate forms), and are urged
to consult their tax advisors regarding the applicability and effect of such a
treaty. Distributions of net long-term capital gains to a foreign shareholder
and any gain realized upon the sale of Fund shares by such a shareholder will
ordinarily not be subject to U.S. taxation, unless the recipient or seller is a
nonresident alien individual who is present in the United States for more than
182 days during the taxable year. Foreign shareholders with respect to whom
income from the Fund is "effectively connected" with a U.S. trade or business
carried on by such shareholder, however, will in general be subject to U.S.
federal income tax on the income derived from the Fund at the graduated rates
applicable to U.S. citizens, residents or domestic corporations, whether such
income is received in cash or reinvested in shares, and may also be subject to a
branch profits tax.
-10-
Again, foreign shareholders who are residents in a country with an income tax
treaty with the United States may obtain different tax results and all foreign
investors are urged to consult their tax advisors.
================================================================================
MANAGEMENT OF THE TRUST
================================================================================
The Fund is advised and managed by David L. Babson & Co., Inc., One
Memorial Drive, Cambridge, Massachusetts 02142, which provides investment
advisory services to a substantial number of institutional and other investors,
including other registered investment companies. David L. Babson & Co., Inc., a
registered investment adviser, is a wholly owned subsidiary of DLB Acquisition
Corp., a holding company, which is controlled by Mass Mutual Holding Company, a
holding company and wholly owned subsidiary of Massachusetts Mutual Life
Insurance Company, a mutual life insurance company.
Under a separate Management Contract relating to the Fund, the Manager
selects and reviews the Fund's investments and provides executive and other
personnel for the management of the Trust. Pursuant to the Trust's Agreement and
Declaration of Trust, the Board of Trustees supervises the affairs of the Trust
as conducted by the Manager. In the event that the Manager ceases to be the
manager of the Fund, the right of the Fund or of the Trust to use the
identifying name "DLB" may be withdrawn.
The Fund pays the Manager a monthly fee at the annual rate of the Fund's
average daily net assets set forth below. The Manager, however, has agreed to
waive its fee and to bear certain expenses for the current fiscal year to the
extent the Fund's annual expenses (including the management fee but excluding
brokerage commissions and transfer taxes) would exceed the percentage of the
Fund's average daily net assets set forth below.
Management Fee Expense Limitation
(as a % of Average (as a % of Average
Daily Net Assets) Daily Net Assets)
================== ==================
.75% .90%
Michael Caplan, Vice President of the Manager, is primarily responsible
for the day-to-day management of the Fund. Prior to joining the Manager in
December, 1995, Mr. Caplan was employed as a portfolio manager by Concert
Capital Management, Inc. from January, 1995 through December, 1995. Prior to
January 1995, Mr. Caplan was employed as a portfolio manager by State Street
Global Advisors.
================================================================================
PERFORMANCE INFORMATION
================================================================================
Yield and total return data may from time to time be included in
advertisements about the Fund. "Yield" is calculated by dividing the Fund's
annualized net investment income per share during a recent 30-day period by the
maximum public offering price per share on the last day of that period. "Total
return" for the life of the Fund through the most recent calendar quarter
represents the average annual compounded rate of return on an investment of
$1,000 in the Fund at net asset value. Quotations of yield
-11-
or total return for any period when an expense limitation was in effect will be
greater than if the limitation had not been in effect.
All data is based on the Fund's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of the Fund's
portfolio, and the Fund's operating expenses. Investment performance also often
reflects the risks associated with the Fund's investment objective and policies.
These factors should be considered when comparing the Fund's investment results
to those of other mutual funds and other investment vehicles.
================================================================================
ORGANIZATION AND CAPITALIZATION OF THE TRUST
================================================================================
The Trust was established on August 1, 1994 as a business trust under
Massachusetts law. The Trust has an unlimited number of authorized shares of
beneficial interest which may, without shareholder approval, be divided into an
unlimited number of series of such shares and which are presently divided into
six series of shares, each representing a different Fund. The Trust does not
generally hold annual meetings of shareholders and will do so only when required
by law. Matters submitted to shareholder vote must be approved by each Fund of
the Trust except (i) when required by the Investment Company Act of 1940, shares
shall be voted together as a single class, and (ii) when the Trustees have
determined that the matter affects one or more Funds, then only shareholders of
such Fund or Funds shall be entitled to vote on the matter. Shares are freely
transferable, are entitled to dividends as declared by the Trustees, and, in
liquidation of the Fund, are entitled to receive the net assets of the Fund.
Shareholders holding a majority of the outstanding shares of the Trust may
remove Trustees from office by votes cast in person or by proxy at a meeting of
shareholders or by written consent. Massachusetts Mutual Life Insurance Company
is currently expected to own more than 25% of the outstanding shares of the Fund
and therefore may be deemed to "control" the Fund within the meaning of the
Investment Company Act of 1940.
Shareholders could, under certain circumstances, be held personally
liable for the obligations of the Trust. The risk of a shareholder incurring
financial loss on account of that liability, however, is considered remote
because liability may arise only in very limited circumstances and shareholders
are entitled to indemnification out of the assets of the Fund for any such
liability.
================================================================================
SHAREHOLDER INQUIRIES
================================================================================
Shareholders may direct inquiries to the Trust c/o David L. Babson &
Co., Inc., Marketing Department, Attn: Maureen A. Madden, One Memorial Drive,
Cambridge, Massachusetts 02142 (1-617-225-3800).
When required by the Investment Company Act of 1940, the Manager's
discussion of the performance of the Fund in its most recent fiscal year as well
as a comparison of the Fund's performance over the life of the Fund with that of
a benchmark securities index selected by the Manager will be included in the
Trust's Annual Report for that fiscal year. Copies of the Annual Report will be
available upon request without charge.
-12-
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
CUSTODIAN
Investors Bank & Trust Company
89 South Street
P.O. Box 1537
Boston, MA 02205
TRANSFER AGENT
Investors Bank & Trust Company
John Hancock Tower
200 Clarendon Street, 5th Floor
Boston, MA 02116
-13-
PROSPECTUS
THE DLB GLOBAL BOND FUND
One Memorial Drive
Cambridge, Massachusetts 02142
(617) 225-3800
August 19, 1996
The DLB Global Bond Fund (the "Fund") is a portfolio of The DLB Fund
Group (the "Trust"), an open-end management investment company offering
non-diversified portfolios with different investment objectives and strategies.
The Fund is intended primarily to serve as an investment vehicle for
institutional investors. The Fund's investment manager is David L. Babson & Co.,
Inc. (the "Manager") and its subadviser is Potomac Babson Incorporated (the
"Sub-Adviser").
Shares of the Fund are sold to investors by the Trust. The minimum
initial investment in the Fund is $100,000, and the minimum for each subsequent
investment is $10,000.
This Prospectus concisely describes the information which investors
ought to know before investing in The DLB Global Bond Fund. Please read this
Prospectus carefully and keep it for further reference.
A Statement of Additional Information dated August 19, 1996 is
available at no charge by writing to the Trust, c/o David L. Babson & Co., Inc.,
Marketing Department, Attention: Maureen A. Madden, One Memorial Drive,
Cambridge, Massachusetts 02142 or by telephoning (617) 225-3800. The Statement,
which contains more detailed information about the Fund, has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
Prospectus.
================================================================================
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
================================================================================
-1-
TABLE OF CONTENTS
Page
SHAREHOLDER TRANSACTION AND FUND EXPENSES ............................... 3
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS ................. 4
PURCHASE OF SHARES ..................................................... 11
REDEMPTION OF SHARES ................................................... 12
DETERMINATION OF NET ASSET VALUE ....................................... 13
DISTRIBUTIONS .......................................................... 14
TAXES .................................................................. 14
MANAGEMENT OF THE TRUST ................................................ 15
PERFORMANCE INFORMATION ................................................ 16
ORGANIZATION AND CAPITALIZATION OF THE TRUST ........................... 17
SHAREHOLDER INQUIRIES .................................................. 17
-2-
================================================================================
SHAREHOLDER TRANSACTION AND FUND EXPENSES
================================================================================
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee waiver) (a)......................... .55%
12b-1 Fees(b).................................................. 0
Other Expenses(c).............................................. .25%
====
Total Fund Operating Expenses (after fee waiver) (a)........... .80%
EXAMPLE:
You would pay the following Years
expenses on a $1,000 investment,
assuming a 5% annual return, 1 3
with or without redemption at -- --
the end of each period: $8.00 $26.00
- ---------------
(a) The Manager has agreed with the Fund to reduce its management fee
and to bear certain expenses for the current fiscal year to the
extent that the Fund's total annual expenses, other than
brokerage commissions and transfer taxes, would otherwise exceed
.80% of the Fund's average daily net assets. Therefore, so long
as the Manager agrees to reduce its fee and to bear certain
expenses, total annual expenses of the Fund, other than brokerage
commissions and transfer taxes, will not exceed .80%. Absent such
agreement by the Manager to waive its fee and bear certain
expenses, management fees would be .75% and total Fund operating
expenses would be 1.00%.
(b) The Fund has adopted a distribution and services plan pursuant to
Rule 12b-1 that permits payments by the Fund at an annual rate of
up to .50% of the Fund's average net assets, but the Trustees do
not currently intend to implement such plan during the Fund's
current fiscal year. See "Purchase of Shares -- 12b-1 Plan."
(c)
"Other Expenses" are based on estimated amounts the Fund expects
to incur during its first fiscal year.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses of the Fund that are borne by
holders of Fund shares. THE FIVE PERCENT ANNUAL RETURN AND ESTIMATED EXPENSES
USED IN CALCULATING THE EXAMPLE ARE NOT A REPRESENTATION OF PAST OR FUTURE
PERFORMANCE OR EXPENSES; ACTUAL PERFORMANCE AND/OR EXPENSES MAY BE MORE OR LESS
THAN SHOWN.
-3-
================================================================================
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS
================================================================================
The Fund's investment objective is to seek total return. The Fund invests
in a global portfolio consisting principally of governmental or supranational
debt securities denominated in currencies of the member states of the
Organization for Economic Cooperation and Development. Under normal market
conditions, the Fund will invest at least 65% of its total assets in debt
securities of issuers located in at least three different countries, one of
which may be the United States, and will invest at least 15% of its total assets
in U.S. dollar-denominated securities, issued domestically or abroad. The Fund
may also hold a portion of its assets in cash or money market instruments. The
Fund is not intended to be a complete investment program, and there is no
assurance it will achieve its objective.
GLOBAL BOND MARKETS. In recent years, opportunities for investment in
global bond markets have become more significant. Participants in these markets
have grown in number, thereby providing better liquidity. A number of global
bond markets have reduced barriers to entry to foreign investors by deregulation
and by reducing their withholding taxes. Simultaneous with the opening of
foreign markets, barriers to global capital flows have been reduced or
eliminated. The Fund provides a convenient vehicle to participate in global bond
markets, some of which may outperform U.S. dollar-denominated bond markets in
U.S. dollar terms during certain periods of time.
Although the Fund is a non-diversified investment company, investing in
the Fund can provide global diversity to an investor's existing portfolio of
U.S. dollar-denominated bonds, thereby potentially reducing volatility or risk
over time. Historically, returns of foreign bond markets have often diverged
from returns generated by U.S. bond markets. These divergences stem not only
from fluctuating exchange rates, but also from foreign interest rates not always
moving in the same direction, or moving to the same extent, as interest rates in
the U.S.
A global income portfolio composed of both international and U.S. bonds is
able to take advantage of a far wider range of investment opportunities than one
that is restricted to U.S. dollar securities and may, at times, provide higher
investment returns. For example, global bonds may provide higher current income
than U.S. bonds and/or the local price of global bonds can appreciate more than
U.S. bonds. Fluctuations in foreign currencies relative to the U.S. dollar can
potentially benefit investment returns. Of course, in each case, at any time the
opposite may also be true.
PORTFOLIO QUALITY. The Fund will invest only in debt securities that are
rated at the time of purchase A or better by Moody's Investors Service, Inc.
("Moody's") or by Standard & Poor's ("S&P"), or in unrated securities which the
Sub-Adviser determines to be of comparable quality. In the event that any
security held by the Fund ceases to be of this quality, the Fund will not be
obligated to dispose of such security and may continue to hold the obligation
if, in the opinion of the Sub-Adviser, such investment is considered appropriate
under the circumstances.
PORTFOLIO MATURITY. The Sub-Adviser may take full advantage of the entire
range of maturities offered by fixed income securities and may adjust the
average maturity of the Fund's portfolio from time to time depending on its
assessment of the relative yields on securities of different maturities and its
expectations of future changes in interest rates. It is currently expected that,
under normal market conditions, the Fund's average portfolio maturity will range
from five to ten years. The Fund's portfolio may include securities with
maturities outside of this range.
-4-
GOVERNMENTAL AND SUPRANATIONAL ISSUERS. The obligations of U.S. and
foreign governmental entities, including supranational issuers, have different
kinds of government support. For instance, as used in this Prospectus, the term
"U.S. government obligations" refers to debt securities issued or guaranteed by
the U.S. government or by various of its agencies or instrumentalities. Certain
of these obligations, such as U.S. Treasury bonds, are supported by the full
faith and credit of the United States.
Other U.S. government obligations issued or guaranteed by federal
agencies or government-sponsored enterprises are not supported by the full faith
and credit of the United States. These securities include obligations supported
by the right of the issuer to borrow from the U.S. Treasury, such as obligations
of Federal Home Loan Banks, and obligations supported only by the credit of the
instrumentality, such as Federal National Mortgage Association bonds.
Similarly, obligations of foreign governmental entities include
obligations issued or guaranteed by national, provincial, state or other
governments with taxing power or by their agencies. Some of these obligations
are supported by the full faith and credit of a foreign government and some are
not.
Supranational entities include international organizations designated
or supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Steel and Coal Community, the Asian
Development Bank and the Inter-American Development Bank. The members, or
"stockholders," of a supranational entity make initial capital contributions to
the supranational entity and in many cases are committed to make additional
capital contributions if the supranational entity is unable to repay its
borrowings. Each supranational entity's lending activities are limited to a
percentage of its total capital (including "callable capital" contributed by
members at the entity's call), reserves and net income. By engaging in lending
activities and other activities intended to foster international economic growth
and development, supranational entities further the particular governmental
purposes of their members.
DEFENSIVE STRATEGIES. At times the Sub-Adviser may judge that market
conditions make pursuing the Fund's basic investment strategy inconsistent with
the best interests of its shareholders. At such times the Sub-Adviser may
temporarily use the defensive strategies of investing up to 100% of the Fund's
assets in securities of issuers located in the United States or in money market
instruments, including short-term bank obligations, such as certificates of
deposit. It is impossible to predict when, or for how long, the Fund will use
these alternative strategies.
INTEREST RATE RISK. The market value of the Fund's investments will
change in response to changes in interest rates and other factors. During
periods of falling interest rates, the values of long-term, fixed income
securities generally rise. Conversely, during periods of rising interest rates,
the values of such securities generally decline. Changes in exchange rates for
foreign currencies may affect the value of portfolio securities denominated in
those currencies. Changes by recognized rating services in their ratings of
securities and in the ability of an issuer to make payments of interest and
principal may also effect the value of these investments. Changes in the value
of portfolio securities generally will not affect interest income derived from
those securities, but will affect the Fund's net asset value. Exchange rate
fluctuations, however, may impact both the value of a particular investment and
the income derived from that investment.
FOREIGN INVESTMENTS. Investments in sovereign debt of foreign issuers
and other foreign securities involve risks that may not be present in domestic
investments. Since foreign securities are typically
-5-
denominated in foreign currencies, the value of the assets of the Fund and its
net investment income available for distribution may be affected favorably or
unfavorably by changes in currency exchange rates and exchange control
regulations. The Fund will not invest in securities denominated in a foreign
currency that is not fully exchangeable into U.S. dollars without legal
restriction at the time of investment.
There may be less information publicly available about a foreign issuer
than about a U.S. issuer, and foreign issuers are not generally subject to
accounting, auditing and financial reporting standards and practices comparable
to those in the United States. The willingness and ability of sovereign issuers
to pay principal and interest on government securities depends on various
economic factors, including without limitation the issuer's balance of payments
and its overall debt level, as well as cash flow considerations related to the
availability of tax or other revenues to satisfy the issuer's obligations. The
securities of some foreign issuers are less liquid and at times more volatile
than securities of comparable U.S. issuers. Foreign brokerage commissions and
other fees are also generally higher than 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.
In addition, 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 which
could affect the value of 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 investments in securities of certain issuers located in those foreign
countries.
Special tax considerations apply to foreign securities. In determining
whether to invest in securities of foreign issuers, the Sub-Adviser will
consider the likely impact of foreign taxes on the net yield available to the
Fund and its shareholders. Income 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. Any such taxes paid by the Fund will reduce its
net income available for distribution to shareholders.
Because the Fund intends to purchase securities denominated in foreign
currencies, a change in the value of any such currency against the U.S. dollar
will result in a change in the U.S. dollar value of the Fund's assets and the
Fund's income available for distribution. In addition, although at times most of
the Fund's income may be received or realized in these currencies, the Fund will
be required to compute and distribute its income in U.S. dollars. Therefore, if
the exchange rate for any such currency declines after the Fund's income has
been earned and translated into U.S. dollars but before payment, the Fund could
be required to liquidate portfolio securities to make such distributions.
Similarly, if an exchange rate declines between the time the Fund incurs
expenses in U.S. dollars and the time such expenses are paid, the amount of such
currency required to be converted into U.S. dollars in order to pay such
expenses in U.S. dollars will be greater than the equivalent amount in any such
currency of such expenses at the time they were incurred.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Fund may engage in foreign
currency exchange transactions to protect against uncertainty in the level of
future exchange rates. The Sub-Adviser may engage in foreign currency exchange
transactions in connection with the purchase and sale of portfolio securities
("transaction hedging") and to protect the value of specific portfolio positions
("position
-6-
hedging"). The Sub-Adviser's decision as to whether and to what extent to hedge
the Fund's foreign currency risk is dependent upon a number of factors, and, as
a result, there can be no assurances that the Fund's portfolio will be hedged at
any particular time.
The Fund may engage in "transaction hedging" to protect against a
change in the foreign currency exchange rate between the date on which the Fund
contracts to purchase or sell the security and the settlement date, or to "lock
in" the value of a dividend or interest payment in a particular currency. The
Fund may purchase or sell a foreign currency on a spot (or cash) basis at the
prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency.
If conditions warrant, the Fund may also enter into contracts to
purchase or sell foreign currencies at a future date ("forward contracts") and
may purchase and sell foreign currency futures contracts as part of its
transaction hedging strategies. A foreign currency forward contract is a
negotiated agreement to exchange currency at a future time at a rate or rates
that may be higher or lower than the spot rate. Foreign currency futures
contracts are standardized exchange-traded contracts and have margin
requirements. The Fund may also purchase exchange-listed and over-the-counter
call and put options on foreign currency futures contracts and on foreign
currencies.
The Fund may engage in "position hedging" to protect against a decline
in the value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the value of
the foreign currencies for securities which the Fund intends to buy, when the
Fund holds cash reserves or short-term investments). For position hedging
purposes, the Fund may purchase or sell foreign currency futures contracts and
foreign currency forward contracts, and put and call options on foreign currency
futures contracts and on foreign currencies on exchanges or over-the-counter
markets. In connection with position hedging, the Fund may also purchase or sell
foreign currencies on a spot basis.
The Fund's currency hedging transactions may call for the delivery of
one foreign currency in exchange for another foreign currency and may at times
involve a currency other than that in which the particular securities that are
the subject of the hedge are denominated or in which any of the Fund's portfolio
securities are then denominated. These transactions involve the risk of
imperfect correlation between changes in the values of the currencies to which
such transactions relate and changes in the value of the currency or other asset
or liability which is the subject of the hedge.
OPTIONS AND FUTURES PORTFOLIO STRATEGIES. The Fund may purchase and
sell call and put options with respect to securities and currencies. The Fund
receives a premium from writing a call or put option, which increases the Fund's
return if the option expires unexercised or is closed out at a net profit. When
the Fund writes a call option, it gives up the opportunity to profit from any
increase in the price of a security or currency above the exercise price of the
option; when it writes a put option, the Fund takes the risk that it will be
required to purchase a security or currency from the option holder at a price
above the current market price of the security or currency. The Fund may
terminate an option that is has written prior to its expiration by entering into
a closing purchase transaction in which it purchases an option having the same
terms as the option written.
The Fund may also purchase and sell futures contracts and related
options on securities and currencies in order to reduce fluctuations in net
asset value by hedging against a decline in the value of securities or
currencies owned by the Fund or an increase in the value of securities or
currencies which the Fund expects to purchase. A financial futures contract sale
creates an obligation by the seller to deliver, and by the purchaser to take
delivery of, the type of financial instrument called for in the contract
-7-
at a specified future date at an agreed price. The Fund may also use such
techniques, to the extent permitted by applicable law, as a substitute for
direct investment in foreign securities.
The use of futures and options involves certain special risks and may
result in realization of taxable income or capital gains. Certain risks arise
because of the possibility of imperfect correlations among movements in the
prices of financial futures and options and movements in the prices of the
underlying securities or currencies or of the securities or currencies that are
the subject of the hedge. The successful use of futures and options further
depends on the Sub-Adviser's ability to forecast market movements correctly.
Other risks arise from the Fund's potential inability to close out its futures
or options positions, and there can be no assurance that a liquid secondary
market will exist for any futures contract or option at a particular time. If
the Fund purchases or sells options in the over-the-counter market, the Fund's
ability to terminate those option positions may be more limited than for
exchange-traded options and may also involve the risk that securities dealers
participating in such transactions would fail to meet their obligations to the
Fund. Certain provisions of the Internal Revenue Code and certain regulatory
requirements may limit the Fund's ability to engage in futures and options
transactions. Position limits and other rules of foreign exchanges may differ
from those in the United States. Also, options and futures markets in some
countries, many of which are relatively new, may be less liquid than comparable
markets in the United States. See Statement of Additional Information for
additional information regarding the risks of financial futures and options.
INDEXED SECURITIES. The Fund may invest in indexed securities which are
short to intermediate term fixed-income securities whose values at maturity, or
the interest rates on which, rise or fall according to the change in one or more
specified underlying instruments, such as currencies, securities, interest
rates, commodities, indices, or other financial indicators. Indexed securities
may be positively or negatively indexed (i.e., their value may increase or
decrease if the underlying instrument appreciates), and may have return
characteristics similar to direct investments in the underlying instrument or to
one or more options on the underlying instrument. Indexed securities may be more
volatile than the underlying instrument itself. Because certain foreign markets
may be closed for all practical purposes to U.S. investors such as the Fund, the
Fund may invest indirectly in such markets through the purchase of indexed
securities and would therefore be subject to the risks described above with
respect to investments in foreign securities as well as being subject to the
risk of relying upon the issuer of the indexed security to fulfill its
obligations under the terms of the security. See Statement of Additional
Information for additional information regarding the risks of indexed
securities.
SHORT SALES. The Fund may make short sales of securities. A short sale
is a transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. When the Fund
makes a short sale, it must borrow the security sold short and deliver it to the
other party to the transaction. Short sales involve certain expenses and entail
risks. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.
The net 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.
If the price of the security sold short increases between the time of the short
sale and the time the Fund replaces the borrowed security, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a gain. Any gain
will be decreased, and any loss increased, by transaction costs. Although the
Fund's gain is limited to the price at which it sold the security short, its
potential loss is unlimited if the Fund does not own the security.
The staff of the Securities and Exchange Commission is of the opinion that
a short sale involves the creation of a senior security and is, therefore,
subject to the limitations of Section 18 of the 1940 Act.
-8-
The staff has taken the position that in order to comply with the provisions of
Section 18, the Fund must put in a segregated account (not with the broker) an
amount of cash or United States Government securities equal to the difference
between: (a) the market value of the securities sold short at the time they were
sold short, and (b) any cash or United States Government securities required to
be deposited as collateral with the broker in connection with the short sale
(not including the proceeds from the short sale). In addition, until the Fund
replaces the borrowed security, it must daily maintain the segregated account at
such a level that the amount deposited in it plus the amount deposited with the
broker as collateral will equal the current market value of the securities sold
short. It is currently expected that no more than 25% of the Fund's net assets
will be used as collateral or deposited in a segregated account in connection
with short sales.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements in which the Fund sells securities to a bank or dealer and agrees to
repurchase them at a mutually agreed date and price. Generally, the effect of
such a transaction is that the Fund can recover all or most of the cash invested
in the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are advantageous if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost of
otherwise obtaining the cash.
The Fund will establish a segregated account with its custodian in which
it will maintain cash and/or liquid high grade debt securities equal in value to
its obligations in respect of reverse repurchase agreements. Reverse repurchase
agreements involve the risk that the market value of the securities that the
Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities.
LOANS OF PORTFOLIO SECURITIES. The Fund may make secured loans of
portfolio securities on up to 33 1/3% of its total assets. The risks in lending
portfolio securities, as with other extensions of credit, consist of possible
delay in recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. However, such loans will be made only to
broker-dealers that are believed by the Sub-Adviser to be of relatively high
credit standing. Securities loans are made to broker-dealers pursuant to
agreements requiring that loans be continuously secured by collateral in cash or
U.S. Government securities at least equal at all times to the market value of
the securities lent. The borrower pays to the Fund an amount equal to any
dividends or interest received on the securities lent. The Fund may invest the
cash collateral received or may receive a fee from the borrower. Although voting
rights or rights to consent with respect to the loaned securities pass to the
borrower, the Fund retains the right to call the loans at any time on reasonable
notice. The Fund may also call such loans in order to sell the securities
involved. The Fund pays various fees in connection with such loans including
shipping fees and reasonable custodian and placement fees.
PORTFOLIO TURNOVER. Portfolio turnover is not a limiting factor with
respect to investment decisions for the Fund. It is anticipated that under
normal circumstances the annual portfolio turnover rate of the Fund will not
exceed 400%. However, in any particular year, market conditions may result in
greater rates than are currently anticipated. Portfolio turnover involves
brokerage commissions and other transaction costs, which will be borne directly
by the Fund, and could involve realization of capital gains that would be
taxable when distributed to shareholders. See "Taxes" below and "Portfolio
Transactions" in the Statement of Additional Information for additional
information. The tax consequences of portfolio transactions may be a secondary
consideration for tax-exempt investors.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements
with banks and broker- dealers. Under a repurchase agreement the Fund acquires a
security (usually an obligation of a Government under which the transaction is
initiated or in whose currency the agreement is denominated) for cash and
obtains a simultaneous commitment from the seller to repurchase the security at
an agreed-upon price and date. The resale price exceeds the acquisition price
and reflects an agreed-upon market rate unrelated to the coupon rate on the
purchased security. Such transactions afford an opportunity for the Fund to earn
a return on temporarily available cash at no market risk, although there is a
risk that the seller may default on its obligation to pay the agreed-upon sum on
the redelivery date. Such a default may subject the Fund to expenses, delays and
risks of loss. Repurchase agreements entered into with foreign brokers, dealers
and banks involve additional risks similar to those of investing in foreign
securities.
FIRM COMMITMENTS. The Fund may enter into firm commitment agreements
with banks or broker- dealers for the purchase of securities at an agreed-upon
price on a specified future date. The Fund will only enter into firm commitment
arrangements with banks and broker-dealers which the Sub-Adviser determines
present minimal credit risks. The Fund will maintain, in a segregated account
with its
-9-
custodian, cash, U.S. Government Securities or other liquid high grade debt
obligations in an amount equal to the Fund's obligations under firm commitment
agreements. The Fund bears the risk that the other party will fail to satisfy
its obligation to the Fund. Such a default may subject the Fund to expenses,
delays and risks of loss.
DERIVATIVES. Certain of the instruments in which the Fund may invest,
such as indexed securities, forward contracts, futures contracts and options,
are considered to be "derivatives". Derivatives are financial instruments whose
value depends upon, or is derived from, the value of an underlying asset, such
as a security or a currency. Further information about these instruments and the
risks involved in their use is included elsewhere in this prospectus and in the
Statement of Additional Information.
RISKS OF NON-DIVERSIFICATION. The Fund is "non-diversified" and as such
is not required to meet any diversification requirements under the Investment
Company Act of 1940. As a non-diversified fund, the Fund may invest a relatively
high percentage of its assets in the securities of relatively few issuers,
rather than invest in the securities of a large number of issuers merely to
satisfy diversification requirements. Investment in the securities of a limited
number of issuers may increase the risk of loss to the Fund should there be a
decline in the market value of any one portfolio security. Investment in a
non-diversified fund therefore entails greater risks than investment in a
"diversified" fund.
CHANGES TO INVESTMENT OBJECTIVE. The investment objective and policies
of the Fund may be changed by the Trustees without shareholder approval. Any
such change may result in the Fund having an investment objective and policies
different from the objective and policies which a shareholder considered
appropriate at the time of such shareholder's investment in the Fund.
Shareholders of the Fund will be notified of any changes in the Fund's
investment objective or policies through a revised prospectus or other written
communication.
================================================================================
PURCHASE OF SHARES
================================================================================
Shares of the Fund may be purchased directly from the Trust on any day
when the New York Stock Exchange is open for business (a "business day"). The
minimum for an initial investment in the Fund is $100,000, and the minimum for
each subsequent investment is $10,000. The purchase price of a share of the Fund
is the net asset value next determined after a purchase order is received in
good order. No sales charge is imposed on purchases of Fund shares.
Shares of the Fund may be purchased either (i) in exchange for common
stocks on deposit at The Depository Trust Company ("DTC") or appropriate fixed
income securities, subject to the determination by the Manager that the
securities to be exchanged are acceptable, (ii) in cash (i.e., by wire transfer)
or (iii) by a combination of such securities and cash. In all cases, the Manager
reserves the right to reject any particular investment. Securities accepted by
the Manager in exchange for Fund shares will be acquired for investment only and
not for resale and will be valued as set forth under "Determination of Net Asset
Value" (generally the last quoted sale price) as of the time of the next
determination of net asset value after such acceptance. All dividends, interest,
subscription or other rights which are reflected in the market price of accepted
securities at the time of valuation become the property of the Fund and must be
delivered to the Trust upon receipt by the investor from the issuer. A gain or
loss for federal income tax purposes may be realized by investors subject to
Federal income taxation upon the exchange, depending upon the investor's basis
in the securities tendered.
-10-
The Manager will not approve the acceptance of securities in exchange
for Fund shares unless (1) the Manager, in its sole discretion, believes the
securities are appropriate investments for the Fund; (2) the investor represents
and agrees that all securities offered to the Fund are not subject to any
restrictions upon their sale by the Fund under the Securities Act of 1933, or
otherwise; and (3) the securities may be acquired under the investment
restrictions applicable to the Fund. Investors interested in purchases through
exchange should telephone the Manager at (617) 225-3800, Attn: Maureen A.
Madden.
Investors should call the offices of the Trust before attempting to
place an order for Trust shares. The Trust reserves the right at any time to
reject an order.
For purposes of calculating the purchase price of Trust shares, a
purchase order is received by the Trust on the day that it is "in good order"
unless it is rejected by the Trust. An order is "in good order" if the Trust has
received the consideration for Trust shares (cash or, in the case of in-kind
investments, securities). In the case of a cash investment, the deadline for
wiring federal funds to the Trust is 2:00 p.m.; in the case of an investment
in-kind, the investor's securities must be placed on deposit at DTC, and 4:00
p.m. is the deadline for transferring those securities to the account designated
by Investors Bank & Trust Company. If the consideration is not received by the
Trust before the relevant deadline, the purchase order is not considered to be
in good order and the purchase order and consideration are required to be
resubmitted on the following business day.
All federal funds must be transmitted to Investors Bank & Trust Company
to Account No. 777777722 for the account of the Fund.
"Federal funds" are monies credited to Investors Bank & Trust Company's
account with the Federal Reserve Bank of Boston.
Purchases will be made in full and fractional shares of the Fund
calculated to three decimal places. The Trust will send to shareholders written
confirmation (including a statement of shares owned) at the time of each
transaction.
12B-1 PLAN. The Trust has adopted a distribution and services plan (the
"Plan") for the Fund under Rule 12b-1 of the Investment Company Act of 1940, but
the Trustees do not intend to implement such Plan during the Trust's current
fiscal year. The purposes of the Plan if implemented would be to compensate
and/or reimburse investment dealers and other persons for services provided and
expenses incurred in promoting sales of shares, reducing redemptions or
improving services provided to shareholders by such dealers and other persons.
The Plan would permit payments by the Fund for such purposes at an annual rate
of up to .50% of the Fund's average net assets, subject to the authority of the
Trustees to reduce the amount of payments or to suspend the Plan for such
periods as they may determine. Subject to these limitations, the amount of
payments under the Plan and the specific purposes for which they are made would
be determined by the Trustees. At present, the Trustees have no intention of
implementing the Plan.
================================================================================
REDEMPTION OF SHARES
================================================================================
Shares of the Fund may be redeemed on any business day in cash or in kind.
The redemption price is the net asset value per share next determined after
receipt of the redemption request in good order. There is no redemption fee for
the Fund. Cash payments generally will be made by transfer of Federal funds for
-12-
payment into the investor's account the next business day following the
redemption request. Redemption requests should be sent to Investors Bank & Trust
Company. In order to help facilitate the timely payment of redemption proceeds,
it is recommended that investors telephone the Manager at (617) 225-38700, Attn:
Maureen A. Madden, at least two days prior to submitting a request.
Payment on redemption will be made as promptly as possible and in any
event within seven days after the request for redemption is received by the
Trust in good order. A redemption request is in good order if it includes the
correct name in which shares are registered, the investor's account number and
the number of shares or the dollar amount of shares to be redeemed and if it is
signed correctly in accordance with the form of registration. Persons acting in
a fiduciary capacity, or on behalf of a corporation, partnership or trust must
specify, in full, the capacity in which they are acting. In-kind redemptions, as
described below, will be transferred and delivered as directed by the investor.
If the Manager determines, in its sole discretion, 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 readily marketable securities held
by the Fund in lieu of cash. Securities used to redeem Fund shares in kind will
be valued in accordance with the Fund's procedures for valuation described under
"Determination of Net Asset Value." Investors generally will incur brokerage
charges on the sale of any such securities so received in payment of
redemptions.
When opening an account with the Trust, shareholders will be required
to designate the account(s) to which funds or securities may be transferred upon
redemption. Designation of additional accounts and any change in the accounts
originally designated must be made in writing with the signature guaranteed by a
commercial bank, a member firm of a domestic securities exchange or one of
certain other financial institutions.
The Fund may suspend the right of redemption and may postpone payment
for more than seven days when the New York Stock Exchange is closed for other
than weekends or holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange is restricted or
during an emergency which makes it reasonably impracticable for the Fund to
dispose of its securities or fairly to determine the value of the net assets of
the Fund, or during any other period permitted by the Securities and Exchange
Commission for the protection of investors.
================================================================================
DETERMINATION OF NET ASSET VALUE
================================================================================
The net asset value of a share of the Fund is determined at 4:15 p.m.,
Eastern time, on each day on which the New York Stock Exchange is open, other
than a day on which no shares of the Fund were tendered for redemption and no
order to purchase shares was received by the Fund. If no shares of the Fund are
tendered for redemption during a month and no order to purchase shares is
received by the Fund during such month, the net asset value of a share of the
Fund will be determined on the last business day of such month. The net asset
value per share for the Fund is determined by dividing the total value of the
Fund's portfolio investments and other assets, less any liabilities, by the
total outstanding shares of the Fund. Portfolio securities (including options
and futures contracts) for which market quotations are available are valued at
the last quoted sale price, or, if there is no such reported sale, at the
closing bid price. Securities traded in the over-the-counter market are valued
at the most recent bid price as obtained
-12-
from one or more dealers that make markets in the securities. Portfolio
securities that are traded both in the over-the-counter market and on one or
more stock exchanges are valued according to the broadest and most
representative market. Unlisted securities for which market quotations are not
readily available are valued at the most recent quoted bid price. Short term
debt securities with a remaining maturity of 60 days or less will be valued at
amortized cost, unless conditions dictate otherwise. Illiquid securities or
restricted securities will be valued at fair value based on information supplied
by a broker. Other assets for which no quotations are readily available are
valued at fair value as determined in good faith in accordance with procedures
adopted by the Trustees of the Trust. Determination of fair value will be based
upon such factors as are deemed relevant under the circumstances, including the
financial condition and operating results of the issuer, recent third party
transactions (actual or proposed) relating to such securities and, in extreme
cases, the liquidation value of the issuer.
Because of time zone differences, foreign exchanges and securities
markets will usually be closed prior to the time of the closing of the New York
Stock Exchange and the value of foreign securities will be determined as of the
closing of such exchanges and securities markets. Events affecting the values of
such foreign securities, however, may occasionally occur between the closings of
such exchanges and securities markets and the time the Fund determines its net
asset value, which will not be reflected in the computation of such net asset
value. If an event materially affecting the value of such foreign securities
occurs during such period, then such securities will be valued at fair value as
determined in good faith in accordance with procedures adopted by the Trustees.
Because foreign securities are quoted in foreign currencies,
fluctuations in the value of such securities in relation to the U.S. dollar will
affect the net asset value of shares of the Fund even though there has not been
any change in the values of such securities measured in terms of the foreign
currencies in which they are denominated. The value of foreign securities is
converted into U.S. dollars at the rate of exchange prevailing at the time of
determination of net asset value.
================================================================================
DISTRIBUTIONS
================================================================================
The Fund intends to pay out as dividends substantially all of its net
investment income (which comes from dividends and any interest it receives from
its investments and net short-term capital gains). The Fund also intends to
distribute substantially all of its net long-term capital gains, if any, after
giving effect to any available capital loss carryover. The Fund's present policy
is to declare and pay distributions of its dividends and interest at least
annually. The Fund also intends to distribute net short-term capital gains and
net long-term capital gains at least annually.
All dividends and/or distributions will be paid in shares of the Fund, at
net asset value, unless the shareholder elects to receive cash. Shareholders may
make this election by marking the appropriate box on the application form or by
writing to Investors Bank & Trust Company.
-13-
================================================================================
TAXES
================================================================================
The Fund is treated as a separate taxable entity for federal income tax
purposes. The Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended. By
so qualifying, the Fund itself will not pay federal income tax on the income and
gain distributed annually to its shareholders. Distributions of ordinary income
and short-term capital gains, whether received in cash or reinvested shares,
will be taxable as ordinary income to shareholders subject to federal income
tax. Designated distributions of any long-term capital gains are taxable as
such, regardless of how long a shareholder may have owned shares in the Fund or
whether received in cash or reinvested shares. Any loss recognized on the sale
or disposition of shares held for six months or less will be treated as
long-term capital loss to the extent of any long-term capital gain distributions
received by a shareholder with respect to those shares. A distribution paid to
shareholders in January generally is deemed to have been received by
shareholders on December 31 of the preceding year, if the distribution was
declared and payable to shareholders of record on a date in October, November or
December of that preceding year. The Fund will provide federal tax information
annually, including information about dividends and distributions paid during
the preceding year.
BACK-UP WITHHOLDING. The back-up withholding rules set forth below do not
apply to tax exempt entities or corporations that furnish the Trust with an
appropriate certification. For other shareholders, however, the Trust is
generally required to withhold and remit to the U.S. Treasury 31% of all
distributions, whether distributed in cash or reinvested in shares, and 31% of
the proceeds of any redemption paid or credited to the shareholder's account if
an incorrect or no taxpayer identification number has been provided, where
appropriate certification has not been provided for a foreign shareholder, or
where the Trust is notified that the shareholder has underreported income in the
past (or the shareholder fails to certify that he is not subject to such
withholding). Special withholding rules, described below, may apply to foreign
shareholders.
FOREIGN WITHHOLDING TAXES. The Fund invests in foreign securities and
therefore may be subject to foreign withholding taxes on income and gains
derived from foreign investments. Such taxes would reduce the yield on the
Fund's investments, but, as discussed below, may be taken as either a deduction
or a credit by U.S. investors if the Fund makes the election described below.
If, at the end of the fiscal year, more than 50% of the total assets of
the Fund are comprised of securities of foreign corporations, the Trust intends
to make an election which allows shareholders whose income from the Fund is
subject to U.S. taxation at the graduated rates applicable to U.S. citizens,
residents or domestic corporations to claim a foreign tax credit or deduction
(but not both) on their U.S. income tax return. In such case, the amount of
foreign income taxes paid by the Fund would be treated as additional income to
Fund shareholders from non-U.S. sources and as foreign taxes paid by Fund
shareholders. Investors should consult their tax advisors for further
information relating to the foreign tax credit and deduction, which are subject
to certain restrictions and limitations. Shareholders of the Fund whose income
from the Fund is not subject to U.S. taxation at the graduated rates applicable
to U.S. citizens, residents or domestic corporations may receive substantially
different tax treatment on distributions by the Fund, and may be disadvantaged
as a result of the election described in this paragraph. Organizations that are
exempt from U.S. taxation will not be affected by the election described above.
The foregoing is a general summary of the federal income tax consequences
for shareholders who are U.S. citizens or residents or domestic corporations.
Shareholders should consult their own tax advisors
-14-
about the tax consequences of investments in the Fund in light of their
particular tax situations. Shareholders should also consult their own tax
advisors about consequences under foreign, state, local or other applicable tax
laws.
WITHHOLDING ON DISTRIBUTIONS TO FOREIGN INVESTORS. Dividend
distributions (including in general distributions derived from short-term
capital gains, dividends and interest) are in general subject to a U.S.
withholding tax of 30% when paid to a non-resident alien individual, foreign
estate or trust, a foreign corporation, or a foreign partnership ("foreign
shareholder"). Persons who are residents in a country, such as the United
Kingdom, that has an income tax treaty with the United States may be eligible
for a reduced withholding rate (upon filing of appropriate forms), and are urged
to consult their tax advisors regarding the applicability and effect of such a
treaty. Distributions of net long-term capital gains to a foreign shareholder
and any gain realized upon the sale of Fund shares by such a shareholder will
ordinarily not be subject to U.S. taxation, unless the recipient or seller is a
nonresident alien individual who is present in the United States for more than
182 days during the taxable year. Foreign shareholders with respect to whom
income from the Fund is "effectively connected" with a U.S. trade or business
carried on by such shareholder, however, will in general be subject to U.S.
federal income tax on the income derived from the Fund at the graduated rates
applicable to U.S. citizens, residents or domestic corporations, whether such
income is received in cash or reinvested in shares, and may also be subject to a
branch profits tax. Again, foreign shareholders who are residents in a country
with an income tax treaty with the United States may obtain different tax
results and all foreign investors are urged to consult their tax advisors.
================================================================================
MANAGEMENT OF THE TRUST
================================================================================
The Fund is advised and managed by David L. Babson & Co., Inc., One
Memorial Drive, Cambridge, Massachusetts 02142, which provides investment
advisory services to a substantial number of institutional and other investors,
including other registered investment companies. David L. Babson & Co., Inc., a
registered investment adviser, is a wholly owned subsidiary of DLB Acquisition
Corp., a holding company, which is controlled by Mass Mutual Holding Company, a
holding company and wholly owned subsidiary of Massachusetts Mutual Life
Insurance Company, a mutual life insurance company.
Under a separate Management Contract relating to the Fund, the Manager
selects and reviews the Fund's investments and provides executive and other
personnel for the management of the Trust. Pursuant to the Trust's Agreement and
Declaration of Trust, the Board of Trustees supervises the affairs of the Trust
as conducted by the Manager. In the event that the Manager ceases to be the
manager of the Fund, the right of the Fund or of the Trust to use the
identifying name "DLB" may be withdrawn.
In order to assist it in carrying out its responsibilities, the Manager
has entered into a Sub-Advisory Agreement (the "Sub-Advisory Agreement") with
Potomac Babson Incorporated (the "Sub-Adviser"), 1290 Avenue of the Americas,
New York, New York 10019, with respect to the management of the Fund's
portfolio. The Sub-Adviser, a registered investment adviser, is a majority-owned
subsidiary of the Manager.
The Fund pays the Manager a monthly fee at the annual rate of the Fund's
average daily net assets set forth below. The Manager, however, has agreed to
waive its fee and to bear certain expenses for the current fiscal year to the
extent the Fund's annual expenses (including the management fee but excluding
brokerage commissions and transfer taxes) would exceed the percentage of the
Fund's average daily net assets set forth below.
-15-
Management Fee Expense Limitation
(as a % of Average (as a % of Average
Daily Net Assets) Daily Net Assets)
.75% .80%
Under the Fund's Sub-Advisory Agreement, the Manager pays the Sub-Adviser a
monthly fee at the annual rate of .65% of the Fund's average daily net assets,
although the Sub-Adviser has currently agreed to waive a portion of its fee.
Payments made to the Sub-Adviser by the Manager will not affect the amounts
payable by the Fund to the Manager or the Fund's expense ratio.
Hani Findakly, President of the Sub-Adviser, is primarily responsible
for the day-to-day management of the Fund. He has been employed by the
Sub-Adviser (and its predecessor) in portfolio management for more than five
years.
================================================================================
PERFORMANCE INFORMATION
================================================================================
Yield and total return data may from time to time be included in
advertisements about the Fund. "Yield" is calculated by dividing the Fund's
annualized net investment income per share during a recent 30-day period by the
maximum public offering price per share on the last day of that period. "Total
return" for the life of the Fund through the most recent calendar quarter
represents the average annual compounded rate of return on an investment of
$1,000 in the Fund at net asset value. Quotations of yield or total return for
any period when an expense limitation was in effect will be greater than if the
limitation had not been in effect.
All data is based on the Fund's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of the Fund's
portfolio, and the Fund's operating expenses. Investment performance also often
reflects the risks associated with the Fund's investment objective and policies.
These factors should be considered when comparing the Fund's investment results
to those of other mutual funds and other investment vehicles.
================================================================================
ORGANIZATION AND CAPITALIZATION OF THE TRUST
================================================================================
The Trust was established on August 1, 1994 as a business trust under
Massachusetts law. The Trust has an unlimited number of authorized shares of
beneficial interest which may, without shareholder approval, be divided into an
unlimited number of series of such shares and which are presently divided into
six series of shares, each representing a different Fund. The Trust does not
generally hold annual meetings of shareholders and will do so only when required
by law. Matters submitted to shareholder vote must be approved by each Fund of
the Trust except (i) when required by the Investment Company Act of 1940, shares
shall be voted together as a single class, and (ii) when the Trustees have
determined that the matter affects one or more Funds, then only shareholders of
such Fund or Funds shall be entitled to vote on the matter. Shares are freely
transferable, are entitled to dividends as declared by the Trustees, and, in
-16-
liquidation of the Fund, are entitled to receive the net assets of the Fund.
Shareholders holding a majority of the outstanding shares of the Trust may
remove Trustees from office by votes cast in person or by proxy at a meeting of
shareholders or by written consent. Massachusetts Mutual Life Insurance Company
is currently expected to own more than 25% of the outstanding shares of the Fund
and therefore may be deemed to "control" the Fund within the meaning of the
Investment Company Act of 1940.
Shareholders could, under certain circumstances, be held personally
liable for the obligations of the Trust. The risk of a shareholder incurring
financial loss on account of that liability, however, is considered remote
because liability may arise only in very limited circumstances and shareholders
are entitled to indemnification out of the assets of the Fund for any such
liability.
================================================================================
SHAREHOLDER INQUIRIES
================================================================================
Shareholders may direct inquiries to the Trust c/o David L. Babson &
Co., Inc., Marketing Department, Attn: Maureen A. Madden, One Memorial Drive,
Cambridge, Massachusetts 02142 (1-617-225-3800).
When required by the Investment Company Act of 1940, the Manager's
discussion of the performance of the Fund in its most recent fiscal year as well
as a comparison of the Fund's performance over the life of the Fund with that of
a benchmark securities index selected by the Manager will be included in the
Trust's Annual Report for that fiscal year. Copies of the Annual Report will be
available upon request without charge.
-17-
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
CUSTODIAN
Investors Bank & Trust Company
89 South Street
P.O. Box 1537
Boston, MA 02205
TRANSFER AGENT
Investors Bank & Trust Company
John Hancock Tower
200 Clarendon Street, 5th Floor
Boston, MA 02116
-18-
THE DLB FUND GROUP
STATEMENT OF ADDITIONAL INFORMATION
August 19, 1996
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the prospectuses of The DLB Fund Group dated
August 19, 1996, as amended from time to time, and should be read in conjunction
therewith. Each reference to the term "Prospectus" in this Statement of
Additional Information shall include all of the Trust's prospectuses, unless
otherwise noted. A copy of the Prospectus may be obtained free of charge by
writing The DLB Fund Group, c/o David L. Babson & Co., Inc., Marketing
Department, Attention: Maureen A. Madden, One Memorial Drive, Cambridge,
Massachusetts 02142, or by telephoning (617) 225-3800.
Table of Contents
-----------------
Caption Page
- ------- ----
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS ..................... 1
INVESTMENT RESTRICTIONS ..................................................... 1
INCOME DIVIDENDS, DISTRIBUTIONS AND TAX STATUS .............................. 4
MANAGEMENT OF THE TRUST ..................................................... 6
INVESTMENT ADVISORY AND OTHER SERVICES ...................................... 8
ADDITIONAL INVESTMENT PRACTICES OF THE GLOBAL BOND FUND .................... 10
ADDITIONAL INVESTMENT PRACTICES OF THE GLOBAL BOND AND
QUANTITATIVE EQUITY FUNDS -- FUTURES AND OPTIONS ........................... 12
ADDITIONAL INVESTMENT PRACTICES OF THE FIXED INCOME FUND ................... 16
PORTFOLIO TRANSACTIONS ..................................................... 19
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES ........................... 23
INVESTMENT PERFORMANCE ..................................................... 26
DETERMINATION OF NET ASSET VALUE ........................................... 28
EXPERTS .................................................................... 28
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS .................... 28
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS
The investment objective and policies of each of the DLB Fixed Income
Fund (the "Fixed Income Fund"), the DLB Global Small Capitalization Fund (the
"Global Small Cap Fund"), the DLB Value Fund (the "Value Fund"), the DLB Mid
Capitalization Fund (the "Mid Cap Fund"), the DLB Quantitative Equity Fund (the
"Quantitative Equity Fund") and the DLB Global Bond Fund (the "Global Bond
Fund") (each a "Fund," and collectively the "Funds") of The DLB Fund Group (the
"Trust") are set forth in the Trust's Prospectus.
INVESTMENT RESTRICTIONS
Without a vote of the majority of the outstanding voting securities of
the relevant Fund, the Trust will not take any of the following actions with
respect to any Fund:
(1) Borrow money in excess of 10% of the value (taken at the lower
of cost or current value) of the Fund's total assets (not including
the amount borrowed) at the time the borrowing is made, and then only
from banks for temporary, extraordinary or emergency purposes, except
that the Fund may borrow through reverse repurchase agreements or
dollar rolls up to 33 1/3% of the value of the Fund's total
assets.Such borrowings (other than borrowings relating to reverse
repurchase agreements and dollar rolls) will be repaid before any
investments are purchased.
(2) Underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under federal
securities laws.
(3) Purchase or sell real estate (including real estate limited
partnerships), although it may purchase securities of issuers which
deal in real estate, including securities of real estate investment
trusts, securities which represent interests in real estate and
securities which are secured by interests in real estate, and the Fund
may acquire and dispose of real estate or interests in real estate
acquired through the exercise of its rights as a holder of debt
obligations secured by real estate or interests therein or for use as
office space for the Fund.
(4) Make loans, except by purchase of debt obligations (including
nonpublicly traded debt obligations), by entering into repurchase
agreements or through the lending of the Fund's portfolio securities.
Loans of portfolio securities may be made with respect to up to 100%
of the Fund's assets in the case of each Fund.
-1-
(5) Issue any senior security (as that term is defined in the
Investment Company Act of 1940 (the "1940 Act")), if such issuance is
specifically prohibited by the 1940 Act or the rules and regulations
promulgated thereunder. (The Funds have no intention of issuing senior
securities except as set forth in Restriction 1 above.)
(6) Invest 25% or more of the value of its total assets in
securities of issuers in any one industry. (Securities issued or
guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities are not considered to represent
industries.)
(7) Purchase or sell commodities or commodity contracts, including
futures contracts, except that the Global Bond Fund and the
Quantitative Equity Fund may purchase and sell futures contracts,
options, including options on commodities and commodity contracts, and
other financial instruments and may enter into foreign exchange
transactions.
Notwithstanding the latitude permitted by Restrictions 1 and 3 above,
no Fund has any current intention in the coming year of (a) borrowing money from
banks (b) entering into dollar rolls or (c) investing in real estate investment
trusts. In addition, notwithstanding the latitude permitted by Restriction 1
above, No fund, except the Global Bond Fund, has any current intention in the
coming year of entering into reverse repurchase agreements. The Global Bond
Fund's obligations under reverse repurchase agreements will not exceed 5% of the
Fund's net assets.
It is contrary to the present policy of all the Funds, which may be
changed by the Trustees without shareholder approval, to:
(a) Purchase securities on margin, except such short-term credits
as may be necessary for the clearance of purchases and sales of
securities.
(b) (All Funds except the Global Bond Fund) Make short sales of
securities or maintain a short position for the Fund's account unless
at all times when a short position is open the Fund owns an equal
amount of such securities or owns securities which, without payment of
any further consideration, are convertible into or exchangeable for
securities of the same issue as, and equal in amount to, the
securities sold short. The Funds (other than the Global Bond Fund)
have no current intention in the coming year of engaging in short
sales or maintaining a short position.
(c) Invest in securities of any issuer if officers and Trustees of
the Trust and officers and partners of the Manager who beneficially
own more than 1/2 of 1% of the securities of that issuer together
beneficially own more than 5%.
-2-
(d) Invest in securities of other investment companies, except by
purchase in the open market involving only customary brokers'
commissions, or in connection with mergers, consolidations or
reorganizations. For purposes of this restriction, foreign banks or
their agents or subsidiaries are not considered investment companies.
(e) Invest in (a) securities which at the time of such investment
are not readily marketable, (b) securities the disposition of which is
restricted under federal securities laws, excluding restricted
securities that have been determined by the Trustees of the Fund (or
the person designated by them to make such determination) to be
readily marketable, and (c) repurchase agreements maturing in more
than seven days if, as a result, more than 15% of the Fund's net
assets (taken at current value) would then be invested in securities
described in (a), (b) and (c) above.
(f) Acquire more than 10% of the voting securities of any issuer.
(g) Invest in warrants or rights (other than warrants or rights
acquired by the Fund as a part of a unit or attached to securities at
the time of purchase), except that the Fund may invest in such
warrants or rights so long as the aggregate value thereof (taken at
the lower of cost or market) does not exceed 5% of the value of the
Fund's total assets and so long as no more than 2% of its total assets
are invested in warrants that are not listed on the New York Stock
Exchange or the American Stock Exchange.
(h) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts.
(i) Make investments for the purpose of gaining control of a
company's management.
Except as otherwise indicated in Restriction No. 1 or Restriction (e)
above, all percentage limitations on investments set forth herein and in the
Prospectus will apply at the time of the making of an investment and shall not
be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
The phrase "shareholder approval," as used in the Prospectus, and the
phrase "vote of a majority of the outstanding voting securities," as used herein
with respect to a Fund, means the affirmative vote of the lesser of (1) more
than 50% of the outstanding shares of that Fund, or (2) 67% or more of the
shares of that Fund present at a meeting if more than 50% of the outstanding
shares are represented at the meeting in person or by proxy.
-3-
INCOME DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). In order to so qualify, the Fund must, among other
things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains
from the sale of stock, securities and foreign currencies, or other income
(including but not limited to gains from options, futures or firm
commitments) derived with respect to its business of investing in such
stock, securities or currencies; (b) derive less than 30% of its gross
income from gains from the sale or other disposition of securities and
certain other assets (including certain foreign currency contracts) held
for less than three months; (c) distribute at least 90% of its dividend,
interest and certain other income (including, in general, short-term
capital gains) each year; and (d) diversify its holdings so that at the
end of each fiscal quarter (i) at least 50% of the market value of the
Fund's assets is represented by cash items, U.S. Government securities,
securities of other regulated investment companies, and other securities,
limited in respect of any one issuer to a value not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities (other than those of the U.S.
Government or other regulated investment companies) of any one issuer or
of two or more issuers which the Fund controls and which are engaged in
the same, similar or related trades or businesses. So long as a Fund
qualifies for treatment as a regulated investment company, the Fund will
not be subject to federal income tax on income paid to its shareholders in
the form of dividends or capital gain distributions.
The tax status of each Fund and the distributions which it may make are
summarized in the Prospectus under the heading "Taxes." Each Fund intends
to pay out substantially all of its ordinary income and net short-term
capital gains, and to distribute substantially all of its net capital
gain, if any, after giving effect to any available capital loss
carry-over. Net capital gain is the excess of net long-term capital gain
over net short-term capital loss. It is the policy of each Fund to make
distributions sufficient to avoid the imposition of a 4% excise tax on
certain undistributed amounts. A shareholder may be limited in its ability
to recognize losses on the sale of Fund shares if the shareholder
subsequently invests in that Fund or another Fund.
Certain transactions entered into by a Fund, such as firm commitments
and hedging transactions, may accelerate income, defer losses, cause
adjustments in the holding periods of the Fund's securities and convert
short-term capital gains or losses into long-term capital gains or losses.
Such transactions may therefore affect the amount, timing and character of
distributions to shareholders. Qualification requirements noted above may
restrict the Fund's ability to engage in such transactions.
-4-
Investment by a Fund in certain "passive foreign investment companies"
could subject the Fund to a U.S. federal income tax or other charge on
distributions received from or the sale of its investment in such a
company, which tax could not be eliminated by making distributions to Fund
shareholders. To avoid this treatment, a Fund may elect to mark to market
annually all of its stock in a passive foreign investment company.
Alternatively, if a Fund elects to treat a passive foreign investment
company as a "qualified electing fund," different rules would apply,
although the Funds do not currently expect to be in the position to make
such elections.
In general, all dividends derived from ordinary income and short-term
capital gain are taxable to investors as ordinary income (subject to
special rules concerning the availability of the dividends-received
deduction for corporations) and long-term capital gain distributions are
taxable to investors as long-term capital gains, whether such dividends or
distributions are received in shares or cash. Tax exempt organizations or
entities will generally not be subject to federal income tax on dividends
or distributions from a Fund, except certain organizations or entities,
including private foundations, social clubs, and others, which may be
subject to tax on dividends or capital gains. Each organization or entity
should review its own circumstances and the federal tax treatment of its
income.
The dividends-received deduction for corporations will generally apply
to a Fund's dividends paid from investment income to the extent derived
from dividends received by the Fund from domestic corporations that would
be entitled to such deduction in the hands of the Fund if it were a
regular corporation.
Certain of the Funds which invest in foreign securities may be subject
to foreign withholding taxes on income and gains derived from foreign
investments. Such taxes would reduce the yield on the Fund's investments,
but, as discussed below, may be taken as either a deduction or a credit by
U.S. investors if the Fund makes the election described below.
If, at the end of the fiscal year, more than 50% of the total assets of
any Fund are comprised of securities of foreign corporations, the Trust
intends to make an election with respect to the relevant Fund which allows
shareholders whose income from the Fund is subject to U.S. taxation at the
graduated rates applicable to U.S. citizens, residents or domestic
corporations to claim a foreign tax credit or deduction (but not both) on
their U.S. income tax return. In such case, the amount of foreign income
taxes paid by the Fund would be treated as additional income to Fund
shareholders from non-U.S. sources and as foreign taxes paid by Fund
shareholders. Investors should consult their tax advisors for further
information relating to the foreign tax credit and deduction, which are
subject to certain restrictions and limitations. Shareholders of any of
the Funds whose income from the Fund is not subject to U.S. taxation at
the graduated rates applicable to U.S. citizens, residents or domestic
corporations may receive substantially different tax treatment of
distributions by the relevant Fund, and may be disadvantaged as a result
of the election described in this paragraph. Organizations that are exempt
from U.S. taxation will not be affected by the election described above.
-5-
MANAGEMENT OF THE TRUST
The Trustees and officers of the Trust and their principal occupations
during the past five years are as follows:
Trustees
*Ronald E. Gwozdz, age 57, has been the Executive Vice President of the
Manager since July 1991 and Managing Director of Babson-Stewart Ivory
International since 1994, prior to which he was Senior Vice President of
Auburndale Management since January 1990, and before that, President of Plymouth
Funds for Fidelity Investments.
*Peter C. Thompson, age 63, Chairman of the Trustees, is the President,
Chief Executive Officer and a Director of the Manager and a Managing Director of
Babson-Stewart Ivory International.
Charles E. Hugel, age 67, serves as a Director of Eaton Corporation, a
manufacturer of auto parts, and Pitney Bowes, Inc., a manufacturer of business
and office equipment. He is also Chairman of the Board of Trustees of Lafayette
College. Mr. Hugel is the former Chairman of Asee Brown Boveri Inc., which
principally engages in the manufacture of electrical equipment and the
generation, transmission, distribution and transportation of power, the former
Chairman, President and Chief Executive Officer of Combustion Engineering, Inc.
and a former Executive Vice President of American Telephone and Telegraph
Company.
Richard A. Nenneman, age 66, is the former Editor-in-Chief of The
Christian Science Monitor and a former Senior Vice President of Girard Bank. He
currently serves as a member of the boards of various civic associations.
Richard J. Phelps, age 67, is the Chief Executive Officer of Phelps
Industries, Inc., a manufacturer of rawhide dog treats. He currently serves as a
director of Superior Pet, U.K. and Superior Pet Australia, both manufacturers of
rawhide dog treats; Bio-Comp, USA, a manufacturer of fertilizer; MRI Corp., USA;
Stockton Baseball Co., USA; and Babson-Stewart Ivory International Fund, Inc.
*Peter C. Schliemann, age 50, is the Executive Vice President and a
Director of the Manager. Mr. Schliemann is the portfolio manager for the Global
Small Cap Fund.
*Deemed to be an "interested person" of the Trust and the Manager, as defined by
the 1940 Act
-6-
Officers
Ronald E. Gwozdz, President.
DeAnne B. Dupont, age 42, Treasurer, is the Vice President of the
Manager.
John V. Murphy, age 47, Clerk, is the Executive Vice President, Chief
Operating Officer and a Director of the Manager.
The mailing address of each of the officers and Trustees is c/o David
L. Babson & Co., Inc., One Memorial Drive, Cambridge, Massachusetts 02142.
Except as stated above, the principal occupations of the officers and
Trustees for the last five years have been with the employers as shown above,
although in some cases they may have held different positions with such
employers.
Trustee Compensation Table
The Trust pays each Trustee a fee for his services. The Trustees
periodically review their fees to assure that such fees continue to be
appropriate in light of their responsibilities as well as in relation to fees
paid to Trustees of other mutual fund complexes. The estimated fees to be paid
to each Trustee by the Trust for the Trust's first full fiscal year are shown
below:
Total Compensation
Aggregate from Registrant
Compensation and Fund Complex
Name of Trustee from Registrant* Paid to Trustees
================================================================================
Ronald E. Gwozdz $0 $0
Charles E. Hugel 11,000 11,000
Richard A. Nenneman 11,000 11,000
Richard J. Phelps 11,000 11,000
Peter C. Schliemann 0 0
Peter C. Thompson 0 0
- ---------------
*Reflects estimated amounts to be paid by the Trust for its first full
fiscal year. Includes an annual retainer and an attendance fee for each
meeting attended.
-7-
INVESTMENT ADVISORY AND OTHER SERVICES
Management Contracts
The Trust's investment manager, David L. Babson & Co., Inc. (the
"Manager"), One Memorial Drive, Cambridge, Massachusetts 02142, is a wholly
owned subsidiary of DLB Acquisition Corp., a holding company, which is owned by
Mass Mutual Holding Company, a holding company and a wholly owned subsidiary of
Massachusetts Mutual Life Insurance Company, a mutual life insurance company. As
disclosed in the Prospectus under the heading "Management of the Trust," under
separate Management Contracts (each a "Management Contract") between the Trust
and the Manager, subject to such policies as the Trustees of the Trust may
determine, the Manager will furnish continuously an investment program for each
Fund and will make investment decisions on behalf of the Fund and place all
orders for the purchase and sale of portfolio securities. The Manager has
entered into a Sub-Advisory Agreement with Babson-Stewart Ivory International
("BSII") with respect to the management of the international component of the
Global Small Cap Fund's portfolio and a Sub-Advisory Agreement with Potomac
Babson Incorporated ("PBI") with respect to the management of the Global Bond
Fund. (BSII and PBI are collectively referred to herein as the "Sub-Advisers".)
Subject to the control of the Trustees, the Manager also manages, supervises and
conducts the other affairs and business of the Trust, furnishes office space and
equipment, provides bookkeeping and certain clerical services and pays all
salaries, fees and expenses of officers and Trustees of the Trust who are
affiliated with the Manager. As indicated under "Portfolio Transactions," the
Trust's portfolio transactions may be placed with broker-dealers which furnish
the Manager, at no cost, certain research, statistical and quotation services of
value to the Manager in advising the Trust or its other clients.
As disclosed in the Prospectus, each of the Funds pays the Manager a
monthly fee at the annual rate of the relevant Fund's average daily net assets
set forth therein. In addition, the Manager has agreed to waive its fee and to
bear certain expenses until further notice to the extent each of the Fund's
annual expenses (including the management fee, but excluding brokerage
commissions and transfer taxes) would exceed the percentage of the Fund's
average daily net assets set forth in the Prospectus. The Sub-Advisers have also
agreed to waive a portion of their fees. In addition, the Manager's compensation
under the Management Contract is subject to reduction to the extent that in any
year the expenses of the relevant Fund exceed the limits on investment company
expenses imposed by any statute or regulatory authority of any jurisdiction in
which shares of such Fund are qualified for offer and sale. The term "expenses"
is defined in the statutes or regulations of such jurisdictions, and, generally
speaking, excludes brokerage commissions, taxes, interest and extraordinary
expenses.
-8-
The Funds paid the following management fees during the periods
indicated:
1. FIXED INCOME FUND
Management
Fiscal Year Management Fee Paid Fee Waived
1995 $0 $8,911
2. GLOBAL SMALL CAP FUND
Management
Fiscal Year Management Fee Paid Fee Waived
1995 $01 $45,284
3. VALUE FUND
Management
Fiscal Year Management Fee Paid Fee Waived
1995 $0 $24,862
4. MID CAP FUND
Management
Fiscal Year Management Fee Paid Fee Waived
1995 $0 $26,445
Each Management Contract provides that the Manager shall not be subject
to any liability in connection with the performance of its services thereunder
in the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
Each Management Contract has an initial two-year term and will continue
in effect thereafter indefinitely so long as its continuance is approved at
least annually by (i) vote, cast in person at a meeting called for that purpose,
of a majority (or one, if there is only one) of those Trustees who are not
"interested persons" of the Manager or the Trust, and by (ii) the majority vote
of either the full Board of Trustees or the vote of a majority of the
outstanding shares of the relevant Fund. Each Management Contract automatically
terminates on assignment and is terminable on not more than 60 days' notice by
the Trust to the Manager. In addition, each Management Contract may be
terminated on not more than 60 days' written notice by the Manager to the Trust.
- --------------------------
* Under the relavent Sub-Advisory Agreement, the Manager paid BSII a
fee of $17,572. BSII waived a portion of its fees in an amount equal to $4,393
-9-
The Sub-Advisory Agreements contain provisions similar to those
contained in the Management Contracts.
Custodial Arrangements. Investors Bank & Trust Company ("IBT") serves
as the Trust's custodian on behalf of the Funds. As such, IBT holds in
safekeeping certificated securities and cash belonging to a Fund and, in such
capacity, is the registered owner of securities in book-entry form belonging to
a Fund. Upon instruction, IBT receives and delivers cash and securities of a
Fund in connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities. IBT also maintains
certain accounts and records of the Trust and calculates the total net asset
value, total net income and net asset value per share of each Fund on a daily
basis.
ADDITIONAL INVESTMENT PRACTICES OF THE GLOBAL BOND FUND
As described in its Prospectus, the Global Bond Fund can engage in
foreign currency exchange transactions and may invest in indexed securities. The
following sections provide more detailed information about these practices.
Foreign Currency Transactions. The Fund may conduct foreign currency
transactions on a spot (i.e., cash) basis or by entering into forward contracts
to purchase or sell foreign currencies at a future date and price. The Fund will
convert currency on a spot basis from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers
generally do not charge a fee for conversion, they do realize a profit based on
the difference between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. Forward contracts are generally traded in an
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. The parties to a forward contract may
agree to offset or terminate the contract before its maturity, or may hold the
contract to maturity and complete the contemplated currency exchange. The Fund
may use currency forward contracts for any purpose consistent with its
investment objective. The following discussion summarizes the principal currency
management strategies involving forward contracts that could be used by the
Fund. The Fund may also use indexed securities and options and futures contracts
relating to foreign currencies for the same purposes.
When the Fund agrees to buy or sell a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security. By
entering into a forward contract for the purchase or sale, for a fixed amount of
U.S. dollars, of the amount of foreign currency involved in the underlying
security transaction, the Fund will be able to protect itself against an adverse
change in foreign currency values between the date the security is purchased or
sold and the date on which payment is made or received. This technique is
sometimes referred to as a "settlement hedge" or "transaction hedge." The Fund
may also enter into forward contracts to purchase or sell a foreign currency in
anticipation of future
-10-
purchases or sales of securities denominated in foreign currency, even if the
specific investments have not yet been selected by the Manager or the relevant
Sub-Adviser.
The Fund may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For example,
if the Fund owned securities denominated in pounds sterling, it could enter into
a forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge, sometimes referred
to as a "position hedge," would tend to offset both positive and negative
currency fluctuations, but would not offset changes in security values caused by
other factors. The Fund could also hedge the position by selling another
currency expected to perform similarly to the pounds sterling - for example, by
entering into a forward contract to sell Deutschemarks or European Currency
Units in return for U.S. dollars. This type of hedge, sometimes referred to as a
"proxy hedge," could offer advantages in terms of cost, yield, or efficiency,
but generally would not hedge currency exposure as effectively as a simple hedge
into U.S. dollars. Proxy hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which the hedged securities
are denominated.
The Fund may enter into forward contracts to shift its investment
exposure from one currency into another. This may include shifting exposure from
U.S. dollars to a foreign currency, or from one foreign currency to another
foreign currency. For example, if the Fund held investments denominated in
Deutschemarks, the Fund could enter into forward contracts to sell Deutschemarks
and purchase Swiss Francs. This type of strategy, sometimes known as a
"cross-hedge," will tend to reduce or eliminate exposure to the currency that is
sold, and increase exposure to the currency that is purchased, much as if the
Fund had sold a security denominated in one currency and purchased an equivalent
security denominated in another. Cross-hedges protect against losses resulting
from a decline in the hedged currency, but will cause the Fund to assume the
risk of fluctuations in the value of the currency it purchases.
Under certain conditions, SEC guidelines require mutual funds to set
aside appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. To the extent required by SEC guidelines, the Fund
will segregate assets to cover currency forward contracts.
Successful use of currency management strategies will depend on the
Manager's or relevant Sub-Adviser's skill in analyzing and predicting currency
values. Currency management strategies may substantially change the Fund's
investment exposure to changes in currency exchange rates, and could result in
losses to the Fund if currencies do not perform as the Manager or relevant
Sub-Adviser anticipates. For example, if a currency's value rose at a time when
the Manager or relevant Sub-Adviser had hedged the Fund by selling that currency
in exchange for dollars, the Fund would be unable to participate in the
currency's appreciation. If the Manager or relevant Sub-Adviser hedges currency
exposure through proxy hedges, the Fund could realize currency losses from the
hedge and the security position
-11-
at the same time if the two currencies do not move in tandem. Similarly, if the
Manager or relevant Sub-Adviser increases the Fund's exposure to a foreign
currency, and that currency's value declines, the Fund will realize a loss.
There is no assurance that the Manager's or Sub-Adviser's use of currency
management strategies will be advantageous to the Fund or that it will hedge at
an appropriate time.
Indexed Securities. The Fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators. Indexed
securities typically, but not always, are debt securities or deposits whose
value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. Gold-indexed securities, for example, typically provide
for a maturity value that depends on the price of gold, resulting in a security
whose price tends to rise and fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed securities
may be positively or negatively indexed; that is, their maturity value may
increase when the specified currency value increases, resulting in a security
that performs similarly to a foreign-denominated instrument, or their maturity
value may decline when foreign currencies increase, resulting in a security
whose price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the United
States and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values may
decline substantially if the issuer's creditworthiness deteriorates. Indexed
securities may be more volatile than the underlying instruments.
ADDITIONAL INVESTMENT PRACTICES OF
THE GLOBAL BOND AND QUANTITATIVE
EQUITY FUNDS -- FUTURES AND OPTIONS
As described in their Prospectuses, the Global Bond and Quantitative
Equity Funds can engage in a variety of transactions using futures and options.
The following sections provide more detailed information about these practices.
Asset Coverage for Futures and Options Positions. The Funds will comply
with guidelines established by the Securities and Exchange Commission with
respect to coverage of options and futures strategies by mutual funds, and if
the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities
-12-
held in a segregated account cannot be sold while the futures or option strategy
is outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of a
Fund's assets could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
Combined Positions. A Fund may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, the Fund may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
Correlation of Price Changes. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match a Fund's current or anticipated
investments exactly. Each Fund may invest in options and futures contracts based
on securities with different issuers, maturities, or other characteristics from
the securities in which it typically invests, which involves a risk that the
options or futures position will not track the performance of the Fund's other
investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instruments, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. A Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in a Fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
Futures Contracts. When a Fund purchases a futures contract, it agrees
to purchase a specified underlying instrument at a specified future date. When a
Fund sells a futures contract, it agrees to sell the underlying instrument at a
specified future date. The price at which the purchase and sale will take place
is fixed when a Fund enters into the contract. Some currently available futures
contracts are based on specific securities, such as U.S. Treasury bonds or
notes, and some are based on indices of securities prices, such as the
-13-
Standard & Poor's Composite Index of 500 Stocks ("S&P 500"). Futures can be held
until their delivery dates, or can be closed out before then if a liquid
secondary market is available. The value of a futures contract tends to increase
and decrease in tandem with the value of its underlying instrument. Therefore,
purchasing futures contracts will tend to increase a Fund's exposure to positive
and negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When a Fund sells a futures
contract, by contrast, the value of its futures position will tend to move in a
direction contrary to the market. Selling futures contracts, therefore, will
tend to offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
Futures Margin Payments. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and seller
are required to deposit "initial margin" with a futures broker, known as a
futures commission merchant ("FCM"), when the contract is entered into. Initial
margin deposits are typically equal to a percentage of the contract's value. If
the value of either party's position declines, that party will be required to
make additional "variation margin" payments to settle the change in value on a
daily basis. The party that has a gain may be entitled to receive all or a
portion of this amount. Initial and variation margin payments do not constitute
purchasing securities on margin for purposes of a Fund's investment limitations.
In the event of the bankruptcy of an FCM that holds margin on behalf of a Fund,
the Fund may be entitled to return of margin owed to it only in proportion to
the amount received by the FCM's other customers, potentially resulting in
losses to the Fund.
Limitations on Futures and Options Transactions. The Funds have filed
notices of eligibility for exclusion from the definition of the term "commodity
pool operator" with the Commodity Futures Trading Commission ("CFTC") and the
National Futures Association, which regulate trading in the futures markets. The
Funds intend to comply with Rule 4.5 under the Commodity Exchange Act. To the
extent the Funds do not engage in commodity futures or commodity options for
"bona fine" hedging purposes, the Rule requires each Fund to limit the initial
margin and premiums paid to establish such positions to 5% of net assets. The
amount by which a commodity option is "in the money" is excluded for these
purposes.
Liquidity of Options and Futures Contracts. There is no assurance a
liquid secondary market will exist for any particular options or futures
contract at any particular time. Options may have relatively low trading volume
and liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily price
fluctuation limits for options and futures contracts, and may halt trading if a
contract's price moves upward or downward more than the limit in a given day. On
volatile trading days when the price fluctuation limit is reached or a trading
halt is imposed, it may be impossible for a Fund to enter into new positions or
close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require a Fund to
continue to hold a position until delivery or expiration regardless of changes
in its value. As a result, a
-14-
Fund's access to other assets held to cover its options or futures positions
could also be impaired.
Options and Futures Relating to Foreign Currencies (Global Bond Fund
only). Currency futures contracts are similar to forward currency exchange
contracts, except that they are traded on exchanges (and have margin
requirements) and are standardized as to contract size and delivery date. Most
currency futures contracts call for payment or delivery in U.S. dollars. The
underlying instrument of a currency option may be a foreign currency, which
generally is purchased or delivered in exchange for U.S. dollars, or may be a
futures contract. The purchaser of a currency call obtains the right to purchase
the underlying currency, and the purchaser of a currency put obtains the right
to sell the underlying currency.
The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed above. The
Fund may purchase and sell currency futures and may purchase and write currency
options to increase or decrease its exposure to different foreign currencies.
The Fund may also purchase and write currency options in conjunction with each
other or with currency futures or forward contracts. Currency futures and
options values can be expected to correlate with exchange rates, but may not
reflect other factors that affect the value of the Fund's investments. A
currency hedge, for example, should protect a Yen-denominated security from a
decline in the Yen, but will not protect the Fund against a price decline
resulting from deterioration in the issuer's creditworthiness. Because the value
of the Fund's foreign-denominated investments changes in response to many
factors other than exchange rates, it may not be possible to match the amount of
currency options and futures to the value of the Fund's investments exactly over
time.
OTC Options. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter ("OTC") options (options not traded
on exchanges) generally are established through negotiation with the other party
to the option contract. While this type of arrangement allows a Fund greater
flexibility to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organization of the exchanges where they are traded.
Purchasing Put and Call Options. By purchasing a put option, a Fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indices
of securities prices, and futures contracts. A Fund may terminate its position
in a put option it has purchased by allowing it to expire or by exercising the
option. If the option is allowed to expire, the Fund will lose the entire
premium it paid. If the Fund exercises the option, it completes the sale of the
underlying instrument at the strike price. The Fund may also terminate a put
option position by closing it out in the secondary market at its current price,
if a liquid secondary market exists.
-15-
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying instrument's
price does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium paid,
plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time, the buyer can expect to suffer
a loss if security prices do not rise sufficiently to offset the cost of the
option.
Writing Put and Call Options. When a Fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the Fund assumes the obligation to pay the strike price
for the option's underlying instrument if the other party to the option chooses
to exercise it. When writing an option on a futures contract, the Fund will be
required to make margin payments to an FCM as described above for futures
contracts. The Fund may seek to terminate its position in a put option it writes
before exercise by closing out the option in the secondary market at its current
price. If the secondary market is not liquid for a put option the Fund has
written, however, the Fund must continue to be prepared to pay the strike price
while the option is outstanding, regardless of price changes, and must continue
to set aside assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received. If
security prices remain the same over time, it is likely that the writer will
also profit, because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss. This loss
should be less than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should mitigate the
effects of the decline. Writing a call option obligates a Fund to sell or
deliver the option's underlying instrument, in return for the strike price, upon
exercise of the option. The characteristics of writing call options are similar
to those of writing put options, except that writing calls generally is a
profitable strategy if prices remain the same or fall. Through receipt of the
option premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
ADDITIONAL INVESTMENT PRACTICES OF THE FIXED INCOME FUND
In addition to the investment practices described in detail in the
Fund's Prospectus under the heading "Investment Objectives and Policies and
Associated Risks - Fixed Income Fund," the Fixed Income Fund may also engage, to
a limited extent, in the following
-16-
investment practices, which are identified in the Prospectus and more fully
described below. The Fund currently intends to invest less than 5% of its net
assets in each of these instruments in the coming year.
Strips and Residuals. The Fund may invest in stripped mortgage-backed
securities which are usually structured with two classes that receive different
portions of the interest and principal distributions on a pool of mortgage
loans. The Fund may invest in both the interest-only or "IO" class and the
principal-only or "PO" class. Prepayments could result in losses on such
stripped mortgage-backed securities. The yield to maturity on an IO class of
stripped mortgage-backed securities is extremely sensitive not only to changes
in prevailing interest rates but also to the rate of principal payments
(including prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurably adverse effect on the Fund's yield to maturity
to the extent it invests in IOs. If the assets underlying the IO experience
greater than anticipated prepayments of principal, the Fund may fail to fully
recoup its initial investment in these securities. Conversely, POs tend to
increase in value if prepayments are greater than anticipated and decline if
prepayments are slower than anticipated. Stripped mortgage-backed securities may
have limited liquidity. The Fund may also invest in IO or PO strips relating to
other types of fixed income securities, such as asset-backed securities. Such
investments would be subject similar to risks similar to those described above.
Residuals also involve the additional risk of loss of the entire value
of the investment if the underlying securities are prepaid. In addition, if a
CMO (as defined in the Prospectus) bears interest at an adjustable rate, the
cash flows on the related Residual will also be extremely sensitive to the level
of the index upon which the rate adjustments are based.
Zero Coupon Securities. The Fund may invest in "zero coupon" fixed
income securities. The Fund is required to accrue interest income on these
securities at a fixed rate based on the initial purchase price and the length to
maturity, but these securities do not pay interest in cash on a current basis.
The Fund is required to distribute the income on these securities to its
shareholders as the income accrues, even though the Fund is not receiving the
income in cash on a current basis. Thus, the Fund may have to sell other
investments to obtain cash to make income distributions. The market value of
zero coupon securities is often more volatile than that of non-zero coupon fixed
income securities of comparable quality and maturity.
Indexed Securities. The Fund may purchase securities the redemption
values and/or the coupons of which are indexed to the prices of other
securities, securities indices, precious metals or other commodities, or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. Gold-indexed securities, for
example, typically provide for a maturity value that depends on the price of
gold, resulting in a security whose price tends to rise and fall together with
gold prices.
-17-
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Indexed securities
may be more volatile than the underlying instrument.
Indexed securities in which the Fund may invest include so-called
"inverse floating obligations" or "residual interest bonds" on which the
interest rates typically decline as short-term market interest rates increase
and increase as short-term market rates decline. Such securities have the effect
of providing a degree of investment leverage because they will generally
increase or decrease in value in response to changes in market interest rates at
a rate which is a multiple of the rate at which fixed-rate long-term securities
increase or decrease in response to such changes. As a result, the market values
of such securities will generally be more volatile than the market values of
fixed rate securities.
Loans and Other Direct Debt Instruments. The Fund may invest in direct
debt instruments which are interests in amounts owed by a corporate,
governmental, or other borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments are subject to the
Fund's policies regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally recognized
rating agency. Loans that are fully secured offer the Fund more protection than
an unsecured loan in the event of non-payment of scheduled interest of
principal. However, there is no assurance that the liquidation of collateral
from a secured loan would satisfy the borrower's obligation, or that the
collateral can be liquidated. Indebtedness of borrowers whose creditworthiness
is poor involves substantially greater risks, and may be highly speculative.
Borrowers that are in bankruptcy or restructuring may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Direct
indebtedness of emerging countries will also involve a risk that the
governmental entities responsible for the repayment of the debt may be unable,
or unwilling, to pay interest and repay principal when due.
Investments in loans through direct assignment of a financial
institution's interest with respect to a loan may involve additional risks to
the Fund. For example, if a loan is foreclosed, the Fund could become part owner
of any collateral, and would bear the costs and liabilities associated with
owning and disposing of the collateral. In addition, it is conceivable that
under emerging legal theories of lender liability, the Fund could be held liable
as a co-lender. Direct debt instruments may also involve a risk of insolvency of
the lending bank or other intermediary.
-18-
A loan is often administered by a bank or other financial institution
that acts as agent for all holders. The agent administers the terms of the loan,
as specified in the loan agreement. The Fund may have to rely on the agent to
collect and pass on to the Fund any payments received from the borrower and to
apply appropriate credit remedies against a borrower. When the Fund is required
to rely upon a financial institution to pass on to the Fund principal and
interest, the Fund will evaluate the creditworthiness of such financial
institution as well as the creditworthiness of the borrower.
Direct indebtedness purchased by the Fund may include letters of
credit, revolving credit facilities, or other standby financing commitments
obligating the Fund to pay additional cash on demand. These commitments may have
the effect of requiring the Fund to increase its investment in a borrower at a
time when it would not otherwise have done so. The Fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
potential obligations under standby financing commitments.
Reverse Repurchase Agreements and Dollar Roll Agreements. The Fund may
enter into reverse repurchase agreements and dollar roll agreements with banks
and brokers to enhance return.
Reverse repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. During the reverse repurchase agreement
period, the Fund continues to receive principal and interest payments on these
securities and also has the opportunity to earn a return on the collateral
furnished by the counterparties to secure their obligation to redeliver the
securities.
Dollar rolls are transactions in which the Fund sells securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
The Fund will establish segregated accounts with its custodian in which
it will maintain cash, U.S. Government securities or other liquid high grade
debt obligations equal in value to its obligations in respect of reverse
repurchase agreements and dollar rolls. Reverse repurchase agreements involve
the risk that the market value of the securities retained by the Fund may
decline below the price of the securities the Fund has sold but is obligated to
repurchase under the agreement. In the event the buyer of securities under a
reverse repurchase agreement or dollar roll files for bankruptcy or becomes
insolvent, the Fund's use of the proceeds of the agreement may be restricted
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Fund's obligation to repurchase the securities. Reverse
repurchase agreements and dollar rolls are considered borrowings by the Fund for
purposes of the Fund's fundamental investment restriction with respect to
borrowings.
-19-
PORTFOLIO TRANSACTIONS
Investment Decisions
Investment decisions for the Funds and for the other investment
advisory clients of the Manager and the Sub-Advisers and their affiliates are
made with a view to achieving their respective investment objectives. Investment
decisions are the product of many factors in addition to basic suitability for
the particular client involved. Thus, a particular security may be bought or
sold for certain clients even though it could have been bought or sold for other
clients at the same time. Likewise, a particular security may be bought for one
or more clients when one or more other clients are selling the security. In some
instances, one client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously purchase or sell the
same security, in which event each day's transactions in such security are,
insofar as possible, averaged as to price and allocated between such clients in
a manner which in the Manager's or the Sub-Adviser's opinion is equitable to
each and in accordance with the amount being purchased or sold by each. There
may be circumstances when purchases or sales of portfolio securities for one or
more clients will have an adverse effect on other clients.
Brokerage and Research Services
Transactions on U.S. stock exchanges, commodities markets and futures
markets and other agency transactions involve the payment by a Fund of
negotiated brokerage commissions. Such commissions vary among different brokers.
A particular broker may charge different commissions according to such factors
as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment of fixed brokerage commissions, which may
be higher than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter markets, but
the price paid by a Fund usually includes an undisclosed dealer commission or
mark-up. In underwritten offerings, the price paid by a Fund includes a
disclosed, fixed commission or discount retained by the underwriter or dealer.
It is anticipated that most purchases and sales of securities by the Fixed
Income Fund and the Global Bond Fund will be with the issuer or with
underwriters of or dealers in those securities, acting as principal.
Accordingly, such Funds would not ordinarily pay significant brokerage
commissions with respect to securities transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")) from broker-dealers that
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, the Manager and the Sub-Advisers may receive brokerage and research
services and other similar services from many broker-dealers with which the
Manager and the Sub-Advisers place the Funds' portfolio transactions and from
third parties with which these broker-dealers
-20-
have arrangements. These services may include such matters as general economic
and market reviews, industry and company reviews, evaluations of investments,
recommendations as to the purchase and sale of investments, newspapers,
magazines, pricing services, quotation services, news services and personal
computers utilized by the Manager's or Sub-Adviser's investment professionals.
Where the services referred to above are not used exclusively by the Manager or
a Sub-Adviser for research purposes, the Manager or Sub-Adviser, based upon
allocations of expected use, would bear that portion of the cost of these
services which directly relates to their non-research use. Some of these
services may be of value to the Manager, the Sub-Advisers or their affiliates in
advising various of their clients (including the Funds), although not all of
these services would necessarily be useful and of value in managing the Funds.
The management fee paid by each Fund is not reduced because the Manager, the
Sub-Advisers or their affiliates may receive these services even though the
Manager or the Sub-Advisers might otherwise be required to purchase some of
these services for cash.
The Manager and Sub-Advisers each place orders for the purchase and
sale of portfolio investments for the Funds and buy and sell investments for the
Funds through a substantial number of brokers and dealers. In so doing, the
Manager and the Sub-Advisers use their best efforts to obtain for the Funds the
most favorable price and execution available, except to the extent they may be
permitted to pay higher brokerage commissions as described below. In seeking the
most favorable price and execution, the Manager and the Sub-Advisers, having in
mind each Fund's best interests, consider all factors they deem relevant,
including, by way of illustration, price, the size of the transaction, the
nature of the market for the security or other investment, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the broker-dealer
involved and the quality of service rendered by the broker-dealer in other
transactions.
As permitted by Section 28(e) of the 1934 Act, and by each Management
Contract or, as applicable, the Sub-Advisory Agreements, the Manager and the
Sub-Advisers may cause a Fund to pay a broker-dealer which provides "brokerage
and research services" (as defined in the 1934 Act) to the Manager or
Sub-Adviser an amount of disclosed commission for effecting securities
transactions on stock exchanges and other transactions for such Fund on an
agency basis in excess of the commission which another broker-dealer would have
charged for effecting that transaction. The Manager's or the Sub-Adviser's
authority to cause the Funds to pay any such greater commissions is also subject
to such policies as the Trustees may adopt from time to time. It is the position
of the staff of the Securities and Exchange Commission that Section 28(e) does
not apply to the payment of such greater commissions in "principal"
transactions. Accordingly the Manager and the Sub-Advisers will use their best
effort to obtain the most favorable price and execution available with respect
to such transactions, as described above.
The following tables show brokerage commissions on portfolio
transactions paid by each Fund during the fiscal periods indicated.
1. FIXED INCOME FUND
-21-
Fiscal Year Brokerage Commissions
1995 $0
2. GLOBAL SMALL CAP FUND
Fiscal Year Brokerage Commissions
1995 $38,917
3. VALUE FUND
Fiscal Year Brokerage Commissions
1995 $16,731
4. MID CAP FUND
Fiscal Year Brokerage Commissions
1995 $18,964
The following tables show transactions placed by each Fund with brokers and
dealers during the most recent fiscal year to recognize research, statistical
and quotation services that the Manager (and BSII, in the case of the Global
Small Cap Fund) considered to be particularly useful to it and its affiliates.
1. FIXED INCOME FUND
Dollar Value of Percent of Amount of
Those Transactions Total Transactions Commissions
$0 0% $ 0
2. GLOBAL SMALL CAP FUND
Dollar Value of Percent of Amount of
Those Transactions Total Transactions Commissions
$148,540 .004% $450
3. VALUE FUND
Dollar Value of Percent of Amount of
-22-
Those Transactions Total Transactions Commissions
$290,168 .004% $468
4. MID CAP FUND
Dollar Value of Percent of Amount of
Those Transactions Total Transactions Commissions
$386,766 .01% $1,140
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
The Trust is organized as a Massachusetts business trust under the laws of
Massachusetts by an Agreement and Declaration of Trust ("Declaration of Trust")
dated August 1, 1994. A copy of the Declaration of Trust is on file with the
Secretary of The Commonwealth of Massachusetts. The fiscal year for each Fund
ends on December 31.
Each share of each Fund represents an equal proportionate interest in such
Fund. Shares of the Trust do not have any preemptive rights. Upon liquidation of
a Fund, shareholders of such Fund are entitled to share pro rata in the net
assets of the Fund available for distribution to shareholders.
The Declaration of Trust also permits the Trustees, without shareholder
approval, to subdivide any series of shares into various sub-series of shares
with such dividend preferences and other rights as the Trustees may designate.
While the Trustees have no current intention to exercise this power, it is
intended to allow them to provide for an equitable allocation of the impact of
any future regulatory requirements which might affect various classes of
shareholders differently. The Trustees may also, without shareholder approval,
establish one or more additional separate portfolios for investments in the
Trust or merge two or more existing portfolios. Shareholders' investments in
such a portfolio would be evidenced by a separate series of shares.
The Declaration of Trust provides for the perpetual existence of the Trust.
The Trust, however, may be terminated at any time by vote of at least two-thirds
of the outstanding shares of the Trust. The Declaration of Trust further
provides that the Trustees may also terminate the Trust upon written notice to
the shareholders.
Voting Rights
As summarized in the Prospectus, shareholders are entitled to one vote for
each full share held (with fractional votes for fractional shares held) and will
vote (to the extent provided herein) in the election of Trustees and the
termination of the Trust and on other matters submitted to the vote of
shareholders. Shareholders vote by individual Fund on all
-23-
matters except (i) when required by the 1940 Act, shares shall be voted in the
aggregate and not by individual Fund, and (ii) when the Trustees have determined
that the matter affects only the interests of one or more Funds, then only
shareholders of such Funds shall be entitled to vote thereon. Shareholders of
one Fund shall not be entitled to vote on matters exclusively affecting another
Fund, such matters including, without limitation, the adoption of or change in
the investment objective, policies or restrictions of the other Fund and the
approval of the investment advisory contract of the other Fund.
There will normally be no meetings of shareholders for the purpose of
electing Trustees except that in accordance with the 1940 Act (i) the Trust will
hold a shareholders' meeting for the election of Trustees at such time as less
than a majority of the Trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy in the Board of Trustees,
less than two-thirds of the Trustees holding office have been elected by the
shareholders, that vacancy may only be filled by a vote of the shareholders.
Upon written request by the holders of at least 10% of the outstanding shares
stating that such shareholders wish to communicate with the other shareholders
for the purpose of obtaining the signatures necessary to demand a meeting to
consider removal of a Trustee, the Trust has undertaken to provide a list of
shareholders or to disseminate appropriate materials (at the expense of the
requesting shareholders). In addition, shareholders of the Trust holding at
least 10% of the outstanding shares entitled to vote have the right to call a
meeting to elect or remove Trustees or to take other actions as provided in the
Declaration of Trust. Except as set forth above, the Trustees shall continue to
hold office and may appoint successor Trustees. Voting rights are not
cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust except (i)
to change the Trust's name or to cure technical problems in the Declaration of
Trust and (ii) to establish, designate or modify new and existing series or
sub-series of Trust shares or other provisions relating to Trust shares in
response to applicable laws or regulations.
Shareholder and Trustee Liability
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 such disclaimer be given in
each agreement, obligation, or instrument entered into or executed by the Trust
or the Trustees. The Declaration of Trust provides for indemnification out of
the property of the relevant Fund for all loss and expense of any shareholder of
that Fund held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is considered remote because it is limited to circumstances in which
the disclaimer is inoperative and the Fund of which he is or was a shareholder
would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors
-24-
of judgment or mistakes of fact or law. However, nothing in the Declaration of
Trust protects a Trustee against any liability to which the Trustee would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. The By-laws of the Trust provide for indemnification by the Trust of the
Trustees and the officers of the Trust except with respect to any matter as to
which any such person did not act in good faith in the reasonable belief that
his action was in or not opposed to the best interests of the Trust. Such person
may not be indemnified against any liability to the Trust or the Trust's
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
At June 30, 1996 the officers and trustees of the Trust did not own any shares
of any Fund, and, except as noted below, to the knowledge of the Trust no person
owned of record or beneficially 5% or more of the shares of any Fund.
1. FIXED INCOME FUND
Shareholder Name Percentage
and Address Owned
Massachusetts Mutual Life 41.9%
Insurance Company
1295 State Street
Springfield, MA 01111
David L. Babson & Co. 29.6%
Profit Sharing Plan
c/o David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, MA 02142
Haley & Aldrich 28.4%
c/o Baybank
7 New England Executive Park
Burlington, MA 01803
2. GLOBAL SMALL CAP FUND
Shareholder Name Percentage
and Address Owned
Massachusetts Mutual Life 90.2%
Insurance Company
1295 State Street
-25-
Springfield, MA 01111
David L. Babson & Co. 8.8%
Profit Sharing Plan
c/o David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, MA 02142
3. VALUE FUND
Shareholder Name Percentage
and Address Owned
Massachusetts Mutual Life 69.4%
Insurance Company
1295 State Street
Springfield, MA 01111
Universal Cooperatives 18.1%
c/o Norwest Bank MN NA
6th & Marquette
Minneapolis, MN 55479
David L. Babson & Co. 12.3%
Profit Sharing Plan
c/o David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, MA 02142
4. MID CAP FUND
Shareholder Name Percentage
and Address Owned
Massachusetts Mutual Life 91.0%
Insurance Company
1295 State Street
Springfield, MA 01111
David L. Babson & Co. 8.9%
Profit Sharing Plan
c/o David L. Babson & Co., Inc.
-26-
One Memorial Drive
Cambridge, MA 02142
INVESTMENT PERFORMANCE
Standard performance measures (for periods commencing July 25, 1995, or in the
case of the Global Small Cap Fund, July 19, 1995, and ending December 31, 1995)
1. FIXED INCOME FUND
Total Return Yield
6.46% 5.98%
2. GLOBAL SMALL CAP FUND
Total Return
4.02%
3. VALUE FUND
Total Return
8.19%
4. MID CAP FUND
Total Return
9.28%
Total return for the period that the Funds have been in operation is
determined by calculating the actual dollar amount of investment return on a
$1,000 investment in a Fund made at the beginning of the period, at net asset
value, and then calculating the annual compounded rate of return which would
produce that amount. Total return calculations assume reinvestment of all Fund
distributions at net asset value on their respective reinvestment dates.
Yield is presented for a specified thirty-day period (the "base
period"). Yield is based on the amount determined by (i) calculating the
aggregate amount of dividends and interest earned by a Fund during the based
period less expenses for that period, and (ii) dividing that
-27-
amount by the product of (A) the average daily number of shares of the Fund
outstanding during the base period and entitled to receive dividends and (B) the
net asset value on the last day of the base period. The result is annualized on
a compounding basis to determine the yield. For this calculation, interest
earned on debt obligations held by a Fund is generally calculated using the
yield to maturity (or first expected call date) on such obligations based on
their market values (or, in the case of receivables-backed securities such as
securities issued by the Government National Mortgage Association, based on
cost). Dividends on equity securities are accrued daily at their stated dividend
rates.
DETERMINATION OF NET ASSET VALUE
As indicated in the Prospectus, except on days during which no security
is tendered for redemption and no order to purchase or sell such security is
received by the relevant Fund, the net asset value of each Fund share is
determined at 4:15 p.m., Eastern time, on each day on which the New York Stock
Exchange is open for trading. The Trust expects that the days, other than
weekend days, that the New York Stock Exchange will not be open are Independence
Day, Labor Day, Election Day, Thanksgiving Day, Christmas Day, New Year's Day,
Presidents' Day, Good Friday and Memorial Day.
EXPERTS
The financial statements of the Fixed Income Fund, the Global Small Cap
Fund, the Value Fund and the Mid Cap Fund as of December 31, 1995 appearing in
this Statement of Additional Information have been audited by Deloitte & Touche
LLP, 125 Summer Street, Boston, Massachusetts 02110, the Trust's independent
auditors, as set forth in each of their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
-28-
DELOITTE &
TOUCHE LLP
125 Summer Street Telephone: (617) 261-8000
Boston, Massachusetts 02110-1617 Facsimile: (617) 261-8111
INDEPENDENT AUDITORS' REPORT
To the Trustees of The DLB Fund Group and Shareholders of DLB Fixed Income Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Fixed Income Fund (a separate series of The
DLB Fund Group) as of December 31, 1995, and the related statements of
operations and changes in net assets, and the financial highlights for the
period from July 25, 1995 (commencement of operations) to December 31, 1995.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned at December 31, 1995 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of DLB Fixed Income
Fund at December 31, 1995, the results of its operations, the changes in its net
assets, and its financial highlights for the period from July 25, 1995
(commencement of operations) to December 31, 1995 in conformity with generally
accepted accounting principles.
/s/Deloitte & Touche LLP
February 1, 1996
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
DLB FIXED INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BONDS - 93.3%
S&P/MOODY'S
BOND RATING PRINCIPAL
(UNAUDITED) ISSUER AMOUNT VALUE
<S> <C> <C> <C>
U.S. GOVERNMENT BONDS - 27.3%
AAA U.S. Treasury, 7.25s, 1996 $150,000 $152,531
AAA U.S. Treasury, 8.50s, 1997 400,000 417,124
AAA U.S. Treasury, 6.25s, 2000 100,000 103,453
AAA U.S. Treasury, 7.50s, 1999 75,000 80,519
AAA U.S. Treasury, 6.375s, 2000 100,000 103,109
AAA U.S. Treasury, 10.375s, 2012 250,000 345,625
AAA U.S. Treasury, 8.125s, 2021 200,000 253,125
1,455,486
U.S. Federal Agency Bonds - 1.9%
Federal Home Loan Banks, 7.26s, 1999 100,000 102,984
MORTGAGES - 24.7%
BAA3 Green Tree Financial, 6.9s, 2004 33,499 33,467
AAA Green Tree Financial, 7.25s, 2005 81,024 81,985
AAA FHLMC Gold G00143 72,507 74,440
AAA GNMA, 7.5s, 2023 480,709 494,938
AAA GNMA, 7.5s, 2025 509,175 523,496
AAA Green Tree, 7.05s, 2025 100,000 104,000
1,312,326
INTERNATIONAL BONDS - 13.1%
BAA2 Canadian National Railroad, 7s, 2004 100,000 103,611
AA3 Province of Ontario, 7s, 2005 125,000 133,008
AA2 British Columbia Hydro & Pwr, 15.5s, 2011 200,000 229,398
AA3 Province of Ontario, 15.75s, 2012 100,000 116,822
AAA Hydro Quebec, 8.4s, 2022 100,000 115,621
698,460
FINANCIAL - 11.2%
BAA2 Comdisco, 9.75s, 1997 250,000 259,863
A3 GMAC, 8.4s, 1999 200,000 217,220
A1 Ford Capital BV, 10.125s, 2000 100,000 117,282
594,365
</TABLE>
-2-
DLB FIXED INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BONDS - 93.3%
S&P/MOODY'S
BOND RATING PRINCIPAL
(UNAUDITED) ISSUER AMOUNT VALUE
<S> <C> <C> <C>
INDUSTRIAL - 10.7%
A3 Ryder Mtn, 8.45s, 1999 100,000 108,954
A2 Sears Roebuck, 6.5s, 2000 100,000 102,303
A3 Cardinal Health Inc., 6.5s, 2004 100,000 101,345
A1 Raytheon, 6.5s, 2005 100,000 103,408
BAA3 Telecommunication Inc., 7.25s, 2005 100,000 101,337
BAA3 Time Warner Ent., 8.375s, 2023 50,000 53,826
571,173
TRANSPORTATION - 4.4%
A3 CSX Corp., 9.50s, 2000 100,000 113,897
A3 CSX Corp. Deb, 9s, 2006 100,000 119,160
233,057
Total Bonds (Identified cost, $4,834,859) 4,967,851
REPURCHASE AGREEMENT, 5.2%,
Bank of New York, dated 12/29/95, due
1/2/96 (Secured by $281,000 U.S. Treasury
Notes, due 9/30/97, Market Value, $287,365) 277,440
Total Investments
(Identified cost, $5,112,299) 5,245,291
Other Assets, Less Liabilities - 1.5% 79,848
NET ASSETS - 100% $ 5,325,139
</TABLE>
See notes to financial statements.
-3-
DLB FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (identified cost, $5,112,299) $5,245,291
Interest receivable 80,415
Total assets 5,325,706
LIABILITIES - Accrued expenses and other liabilities 567
NET ASSETS $5,325,139
NET ASSETS CONSIST OF:
Paid-in capital $5,192,147
Unrealized appreciation on investments 132,992
Total $5,325,139
SHARES OF BENEFICIAL INTEREST OUTSTANDING 518,789
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER
SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 10.26
</TABLE>
See notes to financial statements.
-4-
DLB FIXED INCOME FUND
STATEMENT OF OPERATIONS
PERIOD FROM JULY 25, 1995 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INTEREST INCOME $ 152,090
EXPENSES:
Management fee 8,911
Custodian fee 23,894
Legal fees 23,846
Accounting and audit fees 19,791
Trustees' fees 5,438
Other 6
Total expenses 81,886
Reduction of expenses by investment manager (68,707)
Net expenses 13,179
Net investment income 138,911
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain on investment transactions (identified cost basis) 53,226
Change in unrealized appreciation 132,992
Net realized and unrealized gain on investments 186,218
Increase in net assets from operations $ 325,129
</TABLE>
See notes to financial statements.
-5-
DLB FIXED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
PERIOD FROM JULY 25, 1995 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 138,911
Net realized gain on investments 53,226
Net unrealized gain on investments 132,992
Increase in net assets from operations 325,129
Distributions declared to shareholders:
From net investment income (139,227)
From net realized gain on investments (53,159)
Total distributions declared to shareholders (192,386)
Fund share (principal) transactions:
Net proceeds from sale of shares 5,000,000
Net asset value of shares issued to shareholders in reinvestment of distributions 192,386
Increase in net assets from Fund share transactions 5,192,386
Total increase in net assets 5,325,129
NET ASSETS:
At beginning of period 10
At end of period $ 5,325,139
</TABLE>
See notes to financial statements.
-6-
DLB FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
PERIOD FROM JULY 25, 1995 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $ 10.00
Income from investment operations:
Net investment income 0.28
Net realized and unrealized gain on investments 0.37
Total income from investment operations 0.65
Less distributions declared to shareholders:
From net investment income (0.28)
From net realized gain on investments (0.11)
Total distributions declared to shareholders (0.39)
Net asset value - end of period $ 10.26
Total return 14.75%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 0.55%*
Ratio of net investment income to average net assets 6.24%*
Portfolio turnover 42%
Net assets at end of period (000 omitted) $ 5,325
The manager has agreed with the Fund to reduce its management fee and bear
certain expenses, such that expenses do not exceed 0.55% of average daily net
assets on an annualized basis. If the fee and expenses had been incurred by the
Fund, and had expenses been limited to that permitted by state securities law,
the net investment income per share and ratios would have been:
Net investment income $ 0.19
Ratios (to average net assets):
Expenses 2.50%*
Net investment income 4.33%*
* Annualized.
</TABLE>
See notes to financial statements.
-7-
DLB FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Fixed Income Fund (the "Fund") is a non-diversified series of The DLB
Fund Group (the "Trust").
The Trust is organized as a Massachusetts business trust and is registered
under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATIONS - Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues, are valued on
the basis of valuations furnished by dealers or by a pricing service with
consideration to factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data, without exclusive reliance
upon exchange or over-the-counter prices. Short-term obligations, which
mature in 60 days or less, are valued at amortized cost, which approximates
market value. Securities for which there are no such valuations are valued
at fair value as determined in good faith by or at the direction of the
Trustees.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded
on the trade date. Interest income is recorded on the accrual basis. All
premium and original issue discount are amortized or accreted for financial
statement and tax reporting purposes as required by federal income tax
regulations.
TAX MATTERS AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code ("Code") applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a
tax return annually using tax accounting methods required under provisions
of the Code which may differ from generally accepted accounting principles,
the basis on which these financial statements are prepared. Accordingly,
the amount of net investment income and net realized gain reported on these
financial statements may differ from that reported on the Fund's tax
return, and consequently, the character of distributions to shareholders
reported in the financial highlights may differ from that reported to
shareholders on Form 1099-DIV. Distributions to shareholders are recorded
on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return
of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings and profits which result
in temporary over-distributions for financial statement purposes, are
classified as distributions in excess of net investment income or
accumulated undistributed net realized gains. During the period ended
December 31, 1995, $67 and $249 were reclassified from accumulated
undistributed net realized gain on investments` and paid-in capital,
respectively, to accumulated undistributed net investment income, due to
differences between book and tax accounting for mortgage-backed securities
and foreign currency transactions. This change had no effect on the net
assets or net asset value per share.
-8-
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT MANAGER - The Fund has a management contract with David L.
Babson & Co. Inc. ("DLB") to provide overall investment advisory and
administrative services, and general office facilities. The management fee
is computed daily and paid monthly at an effective annual rate of 0.40% of
average daily net assets.
For the period ended December 31, 1995, the management fee amounted to
$8,911, all of which was waived by DLB and, additionally, $59,796 of Fund
expenses were borne by DLB.
The Fund pays no compensation directly to its Trustees who are officers of
the investment manager, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from DLB.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations, were
as follows:
PURCHASES SALES
U.S. Government securities $4,526,414 $2,061,524
Investments (non-U.S. government securities) $2,503,365 $ 177,303
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis,
are as follows:
Aggregate Cost $5,112,299
Gross unrealized appreciation $ 137,028
Gross unrealized depreciation (4,036)
Net unrealized appreciation $ 132,992
5. SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares during the period were as follows:
SHARES AMOUNT
Shares sold 500,000 $5,000,000
Shares issued to shareholders in reinvestment of 18,788 192,386
distributions
Net increase 518,788 $5,192,386
* * * * * *
-9-
DELOITTE &
TOUCHE LLP
125 Summer Street Telephone: (617) 261-8000
Boston, Massachusetts 02110-1617 Facsimile: (617) 261-8111
INDEPENDENT AUDITORS' REPORT
To the Trustees of the DLB Fund Group and Shareholders of DLB Global Small
Capitalization Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Global Small Capitalization Fund (a
separate series of The DLB Fund Group) as of December 31, 1995, and the related
statements of operations, changes in net assets, and the financial highlights
for the period from July 19, 1995 (commencement of operations) to December 31,
1995. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned at December 31, 1995 by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of DLB Global Small
Capitalization Fund at December 31, 1995, the results of its operations, the
changes in its net assets, and its financial highlights for the period from July
19, 1995 (commencement of operations) to December 31, 1995 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
February 1, 1996
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
DLB GLOBAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS - 98.1%
ISSUER SHARES VALUE
<S> <C> <C>
CHEMICALS SPECIALTY - 1.9%
Calgon Carbon 9,200 $110,400
M.A. Hanna Co. 3,200 89,600
200,000
METALS AND MINING - 0.9%
Martin Marietta Materials 4,500 92,813
PAPER/FOREST PRODUCTS - 0.7%
Albany International Corp. Class A 4,100 74,313
AEROSPACE - 1.3%
E G & G 5,600 135,800
CONSTRUCTION - 1.0%
Southdown Inc. (*) 5,300 103,350
ENVIRONMENTAL - 1.0%
Safety-Kleen 6,900 107,812
MACHINERY/EQUIPMENT - 2.7%
BW/IP Inc. Class A 5,800 95,700
Harsco Corp. 2,000 116,250
Trinity Industries 2,400 75,600
287,550
APPAREL - TEXTILE - 1.8%
National Service Industries 3,700 119,788
Stride Rite 9,300 69,750
189,538
AUTO PARTS MANUFACTURERS - 3.2%
Armor All Products 6,800 123,250
Arvin Industries 3,400 56,100
Bandag Inc. Class A 1,100 58,300
Standard Products 5,800 102,225
339,875
FURNITURE AND APPLIANCES - 2.2%
Herman Miller 4,500 135,000
LA-Z-BOY Chair 3,200 98,800
233,800
RECREATION - 0.8%
King World Productions (*) 2,100 81,638
</TABLE>
-2-
DLB GLOBAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
<S> <C> <C>
PRINTING AND PUBLISHING - 4.6%
CCH Inc., Class B 5,100 281,138
Central Newspapers A 3,300 103,538
Lee Enterprises 4,200 96,600
481,276
RETAIL - SPECIALITY - 0.8%
Fingerhut Companies 5,700 79,088
WHOLESALERS - 1.0%
Waban Inc. (*) 5,600 105,000
FOOD PRODUCERS - 0.9%
Dean Foods Co. 3,600 99,000
FOOD RETAILERS - 1.1%
Vons Companies (*) 4,200 118,650
COSMETIC/TOILETRY - 0.8%
Alberto Culver Class A 2,600 79,300
TOBACCO - 1.7%
Dimon Inc. 5,600 98,700
Quilmes Industries 4,800 74,880
173,580
COAL GAS AND PIPE - 2.3%
Cabot Oil & Gas Corp. 6,600 96,525
Nabors Industries (*) 13,000 144,625
241,150
OIL - DOMESTIC - 0.8%
Quaker State Corp. 7,000 88,375
BANKS - 2.8%
First Commercial Corp. 3,317 109,461
First Security Corp. 2,900 111,650
Firstier Financial 1,700 74,800
295,911
INSURANCE COMPANIES - 1.8%
Gallagher, AJ & Co. 2,300 85,675
Hartford Steam Boiler Ins. 2,100 105,000
190,675
</TABLE>
-3-
DLB GLOBAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
<S> <C> <C>
ELECTRONIC/INSTRUMENT - 1.3%
Intergraph Corp. (*) 4,100 64,575
Scitex 5,300 72,213
136,788
TELECOMMUNICATIONS - 0.7%
Octel Communications(*) 2,400 77,400
TRUCKING AND SHIPPING - 2.1%
Alexander & Baldwin 3,400 78,200
Hunt JB Transport 4,500 75,375
Overseas Shipholding 3,700 70,300
223,875
NATURAL GAS - 0.9%
Equitable Resources 3,100 96,875
FOREIGN - 57%
UNITED KINGDOM
Alllied Colloids Group - Chemicals 44,900 92,711
Peter Black Holdings - Household Goods 19,000 79,643
N Brown Group - Retailers - General 20,000 83,214
Court Cavendish Group - Health Care 21,400 90,036
Devro International - Food Producers 26,000 102,527
Fairey Group - Electronic and Electrical Equipment 11,300 94,383
McBride - Household Goods (*) 28,100 84,196
Seton Healthcare Group - Health Care 13,000 79,721
Spirax-Sarco Engineering - Engineering 15,000 138,211
UniChem - Health Care 21,300 80,025
924,667
BELGIUM
Colruyt - Retailers - Food 126,428 123,616
FRANCE
Bioblock Scientific - Distributors 2,000 102,139
Brioch Pasquier - Food Producers 1,000 121,789
Guilbert - Distributors 1,200 141,234
SocieteManutan - Distributors 1,000 116,591
Spir Communication - Media 1,400 128,666
Virbac - Pharmaceuticals 1,000 122,812
733,231
</TABLE>
-4-
DLB GLOBAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
<S> <C> <C>
FOREIGN (CONTINUED)
GERMANY
Douglas Holdings - Retailers - General 3,250 114,960
Rhoen Klinikum - Health Care 1,200 119,958
Sto AG - Building Materials and Merchants (**) 100 50,332
285,250
ITALY
Gewiss - Electronic and Electrical Equipment 13,700 172,684
Industrie Natuzzi ADR - Household Goods 3,700 167,888
340,572
NETHERLANDS
Grolsch - Breweries 3,350 116,590
Nutricia Verenidge Bedrijuen - Food Producers 1,850 149,772
Wegener - Media 1,550 149,847
416,209
SWITZERLAND
Fotolabo - Other Services and Businesses 400 160,000
Phoenix Mecano - Engineering 300 150,782
310,782
NEW ZEALAND
Guinness Peat Group - Other Financial 155,000 81,021
JAPAN
Aim Services - Other Svcs. and Business 5,000 91,535
Amada Metrecs - Japan 9,000 143,840
Canon Aptex - Engineering 5,500 89,597
Daiwa Industries - Engineering 12,000 116,234
Disco - Electronic and Electrical Equipment 4,000 149,168
Fukuda Denshi - Health Care 5,000 134,153
Harada Industry - Electronic and Electrical Equip. 5,000 85,722
Maruko - Retailers - General (*) 1,500 101,850
Mitsui High Tech - Electronic and Electrical Equip. 5,000 130,763
Nihon Jumbo - Other Services and Businesses 4,300 150,358
Nissen - Retailers - General 5,730 134,314
Royal Ltd. - Retailers - General 4,000 133,670
SxL Corp. - Building and Construction 12,000 124,370
Xebio Co. - Retialers - General 4,000 141,418
1,726,992
</TABLE>
-5-
DLB GLOBAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
<S> <C> <C>
FOREIGN (CONTINUED)
HONG KONG
CDL Hotels - Leisure and Hotels 260,000 131,126
Chen Hsong Holdings - Engineering 90,000 47,135
Gold Peak - Electronic and Electrical Equipment 150,000 74,195
South China Morning Post - Media 200,000 122,204
374,660
INDONESIA
Multi Bintang D/R - Breweries 5,500 63,806
MALAYSIA
Perlis Plantations - Diversified Industrial 40,000 125,188
SINGAPORE
Tiger Medicals - Pharmaceuticals 50,000 83,038
Tibs Holdings - Transport 40,000 97,809
United Industrial Corp. - Property 71,000 69,745
250,592
THAILAND
Matichon (THB) F/R - Media 13,000 76,865
Saha Pathana Interholding L/R - Div. Industrial * 35,000 66,667
Thai Pineapple (TIPCO) L/R - Food Producers * 52,000 76,431
219,963
Total Common and Preferred Stocks 10,309,981
(Identified Cost $9,938,233)
REPURCHASE AGREEMENT - 1.9%
Bank of New York, dated 12/29/95, due 1/2/96 (Secured by $208,000 U.S.
Treasury Notes, due 9/30/97, Market Value $212,712) 204,300
Total Investments
(Identified cost $10,142,533) 10,514,281
Other Assets, Less Liabilities - 0% (5,003)
NET ASSETS - 100% $ 10,509,278
(*) Non-income producing securities
(**) Preferred Stock
</TABLE>
See notes to financial statements.
-6-
DLB GLOBAL SMALL CAPITALIZATION FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (identified cost, $10,142,533) $ 10,514,281
Receivable for investments sold 81,885
Dividends and interest receivable 53,890
Total assets 10,650,056
LIABILITIES:
Payable for investments purchased 104,880
Accrued expenses and other liabilities 35,898
Total liabilities 140,778
NET ASSETS $ 10,509,278
NET ASSETS CONSIST OF:
Paid-in capital $ 10,172,224
Unrealized appreciation on investments and translation of assets and liabilities
in foreign currency 371,931
Accumulated net realized loss on investments and foreign currency transactions (35,270)
Accumulated undistributed net investment income 393
Total $ 10,509,278
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,017,012
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 10.33
</TABLE>
See notes to financial statements.
-7-
DLB GLOBAL SMALL CAPITALIZATION FUND
STATEMENT OF OPERATIONS
PERIOD FROM JULY 19, 1995 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $10,439) $ 108,643
Interest 23,708
Total investment income 132,351
EXPENSES:
Management fee 45,284
Custodian fee 35,040
Legal fees 31,092
Accounting and audit fees 25,804
Trustees' fees 5,438
Total expenses 142,658
Reduction of expenses by investment manager (76,551)
Net expenses 66,107
Net investment income 66,244
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) (identified cost basis):
Investment transactions (35,270)
Foreign currency transactions 6,373
Net realized loss (28,897)
Change in unrealized appreciation:
Investments 371,748
Translation of assets and liabilities in foreign currency 183
Net unrealized gain on investments and foreign currency 371,931
Net realized and unrealized gain on investments and foreign currency 343,034
Increase in net assets from operations $ 409,278
</TABLE>
See notes to financial statements.
-8-
DLB GLOBAL SMALL CAPITALIZATION FUND
STATEMENT OF CHANGES IN NET ASSETS
PERIOD FROM JULY 19, 1995 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 66,244
Net realized loss on investments and foreign currency transactions (28,897)
Net unrealized gain on investments and foreign currency translation 371,931
Increase in net assets from operations 409,278
Distributions declared to shareholders from net investment income (72,224)
Fund share (principal) transactions:
Net proceeds from sale of shares 10,000,000
Net asset value of shares issued to shareholders in reinvestment of distributions 72,224
Increase in net assets from Fund share transactions 10,072,224
Total increase in net assets 10,409,278
NET ASSETS:
At beginning of period 100,000
At end of period (including accumulated undistributed net investment
income of $393) $ 10,509,278
</TABLE>
See notes to financial statements.
-9-
DLB GLOBAL SMALL CAPITALIZATION FUND
FINANCIAL HIGHLIGHTS
PERIOD FROM JULY 19, 1995 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $ 10.00
Net investment income 0.07
Net realized and unrealized gain on investments 0.33
Total income from investment operations 0.40
Less distributions declared to shareholders from net investment income (0.07)
Net asset value - end of period $ 10.33
Total return 8.96%
Ratios and Supplemental Data:
Ratio of expenses to average net assets 1.46%
Ratio of net investment income to average net assets 1.46%
Portfolio turnover 5%
Net assets at end of period (000 omitted) $ 10,509
The manager has agreed with the Fund to reduce its investment management fee and
bear certain expenses, such that expenses do not exceed 1.50% of average daily
net assets on an annualized basis. If the fee and expenses had been incurred by
the Fund and had expenses been limited to that required by state securities law,
the net investment income per share and ratios would have been:
Net investment income $ 0.02
Ratios (to average net assets):
Expenses 2.50%*
Net investment income 0.42%*
* Annualized.
</TABLE>
See notes to financial statements.
-10-
DLB GLOBAL SMALL CAPITALIZATION FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Global Small Capitalization Fund (the "Fund") is a non-diversified
series of The DLB Fund Group (the "Trust").
The Trust is organized as a Massachusetts business trust and is registered
under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATIONS - Equity securities listed on securities exchanges
or reported through the NASDAQ system are valued at last sale prices.
Unlisted equity securities or listed equity securities for which last sale
prices are not available are valued at last quoted bid prices. Short-term
obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates market value. Securities for which there are no
such quotations or valuations are valued at fair value as determined in
good faith by or at the direction of the Trustees.
FOREIGN CURRENCY TRANSLATION - Investment valuations, other assets and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates.
Purchases and sales of foreign investments and income and expenses are
converted into U.S. dollars based upon currency exchange rates prevailing
on the respective dates of such transactions. Gains and losses
attributable to foreign currency exchange rates on sales of securities are
recorded for financial statement purposes as net realized gains and losses
on investments. Gains and losses attributable to foreign exchange rate
movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of
both realized and unrealized gains and losses on investments that results
from fluctuations in foreign currency exchange rates is not separately
disclosed.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The Fund may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risks may
arise upon entering these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
The Fund will enter into forward contracts for hedging purposes only. The
Fund may enter into contracts to deliver or receive foreign currency it
will receive from or require for its normal investment activities. It may
also use contracts in a manner intended to protect foreign
currency-denominated securities from declines in value due to unfavorable
exchange rate movements. The forward foreign currency exchange contracts
are adjusted by the daily exchange rate of the underlying currency, and
any gains or losses are recorded for financial statement purposes as
unrealized until the contract settlement date.
-11-
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded
on the trade date. Dividend income is recorded on the ex-dividend date for
dividends received in cash. Dividend payments received in additional
securities are recorded on the ex-dividend date in an amount equal to the
value of the security on such date. Interest income is recorded on the
accrual basis.
TAX MATTERS AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code ( the "Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is provided.
The Fund files a tax return annually using tax accounting methods required
under provisions of the Code which may differ from generally accepted
accounting principles, the basis on which these financial statements are
prepared. Accordingly, the amount of net investment income and net
realized gain reported on these financial statements may differ from that
reported on the Fund's tax return, and consequently, the character of
distributions to shareholders reported in the financial highlights may
differ from that reported to shareholders on Form 1099-DIV. Foreign taxes
have been provided for on interest and dividend income earned on foreign
investments in accordance with the applicable country's tax rates and to
the extent unrecoverable are recorded as a reduction of investment income.
Distributions to shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a
financial reporting basis and requires that only distributions in excess
of tax basis earnings and profits are reported in the financial statements
as a return of capital. Differences in the recognition or classification
of income between the financial statements and tax earnings and profits
which result in temporary over-distributions for financial statement
purposes, are classified as distributions in excess of net investment
income or accumulated net realized gains.
During the period ended December 31, 1995, $6,373 was reclassified from
accumulated undistributed net realized gain on investments to accumulated
undistributed net investment income, due to differences between book and
tax accounting for foreign currency transactions. This change had no
effect on net assets or net asset value per share.
At December 31, 1995, the Fund, for federal income tax purposes, had a
capital loss carryforward of $35,270 which may be applied against any net
taxable realized gains of each succeeding year until the earlier of its
utilization or expiration on December 31, 2003.
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT MANAGER - The Fund has a management contract with David L.
Babson & Co., Inc. ("DLB") to provide overall investment advisory and
administrative services, and general office facilities. The management fee
is computed daily and paid monthly at an effective annual rate of 1.00% of
average daily net assets.
DLB has entered into a sub-advisory agreement with Babson-Stewart Ivory
International ("BSI") with respect to the management of the international
component of the Fund's portfolio. Under the sub-advisory agreement, DLB
pays BSI a monthly fee at the annual rate of 0.50% of average daily net
assets.
-12-
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
For the period ended December 31, 1995, the management fee amounted to
$45,284, all of which was waived by DLB and, additionally, $31,267 of Fund
expenses were borne by DLB.
The Fund pays no compensation directly to its Trustees who are officers of
the investment manager, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from DLB.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
aggregated $10,490,197 and $516,694, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis,
are as follows:
Aggregate cost $ 10,142,533
Gross unrealized appreciation $ 862,978
Gross unrealized depreciation (491,230)
Net unrealized appreciation $ 371,748
5. SHARES OF BENEFICIAL INTEREST
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares during the period were as follows:
SHARES AMOUNT
Shares sold 1,000,000 $ 10,000,000
Shares issued to shareholders in reinvestment
of distributions 7,012 72,224
Net increase 1,007,012 $ 10,072,224
* * * * * *
-13-
DELOITTE &
TOUCHE LLP
125 Summer Street Telephone: (617) 261-8000
Boston, Massachusetts 02110-1617 Facsimile: (617) 261-8111
INDEPENDENT AUDITORS' REPORT
To the Trustees of the DLB Fund Group and Shareholders of DLB Value Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Value Fund (a separate series of The DLB
Fund Group) as of December 31, 1995, and the related statements of operations
and changes in net assets, and the financial highlights for the period from July
25, 1995 (commencement of operations) to December 31, 1995. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned at December 31, 1995 by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of DLB Value Fund at
December 31, 1995, the results of its operations, the changes in its net assets,
and its financial highlights for the period from July 25, 1995 (commencement of
operations) to December 31, 1995 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
February 1, 1996
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
DLB VALUE FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS - 97.4%
ISSUER SHARES VALUE
<S> <C> <C>
CHEMICALS - 2.3%
Dupont 3,500 $244,562
PAPER/FOREST PRODUCTS - 6.7%
Potlatch Corp. 6,000 240,000
Weyerhaeuser 6,000 259,500
Willamette Ind. 4,000 225,000
724,500
AEROSPACE - 5.0%
Boeing 3,500 274,312
Lockheed Martin Corp. 3,400 268,600
542,912
ENVIRONMENTAL - 2.2%
Safety-Kleen 15,500 242,187
APPAREL - TEXTILE - 2.6%
Reebok International 10,100 285,325
RECREATION - 1.8%
Huffy Corp. 19,000 192,375
PRINTING AND PUBLISHING - 2.1%
Harcourt General 5,500 230,312
RETAIL DISCOUNT - 2.2%
K MART 32,200 233,450
RETAIL - GENERAL - 4.7%
Penny JC 5,000 238,125
Sears Roebuck & Co. 7,000 273,000
511,125
FOOD PRODUCERS - 2.5%
Grand Metropolitan ADR 9,500 273,125
DRUGS - 2.1%
Lilly, Eli & Co. 3,982 223,988
</TABLE>
-2-
DLB VALUE FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS - 97.4% (CONTINUED)
ISSUER SHARES VALUE
<S> <C> <C>
MEDICAL SUPPLIES AND SERVICES - 3.9%
Guidant Corp. 3,521 148,762
Tenet Healthcare Corp. 13,300 275,975
424,737
OIL - DOMESTIC - 2.0%
Atlantic Richfield 2,000 221,500
OIL - INTERNATIONAL - 2.6%
Royal Dutch Pete NY Reg. N Gldr. 2,000 282,250
BANKS - 9.8%
Chase Manhattan 4,500 272,812
First Bank System 5,500 272,938
First Interstate Bancorp 1,800 245,700
National City Corp. 8,000 265,000
1,056,450
FINANCIAL SERVICES - 12.2%
American Express 6,500 268,938
Salomon Inc. 7,000 248,500
Student Loan Corp. 8,200 278,800
Student Loan Marketing 4,300 283,262
Transamerica 3,300 240,488
1,319,988
INSURANCE COMPANIES - 7.4%
Aetna Life & Casualty 4,000 277,000
Allstate Corp. 6,400 263,200
General RE Corp. 1,700 263,500
803,700
</TABLE>
-3-
DLB VALUE FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS - 97.4% (CONTINUED)
ISSUER SHARES VALUE
<S> <C> <C>
DIVERSIFIED - 2.0%
Hanson PLC Sponsored ADR 14,000 213,500
PROFESSIONAL SERVICES - 4.7%
ABM 10,000 277,500
PHH Corp. 5,000 233,750
511,250
COMPUTER RELATED - 4.3%
Apple Computer 6,700 213,563
International Business Machines 2,700 247,725
461,288
COMPUTER SOFTWARE - 2.5%
Shared Med. Sys. Corp. 5,000 271,875
OFFICE EQUIPMENT - 4.6%
Wallace Computer 4,100 223,963
Xerox 2,000 274,000
497,963
AIRLINES - 2.2%
KLM Royal Dutch Air 6,658 234,695
TRUCKING AND SHIPPING - 2.3%
Overseas Shipholding 13,400 254,600
ELECTRICAL POWER - 2.7%
Texas Utilities 7,000 287,875
TOTAL COMMON STOCKS (IDENTIFIED COST, $9,966,759) 10,545,532
REPURCHASE AGREEMENT - 3%
Bank of New York, dated 12/29/95, due
1/2/96 (Secured by $324,000 U. S. Treasury
Notes, due 9/30/97, Market Value $331,340) 320,107
Total Investments (Identified cost $10,286,866) 10,865,639
Other Assets, Less Liabilities (0.4%) (48,061)
NET ASSETS - 100% $10,817,578
</TABLE>
See notes to financial statements.
-4-
DLB VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (identified cost, $10,286,866) $ 10,865,639
Interest and dividends receivable 16,870
Total assets 10,882,509
LIABILITIES:
Payable for investments purchased 45,744
Accrued expenses and other liabilities 19,187
Total liabilities 64,931
NET ASSETS $ 10,817,578
NET ASSETS CONSIST OF:
Paid-in capital $ 10,238,563
Unrealized appreciation on investments 578,773
Accumulated undistributed net investment income 242
Total $ 10,817,578
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,022,591
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE
(NET ASSETS / SHARES OF BENEFICIAL INTEREST OUTSTANDING) $ 10.58
</TABLE>
See notes to financial statements.
-5-
DLB VALUE FUND
STATEMENT OF OPERATIONS
PERIOD FROM JULY 25, 1995 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign tax withheld of $1,932) $ 111,574
Interest 16,211
Total investment income 127,785
EXPENSES:
Management fee 24,862
Custodian fee 28,213
Accounting and audit fees 22,263
Trustees' fees 5,438
Legal fees 28,867
Other 121
Total expenses 109,764
Reduction of expenses by investment manager (73,081)
Net expenses 36,683
Net investment income 91,102
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain on investments (identified cost basis) 147,693
Change in unrealized appreciation 578,773
Net realized and unrealized gain on investments 726,466
Increase in net assets from operations $ 817,568
</TABLE>
See notes to financial statements.
-6-
DLB VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
PERIOD FROM JULY 25, 1995 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 91,102
Net realized gain on investments 147,693
Net unrealized gain on investments 578,773
Increase in net assets from operations 817,568
Distributions declared to shareholders:
From net investment income (90,860)
From net realized gain on investments (147,693)
Total distributions declared to shareholders (238,553)
Fund share (principal) transactions:
Net proceeds from sale of shares 10,000,000
Net asset value of shares issued to shareholders in reinvestment of distributions 238,553
Increase in net assets from Fund share transactions 10,238,553
Total increase in net assets 10,817,568
NET ASSETS:
At beginning of period 10.00
At end of period (including accumulated undistributed net investment income of
$242) $ 10,817,578
</TABLE>
See notes to financial statements.
-7-
DLB VALUE FUND
FINANCIAL HIGHLIGHTS
PERIOD FROM JULY 25, 1995 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $ 10.00
Income from investment operations:
Net investment income 0.09
Net realized and unrealized gain on investments 0.73
Total income from investment operations 0.82
Less distributions declared to shareholders:
From net investment income (0.09)
From net realized gain on investments (0.15)
Total distributions declared to shareholders (0.24)
Net asset value - end of period $ 10.58
Total return 18.64%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 0.80%*
Ratio of net investment income to average net assets 2.02%*
Portfolio turnover 7%
Net assets at end of period (000 omitted) $ 10,818
The manager has agreed with the Fund to reduce its management fee and bear
certain expenses, such that expenses do not exceed 0.80% of average daily net
assets on an annualized basis. If the fee and expenses had been incurred by the
Fund, the net investment income per share and ratios would have been:
Net investment income $ 0.02
Ratios (to average net assets):
Expenses 2.43%*
Net investment income 0.40%*
* Annualized.
</TABLE>
See notes to financial statements.
-8-
DLB VALUE FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Value Fund (the "Fund") is a non-diversified series of The DLB Fund
Group (the "Trust").
The Trust is organized as a Massachusetts business trust, and is
registered under the Investment Company Act of 1940, as amended as an
open-end management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATIONS - Equity securities listed on securities exchanges
or reported through the NASDAQ system are valued at last sale prices.
Unlisted equity securities or listed equity securities for which last
sale prices are not available are valued at last quoted bid prices.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. Securities for which
there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are
recorded on the trade date. Dividend income is recorded on the
ex-dividend date for dividends received in cash. Dividend payments
received in additional securities are recorded on the ex-dividend date
in an amount equal to the value of the security on such date. Interest
income is recorded on the accrual basis.
TAX MATTERS AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code ("Code") applicable to regulated
investment companies and to distribute to shareholders all of its
taxable income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is provided.
The Fund files a tax return annually using tax accounting methods
required under provisions of the Code which may differ from generally
accepted accounting principles, the basis on which these financial
statements are prepared. Accordingly, the amount of net investment
income and net realized gain reported on these financial statements may
differ from that reported on the Fund's tax return, and consequently,
the character of distributions to shareholders reported in the financial
highlights may differ from that reported to shareholders on Form
1099-DIV. Distributions to shareholders are recorded on the ex-dividend
date.
The Fund distinguishes between distributions on a tax basis and a
financial reporting basis and requires that only distributions in excess
of tax basis earnings and profits are reported in the financial
statements as a return of capital. Differences in the recognition or
classification of income between the financial statements and tax
earnings and profits which result in temporary over-distributions for
financial statement purposes, are classified as distributions in excess
of net investment income or accumulated net realized gains.
-9-
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT MANAGER - The Fund has a management agreement with David L.
Babson & Co., Inc. ("DLB") to provide overall investment advisory and
administrative services, and general office facilities. The management
fee is computed daily and paid monthly at an annual rate of 0.55% of
average daily net assets.
For the period ended December 31, 1995, the management fee amounted to
$24,862, all of which was waived by DLB and, additionally, $48,219 of
Fund expenses were borne by DLB.
The Fund pays no compensation directly to its Trustees who are officers
of the investment manager, or to officers of the Fund, all of whom
receive remuneration for their services to the Fund from DLB.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations
aggregated $10,538,734 and $719,669, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax
basis, are as follows:
Aggregate cost $ 10,286,866
Gross unrealized appreciation $ 1,113,361
Gross unrealized depreciation (534,588)
Net unrealized appreciation $ 578,773
5. SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest
(without par value). Transactions in Fund shares during the period were
as follows:
SHARES AMOUNT
Shares sold 1,000,000 $ 10,000,000
Shares issued to shareholders in reinvestment
of distributions 22,590 238,553
Net increase 1,022,590 $ 10,238,553
* * * * * *
-10-
DELOITTE &
TOUCHE LLP
125 Summer Street Telephone: (617) 261-8000
Boston, Massachusetts 02110-1617 Facsimile: (617) 261-8111
INDEPENDENT AUDITORS' REPORT
To the Trustees of the DLB Fund Group and Shareholders of DLB Mid Capitalization
Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Mid Capitalization Fund (a separate series
of The DLB Fund Group) as of December 31, 1995, and the related statements of
operations and changes in net assets, and the financial highlights for the
period from July 25, 1995 (commencement of operations) to December 31, 1995.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned at December 31, 1995 by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of DLB Mid
Capitalization Fund at December 31, 1995, the results of its operations, the
changes in its net assets, and its financial highlights for the period from July
25, 1995 (commencement of operations) to December 31, 1995 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
February 1, 1996
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
DLB MID CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS - 98.0%
ISSUER SHARES VALUE
<S> <C> <C>
CHEMICALS SPECIALTY - 4.6%
Calgon Carbon 22,900 $274,800
M. A. Hanna 8,100 226,800
501,600
METALS AND MINING - 2.2%
Martin Marietta Materials 11,400 235,125
PAPER/FOREST PRODUCTS - 1.7%
Albany International Corp. Class A (*) 10,300 186,688
AEROSPACE - 3.1%
E G & G 14,000 339,500
CONSTRUCTION - 2.4%
Southdown 13,200 257,400
ENVIRONMENTAL - 2.5%
Safety-Kleen 17,300 270,312
MACHINERY/EQUIPMENT - 6.6%
BW/IP Inc., Class A 14,500 239,250
Harsco Corp. 5,100 296,438
Trinity Industries 6,000 189,000
724,688
APPAREL - TEXTILE - 4.4%
National Service Industries 9,300 301,088
Stride Rite 23,400 175,500
476,588
AUTO PARTS MANUFACTURERS - 8.3%
Armor All Products 17,000 308,125
Arvin Industries 8,600 141,900
Bandag Inc., Class A (*) 2,600 201,400
Standard Products 14,500 255,563
906,988
FURNITURE AND APPLIANCES - 5.4%
Herman Miller 11,300 339,000
LA-Z-BOY Chair 8,000 247,000
586,000
RECREATION - 1.9%
King World Productions 5,400 209,925
</TABLE>
-2-
DLB MID CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS - 98.0% (CONTINUED)
ISSUER SHARES VALUE
<S> <C> <C>
PRINTING AND PUBLISHING - 11.0%
CCH Inc., Class B 12,800 705,600
Central Newspapers A 8,200 257,275
Lee Enterprises 10,200 234,600
1,197,475
RETAIL - SPECIALTY - 1.8%
Fingerhut Companies 14,200 197,025
WHOLESALERS - 2.4%
Waban Inc. 14,100 264,375
FOOD PRODUCERS - 2.3%
Dean Foods Co. 9,000 247,500
FOOD RETAILERS - 2.7%
Vons Companies 10,600 299,450
COSMETIC TOILETRY - 1.8%
Alberto Culver, Class A 6,500 198,250
TOBACCO - 2.2%
Dimon Inc. 13,800 243,225
COAL GAS AND PIPE - 5.5%
Cabot Oil & Gas Corp. 16,500 241,310
Nabors Industries 32,300 359,337
600,647
OIL - DOMESTIC - 2.0%
Quaker State Corp. 17,700 223,461
BANKS - 6.6%
First Commercial Corp. 8,239 271,890
First Security Corp. 7,000 269,500
Firstier Financial 4,100 180,400
721,790
INSURANCE COMPANIES - 4.3%
Gallagher (*) 5,700 212,325
Hartford Steam Boiler Ins. 5,200 260,000
472,325
ELECTRONIC/INSTRUMENT - 3.1%
Intergraph Corp. 10,100 159,075
Scitex 13,400 182,575
341,650
</TABLE>
-3-
DLB MID CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS - 98.0% (CONTINUED)
ISSUER SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS - 1.8%
Octel Communications 6,000 193,500
TRUCKING AND SHIPPING - 5.2%
Alexander & Baldwin 8,700 200,100
Hunt JB Transport 11,300 189,275
Overseas Shipholding 9,300 176,700
NATURAL GAS - 2.3%
Equitable Resources 8,000 250,000
Total common stocks (Identified cost $9,959,887) 10,711,562
REPURCHASE AGREEMENT - 2.6%
Bank of New York, dated 12/29/95, due 1/2/96 (secured by $284,000
U.S. Treasury Notes, due 9/30/97, market value $290,433) 280,633
Total investments (Identified cost $10,240,520) 10,992,195
Other Assets, Less Liabilities - (0.6%) (63,321)
NET ASSETS - 100% $10,928,874
(*) Non-income producing security
</TABLE>
See notes to financial statements.
-4-
DLB MID CAPITALIZATION FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (identified cost, $10,240,520) $ 10,992,195
Dividends and interest receivable 22,888
Total assets 11,015,083
LIABILITIES:
Payable for investments purchased 62,493
Accrued expenses and other liabilities 23,716
Total liabilities 86,209
NET ASSETS $ 10,928,874
NET ASSETS CONSIST OF:
Paid-in capital $ 10,176,967
Unrealized appreciation on investments 751,675
Accumulated undistributed net investment income 232
Total $ 10,928,874
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,016,544
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE
(NET ASSETS / SHARES OF BENEFICIAL INTEREST OUTSTANDING) $ 10.75
</TABLE>
See notes to financial statements.
-5-
DLB MID CAPITALIZATION FUND
STATEMENT OF OPERATIONS
PERIOD FROM JULY 25, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
Dividends $ 96,748
Interest 27,489
Total investment income 124,237
EXPENSES:
Management fee 26,445
Custodian fee 28,634
Accounting and audit fees 24,368
Legal fees 31,594
Trustees' fees 5,438
Total expenses 116,479
Reduction of expenses by investment manager (76,123)
Net expenses 40,356
Net investment income 83,881
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (identified cost basis) 93,308
Change in unrealized appreciation 751,675
Net realized and unrealized gain on investments 844,983
Increase in net assets from operations $928,864
</TABLE>
See notes to financial statements.
-6-
DLB MID CAPITALIZATION FUND
STATEMENT OF CHANGES IN NET ASSETS
PERIOD FROM JULY 25, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 83,881
Net realized gain on investments 93,308
Net unrealized gain on investments 751,675
Increase in net assets from operations 928,864
Distributions declared to shareholders:
From net investment income (83,531)
From net realized gain on investments (93,308)
Total distributions declared to shareholders (176,839)
Fund share (principal) transactions:
Net proceeds from sale of shares 10,000,000
Net asset value of shares issued to shareholders in reinvestment of distributions 176,839
Increase in net assets from Fund share transactions 10,176,839
Total increase in net assets 10,928,864
NET ASSETS:
At beginning of period 10
At end of period (including accumulated undistributed net investment income of $232) $ 10,928,874
</TABLE>
See notes to financial statements.
-7-
DLB MID CAPITALIZATION FUND
FINANCIAL HIGHLIGHTS
PERIOD FROM JULY 25, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $ 10.00
Income from investment operations -
Net investment income 0.08
Net realized and unrealized gain on investments 0.84
Total income from investment operations 0.92
Less distributions declared to shareholders:
From net investment income (0.08)
From net realized gain on investments (0.09)
Total distributions declared to shareholders (0.17)
Net asset value - end of period $ 10.75
Total return 21.17%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 0.90%*
Ratio of net investment income to average net assets 1.90%*
Portfolio turnover 6%
Net assets at end of period (000 omitted) $ 10,929.00
The manager has agreed with the Fund to reduce its management fee and bear
certain expenses, such that expenses do not exceed 0.90% of average daily net
assets on an annualized basis. If the fee and expenses had been incurred by
the Fund and had expenses been limited to that permitted by state securities
law, the net investment income per share and ratios would have been:
Net investment income $ 0.01
Ratios (to average net assets):
Expenses 2.50%*
Net investment income 0.32%*
*Annualized.
</TABLE>
See notes to financial statements.
-8-
DLB MID CAPITALIZATION FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Mid Capitalization Fund (the "Fund") is a non-diversified series of
The DLB Fund Group (the "Trust").
The Trust is organized as a Massachusetts business trust and is registered
under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATIONS - Equity securities listed on securities exchanges
or reported through the NASDAQ system are valued at last sale prices.
Unlisted equity securities or listed equity securities for which last sale
prices are not available are valued at last quoted bid prices. Short-term
obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates market value. Securities for which there are no
such quotations or valuations are valued at fair value as determined in
good faith by or at the direction of the Trustees.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded
on the trade date. Dividend income is recorded on the ex-dividend date for
dividends received in cash. Dividend payments received in additional
securities are recorded on the ex-dividend date in an amount equal to the
value of the security on such date. Interest income is recorded on the
accrual basis.
TAX MATTERS AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code ("Code") applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a
tax return annually using tax accounting methods required under provisions
of the Code which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the amount of undistributed net investment income and net
realized gain reported on these financial statements may differ from that
reported on the Fund's tax return, and consequently, the character of
distributions to shareholders reported in the financial highlights may
differ from that reported to shareholders on Form 1099-DIV. Distributions
to shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a
financial reporting basis and requires that only distributions in excess
of tax basis earnings and profits are reported in the financial statements
as a return of capital. Differences in the recognition or classification
of income between the financial statements and tax earnings and profits
which result in temporary over-distributions for financial statement
purposes, are classified as distributions in excess of net investment
income or accumulated net realized gains. During the period ended December
31, 1995, $118 was reclassified from accumulated undistributed net
investment income to paid-in capital, due to differences between book and
tax accounting for foreign currency transactions. This change had no
effect on the net assets or net asset value per share.
-9-
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT MANAGER - The Fund has a management contract with David L.
Babson & Co., Inc. ("DLB") to provide overall investment advisory and
administrative services, and general office facilities. The management fee
is computed daily and paid monthly at an effective annual rate of 0.60% of
average daily net assets.
For the period ended December 31, 1995, the management fee amounted to
$26,445, of which all was waived by DLB and, additionally, $49,678 of Fund
expenses were borne by DLB.
The Fund pays no compensation directly to its Trustees who are officers of
the investment manager, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from DLB.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
aggregated $10,398,892 and $532,430, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis,
are as follows:
Aggregate cost $ 10,240,520
Gross unrealized appreciation $ 1,290,834
Gross unrealized depreciation (539,159)
Net unrealized appreciation $ 751,675
5. SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest
(without par value). Transactions in Fund shares during the period were as
follows:
SHARES AMOUNT
Shares sold 1,000,000 $ 10,000,000
Shares issued to shareholders in reinvestment
of distributions 16,543 176,839
Net increase 1,016,543 $ 10,176,839
* * * * * *
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
FAX: (617) 951-7050
WRITER'S DIRECT DIAL NUMBER: (617) 951-7731
30 KENNEDY PLAZA ONE FRANKLIN SQUARE
PROVIDENCE, RI 02903-2328 1301 K STREET, N.W.
(401) 455-4400 SUITE 800 EAST
FAX: (401) 455-4401 WASHINGTON, DC 20005-3333
(202) 626-3900
FAX: (202) 626-3961
August 22, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The DLB Fund Group (the "Trust")
File Nos. 33-82366 and 811-08690
Ladies and Gentlemen:
We are filing today via EDGAR, on behalf of the Trust and pursuant to
the requirements of Rule 497(c) under the Securities Act of 1933 and Regulation
S-T, definitive copies of The DLB Fund Group Prospectuses and the Statement of
Additional Information, each dated August 19, 1996.
Please direct any questions or comments on the enclosed material to me
at (617) 951-7584. Please do not hesitate to call me if you have any questions
with respect to these materials or otherwise.
Very truly yours,
/s/ R. Bryan Woodard
R. Bryan Woodard
RBW:1110415.01
Enclosure
