Rule 497(c)
File Nos. 33-82366
811-08690
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PROSPECTUS
THE DLB FUND GROUP
One Memorial Drive
Cambridge, Massachusetts 02142
(617) 225-3800
April 1, 1996
The DLB Fund Group (the "Trust") is an open-end management investment
company offering 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 April 1, 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 in 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....................................................... 8
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS.................... 12
PURCHASE OF SHARES......................................................... 18
REDEMPTION OF SHARES....................................................... 20
DETERMINATION OF NET ASSET VALUE........................................... 21
DISTRIBUTIONS.............................................................. 22
TAXES...................................................................... 22
MANAGEMENT OF THE TRUST.................................................... 23
PERFORMANCE INFORMATION.................................................... 24
ORGANIZATION AND CAPITALIZATION OF THE TRUST............................... 25
SHAREHOLDER INQUIRIES...................................................... 25
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SHAREHOLDER TRANSACTION AND FUND EXPENSES
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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
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(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
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(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.
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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
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(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.
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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
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(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.
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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%*
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*Annualized
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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%*
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*Annualized
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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%*
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*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%*
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*Annualized
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INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS
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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
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administrative expenses of the issuer. Due to uncertainty as whether any excess
cash flow or the 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.
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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 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. 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 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.
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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 deliveryof 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.
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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. 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.
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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.
LOANS OF PORTFOLIO SECURITIES. To the extent permitted by applicable law,
each Fund may make secured loans of portfolio securities on up to 100% 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.
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.
================================================================================
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
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(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 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.
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
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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 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.
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.
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================================================================================
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 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. 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
================================================================================
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.
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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 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 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
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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 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.
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. In addition, the
Manager 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.
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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.
================================================================================
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.
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================================================================================
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
four series of shares, one for each Fund. These shares are entitled to vote at
any meeting of shareholders. 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 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 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 Trust, are
entitled to receive the net assets of their Fund, but not of any other 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
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.
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.
================================================================================
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.
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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
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<PAGE>
THE DLB FUND GROUP
STATEMENT OF ADDITIONAL INFORMATION
April 1, 1996
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Prospectus dated April 1, 1996, as amended
from time to time, and should be read in conjunction therewith. 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.
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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 FIXED INCOME FUND.................... 10
PORTFOLIO TRANSACTIONS...................................................... 13
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES............................ 17
INVESTMENT PERFORMANCE...................................................... 20
DETERMINATION OF NET ASSET VALUE............................................ 21
EXPERTS..................................................................... 21
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS..................... 21
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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") and the DLB Mid
Capitalization Fund (the "Mid Cap 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 331/3% 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.
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(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.
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 or (b) investing in real estate investment trusts.
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) 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 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%.
(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.
(Under the 1940 Act, no registered investment company may (a) invest
more than 10% of its total assets (taken at current value) in
securities of other investment companies, (b) own securities of any one
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investment company having a value in excess of 5% of its total assets
(taken at current value), or (c) own more than 3% of the outstanding
voting stock of any one investment company.)
(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 indicated above in Restriction No. 1, 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.
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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.
Investment by the Global Small Cap Fund in certain "passive foreign
investment companies" could subject the Fund to a U.S. federal income tax or
other charge on
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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, the Fund may elect to mark to market annually all of
its stock in a passive foreign investment company. Alternatively, if the Fund
elects to treat a passive foreign investment company as a "qualified electing
fund," different rules would apply, although the Fund does 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.
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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 Senior Vice President of the
Manager since July 1991 and Managing Director of the Sub-Adviser 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
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Officers
Ronald E. Gwozdz, President.
Edson B. Olds IV, age 57, Treasurer and Clerk, is the Senior Vice
President, Treasurer, Clerk 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:
<TABLE>
<CAPTION>
Pension or Total Compensation
Aggregate Retirement Benefits Estimated Annual from Registrant
Compensation Accrued as part Benefits upon and Fund Complex
Name of Trustee from Registrant* of Fund Expenses Retirement Paid to Trustees
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ronald E. Gwozdz $0 $0 $0 0
Charles E. Hugel 11,000 0 0 11,000
Richard A. Nenneman 11,000 0 0 11,000
Richard J. Phelps 11,000 0 0 11,000
Peter C. Schliemann 0 0 0 0
Peter C. Thompson 0 0 0 0
</TABLE>
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*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.
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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
(the "Sub-Adviser") with respect to the management of the international
component of the Global Small Cap Fund's portfolio. 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-Adviser has also
agreed to waive a portion of its fee. 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. No Fund is currently subject to any state imposed limit on expenses.
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The Funds paid the following fees during the periods indicated:
<TABLE>
<CAPTION>
1. FIXED INCOME FUND
Management
Fiscal Year Management Fee Paid Fee Waived
<S> <C> <C> <C>
1995 $0 $8,911
2. GLOBAL SMALL CAP FUND
Management
Fiscal Year Management Fee Paid Fee Waived
1995 $0* $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
</TABLE>
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 was approved by the Trustees of the Trust
(including the Trustees who are not "interested persons" of the Manager) and by
the relevant Fund's sole shareholder in connection with the organization of the
Trust and the establishment of the Funds. 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
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* Under the Sub-Advisory Agreement, the Manager paid the Sub-Adviser a
fee of $17,572. The Sub-Adviser waived a portion of its fees in an amount equal
to $4,393.
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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.
The Sub-Advisory Agreement contains 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 FIXED INCOME FUND
In addition to the investment practices described in detail in the
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 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.
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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.
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 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.
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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 protections 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.
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
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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.
PORTFOLIO TRANSACTIONS
Investment Decisions
Investment decisions for the Funds and for the other investment
advisory clients of the Manager and the Sub-Adviser 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.
-13-
<PAGE>
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 will be with the issuer or with underwriters of or dealers in those
securities, acting as principal. Accordingly, the Fund 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-Adviser may receive brokerage and research
services and other similar services from many broker-dealers with which the
Manager and the Sub-Adviser place the Funds' portfolio transactions and from
third parties with which these broker-dealers 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 the Sub-Adviser for research purposes,
the Manager or Sub-Adviser, based upon their own 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-Adviser 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-Adviser or their affiliates may
receive these services even though the Manager or the Sub-Adviser might
otherwise be required to purchase some of these services for cash.
The Manager and Sub-Adviser 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-Adviser each uses its best efforts to obtain for the Funds
the most favorable price and execution available, except to
-14-
<PAGE>
the extent they may be permitted to pay higher brokerage commissions as
described below. In seeking the most favorable price and execution, the Manager
or the Sub-Adviser, having in mind each Fund's best interests, considers all
factors it deems relevant, including, by way of illustration, prices, 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 Agreement, the Manager or the
Sub-Adviser may cause each 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 or the Sub-Adviser will use its 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
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
-15-
<PAGE>
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 Sub-Adviser, in the case of the
Global Small Cap Fund) considered to be particularly useful to it and its
affiliates.
<TABLE>
<CAPTION>
1. FIXED INCOME FUND
<S> <C> <C> <C>
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
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
</TABLE>
-16-
<PAGE>
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.
Pursuant to the Declaration of Trust, the Trustees have currently
authorized the issuance of an unlimited number of full and fractional shares of
four series: the DLB Fixed Income Fund, the DLB Global Small Capitalization
Fund, the DLB Value Fund and the DLB Mid Capitalization Fund. 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 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.
-17-
<PAGE>
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
all 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 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
-18-
<PAGE>
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 December 31, 1995 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 100%
Insurance Company
1295 State Street
Springfield, MA 01111
2. GLOBAL SMALL CAP FUND
Shareholder Name Percentage
and Address Owned
Massachusetts Mutual Life 99%
Insurance Company
1295 State Street
Springfield, MA 01111
David L. Babson & Co., Inc. 1%
One Memorial Drive
Cambridge, MA 02142
3. VALUE FUND
Shareholder Name Percentage
and Address Owned
Massachusetts Mutual Life 100%
Insurance Company
1295 State Street
Springfield, MA 01111
-19-
<PAGE>
4. MID CAP FUND
Shareholder Name Percentage
and Address Owned
Massachusetts Mutual Life 100%
Insurance Company
1295 State Street
Springfield, MA 01111
INVESTMENT PERFORMANCE
Standard performance measure
(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
9.68%
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
-20-
<PAGE>
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.
The Fixed Income Fund's 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 the Fund
during the based period less expenses for that period, and (ii) dividing that
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 the 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
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
-21-
<PAGE>
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
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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
* * * * * *
-10-
