PROSPECTUS
THE DLB FUND GROUP
One Memorial Drive
Cambridge, Massachusetts 02142
(617) 225-3800
February 19, 1997, as revised May 12, 1997
The DLB Fund Group (the "Trust") is an open-end management investment
company offering through this Prospectus four non-diversified portfolios with
different investment objectives and strategies. (Such portfolios are each
referred to as a "Fund," and, collectively, as the "Funds.") The Funds are
intended primarily to serve as investment vehicles for institutional investors.
Each Fund's investment manager is David L. Babson & Co., Inc. (the "Manager").
The DLB FIXED INCOME FUND (the "Fixed Income Fund") seeks to achieve a
high level of current income consistent with preservation of capital through
investment in a portfolio of fixed income securities.
The DLB GLOBAL SMALL CAPITALIZATION FUND (the "Global Small Cap Fund")
seeks long-term capital appreciation through investment primarily in common
stocks of smaller foreign and domestic companies.
The DLB VALUE FUND (the "Value Fund") seeks long-term capital
appreciation primarily through investment in a portfolio of common stocks of
established companies.
The DLB MID CAPITALIZATION FUND (the "Mid Cap Fund") seeks long-term
capital appreciation primarily through investment in a portfolio of common
stocks of small to medium-size companies.
Shares of each Fund are sold to investors by the Trust. The minimum
initial investment in a Fund is $100,000, and the minimum for each subsequent
investment is $10,000.
This Prospectus concisely describes the information which investors
ought to know before investing in any of the Funds. Please read this Prospectus
carefully and keep it for further reference.
A Statement of Additional Information dated February 19, 1997 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
of Additional Information, which contains more detailed information about all of
the Funds, has been filed with the Securities and Exchange Commission and is
incorporated by reference to this Prospectus.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SHAREHOLDER TRANSACTION AND FUND EXPENSES.........................................................................3
FINANCIAL HIGHLIGHTS..............................................................................................7
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS..........................................................11
PURCHASE OF SHARES...............................................................................................17
REDEMPTION OF SHARES.............................................................................................18
DETERMINATION OF NET ASSET VALUE.................................................................................19
DISTRIBUTIONS....................................................................................................19
TAXES ........................................................................................................20
MANAGEMENT OF THE TRUST..........................................................................................21
PERFORMANCE INFORMATION..........................................................................................22
ORGANIZATION AND CAPITALIZATION OF THE TRUST.....................................................................22
SHAREHOLDER INQUIRIES............................................................................................23
</TABLE>
-2-
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SHAREHOLDER TRANSACTION AND FUND EXPENSES
- --------------------------------------------------------------------------------
1. FIXED INCOME FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C>
Management Fees (after fee waiver) (a)......................................... .20%
12b-1 Fees (b)................................................................. 0
Other Expenses (after fee waiver) (a).......................................... .35%
----
Total Fund Operating Expenses (after fee waiver) (a)........................... .55%
</TABLE>
EXAMPLE:
<TABLE>
<CAPTION>
You would pay the following Years
expenses on a $1,000 investment,
<S> <C> <C> <C> <C>
assuming a 5% annual return 1 3 5 10
- - - --
with or without redemption at
the end of each period: $6 $18 $31 $69
</TABLE>
- ---------------
(a) The Manager has agreed with the Fund to reduce its management fee and
to bear certain expenses at least through 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 have
been .40%, "Other Expenses" would have been 1.26% and total Fund
operating expenses would have been 1.66%.
(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."
-3-
2. GLOBAL SMALL CAP FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C>
Management Fees (after fee waiver) (a).............................................. .80%
12b-1 Fees (b)...................................................................... 0
Other Expenses (after fee waiver) (a)............................................... .70%
----
Total Fund Operating Expenses (after fee waiver) (a)................................ 1.50%
</TABLE>
EXAMPLE:
<TABLE>
<CAPTION>
You would pay the following Years
expenses on a $1,000 investment,
<S> <C> <C> <C> <C> <C>
assuming a 5% annual return 1 3 5 10
- - - --
with or without redemption at
the end of each period: $15 $47 $82 $179
</TABLE>
- ---------------
(a) The Manager has agreed with the Fund to reduce its management fee and
to bear certain expenses at least through 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 have
been 1.00%, "Other Expenses" would have been 1.36% and total Fund
operating expenses would have been 2.36%.
(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."
-4-
3. VALUE FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C>
Management Fees (after fee waiver) (a)........................................... .35%
12b-1 Fees (b)................................................................... 0
Other Expenses (after fee waiver) (a)............................................ .45%
----
Total Fund Operating Expenses (after fee waiver) (a)............................. .80%
</TABLE>
EXAMPLE:
<TABLE>
<CAPTION>
You would pay the following Years
expenses on a $1,000 investment,
<S> <C> <C> <C> <C>
assuming a 5% annual return 1 3 5 10
- - - --
with or without redemption at
the end of each period: $8 $26 $44 $99
</TABLE>
- ---------------
(a) The Manager has agreed with the Fund to reduce its management fee and
to bear certain expenses at least through 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 have
been .55%, "Other Expenses" would have been .95% and total Fund
operating expenses would have been 1.50%.
(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."
-5-
4. MID CAP FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C>
Management Fees (after fee waiver) (a)......................................... .30%
12b-1 Fees (b)................................................................. 0
Other Expenses (after fee waiver) (a).......................................... .60%
----
Total Fund Operating Expenses (after fee waiver) (a)........................... .90%
</TABLE>
EXAMPLE:
<TABLE>
<CAPTION>
You would pay the following Years
expenses on a $1,000 investment,
<S> <C> <C> <C> <C>
assuming a 5% annual return 1 3 5 10
- - - --
with or without redemption at
the end of each period: $9 $29 $50 $111
</TABLE>
- ---------------
(a) The Manager has agreed with the Fund to reduce its management fee and
to bear certain expenses at least through 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 have
been .60%, "Other Expenses" would have been 1.17% and total Fund
operating expenses would have been 1.77%.
(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."
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 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.
-6-
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
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
<TABLE>
<CAPTION>
For the period
July 25, 1995
(commencement of
Year Ended operations) to
December 31, 1996 December 31, 1995
----------------- -----------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $10.26 $10.00
------
Income from investment operations:
Net investment income 0.53 0.28
Net realized and unrealized gain (loss) on investments (0.15) 0.37
------ ----
Total from investment operations 0.38 0.65
---- ----
Less distributions declared to shareholders:
From net investment income(1) (0.53) (0.28)
From net realized gain on investments -- (0.11)
------ ------
Total distributions declared to shareholders (0.53) (0.39)
------ ------
Net asset value - end of period $10.11 $10.26
====== ======
Total return 3.70% 14.75%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 0.55% 0.55%*
Ratio of net investment income to average net assets 6.36% 6.24%
Portfolio turnover 65% 42%
Net assets at end of period (000 omitted) $15,261 $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 1995 expenses been limited to that required by
state securities law, the net investment income per share and ratios would
have been:
Net investment income $0.44 $0.19
Ratios (to average net assets):
Expenses 1.66% 2.50%*
Net investment income 5.25% 4.33%*
</TABLE>
- -------------
(1) Distributions in excess of net investment income for the year ended
December 31, 1996 were less than $0.01 per share.
* Annualized
-7-
2. GLOBAL SMALL CAP FUND
<TABLE>
<CAPTION>
For the period
July 19, 1995
(commencement of
Year Ended operations) to
December 31, 1996 December 31, 1995
----------------- -----------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $10.33 $10.00
------
Income from investment operations:
Net investment income 0.01 0.07
Net realized and unrealized gain on investments 1.01 0.33
---- ----
Total from investment operations 1.02 0.40
---- ----
Less distributions declared to shareholders:
From net investment income (0.01) (0.07)
From net realized gain on investments (0.11) --
-----
In excess of net realized gain on investments (0.04) --
------ -----
Total distributions declared to shareholders (0.16) 0.07
------ ----
Net asset value - end of period $11.19 $10.33
====== ======
Total return 9.85% 8.96%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 1.50% 1.46%*
Ratio of net investment income to average net assets 0.09% 1.46%*
Portfolio turnover 22% 5%
Average commission rate paid(1) $0.01170 --
Net assets at end of period (000 omitted) $12,586 $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 1995 expenses been limited to that required by state
securities law, the net investment income (loss) per share and
ratios would have been:
Net investment income (loss) $(0.10) $0.02
Ratios (to average net assets):
Expenses 2.36% 2.50%*
Net investment income (0.77%) 0.42%*
</TABLE>
- --------------
(1) For years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades
on which commissions are charged. Average commission rate paid is
computed by dividing the total dollar amount of commission paid during
the year by the total number of shares purchased and sold on which
commissions were charged.
* Annualized
-8-
3. VALUE FUND
<TABLE>
<CAPTION>
For the period
July 25, 1995
(commencement of
Year Ended operations) to
December 31, 1996 December 31, 1995
----------------- -----------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $10.58 $10.00
------ ------
Income from investment operations:
Net investment income 0.16 0.09
Net realized and unrealized gain on investments 2.38 0.73
---- ----
Total from investment operations 2.54 0.82
---- ----
Less distributions declared to shareholders:
From net investment income (0.16) (0.09)
From net realized gain on investments (0.41) (0.15)
In excess of net realized gain on investments (0.02) --
------ -----
Total distributions declared to shareholders (0.59) (0.24)
------ ------
Net asset value - end of period $12.53 $10.58
====== ======
Total return 23.99% 18.64%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 0.80% 0.80%*
Ratio of net investment income to average net assets 1.56% 2.02%*
Portfolio turnover 23% 7%
Average commission rate paid(1) $0.05378 --
Net assets at end of period (000 omitted) $19,228 $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 $0.09 $0.02
Ratios (to average net assets):
Expenses 1.50% 2.43%*
Net investment income 0.86% 0.40%*
</TABLE>
- --------------
(1) For years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trading
on which commissions are charged. Average commission rate paid is
computed by dividing the total dollar amount of commissions paid during
the year by the total number of shares purchased and sold on which
commissions were charged.
* Annualized
-9-
4. MID CAP FUND
<TABLE>
<CAPTION>
For the period
July 25, 1995
(commencement of
Year Ended operations) to
December 31, 1996 December 31, 1995
----------------- -----------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $10.75 $10.00
------ ------
Income from investment operations:
Net investment income 0.15 0.08
Net realized and unrealized gain on investments 1.44 0.84
---- ----
Total from investment operations 1.59 0.92
---- ----
Less distributions declared to shareholders:
From net investment income(2) (0.15) (0.08)
From net realized gain on investments(3) (0.68) (0.09)
------ ------
Total distributions declared to shareholders (0.83) (0.17)
------ ------
Net asset value - end of period $11.51 $10.75
====== ======
Total return 14.75% 21.17%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 0.90% 0.90%*
Ratio of net investment income to average net assets 1.28% 1.90%
Portfolio turnover 25% 6%
Average commission rate paid(1) $0.05270 --
Net assets at end of period (000 omitted) $13,690 $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 1995 expenses been limited to that required by
state securities law, the net investment income per share and ratios would
have been:
Net investment income $0.05 0.01
Ratios (to average net assets):
Expenses 1.77% 2.50%*
Net investment income 0.41% 0.32%*
</TABLE>
- --------------
(1) For years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades
on which commissions are charged. Average commission rate paid is
computed by dividing the total dollar amount of commissions paid during
the year by the total number of shares purchased and sold on which
commissions were charged.
(2) Distributions in excess of net investment income for the year ended
December 31, 1996 were less than $0.01 per share.
(3) Distributions in excess of net realized gain on investments for the
year ended December 31, 1996 were less than $0.01 per share.
* Annualized
-10-
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS
- --------------------------------------------------------------------------------
FIXED INCOME FUND
The Fixed Income Fund's investment objective is to achieve a high level
of current income consistent with preservation of capital through investment in
a portfolio of fixed income securities.
The Manager will pursue the Fixed Income Fund's objective by investing
the Fund's assets primarily in publicly traded domestic fixed income securities,
including U.S. Treasury and agency obligations, mortgage-backed and asset-backed
securities and corporate debt securities. The Fund will also invest in other
fixed income markets, such as corporate private placements, directly-placed
mortgage obligations and foreign currency denominated bonds. Substantially all
(but no less than 65%) of the Fund's total assets will at all times be invested
in fixed income securities. Pending investment and reinvestment in fixed income
securities, the Manager may invest the Fund's assets in money market
instruments. Allocations are made among a wide array of market sectors, such as
U.S. Treasury and agency obligations, corporate securities, mortgages and
mortgage-backed securities, private placement securities and non-U.S. dollar
denominated securities, based on the relative attractiveness of such sectors.
Following these sector allocations, the Manager will purchase those securities
deemed attractively valued in the desired sectors. The Fund may invest in any
fixed income security, including preferred stocks. The Fund may also hold a
portion of its assets in cash or money market instruments.
PORTFOLIO DURATION AND MATURITY. The Fund's portfolio will generally
have an average dollar weighted portfolio maturity of five to twelve years and a
duration of no less than three years and no more than ten years (excluding
short-term investments). The duration of a fixed income security is the weighted
average maturity, expressed in years, of the present value of all future cash
flows, including coupon payments and principal repayments. The Fund's portfolio
may include securities with maturities and durations outside of these ranges.
PORTFOLIO QUALITY. The Fund may invest in any security that is rated
investment grade at the time of purchase (i.e., at least Baa as determined by
Moody's Investors Service, Inc. ("Moody's") or BBB as determined by Standard &
Poor's ("S&P")), or in any unrated security that the Manager determines to be of
comparable quality. Securities rated Baa by Moody's or BBB by S&P and comparable
unrated securities have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments on such obligations than in the case of
higher- rated securities. In the event that any security held by the Fund ceases
to be of investment grade quality, the Fund will not be obligated to dispose of
such security and may continue to hold the obligation if, in the opinion of the
Manager, such investment is considered appropriate under the circumstances.
However, if more than 5% of the Fund's net assets are below investment grade
quality, the Manager will dispose of such securities as are necessary to reduce
such holdings to 5% or less.
INTEREST RATE RISK. The values of fixed income securities generally
vary inversely to changes in prevailing interest rates. Investments in lower
quality fixed income securities generally provide greater income than
investments in higher-rated securities but are subject to greater market
fluctuations and risks of loss of income and principal than are higher-rated
securities. Fluctuations in the value of portfolio securities will not affect
interest income on existing portfolio securities but will be reflected in the
Fund's net asset value.
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
-11-
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgages
vary, there can be no certainty as to the predicted yield or average life of a
particular issue of pass-through certificates. Prepayments are important because
of their effect on the yield and price of the securities. During periods of
declining interest rates, such prepayments can be expected to accelerate and the
Fund would be required to reinvest the proceeds at the lower interest rates then
available. In addition, prepayments of mortgages which underlie securities
purchased at a premium could result in capital losses because the premium may
not have been fully amortized at the time the obligation was prepaid. As a
result of these principal payment features, the values of mortgage-backed
securities generally fall when interest rates rise, but their potential for
capital appreciation in periods of falling interest rates is limited because of
the prepayment feature. The mortgage-backed securities purchased by the Fund may
include adjustable rate instruments. See "Adjustable Rate Securities" below.
The Fund may also invest in asset-backed securities such as securities
backed by pools of automobile loans, educational loans and credit card
receivables, both secured and unsecured. These assets are generally held by a
trust and payments of principal and interest or interest only are passed through
to certificate holders. The underlying assets are subject to prepayment, which
may reduce the overall return to certificate holders. Nevertheless, principal
repayment rates tend not to vary much with interest rates and the short-term
nature of the assets tends to dampen the impact of any change in the prepayment
level. Certificate holders may also experience delays in payment on the
certificates if the full amounts due on the underlying assets are not realized
by the trust because of unanticipated legal or administrative costs of enforcing
the contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors.
In addition to the risks described above, mortgage-backed and
asset-backed securities without a U.S. Government guarantee involve risk of loss
of principal if the obligors of the underlying obligations default in payment of
the obligations.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). The Fund may invest in
CMOs. A CMO is a security backed by a portfolio of mortgages or mortgage-backed
securities held under an indenture. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs are issued in multiple classes or series which
have different maturities representing interests in some or all of the interest
or principal on the underlying collateral or a combination thereof. CMOs of
different classes are generally retired in sequence as the underlying mortgage
loans in the mortgage pool are repaid. In the event of sufficient early
prepayments on such mortgages, the class or series of CMO first to mature
generally will be retired prior to its stated maturity. Thus, the early
retirement of a particular class or series of CMO held by the Fund would have
the same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security. CMOs also include securities ("Residuals") representing
the interest in any excess cash flow and/or the value of any collateral
remaining after the issuer has applied cash flow from the underlying mortgages
or mortgage-backed securities to the payment of principal of, and interest on,
all other CMOs and the administrative expenses of the issuer. Due to uncertainty
as whether any excess cash flow or the underlying collateral will be available,
there can be no assurances that Residuals will ultimately have value.
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
-12-
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.
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.
In seeking capital appreciation, the Fund follows a global investment
strategy of investing primarily in common stocks traded in securities markets
located in a number of foreign countries and in the United States. The Fund
normally expects to invest approximately 40% to 60% of its assets outside the
United States and the remaining 60% to 40% of its assets inside the United
States. The weighting of the Fund's portfolio between foreign and domestic
investments will depend upon prevailing conditions in foreign and domestic
markets. Under certain market conditions, the Fund may invest more than 60% of
its assets either outside or inside the United States. In addition, the Fund
will always invest at least 65% of its total assets in at least three different
countries, one of which will be the United States. The selection of the Fund's
domestic investments will generally be based on value factors, while the
selection of the Fund's foreign investments will generally be based on growth
factors. In certain foreign countries, particularly the newly industrializing
countries described below, the Fund's market capitalization guideline of $1.5
billion may include companies which, when viewed on a relative basis, are not
considered "small cap" in the particular country. The Fund may hold a portion of
its assets in cash or money market instruments.
Consistent with the above policies, the Fund may at times invest more
than 25% of its assets in the securities of issuers located in a single country.
At such times, the Fund's performance will be directly affected
-13-
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. Foreign brokerage commissions and other fees are also
generally higher than in the United States. Foreign settlement procedures and
trade regulations may involve certain risks (such as delay in payment or
delivery of securities or in the recovery of the Fund's assets held abroad) and
expenses not present in the settlement of domestic investments.
In addition, with respect to certain foreign countries, there is a
possibility of expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial instability and
diplomatic developments which could affect the value of investments in those
countries. In certain countries, legal remedies available to investors may be
more limited than those available with respect to investments in the United
States or other countries. The laws of some foreign countries may limit the
Fund's ability to invest in securities of certain issuers located in those
countries. Finally, special tax considerations apply to foreign securities.
See "Investment Objectives and Policies and Associated Risks--General"
for additional information.
VALUE FUND
The Value Fund's investment objective is to seek long-term capital
appreciation primarily through investment in a portfolio of common stocks of
established companies. Strong consideration is given to common stocks whose
current prices do not adequately reflect, in the opinion of the Manager, the
true value of the underlying company in relation to earnings, dividends and/or
assets. Various valuation parameters are
-14-
examined to determine the attractiveness of individual securities. The Fund may
also hold a portion of its assets in cash or money market instruments.
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.
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.
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
-15-
shareholders. Portfolio turnover rates for each Fund are shown in the section
"Financial Highlights." See "Taxes" below and "Portfolio Transactions" in the
Statement of Additional Information for additional information. The tax
consequences of portfolio transactions may be a secondary consideration for
tax-exempt investors.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements.
Under repurchase agreements a Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed-upon price and date. The resale price exceeds the acquisition price and
reflects an agreed-upon market rate unrelated to the coupon rate on the
purchased security. Such transactions afford an opportunity for 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.
FIRM COMMITMENTS. Each Fund may enter into firm commitment agreements
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 parties
which the Manager or Sub-Adviser determines present minimal credit risks. A Fund
will maintain, in a segregated account with its custodian, cash or securities in
an amount equal to the Fund's obligations under firm commitment agreements. The
Fund bears the risk that the other party will fail to satisfy its obligations to
the Fund. Such a default may subject the Fund to expenses, delays and risks of
loss.
LOANS OF PORTFOLIO SECURITIES. Each Fund may make secured loans of
portfolio securities on up to 331/3% of the Fund's total assets. The risks in
lending portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. However, such loans will be
made only to parties that are believed by the Manager or the Sub-Adviser to be
of relatively high credit standing. Securities loans are made pursuant to
agreements requiring that loans be continuously secured by collateral in cash or
U.S. Government securities at least equal at all times to the market value of
the securities lent. The borrower pays to the lending Fund an amount equal to
any dividends or interest received on the securities lent. The Fund may invest
the cash collateral received or may receive a fee from the borrower. Although
voting rights or rights to consent with respect to the loaned securities pass to
the borrower, the Fund retains the right to call the loans at any time on
reasonable notice. The Fund may also call such loans in order to sell the
securities involved. The Fund pays various fees in connection with such loans
including shipping fees and reasonable custodian and placement fees.
DERIVATIVES. Certain of the instruments in which the Funds may invest,
such as mortgage-backed securities and indexed securities, are considered to be
"derivatives." Derivatives are financial instruments whose value depends upon,
or is derived from, the value of an underlying asset, such as a security or
currency. Further information about these instruments and the risks involved in
their use is included elsewhere in this prospectus and in the Statement of
Additional Information.
RISKS OF NON-DIVERSIFICATION. The Funds are "non-diversified" funds and
as such are not required to meet any diversification requirements under the
Investment Company Act of 1940. As a non-diversified fund, each Fund may invest
a relatively high percentage of its assets in the securities of relatively few
issuers, rather than invest in the securities of a large number of issuers
merely to satisfy diversification requirements. Investment in the securities of
a limited number of issuers may increase the risk of loss to a Fund should there
be a decline in the market value of any one portfolio security. Investment in a
non-diversified fund therefore entails greater risks than investment in a
"diversified" fund.
-16-
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 (iii) by a combination of such securities and cash. In all cases, the Manager
reserves the right to reject any particular investment. Securities accepted by
the Manager in exchange for Fund shares will be acquired for investment only and
not for resale and will be valued as set forth under "Determination of Net Asset
Value" (generally the last quoted sale price) as of the time of the next
determination of net asset value after such acceptance. All dividends, interest,
subscription or other rights which are reflected in the market price of accepted
securities at the time of valuation become the property of the relevant Fund and
must be delivered to the Trust upon receipt by the investor from the issuer. A
gain or loss for federal income tax purposes may be realized by investors
subject to Federal income taxation upon the exchange, depending upon the
investor's basis in the securities tendered.
The Manager will not approve the acceptance of securities in exchange
for Fund shares unless (1) the Manager, in its sole discretion, believes the
securities are appropriate investments for the Fund; (2) the investor represents
and agrees that all securities offered to the Fund are not subject to any
restrictions upon their sale by the Fund under the Securities Act of 1933, or
otherwise; and (3) the securities may be acquired under the investment
restrictions applicable to the relevant Fund. Investors interested in purchases
through exchange should telephone the Manager at (617) 225-3800, Attn: Maureen
A. Madden.
Investors should call the offices of the Trust before attempting to
place an order for Trust shares. The Trust reserves the right at any time to
reject an order.
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. In most cases, 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.
-17-
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 daily net assets, subject to the
authority of the Trustees to reduce the amount of payments or to suspend the
Plan for such periods as they may determine. Subject to these limitations, the
amount of payments under each Plan and the specific purposes for which they are
made would be determined by the Trustees. At present, the Trustees have no
intention of implementing any Plan.
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Shares of each Fund may be redeemed on any business day in cash or in
kind. The redemption price is the net asset value per share next determined
after receipt of the redemption request in good order. There is no redemption
fee for any of the Funds. Cash payments generally will be made by transfer of
Federal funds for payment into the investor's account the next business day
following the redemption request. Redemption requests should be sent to
Investors Bank & Trust Company. In order to help facilitate the timely payment
of redemption proceeds, it is recommended that investors telephone the Manager
at (617) 225-38700, Attn: Maureen A. Madden, at least two days prior to
submitting a request.
Payment on redemption will be made as promptly as possible and in any
event within seven days after the request for redemption is received by the
Trust in good order. A redemption request is in good order if it includes the
correct name in which shares are registered, the investor's account number and
the number of shares or the dollar amount of shares to be redeemed and if it is
signed correctly in accordance with the form of registration. Persons acting in
a fiduciary capacity, or on behalf of a corporation, partnership or trust, must
specify, in full, the capacity in which they are acting. In-kind redemptions, as
described below, will be transferred and delivered as directed by the investor.
If the Manager determines, in its sole discretion, that it would be
detrimental to the best interests of the remaining shareholders of a Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of readily marketable securities held
by the Fund in lieu of cash. Securities used to redeem Fund shares in kind will
be valued in accordance with the relevant Fund's procedures for valuation
described under "Determination of Net Asset Value." Investors generally will
incur brokerage charges on the sale of any such securities so received in
payment of redemptions.
When opening an account with the Trust, shareholders will be required
to designate the account(s) to which funds or securities may be transferred upon
redemption. Designation of additional accounts and any change in the accounts
originally designated must be made in writing with the signature guaranteed by a
commercial bank, a member firm of a domestic securities exchange or one of
certain other financial institutions.
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
-18-
to determine the value of the net assets of the Fund, or during any other period
permitted by the Securities and Exchange Commission for the protection of
investors.
- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value of a share of each Fund is determined at 4:15 p.m.,
Eastern time, on each day on which the New York Stock Exchange is open, other
than a day on which no shares of the Fund were tendered for redemption and no
order to purchase shares was received by the Fund. If no shares of the Fund are
tendered for redemption during a month and no order to purchase shares is
received by the Fund during such month, the net asset value of a share of such
Fund will be determined on the last business day of such month. The net asset
value per share for a Fund is determined by dividing the total value of the
Fund's portfolio investments and other assets, less any liabilities, by the
total outstanding shares of the Fund. Portfolio securities (including options
and futures contracts) for which market quotations are available are valued at
the last quoted sale price, or, if there is no such reported sale, at the
closing bid price. Securities traded in the over-the-counter market are valued
at the most recent bid price as obtained from one or more dealers that make
markets in the securities. Portfolio securities that are traded both in the
over-the-counter market and on one or more stock exchanges are valued according
to the broadest and most representative market. Unlisted securities for which
market quotations are not readily available are valued at the most recent quoted
bid price. Short term debt securities with a remaining maturity of 60 days or
less will be valued at amortized cost, unless conditions dictate otherwise.
Illiquid securities or restricted securities will be valued at fair value based
on information supplied by a broker. Other assets for which no quotations are
readily available are valued at fair value as determined in good faith in
accordance with procedures adopted by the Trustees of the Trust. Determination
of fair value will be based upon such factors as are deemed relevant under the
circumstances, including the financial condition and operating results of the
issuer, recent third party transactions (actual or proposed) relating to such
securities and, in extreme cases, the liquidation value of the issuer.
Because of time zone differences, foreign exchanges and securities
markets will usually be closed prior to the time of the closing of the New York
Stock Exchange and the value of foreign securities will be determined as of the
closing of such exchanges and securities markets. Events affecting the values of
such foreign securities, however, may occasionally occur between the closings of
such exchanges and securities markets and the time the Fund determines its net
asset value. 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.
-19-
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
- --------------------------------------------------------------------------------
The following is a general summary of the federal income tax
consequences for the Fund and shareholders who are U.S. citizens or residents or
domestic corporations. The last paragraph of this section contains information
relevant to foreign investors. 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.
Each Fund is treated as a separate taxable entity for federal income
tax purposes. Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended. By
so qualifying, a Fund itself will not pay federal income tax on the income and
gain distributed annually to its shareholders. Distributions of ordinary income
and short-term capital gains, whether received in cash or reinvested shares,
will be taxable as ordinary income to shareholders subject to federal income
tax. Designated distributions of any long-term capital gains are taxable as
such, regardless of how long a shareholder may have owned shares in the Fund or
whether received in cash or reinvested shares. Any loss recognized on the sale
or disposition of shares held for six months or less will be treated as
long-term capital loss to the extent of any long-term capital gain distributions
received by a shareholder with respect to those shares. A distribution paid to
shareholders in January generally is deemed to have been received by
shareholders on December 31 of the preceding year, if the distribution was
declared and payable to shareholders of record on a date in October, November or
December of that preceding year. The Trust will provide federal tax information
annually, including information about dividends and distributions paid during
the preceding year.
BACK-UP WITHHOLDING. The back-up withholding rules set forth below do
not apply to tax exempt entities or corporations that furnish the Trust with an
appropriate certification. For other shareholders, however, the Trust is
generally required to withhold and remit to the U.S. Treasury 31% of all
distributions, whether distributed in cash or reinvested in shares, and 31% of
the proceeds of any redemption paid or credited to the shareholder's account if
an incorrect or no taxpayer identification number has been provided, where
appropriate certification has not been provided for a foreign shareholder, or
where the Trust is notified that the shareholder has underreported income in the
past (or the shareholder fails to certify that he is not subject to such
withholding). Special withholding rules, described below, may apply to foreign
shareholders.
FOREIGN WITHHOLDING TAXES. The Global Small Cap Fund may be subject to
foreign withholding taxes on income and gains derived from foreign investments.
Such taxes would reduce the yield on such Fund's investments, but, as discussed
below, may be taken as either a deduction or a credit by U.S. investors if the
Fund makes the election described below.
If, at the end of the fiscal year, more than 50% of the total assets of
the Global Small Cap Fund are comprised of securities of foreign corporations,
the Trust intends to make an election which allows shareholders whose income
from the Fund is subject to U.S. taxation at the graduated rates applicable to
U.S. citizens, residents or domestic corporations to claim a foreign tax credit
or deduction (but not both) on their U.S. income tax return. In such case, the
amount of foreign income taxes paid by the Fund would be treated as additional
income to Fund shareholders from non-U.S. sources and as foreign taxes paid by
Fund shareholders. Investors should consult their tax advisors for further
information relating to the foreign tax credit and deduction, which are subject
to certain restrictions and limitations. Shareholders of the Global Small Cap
Fund whose income from the Fund is not subject to U.S. taxation at the graduated
rates applicable to U.S. citizens, residents or
-20-
domestic corporations may receive substantially different tax treatment on
distributions by such Fund, and may be disadvantaged as a result of the election
described in this paragraph. Organizations that are exempt from U.S. taxation
will not be affected by the election described above.
WITHHOLDING ON DISTRIBUTIONS TO FOREIGN INVESTORS. Dividend
distributions (including in general distributions derived from short-term
capital gains, dividends and interest) are in general subject to a U.S.
withholding tax of 30% when paid to a non-resident alien individual, foreign
estate or trust, a foreign corporation, or a foreign partnership ("foreign
shareholder"). Persons who are residents in a country, such as the United
Kingdom, that has an income tax treaty with the United States may be eligible
for a reduced withholding rate (upon filing of appropriate forms), and are urged
to consult their tax advisors regarding the applicability and effect of such a
treaty. Distributions of net long-term capital gains to a foreign shareholder
and any gain realized upon the sale of Fund shares by such a shareholder will
ordinarily not be subject to U.S. taxation, unless the recipient or seller is a
nonresident alien individual who is present in the United States for more than
182 days during the taxable year. Foreign shareholders with respect to whom
income from a Fund is "effectively connected" with a U.S. trade or business
carried on by such shareholder, however, will in general be subject to U.S.
federal income tax on the income derived from the Fund at the graduated rates
applicable to U.S. citizens, residents or domestic corporations, whether such
income is received in cash or reinvested in shares, and may also be subject to a
branch profits tax. Again, foreign shareholders who are residents in a country
with an income tax treaty with the United States may obtain different tax
results and all foreign investors are urged to consult their tax advisors.
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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. The Manager,
however, has agreed to waive a portion of 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:
-21-
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.
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 at least the past five years. Mr. Burns
and Mr. Wright have each been employed by the Sub-Adviser in portfolio
management for at least 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 one-year period and for the life of a Fund, each through the
most recent calendar quarter, represents the average annual compounded rate of
return on an investment of $1000 in a Fund at net asset value (assuming
immediate reinvestment of any dividends or capital gains distributions 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. See "Investment Performance" in the Statement of Additional Information.
All data is based on a Fund's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of a Fund's
portfolio, and a Fund's operating expenses. Investment performance also often
reflects the risks associated with a Fund's investment objective and policies.
These factors should be considered when comparing a Fund's investment results to
those of other mutual funds and other investment vehicles.
- --------------------------------------------------------------------------------
ORGANIZATION AND CAPITALIZATION OF THE TRUST
- --------------------------------------------------------------------------------
The Trust was established on August 1, 1994 as a business trust under
Massachusetts law. The Trust has an unlimited number of authorized shares of
beneficial interest which may, without shareholder approval, be divided into an
unlimited number of series of such shares and which are presently divided into
six series of shares. The Trust does not generally hold annual meetings of
shareholders and will do so only when required
-22-
by law. Matters submitted to shareholder vote must be approved by each series
separately except (i) when required by the Investment Company Act of 1940,
shares shall be voted together as a single class, and (ii) when the Trustees
have determined that the matter affects one or more series, then only
shareholders of such series shall be entitled to vote on the matter. Shares are
freely transferable, are entitled to dividends as declared by the Trustees, and,
in liquidation of the Trust, are entitled to receive the net assets of their
series, but not of any other series. Shareholders holding a majority of the
outstanding shares of the Trust may remove Trustees from office by votes cast in
person or by proxy at a meeting of shareholders or by written consent.
Massachusetts Mutual Life Insurance Company currently owns more than 25% of the
outstanding shares of each Fund and therefore is deemed to "control" each Fund
within the meaning of the Investment Company Act of 1940.
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 (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.
-23-
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
PROSPECTUS
THE DLB VALUE FUND
One Memorial Drive
Cambridge, Massachusetts 02142
(617) 225-3800
May 12, 1997
The DLB VALUE FUND seeks long-term capital appreciation primarily
through investment in a portfolio of common stocks of established companies. The
Fund is a non-diversified portfolio of The DLB Fund Group (the "Trust"), an
open-end management investment company. The Fund is intended primarily to serve
as an investment vehicle for institutional investors. The Fund's investment
manager is David L. Babson & Co., Inc.
This Prospectus concisely describes the information which investors
ought to know before investing in the Fund. Please read this Prospectus
carefully and keep it for further reference.
A Statement of Additional Information dated February 19, 1997 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
of Additional Information, which contains more detailed information about the
Fund, has been filed with the Securities and Exchange Commission and is
incorporated by reference to this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SHAREHOLDER TRANSACTION AND FUND EXPENSES.........................................................................3
FINANCIAL HIGHLIGHTS..............................................................................................4
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS...........................................................5
PURCHASE OF SHARES................................................................................................6
REDEMPTION OF SHARES..............................................................................................8
DETERMINATION OF NET ASSET VALUE..................................................................................8
DISTRIBUTIONS.....................................................................................................9
TAXES ........................................................................................................10
MANAGEMENT OF THE TRUST..........................................................................................11
PERFORMANCE INFORMATION..........................................................................................11
ORGANIZATION AND CAPITALIZATION OF THE TRUST.....................................................................12
SHAREHOLDER INQUIRIES............................................................................................12
</TABLE>
-2-
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION AND FUND EXPENSES
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C>
Management Fees (after fee waiver) (a)........................................... .35%
12b-1 Fees (b)................................................................... 0
Other Expenses (after fee waiver) (a)............................................ .45%
----
Total Fund Operating Expenses (after fee waiver) (a)............................. .80%
</TABLE>
EXAMPLE:
<TABLE>
<CAPTION>
You would pay the following Years
-----
<S> <C> <C> <C> <C>
expenses on a $1,000 investment,
assuming a 5% annual return 1 3 5 10
with or without redemption at - - - --
the end of each period: $8 $26 $44 $99
</TABLE>
- ---------------
(a) The Manager has agreed with the Fund to reduce its management fee and
to bear certain expenses at least through 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 have
been .55%, "Other Expenses" would have been .95% and total Fund
operating expenses would have been 1.50%.
(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."
-3-
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following tables, which present per share financial information for the
Fund, have been audited by Deloitte & Touche LLP, independent accountants. These
tables should be read in conjunction with the Fund's other audited financial
statements and related notes which are included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
For the period
July 25, 1995
(commencement of
Year Ended operations) to
December 31, 1996 December 31, 1995
----------------- -----------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $10.58 $10.00
------ ------
Income from investment operations:
Net investment income 0.16 0.09
Net realized and unrealized gain on investments 2.38 0.73
---- ----
Total from investment operations 2.54 0.82
---- ----
Less distributions declared to shareholders:
From net investment income (0.16) (0.09)
From net realized gain on investments (0.41) (0.15)
In excess of net realized gain on investments (0.02) --
------ -----
Total distributions declared to shareholders (0.59) (0.24)
------ ------
Net asset value - end of period $12.53 $10.58
====== ======
Total return 23.99% 18.64%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 0.80% 0.80%*
Ratio of net investment income to average net assets 1.56% 2.02%*
Portfolio turnover 23% 7%
Average commission rate paid(1) $0.05378 --
Net assets at end of period (000 omitted) $19,228 $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 $0.09 $0.02
Ratios (to average net assets):
Expenses 1.50% 2.43%*
Net investment income 0.86% 0.40%*
</TABLE>
- --------------
(1) For years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trading
on which commissions are charged. Average commission rate paid is
computed by dividing the total dollar amount of commissions paid during
the year by the total number of shares purchased and sold on which
commissions were charged.
* Annualized
-4-
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS
- --------------------------------------------------------------------------------
The DLB 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. 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.
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.
ILLIQUID SECURITIES. The Fund may purchase "illiquid securities," which
are securities that are not readily marketable, including securities whose
disposition is restricted by contract or under Federal securities laws, so long
as no more than 15% of the Fund's net assets would be invested in such illiquid
securities. The Fund may not be able to dispose of such securities in a timely
fashion and for a fair price, which could result in losses 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 Fund, the Fund expects to
experience relatively low portfolio turnover rates. It is not anticipated that
under normal circumstances the annual portfolio turnover rate of the 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 Fund, and could involve realization of capital gains that would be
taxable when distributed to shareholders. Portfolio turnover rates for the Fund
are shown in the section "Financial Highlights." See "Taxes" below and
"Portfolio Transactions" in the Statement of Additional Information for
additional information. The tax consequences of portfolio transactions may be a
secondary consideration for tax-exempt investors.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements.
Under repurchase agreements the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed-upon price and date. The resale price exceeds the acquisition price and
reflects an agreed-upon market rate unrelated to the coupon rate on the
purchased security. Such transactions afford an opportunity for the Fund to earn
a return on temporarily available cash at no market risk, although there is a
risk that the seller may default on its obligation to pay the agreed-upon sum on
the redelivery date. Such a default may subject the Fund to expenses, delays and
risks of loss.
FIRM COMMITMENTS. The Fund may enter into firm commitment agreements
for the purchase of securities at an agreed-upon price on a specified future
date. The Fund will only enter into firm commitment arrangements with parties
which the Manager determines present minimal credit risks. The Fund will
maintain, in a segregated account with its custodian, cash or securities in an
amount equal to the Fund's obligations under firm commitment agreements. The
Fund bears the risk that the other party will fail to satisfy its obligations to
the Fund. Such a default may subject the Fund to expenses, delays and risks of
loss.
-5-
LOANS OF PORTFOLIO SECURITIES. The Fund may make secured loans of
portfolio securities on up to 331/3% of the Fund's total assets. The risks in
lending portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. However, such loans will be
made only to parties that are believed by the Manager to be of relatively high
credit standing. Securities loans are made pursuant to agreements requiring that
loans be continuously secured by collateral in cash or U.S. Government
securities at least equal at all times to the market value of the securities
lent. The borrower pays to the Fund an amount equal to any dividends or interest
received on the securities lent. The Fund may invest the cash collateral
received or may receive a fee from the borrower. Although voting rights or
rights to consent with respect to the loaned securities pass to the borrower,
the Fund retains the right to call the loans at any time on reasonable notice.
The Fund may also call such loans in order to sell the securities involved. The
Fund pays various fees in connection with such loans including shipping fees and
reasonable custodian and placement fees.
DERIVATIVES. Certain of the instruments in which the Fund may invest,
such as mortgage-backed securities and indexed securities, are considered to be
"derivatives." Derivatives are financial instruments whose value depends upon,
or is derived from, the value of an underlying asset, such as a security or
currency. Further information about these instruments and the risks involved in
their use is included elsewhere in this prospectus and in the Statement of
Additional Information.
RISKS OF NON-DIVERSIFICATION. The Fund is a "non-diversified" fund and
as such are not required to meet any diversification requirements under the
Investment Company Act of 1940. As a non-diversified fund, the Fund may invest a
relatively high percentage of its assets in the securities of relatively few
issuers, rather than invest in the securities of a large number of issuers
merely to satisfy diversification requirements. Investment in the securities of
a limited number of issuers may increase the risk of loss to the Fund should
there be a decline in the market value of any one portfolio security. Investment
in a non-diversified fund therefore entails greater risks than investment in a
"diversified" fund.
CHANGES TO INVESTMENT OBJECTIVES. The investment objective and policies
of the Fund may be changed by the Trustees without shareholder approval. Any
such change may result in the Fund having an investment objective and policies
different from the objective and policies which a shareholder considered
appropriate at the time of such shareholder's investment in the Fund.
Shareholders of the Fund will be notified of any changes in the Fund's
investment objective or policies through a revised prospectus or other written
communication.
- --------------------------------------------------------------------------------
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Shares of the Fund may be purchased directly from the Trust on any day
when the New York Stock Exchange is open for business (a "business day"). The
minimum for an initial investment is $100,000, and the minimum for each
subsequent investment is $10,000. The purchase price of a share is the net asset
value next determined after a purchase order is received in good order.
Shares of the Fund may be purchased either (i) in exchange for common
stocks on deposit at The Depository Trust Company ("DTC") or appropriate fixed
income securities, subject to the determination by the Manager that the
securities to be exchanged are acceptable, (ii) in cash (i.e., by wire transfer)
or (iii) by a combination of such securities and cash. In all cases, the Manager
reserves the right to reject any particular investment. Securities accepted by
the Manager in exchange for Fund shares will be acquired for investment only and
not for resale and will be valued as set forth under "Determination of Net Asset
-6-
Value" (generally the last quoted sale price) as of the time of the next
determination of net asset value after such acceptance. All dividends, interest,
subscription or other rights which are reflected in the market price of accepted
securities at the time of valuation become the property of the Fund and must be
delivered to the Trust upon receipt by the investor from the issuer. A gain or
loss for federal income tax purposes may be realized by investors subject to
Federal income taxation upon the exchange, depending upon the investor's basis
in the securities tendered.
The Manager will not approve the acceptance of securities in exchange
for Fund shares unless (1) the Manager, in its sole discretion, believes the
securities are appropriate investments for the Fund; (2) the investor represents
and agrees that all securities offered to the Fund are not subject to any
restrictions upon their sale by the Fund under the Securities Act of 1933, or
otherwise; and (3) the securities may be acquired under the investment
restrictions applicable to the Fund. Investors interested in purchases through
exchange should telephone the Manager at (617) 225-3800, Attn: Maureen A.
Madden.
Investors should call the offices of the Trust before attempting to
place an order for shares. The Trust reserves the right at any time to reject an
order.
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. In most cases, 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 the Fund.
All federal funds must be transmitted to Investors Bank & Trust Company
to Account No. 777777722 for the account of the Fund.
"Federal funds" are monies credited to Investors Bank & Trust Company's
account with the Federal Reserve Bank of Boston.
Purchases will be made in full and fractional shares of the Fund
calculated to three decimal places. The Trust will send to shareholders written
confirmation (including a statement of shares owned) at the time of each
transaction.
12B-1 PLAN. The Trust has adopted a distribution and services plan (the
"Plan") for the Fund under Rule 12b-1 of the Investment Company Act of 1940, but
the Trustees do not intend to implement the Plan during the Trust's current
fiscal year. The purposes of the Plan if implemented would be to compensate
and/or reimburse investment dealers and other persons for services provided and
expenses incurred in promoting sales of shares, reducing redemptions or
improving services provided to shareholders by such dealers and other persons.
The Plan would permit payments by the Fund for such purposes at an annual rate
of up to .50% of the Fund's average daily net assets, subject to the authority
of the Trustees to reduce the amount of payments or to suspend the Plan for such
periods as they may determine. Subject to these limitations, the amount of
payments under the Plan and the specific purposes for which they are made would
be determined by the Trustees. At present, the Trustees have no intention of
implementing the Plan.
-7-
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Shares of the Fund may be redeemed on any business day in cash or in
kind. The redemption price is the net asset value per share next determined
after receipt of the redemption request in good order. There is no redemption
fee for the Fund. Cash payments generally will be made by transfer of Federal
funds for payment into the investor's account the next business day following
the redemption request. Redemption requests should be sent to Investors Bank &
Trust Company. In order to help facilitate the timely payment of redemption
proceeds, it is recommended that investors telephone the Manager at (617)
225-38700, Attn: Maureen A. Madden, at least two days prior to submitting a
request.
Payment on redemption will be made as promptly as possible and in any
event within seven days after the request for redemption is received by the
Trust in good order. A redemption request is in good order if it includes the
correct name in which shares are registered, the investor's account number and
the number of shares or the dollar amount of shares to be redeemed and if it is
signed correctly in accordance with the form of registration. Persons acting in
a fiduciary capacity, or on behalf of a corporation, partnership or trust, must
specify, in full, the capacity in which they are acting. In-kind redemptions, as
described below, will be transferred and delivered as directed by the investor.
If the Manager determines, in its sole discretion, that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of readily marketable securities held
by the Fund in lieu of cash. Securities used to redeem Fund shares in kind will
be valued in accordance with the Fund's procedures for valuation described under
"Determination of Net Asset Value." Investors generally will incur brokerage
charges on the sale of any such securities so received in payment of
redemptions.
When opening an account with the Trust, shareholders will be required
to designate the account(s) to which funds or securities may be transferred upon
redemption. Designation of additional accounts and any change in the accounts
originally designated must be made in writing with the signature guaranteed by a
commercial bank, a member firm of a domestic securities exchange or one of
certain other financial institutions.
The Fund may suspend the right of redemption and may postpone payment
for more than seven days when the New York Stock Exchange is closed for other
than weekends or holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange is restricted or
during an emergency which makes it reasonably impracticable for the Fund to
dispose of its securities or fairly to determine the value of the net assets of
the Fund, or during any other period permitted by the Securities and Exchange
Commission for the protection of investors.
- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value of a share of the Fund is determined at 4:15 p.m.,
Eastern time, on each day on which the New York Stock Exchange is open, other
than a day on which no shares of the Fund were tendered for redemption and no
order to purchase shares was received by the Fund. If no shares of the Fund are
tendered for redemption during a month and no order to purchase shares is
received by the Fund during such month, the net asset value of a share of the
Fund will be determined on the last business day
-8-
of such month. The net asset value per share for the Fund is determined by
dividing the total value of the Fund's portfolio investments and other assets,
less any liabilities, by the total outstanding shares of the Fund. Portfolio
securities (including options and futures contracts) for which market quotations
are available are valued at the last quoted sale price, or, if there is no such
reported sale, at the closing bid price. Securities traded in the
over-the-counter market are valued at the most recent bid price as obtained from
one or more dealers that make markets in the securities. Portfolio securities
that are traded both in the over-the-counter market and on one or more stock
exchanges are valued according to the broadest and most representative market.
Unlisted securities for which market quotations are not readily available are
valued at the most recent quoted bid price. Short term debt securities with a
remaining maturity of 60 days or less will be valued at amortized cost, unless
conditions dictate otherwise. Illiquid securities or restricted securities will
be valued at fair value based on information supplied by a broker. Other assets
for which no quotations are readily available are valued at fair value as
determined in good faith in accordance with procedures adopted by the Trustees
of the Trust. Determination of fair value will be based upon such factors as are
deemed relevant under the circumstances, including the financial condition and
operating results of the issuer, recent third party transactions (actual or
proposed) relating to such securities and, in extreme cases, the liquidation
value of the issuer.
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. If an event materially affecting the value of such foreign
securities occurs during such period, then such securities will be valued at
fair value as determined in good faith in accordance with procedures adopted by
the Trustees.
Because foreign securities are quoted in foreign currencies,
fluctuations in the value of such securities in relation to the U.S. dollar will
affect the net asset value of shares of the Fund even though there has not been
any change in the values of such securities measured in terms of the foreign
currencies in which they are denominated. The value of foreign securities is
converted into U.S. dollars at the rate of exchange prevailing at the time of
determination of net asset value.
- --------------------------------------------------------------------------------
DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund intends to pay out as dividends substantially all of its net
investment income (which comes from dividends and any interest it receives from
its investments and net short-term capital gains). The Fund also intends to
distribute substantially all of its net long-term capital gains, if any, after
giving effect to any available capital loss carryover. The Fund's present policy
is to declare and pay distributions of its dividends and interest at least
annually. The Fund also intends to distribute net short-term capital gains and
net long-term capital gains at least annually.
All dividends and/or distributions will be paid in shares of the Fund,
at net asset value, unless the shareholder elects to receive cash. Shareholders
may make this election by marking the appropriate box on the application form or
by writing to Investors Bank & Trust Company.
-9-
- --------------------------------------------------------------------------------
TAXES
- --------------------------------------------------------------------------------
The following is a general summary of the federal income tax
consequences for the Fund and shareholders who are U.S. citizens or residents or
domestic corporations. The last paragraph of this section contains information
relevant to foreign investors. Shareholders should consult their own tax
advisors about the tax consequences of investments in the Fund in light of their
particular tax situations. Shareholders should also consult their own tax
advisors about consequences under foreign, state, local or other applicable tax
laws.
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. By so
qualifying, the Fund itself will not pay federal income tax on the income and
gain distributed annually to its shareholders. Distributions of ordinary income
and short-term capital gains, whether received in cash or reinvested shares,
will be taxable as ordinary income to shareholders subject to federal income
tax. Designated distributions of any long-term capital gains are taxable as
such, regardless of how long a shareholder may have owned shares in the Fund or
whether received in cash or reinvested shares. Any loss recognized on the sale
or disposition of shares held for six months or less will be treated as
long-term capital loss to the extent of any long-term capital gain distributions
received by a shareholder with respect to those shares. A distribution paid to
shareholders in January generally is deemed to have been received by
shareholders on December 31 of the preceding year, if the distribution was
declared and payable to shareholders of record on a date in October, November or
December of that preceding year. The Trust will provide federal tax information
annually, including information about dividends and distributions paid during
the preceding year.
BACK-UP WITHHOLDING. The back-up withholding rules set forth below do
not apply to tax exempt entities or corporations that furnish the Trust with an
appropriate certification. For other shareholders, however, the Trust is
generally required to withhold and remit to the U.S. Treasury 31% of all
distributions, whether distributed in cash or reinvested in shares, and 31% of
the proceeds of any redemption paid or credited to the shareholder's account if
an incorrect or no taxpayer identification number has been provided, where
appropriate certification has not been provided for a foreign shareholder, or
where the Trust is notified that the shareholder has underreported income in the
past (or the shareholder fails to certify that he is not subject to such
withholding). Special withholding rules, described below, may apply to foreign
shareholders.
WITHHOLDING ON DISTRIBUTIONS TO FOREIGN INVESTORS. Dividend
distributions (including in general distributions derived from short-term
capital gains, dividends and interest) are in general subject to a U.S.
withholding tax of 30% when paid to a non-resident alien individual, foreign
estate or trust, a foreign corporation, or a foreign partnership ("foreign
shareholder"). Persons who are residents in a country, such as the United
Kingdom, that has an income tax treaty with the United States may be eligible
for a reduced withholding rate (upon filing of appropriate forms), and are urged
to consult their tax advisors regarding the applicability and effect of such a
treaty. Distributions of net long-term capital gains to a foreign shareholder
and any gain realized upon the sale of Fund shares by such a shareholder will
ordinarily not be subject to U.S. taxation, unless the recipient or seller is a
nonresident alien individual who is present in the United States for more than
182 days during the taxable year. Foreign shareholders with respect to whom
income from the Fund is "effectively connected" with a U.S. trade or business
carried on by such shareholder, however, will in general be subject to U.S.
federal income tax on the income derived from the Fund at the graduated rates
applicable to U.S. citizens, residents or domestic corporations, whether such
income is received in cash or reinvested in shares, and may also be subject to a
branch profits tax.
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Again, foreign shareholders who are residents in a country with an income tax
treaty with the United States may obtain different tax results and all foreign
investors are urged to consult their tax advisors.
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MANAGEMENT OF THE TRUST
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The Fund is advised and managed by David L. Babson & Co., Inc., One
Memorial Drive, Cambridge, Massachusetts 02142, which provides investment
advisory services to a substantial number of institutional and other investors,
including other registered investment companies. David L. Babson & Co., Inc. is
a wholly owned subsidiary of DLB Acquisition Corp., a holding company, which is
controlled by Mass Mutual Holding Company, a holding company and wholly owned
subsidiary of Massachusetts Mutual Life Insurance Company, a mutual life
insurance company.
Under a Management Contract relating to the Fund, the Manager selects
and reviews the Fund's investments and provides executive and other personnel
for the management of the Trust. Pursuant to the Trust's Agreement and
Declaration of Trust, the Board of Trustees supervises the affairs of the Trust
as conducted by the Manager. In the event that the Manager ceases to be the
manager of the Fund, the right of the Fund or of the Trust to use the
identifying name "DLB" may be withdrawn.
The Fund pays the Manager a monthly fee at the annual rate of 0.55% of
the Fund's average daily net assets. The Manager, however, has agreed to waive a
portion of its fee and to bear certain expenses for the current fiscal year to
the extent the Fund's annual expenses (including the management fee but
excluding brokerage commissions and transfer taxes) would exceed 0.80% of the
Fund's average daily net assets.
Roland W. Whitridge is primarily responsible for the day-to-day
management of the Fund. Mr. Whitridge has been employed by the Manager in
portfolio management for at least the past five years. Mr. Whitridge has been
primarily responsible for the day-to-day management of the Babson Value Fund, a
registered investment company advised by the Manager, since its inception on
December 21, 1984. The average annual total return (after deduction of expenses)
of the Babson Value Fund for the one, three, five and ten year periods ended
March 31, 1997 and since its inception through March 31, 1997 is set forth
below:
One year 16.49%
Three years 19.06%
Five years 17.63%
Ten years 12.39%
Since inception 527.94%
While having a similar investment style to the Fund, the Babson Value
Fund is a separate investment company and its historical performance is not
indicative of the performance expected of the Fund. In addition, investment
performance is based on many factors, including market conditions, the
composition of a fund's portfolio, a fund's investment policies and a fund's
operating expenses.
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PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Yield and total return data may from time to time be included in
advertisements about the Fund. "Yield" is calculated by dividing the Fund's
annualized net investment income per share during a recent
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30-day period by the maximum public offering price per share on the last day of
that period. "Total return" for the one-year period and for the life of the
Fund, each 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 (assuming immediate reinvestment of any dividends or capital gains
distributions 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. See "Investment Performance" in the Statement
of Additional Information.
All data is based on the Fund's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of the Fund's
portfolio, and the Fund's operating expenses. Investment performance also often
reflects the risks associated with the Fund's investment objective and policies.
These factors should be considered when comparing the Fund's investment results
to those of other mutual funds and other investment vehicles.
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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
six series of shares. The Trust does not generally hold annual meetings of
shareholders and will do so only when required by law. Matters submitted to
shareholder vote must be approved by each series of the Trust (including the
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 series, then only
shareholders of such series shall be entitled to vote on the matter. Shares are
freely transferable, are entitled to dividends as declared by the Trustees, and,
in liquidation of the Trust, are entitled to receive the net assets of their
series, but not of any other series. Shareholders holding a majority of the
outstanding shares of the Trust may remove Trustees from office by votes cast in
person or by proxy at a meeting of shareholders or by written consent.
Massachusetts Mutual Life Insurance Company currently owns more than 25% of the
outstanding shares of the Fund and therefore is deemed to "control" the Fund
within the meaning of the Investment Company Act of 1940.
Shareholders could, under certain circumstances, be held personally
liable for the obligations of the Trust. The risk of a shareholder incurring
financial loss on account of that liability, however, is considered remote
because liability may arise only in very limited circumstances and shareholders
are entitled to indemnification out of the assets of the Fund for any such
liability.
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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 (617-225-3800).
When required by the Investment Company Act of 1940, the Manager's
discussion of the performance of the Fund in its most recent fiscal year as well
as a comparison of the Fund's performance over the life of the Fund with that of
a benchmark securities index selected by the Manager will be included in the
Trust's Annual Report for that fiscal year. Copies of the Annual Report will be
available upon request without charge.
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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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