File No. 33-82366
File No. 811-08690
As filed with the Securities and Exchange Commission
on February 19, 1997
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 5 /X/
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 7 /X/
THE DLB FUND GROUP
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(Exact Name of Registrant as Specified in Charter)
One Memorial Drive, Cambridge, Massachusetts 02142
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(Address of Principal Executive Office)
(617)225-3800
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(Registrant's Telephone Number, Including Area Code)
Ronald E. Gwozdz with a copy to:
David L. Babson & Co., Inc. Gregory D. Sheehan, Esq.
One Memorial Drive Ropes & Gray
Cambridge, Massachusetts 02142 One International Place
(Name and Address of Agent for Service) Boston, Massachusetts 02110
It is proposed that this filing become effective (check appropriate box):
|X| Immediately upon filing pursuant to |_| on (date) pursuant to
paragraph (b) paragraph (b)
|_| 60 days after filing pursuant to |_| on (date) pursuant to
paragraph (a)(1) paragraph (a)(1)
|_| 75 days after filing pursuant to |_| on (date) pursuant to
paragraph (a)(2) paragraph (a)(2) of rule 485.
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective date for a
previously-filed post-effective amendment.
Pursuant to Rule 24f-2(a) under the Investment Company Act of 1940, the
Registrant has previously declared the registration under the Securities Act of
1933 of an indefinite number of its shares of beneficial interest. Registrant
will file a Rule 24f-2 Notice with respect to Registrant's fiscal year ended
December 31, 1996 no later than February 28, 1997.
THE DLB FUND GROUP
CROSS REFERENCE SHEET
FORM N-1A
Part A: Information Required in Prospectus
<TABLE>
<CAPTION>
Location in the
N-1A Registration Statement
Item No Item by Prospectus Heading
- ------- ---- ---------------------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis "Shareholder Transaction and Fund Expenses"
3. Condensed Financial Information "Financial Highlights"
4. General Description of the Registrant "Organization and Capitalization of the Trust,"
"Investment Objectives and Policies and Associated
Risks" and Cover Page
5. Management of the Fund "Management of the Trust"
5A. Management's Discussion of Fund Performance Not Applicable - Included in Annual Report
6. Capital Stock and Other Securities "Distributions," "Taxes" and "Shareholder Inquiries"
7. Purchase of Securities Being Offered "Purchase of Shares" and "Determination of Net Asset
Value"
8. Redemption or Repurchase "Redemption of Shares" and "Determination of Net
Asset Value"
9. Pending Legal Proceedings Not Applicable
</TABLE>
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Part B: Information Required in
Statement of Additional Information ("SAI")
<TABLE>
<CAPTION>
Location in the
N-lA Registration Statement
Item No. Item by SAI Heading
- -------- ---- --------------
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents "Table of Contents"
12. General Information and History Not Applicable
13. Investment Objective and Policies "Investment Objectives and Policies and Associated
Risks" in the Prospectus and "Investment
Restrictions," "Additional Investment Practices of the
Fixed Income Fund," "Additional Investment Practices
of the Global Bond Fund," "Additional Investment
Practices of the Global Bond and Quantitative Equity
Funds-Futures and Options"
14. Management of the Registrant "Management of the Trust"
15. Control Persons and Principal
Holders of Securities "Description of the Trust and Ownership of Shares"
16. Investment Advisory and Other "Investment Advisory and
Services Other Services"
17. Brokerage Allocation "Portfolio Transactions"
18. Capital Stock and Other Securities "Description of the Trust" and "Ownership of Shares"
19. Purchase, Redemption and Pricing "Purchase of Shares" and "Redemption of Shares" in
of Securities Being Offered Prospectus and "Determination of Net Asset Value"
20. Tax Status "Income Dividends, Distributions and Tax Status"
21. Underwriters Not Applicable
22. Calculation of Performance Data "Investment Performance"
23 Financial Statements "Report of Independent Auditors and Financial
Statements"
</TABLE>
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PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
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PROSPECTUS
THE DLB FUND GROUP
One Memorial Drive
Cambridge, Massachusetts 02142
(617) 225-3800
February 19, 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.
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TABLE OF CONTENTS
Page
----
SHAREHOLDER TRANSACTION AND FUND EXPENSES....................................3
FINANCIAL HIGHLIGHTS.........................................................7
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS.....................11
PURCHASE OF SHARES..........................................................17
REDEMPTION OF SHARES........................................................18
DETERMINATION OF NET ASSET VALUE............................................19
DISTRIBUTIONS...............................................................20
TAXES ...................................................................20
MANAGEMENT OF THE TRUST.....................................................21
PERFORMANCE INFORMATION.....................................................23
ORGANIZATION AND CAPITALIZATION OF THE TRUST................................23
SHAREHOLDER INQUIRIES.......................................................24
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SHAREHOLDER TRANSACTION AND FUND EXPENSES
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1. FIXED INCOME FUND
-----------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee waiver) (a)...................... .20%
12b-1 Fees (b).............................................. 0
Other Expenses (after fee waiver) (a)....................... .35%
----
Total Fund Operating Expenses (after fee waiver) (a)........ .55%
EXAMPLE:
You would pay the following Years
expenses on a $1,000 investment, -----
assuming a 5% annual return 1 3 5 10
with or without redemption at --- --- --- ---
the end of each period: $6 $18 $31 $69
- ---------------
(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-
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2. GLOBAL SMALL CAP FUND
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ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee waiver) (a)...................... .80%
12b-1 Fees (b).............................................. 0
Other Expenses (after fee waiver) (a)....................... .70%
----
Total Fund Operating Expenses (after fee waiver) (a)........ 1.50%
EXAMPLE:
You would pay the following Years
expenses on a $1,000 investment, -----
assuming a 5% annual return 1 3 5 10
with or without redemption at --- --- --- ---
the end of each period: $15 $47 $82 $179
- ---------------
(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-
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3. VALUE FUND
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ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee waiver) (a)........................ .35%
12b-1 Fees (b)................................................ 0
Other Expenses (after fee waiver) (a)......................... .45%
----
Total Fund Operating Expenses (after fee waiver) (a).......... .80%
EXAMPLE:
You would pay the following Years
expenses on a $1,000 investment, -----
assuming a 5% annual return 1 3 5 10
with or without redemption at --- --- --- ----
the end of each period: $8 $26 $44 $99
- ---------------
(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-
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4. MID CAP FUND
------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee waiver) (a).................. .30%
12b-1 Fees (b).......................................... 0
Other Expenses (after fee waiver) (a)................... .60%
----
Total Fund Operating Expenses (after fee waiver) (a).... .90%
EXAMPLE:
You would pay the following Years
expenses on a $1,000 investment, -----
assuming a 5% annual return 1 3 5 10
with or without redemption at --- --- --- ----
the end of each period: $9 $29 $50 $111
- ---------------
(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-
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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
----------------- -----------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
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-
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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
----------------- -----------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
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>
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(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-
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3. VALUE FUND
----------
<TABLE>
<CAPTION>
For the period
July 25, 1995
(commencement of
Year Ended operations) to
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
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) --
------ ------
(0.59) (0.24)
------ ------
Total distributions declared to shareholders
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-
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4. MID CAP FUND
-------------
<TABLE>
<CAPTION>
For the period
July 25, 1995
(commencement of
Year Ended operations) to
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
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-
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INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS
- --------------------------------------------------------------------------------
FIXED INCOME FUND
The Fixed Income Fund's investment objective is to achieve a high level
of current income consistent with preservation of capital through investment in
a portfolio of fixed income securities.
The Manager will pursue the Fixed Income Fund's objective by investing
the Fund's assets primarily in publicly traded domestic fixed income securities,
including U.S. Treasury and agency obligations, mortgage-backed and asset-backed
securities and corporate debt securities. The Fund will also invest in other
fixed income markets, such as corporate private placements, directly-placed
mortgage obligations and foreign currency denominated bonds. Substantially all
(but no less than 65%) of the Fund's total assets will at all times be invested
in fixed income securities. Pending investment and reinvestment in fixed income
securities, the Manager may invest the Fund's assets in money market
instruments. Allocations are made among a wide array of market sectors, such as
U.S. Treasury and agency obligations, corporate securities, mortgages and
mortgage-backed securities, private placement securities and non-U.S. dollar
denominated securities, based on the relative attractiveness of such sectors.
Following these sector allocations, the Manager will purchase those securities
deemed attractively valued in the desired sectors. The Fund may invest in any
fixed income security, including preferred stocks. The Fund may also hold a
portion of its assets in cash or money market instruments.
PORTFOLIO DURATION AND MATURITY. The Fund's portfolio will generally
have an average dollar weighted portfolio maturity of five to twelve years and a
duration of no less than three years and no more than ten years (excluding
short-term investments). The duration of a fixed income security is the weighted
average maturity, expressed in years, of the present value of all future cash
flows, including coupon payments and principal repayments. The Fund's portfolio
may include securities with maturities and durations outside of these ranges.
PORTFOLIO QUALITY. The Fund may invest in any security that is rated
investment grade at the time of purchase (i.e., at least Baa as determined by
Moody's Investors Service, Inc. ("Moody's") or BBB as determined by Standard &
Poor's ("S&P")), or in any unrated security that the Manager determines to be of
comparable quality. Securities rated Baa by Moody's or BBB by S&P and comparable
unrated securities have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments on such obligations than in the case of
higher- rated securities. In the event that any security held by the Fund ceases
to be of investment grade quality, the Fund will not be obligated to dispose of
such security and may continue to hold the obligation if, in the opinion of the
Manager, such investment is considered appropriate under the circumstances.
However, if more than 5% of the Fund's net assets are below investment grade
quality, the Manager will dispose of such securities as are necessary to reduce
such holdings to 5% or less.
INTEREST RATE RISK. The values of fixed income securities generally
vary inversely to changes in prevailing interest rates. Investments in lower
quality fixed income securities generally provide greater income than
investments in higher-rated securities but are subject to greater market
fluctuations and risks of loss of income and principal than are higher-rated
securities. Fluctuations in the value of portfolio securities will not affect
interest income on existing portfolio securities but will be reflected in the
Fund's net asset value.
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
-11-
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mortgage-backed securities are passed through to the holders of the
mortgage-backed security. Prepayments occur when the mortgagor on an individual
mortgage prepays the remaining principal before the mortgage's scheduled
maturity date. As a result of the pass-through of prepayments of principal on
the underlying securities, mortgage-backed securities are often subject to more
rapid prepayment of principal than their stated maturity would indicate. Because
the prepayment characteristics of the underlying mortgages vary, there can be no
certainty as to the predicted yield or average life of a particular issue of
pass-through certificates. Prepayments are important because of their effect on
the yield and price of the securities. During periods of declining interest
rates, such prepayments can be expected to accelerate and the Fund would be
required to reinvest the proceeds at the lower interest rates then available. In
addition, prepayments of mortgages which underlie securities purchased at a
premium could result in capital losses because the premium may not have been
fully amortized at the time the obligation was prepaid. As a result of these
principal payment features, the values of mortgage-backed securities generally
fall when interest rates rise, but their potential for capital appreciation in
periods of falling interest rates is limited because of the prepayment feature.
The mortgage-backed securities purchased by the Fund may include adjustable rate
instruments. See "Adjustable Rate Securities" below.
The Fund may also invest in asset-backed securities such as securities
backed by pools of automobile loans, educational loans and credit card
receivables, both secured and unsecured. These assets are generally held by a
trust and payments of principal and interest or interest only are passed through
to certificate holders. The underlying assets are subject to prepayment, which
may reduce the overall return to certificate holders. Nevertheless, principal
repayment rates tend not to vary much with interest rates and the short-term
nature of the assets tends to dampen the impact of any change in the prepayment
level. Certificate holders may also experience delays in payment on the
certificates if the full amounts due on the underlying assets are not realized
by the trust because of unanticipated legal or administrative costs of enforcing
the contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors.
In addition to the risks described above, mortgage-backed and
asset-backed securities without a U.S. Government guarantee involve risk of loss
of principal if the obligors of the underlying obligations default in payment of
the obligations.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). The Fund may invest in
CMOs. A CMO is a security backed by a portfolio of mortgages or mortgage-backed
securities held under an indenture. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs are issued in multiple classes or series which
have different maturities representing interests in some or all of the interest
or principal on the underlying collateral or a combination thereof. CMOs of
different classes are generally retired in sequence as the underlying mortgage
loans in the mortgage pool are repaid. In the event of sufficient early
prepayments on such mortgages, the class or series of CMO first to mature
generally will be retired prior to its stated maturity. Thus, the early
retirement of a particular class or series of CMO held by the Fund would have
the same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security. CMOs also include securities ("Residuals") representing
the interest in any excess cash flow and/or the value of any collateral
remaining after the issuer has applied cash flow from the underlying mortgages
or mortgage-backed securities to the payment of principal of, and interest on,
all other CMOs and the administrative expenses of the issuer. Due to uncertainty
as whether any excess cash flow or the 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
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securities are backed by pools of mortgage loans. Although the rate adjustment
feature may act as a buffer to reduce sharp changes in the value of adjustable
rate securities, these securities are still subject to changes in value based on
changes in market interest rates or changes in the issuer's creditworthiness.
Because the interest rate is reset only periodically, changes in the interest
rates on adjustable rate securities may lag changes in prevailing market
interest rates. Also, some adjustable rate securities (or the underlying
mortgages) are subject to caps or floors that limit the maximum change in
interest rate during a specified period or over the life of the security.
Because of the resetting of interest rates, adjustable rate securities are less
likely than non-adjustable rate securities of comparable quality and maturity to
increase significantly in value when market interest rates fall.
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
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on a relative basis, are not considered "small cap" in the particular country.
The Fund may hold a portion of its assets in cash or money market instruments.
Consistent with the above policies, the Fund may at times invest more
than 25% of its assets in the securities of issuers located in a single country.
At such times, the Fund's performance will be directly affected by political,
economic, market and exchange rate conditions in such country. When the Fund
invests a substantial portion of its assets in a single country it is subject to
greater risk of adverse changes in any of these factors with respect to such
country than a Fund which does not invest as heavily in the country.
The Fund may invest up to 15% of its assets in stocks traded in the
securities markets of newly industrializing countries in Asia, Latin America,
the Middle East, Southern Europe, Eastern Europe (including the former Soviet
Union) and Africa. Investment in such countries involves a greater degree of
risk than investment in industrialized countries, as discussed below. In order
to gain exposure to certain foreign countries which prohibit or impose
restrictions on direct investment, the Fund may (subject to any applicable
regulatory requirements) invest in foreign and domestic investment companies and
other pooled investment vehicles that invest primarily or exclusively in such
countries. The Fund's investment through such vehicles will generally involve
the payment of indirect expenses (including advisory fees) which the Fund does
not incur when investing directly.
The Manager believes that the securities markets of many nations move
relatively independently of one another because business cycles and other
economic or political events that influence one country's securities markets may
have little effect on securities markets in other countries. By investing in a
global portfolio, the Fund attempts to reduce the risks associated with
investing in the economy of only one country. The countries that the Manager or
Babson-Stewart Ivory International, the Fund's sub-adviser (the "Sub-Adviser"),
believes offer attractive opportunities for investment may change from time to
time. The Fund will invest only in exchange-traded securities and securities
traded through established over-the-counter trading systems which the Manager or
the Sub-Adviser believes provide comparable liquidity to exchange-traded
securities.
Foreign investments can involve risks, however, that may not be present
in domestic securities. Because foreign securities are normally denominated and
traded in foreign currencies, the value of the assets of the Fund may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations. There may be less information publicly available about a
foreign company than about a U.S. company, and foreign companies are not
generally subject to accounting, auditing and financial reporting standards and
practices comparable to those in the United States. The securities of some
foreign companies are less liquid and at times more volatile than securities of
comparable U.S. companies. 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.
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VALUE FUND
The Value Fund's investment objective is to seek long-term capital
appreciation primarily through investment in a portfolio of common stocks of
established companies. Strong consideration is given to common stocks whose
current prices do not adequately reflect, in the opinion of the Manager, the
true value of the underlying company in relation to earnings, dividends and/or
assets.
The Fund will ordinarily invest in the securities of companies which
are listed on national securities exchanges or on the National Association of
Securities Dealers Automated Quotation System. The Manager will select which
issues to invest in based on its assessment of whether the issue is likely to
provide favorable capital appreciation over the long-term.
The Fund's investments may be made in companies which are currently of
below average quality but which, in the opinion of the Manager, are undervalued
by the market and offer attractive opportunities for long-term capital
appreciation. Such companies involve a greater degree of investment risk than
companies of average or above average quality, including the risk of a total
loss in the event of insolvency or bankruptcy. Investment quality is evaluated
using fundamental analysis emphasizing an issuer's historic financial
performance, balance sheet strength, management capability and competitive
position. Various valuation parameters are examined to determine the
attractiveness of individual securities. The Fund may also hold a portion of its
assets in cash or money market instruments.
See "Investment Objectives And Policies and Associated Risks--General"
for additional information.
MID CAP FUND
The investment objective of the Mid Cap Fund is to seek long-term
capital appreciation primarily through investment in small to medium-size
companies. Such companies are referred to herein as "mid capitalization
companies," which for these purposes means companies with a market
capitalization at the time of investment by the Fund of between $400 million and
$2 billion. Current income is only an incidental consideration. Strong
consideration is given to common stocks of mid capitalization companies whose
current prices do not adequately reflect, in the opinion of the Manager, the
ongoing business value of the underlying company.
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.
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GENERAL
ILLIQUID SECURITIES. Each of the Funds may purchase "illiquid
securities," which are securities that are not readily marketable, including
securities whose disposition is restricted by contract or under Federal
securities laws, so long as no more than 15% of a Fund's net assets would be
invested in such illiquid securities. A Fund may not be able to dispose of such
securities in a timely fashion and for a fair price, which could result in
losses to the Fund. In addition, illiquid securities are generally more
difficult to value.
PORTFOLIO TURNOVER. Although portfolio turnover is not a limiting
factor with respect to investment decisions for the Funds, the Funds expect to
experience relatively low portfolio turnover rates. It is not anticipated that
under normal circumstances the annual portfolio turnover rate of any Fund will
exceed 100%. However, in any particular year, market conditions may result in
greater rates than are currently anticipated. Portfolio turnover involves
brokerage commissions and other transaction costs, which will be borne directly
by the relevant Fund, and could involve realization of capital gains that would
be taxable when distributed to shareholders. 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
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.
-16-
DERIVATIVES. Certain of the instruments in which the Funds may invest,
such as mortgage-backed securities and indexed securities, are considered to be
"derivatives". Derivatives are financial instruments whose value depends upon,
or is derived from, the value of an underlying asset, such as a security or
currency. Further information about these instruments and the risks involved in
their use is included elsewhere in this prospectus and in the Statement of
Additional Information.
RISKS OF NON-DIVERSIFICATION. The Funds are "non-diversified" funds and
as such are not required to meet any diversification requirements under the
Investment Company Act of 1940. As a non-diversified fund, each Fund may invest
a relatively high percentage of its assets in the securities of relatively few
issuers, rather than invest in the securities of a large number of issuers
merely to satisfy diversification requirements. Investment in the securities of
a limited number of issuers may increase the risk of loss to a Fund should there
be a decline in the market value of any one portfolio security. Investment in a
non-diversified fund therefore entails greater risks than investment in a
"diversified" fund.
CHANGES TO INVESTMENT OBJECTIVES. The investment objective and policies
of each Fund may be changed by the Trustees without shareholder approval. Any
such change may result in a Fund having an investment objective and policies
different from the objective and policies which a shareholder considered
appropriate at the time of such shareholder's investment in the Fund.
Shareholders of the relevant Fund will be notified of any changes in a Fund's
investment objective or policies through a revised prospectus or other written
communication.
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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.
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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.
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.
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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.
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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 to determine the value of the net assets of
the Fund, or during any other period permitted by the Securities and Exchange
Commission for the protection of investors.
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DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value of a share of each Fund is determined at 4:15 p.m.,
Eastern time, on each day on which the New York Stock Exchange is open, other
than a day on which no shares of the Fund were tendered for redemption and no
order to purchase shares was received by the Fund. If no shares of the Fund are
tendered for redemption during a month and no order to purchase shares is
received by the Fund during such month, the net asset value of a share of such
Fund will be determined on the last business day of such month. The net asset
value per share for a Fund is determined by dividing the total value of the
Fund's portfolio investments and other assets, less any liabilities, by the
total outstanding shares of the Fund. Portfolio securities (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
-19-
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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.
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DISTRIBUTIONS
- --------------------------------------------------------------------------------
Each Fund intends to pay out as dividends substantially all of its net
investment income (which comes from dividends and any interest it receives from
its investments and net short-term capital gains). Each Fund also intends to
distribute substantially all of its net long-term capital gains, if any, after
giving effect to any available capital loss carryover. Each Fund's present
policy is to declare and pay distributions of its dividends and interest at
least annually. Each Fund also intends to distribute net short-term capital
gains and net long-term capital gains at least annually.
All dividends and/or distributions will be paid in shares of the
relevant Fund, at net asset value, unless the shareholder elects to receive
cash. Shareholders may make this election by marking the appropriate box on the
application form or by writing to Investors Bank & Trust Company.
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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,
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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 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.
- --------------------------------------------------------------------------------
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
-21-
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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:
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.
-22-
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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 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.
-23-
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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 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.
-24-
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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
-25-
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PROSPECTUS
THE DLB QUANTITATIVE EQUITY FUND
One Memorial Drive
Cambridge, Massachusetts 02142
(617) 225-3800
February 19, 1997
The DLB Quantitative Equity Fund (the "Fund") is a portfolio of The DLB
Fund Group (the "Trust"), an open-end management investment company offering
non-diversified portfolios with different investment objectives and strategies.
The Fund is intended primarily to serve as an investment vehicle for
institutional investors. The Fund's investment manager is David L. Babson & Co.,
Inc. (the "Manager").
Shares of the Fund are sold to investors by the Trust. The minimum
initial investment in the Fund is $100,000, and the minimum for each subsequent
investment is $10,000.
This Prospectus concisely describes the information which investors
ought to know before investing in The DLB Quantitative Equity Fund. Please read
this Prospectus carefully and keep it for further reference.
A Statement of Additional Information dated 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 into this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
================================================================================
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
----
SHAREHOLDER TRANSACTION AND FUND EXPENSES......................................3
FINANCIAL HIGHLIGHTS...........................................................4
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS........................5
PURCHASE OF SHARES.............................................................7
REDEMPTION OF SHARES...........................................................9
DETERMINATION OF NET ASSET VALUE..............................................10
DISTRIBUTIONS.................................................................10
TAXES .....................................................................10
MANAGEMENT OF THE TRUST.......................................................12
PERFORMANCE INFORMATION.......................................................12
ORGANIZATION AND CAPITALIZATION OF THE TRUST..................................13
SHAREHOLDER INQUIRIES.........................................................13
-2-
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SHAREHOLDER TRANSACTION AND FUND EXPENSES
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee waiver) (a).................. .55%
12b-1 Fees(b)........................................... 0
Other Expenses(after fee waiver)(a)(c).................. .35%
----
Total Fund Operating Expenses (after fee waiver) (a).... .90%
EXAMPLE:
You would pay the following Years
expenses on a $1,000 investment, -----
assuming a 5% annual return, 1 3
with or without redemption at --- ---
the end of each period: $19 $29
- ---------------
(a) The Manager has agreed with the Fund to reduce its management fee and
to bear certain expenses for the current fiscal year to the extent that
the Fund's total annual expenses, other than brokerage commissions and
transfer taxes, would otherwise exceed .90% of the Fund's average daily
net assets. Therefore, so long as the Manager agrees to reduce its fee
and to bear certain expenses, total annual expenses of the Fund, other
than brokerage commissions and transfer taxes, will not exceed .90%.
Absent such agreement by the Manager to waive its fee and bear certain
expenses, management fees would be .75%, "Other Expenses" would be
1.07% and total Fund operating expenses would be 1.82%.
(b) The Fund has adopted a distribution and services plan pursuant to Rule
12b-1 that permits payments by the Fund at an annual rate of up to .50%
of the Fund's average net assets, but the Trustees do not currently
intend to implement such plan during the Fund's current fiscal year.
See "Purchase of Shares -- 12b-1 Plan."
(c) "Other Expenses" are based on estimated amounts for the Fund's current
fiscal year.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses of the Fund that are borne by
holders of Fund shares. THE FIVE PERCENT ANNUAL RETURN AND ESTIMATED EXPENSES
USED IN CALCULATING THE EXAMPLE ARE NOT A REPRESENTATION OF PAST OR FUTURE
PERFORMANCE OR EXPENSES; ACTUAL PERFORMANCE AND/OR EXPENSES MAY BE MORE OR LESS
THAN SHOWN.
-3-
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table, which presents per share financial information for the
Fund, has been audited by Deloitte & Touche LLP, independent accountants. The
table 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.
PERIOD FROM AUGUST 26, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
------
Income from investment operations:
Net investment income 0.01
Net realized and unrealized gain on investments 1.84
----
Total from investment operations 1.85
----
Less distributions declared to shareholders:
From net investment income (0.01)
From net realized gain on investments (0.18)
-----
Total distributions declared to shareholders (0.19)
------
Net asset value - end of period $11.66
======
Total return 18.51%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 0.90%*
Ratio of net investment income to average net assets 0.43%*
Portfolio turnover 10%
Net assets at end of period (000 omitted) $13,897
Average commission rate paid(1) $0.01925
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, the
net investment loss per share and ratios would
have been:
Net investment loss $(0.01)
Ratios (to average net assets):
Expenses 1.82%*
Net investment income (0.50)%*
- --------------
(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
commission were charged.
* Annualized
-4-
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INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS
- --------------------------------------------------------------------------------
The Fund seeks long-term growth of capital. Under normal market
conditions, substantially all of the Fund's total assets (but no less than 65%
of its total assets) will be invested in common stocks and other equity
securities. Although common stocks of well-established, medium- to
large-capitalization companies will normally comprise the Fund's principal
investments, the Fund may also purchase convertible bonds, convertible preferred
stocks, preferred stocks and debt securities that are of investment grade
quality at the time of purchase if the Manager believes they would help achieve
the Fund's objective. The Fund may also hold a portion of its assets in cash or
money market instruments and may engage in the various investment practices
described below. The Fund is not intended to be a complete investment program,
and there is no assurance it will achieve its objective.
BASIC INVESTMENT STRATEGY. The Manager believes that there are
systematic mispricings in the securities markets that can be exploited by a
disciplined investment strategy based predominately on quantitative factors. The
Manager seeks to exploit these mispricings by constructing a portfolio using a
proprietary analytical model. A broad cross-section of securities is ranked
using both value factors and growth factors. Securities are then selected for
the Fund based on these rankings, with weight also given to the impact of
transaction costs and the portfolio's overall characteristics, including sector
weightings, beta, market capitalization, yield and liquidity.
DEFENSIVE STRATEGIES. At times the Manager may judge that market
conditions make pursuing the Fund's basic investment strategy inconsistent with
the best interests of its shareholders. At such times the Manager may
temporarily use "defensive" strategies designed primarily to reduce fluctuations
in the value of the Fund's assets. In implementing these defensive strategies,
the Fund may invest without limit in securities of any kind. It is not currently
anticipated that the Fund, when investing for such defensive purposes, will
invest in securities that entail greater overall risk than the Fund's typical
investments. It is impossible to predict when, or for how long, the Fund will
use these alternative strategies.
FINANCIAL FUTURES AND OPTIONS. The Fund may buy and sell financial
futures contracts on securities indexes and fixed income securities. A futures
contract is a contract to buy or sell units of a particular securities index, or
a certain amount of a fixed income security, at an agreed price on a specified
future date. Depending on the change in value of the index or security between
the time when the Fund enters into and terminates a futures contract, the Fund
realizes a gain or loss. The Fund may purchase and sell futures contracts for
hedging purposes and to adjust that Fund's exposure to relevant stock or bond
markets. For example, when the Manager wants to increase the Fund's exposure to
equity securities, it may do so by taking long positions in futures contracts on
equity indices such as futures contracts on the Standard & Poor's 500 Composite
Stock Price Index. Similarly, when the Manager wants to increase the Fund's
exposure to fixed income securities, it may do so by taking long positions in
futures contracts relating to fixed income securities such as futures contracts
on U.S. Treasury bonds or notes. The Fund may buy and sell call and put options
on futures contracts or on stock indices in addition to or as an alternative to
purchasing or selling futures contracts.
The use of futures and options involves certain special risks. Certain
risks arise because of the possibility of imperfect correlations between
movements in the prices of financial futures and options and movements in the
prices of the underlying securities index or securities or of the securities
which are the subject of the hedge. The successful use of futures and options
further depends on the Manager's ability to forecast market or interest rate
movements correctly. Other risks arise from the Fund's potential inability to
close out its futures or related options positions, and there can be no
assurance that a liquid secondary market will exist for any futures contract or
option at a particular time. The Fund's ability to
-5-
================================================================================
terminate option positions established in the over-the-counter market may be
more limited than for exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would fail to meet their
obligations to the Fund. The use of futures or options on futures for purposes
other than hedging may be regarded as speculative. Certain provisions of the
Internal Revenue Code and certain regulatory requirements may also limit the
Fund's ability to engage in futures and options transactions. See the Statement
of Additional Information for additional information regarding risks of
financial futures and options.
OPTIONS. The Fund may purchase and sell call and put options on
securities it owns or in which it may invest. The Fund receives a premium from
writing a call or put option, which increases the Fund's return if the option
expires unexercised or is closed out at a net profit. When the Fund writes a
call option, it gives up the opportunity to profit from any increase in the
price of a security above the exercise price of the option; when it writes a put
option, the Fund takes the risk that it will be required to purchase a security
from the option holder at a price above the current market price of the
security. The Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. The Fund may also from
time to time buy and sell combinations of put and call options on the same
underlying security to earn additional income. The aggregate value of the
securities underlying the options written by the Fund may not exceed 25% of the
Fund's total assets. The Fund's use of these strategies may be limited by
applicable law.
ILLIQUID SECURITIES. The Fund may purchase "illiquid securities," which
are securities that are not readily marketable, including securities whose
disposition is restricted by contract or under Federal securities laws, so long
as no more than 15% of the Fund's net assets would be invested in such illiquid
securities. The Fund may not be able to dispose of such securities in a timely
fashion and for a fair price, which could result in losses. In addition,
illiquid securities are generally more difficult to value.
LOANS OF PORTFOLIO SECURITIES. The Fund may make secured loans of
portfolio securities on up to 33 1/3% of its total assets. The risks in lending
portfolio securities, as with other extensions of credit, consist of possible
delay in recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. However, such loans will be made only to
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.
PORTFOLIO TURNOVER. Portfolio turnover is not a limiting factor with
respect to investment decisions for the Fund. It is anticipated that under
normal circumstances the annual portfolio turnover rate of the Fund will not
exceed 200%. However, in any particular year, market conditions may result in
greater rates than are currently anticipated. Portfolio turnover involves
brokerage commissions and other transaction costs, which will be borne directly
by the Fund, and could involve realization of capital gains that would be
taxable when distributed to shareholders. The portfolio turnover rate for the
Fund is 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.
-6-
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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 obligation to
the Fund. Such a default may subject the Fund to expenses, delays and risks of
loss.
DERIVATIVES. Certain of the instruments in which the Fund may invest,
such as futures contracts and options, are considered to be "derivatives".
Derivatives are financial instruments whose value depends upon, or is derived
from, the value of an underlying asset, such as a security or an index. Further
information about these instruments and the risks involved in their use is
included elsewhere in this prospectus and in the Statement of Additional
Information.
RISKS OF NON-DIVERSIFICATION. The Fund is "non-diversified" and as such
is not required to meet any diversification requirements under the Investment
Company Act of 1940. As a non-diversified fund, the Fund may invest a relatively
high percentage of its assets in the securities of relatively few issuers,
rather than invest in the securities of a large number of issuers merely to
satisfy diversification requirements. Investment in the securities of a limited
number of issuers may increase the risk of loss to the Fund should there be a
decline in the market value of any one portfolio security. Investment in a
non-diversified fund therefore entails greater risks than investment in a
"diversified" fund.
CHANGES TO INVESTMENT OBJECTIVE. The investment objective and policies
of the Fund may be changed by the Trustees without shareholder approval. Any
such change may result in the Fund having an investment objective and policies
different from the objective and policies which a shareholder considered
appropriate at the time of such shareholder's investment in the Fund.
Shareholders of the Fund will be notified of any changes in the Fund's
investment objective or policies through a revised prospectus or other written
communication.
- --------------------------------------------------------------------------------
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Shares of the Fund may be purchased directly from the Trust on any day
when the New York Stock Exchange is open for business (a "business day"). The
minimum for an initial investment in the Fund is $100,000, and the minimum for
each subsequent investment is $10,000. The purchase price of a share of the Fund
is the net asset value next determined after a purchase order is received in
good order. No sales charge is imposed on purchases of Fund shares.
-7-
================================================================================
Shares of the Fund may be purchased either (i) in exchange for common
stocks on deposit at The Depository Trust Company ("DTC") or appropriate fixed
income securities, subject to the determination by the Manager that the
securities to be exchanged are acceptable, (ii) in cash (i.e., by wire transfer)
or (iii) by a combination of such securities and cash. In all cases, the Manager
reserves the right to reject any particular investment. Securities accepted by
the Manager in exchange for Fund shares will be acquired for investment only and
not for resale and will be valued as set forth under "Determination of Net Asset
Value" (generally the last quoted sale price) as of the time of the next
determination of net asset value after such acceptance. All dividends, interest,
subscription or other rights which are reflected in the market price of accepted
securities at the time of valuation become the property of the Fund and must be
delivered to the Trust upon receipt by the investor from the issuer. A gain or
loss for federal income tax purposes may be realized by investors subject to
Federal income taxation upon the exchange, depending upon the investor's basis
in the securities tendered.
The Manager will not approve the acceptance of securities in exchange
for Fund shares unless (1) the Manager, in its sole discretion, believes the
securities are appropriate investments for the Fund; (2) the investor represents
and agrees that all securities offered to the Fund are not subject to any
restrictions upon their sale by the Fund under the Securities Act of 1933, or
otherwise; and (3) the securities may be acquired under the investment
restrictions applicable to the Fund. Investors interested in purchases through
exchange should telephone the Manager at (617) 225-3800, Attn: Maureen A.
Madden.
Investors should call the offices of the Trust before attempting to
place an order for Trust shares. The Trust reserves the right at any time to
reject an order.
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.
All federal funds must be transmitted to Investors Bank & Trust Company
to Account No. 777777722 for the account of the Fund.
"Federal funds" are monies credited to Investors Bank & Trust Company's
account with the Federal Reserve Bank of Boston.
Purchases will be made in full and fractional shares of the Fund
calculated to three decimal places. The Trust will send to shareholders written
confirmation (including a statement of shares owned) at the time of each
transaction.
12B-1 PLAN. The Trust has adopted a distribution and services plan (the
"Plan") for the Fund under Rule 12b-1 of the Investment Company Act of 1940, but
the Trustees do not intend to implement such Plan during the Trust's current
fiscal year. The purposes of the Plan if implemented would be to compensate
and/or reimburse investment dealers and other persons for services provided and
expenses incurred in promoting sales of shares, reducing redemptions or
improving services provided to shareholders by such dealers and other persons.
The Plan would permit payments by the Fund for such purposes at an annual rate
of up to .50% of the Fund's average 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
-8-
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limitations, the amount of payments under the Plan and the specific purposes for
which they are made would be determined by the Trustees. At present, the
Trustees have no intention of implementing the Plan.
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Shares of the Fund may be redeemed on any business day in cash or in
kind. The redemption price is the net asset value per share next determined
after receipt of the redemption request in good order. There is no redemption
fee for the Fund. Cash payments generally will be made by transfer of Federal
funds for payment into the investor's account the next business day following
the redemption request. Redemption requests should be sent to Investors Bank &
Trust Company. In order to help facilitate the timely payment of redemption
proceeds, it is recommended that investors telephone the Manager at (617)
225-38700, Attn: Maureen A. Madden, at least two days prior to submitting a
request.
Payment on redemption will be made as promptly as possible and in any
event within seven days after the request for redemption is received by the
Trust in good order. A redemption request is in good order if it includes the
correct name in which shares are registered, the investor's account number and
the number of shares or the dollar amount of shares to be redeemed and if it is
signed correctly in accordance with the form of registration. Persons acting in
a fiduciary capacity, or on behalf of a corporation, partnership or trust must
specify, in full, the capacity in which they are acting. In-kind redemptions, as
described below, will be transferred and delivered as directed by the investor.
If the Manager determines, in its sole discretion, that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of readily marketable securities held
by the Fund in lieu of cash. Securities used to redeem Fund shares in kind will
be valued in accordance with the Fund's procedures for valuation described under
"Determination of Net Asset Value." Investors generally will incur brokerage
charges on the sale of any such securities so received in payment of
redemptions.
When opening an account with the Trust, shareholders will be required
to designate the account(s) to which funds or securities may be transferred upon
redemption. Designation of additional accounts and any change in the accounts
originally designated must be made in writing with the signature guaranteed by a
commercial bank, a member firm of a domestic securities exchange or one of
certain other financial institutions.
The Fund may suspend the right of redemption and may postpone payment
for more than seven days when the New York Stock Exchange is closed for other
than weekends or holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange is 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.
-9-
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- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value of a share of the Fund is determined at 4:15 p.m.,
Eastern time, on each day on which the New York Stock Exchange is open, other
than a day on which no shares of the Fund were tendered for redemption and no
order to purchase shares was received by the Fund. If no shares of the Fund are
tendered for redemption during a month and no order to purchase shares is
received by the Fund during such month, the net asset value of a share of the
Fund will be determined on the last business day of such month. The net asset
value per share for the Fund is determined by dividing the total value of the
Fund's portfolio investments and other assets, less any liabilities, by the
total outstanding shares of the Fund. Portfolio securities (including options
and futures contracts) for which market quotations are available are valued at
the last quoted sale price, or, if there is no such reported sale, at the
closing bid price. Securities traded in the over-the-counter market are valued
at the most recent bid price as obtained from one or more dealers that make
markets in the securities. Portfolio securities that are traded both in the
over-the-counter market and on one or more stock exchanges are valued according
to the broadest and most representative market. Unlisted securities for which
market quotations are not readily available are valued at the most recent quoted
bid price. Short term debt securities with a remaining maturity of 60 days or
less will be valued at amortized cost, unless conditions dictate otherwise.
Illiquid securities or restricted securities will be valued at fair value based
on information supplied by a broker. Other assets for which no quotations are
readily available are valued at fair value as determined in good faith in
accordance with procedures adopted by the Trustees of the Trust. Determination
of fair value will be based upon such factors as are deemed relevant under the
circumstances, including the financial condition and operating results of the
issuer, recent third party transactions (actual or proposed) relating to such
securities and, in extreme cases, the liquidation value of the issuer.
- --------------------------------------------------------------------------------
DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund intends to pay out as dividends substantially all of its net
investment income (which comes from dividends and any interest it receives from
its investments and net short-term capital gains). The Fund also intends to
distribute substantially all of its net long-term capital gains, if any, after
giving effect to any available capital loss carryover. The Fund's present policy
is to declare and pay distributions of its dividends and interest at least
annually. The Fund also intends to distribute net short-term capital gains and
net long-term capital gains at least annually. All dividends and/or
distributions will be paid in shares of the Fund, at net asset value, unless the
shareholder elects to receive cash. Shareholders may make this election by
marking the appropriate box on the application form or by writing to Investors
Bank & Trust Company.
- --------------------------------------------------------------------------------
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.
-10-
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The Fund is treated as a separate taxable entity for federal income tax
purposes. The Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended. By
so qualifying, the Fund itself will not pay federal income tax on the income and
gain distributed annually to its shareholders. Distributions of ordinary income
and short-term capital gains, whether received in cash or reinvested shares,
will be taxable as ordinary income to shareholders subject to federal income
tax. Designated distributions of any long-term capital gains are taxable as
such, regardless of how long a shareholder may have owned shares in the Fund or
whether received in cash or reinvested shares. Any loss recognized on the sale
or disposition of shares held for six months or less will be treated as
long-term capital loss to the extent of any long-term capital gain distributions
received by a shareholder with respect to those shares. A distribution paid to
shareholders in January generally is deemed to have been received by
shareholders on December 31 of the preceding year, if the distribution was
declared and payable to shareholders of record on a date in October, November or
December of that preceding year. The Fund will provide federal tax information
annually, including information about dividends and distributions paid during
the preceding year.
BACK-UP WITHHOLDING. The back-up withholding rules set forth below do
not apply to tax exempt entities or corporations that furnish the Trust with an
appropriate certification. For other shareholders, however, the Trust is
generally required to withhold and remit to the U.S. Treasury 31% of all
distributions, whether distributed in cash or reinvested in shares, and 31% of
the proceeds of any redemption paid or credited to the shareholder's account if
an incorrect or no taxpayer identification number has been provided, where
appropriate certification has not been provided for a foreign shareholder, or
where the Trust is notified that the shareholder has underreported income in the
past (or the shareholder fails to certify that he is not subject to such
withholding). Special withholding rules, described below, may apply to foreign
shareholders.
WITHHOLDING ON DISTRIBUTIONS TO FOREIGN INVESTORS. Dividend
distributions (including in general distributions derived from short-term
capital gains, dividends and interest) are in general subject to a U.S.
withholding tax of 30% when paid to a non-resident alien individual, foreign
estate or trust, a foreign corporation, or a foreign partnership ("foreign
shareholder"). Persons who are residents in a country, such as the United
Kingdom, that has an income tax treaty with the United States may be eligible
for a reduced withholding rate (upon filing of appropriate forms), and are urged
to consult their tax advisors regarding the applicability and effect of such a
treaty. Distributions of net long-term capital gains to a foreign shareholder
and any gain realized upon the sale of Fund shares by such a shareholder will
ordinarily not be subject to U.S. taxation, unless the recipient or seller is a
nonresident alien individual who is present in the United States for more than
182 days during the taxable year. Foreign shareholders with respect to whom
income from the Fund is "effectively connected" with a U.S. trade or business
carried on by such shareholder, however, will in general be subject to U.S.
federal income tax on the income derived from the Fund at the graduated rates
applicable to U.S. citizens, residents or domestic corporations, whether such
income is received in cash or reinvested in shares, and may also be subject to a
branch profits tax. Again, foreign shareholders who are residents in a country
with an income tax treaty with the United States may obtain different tax
results and all foreign investors are urged to consult their tax advisors.
-11-
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- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
- --------------------------------------------------------------------------------
The Fund is advised and managed by David L. Babson & Co., Inc., One
Memorial Drive, Cambridge, Massachusetts 02142, which provides investment
advisory services to a substantial number of institutional and other investors,
including other registered investment companies. David L. Babson & Co., Inc., a
registered investment adviser, is a wholly owned subsidiary of DLB Acquisition
Corp., a holding company, which is controlled by Mass Mutual Holding Company, a
holding company and wholly owned subsidiary of Massachusetts Mutual Life
Insurance Company, a mutual life insurance company.
Under a separate Management Contract relating to the Fund, the Manager
selects and reviews the Fund's investments and provides executive and other
personnel for the management of the Trust. Pursuant to the Trust's Agreement and
Declaration of Trust, the Board of Trustees supervises the affairs of the Trust
as conducted by the Manager. In the event that the Manager ceases to be the
manager of the Fund, the right of the Fund or of the Trust to use the
identifying name "DLB" may be withdrawn.
The Fund pays the Manager a monthly fee at the annual rate of the
Fund's average daily net assets set forth below. The Manager, however, has
agreed to waive 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 the percentage of the Fund's average daily net assets set forth below:
Management Fee Expense Limitation
(as a % of Average (as a % of Average
Daily Net Assets) Daily Net Assets)
----------------- -----------------
.75% .90%
Michael Caplan, Vice President of the Manager, is primarily responsible
for the day-to-day management of the Fund. Prior to joining the Manager in
December, 1995, Mr. Caplan was employed as a portfolio manager by Concert
Capital Management, Inc. from January, 1995 through December, 1995. Prior to
January 1995, Mr. Caplan was employed as a portfolio manager by State Street
Global Advisors.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Yield and total return data may from time to time be included in
advertisements about the Fund. "Yield" is calculated by dividing the Fund's
annualized net investment income per share during a recent 30-day period by the
maximum public offering price per share on the last day of that period. "Total
return" for the 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 $1000 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.
-12-
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All data is based on the Fund's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of the Fund's
portfolio, and the Fund's operating expenses. Investment performance also often
reflects the risks associated with the Fund's investment objective and policies.
These factors should be considered when comparing the Fund's investment results
to those of other mutual funds and other investment vehicles.
- --------------------------------------------------------------------------------
ORGANIZATION AND CAPITALIZATION OF THE TRUST
- --------------------------------------------------------------------------------
The Trust was established on August 1, 1994 as a business trust under
Massachusetts law. The Trust has an unlimited number of authorized shares of
beneficial interest which may, without shareholder approval, be divided into an
unlimited number of series of such shares and which are presently divided into
six series of shares, each representing a different Fund. The Trust does not
generally hold annual meetings of shareholders and will do so only when required
by law. Matters submitted to shareholder vote must be approved by each Fund of
the Trust except (i) when required by the Investment Company Act of 1940, shares
shall be voted together as a single class, and (ii) when the Trustees have
determined that the matter affects one or more Funds, then only shareholders of
such Fund or Funds shall be entitled to vote on the matter. Shares are freely
transferable, are entitled to dividends as declared by the Trustees, and, in
liquidation of the Fund, are entitled to receive the net assets of the Fund.
Shareholders holding a majority of the outstanding shares of the Trust may
remove Trustees from office by votes cast in person or by proxy at a meeting of
shareholders or by written consent. Massachusetts Mutual Life Insurance Company
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.
- --------------------------------------------------------------------------------
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.
-13-
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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
John Hancock Tower
200 Clarendon Street, 5th Floor
Boston, MA 02116
-14-
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PROSPECTUS
THE DLB GLOBAL BOND FUND
One Memorial Drive
Cambridge, Massachusetts 02142
(617) 225-3800
February 19, 1997
The DLB Global Bond Fund (the "Fund") is a portfolio of The DLB Fund
Group (the "Trust"), an open-end management investment company offering
non-diversified portfolios with different investment objectives and strategies.
The Fund is intended primarily to serve as an investment vehicle for
institutional investors. The Fund's investment manager is David L. Babson & Co.,
Inc. (the "Manager") and its subadviser is Potomac Babson Incorporated (the
"Sub-Adviser").
Shares of the Fund are sold to investors by the Trust. The minimum
initial investment in the Fund is $100,000, and the minimum for each subsequent
investment is $10,000.
This Prospectus concisely describes the information which investors
ought to know before investing in The DLB Global Bond Fund. Please read this
Prospectus carefully and keep it for further reference.
A Statement of Additional Information dated 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 into this Prospectus.
================================================================================
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
-1-
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TABLE OF CONTENTS
PAGE
----
SHAREHOLDER TRANSACTION AND FUND EXPENSES......................................3
FINANCIAL HIGHLIGHTS...........................................................4
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS........................5
PURCHASE OF SHARES............................................................11
REDEMPTION OF SHARES..........................................................13
DETERMINATION OF NET ASSET VALUE..............................................13
DISTRIBUTIONS.................................................................14
TAXES .....................................................................15
MANAGEMENT OF THE TRUST.......................................................16
PERFORMANCE INFORMATION.......................................................17
ORGANIZATION AND CAPITALIZATION OF THE TRUST..................................17
SHAREHOLDER INQUIRIES.........................................................18
-2-
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- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION AND FUND EXPENSES
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee waiver) (a)................. .55%
12b-1 Fees(b).......................................... 0
Other Expenses(after fee waiver)(a)(c)................. .25%
----
Total Fund Operating Expenses (after fee waiver) (a)... .80%
EXAMPLE:
You would pay the following Years
expenses on a $1,000 investment, -----
assuming a 5% annual return, 1 3
with or without redemption at --- ---
the end of each period: $8 $26
- ---------------
(a) The Manager has agreed with the Fund to reduce its management fee and
to bear certain expenses for the current fiscal year to the extent that
the Fund's total annual expenses, other than brokerage commissions and
transfer taxes, would otherwise exceed .80% of the Fund's average daily
net assets. Therefore, so long as the Manager agrees to reduce its fee
and to bear certain expenses, total annual expenses of the Fund, other
than brokerage commissions and transfer taxes, will not exceed .80%.
Absent such agreement by the Manager to waive its fee and bear certain
expenses, management fees would be .75%, "Other Expenses" would be
0.58% and total Fund operating expenses would be 1.33%.
(b) The Fund has adopted a distribution and services plan pursuant to Rule
12b-1 that permits payments by the Fund at an annual rate of up to .50%
of the Fund's average net assets, but the Trustees do not currently
intend to implement such plan during the Fund's current fiscal year.
See "Purchase of Shares -- 12b-1 Plan."
(c) "Other Expenses" are based on estimated amounts for the Fund's current
fiscal year.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses of the Fund that are borne by
holders of Fund shares. THE FIVE PERCENT ANNUAL RETURN AND ESTIMATED EXPENSES
USED IN CALCULATING THE EXAMPLE ARE NOT A REPRESENTATION OF PAST OR FUTURE
PERFORMANCE OR EXPENSES; ACTUAL PERFORMANCE AND/OR EXPENSES MAY BE MORE OR LESS
THAN SHOWN.
-3-
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table, which presents per share financial information for the
Fund, has been audited by Deloitte & Touche LLP, independent accountants. The
table 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.
PERIOD FROM AUGUST 26, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
<TABLE>
<S> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
------
Income from investment operations:
Net investment income 0.19
Net realized and unrealized gain on investments 0.13
-----
Total from investment operations 0.32
-----
Less distributions declared to shareholders:
From net investment income (0.19)
In excess of net investment income (0.11)
From net realized gain on investments (0.03)
------
Total distributions declared to shareholders (0.33)
-----
Net asset value - end of period $9.99
=====
Total return 3.21%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 0.80%*
Ratio of net investment income to average net assets 5.35%*
Portfolio turnover 232%
Net assets at end of period (000 omitted) $25,805
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 $0.17
Ratios (to average net assets):
Expenses 1.33%*
Net investment income 4.81%*
</TABLE>
- --------------
*Annualized
-4-
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- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS
- --------------------------------------------------------------------------------
The Fund's investment objective is to seek total return. The Fund invests
in a global portfolio consisting principally of governmental or supranational
debt securities denominated in currencies of the member states of the
Organization for Economic Cooperation and Development. Under normal market
conditions, the Fund will invest at least 65% of its total assets in debt
securities of issuers located in at least three different countries, one of
which may be the United States, and will invest at least 15% of its total assets
in U.S. dollar-denominated securities, issued domestically or abroad. The Fund
may also hold a portion of its assets in cash or money market instruments. The
Fund is not intended to be a complete investment program, and there is no
assurance it will achieve its objective.
GLOBAL BOND MARKETS. In recent years, opportunities for investment in
global bond markets have become more significant. Participants in these markets
have grown in number, thereby providing better liquidity. A number of global
bond markets have reduced barriers to entry to foreign investors by deregulation
and by reducing their withholding taxes. Simultaneous with the opening of
foreign markets, barriers to global capital flows have been reduced or
eliminated. The Fund provides a convenient vehicle to participate in global bond
markets, some of which may outperform U.S. dollar-denominated bond markets in
U.S. dollar terms during certain periods of time.
Although the Fund is a non-diversified investment company, investing in the
Fund can provide global diversity to an investor's existing portfolio of U.S.
dollar-denominated bonds, thereby potentially reducing volatility or risk over
time. Historically, returns of foreign bond markets have often diverged from
returns generated by U.S. bond markets. These divergences stem not only from
fluctuating exchange rates, but also from foreign interest rates not always
moving in the same direction, or moving to the same extent, as interest rates in
the U.S.
A global income portfolio composed of both international and U.S. bonds is
able to take advantage of a far wider range of investment opportunities than one
that is restricted to U.S. dollar securities and may, at times, provide higher
investment returns. For example, global bonds may provide higher current income
than U.S. bonds and/or the local price of global bonds can appreciate more than
U.S. bonds. Fluctuations in foreign currencies relative to the U.S. dollar can
potentially benefit investment returns. Of course, in each case, at any time the
opposite may also be true.
PORTFOLIO QUALITY. The Fund will invest only in debt securities that are
rated at the time of purchase A or better by Moody's Investors Service, Inc.
("Moody's") or by Standard & Poor's ("S&P"), or in unrated securities which the
Sub-Adviser determines to be of comparable quality. In the event that any
security held by the Fund ceases to be of this quality, the Fund will not be
obligated to dispose of such security and may continue to hold the obligation
if, in the opinion of the Sub-Adviser, such investment is considered appropriate
under the circumstances.
PORTFOLIO MATURITY. The Sub-Adviser may take full advantage of the entire
range of maturities offered by fixed income securities and may adjust the
average maturity of the Fund's portfolio from time to time depending on its
assessment of the relative yields on securities of different maturities and its
expectations of future changes in interest rates. It is currently expected that,
under normal market conditions, the Fund's average portfolio maturity will range
from five to ten years. The Fund's portfolio may include securities with
maturities outside of this range.
GOVERNMENTAL AND SUPRANATIONAL ISSUERS. The obligations of U.S. and foreign
governmental entities, including supranational issuers, have different kinds of
government support. For instance, as used in this
-5-
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Prospectus, the term "U.S. government obligations" refers to debt securities
issued or guaranteed by the U.S. government or by various of its agencies or
instrumentalities. Certain of these obligations, such as U.S. Treasury bonds,
are supported by the full faith and credit of the United States.
Other U.S. government obligations issued or guaranteed by federal agencies
or government-sponsored enterprises are not supported by the full faith and
credit of the United States. These securities include obligations supported by
the right of the issuer to borrow from the U.S. Treasury, such as obligations of
Federal Home Loan Banks, and obligations supported only by the credit of the
instrumentality, such as Federal National Mortgage Association bonds.
Similarly, obligations of foreign governmental entities include obligations
issued or guaranteed by national, provincial, state or other governments with
taxing power or by their agencies. Some of these obligations are supported by
the full faith and credit of a foreign government and some are not.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Steel and Coal Community, the Asian
Development Bank and the Inter-American Development Bank. The members, or
"stockholders," of a supranational entity make initial capital contributions to
the supranational entity and in many cases are committed to make additional
capital contributions if the supranational entity is unable to repay its
borrowings. Each supranational entity's lending activities are limited to a
percentage of its total capital (including "callable capital" contributed by
members at the entity's call), reserves and net income. By engaging in lending
activities and other activities intended to foster international economic growth
and development, supranational entities further the particular governmental
purposes of their members.
DEFENSIVE STRATEGIES. At times the Sub-Adviser may judge that market
conditions make pursuing the Fund's basic investment strategy inconsistent with
the best interests of its shareholders. At such times the Sub-Adviser may
temporarily use the defensive strategies of investing up to 100% of the Fund's
assets in securities of issuers located in the United States or in money market
instruments, including short-term bank obligations, such as certificates of
deposit. It is impossible to predict when, or for how long, the Fund will use
these alternative strategies.
INTEREST RATE RISK. The market value of the Fund's investments will change
in response to changes in interest rates and other factors. During periods of
falling interest rates, the values of long-term, fixed income securities
generally rise. Conversely, during periods of rising interest rates, the values
of such securities generally decline. Changes in exchange rates for foreign
currencies may affect the value of portfolio securities denominated in those
currencies. Changes by recognized rating services in their ratings of securities
and in the ability of an issuer to make payments of interest and principal may
also effect the value of these investments. Changes in the value of portfolio
securities generally will not affect interest income derived from those
securities, but will affect the Fund's net asset value. Exchange rate
fluctuations, however, may impact both the value of a particular investment and
the income derived from that investment.
FOREIGN INVESTMENTS. Investments in sovereign debt of foreign issuers and
other foreign securities involve risks that may not be present in domestic
investments. Since foreign securities are typically denominated in foreign
currencies, the value of the assets of the Fund and its net investment income
available for distribution may be affected favorably or unfavorably by changes
in currency exchange rates
-6-
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and exchange control regulations. The Fund will not invest in securities
denominated in a foreign currency that is not fully exchangeable into U.S.
dollars without legal restriction at the time of investment.
There may be less information publicly available about a foreign issuer
than about a U.S. issuer, and foreign issuers are not generally subject to
accounting, auditing and financial reporting standards and practices comparable
to those in the United States. The willingness and ability of sovereign issuers
to pay principal and interest on government securities depends on various
economic factors, including without limitation the issuer's balance of payments
and its overall debt level, as well as cash flow considerations related to the
availability of tax or other revenues to satisfy the issuer's obligations. The
securities of some foreign issuers are less liquid and at times more volatile
than securities of comparable U.S. issuers. Foreign brokerage commissions and
other fees are also generally higher than in the United States. Foreign
settlement procedures and trade regulations may involve certain risks (such as
delay in payment or delivery of securities or in the recovery of the Fund's
assets held abroad) and expenses not present in the settlement of domestic
investments.
In addition, there may be a possibility of nationalization or expropriation
of assets, imposition of currency exchange controls, confiscatory taxation,
political or financial instability and diplomatic developments which could
affect the value of investments in certain foreign countries.
Legal remedies available to investors in certain foreign countries may be
more limited than those available with respect to investments in the United
States or in other foreign countries. The laws of some foreign countries may
limit investments in securities of certain issuers located in those foreign
countries.
Special tax considerations apply to foreign securities. In determining
whether to invest in securities of foreign issuers, the Sub-Adviser will
consider the likely impact of foreign taxes on the net yield available to the
Fund and its shareholders. Income received by the Fund from sources within
foreign countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Any such taxes paid by the Fund will reduce its
net income available for distribution to shareholders.
Because the Fund intends to purchase securities denominated in foreign
currencies, a change in the value of any such currency against the U.S. dollar
will result in a change in the U.S. dollar value of the Fund's assets and the
Fund's income available for distribution. In addition, although at times most of
the Fund's income may be received or realized in these currencies, the Fund will
be required to compute and distribute its income in U.S. dollars. Therefore, if
the exchange rate for any such currency declines after the Fund's income has
been earned and translated into U.S. dollars but before payment, the Fund could
be required to liquidate portfolio securities to make such distributions.
Similarly, if an exchange rate declines between the time the Fund incurs
expenses in U.S. dollars and the time such expenses are paid, the amount of such
currency required to be converted into U.S. dollars in order to pay such
expenses in U.S. dollars will be greater than the equivalent amount in any such
currency of such expenses at the time they were incurred.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Fund may engage in foreign
currency exchange transactions to protect against uncertainty in the level of
future exchange rates. The Sub-Adviser may engage in foreign currency exchange
transactions in connection with the purchase and sale of portfolio securities
("transaction hedging") and to protect the value of specific portfolio positions
("position hedging"). The Sub-Adviser's decision as to whether and to what
extent to hedge the Fund's foreign currency risk is dependent upon a number of
factors, and, as a result, there can be no assurances that the Fund's portfolio
will be hedged at any particular time.
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The Fund may engage in "transaction hedging" to protect against a change in
the foreign currency exchange rate between the date on which the Fund contracts
to purchase or sell the security and the settlement date, or to "lock in" the
value of a dividend or interest payment in a particular currency. The Fund may
purchase or sell a foreign currency on a spot (or cash) basis at the prevailing
spot rate in connection with the settlement of transactions in portfolio
securities denominated in that foreign currency.
If conditions warrant, the Fund may also enter into contracts to purchase
or sell foreign currencies at a future date ("forward contracts") and may
purchase and sell foreign currency futures contracts as part of its transaction
hedging strategies. A foreign currency forward contract is a negotiated
agreement to exchange currency at a future time at a rate or rates that may be
higher or lower than the spot rate. Foreign currency futures contracts are
standardized exchange-traded contracts and have margin requirements. The Fund
may also purchase exchange-listed and over-the-counter call and put options on
foreign currency futures contracts and on foreign currencies.
The Fund may engage in "position hedging" to protect against a decline in
the value relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of the foreign
currencies for securities which the Fund intends to buy, when the Fund holds
cash reserves or short-term investments). For position hedging purposes, the
Fund may purchase or sell foreign currency futures contracts and foreign
currency forward contracts, and put and call options on foreign currency futures
contracts and on foreign currencies on exchanges or over-the-counter markets. In
connection with position hedging, the Fund may also purchase or sell foreign
currencies on a spot basis.
The Fund's currency hedging transactions may call for the delivery of one
foreign currency in exchange for another foreign currency and may at times
involve a currency other than that in which the particular securities that are
the subject of the hedge are denominated or in which any of the Fund's portfolio
securities are then denominated. These transactions involve the risk of
imperfect correlation between changes in the values of the currencies to which
such transactions relate and changes in the value of the currency or other asset
or liability which is the subject of the hedge.
OPTIONS AND FUTURES PORTFOLIO STRATEGIES. The Fund may purchase and sell
call and put options with respect to securities and currencies. The Fund
receives a premium from writing a call or put option, which increases the Fund's
return if the option expires unexercised or is closed out at a net profit. When
the Fund writes a call option, it gives up the opportunity to profit from any
increase in the price of a security or currency above the exercise price of the
option; when it writes a put option, the Fund takes the risk that it will be
required to purchase a security or currency from the option holder at a price
above the current market price of the security or currency. The Fund may
terminate an option that is has written prior to its expiration by entering into
a closing purchase transaction in which it purchases an option having the same
terms as the option written.
The Fund may also purchase and sell futures contracts and related options
on securities and currencies in order to reduce fluctuations in net asset value
by hedging against a decline in the value of securities or currencies owned by
the Fund or an increase in the value of securities or currencies which the Fund
expects to purchase. A futures contract sale creates an obligation by the seller
to deliver, and by the purchaser to take delivery of, the type of instrument
called for in the contract at a specified future date at an agreed price. The
Fund may also use such techniques, to the extent permitted by applicable law, as
a substitute for direct investment in foreign securities.
The use of futures and options involves certain special risks and may
result in realization of taxable income or capital gains. Certain risks arise
because of the possibility of imperfect correlations among
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movements in the prices of financial futures and options and movements in the
prices of the underlying securities or currencies or of the securities or
currencies that are the subject of the hedge. The successful use of futures and
options further depends on the Sub-Adviser's ability to forecast market
movements correctly. Other risks arise from the Fund's potential inability to
close out its futures or options positions, and there can be no assurance that a
liquid secondary market will exist for any futures contract or option at a
particular time. If the Fund purchases or sells options in the over-the-counter
market, the Fund's ability to terminate those option positions may be more
limited than for exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would fail to meet their
obligations to the Fund. Certain provisions of the Internal Revenue Code and
certain regulatory requirements may limit the Fund's ability to engage in
futures and options transactions. Position limits and other rules of foreign
exchanges may differ from those in the United States. Also, options and futures
markets in some countries, many of which are relatively new, may be less liquid
than comparable markets in the United States. See Statement of Additional
Information for additional information regarding the risks of financial futures
and options.
INDEXED SECURITIES. The Fund may invest in indexed securities which are
short to intermediate term fixed-income securities whose values at maturity, or
the interest rates on which, rise or fall according to the change in one or more
specified underlying instruments, such as currencies, securities, interest
rates, commodities, indices, or other financial indicators. Indexed securities
may be positively or negatively indexed (i.e., their value may increase or
decrease if the underlying instrument appreciates), and may have return
characteristics similar to direct investments in the underlying instrument or to
one or more options on the underlying instrument. Indexed securities may be more
volatile than the underlying instrument itself. Because certain foreign markets
may be closed for all practical purposes to U.S. investors such as the Fund, the
Fund may invest indirectly in such markets through the purchase of indexed
securities and would therefore be subject to the risks described above with
respect to investments in foreign securities as well as being subject to the
risk of relying upon the issuer of the indexed security to fulfill its
obligations under the terms of the security. See Statement of Additional
Information for additional information regarding the risks of indexed
securities.
SHORT SALES. The Fund may make short sales of securities. A short sale is a
transaction in which the Fund sells a security it does not own in anticipation
that the market price of that security will decline. When the Fund makes a short
sale, it must borrow the security sold short and deliver it to the other party
to the transaction. Short sales involve certain expenses and entail risks. The
Fund may have to pay a fee to borrow particular securities and is often
obligated to pay over any payments received on such borrowed securities. The net
proceeds of the short sale will be retained by the broker, to the extent
necessary to meet margin requirements, until the short position is closed out.
If the price of the security sold short increases between the time of the short
sale and the time the Fund replaces the borrowed security, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a gain. Any gain
will be decreased, and any loss increased, by transaction costs. Although the
Fund's gain is limited to the price at which it sold the security short, its
potential loss is unlimited if the Fund does not own the security.
The staff of the Securities and Exchange Commission is of the opinion that
a short sale involves the creation of a senior security and is, therefore,
subject to the limitations of Section 18 of the 1940 Act. The staff has taken
the position that in order to comply with the provisions of Section 18, the Fund
must put in a segregated account (not with the broker) an amount of cash or
United States Government securities equal to the difference between: (a) the
market value of the securities sold short at the time they were sold short, and
(b) any cash or United States Government securities required to be deposited as
collateral with the broker in connection with the short sale (not including the
proceeds from the short sale). In addition, until the Fund replaces the borrowed
security, it must daily maintain the segregated account at such a level
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that the amount deposited in it plus the amount deposited with the broker as
collateral will equal the current market value of the securities sold short. It
is currently expected that no more than 25% of the Fund's net assets will be
used as collateral or deposited in a segregated account in connection with short
sales.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements in which the Fund sells securities to a bank or dealer and agrees to
repurchase them at a mutually agreed date and price. Generally, the effect of
such a transaction is that the Fund can recover all or most of the cash invested
in the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are advantageous if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost of
otherwise obtaining the cash.
The Fund will establish a segregated account with its custodian in which it
will maintain cash and/or liquid high grade debt securities equal in value to
its obligations in respect of reverse repurchase agreements. Reverse repurchase
agreements involve the risk that the market value of the securities that the
Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities.
LOANS OF PORTFOLIO SECURITIES. The Fund may make secured loans of portfolio
securities on up to 33 1/3% of its total assets. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible delay in
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. However, such loans will be made only to parties
that are believed by 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 Fund an amount equal to any dividends or interest received
on the securities lent. The Fund may invest the cash collateral received or may
receive a fee from the borrower. Although voting rights or rights to consent
with respect to the loaned securities pass to the borrower, the Fund retains the
right to call the loans at any time on reasonable notice. The Fund may also call
such loans in order to sell the securities involved. The Fund pays various fees
in connection with such loans including shipping fees and reasonable custodian
and placement fees.
PORTFOLIO TURNOVER. Portfolio turnover is not a limiting factor with
respect to investment decisions for the Fund. It is anticipated that under
normal circumstances the annual portfolio turnover rate of the Fund will not
exceed 400%. However, in any particular year, market conditions may result in
greater rates than are currently anticipated. Portfolio turnover involves
brokerage commissions and other transaction costs, which will be borne directly
by the Fund, and could involve realization of capital gains that would be
taxable when distributed to shareholders. The portfolio turnover rate for the
Fund is 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
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cash at no market risk, although there is a risk that the seller may default on
its obligation to pay the agreed-upon sum on the redelivery date. Such a default
may subject the Fund to expenses, delays and risks of loss. Repurchase
agreements entered into with foreign brokers, dealers and banks involve
additional risks similar to those of investing in foreign securities.
FIRM COMMITMENTS. The Fund may enter into firm commitment agreements
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 Sub-Adviser 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 obligation to
the Fund. Such a default may subject the Fund to expenses, delays and risks of
loss.
DERIVATIVES. Certain of the instruments in which the Fund may invest, such
as indexed securities, forward contracts, futures contracts and options, are
considered to be "derivatives". Derivatives are financial instruments whose
value depends upon, or is derived from, the value of an underlying asset, such
as a security or a currency. Further information about these instruments and the
risks involved in their use is included elsewhere in this prospectus and in the
Statement of Additional Information.
RISKS OF NON-DIVERSIFICATION. The Fund is "non-diversified" and as such is
not required to meet any diversification requirements under the Investment
Company Act of 1940. As a non-diversified fund, the Fund may invest a relatively
high percentage of its assets in the securities of relatively few issuers,
rather than invest in the securities of a large number of issuers merely to
satisfy diversification requirements. Investment in the securities of a limited
number of issuers may increase the risk of loss to the Fund should there be a
decline in the market value of any one portfolio security. Investment in a
non-diversified fund therefore entails greater risks than investment in a
"diversified" fund.
CHANGES TO INVESTMENT OBJECTIVE. The investment objective and policies of
the Fund may be changed by the Trustees without shareholder approval. Any such
change may result in the Fund having an investment objective and policies
different from the objective and policies which a shareholder considered
appropriate at the time of such shareholder's investment in the Fund.
Shareholders of the Fund will be notified of any changes in the Fund's
investment objective or policies through a revised prospectus or other written
communication.
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PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Shares of the Fund may be purchased directly from the Trust on any day when
the New York Stock Exchange is open for business (a "business day"). The minimum
for an initial investment in the Fund is $100,000, and the minimum for each
subsequent investment is $10,000. The purchase price of a share of the Fund is
the net asset value next determined after a purchase order is received in good
order. No sales charge is imposed on purchases of Fund shares.
Shares of the Fund may be purchased either (i) in exchange for common
stocks on deposit at The Depository Trust Company ("DTC") or appropriate fixed
income securities, subject to the determination by the Manager that the
securities to be exchanged are acceptable, (ii) in cash (i.e., by wire transfer)
or (iii) by a combination of such securities and cash. In all cases, the Manager
reserves the right to reject any particular investment. Securities accepted by
the Manager in exchange for Fund shares will be acquired
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for investment only and not for resale and will be valued as set forth under
"Determination of Net Asset Value" (generally the last quoted sale price) as of
the time of the next determination of net asset value after such acceptance. All
dividends, interest, subscription or other rights which are reflected in the
market price of accepted securities at the time of valuation become the property
of the Fund and must be delivered to the Trust upon receipt by the investor from
the issuer. A gain or loss for federal income tax purposes may be realized by
investors subject to Federal income taxation upon the exchange, depending upon
the investor's basis in the securities tendered.
The Manager will not approve the acceptance of securities in exchange for
Fund shares unless (1) the Manager, in its sole discretion, believes the
securities are appropriate investments for the Fund; (2) the investor represents
and agrees that all securities offered to the Fund are not subject to any
restrictions upon their sale by the Fund under the Securities Act of 1933, or
otherwise; and (3) the securities may be acquired under the investment
restrictions applicable to the Fund. Investors interested in purchases through
exchange should telephone the Manager at (617) 225-3800, Attn: Maureen A.
Madden.
Investors should call the offices of the Trust before attempting to place
an order for Trust shares. The Trust reserves the right at any time to reject an
order.
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.
All federal funds must be transmitted to Investors Bank & Trust Company to
Account No. 777777722 for the account of the Fund.
"Federal funds" are monies credited to Investors Bank & Trust Company's
account with the Federal Reserve Bank of Boston.
Purchases will be made in full and fractional shares of the Fund calculated
to three decimal places. The Trust will send to shareholders written
confirmation (including a statement of shares owned) at the time of each
transaction.
12B-1 PLAN. The Trust has adopted a distribution and services plan (the
"Plan") for the Fund under Rule 12b-1 of the Investment Company Act of 1940, but
the Trustees do not intend to implement such Plan during the Trust's current
fiscal year. The purposes of the Plan if implemented would be to compensate
and/or reimburse investment dealers and other persons for services provided and
expenses incurred in promoting sales of shares, reducing redemptions or
improving services provided to shareholders by such dealers and other persons.
The Plan would permit payments by the Fund for such purposes at an annual rate
of up to .50% of the Fund's average 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.
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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.
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DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value of a share of the Fund is determined at 4:15 p.m.,
Eastern time, on each day on which the New York Stock Exchange is open, other
than a day on which no shares of the Fund were tendered for redemption and no
order to purchase shares was received by the Fund. If no shares of the Fund are
tendered for redemption during a month and no order to purchase shares is
received by the Fund during such month, the net asset value of a share of the
Fund will be determined on the last business day of such month. The net asset
value per share for the Fund is determined by dividing the total value of the
Fund's portfolio investments and other assets, less any liabilities, by the
total outstanding shares of the
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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.
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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.
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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 is treated as a separate taxable entity for federal income tax
purposes. The Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended. By
so qualifying, the Fund itself will not pay federal income tax on the income and
gain distributed annually to its shareholders. Distributions of ordinary income
and short-term capital gains, whether received in cash or reinvested shares,
will be taxable as ordinary income to shareholders subject to federal income
tax. Designated distributions of any long-term capital gains are taxable as
such, regardless of how long a shareholder may have owned shares in the Fund or
whether received in cash or reinvested shares. Any loss recognized on the sale
or disposition of shares held for six months or less will be treated as
long-term capital loss to the extent of any long-term capital gain distributions
received by a shareholder with respect to those shares. A distribution paid to
shareholders in January generally is deemed to have been received by
shareholders on December 31 of the preceding year, if the distribution was
declared and payable to shareholders of record on a date in October, November or
December of that preceding year. The Fund will provide federal tax information
annually, including information about dividends and distributions paid during
the preceding year.
BACK-UP WITHHOLDING. The back-up withholding rules set forth below do not
apply to tax exempt entities or corporations that furnish the Trust with an
appropriate certification. For other shareholders, however, the Trust is
generally required to withhold and remit to the U.S. Treasury 31% of all
distributions, whether distributed in cash or reinvested in shares, and 31% of
the proceeds of any redemption paid or credited to the shareholder's account if
an incorrect or no taxpayer identification number has been provided, where
appropriate certification has not been provided for a foreign shareholder, or
where the Trust is notified that the shareholder has underreported income in the
past (or the shareholder fails to certify that he is not subject to such
withholding). Special withholding rules, described below, may apply to foreign
shareholders.
FOREIGN WITHHOLDING TAXES. The Fund invests in foreign securities and
therefore may be subject to foreign withholding taxes on income and gains
derived from foreign investments. Such taxes would reduce the yield on the
Fund's investments, but, as discussed below, may be taken as either a deduction
or a credit by U.S. investors if the Fund makes the election described below.
If, at the end of the fiscal year, more than 50% of the total assets of the
Fund are comprised of securities of foreign corporations, the Trust intends to
make an election which allows shareholders whose income from the Fund is subject
to U.S. taxation at the graduated rates applicable to U.S. citizens, residents
or domestic corporations to claim a foreign tax credit or deduction (but not
both) on their U.S. income tax return. In such case, the amount of foreign
income taxes paid by the Fund would be treated as additional income to Fund
shareholders from non-U.S. sources and as foreign taxes paid by Fund
shareholders. Investors should consult their tax advisors for further
information relating to the foreign tax credit and deduction, which are subject
to certain restrictions and limitations. Shareholders of the Fund whose income
from the Fund is not subject to U.S. taxation at the graduated rates applicable
to U.S. citizens, residents or domestic corporations may receive substantially
different tax treatment on
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distributions by the Fund, and may be disadvantaged as a result of the election
described in this paragraph. Organizations that are exempt from U.S. taxation
will not be affected by the election described above.
WITHHOLDING ON DISTRIBUTIONS TO FOREIGN INVESTORS. Dividend distributions
(including in general distributions derived from short-term capital gains,
dividends and interest) are in general subject to a U.S. withholding tax of 30%
when paid to a non-resident alien individual, foreign estate or trust, a foreign
corporation, or a foreign partnership ("foreign shareholder"). Persons who are
residents in a country, such as the United Kingdom, that has an income tax
treaty with the United States may be eligible for a reduced withholding rate
(upon filing of appropriate forms), and are urged to consult their tax advisors
regarding the applicability and effect of such a treaty. Distributions of net
long-term capital gains to a foreign shareholder and any gain realized upon the
sale of Fund shares by such a shareholder will ordinarily not be subject to U.S.
taxation, unless the recipient or seller is a nonresident alien individual who
is present in the United States for more than 182 days during the taxable year.
Foreign shareholders with respect to whom income from the Fund is "effectively
connected" with a U.S. trade or business carried on by such shareholder,
however, will in general be subject to U.S. federal income tax on the income
derived from the Fund at the graduated rates applicable to U.S. citizens,
residents or domestic corporations, whether such income is received in cash or
reinvested in shares, and may also be subject to a branch profits tax. Again,
foreign shareholders who are residents in a country with an income tax treaty
with the United States may obtain different tax results and all foreign
investors are urged to consult their tax advisors.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
- --------------------------------------------------------------------------------
The Fund is advised and managed by David L. Babson & Co., Inc., One
Memorial Drive, Cambridge, Massachusetts 02142, which provides investment
advisory services to a substantial number of institutional and other investors,
including other registered investment companies. David L. Babson & Co., Inc., a
registered investment adviser, is a wholly owned subsidiary of DLB Acquisition
Corp., a holding company, which is controlled by Mass Mutual Holding Company, a
holding company and wholly owned subsidiary of Massachusetts Mutual Life
Insurance Company, a mutual life insurance company.
Under a separate Management Contract relating to the Fund, the Manager
selects and reviews the Fund's investments and provides executive and other
personnel for the management of the Trust. Pursuant to the Trust's Agreement and
Declaration of Trust, the Board of Trustees supervises the affairs of the Trust
as conducted by the Manager. In the event that the Manager ceases to be the
manager of the Fund, the right of the Fund or of the Trust to use the
identifying name "DLB" may be withdrawn.
In order to assist it in carrying out its responsibilities, the Manager has
entered into a Sub-Advisory Agreement (the "Sub-Advisory Agreement") with
Potomac Babson Incorporated (the "Sub-Adviser"), 1290 Avenue of the Americas,
New York, New York 10019, with respect to the management of the Fund's
portfolio. The Sub-Adviser, a registered investment adviser, is a majority-owned
subsidiary of the Manager.
The Fund pays the Manager a monthly fee at the annual rate of the Fund's
average daily net assets set forth below. The Manager, however, has agreed to
waive 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 the percentage
of the Fund's average daily net assets set forth below:
-16-
================================================================================
Management Fee Expense Limitation
(as a % of Average (as a % of Average
Daily Net Assets) Daily Net Assets)
----------------- -----------------
.75% .80%
Under the Fund's Sub-Advisory Agreement, the Manager pays the Sub-Adviser a
monthly fee at the annual rate of .65% of the Fund's average daily net assets,
although the Sub-Adviser has currently agreed to waive a portion of its fee.
Payments made to the Sub-Adviser by the Manager will not affect the amounts
payable by the Fund to the Manager or the Fund's expense ratio.
Hani Findakly, President of the Sub-Adviser, is primarily responsible
for the day-to-day management of the Fund. He has been employed by the
Sub-Adviser (and its predecessor) in portfolio management for more than five
years.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Yield and total return data may from time to time be included in
advertisements about the Fund. "Yield" is calculated by dividing the Fund's
annualized net investment income per share during a recent 30-day period by the
maximum public offering price per share on the last day of that period. "Total
return" for the 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 $1000 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.
- --------------------------------------------------------------------------------
ORGANIZATION AND CAPITALIZATION OF THE TRUST
- --------------------------------------------------------------------------------
The Trust was established on August 1, 1994 as a business trust under
Massachusetts law. The Trust has an unlimited number of authorized shares of
beneficial interest which may, without shareholder approval, be divided into an
unlimited number of series of such shares and which are presently divided into
six series of shares, each representing a different Fund. The Trust does not
generally hold annual meetings of shareholders and will do so only when required
by law. Matters submitted to shareholder vote must be approved by each Fund of
the Trust except (i) when required by the Investment Company Act of 1940, shares
shall be voted together as a single class, and (ii) when the Trustees have
determined that the matter affects one or more Funds, then only shareholders of
such Fund or Funds shall be entitled to vote on the matter. Shares are freely
transferable, are entitled to dividends as declared by the Trustees, and, in
-17-
================================================================================
liquidation of the Fund, are entitled to receive the net assets of the Fund.
Shareholders holding a majority of the outstanding shares of the Trust may
remove Trustees from office by votes cast in person or by proxy at a meeting of
shareholders or by written consent. Massachusetts Mutual Life Insurance Company
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.
- --------------------------------------------------------------------------------
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.
-18-
================================================================================
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
CUSTODIAN
Investors Bank & Trust Company
89 South Street
P.O. Box 1537
Boston, MA 02205
TRANSFER AGENT
Investors Bank & Trust Company
John Hancock Tower
200 Clarendon Street, 5th Floor
Boston, MA 02116
-19-
THE DLB FUND GROUP
STATEMENT OF ADDITIONAL INFORMATION
February 19, 1997
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the prospectuses of The DLB Fund Group dated
February 19, 1997, as amended from time to time, and should be read in
conjunction therewith. Each reference to the term "Prospectus" in this Statement
of Additional Information shall include all of the Trust's prospectuses, unless
otherwise noted. A copy of the Prospectus may be obtained free of charge by
writing The DLB Fund Group, c/o David L. Babson & Co., Inc., Marketing
Department, Attention: Maureen A. Madden, One Memorial Drive, Cambridge,
Massachusetts 02142, or by telephoning (617) 225-3800.
Table of Contents
-----------------
Caption Page
- ------- ----
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS.....................1
INVESTMENT RESTRICTIONS.....................................................1
INCOME DIVIDENDS, DISTRIBUTIONS AND TAX STATUS..............................4
MANAGEMENT OF THE TRUST.....................................................6
INVESTMENT ADVISORY AND OTHER SERVICES......................................8
ADDITIONAL INVESTMENT PRACTICES OF THE GLOBAL BOND FUND....................10
ADDITIONAL INVESTMENT PRACTICES OF THE GLOBAL BOND AND
QUANTITATIVE EQUITY FUNDS -- FUTURES AND OPTIONS..................13
ADDITIONAL INVESTMENT PRACTICES OF THE FIXED INCOME FUND...................17
PORTFOLIO TRANSACTIONS.....................................................20
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES...........................24
INVESTMENT PERFORMANCE.....................................................29
DETERMINATION OF NET ASSET VALUE...........................................31
EXPERTS ..................................................................31
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS....................31
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS
The investment objective and policies of each of the DLB Fixed Income
Fund (the "Fixed Income Fund"), the DLB Global Small Capitalization Fund (the
"Global Small Cap Fund"), the DLB Value Fund (the "Value Fund"), the DLB Mid
Capitalization Fund (the "Mid Cap Fund"), the DLB Quantitative Equity Fund (the
"Quantitative Equity Fund") and the DLB Global Bond Fund (the "Global Bond
Fund") (each a "Fund," and collectively the "Funds") of The DLB Fund Group (the
"Trust") are set forth in the Trust's Prospectuses.
INVESTMENT RESTRICTIONS
Without a vote of the majority of the outstanding voting securities of
the relevant Fund, the Trust will not take any of the following actions with
respect to any Fund:
(1) Borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of the Fund's total assets (not
including the amount borrowed) at the time the borrowing is made, and
then only from banks for temporary, extraordinary or emergency
purposes, except that the Fund may borrow through reverse repurchase
agreements or dollar rolls up to 331/3% of the value of the Fund's
total assets. Such borrowings (other than borrowings relating to
reverse repurchase agreements and dollar rolls) will be repaid before
any investments are purchased.
(2) Underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under federal
securities laws.
(3) Purchase or sell real estate (including real estate
limited partnerships), although it may purchase securities of issuers
which deal in real estate, including securities of real estate
investment trusts, securities which represent interests in real estate
and securities which are secured by interests in real estate, and the
Fund may acquire and dispose of real estate or interests in real estate
acquired through the exercise of its rights as a holder of debt
obligations secured by real estate or interests therein or for use as
office space for the Fund.
(4) Make loans, except by purchase of debt obligations
(including nonpublicly traded debt obligations), by entering into
repurchase agreements or through the lending of the Fund's portfolio
securities. Loans of portfolio securities may be made with respect to
up to 100% of the Fund's assets in the case of each Fund.
-1-
(5) Issue any senior security (as that term is defined in the
Investment Company Act of 1940 (the "1940 Act")), if such issuance is
specifically prohibited by the 1940 Act or the rules and regulations
promulgated thereunder. (The Funds have no intention of issuing senior
securities except as set forth in Restriction 1 above.)
(6) Invest 25% or more of the value of its total assets in
securities of issuers in any one industry. (Securities issued or
guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities are not considered to represent
industries.)
(7) Purchase or sell commodities or commodity contracts,
including futures contracts, except that the Global Bond Fund and the
Quantitative Equity Fund may purchase and sell futures contracts,
options, including options on commodities and commodity contracts, and
other financial instruments and may enter into foreign exchange
transactions.
Notwithstanding the latitude permitted by Restrictions 1 and 3 above,
no Fund has any current intention in the coming year of (a) borrowing money from
banks, (b) entering into dollar rolls or (c) investing in real estate investment
trusts. In addition, notwithstanding the latitude permitted by Restriction 1
above, no fund, except the Global Bond Fund, has any current intention in the
coming year of entering into reverse repurchase agreements. The Global Bond
Fund's obligations under reverse repurchase agreements will not exceed 5% of the
Fund's net assets.
It is contrary to the present policy of all the Funds, which may be
changed by the Trustees without shareholder approval, to:
(a) Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and sales of
securities.
(b) (All Funds except the Global Bond Fund) Make short sales
of securities or maintain a short position for the Fund's account
unless at all times when a short position is open the Fund owns an
equal amount of such securities or owns securities which, without
payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and equal in amount
to, the securities sold short. The Funds (other than the Global Bond
Fund) have no current intention in the coming year of engaging in short
sales or maintaining a short position.
(c) Invest in securities of any issuer if officers and
Trustees of the Trust and officers and partners of David L. Babson &
Co., Inc. (the "Manager") who
-2-
beneficially own more than 1/2 of 1% of the securities of that issuer
together beneficially own more than 5%.
(d) Invest in securities of other investment companies, except
by purchase in the open market involving only customary brokers'
commissions, or in connection with mergers, consolidations or
reorganizations. For purposes of this restriction, foreign banks or
their agents or subsidiaries are not considered investment companies.
(e) Invest in (a) securities which at the time of such
investment are not readily marketable, (b) securities the disposition
of which is restricted under federal securities laws, excluding
restricted securities that have been determined by the Trustees of the
Fund (or the person designated by them to make such determination) to
be readily marketable, and (c) repurchase agreements maturing in more
than seven days if, as a result, more than 15% of the Fund's net assets
(taken at current value) would then be invested in securities described
in (a), (b) and (c) above.
(f) Acquire more than 10% of the voting securities of any
issuer.
(g) Invest in warrants or rights (other than warrants or
rights acquired by the Fund as a part of a unit or attached to
securities at the time of purchase), except that the Fund may invest in
such warrants or rights so long as the aggregate value thereof (taken
at the lower of cost or market) does not exceed 5% of the value of the
Fund's total assets and so long as no more than 2% of its total assets
are invested in warrants that are not listed on the New York Stock
Exchange or the American Stock Exchange.
(h) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts.
(i) Make investments for the purpose of gaining control of a
company's management.
Except as otherwise indicated in Restriction No. 1 or Restriction (e)
above, all percentage limitations on investments set forth herein and in the
Prospectus will apply at the time of the making of an investment and shall not
be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
The phrase "shareholder approval," as used in any Prospectus, and the
phrase "vote of a majority of the outstanding voting securities," as used herein
with respect to a Fund, means the affirmative vote of the lesser of (1) more
than 50% of the
-3-
outstanding shares of that Fund, or (2) 67% or more of the shares of that Fund
present at a meeting if more than 50% of the outstanding shares are represented
at the meeting in person or by proxy.
INCOME DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). In order to so qualify, the Fund must, among other things, (a) derive
at least 90% of its gross income from dividends, interest, payments with respect
to certain securities loans, and gains from the sale of stock, securities and
foreign currencies, or other income (including but not limited to gains from
options, futures or firm commitments) derived with respect to its business of
investing in such stock, securities or currencies; (b) derive less than 30% of
its gross income from gains from the sale or other disposition of securities and
certain other assets (including certain foreign currency contracts) held for
less than three months; (c) distribute at least 90% of its dividend, interest
and certain other income (including, in general, short-term capital gains) each
year; and (d) diversify its holdings so that at the end of each fiscal quarter
(i) at least 50% of the market value of the Fund's assets is represented by cash
items, U.S. Government securities, securities of other regulated investment
companies, and other securities, limited in respect of any one issuer to a value
not greater than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities (other than those of the U.S.
Government or other regulated investment companies) of any one issuer or of two
or more issuers which the Fund controls and which are engaged in the same,
similar or related trades or businesses. So long as a Fund qualifies for
treatment as a regulated investment company, the Fund will not be subject to
federal income tax on income paid to its shareholders in the form of dividends
or capital gain distributions.
The tax status of each Fund and the distributions which it may make are
summarized in the Prospectus under the heading "Taxes." Each Fund intends to pay
out substantially all of its ordinary income and net short-term capital gains,
and to distribute substantially all of its net capital gain, if any, after
giving effect to any available capital loss carry-over. Net capital gain is the
excess of net long-term capital gain over net short-term capital loss. It is the
policy of each Fund to make distributions sufficient to avoid the imposition of
a 4% excise tax on certain undistributed amounts. A shareholder may be limited
in its ability to recognize losses on the sale of Fund shares if the shareholder
subsequently invests in that Fund or another Fund.
Certain transactions entered into by a Fund, such as firm commitments
and hedging transactions, may accelerate income, defer losses, cause adjustments
in the holding periods of the Fund's securities and convert short-term capital
gains or losses into long-term capital gains or losses. Such transactions may
therefore affect the amount, timing and character of distributions to
shareholders. Qualification requirements noted above may restrict the Fund's
ability to engage in such transactions.
-4-
Investment by a Fund in certain "passive foreign investment companies"
could subject the Fund to a U.S. federal income tax or other charge on
distributions received from or the sale of its investment in such a company,
which tax could not be eliminated by making distributions to Fund shareholders.
To avoid this treatment, a Fund may elect to mark to market annually all of its
stock in a passive foreign investment company. Alternatively, if a Fund elects
to treat a passive foreign investment company as a "qualified electing fund,"
different rules would apply, although the Funds do not currently expect to be in
the position to make such elections.
In general, all dividends derived from ordinary income and short-term
capital gain are taxable to investors as ordinary income (subject to special
rules concerning the availability of the dividends-received deduction for
corporations) and long-term capital gain distributions are taxable to investors
as long-term capital gains, whether such dividends or distributions are received
in shares or cash. Tax exempt organizations or entities will generally not be
subject to federal income tax on dividends or distributions from a Fund, except
certain organizations or entities, including private foundations, social clubs,
and others, which may be subject to tax on dividends or capital gains. Each
organization or entity should review its own circumstances and the federal tax
treatment of its income.
The dividends-received deduction for corporations will generally apply
to a Fund's dividends paid from investment income to the extent derived from
dividends received by the Fund from domestic corporations that would be entitled
to such deduction in the hands of the Fund if it were a regular corporation.
Certain of the Funds which invest in foreign securities may be subject
to foreign withholding taxes on income and gains derived from foreign
investments. Such taxes would reduce the yield on the Fund's investments, but,
as discussed below, may be taken as either a deduction or a credit by U.S.
investors if the Fund makes the election described below.
If, at the end of the fiscal year, more than 50% of the total assets of
any Fund are comprised of securities of foreign corporations, the Trust intends
to make an election with respect to the relevant Fund which allows shareholders
whose income from the Fund is subject to U.S. taxation at the graduated rates
applicable to U.S. citizens, residents or domestic corporations to claim a
foreign tax credit or deduction (but not both) on their U.S. income tax return.
In such case, the amount of foreign income taxes paid by the Fund would be
treated as additional income to Fund shareholders from non-U.S. sources and as
foreign taxes paid by Fund shareholders. Investors should consult their tax
advisors for further information relating to the foreign tax credit and
deduction, which are subject to certain restrictions and limitations.
Shareholders of any of the Funds whose income from the Fund is not subject to
U.S. taxation at the graduated rates applicable to U.S. citizens, residents or
domestic corporations may receive substantially different tax treatment of
distributions by the relevant Fund, and may be disadvantaged as a result of the
election described in this paragraph. Organizations that are exempt from U.S.
taxation will not be affected by the election described above.
-5-
MANAGEMENT OF THE TRUST
The Trustees and officers of the Trust and their principal occupations
during the past five years are as follows:
Trustees
- --------
*Ronald E. Gwozdz, age 57, has been the Executive Vice President of the
Manager since July 1991 and Managing Director of Babson-Stewart Ivory
International since 1994, prior to which he was Senior Vice President of
Auburndale Management since January 1990, and before that, President of Plymouth
Funds for Fidelity Investments.
*Peter C. Thompson, age 63, Chairman of the Trustees, is the President,
Chief Executive Officer and a Director of the Manager and a Managing Director of
Babson-Stewart Ivory International.
Charles E. Hugel, age 68, serves as a Director of Eaton Corporation, a
manufacturer of auto parts, and Pitney Bowes, Inc., a manufacturer of business
and office equipment. He is also Chairman of the Board of Trustees of Lafayette
College. Mr. Hugel is the former Chairman of Asea Brown Boveri Inc., which
principally engages in the manufacture of electrical equipment and the
generation, transmission, distribution and transportation of power, the former
Chairman, President and Chief Executive Officer of Combustion Engineering, Inc.
and a former Executive Vice President of American Telephone and Telegraph
Company.
Richard A. Nenneman, age 67, is the former Editor-in-Chief of The
Christian Science Monitor and a former Senior Vice President of Girard Bank. He
currently serves as a member of the boards of various civic associations.
Richard J. Phelps, age 68, is the Chief Executive Officer of Phelps
Industries, Inc., a manufacturer of rawhide dog treats. He currently serves as a
director of Superior Pet, U.K. and Superior Pet Australia, both manufacturers of
rawhide dog treats; Bio-Comp, USA, a manufacturer of fertilizer; MRI Corp., USA;
Stockton Baseball Co., USA; and Babson-Stewart Ivory International Fund, Inc.
*Peter C. Schliemann, age 51, is the Executive Vice President and a
Director of the Manager. Mr. Schliemann is the portfolio manager for the Global
Small Cap Fund.
*Deemed to be an "interested person" of the Trust and the Manager, as defined by
the 1940 Act
-6-
Officers
- --------
Ronald E. Gwozdz, President.
DeAnne B. Dupont, age 42, Treasurer, is the Vice President of the
Manager.
John V. Murphy, age 47, Clerk, is the Executive Vice President, Chief
Operating Officer and a Director of the Manager.
The mailing address of each of the officers and Trustees is c/o David
L. Babson & Co., Inc., One Memorial Drive, Cambridge, Massachusetts 02142.
Except as stated above, the principal occupations of the officers and
Trustees for the last five years have been with the employers as shown above,
although in some cases they may have held different positions with such
employers.
Trustee Compensation Table
- --------------------------
The Trust pays each Trustee a fee for his services. The Trustees
periodically review their fees to assure that such fees continue to be
appropriate in light of their responsibilities as well as in relation to fees
paid to Trustees of other mutual fund complexes. The fees paid to each Trustee
by the Trust for the Trust's most recently completed fiscal year are shown
below:
Total Compensation
Aggregate from Registrant
Compensation and Fund Complex
Name of Trustee from Registrant* Paid to Trustees
- --------------------------------------------------------------------------------
Ronald E. Gwozdz $0 $0
Charles E. Hugel 11,000 11,000
Richard A. Nenneman 11,000 11,000
Richard J. Phelps 11,000 11,000
Peter C. Schliemann 0 0
Peter C. Thompson 0 0
- ---------------
*Includes an annual retainer and an attendance fee for each meeting attended.
-7-
INVESTMENT ADVISORY AND OTHER SERVICES
Management Contracts
- --------------------
The Trust's investment manager, David L. Babson & Co., Inc. (the
"Manager"), One Memorial Drive, Cambridge, Massachusetts 02142, is a wholly
owned subsidiary of DLB Acquisition Corp., a holding company which is owned by
Mass Mutual Holding Company, a holding company and a wholly owned subsidiary of
Massachusetts Mutual Life Insurance Company, a mutual life insurance company.
Massachusetts Mutual Life Insurance Company also 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. As disclosed in
the Prospectus under the heading "Management of the Trust," under separate
Management Contracts (each a "Management Contract") between the Trust and the
Manager, subject to such policies as the Trustees of the Trust may determine,
the Manager will furnish continuously an investment program for each Fund and
will make investment decisions on behalf of the Fund and place all orders for
the purchase and sale of portfolio securities. The Manager has entered into a
Sub-Advisory Agreement with Babson-Stewart Ivory International ("BSII") with
respect to the management of the international component of the Global Small Cap
Fund's portfolio and a Sub-Advisory Agreement with Potomac Babson Incorporated
("PBI") with respect to the management of the Global Bond Fund. (BSII and PBI
are collectively referred to herein as the "Sub-Advisers".) Subject to the
control of the Trustees, the Manager also manages, supervises and conducts the
other affairs and business of the Trust, furnishes office space and equipment,
provides bookkeeping and certain clerical services and pays all salaries, fees
and expenses of officers and Trustees of the Trust who are affiliated with the
Manager. As indicated under "Portfolio Transactions," the Trust's portfolio
transactions may be placed with broker-dealers which furnish the Manager, at no
cost, certain research, statistical and quotation services of value to the
Manager in advising the Trust or its other clients.
As disclosed in the Prospectus, each of the Funds pays the Manager a
monthly fee at the annual rate of the relevant Fund's average daily net assets
set forth therein. In addition, the Manager has agreed to waive its fee and to
bear certain expenses until further notice to the extent each of the Fund's
annual expenses (including the management fee, but excluding brokerage
commissions and transfer taxes) would exceed the percentage of the Fund's
average daily net assets set forth in the Prospectus. The Sub-Advisers have also
agreed to waive a portion of their fees.
-8-
The Funds paid the following management fees during the periods
indicated:
1. FIXED INCOME FUND
-----------------
Management
Fiscal Year Management Fee Paid Fee Waived
----------- ------------------- ----------
1995 $0 $8,911
1996 $23,616 $23,977
2. GLOBAL SMALL CAP FUND
---------------------
Management
Fiscal Year Management Fee Paid* Fee Waived
----------- -------------------- ----------
1995 $0 $45,284
1996 $95,914 $24,608
3. VALUE FUND
----------
Management
Fiscal Year Management Fee Paid Fee Waived
----------- ------------------- ----------
1995 $0 $24,862
1996 $53,072 $30,836
4. MID CAP FUND
------------
Management
Fiscal Year Management Fee Paid Fee Waived
----------- ------------------- ----------
1995 $0 $26,445
1996 $37,317 $37,918
5. GLOBAL BOND FUND
----------------
Management
Fiscal Year Management Fee Paid ** Fee Waived
----------- ---------------------- ----------
1996 $48,407 $17,775
- --------
* Under the relevant Sub-Advisory Agreement, for fiscal years 1995 and
1996 (i) the Manager paid BSII a fee of $17,572 and $47,957, respectively, and
(ii) BSII waived a portion of its fees in an amount equal to $4,393 and $12,304,
respectively.
** Under the relevant Sub-Advisory Agreement, the Manager paid PBI a
fee of $41,953 and PBI waived a portion of its fees in an amount equal to
$25,856.
-9-
6. QUANTITATIVE EQUITY FUND
------------------------
Management
Fiscal Year Management Fee Paid Fee Waived
----------- -------------------- ----------
1996 $24,714 $9,094
Each Management Contract provides that the Manager shall not be subject
to any liability in connection with the performance of its services thereunder
in the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
Each Management Contract has an initial two-year term and will continue
in effect thereafter indefinitely so long as its continuance is approved at
least annually by (i) vote, cast in person at a meeting called for that purpose,
of a majority (or one, if there is only one) of those Trustees who are not
"interested persons" of the Manager or the Trust, and by (ii) the majority vote
of either the full Board of Trustees or the vote of a majority of the
outstanding shares of the relevant Fund. Each Management Contract automatically
terminates on assignment and is terminable on not more than 60 days' notice by
the Trust to the Manager. In addition, each Management Contract may be
terminated on not more than 60 days' written notice by the Manager to the Trust.
The Sub-Advisory Agreements contain provisions similar to those
contained in the Management Contracts.
Custodial Arrangements. Investors Bank & Trust Company ("IBT") serves
as the Trust's custodian on behalf of the Funds. As such, IBT holds in
safekeeping certificated securities and cash belonging to a Fund and, in such
capacity, is the registered owner of securities in book-entry form belonging to
a Fund. Upon instruction, IBT receives and delivers cash and securities of a
Fund in connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities. IBT also maintains
certain accounts and records of the Trust and calculates the total net asset
value, total net income and net asset value per share of each Fund on a daily
basis.
ADDITIONAL INVESTMENT PRACTICES OF THE GLOBAL BOND FUND
As described in its Prospectus, the Global Bond Fund can engage in
foreign currency exchange transactions and may invest in indexed securities. The
following sections provide more detailed information about these practices.
Foreign Currency Transactions. The Fund may conduct foreign currency
transactions on a spot (i.e., cash) basis or by entering into forward contracts
to purchase or sell foreign currencies at a future date and price. The Fund will
convert currency on a spot basis from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers
generally do not charge a fee for conversion, they do realize a profit based on
the difference between the prices at which they are buying and selling various
currencies. Thus, a dealer may
-10-
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to resell that currency to the
dealer. Forward contracts are generally traded in an interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. The parties to a forward contract may agree to offset or terminate
the contract before its maturity, or may hold the contract to maturity and
complete the contemplated currency exchange. The Fund may use currency forward
contracts for any purpose consistent with its investment objective. The
following discussion summarizes the principal currency management strategies
involving forward contracts that could be used by the Fund. The Fund may also
use indexed securities and options and futures contracts relating to foreign
currencies for the same purposes.
When the Fund agrees to buy or sell a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security. By
entering into a forward contract for the purchase or sale, for a fixed amount of
U.S. dollars, of the amount of foreign currency involved in the underlying
security transaction, the Fund will be able to protect itself against an adverse
change in foreign currency values between the date the security is purchased or
sold and the date on which payment is made or received. This technique is
sometimes referred to as a "settlement hedge" or "transaction hedge." The Fund
may also enter into forward contracts to purchase or sell a foreign currency in
anticipation of future purchases or sales of securities denominated in foreign
currency, even if the specific investments have not yet been selected by the
Manager or the relevant Sub-Adviser.
The Fund may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For example,
if the Fund owned securities denominated in pounds sterling, it could enter into
a forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge, sometimes referred
to as a "position hedge," would tend to offset both positive and negative
currency fluctuations, but would not offset changes in security values caused by
other factors. The Fund could also hedge the position by selling another
currency expected to perform similarly to the pounds sterling - for example, by
entering into a forward contract to sell Deutschemarks or European Currency
Units in return for U.S. dollars. This type of hedge, sometimes referred to as a
"proxy hedge," could offer advantages in terms of cost, yield, or efficiency,
but generally would not hedge currency exposure as effectively as a simple hedge
into U.S. dollars. Proxy hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which the hedged securities
are denominated.
The Fund may enter into forward contracts to shift its investment
exposure from one currency into another. This may include shifting exposure from
U.S. dollars to a foreign currency, or from one foreign currency to another
foreign currency. For example, if the Fund held investments denominated in
Deutschemarks, the Fund could enter into forward contracts to sell Deutschemarks
and purchase Swiss Francs. This type of strategy, sometimes known as a
"cross-hedge," will tend to reduce or eliminate exposure to the currency that is
sold, and increase exposure to the currency that is purchased, much as if the
Fund had sold a security denominated in one currency and purchased an equivalent
security denominated in another. Cross-hedges
-11-
protect against losses resulting from a decline in the hedged currency, but will
cause the Fund to assume the risk of fluctuations in the value of the currency
it purchases.
Under certain conditions, SEC guidelines require mutual funds to set
aside appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. To the extent required by SEC guidelines, the Fund
will segregate assets to cover currency forward contracts.
Successful use of currency management strategies will depend on the
Manager's or relevant Sub-Adviser's skill in analyzing and predicting currency
values. Currency management strategies may substantially change the Fund's
investment exposure to changes in currency exchange rates, and could result in
losses to the Fund if currencies do not perform as the Manager or relevant
Sub-Adviser anticipates. For example, if a currency's value rose at a time when
the Manager or relevant Sub-Adviser had hedged the Fund by selling that currency
in exchange for dollars, the Fund would be unable to participate in the
currency's appreciation. If the Manager or relevant Sub-Adviser hedges currency
exposure through proxy hedges, the Fund could realize currency losses from the
hedge and the security position at the same time if the two currencies do not
move in tandem. Similarly, if the Manager or relevant Sub-Adviser increases the
Fund's exposure to a foreign currency, and that currency's value declines, the
Fund will realize a loss. There is no assurance that the Manager's or
Sub-Adviser's use of currency management strategies will be advantageous to the
Fund or that it will hedge at an appropriate time.
Indexed Securities. The Fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators. Indexed
securities typically, but not always, are debt securities or deposits whose
value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. Gold-indexed securities, for example, typically provide
for a maturity value that depends on the price of gold, resulting in a security
whose price tends to rise and fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate- term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed securities
may be positively or negatively indexed; that is, their maturity value may
increase when the specified currency value increases, resulting in a security
that performs similarly to a foreign-denominated instrument, or their maturity
value may decline when foreign currencies increase, resulting in a security
whose price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the United
States and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values may
decline substantially if the issuer's creditworthiness deteriorates. Indexed
securities may be more volatile than the underlying instruments.
-12-
ADDITIONAL INVESTMENT PRACTICES OF THE GLOBAL BOND AND
QUANTITATIVE EQUITY FUNDS -- FUTURES AND OPTIONS
As described in their Prospectuses, the Global Bond and Quantitative
Equity Funds can engage in a variety of transactions using futures and options.
The following sections provide more detailed information about these practices.
Asset Coverage for Futures and Options Positions. The Funds will comply
with guidelines established by the Securities and Exchange Commission with
respect to coverage of options and futures strategies by mutual funds, and if
the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets. As a result,
there is a possibility that segregation of a large percentage of a Fund's assets
could impede portfolio management or the Fund's ability to meet redemption
requests or other current obligations.
Combined Positions. A Fund may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, the Fund may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
Correlation of Price Changes. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match a Fund's current or anticipated
investments exactly. Each Fund may invest in options and futures contracts based
on securities with different issuers, maturities, or other characteristics from
the securities in which it typically invests, which involves a risk that the
options or futures position will not track the performance of the Fund's other
investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instruments, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. A Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase
-13-
in order to attempt to compensate for differences in volatility between the
contract and the securities, although this may not be successful in all cases.
If price changes in a Fund's options or futures positions are poorly correlated
with its other investments, the positions may fail to produce anticipated gains
or result in losses that are not offset by gains in other investments.
Futures Contracts. When a Fund purchases a futures contract, it agrees
to purchase a specified underlying instrument at a specified future date. When a
Fund sells a futures contract, it agrees to sell the underlying instrument at a
specified future date. The price at which the purchase and sale will take place
is fixed when a Fund enters into the contract. Some currently available futures
contracts are based on specific securities, such as U.S. Treasury bonds or
notes, and some are based on indices of securities prices, such as the Standard
& Poor's Composite Index of 500 Stocks ("S&P 500"). Futures can be held until
their delivery dates, or can be closed out before then if a liquid secondary
market is available. The value of a futures contract tends to increase and
decrease in tandem with the value of its underlying instrument. Therefore,
purchasing futures contracts will tend to increase a Fund's exposure to positive
and negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When a Fund sells a futures
contract, by contrast, the value of its futures position will tend to move in a
direction contrary to the market. Selling futures contracts, therefore, will
tend to offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
Futures Margin Payments. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and seller
are required to deposit "initial margin" with a futures broker, known as a
futures commission merchant ("FCM"), when the contract is entered into. Initial
margin deposits are typically equal to a percentage of the contract's value. If
the value of either party's position declines, that party will be required to
make additional "variation margin" payments to settle the change in value on a
daily basis. The party that has a gain may be entitled to receive all or a
portion of this amount. Initial and variation margin payments do not constitute
purchasing securities on margin for purposes of a Fund's investment limitations.
In the event of the bankruptcy of an FCM that holds margin on behalf of a Fund,
the Fund may be entitled to return of margin owed to it only in proportion to
the amount received by the FCM's other customers, potentially resulting in
losses to the Fund.
Limitations on Futures and Options Transactions. The Funds have filed
notices of eligibility for exclusion from the definition of the term "commodity
pool operator" with the Commodity Futures Trading Commission ("CFTC") and the
National Futures Association, which regulate trading in the futures markets. The
Funds intend to comply with Rule 4.5 under the Commodity Exchange Act. To the
extent the Funds do not engage in commodity futures or commodity options for
"bona fine" hedging purposes, the Rule requires each Fund to limit the initial
margin and premiums paid to establish such positions to 5% of net assets. The
amount by which a commodity option is "in the money" is excluded for these
purposes.
-14-
Liquidity of Options and Futures Contracts. There is no assurance a
liquid secondary market will exist for any particular options or futures
contract at any particular time. Options may have relatively low trading volume
and liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily price
fluctuation limits for options and futures contracts, and may halt trading if a
contract's price moves upward or downward more than the limit in a given day. On
volatile trading days when the price fluctuation limit is reached or a trading
halt is imposed, it may be impossible for a Fund to enter into new positions or
close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require a Fund to
continue to hold a position until delivery or expiration regardless of changes
in its value. As a result, a Fund's access to other assets held to cover its
options or futures positions could also be impaired.
Options and Futures Relating to Foreign Currencies (Global Bond Fund
only). Currency futures contracts are similar to forward currency exchange
contracts, except that they are traded on exchanges (and have margin
requirements) and are standardized as to contract size and delivery date. Most
currency futures contracts call for payment or delivery in U.S. dollars. The
underlying instrument of a currency option may be a foreign currency, which
generally is purchased or delivered in exchange for U.S. dollars, or may be a
futures contract. The purchaser of a currency call obtains the right to purchase
the underlying currency, and the purchaser of a currency put obtains the right
to sell the underlying currency.
The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed above. The
Fund may purchase and sell currency futures and may purchase and write currency
options to increase or decrease its exposure to different foreign currencies.
The Fund may also purchase and write currency options in conjunction with each
other or with currency futures or forward contracts. Currency futures and
options values can be expected to correlate with exchange rates, but may not
reflect other factors that affect the value of the Fund's investments. A
currency hedge, for example, should protect a Yen-denominated security from a
decline in the Yen, but will not protect the Fund against a price decline
resulting from deterioration in the issuer's creditworthiness. Because the value
of the Fund's foreign-denominated investments changes in response to many
factors other than exchange rates, it may not be possible to match the amount of
currency options and futures to the value of the Fund's investments exactly over
time.
OTC Options. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter ("OTC") options (options not traded
on exchanges) generally are established through negotiation with the other party
to the option contract. While this type of arrangement allows a Fund greater
flexibility to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organization of the exchanges where they are traded.
Purchasing Put and Call Options. By purchasing a put option, a Fund
obtains the right
-15-
(but not the obligation) to sell the option's underlying instrument at a fixed
strike price. In return for this right, the Fund pays the current market price
for the option (known as the option premium). Options have various types of
underlying instruments, including specific securities, indices of securities
prices, and futures contracts. A Fund may terminate its position in a put option
it has purchased by allowing it to expire or by exercising the option. If the
option is allowed to expire, the Fund will lose the entire premium it paid. If
the Fund exercises the option, it completes the sale of the underlying
instrument at the strike price. The Fund may also terminate a put option
position by closing it out in the secondary market at its current price, if a
liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying instrument's
price does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium paid,
plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time, the buyer can expect to suffer
a loss if security prices do not rise sufficiently to offset the cost of the
option.
Writing Put and Call Options. When a Fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the Fund assumes the obligation to pay the strike price
for the option's underlying instrument if the other party to the option chooses
to exercise it. When writing an option on a futures contract, the Fund will be
required to make margin payments to an FCM as described above for futures
contracts. The Fund may seek to terminate its position in a put option it writes
before exercise by closing out the option in the secondary market at its current
price. If the secondary market is not liquid for a put option the Fund has
written, however, the Fund must continue to be prepared to pay the strike price
while the option is outstanding, regardless of price changes, and must continue
to set aside assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received. If
security prices remain the same over time, it is likely that the writer will
also profit, because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss. This loss
should be less than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should mitigate the
effects of the decline. Writing a call option obligates a Fund to sell or
deliver the option's underlying instrument, in return for the strike price, upon
exercise of the option. The characteristics of writing call options are similar
to those of writing put options, except that writing calls generally is a
profitable strategy if prices remain the same or fall. Through receipt of the
option premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared
-16-
to deliver the underlying instrument in return for the strike price, even if its
current value is greater, a call writer gives up some ability to participate in
security price increases.
ADDITIONAL INVESTMENT PRACTICES OF THE FIXED INCOME FUND
In addition to the investment practices described in detail in the
Fund's Prospectus under the heading "Investment Objectives and Policies and
Associated Risks - Fixed Income Fund," the Fixed Income Fund may also engage, to
a limited extent, in the following investment practices, which are identified in
the Prospectus and more fully described below. The Fund currently intends to
invest less than 5% of its net assets in each of these instruments in the coming
year.
Strips and Residuals. The Fund may invest in stripped mortgage-backed
securities which are usually structured with two classes that receive different
portions of the interest and principal distributions on a pool of mortgage
loans. The Fund may invest in both the interest-only or "IO" class and the
principal-only or "PO" class. Prepayments could result in losses on such
stripped mortgage-backed securities. The yield to maturity on an IO class of
stripped mortgage-backed securities is extremely sensitive not only to changes
in prevailing interest rates but also to the rate of principal payments
(including prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurably adverse effect on the Fund's yield to maturity
to the extent it invests in IOs. If the assets underlying the IO experience
greater than anticipated prepayments of principal, the Fund may fail to fully
recoup its initial investment in these securities. Conversely, POs tend to
increase in value if prepayments are greater than anticipated and decline if
prepayments are slower than anticipated. Stripped mortgage-backed securities may
have limited liquidity. The Fund may also invest in IO or PO strips relating to
other types of fixed income securities, such as asset-backed securities. Such
investments would be subject similar to risks similar to those described above.
Residuals also involve the additional risk of loss of the entire value
of the investment if the underlying securities are prepaid. In addition, if a
CMO (as defined in the Prospectus) bears interest at an adjustable rate, the
cash flows on the related Residual will also be extremely sensitive to the level
of the index upon which the rate adjustments are based.
Zero Coupon Securities. The Fund may invest in "zero coupon" fixed
income securities. The Fund is required to accrue interest income on these
securities at a fixed rate based on the initial purchase price and the length to
maturity, but these securities do not pay interest in cash on a current basis.
The Fund is required to distribute the income on these securities to its
shareholders as the income accrues, even though the Fund is not receiving the
income in cash on a current basis. Thus, the Fund may have to sell other
investments to obtain cash to make income distributions. The market value of
zero coupon securities is often more volatile than that of non- zero coupon
fixed income securities of comparable quality and maturity.
Indexed Securities. The Fund may purchase securities the redemption
values and/or the coupons of which are indexed to the prices of other
securities, securities indices, precious metals or other commodities, or other
financial indicators. Indexed securities typically, but not always,
-17-
are debt securities or deposits whose value at maturity or coupon rate is
determined by reference to a specific instrument or statistic. Gold-indexed
securities, for example, typically provide for a maturity value that depends on
the price of gold, resulting in a security whose price tends to rise and fall
together with gold prices.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Indexed securities
may be more volatile than the underlying instrument.
Indexed securities in which the Fund may invest include so-called
"inverse floating obligations" or "residual interest bonds" on which the
interest rates typically decline as short-term market interest rates increase
and increase as short-term market rates decline. Such securities have the effect
of providing a degree of investment leverage because they will generally
increase or decrease in value in response to changes in market interest rates at
a rate which is a multiple of the rate at which fixed-rate long-term securities
increase or decrease in response to such changes. As a result, the market values
of such securities will generally be more volatile than the market values of
fixed rate securities.
Loans and Other Direct Debt Instruments. The Fund may invest in direct
debt instruments which are interests in amounts owed by a corporate,
governmental, or other borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments are subject to the
Fund's policies regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally recognized
rating agency. Loans that are fully secured offer the Fund more protection than
an unsecured loan in the event of non-payment of scheduled interest or
principal. However, there is no assurance that the liquidation of collateral
from a secured loan would satisfy the borrower's obligation, or that the
collateral can be liquidated. Indebtedness of borrowers whose creditworthiness
is poor involves substantially greater risks, and may be highly speculative.
Borrowers that are in bankruptcy or restructuring may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Direct
indebtedness of emerging countries will also involve a risk that the
governmental entities responsible for the repayment of the debt may be unable,
or unwilling, to pay interest and repay principal when due.
Investments in loans through direct assignment of a financial
institution's interest with respect to a loan may involve additional risks to
the Fund. For example, if a loan is foreclosed, the Fund could become part owner
of any collateral, and would bear the costs and liabilities associated with
owning and disposing of the collateral. In addition, it is conceivable that
under emerging legal theories of lender liability, the Fund could be held liable
as a co-lender. Direct
-18-
debt instruments may also involve a risk of insolvency of the lending bank or
other intermediary.
A loan is often administered by a bank or other financial institution
that acts as agent for all holders. The agent administers the terms of the loan,
as specified in the loan agreement. The Fund may have to rely on the agent to
collect and pass on to the Fund any payments received from the borrower and to
apply appropriate credit remedies against a borrower. When the Fund is required
to rely upon a financial institution to pass on to the Fund principal and
interest, the Fund will evaluate the creditworthiness of such financial
institution as well as the creditworthiness of the borrower.
Direct indebtedness purchased by the Fund may include letters of
credit, revolving credit facilities, or other standby financing commitments
obligating the Fund to pay additional cash on demand. These commitments may have
the effect of requiring the Fund to increase its investment in a borrower at a
time when it would not otherwise have done so. The Fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
potential obligations under standby financing commitments.
Reverse Repurchase Agreements and Dollar Roll Agreements. The Fund may
enter into reverse repurchase agreements and dollar roll agreements with banks
and brokers to enhance return.
Reverse repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. During the reverse repurchase agreement
period, the Fund continues to receive principal and interest payments on these
securities and also has the opportunity to earn a return on the collateral
furnished by the counterparties to secure their obligation to redeliver the
securities.
Dollar rolls are transactions in which the Fund sells securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
The Fund will establish segregated accounts with its custodian in which
it will maintain assets equal in value to its obligations in respect of reverse
repurchase agreements and dollar rolls. Reverse repurchase agreements involve
the risk that the market value of the securities retained by the Fund may
decline below the price of the securities the Fund has sold but is obligated to
repurchase under the agreement. In the event the buyer of securities under a
reverse repurchase agreement or dollar roll files for bankruptcy or becomes
insolvent, the Fund's use of the proceeds of the agreement may be restricted
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Fund's obligation to repurchase the securities. Reverse
repurchase agreements and dollar rolls are considered borrowings by the Fund for
purposes of the Fund's fundamental investment restriction with respect to
borrowings.
-19-
PORTFOLIO TRANSACTIONS
Investment Decisions
Investment decisions for the Funds and for the other investment
advisory clients of the Manager and the Sub-Advisers and their affiliates are
made with a view to achieving their respective investment objectives. Investment
decisions are the product of many factors in addition to basic suitability for
the particular client involved. Thus, a particular security may be bought or
sold for certain clients even though it could have been bought or sold for other
clients at the same time. Likewise, a particular security may be bought for one
or more clients when one or more other clients are selling the security. In some
instances, one client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously purchase or sell the
same security, in which event each day's transactions in such security are,
insofar as possible, averaged as to price and allocated between such clients in
a manner which in the Manager's or the Sub-Adviser's opinion is equitable to
each and in accordance with the amount being purchased or sold by each. There
may be circumstances when purchases or sales of portfolio securities for one or
more clients will have an adverse effect on other clients.
Brokerage and Research Services
Transactions on U.S. stock exchanges, commodities markets and futures
markets and other agency transactions involve the payment by a Fund of
negotiated brokerage commissions. Such commissions vary among different brokers.
A particular broker may charge different commissions according to such factors
as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment of fixed brokerage commissions, which may
be higher than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter markets, but
the price paid by a Fund usually includes an undisclosed dealer commission or
mark-up. In underwritten offerings, the price paid by a Fund includes a
disclosed, fixed commission or discount retained by the underwriter or dealer.
It is anticipated that most purchases and sales of securities by the Fixed
Income Fund and the Global Bond Fund will be with the issuer or with
underwriters of or dealers in those securities, acting as principal.
Accordingly, such Funds would not ordinarily pay significant brokerage
commissions with respect to securities transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")) from broker-dealers that
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, the Manager and the Sub-Advisers may receive brokerage and research
services and other similar services from many broker-dealers with which the
Manager and the Sub-Advisers place the Funds' portfolio transactions and from
third parties with which these broker-dealers have arrangements. These services
may include such matters as general economic and market reviews,
-20-
industry and company reviews, evaluations of investments, recommendations as to
the purchase and sale of investments, newspapers, magazines, pricing services,
quotation services, news services and personal computers utilized by the
Manager's or Sub-Adviser's investment professionals. Where the services referred
to above are not used exclusively by the Manager or a Sub-Adviser for research
purposes, the Manager or Sub-Adviser, based upon allocations of expected use,
would bear that portion of the cost of these services which directly relates to
their non-research use. Some of these services may be of value to the Manager,
the Sub-Advisers or their affiliates in advising various of their clients
(including the Funds), although not all of these services would necessarily be
useful and of value in managing the Funds or any particular Fund. The management
fee paid by each Fund is not reduced because the Manager, the Sub-Advisers or
their affiliates may receive these services even though the Manager or the
Sub-Advisers might otherwise be required to purchase some of these services for
cash.
The Manager and Sub-Advisers each place orders for the purchase and
sale of portfolio investments for the Funds and buy and sell investments for the
Funds through a substantial number of brokers and dealers. In so doing, the
Manager and the Sub-Advisers use their best efforts to obtain for the Funds the
most favorable price and execution available, except to the extent they may be
permitted to pay higher brokerage commissions as described below. In seeking the
most favorable price and execution, the Manager and the Sub-Advisers, having in
mind each Fund's best interests, consider all factors they deem relevant,
including, by way of illustration, price, the size of the transaction, the
nature of the market for the security or other investment, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the broker-dealer
involved and the quality of service rendered by the broker-dealer in other
transactions.
As permitted by Section 28(e) of the 1934 Act, and by each Management
Contract or, as applicable, the Sub-Advisory Agreements, the Manager and the
Sub-Advisers may cause a Fund to pay a broker-dealer which provides "brokerage
and research services" (as defined in the 1934 Act) to the Manager or
Sub-Adviser an amount of disclosed commission for effecting securities
transactions on stock exchanges and other transactions for such Fund on an
agency basis in excess of the commission which another broker-dealer would have
charged for effecting that transaction. The Manager's or the Sub-Adviser's
authority to cause the Funds to pay any such greater commissions is also subject
to such policies as the Trustees may adopt from time to time. It is the position
of the staff of the Securities and Exchange Commission that Section 28(e) does
not apply to the payment of such greater commissions in "principal"
transactions. Accordingly the Manager and the Sub-Advisers will use their best
effort to obtain the most favorable price and execution available with respect
to such transactions, as described above.
The following tables show brokerage commissions on portfolio
transactions paid by each Fund during the fiscal periods indicated.
-21-
1. FIXED INCOME FUND
-----------------
Fiscal Year Brokerage Commissions
----------- ---------------------
1995 $0
1996 $0
2. GLOBAL SMALL CAP FUND
---------------------
Fiscal Year Brokerage Commissions
----------- ---------------------
1995 $38,917
1996 $26,636
3. VALUE FUND
-----------
Fiscal Year Brokerage Commissions
----------- ---------------------
1995 $16,731
1996 $15,351
4. MID CAP FUND
------------
Fiscal Year Brokerage Commissions
----------- ---------------------
1995 $18,964
1996 $14,880
5. GLOBAL BOND FUND
-----------------
Fiscal Year Brokerage Commissions
----------- ---------------------
1996 $964
6. QUANTITATIVE EQUITY FUND
------------------------
Fiscal Year Brokerage Commissions
----------- ---------------------
1996 $5,791
The following tables show transactions placed by each Fund with brokers and
dealers during the most recent fiscal year to recognize research, statistical
and quotation services.
-22-
1. FIXED INCOME FUND
-----------------
Dollar Value of Percent of Amount of
Those Transactions Total Transactions Commissions
------------------ ------------------ -----------
$0 0% $0
2. GLOBAL SMALL CAP FUND
---------------------
Dollar Value of Percent of Amount of
Those Transactions Total Transactions Commissions
------------------ ------------------ -----------
$191,428 .09% $1,014
3. VALUE FUND
-----------
Dollar Value of Percent of Amount of
Those Transactions Total Transactions Commissions
------------------ ------------------ -----------
$2,276,006 1.69% $5,970
4. MID CAP FUND
-----------------
Dollar Value of Percent of Amount of
Those Transactions Total Transactions Commissions
------------------ ------------------ -----------
$502,449 .37% $2,610
5. GLOBAL BOND FUND
-----------------
Dollar Value of Percent of Amount of
Those Transactions Total Transactions Commissions
------------------ ------------------ -----------
$0 0% $0
-23-
6. QUANTITATIVE EQUITY FUND
------------------------
Dollar Value of Percent of Amount of
Those Transactions Total Transactions Commissions
------------------ ------------------ -----------
$0 0% $0
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
The Trust is organized as a Massachusetts business trust under the laws
of Massachusetts by an Agreement and Declaration of Trust ("Declaration of
Trust") dated August 1, 1994. A copy of the Declaration of Trust is on file with
the Secretary of The Commonwealth of Massachusetts.
The fiscal year for each Fund ends on December 31.
Each share of each Fund represents an equal proportionate interest in
such Fund. Shares of the Trust do not have any preemptive rights. Upon
liquidation of a Fund, shareholders of such Fund are entitled to share pro rata
in the net assets of the Fund available for distribution to shareholders.
The Declaration of Trust also permits the Trustees, without shareholder
approval, to subdivide any series of shares into various sub-series of shares
with such dividend preferences and other rights as the Trustees may designate.
While the Trustees have no current intention to exercise this power, it is
intended to allow them to provide for an equitable allocation of the impact of
any future regulatory requirements which might affect various classes of
shareholders differently. The Trustees may also, without shareholder approval,
establish one or more additional separate portfolios for investments in the
Trust or merge two or more existing portfolios. Shareholders' investments in
such a portfolio would be evidenced by a separate series of shares.
The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust, however, may be terminated at any time by vote of at least
two-thirds of the outstanding shares of the Trust. The Declaration of Trust
further provides that the Trustees may also terminate the Trust upon written
notice to the shareholders.
Voting Rights
- -------------
As summarized in the Prospectus, shareholders are entitled to one vote
for each full share held (with fractional votes for fractional shares held) and
will vote (to the extent provided herein) in the election of Trustees and the
termination of the Trust and on other matters submitted to the vote of
shareholders. Shareholders vote by individual Fund on all matters except (i)
when required by the 1940 Act, shares shall be voted in the aggregate and not by
individual Fund, and (ii) when the Trustees have determined that the matter
affects only the interests of one or more Funds, then only shareholders of such
Funds shall be entitled to vote thereon. Shareholders of
-24-
one Fund shall not be entitled to vote on matters exclusively affecting another
Fund, such matters including, without limitation, the adoption of or change in
the investment objective, policies or restrictions of the other Fund and the
approval of the investment advisory contract of the other Fund.
There will normally be no meetings of shareholders for the purpose of
electing Trustees except that in accordance with the 1940 Act (i) the Trust will
hold a shareholders' meeting for the election of Trustees at such time as less
than a majority of the Trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy in the Board of Trustees,
less than two-thirds of the Trustees holding office have been elected by the
shareholders, that vacancy may only be filled by a vote of the shareholders.
Upon written request by the holders of at least 10% of the outstanding shares
stating that such shareholders wish to communicate with the other shareholders
for the purpose of obtaining the signatures necessary to demand a meeting to
consider removal of a Trustee, the Trust has undertaken to provide a list of
shareholders or to disseminate appropriate materials (at the expense of the
requesting shareholders). In addition, shareholders of the Trust holding at
least 10% of the outstanding shares entitled to vote have the right to call a
meeting to elect or remove Trustees or to take other actions as provided in the
Declaration of Trust. Except as set forth above, the Trustees shall continue to
hold office and may appoint successor Trustees. Voting rights are not
cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust except (i)
to change the Trust's name or to cure technical problems in the Declaration of
Trust and (ii) to establish, designate or modify new and existing series or
sub-series of Trust shares or other provisions relating to Trust shares in
response to applicable laws or regulations.
Shareholder and Trustee Liability
- ---------------------------------
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or executed by the Trust
or the Trustees. The Declaration of Trust provides for indemnification out of
the property of the relevant Fund for all loss and expense of any shareholder of
that Fund held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is considered remote because it is limited to circumstances in which
the disclaimer is inoperative and the Fund of which he is or was a shareholder
would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office. The By-laws of the Trust provide for indemnification by the Trust of
the
-25-
Trustees and the officers of the Trust except with respect to any matter as to
which any such person did not act in good faith in the reasonable belief that
his action was in or not opposed to the best interests of the Trust. Such person
may not be indemnified against any liability to the Trust or the Trust's
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
At January 31, 1997, except as noted below, the officers and trustees of the
Trust did not own any shares of any Fund, and, to the knowledge of the Trust no
person owned of record or beneficially 5% or more of the shares of any Fund.
1. FIXED INCOME FUND
-----------------
Shareholder Name Percentage
and Address Owned
----------- ---------
Massachusetts Mutual Life 37.8%
Insurance Company
1295 State Street
Springfield, MA 01111
David L. Babson & Co. Pension 18.6%
and Profit Sharing Plan
c/o David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, MA 02142
Haley & Aldrich 23.0%
c/o Baybank
7 New England Executive Park
Burlington, MA 01803
Freeland Enterprises 5.6%
P.O. Box 301040
Escondido, CA 92030
2. GLOBAL SMALL CAP FUND
---------------------
Shareholder Name Percentage
and Address Owned
----------- -----
Massachusetts Mutual Life 91.2%
Insurance Company
1295 State Street
Springfield, MA 01111
-26-
David L. Babson & Co. Pension 7.9%
and Profit Sharing Plan
c/o David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, MA 02142
3. VALUE FUND
-----------
Shareholder Name Percentage
and Address Owned
----------- ----------
Massachusetts Mutual Life 65.6%
Insurance Company
1295 State Street
Springfield, MA 01111
Universal Cooperatives 17.1%
c/o Norwest Bank MN NA
6th & Marquette
Minneapolis, MN 55479
David L. Babson & Co. Pension 10.1%
and Profit Sharing Plan
c/o David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, MA 02142
Light & Co. 5.0%
FBO York Foundation
First National Bank of Maryland
P.O. Box 1596
Baltimore, MD 21203
Officers and Trustees 1.3%
as a Group
c/o David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, MA 02142
-27-
4. MID CAP FUND
-------------
Shareholder Name Percentage
and Address Owned
----------- ----------
Massachusetts Mutual Life 92.0%
Insurance Company
1295 State Street
Springfield, MA 01111
David L. Babson & Co. Pension 7.7%
and Profit Sharing Plan
c/o David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, MA 02142
5. GLOBAL BOND FUND
----------------
Shareholder Name Percentage
and Address Owned
----------- ----------
Massachusetts Mutual Life 96.9%
Insurance Company
1295 State Street
Springfield, MA 01111
6. QUANTITATIVE EQUITY FUND
------------------------
Shareholder Name Percentage
and Address Owned
----------- -----
Massachusetts Mutual Life 89.5%
Insurance Company
1295 State Street
Springfield, MA 01111
David L. Babson & Co. Pension 5.4%
and Profit Sharing Plan
c/o David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, MA 02142
-28-
Officers and Trustees 0.90%
as a Group
c/o David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, MA 02142
INVESTMENT PERFORMANCE
Standard Performance Measures for the period ended December 31, 1996.
1. FIXED INCOME FUND
------------------
Average Annual
One-Year Total Return
Total Return Since Inception Yield
------------ --------------- -----
3.70% 7.16% 6.33%
2. GLOBAL SMALL CAP FUND
---------------------
Average Annual
One-Year Total Return
Total Return Since Inception
------------ ---------------
9.85% 9.64%
3. VALUE FUND
-----------
Average Annual
One-Year Total Return
Total Return Since Inception
------------ ---------------
23.99% 22.34%
4. MID CAP FUND
------------
Average Annual
One-Year Total Return
Total Return Since Inception
------------ ---------------
14.75% 16.91%
-29-
5. GLOBAL BOND FUND
----------------
Total Return
Since Inception Yield
--------------- -----
3.21% 5.43%
6. QUANTITATIVE EQUITY FUND
------------------------
Total Return
Since Inception
---------------
18.51%
Total Return with respect to a Fund is a measure of the change in value
of an investment in such Fund over the period covered, which assumes any
dividends or capital gains distributions are reinvested immediately rather than
paid to the investor in cash. The formula for Total Return used herein includes
four steps: (1) adding to the total number of shares purchased by a hypothetical
$1,000 investment in the Fund all additional shares which would have been
purchased if all dividends and distributions paid or distributed during the
period had been immediately reinvested; (2) calculating the value of the
hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of shares owend at the end of the period by the net
asset value per share on the last trading day of the period; (3) assuming
redemption at the end of the period; and (4) dividing this account value for the
hypothetical investor by the initial $1,000 investment. Average Annual Total
Return is the annual compounded percentage change in the value of the amount
invested in the Fund from the beginning until the end of the stated period.
Yield is presented for a specified thirty-day period (the "base
period"). Yield is based on the amount determined by (i) calculating the
aggregate amount of dividends and interest earned by a Fund during the base
period less expenses for that period, and (ii) dividing that amount by the
product of (A) the average daily number of shares of the Fund outstanding during
the base period and entitled to receive dividends and (B) the net asset value on
the last day of the base period. The result is annualized on a compounding basis
to determine the yield. For this calculation, interest earned on debt
obligations held by a Fund is generally calculated using the yield to maturity
(or first expected call date) on such obligations based on their market values
(or, in the case of receivables-backed securities such as securities issued by
the Government National Mortgage Association, based on cost). Dividends on
equity securities are accrued daily at their stated dividend rates.
The inception dates for the Funds are as follows: Fixed Income Fund,
July 25, 1995; Global Small Cap Fund, July 19, 1995; Value Fund, July 25, 1995;
Mid Cap Fund, July 25, 1995; Global Bond Fund, August 26, 1996; and Quantitative
Equity Fund, August 26, 1996.
-30-
DETERMINATION OF NET ASSET VALUE
As indicated in the Prospectus, except on days during which no security
is tendered for redemption and no order to purchase or sell such security is
received by the relevant Fund, the net asset value of each Fund share is
determined at 4:15 p.m., Eastern time, on each day on which the New York Stock
Exchange is open for trading. The Trust expects that the days, other than
weekend days, that the New York Stock Exchange will not be open are Independence
Day, Labor Day, Thanksgiving Day, Christmas Day, New Year's Day, Presidents'
Day, Good Friday and Memorial Day.
EXPERTS
The financial statements of the Fixed Income Fund, the Global Small Cap
Fund, the Value Fund, the Mid Cap Fund, the Global Bond Fund and the
Quantitative Equity Fund as of December 31, 1996 appearing in this Statement of
Additional Information have been audited by Deloitte & Touche LLP, 125 Summer
Street, Boston, Massachusetts 02110, the Trust's independent auditors, as set
forth in each of their reports thereon appearing elsewhere herein, and are
included in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
-31-
DELOITTE &
TOUCHE LLP
----------------------------------
DLB Fixed Income
Fund
Financial Statements for the
Year Ended December 31, 1996 and
for the Period from July 25, 1995
(Commencement of Operations) to
December 31, 1995
- --------------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
DLB FIXED INCOME FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of December 31, 1996 2-4
Statement of Assets and Liabilities as of December 31, 1996 5
Statement of Operations for the Year Ended December 31, 1996 6
Statements of Changes in Net Assets for the Year Ended December 31, 1996
and the Period from July 25, 1995 (commencement of operations) to
December 31, 1995 7
Financial Highlights for the Year Ended December 31, 1996 and the Period
from July 25, 1995 (commencement of operations) to December 31, 1995 8
Notes to Financial Statements 9-11
</TABLE>
DELOITTE &
TOUCHE LLP
- -----------
[LOGO]
-----------------------------------------------------------
125 Summer Street Telephone: (617)261-8000
Boston, Massachusetts 02110-1617 Facsimile: (617)261-8111
INDEPENDENT AUDITORS' REPORT
To the Trustees of the DLB Fund Group and
Shareholders of DLB Fixed Income Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Fixed Income Fund (a separate series of The
DLB Fund Group) as of December 31, 1996, the related statement of operations for
the year then ended, and the statements of changes in net assets and the
financial highlights for the year ended December 31, 1996 and for the period
from July 25, 1995 (commencement of operations) to December 31, 1995. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures include confirmation of securities owned at December
31, 1996 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of DLB Fixed Income
Fund at December 31, 1996, the results of its operations, the changes in its net
assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
February 5, 1997
- --------------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- --------------------
DLB FIXED INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
BONDS - 91.4%
<TABLE>
<CAPTION>
MOODY'S
RATING PRINCIPAL
(UNAUDITED) ISSUER AMOUNT VALUE
US GOVERNMENT - 28.0%
<S> <C> <C> <C>
AAA US Treasury, 8.50%, 1997 $ 150,000 $ 151,688
AAA US Treasury, 8.875%, 1997 450,000 462,092
AAA US Treasury, 7.875%, 1998 450,000 459,986
AAA US Treasury, 6.375%, 1999 100,000 100,937
AAA US Treasury, 7.50%, 1999 375,000 388,946
AAA US Treasury, 6.25%, 2000 100,000 100,375
AAA US Treasury, 6.25%, 2001 175,000 175,165
AAA US Treasury, 7.50%, 2002 500,000 528,670
AAA US Treasury, 11.625%, 2002 500,000 630,545
AAA US Treasury, 6.25%, 2003 350,000 349,563
AAA US Treasury, 5.875%, 2004 150,000 146,039
AAA US Treasury, 10.375%, 2012 250,000 321,947
AAA US Treasury, 8.125%, 2019 350,000 404,852
AAA US Treasury, 8.125%, 2021 50,000 58,016
-------------
4,278,821
-------------
US FEDERAL AGENCY - 2.3%
GOV Federal Home Loan Banks, 7.26%, 1999 100,000 100,906
-------------
MORTGAGES - 23.5%
GOV FHLMC, 6.30%, 1999 250,000 249,453
AAA FHLMC Gold Pool #M90449, 5.50%, 1999 481,800 469,514
AAA FHLMC Gold Pool #G00143, 7.50%, 2005 66,339 66,720
AAA FNMA Pool #346537, 6.00%,2011 504,999 485,632
AAA GNMA Pool #410343, 7.50%, 2011 736,056 749,915
AAA GNMA Pool #423828, 6.00%, 2011 505,000 487,683
AAA GNMA Pool #377614, 7.50%, 2025 494,251 495,121
AAA GNMA Pool #357262, 7.50%, 2023 433,228 435,208
AAA Green Tree Financial Corporation, 1995-3 A4, 7.05%, 2025 100,000 101,500
AAA Green Tree Financial Corporation, 1992 A3, 6.90%, 2027 200,000 198,313
BAA3 Green Tree Financial Corporation, 1994-A, 6.90%, 2004 26,972 26,900
BAA3 Green Tree Financial Corporation, 1995-A, 7.25%, 2005 69,461 69,378
-------------
3,835,337
-------------
</TABLE>
2
<TABLE>
<CAPTION>
BONDS (CONTINUED)
MOODY'S
RATING PRINCIPAL
(UNAUDITED) ISSUER AMOUNT VALUE
INTERNATIONAL - 8.2%
<S> <C> <C> <C>
BAA1 Southern Investments UK, 6.375%, 2001 $200,000 $ 197,380
BAA2 Canadian National Railroad, 7.00%, 2004 500,000 491,045
A2 Province of Quebec, 6.50%, 2006 350,000 337,694
AA3 Province of Ontario, 6.00%, 2006 125,000 118,906
AA3 Province of Ontario, 15.75%, 2012 100,000 108,090
-------------
1,253,115
-------------
BANK - 3.5%
A2 Suntrust Banks, Inc., 6.00%, 2026 250,000 235,075
A1 Chase Capital, 7.67%, 2026 100,000 97,777
AA2 J.P. Morgan Capital Trust, 7.54%, 2027 200,000 195,458
-------------
528,310
-------------
FINANCIAL - 2.5%
A1 Ford Capital BV, 10.125%, 2000 100,000 111,592
A1 Ford Motor Credit Corp., 8.20%, 2002 250,000 265,405
-------------
376,997
-------------
INDUSTRIAL - 19.4%
A3 Chrysler Corp., 10.40%, 1999 100,000 102,496
A3 Ryder System Inc., 8.45%, 1999 100,000 105,158
A2 Sears, Roebuck & Co., 6.50%, 2000 100,000 100,052
A3 General Motors Corp., 9.625%, 2000 200,000 220,752
A1 Aluminum Company of America, 5.75%, 2001 400,000 387,644
BAA1 Comdisco, Inc., 6.735%, 2001 200,000 196,780
A2 Phillip Morris Companies, Inc., 6.80%, 2003 175,000 172,561
A3 Cardinal Health, Inc., 6.50%, 2004 400,000 392,528
BA1 Tele-Communications Inc., 8.65%, 2004 70,000 70,344
A3 Lockheed Martin Corp., 7.70%, 2008 150,000 156,935
A1 Ford Motor Co., 7.25%, 2008 300,000 302,496
BA1 Tele-Communications Inc., 7.875%, 2013 30,000 27,617
A3 Lockheed Martin, 7.65%, 2016 250,000 258,603
BAA3 Time Warner Entertainment, 8.375%, 2023 50,000 50,694
BAA2 American Stores Company, 8.00%, 2026 110,000 112,930
BAA1 Champion International Corp., 7.20%, 2026 300,000 299,357
-------------
2,956,947
-------------
</TABLE>
3
<TABLE>
<CAPTION>
BONDS (CONTINUED)
MOODY'S
RATING PRINCIPAL
(UNAUDITED) ISSUER AMOUNT VALUE
TRANSPORTATION - 4.0%
<S> <C> <C> <C>
A3 CSX Corp., 9.50%, 2000 $ 100,000 $ 109,056
A3 CSX Corp., 9.00%, 2006 200,000 225,240
A2 Southern Pacific Rail Corp., 8.66%, 2011 145,000 157,212
BAA1 United Air Lines Inc., 7.27%, 2013 125,000 121,039
-------------
612,547
-------------
Total bonds (identified cost, $14,035,484) 13,942,980
REPURCHASE AGREEMENT - 7.8%
Bank of New York, dated 12/31/96, due
1/2/97 (secured by $1,227,000 U.S. Treasury
Notes, due 1/31/01, market value $1,220,865) 1,195,700 1,195,700
-------------
Total Investments (identified cost, $15,231,184) 15,138,680
Other assets, less liabilities - 0.8% 121,865
-------------
NET ASSETS - 100% $15,260,545
=============
</TABLE>
See notes to financial statements.
4
<TABLE>
<CAPTION>
DLB FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $15,231,184) $15,138,680
Interest receivable 214,530
------------
Total assets 15,353,210
------------
LIABILITIES:
Payable for investments purchased 10,822
Distributions payable 67,931
Management fees payable 5,059
Accrued expenses 8,853
------------
Total liabilities 92,665
------------
NET ASSETS $15,260,545
============
NET ASSETS CONSIST OF:
Paid-in capital $15,393,498
Unrealized depreciation on investments (92,504)
Accumulated net realized loss on investments (34,783)
Accumulated distributions in excess of net investment income (5,666)
------------
Total $15,260,545
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,509,154
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER
SHARE (NET ASSETS + SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 10.11
============
</TABLE>
See notes to financial statements.
5
<TABLE>
<CAPTION>
DLB FIXED INCOME FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
INTEREST INCOME $821,911
--------
EXPENSES:
Management fee 47,593
Custodian fee 54,866
Legal fees 34,775
Accounting and audit fees 24,500
Printing fees 19,776
Registration costs 8,529
Trustees' fees 7,375
--------
Total expenses 197,414
Reduction of expenses by investment manager (132,102)
--------
Net expenses 65,312
--------
Net investment income 756,599
--------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Realized loss (identified cost basis) (34,750)
Change in unrealized depreciation (225,496)
--------
Net realized and unrealized loss on investments (260,246)
--------
Increase in net assets from operations $496,353
========
</TABLE>
See notes to financial statements.
6
<TABLE>
<CAPTION>
DLB FIXED INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------
Year Ended Period Ended
December 31, December 31,
1996 1995 *
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 756,599 $ 138,911
Net realized gain (loss) on investments (34,750) 53,226
Net unrealized appreciation (depreciation) on investments (225,496) 132,992
------------ ----------
Increase in net assets from operations 496,353 325,129
------------ ----------
Distributions declared to shareholders:
From net investment income (756,599) (138,911)
In excess of net investment income (5,699)
(316)
From net realized gain on investments -- (53,159)
------------ ----------
Total distributions declared to shareholders (762,298) (192,386)
------------ ----------
Fund share (principal) transactions:
Net proceeds from sale of shares 10,052,530 5,000,000
Net asset value of shares issued to shareholders in
reinvestment of distributions 694,367 192,386
Cost of shares reacquired (545,546) --
------------ ----------
Increase in net assets from Fund share transactions 10,201,351 5,192,386
------------ ----------
Total increase in net assets 9,935,406 5,325,129
NET ASSETS:
At beginning of period 5,325,139 10
------------ ----------
At end of period (including accumulated distributions in excess of
net investment income of $5,666 and $0, respectively) $15,260,545 $5,325,139
============ ==========
* For the period from July 25, 1995 (commencement of operations) to December 31, 1995.
</TABLE>
See notes to financial statements.
7
<TABLE>
<CAPTION>
DLB FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Period Ended
December 31, December 31,
1996 1995 **
--------------- ---------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.26 $10.00
------- ------
Income from investment operations:
Net investment income .53 .28
Net realized and unrealized gain (loss) on investments (.15) .37
------- ------
Total income from investment operations .38 .65
------- ------
Less distributions declared to shareholders:
From net investment income (1) (.53) (.28)
From net realized gain on investments -- (.11)
------- ------
Total distributions declared to shareholders (.53) (.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 .55% .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 .55% of average daily net
assets on an annualized basis. If the fee and expenses borne by the manager had
been charged to the Fund and had 1995 expenses been limited to that permitted by
state securities law, the net investment income per share and ratios would have
been:
Net investment income $.44 $.19
Ratios (to average net assets):
Expenses 1.66% 2.50%*
Net investment income 5.25% 4.33%*
* Annualized.
** For the period from July 25, 1995 (commencement of operations) to December 31, 1995.
(1) Distributions in excess of net investment income for the year ended December 31, 1996 were less than
$.01 per share.
</TABLE>
See notes to financial statements.
8
DLB FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Fixed Income Fund (the "Fund") is a non-diversified series of The
DLB Fund Group (the "Trust" ). The Trust is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Debt securities (other than short-term
obligations which mature in 60 days or less), including listed issues,
are valued on the basis of valuations furnished by dealers or by a
pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60
days or less, are valued at amortized cost, which approximates market
value. Securities for which there are no such quotations or valuations
are valued at fair value as determined in good faith by or at the
direction of the Trustees.
REPURCHASE AGREEMENTS - The Fund may enter into repurchase agreements
with institutions that the Fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The Fund
requires that the securities purchased in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable that Fund
to obtain those securities in the event of a default under the
repurchase agreement. The Fund monitors, on a daily basis, the value of
the securities transferred to ensure that the value, including accrued
interest, of the securities under each repurchase agreement is greater
than amounts owed to the Fund under each such repurchase agreement.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are
recorded on the trade date. Interest income is recorded on the accrual
basis. All premium and original discount are amortized or accreted for
financial statement and tax reporting purposes as required by federal
income tax regulations.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code ("Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is
necessary. At December 31, 1996, the Fund, for federal income tax
purposes, had $34,783 in capital loss carryforwards which expire
December 31, 2004. Capital loss carryovers will reduce taxable income
arising from future net realized gain on investments, if any, to the
extent permitted by the Internal Revenue Code, and thus will reduce the
amount of the distributions to shareholders which would otherwise be
necessary to relieve the Funds of any liability for federal income or
excise tax.
9
The Fund files a tax return annually using tax accounting methods
required under provisions of the Code which may differ from generally
accepted accounting principles, the basis on which these financial
statements are prepared. Accordingly, the amount of net investment
income and net realized gain reported on these financial statements may
differ from that reported on the Fund's tax return, and consequently,
the character of distributions to shareholders reported in the
financial highlights may differ from that reported to shareholders on
Form 1099-DIV. Distributions to shareholders are recorded on the
ex-dividend date.
The Fund distinguishes between distributions for tax purposes and
financial reporting purposes. Only distributions in excess of tax-basis
earnings and profits are reported as a return of capital. Differences
between income for financial reporting purposes and tax-basis earnings
and profits that result in temporary over-distributions for financial
statement purposes, are classified as distributions in excess of net
investment income or accumulated undistributed net realized gains.
During the year ended December 31, 1996, $33 was reclassified to
accumulated net realized loss from accumulated distributions in excess
of net investment income due to differences between financial reporting
and tax accounting for realized gains on investment transactions. This
change had no effect on net assets or net asset value per share.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund has a management contract with David L. Babson & Co. Inc.
("DLB") to provide investment advisory and administrative services and
general office facilities. The management fee is computed daily and
paid monthly at an effective annual rate of .40% of average daily net
assets.
For the year ended December 31, 1996, the management fee amounted to
$47,593, of which $23,977 was waived by DLB. Additionally, $108,125 of
Fund expenses were borne by DLB.
The Fund pays no compensation directly to those of its Trustees who
also are officers of the investment manager, or to the officers of the
Fund, all of whom receive remuneration for their services to the Fund
from DLB.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------- ------------
<S> <C> <C>
U.S. Government securities $ 6,092,004 $3,282,519
============= ============
Investments (non-U.S. government securities) $10,148,613 $3,692,030
============= ============
</TABLE>
10
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax
basis, are as follows:
Aggregate cost $15,231,184
=============
Gross unrealized depreciation $ (160,643)
Gross unrealized appreciation
68,139
-------------
Net unrealized depreciation $ (92,504)
=============
5. SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest
(without par value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
1996 1995
------------------- ------------------
<S> <C> <C>
Shares sold 974,836 500,000
Shares issued to shareholders in reinvestment
of distributions 68,681 18,788
Redemptions (53,152) --
--------- ---------
Net increase 990,365 518,788
========= =========
</TABLE>
11
DELOITTE &
TOUCHE LLP
- -----------
[LOGO] ----------------------------------
DLB GLOBAL SMALL
CAPITALIZATION FUND
Financial Statements for the
Year Ended December 31, 1996 and
for the Period from July 19, 1995
(Commencement of Operations) to
December 31, 1995
- ---------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- ---------------
DLB GLOBAL SMALL CAPITALIZATION FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of December 31, 1996 2-8
Statement of Assets and Liabilities as of December 31, 1996 9
Statement of Operations for the Year Ended December 31, 1996 10
Statements of Changes in Net Assets for the Year Ended December 31, 1996
and the Period from July 19, 1995 (commencement of operations) to
December 31, 1995 11
Financial Highlights for the Year Ended December 31, 1996 and the Period from July
19, 1995 (commencement of operations) to December 31, 1995 12
Notes to Financial Statements 13-17
</TABLE>
DELOITTE &
TOUCHE LLP
- ------------
[LOGO]
-----------------------------------------------------------
125 Summer Street Telephone: (617)261-8000
Boston, Massachusetts 02110-1617 Facsimile: (617)261-8111
INDEPENDENT AUDITORS' REPORT
To the Trustees of the DLB Fund Group and
Shareholders of DLB Global Small Capitalization Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Global Small Capitalization Fund (a
separate series of The DLB Fund Group) as of December 31, 1996, the related
statement of operations for the year then ended, and the statements of changes
in net assets and the financial highlights for the year ended December 31, 1996
and for the period from July 19, 1995 (commencement of operations) to December
31, 1995. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures include confirmation of securities owned at December
31, 1996 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of DLB Global Small
Capitalization Fund at December 31, 1996, the results of its operations, the
changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles .
Deloitte & Touche LLP
February 5, 1997
- ---------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- ---------------
DLB GLOBAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS - 98.4%
ISSUER SHARES VALUE
CHEMICALS - 1.7%
<S> <C> <C>
Calgon Carbon Corporation 9,200 $ 112,700
M.A. Hanna Company 4,500 98,438
--------------
211,138
--------------
METALS & MINING - 1.9%
Calmat Co. 6,400 120,000
Martin Marietta Materials, Inc. 5,100 118,575
--------------
238,575
--------------
PAPER & FOREST PRODUCTS - 0.9%
Albany International Corp. 4,800 111,000
--------------
AEROSPACE - 1.0%
EG&G, INC. 6,000 120,750
--------------
CONSTRUCTION - 1.0%
Southdown, Inc. 4,300 133,838
--------------
MACHINERY & EQUIPMENT - 4.1%
BW/IP, Inc. 7,600 125,400
Elsag Bailey * 7,100 133,125
Harsco Corp. 2,000 137,000
Trinity Industries, Inc. 3,300 123,750
--------------
519,275
--------------
APPAREL - TEXTILE - 1.9%
National Service Industries, Inc. 3,700 138,288
Stride Rite Corporation 10,300 103,000
--------------
241,288
--------------
AUTO PARTS MANUFACTURERS - 2.7%
Armor All Products Corporation 6,800 129,200
Bandag, Incorporated, Class A 2,100 96,075
Standard Products Company 4,400 112,200
--------------
337,475
--------------
</TABLE>
2
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
FURNITURE & APPLIANCES - 3.0%
<S> <C> <C>
Herman Miller, Inc. 3,300 $ 186,863
La-Z-Boy Inc. 3,500 103,250
Stanhome Inc. 3,100 82,150
--------------
372,263
--------------
PRINTING & PUBLISHING - 1.9%
Central Newspapers, Inc., Class A 3,300 145,200
Lee Enterprises, Inc. 4,200 97,650
--------------
242,850
--------------
RETAIL - GENERAL - 1.0%
Fred Meyer, Inc.* 3,700 131,350
--------------
RETAIL - SPECIALTY - 1.4%
Charming Shoppes, Inc.* 15,600 78,975
Fingerhut Companies, Inc. 7,600 93,100
--------------
172,075
--------------
WHOLESALERS - 0.8%
Waban Inc.* 3,700 96,200
--------------
FOOD PRODUCERS - 1.8%
Dean Foods Company 3,500 112,875
Ralcorp Holdings, Inc.* 5,300 111,963
--------------
224,838
--------------
COSMETIC & TOILETRY - 0.9%
Alberto-Culver Company, Class A 2,600 107,250
--------------
TOBACCO - 1.2%
Dimon Inc. 6,700 154,938
--------------
COAL, GAS & PIPE - 1.9%
Cabot Oil & Gas Corp., Class A 6,200 106,175
Nabors Industries, Inc.* 6,600 127,050
--------------
233,225
--------------
EXPLORATION & DRILLING - 1.1%
Global Industrial Technologies, Inc.* 6,200 137,175
--------------
OIL - DOMESTIC - 0.9%
Quaker State Corp. 7,800 110,175
--------------
</TABLE>
3
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
BANKS - 3.0%
<S> <C> <C>
Dime Bancorp, Inc.* 5,700 $ 84,075
First Security Corp. 4,350 146,813
Glendale Federal Bank, FSB* 6,400 148,800
--------------
379,688
--------------
INSURANCE COMPANIES - 3.3%
Arthur J. Gallagher & Co. 2,600 80,600
Hartford Steam Boiler 2,200 102,025
Western National Corp. 6,600 127,050
Willis Corroon Group ** 8,800 101,200
--------------
410,875
--------------
COMPUTER RELATED - 0.8%
Gerber Scientific, Inc. 6,700 99,663
--------------
ELECTRONICS & INSTRUMENTS -1.1%
Intergraph Corporation* 8,000 82,000
Scitex Corp. Ltd. 7,400 70,300
--------------
152,300
--------------
OFFICE EQUIPMENT - 1.2%
Wallace Computer Services, Inc. 4,400 151,800
--------------
TELECOMMUNICATIONS - 0.5%
Octel Communications Corp.* 3,700 64,750
--------------
TRUCKING & SHIPPING - 1.4%
Alexander & Baldwin Inc. 4,100 102,500
J.B. Hunt Transport Services, Inc. 5,000 70,000
--------------
172,500
--------------
NATURAL GAS - 0.7%
Equitable Resources, Inc. 3,100 92,225
--------------
</TABLE>
4
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS (CONTINUED)
FOREIGN - 55.3%
ISSUER SHARES VALUE
<S> <C> <C>
UNITED KINGDOM
Allied Colloids Group PLC 57,728 $ 119,091
Peter Black Holdings PLC 19,000 105,716
N. Brown Group PLC 20,000 154,080
Devro International PLC 26,000 119,737
Eurotherm PLC 8,000 70,534
Fairey Group PLC 11,300 112,011
Seton Healthcare Group 13,000 101,265
Spirax-Sarco Engineering PLC 12,000 137,645
Takare 33,598 78,227
Unichem PLC 21,300 89,523
--------------
1,087,829
--------------
BELGIUM
Colruyt SA 450 206,227
--------------
FRANCE
Bioblock Scientific 2,500 163,729
Brioche Pasquier 1,000 127,901
Guilbert SA 1,200 234,614
Societe Manutan 2,000 204,180
Spir Communication 1,400 133,191
Virbac 1,200 142,618
--------------
1,006,233
--------------
GERMANY
Rhoen-Klinikum AG 1,200 128,140
SKW Trostberg AG 6,000 162,843
Sto AG-OS Vorzugs** 250 117,657
--------------
408,640
--------------
ITALY
Gewiss SPA 10,000 131,666
Industrie Natuzzi SPA** 3,740 86,020
--------------
217,686
--------------
</TABLE>
5
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
FOREIGN (CONTINUED)
NETHERLANDS
<S> <C> <C>
Grolsch NV 3,350 $ 129,830
Nutricia Verenidge Bedrijven NV 1,300 197,391
--------------
327,221
--------------
SWEDEN
Cardo AB 5,000 138,023
--------------
SWITZERLAND
Fotolabo SA 500 194,030
Phoenix Mecano 300 156,716
--------------
350,746
--------------
AUSTRALIA
United Construction Group Ltd. 76,562 118,601
--------------
NEW ZEALAND
Guiness Peat Group PLC 187,550 108,546
--------------
JAPAN
Aim Services Company Ltd. 5,000 95,152
Canon Aptex Inc. 6,050 81,792
Chodai Co. Ltd. 4,400 107,604
Daiwa Industries Ltd. 12,000 94,963
FCC Co. Ltd. 3,000 81,374
Fujimi Incorporated 1,000 53,733
Fukuda Denshi 5,000 109,791
Harada Industry Company 3,000 41,075
Kanematsu Electronics 10,000 74,055
Maruko Co. Ltd. 2,700 90,442
Mirai Industry Co. Ltd. 3,000 81,374
Nihon Jumbo Co. Ltd. 5,160 179,509
Nissen 30 209
Royal Ltd. 4,400 100,405
Toami Corporation 7,000 69,922
Xebio Co. Ltd. 4,000 118,832
Yamaichi Electronics CP Ltd. 2,000 38,750
--------------
1,418,982
--------------
</TABLE>
6
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
FOREIGN (CONTINUED)
HONG KONG
<S> <C> <C>
CDL Hotels International 195,000 $ 111,555
Chen Hsong Holdings 150,000 91,144
Gold Peak Industries Ltd. 150,000 102,780
South China Morning Post 150,000 124,111
Vitasoy International Holdings Ltd. 250,000 109,082
YGM Trading 100,000 102,133
--------------
640,805
--------------
INDONESIA
Multi Bintang 5,500 97,987
--------------
MALAYSIA
Perlis Plantations Berhad 50,000 155,384
--------------
PHILIPPINES
Alaska Milk Corp.* 900,000 116,173
--------------
SINGAPORE
Tibs Holdings Ltd. 40,000 70,571
Tiger Medicals Ltd. 50,000 73,214
United Industrial Corp. 90,000 75,857
--------------
219,642
--------------
THAILAND
Matichon Public Co. Ltd. Forei 20,000 52,223
Saha Pathana Interholding Ltd. 35,000 92,750
Thai Pineapple Company Ltd. 60,000 140,302
--------------
285,275
--------------
ARGENTINA
Quilmes Industries SA* ** 2,400 21,900
Quilmes Industries SA* 4,800 38,400
--------------
60,300
--------------
Total common and preferred stocks
(identified cost, $11,143,657) 12,383,779
--------------
</TABLE>
7
<TABLE>
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENT - 1.6% AMOUNT VALUE
<S> <C> <C>
Bank of New York, dated 12/31/96, due
1/2/97 (secured by $213,000 U.S. Treasury
Notes, due 1/31/01, market value $211,935) $ 206,779 $ 206,779
--------------
Total Investments (identified cost, $11,350,436) 12,590,558
Other assets, less liabilities - 0% (4,954)
--------------
NET ASSETS - 100% $12,585,604
==============
</TABLE>
Abbreviations have been used throughout this report to indicate
amounts shown in currencies other than the U.S. dollar. A list of
abbreviations is shown below.
JPY - Japanese Yen
GBP - British Pounds
* Non-income producing security.
** Preferred stock.
See notes to financial statements.
8
DLB GLOBAL SMALL CAPITALIZATION FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (identified cost, $11,350,436) $12,590,558
Foreign cash, at value (cost, $26,833) 26,833
Receivable for investments sold 30,696
Net receivable for forward foreign currency exchange contracts sold 50
Net receivable for forward foreign currency exchange contracts purchased 304
Dividends and interest receivable 16,034
Other receivables 11,349
------------
Total assets 12,675,824
------------
LIABILITIES:
Payable for investments purchased 57,841
Management fees payable 16,522
Accrued expenses 15,857
------------
Total liabilities 90,220
------------
NET ASSETS $12,585,604
============
NET ASSETS CONSIST OF:
Paid-in capital $11,390,719
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies 1,240,045
Accumulated distributions in excess of net realized gain on investments and
foreign currency transactions (44,806)
Accumulated distributions in excess of net investment income (354)
------------
Total $12,585,604
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,124,924
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER
SHARE (NET ASSETS ( SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 11.19
============
</TABLE>
See notes to financial statements.
9
DLB GLOBAL SMALL CAPITALIZATION FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $8,633) $ 171,381
Interest 20,636
----------
Total investment income 192,017
----------
EXPENSES:
Management fee 120,522
Custodian fee 69,345
Legal fees 34,775
Accounting and audit fees 24,500
Printing fees 19,776
Registration costs 8,529
Trustees' fees 7,375
----------
Total expenses 284,822
Reduction of expenses by investment manager (104,117)
----------
Net expenses 180,705
----------
Net investment income 11,312
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) (identified cost basis):
Investment transactions 154,611
Foreign currency transactions and forward foreign currency exchange
contracts and other transactions denominated in foreign currency (1,600)
----------
Net realized gain on investments and foreign currency 153,011
----------
Change in unrealized appreciation (depreciation):
Investments 868,373
Foreign currency and forward foreign currency exchange contracts and other
transactions denominated in foreign currency (259)
----------
Net unrealized gain on investments and foreign currency 868,114
----------
Net realized and unrealized gain on investments and foreign
currency 1,021,125
----------
Increase in net assets from operations $1,032,437
==========
</TABLE>
See notes to financial statements.
10
DLB GLOBAL SMALL CAPITALIZATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
1996 1995 *
------------ -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 11,312 $ 66,244
Net realized gain (loss) on investments and foreign currency 153,011 (28,897)
Net unrealized appreciation on investments and foreign currency 868,114 371,931
------------ -------------
Increase in net assets from operations 1,032,437 409,278
------------ -------------
Distributions declared to shareholders:
From net investment income (10,427) (66,244)
In excess of net investment income -- (5,980)
From net realized gain on investments (117,741) --
In excess of net realized gain on investments (46,438) --
------------ -------------
Total distributions declared to shareholders (174,606) (72,224)
------------ -------------
Fund share (principal) transactions:
Net proceeds from sale of shares 1,136,330 10,000,000
Net asset value of shares issued to shareholders in
reinvestment of distributions 174,606 72,224
Cost of shares reacquired (92,441) --
------------ -------------
Increase in net assets from Fund share transactions 1,218,495 10,072,224
------------ -------------
Total increase in net assets 2,076,326 10,409,278
NET ASSETS:
At beginning of period 10,509,278 100,000
------------ -------------
At end of period (including accumulated undistributed (distributions
in excess of) net investment income of $(354) and $393,
respectively) $12,585,604 $10,509,278
============ =============
* For the period from July 19, 1995 (commencement of operations) to December 31, 1995.
</TABLE>
See notes to financial statements.
11
DLB GLOBAL SMALL CAPITALIZATION FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
1996 1995 **
---------------- ---------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.33 $10.00
------- ------
Income from investment operations:
Net investment income .01 .07
Net realized and unrealized gain on investments 1.01 .33
------- ------
Total income from investment operations 1.02 0.40
------- ------
Less distributions declared to shareholders:
From net investment income (.01) (.07)
From net realized gain on investments (.11) --
In excess of net realized gain on investments (.04) --
------- ------
Total distributions declared to shareholders (.16) (.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 .09% 1.46%*
Portfolio turnover 22% 5%
Average commission rate paid (1) $ .01170 --
Net assets at end of period (000 omitted) $12,586 $10,509
The manager has agreed with the Fund to reduce its 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 borne by the manager had
been charged to the Fund and had 1995 expenses been limited to that permitted by
state securities law, the net investment income (loss) per share and ratios
would have been:
Net investment income (loss)
$(.10) $.02
Ratios (to average net assets):
Expenses 2.36 % 2.50%*
Net investment income (loss) (.77)% .42%*
* Annualized.
** For the period from July 19, 1995 (commencement of operations) to December 31, 1995.
(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.
</TABLE>
See notes to financial statements.
12
DLB GLOBAL SMALL CAPITALIZATION FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Global Small Capitalization Fund (the "Fund") is a non-diversified
series of The DLB Fund Group (the "Trust" ). The Trust is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges
or reported through the NASDAQ system are valued at last sale prices.
Unlisted equity securities or listed equity securities for which last
sale prices are not available are valued at last quoted bid prices.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. Securities for which
there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
REPURCHASE AGREEMENTS - The Fund may enter into repurchase agreements
with institutions that the Fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The Fund
requires that the securities purchased in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable that Fund
to obtain those securities in the event of a default under the
repurchase agreement. The Fund monitors, on a daily basis, the value of
the securities transferred to ensure that the value, including accrued
interest, of the securities under each repurchase agreement is greater
than amounts owed to the Fund under each such repurchase agreement.
FOREIGN CURRENCY TRANSLATION - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted
each business day into U.S. dollars based upon current exchange rates.
Purchases and sales of foreign investments and income and expenses are
converted into U.S. dollars based upon currency exchange rates
prevailing on the respective dates of such transactions. Gains and
losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net
realized gains and losses on investments. Gains and losses attributable
to foreign exchange rate movements on income and expenses are recorded
for financial statement purposes as foreign currency transaction gains
and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign
currency exchange rates is not separately disclosed.
13
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The Fund may enter into
forward foreign currency exchange contracts for the purchase or sale of
a specific foreign currency at a fixed price on a future date. Risks
may arise upon entering these contracts from the potential inability of
counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to
the U.S. dollar. The Fund will enter into forward contracts for hedging
purposes only. The Fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal
investment activities. It may also use contracts in a manner intended
to protect foreign currency-denominated securities from declines in
value due to unfavorable exchange rate movements. The forward foreign
currency exchange contracts are adjusted by the daily exchange rate of
the underlying currency, and any gains or losses are recorded for
financial statement purposes as unrealized until the contract
settlement date.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are
recorded on the trade date. Dividend income is recorded on the
ex-dividend date. However, if the ex-dividend date has passed, certain
dividends from foreign securities are recorded as the Fund is informed
of the ex-dividend date. Dividend payments received in additional
securities are recorded in an amount equal to the value of the
securities. Interest income is recorded on the accrual basis.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code ("Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is
necessary. At December 31, 1996, net capital losses of $44,755
attributable to security transactions incurred after October 31, 1996,
are treated as arising on the first day of the Fund's next taxable
year.
The Fund files a tax return annually using tax accounting methods
required under provisions of the Code which may differ from generally
accepted accounting principles, the basis on which these financial
statements are prepared. Accordingly, the amount of net investment
income and net realized gain reported on these financial statements may
differ from that reported on the Fund's tax return, and consequently,
the character of distributions to shareholders reported in the
financial highlights may differ from that reported to shareholders on
Form 1099-DIV. Foreign taxes have been provided for on interest and
dividend income earned on foreign investments in accordance with the
applicable country's tax rate and to the extent unrecoverable are
recorded as a reduction of net investment income.
Distributions to shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions for tax purposes and
financial reporting purposes. Only distributions in excess of tax-basis
earnings and profits are reported as a return of capital. Differences
between income for financial reporting purposes and tax-basis earnings
and profits that result in temporary over-distributions for financial
statement purposes, are classified as distributions in excess of net
investment income or accumulated undistributed net realized gains.
During the year ended December 31, 1996, $1,632 was reclassified from
accumulated distributions in excess of net realized gains on investment
and foreign currency transactions to accumulated distributions in
excess of net investment income due to differences between financial
reporting and tax accounting for foreign currency transactions. This
change had no effect on net assets or net asset value per share.
14
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund has a management contract with David L. Babson & Co. Inc.
("DLB") to provide investment advisory and administrative services and
general office facilities. The management fee is computed daily and
paid monthly at an effective annual rate of 1.00% of average daily net
assets.
DLB has entered into a sub-advisory agreement with Babson-Stewart Ivory
International ("BSI") with respect to the management of the
international component of the Fund's portfolio. Under the sub-advisory
agreement, DLB pays BSI a monthly fee at the annual rate of .50% of
average daily net assets.
For the year ended December 31, 1996, the management fee amounted to
$120,522, of which $24,608 was waived by DLB. Additionally, $79,509 of
Fund expenses were borne by DLB.
The Fund pays no compensation directly to those of its Trustees who
also are officers of the investment manager, or to the officers of the
Fund, all of whom receive remuneration for their services to the Fund
from DLB.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
aggregated $3,619,063 and $2,595,673, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax
basis, are as follows:
Aggregate cost $11,350,436
=============
Gross unrealized appreciation $ 2,082,069
Gross unrealized depreciation (841,947)
-------------
Net unrealized appreciation $ 1,240,122
=============
15
5. SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest
(without par value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
1996 1995
---------------- --------------
<S> <C> <C>
Shares sold 100,497 1,000,000
Shares issued to shareholders in reinvestment
of distributions 15,604 7,012
Redemptions (8,189) --
-------- ----------
Net increase 107,912 1,007,012
======== ==========
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund trades financial instruments with off-balance sheet risk in
the normal course of its investing activities in order to manage
exposure to market risks such as foreign currency exchange rates. These
financial instruments include forward foreign currency exchange
contracts. The notional or contractual amounts of these instruments
represent the Fund's investment in a particular class of financial
instruments and does not necessarily represent the amounts potentially
subject to risk. The measurement of risks associated with these
instruments is meaningful only when all related and offsetting
transactions are considered. A summary of obligations under these
financial instruments at December 31, 1996 is as follows:
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Settlement Contracts to In Exchange Contracts Net Unrealized
Date Currency Deliver/Receive For at Value Appreciation
------------ ----------- ---------- ---------------- ------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Sales 1/02/97 JPY 3,116,069 $26,890 $26,840 $ 50
====
Purchases 1/03/97 GBP 15,137 $25,608 $25,912 $304
====
</TABLE>
At December 31, 1996, the Fund had sufficient cash and/or securities to
cover any commitments under these contracts.
16
7. RISKS ASSOCIATED WITH FOREIGN INVESTMENTS
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks
not present in domestic investments. For example, there is generally
less publicly available information about foreign companies,
particularly those not subject to disclosure and reporting requirements
of the U.S. securities laws. Foreign issuers are generally not bound by
uniform accounting, auditing, and financial reporting requirements and
standards of practice comparable to those applicable to domestic
issuers. Investments in foreign securities also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of
funds or other assets of the Fund, political or financial instability
or diplomatic and other developments which could affect such
investments. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers (particularly those
located in developing countries) may be less liquid and more volatile
than securities of comparable U.S. companies. In general, there is less
overall governmental supervision and regulation of foreign securities
markets, broker-dealers, and issuers than in the United States.
17
DELOITTE &
TOUCHE LLP
- -----------
[LOGO] ----------------------------------
DLB Value Fund
Financial Statements for the
Year Ended December 31, 1996 and
for the Period from July 25, 1995
(Commencement of Operations) to
December 31, 1995
- ----------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- ----------------
DLB VALUE FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of December 31, 1996 2-4
Statement of Assets and Liabilities as of December 31, 1996 5
Statement of Operations for the Year Ended December 31, 1996 6
Statements of Changes in Net Assets for the Year Ended December 31, 1996
and the Period from July 25, 1995 (commencement of operations) to
December 31, 1995 7
Financial Highlights for the Year Ended December 31, 1996 and the Period from July
25, 1995 (commencement of operations) to December 31, 1995 8
Notes to Financial Statements 9-11
</TABLE>
DELOITTE &
TOUCHE LLP
- ------------
[LOGO]
-----------------------------------------------------------
125 Summer Street Telephone: (617)261-8000
Boston, Massachusetts 02110-1617 Facsimile: (617)261-8111
INDEPENDENT AUDITORS' REPORT
To the Trustees of the DLB Fund Group and Shareholders of DLB Value Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Value Fund (a separate series of The DLB
Fund Group) as of December 31, 1996, the related statement of operations for the
year then ended, and the statements of changes in net assets and the financial
highlights for the year ended December 31, 1996 and for the period from July 25,
1995 (commencement of operations) to December 31, 1995. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures include confirmation of securities owned at December
31, 1996 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of DLB Value Fund at
December 31, 1996, the results of its operations, the changes in its net assets,
and its financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
February 5, 1997
- ----------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- ----------------
DLB VALUE FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS - 95.7%
ISSUER SHARES VALUE
<S> <C> <C>
CHEMICALS - 2.3%
E.I. Dupont deNemours & Co. 4,600 $ 434,125
-------------
SPECIALTY CHEMICALS - 0.2%
Millennium Chemicals Inc. 2,357 41,837
-------------
METALS & MINING - 0.5%
Martin Marietta Materials, Inc. 4,323 100,510
-------------
PAPER & FOREST PRODUCTS - 7.1%
Potlatch Corporation 10,600 455,800
Weyerhaeuser Co. 9,100 431,113
Willamette Industries, Inc. 6,800 473,450
-------------
1,360,363
-------------
AEROSPACE - 4.6%
Boeing Company 4,700 499,963
Lockheed Martin Corporation 4,184 382,836
-------------
882,799
-------------
ENVIRONMENTAL - 2.4%
Safety-Kleen Corp. 28,700 469,962
-------------
APPAREL - TEXTILE - 2.5%
Reebok International Ltd. 12,100 508,200
-------------
AUTO PARTS MANUFACTURERS - 2.4%
Dana Corporation 14,000 456,750
-------------
PRINTING & PUBLISHING - 2.0%
Harcourt General Inc. 8,300 382,838
-------------
RETAIL DISCOUNT - 2.2%
KMart Corp. 27,900 289,462
KMart Financial 7.75% Convertible Preferred** 2,600 126,750
-------------
416,212
-------------
</TABLE>
2
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
<S> <C> <C>
RETAIL - GENERAL - 4.2%
J. C. Penney Company, Inc. 8,000 $ 390,000
Sears, Roebuck & Co. 9,100 419,738
-------------
809,738
-------------
FOOD PRODUCERS - 2.5%
Grand Metropolitan Plc. 14,899 471,181
-------------
MEDICAL SUPPLIES & SERVICES - 4.8%
Tenet Healthcare Corporation* 19,500 426,563
United Healthcare Corp. 10,900 490,500
--------------
917,063
-------------
OIL - DOMESTIC - 2.4%
Atlantic Richfield Co. 3,500 463,750
-------------
OIL - INTERNATIONAL - 2.5%
Royal Dutch Petroleum ADR 2,800 478,100
-------------
BANKS - 9.6%
Chase Manhattan Corp. 5,400 481,950
First Bank System Inc. 6,500 443,625
National City Corp. 10,400 466,700
Wells Fargo & Co. 1,700 458,575
-------------
1,850,850
-------------
FINANCIAL SERVICES - 12.6%
American Express Co. 9,400 531,100
Salomon Inc. 9,600 452,400
Student Loan Corp. 13,300 495,425
Student Loan Marketing Association 5,000 465,625
Transamerica Corp. 6,000 474,000
-------------
2,418,550
-------------
INSURANCE COMPANIES - 7.9%
Aetna Inc. 6,700 536,000
Allstate Corp. 8,400 486,150
General RE Corp. 3,100 489,025
-------------
1,511,175
-------------
</TABLE>
3
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
<S> <C> <C>
DIVERSIFIED - 1.3%
Hanson PLC 37,100 $ 250,425
-------------
PROFESSIONAL SERVICES - 4.1%
ABM Industries Inc. 20,000 370,000
PHH Corporation 9,600 412,800
-------------
782,800
-------------
COMPUTER RELATED - 4.8%
Apple Computer Inc. 18,900 394,538
International Business Machines 3,500 528,500
-------------
923,038
-------------
OFFICE EQUIPMENT - 5.5%
Wallace Computer Services, Inc. 15,600 538,200
Xerox Corp. 9,900 520,988
-------------
1,059,188
-------------
AIRLINES - 2.8%
KLM Royal Dutch Airlines 19,000 529,625
-------------
TRUCKING & SHIPPING - 2.3%
Overseas Shipholding Group 26,500 450,500
-------------
ELECTRICAL POWER - 2.2%
Texas Utilities Company 10,300 419,722
-------------
Total common and preferred stocks
(identified Cost, $15,423,824) 18,389,301
PRINCIPAL
REPURCHASE AGREEMENT - 3.8% AMOUNT
Bank of New York, dated 12/31/96, due
1/2/97 (secured by $755,000 U.S. Treasury
Notes, due 1/31/01, market value $751,225) $735,130 735,130
-------------
Total Investments (identified cost, $16,158,954) 19,124,431
Other assets, less liabilities - 0.5% 103,671
-------------
NET ASSETS - 100% $19,228,102
=============
</TABLE>
* Non-income producing security
** Preferred stock
See notes to financial statements.
4
DLB VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (identified cost, $16,158,954) $19,124,431
Receivable for investments sold 104,672
Dividends and interest receivable 24,234
------------
Total assets 19,253,337
------------
LIABILITIES:
Management fees payable 11,040
Accrued expenses 14,195
------------
Total liabilities 25,235
------------
NET ASSETS $19,228,102
============
NET ASSETS CONSIST OF:
Paid-in capital $16,290,313
Unrealized appreciation on investments 2,965,477
Accumulated distributions in excess of net realized gain on investment
transactions (27,688)
------------
Total $19,228,102
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,534,983
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER
SHARE (NET ASSETS ( SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 12.53
============
</TABLE>
See notes to financial statements.
5
DLB VALUE FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign tax withheld of $5,412) $ 336,140
Interest 23,879
-----------
Total investment income 360,019
-----------
EXPENSES:
Management fee 83,908
Custodian fee 51,665
Legal fees 34,775
Accounting and audit fees 23,050
Printing fees 19,776
Registration costs 8,529
Trustees' fees 7,375
-----------
Total expenses 229,078
Reduction of expenses by investment manager (107,266)
-----------
Net expenses 121,812
-----------
Net investment income 238,207
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (identified cost basis) 595,835
Change in unrealized appreciation 2,386,704
-----------
Net realized and unrealized gain on investments 2,982,539
-----------
Increase in net assets from operations $3,220,746
===========
</TABLE>
See notes to financial statements.
6
DLB VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
1996 1995 *
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 238,207 $ 91,102
Net realized gain on investments 595,835 147,693
Net unrealized appreciation on investments 2,386,704 578,773
------------- ------------
Increase in net assets from operations 3,220,746 817,568
------------- ------------
Distributions declared to shareholders:
From net investment income (234,884) (90,860)
From net realized gain on investments (595,835) (147,693)
In excess of net realized gain on investments (31,253) --
------------- ------------
Total distributions declared to shareholders (861,972) (238,553)
------------- ------------
Fund share (principal) transactions:
Net proceeds from sale of shares 5,414,040 10,000,000
Net asset value of shares issued to shareholders in
reinvestment of distributions 861,972 238,553
Cost of shares reacquired (224,262) --
------------- ------------
Increase in net assets from Fund share transactions 6,051,750 10,238,553
------------- ------------
Total increase in net assets 8,410,524 10,817,568
NET ASSETS:
At beginning of period 10,817,578 10
------------- ------------
At end of period (including undistributed net investment income
of $0 and $242, respectively) $19,228,102 $10,817,578
============= ============
* For the period from July 25, 1995 (commencement of operations) to December 31, 1995.
</TABLE>
See notes to financial statements.
7
DLB VALUE FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
1996 1995 **
----------------- -----------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.58 $10.00
------- ------
Income from investment operations:
Net investment income .16 .09
Net realized and unrealized gain on investments 2.38 .73
------- ------
Total income from investment operations 2.54 .82
------- ------
Less distributions declared to shareholders:
From net investment income (.16) (.09)
From net realized gain on investments (.41) (.15)
In excess of net realized gain on investments (.02) --
------- ------
Total distributions declared to shareholders (.59) (.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 .80% .80%*
Ratio of net investment income to average net assets 1.56% 2.02%*
Portfolio turnover 23% 7%*
Average commission rate paid (1) $.05378 --
Net assets at end of period (000 omitted) $10,818
$19,228
The manager has agreed with the Fund to reduce its management fee and bear
certain expenses, such that expenses do not exceed .80% of average daily net
assets on an annualized basis. If the fee and expenses borne by the manager had
been charged to the Fund, the investment income per share and ratios would have
been:
Net investment income $.09 $.02
Ratios (to average net assets):
Expenses 1.50% 2.43%*
Net investment income .86% .40%*
* Annualized.
** For the period from July 25, 1995 (commencement of operations) to December 31, 1995.
(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.
See notes to financial statements.
</TABLE>
8
DLB VALUE FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Value Fund (the "Fund") is a non-diversified series of The DLB Fund
Group (the "Trust" ). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges
or reported through the NASDAQ system are valued at last sale prices.
Unlisted equity securities or listed equity securities for which last
sale prices are not available are valued at last quoted bid prices.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. Securities for which
there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
REPURCHASE AGREEMENTS - The Fund may enter into repurchase agreements
with institutions that the Fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The Fund
requires that the securities purchased in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable that Fund
to obtain those securities in the event of a default under the
repurchase agreement. The Fund monitors, on a daily basis, the value of
the securities transferred to ensure that the value, including accrued
interest, of the securities under each repurchase agreement is greater
than amounts owed to the Fund under each such repurchase agreement.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are
recorded on the trade date. Dividend income is recorded on the
ex-dividend date. Dividend payments received in additional securities
are recorded in an amount equal to the value of the securities.
Interest income is recorded on the accrual basis.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code ("Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is
necessary. The Fund files a tax return annually using tax accounting
methods required under provisions of the Code which may differ from
generally accepted accounting principles, the basis on which these
financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial
statements may differ from that reported on the Fund's tax return, and
consequently, the character of distributions to shareholders reported
in the financial highlights may differ from that reported to
shareholders on Form 1099-DIV. Distributions to shareholders are
recorded on the ex-dividend date.
9
The Fund distinguishes between distributions for tax purposes and
financial reporting purposes. Only distributions in excess of tax-basis
earnings and profits are reported as a return of capital.
Differences between income for financial reporting purposes and
tax-basis earnings and profits that result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated
undistributed net realized gains. During the year ended December 31,
1996, $3,565 was reclassified from undistributed net investment income
to accumulated distributions in excess of net realized gain on
investment transactions due to differences between financial reporting
and tax accounting for realized gain on investments. This change had no
effect on net assets or net asset value per share.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund has a management contract with David L. Babson & Co. Inc.
("DLB") to provide investment advisory and administrative services and
general office facilities. The management fee is computed daily and
paid monthly at an effective annual rate of .55% of average daily net
assets.
For the year ended December 31, 1996, the management fee amounted to
$83,908, of which $30,836 was waived by DLB. Additionally, $76,430 of
Fund expenses were borne by DLB.
The Fund pays no compensation directly to those of its Trustees who
also are officers of the investment manager, or to the officers of the
Fund, all of whom receive remuneration for their services to the Fund
from DLB.
4. PORTFOLIO SECURITIES
Purchase and sales of investments, other than short-term obligations,
aggregated $8,227,742 and $3,366,512, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax
basis, are as follows:
Aggregate cost $16,158,954
=============
Gross unrealized appreciation $ 3,442,229
Gross unrealized depreciation (476,752)
-------------
Net unrealized appreciation $ 2,965,477
=============
10
5. SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest
(without par value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
1996 1995
------------------ -------------------
<S> <C> <C>
Shares sold 462,564 1,000,000
Shares issued to shareholders in reinvestment
of distributions 68,793 22,590
Redemptions (18,965) --
--------- -----------
Net increase 512,392 1,022,590
========= ===========
</TABLE>
11
DELOITTE &
TOUCHE LLP
- -----------
[LOGO] ---------------------------------------
DLB MID CAPITALIZATION
FUND
Financial Statements for the
Year Ended December 31, 1996 and
for the Period from July 25, 1995
(Commencement of Operations) to
December 31, 1995
- ---------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- ---------------
DLB MID CAPITALIZATION FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of December 31, 1996 2-5
Statement of Assets and Liabilities as of December 31, 1996 6
Statement of Operations for the Year Ended December 31, 1996 7
Statements of Changes in Net Assets for the Year Ended December 31, 1996
and the Period from July 25, 1995 (commencement of operations) to
December 31, 1995 8
Financial Highlights for the Year Ended December 31, 1996 and the Period from July
25, 1995 (commencement of operations) to December 31, 1995 9
Notes to Financial Statements 10-12
</TABLE>
DELOITTE &
TOUCHE LLP
- ------------
[LOGO]
-----------------------------------------------------------
125 Summer Street Telephone: (617)261-8000
Boston, Massachusetts 02110-1617 Facsimile: (617)261-8111
INDEPENDENT AUDITORS' REPORT
Tothe Trustees of the DLB Fund Group and
Shareholders of DLB Mid Capitalization Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Mid Capitalization Fund (a separate series
of The DLB Fund Group) as of December 31, 1996, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for the year ended December 31, 1996 and for the
period from July 25, 1995 (commencement of operations) to December 31, 1995.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures include confirmation of securities owned at December
31, 1996 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of DLB Mid
Capitalization Fund at December 31, 1996, the results of its operations, the
changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
February 5, 1997
- ----------------
Deloitte Touche
Tohmatsu
International
- ----------------
DLB MID CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS - 99.0%
ISSUER SHARES VALUE
<S> <C> <C>
CHEMICALS - 3.8%
Calgon Carbon Corporation 22,900 $ 280,525
M.A. Hanna Company 11,100 242,813
-------------
523,338
-------------
METALS & MINING - 4.4%
Calmat Co. 16,600 311,250
Martin Marietta Materials, Inc. 12,700 295,275
---------------
606,525
-------------
PAPER & FOREST PRODUCTS - 2.0%
Albany International Corp. 12,100 279,813
-------------
AEROSPACE - 2.2%
EG&G, Inc. 15,100 303,888
-------------
CONSTRUCTION - 2.4%
Southdown, Inc. 10,700 333,038
-------------
MACHINERY & EQUIPMENT - 9.6%
BW/IP, Inc. 19,000 313,500
Elsag Bailey * 17,900 335,625
Harsco Corp. 5,100 349,350
Trinity Industries, Inc. 8,300 311,250
-------------
1,309,725
-------------
APPAREL - TEXTILE - 4.4%
National Service Industries, Inc. 9,300 347,584
Stride Rite Corporation 25,400 254,000
-------------
601,584
-------------
AUTO PARTS MANUFACTURERS - 6.2%
Armor All Products Corporation 17,000 323,000
Bandag, Incorporated, Class A 5,400 247,050
Standard Products Company 11,000 280,500
-------------
850,550
-------------
</TABLE>
2
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
<S> <C> <C>
FURNITURE & APPLIANCES - 6.8%
Herman Miller, Inc. 8,200 $ 464,325
La-Z-Boy Inc. 8,700 256,650
Stanhome Inc. 7,900 209,350
-------------
930,325
-------------
PRINTING & PUBLISHING - 4.4%
Central Newspapers, Inc., Class A 8,200 360,800
Lee Enterprises, Inc. 10,200 237,150
-------------
597,950
-------------
RETAIL - GENERAL - 2.4%
Fred Meyer, Inc.* 9,200 326,600
-------------
RETAIL - SPECIALTY - 3.1%
Charming Shoppes, Inc.* 38,700 195,919
Fingerhut Companies, Inc. 19,000 232,750
-------------
428,669
-------------
wholesalers - 1.8%
Waban Inc.* 9,300 241,800
-------------
FOOD PRODUCERS - 4.1%
Dean Foods Company 8,800 283,800
Ralcorp Holdings, Inc.* 13,200 278,850
-------------
562,650
-------------
COSMETIC & TOILETRY - 2.0%
Alberto-Culver Company, Class A 6,500 268,125
-------------
TOBACCO - 2.9%
Dimon Inc. 16,200 386,187
-------------
COAL, GAS & PIPE - 4.2%
Cabot Oil & Gas Corp., Class A 15,500 265,438
Nabors Industries, Inc.* 16,400 315,700
-------------
581,138
-------------
</TABLE>
3
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
<S> <C> <C>
EXPLORATION & DRILLING - 2.5%
Global Industrial Technologies, Inc.* 15,500 $ 342,938
-------------
OIL - DOMESTIC - 2.0%
Quaker State Corporation 19,600 276,850
-------------
BANKS - 6.8%
Dime Bancorp, Inc.* 14,200 209,450
First Security Corp. 10,500 354,375
Glendale Federal Bank, FSB* 16,000 372,000
-------------
935,825
-------------
INSURANCE COMPANIES - 7.5%
Arthur J. Gallagher & Co. 6,500 201,500
Hartford Steam Boiler 5,400 250,425
Western National Corp. 16,600 319,550
Willis Corroon Group ** 22,100 254,150
-------------
1,025,625
-------------
COMPUTER RELATED - 1.8%
Gerber Scientific, Inc. 16,700 248,413
-------------
ELECTRONICS & INSTRUMENTS - 2.8%
Intergraph Corporation* 19,900 203,975
Scitex Corp. Ltd. 18,200 172,900
-------------
376,875
-------------
OFFICE EQUIPMENT - 2.8%
Wallace Computer Services, Inc. 11,200 386,400
-------------
TELECOMMUNICATIONS - 1.2%
Octel Communications Corp.* 9,300 162,750
-------------
TRUCKING & SHIPPING - 3.2%
Alexander & Baldwin Inc. 10,200 255,000
J.B. Hunt Transport Services, Inc. 12,500 175,000
-------------
430,000
-------------
4
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
NATURAL GAS - 1.7%
Equitable Resources, Inc. 8,000 $ 238,000
-------------
Total common and preferred stocks (identified
cost, $12,043,790) 13,555,581
-------------
PRINCIPAL
REPURCHASE AGREEMENT - 0.9% AMOUNT
Bank of New York, dated 12/31/96, due
1/2/97 (secured by $120,000 U.S. Treasury
Notes, due 1/31/01, market value $119,400) $ 116,999 116,999
-------------
Total investments (identified cost, $12,160,789) 13,672,580
Other assets, less liabilities - 0.1% 17,135
-------------
NET ASSETS - 100% $13,689,715
=============
</TABLE>
* Non-income producing security
** Preferred stock
See notes to financial statements.
5
DLB MID CAPITALIZATION FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (identified cost, $12,160,789) $13,672,580
Dividends and interest receivable 26,548
Other receivables 10,405
------------
Total assets 13,709,533
------------
LIABILITIES:
Management fees payable 6,606
Accrued expenses 13,212
------------
Total liabilities 19,818
------------
NET ASSETS $13,689,715
============
NET ASSETS CONSIST OF:
Paid-in capital $12,178,649
Unrealized appreciation on investments 1,511,791
Accumulated distributions in excess of net realized gain on investments (368)
Accumulated distributions in excess of net investment income (357)
------------
Total $13,689,715
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,189,227
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER
SHARE (NET ASSETS ( SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 11.51
============
</TABLE>
See notes to financial statements.
6
DLB MID CAPITALIZATION FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $2,396) $ 48,436
Interest 24,346
----------
Total investment income 272,782
----------
EXPENSES:
Management fee 75,235
Custodian fee 53,815
Legal fees 34,775
Accounting and audit fees 23,050
Printing fees 19,776
Registration costs 8,529
Trustees' fees 7,375
----------
Total expenses 222,555
Reduction of expenses by investment manager (109,748)
----------
Net expenses 112,807
----------
Net investment income 159,975
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (identified cost basis) 755,181
Change in unrealized appreciation 760,116
----------
Net realized and unrealized gain on investments 1,515,297
----------
Increase in net assets from operations $1,675,272
==========
</TABLE>
See notes to financial statements.
7
DLB MID CAPITALIZATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
1996 1995 *
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 159,975 $ 83,881
Net realized gain on investments 755,181 93,308
Net unrealized appreciation on investments 760,116 751,675
------------ ------------
Increase in net assets from operations 1,675,272 928,864
------------ ------------
Distributions declared to shareholders:
From net investment income (160,207) (83,531)
In excess of net investment income (357)
--
From net realized gain on investments (755,181) (93,308)
In excess of net realized gain on investments (368) --
------------ ------------
Total distributions declared to shareholders (916,113) (176,839)
------------ ------------
Fund share (principal) transactions:
Net proceeds from sale of shares 1,176,534 10,000,000
Net asset value of shares issued to shareholders in
reinvestment of distributions 916,113 176,839
Cost of shares reacquired (90,965) --
------------ ------------
Increase in net assets from Fund share transactions 2,001,682 10,176,839
------------ ------------
Total increase in net assets 2,760,841 10,928,864
NET ASSETS:
At beginning of period 10,928,874 10
------------ ------------
At end of period (including accumulated undistributed (distributions
in excess of) net investment income of ($357) and $232,
respectively) $13,689,715 $10,928,874
============ ============
* For the period from July 25, 1995 (commencement of operations) to December 31, 1995.
</TABLE>
See notes to financial statements.
8
DLB MID CAPITALIZATION FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
1996 1995 **
--------------- ----------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.75 $10.00
------ -------
Income from investment operations:
Net investment income .15 .08
Net realized and unrealized gain on investments 1.44 .84
------ -------
Total income from investment operations 1.59 .92
------ -------
Less distributions declared to shareholders:
From net investment income (2) (.15) (.08)
From net realized gain on investments (3) (.68) (.09)
------ -------
Total distributions declared to shareholders (.83) (.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 .90% .90%*
Ratio of net investment income to average net assets 1.28% 1.90%*
Portfolio turnover 25% 6%
Average commission rate paid (1) $.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 .90% of average daily net
assets on an annualized basis. If the fee and expenses borne by the manager had
been charged to the Fund and had 1995 expenses been limited to that permitted by
state securities law, the net investment income per share and ratios would have
been:
Net investment income $.05
$.01
Ratios (to average net assets):
Expenses 1.77% 2.50%*
Net investment income .41% .32%*
* Annualized.
** For the period from July 25, 1995 (commencement of operations) to December 31, 1995.
(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 $.01 per share.
(3) Distributions in excess of net realized gain on investments for the year
ended December 31, 1996 were less than $.01 per share.
</TABLE>
See notes to financial statements.
9
DLB MID CAPITALIZATION FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Mid Capitalization Fund (the "Fund") is a non-diversified series of
The DLB Fund Group (the "Trust" ). The Trust is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges
or reported through the NASDAQ system are valued at last sale prices.
Unlisted equity securities or listed equity securities for which last
sale prices are not available are valued at last quoted bid prices.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. Securities for which
there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
REPURCHASE AGREEMENTS - The Fund may enter into repurchase agreements
with institutions that the Fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The Fund
requires that the securities purchased in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable that Fund
to obtain those securities in the event of a default under the
repurchase agreement. The Fund monitors, on a daily basis, the value of
the securities transferred to ensure that the value, including accrued
interest, of the securities under each repurchase agreement is greater
than amounts owed to the Fund under each such repurchase agreement.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are
recorded on the trade date. Dividend income is recorded on the
ex-dividend date. Dividend payments received in additional securities
are recorded in an amount equal to the value of the securities.
Interest income is recorded on the accrual basis.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code ("Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is
necessary. The Fund files a tax return annually using tax accounting
methods required under provisions of the Code which may differ from
generally accepted accounting principles, the basis on which these
financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial
statements may differ from that reported on the Fund's tax return, and
consequently, the character of distributions to shareholders reported
in the financial highlights may differ from that reported to
shareholders on Form 1099-DIV. Distributions to shareholders are
recorded on the ex-dividend date.
10
The Fund distinguishes between distributions for tax purposes and
financial reporting purposes. Only distributions in excess of tax-basis
earnings and profits are reported as a return of capital. Differences
between income for financial reporting purposes and tax-basis earnings
and profits that result in temporary over-distributions for financial
statement purposes, are classified as distributions in excess of net
investment income or accumulated undistributed net realized gains.
During the year ended December 31, 1996 there were no reclassifications
required.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund has a management contract with David L. Babson & Co. Inc.
("DLB") to provide investment advisory and administrative services and
general office facilities. The management fee is computed daily and
paid monthly at an effective annual rate of .60% of average daily net
assets.
For the year ended December 31, 1996, the management fee amounted to
$75,235, of which $37,918 was waived by DLB. Additionally, $71,830 of
Fund expenses were borne by DLB.
The Fund pays no compensation directly to those of its Trustees who
also are officers of the investment manager, or to the officers of the
Fund, all of whom receive remuneration for their services to the Fund
from DLB.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
aggregated $4,401,309 and $3,072,587, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax
basis, are as follows:
Aggregate cost $12,160,789
=============
Gross unrealized appreciation $ 2,187,355
Gross unrealized depreciation (675,564)
-------------
Net unrealized appreciation $ 1,511,791
=============
11
5. SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest
(without par value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Shares sold 100,908 1,000,000
Shares issued to shareholders in reinvestment
of distributions 79,593 16,543
Redemptions (7,818) --
-------- -----------
Net increase 172,683 1,016,543
======== ===========
</TABLE>
12
DELOITTE &
TOUCHE LLP
- -----------
[LOGO] ----------------------------------
DLB GLOBAL BOND
FUND
Financial Statements for the
Period From August 26, 1996
(Commencement of Operations) to
December 31, 1996
- ---------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- ---------------
DLB GLOBAL BOND FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE PERIOD FROM AUGUST 26, 1996 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER 31, 1996:
Portfolio of Investments 2-3
Statement of Assets and Liabilities 4
Statement of Operations 5
Statement of Changes in Net Assets 6
Financial Highlights 7
Notes to Financial Statements 8-13
</TABLE>
DELOITTE &
TOUCHE LLP
- ------------
[LOGO]
-----------------------------------------------------------
125 Summer Street Telephone: (617)261-8000
Boston, Massachusetts 02110-1617 Facsimile: (617)261-8111
INDEPENDENT AUDITORS' REPORT
To the Trustees of the DLB Fund Group and Shareholders of DLB Global Bond Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Global Bond Fund (a separate series of The
DLB Fund Group) as of December 31, 1996, and the related statements of
operations and changes in net assets, and the financial highlights for the
period from August 26, 1996 (commencement of operations) to December 31, 1996.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures include confirmation of securities owned at December 31, 1996 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of DLB Global Bond Fund
at December 31, 1996, the results of its operations, the changes in its net
assets, and its financial highlights for the period from August 26, 1996
(commencement of operations) to December 31, 1996 in conformity with generally
accepted accounting principles .
Deloitte & Touche LLP
February 5, 1997
- -----------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- -----------------
<TABLE>
<CAPTION>
DLB GLOBAL BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------------------------------
BONDS - 98.5%
MOODY'S
RATING PRINCIPAL
(UNAUDITED) ISSUER AMOUNT VALUE
US GOVERNMENT - 50.4%
<S> <C> <C> <C>
AAA US Treasury Note, 6.00%, 1998 (1) $ 3,400,000 $ 3,404,250
AAA US Treasury Note, 6.375%, 2001 5,000,000 5,028,125
AAA US Treasury Note, 6.50%, 2006 4,000,000 4,022,500
NR US Treasury Bill, 1997 250,000 247,412
NR US Treasury Bill, 1997 300,000 296,549
-------------
12,998,836
-------------
FOREIGN GOVERNMENT - 48.1%
AAA Tennessee Valley Authority, 6.375%, 2006 DEM 5,000,000 3,323,596
NR Kingdom of Sweden, 6.00%, 2005 SEK 5,000,000 707,128
NR Italian Republic BTPS, 9.50%, 2001 ITL 1,000,000,000 727,256
NR Canada, 7.00%, 2006 CAD 1,000,000 760,758
NR United Kingdom Gilts, 7.00%, 2001 GBP 1,000,000 1,694,350
NR French Republic OAT, 6.50%, 2006 FRF 5,000,000 1,009,824
NR Kingdom of Spain, 8.40%, 2001 ESP 100,000,000 841,477
NR New Zealand, 8.00%, 2001 NZD 1,000,000 728,738
NR French Republic BTAN, 5.75%, 2001 FRF 13,000,000 2,631,802
-------------
12,424,929
-------------
Total bonds (identified cost $25,173,492) 25,423,765
-------------
</TABLE>
2
<TABLE>
<CAPTION>
CALL OPTION ON FINANCIAL FUTURES CONTRACTS - 0.0%
DESCRIPTION CONTRACTS
<S> <C> <C>
Call option on financial futures contracts for
31,250 Deutsche Marks, expiration 1/03/97,
strike price $68, (identified cost, $10,439) 25 $156
-------------
Total Investments (identified cost $25,183,931) 25,423,921
Other assets, less other liabilities - 1.5% 381,345
-------------
NET ASSETS - 100% $25,805,266
=============
</TABLE>
(1) Security is held as collateral on open futures contracts.
NR - Not rated
Abbreviations have been used throughout this report to
indicate amounts shown in currencies other than the U.S.
dollar. A list of abbreviations is shown below.
CAD - Canadian Dollars GBP - British Pounds
DEM - Deutsche Marks ITL - Italian Lire
ESP - Spanish Pesetas NZD - New Zealand
Dollars
FRF - French Francs SEK - Swedish Kronor
See notes to financial statements.
3
DLB GLOBAL BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (identified cost, $25,183,931) $25,423,921
Cash 34,667
Interest receivable 513,252
------------
Total assets 25,971,840
------------
LIABILITIES:
Payable for daily variation margin on open futures contracts 2,409
Net payable for forward foreign currency exchange contracts purchased 2,933
Net payable for forward foreign currency exchange contracts sold 121,328
Management fees payable 23,662
Accrued expenses 16,242
------------
Total liabilities 166,574
------------
NET ASSETS $25,805,266
============
NET ASSETS CONSIST OF:
Paid-in capital $25,828,760
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies 100,937
Accumulated distributions in excess of net investment income (57,466)
Accumulated distributions in excess of net realized gain on investment and
foreign currency transactions
(66,965)
------------
Total $25,805,266
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,582,959
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER
SHARE (NET ASSETS ( SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 9.99
============
See notes to financial statements.
</TABLE>
4
DLB GLOBAL BOND FUND
STATEMENT OF OPERATIONS
PERIOD FROM AUGUST 26, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INTEREST INCOME $542,269
--------
EXPENSES:
Management fee 66,182
Custodian fee 21,977
Accounting and audit fees 21,550
Legal fees 5,900
Registration costs 82
Trustees' fees 1,750
---------
Total expenses 117,441
Reduction of expenses by investment manager (47,031)
---------
Net expenses 70,410
---------
Net investment income 471,859
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) (identified cost basis):
Investment transactions 98,131
Foreign currency transactions and forward foreign currency exchange
contracts and other transactions denominated in foreign currency 281,542
Futures contracts (147,213)
---------
Net realized gain 232,460
---------
Change in unrealized appreciation (depreciation):
Investments 239,990
Foreign currency and forward foreign currency exchange contracts and other
transactions denominated in foreign currency (128,513)
Futures contracts (10,540)
---------
Net unrealized gain on investments and foreign currency 100,937
---------
Net realized and unrealized gain on investments and foreign
currency 333,397
---------
Increase in net assets from operations $805,256
=========
</TABLE>
See notes to financial statements.
5
DLB GLOBAL BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
PERIOD FROM AUGUST 26, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INCREASE IN NET ASSETS:
From operations:
Net investment income $ 471,859
Net realized gain on investments 232,460
Net unrealized appreciation on investments 100,937
-------------
Increase in net assets from operations 805,256
-------------
Distributions declared to shareholders:
From net investment income (471,859)
In excess of net investment income (280,141)
From net realized gain on investments (76,750)
-------------
Total distributions declared to shareholders (828,750)
-------------
Fund share (principal) transactions:
Net proceeds from sale of shares 25,000,000
Net asset value of shares issued to shareholders in
reinvestment of distributions 828,750
-------------
Increase in net assets from Fund share transactions 25,828,750
-------------
Total increase in net assets 25,805,256
NET ASSETS:
At beginning of period 10
-------------
At end of period (including accumulated distributions in excess of
net investment income of $57,466) $25,805,266
=============
</TABLE>
See notes to financial statements.
6
DLB GLOBAL BOND FUND
FINANCIAL HIGHLIGHTS
PERIOD FROM AUGUST 26, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
-------
Income from investment operations:
Net investment income .19
Net realized and unrealized gain on investments .13
-------
Total income from investment operations .32
-------
Less distributions declared to shareholders:
From net investment income (.19)
In excess of net investment income (.11)
From net realized gain on investments (.03)
-------
Total distributions declared to shareholders (.33)
-------
Net asset value - end of period $ 9.99
=======
Total Return 3.21% *
Ratios and Supplemental Data:
Ratio of expenses to average net assets .80% *
Ratio of net investment income to average net assets 5.35% *
Portfolio turnover 232%
Net assets at end of period (000 omitted) $25,805
The manager has agreed with the Fund to reduce its management fee and bear
certain expenses, such that expenses do not exceed .80% average daily net assets
on an annualized basis. If the fee and expenses borne by the manager had been
charged to the Fund, the investment income per share and ratios would have been:
Net investment income
$.17
Ratios (to average net assets):
Expenses 1.33% *
Net investment income 4.81% *
</TABLE>
* Annualized.
See notes to financial statements.
7
DLB GLOBAL BOND FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Global Bond Fund (the "Fund") is a non-diversified series of The
DLB Fund Group (the "Trust" ). The Trust is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Debt securities, including listed issues and
forward contracts, are valued on the basis of valuations furnished by
dealers or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon exchange or
over-the-counter prices. Futures contracts, options and options on
futures contracts listed on commodities exchanges are valued at closing
settlement prices. Over-the-counter options are valued by brokers
through the use of a pricing model which takes into account closing
bond valuations, implied volatility and short-term repurchase rates.
Securities for which there are no such quotations or valuations are
valued at fair value as determined in good faith by or at the direction
of the Trustees.
REPURCHASE AGREEMENTS - The Fund may enter into repurchase agreements
with institutions that the Fund's investment advisor has determined are
creditworthy. Each repurchase agreement is recorded at cost. The Fund
requires that the securities purchased in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the Fund
to obtain those securities in the event of a default under the
repurchase agreement. The Fund monitors, on a daily basis, the value of
the securities transferred to ensure that the value, including accrued
interest, of the securities under each repurchase agreement is greater
than amounts owed to the Fund under each such repurchase agreement.
FOREIGN CURRENCY TRANSLATION - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted
each business day into U.S. dollars based upon current exchange rates.
Purchases and sales of foreign investments, income and expenses are
converted into U.S. dollars based upon currency exchange rates
prevailing on the respective dates of such transactions. Gains and
losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net
realized gains and losses on investments. Gains and losses attributable
to foreign exchange rate movements on income and expenses are recorded
for financial statement purposes as foreign currency transaction gains
and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign
currency exchange rates is not separately disclosed.
8
PURCHASED OPTIONS - The Fund may enter into options with respect to
securities and currencies. Upon the purchase of an option by the Fund,
the premium paid is recorded as an investment, the value of which is
marked-to-market daily. When a purchased option expires, the Fund will
realize a loss in the amount of the cost of the option. When the Fund
enters into a closing sale transaction, the Fund will realize a gain or
loss depending on whether the sales proceeds from the closing sale
transaction are greater or less than the cost of the option. When the
Fund exercises an option, settlement is made in cash. The risk
associated with purchasing options is limited to the premium originally
paid.
FUTURES CONTRACTS - The Fund may enter into futures contracts for the
delayed delivery of securities or currency. In entering such contracts,
the Fund is required to deposit either in cash or securities an amount
equal to a certain percentage of the contract amount. Subsequent
payments are made or received by the Fund each day depending on the
fluctuations in the value of the underlying security, and are recorded
for financial statement purposes as unrealized gains or losses by the
Fund. The Fund's investment in futures contracts is designed to hedge
against anticipated future changes in interest or exchange rates.
Investments in futures may also be made in order to reduce fluctuations
in net asset value by hedging against a decline in the value of
securities or currencies owned by the Fund or an increase in the value
of securities or currencies which the Fund expects to purchase. The
Fund may also use such techniques, to the extent permitted by
applicable law, as a substitute for direct investment in foreign
securities. Should interest or exchange rates move unexpectedly, the
Fund may not achieve the anticipated benefits of the futures contracts
and may realize a loss.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The Fund may enter into
forward foreign currency exchange contracts for the purchase or sale of
a specific foreign currency at a fixed price on a future date. Risks
may arise upon entering these contracts from the potential inability of
counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to
the U.S. dollar. The Fund will enter into forward contracts for hedging
purposes. The Fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal
investment activities. It may also use contracts in a manner intended
to protect foreign currency-denominated securities from declines in
value due to unfavorable exchange rate movements. The forward foreign
currency exchange contracts are adjusted by the daily exchange rate of
the underlying currency, and any gains or losses are recorded for
financial statement purposes as unrealized until the contract
settlement date.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are
recorded on the trade date. Interest income is recorded on the accrual
basis. All premium and original issue discount are amortized or
accreted for financial statement and tax reporting purposes as required
by federal income tax regulations.
9
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code ("Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is
necessary. The Fund files a tax return annually using tax accounting
methods required under provisions of the Code which may differ from
generally accepted accounting principles, the basis on which these
financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial
statements may differ from that reported on the Fund's tax return, and
consequently, the character of distributions to shareholders reported
in the financial highlights may differ from that reported to
shareholders on Form 1099-DIV. Foreign taxes have been provided for on
interest and dividend income earned on foreign investments in
accordance with the applicable country's tax rate and to the extent
unrecoverable are recorded as a reduction of net investment income.
Distributions to shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions for tax purposes and
financial reporting purposes. Only distributions in excess of tax-basis
earnings and profits are reported as a return of capital. Differences
between income for financial reporting purposes and tax-basis earnings
and profits that result in temporary over-distributions for financial
statement purposes, are classified as distributions in excess of net
investment income or accumulated undistributed net realized gains.
During the period ended December 31, 1996, $222,675 was reclassified
from accumulated distributions in excess of net investment income to
accumulated net realized gain on investment and foreign currency
transactions due to differences between financial reporting and tax
accounting for realized gain on investment and foreign currency
transactions. This change had no effect on net assets or net asset
value per share.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund has a management contract with David L. Babson & Co. Inc.
("DLB") to provide investment advisory and administrative services and
general office facilities. The management fee is computed daily and
paid monthly at an effective annual rate of .75% of average daily net
assets.
DLB has entered into a sub-advisory agreement with Potomac Babson
Incorporated ("PBI") with respect to the management of the
international component of the Fund's portfolio. Under the sub-advisory
agreement, DLB pays PBI a monthly fee at the annual rate of .65% of
average daily net assets. PBI is a 60% owned subsidiary of DLB.
For the period ended December 31, 1996, the management fee amounted to
$66,182, of which $17,775 was waived by DLB. Additionally, $29,256 of
Fund expenses were borne by DLB.
10
The Fund pays no compensation directly to those of its Trustees who
also are officers of the investment manager, or to the officers of the
Fund, all of whom receive remuneration for their services to the Fund
from DLB.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
were as follows:
<TABLE>
<CAPTION>
Purchases Sales
-------------- -------------
<S> <C> <C>
U.S. Government securities $70,078,126 $ 57,135,733
============== =============
Investments (non-U.S. government securities) $15,599,207 $ 4,065,607
============== =============
</TABLE>
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax
basis, are as follows:
Aggregate cost $25,183,931
=============
Gross unrealized appreciation $ 385,563
Gross unrealized depreciation (145,573)
-------------
Net unrealized appreciation $ 239,990
=============
5. SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest
(without par value). Transactions in Fund shares during the period were
as follows:
Shares sold 2,500,000
Shares issued to shareholders in reinvestment
of distributions 82,958
----------
Net increase 2,582,958
==========
11
6. FINANCIAL INSTRUMENTS
The Fund trades financial instruments with off-balance sheet risk in
the normal course of its investing activities in order to manage
exposure to market risks such as interest rates and foreign currency
exchange rates. These financial instruments include forward foreign
currency exchange contracts and futures contracts. The notional or
contractual amounts of these instruments represent the investment the
Fund has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The
measurement of risks associated with these instruments is meaningful
only when all related and offsetting transactions are considered. A
summary of obligations under these financial instruments at December
31, 1996 is as follows:
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Net
Settlement Contracts to In Exchange Contracts Unrealized
Date Deliver/Receive For at Value Appreciation/
(Depreciation)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 1/02/97 CAD 2,219,000 $ 1,573,649 $ 1,554,714 $ 18,935
1/02/97-2/03/97 DEM 5,267,275 3,393,863 3,420,804 (26,941)
1/02/97-1/07/97 ESP 111,865,365 855,510 860,527 (5,017)
1/02/97-1/13/97 FRF 19,588,253 3,726,280 3,774,743 (48,463)
GBP 999,383 1,661,974 1,710,101 (48,127)
1/07/97
ITL 1,122,000,000 738,346 ( 3,933)
1/23/97 734,413
1/02/97-1/07/97 NZD 1,067,578 752,671 (5,366)
747,305
SEK 5,113,000 747,751 (2,416)
1/16/97 745,335
------------ ------------ ---------
$13,438,329 $13,559,657 $(121,328)
============ ============ =========
Purchases 1/02/97 CAD 1,073,000 $ 785,678 $ 782,745 $ (2,933)
============ ============ =========
At December 31, 1996, the Fund had sufficient cash and/or securities to cover any commitments
under these contracts.
</TABLE>
Futures Contracts
<TABLE>
<CAPTION>
Unrealized
Appreciation/
Expiration Contracts Position (Depreciation)
------------- ------------------------------------ ---------------- ------------ --------------
<S> <C> <C> <C>
March 1997 3 Italian Republic BTP Short $ (3,911)
March 1997 6 Federal Republic of Germany Bonds Long 4,579
March 1997 7 Kingdom of Spain Bonds Short (10,245)
March 1997 5 U.S. Treasury Notes Short (963)
-------
$(10,540)
=======
</TABLE>
At December 31, 1996, the Fund had sufficient cash and/or securities to
cover margin requirements on open futures contracts.
12
7. RISKS ASSOCIATED WITH FOREIGN INVESTMENTS
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks
not present in domestic investments. For example, there is generally
less publicly available information about foreign companies,
particularly those not subject to disclosure and reporting requirements
of the U.S. securities laws. Foreign issuers are generally not bound by
uniform accounting, auditing, and financial reporting requirements and
standards of practice comparable to those applicable to domestic
issuers. Investments in foreign securities also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of
funds or other assets of the Fund, political or financial instability
or diplomatic and other developments which could affect such
investments. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers (particularly those
located in developing countries) may be less liquid and more volatile
than securities of comparable U.S. companies. In general, there is less
overall governmental supervision and regulation of foreign securities
markets, broker-dealers, and issuers than in the United States.
13
DELOITTE &
TOUCHE LLP
- -----------
[LOGO] ----------------------------------
DLB QUANTITATIVE
EQUITY FUND
Financial Statements for the
Period from August 26, 1996
(Commencement of Operations) to
December 31, 1996
- ----------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- ----------------
DLB QUANTITATIVE EQUITY FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE PERIOD FROM AUGUST 26, 1996 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER 31, 1996:
Portfolio of Investments 2-5
Statement of Assets and Liabilities 6
Statement of Operations 7
Statement of Changes in Net Assets 8
Financial Highlights 9
Notes to Financial Statements 10-12
</TABLE>
DELOITTE &
TOUCHE LLP
- ------------
[LOGO]
-----------------------------------------------------------
125 Summer Street Telephone: (617)261-8000
Boston, Massachusetts 02110-1617 Facsimile: (617)261-8111
INDEPENDENT AUDITORS' REPORT
To the Trustees of the DLB Fund Group and
Shareholders of DLB Quantitative Equity Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Quantitative Equity Fund (a separate series
of The DLB Fund Group) as of December 31, 1996, and the related statements of
operations and changes in net assets, and the financial highlights for period
from August 26, 1996 (commencement of operations) to December 31, 1996. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures include confirmation of securities owned at December 31, 1996 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of DLB Quantitative
Equity Fund at December 31, 1996, the results of its operations, the changes in
its net assets, and its financial highlights for the period from August 26, 1996
(commencement of operations) to December 31, 1996 in conformity with generally
accepted accounting principles .
Deloitte & Touche LLP
February 5, 1997
- -----------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- -----------------
DLB QUANTITATIVE EQUITY FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS - 99.6 %
ISSUER SHARES VALUE
<S> <C> <C>
CHEMICALS - 0.2%
Union Carbide Corp. 800 $ 32,700
-------------
SPECIALTY CHEMICALS - 2.1%
UCAR International Inc.* 7,800 293,475
-------------
PAPER & FOREST PRODUCTS - 0.9%
Fort Howard Corp.* 4,500 124,594
-------------
AEROSPACE - 0.4%
McDonnell Douglas Corp. 800 51,200
-------------
CONSTRUCTION - 0.8%
Fluor Corporation 1,700 106,675
-------------
ELECTRICAL EQUIPMENT - 4.0%
General Electric Co. 3,700 365,838
WW Grainger Inc. 2,200 176,550
-------------
542,388
-------------
MACHINERY & EQUIPMENT - 4.9%
Case Corporation 6,500 354,250
Caterpillar Tractor Inc. 4,400 331,100
-------------
685,350
-------------
APPAREL - TEXTILE - 12.8%
Fruit of the Loom Inc.* 9,300 352,234
Jones Apparel Group* 10,400 388,700
Liz Claiborne Inc. 8,000 309,000
Nike Inc. 6,200 370,450
VF Corporation 5,300 357,750
-------------
1,778,134
-------------
</TABLE>
2
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE
AUTO & TRUCK MANUFACTURERS - 2.4%
<S> <C> <C>
Chrysler Corporation 3,100 $ 102,300
Ford Motor Co. 7,400 235,875
-------------
338,175
-------------
RESTAURANT & LODGING - 2.3%
Mariott International Incorporated 5,800 320,450
-------------
RECREATION - 0.9%
King World Productions Inc.* 2,300 84,813
Mirage Resorts Incorporated* 2,100 45,413
-------------
130,226
-------------
PRINTING & PUBLISHING - 2.3%
Lee Enterprises Inc. 5,000 116,250
Washington Post Co. 600 201,075
-------------
317,325
-------------
RETAIL - DISCOUNT - 0.9%
TJX Companies Incorporated 1,200 56,850
Wal-Mart Stores Incorporated 2,800 64,050
-------------
120,900
-------------
RETAIL - GENERAL - 3.8%
Federated Department Stores* 4,700 160,388
Sears, Roebuck & Co. 8,000 369,000
-------------
529,388
-------------
BEVERAGES - 0.6%
Coca Cola Co. 1,700 89,463
-------------
FOOD PRODUCERS - 5.2%
Conagra Incorporated* 4,200 208,950
Hershey Foods Corp. 4,600 201,250
Boston Chicken Incorporated* 4,900 175,788
Kroger Co.* 3,000 139,500
-------------
</TABLE>
3
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE
COSMETIC & TOILETRY - 0.5%
<S> <C> <C>
Avon Products Inc. 1,300 $ 74,263
-------------
DRUGS - 10.3%
Bristol-Meyers Squibb 4,200 456,750
Eckerd Corporation* 3,849 123,168
Merck & Co., Inc. 6,000 475,500
Schering Plough Corp. 5,900 382,025
-------------
1,437,443
-------------
MEDICAL SUPPLIES & SERVICES - 9.6%
Abbott Laboratories 5,900 299,425
Becton Dickinson 1,800 78,075
Guidant Corporation 4,900 279,300
Johnson & Johnson 4,900 243,775
Oxford Health Plans, Inc.* 3,700 216,681
Tenet Healthcare Corporation* 9,900 216,563
-------------
1,333,819
-------------
OIL - DOMESTIC - 0.4%
Atlantic Richfield Co. 400 53,000
-------------
OIL - INTERNATIONAL - 1.6%
Exxon Corporation 1,600 156,800
Baker Hughes Incorporated 2,000 69,000
-------------
225,800
-------------
BANKS - 4.6%
BankAmerica Corp. 500 49,875
First Chicago NBD 6,700 360,125
NationsBank Corporation 2,400 234,600
-------------
644,600
-------------
FINANCIAL SERVICES - 0.4%
Merrill Lynch & Company 700 57,050
-------------
</TABLE>
4
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
ISSUER
<S> <C> <C>
COMPUTER RELATED - 6.5%
Compaq Computer * 5,600 $ 415,800
Dell Computer Corporation* 7,000 371,875
Hewlett Packard Co. 2,200 110,550
-------------
898,225
-------------
COMPUTER SOFTWARE - 9.6%
Cadence Design Systems Inc.* 3,300 131,175
Computer Associates International Inc. 3,700 184,075
Microsoft Corp.* 7,800 644,475
Seagate Technology Inc.* 9,400 371,300
-------------
1,331,025
-------------
ELECTRONICS & INSTRUMENTS - 2.2%
Gateway 2000 Incorporated* 500 26,781
Micron Electronics Inc.* 14,300 277,956
-------------
304,737
-------------
SEMICONDUCTORS - 5.0%
Intel Corporation 5,200 680,875
-------------
AIRLINES - 1.3%
UAL Corporation* 3,000 187,500
-------------
ELECTRICAL POWER - 1.6%
Entergy Corporation 7,900 219,225
-------------
NATURAL GAS - 0.2%
Columbia Gas System 400 25,450
-------------
UTILITY - TELEPHONE - 1.3%
Pacific Telesis Group 4,900 180,075
-------------
Total Common Stocks (identified cost, $12,045,961) 13,839,018
Other assets, less liabilities - 0.4% 58,279
-------------
NET ASSETS - 100% $13,897,297
=============
</TABLE>
* Non-income producing security
See notes to financial statements.
5
DLB QUANTITATIVE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (identified cost, $12,045,961) $13,839,018
Cash 61,283
Dividends receivable 17,617
------------
Total assets 13,917,918
-----------
LIABILITIES:
Management fees payable 12,602
Accrued expenses 8,019
------------
Total liabilities 20,621
------------
NET ASSETS $13,897,297
============
NET ASSETS CONSIST OF:
Paid-in capital $11,952,599
Unrealized appreciation on investments 1,793,057
Accumulated undistributed net investment income 5,835
Accumulated net realized gain on investment transactions 145,806
------------
Total $13,897,297
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,192,076
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER
SHARE (NET ASSETS ( SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 11.66
============
</TABLE>
See notes to financial statements.
6
DLB QUANTITATIVE EQUITY FUND
STATEMENT OF OPERATIONS
PERIOD FROM AUGUST 26, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
Dividends $ 57,571
Interest 2,075
----------
Total investment income 59,646
----------
EXPENSES:
Management fee 33,808
Custodian fee 18,456
Accounting and audit fees 22,000
Legal fees 5,900
Registration costs 82
Trustees' fees 1,750
----------
Total expenses 81,996
Reduction of expenses by investment manager (41,556)
----------
Net expenses 40,440
----------
Net investment income 19,206
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (identified cost basis) 356,106
Change in unrealized appreciation 1,793,057
----------
Net realized and unrealized gain on investments 2,149,163
----------
Increase in net assets from operations $2,168,369
==========
</TABLE>
See notes to financial statements.
7
DLB QUANTITATIVE EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
PERIOD FROM AUGUST 26, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 19,206
Net realized gain on investments 356,106
Net unrealized appreciation on investments 1,793,057
------------
Increase in net assets from operations 2,168,369
------------
Distributions declared to shareholders:
From net investment income (13,371)
From net realized gain on investments (210,300)
------------
Total distributions declared to shareholders (223,671)
------------
Fund share (principal) transactions:
Net proceeds from sale of shares 11,728,918
Net asset value of shares issued to shareholders in
reinvestment of distributions 223,671
------------
Increase in net assets from Fund share transactions 11,952,589
------------
Total increase in net assets 13,897,287
NET ASSETS:
At beginning of period 10
------------
At end of period (including accumulated undistributed net investment
income of $5,835) $13,897,297
============
</TABLE>
See notes to financial statements.
8
DLB QUANTITATIVE EQUITY FUND
FINANCIAL HIGHLIGHTS
PERIOD FROM AUGUST 26, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
-------
Income from investment operations:
Net investment income .01
Net realized and unrealized gain on investments 1.84
-------
Total income from investment operations 1.85
-------
Less distributions declared to shareholders:
From net investment income (.01)
From net realized gain on investments (.18)
-------
Total distributions declared to shareholders (.19)
-------
Net asset value - end of period $11.66
=======
Total Return 18.51% *
Ratios and Supplemental Data:
Ratio of expenses to average net assets .90% *
Ratio of net investment income to average net assets .43% *
Portfolio turnover
10%
Average commission rate paid (1) $.01925
Net assets at end of period (000 omitted) $13,897
The manager has agreed with the Fund to reduce its management fee and bear
certain expenses, such that expenses do not exceed .90% of average daily net
assets on an annualized basis. If the fee and expenses borne by the manager had
been charged to the Fund, the investment income (loss) per share and ratios
would have been:
Net investment loss
$(.01)
Ratios (to average net assets):
Expenses 1.82 % *
Net investment loss (0.50)% *
* Annualized.
(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.
</TABLE>
See notes to financial statements.
9
DLB QUANTITATIVE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Quantitative Equity Fund (the "Fund") is a non-diversified series
of The DLB Fund Group (the "Trust" ). The Trust is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges
or reported through the NASDAQ system are valued at last sale prices.
Unlisted equity securities or listed equity securities for which last
sale prices are not available are valued at last quoted bid prices.
Securities for which there are no such quotations or valuations are
valued at fair value as determined in good faith by or at the direction
of the Trustees.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are
recorded on the trade date. Dividend income is recorded on the
ex-dividend date. Dividend payments received in additional securities
are recorded in an amount equal to the value of the securities.
Interest income is recorded on the accrual basis.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code ("Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is
necessary. The Fund files a tax return annually using tax accounting
methods required under provisions of the Code which may differ from
generally accepted accounting principles, the basis on which these
financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial
statements may differ from that reported on the Fund's tax return, and
consequently, the character of distributions to shareholders reported
in the financial highlights may differ from that reported to
shareholders on Form 1099-DIV. Distributions to shareholders are
recorded on the ex-dividend date.
10
The Fund distinguishes between distributions for tax purposes and
financial reporting purposes. Only distributions in excess of tax-basis
earnings and profits are reported as a return of capital. Differences
between income for financial reporting purposes and tax-basis earnings
and profits that result in temporary over-distributions for financial
statement purposes, are classified as distributions in excess of net
investment income or accumulated undistributed net realized gains.
During the period ended December 31, 1996 there were no
reclassifications required.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund has a management contract with David L. Babson & Co. Inc.
("DLB") to provide investment advisory and administrative services and
general office facilities. The management fee is computed daily and
paid monthly at an effective annual rate of .75% of average daily net
assets.
For the period ended December 31, 1996, the management fee amounted to
$33,808, of which $9,094 was waived by DLB. Additionally, $32,462 of
Fund expenses were borne by DLB.
The Fund pays no compensation directly to those of its Trustees who
also are officers of the investment manager, or to the officers of the
Fund, all of whom receive remuneration for their services to the Fund
from DLB.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
aggregated $13,339,565 and $1,649,710, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax
basis, are as follows:
Aggregate cost $12,045,961
==============
Gross unrealized appreciation $ 1,876,484
Gross unrealized depreciation (83,427)
--------------
Net unrealized appreciation $ 1,793,057
==============
11
5. SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest
(without par value). Transactions in Fund shares during the period were
as follows:
Shares sold 1,172,892
Shares issued to shareholders in reinvestment
of distributions 19,183
----------
Net increase 1,192,075
==========
12
THE DLB FUND GROUP
FORM N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Index to Financial Statements and Supporting Schedules:
(1) Financial Statements:
Financial highlights for Fixed Income Fund (a).
Financial highlights for Global Small Capitalization
Fund (a).
Financial highlights for Value Fund (a).
Financial highlights for Mid Capitalization Fund (a).
Financial highlights for Global Bond Fund (a).
Financial highlights for Quantitative Equity Fund (a).
Statementof Assets and Liabilities for Fixed Income
Fund as of December 31, 1996 (b).
Statementof Operations for Fixed Income Fund for the
fiscal year ended December 31, 1996 (b).
Statementof Changes in Net Assets for Fixed Income
Fund for the fiscal year ended December 31,
1996 and for the period from July 25, 1995
(commencement of operations) to December 31,
1995 (b).
Notes to financial statements for Fixed Income Fund (b).
Statement of Assets and Liabilities for Global Small
Capitalization Fund as of December 31, 1996 (b).
Statement of Operations for Global Small
Capitalization Fund for the fiscal year
ended December 31, 1996 (b).
Statementof Changes in Net Assets for Global Small
Capitalization Fund for the fiscal year
ended December 31, 1996 and for the period
from July 19, 1995 (commencement of
operations) to December 31, 1995 (b).
Notes to financial statements for Global Small
Capitalization Fund (b).
Statement of Assets and Liabilities for Value Fund as of
December 31, 1996 (b).
Statementof Operations for Value Fund for the fiscal
year ended December 31, 1996 (b).
Statementof Changes in Net Assets for Value Fund for
the fiscal year ended December 31, 1996 and
for the period from July 25, 1995
(commencement of operations) to December 31,
1995 (b).
C-1
Notes to financial statements for Value Fund (b).
Statement of Assets and Liabilities for Mid Capitalization
Fund as of December 31, 1996 (b).
Statementof Operations for Mid Capitalization Fund
for the fiscal year ended December 31, 1996
(b).
Statementof Changes in Net Assets for Mid
Capitalization Fund for the fiscal year
ended December 31, 1996 and for the period
from July 25, 1995 (commencement of
operations) to December 31, 1995 (b).
Notes to Financial Statements for Mid Capitalization Fund (b).
Statement of Assets and Liabilities for Global Bond Fund as of
December 31, 1996 (b).
Statementof Operations for Global Bond Fund for the
period August 26, 1996 to December 31, 1996
(b).
Statementof Changes in Net Assets for Global Bond
Fund for the period August 26, 1996 to
December 31, 1996 (b).
Notes to financial statements for Global Bond Fund (b).
Statement of Assets and Liabilities for Quantitative
Equity Fund as of December 31, 1996 (b).
Statementof Operations for Quantitative Equity Fund
for the period August 26, 1996 to December
31, 1996 (b).
Statementof Changes in Net Assets for Quantitative
Equity Fund for the period August 26, 1996
to December 31, 1996 (b).
Notes to financial statements for Quantitative Equity
Fund (b).
(2) Supporting Schedules:
Schedule I - Portfolio of investments
owned as of December 31, 1996,
for Fixed Income Fund (b).
- Portfolio of investments owned as
of December 31, 1996 for Global
Small Capitalization Fund (b).
- Portfolio of investments owned as
of December 31, 1996 for Value
Fund (b).
- Portfolio of investments owned as
of December 31, 1996 for Mid
Capitalization Fund (b).
- Portfolio of investments owned as
of December 31, 1996 for Global
Bond Fund (b).
- Portfolio of investments owned as
of December 31, 1996 for
Quantitative Equity Fund (b).
Schedules II through IX omitted because the required
matter is not present.
- ----------
(a) Included in Part A.
(b) Included in Part B.
C-2
(b) Exhibits:
(1) (a) Agreement and Declaration of Trust
(b) Amendment No.1 to Agreement and Declaration of
Trust
(2) By-Laws
(3) Not Applicable
(4) Not Applicable
(5) Forms of Management Contracts
(a) Management Contract between the Trust and David L. Babson
& Co., Inc. (the "Manager") on behalf of the Fixed Income
Fund
(b) Management Contract between the Trust and the Manager on
behalf of the Global Small Capitalization Fund
(c) Sub-Advisory Agreement between the Manager and Babson-
Stewart Ivory International ("BSII") on behalf of the
Global Small Capitalization Fund
(d) Management Contract between the Trust and the Manager on
behalf of the Value Fund
(e) Management Contract between the Trust and the Manager on
behalf of the Mid Capitalization Fund
(f) Management Contract between the Trust and the Manager on
behalf of the Global Bond Fund*
(g) Sub-Advisory Agreement between the Manager and Potomac
Babson Incorporated ("PBI") on behalf of the Global Bond
Fund*
(h) Management Contract between the Trust and the Manager on
behalf of the Quantitative Equity Fund*
(6) Not Applicable
(7) Not Applicable
(8) Form of Custodian Agreement between the Trust and Investors
Bank & Trust Company ("IBT")
(9) Form of Transfer Agency Agreement between the Trust and IBT
(10) Opinion and Consent of Ropes & Gray
(11) Consent of Deloitte & Touche LLP dated February 19, 1997
(12) Not Applicable
(13) Letter of Understanding relating to Initial Capital
(14) Not Applicable
(15) Not Applicable
- --------
*Incorporated by reference to Registrant's Post-Effective Amendment No. 4
filed on July 31, 1996.
C-3
(16) Schedules for Computation of Performance
(17) Financial Data Schedules for the:
(a) Fixed Income Fund
(b) Global Small Capitalization Fund
(c) Value Fund
(d) Mid Capitalization Fund
(e) Global Bond Fund
(f) Quantitative Equity Fund
(18) Not Applicable
Powers of Attorney for Peter C. Thompson, Ronald E. Gwozdz,
Charles E. Hugel, Richard A. Nenneman, Peter S. Schliemann,
Richard J. Phelps and DeAnne B. Dupont
C-4
- -------------
Item 25. Persons Controlled by or under Common Control with Registrant
At and as of the date of this Post-Effective Amendment, the Registrant
did not, directly or indirectly, control any Person. Massachusetts Mutual Life
Insurance Company ("Mass Mutual") 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. The following entities
also are, or may be deemed to be, controlled by MassMutual through the direct or
indirect ownership of such entities' stock.
1. MassMutual Holding Company, a Delaware corporation, all the stock of
which is owned by MassMutual.
2. MML Series Investment Fund, a registered open-end investment company
organized as a Massachusetts business trust, all of the shares of which
are owned by separate accounts of MassMutual and companies controlled
by MassMutual.
3. MassMutual Institutional Funds, a registered open-end investment
company organized as a Massachusetts business trust, all of the shares
of which are owned by MassMutual.
4. MML Bay State Life Insurance Company, a Missouri corporation, all the
stock of which is owned by MassMutual.
5. MassMutual of Ireland, Ltd., incorporated in the Republic of Ireland,
to operate a group life and health claim office for MassMutual, all of
the stock of which is owned by MassMutual.
6. CM Assurance Company, a Connecticut life, accident, disability and
health insurer, all the stock of which is owned by MassMutual.
7. CM Benefit Insurance Company, a Connecticut life, accident, disability
and health insurer, all the stock of which is owned by MassMutual.
8. C.M. Life Insurance Company, a Connecticut life, accident, disability
and health insurer, all the stock of which is owned by MassMutual.
9. MML Distributors, LLC, formerly known as Connecticut Mutual Financial
Services, LLC, a registered broker-dealer incorporated as a limited
liability company in Connecticut. MassMutual has a 99% ownership
interest and G.R. Phelps & Co. has a 1% ownership interest.
C-5
10. Panorama Series Fund, Inc., a registered open-end investment company
organized as a Maryland corporation. Shares of the fund are sold only
to MassMutual and its affiliates.
11. MassMutual Holding Trust I, a Massachusetts business trust, which acts
as a holding company for certain MassMutual subsidiaries and
affiliates, all of the stock of which is owned by MassMutual Holding
Company.
12. MassMutual Holding Trust II, a Massachusetts business trust, which acts
as a holding company for certain MassMutual subsidiaries and
affiliates, all of the stock of which is owned by MassMutual Holding
Company.
13. MassMutual Holding MSC, Inc., a Massachusetts corporation, which acts
as a holding company for certain MassMutual subsidiaries and
affiliates, all of the stock of which is owned by MassMutual Holding
Company.
14. MML Investors Services, Inc., registered broker-dealer incorporated in
Massachusetts, all the stock of which is owned by MassMutual Holding
Company.
15. G.R. Phelps & Company, Inc., Connecticut corporation which formerly
operated as a securities broker-dealer, all the stock of which is owned
by MassMutual Holding Company.
16. MassMutual International, Inc., a Delaware holding company of foreign
insurance companies, all of the stock of which is owned by MassMutual
Holding Company.
17. MassLife Seguros de Vida S.A. (Argentine), a life insurance company
incorporated in Argentine. MassMutual Holding Company owns 99.99% of
the outstanding capital stock of MassLife Seguros de Vida S.A.
18. Cornerstone Real Estate Advisers, Inc., a Massachusetts equity real
estate advisory corporation, all the stock of which is owned by
MassMutual Holding Trust I.
19. DLB Acquisition Corporation ("DLB Acquisition"), a Delaware
corporation. MassMutual Holding Trust I owns 83.7% of the outstanding
capital stock of DLB Acquisition, which serves as a holding company for
certain investment advisory subsidiaries of MassMutual.
20. Oppenheimer Acquisition Corporation is a Delaware corporation ("OAC"),
which serves as a holding company for OppenheimerFunds, Inc. MassMutual
Holding Trust I owns 86% of the capital stock of OAC
21. Antares Leveraged Capital Corp., a Delaware corporation that operates
as a finance company, all of the stock of which is owned by MassMutual
Holding Trust I.
C-6
22. Charter Oak Capital Management, Inc., a Delaware corporation that
operates as an investment manager. MassMutual Holding Trust I owns 80%
of the capital stock of Charter Oak.
23. MML Realty Management Corporation, a property manager incorporated in
Massachusetts, all the stock of which is owned by MassMutual Holding
Trust II.
24. Westheimer 335 Suites, Inc. was incorporated in Delaware to serve as a
general partner of the Westheimer 335 Suites Limited Partnership.
MassMutual Holding Trust II owns all the stock of Westheimer 335
Suites, Inc.
25. CM Advantage, Inc., a Connecticut corporation that acts as a general
partner in real estate limited partnerships. MassMutual Holding Trust
II owns all of the outstanding stock.
26. CM International, Inc., a Delaware corporation that holds a mortgage
pool and issues collateralized bond obligations. MassMutual Holding
Trust II owns all the outstanding stock of CM International, Inc.
27. CM Property Management, Inc., a Connecticut real estate holding
company, all the stock of which is owned by MassMutual Holding Trust
II.
28. Urban Properties, Inc., a Delaware real estate holding and development
company, all the stock of which is owned by MassMutual Holding Trust
II.
29. MMHC Investment, Inc., a Delaware corporation which is a passive
investor in MassMutual High Yield Partners LLC. MassMutual Holding
Trust II owns all the outstanding stock of MMHC Investment, Inc.
30. HYP Management, Inc., a Delaware corporation which is the LLC Manager
for MassMutual High Yield Partners LLC and owns 1.28% of the LLC units
of such entity. MassMutual Holding Trust II owns all the outstanding
stock of HYP Management, Inc.
31. MassMutual Corporate Value Limited, a Cayman Islands corporation that
owns approximately 90% of MassMutual Corporate Value Partners Limited.
MassMutual Holding MSC, Inc. owns 46.19% of the outstanding capital
stock of MassMutual Corporate Value Limited.
32. MassMutual International (Bermuda) Ltd., a Bermuda life insurance
company, all of the stock of which is owned by MassMutual International
Inc.
33. MassMutual Internacional (Chile) S.A. a Chilean corporation, which
operates as a holding company. MassMutual International Inc. owns 99%
of the outstanding shares and MassMutual Holding Company owns the
remaining 1% of the shares.
C-7
34. MassMutual International (Luxembourg) S.A. a Luxembourg corporation,
which operates as an insurance company. MassMutual International Inc.
owns 99% of the outstanding shares and MassMutual Holding Company owns
the remaining 1% of the shares.
35. Mass Seguros de Vida S.A., a life insurance company incorporated in
Chile. MassMutual Internacional (Chile) owns 33.5% of the outstanding
capital stock of Mass Seguros de Vida S.A.
36. MML Insurance Agency, Inc., a licensed insurance broker incorporated in
Massachusetts, all of the stock of which is owned by MML Investors
Services, Inc.
37. MML Securities Corporation, a Massachusetts securities corporation, all
of the stock of which is owned by MML Investors Services, Inc.
38. OppenheimerFunds, Inc., a registered investment adviser incorporated in
Colorado, all of the stock of which is owned by Oppenheimer Acquisition
Corporation
39. David L. Babson & Co., Inc., a registered investment adviser
incorporated in Massachusetts, all of the stock of which is owned by
DLB Acquisition.
40. Cornerstone Office Management, LLC, a Delaware limited liability
company that is 50% owned by Cornerstone Real Estate Advisers, Inc. and
50% owned by MML Realty Management Corporation.
41. Westheimer 335 Suites Limited Partnership, a Texas limited partnership
of which Westheimer 335 Suites, Inc. is the general partner.
42. MassMutual High Yield Partners LLC, a Delaware limited liability
company, that operates as a high yield bond fund. MassMutual holds
5.28%, MMHC Investment Inc. holds 35.99%, and HYP Management, Inc. hold
1.28% for a total of 42.55% of the ownership interest in this company.
43 MassMutual Corporate Value Partners Limited, a Cayman Islands
corporation that operates as a high yield bond fund. MassMutual
Corporate Value limited holds an approximately 90% ownership interest
in this company.
44. First Israel Mezzanine Investors, Ltd., an Israeli corporation which
operates as managing general partner of First Israel Mezzanine
Investors Fund, LP. MassMutual holds a 33% ownership interest in First
Israel Mezzanine Investors, Ltd.
45. First Israel Mezzanine Investors Fund, LP, a Delaware limited
partnership, of which. MassMutual holds a 37.5% ownership interest.
C-8
46. MBD Mezzanine Investments, LLC, a Delaware limited liability company,
which operates as the participating general partner of First Israel
Mezzanine Investors Fund, LP. MassMutual holds a 33% ownership interest
in MBD Mezzanine Investments, LLC.
47. Diversified Insurance Services Agency of America, Inc. (Alabama), a
licensed insurance broker incorporated in Alabama. MML Insurance
Agency, Inc. owns all the shares of outstanding stock.
48. Diversified Insurance Services Agency of America, Inc. (Hawaii), a
licensed insurance broker incorporated in Hawaii. MML Insurance Agency,
Inc. owns all the shares of outstanding stock.
49. MML Insurance Agency of Nevada, Inc., a Nevada corporation that
operates as an insurance broker, all of the stock of which is owned by
MML Insurance Agency, Inc.
50. MML Insurance Agency of Ohio, Inc., a subsidiary of MML Insurance
Agency, Inc., is incorporated in the state of Ohio that operates as an
insurance broker. The outstanding capital stock is controlled by MML
Insurance Agency, Inc. by means of a voting trust.
51. MML Insurance Agency of Texas, Inc., a subsidiary of MML Insurance
Agency, Inc., is incorporated in the state of Texas that operates as an
insurance broker. The outstanding capital stock is controlled by MML
Insurance Agency, Inc. by means of a voting trust.
52. MML Insurance Agency of Mississippi, P.C., a Mississippi professional
corporation that operates as an insurance broker, all of the stock of
which is owned by MML Insurance Agency, Inc.
53. Origen Inversiones S.A., a Chilean corporation which operates as a
holding company. MassMutual Internacional (Chile) S.A. holds a 33.5%
ownership interest in this corporation.
54. Babson Securities Corporation, a registered broker-dealer incorporated
in Massachusetts, all of the stock of which is owned by David L. Babson
and Company, Incorporated.
55. Potomac Babson Incorporated, a Massachusetts corporation, is a
registered investment adviser. David L. Babson and Company Incorporated
owns 60% of the outstanding shares of Potomac Babson Incorporated.
56. Babson-Stewart-Ivory International, a Massachusetts general
partnership, which operates as a registered investment adviser. David
L. Babson and Company Incorporated holds a 50% ownership interest in
the partnership.
C-9
57. Oppenheimer Value Stock Fund ("OVSF) is a series of Oppenheimer
Integrity Funds, a Massachusetts business trust. OVSF is a registered
open-end investment company of which MassMutual owns 40% of the
outstanding shares of beneficial interest.
58. Oppenheimer Series Fund I Inc., a Maryland corporation and a registered
open-end investment company of which MassMutual and its affiliates own
approximately 27% of the outstanding shares of beneficial interest.
59. Centennial Asset Management Corporation, a Delaware corporation that
serves as the investment adviser and general distributor of the
Centennial Funds. OppenheimerFunds, Inc. owns all the stock of
Centennial Asset Management Corporation.
60. HarbourView Asset Management Corporation, a registered investment
adviser incorporated in New York, all the stock of which is owned by
OppenheimerFunds, Inc.
61. Main Street Advisers, Inc., a Delaware corporation, all the stock of
which is owned by OppenheimerFunds, Inc.
62. OppenheimerFunds Distributor, Inc., a registered broker-dealer
incorporated in New York, all the stock of which is owned by
OppenheimerFunds, Inc.
63. Oppenheimer Partnership Holdings, Inc., a Delaware holding company, all
the stock of which is owned by OppenheimerFunds, Inc.
64. Shareholder Financial Services, Inc., a transfer agent incorporated in
Colorado, all the stock of which is owned by OppenheimerFunds, Inc.
65. Shareholder Services, Inc., a transfer agent incorporated in Colorado,
all the stock of which is owned by OppenheimerFunds, Inc.
66. MultiSource Service, Inc., a Colorado corporation that operates as a
clearing broker, all of the stock of which is owned by
OppenheimerFunds, Inc.
67. Centennial Capital Corporation, a former sponsor of unit investment
trust incorporated in Delaware, all the stock of which is owned by
Centennial Asset Management Corporation.
68. Compensa Compania Seguros De Vida, a Chilean insurance company. Origen
Inversiones S.A. owns 99% of the outstanding shares of this company
69. Cornerstone Suburban Office Investors, LP, a Delaware limited
partnership, which operates as a real estate investment fund.
Cornerstone Office Management, LLC holds a 1% general partnership
interest in this fund and MassMutual holds a 99% limited partnership
interest.
C-10
70. 505 Waterford Park Limited Partnership, a Delaware limited partnership,
which holds title to an office building in Minneapolis, Minnesota. MML
realty Management Corporation holds a 1% general partnership interest
in this partnership and MassMutual holds a 99% limited partnership
interest.
MassMutual is the investment adviser the following investment
companies, and as such may be deemed to control them.
1. MassMutual Corporate Investors, a registered closed-end Massachusetts
business trust.
2. MassMutual Participation Investors, a registered closed-end
Massachusetts business trust.
3. MML Series Investment Fund, a registered open-end Massachusetts
business trust, all of the shares are owned by separate accounts of
MassMutual and companies controlled by MassMutual.
4. MassMutual Institutional Funds, a registered open-end Massachusetts
business trust, all of the shares are owned by MassMutual.
5. MassMutual/Carlson CBO N.V., a Netherlands Antilles corporation that
issued Collateralized Bond Obligations on or about May 1, 1991, which
is owned equally by MassMutual interests (MassMutual and MassMutual
Holding MSC, Inc.) and Carlson Investment Management Co.
6. MassMutual Corporate Value Partners, Ltd., an off-shore unregistered
investment company.
7. MassMutual High Yield Partners LLC, a high yield bond fund organized as
Delaware limited liability company.
Item 26. Number of Holders of Securities.
<TABLE>
<CAPTION>
Number of Record Holders
as of the date of this
Title of Class Registration Statement
-------------- ----------------------
<S> <C>
Shares of Beneficial Interest of Fixed Income Fund 12
Shares of Beneficial Interest of Global Small Cap Fund 7
Shares of Beneficial Interest of Value Fund 12
Shares of Beneficial Interest of Mid Cap Fund 7
Shares of Beneficial Interest of Global Bond Fund 5
Shares of Beneficial Interest of Quantitative Equity Fund 7
</TABLE>
C-11
Item 27. Indemnification.
Article VIII, Sections 1, 2 and 3 of Registrant's Agreement and
Declaration of Trust provides as follows with respect to indemnification of the
Trustees and officers of Registrant against liabilities which may be incurred by
them in such capacities:
Section 1. Trustees, Officers, Etc. The Trust shall indemnify each of
its Trustees and officers (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise) (hereinafter referred to
as a "Covered Person") against all liabilities and expenses, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a Covered Person except with respect to any matter as to which such
Covered Person shall have been finally adjudicated in any such action, suit or
other proceeding to be liable to the Trust or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in compromise or as fines or
penalties), shall be paid from time to time by Trust in advance of the final
disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that indemnification of such expenses
is not authorized under this Article, provided, however, that either (a) such
Covered Person shall have provided appropriate security for such undertaking,
(b) the Trust shall be insured against losses arising from any such advance
payments or (c) either a majority of the disinterested Trustees acting on the
matter (provided that a majority of the disinterested Trustees then in office
act on the matter), or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available facts (as opposed to a
full trial type inquiry) that there is reason to believe that such Covered
Person will be found entitled to indemnification under this Article.
Section 2. Compromise Payment. As to any matter disposed of (whether by
a compromise payment, pursuant to a consent decree or otherwise) without an
adjudication by a court, or by any other body before which the proceeding was
brought, that such Covered Person is liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office, indemnification
shall be provided if (a) approved, after notice that it involves such
indemnification, by at least a majority of the disinterested Trustees acting on
the matter (provided that a majority of the disinterested Trustees then in
office act on the matter) upon a determination, based upon a review of readily
available facts (as opposed to a full trial type inquiry) that such Covered
Person is not liable to the Trust or its Shareholders by reason of willful
misfeasance, bad
C-12
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office, or (b) there has been obtained an opinion in
writing of independent legal counsel, based upon a review of readily available
facts (as opposed to a full trial type inquiry) to the effect that such
indemnification would not protect such Person against any liability to the Trust
to which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office. Any approval pursuant to this Section shall not
prevent the recovery from any Covered Person of any amount paid to such Covered
Person in accordance with this Section as indemnification if such Covered Person
is subsequently adjudicated by a court of competent jurisdiction to have been
liable to the Trust or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
Section 3. Indemnification Not Exclusive. The right of indemnification
hereby provided shall not be exclusive of or affect any other rights to which
such Covered Person may be entitled. As used in this Article VIII, the term
"Covered Person" shall include such person's heirs, executors and administrators
and a "disinterested Trustee" is a Trustee who is not an "interested person" of
the Trust as defined in Section 2(a)(19) of the 1940 Act (or who has been
exempted from being an "interested person" by any rule, regulation or order of
the Commission), and against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in this Article shall
affect any rights to indemnification to which personnel of the Trust, other than
Trustees or officers, and other persons may be entitled by contract or otherwise
under law, nor the power of the Trust to purchase and maintain liability
insurance on behalf of any such person; provided, however, that the Trust shall
not purchase or maintain any such liability insurance in contravention of
applicable law, including without limitation the 1940 Act.
Item 28. Business and Other Connections of Adviser.
No director or officer of David L. Babson & Co., Inc., the Registrant's
investment adviser, has been engaged for his own account or in the capacity of
director, officer, employee, partner or trustee in any other business,
profession, vocation or employment of a substantial nature at any time during
the past two fiscal years.
Item 29. Principal Underwriters -- Not Applicable.
Item 30. Location of Accounts and Records.
The accounts, books or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder
will be kept by the Registrant, the Manager and BSII at their respective
principal business offices at One Memorial Drive, Cambridge, Massachusetts
02142, by PBI, at its principal business office at 1290 Avenue of the Americas,
New York, New York 10019, and by the Registrant's Custodian and Transfer Agent
at its principal business office at 89 South Street, Boston, Massachusetts
02205.
C-13
Item 31. Management Services.
There are no management-related service contracts not discussed in Part
A or Part B.
Item 32. Undertakings.
The Registrant hereby undertakes to furnish to each person to whom a
Prospectus is delivered a copy of the Registrant's latest annual report to
shareholders containing the information required by Item 5A of Form N-1A omitted
from the Prospectus, upon request and without charge.
C-14
NOTICE
A copy of the Agreement and Declaration of Trust of The DLB Fund Group,
as amended, is on file with the Secretary of The Commonwealth of Massachusetts
and notice is hereby given that this instrument is executed on behalf of the
Registrant by an officer of the Registrant as an officer and not individually
and the obligations of or arising out of this instrument are not binding upon
any of the Trustees or shareholders individually but are binding only upon the
assets and property of the relevant series of the Registrant.
C-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it meets all of the requirements for effectiveness of this Post-Effective
Amendment pursuant to Rule 485(b) under the Securities Act of 1933, as amended,
and has duly caused this Post-Effective Amendment to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Cambridge, The
Commonwealth of Massachusetts, on the 19th day of February, 1997.
THE DLB FUND GROUP
By:/s/ Ronald E. Gwozdz
-----------------------------
Ronald E. Gwozdz
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment of The DLB Fund Group has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
* Trustee; Chairman February 19, 1997
- -----------------------------------
Peter C. Thompson
* Trustee; Principal Executive February 19, 1997
- ----------------------------------- Officer; and President
Ronald E. Gwozdz
* Treasurer; Principal Financial February 19, 1997
- ----------------------------------- Officer and Principal
DeAnne B. Dupont Accounting Officer
* Trustee February 19, 1997
- -----------------------------------
Charles E. Hugel
* Trustee February 19, 1997
- -----------------------------------
Richard A. Nenneman
* Trustee February 19, 1997
- -----------------------------------
Peter S. Schliemann
* Trustee February 19, 1997
- ------------------------------------
Richard J. Phelps
</TABLE>
*By /s/ Ronald E. Gwozdz
----------------------
Ronald E. Gwozdz
Attorney-In-Fact
C-16
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
1(a) Agreement and Declaration of Trust
1(b) Amendment No.1 to Agreement and Declaration of Trust
2 By-Laws of the Trust
5(a) Management Contract between the Trust and David L. Babson & Co., Inc. on
behalf of the Fixed Income Fund
5(b) Management Contract between the Trust and David L. Babson & Co., Inc. on
behalf of the Global Small Capitalization Fund
5(c) Sub-Advisory Agreement between David L. Babson & Co., Inc. and Babson-
Stewart Ivory International on behalf of the Global Small Capitalization Fund
5(d) Management Contract between the Trust and David L. Babson & Co., Inc. on
behalf of the Value Fund
5(e) Management Contract between the Trust and David L. Babson & Co., Inc. on
behalf of the Mid Capitalization Fund
8 Custodian Agreement between the Trust and Investors Bank & Trust
Company
9 Transfer Agency Agreement between the Trust and Investors Bank &
Trust Company
10 Opinion and Consent of Ropes & Gray
11 Consent of Deloitte & Touche LLP dated February 19, 1997
13 Letter of Understanding relating to Initial Capital
16 Schedules for Computations of Performance
17(a) Financial Data Schedule for the Fixed Income Fund
17(b) Financial Data Schedule for the Global Small Capitalization Fund
17(c) Financial Data Schedule for the Value Fund
17(d) Financial Data Schedule for the Mid Capitalization Fund
17(e) Financial Data Schedule for the Global Bond Fund
17(f) Financial Data Schedule for the Quantitative Equity Fund
Powers of Attorney for Peter C. Thompson, Ronald E. Gwozdz, Charles E. Hugel,
Richard A. Nenneman, Peter S. Schliemann, Richard J. Phelps and DeAnne B.
Dupont
</TABLE>
EXHIBIT 1(a)
AGREEMENT AND DECLARATION OF TRUST
OF
THE DLB FUND GROUP
THIS AGREEMENT AND DECLARATION OF TRUST made in Boston, Massachusetts
this 1st day of August, 1994 by the Trustee hereunder and the holders of shares
of beneficial interest issued hereunder and to be issued hereunder as
hereinafter provided:
WITNESSETH that
WHEREAS the Trustees have agreed to manage all property coming into
their hands as trustees of a Massachusetts business trust in accordance with the
provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby direct that this Agreement and
Declaration of Trust be filed with the Secretary of State of The Commonwealth of
Massachusetts and with the Clerk of every city or town where such association or
trust has a usual place of business, and do hereby declare that they will hold
all cash, securities and other assets, which they may from time to time acquire
in any manner as Trustees hereunder IN TRUST to manage and dispose of the same
upon the following terms and conditions for the pro rata benefit of the holders
from time to time of Shares in this trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Section 1. This Trust shall be known as The DLB Fund Group, and the
Trustees shall conduct the business of the Trust under that name or any other
name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required
by the context or specifically provided
(a) "Trust" refers to the Massachusetts business trust established by
this Agreement and Declaration of Trust, as amended from time to time;
(b) "Trustees" refers to the Trustee of the Trust named in Article IV
hereof or any Trustees elected in accordance with such Article;
(c) "Shares" means the equal proportionate units or interest into which
the beneficial interest in the Trust or in the Trust property belonging to any
Series of the Trust (or in the property belonging to any Series allocable to any
Class of that Series) (as the context may require) shall be divided from time to
time;
(d) "Shareholder" means a record owner of Shares;
(e) "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time;
(f) The terms "Commission" and "principal underwriter" shall have the
meanings given them in the 1940 Act;
(g) "Declaration of Trust" and "this Declaration" shall mean this
Agreement and Declaration of Trust, as amended or restated from time to time;
(h) "Bylaws" shall mean the Bylaws of the Trust as amended from time to
time;
(i) "Series Company" refers to the form of registered open-end
investment company described in Section 18(f)(2) of the 1940 Act or in any
successor statutory provision;
(j) "Series" refers to Series of Shares established and designated
under or in accordance with the provisions of Article III; and
(k) "Class" refers to any Class of Shares of a Series established and
designated under or in accordance with the provisions of Article III. The Shares
of a Class shall represent a subset of Shares of a Series and the Shares of each
Class, together with the Shares of all other Classes of the same Series, shall
constitute all Shares of that Series.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a managed investment
primarily in securities (including options), debt instruments, money market
instruments, commodities, commodity contracts and options thereon.
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial interest in
the Trust shall at all times be divided into an unlimited number of Shares,
without par value. Subject to the provisions of Section 6 of this Article III,
each Share shall have the voting rights as provided in Article V hereof, and
holders of the Shares of any Series or Class shall be entitled to receive
dividends, when and as declared with respect thereto in the manner provided in
Article VI, Section 1 hereof. No Share shall have any priority or preference
over any other Share of the same Series and Class with respect to dividends or
distributions upon termination of the Trust or of such Series or Class made
pursuant to Article IX, Section 4 hereof. Unless the Trustees have authorized
the issuance of Shares of a Series in two or more Classes, all dividends and
distributions shall be made ratably among all Shareholders of a particular
Series from the assets belonging to such Series according to the number of
Shares of such Series held of record by such Shareholders on the record date for
-2-
any dividend or on the date of termination, as the case may be. The Trustees may
from time to time divide or combine the Shares of any particular Series or Class
into a greater or lesser number of Shares of that Series or Class without
thereby changing the proportionate beneficial interest of the Shares of that
Series or Class in the assets belonging to that Series (or allocable to the
Shares of that Class) or in any way affecting the rights of Shares of any other
Series or Class.
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or a transfer or similar agent for the Trust,
which books shall be maintained separately for the Shares of each Series. No
certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the transfer of Shares of each Series and
Class and similar matters. The record books of the Trust as kept by the Trust or
any transfer or similar agent, as the case may be, shall be conclusive as to who
are the Shareholders of each Series and Class and as to the number of Shares of
each Series and Class held from time to time by each.
Section 3. Investments in the Trust. The Trustees shall accept
investments in the Trust from such persons and on such terms and for such
consideration as they from time to time authorize.
Section 4. Status of Shares and Limitation of Personal Liability.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. The death of a Shareholder during the continuance of
the Trust shall not operate to terminate the same nor entitle the representative
of any deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but entitles such representative
only to the rights of said deceased Shareholder under this Trust. Ownership of
Shares shall not entitle the Shareholder to any title in or to the whole or any
part of the Trust property or right to call for a partition or division of the
same or for an accounting, nor shall the ownership of Shares constitute the
Shareholders partners of each other. Neither the Trust nor the Trustees, nor any
officer, employee or agent of the Trust shall have any power to bind personally
any Shareholders, nor except as specifically provided herein to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay.
Section 5. Power of Trustees to Change Provisions Relating to Shares.
Notwithstanding any other provisions of this Declaration of Trust and without
limiting the power of the Trustees to amend the Declaration of Trust as provided
elsewhere herein, the Trustees shall have the power to amend this Declaration of
Trust, at any time and from time to time, in such manner as the Trustees may
determine in their sole discretion, without the need for Shareholder action, so
as to add to, delete, replace or otherwise modify any provisions relating to the
Shares contained in this Declaration of Trust for the purpose of (i) responding
to or complying with any regulations, orders, rulings or interpretations of any
governmental agency or any laws, now or hereafter
-3-
applicable to the Trust, or (ii) designating and establishing Series or Classes
in addition to the Series or Classes established in Section 6 of this Article
III; provided that before adopting any such amendment in clause (i) without
Shareholder approval the Trustees shall determine that it is consistent with the
fair and equitable treatment of all Shareholders. The establishment and
designation of any Series or Class of Shares in addition to the Series or
Classes established and designated in Section 6 of this Article III shall be
effective upon the execution by a majority of the then Trustees of an amendment
to this Declaration of Trust, taking the form of a complete restatement or
otherwise, setting forth such establishment and designation and the relative
rights and preferences of such Series or Class, or as otherwise provided in such
instrument.
Without limiting the generality of the foregoing, the Trustees may, for
the above-stated purposes, amend the Declaration of Trust to:
(a) create one or more Series or Classes of Shares (with respect to or
in addition to any Series or Classes already existing or otherwise) with such
rights and preferences and such eligibility requirements for investment therein
as the Trustees shall determine, and reclassify any or all outstanding Shares as
shares of particular Series or Classes in accordance with such eligibility
requirements;
(b) amend any of the provisions set forth in paragraphs (a) through (j)
of Section 6 of this Article III;
(c) combine one or more Series or Classes of Shares into a single
Series or Class on such terms and conditions as the Trustees shall determine;
(d) change or eliminate any eligibility requirements for investment in
Shares of any Series or Class, including without limitation the power to provide
for the issue of Shares of any Series or Class in connection with any merger or
consolidation of the Trust with another trust or company or any acquisition by
the Trust of part or all of the assets of another trust or company;
(e) change the designation of any Series or Class of Shares;
(f) change the method of allocating dividends among the various Series
and Classes of Shares;
(g) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more Series or
Classes of Shares;
(h) specifically allocate assets to any or all Series or Classes of
Shares or create one or more additional Series or Classes of Shares which are
preferred over all other Series or Classes of Shares in respect of assets
specifically allocated thereto or any dividends paid by the Trust with respect
to any net income, however determined, earned from the investment and
reinvestment of
-4-
any assets so allocated or otherwise and provide for any special voting or other
rights with respect to such Series or Classes; or
(i) divide one or more Series of Shares into one or more Classes on
such terms and conditions as the Trustees may determine.
Section 6. Establishment and Designation of Series. Without limiting
the authority of the Trustees set forth in Section 5, inter alia, to establish
and designate any further Series or Classes or to modify the rights and
preferences of any Series or Classes, the "DLB Fixed Income Fund," the "DLB
Global Small Capitalization Fund," the "DLB Value Fund," and the "DLB Mid
Capitalization Fund" shall be, and hereby are, established and designated as
separate Series of the Trust.
Shares of each Series established in this Section 6 shall have the
following relative rights and preferences:
(a) Assets Belonging to Series. All consideration received by the Trust
for the issue or sale of Shares of a particular Series, together with all assets
in which such consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof from whatever source derived, including, without
limitation, any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that Series for
all purposes, subject only to the rights of creditors, and shall be so recorded
upon the books of account of the Trust. Such consideration, assets, income,
earnings, profits and proceeds thereof, from whatever source derived, including,
without limitation, any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, are herein referred to as "assets
belonging to" that Series. In the event that there are any assets, income,
earnings, profits and proceeds thereof, funds or payments which are not readily
identifiable as belonging to any particular Series (collectively "General
Assets"), the Trustees shall allocate such General Assets to, between or among
any one or more of the Series established and designated from time to time in
such manner and on such basis as they, in their sole discretion, deem fair and
equitable, and any General Asset so allocated to a particular Series shall
belong to that Series. Each such allocation by the Trustees shall be conclusive
and binding upon the Shareholders of all Series for all purposes.
(b) Liabilities Belonging to Series. The assets belonging to each
particular Series shall be charged solely with the liabilities of the Trust in
respect to that Series, expenses, costs, charges and reserves attributable to
that Series, and any general liabilities of the Trust which are not readily
identifiable as belonging to any particular Series but which are allocated and
charged by the Trustees to and among any one or more of the Series established
and designated from time to time in a manner and on such basis as the Trustees
in their sole discretion deem fair and equitable. The liabilities, expenses,
costs, charges, and reserves so charged to a Series are herein referred to as
"liabilities belonging to" that Series. Each allocation of liabilities,
expenses, costs, charges
-5-
and reserves by the Trustees shall be conclusive and binding upon the
shareholders of all Series for all purposes.
(c) Dividends, Distributions, Redemptions, and Repurchases.
Notwithstanding any other provisions of this Declaration, including, without
limitation, Article VI, no dividend or distribution (including, without
limitation, any distribution paid upon termination of the Trust or of any
Series) with respect to, nor any redemption or repurchase of, the Shares of any
Series shall be effected by the Trust other than from the assets belonging to
such Series, nor shall any Shareholder of any particular Series otherwise have
any right or claim against the assets belonging to any other Series except to
the extent that such Shareholder has such a right or claim hereunder as a
Shareholder of such other Series.
(d) Voting. Notwithstanding any of the other provisions of this
Declaration, including, without limitation, Section 1 of Article V, the
Shareholders of any particular Series or Class shall not be entitled to vote on
any matters as to which such Series or Class is not affected. On any matter
submitted to a vote of Shareholders, all Shares of the Trust then entitled to
vote shall be voted by individual Series, unless otherwise required by the 1940
Act or other applicable law or as specifically required under this Declaration
or the Bylaws or as otherwise determined by the Trustees.
(e) Equality. All the Shares of each particular Class of a Series shall
represent an equal proportionate interest in the assets and liabilities
belonging to that Series allocable to that Class and all Shares of each
particular Series shall represent an equal proportionate interest in the assets
belonging to that Series (subject to the liabilities belonging to that Series),
and each Share of any particular Series shall be equal to each other Share of
that Series.
(f) Fractions. Any fractional Share of a Series or Class shall carry
proportionately all the rights and obligations of a whole share of that Series
or Class, including rights with respect to voting, receipt of dividends and
distributions, redemption of Shares and termination of the Trust.
(g) Exchange Privilege. The Trustees shall have the authority to
provide that the holders of Shares of any Series shall have the right to
exchange said Shares for Shares of one or more other Series of Shares in
accordance with such requirements and procedures as may be established by the
Trustees.
(h) Combination of Series. The Trustees shall have the authority,
without the approval of the Shareholders of any Series or Class unless otherwise
required by applicable law, to combine the assets and liabilities belonging to
any two or more Series or Classes into assets and liabilities belonging to a
single Series or Class.
(i) Elimination of Series. At any time that there are no Shares
outstanding of any particular Series previously established and designated, the
Trustees may amend this Declaration
-6-
of Trust to abolish that Series and to rescind the establishment and designation
thereof, such amendment to be effected in the manner provided in Section 5 of
this Article III.
(j) Assets and Liabilities Allocable to a Class. The assets and
liabilities belonging to a Series shall be fully allocated among all the Classes
of that Series. For purposes of determining the assets and liabilities belonging
to a Series which are allocable to a Class of that Series, subject to the
provisions of paragraph (f) of Section 5 of this Article III, the provisions of
paragraphs (a) and (b) of this Section 6 shall apply, mutatis mutandis, as if
each Class were a Series.
Section 7. Indemnification of Shareholders. In case any Shareholder or
former Shareholder shall be held to be personally liable solely by reason of his
or her being or having been a Shareholder of the Trust or of a particular Series
and not because of his or her acts or omissions or for some other reason, the
Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled out of
the assets of the Series of which he is a Shareholder or former Shareholder to
be held harmless from and indemnified against all loss and expense arising from
such liability.
Section 8. No Preemptive Rights. Shareholders shall have no preemptive
or other right to subscribe to any additional Shares or other securities issued
by the Trust.
Section 9. Derivative Claims. No Shareholder shall have the right to
bring or maintain any court action, proceeding or claim on behalf of this Trust
or any Series without first making demand on the Trustees requesting the
Trustees to bring or maintain such action, proceeding or claim. Such demand
shall be excused only when the plaintiff makes a specific showing that
irreparable injury to the Trust or Series would otherwise result. Such demand
shall be mailed to the Clerk of the Trust at the Trust's principal office and
shall set forth in reasonable detail the nature of the proposed court action,
proceeding or claim and the essential facts relied upon by the Shareholder to
support the allegations made in the demand. The Trustees shall consider such
demand within 45 days of its receipt by the Trust. In their sole discretion, the
Trustees may submit the matter to a vote of Shareholders of the Trust or Series,
as appropriate. Any decision by the Trustees to bring, maintain or settle (or
not to bring, maintain or settle) such court action, proceeding or claim, or to
submit the matter to a vote of Shareholders shall be made by the Trustees in
their business judgment and shall be binding upon the Shareholders. Any decision
by the Trustees to bring or maintain a court action, proceeding or suit on
behalf of the Trust or a Series shall be subject to the right of the
Shareholders under Article V, Section 1 hereof to vote on whether or not such
court action, proceeding or suit should or should not be brought or maintained.
-7-
ARTICLE IV
The Trustees
Section 1. Election and Tenure. The initial Trustee shall be Peter C.
Thompson. Trustees may fix the number of Trustees, fill vacancies in the
Trustees, including vacancies arising from an increase in the number of
Trustees, or remove Trustees with or without cause. Each Trustee shall serve
during the continued lifetime of the Trust until he dies, resigns or is removed,
or, if sooner, until the next meeting of Shareholders called for the purpose of
electing Trustees and until the election and qualification of his successor. Any
Trustee may resign at any time by written instrument signed by him and delivered
to any officer of the Trust or to a meeting of the Trustees. Such resignation
shall be effective upon receipt unless specified to be effective at some other
time. Except to the extent expressly provided in a written agreement with the
Trust, no Trustee resigning and no Trustee removed shall have any right to any
compensation for any period following his resignation or removal, or any right
to damages on account of such removal. The Shareholders may fix the number of
Trustees and elect Trustees at any meeting of Shareholders called by the
Trustees for that purpose.
Section 2. Effect of Death, Resignation, Etc. of a Trustee. The death,
declination, resignation, retirement, removal or incapacity of the Trustees, or
any of them, shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of Trust.
Section 3. Powers. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Trustees, and they
shall have all powers necessary or convenient to carry out that responsibility
including the power to engage in securities transactions of all kinds on behalf
of the Trust. Without limiting the foregoing, the Trustees may adopt Bylaws not
inconsistent with this Declaration of Trust providing for the regulation and
management of the affairs of the Trust and may amend and repeal them to the
extent that such Bylaws do not reserve that right to the Shareholders; they may
fill vacancies in or remove from their number (including any vacancies created
by an increase in the number of Trustees); they may remove from their number
with or without cause; they may elect and remove such officers and appoint and
terminate such agents as they consider appropriate; they may appoint from their
own number and terminate one or more committees consisting of two or more
Trustees which may exercise the powers and authority of the Trustees to the
extent that the Trustees determine; they may employ one or more custodians of
the assets of the Trust and may authorize such custodians to employ
subcustodians and to deposit all or any part of such assets in a system or
systems for the central handling of securities or with a Federal Reserve Bank;
they may retain a transfer agent or a shareholder servicing agent, or both; they
may provide for the distribution of Shares by the Trust, through one or more
principal underwriters or otherwise; they may set record dates for the
determination of Shareholders with respect to various matters; and in general
they may delegate such authority as they consider desirable to any officer of
the Trust, to any committee of the Trustees and to any agent or employee of the
Trust or to any such custodian or underwriter.
-8-
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options with respect to or otherwise deal in any property rights relating
to any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in its own
name or in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;
(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;
(h) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited to
claims for taxes;
(i) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
(j) To borrow funds or other property;
(k) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof;
-9-
(l) To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the conduct of the
business, including without limitation, insurance policies insuring the assets
of the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, principal underwriters, or
independent contractors of the Trust individually against all claims and
liabilities of every nature arising by reason of holding, being or having held
any such office or position, or by reason of any action alleged to have been
taken or omitted by any such person as Trustee, officer, employee, agent,
investment adviser, principal underwriter, or independent contractor, including
any action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such person against
liability; and
(m) To pay pensions as deemed appropriate by the Trustees and to adopt,
establish and carry out pension, profit-sharing, share bonus, share purchase,
savings, thrift and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity contracts as
a means of providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust.
(n) To enter into forward commitments, futures contracts and swap
contracts and to buy and sell options on futures contracts or swap contracts and
to buy and or to enter into transactions with respect to any other securities or
derivative instruments.
(o) To engage in any other lawful act or activity in which corporations
organized under the Massachusetts Business Corporation Act may engage.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by Trustees. The Trustees shall
not be required to obtain any court order to deal with any assets of the Trust
or take any other action hereunder.
Section 4. Payment of Expenses by the Trust. The Trustees are
authorized to pay or cause to be paid out of the principal or income of the
Trust, or partly out of principal and partly out of income, as they deem fair,
all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, or in connection with the management thereof,
including but not limited to, the Trustee's compensation and such expenses and
charges for the services of the Trust's officers, employees, investment adviser
or manager, principal underwriter, auditor, counsel, custodian, transfer agent,
shareholder servicing agent, and such other agents or independent contractors
and such other expenses and charges as the Trustees may deem necessary or proper
to incur.
Section 5. Payment of Expenses by Shareholders. The Trustees shall have
the power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer, shareholder servicing
or similar agent, an amount fixed from time to time by the
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Trustees, by setting off such charges due from such Shareholder from declared
but unpaid dividends owed such Shareholder and/or by reducing the number of
Shares in the account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such charges due
from such Shareholder.
Section 6. Ownership of Assets of the Trust. Title to all of the assets
of the Trust shall at all times be considered as vested in the Trustees.
Section 7. Advisory, Management and Distribution Contracts. Subject to
such requirements and restrictions as may be set forth in the Bylaws, the
Trustees may, at any time and from time to time, contract for exclusive or
nonexclusive advisory and/or management services for the Trust or for any Series
with David L. Babson & Co., Inc. or any other partnership, corporation, trust,
association or other organization (the "Manager"); and any such contract may
contain such other terms as the Trustees may determine, including without
limitation, authority for a Manager to determine from time to time without prior
consultation with the Trustees what investments shall be purchased, held, sold
or exchanged and what portion, if any, of the assets of the Trust shall be held
uninvested and to make changes in the Trust's investments. The Trustees may
also, at any time and from time to time, contract with the Manager or any other
partnership, corporation, trust, association or other organization, appointing
it exclusive or nonexclusive distributor, principal underwriter or placement
agent for the Shares, every such contract to comply with such requirements and
restrictions as may be set forth in the Bylaws; and any such contract may
contain such other terms as the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust
is a shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter, placement agent, distributor
or affiliate or agent of or for any partnership, corporation, trust,
association, or other organization, or of or for any parent or
affiliate of any organization, with which an advisory or management
contract, or principal underwriter's or distributor's contract, or
placement agreement, or transfer, shareholder servicing or other agency
contract may have been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a Shareholder or
has an interest in the Trust, or that
(ii) any partnership, corporation, trust, association or other
organization with which an advisory or management contract or principal
underwriter's or distributor's contract, or placement agreement, or
transfer, shareholder servicing or other agency contract may have been
or may hereafter be made also has an advisory or management contract,
or principal underwriter's or distributor's contract, or transfer,
shareholder servicing or other agency contract with one or more other
corporations, trusts, associations, or other organizations, or has
other business or interests,
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shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or
executing the same or create any liability or accountability to the
Trust or its Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Article IV, Section 1, (ii)
with respect to any amendment of this Declaration of Trust to the extent and as
provided in Article IX, Section 8, (iii) to the same extent as the stockholders
of a Massachusetts business corporation as to whether or not a court action,
proceeding or claim should or should not be brought or maintained derivatively
or as a class action on behalf of the Trust or the Shareholders, (iv) with
respect to the termination of the Trust or any Series to the extent and as
provided in Article IX, Section 4, and (v) with respect to such additional
matters relating to the Trust as may be required by this Declaration of Trust,
the Bylaws or any registration of the Trust with the Commission (or any
successor agency) or any state, or as the Trustees may consider necessary or
desirable. Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them. A
proxy purporting to be executed by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. At any time when no Shares of a Series
or Class are outstanding the Trustees may exercise all rights of Shareholders of
that Series or Class with respect to matters affecting that Series or Class and
may with respect to that Series or Class take any action required by law, this
Declaration of Trust or the Bylaws to be taken by the Shareholders.
Section 2. Voting Power and Meetings. Meetings of the Shareholders may
be called by the Trustees for the purpose of electing Trustees as provided in
Article IV, Section 1 and for such other purposes as may be prescribed by law,
by this Declaration of Trust or by the Bylaws. Meetings of the Shareholders may
also be called by the Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Trustees to be necessary or
desirable. A meeting of Shareholders may be held at any place designated by the
Trustees. Written notice of any meeting of Shareholders shall be given or caused
to be given by the Trustees by mailing such notice at least seven days before
such meeting, postage prepaid, stating the time and place of the meeting, to
each Shareholder at the Shareholder's address as it appears on the records of
the Trust. Whenever notice of a meeting is required to be given to a Shareholder
under this Declaration of Trust or the Bylaws, a written waiver thereof,
executed before or after the meeting by such Shareholder or his attorney
thereunto authorized and filed with the records of the meeting, shall be deemed
equivalent to such notice.
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Section 3. Quorum and Required Vote. Except when a larger quorum is
required by law, by the Bylaws or by this Declaration of Trust, 10% of the
Shares entitled to vote shall constitute a quorum at a Shareholders' meeting.
When any one or more Series or Class is to vote as a single class separate from
any other Shares which are to vote on the same matters as a separate class or
classes, 10% of the Shares of each such class entitled to vote shall constitute
a quorum at a Shareholder's meeting of that class. Any meeting of Shareholders
may be adjourned from time to time by a majority of the votes properly cast upon
the question, whether or not a quorum is present, and the meeting may be held as
adjourned within a reasonable time after the date set for the original meeting
without further notice. When a quorum is present at any meeting, a majority of
the Shares voted shall decide any questions and a plurality shall elect a
Trustee, except when a larger vote is required by any provision of this
Declaration of Trust or the Bylaws or by law. If any question on which the
Shareholders are entitled to vote would adversely affect the rights of any
Series or Class of Shares, the vote of a majority (or such larger vote as is
required as aforesaid) of the Shares of such Series or class which are entitled
to vote, voting separately, shall be required to decide such question.
Section 4. Action by Written Consent. Any action taken by Shareholders
may be taken without a meeting if Shareholders holding a majority of the Shares
entitled to vote on the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration of Trust or by the Bylaws)
and/or holding a majority (or such larger proportion as aforesaid) of the Shares
of any Series or Class entitled to vote separately on the matter consent to the
action in writing and such written consents are filed with the records of the
meetings of Shareholders. Such consent shall be treated for all purposes as a
vote taken at a meeting of Shareholders.
Section 5. Record Dates. For the purpose of determining the
Shareholders of any Series or Class who are entitled to vote or act at any
meeting or any adjournment thereof, the Trustees may from time to time fix a
time as the record date for determining the Shareholders of such Series or Class
having the right to notice of and to vote at such a meeting and any adjournment
thereof, and in such case only Shareholders of record on such record date shall
have such right, notwithstanding any transfer of Shares on the books of the
Trust after the record date. For the purpose of determining the Shareholders of
any Series or Class who are entitled to receive payment of any dividend or of
any other distribution, the Trustees may from time to time fix a date, which
shall be before the date for the payment of such dividend or such other payment,
as the record date for determining the Shareholders of such Series or Class
having the right to receive such dividend or distribution. Without fixing a
record date the Trustees may for voting and/or distribution purposes close the
register or transfer books for one or more Series or Class for all or any part
of the period between a record date and a meeting of shareholders or the payment
of a distribution. Nothing in this section shall be construed as precluding the
Trustees from setting different record dates for different Series or Classes.
Section 6. Additional Provisions. The Bylaws may include further
provisions for Shareholders' votes and meetings and related matters.
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ARTICLE VI
Net Income, Distributions, and Redemptions and Repurchases
Section 1. Distributions of Net Income. The Trustees shall each year,
or more frequently if they so determine in their sole discretion, distribute to
the Shareholders of each Series or Class, in shares of that Series or Class,
cash or otherwise, an amount approximately equal to the net income attributable
to the assets belonging to such Series or Class and may from time to time
distribute to the Shareholders of each Series or Class, in shares of that Series
or Class, cash or otherwise, such additional amounts, but only from the assets
belonging to such Series (or allocable to such Class), as they may authorize.
All dividends and distributions on Shares of a particular Series or Class shall
be distributed pro rata to the holders of that Series or Class in proportion to
the number of Shares of that Series or Class held by such holders and recorded
on the books of the Trust at the date and time of record established for that
payment of such dividend or distributions.
The manner of determining net income, income, asset values, capital
gains, expenses, liabilities and reserves of any Series or Class may from time
to time be altered as necessary or desirable in the judgment of the Trustees to
conform such manner of determination to any other method prescribed or permitted
by applicable law. Net income shall be determined by the Trustees or by such
person as they may authorize at the times and in the manner provided in the
Bylaws. Determinations of net income of any Series or Class and determination of
income, asset values, capital gains, expenses, and liabilities made by the
Trustees, or by such person as they may authorize, in good faith, shall be
binding on all parties concerned. The foregoing sentence shall not be construed
to protect any Trustee, officer or agent of the Trust against any liability to
the Trust or its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
If, for any reason, the net income of any Series or Class determined at
any time is a negative amount, in the discretion of the Trustees the pro rata
share of such negative amount allocable to each Shareholder of such Series or
Class may constitute a liability of such Shareholder to that Series or Class
which shall be paid out of such Shareholder's account at such times and in such
manner as the Trustees may from time to time determine (x) out of the accrued
dividend account of such Shareholder, (y) by reducing the number of Shares of
that Series or Class in the account of such Shareholder, or (z) otherwise.
Section 2. Redemptions and Repurchases. The Trust shall purchase such
Shares as offered by any Shareholder for redemption, upon the presentation of a
proper instrument of transfer together with a request directed to the Trust or a
person designated by the Trust that the Trust purchase such Shares or in
accordance with such other procedures for redemption as the Trustees may from
time to time authorize; and the Trust will pay therefor the net asset value
thereof, as determined in accordance with the Bylaws, the 1940 Act and the rules
of the Commission. Payment for said Shares shall be made by the Trust to the
Shareholder within seven
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days after the date on which the request is made or in accordance with such
other procedures, consistent with the 1940 Act and the rules of the Commission,
as the Trustees may from time to time authorize. The obligation set forth in
this Section 2 is subject to the provision that in the event that at any time
the New York Stock Exchange (the "Exchange") is closed for other than weekends
or holidays, or if permitted by the rules of the Commission during periods when
trading on the Exchange is restricted or during any emergency which makes it
impracticable for the Trust to dispose of the investments of the applicable
Series or to determine fairly the value of the net assets belonging to such
Series or during any other period permitted by order of the Commission for the
protection of investors, such obligations may be suspended or postponed by the
Trustees. The Trust may also purchase or repurchase Shares at a price not
exceeding the net asset value of such Shares in effect when the purchase or
repurchase or any contract to purchase or repurchase is made.
The redemption price may in any case or cases be paid wholly or partly
in kind if the Trustees determine that such payment is advisable in the
interests of the remaining Shareholders of the Series or Class the Shares of
which are being redeemed. In making any such payment wholly or partly in kind,
the Trust shall, so far as may be practicable, deliver assets which approximate
the diversification of all of the assets belonging at the time to the Series or
Class the Shares of which are being redeemed. Subject to the foregoing, the fair
value, selection and quantity of securities or other property so paid or
delivered as all or part of the redemption price may be determined by or under
authority of the Trustees. In no case shall the Trust be liable for any delay of
any corporation or other person in transferring securities selected for delivery
as all or part of any payment in kind.
Section 3. Redemptions at the Option of the Trust. The Trust shall have
the right at its option and at any time to redeem Shares of any Shareholder at
the net asset value thereof as described in Section 1 of this Article VI: (i) if
at such time such Shareholder owns Shares of any Series or Class having an
aggregate net asset value of less than an amount determined from time to time by
the Trustees; or (ii) to the extent that such Shareholder owns Shares equal to
or in excess of a percentage determined from time to time by the Trustees of the
outstanding Shares of the Trust or of any Series or Class.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees as such shall be entitled to
reasonable compensation from the Trust; they may fix the amount of their
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or other
services and payment of the same by the Trust.
Section 2. Limitation of Liability. The Trustees shall not be
responsible or liable in any event for any neglect or wrong-doing of any
officer, agent, employee, Manager or principal underwriter of the Trust, nor
shall any Trustee be responsible for the act or omission of any other
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Trustee, but nothing herein contained shall protect any Trustee against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
ARTICLE VIII
Indemnification
Section 1. Trustees, Officers, Etc. The Trust shall indemnify each of
its Trustees and officers (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise) (hereinafter referred to
as a "Covered Person") against all liabilities and expenses, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a Covered Person except with respect to any matter as to which such
Covered Person shall have been finally adjudicated in any such action, suit or
other proceeding to be liable to the Trust or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in compromise or as fines or
penalties), shall be paid from time to time by Trust in advance of the final
disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that indemnification of such expenses
is not authorized under this Article, provided, however, that either (a) such
Covered Person shall have provided appropriate security for such undertaking,
(b) the Trust shall be insured against losses arising from any such advance
payments or (c) either a majority of the disinterested Trustees acting on the
matter (provided that a majority of the disinterested Trustees then in office
act on the matter), or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available facts (as opposed to a
full trial type inquiry) that there is reason to believe that such Covered
Person will be found entitled to indemnification under this Article.
Section 2. Compromise Payment. As to any matter disposed of (whether by
a compromise payment, pursuant to a consent decree or otherwise) without an
adjudication by a court, or by any other body before which the proceeding was
brought, that such Covered Person
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is liable to the Trust or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office, indemnification shall be provided if (a) approved,
after notice that it involves such indemnification, by at least a majority of
the disinterested Trustees acting on the matter (provided that a majority of the
disinterested Trustees then in office act on the matter) upon a determination,
based upon a review of readily available facts (as opposed to a full trial type
inquiry) that such Covered Person is not liable to the Trust or its Shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office, or (b)
there has been obtained an opinion in writing of independent legal counsel,
based upon a review of readily available facts (as opposed to a full trial type
inquiry) to the effect that such indemnification would not protect such Person
against any liability to the Trust to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office. Any approval
pursuant to this Section shall not prevent the recovery from any Covered Person
of any amount paid to such Covered Person in accordance with this Section as
indemnification if such Covered Person is subsequently adjudicated by a court of
competent jurisdiction to have been liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such Covered Person's office.
Section 3. Indemnification Not Exclusive. The right of indemnification
hereby provided shall not be exclusive of or affect any other rights to which
such Covered Person may be entitled. As used in this Article VIII, the term
"Covered Person" shall include such person's heirs, executors and administrators
and a "disinterested Trustee" is a Trustee who is not an "interested person" of
the Trust as defined in Section 2(a)(19) of the 1940 Act (or who has been
exempted from being an "interested person" by any rule, regulation or order of
the Commission), and against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in this Article shall
affect any rights to indemnification to which personnel of the Trust, other than
Trustees or officers, and other persons may be entitled by contract or otherwise
under law, nor the power of the Trust to purchase and maintain liability
insurance on behalf of any such person; provided, however, that the Trust shall
not purchase or maintain any such liability insurance in contravention of
applicable law, including without limitation the 1940 Act.
Section 4. Shareholders. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of his or her being or
having been a Shareholder and not because of his or her acts or omissions or for
some other reason, the Shareholder or former Shareholder (or his or her heirs,
executors, administrators or other legal representatives or in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled to be held harmless from and indemnified against all loss and expense
arising from such liability, but only out of the assets of the particular Series
of Shares of which he or she is or was a Shareholder.
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ARTICLE IX
Miscellaneous
Section 1. Trustees, Shareholders, Etc. Not Personally Liable; Notice.
All persons extending credit to, contracting with or having any claim against
the Trust or any Series shall look only to the assets of the Trust or to the
assets of that particular Series for payment under such credit, contract or
claim; and neither Shareholders nor the Trustees, nor any of the Trust's
officers, employees or agents, whether past, present or future, shall be
personally liable therefor. Nothing in this Declaration of Trust shall protect
any Trustee against any liability to which such Trustee would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee.
Every note, bond, contract, instrument, certificate or undertaking made
or issued on behalf of the Trust by the Trustees, by any officers or officer or
otherwise shall give notice that this Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts and shall recite that
the same was executed or made by or on behalf of the Trust or by them as Trustee
or Trustees or as officer or officers or otherwise and not individually and that
the obligations of such instrument are not binding upon any of them or the
shareholders individually but are binding only upon the assets and property of
the Trust or upon the assets belonging to the Series for the benefit of which
the Trustees have caused the note, bond, contract, instrument, certificate or
undertaking to be made or issued, and may contain such further recital as he or
they may deem appropriate, but the omission of any such recital shall not
operate to bind any Trustee or Trustees or officer or officers or Shareholders
or any other person individually.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. A Trustee shall be liable for his or
her own willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of the office of Trustee, and for nothing
else, and shall not be liable for errors of judgment or mistakes of fact or law.
The Trustees may take advice of counsel or other experts with respect to the
meaning and operation of this Declaration of Trust, and shall be under no
liability for any act or omission in accordance with such advice or for failing
to follow such advice. The Trustees shall not be required to give any bond as
such, nor any surety if a bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
Section 4. Termination of Trust or Series. Unless terminated as
provided herein, the Trust shall continue without limitation of time. The Trust
may be terminated at any time by vote of at least 50% of the Shares of each
Series entitled to vote and voting separately by Series or by the Trustees by
written notice to the Shareholders. Any Series may be terminated at any time by
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vote of at least 50% of the Shares of that Series or by the Trustees by written
notice to the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the case may be),
after paying or otherwise providing for all charges, taxes, expenses and
liabilities belonging, severally, to each Series (or the applicable Series, as
the case may be), whether due or accrued or anticipated as may be determined by
the Trustees, the Trust shall in accordance with such procedures as the Trustees
consider appropriate reduce the remaining assets belonging, severally, to each
Series (or the applicable Series, as the case may be), to distributable form in
cash or shares or other securities, or any combination thereof, and distribute
the proceeds belonging to each Series (or the applicable Series, as the case may
be), to the Shareholders of that Series, as a Series, ratably according to the
number of Shares of that Series held by the several Shareholders on the date of
termination.
Section 5. Merger and Consolidation. The Trustees may cause the Trust
to be merged into or consolidated with another trust or company or its shares
exchanged under or pursuant to any state or federal statute, if any, or
otherwise to the extent permitted by law, if such merger or consolidation or
share exchange has been authorized by vote of a majority of the outstanding
Shares, as such phrase is defined in the 1940 Act; provided that in all respects
not governed by statute or applicable law, the Trustees shall have power to
prescribe the procedure necessary or appropriate to accomplish a sale of assets,
merger or consolidation.
Section 6. Filing of Copies, References, Headings. The original or a
copy of this instrument and of each amendment hereto shall be kept at the office
of the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each amendment hereto shall be filed by the Trust with the
Secretary of State of The Commonwealth of Massachusetts and with any other
governmental office where such filing may from time to time be required. Anyone
dealing with the Trust may rely on a certificate by an officer of the Trust as
to whether or not any such amendments have been made and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions like "herein,"
"hereof" and "hereunder" shall be deemed to refer to this instrument as amended
or affected by any such amendments. Headings are placed herein for convenience
of reference only and shall not be taken as a part hereof or control or affect
the meaning, construction or effect of this instrument. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Section 7. Applicable Law. This Declaration of Trust is made in The
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth. The
Trust shall be of the type commonly called a Massachusetts business trust, and
without limiting the provisions hereof, the Trust may exercise all powers which
are ordinarily exercised by such a trust.
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Section 8. Amendments. This Declaration of Trust may be amended at any
time by an instrument in writing signed by a majority of the then Trustees when
authorized so to do by vote of a majority of the Shares entitled to vote, except
that amendments described in Article III, Section 5 hereof or having the purpose
of changing the name of the Trust or of supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or inconsistent
provision contained herein shall not require authorization by Shareholder vote.
IN WITNESS WHEREOF, the initial Trustee as aforesaid does hereto set
his hand this 1st day of August, 1994.
/s/ Peter C. Thompson
-------------------------------
Peter C. Thompson
Initial Trustee
Dated: August 1, 1994
The address of the Trust is:
One Memorial Drive
Cambridge, MA 02142
The address of the Initial Trustee is c/o:
David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, MA 02142
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COMMONWEALTH OF MASSACHUSETTS )
: ss.
COUNTY OF MIDDLESEX )
Then personally appeared before me Peter C. Thompson, who acknowledged
the foregoing Agreement and Declaration of Trust to be his free act and deed.
Witness my hand and notarial seal.
Dated: August 1, 1994 /s/ Anna A. Pasquale
---------------------------------------
Notary Public
My commission expires: 6/3/99
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EXHIBIT 1(b)
THE DLB FUND GROUP
AMENDMENT NO. 1
AGREEMENT AND DECLARATION OF TRUST
The undersigned, being at least a majority of the Trustees of The DLB
Fund Group, a Massachusetts business trust, created and existing under an
Agreement and Declaration of Trust dated August 1, 1994 (the "Agreement"), a
copy of which is on file in the Office of the Secretary of State of The
Commonwealth of Massachusetts, do hereby direct that this Amendment No.1 be
filed with the Secretary of State of The Commonwealth of Massachusetts and do
hereby amend to read in its entirety the first sentence of Section 6 of Article
III of the Agreement as follows:
"Without limiting the authority of the Trustees set forth in Section 5,
inter alia, to establish and designate any further Series or Classes or
to modify the rights and preferences of any Series or Classes, the "DLB
Fixed Income Fund", the "DLB Global Small Capitalization Fund", the
"DLB Value Fund", the "DLB Mid Capitalization Fund", the "DLB
Quantitative Equity Fund" and the "DLB Global Bond Fund" shall be, and
hereby are, established and designated as separate Series of the
Trust."
The foregoing amendment shall become effective as of the time it is
filed with the Secretary of State of The Commonwealth of Massachusetts.
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IN WITNESS WHEREOF, we have hereunto set our hands for ourselves and
our successors and assigns this 16th day of May, 1996.
/s/Richard E. Gwozdz
-------------------------
Ronald E. Gwozdz
/s/Charles E. Hugel
-------------------------
Charles E. Hugel
/s/Richard A. Nenneman
-------------------------
Richard A. Nenneman
/s/Richard J. Phelps
-------------------------
Richard J. Phelps
/s/Peter C. Thompson
-------------------------
Peter C. Thompson
-------------------------
Peter C. Schliemann
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COMMONWEALTH OF MASSACHUSETTS )
) ss:
COUNTY OF MIDDLESEX )
Then personally appeared before me each of the above-named Trustees and
acknowledged the foregoing instrument to be their free act and deed.
Dated: May 16, 1996 /s/Maureen A. Madden
--------------------
Notary Public
My Commission Expires:
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EXHIBIT 2
BYLAWS
OF
THE DLB FUND GROUP
ARTICLE 1
Agreement and Declaration of Trust and
Principal Office
1.1. Agreement and Declaration of Trust. These Bylaws shall be subject
to the Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of The DLB Fund Group, the Massachusetts business trust
established by the Declaration of Trust (the "Trust").
1.2. Principal Office of the Trust. The initial principal office of the
Trust shall be located in Cambridge, Massachusetts. The Trust may have such
other offices within or without Massachusetts as the Trustee may determine or as
they may authorize.
ARTICLE 2
Meetings of Trustees
2.1. Regular Meetings. Regular meetings of the Trustees may be held
without call or notice at such places and at such times as the Trustees may from
time to time determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Trustees.
2.2. Special Meetings. Special meetings of the Trustees may be held at
any time and at any place designated in the call of the meeting when called by
the Chairman of the Trustees, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Clerk or
an Assistant Clerk or by the officer or the Trustees calling the meeting.
2.3. Notice. It shall be sufficient notice to a Trustee of a special
meeting to send notice by mail at least forty-eight hours or by telegram, telex
or telecopy or other electronic facsimile transmission method at least
twenty-four hours before the meeting addressed to the Trustee at his or her
usual or last known business or residence address or to give notice to him or
her in person or by telephone at least twenty-four hours before the meeting.
Notice of a meeting need not be given to any Trustee if a written waiver of
notice, executed by him or her before the meeting, is filed with the records of
the meeting, or to any Trustee who attends the meeting without protesting prior
thereto or at its commencement the lack of notice to him or her. Neither notice
of a meeting nor a waiver of a notice need specify the purposes of the meeting.
2.4. Quorum. At any meeting of the Trustees a majority of the Trustees
then in office shall constitute a quorum. Any meeting may be adjourned from time
to time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.
2.5. Action by Vote. When a quorum is present at any meeting, a
majority of Trustees present may take any action, except when a larger vote is
expressly required by law, by the Declaration of Trust or by these Bylaws.
2.6. Action by Writing. Except as required by law, any action required
or permitted to be taken at any meeting of the Trustees may be taken without a
meeting if a majority of the Trustees (or such larger proportion thereof as
shall be required by any express provision of the Declaration of Trust or these
Bylaws) consent to the action in writing and such written consents are filed
with the records of the meetings of Trustees. Such consent shall be treated for
all purposes as a vote taken at a meeting of Trustees.
2.7. Presence through Communications Equipment. Except as required by
law, the Trustees may participate in a meeting of Trustees by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
ARTICLE 3
Officers
3.1. Enumeration; Qualification. The officers of the Trust shall be a
President, a Treasurer, a Clerk, and such other officers, including a Chairman
of the Trustees and a Controller, if any, as the Trustees from time to time may
in their discretion elect. The Trust may also have such agents as the Trustees
from time to time may in their discretion appoint. The Chairman of the Trustees,
if one is elected, shall be a Trustee and may but need not be a Shareholder; and
any other officer may but need not be a Trustee or a Shareholder. Any two or
more offices may be held by the same person.
3.2. Election. The President, the Treasurer, and the Clerk shall be
elected annually by the Trustees. Other officers, if any, may be elected or
appointed by the Trustees at such or any other time. Vacancies in any office may
be filled at any time.
3.3. Tenure. The Chairman of the Trustees, if one is elected, the
President, the Treasurer and the Clerk shall hold office until their respective
successors are chosen and qualified, or in each case until he or she sooner
dies, resigns, is removed or becomes disqualified. Each other officer shall hold
office and each agent shall retain authority at the pleasure of the Trustees.
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3.4. Powers. Subject to the provisions of these Bylaws, each officer
shall have, in addition to the duties and powers herein and in the Declaration
of Trust set forth, such duties and powers as are commonly incident to the
office occupied by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.
3.5. Chairman; President. Unless the Trustees otherwise provide, the
Chairman of the Trustees or, if there is none or in the absence of the Chairman,
the President shall preside at all meetings of the Shareholders and of the
Trustees. The President shall be the chief executive officer.
3.6. Treasurer and Controller. The Treasurer shall be the chief
financial officer and, if no Controller is elected, chief accounting officer of
the Trust, and shall, subject to the provisions of the Declaration of Trust and
to any arrangement made by the Trustees with a custodian, investment adviser or
manager, or transfer, shareholder servicing or similar agent, be in charge of
the valuable papers and, if no Controller is elected, the books of account and
accounting records of the Trust, and shall have such other duties and powers as
may be designated from time to time by the Trustees or by the President.
The Controller, if any, shall be the chief accounting officer of the
Trust and shall be in charge of its books of account and accounting records. The
Controller shall be responsible for preparation of financial statements of the
Trust and shall have such other duties and powers as may be designated from time
to time by the Trustees or the President.
3.7. Clerk. The Clerk shall record all proceedings of the Shareholders
and the Trustees in books to be kept therefor, which books or a copy thereof
shall be kept at the principal office of the Trust. In the absence of the Clerk
from any meeting of the Shareholders or Trustees, an assistant clerk or, if
there be none or if he or she is absent, a temporary clerk chosen at such
meeting shall record the proceedings thereof in the aforesaid books.
3.8. Resignations. Any officer may resign at any time by written
instrument signed by him or her and delivered to the Chairman, the President or
the Clerk or to a meeting of the Trustees. Such resignation shall be effective
upon receipt unless specified to be effective at some other time. Except to the
extent expressly provided in a written agreement with the Trust, no officer
resigning and no officer removed shall have any right to any compensation for
any period following his or her resignation or removal, or any right to damages
on account of such removal.
ARTICLE 4
Committees
4.1. Quorum; Voting. A majority of the members of any Committee of the
Trustees shall constitute a quorum for the transaction of business, and any
action of such a Committee may be taken at a meeting by a vote of a majority of
the members present (a quorum being present) or
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evidenced by one or more writings signed by such a majority. Members of a
Committee may participate in a meeting of such Committee by means of a
conference telephone or other communications equipment by means of which all
persons participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
ARTICLE 5
Reports
5.1. General. The Trustees and officers shall render reports at the
time and in the manner required by the Declaration of Trust or any applicable
law. Officers and Committees shall render such additional reports as they may
deem desirable or as may from time to time be required by the Trustees.
ARTICLE 6
Fiscal Year
6.1. General. Except as from time to time otherwise provided by the
Trustees, the initial fiscal year of the Trust shall end on such date as is
determined in advance or in arrears by the Treasurer, and subsequent fiscal
years shall end on such date in subsequent years.
ARTICLE 7
Seal
7.1. General. The Trust shall have no seal.
ARTICLE 8
Execution of Papers
8.1. General. Except as the Trustees may generally or in particular
cases authorize the execution thereof in some other manner, all deeds, leases,
contracts, notes and other obligations made by the Trustees shall be signed by
the President or by the Treasurer.
ARTICLE 9
Share Certificates
9.1. Share Certificates. No certificates certifying the ownership of
Shares shall be issued except as the Trustee may otherwise authorize. In the
event that the Trustees authorize the issuance of Share certificates, subject to
the provisions of Section 9.3, each Shareholder shall be entitled to a
certificate stating the number of Shares and the series or class owned by him or
her, in such form as shall be prescribed from time to time by the Trustees. Such
certificates shall be signed by the President or any Vice-President and by the
Treasurer or any Assistant Treasurer. Such signatures may be facsimiles if the
certificate is signed by a transfer agent, or by a registrar,
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other than a Trustee, officer or employee of the Trust. In case any officer who
has signed or whose facsimile signature has been placed on such certificate
shall cease to be such officer before such certificate is issued, it may be
issued by the Trust with the same effect as if he or she were such officer at
the time of its issue.
In lieu of issuing certificates for Shares, the Trustees or the
transfer agent may either issue receipts therefor or may keep accounts upon the
books of the Trust for the record holders of such Shares, who shall in either
case be deemed, for all purposes hereunder, to be the holders of certificates
for such Shares as if they had accepted such certificates and shall be held to
have expressly assented and agreed to the terms hereof.
9.2. Loss of Certificates. In case of the alleged loss or destruction
or the mutilation of a Share certificate, a duplicate certificate may be issued
in place thereof, upon such terms as the Trustees may prescribe.
9.3. Discontinuance of Issuance of Certificates. The Trustees may at
any time discontinue the issuance of Share certificates and may, by written
notice to each Shareholder, require the surrender of Share certificates to the
Trust for cancellation. Such surrender and cancellation shall not affect the
ownership of Shares in the Trust.
ARTICLE 10
Provisions Relating to the Conduct of the Trust's Business
10.1. Determination of Net Asset Value Per Share. Net asset value per
Share of each series or class of Shares of the Trust shall mean: (i) the value
of all the assets of such series or class of Shares; (ii) less total liabilities
of such series or class of Shares; (iii) divided by the number of Shares of such
series or class of Shares outstanding, in each case at the time of each
determination. The net asset value per Share of each series or class of Shares
shall be determined at such times as determined by the Trustees.
In valuing the portfolio investments of any series or class of Shares
for determination of net asset value per Share of such series, securities for
which market quotations are readily available shall be valued at prices which,
in the opinion of the Trustees or the person designated by the Trustees to make
the determination, most nearly represent the market value of such securities,
and other securities and asset shall be valued at their fair value as determined
by or pursuant to the direction of the Trustees, which in the case of short-term
debt obligations, commercial paper and repurchase agreements may, but need not,
be on the basis of quoted yields for securities of comparable maturity, quality
and type, or on the basis of amortized cost. Expenses and liabilities of the
Trust shall be accrued each day. Liabilities may include such reserves for
taxes, estimated accrued expenses and contingencies as the Trustees or their
designates may in their sole discretion deem fair and reasonable under the
circumstances. No accruals shall be made in respect of taxes on unrealized
appreciation of securities owned unless
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the Trustees shall otherwise determine. Dividends payable by the Trust shall be
deducted as at the time of but immediately prior to the determination of net
asset value per Share on the record date thereof.
10.2. Derivative Claims. No Shareholder shall have the right to bring
or maintain any court action, proceeding or claim on behalf of this Trust or any
series without first making demand on the Trustees requesting the Trustees to
bring or maintain such action, proceeding or claim. Such demand shall be excused
only when the plaintiff makes a specific showing that irreparable injury to the
Trust or Series would otherwise result. Such demand shall be mailed to the Clerk
of the Trust at the Trust's principal office and shall set forth in reasonable
detail the nature of the proposed court action, proceeding or claim and the
essential facts relied upon by the Shareholder to support the allegations made
in the demand. The Trustees shall consider such demand within 45 days of its
receipt by the Trust. In their sole discretion, the Trustees may submit the
matter to a vote of Shareholders of the Trust or series, as appropriate. Any
decision by the Trustees to bring, maintain or settle (or not to bring, maintain
or settle) such court action, proceeding or claim, or to submit the matter to a
vote of Shareholders shall be made by the Trustees in their business judgment
and shall be binding upon the Shareholders. Any decision by the Trustees to
bring or maintain a court action, proceeding or suit on behalf of the Trust or a
series shall be subject to the right of the Shareholders under Article V,
Section 1 of the Declaration of Trust to vote on whether or not such court
action, proceeding or suit should or should not be brought or maintained.
10.3. Securities and Cash of the Trust to be held by Custodian Subject
to Certain Terms and Conditions.
(a) All securities and cash owned by this Trust shall be held by
or deposited with one or more banks or trust companies having
(according to its last published report) not less than
$5,000,000 aggregate capital, surplus and undivided profits
(any such bank or trust company being hereby designated as
"Custodian"), provided such a Custodian can be found ready and
willing to act; subject to such rules, regulations and orders,
if any, as the Securities and Exchange Commission may adopt,
this Trust may, or may permit any Custodian to, deposit all or
any part of the securities owned by this Trust in a system for
the central handling of securities pursuant to which all
securities of any particular class or series of any issue
deposited within the system may be transferred or pledged by
bookkeeping entry, without physical delivery. The Custodian
may appoint, subject to the approval of the Trustees, one or
more subcustodians.
(b) The Trust shall enter into a written contract with each
Custodian regarding the powers, duties and compensation of
such Custodian with respect to the cash and securities of the
Trust held by such Custodian. Such contract and all amendments
thereto shall be approved by the Trustees.
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(c) The Trust shall upon the resignation or inability to serve of
any Custodian or upon change of any Custodian:
(i) in case of such resignation or inability to serve,
use its best efforts to obtain a successor Custodian;
(ii) require that the cash and securities owned by the
Trust be delivered directly to the successor
Custodian; and
(iii) in the event that no successor Custodian can be
found, submit to the Shareholders, before permitting
delivery of the cash and securities owned by the
Trust to a successor Custodian, the question whether
the Trust shall be liquidated or shall function
without a Custodian.
ARTICLE 11
Shareholders' Voting Powers and Meetings
11.1. Voting Powers. The Shareholders shall have power to vote only (i)
for the election of Trustees as provided in Article IV, Section 1 of the
Declaration of Trust, provided, however, that no meeting of Shareholders is
required to be called for the purpose of electing Trustees unless and until such
time as less than a majority of the Trustees have been elected by the
Shareholders, (ii) with respect to any Manager or Sub-Adviser as provided in
Article IV, Section 6 of the Declaration of Trust to the extent required by the
1940 Act, (iii) with respect to any plan of distribution adopted by the Trustees
with respect to one or more series or classes pursuant to Rule 12b-1 under the
1940 Act, (iv) with respect to any termination of this Trust to the extent and
as provided in Article IX, Section 4 of the Declaration of Trust, (v) with
respect to any amendment of the Declaration of Trust to the extent and as
provided in Article IX, Section 7 of the Declaration of Trust, (vi) to the same
extent as the stockholders of a Massachusetts business corporation as to whether
or not a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders, and (vii) with respect to such additional matters relating to the
Trust as may be required by law, the Declaration of Trust, these Bylaws or any
registration of the Trust with the Commission (or any successor agency) or any
state, or as the Trustees may consider necessary or desirable. Annual meetings
of Shareholders are not required by these Bylaws. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote. The
Shareholders of any particular series or class shall not be entitled to vote on
any matters as to which such series or class is not affected. Except with
respect to matters as to which the Trustees have determined that only the
interests of one or more particular series or classes are affected or as
required by law, all of the Shares of each series or class shall, on matters as
to which such series or class is entitled to vote, vote with other series or
classes so entitled as a single class. Notwithstanding the foregoing, with
respect to matters which would otherwise be voted on by two or more series or
classes as a single class, the Trustees may, in their sole discretion, submit
such matters to the Shareholders of any or all such series or
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classes, separately. There will be no cumulative voting in the election of
Trustees. Shares may be voted in person or by proxy. A proxy with respect to
Shares held in the name of two or more persons shall be valid if executed by any
one of them unless at or prior to exercise of the proxy the Trust receives a
specific written notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger. The placing of a Shareholder's name on a proxy
pursuant to telephonic or electronically transmitted instructions obtained
pursuant to procedures reasonably designed to verify that such instructions have
been authorized by such Shareholder shall constitute execution of such proxy by
or on behalf of such Shareholder. Until Shares are issued, the Trustees may
exercise all rights of Shareholders and may take action required by law, the
Declaration of Trust or these Bylaws to be taken by Shareholders.
11.2. Voting Power and Meetings. Meetings of the Shareholders of the
Trust or of one or more series or classes of Shares may be called by the
Trustees for the purpose of electing Trustees as provided in Article IV, Section
1 of the Declaration of Trust and for such other purposes as may be prescribed
by law, by the Declaration of Trust or by these Bylaws. Meetings of the
Shareholders of the Trust or of one or more series or classes of Shares may also
be called by the Trustees from time to time for the purpose of taking action
upon any other matter deemed by the Trustees to be necessary or desirable. A
meeting of Shareholders may be held at any place designated by the Trustees.
Written notice of any meeting of Shareholders shall be given or caused to be
given by the Trustees by mailing such notice at least seven days before such
meeting, postage prepaid, stating the time and place of the meeting, to each
Shareholder at the Shareholder's address as it appears on the record of the
Trust. Whenever notice of a meeting is required to be given to a Shareholder
under the Declaration of Trust or these Bylaws, a written waiver thereof,
executed before or after the meeting by such Shareholder or his attorney
thereunto authorized and filed with the records of the meeting, shall be deemed
equivalent to such notice.
11.3. Quorum and Required Vote. Ten percent (10%) of Shares entitled to
vote shall be a quorum for the transaction of business at a Shareholders'
meeting, except that where any provision of law or of the Declaration of Trust
or these Bylaws permits or requires that holders of any series or class of
Shares shall vote as a series or class, as the case may be, then ten percent
(10%) of the aggregate number of Shares of that series or that class entitled to
vote shall be necessary to constitute a quorum for the transaction of business
by that series or class. Any lesser number shall be sufficient for adjournments.
Any adjourned session or sessions may be held, within a reasonable time after
the date set for the original meeting, without the necessity of further notice.
Except when a larger vote is required by any provision of law or the Declaration
of Trust or these Bylaws, a majority of the Shares voted shall decide any
questions and a plurality shall elect a Trustee, provided that where any
provision of law or of the Declaration of Trust or these Bylaws permits or
requires that the holders of any series or class shall vote as a series or
class, as the case may be, then a majority of the Shares of that series or that
class voted on the matter (or a plurality with respect to the election of a
Trustee) shall decide that matter insofar as that series or class is concerned.
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11.4. Action by Written Consent. Any action taken by Shareholders may
be taken without a meeting if a majority of Shareholders entitled to vote on the
matter (or such larger proportion thereof as shall be required by any express
provision of law or the Declaration of Trust or these Bylaws) consent to the
action in writing and such written consents are filed with the records of the
meetings of Shareholders. Such consent shall be treated for all purposes as a
vote taken at a meeting of Shareholders.
11.5. Record Dates. For the purpose of determining the Shareholders who
are entitled to vote or act at any meeting or any adjournment thereof, or who
are entitled to receive payment of any dividend or of any other distribution,
the Trustees may from time to time fix a time, which shall be not more than 60
days before the date of any meeting of Shareholders or the date for the payment
of any dividend or of any other distribution, as the record date for determining
the Shareholders having the right to notice of and to vote at such meeting and
any adjournment thereof or the right to receive such dividend or distribution,
and in such case only Shareholders of record on such record date shall have such
right notwithstanding any transfer of Shares on the books of the Trust after the
record date; or without fixing such record date the Trustees may for any of such
purposes close the register or transfer books for all or any part of such
period.
ARTICLE 12
Amendments to the Bylaws
12.1. General. These Bylaws may be amended or repealed, in whole or in
part, by a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such a majority.
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EXHIBIT 5(a)
MANAGEMENT CONTRACT
Management Contract executed as of July 19, 1995 between THE DLB FUND
GROUP, a Massachusetts business trust (the "Trust"), on behalf of its DLB Fixed
Income Fund (the "Fund"), and DAVID L. BABSON & CO., INC., a Massachusetts
corporation (the "Manager").
W I T N E S S E T H:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO THE TRUST.
(a) Subject always to the control of the Trustees of the Trust and to
such policies as the Trustees may determine, the Manager will, at its expense,
(i) furnish continuously an investment program for the Fund and will make
investment decisions on behalf of the Fund and place all orders for the purchase
and sale of its portfolio securities and (ii) furnish office space and
equipment, provide bookkeeping and clerical services (excluding determination of
net asset value, shareholder accounting services and fund accounting services)
and pay all salaries, fees and expenses of officers and Trustees of the Trust
who are affiliated with the Manager. In the performance of its duties, the
Manager will comply with the provisions of the Agreement and Declaration of
Trust and By-laws of the Trust and the Fund's stated investment objective,
policies and restrictions.
(b) In placing orders for the portfolio transactions of the Fund, the
Manager will seek the best price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to obtain for
the Fund the most favorable price and execution available, the Manager shall
consider all factors it deems relevant, including, without limitation, the
overall net economic result to the Fund (involving price paid or received and
any commissions and other costs paid), the efficiency with which the transaction
is effected, the ability to effect the transaction at all where a large block is
involved, availability of the broker to stand ready to execute possibly
difficult transactions in the future and the financial strength and stability of
the broker. Subject to such policies as the Trustees may determine, the Manager
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Contract or otherwise solely by reason of its having caused the
Fund to pay a broker or dealer that provides brokerage and research services to
the Manager an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Manager determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Manager's overall
responsibilities with respect to the Fund and to other clients of the Manager as
to which the Manager exercises investment discretion.
(c) Subject to the provisions of the Agreement and Declaration of Trust
of the Trust and the Investment Company Act of 1940, the Manager, at its
expense, may select and contract with investment consultants or sub-advisers
(the "Consultants" or "Sub-Advisers," as applicable) for the Fund. The Manager
will compensate any Consultant or Sub-Adviser of the Fund for its services to
the Fund. The Manager may terminate the services of the Consultant or
Sub-Adviser at any time in its sole discretion and shall at such time assume the
responsibilities of such Consultant or Sub-Adviser unless and until a successor
Consultant or Sub-Adviser is selected.
(d) The Manager shall not be obligated under this Contract to pay any
expenses of or for the Trust or of or for the Fund not expressly assumed by the
Manager pursuant to this Section 1 other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a partner, shareholder, director, officer or
employee of, or be otherwise interested in, the Manager, and in any person
controlling, controlled by or under common control with the Manager, and that
the Manager and any person controlling, controlled by or under common control
with the Manager may have an interest in the Trust. It is also understood that
the Manager and persons controlling, controlled by or under common control with
the Manager have and may have advisory, management service, distribution or
other contracts with other organizations and persons, and may have other
interests and businesses.
3. COMPENSATION TO BE PAID BY THE FUND TO THE MANAGER.
The Fund will pay to the Manager as compensation for the Manager's
services rendered, for the facilities furnished and for the expenses borne by
the Manager pursuant to Section 1, a fee, computed and paid monthly at the
annual rate of 0.40% of the Fund's average daily net asset value. Such average
daily net asset value of the Fund shall be determined by taking an average of
all of the determinations of such net asset value during such month while this
Contract is in effect. Such fee shall be payable for each month within five (5)
business days after the end of such month.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the Fund
are qualified for offer and sale, the compensation due the Manager for such
fiscal year shall be reduced by the amount of such excess by a reduction or
refund thereof. In the event that the expenses of the Fund exceed any expense
limitation which the Manager may, by written notice to the Trust, voluntarily
declare to be effective with respect to the Fund, subject to such terms and
conditions as the Manager may prescribe in such notice, the compensation due the
Manager shall be reduced, and, if necessary, the Manager shall bear the Fund's
expenses to the extent required by such expense limitation.
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If the Manager shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS
CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract shall not be amended
unless such amendment is approved at a meeting by the affirmative vote of a
majority of the outstanding shares of the Fund, and by the vote, cast in person
at a meeting called for the purpose of voting on such approval, of a majority of
the Trustees of the Trust who are not interested persons of the Trust or of the
Manager.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this
Contract by not more than sixty days' written notice delivered or
mailed by registered mail, postage prepaid, to the other party, or
(b) If (i) the Trustees of the Trust or the shareholders by
the affirmative vote of a majority of the outstanding shares of the
Fund, and (ii) a majority of the Trustees of the Trust who are not
interested persons of the Trust or of the Manager, by vote cast in
person at a meeting called for the purpose of voting on such approval,
do not specifically approve at least annually the continuance of this
Contract, then this Contract shall automatically terminate at the close
of business on the second anniversary of its execution, or upon the
expiration of one year from the effective date of the last such
continuance, whichever is later; provided, however, that if the
continuance of this Contract is submitted to the shareholders of the
Fund for their approval and such shareholders fail to approve such
continuance of this Contract as provided herein, the Manager may
continue to serve hereunder in a manner consistent with the Investment
Company Act of 1940 and the rules and regulations thereunder.
Action by the Trust under (a) above may be taken either (i) by vote of
a majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 shall be
without the payment of any penalty.
6. CERTAIN DEFINITIONS.
-3-
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person,"
"control," "interested person" and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940 and the rules and
regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act; and the phrase
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940 and the rules and regulations
thereunder.
7. NONLIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust, or to
any shareholder of the Trust, for any act or omission in the course of, or
connected with, rendering services hereunder.
8. INITIALS "DLB."
The Manager owns the initials "DLB" and such initials may be used by
the Trust only with the consent of the Manager. The Manager consents to the use
by the Trust of the name "The DLB Fund Group" or any other name embodying the
initials "DLB", in such forms as the Manager shall in writing approve, but only
on condition and so long as (i) this Contract shall remain in full force and
(ii) the Trust shall fully perform, fulfill and comply with all provisions of
this Contract expressed herein to be performed, fulfilled or complied with by
it. No such name shall be used by the Trust at any time or in any place or for
any purposes or under any conditions except as in this section provided. The
foregoing authorization by the Manager to the Trust to use said initials as part
of a business or name is not exclusive of the right of the Manager itself to
use, or to authorize others to use, the same; the Trust acknowledges and agrees
that as between the Manager and the Trust, the Manager has the exclusive right
so to use, or authorize others to use, said initials and the Trust agrees to
take such action as may reasonably be requested by the Manager to give full
effect to the provisions of this section (including, without limitation,
consenting to such use of said initials). Without limiting the generality of the
foregoing, the Trust agrees that, upon any termination of this Contract by
either party or upon the violation of any of its provisions by the Trust, the
Trust will, at the request of the Manager made within six months after the
Manager has knowledge of such termination or violation, use its best efforts to
change the name of the Trust so as to eliminate all reference, if any, to the
initials "DLB" and will not thereafter transact any business in a name
containing the initials "DLB" in any form or combination
-4-
whatsoever, or designate itself as the same entity as or successor to an entity
of such name, or otherwise use the initials "DLB" or any other reference to the
Manager. Such covenants on the part of the Trust shall be binding upon it, its
trustees, officers, stockholders, creditors and all other persons claiming under
or through it.
9. EXERCISE OF VOTING RIGHTS.
Except as instructed otherwise by the Trustees of the Trust, the
Manager shall at its discretion exercise or procure the exercise of any voting
right attaching to investments of the Fund.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of the Fund.
-5-
IN WITNESS WHEREOF, THE DLB FUND GROUP and DAVID L. BABSON & CO., INC.
have each caused this instrument to be signed in duplicate on its behalf by its
duly authorized representative, all as of the day and year first above written.
THE DLB FUND GROUP
By_______________________________
Title:
DAVID L. BABSON & CO., INC.
By_______________________________
Title:
-6-
EXHIBIT 5(b)
MANAGEMENT CONTRACT
Management Contract executed as of July 19, 1995 between THE DLB FUND
GROUP, a Massachusetts business trust (the "Trust") on behalf of its DLB Global
Small Capitalization Fund (the "Fund"), and DAVID L. BABSON & CO., INC., a
Massachusetts corporation (the "Manager").
W I T N E S S E T H:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO THE TRUST.
(a) Subject always to the control of the Trustees of the Trust and to
such policies as the Trustees may determine, the Manager will, at its expense,
(i) furnish continuously an investment program for the Fund and will make
investment decisions on behalf of the Fund and place all orders for the purchase
and sale of its portfolio securities and (ii) furnish office space and
equipment, provide bookkeeping and clerical services (excluding determination of
net asset value, shareholder accounting services and fund accounting services)
and pay all salaries, fees and expenses of officers and Trustees of the Trust
who are affiliated with the Manager. In the performance of its duties, the
Manager will comply with the provisions of the Agreement and Declaration of
Trust and By-laws of the Trust and the Fund's stated investment objective,
policies and restrictions.
(b) In placing orders for the portfolio transactions of the Fund, the
Manager will seek the best price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to obtain for
the Fund the most favorable price and execution available, the Manager shall
consider all factors it deems relevant, including, without limitation, the
overall net economic result to the Fund (involving price paid or received and
any commissions and other costs paid), the efficiency with which the transaction
is effected, the ability to effect the transaction at all where a large block is
involved, availability of the broker to stand ready to execute possibly
difficult transactions in the future and the financial strength and stability of
the broker. Subject to such policies as the Trustees may determine, the Manager
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Contract or otherwise solely by reason of its having caused the
Fund to pay a broker or dealer that provides brokerage and research services to
the Manager an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Manager determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Manager's overall
responsibilities with respect to the Fund and to other clients of the Manager as
to which the Manager exercises investment discretion.
(c) Subject to the provisions of the Agreement and Declaration of Trust
of the Trust and the Investment Company Act of 1940, the Manager, at its
expense, may select and contract with investment consultants or sub-advisers
(the "Consultants" or "Sub-Advisers," as applicable) for the Fund. So long as
Babson-Stewart Ivory International ("Babson-Stewart") serves as Sub- Adviser to
the Fund pursuant to a Sub-Advisory Agreement in substantially the form attached
hereto as Exhibit A (the "Sub-Advisory Agreement"), the obligation of the
Manager under this Contract with respect to the Fund shall be, subject in any
event to the control of the Trustees of the Trust, to determine and review with
Babson-Stewart investment policies of the Fund, and Babson-Stewart shall have
the obligation of furnishing continuously an investment program and making
investment decisions for the Fund, adhering to applicable investment objectives,
policies and restrictions and placing all orders for the purchase and sale of
portfolio securities for the Fund. The Manager will compensate any Consultant or
Sub-Adviser of the Fund for its services to the Fund. The Manager may terminate
the services of the Consultant or Sub-Adviser at any time in its sole discretion
and shall at such time assume the responsibilities of such Consultant or
Sub-Adviser unless and until a successor Consultant or Sub-Adviser is selected.
(d) The Manager shall not be obligated under this Contract to pay any
expenses of or for the Trust or of or for the Fund not expressly assumed by the
Manager pursuant to this Section 1 other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a partner, shareholder, director, officer or
employee of, or be otherwise interested in, the Manager, and in any person
controlling, controlled by or under common control with the Manager, and that
the Manager and any person controlling, controlled by or under common control
with the Manager may have an interest in the Trust. It is also understood that
the Manager and persons controlling, controlled by or under common control with
the Manager have and may have advisory, management service, distribution or
other contracts with other organizations and persons, and may have other
interests and businesses.
3. COMPENSATION TO BE PAID BY THE FUND TO THE MANAGER.
The Fund will pay to the Manager as compensation for the Manager's
services rendered, for the facilities furnished and for the expenses borne by
the Manager pursuant to Section 1, a fee, computed and paid monthly at the
annual rate of 1.00% of the Fund's average daily net asset value. Such average
daily net asset value of the Fund shall be determined by taking an average of
all of the determinations of such net asset value during such month while this
Contract is in effect. Such fee shall be payable for each month within five (5)
business days after the end of such month.
-2-
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the Fund
are qualified for offer and sale, the compensation due the Manager for such
fiscal year shall be reduced by the amount of such excess by a reduction or
refund thereof. In the event that the expenses of the Fund exceed any expense
limitation which the Manager may, by written notice to the Trust, voluntarily
declare to be effective with respect to the Fund, subject to such terms and
conditions as the Manager may prescribe in such notice, the compensation due the
Manager shall be reduced, and, if necessary, the Manager shall bear the Fund's
expenses to the extent required by such expense limitation.
If the Manager shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS
CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract shall not be amended
unless such amendment is approved at a meeting by the affirmative vote of a
majority of the outstanding shares of the Fund, and by the vote, cast in person
at a meeting called for the purpose of voting on such approval, of a majority of
the Trustees of the Trust who are not interested persons of the Trust or of the
Manager.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this
Contract by not more than sixty days' written notice delivered or
mailed by registered mail, postage prepaid, to the other party, or
(b) If (i) the Trustees of the Trust or the shareholders by
the affirmative vote of a majority of the outstanding shares of the
Fund, and (ii) a majority of the Trustees of the Trust who are not
interested persons of the Trust or of the Manager, by vote cast in
person at a meeting called for the purpose of voting on such approval,
do not specifically approve at least annually the continuance of this
Contract, then this Contract shall automatically terminate at the close
of business on the second anniversary of its execution, or upon the
expiration of one year from the effective date of the last such
continuance, whichever is later; provided, however, that if the
continuance of this Contract is submitted to the shareholders of the
Fund for their approval and such shareholders fail to approve such
continuance of this Contract as provided herein, the Manager may
continue to serve
-3-
hereunder in a manner consistent with the Investment Company Act of
1940 and the rules and regulations thereunder.
Action by the Trust under (a) above may be taken either (i) by vote of
a majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 shall be
without the payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person,"
"control," "interested person" and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940 and the rules and
regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act; and the phrase
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940 and the rules and regulations
thereunder.
7. NONLIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust, or to
any shareholder of the Trust, for any act or omission in the course of, or
connected with, rendering services hereunder.
8. INITIALS "DLB."
The Manager owns the initials "DLB" and such initials may be used by
the Trust only with the consent of the Manager. The Manager consents to the use
by the Trust of the name "The DLB Fund Group" or any other name embodying the
initials "DLB", in such forms as the Manager shall in writing approve, but only
on condition and so long as (i) this Contract shall remain in full force and
(ii) the Trust shall fully perform, fulfill and comply with all provisions of
this Contract expressed herein to be performed, fulfilled or complied with by
it. No such name shall be used by the Trust at any time or in any place or for
any purposes or under any conditions except as in this section provided. The
foregoing authorization by the Manager to the Trust to use said initials
-4-
as part of a business or name is not exclusive of the right of the Manager
itself to use, or to authorize others to use, the same; the Trust acknowledges
and agrees that as between the Manager and the Trust, the Manager has the
exclusive right so to use, or authorize others to use, said initials and the
Trust agrees to take such action as may reasonably be requested by the Manager
to give full effect to the provisions of this section (including, without
limitation, consenting to such use of said initials). Without limiting the
generality of the foregoing, the Trust agrees that, upon any termination of this
Contract by either party or upon the violation of any of its provisions by the
Trust, the Trust will, at the request of the Manager made within six months
after the Manager has knowledge of such termination or violation, use its best
efforts to change the name of the Trust so as to eliminate all reference, if
any, to the initials "DLB" and will not thereafter transact any business in a
name containing the initials "DLB" in any form or combination whatsoever, or
designate itself as the same entity as or successor to an entity of such name,
or otherwise use the initials "DLB" or any other reference to the Manager. Such
covenants on the part of the Trust shall be binding upon it, its trustees,
officers, stockholders, creditors and all other persons claiming under or
through it.
9. EXERCISE OF VOTING RIGHTS.
Except as instructed otherwise by the Trustees of the Trust, the
Manager shall at its discretion exercise or procure the exercise of any voting
right attaching to investments of the Fund.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of the Fund.
-5-
IN WITNESS WHEREOF, THE DLB FUND GROUP and DAVID L. BABSON & CO., INC.
have each caused this instrument to be signed in duplicate on its behalf by its
duly authorized representative, all as of the day and year first above written.
THE DLB FUND GROUP
By_______________________________
Title:
DAVID L. BABSON & CO., INC.
By_______________________________
Title:
-6-
EXHIBIT 5(c)
THE DLB GLOBAL SMALL CAPITALIZATION FUND
SUB-ADVISORY AGREEMENT
----------------------
Sub-Advisory Agreement executed as of July 19, 1995 between DAVID L.
BABSON & CO., INC. (the "Manager") and BABSON-STEWART IVORY INTERNATIONAL (the
"Sub- Adviser").
W I T N E S S E T H:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY THE SUB-ADVISER TO THE MANAGER.
(a) Subject always to the control of the Trustees of The DLB Fund Group
(the "Trust"), a Massachusetts business trust, and to such policies as the
Trustees or the Manager, as the case may be, may determine, the Sub-Adviser
will, at its expense, (i) furnish continuously an investment program for the DLB
Global Small Capitalization Fund (the "Fund") and will make investment decisions
on behalf of the Fund and place all orders for the purchase and sale of its
portfolio securities and (ii) furnish office space and equipment and provide
bookkeeping and clerical services (excluding determination of net asset value,
shareholder accounting services and fund accounting services). In the
performance of its duties, the Sub-Adviser will comply with the provisions of
the Agreement and Declaration of Trust and By-laws of the Trust and the Fund's
stated investment objective, policies and restrictions.
(b) In placing orders for the portfolio transactions of the Fund, the
Sub-Adviser will seek the best price and execution available, except to the
extent it may be permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to obtain for
the Fund the most favorable price and execution available, the Sub-Adviser shall
consider all factors it deems relevant, including, without limitation, the
overall net economic result to the Fund (involving price paid or received and
any commissions and other costs paid), the efficiency with which the transaction
is effected, the ability to effect the transaction at all where a large block is
involved, availability of the broker to stand ready to execute possibly
difficult transactions in the future and the financial strength and stability of
the broker. Subject to such policies as the Trustees or the Manager, as the case
may be, may determine, the Sub- Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Fund to pay a broker or dealer that
provides brokerage and research services to the Sub-Adviser an amount of
commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction, if the Sub-Adviser determines in good faith that such amount
of commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of either
that particular
transaction or the Sub-Adviser's overall responsibilities with respect to the
Fund and to other clients of the Sub-Adviser as to which the Sub-Adviser
exercises investment discretion.
(c) The Sub-Adviser shall not be obligated under this Agreement to pay
any expenses of or for the Trust or of or for the Fund not expressly assumed by
the Sub-Adviser pursuant to this Section 1 other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a partner, shareholder, director, officer or
employee of, or be otherwise interested in, the Sub-Adviser, and in any person
controlling, controlled by or under common control with the Sub- Adviser, and
that the Sub-Adviser and any person controlling, controlled by or under common
control with the Sub-Adviser may have an interest in the Trust. It is also
understood that the Sub- Adviser and persons controlling, controlled by or under
common control with the Sub-Adviser have and may have advisory, management
service, distribution or other contracts with other organizations and persons,
and may have other interests and businesses; provided, however, that without the
prior consent of the Manager, neither the Sub-Adviser nor any of its affiliates
shall undertake to act as investment adviser or subadviser for any U.S.
registered investment company that has substantially similar investment policies
to the Fund.
3. COMPENSATION TO BE PAID BY THE MANAGER TO THE SUB-ADVISER.
The Manager will pay to the Sub-Adviser as compensation for the
Sub-Adviser's services rendered, for the facilities furnished and for the
expenses borne by the Sub-Adviser pursuant to Section 1, a fee, computed and
paid monthly at the annual rate of 0.50% of the Fund's average daily net asset
value. Such average daily net asset value of the Fund shall be determined by
taking an average of all of the determinations of such net asset value during
such month while this Agreement is in effect. Such fee shall be payable for each
month within five (5) business days after the end of such month.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the Trust
are qualified for offer and sale, the compensation due the Sub-Adviser for such
fiscal year shall be reduced by the amount of such excess by a reduction or
refund thereof. In the event that the expenses of the Fund exceed any expense
limitation which the Sub-Adviser may, by written notice to the Manager,
voluntarily declare to be effective with respect to the Fund, subject to such
terms and conditions as the Sub-Adviser may prescribe in such notice, the
compensation due the Sub-Adviser shall be reduced, and, if necessary, the Sub-
Adviser shall bear the Fund's expenses to the extent required by such expense
limitation.
If the Sub-Adviser shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
-2-
4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS
AGREEMENT.
This Agreement shall automatically terminate, without the payment of
any penalty, in the event of its assignment or in the event that the Management
Contract between the Manager and the Trust relating to the Fund shall have
terminated for any reason; and this Agreement shall not be amended unless such
amendment is approved at a meeting by the affirmative vote of a majority of the
outstanding shares of the Fund, and by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the Trustees
of the Trust who are not interested persons of the Trust or of the Manager or of
the Sub-Adviser.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS AGREEMENT.
This Agreement shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this
Agreement by not more than sixty days' written notice delivered or
mailed by registered mail, postage prepaid, to the other party, or
(b) If (i) the Trustees of the Trust or the shareholders by
the affirmative vote of a majority of the outstanding shares of the
Fund, and (ii) a majority of the Trustees of the Trust who are not
interested persons of the Trust, the Manager or of the Sub-Adviser, by
vote cast in person at a meeting called for the purpose of voting on
such approval, do not specifically approve at least annually the
continuance of this Agreement, then this Agreement shall automatically
terminate at the close of business on the second anniversary of its
execution, or upon the expiration of one year from the effective date
of the last such continuance, whichever is later; provided, however,
that if the continuance of this Agreement is submitted to the
shareholders of the Fund for their approval and such shareholders fail
to approve such continuance of this Agreement as provided herein, the
Sub-Adviser may continue to serve hereunder in a manner consistent with
the Investment Company Act of 1940 (the "1940 Act") and the rules and
regulations thereunder.
Action by the Trust under (a) above may be taken either (i) by vote of
a majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Fund.
Termination of this Agreement pursuant to this Section 5 shall be
without the payment of any penalty.
6. CERTAIN INFORMATION.
-3-
The Sub-Adviser shall promptly notify the Manager in writing of the
occurrence of any of the following events: (a) the Sub-Adviser shall fail to be
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended from time to time, and under the laws of any jurisdiction in which
the Sub-Adviser is required to be registered as an investment adviser in order
to perform its obligations under this Agreement or any other agreement
concerning the provision of investment advisory services to the Trust, (b) the
Sub-Adviser shall be disqualified from serving as investment adviser to the Fund
pursuant to Section 9 of the 1940 Act, or otherwise, (c) the Sub-Adviser shall
have been served or otherwise have notice of any action, suit, proceeding or
inquiry or investigation, at law or in equity, before or by any court, public
board or body, involving the affairs of the Trust, (d) there is a change in
control of the Sub-Adviser or any parent of the Sub-Adviser within the meaning
of the 1940 Act or (e) there is a material adverse change in the business or
financial position of the Sub-Adviser.
7. CERTAIN DEFINITIONS.
For the purposes of this Agreement, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.
For the purposes of this Agreement, the terms "affiliated person",
"control," "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act; and the phrase "specifically approve at
least annually" shall be construed in a manner consistent with the 1940 Act and
the rules and regulations thereunder.
7. NONLIABILITY OF THE SUB-ADVISER.
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Sub- Adviser, or reckless disregard of its obligations and
duties hereunder, the Sub-Adviser shall not be subject to any liability to the
Trust, or to any shareholder of the Trust, for any act or omission in the course
of, or connected with, rendering services hereunder.
8. EXERCISE OF VOTING RIGHTS.
Except as instructed otherwise by the Trustees of the Trust or the
Manager, the Sub- Adviser shall at its discretion exercise or procure the
exercise of any voting right attaching to investments of the Fund.
-4-
9. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and the obligations of
this instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of the Fund.
-5-
IN WITNESS WHEREOF, David L. Babson & Co. and Babson-Stewart Ivory
International have each caused this instrument to be signed in duplicate on its
behalf by its duly authorized representative, all as of the day and year first
above written.
DAVID L. BABSON & CO., INC.
By_______________________________
Title:
BABSON-STEWART IVORY INTERNATIONAL
By_______________________________
Title:
Accepted and agreed to as of the day and year first above written:
THE DLB FUND GROUP,
on behalf of its
DLB Global Small Capitalization Fund
By________________________
Title:
-6-
EXHIBIT 5(d)
MANAGEMENT CONTRACT
Management Contract executed as of July 19, 1995 between THE DLB FUND
GROUP, a Massachusetts business trust (the "Trust") on behalf of its DLB Value
Fund (the "Fund"), and DAVID L. BABSON & CO., INC., a Massachusetts corporation
(the "Manager").
W I T N E S S E T H:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO THE TRUST.
(a) Subject always to the control of the Trustees of the Trust and to
such policies as the Trustees may determine, the Manager will, at its expense,
(i) furnish continuously an investment program for the Fund and will make
investment decisions on behalf of the Fund and place all orders for the purchase
and sale of its portfolio securities and (ii) furnish office space and
equipment, provide bookkeeping and clerical services (excluding determination of
net asset value, shareholder accounting services and fund accounting services)
and pay all salaries, fees and expenses of officers and Trustees of the Trust
who are affiliated with the Manager. In the performance of its duties, the
Manager will comply with the provisions of the Agreement and Declaration of
Trust and By-laws of the Trust and the Fund's stated investment objective,
policies and restrictions.
(b) In placing orders for the portfolio transactions of the Fund, the
Manager will seek the best price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to obtain for
the Fund the most favorable price and execution available, the Manager shall
consider all factors it deems relevant, including, without limitation, the
overall net economic result to the Fund (involving price paid or received and
any commissions and other costs paid), the efficiency with which the transaction
is effected, the ability to effect the transaction at all where a large block is
involved, availability of the broker to stand ready to execute possibly
difficult transactions in the future and the financial strength and stability of
the broker. Subject to such policies as the Trustees may determine, the Manager
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Contract or otherwise solely by reason of its having caused the
Fund to pay a broker or dealer that provides brokerage and research services to
the Manager an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Manager determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Manager's overall
responsibilities with respect to the Fund and to other clients of the Manager as
to which the Manager exercises investment discretion.
(c) Subject to the provisions of the Agreement and Declaration of Trust
of the Trust and the Investment Company Act of 1940, the Manager, at its
expense, may select and contract with investment consultants or sub-advisers
(the "Consultants" or "Sub-Advisers," as applicable) for the Fund. The Manager
will compensate any Consultant or Sub-Adviser of the Fund for its services to
the Fund. The Manager may terminate the services of the Consultant or
Sub-Adviser at any time in its sole discretion and shall at such time assume the
responsibilities of such Consultant or Sub-Adviser unless and until a successor
Consultant or Sub-Adviser is selected.
(d) The Manager shall not be obligated under this Contract to pay any
expenses of or for the Trust or of or for the Fund not expressly assumed by the
Manager pursuant to this Section 1 other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a partner, shareholder, director, officer or
employee of, or be otherwise interested in, the Manager, and in any person
controlling, controlled by or under common control with the Manager, and that
the Manager and any person controlling, controlled by or under common control
with the Manager may have an interest in the Trust. It is also understood that
the Manager and persons controlling, controlled by or under common control with
the Manager have and may have advisory, management service, distribution or
other contracts with other organizations and persons, and may have other
interests and businesses.
3. COMPENSATION TO BE PAID BY THE FUND TO THE MANAGER.
The Fund will pay to the Manager as compensation for the Manager's
services rendered, for the facilities furnished and for the expenses borne by
the Manager pursuant to Section 1, a fee, computed and paid monthly at the
annual rate of 0.55% of the Fund's average daily net asset value. Such average
daily net asset value of the Fund shall be determined by taking an average of
all of the determinations of such net asset value during such month while this
Contract is in effect. Such fee shall be payable for each month within five (5)
business days after the end of such month.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the Fund
are qualified for offer and sale, the compensation due the Manager for such
fiscal year shall be reduced by the amount of such excess by a reduction or
refund thereof. In the event that the expenses of the Fund exceed any expense
limitation which the Manager may, by written notice to the Trust, voluntarily
declare to be effective with respect to the Fund, subject to such terms and
conditions as the Manager may prescribe in such notice, the compensation due the
Manager shall be reduced, and, if necessary, the Manager shall bear the Fund's
expenses to the extent required by such expense limitation.
-2-
If the Manager shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS
CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract shall not be amended
unless such amendment is approved at a meeting by the affirmative vote of a
majority of the outstanding shares of the Fund, and by the vote, cast in person
at a meeting called for the purpose of voting on such approval, of a majority of
the Trustees of the Trust who are not interested persons of the Trust or of the
Manager.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this
Contract by not more than sixty days' written notice delivered or
mailed by registered mail, postage prepaid, to the other party, or
(b) If (i) the Trustees of the Trust or the shareholders by
the affirmative vote of a majority of the outstanding shares of the
Fund, and (ii) a majority of the Trustees of the Trust who are not
interested persons of the Trust or of the Manager, by vote cast in
person at a meeting called for the purpose of voting on such approval,
do not specifically approve at least annually the continuance of this
Contract, then this Contract shall automatically terminate at the close
of business on the second anniversary of its execution, or upon the
expiration of one year from the effective date of the last such
continuance, whichever is later; provided, however, that if the
continuance of this Contract is submitted to the shareholders of the
Fund for their approval and such shareholders fail to approve such
continuance of this Contract as provided herein, the Manager may
continue to serve hereunder in a manner consistent with the Investment
Company Act of 1940 and the rules and regulations thereunder.
Action by the Trust under (a) above may be taken either (i) by vote of
a majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 shall be
without the payment of any penalty.
6. CERTAIN DEFINITIONS.
-3-
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person,"
"control," "interested person" and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940 and the rules and
regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act; and the phrase
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940 and the rules and regulations
thereunder.
7. NONLIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust, or to
any shareholder of the Trust, for any act or omission in the course of, or
connected with, rendering services hereunder.
8. INITIALS "DLB."
The Manager owns the initials "DLB" and such initials may be used by
the Trust only with the consent of the Manager. The Manager consents to the use
by the Trust of the name "The DLB Fund Group" or any other name embodying the
initials "DLB", in such forms as the Manager shall in writing approve, but only
on condition and so long as (i) this Contract shall remain in full force and
(ii) the Trust shall fully perform, fulfill and comply with all provisions of
this Contract expressed herein to be performed, fulfilled or complied with by
it. No such name shall be used by the Trust at any time or in any place or for
any purposes or under any conditions except as in this section provided. The
foregoing authorization by the Manager to the Trust to use said initials as part
of a business or name is not exclusive of the right of the Manager itself to
use, or to authorize others to use, the same; the Trust acknowledges and agrees
that as between the Manager and the Trust, the Manager has the exclusive right
so to use, or authorize others to use, said initials and the Trust agrees to
take such action as may reasonably be requested by the Manager to give full
effect to the provisions of this section (including, without limitation,
consenting to such use of said initials). Without limiting the generality of the
foregoing, the Trust agrees that, upon any termination of this Contract by
either party or upon the violation of any of its provisions by the Trust, the
Trust will, at the request of the Manager made within six months after the
Manager has knowledge of such termination or violation, use its best efforts to
change the name of the Trust so as to eliminate all reference, if any, to the
initials "DLB" and will not thereafter transact any business in a name
containing the initials "DLB" in any form or combination
-4-
whatsoever, or designate itself as the same entity as or successor to an entity
of such name, or otherwise use the initials "DLB" or any other reference to the
Manager. Such covenants on the part of the Trust shall be binding upon it, its
trustees, officers, stockholders, creditors and all other persons claiming under
or through it.
9. EXERCISE OF VOTING RIGHTS.
Except as instructed otherwise by the Trustees of the Trust, the
Manager shall at its discretion exercise or procure the exercise of any voting
right attaching to investments of the Fund.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of the Fund.
-5-
IN WITNESS WHEREOF, THE DLB FUND GROUP and DAVID L. BABSON & CO., INC.
have each caused this instrument to be signed in duplicate on its behalf by its
duly authorized representative, all as of the day and year first above written.
THE DLB FUND GROUP
By_______________________________
Title:
DAVID L. BABSON & CO., INC.
By_______________________________
Title:
-6-
EXHIBIT 5(e)
MANAGEMENT CONTRACT
Management Contract executed as of July 19, 1995 between THE DLB FUND
GROUP, a Massachusetts business trust (the "Trust") on behalf of its DLB Mid
Capitalization Fund (the "Fund"), and DAVID L. BABSON & CO., INC., a
Massachusetts corporation (the "Manager").
W I T N E S S E T H:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO THE TRUST.
(a) Subject always to the control of the Trustees of the Trust and to
such policies as the Trustees may determine, the Manager will, at its expense,
(i) furnish continuously an investment program for the Fund and will make
investment decisions on behalf of the Fund and place all orders for the purchase
and sale of its portfolio securities and (ii) furnish office space and
equipment, provide bookkeeping and clerical services (excluding determination of
net asset value, shareholder accounting services and fund accounting services)
and pay all salaries, fees and expenses of officers and Trustees of the Trust
who are affiliated with the Manager. In the performance of its duties, the
Manager will comply with the provisions of the Agreement and Declaration of
Trust and By-laws of the Trust and the Fund's stated investment objective,
policies and restrictions.
(b) In placing orders for the portfolio transactions of the Fund, the
Manager will seek the best price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to obtain for
the Fund the most favorable price and execution available, the Manager shall
consider all factors it deems relevant, including, without limitation, the
overall net economic result to the Fund (involving price paid or received and
any commissions and other costs paid), the efficiency with which the transaction
is effected, the ability to effect the transaction at all where a large block is
involved, availability of the broker to stand ready to execute possibly
difficult transactions in the future and the financial strength and stability of
the broker. Subject to such policies as the Trustees may determine, the Manager
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Contract or otherwise solely by reason of its having caused the
Fund to pay a broker or dealer that provides brokerage and research services to
the Manager an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Manager determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Manager's overall
responsibilities with respect to the Fund and to other clients of the Manager as
to which the Manager exercises investment discretion.
(c) Subject to the provisions of the Agreement and Declaration of Trust
of the Trust and the Investment Company Act of 1940, the Manager, at its
expense, may select and contract with investment consultants or sub-advisers
(the "Consultants" or "Sub-Advisers," as applicable) for the Fund. The Manager
will compensate any Consultant or Sub-Adviser of the Fund for its services to
the Fund. The Manager may terminate the services of the Consultant or
Sub-Adviser at any time in its sole discretion and shall at such time assume the
responsibilities of such Consultant or Sub-Adviser unless and until a successor
Consultant or Sub-Adviser is selected.
(d) The Manager shall not be obligated under this Contract to pay any
expenses of or for the Trust or of or for the Fund not expressly assumed by the
Manager pursuant to this Section 1 other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a partner, shareholder, director, officer or
employee of, or be otherwise interested in, the Manager, and in any person
controlling, controlled by or under common control with the Manager, and that
the Manager and any person controlling, controlled by or under common control
with the Manager may have an interest in the Trust. It is also understood that
the Manager and persons controlling, controlled by or under common control with
the Manager have and may have advisory, management service, distribution or
other contracts with other organizations and persons, and may have other
interests and businesses.
3. COMPENSATION TO BE PAID BY THE FUND TO THE MANAGER.
The Fund will pay to the Manager as compensation for the Manager's
services rendered, for the facilities furnished and for the expenses borne by
the Manager pursuant to Section 1, a fee, computed and paid monthly at the
annual rate of 0.60% of the Fund's average daily net asset value. Such average
daily net asset value of the Fund shall be determined by taking an average of
all of the determinations of such net asset value during such month while this
Contract is in effect. Such fee shall be payable for each month within five (5)
business days after the end of such month.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the Fund
are qualified for offer and sale, the compensation due the Manager for such
fiscal year shall be reduced by the amount of such excess by a reduction or
refund thereof. In the event that the expenses of the Fund exceed any expense
limitation which the Manager may, by written notice to the Trust, voluntarily
declare to be effective with respect to the Fund, subject to such terms and
conditions as the Manager may prescribe in such notice, the compensation due the
Manager shall be reduced, and, if necessary, the Manager shall bear the Fund's
expenses to the extent required by such expense limitation.
-2-
If the Manager shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS
CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract shall not be amended
unless such amendment is approved at a meeting by the affirmative vote of a
majority of the outstanding shares of the Fund, and by the vote, cast in person
at a meeting called for the purpose of voting on such approval, of a majority of
the Trustees of the Trust who are not interested persons of the Trust or of the
Manager.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this
Contract by not more than sixty days' written notice delivered or
mailed by registered mail, postage prepaid, to the other party, or
(b) If (i) the Trustees of the Trust or the shareholders by
the affirmative vote of a majority of the outstanding shares of the
Fund, and (ii) a majority of the Trustees of the Trust who are not
interested persons of the Trust or of the Manager, by vote cast in
person at a meeting called for the purpose of voting on such approval,
do not specifically approve at least annually the continuance of this
Contract, then this Contract shall automatically terminate at the close
of business on the second anniversary of its execution, or upon the
expiration of one year from the effective date of the last such
continuance, whichever is later; provided, however, that if the
continuance of this Contract is submitted to the shareholders of the
Fund for their approval and such shareholders fail to approve such
continuance of this Contract as provided herein, the Manager may
continue to serve hereunder in a manner consistent with the Investment
Company Act of 1940 and the rules and regulations thereunder.
Action by the Trust under (a) above may be taken either (i) by vote of
a majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 shall be
without the payment of any penalty.
6. CERTAIN DEFINITIONS.
-3-
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person,"
"control," "interested person" and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940 and the rules and
regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act; and the phrase
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940 and the rules and regulations
thereunder.
7. NONLIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust, or to
any shareholder of the Trust, for any act or omission in the course of, or
connected with, rendering services hereunder.
8. INITIALS "DLB."
The Manager owns the initials "DLB" and such initials may be used by
the Trust only with the consent of the Manager. The Manager consents to the use
by the Trust of the name "The DLB Fund Group" or any other name embodying the
initials "DLB", in such forms as the Manager shall in writing approve, but only
on condition and so long as (i) this Contract shall remain in full force and
(ii) the Trust shall fully perform, fulfill and comply with all provisions of
this Contract expressed herein to be performed, fulfilled or complied with by
it. No such name shall be used by the Trust at any time or in any place or for
any purposes or under any conditions except as in this section provided. The
foregoing authorization by the Manager to the Trust to use said initials as part
of a business or name is not exclusive of the right of the Manager itself to
use, or to authorize others to use, the same; the Trust acknowledges and agrees
that as between the Manager and the Trust, the Manager has the exclusive right
so to use, or authorize others to use, said initials and the Trust agrees to
take such action as may reasonably be requested by the Manager to give full
effect to the provisions of this section (including, without limitation,
consenting to such use of said initials). Without limiting the generality of the
foregoing, the Trust agrees that, upon any termination of this Contract by
either party or upon the violation of any of its provisions by the Trust, the
Trust will, at the request of the Manager made within six months after the
Manager has knowledge of such termination or violation, use its best efforts to
change the name of the Trust so as to eliminate all reference, if any, to the
initials "DLB" and will not thereafter transact any business in a name
containing the initials "DLB" in any form or combination
-4-
whatsoever, or designate itself as the same entity as or successor to an entity
of such name, or otherwise use the initials "DLB" or any other reference to the
Manager. Such covenants on the part of the Trust shall be binding upon it, its
trustees, officers, stockholders, creditors and all other persons claiming under
or through it.
9. EXERCISE OF VOTING RIGHTS.
Except as instructed otherwise by the Trustees of the Trust, the
Manager shall at its discretion exercise or procure the exercise of any voting
right attaching to investments of the Fund.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of the Fund.
-5-
IN WITNESS WHEREOF, THE DLB FUND GROUP and DAVID L. BABSON & CO., INC.
have each caused this instrument to be signed in duplicate on its behalf by its
duly authorized representative, all as of the day and year first above written.
THE DLB FUND GROUP
By_______________________________
Title:
DAVID L. BABSON & CO., INC.
By_______________________________
Title:
-6-
EXHIBIT 8
FORM OF
CUSTODIAN AGREEMENT
Between
THE DLB FUND GROUP
and
INVESTORS BANK & TRUST COMPANY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Bank Appointed Custodian.................................................................................5
2. Definitions..............................................................................................5
2.1. Authorized Person......................................................................5
2.2. Security...............................................................................5
2.3. Portfolio Security.....................................................................6
2.4. Officers' Certificate..................................................................6
2.5. Book-Entry System......................................................................6
2.6. Depository.............................................................................6
2.7. Proper Instruction.....................................................................6
3. Separate Accounts........................................................................................7
4. Certification as to Authorized Persons...................................................................7
5. Custody of Cash..........................................................................................7
5.1. Purchase of Securities.................................................................7
5.2. Redemptions............................................................................8
5.3. Distributions and Expenses of Fund.....................................................8
5.4. Payment in Respect of Securities.......................................................8
5.5. Repayment of Loans.....................................................................8
5.6. Repayment of Cash......................................................................8
5.7. Foreign Exchange Transactions..........................................................8
5.8. Other Authorized Payments..............................................................8
5.9. Termination:...........................................................................9
6. Securities...............................................................................................9
6.1. Segregation and Registration...........................................................9
6.2. Voting and Proxies.....................................................................9
6.3. Book-Entry System......................................................................9
6.4. Use of a Depository...................................................................11
6.5. Use of Book-Entry System for Commercial Paper.........................................12
6.6. Use of Immobilization Programs........................................................13
6.7. Eurodollar CDs........................................................................14
-2-
6.8. Options and Futures Transactions......................................................14
6.9. Segregated Account....................................................................15
6.10. Interest Bearing Call or Time Deposits.......................................17
6.11. Transfer of Securities.......................................................17
7. Redemption..............................................................................................19
8. Merger..................................................................................................19
9. Actions of Bank Without Prior Authorization.............................................................19
10. Collections and Defaults................................................................................20
11. Maintenance of Records and Accounting Services..........................................................21
12. Fund Evaluation.........................................................................................21
13. Concerning the Bank.....................................................................................21
13.1. Performance of Duties and Standard of Care...................................21
13.2. Agents and Subcustodians with Respect to Property of the Fund
Held in the United States....................................................23
13.3. Duties of the Bank with Respect to Property of the Fund Held
Outside of the United States.................................................24
13.4. Insurance....................................................................28
13.5. Fees and Expenses of Bank....................................................28
13.6. Advances by Bank.............................................................28
14. Termination.............................................................................................28
15. Confidentiality.........................................................................................29
16. Notices.................................................................................................30
17. Amendments..............................................................................................30
18. Parties.................................................................................................30
19. Governing Law...........................................................................................30
20. Counterparts............................................................................................30
21. Limitation of Liability.................................................................................31
</TABLE>
-3-
FORM OF
CUSTODIAN AGREEMENT
AGREEMENT made as of this 19th day of July, 1995 between THE DLB FUND
GROUP, a Massachusetts business trust (the "Fund") and INVESTORS BANK &TRUST
COMPANY (the "Bank").
The Fund, an open-end management investment company, consisting of four
portfolios, The DLB Fixed Income Fund, the DLB Global Small Capitalization Fund,
the DLB Value Fund and the DLB Mid Capitalization Fund (each referred to as a
"Portfolio") desires to place and maintain all of its portfolio securities and
cash in the custody of the Bank. The Bank has at least the minimum
qualifications required by Section 17(f)(1) of the Investment Company Act of
1940 (the "1940 Act") to act as custodian of the portfolio securities and cash
of the Fund, and has indicated its willingness to so act, subject to the terms
and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as custodian of
its portfolio securities and cash delivered to the Bank as hereinafter described
and the Bank agrees to act as such upon the terms and conditions hereinafter set
forth.
2. Definitions. Whenever used herein, the terms listed below will have the
following meaning:
2.1. Authorized Person. Authorized Person will mean any of the persons
duly authorized to give Proper Instructions or otherwise act on behalf of the
Fund by appropriate resolution of its Board of Trustees (the "Board"), and set
forth in a certificate as required by Section 4 hereof.
2.2. Security. The term security as used herein will have the same
meaning as when such term is used in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or
-4-
option contract to purchase or sell any of the foregoing, and futures, forward
contracts and options thereon.
2.3. Portfolio Security. Portfolio Security will mean any security
owned by the Fund.
2.4. Officers' Certificate. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
2.5. Book-Entry System. Book-Entry System shall mean the Federal
Reserve- Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.6. Depository. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.7. Proper Instructions. Proper Instructions shall mean (i)
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized Person
as shall have been designated in an Officers' Certificate, such instructions to
be given in such form and manner as the Bank and the Fund shall agree upon from
time to time, and (ii) instructions (which may be continuing instructions)
regarding other matters signed or initialed by such one or more persons from
time to time designated in an Officers' Certificate as having been authorized by
the Board. Oral instructions will be considered Proper Instructions if the Bank
reasonably believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Fund shall cause all
oral instructions to be promptly confirmed in writing. The Bank shall act upon
and comply with any subsequent Proper Instruction which modifies a prior
instruction and the sole obligation of the Bank with respect to any follow-up or
confirmatory instruction shall be to make reasonable efforts to detect any
discrepancy between the original instruction and such confirmation and to report
such discrepancy to the Fund. The Fund shall be responsible, at the Fund's
expense, for taking any action, including any reprocessing, necessary to correct
any such discrepancy or error, and to the extent such action requires the Bank
to act the Fund shall give the Bank specific Proper Instructions as to the
action required. Upon receipt of an Officers' Certificate as to the
authorization by the Board accompanied by a detailed description of procedures
approved by the Fund, Proper Instructions may include communication effected
directly between electro-mechanical or
-5-
electronic devices provided that the Board and the Bank are satisfied that such
procedures afford adequate safeguards for the Fund's assets.
3. Separate Accounts. The Bank will segregate the assets of each Portfolio to
which this Agreement relates into a separate account for each Portfolio
containing the assets of such Portfolio (and all investment earnings thereon).
4. Certification as to Authorized Persons. The Secretary or Assistant Secretary
of the Fund will at all times maintain on file with the Bank his or her
certification to the Bank, in such form as may be acceptable to the Bank, of (i)
the names and signatures of the Authorized Persons and (ii) the names of the
Board, it being understood that upon the occurrence of any change in the
information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund, will sign a new or amended certification setting forth
the change and the new, additional or omitted names or signatures. The Bank will
be entitled to rely and act upon any Officers' Certificate given to it by the
Fund which has been signed by Authorized Persons named in the most recent
certification.
5. Custody of Cash. As Custodian for the Fund, the Bank will open and maintain a
separate account or accounts in the name of the Fund or in the name of the Bank,
as Custodian of the Fund, and will deposit to the account of the Fund all of the
cash of the Fund, except for cash held by a subcustodian appointed pursuant to
Section 13.2 hereof, including borrowed funds, delivered to the Bank, subject
only to draft or order by the Bank acting pursuant to the terms of this
Agreement. Upon receipt by the Bank of Proper Instructions (which may be
continuing instructions) or in the case of payments for redemptions and
repurchases of outstanding shares of beneficial interest of the Fund,
notification from the Fund's transfer agent as provided in Section 7, requesting
such payment, designating the payee or the account or accounts to which the Bank
will release funds for deposit, and stating that it is for a purpose permitted
under the terms of this Section 5, specifying the applicable subsection, the
Bank will make payments of cash held for the accounts of the Fund, insofar as
funds are available for that purpose, only as permitted in subsections 5.1-5.9
below.
5.1. Purchase of Securities. Upon the purchase of securities for the
Fund, against contemporaneous receipt of Such securities by the Bank or, against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs, registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (of transaction report in the case of Book Entry Paper) of
purchase of the securities received
-6-
by the Bank before such payment is made, as confirmed in the Proper Instructions
received by the Bank before such payment is made.
5.2. Redemptions. In such amount as may be necessary for the repurchase
or redemption of shares of beneficial interest of the Fund offered for
repurchase or redemption in accordance with Section 7 of this Agreement.
5.3. Distributions and Expenses of Fund. For the payment on the account
of the Fund of dividends or other distributions to shareholders as may from time
to time be declared by the Board, interest, taxes, management or supervisory
fees, distribution fees, fees of the Bank for its services hereunder and
reimbursement of the expenses and liabilities of the Bank as provided hereunder,
fees of any transfer agent, fees for legal, accounting, and auditing services,
or other operating expenses of the Fund.
5.4. Payment in Respect of Securities. For payments in connection with
the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5. Repayment of Loans. To repay loans of money made to the Fund, but,
in the case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan.
5.6. Repayment of Cash. To repay the cash delivered to the Fund for the
purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7. Foreign Exchange Transactions. For payments in connection with
foreign exchange contracts or options to purchase and sell foreign currencies
for spot and future delivery which may be entered into by the Bank on behalf of
the Fund upon the receipt of Proper Instructions, such Proper Instructions to
specify the currency broker or banking institution (which may be the Bank, or
any other subcustodian or agent hereunder, acting as principal) with which the
contract or option is made, and the Bank shall have no duty with respect to the
selection of such currency brokers or banking institutions with which the Fund
deals or for their failure to comply with the terms of any contract or option.
5.8. Other Authorized Payments. For other authorized transactions of
the Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the
-7-
obligation for which payment is to be made, setting forth the purpose for which
such obligation was incurred and declaring such purpose to be a proper corporate
purpose.
5.9. Termination. Upon the termination of this Agreement as hereinafter
set forth pursuant to Section 8 and Section 14 of this Agreement.
6. Securities.
6.1. Segregation and Registration. Except as otherwise provided herein,
and except for securities to be delivered to any subcustodian appointed pursuant
to Section 13.2 hereof, the Bank as custodian, will receive and hold pursuant to
the provisions hereof, in a separate account or accounts and physically
segregated at all times from those of other persons, any and all Portfolio
Securities which may now or hereafter be delivered to it by or for the account
of the Fund. All such Portfolio Securities will be held or disposed of by the
Bank for, and subject at all times to, the instructions of the Fund pursuant to
the terms of this Agreement. Subject to the specific provisions herein relating
to Portfolio Securities that are not physically held by the Bank, the Bank will
register all Portfolio Securities (unless otherwise directed by Proper
Instructions or an Officers' Certificate), in the name of a registered nominee
of the Bank as defined in the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, and will execute and deliver all such
certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state.
The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of the Fund.
6.2. Voting and Proxies. Neither the Bank nor any nominee of the Bank
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund all notices, proxies
and proxy soliciting materials with respect to such Securities, such proxies to
be executed by the registered holder of such Securities (if registered otherwise
than in the name of the Fund), but without indicating the manner in which such
proxies are to be voted.
6.3. Book-Entry System. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits of Fund assets
in the Book-Entry System, and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
-8-
(a) The Bank may keep Portfolio Securities in the
Book-Entry System provided that such Portfolio
Securities are represented in an account ("Account")
of the Bank (or its agent) in such System which shall
not include any assets of the Bank (or such agent)
other than assets held as a fiduciary, custodian, or
otherwise for customers;
(b) The records of the Bank (and any such agent) with
respect to the Fund's participation in the Book-Entry
System through the Bank (or any such agent) will
identify by book entry Portfolio Securities which are
included with other securities deposited in the
Account and shall at all times during the regular
business hours of the Bank (or such agent) be open
for inspection by duly authorized officers, employees
or agents of the Fund. Where securities are
transferred to the Fund's account, the Bank shall
also, by book entry or otherwise, identify as
belonging to the Fund a quantity of securities in
fungible bulk of securities (i) registered in the
name of the Bank or its nominee, or (ii) shown on the
Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities
purchased for the account of the Fund or shall pay
cash collateral against the return of Portfolio
Securities loaned by the Fund upon (i) receipt of
advice from the Book-Entry System that such
Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the
Bank (or its agent) to reflect such payment and
transfer for the account of the Fund. The Bank (or
its agent) shall transfer securities sold or loaned
for the account of the Fund upon
(i) receipt of advice from the Book-Entry System
that payment for securities sold or payment
of the initial cash collateral against the
delivery of securities loaned by the Fund
has been transferred to the Account; and
(ii) the making of an entry on the records of the
Bank (or its agent) to reflect such transfer
and payment for the account of the Fund.
Copies of all advices from the Book-Entry
System of transfers of securities for the
account of the Fund shall identify the Fund,
be maintained for the Fund by the Bank and
shall be provided to the Fund at its
request. The Bank shall send the Fund a
confirmation, as defined by Rule 17f-4 of
the 1940 Act, of any transfers to or from
the account of the Fund;
-9-
(d) The Bank will promptly provide the Fund with any
report obtained by the Bank or its agent on the
Book-Entry System's accounting system, internal
accounting control and procedures for safeguarding
securities deposited in the Book-Entry System;
(e) The Bank shall be liable to the Fund for any loss or
damage to the Fund resulting from use of the
Book-Entry System by reason of any gross negligence,
willful misfeasance or bad faith of the Bank or any
of its agents or of any of its or their employees or
from any reckless disregard by the Bank or any such
agent of its duty to use its best efforts to enforce
such rights as it may have against the Book-Entry
System; at the election of the Fund, it shall be
entitled to be subrogated for the Bank in any claim
against the Book-Entry System of any other person
which the Bank or its agent may have as a consequence
of any such loss or damage if and to the extent that
the Fund has not been made whole for any loss or
damage.
6.4. Use of a Depository. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits in
DTC or other such Depository and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive,
exchange, release, lend, deliver and otherwise deal
with Portfolio Securities including stock dividends,
rights and other items of like nature, and to receive
and remit to the Bank on behalf of the Fund all
income and other payments thereon and to take all
steps necessary and proper in connection with the
collection thereof;
(b) Registration of Portfolio Securities may be made in
the name of any nominee or nominees used by such
Depository;
(c) Payment for securities purchased and sold may be made
through the clearing medium employed by such
Depository for transactions of participants acting
through it. Upon any purchase of Portfolio
Securities, payment will be made only upon delivery
of the securities to or for the account of the Fund
and the Fund shall pay cash collateral against the
return of Portfolio Securities loaned by the Fund
only upon delivery of the Securities to or for the
account of the Fund; and upon any sale of Portfolio
Securities, delivery of the Securities will be made
only against payment thereof or, in the event
Portfolio Securities are
-10-
loaned, delivery of Securities will be made only
against receipt of the initial cash collateral to or
for the account of the Fund; and
(d) The Bank shall be subject to the same liability and
duty to the Fund with respect to all securities of
the Fund, and all cash, stock dividends, rights and
items of like nature to which the Fund is entitled,
held or received by a central securities system as
agent for the Bank pursuant to the foregoing
authorization, as if the same were held or received
by the Bank at its own offices. In this connection,
the Bank shall use its best efforts to ensure that:
(i) The Depository obtains replacement of any
certificated Portfolio Security deposited
with it in the event such Portfolio Security
is lost, destroyed, wrongfully taken or
otherwise not available to be returned to
the Bank upon its request;
(ii) Any proxy materials received by a Depository
with respect to Portfolio Securities
deposited with such Depository are forwarded
immediately to the Bank for prompt
transmittal to the Fund;
(iii) Such Depository immediately forwards to the
Bank confirmation of any purchase or sale of
Portfolio Securities and of the appropriate
book entry made by such Depository to the
Fund's account;
(iv) Such Depository prepares and delivers to the
Bank such records with respect to the
performance of the Bank's obligations and
duties hereunder as may be necessary for the
Fund to comply with the recordkeeping
requirements of Section 31(a) of the 1940
Act and Rule 31(a) thereunder; and
(v) Such Depository delivers to the Bank and the
Fund all internal accounting control
reports, whether or not audited by an
independent public accountant, as well as
such other reports as the Fund may
reasonably request in order to verify the
Portfolio Securities held by such
Depository.
6.5. Use of Book-Entry System for Commercial Paper. Provided (i) the
Bank has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of
-11-
confirmation from an Issuer (as defined below) that the Fund has purchased such
Issuer's Book-Entry Paper, the Bank shall issue and hold in book-entry form, on
behalf of the Fund, commercial paper issued by issuers with whom the Bank has
entered into a book-entry agreement (the "Issuers"). In maintaining its
Book-Entry Paper System, the Bank agrees that:
(a) the Bank will maintain all Book-Entry Paper held by
the Fund in an account of the Bank that includes only
assets held by it for customers;
(b) the records of the Bank with respect to the Fund's
purchase of Book- Entry Paper through the Bank will
identify, by book-entry, Commercial Paper belonging
to the Fund which is included in the Book-Entry Paper
System and shall at all times during the regular
business hours of the Bank be open for inspection by
duly authorized officers, employees or agents of the
Fund;
(c) the Bank shall pay for Book-Entry Paper purchased for
the account of the Fund upon contemporaneous (i)
receipt of advice from the Issuer that such sale of
Book-Entry Paper has been effected, and (ii) the
making of an entry on the records of the Bank to
reflect such payment and transfer for the account of
the Fund;
(d) the Bank shall cancel such Book-Entry Paper
obligation upon the maturity thereof upon
contemporaneous (i) receipt of advice that payment
for such Book-Entry Paper has been transferred to the
Fund. and (ii) the making of an entry on the records
of the Bank to reflect such payment for the account
of the Fund;
(e) the Bank shall transmit to the Fund a transaction
journal confirming each transaction in Book-Entry
Paper for the account of the Fund on the next
business day following the transaction; and
(f) the Bank will send to the Fund such reports on its
system of internal accounting control with respect to
the Book-Entry Paper System as the Fund any
reasonably request from time to time.
6.6. Use of Immobilization Programs. Provided (i) the Bank has received
a certified copy of a resolution of the Board specifically approving the
maintenance of Portfolio Securities in an immobilization program operated by a
bank which meets the requirements of Section 26(a)(1) of the 1940 Act and (ii)
for each year following such approval the Board has reviewed and approved the
arrangement and has not delivered an Officers' Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
-12-
6.7. Eurodollar CDs. Any Portfolio Securities which are Eurodollar CDs
may be physically held by the European branch of the U.S. banking institution
that is the issuer of such Eurodollar CD (a "European Branch"), provided that
such Securities are identified on the books of the Bank as belonging to the Fund
and that the books of the Bank identify the European Branch holding such
Securities. Notwithstanding any other provision of this Agreement to the
contrary, except as stated in the first sentence of this subsection 6.7, the
Bank shall be under no other duty with respect to such Eurodollar CDs belonging
to the Fund, and shall have no liability to the Fund or its shareholders with
respect to the actions, inactions, whether negligent or otherwise of such
European Branch in connection with such Eurodollar CDs, except for any loss or
damage to the Fund resulting from the Bank's own gross negligence, willful
misfeasance or bad faith in the performance of its duties hereunder.
6.8. Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ
or Over- the-Counter.
1. The Bank shall take action as to put options ("puts") and call
options ("calls") purchased or sold (written) by the Fund
regarding escrow or other arrangements (i) in accordance with
the provisions of any agreement entered into upon receipt of
Proper Instructions between the Bank, any broker-dealer
registered under the Exchange Act and a member of the National
Association of Securities Dealers, Inc. (the "NASD"), and, if
necessary, the Fund relating to the compliance with the rules
of the Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization
or organizations.
2. Unless another agreement requires it to do so, the Bank shall
be under no duty or obligation to see that the Fund has
deposited or is maintaining adequate margin, if required, with
any broker in connection with any option, nor shall the Bank
be under any duty or obligation to present such option to the
broker for exercise unless it receives Proper Instructions
from the Fund. The Bank shall have no responsibility for the
legality of any put or call purchased or sold on behalf of the
Fund, the propriety of any such purchase or sale, or the
adequacy of any collateral delivered to a broker in connection
with an option or deposited to or withdrawn from a Segregated
Account (as defined in subsection 6.9 below). The Bank
specifically, but not by way of limitation, shall not be under
any duty or obligation to: (i) periodically check or notify
the Fund that the amount of such collateral held by a broker
or held in a Segregated Account is sufficient to protect such
broker of the Fund against any loss; (ii) effect the return of
any collateral delivered to a broker; or (iii) advise the Fund
that any option it holds, has or is about to expire. Such
duties or obligations shall be the sole responsibility of the
Fund.
-13-
(b) Puts, Calls and Futures Traded on Commodities Exchanges.
1. The Bank shall take action as to puts, calls and futures
contracts ("Futures") purchased or sold by the Fund in
accordance with the provisions of any agreement among the
Fund, the Bank and a Futures Commission Merchant registered
under the Commodity Exchange Act, relating to compliance with
the rules of the Commodity Futures Trading Commission and/or
any Contract Market, or any similar organization or
organizations, regarding account deposits in connection with
transactions by the Fund.
2. The responsibilities and liabilities of the Bank as to
futures, puts and calls traded on commodities exchanges, any
Futures Commission Merchant account and the Segregated Account
shall be limited as set forth in subparagraph (a)(2) of this
Section 6.8 as if such subparagraph referred to Futures
Commission Merchants rather than brokers, and Futures and puts
and calls thereon instead of options.
6.9. Segregated Account. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund, into which Account or Accounts may be transferred upon
receipt of Proper Instructions cash and/or Portfolio Securities:
(a) In accordance with the provisions of any agreement
among the Fund, the Bank and a broker-dealer
registered under the Exchange Act and a member of the
NASD or any Futures Commission Merchant registered
under the Commodity Exchange Act, relating to
compliance with the rules of the Options Clearing
Corporation and of any registered national securities
exchange or the Commodity Funds Trading Commission or
any registered Contract Market, or of any sirnilar
organizations regarding escrow or other arrangements
in connection with transactions by the Fund;
(b) for the purpose of segregating cash or securities, in
connection with options purchased or written by the
Fund or commodity futures purchased or written by the
Fund;
(c) for the deposit of liquid assets, such as cash, U. S.
Government securities or other high grade debt
obligations, having a market value (marked to market
on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement
dates of all the Fund's then outstanding forward
commitment or "when-issued" agreements relating to
the purchase of Portfolio Securities and all the
-14-
Fund's then outstanding commitments under reverse
repurchase agreements entered into with broker-dealer
firms;
(d) for the deposit of any Portfolio Securities which the
Fund has agreed to sell on a forward commitment
basis, all in accordance with Investment Company Act
Release No. 10666;
(e) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release
No. 10666, or any subsequent release or releases of
the Securities and Exchange Commission relating to
the maintenance of Segregated Accounts by registered
investruent companies;
(f) for other proper corporate purposes, but only, in the
case of this clause (f), upon receipt of, in addition
to Proper Instructions, a certified copy of a
resolution of the Board, or of the Executive
Committee signed by an officer of the Fund and
certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such
Segregated Account and declaring such purposes to be
proper corporate purposes.
(g) Assets may be withdrawn from the Segregated Account
pursuant to Proper Instructions only
(i) in accordance with the provisions of any
agreements referenced in (a) or (b) above;
(ii) for sale or delivery to meet the Fund's
obligations under outstanding firm
commitment or when-issued agreements for the
purchase of Portfolio Securities and under
reverse repurchase agreements;
(iii) for exchange for other liquid assets of
equal or greater value deposited in the
Segregated Account,
(iv) to the extent that the Fund's outstanding
forward commitment or when-issued agreements
for the purchase of portfolio securities or
reverse repurchase agreements are sold to
other parties or the Fund's obligations
thereunder are met from assets of the Fund
other than those in the Segregated Account;
or
(v) for delivery upon Settlement of a forward
commitment agreement for the sale of
Portfolio Securities.
-15-
6.10. Interest Bearing Call or Time Deposits. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of
interest-bearing fixed-term and call deposits, transfer cash, by wire or
otherwise, in such amounts and to such bank or banks as shall be indicated in
such Proper Instructions. The Bank shall include in its records with respect to
the assets of the Fund appropriate notation as to the amount of each such
deposit, the banking institution with which such deposit is made (the "Deposit
Bank"), and shall retain such forms of advice or receipt evidencing the deposit,
if any, as may be forwarded to the Bank by the Deposit Bank. Such deposits shall
be deemed Portfolio Securities of the Fund and the responsibility of the Bank
therefore shall be the same as and no greater than the Bank's responsibility in
respect of other Portfolio Securities of the Fund.
6.11. Transfer of Securities. The Bank will transfer, exchange, deliver
or release Portfolio Securities held by it hereunder, insofar as such
Securities are available for such purpose, provided that before making
any transfer, exchange, delivery or release under this Section the Bank
will receive Proper Instructions requesting such transfer, exchange or
delivery stating that it is for a purpose permitted under the terms of
this Section 6.1 1. specifying the applicable subsection, or describing
the purpose of the transaction with sufficient particularity to permit
the Bank to ascertain the applicable subsection, only
(a) upon sales of Portfolio Securities for the account of
the Fund, against contemporaneous receipt by the Bank
of payment therefor in full, or, against payment to
the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction
or market in which the transaction occurs, each such
payment to be in the amount of the sale price shown
in a broker's confirmation of sale of the Portfolio
Securities received by the Bank before such payment
is made, as confirmed in the Proper Instructions
received by the Bank before such payment is made;
(b) in exchange for or upon conversion into other
securities alone or other securities and cash
pursuant to any plan of merger, consolidation,
reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon
exercise of subscription, purchase or sale or other
similar rights represented by such Portfolio
Securities, or for the purpose of tendering shares in
the event of a tender offer therefor, provided
however that in the event of an offer of exchange,
tender offer, or other exercise of rights requiring
the physical tender or delivery of Portfolio
Securities, the Bank shall have no liability for
failure to so tender in a timely manner unless such
Proper Instructions are received by the Bank at least
two business days prior to the date required for
tender, and unless the Bank (or its agent or
subcustodian
-16-
hereunder) has actual possession of such Security at
least two business days prior to the date of tender;
(c) upon conversion of Portfolio Securities pursuant to
their terms into other securities;
(d) for the purpose of redeeming in kind shares of the
Fund upon authorization from the Fund;
(e) in the case of option contracts owned by the Fund,
for presentation to the endorsing broker;
(f) when such Portfolio Securities are called, redeemed
or retired or otherwise become payable;
(g) for the purpose of effectuating the pledge of
Portfolio Securities held by the Bank in order to
collateralize loans made to the Fund by any bank,
including the Bank; provided, however, that such
Portfolio Securities will be released only upon
payment to the Bank for the account of the Fund of
the moneys borrowed, except that in cases where
additional collateral is required to secure a
borrowing already made, and such fact is made to
appear in the Proper Instructions, further Portfolio
Securities may be released for that purpose without
any such payment. In the event that any such pledged
Portfolio Securities are held by the Bank, they will
be so held for the account of the lender, and after
notice to the Fund from the lender in accordance with
the normal procedures of the lender, that an event of
deficiency or default on the loan has occurred, the
Bank may deliver such pledged Portfolio Securities to
or for the account of the lender;
(h) for the purpose of releasing certificates
representing Portfolio Securities, against
contemporaneous receipt by the Bank of the fair
market value of such security, as set forth in the
Proper Instructions received by the Bank before such
payment is made;
(i) for the purpose of delivering securities lent by the
Fund to a bank or broker dealer, but only against
receipt in accordance with street delivery custom
except as otherwise provided herein, of adequate
collateral as agreed upon from time to time by the
Fund and the Bank, and upon receipt of payment in
connection with any repurchase agreement relating to
such securities entered into by the Fund;
-17-
(j) for other authorized transactions of the Fund or for
other proper corporate purposes; provided that before
making such transfer, the Bank will also receive a
certified copy of resolutions of the Board, signed by
an authorized officer of the Fund (other than the
officer certifying such resolution) and certified by
its Secretary or Assistant Secretary, specifying the
Portfolio Securities to be delivered, setting forth
the transaction in or purpose for which such delivery
is to be made, declaring such transaction to be an
authorized transaction of the Fund or such purpose to
be a proper corporate purpose, and naming the person
or persons to whom delivery of such securities shall
be made, and
(k) upon termination of this Agreement as hereinafter set
forth pursuant to Section 8 and Section 14 of this
Agreement.
As to any deliveries made by the Bank pursuant to subsections (a), (b), (c),
(e), (f), (g), (h) and (i) securities or cash receivable in exchange therefor
shall be delivered to the Bank.
7. Redemption. In the case of payment of assets of the Fund held by the Bank in
connection with redemptions and repurchases by the Fund of outstanding shares of
beneficial interest, the Bank will rely on notification by the Fund's transfer
agent of receipt of a request for redemption and certificates, if issued, in
proper form for redemption before such payment is made. Payment shall be made in
accordance with the Agreement and Declaration of Trust of the Fund dated August
1, 1994 (the "Declaration") and By-laws of the Fund, from assets available for
said purpose.
8. Merger. Dissolution etc. of Fund. In the case of the following transactions,
not in the ordinary course of business, namely, the merger of the Fund into or
the consolidation of the Fund with another investment company, the sale by the
Fund of all, or substantially all, of its assets to another investment company,
or the liquidation or dissolution of the Fund and distribution of its assets,
the Bank will deliver the Portfolio Securities held by it under this Agreement
and disburse cash only upon the order of the Fund set forth in an Officers'
Certificate, accompanied by a certified copy of a resolution of the Board
authorizing any of the foregoing transactions. Upon completion of such delivery
and disbursement and the payment of the fees, disbursements and expenses of the
Bank, this Agreement will terminate.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything herein
to the contrary, unless and until the Bank receives an Officers'Certificate to
the contrary, it will without prior authorization or instruction of the Fund or
the transfer agent;
9.1. Endorse for collection and collect on behalf of and in the name of the Fund
all checks, drafts, or other negotiable or transferable instruments or other
orders for the payment of money received by it for the account of the Fund and
hold for the account of the Fund all
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income, dividend, interest and other payments or distribution of cash with
respect to the Portfolio Securities held thereunder;
9.2. Present for payment all coupons and other income items held by it
for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
9.3. Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
9.4. Execute as agent on behalf of the Fund all necessary ownership and
other certificates and affidavits required by the Internal Revenue Code or the
regulations of the Treasury Department issued thereunder, or by the laws of any
state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
9.5. Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6. Exchange interim receipts or temporary securities for definitive
securities.
10. Collections and Defaults. The Bank will use all reasonable efforts to
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay within
two business days from the day on which it receives knowledge of such default or
refusal. In addition, the Bank will send the Fund a written report once each
month showing any income on any Portfolio Security held by it which is more than
ten days overdue on the date of such report and which has not previously been
reported.
11. Maintenance of Records and Accounting Services. The Bank will maintain
records with respect to transactions for which the Bank is responsible pursuant
to the terms and conditions of this Agreement, and in compliance with the
applicable rules and regulations of
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the 1940 Act and will furnish the Fund daily with a statement of condition of
the Fund. The Bank will furnish to the Fund at the end of every month, and at
the close of each quarter of the Fund's fiscal year, a list of the Portfolio
Securities and the aggregate amount of cash held by it for the Fund. The books
and records of the Bank pertaining to its actions under this Agreement and
reports by the Bank or its independent accountants concerning its accounting
system, procedures for safeguarding securities and internal accounting controls
will be open to inspection and audit at reasonable times by officers of or
auditors employed by the Fund and will be preserved by the Bank in the manner
and in accordance with the applicable rules and regulations under the 1940 Act.
The Bank shall keep the books of account and render statements or
copies from time to time as reasonably requested by the Treasurer or any
executive officer of the Fund.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. Fund Evaluation. The Bank shall compute and, unless otherwise directed by
the Board, determine as of the close of business on the New York Stock Exchange
on each day on which said Exchange is open for unrestricted trading and as of
such other hours, if any, as may be authorized by the Board the net asset value
and the public offering price of a share of capital stock of the Fund, such
determination to be madc in accordance with the provisions of the Declaration
and By-laws of the Fund and Prospectus and Statement of Additional Information
relating to the Fund, as they may from time to time be amended, and any
applicable resolutions of the Board at the time in force and applicable; and
promptly to notify the Fund, the proper exchange and the NASD or such other
persons as the Fund may request of the results of such computation and
determination. In computing the net asset value hereunder, the Bank may rely in
good faith upon information furnished to it by any Authorized Person in respect
of (i) the manner of accrual of the liabilities of the Fund and in respect of
liabilities of the Fund not appearing on its books of account kept by the Bank,
(ii) reserves, if any, authorized by the Board or that no such reserves have
been authorized, (iii) the source of the quotations to be used in computing the
net asset value, (iv) the value to be assigned to any security for which no
price quotations are available, and (v) the method of computation of the public
offering price on the basis of the net asset value of the shares, and the Bank
shall not be responsible for any loss occasioned by such reliance or for any
good faith reliance on any quotations received from a source pursuant to (iii)
above.
13. Concerning the Bank.
13.1. Performance of Duties and Standard of Care. In performing its
duties hereunder and any other duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Fund, and will be without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such
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advice. In the performance of its duties hereunder, the Bank will be protected
and not be liable, and will be indemnified and held harmless for any action
taken or omitted to be taken by it in good faith reliance upon the terms of this
Agreement, any Officers' Certificate, Proper Instructions, resolution of the
Board, telegram, notice, request, certificate or other instrument reasonably
believed by the Bank to be genuine and for any other loss to the Fund except in
the case of its negligence. willful misfeasance or bad faith in the performance
of its duties or reckless disregard of its obligations and duties hereunder.
The Bank will be under no duty or obligation to inquire into and will
not be liable for:
(a) the validity of the issue of any Portfolio Securities
purchased by or for the Fund, the legality of the
purchases thereof or the propriety of the price
incurred therefore;
(b) the legality of any sale of any Portfolio Securities
by or for the Fund or the propriety of the amount for
which the same are sold;
(c) the legality of an issue or sale of any shares of
beneficial interest of the Fund or the sufficiency of
the amount to be received therefor;
(d) the legality of the repurchase of any shares of
beneficial interest of the Fund of the propriety of
the amount to be paid therefor;
(e) the legality of the declaration of any dividend by
the Fund or the legality of the distribution of any
Portfolio Securities as payment in kind of such
dividend; and (f) (g) any property or moneys of the
Fund unless and until received by it, and any such
property or moneys delivered or paid by it pursuant
to the terms hereof
Moreover, the Bank will not be under any duty or obligation to
ascertain whether any Portfolio Securities at any time delivered to or held by
it for the account of the Fund are such as may properly be held by the Fund
under the provisions of its Declaration, By-laws, any federal or state statutes
or any rule or regulation of any governmental agency.
In order that the indemnification provision contained in this Section
13.1 shall apply, however, it is understood that if any case the Fund may be
asked to indemnify or save the Bank harmless, the Fund shall be fully and
promptly advised of all pertinent facts concerning the situation in question,
and it is further understood that the Bank will use all reasonable care to
identify and notify the Fund promptly concerning any situation which presents or
appears likely to present the probability of such claim for indemnification. The
Fund shall have the option to defend the Bank against any claim which may be the
subject of this
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indemnification, and in the event that the Fund so elects it will so notify the
Bank and thereupon the Fund shall take over the complete defense of the claim,
and the Bank shall in such situations incur no further legal or other expenses
in connection with such claim, provided however, if the defendants in any such
action include both the Fund and the Bank, and the Bank shall have reasonably
concluded that there may be legal defenses available to it which are different
from or additional to those available to the Fund, the Bank shall have the right
to select separate counsel to assent such legal defenses and to otherwise
participate in the defense of such action on behalf of the Bank with such cost
to be borne by the party hereto ultimately liable with respect to such claim.
The Bank shall in no case confess any claim or make any compromise in any case
in which the Fund will be asked to indemnify the Bank except with prior written
consent of the Fund. which consent shall not be unreasonably withheld. The Fund
shall not settle any claim without the Bank's prior written consent, provided
however that the Bank shall not unreasonably withhold its consent.
Notwithstanding anything in this Agreement to the contrary, in no event
shall the Bank be liable hereunder or to any third party:
(a) for any losses or damages of any kind resulting from
acts of God, earthquakes, fires, floods, storms or
other disturbances of nature, epidemics, strikes,
riots, nationalization, expropriation, currency
restrictions, acts of war, civil war of terrorism,
insurrection, nuclear fusion, fission or radiation,
the interruption, loss or malfunction of utilities or
transportation, the unavailability of energy sources
and other similar happenings or events except as
results from the Bank's own gross negligence; or
(b) for special, punitive or consequential damages
arising from the provision of services hereunder,
even if the Bank has been advised of the possibility
of such damages.
13.2. Agents and Subcustodians with Respect to Property of the Fund
Held in the United States. The Bank may employ agents in the performance of its
duties hereunder and shall be responsible for the acts and omissions of such
agents as if performed by the Bank hereunder.
Upon receipt of Proper Instructions, the Bank may employ subcustodians, provided
that any such subcustodian meets at least the minimum qualifications required by
Section 17(f)(1) of the 1940 Act to act as a custodian of the Fund's assets with
respect to property of the Fund held in the United States. The Bank shall have
no liability to the Fund or any other person by reason of any act or omission of
any subcustodian acting outside the scope of instructions received from the Bank
and the Fund shall indemnify the Bank and hold it harmless from and against any
and all actions, suits and claims, arising directly or indirectly out of such
performance of any subcustodian. Upon request of the Bank, the Fund shall assume
the
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entire defense of any action, suit, or claim subject to the foregoing indemnity.
The Fund shall pay all fees and expenses of any subcustodian.
13.3. Duties of the Bank with Respect to Property of the Fund Held
Outside of the United States.
(a) Appointment of Foreign Sub-Custodians. The Fund
hereby authorizes and instructs the Bank to employ as
sub-custodians for the Fund's Portfolio Securities
and other assets maintained outside the United States
the foreign banking institutions and foreign
securities depositories designated on the Schedule
attached hereto (each, a "Selected Foreip
Sub-Custodian"). Upon receipt of Proper Instructions,
together with a certified resolution of the Fund's
Board of Trustees, the Bank and the Fund may agree to
designate additional foreign banking institutions and
foreign securities depositories to act as Selected
Foreign Sub-Custodians hereunder. Upon receipt of
Proper Instructions, the Fund may instruct the Bank
to cease the employment of any one or more such
Selected Foreign Sub-Custodians for maintaining
custody of the Fund's assets, and the Bank shall so
cease to employ such sub-custodian as soon as
alternate custodial arrangements have been
implemented.
(b) Foreign Securities Depositories. Except as may
otherwise be agreed upon in writing by the Bank and
the Fund, assets of the Fund shall be maintained in
foreign securities depositories only through
arrangements implemented by the foreign banking
institutions serving as Selected Foreign
Sub-Custodians pursuant to the terms hereof. Where
possible, such arrangements shall include entry into
agreements containing the provisions set forth in
subparagraph (d) hereof. Notwithstanding the
foregoing, except as may otherwise be agreed upon in
writing by the Bank and the Fund, the Fund authorizes
the deposit in Euro-clear, the securities clearance
and depository facilities operated by Morgan Guaranty
Trust Company of New York in Brussels, Belgium, of
Foreign Portfolio Securities eligible for deposit
therein and to utilize such securities depository in
connection with settlements of purchases and sales of
securities and deliveries and returns of securities,
until notified to the contrary pursuant to
subparagraph (a) hereunder.
(c) Segregatation of Securities. The Bank shall identify
on its books as belonging to the Fund the Foreign
Portfolio Securities held by each Selected Foreign
Sub-Custodian. Each agreement pursuant to which the
Bank employs a foreign banking institution shall
require that such
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institution establish a custody account for the Bank
and hold in that accounts Foreign Portfolio
Securities and other assets of the Fund, and, in the
event that such institution deposits Foreign
Portfolio Securities in a foreign securities
depository, that it shall identify on its books as
belonging to the Bank the securities so deposited.
(d) Agreements with Foreign Banking Institutions. Each of
the agreements pursuant to which a foreign banking
institution holds assets of the Fund (each, a
"Foreign Sub-Custodian Agreement") shall be
substantially in the form previously made available
to the Fund and shall provide that: (a) the Fund's
assets will not be subject to any right, charge,
security interest, lien or claim of any kind in favor
of the foreign banking institution or its creditors
or agent, except a claim of payment for their safe
custody or administration (including, without
limitation, any fees or taxes payable upon transfers
or registration of securities); (b) beneficial
ownership of the Fund's assets will be freely
transferable without the payment of money or value
other than for custody or administration (including,
without limitation, any fees or taxes payable upon
transfers or reregistration of securities); (c)
adequate records will be maintained identifying the
assets as belonging to Bank; (d) officers of or
auditors employed by, or other representatives of the
Bank, including to the extent permitted under
applicable law, the independent public accountants
for the Fund, will be given access to the books and
records of the foreign banking institution relating
to its actions under its agreement with the Bank; and
(e) assets of the Fund held by the Selected Foreign
Sub-Custodian will be subject only to the
instructions of the Bank or its agents.
(e) Access of Independent Accountants of the Fund. Upon
request of the Fund, the Bank will use its best
efforts to arrange for the independent accountants of
the Fund to be afforded access to the books and
records of any foreign banking institution employed
as a Selected Foreign Sub- Custodian insofar as such
books and records relate to the performance of such
foreign banking institution under its Foreign
Sub-Custodian Agreement.
(f) Reports by Bank. The Bank will supply to the Fund
from time to time, as mutually agreed upon,
statements in respect of the securities and other
assets of the Fund held by Selected Foreign
Sub-Custodians, including but not limited to an
identification of entities having possession of the
Foreign Portfolio Securities and other assets of the
Fund.
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(g) Transactions in Foreign Custody Account. Transactions
with respect to the assets of the Fund held by a
Selected Foreign Sub-Custodian shall be effected
pursuant to Proper Instructions from the Fund to the
Bank and shall be effected in accordance with the
applicable Foreign Sub-Custodian Agreement. If at any
time any Foreign Portfolio Securities shall be
registered in the name of the nominee of the Selected
Foreign Sub-Custodian, the Fund agrees to hold any
such nominee harmless from any liability by reason of
the registration of such securities in the name of
such nominee.
Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for Foreign Portfolio Securities received for the account
of the Fund and delivery of Foreign Portfolio Securities maintained for the
account of the Fund may be effected in accordance with the customary established
securities trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, without
limitation, delivering securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such purchaser
or dealer.
In connection with any action to be taken with respect to the Foreign
Portfolio Securities held hereunder, including, without limitation, the exercise
of any voting rights, subscription rights, redemption rights, exchange rights,
conversion rights or tender rights, or any other action in connection with any
other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall upon receipt transmit to the Fund
such infomation in connection therewith as is made available to the Bank by the
Foreign Sub- Custodian, and shall forward to the applicable Foreign
Sub-Custodian any instructions, forms or certifications with respect to such
Rights, and any instructions relating to the actions to be taken in connection
therewith, as the Bank shall receive from the Fund pursuant to Proper
Instructions. Notwithstanding the foregoing, the Bank shall have no further duty
or obligation with respect to such Rights, including, without limitation, the
determination of whether the Fund is entitled to participate in such Rights
under applicable U.S. and foreign laws, or the determination of whether any
action proposed to be taken with respect to such Rights by the Fund or by the
applicable Foreign Sub-Custodian will comply with all applicable terms and
conditions of any such Rights or any applicable laws or regulations, or market
practices within the market in which such action is to be taken or omitted.
(h) Liabilility of Selected Foreign Sub-Custodians. Each
Foreign Sub- Custodian Agreement with a foreign
banking institution shall require the institution to
exercise reasonable care in the performance of its
duties and to indemnify, and hold harmless, the Bank
and each Fund from and against certain losses,
damages, costs, expenses, liabilities or claims
arising out of or in connection with the
institution's performance of such obligations, all as
set forth in the applicable
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Foreign Sub-Custodian Agreement. The Fund
acknowledges that the Bank, as a participant in
Euro-clear, is subject to the Terms and Conditions
Governing the Euro-Clear System, a copy of which has
been made available to the Fund. The Fund
acknowledges that pursuant to such Terms and
Conditions, Morgan Guaranty Brussels shall have the
sole right to exercise or assert any and all rights
or claims in respect of actions or omissions of, or
the bankruptcy or insolvency of, any other
depository, clearance system or custodian utilized by
Euro-clear in connection with the Fund's securities
and other assets.
(i) Liability of Bank. The Bank shall have no more or
less responsibility or liability on account of the
acts or omissions of any Selected Foreign
Sub-Custodian employed hereunder than any such
Selected Foreign Sub-Custodian has to the Bank and,
without limiting the foregoing, the Bank shall not be
liable for any loss, damage, cost, expense, liability
or claim resulting from nationalization,
expropriation, currency restrictions, or acts of war
or terrorism, political risk (including, but not
limited to, exchange control restrictions,
confiscation, insurrection, civil strife or armed
hostilities) other losses due to Acts of God, nuclear
incident or any loss where the Selected Foreign
Sub-Custodian has otherwise exercised reasonable
care.
(j) Monitoring Responsibilities. The Bank shall furnish
annually to the Fund, information concerning the
Selected Foreign Sub-Custodians employed hereunder
for use by the Fund in evaluating such Selected
Foreign Sub-Custodians to ensure compliance with the
requirements of Rule 17f-5 of the Act. In addition,
the Bank will promptly inform the Fund in the event
that the Bank is notified by a Selected Foreign
Sub-Custodian that there appears to be a substantial
likelihood that its shareholders' equity will decline
below $200 million (U.S. dollars or the equivalent
thereof) or that its shareholders'equity has declined
below $200 million (in each case computed in
accordance with generally accepted U.S. accounting
principles) or any other capital adequacy test
applicable to it by exemptive order, or if the Bank
has actual knowledge of any material loss of the
assets of the Fund held by a Foreign Sub-Custodian.
(k) Tax Law. The Bank shall have no responsibility or
liability for any obligations now or hereafter
imposed on the Fund or the Bank as custodian of the
Fund by the tax laws of any jurisdiction, and it
shall be the responsibility of the Fund to notify the
Bank of the obligations imposed on the Fund or the
Bank as the custodian of the Fund by the
-26-
tax law of any non-U.S. jurisdiction, including
responsibility for withholding and other taxes,
assessments or other governmental charges,
certifications and governmental reporting. The sole
responsibility of the Custodian with regard to such
tax law shall be to use reasonable efforts to assist
the Fund with respect to any claim for exemption or
refund under the tax law of jurisdictions for which
the Fund has provided such information.
13.4. Insurance. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.
13.5. Fees and Expenses of Bank. The Fund will pay or reimburse the
Bank from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all necessary proper disbursements, expenses
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as providcd above.
For the services rendered by the Bank hereunder, the Fund will pay to the Bank
such compensation or fees at such rate and at such times as shall be agreed upon
in writing by the parties from time to time. The Bank will also be entitled to
reimbursement by the Fund for all reasonable expenses incurred in conjunction
with termination of this Agreement by the Fund.
13.6. Advances by Bank. The Bank may, in its sole discretion, advance
funds on behalf of the Fund to make any payment permitted by this Agreement upon
receipt of any proper authorization required by this Agreement for such payments
by the Fund. Should such a payment or payments, with advanced funds, result in
an overdraft (due to insufficiencies of the Fund's account with the Bank, or for
any other reason) this Agreement deems any such overdraft or related
indebtedness, a loan made by the Bank to the Fund payable on demand and bearing
interest at the current rate charged by the Bank for such loans unless the Fund
shall provide the Bank with agreed upon compensating balances. The Fund agrees
that the Bank shall have a continuing lien and security interest to the extent
of any overdraft or indebtedness, in and to any property at any time held by it
for the Fund's benefit or in which the Fund has an interest and which is then in
the Bank's possession or control (or in the possession or control of any third
party acting on the Bank's behalf). The Fund authorizes the Bank, in its sole
discretion, at any time to charge any overdraft or indebtedness, together with
interest due thereon against any balance of account standing to the credit of
the Fund on the Bank's books
14. Termination.
14.1. This Agreement may be terminated at any time without penalty upon
sixty days written notice delivered by either party to the other by means of
registered mail, and upon
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the expiration of such sixty days this Agreement will terminate; provided,
however, that the effective date of such termination may be postponed to a date
not more than ninety days from the date of delivery of such notice (i) by the
Bank in order to prepare for the transfer by the Bank of all of the assets of
the Fund held hereunder, and (ii) by the Fund in order to give the Fund an
opportunity to make suitable arrangements for a successor custodian. At any time
after the termination of this Agreement, the Fund will, at its request have
access to the records of the Bank relating to the performance of its duties as
custodian.
14.2. In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection (14.3), deliver the Portfolio Securities and cash of
the Fund held by the Bank to a bank or trust company of its own selection which
meets the requirements of Section 17(f)(1) of the 1940 Act and his a reported
capital, surplus and undivided profits aggregating not less than $2,000,000, to
be held as the property of the Fund under terms similar to those on which they
were held by the Bank, whereupon such bank or trust company so selected by the
Bank will become the successor custodian of such assets of the Fund with the
same effect as though selected by the Board.
14.3. Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meering of shareholders at
which action was taken, certified by the Fund's Secretary.
15. Confidentiality. Both parties hereto agree than any non-public information
obtained hereunder concerning the other party is confidential and may not be
disclosed to any other person without the consent of the other party, except as
may be required by applicable law or at the request of a governmental agency.
The parties further agree that a breach of this provision would irreparably
damage the other party and accordingly agree that each of them is entitled,
without bond or other security, to an injunction or injunctions to Prevent
breaches of this provision.
-28-
16. Notices. Any notice or other instrument in writing authorized or required by
this Agreement to be given to either party hereto will be sufficiently given if
addressed to such party and mailed or delivered to it at its office at the
address set forth below; namely:
(a) In the case of notices sent to the Fund to:
The DLB Fund Group
c/o David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, Massachusetts 02142
Attention: Maureen A. Madden
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
Attention: Henry Joyce
or at such other place as such party may from time to time designate in
writing.
17. Amendments. This Agreement may not be altered or amended, except by an
instrument in writing, executed by both parties, and in the case of the Fund,
such alteration or amendment will be authorized and approved by its Board.
18. Parties. This Agreement will be binding upon and shall inure to the benefit
of the parties hereto and their respective successor and assigns; provided,
however, that this Agreement will not be assignable by the Fund without the
written consent of the Bank or by the Bank without the written consent of the
Fund, authorized and approved by its Board; and provided further that
termination proceedings pursuant to Section 14 hereof will not be deemed to be
an assignment within the meaning of this provision.
19. Governing Law. This Agreemetit and all performance hereunder will be
governed by the laws of The Commonwealth of Massachusetts.
20. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
21. Limitation of Liability. The term The DLB Fund Group means and refers to the
Trustees from time to time serving under the Declaration dated August 1, 1994,
as the same may subsequently thereto have been, or subsequently hereto be,
amended. It is expressly agreed that the obligations of the Fund hereunder shall
not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Fund, personally, but
-29-
shall bind only the trust property of the Fund as provided in the Declaration.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Fund and this Agreement has been signed by an authorized officer
of the Fund, acting as such, and neither such authorization by such Trustees nor
such execution and delivery by such officer shall be deemed to have been made by
any of them, but shall bind only the trust property of the Fund as provided in
the Declaration.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their respective officers hereunto duly authorized as of
the day and year first written above.
The DLB Fund Group
By:
----------------------------------------
Name:
Title:
ATTEST:
Investors Bank & Trust Company
By:
----------------------------------------
Name:
Title:
ATTEST:
DATE:
-30-
EXHIBIT 9
FORM OF
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT effective as of the day of Wednesday, July 19, 1995 by and between THE
DLB FUND GROUP, a business trust organized under the laws of The Commonwealth of
Massachusetts (the "Company"), and INVESTORS BANK & TRUST COMPANY, a
Massachusetts trust company (the "Bank").
WITNESSETH:
WHEREAS, the Company desires to appoint the Bank as its transfer agent,
dividend disbursing agent and agent in connection with certain other activities,
and the Bank desires to accept such appointment;
WHEREAS, the Bank is duly registered as a transfer agent as provided in
Section 17A(c) of the Securities Exchange Act of 1934, as amended, (the " 1934
Act");
WHEREAS, the Company is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets;
WHEREAS, the Company intends to initially offer shares in four series,
the DLB Fixed Income Fund, the DLB Global Small Capitalization Fund, the DLB
Value Fund and the DLB Mid Capitalization Fund (such series, together with all
other series subsequently established by the Company and made subject to this
Agreement in accordance with Article 17, being herein referred to as the
"Fund");
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, the Company and the Bank agree as follows:
ARTICLE 1. Terms of Appointment: Duties of the Bank
1.01 Subject to the terms and conditions set forth in this Agreement,
the Company on behalf of the Funds, hereby employs and appoints the Bank to act
as, and the Bank agrees to act as, transfer agent for each of the Fund'
authorized and issued shares of beneficial interest ("Shares"), dividend
disbursing agent and agent in connection with any accumulation, open- account or
similar plans provided to the shareholders of the Company ("Shareholders") and
set out in the currently effective prospectus and statement of additional
information, as each may be amended from time to time, (the "Prospectus") of the
Company, including without limitation any periodic investment plan or periodic
withdrawal program.
1.02 The Bank agrees that it will perform the following services:
(a) In connection with procedures established from time to time by
agreement between the Company and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation therefor to
the custodian of the Company appointed by the Board of Trustees of the
Company (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number
of Shares and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance, redemption requests and
redemption directions and deliver the appropriate documentation
therefor to the Custodian;
(iv) At the appropriate time as and when it receives monies
paid to it by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Company on behalf of a Fund; and
(vii) Create and maintain all necessary records including
those specified in Article 10 hereof, in accordance with all applicable
laws, rules and regulations including but not limited to records
required by Section 31 (a) of the Investment Company Act of 1940, as
amended (the "1940 Act"), and those records pertaining to the various
functions performed by it hereunder. All records shall be available for
inspection and use by the Company. Where applicable, such records shall
be maintained by the Bank for the periods and in the places required by
Rule 31 a-2 under the 1940 Act.
(viii) Make available during regular business hours all
records and other data created and maintained pursuant to this
Agreement for reasonable audit and inspection by the Company, or any
person retained by the Company. Upon reasonable notice by the Company,
the Bank shall make available during regular business hours its
facilities and premises employed in connection with its performance of
this Agreement for reasonable visitation by the Company, or any person
retained by the Company.
(ix) Record the issuance of Shares of the Company and
maintain, pursuant to Rule 17Ad-10(e) under the 1934 Act, a record of
the total number of Shares of the Company which are authorized, based
upon data provided to it by the Company, and issued and outstanding.
The Bank shall also provide the Company on a regular basis with
-2-
the total number of Shares which are authorized and issued and
outstanding and shall have no obligation, when recording the issuance
of Shares, to monitor the issuance of such Shares or to take cognizance
of any laws relating to the issue or sale of such Shares, which
functions shall be the sole responsibility of the Company.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a) or in any Schedule hereto, the Bank shall: (i) perform all
of the customary services of a transfer agent, dividend disbursing agent and, as
relevant, agent in connection with accumulation, open- account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program); including but not limited to; maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on all accounts, including nonresident alien
accounts, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in Shareholder
accounts, responding to Shareholder telephone calls and Shareholder
correspondence, preparing and mailing activity statements for Shareholders, and
providing Shareholder account information; and (ii) provide a system which will
enable the Company to monitor the total number of shares sold in each State. The
Company shall (i) identify to the Bank in writing those transactions and assets
to be treated as exempt from blue sky reporting for each State and (ii) verify
the establishment of transactions for each State on the system prior to
activation and thereafter monitor the daily activity for each State. The
responsibility of the Bank for a Fund's blue sky state registration status is
solely limited to the initial establishment of transactions subject to blue sky
compliance by such Fund and the reporting of such transactions to the Fund as
provided above.
(c) Additionally, the Bank shall utilize a system to identify all share
transactions which involve purchase and redemption orders that are processed at
a time other than the time of the computation of net asset value per share next
computed after receipt of such orders, and shall compute the net effect upon the
Fund of such transactions so identified on a daily and cumulative basis.
ARTICLE 2. Sale of Company Shares
2.01 Whenever the Company shall sell or cause to be sold any Shares of
a Fund, the Company shall deliver or cause to be delivered to the Bank a
document duly specifying: (i) the name of the Fund whose Shares were sold; (ii)
the number of Shares sold, trade date, and price; (iii) the amount of money to
be delivered to the Custodian for the sale of such Shares and specifically
allocated to such Fund; and (iv) in the case of a new account, a new account
application or sufficient information to establish an account.
-3-
2.02 The Bank will, upon receipt by it of a check or other payment
identified by it as an investment in Shares of one of the Funds and drawn or
endorsed to the Bank as agent for, or identified as being for the account of,
one of the Funds, promptly deposit such check or other payment to the
appropriate account postings necessary to reflect the investment. The Bank will
notify the Company, or its designee, and the Custodian of all purchases and
related account adjustments.
2.03 Under procedures as established by mutual agreement between the
Company and the Bank, the Bank shall issue to the purchaser or his authorized
agent such Shares, computed to the nearest three decimal points, as he is
entitled to receive, based on the appropriate net asset value of the Fund
Shares, determined in accordance with the Prospectus and applicable Federal law
or regulation. In issuing Shares to a purchaser or his authorized agent, the
Bank shall be entitled to rely upon the latest directions, if any, previously
received by the Bank from the purchaser or his authorized agent concerning the
delivery of such Shares.
2.04 The Bank shall not be required to issue any Shares of the Company
where it has received a written instruction from the Company or written
notification from any appropriate Federal or State authority that the sale of
the Shares of the Fund in question has been suspended or discontinued, and the
Bank shall be entitled to rely upon such written instructions or written
notification.
2.05 Upon the issuance of any Shares of any Fund in accordance with
foregoing provisions of this Section, the Bank shall not be responsible for the
payment of any original issue or other taxes, if any, required to be paid by the
Company in connection with such issuance.
2.06 The Bank may establish such additional rules and regulations
governing the transfer or registration of Shares as it may deem advisable and
consistent with such rules and regulations generally adopted by transfer agents,
or with the written consent of the Company, any other rules and regulations.
ARTICLE 3. Returned Checks
3.01 In the event that any check or other order for the transfer of
money is returned unpaid for any reason, the Bank will take such steps as the
Bank may, in its discretion, deem appropriate to protect the Company from
financial loss or as the Company or its designee may instruct. Provided that the
standard procedures, as agreed upon from time to time, between the Company and
the Bank, regarding purchases and redemptions of Shares, are adhered to by the
Bank, the Bank shall not be liable for any loss suffered by a Fund as a result
of returned or unpaid purchase or redemption transactions. Legal or other
expenses incurred to collect amounts owed to a Fund as a consequence of returned
or unpaid purchase or redemption transactions shall be an expense of that Fund.
-4-
ARTICLE 4. Redemptions
4.01 Shares of any Fund may be redeemed in accordance with the
procedures set forth in the Prospectus of the Company and the Bank will duly
process all redemption requests.
ARTICLE 5. Transfers and Exchanges
5.01 The Bank is authorized to review and process transfers of Shares
of each Fund, exchanges between Funds on the records of the Funds maintained by
the Bank, and exchanges between the Company and any other entity as may be
permitted by the Prospectus of the Company. The Bank will, upon an order to
transfer shares by or on behalf of the registered holder thereof in proper form,
credit the same to the transferee on its books. If Shares are to be exchanged
for Shares of another Fund, the Bank will process such exchange in the same
manner as a redemption and sale of Shares, except that it may in its discretion
waive requirements for information and documentation.
ARTICLE 6. Right to Seek Assurances
6.01 The Bank reserves the right to refuse to transfer or redeem Shares
until it is satisfied that the requested transfer or redemption is legally
authorized, and it shall incur no liability for the refusal, in good faith, to
make transfers or redemptions which the Bank, in its judgment, deems improper or
unauthorized, or until it is satisfied that there is no basis for any claims
adverse to such transfer or redemption. The Bank may, in effecting transfers,
rely upon the provisions of the Uniform Act for the Simplification of Fiduciary
Security Transfers or the Uniform Commercial Code, as the same may be amended
from time to time, which in the opinion of legal counsel for the Company or of
its own legal counsel protect it in not requiring certain documents in
connection with the transfer or redemption of Shares of any Fund, and the
Company shall indemnify the Bank for any act done or omitted by it in reliance
upon such laws or opinions of counsel of the Company or of its own counsel.
ARTICLE 7. Distributions
7.01 The Company will promptly notify the Bank of the declaration of
any dividend or distribution. The Company shall furnish to the Bank a resolution
of the Board of Trustees of the Company certified by the Secretary (a
"Certificate"): (i) authorizing the declaration of dividends on a specified
periodic basis and authorizing the Bank to rely on oral instructions or a
Certificate specifying the date of the declaration of such dividend or
distribution, the date of payment thereof, the record date as of which
Shareholders entitled to payment shall be determined and the amount payable per
share to Shareholders of record as of the date and the total amount payable to
.the Bank on the payment date; or (ii) setting forth the date of the declaration
of any dividend or distribution by a Fund, the date of payment thereof, the
record date as of which Shareholders entitled to payment shall be determined,
and the amount payable per share to the Shareholders of record as of that date
and the total amount payable to the Bank on the payment date.
-5-
7.02 The Bank, on behalf of the Company, shall instruct the Custodian
to place in a dividend disbursing account funds equal to the cash amount of any
dividend or distribution to be paid out. The Bank will calculate the dividend or
distribution according to the certificate, prepare and mail checks to ( at the
address as it appears on the records of the Bank), or (where appropriate) credit
such dividend or distribution to the account of, Fund Shareholders, and maintain
and safeguard all underlying records.
7.03 The Bank will replace lost checks at its discretion and in
conformity with regular business practices.
7.04 The Bank will maintain all records necessary to reflect the
crediting of dividends which are reinvested in Shares of the Company, including
without limitation daily dividends.
7.05 The Bank shall not be liable for any improper payments made in
accordance with a resolution of the Board of Trustees of the Company.
7.06 If the Bank shall not receive from the Custodian sufficient cash
to make payment to all Shareholders of the Company as of the record date, the
Bank shall, upon notifying the Company, withhold payment to all Shareholders of
record as of the record date until such sufficient cash is provided to the Bank.
ARTICLE 8. Other Duties
8.01 In addition to the duties expressly provided for herein, the Bank
shall perform such other duties and functions and shall be paid such amounts
therefor as may from time to time be agreed to in writing.
ARTICLE 9. Taxes
9.01 It is understood that the Bank shall file such appropriate
information returns concerning the payment of dividends and capital gain
distributions and tax withholding with the proper Federal, State and local
authorities as are required by law to be filed by the Company and shall withhold
such sums as are required to be withheld by applicable law.
ARTICLE 10. Books and Records
10.01 The Bank shall maintain confidential records showing for each
Shareholder's account the following: (i) names, addresses and tax identification
numbers; (ii) numbers of Shares held; (iii) historical information (as available
from prior transfer agents) regarding the account of each Shareholder, including
dividends paid and date and price of all transactions on a Shareholder's
account; (iv) any stop or restraining order placed against a Shareholder's
account; (v) information with respect to withholdings; (vi) any capital gain or
dividend reinvestment order,
-6-
plan application, dividend address and correspondence relating to the current
maintenance of a Shareholder's account; (vii) any information required in order
for the Bank to perform the calculations contemplated or required by this
Agreement; and (ix) such other information and data as may be required by
applicable law.
10.02 Any records required to be maintained by Rule 31a- 1 under the
1940 Act will be preserved for the periods prescribed in Rule 31a-2 under the
1940 Act. Such records may be inspected by the Company at reasonable times. The
Bank may, at its option at any time, and shall forthwith upon the Company's
demand, turn over to the Company and cease to retain in the Bank's files,
records and documents created and maintained by the Bank in performance of its
service or for its protection. At the end of the six-year retention period, such
periods and documents will either be turned over to the Company, or destroyed in
accordance with the Company's authorization.
10.03 Procedures applicable to the services to be performed hereunder
may be established from time to time by agreement between the Fund and the Bank.
The Bank shall have the right to utilize any shareholder accounting and
recordkeeping system which, in its opinion, qualifies to perform any services to
be performed hereunder and is acceptable to the Company provided that such
acceptance shall not be unreasonably withheld. The Bank shall keep records
relating to the services performed hereunder, in the form and manner as it may
deem advisable.
ARTICLE 11. Fees and Expenses.
11.01 For performance by the Bank pursuant to this Agreement, the Fund
agree to pay the Bank an annual maintenance fee for each Shareholder account as
set out in the initial fee schedule attached hereto. Such fees and out-of-pocket
expenses and advances identified under Section 11.02 below may be changed from
time to time subject to mutual written agreement between the Fund and the Bank.
11.02 In addition to the fee paid under Section 11.01 above, the Fund
agree to reimburse the Bank for out-of-pocket expenses or advances incurred by
the Bank for the items set out in the fee schedule attached hereto. In addition,
any other expenses incurred by the Bank at the request or with the consent of
the Fund including, without limitation, any equipment or supplies specifically
ordered by the Company or required to be purchased by the Company, will be
reimbursed by the Fund.
11.03 The Fund agree to pay all fees and reimbursable expenses within
thirty days following the mailing of the respective billing notice. Postage for
mailing of dividends, proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to the Bank by the Fund at least seven
(7) days prior to the mailing date of such material.
-7-
ARTICLE 12. Representations and Warranties of the Bank
The Bank represents and warrants to the Company that:
12.01 It is a trust company duly organized and existing and in good
standing under the laws of The Commonwealth of Massachusetts.
12.02 It is empowered under applicable laws and by its by-laws to enter
into and perform this Agreement.
12.03 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
12.04 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
ARTICLE 13. Representations and Warranties of the Company
The Company represents and warrants to the Bank that:
13.01 It is a business trust duly organized and existing and in good
standing under the laws of The Commonwealth of Massachusetts as set forth in the
preamble hereto.
13.02 It is empowered under applicable laws and by its Agreement and
Declaration of Trust dated August 1, 1994 (the "Declaration") and by-laws to
enter into and perform this Agreement.
13.03 All proceedings required by said Declaration and by-laws have
been taken to authorize it to enter into and perform this Agreement.
13.04 It is an open-end investment company registered under the 1940
Act.
13.05 A registration statement on Form N-1A (including a prospectus and
statement of additional information) under the Securities Act of 1933 and the
1940 Act is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with respect
to all Shares of the Company being offered for sale.
13.06 When Shares are hereafter issued in accordance with the terms of
the Prospectus, such Shares shall be validly issued, fully paid and
nonassessable by the Fund.
-8-
ARTICLE 14. Indemnification
14.01 Except as set forth in subparagraph (f) hereof, the Bank shall
not be responsible for, and the Company shall indemnify and hold the Bank
harmless from and against, any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liability arising out of or attributable to:
(a) All actions taken or omitted to be taken by the Bank or its agent
or subcontractors in good faith in reliance on or use by the Bank or its agents
or subcontractors of information, records and documents which (i) are received
by the Bank or its agents or subcontractors and furnished to it by or on behalf
of the Fund, and (ii) have been prepared and/or maintained by the Fund or any
other person or firm on behalf of the Fund.
(b) Any action taken or omitted to be taken by the Bank in connection
with its appointment in good faith in reliance upon any law, act, regulation or
interpretation of the same even though the same may thereafter have been
altered, changed, amended or repealed.
(c) The Funds' refusal or failure to comply with the terms of this
Agreement, or which arise out of the Funds' lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests, whether written or oral, of the
Fund.
(e) The offer or sale of Shares by the Company in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any State that such Shares be registered in such State or
in violation of any stop order or other determination or ruling by any federal
agency or any State with respect to the offer or sale of such Shares in such
state.
(f) In addition to any other limitation provided herein, or by law,
indemnification under this Agreement shall not apply to actions or omissions of
the Bank or its trustees, officers, employees, agents or subcontractors in cases
of its own gross negligence, willful misconduct, bad faith, reckless disregard
of its duties or their own duties hereunder, knowing violation of law or fraud.
14.02 The Bank shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributed to any action or failure or
omission to act by the Bank as a result of the Bank's lack of good faith,
negligence, willful misconduct, knowing violation of law or fraud.
14.03 At any time the Bank may apply to any officer of the Company for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or
-9-
subcontractors shall not be liable and shall be indemnified by the Company for
any action taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel except for a knowing violation of law. The Bank, its
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Fund, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided the Bank or its
agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund.
14.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, interruption
of electrical power or other utilities, equipment or transmission failure or
damage reasonably beyond its control, or other causes reasonably beyond its
control, such party shall not be liable to the other for any damages resulting
from such failure to perform or otherwise from such causes.
14.05 Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this Agreement or for any
act or failure to act hereunder as contemplated by this Agreement.
14.06 In order that the indemnification provision contained in this
Article 14 shall apply, however, it is understood that if any case the Fund may
be asked to indemnify or save the Bank harmless, the Fund shall be fully and
promptly advised of all pertinent facts concerning the situation in question,
and it is further understood that the Bank will use all reasonable care to
identify and notify the Fund promptly concerning any situation which presents or
appears likely to present the probability of such claim for indemnification. The
Fund shall have the option to defend the Bank against any claim which may be the
subject of this indemnification, and in the event that the Fund so elects it
will so notify the Bank and thereupon the Fund shall take over the complete
defense of the claim, and the Bank shall in such situations incur no further
legal or other expenses in connection with such claim, provided however, if the
defendants in any such action include both the Fund and the Bank, and the Bank
shall have reasonably concluded that there may be legal defenses available to it
which are different from or additional to those available to the Fund, the Bank
shall have the right to select separate counsel to assert such legal defenses
and to otherwise participate in the defense of such action on behalf of the Bank
with such cost to be borne by the party hereto ultimately liable with respect to
such claim. The Bank shall in no case confess any claim or make any compromise
in any case in which the Fund will be asked to indemnify the Bank except with
prior written consent of the Fund, which consent shall not be unreasonably
withheld. The Fund shall not settle any claim without the Bank's prior written
consent, provided however that the Bank shall not unreasonably withhold its
consent.
ARTICLE 15. Covenants of the Company and the Bank
15.01 The Company shall promptly furnish to the Bank the following:
-10-
(a) A certified copy of the resolution of the Trustees of the Company
authorizing the appointment of the Bank and the execution and delivery of this
Agreement.
(b) A copy of the Declaration and by-laws of the Company and all
amendments thereto.
(c) Copies of each vote of the Trustees designating authorized persons
to give instructions to the Bank, and a Certificate providing specimen
signatures for such authorized persons.
(d) Certificates as to any change in any officer or Trustee of the
Company.
(e) All account application forms and other documents relating to
shareholder accounts or relating to any plan, program or service offered by the
Company.
(f) A list of all Shareholders of the Fund with the name, address and
tax identification number of each Shareholder, and the number of Shares of the
Fund held by each, certificate numbers and denominations (if any certificates
have been issued), lists of any account against which stops have been placed,
together with the reasons for said stops, and the number of Shares redeemed by
the Fund.
(g) An opinion of counsel for the Company with respect to the validity
of the Shares and the status of such Shares under the Securities Act of 1933
which may be copies of a previously issued opinion.
(h) Copies of the Fund registration statement on Form N-1A as amended
and declared effective by the Securities and Exchange Commission and all
post-effective amendments thereto.
(i) Such other certificates, documents or opinions as may mutually be
deemed necessary or appropriate for the Bank in the proper performance of its
duties.
15.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Company for safekeeping of check forms
and facsimile signature imprinting devices, if any; and for the preparation or
use, and for keeping account of such forms and devices.
15.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the 1940 Act and the Rules thereunder, the Bank
agrees that all such records prepared or maintained by the Bank relating to the
services to be performed by the Bank hereunder are the confidential property of
the Company and will be preserved, maintained and made available in accordance
with such Section and Rules, and will be surrendered to the Company on and in
accordance with its request.
-11-
15.04 The Bank and the Company agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
15.05 In case of any requests or demands for the inspection of the
Shareholder records of the Company, the Bank will endeavor to notify the Company
and to secure instructions from an authorized officer of the Company as to such
instruction. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
ARTICLE 16. Term of Agreement
16.01 This Agreement shall become effective on the date hereof (the "
Effective Date") and shall continue in effect for twelve months from the
Effective Date ( the "Initial Term") and from year to year thereafter with
respect to each Fund, provided that subsequent to the Initial Term, this
Agreement may be terminated by either party at any time without payment of any
penalty upon ninety (90) days written notice to the other. In the event such
notice is given by the Company, it shall be accompanied by a resolution of the
Board of Trustees, certified by the Secretary, electing to terminate this
Agreement and designating a successor transfer agent.
16.02 Should the Company exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material will
be borne by the Company. Additionally, the Bank reserves the right to charge for
any other reasonable expenses associated with such termination.
ARTICLE 17. Additional Funds
17.01 In the event that the Company establishes one or more series of
Shares in addition to the initial series with respect to which it desires to
have the Bank render services as transfer agent under the terms hereof, it shall
so notify the Bank in writing, and if the Bank agrees in writing to provide such
services, such series of Shares shall become a Fund hereunder.
ARTICLE 18. Assignment
18.01 Except as provided in Section 18.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
18.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
-12-
18.03 The Bank, may subcontract for the performance of any of the
services to be provided hereunder to third parties, including any affiliate of
the Bank, provided that the Bank shall remain liable hereunder for any acts or
omissions of any subcontractor as if performed by the Bank. The Bank will obtain
the consent of the Company for the use of subcontractors provided that the
Company will not unreasonably withhold its consent.
ARTICLE 19. Amendment
19.01 This Agreement may be amended or modified by a written agreement
executed by both parties.
ARTICLE 20. Massachusetts Law to Apply
20.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
ARTICLE 21. Merger of Agreement and Severability
21.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
hereof whether oral or written.
21.02 In the event any provision of this Agreement shall be held
unenforceable or invalid for any reason, the remainder of the Agreement shall
remain in full force and effect.
21.03 This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original; but such counterparts shall
together, constitute only one instrument.
ARTICLE 22. Notices
22.01 Any notice or other instrument in writing, authorized or required
by this Agreement to be given to either party hereto will be sufficiently given
if addressed to such party and mailed or delivered to it at its office at the
address set forth below:
For the Fund: The DLB Fund Group
c/o David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, Massachusetts 02142
Attention: Maureen A. Madden
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For the Bank: Investors Bank & Trust Company
P.O. Box 1537
Boston, Massachusetts 02205-1537
Attention: Henry Joyce
ARTICLE 23. Limitation of Liability
23.01 The term The DLB Fund Group means and refers to the Trustees from
time to time serving under the Declaration, as the same may subsequently thereto
have been, or subsequently hereto be, amended. It is expressly agreed that the
obligations of the Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the Fund, personally,
but shall bind only the property of the Fund as provided in the Declaration. The
execution and delivery of this agreement have been authorized by the Trustees of
the Fund and this Agreement has been signed by an authorized officer of the
Fund, acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them, but shall bind only the property of the Fund as provided in the
Declaration.
-14-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and the year first above written.
The DLB Fund Group
Name:
Title:
ATTEST:
Investors Bank & Trust Company
Name:
Title:
ATTEST:
DATE:
-15-
EXHIBIT 10
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
FAX: (617) 951-7050
30 KENNEDY PLAZA ONE FRANKLIN SQUARE
PROVIDENCE, RI 02903-2328 1301 K STREET, N.W.
(401) 455-4400 SUITE 800 EAST
FAX: (401) 455-4401 WASHINGTON, DC 20005-3333
(202) 626-3900
FAX: (202) 626-3961
June 29, 1995
The DLB Fund Group
One Memorial Drive
Cambridge, Massachusetts 02142
Gentlemen:
We are furnishing this opinion in connection with the Registration
Statement on Form N- 1A filed under the Securities Act of 1933, as amended, by
The DLB Fund Group (the "Trust") for the registration of an indefinite number of
its shares of beneficial interest (the "Shares"). The Shares are proposed to be
sold directly by the Trust.
We have acted as counsel for the Trust since its organization. We are
familiar with the action taken by its Trustees to authorize this issuance of the
Shares. We have examined its records of Trustee and shareholder action, its
Bylaws, and its Agreement and Declaration of Trust on file at the office of the
Secretary of State of The Commonwealth of Massachusetts. We have examined
executed copies of such Registration Statement, in the form filed or to be filed
with the Securities and Exchange Commission, and such other instruments as we
deem necessary for the purpose of this opinion.
We assume that upon sale of the Shares the Trust will receive the net
asset value thereof.
Based upon the foregoing, we are of the opinion that the Trust is
authorized to issue an unlimited number of Shares, and that when the Shares are
issued and sold they will be validly issued, fully paid and nonassessable by the
Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such disclaimer
be given in each agreement, obligation, or instrument entered into if executed
by the
-1-
The DLB Fund Group -2- June 29, 1995
Trust or the Trustees. The Agreement and Declaration of Trust provides for
indemnification out of the Trust's property of the relevant Fund of the Trust
for all loss and expense of any shareholder of such Fund held personally liable
solely by reason of his being or having been a shareholder of such Fund. Thus,
the risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which the relevant Fund of the Trust
itself would be unable to meet its obligations.
We consent to the filing of this opinion as an exhibit to such
Registration Statement.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
-2-
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 5 to the Registration
Statement No. 33-82366 of The DLB Fund Group of our reports each dated February
5, 1997, relating to the DLB Fixed Income Fund, DLB Global Small Capitalization
Fund, DLB Value Fund, DLB Mid Capitalization Fund, DLB Quantitative Equity Fund
and the DLB Global Bond Fund and to the reference to us under the heading
"Experts" appearing in the Statement of Additional Information which is part of
such registration statement.
/s/ Deloitte & Touche
Boston, Massachusetts
February 19, 1997
EXHIBIT 13
DAVID L. BABSON & CO., INC.
One Memorial Drive
Cambridge, Massachusetts 02142
June 22, 1995
The DLB Fund Group
One Memorial Drive
Cambridge, Massachusetts 02142
Ladies & Gentlemen:
In connection with your sale to us today of 10,000 shares of beneficial
interest (the "Shares") in the DLB Global Small Capitalization Fund (the
"Fund"), we understand that: (i) the Shares have not been registered under the
Securities Act of 1933, as amended (the "1933 Act"); (ii) your sale of the
Shares to us is in reliance on the sale being exempt under Section 4(2) of the
1933 Act as no involving any public offering; and (iii) in part, your reliance
on such exemption is predicated on our representation, which we hereby confirm,
that we are acquiring the Shares for investment and for our own account as the
sole beneficial owner thereof, and not with a view to or in connection with any
resale or distribution of any or all of the Shares or any interest therein
except upon repurchase or redemption by the Fund unless and until the Shares
have been registered under the 1933 Act or you have received an opinion of your
counsel indicating to your satisfaction that such sale, assignment or transfer
will not violate the provisions of the 1933 Act or any rules and regulations
promulgated thereunder.
We further agree, pursuant to the requirements of the Staff of the
Securities and Exchange Commission, that if any of the Shares are redeemed
during the first five years of the Fund's operations by any holder thereof, the
redemption proceeds will be reduced by the amount of the then unamortized
organizational expenses in the same ratio as the number of Shares redeemed bears
to the number of Shares held at the time of redemption.
This letter is intended to take effect as an instrument under seal,
shall be construed under the laws of The Commonwealth of Massachusetts, and is
delivered at Boston, Massachusetts as of the date above written.
Very truly yours,
DAVID L. BABSON & CO., INC.
By:/s/Ronald G. Gwodz
------------------------
Name:
Title:
-2-
EXHIBIT 16
THE DLB FUND GROUP
PERFORMANCE CALCULATION
For the Period from Commencement of Operations to December 31, 1996
<TABLE>
<CAPTION>
Global Small Mid Quantitative
Fixed Value Capitalization Capitalization Global Bond Equity
Income Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Initial NAV $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
- -----------------------------------------------------------------------------------------------------------------------------------
Initial Shares 500,001 1,000,001 1,010,000 1,000,001 2,500,001 1,172,892.77
- -----------------------------------------------------------------------------------------------------------------------------------
Shares from
Distributions 87,468.838 91,382.685 22,615.979 96,135.436 82,957.991 19,182.732
- -----------------------------------------------------------------------------------------------------------------------------------
End of Period
NAV $10.11 $12.53 $11.19 $11.51 $9.99 $11.66
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return 0.0716 0.2234 0.0964 0.1691 0.0321 0.1475
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-1-
THE DLB FUND GROUP
PERFORMANCE CALCULATION
For the One-Year Period ended December 31, 1996
<TABLE>
<CAPTION>
Global Small Mid-
Fixed Value Capitalization Capitalization
Income Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Initial NAV $10.26 $10.58 $10.33 $10.75
- -----------------------------------------------------------------------------------------------------------------------------------
Initial Shares 518,788.634 1,022,590.984 1,017,012.145 1,016,543.579
Shares from
Distributions 68,681.205 68,792.700 15,603.834 79,592.858
- -----------------------------------------------------------------------------------------------------------------------------------
End of Period
NAV $10.69 $13.25 $11.29 $12.36
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return 0.037 0.2399 0.0985 0.1475
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-2-
YIELD CALCULATION
(CALENDAR MONTH - END METHOD)
30-DAY BASE PERIOD ENDED DECEMBER 31, 1996
YIELD = 2[{a-b + 1 }6 -1]
--
cd
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Global Bond Fixed
Fund Income
---- Fund
----
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
a = dividends and interest earned during $128,677.86 $82,723.10
the month
- ---------------------------------------------------------------------------------------------------
b = expenses accrued during the month $16,929.44 $6,935.99
- ---------------------------------------------------------------------------------------------------
c = average dividend shares outstanding $2,500,001.00 $1,440,473.230
during the month
- ---------------------------------------------------------------------------------------------------
d = net asset value price per share on $9.99 $10.11
the last day of the month
- ---------------------------------------------------------------------------------------------------
FUND YIELD 5.4297% 6.3267%
- ---------------------------------------------------------------------------------------------------
</TABLE>
-3-
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> DLB Fixed Income Fund
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Dec-31-1995
<PERIOD-END> Dec-31-1996
<INVESTMENTS-AT-COST> 15,231,184
<INVESTMENTS-AT-VALUE> 15,138,680
<RECEIVABLES> 214,530
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,353,210
<PAYABLE-FOR-SECURITIES> (10,822)
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (81,843)
<TOTAL-LIABILITIES> 92,665
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> (15,393,498)
<SHARES-COMMON-STOCK> 1,509,154
<SHARES-COMMON-PRIOR> 518,789
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 5,666
<ACCUMULATED-NET-GAINS> 34,783
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 92,504
<NET-ASSETS> (15,206,545)
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 821,911
<OTHER-INCOME> 0
<EXPENSES-NET> 65,312
<NET-INVESTMENT-INCOME> 756,599
<REALIZED-GAINS-CURRENT> (34,750)
<APPREC-INCREASE-CURRENT> (225,496)
<NET-CHANGE-FROM-OPS> 496,353
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 762,248
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 974,836
<NUMBER-OF-SHARES-REDEEMED> (53,152)
<SHARES-REINVESTED> 68,681
<NET-CHANGE-IN-ASSETS> 9,935,406
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 316
<OVERDIST-NET-GAINS-PRIOR> (67)
<GROSS-ADVISORY-FEES> 47,593
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 197,414
<AVERAGE-NET-ASSETS> 11,898,335
<PER-SHARE-NAV-BEGIN> 10.26
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> (0.15)
<PER-SHARE-DIVIDEND> (.53)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.11
<EXPENSE-RATIO> .55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> DLB Global Small Capitalization Fund
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Dec-31-1995
<PERIOD-END> Dec-31-1996
<INVESTMENTS-AT-COST> 11,377,269
<INVESTMENTS-AT-VALUE> 12,617,391
<RECEIVABLES> 58,433
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 12,675,824
<TOTAL-ASSETS> (57,841)
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> (32,379)
<OTHER-ITEMS-LIABILITIES> 90,220
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> (11,390,719)
<PAID-IN-CAPITAL-COMMON> 1,124,924
<SHARES-COMMON-STOCK> 1,017,012
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 354
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 44,806
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,240,045)
<NET-ASSETS> (12,585,604)
<DIVIDEND-INCOME> 171,381
<INTEREST-INCOME> 20,636
<OTHER-INCOME> 0
<EXPENSES-NET> 180,705
<NET-INVESTMENT-INCOME> 11,312
<REALIZED-GAINS-CURRENT> 153,011
<APPREC-INCREASE-CURRENT> 865,114
<NET-CHANGE-FROM-OPS> 1,032,437
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,427
<DISTRIBUTIONS-OF-GAINS> 164,179
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 100,497
<NUMBER-OF-SHARES-REDEEMED> (8,189)
<SHARES-REINVESTED> 15,604
<NET-CHANGE-IN-ASSETS> 2,076,326
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 28,897
<OVERDISTRIB-NII-PRIOR> 5,980
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 120,522
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 284,822
<AVERAGE-NET-ASSETS> 12,052,230
<PER-SHARE-NAV-BEGIN> 10.33
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 1.01
<PER-SHARE-DIVIDEND> (.01)
<PER-SHARE-DISTRIBUTIONS> (.15)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.19
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> DLB Value Fund
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Dec-31-1995
<PERIOD-END> Dec-31-1996
<INVESTMENTS-AT-COST> 16,158,954
<INVESTMENTS-AT-VALUE> 19,124,431
<RECEIVABLES> 128,906
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19,253,337
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (25,235)
<TOTAL-LIABILITIES> 25,235
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> (16,290,313)
<SHARES-COMMON-STOCK> 1,534,983
<SHARES-COMMON-PRIOR> 1,022,591
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 27,688
<ACCUM-APPREC-OR-DEPREC> (2,965,477)
<NET-ASSETS> (19,228,102)
<DIVIDEND-INCOME> 336,140
<INTEREST-INCOME> 23,879
<OTHER-INCOME> 0
<EXPENSES-NET> 121,812
<NET-INVESTMENT-INCOME> 238,207
<REALIZED-GAINS-CURRENT> 595,835
<APPREC-INCREASE-CURRENT> 2,386,704
<NET-CHANGE-FROM-OPS> 3,220,746
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 234,884
<DISTRIBUTIONS-OF-GAINS> 627,088
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 462,564
<NUMBER-OF-SHARES-REDEEMED> (18,965)
<SHARES-REINVESTED> 68,793
<NET-CHANGE-IN-ASSETS> 8,410,624
<ACCUMULATED-NII-PRIOR> (242)
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 83,908
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 229,078
<AVERAGE-NET-ASSETS> 15,258,023
<PER-SHARE-NAV-BEGIN> 10.58
<PER-SHARE-NII> .16
<PER-SHARE-GAIN-APPREC> 2.38
<PER-SHARE-DIVIDEND> (.16)
<PER-SHARE-DISTRIBUTIONS> (.43)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.53
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 004
<NAME> DLB Mid Capitalization Fund
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Dec-31-1995
<PERIOD-END> Dec-31-1996
<INVESTMENTS-AT-COST> 12,160,789
<INVESTMENTS-AT-VALUE> 13,672,580
<RECEIVABLES> 36,953
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,709,533
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (19,818)
<TOTAL-LIABILITIES> 19,818
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> (12,178,649)
<SHARES-COMMON-STOCK> 1,189,227
<SHARES-COMMON-PRIOR> 1,016,544
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 357
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 368
<ACCUM-APPREC-OR-DEPREC> (1,511,791)
<NET-ASSETS> (13,689,715)
<DIVIDEND-INCOME> 48,436
<INTEREST-INCOME> 24,346
<OTHER-INCOME> 0
<EXPENSES-NET> 112,807
<NET-INVESTMENT-INCOME> 159,975
<REALIZED-GAINS-CURRENT> 755,181
<APPREC-INCREASE-CURRENT> 760,116
<NET-CHANGE-FROM-OPS> 1,675,272
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 160,564
<DISTRIBUTIONS-OF-GAINS> 755,549
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 100,908
<NUMBER-OF-SHARES-REDEEMED> (7,818)
<SHARES-REINVESTED> 79,593
<NET-CHANGE-IN-ASSETS> (2,760,841)
<ACCUMULATED-NII-PRIOR> (350)
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 75,235
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 222,555
<AVERAGE-NET-ASSETS> 12,539,178
<PER-SHARE-NAV-BEGIN> 10.75
<PER-SHARE-NII> (.15)
<PER-SHARE-GAIN-APPREC> 1.44
<PER-SHARE-DIVIDEND> (.15)
<PER-SHARE-DISTRIBUTIONS> (.68)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.51
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 005
<NAME> DLB Global Bond Fund
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Aug-26-1996
<PERIOD-END> Dec-31-1996
<INVESTMENTS-AT-COST> 25,183,931
<INVESTMENTS-AT-VALUE> 25,423,921
<RECEIVABLES> 513,252
<ASSETS-OTHER> 34,667
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,971,840
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (166,574)
<TOTAL-LIABILITIES> 166,574
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> (24,828,760)
<SHARES-COMMON-STOCK> 2,582,959
<SHARES-COMMON-PRIOR> 1
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 57,466
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 66,965
<ACCUM-APPREC-OR-DEPREC> (100,937)
<NET-ASSETS> (25,805,266)
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 542,269
<OTHER-INCOME> 0
<EXPENSES-NET> 70,410
<NET-INVESTMENT-INCOME> 471,859
<REALIZED-GAINS-CURRENT> 232,460
<APPREC-INCREASE-CURRENT> 100,937
<NET-CHANGE-FROM-OPS> 805,250
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 752,000
<DISTRIBUTIONS-OF-GAINS> 76,750
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,500,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 82,958
<NET-CHANGE-IN-ASSETS> 25,805,256
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 66,182
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 117,441
<AVERAGE-NET-ASSETS> 25,361,025
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .19
<PER-SHARE-GAIN-APPREC> .13
<PER-SHARE-DIVIDEND> (.30)
<PER-SHARE-DISTRIBUTIONS> (.03)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.99
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 006
<NAME> DLB Quantitative Equity Fund
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Aug-26-1996
<PERIOD-END> Dec-31-1996
<INVESTMENTS-AT-COST> 12,045,961
<INVESTMENTS-AT-VALUE> 13,839,018
<RECEIVABLES> 17,617
<ASSETS-OTHER> 61,283
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,917,918
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (20,621)
<TOTAL-LIABILITIES> 20,621
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> (11,952,599)
<SHARES-COMMON-STOCK> 1,192,076
<SHARES-COMMON-PRIOR> 1
<ACCUMULATED-NII-CURRENT> (5,835)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (145,806)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,793,057)
<NET-ASSETS> (13,897,297)
<DIVIDEND-INCOME> 57,571
<INTEREST-INCOME> 2,075
<OTHER-INCOME> 0
<EXPENSES-NET> 40,440
<NET-INVESTMENT-INCOME> 19,206
<REALIZED-GAINS-CURRENT> 356,106
<APPREC-INCREASE-CURRENT> 1,793,057
<NET-CHANGE-FROM-OPS> 2,168,369
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13,371
<DISTRIBUTIONS-OF-GAINS> 210,300
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,172,892
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 19,183
<NET-CHANGE-IN-ASSETS> (13,897,287)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 33,808
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 81,996
<AVERAGE-NET-ASSETS> 12,955,174
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 1.84
<PER-SHARE-DIVIDEND> (.01)
<PER-SHARE-DISTRIBUTIONS> (.18)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.66
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
POWER OF ATTORNEY
I, the undersigned officer of The DLB Fund Group (the "Trust"), hereby
constitute and appoint Peter C. Thompson, Ronald E. Gwozdz, and John V. Murphy,
and each of them singly, my true and lawful attorneys with full power to sign
for me, and in my name and in the capacities indicated below, the Registration
Statement on Form N-1A with respect to the Trust's shares of beneficial interest
and other matters set forth therein, and any and all amendments to such
Registration Statement, and to file the same with all exhibits thereto, and
other documents in connection thereunder, with the Securities and Exchange
Commission, granting unto my said attorneys, and each of them acting alone, full
power and authority to do and perform each and every act and thing requisite or
necessary to be done in the premises, as fully to all intents and purposes as he
might or could do in person, and hereby ratify and confirm all that said
attorneys or any of them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
Signature Title Date
- --------- ----- ----
/s/ DeAnne B. Dupont Treasurer, Principal Financial July 22, 1996
- -------------------- Officer and Principal Accounting
DeAnne B. Dupont Officer
POWER OF ATTORNEY
I, the undersigned Trustee of The DLB Fund Group (the "Trust"), hereby
constitute and appoint Peter C. Thompson, Ronald E. Gwozdz, and John V. Murphy,
and each of them singly, my true and lawful attorneys with full power to sign
for me, and in my name and in the capacity indicated below, the Registration
Statement on Form N-1A with respect to the Trust's shares of beneficial interest
and other matters set forth therein, and any and all amendments to such
Registration Statement, and to file the same with all exhibits thereto, and
other documents in connection thereunder, with the Securities and Exchange
Commission, granting unto my said attorneys, and each of them acting alone, full
power and authority to do and perform each and every act and thing requisite or
necessary to be done in the premises, as fully to all intents and purposes as he
might or could do in person, and hereby ratify and confirm all that said
attorneys or any of them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
Signature Title Date
- --------- ----- ----
/s/ Ronald E. Gwodz Trustee October 4, 1994
- -------------------
Ronald E. Gwzodz
POWER OF ATTORNEY
I, the undersigned Trustee of The DLB Fund Group (the "Trust"), hereby
constitute and appoint Peter C. Thompson, Ronald E. Gwozdz, and John V. Murphy,
and each of them singly, my true and lawful attorneys with full power to sign
for me, and in my name and in the capacity indicated below, the Registration
Statement on Form N-1A with respect to the Trust's shares of beneficial interest
and other matters set forth therein, and any and all amendments to such
Registration Statement, and to file the same with all exhibits thereto, and
other documents in connection thereunder, with the Securities and Exchange
Commission, granting unto my said attorneys, and each of them acting alone, full
power and authority to do and perform each and every act and thing requisite or
necessary to be done in the premises, as fully to all intents and purposes as he
might or could do in person, and hereby ratify and confirm all that said
attorneys or any of them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
Signature Title Date
- --------- ----- ----
/s/ Charles E. Hugel Trustee October 4, 1994
- --------------------
Charles E. Hugel
POWER OF ATTORNEY
I, the undersigned Trustee of The DLB Fund Group (the "Trust"), hereby
constitute and appoint Peter C. Thompson, Ronald E. Gwozdz, and John V. Murphy,
and each of them singly, my true and lawful attorneys with full power to sign
for me, and in my name and in the capacity indicated below, the Registration
Statement on Form N-1A with respect to the Trust's shares of beneficial interest
and other matters set forth therein, and any and all amendments to such
Registration Statement, and to file the same with all exhibits thereto, and
other documents in connection thereunder, with the Securities and Exchange
Commission, granting unto my said attorneys, and each of them acting alone, full
power and authority to do and perform each and every act and thing requisite or
necessary to be done in the premises, as fully to all intents and purposes as he
might or could do in person, and hereby ratify and confirm all that said
attorneys or any of them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
Signature Title Date
- --------- ----- ----
/s/ Richard A. Nenneman Trustee October 4, 1994
- -----------------------
Richard A. Nenneman
POWER OF ATTORNEY
I, the undersigned Trustee of The DLB Fund Group (the "Trust"), hereby
constitute and appoint Peter C. Thompson, Ronald E. Gwozdz, and John V. Murphy,
and each of them singly, my true and lawful attorneys with full power to sign
for me, and in my name and in the capacity indicated below, the Registration
Statement on Form N-1A with respect to the Trust's shares of beneficial interest
and other matters set forth therein, and any and all amendments to such
Registration Statement, and to file the same with all exhibits thereto, and
other documents in connection thereunder, with the Securities and Exchange
Commission, granting unto my said attorneys, and each of them acting alone, full
power and authority to do and perform each and every act and thing requisite or
necessary to be done in the premises, as fully to all intents and purposes as he
might or could do in person, and hereby ratify and confirm all that said
attorneys or any of them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
Signature Title Date
- --------- ----- ----
/s/ Richard J. Phelps Trustee May 16, 1996
- ---------------------
Richard J. Phelps
POWER OF ATTORNEY
I, the undersigned Trustee of The DLB Fund Group (the "Trust"), hereby
constitute and appoint Peter C. Thompson, Ronald E. Gwozdz, and John V. Murphy,
and each of them singly, my true and lawful attorneys with full power to sign
for me, and in my name and in the capacity indicated below, the Registration
Statement on Form N-1A with respect to the Trust's shares of beneficial interest
and other matters set forth therein, and any and all amendments to such
Registration Statement, and to file the same with all exhibits thereto, and
other documents in connection thereunder, with the Securities and Exchange
Commission, granting unto my said attorneys, and each of them acting alone, full
power and authority to do and perform each and every act and thing requisite or
necessary to be done in the premises, as fully to all intents and purposes as he
might or could do in person, and hereby ratify and confirm all that said
attorneys or any of them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
Signature Title Date
- --------- ----- ----
/s/ Peter C. Thompson Trustee October 4, 1994
- ---------------------
Peter C. Thompson
POWER OF ATTORNEY
I, the undersigned Trustee of The DLB Fund Group (the "Trust"), hereby
constitute and appoint Peter C. Thompson, Ronald E. Gwozdz, and John V. Murphy,
and each of them singly, my true and lawful attorneys with full power to sign
for me, and in my name and in the capacity indicated below, the Registration
Statement on Form N-1A with respect to the Trust's shares of beneficial interest
and other matters set forth therein, and any and all amendments to such
Registration Statement, and to file the same with all exhibits thereto, and
other documents in connection thereunder, with the Securities and Exchange
Commission, granting unto my said attorneys, and each of them acting alone, full
power and authority to do and perform each and every act and thing requisite or
necessary to be done in the premises, as fully to all intents and purposes as he
might or could do in person, and hereby ratify and confirm all that said
attorneys or any of them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
Signature Title Date
- --------- ----- ----
/s/ Peter S. Schliemann Trustee October 4, 1994
- -----------------------
Peter S. Schliemann
