Manager's Commentary
- --------------------
COMING ON THE HEELS OF A STELLAR 1995, RETURNS TO HIGH GRADE FIXED INCOME
INVESTORS IN 1996 WERE DISAPPOINTING. A rise in the general level of interest
rates over the course of the year resulted in price depreciation that offset a
portion of the coupon return earned on short and intermediate maturity bonds.
Though positive, total returns for the broad market averages still
underperformed three-month Treasury bills. The Lehman Aggregate Bond Index total
return for 1996 was 3.63%. Three month Treasury bill's annualized return for the
year was 5.39%. The DLB Fixed Income Fund total return for 1996 was 3.70%
THE RISE IN RATES REFLECTED INVESTOR CONCERNS THAT IMPROVING ECONOMIC CONDITIONS
DURING THE FIRST HALF OF 1996 WOULD LEAD TO HIGHER INFLATION. Frequently, in
recent years, bond investors have been skittish about the prospects of higher
inflation. As is often the case, however, investors' expectations proved to be
off the mark. By the summer, it was clear that inflation was not accelerting,
thus allowing the bond market to stabilize and then stage a fall rally, before
selling off again in December. At year end, interest rates were about 75 basis
points above December 1995 levels, but below the interest rate highs reached in
the middle of 1996.
THE CORPORATE BOND ASSET CLASS--WHICH, AS OF YEAR END, ACCOUNTS FOR ROUGHLY 41%
OF THE FUND'S HOLDINGS--TURNED IN AN EXCELLENT YEAR. On a duration adjusted
basis, high quality corporates recorded the best relative returns within the
investment grade universe for 1996. Demand from yield hungry investors and
improving credit fundamentals helped the corporate market to easily absorb
record new issue volume of nearly $100 billion.
AS WE ENTER 1997, WE BELIEVE THE DLB FIXED INCOME FUND IS WELL POSITIONED FOR AN
ENVIRONMENT OF MODERATE ECONOMIC GROWTH AND LOW INFLATION, WHICH WE SEE
CONTINUING. During 1996 the fund increased exposure to banks and airlines, among
other sectors. Both industries are currently enjoying excellent fundamentals,
and we believe they will likely outperform the market over the next few
quarters. Also, additions to the mortgage-backed sector of the portfolio should
benefit the fund's performance if interest rate volatility continues to decline
as it has recently. At year's end, the fund's average effective duration and
maturity were 4.8 and 7.6 years, respectively. The average quality of the
portfolio was Aa2. Portfolio turnover for 1996 was sixty-one percent.
CUMULATIVE TOTAL RETURN SINCE INCEPTION 7/25/95
MOUNTAIN CHART PLOT POINTS:
DLB FIXED INCOME LEHMAN AGGREGATE
---------------- ----------------
$100,000.00 $100,000.00
31-Jul-95 $100,100.00 $100,150.00
31-Aug-95 $101,501.40 $101,361.82
30-Sep-95 $102,404.76 $102,345.02
31-Oct-95 $103,602.90 $103,675.51
30-Nov-95 $105,105.14 $105,230.64
31-Dec-95 $106,461.00 $106,703.87
31-Jan-96 $107,397.85 $107,408.12
28-Feb-96 $106,356.09 $105,539.22
31-Mar-96 $105,526.52 $104,800.44
30-Apr-96 $105,009.44 $104,213.56
30-May-96 $104,799.42 $104,005.13
30-Jun-96 $105,836.93 $105,398.80
31-Jul-96 $106,048.61 $105,683.38
31-Aug-96 $105,942.56 $105,503.72
30-Sep-96 $107,605.86 $107,339.48
31-Oct-96 $109,790.25 $109,722.42
30-Nov-96 $111,557.88 $111,598.67
31-Dec-96 $110,408.83 $110,560.80
TOTAL RETURNS FOR PERIODS ENDED 12/31/96
Annualized
One Year Since Inception
1/1/96-12/31/96 7/25/95-12/31/96
DLB FIXED INCOME FUND 3.71% 6.82%
Lehman Brothers Aggregate 3.61% 6.92%
LEHMAN BROTHERS AGGREGATE BOND INDEX is composed of securities from Lehman
Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and
the Asset-Backed Securities Index. Total return comprises price
appreciation/depreciation and income as a percentage of the original investment.
Indexes are rebalanced monthly by market capitalization.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Investment return and share
price will fluctuate with market conditions, and investors may have a gain or
loss when shares are sold. The fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such expense
limitation, returns would have been lower.
THIS REPORT AND THE FUND FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE DLB FIXED INCOME FUND. The
report is not intended for distribution to prospective investors unless preceded
or accompanied by a current prospectus.
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
Manager's Commentary
- --------------------
THE DLB GLOBAL SMALL CAP FUND INVESTS ON A WORLDWIDE BASIS IN COMPANIES WITH
MARKET CAPITALIZATIONS UP TO $1.5 BILLION AT THE TIME OF PURCHASE. The
investment process combines the uniques strength of two investment managers.
David L. Babson & Co. is the fund's domestic manager and oversees approximately
40% of the the fund's assets. Babson-Stewart Ivory International is the fund's
international manager and handles the remaining 60% of investable assets.
THE U.S. STOCK MARKET HAD A VERY STRONG SHOWING IN 1996. The Dow Jones
Industrial Average gained 29.1% for the year and the broader based S&P 500
23.0%. The Russell 2500, which measures small to medium-small stock performance,
rose a very respectable 19.0%. Outside of the U.S., most markets posted
respectable performances but none at the level of the U.S. The Salomon Brothers
Extended Market Index ex-U.S., which tracks the performance of smaller
companies, rose by 7.32%.
FOR 1996, THE FUND PERFORMED AS FOLLOWS:
DLB Global Small Cap 9.85%
Solomon EMI ex-U.S. 7.23%
Russell 2500 19.03%
Combined Index 11.95%
(Solomon EMI ex-U.S., 60%;
Russell 2500, 40%)
OUTSIDE OF THE U.S., POSITIVE GAINS WERE MADE IN EUROPE, PARTICULARLY HOLDINGS
IN FRANCE, GERMANY, BELGIUM AND THE NETHERLANDS. Overweight positions in smaller
Far Eastern markets were also a positive. Countering those gains was
underperformance in and heavy exposure to Japan, as well as lagging performance
in the U.K..
IN THE U.S., UNDERWEIGHTING IN THE FINANCIAL SERVICE SECTOR OF THE RUSSELL 2500
HURT RELATIVE PERFORMANCE, AS WELL AS OVERWEIGHTING IN ECONOMICALLY SENSITIVE
SECTORS. However, favorable stock selection helped to counterbalance the weaker
performance of the overweighted sectors. Our insistence, with respect to U.S.
investments, on identifying companies with improving profitability and
accelerating earnings meant that many stocks held by the fund did relatively
well.
THE COMBINATION OF INTERNATIONAL STOCKS WITH U.S. HOLDINGS PROVIDES FOR A BROAD
DIVERSIFICATION AND EXPOSURE TO A WIDE SPECTRUM OF SMALL COMPANIES. While the
extraordinary performance, in the past two years, of U.S. markets may call for
caution, the exposure to lagging international markets and improving economic
conditions in many regions could provide for profitable future portfolio
results.
CUMULATIVE TOTAL RETURN SINCE INCEPTION 7/19/95
MOUNTAIN CHART PLOT POINTS:
DLB GLOBAL SM CAP. COMBINED INDEX SALOMON EMI (EX-US)
------------------ -------------- -------------------
$100,000.00 $100,000.00 $100,000.00
31-Jul-95 $100,300.00 $105,860.00 $100,420.00
31-Aug-95 $ 98,795.50 $104,928.43 $ 97,879.37
30-Sep-95 $ 99,793.33 $111,454.98 $ 98,623.26
31-Oct-95 $ 98,396.23 $108,133.62 $ 95,782.91
30-Nov-95 $100,993.89 $110,663.95 $ 98,589.35
31-Dec-95 $104,013.61 $113,961.73 $102,365.32
31-Jan-96 $106,426.72 $115,500.22 $104,187.42
28-Feb-96 $109,853.66 $117,971.92 $105,812.75
31-Mar-96 $112,567.05 $120,567.30 $108,246.44
30-Apr-96 $115,291.17 $126,595.67 $113,940.20
30-May-96 $116,605.49 $127,342.58 $113,017.29
30-Jun-96 $115,089.62 $125,789.01 $113,028.59
31-Jul-96 $109,450.23 $119,247.98 $108,756.11
31-Aug-96 $110,763.63 $122,718.09 $109,854.54
30-Sep-96 $111,062.69 $125,258.36 $110,469.73
31-Oct-96 $110,562.91 $124,632.07 $110,038.90
30-Nov-96 $113,481.77 $128,271.32 $111,843.53
31-Dec-96 $114,264.79 $127,553.00 $109,785.61
TOTAL RETURNS FOR PERIODS ENDED 12/31/96
Annualized
One Year Since Inception
1/1/96-12/31/96 7/19/95-12/31/96
DLB GLOBAL SMALL CAP FUND 9.86% 9.30%
Combined Index 11.93% 17.61%
Salomon EMI (ex-US) 7.25% 6.42%
SALOMON BROTHERS EXTENDED MARKET INDEX, EX-US, (EMI) represents the bottom 20%
of the cumulative available market capital of the BMI. The EMI defines the small
stock index outside the U.S.
SALOMON BROTHERS BROAD MARKET INDEX (BMI) fully represents the universe of
institutionally available global stocks. All companies with an available market
capitalization greater than US $100 million are included in the index.
RUSSELL 2500 INDEX consists of the bottom 500 securities in the Russell 1000
Index and all 2,000 securities in the Russell 2000 Index, representing
approximately 23% of the Russell 3000 total market capitalization. This index is
a good measure of small to medium-small stock performance in the U.S.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Investment return and share
price will fluctuate with market conditions, and investors may have a gain or
loss when shares are sold. The fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such expense
limitation, returns would have been lower.
THIS REPORT AND THE FUND FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE DLB GLOBAL SMALL CAP FUND.
The report is not intended for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
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
Manager's Commentary
- --------------------
THE STOCK MARKET CLOSED OUT 1996 WITH ANOTHER STRONG SHOWING. The Dow Jones
Industrial Average gained 29.1% for the year. The broader based S&P 500 was not
quite as strong, but still posted an impressive 23.0% for the year. This
continues an almost uninterrupted period of gain for large capitalization
stocks, with the S&P 500 having had only one down year in the last fifteen.
Small stocks trailed larger companies in 1996, as investors sought the safety of
well-known, less economically sensitive companies due to uncertainty about the
direction of the U.S. economy.
THE FUND PERFORMED IN 1996 AS FOLLOWS:
DLB Mid Cap Fund +14.8%
Russell 2500 +19.0%
PERFORMANCE OF THE RUSSELL 2500 INDEX WAS DRIVEN BY THE FINANCIAL SERVICES
SECTOR WHICH ROSE 30.9% IN 1996. We were underweighted in this sector. With
valuation levels at record highs, and banking and brokerage stocks enjoying very
high levels of profitability relative to their historical averages, we feel
caution is warranted. As a result, the fund trailed the Russell 2500 benchmark
in 1996.
AS YOU MIGHT EXPECT, OUR HEAVY WEIGHTINGS IN ECONMICALLY SENSITIVE SECTORS AND
UNDERWEIGHTING IN FINANCE HURT US. However, favorable stock selection in the
portfolio helped to counterbalance the weaker performance of our overweighted
sectors. Our insistence on identifying companies with improving profitability
and accelerating earnings allowed stocks held by the fund to do relatively well.
With a consistent eye toward valuation and risk analysis, we feel the portfolio
is well-positioned in this uncertain environment.
CUMULATIVE TOTAL RETURN SINCE INCEPTION 7/25/95
MOUNTAIN CHART PLOT POINTS:
DLB MID CAP RUSSELL 2500
----------- ------------
$100,000.00 $100,000.00
31-Jul-95 $100,500.00 $105,900.00
31-Aug-95 $ 99,696.00 $107,594.40
30-Sep-95 $100,792.66 $109,606.42
31-Oct-95 $ 98,595.38 $106,175.73
30-Nov-95 $106,897.11 $110,709.44
31-Dec-95 $109,270.22 $112,602.57
31-Jan-96 $111,302.65 $113,402.05
28-Feb-96 $114,652.86 $116,815.45
31-Mar-96 $117,702.62 $119,198.48
30-Apr-96 $119,232.76 $124,705.45
30-May-96 $121,879.73 $128,084.97
30-Jun-96 $119,746.83 $124,152.76
31-Jul-96 $112,118.96 $115,064.78
31-Aug-96 $116,087.97 $121,681.01
30-Sep-96 $117,202.41 $126,949.79
31-Oct-96 $115,983.51 $126,111.93
30-Nov-96 $122,188.63 $132,203.13
31-Dec-96 $125,402.19 $134,014.31
TOTAL RETURNS FOR PERIODS ENDED 12/31/96
Annualized
One Year Since Inception
1/1/96-12/31/96 7/25/95-12/31/96
DLB MID CAPITALIZATION FUND 14.76% 16.29%
Russell 2500 19.02% 21.55%
RUSSELL 2500 INDEX consists of the bottom 500 securities in the Russell 1000
Index and all 2,000 securities in the Russell 2000 Index, representing
approximately 23% of the Russell 3000 total market capitalization. This index is
a good measure of small to medium-small stock performance.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Investment return and share
price will fluctuate with market conditions, and investors may have a gain or
loss when shares are sold. The fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such expense
limitation, returns would have been lower.
THIS REPORT AND THE FUND FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE DLB MID CAPITALIZATION FUND.
The report is not intended for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
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
Manager's Commentary
- --------------------
DLB VALUE FUND COMPLETED ITS FIRST CALENDAR YEAR ON DECEMBER 31, 1996.
In 1996, the Fund's total return (appreciation plus net income) was 23.99%. This
compared favorably with the 20.78% average return for our "growth and income"
peer group in Lipper's Mutual Fund Performance Analysis. The stock market,
bouyed by earnings that were stronger than generally anticipated and a
relatively sanguine interest rate and inflation environment, confounded most
prognosticators by surging 22.95% as measured by the S&P 500 Stock Index, driven
by strength in large capitalization growth stocks.
THE VALUE STYLE TOOK A BACK SEAT TO THE GROWTH STYLE AGAIN IN 1996, as reflected
in the returns of the growth and value subsets of the S&P 500 measured by the
S&P/BARRA growth and value indices.The growth index returned 23.97%, while the
value index rose 22.00%. The current strength of the growth style began in
October of 1993, so the current fashion has been in vogue for over three years,
exceeding the longest period in which one style has remained in favor since the
inception of these indices in 1975.
NO ONE CAN RELIABLY PREDICT WHEN THE MARKET'S PREFERENCE WILL SHIFT BACK TO
VALUE FOR A SUSTAINED PERIOD, BUT THERE ARE FACTORS THAT MAY INDICATE IT IS TIME
FOR A CHANGE. The high absolute level of the market, and the length of time
since the last signigicant correction, may rekindle investors' appreciation of
the lower risk or volatility that is characteristic of the value style.The
market's fascination with high quality growth issues such as Coca Cola and
Gillette has driven their shares to price/earnings ratios of 42 and 30 on
trailing earnings, respectively. These multiples appear quite full relative to
the consensus estimates of their long term rate of earnings growth for the
future. The valuation gulf between these market leaders and the average P/E
multiple of the companies in the Fund, currently 16 (as of December 31, 1996),
has grown too wide in our opinion.
THE PORTFOLIO BENEFITED BY BEING SIGNIFICANTLY OVERWEIGHT IN FINANCIAL STOCKS
RELATIVE TO THE MARKET. This helped to offset the negtive impact of the holdings
in basic materials, retail and consumer cyclical companies. Although we were
only slightly under the S&P weight in technology, the sector with the highest
returns for our fiscal year, we were not invested in the "high-tech" chip,
networking and internet stocks that produced most of the fireworks in a powerful
rebound from the correction they experienced in the second half of 1995.
AS HAS USUALLY BEEN THE CASE IN OUR VALUE PORTFOLIOS, WE AGAIN BENEFITTED FROM A
MERGER ANNOUNCEMENT. PHH, which we purchased for $23 in July 1995, became the
subject of an offer from HFS, Inc. at $49.50. IBM and Chase Manhattan continued
to produce handsome returns for us with gains of 66% and 59% respectively. Six
other holdings chipped in with returns of 40-50%. They were Allstate, National
City, Reebok, duPont, First Bank System and Kmart.
APPLE COMPUTER HEADED THE LIST OF DISAPPOINTMENTS FOR 1996, JOINED BY KLM ROYAL
DUTCH AIRLINES, OVERSEAS SHIPHOLDING AND HANSON PLC. Each is selling below, or
just above, book value. Apple continues to have production and marketing
problems which the new management is working hard to diagnose and cure. They
have announced a merger with Next, a company founded by Steve Jobs, an original
Apple founder, who is coming back to help improve the operating system, which
even now is considered by many to be superior to Microsoft's Windows. Although
the company still has significant problems to work out, it appears to be in
decent financial shape with $1.8 billion in cash. Hanson and KLM are selling at
very low multiples of earnings. Hanson is in the midst of breaking itself into
four companies. The spin-offs of Millenium and Imperial Tobacco have already
occurred, and the last piece is expected to occur in February when the energy
company is separated from the building operations. We have sold the Imperial
Tobacco, and expect to retain the other pieces for a while in order to realize
their expected higher values.
COMPANIES WHICH WERE ELIMINATED FROM THE PORTFOLIO DURING 1996 WERE GUIDANT, ELI
LILLY, SHARED MEDICAL SYSTEMS, IMPERIAL TOBACCO (SALE SETTLED IN 1997) AND
HUFFY. The first three were successful investments which we sold at substantial
profits. Imperial Tobacco produced a loss, but we did not think holding the
shares was likely to prove rewarding after the spin-off from Hanson. Huffy had
been depressed because of competition from China with its low labor costs. The
stock rebounded so we were able to sell at a small gain, and we were not able to
maintain the company in the portfolio at full size because of its small market
capitalization.
THE PORTFOLIO CONTINUES TO HAVE VERY ATTRACTIVE VALUATION CHARACTERISTICS.
Based on estimated earnings for 1997, the average P/E ratio was 15.5 at our year
end, and the average price to book value ratio was 2.6. These values compare
favorably with ratios of 17.3 and 4.9, respectively, for the S&P 500 stock
index.
WE WELCOME NEW INVESTORS WHO HAVE JOINED US IN THE PAST YEAR, AND WE LOOK
FORWARD TO CONTINUING OUR EFFORTS TO PROVIDE ALL OUR SHAREHOLDERS WITH
CONSISTENT, FAVORABLE RETURNS IN THE FUTURE.
CUMULATIVE TOTAL RETURN SINCE INCEPTION 7/25/95
MOUNTAIN CHART PLOT POINTS:
DLB VALUE S&P 500
----------- -----------
$100,000.00 $100,000.00
31-Jul-95 $100,800.00 $102,400.00
31-Aug-95 $100,699.20 $102,656.00
30-Sep-95 $104,294.16 $106,988.08
31-Oct-95 $102,093.55 $106,602.93
30-Nov-95 $106,789.86 $111,282.79
31-Dec-95 $108,178.13 $113,430.55
31-Jan-96 $110,428.23 $117,287.19
28-Feb-96 $113,398.75 $118,377.96
31-Mar-96 $116,880.09 $119,514.39
30-Apr-96 $118,306.03 $121,271.25
30-May-96 $121,370.16 $124,400.05
30-Jun-96 $120,654.07 $124,872.77
31-Jul-96 $116,467.38 $119,353.39
31-Aug-96 $120,252.57 $121,871.75
30-Sep-96 $124,040.52 $128,733.13
31-Oct-96 $125,057.65 $132,286.16
30-Nov-96 $134,874,68 $142,287.00
31-Dec-96 $134,132.87 $139,469.72
TOTAL RETURNS FOR PERIODS ENDED 12/31/96
Annualized
One Year Since Inception
1/1/96-12/31/96 7/25/95-12/31/96
DLB VALUE FUND 23.99% 21.63%
S&P 500 22.96% 24.83%
STANDARD & POORS 500 INDEX is an index of common stocks frequently used as a
general measure of stock market performance. The index assumes reinvestment of
all distributions and interest payments and does not take into account brokerage
fees or taxes. Securities in the fund do not matcht those in the index and
performance of the fund will differ.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Investment return and share
price will fluctuate with market conditions, and investors may have a gain or
loss when shares are sold. The fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such expense
limitation, returns would have been lower.
THIS REPORT AND THE FUND FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE DLB VALUE FUND. The report is
not intended for distribution to prospective investors unless preceded or
accompanied by a current prospectus.
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 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
