DLB
THE DLB FIXED INCOME FUND
SEMI ANNUAL REPORT
JUNE 30, 1997
[EXPERIENCE TO MANAGE THE FUTURE]
DLB FIXED INCOME FUND
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Manager's Commentary
MARKET REVIEW
AFTER 1997'S ROCKY START, THE BOND MARKET TURNED AROUND, thanks to a late spring
rally that drove interest rates down, erasing most of this year's earlier
interest rate increases.
AT THE BEGINNING OF THE SECOND QUARTER, BOND INVESTORS WERE NERVOUS OVER
ADDITIONAL TIGHTENING OF MONETARY POLICY, AFTER THE FEDERAL RESERVE RAISED RATES
IN LATE MARCH. However, these fears dissipated in May when it became clear that
the economy's growth rate was slowing from the first quarter's torrid pace. The
bond market was also buoyed by a continuation of favorable inflation reports and
strong demand by domestic and foreign investors. May inflation numbers showed
that year-over-year growth in the Consumer Price Index fell from 3.2% in
December to 2.2% just five months later.
WHEN IT BECAME APPARENT THAT MONETARY POLICY WAS ON HOLD, THE SLOPE OF THE
TREASURY COUPON CURVE STEEPENED MODESTLY. The slope of the curve between 10 and
30 years widened by 10 basis points, primarily due to the Treasury's
announcement that it would be cutting the number of annual ten-year note
auctions from six to four. This had a favorable impact on the ten-year area and
is indicative of the Treasury'sthe decrease in the federal deficit.
IN ADDITION TO THE FAVORABLE INFLATION CLIMATE, THE BOND MARKET HAS BENEFITED
FROM POLITICAL UNCERTAINTY IN EUROPE, which in turn, has led to a preference for
dollar-denominated securities by foreign investors. There is growing skepticism
about the likelihood of the European Monetary Union (EMU) succeeding as it is
currently structured. Presently, it is scheduled to go into effect January 1999.
Many of the countries seeking admittance to the EMU are faced with sluggish
economies and high unemployment rates. It is becoming politically difficult for
them to take further austerity measures to enable them to meet the strict fiscal
and economic standards now required to gain entry. Some countries are favoring
looser entrance requirements, while others, primarily Germany, are ardently
opposed, fearing that in doing so the proposed joint "Euro" currency would lose
credibilty before its birth and be branded as a "soft" currency.
POSITIVE RETURNS IN EACH OF THE SECOND QUARTER'S MONTHS ALLOWED THE BOND MARKET
TO MORE THAN RECOUP THE LOSSES REGISTERED IN THE FIRST QUARTER.
DLB FIXED INCOME FUND
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Manager's Commentary
In an environment of declining interest rates, returns for the quarter were
positively correlated with duration.
YANKEE BONDS, FOLLOWED CLOSELY BY CORPORATES, TURNED IN THE BEST PERFORMANCE
WITHIN THE INVESTMENT GRADE MARKET. Heavy supply in each of these sectors was
easily absorbed by investors reaching for yield and has resulted in quality
spreads being at, or near, their tightest levels in the year.
INCREASED PREPAYMENT RISK, DUE TO THE DECLINE IN THE GENERAL LEVEL OF INTEREST
RATES, CAUSED MORTGAGES TO UNDERPERFORM CORPORATES. However, mortgage returns
exceeded returns in the Treasury sector.
INTERESTINGLY, SINCE THEIR ISSUANCE IN FEBRUARY, TREASURY INFLATION PROTECTED
SECURITIES, OR TIPS, HAVE BEEN THE WORST PERFORMING SECTOR OF THE BOND MARKET.
Actually, this should not come as a surprise in a benign inflation environment
where the attraction for inflation protection diminishes as inflationary
expectations decline. The Treasury recently announced that in July it would
auction a 5-year TIP. By offering a 5-year maturity to compliment the
outstanding 10-year TIP, the liquidity of the sector should improve.
LONG-TERM HIGH QUALITY BONDS ARE CURRENTLY YIELDING 7.625%. The average yield on
taxable money market funds is approximately 5.20%.
DLB FIXED INCOME FUND
- --------------------------------------------------------------------------------
Manager's Commentary
OUTLOOK
AS THE SECOND HALF OF THE YEAR COMMENCES, UNEMPLOYMENT REMAINS AT A NEAR RECORD
LOW, REAL WAGES ARE RISING AT THE FASTEST PACE SINCE THE EARLY 1980'S, CONSUMER
CONFIDENCE IS HIGH, THERE ARE SIGNS THAT PRODUCTIVITY IS ACCELERATING AND
INFLATION IS BENIGN. This is all wonderful news for both holders of financial
assets and the real economy, but it does beg the question--how much longer can
it last? After all, the business cycle is now in its seventh year, traditionally
a time when inflation starts to accelerate and capacity constraints come into
play. The bond market continues to be skeptical that inflation will remain well
behaved, but it also recognizes that new forces may be at play.
THERE IS GROWING DEBATE WITHIN THE ACADEMIC AND INVESTMENT COMMUNITIES IN
GENERAL THAT BECAUSE WE ARE IN A SO-CALLED "NEW ERA," THE ECONOMY'S LONG TERM
POTENTIAL GROWTH RATE IS HIGHER TODAY THAN IN THE PAST. New era proponents argue
that the opening of more economies around the globe and the attendant increase
in global competition, coupled with productivity benefits from the technology
revolution beginning to flow through to both the manufacturing and service
sectors of the economy, are the primary reasons why inflationhas not reared its
ugly head. As a result of this, it is felt that the economy's non-inflationary
growth rate is now closer to 3-5%, rather than the conventional norm of 2.5%
and, therefore, policy makers shouldn't try to impede the higher rate due to
inflationary fears. Traditionalists argue that it is only a matter of time
before low unemployment combined with strong growth will lead to inflation
accelerating, as employers' bid up wages to attract needed workers.
THIS ONGOING DEBATE BETWEEN THE TWO SCHOOLS OF THOUGHT LEADS TO UNCERTAINTY IN
THE MARKET. Compounding this is increased questioning of the accuracy of
government statistics measuring productivity and inflation. As a result,
investors, and particularly bond market participants, intensely scrutinize
comments by Fed officials to try to determine which camp they may fall into.
DLB FIXED INCOME FUND
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Manager's Commentary
PORTFOLIO REVIEW
TRADES TO INCREASE PORTFOLIO LIQUIDITY AND DIVERSIFICATION CHARACTERIZED THE
QUARTER'S ACTIVITY. The Fund swapped out of a ten-year Province of Quebec bond
into a Hydro Quebec bond with a stated maturity of 27 years, but giving the
holder the option to put it back in 9 years. The Fund participated in the huge
$4.3 billion Norfolk Southern deal, trading out of CSX bonds to do so. To
diversify our transportation exposure, we sold an intermediate-term Union
Pacific issue and bought a Delta Air Lines long-term bond. The Fund continues to
pursue ways to increase liquidity, and succeeded by swapping out of one public
Ford issue into a much larger and more visible Ford global bond deal. Finally,
the Fund purchased a Wachovia Bank floating return rate trust preferred
security. This bond was in a sector of the market which was trading cheap on a
relative value basis.
AT THE END OF THE SECOND QUARTER, the Fund's average effective duration and
maturity were 4.9 and 9.1 years, respectively. The average quality of the
portfolio was Aa2.
DLB FIXED INCOME FUND
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Growth of a Cumulative Total Return Since Inception 7/25/95
$100,000 Investment
DLB FIXED LEHMAN
INCOME AGGREGATE
$100,OOO.OO $100,000.00
31-Ju1-95 $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-Ju1-96 $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 $109,722.42 $109,722.42
30-Nov-96 $111,557.88 $111,598.67
31-Dec-96 $110,408.83 $110,560.80
31-Jan-97 $110,850.47 $110,903.54
28-Feb-97 $111,072.17 $111,180.80
31-Mar-97 $109,872.59 $109,946.69
30-Apr-97 $111,399.82 $111,595.89
31-May-97 $112,380.14 $112,656.05
30-Jun-97 $113,796.13 $113,996.66
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TOTAL RETURNS (%) FOR PERIODS ENDED 6/30/97
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6 Months One Year Annualized
1/1/97- 6/30/96- Since Inception
6/30/97 6/30/97 7/25/95-6/30/97
DLB FIXED INCOME FUND 3.07 7.50 6.68
Lehman Brothers Aggregate 3.11 8.16 6.77
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DISCLOSURE STATEMENT
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.
------------------------------------------------
DLB FIXED INCOME
FUND
FINANCIAL STATEMENTS FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND
FOR THE YEAR ENDED DECEMBER 31, 1996
DLB FIXED INCOME FUND
TABLE OF CONTENTS
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<TABLE>
<S> <C>
FINANCIAL STATEMENTS:
Portfolio of Investments as of June 30, 1997 1 - 4
Statement of Assets and Liabilities as of June 30, 1997 5
Statement of Operations for the Six Months Ended June 30, 1997 6
Statements of Changes in Net Assets for the Six Months Ended June 30, 1997
and the Year Ended December 31, 1996 7
Financial Highlights for the Six Months Ended June 30, 1997, 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>
<TABLE>
<CAPTION>
DLB FIXED INCOME FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
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S&P/MOODY'S PRINCIPAL
BOND RATING ISSUER AMOUNT VALUE
<S> <C> <C> <C>
US GOVERNMENT BONDS - 28.7%
AAA US Treasury, 8.625%, 1997 175,000 $ 175,684
AAA US Treasury, 8.875%, 1997 450,000 455,202
AAA US Treasury, 7.875%, 1998 450,000 455,342
AAA US Treasury, 6.125%, 1999 650,000 652,236
AAA US Treasury, 5.875%, 2000 1,475,000 1,463,244
AAA US Treasury, 6.25%, 2002 775,000 782,022
AAA US Treasury, 6.625%, 2002 50,000 50,461
AAA US Treasury, 11.625%, 2002 500,000 616,640
AAA US Treasury, 6.25%, 2003 400,000 396,876
AAA US Treasury, 11.125%, 2003 25,000 30,824
AAA US Treasury, 5.875%, 2004 150,000 145,337
AAA US Treasury, 7.25%, 2004 250,000 260,625
AAA US Treasury, 7.50%, 2005 75,000 79,359
AAA US Treasury, 10.375%, 2012 450,000 571,217
AAA US Treasury, 8.125%, 2019 350,000 399,273
AAA US Treasury, 8.125%, 2021 50,000 57,235
---------------
6,591,577
---------------
US FEDERAL AGENCY BONDS - 1.3%
Federal Home Loan Banks, 7.26%, 1999 200,000 200,532
FHLMC, 7.61%, 1999 100,000 100,641
---------------
301,173
---------------
MORTGAGES - 22.6%
AAA FHLMC, Gold Pool #M90449, 5.50%, 2001 446,407 434,363
AAA FHLMC, 6.30%, 1999 250,000 249,530
AAA FHLMC, Gold Pool #G00143, 7.50%, 2023 294,764 297,591
AAA FNMA, Pool #346537, 6.00%, 2011 487,743 472,241
AAA GNMA, Pool #780332, 8.00%, 2009 263,910 273,002
AAA GNMA, Pool #410343, 7.50%, 2011 674,696 688,877
AAA GNMA, Pool #423828, 6.00%, 2011 485,841 471,547
AAA GNMA, Pool #398964, 7.50%, 2011 289,716 295,444
1
S&P/MOODY'S PRINCIPAL
BOND RATING ISSUER AMOUNT VALUE
MORTGAGES (CONTINUED)
AAA GNMA, Pool #357262, 7.50%, 2023 405,715 $ 409,184
AAA GNMA, Pool #380866, 7.00%, 2024 84,314 83,218
AAA GNMA, Pool #401135, 8.50%, 2024 368,023 383,888
AAA GNMA, Pool #432175, 8.00%, 2026 99,639 102,048
AAA GNMA, Pool #441009, 8.00%, 2026 249,088 255,111
BAA3 Green Tree Financial, 1994-A, 6.90%, 2004 49,127 49,050
BAA3 Green Tree Financial, 1995-A, 7.25%, 2005 123,137 123,329
AAA Green Tree Financial, 1995 A4, 7.85%, 2026 100,000 102,218
AAA Green Tree Financial, 1995 A5, 8.40%, 2025 200,000 208,186
AAA Green Tree Financial, 1995 A4, 7.05%, 2025 100,000 101,218
AAA Green Tree Financial, 1996 A3, 6.90%, 2027 200,000 200,312
---------------
5,200,357
---------------
INTERNATIONAL BONDS - 5.9%
BAA1 Southern Investments UK, 6.375%, 2001 250,000 245,310
BAA2 Canadian National Railroad, 7.00%, 2004 350,000 347,473
AA3 Ontario Global ONT, 6.00%, 2004 125,000 117,666
BAA3 Petro Geo-Services, 7.50%, 2007 150,000 151,139
A2 Hydro Quebec, 8.05%, 2024 450,000 487,791
---------------
1,349,379
---------------
BANK - 4.2%
A2 Suntrust Banks, 6.00%, 2026 400,000 375,476
AA3 Chase Capital, 7.67%, 2026 150,000 145,232
AA2 J.P. Morgan Capital Trust, 7.54%, 2027 275,000 263,112
AA3 Chase Capital Floater, 6.359%, 2027 190,000 184,762
---------------
968,582
---------------
FINANCIAL - 6.1%
A1 Ford Capital BV, 10.125%, 2000 100,000 109,701
A1 Ford Motor Credit Corp., 8.20%, 2002 250,000 263,598
A1 Ford Motor Credit Corp., 7.20%, 2007 300,000 301,620
A3 GMAC Global, 6.75%, 2002 400,000 398,984
AA3 Norwest Corp, 6.00%, 2000 150,000 147,921
AA3 Wachovia Capital FNR TRST II, 2027 190,000 186,132
---------------
1,407,956
---------------
2
S&P/MOODY'S PRINCIPAL
BOND RATING ISSUER AMOUNT VALUE
INDUSTRIAL - 20.2%
A2 Cooper Industries MTN, 7.87%, 1998 100,000 $ 100,919
A3 Chrysler Corp., 10.40%, 1999 100,000 100,329
A2 Philip Morris Companies, 7.125%, 1999 300,000 302,697
A3 Ryder System Inc., 8.45%, 1999 100,000 104,097
BAA1 Norfolk Southern, 6.70%, 2000 50,000 50,192
A2 Sears, Roebuck & Co., 6.50%, 2000 100,000 99,683
BAA1 McDonnell Douglas, 8.25%, 2000 50,000 52,187
A1 Aluminum Company of America, 5.75%, 2001 500,000 484,245
BAA1 Comdisco Inc., 6.375%, 2001 300,000 293,667
A2 Sears, Roebuck & Co., 6.95%, 2002 50,000 50,246
A3 Cardinal Health, Inc., 6.50%, 2004 400,000 390,444
BAA3 Airgas Inc., 7.14%, 2004 190,000 190,306
BA1 Tele-Communications Inc., 8.65%, 2004 70,000 73,872
BAA1 Marriott International, 7.875%, 2005 225,000 233,370
A3 Cardinal Health, 6.00%, 2006 150,000 140,421
BAA2 Tosco Corporation, 7.625%, 2006 325,000 333,970
A2 Philip Morris Companies, 7.20%, 2007 175,000 173,481
A3 Lockheed Martin Corp., 7.70%, 2008 225,000 234,684
BA1 Tele-Communications Inc., 9.80%, 2012 170,000 194,580
BAA3 Time Warner Entertainment, 8.375%, 2023 50,000 51,350
A3 Lockheed Martin Corp., 7.750%, 2026 250,000 256,093
BAA2 American Stores Company, 8.00%, 2026 160,000 163,632
BAA1 Champion International Corp., 7.20%, 2026 450,000 449,681
BAA1 Norfolk Southern, 7.05%, 2037 125,000 126,868
---------------
4,651,014
---------------
TRANSPORTATION - 3.6%
A1 Atchinson Topeka & Santa Fe, 7.75%, 1999 75,000 76,745
BAA2 CSX Corp., 9.50%, 2000 100,000 107,687
BAA2 CSX Corp., 9.00%, 2006 200,000 222,530
BAA2 Union Pacific Corp., 7.25%, 2008 60,000 60,191
BAA1 United Air Lines Inc., 7.27%, 2013 198,581 195,328
BAA3 Delta Air Lines, 10.375%, 2022 130,000 163,697
---------------
826,178
---------------
Total Bonds (identified cost, $21,301,175) 21,296,216
----------------
3
PRINCIPAL
ISSUER AMOUNT VALUE
REPURCHASE AGREEMENT - 5.9%
Bank of New York, dated 6/30/97, due 7/1/97
(secured by U.S Treasury Notes) $1,353,049 $ 1,353,049
----------------
Total investments (identified cost, $22,654,224) 22,649,265
Other assets, less liabilities - 1.5%
340,472
---------------
NET ASSETS - 100% $ 22,989,737
===============
</TABLE>
See notes to financial statements.
4
<TABLE>
<CAPTION>
DLB FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
JUNE 30, 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $ 22,654,224) $22,649,265
Interest receivable 350,116
Receivable from investment manager 28,113
-------------
23,027,494
-------------
LIABILITIES:
Management fees 7,565
Accrued expenses 30,192
-------------
37,757
-------------
NET ASSETS $22,989,737
=============
NET ASSETS CONSIST OF:
Paid-in capital $22,692,813
Unrealized depreciation on investments (4,959)
Accumulated net realized loss on investments (97,537)
Accumulated undistributed net investment income 399,420
-------------
$22,989,737
=============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,207,257
=============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER
SHARE (NET ASSETS/SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 10.42
=============
</TABLE>
See notes to financial statements.
5
<TABLE>
<CAPTION>
DLB FIXED INCOME FUND
STATEMENT OF OPERATIONS (Unaudited)
SIX MONTHS ENDED JUNE 30, 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
INTEREST INCOME $ 445,955
----------
EXPENSES:
Management fee 29,814
Trustees' fees 2,728
Custodian fee 29,769
Legal fees 14,388
Accounting and audit fees 14,531
Transfer agent fee 3,968
Miscellaneous 6,969
----------
102,167
Preliminary reduction of expenses by investment manager (61,298)
----------
Net expenses 40,869
----------
Net investment income 405,086
----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Realized loss (identified cost basis) (62,754)
Change in unrealized depreciation 87,545
----------
Net realized and unrealized gain on investments 24,791
----------
Increase in net assets from operations $ 429,877
==========
</TABLE>
See notes to financial statements.
6
<TABLE>
<CAPTION>
DLB FIXED INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
Six Months Year Ended
Ended December 31,
June 30,1997 1996
-------------------- ---------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 405,086 $ 756,599
Net realized loss on investments (62,754) (34,750)
Net unrealized appreciation (depreciation) on investments 87,545 (225,496)
------------- --------------
429,877 496,353
------------- --------------
Distributions to shareholders:
From net investment income - (756,599)
In excess of net investment income - (5,699)
------------- --------------
- (762,298)
------------- --------------
Fund share transactions:
Net proceeds from sale of shares 8,746,713 10,052,530
Net asset value of shares issued in
reinvestment of distributions - 694,367
Cost of shares reacquired (1,447,398) (545,546)
------------- --------------
7,299,315 10,201,351
------------- --------------
Total increase in net assets 7,729,192 9,935,406
NET ASSETS:
At beginning of period 15,260,545 5,325,139
============= ==============
At end of period (including accumulated undistributed (distributions
in excess of) net investment income of $399,420 and ($5,666),
respectively) $22,989,737 $15,260,545
============= ==============
</TABLE>
See notes to financial statements.
7
<TABLE>
<CAPTION>
DLB FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------
Six Months Year Ended Period Ended
Ended December 31, December 31,
June 30, 1997 1996 1995 **
---------------- --------------- ----------------
(Unaudited)
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.11 $10.26 $10.00
-------- -------- --------
Income from investment operations:
Net investment income .28 .53 .28
Net realized and unrealized gain (loss) on investments (.15)
.03 .37
-------- -------- --------
.31 .38 .65
-------- -------- --------
Less distributions to shareholders:
From net investment income (1) - (.53) (.28)
From net realized gain on investments - - (.11)
-------- -------- --------
- (.53) (.39)
-------- -------- --------
Net asset value - end of period $10.42 $10.11 $10.26
======== ======== ========
Total Return 6.18% * 3.70% 14.75%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets .55%* .55% .55%*
Ratio of net investment income to average net assets 5.43%* 6.36% 6.24%*
Portfolio turnover 31% 65% 42%
Net assets at end of period (000 omitted) $22,990 $15,261
$5,325
</TABLE>
The manager has agreed with the Fund to reduce its management fee and bear
certain expenses, such that the Fund's total expenses do not exceed .55% of
average daily net assets on an annualized basis. If the management fee reduction
and expenses borne by the manager had been borne by 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
$.24 $.44 $.19
Ratios (to average net assets):
Expenses 1.37%* 1.66% 2.50%*
Net investment income 4.61%* 5.25% 4.33%*
* Annualized.
** For the period from July 25, 1995 (commencement of operations) to December
1995.
(1) Distributions in excess of net investment income for the year ended December
31, 1996 were less than $.01 per share.
See notes to financial statements.
8
DLB FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
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, 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. 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.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value.
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 the Fund
to obtain those securities in the event of a default. 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.
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 (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is
necessary. At December 31, 1996, the Fund, for federal income tax
purposes, had $34,783 in capital loss carryforwards, which expire
December 31, 2004. To the extent permitted by the Internal Revenue
Code, capital loss carryovers will reduce taxable income arising from
future net realized gain on investments, if any, and thus will reduce
the amount of the distributions to shareholders that would otherwise be
necessary. The Fund files a tax return annually using tax accounting
methods required by the Code that 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 in 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.
9
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 the financial statements and tax-basis earnings and profits
may result in temporary over-distributions for financial statement
purposes, which are classified as distributions in excess of net
investment income or accumulated undistributed net realized gains.
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 engages David L. Babson & Co. Inc. ("DLB") to provide
investment advisory and administrative services and general office
facilities. The fee for such services is computed daily and paid
monthly at an effective annual rate of .40% of average daily net
assets. For the period ended June 30, 1997, the management fee amounted
to $29,814, of which $14,953 was waived by DLB. Additionally, $46,345
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 $5,391,137 $1,940,639
============= =============
Investments (non-U.S. government securities) $6,721,581 $2,757,387
============= =============
</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 $ 22,654,224
===============
Gross unrealized depreciation $ (85,312)
Gross unrealized appreciation 80,353
---------------
Net unrealized depreciation $ (4,959)
===============
10
5. SHARES OF BENEFICIAL INTEREST
The 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:
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
---------------- -----------------
Shares sold ....................... 841,053 974,836
Shares issued in reinvestment
of distributions ................ - 68,681
Redemptions ....................... (142,950) (53,152)
----------- ----------
Net increase .................... 698,103 990,365
=========== ==========
11
DLB
The DLB Global Small Cap Fund
SEMI ANNUAL REPORT
JUNE 30, 1997
[EXPERIENCE TO MANAGE THE FUTURE]
DLB GLOBAL SMALL CAP FUND
- --------------------------------------------------------------------------------
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 unique strength of two investment managers.
David L. Babson & Co. is the Fund's manager and manages approximately 50% of the
Fund's assets. Babson-Stewart Ivory International is the Fund's sub-advisor and
manages the remaining 50% of investable assets.
THE DOMESTIC PORTION OF THE PORTFOLIO (48.6%) HAD A STRONG FIRST SIX MONTHS OF
1997 FINISHING UP 16.08%, largely due to a very positive second quarter which
was up 14.69%. This compares to the Russell 2500 Index which was up 11.25% for
the six months and 15.11% for the second quarter.
THE EXCEPTIONAL RETURNS POSTED BY BOTH THE FUND AND THE INDEX DURING THE SECOND
QUARTER WERE REMARKABLY BROAD BASED. ALL SECTORS OF THE RUSSELL 2500, except
Utilities (up only 9%), posted double digit returns, although no sector was up
more than 21%. Included below are lists of the best and worst performing stocks
in the U.S. portion of the portfolio for the second quarter of 1997. The
diversity of the list is noteworthy, highlighting the fact that the Fund's
performance does not depend on any one sector or stock.
THERE WERE ONLY TWO PORTOFLIO CHANGES IN DOMESTIC HOLDINGS DURING THE SECOND
QUARTER, one of which was the addition of Newport News Shipbuilding which
designs, constructs and repairs nuclear aircraft carriers and submarines.
Alberto Culver, which had become fully valued, was sold
Best Performers Business Gain (%)
- --------------------------------------------------------------------------------
Octel Communications Voice Mails Systems 48.0
Metromail Corporation Information Services 45.0
Ralcorp Holdings Private Label Food/Ski Resorts 44.0
Central Newspapers Newspapers 34.0
BW/IP Incorporated Industrial Pumps/Valves 34.0
Underperformers Business Loss (%)
- --------------------------------------------------------------------------------
Stride Rite Shoes 13.0
Wallace Computer Services Business Forms 9.0
Willis Corroon Group Insurance Brokerage 8.0
Equitable Resources Oil & Gas Exploration/Gas Utility 7.0
Charming Shoppes Apparel Retailer 3.0
DLB GLOBAL SMALL CAP FUND
- --------------------------------------------------------------------------------
Manager's Commentary
DURING THE FIRST SIX MONTH OF 1997, THE INTERNATIONAL PORTION OF THE FUND'S
PORTFOLIO WAS ADVERSELY AFFECTED BY SMALL COMPANY PERFORMANCE. For the first six
months, the results were -5.98% versus 5.22% for the Salomon EMI World (ex U.S.)
Index. Performance improved somewhat in the second quarter with the portfolio up
1.4% versus 7.2% for the index.
PERFORMANCE WAS ADVERSELY BY THREE FACTORS: an overweighting in France where
small stocks failed to recover from a slump in the stock market following a
surprise Socialist victory in the general election; an overweighting in the Far
Eastern Tiger markets which were weak on the back of rising political and
economic tensions; and, an underweighting in Japan which was the strongest
performer over the quarter.
THE LARGEST INTERNATIONAL COUNTRY WEIGHTINGS AS OF JUNE 30, 1997, were the
United Kingdom-8.4%, France-8.3%, Japan-7.0%, and Hong Kong-5.7%.
Best Performers (Country) Business Gain (%)
- --------------------------------------------------------------------------------
Gewiss (Italy) Electrical Equipment 47.1
SKW Trostberg (Germany) Specialty Chemicals 40.9
Yamaichi Electronics (Japan) Manufacturer of IC Sockets 34.5
United Construction(Australia) Mining Services 32.1
Quinsa (Argentina) Brewer 27.4
Underperformers Business Loss (%)
- --------------------------------------------------------------------------------
Manutan (France) Small Industrial Supplies 22.6
CDL Hotels (Hong Kong) Regional Hotel Group 28.8
Eurotherm (UK) Electronics 30.0
Nihon Jumbo (Japan) Film Processing/Development 31.2
Thai Pineapple (Thailand) Fruit Production 67.5
DLB GLOBAL SMALL CAP FUND
- --------------------------------------------------------------------------------
Growth of a $100,000 Investment
Cumulative Total Return Since Inception 7/19/95
DLB GLOBAL COMBINED SALOMON EMI
SMALL CAP INDEX* (EX-US)
$100,000.00 $100,000.00 $100,000.00
JUL 95 $100,300.00 $105,860.00 $100,420.00
AUG 95 $98,795.50 $104,928.43 $97,879.37
SEP 95 $99,793.33 $111,454.98 $98,623.26
OCT 95 $98,396.23 $108,133.62 $95,782.91
NOV 95 $100,993.89 $111,572.27 $98,589.35
DEC 95 $104,013.61 $114,897.12 $102,365.32
JAN 96 $106,426.72 $116,390.79 $104,187.42
FEB 96 $109,853.66 $118,904.83 $105,812.75
MAR 96 $112,567.05 $121,508.84 $108,246.44
APR 96 $115,291.17 $127,584.29 $113,940.20
MAY 96 $116,605.49 $128,413.58 $113,017.29
JUN 96 $115,089.62 $126,795.57 $113,028.59
JUL 96 $109,450.23 $120,176.84 $108,756.11
AUG 96 $110,763.63 $123,758.11 $109,854.54
SEP 96 $111,062.69 $126,394.16 $110,469.73
OCT 96 $110,562.91 $125,762.19 $110,038.90
NOV 96 $113,481.77 $129,535.06 $111,843.53
DEC 96 $114,264.79 $128,952.15 $109,785.61
JAN 97 $110,996.82 $129,016.63 $107,414.24
FEB 97 $109,450.23 $120,465.27 $110,583.21
MAR 97 $108,749.74 $117,104.29 $109,112.45
APR 97 $106,737.87 $116,858.37 $107,486.68
MAY 97 $112,480.37 $125,903.21 $114,376.57
JUN 97 $116,507.17 $129,869.16 $116,961.48
*Salomon EMI (ex-U.S.), 60%
Russell 2500, 40%
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 6/30/97
- --------------------------------------------------------------------------------
6 Months One Year Annualized
1/1/97- 6/30/96- Since Inception
6/30/97 6/30/97 7/19/95-6/30/97
DLB GLOBAL SMALL CAP FUND 3.40 2.65 8.70
Combined Index 8.15 10.89 18.08
Salomon EMI (ex-US) 5.22 2.20 7.48
- --------------------------------------------------------------------------------
Disclosure Statement
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.
--------------------------------------
DLB Global Small
Capitalization Fund
Financial Statements for the
Six Months Ended June 30, 1997 and the
Year Ended December 31, 1996
DLB GLOBAL SMALL CAPITALIZATION FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL STATEMENTS:
Portfolio of Investments as of June 30, 1997 1 - 7
Statement of Assets and Liabilities as of June 30, 1997 8
Statement of Operations for the Six Months Ended June 30, 1997 9
Statements of Changes in Net Assets for the Six Months Ended June 30, 1997
and the Year Ended December 31, 1996 10
Financial Highlights for the Six Months Ended June 30, 1997, the Year Ended
December 31, 1996 and the Period from July 19, 1995 (commencement of
operations) to December 31, 1995 11
Notes to Financial Statements 12 - 15
</TABLE>
DLB GLOBAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS (Unaudited)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS - 97.9%
ISSUER SHARES VALUE
<S> <C> <C>
SPECIALTY CHEMICALS - 1.0%
Calgon Carbon Corporation 9,800 $ 135,975
-----------
METALS & MINING - 2.5%
Calmat Co. 7,600 163,400
Martin Marietta Materials 5,400 174,825
-----------
338,225
-----------
PAPER & FOREST PRODUCTS - 0.8%
Albany International Corp. 4,800 108,000
-----------
AEROSPACE - 2.4%
EG&G Inc. 6,000 135,000
Newport News Shipbuilding, Inc. 9,800 190,488
-----------
325,488
-----------
MACHINERY & EQUIPMENT - 3.0%
BW/IP, Inc. 7,600 154,375
Elsag Bailey * 7,100 130,463
Harsco Corporation 3,200 129,600
-----------
414,438
-----------
APPAREL - 2.3%
National Service Industries, Inc. 3,700 180,144
The Stride Rite Corporation 10,300 132,613
-----------
312,757
-----------
AUTO PARTS - 1.9%
Bandag Incorporated 3,000 146,063
The Standard Products Company 4,400 111,100
-----------
257,163
-----------
1
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
FURNITURE & APPLIANCES - 3.3%
Herman Miller, Inc. 5,400 $ 194,400
La-Z-Boy Chair Company 3,500 126,000
Stanhome Inc. 4,000 131,500
-----------
451,900
-----------
PRINTING & PUBLISHING - 3.8%
ACNielsen Corporation * 9,700 190,363
Central Newspapers Inc. 2,700 193,388
Lee Enterprises, Incorporated 5,100 134,513
-----------
518,264
-----------
GENERAL RETAIL - 1.9%
Duty Free International Inc. 3,900 73,125
Fred Meyer Inc. * 3,700 191,244
-----------
264,369
-----------
SPECIALTY RETAIL - .9%
Charming Shoppes Inc. * 24,100 125,771
-----------
WHOLESALERS - .9%
Waban Inc. * 3,700 119,094
-----------
FOOD PRODUCERS - 1.4%
Ralcorp Holdings Inc. * 10,300 151,925
Rykoff-Sexton Co. 1,700 39,631
-----------
191,556
-----------
TOBACCO - 1.6%
Dimon Incorporated 8,300 219,950
-----------
COAL GAS & PIPE - 1.4%
Cabot Oil & Gas Corporation 1,300 22,913
Nabors Industries, Inc. * 6,600 165,000
-----------
187,913
-----------
EXPLORATION & DRILLING - .9%
Global Industrial Technologies Inc. * 6,200 127,100
-----------
2
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
DOMESTIC OIL - .9%
Quaker State Corporation 7,800 $ 118,950
-----------
BANKS - 3.1%
Dime Bancorp, Inc. 6,600 115,500
First Security CP Corporation 5,425 148,170
Glendale Federal Bank FSB * 6,400 167,200
-----------
430,870
-----------
INSURANCE - 2.9%
Hartford Steam Boiler 2,200 117,425
Western National Corporation 6,600 176,963
Willis Corroon Group 8,800 98,450
-----------
392,838
-----------
PROFESSIONAL SERVICES - 2.3%
Metromail Corporation * 6,600 163,350
Policy Management Systems Corporation * 3,300 155,100
-----------
318,450
-----------
COMPUTERS - 1.4%
Gerber Scientific Inc. 9,500 187,625
-----------
ELECTRONICS & INSTRUMENTS - 1.7%
Intergraph Corporation * 15,400 130,900
Scitex Corporation Ltd. 12,000 105,750
-----------
236,650
-----------
OFFICE EQUIPMENT - 1.2%
Wallace Computer Services 5,300 159,331
-----------
TELECOMMUNICATIONS - 1.0%
Octel Communications Corporation * 5,700 133,593
-----------
TRANSPORTATION - .7%
Fritz Companies Inc. * 10,400 100,750
-----------
3
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
TRUCKING & SHIPPING - 1.6%
Alexander & Baldwin Inc. 4,600 $ 120,175
J.B. Hunt Transport Services, Inc. 6,400 95,200
-----------
215,375
-----------
NATURAL GAS - .7%
Equitable Resources, Inc. 3,400 96,475
-----------
FOREIGN COMMON STOCKS
UNITED KINGDOM - 8.4%
Allied Colloids Group PLC 57,728 120,998
Peter Black Holdings PLC 19,000 102,464
N Brown Group PLC 20,000 126,426
Cattles Holdings 20,000 100,808
Devro International PLC 26,000 147,053
Eurotherm PLC 8,000 48,441
Fairey Group PLC 11,300 91,544
Seton Healthcare Group 13,000 94,071
Spirax-Sarco Engineering PLC 12,000 136,740
St. James Place Capital 41,000 89,347
UniChem PLC 21,300 90,884
-----------
1,148,776
-----------
BELGIUM - 1.6%
Colruyt SA 450 219,576
-----------
FRANCE - 8.3%
Bioblock Scientific 2,500 123,915
Brioche Pasquier 1,300 154,946
STE Guilbert 1,200 170,058
Europeenne D'Extincteurs 2,000 137,579
M6 (Metropole Television) 1,750 166,865
Societe Manutan 2,000 139,622
Royal Canin * 3,000 144,049
Spir Communication 1,400 107,628
-----------
1,144,662
-----------
4
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
GERMANY - 3.5%
MLP Preferred, Non Vtg ** 750 $ 178,571
SKW Trostberg 6,000 202,754
Sto AG-OS Vorzugs ** 250 104,561
-----------
485,886
-----------
ITALY - 2.2%
Gewiss SPA 10,000 171,487
Industrie Natuzzi SPA 5,000 128,125
-----------
299,612
-----------
NETHERLANDS - 1.5%
Nutricia Verenidge Bedrijven 1,300 205,424
-----------
NORWAY - .7%
Tomra Systems 5,000 102,474
-----------
SWEDEN - 1.1%
Cardo AB 5,000 148,345
-----------
SWITZERLAND - 3.3%
Disotronic 70 141,678
Fotolabo SA 500 159,247
Phoenix Mecano 300 156,164
-----------
457,089
-----------
AUSTRALIA - 1.1%
United Construction Group Ltd. 76,562 149,614
-----------
NEW ZEALAND - .9%
Guinness Peat Group PLC 206,305 127,831
-----------
JAPAN - 7.0%
Aderans 3,000 85,392
Altech 2,000 49,769
Arrk 3,000 64,175
5
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
JAPAN (CONTINUED)
Daiwa Industries 12,000 $ 112,110
FCC Co. Ltd. 3,300 83,558
Furusato Industries 9,000 91,155
Hikari Tsushin 1,000 94,298
Namco 2,000 77,185
Nihon Jumbo 5,160 125,249
Union Tool 4,400 128,700
Yamaichi Electronics CP Ltd. 2,000 53,087
-----------
964,678
-----------
HONG KONG - 5.7%
CDL Hotels International 195,000 79,284
Chen Hsong Holdings 150,000 87,125
Gold Peak Industrial 150,000 96,805
South China Morning Post 150,000 147,144
USI Holdings 200,000 58,083
Vitasoy International Holdings Ltd. 250,000 112,133
V-Tech Holdings 40,000 75,379
YGM Trading 100,000 121,329
-----------
777,282
-----------
INDONESIA - .7%
Multi Bintang 5,500 100,928
-----------
MALAYSIA - .8%
Jaya Jusco Stores 6,000 20,440
Perlis Plantations Berhad 30,000 87,938
-----------
108,378
-----------
PHILIPPINES - .4%
Fil-Estate Land 200,000 58,329
-----------
SINGAPORE - 1.3%
Tibs Holdings 40,000 54,258
Tiger Medicals 50,000 62,229
United Industrial Corp. 90,000 67,963
-----------
184,450
-----------
6
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
THAILAND - 1.4%
Matichon Public Co. Ltd. Foreign 24,000 $ 57,600
Saha Pathana Interholding 35,000 77,000
Thai Pineapple F/R 47,000 36,660
Thai Pineapple L/R 25,000 19,500
-----------
190,760
-----------
ARGENTINA - .6%
Quilmes Industries SA ** 2,400 27,900
Quilmes Industries SA 4,800 49,200
-----------
77,100
-----------
Total Common and Preferred Stocks
(identified cost, $11,373,110)
13,440,064
-----------
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 2.1%
Bank of New York, dated 6/30/97, due 7/1/97
(secured by U.S. Treasury Notes) $286,664 286,664
-----------
Total investments (identified cost, $11,659,774) 13,726,728
Other assets, less liabilities 4,606
-----------
Net Assets - 100% $13,731,334
===========
</TABLE>
* Non-income producing securities.
** Preferred stock.
See notes to financial statements.
7
DLB GLOBAL SMALL CAPITALIZATION FUND
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (identified cost, $11,659,774) $13,726,728
Dividends and interest receivable 25,584
Receivable from investment manager 22,802
Other 14,369
-------------
13,789,483
-------------
LIABILITIES:
Management fees 25,539
Accrued expenses 32,610
-------------
58,149
-------------
NET ASSETS $13,731,334
=============
NET ASSETS CONSIST OF:
Paid-in capital $12,079,463
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies 2,066,444
Accumulated net realized loss on investments and
foreign currency transactions (436,849)
Accumulated undistributed net investment income 22,276
-------------
Total $13,731,334
=============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,186,935
=============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER
SHARE (NET ASSETS/SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 11.57
=============
</TABLE>
See notes to financial statements.
8
DLB GLOBAL SMALL CAPITALIZATION FUND
STATEMENT OF OPERATIONS (Unaudited)
SIX MONTHS ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $8,410) $ 106,062
Interest 9,367
----------
115,429
----------
EXPENSES:
Management fee 61,901
Trustees' fees 2,728
Custodian fees 38,233
Legal fees 13,644
Accounting and audit fees 14,978
Registration fees 6,802
Transfer agent fees 3,968
Miscellaneous 165
----------
142,419
Preliminary reduction of expenses by investment manager (49,620)
----------
Net expenses 92,799
----------
Net investment income 22,630
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized loss (identified cost basis):
Investment transactions (391,503)
Foreign currency transactions and forward foreign currency exchange
contracts and other transactions denominated in foreign currency (540)
----------
Net realized loss on investments and foreign currency (392,043)
-----------
Change in unrealized appreciation (depreciation):
Investments 826,832
Foreign currency and forward foreign currency exchange contracts and other
transactions denominated in foreign currency (433)
----------
Net unrealized gain on investments and foreign currency 826,399
----------
Net realized and unrealized gain on investments and foreign
currency 434,356
----------
Increase in net assets from operations $ 456,986
==========
</TABLE>
See notes to financial statements.
9
DLB GLOBAL SMALL CAPITALIZATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1997 1996
----------------- --------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 22,630 $ 11,312
Net realized gain (loss) on investments and foreign currency (392,043) 153,011
Net unrealized appreciation on investments and foreign currency 826,399 868,114
------------- --------------
456,986 1,032,437
------------- --------------
Distributions to shareholders:
From net investment income - (10,427)
From net realized gain on investments - (117,741)
In excess of net realized gain on investments - (46,438)
------------- --------------
- (174,606)
------------- --------------
Fund share transactions:
Net proceeds from sale of shares 813,497 1,136,330
Net asset value of shares issued in
reinvestment of distributions - 174,606
Cost of shares reacquired (124,753) (92,441)
------------- --------------
688,744 1,218,495
------------- --------------
Total increase in net assets 1,145,730 2,076,326
NET ASSETS:
At beginning of period 12,585,604 10,509,278
============= ==============
At end of period (including accumulated undistributed (distributions
in excess of) net investment income of $22,276 and ($354),
respectively) $13,731,334 $12,585,604
============= ==============
</TABLE>
See notes to financial statements.
10
DLB GLOBAL SMALL CAPITALIZATION FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended Period Ended
Ended December 31, December 31,
June 30, 1997 1996 1995 **
---------------- ---------------- -------------
(Unaudited)
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period
$11.19 $10.33 $10.00
-------- -------- --------
Income from investment operations:
Net investment income .02 .01 .07
Net realized and unrealized gain on investments
.36 1.01 .33
-------- -------- --------
.38 1.02 .40
-------- -------- --------
Less distributions to shareholders:
From net investment income - (.01) (.07)
From net realized gain on investments - (.11) -
In excess of net realized gain on investments - (.04) -
-------- -------- --------
- (.16) (.07)
-------- -------- --------
Net asset value - end of period $11.57 $11.19 $10.33
======== ======== ========
Total Return 6.85%* 9.85% 8.96%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 1.50%* 1.50% 1.46%*
Ratio of net investment income to average net assets .37%* .09% 1.46%*
Portfolio turnover 22% 22% 5%
Average commission rate paid (1) $.01011 $.01170 -
Net assets at end of period (000 omitted) $13,731 $12,586 $10,509
The manager has agreed with the Fund to reduce its management fee and bear
certain expenses, such that the Fund's total expenses do not exceed 1.50% of
average daily net assets on an annualized basis. If the management fee reduction
and expenses borne by the manager had been borne by 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) $(.02) $(.10) $.02
Ratios (to average net assets):
Expenses 2.30%* 2.36% 2.50%*
Net investment income (loss) (.44)%* (.77)% .42%*
</TABLE>
* 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.
See notes to financial statements.
11
DLB GLOBAL SMALL CAPITALIZATION FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
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.
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. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value.
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 the Fund
to obtain those securities in the event of a default. 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.
FOREIGN CURRENCY TRANSLATION - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted
each business day into U.S. dollars at current exchange rates.
Purchases and sales of foreign investments and income and expenses are
converted into U.S. dollars at currency exchange rates prevailing on
the respective dates of such transactions. Security transaction gains
and losses attributable to changes in foreign currency exchange rates
are recorded for financial statement purposes as net realized gains and
losses on investments. Income and expense gains and losses that are
attributable to changes in foreign exchange rates are recorded for
financial statement purposes as foreign currency transaction gains and
losses. The portion of both realized and unrealized gains and losses on
investments that results from fluctuations in foreign currency exchange
rates is not separately disclosed.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The Fund may enter into
forward foreign currency exchange contracts for the purchase or sale of
a specific foreign currency at a fixed price on a future date. The
risks associated with these contracts include the possible inability of
counterparties to meet the terms of the contracts and from
unanticipated movements in the value of a foreign currency relative to
the U.S. dollar. The Fund enters 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 resulting from unfavorable exchange rate movements. Forward
foreign currency exchange contracts are adjusted by the daily change in
the exchange rates of the underlying currencies, and any gains or
losses are recorded for financial statement purposes as unrealized
until the contract settlement date.
12
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 (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is
necessary. The Fund files a tax return annually using tax accounting
methods required by the Code that 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 in 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 are provided with respect to interest and
dividend income earned in foreign currencies in accordance with
applicable tax rates 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 the financial statements and tax-basis earnings and profits
may result in temporary over-distributions for financial statement
purposes, which are classified as distributions in excess of net
investment income or accumulated undistributed net realized gains.
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 engages David L. Babson & Co. Inc. ("DLB") to provide
investment advisory and administrative services, and general office
facilities. The fee for such service is computed daily and paid monthly
at an effective annual rate of 1.00% of average daily net assets. For
the period ended June 30, 1997, the management fee amounted to $61,901,
of which $12,409 was waived by DLB. Additionally, $37,211 of Fund
expenses were borne by DLB.
DLB has entered into a sub-advisory agreement with Babson-Stewart Ivory
International ("BSII") with respect to the management of the
international component of the Fund's portfolio. Under the sub-advisory
agreement, DLB pays BSII a monthly fee at the annual rate of .50% of
average daily net assets.
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 $3,263,480 and $2,642,586, respectively.
13
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 $11,659,774
===============
Gross unrealized appreciation $ 2,650,635
Gross unrealized depreciation (583,681)
---------------
Net unrealized appreciation $ 2,066,954
===============
5. SHARES OF BENEFICIAL INTEREST
The 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:
Six Months Year Ended
Ended December 31,
June 30, 1997 1996
----------------- ---------------
Shares sold 73,200 100,497
Shares issued in reinvestment
of distributions - 15,604
Redemptions (11,189) (8,189)
========= ===========
Net increase 62,011 107,912
========= ===========
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 such market risks as changes in interest rates and 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
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. The Fund did not
have any open financial instruments at June 30, 1997.
14
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 that 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 government supervision and regulation of foreign securities
markets, broker-dealers, and issuers than in the United States.
15
DLB
THE DLB MID CAPITALIZATION FUND
SEMI ANNUAL REPORT
JUNE 30, 1997
[EXPERIENCE TO MANAGE THE FUTURE]
DLB MID CAP FUND
- --------------------------------------------------------------------------------
Manager's Commentary
THE DLB MID CAP FUND GAINED 14.69% IN THE SECOND QUARTER, BRINGING THE
YEAR-TO-DATE RETURN TO 16.68%. This compared to a 15.11% return for the quarter
and an 11.25% return, year-to-date, for the Russell 2500 Index. The second
quarter was slightly more rewarding to growth stocks than to value stocks, and
the Fund trailed the index by a small amount. The year-to-date return remains
well ahead of the benchmark.
THE HUGE RETURNS TURNED IN THE SECOND QUARTER BY BOTH THE INDEX AND THE FUND
WERE REMARKABLY BROAD BASED. All sectors of the Russell 2500, save Utilities (up
only 9%), posted double digit gains, although no sector was up more than 21%.
Included below are lists of the best and worst performing stocks in the DLB Mid
Cap Fund for the second quarter of 1997. The diversity of the list is
noteworthy, highlighting the fact that the Fund's performance does not depend on
any one sector or stock.
THE FUND HAD A NUMBER OF STOCKS POST NOTABLE GAINS IN THE SECOND QUARTER. Octel
Communications rebounded from last fall's new product delays and announced a new
alliance to sell its integrated voice management product (which allows users to
receive e-mail over the phone and voice mail through their computers) with
Microsoft. Metromail reported higher than expected earnings and sales growth.
Ralcorp continues to work to turn around its core private label cereal division.
The stock moved up on news of considerable insider buying. Central Newspapers
posted very strong operating results and nice increases in linage growth for
both its Indianapolis and Phoenix newspapers. BW/IP agreed to be acquired by
Durco, a competing pump and valve operation.
Best Performers Business Gain (%)
- --------------------------------------------------------------------------------
Octel Communications Voice Mails Systems 48.0
Metromail Corporation Information Services 45.0
Ralcorp Holdings Private Label Food/Ski Resorts 44.0
Central Newspapers Newspapers 43.0
BW/IP Incorporated Industrial Pumps/Valves 34.0
DLB MID CAP FUND
- --------------------------------------------------------------------------------
Manager's Commentary
Underperformers Business Loss (%)
- --------------------------------------------------------------------------------
Stride Rite Shoes 13.0
Wallace Computer Services Business Forms 9.0
Willis Corroon Group Insurance Brokerage 8.0
Equitable Resources Oil & Gas Exploration/Gas Utility 7.0
Charming Shoppes Apparel Retailer 3.0
AS YOU CAN SEE FROM THIS LIST, THE FUND DID NOT HAVE ANY MAJOR LOSERS IN THE
QUARTER. Stride Rite pulled back a little after its strong first quarter
performance. We are patiently awaiting a pick-up at the company's Keds division.
Meanwile, results from Stride Rite's Tommy Hilfiger business continue to exceed
expectations. Wallace Computer pre-announced disappointing results for its
fiscal third quarter ending in April. We feel the factors behind the
announcement are temporary, and the stock remains well positioned to show good
sales and earnings growth, going forward. Willis Corroon continues to work
through a comprehensive restructuring effort. Equitable Resources won several
large energy outsourcing contracts, but the stock remains neglected by other
investors. Charming Shoppes suffered a generally weak spring, as did other
retailers.
WE ADDED ONE NEW POSITION TO THE FUND IN THE SECOND QUARTER. Newport News
Shipbuilding designs, constructs and repairs nuclear aircraft carriers and
submarines.
ONE POSITION WAS ELIMINATED. Alberto Culver was sold at a sizable gain. After a
nice move in the stock, we felt the company had become very fully valued.
EVEN WITH THE INCREDIBLE PERFORMANCE IN THE SECOND QUARTER, SMALL AND MID CAP
STOCKS CONTINUE TO LAG THE GAINS TURNED IN BY LARGER COMPANIES IN 1997. The
market has focused more and more on liquidity as the amounts of money flowing
into stocks has continued to balloon, forcing managers to get these dollars
invested as quickly as possible. Also, the high relative level of valuation has
caused investors to seek larger, more easily traded securities.
WHILE IT IS HARD FOR US TO PROJECT THE MARKET CONTINUING UPWARD AT ITS CURRENT
PACE, IT IS CERTAINLY POSSIBLE THAT CURRENT VALUATION MEASURES MAY BE WITH US
FOR A WHILE.
DLB MID CAP FUND
- --------------------------------------------------------------------------------
Growth of a
$100,000 Investment Cumulative Total Return Since Inception 7/25/95
DLB MID CAP RUSSELL 2500
$100,000.00 $100,000.00
31-JUL-95 $100,500.00 $103,140.00
31-AUG-95 $99,696.00 $104,790.24
30-SEP-95 $100,792.66 $106,749.82
31-OCT-95 $98,595.38 $103,408.55
30-NOV-95 $106,897.11 $107,824.09
31-DEC-95 $109,270.22 $109,667.89
31-JAN-96 $111,302.65 $110,446.53
28-FEB-96 $114,652.86 $113,770.97
31-MAR-96 $117,702.62 $116,091.9O
30-APR-96 $119,232.76 $121,455.34
30-MAY-96 $121,879.73 $124,746.78
30-JUN-96 $119,746.83 $120,917.05
31-JUL-96 $112,118.96 $112,065.93
31-AUG-96 $116,087.97 $118,509.72
30-SEP-96 $117,202.41 $123,641.19
31-OCT-96 $115,983.51 $122,825.16
30-NOV-96 $122,188.63 $128,757.61
31-DEC-96 $125,402.19 $130,521.59
31-JAN-97 $126,380.32 $134,123.99
28-FEB-97 $127,467.19 $132,125.54
31-MAR-97 $127,581.91 $126,140.25
30-APR-97 $127,581.91 $127,729.62
31-MAY-97 $137,711.92 $139,493.52
30-JUN-97 $146,318.91 $145,198.80
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 6/30/97
- --------------------------------------------------------------------------------
6 Months One Year Annualized
1/1/97- 6/30/96- Since Inception
6/30/97 6/30/97 7/25/95-6/30/97
DLB MID CAPITALIZATION FUND 16.68 22.18 20.96
Russell 2500 11.25 20.09 20.50
- --------------------------------------------------------------------------------
Disclosure Statement
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.
----------------------------------------
DLB MID CAPITALIZATION FUND
FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND THE
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
DLB MID CAPITALIZATION FUND
TABLE OF CONTENTS
- ------------------------------------------------------------------------------------------------------
<S> <C>
FINANCIAL STATEMENTS:
Portfolio of Investments as of June 30, 1997 1 - 4
Statement of Assets and Liabilities as of June 30, 1997 5
Statement of Operations for the Six Months Ended June 30, 1997 6
Statements of Changes in Net Assets for the Six Months Ended June 30, 1997
and the Year Ended December 31, 1996 7
Financial Highlights for the Six Months Ended June 30, 1997, 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 - 10
</TABLE>
<TABLE>
<CAPTION>
DLB MID CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
- ------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 95.1%
ISSUER SHARES VALUE
<S> <C> <C>
SPECIALTY CHEMICALS - 2.0%
Calgon Carbon Corporation 25,500 $ 353,813
----------
METALS & MINING - 5.0%
Calmat Co. 19,600 421,400
Martin Marietta Materials 13,900 450,013
----------
871,413
----------
PAPER & FOREST PRODUCTS - 1.6%
Albany International Corp. 12,100 272,250
----------
AEROSPACE - 4.8%
EG&G Inc. 15,100 339,750
Newport News Shipbuilding, Inc. 25,600 497,600
----------
837,350
----------
MACHINERY & EQUIPMENT - 6.0%
BW/IP, Inc. 19,000 385,938
Elsag Bailey * 17,900 328,913
Harsco Corporation 8,200 332,100
----------
1,046,951
----------
APPAREL - 4.5%
National Service Industries, Inc. 9,300 452,794
The Stride Rite Corporation 25,400 327,025
----------
779,819
----------
AUTO PARTS - 4.0%
Bandag Incorporated 8,500 413,844
The Standard Products Company 11,000 277,750
----------
691,594
----------
1
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE
FURNITURE & APPLIANCES - 6.8%
Herman Miller, Inc. 14,800 532,800
La-Z-Boy Chair Company 8,700 313,200
Stanhome Inc. 10,400 341,900
----------
1,187,900
----------
PRINTING & PUBLISHING - 7.7%
ACNielsen Corporation * 25,200 494,550
Central Newspapers, Inc. 6,900 494,213
Lee Enterprises, Inc. 13,200 348,150
----------
1,336,913
----------
GENERAL RETAIL - 3.8%
Duty Free International Inc. 10,000 187,500
Fred Meyer Inc. * 9,200 475,525
----------
663,025
----------
SPECIALTY RETAIL - 1.9%
Charming Shoppes Inc. * 62,000 323,559
----------
WHOLESALERS - 1.7%
Waban Inc. * 9,300 299,344
----------
FOOD PRODUCERS - 2.9%
Ralcorp Holdings Inc. * 26,800 395,300
Rykoff-Sexton Co. 4,500 104,906
----------
500,206
----------
TOBACCO - 3.2%
Dimon Incorporated 21,400 567,100
----------
COAL GAS & PIPE - 2.7%
Cabot Oil & Gas Corporation 3,100 54,638
Nabors Industries, Inc. * 16,400 410,000
----------
464,638
----------
EXPLORATION & DRILLING - 1.8%
Global Industrial Technologies Inc. * 15,500 317,750
----------
2
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE
DOMESTIC OIL - 1.7%
Quaker State Corporation 19,600 $ 298,900
----------
BANKS - 6.3%
Dime Bancorp, Inc. 17,100 299,250
First Security CP Corporation 14,100 385,106
Glendale Federal Bank FSB * 16,000 418,000
----------
1,102,356
----------
INSURANCE - 5.6%
Hartford Steam Boiler 5,400 288,225
Western National Corp. 16,600 445,088
Willis Corroon Group 22,100 247,244
----------
980,557
----------
PROFESSIONAL SERVICES - 4.7%
Metromail Corporation * 17,100 423,225
Policy Management Systems Corporation * 8,500 399,500
----------
822,725
----------
COMPUTERS - 2.8%
Gerber Scientific Inc. 24,700 487,825
----------
ELECTRONICS & INSTRUMENTS - 3.5%
Intergraph Corporation * 40,000 340,000
Scitex Corporation Ltd. 31,100 274,069
----------
614,069
----------
OFFICE EQUIPMENT - 2.3%
Wallace Computer Services 13,600 408,850
----------
TELECOMMUNICATIONS - 1.9%
Octel Communications Corporation * 14,200 332,813
----------
TRANSPORTATION - 1.5%
Fritz Companies Inc. * 27,000 261,563
----------
3
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE
TRUCKING & SHIPPING - 3.2%
Alexander & Baldwin Inc. 12,000 313,500
J.B. Hunt Transport Services, Inc. 16,200 240,975
----------
554,475
----------
NATURAL GAS - 1.4%
Equitable Resources, Inc. 8,700 246,863
----------
Total common stocks (identified cost, $13,238,857) 16,624,621
----------
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 4.8%
Bank of New York, dated 6/30/97, due 7/1/97
(secured by U.S. Treasury Notes) $845,467 845,467
----------
Total investments (identified cost, $14,084,324) 17,470,088
Other assets, less liabilities
2,702
----------
NET ASSETS - 100% $ 17,472,790
============
</TABLE>
* Non-income producing security.
See notes to financial statements.
4
<TABLE>
<CAPTION>
DLB MID CAPITALIZATION FUND
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
JUNE 30, 1997
- ----------------------------------------------------------------------------------------------------------
ASSETS:
<S> <C>
Investments, at value (identified cost, $14,084,324) $17,470,088
Dividends and interest receivable 24,738
Receivable from investment manager 15,032
Receivable for fund shares sold 3,021
-------------
17,512,879
-------------
LIABILITIES:
Management fees 11,899
Accrued expenses 28,190
-------------
40,089
-------------
NET ASSETS $17,472,790
=============
NET ASSETS CONSIST OF:
Paid-in capital $13,510,718
Unrealized appreciation on investments 3,385,764
Accumulated undistributed net realized gain on investments 505,974
Accumulated undistributed net investment income 70,334
-------------
$17,472,790
=============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,300,871
=============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER
SHARE (NET ASSETS/SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 13.43
=============
</TABLE>
See notes to financial statements.
5
<TABLE>
<CAPTION>
DLB MID CAPITALIZATION FUND
STATEMENT OF OPERATIONS (Unaudited)
SIX MONTHS ENDED JUNE 30, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $560) $ 114,287
Interest 23,783
------------
138,070
------------
EXPENSES:
Management fee 44,996
Trustees' fees 2,728
Custodian fee 28,482
Legal fees 13,644
Accounting and audit fees 13,367
Transfer agent fees 3,968
Miscellaneous 6,967
------------
114,152
Preliminary reduction of expenses by investment manager (46,773)
------------
Net expenses 67,379
------------
Net investment income 70,691
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (identified cost basis) 506,342
Change in unrealized appreciation 1,873,973
------------
Net realized and unrealized gain on investments 2,380,315
------------
Increase in net assets from operations $2,415,006
============
</TABLE>
See notes to financial statements.
6
<TABLE>
<CAPTION>
DLB MID CAPITALIZATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
Six Months Year Ended
Ended December 31,
June 30,1997 1996
-------------------- --------------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 70,691 $ 159,975
Net realized gain on investments 506,342 755,181
Net unrealized appreciation on investments 1,873,973 760,116
------------- --------------
2,451,006 1,675,272
------------- --------------
Distributions to shareholders:
From net investment income - (160,207)
In excess of net investment income - (357)
From net realized gain on investments - (755,181)
In excess of net realized gain on investments - (368)
------------- --------------
- (916,113)
------------- --------------
Fund share transactions:
Net proceeds from sale of shares 1,567,800 1,176,534
Net asset value of shares issued in
reinvestment of distributions - 916,113
Cost of shares reacquired (235,731) (90,965)
------------- --------------
1,332,069 2,001,682
------------- --------------
Total increase in net assets 3,783,075 2,760,841
NET ASSETS:
At beginning of period 13,689,715 10,928,874
------------- ---------------
At end of period (including accumulated undistributed (distributions
in excess of) net investment income of $70,334 and
($357), respectively) $17,472,790 $13,689,715
============= ==============
</TABLE>
See notes to financial statements.
7
<TABLE>
<CAPTION>
DLB MID CAPITALIZATION FUND
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
Six Months Year Ended Period Ended
Ended December 31, December 31,
June 30, 1997 1996 1995 **
---------------- ---------------- -----------------
<S> <C> <C> <C>
(Unaudited)
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $11.51 $10.75 $10.00
-------- -------- -------
Income from investment operations:
Net investment income .03
.15 .08
Net realized and unrealized gain on investments 1.89 1.44 .84
-------- -------- -------
1.92 1.59 .92
-------- -------- -------
Less distributions to shareholders:
From net investment income (2) - (.15) (.08)
From net realized gain on investments (3) - (.68) (.09)
-------- -------- -------
- (.83) (.17)
-------- -------- -------
Net asset value - end of period $13.43 $11.51 $10.75
Total Return 33.67% * 14.75% 21.17% *
Ratios and Supplemental Data:
Ratio of expenses to average net assets .90% * .90% .90% *
Ratio of net investment income to average net assets .94% * 1.28% 1.90% *
Portfolio turnover 20% 25% 6%
Average commission rate paid (1) $.0510 $.05270 -
Net assets at end of period (000 omitted) $17,473 $13,690 $10,929
</TABLE>
The manager has agreed with the Fund to reduce its management fee and bear
certain expenses, such that the Fund's total expenses do not exceed .90% of
average daily net assets on an annualized basis. If the management fee reduction
and expenses borne by the manager had been borne by 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:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net investment income $.01 $.05 $.01
Ratios (to average net assets):
Expenses 1.52% * 1.77% 2.50% *
Net investment income .32% * .41% .32% *
</TABLE>
* 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 six months ended
June 30, 1996 were less than $.01 per share.
(3) Distributions in excess of net realized gain on investments for the six
months ended June 30, 1996 were less than $.01 per share.
See notes to financial statements.
8
DLB MID CAPITALIZATION FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
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.
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. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value.
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 the Fund
to obtain those securities in the event of a default. 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.
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 (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is
necessary. The Fund files a tax return annually using tax accounting
methods required by the Code that 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 the financial statements and tax-basis earnings and profits
may result in temporary over-distributions for financial statement
purposes, which are classified as distributions in excess of net
investment income or accumulated undistributed net realized gains.
9
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 engages David L. Babson & Co. Inc. ("DLB") to provide
investment advisory and administrative services, and general office
facilities. The fee for such services is computed daily and paid
monthly at an effective annual rate of .60% of average daily net
assets. For the period ended June 30, 1997, the management fee amounted
to $44,996, of which $22,537 was waived by DLB. Additionally, $24,236
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 $3,526,047 and $2,837,328, 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 $14,084,324
============
Gross unrealized appreciation $ 3,824,756
Gross unrealized depreciation (438,992)
------------
Net unrealized appreciation $ 3,385,764
============
5. SHARES OF BENEFICIAL INTEREST
The 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:
Six Months Period Ended
Ended June 30, December 31,
1997 1996
-------------- -------------
Shares sold 131,797 100,908
Shares issued in reinvestment
of distributions - 79,593
Redemptions (20,153) (7,818)
========== ==========
Net increase 111,644 172,683
========== ==========
10
DLB
THE DLB VALUE FUND
SEMI ANNUAL REPORT
JUNE 30, 1997
[EXPERIENCE TO MANAGE THE FUTURE]
DLB VALUE FUND
- --------------------------------------------------------------------------------
Manager's Commentary
AT THE CLOSE OF THE FIRST HALF OF 1997, NET ASSETS OF THE DLB VALUE FUND HAD
REACHED $35.96 MILLION, UP SHARPLY FROM $19.1 MILLION AT THE END OF 1996. The
Fund returned 11.6% for the second quarter of 1997 lagging the average growth
and income fund return of 14.3%. The S&P 500 Index posted a strong 17.4% gain
for the quarter. Total return for the Fund (appreciation plus income), was 13.9%
for the six months ended June 30, 1997. For the same period, the average growth
and income fund returned 15.5%, and the return of the unmanaged S&P 500 Index
was 20.6%.
ON AN UNWEIGHTED BASIS, RETURNS OF THE 500 S&P COMPANIES AVERAGED ONLY 16.3% FOR
THE LAST SIX MONTHS. This market capitalization weighted index was dominated by
strong performances of the largest companies. Many of these are consumer staple
growth companies such as Coca Cola, Warner Lambert, Gillette, Pfizer and Eli
Lilly which trade at multiples of 34 to 41 times 1997 estimated earnings, or
technology growth companies such as Microsoft, Lucent and Cisco which trade at
multiples of 48, 33 and 33 times estimated 1997 earnings, respectively.
THE FIFTY COMPANIES WITH THE LARGEST MARKET CAPITALIZATIONS IN THE S&P 500 HAD
AVERAGE TOTAL RETURNS OF 25.9% FOR THE SIX months, while the other 450 companies
had average returns of only 15.2%. The biggest fifty, only 10% of the total
number of companies, carry 49% of the weight in the index. This helps to explain
why mutual funds have had a hard time outperforming the S&P 500 recently,
causing a surge of interest in index funds. The popularity of the new "nifty
fifty" of the nineties has produced a wide spread in P/E's...wider, perhaps,
than is justified by quality or growth prospects. We don't know if the spread
will narrow by the multiples of the nifty fifty coming back toward the pack, or
by generally increasing multiples among the rest of the companies. Either way, a
period of underperformance by the S&P 500 would be the result.
THE MARKET STYLE PREFERENCE HAS CONTINUED STRONGLY IN THE GROWTH CAMP SO FAR
THIS YEAR, extending the period since the last style shift among large cap
stocks, as measured by the S&P/BARRA Growth and Value Indices, to nearly three
and three quarters years. The longest period in which one style has remained in
favor was three years.
DLB VALUE FUND
- --------------------------------------------------------------------------------
Manager's Commentary
Through May 31, 1997, the latest data available, the S&P/BARRA Growth Index
returned 18.6%, while its value counterpart only produced 12.2%. While these are
frustrating times for value investors, absolute returns are good by historic
measures, and we remain confident that another style shift will, ultimately,
occur as they always have in the past.
PORTFOLIO TURNOVER HAS REMAINED LOW REFLECTING THE CONTINUED EMPHASIS ON
COMPANIES WITH PRICE MOMENTUM IN THE STOCK MARKET. In the first half, only two
companies were eliminated, PHH and ABM. PHH was acquired by HFS, a leading
franchiser of hotels, motels, and real estate brokerage businesses. HFS had been
expanding rapidly by acquisition, and its stock traded at a lofty P/E of over 40
times earnings. The merger involved an exchange of stock and, since we did not
want to hold the stock of the acquirer, we sold our PHH shares. Over the
twenty-one month holding period for PHH the stock appreciated 106% from initial
purchase to sale, while the S&P 500 rose 38%. The proceeds were invested in The
Limited, a leading specialty retailer based in Columbus, Ohio. This company is
rebounding from an earnings disappointment in fiscal 1996, and its shares sell
at 16 times estimated 1997 earnings, and only 14 times the 1998 estimate.
WE ALSO SOLD ABM INDUSTRIES. Like PHH, ABM was also first acquired in the
initial round of purchases in the summer of 1995. It was the smallest company in
the portfolio in terms of market capitalization. The shares did well for us,
rising from an initial purchase price of 125/8 to 19, about 47% after
commissions. Over the same period, the S&P 500 increased about 41%. The shares
had rebounded from lows of 151/2 in September and December of last year and were
fairly fully valued at 19 in March. This gave us an opportunity to gradually
sell our position over three months without significantly impacting the market
price.
THE REPLACEMENT FOR ABM IN THE FUND IS ILLINOVA, the holding company for
Illinois Power. Utility shares have been weak in the generally rising interest
rate environment since the beginning of 1996. Illinova's shares declined over
30% during that period.
DLB VALUE FUND
- --------------------------------------------------------------------------------
Manager's Commentary
The shares sell at book value, at nine times earnings, and provide a current
yield of 5.5% from a well-covered dividend. The Fund has been underweighted in
utilities for a long time. Following the price declines in utility shares, the
industry is now heavily represented among the companies that have been showing
up in our screens for undervaluation. For this reason, we felt being
underweighted was no longer appropriate. With their relatively high yields,
utility shares have been less volatile than industrials over long periods of
time. Increasing the industry weight in the Fund should enhance our favorable
risk characteristics.
SEVERAL OF OUR LEADING PERFORMERS FROM THE FIRST QUARTER CONTINUED TO OUT-PACE
THE MARKET DURING THE SECOND QUARTER. Student Loan Marketing was leader for the
second quarter and year-to-date. The success of the Committee to Restore Value
(CRV) has been reflected in the stock price and the process of re-engineering
the management continues. Elections for the new board will be held and,
depending on the outcome of the elections, increases in the stock's price could
follow. Larry Hough, the current CEO, announced his resignation on June 11. The
market responded by driving the price up another 6 points.
IBM HAS JOINED FORCES WITH TOM CLANCY, THE AUTHOR OF SEVERAL BEST-SELLING BOOKS,
TO PRODUCE COMPUTER GAMES THAT WILL ALLOW PEOPLE TO PLAY TOGETHER OVER THE
INTERNET. The IBM technology used in this venture can also be used for more
business-oriented tasks such as online banking and insurance.
ALLSTATE HAS BEEN DRIVING AHEAD WITH THE OVERSEAS BUSINESS STRATEGY THEY
ANNOUNCED LATE LAST YEAR. The company's strategy to lower exposure to natural
disaster in California and Florida, and boost its overseas business, should
bring 8% to 10% earnings growth in 1997. In addition, Allstate has also been
increasing exposure to non-standard business in both the Florida and Nevada
markets. This business provides higher margins, and attracts fewer competitors,
which should improve earnings stability for the company.
GRAND METROPOLITAN PLC ANNOUNCED A MERGER WITH GUINNESS PLC IN MAY TO FORM THE
NEW GMG BRANDS. The merger will create operating cost savings of over 175
million Great Britain Pounds (GBP) by the third year, and produce 2.2 billion
GBP in profits annually.
DLB VALUE FUND
- --------------------------------------------------------------------------------
Manager's Commentary
GRM is now the largest spirits distributor in the world and almost twice the
size of the next largest competitor. This merger brings Grand Met's Smirnoff
Vodka and J&B Whiskey together with Guinness's Gordon Gin and Johnny Walker
Whiskey. The merger is subject to a shareholder vote and regulatory approval,
but in the fragmented spirits industry this should be forthcoming. The company's
Burger King subsidiary has been having some success in its domestic competition
with McDonald's.
THE FUND CONTINUES TO HAVE ATTRACTIVE VALUATION CHARACTERISTICS. The average
price/earnings ratio, based on estimated earnings for 1997 for the companies in
the Fund, is only 17.8, compared with 19.9 times for the S&P 500 companies. The
average price to book value of the Fund's companies is 3.0, compared to 3.4 for
the S&P 500 companies, and the current gross yield is higher.
DLB VALUE FUND
- --------------------------------------------------------------------------------
Growth of a
$100,000 Investment Cummulative Total Return Since Inception 7/25/95
DLB VALUE S&P 500
$100,000.00 $10O,000.00
31-Ju1-95 $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-Ju1-96 $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
31-Jan-97 $139,806.69 $148,186.57
28-Feb-97 $142,155.44 $149,342.43
31-Mar-97 $136,909.91 $143,204.45
30-Apr-97 $139,374.28 $151,753.76
31-May-97 $147,402.24 $160,995.56
30-Jun-97 $152,752.94 $168,208.17
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 6/30/97
- --------------------------------------------------------------------------------
6 Months One Year Annualized
1/1/97 6/30/96- Since Inception
6/30/97 6/30/97 7/25/95-6/30/97
DLB VALUE FUND 13.89 26.61 23.59
S&P 500 20.61 37.40 29.70
- --------------------------------------------------------------------------------
DISCLOSURE STATEMENT
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.
-----------------------------------
DLB VALUE FUND
FINANCIAL STATEMENTS FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND THE
YEAR ENDED DECEMBER 31, 1996
DLB VALUE FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS:
Portfolio of Investments as of June 30, 1997 1-4
Statement of Assets and Liabilities as of June 30, 1997 5
Statement of Operations for the Six Months Ended June 30, 1997 6
Statements of Changes in Net Assets for the Six Months Ended June 30, 1997
and the Year Ended December 31, 1996 7
Financial Highlights for the Six Months Ended June 30, 1997, 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 9-10
<TABLE>
<CAPTION>
DLB VALUE FUND
PORTFOLIO OF INVESTMENTS (Unaudited)
June 30, 1997
- -------------------------------------------------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS - 97.0%
ISSUER SHARES VALUE
<S> <C> <C>
CHEMICALS - 2.5%
E.I. DuPont De Nemours and Company 14,200 $ 892,825
----------------
SPECIALTY CHEMICALS - .9%
Millennium Chemicals Inc. 13,857 315,247
----------------
METALS & MINING - .5%
Martin Marietta Materials, Inc. 5,823 188,520
----------------
PAPER & FOREST PRODUCTS - 6.9%
Potlatch Corporation 18,200 823,550
Weyerhaeuser Company 16,800 873,600
Willamette Industries, Inc. 11,300 791,000
----------------
2,488,150
AEROSPACE - 4.9%
The Boeing Company 15,800 838,388
Lockheed Martin Corporation 8,884 920,049
----------------
1,758,437
ENVIRONMENTAL - 2.6%
Safety-Kleen (R) Corp. 56,200 948,375
----------------
APPAREL - 2.4%
Reebok International Ltd. * 18,400 860,200
----------------
AUTO PARTS - 2.4%
Dana Corporation 23,000 874,000
----------------
PRINTING & PUBLISHING - 2.4%
Harcourt General Inc. 18,000 857,250
----------------
1
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
DISCOUNT RETAIL - 2.3%
KMart Corporation * 54,500 $ 667,625
KMart Financing ** 2,600 142,675
----------------
810,300
GENERAL RETAIL - 4.9%
J C Penney Company, Inc. 16,800 876,750
Sears, Roebuck and Co. 16,700 897,625
----------------
1,774,375
SPECIALTY RETAIL - 2.5%
The Limited Inc. 44,500 901,125
----------------
FOOD PRODUCERS - 2.6%
Grand Metropolitan Plc. 23,627 925,883
----------------
MEDICAL SUPPLIES & SERVICES - 4.5%
Tenet Healthcare Corporation * 28,700 848,444
United Healthcare Corporation 15,000 780,000
----------------
1,628,444
DOMESTIC OIL - 2.3%
Atlantic Richfield Co. 11,600 817,800
----------------
INTERNATIONAL OIL - 2.6%
Royal Dutch Petroleum 17,200 935,250
----------------
BANKS - 9.4%
Chase Manhattan Corporation 8,000 776,500
First Bank System, Inc. 10,200 870,825
National City Corporation 16,900 887,250
Wells Fargo & Company 3,200 862,400
----------------
3,396,975
FINANCIAL SERVICES - 12.0%
American Express Company 12,100 901,450
Salomon Inc. 15,500 862,188
2
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
FINANCIAL SERVICES (CONTINUED)
The Student Loan Corporation 20,300 $ 861,481
Student Loan Marketing Association 6,500 825,500
Transamerica Corporation 9,400 879,488
----------------
4,330,107
INSURANCE - 6.9%
Aetna Inc. 8,400 859,950
The Allstate Corporation 11,100 810,300
General Re Corporation 4,500 819,000
----------------
2,489,250
DIVERSIFIED - 1.6%
The Energy Group PLC * 6,838 289,739
Hanson PLC 11,137 278,425
----------------
568,164
COMPUTERS - 4.5%
Apple Computer Inc. * 53,800 766,650
International Business Machines Corporation 9,600 865,800
----------------
1,632,450
OFFICE EQUIPMENT - 5.1%
Wallace Computer Services, Inc. 29,600 889,850
Xerox Corporation 12,000 946,500
----------------
1,836,350
AIRLINES - 2.6%
KLM Royal Dutch Airlines 30,200 932,425
----------------
TRUCKING & SHIPPING - 2.6%
Overseas Shipholding Group 47,300 928,263
----------------
3
COMMON AND PREFERRED STOCKS (CONTINUED)
ISSUER SHARES VALUE
ELECTRIC POWER - 5.0%
Illinova Corporation 40,400 $ 888,800
Texas Utilities Company 26,500 912,594
----------------
1,801,394
----------------
TOTAL COMMON AND PREFERRED STOCKS
(identified cost $28,510,766) 34,891,559
----------------
ISSUER PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 5.0%
Bank of New York, dated 6/30/97, due 7/1/97
(secured by U.S. Treasury Notes) $1,797,617 1,797,617
----------------
Total investments (identified cost, $30,308,383) 36,689,176
Other assets, less liabilities - (2.0)% (710,988)
-----------------
NET ASSETS - 100% $ 35,978,188
=================
</TABLE>
* Non-income producing securities.
** Preferred stock.
See notes to financial statements.
4
<TABLE>
<CAPTION>
DLB VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $30,308,383) $36,689,176
Cash
1,242
Receivable for investments sold 171,593
Dividends receivable 34,346
Receivable for fund shares sold 19,218
Receivable from investment manager
3,117
-------------
36,918,692
-------------
LIABILITIES:
Payable for investment purchased 886,174
Management fees 28,008
Accrued expenses 26,322
-------------
940,504
-------------
NET ASSETS $35,978,188
=============
NET ASSETS CONSIST OF:
Paid-in capital $29,190,610
Unrealized appreciation on investments 6,380,793
Accumulated undistributed net investment income 194,105
Accumulated undistributed net realized gain on investment transactions 212,680
-------------
$35,978,188
=============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,521,255
=============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER
SHARE (NET ASSETS/SHARES OF BENEFICIAL INTEREST
OUTSTANDING)
$ 14.27
=============
</TABLE>
See notes to financial statements.
5
<TABLE>
<CAPTION>
DLB VALUE FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign tax withheld of $3,695) $ 245,978
Interest 56,319
-----------
302,297
-----------
EXPENSES:
Management fee 74,647
Trustees' fees
2,728
Custodian fee 28,661
Legal fees 13,892
Accounting and audit fees 13,366
Registration costs
6,802
Transfer agent fee
3,968
Miscellaneous
782
-----------
144,846
Preliminary reduction of expenses by investment manager (36,654)
-----------
Net expenses 108,192
-----------
Net investment income 194,105
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (identified cost basis) 240,368
Change in unrealized appreciation 3,415,316
-----------
Net realized and unrealized gain on investments 3,655,684
-----------
Increase in net assets from operations $3,849,789
===========
</TABLE>
See notes to financial statements.
6
<TABLE>
<CAPTION>
DLB VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Year Ended
Ended December 31,
June 30, 1997 1996
----------------- -------------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 194,105 $ 238,207
Net realized gain on investments
240,368 595,835
Net unrealized appreciation on investments 3,415,316 2,386,704
------------- -------------
3,849,789 3,220,746
------------- -------------
Distributions to shareholders:
From net investment income - (234,884)
From net realized gain on investments - (595,835)
In excess of net realized gain on investments - (31,253)
------------- -------------
- (861,972)
------------- -------------
Fund share transactions:
Net proceeds from sale of shares 13,347,657 5,414,040
Net asset value of shares issued in
reinvestment of distributions - 861,972
Cost of shares reacquired (447,360) (224,262)
------------- -------------
12,900,297 6,051,750
------------- -------------
Total increase in net assets 16,750,086 8,410,524
NET ASSETS:
At beginning of period 19,228,102 10,817,578
============= =============
At end of period (including accumulated undistributed net
investment income of $194,105 and $0, respectively) $35,978,188 $19,228,102
============= =============
</TABLE>
See notes to financial statements.
7
<TABLE>
<CAPTION>
DLB VALUE FUND
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Year Ended Period Ended
Ended December 31, December 31,
June 30, 1997 1996 1995 **
---------------- --------------- ----------------
(Unaudited)
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $12.53 $10.58 $10.00
-------- -------- --------
Income from investment operations:
Net investment income .09 .16 .09
Net realized and unrealized gain on investments 1.65 2.38 .73
-------- -------- --------
1.74 2.54 .82
-------- -------- --------
Less distributions 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) -
-------- -------- --------
- (.59) (.24)
-------- -------- --------
Net asset value - end of period $14.27 $12.53 $10.58
======== ======== ========
Total Return 28.00% * 23.99% 18.64% *
Ratios and Supplemental Data:
Ratio of expenses to average net assets .80% * .80% .80% *
Ratio of net investment income to average net assets 1.43% * 1.56% 2.02% *
Portfolio turnover 7% 23% 7%
Average commission rate paid (1) $.05901 $.05378 -
Net assets at end of period (000 omitted) $35,978 $19,228 $10,818
The manager has agreed with the Fund to reduce its management fee and bear
certain expenses, such that the Fund's total expenses do not exceed .80% of
average daily net assets on an annualized basis. If the management fee reduction
and expenses borne by the manager had been borne by the Fund, the investment
income per share and ratios would have been:
Net investment income $.07 $.09 $.02
Ratios (to average net assets):
Expenses 1.07% * 1.50% 2.43% *
Net investment income 1.16% * .86% .40% *
</TABLE>
* 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.
8
DLB VALUE FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
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.
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. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value.
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 the Fund
to obtain those securities in the event of a default. 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.
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 (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is
necessary. The Fund files a tax return annually using tax accounting
methods required by the Code that 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 in 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 the financial statements and tax-basis earnings and profits
may result in temporary over-distributions for financial statement
purposes, which are classified as distributions in excess of net
investment income or accumulated undistributed net realized gains.
9
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 engages David L. Babson & Co. Inc. ("DLB") to provide
investment advisory and administrative services and general office
facilities. The fee for such services is computed daily and paid
monthly at an effective annual rate of .55% of average daily net
assets. For the period ended June 30, 1997, the management fee amounted
to $74,647, of which $27,313 was waived by DLB. Additionally, $9,341 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 $14,710,901 and $1,864,329, 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 $ 30,308,383
===============
Gross unrealized appreciation
$ 6,690,227
Gross unrealized depreciation (309,434)
---------------
Net unrealized appreciation $ 6,380,793
===============
5. SHARES OF BENEFICIAL INTEREST
The 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:
Six Months Ended Year Ended
June 30, December 31,
1997 1996
-------------- --------------
Shares sold 1,021,223 462,564
Shares issued in reinvestment
of distributions -- 68,793
Redemptions (34,951) (18,965)
========== ==========
Net increase 986,272 512,392
========== ==========
10
DLB
THE DLB GLOBAL BOND FUND
SEMI ANNUAL REPORT
JUNE 30, 1997
[EXPERIENCE TO MANAGE THE FUTURE]
DLB GLOBAL BOND FUND
- --------------------------------------------------------------------------------
Manager's Commentary
THE DLB GLOBAL BOND FUND ENDED THE FIRST HALF OF THE YEAR OUTPERFORMING THE J.P.
MORGAN GLOBAL BOND INDEX BY 268 BASIS POINTS. Yields remained mostly unchanged
for the period. 10-year notes in the U.S., for example, started the year
yielding 6.40% and were at 6.45% on July 1. This is also true for core European
countries. In Germany, 10-year notes began the year yielding 5.78% and closed
the period at 5.71%. In between, however, rates experienced considerable
volatility, dominated by currency movements, fears of Fed tightening in the U.S.
and European Monetary Union (EMU) jitters as to the timing and participants in
the process.
THE FIRST QUARTER WENT FULL CIRCLE IN YIELDS, STARTING WITH A STRONG RALLY
INDUCED BY THE STRENGTH OF THE DOLLAR, AND ENDING AT THE HIGH IN YIELDS AS THE
U.S. ECONOMY STRENGTHENED BEYOND MARKET EXPECTATIONS. The dollar, on the other
hand, strengthened across the board in the first quarter. Vis-a-vis the yen, it
went from 115.70 to 124.00, or a 7% increase, and against the deutschemark it
went from 1.55 to 1.67, or an 8% increase.
THE SECOND QUARTER WAS CHARACTERIZED BY A SIGNIFICANT DECLINE IN YIELDS ACROSS
MOST WORLD MARKETS. This occurred in spite of a considerable amount of
relatively bad news for interest rates. The move was led by the so-called high
yielding European currencies (Italy, Spain, etc.), as fundamentals in these
countries continued to improve, and worries of a delay or break in the EMU
waned. On the negative side, the Fed tightening in March, continued strength in
the U.S. economy, the elections in France and the U.K. (both won by the
Socialists), and tightening in monetary policy in the U.K., to mention some
factors, were all dismissed by the market when it realized that inflationary
pressures were not building after all. The ever-improving U.S. fiscal situation
has also been very benign for interest rates.
ON THE CURRENCY SIDE, THE DOLLAR CONTINUED ITS STRENGHTENING PATH VIS-A-VIS MOST
EUROPEAN CURRENCIES (UP 4%). This came as a logical consequence of stronger
growth (with no inflation) and more political stability in the U.S. Against the
yen, the story was quite different. Maneuverings by Japanese authorities,
concerned by the ballooning trade surplus, finally let to a precipitous decline
of the dollar against the yen (-7%), leaving it basically unchanged for the
year.
DLB GLOBAL BOND FUND
- --------------------------------------------------------------------------------
Manager's Commentary
THE FUND HAS REMAINED MOSTLY HEDGED BACK INTO DOLLARS FOR THE PERIOD. This
strategy worked favorably against European currencies. On the fixed income side,
the Fund extended duration for the first two months of the year and then
switched to a mostly neutral duration. This strategy worked very well, as it
took advantage of the decline in worldwide yields for the period. For the second
quarter, we established a defensive (short duration) position, thinking that the
Fed would need to tighten monetary policy further to contain the inflationary
pressures. Overall, we maintained slightly defensive positions in the U.S.,
while being more aggressive in European peripheral markets.
WE MAINTAIN A CONSTRUCTIVE VIEW WITH RESPECT TO THE DOLLAR. However, we would
like to be more cautious given the levels that the market has reached. On the
interest rate side, given the phenomenal technical situation of the market, we
plan to keep a more constructive attitude, while keeping a watchful eye for any
signs of inflation.
DLB GLOBAL BOND FUND
- --------------------------------------------------------------------------------
Growth of a
$100,000 Investment Cumulative Total Return Since Inception 8/26/96
JP MORGAN
DLB GLOBAL BOND GLOBAL GOV'T
$100,000.00 $100,000.00
31-AUG-96 $100,000.00 $99,890.00
30-SEP-96 $101,300.00 $100,439.40
31-OCT-96 $102,697.94 $102,428.10
30-NOV-96 $104,002.20 $103,892.82
31-DEC-96 $103,222.19 $103,165.57
31-JAN-97 $103,635.08 $100,586.43
28-FEB-97 $104,464.16 $99,892.38
31-MAR-97 $103,325.50 $99,133.20
30-APR-97 $104,152.10 $98,578.05
31-MAY-97 $104,568.71 $100,904.50
30-JUN-97 $104,882.42 $102,054.81
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 6/30/97
- --------------------------------------------------------------------------------
6 Months Annualized
1/1/97- Since Inception
6/30/97 8/26/96-6/30/97
DLB GLOBAL BOND FUND 1.60 4.87
JP Morgan Global Gov't Bond Index -1.08 2.05
- --------------------------------------------------------------------------------
Disclosure Statement
J.P. MORGAN GLOBAL GOVERNMENT BOND INDEX is a total return, market
capitalization weighted index, rebalanced monthly consisting of the following
countries: Australia, Belgium, Canada, Denmark, France, Germany, Italy, Japan,
Netherlands, Spain, Sweden, United Kingdom and United States.
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 BOND FUND. The
report is not intended for distribution to prospective investors unless preceded
or accompanied by a current prospectus.
------------------------------------------------
DLB GLOBAL BOND FUND
FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND THE
PERIOD FROM AUGUST 26, 1996
(COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1996
<TABLE>
<CAPTION>
DLB GLOBAL BOND FUND
TABLE OF CONTENTS
- ------------------------------------------------------------------------------------------------------
<S> <C>
FINANCIAL STATEMENTS:
Portfolio of Investments as of June 30, 1997 1-2
Statement of Assets and Liabilities as of June 30, 1997 3
Statement of Operations for the Six Months Ended June 30, 1997 4
Statements of Changes in Net Assets for the Six Months Ended June 30, 1997
and the Period from August 26, 1996 (commencement of operations) to
December 31, 1996 5
Financial Highlights for the Six Months Ended June 30, 1997 and the Period
from August 26, 1996 (commencement of operations) to
December 31, 1996 6
Notes to Financial Statements 7-13
</TABLE>
<TABLE>
<CAPTION>
DLB GLOBAL BOND FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
- ---------------------------------------------------------------------------------------------------------------------
S&P/MOODY'S PRINCIPAL
BOND RATING ISSUER AMOUNT VALUE
US GOVERNMENT BONDS - 62.2%
<S> <C> <C> <C>
AAA US Treasury Note, 6.00%, 1998 $4,000,000 4,001,248
AAA US Treasury Note, 6.25%, 2007 4,000,000 3,912,500
AAA US Treasury Note, 6.50%, 2006 2,000,000 1,991,250
N/A US Treasury Bill, 1997 7,000,000 6,921,803
---------------
16,826,801
---------------
US GOVERNMENT AGENCY - 11.0%
AAA Tennessee Valley Authority, 6.375%, 2006 5,000,000 2,981,067
---------------
FOREIGN GOVERNMENT BONDS - 38.9%
N/A Italian Republic BTPS, 9.50%, 2001 ITL 1,000,000,000 652,971
N/A United Kingdom Gilts, 7.00%, 2001 GBP 1,000,000 1,656,746
N/A United Kingdom Gilts, 7.50%, 2006 GBP 500,000 853,583
N/A United Kingdom Treasury, 7.25%, 2006 GBP 1,000,000 1,682,730
N/A French Republic OAT, 6.00%, 2006 FRF 5,000,000 793,462
N/A French Republic BTAN, 5.75%, 2001 FRF 13,000,000 2,326,409
N/A Kingdom of Spain, 8.40%, 2001 ESP 100,000,000 749,694
N/A New Zealand, 8.00%, 2001 NZD 1,000,000 708,886
N/A German Republic, 6.25%, 2024 DEM 2,000,000 1,107,860
---------------
10,532,341
---------------
Total Bonds (identified cost, $31,097,045) 30,340,209
---------------
PURCHASED PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
DESCRIPTION/EXPIRATION MONTH/STRIKE PRICE CONTRACTS
Financial futures contracts for 1,000 U.S. 10 4,000
Financial futures contracts for 1,250 Deutsche 10
Marks/August/58.5 5,469
---------------
Total Purchased Put Options (identified cost, $12,856)
9,469
---------------
1
PURCHASED CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
DESCRIPTION/EXPIRATION MONTH/STRIKE PRICE CONTRACTS VALUE
Financial futures contracts for 1,000 Japanese
Yen/July/91.5 (identified cost, $16,051) 10 $ 500
---------------
Total Investments (identified cost, $31,125,952)
30,350,178
WRITTEN PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
Financial futures contracts for 1,000 U.S.
Treasury 10 year Notes/July/107.0 10 (1,563)
Financial futures contracts for 1,250 Deutsche
Marks/August/59.5 10 (1,625)
----------------
Total Written Put Options (identified cost, $5,831) (3,188)
---------------
Other assets, less liabilities - (12.1)% (3,284,342)
---------------
NET ASSETS - 100% $ 27,062,648
===============
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.
DEM - Deutsche Marks GBP - Brititsh Pounds
ESP - Spanish Pesetas ITL - Italian Lire
FRF - French Francs NZD - New Zealand Dollars
See notes to financial statements.
</TABLE>
2
<TABLE>
<CAPTION>
DLB GLOBAL BOND FUND
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
JUNE 30, 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $31,125,952) $30,350,178
Cash 19,605
Interest receivable 507,529
Receivable from investment manager 32,227
Net receivable for forward foreign currency exchange contracts sold 121,262
Receivable for daily variation margin on open futures contracts 10,822
-------------
31,041,623
-------------
LIABILITIES:
Payable for reverse repurchase agreements 3,875,000
Net payable for forward foreign currency exchange contracts purchased 29,036
Written options, at value (premium received, $5,831) 3,188
Management fees 36,485
Accrued expenses 35,266
-------------
3,978,975
-------------
NET ASSETS $27,062,648
=============
NET ASSETS CONSIST OF:
Paid-in capital $26,654,121
Unrealized depreciation on investments and translation of assets and
liabilities in foreign currencies (777,852)
Accumulated undistributed net investment income 701,463
Accumulated undistributed net realized gain on investment and foreign
currency transactions 484,916
-------------
$27,062,648
=============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,665,548
=============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER
SHARE (NET ASSETS/SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 10.15
=============
</TABLE>
See notes to financial statements.
3
<TABLE>
<CAPTION>
DLB GLOBAL BOND FUND
STATEMENT OF OPERATIONS (Unaudited)
SIX MONTHS ENDED JUNE 30, 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
INTEREST INCOME $ 864,927
-------------
EXPENSES:
Management fee 99,416
Trustees' fees 2,728
Custodian fee 35,704
Accounting and audit fees 17,009
Legal fees 15,818
Printing fees 9,667
Transfer agent fee 3,968
Miscellaneous fees 6,967
-------------
Total expenses 191,277
Preliminary reduction of expenses by investment manager (85,279)
-------------
Net expenses 105,998
-------------
Net investment income 758,929
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) (identified cost basis):
Investment transactions (137,144)
Foreign currency transactions and forward foreign currency exchange
contracts and other transactions denominated in foreign currency 938,172
Written options transactions (13,718)
Futures contracts (235,429)
-------------
Net realized gain 551,881
-------------
Change in unrealized appreciation (depreciation):
Investments (1,015,764)
Foreign currency and forward foreign currency exchange contracts and other
transactions denominated in foreign currency 189,469
Written options 2,643
Futures contracts (55,137)
-------------
Net unrealized loss on investments and foreign currency (878,789)
-------------
Net realized and unrealized loss on investments and foreign
currency (326,908)
-------------
Increase in net assets from operations $ 432,021
=============
</TABLE>
See notes to financial statements.
4
<TABLE>
<CAPTION>
DLB GLOBAL BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Six Months Period Ended
Ended December 31,
June 30,1997 1996 **
----------------- ------------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 758,929 $ 471,859
Net realized gain on investments 551,881 232,460
Net unrealized appreciation (depreciation) on investments (878,789) 100,937
-------------- -------------
432,021 805,256
-------------- -------------
Distributions to shareholders:
From net investment income - (471,859)
In excess of net investment income - (280,141)
From net realized gain on investments - (76,750)
-------------- -------------
- (828,750)
-------------- -------------
Fund share transactions:
Net proceeds from sale of shares 826,361 25,000,000
Net asset value of shares issued in
reinvestment of distributions - 828,750
Cost of shares reacquired (1,000) -
-------------- -------------
825,361 25,828,750
-------------- -------------
Total increase in net assets 1,257,382 25,805,256
NET ASSETS:
At beginning of period 25,805,266 10
============== =============
At end of period (including accumulated undistributed
(distributions in excess of) net investment income of $701,463
and ($57,466), respectively) $27,062,648 $25,805,266
============== =============
</TABLE>
** For the period from August 26, 1996 (commencement of operations) to December
31, 1996.
See notes to financial statements.
5
<TABLE>
<CAPTION>
DLB GLOBAL BOND FUND
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------
Six Months Period Ended
Ended December 31,
June 30, 1997 1996 **
---------------- ---------------
(Unaudited)
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.99 $10.00
-------- --------
Income from investment operations:
Net investment income
.29 .19
Net realized and unrealized gain (loss) on investments
and foreign currency (.13) .13
--------- --------
.16 .32
-------- --------
Less distributions to shareholders:
From net investment income - (.19)
In excess of net investment income - (.11)
From net realized gain on investments and foreign
currency - (.03)
-------- --------
- (.33)
-------- --------
Net asset value - end of period $10.15 $ 9.99
======== ========
Total Return 3.23% * 3.21% *
Ratios and Supplemental Data:
Ratio of expenses to average net assets .80% * .80% *
Ratio of net investment income to average net assets 5.73% * 5.35% *
Portfolio turnover 66% 232%
Net assets at end of period (000 omitted) $27,063 $25,805
</TABLE>
The manager has agreed with the Fund to reduce its management fee and bear
certain expenses, such that the Fund's total expenses do not exceed .80% of
average daily net assets on an annualized basis. If the management fee reduction
and expenses borne by the manager had been borne by the Fund, the investment
income per share and ratios would have been:
<TABLE>
<CAPTION>
<S> <C> <C>
Net investment income $.26 $.17
Ratios (to average net assets):
Expenses 1.44% * 1.33% *
Net investment income 5.09% * 4.81% *
</TABLE>
* Annualized.
** For the period August 26, 1996 (commencement of operations) to December 31,
1996.
See notes to financial statements.
6
DLB GLOBAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
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 (1940 Act), 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. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value.
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. 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.
REVERSE REPURCHASE AGREEMENTS - The Fund may enter into reverse
repurchase agreements in which the Fund sells securities to a bank or
dealer and agrees to repurchase them at a mutually agreed date and
price. Under the 1940 Act, reverse repurchase agreements will be
regarded as a form of borrowing by the Fund unless, at the time it
enters into a reverse repurchase agreement, it establishes and
maintains a segregated account with its custodian containing securities
from its portfolio having a value not less than the repurchase price
(including accrued interest). The Fund has established and maintained
such an account for each of its reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the
securities that the Fund is obligated to repurchase under the agreement
may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce the Fund's obligation
to repurchase the securities, and the Fund's use of the proceeds of the
reverse repurchase agreement may effectively be restricted pending such
decision.
7
At June 30, 1997, the Fund had the following reverse repurchase
agreements outstanding:
Maturity date
July 1, 1997
--------------
Maturity amount $3,875,597
============
Market value of assets sold under agreements $3,912,000
============
Weighted average interest rate 5.55%
============
The daily balance of reverse repurchase agreements outstanding during
the period from April 8, 1997 to June 30, 1997 was $3,875,000 at a
weighted average interest rate of 4.04%. At June 30, 1997, the balance
of reverse repurchase agreements outstanding was 14.32% of total
assets.
FOREIGN CURRENCY TRANSLATION - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted
each business day into U.S. dollars at current exchange rates.
Purchases and sales of foreign investments, income and expenses are
converted into U.S. dollars at currency exchange rates prevailing on
the respective dates of such transactions. Security transaction gains
and losses attributable to changes in foreign currency exchange rates
are recorded for financial statement purposes as net realized gains and
losses on investments. Income and expense gains and losses that are
attributable to changes in foreign exchange rates are recorded for
financial statement purposes as foreign currency transaction gains and
losses. The portion of both realized and unrealized gains and losses on
investments that results from fluctuations in foreign currency exchange
rates is not separately disclosed.
PURCHASED OR WRITTEN OPTIONS - The Fund may purchase and sell call and
put options with respect to securities and foreign currencies. Upon the
purchase or sale of an option by the Fund, the premium paid or received
is recorded as an investment or liability, the value of which is marked
to market daily. Premiums paid or received from purchasing or writing
options which expire unexercised are treated by the Fund on the
expiration date as realized gains or losses. The difference between the
premium and the amount received or paid on effecting a closing purchase
or sale transaction, including brokerage commissions, is also treated
as a realized gain or loss. If an option is exercised, the premium paid
or received is added to the proceeds from the sale or cost of the
purchase in determining whether the Fund has realized a gain or a loss
on investment transactions. The risk associated with purchasing options
is limited to the premium originally paid. The Fund, as writer of an
option, may have no control over whether the underlying securities may
be sold or purchased and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written
option.
FUTURES CONTRACTS - The Fund may enter into futures contracts for the
delayed delivery of securities or foreign currency. Upon entering such
contracts, the Fund must deposit either in cash or securities an amount
equal to a specified 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 investments in futures contracts are 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
8
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. The
risks associated with these contracts include the possible inability of
counterparties to meet the terms of the contracts and from
unanticipated movements in the value of a foreign currency relative to
the U.S. dollar. The Fund enters 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 resulting from unfavorable exchange rate movements. Forward
foreign currency exchange contracts are adjusted by the daily change in
the exchange rates of the underlying currencies, 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.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is
necessary. The Fund files a tax return annually using tax accounting
methods required by the Code that 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 in 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 are provided with respect to interest and
dividend income earned in foreign currencies in accordance with
applicable tax rates 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 the financial statements and tax-basis earnings and profits
may result in temporary over-distributions for financial statement
purposes, which are classified as distributions in excess of net
investment income or accumulated undistributed net realized gains.
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.
9
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Co. Inc. ("DLB") to provide
investment advisory and administrative services, and general office
facilities. The fee for such services is computed daily and paid
monthly at an effective annual rate of .75% of average daily net
assets. For the six months ended June 30, 1997, the management fee
amounted to $99,416, of which $26,542 was waived by DLB. Additionally,
$58,279 of Fund expenses were borne by DLB.
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.
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 purchased options and
short-term obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------- -------------
<S> <C> <C>
U.S. Government securities $ 19,589,551 $ 15,774,083
============= =============
Investments (non-U.S. government securities) $ 4,824,398 $ 2,737,604
============= =============
</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:
<TABLE>
<CAPTION>
<S> <C>
Aggregate cost $ 31,125,952
==============
Gross unrealized depreciation $ (973,255)
Gross unrealized appreciation 197,481
--------------
Net unrealized appreciation $ (775,774)
==============
</TABLE>
10
5. SHARES OF BENEFICIAL INTEREST
The 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>
Six Months Ended Period Ended
June 30, December 31,
1997 1996 **
-------------------- -----------------
<S> <C> <C>
Shares sold 82,689 2,500,000
Shares issued in reinvestment
of distributions - 82,959
Redemptions (100) -
========= ==========
Net increase 82,589 2,582,959
========= ==========
</TABLE>
** For the period August 26, 1996 (commencement of operations) to
December 31, 1996.
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 such market risks as changes in interest rates and foreign
currency exchange rates. These financial instruments include forward
foreign currency exchange contracts, futures contracts and written
option contracts. The notional or contractual amounts of these
instruments represent the Fund's investment 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 June 30, 1997 is as follows:
11
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
In Net Unrealized
Settlement Contracts to Exchange Contracts Appreciation
Date Deliver/Receive For at Value (Depreciation)
--------------- ----------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Sales 7/1/97 - 8/1/97 DEM 14,833,000 8,623,102 8,521,034 $102,068
7/1/97 - 8/1/97 ESP 223,940,000 1,538,579 1,520,063 18,516
7/1/97 - 8/1/97 FRF 37,459,000 6,445,741 6,385,669 60,072
7/1/97 - 8/1/97 GBP 5,160,000 8,511,915 8,579,360 (67,445)
7/1/97 - 8/1/97 ITL 2,284,000,000 1,347,255 1,345,586 1,669
7/1/97 - 8/1/97 NZD 2,131,000 1,456,626 1,450,244 6,382
=========== =========== =========
$27,923,218 $27,801,956 $121,262
=========== =========== =========
Purchases 7/1/97 DEM 7,324,000 $ 4,212,536 $4,202,277 (10,259)
7/1/97 ESP 111,250,000 759,281 755,061 (4,220)
7/1/97 FRF 18,549,000 3,170,769 3,158,576 (12,193)
7/1/97 GBP 2,610,000 4,344,032 4,341,602 (2,430)
7/1/97 ITL 1,152,000,000 680,448 679,060 (1,388)
7/1/97 NZD 1,055,000 716,873 718,327 1,454
----------- ----------- ---------
$13,883,939 $13,854,903 $(29,036)
=========== =========== =========
</TABLE>
At June 30, 1997, the Fund had sufficient cash and securities to cover
any commitments under these contracts.
Futures Contracts
<TABLE>
<CAPTION>
Unrealized
Appreciation/
Expiration Contracts Position (Depreciation)
----------------- -------------------------- ---------- ---------------
<S> <C> <C> <C> <C>
June 1997 15 UK Long GIL Short $(12,418)
June 1997 12 French Notional Bonds Short (23,504)
September 1997 3 German 10-year Futures Short (1,507)
September 1997 5 Italian 10-year Futures Short (18,771)
September 1997 7 Spanish 10-year Futures Short (9,127)
September 1997 10 Canadian Dollar Futures Long (350)
=========
$(65,677)
=========
</TABLE>
At June 30, 1997, the Fund had sufficient cash and securities to cover
margin requirements on open futures contracts.
Written Option Transactions
<TABLE>
<CAPTION>
Contracts Premiums
--------------- -------------
<S> <C> <C>
Written options outstanding at beginning of period - $ -
Options written 60 28,781
Options closed (40) (22,950)
===== ==========
Written option outstanding at end of period 20 $ 5,831
===== ==========
</TABLE>
At June 30, 1997, the Fund had sufficient cash and securities to cover
any commitments under these 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 that 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 government supervision and regulation of foreign securities
markets, broker-dealers, and issuers than in the United States.
13
DLB
THE DLB QUANTITATIVE EQUITY FUND
SEMI ANNUAL REPORT
JUNE 30, 1997
[EXPERIENCE TO MANAGE THE FUTURE]
THE DLB QUANTITATIVE EQUITY FUND
- --------------------------------------------------------------------------------
Manager's Commentary
THE DLB QUANTITATIVE EQUITY FUND COMPLETED ITS TENTH MONTH OF OPERATION ON JUNE
30, 1997. The accompanying performance table shows that the Fund continues to
outperform its benchmark, the Russell 1000 Growth Index, as well as the Standard
& Poors 500 Index. The Fund's peformance has been helped by a growth and large
market capitalization oriented market. On a year-to-date basis, large
capitalization stocks have outperformed small capitalization stocks by a wide
margin. To illustrate, the Russell 1000 and Russell 2000 indices, respectively,
are large cap and small cap market proxies. The Russell 1000 is up 18.62% in
contrast to the Russell 2000's gain of 10.20%, a difference of over 8%. To
further illustrate large cap performance, the Russell Top 200 Index was up
21.21%, outperforming the Russell 1000 itself by more than 2.5%. It certainly
was a good half year to be in large cap stocks.
AS FAR AS THE CHOICE BETWEEN GROWTH AND VALUE, GROWTH OUTPERFORMED IN ALL AREAS
OF THE MARKET DURING THE FIRST HALF OF 1997. Again, using the Russell indices as
market proxies, the Russell 1000 Value Index underperformed the Russell 1000
Growth Index by 1.87%. For the Russell Top 200 Value and Growth Indexes, growth
outperformed by 3.94%.
THE FUND, BY DESIGN, IS CONSTRUCTED TO BE NEUTRAL TO THE RUSSELL 1000 GROWTH
INDEX. This has the effect of being sector neutral (having roughly the same
economic sector weight) to this benchmark. In addition, other characteristics
such as beta (average propensity of the portfolio to move in concert with the
market), dividend yield, and market capitalization are held neutral to the
benchmark. The neutral stance allows us to focus on picking the best stocks in
each sector without engaging in risky market timing.
THE PORTFOLIO BENEFITED FROM SPECIFIC STOCK SELECTIONS OVER THE FIRST HALF OF
THE YEAR. The first quarter was led by value oriented selections as we saw
fiscal 1997 earnings come in at, or above, targets. The second quarter was led
by momentum oriented stocks as the market bid-up those stocks with strong
year-over-year earnings comparisons.
THE DLB QUANTITATIVE EQUITY FUND
- --------------------------------------------------------------------------------
Growth of a
$100,000 Investment Cummulative Total Return Since Inception 7/25/95
DLB QUANTITATIVE RUSSELL 1000
EQUITY GROWTH
$100,000.00 $100,000.00
Aug-96 $ 98,500.00 $100,240.00
30-Sep-96 $106,399.70 $107,537.47
31-Oct-96 $110,102.41 $108,182.70
30-Nov-96 $120,099.71 $116,307.22
31-Dec-96 $118,502.38 $114,027.60
31-Jan-97 $127,449.31 $122,020.93
28-Feb-97 $128,163.03 $121,191.19
31-Mar-97 $123,382.55 $114,634.74
30-Apr-97 $131,920.62 $122,246.49
31-May-97 $139,849.05 $131,072.69
30-Jun-97 $144,631.89 $136,315.60
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 6/30/97
- --------------------------------------------------------------------------------
6 Months Annualized
1/1/97- Since Inception
6/30/97 8/26/96-6/30/97
DLB QUANTITATIVE EQUITY FUND 22.04 44.63
Russell 1000 Growth 19.55 36.31
Disclosure Statement
RUSSELL 1000 GROWTH INDEX contains those Russell 1000 securities with a
greater-than-average growth orientation. Securities in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend yields
and higher forecasted growth values than the Value universe.
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 QUANTITATIVE EQUITY FUND.
The report is not intended for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
-----------------------------------
DLB QUANTITATIVE EQUITY FUND
FINANCIAL STATEMENTS FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND THE
PERIOD FROM AUGUST 26, 1996
(COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1996
DLB QUANTITATIVE EQUITY FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS:
Portfolio of Investments as of June 30, 1997 1-5
Statement of Assets and Liabilities as of June 30, 1997 6
Statement of Operations for the Six Months Ended June 30, 1997 7
Statements of Changes in Net Assets for the Six Months Ended June 30, 1997
and the Period from August 26, 1996 (commencement of operations) to
December 31, 1996 8
Financial Highlights for the Six Months Ended June 30, 1997 and the Period
from August 26, 1996 (commencement of operations) to
December 31, 1996 9
Notes to Financial Statements 10-11
<TABLE>
<CAPTION>
DLB QUANTITATIVE EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
- -------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 99.2%
ISSUER SHARES VALUE
<S> <C> <C>
CHEMICALS - 1.3%
Union Carbide Corporation 5,500 $ 258,844
---------------
SPECIALTY CHEMICALS - 1.8%
UCAR International Inc. * 7,800 356,850
---------------
BUILDING SUPPLIES - .3%
Owens Corning 1,200 51,750
---------------
CONSTRUCTION - 3.0%
Case Corporation 6,500 447,688
JLG Industries Inc. 6,000 81,750
USG Corporation * 1,400 51,100
---------------
580,538
ELECTRICAL EQUIPMENT - 3.5%
General Electric Company 7,800 509,925
W.W. Grainger, Inc. 2,200 172,013
---------------
681,938
MACHINERY & EQUIPMENT - 3.1%
AGCO Corporation 2,800 100,625
Caterpillar Inc. 4,500 483,188
Deere & Company 300 16,463
---------------
600,276
APPAREL - 11.5%
Fruit of the Loom, Inc. * 9,300 288,300
Jones Apparel Group Inc. * 9,700 463,175
Liz Claiborne, Inc. 9,300 433,613
Nike, Inc. 8,800 513,700
Russell Corporation 600 17,775
V.F. Corporation 6,300 533,925
---------------
2,250,488
1
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE
AUTO & TRUCK MANUFACTURERS - 1.8%
Ford Motor Company 7,600 $ 286,900
General Motors Corporation 1,200 66,825
---------------
353,725
FURNITURE & APPLIANCES - .2%
First Brands Corporation 1,300 29,819
---------------
PRINTING & PUBLISHING - 2.9%
Central Newspapers, Inc., Cl. A 2,700 193,388
Lee Enterprises, Incorporated 5,000 131,875
The Washington Post Company 600 238,800
---------------
564,063
RECREATION - 1.9%
GTech Holdings Corporation * 4,000 129,000
King World Productions Inc. * 5,700 199,500
Mirage Resorts Incorporated * 1,700 42,925
---------------
371,425
RESTAURANT & LODGING - 1.8%
Marriott International Inc. 5,700 349,838
---------------
DISCOUNT RETAIL - .9%
The TJX Companies Inc. 3,400 89,675
Wal-Mart Stores Inc. 2,300 77,769
---------------
167,444
GENERAL RETAIL - 3.6%
Federated Department Stores Inc. * 4,700 163,325
Sears, Roebuck and Co. 10,200 548,250
---------------
711,575
BEVERAGES - 2.2%
The Coca-Cola Company 6,500 438,750
---------------
FOOD PRODUCERS - 2.3%
ConAgra, Inc. 7,000 448,875
---------------
2
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE
FOOD RETAILERS - 1.2%
Boston Chicken Inc. * 4,400 $ 61,600
The Kroger Co. * 6,000 174,000
---------------
235,600
TOBACCO - .6%
Fortune Brands, Inc. 3,200 119,400
---------------
DOMESTIC OIL
Phillips Petroleum Company 200 8,750
---------------
INTERNATIONAL OIL - 1.0%
Exxon Corporation 3,200 196,800
---------------
OIL SERVICES - 2.3%
Baker Hughes Incorporated 2,000 77,375
Global Marine Inc. * 16,000 372,000
---------------
449,375
BANKS - 2.1%
The Chase Manhattan Corporation 100 9,706
First Chicago NBD Corporation 6,700 405,350
---------------
415,056
FINANCIAL SERVICES - .9%
Lehman Brothers Holdings Inc. 2,300 93,150
Merrill Lynch & Company 1,400 83,475
---------------
176,625
INSURANCE - 3.0%
CIGNA Corporation 2,500 443,750
Wellpoint Health Networks Inc. * 3,300 151,388
---------------
595,138
3
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE
COMPUTERS - 10.2%
Compaq Computer Corporation * 5,900 $ 585,575
Dell Computer Corporation * 5,000 587,188
International Business Machines Corporation 5,500 496,031
Quantum Corporation * 15,600 316,875
---------------
1,985,669
COMPUTER SERVICES - .8%
Computer Associates International, Inc. 2,900 161,494
---------------
COMPUTER SOFTWARE - 6.6%
Cadence Design Systems, Inc. * 3,300 110,550
Microsoft Corporation * 7,800 985,725
Seagate Technology, Inc. * 5,200 182,975
---------------
1,279,250
ELECTRONICS & INSTRUMENTS - 2.6% 8,600 278,963
Gateway 2000 Inc. * 6,000 183,750
National Semiconductor Corporation * 1,200 37,950
---------------
500,663
SEMICONDUCTORS - 2.1%
Intel Corporation 2,900 411,256
---------------
AIRLINES - 1.1%
UAL Corporation * 3,000 214,688
---------------
ELECTRICAL POWER - 2.1%
Entergy Corporation 10,700 292,913
GPU, Inc. 3,200 114,800
---------------
407,713
NATURAL GAS - .1%
The Columbia Gas System Inc. 400 26,100
---------------
TELEPHONE - .5%
SBC Communications, Inc. 1,684 104,204
---------------
4
COMMON STOCKS (CONTINUED)
ISSUER SHARES VALUE
DRUGS - 10.9%
Bristol-Meyers Squibb Company 7,800 $ 631,800
Merck & Co., Inc. 9,000 931,500
Schering-Plough Corporation 11,800 564,925
---------------
2,128,225
---------------
MEDICAL SUPPLIES & SERVICES - 8.9%
Abbott Laboratories 5,900 393,825
Becton, Dickinson and Company 1,700 86,063
Guidant Corporation 4,400 374,000
Johnson & Johnson 4,900 315,438
Oxford Health Plans, Inc. * 3,700 265,475
Tenet Healthcare Corporation * 9,900 292,662
---------------
1,727,463
---------------
TOTAL COMMON AND PREFERRED STOCKS
(identified cost, $14,753,047) 19,359,667
Other assets, less liabilities - .8%
154,267
NET ASSETS - 100% $ 19,513,934
=============
</TABLE>
* Non-income producing securities
See notes to financial statements.
5
<TABLE>
<CAPTION>
DLB QUANTITATIVE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
JUNE 30, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $14,753,047) $19,359,667
Cash 62,892
Receivable for investments sold 83,157
Receivable from investment manager 27,125
Dividends and interest receivable 15,784
Receivable for fund shares sold 1,340
------------
19,549,965
------------
LIABILITIES:
Management fees 24,776
Accrued expenses 11,255
------------
36,031
------------
NET ASSETS $19,513,934
============
NET ASSETS CONSIST OF:
Paid-in capital $14,122,614
Unrealized appreciation on investments 4,606,620
Accumulated undistributed net investment income 34,529
Accumulated undistributed net realized gain on investment transactions 750,171
------------
$19,513,934
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,371,068
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER
SHARE (NET ASSETS/SHARES OF BENEFICIAL INTEREST
OUTSTANDING)
$ 14.23
============
</TABLE>
See notes to financial statements.
6
<TABLE>
<CAPTION>
DLB QUANTITATIVE EQUITY FUND
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET INVESTMENT INCOME:
Dividends $ 102,836
Interest 3,211
-----------
106,047
-----------
EXPENSES:
Management fee 64,580
Trustees' fees 2,728
Custodian fee 26,182
Legal fees 16,464
Accounting and audit fees 13,316
Printing fees 9,667
Registration costs 6,787
Transfer agent fee 3,968
Miscellaneous 165
-----------
143,857
Preliminary reduction of expenses by investment manager (66,504)
-----------
Net expenses 77,353
-----------
Net investment income 28,694
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (identified cost basis) 604,365
Change in unrealized appreciation 2,813,563
-----------
Net realized and unrealized gain on investments 3,417,928
-----------
Increase in net assets from operations $3,446,622
===========
</TABLE>
See notes to financial statements.
7
<TABLE>
<CAPTION>
DLB QUANTITATIVE EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
Six Months Period Ended
Ended December 31,
June 30,1997 1996 **
-------------------- ------------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 28,694 $ 19,206
Net realized gain on investments 604,365 356,106
Net unrealized appreciation on investments 2,813,563 1,793,057
------------- --------------
3,446,622 2,168,369
------------- --------------
Distributions to shareholders:
From net investment income - (13,371)
From net realized gain on investments - (210,300)
------------- --------------
- (223,671)
------------- --------------
Fund share transactions:
Net proceeds from sale of shares 2,173,015 11,728,918
Net asset value of shares issued in
reinvestment of distributions - 223,671
Cost of shares reacquired (3,000) -
------------- --------------
2,170,015 11,952,589
------------- --------------
Total increase in net assets 5,616,637 13,897,287
NET ASSETS:
At beginning of period 13,897,297 10
============= ==============
At end of period (including accumulated undistributed net
investment income of $34,529 and $5,835, respectively) $19,513,934 $13,897,297
============= ==============
</TABLE>
** For the period from August 26, 1996 (commencement of operations) to December
31, 1996.
See notes to financial statements.
8
<TABLE>
<CAPTION>
DLB QUANTITATIVE EQUITY FUND
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
Six Months Period Ended
Ended December 31,
June 30, 1997 1996 **
---------------- ---------------
(Unaudited)
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $11.66 $10.00
-------- --------
Income from investment operations:
Net investment income .02 .01
Net realized and unrealized gain on investments 2.55
1.84
-------- --------
2.57 1.85
-------- --------
Less distributions to shareholders:
From net investment income - (.01)
From net realized gain on investments - (.18)
-------- --------
- (.19)
-------- --------
Net asset value - end of period $14.23 $11.66
======== ========
Total Return 44.45% * 18.51% *
Ratios and Supplemental Data:
Ratio of expenses to average net assets .90% * .90% *
Ratio of net investment income to average net assets .33% * .43% *
Portfolio turnover 20% 10%
Average commision rate paid (1) $.03813 $.01925
Net assets at end of period (000 omitted) $19,514 $13,897
The manager has agreed with the Fund to reduce its management fee and bear
certain expenses, such that the Fund's total expenses do not exceed .90% of
average daily net assets on an annualized basis. If the management fee reduction
and expenses borne by the manager had been borne by the Fund, the investment
income (loss) per share and ratios would have been:
Net investment loss $(.03) $(.01)
Ratios (to average net assets):
Expenses 1.67% * 1.82% *
Net investment loss (.44)% * (.50)% *
</TABLE>
* Annualized.
** For the period August 26, 1996 (commencement of operations) to December 31,
1996.
(1) Average commission rate paid is computed by dividing the total dollar
amount of commissions paid during the period by the total number of shares
purchased and sold on which commissions were charged.
See notes to financial statements.
9
DLB QUANTITATIVE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
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 (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is
necessary. The Fund files a tax return annually using tax accounting
methods required by the Code that 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 in 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 the financial statements and tax-basis earnings and profits
may result in temporary over-distributions for financial statement
purposes, which are classified as distributions in excess of net
investment income or accumulated undistributed net realized gains.
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.
10
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Co. Inc. ("DLB") to provide
investment advisory and administrative services and general office
facilities. The fee for such services is computed daily and paid
monthly at an effective annual rate of .75% of average daily net
assets. For the period ended June 30, 1997, the management fee amounted
to $64,580, of which $17,309 was waived by DLB. Additionally, $49,195
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 $5,549,153 and $3,446,432, 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 $ 14,753,047
===============
Gross unrealized appreciation $ 4,749,244
Gross unrealized depreciation (142,624)
---------------
Net unrealized appreciation $ 4,606,620
===============
5. SHARES OF BENEFICIAL INTEREST
The 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:
Six Months Period Ended
Ended June 30, December 31,
1997 1996 **
------------------ -----------------
Shares sold 179,232 1,172,892
Shares issued in reinvestment
of distributions - 19,184
Redemptions (240) -
========= ============
Net increase 178,992 1,192,076
========= ============
** For the period August 26, 1996 (commencement of operations) to December 31,
1996.
11
