<PAGE> 1
DLB
The DLB Fixed Income Fund
Semi Annual Report
June 30, 1998
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE> 2
DLB FIXED INCOME FUND
Manager's Commentary
ACTIVITY DURING THE FIRST HALF OF 1998 INCLUDED EXPANDING DIVERSIFICATION WITHIN
THE MORTGAGE SECTOR WITH THE PURCHASE OF A NEW ISSUE, THE LEHMAN-FIRST UNION
BANK OF AMERICA 1998 C2, COMMERCIAL MORTGAGE BACKED SECURITIES. This bond is
rated triple-A and has a 10-year average life. As the name implies, the bonds
are collateralized by commercial mortgage loans underwritten by the three
issuing managers. This deal was very attractive for a number of reasons
including its large size ($3.4 billion, the second largest CMBS deal to date),
diversity of mortgage type (office, retail, multifamily housing), geographical
diversity, and strong call protection. Priced at 80 basis points over 10-year
Treasury notes, we felt this deal represented excellent value. When the
opportunity avails, we anticipate adding exposure to this rapidly growing sector
of the mortgage market.
EXPOSURE TO THE BANKING SECTOR WAS REDUCED. After last winter's turbulence in
the Asian economies settled down, spreads on money center banks tightened as
investors became more confident that Pacific Rim events would not have a major
impact on the international banking business. We took advantage of this
opportunity and sold the Chase Capital and J.P. Morgan Capital bonds held by the
Fund. While we feel confident that these banks are solid institutions, we felt
that if the health of the Asian economies worsened, spreads on money center
banks would widen back out. This is, in fact, what happened in late May, as
concerns about the economic strength of Japan, and its impact on the rest of
Asia, increased.
A COMBINATION OF DEALERS' NEEDS AND NEW ISSUANCES PROVIDED THE FUND WITH
OPPORTUNITIES FOR CERTAIN AUTO SECTOR TRADES WHICH IMPROVED THE FUND'S CREDIT
QUALITY AND PROVIDED YIELD PICKUPS IN THE PORTFOLIO. First a dealer's need
presented an opportunity to pickup two basis points in yield by trading out of
5-year GMAC paper and into 5-year Ford paper. At the time, Ford was perceived as
a slightly better credit. Normally, this trade would not entail a pickup in
yield. Shortly thereafter, Ford came to market with a new global 5-year. The
recently acquired Ford 5-year paper was sold to purchase the new issue,
resulting in a pickup in yield of three basis points, a situation which would
typically not exist in the secondary market.
TRADES INVOLVING TREASURIES WERE UNDERTAKEN TO PURSUE PERCEIVED MISPRICINGS
ALONG THE U.S. TREASURY CURVE.
<PAGE> 3
DLB FIXED INCOME FUND
Manager's Commentary
First, on the short end of the Treasury curve, selling the Treasury 6.25% 3/99
to buy the Treasury 6.375% 5/99 resulted in a pickup of eight basis points of
yield with a modest amount of duration extension. On the longer end of the
Treasury curve, the Treasury 6.125% 11/27 was sold to buy the Treasury 8.125%
5/21 for a pickup in yield of eleven basis points. The 20-year area of the curve
is characterized by a hump, and this trade reduced duration and picked up yield
by shortening into this part of the Treasury curve. Both of these Treasury
trades' respective yield pickups were substantial considering that the yield
spread between 2-year and 30-year Treasuries has hovered around 20 basis points
in total.
FOR THE SIX- AND TWELVE- MONTH PERIODS ENDED JUNE 30, 1998, THE TIME WEIGHTED
TOTAL RATE OF RETURNS FOR THE DLB FIXED INCOME FUND WERE 3.77% AND 9.77%,
RESPECTIVELY. These compare favorably to respective returns of 3.61% and 9.42%
for the Lipper Intermediate Investment Grade Debt Index, the Fund's primary peer
group.
<PAGE> 4
DLB FIXED INCOME FUND
Growth of a $100,000 Investment
Cumulative Total Return Since Inception 7/25/95
<TABLE>
<CAPTION>
fixed lb agg.
<S> <C> <C> <C> <C>
25-Jul-95 $100,000.00 $100,000.00
31-Jul-95 0.10 0.15 $100,100.00 $100,150.00
31-Aug-95 1.40 1.21 $101,501.40 $101,361.82
30-Sep-95 0.89 0.97 $102,404.76 $102,345.02
31-Oct-95 1.17 1.30 $103,602.90 $103,675.51
30-Nov-95 1.45 1.50 $105.105.14 $105,230.64
31-Dec-95 1.29 1.40 $106,461.00 $106,703.87
31-Jan-96 0.88 0.66 $107,397.85 $107,408.12
28-Feb-96 -0.97 -1.74 $106,356.09 $105,539.22
31-Mar-96 -0.78 -0.70 $105,526.52 $104.800.44
30-Apr-96 -0.49 -0.56 $105,009.44 $104,213.56
30-May-96 -0.20 -0.20 $104,799.42 $104,005.13
30-Jun-96 0.99 1.34 $105,836.93 $105,398.80
31-Jul-96 0.20 0.27 $106,048.61 $105,683.38
31-Aug-96 -0.10 -0.17 $105,942.56 $105,503.72
30-Sep-96 1.57 1.74 $107,605.86 $107.339.48
31-Oct-96 2.03 2.22 $109,790.25 $109,722.42
30-Nov-96 1.61 1.71 $111,557.88 $111,598.67
31-Dec-96 -1.03 -0.93 $110,408.83 $110,560.80
31-Jan-97 0.40 0.31 $110,850.47 $110,903.54
28-Feb-97 0.20 0.25 $111,072.17 $111,180.80
31-Mar-97 -1.08 -1.11 $109,872.59 $109,946.69
30-Apr-97 1.39 1.50 $111,399.82 $111,595.89
31-May-97 0.88 0.95 $112,380.14 $112,656.05
30-Jun-97 1.26 1.19 $113,796.13 $113.996.66
31-Jul-97 2.40 2.70 $116,527.23 $117,074.57
31-Aug-97 -0.75 -0.85 $115,653.28 $116,079.44
30-Sep-96 1.42 1.48 $117,295.55 $117,797.41
31-Oct-97 1.40 1.45 $118,937.69 $119,505.48
30-Nov-97 0.18 0.46 $119,151.78 $120.055.20
31-Dec-97 1.02 1.01 $120,367.13 $121,267.76
31-Jan-98 1.32 1.28 $121,955.97 $122,819.99
28-Feb-98 -0.09 -0.08 $121,846.21 $122,727.48
31-Mar-98 0.37 0.34 $122,297.04 $123,149.22
30-Apr-98 0.46 0.52 $122,859.61 $123,792.00
31-May-98 0.83 0.95 $123,879.35 $124,966.28
30-Jun-98 0.82 0.85 $124,895.16 $126,026.09
</TABLE>
TOTAL RETURNS (%) FOR PERIODS ENDED 6/30/98
<TABLE>
<CAPTION>
6 Months One Year Annualized
1/1/98 - 7/1/97 - Since Inception
6/30/98 6/30/98 7/25/95 - 6/30/98
<S> <C> <C> <C>
DLB FIXED INCOME FUND 3.77 9.76 7.69
Lehman Brothers Aggregate 3.93 10.53 8.01
</TABLE>
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.
<PAGE> 5
DLB FIXED INCOME FUND
FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND THE YEAR
ENDED DECEMBER 31, 1997
<PAGE> 6
DLB FIXED INCOME FUND
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS:
<S> <C>
Portfolio of Investments as of June 30, 1998 1 - 4
Statement of Assets and Liabilities as of June 30, 1998 5
Statement of Operations for the Six Months Ended June 30, 1998 6
Statement of Changes in Net Assets for the Six Months Ended June 30, 1998
and the Year Ended December 31, 1997 7
Financial Highlights for the Six Months Ended June 30, 1998 and Each of
the Years in the Three-Year Period Ended December 31, 1997 8
Notes to Financial Statements 9 - 11
</TABLE>
<PAGE> 7
DLB FIXED INCOME FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
BONDS - 95.6%
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL VALUE
BOND RATING ISSUER AMOUNT
<S> <C> <C> <C>
US GOVERNMENT - 30.0%
AAA US Treasury Note, 6.375%, 1999 $ 650,000 $ 654,674
AAA US Treasury Note, 5.875%, 2000 1,475,000 1,483,068
AAA US Treasury Note, 6.375%, 2000 300,000 303,657
AAA US Treasury Note, 6.375%, 2001 800,000 819,248
AAA US Treasury Note, 6.25%, 2001 1,000,000 1,020,780
AAA US Treasury Bond, 6.625%, 2002 775,000 802,730
AAA US Treasury Bond, 6.00%, 2002 100,000 101,687
AAA US Treasury Bond, 11.625%, 2002 500,000 616,250
AAA US Treasury Bond, 11.125%, 2003 25,000 31,129
AAA US Treasury Note, 5.875%, 2004 150,000 152,766
AAA US Treasury Note, 7.25%, 2004 450,000 489,587
AAA US Treasury Note, 7.50%, 2005 75,000 83,015
AAA US Treasury Note, 5.625%, 2006 2,000,000 2,008,120
AAA US Treasury Bond, 8.125%, 2021 1,110,000 1,445,253
----------
10,011,964
----------
US GOVERNMENT AGENCY - 6.9%
AAA Federal National Mortgage Association, 5.81%, 1999 600,000 601,218
AAA Federal National Mortgage Association, 5.75%, 2003 1,000,000 1,000,940
AAA Federal National Mortgage Association, 6.21%, 2007 700,000 717,934
----------
2,320,092
----------
MORTGAGES - 17.3%
AAA FHLMC Gold Pool #M90449, 5.50%, 2001 336,390 333,083
AAA FHLMC Gold Pool #G00143, 7.50%, 2023 246,365 252,850
AAA FNMA Pool #346537, 6.00%, 2011 445,390 440,990
AAA First Union Lehman CMBS, 6.56%, 2008 675,000 689,555
AAA GNMA Pool #780332, 7.25%, 2009 292,514 304,121
AAA GNMA Pool #410343, 7.50%, 2011 546,909 565,067
AAA GNMA Pool #423828, 6.00%, 2011 428,681 426,653
AAA GNMA Pool #398964, 7.50%, 2011 246,244 254,215
</TABLE>
1
<PAGE> 8
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL VALUE
BOND RATING ISSUER AMOUNT
<S> <C> <C> <C>
MORTGAGES (CONTINUED)
AAA GNMA Pool #357262, 7.50%, 2023 $ 350,055 $ 360,266
AAA GNMA Pool #380866, 7.00%, 2024 76,889 78,219
AAA GNMA Pool #401135, 8.50%, 2024 675,001 711,795
AAA GNMA Pool #432175, 8.00%, 2026 69,785 72,324
AAA GNMA Pool #441009, 8.00%, 2026 280,503 290,710
BAA3 Green Tree Financial 1994-A, 6.90%, 2004 39,253 39,136
BAA3 Green Tree Financial 1995-A, 7.25%, 2005 169,085 171,727
AAA Green Tree Financial 1995-2 A-4, 7.85%, 2026 272,214 274,169
AAA Green Tree Financial 1995-1 A-5, 8.40%, 2025 200,000 205,750
AAA Green Tree Financial 1995-3 A-4, 7.05%, 2025 100,000 100,812
AAA Green Tree Financial 1996-2 A-3, 6.90%, 2027 200,000 203,186
----------
5,774,628
----------
ASSET BACKED - 1.5%
AAA California Infrastructure, 6.25%, 2004 500,000 506,030
----------
BANKS - 2.0%
A2 Suntrust Banks, 6.00%, 2026 400,000 395,212
AA3 Wachovia Capital FRN TRST II, 6.25%, 2027 265,000 272,624
----------
667,836
----------
FINANCIAL - 4.2%
AA3 Associates Corp. N.A., 6.45%, 2001 500,000 505,360
A1 Ford Capital BV, 10.125%, 2000 100,000 108,870
A1 Ford Motor Credit, 6.125%, 2003 400,000 400,028
A2 John Deere Capital Corporation, 6.30%, 1999 250,000 251,033
AA3 Norwest Corp., 6.00%, 2000 150,000 150,284
-------
1,415,575
----------
INDUSTRIAL - 19.0%
BAA3 Airgas Inc., 7.14%, 2004 415,000 434,924
A1 Aluminum Company of America, 5.75%, 2001 500,000 497,855
BAA2 American Stores, 8.00%, 2026 235,000 267,670
A3 Cardinal Health, 6.50%, 2004 400,000 404,864
A3 Cardinal Health, 6.00%, 2006 150,000 149,601
BAA1 Champion International, 7.20%, 2026 675,000 729,500
</TABLE>
2
<PAGE> 9
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL VALUE
BOND RATING ISSUER AMOUNT
<S> <C> <C> <C>
INDUSTRIAL (CONTINUED)
BAA1 Comdisco Inc., 6.375%, 2001 $ 300,000 $ 301,272
BAA1 Dana Corporation, 6.505%, 2008 350,000 355,478
A1 International Business Machines, 6.22%, 2027 400,000 410,684
A3 Lockheed Martin, 7.75%, 2026 250,000 284,870
A2 McDonnell Douglas, 8.25%, 2000 50,000 52,143
A2 Philip Morris Companies, 7.125%, 1999 300,000 304,281
A2 Philip Morris Companies, 7.20%, 2007 175,000 180,805
BAA1 Raytheon Co., 6.45%, 2002 200,000 201,984
A3 Ryder System Inc., 8.45%, 1999 100,000 103,593
A2 Sears, Roebuck & Co., 6.50%, 2000 50,000 51,392
A2 Sears, Roebuck & Co., 6.95%, 2002 100,000 101,014
BAA1 Supervalue Inc., 7.25%, 1999 500,000 505,245
BAA3 Telecommunications Inc., 9.80%, 2012 170,000 218,673
BAA3 Time Warner Inc., 9.15%, 2023 150,000 189,114
BAA2 Tosco Corporation, 7.625%, 2006 575,000 615,554
----------
6,360,516
----------
INTERNATIONAL BONDS - 9.3%
BAA2 Canadian National Railroad, 7.00%, 2004 350,000 360,882
BAA1 Hellenic Republic, 6.95%, 2008 300,000 309,486
A2 Hydro Quebec, 8.05%, 2024 450,000 535,374
BAA2 Oslo Seimsmic Services, 6.25%, 2011 414,397 455,438
BAA3 Petro Geo-Services, 7.50%, 2007 400,000 425,616
AA3 Province of Ontario, 7.75%, 2002 575,000 610,598
BAA1 Southern Investments UK, 6.375%, 2001 400,000 401,720
----------
3,099,114
----------
TRANSPORTATION - 3.4%
A1 Atchinson Topeka & Santa Fe, 7.75%, 1999 75,000 76,591
BAA3 Delta Air Lines, 10.375%, 2022 130,000 180,497
BAA1 Norfolk Southern, 7.05%, 2037 125,000 132,736
BAA1 Norfolk Southern, 6.70%, 2000 125,000 126,551
BAA1 United Air Lines Inc., 7.27%, 2013 290,346 303,342
BAA1 Wisconsin Central Transportation, 6.625%, 2008 300,000 299,424
----------
1,119,141
----------
</TABLE>
3
<PAGE> 10
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL VALUE
BOND RATING ISSUER AMOUNT
<S> <C> <C> <C>
OTHER CORPORATE BONDS - 2.0%
AAA New Jersey Economic Development Authority, $ 600,000 $ 676,872
----------
7.425%, 2029
TOTAL BONDS (identified cost, $31,187,082) 31,951,768
REPURCHASE AGREEMENT - 3.1%
Bank of New York, dated 6/30/98, due 7/1/98 1,029,584 1,029,584
----------
(secured by various U.S. Treasury Notes),
at cost
TOTAL INVESTMENTS (identified cost, $32,216,666) 32,981,352
Other assets, less liabilities - 1.3% 438,074
----------
NET ASSETS - 100% $ 33,419,426
============
</TABLE>
See notes to financial statements.
4
<PAGE> 11
DLB FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value (identified cost, $32,216,666) $32,981,352
Interest receivable 457,549
Receivable from investment manager 8,899
-----------
33,447,800
-----------
LIABILITIES:
Payable for fund shares reacquired 200
Accrued management fees 5,492
Accrued expenses 22,682
-----------
28,374
-----------
NET ASSETS $33,419,426
===========
NET ASSETS CONSIST OF:
Paid-in capital $31,558,771
Unrealized appreciation on investments 764,686
Accumulated undistributed net realized gain on investment
transactions 124,034
Accumulated undistributed net investment income 971,935
-----------
Total $33,419,426
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 3,034,704
===========
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 11.01
===========
</TABLE>
See notes to financial statements.
5
<PAGE> 12
DLB FIXED INCOME FUND
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INTEREST INCOME: $ 1,038,961
-----------
EXPENSES:
Management fee 65,166
Trustees' fees 2,338
Custodian fee 28,165
Registration fees 13,914
Accounting and audit fees 13,688
Transfer agent fee 3,967
Legal fees 3,126
Printing fees 708
-----------
131,072
Preliminary reduction of expenses by investment manager (41,489)
-----------
Net expenses 89,583
-----------
Net investment income 949,378
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (identified cost basis): 131,711
Change in unrealized appreciation 141,399
-----------
Net realized and unrealized gain on investments 273,110
-----------
Increase in net assets from operations $ 1,222,488
===========
</TABLE>
See notes to financial statements.
6
<PAGE> 13
DLB FIXED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 949,378 $ 1,240,912
Net realized gain on investments 131,711 26,429
Net unrealized appreciation on investments 141,399 715,791
------------ ------------
1,222,488 1,983,132
------------ ------------
Distributions to shareholders from net investment income -- (1,212,012)
------------ ------------
Fund share transactions:
Net proceeds from sales of shares 670,585 17,272,202
Net asset value of shares issued in
reinvestment of distributions -- 887,748
Cost of shares reacquired (628,600) (2,036,662)
------------ ------------
41,985 16,123,288
------------ ------------
Total increase in net assets 1,264,473 16,894,408
NET ASSETS:
At beginning of period 32,154,953 15,260,545
------------ ------------
At end of period (including accumulated undistributed net
investment income of $971,935 and $22,557, respectively) $ 33,419,426 $ 32,154,953
============ ============
</TABLE>
See notes to financial statements.
7
<PAGE> 14
DLB FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended Year Ended Period Ended
Ended December 31, December 31, December 31,
June 30, 1998 1997 1996 1995**
------------- ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value- beginning of period $ 10.61 $ 10.11 $ 10.26 $10.00
------- ------- ------- ------
Income from investment operations:
Net investment income .31 .42 .53 .28
Net realized and unrealized gain (loss) on investments .09 .49 (.15) .37
------- ------- ------- ------
.40 .91 .38 .65
------- ------- ------- ------
Less distributions to shareholders:
From net investment income (1) -- (.41) (.53) (.28)
From net realized gain on investments -- -- -- (.11)
------- ------- ------- ------
-- (.41) (.53) (.39)
------- ------- ------- ------
Net asset value- end of period $ 11.01 $ 10.61 $ 10.11 $10.26
======= ======= ======= ======
Total return 3.77% 9.03% 3.70% 14.75%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets .55%* .55% .55% .55%*
Ratio of net investment income to average net assets 5.83%* 5.74% 6.36% 6.24%*
Portfolio turnover 29% 44% 65% 42%
Net assets at end of period (000 omitted) $33,419 $32,155 $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 the 1995
expenses been limited to that permitted by state securities law, the investment
income per share and ratios would have been:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net investment income $ .30 $ .38 $ .44 $ .19
Ratios (to average net assets):
Expenses .80%* 1.06% 1.66% 2.50%*
Net investment income 5.57%* 5.22% 5.25% 4.33%*
</TABLE>
* Annualized
** For the period from July 25, 1995 (commencement of operations) to December
31, 1995.
(1) Distributions in excess of net investment income for the year ended
December 31, 1996 were less than $.01 per share.
See notes to financial statements.
8
<PAGE> 15
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, 1997, the Fund, for federal income tax purposes, had
capital loss carryforwards of $7,677, which expire December 31, 2004. To
the extent permitted by the 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.
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
9
<PAGE> 16
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. ("Babson") 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
six months ended June 30, 1998, the management fee amounted to $65,166, of
which $32,590 was waived by Babson. Additionally, $8,899 of Fund expenses
were borne by Babson.
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
Babson.
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 $3,971,913 $3,039,733
========== ==========
Investments (non-U.S. Government securities) $5,149,041 $6,042,194
========== ==========
</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 $ 32,216,666
============
Gross unrealized appreciation $ 775,328
Gross unrealized depreciation (10,642)
------------
Net unrealized appreciation $ 764,686
============
</TABLE>
10
<PAGE> 17
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 Year Ended
Ended December 31,
June 30, 1998 1997
------------- ------------
<S> <C> <C>
Shares sold 61,991 1,635,464
Shares issued in reinvestment
of distributions -- 83,908
Redemptions (57,978) (197,835)
---------- ----------
Net increase 4,013 1,521,537
========== ==========
</TABLE>
11
<PAGE> 18
DLB
The DLB Global Bond Fund
Semi Annual Report
June 30, 1998
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE> 19
DLB GLOBAL BOND
Manager's Commentary
THE DLB GLOBAL BOND FUND ENDED THE FIRST HALF OF THE YEAR WITH A TOTAL RETURN OF
3.40%, OUTPERFORMING THE J.P. MORGAN GLOBAL BOND INDEX RETURN OF 3.27%, FOR THE
SAME PERIOD. The annualized total return of the Fund since inception was 7.04%,
whereas the J.P. Morgan Index was 4.38% for the same period.
United States
IN THE U.S., AFTER A STRONG RALLY RESULTING FROM THE ASIAN CRISIS WHICH INDUCED
STRONG INFLOWS INTO TREASURIES, THE MARKET RETURNED TO MORE REASONABLE LEVELS.
Several remarks by Chairman Greenspan -- and stronger than expected economic
numbers -- had the effect of diminishing the elation created by the collapse of
the Asian markets. The swift response by the International Monetary Fund,
although criticized, also had the effect of calming the sell-off of Asian
currency and equity markets, bringing the U.S. market to more sensible levels.
At one point, 2-year Treasury Notes in the U.S. traded at a yield of 5.0%,
implying that Fed easing was imminent. Consequently, the Fund maintained a
constructive posture towards Treasuries and kept a "buying on dips" strategy.
DURING THE SECOND QUARTER, THE WORLD FINANCIAL MARKETS CONTINUED TO FEEL THE
EFFECTS OF THE ASIAN FINANCIAL CRISIS. Global capital and trade flows have
shifted dramatically, causing currency depreciation and asset market instability
in Latin America, Russia, Australia, and New Zealand. The U.S. and Europe
continued to remain relatively unaffected while their asset markets served as
safe havens for investors.
TREASURIES OUTPERFORMED MOST GLOBAL MARKETS IN THE SECOND QUARTER, AS EXTERNAL
FACTORS DROVE THE MARKET HIGHER TO RECORD LEVELS, HIGHLIGHTED BY A HISTORICAL
LOW YIELD ON THE 30-YEAR BOND OF 5.60%. Treasuries gained on dollar/yen
strength, weakness in the emerging markets, and a continued slide in commodity
prices. On the domestic side, investors did not appear concerned about any rate
increases by the Federal Reserve, despite the upward revision of first quarter
GDP growth to 5.4% from 4.8%. With more good news about the federal budget, and
investors fearing the possibility of further negative economic news globally,
the chances of Fed action appeared less likely. The DLB Global Bond Fund
maintained a positive view on the U.S. bond market through the second quarter.
Consequently, the Fund maintained a long duration via a barbell position, hence
benefiting from a flattening yield curve
<PAGE> 20
DLB GLOBAL BOND
Manager's Commentary
(i.e. the Fund was overweighted in long dated securities as well as in short
term securities).
Europe
IN EUROPE, THE SITUATION DEVELOPED SLIGHTLY DIFFERENTLY DURING THE FIRST
QUARTER. Although the market did not react initially to the Asian crisis with
the same sense of urgency as the U.S. market, eventually it matched the strength
of the U.S. It then outperformed, as there were indications by Bundesbank
officials that the European Monetary Union was more likely to happen at the
lower end of rates within the Union than in between the higher and lower rates.
Significant improvement in inflation then helped to sustain the rally. In
"Euroland" -- the candidates for the European economic and monetary union (EMU)
- -- markets in the second quarter also benefited from a flight-to-quality effect
as the rally was widespread and strong enough to push the yield on the 10-year
German government bond to a record low of 4.74%. The Fund was neutral to the
core markets. However, it was overweighted in the German market compared to the
Spanish market.
THE U.K. WAS THE LONE EUROPEAN MARKET NOT TO JOIN THE GLOBAL RALLY. A surprising
25 basis point rate hike in early June by the Bank of England, in response to
higher than expected inflation data, led to underperformance in the U.K. gilt
market. The Fund maintained a structural overweight position in the short end of
the U.K. yield curve, as we continued to believe the U.K. economy will feel the
impact of the Asian slowdown and the ongoing tightening that began in 1997.
Japan
THE JAPANESE MARKET, ON THE OTHER HAND, REMAINED DIRECTIONLESS FOR MOST OF THE
FIRST QUARTER, ALTHOUGH IT RALLIED AT THE END AS A CONSEQUENCE OF WINDOW
DRESSING FOR THE FISCAL YEAR-END. The already low levels of interest rates,
coupled with the perceived need for extreme measures by government authorities
to stimulate the economy, has kept this market in check. This is in spite of the
fact that the economy has remained quite depressed, and the effects of the Asian
crisis have been felt more directly by Japan.
IN APRIL AND MAY, JAPANESE GOVERNMENT BONDS RALLIED. In addition, Japanese
government bonds also benefited from a flight-to-quality in response to the
Asian crisis which compressed Japanese government bond yields further. However,
<PAGE> 21
DLB GLOBAL BOND
Manager's Commentary
the trend changed in June as Japanese investors became increasingly nervous
about future supply and started buying foreign assets more actively.
IN ADDITION, YEN YIELDS ARE NOW SO LOW THAT THEY HAVE LED JAPANESE INSTITUTIONAL
INVESTORS TO SEEK HIGHER RETURNS IN FOREIGN MARKETS. The Fund continues to be
out of the Japanese bond market, as we do not see any value in investing in
10-year Japanese government securities yielding 1.40%.
New Zealand
THROUGHOUT THE FIRST QUARTER, THE FUND MAINTAINED A POSITIVE OUTLOOK ON THE
EUROPEAN MARKETS AND REMAINED OUT OF THE JAPANESE MARKETS. In addition, the Fund
was overweighted in the New Zealand market because of high real rates and
accommodative monetary policy.
THE SECOND QUARTER HAS SEEN NEW ZEALAND'S ECONOMY HIT HARD BY THE ASIAN
FINANCIAL CRISIS, CAUSING A TIGHTENING IN EXPORTS TO ASIA. This has been
reflected in the depreciation of the New Zealand dollar. Add to this the
persistence of higher-than-average interest rates, and one realized why consumer
sentiment has taken a turn for the worse, slowing demand. Third quarter tax cuts
which were aimed at restoring confidence and stimulating spending may not be
powerful enough to offset New Zealand's slide. This is due to high levels of
household debt, most of which will retard any acceleration in private demand
growth. The Fund is currently overweight in the short term sector of the New
Zealand bond market. We expect that New Zealand dollar authorities will lower
interest rates shortly in an effort to boost consumption. This will increase the
pressure on the New Zealand for another quarter, after which stability should
return, assuming Asia stabilizes.
The Dollar
THE U.S. DOLLAR CONTINUES TO BE THE CURRENCY OF CHOICE BY MARKET PARTICIPANTS.
It started the year moving in a range against the yen and the deutsche mark. The
range was caused by the inherent strength of the dollar based on better
fundamentals on one side, and the threat of Japanese fiscal stimulus on the
other. After a bout of weakness induced by political turmoil in the U.S., the
dollar recovered steadily, reaching new highs for the year at 135 $/yen and 1.85
$/deutsche mark. The pound has stayed firm for most of the year although, at one
point, it reached a low of 1.62 against the dollar.
<PAGE> 22
DLB GLOBAL BOND
Manager's Commentary
AT THE CLOSE OF THE SECOND QUARTER, WE MAINTAIN THE VIEW THAT THE DEUTSCHE MARK
IS IN A TRADING RANGE OF 1.75 TO 1.85, AND THE FOREIGN EXCHANGE EXPOSURE OF THE
FUND IS MANAGED ACCORDINGLY. On the other hand, all the fundamentals seem to be
pointing to a weaker yen. However, a much weaker yen will have an adverse affect
on the emerging markets, which might prompt central bank intervention.
Consequently, the Fund continues to hedge itself in the option market against
adverse movements in the yen.
Portfolio Strategy
MANY OF THE SUPPORTING ARGUMENTS FOR MAINTAINING A LONG EXPOSURE TO FIXED INCOME
MARKETS HAVE BEEN PRICED, TO A LARGE EXTENT, BY THE MARKET. We don't believe the
market will move decisively in any direction until economic data for the third
quarter becomes available. Even then, if the data suggests a continuation of the
current slowdown, but no risk of recession, the market might remain capped. A
strong rebound in the U.S. economy will most likely be very damaging for the
fixed income markets worldwide.
IN SUMMARY, WE PLAN TO:
a) Keep a positive bias towards the U.S. fixed income markets.
b) Continue to trade the 5.40% to 5.80% range in U.S. 10-year notes.
c) Remain underexposed in the Japanese market.
d) Underweight the European markets.
e) Be long in the gilt market.
f) Exit our overweight positions in the New Zealand market looking for a
better point of reentry.
<PAGE> 23
DLB GLOBAL BOND
Growth of a $100,000 Investment
Cumulative Total Return Since Inception 8/26/96
<TABLE>
<CAPTION>
DLB GLOBAL BOND JPM GLOBAL BON
<S> <C> <C> <C> <C>
26-Aug-96 $100,000.00 $100,000.00
0.00 -0.11 31-Aug-96 $100,000.00 $ 99,890.00
1.30 0.55 30-Sep-96 $101,300.00 $100.439.40
1.38 1.98 31-Oct-96 $102,697.94 $102,428.10
1.27 1.43 30-Nov-96 $104,002.20 $103,892.82
- -0.75 -0.70 31-Dec-96 $103,222.19 $103,165.57
0.40 -2.50 31-Jan-97 $103,635.08 $100,586.43
0.80 -0.69 28-Feb-97 $104,464.16 $ 99,892.38
- -1.09 -0.76 31-Mar-97 $103,325.50 $ 99,133.20
0.80 -0.56 30-Apr-97 $104,152.10 $ 98,578.05
0.40 2.36 31-May-97 $104,568.71 $100,904.50
0.30 1.14 30-Jun-97 $104,882.42 $102,054.81
- -------------------------------------------------------------
1.58 -0.37 31-Jul-97 $106,539.56 $101,677.20
- -0.55 -0.12 31-Aug-97 $105,953.59 $101,555.19
1.76 2.22 30-Sep-96 $107,818.37 $103,809.72
0.77 2.12 31-Oct-97 $108,648.58 $106,010.48
0.48 -1.20 30-Nov-97 $109,170.09 $104,738.36
0.77 -0.11 31-Dec-97 $110,010.70 $104,623.14
1.44 1.00 31-Jan-98 $111,594.85 $105,669.38
0.00 0.74 28-Feb-98 $111,594.85 $106,452.86
0.20 -0.75 31-Mar-98 $111,818.04 $105,654.47
0.51 1.54 30-Apr-98 $112,388.31 $107,277.81
0.50 0.43 31-May-98 $112,950.26 $107,739.11
0.70 0.28 30-Jun-98 $113,740.91 $108,036.70
</TABLE>
TOTAL RETURNS FOR PERIODS ENDED 6/30/98
<TABLE>
<CAPTION>
6 Months One Year Annualized
1/1/98 - 7/1/97 - Since Inception
6/30/98 6/30/98 8/26/96 - 6/30/98
<S> <C> <C> <C>
DLB GLOBAL BOND FUND 3.40 8.44 6.95
JP Morgan Global Gov't Bond Index 3.27 5.87 4.12
</TABLE>
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.
<PAGE> 24
DLB GLOBAL BOND
FUND
FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND THE YEAR ENDED
DECEMBER 31, 1997
<PAGE> 25
DLB GLOBAL BOND FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS:
<S> <C>
Portfolio of Investments as of June 30, 1998 1 - 2
Statement of Assets and Liabilities as of June 30, 1998 3
Statement of Operations for the Six Months Ended June 30, 1998 4
Statement of Changes in Net Assets for the Six Months Ended June 30, 1998
and the Year Ended December 31, 1997 5
Financial Highlights for the Six Months Ended June 30, 1998 and Each of
the Years in the Two-Year Period Ended December 31, 1997 6
Notes to Financial Statements 7 - 12
</TABLE>
<PAGE> 26
DLB GLOBAL BOND FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
BONDS - 97.2%
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL
BOND RATING ISSUER AMOUNT VALUE
<S> <C> <C> <C> <C>
US GOVERNMENT - 39.7%
AAA US Treasury Note, 6.375%, 2001 $ 3,000,000 $ 3,071,250
AAA US Treasury Note, 5.5%, 2008 5,000,000 4,998,435
AAA Interamerica Development Bank, 5.75%, 2008 3,000,000 2,977,800
AAA US Treasury Bill, 1998 700,000 686,893
----------
11,734,378
----------
US GOVERNMENT AGENCY - 30.4%
AAA Tennessee Valley Authority DEM 5,000,000 3,034,225
AAA Federal National Mortgage Association, 5.25%, 2003 $ 4,000,000 3,939,676
AAA Federal National Mortgage Association, 5.75%, 2005 2,000,000 2,007,040
----------
8,980,941
----------
FOREIGN GOVERNMENT BONDS - 27.1%
Canadian Government, 7.25%, 2007 CAD 900,000 693,330
Italian Republic BTPS, 6.75%, 2007 ITL 2,000,000,000 1,265,042
French Republic BTAN, 4.50%, 2003 FRF 13,000,000 2,155,557
United Kingdom Treasury, 7.25%, 2007 GBP 1,000,000 1,835,615
New Zealand Government, 8.00%, 2001 NZD 1,500,000 796,317
Deutschland Republic, 6.25%, 2024 DEM 2,000,000 1,249,273
----------
7,995,134
----------
TOTAL BONDS (identified cost, $28,756,768) 28,710,453
----------
PURCHASED CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
DESCRIPTION / EXPIRATION MONTH / STRIKE PRICE CONTRACTS
Financial futures contracts for 1,250 Japanese
Yen / July / 73.0 (identified cost, $ 11,937) 25 12,188
----------
</TABLE>
1
<PAGE> 27
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PURCHASED PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
DESCRIPTION / EXPIRATION MONTH / STRIKE PRICE CONTRACTS VALUE
Financial futures contracts for 625 British
Pounds / August / 161.0 10 $ 1,375
Financial futures contracts for 1,000,000 Japanese
10 year Bonds / August / 132.0 2 10,086
------
TOTAL PURCHASED PUT OPTIONS
(identified cost, $11,885) 11,461
------
TOTAL INVESTMENTS
(identified cost, $28,780,590) 28,734,102
Other Assets, Less Liabilities - 2.8% 824,990
-------
NET ASSETS - 100% $ 29,559,092
============
Abbreviations have been used throughout this report to
indicate amounts shown in currencies other than the U.S.
dollar. A list of abbreviations is shown below.
CAD - Canadian Dollar GBP - British Pounds
DEM - Deutsche Marks ITL - Italian Lire
FRF - French Francs NZD - New Zealand Dollar
</TABLE>
See notes to financial statements.
2
<PAGE> 28
DLB GLOBAL BOND FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (identified cost, $28,780,590) $ 28,734,102
Cash 236,473
Interest receivable 655,314
Receivable from investment manager 39,103
------------
29,664,992
------------
LIABILITIES:
Payable for investments purchased 4,585
Payable for daily variation margin on open futures contracts 4,150
Net payable for open forward foreign currency exchange contracts sold 63,309
Accrued management fees 13,322
Accrued expenses 20,534
------------
105,900
------------
NET ASSETS $ 29,559,092
============
NET ASSETS CONSIST OF:
Paid-in capital $ 29,340,917
Unrealized depreciation on investments and translation of assets and (154,556)
liabilities in foreign currencies
Accumulated undistributed net investment income 741,746
Accumulated distributions in excess of net realized gain on investment
and foreign currency transactions (369,015)
------------
$ 29,559,092
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,941,316
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 10.05
============
</TABLE>
See notes to financial statements.
3
<PAGE> 29
DLB GLOBAL BOND FUND
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INTEREST INCOME $ 878,734
---------
EXPENSES:
Management fee 108,255
Trustees' fees 2,338
Custodian fee 31,735
Registration fees 16,232
Accounting and audit fees 15,272
Legal fees 4,927
Transfer agent fees 3,968
Printing fees 707
---------
183,434
Preliminary reduction of expenses by investment manager (67,987)
---------
Net expenses 115,447
---------
Net investment income 763,287
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (loss) (identified cost basis):
Investment transactions (205,600)
Foreign currency transactions and forward foreign currency exchange
contracts and other transactions denominated in foreign currency 257,544
Written option transactions 18,618
Futures contracts transactions (178,848)
---------
Net realized loss (108,286)
---------
Change in unrealized appreciation (depreciation):
Investments 454,124
Foreign currency and forward foreign currency exchange contracts and other
transactions denominated in foreign currency (177,926)
Written options (444)
Futures contracts 21,659
---------
Net unrealized gain 297,413
---------
Net realized and unrealized gain 189,127
---------
Increase in net assets from operations $ 952,414
=========
</TABLE>
See notes to financial statements.
4
<PAGE> 30
DLB GLOBAL BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 763,287 $ 1,537,352
Net realized gain (loss) on investments (108,286) 780,420
Net unrealized appreciation (depreciation) on investments 297,413 (552,906)
------------ ------------
952,414 1,764,866
------------ ------------
Distributions to shareholders:
From net investment income -- (1,537,352)
In excess of net investment income -- (938,259)
------------ ------------
-- (2,475,611)
------------ ------------
Fund share transactions:
Net proceeds from sales of shares 140,775 932,227
Net asset value of shares issued in
reinvestment of distributions -- 2,475,611
Cost of shares reacquired (35,379) (1,077)
------------ ------------
105,396 3,406,761
------------ ------------
Total increase in net assets 1,057,810 2,696,016
NET ASSETS:
At beginning of period 28,501,282 25,805,266
------------ ------------
At end of period (including accumulated undistributed
(distributions in excess of) net investment income of
$741,746 and $(21,541), respectively) $ 29,559,092 $ 28,501,282
============ ============
</TABLE>
See notes to financial statements.
5
<PAGE> 31
DLB GLOBAL BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended Period Ended
Ended December 31, December 31,
June 30, 1998 1997 1996**
------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $ 9.72 $ 9.99 $ 10.00
------- ------- -------
Income from investment operations:
Net investment income .26 .58 .19
Net realized and unrealized gain on investments
and foreign currency .07 .08 .13
------- ------- -------
.33 .66 .32
------- ------- -------
Less distributions to shareholders:
From net investment income - (.58) (.19)
In excess of net investment income - (.35) (.11)
From net realized gain on investments and foreign currency - - (.03)
------- ------- -------
- (.93) (.33)
------- ------- -------
Net asset value- end of period $ 10.05 $ 9.72 $ 9.99
======= ======= =======
Total Return 3.40% 6.57% 3.21%
Ratios and Supplemental Data:
Ratio of expenses to average net assets .80%* .80% .80%*
Ratio of net investment income to average net assets 5.29%* 5.64% 5.35%*
Portfolio turnover 247% 234% 232%
Net assets at end of period (000 omitted) $29,559 $28,501 $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> <C>
Net investment income $ .24 $ .52 $ .17
Ratios (to average net assets):
Expenses 1.27%* 1.42% 1.33%*
Net investment income 4.82%* 5.01% 4.81%*
</TABLE>
* Annualized
** For the period from August 26, 1996 (commencement of operations) to
December 31, 1996.
See notes to financial statements.
6
<PAGE> 32
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 (the "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
<PAGE> 33
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 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
8
<PAGE> 34
of counterparties to meet the terms of the contracts and 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 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, 1997, the Fund, for federal income tax
purposes, had capital loss carryforwards of $208,993, which expire
December 31, 2005. To the extent permitted by the 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. 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
<PAGE> 35
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Co. Inc. ("Babson") 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, 1998, the management fee
amounted to $108,255, of which $28,884 was waived by Babson.
Additionally, $39,103 of Fund expenses were borne by Babson.
Babson 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, Babson pays PBI a monthly fee at the effective annual rate
of .65% of average daily net assets. PBI is a 60% owned subsidiary of
Babson.
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 Babson.
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 $61,874,717 $66,343,973
=========== ===========
Investments (non-U.S. Government securities) $10,442,189 $ 5,351,475
=========== ===========
</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 $ 28,780,590
============
Gross unrealized depreciation $ (503,625)
Gross unrealized appreciation 457,137
------------
Net unrealized depreciation $ (46,488)
============
</TABLE>
10
<PAGE> 36
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 Year Ended
Ended December 31,
June 30, 1998 1997
------------- ------------
<S> <C> <C>
Shares sold 14,185 92,967
Shares issued in reinvestment
of distributions -- 254,910
Redemptions (3,598) (107)
-------- --------
Net increase 10,587 347,770
======== ========
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund trades financial instruments with off-balance sheet risk in
the normal course of its investing activities in order to manage
exposure to 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, 1998 is as follows:
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> <C>
Sales 7/31/98 CAD 1,030,000 $ 702,113 $ 701,346 $ 767
7/31/98 DEM 8,095,000 4,469,906 4,496,137 (26,231)
7/31/98 FRF 13,067,000 2,159,834 2,165,725 (5,891)
7/31/98 GBP 1,110,000 1,842,600 1,849,361 (6,761)
7/31/98 ITL 2,261,700,000 1,265,640 1,273,473 (7,833)
7/31/98 NZD 1,583,000 802,581 819,941 (17,360)
------------ ------------ ---------
$ 11,242,674 $ 11,305,983 $ (63,309)
============ ============ =========
</TABLE>
At June 30, 1998, the Fund had sufficient cash and securities to cover
any commitments under these contracts.
11
<PAGE> 37
Futures Contracts
<TABLE>
<CAPTION>
Unrealized
Expiration Contracts Position Depreciation
---------- --------- -------- ------------
<S> <C> <C> <C> <C>
September 1998 10 U.S. Treasury Futures Short $ (5,987)
September 1998 3 German 10-year Futures Short (4,592)
--------
$(10,579)
========
</TABLE>
At June 30,1998, the Fund had sufficient cash and securities to cover
margin requirements on open futures contracts.
Written Option Transactions
<TABLE>
<CAPTION>
1997 Puts
Contracts Premiums
--------- --------
<S> <C> <C>
Written options outstanding at beginning of period 10 $ 3,100
Options written 45 29,243
Options expired (10) (3,100)
Options closed (45) (29,243)
-------- --------
Written options outstanding at end of period -- $ --
======== ========
</TABLE>
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.
12
<PAGE> 38
DLB
THE DLB QUANTITATIVE EQUITY FUND
SEMI ANNUAL REPORT
JUNE 30, 1998
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE> 39
DLB QUANTITATIVE EQUITY FUND
Manager's Commentary
IT'S BEEN ANOTHER STRONG HALF YEAR FOR THE U.S. STOCK MARKET. The Standard &
Poors 500 Index is up over 15%. Our Fund's performance of 20.55% has been
strong, outperforming not only the ubiquitous S&P 500 at 17.71%, but also
outperforming our specific benchmark, the Russell 1000 Growth Index at 20.38%.
LARGE STOCKS, IN GENERAL, HAVE OUTPERFORMED SMALL STOCKS OVER THIS PERIOD. Using
the Russell indices as a proxy, the large stocks (Russell 1000) rose 16.20%
against the small stocks' (Russell 2000) return of 4.93% -- a spread of over
11%. Further examination of large-cap returns shows that the very largest firms
had the best performance of all, regardless of standard valuation parameters
such as price-to-earnings (P/E) multiples. Moreover, using the Russell 1000
Value and Growth indices as proxies, value stocks underperformed growth stocks
by more than 8%.
THE FUND, BY DESIGN, IS CONSTRUCTED TO BE RISK-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. This neutral stance allows us to focus on picking the
best stocks in each sector without engaging in risky market timing.
THE LAST YEAR (SINCE OCTOBER) HAS SEEN THE MARKET FOCUS ON MACROECONOMIC ISSUES,
IGNORING UNTIL TOO LATE SPECIFIC STOCK ISSUES. The Asian monetary/political
crisis is one such macroeconomic issue. Our strategy tends to do well when the
market's focus is on individual stocks -- low valuation and earnings estimate
increases are particularly valued at that time. Macro-oriented markets tend to
operate on broad themes. In the present one, the theme seems to be U.S. stocks
with a great deal of liquidity (i.e. the largest stocks in the U.S.). We surmise
that with the strength of the U.S. dollar and the relative value and volatility
of most other major currencies, global investors are buying dollar-denominated
securities, including U.S. equities. The Fund is well positioned to take
advantage of a shift in the market's focus from macro-issues to specific stock
issues.
<PAGE> 40
DLB QUANTITATIVE EQUITY FUND
Growth of a $100,000 Investment
Cumulative Total Return Since Inception 8/26/96
dlb quant R1000 Growth
Aug 26-96 $100,000.00 $100,000.00
-1.5 0.24 Aug-96 $98,500.00 $100,240.00
8.02 7.28 30-Sep-96 $106,399.70 $107,537.47
3.48 0.6 31-Oct-96 $110,102.41 $108,182.70
9.08 7.51 30-Nov-96 $120,099.71 $116,307.22
- -1.33 -1.96 31-Dec-96 $118,502.38 $114,027.60
7.55 7.01 31-Jan-97 $127,449.31 $122,020.93
0.56 -0.68 28-Feb-97 $128,163.03 $121,191.19
- -3.73 -5.41 31-Mar-97 $123,382.55 $114,634.74
6.92 6.64 30-Apr-97 $131,920.62 $122,246.49
6.01 7.22 31-May-97 $139,849.05 $131,072.69
3.42 4 30-Jun-97 $144,631.89 $136,315.60
10.82 8.84 31-Jul-97 $160,281.06 $148,365.89
- -3.68 -5.85 31-Aug-97 $154,382.71 $139,686.49
6.56 4.92 30-Sep-96 $164,510.22 $146,559.07
- -6.66 -3.7 31-Oct-97 $153,553.84 $141,136.38
3.67 4.25 30-Nov-97 $159,189.26 $147,134.68
- -1.58 1.12 31-Dec-97 $156,674.07 $148,782.58
2.75 2.99 31-Jan-98 $160,982.61 $152,231.18
8.9 7.522208 28-Feb-98 $175,310.06 $164,757.55
3.01 3.986421 31-Mar-98 $180,586.90 $171,325.48
0.36 1.383818 30-Apr-98 $181,237.01 $173,696.31
- -1.54 -2.8376 31-May-98 $178,445.96 $168,767.51
5.85 6.124595 30-Jun-98 $188,885.05 $179,103.83
TOTAL RETURNS (%) FOR PERIODS ENDED 6/30/98
<TABLE>
<CAPTION>
6 Months One Year Annualized
1/1/98 - 7/1/97 - Since Inception
6/30/98 6/30/98 8/26/96 - 6/30/98
<S> <C> <C> <C>
DLB QUANTITATIVE GROWTH FUND 20.55 30.61 39.35
Russell 1000 Growth 20.38 31.39 35.54
</TABLE>
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.
<PAGE> 41
DLB QUANTITATIVE
EQUITY FUND
FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND THE YEAR
ENDED DECEMBER 31, 1997
<PAGE> 42
DLB QUANTITATIVE EQUITY FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS:
Portfolio of Investments as of June 30, 1998 1 - 5
Statement of Assets and Liabilities as of June 30, 1998 6
Statement of Operations for the Six Months Ended June 30, 1998 7
Statement of Changes in Net Assets for the Six Months Ended
June 30, 1998 and the Year Ended December 31, 1997 8
Financial Highlights for the Six Months Ended June 30, 1998
and Each of the Years in the Two-Year Period Ended December
31, 1997 9
Notes to Financial Statements 10 - 12
<PAGE> 43
DLB QUANTITATIVE EQUITY FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
COMMON STOCKS - 99.4%
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
AEROSPACE - 4.9%
General Dynamics Corporation 6,400 $ 297,600
Gulfstream Aerospace Corporation (*) 16,600 771,900
Lockheed Martin Corporation 2,800 296,450
Northrop Grumman Corporation 1,700 175,313
-----------
1,541,263
-----------
AIRLINES - .6%
UAL Corporation (*) 2,300 179,400
-----------
APPAREL - 12.5%
Fruit of the Loom, Inc. (*) 7,400 245,588
Jones Apparel Group, Inc. (*) 24,200 884,813
Liz Claiborne Inc. 12,600 658,350
Ross Stores Inc. 15,400 662,200
VF Corporation 14,000 721,000
Warnaco Group, Inc. 18,700 793,581
-----------
3,965,532
-----------
AUTO & TRUCK MANUFACTURERS - 2.0%
Chrysler Corporation 1,600 90,200
Ford Motor Company 9,100 536,900
-----------
627,100
-----------
BANKS - 2.6%
The Chase Manhattan Corporation 11,000 830,500
-----------
BEVERAGES - .5%
The Coca-Cola Company 1,900 162,450
-----------
</TABLE>
1
<PAGE> 44
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
CHEMICALS - 2.1%
PPG Industries, Inc. 1,600 $ 111,300
Solutia Incorporated 19,500 559,406
-----------
670,706
-----------
COMPUTERS - 7.3%
Dell Computer Corporation (*) 12,600 1,169,438
International Business Machines Corporation 5,500 631,469
Storage Technology Corporation (*) 12,000 520,500
-----------
2,321,407
-----------
COMPUTER SERVICES - .8%
Computer Associates International, Inc. 4,350 241,697
-----------
COMPUTER SOFTWARE - 6.7%
Microsoft Corporation (*) 17,700 1,918,238
Oracle Systems Corporation (*) 8,300 203,869
-----------
2,122,107
-----------
CONSTRUCTION - .5%
USG Corporation 3,000 162,375
-----------
DIVERSIFIED - 2.5%
Hartford Financial Services Group, Inc. 1,000 114,375
Litton Industries, Inc. (*) 11,400 672,600
-----------
786,975
-----------
DRUGS - 14.1%
Amgen, Inc. (*) 14,200 928,325
Bristol-Meyers Squibb Company 8,400 965,475
Merck & Co., Inc. 11,700 1,564,875
Pfizer Inc. 7,500 815,156
Schering-Plough Corporation 2,100 192,413
-----------
4,466,244
-----------
</TABLE>
2
<PAGE> 45
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
ELECTRICAL EQUIPMENT - 4.6%
General Electric Company 13,700 $ 1,246,700
W.W. Grainger, Inc. 4,400 219,175
-----------
1,465,875
-----------
ELECTRONIC INSTRUMENTS - .7%
Tektronix Inc. 6,200 219,325
-----------
ELECTRIC POWER - .8%
PECO Energy Company (*) 8,700 253,931
-----------
FINANCIAL SERVICES - 4.9%
Lehman Brothers Holdings Inc. 9,500 736,844
Morgan Stanley, Dean Witter, Discover & Co. 8,900 813,238
-----------
1,550,082
-----------
FOOD PRODUCERS - 1.8%
Interstate Bakeries Corporation 17,400 577,463
-----------
INSURANCE COMPANIES - 2.0%
Wellpoint Health Networks Inc. (*) 8,300 614,200
-----------
INTERNATIONAL OIL - .5%
Exxon Corporation 2,000 142,625
-----------
MACHINERY & EQUIPMENT - 5.2%
Aeroquip-Vickers Inc. 6,000 350,250
Caterpillar Inc. 11,400 602,775
Deere & Company 13,100 692,663
-----------
1,645,688
-----------
MEDICAL SUPPLIES & SERVICES - 5.0%
Abbott Laboratories 11,800 482,325
Becton, Dickinson and Company 1,700 131,963
Guidant Corporation 8,800 627,550
Johnson & Johnson 4,500 331,875
-----------
1,573,713
-----------
</TABLE>
3
<PAGE> 46
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
OIL SERVICES - .9%
Global Marine Inc. (*) 12,300 $ 229,856
Rowan Companies, Inc. (*) 3,300 64,144
-----------
294,000
-----------
PRINTING & PUBLISHING - 4.5%
American Greetings Corporation 15,900 807,919
Central Newspapers, Inc. 1,700 118,575
Knight-Ridder, Inc. 3,000 165,188
Washington Post Company 600 345,600
-----------
1,437,282
-----------
RECREATION - 1.4%
KingWorld Productions Inc. (*) 17,700 451,350
-----------
RESTAURANT & LODGING - 1.7%
Outback Steakhouse Inc. (*) 13,800 538,200
-----------
RETAIL - GENERAL - 2.0%
Federated Department Stores Inc. (*) 11,700 629,606
-----------
RETAIL - DISCOUNT - 2.1%
The TJX Companies Inc. 6,800 164,050
Wal Mart Stores Inc. 8,300 504,225
-----------
668,275
-----------
RETAIL - SPECIALTY - 1.3%
Intimate Brands, Inc. 15,200 418,950
-----------
SEMICONDUCTORS - .5%
Intel Corporation 2,300 170,482
-----------
STEEL - .2%
USX - U.S. Steel Group 2,100 69,300
-----------
TELEPHONE - 1.2%
AT&T Corporation 6,400 365,600
-----------
</TABLE>
4
<PAGE> 47
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
TOBACCO - 1.0%
Universal Corporation 8,800 $ 328,900
-----------
TOTAL COMMON STOCKS
(identified cost, $22,983,950) 31,492,603
Other assets, less liabilities - .6% 193,108
-----------
NET ASSETS - 100% $31,685,711
===========
</TABLE>
(*) Non-income producing security
See notes to financial statements.
5
<PAGE> 48
DLB QUANTITATIVE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (identified cost, $22,983,950) $31,492,603
Cash 201,354
Receivable for fund shares sold 1,731
Dividends and interest receivable 20,337
Receivable from investment manager 10,000
-----------
31,726,025
-----------
LIABILITIES:
Accrued management fees 13,728
Accrued expenses 26,586
-----------
40,314
-----------
NET ASSETS $31,685,711
===========
NET ASSETS CONSIST OF:
Paid-in capital $20,816,652
Unrealized appreciation on investments 8,508,653
Accumulated undistributed net realized gain on investment
transactions 2,352,843
Accumulated undistributed net investment income 7,563
-----------
Total $31,685,711
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,806,342
===========
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 17.54
===========
See notes to financial statements.
6
<PAGE> 49
DLB QUANTITATIVE EQUITY FUND
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
Dividends $ 123,464
Interest 5,948
-----------
129,412
-----------
EXPENSES:
Management fee 108,205
Trustees' fees 2,338
Custodian fee 23,403
Registration fees 14,195
Accounting and audit fees 12,694
Transfer agent fee 3,967
Legal fees 3,127
Printing fees 708
-----------
168,637
Preliminary reduction of expenses by investment manager (38,954)
-----------
Net expenses 129,683
-----------
Net investment loss (271)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain 2,362,194
Change in unrealized appreciation 3,007,173
-----------
Net realized and unrealized gain on investments 5,369,367
-----------
Increase in net assets from operations $ 5,369,096
===========
</TABLE>
See notes to financial statements.
7
<PAGE> 50
DLB QUANTITATIVE EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (271) $ 45,839
Net realized gain on investments 2,362,194 1,189,437
Net unrealized appreciation on investments 3,007,173 3,708,423
------------ ------------
5,369,096 4,943,699
------------ ------------
Distributions to shareholders:
From net investment income -- (43,840)
From net realized gain on investments -- (1,335,243)
In excess of net realized gain on investments -- (9,351)
------------ ------------
-- (1,388,434)
------------ ------------
Fund share transactions:
Net proceeds from sales of shares 1,378,691 6,349,810
Net asset value of shares issued in
reinvestment of distributions -- 1,388,434
Cost of shares reacquired (131,559) (121,323)
------------ ------------
1,247,132 7,616,921
------------ ------------
Total increase in net assets 6,616,228 11,172,186
NET ASSETS:
At beginning of period 25,069,483 13,897,297
------------ ------------
At end of period (including accumulated undistributed
net investment income of $7,563 and $7,834, respectively) $ 31,685,711 $ 25,069,483
============ ============
</TABLE>
See notes to financial statements.
8
<PAGE> 51
DLB QUANTITATIVE EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended Period Ended
Ended December 31, December 31,
June 30, 1998 1997 1996 **
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $ 14.55 $ 11.66 $ 10.00
---------- ---------- ----------
Income from investment operations:
Net investment income -- .03 .01
Net realized and unrealized gain on investments 2.99 3.73 1.84
---------- ---------- ----------
2.99 3.76 1.85
---------- ---------- ----------
Less distributions to shareholders:
From net investment income -- (.03) (.01)
From net realized gain on investments -- (.83) (.18)
In excess of net realized gain on investment -- (.01) --
---------- ---------- ----------
-- (.87) (.19)
---------- ---------- ----------
Net asset value- end of period $ 17.54 $ 14.55 $ 11.66
========== ========== ==========
Total Return 20.55% 32.23% 18.51% *
Ratios and Supplemental Data:
Ratio of expenses to average net assets .90% * .90% .90% *
Ratio of net investment income to average net assets .00% * .23% .43% *
Portfolio turnover 35% 46% 1%
Net assets at end of period (000 omitted) $ 31,686 $ 25,069 $ 13,897
</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 the investment
income (loss) per share and ratios would have been:
<TABLE>
<S> <C> <C> <C>
Net investment income (loss) $ (.02) $ (.05) $ (.01)
Ratios (to average net assets):
Expenses 1.17% * 1.55% 1.82% *
Net investment loss (.27%) * (.43%) (.50%) *
</TABLE>
* Annualized
** For the period from August 26, 1996 (commencement of operations) to December
31, 1996.
See notes to financial statements.
9
<PAGE> 52
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.
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. 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
10
<PAGE> 53
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. ("Babson") 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, 1998, the management fee amounted to $108,205,
of which $28,954 was waived by Babson. Additionally, $10,000 of Fund
expenses were borne by Babson.
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
Babson.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
aggregated $11,449,916 and $10,148,089, 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:
<TABLE>
<S> <C>
Aggregate cost $22,983,950
===========
Gross unrealized appreciation $ 8,898,741
Gross unrealized depreciation (390,088)
-----------
Net unrealized appreciation $ 8,508,653
===========
</TABLE>
11
<PAGE> 54
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 Year Ended
Ended December 31,
June 30, 1998 1997
-------- --------
<S> <C> <C>
Shares sold 90,686 444,204
Shares issued in reinvestment
of distributions -- 95,246
Redemptions (7,869) (8,001)
-------- --------
Net increase 82,817 531,449
======== ========
</TABLE>
12
<PAGE> 55
DLB
THE DLB GLOBAL SMALL CAP FUND
SEMI ANNUAL REPORT
JUNE 30, 1998
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE> 56
DLB GLOBAL SMALL CAP FUND
Manager's Commentary
THE TOTAL ASSETS IN THE FUND AS OF JUNE 30, 1998, WERE $15.2 MILLION, OF WHICH
49.6% WERE INVESTED IN U.S. SECURITIES AND 50.4% WERE HELD IN INTERNATIONAL
SECURITIES. For the six months ended June 30, 1998, the Fund and its benchmark
indices achieved total returns as follows:
<TABLE>
<S> <C>
DLB Global Small Cap 10.65%
Salomon EMI ex-U.S. 16.78%
Russell 2500 5.66%
Combined Index* 11.26%
</TABLE>
* The combined index is made up of the Salomon EMI (ex-U.S.) - 50.4%, and
Russell 2500 Indices - 49.6%.
THIS HAS NOT BEEN A GOOD YEAR FOR SMALL-TO-MID-CAP STOCKS. Investors have
focused on the perceived safety of the large, multi-national blue chip
corporations and have bid up these stocks to historically high levels. Smaller
stocks have languished. We feel that there is considerable risk in larger
companies right now due to unrealistically high earnings growth expectations and
the potential for earnings disappointments due to the economic situation in
Asia. Stocks of smaller companies, by comparison, look attractively priced on
relative valuation ratios such as price-to-earnings, price-to-sales, and
price-to-book.
STRONG PERFORMANCES FROM METROMAIL AND J.B. HUNT TRANSPORTATION HELPED THE
PORTFOLIO. Metromail agreed to be acquired by Great Universal Stores. J.B. Hunt
has benefited from the logistical problems plaguing U.S. railroads. Traffic
snarls and delayed deliveries have caused shippers to seek alternative modes of
transportation. Also, a program to retain more experienced drivers by increasing
their pay has proved effective in lowering accident rates and reducing insurance
costs.
LISTED BELOW ARE THE BEST AND WORST PERFORMING U.S. STOCKS IN THE FUND
FOR THE FIRST HALF OF 1998.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Best Performers Business Gain (%)
- --------------------------------------------------------------------------------
<S> <C> <C>
J.B. Hunt Transportation Trucking & Shipping 90.0
Metromail Corporation Professional Services 65.6
Elsag Bailey Machinery & Equipment 45.8
EG&G Inc. Aerospace 44.1
La-Z-Boy Incorporated Furniture & Appliances 31.0
<CAPTION>
- --------------------------------------------------------------------------------
Underperformers Business Loss (%)
- --------------------------------------------------------------------------------
<S> <C> <C>
First Security CP Corp. Bank 63.3
Dimon Incorporated Tobacco 57.1
Wallace Computer Services Office Equipment 38.9
Nabors Industries Coal, Gas & Pipe 36.8
Exide Corporation Auto Parts 35.0
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 57
DLB GLOBAL SMALL CAP FUND
Manager's Commentary
THERE WAS A STRIKING DIVERGENCE OF PERFORMANCE OF INTERNATIONAL MARKETS DURING
THE FIRST HALF OF 1998. While Asian stock markets continued to suffer in the
wake of the economic crisis affecting the region, European markets moved up
sharply on the back of economic recovery and the successful introduction of the
single currency. Once again weighting has been increased in European markets at
the expense of Asia, and our focus has been on domestic businesses that will
benefit from the economic pick-up, thus avoiding exposure to Asia or, in the
case of the United Kingdom, those exporters that are struggling with the strong
British pound. Selected Asian smaller companies are trading on very attractive
valuations, but we believe that until there are signs of economic and political
stability returning to the region, it is too early to increase weightings there.
1998 HAS GOTTEN OFF TO A STRONG START, REFLECTING THE FUNDAMENTAL ATTRACTIONS OF
SMALLER COMPANIES AT CURRENT VALUATION LEVELS.
LISTED BELOW ARE THE BEST AND WORST PERFORMING INTERNATIONAL STOCKS IN THE FUND
FOR THE FIRST HALF OF 1998.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Gain (%)
Best Performers (Country) Business (in local currency)
- --------------------------------------------------------------------------------
<S> <C> <C>
St. James Place Capital (U.K.) Life Insurance 92.6
MLP (Germany) Financial Products 90.3
Alliance Unichem (U.K.) Pharmaceutical Dist. 64.3
W.S. Atkins (U.K.) Business Services 64.0
Brake Brothers (U.K.) Food Distribution 61.9
<CAPTION>
- --------------------------------------------------------------------------------
Loss (%)
Worst Performers (Country) Business (in local currency)
- --------------------------------------------------------------------------------
<S> <C> <C>
Chen Hsong Holdings (Hong Kong) Machinery 51.5
YGM Trading (Hong Kong) Retailing 44.6
Gold Peak (Hong Kong) Batteries 38.4
Fairey Group (U.K.) Engineering 36.1
Perlis Plantations (Malaysia) Holding Company 32.7
</TABLE>
<PAGE> 58
DLB GLOBAL SMALL CAP FUND
Growth of a
$100,000 Investment
<TABLE>
<CAPTION>
Cumulative Total Return Since Inception 7/19/95
r2500/
dlb global sm salomon emi Salomon emiXus
-------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Jul-19-95 $100,000.00 $100,000.00 $100,000.00
Jul 95 0.30 5.86 $100,300.00 $105,860.00 0.42 $100,420.00
Aug 95 -1.50 -0.88 $98,795.50 $104,928.43 -2.53 $97,879.37
Sep 95 1.01 6.22 $99,793.33 $111,454.98 0.76 $98,623.26
Oct 95 -1.40 -2.98 $98,396.23 $108,133.62 -2.88 $95,782.91
Nov 95 2.64 3.18 $100,993.89 $111,572.27 2.93 $98,589.35
Dec 95 2.99 2.98 $104,013.61 $114,897.12 3.83 $102,365.32
Jan 96 2.32 1.30 $106,426.72 $116.390.79 1.78 $104,187.42
Feb 96 3.22 2.16 $109,853.66 $118,904.83 1.56 $105,812.75
Mar 96 2.47 2.19 $112,567.05 $121,508.84 2.3 $108,246.44
Apr 96 2.42 5.00 $115,291.17 $127,584.29 5.26 $113,940.20
May 96 1.14 0.65 $116.605.49 $128,413.58 -0.81 $113,017.29
Jun 96 -1.30 -1.26 $115,089.62 $126,795.57 0.01 $113,028.59
Jul 96 -4.90 -5.22 $109,450.23 $120,176.84 -3.78 $108,756.11
Aug 96 1.20 2.98 $110,763.63 $123,758.11 1.01 $109,854.54
Sep 96 0.27 2.13 $111,062.69 $126,394.16 0.56 $110,469.73
Oct 96 -0.45 -0.50 $110,562.91 $125,762.19 -0.39 $110,038.90
Nov 96 2.64 3.00 $113,481.77 $129,535.06 1.64 $111,843.53
Dec 96 0.69 -0.45 $114,264.79 $128,952.15 -1.84 $109,785.61
Jan 97 -2.86 0.05 $110,996.82 $129,016.63 -2.16 $107,414.24
Feb 97 0 0.24 $109,450.23 $120,465.27 1.68 $110,583.21
Mar 97 -0.64 -2.79 $108,749.74 $117,104,29 -1.33 $109,112.45
Apr 97 -1.85 -0.21 $106,737.87 $116,858.37 -1.49 $107,486.68
May 97 5.38 7.74 $112,480.37 $125,903.21 6.41 $114,376.57
Jun 97 3.58 3.15 $116,507.17 $129,869.16 2.26 $116,961.48
Jul 97 2.42 2.21 $119,326.64 $132,739.27 -1.51 $115,195.36
31-Aug-97 -1.1 -1.32 $118,014.05 $130,987.11 -4.27 $110,276.52
30-Sep-96 2.47 4.28 $120,929.00 $136.593.36 1.78 $112,239.44
31-Oct-97 -3.5 -4.24 $116.696.48 $130,801.80 -3.95 $107,805.99
30-Nov-97 -1.04 -1.83 $115,482.84 $128,408.12 -4.46 $102,997.84
31-Dec-97 2.09 0.04 $117,896.43 $128,459.49 -2.21 $100,721.59
31-Jan-98 -0.62 1.15 $117.165.47 $129,936.77 4.17 $104,921.68
28-Feb-98 7.14 7.355326 $125,531.09 $139,494.05 7.46 $112,748.83
31-Mar-98 6.33 4.54066 $133.477.20 $145,828.00 4.7 $118,048.03
30-Apr-98 0.55 0.5624 $134.211.33 $146,648.13 0.76 $118,945.20
31-May-98 0.78 -1.38336 $135,258.18 $144,619.46 1.86 $121,157.58
30-Jun-98 -3.56 -1.41216 $130.442.99 $142,577.20 -2.92 $117,619.77
</TABLE>
TOTAL RETURNS (%) FOR PERIODS ENDED 6/30/98
<TABLE>
<CAPTION>
6 Months One Year Annualized
1/1/98 - 7/1/97 - Since Inception
6/30/98 6/30/98 7/19/95 - 6/30/98
<S> <C> <C> <C>
DLB GLOBAL SMALL CAP FUND 10.65 11.99 9.78
Combined Index 11.26 9.01 15.25
Salomon EMI (ex-US) 16.78 0.56 5.12
Russell 2500 Index 5.66 18.10 19.32
</TABLE>
Disclosure Statement
THE DLB GLOBAL SMALL CAPITALIZATION FUND invests in a combination of domestic
and international securities. The relative proportions of the Fund's assets
fluctuate over time. The "Combined Index" used as a benchmark to measure the
performance of this Fund is a composite of the Russell 2500 Index and Salomon
Brothers Extended Market Index, ex-US, (EMI), weighted in each (monthly) period
to reflect the proportions of the Fund's assets invested in domestic and
international securities, respectfully, during such period. As of June 30, 1998,
such proportions were 49.6% domestic, 50.4% international.
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 SUBMITED 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.
<PAGE> 59
DLB GLOBAL SMALL
CAPITALIZATION FUND
FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND THE YEAR
ENDED DECEMBER 31, 1997
<PAGE> 60
DLB GLOBAL SMALL CAPITALIZATION FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS:
Portfolio of Investments as of June 30, 1998 1 - 7
Statement of Assets and Liabilities as of June 30, 1998 8
Statement of Operations for the Six Months Ended June 30, 1998 9
Statement of Changes in Net Assets for the Six Months Ended
June 30, 1998 and the Year Ended December 31, 1997 10
Financial Highlights for the Six Months Ended June 30, 1998
and Each of the Years in the Three-Year Period Ended December
31, 1997 11
Notes to Financial Statements 12 - 15
<PAGE> 61
DLB GLOBAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS - 96.2%
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
AEROSPACE - 2.5%
EG&G Inc. 6,000 $ 180,000
Newport News Shipbuilding, Inc. 7,200 192,600
-----------
372,600
-----------
APPAREL - 1.4%
The Stride Rite Corporation 14,500 218,406
-----------
AUTO PARTS - 2.8%
Bandag Incorporated 4,300 148,350
Exide Corporation 9,100 152,994
The Standard Products Company 4,200 118,125
-----------
419,469
-----------
BANKS - 2.1%
Dime Bancorp, Inc. 5,500 164,656
Golden State Bancorp, Inc. (*) 4,500 133,875
Golden State Bancorp, Inc. Warrants (*) 4,500 23,906
-----------
322,437
-----------
BUILDING SUPPLIES - 1.2%
Dal Tile International Inc. (*) 18,300 179,569
-----------
COAL GAS & PIPE - 1.0%
Nabors Industries (*) 7,600 150,575
-----------
COMPUTERS - 1.4%
Gerber Scientific Inc. 9,300 211,575
-----------
</TABLE>
1
<PAGE> 62
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
ELECTRONICS & INSTRUMENTS - 3.5%
Intergraph Corporation (*) 20,200 $ 172,962
Magnetek Incorporated (*) 10,000 157,500
Scitex Corporation Ltd. (*) 15,500 202,469
-----------
532,931
-----------
EQUITY INVESTMENT TRUSTS - 1.1%
HCC Insurance Holdings, Inc. 7,700 169,400
-----------
FOOD PRODUCERS - 1.1%
Ralcorp Holdings Inc. (*) 8,900 167,988
-----------
FURNITURE & APPLIANCES - 2.0%
Herman Miller, Inc. 4,300 104,544
La-Z-Boy Incorporated 3,500 197,750
-----------
302,294
-----------
INSURANCE COMPANIES - 2.1%
HSB Group, Inc. 3,300 176,550
Life USA Holdings Inc. 11,400 147,488
-----------
324,038
-----------
MACHINERY & EQUIPMENT - 4.3%
Elsag Bailey Process Automation NV (*) 6,700 161,218
Flowserve Corporation 5,295 130,389
Foster Wheeler Corporation 5,100 109,331
Harsco Corporation 3,200 146,600
Unova Inc. (*) 5,300 113,950
-----------
661,488
-----------
METALS & MINING - 2.7%
Calmat Co. 7,600 167,200
Martin Marietta Materials 5,400 243,000
-----------
410,200
-----------
MISCELLANEOUS DIVERSIFIED - 1.0%
Unisource Worldwide 13,800 149,212
-----------
</TABLE>
2
<PAGE> 63
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
NATURAL GAS - 1.2%
Equitable Resources, Inc. 5,800 $ 176,900
-----------
OFFICE EQUIPMENT - 1.0%
Wallace Computer Services 6,500 154,375
-----------
PAPER & FOREST PRODUCTS - 1.0%
Albany International Corp. 6,432 153,966
-----------
PRINTING & PUBLISHING - 4.9%
ACNeilsen Corporation (*) 9,700 244,925
Central Newspapers, Inc. 2,300 160,425
Hollinger International 10,800 183,600
Lee Enterprises 5,100 156,188
-----------
745,138
-----------
PROFESSIONAL SERVICES - 1.5%
Policy Management Systems Corporation (*) 6,000 235,500
-----------
SPECIALTY CHEMICALS - .9%
Calgon Carbon 14,000 139,125
-----------
SPECIALTY RETAIL - 1.9%
Charming Shoppes (*) 24,100 114,475
Enesco Group Inc. 5,900 181,425
-----------
295,900
-----------
TELECOMMUNICATIONS - 1.3%
Commscope Inc. (*) 12,500 202,344
-----------
TOBACCO - .7%
Dimon Incorporated 9,800 110,250
-----------
TRANSPORTATION - 1.3%
Fritz Companies Inc. (*) 14,900 199,288
-----------
</TABLE>
3
<PAGE> 64
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
TRUCKING & SHIPPING - 2.6%
Halter Marine Group Inc. (*) 9,600 $ 146,600
J.B. Hunt Transport Services, Inc. 3,700 131,813
Yellow Corporation (*) 6,000 111,375
-----------
389,788
-----------
FOREIGN
BELGIUM - 1.8%
Colruyt NV (Food Retailers) (*) 350 274,657
-----------
FINLAND - 1.3%
KCI Konecranes International (Diversified Industrial) 4,000 203,518
-----------
FRANCE - 7.3%
Brioche Pasquier, SA (Food Producers) 1,300 161,049
Christian Dalloz (Safety Products) (*) 1,000 127,357
L'Europeenne d'Extincteurs (Diversified Industrial) 2,000 161,760
M6 - Metropole Television (Media) 1,750 292,921
Societe Manutan SA (Distributors) 2,000 186,900
Royal Canin SA (Food Producers) 3,000 171,684
-----------
1,101,671
-----------
GERMANY - 3.4%
MLP Pref., Non Voting (Life Insurance) (**) 200 97,547
Rhoen-Klinikum, AG (Private Healthcare) (*) 2,000 197,866
SKW Trostberg, AG (Chemicals) (*) 6,000 216,156
-----------
511,569
-----------
HONG KONG - 1.9%
CDL Hotel International Limited (Leisure and Hotels) 150,000 44,524
Chen Hsong Holdings (Engineering) 150,000 21,681
Gold Peak Industries (Holdings) Ltd. (Warrants 2000)
(Electronic and Electrical) (*) 30,000 619
Gold Peak Industries (Holdings) Ltd. (Electronic and
Electrical) (*) 150,000 51,300
Vitasoy International Holdings, Ltd. (Food
Producers) (*) 250,000 82,273
VTech Holdings Ltd. (Electronic and Electrical) (*) 15,000 55,849
YGM Trading Ltd. (Textiles and Apparel) 100,000 36,136
-----------
292,382
-----------
</TABLE>
4
<PAGE> 65
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
HUNGARY - .3%
Pick Szeged RT-GDR (Food Producers) 4,250 $ 49,691
-----------
IRELAND - .8%
CBT Group, PLC - ADR (Support Services) (*) 2,200 117,700
-----------
ITALY - 3.5%
Banca Popolare Di Brescia (Banking) 12,000 226,378
Gewiss SpA (Electronic and Electrical) 7,000 146,466
Industrie Natuzzi SpA (Furniture Producer) 6,000 156,000
-----------
528,844
-----------
JAPAN - 3.7%
Aderans Company, Ltd. (Healthcare) 3,000 65,713
Altech Co. Ltd. (Distributors) 2,000 19,455
FCC Co. Ltd. (Engineering) 300 2,594
Hosiden (Electronic Products) (*) 8,000 85,888
Misumi Corporation (Distributors) 2,000 33,721
Mori Seiki Company, Ltd. (Engineering) 9,000 110,178
Mycal Card Inc. (Consumer Credit) 3,000 53,608
Nihon Jumbo Company Ltd. (Support Services) 60 320
Ryohin Keikaku (Retailer) (*) 1,000 95,832
T&K Toka Company Ltd. (Chemicals) 1,000 18,734
Union Tool Co. (Engineering) 2,000 72,054
-----------
558,097
-----------
MALAYSIA - .1%
Jaya Jusco Stores Berhad (General Retailers) 12,000 7,146
Perlis Plantations Berhad (Diversified Industrial) 15,000 13,020
-----------
20,166
-----------
NETHERLANDS - 4.0%
Brunel International, NV (Temporary Employment) 3,500 145,353
Kempen & Company, NV (Banking) (*) 1,750 135,462
Nutreco Holding, NV (Food Producers) 6,000 209,957
Royal Numico (KON), NV (Food Nutrition) 3,500 109,574
-----------
600,346
-----------
</TABLE>
5
<PAGE> 66
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
NEW ZEALAND - .3%
Guinness Peat Group (Other Financial) 60,500 $ 45,254
-----------
NORWAY - 1.2%
Tomra Systems ASA (Diversified Industrial) 6,000 179,887
-----------
SINGAPORE - .5%
Haw Par Healthcare Limited (Pharmaceuticals) 50,000 26,635
TIBS Holdings Limited (Transport) 120,000 46,878
-----------
73,513
-----------
SPAIN - 1.3%
Mapfre Vida Seguros (Life Insurance) 4,000 191,279
-----------
SWITZERLAND - 3.6%
Bank Sarasin Ltd. (Banking) (*) 90 157,822
Fotolabo, SA (Support Services) (*) 600 196,981
Phoenix Mecano AG (Engineering) 300 193,816
-----------
548,619
-----------
THAILAND - .2%
Matichon Public Co. Ltd (Media) 24,000 28,369
-----------
UNITED KINGDOM - 12.5%
Alliance Unichem PLC (Healthcare) 21,300 185,803
WS Atkins PLC (Support Services) (*) 15,000 147,500
Peter Black Holdings, PLC (Household Goods) 19,000 116,890
Brake Brothers PLC (Food Retailers) 9,000 140,113
N Brown Group PLC (General Retailers) 20,000 117,365
Cattles PLC (Other Financial) 20,000 201,008
Devro PLC (Food Producers) 15,000 126,089
Expro International Group, PLC (Oil Exploration) 9,000 75,128
Fairey Group PLC (Electronic and Electrical) 11,300 63,482
Redrow Group PLC (Housebuilder) 26,000 65,979
Rotork PLC (Engineering) 13,000 78,133
SDX Business Systems PLC (Telecommunication) (*) 17,000 88,834
Seton Scholl Healthcare PLC (Healthcare) 13,000 163,861
</TABLE>
6
<PAGE> 67
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Spirax-Sarco Engineering PLC (Engineering) 12,000 $ 106,681
St. James' Place Capital PLC (Life Insurance) 41,000 220,802
-----------
1,897,668
-----------
TOTAL COMMON AND PREFERRED STOCKS
(identified cost, $12,152,984) 14,617,986
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENT - 2.9%
Bank of New York, dated 6/30/98, due 7/1/98
(secured by various US Treasury Notes), at cost $442,310 442,310
-----------
TOTAL INVESTMENTS (identified cost, $12,595,294) 15,060,296
Other assets, less liabilities - .9% 134,344
-----------
NET ASSETS - 100% $15,194,640
===========
</TABLE>
(*) Non-income producing security
(**) Preferred Stock
See notes to financial statements.
7
<PAGE> 68
DLB GLOBAL SMALL CAPITALIZATION FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (identified cost, $12,595,294) $ 15,060,296
Foreign cash, at value (cost, $140,091) 139,717
Receivable for investments sold 186,159
Receivable for fund shares sold 781
Dividends and interest receivable 22,405
Receivable from investment manager 17,733
Other 9,673
------------
15,436,764
------------
LIABILITIES:
Payable for investments purchased 208,902
Accrued management fees 10,090
Accrued expenses 23,132
------------
242,124
------------
NET ASSETS $ 15,194,640
============
NET ASSETS CONSIST OF:
Paid-in capital $ 11,956,745
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies 2,465,418
Accumulated net realized gain on investment and foreign
currency transactions 786,424
Accumulated distributions in excess of net investment income (13,947)
------------
Total $ 15,194,640
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,219,070
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 12.46
============
</TABLE>
See notes to financial statements.
8
<PAGE> 69
DLB GLOBAL SMALL CAPITALIZATION FUND
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign tax withheld of $10,727) $ 113,196
Interest 10,931
-----------
124,127
-----------
EXPENSES:
Management fee 74,163
Trustees' fees 2,339
Custodian fee 32,926
Accounting and audit fees 14,133
Registration fees 12,403
Transfer agent fee 3,967
Legal fees 3,127
Printing fees 708
-----------
143,766
Preliminary reduction of expenses by investment manager (32,618)
-----------
Net expenses 111,148
-----------
Net investment income 12,979
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (loss) (identified cost basis):
Investment transactions 792,300
Foreign currency transactions and forward foreign currency exchange
contracts and other transactions denominated in foreign currency 2,112
-----------
Net realized gain on investments and foreign currency 794,412
-----------
Change in unrealized appreciation (depreciation):
Investments 651,908
Foreign currency and forward foreign currency exchange contracts and other
transactions denominated in foreign currency 701
-----------
Net unrealized gain on investments and foreign currency 652,609
-----------
Net realized and unrealized gain on investments and foreign
currency 1,447,021
-----------
Increase in net assets from operations $ 1,460,000
===========
</TABLE>
See notes to financial statements.
9
<PAGE> 70
DLB GLOBAL SMALL CAPITALIZATION FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 12,979 $ 29,173
Net realized gain on investments and foreign currency 794,412 27,312
Net unrealized appreciation on investments and foreign currency 652,609 572,764
------------ ------------
1,460,000 629,249
------------ ------------
Distributions to shareholders:
From net investment income -- (9,121)
From net realized gain on investments -- (27,312)
In excess of net realized gain on investments -- (9,806)
Tax return of capital -- (474,986)
------------ ------------
-- (521,225)
------------ ------------
Fund share transactions:
Net proceeds from sales of shares 283,612 906,178
Net asset value of shares issued in
reinvestment of distributions -- 521,225
Cost of shares reacquired (436,114) (233,889)
------------ ------------
(152,502) 1,193,514
------------ ------------
Total increase in net assets 1,307,498 1,301,538
NET ASSETS:
At beginning of period 13,887,142 12,585,604
------------ ------------
At end of period (including accumulated distributions in excess
of net investment income of $13,947 and $26,926, respectively) $ 15,194,640 $ 13,887,142
============ ============
</TABLE>
See notes to financial statements.
10
<PAGE> 71
DLB GLOBAL SMALL CAPITALIZATION FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months Year Ended Year Ended Period Ended
Ended December 31, December 31, December 31,
June 30, 1998 1997 1996 1995**
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value- beginning of period $ 11.27 $ 11.19 $ 10.33 $ 10.00
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income .01 .02 .01 .07
Net realized and unrealized gain on investments 1.18 .50 1.01 .33
---------- ---------- ---------- ----------
1.19 .52 1.02 .40
---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income -- (.01) (.01) (.07)
From net realized gain on investments -- (.02) (.11) --
In excess of net realized gain on investment -- (.01) (.04) --
Tax return of capital -- (.40) -- --
---------- ---------- ---------- ----------
-- (.44) (.16) (.07)
---------- ---------- ---------- ----------
Net asset value- end of period $ 12.46 $ 11.27 $ 11.19 $ 10.33
========== ========== ========== ==========
Total return 10.56% 4.66% 9.85% 8.96*%
Ratios and Supplemental Data:
Ratio of expenses to average net assets 1.50%* 1.50% 1.46% 1.46%*
Ratio of net investment income to average net assets .18%* .22% .09% 1.46%*
Portfolio turnover 22% 44% 22% 5%
Net assets at end of period (000 omitted) $ 15,195 $ 13,887 $ 12,586 $ 10,509
</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 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 the 1995
expenses been limited to that permitted by state securities law, the investment
income (loss) per share and ratios would have been:
<TABLE>
<S> <C> <C> <C> <C>
Net investment income (loss) $ (.01) $ (.05) $ (.10) $ .02
Ratios (to average net assets):
Expenses 1.94%* 2.14% 2.36% 2.50%*
Net investment income (loss) (.26%)* (.42%) (.77%) .42%*
</TABLE>
* Annualized
* * For the period from July 19, 1995 (commencement of operations) to December
31, 1995.
See notes to financial statements.
11
<PAGE> 72
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 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
<PAGE> 73
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. ("Babson") 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
1.00% of average daily net assets. For the six months ended June 30, 1998, the
management fee amounted to $74,163, of which $14,885 was waived by Babson.
Additionally, $17,733 of Fund expenses were borne by Babson.
Babson has entered into a sub-advisory agreement with Babson-Stewart Ivory
International ("BSII"), an affiliate of Babson, with respect to the management
of the international component of the Fund's portfolio. Under the sub-advisory
agreement, Babson pays BSII a monthly fee at the effective 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 Babson.
13
<PAGE> 74
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
aggregated $3,243,420 and $3,466,891, respectively.
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $ 12,595,294
===============
Gross unrealized appreciation $ 3,626,648
Gross unrealized depreciation (1,161,646)
---------------
Net unrealized appreciation $ 2,465,002
===============
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 Year Ended
Ended December 31,
June 30, 1998 1997
-------- --------
<S> <C> <C>
Shares sold 23,336 81,079
Shares issued in reinvestment
of distributions -- 46,413
Redemptions (36,165) (20,517)
-------- --------
Net increase (decrease) (12,829) 106,975
======== ========
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund trades financial instruments with off-balance sheet risk in the normal
course of its investing activities in order to manage exposure to 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, 1998.
14
<PAGE> 75
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
<PAGE> 76
DLB
THE DLB MID CAPITALIZATION FUND
SEMI ANNUAL REPORT
JUNE 30, 1998
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE> 77
MANAGER'S COMMENTARY
THE DLB MID CAP FUND ROSE 0.8% IN THE FIRST HALF OF 1998, COMPARED TO A 5.7%
INCREASE IN THE RUSSELL 2500 INDEX. Our performance lagged due to a handful of
stocks that suffered significant price declines on little or no fundamental
news. In each of these cases, we continue to believe that these stocks will be
rewarding, long-term holdings and have added to the Fund's position.
STRONG PERFORMANCES FROM METROMAIL (+74%) AND J.B. HUNT TRANSPORTATION (+86%)
HELPED THE PORTFOLIO. J.B. Hunt has benefited from the logistical problems
plaguing U.S. railroads. Traffic snarls and delayed deliveries have caused
shippers to seek alternative modes of transportation. Also, a program to retain
more experienced drivers by increasing their pay has proved effective in
lowering accident rates and reducing insurance costs.
THIS HAS NOT BEEN A GOOD YEAR FOR SMALL-TO-MID-CAP STOCKS. Investors have
focused on the perceived safety of the large, multi-national blue chip
corporations and have bid up these stocks to historically high levels. Smaller
stocks have languished. We feel that there is considerable risk in larger
companies right now due to unrealistically high earnings growth expectations and
the potential for earnings disappointments due to the economic situation in
Asia. Stocks of smaller companies, by comparison, look attractively priced on
relative valuation ratios such as price-to-earnings, price-to-sales, and
price-to-book.
IT WILL BE DIFFICULT FOR STOCKS TO MAINTAIN CURRENT VALUATION LEVELS IN THE FACE
OF SLOWING EARNINGS GROWTH. We continue to seek out attractively valued
companies with internal catalysts to produce improving profitability and
earnings growth and are hopeful that the second half of 1998 will prove better
than the first.
<PAGE> 78
DBL MID CAP FUND
- --------------------------------------------------------------------------------
GROWTH OF A $100,000 INVESTMENT
<TABLE>
<CAPTION>
DLB MID RUSS 2500
<S> <C> <C> <C> <C>
$100,000.00 $100,000.00
0.50 3.14 31-Jul-95 $100,500.00 $103,140.00
- -0.80 1.60 31-Aug-95 $99,696.00 $104,790.24
1.10 1.87 30-Sep-95 $100,792.66 $106,749.82
- -2.18 -3.13 31-Oct-95 $98,595.38 $103,408.55
8.42 4.27 30-Nov-95 $106,897.11 $107,824.09
2.22 1.71 31-Dec-95 $109,270.22 $109,667.89
1.86 0.71 31-Jan-96 $111,302.65 $110,446.53
3.01 3.01 28-Feb-96 $114,652.86 $113,770.97
2.66 2.04 31-Mar-96 $117,702.62 $116,091.90
1.30 4.62 30-Apr-96 $119,232.76 $121,455.34
2.22 2.71 30-May-96 $121,879.73 $124,746.78
- -1.75 -3.07 30-Jun-96 $119,746.83 $120,917.05
- -6.37 -7.32 31-Jul-96 $112,118.96 $112,065.93
3.54 5.75 31-Aug-96 $116,087.97 $118,509.72
0.96 4.33 30-Sep-96 $117,202.41 $123,641.19
- -1.04 -0.66 31-Oct-96 $115,983.51 $122,825.16
5.35 4.83 30-Nov-96 $122,188.63 $128,757.61
2.63 1.37 31-Dec-96 $125,402.19 $130,521.59
0.78 2.76 31-Jan-97 $126,380.32 $134,123.99
0.86 -1.49 28-Feb-97 $127,467.19 $132,125.54
0.09 -4.53 31-Mar-97 $127,581.91 $126,140.25
0 1.26 30-Apr-97 $127,581.91 $127,729.62
7.94 9.21 31-May-97 $137,711.92 $139,493.52
6.25 4.09 30-Jun-97 $146,318.91 $145,198.80
- --------------------------------------------------------------------------------------
- -6.37 5.861947 31-Jul-97 $136,998.40 $153,710.28
3.54 1.391769 31-Aug-97 $141,848.14 $155,849.57
0.96 6.53715 30-Sep-96 $143,209.88 $166,037.69
- -1.04 -4.492473 31-Oct-97 $141,720.50 $158,578.49
5.35 0.447115 30-Nov-97 $149,302.55 $159,287.52
2.63 1.891999 31-Dec-97 $153,229.21 $162,301.24
0.78 -1.52841 31-Jan-98 $154,424.39 $159,820.61
0.86 7.261465 28-Feb-98 $155,752.44 $171,425.93
0.09 4.386311 31-Mar-98 $155,892.62 $178,945.20
0 0.377811 30-Apr-98 $155,892.62 $179,621.28
7.94 -4.642327 31-May-98 $168,270.49 $171,282.67
6.25 0.118172 30-Jun-98 $178,787.40 $171,485.08
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS (%) FOR PERIODS ENDED 12/31/97
--------------------------------------------
6 Months One Year Annualized
1/1/98 - 7/1/97 - Since Inception
6/30/98 6/30/98 7/25/95 - 6/30/98
<S> <C> <C> <C>
DLB MID CAPITALIZATION FUND 0.42 14.45 18.75
Russell 2500 5.66 18.10 19.34
</TABLE>
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.
<PAGE> 79
----------------------------------------
DLB Mid Capitalization
Fund
Financial Statements for the Six Months
Ended June 30, 1998 and the Year
Ended December 31, 1997
<PAGE> 80
DLB MID CAPITALIZATION FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
FINANCIAL STATEMENTS:
Portfolio of Investments as of June 30, 1998 1 - 4
Statement of Assets and Liabilities as of June 30, 1998 5
Statement of Operations for the Six Months Ended June 30, 1998 6
Statement of Changes in Net Assets for the Six Months Ended June 30, 1998
and the Year Ended December 31, 1997 7
Financial Highlights for the Six Months Ended June 30, 1998 and Each of
the Years in the Three-Year Period Ended December 31, 1997 8
Notes to Financial Statements 9 - 11
</TABLE>
<PAGE> 81
DLB MID CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS - 97.1%
ISSUER SHARES VALUE
<S> <C> <C>
AEROSPACE - 4.6%
EG&G Inc. 24,400 $ 732,000
----------
Newport News Shipbuilding, Inc. 25,600 684,800
1,416,800
----------
APPAREL - 3.1%
The Stride Rite Corporation 62,000 933,875
----------
AUTO PARTS - 5.6%
Bandag Incorporated 17,400 600,300
Exide Corporation 35,700 600,206
The Standard Products Company 17,600 495,000
----------
1,695,506
----------
BANKS - 4.1%
Dime Bancorp, Inc. 21,000 628,688
Golden State Bancorp, Inc. (*) 17,500 520,625
Golden State Bancorp, Inc. Warrants (*) 17,500 92,969
----------
1,242,282
----------
BUILDING SUPPLIES - 2.4%
Dal-Tile International Inc. (*) 73,700 723,181
----------
COAL GAS & PIPE - 2.0%
Nabors Industries (*) 30,800 610,225
----------
COMPUTERS - 2.7%
Gerber Scientific Inc. 36,200 823,550
----------
</TABLE>
1
<PAGE> 82
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
ELECTRONICS & INSTRUMENTS - 7.6%
Intergraph Corporation (*) 78,000 $ 667,875
Magnetek Incorporated (*) 43,000 677,250
Scitex Corporation Ltd. (*) 74,100 967,931
----------
2,313,056
----------
EQUITY INVESTMENT TRUSTS - 2.2%
HCC Insurance Holdings, Inc. 30,200 664,400
----------
FOOD PRODUCERS - 2.3%
Ralcorp Holdings Inc. (*) 36,400 687,050
----------
FURNITURE & APPLIANCES - 3.7%
Herman Miller, Inc. 17,600 427,900
La-Z-Boy Incorporated 12,600 711,900
----------
1,139,800
----------
INSURANCE COMPANIES - 4.5%
HSB Group, Inc. 13,950 746,325
Life USA Holdings Inc. 47,500 614,531
----------
1,360,856
----------
MACHINERY & EQUIPMENT - 8.5%
Elsag Bailey Process Automation NV (*) 26,600 640,063
Flowserve Corporation 18,239 449,135
Foster Wheeler Corporation 19,700 422,319
Harsco Corporation 13,800 632,213
Unova Inc. (*) 26,000 447,200
----------
2,590,930
----------
METALS & MINING - 5.7%
Calmat Co. 30,600 673,200
Martin Marietta Materials 23,600 1,062,000
----------
1,735,200
----------
MISCELLANEOUS DIVERSIFIED - 1.9%
Unisource Worldwide, Inc. 54,900 593,606
----------
</TABLE>
2
<PAGE> 83
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
NATURAL GAS - 2.0%
Equitable Resources, Inc. 20,300 $ 619,150
----------
OFFICE EQUIPMENT - 2.0%
Wallace Computer Services 26,000 617,500
----------
PAPER & FOREST PRODUCTS - 1.9%
Albany International Corp. 24,221 579,778
----------
PRINTING & PUBLISHING - 9.9%
ACNeilsen Corporation (*) 35,900 906,475
Central Newspapers, Inc. 8,700 606,825
Hollinger International 52,500 892,500
Lee Enterprises 20,000 612,500
----------
3,018,300
----------
PROFESSIONAL SERVICES - 3.1%
Policy Management Systems Corporation (*) 24,000 942,000
----------
SPECIALTY CHEMICALS - 1.8%
Calgon Carbon 54,800 544,575
----------
SPECIALTY RETAIL - 3.4%
Charming Shoppes (*) 71,200 338,200
Enesco Group Inc. 23,100 710,325
----------
1,048,525
----------
TELECOMMUNICATIONS - 2.7%
Commscope Inc. (*) 50,100 810,994
----------
TOBACCO - 1.4%
Dimon Incorporated 37,400 420,750
----------
TRANSPORTATION - 2.6%
Fritz Companies Inc. (*) 59,500 795,813
----------
</TABLE>
3
<PAGE> 84
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
TRUCKING & SHIPPING - 5.4%
Halter Marine Group Inc. (*) 42,000 $ 632,625
J.B. Hunt Transport Services, Inc. 16,000 570,000
Yellow Corporation (*) 23,900 443,643
----------
1,646,268
----------
TOTAL COMMON STOCKS
(identified cost, $26,333,214) 29,573,970
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 2.8%
<S> <C> <C>
Bank of New York, dated 6/30/98, due 7/1/98
(secured by various US Treasury Notes), at cost $ 848,666 848,666
TOTAL INVESTMENTS (identified cost, $27,181,880) 30,422,636
Other assets, less liabilities - .1% 27,540
-----------
NET ASSETS - 100% $30,450,176
===========
</TABLE>
(*) Non-income producing security
See notes to financial statements.
4
<PAGE> 85
DLB MID CAPITALIZATION FUND
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
June 30, 1998
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (identified cost, $27,181,880) $30,422,636
Receivable for investments sold 165,487
Receivable for fund shares sold 781
Dividends and interest receivable 32,837
-----------
30,621,741
-----------
LIABILITIES:
Payable for investments purchased 143,186
Accrued management fees 7,593
Accrued expenses 20,786
-----------
171,565
-----------
NET ASSETS $30,450,176
===========
NET ASSETS CONSIST OF:
Paid-in capital $25,722,534
Unrealized appreciation on investments 3,240,756
Accumulated undistributed net realized gain on investment
transactions 1,378,420
Accumulated undistributed net investment income 108,466
-----------
Total $30,450,176
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,136,465
===========
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 14.25
===========
</TABLE>
See notes to financial statements.
5
<PAGE> 86
DLB MID CAPITALIZATION FUND
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
Dividends $ 182,495
Interest 26,572
-----------
209,067
-----------
EXPENSES:
Management fee 89,099
Trustees' fees 2,338
Custodian fee 24,594
Accounting and audit fees 12,744
Registration fees 12,506
Transfer agent fee 3,967
Legal fees 3,127
Printing fees 708
-----------
149,083
Preliminary reduction of expenses by investment manager (44,572)
-----------
Net expenses 104,511
-----------
Net investment income 104,556
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (identified cost basis): 1,378,385
Change in unrealized appreciation (1,395,950)
-----------
Net realized and unrealized loss on investments (17,565)
-----------
Increase in net assets from operations $ 86,991
===========
</TABLE>
See notes to financial statements.
6
<PAGE> 87
DLB MID CAPITALIZATION FUND
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1998 1997
------------- ----
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 104,556 $ 143,687
Net realized gain on investments 1,378,385 1,834,448
Net unrealized depreciation on investments (1,395,950) 3,124,915
------------ ------------
86,991 5,103,050
------------ ------------
Distributions to shareholders:
From net investment income -- (139,420)
From net realized gain on investments -- (1,834,045)
------------ ------------
-- (1,973,465)
------------ ------------
Fund share transactions:
Net proceeds from sales of shares 4,175,922 9,389,016
Net asset value of shares issued in
reinvestment of distributions -- 1,973,465
Cost of shares reacquired (1,170,427) (824,091)
------------ ------------
3,005,495 10,538,390
------------ ------------
Total increase in net assets 3,092,486 13,667,975
NET ASSETS:
At beginning of period 27,357,690 13,689,715
------------ ------------
At end of period (including accumulated undistributed net
investment income of $108,466 and $3,910, respectively) $ 30,450,176 $ 27,357,690
============ ============
</TABLE>
See notes to financial statements.
7
<PAGE> 88
DLB MID CAPITALIZATION FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED YEAR ENDED PERIOD ENDED
ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31,
JUNE 30, 1998 1997 1996 1995**
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value- beginning of period $ 14.19 $ 11.51 $ 10.75 $ 10.00
-------- -------- -------- --------
Income from investment operations:
Net investment income .05 .08 .15 .08
Net realized and unrealized gain on investments .01 3.72 1.44 .84
-------- -------- -------- --------
.06 3.80 1.59 .92
-------- -------- -------- --------
Less distributions to shareholders:
From net investment income (1) -- (.08) (.15) (.08)
From net realized gain on investments (2) -- (1.04) (.68) (.09)
-- (1.12) (.83) (.17)
Net asset value- end of period $ 14.25 $ 14.19 $ 11.51 $ 10.75
======== ======== ======== ========
Total Return .42% 32.95% 14.75% 21.17%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets .70%* .90% .90% .90%*
Ratio of net investment income to average net assets .70%* .78% 1.28% 1.90%*
Portfolio turnover 16% 32% 25% 6%
Net assets at end of period (000 omitted) $ 30,450 $ 27,358 $ 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 the 1995
expenses been limited to that permitted by state securities law, the investment
income per share and ratios would have been:
<TABLE>
<S> <C> <C> <C> <C>
Net investment income $ .03 $ .04 $ .05 $ .01
Ratios (to average net assets):
Expenses 1.00%* 1.33% 1.77% 2.50%*
Net investment income .40%* .36% .41% .32%*
</TABLE>
* Annualized
* * For the period from July 25, 1995 (commencement of operations) to
December 31, 1995.
(1) Distributions in excess of net investment income for the year ended
December 31, 1996 were less than $.01 per share.
(2) Distributions in excess of net realized gain on investments for the year
ended December 31, 1996 were less than $.01 per share.
See notes to financial statements.
8
<PAGE> 89
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 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
9
<PAGE> 90
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. ("Babson") 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
six months ended June 30, 1998, the management fee amounted to $89,099, of
which $44,572 was waived by Babson.
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
Babson.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
aggregated $8,334,537 and $4,553,185, 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:
<TABLE>
<S> <C>
Aggregate cost $ 27,181,880
============
Gross unrealized appreciation $ 5,406,997
Gross unrealized depreciation (2,166,241)
------------
Net unrealized appreciation $ 3,240,756
============
</TABLE>
10
<PAGE> 91
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 YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1998 1997
-------- --------
<S> <C> <C>
Shares sold 287,656 659,292
Shares issued in reinvestment
of distributions -- 140,061
Redemptions (79,725) (60,046)
-------- --------
Net increase 207,931 739,307
======== ========
</TABLE>
11
<PAGE> 92
[LOGO "DLB"]
[LOGO "The DLB Growth Fund"]
Semi Annual Report
June 30, 1998
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE> 93
DLB GROWTH FUND
--------------------------------
Manager's Commentary
THE DLB GROWTH FUND POSTED A GAIN OF 3.2% FOR THE THREE MONTHS ENDED JUNE 30,
1998, COMPARED TO A RETURN OF 1.9% FOR THE AVERAGE GROWTH EQUITY MUTUAL FUND,
AS MEASURED BY LIPPER ANALYTICAL SERVICES. Since its inception in early 1998,
the focus of the DLB Growth Fund has remained unchanged -- we continue to
identify and invest in high quality, rapidly growing businesses that have the
competitive advantages, management teams and financial strength to deliver
sustained long-term growth.
AFTER A TUMULTUOUS FIRST QUARTER 1998, DEEPENING GLOOM CONCERNING ASIA PUT THE
LID ON THE BROADER MARKET IN THE SECOND QUARTER. Weakening Asian demand for
basic commodities hurt stocks from paper to semiconductors. However, U.S.
consumer demand continued to boom, benefiting retailers, homebuilders and other
companies whose businesses were primarily focused in the United States.
MAJOR STOCK INDEXES MOVED SIDEWAYS DURING THE SECOND QUARTER, BUT HELD ON TO
THE STRONG GAINS REGISTERED IN THE FIRST THREE MONTHS OF THE YEAR. Investors
are busy trying to figure out how corporate earnings will be affected from a
slowdown in Asia, the strong dollar, and aggressive price competition around
the globe. The turmoil in Asia has created a split profit picture for U.S.
companies and has resulted in an increased level of uncertainty and stock price
volatility. Companies in the paper, steel, oil, and semiconductor industries
have been under severe profit pressure, while earnings in other sectors, like
healthcare and business services, are holding up much better.
IRONICALLY, THE WEAK EARNINGS HAVE BEEN GOOD NEWS FOR THE OVERALL STOCK MARKET.
The economic impact in the U.S. from the problems arising out of Asia has
mitigated fears of an interest rate hike by the Federal Reserve. U.S. economic
growth exceeded 5% in the first calendar quarter, but is expected to slow for
the remainder of the year due to issues like the Asia crisis and the Year
2000-related capital spending. Without this forecast for slowing economic
growth, the Federal Reserve would have surely raised short-term interest rates
by now to thwart the potential rise in inflation.
IT IS OUR BELIEF THAT THE ECONOMIC SITUATION IN ASIA WILL GET WORSE BEFORE IT
GETS BETTER AND WILL TAKE YEARS, NOT MONTHS, TO RECOVER. That being said, in
the short term we are not worried as much about a
<PAGE> 94
DLB Growth Fund
-----------------------------------
Manager's Commentary
weak U.S. economy dampening earnings growth. We are more concerning that a
resurgence in economic growth could bring on higher inflation and higher
interest rates -- which would quickly cap the stock market rally.
STRENGTH IN THE HEALTHCARE SECTOR AND SEVERAL COMPANY BUYOUTS HAVE BENEFITED
THE DLB GROWTH FUND SINCE ITS INCEPTION EARLIER THIS YEAR. Healthcare companies
Boston Scientific (up 56%), Pfizer (up 46%), and American Home Products (up
36%) were large contributors to performance in this time period. Other
investments contributing to the solid performance in this time period were
targets of corporate takeovers or mergers: Viking Office Products (up 44%,
being bought by Office Depot), R.P. Scherer (up 45%, being bought by Cardinal
health), and Monsanto (up 33%, merging with American Home Products).
WE DID NOT SLIP THROUGH THE FIRST HALF OF THE YEAR UNSCATHED BY THE PROBLEMS IN
ASIA, HOWEVER. Disappointments were experienced in several of our technology
holdings including KLA-Tencor (down 28%), Microchip Technology (down 13%), and
Analog Devices (down 11%).
THE DLB GROWTH FUND HAS RECENTLY MADE SEVERAL NEW INVESTMENTS WHICH INCLUDE:
Merck (pharmaceuticals), Analog Devices (semiconductors), Synopsys (computer
software), W.W. Wrigley (consumer products), and Vitesse Semiconductors
(semiconductors).
AS OF JUNE 30, 1998, THE TOP TEN EQUITY HOLDINGS OF DLB GROWTH FUND COMPRISED
JUST OVER 30% OF TOTAL ASSETS.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Top 10 Equity Holdings % of Fund Assets
- -------------------------------------------------------------------------------
<S> <C>
American Home Products.................................... 3.4
Federal Home Loan Mortgage Corp........................... 3.4
Maxim Integrated Products................................. 3.4
Boston Scientific......................................... 3.2
Philip Morris............................................. 3.1
Linear Technology......................................... 3.0
Monsanto.................................................. 2.9
Pfizer.................................................... 2.8
Cardinal Health........................................... 2.7
Safeway................................................... 2.7
Total..................................................... 30.6
- -------------------------------------------------------------------------------
</TABLE>
<PAGE> 95
DLB GROWTH FUND
--------------------------------------------------
Manager's Commentary HELPING PUSH THE STOCK
MARKET TO NEW HIGHS HAS BEEN
AN ECONOMIC ERA OF MODEST
GROWTH, LOW INTEREST RATES,
MINIMAL INFLATION, AND STEADY
GROWTH IN CORPORATE PROFITS.
While we believe stable inflation
and low interest rates could set
the stage for continued strength
in the financial markets in the
U.S. and abroad, we will con-
tinue to closely monitor corpo-
rate earnings growth. In the
most recent six-month period,
the growth in corporate earnings
was surprisingly low given the
magnitude of the stock market's
advance. This is a trend worth
paying close attention to as we
enter the second half of 1998.
<PAGE> 96
DLB GROWTH FUND
Growth of a
$100,000 Investment
CUMULATIVE TOTAL RETURN SINCE INCEPTION 1/20/98
<TABLE>
<CAPTION>
DLB GROWTH FUND RUSSELL 1000 g
<S> <C> <C> <C> <C>
20-Jan-98 $100,000.00 $100,000.00
31-Jan-98 1.9 3.217744 $101,900.00 $103,217.74
28-Feb-98 6.87 7.52 $108,900.53 $110,979.72
31-Mar-98 1.65 3.99 $110,697.39 $115,407.81
30-Apr-98 3.7 1.384 $114,793.19 $117,005.05
31-May-98 -3.75 -2.84 $110,488.45 $113,682.11
30-Jun-98 3.35 6.124595 $114,189.81 $120,644.68
</TABLE>
TOTAL RETURNS (%) FOR PERIODS ENDED 6/30/98
-------------------------------------------
6 MONTHS
1/1/98-
6/30/98
DLB GROWTH FUND 14.20
RUSSELL 1000 GROWTH 20.38
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 yield 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
CONTINUED 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.
<PAGE> 97
DLB GROWTH FUND
FINANCIAL STATEMENTS FOR THE PERIOD
FROM JANUARY 20, 1998 (COMMENCEMENT
OF OPERATIONS) TO JUNE 30, 1998
<PAGE> 98
DLB GROWTH FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS:
Portfolio of Investments as of June 30, 1998 1 - 3
Statement of Assets and Liabilities as of June 30, 1998 4
Statement of Operations from January 20, 1998 (commencement
of operations) to June 30, 1998 5
Statement of Changes in Net Assets from January 20, 1998
(commencement of operations) to June 30, 1998 6
Financial Highlights from January 20, 1998 (commencement
of operations) to June 30, 1998 7
Notes to Financial Statements 8 - 10
<PAGE> 99
DLB GROWTH FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
COMMON STOCKS - 92.9%
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
BANKS - 3.7%
Mellon Bank Corporation 7,500 $ 522,188
NationsBank Corporation 6,900 527,850
---------
1,050,038
---------
BEVERAGES - 3.9%
Anheuser-Busch Companies, Inc. 11,400 537,938
PepsiCo, Inc. 14,000 576,625
---------
1,114,563
---------
CHEMICALS - 5.8%
E.I. Du Pont de Nemours and Company 4,300 320,888
Monsanto Company 14,300 799,013
Praxair, Inc. 11,500 538,344
---------
1,658,245
---------
COMPUTER RELATED - 2.2%
Cisco Systems, Inc. (*) 6,900 635,231
---------
COMPUTER SERVICES - 3.9%
Automatic Data Processing, Inc. 7,600 553,850
Paychex, Inc. 14,100 573,694
---------
1,127,544
---------
COMPUTER SOFTWARE - 4.9%
Cadence Design Systems, Inc. (*) 12,800 400,000
First Data Corporation 12,900 429,731
Synopsys, Inc. (*) 12,400 567,300
---------
1,397,031
---------
COSMETIC & TOILETRY - 1.3%
The Gillette Company 6,800 385,475
---------
</TABLE>
1
<PAGE> 100
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
DRUGS - 14.7%
American Home Products Corporation 18,400 $ 952,200
Bristol-Meyers Squibb Company 5,500 632,156
Cardinal Health, Inc. 7,300 684,375
Merck & Co., Inc. 5,000 668,750
Pfizer Inc. 7,000 760,813
R.P. Scherer Corporation (*) 5,900 522,888
---------
4,221,182
---------
ELECTRICAL EQUIPMENT - 2.1%
General Electric Company 6,600 600,600
---------
FINANCIAL SERVICES - 3.0%
Federal Home Loan Mortgage Corporation 18,500 870,656
---------
FOOD PRODUCERS - 2.0%
BestFoods 8,000 464,500
Wm. Wrigley Jr. Company (*) 1,200 117,600
---------
582,100
---------
FOOD RETAILERS - 2.4%
Safeway Inc. (*) 17,100 695,756
---------
FURNITURE & APPLIANCES - .8%
Herman Miller, Inc. 9,800 238,263
---------
INSURANCE COMPANIES - 4.1%
American International Group, Inc. 4,400 642,400
General RE Corporation 2,100 532,350
---------
1,174,750
---------
INTERNATIONAL OIL - 2.9%
Mobil Corporation 6,200 475,075
Royal Dutch Petroleum 6,300 345,319
---------
820,394
---------
</TABLE>
2
<PAGE> 101
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
MEDICAL SUPPLIES & SERVICES - 9.7%
Abbott Laboratories 7,200 $ 294,300
Boston Scientific Corporation (*) 11,900 852,338
Guidant Corporation 8,700 620,419
Johnson & Johnson 7,200 531,000
Tenet Healthcare Corporation (*) 15,900 496,875
---------
2,794,932
---------
OFFICE EQUIPMENT - .8%
Wallace Computer Services 9,300 220,875
---------
PROFESSIONAL SERVICES - 1.4%
Service Corporation International 9,400 403,025
---------
RECREATION - 1.9%
The Walt Disney Company 5,100 535,819
---------
SEMICONDUCTORS - 15.0%
Analog Devices, Inc. (*) 21,000 515,813
Intel Corporation 4,000 296,500
KLA-Tencor Corporation (*) 18,000 498,375
Linear Technology Corporation 14,000 844,375
Maxim Integrated Products, Inc. (*) 28,700 909,431
Microchip Technology Incorporated (*) 25,200 658,350
Vitesse Semiconductor Corporation (*) 19,000 586,625
---------
4,309,469
---------
SPECIALTY RETAIL - 3.4%
CVS Corporation 10,800 420,525
Viking Office Products, Inc. (*) 17,400 545,925
---------
966,450
---------
TOBACCO - 3.0%
Philip Morris Companies Inc. 21,700 854,433
---------
TOTAL COMMON STOCKS
(identified cost, $23,652,022) 26,656,831
Other assets, less liabilities - 7.1% 2,052,148
---------
NET ASSETS - 100% $ 28,708,979
============
</TABLE>
(*) Non-income producing security
See notes to financial statements.
3
<PAGE> 102
DLB GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value (identified cost, $23,652,022) $ 26,656,831
Cash 1,957,604
Receivable for investments sold 135,318
Dividends and interest receivable 30,150
Receivable from investment manager 6,346
------------
28,786,249
------------
LIABILITIES:
Payable for investments purchased 31,649
Accrued management fees 8,066
Accrued expenses 37,555
------------
77,270
------------
NET ASSETS $ 28,708,979
============
NET ASSETS CONSIST OF:
Paid-in capital $ 25,150,010
Unrealized appreciation on investments 3,004,809
Accumulated undistributed net investment income 88,934
Accumulated net realized gain on investment transactions 465,226
------------
$ 28,708,979
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,514,986
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE $ 11.42
============
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING)
</TABLE>
See notes to financial statements.
4
<PAGE> 103
DLB GROWTH FUND
STATEMENT OF OPERATIONS (UNAUDITED)
PERIOD FROM JANUARY 20, 1998 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign tax withheld of $859) $ 105,797
Interest 80,757
-----------
186,554
-----------
EXPENSES:
Management fee 67,547
Trustees' fees 2,093
Custodian fee 22,013
Accounting and audit fees 11,405
Legal fees 7,990
Printing fees 7,990
Registration cost 6,214
Transfer agent fee 3,551
-----------
128,803
Preliminary reduction of expenses by investment manager (31,183)
-----------
Net expenses 97,620
-----------
Net investment income 88,934
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (identified cost basis) 465,226
Change in unrealized appreciation 3,004,809
-----------
Net realized and unrealized gain on investments 3,470,035
-----------
Increase in net assets from operations $ 3,558,969
===========
</TABLE>
See notes to financial statements.
5
<PAGE> 104
DLB GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
Period FROM January 20, 1998 (COMMENCEMENT OF OPERATIONS) TO June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INCREASE IN NET ASSETS:
From operations:
Net investment income $ 88,934
Net realized gain on investments 465,226
Net unrealized appreciation on investments 3,004,809
------------
3,558,969
Net proceeds from sales of fund shares 25,150,000
------------
Total increase in net assets 28,708,969
NET ASSETS:
At beginning of period 10
------------
At end of period (including accumulated undistributed
net investment income of $88,934) $ 28,708,979
============
</TABLE>
See notes to financial statements.
6
<PAGE> 105
DLB GROWTH FUND
FINANCIAL HIGHLIGHTS (UNAUDITED)
Period FROM January 20, 1998 (COMMENCEMENT OF OPERATIONS) to June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Per share data (for a share outstanding throughout the period):
Net asset value- beginning of period $ 10.00
-------
Income from investment operations:
Net investment income .04
Net realized and unrealized gain on investments 1.38
--------
1.42
--------
Net asset value- end of period $ 11.42
=======
Total return 14.20%
Ratios and Supplemental Data:
Ratio of expenses to average net assets .80%*
Ratio of net investment income to average net assets .72%*
Portfolio turnover 18%
Net assets at end of period (000 omitted) $28,709
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 by the Fund, the investment income
per share and ratios would have been:
Net investment income $ .03
Ratios (to average net assets):
Expenses 1.05%*
Net investment income .47%*
</TABLE>
* Annualized
See notes to financial statements.
7
<PAGE> 106
DLB GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Growth (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
8
<PAGE> 107
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. ("Babson") 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 from January 20, 1998
(commencement of operations) to June 30, 1998, the management fee amounted to
$67,547, of which $24,837 was waived by Babson. Additionally, $6,346 of Fund
expenses were borne by Babson.
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 Babson.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
aggregated $26,850,692 and $3,663,896, 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:
<TABLE>
<CAPTION>
<S> <C>
Aggregate cost $ 23,652,022
============
Gross unrealized appreciation $ 3,742,459
Gross unrealized depreciation (737,650)
------------
Net unrealized appreciation $ 3,004,809
============
</TABLE>
9
<PAGE> 108
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>
Period from
January 20, 1998
(commencement of
operations) to
June 30, 1998
-------------
<S> <C>
Shares sold 2,514,985
=============
</TABLE>
<PAGE> 109
DLB
THE DLB VALUE FUND
SEMI ANNUAL REPORT
June 30, 1998
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE> 110
DLB VALUE FUND
MANAGER'S COMMENTARY
AS OF THE CLOSE OF THE SECOND QUARTER OF 1998, NET ASSETS OF THE DLB VALUE FUND
WEIGHED IN AT JUST UNDER $72 MILLION. This is up from the year-end 1997 balance
of $56 million, an increase in asset size of 28.5%.
TOTAL RETURN (APPRECIATION PLUS INCOME) WAS 13.2% FOR THE SIX MONTHS ENDED JUNE
30, 1998. For the same period, the return of the unmanaged S&P 500 stock index
was 17.7%. On an unweighted basis, the returns of the S&P 500 companies averaged
only 12.3% for the last six months. This market capitalization weighted index
continued to be dominated by the strong performance of the largest companies.
Unfortunately for value-oriented investors, the growth style has continued to
dominate the market, rewarding the largest growth companies with even higher P/E
multiples. Many of these are consumer staple growth companies such as Coca Cola,
Gillette, Procter & Gamble and Eli Lilly, Pfizer, Warner Lambert and other
pharmaceuticals which trade at multiples of 33 to 53 times 1998 estimated
earnings, or technology growth companies such as Microsoft, Cisco and Dell which
trade at 62, 53 and 47 times estimated 1998 earnings respectively. Twenty three
of the 500 sell at over 50 times 1998 earnings.
TURNOVER IN THE FUND'S PORTFOLIO HAS REMAINED LOW, REFLECTING THE CONTINUED
EMPHASIS ON COMPANIES WITH PRICE MOMENTUM IN THE STOCK MARKET. In the latest
period, the only companies eliminated were Safety Kleen and The Energy Group.
Laidlaw Environmental acquired Safety Kleen after a protracted battle with
another company that had initially been favored by management, even though their
offering price was lower. We did not want to own Laidlaw Environmental shares,
so we sold our Safety Kleen shares before the merger was completed. The Energy
Group was acquired by Texas Utilities.
NEW COMPANIES ADDED TO THE PORTFOLIO SINCE THE END OF 1997 ARE USX-U.S. STEEL,
AND CSX. U.S. Steel was selling at only 6.4 times estimated earnings at the time
of initial purchase. It had an attractive current yield, excess cash flow, a $2
billion pension surplus and earnings growth potential from its joint ventures.
CSX, a major eastern railroad, will be taking over parts of Conrail (together
with rival Norfolk Southern) late this year or early next year. Our purchase has
not provided us with positive results yet, but we continue to believe this
reasonably priced (13 times earnings, 1.7 times book value and 2.6% current
yield), leading company will be rewarding in the longer term.
<PAGE> 111
DLB VALUE FUND
MANAGER'S COMMENTARY
THE DLB VALUE FUND CONTINUES TO HAVE ATTRACTIVE VALUATION CHARACTERISTICS. The
average price/earnings ratio based on estimated earnings for 1998 for the
companies in the Fund is only 1.9, compared with 23.8 times for the S&P 500
companies. The average price-to-book value of the Fund's companies is 2.4,
compared to 4.3 for the S&P 500 companies, and the Fund's current gross yield of
1.9% is over 45% higher than the S&P 500 yield of 1.3%.
<PAGE> 112
DLB VALUE FUND
- --------------------------------------------------------------------------------
GROWTH OF A $100,000 INVESTMENT
<TABLE>
<CAPTION>
DLB Value Fd S&P 500
<S> <C> <C> <C> <C>
25-Jul-95 $100,000.00 $100,000.00
0.8 2.4 31-Jul-95 $100,000.00 $102.400.00
-0.1 0.25 31-Aug-95 $100,699.20 $102,656.00
3.57 4.22 30-Sep-95 $104,294.16 $106,988.08
- -2.11 -0.36 31-Oct-95 $102,093.55 $106,602.93
4.6 4.39 30-Nov-95 $106,789.86 $111,282.79
1.3 1.93 31-Dec-95 $108,178.13 $113,430.55
2.08 3.4 31-Jan-96 $110,428.23 $117,287.19
2.69 0.93 28-Feb-96 $113,398.75 $118,377.96
3.07 0.96 31-Mar-96 $116,880.09 $119,514.39
1.22 1.47 30-Apr-96 $118,306.03 $121,271.25
2.59 2.58 30-May-96 $121,370.16 $124,400.05
- -0.59 0.38 30-Jun-96 $120,654,07 $124,872.77
- -3.47 -4.42 31-Jul-96 $116,467.38 $119,353.39
3.25 2.11 31-Aug-96 $120,252.57 $121,871.75
3.15 5.63 30-Sep-96 $124,040.52 $128,733.13
0.82 2.76 31-Oct-96 $125,057.65 $132,286.16
7.85 7.56 30-Nov-96 $134,874.68 $142,287.00
- -0.55 -1.98 31-Dec-96 $134,132.87 $139,469.72
4.23 6.25 31-Jan-97 $139,806.69 $148,186.57
1.68 0.78 28-Feb-97 $142,155.44 $149,342.43
- -3.69 -4.11 31-Mar-97 $136,909.91 $143,204.45
1.8 5.97 30-Apr-97 $139,374.28 $151,753.76
5.76 6.09 31-May-97 $147,402.24 $160,995.56
3.63 4.48 30-Jun-97 $152,752.94 $168,208.17
- -------------------------------------------------------------
9.11 7.96 31-Jul-97 $166,668.74 $181,597.54
2.76 -5.6 31-Aug-97 $162,068.68 $171,428.07
5.55 5.48 30-Sep-96 $171,063.49 $180,822.33
- -4.44 -3.34 31-Oct-97 $163,468.27 $174,782.87
4.39 4.63 30-Nov-97 $170,644.53 $182,875.31
- -0.72 1.72 31-Dec-97 $169,415.89 $186,020.77
0.2 1.11 31-Jan-98 $169,754.72 $188,085.60
7.7 7.212 28-Feb-98 $182,825.83 $201,650.33
5.22 5.121 31-Mar-98 $192,369.34 $211,976.85
2.19 1.006 30-Apr-98 $196,582.23 $214,109.33
- -3.41 -1.719 31-May-98 $189,878.78 $210,428.79
1.02 4.062 30-Jun-98 $191,815.54 $218,976.41
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS FOR PERIODS ENDED 6/30/98
-------------------------------------------------
6 Months One Year Annualized
1/1/98 - 7/1/97 - Since Inception
6/30/98 6/30/98 7/25/95 - 6/30/98
<S> <C> <C> <C>
DLB Value Fund 13.21 25.55 24.25
S&P 500 17.71 30.17 29.85
</TABLE>
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 machete 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.
<PAGE> 113
----------------------------------------
DLB VALUE FUND
FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND THE YEAR
ENDED DECEMBER 31, 1997
<PAGE> 114
DLB VALUE FUND
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
FINANCIAL STATEMENTS:
Portfolio of Investments as of June 30, 1998 1 - 4
Statement of Assets and Liabilities as of June 30, 1998 5
Statement of Operations for the Six Months Ended June 30, 1998 6
Statement of Changes in Net Assets for the Six Months Ended June 30, 1998
and the Year Ended December 31, 1997 7
Financial Highlights for the Six Months Ended June 30, 1998 and Each of
the Years in the Three-Year Period Ended December 31, 1997 8
Notes to Financial Statements 9-11
</TABLE>
<PAGE> 115
DLB VALUE FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON AND PREFERRED STOCKS - 96.2%
ISSUER SHARES VALUE
<S> <C> <C>
AEROSPACE - 4.0%
The Boeing Company 34,000 $1,515,125
Lockheed Martin Corporation 12,800 1,355,200
----------
2,870,325
----------
AIRLINES - 2.6%
KLM Royal Dutch Airlines (*) 46,137 1,888,733
----------
APPAREL - 2.2%
Reebok International Ltd. (*) 58,000 1,605,875
----------
AUTO PARTS - 2.5%
Dana Corporation 33,700 1,802,950
----------
BANKS - 10.3%
Chase Manhattan Corporation 23,800 1,796,900
National City Corporation 25,900 1,838,900
US Bancorp 45,000 1,935,000
Wells Fargo & Company 5,100 1,881,900
----------
7,452,700
----------
CHEMICALS - GENERAL - 2.3%
E.I. Du Pont de Nemours and Company 22,100 1,649,213
----------
CHEMICALS - SPECIALTY - 1.2%
Millennium Chemicals Inc. 25,900 877,363
----------
COMPUTERS - 4.8%
Apple Computer (*) 64,300 1,844,606
International Business Machines Corporation 14,300 1,641,819
----------
3,486,425
----------
</TABLE>
1
<PAGE> 116
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
DIVERSIFIED - 1.2%
Hanson PLC 28,500 $ 863,906
----------
OIL - DOMESTIC - 2.5%
Atlantic Richfield Co. 22,800 1,781,250
----------
OIL - INTERNATIONAL - 2.2%
Royal Dutch Petroleum 29,200 1,600,525
----------
ELECTRIC POWER - 5.1%
Illinova Corporation 58,700 1,761,000
Texas Utilities Company 46,300 1,927,238
----------
3,688,238
----------
FINANCIAL SERVICES - 12.0%
American Express Company 16,800 1,915,200
SLM Holding Corporation 37,850 1,854,650
The Student Loan Corporation 33,800 1,590,713
Transamerica Corporation 14,700 1,692,338
Travelers Group Inc. 26,803 1,624,932
----------
8,677,832
----------
FOOD PRODUCERS - 2.4%
Diageo PLC 35,340 1,702,946
----------
INSURANCE - 6.9%
Aetna Inc. 21,800 1,659,525
The Allstate Corporation 17,600 1,611,500
General RE Corporation 6,600 1,673,100
----------
4,944,125
----------
MEDICAL SUPPLIES & SERVICES - 4.2%
Tenet Healthcare Corporation (*) 46,300 1,446,875
United Healthcare Corporation 25,000 1,587,500
----------
3,034,375
----------
</TABLE>
2
<PAGE> 117
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
METALS & MINING - .5%
Martin Marietta Materials, Inc. 8,000 $ 360,000
----------
OFFICE EQUIPMENT - 4.8%
Wallace Computer Services, Inc. 72,300 1,717,125
Xerox Corporation 17,100 1,737,788
----------
3,454,913
----------
PAPER & FOREST PRODUCTS - 6.7%
Potlatch Corporation 41,600 1,747,200
Weyerhaeuser Company 34,000 1,570,375
Willamette Industries, Inc. 48,400 1,548,800
----------
4,866,375
----------
PRINTING & PUBLISHING - 2.8%
Harcourt General Inc. 33,400 1,987,300
----------
RAILROADS - 2.2%
CSX Corporation 35,300 1,606,150
----------
RETAIL - GENERAL - 5.0%
J C Penney Company, Inc. 24,900 1,800,581
Sears Roebuck and Co. 29,200 1,783,025
----------
3,583,606
----------
RETAIL - DISCOUNT - 2.6%
Kmart Corporation (*) 48,700 937,475
Kmart Financing (**) 13,500 945,000
----------
1,882,475
----------
RETAIL - SPECIALTY - 2.3%
The Limited Inc. 49,700 1,646,315
----------
STEEL - 2.0%
USX - US Steel Group 44,100 1,455,300
----------
</TABLE>
3
<PAGE> 118
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
TRUCKING & SHIPPING - .9%
Overseas Shipholding Group 32,400 $ 660,150
-----------
TOTAL COMMON AND PREFERRED STOCKS
(identified cost, $55,963,831) 69,429,364
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENT - 3.6%
Bank of New York, dated 6/30/98, due 7/1/98
(secured by various US Treasury Notes), at cost $ 2,585,923 2,585,923
------------
TOTAL INVESTMENTS (identified cost, $58,549,754) 72,015,287
Other assets, less liabilities - .2% 140,123
------------
NET ASSETS - 100% $ 72,155,410
=== ============
</TABLE>
(*) Non-income producing security
(**) Preferred Stock
See notes to financial statements.
4
<PAGE> 119
DLB VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1998
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (identified cost, $58,549,754) $72,015,287
Receivable for fund shares sold 105,004
Dividends and interest receivable 68,479
Other 194
-----------
72,188,964
-----------
LIABILITIES:
Accrued management fees 20,225
Accrued expenses 13,329
-----------
33,554
-----------
NET ASSETS $72,155,410
===========
NET ASSETS CONSIST OF:
Paid-in capital $56,612,512
Unrealized appreciation on investments 13,465,533
Accumulated undistributed net realized gain on investment transactions 1,419,744
Accumulated undistributed net investment income 657,621
-----------
Total $72,155,410
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 4,275,589
===========
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 16.88
===========
</TABLE>
See notes to financial statements.
5
<PAGE> 120
DLB VALUE FUND
\
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign tax withheld of $8,799) $ 769,616
Interest 63,727
-----------
833,343
-----------
EXPENSES:
Management fee 180,724
Trustees' fees 2,339
Custodian fee 21,194
Registration fees 13,389
Accounting and audit fees 12,745
Legal fees 6,527
Transfer agent fee 3,967
Printing fees 708
-----------
241,593
Preliminary reduction of expenses by investment manager (65,871)
-----------
Net expenses 175,722
-----------
Net investment income 657,621
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (identified cost basis): 1,668,995
Change in unrealized appreciation 5,277,710
-----------
Net realized and unrealized gain on investments 6,946,705
-----------
Increase in net assets from operations $ 7,604,326
===========
</TABLE>
See notes to financial statements.
6
<PAGE> 121
DLB VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 657,621 $ 528,025
Net realized gain on investments 1,668,995 2,487,991
Net unrealized appreciation on investments 5,277,710 5,222,346
------------ ------------
7,604,326 8,238,362
------------ ------------
Distributions to shareholders:
From net investment income -- (520,799)
From net realized gain on investments -- (2,487,991)
In excess of net realized gain on investments -- (228,789)
------------ ------------
-- (3,237,579)
------------ ------------
Fund share transactions:
Net proceeds from sales of shares 13,697,772 36,994,760
Net asset value of shares issued in
reinvestment of distributions -- 3,237,577
Cost of shares reacquired (5,595,799) (8,012,111)
------------ ------------
8,101,973 32,220,226
------------ ------------
Total increase in net assets 15,706,299 37,221,009
NET ASSETS:
At beginning of period 56,449,111 19,228,102
------------ ------------
At end of period (including accumulated undistributed
net investment income of $657,621 and $0, respectively) $ 72,155,410 $ 56,449,111
============ ============
</TABLE>
See notes to financial statements.
7
<PAGE> 122
DLB VALUE FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED YEAR ENDED PERIOD ENDED
ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31,
JUNE 30, 1998 1997 1996 1995**
------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value- beginning of period $ 14.91 $ 12.53 $ 10.58 $ 10.00
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income .15 .15 .16 .09
Net realized and unrealized gain on investments 1.82 3.15 2.38 .73
---------- ---------- ---------- ----------
1.97 3.30 2.54 .82
---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income -- (.15) (.16) (.09)
From net realized gain on investments -- (.70) (.41) (.15)
In excess of net realized gain on investment -- (.07) (.02) --
---------- ---------- ---------- ----------
-- (.92) (.59) (.24)
---------- ---------- ---------- ----------
Net asset value- end of period $ 16.88 $ 14.91 $ 12.53 $ 10.58
========== ========== ========== ==========
Total Return 13.21% 26.35% 23.99% 18.64%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets .53%* .71% .80% .80%*
Ratio of net investment income to average net assets 2.00%* 1.40% 1.56% 2.02%*
Portfolio turnover 9% 25% 23% 7%
Net assets at end of period (000 omitted) $ 72,155 $ 56,449 $ 19,228 $ 10,818
</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>
<S> <C> <C> <C> <C>
Net investment income $ .14 $ .13 $ .09 $ .02
Ratios (to average net assets):
Expenses .74%* .92% 1.50% 2.43%*
Net investment income 1.80%* 1.19% .86% 0.40%*
</TABLE>
* Annualized
* * For the period from July 25, 1995 (commencement of operations) to December
31, 1995.
See notes to financial statements.
8
<PAGE> 123
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. 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
9
<PAGE> 124
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. ("Babson") 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
six months ended June 30, 1998, the management fee amounted to $180,724,
of which $65,871 was waived by Babson.
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
Babson.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
aggregated $14,840,475 and $5,678,218, 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:
<TABLE>
<S> <C>
Aggregate cost $ 58,549,754
============
Gross unrealized appreciation $ 14,956,359
Gross unrealized depreciation (1,490,826)
------------
Net unrealized appreciation $ 13,465,533
============
</TABLE>
10
<PAGE> 125
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 YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1998 1997
------------- ------------
<S> <C> <C>
Shares sold 823,494 2,546,356
Shares issued in reinvestment
of distributions -- 218,608
Redemptions (334,415) (513,437)
-------- ----------
Net increase 489,079 2,251,527
======== ==========
</TABLE>
11
