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PROSPECTUS
THE DLB VALUE FUND
One Memorial Drive
Cambridge, Massachusetts 02142
(617) 225-3800
April 30, 1998
The DLB VALUE FUND (the "Fund") seeks long-term capital appreciation
primarily through investment in a portfolio of common stocks of established
companies. The Fund is a non-diversified portfolio of The DLB Fund Group (the
"Trust"), an open-end management investment company. The Fund is intended
primarily to serve as an investment vehicle for institutional investors. The
Fund's investment manager is David L. Babson and Company Incorporated (the
"Manager").
This Prospectus concisely describes the information which investors
ought to know before investing in the Fund. Please read this Prospectus
carefully and keep it for further reference.
A Statement of Additional Information dated April 30, 1998 is available
at no charge by writing to the Trust, c/o David L. Babson and Company
Incorporated, Marketing Department, Attention: Maureen M. Bates, One Memorial
Drive, Cambridge, Massachusetts, 02142 or by telephoning (617) 225-3800. The
Statement of Additional Information, which contains more detailed information
about the Fund, has been filed with the Securities and Exchange Commission and
is incorporated by reference into this Prospectus.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
PAGE
SHAREHOLDER TRANSACTION AND FUND EXPENSES 3
FINANCIAL HIGHLIGHTS 4
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS 5
PURCHASE OF SHARES 7
REDEMPTION OF SHARES 8
DETERMINATION OF NET ASSET VALUE 9
DISTRIBUTIONS 9
TAXES 10
MANAGEMENT OF THE TRUST 11
PERFORMANCE INFORMATION 12
ORGANIZATION AND CAPITALIZATION OF THE TRUST 12
SHAREHOLDER INQUIRIES 13
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SHAREHOLDER TRANSACTION AND FUND EXPENSES
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ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee waiver) (a).................... .35%
12b-1 Fees (b)............................................ 0
Other Expenses (after fee waiver) (a)..................... .45%
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Total Fund Operating Expenses (after fee waiver) (a)...... .80%
EXAMPLE:
You would pay the following YEARS
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expenses on a $1,000 investment,
assuming a 5% annual return 1 3 5 10
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with or without redemption at
the end of each period: $8 $26 $44 $99
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(a) The Manager has agreed with the Fund to reduce its management fee
and to bear certain expenses at least through the current fiscal year
to the extent that the Fund's total annual expenses, other than
brokerage commissions and transfer taxes, would otherwise exceed .80%
of the Fund's average daily net assets. Therefore, so long as the
Manager agrees to reduce its fee and to bear certain expenses, total
annual expenses of the Fund, other than brokerage commissions and
transfer taxes, will not exceed .80%. Absent such agreement by the
Manager to waive its fee and bear certain expenses, management fees
would be .55%, "Other Expenses" would be .37% and "Total Fund Operating
Expenses" would be .92%.
(b)The Fund has adopted a distribution and services plan pursuant to
Rule 12b-1 that permits payments by the Fund at an annual rate of up to
.50% of the Fund's average net assets, but the Trustees do not
currently intend to implement such plan during the Fund's current
fiscal year. See "Purchase of Shares -- 12b-1 Plans."
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FINANCIAL HIGHLIGHTS
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The following table, which presents per share financial information for the
Fund, has been audited by Deloitte & Touche LLP, independent accountants, whose
report thereon is incorporated by reference into the Statement of Additional
Information, and may be obtained by shareholders. Additional performance
information is contained in the annual report for the Fund, which is available
at no charge upon request. This table should be read in conjunction with the
Fund's other audited financial statements and related notes which are
incorporated by reference into the Statement of Additional Information.
<TABLE>
<CAPTION>
For the period
July 25, 1995
Year Ended Year Ended (commencement
December 31, December 31, of operations)
1997 1996 to December 31, 1995
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each
period): $12.53 $10.58 $10.00
Net asset value - beginning of period
Income from investment operations:
Net investment income 0.15 0.16 0.09
Net realized and unrealized gain on 3.15 2.38 0.73
investments
.........Total from investment operations 3.30 2.54 0.82
Less distributions declared to shareholders:
From net investment income (0.15) (0.16) (0.09)
From net realized gain on investments (0.70) (0.41) (0.15)
In excess of net realized gain on (0.07) (0.02) --
investments
.........Total distributions declared to (0.92) (0.59) (0.24)
shareholders
Net asset value - end of period $14.91 $12.53 $10.58
Total return 26.35% 23.99% 18.64%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 0.71% 0.80% 0.80%*
Ratio of net investment income to average 1.40% 1.56% 2.02%*
net assets 25% 23% 7%
Portfolio turnover --
Average commission rate paid(1) $0.05796 $0.05378
Net assets at end of period (000 omitted) $56,499 $19,228 $10,818
The Manager has agreed with the Fund to reduce its management fee and bear
certain expenses, such that expenses do not exceed 0.80% of average daily net
assets on an annualized basis. If the fee and expenses had been incurred by the
Fund, the net investment income per share and ratios would have been:
Net investment income $1.13 $0.09 $0.02
Ratios (to average net assets):
Expenses 0.92% 1.50% 2.43%*
Net investment income 1.19% 0.86% 0.40%*
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</TABLE>
(1)For years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. Average commission rate paid
is computed by dividing the total dollar amount of commissions paid
during the year by the total number of shares purchased and sold on
which commissions were charged.
* Annualized
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INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS
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The Fund's investment objective is to seek long-term capital
appreciation primarily through investment in a portfolio of common stocks of
established companies. Strong consideration is given to common stocks whose
current prices do not adequately reflect, in the opinion of the Manager, the
true value of the underlying company in relation to earnings, dividends and/or
assets. The Fund may also hold a portion of its assets in cash or money market
instruments. Various valuation parameters are examined to determine the
attractiveness of individual securities.
The Fund will ordinarily invest in the securities of companies which
are listed on national securities exchanges or on the National Association of
Securities Dealers Automated Quotation System. The Manager will select which
issues to invest in based on its assessment of whether the issue is likely to
provide favorable capital appreciation over the long-term.
ILLIQUID SECURITIES. The Fund may purchase "illiquid securities," which
are securities that are not readily marketable, including securities whose
disposition is restricted by contract or under Federal securities laws, so long
as no more than 15% of the Fund's net assets would be invested in such illiquid
securities. The Fund may not be able to dispose of such securities in a timely
fashion and for a fair price, which could result in losses to the Fund. In
addition, illiquid securities are generally more difficult to value.
PORTFOLIO TURNOVER. Although portfolio turnover is not a limiting
factor with respect to investment decisions for the Fund, the Fund expects to
experience relatively low portfolio turnover rates. It is not anticipated that
under normal circumstances the annual portfolio turnover rate of the Fund will
exceed 100%. However, in any particular year, market conditions may result in
greater rates than are currently anticipated. Portfolio turnover involves
brokerage commissions and other transaction costs, which will be borne directly
by the Fund, and could involve realization of capital gains that would be
taxable when distributed to shareholders. To the extent that portfolio turnover
results in realization of net short-term capital gains, such gains are
ordinarily taxed to shareholders at ordinary income tax rates. Portfolio
turnover rates for the Fund are shown in the section "Financial Highlights." See
"Taxes" below and "Portfolio Transactions" in the Statement of Additional
Information for additional information. The tax consequences of portfolio
transactions may be a secondary consideration for tax-exempt investors.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements.
Under repurchase agreements the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed-upon price and date. The resale price exceeds the acquisition price and
reflects an agreed-upon market rate unrelated to the coupon rate on the
purchased security. Such transactions afford an opportunity for the Fund to earn
a return on temporarily available cash at no market risk, although there is a
risk that the seller may default on its obligation to pay the agreed-upon sum on
the redelivery date. Such a default may subject the Fund to expenses, delays and
risks of loss.
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FIRM COMMITMENTS. The Fund may enter into firm commitment agreements
for the purchase of securities at an agreed-upon price on a specified future
date. The Fund will only enter into firm commitment arrangements with parties
which the Manager determines present minimal credit risks. The Fund will
maintain, in a segregated account with its custodian, cash or securities in an
amount equal to the Fund's obligations under firm commitment agreements. The
Fund bears the risk that the other party will fail to satisfy its obligations to
the Fund. Such a default may subject the Fund to expenses, delays and risks of
loss.
LOANS OF PORTFOLIO SECURITIES. The Fund may make secured loans of
portfolio securities on up to 33 % of the Fund's total assets. The risks in
lending portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. However, such loans will be
made only to parties that are believed by the Manager to be of relatively high
credit standing. Securities loans are made pursuant to agreements requiring that
loans be continuously secured by collateral in cash or U.S. Government
securities at least equal at all times to the market value of the securities
lent. The borrower pays to the Fund an amount equal to any dividends or interest
received on the securities lent. The Fund may invest the cash collateral
received or may receive a fee from the borrower. Although voting rights or
rights to consent with respect to the loaned securities pass to the borrower,
the Fund retains the right to call the loans at any time on reasonable notice.
The Fund may also call such loans in order to sell the securities involved. The
Fund pays various fees in connection with such loans including shipping fees and
reasonable custodian and placement fees.
DERIVATIVES. Certain of the instruments in which the Fund may invest,
such as mortgage-backed securities and indexed securities, are considered to be
"derivatives." Derivatives are financial instruments whose value depends upon,
or is derived from, the value of an underlying asset, such as a security or
currency. The use of such instruments may result in a higher amount of
short-term capital gains (taxed at ordinary income tax rates) than would result
if the Funds did not use such instruments. Further information about these
instruments and the risks involved in their use is included elsewhere in this
prospectus and in the Statement of Additional Information.
RISKS OF NON-DIVERSIFICATION. As a non-diversified fund, the Fund may
invest a relatively high percentage of its assets in the securities of
relatively few issuers, rather than invest in the securities of a large number
of issuers merely to satisfy diversification requirements. Investment in the
securities of a limited number of issuers may increase the risk of loss to the
Fund should there be a decline in the market value of any one portfolio
security. Investment in a non-diversified fund therefore entails greater risks
than investment in a "diversified" fund.
CHANGES TO INVESTMENT OBJECTIVES. The investment objective and (except
for policies identified as "fundamental" in this Prospectus or the Statement of
Additional Information) policies of the Fund may be changed by the Trustees
without shareholder approval. Any such change may result in the Fund having an
investment objective and policies different from the objective and policies
which a shareholder considered appropriate at the time of such shareholder's
investment in the Fund. Shareholders of the Fund will be notified of any changes
in the Fund's investment objective or policies through a revised prospectus or
other written communication.
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PURCHASE OF SHARES
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Shares of the Fund may be purchased directly from the Trust on any day
when the New York Stock Exchange is open for business (a "business day"). The
minimum for an initial investment is $100,000, and the minimum for each
subsequent investment is $10,000. The purchase price of a share is the net asset
value next determined after a purchase order is received in good order. No sales
charge is imposed on purchases of Fund shares.
Shares of the Fund may be purchased either (i) in exchange for common
stocks on deposit at The Depository Trust Company ("DTC") or appropriate fixed
income securities, subject to the determination by the Manager that the
securities to be exchanged are acceptable, (ii) in cash (i.e., by wire transfer)
or (iii) by a combination of such securities and cash. In all cases, the Manager
reserves the right to reject any particular investment. Securities accepted by
the Manager in exchange for Fund shares will be acquired for investment only and
not for resale and will be valued as set forth under "Determination of Net Asset
Value" (generally the last quoted sale price) as of the time of the next
determination of net asset value after such acceptance. All dividends, interest,
subscription or other rights which are reflected in the market price of accepted
securities at the time of valuation become the property of the Fund and must be
delivered to the Trust upon receipt by the investor from the issuer. A gain or
loss for federal income tax purposes may be realized by investors subject to
Federal income taxation upon the exchange, depending upon the investor's basis
in the securities tendered.
The Manager will not approve the acceptance of securities in exchange
for Fund shares unless (1) the Manager, in its sole discretion, believes the
securities are appropriate investments for the Fund; (2) the investor represents
and agrees that all securities offered to the Fund are not subject to any
restrictions upon their sale by the Fund under the Securities Act of 1933, or
otherwise; and (3) the securities may be acquired under the investment
restrictions applicable to the Fund. Investors interested in purchases through
exchange should telephone the Manager at (617) 225-3800, Attn: Maureen M. Bates.
Investors should call the offices of the Trust before attempting to
place an order for shares. The Trust reserves the right at any time to reject an
order.
The deadline for wiring federal funds to the Trust is 2:00 p.m. Eastern
time; in the case of an investment in-kind, the investor's securities must be
placed on deposit at DTC, and 4:00 p.m. Eastern time is the deadline for
transferring those securities to the account designated by the custodian for the
Fund. In most cases, if the consideration is not received by the Trust before
the relevant deadline, the purchase order is not considered to be in good order
and the purchase order and consideration are required to be resubmitted on the
following business day, unless Investors Bank & Trust Company can credit the
consideration to the account for a specific fund.
All federal funds must be transmitted to Investors Bank & Trust Company
to Account No. 777777722 for the account of the Fund.
"Federal funds" are monies credited to Investors Bank & Trust Company's
account with the Federal Reserve Bank of Boston.
Purchases will be made in full and fractional shares of the Fund
calculated to three decimal places. The Trust will send to shareholders written
confirmation (including a statement of shares owned) at the time of each
transaction.
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12B-1 PLAN. The Trust has adopted a distribution and services plan (the
"Plan") for the Fund under Rule 12b-1 of the Investment Company Act of 1940, but
the Trustees do not intend to implement the Plan during the Trust's current
fiscal year. The purposes of the Plan if implemented would be to compensate
and/or reimburse investment dealers and other persons for services provided and
expenses incurred in promoting sales of shares, reducing redemptions or
improving services provided to shareholders by such dealers and other persons.
The Plan would permit payments by the Fund for such purposes at an annual rate
of up to .50% of the Fund's average daily net assets, subject to the authority
of the Trustees to reduce the amount of payments or to suspend the Plan for such
periods as they may determine. Subject to these limitations, the amount of
payments under the Plan and the specific purposes for which they are made would
be determined by the Trustees. At present, the Trustees have no intention of
implementing the Plan.
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REDEMPTION OF SHARES
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Shares of the Fund may be redeemed on any business day in cash or in
kind. The redemption price is the net asset value per share next determined
after receipt of the redemption request in good order. There is no redemption
fee for the Fund. Cash payments generally will be made by transfer of Federal
funds for payment into the investor's account the next business day following
the redemption request. Redemption requests should be sent to Investors Bank &
Trust Company. In order to help facilitate the timely payment of redemption
proceeds, it is recommended that investors telephone the Manager at (617)
225-3800, Attn: Maureen M. Bates, at least two days prior to submitting a
request.
Payment on redemption will be made as promptly as possible and in any
event within seven days after the request for redemption is received by the
Trust in good order. A redemption request is in good order if it includes the
correct name in which shares are registered, the investor's account number and
the number of shares or the dollar amount of shares to be redeemed and if it is
signed correctly in accordance with the form of registration. Persons acting in
a fiduciary capacity, or on behalf of a corporation, partnership or trust, must
specify, in full, the capacity in which they are acting. In-kind redemptions, as
described below, will be transferred and delivered as directed by the investor.
If the Manager determines, in its sole discretion, that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of readily marketable securities held
by the Fund in lieu of cash. Securities used to redeem Fund shares in kind will
be valued in accordance with the Fund's procedures for valuation described under
"Determination of Net Asset Value." Investors generally will incur brokerage
charges on the sale of any such securities so received in payment of
redemptions.
When opening an account with the Trust, shareholders will be required
to designate the account(s) to which funds or securities may be transferred upon
redemption. Designation of additional accounts and any change in the accounts
originally designated must be made in writing with the signature guaranteed by a
commercial bank, a member firm of a domestic securities exchange or one of
certain other financial institutions.
The Fund may suspend the right of redemption and may postpone payment
for more than seven days when the New York Stock Exchange is closed for other
than weekends or holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange is restricted or
during an emergency which makes it reasonably impracticable for the Fund to
dispose of its securities or fairly to determine the value of the net assets of
the Fund, or during any other period permitted by the Securities and Exchange
Commission for the protection of investors.
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DETERMINATION OF NET ASSET VALUE
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The net asset value of a share of the Fund is determined at 4:15 p.m.,
Eastern time, on each day on which the New York Stock Exchange is open. If no
shares of the Fund are tendered for redemption during a month and no order to
purchase shares is received by the Fund during such month, the net asset value
of a share of the Fund will be determined on the last business day of such
month. The net asset value per share for the Fund is determined by dividing the
total value of the Fund's portfolio investments and other assets, less any
liabilities, by the total outstanding shares of the Fund. Portfolio securities
(including options and futures contracts) for which market quotations are
available are valued at the last quoted sale price, or, if there is no such
reported sale, at the closing bid price. Securities traded in the
over-the-counter market are valued at the most recent bid price as obtained from
one or more dealers that make markets in the securities. Portfolio securities
that are traded both in the over-the-counter market and on one or more stock
exchanges are valued according to the broadest and most representative market.
Unlisted securities for which market quotations are not readily available are
valued at the most recent quoted bid price. Short term debt securities with a
remaining maturity of 60 days or less will be valued at amortized cost, unless
conditions dictate otherwise. Illiquid securities or restricted securities will
be valued at fair value based on information supplied by a broker. Other assets
for which no quotations are readily available are valued at fair value as
determined in good faith in accordance with procedures adopted by the Trustees
of the Trust. Determination of fair value will be based upon such factors as are
deemed relevant under the circumstances, including the financial condition and
operating results of the issuer, recent third party transactions (actual or
proposed) relating to such securities and, in extreme cases, the liquidation
value of the issuer.
Because of time zone differences, foreign exchanges and securities
markets will usually be closed prior to the time of the closing of the New York
Stock Exchange and the value of foreign securities will be determined as of the
closing of such exchanges and securities markets. Events affecting the values of
such foreign securities, however, may occasionally occur between the closings of
such exchanges and securities markets and the time the Fund determines its net
asset value. If an event materially affecting the value of such foreign
securities occurs during such period, then such securities will be valued at
fair value as determined in good faith in accordance with procedures adopted by
the Trustees.
Because foreign securities are quoted in foreign currencies,
fluctuations in the value of such securities in relation to the U.S. dollar will
affect the net asset value of shares of the Fund even though there has not been
any change in the values of such securities measured in terms of the foreign
currencies in which they are denominated. The value of foreign securities is
converted into U.S. dollars at the rate of exchange prevailing at the time of
determination of net asset value.
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DISTRIBUTIONS
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The Fund intends to pay out as dividends substantially all of its net
investment income (which comes from dividends and any interest it receives from
its investments and net short-term capital gains). The Fund also intends to
distribute substantially all of its net long-term capital gains, if any, after
giving effect to any available capital loss carryover. The Fund's present policy
is to declare and pay distributions of its dividends and interest at least
annually. The Fund also intends to distribute net short-term capital gains and
net long-term capital gains at least annually.
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All dividends and/or distributions will be paid in shares of the Fund,
at net asset value, unless the shareholder elects to receive cash. Shareholders
may make this election by marking the appropriate box on the application form or
by writing to Investors Bank & Trust Company.
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TAXES
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The following is a general summary of the federal income tax
consequences for the Fund and shareholders who are U.S. citizens or residents or
domestic corporations. The last paragraph of this section contains information
relevant to foreign investors. Shareholders should consult their own tax
advisors about the tax consequences of investments in the Fund in light of their
particular tax situations. Shareholders should also consult their own tax
advisors about consequences under foreign, state, local or other applicable tax
laws.
The Fund is treated as a separate taxable entity for federal income tax
purposes. The Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended. By
so qualifying, the Fund itself will not pay federal income tax on the income and
gain distributed annually to its shareholders. Distributions of ordinary income
and short-term capital gains, whether received in cash or reinvested shares,
will be taxable as ordinary income to shareholders subject to federal income
tax. Designated distributions of net gains on capital assets held (i) for more
than one year but not more than 18 months and (ii) for more than 18 months are
taxable as such, regardless of how long a shareholder may have owned shares in
the Fund or whether such distributions are received in cash or in reinvested
shares. Any loss recognized on the sale or disposition of shares held for six
months or less will be treated as long-term capital loss to the extent of any
long-term capital gain distributions received by a shareholder with respect to
those shares. A distribution paid to shareholders in January generally is deemed
to have been received by shareholders on December 31 of the preceding year, if
the distribution was declared and payable to shareholders of record on a date in
October, November or December of that preceding year. The Trust will provide
federal tax information annually, including information about dividends and
distributions paid during the preceding year.
Dividends and distributions on the Fund's shares are generally subject
to federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when the Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed.
BACK-UP WITHHOLDING. The back-up withholding rules set forth below do
not apply to tax exempt entities or corporations that furnish the Trust with an
appropriate certification. For other shareholders, however, the Trust is
generally required to withhold and remit to the U.S. Treasury 31% of all
distributions, whether distributed in cash or reinvested in shares, and 31% of
the proceeds of any redemption paid or credited to the shareholder's account if
an incorrect or no taxpayer identification number has been provided, where
appropriate certification has not been provided for a foreign shareholder, or
where the Trust is notified that the shareholder has underreported income in the
past (or the shareholder fails to certify that he is not subject to such
withholding). Special withholding rules, described below, may apply to foreign
shareholders.
WITHHOLDING ON DISTRIBUTIONS TO FOREIGN INVESTORS. Dividend
distributions (including in general distributions derived from short-term
capital gains, dividends and interest) are in general subject to a U.S.
withholding tax of 30% when paid to a non-resident alien individual, foreign
estate or trust, a foreign corporation, or a foreign partnership ("foreign
shareholder"). Persons who are residents in a country, such
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<PAGE> 11
as the United Kingdom, that has an income tax treaty with the United States may
be eligible for a reduced withholding rate (upon filing of appropriate forms),
and are urged to consult their tax advisors regarding the applicability and
effect of such a treaty. Distributions of net long-term capital gains to a
foreign shareholder and any gain realized upon the sale of Fund shares by such a
shareholder will ordinarily not be subject to U.S. taxation, unless the
recipient or seller is a nonresident alien individual who is present in the
United States for more than 182 days during the taxable year, and certain other
conditions apply. Foreign shareholders with respect to whom income from the Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder, however, will in general be subject to U.S. federal income tax on
the income derived from the Fund at the graduated rates applicable to U.S.
citizens, residents or domestic corporations, whether such income is received in
cash or reinvested in shares, and may also be subject to a branch profits tax.
Again, foreign shareholders who are residents in a country with an income tax
treaty with the United States may obtain different tax results and all foreign
investors are urged to consult their tax advisors.
NEW WITHHOLDING TAX RULES FOR PAYMENTS AFTER 1999. The Internal Revenue
Service recently revised its regulations affecting the application to foreign
investors of the back-up withholding and withholding tax rules described above.
The new regulations will generally be effective for payments made on or after
January 1, 1999 (although transition rules will apply). In some circumstances,
the new rules will increase the certification and filing requirements imposed on
foreign investors in order to qualify for exemption from the 31% back-up
withholding tax and for reduced withholding tax rates under income tax treaties.
The U.S. Treasury Department and the Internal Revenue Service have announced
that the effective date of these regulations will be amended to apply to
payments made on or after January 1, 2000. Foreign investors in the Fund should
consult their tax advisors with respect to the potential application of these
new regulations.
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MANAGEMENT OF THE TRUST
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The Fund is advised and managed by David L. Babson and Company
Incorporated, One Memorial Drive, Cambridge, Massachusetts 02142, which provides
investment advisory services to a substantial number of institutional and other
investors, including other registered investment companies. David L. Babson and
Company Incorporated, a registered investment company, is a wholly owned
subsidiary of DLB Acquisition Corp., a holding company, which is controlled by
Mass Mutual Holding Company, a holding company and wholly owned subsidiary of
Massachusetts Mutual Life Insurance Company, a mutual life insurance company.
Under a Management Contract relating to the Fund, the Manager selects
and reviews the Fund's investments and provides executive and other personnel
for the management of the Trust. Pursuant to the Trust's Agreement and
Declaration of Trust, the Board of Trustees supervises the affairs of the Trust
as conducted by the Manager. In the event that the Manager ceases to be the
manager of the Fund, the right of the Fund or of the Trust to use the
identifying name "DLB" may be withdrawn.
The Fund pays the Manager a monthly fee at the annual rate of 0.55% of
the Fund's average daily net assets. The Manager, however, has agreed to waive a
portion of its fee and to bear certain expenses for the current fiscal year to
the extent the Fund's annual expenses (including the management fee but
excluding brokerage commissions and transfer taxes) would exceed 0.80% of the
Fund's average daily net assets. These fees and expenses and the terms
applicable to them are described under "Shareholder Transaction and Fund
Expenses" above.
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<PAGE> 12
Roland W. Whitridge, Senior Vice President and Director of the
Manager, is primarily responsible for the day-to-day management of the Fund. Mr.
Whitridge has been employed by the Manager in portfolio management for at least
the past five years. Mr. Whitridge has been primarily responsible for the
day-to-day management of the Babson Value Fund, a registered investment company
advised by the Manager, since its inception on December 21, 1984. The average
annual total return (after deduction of expenses) of the Babson Value Fund for
the one, three, five and ten year periods ended March 31, 1998 and from its
inception through March 31, 1998 is set forth below:
One year 41.01%
Three years 28.47%
Five years 22.69%
Ten years 17.23%
Since inception 17.50%
While having a similar investment style to the Fund, the Babson Value
Fund is a separate investment company and its historical performance is not
indicative of the performance expected of the Fund. In addition, investment
performance is based on many factors, including market conditions, the
composition of a fund's portfolio, a fund's investment policies and a fund's
operating expenses.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Yield and total return data may from time to time be included in
advertisements about the Fund. "Yield" is calculated by dividing the Fund's
annualized net investment income per share during a recent 30-day period by the
maximum public offering price per share on the last day of that period. "Total
return" for the one-year period and for the life of the Fund, each through the
most recent calendar quarter, represents the average annual compounded rate of
return on an investment of $1,000 in the Fund at net asset value (assuming
immediate reinvestment of any dividends or capital gains distributions at net
asset value). Quotations of yield or total return for any period when an expense
limitation was in effect will be greater than if the limitation had not been in
effect. See "Investment Performance" in the Statement of Additional Information.
All data is based on the Fund's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of the Fund's
portfolio, and the Fund's operating expenses. Investment performance also often
reflects the risks associated with the Fund's investment objective and policies.
These factors should be considered when comparing the Fund's investment results
to those of other mutual funds and other investment vehicles.
- --------------------------------------------------------------------------------
ORGANIZATION AND CAPITALIZATION OF THE TRUST
- --------------------------------------------------------------------------------
The Trust was established on August 1, 1994 as a business trust under
Massachusetts law. The Trust has an unlimited number of authorized shares of
beneficial interest which may, without shareholder approval, be divided into an
unlimited number of series of such shares and which are presently divided into
eight series of shares, each representing a different fund. The Trust does not
generally hold annual meetings of shareholders and will do so only when required
by law. Matters submitted to shareholder vote must be approved by each fund of
the Trust (including the Fund) separately except (i) when required by the
Investment Company Act of 1940, shares shall be voted together as a single
class, and (ii) when the Trustees have determined that the matter affects one or
more funds, then only shareholders of such fund
-12-
<PAGE> 13
or funds shall be entitled to vote on the matter. Shares are freely
transferable, are entitled to dividends as declared by the Trustees, and, in
liquidation of the Trust, are entitled to receive the net assets of their fund,
but not of any other fund. Shareholders holding a majority of the outstanding
shares of the Trust may remove Trustees from office by votes cast in person or
by proxy at a meeting of shareholders or by written consent. Massachusetts
Mutual Life Insurance Company Separate Investment Account N.V. currently owns
more than 25% of the outstanding shares of the Fund and therefore is deemed to
"control" the Fund within the meaning of the Investment Company Act of 1940.
Shareholders could, under certain circumstances, be held personally
liable for the obligations of the Trust. The risk of a shareholder incurring
financial loss on account of that liability, however, is considered remote
because liability may arise only in very limited circumstances and shareholders
are entitled to indemnification out of the assets of the Fund for any such
liability.
- --------------------------------------------------------------------------------
SHAREHOLDER INQUIRIES
- --------------------------------------------------------------------------------
Shareholders may direct inquiries to the Trust c/o David L. Babson and
Company Incorporated, Marketing Department, Attn: Maureen M. Bates, One Memorial
Drive, Cambridge, Massachusetts 02142 (617-225-3800).
When required by the Investment Company Act of 1940, the Manager's
discussion of the performance of the Fund in its most recent fiscal year as well
as a comparison of the Fund's performance over the life of the Fund with that of
a benchmark securities index selected by the Manager will be included in the
Trust's Annual Report for that fiscal year. Copies of the Annual Report will be
available upon request without charge.
-13-
<PAGE> 14
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
CUSTODIAN
Investors Bank & Trust Company
John Hancock Tower
200 Clarendon Street, 16th Floor
Boston, MA 02116
TRANSFER AGENT
Investors Bank & Trust Company
John Hancock Tower
200 Clarendon Street, 5th Floor
Boston, MA 02116
-14-
<PAGE> 15
PROSPECTUS
THE DLB FUND GROUP
One Memorial Drive
Cambridge, Massachusetts 02142
(617) 225-3800
April 30, 1998
The DLB Fund Group (the "Trust") is an open-end management investment
company offering through this Prospectus four non-diversified portfolios with
different investment objectives and strategies (such portfolios are each
referred to as a "Fund," and, collectively, as the "Funds"). The Funds are
intended primarily to serve as investment vehicles for institutional investors.
Each Fund's investment manager is David L. Babson and Company Incorporated (the
"Manager").
The DLB FIXED INCOME FUND (the "Fixed Income Fund") seeks to achieve a
high level of current income consistent with preservation of capital through
investment in a portfolio of fixed income securities.
The DLB GLOBAL SMALL CAPITALIZATION FUND (the "Global Small Cap Fund")
seeks long-term capital appreciation through investment primarily in common
stocks of smaller foreign and domestic companies.
The DLB VALUE FUND (the "Value Fund") seeks long-term capital
appreciation primarily through investment in a portfolio of common stocks of
established companies.
The DLB MID CAPITALIZATION FUND (the "Mid Cap Fund") seeks long-term
capital appreciation primarily through investment in a portfolio of common
stocks of small to medium-size companies.
Shares of each Fund are sold to investors by the Trust. The minimum
initial investment in a Fund is $100,000, and the minimum for each subsequent
investment is $10,000.
This Prospectus concisely describes the information which investors
ought to know before investing in any of the Funds. Please read this Prospectus
carefully and keep it for further reference.
A Statement of Additional Information dated April 30, 1998 is available
at no charge by writing to the Trust, c/o David L. Babson and Company
Incorporated, Marketing Department, Attention: Maureen M. Bates, One Memorial
Drive, Cambridge, Massachusetts, 02142 or by telephoning (617) 225-3800. The
Statement of Additional Information, which contains more detailed information
about all of the Funds, has been filed with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
-1-
<PAGE> 16
TABLE OF CONTENTS
PAGE
SHAREHOLDER TRANSACTION AND FUND EXPENSES.....................................3
FINANCIAL HIGHLIGHTS..........................................................7
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS......................11
PURCHASE OF SHARES...........................................................17
REDEMPTION OF SHARES.........................................................18
DETERMINATION OF NET ASSET VALUE.............................................19
DISTRIBUTIONS................................................................19
TAXES ....................................................................20
MANAGEMENT OF THE TRUST......................................................21
PERFORMANCE INFORMATION......................................................22
ORGANIZATION AND CAPITALIZATION OF THE TRUST.................................22
SHAREHOLDER INQUIRIES........................................................23
-2-
<PAGE> 17
SHAREHOLDER TRANSACTION AND FUND EXPENSES
1. FIXED INCOME FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee waiver) (a)................... .20%
12b-1 Fees (b)........................................... 0
Other Expenses (after fee waiver) (a).................... .35%
----
Total Fund Operating Expenses (after fee waiver) (a)..... .55%
EXAMPLE:
<TABLE>
<S> <C> <C> <C> <C>
You would pay the following Years
expenses on a $1,000 investment,
assuming a 5% annual return 1 3 5 10
- - - --
with or without redemption at
the end of each period: $6 $18 $31 $69
</TABLE>
- ---------------
(a) The Manager has agreed with the Fund to reduce its management fee and
to bear certain expenses for the current fiscal year to the extent that
the Fund's total annual expenses, other than brokerage commissions and
transfer taxes, would otherwise exceed .55% of the Fund's average daily
net assets. Therefore, so long as the Manager agrees to reduce its fee
and to bear certain expenses, total annual expenses of the Fund, other
than brokerage commissions and transfer taxes, will not exceed .55%.
Absent such agreement by the Manager to waive its fee and bear certain
expenses, management fees would be .40%, "Other Expenses" would be
.66% and "Total Fund Operating Expenses" would be 1.06%.
(b) The Fund has adopted a distribution and services plan pursuant to Rule
12b-1 that permits payments by the Fund at an annual rate of up to .50%
of the Fund's average net assets, but the Trustees do not currently
intend to implement such plan during the Fund's current fiscal year.
See "Purchase of Shares -- 12b-1 Plans."
-3-
<PAGE> 18
2. GLOBAL SMALL CAP FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee waiver) (a).......................... .80%
12b-1 Fees (b).................................................. 0
Other Expenses (after fee waiver) (a)........................... .70%
----
Total Fund Operating Expenses (after fee waiver) (a)............ 1.50%
EXAMPLE:
<TABLE>
<S> <C> <C> <C> <C>
You would pay the following Years
expenses on a $1,000 investment,
assuming a 5% annual return 1 3 5 10
- - - --
with or without redemption at
the end of each period: $15 $47 $82 $179
</TABLE>
- ---------------
(a) The Manager has agreed with the Fund to reduce its management fee and
to bear certain expenses for the current fiscal year to the extent that
the Fund's total annual expenses, other than brokerage commissions and
transfer taxes, would otherwise exceed 1.50% of the Fund's average
daily net assets. Therefore, so long as the Manager agrees to reduce
its fee and to bear certain expenses, total annual expenses of the
Fund, other than brokerage commissions and transfer taxes, will not
exceed 1.50%. Absent such agreement by the Manager to waive its fee and
bear certain expenses, management fees would be 1.00%, "Other Expenses"
would be 1.14% and "Total Fund Operating Expenses" would be 2.14%.
(b) The Fund has adopted a distribution and services plan pursuant to Rule
12b-1 that permits payments by the Fund at an annual rate of up to .50%
of the Fund's average net assets, but the Trustees do not currently
intend to implement such plan during the Fund's current fiscal year.
See "Purchase of Shares -- 12b-1 Plans."
-4-
<PAGE> 19
3. VALUE FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee waiver) (a)......................... .35%
12b-1 Fees (b)................................................. 0
Other Expenses (after fee waiver) (a).......................... .45%
----
Total Fund Operating Expenses (after fee waiver) (a)........... .80%
EXAMPLE:
<TABLE>
<S> <C> <C> <C> <C>
You would pay the following Years
expenses on a $1,000 investment,
assuming a 5% annual return 1 3 5 10
- - - --
with or without redemption at
the end of each period: $8 $26 $44 $99
</TABLE>
- ---------------
(a) The Manager has agreed with the Fund to reduce its management fee and
to bear certain expenses for the current fiscal year to the extent that
the Fund's total annual expenses, other than brokerage commissions and
transfer taxes, would otherwise exceed .80% of the Fund's average daily
net assets. Therefore, so long as the Manager agrees to reduce its fee
and to bear certain expenses, total annual expenses of the Fund, other
than brokerage commissions and transfer taxes, will not exceed .80%.
Absent such agreement by the Manager to waive its fee and bear certain
expenses, management fees would be .55%, "Other Expenses" would be .37%
and "Total Fund Operating Expenses" would be .92%.
(b) The Fund has adopted a distribution and services plan pursuant to Rule
12b-1 that permits payments by the Fund at an annual rate of up to .50%
of the Fund's average net assets, but the Trustees do not currently
intend to implement such plan during the Fund's current fiscal year.
See "Purchase of Shares -- 12b-1 Plans."
-5-
<PAGE> 20
4. MID CAP FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee waiver) (a)......................... .30%
12b-1 Fees (b)................................................. 0
Other Expenses (after fee waiver) (a).......................... .60%
----
Total Fund Operating Expenses (after fee waiver) (a)........... .90%
EXAMPLE:
<TABLE>
<S> <C> <C> <C> <C>
You would pay the following Years
expenses on a $1,000 investment,
assuming a 5% annual return 1 3 5 10
- - - --
with or without redemption at
the end of each period: $9 $29 $50 $111
</TABLE>
- ---------------
(a) The Manager has agreed with the Fund to reduce its management fee and
to bear certain expenses for the current fiscal year to the extent that
the Fund's total annual expenses, other than brokerage commissions and
transfer taxes, would otherwise exceed .90% of the Fund's average daily
net assets. Therefore, so long as the Manager agrees to reduce its fee
and to bear certain expenses, total annual expenses of the Fund, other
than brokerage commissions and transfer taxes, will not exceed .90%.
Absent such agreement by the Manager to waive its fee and bear certain
expenses, management fees would be .60%, "Other Expenses" would be
.73% and "Total Fund Operating Expenses" would be 1.33%.
(b) The Fund has adopted a distribution and services plan pursuant to Rule
12b-1 that permits payments by the Fund at an annual rate of up to .50%
of the Fund's average net assets, but the Trustees do not currently
intend to implement such plan during the Fund's current fiscal year.
See "Purchase of Shares -- 12b-1 Plans."
The purpose of the foregoing tables is to assist an investor in
understanding the various costs and expenses of each of the Funds that are borne
by holders of Fund shares. THE FIVE PERCENT ANNUAL RETURN AND EXPENSES USED IN
CALCULATING THE EXAMPLES ARE NOT REPRESENTATIONS OF PAST OR FUTURE PERFORMANCE
OR EXPENSES; ACTUAL PERFORMANCE AND/OR EXPENSES MAY BE MORE OR LESS THAN SHOWN.
-6-
<PAGE> 21
' FINANCIAL HIGHLIGHTS
The following tables, which present per share financial information for each of
the Funds, have been audited by Deloitte & Touche LLP, independent accountants,
whose report thereon is incorporated by reference into the Statement of
Additional Information relating to the Funds, and may be obtained by
shareholders. Additional performance information is contained in the annual
report for each of the Funds, which is available at no charge upon request.
These tables should be read in conjunction with the Funds' other audited
financial statements and related notes which are incorporated by reference into
the Statement of Additional Information.
1. FIXED INCOME FUND
<TABLE>
<CAPTION>
For the period
July 25, 1995
Year Ended Year Ended (commencement of
December 31, December 31, operations) to
1997 1996 December 31, 1995
------------- ------------ -----------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 10.11 $ 10.26 $ 10.00
---------- ---------- ----------
Net investment income 0.42 0.53 0.28
Net realized and unrealized gain (loss) on investments 0.49 (0.15) 0.37
---------- ---------- ----------
Total from investment operations 0.91 0.38 0.65
---------- ---------- ----------
Less distributions declared to shareholders:
From net investment income(1) (0.41) (0.53) (0.28)
From net realized gain on investments -- -- (0.11)
---------- ---------- ----------
Total distributions declared to shareholders (0.41) (0.53) (0.39)
---------- ---------- ----------
Net asset value - end of period $ 10.61 $ 10.11 $ 10.26
========== ========== ==========
Total return 9.03% 3.70% 14.75%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 0.55% 0.55% 0.55%*
Ratio of net investment income to average net assets 5.74% 6.36% 6.24%
Portfolio turnover 44% 65% 42%
Net assets at end of period (000 omitted) $ 32,155 $ 15,261 $ 5,325
The Manager has agreed with the Fund to reduce its
management fee and bear certain expenses, such that expenses
do not exceed 0.55% of average daily net assets on an
annualized basis. If the fee and expenses had been incurred
by the Fund and had 1995 expenses been limited to that
required by state securities laws then in effect, the net
investment income per share and ratios would have been:
Net investment income $ 0.38 $ 0.44 $ 0.19
Ratios (to average net assets):
Expenses 1.06% 1.66% 2.50%*
Net investment income 5.22% 5.25% 4.33%*
</TABLE>
- -------------
(1) Distributions in excess of net investment income for the year ended
December 31, 1996 were less than $0.01 per share.
* Annualized
-7-
<PAGE> 22
2. GLOBAL SMALL CAP FUND
<TABLE>
<CAPTION>
For the period
July 19, 1995
Year Ended Year Ended (commencement of
December 31, December 31, operations) to
1997 1996 December 31, 1995
------------- ------------ -----------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 11.19 $ 10.33 $ 10.00
------------- ------------ -----------------
Income from investment operations:
Net investment income 0.02 0.01 0.07
------------- ------------ -----------------
Net realized and unrealized gain on investments 0.50 1.01 0.33
------------- ------------ -----------------
Total from investment operations
0.52 1.02 0.40
Less distributions declared to shareholders:
From net investment income (0.01) (0.01) (0.07)
From net realized gain on investments (0.02) (0.11) --
In excess of net realized gain on investments (0.01) (0.04) --
Tax return of capital (0.40) -- --
------------- ------------ -----------------
Total distributions declared to shareholders (0.44) (0.16) 0.07
------------- ------------ -----------------
Net asset value - end of period $ 11.27 $ 11.19 $ 10.33
============= ============ =================
Total return 4.66% 9.85% 8.96%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 1.50% 1.50% 1.46%*
Ratio of net investment income to average net assets 0.22% 0.09% 1.46%*
Portfolio turnover 44% 22% 5%
Average commission rate paid(1) $ 0.0115 $ 0.01170 --
Net assets at end of period (000 omitted) $ 13,887 $ 12,586 $ 10,509
The Manager has agreed with the Fund to reduce its
investment management fee and bear certain expenses, such
that expenses do not exceed 1.50% of average daily net assets
on an annualized basis. If the fee and expenses had been
incurred by the Fund and had 1995 expenses been limited to
that required by state securities laws then in effect, the
net investment income (loss) per share and ratios would
have been:
Net investment income (loss) $ (0.05) $ (0.10) $ 0.02
Ratios (to average net assets):
Expenses 2.14% 2.36% 2.50%*
Net investment income (loss) (0.42)% (0.77)% 0.42%*
</TABLE>
- -------------
(1) For years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades
on which commissions are charged. Average commission rate paid is
computed by dividing the total dollar amount of commission paid during
the year by the total number of shares purchased and sold on which
commissions were charged.
* Annualized
-8-
<PAGE> 23
3. VALUE FUND
<TABLE>
<CAPTION>
For the period
July 25, 1995
Year Ended Year Ended (commencement of
December 31, December 31, operations) to
1997 1996 December 31, 1995
--------------- ------------- -----------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 12.53 $ 10.58 $ 10.00
------------- ------------- -------------
Income from investment operations:
Net investment income 0.15 0.16 0.09
Net realized and unrealized gain on investments 3.15 2.38 0.73
------------- ------------- -------------
Total from investment operations 3.30 2.54 0.82
------------- ------------- -------------
Less distributions declared to shareholders:
From net investment income (0.15) (0.16) (0.09)
From net realized gain on investments (0.70) (0.41) (0.15)
In excess of net realized gain on investments (0.07) (0.02) --
------------- ------------- -------------
Total distributions declared to shareholders (0.92) (0.59) (0.24)
Net asset value - end of period $ 14.91 $ 12.53 $ 10.58
============= ============= =============
Total return 26.35% 23.99% 18.64%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 0.71% 0.80% 0.80%*
Ratio of net investment income to average net assets 1.40% 1.56% 2.02%*
Portfolio turnover 25% 23% 7%
Average commission rate paid(1) $ 0.05796 $ 0.05378 --
Net assets at end of period (000 omitted) $ 56,499 $ 19,228 $ 10,818
The Manager has agreed with the Fund to reduce its
management fee and bear certain expenses, such that expenses
do not exceed 0.80% of average daily net assets on an
annualized basis. If the fee and expenses had been incurred
by the Fund, the net investment income per share and ratios
would have been:
Net investment income $ 0.13 $ 0.09 $ 0.02
Ratios (to average net assets):
Expenses 0.92% 1.50% 2.43%*
Net investment income 1.19% 0.86% 0.40%*
</TABLE>
- -------------
(1) For years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades
on which commissions are charged. Average commission rate paid is
computed by dividing the total dollar amount of commissions paid during
the year by the total number of shares purchased and sold on which
commissions were charged.
* Annualized
-9-
<PAGE> 24
4. MID CAP FUND
<TABLE>
<CAPTION>
For the period
July 25, 1995
Year Ended Year Ended (commencement of
December 31, December 31, operations) to
1997 1996 December 31, 1995
------------ --------------- -------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 11.51 $ 10.75 $ 10.00
----------- ------------- -------------
Income from investment operations:
Net investment income 0.08 0.15 0.08
Net realized and unrealized gain on investments 3.72 1.44 0.84
----------- ------------- -------------
Total from investment operations 3.80 1.59 0.92
----------- ------------- -------------
Less distributions declared to shareholders:
From net investment income(1) (0.08) (0.15) (0.08)
From net realized gain on investments(2) (1.04) (0.68) (0.09)
----------- ------------- -------------
Total distributions declared to shareholders (1.12) (0.83) (0.17)
-------------
Net asset value - end of period $ 14.19 $ 11.51 $ 10.75
=========== ============= =============
Total return 32.95% 14.75% 21.17%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets 0.90% 0.90% 0.90%*
Ratio of net investment income to average net assets 0.78% 1.28% 1.90%
Portfolio turnover 32% 25% 6%
Average commission rate paid(3) $ 0.05262 $ 0.05270 --
Net assets at end of period (000 omitted) $ 27,358 $ 13,690 $ 10,929
The Manager has agreed with the Fund to reduce its
management fee and bear certain expenses, such that expenses
do not exceed 0.90% of average daily net assets on an
annualized basis. If the fee and expenses had been incurred
by the Fund and had 1995 expenses been limited to that
required by state securities laws then in effect, the net
investment income per share and ratios would have been:
Net investment income $ 0.04 $ 0.05 $ 0.01
Ratios (to average net assets):
Expenses 1.33% 1.77% 2.50%*
Net investment income 0.36% 0.41% 0.32%*
</TABLE>
- -------------
(1) Distributions in excess of net investment income for the year ended
December 31, 1996 were less than $0.01 per share.
(2) Distributions in excess of net realized gain on investments for the
year ended December 31, 1996 were less than $0.01 per share.
(3) For years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades
on which commissions are charged. Average commission rate paid is
computed by dividing the total dollar amount of commissions paid during
the year by the total number of shares purchased and sold on which
commissions were charged.
* Annualized
-10-
<PAGE> 25
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS
FIXED INCOME FUND
The Fixed Income Fund's investment objective is to achieve a high level
of current income consistent with preservation of capital through investment in
a portfolio of fixed income securities.
The Manager will pursue the Fixed Income Fund's objective by investing
the Fund's assets primarily in publicly traded domestic fixed income securities,
including U.S. Treasury and agency obligations, mortgage-backed and asset-backed
securities and corporate debt securities. The Fund will also invest in other
fixed income markets, such as corporate private placements, directly-placed
mortgage obligations and foreign currency denominated bonds. Substantially all
(but no less than 65%) of the Fund's total assets will at all times be invested
in fixed income securities. Pending investment and reinvestment in fixed income
securities, the Manager may invest the Fund's assets in money market
instruments. Allocations are made among a wide array of market sectors, such as
U.S. Treasury and agency obligations, corporate securities, mortgages and
mortgage-backed securities, private placement securities and non-U.S. dollar
denominated securities, based on the relative attractiveness of such sectors.
Following these sector allocations, the Manager will purchase those securities
deemed attractively valued in the desired sectors. The Fund may invest in any
fixed income security, including preferred stocks. The Fund may also hold a
portion of its assets in cash or money market instruments.
PORTFOLIO DURATION AND MATURITY. The Fund's portfolio will generally
have an average dollar weighted portfolio maturity of five to twelve years and a
duration of no less than three years and no more than ten years (excluding
short-term investments). The duration of a fixed income security is the weighted
average maturity, expressed in years, of the present value of all future cash
flows, including coupon payments and principal repayments. The Fund's portfolio
may include securities with maturities and durations outside of these ranges.
PORTFOLIO QUALITY. The Fund may invest in any security that is rated
investment grade at the time of purchase (i.e., at least Baa as determined by
Moody's Investors Service, Inc. ("Moody's") or BBB as determined by Standard &
Poor's ("S&P")), or in any unrated security that the Manager determines to be of
comparable quality. Securities rated Baa by Moody's or BBB by S&P and comparable
unrated securities have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments on such obligations than in the case of
higher- rated securities. In the event that any security held by the Fund ceases
to be of investment grade quality, the Fund will not be obligated to dispose of
such security and may continue to hold the obligation if, in the opinion of the
Manager, such investment is considered appropriate under the circumstances.
However, if more than 5% of the Fund's net assets are below investment grade
quality, the Manager will dispose of such securities as are necessary to reduce
such holdings to 5% or less.
INTEREST RATE RISK. The values of fixed income securities generally
vary inversely to changes in prevailing interest rates. Investments in lower
quality fixed income securities generally provide greater income than
investments in higher-rated securities but are subject to greater market
fluctuations and risks of loss of income and principal than are higher-rated
securities. Fluctuations in the value of portfolio securities will not affect
interest income on existing portfolio securities but will be reflected in the
Fund's net asset value.
MORTGAGE-BACKED AND OTHER ASSET-BACKED SECURITIES. The Fund may invest
in mortgage-backed and other asset-backed securities issued by the U.S.
Government and its agencies and instrumentalities and by non- governmental
issuers. Interest and principal payments (including prepayments) on the
mortgages underlying
-11-
<PAGE> 26
mortgage-backed securities are passed through to the holders of the
mortgage-backed security. Prepayments occur when the mortgagor on an individual
mortgage prepays the remaining principal before the mortgage's scheduled
maturity date. As a result of the pass-through of prepayments of principal on
the underlying securities, mortgage-backed securities are often subject to more
rapid prepayment of principal than their stated maturity would indicate. Because
the prepayment characteristics of the underlying mortgages vary, there can be no
certainty as to the predicted yield or average life of a particular issue of
pass-through certificates. Prepayments are important because of their effect on
the yield and price of the securities. During periods of declining interest
rates, such prepayments can be expected to accelerate and the Fund would be
required to reinvest the proceeds at the lower interest rates then available. In
addition, prepayments of mortgages which underlie securities purchased at a
premium could result in capital losses because the premium may not have been
fully amortized at the time the obligation was prepaid. As a result of these
principal payment features, the values of mortgage-backed securities generally
fall when interest rates rise, but their potential for capital appreciation in
periods of falling interest rates is limited because of the prepayment feature.
The mortgage-backed securities purchased by the Fund may include adjustable rate
instruments. See "Adjustable Rate Securities" below.
The Fund may also invest in asset-backed securities such as securities
backed by pools of automobile loans, educational loans and credit card
receivables, both secured and unsecured. These assets are generally held by a
trust and payments of principal and interest or interest only are passed through
to certificate holders. The underlying assets are subject to prepayment, which
may reduce the overall return to certificate holders. Nevertheless, principal
repayment rates tend not to vary much with interest rates and the short-term
nature of the assets tends to dampen the impact of any change in the prepayment
level. Certificate holders may also experience delays in payment on the
certificates if the full amounts due on the underlying assets are not realized
by the trust because of unanticipated legal or administrative costs of enforcing
the contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors.
In addition to the risks described above, mortgage-backed and
asset-backed securities without a U.S. Government guarantee involve risk of loss
of principal if the obligors of the underlying obligations default in payment of
the obligations.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). The Fund may invest in
CMOs. A CMO is a security backed by a portfolio of mortgages or mortgage-backed
securities held under an indenture. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs are issued in multiple classes or series which
have different maturities representing interests in some or all of the interest
or principal on the underlying collateral or a combination thereof. CMOs of
different classes are generally retired in sequence as the underlying mortgage
loans in the mortgage pool are repaid. In the event of sufficient early
prepayments on such mortgages, the class or series of CMO first to mature
generally will be retired prior to its stated maturity. Thus, the early
retirement of a particular class or series of CMO held by the Fund would have
the same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security. CMOs also include securities ("Residuals") representing
the interest in any excess cash flow and/or the value of any collateral
remaining after the issuer has applied cash flow from the underlying mortgages
or mortgage-backed securities to the payment of principal of, and interest on,
all other CMOs and the administrative expenses of the issuer. Due to uncertainty
as whether any excess cash flow or the underlying collateral will be available,
there can be no assurances that Residuals will ultimately have value.
ADJUSTABLE RATE SECURITIES. The Fund may invest in adjustable rate
securities which are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. They may be U.S. Government securities or securities of other
issuers. Some adjustable rate
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securities are backed by pools of mortgage loans. Although the rate adjustment
feature may act as a buffer to reduce sharp changes in the value of adjustable
rate securities, these securities are still subject to changes in value based on
changes in market interest rates or changes in the issuer's creditworthiness.
Because the interest rate is reset only periodically, changes in the interest
rates on adjustable rate securities may lag changes in prevailing market
interest rates. Also, some adjustable rate securities (or the underlying
mortgages) are subject to caps or floors that limit the maximum change in
interest rate during a specified period or over the life of the security.
Because of the resetting of interest rates, adjustable rate securities are less
likely than non-adjustable rate securities of comparable quality and maturity to
increase significantly in value when market interest rates fall.
OTHER INVESTMENT POLICIES. The Fund may also invest a limited portion
of its net assets (in all cases less than 5%) in IO/PO strips, zero coupon
securities, indexed securities, loans and other direct debt instruments, reverse
repurchase agreements and dollar roll agreements. See the Statement of
Additional Information for a description of each of these investment practices
and the related risks.
See "Investment Objectives And Policies and Associated Risks--General"
for additional information.
GLOBAL SMALL CAP FUND
The investment objective of the Global Small Cap Fund is to seek
long-term capital appreciation through investment primarily in common stocks of
foreign and domestic companies with market capitalizations at the time of
investment by the Fund of up to $1.5 billion. Such companies are referred to
herein as "small capitalization companies." Current income is only an incidental
consideration in selecting investments for the Fund. The Fund is designed for
investors seeking above-average capital growth potential through a global
portfolio of common stocks.
Under normal circumstances, substantially all (but no less than 65%) of
the Fund's total assets will at all times be invested in common stocks of small
capitalization companies. Such companies may present greater opportunities for
capital appreciation because of high potential earnings growth, but may also
involve greater risk. Small capitalization companies tend to be smaller than
other companies and may be dependent upon a single proprietary product or market
niche. They may have limited product lines, markets or financial resources or
may depend on a limited management group. Typically, small capitalization
companies have fewer securities outstanding, which may be less liquid than
securities of larger companies. Their common stock and other securities may
trade less frequently and in limited volume. The securities of small
capitalization companies are generally more sensitive to purchase and sale
transactions; therefore, the prices of such securities tend to be more volatile
than the securities of larger companies. As a result, the securities of small
capitalization companies may change in value more than those of larger, more
established companies.
In seeking capital appreciation, the Fund follows a global investment
strategy of investing primarily in common stocks traded in securities markets
located in a number of foreign countries and in the United States. The Fund
normally expects to invest approximately 40% to 60% of its assets outside the
United States and the remaining 60% to 40% of its assets inside the United
States. The weighting of the Fund's portfolio between foreign and domestic
investments will depend upon prevailing conditions in foreign and domestic
markets. Under certain market conditions, the Fund may invest more than 60% of
its assets either outside or inside the United States. In addition, the Fund
will always invest at least 65% of its total assets in at least three different
countries, one of which will be the United States. The selection of the Fund's
domestic investments will generally be based on value factors, while the
selection of the Fund's foreign investments will generally be based on growth
factors. In certain foreign countries, particularly the newly industrializing
countries described below, the Fund's market capitalization guideline of $1.5
billion may include companies which, when viewed
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<PAGE> 28
on a relative basis, are not considered "small cap" in the particular country.
The Fund may hold a portion of its assets in cash or money market instruments.
Consistent with the above policies, the Fund may at times invest more
than 25% of its assets in the securities of issuers located in a single country.
At such times, the Fund's performance will be directly affected by political,
economic, market and exchange rate conditions in such country. When the Fund
invests a substantial portion of its assets in a single country it is subject to
greater risk of adverse changes in any of these factors with respect to such
country than a Fund which does not invest as heavily in the country.
The Fund may invest up to 15% of its assets in stocks traded in the
securities markets of newly industrializing countries in Asia, Latin America,
the Middle East, Southern Europe, Eastern Europe (including the former Soviet
Union) and Africa. Investment in such countries involves a greater degree of
risk than investment in industrialized countries, as discussed below. In order
to gain exposure to certain foreign countries which prohibit or impose
restrictions on direct investment, the Fund may (subject to any applicable
regulatory requirements) invest in foreign and domestic investment companies and
other pooled investment vehicles that invest primarily or exclusively in such
countries. The Fund's investment through such vehicles will generally involve
the payment of indirect expenses (including advisory fees) which the Fund does
not incur when investing directly.
The Manager believes that the securities markets of many nations move
relatively independently of one another because business cycles and other
economic or political events that influence one country's securities markets may
have little effect on securities markets in other countries. By investing in a
global portfolio, the Fund attempts to reduce the risks associated with
investing in the economy of only one country. The countries that the Manager or
Babson-Stewart Ivory International, the Fund's sub-adviser (the "Sub-Adviser"),
believes offer attractive opportunities for investment may change from time to
time. The Fund will invest only in exchange-traded securities and securities
traded through established over-the-counter trading systems which the Manager or
the Sub-Adviser believes provide comparable liquidity to exchange-traded
securities.
Foreign investments can involve risks, however, that may not be present
in domestic securities. Because foreign securities are normally denominated and
traded in foreign currencies, the value of the assets of the Fund may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations. There may be less information publicly available about a
foreign company than about a U.S. company, and foreign companies are not
generally subject to accounting, auditing and financial reporting standards and
practices comparable to those in the United States. The securities of some
foreign companies are less liquid and at times more volatile than securities of
comparable U.S. companies. Foreign brokerage commissions and other fees are also
generally higher than in the United States. Foreign settlement procedures and
trade regulations may involve certain risks (such as delay in payment or
delivery of securities or in the recovery of the Fund's assets held abroad) and
expenses not present in the settlement of domestic investments.
In addition, with respect to certain foreign countries, there is a
possibility of expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial instability and
diplomatic developments which could affect the value of investments in those
countries. In certain countries, legal remedies available to investors may be
more limited than those available with respect to investments in the United
States or other countries. The laws of some foreign countries may limit the
Fund's ability to invest in securities of certain issuers located in those
countries. Finally, special tax considerations apply to foreign securities.
See "Investment Objectives and Policies and Associated Risks--General"
for additional information.
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<PAGE> 29
VALUE FUND
The Value Fund's investment objective is to seek long-term capital
appreciation primarily through investment in a portfolio of common stocks of
established companies. Strong consideration is given to common stocks whose
current prices do not adequately reflect, in the opinion of the Manager, the
true value of the underlying company in relation to earnings, dividends and/or
assets. The Fund may also hold a portion of its assets in cash or money market
instruments. Various valuation parameters are examined to determine the
attractiveness of individual securities.
The Fund will ordinarily invest in the securities of companies which
are listed on national securities exchanges or on the National Association of
Securities Dealers Automated Quotation System. The Manager will select which
issues to invest in based on its assessment of whether the issue is likely to
provide favorable capital appreciation over the long-term.
See "Investment Objectives And Policies and Associated Risks--General"
for additional information.
MID CAP FUND
The investment objective of the Mid Cap Fund is to seek long-term
capital appreciation primarily through investment in small to medium-size
companies. Such companies are referred to herein as "mid capitalization
companies," which for these purposes means companies with a market
capitalization at the time of investment by the Fund of between $400 million and
$2 billion. Current income is only an incidental consideration. Strong
consideration is given to common stocks of mid capitalization companies whose
current prices do not adequately reflect, in the opinion of the Manager, the
ongoing business value of the underlying company.
The Mid Cap Fund invests primarily in common stocks. Under normal
circumstances, substantially all (but no less than 65%) of its total assets will
be invested in the common stock of mid capitalization companies. Such companies
may present greater opportunities for capital appreciation because of high
potential earnings growth, but may also involve greater risk. Mid capitalization
companies, when compared to larger capitalization issuers, may be more dependent
upon a single proprietary product or market niche, may have limited product
lines, markets or financial resources, or may depend on a limited management
group. Typically, mid capitalization companies have fewer securities outstanding
and are less liquid than securities of larger companies. Their common stock and
other securities may trade less frequently and in limited volume. The securities
of mid capitalization companies are generally more sensitive to purchase and
sale transactions; therefore, the prices of such securities tend to be more
volatile than the securities of larger companies. As a result, the securities of
mid capitalization companies may change in value more than those of larger, more
established companies. The Fund generally intends to stay fully invested in
equity securities, although the Fund may hold a portion of its assets in cash or
money market instruments.
See "Investment Objectives and Policies and Associated Risks--General"
for additional information.
GENERAL
ILLIQUID SECURITIES. Each of the Funds may purchase "illiquid
securities," which are securities that are not readily marketable, including
securities whose disposition is restricted by contract or under federal
securities laws, so long as no more than 15% of a Fund's net assets would be
invested in such illiquid securities. A Fund may not be able to dispose of such
securities in a timely fashion and for a fair price, which could result in
losses to the Fund. In addition, illiquid
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<PAGE> 30
securities. A Fund may not be able to dispose of such securities in a timely
fashion and for a fair price, which could result in losses to the Fund. In
addition, illiquid securities are generally more difficult to value.
PORTFOLIO TURNOVER. Although portfolio turnover is not a limiting
factor with respect to investment decisions for the Funds, the Funds expect to
experience relatively low portfolio turnover rates. It is not anticipated that
under normal circumstances the annual portfolio turnover rate of any Fund will
exceed 100%. However, in any particular year, market conditions may result in
greater rates than are currently anticipated. Portfolio turnover involves
brokerage commissions and other transaction costs, which will be borne directly
by the relevant Fund, and could involve realization of capital gains that would
be taxable when distributed to shareholders. To the extent that portfolio
turnover results in realization of net short-term capital gains, such gains are
ordinarily taxed to shareholders at ordinary income tax rates. Portfolio
turnover rates for each Fund are shown in the section "Financial Highlights."
See "Taxes" below and "Portfolio Transactions" in the Statement of Additional
Information for additional information. The tax consequences of portfolio
transactions may be a secondary consideration for tax-exempt investors.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements.
Under repurchase agreements a Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed-upon price and date. The resale price exceeds the acquisition price and
reflects an agreed-upon market rate unrelated to the coupon rate on the
purchased security. Such transactions afford an opportunity for a Fund to earn a
return on temporarily available cash at no market risk, although there is a risk
that the seller may default on its obligation to pay the agreed-upon sum on the
redelivery date. Such a default may subject a Fund to expenses, delays and risks
of loss. Repurchase agreements entered into with foreign brokers, dealers and
banks involve additional risks similar to those of investing in foreign
securities. For a discussion of these risks, see "Global Small Cap Fund," above.
FIRM COMMITMENTS. Each Fund may enter into firm commitment agreements
for the purchase of securities at an agreed-upon price on a specified future
date. A Fund will only enter into firm commitment arrangements with parties
which the Manager or Sub-Adviser determines present minimal credit risks. A Fund
will maintain, in a segregated account with its custodian, cash or securities in
an amount equal to the Fund's obligations under firm commitment agreements. The
Fund bears the risk that the other party will fail to satisfy its obligations to
the Fund. Such a default may subject the Fund to expenses, delays and risks of
loss.
LOANS OF PORTFOLIO SECURITIES. Each Fund may make secured loans of
portfolio securities on up to 33 1/3% of the Fund's total assets. The risks in
lending portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. However, such loans will be
made only to parties that are believed by the Manager or the Sub-Adviser to be
of relatively high credit standing. Securities loans are made pursuant to
agreements requiring that loans be continuously secured by collateral in cash or
U.S. Government securities at least equal at all times to the market value of
the securities lent. The borrower pays to the lending Fund an amount equal to
any dividends or interest received on the securities lent. The Fund may invest
the cash collateral received or may receive a fee from the borrower. Although
voting rights or rights to consent with respect to the loaned securities pass to
the borrower, the Fund retains the right to call the loans at any time on
reasonable notice. The Fund may also call such loans in order to sell the
securities involved. The Fund pays various fees in connection with such loans
including shipping fees and reasonable custodian and placement fees.
DERIVATIVES. Certain of the instruments in which the Funds may invest,
such as mortgage-backed securities and indexed securities, are considered to be
"derivatives." Derivatives are financial instruments whose value depends upon,
or is derived from, the value of an underlying asset, such as a security or
currency. The use of such instruments may result in a higher amount of
short-term capital gains (taxed at ordinary income tax rates) than would result
if the Funds did not use such instruments. Further information about these
instruments and the risks involved in their use is included elsewhere in this
prospectus and in the Statement of Additional Information.
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<PAGE> 31
RISKS OF NON-DIVERSIFICATION. As a non-diversified fund, each Fund may
invest a relatively high percentage of its assets in the securities of
relatively few issuers, rather than invest in the securities of a large number
of issuers merely to satisfy diversification requirements. Investment in the
securities of a limited number of issuers may increase the risk of loss to a
Fund should there be a decline in the market value of any one portfolio
security. Investment in a non-diversified fund therefore entails greater risks
than investment in a "diversified" fund.
CHANGES TO INVESTMENT OBJECTIVES. The investment objective and (except
for policies identified as "fundamental" in this Prospectus or the Statement of
Additional Information) policies of each Fund may be changed by the Trustees
without shareholder approval. Any such change may result in a Fund having an
investment objective and policies different from the objective and policies
which a shareholder considered appropriate at the time of such shareholder's
investment in the Fund. Shareholders of the relevant Fund will be notified of
any changes in a Fund's investment objective or policies through a revised
prospectus or other written communication.
PURCHASE OF SHARES
Shares of each Fund may be purchased directly from the Trust on any day
when the New York Stock Exchange is open for business (a "business day"). The
minimum for an initial investment in a Fund is $100,000, and the minimum for
each subsequent investment is $10,000. The purchase price of a share of each
Fund is the net asset value next determined after a purchase order is received
in good order. No sales charge is imposed on purchases of Fund shares.
Shares of each Fund may be purchased either (i) in exchange for common
stocks on deposit at The Depository Trust Company ("DTC") or appropriate fixed
income securities, subject to the determination by the Manager that the
securities to be exchanged are acceptable, (ii) in cash (i.e., by wire transfer)
or (iii) by a combination of such securities and cash. In all cases, the Manager
reserves the right to reject any particular investment. Securities accepted by
the Manager in exchange for Fund shares will be acquired for investment only and
not for resale and will be valued as set forth under "Determination of Net Asset
Value" (generally the last quoted sale price) as of the time of the next
determination of net asset value after such acceptance. All dividends, interest,
subscription or other rights which are reflected in the market price of accepted
securities at the time of valuation become the property of the relevant Fund and
must be delivered to the Trust upon receipt by the investor from the issuer. A
gain or loss for federal income tax purposes may be realized by investors
subject to Federal income taxation upon the exchange, depending upon the
investor's basis in the securities tendered.
The Manager will not approve the acceptance of securities in exchange
for Fund shares unless (1) the Manager, in its sole discretion, believes the
securities are appropriate investments for the Fund; (2) the investor represents
and agrees that all securities offered to the Fund are not subject to any
restrictions upon their sale by the Fund under the Securities Act of 1933, or
otherwise; and (3) the securities may be acquired under the investment
restrictions applicable to the relevant Fund. Investors interested in purchases
through exchange should telephone the Manager at (617) 225-3800, Attn: Maureen
M. Bates.
Investors should call the offices of the Trust before attempting to
place an order for Fund shares. The Trust reserves the right at any time to
reject an order.
The deadline for wiring federal funds to the Trust is 2:00 p.m. Eastern
time; in the case of an investment in-kind, the investor's securities must be
placed on deposit at DTC, and 4:00 p.m. Eastern time is the deadline for
transferring those securities to the account designated by the custodian for the
Funds.
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<PAGE> 32
In most cases, if the consideration is not received by the Trust before the
relevant deadline, the purchase order is not considered to be in good order and
the purchase order and consideration are required to be resubmitted on the
following business day, unless Investors Bank & Trust Company can credit the
consideration to the account for a specific Fund.
All federal funds must be transmitted to Investors Bank & Trust Company
to Account No. 777777722 for the account of the specific Fund.
"Federal funds" are monies credited to Investors Bank & Trust Company's
account with the Federal Reserve Bank of Boston.
Purchases will be made in full and fractional shares of each Fund
calculated to three decimal places. The Trust will send to shareholders written
confirmation (including a statement of shares owned) at the time of each
transaction.
12B-1 PLANS. The Trust has adopted a distribution and services plan
(each a "Plan") for each Fund under Rule 12b-1 of the Investment Company Act of
1940, but the Trustees do not intend to implement such Plans during the Trust's
current fiscal year. The purposes of each Plan if implemented would be to
compensate and/or reimburse investment dealers and other persons for services
provided and expenses incurred in promoting sales of shares, reducing
redemptions or improving services provided to shareholders by such dealers and
other persons. Each Plan would permit payments by a Fund for such purposes at an
annual rate of up to .50% of the Fund's average daily net assets, subject to the
authority of the Trustees to reduce the amount of payments or to suspend the
Plan for such periods as they may determine. Subject to these limitations, the
amount of payments under each Plan and the specific purposes for which they are
made would be determined by the Trustees. At present, the Trustees have no
intention of implementing any Plan.
REDEMPTION OF SHARES
Shares of each Fund may be redeemed on any business day in cash or in
kind. The redemption price is the net asset value per share next determined
after receipt of the redemption request in good order. There is no redemption
fee for any of the Funds. Cash payments generally will be made by transfer of
Federal funds for payment into the investor's account the next business day
following the redemption request. Redemption requests should be sent to
Investors Bank & Trust Company. In order to help facilitate the timely payment
of redemption proceeds, it is recommended that investors telephone the Manager
at (617) 225-3800, Attn: Maureen M. Bates, at least two days prior to submitting
a request.
Payment on redemption will be made as promptly as possible and in any
event within seven days after the request for redemption is received by the
Trust in good order. A redemption request is in good order if it includes the
correct name in which shares are registered, the investor's account number and
the number of shares or the dollar amount of shares to be redeemed and if it is
signed correctly in accordance with the form of registration. Persons acting in
a fiduciary capacity, or on behalf of a corporation, partnership or trust, must
specify, in full, the capacity in which they are acting. In-kind redemptions, as
described below, will be transferred and delivered as directed by the investor.
If the Manager determines, in its sole discretion, that it would be
detrimental to the best interests of the remaining shareholders of a Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of readily marketable securities held
by the Fund in lieu of cash. Securities used to redeem Fund shares in kind will
be valued in accordance with the relevant
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<PAGE> 33
Fund's procedures for valuation described under "Determination of Net Asset
Value." Investors generally will incur brokerage charges on the sale of any such
securities so received in payment of redemptions.
When opening an account with the Trust, shareholders will be required
to designate the account(s) to which funds or securities may be transferred upon
redemption. Designation of additional accounts and any change in the accounts
originally designated must be made in writing with the signature guaranteed by a
commercial bank, a member firm of a domestic securities exchange or one of
certain other financial institutions.
Each Fund may suspend the right of redemption and may postpone payment
for more than seven days when the New York Stock Exchange is closed for other
than weekends or holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange is restricted or
during an emergency which makes it reasonably impracticable for the Fund to
dispose of its securities or fairly to determine the value of the net assets of
the Fund, or during any other period permitted by the Securities and Exchange
Commission for the protection of investors.
DETERMINATION OF NET ASSET VALUE
The net asset value of a share of each Fund is determined at 4:15 p.m.,
Eastern time, on each day on which the New York Stock Exchange is open. The net
asset value per share for a Fund is determined by dividing the total value of
the Fund's portfolio investments and other assets, less any liabilities, by the
total outstanding shares of the Fund. Portfolio securities (including options
and futures contracts) for which market quotations are available are valued at
the last quoted sale price, or, if there is no such reported sale, at the
closing bid price. Securities traded in the over-the-counter market are valued
at the most recent bid price as obtained from one or more dealers that make
markets in the securities. Portfolio securities that are traded both in the
over-the-counter market and on one or more stock exchanges are valued according
to the broadest and most representative market. Unlisted securities for which
market quotations are not readily available are valued at the most recent quoted
bid price. Short term debt securities with a remaining maturity of 60 days or
less will be valued at amortized cost, unless conditions dictate otherwise.
Illiquid securities or restricted securities will be valued at fair value based
on information supplied by a broker. Other assets for which no quotations are
readily available are valued at fair value as determined in good faith in
accordance with procedures adopted by the Trustees of the Trust. Determination
of fair value will be based upon such factors as are deemed relevant under the
circumstances, including the financial condition and operating results of the
issuer, recent third party transactions (actual or proposed) relating to such
securities and, in extreme cases, the liquidation value of the issuer.
Because of time zone differences, foreign exchanges and securities
markets will usually be closed prior to the time of the closing of the New York
Stock Exchange and the value of foreign securities will be determined as of the
closing of such exchanges and securities markets. Events affecting the values of
such foreign securities, however, may occasionally occur between the closings of
such exchanges and securities markets and the time the Fund determines its net
asset value. If an event materially affecting the value of such foreign
securities occurs during such period, then such securities will be valued at
fair value as determined in good faith in accordance with procedures adopted by
the Trustees.
Because foreign securities are quoted in foreign currencies,
fluctuations in the value of such securities in relation to the U.S. dollar will
affect the net asset value of shares of the Fund even though there has not been
any change in the values of such securities measured in terms of the foreign
currencies in which they are
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<PAGE> 34
denominated. The value of foreign securities is converted into U.S. dollars at
the rate of exchange prevailing at the time of determination of net asset value.
DISTRIBUTIONS
Each Fund intends to pay out as dividends substantially all of its net
investment income (which comes from dividends and any interest it receives from
its investments and net short-term capital gains). Each Fund also intends to
distribute substantially all of its net long-term capital gains, if any, after
giving effect to any available capital loss carryover. Each Fund's present
policy is to declare and pay distributions of its dividends and interest at
least annually. Each Fund also intends to distribute net short-term capital
gains and net long-term capital gains at least annually.
All dividends and/or distributions will be paid in shares of the
relevant Fund, at net asset value, unless the shareholder elects to receive
cash. Shareholders may make this election by marking the appropriate box on the
application form or by writing to Investors Bank & Trust Company.
TAXES
The following is a general summary of the federal income tax
consequences for the Funds and shareholders who are U.S. citizens or residents
or domestic corporations. The last paragraph of this section contains
information relevant to foreign investors. Shareholders should consult their own
tax advisors about the tax consequences of investments in a Fund in light of
their particular tax situations. Shareholders should also consult their own tax
advisors about consequences under foreign, state, local or other applicable tax
laws.
Each Fund is treated as a separate taxable entity for federal income
tax purposes. Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended. By
so qualifying, a Fund itself will not pay federal income tax on the income and
gain distributed annually to its shareholders. Distributions of ordinary income
and short-term capital gains, whether received in cash or reinvested shares,
will be taxable as ordinary income to shareholders subject to federal income
tax. Designated distributions of net gains on capital assets held (i) for more
than one year but not more than 18 months and (ii) for more than 18 months are
taxable as such, regardless of how long a shareholder may have owned shares in
the Fund or whether such distributions are received in cash or in reinvested
shares. Any loss recognized on the sale or disposition of shares held for six
months or less will be treated as long-term capital loss to the extent of any
long-term capital gain distributions received by a shareholder with respect to
those shares. A distribution paid to shareholders in January generally is deemed
to have been received by shareholders on December 31 of the preceding year, if
the distribution was declared and payable to shareholders of record on a date in
October, November or December of that preceding year. The Trust will provide
federal tax information annually, including information about dividends and
distributions paid during the preceding year.
Dividends and distributions on each Fund's shares are generally
subject to federal income tax as described herein to the extent they do not
exceed the Fund's realized income and gains, even though such dividends and
distributions may economically represent a return of a particular shareholder's
investment. Such distributions are likely to occur in respect of shares
purchased at a time when the Fund's net asset value reflects gains that are
either unrealized, or realized but not distributed.
BACK-UP WITHHOLDING. The back-up withholding rules set forth below do
not apply to tax exempt entities or corporations that furnish the Trust with an
appropriate certification. For other shareholders, however, the Trust is
generally required to withhold and remit to the U.S. Treasury 31% of all
distributions, whether distributed in cash or reinvested in shares, and 31% of
the proceeds of any redemption paid or credited to the shareholder's account if
an incorrect or no taxpayer identification number has been provided, where
appropriate certification has not been provided for a foreign shareholder, or
where the Trust is notified that the shareholder has underreported income in the
past (or the shareholder fails to certify that he is not subject to such
withholding). Special withholding rules, described below, may apply to foreign
shareholders.
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FOREIGN WITHHOLDING TAXES. The Global Small Cap Fund may be subject to
foreign withholding taxes on income and gains derived from foreign investments.
Such taxes would reduce the yield on such Fund's investments, but, as discussed
below, may be taken as either a deduction or a credit by U.S. investors if the
Fund makes the election described below.
If, at the end of the fiscal year, more than 50% of the total assets of
the Global Small Cap Fund are comprised of stock or securities of foreign
corporations, the Trust intends to make an election which allows shareholders
whose income from the Fund is subject to U.S. taxation at the graduated rates
applicable to U.S. citizens, residents or domestic corporations to claim a
foreign tax credit or deduction (but not both) on their U.S. income tax return.
In such case, the amount of qualified foreign income taxes paid by the Fund
would be treated as additional income to Fund shareholders from non-U.S. sources
and as foreign taxes paid by Fund shareholders. Investors should consult their
tax advisors for further information relating to the foreign tax credit and
deduction, which are subject to certain restrictions and limitations (including
with respect to a foreign tax credit, a holding period requirement imposed
pursuant to the Taxpayer Relief Act of 1997). Shareholders of the Global Small
Cap Fund whose income from the Fund is not subject to U.S. taxation at the
graduated rates applicable to U.S. citizens, residents or domestic corporations
may receive substantially different tax treatment on distributions by such Fund,
and may be disadvantaged as a result of the election described in this
paragraph. Organizations that are exempt from U.S. taxation will not be affected
by the election described above.
WITHHOLDING ON DISTRIBUTIONS TO FOREIGN INVESTORS. Dividend
distributions (including in general distributions derived from short-term
capital gains, dividends and interest) are in general subject to a U.S.
withholding tax of 30% when paid to a non-resident alien individual, foreign
estate or trust, a foreign corporation, or a foreign partnership ("foreign
shareholder"). Persons who are residents in a country, such as the United
Kingdom, that has an income tax treaty with the United States may be eligible
for a reduced withholding rate (upon filing of appropriate forms), and are urged
to consult their tax advisors regarding the applicability and effect of such a
treaty. Distributions of net long-term capital gains to a foreign shareholder
and any gain realized upon the sale of Fund shares by such a shareholder will
ordinarily not be subject to U.S. taxation, unless the recipient or seller is a
nonresident alien individual who is present in the United States for more than
182 days during the taxable year, and certain other conditions apply. Foreign
shareholders with respect to whom income from a Fund is "effectively connected"
with a U.S. trade or business carried on by such shareholder, however, will in
general be subject to U.S. federal income tax on the income derived from the
Fund at the graduated rates applicable to U.S. citizens, residents or domestic
corporations, whether such income is received in cash or reinvested in shares,
and may also be subject to a branch profits tax. Again, foreign shareholders who
are residents in a country with an income tax treaty with the United States may
obtain different tax results and all foreign investors are urged to consult
their tax advisors.
NEW WITHHOLDING TAX RULES FOR PAYMENTS AFTER 1999. The Internal Revenue
Service recently revised its regulations affecting the application to foreign
investors of the back-up withholding and withholding tax rules described above.
The new regulations will generally be effective for payments made on or after
January 1, 1999 (although transition rules will apply). In some circumstances,
the new rules will increase the certification and filing requirements imposed on
foreign investors in order to qualify for exemption from the 31% back-up
withholding tax and for reduced withholding tax rates under income tax treaties.
The U.S. Treasury Department and the Internal Revenue Service have announced
that the effective date of these regulations will be amended to apply to
payments made on or after January 1, 2000. Foreign investors in a Fund should
consult their tax advisors with respect to the potential application of these
new regulations.
MANAGEMENT OF THE TRUST
Each Fund is advised and managed by David L. Babson and Company
Incorporated, One Memorial Drive, Cambridge, Massachusetts 02142, which provides
investment advisory services to a substantial number of institutional and other
investors, including other registered investment companies. David L. Babson and
Company Incorporated
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<PAGE> 36
a registered investment adviser, is a wholly owned subsidiary of DLB Acquisition
Corp., a holding company, which is controlled by Mass Mutual Holding Company, a
holding company and wholly owned subsidiary of Massachusetts Mutual Life
Insurance Company, a mutual life insurance company.
Under separate Management Contracts relating to each Fund, the Manager
selects and reviews each Fund's investments and provides executive and other
personnel for the management of the Trust. Pursuant to the Trust's Agreement and
Declaration of Trust, the Board of Trustees supervises the affairs of the Trust
as conducted by the Manager. In the event that the Manager ceases to be the
manager of any Fund, the right of the Fund or of the Trust to use the
identifying name "DLB" may be withdrawn.
The Manager has entered into a Sub-Advisory Agreement (the
"Sub-Advisory Agreement") with Babson-Stewart Ivory International (the
"Sub-Adviser"), One Memorial Drive, Cambridge, Massachusetts 02142, with respect
to the management of the international component of the Global Small Cap Fund's
portfolio. The Sub-Adviser also provides investment advisory services to a
substantial number of institutional and other investors, including other
registered investment companies. The Sub-Adviser is a general partnership owned
50% by the Manager and 50% by Stewart-Ivory & Company (International) Limited,
an indirect wholly owned subsidiary of Stewart Ivory (Holdings) Ltd., which is
controlled by James G.D. Ferguson and John G.L. Wright.
Each of the Funds pays the Manager a monthly fee at the annual rate of
the relevant Fund's average daily net assets set forth below. The Manager,
however, has agreed to waive a portion of its fee and to bear certain expenses
for the current fiscal year to the extent each of the Fund's annual expenses
(including the management fee but excluding brokerage commissions and transfer
taxes) would exceed the percentage of the Fund's average daily net assets set
forth below:
<TABLE>
<CAPTION>
Management Fee Expense Limitation
(as a % of Average (as a % of Average
Daily Net Assets) Daily Net Assets)
Name of Fund
<S> <C> <C>
Fixed Income Fund .40% .55%
Global Small Cap Fund 1.00* 1.50
Value Fund .55 .80
Mid Cap Fund .60 .90
</TABLE>
* Under the Sub-Advisory Agreement, the Manager pays the Sub-Adviser a
monthly fee at the annual rate of .50% of the Global Small Cap Fund's
average daily net assets, although the Sub-Adviser has currently agreed
to waive a portion of its fee. Payments made to the Sub-Adviser by the
Manager will not affect the amounts payable by the Fund to the Manager
or the Fund's expense ratio.
These fees and expenses and the terms applicable to them are described under
"Shareholder Transaction and Fund Expenses" above.
Edward L. Martin, an Executive Vice President and Director of the
Manager, is primarily responsible for the day-to-day management of the portfolio
of the Fixed Income Fund. Peter C. Schliemann, an Executive Vice President and
Director of the Manager, and James W. Burns and John Wright, who are each
Managing Directors of the Sub-Adviser, are primarily responsible for the
day-to-day management of the portfolio of the Global Small Cap Fund. Roland W.
Whitridge, Senior Vice President and Director of the Manager, is primarily
responsible for the day-to-day management of the Value Fund. Eugene Gardner, a
Vice President of the Manager, is primarily responsible for the day-to-day
management of the Mid Cap Fund. Mr. Martin, Mr. Schliemann, Mr. Whitridge and
Mr. Gardner have each been employed by the Manager in portfolio management for
at least the past five years and have each been responsible for management of
their respective Funds since inception. Mr. Burns and Mr. Wright have each been
employed by the Sub-Adviser in portfolio management for at least the past five
years, and have each been responsible for management of the Global Small Cap
Fund since its inception.
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PERFORMANCE INFORMATION
Yield (in the case of the Fixed Income Fund) and total return data (for
all Funds) may from time to time be included in advertisements about each Fund.
"Yield" for the Fixed Income Fund is calculated by dividing the Fund's
annualized net investment income per share during a recent 30-day period by the
maximum public offering price per share on the last day of that period. "Total
return" for the one-year period and for the life of a Fund, each through the
most recent calendar quarter, represents the average annual compounded rate of
return on an investment of $1000 in a Fund at net asset value (assuming
immediate reinvestment of any dividends or capital gains distributions at net
asset value). Quotations of yield or total return for any period when an expense
limitation was in effect will be greater than if the limitation had not been in
effect. See "Investment Performance" in the Statement of Additional Information.
All data is based on a Fund's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of a Fund's
portfolio, and a Fund's operating expenses. Investment performance also often
reflects the risks associated with a Fund's investment objective and policies.
These factors should be considered when comparing a Fund's investment results to
those of other mutual funds and other investment vehicles.
ORGANIZATION AND CAPITALIZATION OF THE TRUST
The Trust was established on August 1, 1994 as a business trust under
Massachusetts law. The Trust has an unlimited number of authorized shares of
beneficial interest which may, without shareholder approval, be divided into an
unlimited number of series of such shares and which are presently divided into
eight series of shares, each representing a different fund. The Trust does not
generally hold annual meetings of shareholders and will do so only when required
by law. Matters submitted to shareholder vote must be approved by each fund of
the Trust separately except (i) when required by the Investment Company Act of
1940 (the "1940 Act"), shares shall be voted together as a single class, and
(ii) when the Trustees have determined that the matter affects one or more
funds, then only shareholders of such fund or funds shall be entitled to vote on
the matter. Shares are freely transferable, are entitled to dividends as
declared by the Trustees, and, in liquidation of the Trust, are entitled to
receive the net assets of their fund, but not of any other fund. Shareholders
holding a majority of the outstanding shares of the Trust may remove Trustees
from office by votes cast in person or by proxy at a meeting of shareholders or
by written consent. Massachusetts Mutual Life Insurance Company currently owns
more than 25% of the outstanding shares of the Fixed Income Fund, the Global
Small Cap Fund and the Mid Cap Fund, and therefore is deemed to "control" such
Funds within the meaning of the 1940 Act. Massachusetts Mutual Life Insurance
Company Separate Investment Account N.V. currently owns more than 25% of the
outstanding shares of the Value Fund, and therefore is deemed to control such
Fund within the meaning of the 1940 Act.
Shareholders could, under certain circumstances, be held personally
liable for the obligations of the Trust. The risk of a shareholder incurring
financial loss on account of that liability, however, is considered remote
because liability may arise only in very limited circumstances and shareholders
are entitled to indemnification out of the assets of the relevant fund for any
such liability.
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SHAREHOLDER INQUIRIES
Shareholders may direct inquiries to the Trust c/o David L. Babson and
Company Incorporated, Attn: Maureen M. Bates, One Memorial Drive, Cambridge,
Massachusetts 02142 (617-225-3800).
When required by the 1940 Act, the Manager's discussion of the
performance of each Fund in its most recent fiscal year as well as a comparison
of each Fund's performance over the life of the Fund with that of a benchmark
securities index selected by the Manager will be included in the Trust's Annual
Report for that fiscal year. Copies of the Annual Report will be available upon
request without charge.
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<PAGE> 39
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
CUSTODIAN
Investors Bank & Trust Company
John Hancock Tower
200 Clarendon Street, 16th Floor
Boston, MA 02116
TRANSFER AGENT
Investors Bank & Trust Company
John Hancock Tower
200 Clarendon Street, 5th Floor
Boston, MA 02116
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