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PROSPECTUS
THE DLB MICRO CAPITALIZATION FUND
One Memorial Drive
Cambridge, Massachusetts 02142
(617) 225-3800
July 20, 1998
The DLB Micro Capitalization Fund (the "Fund") is a newly organized
portfolio of The DLB Fund Group (the "Trust"), an open-end management investment
company offering non-diversified portfolios with different investment objectives
and strategies. The Fund is intended primarily to serve as an investment vehicle
for institutional investors. The Fund's investment manager is David L. Babson
and Company Incorporated (the "Manager").
Shares of the Fund are sold to investors by the Trust. The minimum
initial investment in the Fund is $100,000, and the minimum for each subsequent
investment is $10,000.
This Prospectus concisely describes the information which investors
ought to know before investing in the Fund. Please read this Prospectus
carefully and keep it for further reference.
A Statement of Additional Information dated July 20, 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
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FUND EXPENSES..................................................................3
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS........................4
PURCHASE OF SHARES.............................................................6
REDEMPTION OF SHARES...........................................................7
DETERMINATION OF NET ASSET VALUE...............................................8
DISTRIBUTIONS..................................................................9
TAXES ......................................................................9
MANAGEMENT OF THE TRUST.......................................................11
PERFORMANCE INFORMATION.......................................................12
ORGANIZATION AND CAPITALIZATION OF THE TRUST..................................13
SHAREHOLDER INQUIRIES.........................................................13
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FUND EXPENSES
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ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee waiver) (a)......................... 0.80%
12b-1 Fees (b) ................................................ 0
Other Expenses (c)............................................. 0.50
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Total Fund Operating Expenses (after fee waiver) (a)........... 1.30%
EXAMPLE:
You would pay the following Years
expenses on a $1,000 investment, -----
assuming a 5% annual return, 1 3
with or without redemption at - -
the end of each period: $14 $41
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(a) The Manager has agreed with the Fund until further notice to reduce its
management fee to the extent that the Fund's total annual expenses,
other than brokerage commissions and transfer taxes, would otherwise
exceed 1.30% 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 1.30%. Absent such agreement by the
Manager to waive its fee and bear certain expenses, Management Fees
would be 1.00% and Total Fund Operating Expenses would be 1.50%.
(b) The Fund has adopted a distribution and services plan pursuant to Rule
12b-1 that permits payments by the Fund at an annual rate of up to
0.50% of the Fund's average net assets, but the Trustees do not
currently intend to implement such plan during the Fund's current
fiscal year. See "Purchase of Shares -- 12b-1 Plan."
(c) "Other Expenses" are based on estimated amounts for the Fund's first
full fiscal year.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses of the Fund that are borne by
holders of Fund shares. THE FIVE PERCENT ANNUAL RETURN AND EXPENSES USED IN
CALCULATING THE EXAMPLE ARE NOT A REPRESENTATION OF PAST OR FUTURE PERFORMANCE
OR EXPENSES; ACTUAL PERFORMANCE AND/OR EXPENSES MAY BE MORE OR LESS THAN SHOWN.
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INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS
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The investment objective of the DLB Micro Capitalization Fund is to
seek long-term capital growth through investment primarily in common stocks of
smaller, faster-growing companies whose securities at the time of purchase are
considered by the Manager to be realistically valued. The Fund is designed to be
an investment vehicle for that part of an investor's capital which can
appropriately be exposed to above-average risk. The Fund is not intended to be a
complete investment program.
BASIC INVESTMENT STRATEGY. The Fund generally intends to invest in
stocks of smaller companies with market capitalization of $10 million to $250
million, i.e. "micro cap" companies, at the time of purchase which are listed on
a national or regional exchange or over-the-counter with prices quoted daily in
the financial press. A company that was a "micro cap" company at the time of the
Fund's initial investment will continue to be treated as such, even if its
market capitalization exceeds $250 million at a later date. 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. 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. In addition,
necessary reserves will be held in cash or high-quality short-term debt
obligations readily changeable to cash, such as treasury bills, commercial paper
or repurchase agreements. There are no restrictions or guidelines regarding the
investment of Fund assets in shares listed on an exchange as opposed to traded
over-the-counter.
Smaller companies are typically in or nearer the entrepreneurial stage
than the institutionalized, professionally managed status of larger companies.
Generally, smaller companies offer the possibility of more rapid sales and
profit expansion -- if they are successful -- than larger, older and more mature
businesses. At the same time, smaller, less-seasoned firms are generally subject
to greater business risk.
See "Risks Associated with Smaller Companies" below.
The Manager believes that there are persistent stock price
inefficiencies in the market for stocks of smaller companies. As a result of
limited coverage and ownership, smaller company stocks frequently trade at
significant discounts to their intrinsic value. The Manager will seek to
identify companies which are mispriced as compared to their expected earnings
stream.
The Fund's investment process is founded on fundamental analysis with
an emphasis on high quality companies with a differentiated product strategy.
This quality should generate above-average returns on assets, returns on equity
and earnings per share growth. The Manager will invest the Fund's assets in
companies whose returns are a product of operations, rather than of financial
leverage. The Manager will also focus on the quality of reported earnings and on
the opinions of industry contacts regarding the companies in which it invests.
The Fund cannot guarantee that these objectives will be achieved
because there are inherent risks in the ownership of any investment. The value
of the Fund's shares will reflect changes in the market value of its
investments, and dividends paid by the Fund will vary with the income it
receives from these investments, but through careful management it will seek to
reduce risk and enhance the opportunities for long-term growth of capital.
The Fund does not intend to concentrate its investments in any
particular industry. Without the approval of shareholders, it will not purchase
a security if as a result of such purchase 25% or more of its total assets will
be invested in any one industry.
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RISKS ASSOCIATED WITH SMALLER COMPANIES. The Fund is intended to be an
investment vehicle for that part of an investor's capital which can
appropriately be exposed to above-average risk. The Fund is not designed to
offer a complete or balanced investment program suitable for all investors.
While smaller companies generally have potential for rapid growth, they
often involve higher risk because they may lack the management experience,
financial resources, product diversification and competitive strengths of larger
corporations. While the Manager cannot eliminate this risk, it will seek to
minimize it by investing among a broad list of companies.
In many instances, the securities of smaller companies are traded only
over-the-counter or on a regional securities exchange, and the frequency and
volume of their trading are substantially less than is typical of larger
companies. Therefore, the securities of smaller companies may be subject to
wider price fluctuations. When making larger sales, the Fund may have to sell
portfolio holdings at discounts from quoted prices or may have to make a series
of small sales over an extended period of time.
PORTFOLIO TURNOVER. Although portfolio turnover is not a limiting
factor with respect to the investment decisions for the Fund, the Fund expects
to experience moderate portfolio turnover rates. It is anticipated that under
normal circumstances the annual portfolio turnover rate of the Fund will not
exceed 100%. However, in any particular year, market conditions may result in
greater turnover 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. For additional
information, see "Taxes" below and "Portfolio Transactions" in the Statement of
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 minimal market risk, although there is
a risk that the seller may default on its obligation to pay the agreed-upon sum
on the redelivery date. Such a default may subject the Fund to expenses, delays
and risks of loss.
FIRM COMMITMENTS. The Fund may enter into firm commitment agreements
for the purchase of securities at an agreed-upon price on a specified future
date. The Fund will enter into firm commitment arrangements only with parties
which the Manager determines present minimal credit risks. The Fund will
maintain, in a segregated account with its custodian, cash or other liquid
assets 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 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
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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 loaned. The borrower pays to the Fund an
amount equal to any dividends or interest received on the securities loaned. 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.
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 investing 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 policies
of the Fund (except for policies identified as "fundamental" in this Prospectus
or the Statement of Additional Information) may be changed by the Trust's
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 in the Fund is $100,000, and the minimum for
each subsequent investment is $10,000. The purchase price of a share of the Fund
is the net asset value next determined after a purchase order is received in
good order. No sales charge is imposed on purchases of Fund shares.
Shares of the Fund may be purchased either (i) in exchange for common
stocks on deposit at The Depository Trust Company ("DTC"), 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.
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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 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 Fund's custodian,
Investors Bank & Trust Company. In most cases, if the consideration is not
received by the Trust before the relevant deadline, the purchase order is not
considered to be in good order and the purchase order and consideration are
required to be resubmitted on the following business day, unless Investors Bank
& Trust Company can credit the consideration to the account for a specific fund.
All federal funds must be transmitted to Investors Bank & Trust Company
to Account No. 777777722 for the account of the Fund.
"Federal funds" are monies credited to Investors Bank & Trust Company's
account with the Federal Reserve Bank of Boston.
Purchases will be made in full and fractional shares of the Fund
calculated to three decimal places. The Trust will send to shareholders written
confirmation (including a statement of shares owned) at the time of each
transaction.
12B-1 PLAN. The Trust has adopted a distribution and services plan (the
"Plan") for the Fund under Rule 12b-1 of the Investment Company Act of 1940, but
at present, the Trust's Trustees have no intention of implementing the Plan. 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.
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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
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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 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. 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 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
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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.
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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 any dividends and interest it receives from
its investments) and net short-term capital gains. The Fund also intends to
distribute substantially all of its net long-term capital gains, if any, after
giving effect to any available capital loss carryover. The Fund's present policy
is to declare and pay distributions of its dividends and interest at least
annually. The Fund also intends to distribute net short-term capital gains and
net long-term capital gains at least annually. All dividends and/or
distributions will be paid in shares of the Fund, at net asset value, unless the
shareholder elects to receive cash. Shareholders may make this election by
marking the appropriate box on the application form or by writing to Investors
Bank & Trust Company.
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TAXES
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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 will not itself 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. Distributions of long-term capital gains 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 Fund 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.
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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 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 adviser, is a wholly owned
subsidiary of DLB Acquisition Corp., a holding company which is controlled by
Mass Mutual Holding Company, a holding company and wholly owned subsidiary of
Massachusetts Mutual Life Insurance Company, a mutual life insurance company.
Under a 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 1.00% the
Fund's average daily net assets. The Manager, however, has agreed, until further
notice to the Fund, to waive a portion of its fee and to bear certain expenses
to the extent the Fund's annual expenses (including the management fee but
excluding brokerage commissions and transfer taxes) would exceed 1.30% of the
Fund's average daily net assets. These fees and expenses and the terms
applicable to them are described under "Fund Expenses" above.
Paul S. Szczygiel, a Vice President of the Manager, is primarily
responsible for the day-to-day management of the Fund. He is a Chartered
Financial Analyst. Mr. Szczygiel has been employed by the Manager (and by a
company which has been merged into the Manager) in portfolio management since
1994. Prior to that time, Mr. Szczygiel was employed as an Associate Director at
Bear Stearns.
The Manager has managed Micro Cap 2 Equity, a separate investment
account of Massachusetts Mutual Life Insurance Company, since its inception on
April 26, 1994, which has essentially the same investment objective as the Fund
and has been managed using substantially similar (although not necessarily
identical) investment styles and strategies to those employed by the Manager in
managing the Fund. Mr. Szczygiel has been involved in the day-to-day management
of Micro Cap 2 Equity since November 1994, and has been primarily responsible
for the day-to-day management of Micro Cap 2 Equity since March 1995. The
annualized total returns (which have been restated to reflect the higher expense
level of the Fund) of Micro Cap 2 Equity for the one and three year periods
ended March 31, 1998 and from its inception through March 31, 1998, and the
annualized total returns for the Russell 2000 Index for such periods, are set
forth below. The Russell 2000 Index is a capitalization-weighted index which
comprises the 2000 smallest capitalized stocks of the 3000 largest capitalized
stocks traded on the New York Stock Exchange, the American Stock Exchange and
Nasdaq.
<TABLE>
<CAPTION>
Micro Cap 2 Equity Russell 2000 Index
------------------ ------------------
<S> <C> <C>
One year 65.79% 42.01%
Three years 51.27% 24.42%
Since inception 41.87% 19.67%
</TABLE>
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While having a similar investment style to the Fund, Micro Cap 2 Equity
is a separate portfolio and its historical performance is not indicative of the
performance expected of the Fund. In addition, Micro Cap 2 Equity may not have
been subject to the diversification requirements, investment limitations and
other restrictions imposed on the Fund by the Investment Company Act of 1940 and
the Internal Revenue Code. The performance of Micro Cap 2 Equity might have been
less favorable had it been subject to regulation as an investment company under
federal law. 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
- --------------------------------------------------------------------------------
Total return data may from time to time be included in advertisements
about the Fund. "Total return" for the one-year period and for the life of the
Fund, each through the most recent calendar quarter, represents the average
annual compounded rate of return on an investment of $1000 in the Fund at net
asset value (assuming immediate reinvestment of any dividends or capital gains
distributions at net asset value). Quotations of total return for any period
when an expense limitation was in effect will be greater than if the limitation
had not been in effect.
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.
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<PAGE> 13
================================================================================
- --------------------------------------------------------------------------------
ORGANIZATION AND CAPITALIZATION OF THE TRUST
- --------------------------------------------------------------------------------
The Trust was established on August 1, 1994 as a business trust under
Massachusetts law. The Fund was organized in 1998 as a series of the Trust. 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 except (i) when
required by the Investment Company Act of 1940, shares shall be voted together
as a single class, and (ii) when the Trustees have determined that the matter
affects one or more funds, then only shareholders of such fund or funds shall be
entitled to vote on the matter. Shares are freely transferable, are entitled to
dividends as declared by the Trustees, and, in liquidation of the fund, are
entitled to receive the net assets of the fund. Shareholders holding a majority
of the outstanding shares of the Trust may remove Trustees from office by votes
cast in person or by proxy at a meeting of shareholders or by written consent.
Massachusetts Mutual Life Insurance Company currently owns indirectly 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.
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<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
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<PAGE> 15
THE DLB MICRO CAPITALIZATION FUND
STATEMENT OF ADDITIONAL INFORMATION
July 20, 1998
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the prospectus of The DLB Micro Capitalization
Fund dated July 20, 1998, as amended from time to time (the "Prospectus"), and
should be read in conjunction therewith. A copy of the Prospectus may be
obtained free of charge by writing The DLB Fund Group, 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.
<PAGE> 16
Table of Contents
Caption Page
- ------- ----
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS........................1
INVESTMENT RESTRICTIONS........................................................1
INCOME DIVIDENDS, DISTRIBUTIONS AND TAX STATUS.................................2
MANAGEMENT OF THE TRUST........................................................4
INVESTMENT ADVISORY AND OTHER SERVICES.........................................6
PORTFOLIO TRANSACTIONS.........................................................7
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES...............................9
DETERMINATION OF NET ASSET VALUE..............................................11
<PAGE> 17
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS
The investment objective and policies of the DLB Micro Capitalization
Fund (the "Fund") of The DLB Fund Group (the "Trust") are set forth in the
Fund's Prospectus.
INVESTMENT RESTRICTIONS
Without a vote of the majority of the outstanding voting securities of
the Fund, the Trust will not take any of the following actions with respect to
the Fund:
(1) Borrow money in excess of 33 1/3% of the value (taken at
the lower of cost or current value) of the Fund's total assets (not
including the amount borrowed) at the time the borrowing is made, and
then only from banks for temporary, extraordinary or emergency
purposes. Such borrowings will be repaid before any investments are
purchased.
(2) Underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under federal
securities laws.
(3) Purchase or sell real estate (including real estate
limited partnerships), although it may purchase securities of issuers
which deal in real estate, including securities of real estate
investment trusts, securities which represent interests in real estate
and securities which are secured by interests in real estate, and the
Fund may acquire and dispose of real estate or interests in real estate
acquired through the exercise of its rights as a holder of debt
obligations secured by real estate or interests therein or for use as
office space for the Fund.
(4) Make loans, except by purchase of debt obligations
(including nonpublicly traded debt obligations), by entering into
repurchase agreements or through the lending of the Fund's portfolio
securities. Loans of portfolio securities may be made with respect to
up to 100% of the Fund's assets.
(5) Issue any senior security (as that term is defined in the
Investment Company Act of 1940 (the "1940 Act")), if such issuance is
specifically prohibited by the 1940 Act or the rules and regulations
promulgated thereunder. (The Fund has no intention of issuing senior
securities except as set forth in Restriction 1 above.)
(6) Invest 25% or more of the value of its total assets in
securities of issuers in any one industry. (Securities issued or
guaranteed as to principal
-1-
<PAGE> 18
or interest by the U.S. Government or its agencies or instrumentalities
are not considered to represent industries.)
(7) Purchase or sell commodities or commodity contracts,
including futures contracts.
Notwithstanding the latitude permitted by Restriction (1) above, the
Fund has no current intention in the coming year of borrowing money from banks.
It is contrary to the present policy of the Fund, which may be changed
by the Trustees without shareholder approval, to invest in (a) securities which
at the time of such investment are not readily marketable, (b) securities the
disposition of which is restricted under federal securities laws, excluding
restricted securities that have been determined by the Trustees of the Trust (or
the person designated by them to make such determination) to be readily
marketable, and (c) repurchase agreements maturing in more than seven days if,
as a result, more than 15% of the Fund's net assets (taken at current value)
would then be invested in securities described in (a), (b) and (c) above.
Except as otherwise indicated in Restriction (1) or in the restriction
set forth in the immediately preceding paragraph, all percentage limitations on
investments set forth herein and in the Prospectus will apply at the time of the
making of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
The phrase "shareholder approval," as used in the Prospectus, and the
phrase "vote of a majority of the outstanding voting securities," as used herein
with respect to the Fund, means the affirmative vote of the lesser of (1) more
than 50% of the outstanding shares of the Fund, or (2) 67% or more of the shares
of the Fund present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy.
INCOME DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). In order to so qualify and to qualify for the favorable tax treatment
accorded regulated investment companies and their shareholders, the Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale of stock, securities and foreign currencies, or other income (including but
not limited to gains from options, futures or firm commitments) derived with
respect to its business of investing in such stock, securities or currencies;
(b) distribute at least 90% of its dividend, interest and certain other income
(including, in general, short-term capital gains) each year; and (c) diversify
its holdings so that at the end of each fiscal quarter (i) at least 50% of the
market value of the Fund's
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<PAGE> 19
assets is represented by cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities, limited in respect
of any one issuer to a value not greater than 5% of the value of the Fund's
total assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
(other than those of the U.S. Government or other regulated investment
companies) of any one issuer or of two or more issuers which the Fund controls
and which are engaged in the same, similar or related trades or businesses. So
long as the Fund qualifies for treatment as a regulated investment company, the
Fund will not be subject to federal income tax on income paid to its
shareholders in the form of dividends or capital gain distributions.
The tax status of the Fund and the distributions which it may make are
summarized in the Prospectus under the heading "Taxes." The Fund intends to pay
out substantially all of its ordinary income and net short-term capital gains,
and to distribute substantially all of its net capital gain, if any, after
giving effect to any available capital loss carry-over. Net capital gain is the
excess of net long-term capital gain over net short-term capital loss. It is the
policy of the Fund to make distributions sufficient to avoid the imposition of a
4% excise tax on certain undistributed amounts. A shareholder may be limited in
its ability to recognize losses on the sale of Fund shares if the shareholder
subsequently invests in the Fund or another fund of The DLB Fund Group.
If the Fund engages in certain transactions, such as firm commitments
and hedging transactions, including hedging transactions in options, futures
contracts, and straddles, or other similar transactions, it will be subject to
special tax rules (including constructive sale, mark-to-market, straddle, wash
sale, and short sale rules), the effect of which may be to accelerate income,
defer losses, cause adjustments in the holding periods of the Fund's securities
and convert short-term capital gains or losses into long-term capital gains or
losses. Such transactions may therefore affect the amount, timing and character
of distributions to shareholders.
The Fund's investment in securities issued at a discount and certain
other obligations will (and investments in securities purchased at a discount
may) require the Fund to accrue and distribute income not yet received. In such
cases, the Fund may be required to sell assets (including when it is not
advantageous to do so) to generate the cash necessary to distribute as dividends
to its shareholders all of its income and gains and therefore to eliminate any
tax liability at the Fund level.
Investment by the Fund in certain "passive foreign investment
companies" could subject the Fund to a U.S. federal income tax or other charge
on distributions received from or the sale of its investment in such a company,
which tax could not be eliminated by making distributions to Fund shareholders.
To avoid this treatment, the Fund may elect to mark to market annually all of
its stock in a passive foreign investment company. Alternatively, if the Fund
elects to treat a passive foreign investment company as a "qualified electing
fund," different rules would apply, although the Fund does not currently expect
to be in the position to make such elections.
-3-
<PAGE> 20
In general, all dividends derived from ordinary income and short-term
capital gains are taxable to taxable investors as ordinary income (subject to
special rules concerning the availability of the dividends-received deduction
for corporations) and distributions of long-term capital gains are taxable to
taxable investors as such, regardless of how long a shareholder may have owned
shares in the Fund or whether such distributions are received in shares or cash.
Tax exempt organizations or entities will generally not be subject to federal
income tax on dividends or distributions from the Fund, except certain
organizations or entities, including private foundations, social clubs, and
others, which may be subject to tax on dividends or capital gains. Each
organization or entity should review its own circumstances and the federal tax
treatment of its income.
The dividends-received deduction for corporations will generally apply
to the Fund's dividends paid from investment income to the extent derived from
dividends received by the Fund from domestic corporations that would be entitled
to such deduction in the hands of the Fund if it were a regular corporation. A
corporate shareholder will only be eligible to claim a dividends-received
deduction with respect to a dividend from the Fund if the shareholder held its
shares on the ex-dividend date and for at least 45 more days during the 90-day
period surrounding the ex-dividend date.
If the Fund invests in foreign securities, it may be subject to foreign
withholding taxes on income and gains derived from foreign investments. Such
taxes would reduce the yield on the Fund's investments.
MANAGEMENT OF THE TRUST
The Trustees and officers of the Trust and their principal occupations
during the past five years are as follows:
Trustees
*Ronald E. Gwozdz, age 59, has been the Executive Vice President of
David L. Babson and Company Incorporated (the "Manager") since March 1996 and a
Director since August 1995. Mr. Gwozdz has been the Managing Director of
Babson-Stewart Ivory International since 1994, prior to which he was Senior Vice
President of Auburndale Management since January 1990, and before that,
President of Plymouth Funds for Fidelity Investments.
*James W. MacAllen, age 54, Chairman of the Trustees, has been the
President, Chief Executive Officer and a Director of the Manager and a Managing
Director of Babson-Stewart Ivory International since April 1, 1998. He has been
employed as Executive Vice President, Chief Investment Officer and has served a
Director of the Manager since 1996, prior to which he was a Portfolio Manager
for Hagler, Mastrovita & Hewitt, an investment management company, since 1994,
and before that, Chief Investment Officer at Wilmington Capital Management, Inc.
-4-
<PAGE> 21
Charles E. Hugel, age 69, serves as a Director of Eaton Corporation, a
manufacturer of auto parts, and Pitney Bowes, Inc., a manufacturer of business
and office equipment. He is also Chairman of the Board of Trustees of Lafayette
College. Mr. Hugel is the former Chairman of Asea Brown Boveri Inc., which
principally engages in the manufacture of electrical equipment and the
generation, transmission, distribution and transportation of power, the former
Chairman, President and Chief Executive Officer of Combustion Engineering, Inc.
and a former Executive Vice President of American Telephone and Telegraph
Company.
Richard A. Nenneman, age 68, is the former Editor-in-Chief of The
Christian Science Monitor and a former Senior Vice President of Girard Bank. He
currently serves as a member of the boards of various civic associations.
Richard J. Phelps, age 69, is the Chief Executive Officer of Phelps
Industries, Inc., a manufacturer of rawhide dog treats. He currently serves as a
director of Superior Pet, U.K. and Superior Pet Australia, both manufacturers of
rawhide dog treats; Bio-Comp, USA, a manufacturer of fertilizer; Stockton
Baseball Co., USA, which operates a minor league baseball team; and
Babson-Stewart Ivory International Fund, Inc.
*Deemed to be an "interested person" of the Trust and the Manager, as defined by
the 1940 Act
Officers
Ronald E. Gwozdz, President.
DeAnne B. Dupont, age 44, Treasurer, is the Vice President of the
Manager.
Frank L. Tarantino, age 58, Clerk, is the Senior Vice President and
Chief Operating Officer of the Manager. Mr. Tarantino was President of Liberty
Securities Corporation from 1994 to 1997, and was previously Executive Vice
President of State Street Research & Management Company.
The mailing address of each of the officers and Trustees is c/o David
L. Babson and Company Incorporated, One Memorial Drive, Cambridge, Massachusetts
02142.
Except as stated above, the principal occupations of the officers and
Trustees for the last five years have been with the employers as shown above,
although in some cases they may have held different positions with such
employers.
Trustee Compensation Table
The Trust pays each Trustee a fee for his services. The Trustees
periodically review their fees to assure that such fees continue to be
appropriate in light of their responsibilities as well as in relation to fees
paid to Trustees of other mutual fund complexes. The fees paid to each Trustee
-5-
<PAGE> 22
by the Trust for the fiscal year ended 12/31/97 are shown below:
<TABLE>
<CAPTION>
Total Compensation
Aggregate from Registrant
Compensation and Fund Complex
Name of Trustee from Registrant* Paid to Trustees
- --------------- ---------------- ------------------
<S> <C> <C>
Ronald E. Gwozdz $ 0 $ 0
Charles E. Hugel 11,000 11,000
Richard A. Nenneman 11,000 11,000
Richard J. Phelps 11,000 11,000
Peter C. Thompson** 0 0
James W. MacAllen 0 0
</TABLE>
- ---------------
* Includes an annual retainer and an attendance fee for each meeting attended.
** Retired from service as a Trustee effective April 22, 1998.
INVESTMENT ADVISORY AND OTHER SERVICES
Management Contract
The Trust's investment manager, David L. Babson and Company
Incorporated, One Memorial Drive, Cambridge, Massachusetts 02142, is a wholly
owned subsidiary of DLB Acquisition Corp., a holding company which is owned by
Mass Mutual Holding Company, a holding company and a wholly owned subsidiary of
Massachusetts Mutual Life Insurance Company ("MassMutual"), a mutual life
insurance company organized under Massachusetts law. As of July 20, 1998
MassMutual owns, through its subsidiary MMHC Investment Inc., a Delaware
corporation, 100% 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.
The address of MassMutual and MMHC Investment Inc. is 1295 State Street,
Springfield, Massachusetts 01111. As disclosed in the Prospectus under the
heading "Management of the Trust," under a Management Contract (the "Management
Contract") between the Trust and the Manager, subject to such policies as the
Trustees of the Trust may determine, the Manager will furnish continuously an
investment program for the Fund and will make investment decisions on behalf of
the Fund and place all orders for the purchase and sale of portfolio securities.
Subject to the control of the Trustees, the Manager also manages, supervises and
conducts the other affairs and business of the Trust, furnishes office space and
equipment, provides bookkeeping and certain clerical services and pays all
salaries, fees and expenses of officers and Trustees of the Trust who are
affiliated with the Manager. As indicated under "Portfolio Transactions," the
Trust's portfolio transactions may be placed with broker-dealers which furnish
the Manager, at no cost, certain research, statistical and quotation services of
value to the Manager in advising the Trust or its other clients.
-6-
<PAGE> 23
As disclosed in the Prospectus, the Fund pays the Manager a monthly fee
at the annual rate of the Fund's average daily net assets set forth therein. In
addition, the Manager has agreed to waive its fee and to bear certain expenses
until further notice to the extent the Fund's annual expenses (including the
management fee, but excluding brokerage commissions and transfer taxes) would
exceed the percentage of the Fund's average daily net assets set forth in the
Prospectus.
Custodial Arrangements. Investors Bank & Trust Company ("IBT") serves
as the Trust's custodian. As such, IBT holds in safekeeping certificated
securities and cash belonging to the Fund and, in such capacity, is the
registered owner of securities in book-entry form belonging to the Fund. Upon
instruction, IBT receives and delivers cash and securities of the Fund in
connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities. IBT also maintains
certain accounts and records of the Trust and calculates the total net asset
value, total net income and net asset value per share of the Fund on a daily
basis.
Transfer Agent. IBT also serves as the Trust's transfer agent on behalf
of the Fund.
PORTFOLIO TRANSACTIONS
Investment Decisions
Investment decisions for the Fund and for the other investment advisory
clients of the Manager and its affiliates are made with a view to achieving
their respective investment objectives. Investment decisions are the product of
many factors in addition to basic suitability for the particular client
involved. Thus, a particular security may be bought or sold for certain clients
even though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more clients when
one or more other clients are selling the security. In some instances, one
client may sell a particular security to another client. It also sometimes
happens that two or more clients simultaneously purchase or sell the same
security, in which event each day's transactions in such security are, insofar
as possible, averaged as to price and allocated between such clients in a manner
which in the Manager's opinion is equitable to each and in accordance with the
amount being purchased or sold by each. There may be circumstances when
purchases or sales of portfolio securities for one or more clients will have an
adverse effect on other clients.
Brokerage and Research Services
Transactions on U.S. stock exchanges, commodities markets and futures
markets and other agency transactions involve the payment by the Fund of
negotiated brokerage commissions. Such commissions vary among different brokers.
A particular broker may charge different commissions according to such factors
as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment of fixed brokerage commissions, which may
be higher than
-7-
<PAGE> 24
those in the United States. In the case of securities traded in the
over-the-counter markets, the price paid by the Fund usually includes an
undisclosed dealer commission or mark-up. In underwritten offerings, the price
paid by the Fund includes a disclosed, fixed commission or discount retained by
the underwriter or dealer.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")) from broker-dealers that
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, the Manager may receive brokerage and research services and other
similar services from many broker-dealers with which the Manager place the
Fund's portfolio transactions and from third parties with which these
broker-dealers have arrangements. These services may include such matters as
general economic and market reviews, industry and company reviews, evaluations
of investments, recommendations as to the purchase and sale of investments,
newspapers, magazines, pricing services, quotation services, news services and
personal computers utilized by the Manager's investment professionals. Where the
services referred to above are not used exclusively by the Manager for research
purposes, the Manager, based upon allocations of expected use, would bear that
portion of the cost of these services which directly relates to their
non-research use. Some of these services may be of value to the Manager or its
affiliates in advising various of their clients (including the Fund), although
not all of these services would necessarily be useful and of value in managing
the Fund. The management fee paid by the Fund is not reduced because the Manager
or its affiliates may receive these services even though the Manager might
otherwise be required to purchase some of these services for cash.
The Manager places orders for the purchase and sale of portfolio
investments for the Fund and buys and sells investments for the Fund through a
substantial number of brokers and dealers. In so doing, the Manager uses its
best efforts to obtain for the Fund the most favorable price and execution
available, except to the extent they may be permitted to pay higher brokerage
commissions as described below. In seeking the most favorable price and
execution, the Manager, having in mind the Fund's best interests, considers all
factors it deems relevant, including, by way of illustration, price, the size of
the transaction, the nature of the market for the security or other investment,
the amount of the commission, the timing of the transaction taking into account
market prices and trends, the reputation, experience and financial stability of
the broker-dealer involved and the quality of service rendered by the
broker-dealer in other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the Management
Contract, the Manager may cause the Fund to pay a broker-dealer which provides
"brokerage and research services" (as defined in the 1934 Act) to the Manager an
amount of disclosed commission for effecting securities transactions on stock
exchanges and other transactions for the Fund on an agency basis in excess of
the commission which another broker-dealer would have charged for effecting that
transaction. The Manager's authority to cause the Fund to pay any such greater
commissions is also subject to such policies as the Trustees may adopt from time
to time. It is the
-8-
<PAGE> 25
position of the staff of the Securities and Exchange Commission that Section
28(e) does not apply to the payment of such greater commissions in "principal"
transactions. Accordingly the Manager will use its best effort to obtain the
most favorable price and execution available with respect to such transactions,
as described above.
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
The Trust is organized as a Massachusetts business trust under the laws
of Massachusetts by an Agreement and Declaration of Trust ("Declaration of
Trust") dated August 1, 1994. A copy of the Declaration of Trust is on file with
the Secretary of The Commonwealth of Massachusetts.
The fiscal year for the Fund ends on December 31.
Each share of the Fund represents an equal proportionate interest in
the Fund. Shares of the Trust do not have any preemptive rights. Upon
liquidation of the Fund, shareholders of the Fund are entitled to share pro rata
in the net assets of the Fund available for distribution to shareholders.
The Declaration of Trust also permits the Trustees, without shareholder
approval, to subdivide any series of shares into various sub-series of shares
with such dividend preferences and other rights as the Trustees may designate.
While the Trustees have no current intention to exercise this power, it is
intended to allow them to provide for an equitable allocation of the impact of
any future regulatory requirements which might affect various classes of
shareholders differently. The Trustees may also, without shareholder approval,
establish one or more additional separate portfolios for investments in the
Trust or merge two or more existing portfolios. Shareholders' investments in
such a portfolio would be evidenced by a separate series of shares.
The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust, however, may be terminated at any time by vote of at least
two-thirds of the outstanding shares of the Trust. The Declaration of Trust
further provides that the Trustees may also terminate the Trust upon written
notice to the shareholders.
The DLB Fund Group includes the following funds, with the inception
dates listed: DLB Fixed Income Fund, July 25, 1995; DLB Global Small
Capitalization Fund, July 19, 1995; DLB Value Fund, July 25, 1995; DLB Mid
Capitalization Fund, July 25, 1995; DLB Global Bond Fund, August 26, 1996; DLB
Quantitative Equity Fund, August 26, 1996; DLB Growth Fund, January 20, 1998;
and DLB Micro Capitalization Fund, July 20, 1998.
Voting Rights
As summarized in the Prospectus, shareholders are entitled to one vote
for each full share held (with fractional votes for fractional shares held) and
will vote (to the extent provided herein) in the election of Trustees and the
termination of the Trust and on other matters submitted to the vote of
shareholders. Shareholders of funds within the Trust vote by individual fund on
all matters
-9-
<PAGE> 26
except (i) when required by the 1940 Act, shares shall be voted in the aggregate
and not by individual fund, and (ii) when the Trustees have determined that the
matter affects only the interests of one or more funds, then only shareholders
of such funds shall be entitled to vote thereon. Shareholders of one fund shall
not be entitled to vote on matters exclusively affecting another fund within the
Trust, such matters including, without limitation, the adoption of or change in
the investment objective, policies or restrictions of the other fund and the
approval of the investment advisory contract of the other fund.
There will normally be no meetings of shareholders for the purpose of
electing Trustees except that in accordance with the 1940 Act (i) the Trust will
hold a shareholders' meeting for the election of Trustees at such time as less
than a majority of the Trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy in the Board of Trustees,
less than two-thirds of the Trustees holding office have been elected by the
shareholders, that vacancy may only be filled by a vote of the shareholders.
Upon written request by the holders of at least 10% of the outstanding shares
stating that such shareholders wish to communicate with the other shareholders
for the purpose of obtaining the signatures necessary to demand a meeting to
consider removal of a Trustee, the Trust has undertaken to provide a list of
shareholders or to disseminate appropriate materials (at the expense of the
requesting shareholders). In addition, shareholders of the Trust holding at
least 10% of the outstanding shares entitled to vote have the right to call a
meeting to elect or remove Trustees or to take other actions as provided in the
Declaration of Trust. Except as set forth above, the Trustees shall continue to
hold office and may appoint successor Trustees. Voting rights are not
cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust except (i)
to change the Trust's name or to cure technical problems in the Declaration of
Trust and (ii) to establish, designate or modify new and existing series or
sub-series of Trust shares or other provisions relating to Trust shares in
response to applicable laws or regulations.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or executed by the Trust
or the Trustees. The Declaration of Trust provides for indemnification out of
the property of the relevant Fund for all loss and expense of any shareholder of
that Fund held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is considered remote because it is limited to circumstances in which
the disclaimer is inoperative and the Fund of which he is or was a shareholder
would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a
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<PAGE> 27
Trustee against any liability to which the Trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. The By-laws of
the Trust provide for indemnification by the Trust of the Trustees and the
officers of the Trust except with respect to any matter as to which any such
person did not act in good faith in the reasonable belief that his action was in
or not opposed to the best interests of the Trust. Such person may not be
indemnified against any liability to the Trust or the Trust's shareholders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
DETERMINATION OF NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund share
is determined at 4:15 p.m., Eastern time, on each day on which the New York
Stock Exchange is open for trading. The Trust expects that the days, other than
weekend days, that the New York Stock Exchange will not be open are New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
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