DLB
The DLB Fixed Income Fund
SEMI ANNUAL REPORT
JUNE 30, 1999
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB FIXED INCOME FUND
---------------------
MANAGER'S COMMENTARY
MARKET REVIEW
ABSOLUTE RETURNS IN THE FIXED INCOME MARKET FOR THE FIRST QUARTER WERE A
DISAPPOINTMENT, REFLECTING THE RISE IN THE GENERAL LEVEL OF INTEREST RATES SINCE
THE BEGINNING OF THE YEAR. However corporate bonds in particular, as well as
agencies, mortgages, and asset-backed securities performed well, relative to the
Treasury sector in the first quarter.
THROUGHOUT THE SECOND QUARTER, SPECULATION THAT THE FEDERAL RESERVE WOULD
TIGHTEN MONETARY POLICY BECAUSE OF EVIDENCE OF A CONTINUED ROBUST ECONOMY AND
CONCERNS ABOUT A SHARP RISE IN THE CONSUMER PRICE INDEX IN APRIL PUSHED INTEREST
RATES HIGHER DURING THE PERIOD. As was widely anticipated, on the last day of
the quarter the Fed raised the federal funds rate by 25 basis points. In its
rate hike announcement, the Fed stated that it was switching its policy bias
from a tightening bias to a neutral bias. Investors initially reacted positively
to the neutral stance, interpreting it to mean that there was a better than even
chance that when the Federal Reserve Open Market Committee next meets in August
it would leave rates unchanged. However, the market gave back some of its
quarter-end rally after various business indicators signaled that there was
little, if any, proof of a slowing economy and the price of oil approached $20 a
barrel, its highest level in eighteen months.
THE NET EFFECT OF ALL THIS WAS THAT, FOR THE SECOND QUARTER, INTERMEDIATE RATES
ROSE HALF OF ONE PERCENTAGE POINT AND LONG-TERM TREASURY RATES ROSE THREE
EIGHTHS OF A POINT. Interest rates are currently a full percentage point higher
than at the beginning of the year, and the thirty-year Treasury bond is hovering
slightly above the 6% mark. For the quarter, price depreciation, due to the rise
in rates, more than offset current income, resulting in negative absolute
returns for securities with maturities beyond two years.
HIGHER RATES AND MARKET NERVOUSNESS OVER THE LIKELY EXTENT OF FED TIGHTENING
HURT SPREAD SECTOR SECURITIES, SUCH AS CORPORATES, MORTGAGES AND ASSET BACKEDS.
Spreads had experienced tremendous widening (prices declined) during last fall's
global financial crisis, but had narrowed substantially at the end of 1998 and
during the first quarter of 1999. However, more than 50% of that spread
contraction was reversed in May and June. In contrast to the first quarter, when
the compression of quality spreads helped to partially offset the negative
effects of higher rates, in the second quarter, widening spreads compounded the
problem of higher rates, and as a result, spread products
<PAGE>
DLB FIXED INCOME FUND
---------------------
MANAGER'S COMMENTARY
MARKET REVIEW
underperformed Treasuries of a like maturity.
CORPORATE SUPPLY AND POOR LIQUIDITY ADDED TO THE WEAKNESS OF SPREAD SECTOR
PRODUCT. Even though issuance of corporate debt was down from the first quarter,
it remained heavy, in part because many issuers wanted to complete capital
funding needs well ahead of potential Y2K problems at year-end. While liquidity
had rebounded from the depths of last fall's turmoil, it was not back to
pre-crisis standards, and in recent months it has again deteriorated some.
Because many dealers suffered significant loses last fall, they were not as
willing to commit capital to fixed income product as in the past. This was
particularly noticeable when uncertainty over the direction of rates and/or Fed
policy crept into the market, as has recently been the case.
FOR THE QUARTER, ALL SPREAD SECTORS RECORDED NEGATIVE EXCESS RETURNS IN
COMPARISON TO TREASURIES EVEN THOUGH TREASURIES EXPERIENCED ABOUT A 40 BASIS
POINT SELL OFF ACROSS THE YIELD CURVE. Additionally, the Treasury curve
flattened by about 20 basis points. One explanation for the flattening may be
that the yield curve reflected the belief that the Fed will move preemptively to
keep a lid on inflation. On a relative basis, mortgage backed securities turned
in the best performance. Mortgages and other callable securities tend to do well
in periods of rising rates and declining market volatility. This was the case
for most of the second quarter. However, this was partially reversed in June, as
a large corporate bond calendar provided competing product, and resulted in
general spread widening. A rise in volatility around the time of the Fed's June
30th rate hike also contributed to a poor month of June for the mortgage market.
WITHIN THE CORPORATE SECTOR, HIGHER QUALITY BONDS TENDED TO PERFORM BETTER
DURING THE QUARTER. One longer-term concern emerging within corporate America
has been the increased use of leverage and the related deterioration in credit
quality. Although corporate earnings are growing at a faster rate than last year
and, in general, credit fundamentals remain sound, there has been a gradual
deterioration in credit quality of the high-grade universe of issuers. The
peakin corporate credit quality came in the summer of 1997 and brought with it
the tightest corporate spreads of this cycle. Since then, however, the trend has
reversed and is likely to hold back a return to the spread levels seen in the
mid-1990's.
<PAGE>
DLB FIXED INCOME FUND
---------------------
MANAGER'S COMMENTARY
PORTFOLIO ACTIVITY
THE FUND'S BIAS TOWARD SHORTER MATURITY CORPORATES, INITIATED DURING THE FOURTH
QUARTER OF 1998, REMAINED IN PLACE IN THE FIRST QUARTER. Breakeven analysis
using a one year time horizon still heavily favored shorter maturity (i.e.,
2-year) corporate bonds over both intermediate maturity (i.e., 5 year) and long
maturity (i.e., 30 year) securities. There was a significant amount of activity
in the portfolio during the second quarter. Opportunistically, we took advantage
of changes in the index that we measure the Fund against (the Lehman Brothers
Aggregate Bond Index), across the board spread widening, and steep credit curves
in the intermediate part of the corporate sector. When and if spreads reverse
the past two months' widening, the Fund's portfolio should stand to benefit from
these actions.
THE PORTFOLIO INCREASED ITS WEIGHTINGS IN COMMERCIAL MORTGAGE BACKED SECURITIES.
The purchased tranches were AAA credit quality and provided an attractive
relative value opportunity compared to corporate bonds. Importantly, these
securities were destined for inclusion in the Lehman Brothers Aggregate Bond
Index as of July 1, 1999, which meant that from a technical perspective the
bonds would have good support due to increased demand. To make room for these
securities, we sold our Consolidated Edison position at a spread of +76 to ten
year Treasuries; we repurchased this bond a month later after its spread had
widened to +100 to ten year Treasuries. This illustrates the aforementioned
widening of credit spreads which occurred during May and June.
SPREADS WERE WIDER BECAUSE OF CONCERNS OF MONETARY TIGHTENING MOVES BY THE
FEDERAL RESERVE OPEN MARKET COMMITTEE, IMMINENT SUPPLY DUE TO Y2K MOTIVATED
FRONT LOADING OF ISSUANCE, AND ILLIQUIDITY IN THE CORPORATE MARKET. With the
widening of spreads and the noticeably steep credit curves, several extension
trades were undertaken, for example selling short-dated Ontario and WorldCom
bonds to buy longer dated ones, increasing our duration exposure in these names
to take advantage of their cheapness. We lengthened in high quality names, whose
spreads would be the first to move once the spread widening reversed and spreads
began contracting.
AS OF JUNE 30, 1999, THE AVERAGE MATURITY OF THE PORTFOLIO, AFTER TAKING INTO
CONSIDERATION BONDS TRADING TO THEIR CALL DATES AND AVERAGE LIFE ASSUMPTIONS FOR
MORTGAGE AND ASSET-BACKED SECURITIES, WAS 9.07 YEARS. The average duration, a
more precise way to measure the price volatility of a bond portfolio, was 5.3
years.
<PAGE>
DLB FIXED INCOME FUND
---------------------
MANAGER'S COMMENTARY
ECONOMIC & INTEREST RATE OUTLOOK
THE U.S. ECONOMY, NOW IN ITS NINTH YEAR OF BUSINESS EXPANSION, CONTINUES TO HAVE
GOOD MOMENTUM. Real economic growth has averaged 4% for the last three years
and, though many economists and strategists are calling for the heady pace to
slow from the levels experienced in late 1998 and the first half of 1999, there
are yet no clear signs of this happening. Business activity continues to benefit
from global disinflation, rising productivity, high consumer confidence, the
ongoing capital investment boom and the "wealth effect" created by the rising
value of equities and residential real estate.
STRONG CONSUMER DEMAND IS LEADING THE ECONOMY AND REFLECTS LOW UNEMPLOYMENT, THE
WEALTH EFFECT AND INTEREST RATES AT OR NEAR THEIR LOWEST LEVELS IN OVER THIRTY
YEARS. The prospects for slower growth are based on the premise that with
interest rates up substantially over the past six months, mortgage refinancing
activity is falling. This, coupled with the rise in the price of oil since the
lows reached early in the year, a slowing in job creation and a less robust
stock market, should retard spending. However, others argue that economic
activity will remain strong and conjecture that the recent slowing in additions
to payrolls reflects not less demand for labor, but a dwindling labor pool,
making it more difficult for employers to find qualified workers. The ability of
the economy to maintain its current momentum is enhanced by a strengthening
global economy, which in turn benefits the U.S. export sector and corporate
earnings.
AMIDST THIS EUPHORIC ECONOMY, CHARACTERIZED BY SUBDUED INFLATION, THERE ARE
SEVERAL IMBALANCES THAT WORRY THE MONETARY AUTHORITIES AND PROMPTED THEM TO
TIGHTEN MONETARY POLICY AT THE END OF THE SECOND QUARTER. In its statement
following its decision to raise rates, the Fed said "last fall, the Federal
Reserve Open Market Committee reduced interest rates to counter a significant
seizing-up of financial markets in the United States. Since then, much of the
financial strain has eased, foreign economies have firmed, and economic activity
in the United States has moved forward at a brisk pace. Accordingly, the full
degree of adjustment is judged no longer necessary." By removing one of last
fall's three 25 basis points rate reductions, the Federal Reserve signaled that,
even though today's level of inflation is not a problem, the imbalance between
the strong demand for labor and a dwindling labor pool warrants pre-emptive
action on their part to minimize the need for more drastic measures in the
future to stem potential inflationary wage
<PAGE>
DLB FIXED INCOME FUND
---------------------
MANAGER'S COMMENTARY
ECONOMIC & INTEREST RATE OUTLOOK
pressures. The Fed has also expressed concern over this country's growing
current account deficit and our greater reliance on foreign capital flows to
help fund the private sector's negative savings rate. In an environment where
the health of the U.S. economy is far superior to our trading partners and
domestic interest rates are attractive, attracting foreign capital has not been
difficult. However, this positive environment may change as foreign economies
improve and investment outside the U.S. becomes more enticing. This could have
negative implications for the U.S. dollar and inflation.
IRONICALLY, THE GRADUALIST APPROACH BEING TAKEN BY THE FED HAS SEEMINGLY
REINVIGORATED THE STOCK MARKET, WHICH IN TURN EXPANDS THE WEALTH EFFECT AND
HELPS MAINTAIN CONSUMER CONFIDENCE. This may have the opposite effect of what
the Fed wants to accomplish and in the end may force them to again raise rates.
If business activity does not return to the Fed's 3% estimate for the economy's
non-inflationary growth potential, then further rate hikes can be anticipated.
However, a prolonged period of monetary restraint is unlikely. Real interest
rates today are already above historical averages, and even though global
financial strains have receded, markets remain skittish. The Fed does not want
to risk pushing rates up to a level that could jeopardize the global recovery.
<PAGE>
DLB FIXED INCOME FUND
---------------------
Growth of a
$100,000 Investment
[GRAPH APPEARS HERE]
Cumulative Total Return Since Inception 7/25/95
<TABLE>
<CAPTION>
Lehman Brothers Lehman Brothers
DLB Aggregate DLB Aggregate
Fixed Income Bond Index Fixed Income Bond Index
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
$100,000.00 $100,000.00
31-Jul-95 $100,100.00 $100,150.00 31-Jul-97 $116,527.23 $117,074.57
31-Aug-95 $101,501.40 $101,361.82 31-Aug-97 $115,653.28 $116,079.44
30-Sep-95 $102,404.76 $102,345.02 30-Sep-96 $117,295.55 $117,797.41
31-Oct-95 $103,602.90 $103,675.51 31-Oct-97 $118,937.69 $119,505.48
30-Nov-95 $105,105.14 $105,230.64 30-Nov-97 $119,151.78 $120,055.20
31-Dec-95 $106,461.00 $106,703.87 31-Dec-97 $120,379.04 $121,267.76
31-Jan-96 $107,397.85 $107,408.12 31-Jan-98 $121,968.05 $122,819.99
28-Feb-96 $106,356.09 $105,539.22 28-Feb-98 $121,858.28 $122,721.73
31-Mar-96 $105,526.52 $104,800.44 31-Mar-98 $122,309.15 $123,138.98
30-Apr-96 $105,009.44 $104,213.56 30-Apr-98 $122,871.77 $123,779.31
30-May-96 $104,799.42 $104,005.13 31-May-98 $123,891.61 $124,955.21
30-Jun-96 $105,836.93 $105,398.80 30-Jun-98 $124,907.52 $126,017.33
31-Jul-96 $106,048.61 $105,683.38 31-Jul-98 $125,107.37 $126,281.97
31-Aug-96 $105,942.56 $105,503.72 31-Aug-98 $126,521.09 $128,340.36
30-Sep-96 $107,605.86 $107,339.48 30-Sep-98 $129,949.81 $131,343.53
31-Oct-96 $109,790.25 $109,722.42 31-Oct-98 $129,001.17 $130,647.40
30-Nov-96 $111,557.88 $111,598.67 30-Nov-98 $129,594.58 $131,392.10
31-Dec-96 $110,408.83 $110,560.80 31-Dec-98 $130,061.12 $131,786.27
31-Jan-97 $110,850.47 $110,903.54 31-Jan-99 $131,036.58 $132,721.95
28-Feb-97 $111,072.17 $111,180.80 28-Feb-99 $128,599.30 $130,399.32
31-Mar-97 $109,872.59 $109,946.69 31-Mar-99 $129,576.65 $131,116.52
30-Apr-97 $111,399.82 $111,595.89 30-Apr-99 $129,822.85 $131,536.09
31-May-97 $112,380.14 $112,656.05 31-May-99 $128,342.87 $130,378.57
30-Jun-97 $113,796.13 $113,996.66 30-Jun-99 $127,855.16 $129,961.36
</TABLE>
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 6/30/99
- --------------------------------------------------------------------------------
6 Months One Year Annualized
1/1/99- 7/1/98- Since Inception
6/30/99 6/30/99 7/25/95-6/30/99
------- ------- ---------------
DLB Fixed Income Fund -1.70 2.36 6.33
Lehman Brothers Aggregate Bond Index -1.37 3.15 6.77
DISCLOSURE STATEMENT
LEHMAN BROTHERS AGGREGATE BOND INDEX is an unmanaged index that is composed of
securities from Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed
Securities Index, and the Asset-Backed Securities Index. Total return comprises
price appreciation/depreciation and income as a percentage of the original
investment. Indexes are rebalanced monthly by market capitalization. Securities
in the Fund do not match those in the index, and the performance of the Fund
will differ.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Investment return and share
price will fluctuate with market conditions, and investors may have a gain or
loss when shares are sold. The Fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such expense
limitation, returns would have been lower.
<PAGE>
DLB FIXED INCOME FUND
---------------------------------------
FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND THE YEAR
ENDED DECEMBER 31,1998
<PAGE>
DLB FIXED INCOME FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS:
Portfolio of Investments as of June 30, 1999 1 - 4
Statement of Assets and Liabilities as of June 30, 1999 5
Statement of Operations for the Six Months Ended June 30, 1999 6
Statements of Changes in Net Assets for the Six Months Ended
June 30, 1999 and the Year Ended December 31, 1998 7
Financial Highlights for the Six Months Ended June 30, 1999 and
the Four-Year Period Ended December 31, 1998 8
Notes to Financial Statements 9 - 11
<PAGE>
DLB FIXED INCOME FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BONDS - 97.7%
S&P/MOODY'S PRINCIPAL VALUE
BOND RATING ISSUER AMOUNT
<S> <C> <C> <C>
US GOVERNMENT - 14.6%
AAA US Treasury Note, 11.625%, 2002 $ 500,000 $ 588,830
AAA US Treasury Note, 11.125%, 2003 25,000 29,817
AAA US Treasury Note, 7.25%, 2004 100,000 106,375
AAA US Treasury Note, 7.50%, 2005 75,000 80,742
AAA US Treasury Note, 5.625%, 2006 1,300,000 1,280,500
AAA US Treasury Note, 7.875%, 2021 1,700,000 2,017,951
AAA US Treasury Note, 8.125%, 2021 1,110,000 1,351,769
-----------
5,455,984
-----------
US GOVERNMENT AGENCY - 10.7%
AAA Federal National Mortgage Association, 5.625%, 2001 925,000 923,409
AAA Federal National Mortgage Association, 5.25%, 2009 500,000 458,400
AAA Federal National Mortgage Association, 4.625%, 2001 2,700,000 2,633,256
-----------
4,015,065
-----------
MORTGAGES - 17.0%
AAA FHLMC Gold Pool #G00143, 7.50%, 2023 176,236 178,274
AAA FHLMC Gold Pool #C00680, 6.00%, 2028 1,963,600 1,849,475
AAA FNMA Pool #323380, 6.5%, 2028 972,702 938,959
AAA FNMA Pool #346537, 6.00%, 2011 391,452 377,873
AAA FNMA Pool #490107, 6.50%, 2029 744,132 718,318
AAA GNMA Pool #780332, 8.00%, 2009 215,178 223,180
AAA GNMA Pool #410343, 7.50%, 2011 363,833 371,565
AAA GNMA Pool #423828, 6.00%, 2011 346,811 335,106
AAA GNMA Pool #398964, 7.50%, 2011 202,009 206,302
AAA GNMA Pool #357262, 7.50%, 2023 252,569 255,095
AAA GNMA Pool #380866, 7.00%, 2024 65,681 64,839
AAA GNMA Pool #432175, 8.00%, 2026 35,564 36,531
AAA GNMA Pool #441009, 8.00%, 2026 154,830 159,040
BAA Green Tree Financial 1994-A, 6.90%, 2004 21,861 21,786
BAA Green Tree Financial 1995-A, 7.25%, 2005 157,872 156,664
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL VALUE
BOND RATING ISSUER AMOUNT
<S> <C> <C> <C>
MORTGAGES (CONTINUED)
AAA Green Tree Financial 1995-2 A-4, 7.85%, 2026 $ 2,844 $ 2,844
AAA Green Tree Financial 1995-3 A-4, 7.05%, 2025 41,792 42,270
AAA Green Tree Financial 1995-1 A-5, 8.40%, 2025 190,442 193,181
AAA Green Tree Financial 1996-2 A-3, 6.90%, 2027 200,000 201,048
-----------
6,332,350
-----------
ASSET BACKED - 9.5%
AAA California Infrastructure PG&E-1, 6.42%, 2008 650,000 646,419
AAA California Infrastructure SCE-1, 6.22%, 2004 300,000 299,250
AAA Comed Transitional Funding Trust, 5.63%, 2009 850,000 803,386
AAA DLJ Commercial Mortgage Corp., 6.11%, 2007 704,492 682,807
AAA JP Morgan Commercial Mortgage Finance Corp., 6.507%, 2035 400,000 386,304
AAA Nomura Asset Securities Corporation, 6.59%, 2028 750,000 722,695
-----------
3,540,861
-----------
BANKS - 1.7%
A Suntrust Banks, 6.00%, 2026 400,000 380,388
AA Wachovia Capital FRN TRST II, 5.5%, 2027 265,000 252,725
-----------
633,113
-----------
FINANCIAL - 7.2%
AA Associates Corp. N.A., 5.8%, 2004 500,000 481,845
BAA AT&T Capital Corp., 6.875%, 2001 350,000 350,147
A Ford Capital BV, 10.125%, 2000 100,000 104,950
A Ford Motor Credit, 5.75%, 2004 700,000 675,535
AAA MBNA Master Cr. Card Trust, 5.9%, 2011 1,000,000 939,680
AA Norwest Corp., 6.00%, 2000 150,000 150,587
-----------
2,702,744
-----------
INDUSTRIAL - 20.1%
BAA Airgas Inc., 7.14%, 2004 415,000 415,598
A Aluminum Company of America, 5.75%, 2001 500,000 497,930
BAA American Stores, 8.00%, 2026 450,000 483,728
A Cardinal Health, 6.00%, 2006 150,000 141,774
A Cardinal Health, 6.25%, 2008 400,000 374,652
BAA Champion International, 7.20%, 2026 675,000 661,163
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL VALUE
BOND RATING ISSUER AMOUNT
<S> <C> <C> <C>
INDUSTRIAL (CONTINUED)
BAA Comdisco Inc., 6.375%, 2001 $ 300,000 $ 299,205
BAA Comdisco Inc., 6.13%, 2001 250,000 248,590
A Consolidated Edison, 6.15%, 2008 400,000 383,192
BAA Georgia-Pacific Corporation, 9.95%, 2002 175,000 190,472
A International Business Machines, 6.22%, 2027 400,000 397,188
A McDonnell Douglas, 8.25%, 2000 50,000 51,082
A Philip Morris Companies, 7.125%, 1999 300,000 301,575
A Philip Morris Companies, 7.20%, 2007 175,000 175,207
BAA Raytheon Co., 6.15%, 2008 400,000 377,636
BAA Ryder System Inc., 8.45%, 1999 100,000 101,155
A Sears, Roebuck & Co., 6.50%, 2000 100,000 100,510
A Sears, Roebuck & Co., 6.95%, 2002 50,000 50,834
BAA Service Corp. International, 6.375%, 2000 500,000 497,285
BAA Supervalue Inc., 7.25%, 1999 500,000 500,245
BAA Telecommunications Inc., 9.80%, 2012 170,000 207,709
BAA Time Warner Inc., 9.15%, 2023 150,000 172,022
BAA Time Warner Entertainment, 8.375%, 2023 325,000 352,030
BAA Worldcom Incorporated, 7.75%, 2007 525,000 549,806
-----------
7,530,588
-----------
INTERNATIONAL - 10.3%
BAA Canadian National Railroad, 7.00%, 2004 350,000 351,663
BAA Hellenic Republic, 6.95%, 2008 300,000 300,330
A Hydro Quebec, 8.05%, 2024 450,000 487,679
AA Ontario Province, 5.5%, 2008 1,075,000 989,258
BAA Oslo Seismic Services, 8.28%, 2011 396,635 405,024
BAA Petro Geo-Services, 7.50%, 2007 400,000 399,104
BAA Province of Newfoundland, 7.32%, 2023 350,000 352,923
BAA Republic of Chile, 6.875%, 2009 175,000 162,153
BAA Southern Investments UK, 6.375%, 2001 400,000 395,584
-----------
3,843,718
-----------
TRANSPORTATION - 4.8%
A Atchison Topeka & Santa Fe, 7.75%, 1999 75,000 75,490
BAA Burlington Northern Santa Fe Corporation, 6.05%, 2001 525,000 522,401
BAA JB Hunt Transport Services, Inc., 6.25%, 2000 500,000 502,820
BAA Norfolk Southern, 7.05%, 2037 125,000 127,023
BAA United Air Lines Inc., 7.27%, 2013 282,272 268,113
BAA Wisconsin Central Transportation, 6.625%, 2008 300,000 285,153
-----------
1,781,000
-----------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL VALUE
BOND RATING ISSUER AMOUNT
<S> <C> <C> <C>
OTHER CORPORATE - 1.8%
AAA New Jersey Economic Development Authority, 7.425%, 2029 $ 650,000 678,386
-----------
TOTAL BONDS (identified cost, $37,252,321) 36,513,809
REPURCHASE AGREEMENT - 3.4%
Investors Bank & Trust Repurchase Agreement, 4.25%,
dated 6/30/99, $1,265,477 due on 7/1/99 (secured by
Federal Government Agency securities), at cost 1,265,328 1,265,328
-----------
TOTAL INVESTMENTS (identified cost, $38,517,649) 37,779,137
Other assets, less liabilities - (1.1%) (402,279)
-----------
NET ASSETS - 100% $37,376,858
===========
</TABLE>
See notes to financial statements.
4
<PAGE>
DLB FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1999
- -------------------------------------------------------------------------------
ASSETS:
Investments, at value (identified cost, $38,517,649) $ 37,779,137
Interest receivable 522,611
Receivable from investment manager 44,878
------------
38,346,626
------------
LIABILITIES:
Payable for investments purchased 935,677
Accrued management fees 12,094
Accrued expenses 21,997
------------
969,768
------------
NET ASSETS $ 37,376,858
============
NET ASSETS CONSIST OF:
Paid-in capital $ 37,999,469
Unrealized depreciation of investments (738,512)
Accumulated undistributed net realized gain on
investment transactions 86,150
Accumulated undistributed net investment income 29,751
------------
Total $ 37,376,858
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 3,642,725
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 10.26
============
See notes to financial statements.
5
<PAGE>
DLB FIXED INCOME FUND
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30,1999
- --------------------------------------------------------------------------------
INTEREST INCOME $ 1,095,746
-----------
EXPENSES:
Management fee 71,929
Trustees' fees 2,284
Custodian fees 27,344
Accounting and audit fees 14,927
Legal fees 12,149
Registration fees 9,271
Transfer agent fee 3,968
Miscellaneous 1,908
-----------
143,780
Preliminary reduction of expenses by investment manager (44,878)
-----------
Net expenses 98,902
-----------
Net investment income 996,844
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (identified cost basis) 94,244
Change in unrealized depreciation (1,730,711)
-----------
Net realized and unrealized loss on investments (1,636,467)
-----------
Decrease in net assets from operations $ (639,623)
===========
See notes to financial statements.
6
<PAGE>
DLB FIXED INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 996,844 $ 1,877,785
Net realized gain on investments 94,244 291,288
Net unrealized appreciation (depreciation) of investments (1,730,711) 368,912
------------- -------------
(639,623) 2,537,985
------------- -------------
Distributions to shareholders:
From net investment income (973,595) (1,894,627)
From net realized gain on investments - (290,918)
------------- -------------
(973,595) (2,185,545)
------------- -------------
Fund share transactions:
Net proceeds from sales of shares 4,971,578 2,275,531
Net asset value of shares issued in
reinvestment of distributions 702,462 1,669,653
Cost of shares reacquired (542,042) (2,594,499)
------------- -------------
5,131,998 1,350,685
------------- -------------
Total increase in net assets 3,518,780 1,703,125
NET ASSETS:
At beginning of period 33,858,078 32,154,953
------------- -------------
At end of period (including accumulated undistributed net
investment income of $29,751 and $6,502, respectively) $ 37,376,858 $ 33,858,078
============= =============
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Years Ended December 31,
Ended -------------------------------------- Period Ended
June 30, December 31,
1999 1998 1997 1996 1995**
---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $ 10.72 $ 10.61 $ 10.11 $ 10.26 $ 10.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income .29 .63 .42 .53 .28
Net realized and unrealized gain (loss) on investments (.47) .20 .49 (.15) .37
---------- ---------- ---------- ---------- ----------
(.18) .83 .91 .38 .65
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (1) (.28) (.63) (.41) (.53) (.28)
From net realized gain on investments - (.09) - - (.11)
---------- ---------- ---------- ---------- ----------
(.28) (.72) (.41) (.53) (.39)
---------- ---------- ---------- ---------- ----------
Net asset value- end of period $ 10.26 $ 10.72 $ 10.61 $ 10.11 $ 10.26
========== ========== ========== ========== ==========
Total return (1.70%) 8.04% 9.03% 3.70% 14.75% *
Ratios and Supplemental Data:
Ratio of expenses to average net assets .55%* .55% .55% .55% .55% *
Ratio of net investment income to average net assets 5.58%* 5.71% 5.74% 6.36% 6.24% *
Portfolio turnover 47% 50% 44% 65% 42%
Net assets at end of period (000 omitted) $ 37,377 $ 33,858 $ 32,155 $ 15,261 $ 5,325
The manager has agreed with the Fund to reduce its management fee and/or bear certain expenses, such that the Fund's total expenses
do not exceed .55% of average daily net assets. Without such agreement and had the 1995 expenses been limited to that permitted by
state securities law, the investment income per share and ratios would have been:
Net investment income $ .28 $ .60 $ .38 $ .44 $ .19
Ratios (to average net assets):
Expenses .80% * .80% 1.06% 1.66% 2.50% *
Net investment income 5.33% * 5.45% 5.22% 5.25% 4.33% *
* Annualized
** For the period from July 25, 1995 (commencement of operations) to December 31, 1995.
(1) Distributions in excess of net investment income for the year ended December 31, 1996 were less than $.01 per share.
</TABLE>
See notes to financial statements.
8
<PAGE>
DLB FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Fixed Income Fund (the "Fund") is a non-diversified series of The DLB
Fund Group (the "Trust"), a Massachusetts business trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Debt securities other than short-term obligations,
including listed issues, are valued on the basis of valuations furnished
by dealers or by a pricing service, with consideration to factors such as
institutional-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon exchange or
over-the-counter prices. Securities for which there are no such
quotations or valuations are valued at fair value as determined in good
faith by or at the direction of the Trustees. Short-term obligations,
which mature in 60 days or less, are valued at amortized cost, which
approximates market value.
REPURCHASE AGREEMENTS - Securities purchased under agreements to resell
to the original owner are recorded at cost. The Fund may enter into such
agreements with institutions that the Fund's investment adviser has
determined to be creditworthy. The Fund requires that the securities so
purchased be transferred to the custodian under terms that enable the
Fund to obtain such securities in the event of a default. The Fund
monitors, on a daily basis, the value of the securities to assure that
such value, including accrued interest, is greater than amounts owed to
the Fund.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded
on the trade date. Interest income is recorded on the accrual basis. All
premium and original issue discount are amortized or accreted for
financial statement and tax reporting purposes as required by federal
income tax regulations.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gains on investments.
Accordingly, no provision for federal income or excise tax is necessary.
The Fund files a tax return annually using tax accounting methods
required by the Code, which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the net investment income and net realized gain reported in
these financial statements may differ from the amounts reported on the
Fund's tax return, and, consequently, the character of distributions to
shareholders reported in the financial highlights may differ from that
reported to shareholders on Form 1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The
Fund distinguishes between distributions for tax purposes and financial
reporting purposes. Differences between income for financial reporting
purposes and tax-basis earnings and profits may result in the reporting
of temporary over-distributions in the financial statements. Such
over-distributions are classified as distributions in
9
<PAGE>
excess of net investment income or accumulated undistributed net realized
gains. Distributions, if any, in excess of tax-basis earnings and profits
are reported as return of capital.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements. Actual results could differ from those such
estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Co. Inc. ("Babson") to provide
investment advisory and administrative services and general office
facilities. The fee for such services is computed daily and paid monthly
at an effective annual rate of .40% of average daily net assets. For the
six months ended June 30, 1999, the management fee amounted to $71,929.
Additionally, $44,878 of Fund expenses were borne by Babson.
The Fund pays no compensation directly to the Trustees who also are
officers of the investment manager, nor to the officers of the Fund, all
of whom receive remuneration for their services to the Fund from Babson.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
were as follows:
PURCHASES SALES
----------- -----------
U. S. Government securities $ 1,571,016 $ 4,194,453
=========== ===========
Investments
(non-U.S. Government securities) $20,366,682 $12,144,181
=========== ===========
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis,
are as follows:
Aggregate cost $38,517,649
===========
Gross unrealized appreciation $ 92,654
Gross unrealized depreciation (831,166)
-----------
Net unrealized depreciation $ (738,512)
===========
10
<PAGE>
5. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
------------- -------------
Shares sold 470,036 208,434
Shares issued in reinvestment
of distributions 67,100 155,364
Redemptions (51,362) (237,538)
----------- -----------
Net increase 485,774 126,260
=========== ===========
11
<PAGE>
DLB FIXED INCOME FUND
---------------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Fixed Income Fund. The
report is not intended for distribution to prospective investors unless preceded
or accompanied by a current prospectus.
BABSON SECURITIES CORPORATION
One Memorial Drive, Cambridge, MA 02142
August 1999
<PAGE>
DLB
THE DLB VALUE FUND
SEMI ANNUAL REPORT
JUNE 30, 1999
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB VALUE FUND
--------------
MANAGER'S COMMENTARY
THE DLB VALUE FUND ACHIEVED A TOTAL RETURN OF 13.19% FOR THE SIX MONTHS ENDED
JUNE 30, 1999. During the same period the unmanaged Standard and Poor's 500
Index rose 12.38%.
IN THE FIRST QUARTER THE S&P 500 CONTINUED TO BE DOMINATED BY A SMALL NUMBER OF
LARGE "GROWTH" STOCKS, WHICH EXTENDED INTO A SIXTH YEAR THEIR RECORD RUN VERSUS
"VALUE" STOCKS. Indeed, five of the top ten highest returning stocks were either
technology- or communications-related, they accounted for over 50% of the
index's return in the quarter, and their valuations were "sky high"--the kinds
of companies our disciplines just don't allow us to buy.
BUT WHAT A DIFFERENCE A MONTH MAKES! APRIL MARKED A DRAMATIC TURNAROUND IN
MARKET SENTIMENT FROM GROWTH TO VALUE. During that month we witnessed what was
perhaps the most violent reversal of style in the stock market in our
experience. Most of the shift occurred in six trading days from April 9 through
April 19. At the end of the first quarter, the year-to-date return of the
S&P/BARRA Growth Index exceeded the year-to-date return of the S&P/BARRA Value
Index by 4.1 percentage points. By the end of April the Value Index year-to-date
return exceeded the Growth Index by 5.0 percentage points, a swing of 9.1
percentage points in one month!
A NUMBER OF VALUE CHARACTERISTICS OF THE FUND--LOW ABSOLUTE AND RELATIVE
PRICE-TO-EARNINGS AND PRICE-TO-BOOK, FOR EXAMPLE--WERE EXACTLY WHAT INVESTORS
WERE LOOKING FOR WHEN THE SHIFT FROM GROWTH TO VALUE OCCURRED. Additionally,
certain sectors (basic materials, consumer cyclical, and financial) and the
Fund's overweight positions in those sectors contributed most to our successful
results in the second quarter. Furthermore, because the market caps of many
growth stocks are so large relative to the market caps of most of the basic
materials and cyclical companies, it took only a small percentage of money
flowing from the big favorites into the less liquid value stocks to result in a
sharp run-up in the prices of those value stocks in the April turnaround period.
<PAGE>
DLB VALUE FUND
--------------
MANAGER'S COMMENTARY
MAY WAS ANOTHER GOOD MONTH FOR VALUE STOCKS. Although the major indices produced
negative returns in May and the Fund experienced a slight downturn as well,
relative performance was positive. Thus the positive return spread between the
Fund and the indexes that occurred in April widened in May. The last three days
of a very up-and-down June market were characterized by a sharp rebound in the
growth sector, as stocks rallied as concerns regarding a series of interest rate
hikes began to ease. Nonetheless, the DLB Value Fund held its performance
advantage through this period.
THE DLB VALUE FUND'S PORTFOLIO CONTINUES TO POSSESS ATTRACTIVE VALUATION
CHARACTERISTICS EVEN AFTER THE EXCELLENT PERFORMANCE OF VALUE STOCKS IN THE
SECOND QUARTER. Even though recent performance has been strong, there is plenty
of room for further normalization of the valuation gap between growth companies
and neglected value stocks.
<PAGE>
DLB VALUE FUND
--------------
Growth of a
$100,000 Investment
[GRAPH APPEARS HERE]
Cumulative Total Return Since Inception 7/25/95
<TABLE>
<CAPTION>
DLB S & P DLB S & P
VALUE FUND 500 INDEX VALUE FUND 500 INDEX
---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
$100,000.00 $100,000.00
31-Jul-95 $100,800.00 $102,400.00 31-Jul-97 $166,668.74 $181,597.54
31-Aug-95 $100,699.20 $102,656.00 31-Aug-97 $162,068.68 $171,428.07
30-Sep-95 $104,294.16 $106,988.08 30-Sep-96 $171,063.49 $180,822.33
31-Oct-95 $102,093.55 $106,602.93 31-Oct-97 $163,468.27 $174,782.87
30-Nov-95 $106,789.86 $111,282.79 30-Nov-97 $170,644.53 $182,875.31
31-Dec-95 $108,178.13 $113,430.55 31-Dec-97 $169,415.89 $186,020.77
31-Jan-96 $110,428.23 $117,287.19 31-Jan-98 $169,754.72 $188,085.60
28-Feb-96 $113,398.75 $118,377.96 28-Feb-98 $182,825.83 $201,646.57
31-Mar-96 $116,880.09 $119,514.39 31-Mar-98 $192,369.34 $211,970.88
30-Apr-96 $118,306.03 $121,271.25 30-Apr-98 $196,582.23 $214,111.78
30-May-96 $121,370.16 $124,400.05 31-May-98 $189,878.78 $210,429.06
30-Jun-96 $120,654.07 $124,872.77 30-Jun-98 $191,815.54 $218,972.48
31-Jul-96 $116,467.38 $119,353.39 31-Jul-98 $179,309.17 $216,629.47
31-Aug-96 $120,252.57 $121,871.75 31-Aug-98 $150,512.12 $185,304.85
30-Sep-96 $124,040.52 $128,733.13 30-Sep-98 $157,706.59 $197,182.89
31-Oct-96 $125,057.65 $132,286.16 31-Oct-98 $171,521.69 $213,213.86
30-Nov-96 $134,874.68 $142,287.00 30-Nov-98 $177,576.41 $226,134.62
31-Dec-96 $134,132.87 $139,469.72 31-Dec-98 $178,304.47 $239,159.98
31-Jan-97 $139,806.69 $148,186.57 31-Jan-99 $174,363.94 $249,156.86
28-Feb-97 $142,155.44 $149,342.43 28-Feb-99 $175,340.38 $241,408.08
31-Mar-97 $136,909.91 $143,204.45 31-Mar-99 $179,040.06 $251,064.41
30-Apr-97 $139,374.28 $151,753.76 30-Apr-99 $201,455.88 $260,780.60
31-May-97 $147,402.24 $160,995.56 31-May-99 $198,998.12 $254,626.18
30-Jun-97 $152,752.94 $168,208.17 30-Jun-99 $201,823.89 $268,757.93
</TABLE>
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 6/30/99
- --------------------------------------------------------------------------------
6 Months One Year Annualized
1/1/99- 7/1/98- Since Inception
6/30/99 6/30/99 7/25/95-6/30/99
------- ------- ---------------
DLB VALUE FUND 13.19 5.22 19.20
S&P 500 Index 12.38 22.76 28.04
DISCLOSURE STATEMENT
STANDARD & POORS 500 INDEX is an index of common stocks frequently used as a
general measure of stock market performance. The index assumes reinvestment of
all distributions and interest payments and does not take into account brokerage
fees or taxes. Securities in the Fund do not match those in the index and
performance of the Fund will differ.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Investment return and share
price will fluctuate with market conditions, and investors may have a gain or
loss when shares are sold. The Fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such expense
limitation, returns would have been lower.
<PAGE>
DLB VALUE FUND
---------------------------------------
FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND THE YEAR
ENDED DECEMBER 31, 1998
<PAGE>
DLB VALUE FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS:
Portfolio of Investments as of June 30, 1999 1 - 3
Statement of Assets and Liabilities as of June 30, 1999 4
Statement of Operations for the Six Months Ended June 30, 1999 5
Statements of Changes in Net Assets for the Six Months Ended
June 30, 1999 and the Year Ended December 31, 1998 6
Financial Highlights for the Six Months Ended June 30, 1999
and the Four-Year Period Ended December 31, 1998 7
Notes to Financial Statements 8 - 10
<PAGE>
DLB VALUE FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS - 96.2%
ISSUER SHARES VALUE
<S> <C> <C>
AEROSPACE - 4.4%
The Boeing Company 49,300 $ 2,178,444
Lockheed Martin Corporation 37,600 1,400,600
-----------
3,579,044
-----------
AIRLINES - 2.4%
KLM Royal Dutch Airlines 67,537 1,929,026
-----------
APPAREL & TEXTILE - 2.3%
Reebok International Ltd. (*) 102,600 1,910,925
-----------
AUTO PARTS - 2.3%
Dana Corporation 41,300 1,902,381
-----------
BANKS - 9.9%
Chase Manhattan Corporation 23,200 2,009,700
National City Corporation 30,400 1,991,200
US Bancorp 56,700 1,927,800
Wells Fargo & Company 51,000 2,180,250
-----------
8,108,950
-----------
CHEMICALS - GENERAL - 2.4%
E.I. Du Pont de Nemours and Company 28,500 1,946,906
-----------
CHEMICALS - SPECIALTY - 1.1%
Millennium Chemicals Inc. 39,300 926,006
-----------
COMPUTERS - 5.5%
Apple Computer Inc. (*) 46,300 2,144,269
International Business Machines Corporation 17,900 2,313,575
-----------
4,457,844
-----------
DIVERSIFIED - 1.2%
Hanson PLC 21,400 949,625
-----------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
ELECTRIC POWER - 4.4%
Illinova Corporation 70,900 $ 1,932,025
Texas Utilities Company 39,800 1,641,750
-----------
3,573,775
-----------
FINANCIAL SERVICES - 11.2%
American Express Company 16,100 2,095,013
CitiGroup Inc. 44,705 2,123,440
SLM Holding Corporation 44,850 2,054,691
The Student Loan Corporation 23,500 1,045,750
Transamerica Corporation 24,800 1,860,000
-----------
9,178,894
-----------
FOOD PRODUCERS - 2.2%
Diageo PLC 41,540 1,786,220
-----------
INSURANCE COMPANIES - 7.2%
Aetna Inc. 23,500 2,101,781
The Allstate Corporation 55,700 1,998,238
Berkshire Hathaway Inc., Class B (*) 798 1,794,702
-----------
5,894,721
-----------
MEDICAL SUPPLIES & SERVICES - 4.7 %
Tenet Healthcare Corporation (*) 85,600 1,588,950
United Healthcare Corporation 36,000 2,254,500
-----------
3,843,450
-----------
METALS & MINING - 0.4%
Martin Marietta Materials, Inc. 6,200 365,800
-----------
OFFICE EQUIPMENT - 4.8%
Wallace Computer Services, Inc. 85,700 2,142,500
Xerox Corporation 30,000 1,771,875
-----------
3,914,375
-----------
OIL - DOMESTIC - 2.7%
Atlantic Richfield Co. 26,300 2,197,694
-----------
OIL - INTERNATIONAL - 2.6%
Royal Dutch Petroleum 35,400 2,132,850
-----------
PAPER & FOREST PRODUCTS - 7.4%
Potlatch Corporation 47,800 2,100,213
Weyerhaeuser Company 28,900 1,986,875
Willamette Industries, Inc. 42,600 1,962,263
-----------
6,049,351
-----------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
PRINTING & PUBLISHING - 2.3 %
Harcourt General Inc. 36,600 1,887,188
-----------
RAILROADS - 2.3%
CSX Corporation 40,900 1,853,281
-----------
RETAIL - GENERAL - 5.1%
J C Penney Company, Inc. 45,000 2,185,313
Sears Roebuck and Co. 45,400 2,023,138
-----------
4,208,451
-----------
RETAIL - DISCOUNT -2.4 %
Kmart Corporation (*) 119,900 1,970,856
-----------
RETAIL - SPECIALTY - 2.3%
The Limited Inc. 40,900 1,855,838
-----------
STEEL - 2.2%
USX - US Steel Group 67,400 1,819,800
-----------
TRUCKING & SHIPPING - 0.5%
Overseas Shipholding Group 31,400 404,271
-----------
TOTAL COMMON STOCKS
(identified cost, $66,705,964) 78,647,522
PRINCIPAL
AMOUNT
Repurchase Agreement - 3.7%
Investors Bank & Trust Repurchase Agreement, 4.25%,
dated 6/30/99, $3,012,226 due on 7/1/99 (secured by
Federal Government Agency securities), at cost $ 3,011,871 3,011,871
-----------
TOTAL INVESTMENTS (identified cost, $69,717,835) 81,659,393
Other assets, less liabilities - 0.1% 80,854
-----------
NET ASSETS - 100% $81,740,247
===========
(*) Non-income producing security
</TABLE>
See notes to financial statements.
3
<PAGE>
DLB VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1999
- -------------------------------------------------------------------------------
ASSETS:
Investments, at value (identified cost, $69,717,835) $ 81,659,393
Receivable for fund shares sold 65,832
Dividends and interest receivable 70,294
------------
81,795,519
------------
LIABILITIES:
Payable for fund shares reacquired 1,780
Accrued management fee 36,630
Accrued expenses 16,862
------------
55,272
------------
NET ASSETS $ 81,740,247
============
NET ASSETS CONSIST OF:
Paid-in capital $ 66,959,557
Unrealized appreciation of investments 11,941,558
Accumulated undistributed net realized gain on
investment transactions 2,344,734
Accumulated undistributed net investment income 494,398
------------
Total $ 81,740,247
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 4,985,978
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 16.39
============
See notes to financial statements.
4
<PAGE>
DLB VALUE FUND
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME:
Dividends (net of foreign tax withheld of $10,859) $ 722,197
Interest 40,571
-----------
762,768
-----------
EXPENSES:
Management fee 209,114
Trustees' fees 2,284
Custodian fees 22,795
Accounting and audit fees 14,580
Legal fees 12,149
Registration fee 10,562
Transfer agent fee 3,968
Miscellaneous 1,910
-----------
Net expenses 277,362
-----------
Net investment income 485,406
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (identified cost basis) 2,576,651
Change in unrealized appreciation 6,463,624
-----------
Net realized and unrealized gain on investments 9,040,275
-----------
Increase in net assets from operations $ 9,525,681
===========
See notes to financial statements.
5
<PAGE>
DLB VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 485,406 $ 1,237,016
Net realized gain on investments 2,576,651 4,274,144
Net unrealized appreciation (depreciation) of investments 6,463,624 (2,709,889)
------------- -------------
9,525,681 2,801,271
------------- -------------
Distributions to shareholders:
From net investment income - (1,228,024)
From net realized gain on investments - (4,256,810)
------------- -------------
- (5,484,834)
------------- -------------
Fund share transactions:
Net proceeds from sales of shares 18,870,561 27,948,166
Net asset value of shares issued in
reinvestment of distributions - 5,469,771
Cost of shares reacquired (18,567,020) (15,272,460)
------------- -------------
303,541 18,145,477
------------- -------------
Total increase in net assets 9,829,222 15,461,914
NET ASSETS:
At beginning of period 71,911,025 56,449,111
------------- -------------
At end of period (including accumulated undistributed
net investment income of $494,398 and $8,992, respectively) $ 81,740,247 $ 71,911,025
============= =============
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB VALUE FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Years Ended December 31,
Ended -------------------------------------- Period Ended
June 30, December 31,
1999 1998 1997 1996 1995**
---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $ 14.48 $ 14.91 $ 12.53 $ 10.58 $ 10.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income .10 .27 .15 .16 .09
Net realized and unrealized gain on investments 1.81 .50 3.15 2.38 .73
---------- ---------- ---------- ---------- ----------
1.91 .77 3.30 2.54 .82
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income - (.27) (.15) (.16) (.09)
From net realized gain on investments - (.93) (.70) (.41) (.15)
In excess of net realized gain on investment - - (.07) (.02) -
---------- ---------- ---------- ---------- ----------
- (1.20) (.92) (.59) (.24)
---------- ---------- ---------- ---------- ----------
Net asset value- end of period $ 16.39 $ 14.48 $ 14.91 $ 12.53 $ 10.58
========== ========== ========== ========== ==========
Total Return 13.19% 5.25% 26.35% 23.99% 18.64% *
Ratios and Supplemental Data:
Ratio of expenses to average net assets .73% * .60% .71% .80% .80% *
Ratio of net investment income to average net assets 1.28% * 1.85% 1.40% 1.56% 2.02% *
Portfolio turnover 12% 21% 25% 23% 7%
Net assets at end of period (000 omitted) $ 81,740 $ 71,911 $ 56,449 $ 19,228 $ 10,818
The manager has agreed with the Fund to reduce its management fee and/or bear certain expenses, such that the Fund's total
expenses do not exceed .80% of average daily net assets. Without such agreement, the investment income per share and ratios
would have been:
Net investment income $ - $ .25 $ .13 $ .09 $ .02
Ratios (to average net assets):
Expenses - .75% .92% 1.50% 2.43% *
Net investment income - 1.69% 1.19% .86% 0.40% *
* Annualized
** For the period from July 25, 1995 (commencement of operations) to December 31, 1995.
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB VALUE FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Value Fund (the "Fund") is a non-diversified series of The DLB Fund
Group (the "Trust"), a Massachusetts business trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges
or reported through the NASDAQ system are valued at last sale prices.
Unlisted equity securities or listed equity securities for which last
sale prices are not available are valued at last quoted bid prices.
Securities for which there are no such quotations or valuations are
valued at fair value as determined in good faith by or at the direction
of the Trustees. Short-term obligations, which mature in 60 days or less,
are valued at amortized cost, which approximates market value.
REPURCHASE AGREEMENTS - Securities purchased under agreements to resell
to the original owner are recorded at cost. The Fund may enter into such
agreements with institutions that the Fund's investment adviser has
determined to be creditworthy. The Fund requires that the securities so
purchased be transferred to the custodian under terms that enable the
Fund to obtain such securities in the event of a default. The Fund
monitors, on a daily basis, the value of the securities to assure that
such value, including accrued interest, is greater than amounts owed to
the Fund.
FOREIGN CURRENCY TRANSLATION - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars at current exchange rates. Purchases and
sales of foreign investments and income and expenses are converted into
U.S. dollars at currency exchange rates prevailing on the respective
dates of such transactions. Security transaction gains and losses
attributable to changes in foreign currency exchange rates are recorded
for financial tatement purposes as net realized gains and losses on
investments. Income and expense gains and losses that are attributable to
changes in foreign exchange rates are recorded for financial statement
purposes as foreign currency transaction gains and losses. The portion of
both realized and unrealized gains and losses on investments that results
from fluctuations in foreign currency exchange rates is not separately
disclosed.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded
on the trade date. Dividend income is recorded on the ex-dividend date.
Dividend payments received in additional securities are recorded in an
amount equal to the value of the securities. Interest income is recorded
on the accrual basis.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gains on investments.
Accordingly, no provision for federal income or excise tax is necessary.
The Fund files a tax return annually using tax accounting methods
required by the Code, which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the net investment income and net realized gain reported in
these financial statements may
8
<PAGE>
differ from the amounts reported on the Fund's tax return, and,
consequently, the character of distributions to shareholders reported in
the financial highlights may differ from that reported to shareholders on
Form 1099-DIV.
Foreign taxes are provided with respect to interest and dividend income
earned in foreign currencies in accordance with applicable tax rates. To
the extent that such taxes are unrecoverable, they are recorded as a
reduction of net investment income.
Distributions to shareholders are recorded on the ex-dividend date. The
Fund distinguishes between distributions for tax purposes and financial
reporting purposes. Differences between income for financial reporting
purposes and tax-basis earnings and profits may result in the reporting
of temporary over-distributions in the financial statements. Such
over-distributions are classified as distributions in excess of net
investment income or accumulated undistributed net realized gains.
Distributions, if any, in excess of tax-basis earnings and profits are
reported as return of capital.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements. Actual results could differ from those such
estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Co. Inc. ("Babson") to provide
investment advisory and administrative services and general office
facilities. The fee for such services is computed daily and paid monthly
at an effective annual rate of .55% of average daily net assets. For the
six months ended June 30, 1999, the management fee amounted to $209,114.
The Fund pays no compensation directly to the Trustees who also are
officers of the investment manager, nor to the officers of the Fund, all
of whom receive remuneration for their services to the Fund from Babson.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
aggregated $8,655,655 and $9,329,869, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis,
are as follows:
Aggregate cost $69,717,835
===========
Gross unrealized appreciation $14,960,546
Gross unrealized depreciation (3,018,988)
-----------
Net unrealized appreciation $11,941,558
===========
9
<PAGE>
5. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
------------- -------------
Shares sold 1,236,646 1,766,141
Shares issued in reinvestment
of distributions - 380,870
Redemptions (1,215,696) (968,493)
----------- -----------
Net increase 20,950 1,178,518
=========== ===========
10
<PAGE>
DLB VALUE FUND
--------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Value Fund. The report is
not intended for distribution to prospective investors unless preceded or
accompanied by a current prospectus.
BABSON SECURITIES CORPORATION
One Memorial Drive, Cambridge, MA 02142
August 1999
<PAGE>
DLB
THE DLB GROWTH FUND
SEMI ANNUAL REPORT
JUNE 30, 1999
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB GROWTH FUND
---------------
MANAGER'S COMMENTARY
THE FIRST SIX MONTHS OF 1999 WERE A FRUSTRATING PERIOD FOR INVESTING IN MEDIUM
AND LARGE CAPITALIZATION HIGH GROWTH STOCKS IN THE DLB GROWTH FUND. After
climbing 31.33% in 1998 the DLB Growth Fund advanced 2.65% in the first half of
1999, lagging its benchmark, the Russell 1000 Growth Index's, total return of
10.45%.
THE FIRST HALF OF 1999 MARKED THE END OF THE EXTENDED PERIOD OF GLOBAL WEAKNESS
THAT BEGAN WITH THE ASIAN CRISIS IN MID-1997. We believe a sustained period of
stronger global economic growth lies ahead of us.
EMERGING ASIA (EXCLUDING CHINA AND JAPAN) IS LEADING THE RECOVERY WITH AN UPTURN
SHAPED LIKE A HOCKEY STICK. A recovery in parts of Europe is now kicking in, and
we expect the same to occur in Latin America in the not too distant future.
Japan is still more than a year away from sustained stronger growth. U.S. growth
is slowing from booming levels to a more normalized trend. Tightening by the
Federal Reserve in the second quarter was done to ensure slower, sustained
growth in the U.S. While a rise in interest rates is never a painless experience
for investors in the financial markets, it was a necessary step to take in order
to prolong the economic expansion here in the U.S.
SECTOR ROTATION WAS PROLIFIC AND SEVERE IN THE FIRST HALF OF 1999. Stable, high
quality growth stocks were marked down considerably as investor sentiment turned
on a dime and shifted toward value-oriented cyclical stocks that have
underperformed the broader market for the past several years. Growth stocks in
the S&P 500 Index increased by 3.8% in the second quarter, while value-oriented
stocks in the index advanced 10.8% during the same time period.
BUSINESS TRENDS IN MANY PARTS OF THE TECHNOLOGY AND COMMUNICATIONS SECTORS HAVE
BEEN VERY STRONG IN 1999, FOLLOWING A CYCLICAL DOWNTURN IN 1998. Semiconductor
companies and communications chips companies in particular have been big
contributors to returns in recent months. The top five performing investments in
the first half of the year were in the semiconductor industry: ANALOG DEVICES
(analog semiconductors, up 60%), LINEAR TECHNOLOGY (analog semiconductors, up
53%), MAXIM INTEGRATED PRODUCTS (analog semiconductors, up 53%), KLA-TENCOR
(semiconductor manufacturing equipment, up 50%) and VITESSE SEMICONDUCTOR (high
speed communications semiconductors, up 48%). Recently we have realized gains on
many investments in these companies due to lofty valuations.
<PAGE>
DLB GROWTH FUND
---------------
MANAGER'S COMMENTARY
STOCKS IN THE HEALTHCARE SECTOR, AND THE PHARMACEUTICAL INDUSTRY IN PARTICULAR,
HAVE UNDERPERFORMED THE MARKET SO FAR THIS YEAR BY 15% AS THREE FACTORS CAME
TOGETHER IN THE FIRST HALF OF THE YEAR: 1) an improved profit outlook for
cyclical industries; 2) rising interest rates; and 3) credible proposals for a
Medicare drug benefit.
MOST OF OUR LARGE INVESTMENTS IN THE HEALTHCARE SECTOR UNDERPERFORMED THE MARKET
IN THE FIRST HALF OF 1999, including CARDINAL HEALTH (pharmaceuticals packaging
and distribution, down 15%), PFIZER (pharmaceuticals, down 12%) and MONSANTO
(pharmaceuticals and agricultural products, down 17%).
AT THE END OF THE DAY IT IS QUITE CLEAR TO US THAT THE PHARMACEUTICAL INDUSTRY
IS ONE OF THE MOST ATTRACTIVE BUSINESSES IN AMERICA TODAY. Drug company products
serve the general good, are protected from competing products with patents and
are very research intensive, thus providing steep barriers to entry. We feel
very confident in the prospects for the pharmaceutical idustry longer term.
IN THE FIRST HALF OF 1999 WE MADE TWO NEW INVESTMENTS IN THE DLB GROWTH FUND:
LIBERTY MEDIA, a tracking stock of AT&T representing the internet and cable
programming assets of the combined AT&T and Telecommunications Inc.; and, MCI
WORLDCOM, a diversified telecommunications company.
WE LIQUIDATED TWO LARGE HOLDINGS IN THE TECHNOLOGY SECTOR: LINEAR TECHNOLOGY and
MAXIM INTEGRATED PRODUCTS. Both stocks have been big contributors to Fund
performance in 1999 and reached valuation levels that were unsustainable in our
view. At the same time we eliminated six smaller investments in the Fund
including BESTFOODS, DUPONT, JOHNSON & JOHNSON, PRAXAIR, MERCK and ROYAL DUTCH
PETROLEUM.
THE TOP TEN INVESTMENTS IN THE FUND--AS OF JUNE 30, 1999, AND COMPRISING OVER
38% OF TOTAL FUND ASSETS--ARE LISTED ON THE FOLLOWING PAGE.
<PAGE>
DLB GROWTH FUND
---------------
MANAGER'S COMMENTARY
- --------------------------------------------------------------------------------
Top 10 Equity Holdings % of Fund Assets
- --------------------------------------------------------------------------------
Cardinal Health 4.9
Vitesse Semiconductor 4.6
Federal Home Loan Mortgage Corp. 4.1
KLA-Tencor 3.7
Microchip Technology 3.6
MCI Worldcom 3.6
Guidant 3.5
Boston Scientific 3.5
Analog Devices 3.4
American Home Products 3.4
Total 38.3
- --------------------------------------------------------------------------------
WE CONTINUE TO FOCUS ON HIGH QUALITY, HIGH GROWTH COMPANIES IN THE DLB GROWTH
FUND. We believe our low risk approach to growth stock investing will generate
above-average returns in the equity market over the long term. Thank you for
your investment and continued interest in the DLB Growth Fund.
<PAGE>
DLB GROWTH FUND
---------------
Growth of a
$100,000 Investment
[GRAPH APPEARS HERE]
Cumulative Total Return Since Inception 1/20/98
<TABLE>
<CAPTION>
DLB RUSSELL 1000 DLB RUSSELL 1000
GROWTH FUND GROWTH INDEX GROWTH FUND GROWTH INDEX
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
$100,000.00 $100,000.00
Jan-98 $101,900.00 $103,220.00 31-Oct-98 $112,291.04 $118,493.17
28-Feb-98 $108,900.53 $110,982.14 30-Nov-98 $120,993.59 $127,510.50
31-Mar-98 $110,697.39 $115,410.33 31-Dec-98 $131,326.45 $139,011.95
30-Apr-98 $114,793.19 $117,002.99 31-Jan-99 $131,431.51 $147,171.95
31-May-98 $110,488.45 $113,680.11 28-Feb-99 $124,058.20 $140,446.19
30-Jun-98 $114,189.81 $120,637.33 31-Mar-99 $130,608.47 $147,847.71
31-Jul-98 $114,395.35 $119,841.13 30-Apr-99 $131,731.71 $148,039.91
31-Aug-98 $97,396.20 $101,852.97 31-May-99 $128,346.20 $143,495.09
30-Sep-98 $104,291.85 $109,675.28 30-Jun-99 $134,802.02 $153,539.74
</TABLE>
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 6/30/99
- --------------------------------------------------------------------------------
6 Months One Year Since Inception
1/1/99- 7/1/98- 1/20/98-
6/30/99 6/30/99 6/30/99
------- ------- -------
DLB GROWTH FUND 2.65 18.13 22.08
Russell 1000 Growth Index 10.45 27.26 33.09
DISCLOSURE STATEMENT
RUSSELL 1000 GROWTH INDEX is an unmanaged index that contains those Russell 1000
securities with a greater-than-average growth orientation. Securities in this
index tend to exhibit higher price-to-book ratios and higher forecasted growth
values than the Value universe. Securities in the Fund do not match those in the
index, and performance of the Fund will differ.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Investment return and share
price will fluctuate with market conditions, and investors may have a gain or
loss when shares are sold. The Fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such expense
limitation, returns would have been lower.
<PAGE>
DLB GROWTH FUND
---------------------------------------
FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND THE PERIOD
JANUARY 20, 1998 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER 31, 1998
<PAGE>
DLB GROWTH FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS:
Portfolio of Investments as of June 30, 1999 1 - 3
Statement of Assets and Liabilities as of June 30, 1999 4
Statement of Operations for Six Months Ended June 30, 1999 5
Statement of Changes in Net Assets for the Six Months Ended
June 30, 1999 and the Period January 20, 1998
(commencement of operations) to December 31, 1998 6
Financial Highlights for the Six Months Ended June 30, 1999
and the Period Ended December 31, 1998 7
Notes to Financial Statements 8 - 10
<PAGE>
DLB GROWTH FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS - 90.0%
<S> <C> <C>
ISSUER SHARES VALUE
BANKS - 3.1%
Bank of America 27,600 $ 2,023,425
Mellon Bank Corporation 59,400 2,160,675
-----------
4,184,100
-----------
BEVERAGES - 2.6 %
Anheuser-Busch Companies, Inc. 18,200 1,291,063
PepsiCo, Inc. 56,000 2,166,500
-----------
3,457,563
-----------
CHEMICALS - 2.0%
Monsanto Company 67,200 2,650,200
-----------
COMMUNICATION SERVICES - 5.7%
AT&T Corp. Liberty Media Group-A 84,400 3,101,700
MCI Worldcom, Inc. 52,900 4,552,706
-----------
7,654,406
-----------
COMPUTER RELATED - 1.9%
Cisco Systems, Inc. (*) 39,500 2,540,344
-----------
COMPUTER SERVICES - 1.8%
Automatic Data Processing, Inc. 55,300 2,433,200
-----------
COMPUTER SOFTWARE - 3.0%
Cadence Design Systems, Inc. (*) 255,200 3,253,800
Microsoft Corporation (*) 9,500 856,781
-----------
4,110,581
-----------
COSMETIC & TOILETRY - 1.4%
The Gillette Company 47,500 1,947,500
-----------
DRUGS - 14.8%
American Home Products Corporation 75,800 4,358,500
Bristol-Meyers Squibb Company 44,300 3,120,381
Cardinal Health, Inc. 93,757 6,012,168
Pfizer Inc. 35,900 3,940,025
Pharmacia & Upjohn Inc. 44,800 2,545,200
-----------
19,976,274
-----------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
ELECTRICAL EQUIPMENT - 4.4%
General Electric Company 26,700 $ 3,017,100
MSC Industrial Direct Company, Inc. (*) 281,500 2,885,375
-----------
5,902,475
-----------
ELECTRONICS & INSTRUMENTS - 6.7%
Analog Devices (*) 86,900 4,361,294
KLA Tencor Corp. (*) 72,000 4,671,000
-----------
9,032,294
-----------
FINANCIAL SERVICES - 5.3%
Federal Home Loan Mortgage Corporation 88,700 5,144,600
Paychex, Inc. 65,100 2,075,063
-----------
7,219,663
-----------
FOOD PRODUCERS - 0.3%
Wm. Wrigley Jr. Company 4,700 423,000
-----------
FOOD RETAILERS - 2.9%
Safeway Inc. (*) 77,800 3,851,100
-----------
FURNITURE & APPLIANCES - 2.1%
Herman Miller, Inc. 135,800 2,851,800
-----------
INSURANCE COMPANIES - 4.0%
American International Group, Inc. 31,800 3,722,588
Berkshire Hathaway Inc., Class B (*) 770 1,724,800
-----------
5,447,388
-----------
MEDICAL SUPPLIES & SERVICES - 8.0%
Boston Scientific Corporation (*) 100,300 4,406,931
Guidant Corporation 86,100 4,428,769
Health Management Associates (*) 177,300 1,994,625
-----------
10,830,325
-----------
OIL - INTERNATIONAL - 1.9%
Mobil Corporation 25,500 2,524,500
-----------
PROFESSIONAL SERVICES - 0.8%
Service Corporation International 56,900 1,095,325
-----------
RECREATION - 1.7%
The Walt Disney Company 72,700 2,235,525
-----------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
SEMICONDUCTORS - 10.2%
ETEC Systems, Inc. (*) 108,300 $ 3,600,975
Microchip Technology Incorporated (*) 94,400 4,472,200
Vitesse Semiconductor Corporation (*) 85,000 5,732,188
-----------
13,805,363
-----------
SPECIALTY RETAIL - 3.5%
CVS Corporation 61,700 3,131,275
Office Depot Inc. (*) 69,500 1,533,344
-----------
4,664,619
-----------
TOBACCO - 1.9%
Philip Morris Companies Inc. 65,400 2,628,260
-----------
TOTAL COMMON STOCKS
(identified cost, $115,704,041) 121,465,805
-----------
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 10.1%
Investors Bank & Trust Repurchase Agreement, 4.25%,
dated 6/30/99, $13,683,305 due on 7/1/99 (secured by
Federal Government Agency securities), at cost $ 13,681,690 13,681,690
-----------
TOTAL INVESTMENTS (identified cost, $129,385,731) 135,147,495
Other assets, less liabilities - (0.1%) (161,006)
-----------
NET ASSETS - 100% $134,986,489
===========
(*) Non-income producing security
</TABLE>
See notes to financial statements.
3
<PAGE>
DLB GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30,1999
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (identified cost, $129,385,731) $135,147,495
Receivable for Fund shares sold 683,000
Dividends and interest receivable 72,328
------------
135,902,823
------------
LIABILITIES:
Payable for investments purchased 466,498
Payable for Fund shares reaquired 375,646
Accrued management fee 59,256
Accrued expenses 14,934
------------
916,334
------------
NET ASSETS $134,986,489
============
NET ASSETS CONSIST OF:
Paid-in capital $123,094,719
Unrealized appreciation of investments 5,761,764
Accumulated undistributed net investment income 109,683
Accumulated undistributed net realized gain on
investment transactions 6,020,323
------------
$134,986,489
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 10,253,738
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 13.16
============
See notes to financial statements.
4
<PAGE>
DLB GROWTH FUND
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME:
Dividends $ 305,426
Interest 141,586
-----------
447,012
-----------
EXPENSES:
Management fee 269,367
Trustees' fees 2,284
Custodian fees 24,573
Accounting and audit fees 14,084
Legal fees 12,149
Registration fee 10,608
Transfer agent fee 3,968
Miscellaneous 1,844
-----------
Net expenses 338,877
-----------
Net investment income 108,135
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (identified cost basis) 6,017,261
Change in unrealized appreciation (1,332,478)
-----------
Net realized and unrealized gain on investments 4,684,783
-----------
Increase in net assets from operations $ 4,792,918
===========
See notes to financial statements.
5
<PAGE>
DLB GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Period Ended
Ended December 31,
June 30, 1999 1998*
------------- -------------
(Unaudited)
<S> <C> <C>
INCREASE IN NET ASSETS:
From operations:
Net investment income $ 108,135 $ 128,567
Net realized gain on investments 6,017,261 677,899
Net unrealized appreciation (depreciation) of investments (1,332,478) 7,094,242
------------- -------------
4,792,918 7,900,708
------------- -------------
Distributions to shareholders:
From net investment income - (127,019)
From net realized gain on investments - (674,837)
------------- -------------
- (801,856)
------------- -------------
Fund share transactions:
Net proceeds from sales of fund shares 106,731,461 25,153,000
Net asset value of shares issued in
reinvestment of distributions - 801,856
Cost of shares reacquired (9,591,608) -
------------- -------------
97,139,853 25,954,856
------------- -------------
Total increase in net assets 101,932,771 33,053,708
NET ASSETS:
At beginning of period 33,053,718 10
------------- -------------
At end of period (including accumulated undistributed net
investment income of $109,683 and $1,548, respectively) $ 134,986,489 $ 33,053,718
============= =============
* For the period from January 20, 1998 (commencement of operations) to December 31, 1998
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB GROWTH FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Period Ended
Ended December 31,
June 30, 1999 1998**
------------- ------------
(Unaudited)
<S> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $ 12.82 $ 10.00
---------- ----------
Income from investment operations:
Net investment income 0.01 0.05
Net realized and unrealized gain on investments 0.33 3.09
---------- ----------
0.34 3.14
---------- ----------
Less distributions to shareholders:
From net investment income - (0.05)
From net gain on investments - (0.27)
---------- ----------
- (0.32)
---------- ----------
Net asset value- end of period $ 13.16 $ 12.82
========== ==========
Total return 2.65% 31.33%
Ratios and Supplemental Data:
Ratio of expenses to average net assets .69% * .80% *
Ratio of net investment income to average net assets .22% * .48% *
Portfolio turnover 31% 34%
Net assets at end of period (000 omitted) $ 134,986 $ 33,054
The manager has agreed with the Fund to reduce its management fee and/or bear certain expenses, such that the Fund's total
expenses do not exceed .80% of average daily net assets. Without such agreement, the investment income per share and ratios
would have been:
Net investment income $ - $ .03
Ratios (to average net assets):
Expenses - .95% *
Net investment income - .32% *
* Annualized
** For the period from January 20, 1998 (commencement of operations) to December 31, 1998.
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Growth Fund (the "Fund") is a non-diversified series of The DLB Fund
Group (the "Trust"), a Massachusetts business trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges
or reported through the NASDAQ system are valued at last sale prices.
Unlisted equity securities or listed equity securities for which last
sale prices are not available are valued at last quoted bid prices.
Securities for which there are no such quotations or valuations are
valued at fair value as determined in good faith by or at the direction
of the Trustees. Short-term obligations, which mature in 60 days or less,
are valued at amortized cost, which approximates market value.
REPURCHASE AGREEMENTS - Securities purchased under agreements to resell
to the original owner are recorded at cost. The Fund may enter into such
agreements with institutions that the Fund's investment adviser has
determined to be creditworthy. The Fund requires that the securities so
purchased be transferred to the custodian under terms that enable the
Fund to obtain such securities in the event of a default. The Fund
monitors, on a daily basis, the value of the securities to assure that
such value, including accrued interest, is greater than amounts owed to
the Fund.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded
on the trade date. Dividend income is recorded on the ex-dividend date.
Dividend payments received in additional securities are recorded in an
amount equal to the value of the securities. Interest income is recorded
on the accrual basis.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gains on investments.
Accordingly, no provision for federal income or excise tax is necessary.
The Fund files a tax return annually using tax accounting methods
required by the Code, which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the net investment income and net realized gain reported in
these financial statements may differ from the amounts reported on the
Fund's tax return, and, consequently, the character of distributions to
shareholders reported in the financial highlights may differ from that
reported to shareholders on Form 1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The
Fund distinguishes between distributions for tax purposes and financial
reporting purposes. Differences between income for financial reporting
purposes and tax-basis earnings and profits may result in
8
<PAGE>
the reporting of temporary over-distributions in the financial
statements. Such over-distributions are classified as distributions in
excess of net investment income or accumulated undistributed net realized
gains. Distributions, if any, in excess of tax-basis earnings and profits
are reported as return of capital.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements. Actual results could differ from those such
estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Co. Inc. ("Babson") to provide
investment advisory and administrative services and general office
facilities. The fee for such services is computed daily and paid monthly
at an effective annual rate of .55% of average daily net assets. For the
six months ended June 30, 1999, the management fee amounted to $269,367.
The Fund pays no compensation directly to the Trustees who also are
officers of the investment manager, nor to the officers of the Fund, all
of whom receive remuneration for their services to the Fund from Babson.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
aggregated $113,391,394 and $27,451,743, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis,
are as follows:
Aggregate cost $ 129,385,731
=============
Gross unrealized appreciation $ 12,679,536
Gross unrealized depreciation (6,917,772)
-------------
Net unrealized appreciation $ 5,761,764
=============
9
<PAGE>
5. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
Period from
January 20, 1998
(commencement of
Six Months operations) to
Ended December 31,
June 30, 1999 1998
------------- -------------
Shares sold 8,425,441 2,515,233
Shares issued in reinvestment
of distributions - 63,188
Redemptions (750,125) -
----------- -----------
Net increase 7,675,316 2,578,421
=========== ===========
10
<PAGE>
DLB GROWTH FUND
---------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Growth Fund. The report
is not intended for distribution to prospective investors unless preceded or
accompanied by a current prospectus.
BABSON SECURITIES CORPORATION
One Memorial Drive, Cambridge, MA 02142
August 1999
<PAGE>
DLB
THE DLB DISCIPLINED GROWTH FUND
SEMI ANNUAL REPORT
JUNE 30, 1999
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB DISCIPLINED GROWTH FUND
---------------------------
MANAGER'S COMMENTARY
THE DISCIPLINED GROWTH FUND ACHIEVED A TOTAL RETURN OF 11.52% FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 1999. During this same period, the Fund's benchmark, the
Russell 1000 Growth Index, rose 10.45%.
THE FIRST SIX MONTHS OF 1999 SAW A WIDELY VARYING MARKET, ULTIMATELY DOMINATED
BY ULTRA-LARGE CAPITALIZATION STOCKS AND PREVIOUSLY SMALL CAPITALIZATION
INTERNET STOCKS THAT ARE NOW LARGE CAPITALIZATION STOCKS. The large
capitalization market (using both the S&P 500 Index and the Russell 1000 Index
as proxies) was up over 10 percentage points, adding to a long-running string of
very positive performance for the stock market. Using the Russell Indices as a
guide to how different investment styles worked in the U.S. markets, the
large-cap Russell 1000 Value Index outperformed the Russell 1000 Growth Index by
approximately 2.4 percentage points. All of the outperformance occurred in the
second quarter where the Value Index outperformed the Growth Index by more than
7 percentage points. In the small capitalization world, we saw something
dramatically different; using the Russell Indices, the small-cap Russell 2000
Growth Index outperformed the Russell 2000 Value Index by more the 6 percentage
points.
THE BAIC STRATEGY OF THIS FUND IS TO FIND UNDER-PRICED STOCKS THAT ARE
EXPERIENCING A POSITIVE CHANGE IN MARKET SENTIMENT. These stocks will tend to
get the largest returns as the market revalues the stock to a "fairer" market
value. The last few quarters have been quite difficult for this kind of
strategy. The market favored very high capitalization stocks without regard to
valuations. We have seen a turnaround as market leadership has broadened to
include smaller capitalization (notice I didn't say "small") stocks. This has
helped to reduce, but not eliminate, the wide valuation disparities in the large
cap market.
LOOKING TO THE FUTURE, WE ARE HOPEFUL THAT THE MARKET WILL CONTINUE TO BEND
TOWARDS UNDERVALUED STOCKS AND REDUCE ITS EMPHASIS ON ULTRA-LARGE CAP STOCKS. At
the time of the writing of this report (August 4, 1999), we are seeing
considerable movement to achieving this hope. Increasing risks of inflation and
interest rates appear to have tempered the enthusiasm for many very high growth
companies that, in our opinion, are very overvalued. Problems with the global
economy, most notably in Asia, continue to refocus the market on near-term
fundamentals.
<PAGE>
DLB DISCIPLINED GROWTH FUND
---------------------------
MANAGER'S COMMENTARY
WE CONTINUE TO MAINTAIN DIVERSIFICATION RELATIVE TO THE FUND'S BENCHMARK, THE
RUSSELL 1000 GROWTH INDEX, and hold a similar Beta (average propensity to move
with the market), dividend yield, and average market capitalization as the
Russell 1000 Growth Index.
<PAGE>
DLB DISCIPLINED GROWTH FUND
---------------------------
GROWTH OF A
$100,000 INVESTMENT
[GRAPH APPEARS HERE]
Cumulative Total Return Since Inception 8/26/96
<TABLE>
<CAPTION>
DLB DLB
DISCIPLINED RUSSELL 1000 DISCIPLINED RUSSELL 1000
GROWTH FUND GROWTH INDEX GROWTH FUND GROWTH INDEX
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
$100,000.00 $100,000.00
Aug-96 $98,500.00 $100,240.00 28-Feb-98 $175,310.06 $164,754.17
30-Sep-96 $106,399.70 $107,537.47 31-Mar-98 $180,586.90 $171,327.86
31-Oct-96 $110,102.41 $108,182.70 30-Apr-98 $181,237.01 $173,692.18
30-Nov-96 $120,099.71 $116,307.22 31-May-98 $178,445.96 $168,759.33
31-Dec-96 $118,502.38 $114,027.60 30-Jun-98 $188,885.05 $179,087.40
31-Jan-97 $127,449.31 $122,020.93 31-Jul-98 $182,368.51 $177,905.42
28-Feb-97 $128,163.03 $121,191.19 31-Aug-98 $151,128.79 $151,201.82
31-Mar-97 $123,382.55 $114,634.74 30-Sep-98 $159,093.27 $162,814.12
30-Apr-97 $131,920.62 $122,246.49 31-Oct-98 $169,322.97 $175,904.37
31-May-97 $139,849.05 $131,072.69 30-Nov-98 $184,832.96 $189,290.69
30-Jun-97 $144,631.89 $136,315.60 31-Dec-98 $196,958.00 $206,364.71
31-Jul-97 $160,281.06 $148,365.89 31-Jan-99 $205,013.58 $218,478.32
31-Aug-97 $154,382.71 $139,686.49 28-Feb-99 $193,614.83 $208,493.86
30-Sep-96 $164,510.22 $146,559.07 31-Mar-99 $198,319.67 $219,481.49
31-Oct-97 $153,553.84 $141,136.38 30-Apr-99 $204,150.26 $219,766.82
30-Nov-97 $159,189.26 $147,134.68 31-May-99 $207,008.37 $213,019.98
31-Dec-97 $156,674.07 $148,782.58 30-Jun-99 $219,656.58 $227,931.37
31-Jan-98 $160,982.61 $153,231.18
</TABLE>
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 6/30/99
- --------------------------------------------------------------------------------
6 Months One Year Annualized
1/1/99- 6/30/98- Since Inception
6/30/99 6/30/99 8/26/96-6/30/99
------- ------- ---------------
DLB DISCIPLINED GROWTH FUND 11.52 16.33 30.99
Russell 1000 Growth Index 10.45 27.26 32.64
DISCLOSURE STATEMENT
RUSSELL 1000 GROWTH INDEX is an unmanaged index that contains those Russell 1000
securities with a greater-than-average growth orientation. Securities in this
index tend to exhibit higher price-to-book ratios and higher forecasted growth
values than the Value universe. Securities in the Fund do not match those in the
index, and the performance of the Fund will differ.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Investment return and share
price will fluctuate with market conditions, and investors may have a gain or
loss when shares are sold. The Fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such expense
limitation, returns would have been lower.
<PAGE>
DLB DISCIPLINED
GROWTH FUND
(FORMERLY DLB QUANTITIVE EQUITY FUND)
---------------------------------------
FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND THE YEAR
ENDED DECEMBER 31, 1998
<PAGE>
DLB DISCIPLINED GROWTH FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS:
Portfolio of Investments as of June 30, 1999 1 - 4
Statement of Assets and Liabilities as of June 30, 1999 5
Statement of Operations for the Six Months Ended June 30, 1999 6
Statements of Changes in Net Assets for the Six Months Ended
June 30, 1999 and the Year Ended December 31, 1998 7
Financial Highlights for the Six Months Ended June 30, 1999
and the Three-Year Period Ended December 31, 1998 8
Notes to Financial Statements 9 - 10
<PAGE>
DLB DISCIPLINED GROWTH FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS - 99.4%
ISSUER SHARES VALUE
<S> <C> <C>
AEROSPACE - 6.0%
General Dynamics Corporation 8,600 $ 589,100
Gulfstream Aerospace Corporation (*) 17,500 1,182,344
Rockwell International Corporation 10,300 625,725
United Technologies Corporation (*) 2,200 157,713
-----------
2,554,882
-----------
AIRLINES - 0.7%
Northwest Airlines Corporation CL A 8,700 282,750
-----------
APPAREL & TEXTILE - 10.4%
Jones Apparel Group, Inc. (*) 33,500 1,149,469
Liz Claiborne Inc. 27,000 985,500
Ross Stores Inc. 20,300 1,022,613
VF Corporation 14,700 628,425
Warnaco Group, Inc. 22,600 604,550
-----------
4,390,557
-----------
AUTO & TRUCK MANUFACTURERS - 4.2%
Ford Motor Company 9,400 530,513
Navistar International Corporation (*) 14,800 740,000
Paccar Inc. 9,800 523,075
-----------
1,793,588
-----------
CHEMICALS - 2.2%
Cytec Industries Inc. 16,500 525,938
Solutia Incorporated 19,700 419,856
-----------
945,794
-----------
COMPUTERS - 5.4%
Apple Computer Inc. (*) 21,900 1,014,244
International Business Machines Corporation 10,000 1,292,500
-----------
2,306,744
-----------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
COMPUTER SERVICES - 2.9 %
Computer Associates International, Inc. 22,250 $ 1,223,750
-----------
COMPUTER SOFTWARE - 8.1%
Adobe Systems Inc. 2,600 213,606
Microsoft Corporation (*) 30,400 2,741,700
Sterling Software Inc. 18,600 496,388
-----------
3,451,694
-----------
CONSTRUCTION - 0.8%
Fluor Corporation 3,400 137,700
USG Corporation 3,900 218,400
-----------
356,100
-----------
DIVERSIFIED - 1.5%
Loews Corporation (*) 8,000 633,000
-----------
DRUGS - 9.2%
Amgen, Inc. 15,700 955,738
Bristol-Meyers Squibb Company 26,400 1,859,550
Genzyme Corporation-General Division (*) 16,200 785,700
Merck & Co., Inc. 4,300 318,200
-----------
3,919,188
-----------
ELECTRICAL EQUIPMENT - 4.4%
General Electric Company 16,600 1,875,800
-----------
ELECTRIC POWER - 2.1%
Edison International 8,900 238,075
GPU, Inc. 8,900 375,469
PECO Energy Company 6,200 259,625
-----------
873,169
-----------
ELECTRONICS & INSTRUMENTS - 4.1%
Applied Materials Inc. 9,200 679,650
SCI Systems Inc. 22,600 1,073,500
-----------
1,753,150
-----------
FINANCIAL SERVICES - 5.6%
A.G. Edwards, Inc. 14,900 480,525
Citigroup Inc. 7,050 334,875
Lehman Brothers Holdings Inc. 15,700 977,325
Morgan Stanley, Dean Witter, Discover & Co. 5,600 574,000
-----------
2,366,725
-----------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
FOOD PRODUCERS - 1.9%
IBP Inc. 34,400 $ 817,000
-----------
MEDICAL SUPPLIES & SERVICES - 8.1%
C. R. Bard, Inc. 5,600 267,750
Dentsply International Inc. 36,800 1,030,400
Genzyme Surgical Products 2,900 12,778
Guidant Corporation 7,500 385,781
Johnson & Johnson 3,100 303,800
Pacificare Health Systems, Inc. 2,500 179,844
Saint Jude Medical Inc. 28,300 1,008,188
Sybron International Corporation 8,200 226,013
-----------
3,414,554
-----------
OFFICE EQUIPMENT - 0.4%
Tech Data Corporation (*) 4,800 183,600
-----------
PRINTING & PUBLISHING - 1.7%
American Greetings Corporation 12,500 376,563
Knight-Ridder, Inc. 5,900 324,131
-----------
700,694
-----------
PROFESSIONAL SERVICES - 1.2%
Modis Professional Services, Inc. 37,000 508,750
-----------
RECREATION - 1.9%
Harrah's Entertainment Inc. 19,600 431,200
KingWorld Productions Inc. (*) 10,800 375,975
-----------
807,175
-----------
RESTAURANT & LODGING - 3.4%
Outback Steakhouse Inc. (*) 20,700 813,769
Tricon Global Restaurants, Inc. (*) 11,400 617,025
-----------
1,430,794
-----------
RETAIL - DISCOUNT - 4.2%
The TJX Companies Inc. 3,900 129,919
Wal Mart Stores Inc. 34,200 1,650,150
-----------
1,780,069
-----------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
RETAIL - GENERAL - 0.5%
Federated Department Stores, Inc. 4,300 $ 227,631
-----------
RETAIL - SPECIALTY - 1.3%
Intimate Brands, Inc. 9,660 457,643
Lowes Companies Inc. (*) 1,900 107,706
-----------
565,349
-----------
SAVINGS & LOANS - 0.7%
Golden West Financial Corp. 3,200 313,600
-----------
SEMICONDUCTORS - 5.1%
Intel Corporation 36,400 2,165,800
-----------
TELEPHONE - 1.2%
AT&T Corporation 9,350 521,841
-----------
TOTAL COMMON STOCKS (identified cost, $31,845,125) 42,163,748
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 0.6%
Investors Bank & Trust Repurchase Agreement, 4.25%,
dated 6/30/99, $234,937 due on 7/1/99 (secured by
Federal Government Agency securities), at cost $ 234,909 234,909
-----------
TOTAL INVESTMENTS (identified cost, $32,080,034) 42,398,657
Other assets, less liabilities 24,176
-----------
NET ASSETS - 100% $42,422,833
===========
</TABLE>
(*) Non-income producing security
See notes to financial statements.
4
<PAGE>
DLB DISCIPLINED GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (identified cost, $32,080,034) $ 42,398,657
Receivable for fund shares sold 2,061
Dividends and interest receivable 24,803
Receivable from investment manager 38,993
------------
42,464,514
------------
LIABILITIES:
Accrued management fees 25,480
Accrued expenses 16,201
------------
41,681
------------
NET ASSETS $ 42,422,833
============
NET ASSETS CONSIST OF:
Paid-in capital $ 30,229,595
Unrealized appreciation of investments 10,318,623
Accumulated undistributed net realized gain
on investment transactions 1,900,884
Accumulated net investment loss (26,269)
------------
Total $ 42,422,833
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,394,593
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 17.72
============
See notes to financial statements.
5
<PAGE>
DLB DISCIPLINED GROWTH FUND
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME:
Dividends $ 138,278
Interest 5,781
-----------
144,059
-----------
EXPENSES:
Management fee 143,791
Trustees' fees 2,284
Custodian fees 23,356
Accounting and audit fees 14,084
Legal fees 12,149
Transfer agent fee 3,968
Miscellaneous 11,929
-----------
211,561
Preliminary reduction of expenses by investment manager (38,993)
-----------
Net expenses 172,568
-----------
Net investment loss (28,509)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (identified cost basis) 1,904,471
Change in unrealized appreciation 2,475,049
-----------
Net realized and unrealized gain on investments 4,379,520
-----------
Increase in net assets from operations $ 4,351,011
===========
See notes to financial statements.
6
<PAGE>
DLB DISCIPLINED GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (28,509) $ 22,336
Net realized gain on investments 1,904,471 4,595,904
Net unrealized appreciation of investments 2,475,049 2,342,094
------------- -------------
4,351,011 6,960,334
------------- -------------
Distributions to shareholders:
From net investment income - (27,930)
From net realized gain on investments - (4,590,140)
------------- -------------
- (4,618,070)
------------- -------------
Fund share transactions:
Net proceeds from sales of shares 3,573,556 3,940,252
Net asset value of shares issued in
reinvestment of distributions - 4,586,644
Cost of shares reacquired (809,490) (630,887)
------------- -------------
2,764,066 7,896,009
------------- -------------
Total increase in net assets 7,115,077 10,238,273
NET ASSETS:
At beginning of period 35,307,756 25,069,483
------------- -------------
At end of period (including accumulated undistributed net
investment income (loss) of ($26,269) and $2,240, respectively) $ 42,422,833 $ 35,307,756
============= =============
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB DISCIPLINED GROWTH FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended Year Ended Period Ended
Ended December 31, December 31, December 31,
June 30, 1999 1998 1997 1996 **
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $ 15.89 $ 14.55 $ 11.66 $ 10.00
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss) (.01) .01 .03 .01
Net realized and unrealized gain on investments 1.84 3.72 3.73 1.84
---------- ---------- ---------- ----------
1.83 3.73 3.76 1.85
---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income - (.01) (.03) (.01)
From net realized gain on investments - (2.38) (.83) (.18)
In excess of net realized gain on investment - - (.01) -
---------- ---------- ---------- ----------
- (2.39) (.87) (.19)
---------- ---------- ---------- ----------
Net asset value- end of period $ 17.72 $ 15.89 $ 14.55 $ 11.66
========== ========== ========== ==========
Total Return 11.52% 25.71% 32.23% 18.51%
Ratios and Supplemental Data:
Ratio of expenses to average net assets .90% * .90% .90% .90% *
Ratio of net investment income (loss) to
average net assets (.15%)* .08% .23% .43% *
Portfolio turnover 44% 81% 46% 10%
Net assets at end of period (000 omitted) $ 42,423 $ 35,308 $ 25,069 $ 13,897
The manager has agreed with the Fund to reduce its management fee and/or bear certain expenses, such that the Fund's total
expenses do not exceed .90% of average daily net assets. Without such agreement, the investment loss per share and ratios
would have been:
Net investment loss $ (.02) $ (.02) $ (.06) $ (.01)
Ratios (to average net assets):
Expenses 1.10% * 1.14% 1.55% 1.82% *
Net investment loss (.35%)* (.17%) (.43%) (.50%)*
* Annualized
** For the period from August 26, 1996 (commencement of operations) to December 31, 1996.
</TABLE>
See notes to financial statements.
8
<PAGE>
DLB DISCIPLINED GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Disciplined Growth Fund (the "Fund"), formerly known as DLB
Quantitative Equity Fund, is a non-diversified series of The DLB Fund
Group (the "Trust"), a Massachusetts business trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges
or reported through the NASDAQ system are valued at last sale prices.
Unlisted equity securities or listed equity securities for which last
sale prices are not available are valued at last quoted bid prices.
Securities for which there are no such quotations or valuations are
valued at fair value as determined in good faith by or at the direction
of the Trustees. Short-term obligations, which mature in 60 days or less,
are valued at amortized cost, which approximates market value.
REPURCHASE AGREEMENTS - Securities purchased under agreements to resell
to the original owner are recorded at cost. The Fund may enter into such
agreements with institutions that the Fund's investment adviser has
determined to be creditworthy. The Fund requires that the securities so
purchased be transferred to the custodian under terms that enable the
Fund to obtain such securities in the event of a default. The Fund
monitors, on a daily basis, the value of the securities to assure that
such value, including accrued interest, is greater than amounts owed to
the Fund.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded
on the trade date. Dividend income is recorded on the ex-dividend date.
Dividend payments received in additional securities are recorded in an
amount equal to the value of the securities. Interest income is recorded
on the accrual basis.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gains on investments.
Accordingly, no provision for federal income or excise tax is necessary.
The Fund files a tax return annually using tax accounting methods
required by the Code, which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the net investment income and net realized gain reported in
these financial statements may differ from the amounts reported on the
Fund's tax return, and, consequently, the character of distributions to
shareholders reported in the financial highlights may differ from that
reported to shareholders on Form 1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The
Fund distinguishes between distributions for tax purposes and financial
reporting purposes. Differences between income for financial reporting
purposes and tax-basis earnings and profits may result in the reporting
of temporary over-distributions in the financial statements. Such
over-distributions are classified as distributions in
9
<PAGE>
excess of net investment income or accumulated undistributed net realized
gains. Distributions, if any, in excess of tax-basis earnings and profits
are reported as return of capital.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements. Actual results could differ from those such
estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Co. Inc. ("Babson") to provide
investment advisory and administrative services and general office
facilities. The fee for such services is computed daily and paid monthly
at an effective annual rate of .75% of average daily net assets. For the
six months ended June 30, 1999, the management fee amounted to $143,791.
Additionally, $38,993 of Fund expenses were borne by Babson.
The Fund pays no compensation directly to the Trustees who also are
officers of the investment manager, nor to the officers of the Fund, all
of whom receive remuneration for their services to the Fund from Babson.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
aggregated $19,386,238 and $16,765,529, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis,
are as follows:
Aggregate cost $32,080,034
===========
Gross unrealized appreciation $11,135,220
Gross unrealized depreciation (816,597)
-----------
Net unrealized appreciation $10,318,623
===========
5. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
------------- -------------
Shares sold 221,435 249,348
Shares issued in reinvestment
of distributions - 290,618
Redemptions (49,389) (40,944)
----------- -----------
Net increase 172,046 499,022
=========== ===========
10
<PAGE>
DLB DISCIPLINED GROWTH FUND
---------------------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Disciplined Growth Fund.
The report is not intended for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
BABSON SECURITIES CORPORATION
One Memorial Drive, Cambridge, MA 02142
August 1999
<PAGE>
DLB
THE DLB MID CAPITALIZATION FUND
SEMI ANNUAL REPORT
JUNE 30, 1999
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB MID CAP FUND
----------------
MANAGER'S COMMENTARY
THE DLB MID CAP FUND ACHIEVED A TOTAL RETURN OF 17.55% IN THE MOST RECENT
QUARTER AND 8.66% FOR THE SIX MONTHS ENDED JUNE 30, 1999. During the same
periods, the Fund's benchmark, the Russell 2500 Index, rose 16.40% and 10.88%,
respectively.
SMALL AND MID CAP STOCKS CAME BACK TO LIFE IN THE SECOND QUARTER OF 1999,
ERASING THE LOSSES REGISTERED IN THE FIRST QUARTER AND ENDING THE SECOND QUARTER
OF 1999 IN SOLIDLY POSITIVE TERRITORY. For the first half of 1999, small and mid
cap stocks, as measured by the Russell 2500 Index, were up 10.9% - trailing the
12.4% gain of large company stocks (as measured by the S&P 500 Index), but
within striking distance.
FOR THE SECOND QUARTER OF 1999, THE RUSSELL 2500 INDEX WAS UP OVER 16%--EASILY
OUTPACING THE GAINS OF LARGE CAP STOCKS OF 7%. Many market observers believe the
rally in small cap stocks is healthy for the entire stock market, whose
performance over the past several years has been so dependent on the dramatic
price appreciation of the stocks of a few very large companies. We share this
view and continue to believe that the small cap stocks represent the most
attractive value in the U.S. stock market at present.
THE FUND'S PORTFOLIO BENEFITED FROM INCREASED WEIGHTINGS IN THE ECONOMICALLY
SENSITIVE INDUSTRIAL SECTOR--which is beginning to show signs of life after
having underperformed for the past several quarters.
THE BEST AND WORST PERFORMERS IN THE FUND FOR THE FIRST HALF OF 1999 ARE LISTED
ON THE FOLLOWING PAGE.
<PAGE>
DLB MID CAP FUND
----------------
MANAGER'S COMMENTARY
- --------------------------------------------------------------------------------
Best Performers Business Gain (%)
- --------------------------------------------------------------------------------
CommScope Coaxial Cables 83
Nabors Industries Oil Service 81
CDI Temporary Help 69
Unisource Worldwide Paper Distribution 66
Life USA Annuities 57
- --------------------------------------------------------------------------------
COMMSCOPE is benefiting from strong demand for its products due to increased
investments by cable companies to improve their services to consumers. NABORS
INDUSTRIES is beginning to see the utilization of its oil rigs improve due to
the recent improvement in oil and gas prices. Additionally, the company has been
an active acquirer of other oil service companies taking advantage of the
depressed valuations throughout the industry. CDI is seeing a pick up in demand
for its engineers. Unisource Worldwide had entertained a merger agreement with
another distributor, only to see that agreement pushed aside by an aggressive
buy out offer from Georgia-Pacific, the large paper manufacturer. Life USA
agreed to be acquired by its partner, the German insurance giant Allianz.
- --------------------------------------------------------------------------------
Underperformers Business Loss (%)
- --------------------------------------------------------------------------------
Vlasic International Pickles and Frozen Foods 63
Policy Management Systems Software for Insurance 41
Dimon Tobacco Processor 30
Dime Bancorp New York Thrift 23
Herman Miller Office Furniture 22
- --------------------------------------------------------------------------------
VLASIC INTERNATIONAL announced near term earnings would fall far short of
analysts' estimates due to poor performance at several non-core operations.
Management is seeking to stem those losses, and we remain positive--albeit
cautious --about the company's long term prospects. POLICY MANAGEMENT SYSTEMS
announced near term earnings growth would slow due to customers' focusing more
on internal Y2K issues as opposed to system upgrades. We believe this is
temporary and have increased our weighting in the company. DIMON cut its hefty
dividend to help fund its turnaround effort. DIME BANCORP drifted downwards on
no majo news. HERMAN MILLER reported disappointing earnings in its February
quarter, but has performed better more recently.
<PAGE>
DLB MID CAP FUND
----------------
MANAGER'S COMMENTARY
ACCOUNT ACTIVITY
UNCHARACTERISTICALLY, THE PORTFOLIO HAD A GREAT DEAL OF ACTIVITY DURING THE
FIRST HALF OF 1999. Much of that activity was due to the fact that other
companies saw wonderful values in a few of our companies and decided to acquire
them. As was mentioned above, LIFE USA and UNISOURCE WORLDWIDE received
attractive takeover offers and have been--or are in the process of
being--liquidated from the Fund's portfolio.
Additionally, NEWPORT NEWS SHIPBUILDING was the subject of a takeover attempt by
Litton Industries (following General Dynamics unsuccessful acquisition attempt
earlier this year). The stock was sold just after the announcement by
Litton--and fortunately, well before U.S. Defense Secretary Cohen decided to
disallow the combination.
PRI AUTOMATION, the leading supplier of material handling systems for
semiconductor production equipment, was sold during the first quarter due to
valuation. CALGON CARBON and CHARMING SHOPPES were also sold due to our belief
that their business fundamentals were likely to erode over the next several
quarters.
SEVEN POSITIONS WERE PURCHASED DURING THE FIRST HALF OF 1999. VLASIC
INTERNATIONAL was spun off from Campbell's Soup in early 1998, and we purchased
the stock during the first quarter. While the early performance of the
investment has been disappointing, we do like the long term potential.
SNAP-ON TOOLS is the leading provider of hand tools and diagnostic equipment to
the automotive repair shops as well as industrial markets and is in the midst of
turning around its European operations. SAFETY KLEEN is the nation's largest
processor of hazardous waste. The company has just completed a complicated
consolidation program and is poised to boost returns and pay down debt with its
cost savings program and strong cash flow.
PRENTISS PROPERTIES is a Real Estate Investment Trust (REIT) with a national
portfolio of suburban office parks and industrial properties and a proven track
record of boosting returns in existing properties. The stock is our first REIT
and was purchased at an 11% discount to the underlying properties. RYERSON TULL
is the largest steel service center in North America and should benefit from the
recent pick up in industrial production and the firming of steel prices.
<PAGE>
DLB MID CAP FUND
----------------
MANAGER'S COMMENTARY
ACCOUNT ACTIVITY
TOTAL RENAL CARE is a leading provider of dialysis services with a nationwide
network of 540 dialysis centers whose impressive long term earnings growth
record has faltered due to difficulties consolidating a recent acquisition. And
finally, UNIFI is the global leader in textured polyester yarn and has just
completed an aggressive capital spending program which should yield strong
returns over the coming years.
<PAGE>
DLB MID CAP FUND
----------------
MANAGER'S COMMENTARY
INVESTMENT OUTLOOK
AS SMALL CAP INVESTORS, WE HAVE BEEN VERY FRUSTRAED WITH THE FACT THAT THE
INVESTMENT PERFORMANCE OF SMALL CAP STOCKS HAS TRAILED THE PERFORMANCE OF LARGE
CAP STOCKS FOR THE PAST SEVERAL YEARS--IN SPITE OF THE COMPELLING FINANCIAL
PERFORMANCE BY SMALL COMPANIES. We have attributed much of this underperformance
of small company stocks to neglect: investors have not focused much recent
attention on anything other than large companies and Internet stocks.
HOWEVER, LARGE CORPORATIONS SEEM TO BE LOOKING VERY HARD AT THE VALUES
REPRESENTED BY THE STOCKS OF SMALL COMPANIES, AND APPARENTLY, THEY LIKE WHAT
THEY SEE. As we discussed above, several of the Fund's portfolio companies were
acquired by larger companies during the first half of 1999, typically at prices
offering substantial premiums over their recent stock prices.
WE ARE OBVIOUSLY GRATIFIED TO SEE THE RECENT RALLY IN SMALL CAP STOCKS. While it
is still too early to say that April marks the point at which small company
stocks will begin to outperform large company stocks--reversing the recent
five-year trend of large company stock outperformance--we can say that the
relative valuations of small company stocks versus large company stocks are as
attractive as they have ever been.
WE REMAIN COMMITTED TO OUR LOW RISK APPROACH OF SMALL COMPANY INVESTING:
identifying superior companies, with a demonstrable competitive advantage, whose
stock is attractively priced, and who possess the ability to grow their earnings
faster than other investors are expecting. We believe that this will continue to
be a value-adding strategy for the future.
<PAGE>
DLB MID CAP FUND
----------------
Growth of a
$100,000 Investment
[CHART APPEARS HERE]
Cumulative Total Return Since Inception 7/25/95
<TABLE>
<CAPTION>
DLB RUSSELL DLB RUSSELL
MID CAP FUND 2500 INDEX MID CAP FUND 2500 INDEX
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
$100,000.00 $100,000.00
31-Jul-95 $100,500.00 $102,210.00 31-Jul-97 $156,663.66 $152,336.53
31-Aug-95 $99,696.00 $103,845.36 31-Aug-97 $158,731.62 $154,454.01
30-Sep-95 $100,792.66 $105,787.27 30-Sep-96 $164,398.34 $164,555.30
31-Oct-95 $98,595.38 $102,476.13 31-Oct-97 $160,469.22 $157,166.77
30-Nov-95 $106,897.11 $106,851.86 30-Nov-97 $159,923.62 $157,874.02
31-Dec-95 $109,270.22 $108,679.02 31-Dec-97 $166,784.35 $160,857.84
31-Jan-96 $111,302.65 $109,450.65 31-Jan-98 $160,429.86 $158,396.72
28-Feb-96 $114,652.86 $112,745.11 28-Feb-98 $171,130.54 $169,896.32
31-Mar-96 $117,702.62 $115,045.11 31-Mar-98 $177,479.48 $177,354.77
30-Apr-96 $119,232.76 $120,360.19 30-Apr-98 $180,762.85 $178,028.71
30-May-96 $121,879.73 $123,621.96 31-May-98 $174,888.06 $169,768.18
30-Jun-96 $119,746.83 $119,826.76 30-Jun-98 $167,490.29 $169,971.90
31-Jul-96 $112,118.96 $111,055.44 31-Jul-98 $159,166.02 $158,294.83
31-Aug-96 $116,087.97 $117,441.13 31-Aug-98 $132,251.05 $128,440.43
30-Sep-96 $117,202.41 $122,526.33 30-Sep-98 $136,840.16 $137,559.70
31-Oct-96 $115,983.51 $121,717.66 31-Oct-98 $144,831.63 $145,084.21
30-Nov-96 $122,188.63 $127,596.62 30-Nov-98 $149,176.58 $152,265.88
31-Dec-96 $125,402.19 $129,344.69 31-Dec-98 $152,383.87 $161,493.19
31-Jan-97 $126,380.32 $132,914.61 31-Jan-99 $148,802.85 $161,218.66
28-Feb-97 $127,467.19 $130,934.18 28-Feb-99 $137,925.36 $150,626.59
31-Mar-97 $127,581.91 $125,002.86 31-Mar-99 $140,876.97 $153,850.00
30-Apr-97 $127,581.91 $126,590.40 30-Apr-99 $151,245.51 $167,619.57
31-May-97 $137,711.92 $138,249.37 31-May-99 $161,999.07 $170,217.68
30-Jun-97 $146,318.91 $143,903.77 30-Jun-99 $165,579.25 $179,069.00
</TABLE>
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 6/30/99
- --------------------------------------------------------------------------------
6 Months One Year Annualized
1/1/99- 7/1/98- Since Inception
6/30/99 6/30/99 7/25/95-6/30/99
------- ------- ---------------
DLB MID CAPITALIZATION FUND 8.66 -1.17 13.42
Russell 2500 Index 10.88 5.35 15.68
DISCLOSURE STATEMENT
RUSSELL 2500 INDEX is an unmanaged index that measures the performance of the
smallest 2500 companies in the Russell 3000 Index, representing approximately
17% of the Russell 3000 total market capitalization. This index is a good
measure of small to medium-small stock performance. Securities in the Fund do
not match those in the index, and performance of the Fund will differ.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Investment return and share
price will fluctuate with market conditions, and investors may have a gain or
loss when shares are sold. The Fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such expense
limitation, returns would have been lower.
<PAGE>
DLB MID CAPITALIZATION
FUND
---------------------------------------
FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND THE YEAR
ENDED DECEMBER 31, 1998
<PAGE>
DLB MID CAPITALIZATION FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS:
Portfolio of Investments as of June 30, 1999 1 - 3
Statement of Assets and Liabilities as of June 30, 1999 4
Statement of Operations for the Six Months Ended June 30, 1999 5
Statements of Changes in Net Assets for the Six Months Ended
June 30, 1999 and the Year Ended December 31, 1998 6
Financial Highlights for the Six Months Ended June 30, 1999 and
the Four-Year Period Ended December 31, 1998 7
Notes to Financial Statements 8 - 9
<PAGE>
DLB MID CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS - 90.7%
ISSUER SHARES VALUE
<S> <C> <C>
AEROSPACE - 2.4%
EG&G Inc. 29,200 $ 1,040,250
-----------
APPAREL - 2.2%
The Stride Rite Corporation 55,800 575,438
Unifi Inc. (*) 16,200 344,250
-----------
919,688
-----------
AUTO PARTS - 5.3%
Bandag Incorporated 23,800 669,462
Exide Corporation 59,300 874,675
Snap-On Inc. 19,500 705,656
-----------
2,249,793
-----------
BANKS - 4.3%
Dime Bancorp, Inc. 47,600 957,950
Golden State Bancorp, Inc. (*) 38,100 838,200
Golden State Bancorp, Inc. Warrants (*) 13,100 17,194
-----------
1,813,344
-----------
BUILDING SUPPLIES - 2.7%
Dal-Tile International Inc. (*) 100,300 1,140,913
-----------
COAL GAS & PIPE - 2.3%
Nabors Industries Inc. (*) 40,900 999,494
-----------
COMPUTERS - 2.2%
Gerber Scientific Inc. 40,900 902,356
-----------
DIVERSIFIED - 1.8%
Unisource Worldwide, Inc. 64,500 778,031
-----------
ELECTRONICS & INSTRUMENTS - 5.2%
Intergraph Corporation (*) 47,700 369,675
Magnetek Incorporated (*) 92,500 977,031
Scitex Corporation Ltd. (*) 86,900 869,000
-----------
2,215,706
-----------
ENVIRONMENTAL - 2.4%
Safety-Kleen Corp. (*) 57,500 1,042,188
-----------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
FOOD PRODUCERS - 3.3%
Ralcorp Holdings Inc. (*) 36,400 $ 584,675
Vlasic Foods International (*) 112,500 822,656
-----------
1,407,331
-----------
FURNITURE & APPLIANCES - 1.5%
Herman Miller, Inc. 12,500 262,500
La-Z-Boy Incorporated 17,100 393,300
-----------
655,800
-----------
HEALTHCARE - 1.9%
Total Renal Care Holdings, Inc. (*) 51,400 799,913
-----------
INSURANCE COMPANIES - 7.3%
HCC Insurance Holdings, Inc. 49,600 1,125,300
HSB Group, Inc. 28,550 1,175,903
Life USA Holdings Inc. 39,100 791,775
-----------
3,092,978
-----------
MACHINERY & EQUIPMENT - 9.3%
Foster Wheeler Corporation 55,700 786,763
Harsco Corporation 26,700 854,400
Roper Industries, Inc. 33,100 1,059,200
Unova Inc. (*) 79,300 1,258,888
-----------
3,959,251
-----------
METALS & MINING - 3.7%
Martin Marietta Materials 15,400 908,600
Ryerson Tull Inc. 30,000 676,875
-----------
1,585,475
-----------
NATURAL GAS - 2.5%
Equitable Resources, Inc. 28,200 1,064,550
-----------
OFFICE EQUIPMENT - 2.5%
Wallace Computer Services 42,400 1,060,000
-----------
PAPER & FOREST PRODUCTS - 1.5%
Albany International Corp. 30,327 629,285
-----------
PRINTING & PUBLISHING - 9.2%
ACNeilsen Corporation (*) 35,000 1,058,750
Central Newspapers, Inc. 29,800 1,121,225
Hollinger International 80,600 957,125
Lee Enterprises Inc. 25,900 789,950
-----------
3,927,050
-----------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
PROFESSIONAL SERVICES - 4.3%
CDI Corporation (*) 28,200 $ 960,563
Policy Management Systems Corporation (*) 29,100 873,000
-----------
1,833,563
-----------
REAL ESTATE - 1.7%
Prentiss Properties Trust 31,800 747,300
-----------
SPECIALTY RETAIL - 2.3%
Enesco Group Inc. 42,300 978,188
-----------
TELECOMMUNICATIONS - 0.9%
Commscope Inc. (*) 12,400 381,300
-----------
TOBACCO - 1.3%
Dimon Incorporated 106,000 549,875
-----------
TRANSPORTATION - 2.4%
Fritz Companies Inc. (*) 94,800 1,019,100
-----------
TRUCKING & SHIPPING - 4.3%
Halter Marine Group Inc. (*) 120,400 797,650
Yellow Corporation (*) 58,100 1,031,273
-----------
1,828,923
-----------
TOTAL COMMON STOCKS (identified cost, $36,155,977) 38,621,645
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 8.8%
Investors Bank & Trust Repurchase Agreement, 4.25%,
dated 6/30/99, $3,765,738 due on 7/1/99 (secured by
Federal Government Agency securities), at cost $ 3,765,293 3,765,293
-----------
TOTAL INVESTMENTS (identified cost, $39,921,270) 42,386,938
Other assets, less liabilities - 0.5% 200,312
-----------
NET ASSETS - 100% $42,587,250
===========
(*) Non-income producing security
</TABLE>
See notes to financial statements.
3
<PAGE>
DLB MID CAPITALIZATION FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (identified cost, $39,921,270) $ 42,386,938
Receivable for investments sold 198,722
Receivable for fund shares sold 3,571
Receivable from investment manager 15,753
Dividends and interest receivable 56,741
------------
42,661,725
------------
LIABILITIES:
Payable for investments purchased 39,692
Accrued management fee 20,010
Accrued expenses 14,773
------------
74,475
------------
NET ASSETS $ 42,587,250
============
NET ASSETS CONSIST OF:
Paid-in capital $ 39,335,097
Unrealized appreciation of investments 2,465,668
Accumulated undistributed net realized gain on
investment transactions 638,775
Accumulated undistributed net investment income 147,710
------------
Total $ 42,587,250
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 3,294,651
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 12.93
============
See notes to financial statements.
4
<PAGE>
DLB MID CAPITALIZATION FUND
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME:
Dividends $ 236,172
Interest 61,750
-----------
297,922
-----------
EXPENSES:
Management fee 101,852
Trustees' fees 2,284
Custodian fees 23,076
Accounting and audit fees 14,084
Legal fees 12,149
Registration fees 9,209
Transfer agent fee 3,968
Miscellaneous 1,908
-----------
168,530
Preliminary reduction of expenses by investment manager (15,753)
-----------
Net expenses 152,777
-----------
Net investment income 145,145
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (identified cost basis) 626,394
Change in unrealized appreciation 2,863,622
-----------
Net realized and unrealized gain on investments 3,490,016
-----------
Increase in net assets from operations $ 3,635,161
===========
See notes to financial statements.
5
<PAGE>
DLB MID CAPITALIZATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 145,145 $ 222,522
Net realized gain on investments 626,394 2,187,410
Net unrealized appreciation (depreciation) of investments 2,863,622 (5,034,660)
------------- -------------
3,635,161 (2,624,728)
------------- -------------
Distributions to shareholders:
From net investment income - (223,867)
From net realized gain on investments - (2,175,064)
------------- -------------
- (2,398,931)
------------- -------------
Fund share transactions:
Net proceeds from sales of shares 13,175,399 9,402,928
Net asset value of shares issued in
reinvestment of distributions - 2,398,932
Cost of shares reacquired (4,163,452) (4,195,749)
------------- -------------
9,011,947 7,606,111
------------- -------------
Total increase in net assets 12,647,108 2,582,452
NET ASSETS:
At beginning of period 29,940,142 27,357,690
------------- -------------
At end of period (including accumulated undistributed net
investment income of $147,710 and $2,565, respectively) $ 42,587,250 $ 29,940,142
============= =============
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB MID CAPITALIZATION FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Years Ended December 31,
Ended -------------------------------------- Period Ended
June 30, December 31,
1999 1998 1997 1996 1995**
---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $ 11.90 $ 14.19 $ 11.51 $ 10.75 $ 10.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income .04 .10 .08 .15 .08
Net realized and unrealized gain (loss) on investments .99 (1.36) 3.72 1.44 .84
---------- ---------- ---------- ---------- ----------
1.03 (1.26) 3.80 1.59 .92
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (1) - (.10) (.08) (.15) (.08)
From net realized gain on investments (2) - (.93) (1.04) (.68) (.09)
---------- ---------- ---------- ---------- ----------
- (1.03) (1.12) (.83) (.17)
---------- ---------- ---------- ---------- ----------
Net asset value- end of period $ 12.93 $ 11.90 $ 14.19 $ 11.51 $ 10.75
========== ========== ========== ========== ==========
Total Return 8.66% (8.63%) 32.95% 14.75% 21.17% *
Ratios and Supplemental Data:
Ratio of expenses to average net assets .90% * .76% .90% .90% .90% *
Ratio of net investment income to average net assets .85% * .77% .78% 1.28% 1.90% *
Portfolio turnover 25% 28% 32% 25% 6%
Net assets at end of period (000 omitted) $ 42,587 $ 29,940 $ 27,358 $ 13,690 $ 10,929
The manager has agreed with the Fund to reduce its management fee and/or bear certain expenses, such that the Fund's total
expenses do not exceed .90% of average daily net assets. Without such agreement and had the 1995 expenses been limited to
that permitted by state securities law, the investment income per share and ratios would have been:
Net investment income $ .04 $ .06 $ .04 $ .05 $ .01
Ratios (to average net assets):
Expenses .99% * 1.02% 1.33% 1.77% 2.50% *
Net investment income .76% * .51% .36% .41% .32% *
* Annualized
** For the period from July 25, 1995 (commencement of operations) to December 31, 1995.
(1) Distributions in excess of net investment income for the year ended December 31, 1996 were less than $.01 per share.
(2) Distributions in excess of net realized gain on investments for the year ended December 31, 1996 were less than
$.01 per share.
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB MID CAPITALIZATION FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Mid Capitalization Fund (the "Fund") is a non-diversified series of
The DLB Fund Group (the "Trust"), a Massachusetts business trust. The
Trust is registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges
or reported through the NASDAQ system are valued at last sale prices.
Unlisted equity securities or listed equity securities for which last
sale prices are not available are valued at last quoted bid prices.
Securities for which there are no such quotations or valuations are
valued at fair value as determined in good faith by or at the direction
of the Trustees. Short-term obligations, which mature in 60 days or less,
are valued at amortized cost, which approximates market value.
REPURCHASE AGREEMENTS - Securities purchased under agreements to resell
to the original owner are recorded at cost. The Fund may enter into such
agreements with institutions that the Fund's investment adviser has
determined to be creditworthy. The Fund requires that the securities so
purchased be transferred to the custodian under terms that enable the
Fund to obtain such securities in the event of a default. The Fund
monitors, on a daily basis, the value of the securities to assure that
such value, including accrued interest, is greater than amounts owed to
the Fund.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded
on the trade date. Dividend income is recorded on the ex-dividend date.
Dividend payments received in additional securities are recorded in an
amount equal to the value of the securities. Interest income is recorded
on the accrual basis.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gains on investments.
Accordingly, no provision for federal income or excise tax is necessary.
The Fund files a tax return annually using tax accounting methods
required by the Code, which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the net investment income and net realized gain reported in
these financial statements may differ from the amounts reported on the
Fund's tax return, and, consequently, the character of distributions to
shareholders reported in the financial highlights may differ from that
reported to shareholders on Form 1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The
Fund distinguishes between distributions for tax purposes and financial
reporting purposes. Differences between income for financial reporting
purposes and tax-basis earnings and profits may result in the reporting
of temporary over-distributions in the financial statements. Such
over-distributions are classified as distributions in excess of net
investment income or accumulated undistributed net realized gains.
Distributions, if any, in excess of tax-basis earnings and profits are
reported as return of capital.
8
<PAGE>
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements. Actual results could differ from those such
estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Co. Inc. ("Babson") to provide
investment advisory and administrative services and general office
facilities. The fee for such services is computed daily and paid monthly
at an effective annual rate of .60% of average daily net assets. For the
six months ended June 30, 1999, the management fee amounted to $101,852.
Additionally, $15,753 of Fund expenses were borne by Babson.
The Fund pays no compensation directly to the Trustees who also are
officers of the investment manager, nor to the officers of the Fund, all
of whom receive remuneration for their services to the Fund from Babson.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
aggregated $15,400,434 and $7,973,241, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis,
are as follows:
Aggregate cost $39,921,270
===========
Gross unrealized appreciation $ 5,312,374
Gross unrealized depreciation (2,846,706)
-----------
Net unrealized appreciation $ 2,465,668
===========
5. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
----------- -----------
Shares sold 1,132,627 701,642
Shares issued in reinvestment
of distributions - 208,181
Redemptions (354,653) (321,680)
----------- -----------
Net increase 777,974 588,143
=========== ===========
9
<PAGE>
DLB MID CAP FUND
----------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Mid Capitalization Fund.
The report is not intended for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
BABSON SECURITIES CORPORATION
One Memorial Drive, Cambridge, MA 02142
August 1999
<PAGE>
DLB
THE DLB MICRO CAPITALIZATION FUND
SEMI ANNUAL REPORT
JUNE 30, 1999
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB MICRO CAP FUND
------------------
MANAGER'S COMMENTARY
SEVERAL PLEASANT EVENTS OCCURRED LATE IN THE FIRST HALF OF 1999:
o The market paid attention to earnings prospects.
o The market paid some attention to valuation.
o Market capitalization and industry category were less important determinants
of stock price movement.
o Acquisition activity picked up for small cap companies.
o Most importantly, the Fund outperformed its benchmark, the Russell 2000
Index, for the six months ended June 30, 1999. During this period, the
Fund's total return was 9.31% while the Russell 2000 Index rose 9.28%.
THE ENVIRONMENT IS ENCOURAGING. The Far East is picking up, which should
eventually be good for manufacturing. Employment remains high and inflation has
been low. Overall, the economic picture looks much more stable than it did a
year ago, while small cap stock prices are still slightly lower than their peaks
last spring. And the average price-earnings ratio of the Russell 2000 small cap
index is less than two thirds of the S&P 500.
THERE ARE SOME DANGERS OUT THERE. Increasing energy prices are a near-term
threat with regard to inflation. The Federal Reserve appears concerned about the
capital markets during the liquidity squeeze from August through November.
However, as long as the changes in energy prices and interest rates remain
moderate, we do not expect them to derail the economy.
OF MORE CONCERN ARE THE UNDERLYING RISKS WHICH WOULD LIKELY EXACERBATE ANY
SUSTAINED DOWNTURN IN THE ECONOMY AND THE STOCK MARKET. On a historic basis,
price/earnings ratios and returns on equity are high. Corporate issuance of
stock options has supplemented personal income and lowered corporate salary
expense. Accounting earnings and the real economy will no longer benefit from
these option features if the stock market stops rising. Hence, we will continue
to seek better companies with prudent managements at reasonable prices.
DURING THE SECOND QUARTER OF 1999, WE SAW LESS TRADING VOLUME THAN WE DID IN THE
LIQUIDITY CRISIS LATE LAST YEAR. The smaller cap market was very tight, an
aberration from other capital markets. As a result, the Fund did not obtain full
positions in a few stocks and this increased the total number of stocks it
owned. Late in the quarter, volume improved, and we would expect to reduce the
number of stocks in the portfolio during the third quarter.
<PAGE>
DLB MICRO CAP FUND
------------------
MANAGER'S COMMENTARY
AS NOTED ABOVE, ACQUISITION ACTIVITY PICKED UP IN THE SECOND QUARTER FOR SMALL
CAPS, WHICH HELPED NEAR TERM RETURNS BUT WILL PROBABLY HURT LONGER TERM. One of
the Fund's largest holdings, JEVIC TRANSPORTATION, a regional
less-than-truckload company, agreed to be acquired for about 13 times 1999
expected earnings. Jevic's per share earnings can probably grow by about 20
percent annually over a business cycle. Earnings performed better than any other
public less-than-truckload company in the difficult environment of 1998, and the
company recently qualified for core carrier status at WalMart and Target. The
stock doubled in the second quarter, but we feel its valuation could have been
50 percent higher in the public markets if the company continued to execute.
INTERNATIONAL COMFORT PRODUCTS (ICP), a manufacturer of air conditioning
equipment, agreed to be sold for about 15 times expected 1999 earnings. At first
glance, this appears to be a reasonable multiple. However, ICP has almost
completed a major streamlining of its manufacturing and administration. We will
never know how much earnings leverage would have come from these initiatives.
Finally, two banks, NEW ENGLAND COMMUNITY and HF BANCORP, agreed to be sold. The
agreements were at reasonable prices and we were happy with the transactions.
FROM A LONG-TERM PERSPECTIVE, WE ARE GENERALLY NOT SATISFIED WITH THE
ACQUISITION ACTIVITY IN THE FUND'S PORTFOLIO. Three of these companies had
excellent longer term potential, two of which were acquired at very modest
premiums relative to depressed price levels. We would also note that a sustained
increase in merger activity would not necessarily help the Fund relative to its
competitors. Companies with good earnings prospects are less likely to sell out
than those that are having trouble. That said, merger activity appears to have
cooled as stock prices recovered from March lows.
NINE OF THE FUND'S PORTFOLIO COMPANIES WERE ADDED TO THE RUSSELL 2000 INDEX IN
THE ANNUAL REBALANCING THAT OCCURS AT THE END OF JUNE. Two stocks sold near the
end of the quarter were also included in that index, and one was added to the
S&P 600 Index. There are statistical services that predict which companies will
be added.
<PAGE>
DLB MICRO CAP FUND
------------------
MANAGER'S COMMENTARY
As a result, the portfolio performance in June probably benefited. We may see
some retracement early in the third quarter. Nevertheless, the addition of
companies held by the Fund to the Russell 2000 Index appears to be a good sign
in that it indicates that we are finding companies that can grow to a size that
allows their selection in an index.
AT THE END OF LAST YEAR, WE ASKED FOR YOUR PATIENCE. That patience was rewarded
in the second quarter as the Fund's total return was ahead of its benchmark, the
Russell 2000 Index. Although this trend may not continue, it does show how
quickly the Fund, under appropriate market conditions, can make up even wide
underperformance. The race is long, and we thank you for your investment and
continued interest in the DLB Micro Cap Fund.
<PAGE>
DLB MICRO CAP FUND
------------------
Growth of a
$100,000 Investment
[GRAPH APPEARS HERE]
Cumulative Total Return Since Inception 7/20/98
<TABLE>
<CAPTION>
DLB RUSSELL DLB RUSSELL
MICRO CAP FUND 2000 INDEX MICRO CAP FUND 2000 INDEX
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
$100,000.00 $100,000.00
Jul-98 $95,100.00 $90,860.00 31-Jan-99 $83,598.83 $93,048.50
31-Aug-98 $74,301.63 $73,214.99 28-Feb-99 $78,699.94 $85,511.57
30-Sep-98 $77,704.64 $78,947.72 31-Mar-99 $77,401.39 $86,845.55
31-Oct-98 $80,401.00 $82,168.79 30-Apr-99 $82,602.76 $94,626.92
30-Nov-98 $82,097.46 $86,474.43 31-May-99 $87,104.61 $96,008.47
31-Dec-98 $86,095.60 $91,827.20 30-Jun-99 $94,107.83 $100,348.05
</TABLE>
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 6/30/99
- --------------------------------------------------------------------------------
6 Months Annualized
1/1/99- Since Inception
6/30/99 7/20/98-6/30/99
------- ---------------
DLB MICRO CAP FUND 9.31 -5.89
Russell 2000 Index 9.28 0.35
DISCLOSURE STATEMENT
RUSSELL 2000 INDEX is an unmanaged index that measures the performance of the
2000 smallest stocks in the Russell 3000 Index that represent approximately 8%
of the U.S. equity market capitalization. Securities in the Fund do not match
those in the index, and performance of the Fund will differ.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Investment return and share
price will fluctuate with market conditions, and investors may have a gain or
loss when shares are sold. The Fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such expense
limitation, returns would have been lower.
<PAGE>
DLB MICRO CAPITALIZATION FUND
- ---------------------------------------
FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND THE PERIOD
JULY 20, 1998 (COMMENCEMENT
OF OPERATIONS) TO DECEMBER 31, 1998
<PAGE>
DLB MICRO CAPITALIZATION FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS:
Portfolio of Investments as of June 30, 1999 1 - 4
Statement of Assets and Liabilities as of June 30, 1999 5
Statement of Operations for the Six Months Ended June 30, 1999 6
Statement of Changes in Net Assets for the Six Months Ended
June 30, 1999 and the Period July 20,1998 (commencement
of operation) to December 31, 1998 7
Financial Highlights the Six Months Ended June 30, 1999 and the
Period Ended December 31, 1998 8
Notes to Financial Statements 9 - 11
<PAGE>
DLB MICRO CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1999
- -------------------------------------------------------------------------------
COMMON STOCKS - 86.8%
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
AIRLINES - 3.5%
Hub Group Inc. (*) 27,400 $ 614,788
Mesaba Holdings, Inc. (*) 32,100 409,275
-----------
1,024,063
-----------
AUTO PARTS - 4.9%
Autocam Corporation 38,328 517,430
Dura Automotive Systems Inc. (*) 18,500 615,125
Keystone Automotive Industries, Inc. (*) 17,500 304,063
-----------
1,436,618
-----------
BANKS - 6.5%
CFS Bancorp Inc. 49,800 544,688
Financial Institutions Inc. 18,000 270,000
First Republic Bancorp, Inc. (*) 19,100 552,706
New England Community Bancorp, Inc. 18,500 509,906
SJNB Financial Corp. 200 6,050
-----------
1,883,350
-----------
BEVERAGES - 0.8%
Todhunter International, Inc. (*) 28,600 239,525
-----------
BUILDING SUPPLIES - 3.3%
International Comfort Products Corporation (*) 40,000 455,000
Republic Group Incorporated 28,210 507,780
-----------
962,780
-----------
COMMUNICATION EQUIPMENT - 1.8%
Cunningham Graphics International Inc. (*) 30,700 510,388
-----------
COMPUTER RELATED - 2.4%
Meta Group, Inc. 3,000 46,125
PCD Inc. 29,300 322,300
Performance Technologies Inc. 17,100 344,138
-----------
712,563
-----------
CONSTRUCTION - 1.1%
Crossman Communities, Inc. (*) 10,600 308,063
-----------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
CONTAINERS - 2.8%
US Can Corporation (*) 36,800 $ 818,800
-----------
COSMETIC & TOILETRY - 0.4%
The Stephan Co. 26,400 110,550
-----------
DIVERSIFIED - 1.5%
Bacou USA Inc. 24,700 421,444
-----------
DRUGS - 3.2%
D&K Healthcare Resources Inc. (*) 22,800 544,350
Medco Research Inc. (*) 14,900 391,125
-----------
935,475
-----------
ELECTRONICS & INSTRUMENTS - 3.3%
DSP Group Inc. 8,900 320,400
Meade Instruments Corp. 12,400 213,900
Signal Technology Corp. 44,300 243,650
Spectrum Control Inc. 25,800 188,663
-----------
966,613
-----------
ELECTRICAL EQUIPMENT - 1.5%
Kollmorgen Corporation 28,800 432,000
-----------
ELECTRICAL POWER - 1.0%
Bangor Hydro-Electric Co. 18,200 293,475
-----------
EXPLORATION & DRILLING - 1.8%
Stone Energy Corporation (*) 12,100 512,738
-----------
FINANCIAL SERVICES - 1.9%
Conning Corporation 34,100 554,125
-----------
FOOD RETAILERS - 2.3%
Performance Food Group Company (*) 24,400 663,375
-----------
INSURANCE COMPANIES - 2.1%
Highlands Insurance Group Inc. (*) 56,900 597,450
-----------
INTERNATIONAL OIL - 1.6%
Chieftain International, Inc. (*) 27,100 474,250
-----------
MACHINERY & EQUIPMENT - 3.9%
ABC Rail Products Corporation (*) 23,200 475,600
Hardinge Inc. 16,300 286,269
Ritchie Brothers Auctioneers Inc. (*) 9,300 354,563
-----------
1,116,432
-----------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
MEDIA - 3.1%
Gray Communications Systems Inc. 17,700 $ 250,013
Saga Communications Inc. (*) 35,600 663,050
-----------
913,063
-----------
MEDICAL SUPPLIES & SERVICES - 3.2%
Meridian Diagnostics Inc. 55,800 397,575
Morrison Health Care Inc. 21,500 537,500
-----------
935,075
-----------
METAL PRODUCTS - 2.3%
Schnitzer Steel Industries, Inc. 29,300 657,419
-----------
METAL PROCESSING - 0.9%
Sun Hydraulics Corporation 29,300 256,375
-----------
OFFICE EQUIPMENT - 1.0%
Day Runner Inc. (*) 22,300 275,963
-----------
PAPER & FOREST PRODUCTS - 1.9%
Fibermark Inc. (*) 42,600 561,788
-----------
PROFESSIONAL SERVICES - 2.4%
Carey International Inc. (*) 19,900 490,038
Mac-Gray Corporation 24,100 210,875
-----------
700,913
-----------
REAL ESTATE - 1.8%
Mid-Atlantic Realty Trust REIT 45,700 508,413
-----------
RECREATION - 1.7%
Steinway Musical Instruments Inc. 18,100 479,650
-----------
SAVINGS & LOANS - 3.3%
Lawrence Savings Bank (*) 38,300 359,063
Mech Financial Inc. 15,700 588,750
-----------
947,813
-----------
SEMICONDUCTORS - 2.4%
Align-Rite International Inc. 20,700 287,213
Elantec Semiconductor Inc. 30,200 407,700
-----------
694,913
-----------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
SPECIALTY RETAIL - 2.9%
Bridgford Foods Corp. 40,953 $ 440,245
School Specialty Inc. (*) 11,800 189,538
Travis Boats & Motors, Inc. (*) 14,800 214,600
-----------
844,383
-----------
TRANSPORTATION - 0.6%
Willlis Lease Finance Corporation (*) 10,000 163,125
-----------
TRUCKING & SHIPPING - 4.6%
Forward Air Corporation 13,200 365,625
Jevic Transportation, Inc. (*) 67,950 942,806
Mark VII, Inc. (*) 1,800 29,925
-----------
1,338,356
-----------
WHOLESALERS - 3.1%
Pameco Corporation (*) 43,700 333,213
Scansource, Inc. (*) 26,800 579,540
-----------
912,753
-----------
TOTAL COMMON STOCKS
(identified cost, $24,440,817) 25,164,079
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 13.2%
Investors Bank & Trust Repurchase Agreement, 4.25%, $ 3,814,998 3,814,998
dated 6/30/99, $3,815,448 due on 7/1/99 (secured by -----------
Federal Government Agency securities), at cost
TOTAL INVESTMENTS (identified cost, $28,255,815) 28,979,077
Other assets, less liabilities (6,429)
-----------
NET ASSETS - 100% $28,972,648
===========
</TABLE>
(*) Non-income producing security
See notes to financial statements.
4
<PAGE>
DLB MICRO CAPITALIZATION FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1999
- -------------------------------------------------------------------------------
ASSETS:
Investments, at value (identified cost, $28,255,815) $ 28,979,077
Receivable for investments sold 321,339
Receivable for fund shares sold 819
Dividends and interest receivable 11,486
Receivable from investment manager 34,634
------------
29,347,355
------------
LIABILITIES:
Payable for investments purchased 336,280
Accrued management fee 23,227
Accrued expenses 15,200
------------
374,707
------------
NET ASSETS $ 28,972,648
============
NET ASSETS CONSIST OF:
Paid-in capital $ 28,955,947
Unrealized appreciation of investments 723,262
Accumulated net realized loss on investment transactions (678,606)
Accumulated net investment loss (27,955)
------------
$ 28,972,648
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 3,077,865
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 9.41
============
See notes to financial statements.
5
<PAGE>
DLB MICRO CAPITALIZATION FUND
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME:
Interest $ 51,991
Dividends 66,195
-----------
118,186
-----------
EXPENSES:
Management fee 112,417
Trustees' fees 2,284
Custodian fees 24,474
Accounting and audit fees 14,084
Legal fees 12,149
Registration Fee 9,491
Transfer agent fee 3,968
Miscellaneous 1,908
-----------
180,775
Preliminary reduction of expenses by investment manager (34,634)
-----------
Net expenses 146,141
-----------
Net investment loss (27,955)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (identified cost basis) 519,646
Change in unrealized appreciation 2,338,158
-----------
Net realized and unrealized gain on investments 2,857,804
-----------
Increase in net assets from operations $ 2,829,849
===========
See notes to financial statements.
6
<PAGE>
DLB MICRO CAPITALIZATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Six Month Period Ended
Ended December 31,
June 30, 1999 1998*
------------ ------------
(Unaudited)
<S> <C> <C>
INCREASE IN NET ASSETS:
From operations:
Net investment loss $ (27,955) $ (22,705)
Net realized gain (loss) on investments 519,646 (1,198,252)
Net unrealized appreciation (depreciation) of investments 2,338,158 (1,614,896)
------------ ------------
2,829,849 (2,835,853)
------------ ------------
Fund share transactions:
Net proceeds from sales of fund shares 6,313,335 22,745,914
Cost of shares reacquired (80,607) -
------------ ------------
6,232,728 22,745,914
------------ ------------
Total increase in net assets 9,062,577 19,910,061
NET ASSETS:
At beginning of period 19,910,071 10
------------ ------------
At end of period (including accumulated net
investment loss of $27,955 and $0, respectively) $ 28,972,648 $ 19,910,071
============ ============
</TABLE>
* For the period from July 20, 1998 (commencement of operations)
to December 31, 1998.
See notes to financial statements.
7
<PAGE>
DLB MICRO CAPITALIZATION FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Six Months Period Ended
Ended December 31,
June 30, 1999 1998**
------------- ------------
(Unaudited)
<S> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $ 8.61 $10.00
------ ------
Gain (loss) from investment operations:
Net investment loss (.01) (.01)
Net realized and unrealized gain (loss) on investments .81 (1.38)
------ ------
.80 (1.39)
------ ------
Net asset value- end of period $ 9.41 $ 8.61
====== ======
Total return 9.29% (13.90%)
Ratios and Supplemental Data:
Ratio of expenses to average net assets 1.30% * 1.30% *
Ratio of net investment loss to average net assets (.25%)* (.28%)*
Portfolio turnover 44% 51%
Net assets at end of period (000 omitted) $28,973 $19,910
The manager has agreed with the Fund to reduce its management fee and/or bear
certain expenses, such that the Fund's total expenses do not exceed 1.30% of
average daily net assets. Without such agreement, the investment loss per share
and ratios would have been:
Net investment loss $(.02) $(.03)
Ratios (to average net assets):
Expenses 1.61% * 1.77% *
Net investment loss (.56%)* (.76%)*
* Annualized
** For the period from July 20, 1998 (commencement of operations)
to December 31, 1998.
</TABLE>
See notes to financial statements.
8
<PAGE>
DLB MICRO CAPITALIZATION FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Micro Capitalization Fund (the "Fund") is a non-diversified series
of The DLB Fund Group (the "Trust"), a Massachusetts business trust. The
Trust is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges
or reported through the NASDAQ system are valued at last sale prices.
Unlisted equity securities or listed equity securities for which last
sale prices are not available are valued at last quoted bid prices.
Securities for which there are no such quotations or valuations are
valued at fair value as determined in good faith by or at the direction
of the Trustees. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value.
REPURCHASE AGREEMENTS - Securities purchased under agreements to resell
to the original owner are recorded at cost. The Fund may enter into such
agreements with institutions that the Fund's investment adviser has
determined to be creditworthy. The Fund requires that the securities so
purchased be transferred to the custodian under terms that enable the
Fund to obtain such securities in the event of a default. The Fund
monitors, on a daily basis, the value of the securities to assure that
such value, including accrued interest, is greater than amounts owed to
the Fund.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are
recorded on the trade date. Dividend income is recorded on the
ex-dividend date. Dividend payments received in additional securities
are recorded in an amount equal to the value of the securities. Interest
income is recorded on the accrual basis.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gains on investments.
Accordingly, no provision for federal income or excise tax is necessary.
At December 31, 1998, the Fund, for federal income tax purposes, had
capital loss carryforwards of $487,528, which expire December 31, 2006.
To the extent permitted by the Code, capital loss carryforwards will
reduce taxable income arising from future net realized gains on
investments, if any, and thus will reduce the amount of the
distributions to shareholders that would otherwise be necessary.
The Fund files a tax return annually using tax accounting methods
required by the Code, which may differ from generally accepted
accounting principles, the basis on which these financial statements are
prepared. Accordingly, the net investment income and net realized gain
reported in these financial statements may differ from the amounts
reported on the Fund's tax return, and, consequently, the character of
distributions to shareholders reported in the financial highlights may
differ from that reported to shareholders on Form 1099-DIV.
9
<PAGE>
Distributions to shareholders are recorded on the ex-dividend date. The
Fund distinguishes between distributions for tax purposes and financial
reporting purposes. Differences between income for financial reporting
purposes and tax-basis earnings and profits may result in the reporting
of temporary over-distributions in the financial statements. Such
over-distributions are classified as distributions in excess of net
investment income or accumulated undistributed net realized gains.
Distributions, if any, in excess of tax-basis earnings and profits are
reported as return of capital.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements. Actual results could differ from those such
estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Co. Inc. ("Babson") to provide
investment advisory and administrative services and general office
facilities. The fee for such services is computed daily and paid monthly
at an effective annual rate of 1.00% of average daily net assets. For
the six months ended June 30, 1999, the management fee amounted to
$112,417. Additionally, $34,634 of Fund expenses were borne by Babson.
The Fund pays no compensation directly to the Trustees who also are
officers of the investment manager, nor to the officers of the Fund, all
of whom receive remuneration for their services to the Fund from Babson.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
aggregated $12,694,130 and $9,037,654, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund are as follows:
Aggregate cost $ 28,255,815
============
Gross unrealized appreciation $ 2,877,195
Gross unrealized depreciation (2,153,933)
------------
Net unrealized appreciation $ 723,262
============
10
<PAGE>
5. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
Period from
July 20, 1998
Six Months (commencement of
Ended operations) to
June 30, 1999 December 31, 1998
------------- -----------------
Shares sold 775,555 2,311,291
Redemptions (8,982) -
------------- -----------------
Net increase 766,573 2,311,291
============= =================
11
<PAGE>
DLB MICRO CAP FUND
------------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Micro Capitalization
Fund. The report is not intended for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
BABSON SECURITIES CORPORATION
One Memorial Drive, Cambridge, MA 02142
August 1999
<PAGE>
DLB
THE DLB GLOBAL SMALL CAP FUND
SEMI ANNUAL REPORT
JUNE 30, 1999
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB GLOBAL SMALL CAP FUND
-------------------------
MANAGER'S COMMENTARY
OVERVIEW
THE TOTAL ASSETS IN THE FUND AS OF JUNE 30, 1999, WERE $15.8 MILLION, OF WHICH
47.5% WERE INVESTED IN U.S. SECURITIES AND 52.5% IN INTERNATIONAL SECURITIES.
Small and mid cap stocks in the international and domestic arenas came back to
life in the second quarter of 1999, making up lost ground on their larger
counterparts and ending the second quarter of 1999 in solidly positive
territory. The second quarter was particularly strong as investors became more
optimistic about economic growth prospects.
DOMESTIC
MANY MARKET OBSERVERS BELIEVE THE RALLY IN SMALL CAP STOCKS IS HEALTHY FOR THE
ENTIRE STOCK MARKET, whose performance over the past several years has been so
dependent on the dramatic price appreciation of the stocks of a few very large
companies. We share this view and continue to believe that the small cap stocks
represent the most attractive value at present.
DURING THE FIRST SIX MONTHS OF 1999, the domestic portion of the Fund's
portfolio benefited from increased weightings in the economically sensitive
industrial sector--which is beginning to show signs of life after having
underperformed for the past several quarters.
UNCHARACTERISTICALLY, THE DOMESTIC PORTION OF THE PORTFOLIO HAD A GREAT DEAL OF
ACTIVITY DURING THE FIRST HALF OF 1999. Much of that activity was due to the
fact that other companies saw wonderful values in a few of the Fund's portfolio
companies and decided to acquire them.
THE BEST AND WORST PERFORMING U.S. STOCKS IN THE FUND FOR THE FIRST HALF OF 1999
ARE LISTED BELOW:
- --------------------------------------------------------------------------------
Best Performers Business Gain (%)
- --------------------------------------------------------------------------------
CommScope Coaxial Cables 83
Nabors Industries Oil Service 81
CDI Temporary Help 69
Unisource Worldwide Paper Distribution 66
Life USA Annuities 57
- --------------------------------------------------------------------------------
Underperformers Business Loss (%)
- --------------------------------------------------------------------------------
Vlasic International Pickles and Frozen Foods 63
Policy Management Systems Software for Insurance 41
Dimon Tobacco Processor 30
Dime Bancorp New York Thrift 23
Herman Miller Office Furniture 22
- --------------------------------------------------------------------------------
<PAGE>
DLB GLOBAL SMALL CAP FUND
-------------------------
MANAGER'S COMMENTARY
INTERNATIONAL
THE INTRODUCTION OF THE EURO HAS PROVED TO BE A LITTLE DISAPPOINTING AND THE NEW
SINGLE CURRENCY FELL BY OVER 10 PER CENT AGAINST THE DOLLAR. However, this was
offset by good performances from the European stocks held in the Fund and, as
anticipated, the smaller company sector has benefited from corporate activity as
larger companies seek to expand in the single market.
ASIA HAS ENJOYED AN EXCELLENT START TO THE YEAR as economic growth has
recovered, interest rates have fallen and corporate restructuring has fueled
investors' confidence. The Fund has profited from some exceptionally strong
recoveries in stocks that were heavily oversold and where prospects for earnings
growth look good, particularly in Japan.
WE WOULD EXPECT RECENT OUTPERFORMANCE TO CONTINUE BASED ON ATTRACTIVE VALUATIONS
AND IMPROVING ECONOMIC PROSPECTS. However, any significant upward move in U.S.
interest rates could have a negative impact on the smaller Asian markets. The
best and worst performing international stock (measured in local currency) for
the first half of 1999 are listed below:
- --------------------------------------------------------------------------------
Gain (%)
Best Performers (Country) Business (in local currency)
- --------------------------------------------------------------------------------
T&K Toka (Japan) Specialty Inks 216
Tibs Holdings (Singapore) Transport Services 200
Fancl (Japan) Cosmetics 195
Misumi (Japan) Machinary Distributor 130
Ryohin Keikaku (Japan) Specialty Retailer 102
- --------------------------------------------------------------------------------
Loss (%)
Worst Performers (Country) Business (in local currency)
- --------------------------------------------------------------------------------
V-Tech Holdings (Hong Kong) Educational Toys 27
Gold Peak (Hong Kong) Batteries 24
Natuzzi (Italy) Furniture 22
Alliance Unichem (U.K.) Pharmaceutical Dist. 22
St. James'Place Capital (U.K.) Life Insurance 20
- --------------------------------------------------------------------------------
<PAGE>
DLB GLOBAL SMALL CAP FUND
-------------------------
MANAGER'S COMMENTARY
AS SMALL CAP INVESTORS, WE HAVE BEEN VERY FRUSTRATED WITH THE FACT THAT THE
INVESTMENT PERFORMANCE OF SMALL CAP STOCKS HAS TRAILED THE PERFORMANCE OF LARGE
CAP STOCKS FOR THE PAST SEVERAL YEARS--IN SPITE OF THE COMPELLING FINANCIAL
PERFORMANCE BY SMALL COMPANIES. We have attributed much of this underperformance
of small company stocks to neglect.
WE ARE OBVIOUSLY GRATIFIED TO SEE THE RECENT RALLY IN SMALL CAP STOCKS. While it
is still too early to say when small company stocks will begin to outperform
large company stocks--reversing the recent five-year trend of large company
stock outperformance--we can say that the relative valuations of small company
stocks versus large company stocks are as attractive as they have ever been.
WE REMAIN COMMITTED TO OUR LOW RISK APPROACH OF SMALL COMPANY INVESTING:
identifying superior companies, witha demonstrable competitive advantage, whose
stock is attractively priced, and who possess the ability to grow their earnings
faster than other investors are expecting. We believe that this will continue to
be a value-adding strategy for the future.
<PAGE>
DLB GLOBAL SMALL CAP FUND
-------------------------
Growth of a
$100,000 Investment
[GRAPH APPEARS HERE]
Cumulative Total Returns Since Inception 7/19/95
<TABLE>
<CAPTION>
DLB SALOMON
GLOBAL SMALL COMBINED EMI(ex-U.S.) RUSSELL
CAP FUND INDEX* INDEX 2500 INDEX
<S> <C> <C> <C> <C>
$100,000.00 $100,000.00 $100,000.00 $100,000.00
30-Jul-95 $100,300.00 $105,860.00 $105,830.00 $102,170.00
30-Aug-95 $98,795.50 $104,928.43 $103,152.50 $103,804.72
30-Sep-95 $99,793.33 $111,454.98 $103,957.09 $105,745.87
31-Oct-95 $98,396.23 $108,133.62 $100,963.13 $102,436.02
30-Nov-95 $100,993.89 $111,572.27 $102,033.34 $106,810.04
31-Dec-95 $104,013.61 $114,897.12 $105,941.21 $108,636.49
31-Jan-96 $106,426.72 $116,390.79 $107,826.97 $109,407.81
28-Feb-96 $109,853.66 $118,904.83 $109,509.07 $112,700.99
31-Mar-96 $112,567.05 $121,508.84 $112,027.77 $115,000.09
30-Apr-96 $115,291.17 $127,584.29 $117,920.44 $120,313.09
31-May-96 $116,605.49 $128,413.58 $116,965.28 $123,573.58
30-Jun-96 $115,089.62 $126,795.57 $116,976.98 $119,779.87
31-Jul-96 $109,450.23 $120,176.84 $112,555.25 $111,011.98
31-Aug-96 $110,763.63 $123,758.11 $113,692.06 $117,395.17
30-Sep-96 $111,062.69 $126,394.16 $114,328.73 $122,478.38
31-Oct-96 $110,562.91 $125,762.19 $113,882.85 $121,670.02
30-Nov-96 $113,481.77 $129,535.06 $115,750.53 $127,546.69
31-Dec-96 $114,264.79 $128,952.15 $113,620.72 $129,294.07
31-Jan-97 $110,996.82 $129,016.63 $111,166.51 $132,862.59
28-Feb-97 $109,450.23 $120,465.27 $114,446.18 $109,357.90
31-Mar-97 $108,749.74 $117,104.29 $112,924.04 $104,403.99
30-Apr-97 $106,737.87 $116,858.37 $111,241.47 $105,729.92
31-May-97 $112,480.37 $125,903.21 $118,372.05 $115,467.65
30-Jun-97 $116,507.17 $129,869.16 $121,047.26 $120,190.27
31-Jul-97 $119,326.64 $132,765.24 $119,219.45 $127,233.42
31-Aug-97 $118,014.05 $131,012.74 $114,128.78 $129,001.97
30-Sep-96 $120,929.00 $136,620.08 $116,160.27 $137,438.70
31-Oct-97 $116,696.48 $130,827.39 $111,571.94 $131,267.70
30-Nov-97 $115,482.84 $128,433.25 $106,595.83 $131,858.40
31-Dec-97 $117,907.98 $128,484.62 $104,240.06 $134,350.53
31-Jan-98 $117,176.95 $129,962.20 $108,586.87 $132,294.96
28-Feb-98 $125,543.38 $139,527.42 $116,687.45 $141,899.58
31-Mar-98 $133,490.28 $145,861.96 $122,171.76 $148,128.97
30-Apr-98 $134,224.48 $146,678.79 $123,100.27 $148,691.86
31-May-98 $135,271.43 $144,654.62 $125,389.93 $141,792.56
30-Jun-98 $130,455.76 $142,614.99 $121,728.55 $141,962.71
31-Jul-98 $127,624.87 $137,395.28 $120,888.62 $132,209.87
31-Aug-98 $109,846.73 $116,373.80 $106,067.68 $107,275.09
30-Sep-98 $107,968.35 $118,806.02 $103,309.92 $114,891.62
31-Oct-98 $116,238.73 $126,290.79 $110,603.60 $121,176.19
30-Nov-98 $119,167.94 $131,392.94 $114,142.91 $127,174.41
31-Dec-98 $122,302.06 $136,858.89 $116,905.17 $134,881.18
31-Jan-99 $119,807.10 $136,530.43 $116,542.76 $134,651.88
28-Feb-99 $114,475.68 $130,973.64 $114,281.83 $125,805.26
31-Mar-99 $117,429.15 $134,915.95 $118,567.40 $128,497.49
30-Apr-99 $124,921.13 $144,454.50 $124,981.90 $139,998.01
31-May-99 $129,805.55 $143,558.88 $121,707.37 $142,167.98
30-Jun-99 $135,711.70 $149,545.29 $125,857.59 $149,560.72
</TABLE>
* Salomon EMI (ex-U.S.), 52.5%
Russell 2500, 47.5%
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 6/30/99
- --------------------------------------------------------------------------------
6 Months One Year Annualized
1/1/99- 7/1/98- Since Inception
6/30/99 6/30/99 7/19/95-6/30/99
------- ------- ---------------
DLB GLOBAL SMALL CAP FUND 10.96 4.04 8.31
Combined Index 9.27 4.88 12.57
Salomon EMI (ex-U.S.) Index 7.66 3.39 5.59
Russell 2500 Index 10.88 5.35 15.66
DISCLOSURE STATEMENT
THE DLB GLOBAL SMALL CAPITALIZATION FUND invests in a combination of domestic
and international securities. The relative proportions of the Fund's assets
fluctuate over time.
The "COMBINED INDEX" used as a benchmark to measure the performance of this Fund
is a composite of the Russell 2500 Index and Salomon Brothers Extended
Market Index, ex-U.S., (EMI), weighted in each (monthly) period to reflect
the proportions of the Fund's assets invested in domestic and interna-
tional securities, respectfully, during such period. As of June 30, 1999,
such proportions were 47.5% domestic, 52.5% international.
SALOMON BROTHERS EXTENDED MARKET INDEX, EX-U.S., (EMI) is an unmanaged index
that represents the bottom 20% of the cumulative available market capital of
the BMI. The EMI defines the small stock index outside the U.S.
SALOMON BROTHERS BROAD MARKET INDEX (BMI) is an unmanaged index that
fully represents the universe of institutionally available global stocks.
All companies with an available market capitalization greater than U.S.
$100 million are included in the index.
RUSSELL 2500 INDEX is an unmanaged index that measures the performance of the
smallest 2500 companies in the Russell 3000 Index, representing
approximately 17% of the Russell 3000 total market capitalization. This
index is a good measure of small to medium-small stock performance in the
U.S.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Investment return and share
price will fluctuate with market conditions, and investors may have a gain
or loss when shares are sold. The Fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such
expense limitation, returns would have been lower.
<PAGE>
DLB GLOBAL SMALL CAPITALIZATION FUND
- ---------------------------------------
FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND THE YEAR
ENDED DECEMBER 31, 1998
<PAGE>
DLB GLOBAL SMALL CAPITALIZATION FUND
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
FINANCIAL STATEMENTS:
Portfolio of Investments as of June 30, 1999 1 - 6
Statement of Assets and Liabilities as of June 30, 1999 7
Statement of Operations for the Six Months Ended June 30, 1999 8
Statements of Changes in Net Assets for the Six Months Ended
June 30, 1999 and the Year Ended December 31, 1998 9
Financial Highlights for the Six Months Ended June 30, 1999
and the Four-Year Period Ended December 31, 1998 10
Notes to Financial Statements 11 - 13
<PAGE>
DLB GLOBAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS - 96.3%
ISSUER SHARES VALUE
DOMESTIC
<S> <C> <C>
AEROSPACE - 1.4%
EG&G Inc. 6,000 $ 213,750
------------
APPAREL - 1.2%
The Stride Rite Corporation 12,000 123,750
Unifi Inc. (*) 3,100 65,875
------------
189,625
------------
AUTO PARTS - 2.7%
Bandag Incorporated 4,100 115,325
Exide Corporation 11,400 168,150
Snap-On Inc. 3,900 141,131
------------
424,606
------------
BANKS - 2.2%
Dime Bancorp, Inc. 8,900 179,113
Golden State Bancorp, Inc. (*) 7,200 158,400
Golden State Bancorp, Inc. Warrants (*) 3,300 4,331
------------
341,844
------------
BUILDING SUPPLIES - 1.4%
Dal-Tile International Inc. (*) 20,100 228,638
------------
COAL GAS & PIPE - 1.2%
Nabors Industries Inc. (*) 7,800 190,613
------------
COMPUTERS - 1.0%
Gerber Scientific Inc. 7,300 161,056
------------
DIVERSIFIED - 0.9%
Unisource Worldwide, Inc. 12,100 145,956
------------
ELECTRONICS & INSTRUMENTS - 2.4%
Intergraph Corporation (*) 9,400 72,850
Magnetek Incorporated (*) 13,200 139,425
Scitex Corporation Ltd. (*) 16,200 162,000
------------
374,275
------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
ENVIRONMENTAL - 1.3%
Safety-Kleen Corp (*) 10,900 $ 197,563
------------
FOOD PRODUCERS - 1.9%
Ralcorp Holdings Inc. (*) 8,900 142,956
Vlasic Foods International (*) 20,100 146,981
------------
289,937
------------
FURNITURE & APPLIANCES - 0.9%
Herman Miller, Inc. 3,000 63,000
La-Z-Boy Incorporated 3,300 75,900
------------
138,900
------------
HEALTHCARE - 1.0%
Total Renal Care Holdings, Inc. (*) 9,900 154,069
------------
INSURANCE COMPANIES - 3.7%
HCC Insurance Holdings, Inc. 9,300 210,994
HSB Group, Inc. 5,300 218,294
Life USA Holdings Inc. 7,300 147,825
------------
577,113
------------
MACHINERY & EQUIPMENT - 4.6%
Foster Wheeler Corporation 10,600 149,725
Harsco Corporation 4,500 144,000
Roper Industries, Inc. 6,000 192,000
Unova Inc. (*) 14,900 236,538
------------
722,263
------------
METALS & MINING - 2.0%
Martin Marietta Materials 3,000 177,000
Ryerson Tull Inc. 5,900 133,119
------------
310,119
------------
NATURAL GAS - 1.4%
Equitable Resources, Inc. 5,800 218,950
------------
OFFICE EQUIPMENT - 1.2%
Wallace Computer Services 7,800 195,000
------------
PAPER & FOREST PRODUCTS - 0.9%
Albany International Corp. 6,593 136,805
------------
PRINTING & PUBLISHING - 4.7%
ACNeilsen Corporation (*) 6,600 199,650
Central Newspapers, Inc. 5,300 199,413
Hollinger International 15,100 179,313
Lee Enterprises Inc. 5,100 155,550
------------
733,926
------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
PROFESSIONAL SERVICES - 2.2%
CDI Corporation (*) 5,400 $ 183,938
Policy Management Systems Corporation (*) 5,400 162,000
------------
345,938
------------
REAL ESTATE - 0.9%
Prentiss Properties Trust 5,900 138,650
------------
SPECIALTY RETAIL - 1.2%
Enesco Group Inc. 8,000 185,000
------------
TELECOMMUNICATIONS - 0.5%
Commscope Inc. (*) 2,400 73,800
------------
TOBACCO - 0.7%
Dimon Incorporated 20,500 106,344
------------
TRANSPORTATION - 1.2%
Fritz Companies Inc. (*) 17,200 184,900
------------
TRUCKING & SHIPPING - 2.2%
Halter Marine Group Inc. (*) 22,700 150,388
Yellow Corporation (*) 10,900 193,475
------------
343,863
------------
FOREIGN
AUSTRALIA - 1.0%
F. H. Faulding & Company Ltd. (Pharmaceuticals) 15,000 91,328
Infratil Australia Limited (Holding Company) 110,000 57,510
------------
148,838
------------
BELGIUM - 0.8%
Colruyt NV (Food Retailers) 200 131,734
------------
FRANCE - 7.0%
Brioche Pasquier, SA (Food Producers) 2,000 212,674
Infogrames Entertainment (Leisure) 1,750 112,919
M6 - Metropole Television (Media) 1,750 368,386
Societe Manutan International SA (Distributors) 4,000 230,432
Royal Canin SA (Food Producers) 3,000 173,443
------------
1,097,854
------------
GERMANY - 3.9%
MLP Pref., Non Voting (Life Insurance) (**) 300 143,091
Qiagen N.V. (Pharmaceuticals) 2,000 134,212
Rhoen-Klinikum, AG (Private Healthcare) 2,000 199,253
Sixt AG (Vehicle Leasing) 1,800 125,994
------------
602,550
------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
HONG KONG - 2.1%
Asia Satellite Telecoms Hldgs. (Media) 25,000 $ 58,802
Chen Hsong Holdings (Engineering) 150,000 25,518
Fountain Set (Textiles) 260,000 30,828
Gold Peak Industries (Holdings) Ltd. (Electronic and
Electrical) 187,500 40,114
Vitasoy International Holdings, Ltd. (Food Producers) 348,500 122,393
VTech Holdings Ltd. (Electronic and Electrical) 15,000 47,654
------------
325,309
------------
ITALY - 3.7%
Banca Popolare Di Milano (Banking) 15,000 116,207
BIPOP Spa (Banking) 8,000 343,665
Industrie Natuzzi Spa (Furniture Producer) 6,000 116,625
------------
576,497
------------
JAPAN - 12.9%
Aderans Company, Ltd. (Healthcare) 3,000 128,139
Bellsystem24 Inc. (Telemarketing) 300 122,563
C Two-Network Co. Ltd. (Retailing) 1,800 282,551
Fancl Corporation (Cosmetics, Toiletries) 1,300 236,286
Fuji Seal Inc. (Labeling Products) 1,000 138,797
Fujimi Incorporated (Semi-conductors) 2,200 109,055
Hoshiden Corporation (Electronic Components) 5,000 107,816
Japan Airport Terminal Co., Ltd. (Airport Services) 15,000 148,711
Misumi Corporation (Distributors) 2,000 81,791
Q'sai Co. Ltd. (Health Beverages) 2,000 76,008
Mycal Card Inc. (Consumer Credit) 3,300 149,950
Ryohin Keikaku Company, Ltd.(Retailer) 1,000 251,570
T&K Toka Company Ltd. (Chemicals) 3,500 109,592
Union Tool Co. (Engineering) 1,000 74,356
------------
2,017,185
------------
MALAYSIA - 0.1%
Perlis Plantations Berhad (Diversified Industrial) 15,000 17,524
------------
NETHERLANDS - 1.3%
Brunel International, NV (Temporary Employment) 5,000 90,593
Kempen & Company, NV (Banking) 2,250 112,661
------------
203,254
------------
NEW ZEALAND - 0.4%
Guinness Peat Group (Other Financial) 73,205 58,520
------------
NORWAY - 0.7%
Tomra Systems ASA (Diversified Industrial) 3,000 112,755
------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
SINGAPORE - 0.6%
Haw Par Healthcare Limited (Pharmaceuticals) 50,000 $ 54,632
TIBS Holdings Limited (Transport) 21,000 37,749
------------
92,381
------------
SPAIN - 1.9%
Azkoyen S.A. (Vending Machines) 3,000 77,430
Mapfre Vida Seguros (Life Insurance) 4,000 114,390
Superdiplo S.A. (Supermarkets) 5,000 110,983
------------
302,803
------------
SWITZERLAND - 1.8%
Bank Sarasin Ltd. (Banking) 110 189,045
Phoenix Mecano AG (Engineering) 200 94,233
------------
283,278
------------
THAILAND - 0.3%
Matichon Public Co. Ltd (Media) 24,000 51,870
------------
UNITED KINGDOM - 10.9%
Alliance Unichem PLC (Healthcare) 21,300 148,140
Baltimore Technologies PLC (Software) 4,000 45,684
Peter Black Holdings, PLC (Household Goods) 19,000 110,744
Brake Brothers PLC (Food Retailers) 9,000 107,042
N Brown Group PLC (General Retailers) 20,000 107,014
Capita Group, PLC (Service Outsourcing) 10,000 103,418
Cattles PLC (Other Financial) 26,000 141,919
Columbus Group PLC (Business Publishing) 110,000 86,642
Expro International Group, PLC (Oil Exploration) 14,000 74,543
Independent Insurance Group, PLC (General Insurer) 19,000 92,785
Redrow Group PLC (Housebuilder) 26,000 89,902
Rotork PLC (Engineering) 13,000 90,107
Sage Group (Accounting Software) 4,000 142,092
Seton Scholl Healthcare PLC (Healthcare) 13,000 148,882
Spirax-Sarco Engineering PLC (Engineering) 12,000 116,824
St. James's Place Capital PLC (Life Insurance) 27,000 98,459
------------
1,704,197
------------
TOTAL COMMON AND PREFERRED STOCKS
(identified cost, $12,788,614) 15,050,052
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENT - 3.7%
Investors Bank & Trust Repurchase Agreement, 4.25%,
dated 6/30/99, $574,111 due on 7/1/99 (secured by
Federal Government Agency securities), at cost $574,043 $ 574,043
------------
TOTAL INVESTMENTS (identified cost, $13,362,657) 15,624,095
Other assets, less liabilities - 0.1% 131,533
------------
NET ASSETS - 100% $ 15,755,628
============
</TABLE>
(*) Non-income producing security
(**) Preferred Stock
See notes to financial statements.
6
<PAGE>
DLB GLOBAL SMALL CAPITALIZATION FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $13,362,657) $ 15,624,095
Foreign cash, at value (cost, $48,094) 48,093
Dividends and interest receivable 27,471
Receivable for investments sold 50,601
Receivable from investment manager 41,520
Receivable for foreign taxes 13,805
------------
15,805,585
------------
LIABILITIES:
Payable for fund shares reacquired 16,728
Accrued management fees 12,641
Accrued expenses 20,588
------------
49,957
------------
NET ASSETS $ 15,755,628
============
NET ASSETS CONSIST OF:
Paid-in capital $ 12,999,927
Unrealized appreciation of investments and translation of assets and
liabilities in foreign currencies 2,260,808
Accumulated undistributed net realized gain on investments 538,601
Accumulated distributions in excess of net investment income (43,708)
------------
Total $ 15,755,628
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,317,371
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 11.96
============
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB GLOBAL SMALL CAPITALIZATION FUND
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
<S> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign tax withheld of $10,802) $ 122,259
Interest 10,151
-----------
132,410
-----------
EXPENSES:
Management fee 70,610
Trustees' fees 2,284
Custodian fees 32,485
Accounting and audit fees 15,423
Legal fees 12,149
Registration fees 8,611
Transfer agent fee 3,968
Miscellaneous 1,901
-----------
147,431
Preliminary reduction of expenses by investment manager (41,520)
-----------
Net expenses 105,911
-----------
Net investment income 26,499
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) (identified cost basis):
Investment transactions 547,971
Foreign currency transactions and forward foreign currency exchange
contracts and other transactions denominated in foreign currency (6,734)
-----------
Net realized gain on investments and foreign currency 541,237
-----------
Change in unrealized appreciation (depreciation):
Investments 987,597
Foreign currency and forward foreign currency exchange contracts and other
transactions denominated in foreign currency (1,351)
-----------
Net unrealized gain on investments and foreign currency 986,246
-----------
Net realized and unrealized gain on investments and foreign
currency 1,527,483
-----------
Increase in net assets from operations $ 1,553,982
===========
</TABLE>
See notes to financial statements.
8
<PAGE>
DLB GLOBAL SMALL CAPITALIZATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 26,499 $ 14,762
Net realized gain on investments and foreign currency 541,237 1,044,400
Net unrealized appreciation (depreciation) of investments
and foreign currency 986,246 (538,247)
------------ ------------
1,553,982 520,915
------------ ------------
Distributions to shareholders:
From net investment income - (14,762)
In excess of net investment income - (93,233)
From net realized gain on investments - (989,096)
------------ ------------
- (1,097,091)
------------ ------------
Fund share transactions:
Net proceeds from sales of shares 349,413 827,306
Net asset value of shares issued in
reinvestment of distributions - 1,097,091
Cost of shares reacquired (457,591) (925,539)
------------ ------------
(108,178) 998,858
------------ ------------
Total increase in net assets 1,445,804 422,682
NET ASSETS:
At beginning of period 14,309,824 13,887,142
------------ ------------
At end of period (including accumulated distributions in excess
of net investment income of $43,708 and $70,207, respectively) $ 15,755,628 $ 14,309,824
============ ============
</TABLE>
See notes to financial statements.
9
<PAGE>
DLB GLOBAL SMALL CAPITALIZATION FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Six Months Years Ended December 31, Period Ended
Ended -------------------------------------- December 31,
June 30, 1999 1998 1997 1996 1995**
------------- ------- ------- ------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $ 10.78 $ 11.27 $ 11.19 $ 10.33 $ 10.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income .02 .01 .02 .01 .07
Net realized and unrealized gain on investments 1.16 .40 .50 1.01 .33
------- ------- ------- ------- -------
1.18 .41 .52 1.02 .40
------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income - (.01) (.01) (.01) (.07)
In excess of net investment income - (.08) - - -
From net realized gain on investments - (.81) (.02) (.11) -
In excess of net realized gain on investment - - (.01) (.04) -
Tax return of capital - - (.40) - -
------- ------- ------- ------- -------
- (.90) (.44) (.16) (.07)
------- ------- ------- ------- -------
Net asset value- end of period $ 11.96 $ 10.78 $ 11.27 $ 11.19 $ 10.33
======= ======= ======= ======= =======
Total return 10.95% 3.73% 4.66% 9.85% 4.07%
Ratios and Supplemental Data:
Ratio of expenses to average net assets 1.50% * 1.50% 1.50% 1.50% 1.46% *
Ratio of net investment income to average net assets .38% * .10% .22% .09% 1.46% *
Portfolio turnover 29% 36% 44% 22% 5%
Net assets at end of period (000 omitted) $15,756 $14,310 $13,887 $12,586 $10,509
The manager has agreed with the Fund to reduce its management fee and/or bear certain expenses, such that the Fund's total
expenses do not exceed 1.50% of average daily net assets. Without such agreement and had the 1995 expenses been limited to that
permitted by state securities law, the investment income (loss) per share and ratios would have been:
Net investment income (loss) $ (.01) $ (.08) $ (.05) $ (.10) $ .02
Ratios (to average net assets):
Expenses 2.09% * 2.00% 2.14% 2.36% 2.50% *
Net investment income (loss) (.21%)* (.40%) (.42%) (.77%) .42% *
</TABLE>
* Annualized
* * For the period from July 19, 1995 (commencement of operations) to
December 31, 1995.
See notes to financial statements.
10
<PAGE>
DLB GLOBAL SMALL CAPITALIZATION FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Global Small Capitalization Fund (the "Fund") is a non-diversified
series of The DLB Fund Group (the "Trust"), a Massachusetts business
trust. The Trust is registered under the Investment Company Act of 1940,
as amended, as an open-end management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges
or reported through the NASDAQ system are valued at last sale prices.
Unlisted equity securities or listed equity securities for which last
sale prices are not available are valued at last quoted bid prices.
Securities for which there are no such quotations or valuations are
valued at fair value as determined in good faith by or at the direction
of the Trustees. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value.
REPURCHASE AGREEMENTS - Securities purchased under agreements to resell
to the original owner are recorded at cost. The Fund may enter into such
agreements with institutions that the Fund's investment adviser has
determined to be creditworthy. The Fund requires that the securities so
purchased be transferred to the custodian under terms that enable the
Fund to obtain such securities in the event of a default. The Fund
monitors, on a daily basis, the value of the securities to assure that
such value, including accrued interest, is greater than amounts owed to
the Fund.
FOREIGN CURRENCY TRANSLATION - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars at current exchange rates. Purchases and
sales of foreign investments and income and expenses are converted into
U.S. dollars at currency exchange rates prevailing on the respective
dates of such transactions. Security transaction gains and losses
attributable to changes in foreign currency exchange rates are recorded
for financial statement purposes as foreign currency transaction gains
and losses. The portion of both realized and unrealized gains and losses
on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The Fund may enter into
forward foreign currency exchange contracts for the purchase or sale of
a specific foreign currency at a fixed price on a future date. The risks
associated with these contracts include the possible inability of
counterparties to meet the terms of the contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S.
dollar. The Fund enters into forward contracts for hedging purposes
only. The Fund may enter into contracts to deliver or receive foreign
currency it will receive from or require for its normal investment
activities. It may also use contracts in a manner intended to protect
foreign currency-denominated securities from declines in value resulting
from unfavorable exchange rate movements. Forward foreign currency
exchange contracts are adjusted by the daily change in the exchange
rates of the underlying currencies, and any gains or losses are recorded
for financial statement purposes as unrealized until the contract
settlement date.
11
<PAGE>
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are
recorded on the trade date. Dividend income is recorded on the
ex-dividend date. Dividend payments received in additional securities
are recorded in an amount equal to the value of the securities. Interest
income is recorded on the accrual basis.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of
its taxable income, including any net realized gains on investments.
Accordingly, no provision for federal income or excise tax is necessary.
The Fund files a tax return annually using tax accounting methods
required by the Code, which may differ from generally accepted
accounting principles, the basis on which these financial statements are
prepared. Accordingly, the net investment income and net realized gain
reported in these financial statements may differ from the amounts
reported on the Fund's tax return, and, consequently, the character of
distributions to shareholders reported in the financial highlights may
differ from that reported to shareholders on Form 1099-DIV.
Foreign taxes are provided with respect to interest and dividend income
earned in foreign currencies in accordance with applicable tax rates. To
the extent that such taxes are unrecoverable, they are recorded as a
reduction of net investment income.
Distributions to shareholders are recorded on the ex-dividend date. The
Fund distinguishes between distributions for tax purposes and financial
reporting purposes. Differences between income for financial reporting
purposes and tax-basis earnings and profits may result in the reporting
of temporary over-distributions in the financial statements. Such
over-distributions are classified as distributions in excess of net
investment income or accumulated undistributed net realized gains.
Distributions, if any, in excess of tax-basis earnings and profits are
reported as return of capital.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements. Actual results could differ from those such
estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Co. Inc. ("Babson") to provide
investment advisory and administrative services and general office
facilities. The fee for such services is computed daily and paid monthly
at an effective annual rate of 1.00% of average daily net assets. For
the six months ended June 30, 1999, the management fee amounted to
$70,610. Additionally, $41,520 of Fund expenses were borne by Babson.
Babson has entered into a sub-advisory agreement with Babson-Stewart
Ivory International ("BSII"), an affiliate of Babson, with respect to
the management of the international component of the Fund's portfolio.
Under the sub-advisory agreement, Babson pays BSII a monthly fee at the
effective annual rate of .50% of average daily net assets.
The Fund pays no compensation directly to theTrustees who also are
officers of the investment manager, nor to the officers of the Fund, all
of whom receive remuneration for their services to the Fund from Babson.
12
<PAGE>
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations,
aggregated $3,918,800 and $4,019,627, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax
basis, are as follows:
Aggregate cost $13,362,657
===========
Gross unrealized appreciation $ 3,469,711
Gross unrealized depreciation (1,208,273)
-----------
Net unrealized appreciation $ 2,261,438
===========
5. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
Six Months Year Ended
Ended December 31,
June 30, 1999 1999
------------- ------------
Shares sold 32,023 74,346
Shares issued in reinvestment
of distributions - 103,499
Redemptions (42,400) (81,996)
------- ------
Net increase (decrease) (10,377) 95,849
======= ======
6. RISKS ASSOCIATED WITH FOREIGN INVESTMENTS
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks
not present in domestic investments. For example, there is generally
less publicly available information about foreign companies,
particularly those not subject to disclosure and reporting requirements
of the U.S. securities laws. Foreign issuers are generally not bound by
uniform accounting, auditing, and financial reporting requirements and
standards of practice comparable to those applicable to domestic
issuers. Investments in foreign securities also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of
funds or other assets of the Fund, political or financial instability or
diplomatic and other developments that could affect such investments.
Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those in the United States, and securities
of some foreign issuers (particularly those located in developing
countries) may be less liquid and more volatile than securities of
comparable U.S. companies. In general, there is less overall government
supervision and regulation of foreign securities markets,
broker-dealers, and issuers than in the United States.
13
<PAGE>
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Global Small
Capitalization Fund. The report is not intended for distribution to prospective
investors unless preceded or accompanied by a current prospectus.
BABSON SECURITIES CORPORATION
One Memorial Drive, Cambridge, MA 02142
August 1999
