SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
--
Post-Effective Amendment No. 13 /X/
--
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 15 /X/
--
(Check appropriate box or boxes)
The DLB Fund Group
- --------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
One Memorial Drive, Cambridge, MA 02142
- ----------------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(617) 225-3800
- --------------------------------------------------------------------------
(Registrant's Telephone Number, including Area Code)
John E. Deitelbaum
David L. Babson and Company Incorporated
One Memorial Drive
Cambridge, Massachusetts 02142
- --------------------------------------------------------------------------
(Name and Address of Agent for Service)
with a copy to:
Gregory D. Sheehan, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
As soon as practicable after the date this registration statement becomes
effective.
- --------------------------------------------------------------------------
(Approximate Date of Proposed Public Offering)
It is proposed that this filing will become effective (check appropriate box):
/ / Immediately upon filing pursuant to /X/ On October 31, 1999 pursuant
paragraph (b) to paragraph (b)
/ / 60 days after filing pursuant to / / On (date) pursuant to
paragraph (a)(1) paragraph (a)(1)
/ / 75 days after filing pursuant to / / On (date) pursuant to
paragraph (a)(2) paragraph (a)(2) of Rule 485
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
THE DLB FUND GROUP
This Prospectus offers shares of the following Funds:
o DLB FIXED INCOME FUND
seeks to achieve a high level of current income consistent with
preservation of capital through investment in a portfolio of fixed
income securities.
o DLB VALUE FUND
seeks long-term capital appreciation primarily through investment in
a portfolio of common stocks of established companies.
o DLB GROWTH FUND
seeks long-term capital and income growth through investment
primarily in common stocks.
o DLB DISCIPLINED GROWTH FUND
seeks long-term capital appreciation.
o DLB ENTERPRISE III FUND
seeks long-term capital appreciation primarily through investment in
small to medium-size companies.
o DLB MICRO CAPITALIZATION FUND
seeks long-term capital appreciation through investment primarily in
common stocks of smaller, faster-growing companies whose securities
at the time of purchase are considered by the Fund's investment
manager to be realistically valued.
o DLB GLOBAL SMALL CAPITALIZATION FUND
seeks long-term capital appreciation through investment primarily in
common stocks of foreign and domestic companies with market
capitalizations at the time of investment by the Fund of up to $1.5
billion.
o DLB STEWART IVORY INTERNATIONAL FUND
seeks long-term growth of capital through investment primarily in
equity securities of foreign companies. Income is an incidental
consideration.
o DLB STEWART IVORY EMERGING MARKETS FUND
seeks long-term growth of capital primarily through equity
investments that will generally be concentrated in what the Fund's
investment subadvisor considers to be the developing markets around
the world.
David L. Babson & Co. Inc. (the "Manager") is the investment manager for each of
the Funds.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
SHARES OF THE FUNDS OR PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY STATEMENT TO THE CONTRARY IS A CRIME.
PROSPECTUS
October 29, 1999
<PAGE>
TABLE OF CONTENTS
ABOUT THE FUNDS 1
DLB Fixed Income Fund 1
DLB Value Fund 4
DLB Growth Fund 7
DLB Disciplined Growth Fund 9
DLB Enterprise III Fund 12
DLB Micro Capitalization Fund 15
DLB Global Small Capitalization Fund 17
DLB Stewart Ivory International Fund 20
DLB Stewart Ivory Emerging Markets Fund 23
DESCRIPTIONS OF PRINCIPAL INVESTMENT RISKS 26
TEMPORARY DEFENSIVE POSITIONS 32
HOW THE FUNDS ARE MANAGED 33
The Manager 33
The Subadvisor 33
Investment Advisory Fees 33
Portfolio Managers 33
Certain Performance Information Related to Other Accounts 35
INVESTING IN THE FUNDS 38
How to Open an Account 38
How to Purchase Shares 38
How to Sell Shares 39
How Share Price is Determined 40
Distribution and Service (Rule 12b-1) Plans 41
Principal Underwriter 41
DISTRIBUTIONS 42
TAXES 43
FINANCIAL HIGHLIGHTS 44
APPENDIX 52
Additional Investment Policies and Risk Considerations 52
<PAGE>
ABOUT THE FUNDS
DLB FIXED INCOME FUND
INVESTMENT OBJECTIVE
The investment objective of the DLB Fixed Income Fund (the "Fixed Income Fund")
is to achieve a high level of current income consistent with preservation of
capital through investment in a portfolio of fixed income securities.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund will invest substantially all (but no less
than 65%) of its total assets in fixed income securities.
MARKET SECTORS: The Fund invests primarily in publicly traded, domestic fixed
income securities, including U.S. Treasury and agency obligations, mortgage- and
asset-backed securities, U.S. dollar-denominated bonds of foreign issuers and
corporate debt securities. The Fund may invest in other fixed income securities,
such as Rule 144A private placements and collateralized mortgage obligations.
MATURITY & DURATION: The Fund generally will have an average dollar weighted
portfolio maturity ranging from 5 to 12 years, taking into account the average
life of mortgage and asset-backed securities. The Fund generally will have a
duration ranging from 3.5 to 7 years. The Fund's portfolio may include
securities with maturities and durations outside these ranges.
PORTFOLIO QUALITY: The Fund will invest primarily in investment grade fixed
income securities or their equivalents as determined by the Manager. An
investment grade security is any security that is rated investment grade at the
time of purchase (i.e., at least Baa as determined by Moody's Investors Service,
Inc., or BBB as determined by Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc.).
SECTOR ALLOCATION: The Manager allocates the Fund's assets among the wide array
of market sectors noted above based on its assessment of the relative value
between the sectors.
SECURITY SELECTION: In picking individual fixed income securities of
non-governmental issuers, the Manager prefers companies that possess one or more
of the following characteristics:
o Market share leader
o Established management team
o Strong discretionary cash flow
o Favorable capital structure
o Stable to growing earnings
o High levels of tangible fixed assets
o Conservative accounting
The Manager will also use economic analysis, interest rate trends, supply and
demand trends, and sector-based credit quality ratios as factors when picking
individual securities.
PRINCIPAL INVESTMENT RISKS
o Interest Rate Risk
o Credit Risk
o Allocation Risk
o Company Risk
o Market Risk
o Restricted Securities Risk
o Non-Diversification Risk
o Foreign Issuer Risk
o Mortgage- and Asset-Backed
Securities Risk
You will find a discussion of these risks, and others that may affect your
investment in the Funds, in the section entitled "Descriptions of Principal
Investment Risks," beginning on page 26.
There is no guarantee that the Fund will achieve its objective, and you could
lose money on your
-1-
<PAGE>
PRINCIPAL INVESTMENT RISKS (CONT.)
investment. Furthermore, the Manager, despite using various investment and risk
analysis techniques, may not achieve the results expected from an investment in
the Fund.
PAST PERFORMANCE
The bar chart below provides an indication of the risks of investing in the Fund
by showing you how the Fund's performance, measured in terms of the total return
for each full calendar year since the Fund's inception, has varied from year to
year. The table following the bar chart compares the Fund's average annual total
returns over time to those of a broad-based securities market index. AS WITH ALL
MUTUAL FUNDS, PAST PERFORMANCE IS NOT A PREDICTION OF FUTURE PERFORMANCE.
[BAR CHART]
1996 3.70%
1997 9.03%
1998 8.04%
Best Quarter: 3rd Quarter 1998, +4.04% Worst Quarter: 1st Quarter 1996, -0.88%
The Fund's year-to-date return through September 30, 1999 was -1.18%.
Average Annual Total Returns
For the periods ended December 31, 1998
Since Inception
1 Year 7/25/95
------ -------
Fixed Income Fund 8.04% 7.80%
Lehman Brothers 8.68% 8.20%
Aggregate Bond Index
The LEHMAN BROTHERS AGGREGATE BOND INDEX, a broad-based index composed of
securities from the Lehman Brothers Government/Corporate Bond Index, Lehman
Brothers Mortgage-Backed Securities Index and Lehman Brothers Asset-Backed
Securities Index, represents an index of securities comparable to those in which
the Fund invests.
Both the chart and table assume reinvestment of dividends and distributions. The
performance results in the chart and table reflect the effects of voluntary
expense limitations in effect during the relevant periods. Without these
limitations, the Fund's returns would have been lower.
EXPENSE INFORMATION
As an investor, you pay certain fees and expenses in connection with your
investment. The table shown below describes the fees and expenses that you may
pay if you buy and hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES EXPRESSED
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
(Expenses that are deducted from Fund Assets)
Management Fees 0.40%
Distribution and Service (12b-1) Fees (1) None
Other Expenses (2) 0.40%
-----
Total Annual Fund Operating Expenses 0.80%
Fee Waiver 0.25%
-----
Net Expenses (3) 0.55%
=====
(1) The Fund has adopted a distribution and service plan pursuant to Rule 12b-1
that permits payments by the Fund at an annual rate of up to 0.50% of the
Fund's average daily net assets. The Trustees, however, have no intention
of implementing the plan during the Fund's current fiscal year. See
"Investing in the Funds-- Distribution and Service (12b-1) Plans."
(2) "Other Expenses" include accounting and audit fees, custodian fees,
transfer agent fees, legal fees, registration fees, printing fees and fees
paid to The DLB Fund Group's independent Trustees.
(3) The Manager has contractually agreed with the Fund to bear cetain expenses
for the current fiscal year to the extent that the Fund's Total Annual Fund
Operating Expenses--other than brokerage commissions, hedging transaction
fees and other investment related costs, extraordinary, non-recurring and
certain other unusual expenses, such as litigation and other extraordinary
legal expenses, securities lending fees and expenses, and transfer
taxes--would
-2-
<PAGE>
EXPENSE INFORMATION (CONT.)
otherwise exceed the percentage of the Fund's average daily net assets
noted in the bottom line of the table. The Manager's fee waiver and expense
agreement with the Fund during the Fund's fiscal year ending October 31,
2000 will automatically continue for successive one-year periods unless
either The DLB Fund Group or the Manager terminates the agreement by giving
six months' notice to the other party.
EXAMPLES
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in the Fund for the time periods indicated, that your
investment earns a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$56 $230 $420 $967
Since the Fund does not impose any shareholder fees, the figures shown would be
the same whether or not you redeemed your shares at the end of a period.
-3-
<PAGE>
DLB VALUE FUND
INVESTMENT OBJECTIVE
The investment objective of the DLB Value Fund (the "Value Fund") is long-term
capital appreciation primarily through investment in a portfolio of common
stocks of established companies.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund will invest substantially all (but no less
than 65%) of its total assets in common stocks.
The Fund invests primarily in undervalued stocks of established companies.
Ordinarily, these will be companies with large market capitalizations (generally
$5 billion or greater), although the Fund may invest in companies with market
capitalizations at the time of purchase of only $1 billion or greater.
Securities purchased by the Fund ordinarily are listed on national securities
exchanges or on the NASDAQ.
The Manager will select securities for investment based on its assessment of
whether the securities are likely to provide favorable capital appreciation over
the long term. The Manager will invest in common stocks of companies with an
earnings and dividend ranking of "B-" or better by Standard & Poor's, or a
financial strength rating of "B" or better by Value Line, measured at the time
of initial investment. (For a description of these ratings, see
"Appendix--Description of Stock Ratings" in the Fund's Statement of Additional
Information.) The Fund may continue to hold, and even increase its investment
in, securities that drop below these ratings after their initial purchase by the
Fund.
When investing the Fund's assets, the Manager strongly considers common stocks
whose current prices do not adequately reflect, in its opinion, the true value
of the underlying company in relation to earnings, dividends and/or assets. To
find suitable investments, the Manager screens a broad universe of potential
stocks using quantitative measures of valuation and earnings growth. After
identifying inexpensive securities (determined on a relative, rather than an
absolute, basis) that show signs of financial strength, the Manager concentrates
on basic valuation measures, including price-to-earnings ratios, price-to-book
ratios and current yields, to further narrow the field. The Manager then makes
decisions using fundamental analysis, emphasizing an issuer's historic financial
performance, balance sheet strength, management capability and competitive
position. In addition, the Manager may employ company visits and interviews with
competitors and suppliers.
The Fund's valuation characteristics are expected, under normal circumstances,
to be more favorable than those of the S&P 500 Index (i.e., lower
price-to-earnings ratio, lower price-to-book ratio and higher gross yields).
PRINCIPAL INVESTMENT RISKS
o Company Risk
o Out-of-Favor Risk
o Market Risk
o Equity Securities Risk
o Non-Diversification Risk
o Allocation Risk
You will find a discussion of these risks, and others that may affect your
investment in the Funds, in the section entitled "Descriptions of Principal
Investment Risks," beginning on page 26.
There is no guarantee that the Fund will achieve its objective, and you could
lose money on your investment. Furthermore, the Manager, despite using various
investment and risk analysis techniques, may not achieve the results expected
from an investment in the Fund.
-4-
<PAGE>
PAST PERFORMANCE
The bar chart below provides an indication of the risks of investing in the Fund
by showing you how the Fund's performance, measured in terms of the total return
for each full calendar year since the Fund's inception, has varied from year to
year. The table following the bar chart compares the Fund's average annual total
returns over time to those of a broad-based securities market index and to those
of an index of securities comparable to those in which the Fund invests. AS WITH
ALL MUTUAL FUNDS, PAST PERFORMANCE IS NOT A PREDICTION OF FUTURE PERFORMANCE.
[BAR CHART]
1996 23.99%
1997 26.35%
1998 5.25%
Best Quarter: 1st Quarter 1998, +13.55% Worst Quarter: 3rd Quarter 1998, -17.78%
The Fund's year-to-date return through September 30, 1999 was 0.08%.
Average Annual Total Returns
For the periods ended December 31, 1998
---------------------------------------
Since Inception
1 Year 7/25/95
------ -------
Value Fund 5.25% 17.98%
S&P 500 Index 28.57% 27.50%
S&P Barra 14.67% 22.35%
Large Cap Value Index
STANDARD & POOR'S 500 INDEX (S&P 500 INDEX) is a broad-based index of common
stocks frequently used as a general measure of stock market performance.
The S&P BARRA LARGE CAP VALUE INDEX is an unmanaged index of those common stocks
that have the lowest price-to-book ratios comprising half of the aggregate
market capitalization of the S&P 500 Index.
Both the chart and table assume reinvestment of dividends and distributions. The
performance results in the chart and table reflect the effects of voluntary
expense limitations in effect during the relevant periods. Without these
limitations, the Fund's returns would have been lower.
EXPENSE INFORMATION
As an investor, you pay certain fees and expenses in connection with your
investment. The table shown below describes the fees and expenses that you may
pay if you buy and hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES EXPRESSED
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
(Expenses that are deducted from Fund Assets)
Management Fees 0.55%
Distribution and Service (12b-1) Fees (1) None
Other Expenses (2) 0.20%
Total Annual Fund Operating Expenses 0.75%
(1) The Fund has adopted a distribution and service plan pursuant to Rule 12b-1
that permits payments by the Fund at an annual rate of up to 0.50% of the
Fund's average daily net assets. The Trustees, however, have no intention
of implementing the plan during the Fund's current fiscal year. See
"Investing in the Funds-- Distribution and Service (12b-1) Plans."
(2) "Other Expenses" include accounting and audit fees, custodian fees,
transfer agent fees, legal fees, registration fees, printing fees and fees
paid to The DLB Fund Group's independent Trustees.
-5-
<PAGE>
EXPENSE INFORMATION (CONT.)
EXAMPLES
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in the Fund for the time periods indicated, that your
investment earns a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$77 $240 $417 $930
Since the Fund does not impose any shareholder fees, the figures shown would be
the same whether or not you redeemed your shares at the end of a period.
-6-
<PAGE>
DLB GROWTH FUND
INVESTMENT OBJECTIVE
The investment objective of the DLB Growth Fund (the "Growth Fund") is long-term
capital and income growth through investment primarily in common stocks. Current
yield is secondary to the long-term growth objective.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, substantially all (but no less than 65%) of the
Fund's total assets will be invested in common stocks.
The Fund believes the true value of a company's stock is determined by its
earning power, its dividend-paying ability and, in many cases, its assets.
Consequently, the Fund will seek its objective by remaining substantially fully
invested in the common stocks of progressive, well managed companies in growing
industries that have demonstrated both a consistent and an above-average ability
to increase their earnings and dividends and that have favorable prospects of
sustaining such growth. The Fund's investable universe includes medium- and
large-size companies. The Fund considers medium-size companies to be those with
market capitalizations ranging from $1 billion to $10 billion and large-size
companies to be those with market capitalizations over $10 billion.
To find suitable investments, the Manager first uses database screening to
narrow the Fund's investment universe, based on a company's historic level of
revenue, cash flow and earnings growth. Next, the Manager uses a quantitative
model to sort stocks based on revisions to analysts' earnings estimates and
valuation analysis. The Manager believes that revisions to analysts' earnings
estimates form trends that affect a stock's price. For example, rising earnings
estimates generally reflect a potential share price increase. Valuation analysis
helps to identify stocks with low relative price-to- earnings ratios, which, on
average, tend to outperform stocks with higher price-to-earnings ratios. In the
third and most important step of the process, the Manager conducts fundamental
analysis on the top companies from the output of the earlier analyses,
researching the companies and their managements, competitors and suppliers. As a
result of this analysis, the Manager selects what it believes to be the best
companies for the Fund's portfolio.
PRINCIPAL INVESTMENT RISKS
o Company Risk
o Market Risk
o Equity Securities Risk
o Non-Diversification Risk
o Allocation Risk
You will find a discussion of these risks, and others that may affect your
investment in the Funds, in the section entitled "Descriptions of Principal
Investment Risks," beginning on page 26.
There is no guarantee that the Fund will achieve its objective, and you could
lose money on your investment. Furthermore, the Manager, despite using various
investment and risk analysis techniques, may not achieve the results expected
from an investment in the Fund.
PAST PERFORMANCE
Because the Fund is new, information on the Fund's performance is not provided
in this section.
-7-
<PAGE>
EXPENSE INFORMATION
As an investor, you pay certain fees and expenses in connection with your
investment. The table shown below describes the fees and expenses that you may
pay if you buy and hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES EXPRESSED
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
(Expenses that are deducted from Fund Assets)
Management Fees 0.55%
Distribution and Service (12b-1) Fees (1) None
Other Expenses (2) 0.40%
-----
Total Annual Fund Operating Expenses 0.95%
Fee Waiver (0.15%)
-----
Net Expenses (3) 0.80%
=====
(1) The Fund has adopted a distribution and service plan pursuant to Rule 12b-1
that permits payments by the Fund at an annual rate of up to 0.50% of the
Fund's average daily net assets. The Trustees, however, have no intention
of implementing the plan during the Fund's current fiscal year. See
"Investing in the Funds-- Distribution and Service (12b-1) Plans."
(2) "Other Expenses" include accounting and audit fees, custodian fees,
transfer agent fees, legal fees, registration fees, printing fees and fees
paid to The DLB Fund Group's independent Trustees.
(3) The Manager has contractually agreed with the Fund to bear certain expenses
for the current fiscal year to the extent that the Fund's Total Annual Fund
Operating Expenses--other than brokerage commissions, hedging transaction
fees and other investment related costs, extraordinary, non-recurring and
certain other unusual expenses, such as litigation and other extraordinary
legal expenses, securities lending fees and expenses, and transfer
taxes--would otherwise exceed the percentages of the Fund's average daily
net assets noted in the bottom line of the table. The Manager's fee waiver
and expense agreement with the Fund during the Fund's fiscal year ending
October 31, 2000 will automatically continue for successive one-year
periods unless either The DLB Fund Group or the Manager terminates the
agreement by giving six months' notice to the other party.
EXAMPLES
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in the Fund for the time periods indicated, that your
investment earns a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$82 $288 $511 $1,153
Since the Fund does not impose any shareholder fees, the figures shown would be
the same whether or not you redeemed your shares at the end of a period.
-8-
<PAGE>
DLB DISCIPLINED GROWTH FUND
INVESTMENT OBJECTIVE
The investment objective of the DLB Disciplined Growth Fund (the "Disciplined
Growth Fund") is long-term capital appreciation. The DLB Disciplined Growth Fund
was formerly known as the DLB Quantitative Equity Fund.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest substantially all (but no
less than 65%) of its total assets in common stocks and other equity securities.
The Fund uses a proprietary analysis of market factors to guide investments
primarily in common stocks of companies with medium and large capitalizations.
The Manager believes that a disciplined investment strategy based predominantly
on quantitative factors can exploit systematic mispricings in the securities
markets. The Manager seeks to exploit these mispricings by constructing a
portfolio using a proprietary analytical model. This analytical model uses a
two-part quantitative analysis, involving revisions to analysts' earnings
estimates and valuation analysis, to identify companies with the strongest signs
of earnings growth and the most attractive valuation. The Manager believes that
revisions to analysts' earnings estimates form trends that affect a stock's
price. For example, rising earnings estimates generally reflect a potential
share price increase. Valuation analysis helps to identify stocks with low
relative price-to-earnings ratios, which, on average, tend to outperform stocks
with higher price-to-earnings ratios. The Manager then selects securities for
the Fund based on these analyses, with weight also given to the impact of
transaction costs and the portfolio's overall characteristics, including sector
weightings, beta (volatility), market capitalization, yield and liquidity. The
Fund's characteristics, such as capitalization, yield, sector weight and beta
(volatility), are expected, under normal circumstances, to approximate those of
the Russell 1000 Growth Index.
PRINCIPAL INVESTMENT RISKS
o Company Risk
o Small Company Risk
o Market Risk
o Equity Securities Risk
o Non-Diversification Risk
o Allocation Risk
You will find a discussion of these risks, and others that may affect your
investment in the Funds, in the section entitled "Descriptions of Principal
Investment Risks," beginning on page 26.
There is no guarantee that the Fund will achieve its objective, and you could
lose money on your investment. Furthermore, the Manager, despite using various
investment and risk analysis techniques, may not achieve the results expected
from an investment in the Fund.
-9-
<PAGE>
PAST PERFORMANCE
The bar chart below provides an indication of the risks of investing in the Fund
by showing you how the Fund's performance, measured in terms of the total return
for each full calendar year since the Fund's inception, has varied from year to
year. The table following the bar chart compares the Fund's average annual total
returns over time to those ofa broad-based securities market index and to those
of an index of securities comparable to those in which the Fund invests. AS WITH
ALL MUTUAL FUNDS, PAST PERFORMANCE IS NOT A PREDICTION OF FUTURE PERFORMANCE.
[BAR CHART]
1997 32.23%
1998 25.76%
Best Quarter: 4th Quarter 1998, +23.85% Worst Quarter: 3rd Quarter 1998, -15.77%
The Fund's year-to-date return through September 30, 1999 was 5.64%.
Average Annual Total Returns
For the periods ended December 31, 1998
---------------------------------------
Since Inception
1 Year 8/26/96
------ -------
Disciplined Growth Fund 25.76% 32.39%
S&P 500 Index 28.57% 31.22%
Russell 1000 Growth Index 38.71% 33.91%
STANDARD & POOR'S 500 INDEX (S&P 500 INDEX) is a broad-based index of common
stocks frequently used as a general measure of stock market performance.
The RUSSELL 1000 GROWTH INDEX is an unmanaged index that contains those stocks
with a greater than average growth orientation among the stocks of the 1,000
largest U.S. companies based on total market capitalization. Securities in this
index tend to exhibit higher price-to-book ratios and higher forecasted growth
than the value universe.
Both the chart and table assume reinvestment of dividends and distributions. The
performance results in the chart and table reflect the effects of voluntary
expense limitations in effect during the relevant periods. Without these
limitations, the Fund's returns would have been lower.
EXPENSE INFORMATION
As an investor, you pay certain fees and expenses in connection with your
investment. The table shown below describes the fees and expenses that you may
pay if you buy and hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES EXPRESSED
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
(Expenses that are deducted from Fund Assets)
Management Fees 0.75%
Distribution and Service (12b-1) Fees (1) None
Other Expenses (2) 0.39%
-----
Total Annual Fund Operating Expenses 1.14%
Fee Waiver (0.24%)
-----
Net Expenses (3) 0.90%
=====
(1) The Fund has adopted a distribution and service plan pursuant to Rule 12b-1
that permits payments by the Fund at an annual rate of up to 0.50% of the
Fund's average daily net assets. The Trustees, however, have no intention
of implementing the plan during the Fund's current fiscal year. See
"Investing in the Funds-- Distribution and Service (12b-1) Plans."
(2) "Other Expenses" include accounting and audit fees, custodian fees,
transfer agent fees, legal fees, registration fees, printing fees and fees
paid to The DLB Fund Group's independent Trustees.
(3) The Manager has contractually agreed with the Fund to bear certain expenses
for the current fiscal year to the extent that the Fund's Total Annual Fund
Operating Expenses--other than brokerage commissions, hedging transaction
fees and other investment related costs, extraordinary, non-recurring and
certain other unusual expenses, such as litigation and other extraordinary
legal expenses, securities lending fees and expenses, and transfer
taxes--would
-10-
<PAGE>
EXPENSE INFORMATION (CONT.)
otherwise exceed the percentage of the Fund's average daily net assets
noted in the bottom line of the table. The Manager's fee waiver and expense
agreement with the Fund during the Fund's fiscal year ending October 31,
2000 will automatically continue for successive one-year periods unless
either The DLB Fund Group or the Manager terminates the agreement by giving
six months' notice to the other party.
EXAMPLES
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in the Fund for the time periods indicated, that your
investment earns a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$92 $338 $604 $1,365
Since the Fund does not impose any shareholder fees, the figures shown would be
the same whether or not you redeemed your shares at the end of a period.
-11-
<PAGE>
DLB ENTERPRISE III FUND
INVESTMENT OBJECTIVE
The investment objective of the DLB Enterprise III Fund (the "Enterprise III
Fund") is long-term capital appreciation primarily through investment in small
to medium-size companies. AT THE TIME OF INVESTMENT BY THE FUND, EACH OF THESE
COMPANIES WILL HAVE A MARKET CAPITALIZATION BETWEEN $400 MILLION AND $2 BILLION.
The DLB Entreprise III Fund was formerly known as the DLB Mid Capitalization
Fund.
PRINCIPAL INVESTMENT STRATEGIES
MARKET CAPITALIZATION: Under normal circumstances, the Fund will invest
substantially all (but no less than 65%) of its total assets in the common
stocks of companies that have a market capitalization between $400 million and
$2 billion at the time of investment.
SECURITY SELECTION: In selecting securities for investment, the Manager strongly
considers common stocks of those companies that satisfy the Fund's market
capitalization criteria and whose current prices do not adequately reflect, in
the Manager's opinion, the ongoing business value of the underlying companies.
Using a core value investment strategy, the Manager finds companies that are out
of favor with investors. The Fund's investment strategy focuses on bottom-up
stock-picking using fundamental analysis, rather than market or economic
forecasts. More specifically, the Fund invests in companies that the Manager
believes possess the following characteristics:
o Strong financials
o Proven products or services
o Dominant market share
o Sustainable competitive advantage
o Attractive valuation
o Potential for improving margins
o Potential for accelerating earnings
PRINCIPAL INVESTMENT RISKS
o Company Risk
o Small Company Risk
o Market Risk
o Out-of-Favor Risk
o Equity Securities Risk
o Non-Diversification Risk
o Allocation Risk
You will find a discussion of these risks, and others that may affect your
investment in the Funds, in the section entitled "Descriptions of Principal
Investment Risks," beginning on page 26.
There is no guarantee that the Fund will achieve its objective, and you could
lose money on your investment. Furthermore, the Manager, despite using various
investment and risk analysis techniques, may not achieve the results expected
from an investment in the Fund.
-12-
<PAGE>
PAST PERFORMANCE
The bar chart below provides an indication of the risks of investing in the Fund
by showing you how the Fund's performance, measured in terms of the total return
for each full calendar year since the Fund's inception, has varied from year to
year. The table following the bar chart compares the Fund's average annual total
returns over time to those of two broad-based securities market indices. AS WITH
ALL MUTUAL FUNDS, PAST PERFORMANCE IS NOT A PREDICTION OF FUTURE PERFORMANCE.
[BAR CHART]
1996 14.75%
1997 32.95%
1998 -8.63%
Best Quarter: 2nd Quarter 1997, +14.69% Worst Quarter: 3rd Quarter 1998, -18.30%
The Fund's year-to-date return through September 30, 1999 was -4.82%.
Average Annual Total Returns
For the periods ended December 31, 1998
---------------------------------------
Since Inception
1 Year 7/25/95
------ -------
Enterprise III Fund -8.63% 12.79%
Russell 2500 Index 0.39% 14.45%
Russell 2000 Index -2.55% 12.28%
The RUSSELL 2500 INDEX is a broad-based index that consists of the 500 smallest
securities in the Russell 1000 Index and all 2000 securities in the Russell 2000
Index, representing approximately 17% of the Russell 3000 total market
capitalization. This index is a commonly used measure of the stock performance
of small and medium-size companies in the United States.
The RUSSELL 2000 INDEX is a broad-based index that consists of the 2000 smallest
securities in the Russell 3000 Index, representing approximately
8% of the Russell 3000 total market capitalization. This index is a commonly
used measure of the stock performance of small and medium-size companies in the
United States.
Both the chart and table assume reinvestment of dividends and distributions. The
performance results in the chart and table reflect the effects of voluntary
expense limitations in effect during the relevant periods. Without these
limitations, the Fund's returns would have been lower.
EXPENSE INFORMATION
As an investor, you pay certain fees and expenses in connection with your
investment. The table shown below describes the fees and expenses that you may
pay if you buy and hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES EXPRESSED
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
(Expenses that are deducted from Fund Assets)
Management Fees 0.60%
Distribution and Service (12b-1) Fees (1) None
Other Expenses (2) 0.42%
-----
Total Annual Fund Operating Expenses 1.02%
Fee Waiver (0.12%)
-----
Net Expenses (3) 0.90%
=====
(1) The Fund has adopted a distribution and service plan pursuant to Rule 12b-1
that permits payments by the Fund at an annual rate of up to 0.50% of the
Fund's average daily net assets. The Trustees, however, have no intention
of implementing the plan during the Fund's current fiscal year. See
"Investing in the Funds-- Distribution and Service (12b-1) Plans."
(2) "Other Expenses" include accounting and audit fees, custodian fees,
transfer agent fees, legal fees, registration fees, printing fees and fees
paid to The DLB Fund Group's independent Trustees.
(3) The Manager has contractually agreed with the Fund to bear certain expenses
for the current fiscal year to the extent that the Fund's Total Annual Fund
Operating Expenses--other than brokerage commissions, hedging transaction
fees and other investment related costs, extraordinary, non-recurring and
certain other unusual expenses, such as litigation and other extraordinary
legal expenses, securities lending
-13-
<PAGE>
EXPENSE INFORMATION (CONT.)
fees and expenses, and transfer taxes--would otherwise exceed the
percentage of the Fund's average daily net assets noted in the bottom line
of the table. The Manager's fee waiver and expense agreement with the Fund
can only be terminated during the Fund's fiscal year ending October 31,
2000 by agreement of the Fund's Board of Trustees and the Manager.
EXAMPLES
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in the Fund for the time periods indicated, that your
investment earns a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$92 $313 $552 $1,237
Since the Fund does not impose any shareholder fees, the figures shown would be
the same whether or not you redeemed your shares at the end of a period.
-14-
<PAGE>
DLB MICRO CAPITALIZATION FUND
INVESTMENT OBJECTIVE
The investment objective of the DLB Micro Capitalization Fund (the "Micro Cap
Fund") is long-term capital appreciation through investment primarily in common
stocks of smaller, faster-growing companies whose securities at the time of
purchase are considered by the Manager to be realistically valued.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund will invest substantially all (but no less
than 65%) of its total assets in common stocks. The Fund generally intends to
invest in stocks of smaller companies with market capitalizations of $10 million
to $250 million ("micro cap companies") at the time of purchase that are listed
on a national or regional exchange or traded over-the-counter with prices quoted
daily in the financial press. The Manager will select investments for the Fund
based on its assessment of whether the securities are likely to provide
favorable capital appreciation over the long term.
The Manager believes that there are persistent stock price inefficiencies in the
market for stocks of smaller companies. As a result of limited coverage and
ownership, smaller company stocks frequently trade at significant discounts from
their intrinsic value. The Manager will seek to identify companies that are
mispriced as compared with their expected earnings stream.
Although the Fund's investment process emphasizes fundamental analysis, the
Manager first uses computer screening and industry sources to narrow the Fund's
investment universe. The Manager screens these candidates by looking for further
signs of quality and growth, such as revenue and earnings per share growth. The
Manager then makes decisions using fundamental analysis on stocks that come
through its initial screens, emphasizing an issuer's historic financial
performance, balance sheet strength, management capability, profitability and
competitive position. Specifically, the Manager looks for the following
characteristics:
o Sustainable competitive advantage
o Strong management
o Long product cycles
o Pricing flexibility
o Small size as a competitive advantage
o High sustained return on investment
o Above-average earnings per share growth
o Attractive valuation
Out of this analysis, the Manager selects what it believes to be the best
companies for the Fund's portfolio.
The Fund may purchase stocks in initial public offerings ("IPOs") and may sell
such securities without regard to how long the Fund has held the securities. The
market capitalizations of the companies whose securities the Fund purchases in
IPOs may be outside the Fund's market capitalization range stated above.
The Fund is designed to be an investment vehicle for that part of your capital
which can appropriately be exposed to above-average risk.
PRINCIPAL INVESTMENT RISKS
o Company Risk
o Small Company Risk
o Emerging Growth Companies Risk
o Market Risk
o Equity Securities Risk
o Non-Diversification Risk
o Allocation Risk
You will find a discussion of these risks, and others that may affect your
investment in the
-15-
<PAGE>
PRINCIPAL INVESTMENT RISKS(CONT.)
Funds, in the section entitled "Descriptions of Principal Investment Risks,"
beginning on page 26.
There is no guarantee that the Fund will achieve its objective, and you could
lose money on your investment. Furthermore, the Manager, despite using various
investment and risk analysis techniques, may not achieve the results expected
from an investment in the Fund.
PAST PERTFORMANCE
Because the Fund is new, information on the Fund's performance is not provided
in this section.
EXPENSE INFORMATION
As an investor, you pay certain fees and expenses in connection with your
investment. The table shown below describes the fees and expenses that you may
pay if you buy and hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES EXPRESSED
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
(Expenses that are deducted from Fund Assets)
Management Fees 1.00%
Distribution and Service (12b-1) Fees (1) None
Other Expenses (2) (3) 1.06%
-----
Total Annual Fund Operating Expenses 2.06%
Fee Waiver (0.76%)
-----
Net Expenses (4) 1.30%
=====
(1) The Fund has adopted a distribution and service plan pursuant to Rule 12b-1
that permits payments by the Fund at an annual rate of up to 0.50% of the
Fund's average daily net assets. The Trustees, however, have no intention
of implementing the plan during the Fund's current fiscal year. See
"Investing in the Funds-- Distribution and Service (12b-1) Plans."
(2) "Other Expenses" include accounting and audit fees, custodian fees,
transfer agent fees, legal fees, registration fees, printing fees and fees
paid to the DLB Fund Group's independent Trustees.
(3) "Other Expenses" for the Micro Cap Fund are based on estimated amounts for
the current fiscal year.
(4) The Manager has contractually agreed with the Fund to bear certain expenses
for the current fiscal year to the extent that the Fund's Total Annual Fund
Operating Expenses--other than brokerage commissions, hedging transaction
fees and other investment related costs, extraordinary, non-recurring and
certain other unusual expenses, such as litigation and other extraordinary
legal expenses, securities lending fees and expenses, and transfer
taxes--would otherwise exceed the percentage of the Fund's average daily
net assets noted in the bottom line of the table. The Manager's fee waiver
and expense agreement with the Fund during the Fund's fiscal year ending
October 31, 2000 will automatically continue for successive one-year
periods unless either The DLB Fund Group or the Manager terminates the
agreement by giving six months' notice to the other party.
EXAMPLES
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in the Fund for the time periods indicated, that your
investment earns a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR 3 YEARS
$132 $572
Since the Fund does not impose any shareholder fees, the figures shown would be
the same whether or not you redeemed your shares at the end of a period.
-16-
<PAGE>
DLB GLOBAL SMALL CAPITALIZATION FUND
INVESTMENT OBJECTIVE
The investment objective of the DLB Global Small Capitalization Fund (the
"Global Small Cap Fund") is long-term capital appreciation through investment
primarily in common stocks of foreign and domestic companies with market
capitalizations at the time of purchase of up to $1.5 billion ("small cap
companies").
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund will invest substantially all (but no less
than 65%) of its total assets in common stocks of domestic and foreign small cap
companies. The Fund normally expects to invest approximately 40-60% of its
assets outside the United States and the remaining 60-40% of its assets inside
the United States.
The Manager is responsible for the Fund's domestic investments, while the
Subadvisor, Babson-Stewart Ivory International, is responsible for the Fund's
international investments. The Fund will invest only in exchange-traded
securities and securities traded through established over-the-counter trading
systems that the Manager or the Subadvisor believes provide comparable liquidity
to exchange-traded securities. The Fund may invest up to 15% of its assets in
the emerging markets in Asia, Latin America, the Middle East, Southern Europe,
Eastern Europe (including the former Soviet Union) and Africa.
The Manager selects domestic investments for the Fund generally based on value
factors, while the Subadvisor selects foreign investments for the Fund generally
based on growth factors.
DOMESTIC INVESTMENTS: To select domestic stocks for the Fund, the Manager seeks
small cap companies that are out of favor with investors. The Fund's domestic
investment strategy focuses on bottom-up stock-picking, using fundamental
analysis rather than making market or economic forecasts. More specifically, the
Fund invests in companies that the Manager believes possess the following
characteristics:
o Strong financials
o Proven track record
o Dominant market share
o Sustainable competitive advantage
o Attractive valuation
o Potential for improving margins
o Potential for accelerating earnings
FOREIGN INVESTMENTS: For the Fund's overseas investments, the Subadvisor, using
a bottom-up stock selection strategy, focuses on companies with high growth
potential. Fundamental analysis identifies companies with above-average earnings
growth, high profitability and cash flow and strong management. To find
attractive prospects, the Subadvisor uses in-depth financial analysis and
on-site visits, in addition to evaluating currency and political issues that
might impact a company's profitability. While growth is the primary focus of the
Fund's international investments, the Subadvisor also looks to valuation
measures, such as price-to-earnings and price-to-book ratios, to make sure that
a stock is reasonably priced before buying it for the Fund.
PRINCIPAL INVESTMENT RISKS
o Company Risk
o Small Company Risk
o Emerging Growth Companies Risk
o Foreign Issuer Risk
o Foreign Currency Risk
o Foreign Emerging Markets Risk
o Market Risk
o Equity Securities Risk
o Out-of-Favor Risk
o Allocation Risk
o Non-Diversification Risk
o Forward Foreign Currency Contracts Risk
-17-
<PAGE>
PRINCIPAL INVESTMENT RISKS (CONT.)
You will find a discussion of these risks, and others that may affect your
investment in the Funds, in the section entitled "Descriptions of Principal
Investment Risks," beginning on page 26.
There is no guarantee that the Fund will achieve its objective, and you could
lose money on your investment. Furthermore, the Manager and the Subadvisor,
despite using various investment and risk analysis techniques, may not achieve
the results expected from an investment in the Fund.
PAST PERFORMANCE
The bar chart below provides an indication of the risks of investing in the Fund
by showing you how the Fund's performance, measured in terms of the total return
for each full calendar year since the Fund's inception, has varied from year to
year. The table following the bar chart compares the Fund's average annual total
returns over time to those of two broad-based securities market indices and to
those of an index of securities comparable to those in which the Fund invests.
AS WITH ALL MUTUAL FUNDS, PAST PERFORMANCE IS NOT A PREDICTION OF FUTURE
PERFORMANCE.
[BAR CHART]
1996 9.85%
1997 4.66%
1998 3.73%
Best Quarter: 4th Quarter 1998, +13.28% Worst Quarter: 3rd Quarter 1998, -17.24%
The Fund's year-to-date return through September 30, 1999 was 9.76%.
Average Annual Total Returns
For the periods ended December 31, 1998
---------------------------------------
Since Inception
1 Year 7/19/95
------ -------
Global Small Cap Fund 3.73% 6.35%
Salomon Brothers EMI, 12.15% 4.19%
ex-U.S.
Russell 2500 Index 0.39% 15.37%
Combined Index 6.53% 11.44%
The SALOMON BROTHERS EXTENDED MARKET INDEX (EMI), EX-U.S., is a broad-based
index that represents the bottom 20% of the cumulative available market capital
of the Salomon Brothers Broad Market Index outside the United States. The
Salomon Brothers Broad Market Index fully represents the universe of
institutionally available global stocks. All companies with an available market
capitalization of greater than U.S. $100 million are included in the index.
The RUSSELL 2500 INDEX is a broad-based index that consists of the 500 smallest
securities in the Russell 1000 Index and all 2000 securities in the Russell 2000
Index, representing approximately 17% of the Russell 3000 total market
capitalization. This index is a commonly used measure of medium and small stock
performance in the United States.
The COMBINED INDEX is a composite of the Salomon Brothers EMI, ex-U.S. Index,
and the Russell 2500 Index, weighted in each (monthly) period to reflect the
proportions of the Fund's assets invested in international and domestic
securities, respectively, during the period. The Fund calculates the Combined
Index solely for the purpose of presenting an "index" that resembles the Fund's
mix of domestic and foreign investments.
Both the chart and table assume reinvestment of dividends and distributions. The
performance results in the chart and table reflect the effects of voluntary
expense limitations in effect during the relevant periods. Without these
limitations, the Fund's returns would have been lower.
-18-
<PAGE>
EXPENSE INFORMATION
As an investor, you pay certain fees and expenses in connection with your
investment. The table shown below describes the fees and expenses that you may
pay if you buy and hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES EXPRESSED
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
(Expenses that are deducted from Fund Assets)
Management Fees 1.00%
Distribution and Service (12b-1) Fees (1) None
Other Expenses (2) 1.00%
-----
Total Annual Fund Operating Expenses 2.00%
Fee Waiver (0.50%)
-----
Net Expenses (3) 1.50%
=====
(1) The Fund has adopted a distribution and service plan pursuant to Rule 12b-1
that permits payments by the Fund at an annual rate of up to 0.50% of the
Fund's average daily net assets. The Trustees, however, have no intention
of implementing the plan during the Fund's current fiscal year. See
"Investing in the Funds-- Distribution and Service (12b-1) Plans."
(2) "Other Expenses" include accounting and audit fees, custodian fees,
transfer agent fees, legal fees, registration fees, printing fees and fees
paid to The DLB Fund Group's independent Trustees.
(3) The Manager has contractually agreed with the Fund to bear certain expenses
for the current fiscal year to the extent that the Fund's Total Annual Fund
Operating Expenses--other than brokerage commissions, hedging transaction
fees and other investment related costs, extraordinary, non-recurring and
certain other unusual expenses, such as litigation and other extraordinary
legal expenses, securities lending fees and expenses, and transfer
taxes--would otherwise exceed the percentage of the Fund's average daily
net assets noted in the bottom line of the table. The Manager's fee waiver
and expense agreement with the Fund during the Fund's fiscal year ending
October 31, 2000 will automatically continue for successive one-year
periods unless either The DLB Fund Group or the Manager terminates the
agreement by giving six months' notice to the other party.
EXAMPLES
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in the Fund for the time periods indicated, that your
investment earns a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$153 $579 $1,032 $2,287
Since the Fund does not impose any shareholder fees, the figures shown would be
the same whether or not you redeemed your shares at the end of a period.
-19-
<PAGE>
DLB STEWART IVORY INTERNATIONAL FUND
INVESTMENT OBJECTIVE
The investment objective of the DLB Stewart Ivory International Fund (the
"International Fund") is long-term growth of capital through investment
primarily in equity securities of foreign companies. Income is an incidental
consideration.
PRINCIPAL INVESTMENT STRATEGIES
WHERE THE FUND INVESTS: Under normal conditions, the Fund expects to invest
substantially all (but no less than 65%) of its assets in equity securities of
companies that:
o are domiciled outside the Unied States;
o have their primary business carried on
outside the United States; or
o have their principal securities trading
market outside the United States.
The Fund will look to such factors as location of a company's assets, personnel,
sales and earnings to determine whether that company's primary business is
carried on outside the United States.
In addition to common stocks, the Fund may buy preferred stocks, convertible
securities and other securities having equity features when the Subadvisor,
Babson-Stewart Ivory International, believes the potential for appreciation will
equal or exceed that available from investments in common stocks.
INVESTMENT APPROACH: In pursuing its investment objectives, the Fund invests in
companies that the Subadvisor believes will benefit from:
o global economic trends;
o promising technologies or products; and
o specific country opportunities resulting
from changing geopolitical, currency or
economic relationships.
These companies generally are established companies whose securities are listed
on a foreign exchange (although the Fund is permitted to buy securities traded
over-the-counter).
To identify attractive investments, the Subadvisor uses a bottom-up stock
selection strategy. While the Subadvisor considers stock selection the key to
successful investment, cultural, economic, political and thematic factors play a
significant role in the Fund's asset allocation process.
The Fund anticipates that its investments will be spread broadly around the
world and will include companies of varying sizes as measured by assets, sales
or capitalization.
CURRENCY HEDGING POLICY: The Fund's general approach is to leave currency
exposure unhedged. The Subadvisor considers currency outlook when determining
the Fund's geographical diversification. Derivatives are not used, nor is
currency exposure actively managed, to seek enhancements to investment returns.
The Fund may purchase foreign currencies or engage in forward foreign currency
transactions in order to expedite settlement of portfolio transactions. In
exceptional circumstances, the Fund may use forward foreign currency exchange
contracts or other currency transactions to protect a position if fundamental or
technical analysis suggests that is necessary.
PRINCIPAL INVESTMENT RISKS
o Company Risk
o Foreign Issuer Risk
o Foreign Currency Risk
o Foreign Emerging Markets Risk
-20-
<PAGE>
PRINCIPAL INVESTMENT RISKS(CONT.)
o Market Risk
o Equity Securities Risk
o Allocation Risk
o Tax Risk
o Small Company Risk
o Emerging Growth Companies Risk
o Non-Diversification Risk
o Forward Foreign Currency Contracts Risk
You will find a discussion of these risks, and others that may affect your
investment in the Funds, in the section entitled "Descriptions of Principal
Investment Risks," beginning on page 26.
There is no guarantee that the Fund will achieve its objective, and you could
lose money on your investment. Furthermore, the Subadvisor, despite using
various investment and risk analysis techniques, may not achieve the results
expected from an investment in the Fund.
PAST PERFORMANCE
The performance results in the chart and table below reflect the performance of
the Fund's predecessor, Babson-Stewart Ivory International Limited Partnership
III, a Delaware limited partnership (the "Limited Partnership"). The bar chart
below provides an indication of the risks of investing in the Fund by showing
you how the Limited Partnership's performance, measured in terms of the total
return for each full calendar year since its inception, has varied from year to
year. The table following the bar chart compares the Limited Partnership's
average annual total returns over time to those of a broad-based securities
market index. In each case, the performance of the Limited Partnership has been
adjusted to give effect to the estimated fees and expenses of the International
Fund (without giving effect to any expense waivers or reimbursements) during the
fiscal year ending October 31, 2000. AS WITH ALL MUTUAL FUNDS, PAST PERFORMANCE
IS NOT A PREDICTION OF FUTURE PERFORMANCE.
[BAR CHART]
1994 -1.88%
1995 7.66%
1996 12.06%
1997 2.49%
1998 15.80%
Best Quarter: 4th Quarter 1998, +17.17% Worst Quarter: 3rd Quarter 1998, -12.50%
The Limited Partnership's year-to-date return through September 30, 1999
was 8.79%.
Average Annual Total Returns
For the periods ended December 31, 1998
---------------------------------------
1 Year 5 Years
------ -------
Limited Partnership 15.80% 7.04%
MSCI EAFE Index 20.33% 9.50%
The MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA, FAR EAST INDEX
(MSCI EAFE) is a broad-based index that is composed of approximately 1,000
stocks traded on 20 stock exchanges from around the world.
Both the chart and table assume reinvestment of dividends and distributions.
Unlike the Fund, the Limited Partnership was not registered under the Investment
Company Act of 1940 and therefore was not subject to certain investment
limitations, diversification requirements, and other restrictions imposed by
that Act. In addition, the Limited Partnership was not subject to Subchapter M
of the Internal Revenue Code, which imposes certain limitations on the
investment operations of the Fund. If the Limited Partnership had been
registered under the 1940 Act and subject to Subchapter M of the Code, its
performance may have been lower.
EXPENSE INFORMATION
As an investor, you pay certain fees and expenses in connection with your
investment. The table shown below describes the fees and expenses that you may
pay if you buy and hold shares of the Fund.
-21-
<PAGE>
EXPENSE INFORMATION (CONT.)
SHAREHOLDER FEES
(Fees paid directly from your investment)
Purchase Premium
(as % of offering price) (1)(2) 0.50%
(1) The purchase premium is paid to and retained by the Fund itself and is
designed to prevent transaction costs (such as brokerage fees and other
costs of investing the amount invested by the shareholder) caused by
shareholder activity from bearing adversely on the Fund as a whole, by
essentially allocating those costs to the shareholder generating the
activity, rather than to the Fund as a whole. Footnote 2 below describes
certain instances in which the Manager may reduce or waive the purchase
premium with respect to a particular purchase.
(2) The purchase premium for the Fund may generally NOT be waived due to
offsetting transactions, and may be waived in only rare circumstances. The
premium will only be waived for this Fund (i) if the purchase is part of a
transfer from another Fund where the Manager is able to transfer securities
between the Funds to effect the transaction, (ii) during periods (expected
to exist only rarely) when the Manager determines that the Fund is
substantially underweighted with respect to its cash position so that a
purchase will not require a securities transaction, (iii) reinvestment of
dividends, or (iv) in certain other instances (not including offsetting
transactions) where it is compelling to the Manager that the purchase will
not result in transaction costs to the Fund. Any waiver with respect to
this Fund must be arranged in advance with the Manager.
ANNUAL FUND OPERATING EXPENSES EXPRESSED
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
(Expenses that are deducted from Fund Assets)
Management Fees 0.75%
Distribution and Service (12b-1) Fees (1) None
Other Expenses (2) (3) 0.41%
-----
Total Annual Fund Operating Expenses 1.16%
Fee Waiver (0.16%)
-----
Net Expenses (4) 1.00%
=====
(1) The Fund has adopted a distribution and service plan pursuant to Rule 12b-1
that permits payments by the Fund at an annual rate of up to 0.50% of the
Fund's average daily net assets. The Trustees, however, have no intention
of implementing the plan during the Fund's current fiscal year. See
"Investing in the Funds-- Distribution and Service (12b-1) Plans."
(2) "Other Expenses" include accounting and audit fees, custodian fees,
transfer agent fees, legal fees, registration fees, printing fees and fees
paid to The DLB Fund Group's independent Trustees.
(3) "Other Expenses" for the International Fund are based on estimated amounts
for the current fiscal year.
(4) The Manager has contractually agreed with the Fund to bear certain expenses
for the current fiscal year to the extent that the Fund's Total Annual Fund
Operating Expenses--other than brokerage commissions, hedging transaction
fees and other investment related costs, extraordinary, non-recurring and
certain other unusual expenses, such as litigation and other extraordinary
legal expenses, securities ending fees and expenses, and transfer
taxes--would otherwise exceed the percentage of the Fund's average daily
net assets noted in the bottom line of the table. The Manager's fee waiver
and expense agreement with the Fund during the Fund's fiscal year ending
October 31, 2000 will automatically continue for successive one-year
periods unless either The DLB Fund Group or the Manager terminates the
agreement by giving six months' notice to the other party.
EXAMPLES
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in the Fund for the time periods indicated, that your
investment earns a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these asumptions your costs would be:
1 YEAR 3 YEARS
$151 $401
In the Examples, expenses include the Purchase Premium. The figures shown would
be the same whether or not you redeemed your shares at the end of a period.
-22-
<PAGE>
DLB STEWART IVORY EMERGING MARKETS FUND
INVESTMENT OBJECTIVE
The investment objective of the DLB Stewart Ivory Emerging Markets Fund (the
"Emerging Markets Fund") is to produce long-term growth of capital primarily
through equity investments that will generally be concentrated in what the
Subadvisor considers to be the developing markets around the world ("developing
markets").
PRINCIPAL INVESTMENT STRATEGIES
WHERE THE FUND INVESTS: Under normal circumstances, the Fund will invest
substantially all (but no less than 65%) of its total assets in equity
securities--including common stocks, convertible securities, depository receipts
and preferred stocks--of companies that:
o are domiciled in developing markets;
o have their principal operations based in
developing markets; or,
o have their principal securities trading
market within developing markets.
INVESTMENT APPROACH: In pursuing its investment objective, the Fund looks
primarily for equity securities of well managed and financially sound growth
companies operating in growth business areas. Although the Fund is primarily a
growth investor, the Fund's Subadvisor, Babson-Stewart Ivory International, also
considers the timing and valuation of potential investments, given the
volatility of emerging stock markets.
Attractive companies are identified by the Subadvisor through a research
intensive, bottom-up investment approach that includes visits to relevant
countries and, where possible, company visits. While stock selection is
considered the key to successful investment, cultural, economic, political and
thematic factors play an important part in the Fund's asset allocation process.
As a result of the Fund's focus on growth companies operating in growth business
areas, the Fund will likely have a strong service industry bias. Few listed
manufacturing companies in emerging economies possess the niche characteristics
(brand names, dominant market share, hurdles for entrants, etc.) conducive to
predictable and sustainable growth.
Under normal circumstances, the Subadvisor will try to limit the risks
associated with investing in the stock markets of emerging markets by spreading
the Fund's investments geographically and sectorally. Generally, the Fund does
not intend to invest more than 20% of its total assets in any one particular
country.
Certain foreign countries do not permit the Fund to make direct investments in
their markets until the Fund has complied with certain requirements. Therefore,
during the initial peiod after commencement of operations, the Fund expects to
invest in foreign and domestic funds and other pooled investment vehicles that
invest primarily or exclusively in such countries to a greater extent than after
such period. Investments in these funds and investment vehicles may cause you
indirectly to incur higher fees and expenses, because both the Fund and the fund
or investment vehicle in which it invests charge fees and expenses.
CURRENCY HEDGING POLICY: The Fund's general approach is to leave currency
exposure unhedged. The Subadvisor considers currency outlook when determining
the Fund's geographical diverisification. Derivatives are not used, nor is
currency exposure actively managed, to seek enhancements to investment returns.
The Fund may, however, purchase foreign currencies or engage in forward foreign
currency transactions in order to expedite settlement of portfolio transactions.
-23-
<PAGE>
PRINCIPAL INVESTMENT RISKS
o Foreign Emerging Markets Risk
o Company Risk
o Foreign Issuer Risk
o Foreign Currency Risk
o Market Risk
o Equity Securities Risk
o Allocation Risk
o Small Company Risk
o Emerging Growth Companies Risk
o Non-Diversification Risk
o Restricted Securities Risk
o Forward Foreign Currency Contracts Risk
You will find a discussion of these risks, and others that may affect your
investment in the Funds, in the section entitled "Descriptions of Principal
Investment Risks," beginning on page 26.
There is no guarantee that the Fund will achieve its objective, and you could
lose money on your investment. Furthermore, the Subadvisor, despite using
various investment and risk analysis techniques, may not achieve the results
expected from an investment in the Fund.
PAST PERFORMANCE
Because the Fund is new, information on the Fund's performance is not provided
in this section.
EXPENSE INFORMATION
As an investor, you pay certain fees and expenses in connection with your
investment. The table shown below describes the fees and expenses that you may
pay if you buy and hold shares of the Fund.
SHAREHOLDER FEES
(Fees paid directly from your investment)
Purchase Premium
(as % of offering price) (1) 0.50%
(1) The purchase premium is paid to and retained by the Fund itself and is
designed to prevent transaction costs (such as brokerage fees and other
costs of investing the amount invested by the shareholder) caused by
shareholder activity from bearing adversely on the Fund as a whole, by
essentially allocating those costs to the shareholder generating the
activity, rather than to the Fund as a whole. Footnote 2 below describes
certain instances in which the Manager may reduce or waive the purchase
premium with respect to a particular purchase.
(2) The purchase premium for the Fund may generally NOT be waived due to
offsetting transactions, and may be waived in only rare circumstances. The
premium will only be waived for this Fund (i) if the purchase is part of a
transfer from another Fund where the Manager is able to transfer securities
between the Funds to effect the transaction, (ii) during periods (expected
to exist only rarely) when the Manager determines that the Fund is
substantially underweighted with respect to its cash position so that a
purchase will not require a securities transaction, (iii) reinvestment of
dividends, or (iv) in certain other instances (not including offsetting
transactions) where it is compelling to the Manager that the purchase will
not result in transaction costs to the Fund. Any waiver with respect to
this Fund must be arranged in advance with the Manager.
ANNUAL FUND OPERATING EXPENSES EXPRESSED
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
(Expenses that are deducted from Fund Assets)
Management Fees 1.25%
Distribution and Service (12b-1) Fees (1) None
Other Expenses (2) (3) 0.78%
-----
Total Annual Fund Operating Expenses 2.03%
Fee Waiver (0.28%)
-----
Net Expenses (4) 1.75%
=====
(1) The Fund has adopted a distribution and service plan pursuant to Rule 12b-1
that permits payments by the Fund at an annual rate of up to 0.50% of the
Fund's average daily net assets. The Trustees, however, have no intention
of implementing the plan during the Fund's current fiscal year. See
"Investing in the Funds-- Distribution and Service (12b-1) Plans."
(2) "Other Expenses" include accounting and audit fees, custodian fees,
transfer agent fees, legal fees, registration fees, printing fees and fees
paid to The DLB Fund Group's independent Trustees.
(3) "Other Expenses" for the Emerging Markets
-24-
<PAGE>
EXPENSE INFORMATION(CONT.)
Fund are based on estimated amounts for the current fiscal year.
(4) The Manager has contractually agreed with the Fund to bear certain expenses
for the current fiscal year to the extent that the Fund's Total Annual Fund
Operating Expenses--other than brokerage commissions, hedging transaction
fees and other investment related costs, extraordinary, non-recurring and
certain other unusual expenses, such as litigation and other extraordinary
legal expenses, securities lending fees and expenses, and transfer
taxes--would otherwise exceed the percentages of the Fund's average daily
net assets noted in the bottom line of the table. The Manager's fee waiver
and expense agreement with the Fund during the Fund's fiscal year ending
October 31, 2000 will automatically continue for successive one-year
periods unless either The DLB Fund Group or the Manager terminates the
agreement by giving six months' notice to the other party.
EXAMPLES
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in the Fund for the time periods indicated, that your
investment earns a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR 3 YEARS
$227 $657
In the Examples, expenses include the Purchase Premium. The figures shown would
be the same whether or not you redeemed your shares at the end of a period.
-25-
<PAGE>
DESCRIPTIONS OF PRINCIPAL INVESTMENT RISKS
This section explains the principal investment risks associated with investments
in the Funds. These risks are the primary reasons for possible decreases in the
value of your investments in the Funds. The Fund summaries, on pages 1 to 25,
identify which of these risks apply to each Fund. The types of risks and the
extent to which they affect the value of your investment in the Funds may change
over time, particularly as the types of investments made by the Funds change.
ALLOCATION RISK
The Manager will use its judgment when allocating the Fixed Income Fund's
investments among various segments of the fixed income markets. The Manager may
miss attractive investment opportunities by underweighting markets where there
are significant returns. The Fixed Income Fund could lose value if the Manager
overweights markets where there are significant declines.
With regard to all of the Funds, the Manager--and, in the case of the Global
Small Cap Fund, the International Fund, and the Emerging Markets Fund, the
Subadvisor-- has discretion to determine the investments made by a Fund. The
Past Performance sections in the Fund summaries present index performance
results for purposes of comparison, but no Fund is managed with the goal of
mirroring the securities of any particular index. A Fund's investment style
(e.g., value or growth) may result in that Fund being overweighted or
underweighted compared with industry sectors or countries in the index and may
result in that Fund holding securities within a particular sector or country
that are different from the securities included in the index for that sector or
country. Thus, a Fund's returns may vary substantially from the performance of
the index with which it is compared.
APPLIES TO: ALL FUNDS
COMPANY RISK
A company's economic condition influences the prices of its securities. The
price of any security held by any Fund may rise or fall for a number of reasons,
including but not limited to the following:
o management decisions
o changes in management
o changing demand for the company's goods
or services
o changes in or differences between actual
and anticipated earnings
o the potential for takeovers and acquisitions
o increased production costs
o stricter government regulations
o a rating agency downgrade
o uncertainty or losses caused by failures or
potential failures to adequately address Year
2000 computer processes
APPLIES TO: ALL FUNDS
CREDIT RISK
The issuer of a fixed income security may not be able to pay principal and/or
interest when due. The value of a fixed income security generally will fall if
the issuer fails to pay principal or interest when due, a rating agency
downgrades the issuer or other information negatively influences the market's
perceptions of the issuer's credit risk.
Certain lower-rated investment grade fixed income securities and comparable
unrated securities in which a Fund may invest have speculative characteristics.
Changes in economic conditions or adverse developments affecting particular
companies or industries are more likely to lead to a weakened capacity to make
principal and interest payments on such obligations than in the case of
higher-rated securities.
-26-
<PAGE>
CREDIT RISK (CONT.)
As explained in the Appendix, the Fixed Income Fund may hold up to 5% of its
assets in non-investment grade securities. Lower quality debt instruments
involve greater volatility of price and yield, and greater rik of loss of
principal and interest, and generally reflect a greater possibility of an
adverse change in financial condition which would affect the ability of the
issuer to make payments of principal and interest. The market price for lower
quality securities generally responds to short-term corporate and market
developments to a greater extent than high-rated securities because these
developments are perceived to have a more direct relationship to the ability of
an issuer of lower quality securities to meet its ongoing debt obligations.
APPLIES TO: FIXED INCOME FUND
EMERGING GROWTH COMPANIES RISK
Investments in emerging growth companies may exhibit more abrupt or erratic
market movements because they may have one or more of the following
characteristics:
o limited product lines, markets and financial
resources, including access to capital
o management by one or a few key
individuals
o securities that are less liquid and fewer
in number
o securities that trade less frequently and in
limited volume
o shorter operating history
o less experienced management
These characteristics, among others, may cause the securities of emerging growth
companies to suffer steeper than average price declines after disappointing
earnings reports and to be more difficult to sell at satisfactory prices.
APPLIES TO: MICRO CAP FUND, GLOBAL SMALL CAP
FUND, INTERNATIONAL FUND,
EMERGING MARKETS FUND
EQUITY SECURITIES RISK
All of the Funds except the Fixed Income Fund invest primarily in equity
securities. Equity securities are securities that represent an ownership
interest (or the right to acquire an ownership interest) in a company. Although
these types of securities offer greater potential for long-term growth, they are
more volatile and more risky than some other forms of investment. Therefore, the
value of your investment in a Fund may decrease.
APPLIES TO: ALL FUNDS EXCEPT FIXED INCOME
FUND
FOREIGN CURRENCY RISK
Investments in securities denominated in foreign currencies are at times more
volatile than investments in securities denominated in U.S. dollars. These
securities involve the risk that their values, in terms of U.S. dollars, may
fluctuate without any change in the inherent value of the securities due to
changes in the currency exchange rate. In addition, certain foreign countries
present the risk that they may impose currency exchange controls.
APPLIES TO: GLOBAL SMALL CAP FUND,
INTERNATIONAL FUND, EMERGING
MARKETS FUND
FOREIGN ISSUER RISK
Investments in the securities of foreign companies and securities traded
primarily in foreign markets are generally less liquid and at times more
volatile than investments in the securities of domestic companies and securities
traded in domestic markets. They also involve a variety of special risks,
including risks of:
o less rigorous accounting, auditing and
financial reporting standards than are
customary in the United States
o adverse political or regulatory developments
o higher trading and settlement costs
o limited public information
o limited, slower or more costly legal
remedies
-27-
<PAGE>
FOREIGN ISSUER RISK (CONT.)
o special tax considerations
o a company borrowing in currencies different
from its revenue stream
o communications betwen the United States
and foreign countries being less reliable
than within the United States
o a Fund's agent having difficulty keeping
informed about corporate actions which
may affect the prices of portfolio securities
If a Fund concentrates a substantial amount of its assets in issuers located in
a single country or a limited number of countries, it assumes the risk that
economic, political and social conditions in that country or those countries
will have a significant impact on its investment performance.
APPLIES TO: FIXED INCOME FUND, GLOBAL SMALL
CAP FUND, INTERNATIONAL FUND,
EMERGING MARKETS FUND
FOREIGN EMERGING MARKETS RISK
In addition, beyond the general risks associated with any foreign investment,
certain foreign countries present the following risks:
o expropriation of assets
o imposition of currency exchange controls
o confiscatory taxation
o limitations on investments in certain
issuers in those countries
o limitations on expatriation of cash
and/or assets
o political, social or financial instability
o adverse diplomatic developments
o restricted stock market access
o volatile stock markets
o limited stock market regulation
o low correlation with major international
stock market performance
This set of risks represents the risks generally associated with "emerging
markets." Emerging markets are those countries in the initial stages of their
industrialization cycles with low per capita income. Emerging markets have
demonstrated greater volatility than the markets of countries with economies
that are more mature.
If a Fund concentrates a substantial amount of its assets in issuers located in
a single country or a limited number of countries, it assumes the risk that
economic, political and social conditions in that country or those countries
will have a significant impact on its investment performance. Investment in
certain foreign countries or emerging markets may exacerbate this risk.
APPLIES TO: GLOBAL SMALL CAP FUND,
INTERNATIONAL FUND, EMERGING
MARKETS FUND
FORWARD FOREIGN CURRENCY
CONTRACTS RISK
A forward foreign currency exchange contract is a contract individually
negotiated and privately traded by currency traders and their customers. A
forward contract involves an obligation to purchase or sell a specific currency
for an agreed price at a future date, which may be any fixed number of days from
the date of the contract. A forward contract may be for a single price or for a
range of prices. A Fund would be required to segregate assets to cover forward
foreign currency exchange contracts that require it to purchase foreign
currency.
The purpose of entering into these contracts is to facilitate settlement of a
Fund's transaction or to minimize the risk to a Fund from adverse changes in the
relationship between the U.S. dollar and foreign currencies. At the same time,
these contracts may limit potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies.
-28-
<PAGE>
FORWARD FOREIGN CURRENCY
CONTRACTS RISK (CONT.)
Unanticipated changes in currency prices may result in poorer overall
performance for a Fund than if it had not engaged in forward currency exchange
contracts.
APPLIES TO: GLOBAL SMALL CAP FUND,
INTERNATIONAL FUND, EMERGING
MARKETS FUND
INTEREST RATE RISK
The values of fixed income securities, such as bonds, notes and asset-backed
securities, generally vary inversely to changes in prevailing interest rates.
For example, when interest rates rise, the values of fixed income securities
tend to fall. This risk is generally greater for securities with longer
maturities and durations. Fluctuations in the values of fixed income securities
held by a Fund will not affect the income paid by the Fund but will affect the
value of the Fund's shares.
Interest rate risk will have a greater influence on the price of a fixed income
security if the security has a longer maturity or duration. Fixed income
securities with longer maturities or durations therefore are more volatile than
fixed income securities with shorter maturities or durations. The average
maturity of a Fund's fixed income investments will affect the volatility of the
Fund's share price.
APPLIES TO: FIXED INCOME FUND
MARKET RISK
The value of the securities held by the Funds may fall due to changing economic,
political or market conditions, the general outlook for corporate earnings,
changing interest rates, investor sentiment or disappointing earnings results.
APPLIES TO: ALL FUNDS
MORTGAGE- AND ASSET-BACKED
SECURITIES RISK
Credit Risk--As with fixed income securities generally, mortgage- and
asset-backed securities present the risk that the issuer will default on
principal and interest payments. The U.S. Government or its agencies guarantees
the payment of principal and interest on some mortgage-backed securities, but in
other cases it may be difficult to enforce rights against the assets underlying
other mortgage- and asset-backed securities when an issuer defaults.
Nevertheless, insurance or other forms of guarantee may support mortgage- and
asset-backed securities issued by private lending institutions or other
financial intermediaries.
Maturity Risk--MORTGAGE-BACKED SECURITIES: A mortgage-backed security matures
when all the mortgages in the pool mature or are prepaid. Therefore,
mortgage-backed securities do not have a fixed maturity, and their expected
maturities may vary when interest rates change.
When interest rates fall, homeowners are more likely to prepay their mortgage
loans. An increased prepayment rate on a Fund's mortgage-backed securities will
result in an unforeseen loss of interest income to the Fund. In addition,
because prepayments increase when interest rates fall, the prices of
mortgage-backed securities do not increase as much as those of other fixed
income securities when interest rates fall. Furthermore, increased prepayments
may have to be reinvested, in turn, at lower interest rates.
When interest rates rise, homeowners are less likely to prepay their mortgage
loans. A decreased prepayment rate lengthens the expected maturity of a
mortgage-backed security. Therefore, the prices of mortgage-backed securities
may decrease more than prices of other fixed income securities when interest
rates rise.
-29-
<PAGE>
MORTGAGE- AND ASSET-BACKED
SECURITIES RISK (CONT.)
COLLATERALIZED MORTGAGE OBLIGATIONS:
Collateralized mortgage obligations (CMOs) are a type of mortgage-backed
security. CMOs are issued in separate classes with different expected
maturities. As its underlying mortgage pool experiences prepayments, a CMO pays
off investors in classes in accordance with the CMO's governing instrument
(generally, the CMO first pays investors who have purchased classes with shorter
expected maturities). By investing in CMOs, a Fund may better manage the
prepayment risk of mortgage-backed securities. However, unanticipated
prepayments may cause the actual maturity of a CMO to be substantially shorter
than its expected maturity, and prepayments at levels lower than expected may
cause the actual maturity of a CMO to be longer than its expected maturity.
These changes in a CMO's maturity could result in declines in the CMO's value.
ASSET-BACKED SECURITIES: Asset-backed securities are securities that are backed
by pools of obligations, such as pools of automobile loans, educational loans
and credit card receivables, both secured and unsecured. Asset-backed securities
have prepayment risks similar to those of mortgage-backed securities. However,
the levels of principal prepayment tend not to vary much with interest rates,
and the short-term nature of the assets underlying asset-backed securities tends
to dampen the impact of changes in the levels of prepayment. In addition, the
following may cause holders of asset-backed securities to experience delays in
payment on the securities, which may result in losses to a Fund holding the
securities:
o unanticipated legal or administrative costs
of enforcing the contracts on the assets
o depreciation of the collateral securing
the contracts
o damage to or destruction of the collateral
securing the contracts
APPLIES TO: FIXED INCOME FUND
NON-DIVERSIFICATION RISK
Each Fund is non-diversified, which means that it may invest a relatively high
percentage of its assets in the securities of relatively few issuers. Investment
in the securities of a limited number of issuers may increase the risk of loss
to a Fund should there be a decline in the market value of any one portfolio
security. Investment in a non-diversified fund therefore entails greater risks
than investment in a diversified fund. Given that the Funds are not diversifid,
no Fund is intended to be a complete investment program.
APPLIES TO: ALL FUNDS
OUT-OF-FAVOR RISK
There are risks in investing in unpopular stocks. The factors causing a stock's
unpopularity may continue longer than expected or may worsen. These factors may
range from a drop in earnings expectations to a major business problem. As a
result, the stock's value may drop, or it may not appreciate as the Manager
expected.
Furthermore, unpopular stocks involve the risk that the financial markets do not
follow the company. Therefore, even if a company experiences improved
performance, the price of its stock may drop, or it may not rise in conjunction
with the improvement in performance as the Manager expected.
APPLIES TO: VALUE FUND, ENTERPRISE III FUND,
GLOBAL SMALL CAP FUND
RESTRICTED SECURITIES RISK
Securities that are not registered under the Securities Act of 1933, as amended
(the "1933 Act"), including securities issued in accordance with Rule 144A under
the 1933 Act ("Restricted Securities"), present certain risks. Investments in
Restricted Securities could cause the liquidity of a Fund to decrease if the
market's interest for those securities decreases, particularly because the
market for these securities may be limited to certain qualified investors.
-30-
<PAGE>
RESTRICTED SECURITIES RISK (CONT.)
Under these conditions, a Fund may not be able to sell those securities when it
wants to, and a Fund may have to sell those securities at an unsatisfactory
price. Market quotations may be less readily available for Restricted
Securities, and thus judgment may play a greater role in the valuation of these
securities than it would in the valuation of unrestricted securities.
In foreign markets, and particularly in emerging markets, investing in
securities not registered under applicable securities laws may exacerbate the
risks of investing in domestic restricted securities or in registered securities
of companies located in foreign or emerging markets, as the case may be. In
particular, the liquidity of such securities and the information available
regarding such securities may be extremely limited.
APPLIES TO: FIXED INCOME FUND, EMERGING
MARKETS FUND
SMALL COMPANY RISK
The securities of mid cap, small cap and micro cap companies may change in value
more than those of larger, more established companies because mid cap, small cap
and micro cap companies are more likely to:
o depend upon a single proprietary product or
market niche,
o have limited product lines, markets or
financial resources,
o depend on a limited management group,
o have fewer, less liquid securities
outstanding, and
o have securities that trade less frequently and
in limited volume.
In general, the securities of mid cap, small cap and micro cap companies are
more sensitive to purchase and sale transactions. Therefore, the prices of those
securities tend to be more volatile than the prices of securities of larger
companies.
In many instances, the securities of mid cap, small cap and micro cap companies
are traded only over-the-counter or on a regional securities exchange.
Furthermore, the frequency and volume of their trading are substantially less
than is typical of larger companies. Therefore, the securities of smaller
companies may be subject to wider price fluctuations. When disposing of these
securities, a Fund may have to sell at discounts from quoted prices, settle for
a less than satisfactory price, or make a series of small sales over an extended
period of time.
APPLIES TO: DISCIPLINED GROWTH FUND,
ENTERPRISE III FUND, MICRO CAP
FUND, GLOBAL SMALL CAP FUND,
INTERNATIONAL FUND, EMERGING
MARKETS FUND
TAX RISK
The International Fund is the successor to the Babson-Stewart Ivory
International Limited Partnership III, a Delaware limited partnership (the
"Limited Partnership"), which transferred all of its assets to the International
Fund in a tax-free transaction prior to the date of this prospectus. The Limited
Partnership had been in operation since May 1, 1993, and as of December 31,
1998, the unrealized gains in the Limited Partnership's portfolio represented
approximately 29% of the aggregate net asset value of the Limited Partnership.
Accordingly, any new investors in the International Fund who are taxable on
their income and gains would be subject to significant tax liabilities arising
from gains that arose in the International Fund prior to their investment, but
were recognized thereafter. These gains would economically represent a return of
capital to the investor, but would be taxable as if the investor had recognized
the gains. Therefore, investors in the Limited Partnership who are taxable on
their income and gains should carefully consider this significant tax risk prior
to investing in shares of the International Fund and should be aware that they
may be subject to significant tax liabilities at any time after investment, even
in periods in which the Fund is experiencing losses.
APPLIES TO: INTERNATIONAL FUND
-31-
<PAGE>
TEMPORARY DEFENSIVE POSITIONS
GROWTH FUND
The Growth Fund may, from time to time, take temporary defesive positions in
securities convertible into common stocks, preferred stocks, high grade bonds or
other defensive issues in attempting to respond to adverse market, economic,
political, or other conditions. Keep in mind that a temporary defensive strategy
still has the possibility of losing money and may prevent the Fund from
achieving its investment objective.
INTERNATIONAL FUND AND EMERGING MARKETS FUND
The International Fund and the Emerging Markets Fund may hold fixed income
securities (including those of foreign governments or companies) for temporary
defensive purposes when the Subadvisor believes that prevailing market,
economic, political or currency conditions so warrant and for temporary
investment. Similarly, each Fund may invest in cash and cash equivalents
(including foreign money market instruments, such as banker's acceptances,
certificates of deposit, commercial paper, short-term government and corporate
obligations and repurchase agreements) for temporary defensive purposes and
liquidity. Although each Fund expects to be primarily invested in foreign
issues, the Funds may--for temporary defensive purposes--invest in U.S. issues,
including cash and cash equivalents and high quality, short-term obligations. In
addition, each Fund may enter into repurchase agreements. Keep in mind that a
temporary defensive strategy still has the possibility of losing money and may
prevent the Fund from achieving its investment objective.
-32-
<PAGE>
HOW THE FUNDS ARE MANAGED
THE MANAGER
Each Fund is advised and managed by its Manager, David L. Babson and Company
Incorporated. Founded in 1940, the Manager provides investment advisory services
to a substantial number of institutional and other investors, including other
registered investment companies. As of June 30, 1999, the Manager had over $21
billion in assets under management. The Manager is located at One Memorial
Drive, Cambridge, Massachusetts 02142.
Under separate Management Contracts relating to each Fund, the Manager selects
and reviews each Fund's investments and provides executive and other personnel
for the management of The DLB Fund Group. The Manager carries out its duties
subject to the policies adopted by The DLB Fund Group's Board of Trustees.
THE SUBADVISOR
The Manager employs at its own expense the Subadvisor, Babson-Stewart Ivory
International, to manage the international component of the Global Small Cap
Fund's portfolio and the investment portfolios of the International Fund and the
Emerging Markets Fund. The Subadvisor was established in 1987 and is a general
partnership owned 50% by the Manager and 50% by Stewart Ivory & Company
(International) Limited ("Stewart Ivory International"). Stewart Ivory
International is a wholly-owned subsidiary of Stewart Ivory & Co. Ltd. ("Stewart
Ivory"), a wholly owned subsidiary of Stewart Ivory (Holdings) Ltd., which is
controlled by its executives and staff. Stewart Ivory and its predecessor
organizations have been managing investments internationally from Edinburgh
since 1873. The Subadvisor also provides investment advisory services to
institutional and other investors, including other registered investment
companies. The Subadvisor is located at One Memorial Drive, Cambridge,
Massachusetts 02142.
INVESTMENT ADVISORY FEES
For the fiscal year ended December 31, 1998, each Fund (other than the
International and Emerging Markets Funds, which are new) paid the Manager an
investment management fee as follows:
Management Fee
(as a % of Average
Name of Fund Daily Net Assets)
------------------------------------------------------
Fixed Income Fund 0.40%
Value Fund 0.55
Growth Fund (annualized) 0.55
Disciplined Growth Fund 0.75
Enterprise III Fund 0.60
Micro Cap Fund (annualized) 1.00
Global Small Cap Fund 1.00
The fees shown above do not reflect the Manager's partial waiver of its
management fee in 1998, as the Manager does not intend to waive any of its
management fees in 1999. The current investment management fee paid by each Fund
to the Manager is identified under "Expense Information" for each Fund, in the
"About the Funds" section of the Prospectus.
PORTFOLIO MANAGERS
FIXED INCOME FUND: MARY WILSON KIBBE, Executive Vice President of the Manager,
is primarily responsible for the day-to-day management of the Fixed Income Fund.
She became primarily responsible for the day-to-day management of the Fund
effective October 21, 1999. Ms. Kibbe, who has 23 years of investment
experience, is a dual employee of Massachusetts Mutual Life Insurance Company
("MassMutual"), with which she has been associated since 1982, and the Manager,
an indirect subsidiary of MassMutual, which she joined on October 21, 1999. Ms.
Kibbe is assisted in the day-to-day management of the Fund by a team of
investment professionals at the Manager.
-33-
<PAGE>
PORTFOLIO MANAGERS (CONT.)
VALUE FUND: ANTHONY M. MARAMARCO, Senior Vice President of the Manager, is
primarily responsible for the day-to-day management of the Value Fund. Mr.
Maramarco, who has 18 years of investment experience, has been employed by the
Manager (and a company which merged into the Manager) since 1993. Effective May
27, 1999, Mr. Maramarco became primarily responsible for the day-to-day
management of the Fund, replacing Roland W. Whitridge as a portfolio manager.
For the past two years, he as assisted Mr. Whitridge in the management of the
Fund. Mr. Maramarco is assisted in the day-to-day managment of the Fund by a
team of investment professionals at the Manager.
GROWTH FUND: JAMES B. GRIBBELL, Senior Vice President of the Manager, is
primarily responsible for the day-to-day management of the Growth Fund. Mr.
Gribbell, a Chartered Financial Analyst with 10 years of investment experience,
has been employed by the Manager in portfolio management for over 5 years. He
has managed the Fund since its inception. Mr. Gribbell is assisted in the
day-to-day management of the Fund by a team of invesment professionals at the
Manager.
DISCIPLINED GROWTH FUND: MICHAEL CAPLAN, Senior Vice President of the Manager,
is primarily responsible for the day-to-day management of the Disciplined Growth
Fund. Mr. Caplan, who has 13 years of investment experience, has managed the
Fund since its inception. Mr. Caplan has been employed by the Manager (and a
company which merged into the Manager) since 1995, prior to which he was
employed as a portfolio manager by State Street Global Advisors. Mr. Caplan is
assisted in the day-to-day management of the Fund by Kathleen Golden.
ENTERPRISE III FUND: DENNIS J. SCANNELL, Senior Vice President of the Manager,
is primarily responsible for the day-to-day management of the Enterprise III
Fund. Mr. Scannell, who has 14 years of investment experience, has been employed
by the Manager in portfolio management for over 5 years. He has managed the Fund
since August 1998. Mr. Scannell is assisted in the day-to-day management of the
Fund by a team of investment professionals at the Manager.
MICRO CAP FUND: PAUL S. SZCZYGIEL, Senior Vice President of the Manager, is
primarily responsible for the day-to-day management of the Micro Cap Fund. Mr.
Szczygiel, a Chartered Financial Analyst with over 14 years of investment
experience, has managed the Fund since its inception. Mr. Szczygiel has been
employed by the Manager (and a company which merged into the Manager) in
portfolio management since 1994, prior to which he was an Associate Director at
Bear Stearns. Mr. Szczygiel is assisted in the day-to-day management of the Fund
by a team of investment professionals at the Manager.
GLOBAL SMALL CAP FUND: DENNIS J. SCANNELL, Senior Vice President of the Manager,
and JOHN G.L. WRIGHT and JAMES W. BURNS, each a Managing Director of the
Subadvisor, are primarily responsible for the day-to-day management of the
Global Small Cap Fund. Mr. Scannell, who has 14 years of investment experience,
has been employed by the Manager in portfolio management for over 5 years. He
has managed the Fund's domestic investments since August 1998. Mr. Scannell is
assisted in the day-to-day management of the Fund's domestic investments by a
team of investment professionals at the Manager.
Mr. Wright, who has been employed by Stewart Ivory for over 28 years, and Mr.
Burns, who has been employed by Stewart Ivory for over 9 years, have both been
responsible for management of the Fund's international investments since its
inception. They are assisted by a team of investment professionals who have
responsibility for specific countries.
INTERNATIONAL FUND: JOHN G.L. WRIGHT and JAMES W. BURNS, each a Managing
Director of the Subadvisor, ar primarily responsible for
-34-
<PAGE>
PORTFOLIO MANAGERS (CONT.)
INTERNATIONAL FUND (CONT.): the day-to-day management of the International Fund.
Mr. Wright, who has been employed by Stewart Ivory for over 28 years, and Mr.
Burns, who has been employed by Stewart Ivory for over 9 years, have managed the
Fund and its predecessor, Babson-Stewart Ivory International Limited Partnership
III, since its inception. They are assisted by a team of investment
professionals that have responsibility for specific countries.
EMERGING MARKETS FUND: ANGUS J. TULLOCH and STUART W. PAUL are primarily
responsible for the day-to-day management of the Emerging Markets Fund. Mr.
Tulloch, who is a Director of Stewart Ivory and head of the Asia Pacific
(ex-Japan) desk, has been employed by Stewart Ivory for over 10 years. Mr. Paul,
a Chartered Financial Analyst, is the head of the Emerging Markets (ex-Asia)
desk, and has been employed by Stewart Ivory since 1994. Prior to that, he was a
Chartered Accountant with Ernst & Young. Mr. Tulloch and Mr. Paul have managed
the Fund since its inception. They are assisted by a team of investment
professionals that have responsibility for specific countries.
CERTAIN PERFORMANCE INFORMATION RELATED TO OTHER ACCOUNTS
GROWTH ACCOUNTS
The information presented below provides related performance information which
may be useful to consider before investing in the Growth Fund. THE QUOTED
PERFORMANCE DATA BELOW DOES NOT REPRESENT THE HISTORICAL PERFORMANCE OF THE
GROWTH FUND AND SHOULD NOT BE INTERPRETED AS BEING INDICATIVE OF THE PAST OR
FUTURE PERFORMANCE OF THE FUND. The expenses, timing of purchases and sales of
portfolio securities, availability of cash flows, brokerage commissions,
portfolio composition and investment policies of the Growth Fund, as well as any
changes in market conditions, are all reasons that the performance results of
the Fund may vary from the related performance results shown below.
In addition to serving as investment advisor to The DLB Fund Group, the Manager
has also served as the investment subadvisor to the Babson Growth Fund since its
inception. The Babson Growth Fund is a registered investment company having
substantially similar (although not necessarily identical) investment
objectives, policies and strategies as the Growth Fund. James B. Gribbell, the
individual primarily responsible for the day-to-day management of the Growth
Fund, has been the individual primarily responsible for the day-to-day
management of the Babson Growth Fund since January 1, 1996. From 1993 to 1995,
Mr. Gribbell was the assistant portfolio manager of the Babson Growth Fund.
The bar chart below illustrates the variability of returns achieved by the
Manager for the Babson Growth Fund. The table following the bar chart compares
the average annual total returns that the Manager achieved for the Babson Growth
Fund over time to those of a broad-based securities market index. In each case,
the performance of the Babson Growth Fund has been adjusted to give effect to
the fees and expenses of the Growth Fund (without giving effect to any expense
waivers or reimbursements).
[BAR CHART]
1989 22.00% 1994 -0.65%
1990 -9.52% 1995 31.31%
1991 25.95% 1996 21.68%
1992 9.01% 1997 27.85%
1993 10.18% 1998 32.09%
Best Quarter: 4th Quarter 1998, +26.20% Worst Quarter: 3rd Quarter 1990, -17.28%
The year-to-dtae return through September 30, 1999 was -4.67%.
-35-
<PAGE>
Average Annual Total Returns
For Similar Account*
For the periods ended December 31, 1998
---------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Babson Growth
Fund 32.09% 27.14% 21.80% 16.17%
Russell 1000
Growth Index 38.71% 30.62% 25.70% 20.57%
* As of December 31, 1998, the Babson Growth Fund had $512 million in assets.
The RUSSELL 1000 GROWTH INDEX is an unmanaged index that contains those Russell
1000 Index securities with a greater-than-average growth orientation. Securities
in this index tend to exhibit higher price-to-book and price-to-earnings ratios,
lower dividend yields and higher forecasted growth than the value universe.
MICRO CAP ACCOUNTS
The information presented below provides related performance information which
may be useful to consider before investing in the Micro Cap Fund. THE QUOTED
PERFORMANCE DATA BELOW DOES NOT REPRESENT THE HISTORICAL PERFORMANCE OF THE
MICRO CAP FUND AND SHOULD NOT BE INTERPRETED AS BEING INDICATIVE OF THE PAST OR
FUTURE PERFORMANCE OF THE FUND. The expenses, timing of purchases and sales of
portfolio securities, availability of cash flows, brokerage commissions,
portfolio composition and investment policies of the Micro Cap Fund, as well as
any changes in market conditions, are all reasons that the performance results
of the Fund may vary from the related performance results shown below.
In addition to serving as investment advisor to The DLB Fund Group, the Manager
has also served since May 1, 1994, as the investment manager of other private
accounts that have investment objectives, policies and strategies that are
substantially similar (although not necessarily identical) to those of the Micro
Cap Fund (collectively, the "Micro Cap Accounts"). Paul S. Szczygiel, the
individual primarily responsible for the day-to-day management of the Micro Cap
Fund, has been the individual primarily responsible for the day-to-day
management of the Micro Cap Accounts since the inception of those accounts on
May 1, 1994.
The performance information shown below is based on a composite of the Micro Cap
Accounts adjusted to give effect to the estimated fees and expenses of the Micro
Cap Fund (without giving effect to any expense waivers or reimbursements) during
the 1999 fiscal year. The bar chart below illustrates the variability of returns
achieved by the Manager for the Micro Cap Accounts. The table following the bar
chart compares the average annual total returns that the Manager achieved for
the Micro Cap Accounts over time to those of a broad-based securities market
index.
[BAR CHART]
1995 35.77%
1996 56.70%
1997 47.19%
1998 -6.28%
Best Quarter: 3rd Quarter 1997, +21.23% Worst Quarter: 3rd Quarter 1998, -19.44%
The year-to-dtae return through September 30, 1999 was 5.74%.
Average Annual Total Returns
For Similar Accounts*
For the periods ended December 31, 1998
---------------------------------------
Since
Inception
1 Year 3 Years 5/1/94
------ ------- ------
Micro Cap Accounts -6.28% 29.30% 28.32%
Russell 2000 Index -2.55% 11.58% 13.27%
* As of December 31, 1998, the Micro Cap Accounts consisted of 4 accounts
totaling $28.5 million in assets.
-36-
<PAGE>
The RUSSELL 2000 INDEX is an unmanaged index that consists of the 2000 smallest
securities in the Russell 3000 Index, representing approximately 8% of the
Russell 3000 total market capitalization. This index is a commonly used measure
of the stock performance of small and medium-size companies in the United
States.
Unlike the Micro Cap Fund, the Micro Cap Accounts include accounts that were not
registered under the Investment Company Act of 1940 and therefore were not
subject to certain investment limitations, diversification requirements, and
other restrictions imposed by that Act. In addition, the Micro Cap Accounts
include accounts that were not subject to Subchapter M of the Internal Revenue
Code, which imposes certain limitations on the investment operations of the
Fund. If the Micro Cap Accounts had all been registered under the 1940 Act, and
subject to Subchapter M of the Code, their performance might have been adversely
affected.
-37-
<PAGE>
INVESTING IN THE FUNDS
HOW TO OPEN AN ACCOUNT
Before investing in a Fund you wll need to open an account with The DLB Fund
Group. You can open an account by completing and returning to The DLB Fund Group
a signed account application. Account applications are available from The DLB
Fund Group, whose address and toll free number are provided on the back of this
prospectus.
When completing the application, please be sure to provide your social security
number or taxpayer identification number on the application and designate the
account(s) to which funds or securities may be transferred upon redemption.
Designation of additional accounts or any change in the accounts originally
designated must be made by you in writing, with the signature medallion
guaranteed by a commercial bank, a member firm of a domestic securities exchange
or one of certain other financial institutions.
HOW TO PURCHASE SHARES
You may purchase shares of each Fund directly from The DLB Fund Group on any day
when the NYSE is open for business. The NYSE is closed on weekend days, national
holidays and Good Friday. Before placing an order for Fund shares, you should
call the Manager at 1-888-722-2766, Attn: The DLB Fund Group Coordinator.
PURCHASE PRICE: The purchase price of a share of a Fund, other than the
International Fund and the Emerging Markets Fund, is the net asset value next
determined after your purchase order is received in good order. Generally, a
purchase order is in good order if the Funds' Transfer Agent, Investors Bank &
Trust Company ("IBT"), has received the consideration for the Fund shares before
the relevant deadline, which is described below under "Purchases."
Shares of the International Fund and the Emerging Markets Fund are sold at their
offering price, which is the net asset value per share next
determined after your purchase order is received in good order plus any purchase
premium established from time to time by The DLB Fund Group for the particular
Fund. All purchase premiums are paid to and retained by the Fund and are
intended to cover the brokerage and other costs associated with putting the
investment to work in the relevant markets. For each of the International Fund
and the Emerging Markets Fund, the purchase premium currently in effect is 0.50%
of the amount invested. These premiums are paid to and retained by the Fund
itself and are designed to allocate transaction costs caused by shareholder
activity to the shareholder generating the activity, rather than to the Fund as
a whole. Purchase premiums are not sales loads. In certain limited
circumstances, the purchase premiums for the International Fund or the Emerging
Markets Fund may be waived in part or in full. The circumstances are described
in footnote 2 to the Shareholder Fees table of the "Expense Information" section
relating to such Fund.
In most cases, if the Funds' Transfer Agent, IBT, does not receive the
consideration before the relevant deadline, The DLB Fund Group will not consider
the purchase to be in good order. This means that you must resubmit the purchase
order and consideration on the following business day, unless IBT can credit the
consideration to the account of a specific Fund. The Funds do not impose a sales
charge on purchases.
MINIMUM INVESTMENT: The minimum initial investment in a Fund is $100,000, and
the minimum for each subsequent investment is $10,000. If you open multiple
accounts with The DLB Fund Group, you may aggregate your investments in the
Funds to satisfy the minimum investment requirement. You may also satisfy the
minimum initial investment requirement by making an initial invstment of at
least $25,000 in a Fund and investing the remainder of the $100,000 minimum
initial investment within 12 months.
-38-
<PAGE>
PURCHASES: You may purchase shares of a Fund utilizing the following methods:
CASH (by wire transfer only). You must transmit all federal funds to IBT to
Account No. 777777722 for the account of the specific Fund. ("Federal
funds" are monies credited to IBT's account with the Federal Reserve Bank
of Boston.) The deadline for wiring federal funds is 2:00 p.m. Eastern
time.
SECURITIES (only by transferring common stocks on deposit at The Depository
Trust Company ("DTC") or appropriate fixed income securities, which the
Manager has determined are acceptable). In the case of an investment
in-kind, you must place your securities on deposit at DTC by 4:00 p.m.
Eastern time, the deadline for transferring those securities to the account
designated by the custodian for the Funds (IBT).
The Manager will not accept securities, in exchange for Fund shares, unless:
o the Manager, in its sole discretion, believes the securities are appropriate
investments for the Fund. (The Manager will accept securities, in exchange
for Fund shares, for investment only and not for resale.);
o you represent and agree that all securities offered to the Fund are not
subject to any restrictions upon their sale by the Fund under the Securities
Act of 1933, or otherwise; and
o the securities may be acquired under the investment restrictions applicable
to the relevant Fund.
The Manager will value securities it accepts in exchange for Fund shares in
accordance with the relevant Fund's procedures for valuation described under
"How Share Price Is Determined" as of the time of the next determination of net
asset value after acceptance. All dividends, interest, subscription or other
rights that are reflected in the market price of accepted securities at the time
of valuation become the property of the relevant Fund and must be delivered to
The DLB Fund Group upon receipt by you from the issuer. If you purchase Fund
shares in exchange for securities, you may, if you are subject to federal income
taxation, recognize a gain or loss for federal income tax purposes, depending
upon your basis in the securities tendered. In all cases, the Manager reserves
the right to reject any particular investment.
CASH AND SECURITIES. You will need to follow the above instructions for
purchases made with a combination of cash and securities.
Purchases will be made in full and fractional shares of each Fund calculated to
three decimal places. The DLB Fund Group will send to shareholders written
confirmation (including a statement of shares owned) at the time of each
transaction. The DLB Fund Group reserves the right at any time to reject an
order.
HOW TO SELL SHARES
You may redeem Fund shares on any day when the NYSE is open for business.
The Funds will redeem their shares at a price equal to their net asset value per
share next determined after IBT receives the redemption request in good order. A
redemption request is in good order if it:
o includes the correct name in which shares are registered, your account number
and the number of shares or the dollar amount of shares to be redeemed; and
o is signed correctly in accordance with the form of registration. (Persons
acting in a fiduciary capacity, or on behalf of a corporation, partnership or
trust, must specify, in full, the capacity in which they are acting.)
There is no redemption fee for any of the Funds.
-39-
<PAGE>
REDEMPTION REQUESTS: You should send redemption requests to The DLB Fund
Group. To help facilitate the timely payment of redemption proceeds, you should
telephone the Manager at 1-888-722-2766, Attn: The DLB Fund Group Coordinator,
at least two days before submitting a request.
PAYMENT OF REDEMPTION PROCEEDS: The DLB Fund Group will make payment on
redemption as promptly as possible and in any event within seven days after IBT
receives your redemption request in good order.
CASH PAYMENTS. The DLB Fund Group will make cash payments generally by
transfer of Federal funds for payment into your account the next business
day following the redemption request.
IN KIND. If the Manager determines, in its sole discretion, that it would
be detrimental to the best interests of the remaining shareholders of a
Fund to make payment wholly or partly in cash, the Fund may instead pay the
redemption price in whole or in part by a distribution in kind of readily
marketable securities held by the Fund. The DLB Fund Group will transfer
and deliver in-kind redemptions as you direct. The Fund will value
securities used to redeem Fund shares in kind in accordance with the
relevant Fund's procedures for valuation described under "How Share Price
Is Determined." You generally will incur brokerage charges on the sale of
any securities that you receive in payment of redemptions.
Each Fund may suspend the right of redemption and may postpone payment for more
than seven days when the NYSE is closed for reasons other than weekends or
holidays, or if permitted by the rules of the Securities and Exchange Commission
during periods when trading on the NYSE is restricted or during an emergency
which makes it reasonably impracticable for the Fund to dispose of its
securities or fairly to determine the value of the net assets of the Fund, or
during any other period permitted by the Securities and Exchange Commission for
the protection of investors.
HOW SHARE PRICE IS DETERMINED
The DLB Fund Group determines the net asset value of a share of each Fund at
4:15 p.m., Eastern time, on each day that the NYSE is open. The DLB Fund Group
does not accept orders or compute a Fund's net asset value on days when the NYSE
is closed.
The DLB Fund Group determines the net asset value per share for a Fund by
dividing the total value of the Fund's portfolio investments and other assets,
less any liabilities, by the total outstanding shares of the Fund.
The DLB Fund Group values portfolio securities based on market value or, where
market quotations are not readily available, based on fair value. More
specifically, The DLB Fund Group values portfolio securities (including options
and futures contracts) for which market quotations are available at the last
quoted sale price, or, if there is no reported sale, at the closing bid price.
The DLB Fund Group values securities traded in the over-the-counter market at
the most recent bid price as obtained from one or more dealers that make markets
in the securities. For portfolio securities that are traded both in the
over-the-counter market and on one or more stock exchanges, The DLB Fund Group
will value the securities according to the broadest and most representative
market. The DLB Fund Group values unlisted securities for which market
quotations are not readily available at the most recent quoted bid price.
Short-term debt securities with a remaining maturity of 60 days or less will be
valued at amortized cost, unless conditions dictate otherwise. Illiquid
securities or restricted securities will be valued at fair value based on
information supplied by one or more brokers. Other assets for which no
quotations are readily available are valued at fair value as determined in good
faith in accordance with procedures adopted by The DLB Fund Group's Board of
-40-
<PAGE>
HOW SHARE PRICE IS DETERMINED (CONT.) Trustees. Determination of fair value will
be based upon those factors as are deemed relevant under the circumstances,
including the financial condition and operating results of the issuer, recent
third party transactions (actual or proposed) relating to such securities and,
in extreme cases, the liquidation value of the issuer.
FOREIGN SECURITIES: Because of time zone differences, foreign exchanges and
securities markets will usually be closed before the closing of the NYSE.
Therefore, The DLB Fund Group will determine the value of foreign securities as
of the closing of those exchanges and securities markets. Events affecting the
values of foreign securities, however, may occasionally occur between the
closings of such exchanges and securities markets and the time a Fund determines
its net asset value. If an event materially affecting the value of foreign
securities occurs during this period, then The DLB Fund Group will value such
securities at fair value as determined in good faith in accordance with
procedures adopted by the Trustees. In addition, the Funds may hold portfolio
securities that are primarily listed on foreign exchanges that trade on weekends
or other days when the Funds do not accept orders or price their shares. As a
result, the value of any such securities held by a Fund may change on days when
you will not be able to purchase or redeem the Fund's shares.
The prices of foreign securities are quoted in foreign currencies. The DLB Fund
Group converts the values of foreign currencies into U.S. dollars at the rate of
exchange prevailing at the time it determines net asset value. Changes in the
exchange rate, therefore, will affect the net asset value of shares of a Fund
even when there has been no change in the values of the foreign securities
measured in terms of the currency in which they are denominated.
DISTRIBUTION AND SERVICE(RULE 12B-1) PLANS
The DLB Fund Group has adopted a distribution and service plan for each Fund
(each, a "Plan") under Rule 12b-1 of the Investment Company Act of 1940. The
Trustees, however, have no intention of implementing any Plan during The DLB
Fund Group's current fiscal year. The purposes of a Plan, if implemented, would
be to compensate and/or reimburse investment dealers and other persons for
services provide and expenses incurred in promoting sales of shares, reducing
redemptions or improving services provided to shareholders by such dealers and
other persons. Each Plan would permit a Fund to pay an annual asset-based charge
of up to 0.50% for these purposes, subject to the authority of the Trustees to
reduce the amount of payments or to suspend the Plan for such periods as they
may determine. Subject to these limitations, the Trustees would determine the
amount of payments under each Plan, and the specific purposes for which they
were made.
PRINICIPAL UNDERWRITER
Babson Securities Corp. ("BSC") serves as the principal underwriter of each
Fund. In its capacity as principal underwriter, BSC solicits applications for
the purchase of shares of each Fund and may assist investors in transmitting
applications to each Fund or its agent. BSC does not, however, buy or sell or
accept orders for the purchase or sale of shares of any Fund.
-41-
<PAGE>
DISTRIBUTIONS
Each Fund intends to pay out as dividends substantially all of its net
investment income (which comes from dividends and any interest it receives from
its investments and net sort-term capital gains). Each Fund also intends to
distribute substantially all of its net long-term capital gains, if any, after
giving effect to any available capital loss carryovers. The Fixed Income Fund's
policy is to declare and pay distributions of its net investment income monthly.
The policy of each other Fund is to declare and pay distributions of its net
investment income at least annually. Each Fund also intends to distribute net
short-term capital gains and net long-term capital gains at least annually.
Each Fund will pay all dividends and/or distributions in shares of the relevant
Fund, at net asset value, unless you elect to receive cash. You may make this
election by marking the appropriate box on the application form or by writing to
The DLB Fund Group.
-42-
<PAGE>
TAXES
The following is a general summary of the federal income tax consequences for
the Funds and shareholders who are U.S. citizens or residents or domestic
corporations. You should consult your own tax advisor about the tax consequences
of investments in a Fund in light of your particular tax situation. You should
also consult your own tax advisor about consequences under foreign, local or
other applicable tax laws.
Each Fund is treated as a separate taxable entity for federal income tax
purposes. Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended. By
so qualifying, a Fund itself will not pay federal income tax on the income and
gain distributed annually to its shareholders. Distributions of ordinary income
and short-term capital gains, whether received in cash or reinvested shares,
will be taxable as ordinary income to shareholders subject to federal income
tax. Designated distributions of long-term capital gains are taxable as such,
regardless of how long a shareholder may have owned shares in the Fund or
whether the distributions are received in cash or in reinvested shares.
Distributions are taxable to a shareholder of a Fund even if they are paid from
income or gains earned by the Fund prior to the shareholder's invesment (and
thus were included in the price paid by the shareholder). This issue can arise
in any Fund, in particular with respect to distributions on shares of the
International Fund, which had unrealized gains at the time of its formation.
The sale, exchange or redemption of Fund shares may give rise to a gain or loss.
In general, any gain realized upon a taxable disposition of shares will be
treated as long-term capital gain if the shares have been held for more than 12
months. Otherwise, the gain on the sale, exchange or redemption of Fund shares
will be treated as short-term capital gain. In general, any loss realized upon a
taxable disposition of shares will be treated as long-term capital loss if the
shares have been held for more than 12 months, and otherwise as short-term
capital loss. Any loss recognized on the sale or disposition of shares of the
Fund held for six months or less will be treated as long-term capital loss to
the extent of any long-term capital gain distributions received by a shareholder
with respect to those shares of the Fund. All or a portion of any loss realized
upon a taxable disposition of a Fund's shares will be disallowed if other shares
of the same Fund or another Fund are purchased within 30 days before or after
the disposition. In such a case, the basis of the newly purchased shares will be
adjusted to reflect the disallowed loss.
Distributions are taxable to a shareholder of a Fund even if they are paid from
income or gains earned by the Fund prior to the shareholder's investment (and
thus were included in the price paid by the shareholder). The DLB Fund Group
will provide federal tax information annually, including information about
dividends and distributions paid during the preceding year.
FOREIGN WITHHOLDING TAXES: The investments of the Global Small Cap Fund, the
International Fund and the Emerging Markets Fund in foreign securities may be
subject to foreign withholding taxes. In that case, the Funds' yields on those
securities would be decreased. Shareholders may be entitled to claim a credit or
deduction with respect to foreign taxes. In addition, the Funds' investments in
foreign securities or foreign currencies may increase or accelerate the Funds'
recognition of ordinary income and may affect the timing or amount of the Funds'
distributions.
-43-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand each Fund's
financial performance for the period of the Fund's operations (since each Fund
is less than 5 years old). Certain information reflects financial results for a
single Fund share. The total returns in each table represent the rate that an
investor would have earned (or lost) on an investment in the Fund (assuming
reinvestment of all dividends and distributions).
The financial highlights for each of the periods through December 31, 1998, have
been derived from the Funds' financial statements, which have been audited by
Deloitte & Touche LLP, whose report, along with each Fund's financial
statements, is included in each Fund's Annual Report. The information for the
six-month period ended June 30, 1999, which is included in each Fund's
Semiannual Report, is unaudited. All Annual and Semiannual Reports are available
upon request as indicated on the back cover of this Prospectus.
-44-
<PAGE>
DLB FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Period Ended
Ended Years Ended December 31, 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 $10.72 $ 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
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
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%*
</TABLE>
* Annualized
* * For the period from July 25, 1995 (commencement of operations) to
December 31, 1995.
(1) Distributions in excess of net investment income for the year ended
December 31, 1996 were less than $.01 per share.
-45-
<PAGE>
DLB VALUE FUND
FINANCIAL HIGHLIGHTS
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Period Ended
Ended Years Ended December 31, 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 $ 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 0.77 3.30 2.54 .82
-------- --------- -------- -------- --------
Less distributions to shareholders:
From net investment income -- (0.27) (.15) (.16) (.09)
From net realized gain on investments -- (0.93) (.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
</TABLE>
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:
<TABLE>
<S> <C> <C> <C> <C> <C>
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% *
</TABLE>
* Annualized
** For the period from July 25, 1995 (commencement of operations) to December
31, 1995.
-46-
<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 $ 12.28 $ 10.00
-------- --------
Income from investment operations:
Net investment income .01 .05
Net realized and unrealized gain on investments .33 3.09
-------- --------
.34 3.14
======== ========
Less distributions to shareholders:
From net investment income -- (.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
</TABLE>
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:
<TABLE>
<S> <C> <C>
Net investment income $ -- $ .03
Ratios (to average net assets):
Expenses -- .95% *
Net investment income -- .32% *
</TABLE>
* Annualized
** For the period from January 20, 1998 (commencement of operations)
to December 31, 1998.
-47-
<PAGE>
DLB DISCIPLINED GROWTH FUND
FINANCIAL HIGHLIGHTS
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
Six Months ------------------------- Period Ended
Ended 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 (.01) 0.01 .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 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
</TABLE>
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:
<TABLE>
<S> <C> <C> <C>
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%)*
</TABLE>
* Annualized
** For the period from August 26, 1996 (commencement of operations) to
December 31, 1996.
-48-
<PAGE>
DLB ENTERPRISE III 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 $ 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
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
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% *
</TABLE>
* Annualized
** For the period from July 25, 1995 (commencement of operations) to
December 31, 1995.
(1) Distributions in excess of net investment income for the year ended
December 31, 1996 were less than $.01 per share.
(2) Distributions in excess of net realized gain on investments for the
year ended December 31, 1996 were less than $.01 per share.
-49-
<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
</TABLE>
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 income per
share and ratios would have been:
<TABLE>
<S> <C> <C>
Net investment income $ (.02) $ (.03)
Ratios (to average net assets):
Expenses 1.61%* 1.77% *
Net investment income (.56%)* (.76%)*
</TABLE>
* Annualized
** For the period from January 20, 1998 (commencement of operations) to
December 31, 1998.
-50-
<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
</TABLE>
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:
<TABLE>
<S> <C> <C> <C> <C> <C>
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.
-51-
<PAGE>
APPENDIX
ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS
The Funds may invest in a wide range of investments and engage in various
investment transactions and practices, in addition to the Funds' principal
investment strategies described in the section entitled "About the Funds." These
practices are pursuant to non-fundamental policies and therefore may be changed
by the Board of Trustees of The DLB Fund Group without the consent of
shareholders. Some of the more significant practices and associated risks are
discussed below. You will find additional information about the Funds'
investment policies and associated risks in the Statement of Additional
Information.
CASH RESERVES
Each Fund generally intends to stay fully invested in the types of securities
that represent its principal investment strategies. However, each Fund may hold
a portion of its assets in cash, money market instruments or other high-quality
short-term debt obligations readily changeable to cash, such as treasury bills,
commercial paper or repurchase agreements, at the discretion of the Manager
and/or Subadvisor to provide for expenes and anticipated redemption payments and
to carry out an orderly investment program in accordance with the Fund's
investment policies.
CHANGE IN CAPITALIZATION /
CHANGE IN CREDIT RATING
At the time of making an investment, the principal investment strategies of the
Value Fund, the Enterprise III Fund, the Micro Cap Fund and the Global Small Cap
Fund generally limit investments by those Funds to issuers that meet certain
market capitalization requirements. For example, the Enterprise III Fund may
invest only in companies that have market capitalizations at the time of
investment between $400 million and $2 billion. However, once the initial
investment has complied with the market capitalization requirements, the Fund
may continue to hold, and may even add to its holdings of, securities of
companies whose market capitalizations later transgress the specified maximum
(or minimum) capitalization. Thus, for instance, the Enterprise III Fund does
not have to sell, and may hold or add to its holdings of, the securities of an
issuer even if that issuer's market capitalization increases above $2 billion
after the Fund makes its investment in the issuer.
Similarly, the Fixed Income Fund may hold securities that lose investment grade
quality after the Fund's investment in those securities if, in the opinion of
the Manager, the investment remains appropriate under the circumstances. If at
any time, however, more than 5% of the Fixed Income Fund's assets are below
investment grade quality, the Manager will dispose of such securities as are
necessary to reduce the holdings to 5% or less.
CHANGES TO INVESTMENT OBJECTIVES
Except for policies identified as "fundamental" in this Prospectus or the
Statement of Additional Information, the Trustees may change the investment
objective and policies of each Fund without shareholder approval. Any such
change may result in a Fund having an investment objective and policies
different from the objective and policies that you considered appropriate when
you invested in the Fund. A Fund will notify you of any changes in its
investment objective or policies through a revised prospectus or other written
communication.
-52-
<PAGE>
EURO RISK
The Global Small Cap Fund, the International Fund and, to a lesser extent, the
other Funds may be subject to an additional risk regarding their foreign
securities holdings. On January 1, 1999, eleven countries in the European
Monetary Union adopted the euro as their official currency. However, their
current currencies (for example, the franc, the mark and the lire) will also
continue in use until January 1, 2002. After that date, it is expected that only
the euro will be used in those countries. A common currency is expected to
confer some benefits in those markets, by consolidating the government debt
market for those countries and reducing some currency risks and costs. But the
conversion to the new currency will affect the Funds operationally and may
adversely impact the value and/or volatility of the securities held by the
Funds.
STATEMENT OF ADDITIONAL INFORMATION
In the Statement of Additional Information you will find a list of fundamental
and non-fundamental investment restrictions applicable to the Funds. The
Statement of Additional Information also describes the following investment
techniques and practices that may be used by the Funds, as indicated below:
ALL FUNDS:
o Money Market Instruments
o Preferred Stocks
o Convertible Securities
o When-Issued Securities
o Restricted / Illiquid Securities
o Repurchase Agreements
o Portfolio Turnover
o Lending of Portfolio Securities
o Derivatives
o Warrants and Rights
o REITs
o Foreign Securities
FIXED INCOME FUND:
o Adjustable Rate Securities
o Interest Rate Swaps and Related
Instruments
o Municipal Bonds
o Strips and Residuals
o Zero Coupon Securities
o Loans and Other Direct Debt
Instruments
o Reverse Repurchase Agreements and
Dollar Roll Transactions
DISCIPLINED GROWTH FUND:
o Financial Futures
o Options
GLOBAL SMALL CAP FUND, INTERNATIONAL FUND
AND EMERGING MARKETS FUND:
o Pooled Investment Vehicles
o Foreign Currency Transactions
You will also find additional information regarding the Global Small Cap Fund's
policies with respect to the geographic diversification of its investments in
the Statement of Additional Information.
YEAR 2000 ISSUE
Like other businesses and goverments around the world, the Funds could be
adversely affected if the computer systems used by their service providers, the
companies with which they do business, and the companies in which they invest
have problems processing date-related information from and after January 1,
2000. This is commonly known as the "Year 2000 issue."
The Funds, which have no application systems of their own, are working
diligently with their service providers (including the Manager, the Subadvisor
and Investors Bank & Trust Company, the Funds' custodian and transfer agent) to
identify and remedy any Year 2000
-53-
<PAGE>
YEAR 2000 ISSUE (CONT.)
issues. Furthermore, the Manager and Subadvisor consider a company's efforts to
address the Year 2000 issue as a factor when making investment decisions for the
Funds. The Funds do not anticipate that the Year 2000 issue will have a
significant negative effect on an investment in any Fund. However, the Funds can
give no assurance that their actions and those of their service providers will
preclude all significant negative effects.
-54-
<PAGE>
THE DLB FUND GROUP
ONE MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02142
LEARNING MORE ABOUT THE FUNDS
You can learn more about the Funds in The DLB Fund Group by reading the Funds'
ANNUAL AND SEMI-ANNUAL REPORTS and the STATEMENT OF ADDITIONAL INFORMATION
(SAI). This information is available free upon request. In the Annual and
Semi-Annual Reports, you will find a listing of portfolio securities and a
discussion of market conditions and investment strategies that significantly
affected each Fund's performance during the period covered by the Report. The
SAI includes additional information about each Fund's investment policies, risks
and operations. The SAI is incorporated by reference into this Prospectus (WHICH
MEANS IT IS LEGALLY CONSIDERED A PART OF THIS PROSPECTUS).
HOW TO OBTAIN MORE INFORMATION FROM THE DLB FUND GROUP: You may request
information about the Funds (including the Annual and Semi-Annual Reports and
the SAI) or make shareholder inquiries by any of the following methods:
BY REGULAR MAIL OR OVERNIGHT COURIER
The DLB Fund Group
c/o David L. Babson and
Company Incorporated
Marketing Department
Attention: The DLB Fund
Group Coordinator
One Memorial Drive
Cambridge, Massachusetts 02142
BY TELEPHONE
1-888-722-2766
Call for account or Fund information
Monday through Friday 9 a.m. to 5 p.m.
(Eastern time).
BY TELEFAX
1-617-494-1511
FROM THE SEC: You may review and copy information about the Funds (including the
SAI) at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330
for information regarding the operation of the SEC's public reference room. You
may obtain copies of this information, upon payment of a copying fee, by writing
to the SEC's Public Reference Section, Washington, DC 20549-6009. Alternatively,
if you have access to the Internet, you may obtain information about the Funds
from the SEC's Internet site at http://www.sec.gov.
Investment Company Act File Number 811-08690
<PAGE>
THE DLB FUND GROUP
DLB FIXED INCOME FUND
DLB VALUE FUND
DLB GROWTH FUND
DLB DISCIPLINED GROWTH FUND
DLB ENTERPRISE III FUND
DLB MICRO CAPITALIZATION FUND
DLB GLOBAL SMALL CAPITALIZATION FUND
DLB STEWART IVORY INTERNATIONAL FUND
DLB STEWART IVORY EMERGING MARKETS FUND
STATEMENT OF ADDITIONAL INFORMATION
October 29, 1999
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the prospectuses of The DLB Fund Group dated
October 29, 1999, as amended from time to time, and should be read in
conjunction therewith. Each reference to the term "Prospectus" in this Statement
of Additional Information shall include the DLB Fund Group's prospectuses
relating to the DLB Fixed Income Fund, the DLB Value Fund, the DLB Growth Fund,
the DLB Disciplined Growth Fund, the DLB Enterprise III Fund, the DLB Micro
Capitalization Fund, the DLB Global Small Capitalization Fund, the DLB Stewart
Ivory International Fund and the DLB Stewart Ivory Emerging Markets Fund
(collectively, the "Funds").
The DLB Fund Group's audited financial statements for the fiscal year ended
December 31, 1998 included in the Funds' Annual Reports and The DLB Fund Group's
unaudited financial statements for the six-month period ended June 30, 1998
included in the Funds' Semiannual Reports are hereby incorporated into this
Statement of Additional Information by reference. A copy of the Prospectus and
each Fund's most recent Annual and Semiannual Report may be obtained free of
charge by writing The DLB Fund Group, c/o David L. Babson and Company
Incorporated, Marketing Department, Attention: The DLB Fund Group Coordinator,
One Memorial Drive, Cambridge, Massachusetts 02142, or by telephoning
1-888-722-2766.
<PAGE>
TABLE OF CONTENTS
CAPTION PAGE
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS 3
INVESTMENT RESTRICTIONS 3
INCOME DIVIDENDS, DISTRIBUTIONS AND TAX STATUS 6
MANAGEMENT OF THE TRUST 10
INVESTMENT ADVISORY AND OTHER SERVICES 12
ADDITIONAL INVESTMENT PRACTICES OF THE FUNDS 16
ADDITIONAL INVESTMENT PRACTICES OF THE FIXED INCOME FUND 23
ADDITIONAL INVESTMENT PRACTICES OF THE DISCIPLINED GROWTH
FUND -- FUTURES AND OPTIONS 28
ADDITIONAL INVESTMENT PRACTICES OF THE GLOBAL SMALL
CAP FUND 33
ADDITIONAL INVESTMENT PRACTICES OF THE GLOBAL SMALL CAP
FUND, THE INTERNATIONAL FUND AND THE EMERGING MARKETS FUND 34
PORTFOLIO TRANSACTIONS 35
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES 39
INVESTMENT PERFORMANCE 44
DETERMINATION OF NET ASSET VALUE 47
EXPERTS 47
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS 47
APPENDIX - DESCRIPTION OF STOCK RATINGS A-1
2
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS
The investment objective and policies of each of the DLB Fixed Income
Fund (the "Fixed Income Fund"), the DLB Value Fund (the "Value Fund"), the DLB
Growth Fund (the "Growth Fund"), the DLB Disciplined Growth Fund, which was
formerly known as the DLB Quantitative Equity Fund (the "Disciplined Growth
Fund"), the DLB Enterprise III Fund, which was formerly known as the DLB Mid
Capitalization Fund (the "Enterprise III Fund"), the DLB Micro Capitalization
Fund (the "Micro Cap Fund"), the DLB Global Small Capitalization Fund (the
"Global Small Cap Fund"), the DLB Stewart Ivory International Fund (the
"International Fund") and the DLB Stewart Ivory Emerging Markets Fund (the
"Emerging Markets Fund") (each a "Fund," and collectively the "Funds") of The
DLB Fund Group (the "Trust") are set forth in the Prospectus.
INVESTMENT RESTRICTIONS
Without a vote of the majority of the outstanding voting securities of
the relevant Fund, the Trust will not take any of the following actions with
respect to any Fund:
(1) Borrow money in excess of 10% (33% in the case of the
Growth Fund, Micro Cap Fund, International Fund and Emerging Markets
Fund) of the value (taken at the lower of cost or current value) of the
Fund's total assets (not including the amount borrowed) at the time the
borrowing is made, and then only from banks for temporary,
extraordinary or emergency purposes, except that the Fund may borrow
through reverse repurchase agreements or dollar rolls up to 33% of the
value of the Fund's total assets. Such borrowings (other than
borrowings relating to reverse repurchase agreements and dollar rolls)
will be repaid before any investments are purchased.
(2) Underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under federal
securities laws.
(3) Purchase or sell real estate (including real estate
limited partnerships), although it may purchase securities of issuers
which deal in real estate, including securities of real estate
investment trusts, securities which represent interests in real estate
and securities which are secured by interests in real estate, and the
Fund may acquire and dispose of real estate or interests in real estate
acquired through the exercise of its rights
3
<PAGE>
as a holder of debt obligations secured by real estate or interests
therein or for use as office space for the Fund.
(4) Make loans, except by purchase of debt obligations
(including nonpublicly traded debt obligations), by entering into
repurchase agreements or through the lending of the Fund's portfolio
securities. Loans of portfolio securities may be made with respect to
up to 100% of the Fund's assets in the case of each Fund.
(5) Issue any senior security (as that term is defined in the
Investment Company Act of 1940 (the "1940 Act")), if such issuance is
specifically prohibited by the 1940 Act or the rules and regulations
promulgated thereunder. (The Funds have no intention of issuing senior
securities except as set forth in Restriction 1 above.)
(6) Invest 25% or more of the value of its total assets in
securities of issuers in any one industry. (Securities issued or
guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities are not considered to represent
industries.)
(7) Purchase or sell commodities or commodity contracts,
including futures contracts, except that the Disciplined Growth Fund
may purchase and sell futures contracts, options (including options on
commodities and commodity contracts) and other financial instruments
and may enter into foreign exchange transactions.
Restrictions (1) through (7) above are deemed to be "fundamental"
investment policies.
In addition, it is contrary to the present policy of each Fund to:
(a) Invest in (i) securities which at the time of such
investment are not readily marketable, (ii) securities the disposition
of which is restricted under federal securities laws, excluding
restricted securities that have been determined by the Trustees of the
Trust (or the person designated by them to make such determination) to
be readily marketable, and (iii) repurchase agreements maturing in more
than seven days if, as a result, more than 15% of the Fund's net assets
(taken at current value) would then be invested in securities described
in (i), (ii) and (iii) above.
It is also contrary to the present policy of the Fixed Income Fund, the
Value Fund, the Disciplined Growth Fund and the Global Small Cap Fund
to:
4
<PAGE>
(b) Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and sales of
securities.
(c) Make short sales of securities or maintain a short
position for the Fund's account unless at all times when a short
position is open the Fund owns an equal amount of such securities or
owns securities which, without payment of any further consideration,
are convertible into or exchangeable for securities of the same issue
as, and equal in amount to, the securities sold short. The Funds have
no current intention in the coming year of engaging in short sales or
maintaining a short position.
(d) Invest in securities of other investment companies, except
by purchase in the open market involving only customary brokers'
commissions, or in connection with mergers, consolidations or
reorganizations. For purposes of this restriction, foreign banks or
their agents or subsidiaries are not considered investment companies.
(e) Acquire more than 10% of the voting securities of any
issuer.
(f) Invest in warrants or rights (other than warrants or
rights acquired by the Fund as a part of a unit or attached to
securities at the time of purchase), except that the Fund may invest in
such warrants or rights so long as the aggregate value thereof (taken
at the lower of cost or market) does not exceed 5% of the value of the
Fund's total assets and so long as no more than 2% of its total assets
are invested in warrants that are not listed on the New York Stock
Exchange or the American Stock Exchange.
(g) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts.
(h) Make investments for the purpose of gaining control of a
company's management.
Unlike Restrictions (1) through (7) above, Restrictions (a) through (h)
above are deemed to be "non-fundamental" investment policies of the applicable
Funds and therefore may be changed by the Trust's Trustees without shareholder
approval.
Except as otherwise indicated in Restriction 1 or Restriction (a)
above, all percentage limitations on investments set forth herein and in the
Prospectus will apply at the time of the making of an investment and shall not
be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
5
<PAGE>
The phrase "shareholder approval," as used in the Prospectus, and the
phrase "vote of a majority of the outstanding voting securities," as used herein
with respect to a Fund, means the affirmative vote of the lesser of (1) more
than 50% of the outstanding shares of that Fund, or (2) 67% or more of the
shares of that Fund present at a meeting if more than 50% of the outstanding
shares are represented at the meeting in person or by proxy.
INCOME DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
The tax status of each Fund and the distributions that it may make are
summarized in the Prospectus under the headings "Distributions" and "Taxes."
Each Fund intends to pay out substantially all of its ordinary income and net
short-term capital gains, and to distribute substantially all of its net capital
gain, if any, after giving effect to any available capital loss carry-over. Net
capital gain is the excess of net long-term capital gain over net short-term
capital loss.
Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). In order so to qualify and to qualify for the favorable tax treatment
accorded regulated investment companies and their shareholders, the Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale of stock, securities and foreign currencies, or other income (including but
not limited to gains from options, futures or firm commitments) derived with
respect to its business of investing in such stock, securities or currencies;
(b) distribute at least 90% of its dividend, interest and certain other income
(including, in general, short-term capital gains) each year; and (c) diversify
its holdings so that at the end of each fiscal quarter (i) at least 50% of the
market value of the Fund's assets is represented by cash items, U.S. Government
securities, securities of other regulated investment companies, and other
securities, limited in respect of any one issuer to a value not greater than 5%
of the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities (other than those of the U.S. Government or other
regulated investment companies) of any one issuer or of two or more issuers
which the Fund controls and which are engaged in the same, similar or related
trades or businesses. So long as a Fund qualifies for treatment as a regulated
investment company, the Fund will not be subject to federal income tax on income
paid to its shareholders in the form of dividends or capital gain distributions.
If a Fund failed to qualify as a regulated investment company in any
taxable year, the Fund would be subject to tax on its taxable income at
corporate rates, and all distributions from earnings and profits, including any
distributions of net tax-exempt income and net long-term capital gains, would be
taxable to shareholders as ordinary income. In addition, the Fund could be
required to recognize unrealized gains, pay substantial taxes and interest and
make substantial distributions before requalifying for taxation as a regulated
investment company.
6
<PAGE>
In general, all dividends derived from ordinary income and short-term
capital gain are taxable to investors as ordinary income (subject to special
rules concerning the availability of the dividends-received deduction for
corporations) and distributions of long-term capital gains are taxable to
investors as such, regardless of how long a shareholder may have owned shares in
the relevant Fund or whether such distributions are received in shares or cash.
Tax exempt organizations or entities will generally not be subject to federal
income tax on dividends or distributions from a Fund, except certain
organizations or entities, including private foundations, social clubs, and
others, which may be subject to tax on dividends or capital gains. Each
organization or entity should review its own circumstances and the federal tax
treatment of its income.
Dividends and distributions on each Fund's shares are generally subject
to federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when the Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when a Fund's net asset value also reflects unrealized losses.
Distributions are taxable to a shareholder of a Fund even if they are paid from
income or gains earned by the Fund prior to the shareholder's investment (and
thus were included in the price paid by the shareholder). A distribution paid to
shareholders in January generally is deemed to have been received by
shareholders on December 31 of the preceding year, if the distribution was
declared and payable to shareholders of record on a date in October, November or
December of that preceding year.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of each Fund's "required distribution" over its actual distribution in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 (or December 31,if
the Fund so elects) plus undistributed amounts from prior years. Each Fund
intends to make distributions sufficient to avoid imposition of the excise tax.
If a Fund engages in certain transactions, such as firm commitments and
hedging transactions, including hedging transactions in options, futures
contracts, and straddles, or other similar transactions, it will be subject to
special tax rules (including constructive sale, mark-to-market, straddle, wash
sale, and short sale rules), the effect of which may be to accelerate income,
defer losses, cause adjustments in the holding periods of the Fund's securities
and convert short-term capital gains or losses into long-term capital gains or
losses. Such transactions may therefore affect the amount, timing and character
of distributions to shareholders.
A Fund's investment in securities issued at a discount and certain
other obligations will (and investments in securities purchased at a discount
may) require the Fund to accrue and distribute income and gains not yet
received. In such cases, the
7
<PAGE>
Fund may be required to sell assets (including when it is not advantageous to do
so) to generate the cash necessary to distribute as dividends to its
shareholders all of its income and gains and therefore to eliminate any tax
liability at the Fund level.
Each Fund's transactions, if any, in foreign currencies are likely to
result in a difference between the Fund's book income and taxable income. This
difference may cause a portion of the Fund's income distributions to constitute
a return of capital for tax purposes or require the Fund to make distributions
exceeding book income to avoid excise tax liability and to qualify as a
regulated investment company.
Investment by a Fund in certain "passive foreign investment companies"
could subject the Fund to a U.S. federal income tax or other charge on
distributions received from, or the sale of its investment in, such a company,
which tax could not be eliminated by making distributions to Fund shareholders.
To avoid this treatment, a Fund may elect to mark to market annually all of its
stock in a passive foreign investment company. Alternatively, if a Fund elects
to treat a passive foreign investment company as a "qualified electing fund,"
different rules would apply, although the Funds do not currently expect to be in
the position to make such elections.
The dividends-received deduction for corporations will generally apply
to a Fund's dividends paid from investment income to the extent derived from
dividends received by the Fund from domestic corporations that would be entitled
to such deduction in the hands of the Fund if it were a regular corporation. A
corporate shareholder will only be eligible to claim a dividends-received
deduction with respect to a dividend from the Fund if the shareholder held its
shares on the ex-dividend date and for at least 45 more days during the 90-day
period surrounding the ex-dividend date. The dividends-received deduction is not
available to Subchapter S corporations.
BACK-UP WITHHOLDING. The back-up withholding rules set forth below do
not apply to tax exempt entities or corporations that furnish the Trust with an
appropriate certification. For other shareholders, however, the Trust is
generally required to withhold and remit to the U.S. Treasury 31% of all
distributions, whether distributed in cash or reinvested in shares, and 31% of
the proceeds of any redemption paid or credited to the shareholder's account if
an incorrect or no taxpayer identification number has been provided, where
appropriate certification has not been provided for a foreign shareholder, or
where the Trust is notified that the shareholder has underreported income in the
past (or the shareholder fails to certify that he is not subject to such
withholding). The back-up withholding is not an additional tax and is creditable
against a shareholder's tax liability. Special withholding rules, described
below, may apply to foreign shareholders.
FOREIGN WITHHOLDING TAXES. Certain of the Funds that invest in foreign
securities may be subject to foreign withholding taxes on income and gains
derived from foreign investments. Such taxes would reduce the yield on the
Fund's investments, but, as discussed below, may be taken as either a deduction
or a credit by U.S. investors if the Fund makes the election described below.
8
<PAGE>
If, at the end of the fiscal year, more than 50% of the total assets of
any Fund are comprised of stock or securities of foreign corporations, the Trust
intends to make an election with respect to the relevant Fund which allows
shareholders whose income from the Fund is subject to U.S. taxation at the
graduated rates applicable to U.S. citizens, residents or domestic corporations
to claim a foreign tax credit or deduction (but not both) on their U.S. income
tax return. In such case, the amount of qualified foreign income taxes paid by
the Fund would be treated as additional income to Fund shareholders from
non-U.S. sources and as foreign taxes paid by Fund shareholders. Investors
should consult their tax advisors for further information relating to the
foreign tax credit and deduction, which are subject to certain restrictions and
limitations (including with respect to a foreign tax credit, a holding period
requirement). Shareholders of any of the Funds whose income from the Fund is not
subject to U.S. taxation at the graduated rates applicable to U.S. citizens,
residents or domestic corporations may receive substantially different tax
treatment of distributions by the relevant Fund, and may be disadvantaged as a
result of the election described in this paragraph. Organizations that are
exempt from U.S. taxation will not be affected by the election described above.
WITHHOLDING ON DISTRIBUTIONS TO FOREIGN INVESTORS. Dividend
distributions (including in general distributions derived from short-term
capital gains, dividends and interest) are in general subject to a U.S.
withholding tax of 30% when paid to a non-resident alien individual, foreign
estate or trust, a foreign corporation, or a foreign partnership ("foreign
shareholder"). Persons who are residents in a country, such as the United
Kingdom, that has an income tax treaty with the United States may be eligible
for a reduced withholding rate (upon filing of appropriate forms), and are urged
to consult their tax advisors regarding the applicability and effect of such a
treaty. Distributions of net long-term capital gains to a foreign shareholder
and any gain realized upon the sale of Fund shares by such a shareholder will
ordinarily not be subject to U.S. taxation, unless the recipient or seller is a
nonresident alien individual who is present in the United States for more than
183 days during the taxable year, and certain other conditions apply. Foreign
shareholders with respect to whom income from a Fund is "effectively connected"
with a U.S. trade or business carried on by such shareholder, however, will in
general be subject to U.S. federal income tax on the income derived from the
Fund at the graduated rates applicable to U.S. citizens, residents or domestic
corporations, whether such income is received in cash or reinvested in shares,
and may also be subject to a branch profits tax. Again, foreign shareholders who
are residents in a country with an income tax treaty with the United States may
obtain different tax results and all foreign investors are urged to consult
their tax advisors.
NEW WITHHOLDING TAX RULES FOR PAYMENTS AFTER 1999. The Internal Revenue
Service recently revised its regulations affecting the application to foreign
investors of the back-up withholding and withholding tax rules described above.
The new regulations will generally be effective for payments made on or after
January 1, 2000 (although transition rules will apply). In some circumstances,
the new rules will increase the certification and filing requirements imposed on
foreign investors in order to qualify for exemption from the 31% back-up
withholding tax and for reduced
9
<PAGE>
withholding tax rates under income tax treaties. Foreign investors in a Fund
should consult their tax advisors with respect to the potential application of
these new regulations.
MANAGEMENT OF THE TRUST
Pursuant to the Trust's Agreement and Declaration of Trust, the Board
of Trustees supervises the affairs of the Trust as conducted by the Manager. The
Trustees and officers of the Trust and their principal occupations during the
past five years are as follows:
TRUSTEES
- --------
CHARLES E. HUGEL, age 71, serves as a Director Eldorado Bancshares,
Inc. He is also past Chairman of the Board of Trustees of Lafayette College. Mr.
Hugel is the former Chairman of Asea Brown Boveri Inc., which principally
engages in the manufacture of electrical equipment and the generation,
transmission, distribution and transportation of power, the former Chairman,
President and Chief Executive Officer of Combustion Engineering, Inc. and a
former Executive Vice President of American Telephone and Telegraph Company.
RICHARD A. NENNEMAN, age 70, is the former Editor-in-Chief of The
Christian Science Monitor and a former Senior Vice President of Girard Bank. He
currently serves as a member of the boards of various civic associations.
RICHARD J. PHELPS, age 71, is the Chief Executive Officer of Phelps
Industries, Inc., a manufacturer of rawhide dog treats. He currently serves as
Director of Superior Pet, U.K. and Superior Pet, Australia, both manufacturers
of rawhide dog treats; Bio-Comp, USA, a manufacturer of fertilizer; Stockton
Baseball Co., USA, which operates a minor league baseball team; and
Babson-Stewart Ivory International Fund, Inc., an open-end investment company.
OFFICERS
- --------
FRANK L. TARANTINO, age 55, President, is Executive Vice President,
Chief Operating Officer and Director of the Manager. Before joining the Manager,
Mr. Tarantino was President of Liberty Securities Corporation from 1994 to 1997,
and was previously Executive Vice President of State Street Research &
Management Company.
DEANNE B. DUPONT, age 45, Treasurer, is Senior Vice President of the
Manager.
LANCE F. JAMES, age 44, Vice President, is an Executive Vice President
and Director of the Manager.
10
<PAGE>
MARY WILSON KIBBE, age 44, Vice President, is an Executive Vice
President of the Manager and an Executive Director of Massachusetts Mutual Life
Insurance Company ("MassMutual"). Ms Kibbe is a dual employee of MassMutual,
with which she has been associated since 1982, and the Manager, an indirect
subsidiary of MassMutual, since October 21, 1999.
WALTER T. MCCORMICK, age 53, Vice President, is an Executive Vice
President and Director of the Manager. Prior to joining the Manager in June,
1998, Mr. McCormick managed equity portfolios for Keystone Investments, Inc.
JOHN E. DEITELBAUM, age 31, Clerk, is Vice President and General
Counsel of the Manager. Before joining the Manager, Mr. Deitelbaum was an
attorney with Massachusetts Mutual Life Insurance Company from 1996 to 1998, and
was previously an associate at the law firm of Day Berry & Howard.
The mailing address of each of the officers and Trustees is c/o David
L. Babson and Company Incorporated, One Memorial Drive, Cambridge, Massachusetts
02142.
Except as stated above, the principal occupations of the officers and
Trustees for the last five years have been with the employers as shown above,
although in some cases they may have held different positions with such
employers.
TRUSTEE COMPENSATION
- --------------------
The Trust pays each Trustee who is not an "interested person" of the
Trust a fee for his services. The Trustees periodically review their fees to
assure that such fees continue to be appropriate in light of their
responsibilities as well as in relation to fees paid to Trustees of other mutual
fund complexes. The fees paid to each Trustee by the Trust for the fiscal year
ended December 31, 1998, are shown below:
<TABLE>
<CAPTION>
Total Compensation from
Aggregate Compensation Registrant and Fund
Name Of Trustee from Registrant* Complex Paid to Trustees
- --------------- ---------------- ------------------------
<S> <C> <C>
Charles E. Hugel $11,000 $11,000
Richard A. Nenneman $11,000 $11,000
Richard J. Phelps $11,000 $11,000
James W. MacAllen** $0 $0
Peter C. Thompson*** $0 $0
Ronald E. Gwozdz**** $0 $0
</TABLE>
11
<PAGE>
- -----------------------
* Includes an annual retainer and an attendance fee for each meeting attended.
** Resigned from service as a Trustee effective october 7, 1999.
*** Retired from service as a Trustee effective April 22, 1998.
**** Resigned as a Trustee effective August 13, 1998.
INVESTMENT ADVISORY AND OTHER SERVICES
MANAGEMENT CONTRACTS
- --------------------
The Manager, David L. Babson and Company Incorporated, One Memorial
Drive, Cambridge, Massachusetts 02142, is a wholly owned subsidiary of DLB
Acquisition Corp., a holding company that is a majority-owned subsidiary of
MassMutual Holding Trust I, which in turn is a holding company and wholly owned
subsidiary of MassMutual Holding Company, a holding company and a wholly owned
subsidiary of Massachusetts Mutual Life Insurance Company, a mutual life
insurance company. Massachusetts Mutual Life Insurance Company also currently
owns more than 25% of the outstanding shares of each of the Funds (other than
the International Fund) and therefore is deemed to "control" each such Fund
within the meaning of the 1940 Act.
Under separate Management Contracts (each a "Management Contract")
between the Trust and the Manager, and subject to such policies as the Trustees
of the Trust may determine, the Manager will furnish continuously an investment
program for each Fund and will make investment decisions on behalf of the Fund
and place all orders for the purchase and sale of portfolio securities. The
Manager has entered into separate Sub-Advisory Agreements with Babson-Stewart
Ivory International ("BSII") with respect to the management of the international
component of the Global Small Cap Fund's portfolio and the investment portfolios
of the International Fund and the Emerging Markets Fund. (BSII is referred to
herein as the "Subadvisor.") The Manager pays the Subadvisor a monthly fee at
the annual rate of (a) .50% of the Global Small Cap Fund's average daily net
assets, (b) .375% of the International Fund's average daily net assets, and (c)
.875% of the Emerging Markets Fund's average daily net assets. These payments
will not affect the amounts payable by the Global Small Cap Fund, the
International Fund or the Emerging Markets Fund to the Manager or such Fund's
expense ratio. Subject to the control of the Trustees, the Manager also manages,
supervises and conducts the other affairs and business of the Trust, furnishes
office space and equipment, provides bookkeeping and certain clerical services
and pays all salaries, fees and expenses of officers and Trustees of the Trust
who are affiliated with the Manager. As indicated under "Portfolio
Transactions," the Trust's portfolio transactions may be placed with
broker-dealers which furnish the Manager, at
12
<PAGE>
no cost to the Manager, certain research, statistical and quotation services of
value to the Manager in advising the Trust or its other clients.
As disclosed in the Prospectus, each of the Funds pays the Manager a
monthly fee at the annual rate of the relevant Fund's average daily net assets
set forth therein. In addition, the Manager has agreed to bear certain expenses
through the fiscal year ending October 31, 2000 to the extent each of the Fund's
annual expenses (including the management fee, but excluding brokerage
commissions, hedging transaction fees and other investment related costs,
extraordinary, non-recurring and certain other unusual expenses, such as
litigation expenses and other extraordinary legal expenses, securities lending
fees and expenses, and transfer taxes) would exceed the percentage of the Fund's
average daily net assets set forth in the Prospectus. The chart set forth below
shows for each Fund (other than the International Fund and the Emerging Markets
Fund, which are newly organized): (1) the total management fees earned by the
Manager, (2) the total management fees actually paid by the Funds to the Manager
and (3) the management fees and other expenses waived by the Manager during the
periods indicated:
13
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT FEE OTHER TOTAL
FISCAL ----------------------------------- EXPENSES EXPENSES
YEAR TOTAL PAID WAIVED WAIVED WAIVED
---- ----- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1. FIXED INCOME FUND
1996 47,593 23,616 23,977 108,125 132,102
1997 86,512 43,160 43,352 67,825 111,177
1998 131,644 80,513 51,131 32,137 83,268
2. VALUE FUND
1996 83,908 53,072 30,836 76,430 107,266
1997 207,027 131,383 75,644 2,994 78,638
1998 367,883 264,569 103,314 72 103,386
3. GROWTH FUND*
1998 156,119 106,038 50,081 202 50,283
4. DISCIPLINED GROWTH
FUND** 1996 33,808 24,714 9,094 32,462 41,556
1997 151,521 110,944 40,577 91,787 132,364
1998 223,157 177,404 45,753 26,270 72,023
5. ENTERPRISE III FUND
1996 75,235 37,317 37,918 71,830 109,748
1997 109,834 54,798 55,036 23,164 78,200
1998 173,748 105,283 68,465 7,012 75,477
6. MICRO CAP FUND***
1998 151,640 73,575 78,065 30,905 108,970
7. GLOBAL SMALL CAP
FUND**** 1996 120,522 95,914 24,608 79,509 104,117
1997 131,927 105,509 26,418 58,251 84,669
1998 143,177 120,477 22,700 49,551 72,251
</TABLE>
- -------------------
*The Growth Fund commenced operations on January 20, 1998.
**The Disciplined Growth Fund commenced operations on August 26, 1996.
***The Micro Cap Fund commenced operations on July 20, 1998.
****Under the Sub-Advisory Agreement for the Global Small Cap Fund, for the
fiscal years 1996, 1997 and 1998, (1) the Manager paid BSII subadvisory fees of
$47,957, $52,754 and $60,238, respectively, and (2) BSII waived a portion of its
fees in an amount equal to $12,304, $13,209 and $11,350, respectively.
14
<PAGE>
Each Management Contract provides that the Manager shall not be subject
to any liability in connection with the performance of its services thereunder
in the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties. Each Management Contract also provides
that in the event the Manager ceases to be the manager of any Fund, the right of
the Fund or the Trust to use the identifying name "DLB" may be withdrawn. Each
Management Contract for the International Fund and the Emerging Markets Fund
also provides that in the event the Subadviser ceases to be the subadviser of
the Fund, the right of the Fund or the Trust to use the identifying name
"Stewart Ivory" may be withdrawn
Each Management Contract has an initial two-year term and will continue
in effect thereafter indefinitely so long as its continuance is approved at
least annually by (i) vote, cast in person at a meeting called for that purpose,
of a majority (or one, if there is only one) of those Trustees who are not
"interested persons" of the Manager or the Trust, and by (ii) the majority vote
of either the full Board of Trustees or the vote of a majority of the
outstanding shares of the relevant Fund. Each Management Contract automatically
terminates on assignment and is terminable on not more than 60 days' notice by
the Trust to the Manager. In addition, each Management Contract may be
terminated on not more than 60 days' written notice by the Manager to the Trust.
The Sub-Advisory Agreements contain provisions similar to those
contained in the Management Contracts.
CUSTODIAL ARRANGEMENTS
----------------------
Investors Bank & Trust Company ("IBT") serves as the Trust's custodian
on behalf of the Funds. As such, IBT holds in safekeeping certificated
securities and cash belonging to a Fund and, in such capacity, is the registered
owner of securities in book-entry form belonging to a Fund. Upon instruction,
IBT receives and delivers cash and securities of a Fund in connection with Fund
transactions and collects all dividends and other distributions made with
respect to Fund portfolio securities. IBT also maintains certain accounts and
records of the Trust and calculates the total net asset value, total net income
and net asset value per share of each Fund on a daily basis.
TRANSFER AGENT / ADMINISTRATOR
------------------------------
In addition to serving as the Trust's custodian, IBT serves as
the Trust's transfer agent and dividend disbursing agent on behalf of the Funds.
IBT, under the terms of an administration agreement with the Trust, also
provides certain services to the Trust, including among others, assisting the
Trust in the following respects: (a) monitoring portfolio compliance, (b)
performing quarterly testing to establish each Fund's qualification as a
regulated investment company for tax purposes, and (c) maintaining effective
Blue Sky notification filings for states in which the Trust intends to solicit
sales of Fund shares.
15
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------
Deloitte & Touche LLP is the Trust's independent public accountant,
providing audit services and assistance and consultation in connection with tax
returns and the reviewing of various SEC filings.
ADDITIONAL INVESTMENT PRACTICES OF THE FUNDS
As noted in the Prospectus, each Fund may, in pursuing its investment
objective, engage in investment techniques and practices in addition to the
Fund's principal investment strategies. The following discussion provides more
detailed information about certain of these additional, non-principal investment
techniques and practices.
MONEY MARKET INSTRUMENTS. The following is a brief description of the
types of money market securities the Funds may invest in. Money market
securities are high-quality, short-term debt instruments that may be issued by
the U.S. Government, corporations, banks or other entities. They may have fixed,
variable or floating interest rates.
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government
Securities. These include obligations issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities. Payment of
principal and interest on U.S. Government obligations (i) may be backed
by the full faith and credit of the United States (as with U.S.
Treasury obligations and GNMA certificates) or (ii) may be backed
solely by the issuing or guaranteeing agency or instrumentality itself
(as with FNMA notes). In the latter case, the investor must look
principally to the agency or instrumentality issuing or guaranteeing
the obligation for ultimate repayment, which agency or instrumentality
may be privately owned. There can be no assurance that the U.S.
Government would provide financial support to its agencies or
instrumentalities where it is not obligated to do so. As a general
matter, the value of debt instruments, including U.S. Government
obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their
structure or contract terms.
BANK OBLIGATIONS. Each Fund may invest in bank obligations. These
include certificates of deposit, time deposits and bankers'
acceptances. Time deposits, other than overnight deposits, may be
subject to withdrawal penalties and if so they are deemed "illiquid"
investments. Certificates of deposit are negotiable certificates
evidencing the obligation of a bank to repay funds deposited with it
for a specified period of time. Time deposits are non-negotiable
deposits maintained in a banking institution for a specified period of
time at a stated interest rate. Time deposits that may be held by a
Fund will not benefit from
16
<PAGE>
insurance from the Bank Insurance Fund or the Savings Association
Insurance Fund administered by the Federal Deposit Insurance
Corporation. Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer. These
instruments reflect the obligation both of the bank and of the drawer
to pay the face amount of the instrument upon maturity.
COMMERCIAL PAPER. Each Fund may invest in commercial paper, which
consists of short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is
usually sold on a discount basis and has a maturity at the time of
issuance not exceeding nine months. Each Fund also may invest in
non-convertible corporate debt securities (e.g., bonds and debentures)
with not more than one year remaining to maturity at the date of
settlement.
PREFERRED STOCKS. Each Fund may buy preferred stock. Preferred stock,
unlike common stock, has a stated dividend rate payable from the corporation's
earnings. Preferred stock dividends may be cumulative or non-cumulative,
participating, or auction rate. "Cumulative" dividend provisions require all or
a portion of prior unpaid dividends to be paid. If interest rates rise, the
fixed dividend on preferred stocks may be less attractive, causing the price of
preferred stocks to decline. Preferred stock may have mandatory sinking fund
provisions, as well as call/redemption provisions prior to maturity, which can
be a negative feature when interest rates decline. Preferred stock also
generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation. Preferred
stock may be "participating" stock, which means that it may be entitled to a
dividend exceeding the stated dividend in certain cases. The rights of preferred
stock on distribution of a corporation's assets in the event of liquidation are
generally subordinate to the rights associated with a corporation's debt
securities.
CONVERTIBLE SECURITIES. Each Fund may purchase fixed-income convertible
securities, such as bonds or preferred stock, which may be converted at a stated
price within a specified period of time into a specified number of shares of
common stock of the same or a different issuer. Convertible securities are
senior to common stock in a corporation's capital structure, but usually are
subordinated to non-convertible debt securities. While providing a fixed-income
stream (generally higher in yield than the income from a common stock but lower
than that afforded by a non-convertible debt security), a convertible security
also affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation of the common stock into which it is
convertible. In general, the market value of a convertible security is the
higher of its "investment value" (i.e., its value as a fixed-income security) or
its "conversion value" (i.e., the value of the underlying shares of common stock
if the security is converted). As a fixed-income security, the market value of a
convertible security generally increases when interest rates decline and
generally decreases when interest rates rise. However, the price of a
convertible security also is influenced by the market value of the security's
underlying common stock. Thus, the price of a
17
<PAGE>
convertible security generally increases as the market value of the underlying
stock increases, and generally decreases as the market value of the underlying
stock declines. Investments in convertible securities generally entail less risk
than investments in the common stock of the same issuer. While convertible
securities are a form of debt security in many cases, their conversion feature
(allowing conversion into equity securities) causes them to be regarded more as
"equity equivalents."
WHEN-ISSUED SECURITIES. Each Fund may purchase or sell securities on a
when-issued," delayed delivery or on a forward commitment basis ("forward
contracts"). When such transactions are negotiated, the price is fixed at the
time of commitment, but delivery and payment for the securities can take place a
month or more after the commitment date. The securities so purchased or sold are
subject to market fluctuations, and no interest accrues to the purchaser during
this period. At the time of delivery, the securities may be worth more or less
than the purchase or sale price. A Fund may use forward contracts to manage
interest rate exposure, as a temporary substitute for purchasing or selling
particular debt securities, or to take delivery of the underlying security
rather than closing out the forward contract.
RESTRICTED/ILLIQUID SECURITIES. Each Fund may hold up to, but not more
than, 15% of its net assets in "illiquid securities," which are securities that
are not readily marketable, including securities whose disposition is restricted
by contract or under federal securities laws; provided, that in circumstances
where fluctuations in value result in the Fund's investment in illiquid
securities constituting more than 15% of the current value of its net assets,
the Fund will take reasonable steps to reduce its investments in illiquid
securities until such investments constitute no more than 15% of the Fund's net
assets. A Fund may not be able to dispose of such securities in a timely fashion
and for a fair price, which could result in losses to the Fund. In addition,
illiquid securities are generally more difficult to value.
PORTFOLIO TURNOVER. Although portfolio turnover is not a limiting
factor with respect to investment decisions for the Funds, the Funds expect to
experience relatively modest portfolio turnover rates. It is anticipated that
under normal circumstances the annual portfolio turnover rate of any Fund will
not exceed 100%. However, in any particular year, market conditions may result
in greater turnover rates than the Manager currently anticipates. Portfolio
turnover may involve brokerage commissions and other transaction costs, which
the relevant Fund will bear directly, and could involve realization of capital
gains that would be taxable when distributed to shareholders. To the extent that
portfolio turnover results in realization of net short-term capital gains, such
gains ordinarily are taxed to shareholders at ordinary income tax rates.
Portfolio turnover rates for each Fund are shown in the "Financial Highlights"
section of the Prospectus. See the "Taxes" section of the Prospectus and
"Portfolio Transactions" in this Statement of Additional Information for
additional information.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements.
Under repurchase agreements, a Fund acquires a security for cash and obtains a
18
<PAGE>
simultaneous commitment from the seller to repurchase the security at an
agreed-upon price and date. The resale price exceeds the acquisition price and
reflects an agreed-upon market rate unrelated to the coupon rate on the
purchased security. Repurchase transactions afford an opportunity for a Fund to
earn a return on temporarily available cash at no market risk, although there is
a risk that the seller may default on its obligation to pay the agreed-upon sum
on the redelivery date. Default may subject a Fund to expenses, delays and risks
of loss. Repurchase agreements entered into with foreign brokers, dealers and
banks involve additional risks similar to those of investing in foreign
securities. For a discussion of these risks, see the discussions of foreign
issuer risk and foreign currency risk in the "Descriptions of Principal
Investment Risks" section of the Prospectus.
LENDING OF PORTFOLIO SECURITIES. Each Fund may make secured loans of
portfolio securities on up to 33% of the Fund's total assets. The risks in
lending portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. However, a Fund may make loans
of portfolio securities only to parties that the Manager or Subadvisor believes
have relatively high credit standing. Securities loans are made pursuant to
agreements requiring that loans be continuously secured by collateral in cash or
U.S. Government securities at least equal at all times to the market value of
the securities lent. The borrower pays to the lending Fund an amount equal to
any dividends or interest received on the securities lent. The Fund may invest
the cash collateral received or may receive a fee from the borrower. All
investments of cash collateral by a Fund are for the account and risk of the
Fund. Although voting rights or rights to consent with respect to the loaned
securities pass to the borrower, the Fund retains the right to call the loans at
any time on reasonable notice. The Fund may also call such loans in order to
sell the securities involved. The Fund pays various fees in connection with such
loans, including shipping fees and reasonable custodian and placement fees.
DERIVATIVES. Certain of the instruments in which the Funds may invest,
such as mortgage-backed securities and indexed securities, are considered to be
"derivatives." Derivatives are financial instruments whose value depends upon,
or is derived from, the value of an underlying asset, such as a security or
currency. The use of such instruments may result in a higher amount of
short-term capital gains (taxed at ordinary income tax rates) than would result
if the Funds did not use such instruments.
WARRANTS AND RIGHTS. A warrant typically gives the holder the right to
purchase underlying stock at a specified price for a designated period of time.
Warrants may be a relatively volatile investment. The holder of a warrant takes
the risk that the market price of the underlying stock may never equal or exceed
the exercise price of the warrant. A warrant will expire without value if it is
not exercised or sold during its exercise period. Rights are similar to
warrants, but normally have a short duration and are distributed directly by the
issuer to its shareholders. Warrants and rights have no voting rights, receive
no dividends, and have no rights to the assets of the issuer.
19
<PAGE>
Each Fund may invest in warrants or rights. However, each Fund (other
than the Growth Fund, the Micro Cap Fund, the International Fund and the
Emerging Markets Fund) must limit its investment in warrants or rights
(excluding warrants or rights acquired by the Fund as a part of a unit or
attached to securities at the time of purchase) so that the aggregate value
thereof (taken at the lower of cost or market) does not exceed 5% of the value
of the Fund's total assets and so that no more than 2% of its total assets are
invested in warrants that are not listed on the New York Stock Exchange or the
American Stock Exchange.
REAL ESTATE INVESTMENT TRUSTS. Real estate investment trusts ("REITS")
that may be purchased by a Fund include equity REITs, which own real estate
directly, mortgage REITs, which make construction, development or long-term
mortgage loans, and hybrid REITs, which share characteristics of equity REITs
and mortgage REITs. Equity REITs will be affected by, among other things,
changes in the value of the underlying property owned by the REITs, while
mortgage REITs will be affected by, among other things, the value of the
properties to which they have extended credit.
Factors affecting the performance of real estate may include excess
supply of real property in certain markets, changes in zoning laws, completion
of construction, changes in real estate value and property taxes, sufficient
level of occupancy, adequate rent to cover operating expenses, and local and
regional markets for competing assets. The performance of real estate may also
be affected by changes in interest rates, prudent management of insurance risks
and social and economic trends. In addition, REITs are dependent upon the skill
of each REIT's management.
A Fund could, under certain circumstances, own real estate directly as
a result of a default on debt securities it owns or from an in-kind distribution
of real estate from a REIT. Risks associated with such ownership could include
potential liabilities under environmental laws and the costs of other regulatory
compliance. If the Fund has rental income or income from the direct disposition
of real property, the receipt of such income may adversely affect its ability to
retain its tax status as a regulated investment company and thus its ability to
avoid taxation on its income and gains distributed to its shareholders. REITs
are also subject to substantial cash flow dependency, defaults by borrowers,
self-liquidation and the risk of failing to qualify for tax-free pass-through of
income under the Internal Revenue Code and/or to maintain exempt status under
the 1940 Act. If a Fund invests in REITs, investors would bear not only a
proportionate share of the expenses of the Fund, but also, indirectly, expenses
of the REITs.
FOREIGN SECURITIES
------------------
The Global Small Cap Fund, the International Fund, the Emerging Markets
Fund, and, to a lesser extent, each of the other Funds are permitted to invest
in foreign securities. If a Fund's securities are held abroad, the countries in
which such securities may be held and the sub-custodian holding them must be
approved by the Board of Trustees or its delegate under applicable rules adopted
by the SEC.
20
<PAGE>
Foreign securities include debt, equity and hybrid instruments,
obligations and securities of foreign issuers, including governments of
countries other than the United States and companies organized under the laws of
countries other than the United States, companies that have their primary
business carried on outside the United States and companies that have their
principal securities trading market outside the United States. Foreign
securities also include securities of foreign issuers (i) represented by
American Depositary Receipts ("ADR's") or (ii) sponsored or unsponsored Global
Depositary Receipts ("GDRs") and European Depositary Receipts ("EDRs") to the
extent they come available.
ADRs are receipts typically issued by a United States bank or trust company that
evidence ownership of underlying securities issued by a foreign corporation.
Generally, ADRs in registered form are designed for use in the United States
securities markets. Each Fund may invest in ADRs through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the underlying security and a depositary, whereas a depositary may
establish an unsponsored facility without participation by the issuer of the
deposited security. Holders of unsponsored depositary receipts generally bear
all the costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
ADRs may not necessarily be denominated in the same currency as the securities
into which they may be converted. The Funds will treat the underlying securities
of an ADR as the investment for purposes of its investment policies and
restrictions.
GDRs and EDRs are typically issued by foreign depositaries and evidence
ownership interests in a security or pool of securities issued by either a
foreign or a U.S. corporation. Holders of unsponsored GDRs and EDRs generally
bear all the costs associated with establishing them. The depositary of an
unsponsored GDR or EDR is under no obligation to distribute shareholder
communications received from the underlying issuer or to pass through to the GDR
or EDR holders any voting rights with respect to the securities or pools of
securities represented by the GDR or EDR. GDRs and EDRs also may be denominated
in a currency different from the currency in which the underlying securities are
denominated. Registered GDRs and EDRs are generally designed for use in U.S.
securities markets, while bearer form GDRs and EDRs are generally designed for
non-U.S. securities markets. The Funds will treat the underlying securities of a
GDR or EDR as the investment for purposes of its investment policies and
restrictions.
Investments in foreign securities involve special risks and
considerations. As foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic companies, there may be
less publicly available information about a foreign company than about a
domestic company. For example, foreign markets have different clearance and
settlement procedures. Delays in settlement could result in temporary periods
when assets of a Fund are uninvested. The inability of a Fund to make intended
21
<PAGE>
security purchases due to settlement problems could cause it to miss certain
investment opportunities. They may also entail certain other risks, such as the
possibility of one or more of the following: imposition of dividend or interest
withholding or confiscatory taxes, higher brokerage costs, thinner trading
markets, currency blockages or transfer restrictions, expropriation,
nationalization, military coups or other adverse political or economic
developments; less government supervision and regulation of securities
exchanges, brokers and listed companies; and the difficulty of enforcing
obligations in other countries. Purchases of foreign securities are usually made
in foreign currencies and, as a result, a Fund may incur currency conversion
costs and may be affected favorably or unfavorably by changes in the value of
foreign currencies against the U.S. dollar. Further, it may be more difficult
for a Fund's agents to keep currently informed about corporate actions that may
affect the prices of portfolio securities. Communications between the United
States and foreign countries may be less reliable than within the United States;
thus increasing the risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities. Certain markets may require
payment for securities before delivery. A Fund's ability and decisions to
purchase and sell portfolio securities may be affected by laws or regulations
relating to the convertibility of currencies and repatriation of assets.
A number of current significant political, demographic and economic
developments may affect investments in foreign securities and in securities of
companies with operations overseas. Such developments include dramatic political
changes in government and economic policies in several Eastern European
countries and the republics composing the former Soviet Union, as well as the
unification of the European Economic Community. The course of any one or more of
these events and the effect on trade barriers, competition and markets for
consumer goods and services are uncertain. Similar considerations are of concern
with respect to developing countries. For example, the possibility of revolution
and the dependence on foreign economic assistance may be greater in these
countries than in developed countries. Management seeks to mitigate the risks
associated with these considerations through active professional management.
In addition to the general risks of investing in foreign securities,
investments in emerging markets involve special risks. Securities of many
issuers in emerging markets may be less liquid and more volatile than securities
of comparable domestic issuers. Emerging markets may have different clearance
and settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when a portion of the assets of a
Fund is uninvested and no return is earned thereon. The inability of a Fund to
make intended security purchases due to settlement problems could cause a Fund
to miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result in losses to a Fund due to
subsequent declines in values of the portfolio securities, decrease in the level
of liquidity in a Fund's portfolio, or, if a Fund has entered into a contract to
sell the security, possible liability to the purchaser. Certain markets may
require payment for securities before
22
<PAGE>
delivery, and in such markets a Fund bears the risk that the securities will not
be delivered and that the Fund's payments will not be returned. Securities
prices in emerging markets can be significantly more volatile than in the more
developed nations of the world, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have relatively unstable governments, present the risk
of nationalization of businesses, restrictions on foreign ownership, or
prohibitions of repatriation of assets, and may have less protection of property
rights than more developed countries. The economies of countries with emerging
markets may be predominantly based on only a few industries, may be highly
vulnerable to changes in local or global trade conditions, and may suffer from
extreme and volatile debt burdens or inflation rates. Local securities markets
may trade a small number of securities and may be unable to respond effectively
to increases in trading volume, potentially making prompt liquidation of
substantial holdings difficult or impossible at times. Securities of issuers
located in countries with emerging markets may have limited marketability and
may be subject to more abrupt or erratic price movements.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. A Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to that Fund of any restrictions on investments.
Investment in certain foreign emerging market debt obligations may be
restricted or controlled to varying degrees. These restrictions or controls may
at times preclude investment in certain foreign emerging market debt obligations
and increase the expenses of a Fund.
ADDITIONAL INVESTMENT PRACTICES OF
THE FIXED INCOME FUND
In addition to the investment practices described in the Prospectus,
the Fixed Income Fund may also engage in the following investment practices.
ADJUSTABLE RATE SECURITIES. The Fund may invest in adjustable rate
securities, which are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. They may be U.S. Government securities or securities of other
issuers. Some adjustable rate securities are backed by pools of mortgage loans.
Although the rate adjustment feature may act as a buffer to reduce sharp changes
in the value of adjustable rate securities, these securities are still subject
to changes in value based on changes in market interest rates or changes in the
issuer's creditworthiness. Because the interest rate is reset only periodically,
changes in the interest rates on adjustable rate securities may lag changes in
prevailing
23
<PAGE>
market interest rates. Also, some adjustable rate securities (or the underlying
mortgages) are subject to caps or floors that limit the maximum change in
interest rates during a specified period or over the life of the security.
Because of the resetting of interest rates, adjustable rate securities are less
likely than non-adjustable rate securities of comparable quality and maturity to
increase significantly in value when market interest rates fall.
INTEREST RATE SWAPS AND RELATED INSTRUMENTS. An interest rate swap
agreement involves the exchange by the Fund with another party of their
respective commitments to pay or receive interest, such as an exchange of
floating rate payments for fixed rate payments with respect to a notional amount
of principal. Interest rate and yield curve swaps may be used by the Fund as a
hedging technique to preserve a return or spread on a particular investment or
portion of its portfolio or to protect against any increase in the price of
securities the Fund anticipates purchasing in the future. The Fund intends to
use these transactions as hedges and not as speculative investments. The Fund
usually will enter into such agreements on a net basis whereby the two payments
of interest are netted with only one party paying the net amount, if any, to the
other.
MUNICIPAL BONDS. The Fund may invest in debt securities issued by or on
behalf of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies or
instrumentalities, the interest on which is exempt from federal income tax
("municipal bonds"). Municipal bonds are issued to raise money for a variety of
public or private purposes, including financing state or local governments,
specific projects or public facilities.
The Fund can invest in municipal securities that are "general
obligations," secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. The basic security
behind general obligation bonds is the issuer's pledge of its full faith and
credit and taxing power, if any, for the repayment of principal and the payment
of interest. Issuers of general obligation bonds include states, counties,
cities, towns, and regional districts. The proceeds of these obligations are
used to fund a wide range of public projects, including construction or
improvement of schools, highways and roads, and water and sewer systems. The
rate of taxes that can be levied for the payment of debt service on these bonds
may be limited or unlimited. Additionally, there may be limits as to the rate or
amount of special assessments that can be levied to meet these obligations.
The Fund can also buy municipal bonds that are "revenue obligations,"
whose interest is payable only from the revenues derived from a particular
facility or class of facilities, or a specific excise tax or other revenue
source. The principal security for a revenue bond is generally the net revenues
derived from a particular facility, group of facilities, or, in some cases, the
proceeds of a special excise tax or other specific revenue source. Revenue bonds
are issued to finance a wide variety of capital projects. Examples include
electric, gas, water and sewer systems; highways, bridges, and tunnels; port and
airport facilities; colleges and universities; and hospitals. Although
24
<PAGE>
the principal security for these types of bonds may vary from bond to bond, many
provide additional security in the form of a debt service reserve fund that may
be used to make principal and interest payments on the issuer's obligations.
Housing finance authorities have a wide range of security, including partially
or fully insured mortgages, rent-subsidized and/or collateralized mortgages,
and/or the net revenues from housing or other public projects. Some authorities
provide further security in the form of a state's ability (without obligation)
to make up deficiencies in the debt service reserve fund.
The Fund may also buy industrial development bonds, which are
considered municipal bonds if the interest paid is exempt from federal income
tax. They are issued by or on behalf of public authorities to raise money to
finance various privately operated facilities for business and manufacturing,
housing, sports, and pollution control. These bonds may also be used to finance
public facilities such as airports, mass transit systems, ports, and parking.
The payment of the principal and interest on such bonds is dependent solely on
the ability of the facility's user to meet its financial obligations and the
pledge, if any, of real and personal property financed by the bond as security
for those payments.
The municipal bonds that may be purchased by the Fund may have fixed,
variable or floating rates of interest. In addition, some bonds may be
"callable," allowing the issuer to redeem them before their maturity date. When
interest rates decline, it is more likely that the issuer may call the bond. If
that occurs, the Fund might have to reinvest the proceeds of the called bond in
fixed income securities that pay a lower rate of return.
THE FUND CURRENTLY INTENDS TO INVEST LESS THAN 5% OF ITS NET ASSETS IN EACH OF
THE INSTRUMENTS DESCRIBED BELOW IN THE COMING YEAR.
STRIPS AND RESIDUALS. The Fund may invest in stripped mortgage-backed
securities that are usually structured with two classes that receive different
portions of the interest and principal distributions on a pool of mortgage
loans. The Fund may invest in both the interest-only or "IO" class and the
principal-only or "PO" class. Prepayments could result in losses on such
stripped mortgage-backed securities. The yield to maturity on an IO class of
stripped mortgage-backed securities is extremely sensitive not only to changes
in prevailing interest rates but also to the rate of principal payments
(including prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurably adverse effect on the Fund's yield to maturity
to the extent it invests in IOs. If the assets underlying the IO experience
greater than anticipated prepayments of principal, the Fund may fail to fully
recoup its initial investment in these securities. Conversely, POs tend to
increase in value if prepayments are greater than anticipated and decline if
prepayments are slower than anticipated. Stripped mortgage-backed securities may
have limited liquidity. The Fund may also invest in IO or PO strips relating to
other types of fixed income securities, such as asset-backed securities. Such
investments would be subject to risks similar to those described above.
25
<PAGE>
Collateralized mortgage obligations ("CMOs") also include securities
("Residuals") representing the interest in any excess cash flow and/or the value
of any collateral remaining after the issuer has applied cash flow from the
underlying mortgages or mortgage-backed securities to the payment of principal
of, and interest on, all other CMOs and the administrative expenses of the
issuer. Due to uncertainty as to whether any excess cash flow or the underlying
collateral will be available, there can be no assurances that Residuals will
ultimately have value. Residuals also involve the additional risk of loss of the
entire value of the investment if the underlying securities are prepaid. In
addition, if a CMO bears interest at an adjustable rate, the cash flows on the
related Residual will also be extremely sensitive to the level of the index upon
which the rate adjustments are based.
ZERO COUPON SECURITIES. The Fund may invest in "zero coupon" fixed
income securities. The Fund is required to accrue interest income on these
securities at a fixed rate based on the initial purchase price and the length to
maturity, but these securities do not pay interest in cash on a current basis.
The Fund is required to distribute the income on these securities to its
shareholders as the income accrues, even though the Fund is not receiving the
income in cash on a current basis. Thus, the Fund may have to sell other
investments to obtain cash to make income distributions. The market value of
zero coupon securities is often more volatile than that of non-zero coupon fixed
income securities of comparable quality and maturity.
INDEXED SECURITIES. The Fund may purchase securities, the redemption
values and/or the coupons of which are indexed to the prices of other
securities, securities indices, precious metals or other commodities, or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. Gold-indexed securities, for
example, typically provide for a maturity value that depends on the price of
gold, resulting in a security whose price tends to rise and fall together with
gold prices.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Indexed securities
may be more volatile than the underlying instrument.
Indexed securities in which the Fund may invest include so-called
"inverse floating obligations" or "residual interest bonds" on which the
interest rates typically decline as short-term market interest rates increase
and increase as short-term market rates decline. Such securities have the effect
of providing a degree of investment leverage because they will generally
increase or decrease in value in response to changes in market interest rates at
a rate which is a multiple of the rate at which fixed-rate long-term securities
increase or decrease in response to such changes. As a result,
26
<PAGE>
the market values of such securities will generally be more volatile than the
market values of fixed rate securities.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The Fund may invest in direct
debt instruments which are interests in amounts owed by a corporate,
governmental, or other borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments are subject to the
Fund's policies regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally recognized
rating agency. Loans that are fully secured offer the Fund more protection than
an unsecured loan in the event of non-payment of scheduled interest or
principal. However, there is no assurance that the liquidation of collateral
from a secured loan would satisfy the borrower's obligation, or that the
collateral can be liquidated. Indebtedness of borrowers whose creditworthiness
is poor involves substantially greater risks, and may be highly speculative.
Borrowers that are in bankruptcy or restructuring may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Direct
indebtedness of emerging countries will also involve a risk that the
governmental entities responsible for the repayment of the debt may be unable,
or unwilling, to pay interest and repay principal when due.
Investments in loans through direct assignment of a financial
institution's interest with respect to a loan may involve additional risks to
the Fund. For example, if a loan is foreclosed, the Fund could become part owner
of any collateral, and would bear the costs and liabilities associated with
owning and disposing of the collateral. In addition, it is conceivable that
under emerging legal theories of lender liability, the Fund could be held liable
as a co-lender. Direct debt instruments may also involve a risk of insolvency of
the lending bank or other intermediary.
A loan is often administered by a bank or other financial institution
that acts as agent for all holders. The agent administers the terms of the loan,
as specified in the loan agreement. The Fund may have to rely on the agent to
collect and pass on to the Fund any payments received from the borrower and to
apply appropriate credit remedies against a borrower. When the Fund is required
to rely upon a financial institution to pass on to the Fund principal and
interest, the Fund will evaluate the creditworthiness of such financial
institution as well as the creditworthiness of the borrower.
Direct indebtedness purchased by the Fund may include letters of
credit, revolving credit facilities, or other standby financing commitments
obligating the Fund to pay additional cash on demand. These commitments may have
the effect of requiring the Fund to increase its investment in a borrower at a
time when it would not otherwise have done so. The Fund will set aside
appropriate liquid assets in a segregated
27
<PAGE>
custodial account to cover its potential obligations under standby financing
commitments.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL TRANSACTIONS. The Fund
may enter into reverse repurchase agreements and dollar roll agreements with
banks and brokers to enhance return.
Reverse repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. During the reverse repurchase agreement
period, the Fund continues to receive principal and interest payments on these
securities and also has the opportunity to earn a return on the collateral
furnished by the counterparties to secure their obligation to redeliver the
securities.
Dollar rolls are transactions in which the Fund sells securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
The Fund will establish segregated accounts with its custodian in which
it will maintain assets equal in value to its obligations in respect of reverse
repurchase agreements and dollar rolls. Reverse repurchase agreements involve
the risk that the market value of the securities retained by the Fund may
decline below the price of the securities the Fund has sold but is obligated to
repurchase under the agreement. In the event the buyer of securities under a
reverse repurchase agreement or dollar roll files for bankruptcy or becomes
insolvent, the Fund's use of the proceeds of the agreement may be restricted
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Fund's obligation to repurchase the securities. Reverse
repurchase agreements and dollar rolls are considered borrowings by the Fund for
purposes of the Fund's fundamental investment restriction with respect to
borrowings.
ADDITIONAL INVESTMENT PRACTICES OF THE DISCIPLINED GROWTH
FUND -- FUTURES AND OPTIONS
In addition to the investment practices described in the Prospectus,
the Disciplined Growth Fund may also engage in transactions involving futures
and options. The following sections provide more detailed information about
these practices.
SUMMARY - FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may buy
and sell financial futures contracts on securities indices and fixed income
securities. A futures contract is a contract to buy or sell units of a
particular securities index, or a
28
<PAGE>
certain amount of a fixed income security, at an agreed price on a specified
future date. Depending on the change in value of the index or security between
the time when the Fund enters into and terminates a futures contract, the Fund
realizes a gain or loss. The Fund may purchase and sell futures contracts for
hedging purposes and to adjust that Fund's exposure to relevant stock or bond
markets. For example, when the Manager wants to increase the Fund's exposure to
equity securities, it may do so by taking long positions in futures contracts on
equity indices such as futures contracts on the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500"). Similarly, when the Manager wants to increase the
Fund's exposure to fixed income securities, it may do so by taking long
positions in futures contracts relating to fixed income securities such as
futures contracts on U.S. Treasury bonds or notes. The Fund may buy and sell
call and put options on futures contracts or on stock indices in addition to or
as an alternative to purchasing or selling futures contracts.
The use of futures and options involves certain special risks. Certain
risks arise because of the possibility of imperfect correlations between
movements in the prices of financial futures and options and movements in the
prices of the underlying securities index or securities that are the subject of
the hedge. The successful use of futures and options further depends on the
Manager's ability to forecast market or interest rate movements correctly. Other
risks arise from the Fund's potential inability to close out its futures or
related options positions, and there can be no assurance that a liquid secondary
market will exist for any futures contract or option at a particular time. The
Fund's ability to terminate option positions established in the over-the-counter
market may be more limited than for exchange-traded options and may also involve
the risk that securities dealers participating in such transactions would fail
to meet their obligations to the Fund. The use of futures or options on futures
for purposes other than hedging may be regarded as speculative. Certain
regulatory requirements may also limit the Fund's ability to engage in futures
and options transactions.
SUMMARY - OPTIONS. The Fund may purchase and sell call and put options
on securities it owns or in which it may invest. The Fund receives a premium
from writing a call or put option, which increases the Fund's return if the
option expires unexercised or is closed out at a net profit. When the Fund
writes a call option, it gives up the opportunity to profit from any increase in
the price of a security above the exercise price of the option; when it writes a
put option, the Fund takes the risk that it will be required to purchase a
security from the option holder at a price above the current market price of the
security. The Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. The Fund may also from
time to time buy and sell combinations of put and call options on the same
underlying security to earn additional income. The aggregate value of the
securities underlying the options written by the Fund may not exceed 25% of the
Fund's total assets. The Fund's use of these strategies may be limited by
applicable law.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Fund will comply
with guidelines established by the Securities and Exchange Commission with
respect to
29
<PAGE>
coverage of options and futures strategies by mutual funds, and if the
guidelines so require will set aside appropriate liquid assets in a segregated
custodial account in the amount prescribed. Securities held in a segregated
account cannot be sold while the futures or options strategy is outstanding,
unless they are replaced with other suitable assets. As a result, there is a
possibility that segregation of a large percentage of the Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
COMBINED POSITIONS. The Fund may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, the Fund may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the Fund's current or
anticipated investments exactly. The Fund may invest in options and futures
contracts based on securities with different issuers, maturities, or other
characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instruments, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. The Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in the Fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
FUTURES CONTRACTS. When the Fund purchases a futures contract, it
agrees to purchase a specified underlying instrument at a specified future date.
When the Fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future
30
<PAGE>
date. The price at which the purchase and sale will take place is fixed when the
Fund enters into the contract. Some currently available futures contracts are
based on specific securities, such as U.S. Treasury bonds or notes, and some are
based on indices of securities prices, such as the S&P 500. Futures can be held
until their delivery dates, or can be closed out before then if a liquid
secondary market is available. The value of a futures contract tends to increase
and decrease in tandem with the value of its underlying instrument. Therefore,
purchasing futures contracts will tend to increase the Fund's exposure to
positive and negative price fluctuations in the underlying instrument, much as
if it had purchased the underlying instrument directly. When the Fund sells a
futures contract, by contrast, the value of its futures position will tend to
move in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price changes,
much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and seller
are required to deposit "initial margin" with a futures broker, known as a
futures commission merchant ("FCM"), when the contract is entered into. Initial
margin deposits are typically equal to a percentage of the contract's value. If
the value of either party's position declines, that party will be required to
make additional "variation margin" payments to settle the change in value on a
daily basis. The party that has a gain may be entitled to receive all or a
portion of this amount. Initial and variation margin payments do not constitute
purchasing securities on margin for purposes of the Fund's investment
limitations. In the event of the bankruptcy of an FCM that holds margin on
behalf of the Fund, the Fund may be entitled to return of margin owed to it only
in proportion to the amount received by the FCM's other customers, potentially
resulting in losses to the Fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The Fund has filed a
notice of eligibility for exclusion from the definition of the term "commodity
pool operator" with the Commodity Futures Trading Commission ("CFTC") and the
National Futures Association, which regulate trading in the futures markets. The
Funds intend to comply with Rule 4.5 under the Commodity Exchange Act. To the
extent the Fund does not engage in commodity futures or commodity options for
"bona fide" hedging purposes, the Rule requires the Fund to limit the initial
margin and premiums paid to establish such positions to 5% of net assets. The
amount by which a commodity option is "in the money" is excluded for these
purposes.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid secondary market will exist for any particular options or futures
contract at any particular time. Options may have relatively low trading volume
and liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily price
fluctuation limits for options and futures contracts, and may halt trading if a
contract's price moves upward or downward more than the limit in a given day. On
volatile trading days when the price fluctuation limit is reached or a trading
halt is imposed, it may be impossible for the Fund to enter into
31
<PAGE>
new positions or close out existing positions. If the secondary market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and potentially could
require the Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, the Fund's access to other
assets held to cover its options or futures positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter ("OTC") options (options not traded
on exchanges) generally are established through negotiation with the other party
to the option contract. While this type of arrangement allows the Fund greater
flexibility to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organization of the exchanges where they are traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indices
of securities prices, and futures contracts. The Fund may terminate its position
in a put option it has purchased by allowing it to expire or by exercising the
option. If the option is allowed to expire, the Fund will lose the entire
premium it paid. If the Fund exercises the option, it completes the sale of the
underlying instrument at the strike price. The Fund may also terminate a put
option position by closing it out in the secondary market at its current price,
if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying instrument's
price does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium paid,
plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time, the buyer can expect to suffer
a loss if security prices do not rise sufficiently to offset the cost of the
option.
WRITING PUT AND CALL OPTIONS. When the Fund writes a put option, it
takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Fund assumes the obligation to pay the
strike price for the option's underlying instrument if the other party to the
option chooses to exercise it. When writing an option on a futures contract, the
Fund will be required to make margin payments to an FCM as described above for
futures contracts. The Fund may seek to
32
<PAGE>
terminate its position in a put option it writes before exercise by closing out
the option in the secondary market at its current price. If the secondary market
is not liquid for a put option the Fund has written, however, the Fund must
continue to be prepared to pay the strike price while the option is outstanding,
regardless of price changes, and must continue to set aside assets to cover its
position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received. If
security prices remain the same over time, it is likely that the writer will
also profit, because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss. This loss
should be less than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should mitigate the
effects of the decline. Writing a call option obligates the Fund to sell or
deliver the option's underlying instrument, in return for the strike price, upon
exercise of the option. The characteristics of writing call options are similar
to those of writing put options, except that writing calls generally is a
profitable strategy if prices remain the same or fall. Through receipt of the
option premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
ADDITIONAL INVESTMENT PRACTICES OF THE
GLOBAL SMALL CAP FUND
The Global Small Cap Fund normally expects to invest approximately 40%
to 60% of its assets outside the United States and the remaining 60% to 40% of
its assets inside the United States. The weighting of the Fund's portfolio
between foreign and domestic investments will depend upon prevailing conditions
in foreign and domestic markets. Under certain market conditions, the Fund may
invest more than 60% of its assets either outside or inside the United States.
In addition, the Fund will always invest at least 65% of its total assets in at
least three different countries, one of which will be the United States.
The Manager believes that the securities markets of many nations move
relatively independently of one another because business cycles and other
economic or political events that influence one country's securities markets may
have little effect on securities markets in other countries. By investing in a
global portfolio, the Fund attempts to reduce the risks associated with
investing in the economy of only one country. Consistent with the above
policies, the Fund may at times invest more than 25% of its assets in the
securities of issuers located in a single country. At such times, the Fund's
performance will be directly affected by political, economic, market and
exchange rate conditions in such country. When the Fund invests a substantial
portion of its assets in a single country it is subject to greater risk of
adverse changes in any of these factors with respect to such country than a fund
which does not invest as heavily in the country.
33
<PAGE>
In certain foreign countries, particularly newly industrializing
countries, the Fund's market capitalization guideline of $1.5 billion may
include companies which, when viewed on a relative basis, are not considered
"small cap" in the particular country.
ADDITIONAL INVESTMENT PRACTICES OF THE
GLOBAL SMALL CAP FUND, THE INTERNATIONAL FUND
AND THE EMERGING MARKET FUND
POOLED INVESTMENT VEHICLES. In order to gain exposure to certain
foreign countries that prohibit or impose restrictions on direct investment, the
Global Small Cap Fund, the International Fund and the Emerging Markets Fund may
(subject to any applicable regulatory requirements) invest in foreign and
domestic investment companies and other pooled investment vehicles that invest
primarily or exclusively in such countries. A Fund's investment through such
vehicles will generally involve the payment of indirect expenses (including
advisory fees) which the Fund does not incur when investing directly.
FOREIGN CURRENCY TRANSACTIONS. Since the stocks of foreign companies
are frequently denominated in foreign currencies, and since a Fund may
temporarily hold uninvested reserves in bank deposits in foreign currencies, the
Fund will be affected favorably or unfavorably by changes in currency rates and
in exchange control regulations, and may incur costs in connection with
conversions between various currencies.
Each Fund's general approach is to leave currency exposure unhedged.
The investment policies of each Fund, however, permit the Fund to purchase
foreign securities or enter into forward foreign currency exchange contracts in
order to expedite settlement of portfolio transactions. In exceptional
circumstances, a Fund may use forward foreign currency exchange contracts or
other currency transactions, such as exchange listed currency futures, exchange
listed and OTC options on currencies, and currency swaps, to protect a position
if fundamental technical analysis suggests that it is necessary.
A Fund will ordinarily conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through the use of forward contracts to
purchase or sell foreign currencies. A forward foreign currency exchange
contract will involve an obligation by a Fund to purchase or sell a specific
amount of currency at a future date, which may be any fixed number of days, from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirements, and
no commissions are charged at any stage for trades. Neither type of foreign
currency
34
<PAGE>
transaction will eliminate fluctuations in the prices of a Fund's portfolio
securities or prevent loss if the prices of such securities should decline.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, government
exchange controls, blockages, and manipulations or exchange restrictions imposed
by governments can negatively affect purchases and sales of currency and related
instruments. These can result in losses to a Fund if it is unable to deliver or
receive currency or funds in settlement of obligations and could also cause
hedges it has entered into to be rendered useless, resulting in full currency
exposure as well as incurring transaction costs. Buyers and sellers of currency
futures are subject to the same risks that apply to the use of futures
generally. Further, settlement of a currency futures contract for the purchase
of most currencies must occur at a bank based in the issuing nation. Trading
options on currency futures is relatively new, and the ability to establish and
close out positions on such options is subject to the maintenance of a liquid
market that may not always be available. Currency exchange rates may fluctuate
based on factors extrinsic to that country's economy.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS
--------------------
Investment decisions for the Funds and for the other investment
advisory clients of the Manager and the Subadvisor and their affiliates are made
with a view to achieving their respective investment objectives. Investment
decisions are the product of many factors in addition to basic suitability for
the particular client involved. Thus, a particular security may be bought or
sold for certain clients even though it could have been bought or sold for other
clients at the same time. Likewise, a particular security may be bought for one
or more clients when one or more other clients are selling the security. In some
instances, one client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously purchase or sell the
same security, in which event each day's transactions in such security are,
insofar as possible, averaged as to price and allocated between such clients in
a manner which in the Manager's or the Subadvisor's opinion is equitable to each
and in accordance with the amount being purchased or sold by each. There may be
circumstances when purchases or sales of portfolio securities for one or more
clients will have an adverse effect on other clients.
BROKERAGE AND RESEARCH SERVICES
-------------------------------
Transactions on U.S. stock exchanges, commodities markets and futures
markets and other agency transactions involve the payment by a Fund of
negotiated brokerage commissions. Such commissions vary among different brokers.
A particular broker may charge different commissions according to such factors
as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment
35
<PAGE>
of fixed brokerage commissions, which may be higher than those in the United
States. In the case of securities traded in the over-the-counter markets, the
price paid by a Fund usually includes an undisclosed dealer commission or
mark-up. In underwritten offerings, the price paid by a Fund includes a
disclosed, fixed commission or discount retained by the underwriter or dealer.
It is anticipated that most purchases and sales of securities by the Fixed
Income Fund will be with the issuer or with underwriters of or dealers in those
securities, acting as principal. Accordingly, the Fixed Income Fund would not
ordinarily pay significant brokerage commissions with respect to securities
transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")) from broker-dealers that
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, the Manager and the Subadvisor may receive brokerage and research
services and other similar services from many broker-dealers with which the
Manager and the Subadvisor place the Funds' portfolio transactions and from
third parties with which these broker-dealers have arrangements. These services
may include such matters as trade execution services, general economic and
market reviews, industry and company reviews, evaluations of investments,
recommendations as to the purchase and sale of investments, newspapers,
magazines, pricing services, quotation services, news services and personal
computers utilized by the Manager's or Subadvisor's investment professionals.
Where the services referred to above are not used exclusively by the Manager or
the Subadvisor for brokergae or research purposes, the Manager or Subadvisor,
based upon allocations of expected use, would bear that portion of the cost of
these services which directly relates to their non-brokerage or non-research
use. Some of these services may be of value to the Manager, the Subadvisor or
their affiliates in advising various of their clients (including the Funds),
although not all of these services would necessarily be useful and of value in
managing the Funds or any particular Fund. The management fee paid by each Fund
is not reduced because the Manager, the Subadvisor or their affiliates may
receive these services even though the Manager or the Subadvisor might otherwise
be required to purchase some of these services for cash.
The Manager and Subadvisor each place orders for the purchase and sale
of portfolio investments for the Funds and buy and sell investments for the
Funds through a substantial number of brokers and dealers. In so doing, the
Manager and the Subadvisor use their best efforts to obtain for the Funds the
most favorable price and execution available, except to the extent they may be
permitted to pay higher brokerage commissions as described below. In seeking the
most favorable price and execution, the Manager and the Subadvisor, having in
mind each Fund's best interests, consider all factors they deem relevant,
including, by way of illustration, price, the size of the transaction, the
nature of the market for the security or other investment, the amount of the
commission, the timing of the transaction taking into account market prices and
36
<PAGE>
trends, the reputation, experience and financial stability of the broker-dealer
involved and the quality of service rendered by the broker-dealer in other
transactions.
As permitted by Section 28(e) of the 1934 Act, and by each Management
Contract or, as applicable, each Sub-Advisory Agreement, the Manager and the
Subadvisor may cause a Fund to pay a broker-dealer which provides "brokerage and
research services" (as defined in the 1934 Act) to the Manager or Subadvisor an
amount of disclosed commission for effecting securities transactions on stock
exchanges and other transactions for such Fund on an agency basis in excess of
the commission which another broker-dealer would have charged for effecting that
transaction. The Manager's or the Subadvisor's authority to cause the Funds to
pay any such greater commissions is also subject to such policies as the
Trustees may adopt from time to time. It is the position of the staff of the
Securities and Exchange Commission that Section 28(e) does not apply to the
payment of such greater commissions in "principal" transactions. Accordingly the
Manager and the Subadvisor will use their best efforts to obtain the most
favorable price and execution available with respect to such transactions, as
described above.
The following tables show brokerage commissions on portfolio
transactions paid by each Fund (other than the International Fund and the
Emerging Markets Fund, which are newly organized) during the fiscal periods
indicated.
1. FIXED INCOME FUND
-----------------
Fiscal Year ended December 31 Brokerage Commissions
----------------------------- ---------------------
1996 $0
1997 $0
1998 $0
2. VALUE FUND
----------
Fiscal Year ended December 31 Brokerage Commissions
----------------------------- ---------------------
1996 $15,351
1997 $60,776
1998 $63,166
3. GROWTH FUND
-----------
Fiscal Year ended December 31 Brokerage Commissions
----------------------------- ---------------------
1998 (from January 20, 1998) $35,612
37
<PAGE>
4. DISCIPLINED GROWTH FUND
-----------------------
Fiscal Year ended December 31 Brokerage Commissions
----------------------------- ---------------------
1996 (from August 26, 1996) $ 5,791
1997 $17,992
1998 $41,978
5. ENTERPRISE III FUND
-------------------
Fiscal Year ended December 31 Brokerage Commissions
----------------------------- ---------------------
1996 $14,880
1997 $36,573
1998 $48,871
6. MICRO CAP FUND
--------------
Fiscal Year ended December 31 Brokerage Commissions
----------------------------- ---------------------
1998 (from July 20, 1998) $36,532
7. GLOBAL SMALL CAP FUND
---------------------
Fiscal Year ended December 31 Brokerage Commissions
----------------------------- ---------------------
1996 $26,636
1997 $32,949
1998 $25,801
The following tables show transactions placed by each Fund (other than the
International Fund and the Emerging Markets Fund, which are newly organized)
with brokers and dealers during the fiscal year ended December 31, 1998 to
recognize research, statistical and quotation services.
38
<PAGE>
- ------------------------ ------------------- ----------------- -----------
DOLLAR VALUE OF PERCENT OF TOTAL AMOUNT OF
THOSE TRANSACTIONS TRANSACTIONS COMMISSIONS
- ------------------------ ------------------- ----------------- -----------
FIXED INCOME FUND $0 0% $0
- ------------------------ ------------------- ----------------- -----------
VALUE FUND $518,937,000 5.22% $31,136
- ------------------------ ------------------- ----------------- -----------
GROWTH FUND $334,600,000 54.55% $20,076
- ------------------------ ------------------- ----------------- -----------
DISCIPLINED GROWTH FUND $116,397,000 12.54% $6,983
- ------------------------ ------------------- ----------------- -----------
ENTERPRISE III FUND $60,200,000 6.89% $3,612
- ------------------------ ------------------- ----------------- -----------
MICRO CAP FUND $22,800,000 1.60% $1,368
- ------------------------ ------------------- ----------------- -----------
GLOBAL SMALL CAP FUND $11,700,000 5.14% $702
- ------------------------ ------------------- ----------------- -----------
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
The Trust, an open-end, management investment company, is organized as
a Massachusetts business trust under the laws of Massachusetts by an Agreement
and Declaration of Trust ("Declaration of Trust") dated August 1, 1994, as
amended. A copy of the Declaration of Trust, as amended, is on file with the
Secretary of The Commonwealth of Massachusetts. Each Fund is a non-diversified
series of the Trust. The fiscal year for each Fund ends on October 31. Prior to
July 22, 1999, the fiscal year for each Fund ended on December 31.
Each share of each Fund represents an equal proportionate interest in
such Fund. Shares of the Trust do not have any preemptive rights. Shares are
freely transferable and are entitled to dividends as declared by the Trustees.
Upon liquidation of a Fund, shareholders of such Fund are entitled to share pro
rata in the net assets of the Fund available for distribution to shareholders.
The Trust has an unlimited number of authorized shares of beneficial
interest. The Declaration of Trust permits the Trustees, without shareholder
approval, to subdivide any series of shares into various sub-series of shares
with such dividend preferences and other rights as the Trustees may designate.
While the Trustees have no current intention to exercise this power, it is
intended to allow them to provide for an equitable allocation of the impact of
any future regulatory requirements that might affect various classes of
shareholders differently. The Trustees may also, without shareholder approval,
establish one or more additional separate portfolios for investments in the
Trust or merge two or more existing portfolios. Shareholders' investments in
such a portfolio would be evidenced by a separate series of shares.
39
<PAGE>
The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust, however, may be terminated at any time by vote of at least
two-thirds of the outstanding shares of the Trust. The Declaration of Trust
further provides that the Trustees may also terminate the Trust, or any Fund
thereof, upon written notice to the shareholders.
VOTING RIGHTS
- -------------
Shareholders are entitled to one vote for each full share held (with
fractional votes for fractional shares held) and will vote (to the extent
provided herein) in the election of Trustees and the termination of the Trust
and on other matters submitted to the vote of shareholders. Shareholders vote by
individual Fund on all matters except that (i) when required by the 1940 Act,
shares shall be voted in the aggregate and not by individual Fund, and (ii) when
the Trustees have determined that the matter affects only the interests of one
or more Funds, then only shareholders of such Funds shall be entitled to vote
thereon. Shareholders of one Fund shall not be entitled to vote on matters
exclusively affecting another Fund, such matters including, without limitation,
the adoption of or change in the investment objective, policies or restrictions
of the other Fund and the approval of the investment advisory contract of the
other Fund.
There will normally be no meetings of shareholders for the purpose of
electing Trustees except that in accordance with the 1940 Act (i) the Trust will
hold a shareholders' meeting for the election of Trustees at such time as less
than a majority of the Trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy in the Board of Trustees,
less than two-thirds of the Trustees holding office have been elected by the
shareholders, that vacancy may only be filled by a vote of the shareholders.
Upon written request by the holders of at least 10% of the outstanding shares
stating that such shareholders wish to communicate with the other shareholders
for the purpose of obtaining the signatures necessary to demand a meeting to
consider removal of a Trustee, the Trust has undertaken to provide a list of
shareholders or to disseminate appropriate materials (at the expense of the
requesting shareholders). In addition, shareholders of the Trust holding at
least 10% of the outstanding shares entitled to vote have the right to call a
meeting to elect or remove Trustees or to take other actions as provided in the
Declaration of Trust. Shareholders holding a majority of the outstanding shares
of the Trust may remove Trustees from office by votes cast in person or by proxy
at a meeting of shareholders or by written consent. Except as set forth above,
the Trustees shall continue to hold office and may appoint successor Trustees.
Voting rights are not cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust except (i)
to change the Trust's name or to cure technical problems in the Declaration of
Trust and (ii) to establish, designate or modify new and existing series or
sub-series of Trust shares or other provisions relating to Trust shares in
response to applicable laws or regulations.
40
<PAGE>
SHAREHOLDER AND TRUSTEE LIABILITY
- ---------------------------------
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or executed by the Trust
or the Trustees. The Declaration of Trust provides for indemnification out of
the property of the relevant Fund for all loss and expense of any shareholder of
that Fund held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is considered remote because it is limited to circumstances in which
the disclaimer is inoperative and the Fund of which he is or was a shareholder
would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office. The By-laws of the Trust provide for indemnification by the Trust of
the Trustees and the officers of the Trust except with respect to any matter as
to which any such person did not act in good faith in the reasonable belief that
his action was in or not opposed to the best interests of the Trust. Such person
may not be indemnified against any liability to the Trust or the Trust's
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
At July 31, 1999, except as noted below, the officers and Trustees of the Trust
owned less than 1% as a group of the shares of any Fund, and, to the knowledge
of the Trust, no person owned of record or beneficially 5% or more of the shares
of any Fund.
1. FIXED INCOME FUND
-----------------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
Massachusetts Mutual Life 26.28%
Insurance Company
1295 State Street
Springfield, MA 01111
The Stackpole Hall Foundation 24.20%
44 South St. Marys Street
St. Marys, PA 15857
41
<PAGE>
MassMutual Foundation for Hartford Inc. 12.00%
1295 State Street
Springfield, MA 01111
Haley & Aldrich Pension Trust 11.94%
465 Medford Street
Suite 2200
Boston, MA 02129
David L. Babson & Co. Pension Plan 8.74%
c/o David L. Babson & Co. Inc.
One Memorial Drive
Cambridge, MA 02142
2. VALUE FUND
----------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
Massachusetts Mutual Life 62.87%
Insurance Company
1295 State Street
Springfield, MA 01111
MassMutual Foundation for Hartford Inc. 8.41%
1295 State Street
Springfield, MA 01111
Norwest Bank Trustee FBO 7.32%
Universal Cooperatives
7801 Metro Parkway
P.O. Box 460
Minneapolis, MN 55440
National City PA, Trustee FBO 6.42%
Allegheny County Police Pension
P. O. Box 242
Bethel Park, PA 15102
US Bank National Association, 5.31%
as Custodian for
Evans & Sutherland 401(k) Plan
600 Komas Drive
Salt Lake City, UT 84058
42
<PAGE>
3. GROWTH FUND
-----------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
Massachusetts Mutual Life 97.42%
Insurance Company
1295 State Street
Springfield, MA 01111
4. DISCIPLINED GROWTH FUND
-----------------------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
Massachusetts Mutual Life 88.50%
Insurance Company
1295 State Street
Springfield, MA 01111
David L. Babson & Co. Profit Sharing Plan 6.07%
c/o David L. Babson & Co. Inc.
One Memorial Drive
Cambridge, MA 02142
5. ENTERPRISE III FUND
-------------------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
Massachusetts Mutual Life 80.90%
Insurance Company
1295 State Street
Springfield, MA 01111
M&I Trust Company, as Trustee 14.62%
1000 N. Water Street -TR14
Milwaukee, WI 53202
6. MICRO CAP FUND
--------------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
Massachusetts Mutual Life 61.00%
Insurance Company
1295 State Street
Springfield, MA 01111
43
<PAGE>
Music Associates of Aspen 6.34%
2 Music School Road
Aspen, CO 81611
Temple Hoyne Buell Foundation 5.74%
2700 East Hampden Avenue
Englewood, CO 80110
Anschutz Family Foundation 5.05%
555 17th Street
Denver, CO 80202
7. GLOBAL SMALL CAP FUND
---------------------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
Massachusetts Mutual Life 94.20%
Insurance Company
1295 State Street
Springfield, MA 01111
INVESTMENT PERFORMANCE
STANDARD PERFORMANCE MEASURES
- -----------------------------
The yield of the Fixed Income Fund may be provided in reports, sales
literature and advertisements. Yield is presented for a specified thirty-day
period (the "base period"). Yield is based on the amount determined by (i)
calculating the aggregate amount of dividends and interest earned by a Fund
during the base period less expenses for that period, and (ii) dividing that
amount by the product of (A) the average daily number of shares of the Fund
outstanding during the base period and entitled to receive dividends and (B) the
net asset value on the last day of the base period. The result is annualized on
a compounding basis to determine the yield. For this calculation, interest
earned on debt obligations held by a Fund is generally calculated using the
yield to maturity (or first expected call date) on such obligations based on
their market values (or, in the case of receivables-backed securities such as
securities issued by the Government National Mortgage Association, based on
cost). Dividends on equity securities are accrued daily at their stated dividend
rates. The yield for the Fixed Income Fund for the 30-day period ended December
31, 1998 was 5.01%.
Each Fund may also advertise its total return. Total Return with
respect to a Fund is a measure of the change in value of an investment in such
Fund over the period covered, which assumes any dividends or capital gains
distributions are reinvested immediately rather than paid to the investor in
cash. The formula for Total Return used herein includes four steps: (1) adding
to the total number of shares purchased by a
44
<PAGE>
hypothetical $1,000 investment in the Fund all additional shares which would
have been purchased if all dividends and distributions paid or distributed
during the period had been immediately reinvested; (2) calculating the value of
the hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of shares owned at the end of the period by the net
asset value per share on the last trading day of the period; (3) assuming
redemption at the end of the period; and (4) dividing this account value for the
hypothetical investor by the initial $1,000 investment. Average Annual Total
Return is the annual compounded percentage change in the value of the amount
invested in the Fund from the beginning until the end of the stated period.
All data is based on a Fund's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of a Fund's
portfolio, and a Fund's operating expenses. Investment performance also often
reflects the risks associated with a Fund's investment objective and policies.
These factors should be considered when comparing a Fund's investment results to
those of other mutual funds and other investment vehicles.
The inception dates for the Funds are as follows: Fixed Income Fund,
July 25, 1995; Value Fund, July 25, 1995; Growth Fund, January 20, 1998;
Disciplined Growth Fund, August 26, 1996; Enterprise III Fund, July 25, 1995;
Micro Cap Fund, July 20, 1998; Global Small Cap Fund, July 19, 1995;
International Fund, November 1, 1999 (anticipated inception date); and Emerging
Markets Fund, November 1, 1999 (anticipated inception date).
PERFORMANCE COMPARISONS
- -----------------------
From time-to-time and only to the extent the comparison is appropriate
for the Funds, the Trust may quote the performance of the Funds in advertising
and other types of literature and may compare the performance of the Funds to
the performance of various indices and investments for which reliable
performance data is available. The performance of the Funds may be compared in
advertising and other literature to averages, performance rankings and other
information prepared by recognized mutual fund statistical services.
Performance information for the Funds may be compared, in reports and
promotional literature, to the S&P 500 Index, the Russell 2500 Index, the
Russell 2000 Index, the Russell 1000 Growth Index, the Russell 1000 Value Index,
the Lehman Brothers 5-7 Year Treasury Index, the Lehman Brothers Government Bond
Index, the Lehman Brothers Treasury Bond Index, the Lehman Brothers Aggregate
Bond Index, the Lehman Brothers Intermediate Treasury Index, the 91-Day Treasury
Bill Average, the Morgan Stanley Capital International Index for Europe,
Australasia and the Far East, the Morgan Stanley Emerging Markets Free Index,
the S&P Barra Large Cap Value Index, the Salomon Brothers Extended Market Index,
ex-US, or other appropriate managed or unmanaged indices of the performance of
various types of
45
<PAGE>
investments, so that investors may compare a Fund's results with those of
indices widely regarded by investors as representative of the security markets
in general. Unmanaged indices may assume the reinvestment of dividends, but
generally do not reflect deductions for administrative and management costs and
expenses. Managed indices generally do reflect such deductions.
The Trust also may use the following information in advertisements and
other types of literature, but only to the extent the information is appropriate
for the Funds: (1) the Consumer Price Index may be used to assess the real rate
of return from an investment in a Fund; (2) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of a Fund or the general economic, business,
investment, or financial environment in which the Fund operates; (3) the effect
of tax-deferred compounding on the investment returns of a Fund, or on returns
in general, may be illustrated by graphs, charts, etc., where such graphs or
charts would compare, at various points in time, the return from an investment
in the Fund (or returns in general) on a tax-deferred basis (assuming
reinvestment of capital gains and dividends and assuming one or more tax rates)
with the return on a taxable basis; and (4) the sectors or industries in which a
Fund invests may be compared to relevant indices of stocks or surveys (e.g., S&P
Industry Surveys) to evaluate the Fund's historical performance or current or
potential value with respect to the particular industry or sector.
Each Fund's performance also may be compared to those of other mutual
funds having similar objectives. This comparative performance could be expressed
as a ranking prepared by Lipper Analytical Services, Inc., (including the Lipper
General Bond Fund Average, the Lipper Intermediate Investment Grade Debt Fund
Average, the Lipper Bond Fund Average, the Lipper Growth Fund Average, the
Lipper Flexible Fund Average), or Morningstar, Inc. (including, the Morningstar
Large Cap Value Fund Average), independent services which monitor the
performance of mutual funds. Any such comparisons may be useful to investors who
wish to compare a Fund's past performance with that of its competitors. Of
course, past performance cannot be a guarantee of future results.
OTHER ADVERTISING ITEMS
- -----------------------
The Trust may discuss in advertising and other types of literature that
a Fund has been assigned a rating by a nationally recognized statistical rating
organization ("NRSRO"), such as S&P. Such rating would assess the
creditworthiness of the investments held by such Fund. The assigned rating would
not be a recommendation to purchase, sell or hold the Fund's shares since the
rating would not comment on the market price of the Fund's shares or the
suitability of the Fund for a particular investor. In addition, the assigned
rating would be subject to change, suspension or withdrawal as a result of
changes in, or unavailability of, information relating to the Fund or its
investments. The Trust may compare a Fund's performance with other investments
that are assigned ratings by NRSROs. Any such comparisons may be useful to
investors who wish to compare a Fund's past performance with other rated
investments. Of
46
<PAGE>
course past performance cannot be a guarantee of future results. General mutual
fund statistics provided by the Investment Company Institute may also be used.
DETERMINATION OF NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund share
is determined at 4:15 p.m., Eastern time, on each day on which the New York
Stock Exchange is open for trading. The Trust expects that the days, other than
weekend days, that the New York Stock Exchange will not be open are New Year's
Day, Martin Luther King, Jr. Day, Washington's Birthday, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
EXPERTS
The financial statements of the Funds for the fiscal year ended
December 31, 1998 incorporated by reference into this Statement of Additional
Information have been audited by Deloitte & Touche LLP, 125 Summer Street,
Boston, Massachusetts 02110, the Trust's independent auditors, as set forth in
each of their reports thereon appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
The Trust's (1) audited financial statements for the fiscal year ended
December 31, 1998 included in the Trust's Annual Reports filed with the
Securities and Exchange Commission ("SEC") on March 4, 1999 pursuant to Section
30(d) of the 1940 Act and the rules promulgated thereunder and (2) unaudited
financial statements for the six-month period ended June 30, 1999 included in
the Trust's Semiannual Reports filed with the SEC on September 2, 1999 pursuant
to Section 30(d) of the 1940 Act and the rules promulgated thereunder, are
hereby incorporated into this Statement of Additional Information by reference.
47
<PAGE>
APPENDIX
DESCRIPTION OF STOCK RATINGS
STANDARD & POOR'S EARNINGS AND DIVIDEND RANKINGS FOR COMMON STOCKS (S&P)
Growth and stability of earnings and dividends are deemed key elements
in establishing Standard & Poor's earnings and dividend rankings for common
stocks. Basic scores are computed for earnings and dividends, then adjusted by a
set of predetermined modifiers for growth, stability within long-term trend, and
cyclically. Adjusted scores for earnings and dividends are then combined to
yield a final score. The final score is measured against a scoring matrix
determined by an analysis of the scores of a large and representative sample of
stocks. The rankings are:
A+ Highest
A High
A- Above Average
B+ Average
B Below Average
B- Lower
C Lowest
D In Reorganization
VALUE LINE RATINGS OF FINANCIAL STRENGTH
The financial strength of each of the companies reviewed by Value Line
is rated relative to all the others. The ratings are:
A++ The very highest relative financial strength.
A+ Excellent financial position relative to other
companies.
A High grade relative financial strength.
B++ Superior financial health on a
relative basis.
B+ Very good relative financial structure.
B Good overall relative financial structure.
C++ Satisfactory finances relative to other
companies.
C+ Below-average relative financial position.
C Poorest financial strength relative to other
major companies.
A-1
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
INVESTMENT MANAGER
David L. Babson and Company Incorporated
One Memorial Drive
Cambridge, MA 02142
INVESTMENT SUBADVISOR
Babson-Stewart Ivory International
One Memorial Drive
Cambridge, MA 02142
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
CUSTODIAN
Investors Bank & Trust Company
John Hancock Tower
200 Clarendon Street, 16th Floor
Boston, MA 02116
TRANSFER AGENT
Investors Bank & Trust Company
John Hancock Tower
200 Clarendon Street, 5th Floor
Boston, MA 02116
<PAGE>
THE DLB FUND GROUP
FORM N-1A
PART C. OTHER INFORMATION
Item 23. Exhibits.
(a) Agreement and Declaration of Trust
(1) Agreement and Declaration of Trust*
(2) Amendment No.1 to Agreement and Declaration
of Trust*
(3) Amendment No. 2 to Agreement and Declaration
of Trust**
(4) Amendment No. 3 to Agreement and Declaration
of Trust**
(5) Amendment No. 4 to Agreement and Declaration
of Trust***
(6) Amendment No. 5 to Agreement and Declaration
of Trust****
(7) Amendment No. 6 to Agreement and Declaration
of Trust*****
(8) Amendment No. 7 to Agreement and Declaration
of Trust+
(b) By-Laws*
(c) Instruments Defining Rights of Security Holders - See
Exhibits (a) and (b)
(d) Forms of Management Contracts
(1) Management Contract between David L. Babson
and Company Incorporated (the "Manager") and
The DLB Fund Group (the "Trust") relating to
the DLB Fixed Income Fund*
(2) Management Contract between the Trust and
the Manager relating to the DLB Global Small
Capitalization Fund*
(3) Sub-Advisory Agreement between the Manager
and Babson-Stewart Ivory International
("BSII") relating to the DLB Global Small
Capitalization Fund*
(4) Management Contract between the Trust and
the Manager relating to the DLB Value Fund*
<PAGE>
(5) Management Contract between the Trust and
the Manager relating to the DLB Mid
Capitalization Fund*
(6) Management Contract between the Trust and
the Manager relating to the DLB Disciplined
Growth Fund (formerly known as the DLB
Quantitative Equity Fund)******
(7) Management Contract between the Trust and
the Manager relating to the DLB Growth
Fund**
(8) Management Contract between the Trust and
the Manager relating to the DLB Micro
Capitalization Fund**
(9) Management Contract between the Trust and
the Manager relating to the DLB Stewart
Ivory International Fund+
(10) Management Contract between the Trust and
the Manager relating to the DLB Stewart
Ivory Emerging Markets Fund+
(11) Sub-Advisory Agreement between the Manager
and BSII relating to the DLB Stewart Ivory
International Fund+
(12) Sub-Advisory Agreement between the Manager
and BSII relating to the DLB Stewart Ivory
Emerging Markets Fund+
(e) Form of Principal Underwriter's Contract between the
Trust and Babson Securities Corporation+
(f) Bonus or Profit Sharing Contracts - Not Applicable
(g)(1) Form of Custodian Agreement between the Trust and
Investors Bank & Trust Company ("IBT")*
(g)(2) Form of Amendment to Custodian Agreement+
(h)(1) Form of Transfer Agency Agreement between the Trust
and IBT**
(h)(2) Form of Amendment to Transfer Agency Agreement+
(h)(3) Fee Waiver and Expense Limitation Agreement+
(h)(4) Form of Agreement and Plan of Reorganization+
<PAGE>
(h)(5) Form of Administration Agreement between the Trust
and IBT+
(h)(6) Form of Amendment to Administration Agreement+
(i)(1) Opinion and Consent of Ropes & Gray*
(i)(2) Consent of Deloitte & Touche+
(j) Powers of Attorney for James W. MacAllen, Charles E.
Hugel, Richard A. Nenneman, Richard J. Phelps and
DeAnne B. Dupont, appointing James W. MacAllen, Frank
L. Tarantino and DeAnne B. Dupont as attorneys in
fact.***
(k) Omitted Financial Statements - Not Applicable
(l) Letter of Understanding relating to Initial Capital*
(m) Forms of Rule 12b-1 Plans
(1) Form of Rule 12b-1 Plan for the Fixed Income
Fund***
(2) Form of Rule 12b-1 Plan for the Value
Fund***
(3) Form of Rule 12b-1 Plan for the Growth
Fund***
(4) Form of Rule 12b-1 Plan for the Disciplined
Growth Fund***
(5) Form of Rule 12b-1 Plan for the Mid Cap
Fund***
(6) Form of Rule 12b-1 Plan for the Micro Cap
Fund***
(7) Form of Rule 12b-1 Plan for the Global Small
Cap Fund***
(8) Form of Rule 12b-1 Plan for the DLB Stewart
Ivory International Fund+
(9) Form of Rule 12b-1 Plan for the DLB Stewart
Ivory Emerging Markets Fund+
(n) Financial Data Schedule - Not Applicable
(o) Rule 18f-3 Plan - Not Applicable
- - --------------------------
* Incorporated by reference to Registrant's Post-Effective
<PAGE>
Amendment No. 5 filed on February 19, 1997.
** Incorporated by reference to Registrant's Post-Effective
Amendment No. 7 filed on April 30, 1998.
*** Incorporated by reference to Registrant's Post-Effective
Amendment No. 10 filed on February 22, 1999.
**** Incorporated by reference to Registrant's Post-Effective
Amendment No. 11 filed on April 22, 1999.
***** Incorporated by reference to Registrant's Post-Effective
Amendment No. 12 filed on August 13, 1999.
+ Filed herewith.
Item 24. Persons Controlled by or under Common Control with Registrant.
At and as of the date of this Post-Effective Amendment, the Registrant
did not, directly or indirectly, control any Person. Massachusetts Mutual Life
Insurance Company ("MassMutual") currently owns more than 25% of the outstanding
shares of each series of the Registrant (other than the DLB Stewart Ivory
International Fund) and therefore is deemed to "control" each such Fund within
the meaning of the Investment Company Act of 1940 (the "1940 Act").
The following entities are, or may be deemed to be, controlled by
MassMutual through the direct or indirect ownership of such entities' stock.
1. CM Assurance Company, a Connecticut corporation which operates as a
life and health insurance company, all the stock of which is owned by
MassMutual. This subsidiary is inactive.
2. CM Benefit Insurance Company, a Connecticut corporation which
operates as a life and health insurance company, all the stock of which is owned
by MassMutual. This subsidiary is inactive.
3. C.M. Life Insurance Company, a Connecticut corporation which
operates as a life and health insurance company, all the stock of which is owned
by MassMutual.
4. MML Bay State Life Insurance Company, a Connecticut corporation
which operates as a life and health insurance company, all the stock of which is
owned by MassMutual.
5. MML Distributors, LLC, a Connecticut limited liability company which
operates as a securities broker-dealer. MassMutual has a 99% ownership interest
and G.R. Phelps & Co. has a 1% ownership interest.
6. MassMutual Holding Company, a Delaware corporation which operates as
<PAGE>
a holding company for certain MassMutual entities, all the stock of which is
owned by MassMutual.
7. MassMutual of Ireland, Limited, a corporation organized in the
Republic of Ireland which formerly operated to provide claims service to holders
of MassMutual group life and health insurance contracts, all the stock of which
is owned by MassMutual. This subsidiary is inactive and will be dissolved in the
near future.
8. MML Series Investment Fund, a Massachusetts business trust which
operates as an open-end investment company. All the shares issued by the Trust
are owned by MassMutual and certain of its affiliates.
9. MassMutual Institutional Funds, a Massachusetts business trust which
operates as an open-end investment company, all the shares of which are owned by
MassMutual.
10. G.R. Phelps & Co., Inc., a Connecticut corporation which formerly
operated as a securities broker-dealer, all the stock of which is owned by
MassMutual Holding Company. This subsidiary is inactive and expected to be
dissolved.
11. MassMutual Mortgage Finance, LLC, a Delaware limited liability
company which makes, acquires, holds and sells mortgage loans.
12. MML Investors Services, Inc., a Massachusetts corporation which
operates as a securities broker-dealer. MassMutual Holding Company owns 86% of
the capital stock and G.R. Phelps & Co., Inc. owns 14% of the capital stock of
MML Investor Services, Inc.
13. MassMutual Holding MSC, Inc., a Massachusetts corporation, which
acts as a holding company for MassMutual positions in investment entities
organized outside the United States. MassMutual Holding Company owns all the
outstanding shares of MassMutual Holding MSC, Inc. This subsidiary qualifies as
a "Massachusetts Security Corporation" under Chapter 63 of Massachusetts General
Laws.
14. MassMutual Holding Trust I, a Massachusetts business trust, which
operates as a holding company for separately staffed MassMutual investment
subsidiaries. MassMutual Holding Company owns all the outstanding shares of
MassMutual Holding Trust I.
15. MassMutual Holding Trust II, a Massachusetts business trust, which
operates as a holding company for non-staffed MassMutual investment
subsidiaries. MassMutual Holding Company owns all the outstanding shares of
<PAGE>
MassMutual Holding Trust II.
16. MassMutual International, Inc., a Delaware corporation which
operates as a holding company for those entities constituting MassMutual's
international insurance operations, all the stock of which is owned by
MassMutual Holding Company.
17. MML Insurance Agency, Inc., a Massachusetts corporation which
operates as an insurance broker, all the stock of which is owned by MML
Investors Services, Inc.
18. MML Securities Corporation, a Massachusetts corporation which
operates as a "Massachusetts Securities Corporation" under Section 63 of the
Massachusetts General Laws, all the stock of which is owned by MML Investors
Services, Inc.
19. DISA Insurance Services of America, Inc., an Alabama corporation
which operates as an insurance broker. MML Insurance Agency, Inc. owns all the
shares of outstanding stock.
20. Diversified Insurance Services of America, Inc., a Hawaii
corporation which operates as an insurance broker. MML Insurance Agency, Inc.
owns all the shares of outstanding stock.
21. MML Insurance Agency of Mississippi, P.C., a Mississippi
corporation that operates as an insurance broker and is controlled by MML
Insurance Agency, Inc.
22. MML Insurance Agency of Nevada, Inc., a Nevada corporation that
operates as an insurance broker, all the stock of which is owned by MML
Insurance Agency, Inc.
23. MML Insurance Agency of Ohio, Inc., an Ohio corporation which
operates as an insurance broker and is controlled by MML Insurance Agency, Inc.
through a voting trust agreement.
24. MML Insurance Agency of Texas, Inc., a Texas corporation which
operates as an insurance broker and is controlled by MML Insurance Agency, Inc.
through an irrevocable proxy arrangement.
25. MassMutual Corporate Value Limited, 46.41% of the shares of which
are owned by MassMutual Holding MSC, Inc.
26. MassMutual Corporate Value Partners Limited, a Cayman Islands
corporation that operates as a high yield bond fund. MassMutual Corporate Value
<PAGE>
Limited holds approximately 88% ownership interest in this company and
MassMutual holds approximately 5% ownership interest in this company
27. 9048-5434 Quebec, Inc., a Canadian corporation, which operates as
the owner of Hotel du Parc in Montreal, Quebec, Canada. MassMutual Holding MSC,
Inc. owns all the shares of 9048-5434 Quebec, Inc.
28. 1279342 Ontario Limited, a Canadian corporation, which operates as
the owner of Deerhurst Resort in Huntsville, Ontario, Canada. MassMutual Holding
MSC, Inc. owns all the shares of 1279342 Ontario Limited.
29. Antares Capital Corporation, a Delaware corporation that operates
as a finance company. MassMutual Holding Trust I owns approximately 99% of the
capital stock of Antares Capital Corporation.
30. Charter Oak Capital Management, Inc., a Delaware corporation that
operates as a manager of institutional investment portfolios. MassMutual Holding
Trust I owns 80% of the capital stock of Charter Oak Capital Management, Inc.
31. Cornerstone Real Estate Advisers, Inc., a Massachusetts corporation
which operates as an investment adviser, all the stock of which is owned by
MassMutual Holding Trust I.
32. DLB Acquisition Corporation ("DLB"), a Delaware corporation, which
operates as a holding company for David L. Babson and Company Inc. MassMutual
Holding Trust I owns 85% of the outstanding capital stock of DLB.
33. Oppenheimer Acquisition Corporation ("OAC"), a Delaware
corporation, which operates as a holding company for the Oppenheimer companies.
MassMutual Holding Trust I owns 89% of the capital stock of OAC.
34. David L. Babson and Company Incorporated, a Massachusetts
corporation which operates as an investment adviser, all the stock of which is
owned by DLB.
35. Babson Securities Corporation, a Massachusetts corporation which
operates as a securities broker-dealer, all the stock of which is owned by David
L. Babson and Company Incorporated.
36. Babson-Stewart-Ivory International, a Massachusetts general
partnership, which operates as an investment adviser. David L. Babson and
Company Incorporated holds a 50% ownership interest in the partnership.
37. Potomac Babson Incorporated, a Massachusetts corporation which
operates as an investment adviser. David L. Babson and Company Incorporated owns
<PAGE>
99% of the outstanding shares of Potomac Babson Incorporated.
38. OppenheimerFunds, Inc., a Colorado corporation which operates as an
investment adviser to the OppenheimerFunds, all the stock of which is owned by
OAC.
39. Centennial Asset Management Corporation, a Delaware corporation
that operates as the investment adviser and general distributor of the
Centennial Funds, all the stock of which is owned by OppenheimerFunds, Inc.
40. HarbourView Asset Management Corporation, a New York corporation,
which operates as an investment adviser, all the stock of which is owned by
OppenheimerFunds, Inc.
41. OppenheimerFunds Distributor, Inc., a New York corporation, which
operates as a securities broker-dealer, all the stock of which is owned by
OppenheimerFunds, Inc.
42. Oppenheimer Partnership Holdings, Inc., a Delaware corporation
which operates as a holding company, all the stock of which is owned by
OppenheimerFunds, Inc.
43. Oppenheimer Real Asset Management, Inc., a Delaware corporation
which is the subadviser to a mutual fund investing in the commodities markets,
all the stock of which is owned by OppenheimerFunds, Inc.
44. Shareholder Financial Services, Inc., a Colorado corporation which
operates as a transfer agent for mutual funds, all the stock of which is owned
by OppenheimerFunds, Inc.
45. Shareholder Services, Inc., a Colorado corporation which operates
as a transfer agent for various Oppenheimer and MassMutual funds, all the stock
of which is owned by OppenheimerFunds, Inc.
46. Centennial Capital Corporation, a Delaware corporation that
sponsored a unit investment trust, all the stock of which is owned by Centennial
Asset Management Corporation.
47. Cornerstone Office Management, LLC, a Delaware limited liability
company which serves as the general partner of Cornerstone Suburban Office
Investors, LP that is 50% owned by Cornerstone Real Estate Advisers, Inc. and
50% owned by MML Realty Management Corporation.
48. Cornerstone Suburban Office Investors, LP, a Delaware limited
partnership, which operates as a real estate operating company. Cornerstone
<PAGE>
Office Management, LLC holds a 1% general partnership interest in this fund and
MassMutual holds a 99% limited partnership interest.
49. CM Advantage, Inc., a Connecticut corporation that serves as a
general partner in real estate limited partnerships, all the stock of which is
owned by MassMutual Holding Trust II. This subsidiary is largely inactive and
will be dissolved in the near future.
50. CM International, Inc., a Delaware corporation which is the issuer
of collateralized mortgage obligation securities, all the stock of which is
owned by MassMutual Holding Trust II.
51. CM Property Management, Inc., a Connecticut corporation which
serves as the General Partner of Westheimer 335 Suites Limited Partnership, all
the stock of which is owned by MassMutual Holding Trust II.
52. HYP Management, Inc., a Delaware corporation which operates as the
manager of MassMutual High Yield Partners II LLC, a high yield bond fund.
MassMutual Holding Trust II owns all the outstanding stock of HYP Management,
Inc.
53. MMHC Investment, Inc., a Delaware corporation which is a passive
investor in MassMutual/Darby CBO IM, Inc.; MassMutual/Darby CBO, LLC; Somers
CDO, Limited; MassMutual High Yield Partners II, LLC and other MassMutual
investments. MassMutual Holding Trust II owns all the outstanding stock of MMHC
Investment, Inc.
54. MassMutual High Yield Partners II LLC, a Delaware limited liability
company that operates as a high yield bond fund. MassMutual holds approximately
2.52%, MMHC Investment Inc. holds approximately 34.87%, and HYP Management, Inc.
holds approximately 3.82%, for an approximate total ownership interest in this
company of 41.21%.
55. MML Realty Management Corporation, a Massachusetts corporation
which formerly operated as a manager of properties owned by MassMutual, all the
stock of which is owned by MassMutual Holding Trust II.
56. MassMutual Benefits Management, Inc., (formerly Westheimer 335
Suites, Inc.) a Delaware Corporation which supports MassMutual with benefit plan
administration and planning services. MassMutual Holding Trust II owns all of
the outstanding stock.
57. Somers CDO, Limited, a Cayman Islands corporation that operates as
a fund investing in high yield debt securities of primarily U.S. issues. MMHC
Investment, Inc. holds 38.10% of the subordinated notes of this issue which are
<PAGE>
treated as equity for tax purposes. Registrant is the collateral manager of
Somers CDO, Limited.
58. 505 Waterford Park Limited Partnership, a Delaware limited
partnership, which holds title to an office building in Minneapolis, Minnesota.
MML Realty Management Corporation holds a 1% general partnership interest in
this partnership and MassMutual holds a 99% limited partnership interest.
59. MassMutual/Darby CBO IM Inc., a Delaware corporation which operates
as the manager of MassMutual/Darby CBO LLC, a collateralized bond obligation
fund. MMHC Investment, Inc. owns 50% of the capital stock of this company.
60. MassMutual/Darby CBO LLC, a Delaware limited liability company that
operates as a fund investing in high yield debt securities of U.S. and emerging
market issuers. MassMutual holds 1.79%, MMHC Investment Inc. holds 44.91% and
MassMutual High Yield Partners LLC holds 2.39% of the ownership interest in this
company.
61. Urban Properties, Inc., a Delaware corporation which serves as a
General Partner of real estate limited partnerships and as a real estate holding
company, all the stock of which is owned by MassMutual Holding Trust II.
62. Westheimer 335 Suites Limited Partnership, a Texas limited
partnership of which MassMutual Benefits Management is the general partner.
63. MassMutual Internacional (Argentina) S.A., a corporation organized
in the Argentine Republic, which operates as a holding company. MassMutual
International Inc. owns 99% of the outstanding shares and MassMutual Holding
Company owns the remaining 1% of the shares.
64. MassMutual Internacional (Chile) S.A., a corporation organized in
the Republic of Chile, which operates as a holding company. MassMutual
International Inc. owns 99% of the outstanding shares and MassMutual Holding
Company owns the remaining 1% of the shares.
65. MassMutual International (Bermuda) Ltd., a corporation organized in
Bermuda, which operates as a life insurance company, all the stock of which is
owned by MassMutual International Inc.
66. MassMutual International (Luxembourg) S.A., a corporation organized
in the Grand Duchy of Luxembourg, which operates as a life insurance company.
MassMutual International Inc. owns 99% of the outstanding shares and MassMutual
Holding Company owns the remaining 1% of the shares.
67. MassLife Seguros de Vida S.A., a corporation organized in the
<PAGE>
Argentine Republic, which operates as a life insurance company. MassMutual
International Inc. owns 99.9% of the outstanding capital stock of MassLife
Seguros de Vida S.A.
68. MassMutual Services, S.A., a corporation organized in the Argentine
Republic which operates as a service company. MassMutual Internacional
(Argentina) S.A. owns 99% of the outstanding shares and MassMutual
International, Inc. owns 1% of the shares.
69. Mass Seguros de Vida S.A., a corporation organized in the Republic
of Chile, which operates as a life insurance company. MassMutual International
(Chile) S.A. owns 33.5% of the outstanding capital stock of Mass Seguros de Vida
S.A.
70. Origen Inversiones S.A., a corporation organized in the Republic of
Chile which operates as a holding company. MassMutual Internacional (Chile) S.A.
holds a 33.5% ownership interest in this corporation.
71. Compania de Seguros VidaCorp, S.A., a corporation organization in
the Republic of Chile, which operates as an insurance company. Origen
Inversiones S.A. owns 99% of the outstanding shares of this company.
72. Oppenheimer Series Fund Inc., a Maryland corporation which operates
as an investment company, of which MassMutual and its affiliates own a majority
of certain series of shares issued by the fund.
73. Panorama Series Fund, Inc., a Maryland corporation which operates
as an open-end investment company. All shares issued by the fund are owned by
MassMutual and certain affiliates.
74. The DLB Fund Group, a Massachusetts business trust which operates
as an open-end investment company advised by David L. Babson and Company
Incorporated. MassMutual owns at least 25% of each series of shares issued by
the Trust.
75. Saar Holdings CDO, Limited, a Cayman Islands corporation that
operates as a collateralized debt obligation fund investing in high yield debt
securities of primarily U.S. issuers including, to a limited extent, convertible
high yield bonds. MMHC Investment Inc. holds 40% of the mandatorily redeemable
preferred shares of this issuer. Such preferred shares are treated as equity for
tax purposes. MassMutual is the collateral manager of Saar Holdings CDO,
Limited.
76. Enhanced Mortgage-Backed Securities Fund Limited, a special purpose
company incorporated with limited liability in the Cayman Islands investing
<PAGE>
primarily in residential and commercial mortgage backed securities and through
the application of various portfolio optimization techniques. Massachusetts
Mutual Life Insurance Company is the Investment Manager and Valuation Agent and
holds all of the Class B notes and 48% of the Class C Certificates and at least
25% of the aggregate principal amount of Class C Certificates directly or
through a wholly owned affiliate.
77. Perseus CDO I, Limited is a Cayman Island Corporation that operates
as a collateralized debt obligation fund investing in a diversified portfolio of
assets including high yield bonds, senior secured loans, a limited amount of
equity securities and certain other assets. MMHC Investment, Inc. holds 33.4% of
the Class D subordinated notes issued by Perseus CDO I Limited. Such notes are
treated as equity for tax purposes. MassMutual is the portfolio manager and
Perseus Advisors, L.L.C. is the portfolio advisor of Perseus CDO I, Limited.
78. MassMutual Global CBO I Limited is a Cayman Island Corporation that
operates as a collateralized bond obligation fund investing in emerging market
securities and high yield bonds. As of the closing date of this fund (June 16,
1999), MassMutual and its indirect subsidiary, MMHC Investment, Inc., hold in
the aggregate approximately 39.7% of the subordinated notes that are treated as
equity for tax purposes. MassMutual is the Collateral Manager of MassMutual
Global CBO I Limited.
MassMutual acts as the investment adviser of the following investment companies,
and as such may be deemed to control them.
1. MML Series Investment Fund, a Massachusetts business trust which
operates as an open-end investment company. All shares issued by MML Series
Investment Fund are owned by MassMutual and certain of its affiliates.
2. MassMutual Corporate Investors, a Massachusetts business trust which
operates as a closed-end investment company.
3. MassMutual Corporate Value Partners Limited, a Cayman Islands
corporation that operates as a high-yield bond fund. MassMutual Corporate Value
Limited holds an ownership interest in this company of approximately 93%.
4. MassMutual High Yield Partners LLC, a Delaware limited liability
company that operates as a high yield bond fund. MassMutual holds approximately
2.52%, MMHC Investment Inc. holds approximately 34.87%, and HYP Management, Inc.
holds approximately 3.82% for an approximate total of 41.21% of the ownership
interest in this company.
5. MassMutual Institutional Funds, a Massachusetts business trust which
operates as an open-end investment company, all the shares of which are owned by
<PAGE>
MassMutual.
6. MassMutual Participation Investors, a Massachusetts business trust
which operates as a closed end investment company.
7. MassMutual/Darby CBO, LLC, a Delaware limited liability company that
operates as a fund investing in high yield debt securities of U.S. and emerging
market issuers. MassMutual owns 1.79%, MMHC Investment, Inc. owns 44.91% and
MassMutual High Yield Partners LLC owns 2.39% of the ownership interest in this
company.
8. Somers CDO, Limited, a Cayman Islands corporation that operates as a
fund investing in high yield debt securities of primarily U.S. issues. MMHC
Investment Inc. holds 38.1% of the subordinated notes of this issue which are
treated as equity for tax purposes. Registrant is the collateral manager of
Somers CDO, Limited.
9. Enhanced Mortgage-Backed Securities Fund Limited, a special purpose
company incorporated with limited liability in the Cayman Islands investing
primarily in residential and commercial mortgage backed securities and through
the application of various portfolio optimization techniques. MassMutual is the
Investment Manager and Valuation Agent and holds all of the Class B notes and
48% of the Class C Certificates and at least 25% of the aggregate principal
amount of Class C Certificates directly or through a wholly owned affiliate.
10. Saar Holdings CDO, Limited, a Cayman Islands corporation that
operates as a collateralized debt obligation fund investing in high yield debt
securities of primarily U.S. issuers including, to a limited extent, convertible
high yield bonds. MMHC Investment Inc. holds 40% of the mandatorily redeemable
preferred shares of this issuer. Such preferred shares are treated as equity for
tax purposes. MassMutual is the collateral manager of Saar Holdings CDO,
Limited.
11. Perseus CDO I, Limited is a Cayman Island Corporation that operates
as a collateralized debt obligation fund investing in a diversified portfolio of
assets including high yield bonds, senior secured loans, a limited amount of
equity securities and certain other assets. MMHC Investment, Inc. holds 33.4% of
the Class D subordinated notes issued by Perseus CDO I Limited. Such notes are
treated as equity for tax purposes. MassMutual is the portfolio manager and
Perseus Advisors, L.L.C. is the portfolio advisor of Perseus CDO I, Limited.
12. MassMutual Global CDO I Limited is a Cayman Island Corporation that
operates as a collateralized bond obligation fund investing in emerging market
securities and high yield bonds. As of the closing date of this fund (June 16,
1999), MassMutual and its indirect subsidiary, MMHC Investment, Inc. hold in the
<PAGE>
aggregate approximately 39.7% of the subordinated notes that are treated as
equity for tax purposes. MassMutual is the Collateral Manager of MassMutual
Global CDO I Limited.
Item 25. Indemnification.
Article VIII Sections 1, 2 and 3 of Registrant's Agreement and Declaration of
Trust provides as follows with respect to indemnification of the Trustees and
officers of Registrant against liabilities which may be incurred by them in such
capacities:
Section 1. Trustees, Officers, Etc. The Trust shall indemnify each of its
Trustees and officers (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise) (hereinafter referred to
as a "Covered Person") against all liabilities and expenses, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a Covered Person, except with respect to any matter as to which such
Covered Person shall have been finally adjudicated in any such action, suit or
other proceeding to be liable to the Trust or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in compromise or as fines or
penalties), shall be paid from time to time by the Trust in advance of the final
disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that indemnification of such expenses
is not authorized under this Article, provided, however, that either (a) such
Covered Person shall have provided appropriate security for such undertaking,
(b) the Trust shall be insured against losses arising from any such advance
payments or (c) either a majority of the disinterested Trustees acting on the
matter (provided that a majority of the disinterested Trustees then in office
act on the matter), or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available facts (as opposed to a
full trial type inquiry) that there is reason to believe that such Covered
Person will be found entitled to indemnification under this Article.
<PAGE>
Section 2. Compromise Payment. As to any matter disposed of (whether by a
compromise payment, pursuant to a consent decree or otherwise) without an
adjudication by a court, or by any other body before which the proceeding was
brought, that such Covered Person is liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office, indemnification
shall be provided if (a) approved, after notice that it involves such
indemnification, by at least a majority of the disinterested Trustees acting on
the matter (provided that a majority of the disinterested Trustees then in
office act on the matter) upon a determination, based upon a review of readily
available facts (as opposed to a full trial type inquiry), that such Covered
Person is not liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office, or (b) there has been obtained an
opinion in writing of independent legal counsel, based upon a review of readily
available facts (as opposed to a full trial type inquiry), to the effect that
such indemnification would not protect such Person against any liability to the
Trust to which he would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office. Any approval pursuant to this Section shall not
prevent the recovery from any Covered Person of any amount paid to such Covered
Person in accordance with this Section as indemnification if such Covered Person
is subsequently adjudicated by a court of competent jurisdiction to have been
liable to the Trust or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
Section 3. Indemnification Not Exclusive. The right of indemnification hereby
provided shall not be exclusive of or affect any other rights to which such
Covered Person may be entitled. As used in this Article VIII, the term "Covered
Person" shall include such person's heirs, executors and administrators and a
"disinterested Trustee" is a Trustee who is not an "interested person" of the
Trust as defined in Section 2(a)(19) of the 1940 Act (or who has been exempted
from being an "interested person" by any rule, regulation or order of the
Commission), and against whom none of such actions, suits or other proceedings
or another action, suit or other proceeding on the same or similar grounds is
then or has been pending. Nothing contained in this Article shall affect any
rights to indemnification to which personnel of the Trust, other than Trustees
or officers, and other persons may be entitled by contract or otherwise under
law, nor the power of the Trust to purchase and maintain liability insurance on
behalf of any such person; provided, however, that the Trust shall not purchase
or maintain any such liability insurance in contravention of applicable law,
including without limitation the 1940 Act.
<PAGE>
Item 26. Business and Other Connections of the Investment Adviser.
(a) The directors and executive officers of David L. Babson and Company
Incorporated, One Memorial Drive, Cambridge, Massachusetts ("Babson"), their
positions and their other business affiliations and business experience for the
past two years are as follows:
DIRECTORS AND EXECUTIVE OFFICERS
STUART H. REESE, President and Chief Executive Officer
President and Chief Executive Officer (since 1999), Babson; Chief Executive
Director (since 1997), Executive Director (1996-1997), Senior Vice President
(1993-1996), MassMutual.
FRANK L. TARANTINO, Director, Executive Vice President, Clerk and Chief
Operating Officer
Director and Executive Vice President (since 1999), Clerk and Chief Operating
Officer (since 1997), Babson; Director (since 1998), President (since 1999),
Clerk (since 1997), Potomac Babson Inc. (investment advisory subsidiary of
Babson), 1290 Avenue of the Americas, New York, New York; President (1993-1997)
Liberty Securities Corporation (broker-dealer), 600 Atlantic Avenue, Boston,
Massachusetts.
LANCE F. JAMES, Director and Executive Vice President
Director and Executive Vice President (since 1999), Senior Vice President (since
1996), Portfolio Manager (since 1987), Babson.
STEPHEN B. O'BRIEN, Director and Executive Vice President
Director and Executive Vice President (since 1999), Senior Vice President (since
1996), Babson; Managing Director, Babson-Stewart Ivory International (registered
investment adviser, of which Babson is a 50% general partner), One Memorial
Drive, Cambridge, Massachusetts.
WALTER T. MCCORMICK, Director and Executive Vice President
Director and Executive Vice President (since 1999), Senior Vice President (since
1998), Babson; Senior Vice President (1994-1998), Keystone Investment Management
Co., Boston, Massachusetts.
<PAGE>
ROLAND W. WHITRIDGE, Director and Senior Vice President
Director (since 1990) and Senior Vice President (since 1992), Portfolio Manager
(since 1974), Babson.
(b) The Managing Directors of Babson-Stewart Ivory International and their
other business affiliations and business experience for the past two years are
as follows:
Managing Directors
STEPHEN B. O'BRIEN - See Item 26(a).
JOHN G.L. WRIGHT
Director (since 1971), Stewart Ivory & Company Limited (investment adviser),
Edinburgh, Scotland U.K.
JAMES W. BURNS
Director (since 1990), Stewart Ivory & Company Limited (investment adviser),
Edinburgh, Scotland U.K.
Item 27. Principal Underwriters.
(a) Effective October 20, 1999, Babson Securities Corp. ("BSC") became the
principal underwriter for The DLB Fund Group, a Massachusetts business
trust registered as an investment company under the Investment Company
Act of 1940. The nine separate series of the Trust are:
1) DLB Fixed Income Fund
2) DLB Value Fund
3) DLB Growth Fund
4) DLB Disciplined Growth Fund
5) DLB Enterprise III Fund
6) DLB Micro Capitalization Fund
7) DLB Global Small Capitalization Fund
8) DLB Stewart Ivory International Fund
9) DLB Stewart Ivory Emerging Markets Fund
(b) The following are the names and positions of the officers and directors
of BSC:
Frank L. Tarantino, Director, President, Clerk and Treasurer
<PAGE>
John E. Deitelbaum, Assistant Clerk
The business address for both Mr. Tarantino and Mr. Deitelbaum is c/o David L.
Babson and Company Incorporated, One Memorial Drive, Cambridge, MA 02142. Mr.
Tarantino is President of The DLB Fund Group, and Mr. Deitelbaum is Clerk of The
DLB Fund Group.
(c) Not Applicable
Item 28. Location of Accounts and Records.
The accounts, books or other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules thereunder are kept by
the Registrant and the Manager at their respective principal business offices at
One Memorial Drive, Cambridge, Massachusetts 02142, and by IBT, the Registrant's
Custodian and Transfer Agent, at its principal business office at 200 Clarendon
Street, Boston, Massachusetts 02116.
Item 29. Management Services.
There are no management-related service contracts not discussed in Part A or
Part B.
Item 30. Undertakings -- Not Applicable
NOTICE
A copy of the Agreement and Declaration of Trust of The DLB Fund Group, as
amended, is on file with the Secretary of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Registrant by an officer of the Registrant as an officer and not individually
and the obligations of or arising out of this instrument are not binding upon
any of the Trustees or shareholders individually but are binding only upon the
assets and property of the relevant series of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it has duly caused this Post-Effective Amendment to its Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cambridge, The Commonwealth of Massachusetts, on
the 29th day of October, 1999. The Registrant certifies that this Post-Effective
Amendment meets all of the requirements for effectiveness pursuant to Rule
485(b) under the Securities Act of
<PAGE>
1933.
THE DLB FUND GROUP
By: /s/ Frank L. Tarantino
---------------------
Frank L. Tarantino
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment to the Registration Statement of The DLB Fund
Group has been signed below by the following persons in the capacities and on
the dates indicated.
/s/ Frank L. Tarantino President and October 29, 1999
- - ------------------------ Principal Executive Officer
Frank L. Tarantino
/s/ DeAnne B. Dupont Treasurer; Principal Financial October 29, 1999
- - ------------------------ Officer; Principal Accounting
DeAnne B. Dupont Officer
Charles E. Hugel* Trustee October 29, 1999
- - ------------------------
Charles E. Hugel
Richard A. Nenneman* Trustee October 29, 1999
- - ------------------------
Richard A. Nenneman
Richard J. Phelps* Trustee October 29, 1999
- - ------------------------
Richard J. Phelps
*By /s/ Frank L. Tarantino
---------------------------------
Frank L. Tarantino
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
(a)(8) Amendment No. 7 to Agreement and Declaration of Trust
(d)(9) Management Contract between the Trust and the Manager
relating to the DLB Stewart Ivory International Fund
(d)(10) Management Contract between the Trust and the Manager
relating to the DLB Stewart Ivory Emerging Markets
Fund
(d)(11) Sub-Advisory Agreement between the Manager and BSII
relating to the DLB Stewart Ivory International Fund
(d)(12) Sub-Advisory Agreement between the Manager and BSII
relating to the DLB Stewart Ivory Emerging Markets
Fund
(e) Form of Principal Underwriter's Contract between the
Trust and Babson Securities Corporation
(g)(2) Form of Amendment to Custodian Agreement
(h)(2) Form of Amendment to Transfer Agency Agreement
(h)(3) Fee Waiver and Expense Limitation Agreement
(h)(4) Form of Agreement and Plan of Reorganization
(h)(5) Form of Administration Agreement between the Trust
and IBT
(h)(6) Form of Amendment to Administration Agreement
(i)(2) Consent of Deloitte & Touche
(m)(8) Form of Rule 12b-1 Plan for the DLB Stewart Ivory
International Fund
(m)(9) Form of Rule 12b-1 Plan for the DLB Stewart Ivory
Emerging Markets Fund
EXHIBIT (a)(8)
THE DLB FUND GROUP
AMENDMENT NO. 7
AGREEMENT AND DECLARATION OF TRUST
The undersigned, being at least a majority of the Trustees of the DLB
Fund Group, a Massachusetts business trust, created and existing under an
Agreement and Declaration of Trust dated August 1, 1994, as amended by Amendment
No. 1 thereto dated May 16, 1996, Amendment No. 2 thereto dated December 17,
1997, Amendment No. 3 thereto dated April 22, 1998, Amendment No. 4 thereto
dated February 12, 1998, Amendment No. 5 thereto dated February 12, 1998 and
Amendment No. 6 thereto dated May 12, 1999 (the "Agreement"), a copy of which is
on file in the Office of the Secretary of State of the Commonwealth of
Massachusetts, do hereby direct that this Amendment No. 7 be filed with the
Secretary of State of the Commonwealth of Massachusetts and do hereby amend the
first sentence of Section 6 of Article III of the Agreement to read in its
entirety as follows:
"Without limiting the authority of the Trustees set forth in Section 5,
inter alia, to establish and designate any further Series or Classes or
to modify the rights and preferences of any Series or Classes, the "DLB
Fixed Income Fund", the "DLB Value Fund", the "DLB Growth Fund", the
"DLB Disciplined Growth Fund", the "DLB Enterprise III Fund", the "DLB
Micro Capitalization Fund", the "DLB Global Small Capitalization Fund",
the "DLB Stewart Ivory International Fund" and the "DLB Stewart Ivory
Emerging Markets Fund" shall be, and hereby are, established and
designated as separate Series of the Trust."
The foregoing amendment shall become effective as of the time it is
filed with the Secretary of State of the Commonwealth of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands for ourselves and
our successors and assigns this 20th day of October 1999.
/s/ Charles E. Hugel
- -----------------------------
Charles E. Hugel
/s/ Richard A. Nenneman
- -----------------------------
Richard A. Nenneman
/s/ Richard J. Phelps
- -----------------------------
Richard J. Phelps
-2-
EXHIBIT (d)(9)
MANAGEMENT CONTRACT
-------------------
Management Contract executed as of __________ , 1999 between THE DLB
FUND GROUP, a Massachusetts business trust (the "Trust"), on behalf of its DLB
Stewart Ivory International Fund (the "Fund"), and DAVID L. BABSON AND COMPANY
INCORPORATED, a Massachusetts corporation (the "Manager").
W I T N E S S E T H:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO THE TRUST.
(a) Subject always to the control of the Trustees of the Trust and to
such policies as the Trustees may determine, the Manager will, at its expense,
(i) furnish continuously an investment program for the Fund and will make
investment decisions on behalf of the Fund and place all orders for the purchase
and sale of its portfolio securities and (ii) furnish office space and
equipment, provide bookkeeping and clerical services (excluding determination of
net asset value, shareholder accounting services and fund accounting services)
and pay all salaries, fees and expenses of officers and Trustees of the Trust
who are affiliated with the Manager. In the performance of its duties, the
Manager will comply with the provisions of the Agreement and Declaration of
Trust and By-laws of the Trust and the Fund's stated investment objective,
policies and restrictions.
(b) In placing orders for the portfolio transactions of the Fund, the
Manager will seek the best price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to obtain for
the Fund the most favorable price and execution available, the Manager shall
consider all factors it deems relevant, including, without limitation, the
overall net economic result to the Fund (involving price paid or received and
any commissions and other costs paid), the efficiency with which the transaction
is effected, the ability to effect the transaction at all where a large block is
involved, availability of the broker to stand ready to execute possibly
difficult transactions in the future and the financial strength and stability of
the broker. Subject to such policies as the Trustees may determine, the Manager
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Contract or otherwise solely by reason of its having caused the
Fund to pay a broker or dealer that provides brokerage and research services to
the Manager an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Manager determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Manager's overall
responsibilities with respect to
<PAGE>
the Fund and to other clients of the Manager as to which the Manager exercises
investment discretion.
(c) Subject to the provisions of the Agreement and Declaration of Trust
of the Trust and the Investment Company Act of 1940, the Manager, at its
expense, may select and contract with investment consultants or sub-advisers
(the "Consultants" or "Sub-Advisers," as applicable) for the Fund. The Manager
will compensate any Consultant or Sub-Adviser of the Fund for its services to
the Fund. The Manager may terminate the services of the Consultant or
Sub-Adviser at any time in its sole discretion and shall at such time assume the
responsibilities of such Consultant or Sub-Adviser unless and until a successor
Consultant or Sub-Adviser is selected.
(d) The Manager shall not be obligated under this Contract to pay any
expenses of or for the Trust or of or for the Fund not expressly assumed by the
Manager pursuant to this Section 1 other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a partner, shareholder, director, officer or
employee of, or be otherwise interested in, the Manager, and in any person
controlling, controlled by or under common control with the Manager, and that
the Manager and any person controlling, controlled by or under common control
with the Manager may have an interest in the Trust. It is also understood that
the Manager and persons controlling, controlled by or under common control with
the Manager have and may have advisory, management service, distribution or
other contracts with other organizations and persons, and may have other
interests and businesses.
3. COMPENSATION TO BE PAID BY THE FUND TO THE MANAGER.
The Fund will pay to the Manager as compensation for the Manager's
services rendered, for the facilities furnished and for the expenses borne by
the Manager pursuant to Section 1, a fee, computed and paid monthly at the
annual rate of 0.75% of the Fund's average daily net asset value. Such average
daily net asset value of the Fund shall be determined by taking an average of
all of the determinations of such net asset value during such month while this
Contract is in effect. Such fee shall be payable for each month within five (5)
business days after the end of such month.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the Fund
are qualified for offer and sale, the compensation due the Manager for such
fiscal year shall be reduced by the amount of such excess by a reduction or
refund thereof. In the event that the expenses of the Fund exceed any expense
limitation which the Manager may, by written notice to the Trust, voluntarily
declare to be effective with respect to the Fund, subject to such terms and
conditions as the Manager may prescribe in such notice,
-2-
<PAGE>
the compensation due the Manager shall be reduced, and, if necessary, the
Manager shall bear the Fund's expenses to the extent required by such expense
limitation.
If the Manager shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract shall not be amended
unless such amendment is approved at a meeting by the affirmative vote of a
majority of the outstanding shares of the Fund, and by the vote, cast in person
at a meeting called for the purpose of voting on such approval, of a majority of
the Trustees of the Trust who are not interested persons of the Trust or of the
Manager.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this
Contract by not more than sixty days' written notice delivered or
mailed by registered mail, postage prepaid, to the other party, or
(b) If (i) the Trustees of the Trust or the shareholders by
the affirmative vote of a majority of the outstanding shares of the
Fund, and (ii) a majority of the Trustees of the Trust who are not
interested persons of the Trust or of the Manager, by vote cast in
person at a meeting called for the purpose of voting on such approval,
do not specifically approve at least annually the continuance of this
Contract, then this Contract shall automatically terminate at the close
of business on the second anniversary of its execution, or upon the
expiration of one year from the effective date of the last such
continuance, whichever is later; provided, however, that if the
continuance of this Contract is submitted to the shareholders of the
Fund for their approval and such shareholders fail to approve such
continuance of this Contract as provided herein, the Manager may
continue to serve hereunder in a manner consistent with the Investment
Company Act of 1940 and the rules and regulations thereunder.
Action by the Trust under (a) above may be taken either (i) by vote of
a majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Fund.
-3-
<PAGE>
Termination of this Contract pursuant to this Section 5 shall be
without the payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person,"
"control," "interested person" and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940 and the rules and
regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act; and the phrase
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940 and the rules and regulations
thereunder.
7. NONLIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust, or to
any shareholder of the Trust, for any act or omission in the course of, or
connected with, rendering services hereunder.
8. INITIALS "DLB" AND NAME "STEWART IVORY."
The Manager owns the initials "DLB" and such initials may be used by
the Trust only with the consent of the Manager. The Manager consents to the use
by the Trust of the name "The DLB Fund Group" or any other name embodying the
initials "DLB", in such forms as the Manager shall in writing approve, but only
on condition and so long as (i) this Contract shall remain in full force and
(ii) the Trust shall fully perform, fulfill and comply with all provisions of
this Contract expressed herein to be performed, fulfilled or complied with by
it. No such name shall be used by the Trust at any time or in any place or for
any purposes or under any conditions except as in this section provided. The
foregoing authorization by the Manager to the Trust to use said initials as part
of a business or name is not exclusive of the right of the Manager itself to
use, or to authorize others to use, the same; the Trust acknowledges and agrees
that as between the Manager and the Trust, the Manager has the exclusive right
so to use, or authorize others to use, said initials and the Trust agrees to
take such action as may reasonably be requested by the Manager to give full
effect to the provisions of this section (including, without limitation,
consenting to such use of said initials). Without limiting the generality of the
foregoing, the Trust agrees that, upon
-4-
<PAGE>
any termination of this Contract by either party or upon the violation of any of
its provisions by the Trust, the Trust will, at the request of the Manager made
within six months after the Manager has knowledge of such termination or
violation, use its best efforts to change the name of the Trust so as to
eliminate all reference, if any, to the initials "DLB" and will not thereafter
transact any business in a name containing the initials "DLB" in any form or
combination whatsoever, or designate itself as the same entity as or successor
to an entity of such name, or otherwise use the initials "DLB" or any other
reference to the Manager. Such covenants on the part of the Trust shall be
binding upon it, its trustees, officers, stockholders, creditors and all other
persons claiming under or through it.
The Manager and the Trust hereby agree that neither owns the name
"Stewart Ivory" and that the Trust may only use the name "Stewart Ivory" as part
of the name of the Fund for so long as (a) this Contract shall remain in full
force and (b) the Sub-Advisory Agreement between Babson-Stewart Ivory
International (the "Sub-Adviser") and the Manager with respect to the Fund shall
remain in full force. The Trust hereby acknowledges that under this Contract it
is using the name "Stewart Ivory" pursuant to a limited right of use. No such
name shall be used by the Trust at any time or in any place or for any purposes
or under any conditions except as in this section provided. The authorization
for the Trust to use said name as part of a business or name is not exclusive of
the right of the owner of the name itself to use, or to authorize others to use,
the same. Without limiting the generality of the foregoing, the Trust agrees
that, (I) upon any termination of this Contract by either party or (II) upon any
termination of the Sub-Advisory Agreement by either party thereto, the Trust
will, at the request of the Manager or Sub-Adviser made within six months after
the Manager has knowledge of such termination or violation, use its best efforts
to change the name of the Trust so as to eliminate all reference, if any, to the
name "Stewart Ivory" and will not thereafter transact any business in a name
containing the name "Stewart Ivory" in any form or combination whatsoever, or
designate itself as the same entity as or successor to an entity of such name,
or otherwise use the name "Stewart Ivory" or any other reference to the
Sub-Adviser or the owner of the name. Such covenants on the part of the Trust
shall be binding upon it, its trustees, officers, stockholders, creditors and
all other persons claiming under or through it.
9. EXERCISE OF VOTING RIGHTS.
Except as instructed otherwise by the Trustees of the Trust, the
Manager shall at its discretion exercise or procure the exercise of any voting
right attaching to investments of the Fund.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and that the
-5-
<PAGE>
obligations of this instrument are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets and property of
the Fund.
-6-
<PAGE>
IN WITNESS WHEREOF, THE DLB FUND GROUP and DAVID L. BABSON AND COMPANY
INCORPORATED have each caused this instrument to be signed in duplicate on its
behalf by its duly authorized representative, all as of the day and year first
above written.
THE DLB FUND GROUP
By_______________________________
Title:
DAVID L. BABSON AND COMPANY INCORPORATED
By_______________________________
Title:
-7-
EXHIBIT (d)(10)
MANAGEMENT CONTRACT
-------------------
Management Contract executed as of ____________, 1999 between THE DLB
FUND GROUP, a Massachusetts business trust (the "Trust"), on behalf of its DLB
Stewart Ivory Emerging Markets Fund (the "Fund"), and DAVID L. BABSON AND
COMPANY INCORPORATED, a Massachusetts corporation (the "Manager").
W I T N E S S E T H:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO THE TRUST.
(a) Subject always to the control of the Trustees of the Trust and to
such policies as the Trustees may determine, the Manager will, at its expense,
(i) furnish continuously an investment program for the Fund and will make
investment decisions on behalf of the Fund and place all orders for the purchase
and sale of its portfolio securities and (ii) furnish office space and
equipment, provide bookkeeping and clerical services (excluding determination of
net asset value, shareholder accounting services and fund accounting services)
and pay all salaries, fees and expenses of officers and Trustees of the Trust
who are affiliated with the Manager. In the performance of its duties, the
Manager will comply with the provisions of the Agreement and Declaration of
Trust and By-laws of the Trust and the Fund's stated investment objective,
policies and restrictions.
(b) In placing orders for the portfolio transactions of the Fund, the
Manager will seek the best price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to obtain for
the Fund the most favorable price and execution available, the Manager shall
consider all factors it deems relevant, including, without limitation, the
overall net economic result to the Fund (involving price paid or received and
any commissions and other costs paid), the efficiency with which the transaction
is effected, the ability to effect the transaction at all where a large block is
involved, availability of the broker to stand ready to execute possibly
difficult transactions in the future and the financial strength and stability of
the broker. Subject to such policies as the Trustees may determine, the Manager
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Contract or otherwise solely by reason of its having caused the
Fund to pay a broker or dealer that provides brokerage and research services to
the Manager an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Manager determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Manager's overall
responsibilities with respect to
<PAGE>
the Fund and to other clients of the Manager as to which the Manager exercises
investment discretion.
(c) Subject to the provisions of the Agreement and Declaration of Trust
of the Trust and the Investment Company Act of 1940, the Manager, at its
expense, may select and contract with investment consultants or sub-advisers
(the "Consultants" or "Sub-Advisers," as applicable) for the Fund. The Manager
will compensate any Consultant or Sub-Adviser of the Fund for its services to
the Fund. The Manager may terminate the services of the Consultant or
Sub-Adviser at any time in its sole discretion and shall at such time assume the
responsibilities of such Consultant or Sub-Adviser unless and until a successor
Consultant or Sub-Adviser is selected.
(d) The Manager shall not be obligated under this Contract to pay any
expenses of or for the Trust or of or for the Fund not expressly assumed by the
Manager pursuant to this Section 1 other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a partner, shareholder, director, officer or
employee of, or be otherwise interested in, the Manager, and in any person
controlling, controlled by or under common control with the Manager, and that
the Manager and any person controlling, controlled by or under common control
with the Manager may have an interest in the Trust. It is also understood that
the Manager and persons controlling, controlled by or under common control with
the Manager have and may have advisory, management service, distribution or
other contracts with other organizations and persons, and may have other
interests and businesses.
3. COMPENSATION TO BE PAID BY THE FUND TO THE MANAGER.
The Fund will pay to the Manager as compensation for the Manager's
services rendered, for the facilities furnished and for the expenses borne by
the Manager pursuant to Section 1, a fee, computed and paid monthly at the
annual rate of 1.25% of the Fund's average daily net asset value. Such average
daily net asset value of the Fund shall be determined by taking an average of
all of the determinations of such net asset value during such month while this
Contract is in effect. Such fee shall be payable for each month within five (5)
business days after the end of such month.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the Fund
are qualified for offer and sale, the compensation due the Manager for such
fiscal year shall be reduced by the amount of such excess by a reduction or
refund thereof. In the event that the expenses of the Fund exceed any expense
limitation which the Manager may, by written notice to the Trust, voluntarily
declare to be effective with respect to the Fund, subject to such terms and
conditions as the Manager may prescribe in such notice,
-2-
<PAGE>
the compensation due the Manager shall be reduced, and, if necessary, the
Manager shall bear the Fund's expenses to the extent required by such expense
limitation.
If the Manager shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract shall not be amended
unless such amendment is approved at a meeting by the affirmative vote of a
majority of the outstanding shares of the Fund, and by the vote, cast in person
at a meeting called for the purpose of voting on such approval, of a majority of
the Trustees of the Trust who are not interested persons of the Trust or of the
Manager.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this
Contract by not more than sixty days' written notice delivered or
mailed by registered mail, postage prepaid, to the other party, or
(b) If (i) the Trustees of the Trust or the shareholders by
the affirmative vote of a majority of the outstanding shares of the
Fund, and (ii) a majority of the Trustees of the Trust who are not
interested persons of the Trust or of the Manager, by vote cast in
person at a meeting called for the purpose of voting on such approval,
do not specifically approve at least annually the continuance of this
Contract, then this Contract shall automatically terminate at the close
of business on the second anniversary of its execution, or upon the
expiration of one year from the effective date of the last such
continuance, whichever is later; provided, however, that if the
continuance of this Contract is submitted to the shareholders of the
Fund for their approval and such shareholders fail to approve such
continuance of this Contract as provided herein, the Manager may
continue to serve hereunder in a manner consistent with the Investment
Company Act of 1940 and the rules and regulations thereunder.
Action by the Trust under (a) above may be taken either (i) by vote of
a majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Fund.
-3-
<PAGE>
Termination of this Contract pursuant to this Section 5 shall be
without the payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person,"
"control," "interested person" and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940 and the rules and
regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act; and the phrase
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940 and the rules and regulations
thereunder.
7. NONLIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust, or to
any shareholder of the Trust, for any act or omission in the course of, or
connected with, rendering services hereunder.
8. INITIALS "DLB" AND NAME "STEWART IVORY."
The Manager owns the initials "DLB" and such initials may be used by
the Trust only with the consent of the Manager. The Manager consents to the use
by the Trust of the name "The DLB Fund Group" or any other name embodying the
initials "DLB", in such forms as the Manager shall in writing approve, but only
on condition and so long as (i) this Contract shall remain in full force and
(ii) the Trust shall fully perform, fulfill and comply with all provisions of
this Contract expressed herein to be performed, fulfilled or complied with by
it. No such name shall be used by the Trust at any time or in any place or for
any purposes or under any conditions except as in this section provided. The
foregoing authorization by the Manager to the Trust to use said initials as part
of a business or name is not exclusive of the right of the Manager itself to
use, or to authorize others to use, the same; the Trust acknowledges and agrees
that as between the Manager and the Trust, the Manager has the exclusive right
so to use, or authorize others to use, said initials and the Trust agrees to
take such action as may reasonably be requested by the Manager to give full
effect to the provisions of this section (including, without limitation,
consenting to such use of said initials). Without limiting the generality of the
foregoing, the Trust agrees that, upon
-4-
<PAGE>
any termination of this Contract by either party or upon the violation of any of
its provisions by the Trust, the Trust will, at the request of the Manager made
within six months after the Manager has knowledge of such termination or
violation, use its best efforts to change the name of the Trust so as to
eliminate all reference, if any, to the initials "DLB" and will not thereafter
transact any business in a name containing the initials "DLB" in any form or
combination whatsoever, or designate itself as the same entity as or successor
to an entity of such name, or otherwise use the initials "DLB" or any other
reference to the Manager. Such covenants on the part of the Trust shall be
binding upon it, its trustees, officers, stockholders, creditors and all other
persons claiming under or through it.
The Manager and the Trust hereby agree that neither owns the name
"Stewart Ivory" and that the Trust may only use the name "Stewart Ivory" as part
of the name of the Fund for so long as (a) this Contract shall remain in full
force and (b) the Sub-Advisory Agreement between Babson-Stewart Ivory
International (the "Sub-Adviser") and the Manager with respect to the Fund shall
remain in full force. The Trust hereby acknowledges that under this Contract it
is using the name "Stewart Ivory" pursuant to a limited right of use. No such
name shall be used by the Trust at any time or in any place or for any purposes
or under any conditions except as in this section provided. The authorization
for the Trust to use said name as part of a business or name is not exclusive of
the right of the owner of the name itself to use, or to authorize others to use,
the same. Without limiting the generality of the foregoing, the Trust agrees
that, (I) upon any termination of this Contract by either party or (II) upon any
termination of the Sub-Advisory Agreement by either party thereto, the Trust
will, at the request of the Manager or Sub-Adviser made within six months after
the Manager has knowledge of such termination or violation, use its best efforts
to change the name of the Trust so as to eliminate all reference, if any, to the
name "Stewart Ivory" and will not thereafter transact any business in a name
containing the name "Stewart Ivory" in any form or combination whatsoever, or
designate itself as the same entity as or successor to an entity of such name,
or otherwise use the name "Stewart Ivory" or any other reference to the
Sub-Adviser or the owner of the name. Such covenants on the part of the Trust
shall be binding upon it, its trustees, officers, stockholders, creditors and
all other persons claiming under or through it.
9. EXERCISE OF VOTING RIGHTS.
Except as instructed otherwise by the Trustees of the Trust, the
Manager shall at its discretion exercise or procure the exercise of any voting
right attaching to investments of the Fund.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and that the
-5-
<PAGE>
obligations of this instrument are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets and property of
the Fund.
-6-
<PAGE>
IN WITNESS WHEREOF, THE DLB FUND GROUP and DAVID L. BABSON AND COMPANY
INCORPORATED have each caused this instrument to be signed in duplicate on its
behalf by its duly authorized representative, all as of the day and year first
above written.
THE DLB FUND GROUP
By_______________________________
Frank L. Tarantino
President
DAVID L. BABSON AND COMPANY INCORPORATED
By_______________________________
DeAnne B. Dupont
Senior Vice President
-7-
EXHIBIT (d)(11)
THE DLB STEWART IVORY INTERNATIONAL FUND
SUB-ADVISORY AGREEMENT
----------------------
Sub-Advisory Agreement executed as of __________, 1999 between DAVID L.
BABSON AND COMPANY INCORPORATED (the "Manager") and BABSON-STEWART IVORY
INTERNATIONAL (the "Sub-Adviser").
W I T N E S S E T H:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY THE SUB-ADVISER TO THE MANAGER.
(a) Subject always to the control of the Trustees of The DLB Fund Group
(the "Trust"), a Massachusetts business trust, and to such policies as the
Trustees or the Manager, as the case may be, may determine, the Sub-Adviser
will, at its expense, (i) furnish continuously an investment program for the DLB
Stewart Ivory International Fund (the "Fund") and will make investment decisions
on behalf of the Fund and place all orders for the purchase and sale of its
portfolio securities and (ii) furnish office space and equipment and provide
bookkeeping and clerical services (excluding determination of net asset value,
shareholder accounting services and fund accounting services). In the
performance of its duties, the Sub-Adviser will comply with the provisions of
the Agreement and Declaration of Trust and By-laws of the Trust and the Fund's
stated investment objective, policies and restrictions.
(b) In placing orders for the portfolio transactions of the Fund, the
Sub-Adviser will seek the best price and execution available, except to the
extent it may be permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to obtain for
the Fund the most favorable price and execution available, the Sub-Adviser shall
consider all factors it deems relevant, including, without limitation, the
overall net economic result to the Fund (involving price paid or received and
any commissions and other costs paid), the efficiency with which the transaction
is effected, the ability to effect the transaction at all where a large block is
involved, availability of the broker to stand ready to execute possibly
difficult transactions in the future and the financial strength and stability of
the broker. Subject to such policies as the Trustees or the Manager, as the case
may be, may determine, the Sub- Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Fund to pay a broker or dealer that
provides brokerage and research services to the Sub-Adviser an amount of
commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction, if the Sub-Adviser determines in good faith that such amount
of commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of either
that particular
<PAGE>
transaction or the Sub-Adviser's overall responsibilities with respect to the
Fund and to other clients of the Sub-Adviser as to which the Sub-Adviser
exercises investment discretion.
(c) The Sub-Adviser shall not be obligated under this Agreement to pay
any expenses of or for the Trust or of or for the Fund not expressly assumed by
the Sub-Adviser pursuant to this Section 1 other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a partner, shareholder, director, officer or
employee of, or be otherwise interested in, the Sub-Adviser, and in any person
controlling, controlled by or under common control with the Sub- Adviser, and
that the Sub-Adviser and any person controlling, controlled by or under common
control with the Sub-Adviser may have an interest in the Trust. It is also
understood that the Sub- Adviser and persons controlling, controlled by or under
common control with the Sub-Adviser have and may have advisory, management
service, distribution or other contracts with other organizations and persons,
and may have other interests and businesses; provided, however, that without the
prior consent of the Manager, neither the Sub-Adviser nor any of its affiliates
shall undertake to act as investment adviser or subadviser for any U.S.
registered investment company that has substantially similar investment policies
to the Fund.
3. COMPENSATION TO BE PAID BY THE MANAGER TO THE SUB-ADVISER.
The Manager will pay to the Sub-Adviser as compensation for the
Sub-Adviser's services rendered, for the facilities furnished and for the
expenses borne by the Sub-Adviser pursuant to Section 1, a fee, computed and
paid monthly at the annual rate of 0.375% of the Fund's average daily net asset
value. Such average daily net asset value of the Fund shall be determined by
taking an average of all of the determinations of such net asset value during
such month while this Agreement is in effect. Such fee shall be payable for each
month within five (5) business days after the end of such month.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the Trust
are qualified for offer and sale, the compensation due the Sub-Adviser for such
fiscal year shall be reduced by the amount of such excess by a reduction or
refund thereof. In the event that the expenses of the Fund exceed any expense
limitation which the Sub-Adviser may, by written notice to the Manager,
voluntarily declare to be effective with respect to the Fund, subject to such
terms and conditions as the Sub-Adviser may prescribe in such notice, the
compensation due the Sub-Adviser shall be reduced, and, if necessary, the
Sub-Adviser shall bear the Fund's expenses to the extent required by such
expense limitation.
If the Sub-Adviser shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
-2-
<PAGE>
4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS AGREEMENT.
This Agreement shall automatically terminate, without the payment of
any penalty, in the event of its assignment or in the event that the Management
Contract between the Manager and the Trust relating to the Fund shall have
terminated for any reason; and this Agreement shall not be amended unless such
amendment is approved at a meeting by the affirmative vote of a majority of the
outstanding shares of the Fund, and by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the Trustees
of the Trust who are not interested persons of the Trust or of the Manager or of
the Sub-Adviser.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS AGREEMENT.
This Agreement shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this
Agreement by not more than sixty days' written notice delivered or
mailed by registered mail, postage prepaid, to the other party, or
(b) If (i) the Trustees of the Trust or the shareholders by
the affirmative vote of a majority of the outstanding shares of the
Fund, and (ii) a majority of the Trustees of the Trust who are not
interested persons of the Trust, the Manager or of the Sub-Adviser, by
vote cast in person at a meeting called for the purpose of voting on
such approval, do not specifically approve at least annually the
continuance of this Agreement, then this Agreement shall automatically
terminate at the close of business on the second anniversary of its
execution, or upon the expiration of one year from the effective date
of the last such continuance, whichever is later; provided, however,
that if the continuance of this Agreement is submitted to the
shareholders of the Fund for their approval and such shareholders fail
to approve such continuance of this Agreement as provided herein, the
Sub-Adviser may continue to serve hereunder in a manner consistent with
the Investment Company Act of 1940 (the "1940 Act") and the rules and
regulations thereunder.
Action by the Trust under (a) above may be taken either (i) by vote of
a majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Fund.
Termination of this Agreement pursuant to this Section 5 shall be
without the payment of any penalty.
-3-
<PAGE>
6. CERTAIN INFORMATION.
The Sub-Adviser shall promptly notify the Manager in writing of the
occurrence of any of the following events: (a) the Sub-Adviser shall fail to be
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended from time to time, and under the laws of any jurisdiction in which
the Sub-Adviser is required to be registered as an investment adviser in order
to perform its obligations under this Agreement or any other agreement
concerning the provision of investment advisory services to the Trust, (b) the
Sub-Adviser shall be disqualified from serving as investment adviser to the Fund
pursuant to Section 9 of the 1940 Act, or otherwise, (c) the Sub- Adviser shall
have been served or otherwise have notice of any action, suit, proceeding or
inquiry or investigation, at law or in equity, before or by any court, public
board or body, involving the affairs of the Trust, (d) there is a change in
control of the Sub-Adviser or any parent of the Sub- Adviser within the meaning
of the 1940 Act or (e) there is a material adverse change in the business or
financial position of the Sub-Adviser.
7. CERTAIN DEFINITIONS.
For the purposes of this Agreement, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.
For the purposes of this Agreement, the terms "affiliated person",
"control," "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act; and the phrase "specifically approve at
least annually" shall be construed in a manner consistent with the 1940 Act and
the rules and regulations thereunder.
8. NONLIABILITY OF THE SUB-ADVISER.
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Sub- Adviser, or reckless disregard of its obligations and
duties hereunder, the Sub-Adviser shall not be subject to any liability to the
Trust, or to any shareholder of the Trust, for any act or omission in the course
of, or connected with, rendering services hereunder.
-4-
<PAGE>
9. EXERCISE OF VOTING RIGHTS.
Except as instructed otherwise by the Trustees of the Trust or the
Manager, the Sub-Adviser shall at its discretion exercise or procure the
exercise of any voting right attaching to investments of the Fund.
10. NAME "STEWART IVORY."
The Manager and the Sub-Adviser agree that the name "Stewart Ivory" may
only be used as part of the name of the Fund for so long as this Agreement shall
remain in full force. The Manager agrees that upon any termination of this
Agreement it will promptly inform the Trust of such termination.
11. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and the obligations of
this instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of the Fund.
-5-
<PAGE>
IN WITNESS WHEREOF, David L. Babson and Company and Babson-Stewart
Ivory International have each caused this instrument to be signed in duplicate
on its behalf by its duly authorized representative, all as of the day and year
first above written.
DAVID L. BABSON AND COMPANY INCORPORATED
By_______________________________
Title:
BABSON-STEWART IVORY INTERNATIONAL
By_______________________________
Title:
Accepted and agreed to as of the day and year first above written:
THE DLB FUND GROUP,
on behalf of its
DLB Stewart Ivory International Fund
By________________________
Title:
-6-
THE DLB STEWART IVORY EMERGING MARKETS FUND
SUB-ADVISORY AGREEMENT
----------------------
Sub-Advisory Agreement executed as of __________, 1999 between DAVID L.
BABSON AND COMPANY INCORPORATED (the "Manager") and BABSON-STEWART IVORY
INTERNATIONAL (the "Sub-Adviser").
W I T N E S S E T H:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY THE SUB-ADVISER TO THE MANAGER.
(a) Subject always to the control of the Trustees of The DLB Fund Group
(the "Trust"), a Massachusetts business trust, and to such policies as the
Trustees or the Manager, as the case may be, may determine, the Sub-Adviser
will, at its expense, (i) furnish continuously an investment program for the DLB
Stewart Ivory Emerging Markets Fund (the "Fund") and will make investment
decisions on behalf of the Fund and place all orders for the purchase and sale
of its portfolio securities and (ii) furnish office space and equipment and
provide bookkeeping and clerical services (excluding determination of net asset
value, shareholder accounting services and fund accounting services). In the
performance of its duties, the Sub-Adviser will comply with the provisions of
the Agreement and Declaration of Trust and By-laws of the Trust and the Fund's
stated investment objective, policies and restrictions.
(b) In placing orders for the portfolio transactions of the Fund, the
Sub-Adviser will seek the best price and execution available, except to the
extent it may be permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to obtain for
the Fund the most favorable price and execution available, the Sub-Adviser shall
consider all factors it deems relevant, including, without limitation, the
overall net economic result to the Fund (involving price paid or received and
any commissions and other costs paid), the efficiency with which the transaction
is effected, the ability to effect the transaction at all where a large block is
involved, availability of the broker to stand ready to execute possibly
difficult transactions in the future and the financial strength and stability of
the broker. Subject to such policies as the Trustees or the Manager, as the case
may be, may determine, the Sub- Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Fund to pay a broker or dealer that
provides brokerage and research services to the Sub-Adviser an amount of
commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction, if the Sub-Adviser determines in good faith that such amount
of commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of either
that particular
<PAGE>
transaction or the Sub-Adviser's overall responsibilities with respect to the
Fund and to other clients of the Sub-Adviser as to which the Sub-Adviser
exercises investment discretion.
(c) The Sub-Adviser shall not be obligated under this Agreement to pay
any expenses of or for the Trust or of or for the Fund not expressly assumed by
the Sub-Adviser pursuant to this Section 1 other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a partner, shareholder, director, officer or
employee of, or be otherwise interested in, the Sub-Adviser, and in any person
controlling, controlled by or under common control with the Sub- Adviser, and
that the Sub-Adviser and any person controlling, controlled by or under common
control with the Sub-Adviser may have an interest in the Trust. It is also
understood that the Sub- Adviser and persons controlling, controlled by or under
common control with the Sub-Adviser have and may have advisory, management
service, distribution or other contracts with other organizations and persons,
and may have other interests and businesses; provided, however, that without the
prior consent of the Manager, neither the Sub-Adviser nor any of its affiliates
shall undertake to act as investment adviser or subadviser for any U.S.
registered investment company that has substantially similar investment policies
to the Fund.
3. COMPENSATION TO BE PAID BY THE MANAGER TO THE SUB-ADVISER.
The Manager will pay to the Sub-Adviser as compensation for the
Sub-Adviser's services rendered, for the facilities furnished and for the
expenses borne by the Sub-Adviser pursuant to Section 1, a fee, computed and
paid monthly at the annual rate of 0.875% of the Fund's average daily net asset
value. Such average daily net asset value of the Fund shall be determined by
taking an average of all of the determinations of such net asset value during
such month while this Agreement is in effect. Such fee shall be payable for each
month within five (5) business days after the end of such month.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the Trust
are qualified for offer and sale, the compensation due the Sub-Adviser for such
fiscal year shall be reduced by the amount of such excess by a reduction or
refund thereof. In the event that the expenses of the Fund exceed any expense
limitation which the Sub-Adviser may, by written notice to the Manager,
voluntarily declare to be effective with respect to the Fund, subject to such
terms and conditions as the Sub-Adviser may prescribe in such notice, the
compensation due the Sub-Adviser shall be reduced, and, if necessary, the
Sub-Adviser shall bear the Fund's expenses to the extent required by such
expense limitation.
If the Sub-Adviser shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
-2-
<PAGE>
4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS AGREEMENT.
This Agreement shall automatically terminate, without the payment of
any penalty, in the event of its assignment or in the event that the Management
Contract between the Manager and the Trust relating to the Fund shall have
terminated for any reason; and this Agreement shall not be amended unless such
amendment is approved at a meeting by the affirmative vote of a majority of the
outstanding shares of the Fund, and by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the Trustees
of the Trust who are not interested persons of the Trust or of the Manager or of
the Sub-Adviser.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS AGREEMENT.
This Agreement shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this
Agreement by not more than sixty days' written notice delivered or
mailed by registered mail, postage prepaid, to the other party, or
(b) If (i) the Trustees of the Trust or the shareholders by
the affirmative vote of a majority of the outstanding shares of the
Fund, and (ii) a majority of the Trustees of the Trust who are not
interested persons of the Trust, the Manager or of the Sub-Adviser, by
vote cast in person at a meeting called for the purpose of voting on
such approval, do not specifically approve at least annually the
continuance of this Agreement, then this Agreement shall automatically
terminate at the close of business on the second anniversary of its
execution, or upon the expiration of one year from the effective date
of the last such continuance, whichever is later; provided, however,
that if the continuance of this Agreement is submitted to the
shareholders of the Fund for their approval and such shareholders fail
to approve such continuance of this Agreement as provided herein, the
Sub-Adviser may continue to serve hereunder in a manner consistent with
the Investment Company Act of 1940 (the "1940 Act") and the rules and
regulations thereunder.
Action by the Trust under (a) above may be taken either (i) by vote of
a majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Fund.
Termination of this Agreement pursuant to this Section 5 shall be
without the payment of any penalty.
-3-
<PAGE>
6. CERTAIN INFORMATION.
The Sub-Adviser shall promptly notify the Manager in writing of the
occurrence of any of the following events: (a) the Sub-Adviser shall fail to be
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended from time to time, and under the laws of any jurisdiction in which
the Sub-Adviser is required to be registered as an investment adviser in order
to perform its obligations under this Agreement or any other agreement
concerning the provision of investment advisory services to the Trust, (b) the
Sub-Adviser shall be disqualified from serving as investment adviser to the Fund
pursuant to Section 9 of the 1940 Act, or otherwise, (c) the Sub- Adviser shall
have been served or otherwise have notice of any action, suit, proceeding or
inquiry or investigation, at law or in equity, before or by any court, public
board or body, involving the affairs of the Trust, (d) there is a change in
control of the Sub-Adviser or any parent of the Sub- Adviser within the meaning
of the 1940 Act or (e) there is a material adverse change in the business or
financial position of the Sub-Adviser.
7. CERTAIN DEFINITIONS.
For the purposes of this Agreement, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.
For the purposes of this Agreement, the terms "affiliated person",
"control," "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act; and the phrase "specifically approve at
least annually" shall be construed in a manner consistent with the 1940 Act and
the rules and regulations thereunder.
8. NONLIABILITY OF THE SUB-ADVISER.
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Sub- Adviser, or reckless disregard of its obligations and
duties hereunder, the Sub-Adviser shall not be subject to any liability to the
Trust, or to any shareholder of the Trust, for any act or omission in the course
of, or connected with, rendering services hereunder.
-4-
<PAGE>
9. EXERCISE OF VOTING RIGHTS.
Except as instructed otherwise by the Trustees of the Trust or the
Manager, the Sub-Adviser shall at its discretion exercise or procure the
exercise of any voting right attaching to investments of the Fund.
10. NAME "STEWART IVORY."
The Manager and the Sub-Adviser agree that the name "Stewart Ivory" may
only be used as part of the name of the Fund for so long as this Agreement shall
remain in full force. The Manager agrees that upon any termination of this
Agreement it will promptly inform the Trust of such termination.
11. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and the obligations of
this instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of the Fund.
-5-
<PAGE>
IN WITNESS WHEREOF, David L. Babson and Company and Babson-Stewart
Ivory International have each caused this instrument to be signed in duplicate
on its behalf by its duly authorized representative, all as of the day and year
first above written.
DAVID L. BABSON AND COMPANY INCORPORATED
By_______________________________
Title:
BABSON-STEWART IVORY INTERNATIONAL
By_______________________________
Title:
Accepted and agreed to as of the day and year first above written:
THE DLB FUND GROUP,
on behalf of its
DLB Stewart Ivory Emerging Markets Fund
By________________________
Title:
-6-
EXHIBIT (e)
PRINCIPAL UNDERWRITER'S CONTRACT
THE DLB FUND GROUP
This Principal Underwriter's Contract dated as of _____________, 1999
by and between THE DLB FUND GROUP, a Massachusetts business trust (the "Trust"),
and BABSON SECURITIES CORPORATION, a Massachusetts corporation (the "Principal
Underwriter").
WHEREAS, the Trust and the Principal Underwriter are desirous of
entering into a contract providing for the solicitation by the Principal
Underwriter of offers to buy shares of beneficial interest ("shares") of each of
the series (each, a "Fund") of the Trust from potential shareholders;
NOW, THEREFORE, in consideration of the mutual contracts contained
herein, the Trust hereby appoints the Principal Underwriter as the principal
underwriter of shares of each of the Funds, and the Principal Underwriter hereby
accepts such appointment, all as set forth below:
1. Reservation of Right Not to Sell. The Trust reserves the right to
refuse at any time or times to sell any of its shares hereunder for any reason.
2. Agreement to Act as Principal Underwriter. The Principal Underwriter
will, as agent for the Trust, solicit offers to buy shares of each Fund from
potential shareholders and assist potential shareholders in preparing
applications to open accounts with the Trust and in completing and transmitting
applications and other materials for purchases and sales of shares of each Fund.
Shares of each Fund shall be directly sold or purchased, as the case may be,
only by the Trust (and not by the Principal Underwriter) at their public
offering price to such persons and upon such conditions as the Trustees of the
Trust may from time to time determine. The public offering price of shares of a
Fund shall be the net asset value of such shares then in effect. On every sale
the Trust shall receive the applicable net asset value of the shares.
3. Sales of Shares by the Trust. The Trust reserves the right to issue
shares at any time directly to its shareholders as a stock dividend or stock
split and to sell shares to its shareholders or to other persons at not less
than net asset value.
4. Repurchase of Shares. The Principal Underwriter will act as agent
for the Trust in connection with communicating with shareholders of the Trust
and assisting such shareholders in preparing the materials required for the
repurchase of shares of the various Funds by the Trust upon the terms and
conditions set forth in the then current Prospectus and Statement of Additional
Information of the Trust.
<PAGE>
5. Basis of Purchases and Sales of Shares. The Principal Underwriter
does not agree to assist any specific number of shareholders or potential
shareholders or assist potential shareholders in completing and transmitting
applications and other materials to purchase any specific number of shares. The
Principal Underwriter will not purchase shares from the Trust or from anyone
other than the Trust and will not take "long" or "short" positions in shares
contrary to the Contract and Declaration of Trust of the Trust.
6. Rules of NASD, etc. The Principal Underwriter will conform to the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and the laws regarding the sale of securities in any jurisdiction in which it
assists shareholders or potential shareholders in completing applications to
open accounts or to place orders for sale, directly or indirectly, for any
shares. The Principal Underwriter also agrees to furnish to the Trust sufficient
copies of any contracts or plans it intends to use in connection with any
solicitation of offers to buy shares in adequate time for the Trust to file and
clear them with the proper authorities before they are put in use, and not to
use them until so filed and cleared.
7. The Principal Underwriter Independent Contractor. The Principal
Underwriter shall be an independent contractor, and neither the Principal
Underwriter nor any of its officers or employees, as such, is or shall be an
employee of the Trust. The Principal Underwriter is responsible for its own
conduct and the employment, control, and conduct of its agents and employees and
for injury to such agents or employees or to others through its agents or
employees. The Principal Underwriter assumes full responsibility for its agents
and employees under applicable statutes and agrees to pay all employer taxes
thereunder.
The Principal Underwriter will maintain at its own expense insurance
against public liability in such an amount as the Trustees of the Trust may from
time to time reasonably request.
8. Expenses. The Principal Underwriter will pay all of its own expenses
in performing its obligations hereunder.
9. Indemnification of Trust. The Principal Underwriter agrees to
indemnify and hold harmless the Trust and each person who has been, is, or may
hereafter be a Trustee, officer, or employee of the Trust against expenses
reasonably incurred by any of them in connection with any claim or in connection
with any action, suit, or proceeding to which any of them may be a party, which
arises out of or is alleged to arise out of any misrepresentation or omission to
state a material fact, or out of any alleged misrepresentation or omission to
state a material fact, on the part of the Principal Underwriter or any agent or
employee of the Principal Underwriter or any other person for whose acts the
Principal Underwriter is responsible or is alleged to be responsible unless such
misrepresentation or omission was made in reliance upon written information
furnished to the Principal Underwriter by the Trust or agents or representatives
of the Trust. The Principal Underwriter agrees likewise to indemnify and hold
harmless the Trust and each such person in connection with any claim or in
-2-
<PAGE>
connection with any action, suit, or proceeding which arises out of or is
alleged to arise out of the Principal Underwriter's failure to exercise
reasonable care and diligence with respect to its services rendered in
connection with this Contract. The term "expenses" includes amounts paid in
satisfaction of judgments or in settlements which are made with the Principal
Underwriter's consent. The foregoing rights of indemnification shall be in
addition to any other rights to which the Trust or any such person may be
entitled as a matter of law.
10. Assignment Terminates this Contract; Amendments of this Contract.
This Contract shall automatically terminate, without the payment of any penalty,
in the event of its assignment. This Contract may be amended only if such
amendment be approved either by action of the Trustees of the Trust or at a
meeting of the shareholders of the affected Fund or Funds by the affirmative
vote of a majority of the outstanding shares of such Fund or Funds, and by a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Principal Underwriter by vote cast in person at a meeting called
for the purpose of voting on such approval.
11. Effective Period and Termination of this Contract. This Contract
shall take effect upon the date first above written and shall remain in full
force and effect continuously (unless terminated automatically as set forth in
Section 10) until terminated in respect of any Fund or Funds:
(a) Either by the Trust or the Principal Underwriter by not
more than sixty (60) days nor less than ten (10) days written notice
delivered or mailed by registered mail, postage prepaid, to the other
party; or
(b) If the continuance of the Contract after ____________,
2000 is not specifically approved at least annually by the Trustees of
the Trust or the shareholders of the affected Fund or Funds by the
affirmative vote of a majority of the outstanding shares of the
affected Fund or Funds, and by a majority of the Trustees of the Trust
who are not interested persons of the Trust or of the Principal
Underwriter by vote cast in person at a meeting called for the purpose
of voting on such approval.
Action by the Trust or any Fund under (a) above may be taken either (i)
by vote of the Trustees or (ii) by the affirmative vote of a majority of the
outstanding shares of the Trust or the affected Fund or Funds. The requirement
under (b) above that continuance of this Contract be "specifically approved at
least annually" shall be construed in a manner consistent with the Investment
Company Act of 1940 and the Rules and Regulations thereunder.
Termination of this Contract pursuant to this Section 11 shall be
without the payment of any penalty.
12. Certain Definitions. For purposes of this Contract, the
"affirmative vote of a majority of the outstanding shares" of the Trust or a
Fund means the affirmative vote, at a duly
-3-
<PAGE>
called and held meeting of shareholders of the Trust or the Fund, as the case
may be, (a) of the holders of 67% or more of the shares of the Trust or the Fund
present (in person or by proxy) and entitled to vote at such meeting, if the
holders of more than 50% of the outstanding shares of the Trust or the Fund
entitled to vote at such meeting are present in person or by proxy, or (b) of
the holders of more than 50% of the outstanding shares of the Trust or the Fund
entitled to vote at such meeting, whichever is less.
For the purposes of the Contract, the terms "interested person" and
"assignment" shall have the meanings defined in the Investment Company Act of
1940, subject however, to such exemptions as may be granted by the Securities
and Exchange Commission under said Act.
A copy of the Contract and Declaration of Trust of the Trust is on file
with the Secretary of State of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually,
-4-
<PAGE>
and that the obligations of or arising out of this instrument are not binding
upon any of the Trustees, officers, or shareholders individually but are binding
only upon the assets and property of the Trust.
IN WITNESS WHEREOF, each of THE DLB FUND GROUP and BABSON SECURITIES
CORPORATION has caused this Principal Underwriter's Contract to be signed in
duplicate in its behalf, as of the day and year first above written.
THE DLB FUND GROUP
By________________________________
BABSON SECURITIES CORPORATION
By________________________________
-5-
EXHIBIT (g)(2)
Appendix A
As of November 1, 1999, this Appendix A forms a part of the Custodian Agreement
dated as of July 19, 1995, as amended (the "Agreement"), between Investors Bank
& Trust Company and The DLB Fund Group. As of November 1, 1999, this Appendix A
supercedes any previous versions of said Appendix.
Portfolios
- ----------
The DLB Fixed Income Fund
The DLB Global Small Capitalization Fund
The DLB Enterprise III Fund
The DLB Value Fund
The DLB Disciplined Growth Fund
The DLB Growth Fund
The DLB Micro Capitalization Fund
The DLB Stewart Ivory International Fund
The DLB Stewart Ivory Emerging Markets Fund
THE DLB FUND GROUP
By:____________________________
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:____________________________
Name:
Title:
EXHIBIT (h)(2)
Appendix A
As of November 1, 1999, this Appendix A forms a part of the Transfer Agency and
Service Agreement dated as of July 19, 1995, as amended (the "Agreement"),
between Investors Bank & Trust Company and The DLB Fund Group. As of November 1,
1999, this Appendix A supercedes any previous versions of said Appendix.
Portfolios
- ----------
The DLB Fixed Income Fund
The DLB Global Small Capitalization Fund
The DLB Enterprise III Fund
The DLB Value Fund
The DLB Disciplined Growth Fund
The DLB Growth Fund
The DLB Micro Capitalization Fund
The DLB Stewart Ivory International Fund
The DLB Stewart Ivory Emerging Markets Fund
THE DLB FUND GROUP
By:___________________________
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:___________________________
Name:
Title:
EXHIBIT (h)(3)
FEE WAIVER AND EXPENSE LIMITATION AGREEMENT
-------------------------------------------
THIS AGREEMENT is made as of October 29, 1999, between DAVID L. BABSON
AND COMPANY INCORPORATED, a Massachusetts corporation (the "Advisor") and THE
DLB FUND GROUP, a Massachusetts business trust (the "Trust").
1. Recitals. The Trust has been organized to serve as an investment
vehicle primarily for certain large institutional and private client accounts,
and both the Trust and the Advisor believe that they and the Trust's
shareholders would benefit if each series of the Trust constituting a separate
investment portfolio set forth below (each a "Fund" and, collectively, the
"Funds") were to achieve and maintain an amount of assets sufficiently large to
result in economies of scale for the Fund and sufficient future revenues for the
Advisor. Therefore, the Advisor is agreeing to take certain actions more
specifically described below to reduce or eliminate certain costs otherwise
borne by shareholders of the Funds and to enhance the returns generated for
shareholders of the Funds.
2. General Agreement. The Advisor will, until this Agreement is
terminated under Section 4, take one or more of the three actions described in
Section 3 to the extent that the Fund's total annual operating expenses (not
including brokerage commissions, hedging transaction fees and other investment
related costs, extraordinary, non-recurring and certain other unusual expenses
such as litigation expenses and other extraordinary legal expenses, securities
lending fees and expenses and transfer taxes) exceed the percentage of that
Fund's average daily net assets (the "Expense Limitation") set forth in the
table below:
- -------------------------------------------- ---------------------
FUND EXPENSE LIMITATION
- -------------------------------------------- ---------------------
DLB Fixed Income Fund 0.55%
- -------------------------------------------- ---------------------
DLB Value Fund 0.80%
- -------------------------------------------- ---------------------
DLB Growth Fund 0.80%
- -------------------------------------------- ---------------------
DLB Disciplined Growth Fund 0.90%
- -------------------------------------------- ---------------------
DLB Enterprise III Fund 0.90%
- -------------------------------------------- ---------------------
DLB Micro Capitalization Fund 1.30%
- -------------------------------------------- ---------------------
DLB Global Small Capitalization Fund 1.50%
- -------------------------------------------- ---------------------
DLB Stewart Ivory International Fund 1.00%
- -------------------------------------------- ---------------------
DLB Stewart Ivory Emerging Markets Fund 1.75%
- -------------------------------------------- ---------------------
3. Advisor Actions. The Advisor will use its best efforts to cause each
Fund to maintain the expense level described in Section 2 by taking one or more
of the following actions: (i) waiving a portion of its fee under the Advisory
Agreement between the Advisor and the Trust relating to the Fund; (ii)
reimbursing the Fund for expenses exceeding the Expense Limitation; or (iii)
paying directly expenses that may exceed the Expense Limitation.
<PAGE>
4. Term. This Agreement shall have an initial term ending on October
31, 1999 and shall automatically be continued thereafter for successive 1-year
periods unless either the Trust or the Advisor terminates this Agreement by
giving six months written notice prior to the next occuring anniversary date to
the other party.
5. Miscellaneous. The Advisor understands and acknowledges that the
Trust intends to rely on this Agreement, including in connection with the
preparation and printing of the Trust's prospectuses and its daily calculation
of each Fund's net asset value.
6. Disclaimer of Liability. A copy of the Agreement and the Declaration
of Trust of the Trust is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this instrument is executed on
behalf of the Board of Trustees of the Trust as Trustees and not individually
and that the obligations of this instrument are not binding upon any of the
Trustees or shareholders individually but are binding upon the assets and
property of the Trust; provided, however, that the Agreement and Declaration of
Trust of the Trust provides that the assets of a particular series of the Trust
shall under no circumstances be charged with liabilities attributable to any
other series of the Trust and that all persons extending credit to, or
contracting with or having any claim against a particular series of the Trust
shall look only to the assets of that particular series for payment of such
credit, contract or claim.
This Agreement constitutes the entire agreement between the Advisor and
the Trust concerning the subject matter hereof and supersedes all prior oral and
written agreements and understandings between the parties concerning such
subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
DAVID L. BABSON AND COMPANY INCORPORATED
By: /s/ DeAnne B. Dupont
-----------------------------------
Senior Vice President and Treasurer
DLB FUND GROUP
By: /s/ Frank L. Tarantino
-----------------------------------
President
EXHIBIT (h)(4)
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as
of October 5, 1999 by and between Babson-Stewart Ivory International Limited
Partnership III, a Delaware limited partnership (the "Limited Partnership"), and
The DLB Fund Group, a Massachusetts business trust ("The DLB Fund Group"), on
behalf of The DLB Stewart Ivory International Fund (the "Mutual Fund").
The Limited Partnership and The DLB Fund Group hereby agree as follows:
a)
1. Plan of Reorganization.
(a) The Limited Partnership will sell, assign, convey, transfer and
deliver to the Mutual Fund on the Exchange Date (as defined in Section 6) all of
its properties and assets existing at the Valuation Time (as defined in Section
4(b)). In consideration therefor, the Mutual Fund shall, on the Exchange Date,
assume all of the liabilities of the Limited Partnership existing at the
Valuation Time and deliver to the Limited Partnership a number of full and
fractional shares of beneficial interest of the Mutual Fund (the "Mutual Fund
Shares") having an aggregate net asset value equal to the value of the assets of
the Limited Partnership transferred to the Mutual Fund on the Exchange Date less
the value of the liabilities of the Limited Partnership assumed by the Mutual
Fund on such date.
(b) Upon consummation of the transactions described in paragraph (a) of
this Agreement, the Limited Partnership shall distribute the Mutual Fund Shares
in complete liquidation to its holders of Units (as defined below)
("Unitholders") of record as of the Exchange Date, each Unitholder being
entitled to receive that proportion of such Mutual Fund Shares that the number
of Units (as defined in the Agreement of Limited Partnership of the Limited
Partnership (the "Agreement of Limited Partnership")) of the Limited Partnership
held by such Unitholder bears to the number of such Units of the Limited
Partnership outstanding on such date. Certificates representing the Mutual Fund
Shares will not be issued.
(c) The Limited Partnership will pay or cause to be paid to the Mutual
Fund any interest, cash or such dividends, rights and other payments received by
it on or after the Exchange Date with respect to the assets of the Limited
Partnership contributed to the Mutual Fund as contemplated in Section 1(a)
hereof, whether accrued or contingent, received by it on or after the Exchange
Date. Any such distribution shall be deemed included in the assets transferred
to the Mutual Fund at the Exchange Date and shall not be separately valued
unless the securities in respect of which such distribution is made shall have
gone "ex" such distribution prior to the Exchange Date, in which case any such
distribution which remains unpaid at the Exchange Date shall be included in the
determination of the value of the assets of the Limited Partnership acquired by
the Mutual Fund.
<PAGE>
(d) As promptly as practicable after the Exchange Date, the Limited
Partnership shall, to the extent not already done, be discontinued pursuant to
the Agreement of Limited Partnership and applicable law, and its legal existence
terminated.
2. Representations and Warranties of the Mutual Fund. The DLB Fund
Group, on behalf of the Mutual Fund, represents and warrants to and agrees with
the Limited Partnership that:
(a) The Mutual Fund is a series of shares of The DLB Fund Group, a
Massachusetts business trust duly established and validly existing under the
laws of The Commonwealth of Massachusetts, and has power to own all of its
properties and assets and to carry out its obligations under this Agreement.
Each of The DLB Fund Group and the Mutual Fund has all necessary federal, state
and local authorizations to carry on its business as now being conducted and to
carry out this Agreement.
(b) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary action on the part of The DLB Fund Group. Assuming the due
authorization, execution and delivery of this Agreement by the Limited
Partnership, this Agreement has been duly executed and delivered by The DLB Fund
Group and constitutes the valid, binding and enforceable obligation of The DLB
Fund Group and the Mutual Fund, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally or by general equitable principles.
(c) There are no material contracts outstanding to which the Mutual
Fund is a party, other than as are disclosed in the Registration Statement of
The DLB Fund Group on Form N-1A, filed with the Securities and Exchange
Commission (the "Commission"), including all amendments and supplements thereto
(the "Registration Statement").
(d) The DLB Fund Group is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company, and such registration has not been revoked or rescinded and is in full
force and effect.
(e) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Mutual Fund of
the transactions contemplated by this Agreement, except such as may be required
under the Securities Act of 1933, as amended (the "1933 Act"), the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act, or state
securities or blue sky laws (which term as used herein shall include the laws of
the District of Columbia and of Puerto Rico).
-2-
<PAGE>
(f) The Mutual Fund has no assets or liabilities and has not engaged in
any business prior to the Exchange Date, other than the issuance of initial
shares (the "Initial Shares") to David L. Babson and Company Incorporated
("Babson") in exchange for cash.
(g) The issuance of shares of the Mutual Fund pursuant to the Exchange
will be in compliance with all applicable federal and state securities laws.
(h) The Mutual Fund Shares to be transferred by the Mutual Fund to the
Limited Partnership have been duly authorized and, when issued and delivered
pursuant to this Agreement, will be legally and validly issued and will be fully
paid and nonassessable by the Mutual Fund, and no shareholder of the Mutual Fund
will have any preemptive right of subscription or purchase in respect thereof.
(i) There are no material legal, administrative or other proceedings
pending or, to the knowledge of the Mutual Fund threatened against the Mutual
Fund which assert liability or may, if successfully prosecuted to their
conclusion, result in liability on the part of the Mutual Fund.
(j) The Initial Shares have been offered for sale and sold in
conformity with all applicable federal and state securities laws; no shares of
the Mutual Fund other than the Initial Shares have been issued by the Mutual
Fund prior to the Exchange Date.
3. Representations and Warranties of the Limited Partnership. The
Limited Partnership represents and warrants to and agrees with the Mutual Fund
that:
(a) The Limited Partnership is a limited partnership duly established
and validly existing under the laws of the State of Delaware, and has power to
carry on its business as it is now being conducted and to carry out its
obligations under this Agreement. The Limited Partnership has all necessary
federal, state and local authorizations to own all of its properties and assets
and to carry on its business as now being conducted and to carry out this
Agreement.
(b) There are no material contracts outstanding to the knowledge of the
Limited Partnership to which the Limited Partnership is a party, other than as
disclosed in Schedule 3(b) attached hereto.
(c) A statement of assets and liabilities, statement of operations,
statement of changes in net assets and statement of portfolio investments
(indicating their market values) of the Limited Partnership for the fiscal year
ended December 31, 1998, such statements and schedule having been audited by
Deloitte & Touche, independent accountants, have been furnished to The DLB Fund
Group, and an interim statement of assets and liabilities, statement of
operations, statement of changes in net assets and statement of portfolio
investments (indicating their market values) of the Limited Partnership for the
fiscal period from January 1,
-3-
<PAGE>
1999 through September 30, 1999. Such statements of assets and liabilities and
schedule of investments (fairly present the financial position of the Limited
Partnership as of December 31, 1998 and September 30, 1999, respectively, and
such statements of operations and changes in net assets fairly reflect the
results of its operations and changes in net assets for the respective periods
covered thereby in conformity with generally accepted accounting principles.
(d) Since December 31, 1998, the business of the Limited Partnership
has been conducted in the ordinary course, and the Limited Partnership has
incurred no material liabilities since such date.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of the Limited Partnership, threatened against the
Limited Partnership which assert liability or may, if successfully prosecuted to
their conclusion, result in liability on the part of the Limited Partnership,
other than as have been disclosed in the financial statements or the notes
thereto referred to in paragraph (c) above.
(f) The Limited Partnership has no known liabilities of a material
nature, contingent or otherwise, other than those shown as belonging to it on
its statement of assets and liabilities as of December 31, 1998 and those
incurred in the ordinary course of the Limited Partnership's business since such
date. Prior to the Exchange Date, the Limited Partnership will advise The DLB
Fund Group of all material liabilities, contingent or otherwise, incurred by it
subsequent to December 31, 1998, whether or not incurred in the ordinary course
of business.
(g) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Limited
Partnership of the transactions contemplated by this Agreement, except such as
may be required under the 1933 Act, the 1934 Act, the 1940 Act, or state
securities or blue sky laws.
(h) All of the issued and outstanding Units of the Limited Partnership
have been offered for sale and sold in conformity with all applicable federal
and state securities laws.
(i) The Limited Partnership has filed or will file all federal and
state tax returns which, to the knowledge of the Limited Partnership, are
required to be filed by the Limited Partnership and has paid or will pay all
federal and state taxes shown to be due on said returns or on any assessments
received by the Limited Partnership and has delivered or will deliver all
reports or other documents required to be delivered by the Limited Partnership
to its limited partners in compliance with any applicable federal and state tax
laws. All tax liabilities of the Limited Partnership have been adequately
provided for on its books, and to the knowledge of the Limited Partnership, no
tax deficiency or liability of the Limited Partnership has been asserted, and no
question with respect thereto has been raised, by the Internal Revenue Service
or by any state or local tax authority for taxes in excess of those already
paid.
-4-
<PAGE>
(j) At both the Valuation Time and the Exchange Date, the Limited
Partnership will have full right, power and authority to sell, assign, transfer
and deliver the Limited Partnership Net Assets and any other assets and
liabilities of the Limited Partnership to be transferred to the Mutual Fund
pursuant to this Agreement. At the Exchange Date, subject only to the delivery
of the Limited Partnership Net Assets and any such other assets and liabilities
as contemplated by this Agreement, the Mutual Fund will acquire good and
marketable title to the Limited Partnership Net Assets and any such other assets
and liabilities subject to no encumbrances, liens or security interests
whatsoever and without any restrictions upon the transfer thereof.
(k) At both the Valuation Time and the Exchange Date, all Limited
Partnership Net Assets and any other assets and liabilities to be transferred to
the Mutual Fund pursuant to this Agreement will not violate any of the
investment restrictions or policies of the Mutual Fund set forth in The DLB Fund
Group Prospectus.
4. Exchange Date. The net asset value of the shares of the Mutual Fund
to be delivered in exchange for assets and liabilities of the Limited
Partnership and the value of the assets and liabilities transferred by the
Limited Partnership to the Mutual Fund on the Exchange Date (the "Limited
Partnership Net Assets") shall in each case be determined as of the Exchange
Date.
(a) The net asset value of the shares of the Mutual Fund shall be
computed in the manner set forth in the prospectus and statement of additional
information of The DLB Fund Group (collectively, "The DLB Fund Group
Prospectus"), each to be dated the date of effectiveness (the "Effective Date")
of the Registration Statement of The DLB Fund Group which relates to shares of
beneficial interest of the Mutual Fund. The value of the assets and liabilities
of the Limited Partnership at the Valuation Time shall be determined by the
Mutual Fund, in cooperation with the Limited Partnership, pursuant to procedures
which the Mutual Fund would use in determining the fair market value of the
Mutual Fund's assets and liabilities.
(b) The Valuation Time shall be 4:15 p.m. Boston time on October 29,
1999 or such earlier or later day as may be mutually agreed upon in writing by
the parties hereto (the "Valuation Time").
5. Expenses, Fees, etc. All fees and expenses, including legal and
accounting expenses or other similar expenses incurred in connection with the
consummation by the Limited Partnership and the Mutual Fund of the transactions
contemplated by this Agreement, will be paid by Babson-Stewart Ivory
International.
(a) Notwithstanding any other provisions of this Agreement, if for any
reason the transactions contemplated by this Agreement are not consummated, no
party shall be liable to
-5-
<PAGE>
the other party for any damages resulting therefrom, including, without
limitation, consequential damages.
6. Exchange Date. Delivery of the Limited Partnership Net Assets and
the delivery of the Mutual Fund Shares to be issued shall be made at 10:00 a.m.
on the next full business day following the Valuation Time, or at such other
time and date agreed to by the Mutual Fund and the Limited Partnership, the time
and date upon which such delivery is to take place being referred to herein as
the "Exchange Date."
7. Covenants as to Discontinuance, Securities Laws and Miscellaneous
Matters.
(a) The Limited Partnership agrees that the liquidation and
discontinuance of the Limited Partnership will be effected in the manner
provided in the Agreement of Limited Partnership in accordance with applicable
law, and that on and after the Exchange Date, the Limited Partnership shall not
conduct any business except in connection with its liquidation and
discontinuance.
(b) The DLB Fund Group has filed the Registration Statement with the
Commission on behalf of the Mutual Fund. Each of the Limited Partnership and the
Mutual Fund will cooperate with the other, and each will furnish to the other
the information relating to itself required by the 1933 Act and the rules and
regulations thereunder to be set forth in the Registration Statement.
(c) The Limited Partnership agrees that it will reregister or cause to
be reregistered in the name of the Mutual Fund all Limited Partnership Net
Assets contemporaneously with or as soon as possible after the Exchange Date.
(d) The DLB Fund Group will furnish on or prior to the Exchange Date to
the Limited Partnership The DLB Fund Group Prospectus, and The DLB Fund Group
hereby represents and warrants that the DLB Fund Group Prospectus, when
furnished to the Limited Partnership will not contain, with respect to the
Mutual Fund, any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that this representation and warranty shall
not apply to any statements or omissions made in reliance upon and in conformity
with information furnished to The DLB Fund Group by the Limited Partnership for
use in The DLB Fund Group Prospectus.
-6-
<PAGE>
(e) The Mutual Fund will "check the box" to elect to be treated as a
corporation for tax purposes, effective as of the Exchange Date, and at all
times during its taxable year commencing on the Exchange Date and be registered
as an open-end management investment company under the 1940 Act. It will also be
diversified within the meaning of Section 851(b)(3) of the Code, so that it may
qualify for taxation as a "regulated investment company" under Sections 851 and
852 of the Code for that year.
8. Conditions to the Limited Partnership's and the Mutual Fund's
Obligations. The obligations of the Limited Partnership and the Mutual Fund
hereunder to consummate the Exchange shall be subject to the satisfaction of
each of the following conditions:
(a) That the Registration Statement with respect to the Mutual Fund
shall have become effective under the 1933 Act, and no stop order suspending
such effectiveness shall have been instituted or, to the knowledge of The DLB
Fund Group or the Mutual Fund, threatened by the Commission.
(b) That the Mutual Fund shall have received from the Commission, any
relevant state securities administrator or any other governmental department or
agency such order or orders as Babson deems reasonably necessary or desirable
under the 1933 Act, the 1934 Act, the 1940 Act, or any applicable state
securities or blue sky laws in connection with the transactions contemplated
hereby, and that all such orders shall be in full force and effect.
9. Conditions to the Mutual Fund's Obligations. The obligations of the
Mutual Fund hereunder to consummate the Exchange shall be subject to the
satisfaction of each of the following conditions:
(a) That all representations and warranties in Section 3 hereof shall
be true and correct in all material respects at the Exchange Date with the same
effect as if made at that time.
(b) That the Limited Partnership shall have furnished to the Mutual
Fund a statement, dated the Exchange Date, signed by the Limited Partnership's
general partner certifying that as of the Exchange Date all representations and
warranties of the Limited Partnership made in this Agreement are true and
correct in all material respects as if made at and as of the Exchange Date and
the Limited Partnership has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to the
Exchange Date.
(c) That there shall not be any material litigation pending, or to the
knowledge of the Limited Partnership threatened, against the Limited Partnership
with respect to any of the matters contemplated by this Agreement.
(d) That the Limited Partnership's custodian shall have delivered to
the Mutual Fund a certificate identifying all of the Limited Partnership Net
Assets held by such custodian as of the Exchange Date.
-7-
<PAGE>
10. Conditions to the Limited Partnership's Obligations. The
obligations of the Limited Partnership hereunder to consummate the Exchange
shall be subject to the satisfaction of each of the following conditions:
(a) That all representations and warranties in Section 2 and Section
7(d) hereof shall be true and correct in all material respects at the Exchange
Date with the same effect as if made at that time.
(b) That the Mutual Fund shall have furnished to the Limited
Partnership a statement, dated the Exchange Date, signed by The DLB Fund Group's
President or any Vice President certifying that as of the Exchange Date all
representations and warranties of the Mutual Fund made in this Agreement are
true and correct in all material respects as if made at and as of the Exchange
Date, and that the Mutual Fund has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or satisfied at or
prior to the Exchange Date.
(c) That there shall not be any material litigation pending, or to the
knowledge of Babson threatened, against The DLB Fund Group or the Mutual Fund
with respect to the matters contemplated by this Agreement.
11. Termination. The Limited Partnership and The DLB Fund Group may, by
mutual consent of the general partner of the Limited Partnership and the
trustees of The DLB Fund Group, terminate this Agreement, and the Limited
Partnership or The DLB Fund Group may waive any condition to the other party's
obligations hereunder.
12. Covenants, etc. Deemed Material. All covenants, agreements,
representations and warranties made under this Agreement and any certificates
delivered pursuant to this Agreement shall be deemed to have been material and
relied upon by each of the parties, notwithstanding any investigation made by
them or on their behalf.
13. Sole Agreement; Amendments. This Agreement supersedes all previous
correspondence and oral communications between the parties regarding the subject
matter hereof, constitutes the only understanding with respect to such subject
matter, may not be changed except by a letter of agreement signed by each party
hereto, and shall be construed in accordance with and governed by the laws of
The Commonwealth of Massachusetts.
14. Agreement and Declaration of Trust. A copy of the Agreement and
Declaration of Trust of The DLB Fund Group is on file with the Secretary of
State of The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the trustees of The DLB Fund Group on behalf
of The DLB International Fund, as trustees and not individually, and that the
obligations of this instrument are not binding upon any of the trustees,
officers or shareholders of The DLB Fund Group individually but are binding only
upon the assets and property of The DLB International Fund.
-8-
<PAGE>
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and Plan
of Reorganization as of the date first above written.
THE DLB FUND GROUP, ON BEHALF OF
THE DLB STEWART IVORY
INTERNATIONAL FUND
By:___________________________
Name:
Title:
BABSON-STEWART IVORY INTERNATIONAL
LIMITED PARTNERSHIP III
By: Babson-Stewart Ivory International,
its general partner
By:___________________________
Name:
Title:
By:___________________________
Name:
Title:
BABSON-STEWART IVORY
INTERNATIONAL, for the
limited purpose of bearing
expenses pursuant to
Section 5 of this Agreement
and Plan of Reorganization
By:___________________________
Name:
Title:
-10-
EXHIBIT (h)(5)
ADMINISTRATION AGREEMENT
AGREEMENT made as of June 1, 1999 by and between The DLB FUND GROUP, a
Massachusetts business trust (the "Trust"), and INVESTORS BANK & TRUST COMPANY,
a Massachusetts trust company (the "Bank").
WHEREAS, the Trust, a registered investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), consisting of the
separate portfolios listed on Appendix A hereto (which may be amended from time
to time); and
WHEREAS, the Trust desires to retain the Bank to render certain
administrative services to the Trust and the Bank is willing to render such
services.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints the Bank to act as
Administrator of the Trust on the terms set forth in this Agreement. The Bank
accepts such appointment and agrees to render the services herein set forth for
the compensation herein provided.
2. Delivery of Documents. The Trust has furnished the Bank with copies
properly certified or authenticated of each of the following:
(a) Resolutions of the Trust's Board of Trustees authorizing
the appointment of the Bank to provide certain administrative services to the
Trust and approving this Agreement;
(b) The Trust's Agreement and Declaration of Trust dated
August 1, 1994 and all amendments thereto, a copy of which is on file in the
office of the Secretary of State of the Commonwealth of Massachusetts (the
"Articles");
(c) The Trust's by-laws and all amendments thereto (the
"By-Laws");
(d) The Trust's agreements with all service providers which
include any investment advisory agreements, sub-investment advisory agreements,
custody agreements, distribution agreements and transfer agency agreements
(collectively, the "Agreements");
(e) The Trust's most recent Registration Statement on Form
N-1A (the "Registration Statement") under the Securities Act of 1933 and under
the 1940 Act and all amendments thereto; and
(f) The Trust's most recent prospectus and statement of
additional information (the "Prospectus"); and
(g) Such other certificates, documents or opinions as may
mutually be deemed necessary or appropriate for the Bank in the proper
performance of its duties hereunder.
The Trust will immediately furnish the Bank with copies of all
amendments of or supplements to the foregoing. Furthermore, the Trust will
notify the Bank as soon as possible of any matter which may materially affect
the performance by the Bank of its services under this Agreement.
3. Duties of Administrator. Subject to the supervision and direction of
the Board of Trustees of the Trust, the Bank, as Administrator, will assist in
conducting various aspects of the Trust's administrative operations and
undertakes to perform the services described in Appendix C hereto. The Bank may,
from time to time, perform additional duties and functions which shall be set
forth in an
<PAGE>
amendment to such Appendix C executed by both parties. At such time, the fee
schedule included in Appendix B hereto shall be appropriately amended.
In performing all services under this Agreement, the Bank
shall act in conformity with the Trust's Articles and By-Laws and the 1940 Act,
as the same may be amended from time to time, and the investment objectives,
investment policies and other practices and policies set forth in the Trust's
Registration Statement, as the same may be amended from time to time.
Notwithstanding any item discussed herein, the Bank has no discretion over the
Trust's assets or choice of investments and cannot be held liable for any
problem relating to such investments.
4. Duties of the Trust.
(a) The Trust is solely responsible (through its transfer
agent or otherwise) for (i) providing timely and accurate reports ("Daily Sales
Reports") which will enable the Bank as Administrator to monitor the total
number of shares sold in each state on a daily basis and (ii) identifying any
exempt transactions ("Exempt Transactions") which are to be excluded from the
Daily Sales Reports.
(b) The Trust agrees to make its legal counsel available to
the Bank for instruction with respect to any matter of law arising in connection
with the Bank's duties hereunder, and the Trust further agrees that the Bank
shall be entitled to rely on such instruction without further investigation on
the part of the Bank.
5. Fees and Expenses.
(a) For the services to be rendered and the facilities to be
furnished by the Bank, as provided for in this Agreement, the Trust will
compensate the Bank in accordance with the fee schedule attached as Appendix B
hereto. Such fees do not include out-of-pocket disbursements (as delineated on
the fee schedule or other expenses with the prior approval of the Trust's
management) of the Bank for which the Bank shall be entitled to bill the Trust
separately and for which the Trust shall reimburse the Bank.
(b) The Bank shall not be required to pay any expenses
incurred by the Trust.
6. Limitation of Liability.
(a) The Bank, its directors, officers, employees and agents
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the performance of its obligations and
duties under this Agreement, except a loss resulting from willful misfeasance,
bad faith or negligence in the performance of such obligations and duties, or by
reason of its reckless disregard thereof. The Trust will indemnify the Bank, its
directors, officers, employees and agents against and hold it and them harmless
from any and all losses, claims, damages, liabilities or expenses (including
legal fees and expenses) resulting from any claim, demand, action or suit (i)
arising out of the actions or omissions of the Trust, including, but not limited
to, inaccurate Daily Sales Reports and misidentification of Exempt Transactions;
(ii) arising out of the offer or sale of any securities of the Trust in
violation of (x) any requirement under the federal securities laws or
regulations, (y) any requirement under the securities laws or regulations of any
state, or (z) any stop order or other determination or ruling by any federal or
state agency with respect to the offer or sale of such securities; in each case
to the extent not resulting from the willful misfeasance, bad faith or
negligence of the Bank in the performance of such obligations and duties or by
reason of its reckless disregard thereof.
(b) The Bank may apply to the Trust at any time for
instructions and may consult counsel for the Trust, or its own counsel, and with
accountants and other experts with respect to any matter arising in connection
with its duties hereunder, and the Bank shall not be liable or accountable for
any action taken or omitted by it in good faith in accordance with such
instruction, or with the opinion of
2
<PAGE>
such counsel, accountants, or other experts. The Bank shall not be liable for
any act or omission taken or not taken in reliance upon any document,
certificate or instrument which it reasonably believes to be genuine and to be
signed or presented by the proper person or persons. The Bank shall not be held
to have notice of any change of authority of any officers, employees, or agents
of the Trust until receipt of written notice thereof has been received by the
Bank from the Trust.
(c) In the event the Bank is unable to perform, or is delayed
in performing, its obligations under the terms of this Agreement because of acts
of God, strikes, legal constraint, government actions, war, emergency
conditions, interruption of electrical power or other utilities, equipment or
transmission failure or damage reasonably beyond its control or other causes
reasonably beyond its control, the Bank shall not be liable to the Trust for any
damages resulting from such failure to perform, delay in performance, or
otherwise from such causes.
(d) Notwithstanding anything to the contrary in this
Agreement, in no event shall the Bank be liable for special, incidental or
consequential damages, even if advised of the possibility of such damages.
7. Termination of Agreement.
(a) The term of this Agreement shall be three years commencing
upon the date hereof (the "Initial Term"), unless earlier terminated as provided
herein. After the expiration of the Initial Term, the term of this Agreement
shall automatically renew for successive one-year terms (each a "Renewal Term")
unless notice of non-renewal is delivered by the non-renewing party to the other
party no later than ninety days prior to the expiration of the Initial Term or
any Renewal Term, as the case may be.
(i) Either party hereto may terminate this Agreement
prior to the expiration of the Initial Term or any Renewal Term in the event the
other party violates any material provision of this Agreement, provided that the
violating party does not cure such violation within ninety days of receipt of
written notice from the non-violating party of such violation.
(ii) This Agreement shall terminate upon (i) the
liquidation of the Trust or (ii) with respect any fund, the liquidation of that
fund.
(b) With respect to any termination, with the exception of a
termination by the Trust pursuant to paragraph 7(a)(i), during the Initial Term
of this Agreement, the Bank shall be paid by the Trust the difference between
the amount that would have been paid to the Bank had there been no special
twelve (12) month fee arrangements and what was actually paid to the Bank.
(b) If the Custodian Agreement or the Transfer Agency and
Service Agreement both dated July 19, 1995, as they are amended from time to
time, are terminated for any reason the Bank may terminate this Agreement upon
sixty days notice.
(c) At any time after the termination of this Agreement, the
Trust may, upon written request, have reasonable access to the records of the
Bank relating to its performance of its duties as Administrator.
8. Miscellaneous.
(a) Any notice or other instrument authorized or required by
this Agreement to be given in writing to the Trust or the Bank shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
3
<PAGE>
To the Trust:
David L. Babson and Company Incorporated
One Memorial Drive
Cambridge, MA 02142- 1300
Attention: John E. Deitelbaum, General Counsel
To the Bank:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, MA 02117-9130
Attention: Stephen C. Peacock, Client Manager
With a copy to: John E. Henry, General Counsel
(b) This Agreement shall extend to and shall be binding upon
the parties hereto and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable without the written consent
of the other party.
(c) This Agreement shall be construed in accordance with the
laws of the Commonwealth of Massachusetts, without regard to its conflict of
laws provisions.
(d) This Agreement may be executed in any number of
counterparts each of which shall be deemed to be an original and which
collectively shall be deemed to constitute only one instrument.
(e) The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
9. Amendments. This Agreement constitutes the entire Agreement between
the parties and may not be altered or amended, except as by instrument in
writing, executed by both parties, and in the case of the Trust, such alteration
or amendment will be authorized and approved by its Board.
10. Confidentiality. All books, records, information and data
pertaining to the business of the other party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement shall remain
confidential, and shall not be voluntarily disclosed to any other person, except
as may be required in the performance of duties hereunder or as otherwise
required by law.
11. Use of Name. The Trust shall not use the name of the Bank or any of
its affiliates in any prospectus, sales literature or other material relating to
the Trust in a manner not approved by the Bank prior thereto in writing;
provided however, that the approval of the Bank shall not be required for any
use of its name which merely refers in accurate and factual terms to its
appointment hereunder or which is required by the Securities and Exchange
Commission or any state securities authority or any other appropriate
regulatory, governmental or judicial authority; provided further, that in no
event shall such approval be unreasonably withheld or delayed.
12. Disclaimer of Liability. A copy of the Agreement and the
Declaration of Trust of the Trust is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this instrument
is executed on behalf of the Board of Trustees of the Trust as Trustees and not
individually and that the obligations of this instrument are not binding upon
any of the Trustees or shareholders individually but are binding upon the assets
and property of the Trust; provided, however, that the Agreement and Declaration
of Trust of the Trust provides that the assets of a particular series of the
4
<PAGE>
Trust shall under no circumstances be charges with liabilities attributable to
any other series of the Trust and that all persons extending credit to, or
contracting with or having any claim against a particular series of the Trust
shall look only to the assets of that particular series for payment of such
credit, contract or claim.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed and delivered by their duly authorized officers as of the date
first written above.
THE DLB FUND GROUP
By:___________________________
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:___________________________
Name:
Title:
6
<PAGE>
Appendices
----------
Appendix A........................................... Portfolios
Appendix B........................................... Fee Schedule
Appendix C........................................... Services
<PAGE>
Appendix A
This Appendix A forms a part of the Administration Agreement dated as of June 1,
1999 (the "Agreement") between Investors Bank & Trust Company and The DLB Fund
Group.
Portfolios
- ----------
The DLB Fixed Income Fund
The DLB Global Small Capitalization Fund
The DLB Mid-Capitalization Fund
The DLB Value Fund
The DLB Disciplined Growth Fund
The DLB Growth Fund
The DLB Micro Capitalization Fund
THE DLB FUND GROUP
By:___________________________
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:___________________________
Name:
Title:
EXHIBIT (h)(6)
Appendix A
As of November 1, 1999, this Appendix A forms a part of the Administration
Agreement, dated as of June 1, 1999 (the "Agreement"), between Investors Bank &
Trust Company and The DLB Fund Group. As of November 1, 1999, this Appendix A
supercedes any previous versions of said Appendix.
Portfolios
- ----------
The DLB Fixed Income Fund
The DLB Global Small Capitalization Fund
The DLB Enterprise III Fund
The DLB Value Fund
The DLB Disciplined Growth Fund
The DLB Growth Fund
The DLB Micro Capitalization Fund
The DLB Stewart Ivory International Fund
The DLB Stewart Ivory Emerging Markets Fund
THE DLB FUND GROUP
By:___________________________
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:___________________________
Name:
Title:
EXHIBIT (i)(2)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No.13 to the Registration Statement on Form N-1A of The DLB Fund Group (File No.
33-82366) of our reports each dated February 12, 1999 appearing in the annual
reports to shareholders for the year ended December 31, 1998, of the DLB Fixed
Income Fund, DLB Global Small Capitalization Fund, DLB Value Fund, DLB
Enterprise III Fund (formerly DLB Mid Capitalization Fund), DLB Disciplined
Growth Fund (formerly DLB Quantitative Equity Fund), DLB Growth Fund, and DLB
Micro Capitalization Fund, and to the references to us under the headings
"Financial Highlights" in the Prospectus and "Experts" and "Report of
Independent Auditors and Financial Statements" in the Statement of Additional
Information, all of which are part of this Registration Statement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 29, 1999
EXHIBIT (m)(8)
DISTRIBUTION AND SERVICES PLAN
This Plan (the "Plan") constitutes the Distribution and Services Plan
of the DLB Stewart Ivory International Fund (the "Fund"), a separate series of
The DLB Fund Group, a Massachusetts business trust (the "Trust"), adopted
pursuant to the provisions of Rule 12b-1 under the Investment Company Act of
1940 (the "Act"). During the effective term of this Plan, the Fund may make
payments to investment brokers or dealers (including any principal underwriter
or distributor of the Fund) and other persons providing services to the Fund
upon the terms and conditions hereinafter set forth.
Section 1. The Fund may make monthly payments to investment dealers or
the other persons providing services to the Fund, in the form of fees or
reimbursements, as compensation for services provided and expenses incurred for
purposes of promoting the sale of shares of the Fund, reducing redemptions of
shares, or maintaining or improving services provided to shareholders by
investment dealers and other persons. The amount of such payments and the
purposes for which they are made shall be determined by the Qualified Trustees
(as defined below). Payments under this Plan shall not exceed in any fiscal year
the annual rate of 0.50% of the average net asset value of the Fund determined
by taking an average of all of the determinations of such net asset value during
the month. A majority of the Qualified Trustees may, at any time and from time
to time, reduce the amount of such payments covered by this Plan, or may suspend
the operation of the Plan for such period or periods of time as they may
determine.
Section 2. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of a majority (or whatever
greater percentage may, from time to time, be required by Section 12(b) of the
Act or the rules and regulations thereunder) of both (a) the Trustees of the
Trust, and (b) the Qualified Trustees of the Trust, cast in person at a meeting
called for the purpose of voting on this Plan or such agreement.
Section 3. This Plan shall continue in effect for a period of more than
one year after it takes effect only so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 2(b).
Section 4. The Trustees shall review, at least quarterly, a written
report of the amounts covered by this Plan and the purposes for which such
expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Qualified Trustees, or by vote of a majority of the Fund's
outstanding voting securities.
Section 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
<PAGE>
(a) that such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Qualified Trustees
or by vote of a majority of the Fund's outstanding voting securities,
on not more than 60 days' written notice to any other party to the
agreement; and
(b) that such agreement shall terminate automatically in the
event of its assignment.
Section 7. This Plan may not be amended to increase materially the
amount of distribution expenses permitted pursuant to Section 1 hereof without
the approval of a majority of the outstanding voting securities of the Fund, and
all material amendments to this Plan shall be approved in the manner provided
for approval of this Plan in Section 2(b).
Section 8. As used in this Plan, (a) the term "Qualified Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment",
"interested person" and "vote of a majority of the outstanding voting
securities" shall have the respective meaning specified in the Act and the rules
and regulations thereunder, subject to such exemptions as may be granted by the
Securities and Exchange Commission.
Section 9. A copy of the Agreement and Declaration of Trust of the
Trust is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this instrument is made on behalf
of the Trustees of the Trust as Trustees and not individually, and that the
obligations of or arising out of this instrument are not binding upon any of the
Trustees, officers or shareholders individually but are binding only upon the
assets and property of the Fund.
Adopted as of ___________, 1999.
-2-
EXHIBIT (m)(9)
DISTRIBUTION AND SERVICES PLAN
This Plan (the "Plan") constitutes the Distribution and Services Plan
of the DLB Stewart Ivory Emerging Markets Fund (the "Fund"), a separate series
of The DLB Fund Group, a Massachusetts business trust (the "Trust"), adopted
pursuant to the provisions of Rule 12b-1 under the Investment Company Act of
1940 (the "Act"). During the effective term of this Plan, the Fund may make
payments to investment brokers or dealers (including any principal underwriter
or distributor of the Fund) and other persons providing services to the Fund
upon the terms and conditions hereinafter set forth.
Section 1. The Fund may make monthly payments to investment dealers or
the other persons providing services to the Fund, in the form of fees or
reimbursements, as compensation for services provided and expenses incurred for
purposes of promoting the sale of shares of the Fund, reducing redemptions of
shares, or maintaining or improving services provided to shareholders by
investment dealers and other persons. The amount of such payments and the
purposes for which they are made shall be determined by the Qualified Trustees
(as defined below). Payments under this Plan shall not exceed in any fiscal year
the annual rate of 0.50% of the average net asset value of the Fund determined
by taking an average of all of the determinations of such net asset value during
the month. A majority of the Qualified Trustees may, at any time and from time
to time, reduce the amount of such payments covered by this Plan, or may suspend
the operation of the Plan for such period or periods of time as they may
determine.
Section 2. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of a majority (or whatever
greater percentage may, from time to time, be required by Section 12(b) of the
Act or the rules and regulations thereunder) of both (a) the Trustees of the
Trust, and (b) the Qualified Trustees of the Trust, cast in person at a meeting
called for the purpose of voting on this Plan or such agreement.
Section 3. This Plan shall continue in effect for a period of more than
one year after it takes effect only so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 2(b).
Section 4. The Trustees shall review, at least quarterly, a written
report of the amounts covered by this Plan and the purposes for which such
expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Qualified Trustees, or by vote of a majority of the Fund's
outstanding voting securities.
Section 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
<PAGE>
(a) that such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Qualified Trustees
or by vote of a majority of the Fund's outstanding voting securities,
on not more than 60 days' written notice to any other party to the
agreement; and
(b) that such agreement shall terminate automatically in the
event of its assignment.
Section 7. This Plan may not be amended to increase materially the
amount of distribution expenses permitted pursuant to Section 1 hereof without
the approval of a majority of the outstanding voting securities of the Fund, and
all material amendments to this Plan shall be approved in the manner provided
for approval of this Plan in Section 2(b).
Section 8. As used in this Plan, (a) the term "Qualified Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment",
"interested person" and "vote of a majority of the outstanding voting
securities" shall have the respective meaning specified in the Act and the rules
and regulations thereunder, subject to such exemptions as may be granted by the
Securities and Exchange Commission.
Section 9. A copy of the Agreement and Declaration of Trust of the
Trust is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this instrument is made on behalf
of the Trustees of the Trust as Trustees and not individually, and that the
obligations of or arising out of this instrument are not binding upon any of the
Trustees, officers or shareholders individually but are binding only upon the
assets and property of the Fund.
Adopted as of ___________, 1999.
-2-
