As filed with the Securities and Exchange Commission on October 19, 2000
Registration Nos. 033-82366 and 811-08690
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER [X]
THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 20 [X]
REGISTRATION STATEMENT UNDER [X]
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 22 [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)
Registrant's Telephone Number, Including Area Code: (617) 225-3800
Name and address
of agent for service: Copy to:
--------------------- --------
John E. Deitelbaum, Counsel Gregory D. Sheehan, Esq.
David L. Babson & Company Inc. Ropes & Gray
One Memorial Drive One International Place
Cambridge, MA 02142 Boston, MA 02110
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] On September 2, 2000 pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] On _____________ pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On _____________ pursuant to paragraph (a)(2)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Note: This Post-Effective Amendment No. 20 to the Form N-1A Registration
Statement of The DLB Fund Group (the "Trust") relates only to the following
Series of the Trust: DLB Fixed Income Fund, DLB Value Fund, DLB Core Growth
Fund, DLB Disciplined Growth Fund (to be renamed the DLB Enhanced Index Core
Equity Fund), DLB Enterprise III Fund, DLB Small Company Opportunities Fund, DLB
Stewart Ivory International Fund and DLB Stewart Ivory Emerging Markets Fund. No
information relating to any other series of Registrant is amended or superseded
hereby.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 19, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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 HIGH YIELD FUND
seeks to achieve a high level of current income by investing primarily
in publicly traded high yield debt securities.
o DLB VALUE FUND
seeks long-term capital appreciation primarily through investment in a
portfolio of common stocks of established companies.
o DLB CORE GROWTH FUND
seeks long-term capital and income growth through investment primarily
in common stocks.
o DLB ENHANCED INDEX CORE EQUITY FUND
seeks to outperform the total return performance of its benchmark index
(the S&P 500 Index), while maintaining risk characteristics similar to
those of the benchmark.
o DLB TECHNOLOGY FUND
seeks long-term growth of capital.
o DLB ENTERPRISE III FUND
seeks long-term capital appreciation primarily through investment in
small to medium-size companies.
o DLB SMALL COMPANY OPPORTUNITIES 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 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 concentrate in what the Fund's investment
subadvisor considers to be the developing markets around the world.
David L. Babson & Company 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
December 18, 2000
<PAGE>
TABLE OF CONTENTS
ABOUT THE FUNDS 1
DLB Fixed Income Fund 1
DLB High Yield Fund 5
DLB Value Fund 8
DLB Core Growth Fund 11
DLB Enhanced Index Core Equity Fund 14
DLB Technology Fund 17
DLB Enterprise III Fund 20
DLB Small Company Opportunities Fund 23
DLB Stewart Ivory International Fund 27
DLB Stewart Ivory Emerging Markets Fund 32
DESCRIPTIONS OF PRINCIPAL INVESTMENT RISKS 36
TEMPORARY DEFENSIVE POSITIONS 44
HOW THE FUNDS ARE MANAGED 45
The Manager 45
The Subadvisor 45
Investment Advisory Fees 45
Portfolio Managers 45
Certain Performance Information Related to Other Accounts 47
INVESTING IN THE FUNDS 50
How to Open an Account 50
How to Purchase Shares 50
How to Sell Shares 51
How Share Price is Determined 52
Distribution and Service (Rule 12b-1) Plans 53
Principal Underwriter 53
DISTRIBUTIONS 54
TAXES 55
FINANCIAL HIGHLIGHTS 56
APPENDIX A 65
Additional Investment Policies and Risk Considerations 65
APPENDIX B 67
Description of Bond Ratings assigned by Standard & Poor's 67
and Moody's Investors Service, Inc.
<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
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.
The Fixed Income Fund is subject to several risks, any of which could cause you
to lose money. These include:
INTEREST RATE RISK: When interest rates rise, the value of fixed income
securities in the Fund's portfolio will generally fall. This risk is greater for
securities and portfolios with longer maturities or durations.
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<PAGE>
PRINCIPAL INVESTMENT RISKS (CONT.)
CREDIT RISK: Credit risk is the risk that the issuer of a fixed income security
will not pay (or will be perceived as less able or unlikely to pay) interest and
principal when due. The value of a fixed income security will generally fall if
the issuer defaults on its obligation to pay principal or interest, a rating
agency downgrades the issuer's credit rating, or other news affects the market's
perception of the issuer's credit risk. Credit risk is higher for corporate debt
than for U.S. government debt and is still higher for lower quality and
sovereign debt issues.
MARKET RISK: This is the risk that the price of a security or securities held by
the Fund will fall due to changing economic, political or market conditions.
MANAGEMENT RISK: This is the risk that the Fund will underperform other funds
with similar investment objectives due to poor investment decisions by the
Manager.
COMPANY RISK: Prices of securities react to the economic condition of the
issuer. The Fund's investments in an issuer may rise and fall based on factors
such as the issuer's actual and anticipated earnings, changes in management, and
the potential for takeovers and acquisitions.
MORTGAGE- AND ASSET-BACKED SECURITIES RISK: A mortgage-backed security matures
when all 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 rise or fall. When interest rates fall, prepayments on
mortgage loans increase. An increased rate of prepayments on the Fund's
mortgage-backed securities will result in an unforeseen loss of interest income
to the Fund as the Fund may be required to reinvest assets at a lower interest
rate. Because prepayments increase when interest rates fall, the prices of
mortgage-backed securities do not increase as much as other fixed income
securities when interest rates fall. When interest rates rise, prepayments on
mortgage loans are more likely to decrease. A decreased rate of prepayments
lengthens the expected maturity of a mortgage-backed security. Therefore, the
prices of mortgage-backed securities may decrease more than the prices of other
fixed income securities when interest rates rise. Asset-backed securities not
only have prepayment risks similar to mortgage-backed securities, but also have
additional risks relating to the collateral securing the contracts.
LIQUIDITY RISK: Certain investments of the Fund may be difficult to purchase or
sell. Securities that involve substantial interest rate risk or credit risk,
such as lower rated fixed income securities, often involve greater liquidity
risk. This means that, because there may not be adequate supply or demand for a
security, it may be harder to purchase or sell at a satisfactory price.
Liquidity risk also tends to increase to the extent that the Fund invests in
unregistered or restricted securities, such as Rule 144A securities.
NON-DIVERSIFICATION RISK: Because the Fund may invest its assets in a small
number of issuers, the Fund is more susceptible than a diversified fund to any
economic, political or regulatory event adversely affecting a particular issuer.
FOREIGN ISSUER RISK: The securities of foreign issuers can be less liquid and
more volatile than those of U.S. issuers due to increased risk of adverse
issuer, political, regulatory, market or economic developments.
You will find a more detailed 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 36.
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
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<PAGE>
PAST PERFORMANCE (CONT.)
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.
1996 1997 1998 1999
---- ---- ---- ----
3.70% 9.03% 8.04% -1.61%
Best Quarter: 3rd Quarter 1998, +4.04% Worst Quarter: 2nd Quarter 1999, -1.34%
The Fund's year-to-date return through September 30, 2000 was 6.40%
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Average Annual Total Returns
For the periods ended December 31, 1999
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Since Inception
1 Year 7/25/95
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Fixed Income Fund -1.61% 5.63%
Lehman Brothers -0.82% 6.13%
Aggregate Bond Index
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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) 0.39%
------
Total Annual Fund Operating Expenses 0.79%
Fee Waiver (0.24%)
------
Net Expenses (3) 0.55%
======
(1) The Fund has adopted (but not implemented) 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. See "Investing in
the Funds-- Distribution and Service (Rule 12b-1) Plans."
(2) "Other Expenses" include accounting and audit fees, administrative 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 expense
agreement with the Fund may not be terminated prior to December 31, 2001.
In addition, it 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.
-3-
<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, except that the expense reimbursement is
reflected only for the first year of each period. 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 $228 $415 $956
Since the Fund does not impose any redemption fees, the figures shown would be
the same whether or not you redeemed your shares at the end of a period.
-4-
<PAGE>
DLB HIGH YIELD FUND
INVESTMENT OBJECTIVE
The investment objective of the DLB High Yield Fund (the "High Yield Fund") is
to achieve a high level of current income by investing primarily in publicly
traded high yield debt securities.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund will invest at east 65% of its total assets
in lower rated fixed income securities, which are commonly known as "junk
bonds."
MARKET SECTORS: The Fund invests primarily in publicly traded high yield (i.e.,
lower rated) U.S. fixed income securities ("junk bonds"). The Fund may also
invest in convertible securities, preferred stocks, warrants, bank borrowings
and other fixed income securities (such as Rule 144A private placements) and may
engage in securities lending.
MATURITY: Under normal market conditions, the Fund will have an average
dollar-weighted portfolio maturity ranging from 6 to 10 years. The Fund's
portfolio may include securities with maturities outside this range.
PORTFOLIO QUALITY: The Fund will invest primarily in lower rated fixed income
securities. These securities are considered below investment grade and are
commonly known as junk bonds. A lower rated fixed income security is a security
that, at the time the Fund acquires the security, is not rated in one of the top
four rating categories by either of the major rating agencies (Moody's Investors
Service, Inc. or Standard & Poor's), or an unrated security that the Manager
determines to be of comparable quality. Thus, a lower rated fixed income
security will be rated below Baa3 by Moody's Investor's Service, Inc. and below
BBB- by Standard & Poor's, or will be an unrated security that the Manager
determines to be of comparable quality.
SECURITY SELECTION: The Manager employs a bottom-up, fundamental approach to its
credit analysis which focuses first on a specific issuer's financial strength,
among other things, before considering either trends or macro economic factors.
The Manager prefers companies that possess one or more of the following
characteristics:
o Domination of a niche business
o Strong management
o A producer of products in great demand
o Ability to maintain high profit margins
o Predictable earnings
PRINCIPAL INVESTMENT RISKS
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.
The Fund is subject to several risks, any of which could cause you to lose
money. These include:
CREDIT RISK: Credit risk is the risk that issuers of debt the Fund holds will
not make (or will be perceived as less able or unlikely to make) timely payments
of interest and principal. This credit risk is higher for corporate debt than
for U.S. government debt and is higher still for junk bonds and sovereign debt
issues. Because the Fund invests mainly in junk bonds, this risk is heightened
for the Fund. During recessions and periods of broad market decline, a high
percentage of issuers of junk bonds may default on payments of principal and
interest, and junk bonds could become less liquid, meaning that they will be
harder to value
-5-
<PAGE>
or sell at a fair price. The value of a junk bond may, therefore, decline
drastically due to bad news about the issuer or the economy in general.
INVESTORS SHOULD CAREFULLY CONSIDER THE RISKS ASSOCIATED WITH AN INVESTMENT IN
THE FUND.
LOWER-RATED FIXED INCOME SECURITIES RISK: Lower-rated fixed income securities
("junk bonds") are subject to a substantially higher degree of credit risk than
investment-grade bonds. During recessions, a high percentage of junk bond
issuers may default on payments of principal and interest. Consequently, the
prices of junk bonds can fluctuate drastically due to bad news about the issuer
or the economy in general. This will also have a negative effect on the
liquidity of a junk bond.
INTEREST RATE RISK: When interest rates rise, the value of fixed income
securities in the Fund's portfolio will generally fall. This risk is greater for
securities and portfolios with longer maturities or durations.
MARKET RISK: This is the risk that the price of a security or securities held by
the Fund will fall due to changing economic, political or market conditions.
LIQUIDITY RISK: Certain investments of the Fund may be difficult to purchase or
sell. Securities that involve substantial interest rate risk or credit risk,
such as lower rated fixed income securities, often involve greater liquidity
risk. This means that, because there may not be adequate supply or demand for a
security, it may be harder to purchase or sell at a satisfactory price.
Liquidity risk also tends to increase to the extent that the Fund invests in
unregistered or restricted securities, such as Rule 144A securities.
MANAGEMENT RISK: This is the risk that the Fund will underperform other funds
with similar investment objectives due to poor investment decisions by the
Manager.
COMPANY RISK: Prices of securities react to the economic condition of the
issuer. The Fund's investments in an issuer may rise and fall based on factors
such as the issuer's actual and anticipated earnings, changes in management, and
the potential for takeovers and acquisitions. This risk is greater for small
companies, which tend to be more vulnerable to adverse developments.
CONVERTIBLE SECURITIES/PREFERRED STOCK RISK: This is the risk that the price of
one or more of the Fund's investments in convertible securities or preferred
stock will fall, or will fail to appreciate as expected by the Manager. Due to
the conversion feature, convertible securities generally yield less than
non-convertible fixed income securities of similar credit quality and maturity.
The Fund also may be required to convert a convertible security into its
underlying equity security when the value of the underlying equity security has
declined substantially. Likewise, preferred stock may be more volatile than
other types of securities, and the value of preferred stock may be adversely
affected by changes in interest rates.
NON-DIVERSIFICATION RISK: Because the Fund may invest its assets in a small
number of issuers, the Fund is more susceptible than a diversified fund to any
economic, political or regulatory event adversely affecting a particular issuer.
You will find a discussion of these and other risks in the section entitled
"Descriptions of Principal Investment Risks," beginning on page 36.
PAST PERFORMANCE
Because the Fund is new, information on the Fund's performance is not provided
in this section.
-6-
<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 0.50%
Distribution and Service (12b-1) Fees (1) None
Other Expenses (2) 0.76%
------
Total Annual Fund Operating Expenses 1.26%
Fee Waiver (0.51%)
------
Net Expenses (3) 0.75%
======
(1) The Fund has adopted (but not implemented) 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. See "Investing in
the Fund-- Distribution and Service (12b-1) Plan."
(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 expense
agreement with the Fund may not be terminated prior to December 31, 2001.
In addition, it 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, except that the expense reimbursement is
reflected only for the first year of each period. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS
$77 $349
Since the Fund does not impose any redemption fees, the figures shown would be
the same whether or not you redeemed your shares at the end of a period.
-7-
<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
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.
The Value Fund is subject to several risks, any of which could cause you to lose
money. These include:
MARKET RISK: This is the risk that the price of a security or securities held by
the Fund will fall due to changing economic, political or market conditions.
EQUITY SECURITIES RISK: Equity securities tend to be more volatile and riskier
than some other
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<PAGE>
investment options. Equity securities may experience sudden, unpredictable drops
in value or long periods of decline in value. This may occur because of factors
affecting the securities markets generally, an entire industry or sector or a
particular company.
COMPANY RISK: Prices of securities react to the economic condition of the
issuer. The Fund's investments in an issuer may rise and fall based on factors
such as the issuer's actual and anticipated earnings, changes in management, and
the potential for takeovers and acquisitions.
INVESTMENT STYLE RISK: Different equity investment styles (e.g., growth and
value) go in and out of favor depending on market conditions. Therefore, this
Fund's performance may be better or worse than other funds with different
investment styles.
MANAGEMENT RISK: This is the risk that the Fund will underperform other funds
with similar investment objectives due to poor investment decisions by the
Manager.
NON-DIVERSIFICATION RISK: Because the Fund may invest its assets in a small
number of issuers, the Fund is more susceptible than a diversified fund to any
economic, political or regulatory event adversely affecting a particular issuer.
You will find a more detailed 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 36.
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.
1996 1997 1998 1999
---- ---- ---- ----
23.99% 26.35% 5.25% 0.53%
Best Quarter: 1st Quarter 1998, +13.55% Worst Quarter: 3rd Quarter 1998, -17.78%
The Fund's year-to-date return through September 30, 2000 was 0.38%
================================================================================
Average Annual Total Returns
For the periods ended December 31, 1999
================================================================================
Since Inception
1 Year 7/25/95
--------------------------------------------------------------------------------
Value Fund 0.53% 13.86%
S&P 500 Index 21.04% 26.03%
S&P 500 / Barra 12.72% 20.14%
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.
-9-
<PAGE>
PAST PERFORMANCE (CONT.)
The S&P 500 / 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 prior to 1999. 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) 0.19%
------
Total Annual Fund Operating Expenses 0.74%
======
(1) The Fund has adopted (but not implemented) 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. See "Investing in
the Funds-- Distribution and Service (Rule 12b-1) Plans."
(2) "Other Expenses" include accounting and audit fees, administrative fees,
custodian fees, transfer agent fees, legal fees, registration fees,
printing fees and fees paid to The DLB Fund Group's independent Trustees.
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
$76 $237 $411 $918
Since the Fund does not impose any redemption fees, the figures shown would be
the same whether or not you redeemed your shares at the end of a period.
-10-
<PAGE>
DLB CORE GROWTH FUND
INVESTMENT OBJECTIVE
The investment objective of the DLB Core Growth Fund (the "Core 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. The Core
Growth Fund was formerly known as the DLB Growth Fund.
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 primarily 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
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.
The Core Growth Fund is subject to several risks, any of which could cause you
to lose money. These include:
MARKET RISK: This is the risk that the price of a security or securities held by
the Fund will fall due to changing economic, political or market conditions.
EQUITY SECURITIES RISK: Equity securities tend to be more volatile and riskier
than some other investment options. Equity securities may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors affecting the securities markets generally, an entire
industry or sector or a particular company.
COMPANY RISK: Prices of securities react to the economic condition of the
issuer. The Fund's investments in an issuer may rise and fall based on factors
such as the issuer's actual and anticipated earnings, changes in management, and
the potential for takeovers and acquisitions.
-11-
<PAGE>
PRINCIPAL INVESTMENT RISKS (CONT.)
INVESTMENT STYLE RISK: Different equity investment styles (e.g., growth and
value) go in and out of favor depending on market conditions. Therefore, this
Fund's performance may be better or worse than other funds with different
investment styles.
MANAGEMENT RISK: This is the risk that the Fund will underperform other funds
with similar investment objectives due to poor investment decisions by the
Manager.
NON-DIVERSIFICATION RISK: Because the Fund may invest its assets in a small
number of issuers, the Fund is more susceptible than a diversified fund to any
economic, political or regulatory event adversely affecting a particular issuer.
You will find a more detailed 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 36.
PAST PERFORMANCE
The information provided below provides some indication of the risks of
investing in the Fund by comparing 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.
1999
----
13.13%
Best Quarter: 4th Quarter 1999, +17.82% Worst Quarter: 3rd Quarter 1999, -6.46%
The Fund's year-to-date return through September 30, 2000 was 9.96%
================================================================================
Average Annual Total Returns
For the periods ended December 31, 1999
================================================================================
Since Inception
1 Year 1/20/98
--------------------------------------------------------------------------------
Core Growth Fund 13.13% 21.93%
S&P 500 Index 21.04% 24.20%
Russell 1000
Growth Index 33.16% 34.52%
================================================================================
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 for the "since inception" period shown in the table reflects the
effects of voluntary expense limitations in effect prior to 1999. Without these
limitations, the Fund's returns would have been lower.
-12-
<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) 0.13%
------
Total Annual Fund Operating Expenses 0.68%
======
(1) The Fund has adopted (but not implemented) 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. See "Investing in
the Funds-- Distribution and Service (Rule 12b-) Plans."
(2) "Other Expenses" include accounting and audit fees, administrative fees,
custodian fees, transfer agent fees, legal fees, registration fees,
printing fees and fees paid to The DLB Fund Group's independent Trustees.
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
$69 $218 $379 $847
Since the Fund does not impose any redemption fees, the figures shown would be
the same whether or not you redeemed your shares at the end of a period.
-13-
<PAGE>
DLB ENHANCED INDEX CORE EQUITY FUND
INVESTMENT OBJECTIVE
The investment objective of the DLB Enhanced Index Core Equity Fund (the
"Enhanced Index Core Equity Fund") is to outperform the total return performance
of its benchmark index, the S&P 500 Index, while maintaining risk
characteristics similar to those of the benchmark. The Enhanced Index Core
Equity Fund was formerly known as the DLB Disciplined Growth 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 of companies included in the
Fund's benchmark index. The Manager believes that a systematic strategy that
exploits market inefficiencies can be used to produce a portfolio for the Fund
that will outperform the Fund's benchmark index while maintaining risk
characteristics similar to the benchmark.
The Manager uses quantitative analysis to identify groups of stocks included
within the Fund's benchmark index that the Manager believes will outperform OR
underperform the index. The Manager identifies these stocks through a
proprietary quantitative model that ranks all stocks within the index based on
several factors relating to a company's valuation, earnings quality, stock price
momentum and earnings improvement. Based on these rankings, the Manager
constructs a broadly diversified portfolio (the Fund will generally hold
approximately 90% of the securities in the index) by (1) overweighting
high-ranking stocks, (2) underweighting low-ranking stocks (or not holding them
at all), and (3) market-weighting those stocks that do not have especially high
or low rankings. Neither market timing nor macro economic forecasting are used
by the Manager in constructing the Fund's portfolio.
BENCHMARK INDEX: The Fund's benchmark index is the S&P 500 Index, which is an
unmanaged, broad-based index of common stocks frequently used as a general
measure of stock market performance.
PRINCIPAL INVESTMENT RISKS
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.
The Enhanced Index Core Equity Fund is subject to several risks, any of which
could cause you to lose money. These include:
MARKET RISK: This is the risk that the price of a security or securities held by
the Fund will fall due to changing economic, political or market conditions.
EQUITY SECURITIES RISK: Equity securities tend to be more volatile and riskier
than some other investment options. Equity securities may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors affecting the securities markets generally, an entire
industry or sector or a particular company.
COMPANY RISK: Prices of securities react to the economic condition of the
issuer. The Fund's investments in an issuer may rise and fall based on factors
such as the issuer's actual and anticipated earnings, changes in management, and
the potential for takeovers and acquisitions.
MANAGEMENT RISK: Whether or not the Fund succeeds in outperforming its benchmark
index will depend on the Manager's ability to successfully determine which
stocks in the index to overweight, underweight or avoid altogether.
-14-
<PAGE>
PRINCIPAL INVESTMENT RISKS (CONT.)
PORTFOLIO TURNOVER RISK: Changes are made in the Fund's portfolio whenever the
Manager believes such changes are desirable. Consequently, the Fund's portfolio
turnover may be high. Increased portfolio turnover rates may result in higher
costs from brokerage commissions, dealer-mark-ups and other transaction costs
and may also result in higher taxable capital gains. Higher costs associated
with increased portfolio turnover may offset gains in the Fund's performance.
INVESTMENT STYLE RISK: Different equity investment styles (e.g., growth and
value) go in and out of favor depending on market conditions. Therefore, this
Fund's performance may be better or worse than other funds with different
investment styles.
You will find a more detailed 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 36.
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.
1997 1998 1999
---- ---- ----
32.23% 25.76% 21.35%
Best Quarter: 4th Quarter 1998, +23.85% Worst Quarter: 3rd Quarter 1998, -15.77%
The Fund's year-to-date return through September 30, 2000 was 2.21%
================================================================================
Average Annual Total Returns
For the periods ended December 31, 1999
================================================================================
Since Inception
1 Year 8/26/96
--------------------------------------------------------------------------------
Enhanced Index Core Equity Fund* 21.35% 29.06%
S&P 500 Index 21.04% 28.15%
Russell 1000 Growth Index 33.16% 33.69%
================================================================================
The Fund changed its investment objective, strategies and policies on December
18, 2000; the performance results shown above would not necessarily have been
achieved had the Fund's current objective, strategies and policies been in
effect for the periods for which the performance results are presented. As a
result of the Fund changing its investment objective, the Fund will in the
future only compare its returns to the S&P 500 Index and not also to the Russell
1000 Growth Index. The Fund believes that this change is appropriate given that
the Fund's new investment objective is to outperform the total return
performance of the S&P 500 Index while maintaining risks characteristics similar
to those of the S&P 500 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 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.
-15-
<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) 0.50%
Distribution and Service (12b-1) Fees (2) None
Other Expenses (3)(4) 0.41%
------
Total Annual Fund Operating Expenses (4) 0.91%
Fee Waiver (0.21%)
------
Net Expenses (5) 0.70%
======
(1) Effective December 18, 2000, the Fund's Management Fee was reduced from
0.75% to 0.50%.
(2) The Fund has adopted (but not implemented) 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. See "Investing in
the Funds-- Distribution and Service (Rule 12b-1) Plans."
(3) "Other Expenses" include accounting and audit fees, administrative fees,
custodian fees, transfer agent fees, legal fees, registration fees,
printing fees and fees paid to The DLB Fund Group's independent Trustees.
(4) "Other Expenses" and "Total Annual Fund Operating Expenses" have been
restated to reflect estimated expenses for the Fund's fiscal year ending
October 31, 2001.
(5) 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 expense
agreement with the Fund may not be terminated prior to December 31, 2001.
In addition, it 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, except that the expense reimbursement is
reflected only for the first year of each period. 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
$72 $269 $483 $1,110
Since the Fund does not impose any redemption fees, the figures shown would be
the same whether or not you redeemed your shares at the end of a period.
-16-
<PAGE>
DLB TECHNOLOGY FUND
INVESTMENT OBJECTIVE
The investment objective of the DLB Technology Fund (the "Fund") is to achieve
long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund will invest at least 65% of its total
assets in equity securities of companies in the technology sector or otherwise
expected to benefit from the development, advancement, or use of technology.
MARKET SECTOR: The Fund expects to invest primarily in common stocks and other
equity securities of U.S. and foreign companies (including American Depository
Receipts) in the technology sector. The Fund may also invest in companies
outside of the technology sector that the Fund believes will benefit
significantly from the development, advancement or improvements in, or use of
technology. The Fund's holdings may range from emerging companies developing new
technologies to established firms with track records of developing and marketing
technological advances.
INDUSTRY POLICY: The Fund expects to have a broad-based exposure to most
technology subsectors. The Fund will, however, hold a significant portion of its
assets in technology-related industries such as: communications equipment,
telecommunication services, components, computer hardware and software,
networking, computer services, semiconductors, storage, contract manufacturers,
media and internet related businesses.
SECURITY SELECTION: The Fund's Manager generally takes a bottom-up approach to
selecting the Fund's investments. In other words, stock selection is based on
research that assesses a company's fundamental prospects for capital growth.
Specifically, the Manager seeks to identify individual companies that possess
one or more of the following characteristics:
o Sustainable competitive advantage
o Management track record
o Competitive cost dynamic
o High value-added products and services
o Above-average revenue growth
o Strong foreseeable profit potential
o Viable long term capital funding options
o Proprietary product attributes and/or business model/service
There are no limitations on the size of the companies or the countries in which
the Fund may invest. There may be times when the Fund has significant foreign
exposure.
PRINCIPAL INVESTMENT RISKS
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.
The Technology Fund is subject to several risks, any of which could cause you to
lose money. These include:
TECHNOLOGY SECTOR RISK: Companies in the rapidly changing fields of technology
often face unusually high stock price volatility, both in terms of gains and
losses. Products or services that at first appear promising may not prove
commercially successful or may become obsolete quickly. Earnings disappointments
can result in sharp stock price declines. A portfolio focused primarily on these
stocks, such as the Fund, is therefore likely to be much more volatile than one
with broader diversification
-17-
<PAGE>
PRINCIPAL INVESTMENT RISKS (CONT.)
that includes investments in more economic sectors.
MARKET RISK: This is the risk that the price of a security or securities held by
the Fund will fall due to changing economic, political or market conditions.
EQUITY SECURITIES RISK: Equity securities tend to be more volatile and riskier
than some other investment options. Equity securities may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors affecting the securities markets generally, an entire
industry or sector or a particular company.
COMPANY RISK: Prices of securities react to the economic condition of the
issuer. The Fund's investments in an issuer may rise and fall based on factors
such as the issuer's actual and anticipated earnings, changes in management, and
the potential for takeovers and acquisitions.
EMERGING GROWTH COMPANY RISK: Investments in emerging growth companies may be
subject to more abrupt or erratic market movements and may involve greater risks
than investments in other companies. Emerging growth companies often have
limited product lines, markets and financial resources and may depend on
management by one or a few key individuals. The shares of emerging growth
companies may also suffer steeper than average price declines after
disappointing earnings reports and are more difficult to sell at satisfactory
prices.
PORTFOLIO TURNOVER RISK: Changes are made in the Fund's portfolio whenever the
Manager believes such changes are desirable. Consequently, the Fund's portfolio
turnover may be high. Increased portfolio turnover rates may result in higher
costs from brokerage commissions, dealer-mark-ups and other transaction costs
and may also result in higher taxable capital gains. Higher costs associated
with increased portfolio turnover may offset gains in the Fund's performance.
FOREIGN ISSUER RISK: The securities of foreign issuers can be less liquid and
more volatile than those of U.S. issuers due to increased risk of adverse
issuer, political, regulatory, market or economic developments. Foreign
securities in which the Fund may invest include foreign issuers represented by
American Depositary Receipts ("ADRs"), which are receipts typically issued by a
United States bank or trust company that evidence ownership of underlying
securities issued by a foreign corporation. ADRs may not necessarily be
denominated in the same currency as the securities into which they may be
converted and are subject to many of the same risks associated with owning the
underlying foreign security.
MANAGEMENT RISK: This is the risk that the Fund will underperform other funds
with similar investment objectives due to poor investment decisions by the
Manager.
INVESTMENT STYLE RISK: Different equity investment styles (e.g., growth and
value) go in and out of favor depending on market conditions. Therefore, this
Fund's performance may be better or worse than other funds with different
investment styles.
NON-DIVERSIFICATION RISK: Because the Fund may invest its assets in a small
number of issuers, the Fund is more susceptible than a diversified fund to any
economic, political or regulatory event adversely affecting a particular issuer.
FOREIGN CURRENCY RISK: This is the risk that the value of dividends or interest
paid by foreign securities, or the value of the securities themselves, may fall
if currency exchange rates change.
You will find a discussion of these and other risks in the section entitled
"Descriptions of Principal Investment Risks," beginning on page 36.
-18-
<PAGE>
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.
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) 0.64%
-----
Total Annual Fund Operating Expenses 1.64%
Fee Waiver (0.34%)
-----
Net Expenses (3) 1.30%
=====
(1) The Fund has adopted (but not implemented) 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. See "Investing in
the Fund-- Distribution and Service (Rule 12b-1) Plan."
(2) "Other Expenses" include accounting and audit fees, administrative fees,
custodian fees, transfer agent fees, legal fees, registration fees,
printing fees and fees paid to The DLB Fund Group's independent Trustees,
and are based on estimated amounts for the current fiscal year.
(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 expense
agreement with the Fund may not be terminated prior to December 31, 2001.
In addition, it 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, except that the expense reimbursement is
reflected only for the first year of each period. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS
$132 $484
Since the Fund does not impose any redemption fees, the figures shown would be
the same whether or not you redeemed your shares at the end of a period.
-19-
<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. The DLB Enterprise 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 one or more of 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
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.
The Enterprise III Fund is subject to several risks, any of which could cause
you to lose money. These include:
MARKET RISK: This is the risk that the price of a security or securities held by
the Fund will fall due to changing economic, political or market conditions.
EQUITY SECURITIES RISK: Equity securities tend to be more volatile and riskier
than some other investment options. Equity securities may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors affecting the securities markets generally, an entire
industry or sector or a particular company.
COMPANY RISK: Prices of securities react to the economic condition of the
issuer. The Fund's investments in an issuer may rise and fall based on factors
such as the issuer's actual and anticipated earnings, changes in management, and
the potential for takeovers and acquisitions.
SMALL COMPANY RISK: Investing in securities of small companies may involve
greater risk than investing in more established companies. Often, small
companies and the industries in which they are focused are still evolving, and
they are more sensitive to changing market conditions than larger companies in
more established industries. Small companies often have limited product lines
and financial resources and less experienced management. Also, because they may
have fewer securities outstanding and the
-20-
<PAGE>
PRINCIPAL INVESTMENT RISKS (CONT.)
frequency and volume of trading may be less, these securities may be less liquid
than securities of larger companies. Consequently, their securities may be more
volatile and have returns that vary, sometimes significantly, from the overall
stock market.
INVESTMENT STYLE RISK: Different equity investment styles (e.g., growth and
value) go in and out of favor depending on market conditions. Therefore, this
Fund's performance may be better or worse than other funds with different
investment styles.
MANAGEMENT RISK: This is the risk that the Fund will underperform other funds
with similar investment objectives due to poor investment decisions by the
Manager.
NON-DIVERSIFICATION RISK: Because the Fund may invest its assets in a small
number of issuers, the Fund is more susceptible than a diversified fund to any
economic, political or regulatory event adversely affecting a particular issuer.
You will find a more detailed 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 36.
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.
1996 1997 1998 1999
---- ---- ---- ----
14.75% 32.95% -8.63% -8.08%
Best Quarter: 2nd Quarter 1999, +17.55% Worst Quarter: 3rd Quarter 1998, -18.30%
The Fund's year-to-date return through September 30, 2000 was 1.55%
================================================================================
Average Annual Total Returns
For the periods ended December 31, 1999
================================================================================
Since Inception
1 Year 7/25/95
--------------------------------------------------------------------------------
Enterprise III Fund -8.08% 7.76%
Russell 2000 Value Index -1.49% 11.05%
Russell 2000 Index 21.26% 14.22%
Russell 2500 Index 24.15% 16.54%
================================================================================
In past years, the Fund has compared its returns to those of the Russell 2500
Index. In future Prospectuses, the Fund will compare its return to those of the
Russell 2000 Index and the Russell 2000 Value Index. The reason for this change
is that while the market capitalization of the companies included in the Russell
2500 Index has increased since inception, the Fund's investment policy continues
to require the Fund to invest in companies with market capitalizations between
$400 million and $2 billion at the time of investment by the Fund. As a result,
the Fund believes that the Russell 2000 Index and the Russell 2000 Value Index,
which have a lower weighted market capitalization than the Russell 2500 Index,
provide a more appropriate comparison based on market capitalization.
The RUSSELL 2500 INDEX is a broad-based index that measures the smallest 2500
companies in the Russell 3000 Index, representing approximately 17% of the
Russell 3000 total market capitalization.
-21-
<PAGE>
PAST PERFORMANCE(CONT.)
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.
The RUSSELL 2000 VALUE INDEX is an unmanaged index that measures the performance
of those Russell 2000 companies with lower price-to-book ratios and lower
forecasted growth values.
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) 0.40%
------
Total Annual Fund Operating Expenses 1.00%
Fee Waiver (0.10%)
------
Net Expenses (3) 0.90%
======
(1) The Fund has adopted (but not implemented) 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. See "Investing in
the Funds-- Distribution and Service (Rule 12b-1) Plans."
(2) "Other Expenses" include accounting and audit fees, administrative 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 expense
agreement with the Fund may not be terminated prior to December 31, 2001.
In addition, it will automatically continue for successive one-year periods
unless either The DLB Fund Group or the Manager terminates the agreement by
giving six months' written 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, except that the expense reimbursement is reflected only for the
first year of each period. 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 $308 $543 $1,216
Since the Fund does not impose any redemption fees, the figures shown would be
the same whether or not you redeemed your shares at the end of a period.
-22-
<PAGE>
DLB SMALL COMPANY OPPORTUNITIES FUND
INVESTMENT OBJECTIVE
The investment objective of the DLB Small Company Opportunities Fund (the "Small
Company Opportunities 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. The Small Company Opportunities Fund was formerly known as
the DLB Micro Capitalization Fund.
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 smaller companies. The Fund
will invest primarily in equity securities of micro capitalization companies.
Micro capitalization companies are those with capitalizations at the time of
purchase of no more than 50% of the weighted average market capitalization of
the Russell 2000 Index, measured as of the last time the Index was rebalanced,
which is generally June 30 of each year. (This 50% figure was approximately $465
million as of June 30, 2000). The Fund may also invest to a lesser extent in
companies with market capitalizations in excess of 50% of the weighted average
market capitalization of the Russell 2000 Index. 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
There is no guarantee that the Fund will achieve its objective, and you could
lose money on your investment. Furthermore, the Manager, despite
-23-
<PAGE>
PRINCIPAL INVESTMENT RISKS(CONT.)
using various investment and risk analysis techniques, may not achieve the
results expected from an investment in the Fund.
The Small Company Opportunities Fund is subject to several risks, any of which
could cause you to lose money. These include:
MARKET RISK: This is the risk that the price of a security or securities held by
the Fund will fall due to changing economic, political or market conditions.
EQUITY SECURITIES RISK: Equity securities tend to be more volatile and riskier
than some other investment options. Equity securities may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors affecting the securities markets generally, an entire
industry or sector or a particular company.
COMPANY RISK: Prices of securities react to the economic condition of the
issuer. The Fund's investments in an issuer may rise and fall based on factors
such as the issuer's actual and anticipated earnings, changes in management, and
the potential for takeovers and acquisitions.
SMALL COMPANY RISK: Investing in securities of small companies may involve
greater risk than investing in more established companies. Often, small
companies and the industries in which they are focused are still evolving, and
they are more sensitive to changing market conditions than larger companies in
more established industries. Small companies often have limited product lines
and financial resources and less experienced management. Also, because they may
have fewer securities outstanding and the frequency and volume of trading may be
less, these securities may be less liquid than securities of larger companies.
Consequently, their securities may be more volatile and have returns that vary,
sometimes significantly, from the overall stock market.
EMERGING GROWTH COMPANIES RISK: Investments in emerging growth companies may be
subject to more abrupt or erratic market movements and may involve greater risks
than investments in other companies. Emerging growth companies often have
limited product lines, markets and financial resources and may depend on
management by one or a few key individuals. The shares of emerging growth
companies may also suffer steeper than average price declines after
disappointing earnings reports and are more difficult to sell at satisfactory
prices.
MANAGEMENT RISK: This is the risk that the Fund will underperform other funds
with similar investment objectives due to poor investment decisions by the
Manager.
INVESTMENT STYLE RISK: Different equity investment styles (e.g., growth and
value) go in and out of favor depending on market conditions. Therefore, this
Fund's performance may be better or worse than other funds with different
investment styles.
NON-DIVERSIFICATION RISK: Because the Fund may invest its assets in a small
number of issuers, the Fund is more susceptible than a diversified fund to any
economic, political or regulatory event adversely affecting a particular issuer.
You will find a more detailed 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 36.
PAST PERFORMANCE
The information below provides some indication of the risks of investing in the
Fund by comparing 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.
-24-
<PAGE>
1999
----
13.81%
Best Quarter: 2nd Quarter 1999, +21.58% Worst Quarter: 1st Quarter 1999, -10.10%
The Fund's year-to-date return through September 30, 2000 was 36.62%
================================================================================
Average Annual Total Returns
For the periods ended December 31, 1999
================================================================================
Since Inception
1 Year 7/20/98
--------------------------------------------------------------------------------
Small Company Opportunities Fund 13.81% -1.35%
Russell 2000 Index 21.26% 7.48%
Russell 2000 Value Index -1.49% -8.21%
================================================================================
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.
The RUSSELL 2000 VALUE INDEX is an unmanaged index that measures the performance
of those Russell 2000 companies with lower price-to-book ratios and lower
forecasted growth values.
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 1.00%
Distribution and Service (12b-1) Fees (1) None
Other Expenses (2) .51%
------
Total Annual Fund Operating Expenses 1.51%
Fee Waiver (0.21%)
------
Net Expenses (3) 1.30%
======
(1) The Fund has adopted (but not implemented) 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. See "Investing in
the Funds-- Distribution and Service (Rule 12b-1) Plans."
(2) "Other Expenses" include accounting and audit fees, administrative 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 expense
agreement with the Fund may not be terminated prior to December 31, 2001.
In addition, it will automatically continue for successive one-year periods
unless either The DLB Fund Group or the Manager terminates the agreement by
giving six months' written notice to the other party.
-25-
<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, except that the expense reimbursement is
reflected only for the first year of each period. 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
$132 $457 $804 $1,784
Since the Fund does not impose any redemption fees, the figures shown would be
the same whether or not you redeemed your shares at the end of a period.
-26-
<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 United 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
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
-27-
<PAGE>
PRINCIPAL INVESTMENT RISKS(CONT.)
expected from an investment in the Fund.
The International Fund is subject to several risks, any of which could cause you
to lose money. These include:
MARKET RISK: This is the risk that the price of a security or securities held by
the Fund will fall due to changing economic, political or market conditions.
FOREIGN ISSUER RISK: The securities of foreign issuers can be less liquid and
more volatile than those of U.S. issuers due to increased risk of adverse
issuer, political, regulatory, market or economic developments.
FOREIGN CURRENCY RISK: This is the risk that the value of dividends or interest
paid by foreign securities, or the value of the securities themselves, may fall
if currency exchange rates change.
EQUITY SECURITIES RISK: Equity securities tend to be more volatile and riskier
than some other investment options. Equity securities may experience sudden,
unpredictable drops in value or log periods of decline in value. This may occur
because of factors affecting the securities markets generally, an entire
country, region, industry or sector or a particular company.
COMPANY RISK: Prices of securities react to the economic condition of the
issuer. The Fund's investments in an issuer may rise and fall based on factors
such as the issuer's actual and anticipated earnings, changes in management, and
the potential for takeovers and acquisitions.
FOREIGN EMERGING MARKETS RISK: Emerging countries are subject to serious, and
potentially continuing, economic, social and political problems or instability.
Stock markets in many emerging countries are poorly regulated, relatively small,
expensive and risky. Foreigners are often limited in their ability to invest in,
and withdraw assets from, these markets. Additional regulatory restrictions may
be imposed on foreign investors under emergency conditions. Risks generally
associated with foreign securities and currencies also apply, often to a greater
extent.
MANAGEMENT RISK: This is the risk that the Fund will underperform other funds
with similar investment objectives due to poor investment decisions by the
Manager.
TAX RISK: Investors in this Fund may be subject to significant tax liabilities
arising from gains that arose in the Fund prior to their investment, but were
recognized thereafter because of a change in the Fund's corporate form.
SMALL COMPANY RISK: Investing in securities of small companies may involve
greater risk than investing in more established companies. Often, small
companies and the industries in which they are focused are still evolving, and
they are more sensitive to changing market conditions than larger companies in
more established industries. Small companies often have limited product lines
and financial resources and less experienced management. Also, because they may
have fewer securities outstanding and the frequency and volume of trading may be
less, these securities may be less liquid than securities of larger companies.
Consequently, their securities may be more volatile and have returns that vary,
sometimes significantly, from the overall stock market.
EMERGING GROWTH COMPANIES RISK: Investments in emerging growth companies may be
subject to more abrupt or erratic market movements and may involve greater risks
than investments in other companies. Emerging growth companies often have
limited product lines, markets and financial resources and may depend on
management by one or a few key individuals. The shares of emerging growth
companies may also suffer steeper than average price declines after
disappointing earnings reports and are more difficult to sell at satisfactory
prices.
-28-
<PAGE>
PRINCIPAL INVESTMENT RISKS(CONT.)
LIQUIDITY RISK: Certain investments of the Fund may be difficult to purchase or
sell. This means that, because there may not be adequate supply or demand for a
security, it may be harder to purchase or sell at a satisfactory price.
Liquidity risk also tends to increase to the extent that the Fund invests in
unregistered or restricted securities, such as Rule 144A securities.
NON-DIVERSIFICATION RISK: Because the Fund may invest its assets in a small
number of issuers, the Fund is more susceptible than a diversified fund to any
economic, political or regulatory event adversely affecting a particular issuer.
FORWARD FOREIGN CURRENCY CONTRACTS RISK: Although the Fund's general approach is
to leave currency exposure unhedged, the Fund may engage in forward foreign
currency transactions in order to facilitate settlement of a Fund's transaction
or to reduce the risk to the Fund from adverse changes in the relationship
between the U.S. dollar and foreign currencies. Unanticipated changes in
currency prices may result in overall poorer performance for the Fund than if it
had not engaged in forward foreign currency exchange contracts. Because forward
contracts are agreements between parties, there is also some credit risk
associated with using forward foreign currency contracts.
INVESTMENT STYLE RISK: Different equity investment styles (e.g. growth and
value) go in and out of favor depending on market conditions. Therefore, this
Fund's performance may be better or worse than other funds with different
investment styles.
You will find a more detailed 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 36.
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 inception of the Fund's predecessor, 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.
The Fund commenced operations on November 1, 1999 upon the Fund's predecessor,
Babson-Stewart Ivory International Limited Partnership III (the "Limited
Partnership"), transferring all of its assets to the Fund on that date in a tax
free transaction. The performance shown in the bar chart and table below
includes the performance results of the Limited Partnership for the period prior
to the Fund's commencement of operations. 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.
Although the Limited Partnership operated with investment objectives, policies
and guidelines that were substantially the same as those of the Fund, the
Limited Partnership, unlike the Fund, 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 might have been lower.
AS WITH ALL MUTUAL FUNDS, PAST PERFORMANCE IS NOT A PREDICTION OF FUTURE
PERFORMANCE.
-29-
<PAGE>
PAST PERFORMANCE(CONT.)
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
-1.88% 7.66% 12.06% 2.49% 15.80% 31.88%
Best Quarter: 4th Quarter 1999, +21.23% Worst Quarter: 3rd Quarter 1998, -12.50%
The Fund's year-to-date return through September 30, 2000 was -5.98%
================================================================================
Average Annual Total Returns
For the periods ended December 31, 1999
================================================================================
Since Inception
1 Year 5 Years 5/1/93
--------------------------------------------------------------------------------
International Fund
(and predecessor
Limited Partnership) 31.88% 13.56% 11.70%
MSCI EAFE Index 27.30% 13.15% 12.33%
================================================================================
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. The
Fund's year-to-date return stated under the bar chart reflects the effects of
voluntary expense limitations during the period. Without these limitations, the
Fund's return 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) (3) 0.36%
------
Total Annual Fund Operating Expenses 1.11%
Fee Waiver (0.11%)
------
Net Expenses (4) 1.00%
======
(1) The Fund has adopted (but not implemented) 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. See "Investing in
the Funds-- Distribution and Service (Rule 12b-1) Plans."
(2) "Other Expenses" include accounting and audit fees, administrative 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 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 expense
agreement with the Fund may not be terminated prior to December 31, 2001.
In addition, it will automatically continue for successive one-year periods
unless either The DLB Fund Group or the Manager terminates the agreement by
giving six months' written notice to the other party.
-30-
<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, except that the expense reimbursement is
reflected only for the first year of each period. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS
$151 $390
Since the Fund does not impose any redemption fees, the figures shown would be
the same whether or not you redeemed your shares at the end of a period.
-31-
<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 period 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 diversification. 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.
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PRINCIPAL INVESTMENT RISKS
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.
The Emerging Markets Fund is subject to several risks, any of which could cause
an investor to lose money. These include:
MARKET RISK: This is the risk that the price of a security or securities held by
the Fund will fall due to changing economic, political or market conditions.
FOREIGN EMERGING MARKETS RISK: Emerging countries are subject to serious, and
potentially continuing, economic, social and political problems or instability.
Stock markets in many emerging countries are poorly regulated, relatively small,
expensive and risky. Foreigners are often limited in their ability to invest in,
and withdraw assets from, these markets. Additional regulatory restrictions may
be imposed on foreign investors under emergency conditions. Risks generally
associated with foreign securities and currencies also apply, often to a greater
extent.
FOREIGN ISSUER RISK: The securities of foreign issuers can be less liquid and
more volatile than those of U.S. issuers due to increased risk of adverse
issuer, political, regulatory, market or economic developments.
FOREIGN CURRENCY RISK: This is the risk that the value of dividends or interest
paid by foreign securities, or the value of the securities themselves, may fall
if currency exchange rates change.
EQUITY SECURITIES RISK: Equity securities tend to be more volatile and riskier
than some other investment options. Equity securities may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors affecting the securities markets generally, an entire
country, region, industry or sector or a particular company.
COMPANY RISK: Prices of securities react to the economic condition of the
issuer. The Fund's investments in an issuer may rise and fall based on factors
such as the issuer's actual and anticipated earnings, changes in management, and
the potential for takeovers and acquisitions.
MANAGEMENT RISK: This is the risk that the Fund will underperform other funds
with similar investment objectives due to poor investment decisions by the
Manager.
SMALL COMPANY RISK: Investing in securities of small companies may involve
greater risk than investing in more established companies. Often, small
companies and the industries in which they are focused are still evolving, and
they are more sensitive to changing market conditions than larger companies in
more established industries. Small companies often have limited product lines
and financial resources and less experienced management. Also, because they may
have fewer securities outstanding and the frequency and volume of trading may be
less, these securities may be less liquid than securities of larger companies.
Consequently, their securities may be more volatile and have returns that vary,
sometimes significantly, from the overall stock market.
EMERGING GROWTH COMPANIES RISK: Investments in emerging growth companies may be
subject to more abrupt or erratic market movements and may involve greater risks
than investments in other companies. Emerging growth companies often have
limited product lines, markets and financial resources and may depend on
management by one or a few key individuals. The shares of emerging growth
companies may also suffer steeper than average price declines after
disappointing earnings reports and are more difficult to sell at satisfactory
prices.
LIQUIDITY RISK: Certain investments of the Fund may be difficult to purchase or
sell. This means
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PRINCIPAL INVESTMENT RISKS (CONT.)
that, because there may not be adequate supply or demand for a security, it may
be harder to purchase or sell at a satisfactory price. Liquidity risk also tends
to increase to the extent that the Fund invests in unregistered or restricted
securities, such as Rule 144A securities.
FORWARD FOREIGN CURRENCY CONTRACTS RISK: Although the Fund's general approach is
to leave currency exposure unhedged, the Fund may engage in forward foreign
currency transactions in order to facilitate settlement of a Fund's transaction
or to reduce the risk to the Fund from adverse changes in the relationship
between the U.S. dollar and foreign currencies. Unanticipated changes in
currency prices may result in overall poorer performance for the Fund than if it
had not engaged in forward foreign currency exchange contracts. Because forward
contracts are agreements between parties, there is also some credit risk
associated with using forward foreign currency contracts.
INVESTMENT STYLE RISK: Different equity investment styles (e.g., growth and
value) go in and out of favor depending on market conditions. Therefore, this
Fund's performance may be better or worse than other funds with different
investment styles.
NON-DIVERSIFICATION RISK: Because the Fund may invest its assets in a small
number of issuers, the Fund is more susceptible than a diversified fund to any
economic, political or regulatory event adversely affecting a particular issuer.
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 36.
PAST PERFORMANCE
Because the Fund has been in existence for less than one full calendar year,
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 1.25%
Distribution and Service (12b-1) Fees (1) None
Other Expenses (2) (3) 0.70%
------
Total Annual Fund Operating Expenses 1.95%
Fee Waiver (0.20%)
------
Net Expenses (4) 1.75%
======
(1) The Fund has adopted (but not implemented) 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. See "Investing in
the Funds-- Distribution and Service (Rule 12b-1) Plans."
(2) "Other Expenses" include accounting and audit fees, administrative 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 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 expense
agreement with the Fund may not be terminated prior to December 31, 2001.
In addition, it will automatically continue for successive one-year periods
unless either The DLB Fund Group or the Manager terminates the agreement by
giving six months' written notice to the other party.
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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, except that the expense reimbursement is
reflected only for the first year of each period. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS
$227 $640
Since the Fund does not impose any redemption fees, the figures shown would be
the same whether or not you redeemed your shares at the end of a period.
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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 35,
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.
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
APPLIES TO: ALL FUNDS
CONVERTIBLE SECURITIES RISK:
Because convertible securities can be converted into equity securities, their
value normally will vary in some proportion with those of the underlying equity
securities. Due to the conversion feature, convertible securities generally
yield less than non-convertible fixed income securities of similar credit
quality and maturity. The High Yield Fund's investment in convertible securities
may at times include securities that have a mandatory conversion feature,
pursuant to which the securities convert automatically into common stock at a
specified date and conversion ratio, or that are convertible at the option of
the issuer. When conversion is not at the option of the holder, the Fund may be
required to convert the security into the underlying common stock even at times
when the value of the underlying common stock has declined substantially.
APPLIES TO: HIGH YIELD FUND
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.
As explained in the Appendix, the High Yield Fund invests primarily in, and 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 risk 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.
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The Funds may at times invest in zero coupon fixed income securities,
payment-in-kind fixed income securities, and deferred interest fixed income
securities. These types of securities allow an issuer to avoid generating cash
to make current interest payments. As a result, these bonds involve greater
credit risk and are subject to greater price fluctuations than fixed income
securities that pay current interest in cash.
To the extent that a Fund invests in foreign securities, it is subject to
increased credit risk because of the difficulties of requiring foreign entities
to honor their contractual commitments and because a number of foreign
governments and other issuers are already in default.
APPLIES TO: FIXED INCOME FUND, HIGH YIELD 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: TECHNOLOGY FUND,
SMALL COMPANY OPPORTUNITIES FUND,
INTERNATIONAL FUND,
EMERGING MARKETS FUND
EQUITY SECURITIES RISK
All of the Funds except the Fixed Income Fund and the High Yield 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. Equity securities may experience sudden, unpredictable drops in
value or long periods of decline in value. This may occur because of factors
affecting the securities market generally, an entire industry or sector or a
particular company. Therefore, the value of your investment in a Fund may
decrease.
APPLIES TO: ALL FUNDS EXCEPT FIXED INCOME FUND
AND HIGH YIELD 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. Although ADRs
are U.S. dollar denominated securities and pay dividends in U.S. dollars, they
do not eliminate the currency risks associated with investing in a non-U.S.
company.
APPLIES TO: TECHNOLOGY 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
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<PAGE>
o limited, slower or more costly legal remedies
o special tax considerations
o a company borrowing in currencies different from its revenue stream
o communications between 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
Foreign securities in which a Fund may invest include foreign issuers
represented by ADRs, which are receipts typically issued by a United States bank
or trust company that evidence ownership of underlying securities issued by a
foreign corporation. ADRs may not necessarily be denominated in the same
currency as the securities into which they may be converted and are subject to
many of the risks associated with owning the underlying foreign security.
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,
TECHNOLOGY 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: 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.
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<PAGE>
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. Because forward contracts are agreements between parties, there is
also some credit risk associated with using forward foreign currency contracts.
APPLIES TO: 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
HIGH YIELD FUND
INVESTMENT STYLE RISK
Different equity investment styles (e.g., growth and value) go in and out of
favor depending on market conditions. Therefore, there is a risk that a Fund may
underperform other funds with different investment styles.
In addition, there are special risks investing in "value" stocks or stocks that
are otherwise out of favor with investors. 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 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.
As with investing in "value" stocks, there are special risks involved in
investing in "growth" companies. The prices of growth company securities may
fall to a greater extent than the overall equity markets due to changing
economic, political or market factors. Growth company securities tend to be more
volatile in terms of price swings and trading volume than value stocks. Growth
companies, especially technology-related companies, have seen dramatic rises in
stock valuations. Funds investing in these types of companies also are exposed
to the risk that the market may deem their stock prices over-valued, which could
cause steep and/or volatile price swings.
APPLIES TO: VALUE FUND,
CORE GROWTH FUND,
ENHANCED INDEX CORE EQUITY FUND,
ENTERPRISE III FUND,
SMALL COMPANY OPPORTUNITIES FUND,
INTERNATIONAL FUND,
EMERGING MARKETS FUND
LIQUIDITY 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.
Securities that involve substantial interest rate risk or credit risk, such as
lower rated fixed income securities, also often involve greater liquidity risk.
This means that, because there may not be adequate supply or demand for a
security, a
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Fund may not be able to sell those securities when it wants to, and the 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.
In addition, the Fund, either by itself or together with other funds managed by
the Manager, may own all or most of the fixed-income securities of a particular
issuer. This concentration of ownership may make it more difficult to sell, or
determine the fair value of, these investments.
APPLIES TO: FIXED INCOME FUND,
HIGH YIELD FUND,
INTERNATIONAL FUND,
EMERGING MARKETS FUND
LOWER-RATED FIXED INCOME
SECURITIES RISK
Lower-rated fixed income securities, which are also known as "junk bonds", and
comparable unrated securities in which the High Yield Fund invests 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.
The High Yield Fund may hold any portion of its assets in lower rated (i.e.,
below investment grade) securities. Lower rated fixed income securities involve
greater volatility of price and yield, and greater risk 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 rated fixed
income 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 rated fixed income securities to meet its ongoing
obligations.
Since the High Yield Fund may invest in fixed income securities issued in
connection with corporate restructurings by highly leveraged issuers or in fixed
income securities that are not current in the payment of interest or principal
(i.e., in default), the Fund may be subject to greater credit risk because of
these investments. Securities that are rated CCC or below by Standard & Poor's
or Caa or below by Moody's Investors Service, Inc. (see Appendix B for more
information) are generally regarded by the rating agencies as having extremely
poor prospects of ever attaining any real investment standing.
APPLIES TO: HIGH YIELD FUND
MANAGEMENT RISK
The Manager has discretion to determine the investments made by each Fund, and
no Fund is passively managed. A Fund may therefore underperform other funds with
similar investment objectives due to poor investment decisions by the Manager,
and its return may be lower from the performance of the index with which it is
compared.
APPLIES TO: ALL FUNDS
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
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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 guarantee
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.
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
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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 diversified, no
Fund is intended to be a complete investment program.
APPLIES TO: ALL FUNDS, EXCEPT ENHANCED INDEX
CORE EQUITY FUND
PREFERRED STOCK RISK
Like other equity securities, preferred stock is subject to the risk that its
value may decrease. Preferred stock may be more volatile and riskier than other
forms of investment. If interest rates rise, the dividend on preferred stocks
may be less attractive, causing the price of preferred stocks to decline.
Preferred stock may have mandatory sinking fund provisions or call/redemption
provisions that can negatively affect its value when interest rates decline. In
addition, in the event of liquidation of a corporation's assets, the rights of
preferred stock generally are subordinate to the rights associated with a
corporation's debt securities.
APPLIES TO: HIGH YIELD FUND
PORTFOLIO TURNOVER RISK
Changes are made in a Fund's portfolio whenever the Manager believes such
changes are desirable. Short-term transactions may result from liquidity needs,
securities having reached a price objective, purchasing securities in
anticipation of relatively short-term price gains, changes in the outlook for a
particular company or by reason of economic or other developments not foreseen
at the time of the investment decision. Portfolio turnover rates are generally
not a factor in making buy and sell decisions. Consequently, the Fund's
portfolio turnover may be high. Increased portfolio turnover rates may result in
higher costs from brokerage commissions, dealer-mark-ups and other transaction
costs and may also result in higher taxable capital gains. Higher costs
associated with increased portfolio turnover may offset gains in the Fund's
performance.
APPLIES TO: ENHANCED INDEX CORE EQUITY FUND,
TECHNOLOGY 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 lower
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: ENHANCED INDEX CORE EQUITY FUND,
ENTERPRISE III FUND,
SMALL COMPANY OPPORTUNITIES 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
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all of its assets to the International Fund in a tax-free transaction on
November 1, 1999. The Limited Partnership had been in operation since May 1,
1993, and as of October 31, 1999, the unrealized gains in the Limited
Partnership's portfolio represented approximately 22.92% 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 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
TECHNOLOGY SECTOR RISK
The Fund's investments are expected to be focused in specific industries in or
related to the technology sector. The Fund may therefore invest in companies
related in such a way that they react similarly to certain market pressures. For
example, competition among technology companies may result in increasingly
aggressive pricing of their products and services, which may affect the
profitability of companies in the Fund's portfolio. In addition, because of the
rapid pace of technological development, products or services developed by
companies in the Fund's portfolio may become rapidly obsolete or have relatively
short product cycles. As a result, companies in the rapidly changing field of
technology often face unusually high stock price volatility, both in terms of
gains and losses. Products or services that at first appear promising may not
prove commercially successful or may become obsolete quickly. Earnings
disappointments can result in sharp stock price declines. A portfolio focused
primarily on these stocks, such as the Fund, is therefore likely to be much more
volatile than one with broader diversification that includes investments in more
economic sectors.
APPLIES TO: TECHNOLOGY FUND
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TEMPORARY DEFENSIVE POSITIONS
ALL FUNDS (OTHER THAN INTERNATIONAL FUND
AND EMERGING MARKETS FUND)
Each Fund may, from time to time, take temporary defensive positions in
securities convertible into common stocks, preferred stocks, high grade bonds,
U.S. Government securities, money market instruments, cash or other short-term
debt obligations readily changeable to cash, such as commercial paper or
repurchase agreements, 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.
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HOW THE FUNDS ARE MANAGED
THE MANAGER
Each Fund is advised and managed by its Manager, David L. Babson & Company Inc.
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, 2000, the Manager had over $60
billion in assets under management. The Manager's principal locations are One
Memorial Drive, Cambridge, Massachusetts 02142, and 1295 State Street,
Springfield, Massachusetts 01111.
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 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"). Stewart Ivory, in turn, is a wholly owned subsidiary of Colonial
Limited, which through its subsidiaries (collectively, "Colonial First State"),
operates an international fund management business. Colonial Limited is a wholly
owned subsidiary of The Commonwealth Bank of Australia, a large Australian bank.
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 period ended October 31, 1999, each Fund (other than the High
Yield Fund, the Technology Fund, the International Fund and the Emerging Markets
Fund, which were newly organized during the fiscal year-ending October 31, 2000)
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
Core Growth Fund 0.55
Enhanced Index Core Equity Fund 0.75*
Enterprise III Fund 0.60
Small Company Opportunities Fund 1.00
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.
* Effective December 18, 2000, the management fee for the Enhanced Index Core
Equity Fund was reduced from 0.75% to 0.50%.
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, the date on which she joined the Manager. Prior to
that, Ms. Kibbe who has 23 years of investment experience, had worked at
Massachusetts Mutual Life Insurance Company ("MassMutual") since 1982. Ms. Kibbe
is assisted in the day-to-day management of the Fund by a team of investment
professionals at the Manager.
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HIGH YIELD FUND: CLIFFORD NOREEN, Senior Managing Director of the Manager (since
January 1, 2000), and JILL FIELDS, Managing Director of the Manager (since
January 1, 2000) are the portfolio managers of the High Yield Fund. From 1985
through 1999, Mr. Noreen had been employed by MassMutual. From 1997 through
1999, Ms. Fields had been employed by MassMutual. From 1992 to 1997, she was
Director of Corporate Bond Research at ITT Hartford Insurance Companies.
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. Mr. Maramarco
became primarily responsible for the day-to-day management of the Fund effective
May 27, 1999 and had assisted in the management of the Fund since 1997. Mr.
Maramarco is assisted in the day-to-day management of the Fund by a team of
investment professionals at the Manager.
CORE GROWTH FUND: JAMES B. GRIBBELL, Senior Vice President of the Manager, is
primarily responsible for the day-to-day management of the Core 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 investment professionals at the
Manager.
ENHANCED INDEX CORE EQUITY FUND: The Enhanced Index Core Equity Fund is managed
by David L. Babson & Company Inc.'s quantitative investment team.
TECHNOLOGY FUND: The Technology Fund is managed by a team of investment
professionals at David L. Babson & Company Inc.
ENTERPRISE III FUND: LANCE F. JAMES, Executive Vice President of the Manager, is
primarily responsible for the day-to-day management of the Enterprise III Fund.
Mr. James has been employed by the Manager in portfolio management since 1986.
He became primarily responsible for the day-to-day management of the Fund
effective March 20, 2000. Mr. James is assisted in the day-to-day management of
the Fund by a team of investment professionals at the Manager.
SMALL COMPANY OPPORTUNITIES FUND: PAUL S. SZCZYGIEL and ROBERT K. BAUMBACH are
primarily responsible for the day-to-day management of the Small Company
Opportunities Fund. Mr. Szczygiel is a Senior Vice President of the Manager and
a Chartered Financial Analyst. He has over 16 years of investment experience and
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.
Baumbach, also a Senior Vice President of the Manager and a Chartered Financial
Analyst, has 15 years of investment experience. He has been employed by the
Manager since November 1999, prior to which he was a Senior Vice President and
Senior Analyst at Putnam Investments. Mr. Baumbach has assisted in the
management of the Fund since joining the Manager. Mr. Szczygiel and Mr. Baumbach
are supported by a team of investment professionals at the Manager.
INTERNATIONAL FUND: JAMES W. BURNS, a Managing Director of the Subadvisor, is
primarily responsible for the day-to-day management of the International Fund.
Mr. Burns, who has been employed by Colonial First State (and Stewart Ivory
prior to its acquisition by Colonial First State) for over 9 years, has been a
portfolio manager of the Fund and its predecessor, Babson-Stewart Ivory
International Limited Partnership III, since its
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inception. Mr. Burns is 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 head of Colonial First State's U.K. based Asia Pacific
(ex-Japan) desk, has been employed by Colonial First State (and Stewart Ivory
prior to its acquisition by Colonial First State) for over 10 years. Mr. Paul, a
Chartered Financial Analyst, is the joint head of Colonial First State's
Emerging Markets desk, and has been employed by Colonial First State (and
Stewart Ivory prior to its acquisition by Colonial First State) 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
BABSON GROWTH FUND
The information presented below provides related performance information which
may be useful to consider before investing in the DLB Core Growth Fund. THE
QUOTED PERFORMANCE DATA BELOW DOES NOT REPRESENT THE HISTORICAL PERFORMANCE OF
THE DLB CORE 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 DLB Core
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 Core Growth Fund, 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 DLB Core Growth Fund. James B.
Gribbell, the individual primarily responsible for the day-to-day management of
the DLB Core 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 and to those of
an index of securities comparable to those in which the Babson Growth Fund
invests. In each case, the performance of the Babson Growth Fund has been
adjusted to give effect to the fees and expenses of the DLB Core Growth Fund
(without giving effect to any expense waivers or reimbursements) during the 1999
fiscal year.
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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-9.52% 25.95% 9.01% 10.18% -0.65% 31.31% 21.68% 27.85% 32.09% 12.40%
Best Quarter: 4th Quarter 1998, +26.20% Worst Quarter: 3rd Quarter 1990, -17.28%
The Babson Growth Fund's year-to-date return through September 30, 2000
was 9.59%.
================================================================================
Average Annual Total Returns
For Similar Account*
For the periods ended December 31, 1999
================================================================================
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
Babson Growth
Fund 12.40% 23.81% 24.84% 15.22%
S&P 500 Index 21.04% 27.56% 28.56% 18.21%
Russell 1000
Growth Index 33.16% 34.07% 32.41% 20.32%
--------------------------------------------------------------------------------
* As of December 31, 1999, the Babson Growth Fund had $500 million in assets.
The STANDARD & POORS 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 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.
SMALL COMPANY OPPORTUNITIES ACCOUNTS
The information presented below provides related performance information which
may be useful to consider before investing in the Small Company Opportunities
Fund. THE QUOTED PERFORMANCE DATA BELOW DOES NOT REPRESENT THE HISTORICAL
PERFORMANCE OF THE SMALL COMPANY OPPORTUNITIES 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 Small Company Opportunities 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 Small
Company Opportunities Fund (collectively, the "Small Company Opportunities
Accounts").
Paul S. Szczygiel, the Small Company Opportunities Fund's portfolio manager, has
also been the portfolio manager of the Small Company Opportunities Accounts
since the inception of those accounts (May 1, 1994).
The performance information shown below is based on a composite of the Small
Company Opportunities Accounts adjusted to give effect to the estimated fees and
expenses of the Small Company Opportunities 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
Small Company Opportunities Accounts. The table following the bar chart compares
the average annual total returns that the Manager achieved for the Small Company
Opportunities Accounts 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
Small Company Opportunities Accounts invest.
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================================================================================
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
35.77% 56.70% 47.19% -6.28% 10.83%
Best Quarter: 2nd Quarter 1999, +22.31% Worst Quarter: 3rd Quarter 1998, -21.57%
The Small Companies Opportunities Accounts' year-to-date return through
September 30, 2000 was 37.59%.
================================================================================
Average Annual Total Returns
For Similar Account*
For the periods ended December 31, 1999
================================================================================
Since
Inception
1 Year 3 Years 5 Years 5/1/94
--------------------------------------------------------------------------------
Small Company
Opp. Accounts 10.83% 15.20% 26.60% 25.05%
Russell 2000
Index 21.26% 13.08% 16.69% 14.65%
Russell 2000
Value Index -1.49% 6.69% 13.14% 11.28%
--------------------------------------------------------------------------------
* As of December 31, 1999, the Micro Cap Accounts consisted of 4 accounts
totaling $64.8 million in assets.
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.
The RUSSELL 2000 VALUE INDEX is an unmanaged index that measures the performance
of those Russell 2000 companies with lower price-to-book ratios and lower
forecasted growth values.
Unlike the Small Company Opportunities Fund, the Small Company Opportunities
Accounts are comprised of 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 Small Company Opportunities Accounts are comprised of
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 Small Company Opportunities Accounts had all been registered under the 1940
Act, and subject to Subchapter M of the Code, their performance might have been
adversely affected.
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INVESTING IN THE FUNDS
HOW TO OPEN AN ACCOUNT
Before investing in a Fund you will 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 New York Stock Exchange ("NYSE") is open for business. The NYSE is
closed on weekend days, most 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."
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
($50,000 in the case of the Technology Fund), 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 investment of at least $25,000 in a
Fund and investing the remainder of the minimum initial investment within 12
months.
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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.
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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. 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 Trustees. Determination of fair value will be based upon those factors
that are deemed relevant under the circumstances, including the
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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. The use of fair value pricing by the
Funds may cause the net asset value of its shares to differ significantly from
the net asset value that would be calculated using current market values.
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 (but not implemented) 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 provided and expenses incurred in promoting sales of
shares, to reduce redemptions or to improve 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.
PRINCIPAL 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.
-53-
<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 short-term capital gains). Each Fund also intends to
distribute substantially all of its net realized long-term capital gains, if
any, after giving effect to any available capital loss carryovers. The policy of
the Fixed Income Fund and the High Yield Fund 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 realized 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.
-54-
<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 investment (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.
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 a Fund in foreign securities may
be subject to foreign withholding taxes. In that case, the Fund's yields on
those securities would be decreased. Shareholders may be entitled to claim a
credit or deduction with respect to foreign taxes. In addition, a Fund's
investments in foreign securities or foreign currencies may increase or
accelerate the Fund's recognition of ordinary income and may affect the timing
or amount of the Fund's distributions.
-55-
<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 October 31, 1999, 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 April 30, 2000, which is unaudited, is included in each
Fund's Semi-Annual Report. Each Fund's Annual and Semi-Annual Reports are
available upon request as indicated on the back cover of this Prospectus.
-56-
<PAGE>
DLB FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Six Mos.
Ended Ten Months
April 30, Ended Years Ended December 31, Period Ended
2000 October 31, ------------------------------------ December 31,
(Unaudited) 1999 1998 1997 1996 1995**
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data
(for a share outstanding throughout each period):
Net asset value--beginning of period $ 10.12 $ 10.72 $ 10.61 $ 10.11 $ 10.26 $ 10.00
----------- ----------- ----------- ----------- ---------- ----------
Income from investment operations:
Net investment income .31 .48 .63 .42 .53 .28
Net realized and unrealized gain (loss) on
investments (.20) (.60) .20 .49 (.15) .37
----------- ----------- ----------- ----------- ---------- ----------
.11 (.12) .83 .91 .38 .65
----------- ----------- ----------- ----------- ---------- ----------
Less distributions to shareholders:
From net investment income (1) (.31) (.48) (.63) (.41) (.53) (.28)
From net realized gain on investments (.01) -- (.09) -- -- (.11)
----------- ----------- ----------- ----------- ---------- ----------
(.32) (.48) (.72) (.41) (.53) (.39)
----------- ----------- ----------- ----------- ---------- ----------
Net asset value- end of period $ 9.91 $ 10.12 $ 10.72 $ 10.61 $ 10.11 $ 10.26
=========== =========== =========== =========== ========== ==========
Total return 1.07% (1.08%) 8.04% 9.03% 3.70% 14.75%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets .55%* .55%* .55% .55% .55% .55%*
Ratio of net investment income to average net assets 6.08%* 5.63%* 5.71% 5.74% 6.36% 6.24%*
Portfolio turnover 44% 58% 50% 44% 65% 42%
Net assets at end of period (000 omitted) $ 21,914 $ 36,540 $ 33,858 $ 32,155 $ 15,261 $ 5,325
The Manager has agreed with the Fund to reduce its management fee and/or bear certain expenses, such that the Fund's total
expenses do not exceed .55% of average daily net assets. Without such agreement and had the 1995 expenses been limited to that
permitted by state securities law, the investment income per share and ratios would have been:
Net investment income $ .25 $ .46 $ .60 $ .38 $ .44 $ .19
Ratios (to average net assets):
Expenses .88%* .79%* .80% 1.06% 1.66% 2.50%*
Net investment income 5.75%* 5.40%* 5.45% 5.22% 5.25% 4.33%*
---------------------------------------------------------------------------------------------------------------------------------
* Annualized
** For the period from July 25, 1995 (commencement of operations) to December 31, 1995.
(1) Distributions in excess of net investment income for the year ended December 31, 1996 were less than $.01 per share.
</TABLE>
-57-
<PAGE>
DLB VALUE FUND
FINANCIAL HIGHLIGHTS
<TABLE><CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Six Months Ten Months
Ended Ended Years Ended December 31, Period Ended
April 30, October 31, --------------------------------- December 31,
2000 1999 1998 1997 1996 1995**
(Unaudited)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data
(for a share outstanding throughout each period):
Net asset value--beginning of period $ 14.91 $ 14.48 $ 14.91 $ 12.53 $ 10.58 $ 10.00
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income .11 .29 .27 .15 .16 .09
Net realized and unrealized gain on
investments (1.03) .14 .50 3.15 2.38 .73
------- ------- ------- ------- ------- -------
(0.92) 0.43 .77 3.30 2.54 .82
------- ------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (1) (.33) - (.27) (.15) (.16) (.09)
From net realized gain on investments (1) (1.04) - (.93) (.70) (.41) (.15)
In excess of net realized gain on investment - - - (.07) (.02) -
------- ------- ------- ------- ------- -------
(1.37) - (1.20) (.92) (.59) (.24)
------- ------- ------- ------- ------- -------
Net asset value--end of period $ 12.62 $ 14.91 $ 14.48 $ 14.91 $ 12.53 $ 10.58
======= ======= ======= ======= ======= =======
Total Return (6.31%) 2.98% 5.25% 26.35% 23.99% 18.64% *
Ratios and Supplemental Data:
Ratio of expenses to average net assets .79% * .74% * .60% .71% .80% .80% *
Ratio of net investment income to
average net assets 1.61% * 2.22% * 1.85% 1.40% 1.56% 2.02% *
Portfolio turnover 25% 28% 21% 25% 23% 7%
Net assets at end of period (000 omitted) $71,951 $74,383 $71,911 $56,449 $19,228 $10,818
For certain periods indicated below, the Manager has agreed with the Fund to reduce its management fee and/or bear certain expenses,
such that the Fund's total expenses do not exceed .80% of average daily net assets. Without such agreement, the investment income
per share and ratios would have been:
Net investment income $ - $ - $ .25 $ .13 $ .09 $ .02
Ratios (to average net assets):
Expenses - - .75% .92% 1.50% 2.43% *
Net investment income - - 1.69% 1.19% 0.86% 0.40% *
------------------------------------------------------------------------------------------------------------------------------------
* Annualized
** For the period from July 25, 1995 (commencement of operations) to December 31, 1995.
(1) Distributions from net investment income and from net realized gain on investments for the ten months ended October 31,
1999 were less than $.01 per share.
</TABLE>
-58-
<PAGE>
DLB CORE GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE><CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Six Months Ten Months Period Ended
Ended April 30, Ended October 31, December 31,
2000 1999 1998**
(Unaudited)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data
(for a share outstanding throughout each period):
Net asset value--beginning of period $12.93 $12.82 $10.00
------ ------ ------
Income from investment operations:
Net investment income - 0.02 0.05
Net realized and unrealized gain on investments 2.94 0.09 3.09
----- ----- ----
2.94 0.11 3.14
----- ----- ----
Less distributions to shareholders:
From net investment income (1) (0.02) - (0.05)
From net gain on investments (1) (0.61) - (0.27)
----- ----- ----
(0.63) - (0.32)
----- ----- ----
Net asset value--end of period $15.24 $12.93 $12.82
====== ====== ======
Total return 23.35% 0.85% 31.33%
Ratios and Supplemental Data:
Ratio of expenses to average net assets .69% * .68% * .80% *
Ratio of net investment income to average net assets (.04%)* .19% * .48% *
Portfolio turnover 54% 66% 34%
Net assets at end of period (000 omitted) $162,509 $115,991 $33,054
The Manager has agreed with the Fund to reduce its management fee and/or bear certain expenses, such that the Fund's
total expenses do not exceed .80% of average daily net assets. Without such agreement, the investment income per share
and ratios would have been:
Net investment income $ - $ - $ .03
Ratios (to average net assets):
Expenses - - .95% *
Net investment income - - .32% *
-----------------------------------------------------------------------------------------------------------------------
* Annualized
** For the period from January 20, 1998 (commencement of operations) to December 31, 1998.
(1) Distributions from net investment income and from net gain on investments for the ten months ended October 31,
1999 were less than $.01 per share.
</TABLE>
-59-
<PAGE>
DLB ENHANCED INDEX CORE EQUITY FUND
(FORMERLY KNOWN AS THE DLB DISCIPLINED GROWTH FUND)
FINANCIAL HIGHLIGHTS
<TABLE><CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Six Months Ten Months Years Ended December 31,
Ended Ended ------------------------- Period Ended
April 30, October 31, December 31,
2000 1999 1998 1997 1996 **
(Unaudited)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data
(for a share outstanding throughout each period):
Net asset value--beginning of period $ 17.25 $ 15.89 $ 14.55 $ 11.66 $ 10.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss) (.02) (.03) .01 .03 .01
Net realized and unrealized gain on investments 3.85 1.39 3.72 3.73 1.84
---------- ---------- ---------- ---------- ----------
3.83 1.36 3.73 3.76 1.85
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (1) -- -- (.01) (.03) (.01)
From net realized gain on investments (1) (2.08) -- (2.38) (.83) (.18)
In excess of net realized gain on investment -- -- -- (.01) --
---------- ---------- ---------- ---------- ----------
(2.08) -- (2.39) (.87) (.19)
---------- ---------- ---------- ---------- ----------
Net asset value--end of period $ 19.00 $ 17.25 $ 15.89 $ 14.55 $ 11.66
========== ========== ========== ========== ==========
Total Return 23.50% 8.60% 25.71% 32.23% 18.51%
Ratios and Supplemental Data:
Ratio of expenses to average net assets .90% * .90% * .90% .90% .90% *
Ratio of net investment income (loss) to average net assets (.24%)* (.20%) * .08% .23% .43% *
Portfolio turnover 57% 97% 81% 46% 10%
Net assets at end of period (000 omitted) $ 52,313 $ 41,683 $ 35,308 $ 25,069 $ 13,897
The Manager has agreed with the Fund to reduce its management fee and/or bear certain expenses, such that the Fund's total expenses
do not exceed .90% of average daily net assets. Without such agreement, the investment loss per share and ratios would have been:
Net investment loss $ (.03) $ (.06) $ (.02) $ (.06) $ (.01)
Ratios (to average net assets):
Expenses 1.07% * 1.09% * 1.14% 1.55% 1.82% *
Net investment loss (.41%)* (.39%) * (.17%) (.43%) (.50%)*
------------------------------------------------------------------------------------------------------------------------------------
* Annualized
** For the period from August 26, 1996 (commencement of operations) to December 31, 1996.
(1) Distributions from net investment income and from realized gains on investments for the ten months ended October 31, 1999
were less than $.01 per share.
</TABLE>
-60-
<PAGE>
DLB ENTERPRISE III FUND
FINANCIAL HIGHLIGHTS
<TABLE><CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Six Months Ten Months Years Ended December 31,
Ended Ended ------------------------------------- Period Ended
April 30, October 31, December 31,
2000 1999 1998 1997 1996 1995**
(Unaudited)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data
(for a share outstanding throughout each period):
Net asset value--beginning of period $ 10.93 $ 11.90 $ 14.19 $ 11.51 $ 10.75 $ 10.00
--------- --------- --------- --------- --------- ---------
Income from investment operations:
Net investment income .04 .07 .10 .08 .15 .08
Net realized and unrealized gain (loss) on
investments (.75) (1.04) (1.36) 3.72 1.44 .84
--------- --------- --------- --------- --------- ---------
(.71) (.97) (1.26) 3.80 1.59 .92
--------- --------- --------- --------- --------- ---------
Less distributions to shareholders:
From net investment income (1) (2) (.09) -- (.10) (.08) (.15) (.08)
From net realized gain on investments (1) (2) (.51) -- (.93) (1.04) (.68) (.09)
In excess of realized gain on investments (1) (.02) -- -- -- -- --
--------- --------- --------- --------- --------- ---------
(.62) -- (1.03) (1.12) (.83) (.17)
--------- --------- --------- --------- --------- ---------
Net asset value--end of period $ 9.60 $ 10.93 $ 11.90 $ 14.19 $ 11.51 $ 10.75
========= ========= ========= ========= ========= =========
Total Return (6.77%) (8.11%) (8.63%) 32.95% 14.75% 21.17% *
Ratios and Supplemental Data:
Ratio of expenses to average net assets .90% * .90% * .76% .90% .90% .90% *
Ratio of net investment income to
average net assets .94% * .71% * .77% .78% 1.28% 1.90% *
Portfolio turnover 20% 48% 28% 32% 25% 6%
Net assets at end of period (000 omitted) $ 34,316 $ 32,612 $ 29,940 $ 27,358 $ 13,690 $ 10,929
The Manager has agreed with the Fund to reduce its management fee and/or bear certain expenses, such that the Fund's total expenses
do not exceed .90% of average daily net assets. Without such agreement and had the 1995 expenses been limited to that permitted by
state securities law, the investment income per share and ratios would have been:
Net investment income $ .04 $ .06 $ .06 $ .04 $ .05 $ .01
Ratios (to average net assets):
Expenses 1.07% * 1.00% * 1.02% 1.33% 1.77% 2.50% *
Net investment income .77% * .61% * .51% .36% .41% .32% *
------------------------------------------------------------------------------------------------------------------------------------
* Annualized
** For the period from July 25, 1995 (commencement of operations) to December 31, 1995.
(1) Distributions in excess of net investment income and distributions in excess of net realized gain on investments for the
year ended December 31, 1996 were less than $.01 per share.
(2) Distributions from net investment income and from net realized gains on investments for the ten months ended October 31,
1999 were less than $.01 per share.
</TABLE>
-61-
<PAGE>
DLB SMALL COMPANY OPPORTUNITIES FUND
FINANCIAL HIGHLIGHTS
<TABLE><CAPTION>
------------------------------------------------------------------------------------
Six Months
Ended Ten Months Period
April 30, Ended Ended
2000 October 31, December 31,
(Unaudited) 1999 1998**
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data
(for a share outstanding throughout each period):
Net asset value--beginning of period $ 8.89 $ 8.61 $ 10.00
------- ------- -------
Gain (loss) from investment operations:
Net investment loss .01 (.01) (.01)
Net realized and unrealized gain (loss)
on investments 2.63 .29 (1.38)
------- ------- -------
2.64 .28 (1.39)
------- ------- -------
Lss distributions to shareholders:
From net realized gain on investments (.15) -- --
------- ------- -------
Net asset value--end of period $ 11.38 $ 8.89 $ 8.61
======= ======= =======
Total return 30.54% 2.92% (13.90%)
Ratios and Supplemental Data:
Ratio of expenses to average net assets 1.30%* 1.30%* 1.30%*
Ratio of net investment loss to average
net assets .40%* (.18%)* (.28%)*
Portfolio turnover 64% 68% 51%
Net assets at end of period (000 omitted) $ 48,987 $ 31,819 $ 19,910
The Manager has agreed with the Fund to reduce its management fee and/or bear certain
expenses, such that the Fund's total expenses do not exceed 1.30% of average daily net
assets. Without such agreement, the investment loss per share and ratios would have
been:
Net investment loss $ .01 $ (.02) $ (.03)
Ratios (to average net assets):
Expenses 1.43%* 1.51%* 1.77%*
Net investment loss .27%* (.39%)* (.76%)*
------------------------------------------------------------------------------------
* Annualized
** For the period from July 20, 1998 (commencement of operations) to December 31, 1998.
</TABLE>
-62-
<PAGE>
DLB STEWART IVORY INTERNATIONAL FUND
FINANCIAL HIGHLIGHTS
<TABLE><CAPTION>
------------------------------------------------------------------------------
Six Months
Ended
April 30, 2000
(Unaudited)
------------------------------------------------------------------------------
<S> <C>
Per share data
(for a share outstanding throughout each period):
Net asset value--beginning of period $ 10.00
----------
Income from investment operations:
Net investment income --
Net realized and unrealized gain on investments 1.60
and foreign currency ----------
Net asset value--end of period $ 11.60
==========
Total return 16.00%
Ratios and Supplemental Data:
Ratio of expenses to average net assets 1.00%
Ratio of net investment income to average net assets .02%
Portfolio turnover 30%
Net assets at end of period (000 omitted) $ 65,776
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 1.00% of
average daily net assets. Without such agreement, the investment loss per share
and ratios would have been:
Net investment loss $ (.01)
Ratios (to average net assets):
Expenses 1.11%*
Net investment loss (.08%)*
--------------------------------------------------------------------------------
* Annualized
</TABLE>
-63-
<PAGE>
DLB STEWART IVORY EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS
<TABLE><CAPTION>
------------------------------------------------------------------------------
Six Months
Ended
April 30, 2000
(Unaudited)
------------------------------------------------------------------------------
<S> <C>
Per share data
(for a share outstanding throughout each period):
Net asset value--beginning of period $ 10.00
----------
Income from investment operations:
Net investment income --
Net realized and unrealized gain on investments 1.61
and foreign currency ----------
Net asset value--end of period $ 11.61
==========
Total return 16.10%
Ratios and Supplemental Data:
Ratio of expenses to average net assets 1.75%*
Ratio of net investment income to average net assets (.08%)*
Portfolio turnover 43%
Net assets at end of period (000 omitted) $ 30,075
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 1.75% of
average daily net assets. Without such agreement, the investment loss per share
and ratios would have been:
Net investment loss $ (.02)
Ratios (to average net assets):
Expenses 1.95%*
Net investment loss (.29%)*
--------------------------------------------------------------------------------
* Annualized
</TABLE>
-64-
<PAGE>
APPENDIX A
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.
ASSET-BACKED SECURITIES RISK
The High Yield Fund may purchase asset-backed securities. These 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 are subject to the risk of prepayment by borrowers,
which is more likely to occur when interest rates fall. As with fixed income
securities generally, asset-backed securities present the risk that the issuer
will default on principal and interest payments. The holder of an asset-backed
security may experience difficulty in enforcing rights against assets underlying
the security when an issuer defaults.
In addition, any or all of the following events may cause holders of
asset-backed securities to experience delays in payments on the securities,
which may result in losses to the Fund when it holds these securities:
o unanticipated legal or administrative costs of enforcing the contracts on
the assets;
o depreciation of the collateral securing the contracts; or
o damage to or destruction of the collateral securing the contracts
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 expenses 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 and the Small Company Opportunities Fund
generally limit investments by those Funds to issuers that meet certain market
capitalization requirements. For example, the Enterprise III Fund invests
primarily 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 exceed the specified maximum (or
fail to meet the 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.
-65-
<PAGE>
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.
DERIVATIVES
In managing the Enhanced Index Core Equity Fund, the Manager may use derivatives
to establish a position in the equity securities markets as a temporary
substitute for purchasing or selling particular securities. Derivatives are
financial contracts whose value depend on, or are derived from, the value of an
underlying asset or index. In addition to other risks such as the credit risk of
the counterparty, derivatives involve the risk of mispricing or improper
valuation and the risk that changes in the value of the derivative may not
correlate perfectly with relevant assets and indices. In addition, a Fund's use
of derivatives may affect the timing and amount of taxes payable by
shareholders.
EURO RISK
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
o Investment Companies
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
HIGH YIELD FUND, ENHANCED INDEX CORE EQUITY FUND AND TECHNOLOGY FUND:
o Financial Futures
o Options
INTERNATIONAL FUND AND EMERGING MARKETS FUND:
o Pooled Investment Vehicles
o Foreign Currency Transactions
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<PAGE>
APPENDIX B
DESCRIPTION OF BOND RATINGS ASSIGNED BY STANDARD & POOR'S AND MOODY'S INVESTORS
SERVICE, INC.
STANDARD & POOR'S
AAA: An obligation rated 'AAA' has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA: An obligation rated 'AA' differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: An obligation rated 'A' is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: An obligation rated 'BBB' exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation. Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as
having significant speculative characteristics. 'BB' indicates the least degree
of speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: An obligation rated 'BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B: An obligation rated 'B' is more vulnerable to nonpayment than obligations
rated 'BB', but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC: An obligation rated 'CCC' is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated 'CC' is currently highly vulnerable to nonpayment.
C: A subordinated debt or preferred stock obligation rated 'C' is currently
highly vulnerable to nonpayment. The 'C' rating may be used to cover a situation
where a bankruptcy petition has been filed or similar action taken, but payments
on this obligation are being continued. A 'C' also will be assigned to a
preferred stock issue in arrears on dividends or sinking fund payments, but that
is currently paying.
D: An obligation rated 'D' is in payment default. The 'D' rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The 'D' rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the
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<PAGE>
r (CONT.): credit rating. Examples include: obligations linked or indexed to
equities, currencies, or commodities; obligations exposed to severe prepayment
risk--such as interest-only or principal-only mortgage securities; and
obligations with unusually risky interest terms, such as inverse floaters.
N.R.: This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment some time
in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
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<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 & Company Inc.
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: Information about the Funds (including the SAI) can be reviewed
and copied at the SEC's public reference room in Washington D.C. Information on
the operation of the public reference room may be obtained by calling the SEC at
1-202-942-8090. Reports and other information about the Funds are available on
the EDGAR database on the SEC's Internet site at http://www.sec.gov. Investors
may also make an electronic request at: [email protected] or write to: SEC,
Public Reference Section, Washington, D.C., 20549-0102. A fee will be charged
for making copies.
Investment Company Act File Number 811-08690
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED OCTOBER 19, 2000
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THIS STATEMENT OF
ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
THE DLB FUND GROUP
DLB FIXED INCOME FUND
DLB VALUE FUND
DLB CORE GROWTH FUND
DLB ENHANCED INDEX CORE EQUITY FUND
DLB ENTERPRISE III FUND
DLB SMALL COMPANY OPPORTUNITIES FUND
DLB STEWART IVORY INTERNATIONAL FUND
DLB STEWART IVORY EMERGING MARKETS FUND
DLB HIGH YIELD FUND
DLB TECHNOLOGY FUND
STATEMENT OF ADDITIONAL INFORMATION
December 18, 2000
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the prospectus of The DLB Fund
Group dated December 18, 2000, 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 mean The DLB Fund Group's
prospectus relating to the DLB Fixed Income Fund, the DLB Value Fund, the
DLB Core Growth Fund, the DLB Enhanced Index Core Equity Fund, the DLB
Enterprise III Fund, the DLB Small Company Opportunities Fund, the DLB Stewart
Ivory International Fund, the DLB Stewart Ivory Emerging Markets Fund, the DLB
High Yield Fund and the DLB Technology Fund (collectively, the "Funds").
The DLB Fund Group's audited financial statements for the fiscal year
ended October 31, 1999 included in the Funds' Annual Reports and The DLB Fund
Group's unaudited financial statements for the six-month period ended April 30,
2000 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 Reports may be obtained free of
charge by writing The DLB Fund Group, c/o David L. Babson & Company Inc.,
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
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS...................... 1
INVESTMENT RESTRICTIONS...................................................... 1
INCOME DIVIDENDS, DISTRIBUTIONS AND TAX STATUS............................... 4
MANAGEMENT OF THE TRUST...................................................... 8
INVESTMENT ADVISORY AND OTHER SERVICES.......................................11
ADDITIONAL INVESTMENT PRACTICES OF THE FUNDS.................................15
ADDITIONAL INVESTMENT PRACTICES OF THE FIXED INCOME FUND
AND THE HIGH YIELD FUND......................................................23
ADDITIONAL INVESTMENT PRACTICES OF THE ENHANCED INDEX CORE
EQUITY FUND, THE HIGH YIELD FUND AND THE TECHNOLOGY FUND
-- FUTURES AND OPTIONS.......................................................31
ADDITIONAL INVESTMENT PRACTICES OF THE INTERNATIONAL FUND
AND THE EMERGING MARKETS FUND................................................37
PORTFOLIO TRANSACTIONS.......................................................38
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES.............................42
INVESTMENT PERFORMANCE.......................................................48
DETERMINATION OF NET ASSET VALUE.............................................52
EXPERTS......................................................................53
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS......................53
APPENDIX.....................................................................54
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES AND ASSOCIATED RISKS
The investment objective and principal investment strategies and risks of each
of the DLB Fixed Income Fund (the "Fixed Income Fund"); the DLB Value Fund (the
"Value Fund"); the DLB Core Growth Fund (the "Core Growth Fund"), which was
formerly known as the DLB Growth Fund; the DLB Enhanced Index Core Equity Fund
(the "Enhanced Index Core Equity Fund"), which was formerly known as the DLB
Disciplined Growth Fund and, prior to that, the DLB Quantitative Equity Fund;
the DLB Enterprise III Fund (the "Enterprise III Fund"), which was formerly
known as the DLB Mid Capitalization Fund; the DLB Small Company Opportunities
Fund (the "Small Company Opportunities Fund"), which was formerly know as the
DLB Micro Capitalization Fund; the DLB Stewart Ivory International Fund (the
"International Fund"); the DLB Stewart Ivory Emerging Markets Fund (the
"Emerging Markets Fund"); the DLB High Yield Fund (the "High Yield Fund"); and
the DLB Technology Fund (the "Technology Fund") (each a "Fund," and collectively
the "Funds") of The DLB Fund Group (the "Trust") are set forth in the
Prospectus. This Statement of Additional Information ("SAI") includes additional
information on those investment strategies and risks and on other strategies in
which the Funds may engage and the risks associated with such strategies.
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 Core
Growth Fund, Small Company Opportunities Fund, International Fund,
Emerging Markets Fund, High Yield Fund and Technology 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
<PAGE>
may acquire and dispose of real estate or interests in real estate
acquired through the exercise of its rights as 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 non-publicly 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 Enhanced Index Core Equity
Fund, the High Yield Fund and the Technology 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.
(8) With respect to the Enhanced Index Core Equity Fund,
either (i) invest more than 5% of its total assets in the securities of
any one issuer (other than U.S. Government securities and repurchase
agreements relating thereto), although up to 25% of the Fund's total
assets may be invested without regard to this restriction or (ii)
purchase voting securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the outstanding voting securities
of such issuer to be held by the Fund.
Restrictions (1) through (8) above are deemed to be "fundamental"
investment policies.
In addition, it is contrary to the present policy of each Fund to:
2
<PAGE>
(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 and
the Value Fund to:
(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.
3
<PAGE>
(h) Make investments for the purpose of gaining control of a
company's management.
Unlike Restrictions (1) through (8) 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.
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
4
<PAGE>
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.
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,
5
<PAGE>
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 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
6
<PAGE>
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.
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
7
<PAGE>
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 that 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 2000. 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, 2001 (although transition rules will apply). In some circumstances,
the new rules will increase the certification and filing requirements imposed on
foreign investors in order to qualify for exemption from the 31% back-up
withholding tax and for reduced withholding tax rates under income tax treaties.
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 David L. Babson
& Company Inc. (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 72, serves as a Director of Eldorado Bancshares,
Inc., a commercial bank holding company. 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 systems, the former Chairman, President and Chief Executive Officer of
Combustion Engineering, Inc. and a former
8
<PAGE>
Executive Vice President of American Telephone and Telegraph Company. Mr. Hugel
is also a former director of Eaton Corp. (industrial and electronic products)
and Pitney Bowes Inc. (office products and services).
*KEVIN M. MCCLINTOCK, age 38, is an Executive Vice President and
Director of the Manager. He is the former Director of Equities and Fixed Income
of The Dreyfus Corporation, which is an investment manager, and a Managing
Director of Aeltus, an investment manager subsidiary of Aetna, which is a
provider of insurance and financial services.
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 72, is the Chairman and Chief Executive Officer
of Phelps Industries, Inc., a manufacturer of pet and consumer products. He is
also the director of Superior Pet Products, U.K., a manufacturer of rawhide dog
treats; a director of Brisbane Bandits Baseball Company, which operates an
Australian baseball team; a director of Bio-Comp Corp., a manufacturer of
fertilizer; and a director of Babson-Stewart Ivory International, an open-end
investment company.
*Trustee who is or may be deemed to be an "interested person" (as such term is
defined in the 1940 Act) of the Trust or the Manager.
OFFICERS
--------
FRANK L. TARANTINO, age 56, President, is an Executive Vice President,
Chief Operating Officer and Director of the Manager. Mr. Tarantino is also the
Director, President, Treasurer and Clerk of Babson Securities Corp., the
principal underwriter of the Trust. Before joining the Manager, Mr. Tarantino
was President of Liberty Securities Corporation from 1994 to 1997.
DEANNE B. DUPONT, age 46, Treasurer, is a Senior Vice President of the
Manager.
LANCE F. JAMES, age 46, Vice President, is an Executive Vice President
and Director of the Manager.
MARY WILSON KIBBE, age 46, Vice President, is an Executive Vice
President of the Manager. From 1997 through 1999, Ms. Kibbe was an Executive
Director of Massachusetts Mutual Life Insurance Company ("MassMutual"), a
company with which she had been associated since 1982.
9
<PAGE>
JOHN E. DEITELBAUM, age 31, Clerk, is Counsel of the Manager and Second
Vice President and Associate General Counsel of MassMutual (since 2000). Mr.
Deitelbaum is also Assistant Clerk of Babson Securities Corp., the principal
underwriter of the Trust. Previously Mr. Deitelbaum was Vice President and
General Counsel of the Manager (1998-1999), Counsel of MassMutual (1996-1998)
and an associate at the law firm of Day Berry & Howard (1993-1996).
The mailing address of each of the officers and Trustees is c/o David
L. Babson & Company Inc., 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 October 31, 1999, are shown below:
Total Compensation from
Aggregate Compensation Registrant and Fund
Name Of Trustee from Registrant* Complex Paid to Trustees
--------------- ---------------------- ------------------------
Charles E. Hugel $10,250 $10,250
Richard A. Nenneman $10,250 $10,250
Richard J. Phelps $10,250 $10,250
Kevin M. McClintock $0 $0
James W. MacAllen** $0 $0
----------------------
* Includes an annual retainer and an attendance fee for each meeting attended.
The DLB Fund Group changed its fiscal year end in 1999 from December 31 to
October 31. Accordingly, figures shown for 1999 are for a ten-(10) month period
only. Commencing
10
<PAGE>
on January 1, 2000, the annual retainer payable by the Trust to each of the
independent Trustees was increased to $16,000 and the per meeting fee was set at
$1,000.
** Resigned from service as a Trustee effective October 7, 1999.
CODE OF ETHICS
--------------
The Trust, the Manager, Babson-Stewart Ivory International, the
subadvisor of certain of the Funds ("BSII"), and Babson Securities Corporation,
the principal underwriter of the Funds ("BSC"), have adopted Codes of Ethics
pursuant to the requirements of the 1940 Act. These Codes of Ethics permit
personnel subject to the Codes to invest in securities, including securities
that may be purchased or held by the Funds.
INVESTMENT ADVISORY AND OTHER SERVICES
MANAGEMENT CONTRACTS
--------------------
The Manager, David L. Babson & Company Inc., has its principal
locations at One Memorial Drive, Cambridge, Massachusetts 02142, and 1295 State
Street, Springfield, Massachusetts 01111. The Manager 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 MassMutual, a mutual life insurance company.
MassMutual 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 Subadvisory Agreements with Babson-Stewart
Ivory International ("BSII") with respect to the management of 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) .375% of the International Fund's average
daily net assets, and (b) .875% of the Emerging Markets Fund's average daily net
assets. These payments will not affect the amounts payable by 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
11
<PAGE>
bookkeeping and certain clerical services and pays all salaries, fees and
expenses of officers and Trustees of the Trust who are affiliated with the
Manager. As indicated under "Portfolio Transactions," the Trust's portfolio
transactions may be placed with broker-dealers which furnish the Manager, at no
cost 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 December 31, 2001 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, the Emerging Markets Fund, the High
Yield Fund and the Technology 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:
<TABLE><CAPTION>
OTHER TOTAL
FISCAL MANAGEMENT FEE EXPENSES EXPENSES
YEAR TOTAL PAID WAIVED WAIVED WAIVED
---- ----- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1. FIXED INCOME FUND
1997 86,512 43,160 43,352 67,825 111,177
1998 131,644 80,513 51,131 32,137 83,268
1999+ 121,361 121,361 0 72,271 72,271
2. VALUE FUND
1997 207,027 131,383 75,644 2,994 78,638
1998 367,883 264,569 103,314 72 103,386
1999+ 352,180 352,180 0 0 0
3. CORE GROWTH FUND*
1998 147,804 106,037 41,767 201 41,968
1999+ 526,541 526,541 0 0 0
12
<PAGE>
4. ENHANCED INDEX CORE
EQUITY FUND**
1997 151,521 110,944 40,577 91,787 132,364
1998 223,157 177,404 45,753 26,270 72,023
1999+ 249,026 249,026 0 63,733 63,733
5. ENTERPRISE III FUND
1997 109,834 54,798 55,036 23,164 78,200
1998 173,748 105,283 68,465 7,012 75,477
1999+ 172,193 172,193 0 27,861 27,861
6. SMALL COMPANY
OPPORTUNITIES FUND***
1998 82,227 73,575 8652 30,905 39,557
1999+ 216,505 216,505 0 46,425 46,425
</TABLE>
-------------------
* The Core Growth Fund commenced operations on January 20, 1998.
** The Enhanced Index Core Equity Fund commenced operations on August 26, 1996.
***The Small Company Opportunities Fund commenced operations on July 20, 1998.
+ The DLB Fund Group changed its fiscal year end in 1999 from December 31 to
October 31. Accordingly, figures shown for 1999 are for a ten (10) month period
only.
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 Subadvisor ceases to be the subadvisor 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
13
<PAGE>
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 Subadvisory Agreements contain provisions similar to those
contained in the Management Contracts.
PRINCIPAL UNDERWRITER
---------------------
Babson Securities Corp. ("BSC"), a wholly owned subsidiary of the
Manager, serves as the principal underwriter of the Funds. As described in the
Prospectus, BSC solicits applications for the purchase of shares of the Funds
and may assist investors in transmitting applications to the Funds or their
agent as part of the Funds' continuous offering of their shares. During the
fiscal year ended October 31, 1999, BSC did not receive any compensation from
the Funds or the Trust for serving as principal underwriter of the Funds. BSC's
principal business address is One Memorial Drive, Cambridge, Massachusetts
02142.
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.
14
<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 filings with the Securities and Exchange
Commission (the "SEC").
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. Each Fund may invest in money market
securities. 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 insurance from the Bank Insurance Fund or the Savings
Association
15
<PAGE>
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. See the "Descriptions of Principal Investment Risks" section of the
Prospectus for additional information relating to the risks of investing in
preferred stocks.
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
16
<PAGE>
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 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." See the "Descriptions of Principal
Investment Risks" section of the Prospectus for additional information relating
to the risks of investing in convertible securities.
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 (other than
the Enhanced Index Core Equity Fund and the Technology Fund) expect to
experience relatively modest portfolio turnover rates. It is anticipated that
under normal circumstances the annual portfolio turnover rate of any Fund (other
than the Enhanced Index Core Equity Fund and the Technology Fund) will not
exceed 100%. However, in any particular year, market conditions may result in
greater turnover rates than the Manager currently anticipates for these Funds.
The Manager will make changes to the Enhanced Index Core Equity Fund's portfolio
and the Technology Fund's portfolio whenever the Manager believes such
17
<PAGE>
changes are desirable and, consequently, anticipates that each such Fund's
portfolio turnover may be high. 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 are shown
in the "Financial Highlights" section of the Prospectus. See the "Taxes" section
of the Prospectus and "Portfolio Transactions" in this SAI 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
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 below and 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."
18
<PAGE>
Derivatives are financial instruments whose values depend upon, or are 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.
Each Fund may invest in warrants or rights. However, the Value 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
19
<PAGE>
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 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. Each Fund is permitted to invest in foreign
securities, including securities in emerging markets. 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.
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 ("ADRs") 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 and are subject to
many of the risks associated with owning the underlying foreign security. 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
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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
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
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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 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.
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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.
INVESTMENT COMPANIES. Each Fund may invest in investment companies.
Investment companies include the category of investments commonly known as
mutual funds. An open-end investment company is a fund that redeems its shares
on a daily basis, while a closed-end investment company is a fund that does not
redeem its shares on a daily basis. An investment in a closed-end investment
company may be less liquid than an investment that can be sold any time a Fund
holding such an investment decides to sell. Since the value of an investment
company is based on the value of the individual securities it holds, an
investment company's value will fall if the value of its underlying securities
declines. As a shareholder of an investment company, a Fund will bear its
ratable share of the investment company's expenses, including management fees,
and will remain subject to the investment company's advisory and administration
fees with respect to the assets so invested.
ADDITIONAL INVESTMENT PRACTICES OF
THE FIXED INCOME FUND AND THE HIGH YIELD FUND
In addition to the investment practices described in the Prospectus,
the Fixed Income Fund and the High Yield Fund may also engage in the following
investment practices.
ADJUSTABLE RATE SECURITIES. The Funds 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 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.
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INTEREST RATE SWAPS AND RELATED INSTRUMENTS. An interest rate swap
agreement involves the exchange by a 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 Funds intend to use these
transactions as hedges and not as speculative investments. The Funds 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 Fixed Income 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 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.
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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.
LOWER RATED FIXED INCOME SECURITIES. The Fixed Income Fund may invest
in lower rated fixed income securities and, under normal market conditions, the
High Yield Fund invests primarily in lower rated fixed income securities
(commonly known as "junk bonds"). The lower ratings assigned such securities
reflect a greater possibility that adverse changes in the financial condition of
the issuer or in general economic conditions, or both, or an unanticipated rise
in interest rates, may impair the ability of the issuer to make payments of
interest and principal. The inability (or perceived inability) of issuers to
make timely payments of interest and principal would likely make the values of
such securities held by a Fund more volatile and could limit the Fund's ability
to sell its securities at prices approximating the values the Fund had placed on
such securities. In the absence of a liquid trading market for securities held
by a Fund, the Fund at times may be unable to establish the fair value of such
securities. Furthermore, since the High Yield Fund typically invests primarily
in lower rated fixed income securities, the Fund's achievement of its investment
objective may be more dependent upon the Manager's investment analysis than if
the Fund invested primarily in higher rated securities.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' analysis at the time of rating.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better or
worse than the rating would indicate. In addition, the rating assigned to a
security by Moody's Investors Service, Inc. or Standard & Poor's Rating
Services, a division of The McGraw Hill Companies, Inc. ("Standard & Poor's")
(or by any other nationally recognized securities rating agency) does not
reflect an assessment of the volatility of the security's market value or the
liquidity of an investment
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in the security. A description of the securities ratings assigned by Moody's
Investors Service, Inc. and Standard & Poor's is included in the Prospectus.
Like those of other fixed income securities, the values of lower rated
securities fluctuate in response to changes in interest rates. A decrease in
interest rates will generally result in an increase in the value of the Fund's
assets. Conversely, during periods of rising interest rates, the value of the
Fund's assets will generally decline. The values of lower rated securities may
often be affected to a greater extent by changes in general economic conditions
and business conditions affecting the issuers of such securities and their
industries. Negative publicity or investor perceptions may also adversely affect
the values of lower rated securities. Changes by securities rating agencies in
their ratings of a fixed income security and changes in the ability of an issuer
to make payments of interest and principal may also affect the values of these
investments. Changes in the values of portfolio securities generally will not
affect income derived from these securities but will affect the Fund's net asset
value. The Fund will not necessarily sell a security when its rating falls below
its rating at the time of purchase. The Manager will monitor the investment,
however, to determine whether its retention will assist in meeting the Fund's
investment objective.
Issuers of lower rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. Such issuers
may not have more traditional methods of financing available to them and may be
unable to repay outstanding obligations at maturity by refinancing. The risk of
loss due to default in payment of interest or repayment of principal by such
issuers is significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior indebtedness.
At times, a substantial portion of a Fund's assets may be invested in
securities of which the Fund, by itself or together with other funds and
accounts managed by the Manager, holds all or a major portion. Although the
Manager generally considers such securities to be liquid because of the
availability of an institutional market for such securities, it is possible
that, under adverse market or economic conditions or in the event of adverse
changes in the financial condition of the issuer, the Fund could find it
difficult to sell these securities when the Manager believes it advisable to do
so or may be able to sell the securities only at prices lower than if they were
more widely held. Under these circumstances, it may also be difficult to
determine the fair value of such securities for purposes of computing the Fund's
net asset value. In order to enforce its rights in the event of a default by the
issuer of such securities, the Fund may be required to participate in various
legal proceedings or take possession of and manage assets securing the issuer's
obligations on such securities. This could increase the Fund's operating
expenses and adversely affect the Fund's net asset value. In addition, the
Fund's intention to qualify as
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a "regulated investment company" under the Code may limit the extent to which
the Fund may exercise its rights by taking possession of such assets.
Certain securities held by the Fund may permit the issuer at its option
to "call," or redeem, its securities. If an issuer were to redeem securities
held by the Fund during a time of declining interest rates, the Fund may not be
able to reinvest the proceeds in securities providing the same investment return
as the securities redeemed.
ZERO COUPON AND PAYMENT-IN-KIND SECURITIES. The Fixed Income Fund and
the High Yield Fund may invest in zero coupon fixed income securities and
payment-in-kind fixed income securities. Zero coupon fixed income securities are
issued at a significant discount from their principal amount in lieu of paying
interest periodically. Payment-in-kind fixed income securities allow the issuer,
at its option, to make current interest payments on the fixed income securities
either in cash or in additional fixed income securities. Because zero coupon and
payment-in-kind fixed income securities do not pay current interest in cash,
their value is subject to greater fluctuation in response to changes in market
interest rates than fixed income securities that pay interest currently. Both
zero coupon and payment-in-kind fixed income securities allow an issuer to avoid
the need to generate cash to meet current interest payments. Accordingly, such
securities may involve greater credit risks than fixed income securities paying
interest currently in cash. A Fund is required to accrue interest income on such
investments and to distribute such amounts at least annually to shareholders
even though such securities do not pay current interest in cash. Thus, it may be
necessary at times for a Fund to liquidate investments in order to satisfy its
dividend requirements.
COMMON STOCKS AND OTHER EQUITY SECURITIES. The High Yield Fund may
invest in common stocks and their equivalents. Common stocks and their
equivalents, together called "equity securities," are generally volatile and
more risky than some other forms of investment. Equity securities of companies
with relatively small market capitalization may be more volatile than the
securities of larger, more established companies and than the broad equity
market indices.
ASSET-BACKED SECURITIES. The Funds may invest in asset-backed
securities. Through the use of trusts and special purpose corporations,
automobile or credit card receivables may be securitized in pass-through
structures similar to mortgage pass-through structures or in a pass-through
structure similar to the CMO structure. Generally, the issuers of asset-backed
bonds, notes or pass-through certificates are special purpose entities and do
not have any significant assets other than the receivables securing such
obligations. In general, the collateral supporting asset-backed securities is of
shorter maturity than mortgage loans. Instruments backed by pools of receivables
are similar to mortgage-backed securities in that they are subject to
unscheduled prepayments of principal prior to maturity. When the obligations are
prepaid, the Fund ordinarily will
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reinvest the prepaid amounts in securities the yields of which reflect interest
rates prevailing at the time. Therefore, a Fund's ability to maintain a
portfolio that includes high-yielding asset-backed securities will be adversely
affected to the extent that prepayments of principal must be reinvested in
securities that have lower yields than the prepaid obligations. Moreover,
prepayments of securities purchased at a premium could result in a realized
loss.
STRIPS AND RESIDUALS. The Funds 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 Funds 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 a 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 Funds 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.
Collateralized mortgage obligations ("CMOs") also include securities
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
("Residuals"). 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.
INDEXED SECURITIES. The Funds 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
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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 Funds 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, 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 Funds 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
Funds' 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 Funds 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 a
Fund. For example, if a loan is foreclosed, the Fund could become part owner of
any collateral, and would bear the costs
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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. A 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 a 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 custodial account to cover its potential obligations
under standby financing commitments.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL TRANSACTIONS. The Funds
may enter into reverse repurchase agreements and dollar roll agreements with
banks and brokers to enhance return.
Reverse repurchase agreements involve sales by a 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 a 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 Funds will establish segregated accounts with their custodian in
which they will maintain assets equal in value to their 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 a Fund may
decline below the price of the
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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, a 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 a Fund for purposes of the Fund's fundamental
investment restriction with respect to borrowings.
ADDITIONAL INVESTMENT PRACTICES OF THE
ENHANCED INDEX CORE EQUITY FUND, THE HIGH YIELD FUND AND
THE TECHNOLOGY FUND --FUTURES AND OPTIONS
In addition to the other investment practices described in the SAI and
the Prospectus, the Enhanced Index Core Equity Fund, the High Yield Fund and the
Technology 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 Funds 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 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 a 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 a 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
31
<PAGE>
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 Funds may purchase and sell call and put options
on securities it owns or in which it may invest. A 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 Funds will comply
with guidelines established by the SEC with respect to 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 a Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
COMBINED POSITIONS. The Funds 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, a 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.
32
<PAGE>
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 a 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 a 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 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
33
<PAGE>
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 a 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 Funds have 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 Funds do not engage in commodity futures or commodity options for
"bona fide" hedging purposes, the Rule requires the Funds 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 a Fund to enter into 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 a 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.
34
<PAGE>
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a 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 that 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 a 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 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
35
<PAGE>
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
INTERNATIONAL FUND
AND THE EMERGING MARKETS FUND
POOLED INVESTMENT VEHICLES. In order to gain exposure to certain
foreign countries that prohibit or impose restrictions on direct investment, 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
36
<PAGE>
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 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. Based on these factors, a particular security
may be bought or sold for certain clients but not others. 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 often 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.
37
<PAGE>
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 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 and the High Yield Fund will be with the
issuer or with underwriters of or dealers in those securities, acting as
principal. Accordingly, the Fixed Income Fund and the High Yield 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 investors to receive
brokerage and research services (as defined in the Securities Exchange Act of
1934, as amended, and the rules promulgated thereunder (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 brokerage 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.
38
<PAGE>
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
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 Subadvisory 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 SEC
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, the Emerging
Markets Fund, the High Yield Fund and the Technology Fund, which are newly
organized) during the fiscal periods indicated.
1. FIXED INCOME FUND
-----------------
Fiscal Year ended Brokerage Commissions
----------------- ---------------------
December 31, 1997 $0
December 31, 1998 $0
October 31, 1999 (from January 1, 1999) $0
39
<PAGE>
2. VALUE FUND
----------
Fiscal Year ended Brokerage Commissions
----------------- ---------------------
December 31, 1997 $60,776
December 31, 1998 $63,166
October 31, 1999 (from January 1, 1999) $48,785
3. CORE GROWTH FUND
----------------
Fiscal Year ended Brokerage Commissions
----------------- ---------------------
December 31, 1998 (from January 20, 1998) $35,612
October 31, 1999 (from January 1, 1999) $230,248
4. ENHANCED INDEX CORE EQUITY FUND
-------------------------------
Fiscal Year ended Brokerage Commissions
----------------- ---------------------
December 31, 1997 $17,992
December 31, 1998 $41,973
October 31, 1999 (from January 1, 1999) $53,927
5. ENTERPRISE III FUND
-------------------
Fiscal Year ended Brokerage Commissions
----------------- ---------------------
December 31, 1997 $36,573
December 31, 1998 $48,871
October 31, 1999 (from January 1, 1999) $97,399
6. SMALL COMPANY OPPORTUNITIES FUND
--------------------------------
Fiscal Year ended Brokerage Commissions
----------------- ---------------------
December 31, 1998 (from July 20, 1998) $36,532
October 31, 1999 (from January 1, 1999) $53,007
40
<PAGE>
The increase in brokerage commissions paid by the Core Growth Fund, the
Enterprise III Fund and the Small Company Opportunities Fund from the prior
periods shown resulted from higher turnover rates experienced by those Funds
during the 10-month period ended October 31, 1999, and, in the case of the Core
Growth Fund, a substantial increase in the size of the Fund.
The following table shows transactions (including the dollar value of
such transactions, the percentage of total transactions represented by such
transactions and commissions paid on such transactions) placed by each Fund
(other than the International Fund, the Emerging Markets Fund, the High Yield
Fund and the Technology Fund, which are newly organized) with brokers and
dealers during the fiscal year ended October 31, 1999 to recognize research
services.
================================================================================
DOLLAR VALUE
OF THOSE PERCENT OF TOTAL AMOUNT OF
TRANSACTIONS TRANSACTIONS COMMISSIONS
-------------------------- -------------- -------------- --------------
FIXED INCOME FUND $0 0% $0
-------------------------- -------------- -------------- --------------
VALUE FUND $16,940,999 52.40% $25,186
-------------------------- -------------- -------------- --------------
CORE GROWTH FUND $89,848,914 41.02% $141,963
-------------------------- -------------- -------------- --------------
ENHANCED INDEX $7,096,974 9.24% $8,396
CORE EQUITY FUND
-------------------------- -------------- -------------- --------------
ENTERPRISE III FUND $10,730,795 28.50% $39,462
-------------------------- -------------- -------------- --------------
SMALL COMPANY $3,929,115 9.67% $15,955
OPPORTUNITIES FUND
================================================================================
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 dated August 1, 1994, as amended (the "Declaration of
Trust"). A copy of the Declaration of Trust is on file with the Secretary of The
Commonwealth of Massachusetts. Each Fund is a non-diversified series of the
Trust, except for the Enhanced Index Core Equity Fund, which is diversified. 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.
41
<PAGE>
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.
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 when required by the 1940 Act, shares
shall be voted in the aggregate and not by individual Fund. 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.
42
<PAGE>
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 or
classes of Trust shares or other provisions relating to Trust shares in response
to applicable laws or regulations.
SHAREHOLDER AND TRUSTEE LIABILITY
---------------------------------
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or executed by the Trust
or the Trustees. The Declaration of Trust provides for indemnification out of
the property of the relevant Fund for all loss and expense of any shareholder of
that Fund held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is considered remote because it is limited to circumstances in which
the disclaimer is inoperative and the Fund of which he is or was a shareholder
would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard
43
<PAGE>
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 September 29, 2000, 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 31.50%
Insurance Company
1295 State Street
Springfield, MA 01111
MassMutual Trust Company FSB 28.13%
CityPlace I
185 Asylum Street
Hartford, CT 06103
MassMutual Foundation for Hartford Inc. 11.85%
1295 State Street
Springfield, MA 01111
David L. Babson & Co. Pension Plan 12.02%
c/o David L. Babson & Co. Inc.
One Memorial Drive
Cambridge, MA 02142
44
<PAGE>
2. VALUE FUND
----------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
Massachusetts Mutual Life 67.85%
Insurance Company
1295 State Street
Springfield, MA 01111
MassMutual Foundation for Hartford Inc. 10.40%
1295 State Street
Springfield, MA 01111
National City PA, Trustee FBO 10.11%
Allegheny County Police Pension
P. O. Box 242
Bethel Park, PA 15102
3. CORE GROWTH FUND
----------------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
Massachusetts Mutual Life 97.22%
Insurance Company
1295 State Street
Springfield, MA 01111
4. ENHANCED INDEX CORE EQUITY FUND
-------------------------------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
Massachusetts Mutual Life 91.55%
Insurance Company
1295 State Street
Springfield, MA 01111
45
<PAGE>
5. ENTERPRISE III FUND
-------------------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
Massachusetts Mutual Life 77.71%
Insurance Company
1295 State Street
Springfield, MA 01111
M&I Trust Company, as Trustee 20.69%
Diocese of Phoenix
1000 N. Water Street -TR14
Milwaukee, WI 53202
6. SMALL COMPANY OPPORTUNITIES FUND
--------------------------------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
Massachusetts Mutual Life 31.86%
Insurance Company
1295 State Street
Springfield, MA 01111
MassMutual Trust Company FSB 5.14%
CityPlace I
185 Asylum Street
Hartford, CT 06103
7. INTERNATIONAL FUND
------------------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
Virginia Power Collectively Bargained 22.81%
VEBA Trust
P.O. Box 26532
Richmond, VA 23241
Herbert & Grace Dow Foundation 17.80%
1018 West Main Street
Midland, MI 48640
46
<PAGE>
Plymouth County Retirement Plan 14.22%
South Russell Street
Plymouth, MA 02380
Dominion Resources, Inc. 12.47%
Salaried Employee Insurance VEBA Trust
P.O. Box 26532
Richmond, VA 23251
Butler University 11.67%
4800 Sunset Avenue
Indianapolis, IN 46208
Horizon Hospital System 8.92%
263 Arlington Drive
Greenville, PA 16125
Pittsfield Ret. System 6.42%
City Hall
80 Allen Street
Pittsfield, MA 01201
8. EMERGING MARKETS FUND
---------------------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
Massachusetts Mutual Life 96.42%
Insurance Company
1295 State Street
Springfield, MA 01111
9. HIGH YIELD FUND
---------------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
Massachusetts Mutual Life 100%
Insurance Company
1295 State Street
Springfield, MA 01111
10. TECHNOLOGY FUND
---------------
Shareholder Name and Address Percentage Owned
---------------------------- ----------------
Massachusetts Mutual Life 100%
Insurance Company
1295 State Street
Springfield, MA 01111
47
<PAGE>
INVESTMENT PERFORMANCE
STANDARD PERFORMANCE MEASURES
-----------------------------
The yield of the Fixed Income Fund and the High Yield 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 April 30,
2000 was 6.70%.
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 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.
48
<PAGE>
The following table summarizes the calculation of Total Return for the
Funds, where applicable, (i) for the one-year period ended April 30, 2000, (ii)
for the five-year period ended April 30, 2000 and (iii) since commencement of
operations+.
<TABLE><CAPTION>
===========================================================================================
Average Annual
Average Annual Total Return from
Total Return for Total Return for the Commencement of
the One-Year Period Five-Year Period Operations+ through
ended April 30, 2000* ended April 30, 2000* April 30, 2000*
FUND --------------------- --------------------- ---------------------
---------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C>
Fixed Income Fund 0.16% N/A 5.57%
---------------------- --------------------- --------------------- ---------------------
Value Fund -14.61% N/A 11.89%
---------------------- --------------------- --------------------- ---------------------
Core Growth Fund 24.01% N/A 23.45%
---------------------- --------------------- --------------------- ---------------------
Enhanced Index 29.40% N/A 29.58%
Core Equity Fund
---------------------- --------------------- --------------------- ---------------------
Enterprise III Fund -13.68% N/A 5.65%
---------------------- --------------------- --------------------- ---------------------
Small Company 40.03% N/A 8.26%
Opportunities Fund
---------------------- --------------------- --------------------- ---------------------
International Fund** 27.79% 13.10% 10.98%
===========================================================================================
</TABLE>
+ The inception date for the Funds are as follows: Fixed Income Fund, July 25,
1995; Value Fund, July 25, 1995; Core Growth Fund, January 20, 1998; Enhanced
Index Core Equity Fund, August 26, 1996; Enterprise III Fund, July 25, 1995;
Small Company Opportunities Fund, July 20, 1998; International Fund, November 1,
1999.
* Performance for the Funds would have been lower if an expense limitation had
not been in effect.
** The International Fund commenced operations on November 1, 2000. The
performance shown is the performance of the Fund's predecessor, Babson-Stewart
Ivory International Limited Partnership III (the "Limited Partnership"),
adjusted to give effect to the higher fees and expenses of the Fund (without
giving effect to the Fund's expense limitation agreement with the Manager). The
Limited Partnership was not registered under the 1940 Act 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.
49
<PAGE>
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; Core Growth Fund, January 20, 1998;
Enhanced Index Core Equity Fund, August 26, 1996; Enterprise III Fund, July 25,
1995; Small Company Opportunities Fund, July 20, 1998; International Fund,
November 1, 1999; Emerging Markets Fund, November 1, 1999; High Yield Fund,
September 5, 2000; and Technology Fund, September 5, 2000.
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 1000 Index, the
Russell 2500 Index, the Russell 2000 Index, the Russell 2000 Value 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, the First
Boston High Yield Index, the Lehman High Yield Bond Index, the Merrill Lynch
High Yield Master Index, or other appropriate managed or unmanaged indices of
the performance of various types of 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.
50
<PAGE>
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. (for example, 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, the Lipper Large Cap Core Fund Average) or
Morningstar, Inc. (for example, the Morningstar Large Cap Value Fund and Large
Cap Blend Fund Averages), which are independent services that 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
-----------------------
From time to time, articles about the Funds regarding performance,
rankings and other characteristics of the Funds may appear in national
publications, including but not limited to, the Wall Street Journal, Forbes,
Fortune, and Money magazine. In particular, some or all of these publications
may publish their own rankings or performance of mutual funds, including the
Funds. References to or reprints of such articles may be used in the Funds'
promotional literature. References to articles regarding personnel of the
Manager or the Subadvisor who have portfolio management responsibility may also
be used in the Funds' promotional literature.
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
51
<PAGE>
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 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, on which the New York Stock Exchange will not be open are New
Year's Day, Martin Luther King, Jr. Day, President's Day, 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 October
31, 1999 incorporated by reference into this Statement of Additional Information
have been audited by Deloitte & Touche LLP, 200 Berkeley Street, Boston,
Massachusetts 02116, 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
October 31, 1999 included in the Trust's Annual Reports filed with the SEC on
January 5, 2000 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 April 30, 2000 included in the Trusts' Semiannual Reports filed
with the SEC on July 6, 2000, as amended, 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.
52
<PAGE>
APPENDIX
DESCRIPTION OF STOCK RATINGS
STANDARD & POOR'S EARNINGS AND DIVIDEND RANKINGS FOR COMMON STOCKS
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.
53
<PAGE>
INVESTMENT MANAGER
David L. Babson & Company Inc.
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
54
<PAGE>
THE DLB FUND GROUP
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******
(9) Amendment No. 8 to Agreement and Declaration of
Trust+
(10) Amendment No. 9 to Agreement and Declaration of
Trust^
(11) Amendment No. 10 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 & Co.
Inc. (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*
(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******
<PAGE>
(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******
(13) Interim Sub-Advisory Agreement between the Manager
and BSII relating to the DLB Global Small
Capitalization Fund++
(14) Interim Sub-Advisory Agreement between the Manager
and BSII relating to the DLB Stewart Ivory
International Fund++
(15) Interim Sub-Advisory Agreement between the Manager
and BSII relating to the DLB Stewart Ivory Emerging
Markets Fund++
(16) Management Contract between the Trust and the Manager
relating to the DLB High Yield Fund++
(17) Management Contract between the Trust and the Manager
relating to the DLB Technology Fund^
(18) Form of Amendment No. 1 to Management Contract
between the Trust and the Manager relating to the DLB
Disciplined Growth 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******
(g)(3) Form of Amendment to the Custodian Agreement relating to the
DLB High Yield Fund++
(g)(4) Form of Amendment to the Custodian Agreement relating to the
DLB Technology Fund^
(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) Amendment to Fee Waiver and Expense Limitation Agreement++
(h)(5) Form of Agreement and Plan of Reorganization******
(h)(6) Form of Administration Agreement between the Trust and
IBT******
(h)(7) Form of Amendment to Administration Agreement******
(h)(8) Form of Amendment to Transfer Agency Agreement relating to the
DLB High Yield Fund++
(h)(9) Form of Amendment to Administration Agreement relating to the
DLB High Yield Fund++
(h)(10) Form of Amendment to Transfer Agency Agreement relating to the
DLB Technology Fund^
(h)(11) Form of Amendment to Administration Agreement relating to the
DLB Technology Fund^
(h)(12) Amended and Restated Fee and Expense Limitation Agreement^^
-2-
<PAGE>
(i) Opinion and Consent of Ropes & Gray^
(j) Consent of Independent Auditors, Deloitte & Touche, LLP^^
(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******
(10) Form of Rule 12b-1 Plan for the DLB High Yield Fund++
(11) Form of Rule 12b-1 Plan for the DLB Technology
Fund^
(n) Rule 18f-3 Plan - Not Applicable
(o) (1) 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***
(2) Power of Attorney for Kevin McClintock, appointing Frank
L. Tarantino and DeAnne B. Dupont as attorneys in fact++
(p)(1) Code of Ethics for the Trust, the Manager and Babson
Securities Corp.++
(p)(2) Code of Ethics for BSII+++
--------------------------
* Incorporated by reference to Registrant's Post-Effective 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.
****** Incorporated by reference to Registrant's Post-Effective Amendment No.
13 filed on October 29, 1999.
-3-
<PAGE>
+ Incorporated by reference to Registrant's Post-Effective Amendment No.
14 filed on January 14, 2000.
++ Incorporated by reference to Registrant's Post-Effective Amendment No.
16 filed on April 12, 2000.
+++ Incorporated by reference to Registrant's Post-Effective Amendment No.
17 filed on June 19, 2000.
^ Incorporated by reference to Registrant's Post-Effective Amendment No.
18 filed on September 1, 2000.
^^ Filed herewith.
-4-
<PAGE>
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 a holding company for certain MassMutual entities,
all the stock of which is owned by MassMutual.
7. MML Series Investment Fund (the "Trust"), 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.
8. MassMutual Institutional Funds, a Massachusetts business trust
which operates as an open-end investment company. MassMutual
owns a majority of the shares.
9. 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.
-5-
<PAGE>
10. MassMutual Mortgage Finance, LLC, a Delaware limited liability
company and wholly-owned subsidiary of MassMutual which makes,
acquires, holds and sells mortgage loans.
11. 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.
12. The MassMutual Trust Company, which is a federally chartered
stock savings bank. MassMutual owns 100% of the outstanding
shares of the company.
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 Securities 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 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.
-6-
<PAGE>
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 Limited holds approximately an
88.3% ownership interest in this company, and MassMutual holds
approximately a 4.6% ownership interest in this company. David
L. Babson and Company Incorporated ("Babson") acts as
sub-adviser for this fund.
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. David L. Babson and Company Incorporated
("Babson") 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 of Babson. MassMutual
Holding Trust I owns approximately 98% of the outstanding
capital stock of DLB.
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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 ("Babson"), a
Massachusetts corporation that 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 Babson.
36. Babson-Stewart-Ivory International, a Massachusetts general
partnership, which operates as an investment adviser. Babson
holds a 50% ownership interest in the partnership.
37. Potomac Babson Incorporated, a Massachusetts corporation which
formerly operated as an investment adviser. Babson owns 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.
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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 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 2.49%of its shares, MMHC
Investment Inc. holds approximately 34.11%, and HYP
Management, Inc. holds approximately 6.82%, for an approximate
total ownership interest in this company of 43.42%.
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.
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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. issuers. MMHC Investment, Inc. holds 38.10% of
the subordinated notes of this issue which are 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 77.8% and MassMutual
High Yield Partners LLC holds 14.4% 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
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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
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 organized
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 Babson.
MassMutual owns at least 25% of each series of shares issued
by the DLB Fund Group, other than the DLB Stewart Ivory
International Fund and the DLB High Yield Fund.
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. Babson acts
as sub-adviser.
76. Enhanced Mortgage-Backed Securities Fund Limited is a special
purpose company incorporated with limited liability in the
Cayman Islands, investing primarily in
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mortgage backed securities. Babson is the Investment Manager.
MassMutual holds all of the Class B notes and has covenanted
to hold at least 25% of the aggregate principal amount of the
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.
Babson acts as sub-adviser.
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 25.17% of the subordinated
notes that are treated as equity for tax purposes. MassMutual
is the Collateral Manager of MassMutual Global CBO I Limited.
Babson acts as sub-adviser.
79. Antares Funding L.P. is a Cayman Islands exempted limited
partnership that invests primarily in high yield bank loans
and public high yield bonds. Antares Capital Corporation, an
indirect subsidiary of MassMutual, is the collateral manager
of Antares Funding L.P. MassMutual manages the High Yield
Collateral Debt Securities and Babson acts as sub-adviser.
80. Maplewood (Cayman) Limited is an entity organized under the
laws of the Cayman Islands that invests primarily in bank
loans and high yield public debt. MassMutual is investment
adviser to this fund, and Babson acts as sub-adviser.
81. Simsbury CLO Limited is a Cayman Islands corporation that
operates as a collateralized bond obligations fund that
invests primarily in bank loans and high yield bonds.
MassMutual is investment adviser and Babson acts as
sub-adviser. MMHC owns 24.97% of the subordinated notes.
82. MassMutual Asia Limited, a corporation organized in Hong Kong
which operates as a life insurance company.
83. MassMutual Insurance Consultants Limited, a corporation
organized in Hong Kong which operates as a general insurance
agent.
84. MassMutual Trustees Limited, a corporation organized in Hong
Kong which operates as an approved trustee for the mandatory
provident funds. (Owned 60% by MassMutual Asia Limited and 20%
each by MassMutual Services Limited and MassMutual Guardian
Limited.
85. Protective Capital (International) Limited, a corporation
organized in Hong Kong which operates as a mandatory provident
funds intermediary.
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86. MassMutual Services Limited, a corporation organized in Hong
Kong which provided policyholders with estate planning
services. This company is now inactive.
87. MassMutual Guardian Limited, a corporation organized in Hong
Kong which provided policyholders with estate planning
services. This company is now inactive.
88. Jefferson Pilot Financial Seguros de Vida, S.A., an Argentine
corporation which operates as a life instance company.
(MassLife Seguros de Vida, S.A. - 99%, MassMutual
International, Inc. - 1%).
89. Jefferson Pilot Omega Seguros de Vida, S.A., a Uruguay
corporation which operates as a life insurance company (100%
owned).
MassMutual or one of its subsidiaries 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.
MassMutual acts as adviser for MML Series and Babson acts as sub-adviser to
certain series.
2. MassMutual Corporate Investors ("CI"), a Massachusetts business
trust which operates as a closed-end investment company. Babson is the
investment adviser to CI.
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 88.3%.
MassMutual holds approximately 4.6% ownership interest in this company. Babson
acts as sub-adviser.
4. MassMutual High Yield Partners II LLC, a Delaware limited liability
company that operates as a high yield bond fund. MassMutual holds approximately
2.49%, MMHC Investment Inc. holds approximately 34.11%, and HYP Management, Inc.
holds approximately 6.82% for an approximate total of 43.42% of the ownership
interest in this company.
5. MassMutual Institutional Funds, a Massachusetts business trust which
operates as an open-end investment company. MassMutual acts as adviser for each
series, and Babson acts as sub-adviser to certain series.
6. MassMutual Participation Investors ("PI"), a Massachusetts business
trust which operates as a closed end investment company. Babson acts as the
investment adviser to PI.
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. issuers. MMHC
Investment Inc. holds 37.04% of the subordinated notes of this issue which are
treated as equity for tax purposes. MassMutual is the collateral manager of
Somers CDO, Limited. Babson acts as sub-adviser.
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9. Enhanced Mortgage-Backed Securities Fund Limited is a special
purpose company incorporated with limited liability in the Cayman Islands,
investing primarily in mortgage backed securities. Babson is the investment
manager. MassMutual holds all of the Class B notes and has covenanted to hold at
least 25% of the aggregate principal amount of the 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. Babson acts as sub-adviser.
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.
Babson is the sub-adviser.
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
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. Babson acts as sub-adviser.
13. Antares Funding L.P. is a Cayman Islands exempted limited
partnership that invests primarily in high yield bank loans and public high
yield bonds. Antares Capital Corporation, an indirect subsidiary of MassMutual,
is the collateral manager of Antares Funding L.P. Antares Capital Corporation
manages the selection, acquisition and disposition of the Loan Collateral Debt
Securities. MassMutual manages the High Yield Collateral Debt Securities and
Babson acts a sub-adviser.
14. Maplewood (Cayman) Limited is an entity organized under the laws of
the Cayman Islands that invests primarily in bank loans and high yield public
debt. MassMutual is investment adviser to this fund, and Babson acts as
sub-adviser.
15. Simsbury CLO Limited is a Cayman Islands corporation that operates
as a collateralized bond obligations fund that invests primarily in bank loans
and high yield bonds. MassMutual is investment adviser and Babson acts as
sub-adviser.
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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.
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)
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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.
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ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
(a) The directors and executive officers of David L. Babson & Company
Inc. ("Babson", or the "Manager"), which is located at One Memorial Drive,
Cambridge, Massachusetts 02142, their positions with Babson, and their other
principal business affiliations and business experience for the past two years
are as follows:
STUART H. REESE, Director, President and Chief Executive Officer
Director (since 2000), President and Chief Executive Officer (since 1999),
Babson; Executive Vice President and Chief Investment Officer (since 1999),
Chief Executive Director (1997-1999), Executive Director (1996-1997), Senior
Vice President (1993-1996), Massachusetts Mutual Life Insurance Company
("MassMutual") Mutual (insurance company and investment adviser), 1295 State
Street, Springfield, Massachusetts 01111.
KEVIN M. MCCLINTOCK, Director, Executive Vice President
Director (since 2000), Executive Vice President (since 1999), Babson; Managing
Director, Babson-Stewart Ivory International (registered investment adviser, of
which the Manager is a 50% general partner), One Memorial Drive, Cambridge,
Massachusetts (since 1999); Director (since 1999), the DLB Fund Group, One
Memorial Drive, Cambridge, Massachusetts (open-end investment company); Director
of Equities and Fixed Income (1995-1999), the Dreyfus Corporation (investment
manager), New York, New York.
FRANK L. TARANTINO, Director, Executive Vice President, Chief Financial Officer
and Chief Compliance Officer
Director, Executive Vice President, Chief Financial Officer and Chief Compliance
Officer (since 1999) and Clerk and Chief Operating Officer (since 1997), Babson;
President (since 1999), Vice President (1988 - 1999) and Clerk (1997-1998), The
DLB Fund Group, One Memorial Drive, Cambridge, Massachusetts (open-end
investment company); Director (since 1998), President (since 1999), Clerk (since
1997), Potomac Babson Inc. (inactive investment advisory subsidiary of the
Manager), 1290 Avenue of the Americas, New York, New York; Director, President,
Treasurer and Clerk, Babson Securities Corp,, One Memorial Drive, Cambridge,
Massachusetts (broker-dealer subsidiary of Babson); President (1993-1997)
Liberty Securities Corporation (broker-dealer), 600 Atlantic Avenue, Boston,
Massachusetts.
ROBERT LIGUORI, Director
Director (since 2000), Babson; Senior Vice President and Deputy General Counsel
(since 1999), MassMutual Life Insurance Company (insurance company and
investment adviser), 1295 State Street, Springfield, Massachusetts; Senior Vice
President and General Counsel (1997-1999), Vice President and General Counsel
(1996-1997), Vice President and Counsel (1992-1996), American International
Group, Inc., AIG Life Companies, 600 King Street, Wilmington, DE.
ROBERT E. JOYAL, Director and Executive Director
Director and Executive Director (since 2000), Babson; Executive Director
(1997-1999), Senior Managing Director (1996-1998), Vice President and Managing
Director (1990-1996), MassMutual; President (since 1999), Senior Vice President
(1989-1999), MassMutual Corporate Investors and MassMutual Participation
Investors (closed-end investment companies); Director, (since 1996), MassMutual
High Yield Partners II LLC (a Delaware limited liability company that operates
as a high yield bond fund).
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MARY WILSON-KIBBE, Executive Director and Executive Vice President
Executive Director and Executive Vice President (since 1999), Babson; Vice
President (since 1999), The DLB Fund Group, One Memorial Drive, Cambridge,
Massachusetts (open-end investment company); Executive Director (1997-1999),
Senior Managing Director (1997-1999), Vice President and Managing Director
(1991-1994), MassMutual (insurance company and investment adviser), 1295 State
Street, Springfield, Massachusetts 01111.
LANCE F. JAMES, Executive Vice President
Executive Vice President (since 1999), Director (1999-2000), Senior Vice
President (1996-1999), Portfolio Manager (since 1987), Babson; Vice President
(since 1999), The DLB Fund Group, One Memorial Drive, Cambridge, Massachusetts
(open-end investment company).
STEPHEN B. O'BRIEN, Executive Vice President
Executive Vice President (since 1999), Director (1999-2000), Senior Vice
President (1996-1999), Babson; Managing Director (since 1998), Babson-Stewart
Ivory International (registered investment adviser, of which the Manager is a
50% general partner), One Memorial Drive, Cambridge, Massachusetts.
KENNETH L. HARGREAVES, Executive Director
Executive Director (since 2000), Babson; Executive Director (1997-1999), Senior
Vice President (1991-1997), MassMutual.
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EFREM MARDER, Executive Director
Executive Director (since 2000), Babson; Executive Director (1998-1999), Senior
Managing Director (1996-1998), Vice President and Manager Director (1989-1996),
MassMutual (insurance company and investment adviser), 1295 State Street,
Springfield, Massachusetts.
JEANNE M. STAMANT, Executive Director
Executive Director (since 2000), Babson; Executive Director (1996-1999), Vice
President, Actuary and Executive Officer (1995-1996), Vice President and Actuary
(1987-1994), MassMutual (insurance company and investment adviser), 1295 State
Street, Springfield, Massachusetts.
STEPHEN L. KUHN, General Counsel and Clerk
General Counsel and Clerk (since 2000), Babson; Senior Vice President and Deputy
General Counsel (since 1998), Vice President and Associate General Counsel
(1992-1998), MassMutual (insurance company and investment adviser), 1295 State
Street, Springfield, Massachusetts; Vice President and Secretary, MassMutual
Participation Investors and MassMutual Corporate Investors (closed end
investment companies); Assistant Secretary (since 1996), Antares Capital
Corporation (finance company); Chief Legal Officer and Assistant Secretary
(since 1995), DLB Acquisition Corporation (holding company for investment
advisers); Assistant Secretary, Oppenheimer Acquisition Corporation (holding
company for investment advisers); Vice President and Secretary, MassMutual
Institutional Funds (open end investment company); Vice President and Secretary,
(1988-1999), MML Series.
(b) The Managing Directors of Babson-Stewart Ivory International ("BSII"),
which has its principal place of business at One Memorial Drive,
Cambridge, Massachusetts, 02142, and their principal other business
affiliations and business experience for the past two years are as set
forth below. Babson and Stewart Ivory & Company (International) Limited,
a wholly owned subsidiary of Colonial Limited, are the two general
partners of BSII.
KEVIN M. MCCLINTOCK, Managing Director
See Item 26(a) above.
STEPHEN B. O'BRIEN, Managing Director
See Item 26(a) above.
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<PAGE>
JAMES W. BURNS, Managing Director
Managing Director (since 1993), Babson-Stewart Ivory International, One Memorial
Drive, Cambridge, Massachusetts (investment counsel); Director (since 1990),
Stewart Ivory and Company Limited, 45 Charlotte Square, Edinburg, Scotland
(investment managers); Partner/Director (1982-1990), BWD Rensburg, Liverpool,
England (Stockbrokers).
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Effective October 20, 1999, Babson Securities Corp. ("BSC") became the
principal underwriter for the Trust. The eleven separate series of the Trust
are:
1) DLB Fixed Income Fund
2) DLB Value Fund
3) DLB Growth Fund
4) DLB Disciplined Growth Fund (to be renamed the DLB Enhanced Index
Core Equity 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
10) DLB High Yield Fund
11) DLB Technology Fund
(b) The following are the names and positions of the officers and directors
of BSC:
Frank L. Tarantino, Director, President, Clerk and Treasurer
John E. Deitelbaum, Assistant Clerk
The business address for both Mr. Tarantino and Mr. Deitelbaum is c/o
David L. Babson & Company Inc., One Memorial Drive, Cambridge, MA 02142. Mr.
Tarantino is President of the Trust, and Mr. Deitelbaum is Clerk of the Trust.
(c) Not Applicable
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<PAGE>
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 David L. Babson and Company Incorporated ("Babson")
at their respective principal business offices at One Memorial Drive, Cambridge,
Massachusetts 02142, and 1295 State Street, Springfield, Massachusetts 01111,
and by IBT, the Registrant's Custodian and Transfer Agent, at its principal
business office at 200 Clarendon Street, Boston, Massachusetts 02116.
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<PAGE>
ITEM 29. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in Part
A or Part B.
-22-
<PAGE>
ITEM 30. UNDERTAKINGS.
Not Applicable.
NOTICE
A copy of the Agreement and Declaration of Trust of the Trust, 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 Trust
by an officer of the Trust 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 Trust.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
(the "Securities Act"), and the Investment Company Act of 1940, as amended, the
Trust 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 19th day of October, 2000.
THE DLB FUND GROUP
By: /s/ Frank L. Tarantino
------------------------------
Name: Frank L. Tarantino
Title: President
Pursuant to the requirements of the Securities Act, 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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ FRANK L. TARANTINO President and October 19, 2000
----------------------- Principal Executive Officer
Frank L. Tarantino
/s/ DEANNE B. DUPONT Treasurer; Principal Financial October 19, 2000
----------------------- Officer; Principal Accounting
DeAnne B. Dupont Officer
CHARLES E. HUGEL* Trustee October 19, 2000
-----------------------
Charles E. Hugel
/s/ Kevin M. McClintock Trustee October 19, 2000
-----------------------
Kevin M. McClintock
RICHARD A. NENNEMAN* Trustee October 19, 2000
-----------------------
Richard A. Nenneman
RICHARD J. PHELPS* Trustee October 19, 2000
-----------------------
Richard J. Phelps
*By: /s/ FRANK L. TARANTINO
----------------------
Frank L. Tarantino
Attorney-In-Fact
October 19, 2000
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<PAGE>
INDEX TO EXHIBITS
-----------------
EXHIBIT NO. TITLE OF EXHIBIT
----------- ----------------
(a)(11) Amendment No. 10 to Agreement and Declaration of Trust
(d)(18) Form of Amendment No. 1 to Management Contract between the
Trust and the Manager relating to the DLB Disciplined
Growth Fund.
(h)(12) Amended and Restated Fee and Expense Agreement
(j) Consent of Independent Auditors, Deloitte & Touche, LLP
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