DLB
THE DLB FIXED INCOME FUND
ANNUAL REPORT
OCTOBER 31, 1999
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB FIXED INCOME FUND
---------------------------------------------
FUND INVESTMENT OBJECTIVE
THE 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.
MARKET OVERVIEW
DESPITE STRONG RALLIES AROUND THE END OF AUGUST AND OCTOBER, INTEREST RATES IN
THE U.S. CONTINUED THEIR GRADUAL ASCENT DURING THE SECOND HALF OF 1999, THOUGH
AT A SLOWER PACE THAN IN THE FIRST HALF OF THE YEAR. Thirty-year U.S.
Treasuries, which started the year yielding 5.09%, are currently in the range of
6.20 to 6.30%. Short-term rates are also higher, as the Federal Reserve moved to
tighten monetary policy, raising the Federal Funds rate 25 basis points in June
and August.
The Fed is concerned that above average GDP growth along with tight domestic
labor markets will eventually lead to rising inflation. Interestingly, solid
economic prospects and declining Y2K fears have combined to improve bond market
liquidity a bit in the third and into the fourth quarters, resulting in tighter
quality spreads. Lower quality corporates, including high yield and emerging
markets debt has outperformed handily in 1999, primarily in the first and into
the fourth quarters.
PORTFOLIO STRATEGY REVIEW
AFTER SLOWING TO AROUND 2% IN 2Q99, THIRD QUARTER REAL GDP SURGED TO 5.5% ON THE
BACK OF CONSUMER DEMAND THAT JUST WON'T QUIT. Fourth quarter growth looks to
also be quite robust. At the same time, despite a doubling of oil prices over
the past 12 months and an available labor pool that has shrunk to levels which,
historically speaking, would suggest the likelihood of rising wages, inflation
remains a toothless tiger. Inflation for all of 1999 is likely to come in at
around 2.0 to 2.5% at the consumer level. Nonetheless, the Federal Reserve has
re-affirmed its watch, pre-emptively raising rates two times thus far-to stay
"ahead of the curve" and keep inflation in check. U.S. bond investors have had a
difficult year amid generally rising interest rates, heavy new issuance, bouts
of Y2K paranoia, below average liquidity, and above average volatility in
quality spreads. Large swings in investor sentiment have buffeted the market all
year. Despite year to date outperformance, spread sectors (i.e. corporates, MBS,
high yield, etc.) have been volatile. Declining Treasury note issuance has
resulted in Treasuries being a less reliable "benchmark" for other bond sectors.
Investors are
<PAGE>
DLB FIXED INCOME FUND
---------------------------------------------
PORTFOLIO STRATEGY REVIEW
(CONT.)
actively seeking new tools for determining relative value among securities and
sectors. Shrinking balance sheets on Wall Street have led to significant
reductions in dealers ability and perhaps more importantly their willingness to
provide trading liquidity.
WE CONTINUE TO FOCUS ON QUALITY AND LIQUIDITY AT THE PORTFOLIO LEVEL, AS WE HAVE
THROUGHOUT 1999. At the same time, we are increasingly looking to make
opportunistic purchases at attractive yields. Despite some recent tightening,
quality spreads remain at historically wide levels; thus we will likely be
looking to increase exposure to the corporate sector as we move into the New
Year.
THE FUND'S TOP TEN HOLDINGS AND SECTOR WEIGHTINGS CAN BE FOUND BELOW.
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS % OF FUND ASSETS
- --------------------------------------------------------------------------------
FNMA debenutre 6.25% 2002 7.4
U.S. Treasury 7.875% 2021 5.5
FHLMC 6.00% 30 year passthrough 4.9
U.S. Treasury 8.125% 2021 3.6
U.S. Treasury 5.625% 2006 3.5
Ontario Province 5.50% 2008 2.7
MBNA Credit Card Trust 5.90% 2011 2.5
FNMA debenture 5.625% 2001 2.5
COMED 1998-A6 5.63% 2009 2.2
GMAC 6.85% 2004 2.1
Total 36.9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTOR LEHMAN
BREAKDOWNS (%) PORTFOLIO AGGREGATE DIFFERENCE
- --------------------------------------------------------------------------------
Corporate 28 17 +11
Mortgage Backed 17 34 -17
Treasury 16 33 -17
Asset Backed 13 2 +11
Agency 11 9 +2
Yankee 9 4 +5
Commercial Mortgage Backed 5 1 +4
Cash 1 0 +1
- --------------------------------------------------------------------------------
<PAGE>
DLB FIXED INCOME FUND
---------------------------------------------
PORTFOLIO STRATEGY REVIEW
(CONT.)
- --------------------------------------------------------------------------------
QUALITY LEHMAN
BREAKDOWNS (%) PORTFOLIO AGGREGATE DIFFERENCE
- --------------------------------------------------------------------------------
Treasury 16 34 -18
Agency 20 40 -20
AAA 23 5 +18
AA 4 5 -1
A 17 9 +8
Baa 20 7 +13
Below Baa 0 0 0
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
PERFORMANCE FOR THE DLB FIXED INCOME FUND FOR THE FISCAL YEAR ENDED OCTOBER 31,
1999 HAS SLIGHTLY TRAILED THE BROAD MARKET AVERAGES WITH A -1.08% DECLINE VERSUS
- -0.33% FOR THE LEHMAN AGGREGRATE INDEX. After suffering through the summer,
corporate and mortgage backed securities have caught fire late in the year,
providing strong "excess returns" over the past couple of months. Despite our
overweighting in these sectors, the DLB Fixed Income Fund trails the benchmark
Lehman Aggregate Index primarily due to underperformance in the first and second
quarters. This can be attributed to: 1) much of the "corporate sector"
outperformance in 1999 has been in sub-sectors which are recovering after being
beaten up so badly in late 1998, such as emerging markets, high yield and the
energy sector where the Fund did not have significant exposure, and 2) our
relatively defensive posture overall during the early part of the year. One
sector that has benefited the Fund this year has been our exposure to Commercial
Mortgage Backed securities, which have done extremely well on a relative basis.
OUTLOOK
THE DLB FIXED INCOME FUND CONTINUES TO BE POSITIONED DURATION NEUTRAL TO THE
MARKET-INTEREST RATE ANTICIPATION IS NOT PART OF THE FUND'S INVESTMENT STRATEGY.
Market consensus is for the Fed to remain active into 2000, with additional
tightenings currently being priced into the market.
WE MAINTAIN OUR 1999 STRATEGY THAT IT IS BEST TO FOCUS PORTFOLIO ACTIVITY AROUND
THE THEMES OF LIQUIDITY AND QUALITY. There were, and continue to be, many
opportunities presented due to short term technical factors in the market. While
we do not anticipate significant Y2K related disruptions in the credit markets,
<PAGE>
DLB FIXED INCOME FUND
---------------------------------------------
OUTLOOK (CONT.)
the possibility exists that liquidity--the ability to trade quickly at
reasonable prices--may be diminished around year end. Barring significant Y2K
problems, and in light of current valuations, we look for corporate and to a
lesser extent mortgage backed securities to post solid excess returns in the New
Year. The Fund should be well positioned to benefit in such an environment.
<PAGE>
DLB FIXED INCOME FUND
---------------------------------------------
GROWTH OF A
$100,000 INVESTMENT
CUMULATIVE TOTAL RETURN SINCE INCEPTION 7/25/95
[LINE GRAPH]
LEHMAN LEHMAN
BROTHERS BROTHERS
DLB FIXED AGGREGATE DLB FIXED AGGREGATE
INCOME FUND BOND INDEX INCOME FUND BOND INDEX
----------- ---------- ----------- ----------
25-Jul-95 $100,000.00 $100,000.00 30-Sep-96 $117,295.55 $117,797.41
31-Jul-95 $100,100.00 $100,150.00 31-Oct-97 $118,937.69 $119,505.48
31-Aug-95 $101,501.40 $101,361.82 30-Nov-97 $119,151.78 $120,055.20
30-Sep-95 $102,404.76 $102,345.02 31-Dec-97 $120,379.04 $121,267.76
31-Oct-95 $103,602.90 $103,675.51 31-Jan-98 $121,968.05 $122,819.99
30-Nov-95 $105,105.14 $105,230.64 28-Feb-98 $121,858.28 $122,721.73
31-Dec-95 $106,461.00 $106,703.87 31-Mar-98 $122,309.15 $123,138.98
31-Jan-96 $107,397.85 $107,408.12 30-Apr-98 $122,871.77 $123,779.31
28-Feb-96 $106,356.09 $105,539.22 31-May-98 $123,891.61 $124,955.21
31-Mar-96 $105,526.52 $104,800.44 30-Jun-98 $124,907.52 $126,017.33
30-Apr-96 $105,009.44 $104,213.56 31-Jul-98 $125,107.37 $126,281.97
30-May-96 $104,799.42 $104,005.13 31-Aug-98 $126,521.09 $128,340.36
30-Jun-96 $105,836.93 $105,398.80 30-Sep-98 $129,949.81 $131,343.53
31-Jul-96 $106,048.61 $105,683.38 31-Oct-98 $129,001.17 $130,647.40
31-Aug-96 $105,942.56 $105,503.72 30-Nov-98 $129,594.58 $131,392.10
30-Sep-96 $107,605.86 $107,339.48 31-Dec-98 $130,061.12 $131,786.27
31-Oct-96 $109,790.25 $109,722.42 31-Jan-99 $131,036.58 $132,721.95
30-Nov-96 $111,557.88 $111,598.67 28-Feb-99 $128,599.30 $130,399.32
31-Dec-96 $110,408.83 $110,560.80 31-Mar-99 $129,576.65 $131,116.52
31-Jan-97 $110,850.47 $110,903.54 30-Apr-99 $129,822.85 $131,536.09
28-Feb-97 $111,072.17 $111,180.80 31-May-99 $128,342.87 $130,378.57
31-Mar-97 $109,872.59 $109,946.69 30-Jun-99 $127,855.16 $129,961.36
30-Apr-97 $111,399.82 $111,595.89 31-Jul-99 $127,267.03 $129,402.53
31-May-97 $112,380.14 $112,656.05 31-Aug-99 $127,139.76 $129,337.82
30-Jun-97 $113,796.13 $113,996.66 30-Sep-99 $128,525.59 $130,838.14
31-Jul-97 $116,527.23 $117,074.57 31-Oct-99 $128,654.11 $131,322.24
31-Aug-97 $115,653.28 $116,079.44
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 10/31/99
- --------------------------------------------------------------------------------
10 Months One Year Annualized
1/1/99- 10/31/98- Since Inception
10/31/99 10/31/99 7/25/95-10/31/99
DLB Fixed Income Fund -1.08 -0.27 5.98
Lehman Brothers Aggregate
Bond Index -0.33 0.53 6.50
- --------------------------------------------------------------------------------
DISCLOSURE STATEMENT
LEHMAN BROTHERS AGGREGATE BOND INDEX is an unmanaged index that is composed of
securities from Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed
Securities Index, and the Asset-Backed Securities Index. Total return comprises
price appreciation/depreciation and income as a percentage of the original
investment. Indexes are rebalanced monthly by market capitalization. Securities
in the Fund do not match those in the Index, and the performance of the Fund
will differ.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Investment return and share
price will fluctuate with market conditions, and investors may have a gain or
loss when shares are sold. The Fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such expense
limitation, returns would have been lower.
<PAGE>
DLB FIXED INCOME FUND
---------------------------------------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Fixed Income Fund. The
report is not intended for distribution to prospective investors unless preceded
or accompanied by a current prospectus.
BABSON SECURITIES CORPORATION
One Memorial Drive, Cambridge, MA 02142
December 1999
<PAGE>
---------------------------------------
DLB FIXED INCOME FUND
FINANCIAL STATEMENTS FOR THE TEN MONTHS
Ended October 31, 1999 and the Year
Ended December 31,1998
<PAGE>
DLB FIXED INCOME FUND
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of October 31, 1999 2 - 4
Statement of Assets and Liabilities as of October 31, 1999 5
Statements of Operations for the Ten Months Ended October 31, 1999
and the Year Ended December 31, 1998 6
Statements of Changes in Net Assets for the Ten Months Ended
October 31, 1999 and the Years Ended December 31, 1998 and 1997 7
Financial Highlights for the Ten Months Ended October 31, 1999 and
the Four-Year Period Ended December 31, 1998 8
Notes to Financial Statements 9 - 11
</TABLE>
<PAGE>
DELOITTE & ---------------------------------------------------
TOUCHE DELOITTE & TOUCHE LLP Telephone: (617) 437-2000
- ---------- 200 Berkeley Street Facsimile: (617) 437-2111
[LOGO] Boston, Massachusetts 02116-5022
INDEPENDENT AUDITORS' REPORT
To the Trustees of The DLB Fund Group and
Shareholders of DLB Fixed Income Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Fixed Income Fund (the "Fund") (a series of
The DLB Fund Group) as of October 31, 1999, and the related statements of
operations for the ten months then ended and the year ended December 31, 1998,
the statements of changes in net assets for the ten months ended October 31,
1999 and the years ended December 31, 1998 and 1997, and the financial
highlights for the ten months ended October 31, 1999 and each of the years in
the four-year period ended December 31, 1998. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of DLB Fixed Income
Fund at October 31, 1999, the results of its operations for the ten months then
ended and the year ended December 31, 1998, the changes in its net assets for
the ten months ended October 31, 1999 and the years ended December 31, 1998 and
1997, and the financial highlights for the ten months ended October 31, 1999 and
each of the years in the four-year period ended December 31, 1998, in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
December 10, 1999
- -------------------
DELOITTE TOUCHE
TOHMATSU
- -------------------
<PAGE>
DLB FIXED INCOME FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
BONDS - 98.5%
S&P/MOODY'S ISSUER PRINCIPAL VALUE
BOND RATING AMOUNT
(UNAUDITED)
<S> <C> <C> <C>
US GOVERNMENT - 15.7%
AAA US Treasury Note, 11.625%, 2002 $ 500,000 $ 577,110
AAA US Treasury Note, 11.125%, 2003 25,000 29,176
AAA US Treasury Note, 7.25%, 2004 100,000 104,984
AAA US Treasury Note, 7.50%, 2005 75,000 79,700
AAA US Treasury Note, 5.625%, 2006 1,300,000 1,268,514
AAA US Treasury Note, 6.50%, 2006 400,000 406,880
AAA US Treasury Note, 7.875%, 2021 1,700,000 1,966,152
AAA US Treasury Note, 8.125%, 2021 1,110,000 1,316,738
------------
5,749,254
------------
US GOVERNMENT AGENCY - 9.7%
AAA Federal National Mortgage Association, 5.625%, 2001 925,000 919,940
AAA Federal National Mortgage Association, 4.625%, 2001 2,700,000 2,628,504
------------
3,548,444
------------
MORTGAGES - 18.4%
AAA FHLMC Gold Pool #G00143, 7.50%, 2023 164,473 165,039
AAA FHLMC Gold Pool #C00680, 6.00%, 2028 1,911,880 1,783,421
AAA FNMA Pool #346537, 6.00%, 2011 373,346 358,764
AAA FNMA Pool #323380, 6.50%, 2028 935,681 896,494
AAA FNMA Pool #490107, 6.50%, 2029 736,222 705,389
AAA FNMA Pool #252717, 7.50%, 2029 746,809 748,213
AAA GNMA Pool #780332, 8.00%, 2009 196,663 201,949
AAA GNMA Pool #410343, 7.50%, 2011 341,842 346,757
AAA GNMA Pool #423828, 6.00%, 2011 328,433 315,397
AAA GNMA Pool #398964, 7.50%, 2011 191,364 194,116
AAA GNMA Pool #357262, 7.50%, 2023 239,488 240,087
AAA GNMA Pool #380866, 7.00%, 2024 62,322 61,114
AAA GNMA Pool #432175, 8.00%, 2026 28,136 28,752
AAA GNMA Pool #441009, 8.00%, 2026 147,780 151,014
BAA Green Tree Financial 1994-A, 6.90%, 2004 16,631 16,493
BAA Green Tree Financial 1995-A, 7.25%, 2005 155,740 146,566
AAA Green Tree Financial 1995-3 A-4, 7.05%, 2025 18,291 18,369
AAA Green Tree Financial 1995-1 A-5, 8.40%, 2025 140,722 142,119
AAA Green Tree Financial 1996-2 A-3, 6.90%, 2027 200,000 200,276
------------
6,720,329
------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
S&P/MOODY'S ISSUER PRINCIPAL VALUE
BOND RATING AMOUNT
(UNAUDITED)
<S> <C> <C> <C>
ASSET BACKED - 12.1%
AAA California Infrastructure PG&E-1, 6.42%, 2008 $ 650,000 $ 634,784
AAA California Infrastructure SCE-1, 6.22%, 2004 300,000 298,311
AAA Comed Transitional Funding Trust, 5.63%, 2009 850,000 787,168
AAA DLJ Commercial Mortgage Corp., 6.11%, 2007 688,789 659,515
AAA JP Morgan Commercial Mortgage Finance Corp.,
6.507%, 2035 400,000 381,000
AAA MBNA Master Cr. Card Trust, 5.9%, 2011 1,000,000 932,340
AAA Nomura Asset Securities Corporation, 6.59%, 2028 750,000 713,320
------------
4,406,438
------------
BANKS - 1.0%
A Suntrust Banks, 6.00%, 2026 400,000 375,996
------------
FINANCIAL - 6.9%
AA Associates Corp. N.A., 5.8%, 2004 500,000 479,880
BAA AT&T Capital Corp., 6.875%, 2001 350,000 349,811
A Ford Capital BV, 10.125%, 2000 100,000 103,559
A Ford Motor Credit, 7.375%, 2009 700,000 706,622
A General Motors Acceptance Corp., 6.85%, 2004 750,000 746,707
AA Norwest Corp., 6.00%, 2000 150,000 150,138
------------
2,536,717
------------
INDUSTRIAL - 17.8%
BAA Airgas Inc., 7.14%, 2004 415,000 415,037
A Aluminum Company of America, 5.75%, 2001 500,000 495,805
BAA American Stores, 8.00%, 2026 450,000 452,889
A Cardinal Health, 6.00%, 2006 150,000 138,013
A Cardinal Health, 6.25%, 2008 400,000 362,112
BAA Champion International, 7.20%, 2026 675,000 653,319
BAA Comdisco Inc., 6.375%, 2001 300,000 295,152
BAA Comdisco Inc., 6.13%, 2001 250,000 247,815
A Consolidated Edison, 6.15%, 2008 400,000 369,100
BAA Georgia-Pacific Corporation, 9.95%, 2002 175,000 186,858
A International Business Machines, 6.22%, 2027 400,000 390,824
A McDonnell Douglas, 8.25%, 2000 50,000 50,652
A Philip Morris Companies, 7.125%, 1999 300,000 300,219
A Philip Morris Companies, 7.20%, 2007 175,000 167,389
BAA Ryder System Inc., 8.45%, 1999 100,000 100,260
A Sears, Roebuck & Co., 6.50%, 2000 100,000 99,991
A Sears, Roebuck & Co., 6.95%, 2002 50,000 49,866
BAA Service Corp. International, 6.375%, 2000 500,000 480,555
BAA Telecommunications Inc., 9.80%, 2012 170,000 203,886
BAA Time Warner Inc., 9.15%, 2023 150,000 172,128
BAA Time Warner Entertainment, 8.375%, 2023 325,000 348,666
BAA Worldcom Incorporated, 7.75%, 2007 525,000 543,487
------------
6,524,023
------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
S&P/MOODY'S ISSUER PRINCIPAL VALUE
BOND RATING AMOUNT
(UNAUDITED)
<S> <C> <C> <C>
INTERNATIONAL - 10.6%
BAA Canadian National Railroad, 7.00%, 2004 $ 350,000 $ 349,807
BAA Hellenic Republic, 6.95%, 2008 400,000 392,368
A Quebec Province, 7.5%, 2029 450,000 452,160
AA Ontario Province, 5.5%, 2008 1,075,000 974,713
BAA Oslo Seismic Services, 8.28%, 2011 396,635 400,348
BAA Petro Geo-Services, 7.50%, 2007 400,000 397,188
BAA Province of Newfoundland, 7.32%, 2023 350,000 336,235
BAA Republic of Chile, 6.875%, 2009 175,000 161,737
BAA Southern Investments UK, 6.375%, 2001 400,000 392,512
------------
3,857,068
------------
TRANSPORTATION - 4.5%
A Atchison, Topeka & Santa Fe Railway Company,
7.75%, 1999 75,000 75,009
BAA Burlington Northern Santa Fe Corporation, 6.05%, 2001 525,000 520,427
BAA JB Hunt Transport Services, Inc., 6.25%, 2000 500,000 500,785
BAA United Air Lines Inc., 7.27%, 2013 282,272 258,945
BAA Wisconsin Central Transportation, 6.625%, 2008 300,000 278,841
------------
1,634,007
------------
OTHER CORPORATE - 1.8%
AAA New Jersey Economic Development Authority,
7.425%, 2029 650,000 642,622
------------
TOTAL BONDS (identified cost, $37,153,601) 35,994,898
REPURCHASE AGREEMENT - 0.3%
Investors Bank & Trust Repurchase Agreement, 4.51%,
dated 10/29/99, $124,814 due on 11/1/99 (secured by
Federal Government Agency securities), at cost 124,767 124,767
------------
TOTAL INVESTMENTS (identified cost, $37,278,368) 36,119,665
Other assets, less liabilities - 1.2% 420,443
------------
NET ASSETS - 100% $ 36,540,108
============
</TABLE>
See notes to financial statements.
4
<PAGE>
DLB FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $37,278,368) $ 36,119,665
Receivable for investments sold 11,100
Interest receivable 444,904
Receivable from investment manager 13,761
------------
36,589,430
------------
LIABILITIES:
Accrued management fees 12,361
Accrued expenses 36,961
------------
49,322
------------
NET ASSETS $ 36,540,108
============
NET ASSETS CONSIST OF:
Paid-in capital $ 37,666,303
Unrealized depreciation of investments (1,158,703)
Accumulated undistributed net realized gain on investment transactions 15,363
Accumulated undistributed net investment income 17,145
------------
Total $ 36,540,108
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 3,610,461
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 10.12
============
</TABLE>
See notes to financial statements.
5
<PAGE>
DLB FIXED INCOME FUND
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Ten Months Ended Year Ended
October 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
INTEREST INCOME $ 1,876,059 $ 2,058,768
----------- -----------
EXPENSES:
Management fee 121,361 131,644
Trustees' fees 3,838 4,669
Custodian fees 44,421 52,318
Accounting and audit fees 29,708 28,425
Legal fees 12,619 10,495
Registration fees 16,746 25,840
Transfer agent fee 6,407 8,000
Printing 3,091 2,627
Miscellaneous 952 233
----------- -----------
239,143 264,251
Reduction of expenses by investment manager (72,271) (83,268)
----------- -----------
Net expenses 166,872 180,983
----------- -----------
Net investment income 1,709,187 1,877,785
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain (identified cost basis) 28,638 291,288
Change in unrealized appreciation (depreciation) (2,150,902) 368,912
----------- -----------
Net realized and unrealized gain (loss) on investments (2,122,264) 660,200
----------- -----------
Increase (decrease) in net assets from operations $ (413,077) $ 2,537,985
=========== ===========
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB FIXED INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Ten Months Ended Years Ended December 31,
October 31, -------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 1,709,187 $ 1,877,785 $ 1,240,912
Net realized gain on investments 28,638 291,288 26,429
Net unrealized appreciation (depreciation)
of investments (2,150,902) 368,912 715,791
------------ ------------ ------------
(413,077) 2,537,985 1,983,132
------------ ------------ ------------
Distributions to shareholders:
From net investment income (1,699,687) (1,894,627) (1,212,012)
From net realized gain on investments (4,038) (290,918) --
------------ ------------ ------------
(1,703,725) (2,185,545) (1,212,012)
------------ ------------ ------------
Fund share transactions:
Net proceeds from sales of shares 5,422,205 2,275,531 17,272,202
Net asset value of shares issued in
reinvestment of distributions 1,229,402 1,669,653 887,748
Cost of shares reacquired (1,852,775) (2,594,499) (2,036,662)
------------ ------------ ------------
4,798,832 1,350,685 16,123,288
------------ ------------ ------------
Total increase in net assets 2,682,030 1,703,125 16,894,408
NET ASSETS:
At beginning of period 33,858,078 32,154,953 15,260,545
------------ ------------ ------------
At end of period (including accumulated
undistributed net investment income of
$17,145, $6,502 and $22,557, respectively) $ 36,540,108 $ 33,858,078 $ 32,154,953
============ ============ ============
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Ten Months
Ended Years Ended December 31, Period Ended
October 31, ------------------------------------------- December 31,
1999 1998 1997 1996 1995**
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $ 10.72 $ 10.61 $ 10.11 $ 10.26 $ 10.00
------------- ------------- ------------- ------------- ------------
Income from investment operations:
Net investment income .48 .63 .42 .53 .28
Net realized and unrealized gain (loss) on (.60) .20 .49 (.15) .37
------------- ------------- ------------- ------------- ------------
investments
(.12) .83 .91 .38 .65
------------- ------------- ------------- ------------- ------------
Less distributions to shareholders:
From net investment income (1) (.48) (.63) (.41) (.53) (.28)
From net realized gain on investments -- (.09) -- -- (.11)
------------- ------------- ------------- ------------- ------------
(.48) (.72) (.41) (.53) (.39)
------------- ------------- ------------- ------------- ------------
Net asset value- end of period $ 10.12 $ 10.72 $ 10.61 $ 10.11 $ 10.26
============= ============= ============= ============= ============
Total return (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% *
Ratio of net investment income to average net assets 5.63% * 5.71% 5.74% 6.36% 6.24% *
Portfolio turnover 58% 50% 44% 65% 42%
Net assets at end of period (000 omitted) $ 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 $ .46 $ .60 $ .38 $ .44 $ .19
Ratios (to average net assets):
Expenses .79% * .80% 1.06% 1.66% 2.50% *
Net investment income 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>
See notes to financial statements.
8
<PAGE>
DLB FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Fixed Income Fund (the "Fund") is a non-diversified series of The DLB
Fund Group (the "Trust"), a Massachusetts business trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
During 1999, the Fund changed its year end from December 31 to October 31,
and the financial statements are presented for the ten months ended October
31, 1999.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Debt securities other than short-term obligations,
including listed issues, are valued on the basis of valuations furnished by
dealers or by a pricing service, with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other
market data, without exclusive reliance upon exchange or over-the-counter
prices. Securities for which there are no such quotations or valuations are
valued at fair value as determined in good faith by or at the direction of
the Trustees. Short-term obligations, which mature in 60 days or less, are
valued at amortized cost, which approximates market value.
REPURCHASE AGREEMENTS - Securities purchased under agreements to resell to
the original owner are recorded at cost. The Fund may enter into such
agreements with institutions that the Fund's investment adviser has
determined to be creditworthy. The Fund requires that the securities so
purchased be transferred to the custodian under terms that enable the Fund
to obtain such securities in the event of a default. The Fund monitors, on
a daily basis, the value of the securities to assure that such value,
including accrued interest, is greater than amounts owed to the Fund.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded
on the trade date. Interest income is recorded on the accrual basis. All
premium and original issue discount are amortized or accreted for financial
statement and tax reporting purposes as required by federal income tax
regulations.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of its
taxable income, including any net realized gains on investments.
Accordingly, no provision for federal income or excise tax is necessary.
The Fund files a tax return annually using tax accounting methods required
by the Code, which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the net investment income and net realized gain reported in
these financial statements may differ from the amounts reported on the
Fund's tax return, and, consequently, the character of distributions to
shareholders reported in the financial highlights may differ from that
reported to shareholders on Form 1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The
Fund distinguishes between distributions for tax purposes and financial
reporting purposes. Differences between income for financial
9
<PAGE>
reporting purposes and tax-basis earnings and profits may result in the
reporting of temporary over-distributions in the financial statements. Such
over-distributions are classified as distributions in excess of net
investment income or accumulated net realized gains. Distributions, if any,
in excess of tax-basis earnings and profits are reported as return of
capital. During the ten months ended October 31, 1999, $1,143 was
reclassified from accumulated undistributed net realized gain on investment
transactions to accumulated undistributed net investment income due to
differences between book and tax accounting for mortgage-backed securities.
This change had no effect on the net assets or net asset value per share.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results could differ from those such estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Co. Inc. ("Babson") to provide
investment advisory and administrative services and general office
facilities. The fee for such services is computed daily and paid monthly at
an effective annual rate of .40% of average daily net assets. For the ten
months ended October 31, 1999, the management fee amounted to $121,361.
Babson has agreed to pay the Fund's operating expenses such that the Fund's
total aggregate expenses do not exceed .55% of average daily net assets.
For the ten months ended October 31, 1999, $72,271 of fund expenses were
borne by Babson.
The Fund pays no compensation directly to the Trustees who also are
officers of the investment manager, nor to the officers of the Fund, all of
whom receive remuneration for their services to the Fund from Babson.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations, for
the ten months ended October 31, 1999 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------- ------------
<S> <C> <C>
U. S. Government securities $ 1,980,291 $ 4,194,451
============= ============
Investments (non-U.S. Government securities) $ 23,807,703 $ 16,008,458
============= ============
</TABLE>
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis,
are as follows:
Aggregate cost $ 37,294,262
============
Gross unrealized appreciation $ 48,531
Gross unrealized depreciation (1,223,128)
------------
Net unrealized depreciation $ (1,174,597)
============
10
<PAGE>
5. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Ten Months
Ended Years Ended December 31,
October 31, -------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Shares sold 514,248 208,434 1,635,464
Shares issued in reinvestment
of distributions 119,145 155,364 83,908
Redemptions (179,883) (237,538) (197,835)
--------- --------- ---------
Net increase 453,510 126,260 1,521,537
========= ========= =========
</TABLE>
11
<PAGE>
DLB
THE DLB GLOBAL SMALL CAP FUND
ANNUAL REPORT
OCTOBER 31, 1999
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB GLOBAL SMALL CAP FUND
---------------------------------------------
FUND INVESTMENT OBJECTIVE
THE DLB GLOBAL SMALL CAPITALIZATION FUND seeks long-term capital appreciation
through investment primarily in common stocks of foreign and domestic companies
with market capitalization at the time of investment by the Fund of up to $1.5
billion.
MARKET OVERVIEW
INTERNATIONAL MARKETS CONTINUED TO RECOVER FROM THE ASIAN CRISIS IN 1999 AND
ECONOMIC GROWTH RETURNED TO ALL MAJOR AREAS. Asia led the way, with Japan to the
fore, but by the end of the period under review Europe was also experiencing a
rebound. In terms of individual markets, Japan was the strongest as signs of
much-needed corporate restructuring began to emerge. The only negative was the
euro, which declined by about 15% against the US dollar following its launch on
1st January 1999.
ON THE DOMESTIC FRONT, IT WAS A YEAR FILLED WITH VOLATILITY, SECTOR ROTATION,
ENORMOUS RETURNS IN TECHNOLOGY AND THE "DOT.COM" SECTOR, AND LAGGING VALUE
STOCKS (AGAIN). The S&P 500 Index finished the fiscal year ending October 31 up
12%, led by large growth stocks that advanced nearly 15%. Small company stocks,
represented by the Russell 2000 Index, increased by a modest 3%, and the value
component of this market segment declined by 5%.
PORTFOLIO STRATEGY REVIEW-
INTERNATIONAL
STRATEGY FOR THE INTERNATIONAL COMPONENT OF THE FUND'S PORTFOLIO IS DRIVEN
PRINCIPALLY BY STOCK SELECTION, WITH THE FUND'S INVESTMENT SUB-ADVISOR INVESTING
IN THE BEST OPPORTUNITIES AVAILABLE ACROSS THE GLOBAL MARKETS. Concerning the
non-U.S. markets during the period, some money was switched out of Europe and
into Asia, mainly Japan as the Fund took profit in European stocks which had
performed well in 1998. Smaller companies in Japan had suffered for several
years in the face of recession and were consequently trading on very attractive
multiples at a time when growth was returning. Typically investment was made in
companies operating in a niche (Aderans and Q'Sai) or service companies (Japan
Airport Terminal).
AS ECONOMIC GROWTH HAS STRENGTHENED OVER THE PERIOD, IT HAS BEEN A BETTER
ENVIRONMENT FOR FINDING CANDIDATES FOR INCLUSION IN THE PORTFOLIO. The European
markets, in particular, have been expanding in terms of new companies coming to
the stockmarket. The portfolio has invested in number
<PAGE>
DLB GLOBAL SMALL CAP FUND
---------------------------------------------
PORTFOLIO STRATEGY REVIEW-
INTERNATIONAL (CONT.)
of new holdings-Classeditori (Italy), Beru (Germany) and a Baltimore
Technologies (UK).
THE FUND'S TOP TEN U.S. HOLDINGS AND SECTOR WEIGHTINGS CAN BE FOUND BELOW.
- --------------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS % OF FUND ASSETS
- --------------------------------------------------------------------------------
M6 (Metropole Television) 5.34
BIPOP-CARIRE 3.78
BellSystems 24 3.74
C Two-Network 2.83
Manutan International 2.61
Rhoen Klinikum 2.61
Infogrames Entertainment 2.58
Hosiden 2.54
Beru 2.40
Classeditori 2.35
Total 30.78
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTOR DIVERSIFICATION (%) PORTFOLIO
- --------------------------------------------------------------------------------
Basic Industries 2.30
General Industrials 9.13
Cyclical Goods 2.40
Non-Cyclical Consumer Goods 23.09
Cyclical Services 28.46
Non-Cyclical Services 8.84
Information Technology 2.41
Resources 0.89
Financials 18.21
Cash 4.23
- --------------------------------------------------------------------------------
PORTFOLIO STRATEGY REVIEW-
DOMESTIC
IN THE UNITED STATES, THE STRONGEST ECONOMIC SECTOR WITHIN THE RUSSELL 2500-BY A
WIDE MARGIN-WAS TECHNOLOGY WHICH GAINED 39% DURING THE FISCAL YEAR ENDING
OCTOBER 31. Our value orientation led to our underweighting that sector which
hurt our performance. Indeed, the increased exposure that the Fund had in
economically sensitive sectors also hurt performance, particularly in the later
part of the year. The Financial and Materials & Processing sectors were
particularly hard hit.
OUR INVESTMENT APPROACH FOCUSES ON IDENTIFYING ATTRACTIVE STOCKS-NOT SECTORS. In
<PAGE>
DLB GLOBAL SMALL CAP FUND
---------------------------------------------
PORTFOLIO STRATEGY REVIEW-
DOMESTIC (CONT.)
particular, we try to find superior companies who possess a competitive
advantage, whose stocks are attractively valued, and who have a catalyst which
should enable the company to grow earnings faster than other investors are
expecting. Our approach led us to purchase some very strong companies who have
compelling forward looking prospects - but who also happen to be fairly
economically sensitive. While we continue to be positive about our companies'
future prospects, the market voted otherwise over the past several months, and
the investment performance of those companies was disappointing.
THE FUND'S TOP TEN NON-U.S. HOLDINGS AND SECTOR WEIGHTINGS CAN BE FOUND BELOW.
- --------------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS % OF FUND ASSETS
- --------------------------------------------------------------------------------
Unova 3.1
Golden State Bancorp 3.0
Ryerson Tull 2.9
Wallace Computer Systems 2.9
HSB Group 2.9
Nabors Industries 2.8
Perkin Elmer 2.8
Yellow Corporation 2.8
Central Newspapers 2.8
Ralcorp Holdings 2.8
Total 28.8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTOR RUSSELL
DIVERSIFICATION (%) PORTFOLIO 2500 DIFFERENCE
- --------------------------------------------------------------------------------
Technology 5.4 17.8 -12.4
Healthcare 1.9 7.7 -5.8
Consumer Discretionary 26.4 17.2 +9.2
Consumer Staples 7.3 3.0 +4.3
Energy 8.4 4.3 +4.1
Materials & Processing 15.8 9.1 +6.7
Producer Durables 6.7 6.6 +0.1
Autos & Transportation 9.0 3.3 +5.7
Financials 16.8 19.7 -2.9
Utilities 0.0 9.8 -9.8
Other 2.3 1.5 +0.8
- --------------------------------------------------------------------------------
<PAGE>
DLB GLOBAL SMALL CAP FUND
---------------------------------------------
PERFORMANCE REVIEW
FOR THE NON-U.S. PORTION, THE TEN MONTH FISCAL PERFORMANCE HAS BEEN STRONG. All
of the regions have done well but performance in Japan has been particularly
noteworthy with several stocks rising by over 100 per cent.
THE U.S. PORTION OF THE FUND DID NOT FARE AS WELL. The ten month fiscal year of
January through October 1999 has been a difficult period for small cap value
investors. While the Russell 2500 Index posted a 6% gain in that time period,
the Russell 2500 Value Index lost 2.4% of its value.
Overall, the Fund returned 9.48% for fiscal year ending October 31, compared to
12.00% for the Salomon EMI World (ex-U.S.) Index, 6.01% for the Russell 2500
Index and 9.60% for the Combined Index, an index calculated solely for the
purpose of presenting an "index" that resembles the Fund's mix of domestic and
foreign investments (see the next page for additional information about the
Combined Index).
OUTLOOK
WE FIRMLY BELIEVE THAT WE ARE BEING GIVEN A SUPERB OPPORTUNITY TO INVEST IN GOOD
COMPANIES ON A GLOBAL BASIS, WITH ATTRACTIVE FORWARD LOOKING OPPORTUNITIES, AT
"BARGAIN BASEMENT" PRICES. Eventually, investors will shift their gaze from the
technology sector and search for companies with solid market positions, good
cash flow generation capabilities, and whose stocks are attractively valued.
IN A STOCK MARKET WITH LOFTY VALUATIONS AND HIGH INVESTOR EXPECTATIONS FOR
FUTURE EARNINGS GROWTH AND FUTURE STOCK RETURNS, we are convinced that our low
risk investment approach is particularly well suited to deliver superior
investment performance to our investors. We look forward to continuing to
demonstrate our value-adding capabilities.
<PAGE>
DLB GLOBAL SMALL CAP FUND
---------------------------------------------
GROWTH OF A
$100,000 INVESTMENT
CUMULATIVE TOTAL RETURN SINCE INCEPTION 7/19/95
[LINE GRAPH]
DLB GLOBAL COMBINED SALOMON RUSSELL
SMALL CAP INDEX EMI(ex-U.S.) 2500
--------- ----- ------------ ----
19-Jul-95 $100,000.00 $100,000.00 $100,000.00 $100,000.00
30-Jul-95 $100,300.00 $105,860.00 $105,830.00 $102,170.00
30-Aug-95 $98,795.50 $104,928.43 $103,152.50 $103,804.72
30-Sep-95 $99,793.33 $111,454.98 $103,957.09 $105,745.87
31-Oct-95 $98,396.23 $108,133.62 $100,963.13 $102,436.02
30-Nov-95 $100,993.89 $111,572.27 $102,033.34 $106,810.04
31-Dec-95 $104,013.61 $114,897.12 $105,941.21 $108,636.49
31-Jan-96 $106,426.72 $116,390.79 $107,826.97 $109,407.81
28-Feb-96 $109,853.66 $118,904.83 $109,509.07 $112,700.99
31-Mar-96 $112,567.05 $121,508.84 $112,027.77 $115,000.09
30-Apr-96 $115,291.17 $127,584.29 $117,920.44 $120,313.09
31-May-96 $116,605.49 $128,413.58 $116,965.28 $123,573.58
30-Jun-96 $115,089.62 $126,795.57 $116,976.98 $119,779.87
31-Jul-96 $109,450.23 $120,176.84 $112,555.25 $111,011.98
31-Aug-96 $110,763.63 $123,758.11 $113,692.06 $117,395.17
30-Sep-96 $111,062.69 $126,394.16 $114,328.73 $122,478.38
31-Oct-96 $110,562.91 $125,762.19 $113,882.85 $121,670.02
30-Nov-96 $113,481.77 $129,535.06 $115,750.53 $127,546.69
31-Dec-96 $114,264.79 $128,952.15 $113,620.72 $129,294.07
31-Jan-97 $110,996.82 $129,016.63 $111,166.51 $132,862.59
28-Feb-97 $109,450.23 $120,465.27 $114,446.18 $109,357.90
31-Mar-97 $108,749.74 $117,104.29 $112,924.04 $104,403.99
30-Apr-97 $106,737.87 $116,858.37 $111,241.47 $105,729.92
31-May-97 $112,480.37 $125,903.21 $118,372.05 $115,467.65
30-Jun-97 $116,507.17 $129,869.16 $121,047.26 $120,190.27
31-Jul-97 $119,326.64 $132,765.24 $119,219.45 $127,233.42
31-Aug-97 $118,014.05 $131,012.74 $114,128.78 $129,001.97
30-Sep-96 $120,929.00 $136,620.08 $116,160.27 $137,438.70
31-Oct-97 $116,696.48 $130,827.39 $111,571.94 $131,267.70
30-Nov-97 $115,482.84 $128,433.25 $106,595.83 $131,858.40
31-Dec-97 $117,907.98 $128,484.62 $104,240.06 $134,350.53
31-Jan-98 $117,176.95 $129,962.20 $108,586.87 $132,294.96
28-Feb-98 $125,543.38 $139,527.42 $116,687.45 $141,899.58
31-Mar-98 $133,490.28 $145,861.96 $122,171.76 $148,128.97
30-Apr-98 $134,224.48 $146,678.79 $123,100.27 $148,691.86
31-May-98 $135,271.43 $144,654.62 $125,389.93 $141,792.56
30-Jun-98 $130,455.76 $142,614.99 $121,728.55 $141,962.71
31-Jul-98 $127,624.87 $137,395.28 $120,888.62 $132,209.87
31-Aug-98 $109,846.73 $116,373.80 $106,067.68 $107,275.09
30-Sep-98 $107,968.35 $118,806.02 $103,309.92 $114,891.62
31-Oct-98 $116,238.73 $126,290.79 $110,603.60 $121,176.19
30-Nov-98 $119,167.94 $131,392.94 $114,142.91 $127,174.41
31-Dec-98 $122,302.06 $136,858.89 $116,905.17 $134,881.18
31-Jan-99 $119,807.10 $136,530.43 $116,542.76 $134,651.88
28-Feb-99 $114,475.68 $130,973.64 $114,281.83 $125,805.26
31-Mar-99 $117,429.15 $134,915.95 $118,567.40 $128,497.49
30-Apr-99 $124,921.13 $144,454.50 $124,981.90 $139,998.01
31-May-99 $129,805.55 $143,558.88 $121,707.37 $142,167.98
30-Jun-99 $135,711.70 $149,545.29 $125,857.59 $149,560.72
31-Jul-99 $134,571.72 $151,294.97 $130,564.67 $146,614.37
31-Aug-99 $134,464.07 $150,659.53 $132,575.36 $142,025.34
30-Sep-99 $134,235.48 $149,484.39 $132,257.18 $139,909.16
31-Oct-99 $133,899.89 $149,992.63 $130,934.61 $142,973.17
*Salomon EMI (ex-U.S.), 58.0%
Russell 2500, 42.0%
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 10/31/99
- --------------------------------------------------------------------------------
10 Months One Year Annualized
1/1/99- 10/31/98- Since Inception
10/31/99 10/31/99 7/19/95-10/31/99
DLB Global Small Cap Fund 9.48 15.21 7.32
Combined Index 9.60 18.77 11.48
Salomon EMI (ex-U.S.) Index 12.00 18.38 6.11
Russell 2500 Index 6.01 18.00 13.76
- --------------------------------------------------------------------------------
DISCLOSURE STATEMENT
THE DLB GLOBAL SMALL CAPITALIZATION FUND invests in a combination of domestic
and international securities. The relative proportions of the Fund's assets
fluctuate over time.
The "COMBINED INDEX" used as a benchmark to measure the performance of this Fund
is a composite of the Russell 2500 Index and Salomon Brothers Extended Market
Index, ex-U.S., (EMI), weighted in each (monthly) period to reflect the
proportions of the Fund's assets invested in domestic and international
securities, respectfully, during such period. As of October 31, 1999, such
proportions were 42.0% domestic, 58.0% international. The Fund calculates the
Combined Index solely for the purpose of presenting an "index" that resembles
the Fund's mix of domestic and foreign investments. Securities in the Fund do
not match those in the Index and the performance of the Fund will differ.
SALOMON BROTHERS EXTENDED MARKET INDEX, EX-U.S., (EMI) is an unmanaged index
that represents the bottom 20% of the cumulative available market capital of the
BMI. The EMI defines the small stock index outside the U.S. Salomon Brothers
Broad Market Index (BMI) is an unmanaged index that fully represents the
universe of institutionally available global stocks. All companies with an
available market capitalization greater than U.S. $100 million are included in
the index. Securities in the Fund do not match those in the Index and the
performance of the Fund will differ.
RUSSELL 2500 INDEX is an unmanaged index that measures the performance of the
smallest 2500 companies in the Russell 3000 Index, representing approximately
17% of the Russell 3000 total market capitalization. This index is a good
measure of small to medium-small stock performance in the U.S. Securities in the
Fund do not match those in the Index and the performance of the Fund will
differ.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Investment return and share
price will fluctuate with market conditions, and investors may have a gain or
loss when shares are sold. The Fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such expense
limitation, returns would have been lower.
<PAGE>
DLB GLOBAL SMALL CAP FUND
---------------------------------------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Global Small
Capitalization Fund. The report is not intended for distribution to prospective
investors unless preceded or accompanied by a current prospectus.
BABSON SECURITIES CORPORATION
One Memorial Drive, Cambridge, MA 02142
December 1999
<PAGE>
---------------------------------------
DLB GLOBAL SMALL
CAPITALIZATION FUND
FINANCIAL STATEMENTS FOR THE TEN MONTHS
ENDED OCTOBER 31, 1999 AND THE YEAR
ENDED DECEMBER 31, 1998
<PAGE>
DLB GLOBAL SMALL CAPITALIZATION FUND
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of October 31, 1999 2 - 6
Statement of Assets and Liabilities as of October 31, 1999 7
Statements of Operations for the Ten Months Ended October 31, 1999
and the Year Ended December 31, 1998 8
Statements of Changes in Net Assets for the Ten Months Ended
October 31, 1999 and the Years Ended December 31, 1998 and 1997 9
Financial Highlights for the Ten Months Ended October 31, 1999
and the Four-Year Period Ended December 31, 1998 10
Notes to Financial Statements 11 - 14
</TABLE>
<PAGE>
DELOITTE & ---------------------------------------------------
TOUCHE DELOITTE & TOUCHE LLP Telephone: (617) 437-2000
- ---------- 200 Berkeley Street Facsimile: (617) 437-2111
[LOGO] Boston, Massachusetts 02116-5022
INDEPENDENT AUDITORS' REPORT
To the Trustees of The DLB Fund Group and Shareholders of DLB Global Small
Capitalization Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Global Small Capitalization Fund (the
"Fund") (a series of The DLB Fund Group) as of October 31, 1999, and the related
statements of operations for the ten months then ended and the year ended
December 31, 1998, the statements of changes in net assets for the ten months
ended October 31, 1999 and the years ended December 31, 1998 and 1997, and the
financial highlights for the ten months ended October 31, 1999 and each of the
years in the four-year period ended December 31, 1998. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of DLB Global Small
Capitalization Fund at October 31, 1999, the results of its operations for the
ten months then ended and the year ended December 31, 1998, the changes in its
net assets for the ten months ended October 31, 1999 and the years ended
December 31, 1998 and 1997, and the financial highlights for the ten months
ended October 31, 1999 and each of the years in the four-year period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
December 10, 1999
- -------------------
DELOITTE TOUCHE
TOHMATSU
- -------------------
<PAGE>
DLB GLOBAL SMALL CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS - 93.9%
ISSUER SHARES VALUE
<S> <C> <C>
DOMESTIC
AEROSPACE - 1.2%
Perkinelmer, Inc. 4,700 $ 191,819
-----------
APPAREL - 1.7%
The Stride Rite Corporation 15,400 101,063
Unifi Inc. (*) 13,000 156,000
-----------
257,063
-----------
AUTO PARTS - 1.8%
Bandag Incorporated 200 4,150
Exide Corporation 14,700 130,463
Snap-On Inc. 4,300 130,613
-----------
265,226
-----------
BANKS - 2.4%
Dime Bancorp, Inc. 10,100 180,538
Golden State Bancorp, Inc. (*) 9,200 192,050
Golden State Bancorp, Inc. Warrants (*) 3,300 3,300
-----------
375,888
-----------
BUILDING SUPPLIES - 1.2%
Dal-Tile International Inc. (*) 20,100 187,181
-----------
COAL GAS & PIPE - 1.1%
Nabors Industries Inc. (*) 7,800 176,963
-----------
COMPUTER RELATED - .1%
Filtronic PLC 5,000 92,818
-----------
ELECTRICAL EQUIPMENT - 1.5%
Gerber Scientific Inc. 7,300 137,788
Magnetek, Inc. 13,200 90,750
-----------
228,538
-----------
ELECTRONICS & INSTRUMENTS - .9%
Scitex Corporation Ltd. (*) 10,500 133,219
-----------
ENVIRONMENTAL - .9%
Safety-Kleen Corp (*) 11,800 134,963
-----------
FOOD PRODUCERS - 2.2%
Ralcorp Holdings Inc. (*) 9,600 187,200
Vlasic Foods International (*) 20,100 154,519
-----------
341,719
-----------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
FURNITURE & APPLIANCES - .4%
La-Z-Boy Incorporated 3,300 $ 60,225
-----------
HEALTHCARE - .7%
Total Renal Care Holdings, Inc. 15,100 110,419
-----------
INSURANCE COMPANIES - 3.2%
HCC Insurance Holdings, Inc. 14,100 158,625
HSB Group, Inc. 5,200 198,900
SSL Interantional PLC 13,000 138,283
-----------
495,808
-----------
MACHINERY & EQUIPMENT - 4.1%
Foster Wheeler Corporation 10,600 119,250
Harsco Corporation 5,100 150,131
Roper Industries, Inc. 6,000 185,250
Unova Inc. (*) 14,900 198,356
-----------
652,987
-----------
METALS & MINING - 2.1%
Martin Marietta Corporation 4,000 155,750
Ryerson Tull, Inc. 8,100 166,050
-----------
321,800
-----------
NATURAL GAS - 1.0%
Equitable Resources, Inc. 4,400 160,600
-----------
OFFICE SUPPLIES - 1.1%
Wallace Computer Services 7,800 172,575
-----------
OIL SERVICES - 1.0%
Stolt Comex Seaway S. A. 14,200 151,763
-----------
PAPER & FOREST PRODUCTS - .6%
Albany International Corp. 7,093 107,725
-----------
PRINTING & PUBLISHING - 4.2%
ACNeilsen Corporation (*) 6,600 145,200
Central Newspapers, Inc. 4,400 188,925
Hollinger International 16,900 175,338
Lee Enterprises Inc. 5,100 150,450
-----------
659,913
-----------
PROFESSIONAL SERVICES - 1.9%
CDI Corporation (*) 5,400 143,100
Policy Management Systems Corporation (*) 8,000 153,500
-----------
296,600
-----------
REAL ESTATE - .8%
Prentiss Properties Trust 5,900 126,481
-----------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
SPECIALTY RETAIL - .9%
Enesco Group Inc. 10,500 $ 132,563
-----------
TOBACCO - .5%
Dimon Incorporated 20,500 71,750
-----------
TRANSPORTATION - 1.0%
Fritz Companies Inc. (*) 14,000 156,625
-----------
TRUCKING & SHIPPING - 1.5%
Yellow Corporation (*) 10,900 185,300
Halter Marine Corp. 8,200 44,588
-----------
229,888
-----------
FOREIGN
AUSTRALIA - 1.6%
F. H. Faulding & Company Ltd. (Pharmaceuticals) 15,000 91,776
Infratil Australia Limited (Holding Company) 150,000 68,904
United Construction Group Ltd. (Aerospace & Defense) 60,000 88,810
-----------
249,490
-----------
BELGIUM - .7%
Colruyt NV (Food Retailers) 2,000 109,650
Dolmen Computer Applications (Software & Computer Services)(*) 200 3,832
-----------
113,482
-----------
FRANCE - 8.6%
Brioche Pasquier, SA (Food Producers) 2,000 191,098
Infogrames Entertainment (Leisure) (*) 2,500 231,769
M6 - Metropole Television (Media) 1,750 478,797
Societe Manutan International SA (Distributors) 4,000 233,611
Royal Canin SA (Food Producers) 3,000 199,832
-----------
1,335,107
-----------
GERMANY - 4.2%
Beru AG (Automobile parts) 10,000 215,195
MLP Pref., Non Voting (Life Insurance) (**) 900 189,888
Rhoen-Klinikum, AG (Private Healthcare) 6,000 243,081
-----------
648,164
-----------
HONG KONG - 1.6%
Asia Satellite Telecoms Hldgs. (Media) 35,000 82,445
Four Seas Mercantile Holding (Food Producer) 210,000 56,766
Vitasoy International Holdings, Ltd. (Food Producers) 348,500 102,054
-----------
241,265
-----------
ITALY - 4.2%
Banca Popolare Di Milano (Banking) 15,000 100,784
BIPOP Spa (Banking) 8,000 338,925
Classeditori Spa (Media) 25,000 214,038
-----------
653,747
-----------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
JAPAN - 16.6%
Aderans Company, Ltd. (Healthcare) 3,000 $ 150,259
Bellsystem24 Inc. (Telemarketing) 350 335,828
C Two-Network Co. Ltd. (Retailing) 1,000 254,270
Fancl Corporation (Cosmetics, Toiletries) 700 201,497
Fuji Seal Inc. (Labeling Products) 2,000 184,226
Hoshiden Corporation (Electronic Components) 6,000 227,404
Japan Airport Terminal Co., Ltd. (Airport Services) 15,000 190,271
Misumi Corporation (Distributors) 2,000 144,886
Mycal Card Inc. (Consumer Credit) 3,300 145,653
Nippon Konpo UNYU (Tobacco) 16,000 116,676
Q'sai Co. Ltd. (Health Beverages) 3,000 206,966
Ryohin Keikaku Company, Ltd.(Retailer) 1,000 192,477
T&K Toka Company Ltd. (Chemicals) 3,500 138,025
Union Tool Co. (Engineering) 1,000 106,889
-----------
2,595,327
-----------
MALAYSIA - .1%
Perlis Plantations Berhad (Diversified Industrial) 15,000 15,472
-----------
NETHERLANDS - .6%
Kempen & Company, NV (Banking) 2,250 94,707
-----------
NEW ZEALAND - .3%
Guinness Peat Group (Other Financial) 66,551 50,909
-----------
NORWAY - .7%
Tomra Systems ASA (Diversified Industrial) 3,000 114,606
-----------
SINGAPORE - .4%
Overseas Union Enterprises (Real Estate) 15,000 41,298
TIBS Holdings Limited (Transport) 21,000 25,374
-----------
66,672
-----------
SPAIN - 2.5%
Azkoyen S.A. (Vending Machines) 14,000 135,831
Mapfre Vida Seguros (Life Insurance) 4,000 104,472
Superdiplo S.A. (Supermarkets) (*) 8,000 146,733
-----------
387,036
-----------
SWITZERLAND - 1.9%
Bank Sarasin Ltd. (Banking) 110 204,158
Phoenix Mecano AG (Engineering) 200 96,800
-----------
300,958
-----------
THAILAND - .3%
Matichon Public Co. Ltd (Media) 24,000 44,297
-----------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
UNITED KINGDOM - 9.3%
Baltimore Technologies PLC (Software) (*) 4,000 $ 123,210
Peter Black Holdings, PLC (Household Goods) 19,000 105,813
Brake Brothers PLC (Food Retailers) 9,000 91,890
N Brown Group PLC (General Retailers) 20,000 124,524
Capita Group, PLC (Service Outsourcing) 10,000 132,903
Cattles PLC (Other Financial) 26,000 121,304
Columbus Group PLC (Business Publishing) 110,000 70,476
Expro International Group, PLC (Oil Exploration) 14,000 79,692
IMS Group, (Telecommunications) 18,000 105,418
Independent Insurance Group, PLC (General Insurer) 19,000 85,056
Kingston Communications (Telecommunications) (*) 24,000 176,240
Redrow Group PLC (Housebuilder) 26,000 68,554
Rotork PLC (Engineering) 13,000 86,066
St. James's Place Capital PLC (Life Insurance) 27,000 86,937
-----------
1,458,083
-----------
TOTAL COMMON AND PREFERRED STOCKS
(identified cost, $12,886,202) 14,662,409
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 5.63%
Investors Bank & Trust Repurchase Agreement, 4.51%,
dated 10/29/99, $879,893 due on 11/1/99 (secured by
Federal Government Agency securities), at cost $ 879,562 879,562
-----------
TOTAL INVESTMENTS (identified cost, $13,765,764) 15,541,971
Other assets, less liabilities - 0.5% 73,487
-----------
NET ASSETS - 100% $15,615,458
===========
(*) Non-income producing security
(**) Preferred Stock
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB GLOBAL SMALL CAPITALIZATION FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $13,765,764) $ 15,541,971
Foreign cash, at value (cost, $789) 789
Receivable for investments sold 277,605
Dividends and interest receivable 11,030
Receivable for fund shares sold 12,277
Receivable from investment manager 12,740
Other assets 8,680
------------
15,865,092
LIABILITIES:
Payable for investments purchased 201,387
Accrued management fees 13,157
Accrued expenses 35,090
------------
249,634
NET ASSETS $ 15,615,458
============
NET ASSETS CONSIST OF:
Paid-in capital $ 13,065,061
Unrealized appreciation of investments and translation of assets and
liabilities in foreign currencies 1,777,135
Accumulated undistributed net realized gain on investments and
foreign currency transactions 800,590
Accumulated distributions in excess of net investment income (27,328)
Total $ 15,615,458
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,323,026
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 11.80
============
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB GLOBAL SMALL CAPITALIZATION FUND
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Ten Months
Ended Year Ended
October 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign tax withheld of $14,884 and
and $16,205, respectively) $ 173,303 $ 206,307
Interest 23,456 23,203
----------- -----------
196,759 229,510
----------- -----------
EXPENSES:
Management fee 123,274 143,177
Trustees' fees 3,838 4,669
Custodian fees 54,810 67,107
Accounting and audit fees 30,831 29,428
Legal fees 12,619 11,258
Registration fees 14,837 20,578
Transfer agent fee 6,407 8,000
Miscellaneous 3,949 2,782
----------- -----------
250,565 286,999
Reduction of expenses by investment manager (65,657) (72,251)
----------- -----------
Net expenses 184,908 214,748
----------- -----------
Net investment income 11,851 14,762
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) (identified cost basis):
Investment transactions 845,800 1,051,146
Foreign currency transactions and forward foreign currency exchange
contracts and other transactions denominated in foreign currency (11,474) (6,746)
----------- -----------
Net realized gain on investments and foreign currency 834,326 1,044,400
----------- -----------
Change in unrealized appreciation:
Investments 502,366 (539,253)
Foreign currency and forward foreign currency exchange contracts
and other transactions denominated in foreign currency 207 1,006
----------- -----------
Net unrealized gain (loss) on investments and foreign currency 502,573 (538,247)
----------- -----------
Net realized and unrealized gain on investments and foreign
currency 1,336,899 506,153
----------- -----------
Increase in net assets from operations $ 1,348,750 $ 520,915
=========== ===========
</TABLE>
See notes to financial statements.
8
<PAGE>
DLB GLOBAL SMALL CAPITALIZATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Ten Months
Ended Years Ended December 31,
October 31, -------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 11,851 $ 14,762 $ 29,173
Net realized gain on investments
and foreign currency 834,326 1,044,400 27,312
Net unrealized appreciation (depreciation)
of investments and foreign currency 502,573 (538,247) 572,764
------------ ------------ ------------
1,348,750 520,915 629,249
------------ ------------ ------------
Distributions to shareholders:
From net investment income -- (14,762) (9,121)
In excess of net investment income -- (93,233) --
From net realized gain on investments and
foreign currency transactions (72) (989,096) (27,312)
In excess of net realized gain on investments
and foreign currency transactions -- -- (9,806)
Tax return of capital -- -- (474,986)
------------ ------------ ------------
(72) (1,097,091) (521,225)
------------ ------------ ------------
Fund share transactions:
Net proceeds from sales of shares 572,236 827,306 906,178
Net asset value of shares issued in
reinvestment of distributions 72 1,097,091 521,225
Cost of shares reacquired (615,352) (925,539) (233,889)
------------ ------------ ------------
(43,044) 998,858 1,193,514
------------ ------------ ------------
Total increase in net assets 1,305,634 422,682 1,301,538
NET ASSETS:
At beginning of period 14,309,824 13,887,142 12,585,604
------------ ------------ ------------
At end of period (including accumulated distributions
in excess of net investment income of
$27,328, $70,207 and $26,926, respectively) $ 15,615,458 $ 14,309,824 $ 13,887,142
============ ============ ============
</TABLE>
See notes to financial statements.
9
<PAGE>
DLB GLOBAL SMALL CAPITALIZATION FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Ten Months
Ended Years Ended December 31, Period Ended
October 31, -------------------------------- December 31,
1999 1998 1997 1996 1995**
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $10.78 $11.27 $11.19 $10.33 $10.00
------ ------ ------ ------ ------
Income from investment operations:
Net investment income .01 .01 .02 .01 .07
Net realized and unrealized gain on investments
and foreign currency 1.01 .40 .50 1.01 .33
------ ------ ------ ------ ------
1.02 .41 .52 1.02 .40
------ ------ ------ ------ ------
Less distributions to shareholders:
From net investment income -- (.01) (.01) (.01) (.07)
In excess of net investment income -- (.08) -- -- --
From net realized gain on investments and foreign
currency transactions (1) -- (.81) (.02) (.11) --
In excess of net realized gain on investments and
foreign currency transactions -- -- (.01) (.04) --
Tax return of capital -- -- (.40) -- --
------ ------ ------ ------ ------
-- (.90) (.44) (.16) (.07)
------ ------ ------ ------ ------
Net asset value- end of period $11.80 $10.78 $11.27 $11.19 $10.33
====== ====== ====== ====== ======
Total return 9.48% 3.73% 4.66% 9.85% 4.07%
Ratios and Supplemental Data:
Ratio of expenses to average net assets 1.50% * 1.50% 1.50% 1.50% 1.46% *
Ratio of net investment income to average net assets .10% * .10% .22% .09% 1.46% *
Portfolio turnover 45% 36% 44% 22% 5%
Net assets at end of period (000 omitted) $15,615 $14,310 $13,887 $12,586 $10,509
The manager has agreed with the Fund to reduce its management fee and/or bear certain expenses, such that the Fund's total
expenses do not exceed 1.50% of average daily net assets. Without such agreement and had the 1995 expenses been limited to
that permitted by state securities law, the investment income (loss) per share and ratios would have been:
Net investment income (loss) $ (.04) $ (.08) $ (.05) $ (.10) $ .02
Ratios (to average net assets):
Expenses 2.03% * 2.00% 2.14% 2.36% 2.50% *
Net investment income (loss) (.43%)* (.40%) (.42%) (.77%) .42% *
* Annualized
** For the period from July 19, 1995 (commencement of operations) to December 31, 1995.
(1) Distributions from net realized gain on investments for the ten months ended October 31, 1999 was less than $.01
per share.
</TABLE>
See notes to financial statements.
10
<PAGE>
DLB GLOBAL SMALL CAPITALIZATION FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Global Small Capitalization Fund (the "Fund") is a non-diversified
series of The DLB Fund Group (the "Trust"), a Massachusetts business trust.
The Trust is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
During 1999, the Fund changed its year end from December 31 to October 31,
and the financial statements are presented for the ten months ended October
31, 1999.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices
are not available are valued at last quoted bid prices. Securities for
which there are no such quotations or valuations are valued at fair value
as determined in good faith by or at the direction of the Trustees.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value.
REPURCHASE AGREEMENTS - Securities purchased under agreements to resell to
the original owner are recorded at cost. The Fund may enter into such
agreements with institutions that the Fund's investment adviser has
determined to be creditworthy. The Fund requires that the securities so
purchased be transferred to the custodian under terms that enable the Fund
to obtain such securities in the event of a default. The Fund monitors, on
a daily basis, the value of the securities to assure that such value,
including accrued interest, is greater than amounts owed to the Fund.
FOREIGN CURRENCY TRANSLATION - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars at current exchange rates. Purchases and
sales of foreign investments and income and expenses are converted into
U.S. dollars at currency exchange rates prevailing on the respective dates
of such transactions. Security transaction gains and losses attributable to
changes in foreign currency exchange rates are recorded for financial
statement purposes as net realized gains and losses on investments. Income
and expense gains and losses that are attributable to changes in foreign
exchange rates are recorded for financial statement purposes as foreign
currency transaction gains and losses. The portion of both realized and
unrealized gains and losses on investments that results from fluctuations
in foreign currency exchange rates is not separately disclosed.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The Fund may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. The risks
associated with these contracts include the possible inability of
counterparties to meet the terms of the contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
The Fund enters into forward contracts for hedging purposes only. The Fund
may enter into contracts to deliver or receive foreign currency it will
receive from or require for its normal investment activities. It may also
use contracts in a manner intended to protect foreign currency-denominated
securities from declines in value resulting from unfavorable exchange rate
movements. Forward foreign currency exchange contracts are adjusted by the
daily change in the exchange rates of the underlying currencies, and any
gains or losses are recorded for financial statement purposes as unreal
11
<PAGE>
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded
on the trade date. Dividend income is recorded on the ex-dividend date.
Dividend payments received in additional securities are recorded in an
amount equal to the value of the securities received. Interest income is
recorded on the accrual basis.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of its
taxable income, including any net realized gains on investments.
Accordingly, no provision for federal income or excise tax is necessary.
The Fund files a tax return annually using tax accounting methods required
by the Code, which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the net investment income and net realized gain reported in
these financial statements may differ from the amounts reported on the
Fund's tax return, and, consequently, the character of distributions to
shareholders reported in the financial highlights may differ from that
reported to shareholders on Form 1099-DIV.
Foreign taxes are provided with respect to interest and dividend income
earned in foreign currencies in accordance with applicable tax rates. To
the extent that such taxes are unrecoverable, they are recorded as a
reduction of net investment income.
Distributions to shareholders are recorded on the ex-dividend date. The
Fund distinguishes between distributions for tax purposes and financial
reporting purposes. Differences between income for financial reporting
purposes and tax-basis earnings and profits may result in the reporting of
temporary over-distributions in the financial statements. Such
over-distributions are classified as distributions in excess of net
investment income or accumulated net realized gains. Distributions, if any,
in excess of tax-basis earnings and profits are reported as return of
capital. During the ten months ended October 31, 1999, $31,028 was
reclassified from accumulated undistributed net realized gain on investment
transactions to accumulated undistributed net investment income due to
differences between book and tax accounting for foreign currency
transactions and the offset of net investment loss against short-term
capital gains. This change had no effect on the net assets or net asset
value per share.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results could differ from those such estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Co. Inc. ("Babson") to provide
investment advisory and administrative services and general office
facilities. The fee for such services is computed daily and paid monthly at
an effective annual rate of 1.00% of average daily net assets. For the ten
months ended October 31, 1999, the management fee amounted to $123,274.
Babson has agreed to pay the Fund's operating expenses such that the Fund's
total aggregate expenses do not exceed 1.50% of average daily net assets.
For the ten months ended October 31, 1999, $65,657 of fund expenses were
borne by Babson.
12
<PAGE>
Babson has entered into a sub-advisory agreement with Babson-Stewart Ivory
International ("BSII"), an affiliate of Babson, with respect to the
management of the international component of the Fund's portfolio. Under
the sub-advisory agreement, Babson pays BSII a monthly fee at the effective
annual rate of .50% of average daily net assets.
The Fund pays no compensation directly to theTrustees who also are officers
of the investment manager, nor to the officers of the Fund, all of whom
receive remuneration for their services to the Fund from Babson.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations, for
the ten months ended October 31, 1999 aggregated $6,372,829 and $6,668,226,
respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis,
are as follows:
Aggregate cost $ 13,795,800
============
Gross unrealized appreciation $ 3,699,967
Gross unrealized depreciation (1,953,796)
Net unrealized appreciation $ 1,746,171
============
5. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Ten Months
Ended Years Ended December 31,
October 31, -----------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Shares sold 50,868 74,346 81,079
Shares issued in reinvestment
of distributions 6 103,499 46,413
Redemptions (55,596) (81,996) (20,517)
---------- ---------- ----------
Net increase (decrease) (4,722) 95,849 106,975
========== ========== ==========
</TABLE>
13
<PAGE>
6. RISKS ASSOCIATED WITH FOREIGN INVESTMENTS
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in domestic investments. For example, there is generally less
publicly available information about foreign companies, particularly those
not subject to disclosure and reporting requirements of the U.S. securities
laws. Foreign issuers are generally not bound by uniform accounting,
auditing, and financial reporting requirements and standards of practice
comparable to those applicable to domestic issuers. Investments in foreign
securities also involve the risk of possible adverse changes in investment
or exchange control regulations, expropriation or confiscatory taxation,
limitation on the removal of funds or other assets of the Fund, political
or financial instability or diplomatic and other developments that could
affect such investments. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the United
States.
14
<PAGE>
DLB
THE DLB ENTERPRISE III FUND
ANNUAL REPORT
OCTOBER 31, 1999
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB ENTERPRISE III FUND
---------------------------------------------
FUND INVESTMENT OBJECTIVE
THE DLB ENTERPRISE III FUND seeks long-term capital appreciation primarily
through investment in small to medium-size companies.
MARKET OVERVIEW
THE FISCAL YEAR ENDING OCTOBER 30, 1999 (A 10 MONTH PERIOD DUE TO A CHANGE IN
THE FISCAL CALENDAR FROM DECEMBER 31 TO OCTOBER 31) WAS A YEAR FILLED WITH
VOLATILITY, SECTOR ROTATION, ENORMOUS RETURNS IN TECHNOLOGY AND THE "DOT.COM"
SECTOR, AND LAGGING VALUE STOCKS (AGAIN).
IN THE FIRST QUARTER OF 1999 WE WITNESSED THE SAME TRENDS THAT TOOK PLACE
THROUGH MOST OF CALENDAR YEAR 1998: LARGE GROWTH STOCKS LEADING THE MARKET TO
NEW HIGHS AT THE EXPENSE OF ALL OTHER EQUITY ASSET CLASSES. Small company stocks
and value stocks were all flat or down in this time period. The tables turned
dramatically in the second quarter, with small cap stocks and value stocks
surging 15% or more, leaving large growth stocks in the dust. This rally was
short-lived however, and most of these gains were lost in the third quarter. At
fiscal year-end, large growth stocks still ruled the day, leaving many value and
small company managers frustrated with yet another year of an out-of-favor asset
class.
THE S&P 500 INDEX FINISHED THE FISCAL YEAR UP 12%, LED BY LARGE GROWTH STOCKS
THAT ADVANCED NEARLY 15%. Small company stocks represented by the Russell 2000
Index increased by a modest 3%, and the value component of this market segment
declined by 5%.
THE REAL STANDOUT IN THE MARKET IN FISCAL 1999 WAS THE TECHNOLOGY SECTOR. This
segment of the market, up over 35%, was the only component of the S&P 500 Index
that was consistently in positive territory throughout the year. Much of this
performance came from telecommunications and Internet companies that benefited
from accelerating growth in the buildout and use of the Internet.
<PAGE>
DLB ENTERPRISE III FUND
---------------------------------------------
THE STRONGEST ECONOMIC SECTOR WITHIN THE RUSSELL 2500-BY A WIDE MARGIN-WAS
TECHNOLOGY WHICH GAINED 39% DURING THE FISCAL YEAR ENDING OCTOBER 31. Our value
orientation led to our underweighting that sector which hurt our performance.
Indeed, the increased exposure that the Fund had in economically sensitive
sectors also hurt performance, particularly in the later part of the year. The
Financial and Materials & Processing sectors were particularly hard hit.
OUR INVESTMENT APPROACH FOCUSES ON IDENTIFYING ATTRACTIVE STOCKS-NOT SECTORS. In
particular, we try to find superior companies who possess a competitive
advantage, whose stocks are attractively valued, and who have a catalyst which
should enable the company to grow earnings faster than other investors are
expecting. Our approach led us to purchase some very strong companies who have
compelling forward looking prospects - but who also happen to be fairly
economically sensitive. While we continue to be positive about our companies'
future prospects, the market voted otherwise over the past several months, and
the investment performance of those companies was disappointing.
THE BEST AND WORST PERFORMERS IN THE FUND FOR THE JANUARY THROUGH OCTOBER 1999
FISCAL YEAR ARE LISTED BELOW:
- --------------------------------------------------------------------------------
BEST PERFORMERS BUSINESS GAIN (%)
- --------------------------------------------------------------------------------
CommScope Coaxial Cables 110
Nabors Industries Oil Service 68
Unisource Worldwide Paper Distribution 66
Life USA Insurance & Annuities 61
PRI Automation Semiconductor Equipment 60
- --------------------------------------------------------------------------------
COMMSCOPE is benefiting from heavy spending by AT&T and other cable television
operators to upgrade their systems. The stock was sold during the fourth quarter
of 1999 for valuation reasons. NABORS INDUSTRIES is benefiting from improved oil
and gas prices. UNISOURCE WORLDWIDE was acquired by Georgia-Pacific, the large
paper manufac- turer, during the second quarter of 1999. LIFE USA was acquired
by its partner, Allianz, the German insurance company, during the second quarter
of 1999. PRI AUTOMATION is benefiting from a pick up in demand from
semiconductor producers. The stock was sold during the first quarter after a
sharp run-up in price.
<PAGE>
DLB ENTERPRISE III FUND
---------------------------------------------
PORTFOLIO STRATEGY REVIEW
(CONT.)
- --------------------------------------------------------------------------------
UNDERPERFORMERS BUSINESS LOSS (%)
- --------------------------------------------------------------------------------
Vlasic International Pickles and Frozen Foods 63
Policy Management Systems Insurance Software 62
Dimon Tobacco Processor 53
Total Renal Care Dialysis Centers 50
Enesco Group Collectibles 46
- --------------------------------------------------------------------------------
VLASIC, a spin out from Campbell Soups, reported much greater than expected
losses in its non-core operations. Management plans to fix or exit those
businesses which should boost the company's earnings power. POLICY MANAGEMENT
SYSTEMS reported weak earnings due to client deferrals on its software upgrades.
We believe the issue is temporary and have added to the position. DIMON is being
squeezed from successive bumper tobacco leaf crops (i.e., too much supply)
coupled with weak demand from the only growth markets for cigarette consumption,
the developing word (Asia, Latin America, and Eastern Europe). TOTAL RENAL CARE
reported much greater than expected difficulty integrating a large acquisition.
ENESCO has seen its growth rate slow due to its recent restructuring.
THE FUND'S TOP TEN HOLDINGS AND SECTOR WEIGHTINGS CAN BE FOUND BELOW.
- --------------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS % OF FUND ASSETS
- --------------------------------------------------------------------------------
Unova 3.1
Golden State Bancorp 3.0
Ryerson Tull 2.9
Wallace Computer Systems 2.9
HSB Group 2.9
Nabors Industries 2.8
Perkin Elmer 2.8
Yellow Corporation 2.8
Central Newspapers 2.8
Ralcorp Holdings 2.8
TOTAL 28.8
- --------------------------------------------------------------------------------
<PAGE>
DLB ENTERPRISE III FUND
---------------------------------------------
PORTFOLIO STRATEGY REVIEW
(CONT.)
- --------------------------------------------------------------------------------
SECTOR RUSSELL
DIVERSIFICATION (%) PORTFOLIO 2000 DIFFERENCE
- --------------------------------------------------------------------------------
Technology 5.4 18.1 -12.7
Healthcare 1.9 9.0 -7.1
Consumer Discretionary 26.4 17.3 +9.1
Consumer Staples 7.3 2.6 +4.7
Energy 8.4 3.1 +5.3
Materials & Processing 15.8 9.2 +6.6
Producer Durables 6.7 8.2 -1.5
Autos & Transportation 9.0 3.5 +5.5
Financials 16.8 21.4 -4.6
Utilities 0.0 6.5 -6.5
Other 2.3 1.0 +1.3
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
THE TEN MONTH FISCAL YEAR OF JANUARY THROUGH OCTOBER 1999 HAS BEEN A DIFFICULT
PERIOD FOR SMALL CAP VALUE INVESTORS. While the Russell 2500 Index posted a
6.01% gain in that time period and the Russell 2000 Index a 2.79% gain, the
Russell 2000 Value Index lost 4.92% of its value. As a result of the value
orientation of our approach, the DLB Enterprise III Fund posted a loss of 8.11%
for the ten month period, dramatically underperforming its benchmark.
OUTLOOK
CLEARLY, THE SMALL CAP VALUE AREA OF THE MARKET HAS NOT BEEN AN ATTRACTIVE AREA
IN WHICH TO INVEST IN 1999. Additionally, our portfolios have been hurt by
increased exposure to economically sensitive sectors at a time when interest
rates are rising and investors are concerned about the potential for an economic
slowdown.
WE FIRMLY BELIEVE THAT WE ARE BEING GIVEN A SUPERB OPPORTUNITY TO INVEST IN GOOD
COMPANIES, WITH ATTRACTIVE FORWARD LOOKING OPPORTUNITIES, AT "BARGAIN BASEMENT"
PRICES. Eventually, investors will shift their gaze from the technology sector
and search for companies with solid market positions, good cash flow generation
capabilities, and whose stocks are attractively valued.
<PAGE>
DLB ENTERPRISE III FUND
---------------------------------------------
OUTLOOK(CONT.)
IN A STOCK MARKET WITH LOFTY VALUATIONS AND HIGH INVESTOR EXPECTATIONS FOR
FUTURE EARNINGS GROWTH AND FUTURE STOCK RETURNS, we are convinced that our
investment approach is particularly well suited to deliver superior investment
performance to our investors. We look forward to continuing to demonstrate our
value-adding capabilities.
<PAGE>
DLB ENTERPRISE III FUND
---------------------------------------------
Growth of a
$100,000 Investment
CUMULATIVE TOTAL RETURN SINCE INCEPTION 7/25/95
[LINE GRAPH]
DLB RUSSELL RUSSELL RUSSELL 2000
ENTERPRISE III 2500 INDEX 2000 INDEX VALUE INDEX
-------------- ---------- ---------- -----------
25-Jul-95 $100,000.00 $100,000.00 $100,000.00 $100,000.00
31-Jul-95 $100,500.00 $102,210.00 $102,200.00 $101,240.00
31-Aug-95 $99,696.00 $103,845.36 $104,315.54 $104,246.83
30-Sep-95 $100,792.66 $105,787.27 $106,182.79 $105,800.11
31-Oct-95 $98,595.38 $102,476.13 $101,436.42 $101,578.68
30-Nov-95 $106,897.11 $106,851.86 $105,696.75 $105,611.36
31-Dec-95 $109,270.22 $108,679.02 $108,487.14 $108,885.31
31-Jan-96 $111,302.65 $109,450.65 $108,367.81 $109,603.95
28-Feb-96 $114,652.86 $112,745.11 $111,748.88 $111,324.73
31-Mar-96 $117,702.62 $115,045.11 $114,028.56 $113,662.55
30-Apr-96 $119,232.76 $120,360.19 $120,129.09 $116,765.54
30-May-96 $121,879.73 $123,621.96 $124,862.17 $119,719.71
30-Jun-96 $119,746.83 $119,826.76 $119,730.34 $118,307.01
31-Jul-96 $112,118.96 $111,055.44 $109,277.88 $112,013.08
31-Aug-96 $116,087.97 $117,441.13 $115,626.92 $116,874.45
30-Sep-96 $117,202.41 $122,526.33 $120,147.94 $120,065.12
31-Oct-96 $115,983.51 $121,717.66 $118,297.66 $121,457.88
30-Nov-96 $122,188.63 $127,596.62 $123,171.52 $127,992.31
31-Dec-96 $125,402.19 $129,344.69 $126,398.61 $132,152.06
31-Jan-97 $126,380.32 $132,914.61 $128,926.59 $134,187.20
28-Feb-97 $127,467.19 $130,934.18 $125,806.56 $135,461.98
31-Mar-97 $127,581.91 $125,002.86 $119,868.49 $131,831.60
30-Apr-97 $127,581.91 $126,590.40 $120,204.13 $133,769.52
31-May-97 $137,711.92 $138,249.37 $133,570.82 $144,417.58
30-Jun-97 $146,318.91 $143,903.77 $139,301.01 $151,725.11
31-Jul-97 $156,663.66 $152,336.53 $145,778.51 $158,097.56
31-Aug-97 $158,731.62 $154,454.01 $149,116.84 $160,611.31
30-Sep-96 $164,398.34 $164,555.30 $160,032.19 $171,291.97
31-Oct-97 $160,469.22 $157,166.77 $153,006.78 $166,632.83
30-Nov-97 $159,923.62 $157,874.02 $152,012.23 $168,465.79
31-Dec-97 $166,784.35 $160,857.84 $154,672.45 $174,176.78
31-Jan-98 $160,429.86 $158,396.72 $152,228.62 $171,024.18
28-Feb-98 $171,130.54 $169,896.32 $163,478.32 $181,371.14
31-Mar-98 $177,479.48 $177,354.77 $170,213.62 $188,734.81
30-Apr-98 $180,762.85 $178,028.71 $171,149.80 $189,659.61
31-May-98 $174,888.06 $169,768.18 $161,924.83 $182,945.66
30-Jun-98 $167,490.29 $169,971.90 $162,264.87 $181,921.16
31-Jul-98 $159,166.02 $158,294.83 $149,121.41 $167,676.74
31-Aug-98 $132,251.05 $128,440.43 $120,162.03 $141,418.56
30-Sep-98 $136,840.16 $137,559.70 $129,570.72 $149,408.71
31-Oct-98 $144,831.63 $145,084.21 $134,857.21 $153,846.15
30-Nov-98 $149,176.58 $152,265.88 $141,923.73 $158,015.38
31-Dec-98 $152,383.87 $161,493.19 $150,708.80 $162,977.06
31-Jan-99 $148,802.85 $161,218.66 $152,713.23 $159,277.48
28-Feb-99 $137,925.36 $150,626.59 $140,343.46 $148,398.83
31-Mar-99 $140,876.97 $153,850.00 $142,532.82 $147,181.96
30-Apr-99 $151,245.51 $167,619.57 $155,303.76 $160,619.67
31-May-99 $161,999.07 $170,217.68 $157,571.19 $165,550.69
30-Jun-99 $165,579.25 $179,069.00 $164,693.41 $171,543.63
31-Jul-99 $157,200.94 $175,541.34 $160,180.81 $167,478.05
31-Aug-99 $147,721.72 $170,046.89 $154,254.12 $161,348.35
30-Sep-99 $145,033.18 $167,513.20 $154,284.97 $158,121.38
31-Oct-99 $140,029.54 $171,181.73 $154,917.54 $154,958.95
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 10/31/99
- --------------------------------------------------------------------------------
10 Months One Year Annualized
1/1/99- 10/31/98- Since Inception
10/31/99 10/31/99 7/25/95-10/31/99
DLB Enterprise III Fund -8.11 -3.34 8.06
Russell 2500 Index 6.01 18.00 13.03
Russell 2000 Index 2.79 14.87 10.51
Russell 2000 Value Index -4.92 0.72 10.59
- --------------------------------------------------------------------------------
DISCLOSURE STATEMENT
IN PAST YEARS, the Fund has compared its returns to those of the Russell 2500
Index. In future semi-annual and annual reports, the Fund will compare its
returns 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 the Fund's inception, the
Fund's investment policies continue to require the Fund to invest in companies
with a market capitalization 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 average
market capitalization than the Russell 2500 Index, provides a more appropriate
comparison based on market capitalization.
THE RUSSELL 2500 INDEX is an unmanaged index that measures the performance of
the smallest 2500 companies in the Russell 3000 Index, representing
approximately 17% of the Russell 3000 total market capitalization. Securities in
the Fund do not match those in the Index, and performance of the Fund will
differ.
THE RUSSELL 2000 INDEX measures the performance of the 2000 smallest companies
in the Russell 3000 Index, which represents approximately 8% of the total market
capitalization of the Russell 3000 Index. Securities in the Fund do not match
those in the Index, and performance of the Fund will differ.
THE RUSSELL 2000 VALUE INDEX measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.
Securities in the Fund do not match those in the Index, and performance of the
Fund will differ.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Investment return and share
price will fluctuate with market conditions, and investors may have a gain or
loss when shares are sold. The Fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such expense
limitation, returns would have been lower.
<PAGE>
DLB ENTERPRISE III FUND
---------------------------------------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Enterprise III Fund. The
report is not intended for distribution to prospective investors unless preceded
or accompanied by a current prospectus.
BABSON SECURITIES CORPORATION
One Memorial Drive, Cambridge, MA 02142
December 1999
<PAGE>
---------------------------------------
DLB ENTERPRISE III
FUND
FINANCIAL STATEMENTS FOR THE TEN MONTHS
ENDED OCTOBER 31, 1999 AND THE YEAR
ENDED DECEMBER 31, 1998
<PAGE>
DLB ENTERPRISE III FUND
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of October 31, 1999 2 - 4
Statement of Assets and Liabilities as of October 31, 1999 5
Statements of Operations for the Ten Months Ended October 31, 1999
and the Year Ended December 31, 1998 6
Statements of Changes in Net Assets for the Ten Months Ended
October 31, 1999 and the Years Ended December 31, 1998 and 1997 7
Financial Highlights for the Ten Months Ended October 31, 1999 and
the Four-Year Period Ended December 31, 1998 8
Notes to Financial Statements 9 - 10
</TABLE>
<PAGE>
DELOITTE & ---------------------------------------------------
TOUCHE DELOITTE & TOUCHE LLP Telephone: (617) 437-2000
- ---------- 200 Berkeley Street Facsimile: (617) 437-2111
[LOGO] Boston, Massachusetts 02116-5022
INDEPENDENT AUDITORS' REPORT
To the Trustees of The DLB Fund Group and Shareholders of DLB Enterprise III
Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Enterprise III Fund (the "Fund") (formerly
known as DLB Mid Capitalization Fund) (a series of The DLB Fund Group) as of
October 31, 1999, and the related statements of operations for the ten months
then ended and the year ended December 31, 1998, the statements of changes in
net assets for the ten months ended October 31, 1999 and the years ended
December 31, 1998 and 1997, and the financial highlights for the ten months
ended October 31, 1999 and each of the years in the four-year period ended
December 31, 1998. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of DLB Enterprise III
Fund at October 31, 1999, the results of its operations for the ten months ended
October 31, 1999 and the year ended December 31, 1998, the changes in its net
assets for the ten months ended October 31, 1999 and the years ended December
31, 1998 and 1997, and the financial highlights for the ten months ended October
31, 1999 and each of the years in the four-year period ended Decemeber 31, 1998,
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
December 10, 1999
- -------------------
DELOITTE TOUCHE
TOHMATSU
- -------------------
<PAGE>
DLB ENTERPRISE III FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
COMMON STOCKS - 93.0%
ISSUER SHARES VALUE
<S> <C> <C>
AEROSPACE - 2.8%
Perkinelmer, Inc. 22,600 $ 922,363
-----------
APPAREL - 3.9%
The Stride Rite Corporation 77,800 510,563
Unifi Inc. (*) 62,200 746,400
-----------
1,256,963
-----------
AUTO PARTS - 4.0%
Bandag Incorporated 900 18,675
Exide Corporation 74,600 662,075
Snap-On Inc. 20,800 631,800
-----------
1,312,550
-----------
BANKS - 5.6%
Dime Bancorp, Inc. 47,400 847,275
Golden State Bancorp, Inc. (*) 46,600 972,775
Golden State Bancorp, Inc. Warrants (*) 13,100 13,100
-----------
1,833,150
-----------
BUILDING SUPPLIES - 2.7%
Dal-Tile International Inc. (*) 93,100 866,994
-----------
COAL GAS & PIPE - 2.8%
Nabors Industries Inc. (*) 40,900 927,919
-----------
ELECTRICAL EQUIPMENT - 3.3%
Gerber Scientific Inc. 32,000 604,000
Magnetek Incorporated (*) 67,200 462,000
-----------
1,066,000
-----------
ELECTRONICS & INSTRUMENTS - 2.0%
Scitex Corporation Ltd. (*) 51,300 650,869
-----------
ENVIRONMENTAL - 2.3%
Safety-Kleen Corp. (*) 65,700 751,444
-----------
FOOD PRODUCERS - 5.4%
Ralcorp Holdings Inc. (*) 46,700 910,650
Vlasic Foods International (*) 112,500 864,844
-----------
1,775,494
-----------
FURNITURE & APPLIANCES - 1.0%
La-Z-Boy Incorporated 17,100 312,075
-----------
</TABLE>
2
<PAGE>
DLB ENTERPRISE III FUND
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
HEALTHCARE - 1.7%
Total Renal Care Holdings, Inc. (*) 76,200 $ 557,213
-----------
INSURANCE COMPANIES - 5.2%
HCC Insurance Holdings, Inc. 68,500 770,625
HSB Group, Inc. 24,450 935,213
-----------
1,705,838
-----------
MACHINERY & EQUIPMENT - 10.2%
Foster Wheeler Corporation 59,400 668,250
Harsco Corporation 27,600 812,475
Roper Industries, Inc. 27,500 849,063
Unova Inc. (*) 75,000 998,438
-----------
3,328,226
-----------
METALS & MINING - 5.2%
Martin Marietta Materials 19,400 755,388
Ryerson Tull Inc. 46,500 953,250
-----------
1,708,638
-----------
NATURAL GAS - 2.5%
Equitable Resources, Inc. 22,500 821,250
-----------
OFFICE EQUIPMENT - 2.9%
Wallace Computer Services 42,400 938,100
-----------
OIL SERVICES - 2.2%
Stolt Comex Seaway S. A. 68,300 729,956
-----------
PAPER & FOREST PRODUCTS - 1.6%
Albany International Corp. 33,426 507,672
-----------
PRINTING & PUBLISHING - 9.9%
ACNeilsen Corporation (*) 30,700 675,400
Central Newspapers, Inc. 21,300 914,569
Hollinger International 85,300 884,988
Lee Enterprises Inc. 25,900 764,050
-----------
3,239,007
-----------
PROFESSIONAL SERVICES - 4.6%
CDI Corporation (*) 28,200 747,300
Policy Management Systems Corporation (*) 38,500 738,719
-----------
1,486,019
-----------
REAL ESTATE - 2.1%
Prentiss Properties Trust 31,800 681,713
-----------
SPECIALTY RETAIL - 2.0%
Enesco Group Inc. 50,500 637,563
-----------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
<S> <C> <C>
TOBACCO - 1.1%
Dimon Incorporated 106,000 $ 371,000
-----------
TRANSPORTATION - 2.5%
Fritz Companies Inc. (*) 71,500 799,906
-----------
TRUCKING & SHIPPING - 3.5%
Yellow Corporation (*) 54,000 918,000
Halter Marine Group, Inc. 43,700 237,613
-----------
1,155,613
-----------
TOTAL COMMON STOCKS
(identified cost, $34,670,355) 30,343,535
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 6.4%
Investors Bank & Trust Repurchase Agreement, 4.51%,
dated 10/29/99, $2,081,290 due on 11/1/99 (secured by
Federal Government Agency securities), at cost $2,080,508 2,080,508
-----------
TOTAL INVESTMENTS (identified cost, $36,750,863) 32,424,043
Other assets, less liabilities - 0.6% 188,006
-----------
NET ASSETS - 100% $32,612,049
===========
(*) Non-income producing security
</TABLE>
See notes to financial statements.
4
<PAGE>
DLB ENTERPRISE III FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- -------------------------------------------------------------------------------
ASSETS:
Investments, at value (identified cost, $36,750,863) $ 32,424,043
Receivable for investments sold 250,128
Receivable for fund shares sold 13,364
Dividends and interest receivable 14,542
Receivable from investment manager 7,930
------------
32,710,007
------------
LIABILITIES:
Payable for investments purchased 46,655
Payable for Fund shares reacquired 4,354
Accrued management fee 16,407
Accrued expenses 30,542
------------
97,958
------------
NET ASSETS $ 32,612,049
============
NET ASSETS CONSIST OF:
Paid-in capital $ 35,178,101
Unrealized depreciation of investments (4,326,820)
Accumulated undistributed net realized gain on investment
transactions 1,556,753
Accumulated undistributed net investment income 204,015
------------
Total $ 32,612,049
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,985,062
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 10.93
============
See notes to financial statements.
5
<PAGE>
DLB ENTERPRISE III FUND
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Ten Months Year Ended
Ended October 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
NET INVESTMENT INCOME:
Dividends $ 377,848 $ 380,770
Interest 84,457 61,061
----------- -----------
462,305 441,831
----------- -----------
EXPENSES:
Management fee 172,193 173,748
Trustees' fees 3,847 4,655
Custodian fees 40,361 43,782
Accounting and audit fees 28,239 26,380
Legal fees 13,668 11,258
Registration fees 17,425 24,095
Transfer agent fee 6,407 8,000
Miscellaneous 4,011 241
----------- -----------
286,151 292,159
Reduction of expenses by investment manager (27,861) (75,477)
----------- -----------
Net expenses 258,290 219,309
----------- -----------
Net investment income 204,015 222,522
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain (identified cost basis) 1,556,752 2,187,410
Change in unrealized depreciation (3,928,866) (5,034,660)
----------- -----------
Net realized and unrealized loss on investments (2,372,114) (2,847,250)
----------- -----------
Decrease in net assets from operations $(2,168,099) $(2,624,728)
=========== ===========
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB ENTERPRISE III FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Ten Months
Ended Years Ended December 31,
October 31, ------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 204,015 $ 222,522 $ 143,687
Net realized gain on investments 1,556,752 2,187,410 1,834,448
Net unrealized appreciation (depreciation)
of investments (3,928,866) (5,034,660) 3,124,915
------------ ------------ ------------
(2,168,099) (2,624,728) 5,103,050
------------ ------------ ------------
Distributions to shareholders:
From net investment income (2,565) (223,867) (139,420)
From net realized gain on investments (12,380) (2,175,064) (1,834,045)
------------ ------------ ------------
(14,945) (2,398,931) (1,973,465)
------------ ------------ ------------
Fund share transactions:
Net proceeds from sales of shares 15,739,311 9,402,929 9,389,016
Net asset value of shares issued in
reinvestment of distributions 14,945 2,398,931 1,973,465
Cost of shares reacquired (10,899,305) (4,195,749) (824,091)
------------ ------------ ------------
4,854,951 7,606,111 10,538,390
------------ ------------ ------------
Total increase in net assets 2,671,907 2,582,452 13,667,975
NET ASSETS:
At beginning of period 29,940,142 27,357,690 13,689,715
------------ ------------ ------------
At end of period (including accumulated
undistributed net investment income of
$204,015, $2,565 and $3,910, respectively) $ 32,612,049 $ 29,940,142 $ 27,357,690
============ ============ ============
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB ENTERPRISE III FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Ten Months Years Ended December 31,
Ended ---------------------------------------- Period Ended
October 31, December 31,
1999 1998 1997 1996 1995**
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $ 11.90 $ 14.19 $ 11.51 $ 10.75 $ 10.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income .07 .10 .08 .15 .08
Net realized and unrealized gain (loss) on (1.04) (1.36) 3.72 1.44 .84
---------- ---------- ---------- ---------- ----------
investments
(.97) (1.26) 3.80 1.59 .92
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (1) (2) -- (.10) (.08) (.15) (.08)
From net realized gain on investments (1) (2) -- (.93) (1.04) (.68) (.09)
---------- ---------- ---------- ---------- ----------
-- (1.03) (1.12) (.83) (.17)
---------- ---------- ---------- ---------- ----------
Net asset value- end of period $ 10.93 $ 11.90 $ 14.19 $ 11.51 $ 10.75
========== ========== ========== ========== ==========
Total Return (8.11%) (8.63%) 32.95% 14.75% 21.17% *
Ratios and Supplemental Data:
Ratio of expenses to average net assets .90% * .76% .90% .90% .90% *
Ratio of net investment income to
average net assets .71% * .77% .78% 1.28% 1.90% *
Portfolio turnover 48% 28% 32% 25% 6%
Net assets at end of period (000 omitted) $ 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 $ .06 $ .06 $ .04 $ .05 $ .01
Ratios (to average net assets):
Expenses 1.00% * 1.02% 1.33% 1.77% 2.50% *
Net investment income .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>
See notes to financial statements.
8
<PAGE>
DLB ENTERPRISE III FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Enterprise III Fund (the "Fund"), formerly know as DLB Mid
Capitalization Fund, is a non-diversified series of The DLB Fund Group (the
"Trust"), a Massachusetts business trust. The Trust is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company.
During 1999, the Fund changed its year end from December 31 to October 31,
and the financial statements are presented for the ten months ended October
31, 1999.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices
are not available are valued at last quoted bid prices. Securities for
which there are no such quotations or valuations are valued at fair value
as determined in good faith by or at the direction of the Trustees.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value.
REPURCHASE AGREEMENTS - Securities purchased under agreements to resell to
the original owner are recorded at cost. The Fund may enter into such
agreements with institutions that the Fund's investment adviser has
determined to be creditworthy. The Fund requires that the securities so
purchased be transferred to the custodian under terms that enable the Fund
to obtain such securities in the event of a default. The Fund monitors, on
a daily basis, the value of the securities to assure that such value,
including accrued interest, is greater than amounts owed to the Fund.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded
on the trade date. Dividend income is recorded on the ex-dividend date.
Dividend payments received in additional securities are recorded in an
amount equal to the value of the securities received. Interest income is
recorded on the accrual basis.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of its
taxable income, including any net realized gains on investments.
Accordingly, no provision for federal income or excise tax is necessary.
The Fund files a tax return annually using tax accounting methods required
by the Code, which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the net investment income and net realized gain reported in
these financial statements may differ from the amounts reported on the
Fund's tax return, and, consequently, the character of distributions to
shareholders reported in the financial highlights may differ from that
reported to shareholders on Form 1099-DIV.
9
<PAGE>
Distributions to shareholders are recorded on the ex-dividend date. The
Fund distinguishes between distributions for tax purposes and financial
reporting purposes. Differences between income for financial reporting
purposes and tax-basis earnings and profits may result in the reporting of
temporary over-distributions in the financial statements. Such
over-distributions are classified as distributions in excess of net
investment income or accumulated net realized gains. Distributions, if any,
in excess of tax-basis earnings and profits are reported as return of
capital.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results could differ from those such estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Co. Inc. ("Babson") to provide
investment advisory and administrative services and general office
facilities. The fee for such services is computed daily and paid monthly at
an effective annual rate of .60% of average daily net assets. For the ten
months ended October 31, 1999, the management fee amounted to $172,193.
Babson has agreed to pay the Fund's operating expenses such that the Fund's
total aggregate expenses do not exceed .90% of average daily net assets.
For the ten months ended October 31, 1999, $27,861 of fund expenses were
borne by Babson.
The Fund pays no compensation directly to the Trustees who also are
officers of the investment manager, nor to the officers of the Fund, all of
whom receive remuneration for their services to the Fund from Babson.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations, for
the ten months ended October 31, 1999 aggregated $20,295,052 and
$15,283,839, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis,
are as follows:
Aggregate cost $ 36,797,619
============
Gross unrealized appreciation $ 2,298,875
Gross unrealized depreciation (6,672,451)
------------
Net unrealized depreciation $ (4,373,576)
============
10
<PAGE>
5. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Ten Months
Ended Years Ended December 31,
October 31, ------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Shares sold 1,355,408 701,642 659,292
Shares issued in reinvestment
of distributions 1,208 208,181 140,061
Redemptions (888,231) (321,680) (60,046)
------- ------- -------
Net increase 468,385 588,143 739,307
======= ======= =======
</TABLE>
11
<PAGE>
DLB
THE DLB DISCIPLINED GROWTH FUND
ANNUAL REPORT
OCTOBER 31, 1999
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB DISCIPLINED GROWTH FUND
---------------------------------------------
FUND INVESTMENT OBJECTIVE
THE DLB DISCIPLINED GROWTH FUND seeks long-term capital appreciation.
MARKET OVERVIEW
THE FISCAL YEAR ENDING OCTOBER 30, 1999 (A 10 MONTH PERIOD DUE TO A CHANGE IN
THE FISCAL CALENDAR FROM DECEMBER 31 TO OCTOBER 31) WAS A YEAR FILLED WITH
VOLATILITY, SECTOR ROTATION, ENORMOUS RETURNS IN TECHNOLOGY AND THE "DOT.COM"
SECTOR, AND LAGGING VALUE STOCKS (AGAIN).
IN THE FIRST QUARTER OF 1999 WE WITNESSED THE SAME TRENDS THAT TOOK PLACE
THROUGH MOST OF CALENDAR YEAR 1998: LARGE GROWTH STOCKS LEADING THE MARKET TO
NEW HIGHS AT THE EXPENSE OF ALL OTHER EQUITY ASSET CLASSES. Small company stocks
and value stocks were all flat or down in this time period. The tables turned
dramatically in the second quarter, with small cap stocks and value stocks
surging 15% or more, leaving large growth stocks in the dust. This rally was
short-lived however, and most of these gains were lost in the third quarter. At
fiscal year- end, large growth stocks still ruled the day, leaving many value
and small company managers frustrated with yet another year of an out-of-favor
asset class.
THE S&P 500 INDEX FINISHED THE FISCAL YEAR UP 12%, LED BY LARGE GROWTH STOCKS
THAT ADVANCED NEARLY 15%. Small company stocks represented by the Russell 2000
Index increased by a modest 3%, and the value component of this market segment
declined by 5%.
THE REAL STANDOUT IN THE MARKET IN FISCAL 1999 WAS THE TECHNOLOGY SECTOR. This
segment of the market, up over 35%, was the only component of the S&P 500 Index
that was consistently in positive territory throughout the year. Much of this
performance came from telecommunications and Internet companies that benefited
from accelerating growth in the buildout and use of the Internet.
<PAGE>
DLB DISCIPLINED GROWTH FUND
---------------------------------------------
PORTFOLIO STRATEGY REVIEW
THE BASIC STRATEGY OF THIS FUND IS TO FIND UNDER-PRICED STOCKS THAT ARE
EXPERIENCING A POSITIVE CHANGE IN MARKET SENTIMENT. These stocks will tend to
get the largest returns as the market revalues the stock to a "fairer" market
value. The strategy builds a diversified portfolio sensitive to its benchmark,
the Russell 1000 Growth Index, by using powerful stock selection techniques and
a disciplined portfolio construction process. The two factors used in the
strategy are Earnings Revision and Relative Valuation, both of which have a
strong basis in economic theory, but have not necessarily worked well in the
past 18 months.
ALTHOUGH THE PAST TEN MONTHS HAVE SHOWN ENORMOUS SWINGS IN PERFORMANCE BETWEEN
HIGH P/E AND LOW P/E STOCKS AND UPWARD MARKET MOVEMENT HAS BEEN VERY NARROW, WE
HAVE NOT ADJUSTED THE MANNER IN WHICH THE PORTFOLIO IS MANAGED. We are committed
to maintaining our lower than benchmark P/E strategy as this tends to outperform
on a long-term basis. With the recent wide and counter-historical performance
disparity between high and low P/E stocks, we feel that we are positioned to
take advantage of a return to the more typical performance relationship, i.e.,
low P/E stocks outperform high P/E stocks.
WE ALSO REMAIN COMMITTED TO MAINTAINING SECTOR EXPOSURES THAT ARE NEUTRAL TO OUR
BENCHMARK (THE RUSSELL 1000 GROWTH INDEX) AND HAVE NOT INCREASED OR DECREASED
EXPOSURES IN ANY OF THE SECTORS DUE TO A SECTOR'S PERFORMANCE OVER THE 10
MONTHS. As an example, we have not increased our relative exposure (relative to
the Russell 1000 Growth Index's exposure) to technology stocks despite the
technology sector's outstanding performance this year. We expect most of our
value-added to come from stock selection and not by picking sectors; by
maintaining our neutrality to the benchmark, we allow our stock selection to
work for us.
WE FEEL THIS SORT OF DISCIPLINE, BASED ON A LONG-TERM ANALYSIS OF THE FACTORS
THAT DRIVE THE STOCK MARKET, WILL REWARD THE INVESTOR OVER A THREE TO FIVE YEAR
TIME FRAME. We continue to monitor different ways to systematically add value in
this context, however we feel our present position allows us to take advantage
of a change in the market.
THE FUND'S TOP TEN HOLDINGS AND SECTOR WEIGHTINGS CAN BE FOUND ON THE FOLLOWING
PAGE.
<PAGE>
DLB DISCIPLINED GROWTH FUND
---------------------------------------------
PORTFOLIO STRATEGY REVIEW
(CONT.)
- --------------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS % OF FUND ASSETS
- --------------------------------------------------------------------------------
Microsoft Corp. 7.19
General Electric Co. 5.30
Bristol Myers Squibb 4.86
Merck & Co. 4.71
Wal-Mart Stores 4.65
Intel Corp. 4.36
Applied Materials Inc. 3.21
Computer Associates International 2.76
Micron Technology Inc. 2.74
Novellus Systems Inc. 2.66
TOTAL 42.44
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTOR RUSSELL 1000
DIVERSIFICATION (%) PORTFOLIO GROWTH DIFFERENCE
- --------------------------------------------------------------------------------
Technology 35.5 34.0 +1.5
Consumer Discretionary 20.1 17.1 +3.0
Healthcare 16.9 17.6 -0.7
Producer Durables 7.2 2.5 +4.7
Other 6.4 8.0 -1.6
Financial Services 3.3 5.2 -1.9
Utilities 3.3 4.8 -1.5
Materials & Processing 2.5 0.5 +2.0
Consumer Staples 2.4 9.3 -6.9
Autos & Transportation 1.8 0.3 +1.5
Other Energy 0.5 0.7 -0.2
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
THE FUND HAD A DIFFICULT YEAR RELATIVE TO ITS BENCHMARK DESPITE A POSITIVE
ABSOLUTE RETURN (8.60% FOR THE FUND VERSUS 14.44% FOR THE RUSSELL 1000 GROWTH
INDEX). This underperformance was primarily related to High P/E's continued
dominance in the market. Our relative valuation strategy of looking for
undervalued stocks, which historically outperform, hurt the Fund in this type of
market. The Fund's market sentiment indicator, Earnings Revision analysis, was
positive in 1999 and not enough to offset the poor performance of Low P/E
stocks.
<PAGE>
DLB DISCIPLINED GROWTH FUND
---------------------------------------------
OUTLOOK
LOOKING TO THE FUTURE, WE ARE HOPEFUL THAT THE MARKET WILL RETURN TO FOCUSING ON
LOW VALUATION AS AN IMPORTANT FACTOR, AS IT DID BRIEFLY IN THE SECOND QUARTER OF
1999, AND REDUCE ITS EMPHASIS ON TECHNOLOGY ESPECIALLY TELECOMMUNICATIONS. In
the past, when low-P/E stocks begin to outperform high-P/E stocks, we see very
strong relative performance by our strategy. Increasing realized domestic
inflation (as opposed to government inflation statistics) and accompanying
interest rates increases will create profit risk for many high-P/E companies and
temper the enthusiasm for many very high growth companies (that are in our
opinion also very overvalued).
<PAGE>
DLB DISCIPLINED GROWTH FUND
---------------------------------------------
GROWTH OF A
$100,000 INVESTMENT
CUMULATIVE TOTAL RETURN SINCE INCEPTION 8/26/96
[LINE GRAPH]
DLB DLB
DISCIPLINED RUSSELL 1000 DISCIPLINED RUSSELL 1000
GROWTH FUND GROWTH INDEX GROWTH FUND GROWTH INDEX
----------- ------------ ----------- ------------
26-Aug-96 $100,000.00 $100,000.00 31-Mar-98 $180,586.90 $171,327.86
31-Aug-96 $98,500.00 $100,240.00 30-Apr-98 $181,237.01 $173,692.18
30-Sep-96 $106,399.70 $107,537.47 31-May-98 $178,445.96 $168,759.33
31-Oct-96 $110,102.41 $108,182.70 30-Jun-98 $188,885.05 $179,087.40
30-Nov-96 $120,099.71 $116,307.22 31-Jul-98 $182,368.51 $177,905.42
31-Dec-96 $118,502.38 $114,027.60 31-Aug-98 $151,128.79 $151,201.82
31-Jan-97 $127,449.31 $122,020.93 30-Sep-98 $159,093.27 $162,814.12
28-Feb-97 $128,163.03 $121,191.19 31-Oct-98 $169,322.97 $175,904.37
31-Mar-97 $123,382.55 $114,634.74 30-Nov-98 $184,832.96 $189,290.69
30-Apr-97 $131,920.62 $122,246.49 31-Dec-98 $196,958.00 $206,364.71
31-May-97 $139,849.05 $131,072.69 31-Jan-99 $205,013.58 $218,478.32
30-Jun-97 $144,631.89 $136,315.60 28-Feb-99 $193,614.83 $208,493.86
31-Jul-97 $160,281.06 $148,365.89 31-Mar-99 $198,319.67 $219,481.49
31-Aug-97 $154,382.71 $139,686.49 30-Apr-99 $204,150.26 $219,766.82
30-Sep-96 $164,510.22 $146,559.07 31-May-99 $207,008.37 $213,019.98
31-Oct-97 $153,553.84 $141,136.38 30-Jun-99 $219,656.58 $227,931.37
30-Nov-97 $159,189.26 $147,134.68 31-Jul-99 $214,384.82 $220,683.16
31-Dec-97 $156,674.07 $148,782.58 31-Aug-99 $214,256.19 $224,280.29
31-Jan-98 $160,982.61 $153,231.18 30-Sep-99 $208,064.19 $219,570.41
28-Feb-98 $175,310.06 $164,754.17 31-Oct-99 $213,889.98 $236,147.97
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 10/31/99
- --------------------------------------------------------------------------------
10 Months One Year Annualized
1/1/99- 10/31/98- Since Inception
10/31/99 10/31/99 8/26/96-10/31/99
DLB Disciplined Growth Fund 8.60 26.37 26.37
Russell 1000 Growth Index 14.44 34.25 29.52
- --------------------------------------------------------------------------------
DISCLOSURE STATEMENT
RUSSELL 1000 GROWTH INDEX is an unmanaged index that contains those Russell 1000
securities with a greater-than-average growth orientation. Securities in this
index tend to exhibit higher price-to-book ratios and higher forecasted growth
values than the Value universe. Securities in the Fund do not match those in the
Index, and the performance of the Fund will differ.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Investment return and share
price will fluctuate with market conditions, and investors may have a gain or
loss when shares are sold. The Fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such expense
limitation, returns would have been lower.
<PAGE>
DLB DISCIPLINED GROWTH FUND
---------------------------------------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Disciplined Growth Fund.
The report is not intended for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
BABSON SECURITIES CORPORATION
One Memorial Drive, Cambridge, MA 02142
December 1999
<PAGE>
---------------------------------------
DLB DISCIPLINED
GROWTH FUND
FINANCIAL STATEMENTS FOR THE TEN MONTHS
ENDED OCTOBER 31, 1999 AND THE YEAR
ENDED DECEMBER 31, 1998
<PAGE>
DLB DISCIPLINED GROWTH FUND
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of October 31, 1999 2 - 5
Statement of Assets and Liabilities as of October 31, 1999 6
Statements of Operations for the Ten Months Ended October 31, 1999
and the Year Ended December 31, 1998 7
Statements of Changes in Net Assets for the Ten Months Ended
October 31, 1999 and the Years Ended December 31, 1998 and 1997 8
Financial Highlights for the Ten Months Ended October 31, 1999 and
the Three-Year Period Ended December 31, 1998 9
Notes to Financial Statements 10 - 12
</TABLE>
<PAGE>
DELOITTE & ---------------------------------------------------
TOUCHE DELOITTE & TOUCHE LLP Telephone: (617) 437-2000
- ---------- 200 Berkeley Street Facsimile: (617) 437-2111
[LOGO] Boston, Massachusetts 02116-5022
INDEPENDENT AUDITORS' REPORT
To the Trustees of The DLB Fund Group and Shareholders of DLB Disciplined Growth
Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Disciplined Growth Fund (the"Fund")
(formerly known as DLB Quantitive Equity Fund) (a series of The DLB Fund Group)
as of October 31, 1999, and the related statements of operations for the ten
months then ended and the year ended December 31, 1998, the statements of
changes in net assets for the ten months ended October 31, 1999 and the years
ended December 31, 1998 and 1997, and the financial highlights for the ten
months ended October 31, 1999 and each of the years in the three-year period
ended December 31, 1998. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of DLB Disciplined
Growth Fund at October 31, 1999, the results of its operations for the ten
months ended October 31, 1999 and the year ended December 31, 1998, the changes
in its net assets for the ten months ended October 31, 1999 and the years ended
December 31, 1998 and 1997, and the financial highlights for the ten months
ended October 31, 1999 and each of the years in the three-year period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
December 10, 1999
- -------------------
DELOITTE TOUCHE
TOHMATSU
- -------------------
<PAGE>
DLB DISCIPLINED GROWTH FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
COMMON STOCKS - 99.4%
ISSUER SHARES VALUE
AEROSPACE - 3.0%
General Dynamics Corporation 17,400 $ 964,613
Rockwell International Corporation 5,700 276,094
-----------
1,240,707
-----------
APPAREL & TEXTILE - 8.3%
Jones Apparel Group, Inc. (*) 33,500 1,059,438
Liz Claiborne Inc. 27,000 1,080,000
Ross Stores Inc. 51,400 1,060,125
Warnaco Group, Inc. 16,900 240,825
-----------
3,440,388
-----------
AUTO & TRUCK MANUFACTURERS - 2.1%
Navistar International Corporation (*) 9,700 404,369
Paccar Inc. 9,800 461,825
-----------
866,194
-----------
CHEMICALS - 1.8%
Cytec Industries Inc. 16,500 425,906
Solutia Incorporated 19,700 338,594
-----------
764,500
-----------
COMPUTER RELATED - 4.4%
Cisco Systems, Inc. 2,000 148,000
3 Com Corp. (*) 36,700 1,064,300
Unisys Corporation 25,500 618,375
-----------
1,830,675
-----------
COMPUTER SERVICES - 2.8%
Computer Associates International, Inc. 20,350 1,149,775
-----------
COMPUTER SOFTWARE - 10.4%
Adobe Systems Inc. 5,200 363,675
I2 Technologies, Inc. 4,900 386,794
Microsoft Corporation (*) 32,400 2,999,025
Oracle Corporation 5,900 280,619
Symantec Corp. 5,900 281,725
-----------
4,311,838
-----------
2
<PAGE>
ISSUER SHARES VALUE
CONSTRUCTION - 0.9%
Fluor Corporation 3,400 $ 135,575
USG Corporation 4,600 227,988
-----------
363,563
-----------
DIVERSIFIED - 1.4%
Loews Corporation 8,000 567,000
-----------
DRUGS - 14.6%
Biogen, Inc. 10,000 741,250
Bristol-Meyers Squibb Company 26,400 2,027,850
Forest Laboratories, Inc. 7,400 339,475
Genzyme Corporation-General Division (*) 26,600 1,017,450
Merck & Co., Inc. 24,700 1,965,194
-----------
6,091,219
-----------
ELECTRICAL EQUIPMENT - 6.5%
Altera Corporation (*) 10,600 515,425
General Electric Company 16,300 2,209,669
-----------
2,725,094
-----------
ELECTRIC POWER - 3.4%
AES Corp. 3,800 214,463
DTE Energy Co. 15,500 514,406
PECO Energy Company 6,200 236,763
Public Service Enterprise Group Incorporated 11,000 435,188
-----------
1,400,820
-----------
ELECTRONICS & INSTRUMENTS - 6.5%
ADC Telecommunications 6,000 286,125
Applied Materials Inc. 14,900 1,338,206
National Semiconductor Corporation 18,600 556,838
SCI Systems Inc. 3,800 187,625
Teradyne, Inc. 8,500 327,250
-----------
2,696,044
-----------
FINANCIAL SERVICES - 3.2%
Lehman Brothers Holdings Inc. 14,800 1,090,575
PMI Group, Inc. 5,000 259,375
-----------
1,349,950
-----------
FOOD PRODUCERS - 2.6%
IBP Inc. 44,700 1,070,006
-----------
MEDICAL SUPPLIES & SERVICES - 2.5%
C. R. Bard, Inc. 5,400 291,263
Dentsply International Inc. 26,600 616,788
Sybron International Corporation 5,100 121,444
-----------
1,029,495
-----------
3
<PAGE>
ISSUER SHARES VALUE
OFFICE EQUIPMENT - 0.3%
Tech Data Corporation (*) 6,300 $ 118,519
-----------
PRINTING & PUBLISHING - 0.9%
Knight-Ridder, Inc. 5,900 374,650
-----------
PROFESSIONAL SERVICES - 1.0%
Modis Professional Services, Inc. 37,000 413,938
-----------
RECREATION - 3.5%
Harrah's Entertainment Inc. 36,600 1,059,113
KingWorld Productions Inc. (*) 10,800 418,500
-----------
1,477,613
-----------
RESTAURANT & LODGING - 1.1%
Outback Steakhouse Inc. (*) 20,700 476,100
-----------
RETAIL - DISCOUNT - 4.9%
The TJX Companies Inc. 3,900 105,788
Wal Mart Stores Inc. 34,200 1,938,713
-----------
2,044,501
-----------
RETAIL - GENERAL - 1.1%
Federated Department Stores, Inc. 11,100 473,138
-----------
RETAIL - SPECIALTY - 1.0%
Intimate Brands, Inc. 9,660 396,060
-----------
SEMICONDUCTORS - 10.8%
Intel Corporation 23,500 1,819,781
Micron Tech (*) 16,000 1,141,000
Novellus Systems, Inc. 14,300 1,108,250
Texas Instruments 5,000 448,750
-----------
4,517,781
-----------
TELECOMMUNICATIONS - 0.6%
MCI Worldcom, Inc. 3,000 257,430
-----------
TOTAL COMMON STOCKS
(identified cost, $35,368,944) 41,446,998
4
<PAGE>
PRINCIPAL VALUE
AMOUNT
REPURCHASE AGREEMENT - 0.7%
Investors Bank & Trust Repurchase Agreement, 4.51%,
dated 10/29/99, $283,324 due on 11/1/99 (secured by
Federal Government Agency securities), at cost $ 283,218 $ 283,218
-----------
TOTAL INVESTMENTS (identified cost, $35,652,162) 41,730,216
Other assets, less liabilities - (0.1%) (46,965)
-----------
NET ASSETS - 100% $41,683,251
===========
(*) Non-income producing security
See notes to financial statements.
5
<PAGE>
DLB DISCIPLINED GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
ASSETS:
<S> <C>
Investments, at value (identified cost, $35,652,162) $41,730,216
Receivable for fund shares sold 1,237
Dividends and interest receivable 13,251
Receivable from investment manager 12,931
-----------
41,757,635
-----------
LIABILITIES:
Payable for fund shares reacquired 14,553
Accrued management fees 25,788
Accrued expenses 34,043
-----------
74,384
-----------
NET ASSETS $41,683,251
===========
NET ASSETS CONSIST OF:
Paid-in capital $30,603,807
Unrealized appreciation of investments 6,078,054
Accumulated undistributed net realized gain on investment transactions 5,001,390
-----------
Total $41,683,251
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,416,428
===========
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 17.25
===========
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB DISCIPLINED GROWTH FUND
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Ten Months Ended Year Ended
October 31, 1999 December 31, 1998
---------------- -----------------
<S> <C> <C>
NET INVESTMENT INCOME:
Dividends $ 223,571 $ 277,637
Interest 9,421 12,236
----------- -----------
232,992 289,873
----------- -----------
EXPENSES:
Management fee 249,026 223,157
Trustees' fees 3,838 4,669
Custodian fees 39,307 43,473
Accounting and audit fees 28,225 24,412
Registration Expense 18,686 26,101
Legal fees 12,818 7,849
Transfer agent fee 6,407 8,000
Miscellaneous 4,257 1,899
----------- -----------
362,564 339,560
----------- -----------
Reduction of expenses by investment manager (63,733) (72,023)
----------- -----------
Net expenses 298,831 267,537
----------- -----------
Net investment income (loss) (65,839) 22,336
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain (identified cost basis) 5,080,337 4,595,904
Change in unrealized appreciation (1,765,520) 2,342,094
----------- -----------
Net realized and unrealized gain on investments 3,314,817 6,937,998
----------- -----------
Increase in net assets from operations $ 3,248,978 $ 6,960,334
=========== ===========
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB DISCIPLINED GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Ten Months Years Ended December 31,
Ended -----------------------------------
October 31, 1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (65,839) $ 22,336 $ 45,839
Net realized gain on investments 5,080,337 4,595,904 1,189,437
Net unrealized appreciation (depreciation)
on investments (1,765,520) 2,342,094 3,708,423
------------ ------------ ------------
3,248,978 6,960,334 4,943,699
------------ ------------ ------------
Distributions to shareholders:
From net investment income (2,240) (27,930) (43,840)
From net realized gain on investments (9,521) (4,590,140) (1,335,243)
In excess of net realized gain on investments -- -- (9,351)
------------ ------------ ------------
(11,761) (4,618,070) (1,388,434)
------------ ------------ ------------
Fund share transactions:
Net proceeds from sales of shares 4,425,941 3,940,252 6,349,810
Net asset value of shares issued in
reinvestment of distributions 11,698 4,586,644 1,388,434
Cost of shares reacquired (1,299,361) (630,887) (121,323)
------------ ------------ ------------
3,138,278 7,896,009 7,616,921
------------ ------------ ------------
Total increase in net assets 6,375,495 10,238,273 11,172,186
NET ASSETS:
At beginning of period 35,307,756 25,069,483 13,897,297
------------ ------------ ------------
At end of period (including accumulated undistributed
net investment income of $0, $2,240 and
$7,834, respectively) $ 41,683,251 $ 35,307,756 $ 25,069,483
============ ============ ============
</TABLE>
See notes to financial statements.
8
<PAGE>
DLB DISCIPLINED GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Ten Months Years Ended December 31,
Ended ------------------------------ Period Ended
October 31, December 31,
1999 1998 1997 1996 **
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value- beginning of period $ 15.89 $ 14.55 $ 11.66 $ 10.00
------------- ------------- ------------- -------------
Income from investment operations:
Net investment income (loss) (.03) .01 .03 .01
Net realized and unrealized gain on investments 1.39 3.72 3.73 1.84
------------- ------------- ------------- -------------
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) -- (2.38) (.83) (.18)
In excess of net realized gain on investment -- -- (.01) --
------------- ------------- ------------- -------------
-- (2.39) (.87) (.19)
------------- ------------- ------------- -------------
Net asset value- end of period $ 17.25 $ 15.89 $ 14.55 $ 11.66
============= ============= ============= =============
Total Return 8.60% 25.71% 32.23% 18.51%
Ratios and Supplemental Data:
Ratio of expenses to average net assets .90% * .90% .90% .90% *
Ratio of net investment income (loss) to average net assets (.20%) * .08% .23% .43% *
Portfolio turnover 97% 81% 46% 10%
Net assets at end of period (000 omitted) $ 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 $ (.06) $ (.02) $ (.06) $ (.01)
Ratios (to average net assets):
Expenses 1.09% * 1.14% 1.55% 1.82% *
Net investment loss (.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>
See notes to financial statements.
9
<PAGE>
DLB DISCIPLINED GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Disciplined Growth Fund (the "Fund"), formerly known as DLB
Quantitative Equity Fund, is a non-diversified series of The DLB Fund Group
(the "Trust"), a Massachusetts business trust. The Trust is registered
under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
During 1999, the Fund changed its year end from December 31 to October 31,
and the financial statements are presented for the ten months ended October
31, 1999.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices
are not available are valued at last quoted bid prices. Securities for
which there are no such quotations or valuations are valued at fair value
as determined in good faith by or at the direction of the Trustees.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value.
REPURCHASE AGREEMENTS - Securities purchased under agreements to resell to
the original owner are recorded at cost. The Fund may enter into such
agreements with institutions that the Fund's investment adviser has
determined to be creditworthy. The Fund requires that the securities so
purchased be transferred to the custodian under terms that enable the Fund
to obtain such securities in the event of a default. The Fund monitors, on
a daily basis, the value of the securities to assure that such value,
including accrued interest, is greater than amounts owed to the Fund.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded
on the trade date. Dividend income is recorded on the ex-dividend date.
Dividend payments received in additional securities are recorded in an
amount equal to the value of the securities. Interest income is recorded on
the accrual basis.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of its
taxable income, including any net realized gains on investments.
Accordingly, no provision for federal income or excise tax is necessary.
The Fund files a tax return annually using tax accounting methods required
by the Code, which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the net investment income and net realized gain reported in
these financial statements may differ from the amounts reported on the
Fund's tax return, and, consequently, the character of distributions to
shareholders reported in the financial highlights may differ from that
reported to shareholders on Form 1099-DIV.
10
<PAGE>
Distributions to shareholders are recorded on the ex-dividend date. The
Fund distinguishes between distributions for tax purposes and financial
reporting purposes. Differences between income for financial reporting
purposes and tax-basis earnings and profits may result in the reporting of
temporary over-distributions in the financial statements. Such
over-distributions are classified as distributions in excess of net
investment income or accumulated net realized gains. Distributions, if any,
in excess of tax-basis earnings and profits are reported as return of
capital. During the ten months ended October 31, 1999, $65,839 was
reclassified from accumulated undistributed net realized gain on investment
transactions to accumulated undistributed net investment income due to
differences between book and tax accounting for the offset of net
investment loss against short-term capital gains. This change had no effect
on the net assets or net asset value per share.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results could differ from those such estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Co. Inc. ("Babson") to provide
investment advisory and administrative services and general office
facilities. The fee for such services is computed daily and paid monthly at
an effective annual rate of .75% of average daily net assets. For the ten
months ended October 31, 1999, the management fee amounted to $249,026.
Babson has agreed to pay the Fund's operating expenses such that the Fund's
total aggregate expenses do not exceed .90% of average daily net assets.
For the ten months ended October 31, 1999, $63,733 of fund expenses were
borne by Babson.
The Fund pays no compensation directly to the Trustees who also are
officers of the investment manager, nor to the officers of the Fund, all of
whom receive remuneration for their services to the Fund from Babson.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations, for
the ten months ended October 31, 1999 aggregated $41,704,561 and
$38,735,900, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis,
are as follows:
Aggregate cost $ 35,652,162
============
Gross unrealized appreciation $ 7,961,143
Gross unrealized depreciation (1,883,089)
------------
Net unrealized appreciation $ 6,078,054
============
11
<PAGE>
5. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Ten Months
Ended Years Ended December 31,
October 31, --------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Shares sold 270,747 249,348 444,204
Shares issued in reinvestment
of distributions 660 290,618 95,246
Redemptions (77,526) (40,944) (8,001)
------- ------- -------
Net increase 193,881 499,022 531,449
======= ======= =======
</TABLE>
12
<PAGE>
DLB
THE DLB VALUE FUND
ANNUAL REPORT
OCTOBER 31, 1999
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB VALUE FUND
---------------------------------------------
FUND INVESTMENT OBJECTIVE
THE DLB VALUE FUND seeks long-term capital appreciation primarily through
investment in a portfolio of common stocks of established companies.
MARKET OVERVIEW
THE FISCAL YEAR ENDING OCTOBER 30, 1999 (A 10 MONTH PERIOD DUE TO A CHANGE IN
THE FISCAL CALENDAR FROM DECEMBER 31 TO OCTOBER 31) WAS A YEAR FILLED WITH
VOLATILITY, SECTOR ROTATION, ENORMOUS RETURNS IN TECHNOLOGY AND THE "DOT.COM"
SECTOR, AND LAGGING VALUE STOCKS (AGAIN).
IN THE FIRST QUARTER OF 1999 WE WITNESSED THE SAME TRENDS THAT TOOK PLACE
THROUGH MOST OF CALENDAR YEAR 1998: LARGE GROWTH STOCKS LEADING THE MARKET TO
NEW HIGHS AT THE EXPENSE OF ALL OTHER EQUITY ASSET CLASSES. Small company stocks
and value stocks were all flat or down in this time period. The tables turned
dramatically in the second quarter, with small cap stocks and value stocks
surging 15% or more, leaving large growth stocks in the dust. This rally was
short-lived however, and most of these gains were lost in the third quarter. At
fiscal year-end, large growth stocks still ruled the day, leaving many value and
small company managers frustrated with yet another year of an out-of-favor asset
class.
THE S&P 500 INDEX FINISHED THE FISCAL YEAR UP 12%, LED BY LARGE GROWTH STOCKS
THAT ADVANCED NEARLY 15%. Small company stocks represented by the Russell 2000
Index increased by a modest 3%, and the value component of this market segment
declined by 5%.
THE REAL STANDOUT IN THE MARKET IN FISCAL 1999 WAS THE TECHNOLOGY SECTOR. This
segment of the market, up over 35%, was the only component of the S&P 500 Index
that was consistently in positive territory throughout the year. Much of this
performance came from telecommunications and Internet companies that benefited
from accelerating growth in the buildout and use of the Internet.
<PAGE>
DLB VALUE FUND
---------------------------------------------
PORTFOLIO STRATEGY REVIEW
WITH THE VERY NOTABLE EXCEPTION OF THE 2ND QUARTER OF THE YEAR, 1999 IS A YEAR
IN WHICH GROWTH CONTINUES DRAMATICALLY TO OUTPERFORM VALUE. To the additional
detriment of value investing a narrow group of large capitalization growth
stocks still dominate the market. As if these market characteristics did not
provide enough of a challenge, lack of quality and lack of earnings have also
characterized market leadership this year. For example, Merrill Lynch notes that
in their universe of approximately 1500 stocks, those rated B or worse returned
11.1% through October 29, but those rated B+ or better returned -0.4%.
Similarly, the average gain for the 7% of the stocks in the Russell 1000 that
reported year-to-date losses is +97.2%. The overall gain for the Russell 1000 is
11.2%. Through the end of October, the spreads between large cap growth and
value indexes remains very wide:
S&P 500/BARRA Value +9.3%
S&P 500/BARRA Growth +14.5%
THE FUND'S DIVERSIFICATION CHARACTERISTICS HAVE ALSO WORKED AGAINST IT THIS
YEAR. There are certain market sectors, because of their absolute and relative
attractiveness on a price/earnings and price-to-book basis, that have resulted
in overweighted positions in the Fund. These traditional value areas include
Basic Materials and Capital Goods, two areas that have provided lackluster
returns this year. On the other hand, the Technology sector, which does not
offer many investment opportunities for value investors, is now the largest
component of the S&P 500. Similarly, Communications Services, which has produced
the second best sector return in the index this year, is an area where the DLB
Value Fund has no exposure. But all is not bleak on the diversification front:
Because it has also been challenging for value investors to find attractively
valued stocks in the Consumer Staples sector, I am particularly happy to report
that the most recent addition to the Fund, Albertson's (a supermarket chain),
fulfills our desire for greater exposure in this area.
THE DLB VALUE FUND'S VALUATION CHARACTERISTICS CONTINUE TO BE EXTREMELY
ATTRACTIVE. As of October 29, 1999, the average price/earnings ratio based on
estimated earnings for 2000 for the companies in the Fund is only 13.9, compared
to 24.8 times for the S&P 500 and 17.6 times for the S&P 500/BARRA Value index.
The average price-to-book is 2.0, compared to 4.9 and 3.0 for the
<PAGE>
DLB VALUE FUND
---------------------------------------------
PORTFOLIO STRATEGY REVIEW
(CONT.)
S&P 500 and S&P 500/BARRA Value indexes respectively. Also, the Fund's current
gross yield (2.3%) continues to be higher than the corresponding figure
for the market (1.3%).
THE FUND'S TOP TEN HOLDINGS AND SECTOR WEIGHTINGS CAN BE FOUND BELOW.
- --------------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS % OF FUND ASSETS
- --------------------------------------------------------------------------------
Atlantic Richfield 3.42
Wells Fargo & Co. 3.41
Citigroup Inc. 3.38
Boeing 3.17
SLM Holding Corp. 3.06
American Express 2.99
Royal Dutch Petroleum 2.96
U.S. Bancorp 2.93
National City Corp. 2.93
Limited Inc. 2.91
TOTAL 31.16
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTOR DIVERSIFICATION (%) PORTFOLIO S&P 500 DIFFERENCE
- --------------------------------------------------------------------------------
Basic Materials 14.9 3.4 +11.5
Capital Goods/Construction 9.4 7.7 +1.7
Communication Services 0.0 10.7 -10.7
Consumer Cyclical 15.2 12.0 +3.2
Consumer Staples 2.8 8.1 -5.3
Energy 6.4 6.6 -0.2
Financial 30.3 12.3 +18.0
Healthcare 6.9 11.5 -4.6
Miscellaneous 0.0 1.4 -1.4
Technology 6.5 23.1 -16.6
Transport & Services 4.9 0.9 +4.0
Utilities 2.7 2.3 +0.4
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
NOT ONLY HAS THE DEEP VALUE ORIENTATION OF THE DLB VALUE FUND NEGATIVELY
AFFECTED ITS PERFORMANCE VERSUS THE BENCHMARKS NOTED ABOVE, but the Fund's
slightly smaller average market capitalization, higher quality, and positive
earnings have not worked to its advantage in the 1999 growth market.
<PAGE>
DLB VALUE FUND
---------------------------------------------
OUTLOOK
OUR OPINION IS STRONGER THAN EVER THAT GIVEN THE FUND'S ATTRACTIVE VALUATION
CHARACTERISTICS, IT IS POISED TO PERFORM WELL on a relative and absolute basis
once reasonable valuations begin to attract attention.
<PAGE>
DLB VALUE FUND
---------------------------------------------
GROWTH OF A
$100,000 INVESTMENT
CUMULATIVE TOTAL RETURN SINCE INCEPTION 7/25/95
[LINE GRAPH]
S & P
DLB S & P 500/BARRA
VALUE FUND 500 INDEX VALUE INDEX
----------- ----------- -----------
25-Jul-95 $100,000.00 $100,000.00 $100,000.00
31-Jul-95 $100,800.00 $102,400.00 $100,250.00
31-Aug-95 $100,699.20 $102,656.00 $101,102.13
30-Sep-95 $104,294.16 $106,988.08 $104,620.48
31-Oct-95 $102,093.55 $106,602.93 $102,988.40
30-Nov-95 $106,789.86 $111,282.79 $108,384.99
31-Dec-95 $108,178.13 $113,430.55 $111,387.26
31-Jan-96 $110,428.23 $117,287.19 $114,717.73
28-Feb-96 $113,398.75 $118,377.96 $115,796.08
31-Mar-96 $116,880.09 $119,514.39 $118,505.71
30-Apr-96 $118,306.03 $121,271.25 $119,714.47
30-May-96 $121,370.16 $124,400.05 $121,522.16
30-Jun-96 $120,654.07 $124,872.77 $120,938.85
31-Jul-96 $116,467.38 $119,353.39 $115,835.23
31-Aug-96 $120,252.57 $121,871.75 $119,032.28
30-Sep-96 $124,040.52 $128,733.13 $124,126.86
31-Oct-96 $125,057.65 $132,286.16 $128,322.35
30-Nov-96 $134,874.68 $142,287.00 $138,139.01
31-Dec-96 $134,132.87 $139,469.72 $135,873.53
31-Jan-97 $139,806.69 $148,186.57 $142,137.30
28-Feb-97 $142,155.44 $149,342.43 $143,174.91
31-Mar-97 $136,909.91 $143,204.45 $138,278.32
30-Apr-97 $139,374.28 $151,753.76 $143,463.76
31-May-97 $147,402.24 $160,995.56 $152,458.94
30-Jun-97 $152,752.94 $168,208.17 $158,282.87
31-Jul-97 $166,668.74 $181,597.54 $170,945.50
31-Aug-97 $162,068.68 $171,428.07 $163,218.76
30-Sep-96 $171,063.49 $180,822.33 $172,783.38
31-Oct-97 $163,468.27 $174,782.87 $166,442.23
30-Nov-97 $170,644.53 $182,875.31 $172,783.68
31-Dec-97 $169,415.89 $186,020.77 $176,619.48
31-Jan-98 $169,754.72 $188,085.60 $174,447.06
28-Feb-98 $182,825.83 $201,646.57 $187,530.59
31-Mar-98 $192,369.34 $211,970.88 $197,038.39
30-Apr-98 $196,582.23 $214,111.78 $199,363.44
31-May-98 $189,878.78 $210,429.06 $196,552.42
30-Jun-98 $191,815.54 $218,972.48 $198,046.22
31-Jul-98 $179,309.17 $216,629.47 $193,748.61
31-Aug-98 $150,512.12 $185,304.85 $162,593.84
30-Sep-98 $157,706.59 $197,182.89 $172,479.54
31-Oct-98 $171,521.69 $213,213.86 $185,984.69
30-Nov-98 $177,576.41 $226,134.62 $195,674.49
31-Dec-98 $178,304.47 $239,159.98 $202,542.67
31-Jan-99 $174,363.94 $249,156.86 $206,634.03
28-Feb-99 $175,340.38 $241,408.08 $202,191.40
31-Mar-99 $179,040.06 $251,064.41 $208,317.80
30-Apr-99 $201,455.88 $260,780.60 $226,274.79
31-May-99 $198,998.12 $254,626.18 $222,269.73
30-Jun-99 $201,823.89 $268,757.93 $230,804.88
31-Jul-99 $195,204.07 $260,372.68 $223,696.09
31-Aug-99 $189,406.51 $259,070.82 $218,036.58
30-Sep-99 $178,439.87 $251,972.28 $209,511.35
31-Oct-99 $183,614.62 $267,922.12 $221,327.79
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 10/31/99
- --------------------------------------------------------------------------------
10 Months One Year Annualized
1/1/99- 10/31/98- Since Inception
10/31/99 10/31/99 7/25/95-10/31/99
DLB Value Fund 2.98 7.05 15.06
S&P 500 Index 12.03 25.67 24.91
S&P 500 / BARRA Value Index 9.28 19.01 20.13
- --------------------------------------------------------------------------------
DISCLOSURE STATEMENT
Standard & Poors 500 Index is an index of common stocks frequently used as a
general measure of stock market performance. The index assumes reinvestment of
all distributions and interest payments and does not take into account brokerage
fees or taxes. Securities in the Fund do not match those in the Index and
performance of the Fund will differ.
The S&P 500/Barra 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. The Index is rebalanced semi-annually on
January 1 and July 1. Securities in the Fund do not match those in the Index and
performance of the Fund will differ.
Past performance does not guarantee future results. Investment return and share
price will fluctuate with market conditions, and investors may have a gain or
loss when shares are sold. The Fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such expense
limitation, returns would have been lower.
<PAGE>
DLB VALUE FUND
---------------------------------------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Value Fund. The report is
not intended for distribution to prospective investors unless preceded or
accompanied by a current prospectus.
BABSON SECURITIES CORPORATION
One Memorial Drive, Cambridge, MA 02142
December 1999
<PAGE>
----------------------------------------
DLB VALUE FUND
FINANCIAL STATEMENTS FOR THE TEN MONTHS
ENDED OCTOBER 31, 1999 AND THE YEAR
ENDED DECEMBER 31, 1998
<PAGE>
DLB VALUE FUND
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of October 31, 1999 2 - 4
Statement of Assets and Liabilities as of October 31, 1999 5
Statements of Operations for the Ten Months Ended October 31, 1999
and the Year Ended December 31, 1998 6
Statements of Changes in Net Assets for the Ten Months Ended
October 31, 1999 and the Years Ended December 31, 1998 and 1997 7
Financial Highlights for the Ten Months Ended October 31, 1999
and the Four-Year Period Ended December 31, 1998 8
Notes to Financial Statements 9 - 11
</TABLE>
<PAGE>
DELOITTE & ---------------------------------------------------
TOUCHE DELOITTE & TOUCHE LLP Telephone: (617) 437-2000
- ---------- 200 Berkeley Street Facsimile: (617) 437-2111
[LOGO] Boston, Massachusetts 02116-5022
INDEPENDENT AUDITORS' REPORT
To the Trustees of The DLB Fund Group and
Shareholders of DLB Value Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Value Fund (the "Fund") (a series of The
DLB Fund Group) as of October 31, 1999, and the related statements of operations
for the ten months then ended and year ended December 31, 1998, the statements
of changes in net assets for the ten months ended October 31, 1999 and the years
ended December 31, 1998 and 1997, and the financial highlights for the ten
months ended October 31, 1999 and each of the years in the four-year period
ended December 31, 1998. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of DLB Value Fund at
October 31, 1999, the results of its operations for the ten months ended October
31, 1999 and year ended December 31, 1998, the changes in its net assets for the
ten months ended October 31, 1999 and the years ended December 31, 1998 and
1997, and the financial highlights for the ten months ended October 31, 1999 and
each of the years in the four-year period ended December 31, 1998, in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
December 10, 1999
- -------------------
DELOITTE TOUCHE
TOHMATSU
- -------------------
<PAGE>
DLB VALUE FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 96.3%
ISSUER SHARES VALUE
Aerospace - 5.4%
The Boeing Company 49,300 $ 2,270,881
Lockheed Martin Corporation 37,600 752,000
Raytheon Company 35,100 1,022,288
-----------
4,045,169
-----------
AIRLINES - 1.9%
KLM Royal Dutch Airlines 51,985 1,400,346
-----------
APPAREL & TEXTILE - 2.2%
Reebok International Ltd. (*) 162,500 1,594,531
-----------
AUTO PARTS - 1.7%
Dana Corporation 41,300 1,220,931
-----------
BANKS - 11.7%
The Chase Manhattan Corporation 23,200 2,027,100
National City Corporation 71,200 2,100,400
U.S. Bancorp 56,700 2,101,444
Wells Fargo & Company 51,000 2,441,625
-----------
8,670,569
-----------
BUILDING SUPPLIES - 1.1%
Hanson PLC Sponsored ADR 21,400 827,913
-----------
CHEMICALS - GENERAL - 2.6%
E.I. du Pont de Nemours and Company 30,100 1,939,569
-----------
CHEMICALS - SPECIALTY - 1.2%
Millennium Chemicals Inc. 49,800 921,300
-----------
COMPUTERS - 4.7%
Apple Computer Inc. (*) 23,900 1,914,988
International Business Machines Corporation 15,900 1,564,163
-----------
3,479,151
-----------
ELECTRIC POWER - 2.6%
TXU Corp. 49,500 1,918,125
-----------
FINANCIAL SERVICES - 10.6%
American Express Company 13,900 2,140,600
Citigroup Inc. 44,704 2,419,604
SLM Holding Corporation 44,850 2,194,847
The Student Loan Corporation 23,500 1,148,563
-----------
7,903,614
-----------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
FOOD PRODUCERS - 2.7%
Diageo plc 48,840 $ 1,984,125
-----------
INSURANCE COMPANIES - 6.9%
The Allstate Corporation 55,700 1,601,375
Berkshire Hathaway Inc., Class B (*) 798 1,667,820
Travelers Property Casualty Corp., Class A 52,200 1,879,200
-----------
5,148,395
-----------
MEDICAL SUPPLIES & SERVICES - 6.6%
Aetna Inc. 23,500 1,180,875
Tenet Healthcare Corporation (*) 97,200 1,889,325
Untied Health Group 36,000 1,860,750
-----------
4,930,950
-----------
METALS & MINING - 0.4%
Martin Marietta Materials, Inc. 8,400 327,075
-----------
OFFICE EQUIPMENT - 1.5%
Xerox Corporation 40,600 1,136,800
-----------
OFFICE SUPPLIES - 2.5%
Wallace Computer Services, Inc. 85,700 1,896,113
-----------
OIL - DOMESTIC - 3.3%
Atlantic Richfield Company 26,300 2,450,831
-----------
OIL - INTERNATIONAL - 2.9%
Royal Dutch Petroleum Company 35,400 2,121,788
-----------
PAPER & FOREST PRODUCTS - 7.9%
Potlatch Corporation 47,800 2,016,563
Weyerhaeuser Company 34,600 2,065,188
Willamette Industries, Inc. 42,600 1,770,563
-----------
5,852,314
-----------
PRINTING & PUBLISHING - 2.3%
Harcourt General, Inc. 44,200 1,701,700
-----------
RAILROADS - 2.3%
CSX Corporation 40,900 1,676,900
-----------
RETAIL - GENERAL - 3.6%
The Neiman Marcus Group, Inc., Class B 13,317 285,493
J. C. Penney Company, Inc. 28,142 714,103
Sears, Roebuck and Co. 59,400 1,674,338
-----------
2,673,934
-----------
RETAIL - DISCOUNT - 2.0%
Kmart Corporation (*) 151,100 1,520,444
-----------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
RETAIL - SPECIALTY - 2.9%
The Limited Inc. 50,800 $ 2,089,150
Too, Inc. (*) 5,842 93,472
-----------
2,182,622
-----------
STEEL - 2.3%
USX - U.S. Steel Group 67,400 1,722,913
-----------
TRUCKING & SHIPPING - 0.5%
Overseas Shipholding Group, Inc. 31,400 404,269
-----------
TOTAL COMMON STOCKS
(identified cost, $70,715,885 ) 71,652,391
PRINCIPAL
AMOUNT
Repurchase Agreement - 3.4%
Investors Bank & Trust Repurchase Agreement, 4.51%,
dated 10/29/99, $2,547,350 due on 11/1/99 (secured by
Federal Government Agency securities), at cost $2,546,393 2,546,393
-----------
TOTAL INVESTMENTS (identified cost, $73,262,278 ) 74,198,784
Other assets, less liabilities - 0.3% 183,738
-----------
NET ASSETS - 100% $74,382,522
===========
(*) Non-income producing security
</TABLE>
See notes to financial statements.
4
<PAGE>
DLB VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $73,262,278) $74,198,784
Receivable for fund shares sold 119,367
Dividends and interest receivable 139,334
-----------
74,457,485
LIABILITIES:
Payable for fund shares reacquired 5,817
Accrued management fee 33,617
Accrued expenses 35,529
-----------
74,963
NET ASSETS $74,382,522
===========
NET ASSETS CONSIST OF:
Paid-in capital $67,012,960
Unrealized appreciation of investments 936,506
Accumulated undistributed net realized gain on investment transactions 5,010,423
Accumulated undistributed net investment income 1,422,633
-----------
Total $74,382,522
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 4,990,096
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 14.91
===========
</TABLE>
See notes to financial statements.
5
<PAGE>
DLB VALUE FUND
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Ten Months Ended Year Ended
October 31, 1999 December 31, 1998
----------- -----------
<S> <C> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign tax withheld
of $19,192 and $13,388, respectively) $ 1,807,557 $ 1,533,556
Interest 86,460 101,912
----------- -----------
1,894,017 1,635,468
----------- -----------
EXPENSES:
Management fee 352,180 367,883
Trustees' fees 3,838 4,669
Custodian fees 39,823 41,759
Accounting and audit fees 29,785 27,896
Registration fee 22,579 31,981
Legal fees 12,779 16,089
Transfer agent fee 6,407 8,000
Miscellaneous 3,993 3,561
----------- -----------
471,384 501,838
Reduction of expenses by investment manager -- (103,386)
----------- -----------
Net expenses 471,384 398,452
----------- -----------
Net investment income 1,422,633 1,237,016
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain (identified cost basis) 5,248,005 4,274,144
Change in unrealized appreciation (4,541,428) (2,709,889)
----------- -----------
Net realized and unrealized gain on investments 706,577 1,564,255
----------- -----------
Increase in net assets from operations $ 2,129,210 $ 2,801,271
=========== ===========
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Ten Months Years Ended December 31,
Ended -------------------------------
October 31, 1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 1,422,633 $ 1,237,016 $ 528,025
Net realized gain on investments 5,248,005 4,274,144 2,487,991
Net unrealized appreciation (depreciation)
of investments (4,541,428) (2,709,889) 5,222,346
------------ ------------ ------------
2,129,210 2,801,271 8,238,362
------------ ------------ ------------
Distributions to shareholders:
From net investment income (8,992) (1,228,024) (520,799)
From net realized gain on investments (5,665) (4,256,810) (2,487,991)
In excess of net realized gain on investments -- -- (228,789)
------------ ------------ ------------
(14,657) (5,484,834) (3,237,579)
------------ ------------ ------------
Fund share transactions:
Net proceeds from sales of shares 28,017,225 27,948,166 36,994,760
Net asset value of shares issued in
reinvestment of distributions 14,621 5,469,771 3,237,577
Cost of shares reacquired (27,674,902) (15,272,460) (8,012,111)
------------ ------------ ------------
356,944 18,145,477 32,220,226
------------ ------------ ------------
Total increase in net assets 2,471,497 15,461,914 37,221,009
NET ASSETS:
At beginning of period 71,911,025 56,449,111 19,228,102
------------ ------------ ------------
At end of period (including accumulated
undistributed net investment income
of $1,422,633, $8,992 and $0, respectively) $ 74,382,522 $ 71,911,025 $ 56,449,111
============ ============ ============
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB VALUE FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Ten Months
Ended Years Ended December 31, Period Ended
October 31, --------------------------------------- December 31,
1999 1998 1997 1996 1995**
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $ 14.48 $ 14.91 $ 12.53 $ 10.58 $ 10.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income .29 .27 .15 .16 .09
Net realized and unrealized gain on
investments .14 .50 3.15 2.38 .73
------- ------- ------- ------- -------
0.43 .77 3.30 2.54 .82
------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (1) - (.27) (.15) (.16) (.09)
From net realized gain on investments (1) - (.93) (.70) (.41) (.15)
In excess of net realized gain on investment - - (.07) (.02) -
------- ------- ------- ------- -------
- (1.20) (.92) (.59) (.24)
------- ------- ------- ------- -------
Net asset value- end of period $ 14.91 $ 14.48 $ 14.91 $ 12.53 $ 10.58
======= ======= ======= ======= =======
Total Return 2.98% 5.25% 26.35% 23.99% 18.64% *
Ratios and Supplemental Data:
Ratio of expenses to average net assets .74% * .60% .71% .80% .80% *
Ratio of net investment income to
average net assets 2.22% * 1.85% 1.40% 1.56% 2.02% *
Portfolio turnover 28% 21% 25% 23% 7%
Net assets at end of period (000 omitted) $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% .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 was less than $.01 per share.
</TABLE>
See notes to financial statements.
8
<PAGE>
DLB VALUE FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Value Fund (the "Fund") is a non-diversified series of The DLB Fund
Group (the "Trust"), a Massachusetts business trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
During 1999, the Fund changed its year end from December 31 to October 31,
and the financial statements are presented for the ten months ended October
31, 1999.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices
are not available are valued at last quoted bid prices. Securities for
which there are no such quotations or valuations are valued at fair value
as determined in good faith by or at the direction of the Trustees.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value.
REPURCHASE AGREEMENTS - Securities purchased under agreements to resell to
the original owner are recorded at cost. The Fund may enter into such
agreements with institutions that the Fund's investment adviser has
determined to be creditworthy. The Fund requires that the securities so
purchased be transferred to the custodian under terms that enable the Fund
to obtain such securities in the event of a default. The Fund monitors, on
a daily basis, the value of the securities to assure that such value,
including accrued interest, is greater than amounts owed to the Fund.
FOREIGN CURRENCY TRANSLATION - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars at current exchange rates. Purchases and
sales of foreign investments and income and expenses are converted into
U.S. dollars at currency exchange rates prevailing on the respective dates
of such transactions. Security transaction gains and losses attributable to
changes in foreign currency exchange rates are recorded for financial
statement purposes as net realized gains and losses on investments. Income
and expense gains and losses that are attributable to changes in foreign
exchange rates are recorded for financial statement purposes as foreign
currency transaction gains and losses. The portion of both realized and
unrealized gains and losses on investments that results from fluctuations
in foreign currency exchange rates is not separately disclosed.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded
on the trade date. Dividend income is recorded on the ex-dividend date.
Dividend payments received in additional securities are recorded in an
amount equal to the value of the securities. Interest income is recorded on
the accrual basis.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of its
taxable income, including any net realized gains on investments.
Accordingly, no provision for federal income or excise tax is necessary.
9
<PAGE>
The Fund files a tax return annually using tax accounting methods required
by the Code, which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the net investment income and net realized gain reported in
these financial statements may differ from the amounts reported on the
Fund's tax return, and, consequently, the character of distributions to
shareholders reported in the financial highlights may differ from that
reported to shareholders on Form 1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The
Fund distinguishes between distributions for tax purposes and financial
reporting purposes. Differences between income for financial reporting
purposes and tax-basis earnings and profits may result in the reporting of
temporary over-distributions in the financial statements. Such
over-distributions are classified as distributions in excess of net
investment income or accumulated net realized gains. Distributions, if any,
in excess of tax-basis earnings and profits are reported as return of
capital.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results could differ from those such estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Co. Inc. ("Babson") to provide
investment advisory and administrative services and general office
facilities. The fee for such services is computed daily and paid monthly at
an effective annual rate of .55% of average daily net assets. For the ten
months ended October 31, 1999, the management fee amounted to $352,180.
Babson has agreed to pay the Fund's operating expenses such that the Fund's
total aggregate expenses do not exceed .80% of average daily net assets.
The Fund pays no compensation directly to the Trustees who also are
officers of the investment manager, nor to the officers of the Fund, all of
whom receive remuneration for their services to the Fund from Babson.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations, for
the ten months ended October 31, 1999 aggregated $20,729,128 and
$20,064,777, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis,
are as follows:
Aggregate cost $ 73,284,842
============
Gross unrealized appreciation $ 11,918,486
Gross unrealized depreciation (11,004,544)
Net unrealized appreciation $ 913,942
============
10
<PAGE>
5. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Ten Months Ended Years Ended December 31,
October 31, ------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Shares sold 1,827,660 1,766,141 2,546,356
Shares issued in reinvestment
of distributions 902 380,870 218,608
Redemptions (1,803,494) (968,493) (513,437)
---------- --------- ---------
Net increase 25,068 1,178,518 2,251,527
========== ========= =========
</TABLE>
11
<PAGE>
DLB
THE DLB GROWTH FUND
ANNUAL REPORT
OCTOBER 31, 1999
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB GROWTH FUND
---------------------------------------------
FUND INVESTMENT OBJECTIVE
THE DLB GROWTH FUND seeks long-term capital and income growth through investment
primarily in common stocks.
MARKET OVERVIEW
THE FISCAL YEAR ENDING OCTOBER 30, 1999 (A 10 MONTH PERIOD DUE TO A CHANGE IN
THE FISCAL CALENDAR FROM DECEMBER 31 TO OCTOBER 31) WAS A YEAR FILLED WITH
VOLATILITY, SECTOR ROTATION, ENORMOUS RETURNS IN TECHNOLOGY AND THE "DOT.COM"
SECTOR, AND LAGGING VALUE STOCKS (AGAIN).
IN THE FIRST QUARTER OF 1999 WE WITNESSED THE SAME TRENDS THAT TOOK PLACE
THROUGH MOST OF CALENDAR YEAR 1998: LARGE GROWTH STOCKS LEADING THE MARKET TO
NEW HIGHS AT THE EXPENSE OF ALL OTHER EQUITY ASSET CLASSES. Small company stocks
and value stocks were all flat or down in this time period. The tables turned
dramatically in the second quarter, with small cap stocks and value stocks
surging 15% or more, leaving large growth stocks in the dust. This rally was
short-lived however, and most of these gains were lost in the third quarter. At
fiscal year-end, large growth stocks still ruled the day, leaving many value and
small company managers frustrated with yet another year of an out-of-favor asset
class.
THE S&P 500 INDEX FINISHED THE FISCAL YEAR UP 12%, LED BY LARGE GROWTH STOCKS
THAT ADVANCED NEARLY 15%. Small company stocks represented by the Russell 2000
Index increased by a modest 3%, and the value component of this market segment
declined by 5%.
THE REAL STANDOUT IN THE MARKET IN FISCAL 1999 WAS THE TECHNOLOGY SECTOR. This
segment of the market, up over 35%, was the only component of the S&P 500 Index
that was consistently in positive territory throughout the year. Much of this
performance came from telecommunications and Internet companies that benefited
from accelerating growth in the buildout and use of the Internet.
<PAGE>
DLB GROWTH FUND
---------------------------------------------
PORTFOLIO STRATEGY REVIEW
THERE ARE SEVERAL MAJOR TRENDS TAKING PLACE TODAY THAT IMPACTED OUR INVESTMENT
STRATEGY IN THE DLB GROWTH FUND IN FISCAL 1999 AND WILL SHAPE OUR STRATEGY IN
THE YEAR 2000.
THE MOST IMPORTANT CHANGE TAKING PLACE IS THE ACCELERATING BUILDOUT AND USE OF
THE INTERNET BY BOTH CONSUMERS AND BUSINESSES ALIKE. This growth is placing
strains on network bandwidth (the capacity available to transmit data over the
network), network data storage and the speed at which data, voice and video can
pass over the network. Investment spending on equipment to support the Internet
infrastructure is growing at rates never experienced before. This trend is
creating opportunities for many companies that supply and support the Internet
"backbone"around the world. Global data and voice carriers like MCI Worldcom,
network equipment manufacturers like Cisco Systems and Lucent Technologies and
cable television providers like Comcast and Cox Communications are all
benefiting from this trend and are core investments in the DLB Growth Fund.
THE SECOND BIG CHANGE TAKING PLACE IN THE TECHNOLOGY SECTOR IS THE CONVERGENCE
OF WIRELESS COMMUNICATIONS TECHNOLOGY WITH THE INTERNET-THE WEB IS GOING
WIRELESS IN 2000. The integration of wireless phone communications with web
browsing technology will put the Internet in everyone's back pocket next year.
This trend is generating accelerating demand for wireless phones. Manufactures
of wireless phones along with their component suppliers clearly stand to benefit
from this increase in demand in 2000. Nokia (wireless phone manufacturer),
Analog Devices (supplier of semiconductor chips for cell phones) and Microsoft
(developer of web browsing software) are core holdings for the Fund in this
space.
ALL OF THESE AFORMENTIONED HOLDINGS IN THE DLB GROWTH FUND HAVE BEEN REWARDING
INVESTMENTS IN FISCAL 1999. We continue to have a meaningful portion of the
Fund's assets invested in the technology and telecommunications areas.
OFFSETTING THE STRENGTH IN THE TECHNOLOGY SECTOR HAS BEEN RELATIVE WEAKNESS
AMONG HEALTHCARE COMPANIES AND FINANCE STOCKS (banks, insurance companies and
mortgage companies). Stocks in the healthcare sector, and the pharmaceutical
industry in particular, underperformed the market by 10-20% in fiscal 1999 as
several trends emerged: 1) significant drug patent expiration issues for many
large drug companies, 2) continued price pressure from
<PAGE>
DLB GROWTH FUND
---------------------------------------------
PORTFOLIO STRATEGY REVIEW
(CONT.)
providers of managed healthcare and 3) credible proposals for a Medicare drug
benefit emanating from Washington.
SEVERAL OF OUR INVESTMENTS IN THE HEALTHCARE SECTOR UNDERPERFORMED THE MARKET IN
FISCAL 1999, including Cardinal Health (pharmaceuticals packaging and
distribution), Pfizer (pharmaceuticals) and Monsanto (pharmaceuticals and
agricultural products). While we did scale back our exposure to the healthcare
sector in 1999, at the end of the day it is quite clear to us that the
pharmaceutical industry is one of the most attractive businesses in America
today. Drug company products serve the general good, are protected from
competing products with patents and are very research intensive, thus providing
steep barriers to entry. We feel confident in the prospects for the
pharmaceutical industry longer term.
RISING INTEREST RATES THROUGHOUT FISCAL 1999 PUT A LID ON MANY FINANCIAL STOCKS.
Banks BancAmerica and Mellon Financial, and the large mortgage agency Federal
Home Loan Mortgage Corp. all underperformed the market in 1999, despite
relatively strong underlying business trends at each of these companies.
American International Group was the one standout that generated very rewarding
investment results. We cut back our weighting in the financial sector in 1999,
and based on our cautious outlook for interest rates in 2000 we continue to
reduce our exposure here. The Fund's top ten holdings and sector weightings can
be found below.
- --------------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS % OF FUND ASSETS
- --------------------------------------------------------------------------------
MCI Worldcom 4.8
Federal Home Loan Mortgage Corp. 4.3
Vitesse Semiconductor 4.2
Microchip Technology 4.0
American International Group 3.7
Paychex 3.7
Cisco Systems 3.6
Lucent Technologies 3.5
Pfizer 3.4
Guidant 3.4
Total 38.6
- --------------------------------------------------------------------------------
<PAGE>
DLB GROWTH FUND
---------------------------------------------
- --------------------------------------------------------------------------------
SECTOR DIVERSIFICATION (%) PORTFOLIO S&P 500 DIFFERENCE
- --------------------------------------------------------------------------------
Basic Materials 2.5 3.4 -0.9
Capital Goods/Construction 5.4 7.7 -2.3
Communication Services 8.4 10.7 -2.3
Consumer Cyclical 3.9 12.0 -8.1
Consumer Staples 8.3 8.1 +0.2
Energy 1.9 6.6 -4.7
Financial 17.1 12.3 +4.8
Healthcare 19.9 11.5 +8.4
Miscellaneous 0.0 1.4 -1.4
Technology 32.6 23.1 +9.5
Transport & Services 0.0 0.9 -0.9
Utilities 0.0 2.3 -2.3
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
Fiscal year 1999 was a frustrating period for investing in medium and large
capitalization high growth stocks in the DLB Growth Fund. After climbing 26% in
the fourth quarter of calendar 1998 the DLB Growth Fund advanced 2.7% in the
first six months of 1999, lagging the S&P 500 Index total return of 12.3%. The
Fund kept pace with the broader market for the balance of the fiscal year (an
abbreviated 10 month year ending October 30, 1999 due to a change in the Fund's
fiscal calendar), but ended the year up 0.85% compared to a 12.03% advance in
the S&P 500 Index.
OUTLOOK
WE ARE VERY OPTIMISTIC ABOUT THE GROWTH PROSPECTS FOR THE COMPANIES HELD IN THE
DLB GROWTH FUND. We are focusing our investment efforts on a very select group
of high quality, high growth companies that we feel can achieve sustainable
earnings growth in both the near-and long term. Companies we are investing in
are typically in high growth industries, have dominant market positions and are
led by an experienced, proven management team. Over the long term if these
companies can execute on their business plan and meet the financial targets we
believe they are capable of achieving, we expect these investments to generate
rewarding investment returns in the years ahead.
<PAGE>
DLB GROWTH FUND
---------------------------------------------
GROWTH OF A
$100,000 INVESTMENT
CUMULATIVE TOTAL RETURN SINCE INCEPTION 1/20/98
[LINE GRAPH]
DLB RUSSELL 1000
GROWTH FUND GROWTH INDEX S & P 500
----------- ------------ -----------
20-Jan-98 $100,000.00 $100,000.00 $100,000.00
31-Jan-98 $101,900.00 $103,220.00 $102,010.00
28-Feb-98 $108,900.53 $110,982.14 $109,364.92
31-Mar-98 $110,697.39 $115,410.33 $114,964.40
30-Apr-98 $114,793.19 $117,002.99 $116,125.55
31-May-98 $110,488.45 $113,680.11 $114,128.19
30-Jun-98 $114,189.81 $120,637.33 $118,761.79
31-Jul-98 $114,395.35 $119,841.13 $117,491.04
31-Aug-98 $97,396.20 $101,852.97 $100,501.83
30-Sep-98 $104,291.85 $109,675.28 $106,944.00
31-Oct-98 $112,291.04 $118,493.17 $115,638.55
30-Nov-98 $120,993.59 $127,510.50 $122,646.25
31-Dec-98 $131,326.45 $139,011.95 $129,710.67
31-Jan-99 $131,431.51 $147,171.95 $135,132.58
28-Feb-99 $124,058.20 $140,446.19 $130,929.95
31-Mar-99 $130,608.47 $147,847.71 $136,167.15
30-Apr-99 $131,731.71 $148,039.91 $141,436.82
31-May-99 $128,346.20 $143,495.09 $138,098.91
30-Jun-99 $134,802.02 $153,539.74 $145,763.40
31-Jul-99 $132,550.82 $148,657.18 $141,215.58
31-Aug-99 $130,496.28 $151,080.29 $140,509.50
30-Sep-99 $126,085.51 $147,907.60 $136,659.54
31-Oct-99 $132,440.22 $159,074.63 $145,310.09
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 10/31/99
- --------------------------------------------------------------------------------
10 Months One Year Annualized
1/1/99- 10/31/98- Since Inception
10/31/99 10/31/99 1/20/98-10/31/99
DLB Growth Fund 0.85 18.02 16.60
Russell 1000 Growth Index 14.44 34.25 27.24
S&P 500 Index 12.03 25.67 21.44
- --------------------------------------------------------------------------------
DISCLOSURE STATEMENT
RUSSELL 1000 GROWTH INDEX is an unmanaged index that contains those Russell 1000
securities with a greater-than-average growth orientation. Securities in this
index tend to exhibit higher price-to-book ratios and higher forecasted growth
values than the Value universe. Securities in the Fund do not match those in the
Index, and performance of the Fund will differ.
STANDARD & POORS 500 INDEX is an index of common stocks frequently used as a
general measure of stock market performance. The index assumes reinvestment of
all distributions and interest payments and does not take into account brokerage
fees or taxes. Securities in the Fund do not match those in the Index and
performance of the Fund will differ.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Investment return and share
price will fluctuate with market conditions, and investors may have a gain or
loss when shares are sold. The Fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such expense
limitation, returns would have been lower.
<PAGE>
DLB GROWTH FUND
---------------------------------------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Growth Fund. The report
is not intended for distribution to prospective investors unless preceded or
accompanied by a current prospectus.
BABSON SECURITIES CORPORATION
One Memorial Drive, Cambridge, MA 02142
December 1999
<PAGE>
---------------------------------------
DLB GROWTH FUND
FINANCIAL STATEMENTS FOR THE TEN MONTHS
ENDED OCTOBER 31, 1999 AND THE PERIOD
JANUARY 20, 1998 (COMMENCEMENT
OF OPERATIONS) TO DECEMBER 31, 1998
<PAGE>
DLB GROWTH FUND
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of October 31, 1999 2 - 4
Statement of Assets and Liabilities as of October 31, 1999 5
Statements of Operations for Ten Months Ended October 31, 1999 and the
Period January 20, 1998 (commencement of
operations) to December 31, 1998 6
Statements of Changes in Net Assets for the Ten Months Ended October 31,
1999 and the Period January 20, 1998
(commencement of operations) to December 31, 1998 7
Financial Highlights for the Ten Months Ended October 31, 1999 and the
Period January 20, 1998 (commencement of
operations) to December 31, 1998 8
Notes to Financial Statements 9 - 11
</TABLE>
<PAGE>
DELOITTE & ---------------------------------------------------
TOUCHE DELOITTE & TOUCHE LLP Telephone: (617) 437-2000
- ---------- 200 Berkeley Street Facsimile: (617) 437-2111
[LOGO] Boston, Massachusetts 02116-5022
INDEPENDENT AUDITORS' REPORT
To the Trustees of The DLB Fund Group and Shareholders of DLB Growth Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Growth Fund (the "Fund") (a series of The
DLB Fund Group) as of October 31, 1999, and the related statements of
operations, changes in net assets, and the financial highlights for the ten
months ended October 31, 1999 and the period from January 20, 1998 (commencement
of operations) to December 31, 1998. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of DLB Growth Fund at
October 31, 1999, the results of its operations, the changes in its net assets,
and the financial highlights for the ten months ended October 31, 1999 and the
period from January 20, 1998 (commencement of operations) to December 31, 1998,
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
December 10, 1999
- -------------------
DELOITTE TOUCHE
TOHMATSU
- -------------------
<PAGE>
DLB GROWTH FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 99.8%
ISSUER SHARES VALUE
BANKS - 3.7%
Bank of America Corporation 28,700 $ 1,847,563
Mellon Bank Corporation 65,100 2,404,631
------------
4,252,194
------------
BEVERAGES - 2.8%
Anheuser-Busch Companies, Inc. 17,800 1,278,263
PepsiCo, Inc. 54,900 1,904,344
------------
3,182,607
------------
CHEMICALS - 2.5%
Monsanto Company 75,000 2,887,500
------------
COMMUNICATION EQUIPMENT - 3.5%
Lucent Technologies 62,900 4,041,325
------------
COMPUTER RELATED - 5.8%
Cisco Systems, Inc. (*) 55,900 4,136,600
EMC Corp. (*) 34,600 2,525,800
------------
6,662,400
------------
COMPUTER SERVICES - 2.3%
Automatic Data Processing, Inc. 54,200 2,611,763
------------
COMPUTER SOFTWARE - 5.1%
Cadence Design Systems, Inc. (*) 177,900 2,701,856
Microsoft Corporation (*) 34,700 3,211,919
------------
5,913,775
------------
COSMETIC & TOILETRY - 1.6%
The Gillette Company 52,200 1,888,988
------------
DRUGS - 13.9%
American Home Products Corporation 68,400 3,573,900
Bristol-Meyers Squibb Company 40,000 3,072,500
Cardinal Health, Inc. 76,257 3,288,583
Pfizer Inc. 98,000 3,871,000
Pharmacia & Upjohn Inc. 42,800 2,308,525
------------
16,114,508
------------
ELECTRICAL EQUIPMENT - 4.3%
General Electric Company 27,600 3,741,525
MSC Industrial Direct Company, Inc. (*) 131,600 1,258,425
------------
4,999,950
------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ISSUER SHARES VALUE
Electronics & Instruments - 5.3%
Analog Devices (*) 70,900 $ 3,766,563
KLA Tencor Corp. (*) 29,600 2,343,950
------------
6,110,513
------------
FINANCIAL SERVICES - 7.9%
Federal Home Loan Mortgage Corporation 91,800 4,962,938
Paychex, Inc. 108,000 4,252,500
------------
9,215,438
------------
FOOD RETAILERS - 2.4%
Safeway Inc. (*) 79,800 2,817,938
------------
INSURANCE COMPANIES - 5.4%
American International Group, Inc. 41,525 4,274,480
Berkshire Hathaway Inc., Class B (*) 970 2,027,300
------------
6,301,780
------------
MEDICAL SUPPLIES & SERVICES - 5.9%
Boston Scientific Corporation (*) 144,600 2,910,075
Guidant Corporation (*) 80,200 3,959,875
------------
6,869,950
------------
OFFICE SUPPLIES - 1.0%
Herman Miller, Inc. 55,300 1,199,319
------------
OIL - INTERNATIONAL - 1.9%
Mobil Corporation 23,300 2,248,450
------------
RETAIL - SPECIALTY - 3.9%
CVS Corporation 63,000 2,736,563
Home Depot, Inc. 24,100 1,819,550
------------
4,556,113
------------
SEMICONDUCTORS - 10.7%
ETEC Systems, Inc. (*) 76,800 2,932,800
Microchip Technology Incorporated (*) 69,100 4,603,788
Vitesse Semiconductor Corporation (*) 107,300 4,922,388
------------
12,458,976
------------
TELECOMMUNICATIONS - 8.4%
AT & T Corporation, Liberty Media Group (*) 103,600 4,111,620
MCI Worldcom, Inc. (*) 65,200 5,594,975
------------
9,706,595
------------
TOBACCO - 1.5%
Philip Morris Companies, Inc. 67,200 1,692,600
------------
TOTAL COMMON STOCKS
(identified cost, $112,158,756) 115,732,682
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ISSUER PRINCIPAL VALUE
AMOUNT
Repurchase Agreement - 0.1%
Investors Bank & Trust Repurchase Agreement, 4.51%,
dated 10/29/99, $124,717 due on 11/1/99 (secured by
Federal Government Agency securities), at cost $ 124,671 $ 124,671
------------
TOTAL INVESTMENTS (identified cost, $112,283,427) 115,857,353
Other assets, less liabilities - 0.1% 133,745
------------
NET ASSETS - 100% $115,991,098
============
(*) Non-income producing security
</TABLE>
See notes to financial statements.
4
<PAGE>
DLB GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31,1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $112,283,427) $115,857,353
Receivables for investment sold 159,562
Receivable for fund shares sold 64,812
Dividends and interest receivable 59,445
------------
116,141,172
LIABILITIES:
Payable for fund shares reaquired 49,850
Accrued management fee 62,791
Accrued expenses 37,433
------------
150,074
------------
NET ASSETS $115,991,098
============
NET ASSETS CONSIST OF:
Paid-in capital $107,420,428
Unrealized appreciation of investments 3,573,926
Accumulated undistributed net investment income 177,493
Accumulated undistributed net realized gain on investment transactions 4,819,251
------------
$115,991,098
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 8,973,676
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 12.93
============
</TABLE>
See notes to financial statements.
5
<PAGE>
DLB GROWTH FUND
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Ten Months Period Ended
Ended December 31,
October 31, 1999 1998*
----------- -----------
<S> <C> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign tax withholdings of $0 and
$1,542, respectively) $ 578,925 $ 218,384
Interest 253,851 122,770
----------- -----------
832,776 341,154
----------- -----------
EXPENSES:
Management fee 526,541 147,804
Trustees' fees 3,835 3,675
Custodian fees 49,114 43,713
Accounting and audit fees 29,300 27,433
Registration fee 24,286 5,362
Legal fees 12,619 14,876
Transfer agent fee 6,407 7,591
Miscellaneous 3,181 4,101
----------- -----------
655,283 254,555
Reduction of expenses by investment manager -- (41,968)
----------- -----------
Net expenses 655,283 212,587
----------- -----------
Net investment income 177,493 128,567
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (identified cost basis) 4,819,251 677,899
Change in unrealized appreciation (3,520,316) 7,094,242
----------- -----------
Net realized and unrealized gain on investments 1,298,935 7,772,141
----------- -----------
Increase in net assets from operations $ 1,476,428 $ 7,900,708
=========== ===========
* For the period from January 20, 1998 (commencement of operations) to December 31, 1998.
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Ten Months Period Ended
Ended December 31,
October 31, 1999 1998*
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS:
From operations:
Net investment income $ 177,493 $ 128,567
Net realized gain on investments 4,819,251 677,899
Net unrealized appreciation (depreciation) of investments (3,520,316) 7,094,242
------------- -------------
1,476,428 7,900,708
------------- -------------
Distributions to shareholders:
From net investment income (1,548) (127,019)
From net realized gain on investments (3,062) (674,837)
------------- -------------
(4,610) (801,856)
------------- -------------
Fund share transactions:
Net proceeds from sales of fund shares 130,816,308 25,153,000
Net asset value of shares issued in
reinvestment of distributions 4,610 801,856
Cost of shares reacquired (49,355,356) --
------------- -------------
81,465,562 25,954,856
------------- -------------
Total increase in net assets 82,937,380 33,053,708
NET ASSETS:
At beginning of period 33,053,718 10
------------- -------------
At end of period (including accumulated undistributed net
investment income of $177,493 and $1,548, respectively) $ 115,991,098 $ 33,053,718
============= =============
* For the period from January 20, 1998 (commencement of operations) to December 31, 1998
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Ten Months Period Ended
Ended October 31, December 31,
1999 1998**
------ ------
<S> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $12.82 $10.00
------ ------
Income from investment operations:
Net investment income 0.02 0.05
Net realized and unrealized gain on investments 0.09 3.09
----- ----
0.11 3.14
----- ----
Less distributions to shareholders:
From net investment income (1) - (0.05)
From net gain on investments (1) - (0.27)
----- ----
- (0.32)
----- ----
Net asset value- end of period $12.93 $12.82
====== ======
Total return 0.85% 31.33%
Ratios and Supplemental Data:
Ratio of expenses to average net assets .68% * .80% *
Ratio of net investment income to average net assets .19% * .48% *
Portfolio turnover 66% 34%
Net assets at end of period (000 omitted) $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 was less than $.01 per share.
</TABLE>
See notes to financial statements.
8
<PAGE>
DLB GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Growth Fund (the "Fund") is a non-diversified series of The DLB Fund
Group (the "Trust"), a Massachusetts business trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
During 1999, the Fund changed its year end from December 31 to October 31,
and the financial statements are presented for the ten months ended October
31, 1999.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices
are not available are valued at last quoted bid prices. Securities for
which there are no such quotations or valuations are valued at fair value
as determined in good faith by or at the direction of the Trustees.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value.
REPURCHASE AGREEMENTS - Securities purchased under agreements to resell to
the original owner are recorded at cost. The Fund may enter into such
agreements with institutions that the Fund's investment adviser has
determined to be creditworthy. The Fund requires that the securities so
purchased be transferred to the custodian under terms that enable the Fund
to obtain such securities in the event of a default. The Fund monitors, on
a daily basis, the value of the securities to assure that such value,
including accrued interest, is greater than amounts owed to the Fund.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded
on the trade date. Dividend income is recorded on the ex-dividend date.
Dividend payments received in additional securities are recorded in an
amount equal to the value of the securities. Interest income is recorded on
the accrual basis.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of its
taxable income, including any net realized gains on investments.
Accordingly, no provision for federal income or excise tax is necessary.
The Fund files a tax return annually using tax accounting methods required
by the Code, which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the net investment income and net realized gain reported in
these financial statements may differ from the amounts reported on the
Fund's tax return, and, consequently, the character of distributions to
shareholders reported in the financial highlights may differ from that
reported to shareholders on Form 1099-DIV.
9
<PAGE>
Distributions to shareholders are recorded on the ex-dividend date. The
Fund distinguishes between distributions for tax purposes and financial
reporting purposes. Differences between income for financial reporting
purposes and tax-basis earnings and profits may result in the reporting of
temporary over-distributions in the financial statements. Such
over-distributions are classified as distributions in excess of net
investment income or accumulated net realized gains. Distributions, if any,
in excess of tax-basis earnings and profits are reported as return of
capital.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results could differ from those such estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Co. Inc. ("Babson") to provide
investment advisory and administrative services and general office
facilities. The fee for such services is computed daily and paid monthly at
an effective annual rate of .55% of average daily net assets. For the ten
months ended October 31, 1999, the management fee amounted to $526,541.
Babson has agreed to pay the Fund's operating expenses such that the Fund's
total aggregate expenses do not exceed .80% of average daily net assets.
The Fund pays no compensation directly to the Trustees who also are
officers of the investment manager, nor to the officers of the Fund, all of
whom receive remuneration for their services to the Fund from Babson.
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations, for
the ten months ended October 31, 1999 aggregated $151,741,207 and
$68,148,830, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis,
are as follows:
Aggregate cost $ 113,247,757
=============
Gross unrealized appreciation $ 12,188,304
Gross unrealized depreciation (9,578,708)
-------------
Net unrealized appreciation $ 2,609,596
=============
10
<PAGE>
5. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
Period from
Ten Months January 20, 1998
Ended (commencement of
October 31, operations) to
1999 December 31, 1998
---------- ---------
Shares sold 10,276,496 2,515,233
Shares issued in reinvestment
of distributions 350 63,188
Redemptions (3,881,592) -
---------- ---------
Net increase 6,395,254 2,578,421
========== =========
11
<PAGE>
DLB
THE DLB MICRO CAPITALIZATION FUND
ANNUAL REPORT
OCTOBER 31, 1999
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB MICRO CAP FUND
---------------------------------------------
FUND INVESTMENT OBJECTIVE
THE DLB MICRO CAPITALIZATION FUND seeks long-term capital appreciation through
investment investing 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.
MARKET OVERVIEW
THE FISCAL YEAR ENDING OCTOBER 30, 1999 (A 10 MONTH PERIOD DUE TO A CHANGE IN
THE FISCAL CALENDAR FROM DECEMBER 31 TO OCTOBER 31) WAS A YEAR FILLED WITH
VOLATILITY, SECTOR ROTATION, ENORMOUS RETURNS IN TECHNOLOGY AND THE "DOT.COM"
SECTOR, AND LAGGING VALUE STOCKS (AGAIN).
IN THE FIRST QUARTER OF 1999 WE WITNESSED THE SAME TRENDS THAT TOOK PLACE
THROUGH MOST OF CALENDAR YEAR 1998: LARGE GROWTH STOCKS LEADING THE MARKET TO
NEW HIGHS AT THE EXPENSE OF ALL OTHER EQUITY ASSET CLASSES. Small company stocks
and value stocks were all flat or down in this time period. The tables turned
dramatically in the second quarter, with small cap stocks and value stocks
surging 15% or more, leaving large growth stocks in the dust. This rally was
short-lived however, and most of these gains were lost in the third quarter. At
fiscal year-end, large growth stocks still ruled the day, leaving many value and
small company managers frustrated with yet another year of an out-of-favor asset
class.
THE S&P 500 INDEX FINISHED THE FISCAL YEAR UP 12%, LED BY LARGE GROWTH STOCKS
THAT ADVANCED NEARLY 15%. Small company stocks represented by the Russell 2000
Index increased by a modest 3%, and the value component of this market segment
declined by 5%.
THE REAL STANDOUT IN THE MARKET IN FISCAL 1999 WAS THE TECHNOLOGY SECTOR. This
segment of the market, up over 35%, was the only component of the S&P 500 Index
that was consistently in positive territory throughout the year. Much of this
performance came from telecommunications and Internet companies that benefited
from accelerating growth in the buildout and use of the Internet.
<PAGE>
DLB MICRO CAP FUND
---------------------------------------------
PORTFOLIO STRATEGY REVIEW
THE MOST SIGNIFICANT CHANGES IN THE PORTFOLIO FOR THE NEW FISCAL YEAR ENDING
OCTOBER 31, WERE THE INCREASE IN OUR TECHNOLOGY WEIGHTING AND THE DECREASE IN
AUTOS AND TRANSPORT. Both were good moves because technology performed well and
everything else did not.
WE FOUND A FEW SEGMENTS IN THE TECHNOLOGY AREA THAT FIT OUR INVESTMENT STRATEGY.
The most promising are analog semiconductors and embedded computers. Designs are
complex, there is enough capital intensity to limit non-professional
competition, there is an almost unlimited array of product segments, life cycles
frequently last more than five years, and demand is growing. We view these
niches as similar to the connector business before Allied Signal and Molex
consolidated. Investments we made this year have included Elantec Semiconductor,
DSP Group, and Performance Technologies. Each has been a stellar performer.
Another area we like is consulting. Rapid technology change requires more
frequent training, which increases the demand for consulting services.
Furthermore, the business requires a good reputation, which is advantageous to
larger companies. Also, competitors can differentiate each other by focusing on
a particular customer base or field of expertise. We invested in Meta Group in
this area. A third area we like is equipment used to make semiconductors. Like
the other businesses, this is highly fragmented, similar to industrial
manufacturing companies. Companies that perfect difficult processes can avoid
the price pressure that pervades this industry. In this area, we own A.D.E.,
which provides the quality seal of approval for wafers. We found these companies
the way we always do-fundamental analysis. Fortunately, technology companies
became so cheap last year, we were able to find some excellent companies at
modest values. Roughly one third of our holdings in the technology segment are
not really technology in the conventional sense. Meade Instruments produces
backyard telescopes, Signal Technologies makes electronic operating systems for
the defense department, and Kollmorgen manufactures fractional horsepower
motors.
THE GREATEST REDUCTION IN THE PORTFOLIO WAS IN AUTOS AND TRANSPORT, WHICH WAS
LOWERED TO 7% OF ASSETS FROM 15%. One of our most prized assets, Jevic
Transport, was acquired. We also sold Airnet Systems and reduced our holdings in
Mesaba Air due to management changes. We reduced Hub Group due to the trouble
its carriers, the large railroads, are having. The
<PAGE>
DLB MICRO CAP FUND
---------------------------------------------
PORTFOLIO STRATEGY REVIEW
(CONT.)
reduction is related only to changes within the companies we own. We continue to
believe that this industry is a fertile ground for investment. Other changes in
industry weightings can be explained mostly by the purchase or sale of one
stock.
THE FUND'S TOP TEN HOLDINGS AND SECTOR WEIGHTINGS CAN BE FOUND BELOW.
- --------------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS % OF FUND ASSETS
- --------------------------------------------------------------------------------
Performance Food Group 2.84
Saga Communications 2.75
Chieftan International Inc. 2.54
U.S. Can 2.50
CFS Bancorp 2.35
Mid-Atlantic Realty 2.29
Stone Energy Corp. 2.26
Fibermark Inc. 2.34
Meridian Diagnostics Inc. 2.13
Bacou USA 2.04
Total 24.04
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTOR RUSSELL
DIVERSIFICATION (%) PORTFOLIO 2000 DIFFERENCE
- --------------------------------------------------------------------------------
Technology 14.1 18.1 -4.0
Healthcare 5.9 9.0 -3.1
Consumer Discretionary 20.6 17.3 3.3
Consumer Staples 4.8 2.6 2.2
Energy 5.4 3.1 2.3
Materials & Processing 13.8 9.2 4.6
Producer Durables 6.4 8.2 -1.8
Autos & Transportation 6.7 3.5 3.2
Financial Services 19.8 21.4 -1.6
Utilities 2.0 6.5 -4.5
Other 0.6 1.0 -0.4
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
Through the ten months ended October 31,1999, the DLB Micro Cap Fund was up
2.92%, versus 2.79% for the Russell 2000. We are pleased with these results
because the value component of the Russell index is down 4.92%, while the growth
component is up approximately 10.0%. As we are value-oriented, our style worked
significantly against us. However,
<PAGE>
DLB MICRO CAP FUND
---------------------------------------------
PERFORMANCE REVIEW (CONT.)
while we were underweighted in technology and the Internet, the few selections
we made performed unbelievably well.
OUTLOOK
WE LOOK FORWARD TO 2000 WITH A MODICUM OF CAUTION. The Fed has raised interest
rates to help slow the economy. This will have a direct impact on homebuilding,
autos, banking, and capital investment. These are our favorite businesses. That
said, we are pleased that the Asian economies are recovering. Also, the New
Issues market is laden with startup companies, as opposed to those with proven
track records. That has eliminated our ability to buy and hold IPOs in the
second half of this year.
LONGER TERM, HOWEVER, WE HAVE NEVER BEEN MORE OPTIMISTIC ABOUT OUR PROSPECTS.
Several small companies are trading close to their 52-week lows, so there are
good companies to invest in and we are beginning to reduce our high cash
position. We will be working harder and smarter than ever, and I am hopeful that
our long-term results will reflect this effort.
<PAGE>
DLB MICRO CAP FUND
---------------------------------------------
Growth of a
$100,000 Investment
CUMULATIVE TOTAL RETURN SINCE INCEPTION 7/20/98
[LINE GRAPH]
DLB MICRO RUSSELL RUSSELL 2000
CAP FUND 2000 INDEX VALUE INDEX
----------- ----------- -----------
20-Jul-98 $100,000.00 $100,000.00 $100,000.00
31-Jul-98 $95,100.00 $90,860.00 $91,496.51
31-Aug-98 $74,301.63 $73,214.99 $77,167.40
30-Sep-98 $77,704.64 $78,947.72 $81,525.30
31-Oct-98 $80,401.00 $82,168.79 $83,946.03
30-Nov-98 $82,097.46 $86,474.43 $86,218.26
31-Dec-98 $86,095.60 $91,827.20 $88,921.80
31-Jan-99 $83,598.83 $93,048.50 $86,903.46
28-Feb-99 $78,699.94 $85,511.57 $80,970.14
31-Mar-99 $77,401.39 $86,845.55 $80,302.14
30-Apr-99 $82,602.76 $94,626.92 $87,632.84
31-May-99 $87,104.61 $96,008.47 $90,326.39
30-Jun-99 $94,107.83 $100,348.05 $93,596.98
31-Jul-99 $94,710.12 $97,598.51 $91,375.66
31-Aug-99 $92,408.66 $93,987.37 $88,035.53
30-Sep-99 $92,011.30 $94,006.17 $86,275.44
31-Oct-99 $88,606.88 $94,391.59 $84,549.16
- --------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 10/31/99
- --------------------------------------------------------------------------------
10 Months One Year Annualized
1/1/99- 10/31/98- Since Inception
10/31/99 10/31/99 7/20/98-10/31/99
DLB Micro Cap Fund 2.92 10.21 -8.67
Russell 2000 Index 2.79 14.87 -4.18
Russell 2000 Value Index -4.92 0.72 -11.57
- --------------------------------------------------------------------------------
DISCLOSURE STATEMENT
RUSSELL 2000 INDEX is an unmanaged index that measures the performance of the
2000 smallest stocks in the Russell 3000 Index that represent approximately 8%
of the U.S. equity market capitalization. Securities in the Fund do not match
those in the Index, and performance of the Fund will differ.
RUSSELL 2000 VALUE INDEX measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.
Securities in the Fund do not match those in the Index, and performance of the
Fund will differ.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Investment return and share
price will fluctuate with market conditions, and investors may have a gain or
loss when shares are sold. The Fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such expense
limitation, returns would have been lower.
<PAGE>
DLB MICRO CAP FUND
---------------------------------------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Micro Capitalization
Fund. The report is not intended for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
BABSON SECURITIES CORPORATION
One Memorial Drive, Cambridge, MA 02142
December 1999
<PAGE>
---------------------------------------
DLB MICRO CAPITALIZATION
FUND
FINANCIAL STATEMENTS FOR THE TEN MONTHS
ENDED OCTOBER 31, 1999 AND THE PERIOD
JULY 20, 1998 (COMMENCEMENT
OF OPERATIONS) TO DECEMBER 31, 1998
<PAGE>
DLB MICRO CAPITALIZATION FUND
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of October 31, 1999 2 - 5
Statement of Assets and Liabilities as of October 31, 1999 6
Statements of Operations for the Ten Months Ended October 31, 1999 and
the Period July 20, 1998 (commencement of operations) to
December 31, 1998 7
Statements of Changes in Net Assets for the Ten Months Ended October 31,
1999 and the Period July 20, 1998 (commencement of
operations) to December 31, 1998 8
Financial Highlights the Ten Months Ended October 31, 1999 and and the
Period July 20, 1998 (commencement of operations) to
December 31, 1998 9
Notes to Financial Statements 10 - 12
</TABLE>
<PAGE>
DELOITTE & ---------------------------------------------------
TOUCHE DELOITTE & TOUCHE LLP Telephone: (617) 437-2000
- ---------- 200 Berkeley Street Facsimile: (617) 437-2111
[LOGO] Boston, Massachusetts 02116-5022
INDEPENDENT AUDITORS' REPORT
To the Trustees of The DLB Fund Group and Shareholders of DLB Micro
Capitalization Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Micro Capitalization Fund (the "Fund") (a
series of The DLB Fund Group) as of October 31, 1999, and the related statements
of operations and changes in net assets, and the financial highlights for the
ten months ended October 31, 1999 and the period from July 20, 1998
(commencement of operations) to December 31, 1998. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of DLB Micro
Capitalization Fund at October 31, 1999, the results of its operations, the
changes in its net assets, and the financial highlights for the ten months ended
October 31, 1999 and the period from July 20, 1998 (commencement of operations)
to December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
December 10, 1999
- -------------------
DELOITTE TOUCHE
TOHMATSU
- -------------------
<PAGE>
DLB MICRO CAPITALIZATION FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 88.4%
ISSUER SHARES VALUE
Airlines - 2.2%
Hub Group Inc. (*) 23,200 $ 440,800
Mesaba Holdings, Inc. (*) 21,800 250,700
-----------
691,500
-----------
AUTO PARTS - 3.3%
Autocam Corporation 46,028 489,049
Dura Automotive Systems Inc. (*) 24,800 465,000
Keystone Automotive Industries, Inc. (*) 11,100 95,044
-----------
1,049,093
-----------
BANKS - 6.7%
CFS Bancorp Inc. 71,800 749,413
Financial Institutions Inc. 40,800 571,200
First Essex Bancorp 1,700 26,775
First Republic Bank 19,100 477,500
Pacific Crest Capital, Inc. 20,900 316,113
-----------
2,141,001
-----------
BUILDING SUPPLIES - 1.6%
Republic Group Incorporated 28,710 495,248
-----------
COMMUNICATION EQUIPMENT - 1.2%
Cunningham Graphics International Inc. (*) 30,700 330,025
Triton PCS Holdings, Inc. - Class A 1,300 45,825
-----------
375,850
-----------
COMPUTER RELATED - 2.0%
Meta Group, Inc. 29,100 418,313
PCD Inc. 37,100 217,963
-----------
636,276
-----------
COMPUTER SERVICES - 0.4%
Akamai Technologies 900 130,669
-----------
COMPUTER SOFTWARE - 1.4%
Inso Corp. 17,800 240,300
Performance Technologies, Inc. 8,700 188,138
-----------
428,438
-----------
CONSTRUCTION - 0.6%
Crossman Communities, Inc. (*) 11,900 199,325
-----------
CONTAINERS - 2.5%
US Can Corporation (*) 40,800 795,600
-----------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ISSUER SHARES VALUE
COSMETIC & TOILETRY - 0.4%
The Stephan Co. 26,400 $ 112,200
-----------
DIVERSIFIED - 2.1%
Astronics Corp. 3,300 31,763
Bacou USA Inc. 40,900 649,288
-----------
681,051
-----------
DRUGS - 2.8%
D&K Healthcare Resources Inc. (*) 34,200 536,513
Medco Research Inc. (*) 14,900 359,463
-----------
895,976
-----------
ELECTRONICS & INSTRUMENTS - 6.0%
ADE Corp/ Mass 13,700 205,500
DSP Group Inc. 10,500 501,375
Meade Instruments Corp. 8,400 214,200
Signal Technology Corp. 134,400 638,400
Spectrum Control Inc. 44,900 347,975
-----------
1,907,450
-----------
ELECTRICAL EQUIPMENT - 1.4%
Kollmorgen Corporation 28,800 273,600
SBS Technologies, Inc. 6,400 179,200
-----------
452,800
-----------
ELECTRICAL POWER - 1.7%
Bangor Hydro-Electric Co. 34,000 556,750
-----------
EXPLORATION & DRILLING - 2.3%
Stone Energy Corporation (*) 14,800 719,650
-----------
FINANCIAL SERVICES - 1.5%
Conning Corporation 56,000 486,500
-----------
FOOD RETAILERS - 2.8%
Performance Food Group Company (*) 33,400 905,975
-----------
INSURANCE COMPANIES - 1.6%
Highlands Insurance Group Inc. (*) 66,400 522,900
-----------
INTERNATIONAL OIL - 2.5%
Chieftain International, Inc. (*) 42,300 808,988
-----------
MACHINERY & EQUIPMENT - 4.0%
ABC-NACO, Inc. 28,100 302,075
Gasonics International Corp. 19,000 318,250
Hardinge, Inc. 18,500 268,250
Ritchie Brothers Auctioneers Inc. (*) 10,400 373,100
-----------
1,261,675
-----------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ISSUER SHARES VALUE
MEDIA - 3.7%
Gray Communications Systems Inc. 21,000 $ 304,500
Saga Communications Inc. (*) 36,300 875,738
-----------
1,180,238
-----------
MEDICAL SUPPLIES & SERVICES - 4.1%
Meridian Diagnostics, Inc. 93,500 677,875
Morrison Health Care Inc. 28,900 617,738
-----------
1,295,613
-----------
METAL PRODUCTS - 1.6%
CompX International, Inc. 27,300 505,050
-----------
METAL PROCESSING - 0.3%
Sun Hydraulics Corporation 14,700 102,900
-----------
OFFICE EQUIPMENT - 0.7%
Day Runner Inc. (*) 28,200 207,975
-----------
OTHER COMMON & PREFERRED - 1.3%
New England Community Bancorp 13,400 400,325
-----------
PAPER & FOREST PRODUCTS - 2.2%
Fibermark Inc. (*) 54,800 712,400
-----------
PROFESSIONAL SERVICES - 3.1%
Carey International Inc. (*) 17,200 364,425
Charles River Associates, Incorporated 24,900 628,725
-----------
993,150
-----------
REAL ESTATE - 2.3%
Mid-Atlantic Realty Trust REIT 72,400 728,525
-----------
RECREATION - 1.5%
Steinway Musical Instruments Inc. 27,000 479,250
-----------
SAVINGS & LOANS - 4.2%
Flushing Financial Corp. 24,500 384,344
Lawrence Savings Bank (*) 38,300 301,613
Mech Financial Inc. 19,600 634,550
-----------
1,320,507
-----------
SEMICONDUCTORS - 4.5%
Align-Rite International Inc. 25,600 480,000
Elantec Semiconductor Inc. 29,500 630,563
Telcom Semiconductor, Inc. 34,398 318,182
-----------
1,428,745
-----------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ISSUER SHARES VALUE
SPECIALTY RETAIL - 2.4%
Bridgford Foods Corporation 45,953 $ 453,786
School Specialty Inc. (*) 10,400 154,050
Travis Boats & Motors, Inc. (*) 14,800 151,700
-----------
759,536
-----------
STEEL - 2.0%
Schnitzer Stl Inds Class A 39,900 643,388
-----------
TELECOMMUNICATIONS - 0.0%
MCK Communications, Inc. 170 3,825
-----------
TRUCKING & SHIPPING - 1.0%
Covenant Transport Inc., Class A 100 1,538
Forward Air Corporation 11,200 329,700
-----------
331,238
-----------
WHOLESALERS - 2.5%
Pameco Corporation (*) 42,300 216,788
Scansource, Inc. (*) 17,000 575,865
-----------
792,653
-----------
TOTAL COMMON STOCKS
(identified cost, $30,311,437) 28,140,233
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 13.0%
Investors Bank & Trust Repurchase Agreement, 4.51%,
dated 10/29/99, $4,123,552 due on 11/1/99 (secured by
Federal Government Agency securities), at cost $4,122,003 4,122,003
-----------
TOTAL INVESTMENTS (identified cost, $34,433,440) 32,262,236
Other assets, less liabilities - (1.4%) (443,288)
-----------
NET ASSETS - 100% $31,818,948
===========
(*) Non-income producing security
</TABLE>
See notes to financial statements.
5
<PAGE>
DLB MICRO CAPITALIZATION FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $34,433,440 ) $ 32,262,236
Receivable for investments sold 282,809
Receivable for fund shares sold 3,698
Dividends and interest receivable 16,040
Receivable from investment manager 6,737
------------
32,571,520
LIABILITIES:
Payable for investments purchased 691,883
Payable for Fund shares reacquired 5,844
Accrued management fee 26,868
Accrued expenses 27,977
------------
752,572
NET ASSETS $ 31,818,948
============
NET ASSETS CONSIST OF:
Paid-in capital $ 33,608,306
Unrealized depreciation of investments (2,171,204)
Accumulated undistributed net realized gain on investment transactions 381,846
------------
$ 31,818,948
SHARES OF BENEFICIAL INTEREST OUTSTANDING 3,577,406
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 8.89
============
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB MICRO CAPITALIZATION FUND
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Ten Months Period Ended
Ended December 31,
October 31, 1999 1998*
----------- -----------
<S> <C> <C>
NET INVESTMENT INCOME:
Interest $ 115,694 $ 53,138
Dividends 127,060 30,873
----------- -----------
242,754 84,011
----------- -----------
EXPENSES:
Management fee 216,505 82,227
Trustees' fees 3,785 1,396
Custodian fees 44,289 23,742
Accounting and audit fees 21,837 27,502
Legal fees 12,619 5,762
Registration fees 18,796 --
Transfer agent fee 6,406 3,602
Miscellaneous 3,645 2,042
----------- -----------
327,882 146,273
Reduction of expenses by investment manager (46,425) (39,557)
----------- -----------
Net expenses 281,457 106,716
----------- -----------
Net investment loss (38,703) (22,705)
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) (identified cost basis) 1,618,801 (1,198,252)
Change in unrealized depreciation (556,308) (1,614,896)
----------- -----------
Net realized and unrealized gain (loss) on investments 1,062,493 (2,813,148)
----------- -----------
Increase (decrease) in net assets from operations $ 1,023,790 $(2,835,853)
=========== ===========
* For the period from July 20, 1998 (commencement of operations) to December 31, 1998.
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB MICRO CAPITALIZATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Ten Months Period Ended
Ended December 31,
October 31, 1999 1998*
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
From operations:
Net investment loss $ (38,703) $ (22,705)
Net realized gain (loss) on investments 1,618,801 (1,198,252)
Net unrealized depreciation of investments (556,308) (1,614,896)
------------ ------------
1,023,790 (2,835,853)
------------ ------------
Fund share transactions:
Net proceeds from sales of fund shares 11,120,455 22,745,914
Cost of shares reacquired (235,368) --
------------ ------------
10,885,087 22,745,914
------------ ------------
Total increase in net assets 11,908,877 19,910,061
NET ASSETS:
At beginning of period 19,910,071 10
------------ ------------
At end of period $ 31,818,948 $ 19,910,071
============ ============
* For the period from July 20, 1998 (commencement of operations) to December 31, 1998.
</TABLE>
See notes to financial statements.
8
<PAGE>
DLB MICRO CAPITALIZATION FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Ten Months Period Ended
Ended December 31,
October 31, 1999 1998**
------- -------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value- beginning of period $ 8.61 $ 10.00
------- -------
Gain (loss) from investment operations:
Net investment loss (.01) (.01)
Net realized and unrealized gain (loss) on investments .29 (1.38)
------- -------
.28 (1.39)
------- -------
Net asset value- end of period $8.89 $8.61
======= =======
Total return 2.92% (13.90%)
Ratios and Supplemental Data:
Ratio of expenses to average net assets 1.30% * 1.30% *
Ratio of net investment loss to average net assets (.18%)* (.28%)*
Portfolio turnover 68% 51%
Net assets at end of period (000 omitted) $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 $ (.02) $ (.03)
Ratios (to average net assets):
Expenses 1.51% * 1.77% *
Net investment loss (.39%)* (.76%)*
* Annualized
** For the period from July 20, 1998 (commencement of operations) to December 31, 1998.
</TABLE>
See notes to financial statements.
9
<PAGE>
DLB MICRO CAPITALIZATION FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Micro Capitalization Fund (the "Fund") is a non-diversified series of
The DLB Fund Group (the "Trust"), a Massachusetts business trust. The Trust
is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
During 1999, the Fund changed its year end from December 31 to October 31,
and the financial statements are presented for the ten months ended October
31, 1999.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices
are not available are valued at last quoted bid prices. Securities for
which there are no such quotations or valuations are valued at fair value
as determined in good faith by or at the direction of the Trustees.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value.
REPURCHASE AGREEMENTS - Securities purchased under agreements to resell to
the original owner are recorded at cost. The Fund may enter into such
agreements with institutions that the Fund's investment adviser has
determined to be creditworthy. The Fund requires that the securities so
purchased be transferred to the custodian under terms that enable the Fund
to obtain such securities in the event of a default. The Fund monitors, on
a daily basis, the value of the securities to assure that such value,
including accrued interest, is greater than amounts owed to the Fund.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded
on the trade date. Dividend income is recorded on the ex-dividend date.
Dividend payments received in additional securities are recorded in an
amount equal to the value of the securities. Interest income is recorded on
the accrual basis.
TAXES AND DISTRIBUTIONS - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute to shareholders all of its
taxable income, including any net realized gains on investments.
Accordingly, no provision for federal income or excise tax is necessary. To
the extent permitted by the Code, capital loss carryforwards will reduce
taxable income arising from future net realized gains on investments, if
any, and thus will reduce the amount of the distributions to shareholders
that would otherwise be necessary.
10
<PAGE>
The Fund files a tax return annually using tax accounting methods required
by the Code, which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the net investment income and net realized gain reported in
these financial statements may differ from the amounts reported on the
Fund's tax return, and, consequently, the character of distributions to
shareholders reported in the financial highlights may differ from that
reported to shareholders on Form 1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The
Fund distinguishes between distributions for tax purposes and financial
reporting purposes. Differences between income for financial reporting
purposes and tax-basis earnings and profits may result in the reporting of
temporary over-distributions in the financial statements. Such
over-distributions are classified as distributions in excess of net
investment income or accumulated net realized gains. Distributions, if any,
in excess of tax-basis earnings and profits are reported as return of
capital. During the ten months ended October 31, 1999, $38,703 was
reclassified from accumulated undistributed net realized gain on investment
transactions to accumulated undistributed net investment income due to
differences between book and tax accounting for the offset of net
investment loss against short-term capital gains. This change had no effect
on the net assets or net asset value per share.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results could differ from those such estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Co. Inc. ("Babson") to provide
investment advisory and administrative services and general office
facilities. The fee for such services is computed daily and paid monthly at
an effective annual rate of 1.00% of average daily net assets. For the ten
months ended October 31, 1999, the management fee amounted to $216,505.
Babson has agreed to pay the Fund's operating expenses such that the Fund's
total aggregate expenses do not exceed 1.30% of average daily net assets.
For the ten months ended October 31, 1999, $46,425 of fund expenses were
borne by Babson.
The Fund pays no compensation directly to the Trustees who also are
officers of the investment manager, nor to the officers of the Fund, all of
whom receive remuneration for their services to the Fund from Babson.
11
<PAGE>
4. PORTFOLIO SECURITIES
Purchases and sales of investments, other than short-term obligations, for
the ten months ended October 31, 1999 aggregated $24,015,103 and
$15,619,833, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund are as follows:
Aggregate cost $ 34,588,375
============
Gross unrealized appreciation $ 2,606,964
Gross unrealized depreciation (4,933,103)
Net unrealized depreciation $ (2,326,139)
============
5. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
Period from
July 20, 1998
Ten Months (commencement of
Ended operations) to
October 31, 1999 December 31, 1998
------------- -------------
Shares sold 1,291,792 2,311,291
Redemptions (25,678) -
------------- -------------
Net increase 1,266,114 2,311,291
============= =============
12
