DLB
THE DLB FIXED INCOME FUND
ANNUAL REPORT
OCTOBER 31, 2000
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB FIXED INCOME FUND
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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
THE COMBINED EFFECTS OF A SLOWER U.S. ECONOMY, LOWER STOCK MARKETS, AND HIGHER
OIL PRICES HAVE BUFFETED DOMESTIC CREDIT MARKETS IN 2000. Overall returns for
most sectors look good, but a peek below the surface at sub-sector returns
reveals a very different picture. The Lehman Aggregate Index, a broad market
proxy, returned +7.83% through October 31, 2000 while the Lehman Intermediate
Aggregate Index returned +7.18%. Year-to-date returns for the Lehman U.S.
Treasury, High Grade Corporate and U.S. High Yield Corporate indices were
+9.15%, +5.93% and -3.83%, respectively.
WHILE SHORT-TERM INTEREST RATES HAVE INCREASED STEADILY THROUGHOUT THE YEAR (3
MONTH U.S. T-BILL YIELDS UP 106 BASIS POINTS), YIELDS ON THE LONG END OF THE
TREASURY YIELD CURVE HAVE DECLINED SUBSTANTIALLY. At the end of October,
one-year Treasury Bills yielded 6.16% and thirty-year bonds yielded 5.79%.
Clearly, the U.S. Federal Reserve's tightening cycle, which drove short rates
higher, ended mid-year as slower economic activity became apparent. Longer term
rates have since rallied on the perception that the Fed is done tightening and
the prospects for improving business conditions.
HOWEVER, THE CURRENT ENVIRONMENT OF SLOWING GROWTH (DOMESTICALLY AND ABROAD),
HIGHER ENERGY COSTS, REPORTED WEAKNESS IN BANK LOAN QUALITY AND A SUBSTANTIAL
UNWINDING OF THE TECHNOLOGY STOCK BUBBLE HAVE LEAD TO A DRAMATIC WIDENING OF
CREDIT SPREADS THIS YEAR. This repricing of credit risk in the bond market has
resulted in varied returns among sectors, primarily based on quality.
<PAGE>
DLB FIXED INCOME FUND
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PORTFOLIO STRATEGY REVIEW
YIELD SPREADS, OR THE ADVANTAGE OVER SIMILAR MATURITY TREASURIES FOR CORPORATE
SECURITIES ARE CURRENTLY AT LEVELS NOT SEEN SINCE THE LAST U.S. RECESSION IN THE
EARLY 1990'S. Thus, spread sectors appear historically cheap. As we have seen
over the last couple of months, it is possible that spreads could widen further
from these levels, causing additional corporate underperformance. However, we
feel that investors with a longer-term horizon who focus on careful security
selection will be well rewarded over time by adding to spread sector exposure at
these levels. In light of this, we have continued to add opportunistically to
corporate bonds in the portfolio. At the same time, we have been actively
seeking to reduce individual position sizes in order to minimize exposure to any
one credit.
WE HAVE A CONSISTENTLY APPLIED, VALUE ORIENTED INVESTMENT DISCIPLINE WHICH DOES
NOT CHANGE WITH VARYING BUSINESS CONDITIONS. Our bottom up fundamental work, at
this time, is leading us to the healthcare, defense and aerospace industries.
Moreover, we are examining companies that typically do well in the early stages
of an economic upturn.
The Fund's top ten holdings, sector breakdown and quality weightings can be
found on the following page.
<PAGE>
DLB FIXED INCOME FUND
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PORTFOLIO STRATEGY REVIEW
(CONT.)
--------------------------------------------------------------------------------
Top 10 Holdings % of Fund Assets
--------------------------------------------------------------------------------
FHLMC Gold 6.00% 2028 5.33
US Treasury Note 7.25% 2004 3.65
US Treasury Note 6.125% 2001 3.49
US Treasury Bond 6.125% 2029 3.29
US Treasury Note 6.50% 2006 3.19
US Treasury Note 6.00% 2004 3.19
US Treasury Note 5.625% 2002 3.15
US Treasury Note 5.625% 2006 3.15
US Treasury Note 5.50% 2003 3.15
US Treasury Bond 8.125% 2021 3.01
Total 34.6
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Sector Lehman
Breakdowns (%) Portfolio Aggregate Difference
--------------------------------------------------------------------------------
Corporate 35.5 20.8 +14.7
Mortgage Backed 19.6 34.5 -14.9
Treasury 29.3 28.7 +0.6
Asset Backed 6.5 1.6 +4.9
Agency 0 10.0 -10.0
Yankee 5.3 2.9 +2.4
Commercial Mortgage Backed 3.3 1.5 +1.8
Cash 0.5 0 +0.5
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Quality Lehman
Breakdowns (%) Portfolio Aggregate Difference
--------------------------------------------------------------------------------
Treasury 29.3 28.7 +0.6
Agency 19.6 44.6 -25.0
AAA 10.3 4.3 +6.0
AA 3.4 4.4 -1.0
A 17.4 10.9 +6.5
Baa 20.0 7.1 +12.9
Below Baa 0 0 0
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<PAGE>
DLB FIXED INCOME FUND
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PERFORMANCE REVIEW
FOR THE ONE-YEAR PERIOD ENDED OCTOBER 31, 2000, THE FUND RETURN OF 6.14% LAGGED
ITS BENCHMARK, THE LEHMAN BROTHERS AGGREGATE BOND INDEX WHICH RETURNED 7.30%.
THE FUND CONTINUES TO BE OVERWEIGHT IN CORPORATE BONDS DUE IN PART TO OUR LONG
TERM STRATEGY BUT ALSO REFLECTIVE OF THE RELATIVE ATTRACTIVENESS OF THE SECTOR.
Corporate, Mortgage and Agency bonds have all underperformed Treasuries during
the year 2000. In general, higher quality bonds have outperformed lower quality
bonds.
OUTLOOK
ALREADY TRADING NEAR RECESSIONARY LEVELS, WE THINK CORPORATE BONDS OFFER
EXCEPTIONAL VALUE RELATIVE TO OTHER SECTORS. Precious metal prices, the best
inflation barometer we know, predict a benign inflationary environment in 2001.
Moreover, business conditions are deteriorating as a result of higher interest
rates, rising energy prices and over capacity in the technology sector. Low
inflation, coupled with a slowing economy should mean the Federal Reserve will
stop raising the cost of capital and may even start lowering it in the months
ahead. A stable to easier monetary policy should translate into a better
business climate and improving credit fundamentals for many companies next year.
Based on these expectations, we are using this opportunity to very selectively
increase our corporate exposure by ten to fifteen percent, focusing on companies
that typically do well in the early stages of an economic upturn.
<PAGE>
DLB FIXED INCOME FUND
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GROWTH OF A
$100,000 INVESTMENT
[CHART APPEARS HERE]
LEHMAN
BROTHERS
DLB AGGREGATE
INCOME BOND INDEX
$100,000.00 $100,000.00
31-Jul-95 $100,100.00 $100,150.00
31-Aug-95 $101,501.40 $101,361.82
30-Sep-95 $102,404.76 $102,345.02
31-Oct-95 $103,602.90 $103,675.51
30-Nov-95 $105,105.14 $105,230.64
31-Dec-95 $106,461.00 $106,703.87
31-Jan-96 $107,397.85 $107,408.12
28-Feb-96 $106,356.09 $105,539.22
31-Mar-96 $105,526.52 $104,800.44
30-Apr-96 $105,009.44 $104,213.56
30-May-96 $104,799.42 $104,005.13
30-Jun-96 $105,836.93 $105,398.80
31-Jul-96 $106,048.61 $105,683.38
31-Aug-96 $105,942.56 $105,503.72
30-Sep-96 $107,605.86 $107,339.48
31-Oct-96 $109,790.25 $109,722.42
30-Nov-96 $111,557.88 $111,598.67
31-Dec-96 $110,408.83 $110,560.80
31-Jan-97 $110,850.47 $110,903.54
28-Feb-97 $111,072.17 $111,180.80
31-Mar-97 $109,872.59 $109,946.69
30-Apr-97 $111,399.82 $111,595.89
31-May-97 $112,380.14 $112,656.05
30-Jun-97 $113,796.13 $113,996.66
31-Jul-97 $116,527.23 $117,074.57
31-Aug-97 $115,653.28 $116,079.44
30-Sep-96 $117,295.55 $117,797.41
31-Oct-97 $118,937.69 $119,505.48
30-Nov-97 $119,151.78 $120,055.20
31-Dec-97 $120,379.04 $121,267.76
31-Jan-98 $121,968.05 $122,819.99
28-Feb-98 $121,858.28 $122,721.73
31-Mar-98 $122,309.15 $123,138.98
30-Apr-98 $122,871.77 $123,779.31
31-May-98 $123,891.61 $124,955.21
30-Jun-98 $124,907.52 $126,017.33
31-Jul-98 $125,107.37 $126,281.97
31-Aug-98 $126,521.09 $128,340.36
30-Sep-98 $129,949.81 $131,343.53
31-Oct-98 $129,001.17 $130,647.40
30-Nov-98 $129,594.58 $131,392.10
31-Dec-98 $130,061.12 $131,786.27
31-Jan-99 $131,036.58 $132,721.95
28-Feb-99 $128,599.30 $130,399.32
31-Mar-99 $129,576.65 $131,116.52
30-Apr-99 $129,822.85 $131,536.09
31-May-99 $128,342.87 $130,378.57
30-Jun-99 $127,855.16 $129,961.36
31-Jul-99 $127,267.03 $129,402.53
31-Aug-99 $127,139.76 $129,337.82
30-Sep-99 $128,525.59 $130,838.14
31-Oct-99 $128,654.11 $131,322.24
30-Nov-99 $128,654.11 $131,309.11
Dec 1999 $127,972.25 $130,678.83
Jan 2000 $127,716.30 $130,247.59
Feb 2000 $128,878.52 $131,823.58
Mar 2000 $130,824.59 $133,563.66
Apr 2000 $130,039.64 $133,176.32
May 2000 $129,259.40 $133,109.73
Jun 2000 $132,297.00 $135,878.42
Jul 2000 $133,355.37 $137,114.91
Aug 2000 $135,222.35 $139,103.08
Sep 2000 $136,155.38 $139,979.42
Oct 2000 $136,563.85 $140,903.29
--------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 10/31/00
--------------------------------------------------------------------------------
6 Months 1 Year 5 Years Annualized
5/1/00- 11/1/99- 11/1/95- Since Inception
10/31/00 10/31/00 10/31/00 7/25/95-
10/31/00
DLB Fixed Income Fund 5.01 6.14 5.67 6.01
Lehman Brothers Aggregate 5.80 7.30 6.33 6.65
Bond Index
--------------------------------------------------------------------------------
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 2000
<PAGE>
DLB FIXED INCOME FUND
FINANCIAL STATEMENTS FOR THE YEAR ENDED
OCTOBER 31, 2000 AND THE TEN MONTHS
ENDED OCTOBER 31,1999
<PAGE>
DLB FIXED INCOME FUND
TABLE OF CONTENTS
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INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of October 31, 2000 2 - 4
Statement of Assets and Liabilities as of October 31, 2000 5
Statement of Operations for the Year Ended October 31, 2000 6
Statements of Changes in Net Assets for the Year Ended
October 31, 2000, the Ten Months Ended October 31, 1999,
and the Year Ended December 31, 1998 7
Financial Highlights for the Year Ended October 31, 2000,
the Ten Months Ended October 31, 1999, and for each of the
years in the Four-Year Period Ended December 31, 1998 8
Notes to Financial Statements 9 - 11
<PAGE>
DELOITTE
& TOUCHE
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116-5022
Tel:(617) 437 2000
Fax:(617) 437 2111
www.us.deloitte.com
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, 2000, and the related statement of
operations for the year then ended, the statements of changes in net assets for
the year ended October 31, 2000, the ten months ended October 31, 1999 and the
year ended December 31, 1998, and the financial highlights for the year ended
October 31, 2000, 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 auditing standards generally accepted
in the United States of America. 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, 2000, 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 referred to
above present fairly, in all material respects, the financial position of DLB
Fixed Income Fund at October 31, 2000, the results of its operations for the
year then ended, the changes in its net assets for the year ended October 31,
2000, the ten months ended October 31, 1999 and the year ended December 31,
1998, and the financial highlights for the year ended October 31, 2000, the ten
months ended October 31, 1999 and each of the years in the four-year period
ended December 31, 1998, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
December 8, 2000
--------
Deloitte
Touche
Tohmatsu
--------
<PAGE>
DLB FIXED INCOME FUND
<TABLE><CAPTION>
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2000
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BONDS - 98.4%
S&P/MOODY'S ISSUER PRINCIPAL VALUE
BOND RATING AMOUNT
(UNAUDITED)
US GOVERNMENT - 28.9%
AAA US Treasury Note, 6.125%, 2001 $ 1,100,000 $ 1,098,284
AAA US Treasury Note, 5.625%, 2002 1,000,000 993,590
AAA US Treasury Note, 5.5%, 2003 1,000,000 990,780
AAA US Treasury Note, 6.0%, 2004 1,000,000 1,004,690
AAA US Treasury Note, 7.25%, 2004 1,100,000 1,151,051
AAA US Treasury Note, 5.625%, 2006 1,000,000 991,090
AAA US Treasury Note, 6.50%, 2006 975,000 1,005,313
AAA US Treasury Note, 8.125%, 2021 760,000 947,978
AAA US Treasury Note, 6.125%, 2029 1,000,000 1,035,620
-----------
9,218,396
-----------
MORTGAGES - 20.3%
AAA FHLMC Gold Pool #G00143, 7.50%, 2023 147,744 147,652
AAA FHLMC Gold Pool #C00680, 6.00%, 2028 1,787,869 1,677,808
AAA FNCL Pool #323380, 6.50%, 2028 848,805 815,914
AAA FNCL Pool #490107, 6.50%, 2029 687,556 660,913
AAA FNCL Pool #252717, 7.50%, 2029 691,456 690,377
AAA FNMA Pool #524355, 7.00%, 2029 28,607 28,044
AAA FNMA Pool #527416, 7.00%, 2030 619,735 607,532
AAA FNMA Pool #346537, 6.00%, 2011 324,549 312,479
AAA GNMA Pool #780332, 8.00%, 2009 157,878 161,528
AAA GNMA Pool #410343, 7.50%, 2011 281,968 285,405
AAA GNMA Pool #423828, 6.00%, 2011 263,863 254,876
AAA GNMA Pool #398964, 7.50%, 2011 168,058 170,107
AAA GNMA Pool #357262, 7.50%, 2023 211,314 212,106
AAA GNMA Pool #380866, 7.00%, 2024 53,774 53,035
AAA GNMA Pool #432175, 8.00%, 2026 20,554 20,888
AAA GNMA Pool #441009, 8.00%, 2026 129,166 131,265
AAA Green Tree Financial 1995-1 A-5, 8.40%, 2025 48,707 48,880
AAA Green Tree Financial 1996-2 A-3, 6.90%, 2027 200,000 199,628
-----------
6,478,437
-----------
INTERNATIONAL - 7.7%
BAA Canadian National Railroad, 7.00%, 2004 350,000 345,860
BAA Hellenic Republic, 6.95%, 2008 300,000 298,149
A Quebec Province, 7.5%, 2029 400,000 405,504
AA Ontario Province, 5.5%, 2008 325,000 298,604
BAA Petro Geo-Services, 7.50%, 2007 400,000 392,796
BAA Province of Newfoundland, 7.32%, 2023 350,000 335,720
BAA Southern Investments UK, 6.375%, 2001 400,000 392,528
-----------
2,469,161
-----------
2
<PAGE>
S&P/MOODY'S ISSUER PRINCIPAL VALUE
BOND RATING AMOUNT
(UNAUDITED)
ASSET BACKED - 9.1%
AAA California Infrastructure PG&E-1, 6.42%, 2008 $ 350,000 $ 342,972
AAA California Infrastructure SCE-1, 6.22%, 2004 300,000 297,843
AAA Comed Transitional Funding Trust, 5.63%, 2009 450,000 421,592
AAA DLJ Commercial Mortgage Corp., 6.11%, 2007 298,168 289,456
AAA JP Morgan Commercial Mortgage Finance Corp.,
6.507%, 2035 400,000 385,232
AAA MBNA Master Cr. Card Trust, 5.9%, 2011 815,000 763,174
AAA Nomura Asset Securities Corporation, 6.59%, 2028 400,000 388,875
-----------
2,889,144
-----------
BANKS - 1.2%
A Suntrust Banks, 6.00%, 2026 400,000 373,768
-----------
FINANCIAL - 4.8%
AA Associates Corp. N.A., 5.8%, 2004 100,000 96,060
AA Boeing Capital Corp., 7.1%, 2005 170,000 171,258
A Ford Capital BV, 10.125%, 2000 100,000 100,074
A Ford Motor Credit, 7.6%, 2005 250,000 251,325
A Ford Motor Credit, 7.375%, 2009 350,000 339,833
A General Motors Accept Corp., 7.75%, 2010 575,000 577,116
-----------
1,535,666
-----------
INDUSTRIAL - 18.3%
BAA Airgas Inc., 7.14%, 2004 415,000 413,527
BAA American Stores, 8.00%, 2026 450,000 428,153
AAA Avnet Inc., 8.2%, 2003 175,000 174,790
BAA Burlington North Santa Fe 525,000 522,107
A Cardinal Health, 6.00%, 2006 150,000 140,291
BAA Champion International, 7.20%, 2026 675,000 635,101
BAA Comdisco Inc., 6.375%, 2001 300,000 237,000
BAA Comdisco Inc., 6.13%, 2001 250,000 210,000
BAA Georgia-Pacific Corporation, 9.95%, 2002 175,000 180,576
A International Business Machines, 6.22%, 2027 400,000 389,160
AAA Interpublic Group Cos., 7.875%, 2005 175,000 173,646
BAA JB Hunt Transportation Services 500,000 499,890
A3 Kimco Realty Corp., 7.86%, 2007 160,000 160,144
BAA Oslo Seismic Services, 8.28%, 2011 377,299 385,902
BAA Safeway, Inc., 6.05%, 2003 175,000 169,832
BAA Telecommunications Inc., 9.80%, 2012 170,000 188,224
BAA Time Warner Inc., 9.15%, 2023 150,000 166,653
BAA Time Warner Entertainment, 8.375%, 2023 325,000 339,086
BAA Tosco Corp., 7.25%, 2007 150,000 149,282
A Unilever Capital Corp., 6.75%, 2003 175,000 173,833
BAA Visteon Corp., 8.25%, 2010 90,000 89,031
-----------
5,826,228
-----------
3
<PAGE>
S&P/MOODY'S ISSUER PRINCIPAL VALUE
BOND RATING AMOUNT
(UNAUDITED)
ELECTRIC UTILITIES - 1.6%
BAA Dominion Resources, Inc., 7.82%, 2004 $ 140,000 $ 140,983
A Consolidated Edison, 6.15%, 2008 400,000 372,424
-----------
513,407
-----------
TELEPHONE UTILITIES - 2.8%
A Telefonica Europe BV, 7.35%, 2005 200,000 200,246
A Worldcom, Inc., 8%, 2006 425,000 437,300
BAA Qwest Communications Intl., 7.5%, 2008 250,000 247,265
-----------
884,811
-----------
TRANSPORTATION - 2.2%
AA Continental Airlines, 7.256%, 2020 280,923 271,043
AA Continental Airlines pass-thru, 8.048%, 2020 150,000 151,992
BAA Wisconsin Central Transportation, 6.625%, 2008 300,000 270,762
-----------
693,797
-----------
OTHER - 1.5%
BAA Fred Meyer Inc., 7.45%, 2008 140,000 136,062
AA Wal-Mart Stores, 6.875%, 2009 350,000 347,540
-----------
483,602
-----------
TOTAL BONDS (identified cost, $31,848,704) 31,366,417
REPURCHASE AGREEMENT - 0.4%
Investors Bank & Trust Repurchase Agreement, 5.69%,
dated 10/31/00, $127,010 due on 11/1/00 (secured by
Federal Government Agency securities), at cost 126,990 126,990
-----------
TOTAL INVESTMENTS (identified cost, $31,975,694) 31,493,407
Other assets, less liabilities - 1.2% 386,173
-----------
NET ASSETS - 100% $31,879,580
===========
See notes to financial statements.
</TABLE>
4
<PAGE>
DLB FIXED INCOME FUND
<TABLE><CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2000
----------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $31,975,694) $ 31,493,407
Interest receivable 435,090
Receivable from investment manager 4,658
------------
31,933,155
------------
LIABILITIES:
Accrued management fees 11,083
Accrued expenses 42,492
------------
53,575
------------
NET ASSETS $ 31,879,580
============
NET ASSETS CONSIST OF:
Paid-in capital $ 33,178,919
Unrealized depreciation of investments (482,287)
Accumulated net realized loss on investment transactions (857,913)
Accumulated undistributed net investment income 40,861
------------
Total $ 31,879,580
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 3,155,718
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 10.10
============
</TABLE>
See notes to financial statements.
5
<PAGE>
DLB FIXED INCOME FUND
<TABLE><CAPTION>
STATEMENT OF OPERATIONS
Year Ended October 31, 2000
---------------------------------------------------------------------------------
<S> <C>
INTEREST INCOME $ 1,990,247
-----------
EXPENSES:
Management fee 118,966
Trustees' fees 7,086
Custodian fees 64,228
Accounting and audit fees 30,862
Registration fees 20,992
Legal fees 14,040
Transfer agent fee 9,069
Miscellaneous 4,530
-----------
269,773
Reduction of expenses by investment manager (106,195)
-----------
Net expenses 163,578
-----------
Net investment income 1,826,669
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized loss (identified cost basis) (840,208)
Change in unrealized depreciation 676,416
-----------
Net realized and unrealized loss on investments (163,792)
-----------
Increase in net assets from operations $ 1,662,877
===========
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB FIXED INCOME FUND
<TABLE><CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------------------------------------
YEAR TEN MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
OCTOBER 31, 2000 OCTOBER 31, 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 1,826,669 $ 1,709,187 $ 1,877,785
Net realized gain (loss) on investments (840,208) 28,638 291,288
Net unrealized appreciation (depreciation)
of investments 676,416 (2,150,902) 368,912
------------ ------------ ------------
1,662,877 (413,077) 2,537,985
------------ ------------ ------------
Distributions to shareholders:
From net investment income (1,804,764) (1,699,687) (1,894,627)
From net realized gain on investments (15,363) (4,038) (290,918)
In excess of net realized gain on investments (15,894) -- --
------------ ------------ ------------
(1,836,021) (1,703,725) (2,185,545)
------------ ------------ ------------
Fund share transactions:
Net proceeds from sales of shares 12,358,836 5,422,205 2,275,531
Net asset value of shares issued in
reinvestment of distributions 1,567,724 1,229,402 1,669,653
Cost of shares reacquired (18,413,944) (1,852,775) (2,594,499)
------------ ------------ ------------
(4,487,384) 4,798,832 1,350,685
------------ ------------ ------------
Total increase (decrease) in net assets (4,660,528) 2,682,030 1,703,125
NET ASSETS:
At beginning of period 36,540,108 33,858,078 32,154,953
------------ ------------ ------------
At end of period (including accumulated
undistributed net investment income of
$40,861, $17,145 and $6,502, respectively) $ 31,879,580 $ 36,540,108 $ 33,858,078
============ ============ ============
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB FIXED INCOME FUND
<TABLE><CAPTION>
FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------------------------------------------------------------
YEAR TEN MONTHS
ENDED ENDED YEARS ENDED DECEMBER 31, PERIOD ENDED
OCTOBER 31, OCTOBER 31, ------------------------------ DECEMBER 31,
2000 1999 1998 1997 1996 1995**
------- ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $ 10.12 $ 10.72 $10.61 $10.11 $10.26 $ 10.00
------- ------- ------ ------ ------ -------
Income from investment operations:
Net investment income .62 .48 .63 .42 .53 .28
Net realized and unrealized gain (loss) on
investments (.03) (.60) .20 .49 (.15) .37
------- ------- ------ ------ ------ -------
.59 (.12) .83 .91 .38 .65
------- ------- ------ ------ ------ -------
Less distributions to shareholders:
From net investment income(1) (.61) (.48) (.63) (.41) (.53) (.28)
From net realized gain on investments(2) - - (.09) - - (.11)
In excess of net realized gain on investments(2) - - - - - -
------- ------- ------ ------ ------ -------
(.61) (.48) (.72) (.41) (.53) (.39)
------- ------- ------ ------ ------ -------
Net asset value- end of period $ 10.10 $ 10.12 $10.72 $10.61 $10.11 $ 10.26
======= ======= ====== ====== ====== =======
Total return 6.14% (1.08%) 8.04% 9.03% 3.70% 14.75%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets .55% .55%* .55% .55% .55% .55%*
Ratio of net investment income to average net assets 6.14% 5.63%* 5.71% 5.74% 6.36% 6.24%*
Portfolio turnover 88% 58% 50% 44% 65% 42%
Net assets at end of period (000 omitted) $ 31,880 $36,540 $ 35,858 $ 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 $ .58 $ .46 $ .60 $ .38 $ .44 $ .19
Ratios (to average net assets):
Expenses .91% .79%* .80% 1.06% 1.66% 2.50%*
Net investment income 5.78% 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.
(2) Distributions from net realized gain on investments and in excess of net realized gain on investments for the year ended
October 31, 2000 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.
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
collateral in a repurchase transaction 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 ensure 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 gain 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 year ended October 31, 2000, $1,811 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.
At October 31, 2000, the Fund, for federal income tax purposes, had a
capital loss carryforward of $808,829 which may be applied against any net
taxable realized gains of each succeeding year until the earlier of its
utilization or expiration on October 31, 2008.
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the amounts reported in the financial statements. Actual results could
differ from such estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Company 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 year
ended October 31, 2000, the management fee amounted to $118,966. 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
year ended October 31, 2000, $106,195 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 year ended October 31, 2000 were as follows:
Purchases Sales
----------- -----------
U. S. Government securities $13,864,867 $11,646,556
=========== ===========
Investments (non-U.S. Government securities) $11,966,545 $17,165,008
=========== ===========
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis,
are as follows:
Aggregate cost $ 32,030,076
============
Gross unrealized appreciation $ 168,827
Gross unrealized depreciation (705,496)
------------
Net unrealized depreciation $ (536,669)
============
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:
Year Ten Months Year
Ended Ended Ended
October 31, October 31, December 31,
2000 1999 1998
---------- -------- --------
Shares sold 1,233,163 514,248 208,434
Shares issued in reinvestment
of distributions 156,919 119,145 155,364
Redemptions (1,844,825) (179,883) (237,538)
---------- -------- --------
Net increase (decrease) (454,743) 453,510 126,260
========== ======== ========
11
<PAGE>
DLB
THE DLB ENTERPRISE III FUND
ANNUAL REPORT
OCTOBER 31, 2000
[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 SECOND HALF OF THE FISCAL YEAR ENDED OCTOBER 31, 2000 SHARPLY CONTRASTED
WITH THE FIRST HALF. Major market themes such as the continued outperformance of
growth stocks and a runaway market in technology stocks were completely
reversed, with value stocks taking a strong lead in all capitalization ranges,
and the tech-laden NASDAQ dropping more than 33% from its March 10th high of
5048.62. The volatility that was witnessed in the first half continued
throughout the second, but it came in the form of downside returns for most
broad market indicators.
IN ADDITION TO DOMINANT VALUE STOCK PERFORMANCE ON THE STYLE FRONT, LEAD BY
SMALL CAP VALUE, MID-CAP STOCKS DOMINATED ON THE CAPITALIZATION FRONT. Many
large cap portfolios with mid-cap exposure experienced an added advantage versus
the competition, all else being equal. Similarly, core portfolios with a value
bias were likely advantaged over peers with a growth bias. While most value
benchmarks had only single digit positive returns in October, all growth and
core benchmarks experienced negative absolute performance. These trends are very
different from the first half of the year, when larger capitalization stocks and
growth stocks in all cap ranges were the strongest asset classes.
THE BIPOLAR TREND THAT PREVAILED IN THE FIRST HALF OF THE YEAR WITH "NEW
ECONOMY" STOCKS LEADING THE BROAD MARKETS HIGHER AND "OLD ECONOMY" STOCKS
UNDERPERFORMING ALSO SHIFTED. "Old Economy" stocks, in the second half, in
sectors such as Producer Durables, Utilities and Materials and Processing
outshone "New Economy" names in the Communications, Healthcare and Internet
related industries. As a majority of the "New Economy" names are also
categorized as growth stocks, this makes sense.
VOLATILITY RESULTING IN NEGATIVE INDEX RETURNS ALSO BECAME EXTREME. The NASDAQ,
Dow and S&P 500 all experienced negative performance for the half, with the
NASDAQ continuing to be affected most by negative fluctuations. The Index closed
down -14.26% over the second half of the fiscal year. The downward momentum was
marked by a consistent downward trend mixed with large gains. Of the eight
<PAGE>
DLB ENTERPRISE III FUND
--------------------------------------------------------------------------------
MARKET OVERVIEW
(CONT.)
daily movements of 5% or more, only two were negative. The positive gains of
more than 5% all came in separate weeks and were all given back.
PERIODS OF POSITIVE MARKET RETURNS IN THE LAST FEW WEEKS WERE IN LARGE PART
DRIVEN BY A GROWING BELIEF THAT THE FEDERAL RESERVE MAY LOWER RATES IN THE FIRST
QUARTER OF 2001. Sentiment in the first half of the fiscal year that the Fed
would stand pat on the past tightening interest rate moves has, in effect, been
replaced with hope for a Fed easing.
CLARITY IN THE U.S. PRESIDENTIAL RACE, IN THE LAST FEW WEEKS, HAS ALSO PROVIDED
A PLATFORM FOR MARKET GAINS. A final resolution in the first half of the next
fiscal year, should give markets one less obstacle to overcome.
PORTFOLIO STRATEGY REVIEW
OUR INVESTMENT APPROACH IS FOCUSED ON ATTRACTIVELY VALUED COMPANIES WITH A
PROVEN PRODUCT OR SERVICE, a strong business franchise and market position, and
the potential for improving profit margins and accelerating earnings.
OUR SECTOR DIVERSIFICATION AS OF OCTOBER 31, 2000 VERSUS THE RUSSELL 2000 SMALL
CAPITALIZATION BENCHMARK IS SHOWN BELOW:
--------------------------------------------------------------------------------
Sector Russell
Diversification (%) Portfolio 2000 Difference
--------------------------------------------------------------------------------
Financial Services 21.9 20.0 +1.9
Materials & Processing 13.6 8.5 +5.1
Consumer Discretionary 22.5 16.0 +6.5
Energy 11.9 3.4 +8.5
Producer Durables 14.2 8.5 +6.0
Technology 9.2 16.1 -6.9
Autos & Transportation 4.1 3.1 +1.0
Consumer Staples 0.0 2.4 -2.4
Health Care 0.7 14.8 -14.1
Utilities 0.7 6.2 -5.5
Other 1.3 1.1 +0.2
--------------------------------------------------------------------------------
<PAGE>
DLB ENTERPRISE III FUND
--------------------------------------------------------------------------------
PORTFOLIO STRATEGY REVIEW
(CONT.)
THE FUND'S LARGEST SECTOR WEIGHTINGS WERE IN CONSUMER DISCRETIONARY, PRODUCER
DURABLES, AND FINANCIAL SERVICES STOCKS. In each of these sectors, the Fund was
overweighted compared to the Russell 2000 index. Other areas of significant
overweighting compared to the small cap index were energy and materials and
processing.
THOSE SECTORS MOST SIGNIFICANTLY BELOW THE WEIGHTING OF THE RUSSELL 2000 INDEX
WERE HEALTH CARE, TECHNOLOGY, AND UTILITIES. Health care and technology are
among the most expensively valued sectors in the market.
--------------------------------------------------------------------------------
Top 10 Equity Holdings % of Fund Assets
--------------------------------------------------------------------------------
Golden State Bancorp 4.87
Perkinelmer Inc. 4.25
Dime Bancorp Inc. 4.01
HSB Group Inc. 3.68
HCC Holdings Inc. 3.51
Newpark Resources Inc. 3.38
Equitable Resources 3.29
Dal-Tile Intl. Inc. 3.16
Nabors Industries 2.82
Advo Inc. 2.78
Total 35.75
--------------------------------------------------------------------------------
FOUR FINANCIAL SERVICE COMPANIES AND THREE ENERGY COMPANIES DOMINATE THE TOP TEN
HOLDINGS. Slightly over one-third of the Fund was invested in these ten
companies at fiscal year end.
<PAGE>
DLB ENTERPRISE III FUND
--------------------------------------------------------------------------------
PERFORMANCE REVIEW
THE FINAL SIX MONTHS OF THE FISCAL YEAR DEMONSTRATED A RETURN TO FAVOR OF VALUE
INVESTING. For the six months ended October 31, 2000, the Fund's performance was
8.5%, edging the 8.4% return of the Russell 2000 Value index and overwhelming
the negative return of -1.1% for the Russell 2000 index.
FOR THE FULL FISCAL YEAR, THE FUND RETURNED 1.2% COMPARED TO 17.3% FOR THE
RUSSELL 2000 VALUE INDEX AND 17.4% FOR THE RUSSELL 2000 INDEX.
OUTLOOK
CLEARLY THE INTERNET BUBBLE HAS BURST AND MANY ONCE HIGH-FLYING TECHNOLOGY
STOCKS ARE COMING BACK DOWN TO EARTH. Investors are refocusing on valuation,
earnings, and business fundamentals. A slowing economy and a return to rational
expectations among investors should bode well for those with a disciplined value
approach to small cap investing.
AS INVESTORS WERE PREVIOUSLY INFORMED, THE DLB ENTERPRISE III FUND WILL
TERMINATE ON DECEMBER 29, 2000.
<PAGE>
DLB ENTERPRISE III FUND
--------------------------------------------------------------------------------
GROWTH OF A
$100,000 INVESTMENT
[CHART APPEARS HERE]
DLB RUSSELL RUSSELL 2000
Date ENTERPRISE III 2000 INDEX VALUE INDEX
$100,000.00 $100,000.00 $100,000.00
31-Jul-95 $100,500.00 $102,200.00 $101,240.00
31-Aug-95 $99,696.00 $104,315.54 $104,246.83
30-Sep-95 $100,792.66 $106,182.79 $105,800.11
31-Oct-95 $98,595.38 $101,436.42 $101,578.68
30-Nov-95 $106,897.11 $105,696.75 $105,611.36
31-Dec-95 $109,270.22 $108,487.14 $108,885.31
31-Jan-96 $111,302.65 $108,367.81 $109,603.95
28-Feb-96 $114,652.86 $111,748.88 $111,324.73
31-Mar-96 $117,702.62 $114,028.56 $113,662.55
30-Apr-96 $119,232.76 $120,129.09 $116,765.54
30-May-96 $121,879.73 $124,862.17 $119,719.71
30-Jun-96 $119,746.83 $119,730.34 $118,307.01
31-Jul-96 $112,118.96 $109,277.88 $112,013.08
31-Aug-96 $116,087.97 $115,626.92 $116,874.45
30-Sep-96 $117,202.41 $120,147.94 $120,065.12
31-Oct-96 $115,983.51 $118,297.66 $121,457.88
30-Nov-96 $122,188.63 $123,171.52 $127,992.31
31-Dec-96 $125,402.19 $126,398.61 $132,152.06
31-Jan-97 $126,380.32 $128,926.59 $134,187.20
28-Feb-97 $127,467.19 $125,806.56 $135,461.98
31-Mar-97 $127,581.91 $119,868.49 $131,831.60
30-Apr-97 $127,581.91 $120,204.13 $133,769.52
31-May-97 $137,711.92 $133,570.82 $144,417.58
30-Jun-97 $146,318.91 $139,301.01 $151,725.11
31-Jul-97 $156,663.66 $145,778.51 $158,097.56
31-Aug-97 $158,731.62 $149,116.84 $160,611.31
30-Sep-96 $164,398.34 $160,032.19 $171,291.97
31-Oct-97 $160,469.22 $153,006.78 $166,632.83
30-Nov-97 $159,923.62 $152,012.23 $168,465.79
31-Dec-97 $166,784.35 $154,672.45 $174,176.78
31-Jan-98 $160,429.86 $152,228.62 $171,024.18
28-Feb-98 $171,130.54 $163,478.32 $181,371.14
31-Mar-98 $177,479.48 $170,213.62 $188,734.81
30-Apr-98 $180,762.85 $171,149.80 $189,659.61
31-May-98 $174,888.06 $161,924.83 $182,945.66
30-Jun-98 $167,490.29 $162,264.87 $181,921.16
31-Jul-98 $159,166.02 $149,121.41 $167,676.74
31-Aug-98 $132,251.05 $120,162.03 $141,418.56
30-Sep-98 $136,840.16 $129,570.72 $149,408.71
31-Oct-98 $144,831.63 $134,857.21 $153,846.15
30-Nov-98 $149,176.58 $141,923.73 $158,015.38
31-Dec-98 $152,383.87 $150,708.80 $162,977.06
31-Jan-99 $148,802.85 $152,713.23 $159,277.48
28-Feb-99 $137,925.36 $140,343.46 $148,398.83
31-Mar-99 $140,876.97 $142,532.82 $147,181.96
30-Apr-99 $151,245.51 $155,303.76 $160,619.67
31-May-99 $161,999.07 $157,571.19 $165,550.69
30-Jun-99 $165,579.25 $164,693.41 $171,543.63
31-Jul-99 $157,200.94 $160,180.81 $167,478.05
31-Aug-99 $147,721.72 $154,254.12 $161,348.35
30-Sep-99 $145,033.18 $154,284.97 $158,121.38
31-Oct-99 $140,029.54 $154,917.54 $154,958.95
30-Nov-99 $141,443.84 $164,166.12 $155,764.74
Dec 1999 $140,071.83 $182,749.72 $160,546.72
Jan 2000 $128,922.11 $179,807.45 $156,356.45
Feb 2000 $118,041.09 $209,493.66 $165,909.83
Mar 2000 $131,639.42 $195,688.03 $166,689.60
Apr 2000 $130,546.81 $183,907.61 $167,673.07
May 2000 $131,773.95 $173,185.80 $165,107.67
Jun 2000 $134,356.72 $188,287.60 $169,928.82
Jul 2000 $137,755.95 $182,224.74 $175,587.45
Aug 2000 $146,599.88 $196,128.48 $183,436.21
Sep 2000 $142,245.86 $190,362.31 $182,390.62
Oct 2000 $141,705.33 $181,872.15 $181,734.02
--------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 10/31/00
--------------------------------------------------------------------------------
6 Months 1 Year 5 Years Annualized
5/1/00- 11/1/99- 11/1/95- Since Inception
10/31/00 10/31/00 10/31/00 7/25/95-
10/31/00
DLB Enterprise III Fund 8.54 1.20 7.51 6.74
Russell 2000 Index -1.11 17.41 12.39 11.77
Russell 2000 Value Index 8.40 17.30 12.33 11.82
--------------------------------------------------------------------------------
DISCLOSURE STATEMENT
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 2000
<PAGE>
DLB ENTERPRISE III
FUND
FINANCIAL STATEMENTS FOR THE YEAR ENDED
OCTOBER 31, 2000 AND THE TEN MONTHS
ENDED OCTOBER 31, 1999
<PAGE>
DLB ENTERPRISE III FUND
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of October 31, 2000 2 - 4
Statement of Assets and Liabilities as of October 31, 2000 5
Statement of Operations for the Yera Ended October 31, 2000 6
Statements of Changes in Net Assets for the Year Ended
October 31, 2000, the Ten Months Ended October 31, 1999, and
the Year Ended December 31, 1998 7
Financial Highlights for the Year Ended October 31, 2000, the
Ten Months Ended October 31, 1999, and for each of the years
in the Four-Year Period Ended December 31, 1998 8
Notes to Financial Statements 9 - 11
<PAGE>
DELOITTE
& TOUCHE
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116-5022
Tel:(617) 437 2000
Fax:(617) 437 2111
www.us.deloitte.com
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") (a series
of The DLB Fund Group) as of October 31, 2000, and the related statement of
operations for the year then ended, the statements of changes in net assets for
the year ended October 31, 2000, the ten months ended October 31, 1999 and the
year ended December 31, 1998, and the financial highlights for the year ended
October 31, 2000, 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 auditing standards generally accepted
in the United States of America. 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, 2000, 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 referred to
above present fairly, in all material respects, the financial position of DLB
Enterprise III Fund at October 31, 2000, the results of its operations for the
year then ended, the changes in its net assets for the year ended October 31,
2000, the ten months ended October 31, 1999 and the year ended December 31,
1998, and the financial highlights for the year ended October 31, 2000, the ten
months ended October 31, 1999 and each of the years in the four-year period
ended December 31, 1998, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
December 8, 2000
--------
Deloitte
Touche
Tohmatsu
--------
<PAGE>
DLB ENTERPRISE III FUND
<TABLE><CAPTION>
PORTFOLIO OF INVESTMENTS
October 31, 2000
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 89.4%
ISSUER SHARES VALUE
AEROSPACE - 4.3%
Perkinelmer, Inc. 12,900 $ 1,541,550
-----------
APPAREL - 2.0%
Unifi, Inc. (*) 82,000 712,375
-----------
AUTO PARTS - 3.1%
Exide Corporation 46,900 471,931
Snap-On Incorporated 25,600 654,400
-----------
1,126,331
-----------
BANKS - 10.3%
Commerce Bancorp, Inc. 8,300 502,669
Dime Bancorp, Inc. 59,500 1,454,031
Golden State Bancorp Inc. 67,600 1,766,050
-----------
3,722,750
-----------
BUILDING SUPPLIES - 5.0%
Commscope, Inc. (*) 25,600 648,000
Dal-Tile International Inc. (*) 92,600 1,145,925
-----------
1,793,925
-----------
CHEMICAL - SPECIALTY - 1.0%
UCAR International Inc. (*) 44,800 369,600
-----------
COAL GAS & Pipe - 2.8%
Nabors Industries, Inc. (*) 20,100 1,023,090
-----------
COMMUNICATION EQUIPMENT - 2.2%
Anadigics, Inc. (*) 18,600 416,175
Cable Design Technologies Corporation (*) 17,250 397,828
-----------
814,003
-----------
DIVERSIFIED - 1.1%
Carlisle Companies Incorporated 9,400 391,275
-----------
ELECTRICAL EQUIPMENT - 5.6%
Belden Inc. 37,100 962,281
Gerber Scientific, Inc. 42,100 336,800
Magnetek, Inc. (*) 67,200 730,800
-----------
2,029,881
-----------
ELECTRICAL POWER - 0.3%
CH Energy Group, Inc. 2,700 106,313
-----------
2
<PAGE>
ISSUER SHARES VALUE
ELECTRONICS & Instruments - 3.2%
Benchmark Electronics, Inc. (*) 19,000 $ 764,750
Robotic Vision Systems, Inc. (*) 73,500 401,957
-----------
1,166,707
-----------
EQUITY INVESTMENT TRUSTS - 3.5%
HCC Insurance Holdings, Inc. 66,900 1,275,281
-----------
FURNITURE & Appliances - 2.0%
Harman International Industries, Incorporated 6,000 288,000
La-Z-Boy Incorporated 28,800 453,600
-----------
741,600
-----------
HOUSEWARES - 1.4%
Rayovac Corporation (*) 34,700 511,825
-----------
INSURANCE COMPANIES - 4.3%
HSB Group, Inc. 33,750 1,335,234
White Mountains Insurance Group, Ltd. 900 236,700
-----------
1,571,934
-----------
MACHINERY & EQUIPMENT - 4.9%
Cuno Incorporated (*) 19,500 494,813
Harsco Corporation 27,600 557,175
Roper Industries, Inc. 20,800 728,000
-----------
1,779,988
-----------
MEDIA - 1.5%
True North Communications Inc. 14,900 561,544
-----------
MEDICAL SUPPLIES AND SERVICE - 0.4%
Respironics, Inc. (*) 8,300 162,888
-----------
METALS & MINING - 2.1%
Martin Marietta Materials, Inc. 19,400 744,960
-----------
MISCELLANEOUS - 2.8%
ADVO, Inc. (*) 27,400 1,008,663
-----------
NATURAL GAS - 3.6%
Energen Corporation 3,500 100,185
Equitable Resources, Inc. 20,600 1,194,800
-----------
1,294,985
-----------
OFFICE SUPPLIES - 0.9%
Herman Miller, Inc. 12,200 318,725
-----------
OIL SERVICES - 5.0%
Newpark Resources, Inc. (*) 136,100 1,224,900
Stolt Comex Seaway S. A. (*) 49,000 584,938
-----------
1,809,838
-----------
3
<PAGE>
ISSUER SHARES VALUE
PAPER & FOREST PRODUCTS - 1.2%
Albany International Corp. (*) 40,065 $ 430,699
-----------
PRINTING & PUBLISHING - 4.8%
ACNielsen Corporation (*) 33,500 801,906
Hollinger International Inc. 8,000 123,500
Penton Media, Inc. 26,200 800,738
-----------
1,726,144
-----------
REAL ESTATE - 2.5%
Prentiss Properties Trust REIT 35,700 905,888
-----------
RESTAURANT AND LODGING - 1.8%
Cec Entertainment, Inc. (*) 20,400 650,250
-----------
RETAIL - SPECIALTY - 2.0%
Enesco Group, Inc. 57,500 388,125
Tupperware Corporation 20,600 352,775
-----------
740,900
-----------
TRANSPORTATION - 1.8%
EGL, Inc. (*) 22,600 644,100
-----------
WHOLESALERS - 2.0%
BJ's Wholesale Club, Inc. (*) 22,100 727,919
-----------
TOTAL COMMON STOCKS
(identified cost, $30,531,840) 32,405,931
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 10.0%
Investors Bank & Trust Repurchase Agreement, 5.69%,
dated 10/31/00, $3,638,581 due on 11/1/00 (secured by
Federal Government Agency securities), at cost $3,638,006 3,638,006
-----------
TOTAL INVESTMENTS (identified cost, $34,169,846) 36,043,937
Other assets, less liabilities - 0.6% 217,050
-----------
NET ASSETS - 100% $36,260,987
===========
</TABLE>
(*) Non-income producing security
See notes to financial statements.
4
<PAGE>
DLB ENTERPRISE III FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2000
------------------------------------------------------------------------------
ASSETS:
Investments, at value (identified cost, $34,169,846) $ 36,043,937
Receivable for investments sold 239,341
Receivable for fund shares sold 9,647
Dividends and interest receivable 11,261
------------
36,304,186
------------
LIABILITIES:
Payable for fund shares reacquired 2,508
Accrued management fee 17,824
Accrued expenses 37,567
------------
57,899
------------
NET ASSETS $ 36,246,287
============
NET ASSETS CONSIST OF:
Paid-in capital $ 40,332,751
Unrealized appreciation of investments 1,874,091
Accumulated net realized loss on investment
transactions (6,207,969)
Accumulated undistributed net investment income 247,414
------------
Total $ 36,246,287
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 3,480,060
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 10.42
============
See notes to financial statements.
5
<PAGE>
DLB ENTERPRISE III FUND
<TABLE><CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2000
----------------------------------------------------------------------------------
<S> <C>
NET INVESTMENT INCOME:
Dividends $ 474,502
Interest 140,728
-----------
615,230
-----------
EXPENSES:
Management fee 207,673
Trustees' fees 8,253
Custodian fees 57,579
Accounting and audit fees 29,646
Registration fees 24,608
Legal fees 15,361
Transfer agent fee 8,330
Miscellaneous 4,417
-----------
355,867
Reduction of expenses by investment manager (44,358)
-----------
Net expenses 311,509
-----------
Net investment income 303,721
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized loss (identified cost basis) (6,161,328)
Change in unrealized appreciation 6,200,911
-----------
Net realized and unrealized gain on investments 39,583
-----------
Increase in net assets from operations $ 343,304
===========
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB ENTERPRISE III FUND
<TABLE><CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------------------
Year Ten Months Year Ended
Ended Ended December 31,
October 31, 2000 October 31, 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 303,721 $ 204,015 $ 222,522
Net realized gain (loss) on investments (6,161,328) 1,556,752 2,187,410
Net unrealized appreciation (depreciation)
of investments 6,200,911 (3,928,866) (5,034,660)
------------ ------------ ------------
343,304 (2,168,099) (2,624,728)
------------ ------------ ------------
Distributions to shareholders:
From net investment income (260,208) (2,565) (223,867)
From net realized gain on investments (1,556,753) (12,380) (2,175,064)
In excess of net realized gain on investments (46,755) -- --
------------ ------------ ------------
(1,863,716) (14,945) (2,398,931)
------------ ------------ ------------
Fund share transactions:
Net proceeds from sales of shares 14,132,300 15,739,311 9,402,929
Net asset value of shares issued in
reinvestment of distributions 1,863,716 14,945 2,398,931
Cost of shares reacquired (10,826,666) (10,899,305) (4,195,749)
------------ ------------ ------------
5,169,350 4,854,951 7,606,111
------------ ------------ ------------
Total increase in net assets 3,648,938 2,671,907 2,582,452
NET ASSETS:
At beginning of period 32,612,049 29,940,142 27,357,690
------------ ------------ ------------
At end of period (including accumulated
undistributed net investment income of
$247,414, $204,015, and $2,565, respectively) $ 36,260,987 $ 32,612,049 $ 29,940,142
============ ============ ============
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB ENTERPRISE III FUND
<TABLE><CAPTION>
FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------------------------------------------------------
Year Ten Months
Ended Ended Years Ended December 31, Period Ended
October 31, October 31, -------------------------------- December 31,
2000 1999 1998 1997 1996 1995**
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $10.93 $11.90 $14.19 $11.51 $10.75 $10.00
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income .09 .07 .10 .08 .15 .08
Net realized and unrealized gain (loss) on .02 (1.04) (1.36) 3.72 1.44 .84
investments
------ ------ ------ ------ ------ ------
.11 (.97) (1.26) 3.80 1.59 .92
------ ------ ------ ------ ------ ------
Less distributions to shareholders:
From net investment income(1)(2) (.09) - (.10) (.08) (.15) (.08)
From net realized gain on investments(1)(2) (.51) - (.93) (1.04) (.68) (.09)
In excess of realized gain on investments(1) (.02) - - - - -
------ ------ ------ ------ ------ ------
(.62) - (1.03) (1.12) (.83) (.17)
------ ------ ------ ------ ------ ------
Net asset value- end of period $10.42 $10.93 $11.90 $14.19 $11.51 $10.75
====== ====== ====== ====== ====== ======
Total Return 1.20% (8.11%) (8.63%) 32.95% 14.75% 21.17%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets .90% .90%* .76% .90% .90% .90%*
Ratio of net investment income to
average net assets .88% .71%* .77% .78% 1.28% 1.90%*
Portfolio turnover 55% 48% 28% 32% 25% 6%
Net assets at end of period (000 omitted) $36,261 $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 $ .08 $ .06 $ .06 $ .04 $ .05 $ .01
Ratios (to average net assets):
Expenses 1.03% 1.00%* 1.02% 1.33% 1.77% 2.50%*
Net investment income .75% .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") is a non-diversified series of The DLB
Fund Group (the "Trust"), a Massachusetts business trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices
are not available are valued at last quoted bid prices. Securities for
which there are no such quotations or valuations are valued at fair value
as determined in good faith by or at the direction of the Trustees.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value.
REPURCHASE AGREEMENTS - Securities purchased under agreements to resell to
the original owner are recorded at cost. The Fund may enter into such
agreements with institutions that the Fund's investment adviser has
determined to be creditworthy. The Fund requires that the securities
collateral in a repurchase agreement 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 ensure 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 gain 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. During the year ended October 31, 2000, $114 was reclassified from
accumulated net realized loss on investment transactions to accumulated
undistributed net investment income due to differences between book and tax
accounting. 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 accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the amounts reported in the financial statements. Actual results could
differ from such estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Company 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 year
ended October 31, 2000, the management fee amounted to $207,673. 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
year ended October 31, 2000, $44,358 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 year ended October 31, 2000 aggregated $19,558,971 and $17,536159,
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 $ 34,211,380
============
Gross unrealized appreciation $ 6,158,666
Gross unrealized depreciation (4,326,109)
------------
Net unrealized appreciation $ 1,832,557
============
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:
Year Ten Months Year
Ended Ended Ended
October 31, October 31, December 31,
2000 1999 1998
---------- --------- --------
Shares sold 1,416,973 1,355,408 701,642
Shares issued in reinvestment
of distributions 187,309 1,208 208,181
Redemptions (1,109,284) (888,231) (321,680)
---------- --------- --------
Net increase 494,998 468,385 588,143
========== ========= ========
11
<PAGE>
DLB
THE DLB DISCIPLINED GROWTH FUND
ANNUAL REPORT
OCTOBER 31, 2000
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB DISCIPLINED GROWTH FUND
--------------------------------------------------------------------------------
FUND INVESTMENT OBJECTIVE
THE DLB DISCIPLINED GROWTH FUND'S investment objective through December 18, 2000
was to seek long-term capital appreciation.
MARKET OVERVIEW
THE SECOND HALF OF THE FISCAL YEAR ENDED OCTOBER 31, 2000 SHARPLY CONTRASTED
WITH THE FIRST HALF. Major market themes such as the continued outperformance of
growth stocks and a runaway market in technology stocks were completely
reversed, with value stocks taking a strong lead in all capitalization ranges,
and the tech-laden NASDAQ dropping more than 33% from its March 10th high of
5048.62. The volatility that was witnessed in the first half continued
throughout the second, but it came in the form of downside returns for most
broad market indicators.
IN ADDITION TO DOMINANT VALUE STOCK PERFORMANCE ON THE STYLE FRONT, LEAD BY
SMALL CAP VALUE, MID-CAP STOCKS DOMINATED ON THE CAPITALIZATION FRONT. Many
large cap portfolios with mid-cap exposure experienced an added advantage versus
the competition, all else being equal. Similarly, core portfolios with a value
bias were likely advantaged over peers with a growth bias. While most value
benchmarks had only single digit positive returns in October, all growth and
core benchmarks experienced negative absolute performance. These trends are very
different from the first half of the year, when larger capitalization stocks and
growth stocks in all cap ranges were the strongest asset classes.
THE BIPOLAR TREND THAT PREVAILED IN THE FIRST HALF OF THE YEAR WITH "NEW
ECONOMY" STOCKS LEADING THE BROAD MARKETS HIGHER AND "OLD ECONOMY" STOCKS
UNDERPERFORMING ALSO SHIFTED. "Old Economy" stocks, in the second half, in
sectors such as Producer Durables, Utilities and Materials and Processing
outshone "New Economy" names in the Communications, Healthcare and Internet
related industries. As a majority of the "New Economy" names are also
categorized as growth stocks, this makes sense.
VOLATILITY RESULTING IN NEGATIVE INDEX RETURNS ALSO BECAME EXTREME. The NASDAQ,
Dow and S&P 500 all experienced negative performance for the half, with the
NASDAQ continuing to be affected most by negative fluctuations. The Index closed
down -14.26% over the second half of the fiscal year. The downward momentum was
marked by a consistent downward trend mixed with large gains. Of the eight
<PAGE>
DLB DISCIPLINED GROWTH FUND
--------------------------------------------------------------------------------
MARKET OVERVIEW
(CONT.)
daily movements of 5% or more, only two were negative. The positive gains of
more than 5% all came in separate weeks and were all given back.
PERIODS OF POSITIVE MARKET RETURNS IN THE LAST FEW WEEKS WERE IN LARGE PART
DRIVEN BY A GROWING BELIEF THAT THE FEDERAL RESERVE MAY LOWER RATES IN THE FIRST
QUARTER OF 2001. Sentiment in the first half of the fiscal year that the Fed
would stand pat on the past tightening interest rate moves has, in effect, been
replaced with hope for a Fed easing.
CLARITY IN THE U.S. PRESIDENTIAL RACE, IN THE LAST FEW WEEKS, HAS ALSO PROVIDED
A PLATFORM FOR MARKET GAINS. A final resolution in the first half of the next
fiscal year, should give markets one less obstacle to overcome.
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 should tend to
get the largest investment returns as the market revalues the stock to a
"fairer" market value. The Fund uses this strategy to build a diversified
portfolio that is sensitive to its benchmark, the Russell 1000 Growth Index, by
using quantitative stock selection techniques and a disciplined portfolio
construction process.
OVER THE PAST YEAR, ADDITIONAL STOCK PICKING MODELS HAVE BEEN ADDED TO THE
FUND'S MIX INCLUDING, AMONG OTHERS, MEASURES OF RELATIVE PRICE MOMENTUM,
EARNINGS QUALITY AND STABILITY. Each of these models provides complementary
information to the original models of earnings estimates revisions and
valuation. The new combination of models seeks to provide additional strength
and stability of returns to our process.
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
--------------------------------------------------------------------------------
Intel Corporation 6.43
Cisco Systems Inc. 6.38
General Electric 6.23
Pfizer 5.83
Merck & Co. Inc. 5.41
Intuit 4.59
Oracle Systems 4.47
Talbots Inc. 3.67
Sun Microsystems 3.50
Adobe Systems 2.90
Total 49.41
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Sector Russell 1000
Diversification (%) Portfolio Growth Difference
--------------------------------------------------------------------------------
Technology 43.3 49.6 -6.3
Healthcare 21.5 17.2 +4.3
Consumer Discretionary 11.6 11.6 0
Consumer Staples 0 3.5 -3.5
Energy 4.0 1.8 +2.2
Materials & Processing 0 0.1 -.01
Producer Durables 5.1 2.1 +3.0
Autos & Transportation 0 0.4 -0.4
Financial Services 4.5 3.2 +1.3
Utilities 1.2 2.7 -1.5
Other 8.8 7.8 +1.0
--------------------------------------------------------------------------------
PERFORMANCE REVIEW
THE FUND LAGGED ITS BENCHMARK FOR THE SIX-MONTHS ENDED 10/31/00, DECLINING 8.6%
VERSUS THE BENCHMARK, THE RUSSELL 1000 GROWTH INDEX DECLINE OF 7.9%. For the
fiscal year ended October 31, 2000 the Fund was strong relative to its
benchmark. The Fund returned 12.8% for the one-year period ended October 31,
2000 and its benchmark, the Russell 1000 Growth Index returned 9.3%. The undoing
of the Internet bubble, a bubble that this Fund has not subscribed to and in
prior years has suffered from, has had repercussions across anything related to
technology. Our stance has been to lean into the strong "value-oriented" names
with positive catalysts and this has been a strong part of our relative
outperformance this year. Our
<PAGE>
DLB DISCIPLINED GROWTH FUND
--------------------------------------------------------------------------------
PERFORMANCE REVIEW
(CONT.)
exposure to semi-conductors (manufacturers and equipment sellers) hurt the Fund,
particularly in September as the strong demand for chips and their products were
demonstrating a less-than-spectacular growth rate - the price for failing to be
perfect was a greater than 50% hit to these stocks.
SUBSEQUENT EVENTS
ON DECEMBER 19, 2000, THE DLB DISCIPLINED GROWTH FUND WAS RENAMED THE DLB
ENHANCED INDEX CORE EQUITY FUND.
THE NEW INVESTMENT OBJECTIVE OF THE DISCIPLINED GROWTH FUND IS TO OUTPERFORM THE
TOTAL RETURN PERFORMANCE OF ITS BENCHMARK INDEX, the S&P 500 Index, while
maintaining risk characteristics similar to those of the benchmark. Changes to
the Fund's principal investment strategies which were also effective on December
19, 2000 are described in the Fund's current prospectus.
<PAGE>
DLB DISCIPLINED GROWTH FUND
--------------------------------------------------------------------------------
GROWTH OF A
$100,000 INVESTMENT
[CHART APPEARS HERE]
DLB
DISCIPLINED RUSSELL
DATE GROWTH 1000 GROWTH
$100,000.00 $100,000.00
Aug-96 $98,500.00 $100,240.00
30-Sep-96 $106,399.70 $107,537.47
31-Oct-96 $110,102.41 $108,182.70
30-Nov-96 $120,099.71 $116,307.22
31-Dec-96 $118,502.38 $114,027.60
31-Jan-97 $127,449.31 $122,020.93
28-Feb-97 $128,163.03 $121,191.19
31-Mar-97 $123,382.55 $114,634.74
30-Apr-97 $131,920.62 $122,246.49
31-May-97 $139,849.05 $131,072.69
30-Jun-97 $144,631.89 $136,315.60
31-Jul-97 $160,281.06 $148,365.89
31-Aug-97 $154,382.71 $139,686.49
30-Sep-96 $164,510.22 $146,559.07
31-Oct-97 $153,553.84 $141,136.38
30-Nov-97 $159,189.26 $147,134.68
31-Dec-97 $156,674.07 $148,782.58
31-Jan-98 $160,982.61 $153,231.18
28-Feb-98 $175,310.06 $164,754.17
31-Mar-98 $180,586.90 $171,327.86
30-Apr-98 $181,237.01 $173,692.18
31-May-98 $178,445.96 $168,759.33
30-Jun-98 $188,885.05 $179,087.40
31-Jul-98 $182,368.51 $177,905.42
31-Aug-98 $151,128.79 $151,201.82
30-Sep-98 $159,093.27 $162,814.12
31-Oct-98 $169,322.97 $175,904.37
30-Nov-98 $184,832.96 $189,290.69
31-Dec-98 $196,958.00 $206,364.71
31-Jan-99 $205,013.58 $218,478.32
28-Feb-99 $193,614.83 $208,493.86
31-Mar-99 $198,319.67 $219,481.49
30-Apr-99 $204,150.26 $219,766.82
31-May-99 $207,008.37 $213,019.98
30-Jun-99 $219,656.58 $227,931.37
31-Jul-99 $214,384.82 $220,683.16
31-Aug-99 $214,256.19 $224,280.29
30-Sep-99 $208,064.19 $219,570.41
31-Oct-99 $213,889.98 $236,147.97
30-Nov-99 $216,627.78 $248,899.96
Dec 1999 $239,005.42 $274,785.56
Jan 2000 $226,362.04 $261,898.11
Feb 2000 $237,068.96 $274,704.93
Mar 2000 $265,019.39 $294,373.81
Apr 2000 $264,197.83 $280,361.61
May 2000 $254,475.35 $266,231.39
Jun 2000 $260,862.68 $286,411.73
Jul 2000 $245,993.51 $274,468.36
Aug 2000 $281,588.77 $299,307.74
Sep 2000 $244,334.58 $270,993.23
Oct 2000 $241,402.56 $258,175.25
--------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 10/31/00
--------------------------------------------------------------------------------
6 Months 1 Year Annualized
5/1/00- 11/1/99- Since Inception
10/31/00 10/31/00 8/26/96-
10/31/00
DLB Disciplined Growth Fund -8.63 12.84 23.05
Russell 1000 Growth Index -7.91 9.33 24.45
--------------------------------------------------------------------------------
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 2000
<PAGE>
DLB DISCIPLINED
GROWTH FUND
FINANCIAL STATEMENTS FOR THE YEAR ENDED
OCTOBER 31, 2000 AND THE TEN MONTHS
ENDED OCTOBER 31, 1999
<PAGE>
DLB DISCIPLINED GROWTH FUND
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of October 31, 2000 2 - 4
Statement of Assets and Liabilities as of October 31, 2000 5
Statement of Operations for the Year Ended October 31, 2000 6
Statements of Changes in Net Assets for the Year Ended
October 31, 2000, the Ten Months Ended October 31, 1999, and
the Year Ended December 31, 1998 7
Financial Highlights for the Year Ended October 31, 2000, the
Ten Months Ended October 31, 1999, and for each of the years
in the Three-Year Period Ended December 31, 1998 8
Notes to Financial Statements 9 - 11
<PAGE>
DELOITTE
& TOUCHE
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116-5022
Tel:(617) 437 2000
Fax:(617) 437 2111
www.us.deloitte.com
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") (a
series of The DLB Fund Group) as of October 31, 2000, and the related statement
of operations for the year then ended, the statements of changes in net assets
for the year ended October 31, 2000, the ten months ended October 31, 1999 and
the year ended December 31, 1998, and the financial highlights for the year
ended October 31, 2000, 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 auditing standards generally accepted
in the United States of America. 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, 2000, 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 referred to
above present fairly, in all material respects, the financial position of DLB
Disciplined Growth Fund at October 31, 2000, the results of its operations for
the year then ended, the changes in its net assets for the year ended October
31, 2000, the ten months ended October 31, 1999 and the year ended December 31,
1998, and the financial highlights for the year ended October 31, 2000, the ten
months ended October 31, 1999 and each of the years in the three-year period
ended December 31, 1998, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
December 8, 2000
--------
Deloitte
Touche
Tohmatsu
--------
<PAGE>
DLB DISCIPLINED GROWTH FUND
<TABLE><CAPTION>
PORTFOLIO OF INVESTMENTS
October 31, 2000
--------------------------------------------------------------------------------------------------------
COMMON STOCKS - 99.7%
ISSUER SHARES VALUE
<S> <C> <C>
APPAREL & TEXTILE - 2.8%
Liz Claiborne, Inc. 31,600 $ 1,343,000
-----------
CHEMICALS - 1.3%
FMC Corporation (*) 8,300 630,800
-----------
COMMUNICATION SERVICES - 1.6%
Sprint Corporation (*) 20,400 777,750
-----------
COMPUTER RELATED - 9.9%
Cisco Systems, Inc. (*) 57,700 3,108,588
Sun Microsystems, Inc. (*) 15,400 1,707,475
-----------
4,816,063
-----------
COMPUTER SERVICES - 0.3%
Checkfree Corporation (*) 3,100 154,225
-----------
COMPUTER SOFTWARE - 13.1%
Adobe Systems Incorporated 18,600 1,414,763
Intuit Inc. (*) 36,400 2,236,325
Microsoft Corp (*) 8,200 564,775
Oracle Corporation 66,000 2,178,000
-----------
6,393,863
-----------
COAL, GAS & PIPE - 1.8%
The Coastal Corporation 7,300 550,694
Valero Energy Corporation 10,100 333,931
-----------
884,625
-----------
DIVERSIFIED - 1.5%
Loews Cineplex Entertainment Corporation 8,000 727,500
-----------
DRUGS - 15.9%
Biogen, Inc. 300 18,056
Genzyme Corporation (*) 12,400 880,400
King Pharmaceuticals, Inc. 30,100 1,348,856
Merck & Co., Inc. (*) 29,300 2,635,169
Pfizer Inc. 65,725 2,838,498
-----------
7,720,979
-----------
2
<PAGE>
ISSUER SHARES VALUE
ELECTRICAL EQUIPMENT - 6.3%
General Electric Company 55,400 $3,036,613
-----------
ELECTRIC POWER - 2.6%
KEMET Corporation (*) 46,100 1,285,038
-----------
ELECTRONICS & INSTRUMENTS - 16.0%
Amphenol Corporation (*) 19,900 1,278,575
Analog Devices, Inc. (*) 17,100 1,111,500
Applied Materials, Inc. (*) 17,400 924,375
Arrow Electronics, Inc. (*) 19,400 620,800
Avnet, Inc. 24,600 661,125
Cypress Semiconductor Corporation (*) 35,000 1,310,313
KLA-Tencor Corporation (*) 18,600 628,913
Vishay Intertechnology, Inc. (*) 41,200 1,236,000
-----------
7,771,601
-----------
EXPLORATIONS AND DRILLING - 0.6%
Marine Drilling Companies, Inc. (*) 12,800 305,600
-----------
FINANCIAL SERVICES - 1.0%
Lehman Brothers Holdings Inc. 5,000 322,500
The PMI Group, Inc. 2,200 162,525
-----------
485,025
-----------
MEDICAL SUPPLIES & SERVICES - 1.0%
Hillenbrand Industries, Inc. 3,800 175,750
Oxford Health Plans, Inc. (*) 9,400 317,250
-----------
493,000
-----------
OIL SERVICES - 1.0%
BJ Services Company (*) 9,200 482,425
-----------
PRINTING AND PUBLISHING - 1.1%
Dow Jones & Company, Inc. 8,900 523,984
-----------
PROFESSIONAL SERVICES - 0.5%
Robert Half International Inc. (*) 8,100 247,050
-----------
RESTAURANT & LODGING - 1.7%
Brinker International, Inc. 21,200 832,100
-----------
RETAIL - GENERAL - 3.7%
The Talbots Inc. 22,600 1,786,813
-----------
RETAIL - SPECIALTY - 2.8%
Tiffany & Co. 32,300 1,378,806
-----------
<PAGE>
ISSUER SHARES VALUE
SEMICONDUCTORS - 13.2%
Advanced Micro Devices, Inc. (*) 30,200 $ 683,275
Integrated Device Technology, Inc. (*) 23,000 1,295,188
Intel Corporation 69,600 3,132,000
Novellus Systems, Inc. (*) 32,400 1,326,375
-----------
6,436,838
-----------
TOTAL COMMON STOCKS
(identified cost, $45,428,534) 48,513,698
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 0.4%
Investors Bank & Trust Repurchase Agreement, 5.69%,
dated 10/31/00, $199,262 due on 11/1/00 (secured by
Federal Government Agency securities), at cost $ 199,231 199,231
-----------
TOTAL INVESTMENTS (identified cost, $45,627,765) 48,712,929
Other assets, less liabilities - (0.1%) (51,302)
-----------
NET ASSETS - 100% $48,661,627
===========
</TABLE>
(*) Non-income producing security
See notes to financial statements.
4
<PAGE>
DLB DISCIPLINED GROWTH FUND
<TABLE><CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2000
-----------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $45,627,765) $48,712,929
Receivable for investments sold 3,437,331
Receivable for fund shares sold 13,587
Dividends and interest receivable 5,174
Receivable from investment manager 3,770
-----------
52,172,791
-----------
LIABILITIES:
Payable for investments purchased 3,434,987
Payable for fund shares reacquired 8,212
Accrued management fees 29,955
Accrued expenses 38,010
-----------
3,511,164
-----------
NET ASSETS $48,661,627
===========
NET ASSETS CONSIST OF:
Paid-in capital $37,419,032
Unrealized appreciation of investments 3,085,164
Accumulated undistributed net realized gain on investment transactions 8,157,431
-----------
Total $48,661,627
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,803,714
===========
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 17.36
===========
</TABLE>
See notes to financial statements.
5
<PAGE>
DLB DISCIPLINED GROWTH FUND
<TABLE><CAPTION>
STATEMENT OF OPERATIONS
Year Ended October 31, 2000
----------------------------------------------------------------------------------
<S> <C>
NET INVESTMENT INCOME:
Dividends $ 248,423
Interest 22,524
-----------
270,947
-----------
EXPENSES:
Management fee 365,004
Trustees' fees 7,085
Custodian fees 59,247
Accounting and audit fees 29,646
Registration fees 24,154
Legal fees 14,587
Transfer agent fee 8,982
Miscellaneous 4,381
-----------
513,086
Reduction of expenses by investment manager (75,082)
-----------
Net expenses 438,004
-----------
Net investment loss (167,057)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (identified cost basis) 8,334,264
Change in unrealized appreciation (2,992,890)
-----------
Net realized and unrealized gain on investments 5,341,374
-----------
Increase in net assets from operations $ 5,174,317
===========
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB DISCIPLINED GROWTH FUND
<TABLE><CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
---------------------------------------------------------------------------------------------------------
Year Ten Months Year
Ended Ended Ended
October 31, 2000 October 31, 1999 December 31, 1998
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (167,057) $ (65,839) $ 22,336
Net realized gain on investments 8,334,264 5,080,337 4,595,904
Net unrealized appreciation (depreciation)
on investments (2,992,890) (1,765,520) 2,342,094
------------ ------------ ------------
5,174,317 3,248,978 6,960,334
------------ ------------ ------------
Distributions to shareholders:
From net investment income -- (2,240) (27,930)
From net realized gain on investments (5,011,166) (9,521) (4,590,140)
------------ ------------ ------------
(5,011,166) (11,761) (4,618,070)
------------ ------------ ------------
Fund share transactions:
Net proceeds from sales of shares 5,894,267 4,425,941 3,940,252
Net asset value of shares issued in
reinvestment of distributions 4,983,828 11,698 4,586,644
Cost of shares reacquired (4,062,870) (1,299,361) (630,887)
------------ ------------ ------------
6,815,225 3,138,278 7,896,009
------------ ------------ ------------
Total increase in net assets 6,978,376 6,375,495 10,238,273
NET ASSETS:
At beginning of period 41,683,251 35,307,756 25,069,483
------------ ------------ ------------
At end of period (including accumulated
undistributed net investment income of
$2,240 in 1998) $ 48,661,627 $ 41,683,251 $ 35,307,756
============ ============ ============
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB DISCIPLINED GROWTH FUND
<TABLE><CAPTION>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------------------------------------------------------
Year Ten Months
Ended Ended Years Ended December 31, Period Ended
October 31, October 31, ---------------------- December 31,
2000 1999 1998 1997 1996 **
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $ 17.25 $ 15.89 $ 14.55 $ 11.66 $ 10.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (.06) (.03) .01 .03 .01
Net realized and unrealized gain on investments 2.25 1.39 3.72 3.73 1.84
------- ------- ------- ------- -------
2.19 1.36 3.73 3.76 1.85
------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (1) -- -- (.01) (.03) (.01)
From net realized gain on investments (1) (2.08) -- (2.38) (.83) (.18)
In excess of net realized gain on investment -- -- -- (.01) --
------- ------- ------- ------- -------
(2.08) -- (2.39) (.87) (.19)
------- ------- ------- ------- -------
Net asset value- end of period $ 17.36 $ 17.25 $ 15.89 $ 14.55 $ 11.66
======= ======= ======= ======= =======
Total Return 12.84% 8.60% 25.71% 32.23% 18.51%
Ratios and Supplemental Data:
Ratio of expenses to average net assets .90% .90%* .90% .90% .90%*
Ratio of net investment income (loss) to average
net assets (.35%) (.20%)* .08% .23% .43%*
Portfolio turnover 144% 97% 81% 46% 10%
Net assets at end of period (000 omitted) $48,662 $41,683 $35,308 $25,069 $13,897
The investment 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 $ (.09) $ (.06) $ (.02) $ (.06) $ (.01)
Ratios (to average net assets):
Expenses 1.05% 1.09%* 1.14% 1.55% 1.82%*
Net investment loss (.50%) (.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 net realized gain 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 DISCIPLINED GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Disciplined Growth Fund (the "Fund") is a non-diversified series of The
DLB Fund Group (the "Trust"), a Massachusetts business trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices
are not available are valued at last quoted bid prices. Securities for
which there are no such quotations or valuations are valued at fair value
as determined in good faith by or at the direction of the Trustees.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value.
REPURCHASE AGREEMENTS - Securities purchased under agreements to resell to
the original owner are recorded at cost. The Fund may enter into such
agreements with institutions that the Fund's investment adviser has
determined to be creditworthy. The Fund requires that the securities
collateral in a repurchase transaction 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 ensure 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 gain 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. During the year ended October 31, 2000, $167,057 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 accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the amounts reported in the financial statements. Actual results could
differ from such estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Company 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 year
ended October 31, 2000, the management fee amounted to $365,004. 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
year ended October 31, 2000, $75,082 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 year ended October 31, 2000 aggregated $70,712,509 and $68,987,183,
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 $ 45,634,763
=============
Gross unrealized appreciation $ 6,351,386
Gross unrealized depreciation (3,273,220)
-------------
Net unrealized appreciation $ 3,078,166
=============
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:
Year Ten Months Year
Ended Ended Ended
October 31, October 31, December 31,
2000 1999 1998
-------- ------- -------
Shares sold 320,572 270,747 249,348
Shares issued in reinvestment
of distributions 290,603 660 290,618
Redemptions (223,889) (77,526) (40,944)
-------- ------- -------
Net increase 387,286 193,881 499,022
======== ======= =======
11
<PAGE>
DLB
THE DLB VALUE FUND
ANNUAL REPORT
OCTOBER 31, 2000
[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 SECOND HALF OF THE FISCAL YEAR ENDED OCTOBER 31, 2000 SHARPLY CONTRASTED
WITH THE FIRST HALF. Major market themes such as the continued outperformance of
growth stocks and a runaway market in technology stocks were completely
reversed, with value stocks taking a strong lead in all capitalization ranges,
and the tech-laden NASDAQ dropping more than 33% from its March 10th high of
5048.62. The volatility that was witnessed in the first half continued
throughout the second, but it came in the form of downside returns for most
broad market indicators.
IN ADDITION TO DOMINANT VALUE STOCK PERFORMANCE ON THE STYLE FRONT, LEAD BY
SMALL CAP VALUE, MID-CAP STOCKS DOMINATED ON THE CAPITALIZATION FRONT. Many
large cap portfolios with mid-cap exposure experienced an added advantage versus
the competition, all else being equal. Similarly, core portfolios with a value
bias were likely advantaged over peers with a growth bias. While most value
benchmarks had only single digit positive returns in October, all growth and
core benchmarks experienced negative absolute performance. These trends are very
different from the first half of the year, when larger capitalization stocks and
growth stocks in all cap ranges were the strongest asset classes.
THE BIPOLAR TREND THAT PREVAILED IN THE FIRST HALF OF THE YEAR WITH "NEW
ECONOMY" STOCKS LEADING THE BROAD MARKETS HIGHER AND "OLD ECONOMY" STOCKS
UNDERPERFORMING ALSO SHIFTED. "Old Economy" stocks, in the second half, in
sectors such as Producer Durables, Utilities and Materials and Processing
outshone "New Economy" names in the Communications, Healthcare and Internet
related industries. As a majority of the "New Economy" names are also
categorized as growth stocks, this makes sense.
VOLATILITY RESULTING IN NEGATIVE INDEX RETURNS ALSO BECAME EXTREME. The NASDAQ,
Dow and S&P 500 all experienced negative performance for the half, with the
NASDAQ continuing to be affected most by negative fluctuations. The Index closed
down -14.26% over the second half of the fiscal year. The downward momentum was
marked by a consistent downward trend mixed with large gains. Of the eight
<PAGE>
DLB VALUE FUND
--------------------------------------------------------------------------------
MARKET OVERVIEW
(CONT.)
daily movements of 5% or more, only two were negative. The positive gains of
more than 5% all came in separate weeks and were all given back.
PERIODS OF POSITIVE MARKET RETURNS IN THE LAST FEW WEEKS WERE IN LARGE PART
DRIVEN BY A GROWING BELIEF THAT THE FEDERAL RESERVE MAY LOWER RATES IN THE FIRST
QUARTER OF 2001. Sentiment in the first half of the fiscal year that the Fed
would stand pat on the past tightening interest rate moves has, in effect, been
replaced with hope for a Fed easing.
CLARITY IN THE U.S. PRESIDENTIAL RACE, IN THE LAST FEW WEEKS, HAS ALSO PROVIDED
A PLATFORM FOR MARKET GAINS. A final resolution in the first half of the next
fiscal year, should give markets one less obstacle to overcome.
PORTFOLIO STRATEGY REVIEW
WE CONCLUDED OUR MID-YEAR REPORT BY NOTING THAT WE HAVE STAYED TRUE TO OUR
DISCIPLINE AND CONTINUE TO BELIEVE THAT WHEN THE SCHIZOPHRENIC MARKET BEGINS TO
EVIDENCE SIGNS OF NORMALCY THE STOCKS IN THE FUND'S PORTFOLIO WILL BENEFIT AS
THEIR VALUES ARE RECOGNIZED BY A BROADER RANGE OF INVESTORS. We have seen signs
of this return to value in the second half of the Fund's fiscal year ending
October 31, 2000, and we are hopeful that our recent recovery in performance
will persist for an extended period of time.
TO BORROW AND REWRITE A PHRASE FROM CHARLES DICKENS, THE FISCAL YEAR ENDING
OCTOBER 31, 2000 WAS A TALE OF TWO MARKETS. On the one hand the first half was
epitomized by the runaway market for technology stocks in the 4th quarter of
1999. Indeed, technology stocks led many broad market and growth benchmarks to
all-time highs on the last day of the millennium. Growth stocks continued to
dominate generally until March, 2000, as the NASDAQ reached an all-time high of
5048.62 on March 10. Value stocks and value indices lagged significantly during
this period.
HOWEVER, A DISTINCT TURNAROUND FROM GROWTH TO VALUE BEGAN AROUND THE MIDDLE OF
MARCH. It became clear that large capitalization growth stocks had unarguably
fallen out of favor in the March-April time frame. This disparity between a
faltering growth stock market and a resurgent value stock market continued into
May, when value benchmarks produced positive
<PAGE>
DLB VALUE FUND
--------------------------------------------------------------------------------
PORTFOLIO STRATEGY REVIEW
(CONT.)
returns and growth benchmarks continued to slip with another month of negative
returns. More importantly, in May the DLB Value portfolio produced superior
returns of 3.17% versus that of the Russell 1000 Value Index at 1.05%, the S&P
500 Index at -2.05, and the S&P Barra Value Index at 0.31% for the third
consecutive month. By the end of May the Fund had regained most of the ground it
had lost in the overheated growth market that characterized the first two months
of the new millennium.
JUNE PROVED TO BE A SOBERING MONTH FOR VALUE INVESTORS AS GROWTH STOCKS
REBOUNDED SHARPLY, BUT VALUE RETURNED TO FAVOR AND OUTPERFORMED GROWTH IN THE
3RD QUARTER. It was a hard-earned victory for value during the summer, when a
roller coaster market provided anything but a smooth ride for either value or
growth investors. The blame for most of the uncertainty that roiled the markets
in the 3rd quarter can be placed primarily on technology companies and their
announcements or "pre-announcements" of disappointing earnings. Headlines in the
Wall Street Journal included: "Warnings on Earnings Hurt Tech Stocks; NASDAQ
Falls 3.23%" (July 6) and "NASDAQ Profit Warnings Hit Tech Stocks" (July 28).
Additionally, announcements from "old economy" companies signaled a slowing
economy. Higher oil prices, a weak Euro, inflation fears, and uncertainty
regarding the presidential election also contributed to market volatility.
THE DLB VALUE FUND'S VALUATION CHARACTERISTICS CONTINUE TO BE EXTREMELY
ATTRACTIVE. As of October 31, 2000, the average price/earnings ratio based on
estimated earnings for 2001 for the companies in the Fund is only 14.9 times,
compared to 24.8 times for the S&P 500 and 18.4 times for the Russell 1000 Value
Index. The average price-to-book is 2.1, compared to 5.1 and 3.3 for the S&P 500
and Russell 1000 Value indices respectively. Also the Fund's current gross yield
of 2.4% continues to be higher than the corresponding figure for the market of
1.1%.
THE FUND'S TOP TEN HOLDINGS AND SECTOR WEIGHTINGS CAN BE FOUND ON THE FOLLOWING
PAGE:
<PAGE>
DLB VALUE FUND
--------------------------------------------------------------------------------
PORTFOLIO STRATEGY REVIEW
(CONT.)
--------------------------------------------------------------------------------
Top 10 Equity Holdings % of Fund Assets
--------------------------------------------------------------------------------
Raytheon Co. 3.6
Allstate Corp. 3.6
United Health Group 3.4
Boeing 3.4
Limited Inc. 3.1
Duke Energy Corporation 3.0
Berkshire Hathaway 3.0
Fortune Brands 2.9
USA Education Inc. 2.8
Weyerhaeuser 2.8
Total 31.6
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Sector Diversification (%) Portfolio S&P 500 Difference
--------------------------------------------------------------------------------
Basic Materials 14.1 2.4 +11.7
Capital Goods/Construction 13.0 8.2 +4.8
Communication Services 0.0 8.8 -8.8
Consumer Cyclical 14.3 9.4 +4.9
Consumer Staples 7.5 6.7 +0.8
Energy 6.4 6.6 -0.2
Financial 24.9 15.9 +9.0
Healthcare 6.1 12.0 -5.9
Miscellaneous 0.0 1.3 -1.3
Technology 4.1 25.8 -21.7
Transport & Services 4.4 0.6 +3.8
Utilities 5.2 2.3 +2.9
--------------------------------------------------------------------------------
PERFORMANCE REVIEW
THE COMEBACK OF VALUE IN THE LATTER PART OF THE FUND'S FISCAL YEAR WAS A
POSITIVE. In the six months ended 10/31/00, the Fund returned 8.80% beating both
the S&P500 Index return of -1.03% and the Russell 1000 Value return of 6.58%.
The first half of the Fund's fiscal year was a struggle, displayed in the Fund's
one-year return of 1.93% as of October 31, 2000. This return lagged that of both
the S&P 500 Index and the Russell 1000 Value Index, which returned 6.09% and
5.52%, respectively. However, the Fund's deep value orientation was a distinct
advantage in its closing that performance gap in the closing months of the
fiscal year-a period in which value was generally in favor.
<PAGE>
DLB VALUE FUND
--------------------------------------------------------------------------------
OUTLOOK
WE DO NOT EXPECT THE NEXT FEW MILES OF ROAD TO BE SMOOTH ONES FOR INVESTORS. It
is clear that the economy is slowing, something that the Fed has been attempting
to orchestrate for a number of months. Inflation, another target for Mr.
Greenspan, remains quiescent. If the Fed has indeed engineered a "soft landing,"
the Fund's overweightings in basic materials and producer durables should be
leaders in the next market upturn. Similarly, the Fund's high-quality financial
holdings will do well when the central bank eases, an action we rate much more
probable now than further tightening. Additionally, defense spending should
increase given the new President, and our portfolio is particularly
well-positioned to take advantage of this activity.
<PAGE>
DLB VALUE FUND
--------------------------------------------------------------------------------
GROWTH OF A
$100,000 INVESTMENT
[CHART APPEARS HERE]
S&P 500/BARRA RUSSELL 1000
DATE DLB VALUE FUND S&P 500 INDEX VALUE INDEX VALUE INDEX
$100,000.00 $100,000.00 $100,000.00 $100,000.00
31-Jul-95 $100,800.00 $102,400.00 $100,250.00 $103,480.00
31-Aug-95 $100,699.20 $102,656.00 $101,102.13 $104,939.07
30-Sep-95 $104,294.16 $106,988.08 $104,620.48 $108,737.86
31-Oct-95 $102,093.55 $106,602.93 $102,988.40 $107,661.36
30-Nov-95 $106,789.86 $111,282.79 $108,384.99 $113,109.02
31-Dec-95 $108,178.13 $113,430.55 $111,387.26 $115,948.06
31-Jan-96 $110,428.23 $117,287.19 $114,717.73 $119,565.64
28-Feb-96 $113,398.75 $118,377.96 $115,796.08 $120,474.34
31-Mar-96 $116,880.09 $119,514.39 $118,505.71 $122,522.40
30-Apr-96 $118,306.03 $121,271.25 $119,714.47 $122,987.99
30-May-96 $121,370.16 $124,400.05 $121,522.16 $124,525.34
30-Jun-96 $120,654.07 $124,872.77 $120,938.85 $124,624.96
31-Jul-96 $116,467.38 $119,353.39 $115,835.23 $119,914.13
31-Aug-96 $120,252.57 $121,871.75 $119,032.28 $123,343.68
30-Sep-96 $124,040.52 $128,733.13 $124,126.86 $128,252.75
31-Oct-96 $125,057.65 $132,286.16 $128,322.35 $133,216.14
30-Nov-96 $134,874.68 $142,287.00 $138,139.01 $142,874.31
31-Dec-96 $134,132.87 $139,469.72 $135,873.53 $141,045.52
31-Jan-97 $139,806.69 $148,186.57 $142,137.30 $147,886.22
28-Feb-97 $142,155.44 $149,342.43 $143,174.91 $150,060.15
31-Mar-97 $136,909.91 $143,204.45 $138,278.32 $144,657.98
30-Apr-97 $139,374.28 $151,753.76 $143,463.76 $150,733.62
31-May-97 $147,402.24 $160,995.56 $152,458.94 $159,159.63
30-Jun-97 $152,752.94 $168,208.17 $158,282.87 $165,987.58
31-Jul-97 $166,668.74 $181,597.54 $170,945.50 $178,469.84
31-Aug-97 $162,068.68 $171,428.07 $163,218.76 $172,116.32
30-Sep-96 $171,063.49 $180,822.33 $172,783.38 $182,512.14
31-Oct-97 $163,468.27 $174,782.87 $166,442.23 $177,420.05
30-Nov-97 $170,644.53 $182,875.31 $172,783.68 $185,262.02
31-Dec-97 $169,415.89 $186,020.77 $176,619.48 $190,671.67
31-Jan-98 $169,754.72 $188,085.60 $174,447.06 $187,964.13
28-Feb-98 $182,825.83 $201,646.57 $187,530.59 $200,614.12
31-Mar-98 $192,369.34 $211,970.88 $197,038.39 $212,891.70
30-Apr-98 $196,582.23 $214,111.78 $199,363.44 $214,318.08
31-May-98 $189,878.78 $210,429.06 $196,552.42 $211,146.17
30-Jun-98 $191,815.54 $218,972.48 $198,046.22 $213,848.84
31-Jul-98 $179,309.17 $216,629.47 $193,748.61 $210,085.10
31-Aug-98 $150,512.12 $185,304.85 $162,593.84 $178,824.44
30-Sep-98 $157,706.59 $197,182.89 $172,479.54 $189,088.96
31-Oct-98 $171,521.69 $213,213.86 $185,984.69 $203,743.36
30-Nov-98 $177,576.41 $226,134.62 $195,674.49 $213,237.80
31-Dec-98 $178,304.47 $239,159.98 $202,542.67 $220,487.88
31-Jan-99 $174,363.94 $249,156.86 $206,634.03 $222,251.78
28-Feb-99 $175,340.38 $241,408.08 $202,191.40 $219,118.03
31-Mar-99 $179,040.06 $251,064.41 $208,317.80 $223,653.78
30-Apr-99 $201,455.88 $260,780.60 $226,274.79 $244,543.04
31-May-99 $198,998.12 $254,626.18 $222,269.73 $241,853.07
30-Jun-99 $201,823.89 $268,757.93 $230,804.88 $248,866.81
31-Jul-99 $195,204.07 $260,372.68 $223,696.09 $241,575.01
31-Aug-99 $189,406.51 $259,070.82 $218,036.58 $232,612.58
30-Sep-99 $178,439.87 $251,972.28 $209,511.35 $224,494.40
31-Oct-99 $183,614.62 $267,922.12 $221,327.79 $237,425.27
30-Nov-99 $179,556.74 $273,360.94 $220,021.96 $235,573.36
Dec 1999 $179,251.50 $289,461.90 $228,294.78 $236,704.11
Jan 2000 $166,435.01 $274,930.92 $221,035.01 $228,987.56
Feb 2000 $149,392.07 $269,734.72 $207,220.32 $211,973.78
Mar 2000 $170,381.65 $296,114.78 $228,833.40 $237,834.58
Apr 2000 $172,017.32 $287,201.72 $227,300.22 $235,075.70
May 2000 $177,470.27 $281,314.09 $228,004.85 $237,543.99
Jun 2000 $169,288.89 $288,234.41 $218,998.66 $226,688.23
Jul 2000 $173,791.97 $283,737.96 $223,378.63 $229,521.84
Aug 2000 $182,238.26 $301,358.08 $238,345.00 $242,283.25
Sep 2000 $179,923.84 $285,446.38 $238,297.33 $244,512.26
Oct 2000 $187,156.77 $284,247.50 $242,753.49 $250,527.26
--------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 10/31/00
--------------------------------------------------------------------------------
6 Months 1 Year 5 Years Annualized
5/1/00- 11/1/99- 11/1/95- Since Inception
10/31/00 10/31/00 10/31/00 7/25/95-
10/31/00
DLB Value Fund 8.80 1.93 12.90 12.48
Russell 1000 Value Index 6.58 5.52 18.40 18.10
S&P 500 Index -1.03 6.09 21.67 21.14
S&P 500 / BARRA Value Index 6.80 9.68 18.71 18.09
--------------------------------------------------------------------------------
DISCLOSURE STATEMENT
RUSSELL 1000 VALUE INDEX is an unmanaged index that contains those Russell 1000
securities with lower price-to-book ratios and lower forecasted growth ratios
than the Growth universe. Securities in the Fund do not match those in the
Index, and the 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.
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 2000
<PAGE>
DLB VALUE FUND
FINANCIAL STATEMENTS FOR THE YEAR ENDED
OCTOBER 31, 2000 AND THE TEN MONTHS
ENDED OCTOBER 31, 1999
<PAGE>
DLB VALUE FUND
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of October 31, 2000 2 - 4
Statement of Assets and Liabilities as of October 31, 2000 5
Statement of Operations for the Year Ended October 31, 2000 6
Statements of Changes in Net Assets for the Year Ended
October 31, 2000, the Ten Months Ended October 31, 1999, and
the Year Ended December 31, 1998 7
Financial Highlights for the Year Ended October 31, 2000, the Ten
Months Ended October 31, 1999, and for each of the years in
the Four-Year Period Ended December 31, 1998 8
Notes to Financial Statements 9 - 11
<PAGE>
DELOITTE
& TOUCHE
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116-5022
Tel:(617) 437 2000
Fax:(617) 437 2111
www.us.deloitte.com
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, 2000, and the related statement of operations
for the year then ended, the statements of changes in net assets for the year
ended October 31, 2000, the ten months ended October 31, 1999 and the year ended
December 31, 1998, and the financial highlights for the year ended October 31,
2000, 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 auditing standards generally accepted in
the United States of America. 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, 2000, 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 referred to
above present fairly, in all material respects, the financial position of DLB
Value Fund at October 31, 2000, the results of its operations for the year then
ended, the changes in its net assets for the year ended October 31, 2000, the
ten months ended October 31, 1999 and the year ended December 31, 1998, and the
financial highlights for the year ended October 31, 2000, the ten months ended
October 31, 1999 and each of the years in the four-year period ended December
31, 1998, in conformity with accounting principles generally accepted in the
United States of America.
/s/ Deloitte & Touche LLP
December 8, 2000
--------
Deloitte
Touche
Tohmatsu
--------
<PAGE>
DLB VALUE FUND
<TABLE><CAPTION>
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2000
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 98.6%
ISSUER SHARES VALUE
AEROSPACE - 11.8%
The Boeing Company 27,700 $1,878,406
Lockheed Martin Corporation 41,900 1,502,115
Raytheon Company 59,600 2,037,575
Rockwell International Corporation 31,900 1,254,069
-----------
6,672,165
-----------
AIRLINES - 0.8%
KLM Royal Dutch Airlines (*) 25,585 463,728
-----------
AUTO & TRUCK MANUFACTURERS - 1.4%
General Motors Corporation 12,800 795,200
-----------
AUTO PARTS - 2.5%
Dana Corporation 63,000 1,397,813
-----------
BANKS - 10.3%
The Chase Manhattan Corporation 28,500 1,296,750
Citigroup Inc. 28,538 1,501,812
National City Corporation 68,000 1,453,500
Wells Fargo & Company 33,400 1,546,838
-----------
5,798,900
-----------
CHEMICALS - GENERAL - 2.5%
E. I. Du Pont de Nemours and Company 31,200 1,415,700
-----------
CHEMICALS - SPECIALTY - 1.1%
Millenium Chemicals Inc. 38,400 619,200
-----------
COMPUTER RELATED - 3.2%
Apple Computer, Inc. 25,400 496,888
International Business Machines Corporation 13,500 1,329,750
-----------
1,826,638
-----------
ELECTRIC POWER - 5.2%
Duke Energy Corporation 19,700 1,702,819
Sempra Energy 58,300 1,206,081
-----------
2,908,900
-----------
FINANCIAL SERVICES - 7.7%
American Express Company 25,500 1,530,000
The Student Loan Corporation 23,500 1,257,250
USA Education, Inc. 28,150 1,572,881
-----------
4,360,131
-----------
FOOD PRODUCERS - 2.7%
Diageo PLC 39,840 1,498,980
-----------
2
<PAGE>
ISSUER SHARES VALUE
FOOD RETAILERS - 1.9%
Albertson's, Inc. 44,500 $1,054,094
-----------
HOUSEWARES - 2.9%
Fortune Brands, Inc. 55,000 1,619,063
-----------
INSURANCE COMPANIES - 6.5%
The Allstate Corporation 49,400 1,988,350
Berkshire Hathaway Inc., Class B (*) 798 1,678,194
-----------
3,666,544
-----------
MEDICAL SUPPLIES & SERVICES - 6.0%
Tenet Healthcare Corporation 37,000 1,454,563
United Health Group Inc. 17,600 1,925,000
-----------
3,379,563
-----------
METALS & MINING - 1.5%
Hanson plc. Sponsored ADR 21,400 561,750
Martin Marietta Materials, Inc. 7,100 272,640
-----------
834,390
-----------
OFFICE EQUIPMENT - 0.8%
Xerox Corporation 54,800 462,375
-----------
OIL - DOMESTIC - 1.2%
USX - Marathon Group 25,600 696,000
-----------
OIL - INTERNATIONAL - 5.0%
BP Amoco P.L.C. Sponsored ADR 26,916 1,371,034
Royal Dutch Petroleum Company 24,800 1,472,500
-----------
2,843,534
-----------
PAPER & FOREST PRODUCTS - 7.7%
Potlatch Corporation 37,400 1,252,900
Weyerhaeuser Company 33,500 1,572,406
Willamette Industries, Inc. 42,600 1,546,913
-----------
4,372,219
-----------
PRINTING & PUBLISHING - 2.5%
Harcourt General, Inc. 24,900 1,395,645
-----------
RAILROADS - 2.7%
CSX Corporation 31,300 792,281
Norfolk Southern Corporation 51,400 726,025
-----------
1,518,306
-----------
RESTAURANT & LODGING - 2.6%
McDonald's Corporation 46,800 1,450,800
-----------
RETAIL - GENERAL - 2.1%
Sears, Roebuck and Co. 39,700 1,180,281
-----------
3
<PAGE>
ISSUER SHARES VALUE
RETAIL - SPECIALTY - 3.0%
The Limited, Inc. 67,600 1,706,900
-----------
STEEL - 2.1%
USX- U.S. Steel Group, Inc. 74,900 $1,193,717
-----------
TRANSPORTATION - MISC - 0.9%
Sabre Holdings Corporation 14,400 481,500
-----------
TOTAL COMMON STOCKS
(identified cost, $50,216,815 ) 55,612,286
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 0.7%
Investors Bank & Trust Repurchase Agreement, 5.69%,
dated 10/31/00, $416,102 due on 11/1/00 (secured by
Federal Government Agency securities), at cost $ 416,036 416,036
-----------
TOTAL INVESTMENTS (identified cost, $50,632,851 ) 56,028,322
Other assets, less liabilities - 0.7% 402,423
-----------
NET ASSETS - 100% $56,430,745
===========
(*) Non-income producing security
</TABLE>
See notes to financial statements.
4
<PAGE>
DLB VALUE FUND
<TABLE><CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2000
----------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $50,632,851) $ 56,028,322
Receivable for investments sold 470,557
Receivable for fund shares sold 39,564
Dividends and interest receivable 85,023
Other assets 2,358
------------
56,625,824
------------
LIABILITIES:
Payable for investments purchased 75,570
Payable for fund shares reacquired 53,208
Accrued management fee 25,065
Accrued expenses 41,236
------------
195,079
------------
NET ASSETS $ 56,430,745
============
NET ASSETS CONSIST OF:
Paid-in capital $ 54,757,485
Unrealized appreciation of investments 5,395,471
Accumulated net realized loss on investment transactions (4,663,321)
Accumulated undistributed net investment income 941,110
------------
Total $ 56,430,745
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 4,113,662
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 13.72
============
</TABLE>
See notes to financial statements.
5
<PAGE>
DLB VALUE FUND
<TABLE><CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2000
----------------------------------------------------------------------------------
<S> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign tax withheld of $16,258) $ 1,488,358
Interest 134,091
-----------
1,622,449
-----------
EXPENSES:
Management fee 354,355
Trustees' fees 7,085
Custodian fees 61,924
Accounting and audit fees 30,672
Registration fee 27,869
Legal fees 14,536
Transfer agent fee 9,028
Miscellaneous 3,995
-----------
509,464
-----------
Net investment income 1,112,985
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized loss (identified cost basis) (4,640,757)
Change in unrealized appreciation 4,458,965
-----------
Net realized and unrealized loss on investments (181,792)
-----------
Increase in net assets from operations $ 931,193
===========
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB VALUE FUND
<TABLE><CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
---------------------------------------------------------------------------------------------------------------
Year Ten Months Year
Ended Ended Ended
October 31, 2000 October 31, 1999 December 31, 1998
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 1,112,985 $ 1,422,633 $ 1,237,016
Net realized gain (loss) on investments (4,640,757) 5,248,005 4,274,144
Net unrealized appreciation (depreciation)
of investments 4,458,965 (4,541,428) (2,709,889)
------------ ------------ ------------
931,193 2,129,210 2,801,271
------------ ------------ ------------
Distributions to shareholders:
From net investment income (1,594,508) (8,992) (1,228,024)
From net realized gain on investments (5,010,423) (5,665) (4,256,810)
In excess of net realized gain on investments (22,564) -- --
------------ ------------ ------------
(6,627,495) (14,657) (5,484,834)
------------ ------------ ------------
Fund share transactions:
Net proceeds from sales of shares 41,558,156 28,017,225 27,948,166
Net asset value of shares issued in
reinvestment of distributions 6,610,228 14,621 5,469,771
Cost of shares reacquired (60,423,859) (27,674,902) (15,272,460)
------------ ------------ ------------
(12,255,475) 356,944 18,145,477
------------ ------------ ------------
Total increase (decrease) in net assets (17,951,777) 2,471,497 15,461,914
NET ASSETS:
At beginning of period 74,382,522 71,911,025 56,449,111
------------ ------------ ------------
At end of period (including accumulated
undistributed net investment income of $941,110,
$1,422,633 and $8,992, respectively) $ 56,430,745 $ 74,382,522 $ 71,911,025
============ ============ ============
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB VALUE FUND
<TABLE><CAPTION>
FINANCIAL HIGHLIGHTS
---------------------------------------------------------------------------------------------------------------------------------
Year Ten Months
Ended Ended Years Ended December 31, Period Ended
October 31, October 31, ----------------------------------- December 31,
2000 1999 1998 1997 1996 1995**
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value- beginning of period $ 14.91 $ 14.48 $ 14.91 $ 12.53 $ 10.58 $ 10.00
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income .39 .29 .27 .15 .16 .09
Net realized and unrealized gain (loss) on
investments (.21) .14 .50 3.15 2.38 .73
-------- -------- -------- -------- -------- --------
0.18 0.43 .77 3.30 2.54 .82
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income(1) (.33) - (.27) (.15) (.16) (.09)
From net realized gain on investments(1) (1.04) - (.93) (.70) (.41) (.15)
In excess of net realized gain on investments(2) - - - (.07) (.02) -
-------- -------- -------- -------- -------- --------
(1.37) - (1.20) (.92) (.59) (.24)
-------- -------- -------- -------- -------- --------
Net asset value- end of period $ 13.72 $ 14.91 $ 14.48 $ 14.91 $ 12.53 $ 10.58
======== ======== ======== ======== ======== ========
Total Return 1.93% 2.98% 5.25% 26.35% 23.99% 18.64%*
Ratios and Supplemental Data:
Ratio of expenses to average net assets .79% .74%* .60% .71% .80% .80%*
Ratio of net investment income to
average net assets 1.73% 2.22%* 1.85% 1.40% 1.56% 2.02%*
Portfolio turnover 41% 28% 21% 25% 23% 7%
Net assets at end of period (000 omitted) $ 56,431 $ 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 were less than $.01 per share.
(2) Distributions in excess of net realized gain on investments for the year ended October 31, 2000 were less 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.
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
collateral in a repurchase transaction 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 gain 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.
At October 31, 2000, the Fund, for federal income tax purposes, had a
capital loss carryforward of $4,640,757 which may be applied against any
net taxable realized gains of each succeeding year until the earlier of its
utilization or expiration on October 31, 2008.
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the amounts reported in the financial statements. Actual results could
differ from such estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Company 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 year
ended October 31, 2000, the management fee amounted to $354,355. 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 year ended October 31, 2000 aggregated $25,754,355 and $41,219,149,
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 $ 50,655,415
============
Gross unrealized appreciation $ 11,521,464
Gross unrealized depreciation (6,148,557)
------------
Net unrealized appreciation $ 5,372,907
============
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>
YEAR TEN MONTHS YEAR
ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, DECEMBER 31,
2000 1999 1998
---------- ---------- ---------
<S> <C> <C> <C>
Shares sold 3,219,844 1,827,660 1,766,141
Shares issued in reinvestment
of distributions 514,816 902 380,870
Redemptions (4,611,094) (1,803,494) (968,493)
---------- ---------- ---------
Net increase (decrease) (876,434) 25,068 1,178,518
========== ========== =========
</TABLE>
11
<PAGE>
DLB
THE DLB CORE GROWTH FUND
ANNUAL REPORT
OCTOBER 31, 2000
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB CORE GROWTH FUND
--------------------------------------------------------------------------------
FUND INVESTMENT OBJECTIVE
THE DLB CORE GROWTH FUND seeks longer term capital and income growth through
investment primarily in common stocks.
MARKET OVERVIEW
THE SECOND HALF OF THE FISCAL YEAR ENDED OCTOBER 31, 2000 SHARPLY CONTRASTED
WITH THE FIRST HALF. Major market themes such as the continued outperformance of
growth stocks and a runaway market in technology stocks were completely
reversed, with value stocks taking a strong lead in all capitalization ranges,
and the tech-laden NASDAQ dropping more than 33% from its March 10th high of
5048.62. The volatility that was witnessed in the first half continued
throughout the second, but it came in the form of downside returns for most
broad market indicators.
IN ADDITION TO DOMINANT VALUE STOCK PERFORMANCE ON THE STYLE FRONT, LEAD BY
SMALL CAP VALUE, MID-CAP STOCKS DOMINATED ON THE CAPITALIZATION FRONT. Many
large cap portfolios with mid-cap exposure experienced an added advantage versus
the competition, all else being equal. Similarly, core portfolios with a value
bias were likely advantaged over peers with a growth bias. While most value
benchmarks had only single digit positive returns in October, all growth and
core benchmarks experienced negative absolute performance. These trends are very
different from the first half of the year, when larger capitalization stocks and
growth stocks in all cap ranges were the strongest asset classes.
THE BIPOLAR TREND THAT PREVAILED IN THE FIRST HALF OF THE YEAR WITH "NEW
ECONOMY" STOCKS LEADING THE BROAD MARKETS HIGHER AND "OLD ECONOMY" STOCKS
UNDERPERFORMING ALSO SHIFTED. "Old Economy" stocks, in the second half, in
sectors such as Producer Durables, Utilities and Materials and Processing
outshone "New Economy" names in the Communications, Healthcare and Internet
related industries. As a majority of the "New Economy" names are also
categorized as growth stocks, this makes sense.
VOLATILITY RESULTING IN NEGATIVE INDEX RETURNS ALSO BECAME EXTREME. The NASDAQ,
Dow and S&P 500 all experienced negative performance for the half, with the
NASDAQ continuing to be affected most by negative fluctuations. The Index closed
down -14.26% over the second half of the fiscal year. The downward momentum was
marked by a consistent downward trend mixed with large gains. Of the eight daily
movements of 5% or more, only two were negative. The
<PAGE>
DLB CORE GROWTH FUND
--------------------------------------------------------------------------------
MARKET OVERVIEW
(CONT.)
positive gains of more than 5% all came in separate weeks and were all given
back.
PERIODS OF POSITIVE MARKET RETURNS IN THE LAST FEW WEEKS WERE IN LARGE PART
DRIVEN BY A GROWING BELIEF THAT THE FEDERAL RESERVE MAY LOWER RATES IN THE FIRST
QUARTER OF 2001. Sentiment in the first half of the fiscal year that the Fed
would stand pat on the past tightening interest rate moves has, in effect, been
replaced with hope for a Fed easing.
CLARITY IN THE U.S. PRESIDENTIAL RACE, IN THE LAST FEW WEEKS, HAS ALSO PROVIDED
A PLATFORM FOR MARKET GAINS. A final resolution in the first half of the next
fiscal year, should give markets one less obstacle to overcome.
PORTFOLIO STRATEGY REVIEW
THE DLB CORE GROWTH FUND IS FOCUSED ON INVESTING IN HIGH GROWTH, HIGH QUALITY
BUSINESSES WITH LEADING MARKET POSITIONS IN THEIR RESPECTIVE INDUSTRIES. There
are four sectors of the economy where we are identifying many of the investment
opportunities for the Fund: telecommunications, finance, healthcare and
technology.
IN THE TELECOMMUNICATIONS SECTOR THE RAPID GLOBAL BUILDOUT OF THE INTERNET AND
THE RESULTING INSATIABLE DEMAND FOR BANDWIDTH (NETWORK CAPACITY) WAS AN
INVESTMENT THEME IN THE FUND THROUGHOUT FISCAL 2000. Investment spending on
equipment to support the Internet infrastructure, both in fiber optics and
wireless continues to grow at a high rate. Concerns rose toward the end of
fiscal 2000 that this rate of growth in capital spending may be slowing next
year, and is something we are following very closely.
TELECOMMUNICATIONS EQUIPMENT MAKERS CISCO SYSTEMS, NOKIA AND JUNIPER NETWORKS
ARE CORE HOLDINGS IN THE FUND. Fiberoptic cable and component suppliers Corning,
Nortel, SDL Inc. and JDS Uniphase are holdings that are experiencing enormous
demand for their products. Semiconductor companies Analog Devices, PMC Sierra
and Vitesse Semiconductor are all benefiting from high growth in the telecom and
wireless space.
WE WERE CAUTIOUS IN THE FINANCE SECTOR FOR MOST OF FISCAL 2000 DUE TO THE RISING
INTEREST RATE ENVIRONMENT AND
<PAGE>
DLB CORE GROWTH FUND
--------------------------------------------------------------------------------
PORTFOLIO STRATEGY REVIEW
(CONT.)
CONCERNS OVER DETERIORATING CREDIT QUALITY AMONG MANY OF THE NATIONS LENDING
INSTITUTIONS. Credit quality problems (bad loans) are beginning to surface at
regional and larger banks in recent months, and we feel this problem will get
worse before it gets better. As a result we are underweight in the finance
sector versus the broader market, with an emphasis on the property casualty
insurance and mortgage finance industries. American International Group and
Federal Home Loan Mortgage Corp. are core holdings in the Fund, and should
benefit if we get some relief from the Fed on interest rates in 2001.
CURRENT TRENDS IN THE HEALTHCARE SECTOR ARE SIMILAR TO SIX MONTHS AGO, AND
REMAIN POLITICAL IN NATURE. The threat of potential healthcare reform that will
follow continues to weigh heavily on the healthcare sector. Healthcare service
providers (HMO's, hospitals, nursing homes, surgery centers) are especially
vulnerable, and we are avoiding this segment of the market in the DLB Core
Growth Fund. Within the healthcare sector we are focusing on the medical device
companies with high growth rates (Guidant and Medtronic are both core holdings)
and the large pharmaceutical companies with deep pipelines of new products
(Pfizer and Pharmacia are both owned in the Fund).
THE TECHNOLOGY SECTOR OF THE MARKET HAS BEEN AN EXTREMELY CONTROVERSIAL AND
VOLATILE AREA IN THE SECOND HALF OF FISCAL YEAR 2000. We experienced two sharp
corrections in technology stocks in April/May and again in the September/October
time frame. Earnings estimates for the balance of 2000 and calendar year 2001
have been coming down consistently in the past several months. Expectations by
investors are coming down, which has created a difficult environment for
technology investing. We still have a meaningful portion of the Fund invested in
this segment of the market, but we have reduced our exposure here in the second
half of fiscal year 2001.
THE FUND'S TOP TEN HOLDINGS AND SECTOR WEIGHTINGS CAN BE FOUND ON THE FOLLOWING
PAGE:
<PAGE>
DLB CORE GROWTH FUND
--------------------------------------------------------------------------------
PORTFOLIO STRATEGY REVIEW
(CONT.)
--------------------------------------------------------------------------------
Top 10 Equity Holdings % of Fund Assets
--------------------------------------------------------------------------------
General Electric 4.6
American International Group 3.9
Paychex 3.7
AT&T Corp. - Liberty Media Group 3.6
Microsoft 3.5
Freddie Mac 3.2
Sun Microsystems 3.1
Nokia Corporation 2.9
Cisco Systems 2.9
America Online 2.6
Total 34.0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Sector Diversification (%) Portfolio S&P 500 Difference
--------------------------------------------------------------------------------
Basic Materials 0.0 2.4 -2.4
Capital Goods/Construction 4.7 8.2 -3.5
Communication Services 12.2 8.8 +3.4
Consumer Cyclical 6.2 9.4 -3.2
Consumer Staples 3.5 6.7 -3.2
Energy 3.5 6.6 -3.1
Financial 13.9 15.9 -2.0
Healthcare 12.4 12.0 +0.4
Miscellaneous 1.6 1.3 +0.3
Technology 42.0 25.8 +16.2
Transport & Services 0.0 0.6 -0.6
Utilities 0.0 2.3 -2.3
--------------------------------------------------------------------------------
PERFORMANCE REVIEW
THE LAST SIX MONTHS OF FISCAL YEAR 2000 WAS VOLATILE FOR GROWTH INVESTORS. The
Fund which returned -3.9% beat the Russell 1000 Growth Index which returned
-7.9%, but fell short of the S&P 500 Index which returned -1.0% during this
six-month period. On the whole, the one-year ended 10/31/00 proved to be a very
rewarding year for investors in the DLB Core Growth Fund. The Fund gained 18.6%
in this time period compared to a 6.1% total return for the S&P 500 Index and a
9.3% total return for the Russell 1000 Growth Index. The Fund also performed
well versus it's peer group, outpacing the average large cap growth mutual fund
performance of 15.3% as measured by Lipper Analytical Services. This relative
outperformance places the DLB Core Growth Fund in the top 32% of it's Lipper
Large Cap Growth peer group.*
* Lipper Analytical Services, 10/31/00. Lipper rankings are based on total
returns but do not consider sales charges. The DLB Core Growth Fund was ranked
154/496 (1yr) in the Large Capitalization Growth universe. Past performance is
no guarantee of future results.
<PAGE>
DLB CORE GROWTH FUND
--------------------------------------------------------------------------------
PERFORMANCE REVIEW
(CONT.)
PERFORMANCE IN THE TECHNOLOGY AND TELECOMMUNICATIONS SECTORS WERE LARGE
CONTRIBUTORS TO RETURNS IN THE FIRST HALF OF FISCAL YEAR 2000. In an effort to
hold on to those gains the Fund was positioned more defensively in the second
half of the year. Investments in healthcare, stable growth businesses, and
companies with high levels of earnings visibility were added to the portfolio.
At the same time we reduced the overall technology exposure in the Fund.
OUTLOOK
LOOKING FORWARD WE EXPECT TO SEE CONTINUED STRONG UNDERLYING OPERATING RESULTS
THROUGHOUT MANY SEGMENTS OF THE TECHNOLOGY AND TELECOM SECTOR, ALBEIT AT A LOWER
RATE OF GROWTH THAN IN YEARS PAST. Earnings growth estimates and investor
expectations in this area continue to come down, creating uncertainty and
volatility in the short term. Over the long term we remain optimistic on many
technology companies that are benefiting from trends taking place in this
country and throughout the world.
HEALTHCARE STOCKS WERE FACING POLITICAL PRESSURE FROM WASHINGTON. We expect this
group to perform better following the election (especially with a Republican in
the White House) and have been increasing our exposure here.
COMPANIES IN THE FINANCE SECTOR CONTINUE TO "FIGHT THE FED" with the rising
interest rate environment we are currently experiencing as well as credit
quality problems, and as a result we are cautious on the finance sector in
general for the next several months.
WE CONTINUE TO AVOID THE PURE "DOT.COM" INTERNET COMPANIES, AND FEEL THAT
WITHOUT ANY COMPELLING VALUATION SUPPORT THIS PART OF THE MARKET IS ESPECIALLY
VULNERABLE. Many of these companies never should have come public in the first
place, and we expect to see many go out of business in 2001 and beyond.
IN CONCLUSION, WE REMAIN COMMITTED TO BUILDING ON OUR LONGSTANDING TRADITION OF
INVESTING IN NEW GROWTH OPPORTUNITIES, without losing sight of the fundamental
investment disciplines that have served our clients and shareholders well.
<PAGE>
DLB CORE GROWTH FUND
--------------------------------------------------------------------------------
GROWTH OF A
$100,000 INVESTMENT
[CHART APPEARS HERE]
Russell 1000
DLB Core Growth Growth Index S&P 500
--------------- ------------ -------
$100,000.00 $100,000.00 $100,000.00
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
30-Nov-99 $136,850.48 $167,664.66 $148,259.89
Dec 1999 $148,564.88 $185,101.78 $156,992.40
Jan 2000 $143,201.69 $176,420.51 $149,111.38
Feb 2000 $161,416.94 $185,047.47 $146,293.17
Mar 2000 $172,877.55 $198,296.87 $160,600.64
Apr 2000 $163,334.71 $188,857.94 $155,766.56
May 2000 $151,002.94 $179,339.50 $152,573.35
Jun 2000 $162,901.97 $192,933.43 $156,326.65
Jul 2000 $158,080.07 $184,888.11 $153,887.96
Aug 2000 $172,006.92 $201,620.48 $163,444.40
Sep 2000 $163,320.57 $182,547.19 $154,814.54
Oct 2000 $157,000.07 $173,912.70 $154,164.32
--------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 10/31/00
--------------------------------------------------------------------------------
6 Months 1 Year Annualized
5/1/00- 11/1/99- Since Inception
10/31/00 10/31/00 1/20/98-
10/31/00
DLB Core Growth Fund -3.87 18.57 17.29
Russell 1000 Growth Index -7.91 9.33 20.61
S&P 500 Index -1.03 6.09 15.78
--------------------------------------------------------------------------------
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 CORE GROWTH FUND
--------------------------------------------------------------------------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Core 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 2000
<PAGE>
--------------------------------------------------------------------------------
DLB CORE GROWTH FUND
FINANCIAL STATEMENTS FOR THE YEAR ENDED
OCTOBER 31, 2000 AND THE TEN MONTHS
ENDED OCTOBER 31, 1999
<PAGE>
DLB CORE GROWTH FUND
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of October 31, 2000 2 - 4
Statement of Assets and Liabilities as of October 31, 2000 5
Statement of Operations for the Year Ended October 31, 2000 6
Statements of Changes in Net Assets for the Year Ended
October 31, 2000, the Ten Months Ended October 31, 1999, and
the period from January 20, 1998 (commencement of operations)
to December 31, 1998 7
Financial Highlights for the Year Ended October 31, 2000,
the Ten Months Ended October 31, 1999, and the Period
from January 20, 1998 (commencement of operations)
to December 31, 1998 8
Notes to Financial Statements 9 - 11
<PAGE>
DELOITTE
& TOUCHE
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116-5022
Tel:(617) 437 2000
Fax:(617) 437 2111
www.us.deloitte.com
INDEPENDENT AUDITORS' REPORT
To the Trustees of The DLB Fund Group and
Shareholders of DLB Core Growth Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Core Growth Fund (the "Fund") (formerly
known as DLB Growth Fund) (a series of The DLB Fund Group) as of October 31,
2000, and the related statement of operations for the year then ended, the
statements of changes in net assets and the financial highlights for the year
ended October 31, 2000, 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 auditing standards generally accepted
in the United States of America. 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, 2000, 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 referred to
above present fairly, in all material respects, the financial position of DLB
Core Growth Fund at October 31, 2000, the results of its operations for the year
then ended, the changes in its net assets and the financial highlights for the
year ended October 31, 2000, the ten month period ended October 31, 1999 and the
period from January 20, 1998 (commencement of operations) to December 31, 1998,
in conformity with accounting principles generally accepted in the United States
of America.
/s/ Deloitte & Touche LLP
December 8, 2000
--------
Deloitte
Touche
Tohmatsu
--------
<PAGE>
DLB CORE GROWTH FUND
<TABLE><CAPTION>
PORTFOLIO OF INVESTMENTS
October 31, 2000
----------------------------------------------------------------------------------------------------------
COMMON STOCKS - 95.5%
ISSUER SHARES VALUE
<S> <C> <C>
BANKS - 2.5%
Citigroup Inc. 73,933 $ 3,890,724
-------------
BEVERAGES - 1.2%
Anheuser-Busch Companies, Inc. 27,800 1,271,850
PepsiCo, Inc. 12,600 610,313
-------------
1,882,163
-------------
COAL, GAS AND PIPE - 1.4%
The Coastal Corporation 29,800 2,248,038
-------------
COMMUNICATION EQUIPMENT - 10.6%
Advanced Fibre Communication (*) 36,300 1,182,019
Alcatel 31,900 1,989,763
Corning Incorporated 30,600 2,340,900
JDS Uniphase Corporation 14,800 1,205,275
Juniper Networks, Inc. 6,900 1,345,500
Nokia Corp. 105,700 4,518,675
Nortel Networks Corporation 52,100 2,370,550
SDL Inc. 4,100 1,062,925
Sycamore Networks Inc. 9,600 607,200
-------------
16,622,807
-------------
COMMUNICATION SERVICES - 8.1%
AT&T Corp-Liberty Media Group 315,000 5,670,000
Clear Channel Communication, Inc. (*) 51,800 3,111,238
E. Biscom Spa (*) 1,700 220,770
Qwest Communications Intl Inc. (*) 76,600 3,724,675
-------------
12,726,683
-------------
COMPUTER RELATED - 10.0%
Cisco Systems, Inc. 83,100 4,477,013
EMC Corporation 37,300 3,322,031
International Business Machines Corporation 15,400 1,516,900
Solectron Corporation 35,000 1,540,000
Sun Microsystems, Inc. 43,100 4,778,713
-------------
15,634,657
-------------
2
<PAGE>
ISSUER SHARES VALUE
COMPUTER SOFTWARE - 11.6%
Adobe Systems Incorporated 16,000 $ 1,217,000
America Online, Inc. 79,100 3,989,013
Microsoft Corporation (*) 79,400 5,468,675
Oracle Corporation 97,400 3,214,200
Siebel Systems, Inc. 7,800 818,513
Symantec Corporation (*) 55,900 2,183,594
Veritas Software Corporation 9,600 1,353,750
-------------
18,244,745
-------------
COSMETIC & TOILETRY - 0.6%
The Gillette Company 25,300 882,338
-------------
DRUGS - 7.6%
American Home Products Corporation 41,600 2,641,600
Bristol-Meyers Squibb Company 42,100 2,565,469
Pfizer Inc. 87,100 3,761,631
Pharmacia & Upjohn Inc. 53,577 2,946,735
-------------
11,915,435
-------------
ELECTRICAL EQUIPMENT - 4.6%
General Electric Company 131,900 7,229,769
-------------
ELECTRONICS & INSTRUMENTS - 0.7%
Flextronics International Ltd. 30,900 1,174,200
-------------
FINANCIAL SERVICES - 6.9%
Federal Home Loan Mortgage Corporation 82,600 4,956,000
Paychex, Inc. 102,400 5,804,800
-------------
10,760,800
-------------
FOOD RETAILERS - 1.6%
Safeway Inc. (*) 44,900 2,455,469
-------------
INSURANCE COMPANIES - 3.9%
American International Group, Inc. 62,687 6,143,326
-------------
MEDIA - 1.9%
Cox Communications, Inc. (*) 68,700 3,027,094
-------------
MEDICAL SUPPLIES & SERVICES - 4.2%
Guidant Corporation (*) 51,800 2,742,163
Medtronic, Inc. 72,200 3,921,363
-------------
6,663,526
-------------
OIL - INTERNATIONAL - 1.9%
Exxon Mobil Corporation 33,847 3,018,729
-------------
RECREATION - 1.7%
Comcast Corporation Cl A (*) 64,800 2,600,100
-------------
RETAIL - GENERAL - 0.8%
Best Buy Co, Inc. (*) 26,000 1,304,875
-------------
3
<PAGE>
ISSUER SHARES VALUE
RETAIL - SPECIALTY - 1.5%
The Home Depot, Inc. 53,700 $ 2,309,100
-------------
SEMICONDUCTORS - 10.3%
Analog Devices, Inc. 43,100 2,801,500
Intel Corporation 83,600 3,762,000
Linear Technology Corporation 38,700 2,498,569
Maxim Integrated Products, Inc. 36,000 2,387,250
Microchip Technology Incorporated 26,475 837,272
PMC-Sierra Inc. 8,500 1,440,750
Vitesse Semiconductor Corporation (*) 34,300 2,398,850
-------------
16,126,191
-------------
SOFTWARE AND SERVICES - 1.9%
Automatic Data Processing, Inc. 41,100 2,684,344
Storagenetworks Inc. (*) 5,100 323,531
-------------
3,007,875
-------------
TOTAL COMMON STOCKS
(identified cost, $141,145,796) 149,868,644
Principal
Amount
REPURCHASE AGREEMENT - 2.8%
Investors Bank & Trust Repurchase Agreement, 5.69%,
dated 10/31/00, $4,387,319 due on 11/1/00 (secured by
Federal Government Agency securities), at cost $ 4,386,626 4,386,626
-------------
TOTAL INVESTMENTS (identified cost, $145,532,422) 154,255,270
Other assets, less liabilities - 1.7% 2,664,793
-------------
NET ASSETS - 100% $ 156,920,063
=============
</TABLE>
(*) Non-income producing security
See notes to financial statements.
4
<PAGE>
DLB CORE GROWTH FUND
<TABLE><CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2000
-------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $145,532,422) $154,255,270
Receivables for investment sold 5,793,428
Receivable for fund shares sold 433,367
Dividends and interest receivable 33,213
------------
160,515,278
------------
LIABILITIES:
Payable for investments purchased 3,350,978
Payable for fund shares reaquired 128,421
Accrued management fee 72,365
Accrued expenses 43,451
------------
3,595,215
------------
NET ASSETS $156,920,063
============
NET ASSETS CONSIST OF:
Paid-in capital $132,847,112
Unrealized appreciation of investments 8,722,848
Accumulated undistributed net realized gain on investment transactions 15,350,103
------------
$156,920,063
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 10,713,587
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 14.65
============
</TABLE>
See notes to financial statements.
5
<PAGE>
DLB CORE GROWTH FUND
STATEMENT OF OPERATIONS
Year Ended October 31, 2000
--------------------------------------------------------------------------------
NET INVESTMENT INCOME:
Dividends (net of foreign tax withholdings of $2,012 ) $ 515,884
Interest 381,406
------------
897,290
------------
EXPENSES:
Management fee 823,338
Trustees' fees 7,078
Custodian fees 95,288
Registration fee 54,672
Accounting and audit fees 30,673
Legal fees 12,311
Transfer agent fee 8,961
Miscellaneous 4,001
------------
1,036,322
------------
Net investment loss (139,032)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (identified cost basis) 16,459,587
Change in unrealized appreciation 5,148,922
------------
Net realized and unrealized gain on investments 21,608,509
------------
Increase in net assets from operations $ 21,469,477
============
See notes to financial statements.
6
<PAGE>
DLB CORE GROWTH FUND
<TABLE><CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------------------------------------------------------------------------------------------
Year Ten Months Ended Period Ended
Ended October 31, December 31,
October 31, 2000 1999 1998*
------------- ------------- -------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS:
From operations:
Net investment income (loss) $ (139,032) $ 177,493 $ 128,567
Net realized gain on investments 16,459,587 4,819,251 677,899
Net unrealized appreciation (depreciation) of investments 5,148,922 (3,520,316) 7,094,242
------------- ------------- -------------
21,469,477 1,476,428 7,900,708
------------- ------------- -------------
Distributions to shareholders:
From net investment income (177,493) (1,548) (127,019)
In excess of net investment income (6,121) -- --
From net realized gain on investments (5,783,582) (3,062) (674,837)
------------- ------------- -------------
(5,967,196) (4,610) (801,856)
------------- ------------- -------------
Fund share transactions:
Net proceeds from sales of fund shares 101,373,578 130,816,308 25,153,000
Net asset value of shares issued in
reinvestment of distributions 5,967,196 4,610 801,856
Cost of shares reacquired (81,914,090) (49,355,356) --
------------- ------------- -------------
25,426,684 81,465,562 25,954,856
------------- ------------- -------------
Total increase in net assets 40,928,965 82,937,380 33,053,708
NET ASSETS:
At beginning of period 115,991,098 33,053,718 10
------------- ------------- -------------
At end of period (including accumulated undistributed net
investment income of $0, $177,493 and $1,548, respectively) $ 156,920,063 $ 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 CORE GROWTH FUND
<TABLE><CAPTION>
FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------------------------------------------------
Year Ten Months Period
Ended Ended Ended
October 31, October 31, December 31,
2000 1999 1998**
------------ ------------ -----------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $ 12.93 $ 12.82 $ 10.00
------------ ------------ -----------
Income from investment operations:
Net investment income (loss) (.01) .02 .05
Net realized and unrealized gain on investments 2.36 .09 3.09
------------ ------------ -----------
2.35 .11 3.14
------------ ------------ -----------
Less distributions to shareholders:
From net investment income (1)(2) (0.02) -- (.05)
From net realized gain on investments (1) (0.61) -- (.27)
------------ ------------ -----------
(0.63) -- (.32)
------------ ------------ -----------
Net asset value- end of period $ 14.65 $ 12.93 $ 12.82
============ ============ ===========
Total return 18.57% .85% 31.33%
Ratios and Supplemental Data:
Ratio of expenses to average net assets .69% .68% * .80% *
Ratio of net investment income (loss) to average net assets (.09%) .19% * .48% *
Portfolio turnover 96% 66% 34%
Net assets at end of period (000 omitted) $ 156,920 $ 115,991 $ 33,054
For the period 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 $ -- $ -- $ .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 realized gain on investments for the ten months ended
October 31, 1999 were less than $.01 per share.
(2) Distributions in excess of net investment income for the year ended October 31, 2000
were less than $.01 per share.
</TABLE>
See notes to financial statements.
8
<PAGE>
DLB CORE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Core Growth Fund (the "Fund"), formerly known as DLB Growth Fund, is a
non-diversified series of The DLB Fund Group (the "Trust"), a Massachusetts
business trust. The Trust is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices
are not available are valued at last quoted bid prices. Securities for
which there are no such quotations or valuations are valued at fair value
as determined in good faith by or at the direction of the Trustees.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value.
REPURCHASE AGREEMENTS - Securities purchased under agreements to resell to
the original owner are recorded at cost. The Fund may enter into such
agreements with institutions that the Fund's investment adviser has
determined to be creditworthy. The Fund requires that the securities
collateral in a repurchase transaction 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 ensure 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 gain 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. During the year ended October 31, 2000, $145,153 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 and foreign currency transactions. 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 accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the amounts reported in the financial statements. Actual results could
differ from 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 year
ended October 31, 2000, the management fee amounted to $823,338. 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 year ended October 31, 2000 aggregated $149,750,476 and $137,220,574,
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 $ 145,990,449
=============
Gross unrealized appreciation $ 20,463,763
Gross unrealized depreciation (12,198,942)
-------------
Net unrealized appreciation $ 8,264,821
=============
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>
Period from
Year Ten Months January 20, 1998
Ended Ended (commencement of
October 31, October 31, operations) to
2000 1999 December 31, 1998
---------- ---------- ----------
<S> <C> <C> <C>
Shares sold 6,889,195 10,276,496 2,515,233
Shares issued in reinvestment
of distributions 438,121 350 63,188
Redemptions (5,587,405) (3,881,592) --
---------- ---------- ----------
Net increase 1,739,911 6,395,254 2,578,421
========== ========== ==========
</TABLE>
11
<PAGE>
DLB
THE DLB SMALL COMPANY OPPORTUNITIES FUND
ANNUAL REPORT
OCTOBER 31, 2000
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB SMALL COMPANY OPPORTUNITIES
--------------------------------------------------------------------------------
FUND INVESTMENT OBJECTIVE
THE DLB SMALL COMPANY OPPORTUNITIES FUND seeks long-term capital appreciation
through 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 SECOND HALF OF THE FISCAL YEAR ENDED OCTOBER 31, 2000 SHARPLY CONTRASTED
WITH THE FIRST HALF. Major market themes such as the continued outperformance of
growth stocks and a runaway market in technology stocks were completely
reversed, with value stocks taking a strong lead in all capitalization ranges,
and the tech-laden NASDAQ dropping more than 33% from its March 10th high of
5048.62. The volatility that was witnessed in the first half continued
throughout the second, but it came in the form of downside returns for most
broad market indicators.
IN ADDITION TO DOMINANT VALUE STOCK PERFORMANCE ON THE STYLE FRONT, LEAD BY
SMALL CAP VALUE, MID-CAP STOCKS DOMINATED ON THE CAPITALIZATION FRONT. Many
large cap portfolios with mid-cap exposure experienced an added advantage versus
the competition, all else being equal. Similarly, core portfolios with a value
bias were likely advantaged over peers with a growth bias. While most value
benchmarks had only single digit positive returns in October, all growth and
core benchmarks experienced negative absolute performance. These trends are very
different from the first half of the year, when larger capitalization stocks and
growth stocks in all cap ranges were the strongest asset classes.
THE BIPOLAR TREND THAT PREVAILED IN THE FIRST HALF OF THE YEAR WITH "NEW
ECONOMY" STOCKS LEADING THE BROAD MARKETS HIGHER AND "OLD ECONOMY" STOCKS
UNDERPERFORMING ALSO SHIFTED. "Old Economy" stocks, in the second half, in
sectors such as Producer Durables, Utilities and Materials and Processing
outshone "New Economy" names in the Communications, Healthcare and Internet
related industries. As a majority of the "New Economy" names are also
categorized as growth stocks, this makes sense.
VOLATILITY RESULTING IN NEGATIVE INDEX RETURNS ALSO BECAME EXTREME. The NASDAQ,
Dow and S&P 500 all experienced negative performance for the half, with the
NASDAQ continuing to be affected most by negative fluctuations. The Index closed
down -14.26% over the second
<PAGE>
DLB SMALL COMPANY OPPORTUNITIES
--------------------------------------------------------------------------------
MARKET OVERVIEW
(CONT.)
half of the fiscal year. The downward momentum was marked by a consistent
downward trend mixed with large gains. Of the eight daily movements of 5% or
more, only two were negative. The positive gains of more than 5% all came in
separate weeks and were all given back.
PERIODS OF POSITIVE MARKET RETURNS IN THE LAST FEW WEEKS WERE IN LARGE PART
DRIVEN BY A GROWING BELIEF THAT THE FEDERAL RESERVE MAY LOWER RATES IN THE FIRST
QUARTER OF 2001. Sentiment in the first half of the fiscal year that the Fed
would stand pat on the past tightening interest rate moves has, in effect, been
replaced with hope for a Fed easing.
CLARITY IN THE U.S. PRESIDENTIAL RACE, IN THE LAST FEW WEEKS, HAS ALSO PROVIDED
A PLATFORM FOR MARKET GAINS. A final resolution in the first half of the next
fiscal year should give markets one less obstacle to overcome.
PORTFOLIO STRATEGY REVIEW
IN OUR SIX-MONTH REVIEW, WE NOTED THAT WE REDUCED THE TECHNOLOGY WEIGHTINGS AND
ADDED TO ENERGY-RELATED STOCKS. These moves paid off handsomely as we avoided
significant technology declines and participated in the energy rally during the
second half of the fiscal year ended October 31, 2000. However, at the risk of
sounding schizophrenic, the value relationships have inverted. Technology stocks
are relatively cheap and energy stocks are expensive.
WE ARE CURRENTLY ADDING TO SOME OF OUR EXISTING TECHNOLOGY WEIGHTINGS SUCH AS
ELANTEC SEMICONDUCTOR. We have also added new names, including Rudolph
Technologies, Brooks Automation, and Boston Communications. Rudolph Technologies
has advanced production processes for copper-based semiconductors. Brooks
Automation has gained critical scale in the design of semiconductor handling
systems. Lastly, Boston Communications provides prepaid telephone service.
THE FUND'S FINANCIAL EXPOSURE HAS BEEN INCREASED THROUGH THE PURCHASE OF STEWART
INFORMATION SYSTEMS, A MORTGAGE INSURER TRADING UNDER BOOK VALUE, AND TRENWICK
INSURANCE, A REINSURER WITH NEW GROWTH PROSPECTS DUE TO AN ACQUISITION. We also
bought Sterling Bancorp, which makes small commercial loans in Manhattan.
IN THE HEALTHCARE-RELATED SEGMENT, WE INVESTED IN PEDIATRIAX, which outsources
<PAGE>
DLB SMALL COMPANY OPPORTUNITIES
--------------------------------------------------------------------------------
PORTFOLIO STRATEGY REVIEW
(CONT.)
neonatal intensive care units, Kendle International, a clinical research
organization that is at a cyclical low, and Wilson Great Batch, which sells
power supplies to medical device companies.
MORE IMPORTANT THAN ANY INDUSTRY THEME, THESE COMPANIES FIT OUR BASIC INVESTMENT
STRATEGY. All can generate high returns on capital over an entire business
cycle, have little debt leverage, and the potential for EPS growth.
THE FUND'S TOP TEN HOLDINGS AND SECTOR WEIGHTINGS CAN BE FOUND BELOW:
--------------------------------------------------------------------------------
Top 10 Equity Holdings % of Fund Assets
--------------------------------------------------------------------------------
Morrison Management 2.37
Performance Food Group 2.29
Woodhead Industries 2.26
Boston Private Financial Holdings 2.24
Bacou USA Inc 2.19
Stewart Information Services 2.17
Shuffle Master Inc. 2.17
First Republic Bank 2.10
Lifeline Systems Inc. 2.00
Boston Communications Group 1.98
Total 21.77
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Sector Russell
Diversification (%) Portfolio 2000 Difference
--------------------------------------------------------------------------------
Technology 13.6 16.1 -2.5
Healthcare 6.2 14.8 -8.6
Consumer Discretionary 11.5 16.0 -4.5
Consumer Staples 5.3 2.4 +2.9
Energy 5.6 3.4 +2.2
Materials & Processing 8.8 8.5 +0.3
Producer Durables 16.4 8.5 +7.9
Autos & Transportation 2.2 3.1 -0.9
Financial Services 25.5 20.0 +5.5
Utilities 3.1 6.2 -3.1
Other 1.7 1.1 +0.6
--------------------------------------------------------------------------------
<PAGE>
DLB SMALL COMPANY OPPORTUNITIES
--------------------------------------------------------------------------------
PERFORMANCE REVIEW
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2000, THE DLB SMALL COMPANY OPPORTUNITIES
FUND WAS UP 45.9%, VERSUS 17.4% FOR THE RUSSELL 2000 INDEX. The Russell 2000
Value Index was up 17.3%. The value bent helped the Fund, but we markedly
outperformed both indices. The Fund benefited from great stock picks and timely
industry sector weightings, which both emanated from our bottom-up stock picking
approach.
OUTLOOK
WE BELIEVE THE OUTLOOK FOR THE STOCK MARKET IS NOT AS BAD AS THE NEAR-TERM
ECONOMIC PICTURE. The Federal Reserve has moved to a loosening bias, which means
it is likely to lower rates if the economy continues to weaken. If the Federal
reserve does lower rates, it could provide a market stimulus. It could take
three to six months, but that is not important in the grand scheme of things.
AS THE STOCK MARKET DECLINES, IT WILL PROVIDE OPPORTUNITIES TO BUY EXCITING
GROWTH COMPANIES AT BARGAIN PRICES. Only the future will determine if we are
choosing the right ones. We certainly did during fiscal year 2000. Thank you for
your patience. We believe it will continue to be rewarded, long term.
<PAGE>
DLB SMALL COMPANY OPPORTUNITIES
--------------------------------------------------------------------------------
GROWTH OF A
$100,000 INVESTMENT
[CHART APPEARS HERE]
SMALL COMPANY RUSSELL RUSSELL 2000
DATE OPPORTUNITIES 2000 INDEX VALUE INDEX
$100,000.00 $100,000.00 $100,000.00
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
30-Nov-99 $94,003.04 $100,026.77 $84,987.33
Dec 1999 $97,988.77 $111,349.80 $87,596.44
Jan 2000 $100,732.46 $109,557.07 $85,310.17
Feb 2000 $108,055.71 $127,644.94 $90,522.63
Mar 2000 $118,223.75 $119,233.14 $90,948.08
Apr 2000 $115,681.94 $112,055.30 $91,484.68
May 2000 $114,154.94 $105,522.48 $90,084.96
Jun 2000 $126,449.42 $114,724.04 $92,715.44
Jul 2000 $126,044.79 $111,029.93 $95,802.87
Aug 2000 $131,842.85 $119,501.51 $100,085.25
Sep 2000 $133,873.23 $115,988.17 $99,514.77
Oct 2000 $129,294.76 $110,815.09 $99,156.51
--------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 10/31/00
--------------------------------------------------------------------------------
6 Months 1 Year Annualized
5/1/00- 11/1/99- Since Inception
10/31/00 10/31/00 7/20/98-
10/31/00
DLB Small Company Opportunities 11.78 45.92 11.64
Russell 2000 Index -1.11 17.41 4.53
Russell 2000 Value Index 8.40 17.30 -0.19
--------------------------------------------------------------------------------
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 SMALL COMPANY OPPORTUNITIES
--------------------------------------------------------------------------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Small Company
Opportunities 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 2000
<PAGE>
DLB SMALL COMPANY
OPPORTUNITIES FUND
FINANCIAL STATEMENTS FOR THE YEAR ENDED
OCTOBER 31, 2000 AND THE TEN MONTHS
ENDED OCTOBER 31, 1999
<PAGE>
DLB SMALL COMPANY OPPORTUNITIES FUND
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of October 31, 2000 2 - 5
Statement of Assets and Liabilities as of October 31, 2000 6
Statement of Operations for the Year Ended October 31, 2000 7
Statements of Changes in Net Assets for the Year Ended
October 31, 2000, the Ten Months Ended October 31, 1999,
and Period from July 20, 1998 (commencement of operations)
to December 31, 1998 8
Financial Highlights for the Year Ended October 30, 2000, the
Ten Months Ended October 31, 1999, and the Period from
July 20, 1998 (commencement of operations) to
December 31, 1998 9
Notes to Financial Statements 10 - 12
<PAGE>
DELOITTE
& TOUCHE
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116-5022
Tel:(617) 437 2000
Fax:(617) 437 2111
www.us.deloitte.com
INDEPENDENT AUDITORS' REPORT
To the Trustees of The DLB Fund Group and
Shareholders of DLB Small Company Opportunities Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Small Company Opportunities Fund (the
"Fund") (formerly known as DLB Micro Capitalization Fund) (a series of The DLB
Fund Group) as of October 31, 2000, and the related statement of operations for
the year then ended, and the statements of changes in net assets and the
financial highlights for the year ended October 31, 2000, 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 auditing standards generally accepted
in the United States of America. 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, 2000, 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 referred to
above present fairly, in all material respects, the financial position of DLB
Small Company Opportunities Fund at October 31, 2000, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for the year then ended, the ten months ended October 31,
1999 and the period from July 20, 1998 (commencement of operations) to December
31, 1998, in conformity with accounting principles generally accepted in the
United States of America.
/s/ Deloitte & Touche LLP
December 8, 2000
--------
Deloitte
Touche
Tohmatsu
--------
<PAGE>
DLB SMALL COMPANY OPPORTUNITIES FUND
<TABLE><CAPTION>
PORTFOLIO OF INVESTMENTS
October 31, 2000
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 91.9%
ISSUER SHARES VALUE
AEROSPACE - 1.1%
Herley Industries, Inc (*) 43,600 $ 888,350
-----------
AIRLINES - 0.2%
Hub Group, Inc. (*) 17,200 139,213
-----------
BANKS - 11.3%
Boston Private Financial Holdings, Inc. 106,500 1,903,688
CFS Bancorp, Inc. 109,300 1,147,650
Financial Institutions, Inc. 92,300 1,315,275
First Essex Bancorp, Inc. 91,500 1,595,531
First Republic Bancorp Inc. (*) 65,600 1,779,400
Pacific Crest Capital, Inc. 76,000 959,500
Sterling Bancorp 41,400 812,475
-----------
9,513,519
-----------
CHEMICAL - SPECIALTY - 2.5%
Balchem Corporation 96,400 1,253,200
Penford Corporation 64,000 816,000
-----------
2,069,200
-----------
COMMUNICATION SERVICES - 3.4%
Boston Communications Group, Inc. (*) 71,200 1,682,100
Gentner Communications Corporation (*) 77,000 1,232,000
-----------
2,914,100
-----------
COMPUTER RELATED - 0.8%
PCD Inc. (*) 74,200 695,625
-----------
CONSTRUCTION - 1.2%
Crossman Communities, Inc. (*) 56,200 1,008,088
-----------
DIVERSIFIED - 4.7%
Azz Incorporated 71,600 1,114,275
Astronics Corporation (*) 95,300 992,350
Bacou USA, Inc. (*) 74,300 1,857,500
-----------
3,964,125
-----------
2
<PAGE>
ISSUER SHARES VALUE
ELECTRONICS & INSTRUMENTS - 10.2%
ADE Corporation (*) 77,200 $1,379,950
Bel Fuse Inc 37,608 1,509,021
Lifeline Systems, Inc. (*) 130,800 1,700,400
Signal Technology Corporation (*) 85,100 1,372,238
Spectrum Control, Inc. (*) 66,700 825,413
Wilson Greatbatch Technologies, Inc. (*) 29,600 710,400
Woodward Governor Company 26,200 1,173,270
-----------
8,670,692
-----------
ELECTRICAL EQUIPMENT - 6.3%
EDO Corporation 101,800 916,200
LSI Industries Inc. 71,200 1,335,000
SBS Technologies, Inc. 44,500 1,145,875
Woodhead Industries, Inc. 87,000 1,914,000
-----------
5,311,075
-----------
ELECTRICAL POWER - 0.7%
Southwest Water Company 43,200 583,200
-----------
EXPLORATION & DRILLING - 3.4%
RPC, Inc. 134,200 1,669,113
Stone Energy Corporation (*) 23,300 1,192,960
-----------
2,862,073
-----------
FINANCIAL SERVICES - 1.1%
Webster Financial Corporation 39,694 967,541
-----------
FOOD RETAILERS - 3.1%
Performance Food Group Company (*) 47,900 1,939,950
Wild Oats Markets, Inc. 113,800 718,363
-----------
2,658,313
-----------
INSURANCE COMPANIES - 5.5%
Donegal Group Inc. 14,700 139,650
Highlands Insurance Group, Inc. (*) 154,300 1,388,700
Midland Company 100 2,913
Stewart Information Services Corporation 117,100 1,844,325
Trenwick Group Ltd 64,700 1,269,738
-----------
4,645,326
-----------
MACHINERY & EQUIPMENT - 6.3%
Gardner Denver, Inc. (*) 79,400 1,458,975
Hardinge Inc. 95,600 1,105,375
Robbins & Myers, Inc. 38,100 921,544
Shuffle Master, Inc. 81,900 1,837,631
-----------
5,323,525
-----------
MATERIALS & PROCESSING - 1.1%
Esco Electronics Corporation (*) 51,000 927,563
-----------
3
<PAGE>
ISSUER SHARES VALUE
MEDIA - 1.5%
Saga Communications, Inc. 76,775 $1,266,788
-----------
MEDICAL SUPPLIES & SERVICES - 6.1%
ICU Medical, Inc. (*) 42,300 1,057,500
Meridian Diagnostics, Inc. 172,700 1,295,250
Morrison Management Specialists, Inc. 60,090 2,013,015
Novametrix Medical Systems Inc. (*) 153,300 785,663
-----------
5,151,428
-----------
METAL PRODUCTS - 0.5%
CompX International Inc. 36,600 436,913
-----------
NATURAL GAS - 1.4%
EnergySouth, Inc. 10,500 216,563
Osca, Inc. (*) 61,600 954,800
-----------
1,171,363
-----------
OIL - INTERNATIONAL - 0.5%
Chieftain International, Inc. (*) 22,300 451,575
-----------
PAPER & FOREST PRODUCTS - 1.0%
Fibermark, Inc. (*) 104,000 838,500
-----------
PHOTO & OPTICAL - 1.3%
II VI Inc. 54,500 1,127,469
-----------
PROFESSIONAL SERVICES - 2.9%
FTI Consulting, Inc. (*) 172,800 1,188,000
Quixote Corporation 77,100 1,262,513
-----------
2,450,513
-----------
REAL ESTATE - 1.9%
Mid-Atlantic Realty Trust REIT 143,100 1,609,875
-----------
RETAIL - SPECIALTY - 1.4%
Bridgford Food Corporation 96,653 1,208,163
-----------
SAVINGS & LOANS - 2.2%
Flushing Financial Corporation 77,300 1,178,825
Lawrence Savings Bank 77,200 665,850
-----------
1,844,675
-----------
SEMICONDUCTORS - 4.6%
BTU International, Inc. (*) 127,200 1,510,500
Elantec Semiconductor, Inc. 6,000 667,500
Richardson Electronics, Ltd. 71,900 984,131
Rudolph Technologies, Inc. (*) 18,500 721,500
-----------
3,883,631
-----------
TRANSPORTATION - 1.4%
GulfMark Offshore, Inc. (*) 43,200 1,225,800
-----------
4
<PAGE>
ISSUER SHARES VALUE
TRUCKING & SHIPPING - 0.6%
Forward Air Corporation 12,200 $ 501,725
-----------
WHOLESALERS - 1.7%
Scansource, Inc. (*) 3,600 171,900
United Natural Foods, Inc. 99,900 1,254,987
-----------
1,426,887
-----------
TOTAL COMMON STOCKS
(identified cost, $73,301,743) 77,736,833
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 10.4%
Investors Bank & Trust Repurchase Agreement, 5.69%,
dated 10/31/00, $8,833,542 due on 11/1/00 (secured by
Federal Government Agency securities), at cost $8,832,146 8,832,146
-----------
TOTAL INVESTMENTS (identified cost, $82,133,889 ) 86,568,979
Other assets, less liabilities - (2.3%) (1,962,069)
-----------
NET ASSETS - 100% $84,606,910
===========
(*) Non-income producing security
</TABLE>
See notes to financial statements.
5
<PAGE>
DLB SMALL COMPANY OPPORTUNITIES FUND
<TABLE><CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2000
-----------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $82,133,889 ) $86,568,979
Receivable for investments sold 655,358
Receivable for fund shares sold 485,142
Dividends and interest receivable 16,948
-----------
87,726,427
-----------
LIABILITIES:
Payable for investments purchased 2,418,361
Payable for fund shares reacquired 596,321
Payable to investment manager 7,103
Accrued management fee 69,096
Accrued expenses 36,509
-----------
3,127,390
-----------
NET ASSETS $84,599,037
===========
NET ASSETS CONSIST OF:
Paid-in capital $70,405,610
Unrealized appreciation of investments 4,435,090
Accumulated undistributed net realized gain on investment transactions 9,596,117
Accumulated undistributed net investment income 162,220
-----------
$84,599,037
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 6,650,802
===========
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 12.72
===========
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB SMALL COMPANY OPPORTUNITIES FUND
<TABLE><CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2000
-----------------------------------------------------------------------------------
<S> <C>
NET INVESTMENT INCOME:
Interest $ 400,198
Dividends 458,933
------------
859,131
------------
EXPENSES:
Management fee 536,112
Trustees' fees 7,050
Custodian fees 87,118
Accounting and audit fees 29,493
Registration fees 30,150
Legal fees 14,040
Transfer agent fee 8,949
Miscellaneous 6,228
------------
719,140
Reduction of expenses by investment manager (22,229)
------------
Net expenses 696,911
------------
Net investment income 162,220
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain (identified cost basis) 9,780,107
Change in unrealized appreciation 6,606,294
------------
Net realized and unrealized gain on investments 16,386,401
------------
Increase in net assets from operations $ 16,548,621
============
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB SMALL COMPANY OPPORTUNITIES FUND
<TABLE><CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------------------------------------------------------------------------------------
YEAR TEN MONTHS PERIOD ENDED
ENDED ENDED DECEMBER 31,
OCTOBER 31, 2000 OCTOBER 31, 1999 1998*
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS:
From operations:
Net investment income (loss) $ 162,220 $ (38,703) $ (22,705)
Net realized gain (loss) on investments 9,780,107 1,618,801 (1,198,252)
Net unrealized appreciation (depreciation)
of investments 6,606,294 (556,308) (1,614,896)
------------ ------------ ------------
16,548,621 1,023,790 (2,835,853)
------------ ------------ ------------
Distributions to shareholders:
From net realized gain on investments (556,658) -- --
------------ ------------ ------------
Fund share transactions:
Net proceeds from sales of shares 48,739,631 11,120,455 22,745,914
Net asset value of shares issued in
reinvestment of distributions 264,882 -- --
Cost of shares reacquired (12,216,387) (235,368) --
------------ ------------ ------------
36,788,126 10,885,087 22,745,914
------------ ------------ ------------
Total increase in net assets 52,780,089 11,908,877 19,910,061
NET ASSETS:
At beginning of period 31,818,948 19,910,071 10
------------ ------------ ------------
At end of period (including accumulated undistributed
net investment income of $162,220 in 2000) $ 84,599,037 $ 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 SMALL COMPANY OPPORTUNITIES FUND
<TABLE><CAPTION>
FINANCIAL HIGHLIGHTS
---------------------------------------------------------------------------------------------------------------------
Year Ten Months Period
Ended Ended Ended
October 31, October 31, December 31,
2000 1999 1998**
------- ------- -------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value- beginning of period $ 8.89 $ 8.61 $ 10.00
------- ------- -------
Income from investment operations:
Net investment income (loss) .02 (.01) (.01)
Net realized and unrealized gain (loss) on investments 3.96 .29 (1.38)
------- ------- -------
3.98 .28 (1.39)
------- ------- -------
Less distributions to shareholders:
From net realized gain on investments (.15) - -
------- ------- -------
Net asset value- end of period $ 12.72 $ 8.89 $ 8.61
======= ======= =======
Total return 45.92% 2.92% (13.90%)
Ratios and Supplemental Data:
Ratio of expenses to average net assets 1.30% 1.30%* 1.30% *
Ratio of net investment income (loss) to average net assets .30% (.18%)* (.28%)*
Portfolio turnover 114% 68% 51%
Net assets at end of period (000 omitted) $84,599 $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 income (loss)
per share and ratios would have been:
Net investment income (loss) $ .02 $ (.02) $ (.03)
Ratios (to average net assets):
Expenses 1.34% 1.51%* 1.77% *
Net investment income (loss) .26% (.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>
1. BUSINESS AND ORGANIZATION
DLB Small Company Opportunities Fund (the "Fund") (formerly known as DLB
Micro 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.
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
collateral in a repurchase transaction 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 ensure 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 gain on investments.
Accordingly, no provision for federal income or excise tax is 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 year ended October 31, 2000, $9,178 was reclassified
from accumulated undistributed net realized gain on investment transactions
to paid-in capital due to differences in book and tax accounting. 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 accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the amounts reported in the financial statements. Actual results could
differ from such estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Company 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 year
ended October 31, 2000, the management fee amounted to $536,112. 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
year ended October 31, 2000, $22,229 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 year ended October 31, 2000 aggregated $87,162,764 and $53,955,895,
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 $ 83,508,313
============
Gross unrealized appreciation $ 7,057,636
Gross unrealized depreciation (3,996,970)
------------
Net unrealized appreciation $ 3,060,666
============
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>
Period from
Year July 20, 1998
Ended Ten Months (commencement of
October 31, Ended operations) to
2000 October 31, 1999 December 31, 1998
---------- ---------- ----------
<S> <C> <C> <C>
Shares sold 4,055,779 1,291,792 2,311,291
Shares issued in reinvestment
of distributions 28,300 -- --
Redemptions (1,010,683) (25,678) --
---------- ---------- ----------
Net increase 3,073,396 1,266,114 2,311,291
========== ========== ==========
</TABLE>
12
<PAGE>
DLB
THE DLB STEWART IVORY INTERNATIONAL FUND
ANNUAL REPORT
OCTOBER 31, 2000
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB STEWART IVORY INTERNATIONAL FUND
--------------------------------------------------------------------------------
FUND INVESTMENT OBJECTIVE
THE DLB STEWART IVORY INTERNATIONAL FUND seeks long-term growth of capital
through investment primarily in equity securities of foreign companies.
MARKET OVERVIEW
ECONOMIC GROWTH BEGAN TO SLOW AS THE IMPACT OF HIGHER INTEREST RATES WAS FINALLY
FELT. The European Central Bank and the Bank of Japan raised rates, at least
during the early part of the period under review. Part of the reason behind the
ECB's action was to support the euro, which fell to its lowest ever level
against the dollar. Intervention was also used to prop up the single currency.
The high oil price has raised fears of inflation.
THE CORRECTION IN THE SO-CALLED 'NEW ECONOMY' GROWTH SECTORS, NOTABLY
TECHNOLOGY/MEDIA/ TELECOMMUNICATIONS (TMT), WHICH STARTED TOWARDS THE END OF THE
FIRST QUARTER, CONTINUED THROUGHOUT THE LATEST PERIOD. The more defensive
sectors such as pharmaceuticals and financials have found favour as investors
have become much more cautious towards the more highly rated sectors (sectors
trading at higher valuations), especially as these areas have become subject to
earnings downgrades.
PORTFOLIO STRATEGY REVIEW
OVER THE SIX-MONTH PERIOD ENDED OCTOBER 31, 2000 WE REDUCED OUR HOLDINGS IN
JAPAN, AUSTRALIA AND CHINA/HONG KONG AND ADDED TO THE UK AND CONTINENTAL EUROPE.
We are still slightly under the index weighting in Europe, but reduced the
disparity with new holdings in Germany, Finland and the Netherlands. Europe
continues to offer a greater selection of companies with good growth prospects.
New names added included Sage (accounting software) and Pearson (media) in the
UK, Sonera (mobile telephony) in Finland and Ergo (insurance) in Germany.
IN THE PACIFIC AREA WE BOUGHT NEW HOLDINGS IN MARUI (RETAILER), NEC CORP
(ELECTRICALS) AND DISCO (SEMICONDUCTUR MACHINERY) IN JAPAN AND ADDED TO A NUMBER
OF POSITIONS IN CHINA/HONG KONG. In emerging markets we bought shares in
Telefonos de Mexico (telecommunications).
THE FUND'S TOP TEN HOLDINGS AND COUNTRY WEIGHTINGS CAN BE FOUND ON THE FOLLOWING
PAGE:
<PAGE>
DLB STEWART IVORY INTERNATIONAL FUND
--------------------------------------------------------------------------------
PORTFOLIO STRATEGY REVIEW
(CONT.)
--------------------------------------------------------------------------------
Top 10 Equity Holdings % of Fund Assets
--------------------------------------------------------------------------------
Vodafone AirTouch (United Kingdom) 3.2
Spirent (United Kingdom) 2.2
ING Group (Netherlands) 2.1
Nokia (Finland) 2.1
Nordic Baltic (Sweden) 2.0
AXA (France) 1.9
Fresenius (Germany) 1.9
Vontobel Holdings (Switzerland) 1.9
Securitas 'B' (Sweden) 1.9
Bipop-Carire (Italy) 1.8
Total 21.0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Top 10 Countries % of Fund Assets
--------------------------------------------------------------------------------
UK 22.1
Japan 21.6
France 7.6
Netherlands 6.6
Sweden 6.3
Germany 5.2
Switzerland 4.7
Italy 3.5
Finland 2.9
Spain 2.8
Total 83.3
--------------------------------------------------------------------------------
PERFORMANCE REVIEW
THE FUND POSTED STRONG PERFORMANCE FOR THE ONE-YEAR PERIOD ENDED OCTOBER 31,
2000, RETURNING 5.80% VERSUS THE MSCI EAFE INDEX RETURN OF -2.66% FOR THE SAME
PERIOD. Over the six months ended October 31, 2000, the Fund's performance was
just ahead of the benchmark, with a loss of 8.79%, compared with a fall of 8.89%
in the MSCI Europe, Australasia, Far East (EAFE) Index. Despite this being a
difficult period for growth stocks, the more defensive nature of some of our
favorite companies enabled the Fund to finish ahead of the benchmark.
<PAGE>
DLB STEWART IVORY INTERNATIONAL FUND
--------------------------------------------------------------------------------
OUTLOOK
WITH A STRONG BIAS TOWARDS 'GROWTH' SECTORS WE HAVE A PORTFOLIO STYLE WHICH DOES
NOT REPLICATE THE INDICES, AND WHICH MAY UNDERPERFORM MARKETS DURING PERIODS
WHEN DECREASED 'VALUE' STOCKS ARE IN FAVOR. We firmly believe that high quality
companies selected for their above-average earnings growth, combined with solid
financial strength, will outperform markets in the medium to long term. When
growth stocks underperform we use share price weakness to buy more stock.
OVER RECENT YEARS THE U.S. MARKET HAS SEEN SIGNIFICANT BENEFITS FROM CORPORATE
RESTRUCTURING AND RATIONALIZATION, AND ALSO FROM NEW SAVINGS PATTERNS WHICH
FAVOR EQUITY INVESTMENT. International markets are showing similar influences,
but are at a relatively early stage compared with the U.S., and we believe these
factors will continue to exert a positive influence on share prices. We strongly
believe that our approach is well suited to deliver superior investment results.
<PAGE>
DLB STEWART IVORY INTERNATIONAL FUND
--------------------------------------------------------------------------------
GROWTH OF A
$100,000 INVESTMENT
[CHART APPEARS HERE]
Date DLB SI Int'l Fund MSCI EAFE
$100,000.00 $100,000.00
Nov 1999 $106,900.00 $103,500.00
Dec 1999 $117,002.05 $112,804.65
Jan 2000 $110,297.83 $105,652.84
Feb 2000 $119,298.14 $108,516.03
Mar 2000 $121,397.78 $112,748.15
Apr 2000 $115,995.58 $106,840.15
May 2000 $112,190.93 $104,254.62
Jun 2000 $114,490.84 $108,351.82
Jul 2000 $111,491.18 $103,833.55
Aug 2000 $113,386.53 $104,757.67
Sep 2000 $109,984.93 $99,676.92
Oct 2000 $105,783.51 $97,344.48
--------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 10/31/00
--------------------------------------------------------------------------------
6 Months 1 Year
5/1/00- 11/1/99-
10/31/00 10/31/00
DLB Stewart Ivory -8.79 5.80
International Fund
MSCI EAFE -8.89 -2.66
--------------------------------------------------------------------------------
DISCLOSURE STATEMENT
THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA, FAR EAST INDEX
(MSCI EAFE) is a broad-based index that is composed of approximately 1,000
stocks traded on 20 stock exchanges from around the world.
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 STEWART IVORY INTERNATIONAL FUND
--------------------------------------------------------------------------------
SHAREHOLDER MEETINGS
(UNAUDITED)
1. A Special Meeting of Shareholders of the DLB Global Small Capitalization
Fund, DLB Stewart Ivory International Fund and DLB Stewart Ivory Emerging
Markets Fund was held on June 5, 2000. At the Special Meeting, shareholders
of each Fund voted to approve a new investment sub-advisory agreement with
respect to each Fund between David L. Babson & Company Inc. and
Babson-Stewart-Ivory International. The following is a report on the votes
cast:
--------------------------------------------------------------------------------
Withhold/
For Against Abstain
--------------------------------------------------------------------------------
DLB Global Small 1,456,354.929 0 0
Capitalization Fund
DLB Stewart Ivory 2,557,734.581 0 0
Emerging Markets Fund
DLB Stewart Ivory 5,014,013.859 0 677,695.473
International Fund
--------------------------------------------------------------------------------
2. A Special Meeting of Shareholders of the DLB Global Small Capitalization
Fund, DLB Stewart Ivory International Fund and DLB Stewart Ivory Emerging
Markets Fund was held on September 15, 2000. At the Special Meeting,
shareholders of each such Fund voted to approve a new investment sub-advisory
agreement with respect to each Fund between David L. Babson & Company Inc.
and Babson- Stewart-Ivory International. The following is a report on the
votes cast:
--------------------------------------------------------------------------------
Withhold/
For Against Abstain
--------------------------------------------------------------------------------
DLB Global Small 1,446,496.630 0 0
Capitalization Fund
DLB Stewart Ivory 2,594,532.584 0 0
Emerging Markets Fund
DLB Stewart Ivory 5,075,869.870 0 520,851.995
International Fund
--------------------------------------------------------------------------------
<PAGE>
DLB STEWART IVORY INTERNATIONAL FUND
--------------------------------------------------------------------------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Stewart Ivory
International 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 2000
<PAGE>
DLB STEWART IVORY
INTERNATIONAL FUND
FINANCIAL STATEMENTS FOR THE PERIOD FROM
NOVEMBER 2, 1999 (COMMENCEMENT OF
OPERATIONS ) TO OCTOBER 31, 2000
<PAGE>
DLB STEWART IVORY INTERNATIONAL FUND
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of October 31, 2000 2 - 4
Statement of Assets and Liabilities as of October 31, 2000 5
Statement of Operations from November 2, 1999 (commencement
of operations) to October 31, 2000 6
Statement of Changes in Net Assets from November 2, 1999
(commencement of operations) to October 31, 2000 7
Financial Highlights from November 2, 1999 (commencement
of operations) to October 31, 2000 8
Notes to Financial Statements 9 - 12
<PAGE>
DELOITTE
& TOUCHE
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116-5022
Tel:(617) 437 2000
Fax:(617) 437 2111
www.us.deloitte.com
INDEPENDENT AUDITORS' REPORT
To the Trustees of The DLB Fund Group and
Shareholders of DLB Stewart Ivory International Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Stewart Ivory International Fund (the
"Fund") (a series of The DLB Fund Group) as of October 31, 2000, and the related
statements of operations and changes in net assets and the financial highlights
for the period from November 2, 1999 (commencement of operations) to October 31,
2000. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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, 2000, 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of DLB
Stewart Ivory International Fund at October 31, 2000, the results of its
operations, the changes in its net assets, and the financial highlights for the
period from November 2, 1999 (commencement of operations) to October 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche LLP
December 8, 2000
--------
Deloitte
Touche
Tohmatsu
--------
<PAGE>
DLB STEWART IVORY INTERNATIONAL FUND
<TABLE><CAPTION>
PORTFOLIO OF INVESTMENTS
October 31, 2000
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common and Preferred Stocks - 95.2%
ISSUER SHARES VALUE
U.K. - 22.1%
AstraZeneca PLC (Pharmaceuticals) 12,000 $ 561,130
Bank of Scotland - (Banking) 50,000 465,725
BBA Group (Engineering/machinery) 50,000 274,148
Capita Group PLC - (Business services, outsourcing) 100,000 760,515
Electrocomponents PLC - (Electronic component distribution) 52,000 518,251
Energis - (Telecom networks)(*) 80,000 683,160
Hays PLC - (Business services, logistics) 63,000 343,373
Lloyds TSB Group PLC - (Banking) 63,000 640,658
Logica PLC - (IT Consultancy) 28,600 844,757
Wm.Morrison PLC - (Supermarkets) 200,000 518,599
Pearson PLC (Publishing) 11,000 294,631
The Sage Group PLC (Software) 108,000 786,937
Shell Transport & Trading - (Integrated oil, gas) 88,000 706,859
SmithKline Beecham PLC - (Pharmaceuticals) 57,004 734,926
Spirent PLC (IT hardware) 125,000 1,157,069
SSL International PLC - (Healthcare products) 41,000 475,141
Vodafone Group PLC - (Cellular telecoms) 394,000 1,636,621
------------
11,402,500
------------
BELGIUM - 1.1%
Colruyt (Post Split) - (Supermarkets) 15,000 579,419
------------
DENMARK - 1.2%
ISS Intl Service System B - (Cleaning, building services)(*) 10,000 616,052
------------
FINLAND - 2.9%
Nokia - (Telecom equipment) 26,000 1,071,503
Sonera Corporation (Telecom services) 20,000 441,268
------------
1,512,771
------------
FRANCE - 7.6%
AXA Company FRF60 - (Insurance, financial services) 7,583 1,005,388
Banque Nationale de Paris - (Banking) 9,000 777,149
L'Oreal (Healthcare/cosmetics) 10,000 764,910
Pinault Printemps-Redoute - (Retailing) 3,700 661,316
Total Fina Elf - (Integrated oil, gas) 5,000 716,466
------------
3,925,229
------------
GERMANY - 5.2%
Ergo Versicherungsgruppe (Insurance) 2,900 401,748
Fresenius N-Vtg Pref - (Medical equipment)(**) 4,000 985,884
Schering AG - (Pharmaceuticals) 15,000 840,126
SCM Microsystems - (Smart cards)(*) 12,000 460,986
------------
2,688,744
------------
2
<PAGE>
ISSUER SHARES VALUE
ITALY - 3.5%
BIPOP -CARIRE S.P.A - (Financial services) 120,000 $ 955,628
Luxottica ADR - (Eyeglass frames, retailing) 60,000 866,250
------------
1,821,878
------------
LUXEMBOURG - 1.1%
SES Astra - (Satellite broadcasting)(*) 4,400 587,111
------------
NETHERLANDS - 6.6%
Buhrmann NV - (Office products) 27,500 752,586
ING Groep - (Financial services) 16,000 1,100,383
Kon KPN NV - (Telecom networks) 20,000 405,742
Philips Electric (Electronic equipment) 11,640 458,137
VNU NV - (Publishing, media services) 15,000 707,542
------------
3,424,390
------------
PORTUGAL - 1.4%
Portugal Telecom (Reg) - (Telecom networks) 82,000 731,764
------------
SPAIN 2.8%
BB Vizcaya Argentaria - (Banking) 45,000 600,454
Telefonica SA - (Telecom networks)(*) 44,321 846,409
------------
1,446,863
------------
SWEDEN - 6.3%
L.M. Ericsson 'B' - (Electrical, telecom equipment) 64,000 852,479
Metro International Class A (Media, publishing) (*) 3,000 30,946
Metro International Class B (Media, publishing) (*) 7,000 84,827
Modern Times B - (Media, publishing)(*) 10,000 255,383
Nordic Baltic (formerly Nordbanken) - (Financial services) 140,000 1,038,107
Securitas 'B' - (Security services) 46,000 981,272
------------
3,243,014
------------
SWITZERLAND - 4.7%
ABB - (Engineering) 7,000 622,807
Novartis (Regd) - (Pharmaceuticals) 550 835,338
Vontobel Hldgs (Br) - (Financial services) 350 983,431
------------
2,441,576
------------
AUSTRALIA - 0.5%
Broken Hill Proprietary - (Energy, resources) 24,000 232,478
------------
CHINA - 0.6%
Asia Satellite Telecom (Satellite operator) 154,000 311,973
------------
3
<PAGE>
ISSUER SHARES VALUE
JAPAN - 21.6%
Credit Saison - (Financial services) 30,600 $ 647,367
Daihatsu Motor - (Autos) 75,000 594,148
Disco Company (Electronic equipment) 5,000 471,197
Fuji Photo Film - (Photographic products) 21,000 778,917
Hoshiden - (Electronic components) 20,000 637,421
Hoya Corp - (Glass, electronic components) 10,000 826,083
Japan Airport Terminal - (Airport services) 49,000 365,739
Marui Co (General retail) 25,000 368,624
NEC Corp (Electricals) 25,000 476,234
Nippon Comsys - (Telecom equipment, engineering) 41,000 788,534
Nomura Securities - (Securities house) 30,000 636,047
NTT Docomo - (Cellular telecoms) 28 689,807
Omron - (Industrial equipment) 20,000 492,719
Secom - (Security services) 9,000 641,268
Sony - (Consumer electronics) 7,000 559,026
Takeda Chemical - (Pharmaceuticals, chemicals) 13,000 856,031
TDK Corp. - (Electronic components) 5,000 503,709
Terumo - (Medical equipment) 30,000 848,979
------------
11,181,850
------------
HONG KONG - 2.7%
Hong Kong & China Gas - (Gas utility) 546,940 690,740
Swire Pacific 'B' - (Property, airlines, trading) 862,000 679,706
------------
1,370,446
------------
SINGAPORE - 0.9%
Overseas Union Bank - (Banking) 95,964 464,518
------------
BRAZIL - 1.2%
Tele Norte Leste ADR - (Telecom networks) 28,000 619,500
------------
MEXICO - 1.2%
Telefonos de Mexico ADR (Telecom services) 11,600 625,670
------------
TOTAL COMMON AND PREFERRED STOCKS
(identified cost, $40,631,983) 49,227,746
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 3.7%
Investors Bank & Trust Repurchase Agreement, 5.69%,
dated 10/31/00, $1,926,232 due on 11/1/00 (secured by
Federal Government Agency securities), at cost $ 1,925,928 1,925,928
------------
TOTAL INVESTMENTS (identified cost, $42,557,911) 51,153,674
Other assets, less liabilities - 1.1% 543,649
------------
NET ASSETS - 100% $ 51,697,323
============
(*) Non-income producing security
(**) Preferred Stock
</TABLE>
See notes to financial statements.
4
<PAGE>
DLB STEWART IVORY INTERNATIONAL FUND
<TABLE><CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2000
---------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $42,557,911) $51,153,674
Foreign cash, at value (cost, $591,292) 586,096
Receivable for investments sold 3,260
Dividends and interest receivable 34,606
Receivable for fund shares sold 3,248
Receivable from investment manager 4,339
Other assets 36,510
-----------
51,821,733
-----------
LIABILITIES:
Payable for investments purchased 43,313
Payable for fund shares reacquired 240
Accrued management fees 33,386
Accrued expenses 47,471
-----------
124,410
-----------
NET ASSETS $51,697,323
===========
NET ASSETS CONSIST OF:
Paid-in capital $32,864,618
Unrealized appreciation of investments and translation of assets and
liabilities in foreign currencies 8,578,195
Accumulated undistributed net realized gain on investments and
foreign currency transactions 10,149,303
Accumulated undistributed net investment income 105,207
-----------
Total $51,697,323
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 4,885,371
===========
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 10.58
===========
</TABLE>
See notes to financial statements.
5
<PAGE>
DLB STEWART IVORY INTERNATIONAL FUND
<TABLE><CAPTION>
STATEMENT OF OPERATIONS
PERIOD FROM NOVEMBER 2, 1999 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 2000
------------------------------------------------------------------------------------------------
<S> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign tax withheld of $81,882) $ 736,155
Interest 94,123
------------
830,278
------------
EXPENSES:
Management fee 484,194
Trustees' fees 6,636
Custodian fees 131,792
Registration fees 37,591
Accounting and audit fees 34,017
Legal fees 12,205
Transfer agent fee 7,891
Miscellaneous 3,711
------------
718,037
Reduction of expenses by investment manager (73,038)
------------
Net expenses 644,999
------------
Net investment income 185,279
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) (identified cost basis):
Investment transactions 10,149,303
Foreign currency transactions and forward foreign currency exchange
contracts and other transactions denominated in foreign currency (80,072)
------------
Net realized gain on investments and foreign currency 10,069,231
------------
Change in unrealized appreciation (depreciation):
Investments (5,748,036)
Foreign currency and forward foreign currency exchange contracts
and other transactions denominated in foreign currency (8,784)
------------
Net unrealized loss on investments and foreign currency (5,756,820)
------------
Net realized and unrealized gain on investments and foreign
currency 4,312,411
------------
Increase in net assets from operations $ 4,497,690
============
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB STEWART IVORY INTERNATIONAL FUND
<TABLE><CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
PERIOD FROM NOVEMBER 2, 1999 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 2000
-----------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 185,279
Net realized gain on investments and
foreign currency 10,069,231
Net unrealized appreciation of investments
and foreign currency (5,756,820)
------------
4,497,690
------------
Fund share transactions:
Net proceeds from sales of shares 5,173,843
Net proceeds from merger of Limited Partnership 61,680,896
Cost of shares reacquired (19,655,106)
------------
47,199,633
------------
Total increase in net assets 51,697,323
NET ASSETS:
At beginning of period --
------------
At end of period (including accumulated undistributed
net investment income of $105,207) $ 51,697,323
============
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB STEWART IVORY INTERNATIONAL FUND
<TABLE><CAPTION>
FINANCIAL HIGHLIGHTS
Period from November 2, 1999 (commencement of operations) to October 31, 2000
------------------------------------------------------------------------------------------------------------------
<S> <C>
Per share data (for a share outstanding throughout
the period):
Net asset value- beginning of period $ 10.00
-------
Income from investment operations:
Net investment income .04
Net realized and unrealized gain on investments
and foreign currency .54
-------
.58
-------
Net asset value- end of period $ 10.58
=======
Total return 5.80%
Ratios and Supplemental Data:
Ratio of expenses to average net assets 1.00%
Ratio of net investment income to average net assets .29%
Portfolio turnover 48%
Net assets at end of period (000 omitted) $51,697
The manager has agreed with the Fund to reduce its management fee and/or bear certain expenses, such that the
Fund's total expenses do not exceed 1.00% of average daily net assets. Without such agreement the net
investment income per share and ratios would have been:
Net investment income $ .02
Ratios (to average net assets):
Expenses 1.11%
Net investment income .17%
* Annualized
</TABLE>
See notes to financial statements.
8
<PAGE>
DLB STEWART IVORY INTERNATIONAL FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Stewart Ivory International 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. The Fund commenced
operations on November 2, 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
collateral in a repurchase transaction 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 ensure 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 unrealized
until the contract settlement date.
9
<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 period ended October 31, 2000, $80,072 was reclassified
to accumulated undistributed net realized gain on investments and foreign
currency transactions from accumulated undistributed net investment income
due to differences between book and tax accounting for foreign currency
transactions. During the period ended October 31, 2000, income from foreign
sources was $818,037, and the Fund designated a foreign tax credit of
$81,882. 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 accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the amounts reported in the financial statements. Actual results could
differ from such estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Company 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
period from November 2, 1999 (commencement of operations) to October 31,
2000, the management fee amounted to $484,194. Babson has agreed to pay the
Fund's operating expenses such that the Fund's total aggregate expenses do
not exceed 1.00% of average daily net assets. For the period ended October
31, 2000, $73,038 of Fund expenses were borne by Babson.
10
<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 .375% 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 period from November 2, 1999 (commencement of operations) to October
31, 2000 aggregated $29,306,566 and $40,515,457, 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 $ 42,582,217
============
Gross unrealized appreciation $ 12,272,024
Gross unrealized depreciation (3,700,567)
------------
Net unrealized appreciation $ 8,571,457
============
5. SHARES OF BENEFICIAL INTEREST
On November 2, 1999, the Fund commenced investment operations by acquiring
all the assets of the Babson-Stewart Ivory International Limited
Partnership III ("Limited Partnership"). The acquisition was accomplished
by a tax free exchange of 6,168,090 shares of the Fund (valued at
$61,680,896) for the Limited Partnership's net assets on that date
($61,680,896), including $14,335,015 of unrealized appreciation. 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
November 2, 1999
(Commencement of
operations) to
October 31, 2000
----------
Shares sold 459,150
Shares issued from merger of Limited Partnership 6,168,090
Redemptions (1,741,869)
----------
Net increase 4,885,371
==========
11
<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, and securities of some foreign issuers (particularly those located
in developing countries) may be less liquid and more volatile than
securities of comparable U.S. companies. In general, there is less overall
government supervision and regulation of foreign securities markets,
broker-dealers, and issuers than in the United States.
12
<PAGE>
DLB
THE DLB STEWART IVORY EMERGING MARKETS FUND
Annual Report
October 31, 2000
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB EMERGING MARKETS FUND
--------------------------------------------------------------------------------
FUND INVESTMENT OBJECTIVE
THE DLB STEWART IVORY EMERGING MARKETS FUND seeks long-term growth of capital
primarily through equity investments that will generally be concentrated in what
the Fund's subadvisor considers to be the developing markets around the world.
MARKET OVERVIEW
THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS (FREE) INDEX, THE
FUND'S BENCHMARK, FELL 8.8% OVER THE 12 MONTHS TO THE END OF OCTOBER. After a
very strong rally, led by technology, media and telecommunications, emerging
markets have fallen substantially since March. It is perhaps no great surprise
that emerging markets have suffered as investors perceive them to be especially
volatile, and their appetite for risk has clearly diminished over the period.
Yet there remains a compelling underlying story (growth plus compelling
valuations) in global emerging markets at present and, as ever, indiscriminate
selling presents opportunities for the stock picker.
PORTFOLIO STRATEGY REVIEW
RELATIVE TO THE BENCHMARK, THE PORTFOLIO CONTINUES TO FAVOR ASIA, IS NEUTRAL
TOWARDS LATIN AMERICA AND UNDERWEIGHTS EMERGING EUROPE AND THE MIDDLE
EAST/AFRICA. Latin America has proved to be the most rewarding area, while
emerging Asia (until recently) has disappointed. Outperformance therefore has
been achieved through superior stock selection rather than asset allocation. In
particular, our emphasis on well managed, soundly financed, quality companies
with strong long term growth prospects has stood us in good stead during this
turbulent period.
LOOKING FORWARD, WE CONTINUE TO SEE CHINA AND BRAZIL AS SOME OF THE MOST
PROMISING AREAS FOR GROWTH.
CHINA'S ECONOMY IS IN THE MIDST OF A STRONG CYCLICAL TURNAROUND. Consumption and
investment continue to trend upwards and deflationary pressure appears to have
bottomed out. Recent news flow from China corroborates this. Electricity demand
is well ahead of expectations and the property market has emerged from a
five-year slump. Although the external environment is likely to deteriorate as
the U.S. economy slows, China's economic growth is much less export-orientated
than the majority of other Asian countries.
IN BRAZIL, WE EXPECT THIS YEAR'S ECONOMIC RECOVERY TO
<PAGE>
DLB EMERGING MARKETS FUND
--------------------------------------------------------------------------------
PORTFOLIO STRATEGY REVIEW
(CONT.)
BROADEN OUT WITH CONSUMPTION LIKELY TO PICK UP AS INTEREST RATES FALL AND
UNEMPLOYMENT CONTINUES TO FALL. Interest rates in Brazil are still very high in
real terms and have the potential to fall significantly.
CHINA RESOURCES ENTERPRISE, WITH ITS STRONG POSITION IN TRADING AND
DISTRIBUTION, AND TELE NORTE LESTE IN BRAZIL, WHICH PROVIDES TELEPHONE SERVICES
IN RIO DE JANEIRO AND THE NORTH OF BRAZIL, REMAIN TWO OF OUR FAVORITE COMPANIES.
THE FUND'S TOP TEN HOLDINGS AND SECTOR WEIGHTINGS CAN BE FOUND BELOW:
--------------------------------------------------------------------------------
Top 10 Equity Holdings % of Fund Assets
--------------------------------------------------------------------------------
Kookmin Bank 4.7
China Resources 3.0
Telmex 2.9
Tele Norte Leste 2.6
MSDW Indian Investment Fund 2.6
VSNL 2.6
Samsung Electronics 2.1
Lukoil 2.0
Softline 2.0
President Chain Stores 2.0
Total 26.5
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Top 10 Countries % of Fund Assets
--------------------------------------------------------------------------------
Korea 13.4
Mexico 12.6
Hong Kong 11.1
Brazil 10.2
India 6.3
Taiwan 5.7
South Africa 5.2
Turkey 3.9
Israel 3.9
Hungary 3.8
Total 76.1
--------------------------------------------------------------------------------
<PAGE>
DLB EMERGING MARKETS FUND
--------------------------------------------------------------------------------
PERFORMANCE REVIEW
IN RELATIVE TERMS, THE FUND HAS PERFORMED WELL FOR THE LAST SIX MONTHS OF THE
FISCAL YEAR ENDED 10/31/00 AND SINCE ITS INCEPTION ON NOVEMBER 1, 1999. The Fund
declined 14.1% during the six month period ended 10/31/00 versus the return of
its benchmark, the MSCI Emerging Markets Free Index, which declined 19.9%. For
the fiscal year ended 10/31/00, the Fund declined 0.3% against a fall of 8.8%
per cent in the MSCI Emerging Markets Free Index. Our style is not best suited
to momentum driven markets such as we saw in the last quarter of 1999 and the
first couple of months of 2000. Markets are now much less thematically driven
than earlier this year, and we are therefore comfortable that our investment
performance should continue to benefit from the more fundamental conditions now
prevailing.
OUTLOOK
UNLESS THE VOLATILITY IN U.S. STOCKMARKETS LEADS TO AN ECONOMIC 'HARD LANDING',
THE OUTLOOK FOR EMERGING MARKETS IS PROMISING. While we are generally cautious
about the outlook for world equities in the short term, we retain our optimism
over the prospects for global emerging markets on a longer term view.
WE ANTICIPATE THAT THE STRONG ECONOMIC GROWTH, DISPLAYED BY MANY DEVELOPING
COUNTRIES AT PRESENT, WILL BE REFLECTED IN RISING CORPORATE EARNINGS AND
STOCKMARKET VALUATIONS. This becomes all the more likely as increased domestic
consumption becomes the engine of economic growth, and reliance on the U.S.
economy thereby diminishes.
CHINA AND BRAZIL CURRENTLY OFFER THE MOST PROMISING PROSPECTS. In China, there
is growing evidence that deflation is coming to an end and that the radical
reform program, aimed at restructuring the ailing state-owned enterprise sector,
appears to be having a positive effect. In Latin America, concerns about
Argentina's financial situation have diverted attention from the evidence of
strong growth in the Brazilian economy. There is further scope for expansion as
unemployment falls, and increased confidence will lead to lower interest rates,
which should be good for equities.
VALUATIONS OF COMPANIES IN EMERGING MARKETS GENERALLY REFLECT MANY OF OUR
CURRENT GLOBAL CONCERNS AND OFFER EXCEPTIONAL LONG TERM POTENTIAL. Once the U.S.
stockmarkets stabilize, we are confident that there will be considerable scope
for capital growth from investing in emerging markets.
<PAGE>
DLB EMERGING MARKETS FUND
--------------------------------------------------------------------------------
GROWTH OF A
$100,000 INVESTMENT
[CHART APPEARS HERE]
DLB SI
EMERGING
MARKETS MSCI EMF
$100,000.00 $100,000.00
30-Nov-99 $108,100.00 $108,970.00
Dec 1999 $122,596.21 $122,830.98
Jan 2000 $122,792.36 $123,567.97
Feb 2000 $124,290.43 $125,199.07
Mar 2000 $124,588.73 $125,812.54
Apr 2000 $116,091.78 $113,885.51
May 2000 $111,390.06 $109,182.04
Jun 2000 $121,292.64 $113,025.25
Jul 2000 $116,792.68 $107,215.75
Aug 2000 $118,194.19 $107,741.11
Sep 2000 $107,391.24 $98,335.31
Oct 2000 $99,691.29 $91,206.00
--------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 10/31/00
--------------------------------------------------------------------------------
6 Months 1 Year
5/1/00- 11/1/99-
10/31/00 10/31/00
DLB Stewary Ivory Emerging Markets Fund -14.13 -0.30
MSCI EMF Index -19.92 -8.81
--------------------------------------------------------------------------------
DISCLOSURE STATEMENT
MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS FREE INDEX (MSCI EMERGING
MARKETS FREE). The MSCI Emerging Markets Free Index is a composite index
measuring constituents that are open to non-domestic investors in 25 emerging
markets around the world. The performance results in the table assume the
reinvestment of dividends and distributions.
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 EMERGING MARKETS FUND
--------------------------------------------------------------------------------
SHAREHOLDER MEETINGS
(UNAUDITED)
1. A Special Meeting of Shareholders of the DLB Global Small Capitalization
Fund, DLB Stewart Ivory International Fund and DLB Stewart Ivory Emerging
Markets Fund was held on June 5, 2000. At the Special Meeting, shareholders
of each Fund voted to approve a new investment sub-advisory agreement with
respect to each Fund between David L. Babson & Company Inc. and
Babson-Stewart-Ivory International. The following is a report on the votes
cast:
--------------------------------------------------------------------------------
Withhold/
For Against Abstain
--------------------------------------------------------------------------------
DLB Global Small 1,456,354.929 0 0
Capitalization Fund
DLB Stewart Ivory 2,557,734.581 0 0
Emerging Markets Fund
DLB Stewart Ivory 5,014,013.859 0 677,695.473
International Fund
--------------------------------------------------------------------------------
2. A Special Meeting of Shareholders of the DLB Global Small Capitalization
Fund, DLB Stewart Ivory International Fund and DLB Stewart Ivory Emerging
Markets Fund was held on September 15, 2000. At the Special Meeting,
shareholders of each such Fund voted to approve a new investment
sub-advisory agreement with respect to each Fund between David L. Babson &
Company Inc. and Babson- Stewart-Ivory International. The following is a
report on the votes cast:
--------------------------------------------------------------------------------
Withhold/
For Against Abstain
--------------------------------------------------------------------------------
DLB Global Small 1,446,496.630 0 0
Capitalization Fund
DLB Stewart Ivory 2,594,532.584 0 0
Emerging Markets Fund
DLB Stewart Ivory 5,075,869.870 0 520,851.995
International Fund
--------------------------------------------------------------------------------
<PAGE>
DLB EMERGING MARKETS FUND
--------------------------------------------------------------------------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Stewart Ivory Emerging
Markets 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 2000
<PAGE>
DLB STEWART IVORY
EMERGING MARKETS FUND
FINANCIAL STATEMENTS FOR THE YEAR
ENDED OCTOBER 31, 2000
<PAGE>
DLB STEWART IVORY EMERGING MARKETS FUND
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of October 31, 2000 2 - 4
Statement of Assets and Liabilities as of October 31, 2000 5
Statement of Operations for the Year Ended October 31, 2000 6
Statement of Changes in Net Assets for the
Year Ended October 31, 2000 7
Financial Highlights for the Year Ended October 31, 2000 8
Notes to Financial Statements 9 - 12
<PAGE>
DELOITTE
& TOUCHE
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116-5022
Tel:(617) 437 2000
Fax:(617) 437 2111
www.us.deloitte.com
INDEPENDENT AUDITORS' REPORT
To the Trustees of The DLB Fund Group and
Shareholders of DLB Stewart Ivory Emerging Markets Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Stewart Ivory Emerging Markets Fund (the
"Fund") (a series of The DLB Fund Group) as of October 31, 2000, and the related
statement of operations, and changes in net assets and the financial highlights
for the year then ended. 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
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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, 2000, 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of DLB
Stewart Ivory Emerging Markets Fund at October 31, 2000, the results of its
operations, the changes in its net assets, and its financial highlights for the
year then ended in conformity with accounting principles generally accepted in
the United States of America
/s/ Deloitte & Touche LLP
December 8, 2000
--------
Deloitte
Touche
Tohmatsu
--------
<PAGE>
DLB STEWART IVORY EMERGING MARKETS FUND
<TABLE><CAPTION>
PORTFOLIO OF INVESTMENTS
October 31, 2000
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common and Preferred Stocks - 97.6%
ISSUER SHARES VALUE
ARGENTINA - 0.7%
Quinsa Prf ADR - (Food & Beverages)(**) 23,000 $ 189,750
-----------
BRAZIL - 10.2%
Aracruz ADR - (Manufacturing) 19,000 285,000
Bradesco Prf - (Financial)(**) 61,300,000 378,911
Cemig Cia Ener Mg Prf - (Utilities)(**) 16,800,000 255,036
Embratel ADR - (Telecoms) 19,500 315,656
Petrobras PN - (Resources) (**) 18,000 477,203
Tele Norte Leste ADR - (Telecoms) 30,873 683,065
Telemig Celular Part ADR - (Telecoms) 4,500 236,250
-----------
2,631,121
-----------
CHILE - 2.7%
Antofagasta - (Resources) 55,000 323,472
Compania de Telecomunicaciones ADR - (Telecoms) 15,000 228,750
Distribucion y Servicio ADR - (Retail) 8,000 143,000
-----------
695,222
-----------
MEXICO - 12.6%
Groupo Aeroportuario Sur ADR - (Transport) 19,500 290,063
Grupo Financiero Banamex - (Financial) 193,500 300,744
Cemex SA ADR - (Construction Materials) 15,500 327,438
Coca Cola Femsa ADR - (Food & Beverages) 8,000 153,500
Grupo Modelo 'C' - (Food & Beverages) 128,000 341,387
Grupo Carso SA de CV - (Telecoms) 80,000 248,510
Kimberly-Clark De Mexico 'A' - (Manufacturing) 99,000 253,169
Televisa ADR - (Media)(*) 3,700 200,263
Telefonos de Mexico ADR (L) -(Telecoms) 13,700 738,944
Walmart de Mexico C- (Retail) 182,000 414,978
-----------
3,268,996
-----------
CHINA - 12.2%
Asia Satellite Telecoms 133,000 269,431
Beijing Capital Int Airport H - (Transport) 1,800,000 415,417
China Petroleum & Chemical Corp. - (Oil) 288,000 56,497
China Resources Beijing Land - (Property) 1,000,000 202,580
China Resources Enterprise - (Holding Company) 680,000 767,239
Guangdong Kelon 'H' - (Manufacturing) 800,000 148,729
Guangshen Railway 'H'- (Transport) 3,334,000 406,095
Huaneng Power - (Utilities) 1,050,000 407,243
Road King Infrastructure Wts. - (Transport) 90,000 3,462
Road King Infrastructure - (Transport) 450,000 190,399
Zhejiang Expressway Holdings - (Transport) 1,800,000 290,792
-----------
3,157,884
-----------
2
<PAGE>
ISSUER SHARES VALUE
INDIA - 6.3%
Hindalco GDR - (Resources) 20,000 $ 305,252
MSDW India Inv Fund - (Country Funds)(*) 63,000 665,438
Videsh Sanchar Nigam - SP ADR - (Telecoms) 90,000 663,750
-----------
1,634,440
-----------
KOREA - 13.4%
Cheil Communications - (Media) 670 42,941
Hite Brewery - (Food & Beverages) 8,500 379,851
Kookmin Bank GDR - (Financial) 70,000 798,946
Kookmin Bank (KRW) - (Financial) 34,300 392,015
Koram Bank - (Financial) 26,000 138,104
Korea Telecom ADR - (Telecoms) 7,350 271,031
Korea Zinc - (Commodities) 19,000 250,219
S1 Corporation - (Services) 16,380 169,696
Samsung Electronics GDR - (Manufacturing) 7,400 463,532
Samsung Fire & Marine - (Financial) 14,600 338,402
SK Corporation - (Holding Company) 17,200 206,883
-----------
3,451,620
-----------
MALAYSIA - 2.8%
Genting - (Hotels/Leisure) 112,000 285,887
IOI Corp - (Manufacturing) 600,000 426,305
-----------
712,192
-----------
SINGAPORE - 1.4%
Clipsal Industries - (Manufacturing) 194,000 364,579
-----------
SRI LANKA - 1.2%
John Keells Holdings - (Food & Beverages) 581,250 318,203
-----------
TAIWAN - 5.8%
Asustek Computer Inc. - (Manaufacturing) 62,400 310,553
President Chain Stores - (Food & Beverages) 179,280 509,853
Siliconware Precision Industries - (Manufacturing) 228,000 173,379
Taishin International Bank - (Financial) 566,500 264,425
Taiwan Semiconductor - (Manufacturing) 75,680 229,262
-----------
1,487,472
-----------
THAILAND - 3.4%
EGCO F/R - (Utilities) 456,900 432,945
Golden Land Properties F/R - (Property)(*) 1,000,000 90,785
PTT Exploration & Prod. F/R - (Resources) 140,000 333,636
Thai President Food F/R - (Food & Beverages) 7,400 26,872
-----------
884,238
-----------
CROATIA - 1.7%
Pliva GDR(144A) - (Manufacturing) 41,500 427,093
-----------
EGYPT - 3.0%
Al-Ahram Bev GDR(144a) - (Food & Beverages)(*) 31,000 406,515
Commercial International Bank GDR 144A (Financial) 43,000 377,721
-----------
784,236
-----------
ESTONIA - 0.3%
Eesti Telekom GDR 144A - (Telecoms) 5,000 78,430
-----------
3
<PAGE>
ISSUER SHARES VALUE
HUNGARY - 3.9%
Gedeon Richter GDS (144A) - (Manufacturing) 8,800 $ 427,508
Matav RT ADR - (Telecoms) 13,000 305,500
OTP GDR (144A) - (Financial) 6,100 282,593
-----------
1,015,601
-----------
ISRAEL - 3.9%
Bank Leumi le Israel - (Financial) 160,000 313,900
ECI Telecom - (Telecoms) 7,000 165,375
ESC Medical Systems LTD. - (Manufacturing) 16,000 249,000
Orbotech - (Manufacturing)(*) 5,100 269,981
-----------
998,256
-----------
POLAND - 0.9%
Telekomunik, Polska GDR 144A - (Telecoms) 48,500 239,037
-----------
RUSSIA - 2.1%
LUKoil Oil Co. Holdings Spon ADR - (Resources) 10,000 534,000
-----------
SOUTH AFRICA - 5.2%
Bidvest Group Limited- (Financial) 30,166 169,178
Impala Platinum Holdings - (Resources) 5,000 214,277
New Clicks Holdings - (Retail) 46,100 60,367
Reunert - (Holding Companies) 270,000 383,913
Softline Limited - (Manufacturing)(*) 1,250,000 519,157
-----------
1,346,892
-----------
TURKEY - 3.9%
Akcansa Cimento SA - (Construction Materials) 11,200,000 150,965
Koc Holdings - (Holding Companies) 2,600,000 165,705
Migros Turk Tas - (Retail) 1,800,000 247,898
Yapi Ve Kredi Bank - (Financial) 28,000,000 242,037
Yazicilar - (Holding Companies)(*) 3,700,000 205,995
-----------
1,012,600
-----------
TOTAL COMMON AND PREFERRED STOCKS
(identified cost, $29,047,372) 25,231,862
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 1.4%
Investors Bank & Trust Repurchase Agreement, 5.69%,
dated 10/31/00, $369,080 due on 11/1/00 (secured by
Federal Government Agency securities), at cost 369,022 369,022
-----------
TOTAL INVESTMENTS (identified cost, $29,416,394) 25,600,884
Other assets, less liabilities - 1.0% 248,768
-----------
NET ASSETS - 100% $25,849,652
===========
</TABLE>
(*) Non-income producing security
(**) Preferred Stock
See notes to financial statements.
4
<PAGE>
DLB STEWART IVORY EMERGING MARKETS FUND
<TABLE><CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2000
----------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $29,416,394) $ 25,600,884
Foreign cash, at value (cost, $519,419) 523,378
Receivable for investments sold 250,076
Receivable for fund shares sold 638
Dividends and interest receivable 45,660
Receivable from investment manager 5,678
------------
26,426,314
------------
LIABILITIES:
Payable for investments purchased 504,458
Accrued management fees 27,754
Accrued expenses 44,450
------------
576,662
------------
NET ASSETS $ 25,849,652
============
NET ASSETS CONSIST OF:
Paid-in capital $ 26,137,325
Unrealized depreciation of investments and translation of assets and
liabilities in foreign currencies (3,812,530)
Accumulated undistributed net realized gain on investments and
foreign currency transactions 3,550,017
Accumulated net investment loss (25,160)
------------
Total $ 25,849,652
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,592,909
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 9.97
============
</TABLE>
See notes to financial statements.
5
<PAGE>
DLB STEWART IVORY EMERGING MARKETS FUND
<TABLE><CAPTION>
STATEMENT OF OPERATIONS
Year Ended October 31, 2000
-----------------------------------------------------------------------------------------------
<S> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign tax withheld of $33,482) $ 478,399
Interest 74,426
-----------
552,825
-----------
EXPENSES:
Management fee 374,811
Trustees' fees 6,636
Custodian fees 117,308
Accounting and audit fees 34,017
Registration fees 33,668
Legal fees 12,219
Transfer agent fee 7,891
Miscellaneous 3,871
-----------
590,421
Reduction of expenses by investment manager (65,685)
-----------
Net expenses 524,736
-----------
Net investment income 28,089
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) (identified cost basis):
Investment transactions 3,572,424
Foreign currency transactions and forward foreign currency exchange
contracts and other transactions denominated in foreign currency (75,656)
-----------
Net realized gain on investments and foreign currency 3,496,768
-----------
Change in unrealized appreciation (depreciation):
Investments (3,815,510)
Foreign currency and forward foreign currency exchange contracts
and other transactions denominated in foreign currency 2,980
-----------
Net unrealized loss on investments and foreign currency (3,812,530)
-----------
Net realized and unrealized loss on investments and foreign
currency (315,762)
-----------
Decrease in net assets from operations $ (287,673)
===========
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB STEWART IVORY EMERGING MARKETS FUND
<TABLE><CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31, 2000
---------------------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 28,089
Net realized gain on investments
and foreign currency 3,496,768
Net unrealized depreciation of investments
and foreign currency (3,812,530)
------------
(287,673)
------------
Fund share transactions:
Net proceeds from sales of shares 26,213,279
Cost of shares reacquired (75,954)
------------
26,137,325
------------
Total increase in net assets 25,849,652
NET ASSETS:
At beginning of period --
------------
At end of period (including accumulated undistributed net investment
loss of $25,160) $ 25,849,652
============
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB STEWART IVORY EMERGING MARKETS FUND
<TABLE><CAPTION>
FINANCIAL HIGHLIGHTS
Year Ended October 31, 2000
-------------------------------------------------------------------------------------------------
<S> <C>
Per share data (for a share outstanding throughout
the period):
Net asset value- beginning of period $ 10.00
---------
Income from investment operations:
Net investment income 0.01
Net realized and unrealized loss on investments
and foreign currency (.04)
---------
(0.03)
---------
Net asset value- end of period $ 9.97
=========
Total return (0.30%)
Ratios and Supplemental Data:
Ratio of expenses to average net assets 1.75%
Ratio of net investment income to average net assets .09%
Portfolio turnover 88%
Net assets at end of period (000 omitted) $ 25,850
The manager has agreed with the Fund to reduce its management fee and/or bear certain
expenses, such that the Fund's total expenses do not exceed 1.75% of average daily net
assets. Without such agreement the investment loss per share and ratios would have been:
Net investment loss $ (.01)
Ratios (to average net assets):
Expenses 1.97%
Net investment loss (0.13%)
</TABLE>
See notes to financial statements.
8
<PAGE>
DLB STEWART IVORY EMERGING MARKETS FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Stewart Ivory Emerging Markets 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. The Fund commenced
operations on November 1, 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
collateral in a repurchase agreement 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 ensure 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 unrealized
until the contract settlement date.
9
<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 gain 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 year ended October 31, 2000, $53,249 was reclassified
from accumulated undistributed net investment income to accumulated
undistributed net realized gain on investments and foreign currency
transactions due to differences between book and tax accounting. This
change had no effect on the net assets or net asset value per share. During
the year ended October 31, 2000, income from foreign sources was $511,881,
and the Fund designated a foreign tax credit of $51,095.
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the amounts reported in the financial statements. Actual results could
differ from such estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Company 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 1.25% of average daily net assets. For the
period from November 1, 1999 (commencement of operations) to October 31,
2000, the management fee amounted to $374,811. Babson has agreed to pay the
Fund's operating expenses such that the Fund's total aggregate expenses do
not exceed 1.75% of average daily net assets. For the year period ended
October 31, 2000, $65,685 of fund expenses were borne by Babson.
10
<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 .875% 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 year ended October 31, 2000 aggregated $50,864,570 and $25,415,618,
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 $ 29,441,554
=============
Gross unrealized appreciation $ 1,336,208
Gross unrealized depreciation (5,176,878)
-------------
Net unrealized depreciation $ (3,840,670)
=============
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:
Year Ended
October 31, 2000
----------------
Shares sold 2,599,165
Redemptions (6,256)
---------
Net increase 2,592,909
=========
11
<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, and securities of some foreign issuers (particularly those located
in developing countries) may be less liquid and more volatile than
securities of comparable U.S. companies. In general, there is less overall
government supervision and regulation of foreign securities markets,
broker-dealers, and issuers than in the United States.
12
<PAGE>
DLB
THE DLB HIGH YIELD FUND
ANNUAL REPORT
OCTOBER 31, 2000
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB HIGH YIELD FUND
--------------------------------------------------------------------------------
FUND INVESTMENT OBJECTIVE
The investment objective of the DLB High Yield Fund is to achieve a high level
of current income by investing primarily in publicly traded high yield debt
securities. (These securities are considered below investment grade and are
commonly known as junk bonds.)
MARKET OVERVIEW
THE DLB HIGH YIELD FUND WAS LAUNCHED ON SEPTEMBER 5, 2000. Since that time, the
return of the high yield market, as measured by the Lehman Corporate High Yield
Index, was -4.07%. The market return for October alone was -3.20%, the sixth
worst monthly loss since January 1990 and the eleventh worst return since
January 1980. The yield of the Lehman Corporate High Yield Index of 13.65% at
the end of October was approaching the highest month end level since the end of
June 1991. Interestingly, default rates for the last twelve months of 4.00%
appear to be only modestly above the historical average of 3.10%. Poor market
technicals and lack of liquidity are depressing many bond prices and are
impacting the total return of the market. In addition to depressed prices, the
ability to transact in the market is very difficult. On a year to date basis
through October, the lower tier rated high yield bonds (e.g., bonds rated CCC by
Standard & Poor's) under-performed the overall high yield market, illustrating
investors' lack of tolerance for credit risk.
PORTFOLIO STRATEGY REVIEW
WITH INCREASING UNCERTAINTY IN THE ECONOMY AND THE POTENTIAL FOR A SLOWING OF
THE ECONOMY IN 2001, THE PRESENT STRATEGY FOR THE PORTFOLIO IS TO OVERWEIGHT
HIGHER QUALITY ISSUERS WITHIN THE HIGH YIELD MARKET AND LESS CYCLICAL
INDUSTRIES. While quality spreads remain at historically wide levels, we feel
that one is adequately compensated to invest in the more stable tier of the high
yield market. At the same time, we will look to take advantage of market
inefficiencies to invest in undervalued situations as appropriate.
THE FUND'S TOP TEN HOLDINGS, INDUSTRY BREAKDOWN AND QUALITY WEIGHTINGS ARE
LISTED ON THE FOLLOWING PAGE.
<PAGE>
DLB HIGH YIELD FUND
--------------------------------------------------------------------------------
PORTFOLIO STRATEGY REVIEW (CONT.)
--------------------------------------------------------------------------------
Top 10 Holdings % of Fund Assets
--------------------------------------------------------------------------------
Buhrman 1.98
Cross Timbers 1.97
AES Corp. 1.95
Magnum Hunter 1.94
Level 3 Comm 1.93
Lodgenet Enter. 1.92
Nextlink 1.88
Tenet Healthcare 1.87
HMH Properties 1.81
Nextel Comm 1.77
Total 19.02
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Industry Breakdown (%)
--------------------------------------------------------------------------------
Telecommunications 12.20
Broadcasting 8.49
Oil & Gas 6.95
Electronics 4.98
Diversified 4.01
Total 36.63
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Quality Weightings (%)
--------------------------------------------------------------------------------
AAA-Cash 37.50
BAA3 2.35
BA1 6.85
BA2 6.61
BA3 3.70
B1 10.71
B2 19.21
B3 13.07
--------------------------------------------------------------------------------
<PAGE>
DLB HIGH YIELD FUND
--------------------------------------------------------------------------------
PERFORMANCE REVIEW
PERFORMANCE FOR THE DLB HIGH YIELD FUND SINCE INCEPTION OUTPERFORMED THE MARKET
WITH A -0.30% RETURN VERSUS THE -4.23% RETURN FOR THE LEHMAN CORPORATE HIGH
YIELD INDEX. The Fund's performance is largely attributed to its weighting in
higher quality issuers and less cyclical industries. The Fund has held cash,
which helped to boost the performance. The Fund also held a small position in
convertible securities that should help to augment the return in the future.
OUTLOOK
THE DLB HIGH YIELD FUND CONTINUES TO BE DEFENSIVELY POSITIONED AS WE ENTER 2001.
The outlook for the economy remains uncertain. We believe that many of the
highly leveraged companies within the high yield universe will not be poised to
withstand a meaningful slowing of the economy. We intend to continue to
overweight less leveraged companies in defensive industries. We will continue to
evaluate convertible securities as attractive investments for the Fund as many
of these issuers are higher quality companies and the equity component of the
securities offers additional upside.
<PAGE>
DLB HIGH YIELD FUND
--------------------------------------------------------------------------------
PERFORMANCE
--------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 10/31/00
--------------------------------------------------------------------------------
Annualized Since Inception
9/5/00-10/31/00
DLB High Yield Fund -0.30
Lehman Brothers Corporate High Yield Index -4.23
--------------------------------------------------------------------------------
DISCLOSURE STATEMENT
LEHMAN BROTHERS CORPORATE HIGH YIELD INDEX is an unmanaged index that includes
high yield issuers rated Ba1 or lower, with the minimum size of the issue being
$100 million. This index includes defaulted securities, zero coupon securities,
and Yankee and global bonds of non emerging issuers. 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 HIGH YIELD FUND
--------------------------------------------------------------------------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB High Yield 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 2000
<PAGE>
DLB HIGH YIELD FUND
FINANCIAL STATEMENTS FOR THE PERIOD FROM
SEPTEMBER 5, 2000 (COMMENCEMENT OF
OPERATIONS) TO OCTOBER 31, 2000
<PAGE>
DLB HIGH YIELD FUND
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of October 31, 2000 2 - 4
Statement of Assets and Liabilities as of October 31, 2000 5
Statement of Operations from September 5, 2000 (commencement
of operations) to October 31, 2000 6
Statement of Changes in Net Assets from September 5, 2000
(commencement of operations) to October 31, 2000 7
Financial Highlights from September 5, 2000 (commencement
of operations) to October 31, 2000 8
Notes to Financial Statements 9 - 11
<PAGE>
DELOITTE
& TOUCHE
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116-5022
Tel:(617) 437 2000
Fax:(617) 437 2111
www.us.deloitte.com
INDEPENDENT AUDITORS' REPORT
To the Trustees of The DLB Fund Group and
Shareholders of DLB High Yield Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB High Yield Fund (the "Fund") (a series of
The DLB Fund Group) as of October 31, 2000, and the related statements of
operations and changes in net assets and financial highlights for the period
from September 5, 2000 (commencement of operations) to October 31, 2000. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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, 2000, 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of DLB
High Yield Fund at October 31, 2000, the results of its operations, the change
in its net assets, and its financial highlights for the period from September 5,
2000 (commencement of operations) to October 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
December 8, 2000
--------
Deloitte
Touche
Tohmatsu
--------
<PAGE>
DLB HIGH YIELD BOND FUND
<TABLE><CAPTION>
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2000
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BONDS - 63.9%
S&P/MOODY'S ISSUER PRINCIPAL VALUE
BOND RATING AMOUNT
(UNAUDITED)
BROADCASTING - 5.5%
B Adelphia Communications, 9.375%, 2009 $ 250,000 $ 215,000
BA British Sky Broadcasting Group, 6.875%, 2009 500,000 427,943
B Charter Communications, 10%, 2009 250,000 245,625
B Echostar Dbs, 10.375%, 2007* 250,000 250,000
B Mediacom, 8.5%, 2008 250,000 230,625
-----------
1,369,193
-----------
BUILDING AND REAL ESTATE - 1.0%
B Intrawest Corp., 9.75%, 2008 250,000 243,750
-----------
CARGO TRANSPORT - 1.0%
BA Kansas City South, 9.5%, 2008* 250,000 253,750
-----------
CHEMICALS, PLASTICS AND RUBBER - 1.0%
BA Lyondell Chemical, 9.875%, 2007 250,000 245,000
-----------
CONTAINERS, PACKAGING AND GLA - 1.5%
B Tekni-Plex, Inc., 12.75%, 2010 270,000 243,000
B US Can Co., 12.375%, 2010* 125,000 122,500
-----------
365,500
-----------
DIVERSIFIED/CONGLOMERATE SERVICES - 4.0%
B Buhrmann US, Inc., 12.25%, 2009 500,000 505,000
B URS Corp., 12.25%, 2009 250,000 250,000
B William Scotsman, 9.875%, 2007 300,000 255,000
-----------
1,010,000
-----------
DRUGS - 1.0%
BAA Teva Pharmaceutical, 1.5%, 2005* 250,000 248,438
-----------
ELECTRONICS - 5.1%
B Advanced Energy, 5.25%, 2006 200,000 153,250
B Conexant Systems, 4%, 2007 245,000 156,041
B Cymer, 7.25%, 2004 300,000 282,516
B LSI Logic, 4%, 2005 325,000 272,084
BA Sanmina Corp., 0%, 2020* 610,000 303,963
BA SCI Systems, Inc., 3%, 2007 100,000 101,333
-----------
1,269,187
-----------
HEALTHCARE, EDUCATION AND CHILDCARE - 3.9%
BA Express Scripts Inc., 9.625%, 2009 250,000 247,500
BA HCA-The Healthcare Company, 8.75%, 2010 250,000 253,193
2
<PAGE>
S&P/MOODY'S ISSUER PRINCIPAL VALUE
BOND RATING AMOUNT
(UNAUDITED)
BA Tenet Healthcare Corp., 7.625%, 2008 $ 500,000 $ 475,625
-----------
976,318
-----------
HOME/OFFICE FURNISHINGS/DURABLE - 0.6%
B Remington Products, 11%, 2006 175,000 140,000
-----------
HOTELS, MOTELS, INNS & Gaming - 2.8%
BA H M H Properties, Inc., 7.875%, 2008 500,000 461,250
BAA MGM Mirage, 8.5%, 2010 250,000 247,642
-----------
708,892
-----------
LEISURE, AMUSEMENT ENTERTAINMENT - 3.9%
BAA Boca Resorts, 9.875%, 2009 250,000 236,250
BA International Game Technology, 8.375%, 2009 250,000 243,750
B Lodgenet Entertainment, 10.25%, 2006 500,000 490,000
-----------
970,000
-----------
MINING, STEEL, IRON - 0.2%
B Better Minerals & Aggregate, 13%, 2009 55,000 44,138
-----------
OIL AND GAS - 7.1%
B Cross Timbers, 9.25%, 2007 500,000 501,875
B Magnum Hunter RE, 10%, 2007 500,000 495,000
B Plains Resources, 10.25%, 2006 375,000 378,750
BA Pride International, 9.375%, 2007 250,000 252,813
BA R & B Falcon Corp., 6.75%, 2005 150,000 141,000
-----------
1,769,438
-----------
PERSONAL TRANSPORTATION - 0.9%
B Amtran, 10.5%, 2004 250,000 232,500
-----------
PRINTING AND PUBLISHING - 1.9%
B American Media, 10.25%, 2009 250,000 242,500
B American Tissue Inc., 12.5%, 2006 250,000 237,500
-----------
480,000
-----------
PUBLISHING/PRINTING - 1.0%
BA Hollinger International Publishing, 8.625%, 2005 250,000 245,000
-----------
RETAIL STORES - 1.0%
B United Rentals, 9.25%, 2009 300,000 246,000
-----------
TELECOMMUNICATIONS - 17.5%
B 360Networks Inc., 13%, 2008 200,000 168,000
BAA Commscope Inc., 4%, 2006 120,000 103,385
B E V International Inc., 11%, 2007 375,000 258,750
BAA Global Crossing Holding, 9.5%, 2009* 235,000 224,425
B ITC Delta, 4.5%, 2006 465,000 235,988
B Level 3 Comm Inc., 11%, 2008* 540,000 491,400
B McLeod USA Inc., 8.125%, 2009 525,000 448,875
B Nextel Communications, 5.25%, 2010 535,000 451,514
3
<PAGE>
S&P/MOODY'S ISSUER PRINCIPAL VALUE
BOND RATING AMOUNT
(UNAUDITED)
B Nextel Communications, 9.375%, 2009 $ 250,000 $ 242,500
B Nextlink Comm, 10.75%, 2009 545,000 479,600
B NTL Communications Corp., 11.875%, 2010* 250,000 237,500
B NTL Incorporated, 10%, 2007 250,000 221,250
B Telewest, 6%, 2005* 480,000 334,200
B Transwitch, 4.5%, 2005* 40,000 44,551
B Williams Communications Group, 6.75%, 2012* 5,000 200,000
B Williams Communications Group, 11.875%, 2010* 250,000 217,500
-----------
4,359,438
-----------
TEXTILES AND LEATHER - 1.0%
B Saint John Knits International, 12.5%, 2009 270,000 249,750
-----------
UTILITIES - 2.0%
BA AES Corp., 9.375%, 2010 500,000 497,153
-----------
TOTAL BONDS (identified cost, $16,245,612) 15,923,445
REPURCHASE AGREEMENT - 20.2%
Investors Bank & Trust Repurchase Agreement, 5.69%,
dated 10/31/00, $5,028,652 due on 11/1/00 (secured by
Federal Government Agency securities), at cost 5,027,857 5,027,857
-----------
TOTAL INVESTMENTS (identified cost, $21,273,469 ) 20,951,302
Other assets, less liabilities - 15.9% 3,965,881
-----------
NET ASSETS - 100% $24,917,183
===========
(*) SEC Rule 144A restriction.
See notes to financial statements.
</TABLE>
4
<PAGE>
DLB HIGH YIELD FUND
<TABLE><CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2000
----------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $16,245,612) $ 15,923,445
Repurchase agreement, at cost and value 5,027,857
------------
Total investments (identified cost, $21,273,469) 20,951,302
Cash 4,571,401
Interest receivable 441,581
Receivable from investment manager 29,076
------------
25,993,360
------------
LIABILITIES:
Payable for investments purchased 1,005,848
Accrued management fee 10,510
Accrued expenses 59,819
------------
1,076,177
------------
NET ASSETS $ 24,917,183
============
NET ASSETS CONSIST OF:
Paid-in capital $ 25,225,461
Unrealized depreciation of investments (322,167)
Accumulated net realized gain on investment transactions 5,649
Accumulated undistributed net investment income 8,240
------------
Total $ 24,917,183
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,522,829
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 9.88
============
</TABLE>
See notes to financial statements.
5
<PAGE>
DLB HIGH YIELD FUND
<TABLE><CAPTION>
STATEMENT OF OPERATIONS
PERIOD FROM SEPTEMBER 5, 2000 (COMMENCEMENT OF OPEARTIONS) TO OCTOBER 31, 2000
--------------------------------------------------------------------------------
<S> <C>
NET INVESTMENT INCOME:
Interest $ 262,772
---------
EXPENSES:
Management fee 19,387
Trustees' fees 1,390
Accounting and audit fees 24,116
Registration fee 21,480
Custodian fees 11,332
Legal fees 1,868
Transfer agent fee 1,526
Miscellaneous 1,223
---------
82,322
Reduction of expenses by investment manager (53,241)
---------
Net expenses 29,081
---------
Net investment income 233,691
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (identified cost basis) 5,649
Change in unrealized depreciation (322,167)
---------
Net realized and unrealized loss on investments (316,518)
---------
Decrease in net assets from operations $ (82,827)
=========
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB HIGH YIELD FUND
<TABLE><CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Period from September 5, 2000 (commencement of operations) to October 31, 2000
----------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 233,691
Net realized gain on investments 5,649
Net unrealized depreciation of investments (322,167)
------------
(82,827)
------------
Distributions to shareholders:
From net investment income (225,451)
------------
Fund share transactions:
Net proceeds from sales of shares 25,000,000
Net asset value of shares issued in
reinvestment of distributions 225,451
------------
25,225,451
------------
Total increase in net assets 24,917,173
NET ASSETS:
At beginning of period 10
------------
At end of period (including accumulated undistributed net
investment income of $8,240) $ 24,917,183
============
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB HIGH YIELD FUND
<TABLE><CAPTION>
FINANCIAL HIGHLIGHTS
PERIOD FROM SEPTEMBER 5, 2000 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 2000
-------------------------------------------------------------------------------------------------------
<S> <C>
Per share data (for a share outstanding throughout
the period):
Net asset value- beginning of period $ 10.00
-------
Income from investment operations:
Net investment income 0.09
Net realized and unrealized loss on investments (0.12)
-------
(.03)
-------
Less distributions to shareholders:
From net investment income (0.09)
-------
Net asset value- end of period $ 9.88
=======
Total return (0.30%)
Ratios and Supplemental Data:
Ratio of expenses to average net assets 0.75%*
Ratio of net investment income to average net assets 6.01%*
Portfolio turnover 5%
Net assets at end of period (000 omitted) $24,917
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 .75% of average daily net assets. Without such
agreement the net investment income per share and ratios would have been:
Net investment income $ .07
Ratios (to average net assets):
Expenses 2.12%*
Net investment income 4.64%*
* Annualized
</TABLE>
See notes to financial statements.
8
<PAGE>
DLB HIGH YIELD FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB High Yield 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. The Fund commenced operations on
September 5, 2000.
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
collateral in a repurchase transaction 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 ensure 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 gain 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 accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the amounts reported in the financial statements. Actual results could
differ from such estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Company 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 0.50% of average daily net assets. For the
period from September 5, 2000 (commencement of operations) to October 31,
2000, the management fee amounted to $19,387. Babson has agreed to pay the
Fund's operating expenses such that the Fund's total aggregate expenses do
not exceed .75% of average daily net assets. For the period from September
5, 2000 (commencement of operations) to October 31, 2000, $53,241 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 period ended October 31, 2000 aggregated $16,7786,593 and $553,598,
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 $ 25,844,870
============
Gross unrealized appreciation $ 132,823
Gross unrealized depreciation (454,990)
------------
Net unrealized depreciation $ (322,167)
============
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
September 5, 2000
(Commencement of
operations) to
October 31, 2000
---------
Shares sold 2,500,000
Shares reinvested 22,828
---------
Net increase 2,522,828
=========
11
<PAGE>
DLB
THE DLB TECHNOLOGY FUND
ANNUAL REPORT
OCTOBER 31, 2000
[EXPERIENCE TO MANAGE THE FUTURE]
<PAGE>
DLB TECHNOLOGY FUND
--------------------------------------------------------------------------------
FUND INVESTMENT OBJECTIVE
THE DLB TECHNOLOGY FUND seeks long-term growth of capital. The Fund seeks to
achieve its investment objective through investment primarily in securities of
companies in the technology sector or otherwise expected to benefit from the
development, advancement, or use of technology.
MARKET OVERVIEW
THE DLB TECHNOLOGY FUND COMMENCED OPERATIONS ON SEPTEMBER 5, 2000 AND WAS
THEREFORE ONLY INVESTING IN THE TECHNOLOGY SECTOR DURING THE FINAL TWO MONTHS OF
THE FISCAL YEAR ENDED OCTOBER 31, 2000. Market dynamics for technology stocks
during the fiscal year ended October 31,2000 were even more volatile than
considered normal, even for a sector that is usually quite volatile. On March
27th, 2000, the NASDAQ 100, the benchmark for the DLB Technology Fund, peaked
with a gain of 78.4% from the beginning of the Fund's fiscal year on November 1,
1999. From that peak to the Fund's fiscal year end, the NASDAQ 100 declined 30%.
For the full fiscal year, the benchmark posted a seemingly adequate return of
+16.8%. The year was unprecedented in terms of volatility and the magnitude of
the price changes from day to day on the overall market index.
THE MARCH CORRECTION CONSISTED PRIMARILY OF THE DEMISE OF OUTRAGEOUS INTERNET
STOCK VALUATIONS. Other money making technology stocks declined, as well, but
the major sell-off was in the Internet and related names. Most high quality
technology stocks rose quickly after the March sell-off, such that the NASDAQ
100 Index was only marginally off its March peak on the last day of August. The
sell-off that began after Labor Day and continues today demonstrated far less
discrimination among stocks than the March rout. Large and small capitalization
stocks, as well as growth and value technology names, have all participated in
this latest market correction. Excessive growth expectations, and the
historically unprecedented multiples that paid for that growth, had reached
unsustainable levels. These expectations simply have not been met.
FUNDAMENTAL CONCERNS BEGAN PERCOLATING DURING THE SUMMER MONTHS AS PERSONAL
COMPUTER SALES SLOWED. Cellular phone sales slowed and capital availability for
building out the telecommunications service providers' digital infrastructures
dried up. The overheated demand situation from the first half manifested itself
through a buildup of inventories at the component companies and their
distributors. This will lead to a temporary slowing of sales as the inventories
are worked down.
<PAGE>
DLB TECHNOLOGY FUND
--------------------------------------------------------------------------------
MARKET OVERVIEW
(CONT.)
Earnings estimates have been declining for the fourth calendar quarter and for
2001. Growth expectations have declined, as have multiples. While many of these
issues are technology specific, a slowing economy has not helped matters either.
The likelihood of lower interest rates should stabilize the entire technology
group and allow revised 2001 growth targets to be met.
PORTFOLIO STRATEGY REVIEW
THE DLB TECHNOLOGY FUND REMAINS COMMITTED TO INVESTING IN HIGH GROWTH, HIGH
QUALITY TECHNOLOGY COMPANIES AROUND THE WORLD. The Fund's strategy is to
capitalize on the return to centralized computing. The current investment theme
is "Bigger is Better". The Fund, therefore, favors enterprise hardware and
software, data storage, communications infrastructure and specialized
semiconductor business segments. Mobile computing, connected over an upgraded
communications network to centralized hardware, should benefit not only device
manufacturers like Palm, Handspring and Nokia, but should also drive the
business fundamentals of Cisco, Sun Microsystems, Microsoft, Compaq, Nortel and
Corning to name just a few. There are multiple ways to capitalize on the
Internet without investing specifically in "dot com" companies.
THE FUND SEEKS TO ESTABLISH POSITIONS AT RATIONAL VALUATIONS RELATIVE TO COMPANY
AND INDUSTRY FUNDAMENTALS WHILE OPPORTUNISTICALLY TAKING ADVANTAGE OF MARKET
VOLATILITY TO BUY QUALITY NAMES. The criteria for ownership are: strong
long-term fundamentals, sizable addressable market opportunities and excellent
cash flow characteristics (and/or future cash flow potential).
THE FUND SELLS A POSITION WHEN LONG-TERM FUNDAMENTAL OUTLOOKS AND /OR FUTURE
CASH FLOW GENERATION DYNAMICS CHANGE. Deteriorating industry fundamentals will
also drive sell decisions, as will valuations that get ahead of fundamentals.
RISK CONTROL IS MANAGED BY MAINTAINING WELL-BALANCED SUBSECTOR WEIGHTINGS. An
industry (or industries) will become overweighted only when valuations are
favorable and compelling relative to fundamentals.
THE FUND'S TOP TEN HOLDINGS AND SECTOR WEIGHTINGS CAN BE FOUND ON THE FOLLOWING
PAGE:
<PAGE>
DLB TECHNOLOGY FUND
--------------------------------------------------------------------------------
PORTFOLIO STRATEGY REVIEW
(CONT.)
--------------------------------------------------------------------------------
Top 10 Equity Holdings % of Fund Assets
--------------------------------------------------------------------------------
Microsoft 7.77
Sun Microsystems 4.65
Cisco 4.57
EMC 3.31
Intel 3.21
Nortel 3.07
Oracle Systems 2.86
JDS Uniphase 2.59
IBM 2.38
PMC-Sierra 2.29
Total 36.70
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Sector %
Diversification (%) Portfolio Benchmark Difference
--------------------------------------------------------------------------------
Computer Software 19.4 18.0 +1.4
Computer Services 6.8 3.0 +3.8
Communication Equipment 17.6 13.6 +4.0
Semiconductors 17.1 15.5 +1.6
Computer Hardware 10.4 6.5 +3.9
Networking 8.2 8.6 -0.4
Internet 3.7 4.0 -0.3
Peripherals 3.7 0 +3.7
Contract Manufacturers 3.3 1.0 +2.3
Telecom Services 1.7 7.0 -5.3
Cash 6.9 0 6.9
--------------------------------------------------------------------------------
PERFORMANCE REVIEW
THE FUND WAS EFFECTIVE ON SEPTEMBER 5TH, 2000. As noted in the "Market
Overview", the end of August registered a secondary peak for the NASDAQ 100 for
the fiscal year (with the primary peak being on March 27th). Stocks were added
to the Fund selectively. Nonetheless, a decline of 11.60% was experienced versus
a decline in the benchmark of 19.93% over the initial two month period.
<PAGE>
DLB TECHNOLOGY FUND
--------------------------------------------------------------------------------
OUTLOOK
WE BELIEVE THAT INVESTORS WILL CONTINUE TO ADJUST THEIR EXPECTATIONS LOWER FOR
ALL TECHNOLOGY STOCKS OVER THE NEXT FEW MONTHS. Therefore, more reasonable
valuations and achievable growth expectations will likely spark a rally in
higher quality technology names. In all likelihood, there will be a greater
emphasis on valuations. Price to earnings multiples have been contracting and
will likely bottom in the fourth calendar quarter of 2000. Macroeconomic
conditions will depend on interest rate reductions over the near term. In
addition, the financial stability of many of the telecommunications service
providers is dependent on interest rates and the availability of capital. In the
semiconductor area, barring an economic recession, inventory imbalances should
be resolved within a quarter or two. Growth in the new digital computing areas
is expected to continue. Centralized computing is back in a significant way and
the infrastructure to implement it is still evolving.
IN CONCLUSION, WE BELIEVE THAT INVESTING IN TECHNOLOGY COMPANIES WILL CONTINUE
TO BE A LONG TERM LUCRATIVE ENDEAVOR. However, more emphasis will be placed on
strong fundamentals. These fundamentals include strong market positions,
management capabilities and cash flow prospects, all balanced by reasonable
valuations.
<PAGE>
DLB TECHNOLOGY FUND
--------------------------------------------------------------------------------
PERFORMANCE
--------------------------------------------------------------------------------
TOTAL RETURNS (%) FOR PERIODS ENDED 10/31/00
--------------------------------------------------------------------------------
Annualized Since Inception
9/5/00-10/31/00
DLB Technology Fund -11.60
NASDAQ 100 Index -19.93
--------------------------------------------------------------------------------
DISCLOSURE STATEMENT
NASDAQ 100 INDEX represents the largest and most active non-financial domestic
and international issues listed on The NASDAQ Stock Market based on market
capitalization. Securities in the Fund do not match those in the Index, and
performance of the Fund will differ.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Investment return and share
price will fluctuate with market conditions, and investors may have a gain or
loss when shares are sold. The Fund's total return reflects an expense
limitation in effect during the periods shown. In the absence of such expense
limitation, returns would have been lower.
<PAGE>
DLB TECHNOLOGY FUND
--------------------------------------------------------------------------------
This report and the Fund financial statements contained herein are submitted for
the general information of the shareholders of the DLB Technology 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 2000
<PAGE>
DLB TECHNOLOGY FUND
FINANCIAL STATEMENTS FOR THE PERIOD FROM
SEPTEMBER 5, 2000 (COMMENCEMENT OF
OPERATIONS) TO OCTOBER 31, 2000
<PAGE>
DLB TECHNOLOGY FUND
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Portfolio of Investments as of October 31, 2000 2 - 4
Statement of Assets and Liabilities as of October 31, 2000 5
Statement of Operations from September 5, 2000 (commencement
of operations) to October 31, 2000 6
Statement of Changes in Net Assets from September 5, 2000
(commencement of operations) to October 31, 2000 7
Financial Highlights from September 5, 2000 (commencement
of operations) to October 31, 2000 8
Notes to Financial Statements 9 - 11
<PAGE>
DELOITTE
& TOUCHE
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116-5022
Tel:(617) 437 2000
Fax:(617) 437 2111
www.us.deloitte.com
INDEPENDENT AUDITORS' REPORT
To the Trustees of The DLB Fund Group and
Shareholders of DLB Technology Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of DLB Technology Fund (the "Fund") (a series of
The DLB Fund Group) as of October 31, 2000, and the related statements of
operations and changes in net assets and financial highlights for the period
from September 5, 2000 (commencement of operations) to October 31, 2000. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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, 2000, 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of DLB
Technology Fund at October 31, 2000, the results of its operations, the change
in its net assets, and its financial highlights for the period from September 5,
2000 (commencement of operations) to October 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
December 8, 2000
--------
Deloitte
Touche
Tohmatsu
--------
<PAGE>
DLB TECHNOLOGY GROWTH FUND
<TABLE><CAPTION>
PORTFOLIO OF INVESTMENTS
October 31, 2000
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 93.8%
ISSUER SHARES VALUE
COMMUNICATION EQUIPMENT - 12.8%
Advanced Fibre Communication (*) 4,600 $ 149,788
Alcatel (*) 4,800 299,400
Ciena Corporation 2,000 210,250
Corning Inc. 6,000 459,000
Corvis Corporation (*) 2,000 131,250
General Motors Corporation 7,300 236,520
Nokia Corp ADR 8,000 342,000
Nortel Networks Corporation 14,000 637,000
Oni Systems Corp. (*) 1,800 145,913
Redback Networks Inc. 1,000 106,438
Sonus Networks, Inc. 3,400 117,300
-----------
2,834,859
-----------
COMMUNICATION SERVICES - 1.7%
AT & T Corp 8,600 199,413
Global Crossing LTD (*) 7,800 184,275
-----------
383,688
-----------
COMPUTER RELATED - 13.7%
Apple Computer, Inc. 5,000 97,813
Compaq Computer Corporation 12,900 392,289
EMC Corporation 7,700 685,781
International Business Machines Corporation 5,000 492,500
Lexmark International Group, Inc. (*) 3,200 131,200
Palm, Inc. 5,100 273,169
Sun Microsystems, Inc. 8,700 964,613
-----------
3,037,365
-----------
COMPUTER SOFTWARE - 0.7%
Aremissoft Corporation (*) 3,500 149,625
-----------
ELECTRONICS & INSTRUMENTS - 13.0%
ADC Telecommunications, Inc. 5,000 106,875
Analog Devices, Inc. 6,900 448,500
Atmel Corporation 5,000 74,688
Cypress Semiconductor Corporation (*) 4,800 179,700
Gemstar-TV Guide International, Inc. 2,000 137,125
Handspring, Inc. (*) 1,100 79,544
JDS Uniphase Corp 6,600 537,075
Jabil Circuit, Inc. 4,000 228,250
2
<PAGE>
ISSUER SHARES VALUE
SCI Systems, Inc. 6,500 $ 279,500
Sony Corporation 2,300 190,900
STMicroelectronics N.V. 4,600 238,913
Sycamore Networks, Inc. 2,400 151,800
Flextronics International Ltd. 5,600 212,800
-----------
2,865,670
-----------
ELECTRICAL EQUIPMENT - 2.0%
Altera Corporation 10,600 433,938
-----------
INTERNET - 2.1%
America Online, Inc. 9,200 463,956
-----------
MEDIA - 1.0%
USA Networks, Inc. 11,200 226,800
-----------
NETWORKING - 7.9%
Cisco Systems, Inc. 17,600 948,200
Extreme Networks, Inc. 1,500 124,406
Juniper Networks, Inc. 2,000 390,000
Scientific-Atlanta, Inc. 4,000 273,750
-----------
1,736,356
-----------
RECREATION - 0.4%
Electronic Arts Inc. 1,600 80,000
-----------
SEMICONDUCTORS - 12.4%
Finisar Corporation 2,800 80,675
Intel Corporation 14,800 666,000
Linear Technology Corporation 4,000 258,250
Maxim Integrated Products, Inc. 3,200 212,200
Microchip Technology Incorporated 9,000 284,625
Micron Technology, Inc. 5,800 201,550
PMC-Sierra, Inc. 2,300 389,850
SDL, Inc. 1,000 259,250
Triquint Semiconductor, Inc. 4,400 168,575
Vitesse Semiconductor Corporation (*) 3,000 209,813
-----------
2,730,788
-----------
SOFTWARE AND SERVICES - 24.8%
Adobe Systems Incorporated 4,000 304,250
Bea Systems, Inc. 4,000 287,000
Broadvision, Inc. 4,300 127,925
Commerce One, Inc. 1,800 115,538
Exodus Communications, Inc. 9,400 315,488
Fiserv, Inc. (*) 2,100 110,119
General Magic, Inc. (*) 21,000 84,657
J.D. Edwards & Company (*) 4,000 103,500
Informix Corporation (*) 29,200 124,100
3
<PAGE>
ISSUER SHARES VALUE
Inktomi Corporation 1,600 $ 101,500
Mercury Interactive Corporation 500 55,500
Microsoft Corp (*) 23,400 1,611,668
Oracle Corporation 18,000 594,000
Parametric Technology Corporation (*) 22,200 273,338
Photochannel Networks Inc. (*) 20,400 19,101
Realnetworks, Inc. 6,200 127,778
Red Hat, Inc. 12,400 155,000
Storage Networks Inc. (*) 3,200 203,000
Symantec Corporation (*) 11,500 449,219
Veritas Software Corporation 2,200 310,234
-----------
5,472,915
-----------
TRANSPORTATION - 1.3%
Sabre Holdings Corporation 8,600 287,563
-----------
TOTAL COMMON STOCKS
(identified cost, $23,431,127) 20,703,523
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 5.2%
Investors Bank & Trust Repurchase Agreement, 5.69%,
dated 10/31/00, $1,158,002 due on 11/1/00 (secured by
Federal Government Agency securities), at cost $1,157,819 1,157,819
-----------
TOTAL INVESTMENTS (identified cost, $24,588,946) 21,861,342
Other assets, less liabilities - 1.0% 228,477
-----------
NET ASSETS - 100% $22,089,819
===========
(*) Non-income producing security
</TABLE>
See notes to financial statements.
4
<PAGE>
DLB TECHNOLOGY FUND
<TABLE><CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2000
----------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $24,588,946) $ 21,861,342
Receivable for investments sold 277,283
Dividends and interest receivable 1,670
Receivable from investment manager 29,294
------------
22,169,589
------------
LIABILITIES:
Accrued management fee 18,967
Accrued expenses 60,803
------------
79,770
------------
NET ASSETS $ 22,089,819
============
NET ASSETS CONSIST OF:
Paid-in capital $ 25,000,010
Unrealized depreciation of investments (2,727,604)
Accumulated net realized loss on investment transactions (212,790)
Accumulated undistributed net investment income 30,203
------------
Total $ 22,089,819
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,500,001
============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE
PER SHARE (NET ASSETS / SHARES OF BENEFICIAL INTEREST
OUTSTANDING) $ 8.84
============
</TABLE>
See notes to financial statements.
5
<PAGE>
DLB TECHNOLOGY FUND
<TABLE><CAPTION>
STATEMENT OF OPERATIONS
PERIOD FROM SEPTEMBER 5, 2000 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 2000
----------------------------------------------------------------------------------
<S> <C>
NET INVESTMENT INCOME:
Dividends $ 596
Interest 77,190
-----------
77,786
-----------
EXPENSES:
Management fee 36,603
Trustees' fees 1,390
Custodian fees 11,269
Accounting and audit fees 22,895
Registration fee 23,923
Legal fees 1,868
Transfer agent fee 1,526
Miscellaneous 1,223
-----------
100,697
Reduction of expenses by investment manager (53,114)
-----------
Net expenses 47,583
-----------
Net investment income 30,203
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized loss (identified cost basis) (212,790)
Change in unrealized depreciation (2,727,604)
-----------
Net realized and unrealized loss on investments (2,940,394)
-----------
Decrease in net assets from operations $(2,910,191)
===========
</TABLE>
See notes to financial statements.
6
<PAGE>
DLB TECHNOLOGY FUND
<TABLE><CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
PERIOD FROM SEPTEMBER 5, 2000 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 2000
---------------------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 30,203
Net realized loss on investments (212,790)
Net unrealized depreciation of investments (2,727,604)
------------
(2,910,191)
------------
Fund share transactions:
Net proceeds from sales of shares 25,000,000
------------
Total increase in net assets 22,089,809
NET ASSETS:
At beginning of period 10
------------
At end of period (including accumulated undistributed net investment
income of $30,203) $ 22,089,819
============
</TABLE>
See notes to financial statements.
7
<PAGE>
DLB TECHNOLOGY FUND
<TABLE><CAPTION>
FINANCIAL HIGHLIGHTS
PERIOD FROM SEPTEMBER 5, 2000 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 2000
--------------------------------------------------------------------------------------------------------
<S> <C>
Per share data (for a share outstanding throughout
the period):
Net asset value- beginning of period $ 10.00
-------
Income from investment operations:
Net investment income 0.01
Net realized and unrealized loss on investments (1.17)
-------
(1.16)
Net asset value- end of period $ 8.84
=======
Total return (11.60%)
Ratios and Supplemental Data:
Ratio of expenses to average net assets 1.30%
Ratio of net investment income to average net assets .83%
Portfolio turnover 31%
Net assets at end of period (000 omitted) $22,090
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 net investment loss per share and ratios would have been:
Net investment loss $ (.01)
Ratios (to average net assets):
Expenses 2.75%
Net investment loss (0.63%)
* Annualized
</TABLE>
See notes to financial statements.
8
<PAGE>
DLB TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
DLB Technology 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. The Fund commenced operations on
September 5, 2000.
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
collateral in a repurchase transaction 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 ensure 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 gain 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.
At October 31, 2000, the Fund, for federal income tax purposes, had a
capital loss carryforward of $209,488 which may be applied against any net
taxable realized gains of each succeeding year until the earlier of its
utilization or expiration on October 31, 2008.
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the amounts reported in the financial statements. Actual results could
differ from such estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund engages David L. Babson & Company 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
period from September 5, 2000 (commencement of operations) to October 31,
2000, the management fee amounted to $36,603. 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 period from September
5, 2000 (commencement of operations) to October 31, 2000, $53,114 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 period ended October 31, 2000 aggregated $29,791,079 and $6,147,162,
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 $ 24,592,248
============
Gross unrealized appreciation $ 523,178
Gross unrealized depreciation (3,254,084)
------------
Net unrealized depreciation $ (2,730,906)
============
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
September 5, 2000
(commencement of
operations) to
October 31, 2000
---------
Shares sold 2,500,000
=========
11
