Babson
Tax-Free
Income
Fund
Semiannual Report
December 31, 1998
MESSAGE
To Our Shareholders
For the year ending December 31, 1998, total investment returns (price change
and reinvested distributions) for Babson Tax-Free Income Fund were 5.41% for
Portfolio L and 4.12% for Portfolio S. Portfolio MM's price remained at $1.00
and provided a return of 2.90% for the same period. Some income from the fund
may be subject to the federal Alternative Minimum Tax as well as state and
local taxes. The average maturities of Portfolio L, S, and MM were 13.7
years, 4.5 years and 31 days, respectively.
Average annual compounded total returns for five
and ten year periods ended December 31, 1998, were 5.00% and 7.26% for
Portfolio L, 3.99% and 5.59% for Portfolio S and 2.94% and 3.50% for
Portfolio MM, respectively. Performance data contained in this report is for
past periods only. Past performance is not predictive of future performance.
Investment return and share value will fluctuate, and redemption value may be
more or less than original cost.
Although tax-exempt interest rates inched slightly higher during the fourth
quarter, they remained lower than at the end of 1997. As a result of the
Federal Reserve Board's easing, short-term interest rates declined the most
during the year. One-year municipal rates fell 65 basis points, while 30-year
rates declined only 10 basis points. By year-end, the municipal yield curve,
which depicts the yield differential from one to thirty years, steepened to
200 basis points, compared with the Treasury curve at 63 basis points.
Issuance in the municipal market remained strong in 1998 with volume
increasing to $284 billion, representing a 20% increase over 1997's level.
This was the second largest year for issuance in municipal bond history,
falling shy of 1993Os record level by only $10 billion. The strong national
economy was the primary driver for new bond issuance in 1998, creating an
increased demand for infrastructure projects along with tremendous voter
support for bond initiatives.
Credit quality remained strong during 1998 with the ratings agencies
reporting that upgrades continued to outnumber downgrades. Tax-backed issues
dominated the list of ratings upgrades, benefiting from the continued
economic expansion, reduced financing costs, low inflation, and strong
expenditure controls. As a result of the strong ratings trends and the
proliferation of bond insurance, quality spreads remained narrow.
1998 marked the return of the retail investor to the municipal market as
buyers of individual bonds as well as mutual funds. Municipals appear to have
benefited from the volatility in the equity markets, with individuals
rebalancing portfolios to include more fixed income. The new issue supply in
the tax-exempt market kept the Municipal/Treasury ratio at very attractive
levels. Ratios peaked during the fourth quarter with most maturities yielding
over 90% of comparable Treasuries. As a result, municipal bonds continue to
represent tremendous value for investors, even those in the lowest tax
brackets.
We believe our philosophy of focusing on high quality issues will continue to
serve our shareholders well, and we will continue to seek out opportunities
to improve total return through security selection in undervalued sectors of
the market and yield curve.
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
Tables indicating Quality Ratings and Market Sector Diversification of D.L.
Babson Tax-Free Income Fund are shown below:
Quality Ratings
Portfolio Portfolio Portfolio
L S MM
Aaa 48% 55% 74%
Aa 27 18 26
A 17 15 0
Lower 8 12 0
TOTAL 100% 100% 100%
Source: Moody's
Market Sector Diversification
Portfolio Portfolio Portfolio
L S MM
Bonds Collateralized by
U.S. Government Securities 2% 4% 2%
General Obligations 32 30 10
Variable Rate Demand Bonds and Notes 1 2 64
Tax-Exempt Commercial Paper 0 0 24
Revenue:
Electric 7 13 0
Housing and Housing Finance Agencies 8 10 0
Pollution Control 0 0 0
Water and Sewer 10 3 0
Industrial Development 0 5 0
Education 21 12 0
Transportation 2 5 0
Hospital 15 16 0
Aviation 2 0 0
TOTAL 100% 100% 100%
STATEMENT OF NET ASSETS
December 31, 1998 (unaudited)
PORTFOLIO L - LONGER TERM
<TABLE>
<CAPTION>
PRINCIPAL MARKET
STATE/Territory DESCRIPTION AMOUNT VALUE
</CAPTION>
<S> <C> <C>
ARIZONA
Maricopa Cnty Unified School Dist #48 (Scottsdale),
9.25%, due July 1, 2007 $ 500,000 $ 683,125
ARKANSAS
Arkansas GO, Series B, 0.00%, due June 1, 2010 1,000,000 601,250
Univ of Arkansas Rev Ref (Athletic Facilities Fayetteville)
(Call 9/15/05 @ 100),
4.80%, due September 15, 2007 1,000,000 1,028,750
CALIFORNIA
California Health Fac Auth Rev (Kaiser Permanente Medical)
(Call 10/1/01 @ 101),
5.45%, due October 1, 2013 250,000 254,375
Santa Rosa Water Rev Ref (FGIC Ins) Series B
(Call 9/1/02 @ 101.5), O.I.D.,
6.00%, due September 1, 2015 500,000 575,625
Univ of California Rev (MBIA Ins) Series D
(Call 7/1/06 @ 101),
5.75%, due July 1, 2013 1,000,000 1,100,000
COLORADO
Adams Cnty School Dist #12 Thornton Rev Ref (FGIC Ins)
(Call 12/15/03 @ 100), O.I.D.,
6.20%, due December 15, 2010 500,000 544,375
Denver City & Cnty School Dist #1 GO, Series A
(Call 12/1/04 @ 101),
O.I.D., 5.125%, due December 1, 2012 500,000 518,125
DIST OF COLUMBIA
Dist of Columbia GO, Series A, 5.75%, due June 1, 2003 500,000 529,188
FLORIDA
Dade Cnty Special Obligation Cabs (AMBAC Ins)
(Call 10/1/08 @ 30.8464),
0.00%, due October 1, 2027 1,000,000 203,750
Florida State Public Board of Ed Capital Outlay Ref,
Series A (Call 6/1/00 @ 102), O.I.D.,
7.25%, due June 1, 2023 1,000,000 1,065,000
Miami-Dade Cnty Special Obligation Ref (MBIA Ins) Series A
(Call 4/1/08) @ 69.484), O.I.D.,
0.00%, due October 1, 2015 500,000 221,250
Palm Beach Cnty Airport Sys Rev Ref (MBIA Ins)
(Call 10/1/01 @ 102),
7.75%, due October 1, 2010 500,000 558,750
Tampa Rev (Catholic Health Care East) (FGIC Ins)
(Call 11/15/08 @ 101),
4.875%, due November 15, 2023 500,000 487,500
ILLINOIS
Chicago GO (AMBAC Ins) Series B,
5.125%, due January 1, 2022 1,000,000 1,018,750
INDIANA
Indiana Bond Bank Special Program, Series 94 A-1
(Call 8/1/04 @ 102),
5.60%, due August 1, 2015 500,000 523,750
KANSAS
Johnson Cnty Unified School Dist #229 GO,
Series A (Call 10/1/07 @ 100),
4.90%, due October 1, 2011 1,000,000 1,033,750
LOUISIANA
St. Tammany Parish Hosp Service Dist #2 Rev
(Slidell Memorial Hosp & Medical Center)
(Connie Lee Ins) (Call 10/1/04 @ 102), O.I.D.,
6.125%, due October 1, 2011 500,000 551,250
MASSACHUSETTS
Massachusetts Health & Ed Fac Auth Rev (Winchester Hosp)
(Connie Lee Ins) Series D (Call 7/1/04 @ 102), O.I.D.,
5.75%, due July 1, 2014 500,000 533,750
Massachusetts Housing Finance Agy Projects, Series A
(Callable 4/1/03 @ 102),
6.375%, due April 1, 2021 975,000 1,046,906
MICHIGAN
Michigan State Hosp Finance Auth Rev (Mercy Health Services)
(AMBAC Ins) Series Q (Call 8/15/06 @ 101),
5.375%, due August 15, 2026 500,000 511,875
Milan Area Schools GO
(Call 5/1/04 @ 101; 5/1/06 @ 100), O.I.D.,
5.00%, due May 1, 2013 500,000 510,000
NEVADA
Clark Cnty School Dist GO (MBIA Ins) Series A
(Call 3/1/01 @ 101),
6.75%, due March 1, 2007 500,000 532,500
Nevada GO (Natural Resources) Series C
(Call 5/15/07 @ 100),
5.375%, due May 15, 2017 500,000 515,000
NEW HAMPSHIRE
New Hampshire Higher Ed & Health Fac Auth Rev
(AMBAC Ins) (Call 10/01/06 @ 102),
5.70%, due October 1, 2010 500,000 548,125
New Hampshire Higher Ed & Health Fac Auth Rev,
5.50%, due July 1, 2018 500,000 501,875
NEW JERSEY
New Jersey Economic Dev Auth Public Schools Rev
(Small Project Loan Program) (Call 8/15/03 @ 102),
5.20%, due August 15, 2008 250,000 264,688
New Jersey Turnpike Auth Rev,
10.375%, due January 1, 2003 135,000 155,081
NEW YORK
Battery Park City Auth Rev Ref (AMBAC Ins) Series A
(Call 11/1/03 @ 102), O.I.D.,
5.00%, due November 1, 2004 1,000,000 1,048,750
Long Island Power Auth Electric Sys Rev, Series 6,
4.85%, due May 1, 2033 100,000 100,000
New York City Municipal Water Financing Auth
Water & Sewer Sys Rev
(FSA Ins) Series A (Call 6/15/01 @ 101),
6.80%, due June 15, 2004 1,000,000 1,081,250
New York Dormitory Auth Rev (State Univ Ed Fac) Series B
(Pre-refunded 5/15/04 @ 102), O.I.D.,
6.10%, due May 15, 2008 1,000,000 1,118,750
New York Environmental Fac Corp PCR
(State Water-Revolving Fund) Series B
(Call 6/15/07 @ 101),
6.65%, due September 15, 2013 500,000 553,750
RHODE ISLAND
Rhode Island Depositors Economic Protection Corp
Special Obligation
(MBIA Ins) Series B, O.I.D.,
5.80%, due August 1, 2009 500,000 565,625
Rhode Island Industrial Fac Corp PCR (Inge Co)
(SBA Gtd) (Call 3/4/99 @ 100),
9.125%, due October 1, 2000 40,000 40,158
TEXAS
Harris Cnty Toll Road Ref (FGIC Ins)
(Call 8/15/04 @ 102), O.I.D.,
5.00%, due August 15, 2016 500,000 500,625
Hays Consolidated Independent School Dist (PSF Gtd)
(Call 9/1/06 @ 100), O.I.D.,
4.50%, due September 1, 2010 500,000 500,625
Lonestar Airport Improvement Auth
4.85%, due December 1, 2014 100,000 100,000
San Antonio Electric & Gas Rev
(Call 2/1/02 @ 101; 2/1/03 @ 100), O.I.D.,
5.75%, due February 1, 2011 295,000 309,381
TEXAS (Continued)
San Antonio Electric & Gas Rev
(Escrowed) (Pre-refunded 2/1/02 @ 101), O.I.D.,
5.75%, due February 1, 2011 205,000 218,581
Texas Public Finance Auth Bldg Rev (AMBAC Ins)
Series A (Call 2/1/05 @ 100),
6.00%, due February 1, 2008 500,000 551,875
VIRGINIA
Danville Industrial Dev Auth Hosp Rev
(Danville Regional Medical
Center) (FGIC Ins) (Call 10/1/04 @ 101), O.I.D.,
6.375%, due October 1, 2014 500,000 566,875
Fairfax Cnty Industrial Dev Auth Rev (Inova Health Sys)
(Call 8/15/06 @ 102),
5.50%, due August 15, 2009 500,000 540,000
Virginia State Univ Commonwealth Rev
(Call 5/1/06 @ 102; 5/1/08 @ 100),
5.75%, due May 1, 2021 500,000 525,625
WASHINGTON
Tacoma Conservation Sys Project Rev
(Tacoma Public Utilities Light Div)
(Call 1/1/05 @ 100),
6.50%, due January 1, 2012 500,000 552,500
Washington GO, Series DD-13 (Call 3/1/04 @ 100),
5.875%, due March 1, 2014 500,000 536,875
Washington Public Power Supply Sys Nuclear Project
#2 Rev Ref,
Series 94 A (Call 7/1/04 @ 102), O.I.D.,
5.375%, due July 1, 2011 500,000 518,125
WISCONSIN
Wisconsin Public Power Inc Sys Rev (MBIA Ins)
(Call 7/1/06 @ 102),
5.90%, due July 1, 2011 500,000 550,000
TOTAL INVESTMENTS - 97.93% $27,097,733
Other assets less liabilities - 2.07% 572,430
TOTAL NET ASSETS - 100.00%
(equivalent to $9.24 per share;
50,000,000 shares of $0.10 par value
capital shares authorized;
2,993,385 shares outstanding) $ 27,670,163
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENT OF NET ASSETS
December 31, 1998 (unaudited)
PORTFOLIO S - SHORTER TERM
<TABLE>
<CAPTION>
PRINCIPAL MARKET
STATE/Territory DESCRIPTION AMOUNT VALUE
</CAPTION>
<S> <C> <C>
ARIZONA
Chandler GO (FGIC Ins) (Call 7/1/01 @ 101),
6.90%, due July 1, 2005 $ 1,000,000 $ 1,080,000
Lake Havasu City Municipal Property Corp Fac Rev
(AMBAC Ins) Series A (Call 3/4/99 @ 100),
6.30%, due June 1, 1999 500,000 502,775
Maricopa Cnty Unified School Dist #93 Cave Creek,
6.40%, due July 1, 2005 500,000 559,375
ARKANSAS
Univ of Arkansas Rev Ref (Athletic Fac Fayetteville),
4.50%, due September 15, 2003 500,000 511,875
COLORADO
Jefferson Cnty School Dist #R-001 (FGIC Ins) Series A,
6.00%, due December 15, 2006 500,000 564,375
DIST OF COLUMBIA
Dist of Columbia GO, Series A,
5.75%, due June 1, 2003 465,000 491,737
Dist of Columbia GO, Series A (Escrowed to maturity),
5.75%, due June 1, 2003 35,000 37,450
GUAM
Guam Govt Limited Obligation Hwy (FSA Ins) Series A,
5.75%, due May 1, 2001 500,000 523,750
Guam Power Auth Rev, Series A,
5.00%, due October 1, 2002 500,000 511,875
ILLINOIS
Du Page & Will Cntys Community School Dist #204,
7.25%, due December 30, 2004 500,000 586,875
Illinois State Toll Hwy Auth Priority Rev Ref, Series A, O.I.D.,
3.50%, due January 1, 2005 500,000 479,375
INDIANA
Indianapolis Line of Credit Public Improvement Bond Bank, Series D,
5.70%, due February 1, 2000 250,000 255,505
Kokomo-Center School Building Corp (First Mortgage) (AMBAC Ins),
6.75%, due July 15, 2007 250,000 294,375
MASSACHUSETTS
Massachusetts Health & Ed Fac Auth Rev (Winchester Hosp)
(Connie Lee Ins) Series D,
5.10%, due July 1, 2001 500,000 516,250
Massachusetts Health & Ed Fac Auth Rev
(Milford-Whitinsville Regional) Series C,
4.75%, due July 15, 2003 500,000 505,000
Massachusetts Housing Finance Agy Projects (AMBAC Ins) Series A,
5.35%, due April 1, 2003 500,000 525,625
Massachusetts Municipal Wholesale Electric Co
Power Supply Sys Rev, Series D,
5.70%, due July 1, 2001 500,000 520,625
MICHIGAN
Utica Community Schools Ref Rev,
5.375%, due May 1, 2005 500,000 536,875
MISSOURI
Jackson Cnty Industrial Dev Auth Health Care Corp Rev
(St. Joseph Health Center) (MBIA Ins),
4.60%, due July 1, 2001 500,000 510,625
Sikeston Electric Rev Ref (MBIA Ins),
5.80%, due June 1, 2002 500,000 532,500
NEVADA
Washoe Cnty Hosp Fac Rev Ref (Wahoe Medical Center Inc) Series A,
5.25%, due June 1, 2001 500,000 517,500
Washoe Cnty Reno Sparks BWLG Fac, Series A,
5.40%, due July 1, 2006 500,000 535,625
NEW MEXICO
Las Cruces School Dist (MBIA Ins),
6.125%, due August 1, 2000 500,000 520,625
NEW YORK
Battery Park City Auth Rev Ref,
6.00%, due November 1, 2003 500,000 543,125
New York Medical Care Fac Finance Agy Rev Ref
(Mental Health Services) Series F,
6.00%, due August 15, 2002 500,000 534,375
New York Medical Care Fac Finance Agy Rev
(Surgical Hosp) (FHA Ins) Series A,
5.40%, due August 15, 2004 335,000 350,494
New York State Dormitory Auth Rev
(Beth Israel Medical Center) (MBIA Ins),
5.35%, due November 1, 2005 500,000 540,000
NORTH CAROLINA
North Carolina Eastern Municipal Power Agy Sys Rev Ref,
Series 93 B,
5.375%, due January 1, 2001 500,000 511,875
OHIO
Columbus City School Dist (FGIC Ins) (Pre-refunded 12/1/02 @ 102),
6.65%, due December 1, 2012 500,000 561,875
Ohio Special Obligation (AMBAC Ins) Series A,
5.55%, due June 1, 2000 500,000 514,375
SOUTH DAKOTA
South Dakota Housing Dev Auth
(Home Ownership Mortgage) Series C,
4.70%, due May 1, 1999 430,000 431,492
TENNESSEE
Tennessee Housing Dev Agy Mortgage Finance, Series A,
4.95%, due July 1, 2000 500,000 507,500
TEXAS
Fort Bend Cnty Industrial Dev Corp Rev Ref
(Frito-Lay Inc) (Call 10/1/99 @ 100),
4.55%, due October 1, 2011 500,000 502,925
Grapevine Industrial Dev Corp (American Airlines) Series A-2,
4.85%, due December 1, 2024 400,000 400,000
Houston GO, Series C (Call 3/1/02 @ 100),
5.90%, due March 1, 2003 500,000 530,000
San Antonio Water Rev (AMBAC Ins)
(Pre-refunded 5/1/00 @ 49.8), O.I.D.,
0.00%, due May 1, 2010 1,250,000 595,313
WASHINGTON
Washington Public Power Supply Sys Nuclear
Project #2 Rev Ref (MBIA Ins) Series B,
5.10%, due July 1, 2004 500,000 528,750
Washington Public Power Supply Sys Nuclear
Project #2 Rev Ref, Series B (Pre-refunded 7/1/00 @ 102),
7.50%, due July 1, 2004 300,000 323,250
WISCONSIN
Chippewa Valley Techonologies College Dist, Series A,
4.75%, due April 1, 2007 500,000 523,125
Milwaukee Cnty GO, Series A,
5.35%, due September 1, 2001 500,000 521,875
Milwaukee Metropolitan Sewer Dist GO, Series A,
7.00%, due September 1, 2000 500,000 528,750
TOTAL INVESTMENTS - 99.99% $ 20,569,691
Other assets less liabilities - 0.01% 2,570
TOTAL NET ASSETS - 100.00%
(equivalent to $10.80 per share;
50,000,000 shares of $0.10 par value
capital shares authorized;
1,904,047 shares outstanding) $ 20,572,261
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENT OF NET ASSETS
December 31, 1998 (unaudited)
PORTFOLIO MM - MONEY MARKET
<TABLE>
<CAPTION>
PRINCIPAL MARKET
STATE/Territory DESCRIPTION AMOUNT VALUE
</CAPTION>
<S> <C> <C>
ALABAMA
Montgomery (General Electric),
3.20%, due January 7, 1999 $ 300,000 $ 300,000
ALASKA
Alaska Housing Finance Corp, Series C (SBPA: Swiss Bank Corp),
Fltg Rate, 4.00%, due June 1, 2026 500,000 500,000
Anchorage Ref Bond (MBIA Ins),
5.25%, due February 1, 1999 100,000 100,119
CALIFORNIA
Los Angeles Cnty Tax & Rev Anticipation Notes, Series A,
4.50%, due June 30, 1999 300,000 301,163
COLORADO
Regional Transportation Dist, Series 89 A
(LOC: Credit Local De France),
Fltg Rate, 3.90%, due June 1, 1999 200,000 200,000
CONNECTICUT
Connecticut GO, Series 97 B
(SBPA: Bayerische Landesbank),
Fltg Rate, 3.70%, due May 15, 2014 400,000 400,000
Connecticut Special Assessment Unemployment
Compensation Adv Fund Rev (FGIC Ins) Series C
(SBPA: FGIC SPI),
3.90%, due July 1, 1999 200,000 200,000
FLORIDA
Dade Cnty Water & Sewer Sys Rev
(FGIC Ins) (SBPA: Commerzbank),
Fltg Rate, 3.40%, due October 5, 2022 400,000 400,000
GEORGIA
Burke Cnty (Ogelthorpe Power) (AMBAC Ins),
3.10%, due January 21, 1999 300,000 300,000
Burke Cnty PCR (Georgia Power) Series 5,
Fltg Rate, 3.20%, due July 1, 2024 500,000 500,000
De Kalb Private Hosp Auth Rev
(Egleston Childrens Hosp) Series A,
Fltg Rate, 3.90%, due March 1, 2024 300,000 300,000
ILLINOIS
Illinois Health Fac Auth Rev (Rush-Presbyterian, St Lukes)
(MBIA Ins) Series B (SBPA: Bank One),
Fltg Rate, 4.25%, due November 15, 2023 200,000 200,000
INDIANA
St Joseph Cnty Ed Facs Rev (Univ Notre Dame Du Lac),
Fltg Rate, 3.90%, due March 1, 2033 300,000 300,000
KENTUCKY
Trimble Cnty PCR (Louisville Gas & Electric),
3.15%, due January 21, 1999 500,000 500,000
MICHIGAN
Michigan State Bldg Auth Rev, Series I,
4.90%, due October 1, 1999 100,000 101,189
MISSISSIPPI
Jackson Cnty PCR (Chevron Corp) Series 92,
Fltg Rate, 5.10%, due December 1, 2016 400,000 400,000
MISSOURI
Missouri Health & Ed Facs Auth Rev (Washington Univ) Series B,
Fltg Rate, 5.10%, due September 1, 2030 400,000 400,000
MONTANA
Montana GO, Series C,
4.50%, due August 1, 1999 100,000 100,841
NEBRASKA
Omaha Public Power Dist (Line: Morgan Guaranty Trust Co),
3.05%, due January 6, 1999 210,000 210,000
NEW MEXICO
Albuquerque Airport Rev Ref, Series 95 (AMBAC Ins)
(SBPA: Canadian Imperial Bank of Commerce),
Fltg Rate, 3.85%, due July 1, 2014 200,000 200,000
Hurley PCR (British Petroleum),
Fltg Rate, 5.10%, due December 1, 2015 300,000 300,000
NEW YORK
New York City Municipal Water Fin Auth Water & Sewer Sys Rev
(SBPA: FGIC SPI) Series G,
Fltg Rate, 5.10%, due June 15, 2024 400,000 400,000
NORTH CAROLINA
Charlotte Airport Rev Ref, Series 93 A
(MBIA Ins) (SBPA: Commerzbank),
Fltg Rate, 3.85%, due July 1, 2016 300,000 300,000
Charlotte GO, Series 93,
4.20%, due February 1, 1999 250,000 250,111
Winston-Salem Water & Sewer Sys Rev (SBPA: Wachovia Bank NC),
Fltg Rate, 3.95%, due June 1, 2014 200,000 200,000
SOUTH CAROLINA
Greenville Cnty GO,
4.30%, due March 1, 1999 345,000 345,334
TENNESSEE
Tennessee GO Bond Anticipation Notes, Series 98 C,
Fltg Rate, 3.05%, due July 2, 2001 200,000 200,000
TEXAS
Harris Cnty GO, Series A (Liq Fac: Swiss Bank Corp),
3.00%, due February 18, 1999 315,000 315,000
Harris Cnty GO, Series B (Liq Fac: Swiss Bank Corp),
3.05%, due January 11, 1999 100,000 100,000
Harris Cnty GO, Series C (Liq Fac: Swiss Bank Corp),
3.10%, due January 15, 1999 100,000 100,000
Houston GO Public Improvement Bonds
(Pre-refunded 2/1/99 @ 100),
7.00%, due February 1, 2000 200,000 200,500
Lone Star Airport Improvement Auth Inc Rev (American Airlines)
Series B-4 (LOC: Royal Bank of Canada),
Fltg Rate, 4.85%, due December 1, 2014 400,000 400,000
Lower Neches Valley Auth Industrial Dev Corp PCR (Mobil Corp),
Fltg Rate, 4.00%, due February 1, 2004 300,000 300,000
Port Arthur Navigation Dist Rev (Texaco Inc),
5.10%, due October 1, 2024 100,000 100,000
Southwest Higher Ed Auth Inc Rev
(Southern Methodist Univ) Series 85 (LOC: Landesbank Hessen),
Fltg Rate, 5.10%, due July 1, 2015 200,000 200,000
Texas Public Fin Auth,
3.05%, due February 10, 1999 500,000 500,000
UTAH
Utah Transit Auth Sales Tax & Transportation Rev Bonds
(LOC: Bayerische Landesbank),
Fltg Rate, 3.90%, due May 1, 2028 400,000 400,000
VIRGINIA
Virginia State Public School Auth Rev,
4.20%, due April 1, 1999 220,000 220,618
WASHINGTON
Washington GO, Series 96 B (LOC: Landesbank Hessen),
Fltg Rate, 4.05%, due June 1, 2020 200,000 200,000
Washington Health Care Fac Auth Rev (Sisters of Providence)
Series D (Line: RaboBank),
Fltg Rate, 5.10%, due October 1, 2005 300,000 300,000
Washington Public Power Supply Sys Nuclear Project #1
Rev Ref, Series 1A-1 (LOC: Bank of America),
Fltg Rate, 4.00%, due July 1, 2017 100,000 100,000
WISCONSIN
Sheboygan PCR (Wisconsin Power & Light Co),
Fltg Rate, 3.85%, due August 1, 2014 300,000 300,000
Milwaukee Cnty Rev Ref, Series A,
5.10%, due September 1, 1999 100,000 101,187
Wisconsin GO, Series 1,
4.80%, due November 1, 1999 100,000 101,287
TOTAL INVESTMENTS - 99.40% $ 11,847,349
Other assets less liabilities - 0.60% 71,144
TOTAL NET ASSETS - 100.00%
(equivalent to $1.00 per share;
100,000,000 shares of $0.10 par value
capital shares authorized;
11,912,580 shares outstanding) $ 11,918,493
</TABLE>
Line (Line of Credit)
Liq Fac (Liquidity Facility)
LOC (Letter of Credit)
SBPA (Stand by Purchase Agreement)
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
PORTFOLIO L PORTFOLIO S PORTFOLIO MM
</CAPTION>
<S> <C> <C> <C>
ASSETS:
Investment securities, at market value
(identified cost of $25,140,700,
$20,035,600 and $11,847,349, respectively) $ 27,097,733 $ 20,569,691 $ 11,847,349
Cash 256,736 - 12,095
Interest receivable 434,051 337,174 91,341
Total assets 27,788,520 20,906,865 11,950,785
LIABILITIES AND NET ASSETS:
Cash overdraft - 251,707 -
Fees payable 19,619 14,778 599
Distribution payable 98,738 68,119 31,693
Total liabilities 118,357 334,604 32,292
NET ASSETS $ 27,670,163 $ 20,572,261 $ 11,918,493
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 25,660,999 $ 20,067,858 $ 11,913,878
Accumulated undistributed net realized gain
(loss) on investments 52,131 (29,688) 4,615
Net unrealized appreciation in value of investments 1,957,033 534,091 -
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 27,670,163 $ 20,572,261 $ 11,918,493
Capital shares, $0.10 par value
Authorized 50,000,000 50,000,000 100,000,000
Outstanding 2,993,385 1,904,047 11,912,580
NET ASSET VALUE PER SHARE $ 9.24 $ 10.80 $ 1.00
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Six Months Ended December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
PORTFOLIO L PORTFOLIO S PORTFOLIO MM
</CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 726,843 $ 519,335 $ 196,238
Expenses:
Management fees (Note 3) 131,254 101,529 29,290
Registration fees and other expenses 7,721 6,186 3,207
138,975 107,715 32,497
Net investment income 587,868 411,620 163,741
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 1):
Realized gain from investment transactions
(excluding repurchase agreements):
Proceeds from sales of investments 1,063,085 3,015,775 14,005,000
Cost of investments sold 1,048,793 2,989,517 14,005,000
Net realized gain from investment transactions 14,292 26,258 -
Unrealized appreciation on investments:
Beginning of period 1,679,680 468,110 -
End of period 1,957,033 534,091 -
Increase in net unrealized appreciation on investments 277,353 65,981 -
Net gain on investments 291,645 92,239 -
Increase in net assets resulting from operations $ 879,513 $ 503,859 $ 163,741
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
Six Months Ended December 31, 1998 (unaudited)
and Year Ended June 30, 1998
<TABLE>
<CAPTION>
PORTFOLIO L PORTFOLIO S PORTFOLIO MM
</CAPTION>
<S> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 1,223,541 $ 897,353 $ 334,347
Net realized gain from investment transactions 219,956 74,039 -
Increase in net unrealized appreciation on investments 634,782 79,601 -
Net increase in net assets resulting from operations 2,078,279 1,050,993 334,347
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,223,541) (897,353) (334,347)
Net realized gain from investment transactions (65,480) (62,303) -
Total distributions to shareholders (1,289,021) (959,656) (334,347)
INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold, 198,138(L),
105,752(S), 16,714,916(MM) 1,816,295 1,144,59 16,714,916
Net asset value of shares issued for reinvestment of
distributions, 77,757(L), 55,359(S), 261,990(MM) 713,850 598,777 261,990
2,530,145 1,743,369 16,976,906
Cost of shares redeemed, 355,788(L),
316,848(S), 16,157,904(MM) (3,267,966) (3,425,637) (16,157,904)
Net increase (decrease) from capital share transactions (737,821) (1,682,268) 819,002
Total increase (decrease) in net assets 51,437 (1,590,931) 819,002
NET ASSETS - June 30, 1997 27,243,129 22,935,842 9,450,373
NET ASSETS - June 30, 1998 $ 27,294,566 $ 21,344,911 $ 10,269,375
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 587,868 $ 411,620 $ 163,741
Net realized gain from investment transactions 14,292 26,258 -
Increase in net unrealized appreciation on investments 277,353 65,981 -
Net increase in net assets resulting from operations 879,513 503,859 163,741
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (587,868) (411,620) (163,741)
Net realized gain from investment transactions (221,366) (51,455) -
Total distributions to shareholders (809,234) (463,075) (163,741)
INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold, 92,028(L),
28,600 (S), 6,779,306(MM) 854,578 310,310 6,779,306
Net asset value of shares issued for reinvestment
of distributions, 43,666(L), 24,770(S), 118,091(MM) 406,049 268,314 118,091
1,260,627 578,624 6,897,397
Cost of shares redeemed, (103,016)(L),
128,433(S), 5,248,177(MM) (955,309) (1,392,058) (5,248,279)
Net increase (decrease) from capital share transactions 305,318 (813,434) 1,649,118
Total increase (decrease) in net assets 375,597 (772,650) 1,649,118
NET ASSETS - June 30, 1998 27,294,566 21,344,911 10,269,375
NET ASSETS - December 31, 1998 $ 27,670,163 $ 20,572,261 $ 11,918,493
</TABLE>
See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of 1940, as amended,
as a diversified open-end management investment company. Its shares are
currently issued in three series with each series, in effect, representing a
separate Fund. The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to make
certain estimates and assumptions at the date of the financial statements.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
Investments - Securities held in the short-term and long-term portfolios are
valued at the market value on the last business day of the period as
determined by an independent pricing service. Short-term notes and the money
market portfolio are valued at amortized cost which approximates market
value. Investment transactions are recorded on the trade date. Investment
income and dividends to shareholders are recorded daily and dividends are
distributed monthly. Realized gains and losses from investment transactions
and unrealized appreciation and depreciation of investments are reported on
the identified cost basis.
Federal and State Taxes - The Fund's policy is to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no provision for federal or state tax is required.
2. PURCHASES AND SALES OF SECURITIES:
The aggregate amounts of security transactions during the period ended
December 31, 1998 (excluding repurchase agreements), were as follows:
Portfolio L
Purchases $ 496,975
Proceeds from sales 1,063,085
Portfolio S
Purchases $ 1,640,985
Proceeds from sales 3,015,775
Portfolio MM
Purchases $ 15,181,514
Proceeds from sales 14,005,000
3. MANAGEMENT FEES:
Management fees, which include all normal expenses of the Fund other than
taxes, fees and other charges of governmental agencies for qualifying the
Fund's shares for sale, special legal fees, interest and brokerage
commissions, are paid to Jones & Babson, Inc., an affiliated company. These
fees are based on average daily net assets of the portfolios at the annual
rate of .95 of one percent of net assets of Portfolio L and Portfolio S and
.50 of one percent of net assets of Portfolio MM. Certain officers and/or
directors of the Fund are also officers and/or directors of Jones & Babson,
Inc.
This report has been prepared for the information of the Shareholders of
D.L. Babson Tax-Free Income Fund, Inc., and is not to be construed as an
offering of the shares of the Fund. Shares of this Fund and of the other
Babson Funds are offered only by the Prospectus, a copy of which may be
obtained from Jones & Babson, Inc.
Equities
Growth Fund
Enterprise Fund*
Enterprise Fund II
Value Fund
Shadow Stock Fund
International Fund
Fixed Income
Bond Trust
Money Market Fund
Tax-Free Income Fund
*Closed to new investors.
Babson Funds
Jones & Babson Distributors
A member of the Generali Group
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306
816-751-5900
1-800-4-BABSON
(1-800-422-2766)
www.babsonfunds.com
JB5C-1 (2/99) 505501
