The
TORRAY
FUND
ANNUAL REPORT
December 31, 1995
<PAGE>
The Torray Fund
MANAGEMENT'S DISCUSSION OF PERFORMANCE
As of December 31, 1995
February 10, 1996
Dear Fellow Shareholders:
The Torray Fund earned 50.41% last year. Its total rate of return
for the 5 years ending December 31, 1995 was 18.92% compounded annually.
Comparable numbers for The Standard and Poor's 500 stock index were
37.54% for 1995 and 16.58% annually for 5 years. You will find this
information illustrated graphically on pages 4 and 5.
As I have noted in prior reports, federal regulations now require
fund managers to analyze their investment performance for shareholders
annually. Since presumably investors need to hear less about good results
than bad, I will be brief. Let me begin by saying that no one could be
more surprised than we are at the stock market's performance last year
and our own consequent good fortune. From a historic perspective, 1995's
33.5% price rise on The Dow Jones Industrial Average was within one-half
percentage point of tying 1958 as the third best year on record since
World War II. First and second place belong to 1954 (+44.0%) and 1975
(+38.3%). Although it is not possible to predict the future, we want you
to know that, in our opinion, a repeat of 1995, as it relates to the
performance of either your fund or the market, is not likely anytime
soon.
In retrospect, it seems clear that three factors played a major role
in last year's market advance: the 25% compound growth in corporate
earnings (excluding non-recurring adjustments) during each of the years
1993, 1994 and 1995; low inflation which drove interest rates down; and
the public's investment of an additional $118 billion into domestic stock
mutual funds. Notably, this sum exceeds the entire value of all stock
funds a decade ago. According to The Investment Company Institute, mutual
funds invested in U.S. stocks had $1.07 trillion in assets at the close
of 1995. For the first time, stock funds and individually owned stocks
have replaced real estate and bank deposits as the largest components of
net worth in American households. We think this is a positive
development.
It is to the confluence of these events -- rising corporate profits,
low inflation and interest rates, and a flood of cash into mutual funds
-- that we attribute a significant proportion of The Torray Fund's
investment return last year. Statistically speaking, the market's 37.54%
gain (as measured by the S&P 500 Index) was equal to about 75% of
1
<PAGE>
The Torray Fund
MANAGEMENT'S DISCUSSION OF PERFORMANCE
As of December 31, 1995
your fund's 50.41% performance. Put the other way around, your fund
outran the market by 33%. This return premium is traceable to our
concentration of investment in the only significant market sectors which
did better than the market itself: consumer staples, capital
goods/technology and financials.
Coincidentally, the fact that so few mutual funds were heavily
represented in these areas may explain why stock funds as a group
underperformed the 1995 market by a wider than usual margin. (General
equity funds averaged 31% vs. 37.54% for the S&P 500.) The rest of their
underperformance likely is attributable to fees, other expenses and high
portfolio turnover. On the last point, we think everyone would be better
off if portfolio trading were cut at least in half, if not more. As we
have mentioned in past reports, the average stock survives barely a year
in most mutual funds. Consequently, the underlying economic fundamentals
of corporations in which funds invest, while the controlling feature of
fund industry returns overall, tends to be only coincidentally related to
results on a fund-by-fund basis.
An additional factor in your fund's better-than-market record last
year was the strong performance of some of our largest holdings: Student
Loan Marketing (Sallie Mae), the fund's biggest investment at 7 1/2% of
total assets, rose 103% in price during 1995. Other substantial gainers
with their percentage of fund assets listed first were Boeing Co. 1.5%
(+66.8%), Chiron Corp. 2.8% (+74.3%), Citicorp 3.1% (+62.5%), Eli Lilly
3.6% (+71%), Kimberly Clark 3.3% (+64.3%), Mellon Bancorp 4.1%, (+75.3%).
On the losing side, Salomon Brothers, accounting for 4.7% of The Torray
Fund's assets, went down 5.7%. We remain confident about this company's
prospects, and have bought more Salomon shares during early 1996.
Lately it seems not a day goes by without someone asking me how long
the market can keep going up. No one knows. Someday the economy will sag
or inflation will accelerate, causing interest rates to rise; or
investors may simply run out of money. Sellers will outnumber buyers.
Then the market will go down. It has happened many times before. But it
should matter only to those who play the market. Long-term investors in
solid companies with strong business fundamentals need not worry about
it. Your management doesn't. We hope you won't either.
2
<PAGE>
The Torray Fund
MANAGEMENT'S DISCUSSION OF PERFORMANCE
As of December 31, 1995
In closing, I will mention that The Torray Fund management, Trustees
and their families increased their investment in the fund during 1995 to
616,112 shares, representing 24.42% of all shares outstanding. I will
also note that The Torray Corporation's expense limitation guarantee will
be continued in 1996. During 1995 our company reimbursed The Torray Fund
$160,375 to insure that shareholders' expenses including our management
fee did not exceed 1.25% of fund assets.
Appreciation is extended to each of you for the confidence you have
placed in us. Thanks go also to our trustees, officers and employees for
their outstanding efforts last year.
Sincerely,
/s/ ROBERT E. TORRAY
Robert E. Torray
President
The Torray Corporation
3
<PAGE>
The Torray Fund
PERFORMANCE DATA
As of December 31, 1995
Total Rates of Return on Hypothetical $10,000 Investment vs. S&P 500
For each of the years or periods stated
1991 1992 1993 1994 1995 5 Years
The Torray Fund 19.98% 21.04% 6.37% 2.41% 50.41% 137.96%
S&P 500 30.48% 7.66% 10.09% 1.30% 37.54% 115.47%
[graph]
Fund returns are after all expenses. Returns of both the Torray Fund and the S&P
500 assume reinvestment of all dividends.
Past performance is not predictive of future results.
Table 1
See Management's Discussion of Performance.
4
<PAGE>
The Torray Fund
PERFORMANCE DATA
As of December 31, 1995
Change in Value of $10,000 Invested on December 31, 1990 (commencement of
operations)
(assuming reinvestment of dividends and distributions)
12/31/90 1991 1992 1993 1994 1995
The Torray Fund $10,000 $11,999 $14,523 $15,448 $15,821 $23,796
S&P 500 $10,000 $13,048 $14,047 $15,465 $15,666 $21,547
[graph]
Table 2
AVERAGE ANNUAL TOTAL RETURNS
1 Year 2 Years 3 Years 4 Years 5 Years
Torray Fund 50.41 % 24.11% 17.89% 18.66% 18.92%
S&P 500 37.54 % 18.03% 15.32% 13.35% 16.58%
See Management's Discussion of Performance.
5
<PAGE>
The Torray Fund
SCHEDULE OF INVESTMENTS
As of December 31, 1995
<TABLE>
<CAPTION>
Principal Amount
or Shares Value
<S> <C>
U.S. GOVERNMENT OBLIGATIONS 6.2%
1,650,000 U.S. Treasury Bill $ 1,620,960
5.431% due 5/09/96
1,535,000 U.S. Treasury Bill 1,503,548
5.424% due 5/30/96
TOTAL U.S. GOVERNMENT OBLIGATIONS 3,124,508
(amortized cost $3,119,244)
COMMON STOCK 95.7%
Manufacturing 48.7%
Ice Cream & Frozen Desserts 1.6%
25,000 Dreyer's Grand Ice Cream, Inc. 831,250
Bakery Products 1.7%
38,000 Interstate Bakeries Corp. 850,250
Grain Mill Products 2.7%
22,000 Ralston Purina Group 1,372,250
Cigarettes 4.1%
23,000 Philip Morris Cos., Inc. 2,081,500
Paper Mills 3.3%
20,000 Kimberly-Clark Corp. 1,655,000
Newspapers: Publishing or Publishing & Printing 1.0%
8,500 Gannett Co., Inc. 521,687
In Vitro & In Vivo Diagnostic Substances 2.8%
13,000 Chiron Corp.* 1,436,500
Pharmaceutical Preparations 10.2%
6,000 American Home Products Corp. 582,000
10,000 Bristol-Myers Squibb Co. 858,750
15,000 Johnson & Johnson 1,284,375
32,000 Lilly (Eli) & Co. 1,800,000
10,000 Pfizer, Inc. 630,000
Total Pharmaceutical Preparations 5,155,125
Adhesives and Sealants 1.5%
21,800 Morton International, Inc. 782,075
</TABLE>
6
<PAGE>
The Torray Fund
SCHEDULE OF INVESTMENTS
As of December 31, 1995
<TABLE>
<S> <C>
Ship & Boat Building & Repairing 3.7%
32,000 General Dynamics Corp. 1,892,000
Aircraft 5.3%
10,000 Boeing Co. 783,750
30,000 Northrop Grumman Corp. 1,920,000
Total Aircraft 2,703,750
Guided Missles, Space Vehicles & Parts 3.9%
25,000 Lockheed Martin Corp. 1,975,000
Plastics Products, NEC 1.8%
35,000 Rubbermaid, Inc. 892,500
Electronic & Other Electric Equip Non Computer 1.4%
10,000 General Electric Co. 720,000
Computer & Office Equipment 2.9%
16,000 I B M Corp. 1,468,000
Surgical & Medical Instruments & Apparatus 0.7%
9,000 Guidant Corp. 380,250
Total Manufacturing 24,717,137
Wholesale and Retail Trade 5.1%
Wholesale-Farm Product Raw Materials 2.0%
102,010 Standard Commercial Corp.* 1,007,349
Retail-Department Stores 1.7%
20,000 Harcourt General, Inc. 837,500
Retail-Jewelry Stores 1.5%
15,000 Tiffany & Co. 755,625
Total Wholesale and Retail Trade 2,600,474
Finance, Insurance and Real Estate 36.4%
National Commercial Banks 14.3%
23,000 Citicorp 1,546,750
27,184 First American Corp. Tenn. 1,287,842
62,000 Liberty Bancorp, Inc. (Okla.) 2,309,500
39,000 Mellon Bank Corp. 2,096,250
Total National Commercial Banks 7,240,342
Savings Institutions, not Federally Chartered 2.8%
94,306 Southern Financial Bancorp, Inc. 1,414,590
</TABLE>
7
<PAGE>
The Torray Fund
SCHEDULE OF INVESTMENTS
As of December 31, 1995
<TABLE>
<S> <C>
Miscellaneous Business Credit Institutions 7.5%
58,000 Student Loan Marketing (New Vtg) 3,820,750
Security & Commodity Brokers, Dealers & Svcs. 4.7%
67,000 Salomon Inc. 2,378,500
Security Brokers, Dealers & Flotation Cos. 2.1%
50,000 Lehman Brothers Holdings, Inc. 1,062,500
Real Estate-(Leisure Condos Only) 5.0%
105,000 Carr Realty Corp. 2,559,375
Total Finance, Insurance and Real Estate 18,476,057
Services 5.5%
Computer Systems Integrated Design 1.8%
65,000 Novell Inc.* 926,250
Services-General Medical & Surgical Hospitals 3.6%
89,000 Tenet Healthcare Corp.* 1,846,750
Total Services 2,773,000
TOTAL COMMON STOCK 48,566,668
(cost $35,764,172)
TOTAL PORTFOLIO SECURITIES 101.9% 51,691,176
(amortized cost $38,883,416)
OTHER ASSETS LESS LIABILITIES (1.9%) (947,574)
NET ASSETS $50,743,602
FIVE LARGEST HOLDINGS
Student Loan Marketing
Carr Realty Corp.
Salomon Inc.
Liberty Bancorp, Inc. (Okla.)
Mellon Bank Corp.
* Non-income producing security
</TABLE>
See notes to the financial statements.
8
<PAGE>
The Torray Fund
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1995
ASSETS
Investments in securities at value
(amortized cost $38,883,416) $51,691,176
Cash (182,420)
Receivable for securities sold 186,076
Receivable for capital stock sold 20,000
Interest and dividends receivable 45,675
TOTAL ASSETS 51,760,507
LIABILITIES
Payable for securities purchased 1,016,905
TOTAL LIABILITIES 1,016,905
NET ASSETS $50,743,602
Shares of beneficial interest
($1 stated value, 2,522,943 shares
outstanding, unlimited shares authorized) $ 2,522,943
Paid-in-capital in excess of par 35,409,995
Undistributed net investment income 1,750
Undistributed net realized gains 1,154
Net unrealized appreciation of investments 12,807,760
NET ASSETS $50,743,602
Per Share $ 20.110
See notes to the financial statements.
9
<PAGE>
The Torray Fund
STATEMENT OF OPERATIONS
Twelve months ended December 31, 1995
INVESTMENT INCOME
Interest income $ 28,402
Dividend income 779,402
Miscellaneous income 283
Total income 808,087
EXPENSES
Management fees 313,512
Other expenses:
Legal fees $ 18,056
Transfer agent fees 39,070
Audit fees 19,282
Registration & filing fees 31,210
Custodian's fees 9,736
Accounting services 29,760
Trustees' fees 10,900
Administration 56,199
Printing 20,896
Insurance 3,339
Miscellaneous 305
Total 238,753
Expense reimbursement (160,375) 78,378
Total expenses 391,890
NET INVESTMENT INCOME 416,197
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain on
investments 791,792
Net change in unrealized gain 11,564,512
Net gain on investments 12,356,304
NET INCREASE IN NET ASSETS
FROM OPERATIONS $12,772,501
See notes to the financial statements.
10
<PAGE>
The Torray Fund
STATEMENT OF CHANGES IN NET ASSETS
For the periods below:
Year Year
ended ended
12/31/95 12/31/94
Increase in Net Assets from
Operations:
Net investment income $ 416,197 $ 328,186
Net realized gain on
investments 791,792 1,034,791
Net change in unrealized
gain (loss) 11,564,512 (853,590)
Net increase in net
assets from
operations 12,772,501 509,387
Distributions to Shareholders
from:
Net investment income (414,625) (328,052)
Net realized gains (790,687) (1,034,742)
Total distributions (1,205,312) (1,362,794)
Shares of Beneficial Interest
Increase from share
transactions 15,814,356 4,549,846
Total increase 27,381,545 3,696,439
Net assets -- beginning of period 23,362,057 19,665,618
Net assets -- end of period $50,743,602 $23,362,057
See notes to the financial statements.
11
<PAGE>
The Torray Fund
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the periods below:
PER SHARE DATA($)
<TABLE>
<CAPTION>
Year Year Year Year Year 14 days
ended ended ended ended ended ended
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
<S> <C>
Net Asset Value, Beginning of Period $ 13.755 $ 14.273 $ 13.743 $ 11.514 $ 9.999 $ 10.000
Income From Investment Operations
Net Investment Income 0.215 0.213 0.122 0.180 0.232 0.005
Net Gains on Securities
(both realized and unrealized) 6.674 0.130 0.745 2.229 1.728 0.000
Total from Investment Operations 6.889 0.343 0.867 2.409 1.960 0.005
Less Distributions
Dividends (from Net Investment Income) (0.214) (0.213) (0.122) (0.180) (0.233) (0.006)
Distributions (from Capital Gains) (0.320) (0.648) (0.215) 0.000 (0.212) 0.000
Total Distributions (0.534) (0.861) (0.337) (0.180) (0.445) (0.006)
Net Asset Value, End of Period $ 20.110 $ 13.755 $ 14.273 $ 13.743 $ 11.514 $ 9.999
TOTAL RETURN(3) 50.41% 2.41% 6.37% 21.04% 19.98% (0.03%)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) $ 50,744 $ 23,362 $ 19,666 $ 10,298 $ 4,423 $ 200
Ratio of Expenses to Average Net Assets 1.25% 1.25% 1.25% 1.25% 1.25% 0.82%(1)
Ratio of Net Income to Average Net Assets 1.31% 1.51% 0.94% 1.54% 2.43% 2.15%(1)
Portfolio Turnover Rate 22.56% 36.63% 29.09% 37.09% 21.17% n/a(2)
Average Actual Commissions paid per share(4) $ 0.0813 n/a n/a n/a n/a n/a
</TABLE>
(1) Annualized
(2) Not applicable. During the period December 18, 1990 (commencement of
operations) through December 31, 1990 the Fund invested only in short
term investments which are excluded from this ratio.
(3) Past performance is not predictive of future performance.
(4) Does not include spreads on shares traded on a principal basis.
See notes to the financial statements.
12
<PAGE>
The Torray Fund
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Torray Fund ("Fund") is registered under the Investment Company Act of
1940 as a no load, diversified, open-end management investment company. The Fund
was organized as a business trust under Massachusetts law. The Torray
Corporation serves as administrator and investment advisor to, and transfer
agent for the Fund.
The initial capitalization of the Fund, $100,000, was provided on November
16, 1990 by Robert E. Torray who is an officer, director and shareholder of The
Torray Corporation. The Fund commenced operations on December 18, 1990. All
organizational expenses of the Fund (approximately $56,000), primarily legal
fees and certain Blue Sky registration fees have been paid by The Torray
Corporation and will not be reimbursed by the Fund. The following is a summary
of accounting policies followed by the Fund in the preparation of its financial
statements.
Securities Valuation Short-term obligations having remaining maturities of
60 days or less are valued at amortized cost, which approximates market value.
Portfolio securities for which market quotations are readily available are
valued at market value, which is determined by using the last reported sale
price, or, if no sales are reported, the last reported bid price.
Securities Transactions and Investment Income Securities transactions are
recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on the first-in first-out basis. Dividend income is
recorded on the ex-dividend date and interest income, including amortization of
discount on short-term investments, is recorded on the accrual basis.
Federal Income Taxes The Fund intends to continue to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income, including any net
realized gain on investments to its shareholders. Therefore, no Federal income
tax provision is required. Cost of securities for tax purposes is substantially
the same as for financial reporting purposes.
Net Asset Value The net asset value per share of the Fund is determined
once on each day that the New York Stock Exchange is open, as of the close of
the Exchange.
13
<PAGE>
The Torray Fund
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE 2 -- MANAGEMENT CONTRACT, TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENTS
The Torray Corporation currently guarantees that the overall annual expense
ratio of the Fund will not exceed 1.25% of net assets. This ratio consists of a
1% management fee plus up to 0.25% of net assets covering all other expenses.
Pursuant to the Management Contract, the Fund pays The Torray Corporation a
fee, computed daily and payable quarterly at the annual rate of one percent of
the Fund's daily net assets. The Torray Corporation provides investment advisory
and portfolio management services to the Fund. During the twelve months ended
December 31, 1995, The Torray Fund paid management fees of $313,512 (1% of
assets).
Excluding the management fee, other expenses incurred by the Fund during
the twelve months ended December 31, 1995 totalled $238,753. Due to the current
expense limitation, however, the Torray Corporation reimbursed the Fund $160,375
for expenses incurred in excess of $78,378 (.25% of assets) for the year ended
December 31, 1995. A portion of the other expenses ($99,000 of $238,753)
represents fees charged by The Torray Corporation for transfer agent,
shareholder, net asset value accounting and administrative services. Certain
officers and Trustees of the Fund are also officers and/or shareholders of The
Torray Corporation. The remaining other expenses of $139,753 were paid to
various independent agents, service providers, and federal and state agencies.
These expenses include all costs associated with the Fund's operations including
Independent Trustees' fees ($2,000 per annum and $100 for each Board meeting
attended), taxes, dues, fees and expenses of registering and qualifying the Fund
and its shares for distribution, charges of custodians, auditing and legal
expenses, insurance premiums, software licensing and securities pricing fees,
supplies, postage, expenses of issue or redemption of shares, reports to
shareholders and Trustees, expenses of printing and mailing prospectuses, proxy
statements and proxies to existing shareholders, and other miscellaneous
expenses.
NOTE 3 -- PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term
investments, for the twelve months ended December 31, 1995 aggregated
$20,295,635 and $7,073,607, respectively. Net unrealized appreciation of
investments at December 31, 1995 includes aggregate unrealized gains of
$13,073,506 and unrealized losses of $265,746.
14
<PAGE>
The Torray Fund
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE 4 -- SHARES OF BENEFICIAL INTEREST TRANSACTIONS
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Year Year
ended ended
12/31/95 12/31/94
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares issued 937,270 $17,576,747 287,607 $4,110,389
Reinvestment of dividends
and distributions 55,960 1,054,067 96,300 1,334,528
Shares redeemed (168,667) (2,816,458) (63,377) (895,071)
824,563 $15,814,356 320,530 $4,549,846
</TABLE>
Officers, Trustees and affiliated persons of The Torray Fund directly or
indirectly control 616,112 shares or 24.42% of the Fund.
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees
The Torray Fund
Bethesda, Maryland
We have audited the accompanying statement of assets and liabilities and
schedule of investments of The Torray Fund, as of December 31, 1995, the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended and for the
period from December 18, 1990 (commencement of operations) through December 31,
1990. These financial statements are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1995, by correspondence with the custodian
and brokers. 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 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 The
Torray Fund as of December 31, 1995, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended and for the period from December 18, 1990 (commencement of
operations) through December 31, 1990 in conformity with generally accepted
accounting principles.
/s/ JOHNSON LAMBERT & CO.
JOHNSON LAMBERT & CO.
Bethesda, Maryland
January 18, 1996
16
<PAGE>
This report is not authorized for distribution
to prospective investors unless preceded or
accompanied by a current prospectus.
<PAGE>
INVESTMENT ADVISOR
The Torray Corporation
6610 Rockledge Dr. Suite 450
Bethesda, Maryland 20817
LEGAL COUNSEL
Morgan, Lewis & Bockius
1800 M Street, N.W.
Washington, D.C. 20036
INDEPENDENT AUDITORS
Johnson Lambert & Co.
7500 Old Georgetown Road
Suite 700
Bethesda, Maryland 20814
CUSTODIAN
Rushmore Trust & Savings FSB
4922 Fairmont Avenue
Bethesda, Maryland 20814
TRANSFER AGENT & ADMINISTRATOR
The Torray Corporation
6610 Rockledge Dr. Suite 450
Bethesda, Maryland 20817
<PAGE>
Suite 450
6610 Rockledge Drive
Bethesda, Maryland 20817
(301) 493-4600
1-800-443-3036
