THE TORRAY FUND
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1996, as revised
March 24, 1997
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Prospectus dated April 30, 1996, as
supplemented, and should be read in conjunction therewith. A copy of the
Prospectus may be obtained from The Torray Corporation, 6610 Rockledge Drive,
Bethesda, Maryland 20817 or by calling (301) 493-4600 or toll free at 1-(800)
443-3036.
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TABLE OF CONTENTS
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Page
INVESTMENT OBJECTIVE AND POLICIES............................3
MISCELLANEOUS INVESTMENT PRACTICES...........................5
NOTE ON SHAREHOLDER APPROVAL.................................6
INVESTMENT RESTRICTIONS......................................6
HOW TO REDEEM................................................8
HOW NET ASSET VALUE IS DETERMINED............................9
CALCULATION OF YIELD AND RETURN.............................10
PERFORMANCE COMPARISONS.....................................12
DISTRIBUTIONS...............................................12
TAXES.......................................................12
MANAGEMENT OF THE FUND......................................14
OTHER SERVICES..............................................17
PORTFOLIO TRANSACTIONS......................................18
ORGANIZATION AND CAPITALIZATION OF THE FUND.................19
SHAREHOLDER LIABILITY.......................................20
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of The Torray Fund (the "Fund")
are summarized on the front page of the Prospectus and in the text of the
Prospectus following the caption "Investment Objective and Policies." There is
no assurance that the Fund's objective will be achieved.
This Statement contains certain additional information about the
objective and policies, including "miscellaneous investment practices" in which
the Fund may engage.
Equity Securities. In seeking investments for the Fund, the primary
consideration of the Fund's manager, The Torray Corporation ("Torray" or the
"Manager"), is the issuer's value compared with other companies in the
marketplace. However, in selecting such securities, the opinions and judgments
being exercised by the Manager may be contrary to those of the majority of
investors. In certain instances, such opinions and judgments will involve the
risk of a correct judgment by the majority, or an individual security or group
of securities may remain depressed for an extended period of time or even fall
to a new low, in which case losses or only limited profits may be incurred.
Fixed-Income and Convertible Securities. The Fund is free to invest in
U.S. Government Securities and corporate fixed-income and convertible securities
of varying maturities. The Manager may adjust the average maturity of the Fund's
holdings of convertible and fixed-income securities from time to time, depending
on its assessment of the relative yields available on securities of different
maturities, its expectations of future changes in interest rates and, with
respect to convertible securities, its evaluation of the fundamental investment
merits of the equity security for which the convertible security may be
exchanged.
As described in the Prospectus, the Fund intends to purchase
fixed-income and convertible securities that are primarily of investment grade
(i.e., rated Baa or better by Moody's or BBB or better by Standard & Poor's; a
description of these ratings is set forth in the Appendix to this Statement).
However, the Fund may also invest in fixed-income and convertible securities
rated Ba or B by Moody's or BB or B by Standard & Poor's, or, if unrated, judged
by the Manager to be of comparable quality pursuant to guidelines adopted by the
Board of Trustees. Such securities are often called "junk bonds," and are
collectively referred to herein and in the Prospectus as "High-Yield
Securities." The principal risk factors associated with High- Yield Securities
are set forth below.
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Risk Factors: High-Yield Securities
The Fund may invest up to 5 percent of its net assets in fixed-income
and convertible High-Yield Securities. As with other fixed-income and
convertible securities, High-Yield Securities are subject to both credit risk
and market risk, although the Manager believes that most convertible High-Yield
Securities are likely to exhibit equity characteristics as well.
High-Yield Securities are generally subject to greater credit risk than
comparable higher-rated securities because issuers are more vulnerable to
economic downturns, higher interest rates or adverse issuer-specific
developments. In addition, the prices of High-Yield Securities are generally
subject to greater market risk and therefore react more sharply to changes in
interest rates. The value and liquidity of High- Yield Securities may be
diminished by adverse publicity and investor perceptions. Also, legislation
limiting the tax benefits to the issuers of taxable High-Yield Securities or
requiring federally-insured savings and loan institutions to reduce their
holdings of taxable High-Yield Securities may continue to have an adverse effect
on the market value of these securities.
Because High-Yield Securities are frequently traded only in markets in
which the number of potential purchasers and sellers, if any, is limited, the
ability of the Fund to sell High-Yield Securities at their fair value either to
meet redemption requests or to respond to changes in the financial markets may
be limited. In such an event, such securities would be regarded as illiquid.
Thinly traded High-yield Securities may be more difficult to value accurately
for the purpose of determining the Fund's net asset value. Also, because the
market for certain High-Yield Securities is relatively new, that market may be
particularly sensitive to an economic downturn or general increase in interest
rates. Regulatory and economic developments have limited and may continue to
limit the ability of participants in the High-Yield Securities market to
maintain orderly markets in certain High- Yield Securities.
Particular types of High-Yield Securities may present special concerns.
Some High-Yield Securities in which the Fund may invest may be subject to
redemption or call provisions that may limit increases in market value that
might otherwise result from lower interest rates while increasing the risk that
the Fund may be required to reinvest redemption or call proceeds during a period
of relatively low interest rates.
The Manager attempts to identify High-Yield Securities with relatively
favorable investment characteristics. The credit ratings issued by Moody's and
S&P are subject to various limitations. For example, while such ratings evaluate
the credit
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risk, they ordinarily do not evaluate the market risk of High- Yield Securities.
In certain circumstances, the ratings may not reflect in timely fashion adverse
developments affecting an issuer. For these reasons, the Manager conducts its
own independent credit analysis of High-Yield Securities.
High-Grade, Short-Term Debt Securities. As described in this Statement,
the Fund may invest in a variety of high-grade, U.S. dollar-denominated,
short-term debt securities. For a description of those instruments and of the
Moody's and Standard & Poor's ratings for such instruments, see the Appendix to
this Statement. From time to time, the Fund may invest in such instruments when
the Manager believes that suitable equity, convertible, or longer-term
fixed-income securities are unavailable. When the Fund is investing in such
instruments, it is not investing in instruments paying the highest available
yield at that particular time. There are usually no brokerage commissions as
such paid by the Fund in connection with the purchase of such instruments. See
"Portfolio Transactions Brokerage and Research Services," for a discussion of
underwriters' commissions and dealers' spreads involved in the purchase and sale
of such instruments.
The Fund's portfolio holdings of short-term, high-grade debt
instruments will be affected by general changes in interest rates resulting in
increases or decreases in the value of the obligations held by the Fund. The
value of such securities can be expected to vary inversely to the changes in
prevailing interest rates. Thus, if interest rates have increased from the time
a security was purchased, such security, if sold, might be sold at a price less
than its cost. Similarly, if interest rates have declined from the time a
security was purchased, such security, if sold, might be sold at a price greater
than its cost. In either instance, if the security were held to maturity no gain
or loss would normally be realized as a result of these fluctuations.
Redemptions or exchanges by shareholders could require the sale of portfolio
investments at a time when such a sale might not otherwise be desirable.
MISCELLANEOUS INVESTMENT PRACTICES
Portfolio Turnover. A change in securities held by the Fund is known as
"portfolio turnover" and almost always involves the payment by the Fund of
brokerage commissions or dealer markup and other transaction costs on the sale
of securities as well as on the reinvestment of the proceeds in other
securities. The Fund's annual "portfolio turnover" will be determined by
dividing the lesser of purchases or sales of portfolio securities for the year
by the monthly average value of the Fund's securities; for purposes of
calculation, securities which mature in one year or less are excluded. Because
of the long term nature of the Fund's
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investment strategy, it is unlikely that portfolio turnover will exceed that of
other investment companies.
Repurchase Agreements. The Fund may enter into repurchase agreements
with domestic commercial banks or registered broker/dealers with respect to not
more than 25% of its total assets (taken at current value). A repurchase
agreement is a contract under which the Fund acquires a security for a
relatively short period (usually not more than one week) subject to the
obligation of the seller to repurchase and the Fund to resell such security at a
fixed time and price (representing the Fund's cost plus interest). In the case
of repurchase agreements with broker/dealers, the value of the underlying
securities (or collateral) will be at least equal at all times to the total
amount of the repurchase obligation, including the interest factor. The Fund
bears a risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations and the Fund is delayed or prevented from exercising
its rights to dispose of the collateral securities. The Manager will monitor the
creditworthiness of the counterparties.
Warrants. The Fund may acquire attached and unattached warrants.
Warrants entitle the holder to purchase equity securities at a specific price
for a specified period of time. Warrants in which the Fund may invest will be
freely transferable, and no more than 2% of the Fund's assets will be invested
in warrants which are not traded on either the New York or American Stock
Exchange. The Fund will not invest more than 5% of its net assets in warrants.
NOTE ON SHAREHOLDER APPROVAL
The investment objective and policies of the Fund set forth above and
in the Prospectus may be changed without shareholder approval.
INVESTMENT RESTRICTIONS
Without a vote of the majority of the outstanding voting securities of
the Fund, the Fund will not take any of the following actions:
(1) Borrow money in excess of 5% of the value (taken at the
lower of cost or current value) of the Fund's total assets (not
including the amount borrowed) at the time the borrowing is made, and
then only from banks as a temporary measure to facilitate the meeting
of redemption requests (and not for leverage) or for extraordinary or
emergency purposes.
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(2) Pledge, hypothecate, mortgage or otherwise encumber its
assets in excess of 10% of the Fund's total assets (taken at cost), and
then only to secure borrowings permitted by Restriction 1 above.
(3) Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and sales of
securities.
(4) Make short sales of securities or maintain a short
position for the account of the Fund unless at all times when a short
position is open the Fund owns an equal amount of such securities or
owns securities which, without payment of any further consideration,
are convertible into or exchangeable for securities of the same issue
as, and equal in amount to, the securities sold short.
(5) Underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under federal
securities laws.
(6) Purchase or sell real estate, although it may invest in
securities of issuers which deal in real estate, including securities
of real estate investment trusts, and may purchase securities which are
secured by interests in real estate.
(7) Purchase or sell commodities or commodity
contracts, including future contracts.
(8) Make loans, except by purchase of debt obligations or by
entering into repurchase agreements.
(9) Invest in securities of any issuer if, immediately after
such investment, more than 5% of the total assets of the Fund (taken at
current value) would be invested in the securities of such issuer,
except that up to 25% of the Fund's total assets taken at current value
may be invested without regard to such 5% limitation; provided,
however, that this limitation does not apply to obligations issued or
guaranteed as to interest and principal by the U.S. government or its
agencies or instrumentalities.
(10) Acquire more than 10% of the voting securities of
any issuer.
(11) Concentrate more than 25% of the value of its
total assets in any one industry.
It is contrary to the Fund's present policy, which may be changed by
the Trustees without shareholder approval, to borrow
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money, pledge or hypothecate its assets, make any short sales of securities,
maintain any short position for the account of the Fund, or purchase foreign
securities which are not publicly traded in the United States. In addition, it
is contrary to the Fund's present policy to:
(1) Invest more than 10% of the Fund's net assets (taken at
current value) in securities which at the time of such investment are
not readily marketable.
(2) Write (sell) or purchase options.
(3) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts.
(4) Make investments for the purpose of gaining
control of a company's management.
All percentage limitations on investments set forth herein and in the
Prospectus will apply at the time of the making of an investment and shall not
be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
The phrase "shareholder approval," as used in the Prospectus, and the
phrase "vote of a majority of the outstanding voting securities," as used
herein, means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund, or (2) 67% or more of the shares of the Fund
present at a meeting if more than 50% of the outstanding shares are represented
at the meeting in person or by proxy.
HOW TO REDEEM
The procedures for redemption of Fund shares are summarized in the text
of the Prospectus following the caption "How to Redeem." Redemption requests
must be in good order, as defined in the Prospectus. Upon receipt of a
redemption request in good order, the Shareholder will receive a check equal to
the net asset value of the redeemed shares next determined after the redemption
request has been received. The Fund will accept redemption requests only on days
the New York Stock Exchange is open. Proceeds will normally be forwarded on the
next day on which the New York Stock Exchange is open; however, the Fund
reserves the right to take up to seven days to make payment if, in the judgment
of the Manager, the Fund could be adversely affected by immediate payment. The
proceeds of redemption may be more or less than the shareholder's investment and
thus may involve a capital gain or loss for tax purposes. If the shares to be
redeemed represent an investment made by check, the Fund
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reserves the right not to forward the proceeds of the redemption
until the check has been collected.
The Fund may suspend the right of redemption and may postpone payment
only when the New York Stock Exchange is closed for other than customary
weekends and holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange is restricted or
during any emergency which makes it impracticable for the Fund to dispose of its
securities or to determine fairly the value of its net assets, or during any
other period permitted by order of the Securities and Exchange Commission.
The Fund reserves the right to redeem shares and mail the proceeds to
the shareholder if at any time the net asset value of the shares in the
shareholder's account in the Fund falls below a specified level, currently set
at $10,000. Shareholders will be notified and will have 30 days to bring the
account up to the required level before any redemption action will be taken by
the Fund. The Fund also reserves the right to redeem shares in a shareholder's
account in excess of an amount set from time to time by the Trustees. No such
limit is presently in effect, but such a limit could be established at any time
and could be applicable to existing as well as future shareholders.
HOW NET ASSET VALUE IS DETERMINED
As described in the text of the Prospectus following the caption "How
Net Asset Value is Determined," the net asset value per share of the Fund is
determined once on each day on which the New York Stock Exchange is open, as of
the close of the Exchange. The Trust expects that the days, other than weekend
days, that the Exchange will not be open are New Year's Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The Fund's 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 -- and in the case of
certain securities traded over-the-counter -- the last reported bid price. Many
debt securities, including U.S. Government Securities, are traded in the
over-the-counter market. Obligations having remaining maturities of 60 days or
less are valued at amortized cost. The amortized cost value of a security is
determined by valuing it at cost originally and thereafter amortizing any
discount or premium from its face value at a constant rate until maturity,
regardless of the effect of fluctuating interest rates on the market value of
the instrument. Although the amortized cost method provides certainty in
valuation, it may result at times in determinations of value that are higher or
lower than the price the Fund would receive if the instruments were sold.
Consequently, changes in the market value
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of such portfolio instruments during periods of rising or falling interest rates
will not be reflected in the computation of the Fund's net asset value.
As described in the Prospectus, certain securities and assets of the
Fund are valued at fair value as determined in good faith by the Trustees or by
persons acting at their direction pursuant to guidelines established by the
Trustees. The fair value of any restricted securities from time to time held by
the Fund is determined by the Manager in accordance with procedures approved by
the Trustees. Such valuations and procedures are reviewed periodically by the
Trustees. The fair value of such securities is generally determined as the
amount which the Fund could reasonably expect to realize from an orderly
disposition of such securities over a reasonable period of time. The valuation
procedures applied in any specific instance are likely to vary from case to
case. However, consideration is generally given to the financial position of the
issuer and other fundamental analytical data relating to the investment and to
the nature of the restrictions on disposition of the securities (including any
registration expenses that might be borne by the Fund in connection with such
disposition). In addition, such specific factors are also generally considered
as the cost of the investment, the market value of any unrestricted securities
of the same class (both at the time of purchase and at the time of valuation),
the size of the holding, the prices of any recent transactions or offers with
respect to such securities and any available analysts' reports regarding the
issuer.
Generally, trading in corporate bonds, U.S. Government Securities and
short-term, fixed-income instruments is substantially completed each day at
various times prior to the close of the Exchange. The value of such securities
used for determining the Fund's net asset value per share is computed as of such
times. Occasionally, events affecting the value of such securities may occur
between such times and the close of the Exchange which will not be reflected in
the computation of the Fund's net asset value. If events materially affecting
the value of the Fund's securities occur during such period, then these
securities will be valued at their fair value as determined in good faith by the
Trustees.
CALCULATION OF YIELD AND RETURN
Yield of the Fund. As summarized in the Prospectus under the heading
"Performance Information," the Yield of the Fund will be computed by annualizing
net investment income per share for a recent 30-day period and dividing that
amount by the Fund shares' net asset value (reduced by any undeclared earned
income expected to be paid shortly as a dividend) on the last trading day of
that period. Net investment income will reflect amortization of any
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market value premium or discount of fixed-income securities (except for
obligations backed by mortgages or other assets) and may include recognition of
a pro rata portion of the stated dividend rate of dividend paying portfolio
securities. The Fund's Yield will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund. These factors and possible differences in the methods used in
calculating yield should be considered when comparing the Fund's Yield to yields
published for other investment companies and other investment vehicles. Yield
should also be considered relative to changes in the value of the Fund's shares
and to the relative risks associated with the investment objective and policies
of the Fund.
At any time in the future, yields may be higher or lower than past
yields and there can be no assurance that any historical results will continue.
Investors in the Fund are specifically advised that share prices,
expressed as the net asset values per share, will vary just as Yields will vary.
An investor's focus on the Yield of the Fund to the exclusion of the
consideration of the share price may result in the investor's misunderstanding
the Total Return he or she may derive from the Fund.
Calculation of Total Return. As summarized in the Prospectus under the
heading "Performance Information," Total Return is a measure of the change in
value of an investment in the Fund over the period covered, which assumes any
dividends or capital gains distributions are reinvested immediately rather than
paid to the investor in cash. The formula for Total Return used herein includes
four steps: (1) adding to the total number of shares purchased by a hypothetical
$10,000 investment in the Fund all additional shares which would have been
purchased if all dividends and distributions paid or distributed during the
period had been immediately reinvested; (2) calculating the value of the
hypothetical initial investment of $10,000 as of the end of the period by
multiplying the total number of shares owned at the end of the period by the net
asset value per share on the last trading day of the period; (3) assuming
redemption at the end of the period; and (4) dividing this account value for the
hypothetical investor by the initial $10,000 investment and annualizing the
result for periods of less than one year.
The average annual total return for the Fund from commencement of
operations (December 31, 1990) through December 31, 1995 was 18.92%, and the
Fund's average annual total return for the one-year period ended December 31,
1995 was 50.41%.
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PERFORMANCE COMPARISONS
Yield and Total Return. The Fund may from time to time include its
Total Return in information furnished to present or prospective shareholders.
The Fund may from time to time also include its Total Return and Yield and the
ranking of those performance figures relative to such figures for groups of
mutual funds categorized by Lipper Analytical Services, Morningstar, the
Investment Company Institute and other similar services as having the same
investment objective as the Fund.
DISTRIBUTIONS
Distributions from Net Investment Income. As described in the
Prospectus under the caption "Distributions," the Fund pays out substantially
all of its net investment income, (i.e., dividends, interest it receives from
its investments, and short-term gains). It is the present policy of the Fund to
declare and pay distributions from net investment income quarterly.
Distributions of Capital Gains. As described in the Prospectus, the
Fund's policy is to distribute annually substantially all of the net realized
capital gain, if any, after giving effect to any available capital loss
carryover. Net realized capital gain is the excess of net realized long-term
capital gain over net realized short-term capital loss.
TAXES
The tax status of the Fund and the distributions which it intends to
make are summarized in the text of the Prospectus immediately following the
caption "Taxes." All dividends and distributions of the Fund, whether received
in shares or cash, are taxable to the Fund's shareholders as described in the
Prospectus, and must be reported by each shareholder on his federal income tax
return. Although a dividend or capital gains distribution received after the
purchase of the Fund's shares reduces the net asset value of the shares by the
amount of the dividend or distribution, it will be treated as a dividend even
though, economically, it represents a return of capital, and will be subject to
federal income taxes as ordinary income or, if properly designated by the Fund,
as long-term capital gain. In general, any gain or loss realized upon a taxable
disposition of Fund shares by a shareholder will be treated as long-term capital
gain or loss if the shares have been held for more than one year and otherwise
as short-term capital gain or loss. However, any loss realized upon a taxable
disposition of shares held for six months or less will be treated as long-term
capital loss to the extent of any long-term capital gain distributions received
by the shareholder with respect to those shares. All or a portion
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of any loss realized upon a taxable disposition of Fund shares will be
disallowed if other Fund shares are purchased by the shareholder within 30 days
before or after the disposition.
The Fund intends to qualify each year as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). In order to so qualify, the Fund must, among other things, (a)
derive at least 90% of its gross income from dividends, interest, payments with
respect to certain securities loans, and gains from the sale of stock or
securities, or other income derived with respect to its business of investing in
such stock or securities; (b) derive less than 30% of its gross income from
gains from the sale or other disposition of certain assets held for less than
three months; (c) each year distribute at least 90% of its "investment company
taxable income," which, in general, consists of investment income and short-term
capital gains; and (d) diversify its holdings so that, at the end of each fiscal
quarter (i) at least 50% of the market value of the Fund's assets is represented
by cash, cash items, U.S. Government securities, securities of other regulated
investment companies, and other securities, limited in respect of any one issuer
to a value not greater than 5% of the value of the Fund's total assets and 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its assets is invested in the securities (other than those of
the U.S. Government or other regulated investment companies) of any one issuer
or of two or more issuers which the Fund controls and which are engaged in the
same, similar or related trades or businesses. Under the 30% of gross income
test described above, the Fund will be restricted from selling certain assets
held (or considered under Code rules to have been held) for less than three
months. By so qualifying, the Fund will not be subject to federal income taxes
to the extent that its net investment income, net realized short-term capital
gains and net realized long-term capital gains are distributed.
In years when the Fund distributes amounts in excess of its earnings
and profits, such distributions may be treated in part as a return of capital. A
return of capital is not taxable to a shareholder and has the effect of reducing
the shareholder's basis in the shares. The Fund currently has no intention or
policy to distribute amounts in excess of its earnings and profits.
It is expected that at least some of the distributions from the Fund
will qualify for the dividends-received deduction for corporations to the extent
that the Fund's gross income was derived from qualifying dividends from domestic
corporations.
Annually, shareholders will receive information as to the tax status of
distributions made by the Fund in each calendar year.
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The Fund is required to withhold and remit to the U.S. Treasury 31% of
all dividend income earned by any shareholder account for which an incorrect or
no taxpayer identification number has been provided or where the Fund is
notified that the shareholder has under-reported income in the past (or the
shareholder fails to certify that he is not subject to such withholding). In
addition, the Fund will be required to withhold and remit to the U.S. Treasury
31% of the amount of the proceeds of any redemption of shares of a shareholder
account for which an incorrect or no taxpayer identification number has been
provided.
The foregoing relates to federal income taxation. Distributions from
investment income and capital gains may also be subject to state and local
taxes. The Fund is organized as a Massachusetts business trust. Under current
law, as long as the Fund qualifies for the federal income tax treatment
described above, it is believed that the Fund will not be liable for any income
or franchise tax imposed by Massachusetts.
MANAGEMENT OF THE FUND
Trustees and officers of the Trust and their principal occupations
during the past five years are as follows:
Professor Frederick Amling, Trustee of the Fund. Professor of Finance,
The George Washington University; President, Frederick Amling &
Associates (computer investment programs); President, Amling & Company,
Inc. (financial advisors); Trustee, Keystone International Fund,
Keystone Liquid Trust, Keystone Precious Metals Holdings, Keystone
Tax-Exempt Trust, Keystone Tax-Free Fund, Master Reserve Trust, and
Master Reserve Tax-Free Trust (investment companies).
Robert P. Moltz, Trustee of the Fund. President and Chief
Executive Officer, Weaver Bros. Insurance Associates, Inc.
(insurance).
Professor Roy A. Schotland, Trustee of the Fund. Professor
of Law, Georgetown University Law Center; Director,
Custodial Trust Company (banking). Director, Croft Funds
Corporation (open-end management investment company).
Wayne H. Shaner, Trustee of the Fund. Vice President,
Investments, Lockheed Martin Corporation; Member, Investment
Committee, Maryland State Retirement System.
Bruce C. Ellis, Trustee of the Fund. Chairman, Transmedia
Sports & Leisure USA Inc.; Director, Shepards Foundation
(charity); since 1992, Director, Rushmore/Cappiello Fund
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(investment company) and Rushmore Funds (investment
companies).
* William M Lane, Chairman of the Board of Trustees,
President, and Secretary of the Fund. Vice President,
Robert E. Torray & Co., Inc.; Vice President and Secretary,
The Torray Corporation; Secretary and Treasurer, Birmingham
Capital Management Co., Inc.; Vice President and Secretary,
Energy Recovery Management, Inc. (administrator for oil and
gas investment limited partnership) General Partner, WML
Associates, LP.
Douglas C. Eby, Vice President and Treasurer of the Fund.
Since April 1992, Vice President, Robert E. Torray & Co.,
Inc.; Assistant Treasurer, The Torray Corporation. Through
April, 1992, Vice President and Portfolio Manager of Foxhall
Investment Management (investment advisor).
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* Mr. Lane is an "interested person" of the Fund under the
Investment Company Act of 1940.
The mailing address of the officers and Trustees is c/o the Fund, 6610
Rockledge Drive, Bethesda, Maryland 20817.
The Fund's Agreement and Declaration of Trust provides that the Fund
will indemnify its Trustees and each of its officers against liabilities and
expenses incurred in connection with the litigation in which they may be
involved because of their offices with the Fund, except if it is determined in
the manner specified in the Agreement and Declaration of Trust that they have
not acted in good faith in the reasonable belief that their actions were in the
best interests of the Fund or that such indemnification would relieve any
officer or Trustee of any errors and omissions to the Fund or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
Each Trustee who is not an "interested person" of the Fund receives an
annual fee of $2,000, plus $100 for each Trustees' meeting attended. The
salaries and expenses of each of the Fund's officers are paid by the Manager.
Mr. Lane, Mr. Eby and Ms. Doyle, as stockholders and/or officers of the Manager,
will benefit from the management fees paid by the Fund.
At the date of this Statement, the Fund believes that Robert E. Torray
directly or indirectly owns or directs the voting of an aggregate of 442,027.348
shares (14.18% of the Fund's outstanding shares). As of March 19, the Trustees,
officers, and affiliated persons of the Fund, as a group, owned 624,295.636
shares (20.03%) of the Fund.
-15-
<PAGE>
The Manager. Under a written management contract ("Management
Agreement") between the Fund and the Manager, subject to such policies as the
Trustees of the Fund may determine, the Manager, at its expense, will furnish
continuously an investment program for the Fund and will make investment
decisions on behalf of the Fund and place all orders for the purchase and sale
of portfolio securities subject always to applicable investment objective,
policies and restrictions.
Pursuant to the Management Agreement and subject to the control of the
Trustees, the Manager also manages, supervises and conducts the other affairs
and business of the Fund, furnishes office space and equipment, provides
bookkeeping and certain clerical services (excluding determination of the net
asset value of the Fund and shareholder accounting services for the Fund), and
pays all fees and expenses of the officers of the Fund. As indicated under
"Portfolio Transactions -- Brokerage and Research Services," the Fund's
portfolio transactions may be placed with brokers which furnish the Manager,
without cost, certain research, statistical and quotation services of value to
them or their respective affiliates in advising the Fund or their other clients.
In so doing, the Fund may incur greater brokerage commissions than it might
otherwise pay.
The Manager's compensation under the Management Agreement is subject to
reduction to the extent that in any year the expenses of the Fund exceed the
limits on investment company expenses imposed by any statute or regulatory
authority of any jurisdic tion in which shares of such Fund are qualified for
offer and sale. The term "expenses" is subject to interpretation by each of such
jurisdictions, and, generally speaking, excludes brokerage commissions, taxes,
interest, distribution-related expenses and extraordinary expenses. As of this
date, shares are not sold in any state which imposes such a restriction.
The Management Agreement has been approved by the Trustees of the Fund.
By its terms, the Management Agreement will continue in force from year to year,
but only so long as its continuance is approved at least annually by the
Trustees at a meeting called for that purpose or by the vote of a majority of
the outstanding shares of the Fund. The Management Agreement automatically
terminates on assignment, and is terminable upon notice by the Fund. In
addition, the Management Agreement may be terminated on not more than 60 days'
notice by the Manager to the Fund. In the event the Manager ceases to be the
manager of the Fund, the right of the Fund to use the identifying name of
"Torray" may be withdrawn.
As described in the text of the Prospectus under the caption
"Management of the Fund," the Fund pays, in addition to the management fee
described above, all expenses not borne by the Manager, including, without
limitation, fees and expenses of the
-16-
<PAGE>
Trustees, interest charges, taxes, brokerage commissions, expenses of issue or
redemption of shares, fees and expenses of registering and qualifying the shares
of the Fund for distribution under federal and state laws and regulations,
charges of custodians, auditing and legal expenses, expenses of determining net
asset value of the Fund's shares, reports to shareholders, expenses of meetings
of shareholders, expenses of printing and mailing prospectuses, proxy statements
and proxies to existing shareholders, and insurance premiums. The Fund is also
responsible for such nonrecurring expenses as may arise, including litigation in
which the Fund may be a party, and other expenses as determined by the Trustees.
The Fund may have an obligation to indemnify its officers and Trustees with
respect to such litigation.
The Management Agreement provides that the Manager shall not be subject
to any liability in connection with the performance of its services thereunder
in the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
The Manager is a Maryland corporation organized in 1990. Approximately
sixty-one percent (61%) of the outstanding voting shares of the Manager is owned
by Robert E. Torray.
OTHER SERVICES
Custodial Arrangements. Rushmore Trust & Savings, FSB ("Rushmore"),
4922 Fairmont Avenue, Bethesda, Maryland 20814, is the custodian for the Fund.
As such, Rushmore holds in safekeeping certificated securities and cash
belonging to the Fund and, in such capacity, is the registered owner of
securities in book-entry form belonging to the Fund. Upon instruction, Rushmore
receives and delivers cash and securities of the Fund in connection with Fund
transactions and collects all dividends and other distributions made with
respect to the Fund's portfolio securities. Rushmore also maintains certain
accounts and records of the Fund.
Transfer and Shareholder Servicing Agent. The Torray Corporation serves
as transfer agent and shareholder servicing agent to the Fund pursuant to a
Transfer Agency Agreement dated November 16, 1990 (the "Transfer Agency
Agreement"). Under the Transfer Agency Agreement, The Torray Corporation has
agreed (i) to issue and redeem Shares of the Fund; (ii) to address and mail all
communications by the Fund to its Shareholders, including reports to
Shareholders, dividend and distribution notices, and proxy material for meetings
of Shareholders; (iii) to respond to correspondence or inquiries by Shareholders
and others relating to its duties; (iv) to maintain Shareholder accounts and
certain
-17-
<PAGE>
sub-accounts; and (v) to make periodic reports to the Fund's Board of Trustees
concerning the Fund's operations.
Certified Public Accountants. The Fund's independent public
accountants are Johnson Lambert & Co. ("Johnson Lambert"). Johnson Lambert
conducts an annual audit of the Fund, assists in the preparation of the Fund's
federal and state income tax returns and consults with the Fund as to matters of
accounting and federal and state income taxation.
PORTFOLIO TRANSACTIONS
Brokerage and Research Services. Transactions on stock exchanges and
other agency transactions involve the payment by the Fund of negotiated
brokerage commissions. Such commissions vary among different brokers. Also, a
particular broker may charge different commissions according to such factors as
the difficulty and size of the transaction. There is generally no stated
commission in the case of securities, such as U.S. Government Securities, traded
in the over-the-counter markets or in the case of gold bullion but the price
paid by the Fund usually includes an undisclosed dealer commission or mark-up.
It is anticipated that most purchases and sales of short-term portfolio
securities will be with the issuer or with major dealers in money market
instruments acting as principals. In underwritten offerings, the price paid
includes a disclosed, fixed commission or discount retained by the underwriter
or dealer.
When the Manager places orders for the purchase and sale of portfolio
securities for the Fund and buys and sells securities for the Fund, it is
anticipated that such transactions will be effected through a number of brokers
and dealers. In so doing, the Manager intends to use its best efforts to obtain
for the Fund the most favorable price and execution available, except to the
extent that it may be permitted to pay higher brokerage commissions as described
below. In seeking the most favorable price and execution, the Manager considers
all factors it deems relevant, including, by way of illustration, price, the
size of the transaction, the nature of the market for the security, the amount
of commission, the timing of the transaction taking into account market prices
and trends, the reputation, experience and financial stability of the
broker/dealer involved and the quality of service rendered by the broker/dealer
in other transactions.
It has for many years been a common practice in the investment advisory
business for advisors of investment companies and other institutional investors
to receive research, statistical and quotation services from brokers which
execute portfolio transactions for the clients of such advisors. Consistent with
this practice, the Manager may receive research, statistical and quotation
services from brokers with which the
-18-
<PAGE>
Fund's portfolio transactions are placed. These services, which in some
instances could also be purchased for cash, include such matters as general
economic and security market reviews, industry and company reviews, evaluations
of securities and recommendations as to the purchase and sale of securities.
Some of these services may be of value to the Manager in advising various of its
clients (including the Fund), although not all of these services are necessarily
useful and of value in managing the Fund. The fees paid to the Manager are not
reduced because it receives such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934
and the Management Agreement, the Manager may cause the Fund to pay a broker
which provides "brokerage and research services" (as defined in the Act) to the
Manager an amount of disclosed commission for effecting a securities transaction
for the Fund in excess of the commission which another broker would have charged
for effecting that transaction. The authority of the Manager to cause the Fund
to pay any such greater commissions is subject to such policies as the Trustees
may adopt from time to time.
Under the Investment Company Act, persons affiliated with the Fund are
prohibited from dealing with the Fund as a principal in the purchase and sale of
securities.
ORGANIZATION AND CAPITALIZATION OF THE FUND
The Fund was established as a Massachusetts business trust under the
laws of Massachusetts by an Agreement and Declaration of Trust dated April 19,
1990. A copy of the Agreement and Declaration of Trust is on file with the
Secretary of The Commonwealth of Massachusetts. The Trust's fiscal year ends on
December 31 of each year.
As described in the text of the Prospectus following the caption
"Organization and Capitalization of the Fund," shares of the Fund are entitled
to one vote per share (with proportional voting for fractional shares) on such
matters as shareholders are entitled to vote. There will normally be no meetings
of shareholders for the purpose of electing Trustees, except insofar as
elections are required under the 1940 Act in the event that (i) less than a
majority of the Trustees have been elected by shareholders, or (ii) if, as a
result of a vacancy, less than two-thirds of the Trustees have been elected by
the shareholders, the vacancy will be filled only by a vote of the shareholders.
In addition, the Trustees may be removed from office by a written consent signed
by the holders of two-thirds of the outstanding shares of the Fund and filed
with the Fund's custodian or by a vote of the holders of two-thirds of the
outstanding shares of the Fund at a meeting duly called for the purpose, which
meeting
-19-
<PAGE>
shall be held upon the written request of the holders of not less than 10% of
the outstanding shares. Upon written request by ten or more shareholders, who
have been such for at least six months, and who hold shares constituting 1% of
the outstanding shares, stating that such shareholders wish to communicate with
the other shareholders for the purpose of obtaining the signatures necessary to
demand a meeting to consider removal of a Trustee, the Fund has undertaken to
provide a list of shareholders or to disseminate appropriate materials (at the
expense of the requesting shareholders). Except as set forth above, each Trustee
shall continue to hold office and may appoint his successor.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held liable for the obligations of the Fund. However, the
Fund's Agreement and Declaration of Trust disclaims shareholder liability for
acts or obligations of the Fund and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Fund or the Trustees. The Agreement and Declaration of Trust provides for
indemnification out of the Fund's property for all loss and expense of any
shareholder of the Fund held liable on account of being or having been a
shareholder. Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which the Fund would be
unable to meet its obligations.
-20-
<PAGE>
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
<PAGE>
APPENDIX A: CORPORATE BOND AND COMMERCIAL PAPER RATINGS
I. Corporate Bond Ratings
A. Description of Moody's Investors Service, Inc.'s Corporate
Bond Ratings:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba and B -- Bonds which are rated Ba or B are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
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<PAGE>
B. Description of Standard & Poor's Corporation's Corporate
Bond Ratings:
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.
BB and B -- Bonds rated BB or B are regarded, on balance, as
predominately speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
II. Commercial Paper Ratings
A. Description of Moody's Investors Service, Inc.'s Commercial
Paper Ratings:
Moody's Investors Service, Inc. evaluates the salient features that
affect a Commercial Paper issuer's financial and competitive position. Its
appraisal includes, but is not limited to, the review of such factors as:
quality of management, industry strengths and risks, vulnerability to business
cycles, competitive position, liquidity measurements, debt structure, operating
trends and access to capital markets. Differing degrees of weight are applied to
these factors as deemed appropriate for individual situations. Commercial Paper
issuers rated "Prime-1" are judged to be of the best quality. Their short-term
debt obligations carry the smallest degree of investment risk. Margins of
support for current indebtedness are large or stable with cash flow and asset
protection well assured. Current liquidity provides ample coverage of near-term
liabilities and unused alternative financing arrangements are generally
available. While protective elements may change over
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<PAGE>
the intermediate or longer term, such changes are most unlikely to impair the
fundamentally strong position of short-term obligations. Issuers in the
Commercial Paper market rated "Prime-2" are of high quality. Protection for
short-term note holders is assured with liquidity and value of current assets as
well as cash generation in sound relationship to current indebtedness. They are
rated lower than the best commercial paper issuers because margins of protection
may not be as large or because fluctuations of protective elements over the near
or intermediate term may be of greater amplitude. Temporary increases in
relative short and overall debt load may occur. Alternate means of financing
remain assured. Issuers rated Prime-1 and Prime-2 categories are judged to be
investment grade.
B. Description of Standard & Poor's Corporation Commercial
Paper Ratings:
Standard & Poor's Corporation describes its highest ("A") rating for
commercial paper as follows, with numbers 1, 2 and 3 being used to denote
relative strength within the "A" classification: Liquidity ratios are adequate
to meet cash requirements. Long-term senior debt rating should be "A" or better;
in some instances "BBB" credits may be allowed if other factors outweigh the
"BBB." The issuer should be well-established and the issuer should have a strong
position within its industry. The reliability and quality of management should
be unquestioned.
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<PAGE>
