The Torray Fund
- --------------------------------------------------------------------------------
Letter to Shareholders
January 30, 1998
- --------------------------------------------------------------------------------
Dear Fellow Shareholders:
I want to begin by thanking our many long-time shareholders for their
loyalty to The Torray Fund and extending a warm welcome to those of you who
have invested with us more recently. You can be certain we are doing everything
we can to ensure your trust and confidence are rewarded.
As you know, our fund rose sharply last year. It earned 37.1% including
reinvested dividends, bringing the seven-year average to 22.8% compounded
annually. Assuming maximum rates on capital gains and ordinary income
distributions, after-tax returns were 36.2% and 21.5%. The chart on page 7
shows that we have earned a higher return than the Standard & Poor's 500 Index.
The companion chart illustrates what that means to you in dollars. I am also
pleased to say that according to the mutual fund rating service, Morningstar,
Inc., The Torray Fund has done well relative to its peers. Among all growth
funds we are ranked #2 of 707 funds and #5 of 412 funds for the last three and
five years respectively. These results were not made with "Hail Mary" passes
but rather plain old blocking and tackling. The game plan going forward is the
same.
As you may recall, The Torray Fund trailed the market during the first
half of last year. I explained in the mid-year report that our investment of
more than $200 million in stocks at the time not popular with Wall Street was
the cause. Included in this group were AT&T, Electronic Data Systems, Hughes
Electronics and Salomon, Inc. We also had made a significant commitment to
cable stocks after their collapse over the preceding 12 to 18 months.
During the second half things changed. AT&T announced a number of
favorable developments including the appointment of Michael Armstrong as Chief
Executive Officer. Armstrong, the highly regarded former CEO of Hughes
Electronics, already has initiated major cost cutting programs, several asset
sales and more recently the $11 billion acquisition of local service provider
Teleport Communications. In reaction, AT&T's stock has appreciated from $35 on
June 30 to about $63 as I write. It is our number one investment. Meanwhile,
Salomon, Inc., a stock we had been accumulating for nearly seven years, was
acquired by Travelers Corp. at year end. This transaction boosted the value of
our Salomon position by 50%, and the Travelers shares received in exchange now
represent your fund's second-largest asset. Cable stocks -- Cox Communications,
Tele-Communications, Inc. and U.S. West Media Group -- also surged during the
last half of 1997. The latter rose 50% and the other two have doubled. Mellon
Bank, Sallie Mae (renamed
1
<PAGE>
The Torray Fund
- --------------------------------------------------------------------------------
Letter to Shareholders
January 30, 1998
- --------------------------------------------------------------------------------
SLM Holding), IBM, Banc One and Loral Space and Communications also contributed
importantly to the fund's performance last year.
On a different point, the market's 31.1% annual return over the last three
years set an all-time record. Your fund did even better by advancing 38.6% per
year. At the beginning of 1995 we were not even remotely anticipating such an
outcome. Nineteen ninety-four had been a gloomy year on Wall Street, and many
"experts" were calling for a repeat in 1995. The bears, as usual, thought
stocks were going down. To our complete surprise The Torray Fund went up 50.4%.
Largely due to the size of the market's advance, we thought stocks might mark
time or perhaps lose a little ground going forward. Instead they continued
their rise and our fund jumped another 29%. This prompted me to say in our 1996
Annual Report that we thought stock prices were ahead of fundamentals. I added
that any investment capable of compounding at 20% for six years, as The Torray
Fund had done, could also go down for a while. In our 1997 mid-year report I
repeated that the market seemed very high. I commented as well on the enormous
trading volume then running 250-300 times daily levels of 1961, my first year
in the investment business. (On October 28, 1997, trading reached 1.2 billion
shares, surpassing by 2 1/2 times the entire year's volume of 1961.)
All things considered, by the middle of 1997 we felt the likelihood of
another big rise in share prices was remote. We were wrong. The market
continued its advance and The Torray Fund rose another 24 percentage points to
close the year up 37%. It goes to show that while we're not living in a tent,
we still don't know any more about the market's direction than the next fellow:
THE WIZARD OF ID Brant parker and Johnny hart
[CARTOON]
By permission of Johnny Hart and Creators Syndicate, Inc.
2
<PAGE>
The Torray Fund
- --------------------------------------------------------------------------------
Letter to Shareholders
January 30, 1998
- --------------------------------------------------------------------------------
Even so, we can't escape the feeling that market gains of recent years are
simply unsustainable. Some, we realize, will not agree. It has been reported
that Montgomery Asset Management in San Francisco polled mutual fund
shareholders twice last year. Investors were asked how much they expected to
make annually on their funds over the next decade. First they said 22% then
later 34%. (At the latter number, the Dow Jones Average would reach 144,000 by
2007.) Hearing the survey's results, a fund manager in Philadelphia was quoted
as saying, "They must have polled the loony bin." Although we are comfortable
that none of our shareholders could be found in such a place, a little
insurance may be in order. I will take a moment, therefore, to explain why we
think stock returns are headed down.
Over long periods -- several decades or more -- stocks reflect only one
thing: corporate earnings. The lines depicting earnings and share prices on
35-year stock charts invariably match perfectly. Without exception, it can be
seen from any chart you choose that rising earnings mean higher prices and vice
versa. If the expectations of Montgomery's latest pollees are to be realized,
and given that stocks already value earnings at record levels, we think
corporate profits will have to compound at 34% or so over the next decade. As
my partner Doug Eby says, "If it happens, lightbulbs will probably cost $200
apiece."
Some companies (we wish we knew which ones) undoubtedly will report
earnings growth in that range for a decade. But there will not be many. It's
for sure the country's largest enterprises will not. Small businesses won't
either. Professionals -- lawyers, doctors, architects, even mutual fund
managers -- have no chance of compounding their earnings at such rates. The
economy itself grows only 2% - 4% annually. Sometimes it doesn't grow at all.
Occasionally it slumps. The fact is that nothing of national importance is
likely to compound at 34% over the next decade. Think about it: a $10,000
investment in The Torray Fund earning 34% annually would be worth $65 million
in 30 years. At the rate of return we have made for the last three years, it
would become $157 million. This is not going to happen.
In addition to economics, history teaches us not to get too excited about
stock market booms. Professor Jeremy J. Siegel of The Wharton School,
University of Pennsylvania, has studied stock returns all the way back to the
year 1802. His work shows that after inflation stocks have earned 7% annually.
"I've found this remarkable stability over time," he says, "The long run return
is always the same, about 7%." (Adding inflation, the average has been 10% -
11%.)
3
<PAGE>
The Torray Fund
- --------------------------------------------------------------------------------
Letter to Shareholders
January 30, 1998
- --------------------------------------------------------------------------------
While your management's 15% long-term objective may appear modest in light
of recent experience, it is really quite ambitious when viewed from a historic
perspective. We are, nevertheless, optimistic it can be achieved. If we are
successful, I think you will be pleased with the results. Two examples may help
illustrate the point: During the summer of 1996, my wife Nancy and I were
visiting with friends who told us in passing they had recently sold an
inherited house for $1.8 million. The former owner had purchased it for only
$20,000. "How long ago?" I asked. "In 1940," they said. Money compounding at
15% doubles in less than five years. At that rate, more than 11 doublings would
have occurred since 1940, turning $20,000 into $50 million. The appreciation on
the house, excluding insurance, taxes, interest and maintenance was 8.4%
annually. The other example comes from a recent New York Times account of the
O'Malley family's sale of the Los Angeles Dodgers to Rupert Murdoch's Fox
Group. Walter O'Malley purchased the Dodgers for $1.4 million in 1950 when the
team was still in Brooklyn. The Times reported the Dodgers were expected to
bring $350 million. It editorialized that when "the elder O'Malley fled
Brooklyn for the riches of Southern California, after the 1957 season, he might
never have dreamed his asset would one day sell for $350 million." I'm sure
you'll not be surprised to learn that Mr. O'Malley's $1.4 million investment
compounding at 15% over 47 years would be worth more than $997 million today.
Based upon the team's sale price, the return was a still impressive 12.5%. The
pleasures and challenges of owning that wonderful team, I'm sure, made up for
the difference.
Although most of us can't wait 47 or 56 years, and relatively few people
have $1.4 million to invest, the average person also doesn't need $997 million
to live comfortably. The fact is that even modest sums compounding at
double-digit rates over a few decades can make a big difference in one's
financial situation. Money earning 15% multiplies 4 times in 10 years, 16 times
in 20 years and 66 times in 30 years. I hope that each of you will try hard to
think along these lines, or perhaps for a while even more conservatively. As we
all have discovered, it is better to be pleasantly surprised than unexpectedly
disappointed.
Many of you have asked whether we plan to close our fund to new investors.
Right now the answer is no. So far, cash flow from shareholders has proven to
be a tremendous advantage. It has funded promising new investments and
additions to existing holdings that otherwise could not have been made without
selling stocks we prefer to retain. As a consequence, portfolio turn-
4
<PAGE>
The Torray Fund
- --------------------------------------------------------------------------------
Letter to Shareholders
January 30, 1998
- --------------------------------------------------------------------------------
over has been reduced and taxes deferred. Nevertheless, you are right to be
concerned about this issue. The investment performance of many funds has
suffered as an apparent result of rapid asset growth. In most such cases,
however, we think unsound investment policies, not rising cash flow, are to
blame. The investment industry is loaded with examples of funds striking it
lucky, advertising a short-term record and receiving an avalanche of money in
return. Often, the cash is plowed into narrow market segments, micro and small
capitalization stocks, or simply used to trade the market's momentum. If enough
money is involved, it can have a self-reinforcing effect on stock prices which
in turn may lead to even heavier cash flows, further price escalation and on
and on. Favorable results of such operations are sure to be promoted at
shareholder expense, and the fund managers involved elevated to "star" status
by the media. Unfortunately for investors, however, the life cycle of these
apparent "money machines" is normally limited. Sooner or later performance
suffers, the process goes into reverse and the "stars", exposed as "Emperors
without clothes", rejoin Wall Street central casting to learn new lines.
This scenario is not going to unfold at The Torray Fund. The simple reason
is that we are investing in long-term business values, not chasing stock
prices. Usually we buy when prices are falling. Furthermore, most of the fund's
assets are committed to relatively sizable companies. AT&T, for example, has
1.6 billion shares outstanding worth over $100 billion. Even though it is our
largest investment, The Torray Fund owns less than 5/100ths of 1 percent of its
capitalization. In fact, our entire fund, now over $700 million, amounts to
only 7/10ths of 1 percent of AT&T's market value. Viewed from a different
perspective, the U.S. market's $9.3 trillion value is 13,800 times the size of
The Torray Fund. At this time we don't see a problem.
In closing, I want to re-emphasize a point I have made to you in the past:
value derives from the business, not from the stock. We have complete
confidence in the businesses owned by The Torray Fund. As a result, regardless
of how much our stocks gyrate, we never lose sleep. We hope you won't either.
Remember, stock prices only reflect the investing public's transient view of
value, they do not create it. I am reminded of Groucho Marx's famous quip: "Who
are you going to believe, me or your own eyes?" To paraphrase Groucho, are we
to believe the stock ticker or our seasoned judgment about business values?
Well, I know you know the answer to that one.
5
<PAGE>
The Torray Fund
- --------------------------------------------------------------------------------
Letter to Shareholders
January 30, 1998
- --------------------------------------------------------------------------------
The directors, officers and employees of The Torray Corporation again
extend their appreciation for your confidence and trust. I have said it before
and will repeat -- we enjoy working for you. We also wish to thank those of you
who have called or written to compliment us on the fund's results. It means a
lot.
Sincerely,
/s/ Robert E. Torray
----------------------
Robert E. Torray
President
The Torray Corporation
6
<PAGE>
The Torray Fund
- --------------------------------------------------------------------------------
PERFORMANCE DATA
As of December 31, 1997
- --------------------------------------------------------------------------------
Total Rates of Return on an Investment in The Torray Fund vs. the S&P 500
For each of the years:
<TABLE>
<S> <C>
1991 1992 1993 1994 1995 1996 1997 7 Years
---- ---- ---- ---- ---- ---- ---- ----------
The Torray Fund 19.98% 21.04% 6.37% 2.41% 50.41% 29.09% 37.12% 321.25%
S&P 500 30.48% 7.66% 10.09% 1.30% 37.54% 22.98% 33.36% 253.38%
</TABLE>
[CHART]
Returns on both The Torray Fund and the S&P 500 assume reinvestment
of all dividends and distributions.
Fund returns are after all expenses. Past performance
is not predictive of future results.
7
<PAGE>
The Torray Fund
- --------------------------------------------------------------------------------
PERFORMANCE DATA
As of December 31, 1997
- --------------------------------------------------------------------------------
Change in Value of $10,000 Invested on December 31, 1990 (commencement of
operations)
<TABLE>
<S> <C>
12/31/90 1991 1992 1993 1994 1995 1996 1997
-------- ------- ------- ------- ------- ------- ------- -------
The Torray Fund $ 10,000 $11,999 $14,523 $15,448 $15,821 $23,796 $30,719 $42,122
S&P 500 $ 10,000 $13,048 $14,047 $15,465 $15,666 $21,547 $26,499 $35,339
</TABLE>
[CHART]
Returns on both The Torray Fund and the S&P 500 assume reinvestment
of all dividends and distributions.
Fund returns are after all expenses. Past performance
is not predictive of future results.
AVERAGE ANNUAL TOTAL RETURNS
(for periods ended December 31, 1997)
<TABLE>
<S> <C>
1 Year 2 Years 3 Years 4 Years 5 Years 6 Years 7 Years
--------- --------- --------- --------- --------- --------- ---------
The Torray Fund 37.12% 33.05% 38.60% 28.50% 23.73% 23.28% 22.79%
S&P 500 33.36% 28.06% 31.15% 22.95% 20.26% 18.06% 19.76%
</TABLE>
8
<PAGE>
The Torray Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
As of December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
or Shares Market Value
----------------- ---------------
<S> <C>
U.S GOVERNMENT OBLIGATIONS 1.26%
3,770,000 U. S. Treasury Bill 5.48% due 08/20/98 $ 3,643,788
2,325,000 U. S. Treasury Bill 5.28% due 09/17/98 2,237,855
1,610,000 U. S. Treasury Bill 5.34% due 10/15/98 1,543,489
225,000 U. S. Treasury Bill 5.33% due 11/12/98 214,736
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS 7,639,868
------------
(amortized cost $7,641,225)
COMMON STOCK 98.02%
13.00% FINANCIAL SERVICES
768,679 Travelers Group, Inc. 41,412,581
211,200 SLM Holding Corporation 29,383,200
93,000 American Express Company 8,300,250
------------
79,096,031
10.09% MEDIA & ENTERTAINMENT
700,000 US West Media Group* 20,212,500
550,000 Tele-Communications Inc. Class A* 15,365,625
350,000 Cox Communications Inc. Class A* 14,021,875
1,200,000 United States Satellite Broadcasting Co., Inc.* 9,525,000
23,000 The Walt Disney Company 2,278,438
------------
61,403,438
9.53% HEALTHCARE
341,000 Boston Scientific Corporation* 15,643,375
381,900 St. Jude Medical, Inc.* 11,647,950
331,200 Tenet Healthcare Corporation* 10,971,000
185,000 Amgen, Inc.* 10,013,125
80,000 Lilly (Eli) & Company 5,570,000
34,000 Johnson & Johnson 2,239,750
20,000 Bristol-Myers Squibb Company 1,892,500
------------
57,977,700
9.44% AEROSPACE/DEFENSE/ELECTRONICS
170,000 Northrop Grumman Corporation 19,550,000
160,000 General Dynamics Corporation 13,830,000
250,830 Raytheon Company Class A 12,369,074
175,000 Boeing Company 8,564,063
32,000 Lockheed Martin Corporation 3,152,000
------------
57,465,137
</TABLE>
9
<PAGE>
The Torray Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
As of December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
9.22% COMMUNICATIONS EQUIPMENT
<S> <C>
1,315,000 Loral Space & Communications Ltd.* 28,190,312
501,000 Hughes Electronics Corporation 18,505,688
105,000 Motorola, Inc. 5,991,563
43,009 Lucent Technologies, Inc. 3,435,344
----------
56,122,907
9.16% BANKING
340,000 Banc One Corporation 18,466,250
304,000 Mellon Bank Corporation 18,430,000
194,368 First American Corporation (Tenn) 9,669,808
55,000 Citicorp 6,954,063
103,736 Southern Financial Bancorp, Inc. 2,230,324
------------
55,750,445
8.67% COMPUTER SYSTEMS & INTEGRATION
820,000 Electronic Data Systems Corporation 36,028,749
160,000 IBM Corporation 16,730,000
------------
52,758,749
8.01% LONG DISTANCE/TELECOMMUNICATIONS
736,300 AT&T Corporation 45,098,374
50,000 SBC Communications, Inc. 3,662,500
------------
48,760,874
6.18% CONSUMER PRODUCTS
215,000 Kimberly-Clark Corporation 10,602,188
365,000 International Home Foods, Inc.* 10,220,000
180,000 Mattel, Inc. 6,705,000
58,000 Ralston Purina Company 5,390,375
194,000 Dreyer's Grand Ice Cream, Inc. 4,680,250
------------
37,597,813
6.15% CHEMICALS
350,000 DuPont (E.I.) de Nemours & Co. 21,021,875
175,000 Eastman Chemical Company 10,423,438
173,800 Morton International, Inc. 5,974,375
------------
37,419,688
4.73% AGRICULTURAL PRODUCTS
956,000 Archer Daniels Midland Company 20,733,250
192,000 Monsanto Company 8,064,000
------------
28,797,250
</TABLE>
10
<PAGE>
The Torray Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
As of December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2.27% PACKAGING
<S> <C>
275,000 Crown Cork and Seal Company, Inc. 13,784,375
1.57% CONSTRUCTION MATERIALS
130,000 Nucor Corporation 6,280,625
90,000 Martin Marietta Materials, Inc. 3,290,625
----------
9,571,250
TOTAL COMMON STOCK 98.02% 596,505,657
-----------
(cost $458,570,159)
TOTAL PORTFOLIO SECURITIES 99.28% 604,145,525
(amortized cost $466,211,384)
OTHER ASSETS LESS LIABILITIES 0.72% 4,391,393
-----------
NET ASSETS 100.00% $608,536,918
============
</TABLE>
*Non-income producing securities
TOP 10 HOLDINGS
- ---------------
<TABLE>
<S> <C>
1. AT&T Corporation 6. DuPont (E.I.) de Nemours & Co.
2. Travelers Group, Inc. 7. Archer Daniels Midland Company
3. Electronic Data Systems Corporation 8. US West Media Group
4. SLM Holding Corporation 9. Northrop Grumman Corporation
5. Loral Space & Communications Ltd. 10. Hughes Electronics Corporation
</TABLE>
See notes to the financial statements.
11
<PAGE>
The Torray Fund
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities at value
(amortized cost $466,211,384) $ 604,145,525
Subscriptions receivable 7,192,105
Interest and dividends receivable 614,090
Cash 7,631
--------------
TOTAL ASSETS 611,959,351
--------------
LIABILITIES
Payable for securities purchased 3,073,849
Redemptions payable 185,640
Accrued expenses 162,944
--------------
TOTAL LIABILITIES 3,422,433
--------------
NET ASSETS $ 608,536,918
==============
Shares of beneficial interest ($1 stated value,
17,977,542 shares outstanding, unlimited
shares authorized) $ 17,977,542
Paid-in-capital in excess of par 452,625,137
Undistributed net investment income 98
Net unrealized appreciation of investments 137,934,141
--------------
NET ASSETS $ 608,536,918
==============
Per Share $ 33.85
==============
</TABLE>
See notes to the financial statements.
12
<PAGE>
The Torray Fund
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest income $ 387,274
Dividend income 5,128,000
-------------
Total income 5,515,274
-------------
EXPENSES
Management fees 3,446,533
Other expenses:
Legal fees $48,056
Transfer agent fees 140,797
Audit fees 20,000
Registration & filing fees 128,503
Custodian's fees 57,074
Trustees' fees 19,250
Printing, postage and mailing 36,785
Insurance 4,621
-------
Total other expenses 455,086
-------------
Total expenses 3,901,619
-------------
NET INVESTMENT INCOME 1,613,655
-------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain on investments 10,014,391
Net change in unrealized gain 108,257,485
-------------
Net gain on investments 118,271,876
-------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 119,885,531
=============
</TABLE>
See notes to the financial statements.
13
<PAGE>
The Torray Fund
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C>
Increase in Net Assets from Operations:
Net investment income $ 1,613,655 $ 646,069
Net realized gain on investments 10,014,391 2,377,790
Net change in unrealized gain (loss) 108,257,485 16,868,896
------------ ------------
Net increase in net assets from
operations 119,885,531 19,892,755
Distributions to Shareholders from:
Net investment income ($0.130 and
$0.187 per share, respectively) (1,613,557) (647,899)
Net realized gains ($0.576 and $0.532 per
share, respectively) (10,014,391) (2,382,500)
------------ ------------
Total distributions (11,627,948) (3,030,399)
Shares of Beneficial Interest
Increase from share transactions 383,686,314 48,987,063
------------ ------------
Total increase 491,943,897 65,849,419
Net assets -- beginning of period 116,593,021 50,743,602
------------ ------------
Net assets -- end of period (including
undistributed net investment income of $98
and $0, respectively) $608,536,918 $116,593,021
============ ============
</TABLE>
See notes to the financial statements.
14
<PAGE>
The Torray Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share outstanding for:
- --------------------------------------------------------------------------------
PER SHARE DATA($)
<TABLE>
<CAPTION>
Years ended December 31:
-----------------------------------------------------
1997 1996 1995 1994
------------- ------------- ------------ ------------
<S> <C>
Net Asset Value, Beginning of
Period $ 25.220 $ 20.110 $ 13.755 $ 14.273
Income From Investment Operations
------------------------------------
Net Investment Income 0.130 0.186 0.215 0.213
Net Gains on Securities
(both realized and unrealized) 9.206 5.642 6.674 0.130
-------- -------- -------- ---------
Total from Investment Operations 9.336 5.828 6.889 0.343
Less Distributions
------------------------------------
Dividends (from Net Investment
Income) (0.130) (0.187) (0.214) (0.213)
Distributions (from Capital Gains) (0.576) (0.531) (0.320) (0.648)
-------- -------- -------- ---------
Total Distributions (0.706) (0.718) (0.534) (0.861)
Net Asset Value, End of Period $ 33.850 $ 25.220 $ 20.110 $ 13.755
TOTAL RETURN3 37.12% 29.09% 50.41% 2.41%
RATIOS / SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted) $608,537 $116,593 $ 50,744 $ 23,362
Ratio of Expenses to Average Net
Assets 1.13% 1.25% 1.25% 1.25%
Ratio of Net Income to Average Net
Assets 0.47% 0.87% 1.31% 1.51%
Portfolio Turnover Rate 11.72% 20.95% 22.56% 36.63%
Average Actual Commission paid per
share4 $ 0.0737 $ 0.0871 $ 0.0813 n/a
<CAPTION>
14 days
ended
1993 1992 1991 12/31/90
------------ ------------ ------------- ---------------
<S> <C>
Net Asset Value, Beginning of
Period $ 13.743 $ 11.514 $ 9.999 $ 10.000
Income From Investment Operations
------------------------------------
Net Investment Income 0.122 0.180 0.232 0.005
Net Gains on Securities
(both realized and unrealized) 0.745 2.229 1.728 0.000
--------- --------- --------- ----------
Total from Investment Operations 0.867 2.409 1.960 0.005
Less Distributions
------------------------------------
Dividends (from Net Investment
Income) (0.122) (0.180) (0.233) (0.006)
Distributions (from Capital Gains) (0.215) 0.000 (0.212) 0.000
--------- --------- --------- ----------
Total Distributions (0.337) (0.180) (0.445) (0.006)
Net Asset Value, End of Period $ 14.273 $ 13.743 $ 11.514 $ 9.999
TOTAL RETURN3 6.37% 21.04% 19.98% (0.03%)
RATIOS / SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted) $ 19,666 $ 10,298 $ 4,423 $ 200
Ratio of Expenses to Average Net
Assets 1.25% 1.25% 1.25% 0.82%1
Ratio of Net Income to Average Net
Assets 0.94% 1.54% 2.43% 2.15%1
Portfolio Turnover Rate 29.09% 37.09% 21.17% n/a2
Average Actual Commission paid per
share4 n/a n/a n/a n/a
</TABLE>
1 Annualized
2 Not applicable. During the period December 18, 1990 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.
15
<PAGE>
The Torray Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- --------------------------------------------------------------------------------
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's primary investment objective is to provide long-term total return. The
Fund seeks to meet its objective by investing its assets in a diversified
portfolio of common stocks and U.S. Treasury Bills or Treasury Notes. In order
to accomplish these goals, the Fund intends to hold stocks for the long term,
as opposed to actively buying and selling. There can be no assurances that the
Fund's investment objectives will be achieved. The Fund was organized as a
business trust under Massachusetts law. The Torray Corporation serves as
administrator and investment advisor to 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.
Use of Estimates In preparing financial statements in accordance with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
16
<PAGE>
The Torray Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- --------------------------------------------------------------------------------
NOTE 2 -- MANAGEMENT CONTRACT
Pursuant to the Management Contract, The Torray Corporation provides
investment advisory and portfolio management services to the Fund. The Fund
pays The Torray Corporation a management fee, computed daily and payable
quarterly at the annual rate of one percent of the Fund's daily net assets.
During the twelve months ended December 31, 1997, The Torray Fund paid
management fees of $3,446,533 (1% of assets).
Excluding the management fee, other expenses incurred by the Fund during
the twelve months ended December 31, 1997, totaled $455,086. These expenses
include all costs associated with the Fund's operations including transfer
agent fees, Independent Trustees' fees ($5,000 per annum and $500 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, 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.
Certain officers and Trustees of the Fund are also officers and/or
shareholders of The Torray Corporation.
NOTE 3 -- PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term
investments, for the twelve months ended December 31, 1997, aggregated
$440,356,344 and $39,746,205, respectively. Net unrealized appreciation of
investments at December 31, 1997, includes aggregate unrealized gains of
$141,465,306 and unrealized losses of $3,531,165.
17
<PAGE>
The Torray Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- --------------------------------------------------------------------------------
NOTE 4 -- SHARES OF BENEFICIAL INTEREST TRANSACTIONS
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Year Year
ended ended
12/31/97 12/31/96
--------------------------------- --------------------------------
Shares Amount Shares Amount
--------------- --------------- ------------- ----------------
<S> <C>
Shares issued 14,964,177 $429,745,172 2,666,305 $ 60,693,638
Reinvestment of dividends
and distributions 308,776 10,221,775 109,550 2,717,587
Shares redeemed (1,918,913) (56,280,633) (675,296) (14,424,162)
---------- ------------ --------- -------------
13,354,040 $383,686,314 2,100,559 $ 48,987,063
========== ============ ========= =============
</TABLE>
Officers, Trustees and affiliated persons of The Torray Fund and their families
directly or indirectly control 760,896 shares or 4.23% of the Fund.
18
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Shareholders and Board of Trustees of
The Torray Fund
Bethesda, Maryland
We have audited the accompanying statement of assets and liabilities of
The Torray Fund, including the schedule of investments, as of December 31,
1997, and the related statement of operations, the statement of changes in net
assets, and the financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsiblity is to express an opinion on these financial
statements and financial highlights based on our audit. The statement of
changes in net assets for the year ended December 31, 1996 and the financial
highlights for each of the six years in the period ended December 31, 1996 and
for the period from December 18, 1990 (commencement of operations) through
December 31, 1990 were audited by other auditors whose report dated January 22,
1997 expressed an unqualified opinion on the statement of changes in net assets
and financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, 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 audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
The Torray Fund as of December 31, 1997, the results of its operations, the
changes in its net assets, and the financial highlights for the year then ended
in conformity with generally accepted accounting principles.
BRIGGS, BUNTING & DOUGHERTY, LLP
Philadelphia, Pennsylvania
January 16, 1998
19
<PAGE>
TRUSTEES
- -------------------------------------------------------------------------
Frederick Amling
Bruce C. Ellis
William M Lane
Robert P. Moltz
Roy A. Schotland
Wayne H. Shaner
INVESTMENT ADVISOR
- -------------------------------------------------------------------------
The Torray Corporation
OFFICERS
--------
Robert E. Torray, President
Douglas C. Eby, Vice President
William M Lane, Vice President
TRANSFER AGENT
- -------------------------------------------------------------------------
FPS Services, Inc.
3200 Horizon Drive
King of Prussia, Pennsylvania 19406
1-800-626-9769
LEGAL COUNSEL
- -------------------------------------------------------------------------
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
This report is not authorized for distribution
to prospective investors unless preceded or
accompanied by a current prospectus.
The
TORRAY
FUND
ANNUAL REPORT
December 31, 1997
The Torray Fund
Suite 450
6610 Rockledge Drive
Bethesda, Maryland 20817
(301) 493-4600
1-800-443-3036
