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
- -------------------------------------------------------------------------
First Data Investor Services Group
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
SEMI-ANNUAL REPORT
JUNE 30, 1998
THE TORRAY FUND
SUITE 450
6610 ROCKLEDGE DRIVE
BETHESDA, MARYLAND 20817
(301) 493-4600
1-800-443-3036
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
JULY 30, 1998
- --------------------------------------------------------------------------------
Dear Fellow Shareholders:
We send greetings to you all and a warm welcome to investors who have
joined us this year.
The value of The Torray Fund increased 13.3% during the first half of 1998,
bringing its return since inception 7 1/2 years ago to 23.2% compounded
annually. That number ranks among the top 1% of all mutual funds. The results
also exceed our 15% per year objective and are more than double the historic
return recorded by U.S. stocks. Although the fund's price has declined over the
last few months, we see the drop as temporary. In a few years it will be long
forgotten. As far as we're concerned, it's business as usual. Our philosophy is
the same, we are not worrying about anything and we're busier than ever.
A number of shareholders have called to ask why our stock seems to be
fluctuating more lately and also why it's lagging the market so far this year.
I'm sure many of you are wondering the same things. Since your peace of mind is
very important to us, I want to address these questions head-on. First, let me
say that fluctuations in the fund's share price are beyond our control. The
stock market is simply a jumpy place and we can't do anything about it.
Furthermore, we like it that way because volatility creates opportunity. When
values fall on businesses we own, we sometimes buy more. If they rise too much,
we ignore them. Our job would be a lot tougher, and not nearly as satisfying, if
stocks only went up. Your long-term returns would also be lower.
On the other point, I can only say there is no way we can beat the market
every month, quarter or year. In fact, to my knowledge no fund has ever achieved
such a feat. We see our mission as building shareholder wealth over decades and
it's hard to do that with one eye on the stock ticker. If the reverse were true,
we'd be selling the stocks we're buying and chasing others that are in an
uptrend. That's exactly what a lot of funds do and why 90% of the industry
underperforms the averages. The simple truth is that strategies designed for
short-term performance always prove long-term disappointments.
It's the old story -- no free lunch.
During the first half of 1998 ten stocks accounted for 42% of the return on
the Standard & Poor's 500 Index (7.4 percentage points out of 17.7%). The other
490 issues were up 10.3% and about one-third of those posted losses. Had we
invested just 18% of our assets in the ten favorites, The Torray Fund's return
through June 30 would have been 20.7% instead of 13.3%. Among the reasons we did
not is that they trade at an average of 51 times earnings. We're not comfortable
buying or holding stocks at such levels. A closer look at the market shows that
most stocks
1
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
JULY 30, 1998
- --------------------------------------------------------------------------------
have been in a bear market for quite a while. In view of their huge prior
advance, however, the decline isn't surprising. It also doesn't concern us.
Salomon Smith Barney reports that the average New York Stock Exchange stock as
of July 22nd was down more than 24% from its 52 week high. On the Nasdaq
over-the-counter market the typical issue was off 35%. Salomon also says 5,375
small company stocks (market capitalizations of less than $250 million) have
dropped 43% and 1,985 valued between $250 million and $2 billion are down 25.4%.
The bottom line is that institutional money has propped up a handful of large
capitalization issues while much of the market has melted away. The multiples on
these big favorites have reached extraordinary levels not seen since the early
1970's. In fact, many knowledgeable people think there are strong parallels
between the 1972 and 1998 markets. We see some as well, although not the gloomy
ending. I want to tell you a little about that earlier period because it teaches
lessons that I believe are just as important now as they were then.
I founded our institutional investment management business, Robert E.
Torray & Co., early in 1972. At the time, much like today, a select group of
big, blue chip growth stocks dominated the market averages. As some of you may
recall, they were known as the "nifty fifty" or "one decision" stocks. The "one
decision" was to buy. A few strategists, in fact, said the companies were such
great investments they couldn't believe anyone would be foolish enough to sell
them. Institutional wisdom held that since their growth was assured they could
be bought at any price. As the year progressed, and later in 1973, these big
favorites continued to rise even though most other stocks had been steadily
falling. At the close of 1972 the S&P 500 was priced at 18.4 times its trailing
12 months' earnings. (By comparison the multiple now is 28.1 -- a level not
particularly reassuring to those with a long memory.) Many of the "nifty fifty",
however, were valued at between 40 and nearly 100 times earnings. Polaroid, a
leading favorite, sported a P/E ratio of 97, Disney 85; McDonald's 82; Avon
Products 63 and so on. By comparison, three of the current top stocks,
Microsoft, Cisco Systems and Lucent Technologies trade at 68, 102 and 115 times
earnings respectively.
The demise of "one-decision" investing was not caused by high stock
valuations. They simply made the punishment worse. In the end, it was the Arab
oil embargo of 1973 that doomed the value of stocks and bonds. As surging oil
prices wrecked the world's cost structure, business stagnated, prices spiraled
upward and the market headed south. Institutions that had been swept up in the
"one decision" mania were decimated. Opting for the "other decision", they
bailed out
2
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
JULY 30, 1998
- --------------------------------------------------------------------------------
in droves, driving their favorites into the ground. While market averages
dropped an eye-popping 45%, many smaller stocks and "nifty fifty" types fell
much more. Polaroid plunged 90%, Avon and Disney 86% each, Xerox 71% and
McDonalds 63%. The irony is that many of these companies were just as good as
the "one decisioners" thought they were. In fact, three of them, Coke, General
Electric and Disney, have been fantastic investments and today, 25 years later,
still rank among the institutional favorites. And, remarkably, the P/E ratios on
Coke and G.E. are nearly 20% higher now than they were at their peak in 1972.
So, to a large extent, institutions at the time erred not in their selection of
investments but in the prices they paid for them. In this regard we believe
history is repeating itself. While it remains to be seen whether the current
favorites take a tumble, of this we can be certain: there is no margin of safety
in stocks priced at such levels. If something goes wrong, their owners will
suffer.
Investors during the 1970's also made the mistake of believing that human
scheming can alter the laws of economics. Experts, never doubting the Arab
cartel's staying power, confidently forecasted that oil was headed to $40 a
barrel and within a decade might reach $100. This view gained such wide
acceptance it eventually played a major role in the allocation of the nation's
investment capital. While the "nifty fifty" mania was exclusively an
institutional phenomenon, the later energy boom with its numerous speculative
offshoots snared not only the institutions but the public as well. In addition
to oil prices, the value of land, buildings, commodities, precious metals, rare
coins, art, jewelry and rugs surged. Gold soared from $97 to $800 an ounce. One
state pension fund, no longer able to resist the temptation, bought two tons at
the top. Silver exploded from $3 to $50 an ounce with a boost from a
multi-billionaire who tried to corner the market. When the plot failed, silver
collapsed and the perpetrator later fell into bankruptcy. Institutions that
underwrote the effort were bailed out with a two billion dollar line of credit
arranged by Paul Volker, then Chairman of the U.S. Federal Reserve Board. A
nasty side effect of silver's new-found luster appeared in the form of burglars
in panel trucks outfitted with propane burners. Their mother lode was sterling
flatware and serving trays which they melted down before their trucks cleared
the victims' neighborhoods. The climate also spawned leveraged real estate and
oil tax shelters. Many of these, laden with shameful layers of fees, were
"packaged" offerings cobbled together by Wall Street houses in response to the
retail buyer's thirst for profiting from inflation and avoiding taxes. The worst
promised write-offs of five times the invested capital. In the end, virtually
all of these deals produced the opposite of their intended result.
3
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
JULY 30, 1998
- --------------------------------------------------------------------------------
In retrospect, it is remarkable how many people were swayed by the popular
investment themes of the day, and how few considered the logic on which they
rested. This is an important point for us to remember today. The history of
cartels, for instance, would have discouraged the idea that oil had no place to
go but up. No one seemed to question the myriad studies purporting to prove that
the supply of oil would be largely depleted in four or five decades. These lent
support to the conviction that as supplies shrank the price of remaining
reserves could be easily dictated. This belief, though dear to the hearts of oil
and gas promoters, was nevertheless false. The artificial shortages and higher
prices encouraged conservation and the search for alternatives. Exploration and
production outside of the cartel surged worldwide. As these forces gained
traction the cartel began to unravel. Today, even though demand exceeds the most
aggressive projections made at the height of the crisis, the world is awash in
oil and prices adjusted for inflation are near their all-time low. According to
British Petroleum's latest statistical survey of world prices, oil in today's
dollars traded as high as $82 a barrel in 1864, $58 in 1871, $45 in 1875, $25
between 1895 and 1900, $25 in 1920, $35 in 1975 and $57 in 1982. It touched $30
in 1985, $22 last year and currently averages about $10 worldwide.
Now, 25 years later, memories of the era have faded. Many Wall Street
executives of the day have passed away or retired. Today's typical portfolio
manager was then only four years old. I was 35, not 61. As I am fond of saying,
it seems like only yesterday. Yet the lessons these events teach endure.
Foremost among them is that the human mind, remarkable in so many ways, seems
unable to reason logically when confronted by mass psychology. This is
especially true where money is involved. Without belaboring the point, I will
simply say that every popular investment concept this era spawned eventually
produced terrible results. The abusive oil and real estate tax shelters were
disallowed at great cost to their owners. Gold has fallen from $800 to $285 an
ounce, its lowest price in 20 years. Silver is down from $50 to $5 an ounce.
Other commodities and most collectibles have proven disappointing as well. By
contrast, the stocks so many sold are worth about nine times their highs of 1972
and seventeen times their lows of 1974.
I have recounted this story to illustrate that over time the system works.
One of my favorite sayings is "things that can't happen won't". In this context
it means no matter how bad the situation, society won't preside at its own
funeral. Excluding the depression, the market collapse of 1973-74 is the worst
on record. Yet people who acted rationally were not hurt at all. Those able to
buy during the period were handsomely rewarded. The downturn lasted only 18
months.
4
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
JULY 30, 1998
- --------------------------------------------------------------------------------
After that, the market took off. With a few exceptions, it has been going up
ever since. Investors who sold stocks to buy gold, silver, coin collections and
tax shelters lost. Believers in "the system" won. I hope you will keep this in
mind if you find yourself worrying about the market or the price of your Torray
Fund shares. If you stay the course, even a downturn of several years -- and
there may be one -- should have little effect on your long-term financial
well-being. In fact, for anyone in an accumulating phase of life, slumping
markets are a tremendous advantage. In the end, your retirement assets will be a
lot bigger if periodic contributions are sometimes invested at low prices
instead of always into a rising market.
Before concluding, I want to say a few things about the current financial
scene. Earlier I noted there are no mutual funds that always beat the market. In
spite of this fact, propaganda from Wall Street and the media continues to
suggest otherwise. We are inundated with news of which funds are leading the
market and their managers' latest strategies. Performance is reported by the
day, week, month, year, three years, five years and for those that have been
around that long, ten years. One major weekly financial publication's fund
statistics section looks like the daily racing form. In countless others,
results are compared fund to fund, category to category and fund and category to
the market. Similar attention is focused on individual stocks, indices of stocks
and markets around the world. The relative performance of Exchange stocks, the
Nasdaq list and Russell 2000 is scrutinized for clues as to which area of the
market -- small, medium or large capitalization stocks -- might do better in the
immediate future. U.S., Japanese, British, German, French and smaller markets as
well as indexes in Europe, Asia, the Pacific Rim and so on are compared one to
the other as if some meaning could be found in the relationship of the prices
alone. A blizzard of opinions from brokerage firms and the media advises which
funds will be "sizzling" or "hot" for the new year, how to re-balance your
mutual fund portfolio, or why "Fund X" should do better since its manager has
trimmed the portfolio from 632 stocks to 497.
On another score, the industry keeps creating new funds even though there
are already more funds than stocks. According to Arthur Lipper and Co., America
is home to 9,300 mutual funds. Sixty-three percent did not exist five years ago.
Last year, 1,736 emerged and about 600 more have surfaced during the first half
of this year. The average fund holds 134 stocks. Many investors own five to ten
funds. Even allowing for duplication this means a lot of people have a position
in at least 1,000 stocks. Investors sometimes trade funds while portfolio
managers trade
5
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
JULY 30, 1998
- --------------------------------------------------------------------------------
the stocks in those funds. Fund turnover is near 90%, and 90% of funds
underperform the market. If you didn't know better you'd think it was a joke.
The chances that this perpetual motion machine will add value for the investor
are, to borrow a line, about the same as a cyclone blowing through a junk yard
making a Boeing 747.
When most people think of risk it seems they imagine the market going down.
But that only stings for a while. The real risk, excluding the big one -- buying
bad businesses -- lies in what I have just described: overdiversification,
trading, with its attendant tax bills, and the grind of fees and other expenses
that attach to so many of today's investment products and programs. Over a few
decades, these factors can easily reduce your nest egg by one-half to
two-thirds. One of the nation's top metropolitan daily newspapers has run a
feature for the last five years showing how five well-known investment advisors
would invest a hypothetical retirement savings account in mutual funds. Each of
the managed portfolios typically contains six to twelve funds. The funds that
don't perform are eliminated and replaced by others. Weightings among the funds
are also changed. These experts are as knowledgeable about mutual funds as
anyone in the country. Their results, however, are shocking. The competition's
sponsor recently disclosed that the group had achieved a 104.7% average return
over five years. During the same period the S&P 500 advanced about 187%. The
different portfolios trailed the market by 46%, 56%, 74%, 94% and 145%
respectively. Furthermore, fund sales charges, if applicable, were not deducted
and presumably the managers charged no fees, which, of course, would not have
been the case in the real world. Imagine the cost to investors of such relative
results over 20 or 30 years. But, why should we be surprised? The pros have been
angling in a pond where 90% of the fish weigh less than average. Beyond that,
they keep throwing them back before they are weighed. If professionals can't win
this game, no one can. Buying half a dozen or more funds and then periodically
"re-balancing" the list -- Wall Street's euphemism for churning -- makes no
sense. We think investors will substantially improve their prospects if they
tune out the background noise, try not to watch the market too much and simply
buy a few funds managed by experienced people with good reputations. The funds
selected should follow a sound philosophy, have a solid long-term record, low
turnover, reasonable expenses and not too much diversification.
In closing, I want to let you know that shareholders who already have a
$10,000 account in The Torray Fund will be able to open additional accounts with
a $2,000 minimum. We have also decided to reduce the reinvestment minimum to
$500. These changes are in response to
6
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
JULY 30, 1998
- --------------------------------------------------------------------------------
many requests we have received, and also to our conviction that the best
financial results are achieved by periodic investment over many years.
On behalf of my partners Doug Eby and Bill Lane, our wonderful staff and
your Board of Trustees, I want to thank each of you for your confidence and
trust. You can be certain that your welfare is our top priority.
Sincerely,
/s/ Robert E. Torray
----------------------
Robert E. Torray
President
The Torray Corporation
7
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
PERFORMANCE DATA
AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
TOTAL RATES OF RETURN ON AN INVESTMENT IN THE TORRAY FUND VS. THE S&P 500
For the calendar years or periods ended:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1996 1997 06/30/98 7 1/2 Years
---- ---- ---- ---- ---- ---- ---- -------- -------------
THE TORRAY FUND 19.98% 21.04% 6.37% 2.41% 50.41% 29.09% 37.12% 13.34% 377.46%
S&P 500 30.48% 7.66% 10.09% 1.30% 37.54% 22.98% 33.36% 17.71% 315.97%
</TABLE>
[GRAPH]
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.
8
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
PERFORMANCE DATA
AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
CHANGE IN VALUE OF $10,000 INVESTED ON DECEMBER 31, 1990 (COMMENCEMENT OF
OPERATIONS) TO:
<TABLE>
<CAPTION>
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 06/30/98
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THE TORRAY FUND $11,999 $14,523 $15,448 $15,821 $23,796 $30,719 $42,122 $47,743
S&P 500 $13,048 $14,047 $15,465 $15,666 $21,547 $26,499 $35,339 $41,598
</TABLE>
[GRAPH]
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 June 30, 1998)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year 2 Years 3 Years 4 Years 5 Years 6 Years 7 Years 7 1/2 years
--------- --------- --------- --------- --------- --------- --------- -------------
THE TORRAY FUND 37.17% 36.06% 35.41% 32.70% 26.46% 23.68% 22.91% 23.17%
S&P 500 30.16% 32.41% 30.24% 29.18% 23.08% 21.45% 20.27% 20.93%
</TABLE>
9
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OR SHARES MARKET VALUE
----------------- --------------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS 4.79%
545,000 U.S. Treasury Bill 5.28% due 09/17/98 $ 539,238
6,950,000 U.S. Treasury Bill 5.15% due 10/01/98 6,861,727
780,000 U.S. Treasury Bill 5.16% due 10/08/98 769,339
11,885,000 U.S. Treasury Bill 5.34% due 10/15/98 11,710,025
4,530,000 U.S. Treasury Bill 5.10% due 10/22/98 4,459,046
5,205,000 U.S. Treasury Bill 5.15% due 10/29/98 5,120,852
2,890,000 U.S. Treasury Bill 5.11% due 11/05/98 2,838,921
15,500,000 U.S. Treasury Bill 5.33% due 11/12/98 15,209,218
8,525,000 U.S. Treasury Bill 5.26% due 12/10/98 8,330,501
5,740,000 U.S. Treasury Bill 5.12% due 12/24/98 5,597,992
5,575,000 U.S. Treasury Bill 5.29% due 03/04/99 5,381,473
8,430,000 U.S. Treasury Bill 5.26% due 04/01/99 8,102,778
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS 74,921,110
(amortized cost $74,943,315) ------------
COMMON STOCK 95.40%
18.00% FINANCIAL SERVICES
2,542,300 SLM Holding Corporation 124,572,700
646,000 J.P. Morgan & Company 75,662,750
768,679 Travelers Group, Inc. 46,601,164
304,100 American Express Company 34,667,400
------------
281,504,014
15.94% COMMUNICATIONS EQUIPMENT
2,066,000 Hughes Electronics Corporation* 97,360,250
2,852,000 Loral Space & Communication Ltd.* 80,569,000
815,000 Motorola, Inc. 42,838,438
500,000 PanAmSat Corporation* 28,437,500
------------
249,205,188
8.43% AEROSPACE/DEFENSE/ELECTRONICS
715,100 Northrop Grumman Corporation 73,744,688
645,000 Boeing Company 28,742,813
320,000 General Dynamics Corporation 14,880,000
250,830 Raytheon Company Class A 14,454,079
------------
131,821,580
</TABLE>
10
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
7.69% HEALTHCARE
<S> <C> <C> <C>
791,000 Boston Scientific Corporation* 56,655,375
600,000 Amgen, Inc.* 39,225,000
381,900 St. Jude Medical, Inc.* 14,058,694
331,200 Tenet Healthcare Corporation* 10,350,000
----------
120,289,069
7.63% CONSUMER PRODUCTS
825,000 Kimberly-Clark Corporation 37,846,875
1,600,400 Callaway Golf Company 31,507,875
258,000 Ralston Purina Company 30,137,625
365,000 International Home Foods, Inc.* 8,303,750
180,000 Mattel, Inc. 7,616,250
194,000 Dreyer's Grand Ice Cream, Inc. 3,904,250
-----------
119,316,625
6.97% BANKING
740,000 Banc One Corporation 41,301,250
520,400 Mellon Bank Corporation 36,232,850
147,800 Citicorp 22,059,150
194,368 First American Corporation (Tenn) 9,353,960
-----------
108,947,210
6.47% COMPUTER SYSTEMS & INTEGRATION
2,070,000 Electronic Data Systems Corporation 82,800,000
160,000 IBM Corporation 18,370,000
-----------
101,170,000
5.36% LONG DISTANCE/TELECOMMUNICATIONS
1,466,000 AT&T Corporation 83,745,250
5.22% CHEMICALS
790,000 duPont (E.I.) de Nemours 58,953,750
473,800 Morton International, Inc. 11,845,000
175,000 Eastman Chemical Company 10,893,750
-----------
81,692,500
4.20% MEDIA & ENTERTAINMENT
3,370,000 United States Satellite
Broadcasting Co., Inc.* 39,386,875
597,600 MediaOne Group, Inc.* 26,257,050
-----------
65,643,925
</TABLE>
11
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3.41% AGRICULTURAL PRODUCTS
<S> <C> <C>
2,752,600 Archer Daniels Midland Company 53,331,625
3.22% INDUSTRIAL MACHINERY
754,100 Illinois Tool Works, Inc. 50,289,044
1.66% CONSTRUCTION MATERIALS
565,100 Nucor Corporation 25,994,600
1.20% PACKAGING
395,000 Crown Cork and Seal Company, Inc. 18,762,500
----------
TOTAL COMMON STOCK 95.40% 1,491,713,130
(cost $ 1,275,831,764) -------------
TOTAL PORTFOLIO SECURITIES 100.19% 1,566,634,240
(amoritized cost $ 1,350,775,079)
OTHER ASSETS LESS LIABILITIES (0.19%) (3,048,364)
-------------
NET ASSETS 100.00% $ 1,563,585,876
===============
</TABLE>
TOP 10 HOLDINGS
<TABLE>
<S> <C>
1. SLM Holding Corporation 6. J.P. Morgan & Company
2. Hughes Electronics Corporation 7. Northrop Grumman Corporation
3. AT&T Corporation 8. duPont (E.I.) de Nemours
4. Electronic Data Systems Corporation 9. Boston Scientific Corporation
5. Loral Space & Communications Ltd. 10. Archer Daniels Midland Company
</TABLE>
*non-income producing securities
SEE NOTES TO THE FINANCIAL STATEMENTS.
12
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AS OF JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities at value
(amortized cost $1,350,775,079) $ 1,566,634,240
Receivable for securities sold 790,710
Interest and dividends receivable 1,741,443
Cash 8,350
----------------
TOTAL ASSETS 1,569,174,743
----------------
LIABILITIES
Payable for securities purchased 1,660,585
Accrued expenses 3,928,282
----------------
TOTAL LIABILITIES 5,588,867
----------------
NET ASSETS $ 1,563,585,876
================
Shares of beneficial interest ($1 stated value,
40,841,740 shares outstanding, unlimited
shares authorized) $ 40,841,740
Paid-in-capital in excess of par 1,271,563,196
Undistributed net investment income 831
Undistributed net realized gains 35,320,948
Net unrealized appreciation of investments 215,859,161
----------------
NET ASSETS $ 1,563,585,876
================
PER SHARE $ 38.28
================
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS.
13
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest income $ 2,891,857
Dividend income 6,445,469
-------------
Total income 9,337,326
-------------
EXPENSES
Management fees 5,718,239
Other expenses:
Legal fees $ 18,029
Transfer agent fees 215,707
Audit fees 10,000
Registration & filing fees 206,575
Custodian's fees 42,697
Trustees' fees 18,125
Printing, postage and mailing 67,449
Insurance 1,168
--------
Total other expenses 579,750
-------------
Total expenses 6,297,989
-------------
NET INVESTMENT INCOME 3,039,337
-------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain on investments 35,320,948
Net change in unrealized gain 77,925,020
-------------
Net gain on investments 113,245,968
-------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 116,285,305
=============
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS.
14
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
06/30/98 YEAR ENDED
(UNAUDITED) 12/31/97
------------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 3,039,337 $ 1,613,655
Net realized gain on investments 35,320,948 10,014,391
Net change in unrealized gain 77,925,020 108,257,485
--------------- -------------
Net increase in net assets from
operations 116,285,305 119,885,531
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ($0.082 and
$0.130 per share, respectively) (3,038,604) (1,613,557)
Net realized gains ($0.576 per share) 0 (10,014,391)
--------------- -------------
Total distributions (3,038,604) (11,627,948)
SHARES OF BENEFICIAL INTEREST
Increase from share transactions 841,802,257 383,686,314
--------------- -------------
Total increase 955,048,958 491,943,897
NET ASSETS -- BEGINNING OF PERIOD 608,536,918 116,593,021
--------------- -------------
NET ASSETS -- END OF PERIOD (including
undistributed net investment income of
$831 and $98, respectively) $ 1,563,585,876 $ 608,536,918
=============== =============
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS.
15
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING FOR:
- --------------------------------------------------------------------------------
PER SHARE DATA
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
06/30/98
(UNAUDITED)
---------------
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 33.850
Income From Investment
Operations
Net Investment Income 0.118
Net Gains on Securities
(both realized and
unrealized) 4.394
----------
Total from Investment
Operations 4.512
Less Distributions
Dividends (from Net
Investment Income) (0.082)
Distributions (from Capital
Gains) 0.000
----------
Total Distributions (0.082)
NET ASSET VALUE,
END OF PERIOD $ 38.280
TOTAL RETURN(3) 13.34%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted) $1,563,586
Ratio of Expenses to Average
Net Assets 1.09%(1)
Ratio of Net Income to
Average Net Assets 0.53%(1)
Portfolio Turnover Rate 7.20%
Average Actual Commission
Paid Per Share(4) $ 0.0629
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31:
---------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
------------- ------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 25.220 $ 20.110 $ 13.755 $ 14.273 $ 13.743 $ 11.514 $ 9.999
Income From Investment
Operations
Net Investment Income 0.130 0.186 0.215 0.213 0.122 0.180 0.232
Net Gains on Securities
(both realized and
unrealized) 9.206 5.642 6.674 0.130 0.745 2.229 1.728
-------- -------- -------- --------- --------- --------- ---------
Total from Investment
Operations 9.336 5.828 6.889 0.343 0.867 2.409 1.960
Less Distributions
Dividends (from Net
Investment Income) (0.130) (0.187) (0.214) (0.213) (0.122) (0.180) (0.233)
Distributions (from Capital
Gains) (0.576) (0.531) (0.320) (0.648) (0.215) (0.000) (0.212)
-------- -------- -------- --------- --------- --------- ---------
Total Distributions (0.706) (0.718) (0.534) (0.861) (0.337) (0.180) (0.445)
NET ASSET VALUE,
END OF PERIOD $ 33.850 $ 25.220 $ 20.110 $ 13.755 $ 14.273 $ 13.743 $ 11.514
TOTAL RETURN(3) 37.12% 29.09% 50.41% 2.41% 6.37% 21.04% 19.98%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted) $ 608,537 $ 116,593 $ 50,744 $ 23,362 $ 19,666 $ 10,298 $ 4,423
Ratio of Expenses to Average
Net Assets 1.13% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Ratio of Net Income to
Average Net Assets 0.47% 0.87% 1.31% 1.51% 0.94% 1.54% 2.43%
Portfolio Turnover Rate 11.72% 20.95% 22.56% 36.63% 29.09% 37.09% 21.17%
Average Actual Commission
Paid Per Share(4) $ 0.0737 $ 0.0871 $ 0.0813 n/a n/a n/a n/a
<CAPTION>
14 DAYS
ENDED
12/31/90
--------------
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.000
Income From Investment
Operations
Net Investment Income 0.005
Net Gains on Securities
(both realized and
unrealized) 0.000
--------
Total from Investment
Operations 0.005
Less Distributions
Dividends (from Net
Investment Income) (0.006)
Distributions (from Capital
Gains) (0.000)
--------
Total Distributions (0.006)
NET ASSET VALUE,
END OF PERIOD $ 9.999
TOTAL RETURN(3) (0.03)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted) $ 200
Ratio of Expenses to Average
Net Assets 0.82%(1)
Ratio of Net Income to
Average Net Assets 2.15%(1)
Portfolio Turnover Rate n/a (2)
Average Actual Commission
Paid Per Share(4) 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.
16
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
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.
17
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
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 six
months ended June 30, 1998, The Torray Fund paid management fees of $5,718,239
(1% of assets).
Excluding the management fee, other expenses incurred by the Fund during
the six months ended June 30, 1998 totaled $579,750. 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 six months ended June 30, 1998 aggregated $856,797,048 and
$75,273,242, respectively. Net unrealized appreciation of investments at June
30, 1998 includes aggregate unrealized gains of $234,621,037 and unrealized
losses of $18,761,876.
18
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 4 -- SHARES OF BENEFICIAL INTEREST TRANSACTIONS
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
6/30/98 12/31/97
----------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares issued 26,902,142 $ 992,601,405 14,964,177 $ 429,745,172
Reinvestment of dividends and distributions 70,465 2,677,456 308,776 10,221,775
Shares redeemed (4,108,409) (153,476,604) (1,918,913) (56,280,633)
---------- -------------- ---------- -------------
22,864,198 $ 841,802,257 13,354,040 $ 383,686,314
========== ============== ========== =============
</TABLE>
Officers, Trustees and affiliated persons of The Torray Fund and their families
directly or indirectly control 756,789 shares or 1.8530% of the Fund.
19
