PROSPECTUS
MAY 1, 1999
THE TORRAY FUND
THE TORRAY FUND IS A NO-LOAD MUTUAL FUND MANAGED BY THE TORRAY CORPORATION.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
About the Fund .......................... 2
Performance ............................. 4
Fund Expenses ........................... 5
Financial Highlights .................... 6
Fund Management ......................... 7
Purchasing and Redeeming Shares ......... 7
Taxes and Distributions ................. 10
</TABLE>
1
<PAGE>
ABOUT THE FUND
INVESTMENT GOALS:
The Torray Fund's goals are to build shareholder wealth over long periods (10
years or more) and to minimize shareholder capital gains tax liability by
limiting the realization of long and short term gains.
There is no guarantee that the Fund will meet these objectives.
INVESTMENT STRATEGIES AND POLICIES:
The manager's strategy is to buy and hold stocks of quality companies for
long-term investment. In this context, "quality" refers to demonstrated earning
power, sound finances, solid competitive position, and capable executive
leadership. Management never trades for quick profits. Stock market trends are
largely ignored and no effort is made to forecast the market or time the Fund's
investments to profit from the perceived outlook. Ordinarily 90% or more of
assets will be invested in common stocks with the balance held in U.S. Treasury
bills or notes. Investments are not limited to any particular capitalization
size. Positions in individual stocks will generally not exceed 8% of assets and
in industry groupings, 25%.
The manager believes that value exists in businesses, not stocks. Consequently,
a thorough analysis of the economic fundamentals of potential investments is
the essential element of The Torray Corporation's approach. History shows that
stocks of companies generating higher earnings rise over time. The manager's
research, therefore, concentrates on studying businesses with proven track
records. The objective is to capitalize on the values that accumulate in such
enterprises over long periods. Companies that have performed poorly or appear
headed downhill with little chance of recovery are not bought, regardless of
how undervalued their shares may appear. However, quality companies that have
fallen from investor favor are often of interest because the price of their
shares may fail to reflect the business's intrinsic value. In such cases the
manager seeks to determine whether the seemingly low price reflects temporary
problems or a serious impairment of economic values. Investments are made only
when it is believed that a company's long-term outlook is sound and the shares
are fairly priced.
2
<PAGE>
Investors in search of unrealistically high returns, quick profits, or to whom
quarterly performance is important, should not invest in The Torray Fund.
The Fund's goals and investment strategy can be changed without shareholder
approval.
MAIN RISKS
Torray Fund investors face the risk that the manager's business analyses prove
faulty. The Fund usually holds between 25 and 40 stocks compared to a mutual
fund industry average of well over 100. If the fundamentals of a number of
large holdings are misjudged, shareholders may suffer losses even during a time
when the general market and many other funds are rising. Beyond that
possibility there is always a risk that money may be lost on an investment in
an equity mutual fund.
3
<PAGE>
PERFORMANCE
Below are a chart and a table showing the Fund's performance. The bar chart
provides some indication of the risk of investing in the Fund by illustrating
how the Fund has performed from year-to-year. The table compares the Fund's
performance against the performance of an unmanaged market index. These figures
assume that all distributions were reinvested. It is important to remember that
the Fund's past performance does not indicate how the Fund will perform in the
future.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998
----------- ----------- ---------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THE TORRAY FUND 19.98% 21.04% 6.37% 2.41% 50.41% 29.09% 37.12% 8.20%
</TABLE>
Annual Total Return (%) as of 12/31
[GRAPH]
The Fund's best return for a calendar quarter was 21.30% in the Fourth Quarter
of 1998, and the lowest return for a calendar quarter was (21.30%) in the Third
Quarter of 1998.
Average Annual Total Returns as of 12/31/98
<TABLE>
<CAPTION>
8 YEARS
BEGINNING
1 YEAR 5 YEARS 12/31/90*
---------- ----------- ----------
<S> <C> <C> <C>
Torray Fund 8.20% 24.16% 20.86%
S&P 500 Index 28.58% 24.06% 20.83%
</TABLE>
*Commencement of Operations
4
<PAGE>
FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION FEES
(fees paid directly from your investment)
None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees 1.00%
Other Expenses .09
-----
Total Annual Fund Operating Expenses 1.09%
=====
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. This example uses the same
assumptions that are in all mutual fund prospectuses: a $10,000 investment, a
5% return and fund expenses that remain the same each year. The figures shown
in this example are entirely hypothetical. They are not representations of past
or future performance or expenses. Your actual costs and returns may be higher
or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- --------- --------- ---------
<S> <C> <C> <C>
$ 112 $347 $603 $1,334
</TABLE>
5
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). The
information for 12/31/98 and 12/31/97 has been audited by Briggs, Bunting &
Dougherty, LLP, whose report, along with the Fund's financial statements are
incorporated by reference into the Statement of Additional Information, which
is available upon request. The information for 12/31/96, 12/31/95 and 12/31/94
has been audited by other auditors.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
PER SHARE DATA --------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD ........................ $ 33.850 $ 25.220 $ 20.110 $ 13.755 $ 14.273
Income From Investment
Operations:
Net Investment Income ........... 0.139 0.130 0.186 0.215 0.213
Net Gains on Securities
(both realized and
unrealized) ................... 2.630 9.206 5.642 6.674 0.130
--------- -------- -------- -------- --------
Total from Investment
Operations ................... 2.769 9.336 5.828 6.889 0.343
Less:
Dividends (from Net Investment
Income) ....................... ( 0.139) ( 0.130) ( 0.187) ( 0.214) ( 0.213)
Distributions (from Capital
Gains) ........................ 0.000 ( 0.576) ( 0.531) ( 0.320) ( 0.648)
--------- -------- -------- -------- --------
Total Distributions ........... ( 0.139) ( 0.706) ( 0.718) ( 0.534) ( 0.861)
--------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD ........................ $ 36.480 $ 33.850 $ 25.220 $ 20.110 $ 13.755
========= ======== ======== ======== ========
TOTAL RETURN(1) ................. 8.20 % 37.12 % 29.09 % 50.41 % 2.41 %
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's omitted) ............... $1,458,854 $608,537 $116,593 $ 50,744 $ 23,362
Ratio of Expenses to Average
Net Assets .................... 1.09 % 1.13 % 1.25 % 1.25 % 1.25 %
Ratio of Net Income to Average
Net Assets .................... 0.42 % 0.47 % 0.87 % 1.31 % 1.51 %
Portfolio Turnover Rate ......... 25.96 % 11.72 % 20.95 % 22.56 % 36.63 %
</TABLE>
- -------------
(1) Past performance is not predictive of future performance.
6
<PAGE>
FUND MANAGEMENT
The Fund's manager is The Torray Corporation, 6610 Rockledge Drive, Suite 450,
Bethesda, Maryland 20817. Robert E. Torray has served as President of the
manager since 1990. Mr. Torray is also the Chairman of Robert E. Torray & Co.
Inc., a manager of large institutional portfolios, that he founded May 1, 1972.
Douglas C. Eby, the Fund's co-manager, joined The Torray Corporation in 1992.
He serves as its Executive Vice President and is also President of Robert E.
Torray & Co. Inc. Mr. Torray is 62 and Mr. Eby is 40.
The manager provides investment advice and portfolio management services and
oversees the administration of the Fund. The manager received 1.00% of the
Fund's average daily net assets as compensation for these services for the
fiscal year ended December 31, 1998.
YEAR 2000 ISSUES
Like most mutual funds (and other organizations around the world), the Fund
could be affected by computer problems related to the transition to the year
2000. While no one knows if these problems will have any impact on the Fund or
on the financial markets in general, the Fund is taking steps to protect its
investors. These steps include efforts to ensure that the Fund's own systems
are prepared to make the transition to the year 2000, and to determine that the
problem will not affect the systems used by the Fund's major service providers.
Whether these steps will be effective can only be known for certain in the year
2000. In addition, year 2000 problems may ultimately negatively affect the
companies whose securities the Fund purchases, which may have an impact on the
value of Fund shares.
PURCHASING AND REDEEMING SHARES
PRICING FUND SHARES
Orders to buy or redeem shares that are received in good order prior to the
close of the Fund (generally 4:00 P.M. Eastern time) will be processed at the
net asset value calculated that day. Net asset value per share is calculated by
dividing the Fund's net assets by the number of shares outstanding after the
New York Stock Exchange ("NYSE") closes for the day.
The Fund uses market quotes that are readily available to value its securities.
In cases where quotes are not readily available, the securities will be valued
using fair value guidelines approved by the Fund's board of trustees.
7
<PAGE>
HOW TO BUY SHARES
You may buy shares of the Fund on a no-load basis on any day that the NYSE is
open.
The minimum initial purchase is $10,000. You should send your check payable to
"The Torray Fund" with a completed account application to the Fund's transfer
agent:
The Torray Fund
c/o First Data Investor Services Group
P.O. Box 61503
211 South Gulph Road
King of Prussia, PA 19406-3101
Additional purchases can be made for $500 or more and should be mailed to:
The Torray Fund
P.O. Box 412797
Kansas City, MO 64141-2797
Please remember to include your account number on your check.
You, your spouse, or your children may open a related account for an initial
investment of $2,000 if your current account meets the minimum initial
investment amount of $10,000. A related account can be a joint account with
your spouse or children or a retirement account such as an IRA.
To open a related account you may be asked to present additional documents as
proof of the relationship in addition to an account application. You will also
be asked to provide your existing account number and taxpayer identification
number. You should use caution when giving these numbers to another person
because that person may be able to gain access to your account or other
confidential financial information.
You may also buy shares through a broker or other financial institution and may
be charged a fee for their services.
8
<PAGE>
HOW TO REDEEM SHARES
You may redeem your shares either in writing or by telephone if you elected the
telephone redemption privilege on your application. You should submit your
written redemption request directly to:
The Torray Fund
c/o First Data Investor Services Group
P.O. Box 61503
211 South Gulph Road
King of Prussia, PA 19406-3101
If your account is held in the name of a corporation, as a fiduciary or agent,
or as a surviving joint owner, you may be required to provide additional
documents with your redemption request.
To redeem by telephone you can call 1-800-626-9769.
Please remember that all redemption requests must include your name and account
number. The Fund may take up to seven days to pay redemption proceeds. If you
are redeeming shares that were recently purchased by check, the proceeds may be
delayed until the check for purchase clears; this may take up to 15 days from
the date of purchase.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the following rights as they relate to purchases and
redemptions:
o To redeem your shares if your account balance falls below $10,000 as a
result of redemptions. You will receive 30 days notice to increase the
value of your account to $10,000 before the account is closed.
o To refuse any purchase order.
o To refuse third-party checks for purchases of shares.
o To change or waive the Fund's investment minimums.
o To suspend the right to redeem and delay redemption proceeds during times
when trading on the NYSE is restricted or halted, or otherwise as
permitted by the SEC.
o To require a signature guarantee for fund redemptions sent to an address
different from the address of record.
o To require a signature guarantee for some fund redemptions and IRA
transfers.
Shareholders should be aware that purchase and redemption requests mailed to
the Fund's Maryland address will not be processed until they are received
9
<PAGE>
by the Fund's transfer agent (generally the next business day) at the address
above. You can avoid delays by mailing requests for purchases and redemptions
directly to the Fund's transfer agent.
TAXES AND DISTRIBUTIONS
The Fund declares and pays dividends quarterly and net capital gains annually.
All distributions will be invested in shares of the Fund unless you elect on
your account application to receive distributions in cash. You can elect to
cancel cash payments by notifying the Fund, in writing, prior to the date of
distribution. Your choice will be effective for distributions paid after the
Fund receives your written notice.
The Fund will distribute substantially all of its investment income and capital
gains, if any. The dividends and distributions you receive may be subject to
federal, state and local taxation, depending upon your tax situation. Capital
gains distributions may be taxable at different rates depending on the length
of time the Fund holds its securities. The manager's buy and hold strategy may
act to limit the realization of short term gains, and defer the realization of
long term gains. Each redemption of Fund shares is a taxable event. You should
consult a tax advisor regarding your investment in the Fund.
10
<PAGE>
INVESTMENT MANAGER
The Torray Corporation
6610 Rockledge Drive, Suite 450
Bethesda, MD 20817
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Briggs, Bunting, & Dougherty, LLP
Two Logan Square, Suite 2121
18th & Arch Streets
Philadelphia, PA 19103-4901
CUSTODIAN
United Missouri Bank
928 Grand Blvd.
Kansas City, MO 64141-6226
TRANSFER AGENT
First Data Investor Services Group
P.O. Box 61503
211 South Gulph Road
King of Prussia, PA 19406-3101
<PAGE>
HOW TO OBTAIN MORE INFORMATION
The Statement of Additional Information (SAI) contains additional information
about the Fund including a more detailed discussion of its investment policies
and the risks associated with various investments. The SAI is incorporated by
reference into this prospectus. This means that the SAI is legally a part of
the prospectus.
Additional information about the Fund's investments is available in the Fund's
Annual and Semi-annual Report to Shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
You may obtain a copy of the SAI or Reports to Shareholders by request and
without charge by contacting the Fund at 1-800-443-3036 or in writing to The
Torray Corporation, 6610 Rockledge Drive, Suite 450, Bethesda, Maryland 20817.
You can also obtain these documents, and other information about the Fund from
the SEC's website ("http://www.sec.gov"). You may review and copy documents at
the SEC Public Reference Room in Washington, D.C. (1-800-SEC-0330). You may
request documents by mail from the SEC by writing to Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-6009. The SEC will
charge a duplicating fee for any requested materials.
The Torray Fund - 811-06096
The
TORRAY
FUND
-------------------------------
PROSPECTUS
-------------------------------
May 1, 1999
<PAGE>
THE TORRAY FUND
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information should be read in conjunction with the Prospectus dated
May 1, 1999. A copy of the Prospectus may be obtained by writing The Torray
Corporation, 6610 Rockledge Drive, Bethesda, Maryland 20817, or by telephoning
toll free at 1-800-443-3036. The Fund's most recent annual report is a separate
document supplied with the SAI and include the Fund's audited financial
statements, which are incorporated by reference into this Statement of
Additional Information.
<PAGE>
- ----------------------------------------------------------------
TABLE OF CONTENTS
- ----------------------------------------------------------------
Page
INVESTMENT OBJECTIVE, POLICIES, LIABILITIES,
AND RESTRICTIONS 3
MANAGEMENT OF THE FUND 6
INVESTMENT MANAGER AND OTHER SERVICES 8
BROKERAGE SERVICES 11
ORGANIZATION AND CAPITALIZATION OF THE FUND 12
REDEMPTION OF SHARES AND DETERMINATION OF
NET ASSET VALUE 12
TAXES 15
CALCULATION OF RETURN AND PERFORMANCE COMPARISONS 17
-2-
<PAGE>
INVESTMENT OBJECTIVE, POLICIES, RISKS, RESTRICTIONS,AND LIABILITIES
Investment Objective.
The Torray Fund (the "Fund") is a diversified, open-end mutual fund. Its
goal is to earn 15% per year over long periods (10 years or more) and to defer
shareholder tax liability. There is no assurance that the Fund's objective will
be achieved.
Equity Securities. Since it purchases equity securities, the Fund is
subject to the risks that stock prices both individually and market-wide will
fall over short or extended periods of time, and that prices of the Fund's
equity securities may fluctuate from day-to-day. Historically, the stock markets
have moved in cycles. Individual companies may report poor results or be
negatively affected by industry and/or economic trends and developments. The
stock prices of these companies may suffer a decline in response. These factors
contribute to price volatility. Therefore, in order to be successful, investors
must accept the fact that although the stocks of good companies generally will
rise over long periods, they can trade at virtually any price in the short run.
U.S. Treasury Securities. The Fund is free to invest in U.S. Treasury
Securities of varying maturities. There are usually no brokerage commissions as
such paid by the Fund in connection with the purchase of such instruments. 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. 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 investment objective and policies of the Fund set forth above and in
the Prospectus may be changed without shareholder approval.
Investment Restrictions.
-3-
<PAGE>
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.
(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.
-4-
<PAGE>
(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 money, pledge or hypothecate
its assets, make any short sales of securities, maintain any short position for
the account of the Fund, issue senior securities, 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.
-5-
<PAGE>
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.
MANAGEMENT OF THE FUND
The Trust is overseen by a board of trustees. The board of trustees meets
regularly to review the fund's activities, contractual arrangements, and
performance.
Trustees and officers of the Trust and their principal occupations during
the past five years are as follows:
Professor Frederick Amling (DOB 12/23/26), Trustee of the Fund. Professor
of Finance, The George Washington University; President, Amling & Company
(investment management company).
Robert P. Moltz (DOB 10/03/47), Trustee of the Fund. President and Chief
Executive Officer, Weaver Bros. Insurance Associates, Inc. (insurance).
Professor Roy A. Schotland (DOB 03/18/33), 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).
-6-
<PAGE>
Wayne H. Shaner (DOB 08/23/47), Trustee of the Fund. Vice President,
Investments, Lockheed Martin Corporation and Lockheed Martin Investment
Management Company; Member, Investment Committee, Maryland State
Retirement System.
Bruce C. Ellis (DOB 07/26/44), Trustee of the Fund. Director, Shepards
Foundation (charity); Since 1992, Director, Rushmore/Cappiello Fund
(investment company) and Rushmore Funds (investment companies).
* William M Lane (DOB 05/21/50), Chairman of the Board of Trustees,
President and Secretary of the Fund. Vice President, Secretary and
Treasurer, Robert E. Torray & Co., Inc.; Vice President and Secretary, The
Torray Corporation; Secretary and Treasurer, Birmingham Capital Management
Co., Inc.
Douglas C. Eby (DOB 07/28/59), Vice President and Treasurer of the Fund.
President, Robert E. Torray & Co., Inc.; Vice President and Treasurer, The
Torray Corporation.
- -----------------------------------
* 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 $10,000, plus $1,000 for each Trustees' meeting attended. The
salaries and expenses of each of the Fund's officers are paid by the Manager.
Mr. Lane and Mr. Eby as stockholders and/or officers of the Manager, will
benefit from the management fees paid by the Fund.
-7-
<PAGE>
The following table exhibits Trustee Compensation for the fiscal year
ended December 31, 1998.
- ----------------------------------------------------------------
Name of Aggregate Pension or Estimated
Person, Compensation From Retirement Annual
Position Registrant for the Benefits Benefits
Fiscal Year Ended Accrued as Upon
December 31, 1998 Part of Fund Retirement
Expenses
- ----------------------------------------------------------------
Frederick $9,000 -0- -0-
Amling
- ----------------------------------------------------------------
Robert P. Moltz $9,000 -0- -0-
- ----------------------------------------------------------------
Roy A. $9,000 -0- -0-
Schotland
- ----------------------------------------------------------------
Wayne H. Shaner $9,000 -0- -0-
- ----------------------------------------------------------------
Bruce C. Ellis $8,000 -0- -0-
- ----------------------------------------------------------------
As of April 19, 1999, the Trustees, officers, and affiliated persons of
the Fund, as a group, owned 730,227 shares (1.89%) of the Fund.
As of April 19, 1999 the following shareholders owned beneficially or of
record more than 5% of the outstanding shares of the Fund.
- -------------------------------------------------------------------------------
Shareholder # of Shares % of Fund
- -------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 10,301,270 26.73%
FBO Schwab Customers
101 Montgomery Street
San Francisco, CA 94104
- -------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 1,940,459 5.03%
For Exclusive Benefit of Customers
P.O. Box 2052
Jersey City, NJ 07303
- -------------------------------------------------------------------------------
National Financial Services, Corp. 4,357,004 11.31%
200 Liberty Street
5th Floor
New York, NY 10281
- -------------------------------------------------------------------------------
-8-
<PAGE>
INVESTMENT MANAGER AND OTHER SERVICES
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 objectives, 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 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 it or its affiliates in advising the Fund or
their other clients. In so doing, the Fund may incur greater brokerage
commissions than it might otherwise pay.
-------------------------------------------
Advisory Fees Paid
-------------------------------------------
1996 1997 1998
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$732,902 $3,446,533 $12,821,032
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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
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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.
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 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, 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-four percent (64%) of the outstanding voting shares of the Manager is
owned by Robert E. Torray.
Other Services.
United Missouri Bank ("UMB"), 928 Grand Blvd., Kansas City, MO 64141, is
the custodian for the Fund. First Data Investor Services Group, P.O. Box 61503,
211 South Gulph Road, King of Prussia, PA 19406-0903 serves as transfer agent
and shareholder servicing agent to the Fund.
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Certified Public Accountants. The Fund's independent public accountants
are Briggs Bunting & Dougherty, LLP, Two Logan Square, Suite 2121,
Philadelphia, PA 19103.
Fund Counsel. Morgan, Lewis and Bockius LLP, 1701 Market Street,
Philadelphia, PA 19103, serves as counsel to the Trust.
DISTRIBUTIONS
Distributions from Net Investment Income. 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. 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.
BROKERAGE 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
traded in the over-the-counter markets but the price paid by the Fund usually
includes a 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
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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 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.
The total brokerage commissions paid for the fiscal year ended December
31, 1996, 1997, and 1998 were $160,089, $757,611.00 and $1,804,630.00,
respectively.
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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. The Trust's fiscal year ends on December 31 of each year.
REDEMPTION OF SHARES AND DETERMINATION OF NET ASSET VALUE
How to Redeem Shares.
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 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.
It is currently the Trust's policy to pay all redemptions in cash. The
Trust retains the right, however, to alter this policy to provide for
redemptions in whole or in part by a distribution in-kind of securities held by
a Fund in lieu of cash. Shareholders may incur brokerage charges on the sale of
any such securities so received in payment of redemptions.
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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.
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, Martin Luther King, Jr. 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.
Certain securities and assets of the Fund may be 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. 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
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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 U.S. Government Securities 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.
TAXES
All dividends and distributions of the Fund, whether received in shares
or cash, are taxable to the Fund's shareholders 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 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.
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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) 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 (c) 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. 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.
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.
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.
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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.
CALCULATION OF RETURN AND PERFORMANCE COMPARISONS
Calculation of Return.
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
investment operations (December 31, 1990) through December 31, 1998 was 20.86%,
and the Fund's average annual total return for the one-year and five-year
periods ended December 31, 1998 was 8.20% and 24.16% respectively.
Performance Comparisons.
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
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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.
FINANCIAL STATEMENTS
The financial statements for the Fund for the year ended December 31, 1998,
including notes thereto and the report of Briggs Bunting & Dougherty, LLP have
been filed with the SEC and are incorporated by reference into this Statement
of Additional Information.
