THE TORRAY FUND
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
FEBRUARY 1, 1999
- --------------------------------------------------------------------------------
Dear Fellow Shareholders:
Once again we are pleased to report on our progress and to thank you for
your continued confidence and trust. The Torray Fund's value increased 8.2%
last year. Although this result trailed the market, we are neither surprised
nor discouraged. In fact, several of our recent letters have forecasted that
Torray Fund returns were likely to decline from the unusually high levels
recorded during 1995-97. The last annual report, for instance, pointed out that
if the results of those years repeated for three decades, a $10,000 investment
would grow to $157 million. This, we predicted, would never happen.
Nevertheless, we remain cheerful and enthusiastic about the fund's results and
as confident as ever that our 15% long-term annual objective can be achieved.
The 28 year history of Robert E. Torray & Co., our institutional money
management business, and the shorter record of The Torray Fund show clearly
that periods of extraordinary gains are always followed by short-term stretches
of lower returns and, occasionally, even losses. These cycles should not be
seen as a sign that something has gone wrong. Indeed they are typical of all
investment operations regardless of the philosophy or strategy employed. Nor
should they obscure the fundamental dynamics -- always working in our favor --
that distinguish financial success from failure.
An investment in The Torray Fund has compounded at 21% annually for eight
years, multiplying principal about 4 1/2 times. While the S&P 500 almost
matched that record by the close of last year, its improved standing is due
solely to huge advances in only a handful of stocks. The top 10 performers, for
instance, accounted for more than half of the index's return last year (16
percentage points out of 28.6%). Their price-earnings ratios stood recently at
53 to 1. We don't think these extraordinary valuations will last. Further
evidencing the market's narrow focus, an equally-weighted average of the bottom
400 S&P stocks registered a fractional loss during 1998. These statistics
highlight the fact that the stock market has not done as well as popular
indices suggest. We are mindful, nevertheless, that a lot of stocks
outdistanced those in The Torray Fund last year. We studied many of them. But
most seemed too expensive to meet our valuation criteria or didn't appeal to us
from a business perspective. In the end we decided it
1
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THE TORRAY FUND
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LETTER TO SHAREHOLDERS
FEBRUARY 1, 1999
- --------------------------------------------------------------------------------
would be risky to sell quality companies like AT&T, DuPont, EDS, Hughes
Electronics, and J. P. Morgan on the chance we might get lucky with others and
in so doing add a few extra points to The Torray Fund's share price. Our
philosophy is that as long as we're on track it doesn't matter to us that
others may be momentarily faring better.
Last year's annual report included two real life examples of the huge sums
that accumulate over long periods from earning percentages far lower than the
21% we have achieved since 1991. Yet another comes to mind: The Coca Cola
Company first sold stock to the public in 1919 at $40 per share. Adjusting for
stock splits and assuming the reinvestment of dividends, 100 shares bought on
the offering for $4,000 would be worth about $500 million today. You may be
surprised to learn that this seemingly implausible outcome is the result of a
15.8% annual return. But, had the rate instead been 21%, their present value
would be $16.8 BILLION. Just ONE $40 share would bring $168 million, and in
another 20 years, $7.6 billion. Finally, in the realm of the hypothetical,
consider this: $50,000 invested a century ago at 21% would be worth nearly $10
trillion today -- a sum roughly equivalent to the stock market's entire
current value!
These examples teach an important lesson: It is impossible to earn such
percentages over extended periods. Investors who jump from stock to stock or
fund to fund trying to do so are wasting their time. After all, if one of the
most successful businesses in American history has returned not quite 16%
annually, what chance is there that mutual fund portfolios comprised mostly of
lesser enterprises will do better? The answer is none. And this is particularly
true since funds on average, as we have said in the past, hold onto their
investments only about a year. In so doing, they rely on the instincts and
intuitions of portfolio managers instead of the buildup of values that occurs
in outstanding businesses over many decades. History's verdict on this approach
has been harsh. Value, as we often stress, lies in the business not the stock.
Wall Street, though, sees value in the "process." It promotes the idea that
wealth can be amassed by moving in and out of the market, from stocks to bonds,
stock to stock or fund to fund, always just at the right moment. Anyone seeking
financial independence should reject this naive concept and replace it with
plain old perseverance. By that I mean stop moving around, forget about the
market, ignore the opinions of "experts," and dig in your heels for the long
haul. Make up your mind you're going to buy and hold quality stocks or mutual
funds -- regardless of the perceived outlook -- on as regular a basis as your
circumstances permit. Be assured it takes decades to make a lot of
2
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
FEBRUARY 1, 1999
- --------------------------------------------------------------------------------
money. There is no point pretending otherwise. Here is an example of how
persistence and time can work in your favor: $500 invested every month for 30
years earning 15% compounded will produce the sum of $3.5 million. Over another
five and ten years that number will grow first to $7 million and then to $14
million. We think the latter result is a reasonable target for people in their
mid-twenties or even mid-forties. It's really so easy. If you think you won't
need that much at 85, give some to your children or favorite charity.
Now, I want to talk briefly about the major factors affecting our fund's
performance last year. Leading the list was turmoil in world financial markets.
The disintegration of Asian exchanges, Russia's debt default, widespread
problems in Latin America and, finally, the failure of big hedge fund operator
Long Term Capital Management spawned fears of a worldwide financial debacle.
The Torray Fund suffered from these events because it holds large stakes in
blue chip financial franchises like American Express, Banc One, Citigroup,
Mellon Bank, J. P. Morgan, and SLM Holding. During the fall panic, American
Express dropped from $117 a share to about $70 on speculation that Asian/Latin
troubles would depress world travel. Citigroup fell from $74 to $28, and J. P.
Morgan from $148 to $70, each in response to concerns that international banks
would sustain major loan and trading losses in collapsing Latin and Pacific
nations. Citigroup and Morgan were also among a group of major banks and Wall
Street institutions including Goldman Sachs and Merrill Lynch that stepped
forward to defend against their exposure to Long Term Capital Management. Banc
One, Mellon, and SLM stocks went down as well, even though the companies had
little or no direct involvement with the problems at hand.
Satellite communications stocks and shares of aerospace/defense contractor
Northrop Grumman also hurt our fund's performance last year. Northrop, which we
had first purchased several years ago in the low-to-mid-$50's, was scheduled to
be acquired in 1998 by Lockheed Martin Corporation at more than $140 per share.
But, in a surprise move, the Defense Department blocked the deal. Northrop sank
from $140 to close the year at $73. It has since fallen further. Although we
are disappointed with this investment, we're far from discouraged. In fact, at
some point we may well add to our position. In the satellite area, both Hughes
Electronics, its 81%-owned subsidiary PanAmSat, and Loral Space and
Communications experienced temporary setbacks. These involved technical
problems on a few orbiting commercial satellites, launch rocket failures --
one, a Russian vehicle that exploded carrying 12 Loral satellites that were to
have been part of
3
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
FEBRUARY 1, 1999
- --------------------------------------------------------------------------------
the company's new satellite telephone system -- and charges that Hughes and
Loral had unlawfully aided China with its rocket technology. This claim, we
believe, was politically motivated and without merit. The unfortunate
combination of events -- though not a threat to the companies' viability or
long-term potential -- impacted earnings and cash flow projections. This, of
course, is anathema to Wall Street. We, however, look at things differently.
Our enthusiasm for the satellite business is undiminished. We bought more stock
in all three companies as their prices fell. Including the fund's position in
U.S. Satellite Broadcasting, soon to be acquired by Hughes, this industry
represents 16% of The Torray Fund's assets. In all, over 50% of the Fund was
invested at one time or another last year in financials, satellites, and
Northrop. It was the developments just described, plus general weakness in the
market, that caused our share price to drop between April and September. In
spite of attention-getting headlines and widespread fears that something
ominous was on the horizon, nothing significant happened. You will find this is
often the case.
In conclusion, I want to acknowledge the dedication and efforts of our
faithful staff. Deepest gratitude goes to Donald Emery, Lorraine Jones, Frank
Lanahan, Barbara McClung, Mary Anne O'Leary, Kim Ray, Paul Williams, and
Shirley Wilson. They are each due special thanks for their steadfast and
invaluable contribution to the successful day-to-day operation of The Torray
Fund. John Micklitsch and Fred Fialco deserve commendation for their
outstanding analytical insights and tireless research assistance. Doug and I
would be doing double time without them. Praise goes to Robin Lichterman, our
voice to the outside world. Robin's intelligence, skill, unbelievable patience,
and charm make everyone's job easier and a lot more pleasant. I also wish to
pay tribute to my partner, Bill Lane, who skillfully directs every detail of
The Torray Corporation. He is a true gentleman, gracious and considerate. When
he tackles a job, it's always done right. Finally, in recognition of his
tremendous contribution to our fund, I have asked my partner, Douglas Eby, to
sign this letter with me. Doug's generosity, kindness, financial acumen, and
4
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
FEBRUARY 1, 1999
- --------------------------------------------------------------------------------
penchant for thoroughness are unparalleled. I feel blessed to be associated
with these wonderful people. When I think of them I have to smile.
We thank you again for your investment in The Torray Fund and wish each of
you a prosperous and healthy 1999.
Sincerely,
/s/ Robert E. Torray
--------------------
Robert E. Torray
/s/ Douglas C. Eby
-------------------
Douglas C. Eby
5
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
PERFORMANCE DATA
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
TOTAL RATES OF RETURN ON AN INVESTMENT IN THE TORRAY FUND VS. THE S&P 500
For the calendar years:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1996 1997 1998 8 Years
---- ---- ---- ---- ---- ---- ---- ---- -------
THE TORRAY FUND 19.98% 21.04% 6.37% 2.41% 50.41% 29.09% 37.12% 8.20% 355.81%
S&P 500 30.48% 7.66% 10.09% 1.30% 37.54% 22.98% 33.36% 28.58% 353.07%
</TABLE>
[GRAPH]
6
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
PERFORMANCE DATA
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
CHANGE IN VALUE OF $10,000 INVESTED ON DECEMBER 31, 1990 (COMMENCEMENT OF
OPERATIONS) TO:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- -------- -------- --------
THE TORRAY FUND $ 11,999 $ 14,523 $ 15,448 $ 15,821 $ 23,796 $ 30,719 $ 42,122 $ 45,576
S&P 500 $ 13,048 $ 14,047 $ 15,465 $ 15,666 $ 21,547 $ 26,499 $ 35,339 $ 45,438
</TABLE>
[GRAPH]
AVERAGE ANNUAL TOTAL RETURNS
(for periods ended December 31, 1998)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year 2 Years 3 Years 4 Years 5 Years 6 years 7 years 8 years
-------- --------- --------- --------- --------- --------- --------- ---------
THE TORRAY FUND 8.20% 21.81% 24.19% 30.28% 24.16% 21.00% 21.00% 20.86%
S&P 500 28.58% 30.95% 28.23% 30.50% 24.06% 21.61% 19.51% 20.83%
</TABLE>
7
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OR SHARES MARKET VALUE
----------------- --------------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS 0.65%
9,575,000 U.S. Treasury Bill 5.26% due 04/01/99 $ 9,474,111
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS 9,474,111
-----------
(amortized cost $ 9,473,744)
COMMON STOCK 99.37%
20.47% FINANCIAL SERVICES
2,542,300 SLM Holding Corporation 122,030,400
751,500 J.P. Morgan & Company 78,954,469
1,138,179 Citigroup, Inc. 56,339,861
404,100 American Express Company 41,319,225
-----------
298,643,955
16.29% COMMUNICATIONS EQUIPMENT
2,066,000 Hughes Electronics Corporation* 81,994,375
3,494,000 Loral Space & Communications Ltd.* 62,236,875
1,215,000 PanAmSat Corporation* 47,309,062
755,500 Motorola, Inc. 46,132,719
-----------
237,673,031
9.62% COMPUTER SYSTEMS & INTEGRATION
2,205,000 Electronic Data Systems Corporation 110,801,250
160,000 IBM Corporation 29,560,000
-----------
140,361,250
7.56% HEALTHCARE
540,000 Amgen, Inc.* 56,463,750
2,000,000 Boston Scientific Corporation* 53,625,000
-----------
110,088,750
</TABLE>
8
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
7.05% LONG DISTANCE/TELECOMMUNICATIONS
<S> <C> <C> <C>
1,366,000 AT&T Corporation 102,791,500
6.15% CONSUMER PRODUCTS
1,000,000 Gillette Company 48,312,500
774,000 Ralston Purina Company 25,058,250
1,600,400 Callaway Golf Company 16,404,100
-----------
89,774,850
5.52% INDUSTRIAL MACHINERY
1,389,000 Illinois Tool Works, Inc. 80,562,000
5.40% BANKING
740,000 Bank One Corporation 37,786,250
470,400 Mellon Bank Corporation 32,340,000
194,368 First American Corporation (Tenn) 8,625,080
-----------
78,751,330
5.10% MEDIA & ENTERTAINMENT
3,370,000 United States Satellite Broadcasting Co., Inc.* 46,337,500
597,600 MediaOne Group, Inc.* 28,087,200
-----------
74,424,700
5.01% AEROSPACE/DEFENSE/ELECTRONICS
742,700 Northrop Grumman Corporation 54,309,937
320,000 General Dynamics Corporation 18,760,000
-----------
73,069,937
3.96% AGRICULTURAL PRODUCTS
3,363,000 Archer Daniels Midland Company 57,801,562
</TABLE>
9
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3.31% CHEMICALS
<S> <C> <C> <C>
911,000 DuPont (E.I.) de Nemours and Company 48,339,938
2.43% MANUFACTURING
800,000 Allied Signal, Inc. 35,450,000
1.50% ELECTRICAL CONNECTORS
686,400 Molex, Inc. Class A 21,879,000
TOTAL COMMON STOCK 99.37% 1,449,611,803
-------------
(cost $ 1,273,962,884)
TOTAL PORTFOLIO SECURITIES 100.02% 1,459,085,914
(amoritized cost $ 1,283,436,628)
OTHER ASSETS LESS LIABILITIES (0.02%) (231,500)
-------------
NET ASSETS 100.00% $ 1,458,854,414
===============
</TABLE>
*Non-incoming producing securities
TOP 10 HOLDINGS
<TABLE>
<S> <C>
1. SLM Holding Corporation 6. J.P. Morgan & Company
2. Electronic Data Systems Corporation 7. Loral Space & Communications Ltd.
3. AT&T Corporation 8. Archer Daniels Midland Company
4. Hughes Electronics Corporation 9. Amgen, Inc.
5. Illinois Tool Works, Inc. 10. Citigroup, Inc.
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS.
10
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities at value
(amortized cost $ 1,283,436,628) $ 1,459,085,914
Subscriptions receivable 1,073,099
Interest and dividends receivable 1,800,031
Cash 77,288
---------------
TOTAL ASSETS 1,462,036,332
---------------
LIABILITIES
Redemptions payable 2,757,671
Accrued expenses 424,247
---------------
TOTAL LIABILITIES 3,181,918
---------------
NET ASSETS $ 1,458,854,414
===============
Shares of beneficial interest ($1 stated value,
39,985,447 shares outstanding, unlimited
shares authorized) $ 39,985,447
Paid-in-capital in excess of par 1,253,489,809
Undistributed net investment income 917
Undistributed net realized loss (10,271,045)
Net unrealized appreciation of investments 175,649,286
---------------
NET ASSETS $ 1,458,854,414
===============
PER SHARE $ 36.48
===============
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS.
11
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest income $ 4,111,814
Dividend income 15,317,510
-------------
Total income 19,429,324
-------------
EXPENSES
Management fees 12,821,032
Other expenses:
Legal fees $ 42,599
Transfer agent fees & expenses 490,100
Audit fees 21,000
Registration & filing fees 411,993
Custodian's fees 93,567
Trustees' fees 44,000
Printing, postage and mailing 112,959
Insurance 2,784
--------
Total other expenses 1,219,002
-------------
Total expenses 14,040,034
-------------
NET INVESTMENT INCOME 5,389,290
-------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized loss on investments (10,271,045)
Net change in unrealized gain 37,715,145
-------------
Net gain on investments 27,444,100
-------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 32,833,390
=============
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS.
12
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 5,389,290 $ 1,613,655
Net realized gain (loss) on investments (10,271,045) 10,014,391
Net change in unrealized gain 37,715,145 108,257,485
--------------- -------------
Net increase in net assets from
operations 32,833,390 119,885,531
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ($0.139 and
$0.130 per share, respectively) (5,388,471) (1,613,557)
Net realized gains ($0.576 per share) 0 (10,014,391)
--------------- -------------
Total distributions (5,388,471) (11,627,948)
SHARES OF BENEFICIAL INTEREST
Increase from share transactions 822,872,577 383,686,314
--------------- -------------
Total increase 850,317,496 491,943,897
NET ASSETS -- BEGINNING OF PERIOD 608,536,918 116,593,021
--------------- -------------
NET ASSETS -- END OF PERIOD (including
undistributed net investment income of
$917 and $98, respectively) $ 1,458,854,414 $ 608,536,918
=============== =============
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS.
13
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING FOR:
- --------------------------------------------------------------------------------
PER SHARE DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31:
--------------------------------------------------------
1998 1997 1996 1995
--------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 33.850 $ 25.220 $ 20.110 $ 13.755
Income From Investment Operations
- -------------------------------------------
Net Investment Income 0.139 0.130 0.186 0.215
Net Gains on Securities (both realized
and unrealized) 2.630 9.206 5.642 6.674
--------- -------- -------- ---------
Total from Investment Operations 2.769 9.336 5.828 6.889
Less: Distributions
- -------------------------------------------
Dividends (from Net Investment
Income) (0.139) (0.130) (0.187) (0.214)
Distributions (from Capital Gains) 0.000 (0.576) (0.531) (0.320)
--------- -------- -------- ---------
Total Distributions (0.139) (0.706) (0.718) (0.534)
NET ASSET VALUE, END OF PERIOD $ 36.480 $ 33.850 $ 25.220 $ 20.110
TOTAL RETURN3 8.20% 37.12% 29.09% 50.41%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted) $1,458,854 $608,537 $116,593 $ 50,744
Ratio of Expenses to Average Net Assets 1.09% 1.13% 1.25% 1.25%
Ratio of Net Income to Average Net
Assets 0.42% 0.47% 0.87% 1.31%
Portfolio Turnover Rate 25.96% 11.72% 20.95% 22.56%
<CAPTION>
YEARS ENDED DECEMBER 31: 14 days
---------------------------------------------------- ended
1994 1993 1992 1991 12/31/90
------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.273 $ 13.743 $ 11.514 $ 9.999 $ 10.000
Income From Investment Operations
- -------------------------------------------
Net Investment Income 0.213 0.122 0.180 0.232 0.005
Net Gains on Securities (both realized
and unrealized) 0.130 0.745 2.229 1.728 0.000
--------- --------- --------- --------- ---------
Total from Investment Operations 0.343 0.867 2.409 1.960 0.005
Less: Distributions
- -------------------------------------------
Dividends (from Net Investment
Income) (0.213) (0.122) (0.180) (0.233) (0.006)
Distributions (from Capital Gains) (0.648) (0.215) 0.000 (0.212) 0.000
--------- --------- --------- --------- ---------
Total Distributions (0.861) (0.337) (0.180) (0.445) (0.006)
NET ASSET VALUE, END OF PERIOD $ 13.755 $ 14.273 $ 13.743 $ 11.514 $ 9.999
TOTAL RETURN3 2.41% 6.37% 21.04% 19.98% (0.03%)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted) $ 23,362 $ 19,666 $ 10,298 $ 4,423 $ 200
Ratio of Expenses to Average Net Assets 1.25% 1.25% 1.25% 1.25% 0.82%(1)
Ratio of Net Income to Average Net
Assets 1.51% 0.94% 1.54% 2.43% 2.15%(1)
Portfolio Turnover Rate 36.63% 29.09% 37.09% 21.17% n/a (2)
</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 results.
SEE NOTES TO THE FINANCIAL STATEMENTS.
14
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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 gains and losses from securities
transactions are recorded on the specific identification 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. At December 31, 1998 the Fund had
a capital loss carryforward for Federal Income tax purposes of $10,271,045
which expires in 2006.
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.
15
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 2 -- MANAGEMENT CONTRACT
Pursuant to the Management Contract, The Torray Corporation provides
investment advisory and portfolio management services to the Fund. The Fund
pays the Torray Corporation a management fee, computed daily and payable
quarterly at the annual rate of one percent of the Fund's daily net assets.
During the twelve months ended December 31, 1998, The Torray Fund paid
management fees of $12,821,032 (1% of assets).
Excluding the management fee, other expenses incurred by the Fund during
the twelve months ended December 31, 1998, totaled $1,219,002. These expenses
include all costs associated with the Fund's operations including transfer
agent fees, Independent Trustees' fees, ($10,000 per annum and $1,000 for each
Board meeting attended), taxes, dues, fees and expenses of registering and
qualifying the Fund and its shares for distribution, charges of custodians,
auditing and legal expenses, insurance premiums, supplies, postage, expenses of
issue or redemption of shares, reports to shareholders and Trustees, expenses
of printing and mailing prospectuses, proxy statements and proxies to existing
shareholders, and other miscellaneous expenses.
Certain officers and Trustees of the Fund are also officers and/or
shareholders of The Torray Corporation.
NOTE 3 -- PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term
investments, for the twelve months ended December 31, 1998 aggregated
$1,132,756,507 and $307,694,744, respectively. Net unrealized appreciation of
investments at December 31, 1998 includes aggregate unrealized gains of
$252,227,412 and unrealized losses of $76,578,126.
16
<PAGE>
THE TORRAY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 4 -- SHARES OF BENEFICIAL INTEREST TRANSACTIONS
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
12/31/98 12/31/97
------------------------------------ ---------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares issued 35,718,479 $1,296,475,075 14,964,177 $429,745,172
Reinvestments of dividends and distributions 134,002 4,754,810 308,776 10,221,775
Shares redeemed (13,844,577) (478,357,308) (1,918,913) (56,280,633)
----------- -------------- ---------- ------------
22,007,904 $ 822,872,577 13,354,040 $383,686,314
=========== ============== ========== ============
</TABLE>
Officers, Trustees and affiliated persons of The Torray Fund and their families
directly or indirectly control 811,962 shares or 2.03% of the Fund.
17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
THE TORRAY FUND
BETHESDA, MARYLAND
We have audited the accompanying statement of assets and liabilities of
The Torray Fund, including the schedule of investments, as of December 31,
1998, and the related statement of operations for the year then ended, and the
statement of changes in net assets and the financial highlights for each of the
two years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for each of the six years in the
period ended December 31, 1996 and for the period from December 18, 1990
(commencement of operations) through December 31, 1990 were audited by other
auditors whose report dated January 22, 1997 expressed an unqualified opinion
on the financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
The Torray Fund as of December 31, 1998, the results of its operations for the
year then ended, and the changes in its net assets and the financial highlights
for each of the two years in the period then ended in conformity with generally
accepted accounting principles.
BRIGGS, BUNTING & DOUGHERTY, LLP
PHILADELPHIA, PENNSYLVANIA
JANUARY 13, 1999
18
<PAGE>
TRUSTEES
- --------------------------------------------------------------------
Frederick Amling
Bruce C. Ellis
William M Lane
Robert P. Moltz
Roy A. Schotland
Wayne H. Shaner
INVESTMENT ADVISOR
- --------------------------------------------------------------------
The Torray Corporation
OFFICERS
--------------
Robert E. Torray, President
Douglas C. Eby, Vice President
William M Lane, Vice President
TRANSFER AGENT
- --------------------------------------------------------------------
First Data Investor Services Group, Inc.
211 South Gulph Road
King of Prussia, Pennsylvania 19406-3101
LEGAL COUNSEL
- --------------------------------------------------------------------
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
This report is not authorized for distribution
to prospective investors unless preceded or
accompanied by a current prospectus.
The
TORRAY
FUND
ANNUAL REPORT
DECEMBER 31, 1998
THE TORRAY FUND
SUITE 450
6610 ROCKLEDGE DRIVE
BETHESDA, MARYLAND 20817
(301) 493-4600
1-800-443-3036