BABSON
BOND TRUST
Annual Report
November 30, 1996
JONES & BABSON
MUTUAL FUNDS
MESSAGE
TO OUR SHAREHOLDERS
Due to a rise in the general level of interest rates, 1996 was a difficult
year for shareholders of the Trust and high quality bond investors, in
general. By mid-year intermediate and long-term interest rates had risen more
than a full percentage point, negatively impacting the net asset values of
both the Short and Long Portfolios. The rise in rates reflected investor
concerns that improving economic conditions, during the first half of 1996,
would lead to higher inflation. As has often been the case in recent years,
the bond market has been skittish about the potential growth of inflation.
However, investors' expectations of inflation have frequently been off the
mark, and this past year was no exception.
By the summer, it was clear that inflation was not accelerating, thus allowing
the bond market to stabilize and then to stage a fall rally. Currently
interest rates are about three-quarters of a percent above their December 1995
levels, but below the interest rate highs reached in the middle of 1996.
Total investment return (price change and reinvested distributions) for
Portfolio S in fiscal 1996 was 5.96%. During the same period, total investment
return on Portfolio L was 5.17%.
OUTLOOK
At the start of this new year, there are few, if any, imbalances in the U.S.
economy. Inflation is low and
stable, economic growth has moderated from the above trend growth rate
registered in the second quarter of 1996, inventories are lean and the dollar,
after strengthening in 1996, is firm. This bodes well for interest rates and
the economy. Business activity should expand at approximately the economy's
long-term noninflationary potential of 2% to 2.5% and inflation should stay
between 2.5% and 3.5%, a range it has been in for several years.
High levels of consumer confidence, real income growth of 3% and continuing
job creation will allow consumers to keep the current economic expansion, now
into its sixth year, on sound footing. We see little risk of the economy
slowing and yet at the same time, do not expect a surge in business activity.
There is little pent up demand, consumer debt levels remain high and monetary
policy is neutral to slightly restrictive. The latter reflects a domestic
yield curve that is not particularly steep and relatively high short-term real
interest rates.
One risk that could cause the current economic expansion to lose momentum is a
greater than expected slow down in capital spending. The investment surge of
recent years has been a substantial contributor to the economy's overall
growth and it has come about as much as a result of companies' responding to
technological change as it has to meeting their capacity needs. Existing
production capacity, after the recent buildup, is more than ample to satisfy
final demand and this, in turn, would argue for a slowing in capital
investment; however, the requirement for companies to become more capital
intensive for future needs builds.
The outlook for inflation remains sanguine, in part due to growing
international competition, which minimizes a firm's ability to pass along
higher costs. A tight labor market has put upward pressure on wages; however,
the rate of increase in total compensation is roughly in line with consumer
price inflation. The prospects for continued federal budget restraint also
bodes well for inflation and the future direction of interest rates. The
outcome of the fall elections, with Republicans controlling Congress, improves
the chances of compromise to reign in entitlement expenditures.
If oil prices do not decline from their recent runup, this positive outlook
for inflation is at risk. In that event, higher energy costs at the production
level will eventually be passed along to the end user.
PORTFOLIO REVIEW
The primary objectives of Babson Bond Trust are to attain a favorable total
return over the long run, provide a high level of income, and maintain
reasonable stability of principal.
Our focus continues to be on investing in superior
corporate bonds based on sound credit research and analysis. Exposure to the
defense and banking sectors has recently been increased. Both these industries
continue to go through a period of consolidation which we believe will lead to
greater efficiencies and improved credit quality for the surviving entities.
In an effort to bolster regulatory capital requirements, bank holding
companies have come to the market with a hybrid security whose structure has
both debt and preferred stock characteristics. These issues offer attractive
yields relative to conventional bank notes and bonds. The Trust has
participated in these new instruments and purchased issues offered by Chase
and J.P. Morgan.
Quality yield spreads remain narrow, reflecting strong demand for corporate
bonds and overall improving credit fundamentals. Exposure to the airline
sector was reduced through the sale of the American Airlines equipment trust
certificate position, after its yield spread, relative to Treasuries, had
narrowed from levels prevailing when they were purchased several months ago.
Mortgages continue to be an integral part of both portfolios. The majority are
residential mortgages backed by governmental agencies. To dampen the
prepayment risk inherent in all mortgages, the Trust also has exposure to
manufactured housing and mobile home loans, which traditionally are not as
sensitive to interest rate fluctuations and are less prone to prepayments.
Currently, the average maturity is 5 years for Portfolio S and 9 years for
Portfolio L, after taking into consideration bonds trading to their call dates
and average life assumptions for mortgage and asset-backed securities. A more
precise measure of a portfolio's sensitivity to change in the level of
interest rates is its average effective duration. Portfolio S and L have
average effective durations of 3.5 and 4.7 years, respectively.
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
GRAPH -- Babson Bond Trust, Portfolio - L versus Lehman Brothers Aggregate
Bond Index
GRAPH -- Babson Bond Trust, Portfolio - S versus Lehman Brothers Intermediate
Gov't./Corp. Index
Average annual compounded total returns for Portfolio L for one, five and ten
year periods as of November 30, 1996, were 5.17%, 7.48% and 7.98%,
respectively. For Portfolio S, total returns for one year, five years and the
life of the Fund (inception April 19, 1988) were 5.96%, 6.73% and 7.82%,
respectively. Performance data contained in this report is for past periods
only. Past performance is not predictive of future performance. Investment
return and share value will fluctuate, and redemption value may be more or
less than original cost.
STATEMENT OF NET ASSETS
November 30, 1996
PORTFOLIO L
<TABLE>
<CATPION>
MARKET
MOODY'S PRINCIPAL VALUE
RATING DESCRIPTION AMOUNT COST (NOTE 1-A)
<CAPTION>
<S>
CORPORATE BONDS - 61.65% <C> <C> <C>
BANKS AND FINANCE - 15.19%
Baa2 American Stores Company,
8.00% debentures, due June 1, 2026 $ 1,300,000 $ 1,278,174 $ 1,377,545
Aa3 Associates Corporation North America,
6.75% notes, due July 15, 2001 4,500,000 4,466,475 4,600,350
A1 Chase Capital I, Series A,
7.67% capital securities, due December 1, 2026 700,000 700,000 700,000
A1 Ford Capital B V,
10.125% notes, due November 15, 2000 2,500,000 3,029,690 2,830,850
Aaa Green Tree Financial Corporation,
CMO Series 92-1 REMIC Trust, Cl. A-3,
6.70% manufactured housing certificates,
due October 15, 2017 2,750,000 2,741,562 2,774,063
Baa3 Green Tree Securitized Net Interest Margin Trust,
Series 95-A,
7.25% certificates, due July 15, 2005 714,745 714,410 713,494
Aaa Merrill Lynch Mortgage Investors Incorporated,
Series 92-B REMIC Trust, Cl. A-3,
8.30% manufactured housing certificates,
due April 15, 2012 2,350,000 2,340,453 2,410,936
Aa2 Morgan (J.P.) & Company, Incorporated,
7.54%, due January 15, 2027 2,000,000 2,000,000 2,000,000
Baa1 Southern Investments UK PLC,
6.375% senior notes, due November 15, 2001 1,300,000 1,298,336 1,303,250
A2 SunTrust Banks, Incorporated,
6.00% subordinate notes, due February 15, 2026 3,000,000 2,951,356 2,893,830
21,114,745 21,520,456 21,604,318
COMMUNICATIONS - 4.38%
Aa1 BellSouth Savings & Employee Stock Ownership Trust,
9.19% medium term notes, due July 1, 2003 1,112,894 1,213,010 1,207,857
Ba1 TCI Communications, Incorporated,
8.65% senior notes, due September 15, 2004 1,050,000 1,095,455 1,076,722
Ba1 Tele Communications, Incorporated,
7.875% debentures, due August 1, 2013 450,000 413,150 412,389
Ba1 Tele Communications, Incorporated,
8.75% debentures, due February 15, 2023 $ 1,000,000 $ 1,026,130 $ 934,930
Baa3 Time Warner Entertainment Company L P,
8.375% senior debentures, due March 15, 2023 2,500,000 2,697,700 2,604,325
6,112,894 6,445,445 6,236,223
INDUSTRIALS - 17.92%
A3 Cardinal Distribution, Incorporated,
8.00% notes, due March 1, 1997 2,900,000 2,916,850 2,914,790
A3 Cardinal Health, Incorporated,
6.00% notes, due January 16, 2006 2,900,000 2,689,036 2,792,352
Baa1 Comdisco, Incorporated,
6.375% shelf issue, due November 30, 2001 5,200,000 5,181,176 5,210,712
A2 Cooper Industries, Incorporated,
7.87% medium term notes, due November 18, 1998 5,000,000 5,000,000 5,176,950
A1 Ford Motor Company Delaware,
7.25% notes, due October 1, 2008 2,900,000 2,887,153 3,005,444
Baa2 Georgia-Pacific Corporation,
9.625% debentures, due March 15, 2022 1,500,000 1,589,595 1,687,455
A3 Lockheed Martin Corporation,
7.70% guaranteed notes, due June 15, 2008 2,450,000 2,510,368 2,639,238
A3 Lockheed Martin Corporation,
7.65% notes, due May 1, 2016 930,000 917,817 987,316
A2 Philip Morris Companies, Incorporated,
8.25% notes, due October 15, 2003 1,000,000 1,059,270 1,081,610
24,780,000 24,751,265 25,495,867
TRANSPORTATION - 6.41%
A3 CSX Corporation,
9.50% notes, due August 1, 2000 5,000,000 5,350,145 5,521,500
A2 Southern Pacific Transportation Company 94-A
Pass Thru Trusts,
8.66% pass thru certificates,
Series 94-A 6, due July 2, 2011 1,378,000 1,560,282 1,531,467
Baa1 United Airlines Pass Thru Trusts,
7.27% pass thru certificates,
Series 96-A, Cl. A-1,
due January 30, 2013 2,075,000 1,929,964 2,063,401
8,453,000 8,840,391 9,116,368
U.S. DOLLAR DENOMINATED CANADIAN SECURITIES - 12.20%
Baa2 Canadian National Railway Company,
7.00% notes, due March 15, 2004 $ 2,600,000 $ 2,522,698 $ 2,607,540
Baa2 Newfoundland Province of Canada,
8.65% debentures, due October 22, 2022 2,550,000 2,869,184 2,972,050
Aa3 Ontario Province of Canada,
15.75% debentures, due March 15, 2012 4,250,000 5,242,585 4,629,100
A2 Quebec Province of Canada, Series NY,
6.50% debentures, due January 17, 2006 7,250,000 6,918,149 7,143,788
16,650,000 17,552,616 17,352,478
UTILITIES - 5.55%
Ba1 Long Island Lighting Company,
8.75% general & refunding bonds,
due February 15, 1997 3,500,000 3,584,070 3,517,115
Baa3 United Illuminating Company,
6.20% notes, due January 15, 1999 2,000,000 2,000,000 1,980,920
A2 Virginia Electric & Power Company, Series A,
7.00% 1st & refunding mortgage,
due January 1, 2024 2,500,000 2,186,389 2,397,700
8,000,000 7,770,459 7,895,735
TOTAL CORPORATE BONDS - 61.65% 85,110,639 86,880,632 87,700,989
</TABLE>
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
DESCRIPTION AMOUNT COST (NOTE 1-A)
</CAPTION>
<S> <C> <C> <C>
U.S. GOVERNMENTAL AGENCY, GOVERNMENT SECURITIES AND
GOVERNMENT SPONSORED ENTERPRISES - 39.31% (All rated Aaa)
U.S. GOVERNMENTAL AGENCY - 14.16%
*Government National Mortgage Association,
7.50%, due March 15, 2007 $ 189,745 $ 170,415 $ 194,224
*Government National Mortgage Association,
7.50%, due July 15, 2007 315,203 282,834 322,642
*Government National Mortgage Association,
8.00%, due October 15, 2007 440,484 414,055 460,702
*Government National Mortgage Association,
9.50%, due April 15, 2016 76,597 77,149 83,466
*Government National Mortgage Association,
9.50%, due January 15, 2019 192,003 191,102 209,102
*Government National Mortgage Association,
8.00%, due May 15, 2022 695,344 682,958 721,851
*Government National Mortgage Association,
7.00%, due March 15, 2024 4,406,655 4,315,767 4,399,736
*Government National Mortgage Association,
8.50%, due August 15, 2024 355,739 358,963 372,412
*Government National Mortgage Association,
7.50% due October 15, 2025 11,887,069 12,078,377 12,065,375
Small Business Administration guaranteed development
participation certificates, Series 88-20 G,
9.80% debentures, due July 1, 2008 345,625 345,626 390,661
Small Business Administration guaranteed development
participation certificates, Series 88-20 H,
10.05% debentures, due August 1, 2008 378,566 378,566 432,655
Small Business Administration guaranteed development
participation certificates, Series 89-20 D,
10.05% debentures, due April 1, 2009 430,674 430,674 495,030
19,713,704 19,726,486 20,147,856
U.S. GOVERNMENT SECURITIES - 15.62%
U.S. Treasury Bonds, 8.125%, due May 15, 2021 1,800,000 2,132,016 2,156,058
U.S. Treasury Notes, 6.50%, due May 15, 1997 3,000,000 2,977,031 3,016,410
U.S. Treasury Notes, 6.375%, due January 15, 1999 1,000,000 1,013,906 1,015,310
U.S. Treasury Notes, 7.50%, due October 31, 1999 1,000,000 1,056,796 1,047,500
U.S. Treasury Notes, 6.25%, due August 31, 2000 800,000 818,875 812,624
U.S. Treasury Notes, 6.25%, due October 31, 2001 1,880,000 1,903,206 1,912,016
U.S. Treasury Notes, 11.125%, due August 15, 2003 1,520,000 1,877,675 1,947,971
U.S. Treasury Notes, 8.125%, due August 15, 2019 8,645,000 9,743,185 10,311,843
19,645,000 21,522,690 22,219,732
*GOVERNMENT SPONSORED ENTERPRISES - 9.53%
Federal Home Loan Mortgage Corporation,
6.30%, due April 8, 1999 $ 3,150,000 $ 3,150,000 $ 3,151,481
Federal Home Loan Mortgage Corporation,
7.61%, due October 20, 1999 3,000,000 3,001,875 3,052,020
Federal Home Loan Mortgage Corporation,
7.75%, due April 1, 2008 361,111 326,692 368,802
Federal Home Loan Mortgage Corporation,
7.75%, due November 1, 2008 114,953 109,874 117,114
Federal Home Loan Mortgage Corporation,
8.00%, due August 1, 2009 89,759 85,456 92,514
Federal Home Loan Mortgage Corporation,
8.25%, due October 1, 2010 615,580 559,985 634,663
Federal Home Loan Mortgage Corporation,
9.00%, due June 1, 2016 243,063 254,380 257,695
Federal Home Loan Mortgage Corporation,
8.00%, due August 1, 2018 330,851 336,227 343,490
Federal Home Loan Mortgage Corporation,
7.50%, due February 1, 2021 1,766,976 1,718,384 1,804,719
Federal Home Loan Mortgage Corporation,
9.00%, due January 1, 2024 147,612 154,901 156,233
Federal National Mortgage Association,
7.00%, due December 1, 2007 711,187 682,715 717,303
Federal National Mortgage Association,
8.25%, due January 1, 2009 324,509 316,309 336,581
Federal National Mortgage Association,
8.00%, due February 1, 2009 389,594 376,933 402,256
Federal National Mortgage Association,
8.50%, due July 1, 2013 120,504 101,412 125,156
Federal National Mortgage Association,
CMO Series 88-16B, guaranteed REMIC pass-thru,
9.50%, due June 25, 2018 $ 301,344 $ 287,031 $ 316,321
Federal National Mortgage Association,
CMO Series 90-52D, REMIC Trust,
9.30%, due May 25, 2019 1,401,225 1,392,647 1,441,061
Federal National Mortgage Association,
9.25%, due August 1, 2020 231,997 246,352 246,775
13,300,265 13,101,173 13,564,184
TOTAL U.S. GOVERNMENTAL AGENCY, GOVERNMENT SECURITIES
AND GOVERNMENT SPONSORED ENTERPRISES - 39.31% 52,658,969 54,350,349 55,931,772
TOTAL INVESTMENTS - 100.96% $137,769,608 $141,230,981 $143,632,761
Other assets less liabilities - (0.96%) (1,372,136)
TOTAL NET ASSETS - 100.00%
(equivalent to $1.55 per share; 91,504,183 shares outstanding) $142,260,625
</TABLE>
For federal income tax purposes, the identified cost of investments owned at
November 30, 1996, was $141,230,981.
Net unrealized appreciation for federal income tax purposes was $2,401,780,
which is comprised of unrealized
appreciation of $3,650,002 and unrealized depreciation of $1,248,222.
*Mortgage-backed securities.
Ratings are not covered by the report of independent auditors.
See accompanying Notes to Financial Statements.
STATEMENT OF NET ASSETS
November 30, 1996
PORTFOLIO S
<TABLE>
<CAPTION>
MARKET
MOODY'S PRINCIPAL VALUE
RATING DESCRIPTION AMOUNT COST (NOTE 1-A)
</CAPTION>
<S>
CORPORATE BONDS - 50.63% <C> <C> <C>
BANKS AND FINANCE - 15.47%
A1 American General Finance Corporation,
9.76% medium term notes,
due September 18, 1998 $ 150,000 $ 151,484 $ 159,491
Baa2 American Stores Company,
8.00% debentures, due June 1, 2026 300,000 294,966 317,895
Aa3 Associates Corporation North America,
6.75% notes, due July 15, 2001 250,000 248,138 255,575
A1 Chase Capital I, Series A,
7.67% capital securities, due December 1, 2026 250,000 250,000 250,000
A3 General Motors Acceptance Corporation,
8.40% notes, due October 15, 1999 800,000 837,116 849,040
Aaa Green Tree Financial Corporation
CMO Series 92-1 REMIC Trust, Cl. A-3,
6.70% manufactured housing certificates,
due October 15, 2017 750,000 748,008 756,563
Baa3 Green Tree Securitized Net Interest Margin Trust,
Series 94 A,
6.90% certificates, due February 15, 2004 301,439 301,298 302,570
Aaa Merrill Lynch Mortgage Investors Incorporated,
Series 92-B REMIC Trust, Cl. A-2,
8.05% manufactured housing certificates,
due April 15, 2012 234,550 234,257 235,503
Aa2 Morgan (J.P.) & Company, Incorporated,
7.54%, due January 15, 2027 375,000 375,000 375,000
Baa1 Southern Investments UK PLC,
6.375% senior notes, due November 15, 2001 300,000 299,616 300,750
A2 SunTrust Banks, Incorporated,
6.00% subordinate notes, due February 15, 2026 1,000,000 996,730 964,610
A1 World Savings & Loan Association, Oakland, California,
10.25% subordinate notes, due October 1, 1997 500,000 582,590 517,685
5,210,989 5,319,203 5,284,682
COMMUNICATIONS - 4.89%
Aa1 BellSouth Savings & Employee Stock Ownership Trust,
9.19% medium term notes, due July 1, 2003 $ 513,531 $ 561,213 $ 557,350
Baa3 Time Warner Entertainment Company L P,
8.875% senior notes, due October 1, 2012 1,000,000 1,139,733 1,114,970
1,513,531 1,700,946 1,672,320
INDUSTRIALS - 16.42%
A3 Cardinal Distribution, Incorporated,
8.00% notes, due March 1, 1997 850,000 858,306 854,335
A3 Cardinal Health, Incorporated,
6.50% notes, due February 15, 2004 650,000 634,755 651,410
A3 Cardinal Health, Incorporated,
6.00% notes, due January 15, 2006 850,000 788,165 818,448
Baa1 Comdisco, Incorporated,
6.375% shelf issue, due November 30, 2001 1,000,000 996,380 1,002,060
A2 Cooper Industries, Incorporated,
7.87% medium term notes, due November 18, 1998 500,000 500,000 517,695
A1 Ford Motor Company Delaware,
7.25% notes, due October 1, 2008 700,000 696,899 725,452
A2 John Deere Capital Corporation,
7.20% notes, due May 15, 1997 500,000 499,650 502,855
A3 Lockheed Martin Corporation,
7.70% guaranteed notes, due June 15, 2008 300,000 307,392 323,172
A2 Philip Morris Companies, Incorporated,
8.25% notes, due October 15, 2003 200,000 211,854 216,322
5,550,000 5,493,401 5,611,749
TRANSPORTATION - 5.90%
A3 CSX Corporation,
9.00% debentures, due August 15, 2006 225,000 249,511 249,511
Baa1 Hertz Corporation,
10.125% senior subordinate notes,
due March 1, 1997 1,000,000 1,055,310 1,010,460
A2 Southern Pacific Transportation Company 94-A
Pass Thru Trusts,
8.66% pass thru certificates, Series 94-A 6,
due July 2, 2011 300,000 339,684 333,411
Baa1 United Airlines Pass Thru Trusts,
7.27% pass thru certificates,
Series 96-A, Cl. A-1,
due January 30, 2013 425,000 397,552 422,624
1,950,000 2,042,057 2,016,006
U.S. DOLLAR DENOMINATED CANADIAN SECURITIES - 6.50%
Baa2 Canadian National Railway Company,
7.00% notes, due March 15, 2004 $ 750,000 $ 734,471 $ 752,175
Aa3 Ontario Province of Canada,
6.00% bonds, due February 21, 2006 500,000 455,181 483,955
A2 Quebec Province of Canada, Series NY,
6.50% debentures, due January 17, 2006 1,000,000 954,227 985,350
2,250,000 2,143,879 2,221,480
UTILITIES - 1.45%
Baa3 United Illuminating Company,
6.20% notes, due January 15, 1999 500,000 500,000 495,230
TOTAL CORPORATE BONDS - 50.63% 16,974,520 17,199,486 17,301,467
U.S. GOVERNMENTAL AGENCY, GOVERNMENT SECURITIES AND
GOVERNMENT SPONSORED ENTERPRISES - 38.61% (All rated Aaa)
U.S. GOVERNMENTAL AGENCY - 15.68%
*Government National Mortgage Association,
8.00%, due October 15, 2007 31,935 31,124 33,401
*Government National Mortgage Association,
7.50%, due October 15, 2011 531,731 545,024 545,519
*Government National Mortgage Association,
7.50%, due November 15, 2011 507,770 520,464 520,464
*Government National Mortgage Association,
9.50%, due September 15, 2019 25,035 24,007 27,257
*Government National Mortgage Association,
8.00%, due December 15, 2022 397,537 394,223 411,943
*Government National Mortgage Association,
7.00%, due May 15, 2024 898,349 879,821 896,939
*Government National Mortgage Association,
8.50%, due August 15, 2024 811,671 819,026 849,714
*Government National Mortgage Association,
7.50%, due October 15, 2025 1,981,179 2,013,064 2,010,897
Small Business Administration guaranteed development
participation certificates, Series 88-20 G,
9.80% debentures, due July 1, 2008 57,604 57,604 65,110
5,242,811 5,284,357 5,361,244
U.S. GOVERNMENT SECURITIES - 17.69%
U.S. Treasury Notes, 8.50%, due May 15, 1997 $ 2,645,000 $ 2,953,308 $ 2,683,009
U.S. Treasury Notes, 7.50%, due October 31, 1999 1,000,000 1,056,796 1,047,500
U.S. Treasury Notes, 6.25%, due February 15, 2003 900,000 839,673 889,596
U.S. Treasury Notes, 11.125%, due August 15, 2003 700,000 864,718 897,092
U.S. Treasury Notes, 7.50%, due February 15, 2005 500,000 556,328 528,595
5,745,000 6,270,823 6,045,792
*GOVERNMENT SPONSORED ENTERPRISES - 5.24%
Federal Home Loan Mortgage Corporation,
6.30%, due April 8, 1999 750,000 750,000 750,352
Federal Home Loan Mortgage Corporation,
8.25%, due July 1, 2008 54,776 52,632 56,025
Federal Home Loan Mortgage Corporation,
9.00%, due June 1, 2016 186,971 195,677 198,227
Federal Home Loan Mortgage Corporation,
8.00%, due May 1, 2017 66,070 61,388 68,673
Federal Home Loan Mortgage Corporation, CMO Series 130-E,
9.00%, due May 15, 2021 250,000 250,859 261,522
Federal National Mortgage Association,
7.00%, due December 1, 2007 132,078 127,114 133,213
Federal National Mortgage Association,
8.25%, due January 1, 2009 33,803 32,935 35,061
Federal National Mortgage Association,
CMO Series 90-52D, REMIC Trust,
9.30%, due May 25, 2019 152,861 152,016 157,207
Federal National Mortgage Association,
9.25%, due October 1, 2020 122,104 129,658 129,882
1,748,664 1,752,279 1,790,162
TOTAL U.S. GOVERNMENTAL AGENCY, GOVERNMENT SECURITIES
AND GOVERNMENT SPONSORED ENTERPRISES - 38.61% 12,736,474 13,307,459 13,197,198
REPURCHASE AGREEMENT - 11.41%
UMB Bank, n.a.,
5.30%, due December 2, 1996
(Collateralized by $3,730,401 U.S. Treasury Notes,
7.75%, due January 31, 2000) 3,900,000 3,900,000 3,900,000
TOTAL INVESTMENTS - 100.65% $33,610,994 $34,406,945 $34,398,665
Other assets less liabilities - (0.65%) (223,523)
TOTAL NET ASSETS - 100.00%
(equivalent to $9.77 per share; 3,497,423 shares outstanding) $34,175,142
</TABLE>
For federal income tax purposes, the identified cost of investments owned at
November 30, 1996, was $34,406,945.
Net unrealized depreciation for federal income tax purposes was $8,280, which
is comprised of unrealized appreciation of $490,220 and unrealized
depreciation of $498,500.
*Mortgage-backed securities.
Ratings are not covered by the report of independent auditors.
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS
AND LIABILITIES
November 30, 1996
<TABLE>
<CAPTION>
PORTFOLIO L PORTFOLIO S
</CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities:
Corporate and general obligation bonds, at market value
(identified cost $86,880,632 [L], $17,199,486 [S]) $ 87,700,989 $ 17,301,467
U.S. governmental agency, government securities
and government sponsored
enterprises, at market value
(identified cost $54,350,349 [L], $13,307,459 [S]) 55,931,772 13,197,198
Repurchase agreement, at cost - approximates market value - 3,900,000
Total investments 143,632,761 34,398,665
Interest receivable 2,226,963 415,188
Total assets 145,859,724 34,813,853
LIABILITIES AND NET ASSETS:
Cash overdraft 899,099 13,711
Payable for investments purchased 2,700,000 625,000
Total liabilities 3,599,099 638,711
NET ASSETS $142,260,625 $ 34,175,142
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $144,608,301 $ 36,221,972
Accumulated undistributed income (loss):
Undistributed net investment income 259,884 -
Undistributed net realized loss on investment transactions (5,009,340) (2,038,550)
Net unrealized appreciation (depreciation) in value of investments 2,401,780 (8,280)
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $142,260,625 $ 34,175,142
Capital shares outstanding 91,504,183 3,497,423
NET ASSET VALUE PER SHARE $ 1.55 $ 9.77
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Year Ended November 30, 1996
<TABLE>
<CAPTION>
PORTFOLIO L PORTFOLIO S
</CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 11,757,508 $ 2,468,566
Expenses (Note 2):
Management fees 1,408,223 300,830
Registration fees and expenses 25,650 5,263
Total expenses before voluntary reduction 1,433,873 306,093
Less: voluntary reduction of management fee - (94,999)
Net expenses 1,433,873 211,094
Net investment income (Note 1-B) 10,323,635 2,257,472
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized loss from investment transactions (excluding maturities of
short-term commercial notes and repurchase agreements):
Proceeds from sales of investments 97,690,686 15,734,240
Cost of investments sold 99,058,339 16,271,553
Net realized loss from investment transactions (1,367,653) (537,313)
Unrealized appreciation (depreciation) of investments:
Beginning of year 3,989,827 (128,020)
End of year 2,401,780 (8,280)
Unrealized appreciation (depreciation)
of investments during the year (1,588,047) 119,740
Net loss on investments (2,955,700) (417,573)
Increase in net assets resulting from operations $ 7,367,935 $ 1,839,899
See accompanying Notes to Financial Statements.
</TABLE>
STATEMENTS OF CHANGES
IN NET ASSETS
For The Two Years Ended November 30, 1996
<TABLE>
<CAPTION>
1996 1995
PORTFOLIO L PORTFOLIO S PORTFOLIO L PORTFOLIO S
</CAPTION>
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 10,323,635 $ 2,257,472 $ 10,575,720 $ 2,274,447
Net realized loss from investment transactions (1,367,653) (537,313) (434,426) (393,854)
Unrealized appreciation (depreciation) of investments
during the year (1,588,047) 119,740 11,720,738 1,834,338
Net increase in net assets
resulting from operations 7,367,935 1,839,899 21,862,032 3,714,931
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (10,323,635) (2,257,472) (10,575,720) (2,274,447)
Net realized gain from investment transactions - - - -
Total distributions to shareholders (10,323,635) (2,257,472) (10,575,720) (2,274,447)
INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS:*
Proceeds from shares sold 23,760,936 9,617,449 28,428,269 8,583,142
Net asset value of shares issued for
reinvestment of distributions 8,272,174 1,709,489 8,605,301 1,767,780
32,033,110 11,326,938 37,033,570 10,350,922
Cost of shares repurchased (47,467,140) (9,886,471) (28,063,464) (9,107,392)
Net increase (decrease) from capital share transactions (15,434,030) 1,440,467 8,970,106 1,243,530
Total increase (decrease) in net assets (18,389,730) 1,022,894 20,256,418 2,684,014
NET ASSETS:
Beginning of year 160,650,355 33,152,248 140,393,937 30,468,234
End of year (including undistributed net investment income
of $259,884 [L] and $-- [S] in 1996 and 1995) $142,260,625 $ 34,175,142 $160,650,355 $ 33,152,248
*Shares issued and repurchased:
Number of shares sold 15,421,389 990,865 18,628,982 881,030
Number of shares issued for
reinvestment of distributions 5,387,854 176,067 5,616,146 181,863
20,809,243 1,166,932 24,245,128 1,062,893
Number of shares repurchased (30,899,645) (1,019,424) (18,376,617) (943,557)
Net increase (decrease) (10,090,402) 147,508 5,868,511 119,336
**Distributions to shareholders:
Income dividends per share $ .1070 $ .6921 $ .1076 $ .7257
Capital gains distribution per share $ - $ - $ - $ -
See accompanying Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
The Trust is registered under the Investment Company Act of 1940, as amended,
as a diversified open-end management investment company of the Series type.
Its shares are currently issued in two Series with each Series, in effect,
representing a separate Fund. The Trust is required to account for the assets
of each Series separately and to allocate general liabilities of the Trust to
each Series based upon the net asset value of each Series. The following is a
summary of significant accounting policies consistently followed by the Trust
in the preparation of its financial statements.
A. Security Valuation - Debt securities (other than short-term obligations),
including listed issues, are valued at market on the basis of valuations
provided by an independent pricing service, which may utilize matrix pricing
techniques. Short-term obligations are valued at amortized cost, which
constitutes fair value as determined by the Trust's Board of Trustees.
B. Federal and State Taxes - It is the Trust's policy to comply with
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of each Series' taxable income to its
shareholders. Therefore, no provision for federal or state tax is required. At
November 30, 1996, Portfolio L and S have an accumulated net realized loss on
sales of investments for federal income tax purposes of $5,009,340 (expiring
$3,218,360 in 2002, $423,327 in 2003, and $1,367,653 in 2004) and $2,038,550
(expiring $1,072,503 in 2002, $388,485 in 2003, and $577,562 in 2004),
respectively, which are available to offset future taxable gains.
C. Other - Security transactions are accounted for on the date the securities
are purchased or sold. Distributions to shareholders are recorded on the ex-
dividend date. Realized gains and losses from investment transactions and
unrealized appreciation and depreciation of investments are reported on the
identified cost basis.
The preparation of financial statements in accordance with generally accepted
accounting principles ("GAAP") requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. MANAGEMENT FEES:
Management fees for services which include administration, trustees' and
agents' compensation and all other operating expenses of the Trust except the
cost of acquiring and disposing of portfolio securities, the taxes, if any,
imposed directly on the Trust and its shares and the cost of qualifying the
Trust's shares for sale in any jurisdiction are paid to Jones & Babson, Inc.
These fees are based on average daily net assets of Portfolio L and Portfolio
S, at the annual rate of .95 of 1%, except during the five years ended
November 30, 1996, when the fee for Portfolio S was voluntarily reduced to an
annual rate of .65 of 1% of the average daily net asset value of the
portfolio. Certain officers and/or trustees of the Trust are officers and/or
directors of Jones & Babson, Inc.
3. INVESTMENT TRANSACTIONS:
Investment transactions for the year ended November 30, 1996 (excluding
maturities of short-term commercial notes and repurchase agreements) are as
follows:
Portfolio L
Purchases $ 88,900,932
Proceeds from sales 97,690,686
Portfolio S
Purchases $ 14,740,268
Proceeds from sales 15,734,240
FINANCIAL HIGHLIGHTS
PORTFOLIO L
Condensed data for a share of capital stock outstanding throughout each year.
<TABLE>
<CAPTION>
Years Ended November 30,
1996 1995 1994 1993 1992
</CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.58 $ 1.47 $ 1.67 $ 1.62 $ 1.60
Income from investment operations:
Net investment income .107 .108 .108 .116 .124
Net gains or losses on securities
(both realized and unrealized) (.030) .110 (.149) .061 .020
Total from investment operations .077 .218 (.041) .177 .144
Less distributions:
Dividends from net investment income (.107) (.108) (.108) (.116) (.124)
Distributions from capital gains - - (.051) (.011) -
Total distributions (.107) (.108) (.159) (.127) (.124)
Net asset value, end of year $ 1.55 $ 1.58 $ 1.47 $ 1.67 $ 1.62
Total return 5.17% 15.28% (2.71)% 11.25% 9.29%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 142 $ 161 $ 140 $ 162 $ 142
Ratio of expenses to average net assets .97% .97% .97% .98% .99%
Ratio of net investment income to average
net assets 6.96% 7.06% 6.95% 7.00% 7.67%
Portfolio turnover rate 61% 50% 40% 80% 54%
See accompanying Notes to Financial Statements.
</TABLE>
FINANCIAL HIGHLIGHTS
PORTFOLIO S
Condensed data for a share of capital stock outstanding throughout each year.
<TABLE>
<CAPTION>
Years Ended November 30,
1996 1995 1994 1993 1992
</CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.90 $ 9.43 $ 10.48 $ 10.33 $ 10.30
Income from investment operations:
Net investment income .692 .726 .694 .718 .753
Net gains or losses on securities
(both realized and unrealized) (.130) .470 (.899) .207 .054
Total from investment operations .562 1.196 (.205) .925 .807
Less distributions:
Dividends from net investment income (.692) (.726) (.694) (.718) (.753)
Distributions from capital gains - - (.151) (.057) (.024)
Total distributions (.692) (.726) (.845) (.775) (.777)
Net asset value, end of year $ 9.77 $ 9.90 $ 9.43 $ 10.48 $ 10.33
Total return 5.96% 13.10% (2.06)% 9.19% 8.07%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 34 $ 33 $ 30 $ 36 $ 31
Ratio of expenses to average net assets .66% .67% .67% .68% .67%
Ratio of net investment income to
average net assets 7.10% 7.47% 7.02% 6.80% 7.22%
Ratio of expenses to average net assets before
voluntary reduction of management fee .96% .97% .97% .98% .97%
Portfolio turnover rate 48% 57% 42% 147% 47%
See accompanying Notes to Financial Statements.
</TABLE>
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
The Board of Trustees and Shareholders of D.L. Babson Bond Trust:
We have audited the accompanying statement of assets and liabilities,
including the statements of net assets, of D.L. Babson Bond Trust (comprised
of Portfolio L and Portfolio S) as of November 30, 1996, the related
statements of operations for the year then ended, changes in net assets for
each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of November 30, 1996, by correspondence with the custodian. As to
securities relating to uncompleted transactions, we performed other auditing
procedures. 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 that 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 each
of the portfolios comprising the D.L. Babson Bond Trust at November 30, 1996,
the results of their operations for the year then ended, the changes in their
net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended in
conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
Kansas City, Missouri
December 27, 1996
This report has been prepared for the information of the Shareholders of D.L.
Babson Bond Trust and is not to be construed as an offering of the shares of
the Fund. Shares of this Fund and of the other Babson Funds are offered only
by the Prospectus, a copy of which may be obtained from Jones & Babson, Inc.
EQUITIES
Growth Fund
Enterprise Fund*
Enterprise Fund II
Value Fund
Shadow Stock Fund
International Fund
FIXED INCOME
Bond Trust
Money Market Fund
Tax-Free Income Fund
* Closed to new investors.
JONES & BABSON
MUTUAL FUNDS
2440 Pershing Road
Kansas City, MO 64108-2561
816-471-5200
1-800-4-BABSON
(1-800-422-2766)
http://www.jbfunds.com
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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</TABLE>
