BABSON
BOND TRUST
Annual Report
November 30, 1997
JONES & BABSON
MUTUAL FUNDS
MESSAGE
To Our Shareholders
Babson Bond Trust shareholders have enjoyed the benefits of a strong
rally in the bond market that gained momentum as the year progressed.
Long-term interest rates fell a full percentage point since early last
summer, while intermediate-term rates are down a half to three quarters
of a percentage point during the same time period. Lower rates in this
country reflect both domestic and global circumstances.
At home, disinflation, rising productivity, a dramatic drop in the
federal deficit to near surplus levels, and improving monetary policy
credibility have all helped to propel rates lower. In addition, the U.S.
bond market has been the beneficiary of capital flows out of Asia in the
wake of the Asian currency crisis. While deflation in Asia and other
parts of the world is expected to have a negative impact on our export
industries in 1998, at the same time it means investors' expectations about
inflation will continue to move lower.
Over the course of the year, the yield curve shifted to a flatter slope
as intermediate and long-term rates fell in response to the favorable
inflation environment, while short-term rates remained pretty much
unchanged due to the Federal Reserve's fixed monetary policy stance.
Issuance in the corporate debt market was easily absorbed throughout the
year. Credit quality in the aggregate continued to improve. Corporate
quality yield spreads narrowed during most of the year, but recently
widened in sympathy with international issuers negatively impacted by
the crisis in Asia.
Total investment return (price change and reinvested distributions) for
Portfolio S in fiscal 1997 was 6.70%. Monthly dividends totaled $0.618
per share, producing an income yield of 6.33% based on a beginning net
asset value of $9.77. During the same period, total investment return on
Portfolio L was 7.26%. Monthly dividends totaled $0.098 per share,
producing an income yield of 6.30% based on a beginning net asset value
of $1.55.
OUTLOOK
The U.S. economy was characterized by falling
inflation and modest-to-strong growth during 1997, and it proved to be
the ideal setting for financial assets. Accordingly, both the bond and
stock markets responded favorably, providing investors with excellent
returns.
As we commence the new year, the domestic economy remains on sound
footing. Rising employment, a continuation of the capital spending boom,
and the
benefits of lower interest rates for both the consumer and business
should allow for modest growth in 1998. The wildcard in the outlook is
the unknown fallout from the Asian financial crisis.
It is expected that the financial rescue packages and reforms currently
being put in place by the International Monetary Fund and the
international banking community will stem the Asian contagion and limit
the risk of global deflation. However, Asian countries have lost massive
wealth and the question remains - how much impact will this damage have
on the global economy and specifically growth in the U.S.?
U.S. domestic purchasing power will benefit from declining Asian import
prices, but this positive will be offset by Asia's more competitive
trading position due to currency devaluation and excess capacity in
Asia. U.S. exports will be negatively impacted reducing overall real GDP
by a half to one percentage point in 1998. As a result, a substantial
widening in our trade account deficit is to be expected. A further risk
to domestic growth will be realized if overinvestment in the U.S. leads
to overcapacity, as it did in Asia. Such a situation could prompt a
sharp cutback in capital spending, but at this juncture, there is no
sign of this scenario happening. In fact, many companies feel compelled
to boost capital spending in an effort to raise productivity. In an
environment of little, to no, pricing power, this will help companies
maintain profit margins and maintain competitiveness in an increasingly
global economy.
The outlook for inflation and therefore, interest rates, remains
positive. Pockets of global deflation and the likelihood of moderating
domestic economic activity will help keep prices in check this year.
Today's level of interest rates reflects a decline in inflation
expectations and a lower risk premium for extending debt maturity. The
latter reflects a much-improved fiscal picture and reduced volatility of
inflation.
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. Through active portfolio
management, our ongoing investment strategy is to uncover attractive
investment opportunities and to replace fully valued
situations with what are believed to be undervalued opportunities.
Activity highlights since mid-year include the purchase of a 30-year IBM
debenture with an embedded "put" option. This option gives the
bondholder the right to sell the bond back to the issuer after seven
years, or continue holding the bond until maturity. So-called "put"
bonds are attractive 1) as an offset to the negative characteristics of
"callable" bonds held in a portfolio and 2) from a valuation standpoint,
put bond issues are often misunderstood and therefore mispriced - often
trading cheap to other bonds from the same issuer.
In the late summer, exposure to the 10-year area of yield curve, deemed
to be overvalued for technical reasons, was reduced with the sale of a
Lockheed Martin note due in 2008. Proceeds from the sale were used to
purchase a 5-year Raytheon note, which was issued to partially fund the
company's purchase of Hughes Electronics' and Texas Instruments' defense
business.
Currently, the average maturity is 6 years for Portfolio S and 11 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 3.7 and 5 years, respectively.
Sincerely,
/s/ Larry D. Armel
Larry D. Armel
President
CHART
Babson Bond Trust, Portfolio - L versus Lehman Brothers Aggregate Bond Index
CHART
Babson Bond Trust, Portfolio - S versus Lehman Brothers Intermediate
Gov't./Corp. Index
Average annual compounded return for Portfolio L for one, five and ten
year periods as of November 30, 1997, were 7.26%, 7.07% and 8.61%,
respectively. For Portfolio S, total returns for one year, five years and the
life of the Fund (inception April 19, 1988) were 6.70%, 6.46% and 7.71%,
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 flucuate, and redemption value may be more or
less than original cost.
STATEMENT OF NET ASSETS
November 30, 1997
PORTFOLIO L
<TABLE>
<CAPTION>
MARKET
MOODY'S PRINCIPAL VALUE
RATING DESCRIPTION AMOUNT COST (NOTE 1-A)
</CAPTION>
<S> <C> <C> <C>
CORPORATE BONDS - 60.39%
BANKS AND FINANCE - 17.57%
Baa2 American Stores Company,
8.00% debentures, due June 1, 2026 $ 1,150,000 $ 1,130,691 $ 1,264,287
Aa3 Associates Corporation North America,
6.75% notes, due July 15, 2001 4,500,000 4,466,475 4,556,340
Aa3 Chase Capital I, Series A,
7.67% capital securities, due December 1, 2026 700,000 700,000 709,786
Aa3 Chase Capital II, Series B,
6.06% capital securities, due February 1, 2027 1,300,000 1,258,556 1,258,558
A1 Ford Capital B V,
10.125% notes, due November 15, 2000 2,500,000 3,029,690 2,752,875
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 2,751,705
Baa3 Green Tree Securitized Net Interest Margin Trust,
Series 95-A,
7.25% certificates, due July 15, 2005 598,739 598,458 599,296
Aaa Merrill Lynch Mortgage Investors Incorporated,
Series 92-B REMIC Trust, Cl. A-3,
8.30% manufactured housing certificates,
due April 15, 2012 1,871,210 1,863,609 1,890,503
Aa2 Morgan (J.P.) & Company, Incorporated,
7.54%, due January 15, 2027 2,000,000 2,000,000 2,015,020
Baa1 Southern Investments UK PLC,
6.375% senior notes, due November 15, 2001 1,300,000 1,298,336 1,293,175
A2 SunTrust Banks, Incorporated,
6.00% subordinate notes, due February 15, 2026 3,000,000 2,952,740 2,907,900
Aa3 Wachovia Capital Trust II,
6.32% capital securities, due January 15, 2027 1,300,000 1,273,532 1,273,532
22,969,949 23,313,649 23,272,977
COMMUNICATIONS - 5.23%
Aa1 BellSouth Savings & Employee Stock
Ownership Trust,
9.19% medium term notes, due July 1, 2003 1,012,861 1,104,271 1,093,059
Ba1 Tele Communications, Incorporated,
8.75% debentures, due February 15, 2023 1,000,000 1,026,130 1,048,070
Ba1 Time Warner, Incorporated,
9.15% debentures, due February 1, 2023 2,350,000 2,693,171 2,831,350
Baa2 Tosco Corporation,
7.625% notes, due May 15, 2006 1,850,000 1,906,037 1,954,451
6,212,861 6,729,609 6,926,930
DIVERSIFIED - 6.35%
Aa3 Federal Express Corporation,
7.50% pass-thru trust, due January 15, 2018 2,500,000 2,556,950 2,654,575
A1 International Business Machines Corporation,
6.22% debentures, due August 2, 2027 1,500,000 1,500,000 1,501,440
A2 Lucent Technologies, Incorporated,
6.90% notes, due July 15, 2001 1,700,000 1,714,773 1,737,808
Baa1 Marriott International, Incorporated,
7.875% notes, due April 15, 2005 2,350,000 2,399,815 2,514,265
8,050,000 8,171,538 8,408,088
INDUSTRIALS - 21.14%
Baa3 Airgas, Incorporated,
7.14% medium term notes, due March 8, 2004 1,650,000 1,650,000 1,705,225
A3 Cardinal Health, Incorporated,
6.00% notes, due January 15, 2006 2,900,000 2,712,140 2,807,809
Baa1 Comdisco, Incorporated,
6.375% shelf issue, due November 30, 2001 4,675,000 4,658,077 4,651,298
A2 Cooper Industries, Incorporated,
7.87% medium term notes, due November 18, 1998 5,000,000 5,000,000 5,083,550
A1 Ford Motor Credit Company,
7.20% notes, due June 15, 2007 2,800,000 2,797,592 2,921,912
Baa2 Georgia-Pacific Corporation,
9.625% debentures, due March 15, 2022 1,500,000 1,589,595 1,690,170
A2 Hydro Quebec, Series IO,
8.05% debentures, due July 7, 2024 3,100,000 3,302,151 3,531,272
A2 John Deere Capital Corporation,
6.30% notes, due June 1, 1999 1,000,000 1,003,940 1,001,600
A3 Lockheed Martin Corporation,
7.75% notes, due May 1, 2026 930,000 946,442 1,014,444
Baa3 Petroleum Geo-Services A/S,
7.50% notes, due March 31, 2007 1,500,000 1,571,760 1,575,765
A2 Philip Morris Companies, Incorporated,
7.20% senior notes, due February 1, 2007 1,000,000 996,960 1,024,150
Baa1 Raytheon Company,
6.45% notes, due August 15, 2002 1,000,000 998,600 1,000,590
27,055,000 27,227,257 28,007,785
TRANSPORTATION - 5.31%
Baa2 CSX Corporation,
9.50% notes, due August 1, 2000 1,775,000 1,935,934 1,907,220
Baa3 Delta Air Lines, Incorporated Delaware,
10.375% debentures, due December 15, 2022 2,330,000 2,890,882 3,160,622
Baa1 United Airlines Pass-Thru Trusts,
7.27% pass-thru certificates,
Series 96-A, Cl. A-1,
due January 30, 2013 1,911,349 1,785,001 1,971,442
6,016,349 6,611,817 7,039,284
U.S. DOLLAR DENOMINATED CANADIAN SECURITIES - 3.28%
Baa2 Canadian National Railway Company,
7.00% notes, due March 15, 2004 1,950,000 1,904,874 1,996,800
Baa1 Newfoundland Province of Canada,
8.65% debentures, due October 22, 2022 1,950,000 2,194,082 2,349,438
3,900,000 4,098,956 4,346,238
UTILITIES - 1.51%
Baa3 United Illuminating Company,
6.20% notes, due January 15, 1999 2,000,000 2,000,000 1,998,220
TOTAL CORPORATE BONDS - 60.39% 76,204,159 78,152,826 79,999,522
REVENUE BOND - 1.70%
Aaa New Jersey Economic Development Authority
State Pension Funding Revenue, Series A,
7.425%, due February 15, 2029 2,100,000 2,127,048 2,255,295
</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 - 35.78% (All rated Aaa)
U.S. GOVERNMENTAL AGENCY - 12.86%
*Government National Mortgage Association,
7.50%, due March 15, 2007 154,651 138,896 158,904
*Government National Mortgage Association,
7.50%, due July 15, 2007 269,359 241,621 276,766
*Government National Mortgage Association,
8.00%, due October 15, 2007 369,713 347,530 383,784
*Government National Mortgage Association,
8.00%, due November 15, 2009 4,636,076 4,801,236 4,814,240
*Government National Mortgage Association,
9.50%, due April 15, 2016 54,821 55,386 59,565
*Government National Mortgage Association,
9.50%, due January 15, 2019 147,180 146,490 159,808
*Government National Mortgage Association,
8.00%, due May 15, 2022 593,166 582,600 616,893
*Government National Mortgage Association,
7.00%, due March 15, 2024 4,037,823 3,954,542 4,058,012
*Government National Mortgage Association,
8.50%, due August 15, 2024 285,420 288,007 299,066
*Government National Mortgage Association,
8.00%, due December 15, 2026 4,916,347 5,020,819 5,083,798
Small Business Administration
guaranteed development
participation certificates, Series 88-20 G,
9.80% debentures, due July 1, 2008 289,937 289,937 322,480
Small Business Administration
guaranteed development
participation certificates, Series 88-20 H,
10.05% debentures, due August 1, 2008 347,862 347,862 390,823
Small Business Administration
guaranteed development
participation certificates, Series 89-20 D,
10.05% debentures, due April 1, 2009 363,673 363,673 411,038
16,466,028 16,578,599 17,035,177
U.S. GOVERNMENT SECURITIES - 13.65%
U.S. Treasury Bonds, 8.125%,
due August 15, 2019 2,345,000 2,642,890 2,900,109
U.S. Treasury Bonds, 8.125%,
due May 15, 2021 2,300,000 2,747,797 2,863,132
U.S. Treasury Notes, 6.25%,
due March 31, 1999 3,000,000 3,000,721 3,018,270
U.S. Treasury Notes, 5.875%,
due February 15, 2000 4,000,000 3,955,416 4,005,000
U.S. Treasury Notes, 11.125%,
due August 15, 2003 1,520,000 1,877,675 1,900,471
U.S. Treasury Notes, 7.25%,
due August 15, 2004 2,250,000 2,385,682 2,418,750
U.S. Treasury Notes, 5.625%,
due February 15, 2006 1,000,000 972,344 981,560
16,415,000 17,582,525 18,087,292
*GOVERNMENT SPONSORED ENTERPRISES - 9.27%
Federal Home Loan Mortgage Corporation,
7.75%, due April 1, 2008 297,046 268,734 302,592
Federal Home Loan Mortgage Corporation,
7.75%, due November 1, 2008 64,956 62,486 66,069
Federal Home Loan Mortgage Corporation,
8.00%, due August 1, 2009 64,795 62,093 66,321
Federal Home Loan Mortgage Corporation,
8.25%, due October 1, 2010 467,909 425,650 482,789
Federal Home Loan Mortgage Corporation,
9.00%, due June 1, 2016 195,133 204,219 208,079
Federal Home Loan Mortgage Corporation,
8.00%, due October 1, 2018 258,630 262,832 266,663
Federal Home Loan Mortgage Corporation,
7.50%, due February 1, 2021 1,678,006 1,631,861 1,725,192
Federal Home Loan Mortgage Corporation,
9.00%, due January 1, 2024 114,340 119,986 120,810
Federal National Mortgage Association,
5.81%, due November 12, 1999 2,600,000 2,596,984 2,596,984
Federal National Mortgage Association,
6.21%, due November 7, 2007 3,335,000 3,322,827 3,322,827
Federal National Mortgage Association,
7.00%, due December 1, 2007 582,384 562,502 589,244
Federal National Mortgage Association,
8.25%, due January 1, 2009 263,499 257,766 274,387
Federal National Mortgage Association,
8.00%, due February 1, 2009 296,343 287,992 306,101
Federal National Mortgage Association,
7.50%, due September 1, 2011 462,229 466,418 473,350
Federal National Mortgage Association,
8.50%, due July 1, 2013 86,629 72,904 90,275
Federal National Mortgage Association,
CMO Series 88-16B, guaranteed REMIC pass-thru,
9.50%, due June 25, 2018 244,027 232,436 261,434
Federal National Mortgage Association,
CMO Series 90-52D, REMIC Trust,
9.30%, due May 25, 2019 901,439 899,031 922,217
Federal National Mortgage Association,
9.25%, due October 1, 2020 183,277 194,617 197,616
12,095,642 11,931,338 12,272,950
TOTAL U.S. GOVERNMENTAL AGENCY, GOVERNMENT SECURITIES
AND GOVERNMENT SPONSORED ENTERPRISES - 35.78% 44,976,670 46,092,462 47,395,419
REPURCHASE AGREEMENT - 0.63%
UMB Bank, n.a.,
5.00%, due December 1, 1997
(Collateralized by $848,000
U.S. Treasury Notes,
5.875%, due March 31, 1999) 840,000 840,000 840,000
TOTAL INVESTMENTS - 98.50% $ 124,120,829 $ 127,212,336 $ 130,490,236
Other assets less liabilities - 1.50% 1,983,100
TOTAL NET ASSETS - 100.00%
(equivalent to $1.56 per share;
84,893,538 shares outstanding) $ 132,473,336
</TABLE>
For federal income tax purposes, the identified cost of investments
owned at November 30, 1997, was $127,212,336.
Net unrealized appreciation for federal income tax purposes was
$3,277,900, which is comprised of unrealized
appreciation of $3,655,541 and unrealized depreciation of $377,641.
*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, 1997
PORTFOLIO S
<TABLE>
<CAPTION>
MARKET
MOODY'S PRINCIPAL VALUE
RATING DESCRIPTION AMOUNT COST (NOTE 1-A)
</CAPTION>
<S> <C> <C> <C>
CORPORATE BONDS - 55.65%
BANKS AND FINANCE - 20.43%
Aa3 Associates Corporation North America,
6.75% notes, due July 15, 2001 $ 250,000 $ 248,138 $ 253,130
Aa3 Associates Corporation North America,
6.45% senior notes, due October 15, 2001 500,000 502,250 502,250
Aa3 Chase Capital I, Series A,
7.67% capital securities, due December 1, 2026 250,000 250,000 253,495
Aa3 Chase Capital II, Series B,
6.06% capital securities, due February 1, 2027 375,000 363,045 363,046
A3 Chrysler Financial Corporation,
6.375% notes, due January 28, 2000 600,000 594,852 601,020
A1 Credithrift Financial Corporation,
9.76% medium term notes, due September 18, 1998 150,000 151,484 154,081
A1 Ford Motor Credit Company,
6.55% notes, due September 10, 2002 1,000,000 998,070 1,007,430
A3 General Motors Acceptance Corporation,
6.75% notes, due February 7, 2002 1,100,000 1,097,701 1,114,839
Aaa Green Tree Financial Corporation,
CMO Series 92-1 REMIC Trust, Cl. A-3,
6.70% manufactured housing certificates,
due October 15, 2017 750,000 748,008 750,465
Baa3 Green Tree Securitized Net Interest Margin Trust,
Series 94 A,
6.90% certificates, due February 15, 2004 245,823 245,708 247,281
Aa2 Morgan (J.P.) & Company, Incorporated,
7.54%, due January 15, 2027 375,000 375,000 377,816
A2 Sears Roebuck & Company,
9.25% notes, due April 15, 1998 1,075,000 1,115,366 1,088,126
A2 Sears Roebuck Acceptance Corporation,
7.00% notes, due June 15, 2007 225,000 224,183 230,688
Baa1 Southern Investments UK PLC,
6.375% senior notes, due November 15, 2001 300,000 299,616 298,425
A2 SunTrust Banks, Incorporated,
6.00% subordinate notes, due February 15, 2026 700,000 697,711 678,510
Aa3 Wachovia Capital Trust II,
6.32% capital securities, due January 15, 2027 375,000 367,365 367,365
8,270,823 8,278,497 8,287,967
COMMUNICATIONS - 6.16%
Aa1 BellSouth Savings & Employee
Stock Ownership Trust,
9.19% medium term notes, due July 1, 2003 734,441 802,832 792,594
Ba1 Time Warner, Incorporated,
9.125% debentures, due January 15, 2013 1,000,000 1,153,230 1,175,630
Baa2 Tosco Corporation,
7.625% notes, due May 15, 2006 500,000 515,145 528,230
2,234,441 2,471,207 2,496,454
DIVERSIFIED - 6.07%
Aa3 Federal Express Corporation,
7.50% pass thru trust, due January 15, 2018 1,000,000 1,022,780 1,061,830
A1 International Business Machines Corporation,
6.22% debentures, due August 1, 2027 400,000 400,000 400,384
A2 Lucent Technologies, Incorporated,
6.90% notes, due July 15, 2001 375,000 378,259 383,340
Baa1 Marriott International, Incorporated,
7.875% notes, due April 15, 2005 575,000 587,160 615,192
2,350,000 2,388,199 2,460,746
INDUSTRIALS - 15.73%
Baa3 Airgas, Incorporated,
7.14% medium term notes, due March 8, 2004 550,000 550,000 568,409
A3 Cardinal Health, Incorporated,
6.50% notes, due February 15, 2004 650,000 635,394 649,961
A3 Cardinal Health, Incorporated,
6.00% notes, due January 15, 2006 850,000 794,936 822,979
Baa1 Comdisco, Incorporated,
6.375% shelf issue, due November 30, 2001 1,000,000 996,380 994,930
A2 Cooper Industries, Incorporated,
7.87% medium term notes, due November 18, 1998 500,000 500,000 508,355
A2 Hydro-Quebec, Series IQ,
8.05% debentures, due July 7, 2024 925,000 987,671 1,053,686
A2 John Deere Capital Corporation,
6.30% notes, due June 1, 1999 250,000 250,985 250,400
Baa2 McDonnell Douglas Finance Corporation,
6.50% medium term senior notes, due July 1, 1998 500,000 500,120 499,800
Baa3 Petroleum Geo-Services A/S,
7.50% notes, due March 31, 2007 500,000 507,540 525,255
A2 Philip Morris Companies, Incorporated,
7.20% senior notes, due February 1, 2007 200,000 199,392 204,830
Baa1 Raytheon Company,
6.45% notes, due August 15, 2002 300,000 299,580 300,177
6,225,000 6,221,998 6,378,782
TRANSPORTATION - 3.47%
Baa2 CSX Corporation,
9.00% debentures, due August 15, 2006 225,000 249,511 258,624
Baa1 Norfolk Southern Corporation,
6.70% notes, due May 1, 2000 400,000 399,492 404,008
Baa1 United Airlines Pass-Thru Trusts,
7.27% pass-thru certificates, Series 96-A,
Cl. A-1, due January 30, 2013 421,986 395,633 435,253
Baa2 Union Pacific Corporation,
7.25% notes, due November 1, 2008 300,000 303,843 311,214
1,346,986 1,348,479 1,409,099
U.S. DOLLAR DENOMINATED CANADIAN SECURITIES - 2.56%
Baa2 Canadian National Railway Company,
7.00% notes, due March 15, 2004 500,000 482,964 512,000
Aa3 Ontario Province of Canada,
7.75% bonds, due June 4, 2002 500,000 524,950 528,165
1,000,000 1,007,914 1,040,165
UTILITIES - 1.23%
Baa3 United Illuminating Company,
6.20% notes, due January 15, 1999 500,000 500,000 499,555
TOTAL CORPORATE BONDS - 55.65% 21,927,250 22,216,294 22,572,768
</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 - 40.61% (All rated Aaa)
U.S. GOVERNMENTAL AGENCY - 11.41%
*Government National Mortgage Association,
8.00%, due October 15, 2007 26,804 26,228 27,824
*Government National Mortgage Association,
8.00%, due November 15, 2009 831,971 861,610 863,944
*Government National Mortgage Association,
7.50%, due October 15, 2011 477,312 489,245 490,285
*Government National Mortgage Association,
7.50%, due November 15, 2011 449,309 460,541 461,521
*Government National Mortgage Association,
9.50%, due September 15, 2019 20,710 19,685 22,488
*Government National Mortgage Association,
8.00%, due December 15, 2022 317,914 316,261 330,630
*Government National Mortgage Association,
7.00%, due May 15, 2024 817,639 800,775 821,728
*Government National Mortgage Association,
8.50%, due August 15, 2024 647,738 653,608 678,706
*Government National Mortgage Association,
8.00%, due November 15, 2026 850,015 868,078 878,966
Small Business Administration
guaranteed development
participation certificates, Series 88-20 G,
9.80% debentures, due July 1, 2008 48,323 48,323 53,747
4,487,735 4,544,354 4,629,839
U.S. GOVERNMENT SECURITIES - 20.66%
U.S. Treasury Bonds, 11.125%,
due August 15, 2003 700,000 864,719 875,217
U.S. Treasury Notes, 6.25%,
due March 31, 1999 2,500,000 2,505,767 2,515,225
U.S. Treasury Notes, 5.875%,
due February 15, 2000 3,925,000 3,883,050 3,929,906
U.S. Treasury Notes, 7.25%,
due August 15, 2004 250,000 259,023 268,750
U.S. Treasury Notes, 7.50%,
due February 15, 2005 500,000 556,328 546,330
U.S. Treasury Notes, 5.625%,
due February 15, 2006 250,000 243,086 245,390
8,125,000 8,311,973 8,380,818
*GOVERNMENT SPONSORED ENTERPRISES - 8.54%
Federal Home Loan Mortgage Corporation,
8.25%, due July 1, 2008 42,807 41,371 44,212
Federal Home Loan Mortgage Corporation,
8.00%, due January 1, 2012 922,231 945,430 952,775
Federal Home Loan Mortgage Corporation,
9.00%, due June 1, 2016 157,608 165,035 168,063
Federal Home Loan Mortgage Corporation,
8.00%, due May 1, 2017 64,839 60,593 66,945
Federal Home Loan Mortgage Corporation,
CMO Series 130-E,
9.00%, due May 15, 2021 205,095 205,801 218,363
Federal Home Loan Mortgage Corporation,
5.81%, due November 12, 1999 750,000 749,130 748,500
Federal National Mortgage Association,
6.21%, due November 7, 2007 450,000 448,358 448,358
Federal National Mortgage Association,
7.00%, due December 1, 2007 108,157 104,711 109,431
Federal National Mortgage Association,
8.25%, due January 1, 2009 27,448 26,838 28,582
Federal National Mortgage Association,
7.50%, due September 1, 2011 462,229 466,418 473,350
Federal National Mortgage Association,
CMO Series 90-52D, REMIC Trust,
9.30%, due May 25, 2019 98,339 97,656 100,606
Federal National Mortgage Association,
9.25%, due October 1, 2020 96,461 102,430 104,008
3,385,214 3,413,771 3,463,193
TOTAL U.S. GOVERNMENTAL AGENCY, GOVERNMENT SECURITIES
AND GOVERNMENT SPONSORED ENTERPRISES - 40.61% 15,997,949 16,270,098 16,473,850
REPURCHASE AGREEMENT - 1.79%
UMB Bank, n.a.,
5.00%, due December 1, 1997
(Collateralized by $732,000
U.S. Treasury Notes,
5.875%, due March 31, 1999) 725,000 725,000 725,000
TOTAL INVESTMENTS - 98.05% $ 38,650,199 $ 39,211,392 $ 39,771,618
Other assets less liabilities - 1.95% 791,872
TOTAL NET ASSETS - 100.00%
(equivalent to $9.78 per share;
4,147,236 shares outstanding) $ 40,563,490
</TABLE>
For federal income tax purposes, the identified cost of investments
owned at November 30, 1997, was $39,211,392.
Net unrealized appreciation for federal income tax purposes was
$560,226, which is comprised of unrealized appreciation of $631,524
and unrealized depreciation of $71,298.
*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, 1997
<TABLE>
<CAPTION>
PORTFOLIO L PORTFOLIO S
</CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities:
Corporate and revenue bonds, at market value
(identified cost $80,279,874 [L], $22,216,294 [S]) $ 82,254,817 $ 22,572,768
U.S. governmental agency, government securities and
government sponsored enterprises, at market value
(identified cost $46,092,462 [L], $16,270,098 [S]) 47,395,419 16,473,850
Repurchase agreement, at cost - approximates market value 840,000 725,000
Total investments 130,490,236 39,771,618
Cash - 139,267
Interest receivable 2,179,607 652,605
Total assets 132,669,843 40,563,490
LIABILITIES AND NET ASSETS:
Cash overdraft 196,507 -
Total liabilities 196,507 -
NET ASSETS $ 132,473,336 $ 40,563,490
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 134,490,558 $ 42,484,676
Accumulated undistributed income (loss):
Undistributed net investment income 259,884 -
Undistributed net realized loss on investment transactions (5,555,006) (2,481,412)
Net unrealized appreciation in value of investments 3,277,900 560,226
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 132,473,336 $ 40,563,490
Capital shares outstanding 84,893,538 4,147,236
NET ASSET VALUE PER SHARE $ 1.56 $ 9.78
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Year Ended November 30, 1997
<TABLE>
<CAPTION>
PORTFOLIO L PORTFOLIO S
</CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 9,873,963 $ 2,760,427
Expenses (Note 2):
Management fees 1,275,822 371,470
Registration fees and expenses 30,735 7,670
Total expenses before voluntary reduction 1,306,557 379,140
Less: voluntary reduction of management fee - (117,306)
Net expenses 1,306,557 261,834
Net investment income (Note 1-B) 8,567,406 2,498,593
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 91,394,055 23,789,293
Cost of investments sold 91,939,721 24,232,155
Net realized loss from investment transactions (545,666) (442,862)
Unrealized appreciation (depreciation) of investments:
Beginning of year 2,401,780 (8,280)
End of year 3,277,900 560,226
Unrealized appreciation of investments during the year 876,120 568,506
Net gain on investments 330,454 125,644
Increase in net assets resulting from operations 8,897,860 2,624,237
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
For The Two Years Ended November 30, 1997
<TABLE>
<CAPTION>
1997 1996
PORTFOLIO L PORTFOLIO S PORTFOLIO L PORTFOLIO S
</CAPTION>
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 8,567,406 $ 2,498,593 $ 10,323,635 $ 2,257,472
Net realized loss from investment transactions (545,666) (442,862) (1,367,653) (537,313)
Unrealized appreciation (depreciation) of investments
during the year 876,120 568,506 (1,588,047) 119,740
Net increase in net assets resulting from operations 8,897,860 2,624,237 7,367,935 1,839,899
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (8,567,406) (2,498,593) (10,323,635) (2,257,472)
Net realized gain from investment transactions - - - -
Total distributions to shareholders (8,567,406) (2,498,593) (10,323,635) (2,257,472)
INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS:*
Proceeds from shares sold 19,321,050 14,582,788 23,760,936 9,617,449
Net asset value of shares issued for
reinvestment of distributions 6,987,475 2,075,147 8,272,174 1,709,489
26,308,525 16,657,935 32,033,110 11,326,938
Cost of shares repurchased (36,426,268) (10,395,231) (47,467,140) (9,886,471)
Net increase (decrease) from capital share transactions (10,117,743) 6,262,704 (15,434,030) 1,440,467
Total increase (decrease) in net assets (9,787,289) 6,388,348 (18,389,730) 1,022,894
NET ASSETS:
Beginning of year 142,260,625 34,175,142 160,650,355 33,152,248
End of year (including undistributed net investment income
of $259,884 [L] and $- [S] in 1997 and 1996) $ 132,473,336 $ 40,563,490 $ 142,260,625 $ 34,175,142
*Shares issued and repurchased:
Number of shares sold 12,616,368 1,510,703 15,421,389 990,865
Number of shares issued for
reinvestment of distributions 4,566,377 214,629 5,387,854 176,067
17,182,745 1,725,332 20,809,243 1,166,932
Number of shares repurchased (23,793,390) (1,075,519) (30,899,645) (1,019,424)
Net increase (decrease) (6,610,645) 649,813 (10,090,402) 147,508
**Distributions to shareholders:
Income dividends per share $ .0976 $ .6185 $ .1070 $ .6921
Capital gains distribution per share $ - $ - $ - $ -
</TABLE>
See accompanying Notes to Financial Statements.
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, 1997, Portfolio L and S have an accumulated net realized loss on
sales of investments for federal income tax purposes of $5,555,006 (expiring
$3,218,360 in 2002, $423,327 in 2003, $1,367,653 in 2004, and $545,666 in
2005) and $2,481,412 (expiring $1,072,503 in 2002, $388,485 in 2003, $577,562
in 2004, and $442,862 in 2005), 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 appre-
ciation 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 six years ended November
30, 1997, 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, 1997 (excluding
maturities of short-term commercial notes and repurchase agreements) are as
follows:
Portfolio L
Purchases $ 76,961,264
Proceeds from sales 91,394,055
Portfolio S
Purchases $ 32,186,738
Proceeds from sales 23,789,293
FINANCIAL HIGHLIGHTS
PORTFOLIO L
Condensed data for a share of capital
stock outstanding throughout each year.
<TABLE>
<CAPTION>
Years Ended November 30,
1997 1996 1995 1994 1993
</CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.55 $ 1.58 $ 1.47 $ 1.67 $ 1.62
Income from investment operations:
Net investment income .098 .107 .108 .108 .116
Net gains or losses on securities
(both realized and unrealized) .010 (.030) .110 (.149) .061
Total from investment operations .108 .077 .218 (.041) .177
Less distributions:
Dividends from net investment income (.098) (.107) (.108) (.108) (.116)
Distributions from capital gains - - - (.051) (.011)
Total distributions (.098) (.107) (.108) (.159) (.127)
Net asset value, end of year $ 1.56 $ 1.55 $ 1.58 $ 1.47 $ 1.67
Total return 7.26% 5.17% 15.28% (2.71)% 11.25%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 132 $ 142 $ 161 $ 140 $ 162
Ratio of expenses to average net assets .97% .97% .97% .97% .98%
Ratio of net investment income to average net assets 6.38% 6.96% 7.06% 6.95% 7.00%
Portfolio turnover rate 59% 61% 50% 40% 80%
</TABLE>
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
PORTFOLIO S
Condensed data for a share of capital
stock outstanding throughout each year.
<TABLE>
<CAPTION>
Years Ended November 30,
1997 1996 1995 1994 1993
</CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.77 $ 9.90 $ 9.43 $ 10.48 $ 10.33
Income from investment operations:
Net investment income .618 .692 .726 .694 .718
Net gains or losses on securities
(both realized and unrealized) .010 (.130) .470 (.899) .207
Total from investment operations .628 .562 1.196 (.205) .925
Less distributions:
Dividends from net investment income (.618) (.692) (.726) (.694) (.718)
Distributions from capital gains - - - (.151) (.057)
Total distributions (.618) (.692) (.726) (.845) (.775)
Net asset value, end of year $ 9.78 $ 9.77 $ 9.90 $ 9.43 $ 10.48
Total return 6.70% 5.96% 13.10% (2.06)% 9.19%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 41 $ 34 $ 33 $ 30 $ 36
Ratio of expenses to average net assets .67% .66% .67% .67% .68%
Ratio of net investment income to average net assets 6.42% 7.10% 7.47% 7.02% 6.80%
Ratio of expenses to average net assets before
voluntary reduction of management fee .97% .96% .97% .97% .98%
Portfolio turnover rate 65% 48% 57% 42% 147%
</TABLE>
See accompanying Notes to Financial Statements.
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, 1997, the
related statements of operations for the year then ended and 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, 1997, 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, 1997, 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.
Ernst & Young LLP
Kansas City, Missouri
December 29, 1997
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
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306
816-751-5900
1-800-4-BABSON
(1-800-422-2766)
http://www.jbfunds.com
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000009014
<NAME> D L BABSON BOND TRUST
<SERIES>
<NUMBER> 1
<NAME> PORTFOLIO L
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 127212336
<INVESTMENTS-AT-VALUE> 130490236
<RECEIVABLES> 2179607
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 132669843
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<OTHER-ITEMS-LIABILITIES> 196507
<TOTAL-LIABILITIES> 196507
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 134490558
<SHARES-COMMON-STOCK> 84893538
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 259884
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5555006)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3277900
<NET-ASSETS> 132473336
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9873963
<OTHER-INCOME> 0
<EXPENSES-NET> 1306557
<NET-INVESTMENT-INCOME> 8567406
<REALIZED-GAINS-CURRENT> (545666)
<APPREC-INCREASE-CURRENT> 876120
<NET-CHANGE-FROM-OPS> 8897860
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8567406
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<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12616368
<NUMBER-OF-SHARES-REDEEMED> 23793390
<SHARES-REINVESTED> 4566377
<NET-CHANGE-IN-ASSETS> (9787289)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1275822
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1306557
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1.55
<PER-SHARE-NII> .098
<PER-SHARE-GAIN-APPREC> .010
<PER-SHARE-DIVIDEND> .098
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.56
<EXPENSE-RATIO> .97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000009014
<NAME> D L BABSON BOND TRUST
<SERIES>
<NUMBER> 2
<NAME> PORTFOLIO S
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 39211392
<INVESTMENTS-AT-VALUE> 39771618
<RECEIVABLES> 652605
<ASSETS-OTHER> 139267
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 40563490
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42484676
<SHARES-COMMON-STOCK> 4147236
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2481412)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 560226
<NET-ASSETS> 40563490
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2760427
<OTHER-INCOME> 0
<EXPENSES-NET> 261834
<NET-INVESTMENT-INCOME> 2498593
<REALIZED-GAINS-CURRENT> (442862)
<APPREC-INCREASE-CURRENT> 568506
<NET-CHANGE-FROM-OPS> 2624237
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2498593
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1510703
<NUMBER-OF-SHARES-REDEEMED> 1075519
<SHARES-REINVESTED> 214629
<NET-CHANGE-IN-ASSETS> 6388348
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 261834
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 9.77
<PER-SHARE-NII> .618
<PER-SHARE-GAIN-APPREC> .010
<PER-SHARE-DIVIDEND> .628
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.78
<EXPENSE-RATIO> .67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
