BABSON
Bond Trust
Semiannual Report
May 31, 1998
MESSAGE
To Our Shareholders
Following our last shareholders report in November, interest rates moved in a
fairly narrow range up until early June, when they broke out on the downside,
sparking a major rally in the bond market. The catalyst for the most recent
downward move in yields has been renewed concern over the financial health of
Asian economies and, in particular, weakness in the Japanese yen and Japan's
contracting economy. Both of these factors are exacerbating an already fragile
situation in the rest of Asia. As a result, investors have flocked to U.S.
Treasury debt, seeking a safe haven from troubled world markets. In addition,
the bond market continues to benefit from a domestic environment of low
inflation, reduced issuance of Treasury debt due to the federal budget surplus
and indications by the Federal Reserve that monetary policy will remain on
hold, at least for the near term.
During this most recent decline in interest rates, long-term yields have come
down the most and are now at their lowest levels in over thirty years. Year-
to-date issuance of debt has been on a path which could set a record for a
given calendar year, as corporations and government agency issuers flock to
take advantage of the low cost of debt. Though corporate bonds have enjoyed
the benefits of the decline in the general level of rates, due to heavy supply
yield spreads relative to Treasuries have widened compared to where they were
earlier in the year. Hence corporates have underperformed Treasuries in recent
weeks.
For the six and twelve month periods ending May 31, 1998, total investment
returns (price change and reinvested distributions) of Babson Bond Trust
Portfolio S were 3.67% and 9.22%, respectively. Dividends for the proceeding
twelve months amounted to $0.6028 per share, resulting in an income yield of
6.29% based on a beginning net asset value of $9.58. During the same six and
twelve month periods, total returns for Portfolio L were 4.40% and 11.25%,
respectively. Dividends for the past twelve months came to $0.0957 per share,
producing an income yield of 6.34% based on a beginning net asset value of
$1.51.
Recent performance for both Portfolio L and S has been excellent relative to
their peer groups. For the most recent one-year period, Portfolio L ranked in
the top quartile of the Lipper A-Rated Bond Fund category. Portfolio S for the
most recent one and three year periods falls into the top decile of the Lipper
Short-Intermediate Investment Grade Bond Fund grouping.
Average annual compounded total returns for Portfolio S for one, five and ten
year periods as of June 30, 1998, were 8.72%, 5.92% and 7.75%, respectively.
For Portfolio L, total returns for one, five and ten year periods were 10.46%,
6.29% and 8.54%, 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.
OUTLOOK
Overall the economy continued to expand at a good clip through the second
quarter, but a dichotomy has developed in the pattern of its growth. The
production side of the economy has started to exhibit signs of a slowdown.
Inventories, which grew rapidly in the first quarter, increased more in the
second quarter. The purchasing managers' index fell to its lowest level in a
year and a half, and there was a decline in manufacturing employment for the
month of May, though total employment was reported up. The apparent slowing in
production is in response to a sharp drop in exports since the beginning of
the year. The export industry has been negatively impacted by the
deteriorating situation in Asia on two fronts. First, most of the Asian
economies have experienced major contractions, reducing their demand for goods
and secondly, the competitiveness of Asia producers has been increased due to
the large depreciations of their currencies over the past year.
The drag on the economy due to weakness in the trade sector has been more than
offset by strong domestic demand. Growing employment, the rise in the stock
market and reduced interest rates have fueled demand. Low interest rates
continue to spur growth in the housing market and the attendant furnishing
purchases that go with it.
Income growth has been strong on a real basis, indicative of the healthy job
market and low inflation. However, growth in consumption has outpaced income
growth, and certainly part of the difference can be tied to the strength of
the stock market over the past several years. The rise in the stock market has
made Americans feel wealthier, even if only on paper. U.S. household exposure
to equities today is greater than the value of household real estate holdings.
This wealth effect boosts consumer confidence and contributes to greater
spending.
Further slowing on the production side of the economy should eventually lead
to a cut back on the demand side. This will actually be welcomed, because the
economy has been growing above its long-term, non-inflationary potential for
over four quarters. Even though inflation has been declining on a year-over-
year basis, the Federal Reserve and mainstream economists are growing
increasingly concerned that it is only a matter of time before low
unemployment and strong demand will turn the positive news on inflation
negative. However, the Fed has signaled that it is willing to wait longer and
see how great an impact the Asian crisis will have on business activity here
before deciding whether it is appropriate to tighten monetary policy in order
to cool down the economy.
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.
Over the past six months, several securities have been added to the
portfolios. These purchases have expanded the portfolios geographic
diversification and exposed the portfolios to relatively new sectors of the
fixed income universe.
For example a ten-year Republic of Greece note was purchased at a yield
premium relative to domestic rated issuers. Greece hopes to join the European
Monetary Union by the year 2001, and it has taken many of the necessary steps
to improve its macroeconomic fundamentals and its fiscal deficit.
Concurrently, it has experienced sustainable growth while reducing its
inflation rate. All these steps are mandatory for EMU membership, and its
stable government has shown it has the resolve to take several remaining
necessary measures in order to join.
Exposure to commercial mortgages was facilitated by investing in a commercial
mortgage pass-through certificate having an average life of approximately ten
years and AAA rating. The securitization of commercial properties and then
selling them in the public markets is one of the fastest growing sectors of
the fixed income arena. Issuance year-to-date has already surpassed $50
billion.
The portfolios were also enthusiastic buyers of the new Federal National
Mortgage Association (Fannie Mae) "Benchmark" securities, issued for the
first time in January. Attempting to capitalize on recent declines in U.S.
Treasury issuance, due to recent federal budget surpluses, Fannie Mae
announced a new program whereby it will regularly issue very large non-
callable notes with various maturities. Given their yield advantage, we view
these large high-quality, easily tradable deals as attractive alternatives to
U.S. Treasury notes.
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 3.2 and 4.5 years, respectively.
We appreciate your continued interest and participation in Babson Bond Trust.
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
STATEMENT OF NET ASSETS
May 31, 1998 (unaudited)
PORTFOLIO L
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL MARKET VALUE
RATING DESCRIPTION AMOUNT (NOTE 1-A)
</CAPTION>
<S> <C> <C>
CORPORATE BONDS - 57.54%
BANKS AND FINANCE - 18.72%
Baa2 American Stores Company,
8.00% debentures, due June 1, 2026 $ 1,150,000 $ 1,301,938
Aa3 Associates Corporation North America,
6.75% notes, due July 15, 2001 4,500,000 4,593,780
Aaa First Union-Lehman Brothers Commercial Mortgage,
Series 98-C2, Cl. A-2,
6.56% mortgage, due November 15, 2035 4,000,000 4,070,325
A1 Ford Capital B V,
10.125% notes, due November 15, 2000 2,500,000 2,729,300
Aaa Green Tree Financial Corporation,
CMO Series 92-1 REMIC Trust, Cl. A-3,
6.70% manufactured housing certificates,
due October 15, 2017 2,639,738 2,644,675
Baa3 Green Tree Securitized Net Interest Margin Trust,
Series 95-A,
7.25% certificates, due July 15, 2005 567,867 569,530
Baa1 Hellenic Republic,
6.95% notes, due March 4, 2008 1,300,000 1,334,177
Aaa Merrill Lynch Mortgage Investors Incorporated,
Series 92-B REMIC Trust, Cl. A-3,
8.30% manufactured housing certificates,
due April 15, 2012 1,160,994 1,168,250
Baa1 Southern Investments UK PLC,
6.375% senior notes, due November 15, 2001 1,300,000 1,303,887
A2 SunTrust Banks, Incorporated,
6.00% subordinate notes, due February 15, 2026 3,000,000 2,956,440
Aa3 Wachovia Capital Trust II,
6.32% capital securities, due January 15, 2027 1,300,000 1,276,600
23,418,599 23,948,902
COMMUNICATIONS - 4.50%
Aa1 BellSouth Savings & Employee Stock
Ownership Trust,
9.19% medium term notes, due July 1, 2003 946,039 1,017,409
Baa3 Tele Communications, Incorporated,
8.75% debentures, due February 15, 2023 1,000,000 1,069,730
Baa3 Time Warner, Incorporated,
9.15% debentures, due February 1, 2023 1,350,000 1,694,979
Baa2 Tosco Corporation,
7.625% notes, due May 15, 2006 1,850,000 1,975,356
5,146,039 5,757,474
DIVERSIFIED - 4.67%
Aa3 Federal Express Corporation,
7.50% pass thru trust, due January 15, 2018 $ 2,478,767 $ 2,710,755
A1 International Business Machines Corporation,
6.22% debentures, due August 2, 2027 1,500,000 1,522,455
A2 Lucent Technologies, Incorporated,
6.90% notes, due July 15, 2001 1,700,000 1,747,158
5,678,767 5,980,368
INDUSTRIALS - 20.62%
Baa3 Airgas, Incorporated,
7.14% medium term notes, due March 8, 2004 1,650,000 1,724,217
A3 Cardinal Health, Incorporated,
6.00% notes, due January 15, 2006 2,900,000 2,872,160
Baa1 Comdisco, Incorporated,
6.375% shelf issue, due November 30, 2001 3,675,000 3,700,688
A2 Cooper Industries, Incorporated,
7.87% medium term notes, due November 18, 1998 5,000,000 5,043,750
Baa2 Georgia-Pacific Corporation,
9.625% debentures, due March 15, 2022 1,500,000 1,686,600
A2 Hydro Quebec, Series IO,
8.05% debentures, due July 7, 2024 3,100,000 3,670,400
A2 John Deere Capital Corporation,
6.30% notes, due June 1, 1999 1,000,000 1,003,510
Baa2 Oslo Seismic Services, Incorporated,
8.28% 1st. preferred mortgage notes,
due June 1, 2011 2,069,221 2,300,229
Baa3 Petroleum Geo-Services A/S,
7.50% notes, due March 31, 2007 1,500,000 1,586,085
A2 Philip Morris Companies, Incorporated,
7.20% senior notes, due February 1, 2007 1,000,000 1,035,080
A2 Philip Morris Companies, Incorporated,
6.15% puttable reset securities purchases,
due March 15, 2010 750,000 749,535
Baa1 Raytheon Company,
6.45% notes, due August 15, 2002 1,000,000 1,012,250
25,144,221 26,384,504
TRANSPORTATION - 3.98%
Baa2 CSX Corporation,
9.50% notes, due August 1, 2000 $ 680,000 $ 725,023
Baa1 Dana Corporation,
6.50% notes, due March 15, 2008 1,600,000 1,612,640
Baa3 Delta Air Lines, Incorporated Delaware,
10.375% debentures, due December 15, 2022 595,000 819,273
Baa1 United Airlines Pass Thru Trusts,
7.27% pass thru certificates,
Series 96-A, Cl. A-1, due January 30, 2013 1,863,055 1,934,708
4,738,055 5,091,644
U.S. DOLLAR DENOMINATED CANADIAN SECURITIES - 3.48%
Baa2 Canadian National Railway Company,
7.00% notes, due March 15, 2004 1,950,000 2,001,929
Baa1 Newfoundland Province of Canada,
8.65% debentures, due October 22, 2022 1,950,000 2,443,643
3,900,000 4,445,572
UTILITIES - 1.57%
Baa3 United Illuminating Company,
6.20% notes, due January 15, 1999 2,000,000 2,001,860
TOTAL CORPORATE BONDS - 57.54% 70,025,681 73,610,324
CONVERTIBLE CORPORATE BOND - 1.58%
California Infrastructure & Economic
Development Bank Special Purpose Trust,
SCE-1 Series 97-1 certificates Cl. A,
6.25%, due June 25, 2004 2,000,000 2,020,880
REVENUE BOND - 1.92%
New Jersey Economic Development Authority
State Pension Funding Revenue,
Series A, 7.425%, due February 15, 2029 2,200,000 2,460,260
U.S. GOVERNMENTAL AGENCY, GOVERNMENT SECURITIES AND
GOVERNMENT SPONSORED ENTERPRISES - 38.89% (All rated Aaa)
U.S. GOVERNMENTAL AGENCY - 12.43%
*Government National Mortgage Association,
7.50%, due March 15, 2007 $ 139,269 $ 143,630
*Government National Mortgage Association,
7.50%, due July 15, 2007 253,207 261,135
*Government National Mortgage Association,
8.00%, due October 15, 2007 326,629 339,913
*Government National Mortgage Association,
8.00%, due November 15, 2009 4,157,441 4,322,409
*Government National Mortgage Association,
9.50%, due April 15, 2016 45,215 49,086
*Government National Mortgage Association,
9.50%, due January 15, 2019 109,526 118,738
*Government National Mortgage Association,
8.00%, due May 15, 2022 486,822 508,271
*Government National Mortgage Association,
7.00%, due March 15, 2024 3,883,528 3,949,082
*Government National Mortgage Association,
8.50%, due August 15, 2024 268,973 284,017
*Government National Mortgage Association,
8.00%, due December 15, 2026 4,730,186 4,917,879
Small Business Administration guaranteed development
participation certificates, Series 88-20 G,
9.80% debentures, due July 1, 2008 267,263 297,448
Small Business Administration guaranteed development
participation certificates, Series 88-20 H,
10.05% debentures, due August 1, 2008 306,968 344,875
Small Business Administration guaranteed development
participation certificates, Series 89-20 D,
10.05% debentures, due April 1, 2009 321,373 363,521
15,296,400 15,900,004
U.S. GOVERNMENT SECURITIES - 17.13%
U.S. Treasury Bonds, 8.125%, due May 15, 2021 $ 2,300,000 $ 2,934,294
U.S. Treasury Bonds, 6.125%, due November 15, 2027 2,000,000 2,089,680
U.S. Treasury Notes, 6.25%, due March 31, 1999 3,000,000 3,017,820
U.S. Treasury Notes, 6.375%, due January 15, 2000 1,300,000 1,316,250
U.S. Treasury Notes, 5.875%, due February 15, 2000 4,000,000 4,019,360
U.S. Treasury Notes, 6.00%, due July 31, 2002 750,000 766,465
U.S. Treasury Notes, 11.125%, due August 15, 2003 1,520,000 1,891,685
U.S. Treasury Notes, 7.25%, due August 15, 2004 2,250,000 2,439,495
U.S. Treasury Notes, 8.125%, due May 15, 2021 2,700,000 3,444,606
19,820,000 21,919,655
*GOVERNMENT SPONSORED ENTERPRISES - 9.33%
Federal Home Loan Mortgage Corporation,
7.75%, due April 1, 2008 264,295 269,089
Federal Home Loan Mortgage Corporation,
7.75%, due November 1, 2008 55,470 56,366
Federal Home Loan Mortgage Corporation,
8.00%, due August 1, 2009 51,588 52,855
Federal Home Loan Mortgage Corporation,
8.25%, due October 1, 2010 423,608 436,528
Federal Home Loan Mortgage Corporation,
9.00%, due June 1, 2016 174,689 185,050
Federal Home Loan Mortgage Corporation,
8.00%, due October 1, 2018 227,247 234,962
Federal Home Loan Mortgage Corporation,
7.50%, due February 1, 2021 1,463,230 1,509,264
Federal Home Loan Mortgage Corporation,
9.00%, due January 1, 2024 101,231 106,618
Federal National Mortgage Association,
5.81%, due November 12, 1999 2,600,000 2,604,056
Federal National Mortgage Association,
5.625%, due March 15, 2001 2,000,000 1,995,320
Federal National Mortgage Association,
5.75%, due April 15, 2003 2,000,000 1,997,180
Federal National Mortgage Association,
7.00%, due December 1, 2007 519,084 525,603
Federal National Mortgage Association,
8.25%, due January 1, 2009 235,221 243,858
*GOVERNMENT SPONSORED ENTERPRISES (Continued)
Federal National Mortgage Association,
8.00%, due February 1, 2009 $ 255,566 $ 263,423
Federal National Mortgage Association,
7.50%, due September 1, 2011 373,388 385,172
Federal National Mortgage Association,
8.50%, due July 1, 2013 70,728 73,474
Federal National Mortgage Association,
CMO Series 88-16B, guaranteed REMIC pass-thru,
9.50%, due June 25, 2018 206,056 222,186
Federal National Mortgage Association,
CMO Series 90-52D, REMIC Trust,
9.30%, due May 25, 2019 619,292 629,449
Federal National Mortgage Association,
9.25%, due October 1, 2020 140,875 151,328
11,781,568 11,941,781
TOTAL U.S. GOVERNMENTAL AGENCY, GOVERNMENT SECURITIES
AND GOVERNMENT SPONSORED ENTERPRISES - 38.89% 46,897,968 49,761,440
REPURCHASE AGREEMENT - 0.53%
UMB Bank, n.a.,
4.90%, due June 1, 1998
(Collateralized by U.S. Treasury Notes,
7.875%, due November 15, 1999) 675,000 675,000
TOTAL INVESTMENTS - 100.46% $ 121,798,649 128,527,904
Other assets less liabilities - (0.46%) (588,327)
TOTAL NET ASSETS - 100.00%
(equivalent to $1.58 per share;
81,158,263 shares outstanding) $ 127,939,577
*Mortgage-backed securities.
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENT OF NET ASSETS
May 31, 1998 (unaudited)
PORTFOLIO S
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL MARKET VALUE
RATING DESCRIPTION AMOUNT (NOTE 1-A)
</CAPTION>
<S> <C> <C>
CORPORATE BONDS - 47.86%
BANKS AND FINANCE - 13.50%
Aa3 Associates Corporation North America,
6.75% notes, due July 15, 2001 $ 250,000 $ 255,210
Aa3 Associates Corporation North America,
6.45% senior notes, due October 15, 2001 500,000 506,325
A2 Chrysler Financial Corporation,
6.375% notes, due January 28, 2000 600,000 603,870
A2 Credithrift Financial Corporation,
9.76% medium term notes, due September 18, 1998 150,000 151,612
Aaa First Union-Lehman Brothers Commercial Mortgage,
Series 98-C2, Cl. A-2,
6.56% mortgage, due November 15, 2035 800,000 813,770
Aaa Green Tree Financial Corporation,
CMO Series 92-1 REMIC Trust, Cl. A-3,
6.70% manufactured housing certificates,
due October 15, 2017 719,929 721,275
Baa3 Green Tree Securitized Net Interest Margin Trust,
Series 94 A,
6.90% certificates, due February 15, 2004 219,424 221,604
Baa1 Hellenic Republic,
6.95% notes, due March 4, 2008 375,000 384,859
A2 Sears Roebuck Acceptance Corporation,
7.00% notes, due June 15, 2007 225,000 234,607
Baa1 Southern Investments UK PLC,
6.375% senior notes, due November 15, 2001 300,000 300,897
A2 SunTrust Banks, Incorporated,
6.00% subordinate notes, due February 15, 2026 700,000 689,836
Aa3 Wachovia Capital Trust II,
6.32% capital securities, due January 15, 2027 375,000 368,250
5,214,353 5,252,115
COMMUNICATIONS - 3.27%
Aa1 BellSouth Savings & Employee Stock
Ownership Trust,
9.19% medium term notes, due July 1, 2003 685,988 737,739
Baa2 Tosco Corporation,
7.625% notes, due May 15, 2006 500,000 533,880
1,185,988 1,271,619
DIVERSIFIED - 2.03%
A1 International Business Machines Corporation,
6.22% debentures, due August 1, 2027 $ 400,000 $ 405,988
A2 Lucent Technologies, Incorporated,
6.90% notes, due July 15, 2001 375,000 385,402
775,000 791,390
INDUSTRIALS - 22.37%
Baa3 Airgas, Incorporated,
7.14% medium term notes, due March 8, 2004 550,000 574,739
A3 Cardinal Health, Incorporated,
6.50% notes, due February 15, 2004 650,000 654,687
A3 Cardinal Health, Incorporated,
6.00% notes, due January 15, 2006 850,000 841,840
Baa1 Comdisco, Incorporated,
6.375% shelf issue, due November 30, 2001 1,000,000 1,006,990
A2 Cooper Industries, Incorporated,
7.87% medium term notes, due November 18, 1998 500,000 504,375
A1 Ford Motor Credit Company,
6.125% notes, due April 28, 2003 1,600,000 1,598,784
Baa2 Georgia Pacific Corporation,
9.125% debentures, due July 1, 2022 375,000 406,751
A2 Hydro-Quebec, Series IO,
8.05% debentures, due July 7, 2024 425,000 503,200
A2 John Deere Capital Corporation,
6.30% notes, due June 1, 1999 250,000 250,878
A3 McDonnell Douglas Finance Corporation,
6.50% medium term senior notes, due July 1, 1998 500,000 500,075
Baa2 Oslo Seismic Services, Incorporated,
8.28% 1st. preferred mortgage notes,
due June 1, 2011 517,305 575,057
Baa3 Petroleum Geo-Services A/S,
7.50% notes, due March 31, 2007 500,000 528,695
A2 Philip Morris Companies, Incorporated,
7.20% senior notes, due February 1, 2007 200,000 207,016
A2 Philip Morris Companies, Incorporated,
6.15% puttable reset securities purchases,
due March 15, 2010 250,000 249,845
Baa1 Raytheon Company,
6.45% notes, due August 15, 2002 300,000 303,675
8,467,305 8,706,607
TRANSPORTATION - 2.72%
Baa1 Norfolk Southern Corporation,
6.70% notes, due May 1, 2000 $ 400,000 $ 404,604
Baa1 United Airlines Pass Thru Trusts,
7.27% pass thru certificates,
Series 96-A, Cl. A-1,
due January 30, 2013 411,324 427,143
Baa2 Wisconsin Central Transportation Corporation,
6.625% notes, due April 15, 2008 225,000 224,766
1,036,324 1,056,513
U.S. DOLLAR DENOMINATED CANADIAN SECURITIES - 2.68%
Baa2 Canadian National Railway Company,
7.00% notes, due March 15, 2004 500,000 513,315
Aa3 Ontario Province of Canada,
7.75% bonds, due June 4, 2002 500,000 530,120
1,000,000 1,043,435
UTILITIES - 1.29%
Baa3 United Illuminating Company,
6.20% notes, due January 15, 1999 500,000 500,465
TOTAL CORPORATE BONDS - 47.86% 18,178,970 18,622,144
CONVERTIBLE CORPORATE BOND - 1.29%
California Infrastructure & Economic
Development Bank Special Purpose Trust,
Series 97-1, Cl. A-2, 6.14%,
due March 25, 2002 500,000 502,950
U.S. GOVERNMENTAL AGENCY, GOVERNMENT SECURITIES AND
GOVERNMENT SPONSORED ENTERPRISES - 42.65% (All rated Aaa)
U.S. GOVERNMENTAL AGENCY - 10.50%
*Government National Mortgage Association,
8.00%, due October 15, 2007 23,681 24,644
*Government National Mortgage Association,
8.00%, due November 15, 2009 746,077 775,682
*Government National Mortgage Association,
7.50%, due October 15, 2011 451,855 467,386
U.S. GOVERNMENTAL AGENCY (Continued)
*Government National Mortgage Association,
7.50%, due November 15, 2011 425,966 440,606
*Government National Mortgage Association,
9.50%, due September 15, 2019 18,696 20,268
*Government National Mortgage Association,
8.00%, due December 15, 2022 279,183 291,484
*Government National Mortgage Association,
7.00%, due May 15, 2024 773,921 786,985
*Government National Mortgage Association,
8.50%, due August 15, 2024 482,435 509,417
*Government National Mortgage Association,
8.00%, due November 15, 2026 694,789 722,358
Small Business Administration guaranteed development
participation certificates, Series 88-20 G,
9.80% debentures, due July 1, 2008 44,544 49,575
3,941,147 4,088,405
U.S. GOVERNMENT SECURITIES - 21.47%
U.S. Treasury Bonds, 11.125%, due August 15, 2003 700,000 871,171
U.S. Treasury Notes, 6.25%, due March 31, 1999 2,500,000 2,514,850
U.S. Treasury Notes, 5.375%, due January 15, 2000 500,000 506,250
U.S. Treasury Notes, 5.875%, due February 15, 2000 3,925,000 3,943,997
U.S. Treasury Notes, 7.25%, due August 15, 2004 250,000 271,055
U.S. Treasury Notes, 5.625%, due February 15, 2006 250,000 248,242
8,125,000 8,355,565
*GOVERNMENT SPONSORED ENTERPRISES - 10.68%
Federal Home Loan Mortgage Corporation,
8.25%, due July 1, 2008 37,179 38,100
Federal Home Loan Mortgage Corporation,
8.00%, due January 1, 2012 780,033 805,385
Federal Home Loan Mortgage Corporation,
9.00%, due June 1, 2016 141,095 149,464
*GOVERNMENT SPONSORED ENTERPRISES (Continued)
Federal Home Loan Mortgage Corporation,
8.00%, due May 1, 2017 64,182 66,422
Federal Home Loan Mortgage Corporation,
CMO Series 130-E,
9.00%, due May 15, 2021 180,161 191,040
Federal National Mortgage Association,
5.81%, due November 12, 1999 750,000 751,170
Federal National Mortgage Association,
5.625%, due March 15, 2001 1,500,000 1,496,490
Federal National Mortgage Association,
7.00%, due December 1, 2007 96,401 97,612
Federal National Mortgage Association,
8.25%, due January 1, 2009 24,502 25,402
Federal National Mortgage Association,
7.50%, due September 1, 2011 373,388 385,172
Federal National Mortgage Association,
CMO Series 90-52D, REMIC Trust,
9.30%, due May 25, 2019 67,559 68,667
Federal National Mortgage Association,
9.25%, due October 1, 2020 74,145 79,646
4,088,645 4,154,570
TOTAL U.S. GOVERNMENTAL AGENCY, GOVERNMENT SECURITIES
AND GOVERNMENT SPONSORED ENTERPRISES - 42.65% 16,154,792 16,598,540
TOTAL INVESTMENTS -- 91.80% $ 34,833,762 35,723,634
Other assets less liabilities - 8.20% 3,189,191
TOTAL NET ASSETS - 100.00%
(equivalent to $9.84 per share;
3,952,795 shares outstanding) $ 38,912,825
</TABLE>
*Mortgage-backed securities.
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS
AND LIABILITIES
May 31, 1998 (unaudited)
<TABLE>
<CAPTION>
PORTFOLIO L PORTFOLIO S
</CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities:
Corporate and revenue bonds, at market value
(identified cost $73,633,336 [L], $18,230,950 [S]) $ 75,791,234 $ 18,550,037
U.S. governmental agency, government securities and
government sponsored enterprises, at market value
(identified cost $50,841,816 [L], $16,944,647 [S]) 52,061,670 17,173,597
Repurchase agreement, at cost - approximates market value 675,000 -
Total investments 128,527,904 35,723,634
Cash 2,234,815 2,979,996
Interest receivable 1,950,684 541,044
Receivable for investments sold 4,059,352 984,349
Other assets 5,478 6,275
Total assets 136,778,233 40,235,298
LIABILITIES AND NET ASSETS:
Payable for investments purchased 8,835,059 1,322,473
Other liabilities 3,597 -
Total liabilities 8,838,656 1,322,473
NET ASSETS $ 127,939,577 $ 38,912,825
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 128,639,137 $ 40,578,894
Accumulated undistributed income (loss):
Undistributed net investment income 259,884 -
Undistributed net realized loss on investment transactions (4,337,196) (2,214,106)
Net unrealized appreciation in value of investments 3,377,752 548,037
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 127,939,577 $ 38,912,825
Capital shares outstanding 81,158,263 3,952,795
NET ASSET VALUE PER SHARE $ 1.58 $ 9.84
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Six Months Ended May 31, 1998 (unaudited)
<TABLE>
<CAPTION>
PORTFOLIO L PORTFOLIO S
</CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 4,595,486 $ 1,312,507
Expenses (Note 2):
Management fees 618,682 186,343
Registration fees and expenses 13,420 5,187
Total expenses before voluntary reduction 632,102 191,530
Less: voluntary reduction of management fee - (58,845)
Net expenses 632,102 132,685
Net investment income (Note 1-B) 3,963,384 1,179,822
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain from investment transactions
(excluding maturities of
short-term commercial notes and repurchase agreements):
Proceeds from sales of investments 31,601,073 15,461,060
Cost of investments sold 30,383,263 15,193,754
Net realized gain from investment transactions 1,217,810 267,306
Unrealized appreciation (depreciation) of investments:
Beginning of period 3,277,900 560,226
End of period 3,377,752 548,037
Unrealized appreciation (depreciation) of investments
during the period 99,852 (12,189)
Net gain on investments 1,317,662 255,117
Increase in net assets resulting from operations $ 5,281,046 $ 1,434,939
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
May 31, 1998 Year Ended
(unaudited) November 30, 1997
PORTFOLIO L PORTFOLIO S PORTFOLIO L PORTFOLIO S
</CAPTION>
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 3,963,384 $ 1,179,822 $ 8,567,406 $ 2,498,593
Net realized gain (loss) from investment transactions 1,217,810 267,306 (545,666) (442,862)
Unrealized appreciation (depreciation) of investments
during the period 99,852 (12,189) 876,120 568,506
Net increase in net assets
resulting from operations 5,281,046 1,434,939 8,897,860 2,624,237
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (3,963,384) (1,179,822) (8,567,406) (2,498,593)
Net realized gain from investment transactions - - - -
Total distributions to shareholders (3,963,384) (1,179,822) (8,567,406) (2,498,593)
INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS:*
Proceeds from shares sold 10,111,604 3,059,474 19,321,050 14,582,788
Net asset value of shares issued for
reinvestment of distributions 3,131,421 1,027,279 6,987,475 2,075,147
13,243,025 4,086,753 26,308,525 16,657,935
Cost of shares repurchased (19,094,446) (5,992,535) (36,426,268) (10,395,231)
Net increase (decrease) from capital share transactions (5,851,421) (1,905,782) (10,117,743) 6,262,704
Total increase (decrease) in net assets (4,533,759) (1,650,665) (9,787,289) 6,388,348
NET ASSETS:
Beginning of period 132,473,336 40,563,490 142,260,625 34,175,142
End of period (including undistributed net investment income
of $259,884 [L] and $-- [S], respectively) $ 127,939,577 $ 38,912,825 $ 132,473,336 $ 40,563,490
*Shares issued and repurchased:
Number of shares sold 6,358,584 310,430 12,616,368 1,510,703
Number of shares issued for
reinvestment of distributions 2,061,177 104,420 4,566,377 214,629
8,419,761 414,850 17,182,745 1,725,332
Number of shares repurchased (12,155,036) (609,291) (23,793,390) (1,075,519)
Net increase (decrease) (3,735,275) (194,441) (6,610,645) 649,813
**Distributions to shareholders:
Income dividends per share $ .0477 $ .2954 $ .0976 $ .6185
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 or by utilizing 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.
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. Discounts and premiums on securities are generally not
amortized.
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 period December 1, 1997
to May 31, 1998, when the fee for Portfolio S was 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 period ended May 31, 1998 (excluding
maturities of short-term commercial notes and repurchase agreements) are as
follows:
Portfolio L
Purchases $ 28,431,205
Proceeds from sales 31,601,072
Portfolio S
Purchases $ 11,884,254
Proceeds from sales 15,461,060
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.
BABSON FUNDS
JONES & BABSON DISTRIBUTORS
A member of the Generali Group
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
JB7C-1 7/98
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