BABSON BOND TRUST
Semiannual Report
May 31, 1999
A no-load mutual fund that emphasizes
current income and offers shares in two
portfolios: Portfolio L (invests in
longer term bonds) Portfolio S (invests
in shorter term bonds)
Babson Funds
Jones & Babson Distributors
A Member of the Generali Group
Message to our Shareholders
Absolute returns in the fixed income market for
the first half of the year were a
disappointment, reflecting the rise in the
general level of interest rates since the
beginning of 1999. However, Babson Bond Trust's
performance benefited from its exposure to
corporate bonds, agencies, mortgages and asset-
backed securities which performed well during
this time period relative to the Treasury
sector.
At the outset of 1999, market consensus was that
early in the new year the Federal Reserve would
again ease rates, after having lowered them
three times in quick succession last fall to
diffuse the financial market turmoil. It was
also expected that as a result, interest rates
across the yield curve would drift downward.
Such rate expectations were based on the general
belief that the U.S. economy would finally start
to slow in reaction to anemic global growth. But
in fact the U.S. economy continued to steam
ahead, showing few signs, if any, of losing
strength. By late spring the Federal Reserve
indicated that it was prepared to raise short-
term rates as a pre-emptive measure to thwart
the risk of an increase in the level of
inflation. Though the Fed acknowledges that
there are no signs of gathering inflation, it is
worried that the imbalance between strong demand
outpacing productivity gains coupled with a
dwindling labor pool will lead to wage
pressures. This in turn could threaten the
viability of the current economic expansion. The
net effect of this was to send interest rates up
a full percentage point since the end of last
year.
Normalcy returned to the credit markets after
the financial market turmoil dissipated during
the fourth quarter of 1998. Improved liquidity
for spread sector securities, such as
corporates, mortgages and asset-backs helped to
fuel record corporate issuance and allowed
quality spreads to retrace a majority of the
widening incurred last summer and fall. The
compression of spreads across all spread product
sectors helped to partially offset price
depreciation due to the rise in interest rates.
For the six and twelve month periods ending May
31, 1999, total investment returns (price change
and reinvested distributions) for Portfolio S
were 0.40% and 4.08%, respectively. Dividends
for the previous twelve months amounted to
$0.567 per share, resulting in an income yield
of 5.76% based on a beginning net asset value of
$9.84. During the same six and twelve month
periods, total investment returns for Portfolio
L were -0.33% and 3.23%, respectively. Dividends
for the previous twelve months were $0.091 per
share, producing an income yield of 5.75% based
on a beginning net asset value of $1.58.
Both Portfolio S and L maintain their
Morningstar four-star rating.1 Portfolio S is
ranked in the top decile of the Lipper Short-
Intermediate Investment Grade Bond fund grouping
for the most recent three-year period.2
Portfolio L remains ranked in the top half of
the Lipper A-Rated Bond Fund category for the
most recent one-year period.
Average annual compounded total returns for
Portfolio S for one, five and ten year periods
as of June 30, 1999, were 3.22%, 6.61% and
7.16%, respectively. For Portfolio L, total
returns for one, five and ten year periods were
1.88%, 6.86% and 7.51%, 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
The U.S. economy, now in its ninth year of
business expansion, continues to have good
momentum, though the pace appears to be slowing
from the levels experienced in late 1998 and for
the first quarter of 1999. Real economic growth
has averaged 4% for the last three years, but
should decelerate toward the 3% range, primarily
due to an expected slowdown in consumption. Both
the rising stock market's wealth effect and the
lowest interest rates in over thirty years have
been major factors in boosting consumer demand.
With interest rates up substantially over the
past six months, mortgage refinancing activity
has fallen. This, coupled with a slowing in job
creation and a less robust stock market, should
retard spending.
The Federal Reserve recently signaled that, even
though today's level of inflation is not a
problem, the imbalance between the strong demand
for labor and a dwindling labor pool warrant pre-
emptive action on their part to minimize the
need for more drastic measures in the future to
stem potential wage pressures. At this time, a
modest hike in the short-term rates the Fed
controls is expected. If business activity does
not converge to the Fed's 3% estimate for the
economy's non-inflationary growth potential then
further rate hikes should be anticipated.
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.
Our bias toward shorter maturity corporates,
initiated during the fourth quarter of 1998,
remained in place over the past six months.
Breakeven analysis using a one year time horizon
still favored shorter maturity (i.e., 2-year)
corporate bonds over both intermediate (i.e., 5-
year) and long maturity (i.e., 30-year)
securities. In light of this, and partially
reflective of our increased concerns over credit
trends, we sold holdings of Tosco and Dana Corp.
maturing in 2006 and 2008, respectively.
Other corporate activity included selling
positions in the GMAC 2000 notes and the Merrill
Lynch 2001 notes at much narrower spreads to
Treasuries than when initially purchased during
the fourth quarter. In replacing these two
issues, we purchased JB Hunt Transportation and
Service Corp. International, both maturing in
2000. While these two issues are lower rated
than the GMAC and Merrill Lynch notes that were
sold, both are solid triple-B credits that carry
very attractive yields.
Activity also included adding to residential
mortgage backed securities sector exposure by
purchasing Freddie Mac (FHLMC) 30-year pass-
throughs and increasing exposure to triple-A
rated commercial mortgage backed securities
(CMBS). Nationwide, real estate trends and
property level fundamentals are very solid,
thanks to continued strength in the domestic
economy. In our view, yields on CMBS securities
are extremely attractive versus other high
quality fixed income sectors. Notably, CMBS has
been one of the best performing sectors year to
date. We continue to look for opportunities in
well-structured and diversified deals
(geographically and loan type) from solid
originators, which trade well in the secondary
market.
Both Portfolio S and L have an average quality
rating of low AA. Currently, the average
maturity is 5 years for Portfolio S and 8.9
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 3.7 and 5 years,
respectively.
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
1 Morningstar proprietary ratings reflect three year
risk-adjusted performance as of May 31, 1999.
2 Lipper Short-Intermediate Investment Grade
Bond Fund ranking for Portfolio S for one, three, five and
ten year periods ended May 31, 1999, were 48 of
101, 7 of 76, 6 of 53, and 4 of 11, respectively.
Lipper A-Rated Bond Fund ranking for
Portfolio L for one, three, five and ten year
periods ended May 31, 1999, were 60 of 158,
58 of 130, 46 of 87, and 22 of 42, respectively.
CHART
Quality Ratings
Portfolio L Portfolio S
Aaa 47.8% 47.6%
Aa 6.4 8.0
A 20.2 19.0
Lower 25.6 25.4
Total 100.0% 100.0%
Source: Moody's
Schedule of Investments
May 31, 1999 (unaudited)
Portfolio L
<TABLE>
<CAPTION>
Description Principal Amount Market Value
</CAPTION>
<S> <C> <C>
CORPORATE BONDS - 58.69%
BANKS AND FINANCE - 20.73%
American Stores Company,
8.00% debentures, due June 1, 2026 $ $ 1,650,000 $ 1,778,172
Associates Corporation North America,
5.80% senior notes, due April 20, 2004 4,500,000 4,380,975
Comed Transitional Funding Trust,
Series 98-1, Cl. A-6,
5.63% notes, due June 25, 2009 1,250,000 1,180,850
DLJ Commercial Mortgage Corporation,
Series 98-CG1, Cl. A1A,
6.11% commercial mortgage pass-thru
certificates, due December 10, 2007 2,360,074 2,322,183
Ford Capital B V,
10.125% notes, due November 15, 2000 2,500,000 2,640,175
Green Tree Financial Corporation,
CMO Series 92-1 REMIC Trust, Cl. A-3,
6.70% manufactured housing certificates,
due October 15, 2017 481,915 481,428
Green Tree Securitized Net Interest Margin Trust,
Series 95A,
7.25% certificates, due July 15, 2005 527,568 516,027
Hellenic Republic,
6.95% notes, due March 4, 2008 1,300,000 1,317,030
JP Morgan Commercial Mortgage Financial Corporation,
Cl. A2,
6.507% mortgage pass-thru certificates
99-C7, due October 15, 2035 1,500,000 1,474,922
Nomura Asset Securities Corporation, Cl. A-1B,
6.59% commercial mortgage pass-thru
certificates 98-D6,
due March 17, 2028 3,000,000 2,978,280
Republic of Chile,
6.875% bonds, due April 28, 2009 750,000 709,035
Southern Investments UK PLC,
6.375% senior notes, due November 15, 2001 1,300,000 1,289,899
SunTrust Banks, Incorporated,
6.00% subordinate notes,
due February 15, 2026 3,000,000 2,876,460
Wachovia Capital Trust II,
6.062% capital securities,
due January 15, 2027 1,300,000 1,265,498
25,419,557 25,210,934
COMMUNICATIONS - 7.99%
A T & T Capital Corporation,
6.875% medium term notes,
due January 16, 2001 1,265,000 1,268,656
BellSouth Savings & Employee Stock Ownership Trust,
9.19% medium term notes,
due July 1, 2003 823,452 882,420
TCI Communications, Incorporated,
7.25% senior notes,
due June 15, 1999 2,400,000 2,401,680
Tele Communications, Incorporated,
8.75% debentures,
due February 15, 2023 1,000,000 1,047,710
Time Warner Entertainment Company LP,
8.375% senior debentures,
due March 15, 2023 1,000,000 1,116,030
Time Warner, Incorporated,
9.15% debentures,
due February 1, 2023 1,350,000 1,614,384
WorldCom, Incorporated GA,
7.75% senior notes,
due April 1, 2007 1,300,000 1,381,770
9,138,452 9,712,650
DIVERSIFIED - 2.63%
International Business Machines Corporation,
6.22% debentures,
due August 2, 2027 1,500,000 1,469,805
Lucent Technologies, Incorporated,
6.90% notes,
due July 15, 2001 1,700,000 1,732,589
3,200,000 3,202,394
INDUSTRIALS - 16.67%
Airgas, Incorporated,
7.14% medium term notes,
due March 8, 2004 1,650,000 1,669,008
Cardinal Health, Incorporated,
6.00% notes,
due January 15, 2006 1,835,000 1,740,589
Comdisco, Incorporated,
6.375% shelf issue,
due November 30, 2001 3,675,000 3,673,530
Georgia-Pacific Corporation,
9.625% debentures,
due March 15, 2022 1,500,000 1,621,410
Hydro Quebec, Series IO,
8.05% debentures,
due July 7, 2024 2,900,000 3,228,251
John Deere Capital Corporation,
6.30% notes,
due June 1, 1999 1,000,000 1,000,090
Oslo Seismic Services, Incorporated,
8.28% 1st. preferred mortgage notes,
due June 1, 2011 1,982,389 2,037,520
Petroleum Geo-Services A/S,
7.50% notes,
due March 31, 2007 1,500,000 1,530,660
Philip Morris Companies, Incorporated,
7.20% senior notes,
due February 1, 2007 1,000,000 1,007,700
Philip Morris Companies, Incorporated,
6.15% puttable reset securities purchases,
due March 15, 2010 750,000 753,315
Raytheon Company,
6.45% notes,
due August 15, 2002 2,000,000 2,004,860
19,792,389 20,266,933
TRANSPORTATION - 3.50%
CSX Corporation,
9.50% notes,
due August 1, 2000 680,000 705,425
JB Hunt Transport Services, Incorporated,
6.25% medium term senior notes,
due November 17, 2000 1,785,000 1,801,618
United Airlines Pass-Thru Trusts,
7.27% pass-thru certificates,
Series 96-A, Cl. A-1,
due January 30, 2013 1,811,249 1,746,244
4,276,249 4,253,287
U.S. DOLLAR DENOMINATED CANADIAN SECURITIES - 4.03%
Canadian National Railway Company,
7.00% notes,
due March 15, 2004 1,950,000 1,963,143
Newfoundland Province of Canada,
7.32% debentures,
due October 13, 2023 1,950,000 2,012,965
Ontario Province of Canada,
5.50% bonds,
due October 1, 2008 1,000,000 930,320
4,900,000 4,906,428
UTILITIES - 3.14%
Consolidated Edison Company NY, Incorporated,
6.15% debentures,
due July 1, 2008 2,000,000 1,938,860
Illinois Power Special Purpose Trust,
Cl. A-6,
5.54% transitional funding trust notes 98-1,
due June 25, 2009 2,000,000 1,882,500
4,000,000 3,821,360
TOTAL CORPORATE BONDS - 58.69% 70,726,647 71,373,986
CONVERTIBLE CORPORATE BOND - 2.05%
California Infrastructure & Economic Development
Bank Special Purpose Trust,
PG & E, Series 97-1 certificates,
Cl. A-7,
6.42%, due September 25, 2008 2,500,000 2,499,219
REVENUE BOND - 1.92%
New Jersey Economic Development Authority
State Pension Funding Revenue,
Series A,
7.425%, due February 15, 2029 2,200,000 2,335,146
U.S. GOVERNMENTAL AGENCY, U.S. GOVERNMENT
SECURITIES AND GOVERNMENT SPONSORED ENTERPRISES - 33.43%
U.S. GOVERNMENTAL AGENCY - 10.03%
Government National Mortgage Association,
7.50%, due March 15, 2007 101,488 103,866
Government National Mortgage Association,
7.50%, due July 15, 2007 192,523 197,033
Government National Mortgage Association,
8.00%, due October 15, 2007 251,828 261,820
Government National Mortgage Association,
8.00%, due November 15, 2009 3,066,044 3,193,468
Government National Mortgage Association,
9.50%, due April 15, 2016 24,327 26,228
Government National Mortgage Association,
9.50%, due January 15, 2019 80,902 87,223
Government National Mortgage Association,
8.00%, due May 15, 2022 297,323 309,121
Government National Mortgage Association,
7.00%, due March 15, 2024 3,322,107 3,327,290
Government National Mortgage Association,
8.00%, due December 15, 2026 4,056,500 4,217,462
Small Business Administration guaranteed
development participation certificates,
Series 88-20 G,
9.80% debentures, due July 1, 2008 147,657 159,968
Small Business Administration guaranteed
development participation certificates,
Series 88-20 H,
10.05% debentures, due August 1, 2008 133,520 143,153
Small Business Administration guaranteed
development participation certificates,
Series 89-20 D,
10.05% debentures, due April 1, 2009 152,849 165,222
11,827,068 12,191,854
U.S. GOVERNMENT SECURITIES - 9.23%
U.S. Treasury Notes, 11.125%, due August 15,2003 1,520,000 1,820,443
U.S. Treasury Notes, 7.25%, due August 15, 2004 750,000 800,393
U.S. Treasury Notes, 6.50%, due October 15, 2006 1,065,000 1,107,930
U.S. Treasury Notes, 7.875%, due February 15, 2021 2,100,000 2,537,052
U.S. Treasury Notes, 8.125%, due May 15, 2021 4,000,000 4,956,880
9,435,000 11,222,698
*GOVERNMENT SPONSORED ENTERPRISES - 14.17%
Federal Home Loan Mortgage Corporation,
7.75%, due April 1, 2008 175,179 182,240
Federal Home Loan Mortgage Corporation,
7.75%, due November 1, 2008 37,180 38,679
Federal Home Loan Mortgage Corporation,
8.00%, due August 1, 2009 34,886 36,585
Federal Home Loan Mortgage Corporation,
8.25%, due October 1, 2010 311,639 328,680
Federal Home Loan Mortgage Corporation,
9.00%, due June 1, 2016 107,150 114,416
Federal Home Loan Mortgage Corporation,
8.00%, due October 1, 2018 151,160 158,529
Federal Home Loan Mortgage Corporation,
9.00%, due October 1, 2018 76,723 81,396
Federal Home Loan Mortgage Corporation,
7.50%, due February 1, 2021 1,223,174 1,250,303
Federal Home Loan Mortgage Corporation,
6.00%, due November 1, 2028 6,407,877 6,103,503
Federal National Mortgage Association,
4.625%, due March 15, 2001 750,000 732,293
Federal National Mortgage Association,
5.625%, due March 15, 2001 3,385,000 3,383,815
Federal National Mortgage Association,
7.00%, due December 1, 2007 392,318 392,808
Federal National Mortgage Association,
8.25%, due January 1, 2009 165,735 173,089
Federal National Mortgage Association,
5.25%, due January 15, 2009 2,500,000 2,321,050
Federal National Mortgage Association,
8.00%, due February 1, 2009 179,255 186,144
Federal National Mortgage Association,
7.50%, due September 1, 2011 225,372 231,570
Federal National Mortgage Association,
8.50%, due July 1, 2013 49,331 51,829
Federal National Mortgage Association,
CMO Series 88-16B,
guaranteed REMIC pass-thru,
9.50%, due June 25, 2018 135,635 143,369
Federal National Mortgage Association,
9.25%, due October 1, 2020 93,698 99,730
Federal National Mortgage Association,
6.50%, due March 1, 2029 1,245,637 1,218,383
17,646,949 17,228,411
TOTAL U.S. GOVERNMENTAL AGENCY, U.S.
GOVERNMENT SECURITIES AND GOVERNMENT SPONSORED
ENTERPRISES - 33.43% 38,909,017 40,642,963
REPURCHASE AGREEMENT - 6.58%
UMB Bank, n.a., 4.22%, due June 1, 1999
(Collateralized by Federal National
Mortgage Association, due June 17, 1999
with a value of $ 8,160,181) $ 8,000,000 $ 8,000,000
TOTAL INVESTMENTS - 102.67% $ 122,335,664 124,851,314
Other assets less liabilities - (2.67%) (3,248,023)
TOTAL NET ASSETS - 100.00% $ 121,603,291
</TABLE>
The identified cost of investments owned at
May 31, 1999, was the same for federal income
tax and book purposes.
Net unrealized depreciation for federal income
tax purposes was $1,401,689, which is comprised
of unrealized appreciation
of $1,176,968 and unrealized depreciation of
$2,578,657. *Mortgage-backed securities
See accompanying Notes to Financial Statements.
Schedule of Investments
May 31, 1999 (unaudited)
Portfolio S
<TABLE>
<CAPTION>
Description Principal Amount Market Value
</CAPTION>
<S> <C> <C>
CORPORATE BONDS - 57.97%
BANKS AND FINANCE - 16.85%
Associates Corporation North America,
5.80% senior notes,
due April 20, 2004 $ 750,000 730,163
Chrysler Financial Corporation,
6.375% notes,
due January 28, 2000 600,000 603,042
Comed Transitional Funding Trust,
Series 98-1, Cl. A-6,
5.63% notes, due June 25, 2009 1,100,000 1,039,148
DLJ Commercial Mortgage Corporation,
Series 98-CG1, Cl. A1A,
6.11% commercial mortgage pass-thru
certificates,
due December 10, 2007 755,224 743,099
Green Tree Financial Corporation,
CMO Series 92-1 REMIC Trust, Cl. A-3,
6.70% manufactured housing certificates,
due October 15, 2017 131,432 131,298
Green Tree Securitized Net Interest Margin
Trust, Series 94A,
6.90% certificates, due February 15, 2004 126,284 126,204
Hellenic Republic,
6.95% notes, due March 4, 2008 375,000 379,913
JP Morgan Commercial Mortgage Financial Corporation,
Cl. A2,
6.507% mortgage pass-thru certificates 99-C7,
due October 15, 2035 250,000 245,820
Nomura Asset Securities Corporation,
Cl. A-1B,
6.59% commercial mortgage pass-thru
certificates 98-D6,
due March 17, 2028 800,000 794,208
Republic of Chile,
6.875% bonds,
due April 28, 2009 200,000 189,076
Southern Investments UK PLC,
6.375% senior notes,
due November 15, 2001 300,000 297,669
SunTrust Banks, Incorporated,
6.00% subordinate notes,
due February 15, 2026 700,000 671,174
Wachovia Capital Trust II,
6.062% capital securities,
due January 15, 2027 375,000 365,048
6,462,940 6,315,862
COMMUNICATIONS - 7.76%
A T & T Capital Corporation,
6.875% medium term notes,
due January 16, 2001 350,000 351,011
BellSouth Savings & Employee Stock Ownership Trust,
9.19% medium term notes,
due July 1, 2003 597,098 639,856
TCI Communications, Incorporated,
7.25% senior notes,
due June 15, 1999 1,000,000 1,000,700
Time Warner Entertainment Company LP,
8.375% senior debentures,
due March 15, 2023 300,000 334,809
WorldCom, Incorporated GA,
7.75% senior notes,
due April 1, 2007 550,000 584,595
2,797,098 2,910,971
DIVERSIFIED - 2.07%
International Business Machines Corporation,
6.22% debentures,
due August 1, 2027 400,000 391,948
Lucent Technologies, Incorporated,
6.90% notes,
due July 15, 2001 375,000 382,189
775,000 774,137
INDUSTRIALS - 19.52%
Airgas, Incorporated,
7.14% medium term notes,
due March 8, 2004 550,000 556,336
Cardinal Health, Incorporated,
6.25% notes, due July 15, 2008 650,000 618,670
Comdisco, Incorporated,
6.375% shelf issue,
due November 30, 2001 1,000,000 999,600
Ford Motor Credit Company,
5.75% notes,
due February 23, 2004 1,600,000 1,553,888
Georgia Pacific Corporation,
9.125% debentures,
due July 1, 2022 375,000 395,175
Hydro-Quebec, Series IO,
8.05% debentures,
due July 7, 2024 425,000 473,106
John Deere Capital Corporation,
6.30% notes, due June 1, 1999 250,000 250,023
Oslo Seismic Services, Incorporated,
8.28% 1st. preferred mortgage notes,
due June 1, 2011 495,597 509,380
Petroleum Geo-Services A/S,
7.50% notes,
due March 31, 2007 500,000 510,220
Philip Morris Companies, Incorporated,
7.20% senior notes,
due February 1, 2007 200,000 201,540
Philip Morris Companies, Incorporated,
6.15% puttable reset securities purchases,
due March 15, 2010 250,000 251,105
Raytheon Company,
6.45% notes,
due August 15, 2002 500,000 501,215
Service Corporation International,
6.375% notes,
due October 1, 2000 500,000 498,230
7,295,597 7,318,488
TRANSPORTATION - 3.62%
Burlington Northern Santa Fe Corporation,
6.05% medium term notes,
due March 15, 2001 400,000 398,888
JB Hunt Transport Services, Incorporated,
6.25% medium term senior notes,
due November 17, 2000 350,000 353,258
United Airlines Pass-Thru Trusts,
7.27% pass-thru certificates,
Series 96-A, Cl. A-1,
due January 30, 2013 399,886 385,534
Wisconsin Central Transportation Corporation,
6.625% notes,
due April 15, 2008 225,000 218,436
1,374,886 1,356,116
U.S. DOLLAR DENOMINATED CANADIAN SECURITIES - 4.44%
Canadian National Railway Company,
7.00% notes,
due March 15, 2004 500,000 503,370
Ontario Province of Canada,
5.50% bonds,
due October 1, 2008 1,250,000 1,162,900
1,750,000 1,666,270
UTILITIES - 3.71%
Consolidated Edison Company NY, Incorporated,
6.15% debentures,
due July 1, 2008 400,000 387,772
Long Island Lighting Company,
7.30% debentures,
due July 15, 1999 1,000,000 1,002,490
1,400,000 1,390,262
TOTAL CORPORATE BONDS - 57.97% 21,855,521 21,732,106
CONVERTIBLE CORPORATE BONDS - 1.44%
California Infrastructure & Economic
Development Bank Special Purpose Trust,
Series 97-1, Cl. A-2,
6.14%, due March 25, 2002 385,223 387,207
California Infrastructure & Economic
Development Bank Special Purpose Trust,
PG & E, Series 97-1 certificates, Cl. A-7,
6.42%, due September 25, 2008 150,000 150,795
TOTAL CONVERTIBLE CORPORATE BONDS - 1.44% 535,223 538,002
U.S. GOVERNMENTAL AGENCY, U.S. GOVERNMENT
SECURITIES AND GOVERNMENT SPONSORED
ENTERPRISES - 36.13%
U.S. GOVERNMENTAL AGENCY - 6.87%
Government National Mortgage Association,
8.00%, due October 15, 2007 18,258 18,982
Government National Mortgage Association,
8.00%, due November 15, 2009 550,219 573,087
Government National Mortgage Association,
7.50%, due October 15, 2011 323,229 333,935
Government National Mortgage Association,
7.50%, due November 15, 2011 354,894 366,647
Government National Mortgage Association,
9.50%, due September 15, 2019 15,075 16,252
Government National Mortgage Association,
8.00%, due December 15, 2022 194,163 201,867
Government National Mortgage Association,
7.00%, due May 15, 2024 625,262 626,238
Government National Mortgage Association,
8.00%, due November 15, 2026 396,804 412,549
Small Business Administration guaranteed
development participation certificates,
Series 88-20 G,
9.80% debentures, due July 1, 2008 24,609 26,661
2,502,513 2,576,218
U.S. GOVERNMENT SECURITIES - 5.97%
U.S. Treasury Bonds, 11.125%, due August 15, 2003 700,000 838,362
U.S. Treasury Notes, 7.25%, due August 15, 2004 250,000 266,798
U.S. Treasury Notes, 5.625%, due February 15, 2006 250,000 247,695
U.S. Treasury Notes, 6.50%, due October 15, 2006 850,000 884,264
2,050,000 2,237,119
*GOVERNMENT SPONSORED ENTERPRISES - 23.29%
Federal Home Loan Mortgage Corporation,
8.25%, due July 1, 2008 21,664 22,278
Federal Home Loan Mortgage Corporation,
8.00%, due January 1, 2012 488,599 505,240
Federal Home Loan Mortgage Corporation,
9.00%, due June 1, 2016 86,545 92,413
Federal Home Loan Mortgage Corporation,
8.00%, due May 1, 2017 62,659 65,713
Federal Home Loan Mortgage Corporation,
CMO Series 130-E,
9.00%, due May 15, 2021 112,935 117,276
Federal Home Loan Mortgage Corporation,
6.00%, due November 1, 2028 1,971,654 1,878,001
Federal National Mortgage Association,
5.625%, due March 15, 2001 4,425,000 4,423,451
Federal National Mortgage Association,
7.00%, due December 1, 2007 72,858 72,950
Federal National Mortgage Association,
5.25%, due January 1, 2009 300,000 278,526
Federal National Mortgage Association,
CMO Series 90-52D, REMIC Trust,
8.25%, due January 1, 2009 17,264 18,030
Federal National Mortgage Association,
7.50%, due September 1, 2011 225,372 231,570
Federal National Mortgage Association,
9.25%, due October 1, 2020 49,314 52,490
Federal National Mortgage Association,
6.50%, due March 1, 2029 996,510 974,707
8,830,374 8,732,645
TOTAL U.S. GOVERNMENTAL AGENCY, U.S.
GOVERNMENT SECURITIES AND GOVERNMENT SPONSORED
ENTERPRISES - 36.13% 13,382,887 13,545,982
REPURCHASE AGREEMENT - 2.13%
UMB Bank, n.a., 4.22%, due June 1, 1999
(Collateralized by Federal National Mortgage
Association, due June 17, 1999 with a value
of $812,827) 800,000 800,000
TOTAL INVESTMENTS - 97.67% $ 36,573,631 36,616,090
Other assets less liabilities - 2.33% 873,370
TOTAL NET ASSETS - 100.00% $ 37,489,460
</TABLE>
The identified cost of investments owned at May
31, 1999, was the same for federal income tax
and book purposes.
Net unrealized depreciation for federal income
tax purposes was $395,080, which is comprised
of unrealized appreciation of $178,527 and
unrealized depreciation of $573,607. *Mortgage-
backed securities
See accompanying Notes to Financial Statements.
Statements of Assets and Liabilities
May 31, 1999 (unaudited)
<TABLE>
<CAPTION>
Portfolio L Portfolio S
</CAPTION>
<S> <C> <C>
ASSETS:
Investments, at value
(identified cost $126,253,003 [L],
$37,011,170 [S]) $ 124,851,314 $ 36,616,090
Cash - 969,200
Receivables:
Interest 1,797,414 556,294
Investments sold 75,519 8,325
Fund shares sold 18,222 -
Other 36,966 5,008
Total assets 126,779,435 38,154,917
LIABILITIES AND NET ASSETS:
Cash overdraft 1,470,744 -
Payables:
Management fees 36,684 7,669
Investments purchased 3,137,050 491,882
Fund share redemptions 10,000 -
Dividends 521,666 165,906
Total liabilities 5,176,144 665,457
NET ASSETS $ 121,603,291 $ 37,489,460
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 125,588,990 $ 39,854,288
Undistributed net investment income 259,884 -
Net realized loss from investment transactions (2,843,894) (1,969,748)
Net unrealized depreciation of investments (1,401,689) (395,080)
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 121,603,291 $ 37,489,460
Capital shares outstanding 79,202,917 3,878,151
NET ASSET VALUE PER SHARE $ 1.54 $ 9.67
</TABLE>
See accompanying Notes to Financial Statements.
Statements of Operations
For the six months ended May 31, 1999 (unaudited)
<TABLE>
<CAPTION>
Portfolio L Portfolio S
</CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 4,076,454 $ 1,200,778
Other 75,519 8,325
4,151,973 1,209,103
EXPENSES:
Management fees 588,345 178,363
Registration fees 12,182 4,067
Total expenses before voluntary
reduction of management fees 600,527 182,430
Less: voluntary reduction of management fees - (56,325)
Net expenses 600,527 126,105
Net investment income 3,551,446 1,082,998
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions 560,782 174,523
Net unrealized depreciation on investments
during the period (5,073,623) (1,110,692)
Net loss on investments (4,512,841) (936,169)
Net increase (decrease) in net
assets resulting from operations $ (961,395) $ 146,829
</TABLE>
See accompanying Notes to Financial Statements.
Statements of Changes in Net Assets
For the six months ended May 31, 1999 (unaudited)
and the year ended November 30, 1998
<TABLE>
<CAPTION>
1999 1998
Portfolio L Portfolio S Portfolio L Portfolio S
</CAPTION>
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 3,551,446 $ 1,082,998 $ 7,650,015 $ 2,296,520
Net realized gain from investment transactions 560,782 174,523 2,150,330 337,141
Net unrealized appreciation (depreciation) on investments
during the period (5,073,623) (1,110,692) 394,034 155,386
Net increase (decrease) in net assets
resulting from operations (961,395) 146,829 10,194,379 2,789,047
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (3,551,446) (1,082,998) (7,650,015) (2,296,520)
Total distributions to shareholders (3,551,446) (1,082,998) (7,650,015) (2,296,520)
CAPITAL SHARE TRANSACTIONS:*
Shares sold 19,795,515 5,710,583 23,230,596 6,842,453
Reinvested distributions 2,461,875 787,743 6,272,538 2,007,604
22,257,390 6,498,326 29,503,134 8,850,057
Shares repurchased (24,327,175) (6,530,365) (36,334,917) (11,448,406)
Net decrease from capital share transactions (2,069,785) (32,039) (6,831,783) (2,598,349)
Total decrease in net assets (6,582,626) (968,208) (4,287,419) (2,105,822)
NET ASSETS:
Beginning of period 128,185,917 38,457,668 132,473,336 40,563,490
End of period $ 121,603,291 $ 37,489,460 $ 128,185,917 $ 38,457,668
Undistributed net investment income at end of period $ 259,884 $ - $ 259,884 $ -
*Fund share transactions:
Shares sold 12,507,635 579,552 14,688,286 692,276
Reinvested distributions 1,565,051 80,022 3,972,991 203,475
14,072,686 659,574 18,661,277 895,751
Shares repurchased (15,397,652) (663,005) (23,026,932) (1,161,405)
Net decrease in fund shares (1,324,966) (3,431) (4,365,655) (265,654)
</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 shortterm 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 TrustOs Board of Trustees.
B. Federal and State Taxes - The Trust intends
to distribute
to shareholders all taxable income of each
Series and otherwise comply with the Internal
Revenue Code applicable to regulated investment
companies. Therefore, no provision for federal
or state tax is required.
C. Security Transactions and Investment Income -
Security transactions are accounted for on the
date the securities are purchased or sold.
Interest income is recognized on the accrual
basis. Realized gains and losses from investment
transactions and unrealized appreciation and
depreciation of investments are reported on the
identified cost basis. Market discounts on debt
securities are accreted; premiums are not
amortized.
D. Distributions to Shareholders - Distributions
to shareholders are recorded on the ex-dividend
date. Distributions are
determined in accordance with income tax
regulations which may differ from generally
accepted accounting principles.
E. Use of Estimates - The preparation of
financial statements in conformity with
generally accepted accounting principles
requires management to make estimates and
assumptions that affect the amounts reported in
the financial statements and accompanying notes.
Actual results could differ from such estimates.
2. MANAGEMENT FEES:
Management fees for services which include
administration, trusteesO and agentsO
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 TrustOs
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 from December 1, 1991
to May 31, 1999, which the fee for Portfolio S
has been
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 six months ended
May 31, 1999 (excluding maturities of short-term
commercial notes and repurchase agreements) are
as follows:
Portfolio L
Purchases $ 40,577,256
Proceeds from sales 38,068,067
Portfolio S
Purchases $ 17,727,189
Proceeds from sales 18,424,952
Financial Highlights
Portfolio L
Condensed data for a share of
capital stock outstanding
throughout each period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED Years Ended
November 30,
MAY 31, 1999
(UNAUDITED) 1998 1997 1996 1995 1994
</CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of period $ 1.59 $ 1.56 $ 1.55 $ 1.58 $ 1.47 $ 1.67
Income (loss) from investment operations:
Net investment income .040 .094 .098 .107 .108 .108
Net gains (losses) on securities
(both realized and unrealized) (.045) .030 .010 (.030) .110 (.149)
Total from investment operations (.005) .124 .108 .077 .218 (.041)
Less distributions:
Dividends from net investment income (.045) (.094) (.098) (.107) (.108) (.108)
Distributions from capital gains - - - - - (.051)
Total distributions (.045) (.094) (.098) (.107) (.108) (.159)
Net asset value, end of period $ 1.54 $ 1.59 $ 1.56 $ 1.55 $ 1.58 $ 1.47
Total return* (.33%) 8.13% 7.26% 5.17% 15.28% (2.71%)
Ratios/Supplemental Data
Net assets, end of period (in millions) $ 122 $ 128 $ 132 $ 142 $ 161 $ 140
Ratio of expenses to average net assets** .97% .97% .97% .97% .97% .97%
Ratio of net investment income
to average net assets** 5.74% 5.93% 6.38% 6.96% 7.06% 6.95%
Portfolio turnover rate 30% 43% 59% 61% 50% 40%
</TABLE>
*Total return not annualized for periods less
than one full year
**Annualized for periods less than one full year
See accompanying Notes to Financial Statements.
Financial Highlights
Portfolio S
Condensed data for a share of capital stock
outstanding throughout each period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED Years Ended
November 30,
MAY 31, 1999
(UNAUDITED) 1998 1997 1996 1995 1994
</CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of period $ 9.91 $ 9.78 $ 9.77 $ 9.90 $ 9.43 $ 10.48
Income (loss) from investment operations:
Net investment income .280 .582 .618 .692 .726 .694
Net gains (losses) on securities
(both realized and unrealized) (.240) .130 .010 (.130) .470 (.899)
Total from investment operations .040 .712 .628 .562 1.196 (.205)
Less distributions:
Dividends from net investment income (.280) (.582) (.618) (.692) (.726) (.694)
Distributions from capital gains - - - - - (.151)
Total distributions (.280) (.582) (.618) (.692) (.726) (.845)
Net asset value, end of period $ 9.67 $ 9.91 $ 9.78 $ 9.77 $ 9.90 $ 9.43
Total return* .40% 7.47% 6.70% 5.96% 13.10% (2.06%)
Ratios/Supplemental Data
Net assets, end of period (in millions) $ 37 $ 38 $ 41 $ 34 $ 33 $ 30
Ratio of expenses to average net assets** .67% .67% .67% .66% .67% .67%
Ratio of net investment income
to average net assets** 5.77% 5.90% 6.42% 7.10% 7.47% 7.02%
Ratio of expenses to average net assets before
voluntary reduction of management fee** .97% .97% .97% .96% .97% .97%
Portfolio turnover rate 47% 60% 65% 48% 57% 42%
</TABLE>
*Total return not annualized for periods less
than one full year
**Annualized for periods less than one full year
See accompanying Notes to Financial Statements.
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 Trust. Shares of this Trust and of
the other Babson Funds are offered only by the Prospectus,
a copy of which may be obtained from Jones & Babson, Inc.
BABSON FUNDS
EQUITIES
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Growth Fund
Shadow Stock Fund
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FIXED INCOME
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Babson Funds
Jones & Babson
Distributors
A Member of the
Generali Group
Jones & Babson Distributors
A Member of the Generali Group
P.O. BOX 419757, KANSAS CITY MO 64141-6757
1-800-4-babson (1-800-422-2766)
www.babsonfunds.com
JB7C-1 (7/99) 508504
