Babson
Bond Trust
Annual Report
November 30, 1998
MESSAGE
To Our Shareholders
Babson Bond Trust shareholders came through last fallOs turmoil in the global
financial markets relatively unscathed. Shareholders of the Trust benefited
from
its high credit quality and intermediate-term maturity structure in an
environment where investors became increasingly risk adverse, and thus, risk
was
dramatically repriced. The sudden aversion to risk sparked a flight to quality,
and that flight ended with tremendous demand for U.S. Treasury securities at
the
expense of other debt instruments. Lower quality corporate issuers and emerging
market debt, in particular, were negatively impacted by the recent crisis in
the
credit markets.
The wave of fear that spread over the credit markets for a brief time in
September and early October was unprecedented. The simultaneous lack of
liquidity and sudden broadening of credit spreads had never been experienced
before. However, stability thankfully returned to the markets in the fourth
quarter of 1998. Liquidity improved, spreads narrowed but not back to mid-summer
levels, and the door for issuance of corporate debt reopened.
Total investment return (price change and reinvested distributions) for
Portfolio S in fiscal year 1998 was 7.47%. Monthly dividends totaled $0.5816 per
share, producing an income yield of 5.95% based on a beginning net asset value
of $9.78. During the same period, total investment return on Portfolio L was
8.13%. Monthly dividends totaled $0.0935 per share, producing an income yield
of 6.00% based on a beginning net asset value of $1.56.
Both Portfolio S and L carry a 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 and in the top third for the
past year. Portfolio L is ranked in the top half of the Lipper A-Rated Bond Fund
category for the most recent three year period.2
OUTLOOK
During the fourth quarter the financial market turmoil dissipated, with the
U.S.
stock market rebounding soundly and credit spreads narrowing significantly from
those encountered in August, September and early October. The Federal Reserve
was largely responsible for thwarting a potential credit crunch and calming the
markets by moving quickly to lower interest rates three times in quick
succession during this period.
Despite economic and financial problems overseas, the U.S. economy showed
continued vigor through the fourth quarter. Lower interest rates and falling
commodity prices appear to have contributed to this continuing strength.
Because
of the robustness of the domestic economy, and because the financial markets
have calmed, expectations that the Federal Reserve will take additional easing
actions in the near-term have waned.
As we commence a new year, consensus expectations are that economic growth will
slow considerably from last yearOs near 4% pace. The recent strength of the
domestic economy continues to surprise most forecasters who had been predicting
that the weakening global economy and upheaval in the financial markets in 1998
would have a greater dampening effect on business activity than has occurred.
The economy has been propelled by buoyant consumption, indicative of low
unemployment, low interest rates, rising incomes and a surging stock market,
all of which have helped keep consumer confidence at record levels.
A slowdown, if it occurs this year, will put an end to two apparent paradoxes
that are currently present. First, in a global economy; how long can the U.S.
continue to grow at its recent pace while the rest of the world slows? Reduced
trade flows from Asia may be minimized going forward as the economies of that
region are showing signs of bottoming. However, growth in Europe is slowing and
there is the increasing risk that Latin America is entering a period of
recession. If so, the drag of reduced exports to those regions will have a
greater negative impact on our economy than what we have experienced from the
Asian economic crisis. Second, how much longer can strong consumer demand more
than offset a significant slowdown of the production side of the economy?
Weakness in the domestic manufacturing sector, falling capacity utilization
rates and the attendant profit squeeze for many companies could result in
further cuts in capital spending programs, leading to diminished job and income
growth and eventually less consumption.
A reversal in the countryOs declining savings rate would also have the effect
of
lowering consumption and therefore, slowing overall economic growth. For
several
months at the end of 1998, the savings rate actually turned negative.
IndividualsO willingness to spend more than available disposable income (i.e.
draw down savings) reflects the fact that due to the sharp appreciation of the
equity market over the past several years, household networth has risen
dramatically, even while consumers have been on a spending spree. A slowdown in
the stock marketOs appreciation to historical norms would also slow networth
growth and force consumers to return to their former savings patterns.
At the peak of the market turmoil last fall, many predicted that the
possibility
of the U.S. economy slipping into recession in 1999 had increased
significantly.
Actions taken by the Fed mitigated that risk, and recent economic data confirm
that economy still has plenty of momentum. Furthermore, the Fed has room to
make
additional cuts in interest rates if they feel such actions are necessary to
boost growth or ward off a credit crunch. At present short-term rates are
around
4.75% with inflation running at under 2% and therefore, real short-term rates
are still historically high. This gives the Fed plenty of room to maneuver.
Currently the FedOs concern is not inflation. Rather it is making sure that
deflation does not spread to this country, from other parts of the world.
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.
Trading activity during the last half of the year was moderate and reflected a
cautionary stance due to the volatile situation in the credit markets. In light
of turbulent market conditions, our focus was twofold: we sorted out relative
value opportunities and emphasized the defensive characteristics of the
portfolio in a period of uncertainty. Several high quality corporate bonds with
maturities between one and three years were added to both portfolios. In the
midst of the crisis, the short end of the corporate maturity spectrum provided
tremendous buying opportunities. Over time horizons of 6 months to one-year,
breakeven analysis indicated that the probability of short corporates
underperforming Treasuries was very low. To hedge against a further
deterioration in corporate earnings, exposure to electric utilities was
increased due to the non-cyclical nature of their business.
Both Portfolio S and L have an average quality rating of low AA. Currently, the
average maturity is 4.6 years for Portfolio S and 8.3 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 portfolioOs sensitivity to change in the level of interest rates
is its average effective duration. Portfolio S and L have average effective
durations of 3.1 and 4.7 years, respectively.
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
1 Morningstar proprietary rankings reflect three year risk-adjusted
performance as of November 30, 1998.
2 Lipper Short-Intermediate Investment Grade Bond Fund ranking for Portfolio
S for one, three, five and ten year periods
ended November 30, 1998, were 32 of 95, 6 of 68, 9 of 45, and 4 of 9,
respectively.
Lipper A-Rated Bond Fund ranking for Portfolio L for one, three, five and ten
year periods ended November 30, 1998,
were 83 of 154, 61 of 126, 43 of 76, and 22 of 39, respectively.
CHART - Quality Ratings
Portfolio Portfolio
L S
Aaa 40.1% 41.1%
Aa 8.9 10.0
A 18.9 21.8
Lower 32.1 27.1
TOTAL 100% 100%
Source: Moody's
portfolio review
CHART - Babson Bond Trust, Portfolio D L versus Lehman Brothers Aggregate Bond
Index
CHART - Babson Bond Trust, Portfolio D 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, 1998, were 7.40%, 6.31% and 8.62%,
respectively. For Portfolio S, total returns for one year, five years and the
life of the Fund (inception April 19, 1988) were 6.88%, 6.08% and 7.89%,
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, 1998
Portfolio L
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
DESCRIPTION AMOUNT (NOTE 1-A)
</CAPTION> <C> <C>
<S>
CORPORATE BONDS - 60.12%
BANKS AND FINANCE - 18.41%
American Stores Company,
8.00% debentures, due June 1, 2026 $ 1,150,000 $ 1,352,055
Associates Corporation North America,
6.75% notes, due July 15, 2001 4,500,000 4,644,090
First Union-Lehman Brothers Commercial Mortgage,
Series 98-C2, Cl. A-2,
6.56%, due November 15, 2008 3,000,000 3,055,325
Ford Capital B V, 10.125% notes,
due November 15, 2000 2,500,000 2,705,500
General Motors Acceptance Corporation,
5.33% medium term notes,
due October 20, 2000 2,265,000 2,270,255
Green Tree Financial Corporation,
CMO Series 92-1 REMIC Trust, Cl. A-3,
6.70% manufactured housing certificates,
due October 15, 2017 1,453,756 1,454,207
Green Tree Securitized Net Interest Margin Trust,
Series 95-A,
7.25% certificates, due July 15, 2005 552,076 553,694
Hellenic Republic,
6.95% notes, due March 4, 2008 1,300,000 1,398,228
Merrill Lynch Mortgage Investors, Incorporated,
Series 92-B REMIC Trust, Cl. A-3,
8.30% manufactured housing certificates,
due April 15, 2012 512,126 513,083
New Jersey Economic Development Authority
State Pension Funding Revenue,
Series A,
7.425%, due February 15, 2029 100,000 118,360
Southern Investments UK PLC,
6.375% senior notes, due November 15, 2001 1,300,000 1,318,187
SunTrust Banks, Incorporated,
6.00% subordinate notes, due February 15, 2026 3,000,000 2,966,130
Wachovia Capital Trust II,
6.32% capital securities, due January 15, 2027 1,300,000 1,257,100
22,932,958 23,606,214
COMMUNICATIONS - 7.26%
BellSouth Savings & Employee Stock Ownership Trust,
9.19% medium term notes, due July 1, 2003 898,024 982,303
TCI Communications, Incorporated,
7.25% senior notes, due June 15, 1999 2,400,000 2,431,080
Tele Communications, Incorporated,
8.75% debentures, due February 15, 2023 1,000,000 1,122,320
Time Warner, Incorporated,
9.15% debentures, due February 1, 2023 1,350,000 1,786,374
Tosco Corporation,
7.625% notes, due May 15, 2006 1,850,000 1,978,945
Worldcom, Incorporated GA,
6.125% notes, due August 15, 2001 1,000,000 998,960
8,498,024 9,299,982
DIVERSIFIED - 4.71%
Federal Express Corporation,
7.50% pass-thru trust, due January 15, 2018 2,461,205 2,740,749
International Business Machines Corporation,
6.22% debentures, due August 2, 2027 1,500,000 1,523,280
Lucent Technologies, Incorporated,
6.90% notes, due July 15, 2001 1,700,000 1,768,731
5,661,205 6,032,760
INDUSTRIALS - 17.50%
Airgas, Incorporated,
7.14% medium term notes, due March 8, 2004 1,650,000 1,757,530
Cardinal Health, Incorporated, 6.00% notes,
due January 15, 2006 2,900,000 2,919,807
Comdisco, Incorporated,
6.375% shelf issue, due November 30, 2001 3,675,000 3,650,010
Georgia-Pacific Corporation,
9.625% debentures, due March 15, 2022 1,500,000 1,690,140
Hydro Quebec, Series IO,
8.05% debentures, due July 7, 2024 3,100,000 3,719,535
John Deere Capital Corporation,
6.30% notes, due June 1, 1999 1,000,000 1,004,210
Oslo Seismic Services, Incorporated,
8.28% 1st. preferred mortgage notes,
due June 1, 2011 2,025,938 2,246,077
Petroleum Geo-Services A/S,
7.50% notes, due March 31, 2007 1,500,000 1,575,240
Philip Morris Companies, Incorporated,
7.20% senior notes, due February 1, 2007 1,000,000 1,074,310
Philip Morris Companies, Incorporated,
6.15% puttable reset securities purchases,
due March 15, 2010 750,000 754,313
Raytheon Company,
6.45% notes, due August 15, 2002 2,000,000 2,042,020
21,100,938 22,433,192
TRANSPORTATION - 3.27%
CSX Corporation,
9.50% notes, due August 1, 2000 680,000 719,508
Dana Corporation,
6.50% notes, due March 15, 2008 1,600,000 1,611,664
United Airlines Pass-Thru Trusts,
7.27% pass-thru certificates, Series 96-A,
Cl. A-1, due January 30, 2013 1,863,055 1,854,633
4,143,055 4,185,805
U.S. DOLLAR DENOMINATED CANADIAN SECURITIES - 4.13%
Canadian National Railway Company,
7.00% notes, due March 15, 2004 1,950,000 2,043,054
Newfoundland Province of Canada,
8.65% debentures, due October 22, 2022 1,950,000 2,180,607
Ontario Province of Canada,
7.75% bonds, due June 4, 2002 1,000,000 1,076,480
4,900,000 5,300,141
UTILITIES - 4.84%
Commonwealth Edison Company,
7.625% notes, due January 15, 2007 2,175,000 2,314,657
Consolidated Edison Company NY, Incorporated,
6.15% debentures, due July 1, 2008 1,900,000 1,890,101
United Illuminating Company,
6.20% notes, due January 15, 1999 2,000,000 2,001,340
6,075,000 6,206,098
TOTAL CORPORATE BONDS - 60.12% 73,311,180 77,064,192
(COST $75,048,576 )
CONVERTIBLE CORPORATE BOND - 2.06%
California Infrastructure & Economic
Development Bank Special Purpose Trust,
PG & E, Series 97-1 certificates Cl. A,
6.42%, due September 25, 2008 2,500,000 2,643,900
(COST $2,553,199 )
REVENUE BOND - 1.94%
New Jersey Economic Development Authority
State Pension Funding Revenue,
Series A,
7.425%, due February 15, 2029 2,100,000 2,485,560
(COST $2,127,048 )
U.S. GOVERNMENTAL AGENCY, U.S. GOVERNMENT SECURITIES AND
GOVERNMENT SPONSORED ENTERPRISES - 29.70%
U.S. GOVERNMENTAL AGENCY - 11.02%
*Government National Mortgage Association,
7.50%, due March 15, 2007 119,003 122,930
*Government National Mortgage Association,
7.50%, due July 15, 2007 225,666 233,113
*Government National Mortgage Association,
8.00%, due October 15, 2007 290,102 305,492
*Government National Mortgage Association,
8.00%, due November 15, 2009 3,597,478 3,720,009
*Government National Mortgage Association,
9.50%, due April 15, 2016 35,728 38,608
*Government National Mortgage Association,
9.50%, due January 15, 2019 82,146 88,706
*Government National Mortgage Association,
8.00%, due May 15, 2022 406,438 423,841
*Government National Mortgage Association,
7.00%, due March 15, 2024 3,639,340 3,726,902
*Government National Mortgage Association,
8.50%, due August 15, 2024 189,544 201,034
*Government National Mortgage Association,
8.00%, due December 15, 2026 4,299,455 4,471,434
Small Business Administration guaranteed
development participation certificates,
Series 88-20 G,
9.80% debentures, due July 1, 2008 237,402 269,219
Small Business Administration guaranteed
development participation certificates,
Series 88-20 H,
10.05% debentures, due August 1, 2008 229,669 262,776
Small Business Administration guaranteed
development participation certificates,
Series 89-20 D,
10.05% debentures, due April 1, 2009 229,552 265,025
(COST $13,667,803) 13,581,523 14,129,089
U.S. GOVERNMENT SECURITIES - 10.85%
U.S. Treasury Bonds,
8.125%, due May 15, 2021 2,000,000 2,721,560
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 735,000 745,334
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 1,922,800
U.S. Treasury Notes,
7.25%, due August 15, 2004 750,000 843,870
U.S. Treasury Notes,
7.875%, due February 15, 2021 2,100,000 2,877,420
U.S. Treasury Notes,
8.125%, due May 15, 2021 2,000,000 2,721,560
(COST $13,521,697) 11,155,000 13,915,259
*GOVERNMENT SPONSORED ENTERPRISES - 7.83%
Federal Home Loan Mortgage Corporation,
7.75%, due April 1, 2008 214,277 221,198
Federal Home Loan Mortgage Corporation,
7.75%, due November 1, 2008 42,332 43,810
Federal Home Loan Mortgage Corporation,
8.00%, due August 1, 2009 48,253 50,089
Federal Home Loan Mortgage Corporation,
8.25%, due October 1, 2010 380,670 396,498
Federal Home Loan Mortgage Corporation,
9.00%, due June 1, 2016 141,298 151,630
Federal Home Loan Mortgage Corporation,
8.00%, due October 1, 2018 196,794 207,220
Federal Home Loan Mortgage Corporation,
7.50%, due February 1, 2021 1,392,229 1,434,205
Federal Home Loan Mortgage Corporation,
9.00%, due January 1, 2024 86,033 92,267
Federal National Mortgage Association,
5.81%, due November 12, 1999 2,600,000 2,617,056
Federal National Mortgage Association,
5.625%, due March 15, 2001 2,000,000 2,031,880
Federal National Mortgage Association,
5.75%, due April 15, 2003 1,000,000 1,030,160
Federal National Mortgage Association,
7.00%, due December 1, 2007 455,618 469,082
Federal National Mortgage Association,
8.25%, due January 1, 2009 188,979 198,702
Federal National Mortgage Association,
8.00%, due February 1, 2009 216,897 225,759
Federal National Mortgage Association,
7.50%, due September 1, 2011 299,397 307,909
Federal National Mortgage Association,
8.50%, due July 1, 2013 57,126 60,093
Federal National Mortgage Association,
9.50%, due June 25, 2018 167,582 178,984
Federal National Mortgage Association,
CMO Series 90-52D, REMIC Trust,
9.30%, due May 25, 2019 200,376 200,891
Federal National Mortgage Association,
9.25%, due October 1, 2020 107,724 117,110
(COST $9,682,286) 9,795,585 10,034,543
TOTAL U.S. GOVERNMENTAL AGENCY, U.S. GOVERNMENT SECURITIES
AND GOVERNMENT SPONSORED ENTERPRISES - 29.70% 34,532,108 38,078,891
(COST $36,871,786)
REPURCHASE AGREEMENT - 4.80%
UMB Bank, n.a., 4.70%, due December 1, 1998
(Collateralized by U.S. Treasury Notes,
7.50%, due October 31, 1999 with a value of
$ 6,273,045) $ 6,150,000 $ 6,150,000
(COST $6,150,000)
TOTAL INVESTMENTS - 98.62% $ 118,593,288 126,422,543
(COST $122,750,609)
Other assets less liabilities - 1.38% 1,763,374
TOTAL NET ASSETS - 100.00%
(equivalent to $1.59 per share;
80,527,883 shares outstanding) $ 128,185,917
</TABLE>
For federal income tax purposes, the identified cost of investments owned at
November 30, 1998, was $122,750,609.
Net unrealized appreciation for federal income tax purposes was $3,671,934,
which is comprised of unrealized
appreciation of $4,113,773 and unrealized depreciation of $441,839.
*Mortgage-backed securities
See accompanying Notes to Financial Statements.
STATEMENT OF NET ASSETS
November 30, 1998
PORTFOLIO S
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
DESCRIPTION AMOUNT (NOTE 1-A)
</CAPTION>
<S> <C> <C>
CORPORATE BONDS - 59.51%
BANKS AND FINANCE - 19.99%
Associates Corporation North America,
6.75% notes, due July 15, 2001 $ 250,000 $ 258,005
Associates Corporation North America,
6.45% senior notes, due October 15, 2001 500,000 513,155
Chrysler Financial Corporation,
6.375% notes, due January 28, 2000 600,000 607,602
First Union-Lehman Brothers Commercial Mortgage,
Series 98-C2, Cl. A-2,
6.56% mortgage, due November 18, 2008 800,000 813,770
Ford Motor Credit Company,
6.125% notes, due April 28, 2003 1,600,000 1,634,608
General Motors Acceptance Corporation,
5.33% medium term notes, due October 20, 2000 750,000 751,740
Green Tree Financial Corporation,
CMO Series 92-1 REMIC Trust, Cl. A-3,
6.70% manufactured housing certificates,
due October 15, 2017 396,479 396,602
Green Tree Securitized Net Interest Margin Trust,
Series 94 A,
6.90% certificates, due February 15, 2004 194,144 196,071
Hellenic Republic,
6.95% notes, due March 4, 2008 375,000 403,335
Merrill Lynch & Company, Incorporated,
6.50% notes, due April 1, 2001 500,000 509,655
Sears Roebuck Acceptance Corporation,
7.00% notes, due June 15, 2007 225,000 242,467
Southern Investments UK PLC,
6.375% senior notes, due November 15, 2001 300,000 304,197
SunTrust Banks, Incorporated,
6.00% subordinate notes, due February 15, 2026 700,000 692,097
Wachovia Capital Trust II,
6.32% capital securities, due January 15, 2027 375,000 362,625
7,565,623 7,685,929
COMMUNICATIONS - 6.46%
BellSouth Savings & Employee Stock Ownership Trust,
9.19% medium term notes, due July 1, 2003 651,171 712,283
TCI Communications, Incorporated,
7.25% senior notes, due June 15, 1999 1,000,000 1,012,950
Tosco Corporation, 7.625% notes, due May 15, 2006 500,000 534,850
Worldcom, Incorporated GA,
6.125% notes, due August 15, 2001 225,000 224,766
2,376,171 2,484,849
DIVERSIFIED - 2.07%
International Business Machines Corporation,
6.22% debentures, due August 1, 2027 400,000 406,208
Lucent Technologies, Incorporated,
6.90% notes, due July 15, 2001 375,000 390,161
775,000 796,369
INDUSTRIALS - 16.40%
Airgas, Incorporated,
7.14% medium term notes, due March 8, 2004 550,000 585,843
Cardinal Health, Incorporated,
6.25% notes, due July 15, 2008 650,000 651,313
Cardinal Health, Incorporated,
6.00% notes, due January 15, 2006 850,000 855,805
Comdisco, Incorporated,
6.375% shelf issue, due November 30, 2001 1,000,000 993,200
Georgia Pacific Corporation,
9.125% debentures, due July 1, 2022 375,000 396,443
Hydro-Quebec, Series IO,
8.05% debentures, due July 7, 2024 425,000 509,936
John Deere Capital Corporation,
6.30% notes, due June 1, 1999 250,000 251,052
Oslo Seismic Services, Incorporated,
8.28% 1st. preferred mortgage notes,
due June 1, 2011 506,484 561,519
Petroleum Geo-Services A/S,
7.50% notes, due March 31, 2007 500,000 525,080
Philip Morris Companies, Incorporated,
7.20% senior notes, due February 1, 2007 200,000 214,862
Philip Morris Companies, Incorporated,
6.15% puttable reset securities purchases,
due March 15, 2010 250,000 251,438
Raytheon Company,
6.45% notes, due August 15, 2002 500,000 510,505
6,056,484 6,306,996
TRANSPORTATION - 2.71%
Norfolk Southern Corporation,
6.70% notes, due May 1, 2000 400,000 406,436
United Airlines Pass-Thru Trusts,
7.27% pass-thru certificates,
Series 96-A, Cl. A-1, due January 30, 2013 411,324 409,465
Wisconsin Central Transportation Corporation,
6.625% notes, due April 15, 2008 225,000 227,212
1,036,324 1,043,113
U.S. DOLLAR DENOMINATED CANADIAN SECURITIES - 4.86%
Canadian National Railway Company,
7.00% notes, due March 15, 2004
500,000 523,860
Ontario Province of Canada,
7.75% bonds, due June 4, 2002 1,250,000 1,345,600
1,750,000 1,869,460
UTILITIES - 7.02%
Commonwealth Edison Company,
7.625% notes, due January 15, 2007 600,000 638,526
Consolidated Edison Company NY, Incorporated,
6.15% debentures, due July 1, 2008 550,000 547,135
Long Island Lighting Company,
7.30% debentures, due July 15, 1999 1,000,000 1,014,500
United Illuminating Company,
6.20% notes, due January 15, 1999 500,000 500,335
2,650,000 2,700,496
TOTAL CORPORATE BONDS - 59.51% 22,209,602 22,887,212
(COST $22,478,923)
CONVERTIBLE CORPORATE BONDS - 1.75%
California Infrastructure & Economic Development Bank
Special Purpose Trust,
Series 97-1, Cl. A-2,
6.14%, due March 25, 2002 500,000 513,000
California Infrastructure & Economic Development Bank
Special Purpose Trust,
PG & E Series 97-1, Cl. A-7,
6.42%, due September 25, 2008 150,000 158,634
TOTAL CONVERTIBLE CORPORATE BONDS - 1.75% 650,000 671,634
(COST $652,947 )
U.S. GOVERNMENTAL AGENCY, U.S. GOVERNMENT SECURITIES AND
GOVERNMENT SPONSORED ENTERPRISES - 34.57%
U.S. GOVERNMENTAL AGENCY - 9.26%
*Government National Mortgage Association,
8.00%, due October 15, 2007 21,032 22,148
*Government National Mortgage Association,
8.00%, due November 15, 2009 645,589 667,577
*Government National Mortgage Association,
7.50%, due October 15, 2011 402,642 414,846
*Government National Mortgage Association,
7.50%, due November 15, 2011 394,742 406,706
*Government National Mortgage Association,
9.50%, due September 15, 2019 18,559 20,041
*Government National Mortgage Association,
8.00%, due December 15, 2022 231,868 241,797
*Government National Mortgage Association,
7.00%, due May 15, 2024 697,369 714,148
*Government National Mortgage Association,
8.50%, due August 15, 2024 422,925 448,563
*Government National Mortgage Association,
8.00%, due November 15, 2026 559,227 581,596
Small Business Administration guaranteed
development participation certificates,
Series 88-20 G,
9.80% debentures, due July 1, 2008 39,567 44,870
(COST $3,475,750) 3,433,520 3,562,292
U.S. GOVERNMENT SECURITIES - 13.37%
U.S. Treasury Bonds,
11.125%, due August 15, 2003 700,000 885,500
U.S. Treasury Notes,
6.375%, due January 15, 2000 500,000 506,250
U.S. Treasury Notes,
5.875%, due February 15, 2000 3,175,000 3,219,641
U.S. Treasury Notes,
7.25%, due August 15, 2004 250,000 281,290
U.S. Treasury Notes,
5.625%, due February 15, 2006 250,000 248,242
(COST $5,024,981) 4,875,000 5,140,923
*GOVERNMENT SPONSORED ENTERPRISES - 11.94%
Federal Home Loan Mortgage Corporation,
8.25%, due July 1, 2008 31,609 32,700
Federal Home Loan Mortgage Corporation,
8.00%, due January 1, 2012 649,283 668,151
Federal Home Loan Mortgage Corporation,
9.00%, due June 1, 2016 114,125 122,470
Federal Home Loan Mortgage Corporation,
8.00%, due May 1, 2017 63,497 67,247
Federal Home Loan Mortgage Corporation,
CMO Series 130-E,
9.00%, due May 15, 2021 148,535 159,130
Federal National Mortgage Association,
5.81%, due November 12, 1999 750,000 754,920
Federal National Mortgage Association,
5.625%, due March 15, 2001 2,250,000 2,285,865
Federal National Mortgage Association,
7.00%, due December 1, 2007 84,615 87,115
Federal National Mortgage Association,
8.25%, due January 1, 2009 19,685 20,698
Federal National Mortgage Association,
7.50%, due September 1, 2011 299,397 307,909
Federal National Mortgage Association,
CMO Series 90-52D, REMIC Trust,
9.30%, due May 25, 2019 21,859 21,915
Federal National Mortgage Association,
9.25%, due October 1, 2020 56,697 61,637
(COST $4,503,605) 4,489,302 4,589,757
TOTAL U.S. GOVERNMENTAL AGENCY, U.S. GOVERNMENT SECURITIES
AND GOVERNMENT SPONSORED ENTERPRISES - 34.57% 12,797,822
13,292,972
(COST $13,004,336)
REPURCHASE AGREEMENT - 6.50%
UMB Bank, n.a., 4.70%,
due December 1, 1998 (Collateralized by
U.S. Treasury Notes, 7.00%,
due April 15, 1999 with a value of
$2,550,096) 2,500,000 2,500,000
(COST $2,500,000)
TOTAL INVESTMENTS - 102.33% $ 38,157,424 39,351,818
(COST $38,636,206)
Other assets less liabilities - (2.33%) (894,150)
TOTAL NET ASSETS - 100.00%
(equivalent to $9.91 per share;
3,881,582 shares outstanding) $ 38,457,668
</TABLE>
For federal income tax purposes, the identified cost of investments owned at
November 30, 1998, was $38,636,206.
Net unrealized appreciation for federal income tax purposes was $715,612, which
is comprised of unrealized
appreciation of $743,870 and unrealized depreciation of $28,258.
*Mortgage-backed securities
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS
AND LIABILITIES
November 30, 1998
<TABLE>
<CAPTION>
PORTFOLIO L PORTFOLIO S
</CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities:
Corporate and revenue bonds, at market value
(identified cost $79,728,823 [L], $23,131,870 [S]) $ 82,193,652 $ 23,558,846
U.S. governmental agency, U.S. government securities
and government sponsored enterprises, at market value
(identified cost $36,871,786 [L], $13,004,336 [S]) 38,078,891 13,292,972
Repurchase agreement, at cost - approximates market value 6,150,000 2,500,000
Total investments 126,422,543 39,351,818
Interest receivable 2,006,640 645,191
Total assets 128,429,183 39,997,009
LIABILITIES AND NET ASSETS:
Cash overdraft 243,266 1,539,341
Total liabilities 243,266 1,539,341
NET ASSETS $ 128,185,917 $ 38,457,668
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 127,658,775 $ 39,886,327
Accumulated undistributed income (loss):
Undistributed net investment income 259,884 -
Undistributed net realized loss on investment transactions (3,404,676) (2,144,271)
Net unrealized appreciation in value of investments 3,671,934 715,612
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 128,185,917 $ 38,457,668
Capital shares outstanding 80,527,883 3,881,582
NET ASSET VALUE PER SHARE $ 1.59 $ 9.91
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Year Ended November 30, 1998
<TABLE>
<CAPTION>
PORTFOLIO L PORTFOLIO S
</CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 8,901,697 $ 2,557,256
Expenses (Note 2):
Management fees 1,226,260 370,143
Registration fees and expenses 25,422 7,480
Total expenses before voluntary reduction 1,251,682 377,623
Less: voluntary reduction of management fee - (116,887)
Net expenses 1,251,682 260,736
Net investment income (Note 1-B) 7,650,015 2,296,520
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 66,189,580 25,088,847
Cost of investments sold 64,039,250 24,751,706
Net realized gain from investment transactions 2,150,330 337,141
Unrealized appreciation of investments:
Beginning of year 3,277,900 560,226
End of year 3,671,934 715,612
Unrealized appreciation of investments during the year 394,034 155,386
Net gain on investments 2,544,364 492,527
Increase in net assets resulting from operations $ 10,194,379 $ 2,789,047
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
For Each Of The Two Years In The Period Ended November 30, 1998
<TABLE>
<CAPTION>
1998 1997
PORTFOLIO L PORTFOLIO S PORTFOLIO L PORTFOLIO S
</CAPTION> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 7,650,015 $ 2,296,520 $ 8,567,406 $ 2,498,593
Net realized gain (loss) from investment transactions 2,150,330 337,141 (545,666) (442,862)
Unrealized appreciation of investments
during the year 394,034 155,386 876,120 568,506
Net increase in net assets
resulting from operations 10,194,379 2,789,047 8,897,860 2,624,237
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (7,650,015) (2,296,520) (8,567,406) (2,498,593)
Net realized gain from investment transactions - - - -
Total distributions to shareholders (7,650,015) (2,296,520) (8,567,406) (2,498,593)
INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS:*
Proceeds from shares sold 23,230,596 6,842,453 19,321,050 14,582,788
Net asset value of shares issued for
reinvestment of distributions 6,272,538 2,007,604 6,987,475 2,075,147
29,503,134 8,850,057 26,308,525 16,657,935
Cost of shares repurchased (36,334,917) (11,448,406) (36,426,268) (10,395,231)
Net increase (decrease) from capital share transactions (6,831,783) (2,598,349) (10,117,743) 6,262,704
Total increase (decrease) in net assets (4,287,419) (2,105,822) (9,787,289) 6,388,348
NET ASSETS:
Beginning of year 132,473,336 40,563,490 142,260,625 34,175,142
End of year (including undistributed net investment income
of $259,884 [L] and $- [S] in 1998 and 1997) $ 128,185,917 $ 38,457,668 $ 132,473,336 $ 40,563,490
*Shares issued and repurchased:
Number of shares sold 14,688,286 692,276 12,616,368 1,510,703
Number of shares issued for
reinvestment of distributions 3,972,991 203,475 4,566,377 214,629
18,661,277 895,751 17,182,745 1,725,332
Number of shares repurchased (23,026,932) (1,161,405) (23,793,390) (1,075,519)
Net increase (decrease) (4,365,655) (265,654) (6,610,645) 649,813
**Distributions to shareholders:
Income dividends per share $ .0935 $ .5816 $ .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, which may utilize 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 - It is the TrustOs policy to comply with
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of each SeriesO taxable income to its
shareholders. Therefore, no provision for federal or state tax is required. At
November 30, 1998, Portfolio L and S have an accumulated net realized loss on
sales of investments for federal income tax purposes of $3,404,676 (expiring
$1,068,030 in 2002, $423,327 in 2003, $1,367,653 in 2004, and $545,666 in 2005)
and $2,144,271 (expiring $735,362 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 (OGAAPO) 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 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 seven years ended November 30,
1998,
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, 1998 (excluding
maturities of short-term commercial notes and repurchase agreements) are as
follows:
Portfolio L
Purchases $ 54,192,570
Proceeds from sales 66,189,580
Portfolio S
Purchases $ 22,406,653
Proceeds from sales 25,088,847
FINANCIAL HIGHLIGHTS
PORTFOLIO L
Condensed data for a share of capital stock outstanding throughout each year.
<TABLE>
<CAPTION>
Years Ended November 30,
1998 1997 1996 1995 1994
</CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.56 $ 1.55 $ 1.58 $ 1.47 $ 1.67
Income from investment operations:
Net investment income .094 .098 .107 .108 .108
Net gains or losses on securities
(both realized and unrealized) .030 .010 (.030) .110 (.149)
Total from investment operations .124 .108 .077 .218 (.041)
Less distributions:
Dividends from net investment income (.094) (.098) (.107) (.108) (.108)
Distributions from capital gains - - - - (.051)
Total distributions (.094) (.098) (.107) (.108) (.159)
Net asset value, end of year $ 1.59 $ 1.56 $ 1.55 $ 1.58 $ 1.47
Total return 8.13% 7.26% 5.17% 15.28% (2.71%)
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 128 $ 132 $ 142 $ 161 $ 140
Ratio of expenses to average net assets .97% .97% .97% .97% .97%
Ratio of net investment income to average net assets 5.93% 6.38% 6.96% 7.06% 6.95%
Portfolio turnover rate 43% 59% 61% 50% 40%
</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,
1998 1997 1996 1995 1994
</CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.78 $ 9.77 $ 9.90 $ 9.43 $ 10.48
Income from investment operations:
Net investment income .582 .618 .692 .726 .694
Net gains or losses on securities
(both realized and unrealized) .130 .010 (.130) .470 (.899)
Total from investment operations .712 .628 .562 1.196 (.205)
Less distributions:
Dividends from net investment income (.582) (.618) (.692) (.726) (.694)
Distributions from capital gains - - - - (.151)
Total distributions (.582) (.618) (.692) (.726) (.845)
Net asset value, end of year $ 9.91 $ 9.78 $ 9.77 $ 9.90 $ 9.43
Total return 7.47% 6.70% 5.96% 13.10% (2.06%)
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 38 $ 41 $ 34 $ 33 $ 30
Ratio of expenses to average net assets .67% .67% .66% .67% .67%
Ratio of net investment income to average net assets 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% .96% .97% .97%
Portfolio turnover rate 60% 65% 48% 57% 42%
</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 and collectively referred to herein as the Trust) as of
November 30, 1998, the related statements of operations for the year then
ended,
changes in net assets for each of the two years in the period then ended and
the
financial highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
TrustOs 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 and financial highlights. Our procedures included confirmation of
investments owned as of November 30, 1998, by correspondence with the
custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe 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 Trust at November 30, 1998, 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
Kansas City, Missouri
December 30, 1998
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.
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.
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306
816-751-5900
1-800-4-BABSON
(1-800-422-2766)
www.babsonfunds.com
JB7C-2 1/99
<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-30-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 122750609
<INVESTMENTS-AT-VALUE> 126422543
<RECEIVABLES> 2006640
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 128429183
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 243266
<TOTAL-LIABILITIES> 243266
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 127658775
<SHARES-COMMON-STOCK> 80527883
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 259884
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3404676)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3671934
<NET-ASSETS> 128185917
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8901697
<OTHER-INCOME> 0
<EXPENSES-NET> 1251682
<NET-INVESTMENT-INCOME> 7650015
<REALIZED-GAINS-CURRENT> 2150330
<APPREC-INCREASE-CURRENT> 394034
<NET-CHANGE-FROM-OPS> 10194379
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7650015
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14688286
<NUMBER-OF-SHARES-REDEEMED> 23026932
<SHARES-REINVESTED> 3972991
<NET-CHANGE-IN-ASSETS> (4287419)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1226260
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1251682
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1.56
<PER-SHARE-NII> .094
<PER-SHARE-GAIN-APPREC> .03
<PER-SHARE-DIVIDEND> .094
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.59
<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-30-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 38636206
<INVESTMENTS-AT-VALUE> 39351818
<RECEIVABLES> 645191
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39997009
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1539341
<TOTAL-LIABILITIES> 1539341
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39886327
<SHARES-COMMON-STOCK> 3881582
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2144271)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 715612
<NET-ASSETS> 38457668
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2557256
<OTHER-INCOME> 0
<EXPENSES-NET> 260736
<NET-INVESTMENT-INCOME> 2296520
<REALIZED-GAINS-CURRENT> 337141
<APPREC-INCREASE-CURRENT> 155386
<NET-CHANGE-FROM-OPS> 2789047
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2296520
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 692276
<NUMBER-OF-SHARES-REDEEMED> 1161405
<SHARES-REINVESTED> 203475
<NET-CHANGE-IN-ASSETS> (2105822)
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 370143
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<GROSS-EXPENSE> 260736
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 9.78
<PER-SHARE-NII> .582
<PER-SHARE-GAIN-APPREC> .13
<PER-SHARE-DIVIDEND> .582
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.91
<EXPENSE-RATIO> .67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
