THE
SCOUT
FUNDS
Scout Capital
Preservation Fund
Prospectus
February 23, 1998
PROSPECTUS
February 23, 1998
SCOUT CAPITAL PRESERVATION FUND, INC.
Managed By:
UMB Bank, n.a.
Kansas City, Missouri
Toll-Free:
1-800-996-2862
Distributed By:
Jones & Babson, Inc.
BMA Tower, 700 Karnes Blvd.
Kansas City, Missouri 64108-3306
INVESTMENT OBJECTIVE
Scout Capital Preservation Fund, Inc. is a member of the Scout Fund Group.
The Scout Funds were created especially for the benefit of customers of
affiliated banks of UMB Financial Corporation and those investors who share
the Funds' investment goals. The Fund is no-load. The Scout Capital
Preservation Fund seeks long-term capital growth. Long-term capital growth is
intended to be achieved primarily by the Fund's investment in a diversified
portfolio of equity securities (common stocks and convertible securities). The
shares offered by this prospectus are not deposits or obligations of, nor
guaranteed or endorsed by, UMB Bank, n.a., or any of its affiliate banks. They
are not federally insured by the Federal Deposit Insurance Corporation
(F.D.I.C.), the Federal Reserve Board or any other agency. These shares may
involve investment risks, including the possible loss of the principal
invested.
PURCHASE INFORMATION
Minimum Investment
Initial Purchase $ 1,000
(unless Automatic Monthly)
Initial IRA and Uniform Transfers
(Gifts) to Minors Purchases $ 250
(unless Automatic Monthly)
Subsequent Purchase:
(unless Automatic Monthly)
By Mail $ 100
By Telephone Purchase (ACH) $ 100
By Wire $ 500
Automatic Monthly Purchases:
Initial $ 100
Subsequent $ 50
Shares are purchased and redeemed at net asset value. There are no sales,
redemption or Rule 12b-1 distribution charges. If you need further
information, please call the Fund at the telephone number indicated above.
ADDITIONAL INFORMATION
This prospectus should be read and retained for future reference. It contains
the information that you should know before you invest. A Statement of
Additional Information of the same date as this prospectus has been filed
with the Securities and Exchange Commission and is incorporated by reference.
Investors desiring additional information about the Fund may obtain a copy
without charge by calling the Fund at the telephone number indicated above or
by writing to the address on the cover.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TABLE OF CONTENTS
Page
Fund Expenses 3
Investment Objective and Portfolio Management Policy 4
Repurchase Agreements 5
Risk Factors Applicable to Repurchase Agreements 5
Investment Restrictions 5
Performance Measures 6
How to Purchase Shares 7
Initial Investments 7
Investments Subsequent to Initial Investment 7
Telephone Investment Service 7
Automatic Monthly Investment Plan 8
How to Redeem Shares 8
Systematic Redemption Plan 10
How to Exchange Shares Between Scout Funds 11
How Share Price is Determined 11
Officers and Directors 12
Manager and Underwriter 12
General Information and History 13
Dividends, Distributions and Their Taxation 14
Shareholder Services 15
Shareholder Inquiries 15
FUND EXPENSES
Scout Capital Preservation Fund
The following information is provided in order to assist you in understanding
the various costs and expenses that a shareholder of the Fund will bear
directly or indirectly.
Shareholder Transaction Expenses
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends None
Deferred sales load None
Redemption fee None
Exchange fee None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees .85%
12b-1 fees None
Other expenses .02%
Total Fund operating expenses .87%
Example
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
1 Year 3 Year
$9 $28
The above example should not be considered a representation of past or future
expenses, as actual expenses may be greater or less than those shown. The
assumed 5% annual return is hypothetical and should not be considered a
representation of past or future annual return. The actual return may be
greater or less than the assumed amount.
The various costs and expenses reflected in the foregoing Expense Tables and
Example are explained in more detail in this prospectus. Other expenses is
based on estimated amounts for the current fiscal year. Management fees are
discussed in greater detail under Manager and Underwriter.
INVESTMENT OBJECTIVE AND
PORTFOLIO MANAGEMENT POLICY
The Scout Capital Preservation Fund's objective is to seek long-term capital
growth. Long-term capital growth is intended to be achieved primarily by the
Fund's investment in a diversified portfolio of equity securities (common
stocks and convertible securities). The Fund seeks to achieve its objective by
investing primarily in common stocks of companies whose earnings or tangible
assets are expected by the investment manager to outpace the rate of
inflation.
The Fund will normally invest in a diversified portfolio of securities. The
Fund has the flexibility to pursue its objective through any type or quality
of domestic or foreign security. In selecting investments, the manager will
consider economic and monetary conditions and projected inflation rates over
time. The manager will shift the proportions of each type of investment based
on its interpretation of economic conditions and underlying security
valuations. Normally the Fund will invest at least 65% of its total assets in
equity securities. The Fund will invest in equity securities of companies with
a significant potential for earnings growth or revaluation of assets.
The Fund will normally invest in the following equity or convertible
securities:
1. Domestic companies of any size listed on an
exchange or over-the-counter.
2. Foreign companies of any size with shares listed on
a U.S. exchange or over-the-counter or foreign
companies with American Depository Receipts
(ADRs) which represent foreign securities and are
traded on U.S. exchanges or over-the-counter. The
Fund may also invest directly in foreign securities.
The Fund will not be restricted as to market capitalization. However, under
normal circumstances, the Fund will not invest more than 25% or more of its
total assets in a single industry. Also, the Fund may not own more than 10% of
the outstanding voting securities of a single issuer. The Fund may not invest
more than 5% of its equity assets in any one issuer.
When, in the manager's judgment, market conditions warrant substantial
temporary investments in high-quality money market securities, the Fund may do
so. Investments in money market securities shall include government
securities, government agency securities, commercial paper, banker's
acceptances, bank certificates of deposit and repurchase agreements.
Investment in commercial paper is restricted to companies rated P2 or higher
by Moody's or A-2 or higher by Standard & Poor's.
The Fund cannot guarantee that its objectives will be achieved because there
are inherent risks in the ownership of the investments made by the Fund. The
value of the Fund's shares will reflect changes in the market value of its
investments, and dividends paid by the Fund will vary with the income it
receives from these investments.
Through careful management and diversification, the Fund will seek to reduce
risk and enhance the opportunities for long-term growth of capital. The
flexibility to realize relative value between asset classes, markets and
individual securities offers investors the opportunity to access undervalued
securities around the globe.
The Fund may also invest in the following fixed income securities:
1. Direct obligations of the U.S. Government, such as
bills, notes, bonds and other debt securities issued by
the U.S. Treasury.
2. Obligations of U.S. government agencies and instru-
mentalities which are secured by the full faith and
credit of the U.S. Treasury, such as securities of the
Government National Mortgage Association, the
Export-Import Bank or the Student Loan Marketing
Association; or which are secured by the right of the
issuer to borrow from the Treasury, such as securities
issued by the Federal Financing Bank or the U.S.
Postal Service; or are supported by the credit of the
government agency or instrumentality itself, such as
securities of Federal Home Loan Banks, Federal Farm
Credit Banks or the Federal National Mortgage
Association.
3. Securities issued by corporations or other business
organizations. The Fund will generally invest in
securities that, at the time of purchase, are classified
as investment grade by Moody's or by Standard &
Poor's. Securities that are subsequently downgraded
to non-investment grade may continue to be held by
the Fund, and will be sold only if the manager
believes it would be advantageous to do so.
The Fund's investments in fixed income securities issued by corporations or
other business organizations will be classified, at the time of purchase, as
investment grade securities, which means that they will be rated Baa or higher
by Moody's Investors Service, Inc. or BBB or higher by Standard & Poor's
Corporation. Although securities rated Baa by Moody's and BBB by Standard &
Poor's are considered to be investment grade, they have speculative
characteristics. Such securities carry a lower degree of risk than lower rated
securities.
Securities that are subsequently downgraded in quality below Baa by Moody's or
BBB by Standard & Poor's may continue to be held by the Fund until such time
as they can be disposed of in a reasonably practicable manner. In addition,
the credit quality of unrated securities purchased by the Fund must be, in the
opinion of the Fund's adviser, at least equivalent to a Baa rating by Moody's
or a BBB rating by Standard & Poor's.
Investments in foreign securities involve risks in addition to those risks
associated with investments in the United States. Since stocks of foreign
companies are normally denominated in foreign currencies, the Fund may be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, and may incur costs in connection with conversions
between various currencies.
As non-U.S. companies are not generally subject to uniform accounting,
auditing and financial reporting standards and practices comparable to those
applicable to U.S. companies, comparable information may not be readily
available about certain foreign companies. Securities of some non-U.S.
companies may be less liquid and more volatile than securities of comparable
U.S. companies. In addition, in certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments which could affect U.S. investments in
those countries.
The Fund will generally not trade in securities in order to obtain short-term
profits. However, when the manager believes that circumstances warrant, the
Fund may buy and sell portfolio securities without regard to the length of
time held. The Fund's portfolio turnover rate is not expected to exceed 35%
annually. A high portfolio turnover rate may increase transaction costs and
result in additional taxable gains.
REPURCHASE AGREEMENTS
A repurchase agreement involves the sale of securities to the Fund with the
concurrent agreement by the seller to repurchase the securities at the Fund's
cost plus interest at an agreed rate upon demand or within a specified time,
thereby determining the yield during the purchaser's period of ownership. The
result is a fixed rate of return insulated from market fluctuations during
such period. Under the Investment Company Act of 1940, repurchase agreements
are considered loans by the Fund.
The Fund will enter into such repurchase agreements only with United States
banks having assets in excess of $1 billion which are members of the Federal
Deposit Insurance Corporation, and with certain securities dealers who meet
the qualifications set from time to time by the Board of Directors. The term
to maturity of a repurchase agreement normally will be no longer than a few
days. Repurchase agreements maturing in more than seven days and other
illiquid securities will not exceed 10% of the net assets of the Fund.
RISK FACTORS APPLICABLE TO
REPURCHASE AGREEMENTS
The use of repurchase agreements involves certain risks. For example, if the
seller of the agreement defaults on its obligation to repurchase the
underlying securities at a time when the value of these securities has
declined, the Fund may incur a loss upon disposition of them. If the seller of
the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, disposition of the underlying
securities may be delayed pending court proceedings. Finally, it is possible
that the Fund may not be able to perfect its interest in the underlying
securities. While the Fund's management acknowledges these risks, it is
expected that they can be controlled through stringent security selection
criteria and careful monitoring procedures.
INVESTMENT RESTRICTIONS
In addition to the policies set forth under the caption Investment Objective
and Portfolio Management Policy the Fund is subject to certain other
restrictions which may not be changed without approval of the holders of a
majority of the outstanding shares of the Fund. Among these restrictions, the
more important ones are that the Fund will not: purchase the securities of any
issuer if, with respect to 75% of the Fund's total assets, more than 5% of the
Fund's total assets would be invested in the securities of such issuer, or the
Fund would hold more than 10% of any class of securities of such issuer;
borrow money in excess of 10% of total assets taken at market value, and then
only from banks as a temporary measure for extraordinary or emergency
purposes; borrow to increase income (leveraging), but only to facilitate
redemption requests which might otherwise require untimely dispositions of
portfolio securities (interest paid on such borrowings will reduce net
income); and securities will not be purchased while outstanding bank
borrowings exceed 5% of the value of the Fund's total assets. The full text of
these restrictions are set forth in the Statement of Additional Information.
As a matter of non-fundamental policy, the Fund may invest without limit in
U.S. Treasury Bills, or other obligations issued or guaranteed by the federal
government, its agencies and instrumentalities for temporary defensive
purposes, however, the Fund will normally invest no more than 35% of its total
assets in such securities.
PERFORMANCE MEASURES
From time to time, the Fund may advertise its performance in various ways, as
summarized below. Further discussion of these matters also appears in the
Statement of Additional Information. A discussion of Fund performance will
be included in the Fund's Annual Report to Shareholders which will be
available from the Fund upon request at no charge.
Total Return
The Fund may advertise average annual total retur over various periods of
time. Such total return figures show the average percentage change in value of
an investment in the Fund from the beginning date of the measuring period to
the end of the measuring period. These figures reflect changes in the price of
the Fund's shares and assume that any income dividends and/or capital gains
distributions made by the Fund during the period were reinvested in shares of
the Fund. Figures will be given for recent one-, five- and ten-year periods
(if applicable), and may be given for other periods as well (such as from
commencement of the Fund's operations, or on a year-by-year basis). When
considering average total return figures for periods longer than one year,
it is important to note that a Fund's annual total return for any one year in
the period might have been greater or less than the average for the entire
period.
Performance Comparisons
In advertisements or in reports to shareholders, the Fund may compare its
performance to that of other mutual funds with similar investment objectives
and to stock or other relevant indices. For example, it may compare its
performance to rankings prepared by Lipper Analytical Services, Inc. (Lipper),
a widely recognized independent service which monitors the performance of
mutual funds. The Fund may also compare its performance to the Standard &
Poor's 500 Stock Index (S&P 500), an index of unmanaged groups of common
stocks, the Dow Jones Industrial Average, a recognized unmanaged index of
common stocks of 30 industrial companies listed on the NYSE or the Consumer
Price Index. Performance information, rankings, ratings, published editorial
comments and listings as reported in national financial publications such as
Kiplinger's Personal Finance Magazine, Business Week, Morningstar Mutual
Funds, Investor's Business Daily, Institutional Investor, The Wall Street
Journal, Mutual Fund Forecaster, No-Load Investor, Money, Forbes, Fortune and
Barron's may also be used in comparing performance of the Fund. Performance
comparisons should not be considered as representative of the future
performance of any Fund. Further information regarding the performance of the
Fund is contained in the Statement of Additional Information.
Performance rankings, recommendations, published editorial comments and
listings reported in Money, Barron's, Kiplinger's Personal Finance Magazine,
Financial World, Forbes, U.S. News & World Report, Business Week, The Wall
Street Journal, Investors Business Daily, USA Today, Fortune and Stanger's may
also be cited (if the Fund is listed in any such publication) or used for
comparison, as well as performance listings and rankings from Morningstar
Mutual Funds, Personal Finance, Income and Safety, The Mutual Fund Letter, No-
Load Fund Investor, United Mutual Fund Selector, No-Load Fund Analyst, No-Load
Fund X, Louis Rukeyser's Wall Street newsletter, Donoghue's Money Letter, CDA
Investment Technologies, Inc., Wiesenberger Investment Companies Service and
Donoghue's Mutual Fund Almanac.
HOW TO PURCHASE SHARES
Shares are purchased from the Fund at net asset value (no sales charge) next
computed after a completed purchase order has been received by the Fund's
agent, Jones & Babson, Inc., P.O. Box 410498, Kansas City, MO 64141-0498 and
accepted by the Fund. To complete a purchase order by mail, wire or telephone,
please provide the information detailed below. For information or assistance
call toll free 1-800-996-2862.
The Fund reserves the right in its sole discretion to withdraw all or any part
of the offering made by this prospectus or to reject purchase orders when, in
the judgment of management, such withdrawal or rejection is in the best
interest of the Fund and its shareholders. The Fund also reserves the right at
any time to waive or increase the minimum requirements applicable to initial
or subsequent investments with respect to any person or class of persons,
which include shareholders of the Fund's special investment programs. The Fund
reserves the right to refuse to accept orders for Fund shares unless
accompanied by payment, except when a responsible person has indemnified the
Fund against losses resulting from the failure of investors to make payment.
In the event that the Fund sustains a loss as the result of failure by a
purchaser to make payment, the Fund's underwriter, Jones & Babson, Inc., will
cover the loss.
INITIAL INVESTMENTS
Initial investments by mail. You may open an account and make an investment
by completing and signing the application which accompanies this prospectus.
The minimum initial purchase is $1,000 unless your purchase is pursuant to an
IRA or the Uniform Transfers (Gifts) to Minors Act, in which case the minimum
initial purchase is $250. However, if electing the Automatic Monthly
Investment Plan, the minimum initial purchase is reduced to $100 for all
accounts. Make your check payable to UMB Bank, n.a. Mail your application and
check to:
Scout Capital Preservation Fund, Inc.
P.O. Box 410498
Kansas City, MO 64141-0498
Initial investments by wire. You may purchase shares of the Fund by wiring
the purchase price ($1,000 minimum) through the Federal Reserve Bank to the
custodian, UMB Bank, n.a. Prior to sending your money, you must call the Fund
toll free 1-800-996-2862 and provide it with the identity of the registered
account owner, the registered address, the Social Security or Taxpayer
Identification Number of the registered owner, the amount being wired, the
name and telephone number of the wiring bank and the person to be contacted in
connection with the order. You will then be provided a Fund account number,
after which you should instruct your bank to wire the specified amount, along
with the account number and the account registration to:
UMB Bank, n.a.
Kansas City, Missouri, ABA #101000695
For: Scout Capital Preservation Fund, Inc./
AC=987090-8387
For Account No. (insert assigned Fund account
number and name in which account is registered)
A completed application must be sent to the Fund as soon as possible so the
necessary remaining information can be recorded in your account. Payment of
redemption proceeds will be delayed until the completed application is
received by the Fund.
INVESTMENTS SUBSEQUENT
TO INITIAL INVESTMENT
You may add to your Fund account at any time in amounts of $100 or more if
purchases are made by mail or telephone purchase (ACH), or $500 or more if
purchases are made by wire. Automatic monthly investments must be in amounts
of $50 or more.
Checks should be mailed to the Fund at its address, but made payable to UMB
Bank, n.a. Always identify your account number or include the detachable
reminder stub which accompanies each confirmation.
Wire share purchases should include your account registration, your account
number and the name of the Fund. It also is advisable to notify the Fund by
telephone that you have sent a wire purchase order to the bank.
TELEPHONE INVESTMENT SERVICE
To use the Telephone Investment Service, you must first establish your Fund
account and authorize telephone orders in the application form, or,
subsequently, on a special authorization form provided upon request. If you
elect the Telephone Investment Service and your request is received prior to
3:00 P.M. (Central Time), you may purchase Fund shares ($100 minimum) by
telephone and authorize the Fund to draft your checking account for the cost
of the shares so purchased. You will receive the next available price after
the Fund has received your telephone call. Availability and continuance of
this privilege is subject to acceptance and approval by the Fund and all
participating banks. During periods of increased market activity, you may have
difficulty reaching the Fund by telephone, in which case you should contact
the Fund by mail or telegraph. The Fund will not be responsible for the
consequences of delays including delays in the banking or Federal Reserve wire
systems.
The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and if such procedures are followed,
the Fund will not be liable for losses due to unauthorized or fraudulent
instructions. Such procedures may include, but are not limited to, requiring
personal identification prior to acting upon instructions received by
telephone, providing written confirmations of such transactions and/or tape
recording of telephone instructions.
The Fund reserves the right to initiate a charge for this service and to
terminate or modify any or all of the privileges in connection with this
service at any time upon 15 days written notice to shareholders, and to
terminate or modify the privileges without prior notice in any circumstances
where such termination or modification is in the best interest of the Fund and
its shareholders.
AUTOMATIC MONTHLY INVESTMENT PLAN
You may elect to make monthly investments in a constant dollar amount from
your checking account ($50 minimum, after an initial investment of $100 or
more for any account). The Fund will draft your checking account on the same
day each month in the amount you authorize in your application, or,
subsequently, on a special authorization form provided upon request.
Availability and continuance of this privilege is subject to acceptance and
approval by the Fund and all participating banks. If the date selected falls
on a day upon which the Fund shares are not priced, investment will be made on
the first date thereafter upon which Fund shares are priced. The Fund will not
be responsible for the consequences of delays including delays in the banking
or Federal Reserve wire systems.
The Fund reserves the right to initiate a charge for this service and to
terminate or modify any or all of the privileges in connection with this
service at any time upon 15 days written notice to shareholders, and to
terminate or modify the privileges without prior notice in any circumstances
where such termination or modification is in the best interest of the Fund and
its shareholders.
HOW TO REDEEM SHARES
Shareholders registered in the stock records of the Fund may withdraw all or
part of their investment by redeeming shares. In each instance, you must
comply with the general requirements relating to all redemptions as well as
with specific requirements set out for the particular redemption method you
select. If you wish to expedite redemptions by using the telephone/telegraph
privilege, you should carefully note the special requirements and limitations
relating to these methods.
All redemption requests must be transmitted to the Fund, P.O. Box 410498,
Kansas City, MO 64141-0498. Shareholders who have authorized telephone
redemption may call toll free 1-800-996-2862. The Fund will redeem shares at
the price (net asset value per share) next effective after receipt of a
redemption request in good order (See How Share Price is Determined.)
The Fund will endeavor to transmit redemption proceeds to the proper party, as
instructed, as soon as practicable after a redemption request has been
received in good order and accepted, but in no event later than the third
business day thereafter. Transmissions are made by mail unless an expedited
method has been authorized and specified in the redemption request. The Fund
will not be responsible for the consequences of delays including delays in the
banking or Federal Reserve wire systems.
Redemptions will not become effective until all documents in the form required
have been received. In the case of redemption requests made within 15 days of
the date of purchase, the Fund may delay transmission of proceeds until such
time as it is certain that unconditional payment in federal funds has been
collected for the purchase of shares being redeemed or 15 days from the date
of purchase, whichever occurs first. You can avoid the possibility of delay by
paying for all of your purchases with a certified check or a transfer of
federal funds.
Where additional documentation is normally required to support redemptions as
in the case of corporations, fiduciaries and others who hold shares in a
representative or nominee capacity such as certified copies of corporate
resolutions, or certificates of incumbency, or such other documentation as may
be required under the Uniform Commercial Code or other applicable laws or
regulations, it is the responsibility of the shareholder to maintain such
documentation on file and in a current status. A failure to do so will delay
the redemption. If you have questions concerning redemption requirements,
please write or telephone the Fund well ahead of an anticipated redemption in
order to avoid any possible delay.
Requests which are subject to special conditions or which specify an effective
date other than as provided herein cannot be accepted.
The right of redemption may be suspended or the date of payment postponed
beyond the normal three-day period when the New York Stock Exchange is closed
or under emergency circumstances as determined by the Securities and Exchange
Commission. Additional details are set forth in the Statement of Additional
Information.
Due to the high cost of maintaining smaller accounts, the directors have
authorized the Fund to close shareholder accounts where their value falls
below the current minimum initial investment requirement at the time of
initial purchase as a result of redemptions and not as the result of market
action, and remains below this level for 60 days after each such shareholder
account is mailed a notice of: (1) the Fund's intention to close the account,
(2) the minimum account size requirement, and (3) the date on which the
account will be closed if the minimum size requirement is not met. Since the
minimum investment amount and the minimum account size are the same, any
redemption from an account containing only the minimum investment amount may
result in redemption of that account.
Withdrawal By Mail - Shares may be redeemed by mailing your request to the
Fund. To be in good order the request must include the following:
(1) A written redemption request or stock assignment
(stock power) containing the genuine signature of
each registered owner exactly as the shares are
registered, with clear identification of the account
by registered name(s), account number and the
number of shares or the dollar amount to be
redeemed;
(2) any outstanding stock certificates representing
shares to be redeemed;
(3) signature guarantees as required (see Signature
Guarantees); and
(4) any additional documentation which the Fund
may deem necessary to insure a genuine redemp-
tion such as an application if one is not on file, or
in the case of corporations, fiduciaries and others
who hold shares in a representative or nominee
capacity (see below).
Where additional documentation is normally required to support redemptions as
in the case of corporations, fiduciaries and others who hold shares in a
representative or nominee capacity, such as certified copies of corporate
resolutions, or certificates of incumbency, or such other documentation as may
be required under the Uniform Commercial Code or other applicable laws or
regulations, it is the responsibility of the shareholder to maintain such
documentation on file and in a current status. A failure to do so will delay
the redemption. If you have questions concerning redemption requirements,
please write or telephone the Fund well ahead of an anticipated redemption in
order to avoid any possible delay.
Signature Guarantees are required in connection with all redemptions of
$50,000 or more by mail, or changes in share registration, except as
hereinafter provided. These requirements may be waived by the Fund in certain
instances where it appears reasonable to do so and will not unduly affect the
interests of other shareholders. Signature(s) must be guaranteed by an
eligible guarantor institution as defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934. Eligible guarantor institutions include: (1)
national or state banks, savings associations, savings and loan associations,
trust companies, savings banks, industrial loan companies and credit unions;
(2) national securities exchanges, registered securities associations and
clearing agencies; or (3) securities broker/dealers which are members of a
national securities exchange or clearing agency or which have a minimum net
capital of $100,000. A notarized signature will not be sufficient for the
request to be in proper form.
Signature guarantees will be waived for mail redemptions of $50,000 or less,
but they will be required if the checks are to be payable to someone other
than the registered owner(s), or are to be mailed to an address different from
the registered address of the shareholder(s), or where there appears to be a
pattern of redemptions designed to circumvent the signature guarantee
requirement, or where the Fund has other reason to believe that this
requirement would be in the best interests of the Fund and its shareholders.
Withdrawal By Telephone or Telegraph - You may withdraw any amount ($500
minimum if wired) by telephone toll free 1-800-996-2862, or by telegraph to
the Fund's address. Telephone/telegraph redemption authorizations signed by
all registered owners with signatures guaranteed must be on file with the Fund
before you may redeem by telephone or telegraph. Funds will be sent only to
the address of record. The signature guarantee requirement may be waived by
the Fund if the request for this redemption method is made at the same time
the initial application to purchase shares is submitted.
All communications must include the Fund's name, your account number, the
exact registration of your shares, the number of shares or dollar amount to be
redeemed and the identity of the bank and bank account (name and number) to
which the proceeds are to be wired. This procedure may only be used for non-
certificated shares held in open account. For the protection of shareholders,
your redemption instructions can only be changed by filing with the Fund new
instructions on a form obtainable from the Fund which must be properly signed
with signature(s) guaranteed.
Telephone or telegraph redemption proceeds may be transmitted to your pre-
identified bank account either by wire or mail to a domestic commercial bank
which is a member of the Federal Reserve System, or by credit to such account
with UMB Bank, n.a. as designated by you on your pre-authorization form. If
you elect to have proceeds wired to a bank other than UMB Bank, n.a., and your
request is received prior to 3:00 P.M. (Central Time), proceeds normally will
be wired the following business day. Once the funds are transmitted, the time
of receipt and the funds' availability are not under our control. If your
request is received on any day after the cut-off time, proceeds normally will
be wired on the second business day following the day of receipt of your
request. Normally your bank account with UMB Bank, n.a. will be credited on
the following business day for all requests. The Fund reserves the right to
change its policy or to refuse a telephone or telegraph redemption request or
require additional documentation to assure a genuine redemption, and, at its
option, may pay such redemption by wire or check and may limit the frequency
or the amount of such requests. The Fund reserves the right to terminate or
modify any or all of the services in connection with this privilege at any
time without prior notice.
The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and if such procedures are followed,
the Fund will not be liable for losses due to unauthorized or fraudulent
instructions. Such procedures may include, but are not limited to requiring
personal identification prior to acting upon instructions received by
telephone, providing written confirmations of such transactions and/or tape
recording of telephone instructions. There are provisions on the
telephone/telegraph redemption authorization form limiting the liability of
the Fund and Jones & Babson, Inc. in this respect.
SYSTEMATIC REDEMPTION PLAN
If you own shares in an open account valued at $10,000 or more, and desire to
make regular monthly or quarterly withdrawals without the necessity and
inconvenience of executing a separate redemption request to initiate each
withdrawal, you may enter into a Systematic Withdrawal Plan by completing
forms obtainable from the Fund. For this service, the manager may charge you a
fee not to exceed $1.50 for each withdrawal. Currently, the manager assumes
the additional expenses arising out of this type of plan, but it reserves the
right to initiate such a charge at any time in the future when it deems it
necessary. If such a charge is imposed, participants will be provided 30 days
notice.
Subject to a $50 minimum, you may withdraw each period a specified dollar
amount. Shares also may be redeemed at a rate calculated to exhaust the
account at the end of a specified period of time.
Dividends and capital gains distributions must be reinvested in additional
shares. Under all withdrawal programs, liquidation of shares in excess of
dividends and distributions reinvested will diminish and may exhaust your
account, particularly during a period of declining share values.
You may revoke or change your plan or redeem all of your remaining shares at
any time. Withdrawal payments will be continued until the shares are exhausted
or until the Fund or you terminate the plan by written notice to the other.
HOW TO EXCHANGE SHARES
BETWEEN SCOUT FUNDS
Shareholders may exchange their Fund shares, which have been held in open
account for 15 days or more, and for which good payment has been received, for
identically registered shares of any other Fund in the Scout Fund Group, which
is legally registered for sale in the state of residence of the investor
provided that the minimum amount exchanged from the Fund has a value of $1,000
or more and meets the minimum investment requirement of the Fund into which it
is exchanged. An exchange between two Scout Funds is treated as a sale of the
shares from which the exchange occurs and a purchase of shares of the Fund
into which the exchange occurs. Exchanging shareholders will receive the next
quoted prices for their shares after the request is received in good order.
(See How Share Price is Determined.)
To authorize the Telephone/Telegraph Exchange Privilege, all registered owners
must authorize this privilege on the original application, or the Fund must
receive a special authorization form, provided upon request. During periods of
increased market activity, you may have difficulty reaching the Fund by
telephone, in which case you should contact the Fund by mail or telegraph. The
Fund reserves the right to initiate a charge for this service at any time, and
may terminate or modify any or all of the privileges in connection with this
service at any time and without prior notice under any circumstances (such as
during periods of market instability or if the Fund has difficulty valuing its
shares) where continuance of these privileges would be detrimental to the Fund
or its shareholders, or under any other circumstances, upon 60 days written
notice to shareholders. The Fund will not be responsible for the consequences
of delays including delays in the banking or Federal Reserve wire systems.
The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and if such procedures are not
followed, the Fund may be liable for losses due to unauthorized or fraudulent
instructions. Such procedures may include, but are not limited to requiring
personal identification prior to acting upon instructions received by
telephone, providing written confirmations of such transactions and/or tape
recording of telephone instructions.
Exchanges by mail may be accomplished by a written request properly signed by
all registered owners identifying the account by name and number, the number
of shares or dollar amount to be redeemed for exchange and the Scout Fund into
which the account is being transferred.
If you wish to exchange part or all of your shares in the Fund for shares of
another Fund in the Scout Fund Group, you should review the prospectus
carefully. Any such exchange will be based upon the respective net asset
values of the shares involved. An exchange between Funds involves the sale of
an asset. Unless the shareholder account is tax-deferred, this is a taxable
event.
HOW SHARE PRICE IS DETERMINED
The net asset value per share of the Fund is computed once daily, Monday
through Friday, at the specific time during the day that the Board of
Directors of the Fund sets at least annually, except on days on which changes
in the value of portfolio securities will not materially affect the net asset
value, or days during which no security is tendered for redemption and no
order to purchase or sell such security is received by the Fund, or customary
holidays. For a list of the holidays during which the Fund is not open for
business, see How Share Price is Determined in the Statement of Additional
Information.
The per share calculation is made by subtracting from total assets any
liabilities and then dividing into this net amount the total outstanding
shares as of the date of the calculation.
The price at which new shares of the Fund will be sold and at which issued
shares presented for redemption will be liquidated is computed once daily at
3:00 P.M. (Central Time), except on those days when the Fund is not open for
business.
Money market securities which on the date of valuation have 60 days or less to
maturity, are valued on the basis of the amortized cost valuation technique
which involves valuing a security at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of the
instrument.
Each security listed on an Exchange is valued at its last sale price on that
Exchange on the date as of which assets are valued. Where the security is
listed on more than one Exchange, the Fund will use the price of that Exchange
which is generally considered to be the principal Exchange on which the
security is traded. Lacking sales, the security is valued at the mean between
the current closing bid and asked prices. An unlisted security for which over-
the-counter market quotations are readily available is valued at the mean
between the last current bid and asked prices. When market quotations are not
readily available, any security or other asset is valued at its fair value as
determined in good faith by the Board of Directors.
Debt securities (other than short-term obligations), including listed issues,
are valued on the basis of valuations furnished by a pricing service which
utilizes both dealer-supplied valuations and electronic data processing
techniques which take into account appropriate factors such as institution-
size trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics and other market data,
without exclusive reliance upon exchange or over-the-counter prices, since
such valuations are believed to reflect more accurately the fair value of such
securities. Use of the pricing service has been approved by the Fund's Board
of Directors.
OFFICERS AND DIRECTORS
The officers of the Fund manage its day-to-day operations. The Fund's manager
and officers are subject to the supervision and control of the Board of
Directors. A list of the officers and directors of the Fund and a brief
statement of their present positions and principal occupations during the past
five years is set forth in the Statement of Additional Information.
MANAGER AND UNDERWRITER
Jones & Babson, Inc. was founded in 1960. It organized the Fund in 1997 and
acts as its principal underwriter at no cost to the Fund.
UMB Bank, n.a., 1010 Grand Blvd., Kansas City, MO 64106, is the Fund's manager
and investment adviser and provides or pays the cost of all management,
supervisory and administrative services required in the normal operation of
the Fund.
The various costs borne by UMB Bank, n.a., include investment management and
supervision; fees of the custodian, independent public accountants and legal
counsel; remuneration of officers, directors and other personnel; rent;
shareholder services, including the maintenance of the shareholder accounting
system and transfer agency; and such other items as are incidental to
corporate administration. Not considered normal operating expenses, and
therefore payable by the Fund, are taxes, fees and other charges of
governments and their agencies, including the cost of qualifying the Fund's
shares for sale in any jurisdiction, interest, brokerage costs and all costs
and expenses including legal and accounting fees incurred in anticipation of
or arising out of litigation or administrative proceedings to which the Fund,
its officers or directors may be subject or a party thereto.
Jones & Babson, Inc. acts as principal underwriter for the Fund at no cost to
the Fund. UMB Bank, n.a. employs at its own expense Jones & Babson, Inc. to
provide services to the Fund, including the maintenance of the shareholder
accounting system and transfer agency, and such other items as are incidental
to corporate administration. The cost of the services of Jones & Babson, Inc.
is included in the fee of UMB Bank, n.a.
As compensation for all the foregoing services, the Fund pays UMB Bank, n.a. a
fee at the annual rate of 85/100 of one percent (.85%) of its total net
assets, which is computed daily and paid semimonthly.
UMB Bank, n.a., is also the investment manager for the eight other mutual
funds within the Scout Fund Group and currently manages approximately $12.5
billion in client assets on a discretionary basis. The Bank serves a broad
variety of individual, corporate and other institutional clients by
maintaining an extensive research and analytical staff. It has an experienced
investment analysis and research staff which eliminates the need for the Fund
to maintain an extensive duplicate staff, with the consequent increase in the
cost of investment advisory service.
David R. Bagby is the portfolio manager for Scout Capital Preservation Fund.
He has been with UMB Bank, n.a., since 1993 and has over 24 years of
investment management experience. Mr. Bagby is a Chartered Financial Analyst.
The Management Agreement limits the liability of the manager, as well as its
officers, directors and personnel, to acts or omissions involving willful
malfeasance, bad faith, gross negligence or reckless disregard of their
duties.
Certain officers and directors of the Fund are also officers or directors or
both of other Scout Funds or Jones & Babson, Inc.
Jones & Babson, Inc. is a wholly-owned subsidiary of Business Men's Assurance
Company of America, which is considered to be a controlling person under the
Investment Company Act of 1940. Assicurazioni Generali S.p.A., an insurance
organization founded in 1831 based in Trieste, Italy, is considered to be a
controlling person and is the ultimate parent of Business Men's Assurance
Company of America. Mediobanca is a 5% owner of Generali.
The current Management Agreement between the Fund and UMB Bank, n.a. will
continue in effect until October 31, 1999, and will continue automatically for
successive annual periods ending each October 31 so long as such continuance
is specifically approved at least annually by the Board of Directors of the
Fund or by the vote of a majority of the outstanding voting securities of the
Fund, and, provided also that such continuance is approved by the vote of a
majority of the directors who are not parties to the Agreement or interested
persons of any such party at a meeting held in person and called specifically
for the purpose of evaluating and voting on such approval. The Agreement
provides that either party may terminate by giving the other 60 days written
notice. The Agreement terminates automatically if assigned by either party, as
required under the Investment Company Act of 1940.
GENERAL INFORMATION AND HISTORY
The Fund, incorporated in Maryland on October 16, 1997, has a present
authorized capitalization of 10,000,000 shares of $1 par value common stock.
The Fund may divide its shares into separate series and classes with the
approval of its Board of Directors. The Fund currently issues a single class
of shares which all have like rights and privileges. Each full and fractional
share, when issued and outstanding, has: (1) equal voting rights with respect
to matters which affect the Fund; and (2) equal dividend, distribution and
redemption rights to the assets of the Fund. Shares when issued are fully paid
and non-assessable. The Fund will not issue any senior securities.
Shareholders do not have pre-emptive or conversion rights.
Non-cumulative voting - These shares have non- cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of directors can elect 100% of the directors, if they choose to do
so, and in such event, the holders of the remaining less than 50% of the
shares voting will not be able to elect any directors.
The Maryland General Corporation Law permits registered investment companies,
such as the Fund, to operate without an annual meeting of shareholders under
specified circumstances if an annual meeting is not required by the Investment
Company Act of 1940. There are procedures whereby the shareholders may remove
directors. These procedures are described in the Statement of Additional
Information under the caption Officers and Directors. The Fund has adopted
the appropriate provisions in its By-Laws and will not hold annual meetings of
shareholders for the following purposes unless required to do so: (1) election
of directors; (2) approval of any investment advisory agreement; (3)
ratification of the selection of independent public accountants; and (4)
approval of a distribution plan. As a result, the Fund does not intend to hold
annual meetings.
Federal Banking Laws - The Glass-Steagall Act is a federal law that prohibits
national banks from sponsoring, distributing or controlling a registered open-
end investment company. It is possible that certain activities of UMB Bank,
n.a. relating to the Fund may be claimed to be comparable to the matters
covered by such provisions. It is not expected that any conclusions regarding
such activities of UMB Bank, n.a. would have any material effect on the assets
of the Fund or its shareholders, because the Fund's distribution is under the
control of Jones & Babson, Inc., the Fund's distributor, which is not subject
to the Glass-Steagall Act. Although it is not anticipated that decisions under
the Glass-Steagall Act adverse to UMB Bank, n.a. would have any material
effect on the conduct of the Fund's operations, if any unanticipated changes
affecting the Fund's operations were deemed appropriate the Board of Directors
would promptly consider suitable adjustments.
The Fund may use the name Scout in its name so long as UMB Bank, n.a. is
continued as its manager. Complete details with respect to the use of the name
are set out in a licensing agreement between the Fund, Jones & Babson, Inc.
and UMB Bank, n.a.
This prospectus omits certain of the information contained in the registration
statement filed with the Securities and Exchange Commission, Washington, D.C.
These items may be inspected at the offices of the Commission or obtained from
the Commission upon payment of the fee prescribed.
DIVIDENDS, DISTRIBUTIONS
AND THEIR TAXATION
The Fund pays dividends from net investment income semiannually, usually in
June and December. Distributions from capital gains realized on the sale of
securities, if any, will be declared annually on or before December 31.
Dividend and capital gains distributions will be reinvested automatically in
additional shares at the net asset value per share computed and effective at
the close of business on the day after the record date, unless the shareholder
has elected on the original application, or by written instructions filed with
the Fund, to have them paid in cash.
The Fund intends to qualify for taxation as a regulated investment company
under the Internal Revenue Code so that the Fund will not be subject to
federal income tax to the extent that it distributes its income to its
shareholders. As such, the Fund will not be subject to federal income tax, or
to any excise tax, to the extent its earnings are distributed as provided in
the Internal Revenue Code and by satisfying certain other requirements
relating to the sources of its income and diversification of its assets.
Dividends, either in cash or in reinvested shares, paid by the Fund from net
investment income will be taxable to shareholders as ordinary income, and will
generally qualify in part for the 70% dividends-received deduction for
corporations. The portion of the dividends so qualified depends on the
aggregate taxable qualifying dividend income received by the Fund from
domestic (U.S.) sources. The Fund will send to shareholders a statement each
year advising the amount of the dividend income which qualifies for such
treatment.
Dividends from net investment income on net short-term gains will be taxable
to those investors who are subject to income taxes as ordinary income, whether
received in cash or in additional shares. Whether paid in cash or additional
shares of the Fund, and regardless of the length of time Fund shares have been
owned by the shareholder, distributions from long-term capital gains are
taxable to shareholders as such, but are not eligible for the dividends-
received deduction for corporations. The Fund does not try to realize any
particular amount of capital gains during a year; rather, realized gains are a
by-product of Fund management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year. Also,
for those investors subject to tax, if purchases of shares in a Fund are made
shortly before a record date for a dividend or capital gains distribution, a
portion of the investment will be returned as a taxable distribution.
The Taxpayer Relief Act of 1997 creates a category of long-term capital gain
for individual taxpayers that will be taxed at new lower tax rates. For
investors who are in the 28% or higher federal income tax brackets, these
gains will be taxed at a maximum of 20%. For investors who are in the 15%
federal income tax bracket, these gains will be taxed at a maximum of 10%.
Capital gains distributions will qualify for these new maximum tax rates,
depending on when the Fund's securities were sold and how long they were held
by the Fund before they were sold. Investors who want more information on
holding periods and other qualifying rules relating to these new rates should
review the expanded discussion in the Statement of Additional Information,
or should contact their personal tax advisors. Shareholders are notified
annually by the Fund as to federal tax status of dividends and distributions
paid by the Fund. Such dividends and distributions may also be subject to
state and local taxes.
Exchange and redemption of Fund shares are taxable events for federal income
tax purposes. Shareholders may also be subject to state and municipal taxes on
such exchanges and redemptions. Any loss incurred on a sale or exchange of
Fund shares held for six months or less will be treated as a long-term capital
loss to the extent of capital gain dividends received with respect to such
shares. You should consult your tax adviser with respect to the tax status of
distributions from the Fund in your state and locality.
The Fund intends to declare and pay dividends and capital gains distributions
so as to avoid imposition of the federal excise tax. To do so, the Fund
expects to distribute during each calendar year an amount equal to: (1) 98% of
its calendar year ordinary income; (2) 98% of its capital gains net income
(the excess of short- and long-term capital gain over short- and long-term
capital loss) for the one-year period ending each October 31; and (3) 100% of
any undistributed ordinary or capital gain net income from the prior calendar
year. Dividends declared in October, November or December and made payable to
shareholders of record in such a month are deemed to have been paid by the
Fund and received by shareholders on December 31 of such year, so long as the
dividends are actually paid before February 1 of the following year.
To comply with IRS regulations, the Fund is required by federal law to
withhold 31% of reportable payments (which may include dividends, capital
gains distributions and redemptions) paid to shareholders who have not
complied with IRS regulations. In order to avoid this withholding requirement,
shareholders must certify on their application, or on a separate form supplied
by the Fund, that their Social Security or Taxpayer Identification Number
provided is correct and that they are not currently subject to backup
withholding, or that they are exempt from backup withholding.
The federal income tax status of all distributions will be reported to
shareholders each January as a part of the annual statement of shareholder
transactions. Shareholders not subject to tax on their income will not be
required to pay tax on amounts distributed to them.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL INFORMATION
ONLY. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS WITH RESPECT
TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE FUND.
SHAREHOLDER SERVICES
The Fund and its manager offer shareholders a broad variety of services
described throughout this prospectus. In addition, the following services are
available.
Prototype Retirement Plans - UMB Bank, n.a. has drafted several IRS-approved-
as-to-form prototype retirement plans to assist individuals, sole proprietors,
partnerships and corporations in meeting their tax qualified retirement plan
needs.
Individual Retirement Account (IRA) - The Bank also makes available IRA
accounts for individuals.
For further information about these services, please contact UMB Bank, n.a.
SHAREHOLDER INQUIRIES
Telephone inquiries may be made toll free to the Fund, 1-800-996-2862.
Shareholders may address written inquiries to the Fund at:
Scout Capital Preservation Fund, Inc.
P.O. Box 410498
Kansas City, MO 64141-0498
For express delivery services:
Scout Capital Preservation Fund, Inc.
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306
Scout Stock Fund
Scout Regional Fund
Scout WorldWide Fund
Scout Capital Preservation Fund
Scout Bond Fund
Scout Balanced Fund
Scout Money Market Fund
Scout Tax-Free Money Market Fund
Scout Kansas Tax-Exempt Bond Fund*
No-Load Mutual Funds
*Available in Kansas and Missouri only.
Manager and Investment Counsel
UMB Bank, n.a., Kansas City, Missouri
Auditors
Baird, Kurtz & Dobson, Kansas City, Missouri
Legal Counsel
Stradley, Ronon, Stevens & Young, LLP,
Philadelphia, Pennsylvania
John G. Dyer, Kansas City, Missouri
Custodian
UMB Bank, n.a., Kansas City, Missouri
JONES & BABSON
MUTUAL FUNDS
P.O. Box 410498
Kansas City, MO 64141-0498
TOLL-FREE 1-800-996-2862
JB150 2/98
<PAGE>
PART B
SCOUT CAPITAL PRESERVATION FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
February 23, 1998
This Statement is not a Prospectus but should be read in conjunction
with the Fund's current Prospectus dated February 23, 1998. To obtain
the Prospectus please call the Fund toll-free at 1-800-996-2862.
TABLE OF CONTENTS
Page
Investment Objective and Policies 2
Portfolio Transactions 2
Investment Restrictions 3
Performance Measures 3
How the Fund's Shares are Distributed 4
How Share Purchases are Handled 4
Redemption of Shares 5
Signature Guarantees 5
Dividends, Distributions and Taxes 5
Manager and Underwriter 7
How Share Price is Determined 7
Officers and Directors 8
Custodian 10
Independent Certified Public Accountants 10
Fixed Income Securities Described and Ratings 11
Other Scout Funds 13
Financial Statements 14
INVESTMENT OBJECTIVE
AND POLICIES
The following policies supplement the Fund's investment objective and
policies set forth in the Prospectus.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Fund are made by UMB Bank,
n.a. Officers of the Fund and Jones & Babson, Inc. are generally
responsible for implementing or supervising these decisions, including
allocation of portfolio brokerage and principal business and the
negotiation of commissions and/or the price of the securities.
The Fund in purchasing and selling portfolio securities will seek the
best available combination of execution and overall price (which shall
include the cost of the transaction) consistent with the circumstances
which exist at the time. The Fund does not intend to solicit competitive
bids on each transaction.
The Fund believes it is in its best interest and that of its
shareholders to have a stable and continuous relationship with a diverse
group of financially strong and technically qualified broker-dealers who
will provide quality executions at competitive rates. Broker-dealers
meeting these qualifications also will be selected for their
demonstrated loyalty to the Fund, when acting on its behalf, as well as
for any research or other services provided to the Fund. The Fund
normally will not pay a higher commission rate to broker-dealers
providing benefits or services to it than it would pay to broker-dealers
who do not provide such benefits or services. However, the Fund reserves
the right to do so within the principles set out in Section 28(e) of the
Securities Exchange Act of 1934 when it appears that this would be in
the best interests of the shareholders.
No commitment is made to any broker or dealer with regard to placing of
orders for the purchase or sale of Fund portfolio securities, and no
specific formula is used in placing such business. Allocation is
reviewed regularly by both the Board of Directors of the Fund and by UMB
Bank, n.a.
Since the Fund does not market its shares through intermediary brokers
or dealers, it is not the Fund's practice to allocate brokerage or
principal business on the basis of sales of its shares which may be made
through such firms. However, it may place portfolio orders with
qualified broker-dealers who recommend the Fund to other clients, or who
act as agent in the purchase of the Fund's shares for their clients.
Research services furnished by broker-dealers may be useful to the Fund
manager in serving other clients, as well as the Fund. Conversely, the
Fund may benefit from research services obtained by the manager from the
placement of portfolio brokerage of other clients.
When it appears to be in the best interests of its shareholders, the
Fund may join with other clients of the manager in acquiring or
disposing of a portfolio holding. Securities acquired or proceeds
obtained will be equitably distributed between the Fund and other
clients participating in the transaction. In some instances, this
investment procedure may affect the price paid or received by the Fund
or the size of the position obtained by the Fund.
The Fund does not intend to purchase securities solely for short-term
trading; nor will securities be sold for the sole purpose of realizing
gains. However, a security may be sold and another of comparable quality
purchased at approximately the same time to take advantage of what the
Fund's manager believes to be a disparity in the normal yield
relationship between the two securities. In addition, a
security may be sold and another purchased when, in the opinion of
management, a favorable yield spread exists between specific issues or
different market sectors.
Short-term debt instruments with maturities of less than one year are
excluded from the calculation of portfolio turnover.
INVESTMENT RESTRICTIONS
In addition to the investment objective and portfolio management
policies set forth in the Prospectus under the caption "Investment
Objective and Portfolio Management Policy," the following restrictions
also may not be changed without approval of the "holders of a majority
of the outstanding shares" of the Fund.
The Fund will not: (1) as to 75% of its total assets, purchase the
securities of any one issuer, except the United States Government, if
immediately after and as a result of such purchase (a) the value of the
holdings of the Fund in the securities of such issuer exceeds 5% of the
value of the Fund's total assets, or (b) the Fund owns more than 10% of
the outstanding voting securities, or any other class of securities, of
such issuer; (2) engage in the purchase or sale of real estate or
commodities; (3) underwrite the securities of other issuers; (4) make
loans to other persons, except by the purchase of debt obligations which
are permitted under its policy (the purchase of a security subject to a
repurchase agreement or the purchase of a portion of publicly
distributed debt securities is not considered a loan); (5) purchase
securities on margin, or sell securities short; (6) borrow or pledge its
credit under normal circumstances, except up to 10% of its gross assets
(computed at the lower of fair market value or cost) for temporary or
emergency purposes, and not for the purpose of leveraging its
investments, and provided further that any borrowing in excess of 5% of
the total assets of the Fund shall have asset coverage of at least 3 to
1; or (7) issue senior securities except for those investment procedures
permissible under the Fund's other restrictions.
The following are "non-fundamental" restrictions, which may be changed
by the Board of Directors of the Fund without shareholder approval:
The Fund will not: (1) invest in companies for the purpose of exercising
control of management; (2) purchase shares of other investment companies
except as permitted under the Investment Company Act of 1940, as amended
from time to time, or pursuant to a plan of merger or consolidation; (3)
invest in the aggregate more than 5% of the value of its gross assets in
the securities of issuers (other than federal, state, territorial, or
local governments, or corporations, or authorities established thereby),
which, including predecessors, have not had at least three years'
continuous operations; (4) enter into dealings with its officers or
directors, its manager or underwriter, or their officers or directors,
or any organization in which such persons have a financial interest
except for transactions in the Fund's own shares or other securities
through brokerage practices which are considered normal and generally
accepted under the circumstances existing at the time; or (5) invest in
securities issued by UMB Financial Corporation or affiliate banks of UMB
Financial Corporation.
PERFORMANCE MEASURES
Total Return
"Average annual total return" figures are computed according to a
formula prescribed by the Securities and Exchange Commission. The
formula can be expressed as follows:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year (or other)
periods at the end of the 1, 5 or 10 year (or other) periods (or
fractional portions thereof).
HOW THE FUND'S SHARES
ARE DISTRIBUTED
Jones & Babson, Inc., as agent of the Fund, agrees to supply its best
efforts as sole distributor of the Fund's shares and, at its own
expense, pay all sales and distribution expenses in connection with
their offering other than registration fees and other government
charges.
Jones & Babson, Inc. does not receive any fee or other compensation
under the distribution agreement with the Fund which continues in effect
until October 31, 1999 and which will continue automatically for
successive annual periods ending each October 31, if continued at least
annually by the Fund's Board of Directors, including a majority of those
directors who are not parties to such Agreement or interested persons of
any such party. It terminates automatically if assigned by either party
or upon 60 days written notice by either party to the other.
HOW SHARE PURCHASES
ARE HANDLED
Each order accepted will be fully invested in whole and fractional
shares, unless the purchase of a certain number of whole shares is
specified, at the net asset value per share next effective after the
order is accepted by the Fund.
Each investment is confirmed by a year-to-date statement which provides
the details of the immediate transaction, plus all prior transactions in
your account during the current year. This includes the dollar amount
invested, the number of shares purchased or redeemed, the price per
share and the aggregate shares
owned. A transcript of all activity in your account during the previous
year will be furnished each January. By retaining each annual summary
and the last year-to-date statement, you have a complete detailed
history of your account which provides necessary tax information. A
duplicate copy of a past annual statement is available from Jones &
Babson, Inc. at its cost, subject to a minimum charge of $5 per account,
per year requested.
Normally, the shares which you purchase are held by the Fund in open
account, thereby relieving you of the responsibility of providing for
the safekeeping of a negotiable share certificate. Should you have a
special need for a certificate, one will be issued on request for all or
a portion of the whole shares in your account. There is no charge for
the first certificate issued. A charge of $3.50 will be made for any
replacement certificates issued. In order to protect the interests of
the other shareholders, share certificates will be sent to those
shareholders who request them only after the Fund has determined that
unconditional payment for the shares represented by the certificate has
been received by its custodian, UMB Bank, n.a.
If an order to purchase shares must be canceled due to non-payment, the
purchaser will be responsible for any loss incurred by the Fund arising
out of such cancellation. To recover any such loss, the Fund reserves
the right to redeem shares owned by any purchaser whose order is
canceled, and such purchaser may be prohibited or restricted in the
manner of placing further orders.
The Fund reserves the right in its sole discretion to withdraw all or
any part of the offering made by the Prospectus or to reject purchase
orders when, in the judgment of management, such withdrawal or rejection
is in the best interest of the Fund and its shareholders. The Fund also
reserves the right at any time to waive or increase the minimum
requirements applicable to initial or subsequent investments with
respect to any person or class of persons, which include shareholders of
the Fund's special investment programs.
REDEMPTION OF SHARES
The right of redemption may be suspended, or the date of payment
postponed beyond the normal three-day period by the Fund's Board of
Directors under the following conditions authorized by the Investment
Company Act of 1940: (1) for any period (a) during which the New York
Stock Exchange is closed, other than customary weekend and holiday
closing, or (b) during which trading on the New York Stock Exchange is
restricted; (2) for any period during which an emergency exists as a
result of which (a) disposal by the Fund of securities owned by it is
not reasonably practicable, or (b) it is not reasonably practicable for
the Fund to determine the fair value of its net assets; or (3) for such
other periods as the Securities and Exchange Commission may by order
permit for the protection of the Fund's shareholders.
The Fund may satisfy redemption requests by distributing securities in
kind. If shares are redeemed in kind, the redeeming shareholder may
incur brokerage costs in converting the assets to cash. The method of
valuing securities used to make redemptions in kind will be the same as
the method of valuing portfolio securities described under "How Share
Price is Determined" in the Prospectus, and such valuation will be made
as of the same time the redemption price is determined.
SIGNATURE GUARANTEES
Signature guarantees normally reduce the possibility of forgery and are
required in connection with each redemption method to protect
shareholders from loss. Signature guarantees are required in connection
with all redemptions of $50,000 or more by mail or changes in share
registration, except as provided in the Prospectus.
Signature guarantees must appear together with the signatures(s) of the
registered owner(s), on:
(1) a written request for redemption;
(2) a separate instrument of assignment, which should specify the
total number of shares to be redeemed (this "stock power" may be obtained
from the Fund or from most banks or stock brokers); or
(3) all stock certificates tendered for redemption.
DIVIDENDS, DISTRIBUTIONS
AND TAXES
Distributions of Net Investment Income. The Fund receives income
generally in the form of dividends, interest, original issue, market and
acquisition discount, and other income derived from its investments.
This income, less expenses incurred in the operation of the Fund,
constitutes its net investment income from which dividends may be paid
to you. Any distributions by the Fund from such income will be taxable
to you, whether you take them in cash or in additional shares.
Distributions of Capital Gains. The Fund may derive capital gains and
losses in connection with sales or other dispositions of its portfolio
securities. Distributions derived from the excess of net short-term
capital gains over net long-term capital losses will be taxable to you
as ordinary income. Distributions paid from long-term capital gains
realized by the Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your shares in the Fund. Any net
short-term or long-term capital gains realized by the Fund (net of any
capital loss carryovers) will generally be distributed once each year,
and may be distributed more frequently, if necessary, in order to reduce
or eliminate federal excise or income taxes on the Fund.
Under the Taxpayer Relief Act of 1997 (the "1997 Act"), the Fund is
required to track its sales of portfolio securities and to report its
capital gains distributions to you according to the following categories
of holding periods:
"28 percent tax rate gains:" Securities sold by the Fund after July 28,
1997 that were held for more than one year but not more than 18 months,
and under a transitional rule securities sold by the Fund before May 7,
1997
that were held for more than 12 months. These gains will be taxable to
individual investors at a maximum rate of 28%.
"20 percent tax rate gains:" Securities sold by the Fund after July 28,
1997 that were held for more than 18 months, and under a transitional
rule securities sold by the Fund between May 7, 1997 and July 28, 1997
that were held for more than 12 months. These gains will be taxable to
individual investors at a maximum rate of 20% for investors in the 28%
or higher federal income tax rate brackets, and at a maximum rate of 10%
for investors in the 15% federal income tax rate bracket.
"Qualified 5-year gains:" For individuals in the 15% federal income tax
rate bracket, qualified 5-year gains are net gains on securities held
for more than 5 years which are sold after December 31, 2000. For
individuals who are subject to tax at higher federal income tax rate
brackets, qualified 5-year gains are net gains on securities which are
purchased after December 31, 2000 and are held for more than 5 years.
Taxpayers subject to tax at the higher federal income tax rate brackets
may also make an election for shares held on January 1, 2001 to
recognize gain on their shares in order to qualify such shares as
qualified 5-year property. These gains will be taxable to individual
investors at a maximum rate of 18% for investors in the 28% or higher
federal income tax brackets, and at a maximum rate of 8% for investors
in the 15% federal income tax rate bracket.
The Fund will advise you in its annual information reporting at calendar
year end of the amount of its capital gains distributions which will
qualify for these maximum federal tax rates for each calendar year.
Questions concerning each investor's personal tax reporting should be
addressed to the investor's personal tax advisor.
Election to be Taxed as a Regulated Investment Company. The Fund has
elected to be treated as a regulated investment company under Subchapter
M of the Internal Revenue Code ("Code"), and intends to so qualify
during the current fiscal year. The directors reserve the
right not to maintain the qualification of the Fund as a regulated
investment company if they determine such course of action to be
beneficial to you. In such case, the Fund will be subject to federal and
possibly state corporate taxes on its taxable income and gains, and
distributions to you will be taxed as ordinary dividend income to the
extent of the Fund's available earnings and profits.
In order to qualify as a regulated investment company for federal income
tax purposes, the Fund must meet certain specific requirements,
including:
(i) The Fund must maintain a diversified portfolio of securities,
wherein no security (other than U.S. Government securities and
securities of other regulated investment companies) can exceed 25% of
the Fund's total assets, and, with respect to 50% of the Fund's total
assets, no investment (other than cash and cash items, U.S. Government
securities and securities of other regulated investment companies) can
exceed 5% of the Fund's total assets;
(ii) The Fund must derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains
from the sale or disposition of stock or securities or foreign
currencies, or other income derived with respect to its business of
investing in such stock, securities or currencies;
(iii) The Fund must distribute to its shareholders at least 90% of its
net investment income and net tax-exempt income for each of its fiscal
years; and
(iv) The Fund must realize less than 30% of its gross income for each
fiscal year from gains from the sale of securities and certain other
assets that have been held by the Fund for less than three months
("short-short income"). The 1997 Act repealed the 30% short-short income
test for tax years of regulated investment companies beginning after
August 5, 1997; however, this rule may have continuing effect in some
states for purposes of classifying the Fund as a regulated investment
company.
Excise Tax Distribution Requirements. The Code requires the Fund to
distribute at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its capital gain net income earned during the
12-month period ending October 31 (in addition to amounts from the prior
year that were neither distributed nor taxed to the Fund) to you by
December 31 of each year in order to avoid federal excise taxes. The
Fund intends as a matter of policy to declare and pay sufficient
dividends in December or January (which are treated by you as received
in December) but does not guarantee and can give no assurances that its
distributions will be sufficient to eliminate all such taxes.
Dividends-Received Deduction for Corporations. Because the Fund's
income is derived primarily from dividends, a portion of its
distributions will generally be eligible for the intercorporate
dividends-received deduction. The dividends-received deduction will be
available only with respect to dividends designated by the Fund as
eligible for such treatment. Dividends so designated by the Fund must be
attributable to dividends earned by the Fund from U.S. corporations
which are not debt-financed. A holding period requirement applies both
at the Fund level and the corporate shareholder level. Under the 1997
Act, the amount that the Fund may designate as eligible for the
dividends-received deduction will be reduced or eliminated if the shares
on which the dividends earned by the Fund are debt-financed or held by
the Fund for less than a 46-day period during a 90-day period beginning
45 days before the ex-dividend date and ending 45 days after the ex-
dividend date. Similarly, if your Fund shares are debt-financed or held
by you for less than a 46-day period during a 90-day period beginning 45
days before the ex-dividend date and ending 45 days after the ex-
dividend date, then the dividend-received deduction for fund dividends
on your shares may also be reduced or eliminated. Even if designated as
dividends eligible for the dividend received deduction, all dividends
(including any deducted portion) must
be included in your alternative minimum taxable income calculation.
MANAGER AND UNDERWRITER
Pursuant to a Management Agreement, the Fund employs at its own expense
UMB Bank, n.a. as its manager and investment counsel. Jones & Babson,
Inc. serves as principal underwriter at no charge to the Fund.
The aggregate management fee payable to UMB Bank, n.a. by Scout Capital
Preservation Fund during the current fiscal year ending June 30, 1998,
from which UMB Bank, n.a. will pay all the Fund's expenses except those
payable directly by the Fund is .85%. The annual fee charged by UMB
Bank, n.a. covers all normal operating costs of the Fund.
HOW SHARE PRICE IS DETERMINED
The net asset value per share of the Fund portfolio is computed once
daily, Monday through Friday, at the specific time during the day that
the Board of Directors of the Fund sets at least annually, except on
days on which changes in the value of a Fund's portfolio securities will
not materially affect the net asset value, or days during which no
security is tendered for redemption and no order to purchase or sell
such security is received by the Fund, or the following holidays:
New Year's Day January 1
Martin Luther
King, Jr. Day Third Monday in January
Presidents' Holiday Third Monday in February
Good Friday Friday before Easter
Memorial Day Last Monday in May
Independence Day July 4
Labor Day First Monday in September
Thanksgiving Day Fourth Thursday in November
Christmas Day December 25
7
OFFICERS AND DIRECTORS
The Fund is managed by UMB Bank, n.a., subject to the supervision and
control of its Board of Directors. The following table lists the
officers and directors of the Fund and their ages. Unless noted
otherwise, the address of each officer and director is BMA Tower, 700
Karnes Blvd., Kansas City, Missouri 64108-3306. Except as indicated,
each has been an employee of Jones & Babson, Inc. for more than five
years.
* Larry D. Armel (56), President and Director, Jones & Babson, Inc.,
Scout Stock Fund, Inc., Scout Regional Fund, Inc., Scout Bond Fund,
Inc., Scout Money Market Fund, Inc., Scout Tax-Free Money Market Fund,
Inc., Scout WorldWide Fund, Inc., Scout Balanced Fund, Inc., Scout
Kansas Tax-Exempt Bond Fund, Inc., Shadow Stock Fund, Inc., David L.
Babson Growth Fund, Inc., D. L. Babson Money Market Fund, Inc., D.L.
Babson Tax-Free Income Fund, Inc., Babson Value Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund II, Inc., Babson-Stewart
Ivory International Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo
Equity Fund, Inc., Buffalo High Yield Fund, Inc., Buffalo USA Global
Fund, Inc., Investors Mark Series Fund, Inc.; Director, AFBA Five Star
Fund, Inc.; Trustee and President, D. L. Babson Bond Trust.
William E. Hoffman, D.D.S. (59), Director, Scout Stock Fund, Inc., Scout
Regional Fund, Inc., Scout Bond Fund, Inc., Scout Money Market Fund,
Inc., Scout Tax-Free Money Market Fund, Inc., Scout WorldWide Fund,
Inc., Scout Balanced Fund, Inc., Scout Kansas Tax-Exempt Bond Fund,
Inc.; Orthodontist, 3700 West 83rd Street, Suite 206, Prairie Village,
Kansas 66208.
_______________________________________
* Directors who are interested persons as that term is defined in
the Investment Company Act of 1940, as amended.
Eric T. Jager (54), Director, Scout Stock Fund, Inc., Scout Regional
Fund, Inc., Scout Bond Fund, Inc., Scout Money Market Fund, Inc., Scout
Tax-Free Money Market Fund, Inc., Scout WorldWide Fund, Inc., Scout
Balanced Fund, Inc., Scout Kansas Tax-Exempt Bond Fund, Inc.; President,
Windcrest Investment Management, Inc.; Director, Bartlett Futures, Inc.,
Nygaard Corporation, 4800 Main Street, Suite 600, Kansas City, Missouri
64112.
Stephen F. Rose (50), Director, Scout Stock Fund, Inc., Scout Regional
Fund, Inc., Scout Bond Fund, Inc., Scout Money Market Fund, Inc., Scout
Tax-Free Money Market Fund, Inc., Scout WorldWide Fund, Inc., Scout
Balanced Fund, Inc., Scout Kansas Tax-Exempt Bond Fund, Inc.; President,
Sun Publications, Inc., 7373 W. 107th Street, Overland Park, Kansas
66212.
Stuart Wien (74), Director, Scout Stock Fund, Inc., Scout Regional Fund,
Inc., Scout Bond Fund, Inc., Scout Money Market Fund, Inc., Scout Tax-
Free Money Market Fund, Inc., Scout WorldWide Fund, Inc., Scout Balanced
Fund, Inc., Scout Kansas Tax-Exempt Bond Fund, Inc.; Retired, 4589 West
124th Place, Leawood, Kansas 66209, formerly Chairman of the Board,
Milgram Food Stores, Inc.
P. Bradley Adams (37), Vice President and Treasurer, Jones & Babson,
Inc., Scout Stock Fund, Inc., Scout Bond Fund, Inc., Scout Money Market
Fund, Inc., Scout Tax-Free Money Market Fund, Inc., Scout Regional Fund,
Inc., Scout WorldWide Fund, Inc., Scout Balanced Fund, Inc., Scout
Kansas Tax-Exempt Bond Fund, Inc., David L. Babson Growth Fund, Inc., D.
L. Babson Money Market Fund, Inc., D. L. Babson Tax-Free Income Fund,
Inc., Babson Enterprise Fund, Inc., Babson Enterprise Fund
8
II, Inc., Babson Value Fund, Inc., Shadow Stock Fund, Inc., Babson-
Stewart Ivory International Fund, Inc., D.L. Babson Bond Trust, Buffalo
Balanced Fund, Inc., Buffalo Equity Fund, Inc., Buffalo High Yield Fund,
Inc., Buffalo USA Global Fund, Inc.; Vice President and Chief Financial
Officer, AFBA Five Star Fund, Inc.; Principal Financial Officer,
Investors Mark Series Fund, Inc.
Michael A. Brummel (40), Vice President, Assistant Secretary and
Assistant Treasurer, Jones & Babson, Inc., Scout Stock Fund, Inc., Scout
Bond Fund, Inc., Scout Money Market Fund, Inc., Scout Tax-Free Money
Market Fund, Inc., Scout Regional Fund, Inc., Scout WorldWide Fund,
Inc., Scout Balanced Fund, Inc., Scout Kansas Tax-Exempt Bond Fund,
Inc., David L. Babson Growth Fund, Inc., D.L. Babson Money Market Fund,
Inc., D.L. Babson Tax-Free Income Fund, Inc., Babson Enterprise Fund,
Inc., Babson Enterprise Fund II, Inc., Babson Value Fund, Inc., Shadow
Stock Fund, Inc., Babson-Stewart Ivory International Fund, Inc., D.L.
Babson Bond Trust, Buffalo Balanced Fund, Inc., Buffalo Equity Fund,
Inc., Buffalo High Yield Fund, Inc., Buffalo USA Global Fund, Inc.
Martin A. Cramer (48), Vice President and Secretary, Jones & Babson,
Inc., Scout Stock Fund, Inc., Scout Bond Fund, Inc., Scout Money Market
Fund, Inc., Scout Tax-Free Money Market Fund, Inc., Scout Regional Fund,
Inc., Scout WorldWide Fund, Inc., Scout Balanced Fund, Inc., Scout
Kansas Tax-Exempt Bond Fund, Inc., David L. Babson Growth Fund, Inc.,
D.L. Babson Money Market Fund, Inc., D.L. Babson Tax-Free Income Fund,
Inc., Babson Enterprise Fund, Inc., Babson Enterprise Fund II, Inc.,
Babson Value Fund, Inc., Shadow Stock Fund, Inc., Babson-Stewart Ivory
International Fund, Inc., D.L. Babson Bond Trust, Buffalo Balanced Fund,
Inc., Buffalo Equity Fund, Inc., Buffalo High Yield Fund, Inc., Buffalo
USA Global Fund, Inc.; Secretary and Assistant Vice President, AFBA Five
Star Fund, Inc.; Secretary, Investors Mark Series Fund, Inc.
John G. Dyer (52), Vice President and Legal Counsel, Scout Stock Fund,
Inc., Scout Regional Fund, Inc., Scout Bond Fund, Inc., Scout Money
Market Fund, Inc., Scout Tax-Free Money Market Fund, Inc., Scout
WorldWide Fund, Inc., Scout Balanced Fund, Inc., Scout Kansas Tax-Exempt
Bond Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo High Yield Fund, Inc., Buffalo USA Global Fund, Inc.
Constance E. Martin (36), Vice President. Assistant Vice President,
Jones & Babson, Inc.; Vice President, Scout Stock Fund, Inc., Scout Bond
Fund, Inc., Scout Money Market Fund, Inc., Scout Tax-Free Money Market
Fund, Inc., Scout Regional Fund, Inc., Scout WorldWide Fund, Inc., Scout
Balanced Fund, Inc., Scout Kansas Tax-Exempt Bond Fund, Inc., David L.
Babson Growth Fund, Inc., D.L. Babson Money Market Fund, Inc., D.L.
Babson Tax-Free Income Fund, Inc., Babson Enterprise Fund, Inc., Babson
Enterprise Fund II, Inc., Babson Value Fund, Inc., Babson-Stewart Ivory
International Fund, Inc., D.L. Babson Bond Trust, Shadow Stock Fund,
Inc., Buffalo Balanced Fund, Inc., Buffalo Equity Fund, Inc., Buffalo
High Yield Fund, Inc., Buffalo USA Global Fund, Inc.
Remuneration of Officers and Directors. None of the officers or
directors will be remunerated by the Fund for their normal duties and
services. Their compensation and expenses arising out of normal
operations will be paid by UMB Bank, n.a. under the provisions of the
Management Agreement.
Messrs. Hoffman, Jager, Rose and Wien have no financial interest in, nor
are they affiliated with, either Jones & Babson, Inc. or UMB Bank, n.a.
The Audit Committee of the Board of Directors is composed of Messrs.
Hoffman, Jager, Rose and Wien.
The officers and directors of the Fund as a group own less than 1% of
any of the Funds.
COMPENSATION TABLE
Pension or Estimated Total
Aggregate Retirement Annual Compensation
Compensation Benefits Accrued Benefits From All Scout
Name of For Fund As Part of Fund Upon Funds Paid to
Director Service Expenses Retirement Directors**
______________ ____________ ________________ ___________ _____________
Larry D. Armel* -- -- -- --
William E. Hoffman $250 -- -- $7,125
Eric T. Jager $250 -- -- $7,125
Stephen F. Rose $250 -- -- $7,125
Stuart Wien $250 -- -- $7,125
______________ ____________ ________________ ___________ ______________
* As an "interested director," Mr. Armel receives no compensation
for his services as director.
**The amounts reported in this column reflect the total compensation
expected to be paid to each director for his services as a director of
nine Scout Funds during the fiscal year ending June 30, 1998. Directors'
fees are paid by the Funds' manager and not by the Funds themselves.
The Fund will not hold annual meetings except as required by the
Investment Company Act of 1940 and other applicable laws. The Fund is a
Maryland corporation. Under Maryland law, a special meeting of
stockholders of the Fund must be held if the Fund receives the written
request for a meeting from the stockholders entitled to cast at least
25% of all the votes entitled to be cast at the meeting. The Fund has
undertaken that its directors will call a meeting of stockholders if
such a meeting is requested in writing by the holders of not less than
10% of the outstanding shares of the Fund. To the extent required by the
undertaking, the Fund will assist shareholder communications in such
matters.
CUSTODIAN
The Fund's portfolio assets are held for safekeeping by UMB Bank, n.a.
This means UMB Bank, n.a., rather than the Fund, has possession of the
Fund's cash and securities. As directed by the Fund's officers, it
delivers cash to those who have sold securities to the Fund in return
for such securities, and to those who have purchased portfolio
securities from the Fund, it
delivers such securities in return for their cash purchase price. It
also collects income directly from issuers of securities owned by the
Fund and holds this for payment to shareholders after deduction of the
Fund's expenses. UMB Bank, n.a. also functions as manager and investment
adviser to the Funds (see "Manager and Underwriter" in the Prospectus).
INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
The Fund's financial statements are audited annually by independent
certified public accountants approved by the directors each year, and in
years in which an annual meeting is held the directors may submit their
selection of independent certified public accountants to the
shareholders for ratification.
Reports to shareholders will be published at least semiannually.
Baird, Kurtz & Dobson, City Center Square, Suite 2700, 1100 Main Street,
Kansas City, Missouri 64105, is the present independent certified public
accountant for the Fund.
FIXED INCOME SECURITIES
DESCRIBED AND RATINGS
In evaluating investment suitability, each investor must relate the
characteristics of a particular investment under consideration to
personal financial circumstances and goals.
Description of Bond Ratings
Standard & Poor's Corporation (S&P).
AAA - Highest Grade. These securities possess the ultimate degree of
protection as to principal and interest. Marketwise, they move with
interest rates, and hence provide the maximum safety on all counts.
AA - High Grade. Generally, these bonds differ from AAA issues only in
a small degree. Here too, prices move with the long-term money market.
A - Upper-medium Grade. They have considerable investment strength,
but are not entirely free from adverse effects of changes in economic
and trade conditions. Interest and principal are regarded as safe. They
predominantly reflect money rates in their market behavior but, to some
extent, also economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay principal and interest
for bonds in this category than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and CC the
highest degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Moody's Investors Service, Inc. (Moody's).
Aaa - Best Quality. These securities carry the smallest degree of
investment risk and are generally referred to as "gilt-edge." Interest
payments are protected by a large, or by an exceptionally stable margin,
and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - High Quality by All Standards. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities, fluctuation of protective elements may be of greater
amplitude, or there may be other elements present which make the long-
term risks appear somewhat greater.
A - Upper-medium Grade. Factors giving security to principal and
interest are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteris-tics as well.
Ba - Bonds which are rated Ba are judged to have predominantly
speculative ele-ments; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad
11
times over the future. Uncertainty of position characterizes bonds in
this class.
B - Bonds which are rated B generally lack characteristics of the
desirable invest-ment. Assurance of interest and princi-pal payments or
maintenance of other terms of the contract over any long period of time
may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
Description of Commercial Paper Ratings
Moody's - Moody's commercial paper rating is an opinion of the ability
of an issuer to repay punctually promissory obligations not having an
original maturity in excess of nine months. Moody's has one rating -
prime. Every such prime rating means Moody's believes that the
commercial paper note will be redeemed as agreed. Within this single
rating category are the following classifications:
Prime - 1 Highest Quality
Prime - 2 Higher Quality
Prime - 3 High Quality
The criteria used by Moody's for rating a commercial paper issuer under
this graded system include, but are not limited to the following
factors:
(1) evaluation of the management of the issuer;
(2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative type risks which may be inherent in certain
areas;
(3) evaluation of the issuer's products in relation to competition and
customer acceptance;
(4) liquidity;
(5) amount and quality of long-term debt;
(6) trend of earnings over a period of ten years;
(7) financial strength of a parent company and relationships which
exist with the issuer; and
(8) recognition by the management of obligations which may be present
or may arise as a result of public interest questions and preparations
to meet such obligations.
S&P - Standard & Poor's commercial paper rating is a current assessment
of the likelihood of timely repayment of debt having an original
maturity of no more than 270 days. Ratings are graded into four
categories, ranging from "A" for the highest quality obligations to "D"
for the lowest. The four categories are as follows:
"A" Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designations 1, 2 and 3 to indicate the
relative degree of safety.
"A-1" This designation indicates that the degree of safety regarding
timely payment is very strong.
"A-2" Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming.
"A-3" Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying
the higher designations.
"B" Issues rated "B" are regarded as having only an adequate capacity
for timely payment. Furthermore, such capacity may be damaged by
changing conditions or short-term adversities.
"C" This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
"D" This rating indicates that the issuer is either in default or is
expected to be in default upon maturity.
OTHER SCOUT FUNDS
The Fund is one of nine no-load Funds comprising the Scout Fund Group,
managed by UMB Bank, n.a. The other Funds are:
SCOUT STOCK FUND, INC. was organized in 1982, with the objective of
long-term growth of both capital and dividend income. Current yield is
secondary to the long-term growth objective.
SCOUT REGIONAL FUND, INC. was organized in 1986, and now has the
objective of long-term growth of both capital and dividend income
through investment in smaller regional companies. Current yield is
secondary to the long-term growth objective.
SCOUT WORLDWIDE FUND, INC. was organized in 1993, with the objective of
investment in a diversified portfolio of equity securities (common
stocks and securities convertible into common stocks) of established
companies either located outside the U.S. or whose primary business is
carried on outside the country. The Fund seeks to generate a favorable
total return consisting of interest, dividend and other income, if any,
and appreciation in the value of the Fund's portfolio securities by
investing in equity
securities which in the opinion of the manager offer good growth
potential and in many cases pay dividends.
SCOUT KANSAS TAX-EXEMPT BOND FUND, INC. was organized in 1997, with the
objective of current income exempt from regular federal income tax and
Kansas state personal income taxes. The Fund seeks to achieve its
objective by investing at least 80% of its net assets in municipal bonds
or debt instruments, the interest on which is exempt from regular
federal income tax and from state personal income tax.
SCOUT BOND FUND, INC. was organized in 1982, with the objective of
providing shareholders with maximum current income consistent with its
quality and maturity standards by investing in a diversified portfolio
of fixed-income obligations.
SCOUT BALANCED FUND, INC. was organized in 1995, with the objective of
both long-term capital growth and high-current income.
SCOUT MONEY MARKET FUND, INC. was organized in 1982, and consists of the
Federal Portfolio and the Prime Portfolio, each of which invests in
high-quality, short-term debt instruments for the purpose of maximizing
income consistent with safety of principal and liquidity.
SCOUT TAX-FREE MONEY MARKET FUND, INC. was organized in 1982, with the
objective of providing investors with the highest level of investment
income exempt from federal income tax consistent with its quality and
maturity standards.
A prospectus for any of the Funds may be obtained from The Scout Fund
Group, P.O. Box 410498, Kansas City, MO 64141-0498.
<PAGE>
FINANCIAL STATEMENTS
Baird,
Kurtz &
Dobson
Certified Public Accountants
City Center Square
1100 Main Street, Suite 2700
Kansas City, MO 64105-2112
816 221-6300 Fax: 816 221-6380
http://www.bkd.com
Member of
Moores Rowland International
Independent Accountants' Report
To the Shareholders and
Board of Directors
Scout Capital Preservation Fund, Inc.
(in Organization)
Kansas City, Missouri
We have audited the accompanying statement of assets and liabilities of
SCOUT CAPITAL PRESERVATION FUND, INC. (in Organization), including the
statement of net assets as of January 13, 1998. These financial
statements are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit 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 are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting amounts and disclosures in the financial
statements. 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 audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of SCOUT
CAPITAL PRESERVATION FUND, INC. (in Organization) as of January 13,
1998, in conformity with generally accepted accounting principles.
/s/BAIRD, KURTZ & DOBSON
BAIRD, KURTZ & DOBSON
Kansas City, Missouri
January 13, 1998
SCOUT CAPITAL PRESERVATION FUND, INC.
(in Organization)
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 13, 1998
ASSETS
Cash $ 100,000
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) 100,000
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 100,000
Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 10,000
NET ASSET VALUE PER SHARE $10.00
See Note to Financial Statements
SCOUT CAPITAL PRESERVATION FUND, INC.
(in Organization)
STATEMENT OF NET ASSETS
JANUARY 13, 1998
CASH $ 100,000
TOTAL NET ASSETS (Equivalent to $10.00 per share;
10,000,000 shares of $1.00 par value common stock authorized;
l0,000 shares outstanding) $100,000
See Note to Financial Statements
SCOUT CAPITAL PRESERVATION FUND, INC.
(in Organization)
NOTE TO FINANCIAL STATEMENTS
JANUARY 13, 1998
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund, a new series of the Scout fund group, is in organization
with registration pending under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. On
January 13, 1998, the Fund deposited initial seed capital of $100,000 for
10,000 shares of $1.00 par value shares sold to a related party in order to
initiate registration with the Securities and Exchange Commission. A summary
of the significant accounting policies that the Fund uses in the preparation
of its financial statements follows. The policy is in conformity with
generally accepted accounting principles.
Fund Management
Management fees, which will include all normal expenses of the
Fund, other than taxes, fees, and other charges of governmental agencies
for qualifying the Fund's shares for sale, special legal fees, interest
and brokerage commissions, will be paid to UMB Bank, n.a., a related
party. The fees are based on average daily net assets of the Fund at the
annual rate of .85 of one percent of net assets. Certain officers and/or
directors of the Fund are also officers and/or directors of UMB Bank,
n.a.
Federal Income Taxes
The Fund complies with the Internal Revenue Code requirements
applicable to regulated investment companies and will distribute all
income to its shareholders. Therefore, no federal income tax provision
is required.
