UMB Scout Funds
CAPITAL PRESERVATION FUND
Annual Report June 30, 2000
A no-load mutual fund that seeks long-term capital growth
by investing in companies whose earnings or tangible assets
are expected to outpace inflation.
TO THE SHAREHOLDERS
In the past year, the financial markets continued to capture the nation's
fancy. The major drivers regarding financial asset prices over the last 12
months have been earnings and interest rates, as is typically the case.
However, last fall we witnessed a temporary detour from the "norm" as we
saw what turned out to be a speculative "bubble" being created when
investors purchased anything labeled ".com." While that bubble has not
burst, it is fair to say that much of the speculative "froth" has since
been eliminated from asset valuation levels.
In an effort to get a handle on the economy, Alan Greenspan conducted a
series of six interest rate increases designed to slow the economic
environment and ease any upward pressure on inflation rates. We are
beginning to see signs that the growth rate in the economy is decreasing.
For the time being, it appears that Mr. Greenspan's efforts were successful.
But what about the future? Will the economy continue to slow? And if it
does slow, could we slip into a recession? These are very significant
questions on many investors' minds. While we do not know what the future
holds, history would suggest that the economy is going to slow during the
remainder of 2000. Keep in mind that historically, the Federal Reserve,
currently headed by Greenspan, has had difficulty "fine tuning" the
economy. It has been shown that once the economy starts to slow, keeping it
out of a recessionary environment can be difficult. In our minds, recession
poses a major potential risk which investors may have to wrestle with
during the next 12 months.
Longer term, we continue to look at the investment landscape in a positive
sense. Inflation is low, and the economy is growing nicely. As long as
these two trends are at work, we believe that financial assets will
generate satisfactory returns.
In closing, we at UMB Investment Advisors would like to thank you, our
shareholders, for your continued support of the UMB Scout Funds. We fully
understand and appreciate the trust you have placed in our hands. We will
work hard to maintain that trust.
Respectfully,
/s/William B. Greiner
William B. Greiner
Executive Vice President
Chief Investment Officer
UMB Investment Advisors
Shares of the UMB Scout Funds are not deposits or obligations of, nor
guaranteed by, UMB Bank, n.a. or any other banking institution; nor are
they insured by the Federal Deposit Insurance Corporation ("FDIC") or any
other government agency. These shares involve investment risks, including
the possible loss of the principal invested.
TO THE SHAREHOLDERS
The UMB Scout Capital Preservation Fund closed the quarter ended June 30,
2000 at $9.59 per share and and had a total return (price change and
reinvested distributions) of 3.20% for the quarter and 0.58% for the fiscal
year. The Fund seeks to obtain long-term growth of capital by investing in
companies whose earnings or tangible assets are expected to outpace inflation.
The Federal Reserve (Fed) has had a significant impact on the financial
markets and the economy over the past year. The Fed began raising the
interest rates under its control in June of 1999, and while it was
increasing the cost of money on one hand, on the other it proceeded to
inject large quantities of funds into the economy in an effort to stave off
any Y2K mishaps. In the second half of 1999, the money supply, measured on
a 13-week rate of change basis, accelerated from a 4% growth rate to over
15%. As we projected in our December 31, 1999 semiannual report, we felt
once the Y2K hurdle was overcome, the Fed would become serious about
correcting the growing imbalances constantly referred to by Fed Chairman
Alan Greenspan. That has certainly been the case in this year's first six
months, as the rate of growth of the money supply has fallen by more than
50%. Therefore, not only has the cost of money risen, the growth rate of
the supply of funds has diminished, taking the steam out of the stock
market and, more recently, the economy. Specifically, the NASDAQ Composite,
last year's big winner and the major beneficiary of the speculative boom in
new ".com" issues, was growing at a 45% rate (measured on a 13-week rate of
change basis) going into year-end 1999. In this year's first six months,
the NASDAQ's 13-week rate of change dropped to -25%. Likewise, the economy,
as measured by retail sales, accelerated to a 4% growth rate during the
period when the Fed was adding "Y2K reserves," and has since fallen into
negative territory as retail sales have declined in recent months.
In preparing for the second half of 2000, we feel the bulk of the Federal
Reserve's restrictive steps has already been taken. The Fed has succeeded
in slowing the economy and the financial markets from their red-hot pace of
1999, thus decreasing the likelihood of further rate hikes. We are also
optimistic about the fact that historically, stocks tend to perform well in
the second half of an election year. We have, however, been frustrated by
the lack of response in the stocks of natural resources companies during
the run-up in the prices of their underlying natural resources.
Specifically, over the past 12 months crude oil rose 68% and natural gas
and gasoline each increased 87%, but the AMEX Oil Stock Index increased
only 2%. The same is true for gold. Over the past year, the price of gold
rose 10%, but the stocks of gold mining companies, as measured by the
Philadelphia Stock Exchange Gold and Silver Index, actually declined by 12%.
Because of the overall lack of participation from the stock of natural
resource companies, we have maintained substantial buying reserves, which
we will deploy as investors begin to respond to the underlying
fundamentals. It is likely that investors have been reluctant to move funds
into this area fearing that the Federal Reserve's tightening would slow our
economy, negatively affecting the demand for raw materials. However, with
other major economies around the world on the mend, domestic slowing should
be offset by increased foreign demand. Also, it is customary for a
country's currency to weaken as its economy's rate of growth slows. Since
most major commodities are traded in U.S. dollars, a weakening dollar
should help support commodity prices. In recent months, the dollar has, in
fact, begun to retreat. A continuation of this new trend would be beneficial
for natural-resources based companies and likely for their stocks as well.
The Fund is currently structured with approximately 45% in equities, 25% in
U.S. Treasury Inflation Indexed notes and the remainder in buying reserves
to be used for additions to the equity segment.
Thank you for your investment in the UMB Scout Capital Preservation Fund.
We value you as a shareholder and welcome your questions.
Sincerely,
/s/David R. Bagby, CFA
David R. Bagby, CFA
UMB Investment Advisors
CHART - HYPOTHETICAL GROWTH OF $10,000
UMB Scout Capital Preservation Fund
as of June 30, 2000
Chart - COMPARATIVE RATES OF RETURN
UMB Scout Capital Preservation Fund
as of June 30, 2000
Quarter 1 Year Inception
UMB Scout Capital
Preservation Fund 3.20% 0.58% 0.26%
Goldman Sachs
Commodity Index* 17.94% 59.62% N.A.
Consumer Price Index+ 0.70% 3.67% N.A.
Producer Price Index -
Finished Goods+ 0.29% 2.14% N.A.
Inception - February 23, 1998.
Performance data contained in this report are for past periods only. Past
performance is not indicative of future results. Investment return and
share value will fluctuate, and redemption value may be more or less than
original cost.
*Unmanaged index of stocks, bonds, commodities or mutual funds (there are
no direct investments or fees in these indices).
+Index of average prices paid by various sectors of the U.S. economy, as
calculated by the U.S. Department of Labor.
Chart - top ten equity holdings
UMB Scout Capital Preservation Fund
Market Percent
Value (000's) of Total
Helmerich & Payne, Inc. $ 45 4%
Newmont Mining Corp. 32 3%
Newhall Land & Farming Co. 32 3%
Imperial Oil Ltd. 32 3%
Kerr-McGee Corp. 30 3%
Canadian Pacific Ltd. 26 2%
Valmont Industries, Inc. 24 2%
Barrick Gold Corp. 24 2%
Halliburton Co. 24 2%
Union Pacific Resources 22 2%
Top Ten Equity Holdings Total:$290* 25%*
As of June 30, 2000, statement of assets. Subject to change.
*Market Values and Percents of Total are rounded; may not equal total.
Chart - fund diversification
UMB Scout Capital Preservation Fund
as of June 30, 2000
Chart - HISTORICAL PER SHARE RECORD
UMB Scout Capital Preservation Fund
Income & Cumulative**
Net Short-Term Long-Term Value Per
Asset Gains Gains Share Plus
Value Distribution Distribution Distributions
12/31/98 $8.91 0.13 - $ 9.04
12/31/99 9.59 0.24 - 9.96
06/30/00* 9.59 0.08 - 10.04
*Six-month only. Distributions typically occur in June and December.
**Does not assume any compounding of reinvested distributions.
Table shows calendar year distributions and net asset values; may differ
from fiscal year annual reports.
FINANCIAL STATEMENTS JUNE 30, 2000
Statement of Net Assets
Market
Shares DESCRIPTION Value
COMMON STOCKS - 45.4%
Consumer Staples - 1.4%
600 Corn Products International, Inc. $ 15,900
Energy - 18.1%
300 Baker Hughes, Inc. 9,600
500 Halliburton Co. 23,594
1,200 Helmerich & Payne, Inc. 44,850
1,300 Imperial Oil Ltd. 31,688
500 Kerr-McGee Corp. 29,469
200 Royal Dutch Petroleum Co. 12,313
200 Shell Transportation & Trading PLC 9,988
300 Texaco, Inc. 15,975
250 USX Marathon Group 6,264
1,000 Union Pacific Resources Group, Inc. 22,000
205,741
Finance - 2.8%
1,200 Newhall Land & Farming Co. 31,800
Industrials - 5.9%
1,000 Canadian Pacific Ltd. 26,188
4,000 Isco, Inc.* 17,000
1,200 Valmont Industries, Inc. 23,850
67,038
Materials - 16.3%
900 Aracruz Celulosa S.A., Sponsored ADR 17,381
1,000 Asa Ltd. 16,125
1,300 Barrick Gold Corp. 23,644
800 Broken Hill Proprietary Company Ltd.,
Sponsored ADR 19,000
800 Georgia Pacific Corp., Timber Group 17,300
2,000 Homestake Mining Co. 13,750
300 International Paper Co. 8,943
1,500 Newmont Mining Corp. 32,438
2,000 Placer Dome, Inc. 19,125
1,000 Wmc Limited, ADR 18,000
185,706
Utilities - 0.9%
200 El Paso Energy Corp. 10,187
TOTAL COMMON STOCKS (Cost $497,420) - 45.4% 516,372
FACE Market
AMOUNT DESCRIPTION Value
U.S. GOVERNMENT SECURITIES - 24.6%
$ 180,689 U.S. Treasury Note, 3.625%, due July 15, 2002 179,446
102,589 U.S. Treasury Note, 3.875%, due January 15, 2009 101,018
TOTAL U.S. GOVERNMENT SECURITIES (Cost $278,195) - 24.6% 280,464
REPURCHASE AGREEMENT (Cost $340,000) - 29.9%
$ 340,000 Northern Trust Co., 6.40%, due July 3, 2000
(Collateralized by U.S. Treasury Bonds,
11.875%, due November 15, 2003) 340,000
TOTAL INVESTMENTS (Cost $1,115,615) - 99.9% 1,136,836
Other assets less liabilities - 0.1% 939
TOTAL NET ASSETS - 100.0%
(equivalent to $9.59 per share; 10,000,000 shares of
$1.00 par value capital shares authorized;
118,683 shares outstanding) $ 1,137,775
For federal income tax purposes, the identified cost of investments owned
at June 30, 2000 was $1,115,616.
Net unrealized appreciation for federal income tax purposes was $21,221,
which is comprised of unrealized appreciation of $72,720 and unrealized
depreciation of $51,499.
*Non-income producing security
ADR - American Depository Receipt
See accompanying Notes to Financial Statements.
FINANCIAL STATEMENTS JUNE 30, 2000
StatementS of Assets and Liabilities
ASSETS:
Investment securities, at market value
(identified cost $1,115,615) $1,136,836
Dividends receivable 1,085
Interest receivable 4,829
Total assets 1,142,750
LIABILITIES:
Disbursements in excess of demand deposit cash 4,975
Total liabilities 4,975
NET ASSETS $1,137,775
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $1,147,968
Accumulated undistributed income:
Net investment income 3,986
Net realized loss on investment transactions (35,400)
Net unrealized appreciation on investments 21,221
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $1,137,775
Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 118,683
NET ASSET VALUE PER SHARE $ 9.59
See accompanying Notes to Financial Statements.
FINANCIAL STATEMENTS Year Ended June 30, 2000
Statements of Operations
INVESTMENT INCOME:
Income:
Dividends $ 9,176
Interest 27,271
36,447
Expenses:
Management fees 8,839
Net investment income 27,608
REALIZED and unrealized LOSS ON INVESTMENTS:
Net realized loss from investment transactions (13,870)
Decrease in net unrealized appreciation on investments (1,772)
Net realized and unrealized loss on investments (15,642)
Net increase in net assets resulting from operations $ 11,966
See accompanying Notes to Financial Statements.
FINANCIAL STATEMENTS
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 2000 June 30, 1999
</CAPTION>
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 27,608 $ 18,585
Net realized loss from investment activities (13,870) (21,530)
Increase (decrease) in net unrealized appreciation
on investments (1,772) 50,477
Net increase in net assets resulting from operations 11,966 47,532
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (24,748) (19,554)
Net realized gain from investment transactions - (1,611)
Decrease in net assets from distributions (24,748) (21,165)
INCREASE FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from 45,104 and 69,739
shares sold, respectively 427,425 645,264
Net asset value of 1,807 and 2,296 shares issued for
reinvestment of distributions, respectively 17,167 21,152
444,592 666,416
Cost of 22,652 and 33,974 shares redeemed (215,991) (319,542)
Net increase in net assets from
capital share transactions 228,601 346,874
Net increase in net assets 215,819 373,241
NET ASSETS:
Beginning of year 921,956 548,715
End of year (including undistributed net investment
income of $3,986 and $2,914, respectively) $1,137,775 $ 921,956
</TABLE>
See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The Fund
is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. A summary of
significant accounting policies that the Fund uses in the preparation of
its financial statements follows. The policies are in conformity with
generally accepted accounting principles.
Investments - Common stocks traded on a national securities exchange are
valued at the last reported sales price on the last business day of the
period or, if no sale was reported on that date, at the average of the last
reported bid and asked prices. Securities traded over-the-counter are
valued at the average of the last reported bid and asked prices. Short-term
obligations are valued at amortized cost, which approximates market value.
Investment transactions are recorded on the trade date. Interest income is
recorded daily. Dividend income and distributions to shareholders are
recorded on the ex-dividend dates. Realized gains and losses from
investment transactions and unrealized appreciation and depreciation of
investments are reported on the identified cost basis.
Federal Income Taxes - The Fund's policy is to comply with the requirements
of the Internal Revenue Code that are applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required. At June 30, 2000,
the Fund has a net capital loss carryover of $19,000 available to offset
future realized capital gains and thereby reduce further taxable gains
distributions.
Net investment income and net realized gains differ for financial statement
and tax purposes primarily because of the deferral of wash sale losses and
post-October losses.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate
characterization for federal income tax purposes due to GAAP/tax
differences in the character of income recognition.
Amortization - Discounts and premiums on securities purchased are amortized
over the life of the respective securities.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those
estimates.
2. PURCHASES AND SALES OF SECURITIES - The aggregate amounts of security
transactions during the year ended June 30, 2000 (excluding repurchase
agreements), were as follows:
Other than
U.S. Government U.S. Government
Securities Securities
Purchases $213,703 $ -
Proceeds from sales 100,391 -
3. MANAGEMENT FEES - UMB Bank, n.a. is the Fund's manager and investment
advisor and provides or pays the cost of all management, supervisory and
administrative services required in the normal operation of the Fund. This
includes investment management; fees of the custodian, independent public
accountants and legal counsel; remuneration of officers and directors;
rent; and shareholder services, including maintenance of the shareholder
accounting system and transfer agency. Not considered normal operating
expenses and therefore payable by the Fund are taxes, interest, fees and
the other charges of governments and their agencies for qualifying the
fund's shares for sale, special accounting and legal fees and brokerage
commissions. UMB Bank's management 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 Jones & Babson, Inc., which serves as the Fund's underwriter
and distributor.
4. REPURCHASE AGREEMENTS - Securities purchased under agreements to resell
are held by the Fund's custodian and investment counsel, UMB Bank, n.a. The
custodian monitors the market values of the underlying securities which
they have purchased on behalf of the Fund to ensure that the collateral is
sufficient to protect the Fund in the event of default by the seller.
5. SUBSEQUENT ACCOUNTING POLICY CHANGE - The Financial Accounting Standards
Board ("FASB") has issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"). This statement, as amended by SFAS No. 137, requires all derivatives
to be recorded on the balance sheet date at fair value and establishes
standard accounting methodologies for hedging activities. The standard will
result in the recognition of offsetting changes in value or cash flows of
both the hedge and the hedged item in net investment income in the same
period. The statement is effective for the Fund's fiscal year ending
June 30, 2001. Because the Fund does not normally hold derivative
instruments, the adoption of this statement is not expected to have a
material impact on the financial statements.
FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share
outstanding throughout the period.
<TABLE>
<CAPTION>
Years Ended June 30, February 23, 1998
2000 1999 to June 30, 1998*
</CAPTION>
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.76 $ 9.74 $10.00
Income (loss) from investment operations:
Net investment income 0.20 0.17 0.07
Net realized and unrealized gain (loss)
on securities (0.15) 0.08 (0.33)
Total from investment operations 0.05 0.25 (0.26)
Distributions from:
Net investment income (0.20) (0.21) -
Net realized gain on investment
transactions (0.02) (0.02) -
Total distributions (0.22) (0.23) -
Net asset value, end of period $ 9.59 $ 9.76 $ 9.74
Total return 1% 3% (7%)
Ratios/Supplemental Data
Net assets, end of period (in thousands) $1,138 $ 922 $ 549
Ratio of expenses to average net assets 0.84% 0.83% 0.85%
Ratio of net investment income to
average net assets 2.62% 2.44% 3.26%
Portfolio turnover rate 13% 95% 7%
Average commission rate $.0712 $.0758 $.0694
</TABLE>
*The Fund was capitalized on January 13, 1998 with $100,000, representing
10,000 shares at a net asset value of $10.00 per share. Initial public
offering was made on February 23, 1998, at which time net asset value was
$10.00 per share.
Ratios for this initial period of operation are annualized.
See accompanying Notes to Financial Statements.
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders and Board of Directors
of UMB Scout Capital Preservation Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of UMB
Scout Capital Preservation Fund, Inc., including the statement of net
assets, as of June 30, 2000, and the related statement of operations,
statements of changes in net assets and the financial highlights for the
periods indicated thereon. These financial statements and financial
highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included verification of
securities owned as of June 30, 2000, by confirmation, or by the
application of alternative auditing procedures with respect to unsettled
portfolio security transactions. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of UMB Scout Capital Preservation Fund, Inc., as of June 30, 2000, the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated thereon in conformity with generally
accepted accounting principles.
BAIRD, KURTZ & DOBSON
Kansas City, Missouri
July 28, 2000
This report has been prepared for the information of the Shareholders of
UMB Scout Capital Preservation Fund, Inc., and is not to be construed as an
offering of the shares of the Fund. Shares of this Fund and of the other
UMB Scout Funds are offered only by the Prospectus, a copy of which may be
obtained from Jones & Babson, Inc.
UMB Scout Funds
100% No-Load Mutual Funds
Balanced Fund
Bond Fund
Capital Preservation Fund
Equity Index Fund
Kansas Tax-Exempt Bond Fund*
Money Market Fund - Federal Portfolio
Money Market Fund - Prime Portfolio
Regional Fund
Stock Fund
Stock Select Fund
Tax-Free Money Market Fund
Technology Fund
WorldWide Fund
WorldWide Select Fund
*Available in Kansas and Missouri only.
Investment Advisors and Manager
UMB Bank, n.a., Kansas City, Missouri
Auditors
Baird, Kurtz & Dobson, Kansas City, Missouri
Legal Counsel
Stradley, Ronon, Stevens & Young, LLP
Philadelphia, Pennsylvania
Custodian
UMB Bank, n.a., Kansas City, Missouri
Underwriter, Distributor
and Transfer Agent
Jones & Babson, Inc., Kansas City, Missouri
UMB Scout Funds
P.O. Box 219757
Kansas City, MO 64121-9757
Toll Free 800-996-2862
www.umb.com
"UMB," "Scout" and the "Scout" design are registered
service marks of UMB Financial Corporation.
