UMB SCOUT FUNDS
BOND FUND
QUARTERLY REPORT
SEPTEMBER 30, 1998
A no-load mutual fund with primary emphasis
on maximum current income consistent
with its quality and maturity standards.
TO THE SHAREHOLDERS
The UMB Scout Bond Fund's share price rose to $11.47 for the quarter
ended September 30, 1998, from $11.21 per share as of June 30, 1998.
Investors earned a total return (price change and reinvested
distributions) of 3.73% for the quarter. The Fund seeks to provide
maximum current income consistent with its quality and maturity
standards by investing in fixed-income obligations.
Bond yields moved sharply lower during the quarter as market
participants continued to expect a reduction in the benchmark Fed Funds
rate. For example, the 10-year Treasury note began the quarter at a
yield of 5.44% and ended at 4.41%. While the yield curve was extremely
flat at the start of the quarter - indicating little difference in
yields across the range of bond maturities - shorter maturity
securities staged a strong rally and produced some positive slope from
the 2-year to 30-year issues (4.25% to 4.97%).
The movement of 30-year yields below 5% is a clear indication of two
things:
Profound bullishness among market participants, who are anticipating a
sustained economic slowdown, and
A strong "flight to quality" as global investors leave the
turbulence of foreign markets for the safe haven of U.S. Treasury
securities.
The Federal Reserve on September 29 completed the much-anticipated
reduction in the Fed Funds rate to 5.25% from 5.50%. The Fed said it
acted because of concern over foreign economic weakness and its
potential to cause a domestic slowdown.
The difference in yields between Treasuries and all other sectors
widened significantly during the quarter, due primarily to the "flight
to quality" phenomenon. Global investors seeking safe haven from
international economic turmoil are interested primarily in Treasury
bonds, so other sectors miss out on much of the increase in prices.
Consequently, yields on Treasury notes drop much further than yields on
other fixed-income products. Portfolios with significant exposure to
sectors other than Treasuries failed to perform as well as the
government or government/corporate market indices.
Over time, our exposure to the corporate and Government National
Mortgage Association (GNMA) sectors has proven to be an effective way to
enhance returns on the Fund. The last quarter contained a somewhat
unusual combination of worldwide events that penalized funds positioned
in this way. We nevertheless feel it is prudent to maintain our proven
style, looking for less turbulent times ahead.
We continue to avoid the higher risk sectors of the corporate market,
such as financial companies and BBB-rated companies. We enhance yield by
replacing those sectors with greater exposure to the GNMA market,
capturing higher yields without exposing the fund to additional credit
risk. We believe the Fund remains an outstanding choice for investors
seeking a stable fixed-income return while avoiding the volatility
associated with interest rate speculation or aggressive exposure to
credit risk.
We want to remind all shareholders that the Fund name is changing to UMB
Scout Bond Fund, Inc., effective October 31, 1998. However, the ticker
symbol will remain UMBBX.
We appreciate your continued participation in the UMB Scout Bond Fund as
part of your investment portfolio. We welcome your comments and
questions.
Sincerely,
/s/George W. Root
George W. Root
UMB Investment Advisors
TAXABLE YIELD CURVES - GRAPH
FUND DIVERSIFICATION - PIE CHART
COMPARATIVE RATES OF RETURN
as of September 30, 1998
1 3/4 Year 3 3/4 Years 7 3/4 Years 15 3/4 Years
UMB Scout Bond Fund 8.19% 8.44% 7.23% 8.28%
Lipper Intermed. Inv.
Grade Fund Index* 9.24% 9.55% 8.39% N.A.
Lehman Bros.
Govt./Corp. Intermed.* 9.19% 9.38% 8.14% 9.44%
UMB Scout Bond Fund's average annual compound returns for 1-, 3-, 5- and
10-year periods ended September 30, 1998, are 9.19%, 6.98%, 5.61% and
7.58%, respectively.
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 or mutual funds (there are no direct
investments or fees in these indices).fund diversification
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").
These shares involve investment risks, including the possible loss of
the principal invested.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 (unaudited)
Statement of Net Assets
<TABLE>
<CAPTION>
Face Market
Amount Description Value
</CAPTION>
<S> <C>
CORPORATE BONDS - 42.62%
$ 1,000,000 Alabama Power Co., 6.25%, due September 30, 2010 $ 1,032,087
500,000 Albertson's Incorporated, Medium Term Notes, 6.18%, due March 22, 2000 508,120
500,000 Albertson's Incorporated Notes, 6.375%, due June 1, 2000 510,405
500,000 Amoco Canada Petroleum Company Notes, 7.25%, due December 1, 2002 540,435
500,000 Baltimore Gas & Electric Company, 1st & Refunding Mortgage, 6.50%, due February 15, 2003 528,245
500,000 BellSouth Telecommunications Incorporated Notes, 6.25%, due May 15, 2003 527,765
500,000 BellSouth Telecommunications Incorporated Notes, 6.375%, due June 15, 2004 533,210
500,000 Carolina Power & Light Company, 1st Mortgage, 5.875%, due January 15, 2004 513,665
500,000 Consolidated Edison Company New York, Incorporated Debentures, 6.625%, due February 1, 2002 523,265
500,000 Cooper Industries Inc., Medium Term Notes, 5.88%, due February 20, 2003 513,840
500,000 Delmarva Power & Light Company, Medium Term Notes, 7.50%, due May 1, 1999 505,940
1,000,000 Dillard Department Stores Inc., 6.875%, due June 1, 2005 1,084,210
500,000 duPont (E.I.) deNemours & Company Notes, 6.75%, due October 15, 2002 529,065
500,000 Duke Power Company, 1st & Refunding Mortgage, 7.00%, due June 1, 2000 515,465
500,000 Duke Power Company, 1st & Refunding Mortgage, 5.875%, due June 1, 2001 510,230
500,000 Emerson Electric Company Notes, 6.30%, due November 1, 2005 535,345
500,000 Engelhard Corporation, Senior Note, 7.00%, due August 1, 2001 518,750
750,000 Florida Power & Light Company, 1st Mortgage, 5.50%, due July 1, 1999 751,605
500,000 General Mills Incorporated, Medium Term Notes, 7.50%, due June 5, 2000 520,365
500,000 General Mills Incorporated, Medium Term Notes, 5.98%, due July 9, 2001 512,280
500,000 GTE California Incorporated, Debentures, Series A, 5.625%, due February 1, 2001 506,295
500,000 GTE Southwest Incorporated, Debentures, 6.00%, due January 15, 2006 524,680
500,000 GTE South Incorporated, Debentures, 6.00%, due February 15, 2008 530,615
500,000 Honeywell Inc., 6.75%, due March 15, 2002 524,610
500,000 International Business Machines Corporation Notes, 6.375%, due June 15, 2000 511,150
500,000 International Business Machines Corporation Notes, 7.25%, due November 1, 2002 538,415
500,000 International Paper Company, Medium Term Notes, 8.05%, due March 25, 1999 505,305
500,000 Kansas City Power & Light Company, Medium Term Notes, 6.50%, due January 2, 2001 515,255
1,000,000 May Department Stores Inc., 6.875%, due November 1, 2005 1,078,880
250,000 McDonald's Corporation, Series C, Medium Term Notes, 8.75%, due November 15, 2000 268,905
500,000 McDonald's Corporation, Medium Term Notes, 7.375%, due July 15, 2002 508,105
500,000 Minnesota Mining & Manufacturing Company, Medium Term Notes, 6.25%, due March 29, 1999 502,520
750,000 Monongahela Power Company, 1st Mortgage, 5.625%, due April 1, 2000 753,960
500,000 Monongahela Power Company, 1st Mortgage, 7.375%, due July 1, 2002 537,405
1,000,000 New York Telephone Company Notes, 5.875%, due September 1, 2003 1,033,320
500,000 Newell Company, Medium Term Notes, 6.18%, due July 11, 2000 508,455
500,000 Northwest Natural Gas Company, Secured Medium Term Notes, 5.98%, due December 15, 2000 509,815
500,000 Pacific Bell Telephone Company Notes, 7.25%, due July 1, 2002 536,185
500,000 Pacific Bell Telephone Company Notes, 6.25%, due March 1, 2005 525,155
500,000 Pacific Gas & Electric Company, 1st Mortgage, 6.25%, due March 1, 2004 523,510
500,000 PepsiCo, Incorporated Notes, 7.625%, due November 1, 1998 500,945
1,000,000 Public Service Company of Oklahoma, Medium Term Notes, 6.02%, due March 1, 2001 1,021,450
500,000 Sara Lee Corporation, Series C, Medium Term Notes, 6.45%, due September 26, 2005 529,765
500,000 Southwestern Bell Capital Corporation, Medium Term Notes, 7.80%, due November 5, 1998 500,930
500,000 Southwestern Bell Telephone Company, Medium Term Notes, 6.125%, due March 12, 2001 512,710
500,000 Southwestern Bell Telephone Company, Medium Term Notes, 5.77%, due October 14, 2003 517,035
500,000 Sysco Corporation Notes, 7.00%, due May 1, 2006 550,270
500,000 Texaco Capital Incorporated, Medium Term Notes, 8.24%, due October 15, 2001 543,370
1,000,000 Texas Instruments Incorporated, Unsecured Note, 6.125%, due February 1, 2006 1,030,130
500,000 Tribune Company, Medium Term Notes, 5.30%, due April 17, 2000 501,725
500,000 Tribune Company, Medium Term Notes, 5.75%, due September 15, 2003 514,120
500,000 Union Electric Company, 1st Mortgage, 6.75%, due October 15, 1999 506,410
500,000 Union Pacific Corporation Notes, 6.25%, due March 15, 1999 502,030
500,000 Union Pacific Corporation Notes, 7.875%, due February 15, 2002 532,060
500,000 Union Pacific Railroad Company, Equipment Trust, Series C, 7.01%, due June 1, 2004 532,655
500,000 Wal-Mart Stores Incorporated Notes, 6.125%, due October 1, 1999 505,385
500,000 Wal-Mart Stores Incorporated Notes, 5.85%, due June 1, 2000 507,970
500,000 Wisconsin Electric Power Company, 6.625%, due November 15, 2006 551,360
33,517,152
U.S. GOVERNMENTAL AGENCIES - 10.05%
34,964 Government National Mortgage Association, 9.00%, due July 15, 2001 35,555
35,278 Government National Mortgage Association, 8.00%, due February 20, 2002 35,858
81,141 Government National Mortgage Association, 8.50%, due February 20, 2002 82,992
30,370 Government National Mortgage Association, 8.00%, due January 15, 2004 31,335
107,210 Government National Mortgage Association, 9.50%, due April 15, 2005 112,753
141,245 Government National Mortgage Association, 9.75%, due May 15, 2005 148,548
68,381 Government National Mortgage Association, 9.00%, due October 20, 2005 71,218
99,395 Government National Mortgage Association, 7.50%, due February 15, 2006 102,739
47,012 Government National Mortgage Association, 7.50%, due March 15, 2006 48,786
99,023 Government National Mortgage Association, 8.00%, due June 20, 2006 101,510
124,166 Government National Mortgage Association, 8.50%, due July 15, 2006 128,855
150,398 Government National Mortgage Association, 8.00%, due August 15, 2006 156,534
47,652 Government National Mortgage Association, 8.00%, due August 15, 2006 49,596
190,267 Government National Mortgage Association, 7.50%, due August 20, 2006 194,706
124,831 Government National Mortgage Association, 7.50%, due September 15, 2006 129,541
71,564 Government National Mortgage Association, 7.50%, due April 15, 2007 74,688
139,764 Government National Mortgage Association, 7.50%, due March 20, 2009 143,946
374,378 Government National Mortgage Association, 6.00%, due May 15, 2009 381,315
285,180 Government National Mortgage Association, 7.00%, due May 15, 2009 294,291
462,192 Government National Mortgage Association, 6.00%, due April 15, 2011 469,601
451,077 Government National Mortgage Association, 7.00%, due August 20, 2011 463,066
406,059 Government National Mortgage Association, 6.50%, due October 15, 2011 416,685
368,520 Government National Mortgage Association, 7.00%, due October 20, 2011 378,316
448,408 Government National Mortgage Association, 6.50%, due February 15, 2012 460,004
438,436 Government National Mortgage Association, 7.00%, due April 20, 2012 449,910
469,582 Government National Mortgage Association, 6.50%, due September 20, 2012 479,377
457,938 Government National Mortgage Association, 6.50%, due October 20, 2012 467,490
485,206 Government National Mortgage Association, 6.00%, due February 20, 2013 489,951
487,990 Government National Mortgage Association, 6.00%, due March 20, 2013 492,763
498,291 Government National Mortgage Association, 6.00%, due August 15, 2013 505,656
497,885 Government National Mortgage Association, 6.00%, due August 20, 2013 502,755
7,900,340
U.S. GOVERNMENT SECURITIES - 9.69%
1,250,000 U.S. Treasury Notes, 6.375%, due January 15, 1999 1,256,637
1,000,000 U.S. Treasury Notes, 6.00%, due December 15, 1999 1,013,750
500,000 U.S. Treasury Notes, 5.50%, due March 31, 2000 507,420
1,000,000 U.S. Treasury Notes, 7.50%, due November 15, 2001 1,089,840
1,500,000 U.S. Treasury Notes, 6.375%, due August 15, 2002 1,606,170
1,000,000 U.S. Treasury Notes, 6.25%, due February 15, 2003 1,075,310
1,000,000 U.S. Treasury Notes, 5.875%, due February 15, 2004 1,071,090
7,620,217
GOVERNMENT SPONSORED ENTERPRISES - 36.65%
500,000 Federal Farm Credit Banks, Medium Term Notes, 6.70%, due October 11, 2006 558,435
250,000 Federal Home Loan Banks, 5.66%, due November 9, 1998 250,155
500,000 Federal Home Loan Banks, 6.31%, due March 29, 2001 518,045
500,000 Federal Home Loan Banks, 6.18%, due December 19, 2001 521,330
500,000 Federal Home Loan Banks, 5.65%, due March 3, 2003 518,360
1,000,000 Federal Home Loan Mortgage Corp., 6.05%, due March 12, 2003 1,030,160
1,000,000 Federal Home Loan Mortgage Corp., 6.75%, due May 30, 2006 1,116,870
1,000,000 Federal Home Loan Mortgage Corp., Deb., 6.13%, due August 19, 1999 1,011,090
500,000 Federal National Mortgage Association, Deb., 5.05%, due November 10, 1998 500,000
1,500,000 Federal National Mortgage Association, Series H, Deb., 7.05%, due December 10, 1998 1,505,625
1,000,000 Federal National Mortgage Association, Series H, Deb., 6.35%, due August 10, 1999 1,011,870
1,500,000 Federal National Mortgage Association, Deb., 6.10%, due February 10, 2000 1,526,490
500,000 Federal National Mortgage Association, 5.90%, due November 20, 2000 511,485
1,000,000 Federal National Mortgage Association, Series I, Deb., 8.25%, due December 18, 2000 1,072,340
1,250,000 Federal National Mortgage Association, Deb., 7.50%, due February 11, 2002 1,356,250
1,000,000 Federal National Mortgage Association, Series SM-E, Deb., 7.55%, due April 22, 2002 1,091,250
500,000 Federal National Mortgage Association, Series K, Deb., 7.05%, due November 12, 2002 543,515
500,000 Federal National Mortgage Association, Deb., 6.80%, due January 10, 2003 540,000
495,150 Federal National Mortgage Association, 6.50%, due November 1, 2004 503,612
500,000 Federal National Mortgage Association Medium Term Notes, 5.40%, due March 12, 1999 501,250
500,000 Federal National Mortgage Association Medium Term Notes, 6.36%, due August 16, 2000 514,220
500,000 Federal National Mortgage Association Medium Term Notes, 5.72%, due March 8, 2001 511,015
1,000,000 Federal National Mortgage Association Medium Term Notes, 6.45%, due April 23, 2001 1,040,470
500,000 Federal National Mortgage Association Medium Term Notes, 6.625%, due May 21, 2001 522,970
500,000 Federal National Mortgage Association Medium Term Notes, 6.41%, due February 6, 2002 525,545
500,000 Federal National Mortgage Association Medium Term Notes, 6.09%, due September 30, 2002 524,295
500,000 Federal National Mortgage Association Medium Term Notes, 6.15%, due January 27, 2003 501,875
1,000,000 Federal National Mortgage Association Medium Term Notes, 6.36%, due December 27, 2004 1,032,970
500,000 Federal National Mortgage Association Medium Term Notes, 6.10%, due January 26, 2005 513,435
1,000,000 Federal National Mortgage Association Medium Term Notes, 6.82%, due August 23, 2005 1,113,590
500,000 Federal National Mortgage Association Medium Term Notes, 5.875%, due February 14, 2006 533,045
1,500,000 Federal National Mortgage Association Medium Term Notes, 6.41%, due March 8, 2006 1,634,760
500,000 Federal National Mortgage Association Medium Term Notes, 6.96%, due April 2, 2007 568,830
500,000 Federal National Mortgage Association Medium Term Notes, 6.70%, due June 19, 2007 558,830
500,000 Federal National Mortgage Association Medium Term Notes, 6.38%, due February 20, 2008 514,060
2,000,000 Federal National Mortgage Association Medium Term Notes, 6.00%, due September 29, 2008 2,023,440
28,821,482
TOTAL INVESTMENTS - 99.01% $ 77,859,191
Other assets less liabilities - 0.99% 776,615
TOTAL NET ASSETS - 100.00%
(equivalent to $11.47 per share; 20,000,000 shares of $1.00 par value
capital shares authorized; 6,855,807 shares outstanding) $ 78,635,806
</TABLE>
BASIS OF DETERMINING MARKET VALUE. 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. Short-term obligations are valued at amortized cost.
This report has been prepared for the information of the Shareholders of
UMB Scout Bond 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
Stock Fund
Regional Fund
WorldWide Fund
Capital Preservation Fund
Balanced Fund
Bond Fund
Kansas Tax-Exempt Bond Fund*
Money Market Fund
Tax-Free Money Market Fund
*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
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 410498
Kansas City, MO 64141-0498
TOLL FREE 800-996-2862
www.umb.com
"UMB" and "Scout" are registered service marks of UMB Financial
Corporation.
UMB Financial Corporation also claims service mark rights to the Scout
design.
