UMB Scout Funds
STOCK SELECT FUND
A no-load mutual fund that invests substantially all its
assets in common stocks considered to have an above-average
ability to increase their earnings and dividends.
PROSPECTUS May 16, 1999
Shares of the Fund have not been approved or disapproved by the Securities and
Exchange Commission nor has the Commission passed on the adequacy of this
Prospectus. Any representation to the contrary is a criminal offense.
PROSPECTUS
MAY 16, 1999
Toll-Free 800-996-2862
UMB Scout Stock Select Fund
Investment Adviser and Manager:
UMB BANK, N.A.
Kansas City, Missouri
Distributor:
JONES & BABSON, INC.
Kansas City, Missouri Page
TABLE OF CONTENTS
Information About the Fund
Investment Objective and Principal Investment Strategies 2
Principal Risk Factors 2
Fees and Expenses 3
Investment Adviser and Manager 4
Information About Investing
How to Purchase Shares 5
How to Redeem Shares 5
Conducting Business with the UMB Scout Funds 6
Additional Policies about Transactions 8
Shareholder Services 8
How Share Price is Determined 9
Dividends, Distributions and their Taxation 9
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
The objective of the UMB Scout Stock Select Fund is long-term growth of both
capital and dividend income. To pursue this objective, the Fund normally
invests substantially all (at least 90%) of its assets in common stocks of
companies that are considered to be valuable due to the above-average ability
of the companies to increase their earnings and dividends. The Fund's
investment adviser and manager is UMB Bank, n.a.
When deciding what to buy, the investment adviser focuses on:
The company's earnings power
The company's ability to pay dividends
The value of the company's assets.
The adviser favors a "buy and hold" approach to common stock investing, and
therefore the Fund tends to hold individual common stocks for longer-term
periods. The adviser believes that the fundamental value of most
well-managed companies does not change rapidly, although there may be wide
variations in a company's stock price. A "buy and hold" approach also
reduces portfolio turnover, which can lower transaction fees and may result in
lower taxes for investors.
The Fund normally invests at least 90% of its assets in common stocks.
However, if the adviser believes that
negative economic or market conditions make it more difficult to achieve
growth of capital through investment in common stocks, the Fund may seek its
objective by investing a higher percentage of its assets in preferred stocks,
fixed income securities convertible into common stocks, high-grade bonds or
other investments that may provide income. In such cases, the Fund will resume
investing primarily in common stocks when conditions warrant.
The Fund intends to hold a small percentage of cash, short-term debt
obligations, government securities or other high-quality investments for
reserves to cover redemptions and unanticipated expenses. There may be times,
however, when the Fund attempts to respond to adverse market, economic,
political or other conditions, by investing up to 100% of its assets in those
types of investments for temporary defensive purposes. During those times, the
Fund will not be able to pursue its investment objective and, instead, will
focus on preserving your investment.
Shareholder approval is not required to modify the Fund's investment objective
or policies.
PRINCIPAL RISK FACTORS
Common stocks are subject to market, economic and business risks that will
cause their prices to fluctuate over time. Since the Fund is comprised
primarily of common stocks, the value of the Fund will go up and down. As with
any mutual fund, there is a risk that you could lose money by investing in the
Fund. However, we believe that the risk can be reduced through careful
management and diversification of assets.
Computer systems that cannot process and calculate date-related information as
of and after January 1, 2000, are a concern for financial and business
organizations around the world. We are taking steps to address the Year 2000
issue for the computers we use, and have asked that our major service
providers take comparable steps. Also, the Fund's investment adviser is using
its best efforts to evaluate any potential adverse effects from the Year 2000
issue that may affect companies whose stock may be purchased by the Fund.
However, there is no way to be sure that these steps will completely protect
the Fund from being affected.
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
involve investment risks, including the possible loss of the principal
invested.
FEES & EXPENSES
The following tables describe the fees and expenses that you may pay if you
buy and hold shares of the Fund. The Fund is new as of May 16, 1999, so the
amount of "Other Expenses," "Total Annual Fund Operating Expenses" and the
"Example" are based on estimates for the first year of operation.
Shareholder Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fee None
Exchange Fee None
Annual Fund Operating Expenses
(Expenses deducted from Fund assets)
Management Fees 0.85%
Distribution (12b-1) Fees None
Other Expenses 0.01%
Total Annual Fund Operating Expenses 0.86%
Example
The following example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
1 Year 3 Years
$90 $270
INVESTMENT ADVISER AND MANAGER
UMB Bank, n.a., is the Fund's investment adviser and manager. James L. Moffett
has been the manager of UMB Scout Stock Select Fund since its inception in
1999. He is a Chartered Financial Analyst. He joined UMB Bank Kansas in 1979,
and has over 30 years of investment management experience, including
management of the UMB Scout WorldWide Fund since that Fund's inception in
1993.
As manager, UMB Bank, n.a., provides or pays the cost of all management,
supervisory and administrative services required in the normal operation
of the Fund. This includes investment management and supervision; fees of the
custodian, independent auditors and legal counsel; officers, directors and
other personnel; rent; shareholder services; and other items incidental to
corporate administration. Operating expenses not required in the normal
operation of the Fund are payable by the Fund. These expenses include taxes,
interest, governmental charges and fees, including registration of the Fund
with the Securities and Exchange Commission and fees payable to the various
states. The Fund also pays its own brokerage costs, dues, and all
extraordinary costs including expenses arising out of anticipated or actual
litigation or administrative proceedings.
For its services, the Fund pays UMB Bank, n.a., a fee at the annual rate of
85/100 of one percent (0.85%) of average daily net assets. The Management
Agreement limits the liability of UMB Bank, n.a., 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. UMB Bank,
n.a., is located at 1010 Grand Boulevard, Kansas City, MO 64106.
Jones & Babson, Inc., serves as transfer agent and principal underwriter for
the Fund. Jones & Babson, Inc., was founded in 1959 and is located at BMA
Tower, 700 Karnes Boulevard, Kansas City, MO 64108-3306.
HOW TO PURCHASE SHARES
No-Load Fund
There are no sales commissions or Rule 12b-1 distribution fees
How to Buy Shares (see chart on next page for details)
By phone, mail or wire
Through Automatic Monthly Investments
Through exchanges from other UMB Scout Funds
Minimum Initial Investment
$1,000 for most accounts
$250 for IRA and Uniform Transfer (Gift) to Minors accounts
$100 with Automatic Monthly Investments
$1,000 for exchanges from another UMB Scout Fund
Minimum Additional Investment
$100 for purchases by phone or mail ($1,000 for wire purchases)
$50 for Automatic Monthly Investments
$1,000 for exchanges from another UMB Scout Fund
Minimum Account Size
You must maintain a minimum account size equal to the current minimum initial
investment (usually $1,000). If your account falls below this amount due to
redemptions (not market action) we may notify you and ask you to increase the
account to the minimum. We will close the account and send your money if you
do not bring the account up to the minimum within 60 days after we mail you
the notice.
HOW TO REDEEM SHARES
You may withdraw from your Fund account at any time in the following amounts:
any amount for redemptions requested by mail or phone
$500 or more for redemptions wired to your account (there may be a fee)
$50 or more for redemptions by a systematic redemption plan (there may be a
fee)
$1,000 or more for exchanges to another fund
$100 or more for redemptions by automatic monthly exchange to another fund
CONDUCTING BUSINESS WITH THE UMB SCOUT FUNDS
BY PHONE
800-996-2862,
in the Kansas City area 751-5900
You must authorize each type of telephone transaction on your account
application or the appropriate form, available from us. All account owners
must sign. When you call, we may request personal identification and tape
record the call.
How to Open an Account
If you already have an account with us and you have authorized telephone
exchanges, you may call to open an account in another
UMB Scout Fund by exchange ($1,000 minimum). The names and registrations on
the accounts must be identical.
How to Add to an Account
You may invest ($100 minimum) by telephone. After we receive your telephone
call, we will deduct from your checking account the cost of the shares.
Availability of this service is subject to approval by the Fund and
participating banks.
How to Sell Shares
You may withdraw any amount by telephone ($500 minimum if wired). We will send
funds only to the address or bank account on file with us. Provide the Fund's
name, your account number, the names of each account owner (exactly as
registered), and the number of shares or dollar amount to be redeemed. For
wires, also provide the bank name and bank account number.
How to Exchange Shares
You may exchange shares ($1,000 minimum or the initial minimum fund
requirement) for shares in another UMB Scout Fund. The shares being exchanged
must have been held in open account for 15 days or more.
BY MAIL
UMB Scout Funds
P.O. Box 410498
Kansas City, MO 64141-0498
How to Open an Account
Complete and sign the application included with this Prospectus. Your initial
investment must meet the minimum amount. Make your check payable to UMB Bank,
n.a.
How to Add to an Account
Make your check ($100 minimum) payable to UMB Bank, n.a., and mail it to us.
Always identify your account number or include the detachable coupon (from
your confirmation statement).
How to Sell Shares
In a letter, include the genuine signature of each
registered owner (exactly as registered), the name of each account owner, the
account number and the number of shares or the dollar amount to be redeemed.
We will send funds only to the address of record.
How to Exchange Shares
In a letter, include the genuine signature of each registered owner, the
account number, the number of shares or dollar amount to be exchanged ($1,000
minimum) and the UMB Scout Fund into which the amount is being transferred.
BY WIRE
UMB Bank, n.a.,
Kansas City, Missouri, ABA
#101000695
For UMB Scout Stock Select Fund/
AC=98xxxx-xxxx
OBI=(your account number and
account name)
How to Open an Acount
Call us first to get an account number. We will require information such as
your Social Security or Taxpayer Identification Number, the amount being wired
($1,000 minimum), and the name and telephone number of the wiring bank. Then
tell your bank to wire the amount. You must send us a completed application
as soon as possible or payment of your redemption proceeds may be delayed.
How to Add to an Account
Wire share purchases ($1,000 minimum) should include the names of each account
owner, your account number and the UMB Scout Fund in which you are purchasing
shares. You should notify us by telephone that you have sent a wire purchase
order to UMB Bank, n.a.
How to Sell Shares
Redemption proceeds ($1,000 minimum) may be wired to your pre-identified bank
account. A minimal fee may be deducted. If we receive your request before 4:00
p.m. (Eastern Time) we will normally wire funds the following business day. If
we receive your request later in the day, we will normally wire funds on the
second business day. Contact your bank about the time of receipt and
availability.
How to Exchange Shares
Not applicable.
THROUGH AUTOMATIC TRANSACTION PLANS
You must authorize each type of automatic transaction on your account
application or complete an authorization form, available from us upon request.
All registered owners must sign.
How to Open an Account
Not applicable.
How to Add to an Account
Automatic Monthly Investment:
You may authorize automatic monthly investments in a constant dollar amount
($50 minimum) from your checking account. We will draft your checking account
on the same day each month in the amount you authorize.
How to Sell Shares
Systematic Redemption Plan:
You may specify a dollar amount ($50 minimum) to be withdrawn monthly or
quarterly or have your shares redeemed at a rate calculated to exhaust the
account at the end of a specified period. A fee of $1.50 or less may be
charged for each withdrawal. You must own shares in an open account valued at
$10,000 when you first authorize the systematic redemption plan. You may
cancel or change your plan or redeem all your shares at any time. We will
continue withdrawals until your shares are gone or until the Fund or you
cancel the plan.
How to Exchange Shares
Monthly Exchanges:
You may authorize monthly exchanges from your account ($100 minimum) to
another UMB Scout Fund. Exchanges will be continued until all shares have been
exchanged or until you terminate the service.
ADDITIONAL POLICIES ABOUT TRANSACTIONS
We cannot process transaction requests that are not complete and in good order
as described in this section. We may cancel or change our transaction policies
without notice. To avoid delays, please call us if you have any questions
about these policies.
Purchases - We may reject orders when not accompanied by payment or when in
the best interest of the Fund and its shareholders.
Redemptions - We try to send proceeds as soon as practicable. In any event,
we send proceeds by the third
business day after we receive a request in good order. We cannot accept
requests that contain special conditions
or effective dates. We may request additional documentation to ensure that a
request is genuine. Under certain
circumstances, we may pay you proceeds in the form of portfolio securities
owned by the Fund. If you receive
securities instead of cash, you may incur brokerage costs when converting them
into cash.
If you request a redemption within 15 days of purchase, we will delay sending
your proceeds until we have
collected unconditional payment, which may take up to 15 days from the date of
purchase. For your protection, if your account address has been changed within
the last 30 days, your redemption request must be in writing and signed by
each account owner, with signature guarantees. The right to redeem shares may
be temporarily suspended in emergency situations, only as permitted under
federal law.
Signature Guarantees - You can get a signature guarantee from most banks or
securities dealers, but not a notary public. For your protection, we require a
guaranteed signature if you request:
A redemption check sent to a different payee, bank or address than we have
on file.
A redemption check mailed to an address that has been changed within the
last 30 days.
A redemption for $50,000 or more in writing.
A change in account registration or redemption instructions.
Corporations, Trusts and Other Entities - Additional documentation is
normally required for corporations, fiduciaries and others who hold shares in
a representative or nominee capacity. We cannot process your request until we
have all documents in the form required. Please call us first to avoid delays.
Exchanges to Another Fund - You must meet the minimum investment
requirement of the fund into which you are exchanging. The names and
registrations on the two accounts must be identical. Your shares must have
been held in an open account for 15 days or more and we must have received
good payment before we will exchange shares. You should review the Prospectus
of the fund being purchased. Call us for a free copy.
Telephone Services - During periods of increased market activity, you may
have difficulty reaching us by telephone. If this happens, contact us by mail.
We may refuse a telephone request, including a telephone redemption request.
We will use reasonable procedures to confirm that telephone instructions are
genuine. If such procedures are followed, the Fund will not be liable for
losses due to unauthorized or fraudulent instructions. At our option, we may
limit the frequency or the amount of telephone redemption requests. Neither
the Fund nor Jones & Babson, Inc., assumes responsibility for the authenticity
of telephone redemption requests.
SHAREHOLDER SERVICES
The following services are also available to shareholders. Please call 800-
996-2862 for more information:
Traditional IRA accounts
Roth IRA accounts
Education IRA
Simplified Employee Pensions (SEPs)
Uniform Transfers (Gifts) to Minors accounts
Accounts for corporations or partnerships
Sub-Accounting Services for Keogh, tax qualified retirement plans, and
others
Prototype Retirement Plans for the self-employed, partnerships and
corporations.
HOW SHARE PRICE IS DETERMINED
Shares of the Fund are purchased or redeemed at the net asset value per share
next calculated after your
purchase order and payment or redemption order is received in good order. In
the case of certain institutions which have made satisfactory payment or
redemption arrangements with the Fund and have received your purchase,
payment or redemption order, we may process the order at the net asset value
per share next effective after receipt by us from the institution.
The per share calculation is made by subtracting from the Fund's total assets
any liabilities and then dividing into this amount the total outstanding
shares as of the date of the calculation. The net asset value per share is
computed once daily, Monday through Friday, at 4:00 p.m. (Eastern Time) on
days when the Fund is open for
business. These generally are the same days that the New York Stock Exchange
is open for trading. The New York Stock Exchange is closed on weekends,
national holidays and Good Friday.
Each security owned by the Fund that is listed on an Exchange is valued at its
last sale price on that Exchange on the date when assets are valued. Where the
security is listed on more than one Exchange, the Fund will use the price of
that Exchange which it generally considers to be the principal Exchange on
which the stock is
traded. Lacking sales, the security is valued at the mean between the last
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.
DIVIDENDS, DISTRIBUTIONS AND THEIR TAXATION
The Fund pays shareholders distributions from its net investment income semi-
annually, usually in June and December. Distributions from net capital gains
that it has realized on the sale of securities will be declared annually
before December 31. Your distributions will be reinvested automatically in
additional shares of the Fund unless you have elected on your original
application, or by written instructions filed with the Fund, to have them paid
in cash. There are no fees or sales charges on reinvestments.
Tax Considerations - In general, Fund distributions are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest
your distributions in additional shares of the Fund or receive them in cash.
Any capital gains the Fund distributes are taxable to you as long-term capital
gains no matter how long you have owned your shares.
When you sell your shares of the Fund, you may have a capital gain or loss.
For tax purposes, an exchange of your Fund shares for shares of a different
UMB Scout Fund is the same as a sale. The individual tax rate on any gain from
the sale or exchange of your shares depends on how long you have held your
shares.
Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Non-U.S. investors may be
subject to U.S. withholding and estate tax. You should consult your tax
advisor about the federal, state, local or foreign tax consequences of your
investment in the Fund.
Backup Withholding - By law, the Fund must withhold 31% of your taxable
distributions and proceeds if you do not provide your correct taxpayer
identification number (TIN) or certify that your TIN is correct, or if the IRS
instructs the Fund to do so.
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
UMB SCOUT FUNDS
100% No-Load Mutual Funds
Stock Fund
Stock Select Fund
Regional Fund
WorldWide Fund
WorldWide Select 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 Adviser
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
ADDITIONAL INFORMATION
The Statement of Additional Information (SAI) contains additional information
about the Fund and is incorporated by reference into this Prospectus. The
Fund's annual and semi-annual reports to
shareholders contain additional information about the Fund's investments. In
the Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.
You may obtain a free copy of these documents by calling, writing or e-mailing
the Fund as shown below. You also may call the toll-free number given below
to request other information about the Fund and to make shareholder inquiries.
You may review and copy the SAI and other information about the Fund by
visiting the Securities and Exchange Commission's Public Reference Room in
Washington, DC (1-800-SEC-0330) or by visiting the Commission's Internet site
at http://www.sec.gov. Copies of this information also may be obtained, upon
payment of a duplicating fee, by writing to the Public Reference Section of
the Commission, Washington, DC 20549.
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.
<PAGE>
PART B
UMB SCOUT STOCK SELECT FUND
a series of UMB Scout Stock Fund, Inc.
STATEMENT OF ADDITIONAL INFORMATION
May 16, 1999
This Statement is not a Prospectus but should be
read in conjunction with the current Prospectus of the
Fund dated May 16, 1999. To obtain the Prospectus or
any Annual or Semi-Annual Report to shareholders,
please call the Fund toll-free at 1-800-996-2862, or in
the Kansas City area 751-5900.
TABLE OF CONTENTS
Page
Introduction 2
Information About the Fund's Investments 2
Objective and Principal Investment Strategy 2
Repurchase Agreements 2
Cash Management 2
Foreign Securities 3
Fundamental Investment Policies and Restrictions 3
Non-Fundamental Investment Policies and Restrictions 4
Fund Transactions 5
Performance Data 6
Performance Measures 6
Performance Comparisons 6
Purchasing and Selling Shares 7
Purchases 7
Sales (Redemptions) 7
Signature Guarantees 8
How Share Price Is Determined 8
Additional Purchase and Redemption Policies 8
Management of the Company and Fund 9
Directors and Officers 9
Compensation 10
Investment Adviser and Manager 10
Underwriter and Distributor 11
Transfer Agent and Fund Accounting Agent 11
Custodian 11
Independent Auditor 11
Distributions and Taxes 11
General Information and History 12
Appendix-Credit Ratings 13
INTRODUCTION
The UMB Scout Stock Select Fund (hereafter, the "Fund") is a series of UMB
Scout Stock Fund, Inc. (hereafter, the "Company"). The Fund is classified
as an open-end, diversified management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"). This classification means
that the assets of the Fund are invested in a diversified portfolio of
securities and that the Fund operates as a mutual fund, allowing shareholders
to buy and sell shares at any time (as described in the Prospectus).
This Statement of Additional Information supplements the information contained
in the Prospectus of the Fund.
INFORMATION ABOUT THE FUND'S INVESTMENTS
Objective and Principal Investment Strategy
The Fund's investment objective is long-term growth of both capital and
dividend income. Its principal investment strategy is to purchase common
stocks with above average potential for growth and income. The Fund's
investments are selected by UMB Bank, n.a., which serves as investment adviser
and manager. The objective and principal investment strategy are discussed in
detail in the Prospectus.
Repurchase Agreements
The Fund may invest in issues of the United States Treasury or a United States
government agency subject to 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 Fund's period of ownership. The result is a fixed rate of
return insulated from market fluctuations during such period. Under the 1940
Act, repurchase agreements are considered loans by the Fund.
The Fund will enter into 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 of the Company.
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 15% of the net assets of the Fund.
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.
Cash Management
For purposes including but not limited to meeting redemptions and
unanticipated expenses, the Fund may invest a portion of its assets in cash or
high-quality, short-term debt obligations readily changeable into cash. In
addition, the Fund may invest up to 100% of its assets in such securities for
temporary or emergency purposes. Such high quality, short-term debt
obligations may include:
(1) certificates of deposit, bankers' acceptances and other short-term
obligations issued domestically by United States commercial banks having
assets of at least $1 billion and which are members of the Federal Deposit
Insurance Corporation or holding companies of such banks; (2) commercial paper
of companies rated P-2 or higher by Moody's Investors Service, Inc. (Moody's)
or A-2 or higher by Standard and Poor's Corporation (S&P), or if not rated by
either Moody's or S&P, a company's commercial paper may be purchased by the
Fund if the company has an outstanding bond issue rated Aa or higher by
Moody's or AA or higher by S&P; (3) short-term debt securities which are non-
convertible and which have one year or less remaining to maturity at the date
of purchase and which are rated Aa or higher by Moody's or AA or higher by
S&P; (4) negotiable certificates of deposit and other short-term debt
obligations of savings and loan associations having assets of at least $1
billion and which are members of the Federal Home Loan Banks Association and
insured by the Federal Savings and Loan Insurance Corporation.
Please see the Appendix of this Statement of Additional Information for the
Descriptions of the various credit ratings referred to above.
Foreign Securities
The Fund may occasionally invest in foreign equity securities or ADRs
(American Depository Receipts which are issued by banks or trust companies
representing ownership interests of securities issued by foreign companies).
Investing in foreign securities poses additional risks. For instance, foreign
governments and economies may not be as well-developed and stable as those in
the United States and foreign securities markets may not be subject to
comparable regulation. Also, the relative value between the US dollar and
foreign currencies may fluctuate. Thus a potential gain in the market value
of fund assets denominated in a foreign currency could be offset when
converted to dollars. The Fund does not intend investments in foreign
securities to exceed 5% of the Fund's assets.
Fundamental Investment Policies and Restrictions
The Fund has adopted the following fundamental investment policies and
restrictions which cannot be changed without the approval of a "majority of
the outstanding voting securities" of the Fund. Under the 1940 Act, a
"majority of the outstanding voting securities" of the Fund means the vote
of: (i) more than 50% of the outstanding voting securities of the Fund; or
(ii) 67% or more of the voting securities of the Fund present at a meeting, if
the holders of more than 50% of the outstanding voting securities are present
or represented by proxy, whichever is less. In cases where the current legal
or regulatory limitations are explained, such explanations are not part of the
fundamental restriction and may be modified without shareholder approval to
reflect changes in the legal and regulatory requirements.
Concentration. The Fund will not make investments that will result in the
concentration (as that term may be defined in the 1940 Act, any rule or order
thereunder, or U.S. Securities and Exchange Commission ("SEC") staff
interpretation thereof) of its investments in the securities of issuers
primarily engaged in the same industry, provided that this restriction does
not limit the Fund from investing in obligations issued or guaranteed by the
U.S. government, or its agencies or instrumentalities. The SEC staff
currently takes the position that a mutual fund concentrates its investments
in a particular industry if 25% or more of its total assets are invested in
issuers within the industry.
In applying the Fund's fundamental policy concerning concentration, it is a
matter of non-fundamental policy that investments in certain categories of
companies will not be considered to be investments in a particular industry.
For example: (i) financial service companies will be classified according to
the end users of their services, for example, automobile finance, bank finance
and diversified finance will each be considered a separate industry; (ii)
technology companies will be divided according to their products and services,
for example, hardware, software, information services and outsourcing, or
telecommunications will each be a separate industry; (iii) asset-backed
securities will be classified according to the underlying assets securing such
securities; and (iv) utility companies will be divided according to their
services, for example, gas, gas transmission, electric and telephone will each
be considered a separate industry.
Senior Securities and Borrowing. The Fund may not borrow money or issue
senior securities except as the 1940 Act, any rule or order thereunder, or SEC
staff interpretation thereof, may permit. The following information is
intended to describe the current regulatory limits relating to senior
securities and borrowing activities that apply to mutual funds. This
description may be changed without shareholder approval to reflect legal or
regulatory changes. A fund may borrow up to 5% of its total assets for
temporary purposes and may also borrow from banks, provided that if borrowings
exceed 5%, the fund must have assets totaling at least 300% of the borrowing
when the amount of the borrowing is added to the fund's other assets. The
effect of this provision is to allow a fund to borrow from banks amounts up to
one-third (33 1/3%) of its total assets (including those assets represented by
the borrowing). Funds are generally not permitted to issue senior securities,
which is defined under the 1940 Act generally as an obligation of a Fund with
respect to its earnings or assets that takes precedence over the claims of the
fund's shareholders with respect to the same earnings or assets. However, a
fund is permitted to engage in a number of types of transactions that might be
considered to raise "senior securities" or leveraging concerns, as long as
certain conditions are met which are designed to protect fund shareholders.
For example, a fund can engage in short sales, certain options and futures
transactions, reverse repurchase agreements and enter into securities
transactions that obligate the fund to pay money at a future date (when-
issued, forward commitment or delayed delivery transaction), provided the fund
segregates liquid collateral with its custodian sufficient to cover its
obligation.
Underwriting. The Fund may not underwrite the securities of other issuers,
except that the Fund may engage in transactions involving the acquisition,
disposition or resale of its portfolio securities, under circumstances where
it may be considered to be an underwriter under the Securities Act of 1933.
Real Estate. The Fund may not purchase or sell real estate, unless acquired
as a result of ownership of securities or other instruments and provided that
this restriction does not prevent the Fund from investing in issuers which
invest, deal or otherwise engage in transactions in real estate or interests
therein, or investing in securities that are secured by real estate or
interests therein.
Commodities. The Fund may not purchase or sell physical commodities, unless
acquired as a result of ownership of securities or other instruments and
provided that this restriction does not prevent the Fund from engaging in
transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities.
Lending. The Fund may not make loans, provided that this restriction does not
prevent the Fund from purchasing debt obligations, entering into repurchase
agreements, loaning its assets to broker/dealers or institutional investors
and investing in loans, including assignments and participation interests.
Non-Fundamental Investment Policies and Restrictions
In addition to the fundamental policies and investment restrictions described
above, and the various general investment policies described in the
Prospectus, the Fund will be subject to the following investment restrictions,
which are considered non-fundamental and may be changed by the Board of
Trustees without shareholder approval.
Diversification. The Fund is classified as a diversified investment company.
Therefore, the Fund may not, with respect to 75% of its total assets, invest
more than 5% of its total assets in securities of any one issuer (except
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities), or purchase more than 10% of the voting securities of any
one issuer. The Fund may not change its classification from diversified to
non-diversified without shareholder approval.
Other Investment Companies. The Fund is permitted to invest in other
investment companies, including open-end, closed-end or unregistered
investment companies, either within the percentage limits set forth in the
1940 Act, any rule or order thereunder, or SEC staff interpretation thereof,
or without regard to percentage limits in connection with a merger,
reorganization, consolidation or other similar transaction. However, the Fund
may not operate as a fund of funds which invests primarily in the shares of
other investment companies as permitted by Section 12(d)(1)(F) or (G) of the
1940 Act, if its own shares are utilized as investments by such a fund of
funds. Under current legal and regulatory requirements, the Fund may invest
up to 5% of its total assets in the securities of any one investment company,
but may not own more than 3% of any investment company or invest more than 10%
of its total assets in the securities of other investment companies.
Illiquid Securities. The Fund may not invest more than 15% of its net assets
in securities which it can not sell or dispose of in the ordinary course of
business within seven days at approximately the value at which the Fund has
valued the investment.
Investment Techniques. The Fund believes the true value of a company's stock
is determined by its earning power, dividend-paying ability, and in many
cases, by its assets. Consequently, the primary emphasis will be placed on
progressive well-managed companies in growing industries that have
demonstrated both a consistent and an above-average ability to increase their
earnings and dividends and which have favorable prospects of sustaining such
growth. The Fund also believes that the intrinsic worth and the consequent
value of the stock of most well-managed and successful companies usually does
not change rapidly, even though wide variations in the price may occur. So
normally, long-term positions in stocks will be taken and maintained while the
company's record and prospects continue to meet with management's approval.
The Fund will change its investment when, in management's judgment, economic
and market conditions make such a course desirable. But such changes will be
no more than is necessary to carry out the Fund's objectives.
Fund Transactions
Decisions to buy and sell securities for the Fund are made by the Fund's
investment adviser and manager, UMB Bank, n.a. Officers of the investment
adviser 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.
In instances where securities are purchased on a commission basis, the Fund
will seek competitive and reasonable commission rates based on circumstances
of the trade involved. The Fund 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.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
adviser may seek execution of trades at a commission rate that is higher than
the rate that may be available from other brokers, if the commission rate is
reasonable in relation to the brokerage and research services provided to the
adviser by the broker or dealer. Such services may include, but are not
limited to, information as to the availability of securities for purchase or
sale, statistical or factual information, or opinions pertaining to
investments. Allocation of brokerage is reviewed regularly by both the Board
of Directors for the Fund and by the investment adviser.
Research services furnished by broker-dealers may be useful to the Fund's
adviser in serving other clients, as well as the Fund. Conversely, the Fund
may benefit from research services obtained by the manager or its investment
counsel from the placement of portfolio brokerage of other clients.
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. Substantially all of the portfolio transactions are through brokerage
firms which are members of the New York Stock Exchange which is typically the
most active market in the size of the Fund's transactions and for the types of
securities predominant in the Fund's portfolio. When buying securities in the
over-the-counter market, the Fund will select a broker who maintains a primary
market for the security unless it appears that a better combination of price
and execution may be obtained elsewhere.
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 Fund orders with qualified broker-dealers who
recommend the Fund to other clients, or who act as agents in the purchase of
the Fund's shares for their clients.
When it appears to be in the best interests of its shareholders, the Fund may
join with other clients of the investment adviser 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.
PERFORMANCE DATA
Performance Measures
The Fund may advertise "average annual total return" 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.
The Fund's "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 $1000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical
$1000 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).
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, or other mutual fund comparison sources such as CDA Mutual Fund
Report, or Mutual Fund Source Book (published by Morningstar), or other
information published by Morningstar. The Fund may 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, the Dow
Jones Composite Average, and its component averages, the Wiltshire 5000 Equity
Index, 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, U.S. News & World Report, Changing Times, Financial
World and Barron's may also be used in comparing performance of the Fund. The
Fund may also make comparisons to historical data compiled by the research
departments of broker-dealer firms or to financial or economic indicators
published by Ibbotson Associates. Performance comparisons should not be
considered as representative of the future performance of the Fund.
PURCHASING AND SELLING SHARES
Purchases
We will not be responsible for the consequences of delays, including delays in
the banking or Federal Reserve wire systems. We cannot process transaction
requests that are not complete and in good order as described in the
prospectus. If you use the services of any other broker to purchase or redeem
shares of the Fund, that broker may charge you a fee. 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 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.
Sales (Redemptions)
We will not be responsible for the consequences of delays, including delays in
the banking or Federal Reserve wire systems. We cannot process transaction
requests that are not complete and in good order. We must receive an endorsed
share certificate with a signature guarantee, where a certificate has been
issued.
The Telephone/Telegraph Redemption Service may only be used for non
certificated shares held in an open account. We reserve the right to refuse a
telephone or telegraph redemption request. At our option, we may pay such
redemption by wire or check. We may reduce or waive the $10 charge for wiring
redemption proceeds in connection with certain accounts.
To participate in the Systematic Redemption Plan your dividends and capital
gains distributions must be reinvested in additional shares of the Fund.
The right of redemption may be suspended, or the date of payment postponed
beyond the normal three-day period by the 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 elect to redeem shares "in-kind" by transferring portfolio
securities to the redeeming shareholder. 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 signature(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.
How Share Price is Determined
The net asset value per share is computed once daily, Monday through Friday,
at 4:00 p.m. (Eastern Time) except: days when the Fund is not open for
business; days on which changes in the value of portfolio securities will not
materially affect the net asset value; days during which no purchase or
redemption order is received by the Fund; and customary holidays.
The Fund does not compute its net asset value on the following customary
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
Additional Purchase and Redemption Policies
We reserve the right to:
Waive or increase the minimum investment requirements with respect to any
person or class of persons, which include shareholders of the Fund's special
investment programs.
Cancel or change the telephone investment service, the telephone/telegraph
exchange service and the automatic monthly investment plan without prior
notice to you where in the best interest of the Fund and its investors.
Cancel or change the telephone/telegraph redemption service at any time
without notice.
Begin charging a fee for the telephone investment service or the automatic
monthly investment plan and to cancel or change these services upon 15 days
written notice to you.
Begin charging a fee for the telephone/telegraph service and to cancel or
change the service upon 60 days written notice to you.
Begin charging a fee for the systematic redemption plan upon 30 days written
notice to you.
Waive signature guarantee requirements in certain instances where it appears
reasonable to do so and will not unduly affect the interests of other
shareholders. We may waive the signature guarantee requirement if you
authorize the telephone/telegraph redemption method at the same time you
submit the initial application to purchase shares.
Require signature guarantees if there appears to be a pattern of redemptions
designed to avoid the signature guarantee requirement, or if we have other
reason to believe that this requirement would be in the best interests of the
Fund and its shareholders.
MANAGEMENT OF THE COMPANY AND FUND
Directors and Officers
The officers of the Company manage the day-to-day operations of the Company
and the Fund. The Company's officers, as well as the Fund's investment
adviser and manager, are subject to the direct supervision and control of the
Board of Directors. Four of the five members of the Board of Directors are
considered to be independent Directors because they are not "interested
persons" of the Company or the investment adviser, as that term is defined in
the 1940 Act. Under Maryland corporate law, all of the Directors owe a
fiduciary duty to the shareholders of the Fund.
The following is a list of the senior officers and directors of the Fund and
their ages and business experience for the past five years. Unless noted
otherwise, the address of each officer and director is BMA Tower, 700 Karnes
Blvd., Kansas City, Missouri 64108-3306.
Larry D. Armel (56), President and Director. President and Director, Jones &
Babson, Inc., President and Director (or Trustee) of the nine investment
companies within the Babson Mutual Fund Group; President and Director of the
nine investment companies within the UMB Scout Funds group; President and
Director of the five investment companies within the Buffalo Group of Mutual
Funds; President and Director of Investors Mark Series Fund, Inc. and Director
of AFBA Five Star Fund, Inc.
William E. Hoffman, D.D.S. (60), Director. Director of each of the nine
investment companies within the UMB Scout Funds group; Orthodontist, 3700 West
83rd Street, Suite 206, Prairie Village, Kansas 66208.
Eric T. Jager (55), Director. Director of each of the nine investment
companies within the UMB Scout Funds group; 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. Director of each of the nine investment
companies within the UMB Scout Funds group; President, Sun Publications, Inc.,
7373 W. 107th Street, Overland Park, Kansas 66212.
Stuart Wien (75), Director. Director of each of the nine investment companies
within the UMB Scout Funds group; Retired, 4589 West 124th Place, Leawood,
Kansas 66209, formerly Chairman of the Board, Milgram Food Stores, Inc.
P. Bradley Adams (38), Vice President and Treasurer. Vice President and
Treasurer, Jones & Babson, Inc.; Vice President and Treasurer of the nine
investment companies within the Babson Mutual Fund Group; Vice President and
Treasurer of the nine investment companies within the UMB Scout Funds group;
Vice President and Treasurer of the five investment companies within the
Buffalo Group of Mutual Funds; Vice President and Chief Financial Officer,
AFBA Five Star Fund, Inc.; Principal Financial Officer, Investors Mark Series
Fund, Inc.
W. Guy Cooke (38), Vice President and Chief Compliance Officer. Chief
Compliance Officer, Jones & Babson, Inc.; Vice President and Chief Compliance
Officer of the nine investment companies within the Babson Mutual Fund Group;
Vice President and Chief Compliance Officer of the nine investment companies
within the UMB Scout Funds group; Vice President and Chief Compliance Officer
of the five investment companies within the Buffalo Group of Mutual Funds;
Vice President and Chief Compliance Officer, AFBA Five Star Fund, Inc. Mr.
Cooke joined Jones & Babson in March 1998 and previously was Director of
Compliance at American Century Companies.
Martin A. Cramer (49), Vice President and Secretary. Vice President and
Secretary, Jones & Babson, Inc.; Vice President and Secretary of the nine
investment companies within the Babson Mutual Fund Group; Vice President and
Secretary of the nine investment companies within the UMB Scout Funds group;
Vice President and Secretary of the five investment companies within the
Buffalo Group of Mutual Funds; Secretary and Assistant Vice President, AFBA
Five Star Fund, Inc.; Secretary, Investors Mark Series Fund, Inc.
Rhonda L. Grimes (39), Vice President. Control and Technology Integration,
Vice President and Director, Jones & Babson, Inc.; Vice President of the nine
investment companies within the Babson Mutual Fund Group; Vice President of
the nine investment companies within the UMB Scout Funds group; Vice President
of the five investment companies within the Buffalo Group of Mutual Funds;
Vice President, AFBA Five Star Fund, Inc. Ms. Grimes joined Jones and Babson
in December 1998 and previously was Client Services Manager at DST Systems.
Constance E. Martin (37), Vice President. Assistant Vice President, Jones &
Babson, Inc.; Vice President of the nine investment companies within the
Babson Mutual Fund Group; Vice President of the nine investment companies
within the UMB Scout Funds group; and Vice President of the five investment
companies within the Buffalo Group of Mutual Funds.
Compensation
None of the officers or directors will be compensated 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. As an "interested" Director, Mr. Armel receives no
compensation for his service as a Director.
Messrs. Hoffman, Jager, Rose and Wien have no financial interest in, nor are
they affiliated with, either UMB Bank, n.a. or Jones & Babson, Inc. The Audit
Committee of the Board of Directors is composed of Messrs. Hoffman, Jager,
Rose and Wien.
The officers and directors of the Company as a group own less than 1% of the
Fund.
The Fund will not hold annual meetings except as required by the 1940 Act and
other applicable laws. The Company 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.
Investment Adviser and Manager
UMB Bank, n.a. serves as the investment adviser and manager of the Fund,
pursuant to a Management Agreement with the Company. As investment adviser,
the Bank provides professional portfolio managers who make all decisions
concerning the investment and reinvestment of the assets of the Fund in
accordance with the Fund's stated investment objective and policies. As
manager, UMB Bank, n.a. either provides or pays the cost of all management,
supervisory and administrative services required in the normal operation of
the Fund. The Management Agreement for the Fund provides that the Fund will
pay UMB Bank, n.a. management fees equal to 0.85% of the average annual net
assets of the Fund.
Underwriter and Distributor
Jones and Babson, Inc., BMA Tower, 700 Karnes Boulevard, Kansas City, Missouri
64108-3306, serves as the principal underwriter and distributor of the Fund's
shares. The shares are continuously offered by Jones & Babson, who has
agreed, as agent of the Fund, to use its best efforts to distribute shares of
the Fund. Jones and Babson pays all sales and distribution expenses, other
than registration fees and other governmental charges.
Jones and Babson does not receive compensation or reimbursement for its
distribution and underwriting activities from the Fund. Instead, it is
compensated by UMB Bank, n.a. for other services provided to the company and
Fund. As indicated in the "Directors and Officers" section of this
Statement of Additional Information, the following officers of Jones and
Babson are directors or officers of the Company: Larry D. Armel, P. Bradley
Adams, Martin A. Cramer and Constance E. Martin.
Transfer Agent and Fund Accounting Agent
As manager, UMB Bank, n.a. employs Jones and Babson, Inc. at its own expense
to provide services to the Company and Fund, including the maintenance of a
shareholder accounting and transfer agency system, and such other items as are
incidental to corporate administration.
Custodian
The Fund's assets are held for safekeeping by an independent custodian, UMB
Bank, n.a. This means the bank, rather than the Fund, has possession of the
Fund's cash and securities. As directed by the Company's officers and
portfolio managers, the bank 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 serves as investment
adviser and manager, and receives compensation for all of its services through
receipt of management fees.
Independent Auditor
The Company's financial statements are audited annually by independent
auditors approved by the directors each year, and in years in which an annual
meeting is held the directors may submit their selection of independent
auditors to the shareholders for ratification. Baird, Kurtz & Dobson, City
Center Square, Suite 2700, 1100 Main Street, Kansas City, Missouri 64105, is
the Company's present independent auditor.
DISTRIBUTIONS AND TAXES
Distributions of net investment income. The Fund receives income generally in
the form of dividends and interest on its investments. This income, less
expenses incurred in the operation of the Fund, constitutes the Fund's net
investment income from which dividends may be paid to you. Any distributions
by the Fund from such income will be taxable to you as ordinary income,
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 from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be
taxable to you as long-term capital gain, regardless of how long you have held
your shares in the Fund. Any net capital gains realized by the Fund generally
will be distributed once each year, and may be distributed more frequently, if
necessary, in order to reduce or eliminate excise or income taxes on the Fund.
Information on the tax character of distributions. The Fund will inform you
of the amount of your ordinary income dividends and capital gains
distributions at the time they are paid, and will advise you of their tax
status for federal income tax purposes shortly after the close of each
calendar year. If you have not held Fund shares for a full year, the Fund may
designate and distribute to you, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in the Fund.
Election to be taxed as a regulated investment company. The Fund intends to
elect to be treated as a regulated investment company under Subchapter M of
the Internal Revenue Code. As a regulated investment company, the Fund
generally pays no federal income tax on the income and gains it distributes to
you. The Board reserves the right not to maintain the qualification of the
Fund as a regulated investment company if it determines such course of action
to be beneficial to shareholders. 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 earnings and profits.
Excise tax distribution requirements. To avoid federal excise taxes, the
Internal Revenue Code requires the Fund to distribute to you by December 31 of
each year, at a minimum, the following amounts: 98% of its taxable ordinary
income earned during the calendar year; 98% of its capital gain net income
earned during the twelve month period ending October 31; and 100% of any
undistributed amounts from the prior year. The Fund intends to declare and
pay these amounts in December (or in January that are treated by you as
received in December) to avoid these excise taxes, but can give no assurances
that its distributions will be sufficient to eliminate all taxes.
Redemption of fund shares. Redemptions and exchanges of Fund shares are
taxable transactions for federal and state income tax purposes. If you redeem
your Fund shares, or exchange your Fund shares for shares of a different UMB
Scout Fund, the IRS will require that you report a gain or loss on your
redemption or exchange. If you hold your shares as a capital asset, the gain
or loss that you realize will be capital gain or loss and will be long-term or
short-term, generally depending on how long you hold your shares. Any loss
incurred on the redemption or exchange of shares held for six months or less
will be treated as a long-term capital loss to the extent of any long-term
capital gains distributed to you by the Fund on those shares.
All or a portion of any loss that you realize upon the redemption of your Fund
shares will be disallowed to the extent that you buy other shares in the Fund
(through reinvestment of dividends or otherwise) within 30 days before or
after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new shares you buy.
U.S. Government Obligations. Many states grant tax-free status to dividends
paid to you from interest earned on direct obligations of the U.S. Government,
subject in some states to minimum investment requirements that must be met by
the Fund. Investments in Government National Mortgage Association or Federal
National Mortgage Association securities, bankers' acceptances, commercial
paper and repurchase agreements collateralized by U.S. government securities
do not generally qualify for tax-free treatment. The rules on exclusion are
different for corporations.
Dividends-Received Deduction for Corporations. If you are a corporate
shareholder, you should note that the Fund anticipates that some percentage of
the dividends it pays will qualify for the dividends-received deduction. In
some circumstances, you will be allowed to deduct these qualified dividends,
thereby reducing the tax you would otherwise be required to pay on these
dividends. The dividends-received deduction will be available only with
respect to dividends designated by the Fund as eligible for such treatment.
All dividends (including the deducted portion) must be included in your
alternative minimum taxable income calculation.
GENERAL INFORMATION AND HISTORY
UMB Scout Stock Fund, Inc. (previously defined as the "Company") was
incorporated in the State of Maryland on July 29, 1982 and has a present
authorized capitalization of 30,000,000 shares of common stock, par value
$1.00 per share. The company's shares are divided into two separate series --
the UMB Scout Stock Fund series and the UMB Scout Stock Select Fund series
(previously defined as the "Fund"). Shares of each series represent
interests in a separate portfolio of investments, and each series is
effectively a separate mutual fund. All shares of a series are of the same
class with 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 series, and (2) equal dividend, distribution and redemption
rights to the assets of the series. Shares when issued are fully paid and non-
assessable. Shareholders do not have pre-emptive or conversion rights.
Non-cumulative voting - The shares of each series 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 Company, 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. The Fund has adopted the appropriate
provisions in its By-Laws and may not, at its discretion, hold annual meetings
of shareholders for the following purposes unless required to do so: (1)
election of directors; (2) approval of continuance of any investment advisory
agreement; (3) ratification of the selection of independent auditors; and (4)
approval of a distribution plan. As a result, the Fund does not intend to hold
annual meetings.
The Fund may use the name "UMB" and "Scout" in its name so long as UMB
Bank, n.a. is continued as investment adviser or manager.
APPENDIX
DESCRIPTION OF FIXED INCOME 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 characteristics as well.
Ba - Bonds which are rated Ba are judged to have predominantly speculative
elements; 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 times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal 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. Note: Moody's applies numerical modifiers 1, 2 and 3 in each
generic rating classification from Aa to B. The modifier 1 indicates that the
issue ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range rating; and the modifier 3 indicates that the issue
ranks in the lower end of its generic category.
Fitch Investors Service:
Debt instruments rated "AAA", "AA", "A", "BBB" are considered to be investment
grade.
AAA Highest credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA+, AA or AA- Investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA".
A+, A or A- Investment grade and of high credit quality. The obligor's
ability to pay interest and repay principal is considered to be strong, but
may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB+, BBB or BBB- Investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB+, BB or BB- Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B+, B or B- Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC+, CCC or CCC- Bonds have certain identifiable characteristics which if not
remedied may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default of payment of interest or principal.
DDD, DD or D Bonds are in default of interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these bonds. "D"
represents the lowest potential for recovery.
NR Indicates That Fitch Does Not Rate The Specific Issue
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.
Fitch:
F1+ Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for payment.
F1 Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than "F1+".
F2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned "F1+" and "F1".
F3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance of timely
payment is adequate; however, near-term adverse changes could cause
these securities to be rated below investment grade.
FS Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance of timely
payment and are vulnerable to near-term adverse changes in financial
and economic conditions.
D Default. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance of timely payment and are
vulnerable to near-term adverse changes in financial and economic
conditions.
LOC The symbol LOC indicated that the rating is based upon a letter of
credit default issued by a commercial bank.
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