Babson
Enterprise
Fund
Annual Report
November 30, 1998
MESSAGE
To Our Shareholders
The U.S. equity markets have experienced an uncharacteristic year of extremely
divergent performance. Small capitalization stocks, in general, have
underperformed large capitalization stocks by a wide margin. The large cap
stocks comprising the unmanaged Standard & Poor's 500 index surged ahead 23.7%
for the twelve month period ended November 30, 1998. For the same period, the
small cap stocks in the unmanaged Russell 2000 index declined 6.6%. There was a
lot of volatility along the way with the Russell 2000 declining 36.9% between
4/21/98 and 10/8/98 and gaining 28.2% between 10/8/98 and 11/30/98.
Babson Enterprise Fund finished its fiscal year with a total return (price
change and reinvested distributions) of -11.05% for the 12 months ended November
30, 1998. This has been a disappointing year, but we are encouraged going
forward. Historically a correction of this magnitude for small cap stocks versus
large cap stocks has usually led to strong relative and absolute performance for
small capitalization stocks. This will be discussed in greater detail in the
Portfolio Review that follows.
A number of changes were made to the portfolio in
the second half of the Fund's fiscal year. Positions were
initiated in the following companies:
Channel Commercial Corp. D makes protective enclosure boxes for telephone and
cable TV network operators.
Engineered Support Systems, Inc. D manufactures specialized heating, air
conditioning and power supplies for field use by military forces.
Penwest Pharmaceuticals Co. D develops and commercializes drug delivery
technologies.
Sylvan, Inc. D produces and distributes mushroom spawn and fresh mushrooms.
Penwest Pharmaceuticals is on the list of new holdings. We received shares in
Penwest Pharmaceuticals when it was spun-off from Penford, an existing holding.
During the last six months, the following three positions were liquidated:
Morrison Health Care, Sanderson Farms and SPS Technologies. In addition, three
holdings were purchased or merged into other companies. Ceanic (formerly known
as American Oilfield Divers) was acquired by Stolt Comex Seaway; Industrial
Acoustics was merged into LAC Holdings; and Trans Financial was bought by Star
Banc.
On December 17, 1998, the Fund distributed an ordinary income dividend of $0.05
per share and long-term capital gains of $2.47. For corporate shareholders, 100%
of ordinary income distributions qualify for the corporate
dividends received deduction.
Thank you for your interest and participation in Babson Enterprise Fund. We
welcome your comments and questions.
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
PORTFOLIO REVIEW
Babson Enterprise Fund is a no-load mutual fund invested in common stocks of
smaller, faster growing companies which at the time of purchase are considered
to be realistically valued in the smaller company sector of the market.
In recent reports we have commented that it is not unusual for small cap stocks
to underperform the market in general as concerns about the direction of the
market increase. There is a natural tendency (not necessarily backed by
fundamentals) to focus on the largest, most liquid companies because of many
investorsO perceptions that in an increasingly troubled world economic and
market environment, these companies will withstand the pressures better, and if
they do not, at least their stocks have enough liquidity so that they can be
sold easily.
What is unusual, however, is how severe the underperformance of small caps has
been over the past twelve months. Over the twelve months ended November 30,
1998, the Russell 2000 index declined by 6.6%, while the Standard & Poor's 500
index was up 23.7%. The
difference between the two (30.3%) was the second worst, since the Russell 2000
index began in 1979. The only worse differential was 34.3% over the twelve
months ended October 31, 1998.
That's the bad news. The good news is that although past history is no guarantee
of future results, prior severe small cap sell-offs have usually led to both
strong ensuing relative, and absolute performance for small caps.
Prudential Securities did a recent study that showed the ten worst twelve-month
periods for the Russell 2000 versus the S&P 500 prior to this year, and analyzed
the performance rebound subsequent to those periods. The results are shown
below.
Another way to look at the rebound potential is to analyze other ObearO markets
for small capitalization stocks (defined as periods when the Russell 2000 fell
by 25% or more). Since the 1979 beginning of the Russell 2000 there have been
five such markets prior to the current one that bottomed on October 8, 1998. The
average decline has been slightly over 31% and the average duration has been
eight months. However, 75% of that decline was regrouped in less than six
months, and the full decline was erased in eleven months. Clearly, the market
suffers ugly downturns from time to time, but the over-whelming trend in
corporate earnings, and in the market, is up. More often than not, these severe
declines proved to be buying opportunities rather than times to panic.
Russell 2000 Bear Markets
Duration Time to Recoup (Months):
Dates (Months) Decline(%) 75% 100%
2/8/80-3/27/80 1.75 -26.7 3.25 3.75
6/15/81-8/12/82 14 -29.2 2.25 2.75
6/24/83-7/25/84 13 -26.0 5.50 16.50
8/25/87-10/28/87 2 -39.2 14.25 21
10/9/89-10/30/90 12.75 -34.3 4.25 11
4/21/98-10/8/98 5.50 -36.9 - -
Average 8.25 -32.1 5.75 11
Source: Frank Russell Co.; Paine Webber; David L. Babson & Co.
The recent decline (through 10/8/98 - the recent low) was 36.9% and lasted
almost six months. The only worse decline was in the October, 1987 crash when
the Russell was off 39.2%, so in absolute terms we have taken a lot of
punishment. While the duration of this decline is less than average (the 1987
crash was over in two months though), the stage is being set for a meaningful
rebound.
One can never determine when market psychology will change, but when it does it
tends to happen quickly - and that is exactly what has happened since the
October 8th low. The Russell 2000 rebounded by 28% from that point to the end of
November, which brought the index almost halfway back to its April peak.
Clearly, though, the market psychology has been against small cap stocks over
the past year, and, in fact, for several years. However, the most important
long-term determinant of stock price moves is earnings growth, and for six
consecutive calendar quarters small cap earnings growth (measured by the growth
in earnings for the companies in the Russell 2000) has surpassed the earnings
growth of large cap companies (those in the S&P 500). Barring a recession we
expect this trend to continue.
Given that, and the attractive valuations currently placed on small cap stocks,
we believe the small capitalization stocks sector continues to offer investment
opportunities for the Enterprise Fund.
David L. Babson & Co. Inc.
CHART
<TABLE>
<CAPTION>
Relative Performance
Russell 2000 Versus S&P 500 Russell 2000 Absolute Performance
TRAILING NEXT NEXT NEXT NEXT NEXT NEXT
PERIOD ENDED 12 MONTHS 3 MONTHS 6 MONTHS 12 MONTHS 3 MONTHS 6 MONTHS 12 MONTHS
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
October 1990 -21.41 6.75 15.22 18.81 21.94 44.75 58.61
April 1997 -20.02 1.38 10.55 0.95 21.38 27.29 42.38
September 1990 -19.71 -3.61 9.12 10.65 5.03 36.26 45.09
November 1990 -19.43 9.63 14.54 16.80 26.01 40.89 40.54
October 1987 -18.81 3.57 17.86 10.63 6.69 24.50 27.12
May 1997 -17.31 4.85 0.19 -7.25 11.64 13.81 21.23
December 1990 -16.91 13.21 11.84 11.95 29.74 27.73 46.04
July 1984 -16.48 -2.41 -0.06 -1.43 8.86 21.96 30.56
August 1990 -15.55 -8.72 0.07 3.38 -7.93 16.01 31.17
November 1987 -13.94 4.75 10.43 5.34 22.89 28.00 29.86
Note: Figures are in percents.
Source: Frank Russell Co.; Prudential Securities
</TABLE>
PORTFOLIO REVIEW
CHART - Babson Enterprise Fund versus Russell 2000
Babson Enterprise Fund's average annual compounded return for one, five and
ten year periods as of November 30, 1998, were -11.36%, 11.17% and 13.74%,
respectively. Performance data contained in this report is for past periods
only. Past performance is not predictive of future performance. Investment
return and share value will flucuate, and redemption value may be more or
less than original cost.
STATEMENT OF NET ASSETS
November 30, 1998
MARKET VALUE
SHARES COMPANY (NOTE 1-A)
COMMON STOCKS - 96.52%
BASIC MATERIALS - 5.38%
105,000 Brady (W.H.) Co. Cl. A
(Identification and labeling
systems) $ 2,703,750
211,900 Furon Co.
(Polymer based products) 3,642,031
121,650 Penford Corp.
(Specialty starch based
products) 1,832,353
206,200 Tab Products Co.
(Color-coded filing systems) 1,469,175
9,647,309
CAPITAL GOODS - 26.72%
133,100 ABC Rail Products Corp.
(Railroad products
and services) 1,663,750
196,300 American Precision Industries Inc.*
(Heat exchangers) 2,723,663
150,626 Athey Products Corp.*
(Street sweepers) 451,878
371,000 Brown & Sharpe
Manufacturing Co. Cl. A*
(High tolerance
measuring tools) 2,457,875
81,400 Channel Commercial Corp.*
(Telecommunications
equipment) 641,025
206,100 Chicago Bridge & Iron Co.
(Above ground storage tanks) 2,486,081
279,800 Congoleum Corp. Cl. A*
(Vinyl flooring) 2,500,712
247,375 Corrpro Companies, Inc.
(Corrosion control services) 2,999,422
212,504 Daniel Industries, Inc.
(Metering devices and valves) 2,324,262
189,400 EDO Corp.
(Defense contractor) 1,633,575
33,400 Engineered Support Systems, Inc.
(Military ground support
equipment) 534,400
248,300 Farrell Corp.
(Rubber and plastic
processing equipment) 527,638
130,900 Flir Systems, Inc.*
(Night vision systems) 2,519,825
198,800 Instron Corp.
(Materials testing instruments) 2,609,250
217,400 Kaman Corp. Cl. A
(Industrial distribution/aerospace
products) 3,532,750
116,200 K-Tron International, Inc.*
(Industrial feeders
and blenders) 2,193,275
471,900 Lamson & Sessions Co.*
(Electrical equipment supplier) 2,654,437
5,400 Moog, Inc. Cl. A*
(High performance
control systems) 156,600
186,165 Newcor, Inc.
(Automobile assembly
systems) 651,578
200,200 Schawk, Inc. Cl. A
(Pre-press services) 2,877,875
116,500 Starrett (L.S.) Co. Cl. A
(Tools and precision
instruments) 3,567,813
134,700 Terex Corp. New*
(Heavy-duty off-highway
trucks and cranes) 3,771,600
106,200 TransTechnology Corp.
(Highly engineered fasteners) 2,429,325
47,908,609
CONSUMER CYCLICAL - 17.74%
256,800 Arctic Cat, Inc.
(Snowmobiles) 2,696,400
108,500 Baldwin Piano & Organ Co.
(Keyboard instruments) 1,044,313
183,100 Defiance, Inc.
(Auto supplier) 1,235,925
102,800 Fab Industries, Inc.
(Textile fabrics) 2,036,725
287,370 Falcon Products, Inc.
(Table pedestals) 3,286,794
200,800 Gottschalks, Inc.*
(Specialty-apparel stores) 1,506,000
177,300 Helen of Troy Ltd.*
(Hair care appliances) 2,969,775
199,500 Jacobson Stores, Inc.*
(Upscale department
store chain) 1,708,219
358,400 MDC Corp. Cl. A
(Specialty printer) 3,449,600
126,350 Oneida Ltd.
(Stainless steel flatware) 2,305,888
218,300 Pentech International, Inc.*
(Writing instruments) 150,081
55,400 Pulaski Furniture Corp.
(Furniture) 1,135,700
246,200 Shelby Williams Industries, Inc.
(Contract seating) 2,892,850
337,500 Spartan Motors, Inc.
(Chassis for RV's, buses
and firetrucks) 2,151,562
181,200 Swiss Army Brands, Inc.*
(Swiss Army knives) 1,879,950
181,700 Walbro Corp.
(Auto fuel injection systems) 1,362,750
31,812,532
CONSUMER STAPLES - 6.46%
56,400 Genesee Corp. Cl. B
(Regional brewer) 1,402,950
205,000 J & J Snack Foods Corp.*
(Soft pretzels and other
snack foods) 4,279,375
38,500 Marsh Supermarkets, Inc. Cl. A
(Indiana-Ohio supermarkets) 591,938
88,100 Marsh Supermarkets, Inc. Cl. B
(Indiana-Ohio supermarkets) 1,189,350
207,200 Northland Cranberries, Inc. Cl. A
(Cranberry grower) 2,900,800
93,300 Sylvan, Inc.*
(Mushroom spawn) 1,212,900
11,577,313
ENERGY - 5.82%
610,700 Kaneb Services, Inc.*
(Specialized industrial
services) 2,786,319
330,300 Matrix Service Co.*
(Petroleum refining
maintenance) 1,651,500
94,600 Petroleum Helicopters, Inc.
(non-voting) (Gulf of Mexico
helicopter transportation) 1,667,325
78,700 Petroleum Helicopters, Inc.
(voting) (Gulf of Mexico
helicopter transportation) 1,387,088
340,700 Tokheim Corp.*
(Petroleum dispensing
systems) 2,938,538
10,430,770
FINANCIAL - 3.22%
80,175 Capital Corp. of the West
(California bank holding
company) 881,925
63,300 Cass Commercial Corp.
(Freight payment services) 1,614,150
139,500 Vermont Financial Services Corp.
(Vermont bank holding
company) 3,278,250
5,774,325
HEALTH CARE - 0.87%
182,475 Penwest Pharmaceutical Co.*
(Drug delivery technologies) 1,551,037
MISCELLANEOUS - 5.52%
59,300 Andersons, Inc.
(Grain handler) 659,713
139,300 Alltrista Corp.*
(Consumer and industrial
products) 3,186,487
356,283 Jason, Inc.*
(Nonwoven auto padding) 2,894,799
85,200 Sea Containers Ltd. Cl. A
(Marine container leasing) 2,769,000
12,000 Sea Containers Ltd. Cl. B
(Marine container leasing) 388,500
9,898,499
TECHNOLOGY - 18.55%
195,800 CATS Software, Inc*.
(Financial risk management
software) 868,862
146,700 CEM Corp.*
(Laboratory microwave ovens) 1,485,338
62,740 CSP, Inc.
(Special purpose computers) 486,235
314,100 Ennis Business Forms, Inc.
(Custom business forms) 2,982,348
221,800 ESCO Electronics Corp.*
(Defense products
and systems) 2,190,275
155,400 INSO Corp.*
(Web site management) 4,186,087
142,600 Landauer Inc.
(Personal radiation exposure
monitoring) 4,064,100
350,000 MacNeal Schwendler Corp.*
(Engineering software
products) 1,925,000
154,400 Nashua Corp.*
(Specialty imaging products) 2,576,550
97,400 New England Business Service, Inc.
(Business forms) 3,116,800
142,300 Nichols Research Corp.*
(Technical and engineering
services) 3,041,662
148,800 Norstan, Inc.*
(Telecommunications
equipment) 2,278,500
349,100 Spectrum Control, Inc.*
(Electronic components) 1,461,856
483,600 Titan Corp.
(Communications software
for satellites) 2,599,350
33,262,963
TRANSPORTATION & SERVICES - 4.73%
114,300 ABM Industries, Inc.
(Building maintenance
services) 3,807,619
137,900 International Shipholding Corp.
(Ocean and river freight
transportation) 2,154,688
207,400 Railtex, Inc.*
(Short line railroads) 2,514,725
8,477,032
UTILITIES - 1.51%
64,200 EOtown Corp.
(Water company) 2,704,425
TOTAL COMMON STOCKS - 96.52% 173,044,814
(COST $152,753,428)
FACE MARKET VALUE
AMOUNT DESCRIPTION (NOTE 1-A)
REPURCHASE AGREEMENT - 3.50%
$6,280,000 UMB Bank, n.a.,
4.70%, due December 1, 1998
(Collateralized by U.S.
Treasury Notes, 6.875%,
due August 31, 1999 with
a value of $6,405,964)
(COST $6,280,000) $ 6,280,000
TOTAL INVESTMENTS - 100.02% 179,324,814
(COST $159,033,428)
Other assets less liabilities - (0.02%) (34,259)
TOTAL NET ASSETS - 100.00%
(equivalent to $16.63 per share;
20,000,000 shares of $1.00 par
value capital shares authorized;
10,781,188 shares outstanding) $ 179,290,555
For federal income tax purposes, the identified cost of investments owned at
November 30, 1998, was $159,200,172.
Net unrealized appreciation for federal income tax purposes was $20,124,642,
which is comprised of unrealized appreciation of $41,057,038 and unrealized
depreciation of $20,932,396.
* Non-income producing security
**Standard & Poor's rankings are derived from statistical measurements of past
earnings and dividend stability and growth.
NR - indicates no ranking is available. Rankings are not covered by the
report of independent auditors.
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS
AND LIABILITIES
November 30, 1998
ASSETS:
Investments in securities:
Common stocks, at market value
(identified cost $152,753,428) $ 173,044,814
Repurchase agreement, at cost - approximates market value 6,280,000
Total investments 179,324,814
Dividends receivable 125,220
Receivable for investments sold 163,106
Total assets 179,613,140
LIABILITIES AND NET ASSETS:
Cash overdraft 264,028
Payable for investments purchased 58,557
Total liabilities 322,585
NET ASSETS $ 179,290,555
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 132,314,344
Accumulated undistributed income:
Undistributed net investment income 642,640
Undistributed net realized gain on investment transactions
26,042,185
Net unrealized appreciation in value of investments
20,291,386
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 179,290,555
Capital shares, $1.00 par value:
Authorized 20,000,000
Outstanding 10,781,188
NET ASSET VALUE PER SHARE $ 16.63
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Year Ended November 30, 1998
INVESTMENT INCOME:
Income:
Dividends $ 2,545,205
Interest 282,193
2,827,398
Expenses (Note 2):
Management fees 2,199,612
Registration fees and expenses 26,070
2,225,682
Net investment income (Note 1-B) 601,716
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain from investment transactions (excluding
maturities of short-term commercial notes and
repurchase agreements):
Proceeds from sales of investments 58,253,129
Cost of investments sold 30,141,751
Net realized gain from investment transactions
28,111,378
Unrealized appreciation (depreciation) of investments:
Beginning of year 71,725,066
End of year 20,291,386
Unrealized depreciation of investments during the year (51,433,680)
Net loss on investments (23,322,302)
Decrease in net assets resulting from operations $ (22,720,586)
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
For Each Of The Two Years In The Period Ended November 30, 1998
<TABLE>
<CAPTION>
1998 1997
</CAPTION>
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 601,716 $ 615,046
Net realized gain from investment transactions 28,111,378 24,455,634
Unrealized appreciation (depreciation) of investments during the year (51,433,680) 33,258,404
Net increase (decrease) in net assets resulting from operations (22,720,586) 58,329,084
Net equalization included in the price of shares issued and redeemed (78,485) (96,565)
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (607,184) -
Net realized gain from investment transactions (24,566,129) (27,062,211)
Total distributions to shareholders (25,173,313) (27,062,211)
INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS:*
Proceeds from shares sold 7,032,832 9,795,696
Net asset value of shares issued for reinvestment of distributions 23,501,027 25,690,076
30,533,859 35,485,772
Cost of shares repurchased (19,465,149) (52,241,446)
Net increase (decrease) from capital share transactions 11,068,710 (16,755,674)
Total increase (decrease) in net assets (36,903,674) 14,414,634
NET ASSETS:
Beginning of year 216,194,229 201,779,595
End of year (including undistributed net investment income
of $642,640 in 1998 and $1,547,951 in 1997) 179,290,555 216,194,229
*Shares issued and repurchased:
Number of shares sold 389,195 551,597
Number of shares issued for reinvestment of distributions 1,279,316 1,587,767
1,668,511 2,139,364
Number of shares repurchased (1,074,034) (2,853,445)
Net increase (decrease) 594,477 (714,081)
**Distributions to shareholders:
Income dividends per share $ .0598 $ -
Capital gains distribution per share $ 2.42 $ 2.66
</TABLE>
See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of 1940, as amended, as
a diversified open-end management investment company. The following is a
summary
of significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
A. Security Valuation - Common stocks traded on a national securities exchange
are valued at the latest sales price, or if no sale was reported on that date,
the mean between the closing bid and asked price is used. Common stocks traded
over-the-counter are valued at the average of the last reported bid and asked
prices. Securities with maturities of 60 days or less when acquired or
subsequently within 60 days of maturity are valued at amortized cost, which
approximates market value.
B. Federal and State Taxes - It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no provision for federal or state tax is required. The Fund has
designated $24,941,327 as long-term capital gain dividends.
C. Equalization - The Fund uses the accounting practice of equalization, by
which a portion of the proceeds from sales and costs of redemption of capital
shares, equivalent on a per share basis to the amount of undistributed net
investment income on the date of the transactions, is credited or charged to
undistributed income. As a result, undistributed net investment income per
share
is unaffected by sales or redemptions of capital shares.
D. Other - Security transactions are accounted for on the date the securities
are purchased or sold. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
amounts related to redemptions of shares as a part of the deduction for
dividends paid for income tax purposes. Realized gains and losses from
investment transactions and unrealized appreciation and depreciation of
investments are reported on the identified cost basis.
2. MANAGEMENT FEES:
Management fees were paid to Jones & Babson, Inc. at the rate of 1.5% per annum
of the average daily net asset value of the Fund up to $30,000,000 and 1% per
annum of net assets in excess of that amount. Such fees are paid for services
which include administration, and all other operating expenses of the Fund
except the cost of acquiring and disposing of portfolio securities, the taxes,
if any, imposed directly on the Fund and its shares and the cost of qualifying
the Fund's shares for sale in any jurisdiction. Certain officers and/or
directors of the Fund are also officers and/or directors of Jones & Babson, Inc.
3. INVESTMENT TRANSACTIONS:
Investment transactions for the year ended November 30, 1998 (excluding
maturities of short-term commercial notes and repurchase agreements) are as
follows:
Purchases $ 43,711,184
Proceeds from sales 58,253,129
FINANCIAL HIGHLIGHTS
Condensed data for a share of capital stock outstanding throughout each year.
<TABLE>
<CAPTION>
Years Ended November 30,
1998 1997 1996 1995 1994
</CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 21.22 $ 18.51 $ 17.35 $ 16.64 $ 17.20
Income from investment operations:
Net investment income .044 .058 .057 .101 .032
Net gains or losses on securities
(both realized and unrealized) (2.154) 5.312 3.060 2.342 .569
Total from investment operations (2.110) 5.370 3.117 2.443 .601
Less distributions:
Dividends from net investment income (.060) - (.114) (.038) (.054)
Distributions from capital gains (2.420) (2.660) (1.843) (1.695) (1.107)
Total distributions (2.480) (2.660) (1.957) (1.733) (1.161)
Net asset value, end of year $ 16.63 $ 21.22 $ 18.51 $ 17.35 $ 16.64
Total return (11.05%) 33.49% 20.17% 16.42% 3.70%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 179 $ 216 $ 202 $ 202 $ 188
Ratio of expenses to average net assets 1.09% 1.08% 1 .08% 1.09% 1.08%
Ratio of net investment income to average net assets .29% .30% .35% .67% .22%
Portfolio turnover rate 22% 22% 24% 13% 15%
</TABLE>
See accompanying Notes to Financial Statements.
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
The Board of Directors and Shareholders of
Babson Enterprise Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the statement of net assets, of Babson Enterprise Fund, Inc. (the Fund) as of
November 30, 1998, the related statements of operations for the year then ended,
changes in net assets for each of the two years in the period then ended and
the
financial highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
investments owned as of November 30, 1998, by correspondence with the
custodian.
As to securities relating to uncompleted transactions, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund at November 30, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the
period
then ended in conformity with generally accepted accounting principles.
Enrst & Young LLP
Kansas City, Missouri
December 30, 1998
This report has been prepared for the information of the Shareholders of Babson
Enterprise 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
Babson Funds are offered only by the Prospectus,
a copy of which may be obtained from Jones & Babson, Inc.
Equities
Growth Fund
Enterprise Fund*
Enterprise Fund II
Value Fund
Shadow Stock Fund
International Fund
Fixed Income
Bond Trust
Money Market Fund
Tax-Free Income Fund
* Closed to new investors.
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306
816-751-5900
1-800-4-BABSON
(1-800-422-2766)
www.babsonfunds.com
JB18C-2 1/99
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000725496
<NAME> BABSON ENTERPRISE FUND INC
<S> <C>
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