BABSON
Value
Fund
Semiannual Report
May 31, 1998
MESSAGE
To Our Shareholders
At the close of the first half of our 1998 fiscal year net assets of
Babson Value Fund had reached $1.72 billion, up 21% from $1.42 billion
at the end of our last fiscal year in November 1997, and 54% from $1.12
billion a year ago. Thus, your Fund has continued to participate nicely
in the strong inflow of money into equity mutual funds that began in
November, 1994, which was the start of the accelerated upward move in
stock prices that we have enjoyed since then.
Total return (price change and reinvested distributions), was 11.1% for
the six months ended May 31, 1998. For the same period the return of the
unmanaged Standard & Poor's 500 stock index of larger company stocks was
15.1%. On an unweighted basis the returns of the 500 S&P companies
averaged only 12.8% for the last six months. This market capitalization
weighted index continued to be dominated by strong performance of the
largest companies. We made this same observation in last year's semi-
annual report. Unfortunately for value oriented investors the growth
style has continued to dominate the market, rewarding the largest growth
companies with even higher P/E multiples. Many of these are consumer
staple growth companies such as Coca-Cola, Gillette, Procter & Gamble,
Eli Lilly, Pfizer, Warner Lambert and other pharmaceuticals which trade
at multiples of 30 to 50 times 1998 estimated
earnings, or technology growth companies such as Microsoft, Cisco and
Dell which trade at multiples of 48, 44 and 42 times estimated 1998
earnings, respectively.
The fifty companies with the highest market capitalizations in the S&P
500 had average total returns of 24.8% for the six months, while the
other 450 companies had average returns of only 11.5%. Among the biggest
50, those that yielded less than the S&P 500 had average returns of
27.3%. This was 41% higher than the 19.4% average return of those that
yielded more than the index. This same ratio existed between the lower
and higher yielders among the smallest 450 companies in the S&P 500
where the lower yielders returned 13.3%, while the higher yielders
produced only 9.5%. Perhaps the greatest irony in all of this analysis
is that the relatively paltry 9.5% return over the last six months is
extraordinarily good in the context of normal equity returns over long
periods of time.
The biggest fifty, which are 10% of the total number of companies, now
account for over 50% of the weight in the index. This helps to explain
why mutual funds have continued to have a hard time outperforming the
S&P 500. The popularity of the new "nifty fifty" of the nineties has
produced a wide spread in P/E's... wider, perhaps than is justified by
quality or growth prospects. We don't know if the spread will narrow by
the multiples of the nifty fifty coming back toward the pack, or by
generally increasing multiples among the rest of the companies. Either
way, a period of underperformance by the S&P 500 would be the result.
The favorable longer-term comparisons of the Fund with its peers are
intact as shown in the table below. We are particularly pleased with our
very high return ranking against our peers over the last five years
because the growth style of investing was favored for most of the
period. Also, our high returns for five years were achieved with a risk
level that was more than 25% lower than the average equity fund as
calculated by Morningstar.
Net asset value per share rose from $47.73 on November 30, 1997, to
$51.07 at the end of May. In March an ordinary income dividend of $0.12
was distributed. For shareholders who elected reinvestment, the
distribution was reinvested at a price of $52.23 per share on March 20,
1998. In addition, the year-end distributions of $0.45 of ordinary
income and $1.15 in long-term capital gains were reinvested on December
26, 1997 at a price of $44.28 per share.
Turnover has remained low reflecting the continued emphasis on companies
with price momentum in the stock market. In the latest period, the only
companies eliminated were Safety-Kleen and The Energy Group. Laidlaw
Environmental acquired Safety-Kleen after a protracted battle with
another company that had initially been favored by management even
though their offering price was lower. We did not want to own Laidlaw
Environmental shares, so we sold our Safety-Kleen shares before the
merger was completed. The Energy Group was acquired by Texas Utilities.
New companies added to the portfolio since the end of our fiscal year
are USX-U.S. Steel, and CSX. U.S. Steel was selling at only 6.4 times
estimated earnings at the time of initial purchase. It had an attractive
current yield, excess cash flow, a $2 billion pension surplus and
earnings potential from its joint ventures. CSX, a major eastern
railroad, will be taking over parts of Conrail (together with rival
Norfolk Southern) late this year or early next year. We firmly believe
that this is money well-spent - additional employees, more locomotives,
and infrastructure improvements for example. However, the near-term
costs are high and consensus earnings estimates have been reduced. Our
purchase has not provided us with positive results yet, but we continue
to believe this reasonably priced (13 times earnings, 1.7 times book
value and 2.6% current yield) leading company will be rewarding in the
longer term.
The Fund continues to have attractive valuation characteristics. The
average price/earnings ratio based on estimated earnings for 1998 for
the companies in the Fund is only 17.4, compared with 22.8 times for the
S&P 500 companies. The average price to book value of the Fund's
companies is 2.5, compared to 4.1 for the S&P 500 companies, and their
current yield is one-third higher.
We appreciate your continued use of Babson Value Fund in your investment
program.
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
Babson Value Fund
<TABLE>
<CAPTION>
Comparison with all
Lipper Growth & Income Funds
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
5/31/97 5/31/95 5/31/93 5/31/88 06/30/97 06/30/95 06/30/93 06/30/88
to to to to to to to to
5/31/98 5/31/98 5/31/98 5/31/98 06/30/98 06/30/98 06/30/98 06/30/98
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Babson Value Fund Total Return 28.44% 25.49% 22.22% 16.81% 25.07% 25.12% 22.33% 16.34%
Lipper Growth & Income Funds
Average Total Return 25.48% 24.99% 18.71% 16.11% 22.86% 24.84% 19.03% 15.78%
BVF Rank among Lipper
Growth & Income Funds 191 195 9 48 256 205 17 49
# of Lipper Growth & Income Funds 665 425 268 140 667 431 274 142
Babson Value Fund Percentile, Top 29% 46% 3% 34% 38% 48% 6% 35%
</TABLE>
Source: Lipper Analytical Securities Corporation
<TABLE>
<CAPTION>
Comparison with all
Morningstar Category and Objective
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
5/31/97 5/31/95 5/31/93 5/31/88 06/30/97 06/30/95 06/30/93 06/30/88
to to to to to to to to
5/31/98 5/31/98 5/31/98 5/31/98 06/30/98 06/30/98 06/30/98 06/30/98
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Morningstar Large Cap. Value Funds
Average Total Return 24.50% 23.95% 18.49% 15.80% 20.94% 23.53% 18.55% 15.40%
BVF Rank among Morningstar
Large Cap. Value Funds 89 90 10 34 93 90 12 30
# of Morningstar Large Cap. Value Funds 426 305 185 95 430 306 188 96
Babson Value Fund Percentile, Top 21% 30% 5% 36% 22% 29% 6% 31%
Morningstar Growth & Income Funds
Average Total Return 25.97% 25.23% 18.90% 15.60% 23.80% 25.22% 19.30% 15.29%
BVF Rank among Morningstar
Growth & Income Funds 229 218 8 48 277 233 44 47
# of Morningstar Growth & Income Funds 609 443 272 135 620 444 277 136
Babson Value Fund Percentile, Top 38% 49% 3% 36% 45% 52% 16% 35%
</TABLE>
Source: Morningstar, Inc.
Note: All returns for periods of longer than one year are compound annual
rates.
All returns for Babson Value Fund are net of all fees and expenses.
Returns for the averages are net of fees and expenses, but do not
include the impact of sales charges.
Morningstar includes S&P 500 index funds in its Growth & Income Fund
category, while Lipper has a separate category.
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 fluctuate, and redemption
value may be more or less than original cost.
STATEMENT OF NET ASSETS
May 31, 1998 (unaudited)
MARKET VALUE
SHARES COMPANY (NOTE 1-A)
COMMON STOCKS - 94.03%
AEROSPACE - 4.31%
836,700 Boeing Co. $ 39,847,837
304,000 Lockheed Martin Corp. 34,124,000
73,971,837
AIRLINES - 2.33%
1,028,482 KLM Royal Dutch Airlines 40,046,518
BANKS - 11.96%
316,000 Chase Manhattan Corp. 42,956,250
869,385 Diageo PLC, ADR 39,339,671
626,700 National City Corp. 42,458,925
983,700 U.S. Bancorp 38,487,263
116,233 Wells Fargo & Co. 42,018,229
205,260,338
CHEMICALS - 2.57%
573,100 duPont (E.I.) deNemours & Co. 44,128,700
COMPUTER SOFTWARE - 2.23%
598,600 United Healthcare Corp. 38,310,400
COMPUTER SYSTEMS - 4.67%
1,412,200 Apple Computer, Inc. 37,599,825
362,400 International Business Machines Corp. 42,536,700
80,136,525
CONSUMER PRODUCTS - 4.73%
1,228,100 Limited, Inc. 40,834,325
1,403,300 Reebok International Ltd. 40,344,875
81,179,200
DIVERSIFIED - 10.05%
812,500 Dana Corp. 42,351,562
704,100 Hanson PLC, ADR 20,814,956
1,425,100 Illinova Corp. 41,416,969
180,400 Martin Marietta Materials, Inc. 8,298,400
666,000 Millennium Chemicals, Inc. 21,062,250
1,074,000 USX-U.S. Steel Group 38,529,750
172,473,887
FINANCIAL SERVICES - 11.74%
397,100 American Express Co. 40,752,388
1,017,850 SLM Holding Corp. 40,650,384
759,600 Student Loan Corp. 36,698,175
354,600 Transamerica Corp. 40,779,000
698,680 Travelers Group, Inc. 42,619,480
201,499,427
FOREST PRODUCTS AND PAPER - 6.61%
920,400 Potlatch Corp. 40,325,025
720,800 Weyerhaeuser Co. 36,625,650
1,063,600 Willamette Industries, Inc. 36,494,775
113,445,450
HEALTH - 2.38%
1,168,000 Tenet Healthcare 40,880,000
INSURANCE - 7.03%
499,100 Aetna, Inc. 39,023,381
428,400 Allstate Corp. 40,323,150
187,500 General Re Corp. 41,226,563
120,573,094
OFFICE EQUIPMENT AND SUPPLIES - 4.18%
1,196,600 Wallace Computer Services, Inc. 32,009,050
385,400 Xerox Corp. 39,599,850
71,608,900
PETROLEUM - 4.94%
547,300 Atlantic Richfield Co. 43,168,288
740,000 Royal Dutch Petroleum Co. 41,486,250
84,654,538
RETAIL - 8.68%
827,800 Harcourt General, Inc. 45,115,100
1,134,000 K mart Corp. 21,971,250
553,158 Penney (J.C.) Co., Inc. 39,723,659
680,500 Sears, Roebuck & Co. 42,063,406
148,873,415
TRANSPORTATION - 3.22%
819,300 CSX Corp. 39,019,163
839,890 Overseas Shipholding Group, Inc. 16,272,869
55,292,032
UTILITIES - 2.40%
1,041,100 Texas Utilities Co. 41,123,450
TOTAL COMMON STOCKS - 94.03% 1,613,457,710
CONVERTIBLE PREFERRED STOCK - 1.43%
345,400 K mart Financing, 7.750% trust cv. pfd. 24,501,812
MARKET VALUE
FACE AMOUNT DESCRIPTION (NOTE 1-A)
SHORT-TERM CORPORATE NOTES - 4.08%
$ 10,000,000 Ford Motor Credit Co.,
5.51%, due June 17, 1998 10,000,000
10,000,000 Ford Motor Credit Co.,
5.52%, due July 8, 1998 10,000,000
10,000,000 General Electric Credit Corp.,
5.48%, due June 3, 1998 10,000,000
10,000,000 General Electric Credit Corp.,
5.49%, due June 24, 1998 10,000,000
5,000,000 General Motors Acceptance Corp.,
5.46%, due July 1, 1998 5,000,000
5,000,000 General Motors Acceptance Corp.,
5.48%, due July 1, 1998 5,000,000
10,000,000 General Motors Acceptance Corp.,
5.53%, due July 15, 1998 10,000,000
10,000,000 Sears Roebuck Acceptance Corp.,
5.54%, due June 10, 1998 10,000,000
TOTAL SHORT-TERM
CORPORATE NOTES - 4.08% 70,000,000
REPURCHASE AGREEMENT - 0.32%
5,500,000 UMB Bank, n.a.,
4.97%, due June 1, 1998
(Collateralized by U.S.
Treasury Notes, 7.00%,
due April 15, 1999) 5,500,000
TOTAL INVESTMENTS - 99.86% $ 1,713,459,522
Other assets less liabilities - 0.14% 2,407,997
TOTAL NET ASSETS - 100.00%
(equivalent to $51.07 per share;
50,000,000 shares of $1.00 par
value capital shares authorized;
33,599,617 shares outstanding) $ 1,715,867,519
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS
AND LIABILITIES
May 31, 1998 (unaudited)
ASSETS:
Investments in securities:
Common stocks, at market value
(identified cost $1,166,826,090) $ 1,613,457,710
Convertible preferred stock,
at market value (identified cost $21,102,707) 24,501,812
Short-term corporate notes, at cost -
approximates market value 70,000,000
Repurchase agreement, at cost -
approximates market value 5,500,000
Total investments 1,713,459,522
Dividends receivable 2,895,028
Interest receivable 187,002
Total assets 1,716,541,552
LIABILITIES AND NET ASSETS:
Cash overdraft 674,033
Total liabilities 674,033
NET ASSETS $ 1,715,867,519
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 1,183,238,779
Accumulated undistributed income:
Undistributed net investment income 19,173,469
Undistributed net realized gain on
investment transactions 63,424,546
Net unrealized appreciation in value of investments 450,030,725
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 1,715,867,519
Capital shares, $1.00 par value
Authorized 50,000,000
Outstanding 33,599,617
NET ASSET VALUE PER SHARE $ 51.07
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Six Months Ended May 31, 1998 (unaudited)
INVESTMENT INCOME:
Income:
Dividends $ 14,401,385
Interest 1,921,057
16,322,442
Expenses (Note 2):
Management fees 7,497,157
Registration fees and expenses 179,301
7,676,458
Net investment income (Note 1-B) 8,645,984
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain from investment transactions
(excluding maturities of short-term commercial notes
and repurchase agreements):
Proceeds from sales of investments 216,968,595
Cost of investments sold 152,541,548
Net realized gain from investment transactions 64,427,047
Unrealized appreciation of investments:
Beginning of period 362,279,843
End of period 450,030,725
Unrealized appreciation of investments during
the period 87,750,882
Net gain on investments 152,177,929
Increase in net assets resulting from operations $ 160,823,913
See accompanying Notes to Financial Statemenns.
STATEMENTS OF CHANGES
IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
May 31, 1998 November 30,
(unaudited) 1997
</CAPTION>
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 8,645,984 $ 13,631,526
Net realized gain from investment transactions 64,427,047 43,840,575
Unrealized appreciation of investments
during the period 87,750,882 215,581,637
Net increase in net assets resulting
from operations 160,823,913 273,053,738
Net equalization included in the price of shares
issued and redeemed 2,044,321 4,673,336
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (7,951,840) (12,079,924)
Net realized gain from investment transactions (43,880,178) (12,342,336)
Total distributions to shareholders (51,832,018) (24,422,260)
INCREASE FROM CAPITAL SHARE TRANSACTIONS:*
Proceeds from shares sold 302,419,268 676,853,774
Net asset value of shares issued for
reinvestment of distributions 41,829,279 18,924,658
344,248,547 695,778,432
Cost of shares repurchased (158,593,934) (293,897,196)
Net increase from capital share transactions 185,654,613 401,881,236
Total increase in net assets 296,690,829 655,186,050
NET ASSETS:
Beginning of period 1,419,176,690 763,990,640
End of period (including undistributed
net investment income of $19,173,469 and
$16,435,004, respectively) $ 1,715,867,519 $ 1,419,176,690
Shares issued and repurchased:
Number of shares sold 6,169,584 16,489,404
Number of shares issued for reinvestment of
distributions 933,789 470,074
7,103,373 16,959,478
Number of shares repurchased (3,240,180) (6,991,116)
Net increase 3,863,193 9,968,362
Distributions to shareholders:
Income dividends per share $ .2550 $ .4753
Capital gains distribution per share $ 1.4650 $ .6087
</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 - Corporate stocks and bonds 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.
Securities which are traded over-the-counter are priced at the mean
between the latest bid and asked price. Securities not currently traded
are valued at fair value as determined by the Board of Directors.
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.
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. 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 are paid to Jones & Babson, Inc. at the
rate of .95 of 1% per annum of the average daily net asset value of the
Fund 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 period ended May 31, 1998 (excluding
maturities of short-term commercial notes and repurchase agreements) are
as follows:
Purchases $ 334,417,888
Proceeds from sales 216,968,595
This report has been prepared for the information of the Shareholders of
Babson Value 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.
BABSON FUNDS
JONES & BABSON DISTRIBUTORS
A member of the Generali Group
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306
816-751-5900
1-800-4-BABSON
(1-800-422-2766)
http://www.jbfunds.com
JB4C-1 7/98
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<NAME> BABSON VALUE FUND INC
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<PERIOD-END> MAY-31-1998
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