Babson Value Fund
Semiannual Report
May 31, 1999
A no-load mutual fund that invests in common
stocks considered to be undervalued.
Babson Funds
Jones & Babson Distributors
A Member of the Generali Group
Message to our Shareholders
Babson Value Fund completed the six months ended May 31, 1999 with a
total return (price change and reinvested distributions) of 12.4%.
For the same period the return of the unmanaged Standard & Poor's 500
stock index of larger company stocks was 12.6%. On an unweighted
basis the returns of the 500 S&P companies averaged only 10.6%
for the last six months.
Through the first four months of Babson
Value Fund's fiscal year (December, 1998 - March, 1999) the
market- capitalization weighted S&P 500 continued to be dominated
by the strong performance of the largest companies in that index.
At the end of March, 1999, a very narrow group of growth stocks
had provided outsized returns relative to most of the other
stocks in the S&P 500 through the first four months of the fiscal
year. Specifically, among the 50 largest stocks in that index,
the sub-group of 24 stocks which yielded less than the index
returned on average 16.6% from January to March. Ten stocks in
this group were in the Technology and Communications sector and
had an average P/E multiple of 76 times! Seven other stocks in
this group, which we have nicknamed the "Titanic 24," were
consumer stocks with an average P/E of 60 times. Clearly, these
are not the types of stocks that populate the Babson Value Fund.
The forgotten, higher yielding, lower P/E group of 244 stocks at
the smaller end of the S&P capitalization spectrum, where value
stocks have typically resided, returned -3.6% in the January-
March period.
We noted in our last semi-annual report that the
largest fifty stocks in the S&P 500 accounted for a
disproportionate percentage of the weighting in the index. This
continued to be true through most of the second half of the
Fund's fiscal year and explains why mutual funds have had a
difficult time outperforming the S&P 500. Additionally, the
popularity of the new "nifty fifty" of the 1990s has produced a
wide spread in P/Es, as we mentioned in the preceding paragraph.
We concluded our previous semi-annual commentary by saying "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 period of underperformance of the S&P 500 vs. value
funds in general, and Babson Value Fund in particular, began
early in April 1999. In what may someday be looked back upon as a
watershed event in stock market history, there was a violent
reversal in market sentiment that occurred the second week in
April, 1999. Virtually overnight value stocks skyrocketed as
investors reallocated assets from growth to value. Babson Value
Fund was exceptionally well positioned to benefit from this
change in style preference. It was largely because of the
compelling valuations of the portfolio (price/earnings,
price/book, and yield, for example) that the Fund did so well in
April and May.
Net asset value per share rose from $47.42 on
November 30, 1998, to $50.72 at the end of May. In March an
ordinary income dividend of $0.14 was distributed.
For shareholders who elected reinvestment, the distribution was
reinvested at a price of $45.09 per share on March 24, 1999. In
addition, the year-end distributions of $0.15 of ordinary income
and $1.97 in long-term capital gains were reinvested on December
17, 1998 at a price of $44.68 per share.
Turnover increased from
normal levels because of tax-loss selling to reduce capital gains
from over $4.00 per share to $1.97 per share at the end of the
Fund's 1998 fiscal year. In November 1998 we sold full positions
of two holdings and partial positions in a number of other
holdings. We used the proceeds to add to other positions and,
then in December 1998 and January 1999, we reestablished
positions after the mandated period to avoid "wash sales."
Usually rebalancing would be the primary contributor to portfolio
turnover.
The Fund continues to have attractive valuation
characteristics. The average price/earnings ratio based on
estimated earnings for 1999 for the companies in the Fund is only
18.0, compared with 26.6 times for the S&P 500 companies. The
average price/book value of the Fund's companies is 2.3, compared
to 4.8 for the S&P companies, and their current yield is 75%
higher.
We appreciate your continued use of the Babson Value Fund
in your investment program.
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
CHART
Babson Value Fund
Comparison with all Lipper
Growth & Income Funds
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
5/31/98 5/31/96 5/31/94 5/31/89 06/30/98 06/30/96 06/30/94 06/30/89
to to to to to to to
5/31/99 5/31/99 5/31/99 5/31/99 06/30/99 06/30/99 06/30/99 06/30/99
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Babson Value Fund Total Return 5.03% 17.88% 18.97% 15.32% 5.63% 18.75% 19.95% 15.51%
Lipper Growth & Income Funds
Average Total Return 11.48% 19.80% 20.12% 14.58% 14.48% 21.59% 21.72% 15.13%
BVF Rank among Lipper Growth & Income Funds 675 365 228 58 736 386 245 70
# of Lipper Growth & Income Funds 829 510 320 149 843 515 323 148
Babson Value Fund Percentile, Top 82% 72% 72% 40% 88% 75% 76% 48%
</TABLE>
Source: Lipper Analytical Securities Corporation
Comparison with
Morningstar Category and Objective
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
5/31/98 5/31/96 5/31/94 5/31/89 06/30/98 06/30/96 06/30/94 06/30/89
to to to to to to to
5/31/99 5/31/99 5/31/99 5/31/99 06/30/99 06/30/99 06/30/99 06/30/99
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Morningstar Large Cap. Value Funds
Average Total Return 9.77% 19.07% 19.61% 14.74% 12.66% 20.55% 20.90% 15.14%
BVF Rank among Morningstar
Large Cap. Value Funds 408 244 142 424 70 269 156 46
# of Morningstar Large Cap. Value Funds 526 364 225 107 533 368 230 109
Babson Value Fund Percentile, Top 78% 67% 63% 39% 88% 73% 68% 42%
Morningstar Growth & Income Funds
Average Total Return 13.02% 20.71% 20.73% 14.48% 15.62% 22.55% 22.42% 15.03%
BVF Rank among Morningstar
Growth & Income Funds 621 401 257 596 78 426 274 69
# of Morningstar Growth & Income Funds 740 524 334 142 758 535 339 143
Babson Value Fund Percentile, Top 84% 77% 77% 41% 90% 80% 81% 48%
Source: Morningstar, Inc.
</TABLE>
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.
Schedule of Investments
May 31, 1999 (unaudited)
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 96.71%
BASIC MATERIALS - 14.06%
482,100 duPont (E.I.) deNemours & Co. $ 31,547,419
805,100 Potlatch Corp. 31,700,812
103,400 Martin Marietta Materials, Inc. 6,268,625
746,000 Millennium Chemicals, Inc. 18,603,375
1,156,000 USX-U.S. Steel Group 31,139,750
474,000 Weyerhaeuser Co. 29,417,625
675,300 Willamette Industries, Inc. 28,615,838
177,293,444
CAPITAL GOODS - 7.15%
716,000 Boeing Co. 30,251,000
689,200 Dana Corp. 35,579,950
601,000 Lockheed Martin Corp. 24,302,937
90,133,887
CONSUMER CYCLICAL - 14.16%
603,700 Harcourt General, Inc. 29,694,494
1,727,600 Kmart Corp. 26,561,850
679,000 Limited, Inc. 33,186,125
610,158 Penney (J.C.) Co., Inc. 31,537,541
1,274,300 Reebok International Ltd. 25,326,712
675,500 Sears, Roebuck & Co. 32,297,344
178,604,066
CONSUMER STAPLES - 2.14%
628,000 Diageo PLC, ADR 27,004,000
ENERGY - 5.06%
381,300 Atlantic Richfield Co. 31,910,044
564,500 Royal Dutch Petroleum Co. 31,929,531
63,839,575
FINANCIAL - 26.64%
372,100 Aetna, Inc. 33,791,331
837,000 Allstate Corp. 30,498,188
217,100 American Express Co. 26,309,806
12,322 Berkshire Hathaway, Inc. Cl. B 28,562,396
345,000 Chase Manhattan Corp. 25,012,500
398,000 Citigroup, Inc. 26,367,500
394,000 National City Corp. 26,077,875
660,850 SLM Holding Corp. 27,425,275
628,200 Student Loan Corp. 25,088,737
415,200 Transamerica Corp. 30,465,300
802,700 U.S. Bancorp 26,087,750
756,330 Wells Fargo & Co. 30,253,200
335,939,858
HEALTH CARE - 5.05%
1,322,900 Tenet Healthcare 32,411,050
537,000 United Healthcare Corp. 31,280,250
63,691,300
MISCELLANEOUS - 1.20%
333,100 Hanson PLC, ADR 15,093,594
TECHNOLOGY - 10.30%
800,200 Apple Computer, Inc. 35,258,813
288,000 International Business Machines Corp. 33,498,000
1,405,500 Wallace Computer Services, Inc. 32,238,656
514,000 Xerox Corp. 28,880,375
129,875,844
TRANSPORTATION - 5.76%
716,000 CSX Corp. 33,607,250
1,014,382 KLM Royal Dutch Airlines 29,417,078
766,090 Overseas Shipholding Group, Inc. 9,576,125
72,600,453
UTILITIES - 5.19%
1,301,000 Illinova Corp. 35,370,938
667,200 Texas Utilities Co. 30,024,000
65,394,938
TOTAL COMMON STOCKS - 96.71% 1,219,470,959
FACE
AMOUNT DESCRIPTION MARKET VALUE
REPURCHASE AGREEMENT - 3.07%
$38,700,000 UMB Bank, n.a., 4.22%, due June 1, 1999
(Collateralized by Federal
National Mortgage Association,
due June 17, 1999 with a value
of $ 39,471,461) $ 38,700,000
TOTAL INVESTMENTS - 99.78% 1,258,170,959
Other assets less liabilities - 0.22% 2,830,403
TOTAL NET ASSETS - 100.00% $ 1,261,001,362
The identified cost of investments owned at May 31, 1999, was the
same for federal income tax and book purposes.Net unrealized
appreciation for federal income tax purposes was $380,182,644,
which is comprised of unrealized appreciation of $387,397,881
and unrealized depreciation of $7,215,237.
See accompanying Notes to Financial Statements.
Statement of Assets and Liabilities
May 31, 1999 (unaudited)
ASSETS:
Investments, at value (identified cost $877,988,315) $ 1,258,170,959
Receivables:
Investments sold 1,646,806
Dividends 3,862,321
Interest 4,474
Fund shares sold 802,152
Total assets 1,264,486,712
LIABILITIES AND NET ASSETS:
Cash overdraft 859,924
Payables:
Management fees 438,466
Investments purchased 2,034,453
Fund share redemptions 152,507
Total liabilities 3,485,350
NET ASSETS $ 1,261,001,362
NET ASSETS CONSIST OF:
Capital (capital stock and
paid-in capital) $ 826,561,709
Undistributed net investment income 4,085,669
Undistributed net realized gain from investment transactions 50,171,340
Net unrealized appreciation of investments 380,182,644
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 1,261,001,362
Capital shares, $1.00 par value
Authorized 50,000,000
Outstanding 24,860,553
NET ASSET VALUE PER SHARE $ 50.72
See accompanying Notes to Financial Statements.
Statement of Operations
For the six months ended May 31, 1999 (unaudited)
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $198,467) $ 13,454,167
Interest 663,972
14,118,139
EXPENSES:
Management fees 6,114,947
Registration fees 67,390
6,182,337
Net investment income 7,935,802
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions 60,337,647
Net unrealized appreciation on investments during the period 73,219,128
Net gain on investments 133,556,775
Net increase in net assets resulting from operations $ 141,492,577
See accompanying Notes to Financial Statements.
Statements of Changes in Net Assets
For the six months ended May 31, 1999 (unaudited)
and the year ended November 30, 1998
<TABLE>
<CAPTION>
1999 1998
</CAPTION>
<S> <C> <C>
OPERATIONS:
Net investment income $ 7,935,802 $ 19,814,076
Net realized gain from investment transactions 60,337,647 75,274,127
Net unrealized appreciation (depreciation) on investments
during the period 73,219,128 (55,316,327)
Net increase in net assets resulting from operations 141,492,577 39,771,876
Net equalization included in the price of shares
issued and redeemed - 1,006,045
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (8,289,410) (17,864,102)
Net realized gain from investment transactions (60,875,852) (43,880,177)
Total distributions to shareholders (69,165,262) (61,744,279)
CAPITAL SHARE TRANSACTIONS:*
Shares sold 170,513,744 513,525,592
Reinvested distributions 56,281,863 49,896,402
226,795,607 563,421,994
Shares repurchased (531,717,321) (468,036,565)
Net increase (decrease) from capital share transactions (304,921,714) 95,385,429
Net increase (decrease) in net assets (232,594,399) 74,419,071
NET ASSETS:
Beginning of period 1,493,595,761 1,419,176,690
End of period $ 1,261,001,362 $ 1,493,595,761
Undistributed net investment income at end of period $ 4,085,669 $ 17,971,173
*Fund share transactions:
Shares sold 3,586,648 10,704,578
Reinvested distributions 1,259,051 1,109,576
4,845,699 11,814,154
Shares repurchased (11,482,762) (10,052,962)
Net increase (decrease) in fund shares (6,637,063) 1,761,192
</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 or national market
are valued at the latest sales price thereof, 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. 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 - The Fund intends to
distribute to shareholders all taxable investment income and
realized gains and otherwise comply with the Internal Revenue
Code applicable to regulated investment companies. Therefore, no
provision for federal or state tax is required.
C. Equalization - Prior to December 1, 1998, the Fund used equalization
accounting, by which a portion of the proceeds from sales and costs of
redemption of fund shares is credited or charged to undistributed
net investment income so that income per share available for
distribution is not affected by sales or redemption of fund
shares. As of December 1, 1998, the Fund discontinued using
equalization. This change has no effect on the FundOs net assets,
net asset value per share or distributions to shareholders. The
cumulative effect of the discontinuance of equalization
accounting was to decrease undistributed net investment income
and increase paid-in-capital as of December 1, 1998 by
$13,531,896.
D. Security Transactions and Investment Income -
Security transactions are accounted for on the date the
securities are purchased or sold. Dividend income less foreign
taxes withheld (if any) is recorded on the ex-dividend date.
Interest income is recognized on the accrual basis. Realized
gains and losses from investment transactions and unrealized
appreciation and depreciation of investments are reported on the
identified cost basis. Market discounts on debt securities are
accreted; premiums are not amortized.
E. Distributions to Shareholders - Distributions to shareholders are
recorded on ex-dividend date. Distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles.
F. Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from such estimates.
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 FundOs 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 six months ended May 31, 1999 (excluding
maturities of short-term commercial notes and repurchase
agreements) are as follows:
Purchases $ 155,731,836
Proceeds from sales 434,477,652
Financial Highlights
Condensed data for a share of capital stock outstanding
throughout each period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED Years Ended November
30, MAY 31,1999 1998 1997 1996 1995 1994
(UNAUDITED)
</CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of period $ 47.42 $ 47.73 $ 38.65 $ 31.78 $ 25.19 $ 25.36
Income from investment operations:
Net investment income .428 .618 .511 .553 .589 .562
Net gains (losses) on securities
(both realized and unrealized) 5.132 1.092 9.653 7.194 7.205 .577
Total from investment operations 5.560 1.710 10.164 7.747 7.794 1.139
Less distributions:
Dividends from net investment income (.290) (.555) (.475) (.532) (.600) (.398)
Distributions from capital gains (1.970) (1.465) (.609) (.345) (.604) (.911)
Total distributions (2.260) (2.020) (1.084) (.877) (1.204) (1.309)
Net asset value, end of period $ 50.72 $ 47.42 $ 47.73 $ 38.65 $ 31.78 $ 25.19
Total return* 12.38% 3.85% 26.89% 24.91% 32.07% 4.51%
Ratios/Supplemental Data
Net assets, end of period (in millions) $ 1,261 $ 1,494 $ 1,419 $ 764 $ 293 $ 120
Ratio of expenses to average net assets** .96% .98% .97% .96% .98% .99%
Ratio of net investment income to average
net assets** 1.23% 1.28% 1.22% 1.63% 2.12% 2.32%
Portfolio turnover rate 12% 42% 17% 11% 6% 14%
</TABLE>
*Total return not annualized for periods less than
one full year.
**Annualized for periods less than one full year.
See accompanying Notes to Financial Statements.
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.
BABSON FUNDS
EQUITIES
Enterprise Fund
Enterprise Fund II
Growth Fund
Shadow Stock Fund
Value Fund
International Fund
fixed income
Bond Trust
Money Market Fund
Tax-Free Income Fund
BABSON FUNDS
Jones & Babson Distributors
A Member of the Generali Group
P.O. Box 419757, Kansas City, MO 64141-6757
1-800-4-babson
(1-800-4222766)
www.babsonfunds.com
JB4C (7/99) 508505
