UMB Scout Funds
REGIONAL FUND
(UMBHX)
Annual Report June 30, 2000
A no-load mutual fund that seeks long-term growth
of both capital and income by investing
in smaller regional companies.
TO THE SHAREHOLDERS
In the past year, the financial markets continued to capture the nation's
fancy. The major drivers regarding financial asset prices over the last 12
months have been earnings and interest rates, as is typically the case.
However, last fall we witnessed a temporary detour from the "norm" as we
saw what turned out to be a speculative "bubble" being created when
investors purchased anything labeled ".com." While that bubble has not
burst, it is fair to say that much of the speculative "froth" has since
been eliminated from asset valuation levels.
In an effort to get a handle on the economy, Alan Greenspan conducted a
series of six interest rate increases designed to slow the economic
environment and ease any upward pressure on inflation rates. We are
beginning to see signs that the growth rate in the economy is decreasing.
For the time being, it appears that Mr. Greenspan's efforts were successful.
But what about the future? Will the economy continue to slow? And if it
does slow, could we slip into a recession? These are very significant
questions on many investors' minds. While we do not know what the future
holds, history would suggest that the economy is going to slow during the
remainder of 2000. Keep in mind that historically, the Federal Reserve,
currently headed by Greenspan, has had difficulty "fine tuning" the
economy. It has been shown that once the economy starts to slow, keeping it
out of a recessionary environment can be difficult. In our minds, recession
poses a major potential risk which investors may have to wrestle with
during the next 12 months.
Longer term, we continue to look at the investment landscape in a positive
sense. Inflation is low, and the economy is growing nicely. As long as
these two trends are at work, we believe that financial assets will
generate satisfactory returns.
In closing, we at UMB Investment Advisors would like to thank you, our
shareholders, for your continued support of the UMB Scout Funds. We fully
understand and appreciate the trust you have placed in our hands. We will
work hard to maintain that trust.
Respectfully,
/s/William B. Greiner
William B. Greiner
Executive Vice President
Chief Investment Officer
UMB Investment Advisors
Shares of the UMB Scout Funds are not deposits or obligations of, nor
guaranteed by, UMB Bank, n.a. or any other banking institution; nor are
they insured by the Federal Deposit Insurance Corporation ("FDIC") or any
other government agency. These shares involve investment risks, including
the possible loss of the principal invested.
TO THE SHAREHOLDERS
The UMB Scout Regional Fund closed the quarter ended June 30, 2000 at $9.82
per share and had a total return (price change and reinvested
distributions) of -2.18% for the quarter and -8.57% for the fiscal year,
compared to Lipper Small Co. Fund Index return of -5.95% for the quarter
and 35.27% for the fiscal year. The Fund seeks long-term growth of both
capital and income by investing in smaller companies in an eight-state region.
The Federal Reserve (Fed) has had a significant impact on the financial
markets and the economy over the past year. The Fed began raising the
interest rates under its control in June of 1999, and while it was
increasing the cost of money on one hand,
on the other it proceeded to inject large quantities of funds into the
economy in an effort to stave off any Y2K mishaps. In the second half of
1999, the money supply (measured on a 13-week rate of change basis),
accelerated from a 4% growth rate to over 15%. As we projected in our
December 31, 1999 semiannual report, we felt once the Y2K hurdle was
overcome, the Fed would become serious about correcting the growing
imbalances constantly referred to by Fed Chairman Alan Greenspan. That has
certainly been the case in this year's first six months, as the rate of
growth of the money supply has fallen by more than 50%. Therefore, not only
has the cost of money risen, the growth rate of the supply of funds has
diminished, taking the steam out of the stock market, and more recently,
the economy. Specifically, the NASDAQ Composite, last year's big winner and
the major beneficiary of the speculative boom in new ".com" issues, was
growing at a 45% rate (measured on a 13-week rate of change basis) going
into year-end 1999. In this year's first six months, the NASDAQ's
13-week rate of change dropped to -25%. Likewise, the economy, as measured
by retail sales, accelerated to a 4% growth rate during the period when the
Fed was adding "Y2K reserves," and has since fallen into negative territory
as retail sales have declined in each of the last two months.
Over the past two years, small capitalization companies, especially those
exhibiting more of a value bias, have suffered from benign neglect. At
times, it seems that the investors most interested in acquiring these
issues have been other corporations in the same industry who have
recognized the inherent value. Increased takeover activity has been
beneficial for the Fund, as four of the Fund's issues have been, or are in
the process of being, taken over since our December 31, 1999 semiannual
report. These companies include TCBY, Boise Cascade Office Products, Mid-
American Energy Holdings and Mallinckrodt.
In preparing for the second half of 2000, we feel the bulk of the Federal
Reserve's restrictive steps has already been taken. The Fed has succeeded
in slowing the economy and the financial markets from their red-hot pace of
1999, thus decreasing the likelihood of further rate hikes. We are also
optimistic about the fact that historically, stocks tend to perform well in
the second half of an election year.
In an effort to improve performance, over the last quarter we have
increased our focus on those issues which we expect to exhibit the best
growth profile while still selling at value prices. This has led us to
decrease the number of holdings while maintaining an almost fully invested
position. The portfolio has gone from 85 equity issues to less than 60 as
of June 30. As previously mentioned, this number will decrease further as
we take profits from announced, but yet to be completed, takeovers. In the
future, we plan on using 40 to 50 issues at any given point in time, while
attempting to maximize the expected future rate of growth available at a
reasonable valuation.
Thank you for your investment in the UMB Scout Regional Fund. We value you
as a shareholder and welcome your questions.
Sincerely,
/s/William B. Greiner
William B. Greiner
Executive Vice President
Chief Investment Officer
UMB Investment Advisors
CHART - HYPOTHETICAL GROWTH OF $10,000
UMB Scout Regional Fund (UMBHX)
as of June 30, 2000
COMPARATIVE RATES OF RETURN
UMB Scout Regional Fund (UMBHX)
as of June 30, 2000
Objective
1 Year 3 Years 5 Years 10 Years Change+
UMB Scout
Regional Fund -8.57% 2.85% 7.71% 7.63% 7.71%
Lipper Small Co.
Fund Index* 35.27% 16.78% 17.10% 15.05% N.A.
Russell 2000* 14.35% 10.58% 14.28% 13.56% N.A.
Performance data contained in this report are for past periods only. Past
performance is not indicative of future results. Investment return and
share value will fluctuate, and redemption value may be more or less than
original cost. Historically, small-capitalization stocks have been more
volatile than the stocks of larger, more established companies.
+The Fund's investment objective was changed August 16, 1991.
*Unmanaged index of stocks, bonds or mutual funds (there are no direct
investments or fees in these indices).
Chart - top ten equity holdings
UMB Scout Regional Fund (UMBHX)
Market Percent
Value (000's) of Total
Maverick Tube Corp. $ 1,019 3%
Helmerich & Payne, Inc. 934 3%
Instituform Technologies, Inc. 922 3%
Mallinckrodt, Inc. 912 3%
Kerr-McGee Corp. 884 3%
Williams Companies, Inc. 834 3%
Murphy Oil Corp. 832 3%
Clarcor, Inc. 745 2%
Kellwood Co. 739 2%
CPI Corp. 739 2%
Top Ten Equity Holdings Total: $8,562* 28%*
As of June 30, 2000, statement of assets. Subject to change.
*Market Values and Percents of Total are rounded; may not equal total.
Chart - fund diversification
UMB Scout Regional Fund (UMBHX)
Chart - HISTORICAL PER SHARE RECORD
UMB Scout Regional Fund (UMBHX)
Income & Cumulative**
Net Short-Term Long-Term Value Per
Asset Gains Gains Share Plus
Value Distribution Distribution Distributions
12/31/86 $10.00 $ 0.08 $ - $10.08
12/31/87 9.87 0.63 - 10.58
12/31/88 8.67 0.72 - 10.10
12/31/89 8.32 0.60 - 10.36
12/31/90 7.61 0.64 - 10.28
12/31/91 8.30 0.29 - 11.26
12/31/92 9.09 0.12 - 12.17
12/31/93 9.49 0.14 - 12.70
12/31/94 9.20 0.20 0.15 12.77
12/31/95 10.11 0.33 0.57 14.57
12/31/96 10.43 0.23 0.69 15.81
12/31/97 11.89 0.26 0.63 18.16
12/31/98 10.46 0.24 0.74 17.71
12/31/99 9.87 0.16 0.56 17.84
06/30/00* 9.82 0.05 - 17.84
*Six-month only. Distributions typically occur in June and December.
**Does not assume any compounding of reinvested distributions.
Table shows calendar year distributions and net asset values; may differ
from fiscal year annual reports.
FINANCIAL STATEMENTS JUNE 30, 2000
Statement of Net Assets
Market
Shares DESCRIPTION Value
COMMON STOCKS - 97.0%
Consumer Discretionary - 13.4%
9,100 Bandag, Inc. $ 220,675
24,000 Brunswick Corp. 397,500
35,000 Federal Signal Corp. 577,500
35,000 Kellwood Co. 739,375
30,000 Lawson Products, Inc. 738,750
2,875 Lee Enterprises, Inc. 67,023
20,000 Leggett & Platt, Inc. 330,000
30,000 Lonestar Steakhouse Saloon, Inc. 303,750
11,800 Payless Shoesource, Inc.* 615,813
3,990,386
Consumer Staples - 8.8%
25,000 Alberto-Culver Co., Class A 656,250
35,000 Casey's General Stores 363,125
35,000 IBP, Inc. 540,313
75,000 NPC International, Inc.* 672,656
21,930 Vicorp Restaurants, Inc.* 400,222
2,632,566
Energy - 15.2%
25,000 Helmerich & Payne, Inc. 934,375
15,000 Kerr-McGee Corp. 884,063
35,000 Maverick Tube Corp.* 1,019,375
14,000 Murphy Oil Corp. 832,125
10,000 Noble Affiliates, Inc. 372,500
20,000 Ultramar Diamond Shamrock Corp. 496,250
4,538,688
Finance - 4.7%
14,850 Brenton Banks, Inc. 206,044
5,125 Commerce Bancshares, Inc. 152,469
16,000 Edwards, (A.G.), Inc.* 624,000
25,000 Old Republic International Corp. 412,500
1,395,013
Health Care - 3.1%
21,000 Mallinckrodt, Inc. 912,188
Industrials - 30.8%
45,000 Angelica Corp. 360,000
70,000 BHA Group Holdings, Inc. 682,500
25,000 Baldor Electric 465,625
10,000 Belden, Inc. 256,250
15,000 Block, (H&R), Inc. 485,625
18,000 Butler Manufacturing Co. 306,000
35,000 CPI Corp. 739,375
37,500 Clarcor, Inc. 745,313
12,500 Coorstek, Inc.* 575,000
12,000 Donnelley, (R.R.) & Sons Co. 270,750
30,000 Falcon Products, Inc. 285,000
37,925 Flexsteel Industries, Inc. 464,581
45,000 Harmon Industries, Inc. 596,250
15,000 Hon Industries, Inc. 352,500
34,000 Insituform Technologies, Inc., Class A* 922,250
100,000 Isco, Inc.* 425,000
50,000 Layne Christensen Co.* 225,000
9,375 Molex, Inc. 451,172
15,000 Valmont Industries, Inc. 298,125
25,000 Werner Enterprises, Inc. 289,062
9,195,378
Information Technology - 2.7%
25,000 Cerner Corp.* 681,250
29,000 Exabyte Corp.* 130,500
811,750
Materials - 4.7%
20,000 Deltic Timber Corp. 427,500
50,000 Graphic Packaging Intl. Corp.* 106,250
28,000 Newmont Mining Corp. 605,500
30,000 Republic Group, Inc. 270,000
1,409,250
Telecommunication Services - 2.1%
10,000 Alltel Corp. 619,374
Utilities - 11.5%
20,000 Alliant Energy Corp. 520,000
12,000 Ameren Corp. 405,000
10,000 Kansas City Power and Light Co. 225,000
30,000 Laclede Gas Co. 577,500
85,000 Southwestern Energy Co. 531,250
16,000 Utilicorp United, Inc. 318,000
20,000 Williams Companies, Inc. 833,750
3,410,500
TOTAL COMMON STOCKS (Cost $26,831,907) - 97.0% 28,915,093
FACE Market
AMOUNT DESCRIPTION Value
REPURCHASE AGREEMENT (Cost $1,335,000) - 4.5%
$1,335,000 Northern Trust Co., 6.40%, due July 3, 2000
(Collateralized by U.S. Treasury Bonds,
11.875%, due November 15, 2003) 1,335,000
TOTAL INVESTMENTS (Cost $28,166,907) - 101.5% 30,250,093
Other assets less liabilities - (1.5%) (437,067)
TOTAL NET ASSETS - 100.0%
(equivalent to $9.82 per share; 10,000,000 shares
of $1.00 par value capital shares authorized;
3,035,518 shares outstanding) $29,813,026
For federal income tax purposes, the identified cost of investments owned
at June 30, 2000 was $28,166,907.
Net unrealized appreciation for federal income tax purposes was $2,083,186,
which is comprised of unrealized appreciation of $6,537,776 and unrealized
depreciation of $4,454,590.
*Non-income producing security
See accompanying Notes to Financial Statements.
FINANCIAL STATEMENTS JUNE 30, 2000
StatementS of Assets and Liabilities
ASSETS:
Investment securities, at market
value (identified cost $28,166,907) $30,250,093
Dividends receivable 49,089
Receivable for capital shares sold 175
Total assets 30,299,357
LIABILITIES:
Disbursements in excess of demand deposit cash 486,331
Total liabilities 486,331
NET ASSETS $29,813,026
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $27,722,384
Accumulated undistributed income:
Net investment income 52,415
Net realized loss on investment transactions (44,959)
Net unrealized appreciation on investments 2,083,186
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $29,813,026
Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 3,035,518
NET ASSET VALUE PER SHARE $ 9.82
See accompanying Notes to Financial Statements.
FINANCIAL STATEMENTS Year Ended June 30, 2000
Statements of Operations
INVESTMENT INCOME:
Income:
Dividends $ 760,727
Interest 77,746
838,473
Expenses:
Management fees 311,030
Government fees 14,088
325,118
Net investment income 513,355
REALIZED and unrealized GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions 763,966
Decrease in net unrealized appreciation on investments (4,981,305)
Net realized and unrealized loss on investments (4,217,339)
Net decrease in net assets resulting from operations $(3,703,984)
See accompanying Notes to Financial Statements.
FINANCIAL STATEMENTS
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 2000 June 30, 1999
</CAPTION>
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 513,355 $ 774,041
Net realized gain from investment transactions 763,966 1,168,515
Decrease in net unrealized appreciation on investments (4,981,305) (542,505)
Net increase (decrease) in net assets
resulting from operations (3,703,984) 1,400,051
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (460,938) (857,792)
In excess of net investment income - (40,042)
Net realized gain from investment transactions (1,596,257) (2,153,193)
Decrease in net assets from distributions (2,057,195) (3,051,027)
DECREASE FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from 476,126 and 1,231,832
shares sold, respectively 4,894,605 12,724,738
Net asset value of 208,822 and 98,713 shares issued
for reinvestment of distributions, respectively 2,005,947 1,054,588
6,900,552 13,779,326
Cost of 1,543,442 and 1,681,834 shares
redeemed, respectively (15,685,658) (17,677,888)
Net decrease in net assets from capital
share transactions (8,785,106) (3,898,562)
Net decrease in net assets (14,546,285) (5,549,538)
NET ASSETS:
Beginning of year 44,359,311 49,908,849
End of year (including undistributed net investment
income of 52,415 and ($40,042), respectively) $29,813,026 $44,359,311
</TABLE>
See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The Fund
is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. Effective on April 24,
1996, the Fund's shareholders approved a change in the fiscal year-end. A
summary of significant accounting policies that the Fund uses in the
preparation of its financial statements follows. The policies are in
conformity with generally accepted accounting principles.
Investments - Securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the
period or, if no sale was reported on that date, at the average of the last
reported bid and asked prices. Securities traded over-the-counter are
valued at the average of the last reported bid and asked prices. Short-term
obligations are valued at amortized cost, which approximates market value.
Investment transactions are recorded on the trade date. Interest income is
recorded daily. Dividend income and distributions to shareholders are
recorded on the ex-dividend dates. Realized gains and losses from
investment transactions and unrealized appreciation and depreciation of
investments are reported on the identified cost basis.
Federal Income Taxes - The Fund's policy is to comply with the requirements
of the Internal Revenue Code that are applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
Net investment income and net realized gains differ for financial statement
and tax purposes primarily because of the deferral of wash sale losses and
post-October losses.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate
characterization for federal income tax purposes due to GAAP/tax
differences in the character of income recognition.
Amortization - Discounts and premiums on securities purchased are amortized
over the life of the respective securities.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
2. PURCHASES AND SALES OF SECURITIES - The aggregate amounts of security
transactions during the year ended June 30, 2000 (excluding repurchase
agreements), were as follows:
Other than
U.S. Government U.S. Government
Securities Securities
Purchases $ 5,443,704 $ -
Proceeds from sales 13,642,479 -
3. MANAGEMENT FEES - UMB Bank, n.a. is the Fund's manager and investment
advisor and provides or pays the cost of all management, supervisory and
administrative services required in the normal operation of the Fund. This
includes investment management; fees of the custodian, independent public
accountants and legal counsel; remuneration of officers and directors;
rent; and shareholder services, including maintenance of the shareholder
accounting system and transfer agency. Not considered normal operating
expenses and therefore payable by the Fund are taxes, interest, fees and
the other charges of governments and their agencies for qualifying the
fund's shares for sale, special accounting and legal fees and brokerage
commissions. UMB Bank's management fees are based on average daily net
assets of the Fund at the annual rate of .85 of one percent of net assets.
Certain officers and/or directors of the Fund are also officers and/or
directors of Jones & Babson, Inc., which serves as the Fund's underwriter
and distributor.
4. REPURCHASE AGREEMENTS - Securities purchased under agreements to resell
are held by the Fund's custodian and investment counsel, UMB Bank, n.a. The
custodian monitors the market values of the underlying securities which
they have purchased on behalf of the Fund to ensure that the collateral is
sufficient to protect the Fund in the event of default by the seller.
5. SUBSEQUENT ACCOUNTING POLICY CHANGE - The Financial Accounting Standards
Board ("FASB") has issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"). This statement, as amended by SFAS No. 137, requires all derivatives
to be recorded on the balance sheet date at fair value and establishes
standard accounting methodologies for hedging activities. The standard will
result in the recognition of offsetting changes in value or cash flows of
both the hedge and the hedged item in net investment income in the same
period. The statement is effective for the Fund's fiscal year ending
June 30, 2001. Because the Fund does not normally hold derivative
instruments, the adoption of this statement is not expected to have a
material impact on the financial statements.
FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share
outstanding throughout the period.
<TABLE>
<CAPTION>
January 1, 1996
to
Years Ended June 30, June 30,
2000 1999 1998 1997 1996*
</CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.39 $ 11.76 $ 11.21 $ 10.38 $ 10.11
Income from investment operations:
Net investment income 0.13 0.19 0.20 0.22 0.10
Net realized and unrealized gains
or (losses) on securities (1.12) 0.18 1.38 1.32 0.67
Total from investment operations (0.99) 0.37 1.58 1.54 0.77
Distributions from:
Net investment income (0.10) (0.22) (0.22) (0.18) (0.10)
Net realized gain on investment
transactions (0.48) (0.52) (0.81) (0.53) (0.40)
Total distributions (0.58) (0.74) (1.03) (0.71) (0.50)
Net asset value, end of period $ 9.82 $ 11.39 $ 11.76 $ 11.21 $ 10.38
Total return (9%) 4% 14% 15% 15%
Ratios/Supplemental Data
Net assets, end of period (in millions) $ 30 $ 44 $ 50 $ 49 $ 42
Ratio of expenses to average net assets 0.91% 0.89% 0.85% 0.87% 0.86%
Ratio of net investment income
to average net assets 1.43% 1.76% 1.54% 2.09% 1.94%
Portfolio turnover rate 16% 13% 13% 20% 29%
Average commission rate $ .0414 $ .0544 $ .0469 $ .0496 $ .0477
</TABLE>
*Ratios for this period of operation are annualized.
See accompanying Notes to Financial Statements.
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders and Board of Directors of UMB Scout Regional Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of UMB
Scout Regional Fund, Inc., including the statement of net assets, as of
June 30, 2000, and the related statement of operations, statements of
changes in net assets and the financial highlights for the periods
indicated thereon. These financial statements and financial highlights are
the responsibility of the Company'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. Our procedures included verification of
securities owned as of June 30, 2000, by confirmation, or by the
application of alternative auditing procedures with respect to unsettled
portfolio security transactions. 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 UMB Scout Regional Fund, Inc. as of June 30, 2000, the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated thereon in conformity with generally accepted
accounting principles.
BAIRD, KURTZ & DOBSON
Kansas City, Missouri
July 28, 2000
This report has been prepared for the information of the Shareholders of
UMB Scout Regional Fund, Inc., and is not to be construed as an offering of
the shares of the Fund. Shares of this Fund and of the other UMB Scout
Funds are offered only by the Prospectus, a copy of which may be obtained
from Jones & Babson, Inc.
UMB Scout Funds
100% No-Load Mutual Funds
Balanced Fund
Bond Fund
Capital Preservation Fund
Equity Index Fund
Kansas Tax-Exempt Bond Fund*
Money Market Fund - Federal Portfolio
Money Market Fund - Prime Portfolio
Regional Fund
Stock Fund
Stock Select Fund
Tax-Free Money Market Fund
Technology Fund
WorldWide Fund
WorldWide Select Fund
*Available in Kansas and Missouri only.
Investment Advisors and Manager
UMB Bank, n.a., Kansas City, Missouri
Auditors
Baird, Kurtz & Dobson, Kansas City, Missouri
Legal Counsel
Stradley, Ronon, Stevens & Young, LLP
Philadelphia, Pennsylvania
Custodian
UMB Bank, n.a., Kansas City, Missouri
Underwriter, Distributor
and Transfer Agent
Jones & Babson, Inc., Kansas City, Missouri
UMB Scout Funds
P.O. Box 219757
Kansas City, MO 64121-9757
Toll Free 800-996-2862
www.umb.com
"UMB," "Scout" and the "Scout" design are registered
service marks of UMB Financial Corporation.
