BABSON-
STEWART IVORY
INTERNATIONAL
FUND
Semiannual Report
December 31, 1996
JONES & BABSON
MUTUAL FUNDS
MESSAGE
TO OUR SHAREHOLDERS
At December 31, 1996, the net asset value of shares of Babson-Stewart Ivory
International Fund was $18.41, which represents a total return (price change
and reinvested distributions) of 3.34% for the previous six months, and 13.42%
for the calendar year. Comparisons against the unmanaged Morgan Stanley
Capital International (MSCI) EAFE and other indices are as follows:
Investment Results - Total Return
Periods Ended 12/31/96
Fourth Quarter Previous Twelve
1996 Months
BSIIF 3.97% 13.42%
MSCI EAFE* Index** 1.66% 6.34%
MSCI World Index** 4.70% 13.99%
S&P 500 Index** 8.33% 22.95%
Lipper International Funds
(avg. funds 379 and
334, respectively) 3.85% 11.75%
*Europe, Australia, Far East
**unmanaged
The Fund's average annual compounded total returns for five years and the life
of the Fund (inception December 7, 1987) as of December 31, were 11.18% and
9.77%, 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 fluctuate, and redemption value may be
more or less than original cost.
Performance was ahead of the benchmark index, with positive asset allocation
(underweight in Japan, overweight in Hong Kong) helping to offset negative
local index comparisons in Europe. Outperformance against local indices in
Japan, Australia and the Far East helped our Pacific portfolio to beat the
regional index.
Our Japanese portfolio has benefited over the quarter and twelve month period
from its concentration on reasonably
valued, high quality companies, many of them exporters, which have continued
to attract buyers. The overall market has suffered in consequence of continued
fears about the major banks, where we have had no investments, and lack of
domestic institutional support. In Latin America out limited exposure to
defensive, consumer-oriented ADRs in Argentina, Chile and Mexico did not keep
pace with markets heavily influenced by cyclical recovery stocks (with Brazil
having a large influence on the index). Underperformance in Europe was
attributable to stock-specific events, mainly disappointing results or
forecast profits downgrades (MacFarlane and BSkyB in the UK, Polygram in the
Netherlands and Luxottica in Italy). This resulted in portfolios failing to
keep pace with rising indices.
Portfolio activities over the quarter show net purchases amounting to
$4,967,618 (mainly reflecting new cash inflows), with uninvested cash reduced
from 4.4% to 2.7% of the portfolio. Net reductions were made to the overall
exposure in Continental Europe (but with additions to the UK, France and
Switzerland, and a first-time purchase in Hungary, our first venture into
"emerging" Europe). Additions were made to Asia (Japan, Hong Kong, Korea,
Malaysia and the Philippines), and to Latin America (Mexico).
New holdings were bought in Alumasc (engineering) in the UK, Spir
Communication (newssheets) in France, Gedeon Richter GDS (pharmaceuticals) in
Hungary, Ahold (supermarkets) in the Netherlands, DDI (telecoms), Denso (auto
components) and Sharp (electronics) in Japan, Cheung Kong (property and
investment holdings company) and Dickson Concepts (luxury goods retailing) in
Hong Kong, Benpres GDR (infrastructure-related holding company) in the
Philippines. Eliminations were made in Amada Metrecs, Kato Denki and SxL in
Japan, Pioneer Industries in Hong Kong and KPN in the Netherlands. The holding
in Sandoz was converted to Novartis (following the merger with Ciba-Geigy). A
holding in South African Breweries was bought in South Africa and later sold
on the announcement of disappointing results.
Economic Overview
Continuation of moderate, inflation-free growth in the U.S. has been
accompanied by periodic concerns about high valuations in the stockmarket,
particularly in relation to bond yields, and fears of higher interest rates if
growth becomes too buoyant. Risks have appeared more at the individual stock
level than for the market as a whole, with severe reaction to earnings
disappointments or downgraded forecasts. Economic growth is expected to
accelerate in 1997 to the higher end of the 2.5-3.0% band, with inflation
possibly breaching the 3.0% level.
In Europe the agenda is dominated by progress towards monetary union, and the
need to curb budget imbalances by means of fiscal restraint, to ensure
compliance with economic "convergence" targets. With growth in the continental
"core" economies remaining weak (with Switzerland experiencing a recession),
economic growth is likely to lag the U.S., with notable exceptions among the
"peripheral" economies, notably the UK, Spain and the Netherlands, where
growth is accelerating towards the 3.0% level. Corporate earnings growth
remains on track, with some concern about stockmarket valuation levels after a
strong performance in 1996.
In Japan concerns about an aborted economic recovery have returned in the wake
of a consumer spending slowdown since the autumn. Economic growth of 3-4% this
year (mainly achieved by a strong first half) is believed to be unsustainable,
provoking new fears for the stability of the financial system and the
corporate earnings recovery. With the yen at more competitive levels, there is
also a concern that long-delayed restructuring of corporate profitability will
again be neglected. The perception of a "two tier market" with outperformance
by lower rated international exporters, and continued underperformance by
banks and other more highly valued domestic sectors appears well-founded. A
"deregulation" project announced for the financial sector included a move to
adopt international accounting standards by the corporate sector within five
years, raising the prospect of greater transparency and improved disclosure
practices.
Export slowdown in Southeast Asia in 1996 has been attributed partly to the
electronics industry downturn in the west, and partly to the economic
retrenchment in China. On both fronts there now seem to be greater grounds for
optimism. Economic growth in the emerging economies of S.E. Asia remains
higher than for the more advanced "N.I.C.s" (Korea, Taiwan, Singapore) which
are expected to grow at 7% in 1997, after 6% in 1996. Hong Kong is reflecting
an orchestrated "feel good" factor in the run-up to the transfer to Chinese
sovereignty on July 1, 1997. Inflationary pressures in the real estate market
are once again provoking concern.
Growth in Latin America is also expected to accelerate to the 5% level in
1997. Although the long term prospects for the region are not as clear cut as
for Asia, the 1994/95 setbacks, after the Mexican devaluation, seem to have
been overcome.
Summary and Conclusion
We have placed a greater emphasis on the recovering economies of S.E. Asia,
partly at the expense of Japan, and including where permitted a larger
"Emerging Markets" exposure (Hungary, the Philippines). Within Japan we are
concentrating on companies with strong earnings and reasonable valuations,
conscious that in spite of the recent market decline some stocks still look
expensive by international standards, and that accounting differences do not
explain all such anomalies. Emphasis on stock selection within the regional
portfolios is likely to cause divergences with index weightings, based on the
availability of reasonably priced growth stocks. As a diversification measure
we intend to maintain the present balance between Europe and Asia, but with
the possibility of greater divergences within the smaller countries than we
have shown in the past.
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
STATEMENT OF NET ASSETS
December 31, 1996 (unaudited)
SHARES COMPANY AND DESCRIPTION MARKET VALUE
COMMON STOCKS - 97.43%
ARGENTINA - 0.61%
63,550 Quilmes
(Brewing) $ 548,731
AUSTRALIA - 4.30%
95,469 Brambles
(Transport, plant services) 1,862,939
62,406 Lend Lease
(Real estate) 1,210,322
123,750 Western Mining
(Diversified base metals) 780,016
3,853,277
BELGIUM - 1.27%
2,475 Colruyt
(Food retailer) 1,135,017
CHILE - 0.65%
19,000 Andina
(Coca-Cola franchisee) 579,500
DENMARK - 1.62%
17,500 Danisco
(Sugar, food, and beverages) 1,063,523
3,000 Sophus Berendsen
(Environmental, industrial services) 386,026
1,449,549
FRANCE - 9.22%
2,700 Carrefour
(Food retailer) 1,756,808
3,500 Comptoirs Modernes
(Food retailer) 1,888,793
9,000 Guilbert
(Office supplies, paper) 1,760,624
8,750 SEB
(Electrical appliances) 1,715,091
12,000 Spir
(Newssheets) 1,142,295
8,263,611
GERMANY - 3.73%
2,500 Buderus
(Heating systems) 1,234,728
1,680 Linde
(Engineering) 1,026,254
1,350 Rheinelektra
(Electric utility, machinery) 1,079,088
3,340,070
HONG KONG - 10.87%
2,301,625 CDL Hotels
(Regional hotel group) 1,316,787
264,000 Dickson Concepts
(Luxury goods retailing) 989,851
100,000 Cheung Kong
(Property and investment holding company) 888,875
1,700,000 Gold Peak
(Batteries) 1,164,910
564,000 Hong Kong & China Gas
47,000 wts. (Gas utility) 1,116,284
370,000 Johnson Electric
(Micro-motors) 1,023,725
740,000 Shaw Bros.
(T.V. network, film production and
distribution) 880,212
1,395,000 South China Morning Post
(Publishing) 1,154,309
800,000 Swire Pacific
(Airline, trading, property) 1,210,162
9,745,115
HUNGARY - 0.52%
8,000 Gedeon Richter
(Pharmaceuticals) 464,000
IRELAND - 1.12%
100,000 Kerry Group
(Food manufacturer) 1,002,227
ITALY - 1.90%
22,800 Luxottica
(Eyeglass frames) 1,185,600
22,600 Industrie Natuzzi
(Furniture manufacturer) 519,800
1,705,400
JAPAN - 23.38%
33,000 Canon Sales
(Distribution of Canon products) 735,170
117,000 Daicel Chemical
(Chemicals, plastics) 548,580
37,000 Denso
(Auto components) 891,374
110 DDI
(Telecoms) 727,571
29,000 Honda
(Autos) 828,858
26,000 Hoya
(Optical/electronic products) 1,021,501
7,000 Keyence
(Sensors) 864,347
93,000 Komatsu
(Construction machinery) 762,887
68,000 Kurimoto
(Cast iron pipes) 610,655
37,300 Kurita
(Water treatment equipment) 753,665
12,000 Kyocera
(Electronic components) 748,122
45,000 Lintec
(Adhesive papers, films) 726,621
73,000 NEC
(Integrated electronics) 882,480
69,000 NGK Spark Plug
(Spark plugs, ceramic packaging) 756,670
JAPAN (Continued)
12,000 Nichiei
(Consumer finance) 885,934
46,000 Nitto Denko
(Specialty materials) 675,244
17,000 Promise
(Consumer lending) 836,715
26,400 Rinnai
(Gas appliances) 531,146
33,000 Santen Pharmaceutical
(Ophthalmic drugs) 683,879
42,000 Sharp
(Electronics) 598,394
21,000 Shimamura
(Womenswear retailing) 721,699
15,000 Sony
(Consumer electronics) 983,076
96,000 Sumitomo Marine & Fire
(Fire & casualty insurance) 596,840
114,000 Sumitomo Warehouse
(Warehousing, transport) 575,857
65,000 Takeda
(Pharmaceuticals, chemicals) 1,363,872
14,000 TDK
(Electronic components) 912,702
24,800 Xebio
(Apparel, sportswear) 738,796
20,962,655
KOREA - 1.28%
30,000 Korea Electric Power
(Electric utility) 873,373
15,000 Samsung Electronics
(Semiconductors, electronical
appliances) 276,750
1,150,123
MALAYSIA - 1.39%
400,000 Perlis Plantations
(Trading, mining, agriculture) 1,243,318
MEXICO - 0.66%
502,000 Cifra
(Department stores) 594,870
NETHERLANDS - 5.80%
17,000 Ahold
(Supermarkets) 1,063,423
9,000 Nutricia
(Processed food) 1,368,375
23,000 Polygram
(Recorded music) 1,172,314
12,000 Wolters Kluwer
(Publisher) 1,595,135
5,199,247
NEW ZEALAND - 0.91%
160,000 New Zealand Telecom
(Utility) 816,684
PHILIPPINES - 0.48%
60,000 Benpres
(Infrastructure-related holding company) 429,000
SINGAPORE - 3.35%
400,000 Haw Par Brothers
17,000 wts. (Diversified manufacturing & services) 925,913
100,000 Robinson
(Department store) 403,773
137,000 Trans-Island Bus Services
(Bus transport) 241,828
1,400,000 Utd Industrial
(Real estate) 1,180,590
160,000 United Overseas Land
16,000 wts. (Real estate) 253,212
3,005,316
SPAIN - 1.31%
6,000 Banco Popular
(Banking) 1,178,510
SWEDEN - 3.24%
32,000 Astra `A' Free
(Pharmaceuticals) 1,581,255
9,600 Hennes & Mauritz
(Retailing) 1,328,817
2,910,072
SWITZERLAND - 3.11%
1,300 Novartis
(Pharmaceuticals and chemicals) 1,485,021
2,500 Phoenix Mecano
(Customized electric casings) 1,307,434
2,792,455
UNITED KINGDOM - 16.71%
140,000 Alumasc
(Engineering) 815,487
81,133 Argos
(Mail order, retail) 1,066,113
151,000 Bowthorpe
(Electronics components, instruments) 1,171,886
87,000 British Sky Broadcasting
(Satellite TV broadcasting) 778,037
152,000 Electrocomponents
(Electronics) 1,200,480
72,000 Granada
(Hotels, leisure) 1,064,519
126,000 Hays
(Business services) 1,213,157
237,000 MacFarlane Group
(Printing, packaging) 714,614
UNITED KINGDOM (Continued)
136,000 Marks & Spencer
(Retail) 1,146,342
442,000 Morrison Supermarkets
(Supermarkets) 1,245,657
56,000 Reed International
(Publishing) 1,053,418
90,000 Reuters
(News service) 1,157,187
74,387 SmithKline Beecham
(Pharmaceuticals) 1,029,719
313,000 Vodafone
(Cellular telephone network) 1,324,499
14,981,115
TOTAL COMMON STOCKS - 97.43% 87,349,862
Short-Term Investments - 2.65% 2,374,272
TOTAL INVESTMENTS - 100.08% $ 89,724,134
Other assets less liabilities - (0.08%) (72,785)
TOTAL NET ASSETS - 100.00%
(equivalent to $18.41 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
4,868,444 shares outstanding) $ 89,651,349
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1996 (unaudited)
ASSETS:
Investments, at market value
(identified cost $70,608,356) $ 89,724,134
Cash 118
Dividends receivable 37,136
Interest receivable 119
Receivable for shares sold 36,071
Foreign tax receivable 45,133
Total assets 89,842,711
LIABILITIES AND NET ASSETS:
Accrued expenses 79,081
Payable for shares repurchased 107,088
Foreign tax withholding liability 5,193
Total liabilities 191,362
NET ASSETS $ 89,651,349
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 71,374,109
Accumulated undistributed income (loss):
Undistributed net investment income 41,997
Accumulated net realized loss from investments and
foreign currency transactions (881,529)
Net unrealized appreciation on investments
and translation of assets and
liabilities in foreign currencies 19,116,772
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 89,651,349
Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 4,868,444
NET ASSET VALUE PER SHARE $ 18.41
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Six Months Ended December 31, 1996 (unaudited)
INVESTMENT INCOME:
Income:
Dividends (net of foreign taxes withheld) $ 517,049
Interest 57,288
Foreign exchange loss (9,591)
564,746
Expenses:
Management fees (Note 3) 396,097
Custodian fees 98,024
Registration fees 3,990
498,111
Net investment income 66,635
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY (Note 1):
Net realized gain (loss) from:
Investments 1,458,757
Foreign currency transactions (544,998)
Net increase (decrease) in unrealized appreciation on:
Investments 1,970,118
Translation of assets and liabilities in
foreign currencies 3,857
Net realized and unrealized gain from
investments and foreign currency 2,887,734
Increase in net assets resulting from operations $ 2,954,369
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1996 JUNE 30,
(UNAUDITED) 1996
</CAPTION>
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 66,635 $ 313,607
Net realized gain from investments and
foreign currency transactions 913,759 2,762,741
Net increase in unrealized appreciation
on investments and translation of assets
and liabilities in foreign currencies 1,973,975 9,121,455
Net increase in net assets resulting
from operations 2,954,369 12,197,803
DISTRIBUTIONS TO SHAREHOLDERS FROM:*
Net investment income - (394,596)
Net realized gain from investment transactions (1,107,773) (3,151,852)
Total distributions to shareholders (1,107,773) (3,546,448)
INCREASE FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from 821,878 and
2,725,430 shares sold 14,705,670 46,635,073
Net asset value of 55,671 and
184,344 shares issued for
reinvestment of distributions 1,015,253 3,197,123
15,720,923 49,832,196
Cost of 457,196 and 2,513,447 shares redeemed (8,170,001) (42,876,619)
Net increase from capital share transactions 7,550,922 6,955,577
Total increase in net assets 9,397,518 15,606,932
NET ASSETS:
Beginning of period 80,253,831 64,646,899
End of period (including undistributed
net investment income of $41,997 and
($24,638), respectively) $ 89,651,349 $ 80,253,831
Distributions to shareholders:
Income dividends per share $ - $ .092
Capital gains distribution per share $ .23 $ .748
</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 financial
statements have been prepared in conformity with generally accepted accounting
principles which require management to make certain estimates and assumptions
at the date of the financial statements. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
Investments - Common stocks are valued at the latest sales price or mean
between the bid and asked price on the last business day of the period as
reported by the principal securities exchange on which traded or, if no sale
was reported on that date, at the mean between the latest reported bid and
asked prices. Common stocks traded over-the-counter are valued at the mean
between the last reported bid and asked prices. Investment transactions are
recorded on the trade date. Dividend income is recorded on the ex-dividend
date and interest income is recorded on the accrual basis net of unrecoverable
foreign taxes withheld at the applicable country rates. Distributions to
shareholders are recorded on the exdividend dates. Realized gains and losses
from investment transactions and unrealized appreciation and depreciation of
investments are reported on the identified cost basis.
The investments of the Fund are subject to the risk of restrictions imposed by
foreign governments and to political or
economic uncertainties.
Federal and State Taxes - The Fund's policy is 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.
Foreign Currency Translation - All assets and liabilities expressed in
foreign currencies are converted into U.S. dollars at the exchange rate last
quoted by a major bank in London on the last business day of the period. The
cost of portfolio securities is translated at the rates of exchange prevailing
when acquired. Income is translated at the rate of exchange on the ex-dividend
date. The resulting transaction exchange gain or loss has been included in the
results of operations with the type of transaction giving rise to the gain or
loss.
2. PURCHASES AND SALES OF SECURITIES:
The aggregate amounts of security transactions (exclusive of short-term
investments and currency transactions) during the period ended December 31,
1996, were as follows:
Purchases $ 23,142,353
Proceeds from sales 12,687,882
3. MANAGEMENT FEES:
Management fees, which include all normal expenses of the Fund other than
taxes, fees and other charges of governmental agencies (including State and
Federal registration fees), dues, interest, brokerage commissions, fees for
pricing services, custodian fees and any extraordinary costs, are paid to
Jones & Babson, Inc., an affiliated company. These fees are based on average
daily net assets of the Fund at the annual rate of 95/100 of 1% (0.95%).
A partnership formed by David L. Babson & Co. Inc. and Stewart Ivory & Company
(International) Ltd. is the investment counsel of the Fund. The investment
counsel of the Fund is compensated by Jones & Babson, Inc. at an annual rate
of 475/1000 of 1% (0.475%) of the average daily total net assets of the Fund.
Certain officers and/or directors of the Fund are also officers and/or
directors of Jones & Babson, Inc., David L. Babson & Co. Inc. and/or Stewart
Ivory & Company (International) Ltd.
This report has been prepared for the information of the Shareholders of
Babson-Stewart Ivory International 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
JONES & BABSON
MUTUAL FUNDS
2440 Pershing Road
Kansas City, MO 64108-2561
816-471-5200
1-800-4-BABSON
(1-800-422-2766)
http://www.jbfunds.com
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