Babson
Enterprise
FunD II
Semiannual Report
May 31, 1995
MESSAGE
To Our Shareholders
Common stocks continued to surge upward during the three months ended
May 31, 1995. The top performers remain large capitalization blue chip
stocks, technology stocks, and the stocks of certain multinational corporation
s that benefit from the weaker dollar. The unmanaged larger capitalization
Standard & Poor's 500 index was up 10.2% for the quarter, compared to 5.8%
for the unmanaged Russell 2000 index of small company stocks.
Babson Enterprise Fund II achieved a total return (price change and reinvested
distributions) of 4.1% for the quarter. The Fund's overweighting in consumer
stocks and underweighting in technology hurt its performance relative to the
Russell 2000 index.
For the six months ended May 31, 1995 Babson Enterprise Fund II achieved a
total return of 7.9%. Average annual compounded total returns for one year
and the life of the Fund (inception August 5, 1991) as of March 31, 1995,
were -1.3% and 10.2%, 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.
After several years of outperformance by small capitalization stocks, we have
seen a recent resurgence in the relative stock peformance of larger companies.
Recession fears have prompted a flight to high quality large capitalization
stocks. Also, the weakness of the U.S. dollar versus the Japanese yen and a
number of European currencies has boosted the earnings of companies with
foreign operations. Large multinational companies have benefited from the
weak dollar much more than domestically-oriented smaller companies.
We remain confident that small companies can resume their positive relative
performance compared to larger companies as we move forward. Small companies
are expected to see their earnings grow at a rate almost 50% greater than
large companies over the next two years, yet they trade at only a slight
price-to-earnings premium and actually sell at a discount to large companies
on the basis of price-to-book and price-to-sales valuations.
Two new holdings were added to the Fund during the quarter. Indresco is a
producer of industrial tools, mining equipment, and refractory equipment used
in high temperature manufacturing processes. National Presto Industries is a
maker of electrical appliances and housewares including pressure cookers,
electric slicers and shredders, and coffee makers. The company has an
exceptionally strong balance sheet with high cash levels and little debt.
One holding was liquidated during the quarter. A.L. Labs, a generic drug and
animal health product manufacturer, was sold for valuation reasons after a
recent strong run-up in the company's stock price.
Overall, companies in the Fund's portfolio continue to produce strong
operating results, although current market sentiment is not favoring the
economic sectors in which the Fund is overweighted.
Thank you for your interest and participation in Babson Enterprise Fund II.
We welcome your questions and comments.
Sincerely,
Larry D. Armel
President
<PAGE>
STATEMENT OF NET ASSETS
May 31, 1995 (unaudited)
MARKET VALUE
SHARES COMPANY (NOTE 1-A)
COMMON STOCKS - 97.60%
BASIC MATERIALS - 9.73%
21,100 Brush Wellman Inc.
(Supplier of beryllium) $ 458,925
35,000 Hanna (M.A.) Co.
(Polymers and specialty
chemical) 866,250
27,000 INDRESCO, Inc.
(Refractory products and
industrial tools) 367,875
35,900 Kennametal Inc.
(Metal working products) 1,166,750
33,000 Mosinee Paper Corp.
(Paper and paper products) 825,000
3,684,800
CAPITAL GOODS - 26.05%
27,620 Baldor Electric Co.
(Industrial electric motors) 787,170
31,000 Carlisle Companies Inc.
(Automotive/industrial products
and construction materials) 1,201,250
61,200 Juno Lighting, Inc.
(Recessed and track lighting) 1,078,650
32,000 Modine Manfacturing Co.
(Auto parts: heating and
air-conditioning) 1,208,000
26,000 Moorco International, Inc.
(Fluid measurement and
pressure control products) 594,750
34,500 Precision Castparts Corp.
(Complex investment castings) 991,875
28,600 Sealright Co.
(Packaging products) 507,650
57,600 Southdown, Inc.
(Cement, concrete and
environmental service) 1,044,000
15,000 Standard Products Co.
(Rubber and plastic products) 324,375
38,000 TriMas Corp.
(Specialty fastners/containers) 864,500
33,500 Trinity Industries, Inc.
(Railcars, containers, boats) 1,268,813
9,871,033
CONSUMER CYCLICAL - 27.53%
20,000 Arctco Inc.
(Snowmobiles; personal
watercraft) 276,250
38,000 Armor All Products Corp.
(Car care products) 712,500
23,000 Arvin Industries, Inc.
(Auto parts; mufflers
and shocks) 526,125
46,500 Commerce Clearing House, Inc.
Cl. B (non-voting)
(Tax and business law
publisher) 755,625
61,000 Consolidated Stores Corp.
(Close-out merchandise
retailer) 1,143,750
54,200 Fingerhut Companies, Inc.
(Direct mail marketer) 745,250
36,000 Huffy Corp.
(Recreational products
manufacturer) 508,500
19,050 King World Productions, Inc.
(Distribution and syndication
of TV programs) 790,575
29,200 La-Z Boy Chair Co.
(Furniture manufacturer) 759,200
25,450 Lee Enterprises, Inc.
(Newspaper publishing:
radio, TV) 963,919
30,000 Miller (Herman), Inc.
(Office furniture systems) 648,750
7,300 National Presto Industries, Inc.
(Electrical appliances and
housewares) 318,462
35,000 Sturm, Ruger & Company, Inc.
(Firearms manufacturer) 1,019,375
64,000 Waban Inc.
(Warehouse club retailer) 936,000
24,000 Wolohan Lumber Co.
(Building materials supply
centers) 327,000
10,431,281
CONSUMER STAPLES - 9.02%
23,000 Alberto-Culver Co. Cl. A
(Manufacturer and retailer of cos-
metics and household products) 621,000
23,500 First Brands Corp.
(Branded and private label
consumer products) 969,375
31,000 Hannaford Brothers Co.
(Supermarket retailer) 829,250
10,000 Helene Curtis Industries Inc.
(Brand name personal care products) 330,000
26,100 Paragon Trade Brands, Inc.
(Private label disposable diapers) 355,612
15,000 Vons Companies, Inc.
(Supermarket retailer) 311,250
3,416,487
ENERGY - 5.34%
24,000 Cabot Oil & Gas Corp. Cl. A
(Oil & gas developer/producer) 378,000
60,800 California Energy Company, Inc.
(Geothermal energy power) 972,800
78,000 Nabors Industries, Inc.
(Oil and gas drilling) 672,750
2,023,550
FINANCIAL - 7.13%
109,200 Cash America International, Inc.
(Pawn shop operator) 846,300
36,750 First Commercial Corp.
(Arkansas bank holding company) 923,344
27,000 FirsTier Financial, Inc.
(Nebraska bank holding company) 931,500
2,701,144
TECHNOLOGY - 8.40%
48,000 Gerber Scientific, Inc.
(Computer aided design/
manufacturing systems) 780,000
41,000 MagneTek, Inc.
(Lighting products, electric
motors and generators) 620,125
10,000 Nellcor Inc.
(Electronic patient monitoring
systems) 435,000
16,900 Scitex Ltd.
(Computerized imaging systems) 367,575
27,000 Wallace Computer Services, Inc.
(Commercial print business forms) 978,750
3,181,450
TRANSPORTATION & SERVICES - 4.40%
18,700 Omnicom Group Inc.
(International advertising company) 1,077,588
31,000 Overseas Shipholding Group, Inc.
(International ship operator) 589,000
1,666,588
TOTAL COMMON STOCKS - 97.60% 36,976,333
MARKET VALUE
FACE AMOUNT DESCRIPTION (NOTE 1-A)
REPURCHASE AGREEMENT - 1.98%
$750,000 UMB Bank, n.a.,
5.60%, due June 1, 1995
(Collateralized by U.S.
Treasury Notes, 7.50%,
due February 29, 1996) 750,000
TOTAL INVESTMENTS - 99.58% $ 37,726,333
Other assets less liabilities - 0.42% 160,008
TOTAL NET ASSETS - 100.00%
(equivalent to $17.39 per share; 10,000,000
shares of $1.00 par value capital shares
authorized; 2,179,161 shares outstanding) $ 37,886,341
See accompanying Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended May 31, 1995 (unaudited)
INVESTMENT INCOME:
Income:
Dividends $ 308,735
Interest 25,066
333,801
Expenses (Note 2):
Management fees 259,910
Registration fees and expenses 12,703
272,613
Net investment income (Note 1-B) 61,188
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 3,848,921
Cost of investments sold 3,546,507
Net realized gain from investment transactions 302,414
Unrealized appreciation of investments:
Beginning of period 2,153,897
End of period 4,652,051
Unrealized appreciation of investments during the period 2,498,154
Net gain on investments 2,800,568
Increase in net assets resulting from operations $ 2,861,756
See accompanying Notes to Financial Statements.
<PAGE>
STATEMENTS OF CHANGES
IN NET ASSETS
Six Months
Ended Year Ended
May 31, 1995 November 30,
(unaudited) 1994
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 61,188 $ 48,431
Net realized gain from investment transactions 302,414 189,460
Unrealized appreciation (depreciation) of
investments during the period 2,498,154 (1,532,368)
Net increase (decrease) in net assets resulting
from operations 2,861,756 (1,294,477)
Net equalization included in the price of shares
issued and redeemed (1,173) 22,219
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (48,739) _
Net realized gain from investment transactions (189,170) (562,551)
Total distributions to shareholders (237,909) (562,551)
INCREASE FROM CAPITAL SHARE TRANSACTIONS:*
Proceeds from shares sold 5,994,596 21,674,616
Net asset value of shares issued for reinvestment
of distributions 227,612 527,332
6,222,208 22,201,948
Cost of shares repurchased (6,887,038) (13,524,953)
Net increase (decrease) from capital share
transactions (664,830) 8,676,995
Total increase in net assets 1,957,844 6,842,186
NET ASSETS:
Beginning of period 35,928,497 29,086,311
End of period (including undistributed net
investment income
of $172,296 and $161,020, respectively) $ 37,886,341 $ 35,928,497
Shares issued and repurchased:
Number of shares sold 365,872 1,256,848
Number of shares issued for reinvestment of
distributions 14,388 30,482
380,260 1,287,330
Number of shares repurchased (415,800) (791,675)
Net increase (decrease) (35,540) 495,655
Distributions to shareholders:
Income dividends per share $ .0219 $ -
Capital gains distribution per share $ .085 $ .3283
See accompanying Notes to Financial Statements.
<PAGE>
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 thereof, 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.
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 - As is common in the industry, 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 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 period ended May 31, 1995 (excluding
maturities of short-term commercial notes and repurchase agreements) are as
follows:
Purchases $ 2,451,636
Proceeds from sales 3,848,921
This report has been prepared for the information of the Shareholders of
Babson Enterprise Fund II, 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.
