BABSON
ENTERPRISE
FUND II
Annual Report
November 30, 1996
JONES & BABSON
MUTUAL FUNDS
MESSAGE
TO OUR SHAREHOLDERS
The equity markets posted a second consecutive year of extremely strong
results in the fiscal year ended November 30, 1996. Sustained economic growth
coupled with low inflation provided the fundamental underpinnings for strong
stock performance. Once again, large capitalization stocks outperformed the
stocks of smaller companies, as massive cash inflows into the market tended to
gravitate toward large capitalization names with greater trading liquidity.
Babson Enterprise Fund II achieved a strong investment performance for the
fiscal year ended November 30, 1996. The Fund's total return (price change and
reinvested distributions) for the fiscal year was 25.0%. This compared very
favorably with the 16.5% return of the unmanaged Russell 2000 index of small
company stocks, although it did slightly trail the 27.8% return of the
unmanaged Standard & Poor's 500 index of large company stocks.
Favorable industry concentration, stock selection and portfolio weightings all
contributed to the Fund's strong performance relative to the Russell 2000
small cap benchmark. The strongest performing economic sectors in the Russell
2000 index were energy, financial services, and consumer discretionary stocks.
The Fund is heavily overweighted relative to the index in the energy and
consumer discretionary areas. The weakest performing sectors of the small cap
index were health care, which actually had a negative return for the full
fiscal year, and utilities. The Fund has been significantly underweighted in
these groups throughout the year, and as of year-end had no health care or
utility holdings.
In the six months since our mid-year message to shareholders, four new
holdings have been added to the portfolio:
California Microwave - manufacturer of microwave-based systems and products
used in satellite and wireless communications;
Commerce Bancorp - bank holding company with operations in southern New Jersey
and eastern Pennsylvania;
Elsag Bailey Process Automation - maker of a broad range of process control
systems and instrumentation products used by electric utilities, chemical and
pharmaceutical companies, oil and gas producers, and other process industries
worldwide;
Stride Rite - producer of branded athletic and casual footwear for children
and adults.
Seven positions were liquidated in the second half of fiscal 1996. ADAC
Laboratories, Precision Castparts, and Vons Companies were all sold for
valuation reasons after sharp price increases. Kennametal and King World
Productions were sold at attractive gains because of our concerns about the
long-term sustainability of current high profitability levels. Overseas
Shipholding and Wolohan Lumber were eliminated at losses due to our belief
that increased competition made each company's fundamental earnings power less
attractive.
The economically-sensitive stocks in which the Fund is overweighted continue
to represent compelling values relative to the rest of the small cap market.
We do not currently perceive major threats to sustained economic growth and
low inflation both of which provide an excellent macroeconomic backdrop for
positive portfolio performance.
In December 1996, the Fund distributed an ordinary income dividend of $0.205
per share and distributed $2.895 from realized long-term capital gains. For
corporate shareholders, 100% of ordinary income distributions qualify for the
corporate dividends received deduction.
Thank you for your interest and participation in Babson Enterprise Fund II. We
welcome your comments and questions.
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
PORTFOLIO REVIEW
Babson Enterprise Fund II is a no-load mutual fund invested in common stocks
of smaller, faster growing companies which at the time of purchase are
considered to be realistically valued in the smaller company sector of the
market.
This past year's stock market performance surprised most observers. After
1995's 37.4% advance in the Standard & Poor's 500, few investors expected
another big year in 1996. Yet the S&P finished the calendar year up 23.0%,
which resulted in a two-year gain that has rarely been seen. One has to go
back 20 years for the last similar gain, and since 1925 there have only been
three other two-year periods in the history of the S&P that have surpassed
1995-1996.
Two-Year S&P 500
Period Total Return
1995-1996 69.1%
1975-1976 69.9%
1954-1955 100.8%
1935-1936 97.8%
1927-1928 97.5%
Source: Ibbotson Associates
Small capitalization stocks, while exhibiting well above average performance
in the last two years, lagged the gains for large capitalization stocks. For
example, the Russell 2000, which is the most widely used index of small cap
stocks, was up 49.6% during the two-year period.
All of the shortfall in 1996 - the Russell 2000 was up 16.5% versus a gain of
23.0% for the S&P - occurred in the second half of the year as concerns about
the direction of economic growth increased. In the first half, economic growth
was surprisingly strong, which historically has been good for small companies
since they tend to be more economically sensitive. However, as we progressed
toward the end of the year, economic growth began to look more vulnerable, and
it now appears that the Christmas season was disappointing in terms of sales
growth. In fact, there has been increased discussion about a potential
recession in 1997.
Under these circumstances it is not at all unusual that investors focused on
the larger, less economically sensitive stocks. Even within the Russell 2000
index of small company stocks, there was a marked shift away from economically
cyclical sectors such as Consumer Discretionary, Autos and Transportation, to
Energy, Financial Services, and Consumer Staples.
From our perspective the shortfall in small capitalization stock performance
versus large capitalization stocks over the past two years puts these stocks
in a relatively stronger position going forward. History has shown that the
S&P has had a difficult time in the years immediately following such large two
year gains.
Two-Year Subsequent Two-
Performance Year Performance
1995-1996 69.1% ??
1975-1976 69.9% -1.1%
1954-1955 100.8% -4.9%
1935-1936 97.8% -14.8%
1927-1928 97.5% -31.2%
Source: Ibbotson Associates
That is not the case for small capitalization stocks. Although the Russell
2000 only goes back to 1979, Ibbotson Associates publishes data on small
company stocks that goes back to 1925. Reviewing this data shows that there
have been 27 two-year periods in which small company stocks have performed as
well or better than the 1995-1996 period. In only seven of these instances, or
approximately one-quarter of the time, has the subsequent two-year performance
been negative.
However, these comparisons do illustrate the difficulty the market has had in
sustaining exceptional performance without a correction. Investors must
remember that the balance between reward and risk can shift. In recent years,
taking high investment risks has been rewarded, but under present
circumstances it would appear that a somewhat lower risk profile might be
appropriate.
People define risk in a variety of ways. Academics tend to define it as
volatility. One way we can assess risk is to measure the volatility of returns
relative to the longer term average return of a specific portfolio ("standard
deviation"), or one can compare the volatility of return of a portfolio to the
volatility of a benchmarket portfolio (`beta").
To most of us, these risk measuring techniques are a little esoteric. Of more
significance is the risk of actually losing money. The Investment Company
Institute did a survey in 1996, and the preferred concept of risk was "the
chance of losing some of an original investment." Fifty-seven percent of the
respondents chose this definition, while only 15% favored "standard deviation"
as a measure of risk, and only 13% selected "beta."
Enterprise Fund II has always been managed with a careful eye to its risk
profile. Small capitalization stocks are generally more risky than large cap
stocks - however you define risk. Statistically, such stocks display higher
risk, which makes sense because fundamentally their operations have higher
risks. Small companies tend to have less product depth and breadth, making
them more vulnerable to obsolescence or a competitive onslaught. They often
sell to a narrow list of buyers so that their prosperity may depend on the
fortunes of just one or two customers. They do not always have the financial
resources that a large company does, and many of them have a lean management
team, which can be good when things are going well but sometimes prove life
threatening when things go badly. Finally, the stocks of these companies can
be very illiquid, which makes buying and selling them more difficult, and can
cause the stocks' prices to fluctuate considerably more than large company
stocks.
Despite the higher risks in each individual situation, a portfolio can be
structured to mitigate these risks. By doing so, the volatility of the entire
portfolio and the incidence of loss can be reduced. We believe that profile
will become even more important as we go forward in
a market that may not reward risk taking as much as it
has recently.
David L. Babson & Co. Inc.
PORTFOLIO REVIEW
GRAPH -- Babson Enterprise Fund II versus Russell 2000 and S&P 500
Babson Enterprise II Fund's average annual compounded total returns for one,
five years and the life of the Fund (inception August 5, 1991) as of
November 30, 1996, were 25.04%, 15.44% and 14.22%, 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.
STATEMENT OF NET ASSETS
November 30, 1996
<TABLE>
<CAPTION>
S&P MARKET VALUE
RANKING** SHARES COMPANY COST (NOTE 1-A)
</CAPTION>
<S>
COMMON STOCKS - 96.61% <C> <C>
BASIC MATERIALS - 11.28%
B 25,100 Brush Wellman Inc.
(Supplier of beryllium) $ 431,582 $ 420,425
B- 42,600 CalMat Co.
(Concrete, asphalt and aggregates) 773,622 777,450
B 45,500 Hanna (M.A.) Co.
(Polymers and specialty chemical) 595,928 961,187
B 29,333 Mosinee Paper Corp.
(Paper and paper products) 476,876 1,004,655
B- 39,700 Southdown, Inc.
(Cement, concrete and
environmental service) 482,881 1,295,213
NR 41,300 U.S. Can Corp.*
(Aerosol, round, and
specialty steel containers) 688,194 686,613
3,449,083 5,145,543
CAPITAL GOODS - 18.39%
A 23,430 Baldor Electric Co.
(Industrial electric motors) 225,903 547,676
NR 42,000 BW/IP, Inc.
(Industrial pumps, valves and seals) 603,132 640,500
B+ 23,000 Carlisle Companies Inc.
(Automotive/industrial products
and construction materials) 569,893 1,322,500
B 64,400 Gerber Scientific, Inc.
(Computer aided design/manufacturing
systems) 986,511 998,200
A- 33,200 Juno Lighting, Inc.
(Recessed and track lighting) 469,440 514,600
C 65,000 MagneTek, Inc.*
(Lighting products, electric motors
and generators) 948,161 812,500
B 28,600 Sealright Co.
(Packaging products) 422,400 332,475
B- 11,200 SPX Corp.
(Specialty service tools for
motor vehicles) 186,884 355,600
B- 28,200 Standard Products Co.
(Rubber and plastic products) 610,069 645,075
NR 38,000 TriMas Corp.
(Specialty fasteners/containers) $ 532,304 $ 964,250
B+ 36,500 Trinity Industries, Inc.
(Railcars, containers, boats) 1,022,786 1,259,250
6,577,483 8,392,626
CONSUMER CYCLICAL - 28.32%
B 38,000 Armor All Products Corp.
(Car care products) 770,977 717,250
B+ 20,000 Central Newspapers, Inc. Cl. A
(Newspaper publishing) 640,339 870,000
C 93,100 Charming Shoppes Inc.*
(Women's specialty apparel stores) 586,554 477,138
B 19,000 Consolidated Stores Corp.*
(Close-out merchandise retailer) 214,093 703,000
B+ 45,000 Duty Free International, Inc.
(Duty free retailer) 631,639 708,750
NR 50,200 Fingerhut Companies, Inc.
(Direct mail marketer) 782,313 627,500
B 49,100 Huffy Corp.
(Recreational products manufacturer) 738,889 675,125
A- 23,500 La-Z Boy Chair Co.
(Furniture manufacturer) 591,635 705,000
A- 35,900 Lee Enterprises, Inc.
(Newspaper publishing: radio, TV) 516,512 798,775
B- 33,000 Miller (Herman), Inc.
(Office furniture systems) 845,328 1,551,000
B+ 17,000 National Presto Industries, Inc.
(Electrical appliances and
housewares) 714,811 626,875
B+ 31,800 New England Business Service, Inc.
(Business forms supplier) 567,929 616,125
A- 18,000 Stanhome Inc.
(Giftware, collectibles, personal
care products) 575,452 492,750
B+ 27,700 Stride Rite Corp.
(Athletic and casual footwear) 251,383 277,000
B+ 38,000 Sturm, Ruger & Company, Inc.
(Firearms manufacturer) $ 521,990 $ 679,250
B+ 31,700 True North Communications, Inc.
(Advertising) 621,153 709,287
NR 64,000 Waban Inc.*
(Warehouse club retailer) 989,527 1,688,000
10,560,524 12,922,825
CONSUMER STAPLES - 10.25%
A 23,000 Alberto-Culver Co. Cl. A
(Manufacturer and retailer of
cosmetics and household products) 485,930 928,625
NR 61,400 DiMon Inc.
(Tobacco processor/fresh cut
flowers distributor) 992,619 1,274,050
B 33,000 First Brands Corp.
(Branded and private label
consumer products) 470,973 944,625
A+ 25,000 Hannaford Brothers Co.
(Supermarket retailer) 542,994 806,250
NR 26,100 Paragon Trade Brands, Inc.*
(Private label disposable diapers) 505,090 724,275
2,997,606 4,677,825
ENERGY - 7.93%
NR 24,000 Cabot Oil & Gas Corp. Cl. A
(Oil & gas developer/producer) 461,670 426,000
NR 41,800 Calenergy, Inc.*
(Geothermal energy power) 647,378 1,248,775
B- 65,000 Nabors Industries, Inc.*
(Oil and gas drilling) 440,726 1,259,375
B- 40,000 Quaker State Corp.
(Motor oil and lubricants) 541,021 685,000
FINANCIAL - 8.39%
B+ 129,200 Cash America International, Inc.
(Pawn shop operator) 1,100,230 1,017,450
B+ 22,600 Commerce Bancorp, Inc. NJ
(New Jersey bank holding company) 598,495 655,400
A 36,038 First Commercial Corp.
(Arkansas bank holding company) $ 726,936 $ 1,315,387
NR 40,000 Glendale Federal Bank Federal Savings
Bank California*
(Savings and loan) 734,968 840,000
3,160,629 3,828,237
MISCELLANEOUS - 3.82%
NR 58,000 Global Industrial Technologies, Inc.*
(Refractory products, mining
equipment, specialty tools) 957,780 1,189,000
B- 21,000 Primark Corp.*
(Information services for gov't.,
financial and weather markets) 347,610 551,250
1,305,390 1,740,250
TECHNOLOGY - 5.24%
B 15,100 California Microwave, Inc.*
(Microwave radios for wireless
communications) 214,771 225,556
NR 24,200 Elsag Bailey Process Automation N.V.*
(Process control systems) 365,240 429,550
B 37,400 Octel Communications Corp.*
(Voice information processing
equipment) 548,145 673,200
NR 50,000 Scitex Corp.
(Computerized imaging systems) 906,238 506,250
NR 56,100 Viewlogic Systems Inc.*
(Computer-aided engineering
software) 648,337 553,988
2,682,731 2,388,544
TRANSPORTATION & SERVICES - 2.99%
B+ 32,700 Harper Group Inc.
(Freight forwarding and
logistics services) 615,193 743,925
B+ 36,800 Sea Containers Ltd. Cl. A
(Cargo containers, ferry services,
port operations) 692,079 570,400
B+ 3,200 Sea Containers Ltd. Cl. B
(Cargo containers, ferry services,
port operations)
58,455 50,800
1,365,727 1,365,125
TOTAL COMMON STOCKS - 96.61% 34,189,968 44,080,125
</TABLE>
<TABLE>
<CAPTION>
MARKET VALUE
FACE AMOUNT DESCRIPTION COST (NOTE 1-A)
</CAPTION>
<S> <C> <C>
REPURCHASE AGREEMENT - 3.29%
$1,500,000 UMB Bank, n.a.,
5.30%, due December 2, 1996
(Collateralized by $1,478,947 U.S. Treasury Notes,
5.125%, due June 30, 1998) $ 1,500,000 $ 1,500,000
TOTAL INVESTMENTS - 99.90% $35,689,968 $45,580,125
Other assets less liabilities - 0.10% 46,844
TOTAL NET ASSETS - 100.00%
(equivalent to $22.75 per share; 10,000,000 shares of
$1.00 par value capital shares authorized;
2,005,751 shares outstanding) $45,626,969
</TABLE>
For federal income tax purposes, the identified cost of investments
owned at November 30, 1996, was $35,701,840.
Net unrealized appreciation for federal income tax purposes was $9,878,285,
which is comprised of unrealized appreciation of $11,411,088 and unrealized
depreciation of $1,532,803.
*Securities on which no cash dividends were paid during the preceding year.
**Standard & Poor's rankings are derived from statistical measurements of past
earnings and dividend stability and growth.
NR - indicates no ranking is available. Rankings are not covered by the
report of independent auditors.
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS
AND LIABILITIES
November 30, 1996
ASSETS:
Investments in securities:
Common stocks, at market value (identified cost $34,189,968) $ 44,080,125
Repurchase agreement, at cost - approximates market value 1,500,000
Total investments 45,580,125
Dividends receivable 63,972
Receivable for investments sold 38,281
Total assets 45,682,378
LIABILITIES AND NET ASSETS:
Cash overdraft 55,409
Total liabilities 55,409
NET ASSETS $ 45,626,969
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 29,123,358
Accumulated undistributed income:
Undistributed net investment income 328,188
Undistributed net realized gain on investment transactions 6,285,266
Net unrealized appreciation in value of investments 9,890,157
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 45,626,969
Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 2,005,751
NET ASSET VALUE PER SHARE $ 22.75
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Year Ended November 30, 1996
INVESTMENT INCOME:
Income:
Dividends $ 744,970
Interest 105,699
850,669
Expenses (Note 2):
Management fees 591,557
Registration fees and expenses 17,720
609,277
Net investment income (Note 1-B) 241,392
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 16,514,214
Cost of investments sold 10,265,783
Net realized gain from investment transactions 6,248,431
Unrealized appreciation of investments:
Beginning of year 6,744,804
End of year 9,890,157
Unrealized appreciation of investments during the year 3,145,353
Net gain on investments 9,393,784
Increase in net assets resulting from operations $ 9,635,176
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
For The Two Years Ended November 30, 1996
<TABLE>
<CAPTION>
1996 1995
</CAPTION>
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
<S>
Net investment income $ 241,392 $ 114,151
Net realized gain from investment transactions 6,248,431 1,942,335
Unrealized appreciation of investments during the period 3,145,353 4,590,907
Net increase in net assets resulting from operations 9,635,176 6,647,393
Net equalization included in the price of shares issued
and redeemed (18,693) (7,266)
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (112,539) (48,739)
Net realized gain from investment transactions (1,939,754) (189,170)
Total distributions to shareholders (2,052,293) (237,909)
DECREASE FROM CAPITAL SHARE TRANSACTIONS:*
Proceeds from shares sold 28,398,216 11,197,619
Net asset value of shares issued for reinvestment
of distributions 1,979,884 227,612
30,378,100 11,425,231
Cost of shares repurchased (32,757,917) (13,313,350)
Net decrease from capital share transactions (2,379,817) (1,888,119)
Total increase in net assets 5,184,373 4,514,099
NET ASSETS:
Beginning of year 40,442,596 35,928,497
End of year (including undistributed net investment income
of $328,188 in 1996 and $219,166 in 1995) $ 45,626,969 $ 40,442,596
*Shares issued and repurchased:
Number of shares sold 1,397,917 651,909
Number of shares issued for reinvestment of distributions 108,013 14,388
1,505,930 666,297
Number of shares repurchased (1,607,627) (773,550)
Net decrease (101,697) (107,253)
**Distributions to shareholders:
Income dividends per share $ .055 $ .0219
Capital gains distribution per share $ .948 $ .085
See accompanying Notes to Financial Statements.
</TABLE>
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, 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. The Fund has
designated $1,939,754 as capital gain dividends.
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 were 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 year ended November 30, 1996 (excluding
maturities of short-term commercial notes and repurchase agreements) are as
follows:
Purchases $ 12,815,823
Proceeds from sales 16,514,214
FINANCIAL HIGHLIGHTS
Condensed data for a share of capital stock outstanding throughout each year.
<TABLE>
<CAPTION>
Years Ended November 30,
1996 1995 1994 1993 1992
</CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 19.19 $ 16.22 $ 16.92 $ 14.47 $ 12.07
Income (loss) from investment operations:
Net investment income (loss) .115 .053 .020 (.019) (.020)
Net gains or losses on securities
(both realized and unrealized) 4.448 3.024 (.392) 2.501 2.455
Total from investment operations 4.563 3.077 (.372) 2.482 2.435
Less distributions:
Dividends from net investment income (.055) (.022) - - (.035)
Distributions from capital gains (.948) (.085) (.328) (.032) -
Total distributions (1.003) (.107) (.328) (.032) (.035)
Net asset value, end of year $ 22.75 $ 19.19 $ 16.22 $ 16.92 $ 14.47
Total return 25.04% 19.11% (2.32)% 17.19% 20.24%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 46 $ 40 $ 36 $ 29 $ 11
Ratio of expenses to average net assets 1.38% 1.45% 1.50% 1.60% 1.83%
Ratio of net investment income (loss)
to average net assets .55% .30% .14% (.14)% (.11)%
Portfolio turnover rate 30% 15% 9% 18% 14%
*Average commission paid per equity share traded $ .0514 - - - -
</TABLE>
*Disclosure required for fiscal years beginning after September 1, 1995.
See accompanying Notes to Financial Statements.
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
The Board of Directors and Shareholders of Babson Enterprise Fund II, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the statement of net assets, of Babson Enterprise Fund II, Inc., as
of November 30, 1996, the related statements of operations for the year then
ended, changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund'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 confirmation of investments
owned as of November 30, 1996, by correspondence with the custodian. As to
securities relating to uncompleted transactions, we performed other auditing
procedures. 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
Babson Enterprise Fund II, Inc. at November 30, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended in conformity with generally
accepted accounting principles.
/s/Ernst & Young LLP
Kansas City, Missouri
December 27, 1996
This report has been prepared for the information of the Shareholders of
Babson Enterprise 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
<TABLE> <S> <C>
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<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 35689968
<INVESTMENTS-AT-VALUE> 45580125
<RECEIVABLES> 102253
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 45682378
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55409
<TOTAL-LIABILITIES> 55409
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29123358
<SHARES-COMMON-STOCK> 2005751
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 328188
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