BABSON
ENTERPRISE
FUND II
Semiannual Report
May 31, 1997
JONES & BABSON
MUTUAL FUNDS
MESSAGE
TO OUR SHAREHOLDERS
Babson Enterprise Fund II has gotten off to a strong start for the first half
of fiscal year 1997 relative to the Russell 2000 small capitalization
benchmark. For the six month period ended May 31, 1997, the total return
(price change and reinvested distributions) of the Fund was 13.9% compared to
the 8.4% return of the unmanaged Russell 2000 index of small company stocks.
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.
The economically sensitive sectors in which the Fund is heavily weighted, such
as consumer cyclicals, capital goods, and basic materials, have performed well
in the current moderate growth, low inflation economic environment. Relative
to the rest of the small capitalization market, these sectors continue to
trade at extremely attractive valuations despite their strong recent
performance. Our value-oriented approach to small company investing continues
to identify these sectors as attractive areas for investment, particularly
given the strong earnings growth potential of many portfolio companies.
Seven new holdings were added to the Babson Enterprise Fund II portfolio in
the first six months of fiscal 1997. AC Nielsen and Information Resources both
provide computer-based market research data and analytical services to
consumer products manufacturers. Community Trust Bancorporation is a Kentucky-
based bank holding company. Halter Marine is a shipbuilder specializing in
small and medium-sized oceangoing ships, barges, and tow boats. Interface is
the world's largest manufacturer of carpet tiles, and also produces office
interior fabrics and specialty chemicals for commercial and institutional
clients. Kaman's primary lines of business include industrial distribution and
aerospace/defense equipment. Metromail provides marketing-oriented consumer
information and reference services to businesses involved in direct mail,
telephone and target marketing.
Six positions were liquidated in the first half of fiscal 1997. Armor All
Products was sold subsequent to a buyout offer by Clorox. SPX was sold for
valuation reasons after a sharp rise in price. Cabot Oil & Gas, Fingerhut,
Juno Lighting, and Trinity Industries were liquidated because, in each case,
potential for profit margin improvement had diminished and was perceived to be
below that of other investment alternatives.
Small capitalization stocks are currently trading at compelling valuations
relative to large capitalization stocks, and certain macroeconomic trends are
quite positive for the smaller stock sector. The domestic economy continues to
grow at a healthy pace which should sustain positive earnings growth
comparisons for the generally more economically sensitive small companies.
Also, a continued strengthening of the dollar would have a much greater
negative effect on large multinational companies' earnings than on smaller
companies that are more focused on the domestic market.
Thank you for your interest and participation in Babson Enterprise Fund II. We
welcome your questions and comments.
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
STATEMENT OF NET ASSETS
May 31, 1997 (unaudited)
MARKET VALUE
SHARES COMPANY (NOTE 1-A)
COMMON STOCKS - 91.19%
BASIC MATERIALS - 9.55%
25,100 Brush Wellman Inc.
(Supplier of beryllium) $ 533,375
46,600 CalMat Co.
(Concrete, asphalt and
aggregates) 926,175
45,500 Hanna (M.A.) Co.
(Polymers and specialty chemical) 1,052,188
25,800 Interface, Inc. Cl. A
(Commercial carpeting and
carpet tiles) 599,850
43,999 Mosinee Paper Corp.
(Paper and paper products) 1,193,473
19,700 Southdown, Inc.
(Cement, concrete and
environmental service) 795,387
18,100 U.S. Can Corp.
(Aerosol, round, and specialty
steel containers) 294,125
5,394,573
CAPITAL GOODS - 14.96%
25,430 Baldor Electric Co
(Industrial electric motors) 712,040
47,000 BW/IP, Inc.
(Industrial pumps, valves
and seals) 898,875
51,000 Carlisle Companies Inc.
(Automotive/industrial products
and construction materials) 1,555,50
40,000 Elsag Bailey Process Automation N.V.
(Process control systems) 625,000
66,800 Gerber Scientific, Inc.
(Computer aided design/
manufacturing systems) 1,260,850
23,100 Kaman Corp. Cl. A
(Industrial distribution/
aerospace products) 316,181
55,000 MagneTek, Inc.
(Lighting products, electric
motors and generators) 962,500
28,600 Sealright Co.
(Packaging products) 343,200
28,200 Standard Products Co.
(Rubber and plastic products) 701,475
38,000 TriMas Corp.
(Specialty fasteners/containers) 1,078,250
8,453,871
CONSUMER CYCLICAL - 32.19%
40,000 AC Nielsen Corp
(Consumer product research
and analysis) 675,000
20,000 Central Newspapers, Inc. Cl. A
(Newspaper publishing) 1,210,000
123,100 Charming Shoppes Inc.
(Women's specialty apparel stores) 646,275
19,750 Consolidated Stores Corp.
(Close-out merchandise retailer) 755,438
51,000 Duty Free International, Inc.
(Duty free retailer) 796,875
51,100 Huffy Corp.
(Recreational product manufacturer) 664,300
50,000 Information Resources, Inc.
(Consumer product analytical services) 750,000
23,500 La-Z Boy Chair Co.
(Furniture manufacturer) 807,812
35,900 Lee Enterprises, Inc.
(Newspaper publishing:radio, TV) 906,475
42,000 Metromail Corp. New
(Consumer information and
reference service) 924,000
60,000 Miller (Herman), Inc.
(Office furniture systems) 2,145,000
17,000 National Presto Industries, Inc.
(Electrical appliances and housewares) 641,750
51,800 New England Business Service, Inc.
(Business forms supplier) 1,508,675
31,500 Stanhome Inc.
(Giftware, collectibles
personal care products) 988,313
58,200 Stride Rite Corp.
(Athletic and casual footwear) 887,550
48,200 Sturm, Ruger & Company, Inc.
(Firearms manufacturer) 909,775
51,700 True North Communications, Inc.
(Advertising) 1,027,537
64,000 Waban Inc.
(Warehouse club retailer) 1,944,000
18,188,775
CONSUMER STAPLES - 7.96%
38,000 Alberto-Culver Co. Cl. A
(Manufacturer and retailer of
cosmetics and household products) 921,500
61,400 DiMon Inc.
(Tobacco processor/fresh cut
flowers distribution) 1,419,875
33,000 First Brands Corp.
(Branded and private label
consumer products) 866,250
25,000 Hannaford Brothers Co.
(Supermarket retailer) 871,875
26,100 Paragon Trade Brands, Inc
(Private label disposable diapers) 420,863
4,500,363
ENERGY - 6.36%
35,300 Calenergy, Inc.
(Geothermal energy power) 1,456,125
65,000 Nabors Industries, Inc.
(Oil and gas drilling) 1,458,437
45,000 Quaker State Corp.
(Motor oil and lubricants) 680,625
3,595,187
FINANCIAL - 7.97%
106,208 Cash America International, Inc.
(Pawn shop operator) 1,035,528
43,730 Commerce Bancorp, Inc. NJ
(New Jersey bank holding company) 1,497,753
3,000 Community Trust Bancorporation, Inc.
(Kentucky bank holding company) 75,000
21,338 First Commercial Corp.
(Arkansas bank holding company) 874,858
40,000 Glendale Federal Bank Federal
Savings Bank California (Savings and loan) 1,020,000
4,503,139
MISCELLANEOUS - 2.95%
63,000 Global Industrial Technologies, Inc.
(Refractory products, mining
equipment, specialty tools) 1,165,500
21,000 Primark Corp.
(Information services for
gov't., financial and weather markets) 498,750
1,664,250
TECHNOLOGY - 4.46%
42,900 California Microwave, Inc.
(Microwave radios for
wireless communications) 525,525
37,400 Octel Communications Corp.
(Voice information processing
equipment) 719,950
50,000 Scitex Corp.
(Computerized imaging systems) 450,000
54,900 Viewlogic Systems Inc
(Computer-aided engineering software) 823,500
2,518,975
TRANSPORTATION & SERVICES - 4.79%
34,000 Halter Marine Group, Inc.
(Ship builder) 799,000
32,700 Harper Group Inc.
(Freight forwarding and
logistics services) 907,425
46,800 Sea Containers Ltd. Cl. A
(Cargo containers, ferry
services, port operations) 936,000
3,200 Sea Containers Ltd. Cl.B
(Cargo containers, ferry
services, port operations) 63,600
2,706,025
TOTAL COMMON STOCKS - 91.19% 51,525,158
MARKET VALUE
FACE AMOUNT DESCRIPTION (NOTE 1-A)
REPURCHASE AGREEMENT - 8.99%
$5,080,000 UMB Bank, n.a.,
4.90%, due June 2, 199
(Collateralized by U.S.
Treasury Notes, 5.00%
due January 31, 1999) 5,080,000
TOTAL INVESTMENTS - 100.18% $ 56,605,158
Other assets less liabilities - (0.18%) (102,643)
TOTAL NET ASSETS - 100.00
(equivalent to $22.48 per share;
10,000,000 shares of $1.00 par
value capital shares authorized;
2,513,093 shares outstanding) $ 56,502,515
STATEMENT OF ASSETS
AND LIABILITIES
May 31, 1997 (unaudited)
ASSETS:
Investments in securities
Common stocks, at market value
(identified cost $36,456,950) $ 51,525,158
Repurchase agreement, at cost - approximates
market value 5,080,000
Total investments 56,605,158
Dividends receivable 49,341
Total assets 56,654,499
LIABILITIES AND NET ASSETS
Cash overdraft 9,066
Payable for investments purchased 142,918
Total liabilities 151,984
NET ASSETS $ 56,502,515
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 39,710,474
Accumulated undistributed income:
Undistributed net investment income 281,213
Undistributed net realized gain on investment
transactions 1,442,620
Net unrealized appreciation in value of investment 15,068,208
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 56,502,515
Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 2,513,093
NET ASSET VALUE PER SHARE $ 22.48
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Six Months Ended May 31, 1997 (unaudited)
INVESTMENT INCOME
Income $ 368,597
Dividends 75,194
Interest 443,791
Expenses (Note 2):
Management fees 323,033
Registration fees and expenses 10,928
333,961
Net investment income (Note 1-B) 109,830
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 6,942,755
Cost of investments sold 5,534,594
Net realized gain from investment transactions 1,408,161
Unrealized appreciation of investments
Beginning of period 9,890,157
End of period 15,068,208
Unrealized appreciation of investments
during the period 5,178,051
Net gain on investments 6,586,212
Increase in net assets resulting
from operations $ 6,696,042
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
May 31, 1997 November 30,
(unaudited) 1996
</CAPTION>
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 109,830 $ 241,392
Net realized gain from investment transactions 1,408,161 6,248,431
Unrealized appreciation of investments
during the period 5,178,051 3,145,353
Net increase in net assets resulting
from operations 6,696,042 9,635,176
Net equalization included in the price of shares
issued and redeemed 78,432 (18,693)
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (235,237) (112,539)
Net realized gain from investment transaction (6,250,807) (1,939,754)
Total distributions to shareholders (6,486,044) (2,052,293)
INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS:*
Proceeds from shares sold 14,969,174 28,398,216
Net asset value of shares issued for
reinvestment of distributions 6,305,766 1,979,884
21,274,940 30,378,100
Cost of shares repurchased (10,687,824) (32,757,917)
Net increase (decrease) from capital share
transactions 10,587,116 (2,379,817)
Total increase in net assets 10,875,546 5,184,373
NET ASSETS:
Beginning of period 45,626,969 40,442,596
End of period (including undistributed net
investment income of $281,213 and $328,188,
respectively) $ 56,502,515 $ 45,626,969
*Shares issued and repurchased:
Number of shares sold 712,828 1,397,917
Number of shares issued for reinvestment
of distributions 310,782 108,013
1,023,610 1,505,930
Number of shares repurchased (516,268) (1,607,627)
Net increase (decrease) 507,342 (101,697)
**Distributions to shareholders:
Income dividends per share $ .1124 $ .055
Capital gains distribution per share $ 2.9876 $ .948
</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 - 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.
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 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 port-folio 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, 1997 (excluding
maturities of short-term commercial notes and repurchase agreements) are as
follows:
Purchases $ 7,767,676
Proceeds from sales 6,942,755
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.
BOARD OF DIRECTORS
Larry D. Armel
Francis C. Rood
William H. Russell
H. David Rybolt
OFFICERS
Larry D. Armel
President
P. Bradley Adams
Vice President & Treasurer
Elizabeth L. Allwood
Vice President
Michael A. Brummel
Vice President
Martin A. Cramer
Vice President & Secretary
Constance E. Martin
Vice President
Lance F. James
Vice President - Portfolio
Peter C. Schliemann
Vice President - Portfolio
INVESTMENT COUNSEL
David L. Babson & Co. Inc.
Cambridge, Massachusetts
INDEPENDENT AUDITORS
Ernst & Young, LLP
Kansas City, Missouri
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young
Philadelphia, Pennsylvania
John G. Dyer
Kansas City, Missouri
CUSTODIAN
UMB Bank, n.a.
Kansas City, Missouri
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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