BABSON
ENTERPISE
FUND II
Annual Report
November 30, 1997
JONES & BABSON
MUTUAL FUNDS
MESSAGE
To Our Shareholders
1997 marked the third straight year of soaring performance by U.S. stock
markets. Strong corporate earnings growth, low inflation, and moderate
interest rates continued to be a successful combination for equity
investors.
Babson Enterprise Fund II provided a favorable investment performance
for its participants in the fiscal year ended November 30, 1997. The
Fund's total return (price change and reinvested distributions) for the
fiscal year was 35.3%. This performance compared very favorably to the
23.4% return of the unmanaged Russell 2000 index of small company stocks
and to the 28.5% return of the unmanaged Standard & Poor's 500 index of
large company stocks.
Favorable individual stock selection continued to be the
primary driver of the Fund's positive performance relative to the
Russell 2000 small cap benchmark. The economically
sensitive sectors in which the Fund is overweighted relative to the
Russell 2000 turned in a mixed performance relative to the benchmark.
The transportation and capital goods sectors were strong relative
performers during the fiscal year while the
consumer cyclical, basic materials, and energy portions of the index
lagged somewhat. The weakest sector of the small cap market was
technology, which is significantly underweighted in the Fund.
Within this investment environment, among the best
performing stocks in the Fund were Halter Marine, a boat maker,
Viewlogic, a computer software design company, Nabors Industries, an oil
and gas drilling business, Herman Miller, an office furniture maker,
Consolidated Stores, a retailer, and Sea Containers, a conglomerate with
hotel, transportation, and container operations.
While we are somewhat anxious about general valuation levels in the
market, especially for giant multinational corporations that are Wall
Street favorites, we believe that selected small capitalization stocks
continue to offer attractive return potential. Factors favoring the
small capitalization sector are: (1) a vibrant domestic economy with low
inflation and low interest rates, favoring the economically sensitive
small company sector; (2) the stronger dollar, given the lower
percentage of international sales for small companies compared to large
multinationals; (3) the recent capital gains tax rate cut, which should
provide a bigger boost to small company valuations if history is a
reliable guide; and (4) the attractive valuations of small company
stocks relative to larger cap stocks.
Our biggest current concern involves the financial problems being
experienced in Asia. This situation represents a major challenge for the
global economy that defies short-term solutions. To the extent that
small capitalization companies are more oriented to the domestic U.S.
market, they are less exposed to instability in Asia than many larger
capitalization corporations.
In December 1997, the Fund distributed an ordinary income dividend of
$0.16 per share and $1.94 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.
With the incredible proliferation of mutual fund
products, and the confusion engendered by the increasing division of
those funds by market capitalization, and by style, we thought it might
be helpful to step back a bit and talk about some of the unusual
challenges in micro and small cap investing as it is embodied in
Enterprise Fund and Enterprise Fund II.
One of the more difficult issues relating to small and micro cap
investing is determining what size companies fit into these categories.
Over the years, this has proved to be a moving target.
When we launched Babson Enterprise Fund at the end of 1983, it was one
of twenty-three funds categorized by Lipper Analytical Services as a
"Small Company Fund."
It is now widely defined as a "Micro Cap Fund" even though the average
size of the companies in the Fund has actually increased, from
approximately $110 million in market capitalization to $189 million.
What happened during the period is that the size and parameters of the
investment world around us increased substantially faster.
As shown below the market capitalization of the Russell 2000 (the most
widely used index of small companies) and that of the average small cap
fund monitored by Morningstar, Inc. has increased rapidly in the last
seven years.
Average Small Cap Market Capitalization
(in millions)
6/97 6/96 6/95 6/94 6/93 6/92 6/91 6/90
Russell 2000 Weighted
Median Market Cap $ 620 500 390 330 290 210 180 180
Small Cap Mutual Fund
Weighted Median
Market Cap $ 764 688 526 461 535 442 453 373
Number of Small
Cap Funds 539 408 312 206 135 85 66 65
Source: Frank Russell, Morningstar
The average company in Enterprise Fund II is slightly over $600 million
which puts it comfortably into the "small cap" category.
Defining small and micro cap is one thing, but finding investment ideas
and putting a portfolio together is much more important. Idea generation
is the lifeblood of
our Funds, and, as shown below, is very different for
different company sizes.
Idea Generation
LARGE CAP SMALL CAP MICRO CAP
Wall Street Big Help Moderate Help Very Little Help
Database Coverage All Companies Most Companies Few Companies
Universe Size Limited Moderate Huge
Universe Turnover Limited Substantial Substantial
You will find a major difference in the time and effort allocated to
come up with small and micro cap ideas in comparison with generating
large cap ideas. There are very few large companies that haven't been
researched closely by Wall Street analysts, so that one's job as
a large cap portfolio manager is largely taking the
comments of all these researchers and analyzing them. At the other
extreme, very few analysts look at micro cap companies so a lot of time
is spent getting basic information - sometimes just getting annual
reports can be a challenge.
CHART
Number of Analysts' Estimates/Companies by Market Capitalization
The chart graphically illustrates this. The largest
companies - those over $4 billion in market cap - have, on average, 17
analysts covering each of them, while those companies less than $100
million in size have, on average, less than one analyst following them.
Obviously, this means that a substantial portion of these companies have
no analysts following them at all.
Similarly, computer accessible databases include all large companies,
and even most small companies, but many fewer companies as you progress
into the micro cap arena. Another issue is the number of companies in
each category. Take a second look at the chart above, and one sees there
are less than 500 companies in the large cap - above $4 billion -
sector, but there are over 1,500 in the $200 million to $800 million
range -basically small cap, and almost 5,500 in the micro cap - less
than $200 million - group.
To make things worse for small and micro cap
managers, the universe of companies is not only huge, but it turns over
rapidly as new companies come public and older companies move up in
market cap, while
others are acquired or run into trouble and disappear.
By contrast, small and micro cap managers, unless they are passive or
index managers where the computer does most of the work, need a lot of
people to help with the research and analysis.
Not only do they need a lot of people, but they often need a different
kind of person. They need people willing to be investigative reporters
- - to dig into barely touched territories to get information.
These people also need to be able to analyze companies that operate in a
more dynamic, high risk environment. Smaller companies face a whole raft
of risks that tend to be muted in larger companies.
They are often single product companies, with a
narrow list of customers, more limited financial resources, and more
difficult management challenges, such as handling the transition from
entrepreneurial to professional management, and succession hurdles in
closely held companies.
Finally, people analyzing such smaller companies have to constantly
fight to maintain an emotional
distance from the company and its management. When you find a great
little company that no other institutional money manager has ever owned,
it's hard not to almost get a sense of psychological ownership in that
company.
Large companies usually have a professional investor relations
department, but at small companies your
contact is very often the Chief Executive Officer. You get to know that
person, that person's family, and his or her dreams and ideals. In
short, you can easily get
personally involved so that selling your position in the company becomes
more difficult. It's always been a
cardinal rule in investing to "never fall in love with a company." It's
so much harder to resist the temptation in small companies.
In sum, managing micro and small cap portfolios
presents a lot of unusual challenges and can consume a lot of resources.
However, for those of us who love to find and analyze companies that
very few investors have taken an in-depth look at, and thus can be very
attractive investments, it is the most satisfying job in the business.
David L. Babson & Co. Inc.
PORTFOLIO REVIEW
CHART
Babson Enterprise Fund II versus Russell 2000 and S&P 500
*Unmanaged stock index
Babson Enterprise Fund II's average annual compounded return for one, five and
life of the Fund (inception August 5, 1991) as of November 30, 1997,
were 35.29%, 18.19% and 17.31%, 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 flucuate, and
redemption value may be more or less than original cost.
STATEMENT OF NET ASSETS
November 30, 1997
<TABLE>
<CAPTION>
S&P MARKET VALUE
RANKING** SHARES COMPANY COST (NOTE 1-A)
</CAPTION>
<S> <C> <C>
COMMON STOCKS - 95.00%
BASIC MATERIALS - 12.02%
B 46,800 Brush Wellman, Inc.
(Supplier of beryllium) $ 973,576 $ 1,111,500
B- 72,600 CalMat Co.
(Concrete, asphalt and aggregates) 1,451,634 1,901,212
NR 18,300 Cuno, Inc.*
(Fluid filtration product) 309,614 308,813
B 66,700 Hanna (M.A.) Co.
(Polymers and specialty chemical) 1,134,104 1,646,656
A- 64,500 Interface, Inc. Cl. A
(Carpet tile and commercial carpeting) 1,523,115 1,935,000
B 42,999 Mosinee Paper Corp.
(Paper and paper products) 512,560 1,279,220
B+ 51,800 New England Business Service, Inc.
(Business forms supplier) 993,929 1,641,413
6,898,532 9,823,814
CAPITAL GOODS - 13.50%
NR 77,000 Elsag Bailey Process Automation N.V.*
(Process control systems) 1,336,954 1,328,250
A- 50,749 Flowserve Corp.
(Corrosion-resistant pumps and valves) 1,323,254 1,363,879
B 91,800 Gerber Scientific, Inc.
(Computer aided design/manufacturing
systems) 1,535,678 1,836,000
C 88,000 MagneTek, Inc.*
(Lighting products, electric motors
and generators) 1,403,226 1,837,000
B 50,000 Miller (Herman), Inc.
(Office furniture systems) 625,663 2,537,500
B- 45,200 Standard Products Co.
(Rubber and plastic products) 1,049,777 1,135,650
B+ 32,000 TriMas Corp.
(Specialty fasteners/containers) 398,006 992,000
7,672,558 11,030,279
CONSUMER CYCLICAL - 24.18%
NR 81,000 AC Nielsen Corp.*
Consumer product research and
analysis) 1,467,032 1,817,438
NR 86,500 BJ's Wholesale Club, Inc.*
(Warehouse club retailer) 1,383,807 2,519,312
B+ 30,000 Central Newspapers, Inc. Cl. A
(Newspaper publishing) 1,330,260 2,062,500
C 188,700 Charming Shoppes Inc.*
(Women's specialty apparel stores) 1,133,632 925,800
B 21,687 Consolidated Stores Corp.
(Close-out merchandise retailer) 263,242 1,054,530
NR 45,800 Exide Corp.
(Batteries) 1,059,895 1,093,475
B 77,900 Huffy Corp.
(Recreational products manufacturer) 1,162,072 1,173,369
A- 25,700 La-Z Boy Chair Co.
(Furniture manufacturer) 672,507 1,105,100
A- 30,800 Lee Enterprises, Inc.
(Newspaper publishing: radio, TV) 520,686 852,775
NR 25,000 Libbey, Inc.
(Glass tableware: ceramic dinnerware) 960,854 987,500
B 13,000 National Presto Industries, Inc.
(Electrical appliances and housewares) 539,350 509,438
B+ 41,000 Stanhome Inc.
(Giftware, collectibles, personal care
products) 1,255,019 1,055,750
B+ 108,000 Stride Rite Corp.
(Athletic and casual footwear) 1,217,268 1,289,250
B+ 85,200 Sturm, Ruger & Company, Inc.
(Firearms manufacturer) 1,409,038 1,544,250
B+ 68,700 True North Communications, Inc.
(Advertising) 1,429,135 1,760,438
15,803,797 19,750,925
CONSUMER STAPLES - 7.73%
A 48,000 Alberto-Culver Co. Cl. A
(Manufacturer and retailer of
cosmetics and household products) 720,346 1,278,000
B 41,000 First Brands Corp.
(Branded and private label consumer
products) 680,453 1,053,188
NR 56,700 Gulf South Medical Supply, Inc.*
(Medical supply distributor) 1,424,530 1,849,838
A+ 25,000 Hannaford Brothers Co.
(Supermarket retailer) 542,993 1,004,687
NR 50,300 Paragon Trade Brands, Inc.*
(Private label disposable diapers) 947,724 1,131,750
4,316,046 6,317,463
ENERGY - 4.23%
NR 21,300 Calenergy, Inc.*
(Geothermal energy power) 456,750 708,225
B 63,000 Nabors Industries, Inc.*
(Oil and gas drilling) 494,602 2,208,938
B 35,000 Quaker State Corp.
(Motor oil and lubricants) 473,550 538,125
1,424,902 3,455,288
FINANCIAL - 11.77%
A- 137,208 Cash America International, Inc.
(Pawn shop operator) 1,194,498 1,715,100
B+ 57,130 Commerce Bancorp, Inc. NJ
(New Jersey bank holding company) 1,735,108 2,395,889
NR 18,300 Community Trust Bancorporation, Inc.
(Kentucky bank holding company) 464,214 553,575
A+ 21,338 First Commercial Corp.
(Arkansas bank holding company) 439,988 1,090,905
NR 79,600 Golden State Bancorp, Inc.*
(Savings and loan) 1,914,618 2,651,675
NR 69,800 Life USA Holding, Inc.*
(Life insurance and annuity products) 1,197,122 1,169,150
NR 600 Webster Financial Corp.
Waterbury Connecticut
(Connecticut bank holding company) 29,985 37,594
6,975,533 9,613,888
MISCELLANEOUS - 8.31%
B+ 61,000 Carlisle Companies, Inc.
(Automotive/industrial products and
construction materials) 1,160,016 2,592,500
NR 43,000 Global Industrial Technologies, Inc.*
(Refractory products, mining equipment,
specialty tools) 655,013 768,625
NR 70,700 Kaman Corp. Cl. A
(Industrial distribution/aerospace
products) 1,122,038 1,307,950
B 64,500 Sea Containers Ltd. Cl. A
(Cargo containers, ferry services,
port operations) 1,365,386 2,019,656
B 3,200 Sea Containers Ltd. Cl. B
(Cargo containers, ferry services,
port operations) 58,455 99,400
4,360,908 6,788,131
TECHNOLOGY - 7.60%
B 84,100 California Microwave, Inc.*
(Microwave radios for wireless
communications) 1,377,249 1,555,850
C 84,000 Information Resources, Inc.*
(Computer-based consumer product
data collection) 1,324,220 1,249,500
NR 89,000 Metromail Corp. New*
(Provider of marketing oriented
consumer information) 1,760,432 1,590,875
NR 60,000 Scitex Corp.
(Computerized imaging systems) 1,034,463 742,500
NR 40,100 Viewlogic Systems, Inc.*
(Computer-aided engineering software) 440,604 1,067,662
5,936,968 6,206,387
TRANSPORTATION & SERVICES - 5.66%
NR 58,000 Halter Marine Group, Inc.*
(Shipbuilder) 806,655 1,616,750
B+ 45,700 Circle International Group, Inc.
(Freight forwarding and logistics
services) 970,418 1,142,500
NR 77,000 Newport News Shipbuilding, Inc.
(Military shipbuilder) 1,476,394 1,867,250
3,253,467 4,626,500
TOTAL COMMON STOCKS - 95.00% 56,642,711 77,612,675
</TABLE>
<TABLE>
<CAPTION>
MARKET VALUE
FACE AMOUNT DESCRIPTION COST (NOTE 1-A)
</CAPTION>
<S> <C> <C>
REPURCHASE AGREEMENT - 4.34%
$3,545,000 UMB Bank, n.a.,
5.00%, due December 1, 1997
(Collateralized by $3,409,000
U.S. Treasury Notes,
8.875%, due February 15, 1999) $ 3,545,000 $ 3,545,000
TOTAL INVESTMENTS - 99.34% $ 60,187,711 81,157,675
Other assets less liabilities - 0.66% 542,366
TOTAL NET ASSETS - 100.00%
(equivalent to $26.70 per share; 10,000,000 shares of
$1.00 par value capital shares authorized;
3,059,454 shares outstanding) $ 81,700,041
</TABLE>
For federal income tax purposes, the identified cost of
investments owned at November 30, 1997, was $60,192,912.
Net unrealized appreciation for federal income tax purposes
was $20,964,763, which is comprised of unrealized
appreciation of $21,975,493 and unrealized depreciation of
$1,010,730.
*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, 1997
ASSETS:
Investments in securities:
Common stocks, at market value
(identified cost $56,642,711) $ 77,612,675
Repurchase agreement, at cost - approximates
market value 3,545,000
Total investments 81,157,675
Cash 888,443
Dividends receivable 56,740
Total assets 82,102,858
LIABILITIES AND NET ASSETS:
Payable for investments purchased 402,817
Total liabilities 402,817
NET ASSETS $ 81,700,041
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 53,716,243
Accumulated undistributed income:
Undistributed net investment income 405,414
Undistributed net realized gain on investment transactions 6,608,420
Net unrealized appreciation in value of investments 20,969,964
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 81,700,041
Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 3,059,454
NET ASSET VALUE PER SHARE $ 26.70
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Year Ended November 30, 1997
INVESTMENT INCOME:
Income:
Dividends $ 739,620
Interest 205,927
945,547
Expenses (Note 2):
Management fees 760,997
Registration fees and expenses 19,495
780,492
Net investment income (Note 1-B) 165,055
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 18,351,210
Cost of investments sold 11,777,249
Net realized gain from investment transactions 6,573,961
Unrealized appreciation of investments:
Beginning of year 9,890,157
End of year 20,969,964
Unrealized appreciation of investments during the year 11,079,807
Net gain on investments 17,653,768
Increase in net assets resulting from operations $ 17,818,823
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
For The Two Years Ended November 30, 1997
<TABLE>
<CAPTION>
1997 1996
</CAPTION>
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 165,055 $ 241,392
Net realized gain from investment transactions 6,573,961 6,248,431
Unrealized appreciation of investments during the period 11,079,807 3,145,353
Net increase in net assets resulting from operations 17,818,823 9,635,176
Net equalization included in the price of shares issued and
redeemed 147,408 (18,693)
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (235,237) (112,539)
Net realized gain from investment transactions (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 48,745,268 28,398,216
Net asset value of shares issued for reinvestment of
distributions 6,305,766 1,979,884
55,051,034 30,378,100
Cost of shares repurchased (30,458,149) (32,757,917)
Net increase (decrease) from capital share transactions 24,592,885 (2,379,817)
Total increase in net assets 36,073,072 5,184,373
NET ASSETS:
Beginning of year 45,626,969 40,442,596
End of year (including undistributed net investment income
of $405,414 in 1997 and $328,188 in 1996) $ 81,700,041 $ 45,626,969
*Shares issued and repurchased:
Number of shares sold 2,016,326 1,397,917
Number of shares issued for reinvestment of distributions 310,783 108,013
2,327,109 1,505,930
Number of shares repurchased (1,273,406) (1,607,627)
Net increase (decrease) 1,053,703 (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. The Fund has designated $6,057,128 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, 1997 (excluding
maturities of short-term commercial notes and repurchase agreements)
are as follows:
Purchases $ 34,229,992
Proceeds from sales 18,351,210
FINANCIAL HIGHLIGHTS
Condensed data for a share of capital
stock outstanding throughout each year.
<TABLE>
<CAPTION>
Years Ended November 30,
1997 1996 1995 1994 1993
</CAPTION>
<S> <S> <S> <S> <S> <S>
Net asset value, beginning of year $ 22.75 $ 19.19 $ 16.22 $ 16.92 $ 14.47
Income (loss) from investment operations:
Net investment income (loss) .081 .115 .053 .020 (.019)
Net gains or losses on securities
(both realized and unrealized) 6.969 4.448 3.024 (.392) 2.501
Total from investment operations 7.05 4.563 3.077 (.372) 2.482
Less distributions:
Dividends from net investment income (.112) (.055) (.022) - -
Distributions from capital gains (2.988) (.948) (.085) (.328) (.032)
Total distributions (3.100) (1.003) (.107) (.328) (.032)
Net asset value, end of year $ 26.70 $ 22.75 $ 19.19 $ 16.22 $ 16.92
Total return 35.29% 25.04% 19.11% (2.32)% 17.19%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 82 $ 46 $ 40 $ 36 $ 29
Ratio of expenses to average net assets 1.28% 1.38% 1.45% 1.50% 1.60%
Ratio of net investment income (loss)
to average net assets .27% .55% .30% .14% (.14)%
Portfolio turnover rate 21% 30% 15% 9% 18%
*Average commission paid per equity share traded $ .0510 $ .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, 1997, the related statements of operations for the year then
ended and 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, 1997, 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, 1997, 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.
Ernst & Young LLP
Kansas City, Missouri
December 29, 1997
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.
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
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306
816-751-5900
1-800-4-BABSON
(1-800-422-2766)
http://www.jbfunds.com
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000873076
<NAME> BABSON ENTERPRISE FUND II INC
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 60187711
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