BABSON
Enterprise
Fund II
Semiannual Report
May 31, 1998
U.S. equity markets continued their strong performance in the first half of
fiscal 1998 as the combination of low inflation, stable interest rates, and
sustained economic growth buoyed equity valuations. Large company stocks
outperformed smaller company stocks in the period, while in the small cap
universe the value approach outperformed growth stock investing.
For the six and twelve month periods ended May 31, 1998, the total returns
(price change and reinvested distributions) of Babson Enterprise Fund II were
8.2% and 28.6%, respectively. This performance compares favorably to the 6.5%
and 21.2% return of the unmanaged Russell 2000 index of small company stocks
for the same periods.
Average annual compounded total returns for one year, five years and the life
of the Fund (inception August 5, 1991) as of June 30, 1998, were 18.2%, 17.5%
and 16.5%, 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.
The strongest performing sectors of the small company universe as represented
by the Russell 2000 for the first half of fiscal 1998 were utilities, auto and
transportation stocks, and consumer discretionary companies, such as
retailers. While the Fund does not own any utility stocks, it is overweighted
relative to the index in the latter two economically sensitive sectors,
boosting performance. The weakest portions of the small cap market were
energy, in which the Fund is overweighted compared to the Russell 2000, and
health care and technology, in which the Fund is underweighted.
Five new holdings were added to the Fund in the first six months of fiscal
1998. BancFirst is an Oklahoma-based bank holding company and Haven Bancorp is
a New York-based savings bank. Commscope designs and manufactures coaxial,
fiber optic and high performance electronic cables used primarily for cable
television transmission and local area network products. Petco is a specialty
retailer of premium pet food and supplies operating in over 300 stores across
the nation. Xircom makes products for connecting personal computers to local
area networks.
Eleven positions were liquidated in the first half of fiscal 1998. Metromail,
TriMas, Viewlogic (and subsequently Synopsys) were sold at sizable gains
subsequent to buyouts or takeover offers. Other liquidations included
Consolidated Stores, First Brands, First Commercial, Hannaford Brothers,
Paragon Trade Brands, Quaker State and Webster Financial.
The current strength of the U.S. equity markets and heightened valuation
levels for stocks have increased the overall risk level for investors. It will
become increasingly important that companies meet the earnings growth
expectations of the market to sustain or enhance the lofty valuations of their
stocks. Yet further corporate profitability enhancements will be more
difficult to achieve in the future than they have been in the recent past.
Higher wage costs from tightening labor markets, reduced pricing power, and
year 2000 programming costs will affect all companies regardless of size,
while economic weakness in Asia and a stronger U.S. dollar will have a greater
negative impact on large capitalization multinationals than on smaller
domestically-oriented companies.
In this more challenging environment, individual stock selection will be an
increasingly important
component of investment success. We believe this plays to our strength as
research-intensive bottom-up stock pickers. We also believe that earnings
growth from small companies should materially exceed that of larger companies
with greater exposure to Asian markets and adverse currency effects.
Therefore, while the future will bring increasing challenges, we remain
confident in our approach and portfolio positioning.
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, 1998 (unaudited)
MARKET VALUE
SHARES COMPANY (NOTE 1-A)
COMMON STOCKS - 95.63%
BASIC MATERIALS - 11.82%
57,800 Brush Wellman Inc.
(Supplier of beryllium) $ 1,408,875
90,600 CalMat Co.
(Concrete, asphalt and
aggregates) 2,276,325
46,700 Hanna (M.A.) Co.
(Polymers and specialty
chemical) 936,919
72,300 Interface, Inc. Cl. A
(Commercial carpeting and
carpet tiles) 2,833,256
64,800 New England Business Service, Inc.
(Business forms supplier) 2,110,050
74,198 Wausau-Mosinee Paper Corp.
(Specialty paper products) 1,585,982
11,151,407
CAPITAL GOODS - 15.99%
107,400 Commscope, Inc.
(Coaxial and fiber optic cable) 1,664,700
77,000 Cuno, Inc.
(Fluid filtration product) 1,564,062
82,000 Elsag Bailey Process
Automation N.V.
(Process control systems) 1,798,875
53,749 Flowserve Corp.
(Corrosion-resistant pumps
and valves) 1,558,721
100,800 Gerber Scientific, Inc.
(Computer aided design/
manufacturing systems) 2,538,900
116,000 MagneTek, Inc.
(Lighting products, electric
motors and generators) 1,964,750
96,000 Miller (Herman), Inc.
(Office furniture systems) 2,658,000
45,200 Standard Products Co.
(Rubber and plastic products) 1,327,750
15,075,758
CONSUMER CYCLICAL - 26.14%
86,000 AC Nielsen Corp.
(Consumer product research
and analysis) 2,219,875
90,500 BJ's Wholesale Club, Inc.
(Warehouse club retailer) 3,574,750
33,000 Central Newspapers, Inc. Cl. A
(Newspaper publishing) 2,138,812
188,700 Charming Shoppes Inc.
(Women's specialty apparel
stores) 955,294
32,000 Enesco Group, Inc.
(Giftware, collectibles, personal
care products) 1,048,000
93,800 Exide Corp.
(Batteries) 1,694,263
84,900 Huffy Corp.
(Recreational products
manufacturer) 1,289,419
25,700 La-Z Boy Chair Co.
(Furniture manufacturer) 1,315,519
30,800 Lee Enterprises, Inc.
(Newspaper publishing:
radio, TV) 935,550
44,000 Libbey, Inc.
(Glass tableware: ceramic
dinnerware) 1,732,500
13,000 National Presto Industries, Inc.
(Electrical appliances and
housewares) 525,688
85,000 Petco Animal Supplies, Inc.
(Pet supply retailer) 1,646,875
96,000 Stride Rite Corp.
(Athletic and casual footwear) 1,278,000
105,200 Sturm, Ruger & Company, Inc.
(Firearms manufacturer) 1,959,350
73,700 True North Communications, Inc.
(Advertising) 2,344,581
24,658,476
CONSUMER STAPLES - 2.95%
48,000 Alberto-Culver Co. Cl. A
(Manufacturer and retailer of
cosmetics and household
products) 1,296,000
118,975 PSS World Medical, Inc.
(Medical supply distributor) 1,487,188
2,783,188
ENERGY - 5.80%
46,300 Calenergy, Inc.
(Geothermal energy power) 1,400,575
110,000 Halter Marine Group, Inc.
(Supply boats/drilling rigs) 2,062,500
85,000 Nabors Industries, Inc.
(Oil and gas drilling) 2,002,812
5,465,887
FINANCIAL - 12.69%
6,200 BancFirst Corp.
(Oklahoma based bank) 294,500
157,208 Cash America International, Inc.
(Pawn shop operator) 2,652,885
53,986 Commerce Bancorp, Inc. NJ
(New Jersey bank holding
company) 2,999,597
22,600 Community Trust
Bancorporation, Inc.
(Kentucky bank holding
company) 689,300
79,600 Golden State Bancorp, Inc.
(Savings and loan) 3,049,675
24,600 Haven Bancorp, Inc.
(New York based savings
bank) 624,225
102,300 Life USA Holding, Inc.
(Life insurance and annuity
products) 1,655,981
11,966,163
MISCELLANEOUS - 9.72%
67,000 Carlisle Companies, Inc.
(Automotive/industrial products
and construction materials) 3,241,125
43,000 Global Industrial Technologies, Inc.
(Refractory products, mining
equipment, specialty tools) 728,313
96,700 Kaman Corp. Cl. A
(Industrial distribution/aerospace
products) 1,776,862
81,500 Sea Containers Ltd. Cl. A
(Cargo containers, ferry
services, port operations) 3,295,656
3,200 Sea Containers Ltd. Cl. B
(Cargo containers, ferry
services, port operations) 128,800
9,170,756
TECHNOLOGY - 6.41%
98,100 California Microwave, Inc.
(Microwave radios for
wireless communications) 2,103,019
84,000 Information Resources, Inc.
(Computer-based consumer
product data collection) 1,470,000
97,800 Scitex Corp.
(Computerized imaging
systems) 1,356,975
71,000 Xircom, Inc.
(Computer connectivity
products) 1,113,813
6,043,807
TRANSPORTATION & SERVICES - 4.11%
63,600 Circle International Group, Inc.
(Freight forwarding and
logistics services) 1,721,175
77,000 Newport News Shipbuilding, Inc.
(Military shipbuilder) 2,156,000
3,877,175
TOTAL COMMON STOCKS - 95.63% 90,192,617
MARKET VALUE
FACE AMOUNT DESCRIPTION (NOTE 1-A )
REPURCHASE AGREEMENT - 4.64%
$4,380,000 UMB Bank, n.a.,
4.97%, due June 1, 1998
(Collateralized by U.S.
Treasury Notes, 7.125%,
due February 29, 2000) 4,380,000
TOTAL INVESTMENTS - 100.27% $ 94,572,617
Other assets less liabilities - (0.27%) (252,603)
TOTAL NET ASSETS - 100.00%
(equivalent to $26.60 per share;
10,000,000 shares of $1.00 par
value capital shares authorized;
3,545,604 shares outstanding) $ 94,320,014
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS
AND LIABILITIES
May 31, 1998 (unaudited)
ASSETS:
Investments in securities:
Common stocks, at market value
(identified cost $67,732,169) $ 90,192,617
Repurchase agreement, at cost - approximates market value 4,380,000
Total investments 94,572,617
Cash 75,272
Dividends receivable 65,031
Total assets 94,712,920
LIABILITIES AND NET ASSETS:
Payable for investments purchased 392,906
Total liabilities 392,906
NET ASSETS $ 94,320,014
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 66,636,218
Accumulated undistributed income:
Undistributed net investment income 597,899
Undistributed net realized gain on investment
transactions 4,625,449
Net unrealized appreciation in value of investments 22,460,448
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 94,320,014
Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 3,545,604
NET ASSET VALUE PER SHARE $ 26.60
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Six Months Ended May 31, 1998 (unaudited)
INVESTMENT INCOME:
Income:
Dividends $ 667,640
Interest 152,035
819,675
Expenses (Note 2):
Management fees 514,134
Registration fees and expenses 23,442
537,576
Net investment income (Note 1-B) 282,099
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 11,891,374
Cost of investments sold 7,319,746
Net realized gain from investment transactions 4,571,628
Unrealized appreciation of investments:
Beginning of period 20,969,964
End of period 22,460,448
Unrealized appreciation of investments
during the period 1,490,484
Net gain on investments 6,062,112
Increase in net assets resulting from operations $ 6,344,211
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
Six Months Ended Year Ended
May 31, 1998 November 30,
(unaudited) 1997
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 282,099 $ 165,055
Net realized gain from investment
transactions 4,571,628 6,573,961
Unrealized appreciation of investments
during the period 1,490,484 11,079,807
Net increase in net assets resulting
from operations 6,344,211 17,818,823
Net equalization included in the price
of shares issued and redeemed 64,183 147,408
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (153,797) (235,237)
Net realized gain from investment
transactions (6,554,599) (6,250,807)
Total distributions to shareholders (6,708,396) (6,486,044)
INCREASE FROM CAPITAL SHARE TRANSACTIONS:*
Proceeds from shares sold 27,550,509 48,745,268
Net asset value of shares issued for
reinvestment of distributions 6,442,330 6,305,766
33,992,839 55,051,034
Cost of shares repurchased (21,072,864) (30,458,149)
Net increase from capital share
transactions 12,919,975 24,592,885
Total increase in net assets 12,619,973 36,073,072
NET ASSETS:
Beginning of period 81,700,041 45,626,969
End of period (including undistributed
net investment income
of $597,899 and $405,414,
respectively) $ 94,320,014 $ 81,700,041
*Shares issued and repurchased:
Number of shares sold 1,057,127 2,016,326
Number of shares issued for reinvestment
of distributions 264,789 310,783
1,321,916 2,327,109
Number of shares repurchased (835,766) (1,273,406)
Net increase 486,150 1,053,703
**Distributions to shareholders:
Income dividends per share $ .0481 $ .1124
Capital gains distribution per share $ 2.0519 $ 2.9876
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, 1998 (excluding
maturities of short-term commercial notes and repurchase agreements) are as
follows:
Purchases $ 18,204,575
Proceeds from sales 11,891,374
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.
BABSON FUNDS
JONES & BABSON DISTRIBUTORS
A member of the Generali Group
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
JBC-1 7/98
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