BABSON
ENTERPRISE FUND II
Semiannual Report
May 31, 1999
A no-load mutual fund that invests in common
stocks of smaller, faster growing companies.
Babson Funds
Jones & Babson Distributors
A Member of the Generali Group
Message to our Shareholders
Babson Enterprise Fund II completed its fiscal quarter ended May
31, 1999 with a total return (price change and reinvested
distributions) of 14.0%, compared to 12.3% for the unmanaged
Russell 2000 index of small company stocks. This followed a
period of relative under performance in the first quarter of
fiscal 1999 so that the Fund's total return for the first half of
fiscal 1999 was 3.5% versus 11.5% for the Russell 2000 index.
Average annual compounded total returns for one year, five years
and the life of the Fund (inception August 5, 1991) as of June
30, 1999, were -0.002%, 15.65% and 14.30%, 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 Fund maintains a sizable lead over the small cap benchmark
for the three years ended May 31, 1999 with an average annual
total return of 10.8% versus 8.1% for the Russell 2000. This
superior longer term performance is one of the factors which led
Standard & Poor's to recently select Babson Enterprise Fund II as
one of nineteen mutual funds, out of a universe of 257 small-
capitalization value funds, to be awarded a Standard & Poor's
Select Fund designation for small cap value investing. We are
proud of this prestigious designation and will continue to strive
to merit it.
The astounding, almost irrational, strength in Internet-related
stocks was the primary driver of performance of the Russell 2000
index for the first half of fiscal 1999. At its recent peak,
investors were paying on average nearly 60 times revenues for
Internet companies, most of which have never made a profit nor
have prospects for significant profitability in the next few
years. Business on the Internet is, and will continue to be,
intensely competitive, yet many of the participating companies
are being valued as if they have sustainable monopoly positions
with unlimited growth potential. While the valuations have
recently corrected somewhat, the Internet sector continues to
represent an area of extreme speculation and investment risk.
The Fund has not benefited from the euphoria for Internet stocks.
Being consistent in our small cap value investment approach has
meant concentrating in those sectors that are temporarily out of
favor in the market, rather than chasing the current popular fad.
We have maintained this consistency because we invest with a long-
term perspective and believe that our approach provides the best
opportunity for superior performance over the long run.
Five new holdings were added to the Fund in the first six months
of fiscal 1999. All five trade at very attractive valuations
while possessing the potential for meaningful earnings
acceleration. Helen of Troy markets brand name hair care
appliances and other personal care products and has an
outstanding record for strong, consistent earnings growth. Metals
USA processes metals and manufactures components from processed
metals for a diverse client base. Roper Industries designs and
manufactures industrial controls, fluid-handling products, and
instrumentation products for a variety of markets. Stein Mart is
an apparel and accessories retailer offering current-season,
brand name merchandise at prices 25% to 60% below traditional
department stores. Titan is a high technology defense contractor
with exciting commercial application potential for a number of
its proprietary products.
Six positions were liquidated in the first half of fiscal 1999.
Calmat and Elsag Bailey were both objects of corporate buy-outs
at significant premiums to their public market valuations.
Calenergy, Charming Shoppes, Flowserve, and Halter Marine were
all sold due to concerns about future earnings prospects relative
to their stock valuations.
The small cap investor should view the current market climate as
one of tremendous opportunity. Differentials between large and
small cap stocks relative to earnings, revenues, cash flows, and
book value, have not favored the small cap sector to this extent
since the early 1970's. We believe the Fund stands to benefit if
and when such valuation discrepancies revert back to historical
norms.
We are therefore quite positive about the current positioning of
the Fund's portfolio to take advantage of current market
conditions. Thank you for your participation in Babson Enterprise
Fund II. We welcome your questions and comments.
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
Standard & Poor's Select Funds have demonstrated above-average
absolute and volatility-adjusted returns relative to funds with
the same investment style along with investment management
attributes which are consistent with the fund's investment style.
Schedule of Investments
May 31, 1999 (unaudited)
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 99.52%
BASIC MATERIALS - 9.33%
108,100 Apogee Enterprises, Inc.
(Commercial glass products) $ 1,290,444
47,800 Brush Wellman, Inc.
(Supplier of beryllium) 809,612
223,400 Interface, Inc. Cl. A
(Commercial carpeting and
carpet tiles) 1,731,350
30,000 Metals USA, Inc.
(Metal processing services) 345,000
60,700 New England Business Service, Inc.
(Business forms supplier) 1,650,281
54,198 Wausau-Mosinee Paper Corp.
(Specialty paper products) 975,564
6,802,251
CAPITAL GOODS - 17.59%
75,600 Commscope, Inc.
(Coaxial and fiber optic cable) 1,984,500
110,100 Cuno, Inc.
(Fluid filtration product) 2,016,206
76,400 Foster Wheeler Corp.
(Industrial engineering
and construction) 1,050,500
113,400 Gerber Scientific, Inc.
(Computer aided design/
manufacturing systems) 2,650,725
152,300 MagneTek, Inc.
(Lighting products, electric
motors and generators) 1,542,038
110,400 Miller (Herman), Inc.
(Office furniture systems) 2,228,700
41,900 Roper Industries, Inc.
(Engineered niche products) 1,351,275
12,823,944
CONSUMER CYCLICAL - 31.14%
60,000 AC Nielsen Corp.
(Consumer product research
and analysis) 1,691,250
121,800 BJ's Wholesale Club, Inc.
(Warehouse club retailer) 3,166,800
81,200 Central Newspapers, Inc. Cl. A
(Newspaper publishing) 2,842,000
49,100 Enesco Group, Inc.
(Giftware, collectibles, personal
care products) 1,126,231
49,900 Exide Corp.
(Batteries) 779,688
13,400 Helen of Troy Ltd.
(Hair care appliances) 212,725
90,900 Huffy Corp.
(Recreational products manufacturer) 1,221,469
105,300 La-Z Boy Chair Co.
(Furniture manufacturer) 2,092,838
35,700 Lee Enterprises, Inc.
(Newspaper publishing, radio, TV) 1,035,300
28,000 Libbey, Inc.
(Glass tableware: ceramic dinnerware) 838,250
135,200 Petco Animal Supplies, Inc.
(Pet supply retailer) 1,909,700
83,200 Stein Mart, Inc.
(Off-price retailer) 764,400
147,100 Stride Rite Corp.
(Athletic and casual footwear) 1,535,356
100,200 Sturm, Ruger & Company, Inc.
(Firearms manufacturer) 1,120,988
101,300 True North Communications, Inc.
(Advertising) 2,367,887
22,704,882
CONSUMER STAPLES - 3.40%
40,000 Alberto-Culver Co. Cl. A
(Manufacturer and retailer of
cosmetics and household products) 912,500
127,175 PSS World Medical, Inc.
(Medical supply distribution) 1,565,842
2,478,342
ENERGY - 2.82%
102,900 Nabors Industries, Inc.
(Oil and gas drilling) 2,058,000
FINANCIAL - 13.23%
15,800 BancFirst Corp.
(Oklahoma based bank) 505,600
182,208 Cash America International, Inc.
(Pawn shop operator) 2,311,764
56,631 Commerce Bancorp, Inc.
(New Jersey bank holding company) 2,279,398
24,860 Community Trust Bancorporation, Inc.
(Kentucky bank holding company) 568,672
98,600 Golden State Bancorp, Inc.
(Savings and loan) 2,421,863
30,200 Golden State Bancorp, Inc.
Litigation Tracking Warrants
(Savings and loan) 50,962
34,500 Haven Bancorp, Inc.
(New York based savings bank) 483,000
51,300 Life USA Holding, Inc.
(Life insurance and annuity products) 1,022,794
9,644,053
MISCELLANEOUS - 10.68%
72,000 Carlisle Companies, Inc.
(Automotive/industrial products
and construction materials) 3,366,000
110,500 Kaman Corp. Cl. A
(Industrial distribution/aerospace
products) 1,464,125
84,300 Sea Containers Ltd. Cl. A
(Cargo containers, ferry
services, port operations) 2,845,125
3,200 Sea Containers Ltd. Cl. B
(Cargo containers, ferry
services, port operations) 108,800
7,784,050
TECHNOLOGY - 9.70%
94,500 Adaptive Broadband Corp.
(Microwave radio infrastructure
products) 1,500,188
76,200 Exar Corp. Delaware
(Analog and mixed-signal
integrated circuits) 1,590,675
114,700 Information Resources, Inc.
(Computer-based consumer
product data collection) 974,950
27,500 Newport News Shipbuilding, Inc.
(Military shipbuilder) 756,250
6,400 PRI Automation, Inc.
(Automated semiconductor
manufacturing systems) 156,800
102,000 Scitex Corp.
(Computerized imaging systems) 918,000
48,800 Titan Corp.
(Communications software
for satellites) 387,350
31,300 Xircom, Inc.
(Computer connectivity products) 790,325
7,074,538
TRANSPORTATION & SERVICES - 1.63%
57,100 Circle International Group, Inc.
(Freight forwarding and
logistics services) $ 1,184,825
TOTAL COMMON STOCKS - 99.52% 72,554,885
FACE
AMOUNT DESCRIPTION MARKET VALUE
REPURCHASE AGREEMENT - 0.27%
$ 195,000 UMB Bank, n.a.,
4.22%, due June 1, 1999
(Collateralized by Federal National
Mortgage Association Discount Notes,
due July 22, 1999 with a value
of $199,517) $ 195,000
TOTAL INVESTMENTS - 99.79% 72,749,885
Other assets less liabilities - 0.21% 151,432
TOTAL NET ASSETS - 100.00% $ 72,901,317
The identified cost of investments owned at May 31, 1999, was the
same for federal tax and book purposes.
Net unrealized appreciation for federal income tax purposes was
$10,392,678, which is comprised of unrealized appreciation of
$16,550,359 and unrealized depreciation of $6,157,681.
See accompanying Notes to Financial Statements.
Statement of Assets and Liabilities
May 31, 1999 (unaudited)
ASSETS:
Investments, at value (identified cost $62,357,207) $ 72,749,885
Receivables:
Investments sold 996,842
Dividends 93,965
Interest 23
Fund shares sold 8,585
Total assets 73,849,300
LIABILITIES AND NET ASSETS:
Cash overdraft 233,957
Payables:
Management fees 31,391
Investments purchased 682,635
Total liabilities 947,983
NET ASSETS $ 72,901,317
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 60,542,564
Undistributed net investment income 54,216
Undistributed net realized gain from investment transactions 1,911,859
Net unrealized appreciation of investments 10,392,678
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 72,901,317
Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 3,196,421
NET ASSET VALUE PER SHARE $ 22.81
See accompanying Notes to Financial Statements.
Statement of Operations
For the six months ended May 31, 1999 (unaudited)
INVESTMENT INCOME:
Dividends $ 477,204
Interest 23,799
501,003
EXPENSES:
Management fees 432,498
Registration fees 14,278
446,776
Net investment income 54,227
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions 1,884,524
Net unrealized appreciation on investments during the period 45,850
Net gain on investments 1,930,374
Net increase in net assets resulting from operations $ 1,984,601
See accompanying Notes to Financial Statements.
Statements of Changes in Net Assets
For the six months ended May 31, 1999 (unaudited)
and the year ended november 30, 1998
<TABLE>
<CAPTION>
1999 1998
</CAPTION>
<S> <C> <C>
OPERATIONS:
Net investment income $ 54,227 $ 339,898
Net realized gain from investment transactions 1,884,524 4,678,216
Net unrealized appreciation (depreciation) on investments during the period 45,850 (10,623,136)
Net increase (decrease) in net assets resulting from operations 1,984,601 (5,605,022)
Net equalization included in the price of shares issued and redeemed - 72,106
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (173,659) (153,796)
Net realized gain from investment transactions (3,718,579) (6,554,599)
Total distributions to shareholders (3,892,238) (6,708,395)
CAPITAL SHARE TRANSACTIONS:*
Shares sold 8,620,522 41,622,686
Reinvested distributions 3,737,298 6,442,330
12,357,820 48,065,016
Shares repurchased (20,502,611) (34,570,001)
Net increase (decrease) from capital share transactions (8,144,791) 13,495,015
Total increase (decrease) in net assets (10,052,428) 1,253,704
NET ASSETS:
Beginning of period $ 82,953,745 $ 81,700,041
End of period 72,901,317 82,953,745
Undistributed net investment income at end of period $ 54,216 $ 479,958
*Fund share transactions:
Shares sold 394,751 1,679,309
Reinvested distributions 174,396 264,789
569,147 1,944,098
Shares repurchased (947,896) (1,428,382)
Net increase (decrease) in fund shares (378,749) 515,716
</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 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.
Securities which are traded over-the-counter are priced at the
mean between the latest bid and asked price. Securities not
currently traded are valued at fair value as determined by the
Board of Directors. Securities with maturities of 60 days or less
when acquired or subsequently within 60 days of
maturities are valued at amortized cost, which approximates
market value.
B. Federal and State Taxes - The Fund intends to distribute to
shareholders all taxable investment income and realized gains
and otherwise comply with the Internal Revenue Code applicable to
regulated investment companies. Therefore, no provision for
federal or state tax is required.
C. Equalization - Prior to December 1, 1998, the Fund used
equalization accounting, by which a portion of the proceeds from
sales and costs of redemption of fund shares is credited or
charged to undistributed net investment income so that income per
share available for distribution is not affected by sales or
redemption of fund shares. As of December 1, 1998, the Fund
discontinued using equalization. This change has no effect on the
Fund's net assets, net asset value per share or distributions to
shareholders. The cumulative effect of the discontinuance of
equalization accounting was to decrease undistributed net
investment income and increase paid-in-capital as of December 1,
1998 by $306,310.
D. Security Transactions and Investment Income - Security
transactions are accounted for on the date the securities are
purchased or sold. Dividend income less foreign taxes
withheld (if any) is recorded on the ex-dividend date. Interest
income is recognized on the accrual basis. Realized gains
and losses from investment transactions and unrealized
appreciation and depreciation of investments are reported on the
identified cost basis. Market discounts on debt securities are
accreted; premiums are not amortized.
E. Distributions to Shareholders - Distributions to shareholders
are recorded on ex-dividend date. Distributions are determined in
accordance with income tax regulations which may differ from
generally accepted accounting principles.
F. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amount reported in the financial statements and accompanying
notes. Actual results could differ from such estimates.
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 six months ended May 31, 1999
(excluding maturities of short-term commercial notes and
repurchase agreements) are as follows:
Purchases $ 8,611,083
Proceeds from sales 16,559,176
Financial Highlights
<TABLE>
<CAPTION>
SIX MONTHS ENDED Years Ended November 30,
MAY 31, 1999 1998 1997 1996 1995 1994
(UNAUDITED)
</CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of period $ 23.20 $ 26.70 $ 22.75 $ 19.19 $ 16.22 $ 16.92
Income (loss) from investment operations:
Net investment income .029 .101 .081 .115 .053 .020
Net gains (losses) on securities
(both realized and unrealized) .701 (1.501) 6.969 4.448 3.024 (.392)
Total from investment operations .730 (1.400) 7.050 4.563 3.077 (.372)
Less distributions:
Dividends from net investment income (.050) (.048) (.112) (.055) (.022) -
Distributions from capital gains (1.070) (2.052) (2.988) (.948) (.085) (.328)
Total distributions (1.120) (2.100) (3.100) (1.003) (.107) (.328)
Net asset value, end of period $ 22.81 $ 23.20 $ 26.70 $ 22.75 $ 19.19 $ 16.22
Total return* 3.46% (5.61%) 35.29% 25.04% 19.11% (2.32%)
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 73 $ 83 $ 82 $ 46 $ 40 $ 36
Ratio of expenses to average net assets** 1.22% 1.22% 1.28% 1.38% 1.45% 1.50%
Ratio of net investment income
to average net assets** .15% .40% .27% .55% .30% .14%
Portfolio turnover rate 12% 25% 21% 30% 15% 9%
</TABLE>
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
See accompanying Notes to Financial Statements.
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.
BABSON FUNDS
EQUITIES
Enterprise Fund
Enterprise Fund II
Growth Fund
Shadow Stock Fund
Value Fund
International Fund
FIXED INCOME
Bond Trust
Money Market Fund
Tax-Free Income Fund
Babson Funds
Jones & Babson Distributors
A Member of the Generali Group
P.O. BOX 419757, KANSAS CITY MO 64141-6757
1-800-4-babson
(1-800-422-2766)
www.babsonfunds.com
JB2C-1 (7/99) 508506
