Babson
Enterprise
Fund II
Annual Report
November 30, 1998
MESSAGE
To Our Shareholders
Fiscal 1998 has been a difficult year for small capitalization stocks as equity
investors seeking so-called "safe havens" and trading liquidity in uncertain
times have gravitated to a select group of high capitalization stocks.
Within this environment, Babson Enterprise Fund II
outperformed the standard small capitalization benchmark, the unmanaged Russell
2000 index of small company stocks, for the third consecutive fiscal year. For
the fiscal year ended November 30, 1998 the Fund's total return (price change
and reinvested distributions) was -5.6%, compared to the -6.6% total return with
dividends reinvested of the Russell 2000 index.
Despite the negative return in fiscal year 1998, the average annual total return
of the Fund for the three year period ended November 30, 1998 was 16.9%, 6.6%
above the average annual total return of 10.3% for the Russell 2000 index. The
Fund's performance put it in the top 10% of all funds included in the Lipper
Analytical Services small cap mutual fund universe for the three year period.
Favorable individual stock selection was once again the key to the Fund's
positive fiscal year performance relative to the Russell 2000 small cap
benchmark, as the portfolio's economic sector weightings had an adverse effect
on returns. The three weakest performing parts of the Russell 2000 index were
the economically sensitive energy, basic materials, and capital goods sectors.
The Fund is overweighted compared to the Russell 2000 index in each of these
underperforming areas. The best performing sectors in the Russell 2000 index for
the
fiscal year ended were utilities, technology, and
consumer staples, in each of which the Fund is relatively underweighted.
The Fund's current overweighting in economically sensitive stocks reflects both
our confidence in the underlying fundamentals of the domestic United States
economy and the potential of our holdings to benefit from that strength, as well
as the overall neglect of these stocks by other institutional investors despite
their generally strong earnings prospects and relatively attractive valuations.
In the six months since our mid-year message to shareholders, four new holdings
have been added to the portfolio. Apogee Enterprises specializes in glass
products for the automotive, commercial, and construction markets. Exar designs
and makes analog and mixed-signal integrated circuits for use in communication,
video and imaging applications. Foster Wheeler engineers and constructs process
plants and fired heaters for oil refineries, and manufactures steam generators
and condensers. PRI Automation is a leader in making sophisticated automated
systems used by semiconductor manufacturers to transport, store, and handle
silicon wafers during the production process.
Four positions were liquidated in the second half of fiscal year 1998. Global
Industrial Technologies, M.A. Hanna, National Presto, and Standard Products were
all sold due to concerns about future earnings prospects relative to their stock
valuations.
As we analyze the difference in performance between the large capitalization and
small capitalization sectors of the market, it is important to focus on the two
primary
drivers of long-term performance, valuation and earnings. Small cap stocks are
at their most attractive valuation levels versus larger companies since the
fourth quarter of 1990, a time which marked the beginning of a sustained period
of outperformance for small caps. With regard to earnings, small caps have now
recorded six straight quarters of faster earnings growth rates than large caps
and are projected to sustain that superiority over the next year and beyond.
While psychology and fund flows move the
market in the short run, we believe earnings are the critical long-term
determinant of valuations.
We are confident, therefore, that our approach and our positioning in small cap
stocks will provide attractive relative results in the future. While we remain
vigilant to the effect that a potential economic slowdown here in the United
States would have on the earnings growth of our investments, in nearly every
holding there are factors that could enable the portfolio companies to perform
better than the industries in which they compete.
In December 1998, the Fund distributed an ordinary income dividend of $0.05 per
share and $1.07 from realized long-term capital gains. For corporate
shareholders, 100% of ordinary income distributions qualify for the corporate
dividends received deduction.
Thank you for you interest and participation in Babson Enterprise Fund II. We
welcome your comments and questions.
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
Lipper rankings for Babson Enterprise Fund II were 225 of 621 funds, 32 of 353
funds and 74 of 198 funds for the one, three and five year periods ended
November 30, 1998, respectively.
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.
In recent reports we have commented that it is not unusual for small cap stocks
to underperform the market in general as concerns about the direction of the
market increase. There is a natural tendency (not necessarily backed by
fundamentals) to focus on the largest, most liquid companies because of many
investorsO perceptions that in an increasingly troubled world economic and
market environment, these companies will withstand the pressures better, and if
they do not, at least their stocks have enough liquidity so that they can be
sold easily.
What is unusual, however, is how severe the underperformance of small caps has
been over the past twelve months. Over the twelve months ended November 30,
1998, the Russell 2000 index declined by 6.6%, while the Standard & Poor's 500
index was up 23.7%. The
difference between the two (30.3%) was the second worst, since the Russell 2000
index began in 1979. The only worse differential was 34.3% over the twelve
months ended October 31, 1998.
That's the bad news. The good news is that although past history is no guarantee
of future results, prior severe small cap sell-offs have usually led to both
strong ensuing relative, and absolute performance for small caps.
Prudential Securities did a recent study that showed the ten worst twelve-month
periods for the Russell 2000 versus the S&P 500 prior to this year, and
analyzed the performance rebound subsequent to those periods. The results
are shown below.
Another way to look at the rebound potential is to analyze other ObearO markets
for small capitalization stocks (defined as periods when the Russell 2000 fell
by 25% or more). Since the 1979 beginning of the Russell 2000 there have been
five such markets prior to the current one that bottomed on October 8, 1998.
The
average decline has been slightly over 31% and the average duration has been
eight months. However, 75% of that decline was regrouped in less than six
months, and the full decline was erased in eleven months. Clearly, the market
suffers ugly downturns from time to time, but the over-whelming trend in
corporate earnings, and in the market, is up. More often than not, these severe
declines proved to be buying opportunities rather than times to panic.
Russell 2000 Bear Markets
Duration Time to Recoup (Months):
Dates (Months) Decline(%) 75% 100%
2/8/80-3/27/80 1.75 -26.7 3.25 3.75
6/15/81-8/12/82 14 -29.2 2.25 2.75
6/24/83-7/25/84 13 -26.0 5.50 16.50
8/25/87-10/28/87 2 -39.2 14.25 21
10/9/89-10/30/90 12.75 -34.3 4.25 11
4/21/98-10/8/98 5.50 -36.9 - -
Average 8.25 -32.1 5.75 11
Source: Frank Russell Co.; Paine Webber; David L. Babson & Co.
The recent decline (through 10/8/98 - the recent low) was 36.9% and lasted
almost six months. The only worse decline was in the October, 1987 crash when
the Russell was off 39.2%, so in absolute terms we have taken a lot of
punishment. While the duration of this decline is less than average (the 1987
crash was over in two months though), the stage is being set for a meaningful
rebound.
One can never determine when market psychology will change, but when it does it
tends to happen quickly - and that is exactly what has happened since the
October 8th low. The Russell 2000 rebounded by 28% from that point to the end
of
November, which brought the index almost halfway back to its April peak.
Clearly, though, the market psychology has been against small cap stocks over
the past year, and, in fact, for several years. However, the most important
long-term determinant of stock price moves is earnings growth, and for six
consecutive calendar quarters small cap earnings growth (measured by the growth
in earnings for the companies in the Russell 2000) has
surpassed the earnings growth of large cap companies (those in the S&P 500).
Barring a recession we expect this trend to continue.
Given that, and the attractive valuations currently placed on small cap stocks,
we believe the small capitalization stocks sector continues to offer investment
opportunities for the Enterprise Fund II.
David L. Babson & Co. Inc.
CHART
<TABLE>
<CAPTION>
Relative Performance
Russell 2000 Versus S&P 500 Russell 2000 Absolute Performance
TRAILING NEXT NEXT NEXT NEXT NEXT NEXT
PERIOD ENDED 12 MONTHS 3 MONTHS 6 MONTHS 12 MONTHS 3 MONTHS 6 MONTHS 12 MONTHS
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
October 1990 -21.41 6.75 15.22 18.81 21.94 44.75 58.61
April 1997 -20.02 1.38 10.55 0.95 21.38 27.29 42.38
September 1990 -19.71 -3.61 9.12 10.65 5.03 36.26 45.09
November 1990 -19.43 9.63 14.54 16.80 26.01 40.89 40.54
October 1987 -18.81 3.57 17.86 10.63 6.69 24.50 27.12
May 1997 -17.31 4.85 0.19 -7.25 11.64 13.81 21.23
December 1990 -16.91 13.21 11.84 11.95 29.74 27.73 46.04
July 1984 -16.48 -2.41 -0.06 -1.43 8.86 21.96 30.56
August 1990 -15.55 -8.72 0.07 3.38 -7.93 16.01 31.17
November 1987 -13.94 4.75 10.43 5.34 22.89 28.00 29.86
Note: Figures are in percents.
Source: Frank Russell Co.; Prudential Securities
</TABLE>
PORTFOLIO REVIEW
CHART D Babson Enterprise Fund II versus Russell 2000 and S&P 500
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, 1998,
were -4.33%, 12.55% and 14.18%, 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, 1998
MARKET VALUE
SHARES COMPANY (NOTE 1-A)
COMMON STOCKS - 94.72%
BASIC MATERIALS - 11.63%
44,100 Apogee Enterprises, Inc.
(Commerical glass products) $ 531,956
57,800 Brush Wellman, Inc.
(Supplier of beryllium) 932,025
88,100 CalMat Co.
(Concrete, asphalt and
aggregates) 2,709,075
171,600 Interface, Inc. Cl. A
(Commercial carpeting and
carpet tiles) 2,145,000
64,800 New England Business Service, Inc.
(Business forms supplier) 2,073,600
74,198 Wausau-Mosinee Paper Corp.
(Specialty paper products) 1,252,091
9,643,747
CAPITAL GOODS - 15.71%
101,400 Commscope, Inc.*
(Coaxial and fiber optic cable) 1,540,013
91,000 Cuno, Inc.*
(Fluid filtration product) 1,359,312
70,400 Elsag Bailey Process
Automation N.V.*
(Process control systems) 2,640,000
38,749 Flowserve Corp.
(Corrosion-resistant pumps
and valves) 687,795
60,000 Foster Wheeler Corp.
(Industrial engineering
and construction) 1,027,500
88,800 Gerber Scientific, Inc.
(Computer aided design/
manufacturing systems) 2,247,750
131,000 MagneTek, Inc.*
(Lighting products, electric
motors and generators) 1,490,125
96,000 Miller (Herman), Inc.
(Office furniture systems) 2,040,000
13,032,495
CONSUMER CYCLICAL - 25.27%
86,000 AC Nielsen Corp.*
(Consumer product research
and analysis) 2,370,375
77,500 BJ's Wholesale Club, Inc.*
(Warehouse club retailer) 2,988,594
35,000 Central Newspapers, Inc. Cl. A
(Newspaper publishing) 2,380,000
188,700 Charming Shoppes Inc.*
(Women's specialty apparel
stores) 778,388
39,000 Enesco Group, Inc.
(Giftware, collectibles, personal
care products) 940,875
49,900 Exide Corp.
(Batteries) 870,131
90,900 Huffy Corp.
(Recreational products
manufacturer) 1,318,050
92,100 La-Z Boy Chair Co.
(Furniture manufacturer) 1,542,675
30,800 Lee Enterprises, Inc.
(Newspaper publishing,
radio, TV) 862,400
28,000 Libbey, Inc.
(Glass tableware: ceramic
dinnerware) 862,750
119,300 Petco Animal Supplies, Inc.*
(Pet supply retailer ) 1,193,000
116,000 Stride Rite Corp.
(Athletic and casual footwear) 1,029,500
100,200 Sturm, Ruger & Company, Inc.
(Firearms manufacturer) 1,271,287
90,700 True North Communications, Inc.
(Advertising) 2,550,938
20,958,963
CONSUMER STAPLES - 3.66%
40,000 Alberto-Culver Co. Cl. A
(Manufacturer and retailer of
cosmetics and household
products) 940,000
100,975 PSS World Medical, Inc.*
(Medical supply distribution) 2,095,231
3,035,231
ENERGY - 4.00%
46,300 Calenergy, Inc.*
(Geothermal energy power) 1,449,769
107,400 Halter Marine Group, Inc.*
(Supply boats/drilling rigs) 745,088
85,000 Nabors Industries, Inc.*
(Oil and gas drilling) 1,126,250
3,321,107
FINANCIAL - 13.45%
15,200 BancFirst Corp.
(Oklahoma based bank) 619,400
178,208 Cash America International, Inc.
(Pawn shop operator) 3,007,260
67,482 Commerce Bancorp, Inc.
(New Jersey bank holding
company) 3,222,265
22,600 Community Trust
Bancorporation, Inc.
(Kentucky bank holding
company) 519,800
85,600 Golden State Bancorp, Inc.
(Savings and loan) 1,647,800
60,000 Golden State Bancorp, Inc.
Litigation Tracking Warrants*
(Savings and loan) 273,750
34,500 Haven Bancorp, Inc.
(New York based savings
bank) 577,875
101,300 Life USA Holding, Inc.
(Life insurance and annuity
products) 1,291,575
11,159,725
MISCELLANEOUS - 9.49%
72,000 Carlisle Companies, Inc.
(Automotive/industrial products
and construction materials) 3,190,500
100,700 Kaman Corp. Cl. A
(Industrial distribution/aerospace
products) 1,636,375
90,500 Sea Containers Ltd. Cl. A
(Cargo containers, ferry
services, port operations) 2,941,250
3,200 Sea Containers Ltd. Cl. B
(Cargo containers, ferry
services, port operations) 103,600
7,871,725
TECHNOLOGY - 10.24%
112,400 California Microwave, Inc.*
(Microwave radios for
wireless communications) 1,362,850
60,300 Exar Corp. Delaware*
(Analog and mixed-signal
integrated circuits) 1,040,175
92,000 Information Resources, Inc.*
(Computer-based consumer
product data collection) 770,500
70,000 Newport News Shipbuilding, Inc.
(Military shipbuilder) 1,968,750
TECHNOLOGY (Continued)
4,700 PRI Automation, Inc.*
(Automated semiconductor
manufacturing systems) 112,800
112,000 Scitex Corp.*
(Computerized imaging
systems) 1,218,000
67,000 Xircom, Inc.*
(Computer connectivity
products) 2,022,562
8,495,637
TRANSPORTATION & SERVICES - 1.27%
61,100 Circle International Group, Inc.
(Freight forwarding and
logistics services) 1,053,975
TOTAL COMMON STOCKS - 94.72% 78,572,605
(COST $68,225,777)
FACE MARKET VALUE
AMOUNT DESCRIPTION (NOTE 1-A)
REPURCHASE AGREEMENT - 6.03%
$5,000,000 UMB Bank, n.a.,
4.70%, due December 1, 1998
(Collateralized by U.S.
Treasury Notes, 6.875%,
due August 31, 1999 with
a value of $5,101,007)
(COST $5,000,000) $ 5,000,000
TOTAL INVESTMENTS - 100.75% 83,572,605
(COST $77,725,777)
Other assets less liabilities - (0.75%) (618,860)
TOTAL NET ASSETS - 100.00%
(equivalent to $23.20 per share;
10,000,000 shares of $1.00 par
value capital shares authorized;
3,575,170 shares outstanding) $ 82,953,745
For federal income tax purposes, the identified cost of investments owned at
November 30, 1998, was $73,238,072.
Net unrealized appreciation for federal income tax purposes was $10,334,533,
which is comprised of unrealized appreciation of $18,232,038 and unrealized
depreciation of $7,897,505.
* Non-income producing security
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS
AND LIABILITIES
November 30, 1998
ASSETS:
Investments in securities:
Common stocks, at market value
(identified cost $68,225,777) $ 78,572,605
Repurchase agreement, at cost - approximates market value 5,000,000
Total investments 83,572,605
Receivable for investments sold 353,027
Dividends receivable 67,215
Total assets 83,992,847
LIABILITIES AND NET ASSETS:
Cash overdraft 304,898
Payable for investments purchased 734,204
Total liabilities 1,039,102
NET ASSETS $ 82,953,745
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 68,381,045
Accumulated undistributed income:
Undistributed net investment income 479,958
Undistributed net realized gain on investment transactions 3,745,914
Net unrealized appreciation in value of investments 10,346,828
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 82,953,745
Capital shares, $1.00 par value:
Authorized 10,000,000
Outstanding 3,575,170
NET ASSET VALUE PER SHARE $ 23.20
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Year Ended November 30, 1998
INVESTMENT INCOME:
Income:
Dividends $ 1,140,782
Interest 229,671
1,370,453
Expenses (Note 2):
Management fees 998,783
Registration fees and expenses 31,772
1,030,555
Net investment income (Note 1-B) 339,898
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain from investment transactions (excluding
maturities of short-term commercial notes and
repurchase agreements):
Proceeds from sales of investments 19,842,837
Cost of investments sold 15,164,621
Net realized gain from investment transactions 4,678,216
Unrealized appreciation (depreciation) of investments:
Beginning of year 20,969,964
End of year 10,346,828
Unrealized depreciation of investments during the year
(10,623,136)
Net loss on investments (5,944,920)
Decrease in net assets resulting from operations $ (5,605,022)
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
For Each Of The Two Years In The Period Ended November 30, 1998
<TABLE>
<CAPTION>
1998 1997
</CAPTION>
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 339,898 $ 165,055
Net realized gain from investment transactions 4,678,216 6,573,961
Unrealized appreciation (depreciation) of investments during the period (10,623,136) 11,079,807
Net increase (decrease) in net assets resulting from operations (5,605,022) 17,818,823
Net equalization included in the price of shares issued and redeemed 72,106 147,408
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (153,796) (235,237)
Net realized gain from investment transactions (6,554,599) (6,250,807)
Total distributions to shareholders (6,708,395) (6,486,044)
INCREASE FROM CAPITAL SHARE TRANSACTIONS:*
Proceeds from shares sold 41,622,686 48,745,268
Net asset value of shares issued for reinvestment of distributions 6,442,330 6,305,766
48,065,016 55,051,034
Cost of shares repurchased (34,570,001) (30,458,149)
Net increase from capital share transactions 13,495,015 24,592,885
Total increase in net assets 1,253,704 36,073,072
NET ASSETS:
Beginning of year 81,700,041 45,626,969
End of year (including undistributed net investment income
of $479,958 in 1998 and $405,414 in 1997) 82,953,745 81,700,041
*Shares issued and repurchased:
Number of shares sold 1,679,309 2,016,326
Number of shares issued for reinvestment of distributions 264,789 310,783
1,944,098 2,327,109
Number of shares repurchased (1,428,382) (1,273,406)
Net increase 515,716 1,053,703
**Distributions to shareholders:
Income dividends per share $ .0481 $ .1124
Capital gains distribution per share $ 2.0519 $ 2.9876
</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. Securities with maturities of 60 days or less when acquired or
subsequently within 60 days of maturity are valued at amortized cost, which
approximates market value.
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 $7,166,512 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. Distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
amounts related to redemptions of shares as a part of the deduction for
dividends paid for income tax purposes. 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, 1998 (excluding
maturities of short-term commercial notes and repurchase agreements) are as
follows:
Purchases $ 26,747,687
Proceeds from sales 19,842,837
FINANCIAL HIGHLIGHTS
Condensed data for a share of capital stock outstanding throughout each year.
<TABLE>
<CAPTION>
Years Ended November 30,
1998 1997 1996 1995 1994
</CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 26.70 $ 22.75 $ 19.19 $ 16.22 $ 16.92
Income (loss) from investment operations:
Net investment income .101 .081 .115 .053 .020
Net gains or losses on securities
(both realized and unrealized) (1.501) 6.969 4.448 3.024 (.392)
Total from investment operations (1.400) 7.050 4.563 3.077 (.372)
Less distributions:
Dividends from net investment income (.048) (.112) (.055) (.022) -
Distributions from capital gains (2.052) (2.988) (.948) (.085) (.328)
Total distributions (2.100) (3.100) (1.003) (.107) (.328)
Net asset value, end of year $ 23.20 $ 26.70 $ 22.75 $ 19.19 $ 16.22
Total return (5.61%) 35.29% 25.04% 19.11% (2.32%)
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 83 $ 82 $ 46 $ 40 $ 36
Ratio of expenses to average net assets 1.22% 1.28% 1.38% 1.45% 1.50%
Ratio of net investment income to average net assets .40% .27% .55% .30% .14%
Portfolio turnover rate 25% 21% 30% 15% 9%
</TABLE>
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. (the Fund) as
of
November 30, 1998, 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 and financial highlights. Our procedures included confirmation of
investments owned as of November 30, 1998, 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 the
Fund at November 30, 1998, 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
Kansas City, Missouri
December 30, 1998
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.
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.
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306
816-751-5900
1-800-4-BABSON
(1-800-422-2766)
www.babsonfunds.com
JB2C-2 1/99
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000873076
<NAME> BABSON ENTERPRISE FUND II INC
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
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