BABSON
GROWTH
FUND
Semiannual Report
December 31, 1996
JONES & BABSON
MUTUAL FUNDS
MESSAGE
TO OUR SHAREHOLDERS
It was off to the races once again last year for the U.S. stock market. Babson
Growth Fund gained 11.24% (price change and reinvested distributions) during
the six months ended December 31, 1996, compared to a gain of 8.18% for the
average growth equity mutual fund (758 total) as measured by Lipper Analytical
Services, and a 11.68% total return for the unmanaged Standard & Poor's 500
index. Average annual compounded total returns for one, five and ten year
periods were 21.80%, 13.88% and 12.34%, respectively. When added to the 31.4%
increase in 1995, Babson Growth Fund is 60% above the level it finished at in
1994.
In December the Fund paid ordinary income dividends of $.04 per share and
realized capital gains of $.58 per share. At calendar year-end the net asset
value per share was $15.43. 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.
Large, high quality growth stocks have driven the Fund's performance over the
years, and they generated attractive returns in 1996 as well. Slowing economic
growth and increased stock market volatility made the consistent earnings
streams of established, rapidly growing companies more attractive to
investors.
Not all parts of the stock market did as well as the big blue chip stocks in
the S&P 500; small and medium sized stocks trailed their larger counterparts
by a wide margin in 1996, with the Russell 2000 index increasing by "only"
16.54%. In fact, without the performance of the largest 50 companies in the
S&P 500 index, the remaining 450 stocks were only up 9% in 1996.
There were several positive surprises in 1996 that aided the continued strong
advance in the U.S. stock market. The first and most important surprise is
that long-term interest rates did not rise as much as investors feared. The
yield on the benchmark thirty-year Treasury bond did increase early in the
year from just under 6% to more than 7% by July. But thanks to a disciplined
Federal Reserve adamant about controlling inflationary pressures, long-term
interest rates declined throughout the second half of the year to end up
around 6.5%.
The second reason stocks continued to rise in 1996 was that growth in
corporate earnings remained surprisingly strong, rising an estimated 17% after
an 11% increase in 1995. At this point all the projections we have seen are
for slower profit growth in 1997 than the very robust experience of the past
several years. Consensus estimates are in the +6-8% range.
The third surprise was a technical one dealing with supply and demand in the
stock market. Mutual fund managers were flooded with money (increasing demand
for equity) at the same time many companies were aggressively buying back
their stock instead of increasing their dividend payout (decreasing supply of
equity). This combination of rising demand and a reduction of supply
contributed to the rise in stock prices last year.
Our disciplined approach to growth stock investing remains the same: we focus
on identifying high quality companies with leading market positions, proven
management teams with a track record of consistently superior results, strong
balance sheets with low relative debt levels and solid cash flows. We seek to
invest in firms with the competitive advantages, management and financial
strength to deliver sustained long-term growth.
In the six month period ended December 31, 1996, several new investments were
made in companies with the aforementioned characteristics:
Cisco Systems - leading manufacturer of computer networking and switching
equipment;
CVS Corp. - drug store retailer based in the northeastern U.S.;
Guidant Corp. - manufacturer of medical devices;
Kimberly-Clark - global producer of paper and tissue products;
Paychex - provider of payroll processing and other related services to small
businesses;
Pharmacia & Upjohn - global diversified pharmaceutical company.
We appreciate your continued interest in Babson Growth Fund.
Sincerely
/s/
Larry D. Armel
President
HISTORICAL RECORD
Progress of the Fund since it was founded in 1960.
<TABLE>
<CAPTION>
NET ASSETS
NET ASSET VALUE PER
*LONG-TERM *SHORT TERM VALUE PER SHARE WITH
FISCAL NET *ORDINARY CAPITAL CAPITAL SHARE WITH DIVIDENDS AND
YEAR TOTAL ASSET INCOME GAINS GAINS CAPITAL GAINS CAPITAL GAINS
ENDED NET VALUE DIVIDENDS DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
JUNE 30 ASSETS PER SHARE PER SHARE PER SHARE PER SHARE REINVESTED REINVESTED
(Inception
April 30)
</CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C>
1960 $ 128,066 $ 4.87 $ -0- $ -0- $ -0- $ 4.87 $ 4.87
1965 5,176,041 6.36 0.100 0.07 -0- 6.52 6.97
1970 28,729,379 7.16 0.170 0.02 -0- 7.63 8.87
1971 54,672,327 9.60 0.190 -0- -0- 10.23 12.15
1972 77,860,344 10.90 0.180 -0- -0- 11.62 14.05
1973 106,017,401 10.66 0.160 0.09 -0- 11.46 14.05
1974 143,011,492 9.34 0.200 -0- -0- 10.04 12.54
1975 207,734,395 10.22 0.220 -0- -0- 10.99 14.09
1976 224,727,885 10.00 0.250 -0- -0- 10.75 14.16
1977 217,273,868 9.27 0.240 -0- -0- 9.97 13.46
1978 217,114,139 9.40 0.280 -0- -0- 10.11 14.06
1979 218,528,345 10.20 0.320 -0- -0- 10.97 15.76
1980 234,348,577 11.25 0.390 -0- -0- 12.08 18.01
1981 281,980,936 12.74 0.410 -0- -0- 13.68 21.04
1982 205,749,921 9.67 0.440 0.79 -0- 11.24 17.97
1983 249,201,722 14.40 0.380 0.19 0.04 16.96 27.97
1984 208,290,661 10.85 0.380 1.615 -0- 14.68 24.91
1985 215,374,722 13.40 0.4025 1.6285 0.2225 18.14 31.36
1986 253,780,848 13.62 0.3525 1.3725 -0- 22.89 42.37
1987 288,727,782 16.25 0.305 1.29 0.005 28.45 53.43
1988 237,465,629 11.66 0.2925 2.3425 -0- 26.09 50.10
1989 266,125,877 11.87 0.3085 1.20 0.0965 29.38 58.38
1990 259,076,870 11.18 0.2725 1.125 0.01 30.36 62.04
1991 235,812,697 11.05 0.245 0.18 -0- 30.55 63.92
1992 232,400,994 11.70 0.20 0.025 0.011 32.45 69.10
1993 245,201,417 12.30 0.195 0.865 -0- 36.49 78.97
1994 227,724,061 11.78 0.20 0.7931 -0- 37.28 81.97
1995 247,282,420 13.43 0.18 0.5345 -0- 44.19 98.55
1996 280,457,130 14.42 0.132 1.908 -0- 53.72 121.21
**1996 311,149,340 15.43 0.04 0.58 -0- 59.41 134.84
</TABLE>
* Includes dividends and distributions applicable to the fiscal year
which may have been paid soon after the fiscal year-end.
** Six months ended December 31, 1996.
STATEMENT OF NET ASSETS
December 31, 1996 (unaudited)
Shares Company Market Value
COMMON STOCKS - 98.05%
BASIC MATERIALS - 7.21%
62,000 duPont (E.I.) deNemours & Co. $ 5,851,250
48,000 Kimberly-Clark Corp. 4,572,000
155,000 Monsanto Co. 6,025,625
130,000 Praxair Inc. 5,996,250
22,445,125
CAPITAL GOODS - 9.83%
62,000 Boeing Co. 6,595,250
80,000 General Electric Co. 7,910,000
45,000 Grainger (W.W.), Inc. 3,611,250
86,000 McDonnell Douglas Corp. 5,504,000
120,000 Oakwood Homes Corp. 2,745,000
64,000 United Technologies 4,224,000
30,589,500
CONSUMER CYCLICAL - 9.47%
110,000 Circuit City Stores, Inc. 3,313,750
70,000 CVS Corp. 2,896,250
150,000 King World Productions, Inc. 5,531,250
175,000 Mattel, Inc. 4,856,250
75,000 Reebok International Ltd. 3,150,000
200,000 Viking Office Products, Inc. 5,337,500
62,959 Walt Disney Co. 4,383,520
29,468,520
CONSUMER STAPLES - 14.72%
200,000 Anheuser-Busch Cos., Inc. 8,000,000
65,000 CPC International, Inc. 5,037,500
80,000 Gillette Co. 6,220,000
212,000 IBP, Inc. 5,141,000
200,000 PepsiCo, Inc. 5,850,000
85,000 Philip Morris Cos., Inc. 9,573,125
100,000 Vons Companies, Inc. 5,987,500
45,809,125
ENERGY - 3.34%
50,000 Mobil Corp. 6,112,500
25,000 Royal Dutch Petroleum Co. 4,268,750
10,381,250
FINANCIAL - 11.00%
59,500 ADVANTA Corp. Cl. A 2,543,625
55,000 American International
Group, Inc. 5,953,750
62,000 Federal Home Loan
Mortgage Corp. 6,827,750
45,000 General Re Corp. 7,098,750
70,000 Mellon Bank Corp. 4,970,000
70,000 NationsBank Corp. 6,842,500
34,236,375
HEALTH CARE - 17.65%
70,000 Abbott Laboratories 3,552,500
145,000 American Home Products Corp. 8,500,625
60,000 Bristol-Myers Squibb Co. 6,525,000
105,000 Cardinal Health, Inc. 6,116,250
43,000 DENTSPLY International, Inc. 2,042,500
170,000 Johnson & Johnson 8,457,500
67,000 Pfizer, Inc. 5,552,625
116,500 Pharmacia & Upjohn, Inc. 4,616,313
92,000 Scherer (R.P.) Corp. 4,623,000
225,000 Tenet Healthcare Corp. 4,921,875
54,908,188
MISCELLANEOUS - 3.43%
30,000 Minnesota Mining &
Manufacturing Co. 2,486,250
50,000 Paychex, Inc. 2,571,875
200,000 Service Corp. International 5,600,000
10,658,125
TECHNOLOGY - 21.40%
185,000 Automatic Data Processing, Inc. 7,931,875
82,000 Cisco Systems, Inc. 5,217,250
81,000 Computer Sciences Corp. 6,652,125
208,342 First Data Corp. 7,604,483
95,000 Guidant Corp. 5,415,000
96,000 Hewlett-Packard Co. 4,824,000
70,000 Intel Corp. 9,165,625
100,000 KLA Instruments Corp. 3,550,000
182,000 Seagate Technology 7,189,000
85,000 Vodafone PLC ADR 3,516,875
160,000 Wallace Computer Services, Inc. 5,520,000
66,586,233
TOTAL COMMON STOCKS - 98.05% 305,082,441
REPURCHASE AGREEMENT - 1.84%
$5,710,000 UMB Bank, n.a.
5.875%, due January 2, 1997
(Collateralized by U.S.
Treasury Notes, 8.875%,
due February 15, 1999) 5,710,000
TOTAL INVESTMENTS - 99.89% $ 310,792,441
Other assets less liabilities - 0.11% 356,899
TOTAL NET ASSETS - 100.00%
(equivalent to $15.43 per share;
100,000,000 shares of $1.00 par
value capital shares authorized;
20,167,743 shares outstanding) $ 311,149,340
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1996 (unaudited)
ASSETS:
Investment securities, at market value
(identified cost $176,044,546) $ 310,792,441
Dividends receivable 414,857
Total assets 311,207,298
LIABILITIES AND NET ASSETS:
Cash overdraft 57,958
Total liabilities 57,958
NET ASSETS $ 311,149,340
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 172,182,918
Accumulated undistributed income:
Undistributed net investment income 131,203
Accumulated net realized gain on
investment transactions 4,087,324
Net unrealized appreciation in value
of investments 134,747,895
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 311,149,340
Capital shares, $1.00 par value
Authorized 100,000,000
Outstanding 20,167,743
NET ASSET VALUE PER SHARE $ 15.43
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Six Months Ended December 31, 1996 (unaudited)
INVESTMENT INCOME:
Income:
Dividends $ 2,031,731
Interest 63,450
2,095,181
Expenses:
Management fees (Note 3) 1,205,234
Registration fees and other expenses 19,443
1,224,677
Net investment income 870,504
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 1):
Realized gain from investment transactions
(excluding repurchase agreements):
Proceeds from sales of investments 32,884,811
Cost of investments sold 23,477,955
Net realized gain from investment transactions 9,406,856
Unrealized appreciation on investments:
Beginning of period 113,825,062
End of period 134,747,895
Increase in net unrealized appreciation
on investments 20,922,833
Net gain on investments 30,329,689
Increase in net assets resulting from operations $ 31,200,193
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
DECEMBER 31, 1996 JUNE 30,
(UNAUDITED) 1996
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 870,504 $ 2,208,127
Net realized gain from investment transactions 9,406,856 38,894,419
Increase in net unrealized appreciation on
investments 20,922,833 14,218,102
Net increase in net assets resulting from
operations 31,200,193 55,320,648
Net equalization included in the price of shares
issued and redeemed 35,001 (27,236)
DISTRIBUTIONS TO SHAREHOLDERS FROM:*
Net investment income (774,301) (2,370,143)
Net realized gain from investment transactions (11,227,581) (33,840,437)
Total distributions to shareholders (12,001,882) (36,210,580)
INCREASE FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from 1,899,162 and
1,633,664 shares sold 28,667,826 23,910,743
Net asset value of 711,677 and
2,332,901 shares issued for
reinvestment of distributions 11,138,801 33,475,089
39,806,627 57,385,832
Cost of 1,887,064 and 2,928,940 shares redeemed (28,347,729) (43,293,954)
Net increase from capital share transactions 11,458,898 14,091,878
Total increase in net assets 30,692,210 33,174,710
NET ASSETS:
Beginning of period 280,457,130 247,282,420
End of period (including undistributed net
investment income of $131,203 and
$0, respectively) $ 311,149,340 $ 280,457,130
* Distributions to shareholders:
Income dividends per share $ .04 $ .132
Capital gains distribution per share $ .58 $ 1.908
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 financial
statements have been prepared in conformity with generally accepted accounting
principles which require management to make certain estimates and assumptions
at the date of the financial statements. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
Investments - Common stocks traded on a national securities exchange are
valued at the last reported sales price on the last business day of the period
or, if no sale was reported on that date, at the average of the last reported
bid and asked prices. Common stocks traded over-the-counter are valued at the
average of the last reported bid and asked prices. Investment transactions are
recorded on the trade date. Dividend income and distributions to shareholders
are recorded on the exdividend dates. Realized gains and losses from
investment transactions and unrealized appreciation and depreciation of
investments are reported on the identified cost basis.
Federal and State Taxes - The Fund's policy is 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.
Equalization - The Fund uses the accounting practice known as 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.
2. PURCHASES AND SALES OF SECURITIES:
The aggregate amounts of security transactions during the period ended
December 31, 1996 (excluding repurchase agreements), were as follows:
Purchases $ 30,788,873
Proceeds from sales 32,884,811
3. MANAGEMENT FEES:
Management fees, which include all normal expenses of the Fund other than
taxes, fees and other charges of governmental agencies for qualifying the
Fund's shares for sale, special legal fees, interest and brokerage
commissions, are paid to Jones & Babson, Inc., an affiliated company. These
fees are based on average daily net assets of the Fund at the annual rate of
.85 of one percent on net assets up to $250,000,000, and .70 of one percent on
net assets exceeding that amount. Certain officers and/or directors of the
Fund are also officers and/or directors of 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
James B. Gribbell
Vice President - Portfolio
Constance E. Martin
Vice President
INVESTMENT COUNSEL
David L. Babson & Co. Inc.
Cambridge, Massachusetts
AUDITORS
Arthur Andersen 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
This report has been prepared for the information of the Shareholders of David
L. Babson Growth 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.
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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