BABSON
GROWTH
FUND
Annual Report
December 31, 1997
JONES & BABSON
MUTUAL FUNDS
MESSAGE
TO OUR SHAREHOLDERS
Babson Growth Fund finished 1997 with an unprecedented third-straight
year of 20%-plus gains. The three-year return of the U.S. stock market
is better than any other three-year period since 1928. Babson Growth
Fund gained 27.99% (price change and reinvested distributions) during
the calendar year ended December 31, 1997, compared to a gain of 25.25%
for the average growth equity mutual fund (820 total) as measured by
Lipper Analytical Services, and a 33.35% total return for the unmanaged
Standard & Poor's 500 index. These returns include reinvested dividends.
These gains place Babson Growth Fund approximately in the top third of
all growth equity mutual funds for the past one, two and three year time
periods ended December 31, 1997, and have earned a 4-star overall rating
from Morningstar, Inc. (based on a 5 star rating system). When added to
the 21.80% gain in 1996 and the 31.43% increase in 1995, Babson Growth
Fund is up 105% in the past three years.
Morningstar's proprietary ratings reflect historical risk-adjusted
performance and are subject to change every month. Overall ratings are
calculated from the fund's three, five-, and ten-year average annual
total return (based upon available track records) in excess of 90-day
Treasury bill returns. The top 10% of funds in an investment category
receive 5 stars; the next 22.5% receive 4 stars. There were 2,332, 1,292
and 676 funds in Morningstar's domestic equity category for the three,
five and 10 year periods ending December 31, 1997, respectively.
Average annual compounded total returns for one, five and ten year
periods were 27.99%, 17.57% and 14.76%, 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.
In December the Fund paid ordinary income dividends of $.27 per share
(including short-term capital gains of $.2281) and realized capital
gains of $1.07 per share. At calendar year-end the net asset value per
share was $18.08.
The finance sector led the market to its record-setting performance last
year with a gain of nearly 50%. "Merger mania" has driven valuations in
the banking and brokerage industries to all-time highs, and at the same
time these companies are benefiting from declining interest rates, lower
loan losses and a strong growth in earnings. Insurance companies also
saw their stock prices soar last year as the consolidation wave swept
into the insurance industry amidst already improving underwriting
results and aggressive share buyback plans.
Healthcare stocks were a big contributor to performance in Babson Growth
Fund last year. Large investments in market-dominant pharmaceutical and
medical device companies were top performing holdings in 1997. The high
level of earnings growth generated by these companies is less
susceptible to external shocks to the stock market or the economy.
Most of the attention of the market in the latter half of 1997 was
focused on the technology sector, which weakened dramatically at year
end due to uncertainty surrounding the currency devaluation and turmoil
in Southeast Asia. Worst hit were the semiconductor companies that are
perceived as being vulnerable to a slowdown in Asian demand for high-
tech products. Asia has been a large market for many U.S. technology
companies, and it is unclear how these economies will fare in the near-
to-intermediate term.
We experienced an increased amount of volatility among our technology
investments in the second half of 1997, but overall this sector was also
a large contributor to gains last year. Volatility can create
opportunities, and resulted in several new investments in technology
stocks in the second half of last year.
Our disciplined approach to growth stock investing is unchanged: 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 continue 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, 1997, several new investments
were made in companies with the aforementioned characteristics:
Herman Miller - innovative designer and manufacturer of office
furniture;
Cadence Design Systems - world's leading provider of electronic design
automation (EDA) software;
Maxim Integrated Products - producer of linear and mixed signal
integrated circuits;
Microchip Technology - developer, manufacturer and marketer of field
programmable microcontrollers and related specialty products;
Parametric Technology - world leader in mechanical computer-aided
design, manufacturing and engineering (CAD/CAM/CAE) software.
We appreciate your continued interest in Babson Growth Fund.
Sincerely
Larry D. Armel
/s/Larry D. Armel
President
HISTORICAL RECORD
Progress of the Fund since it was founded in 1960.
<TABLE>
<CATPION>
NET ASSET
NET ASSET VALUE PER
*LONG TERM *SHORT TERM VALUE PER SHARE WITH
FISCAL NET *ORDINARY CAPITAL CAPTIAL 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)
<CATPION>
<S> <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
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
1997 365,224,285 17.80 0.09 0.78 -0- 69.26 157.69
**1997 395,791,708 18.08 0.0419 1.07 0.2281 75.58 172.58
</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, 1997.
STATEMENT OF NET ASSETS
December 31, 1997 (unaudited)
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 98.17%
BASIC MATERIALS - 6.36%
124,000 duPont (E.I.) deNemours & Co. $ 7,447,750
229,000 Monsanto Co. 9,618,000
180,000 Praxair Inc. 8,100,000
25,165,750
CAPITAL GOODS - 6.24%
124,000 Boeing Co. 6,068,250
135,000 General Electric Co. 9,905,625
160,000 Herman Miller, Inc. 8,730,000
24,703,875
CONSUMER CYCLICAL - 9.04%
90,000 CVS Corp. 5,765,625
125,000 Mattel, Inc. 4,656,250
92,000 Nike, Inc. Cl. B 3,611,000
149,250 Paychex, Inc. 7,555,781
75,000 Reebok International Ltd. 2,160,938
266,400 Viking Office Products, Inc. 5,810,850
62,959 Walt Disney Co. 6,236,876
35,797,320
CONSUMER STAPLES - 14.26%
200,000 Anheuser-Busch Cos., Inc. 8,800,000
65,000 CPC International, Inc. 7,003,750
80,000 Gillette Co. 8,035,000
96,000 Kimberly-Clark Corp. 4,734,000
200,000 PepsiCo, Inc. 7,287,500
255,000 Philip Morris Cos., Inc. 11,554,687
142,500 Safeway, Inc. 9,013,125
56,428,062
ENERGY - 3.19%
100,000 Mobil Corp. 7,218,750
100,000 Royal Dutch Petroleum Co. 5,418,750
12,637,500
FINANCIAL - 9.87%
72,500 American International Group, Inc. 7,884,375
248,000 Federal Home Loan Mortgage Corp. 10,400,500
33,000 General Re Corp. 6,996,000
117,000 Mellon Bank Corp. 7,093,125
110,000 NationsBank Corp. 6,689,375
39,063,375
HEALTH CARE - 21.28%
70,000 Abbott Laboratories 4,589,375
145,000 American Home Products Corp. 11,092,500
172,000 Boston Scientific Corp. 7,890,500
110,000 Bristol-Myers Squibb Co. 10,408,750
105,000 Cardinal Health, Inc. 7,888,125
130,000 Guidant Corp. 8,092,500
170,000 Johnson & Johnson 11,198,750
134,000 Pfizer, Inc. 9,991,375
92,000 Scherer (R.P.) Corp. 5,612,000
225,000 Tenet Healthcare Corp. 7,453,125
84,217,000
MISCELLANEOUS - 1.87%
200,000 Service Corp. International 7,387,500
TECHNOLOGY - 26.06%
121,000 Automatic Data Processing, Inc. 7,426,375
202,000 Cadence Design Systems, Inc. 4,949,000
168,000 Cisco Systems, Inc. 9,366,000
132,500 Compaq Computer Corp. 7,477,969
81,000 Computer Sciences Corp. 6,763,500
208,342 First Data Corp. 6,094,003
105,300 Intel Corp. 7,397,325
222,500 KLA-Tencor Corp. 8,594,063
219,900 Linear Technology Corp. 12,671,737
220,000 Maxim Integrated Products, Inc. 7,590,000
331,200 Microchip Technology, Inc. 9,936,000
183,000 Parametric Technology Corp. 8,669,625
160,000 Wallace Computer Services, Inc. 6,220,000
103,155,597
TOTAL COMMON STOCKS - 98.17% 388,555,979
FACE AMOUNT DESCRIPTION MARKET VALUE
SHORT-TERM CORPORATE NOTES - 1.52%
$ 2,000,000 Ford Motor Credit Corp.,
5.76%, due January 14, 1998 2,000,000
4,000,000 Sears Roebuck Acceptance Corp.,
5.84%, due January 7, 1998 4,000,000
6,000,000
TOTAL INVESTMENTS - 99.69% $ 394,555,979
Other assets less liabilities - 0.31% 1,235,729
TOTAL NET ASSETS - 100.00%
(equivalent to $18.08 per share;
100,000,000 shares of $1.00 par
value capital shares authorized;
21,887,605 shares outstanding) $ 395,791,708
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1997 (unaudited)
ASSETS:
Investment securities, at market value
(identified cost $213,237,900) $ 394,555,979
Dividends receivable 314,739
Interest receivable 20,447
Receivable for investments sold 3,059,398
Total assets 397,950,563
LIABILITIES AND NET ASSETS:
Cash overdraft 2,158,855
Total liabilities 2,158,855
NET ASSETS $ 395,791,708
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 202,192,372
Accumulated undistributed income:
Undistributed net investment income (90,844)
Accumulated net realized gain on investment transactions 12,372,101
Net unrealized appreciation in value of investments 181,318,079
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 395,791,708
Capital shares, $1.00 par value
Authorized 100,000,000
Outstanding 21,887,605
NET ASSET VALUE PER SHARE $ 18.08
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Six Months Ended December 31, 1997 (unaudited)
INVESTMENT INCOME:
Income:
Dividends $ 1,905,106
Interest 361,492
2,266,598
Expenses:
Management fees (Note 3) 1,565,267
Registration fees and other expenses 23,474
1,588,741
Net investment income 677,857
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 1):
Realized gain from investment transactions
(excluding repurchase agreements):
Proceeds from sales of investments 58,225,646
Cost of investments sold 26,979,064
Net realized gain from investment transactions 31,246,582
Unrealized appreciation on investments:
Beginning of period 178,953,944
End of period 181,318,079
Increase in net unrealized appreciation on investments 2,364,135
Net gain on investments 33,610,717
Increase in net assets resulting from operations $ 34,288,574
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
DECEMBER 31, 1997 JUNE 30,
(UNAUDITED) 1997
</CAPTION>
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 677,857 $ 1,894,076
Net realized gain from investment transactions 31,246,582 17,021,625
Increase in net unrealized appreciation on investments 2,364,135 65,128,882
Net increase in net assets resulting from operations 34,288,574 84,044,583
Net equalization included in the price of shares issued and
redeemed (Note 1) (14,436) 51,755
DISTRIBUTIONS TO SHAREHOLDERS FROM:*
Net investment income (855,169) (1,793,172)
Net realized gain from investment transactions (26,500,222) (15,303,933)
Total distributions to shareholders (27,355,391) (17,097,105)
INCREASE FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from 1,594,681 and 4,240,248 shares sold 30,374,957 7,566,845
Net asset value of 1,458,584 and 971,556 shares issued for
reinvestment of distributions 25,233,499 5,850,216
55,608,456 83,417,061
Cost of 1,686,374 and 4,135,058 shares redeemed (31,959,780) (65,649,139)
Net increase from capital share transactions 23,648,676 17,767,922
Total increase in net assets 30,567,423 84,767,155
NET ASSETS:
Beginning of period 365,224,285 280,457,130
End of period (including undistributed net investment
income of ($90,844) and $100,904, respectively) $ 395,791,708 $ 365,224,285
*Distributions to shareholders:
Income dividends per share $ .0419 $ 0.09
Capital gains distribution per share $ 1.2981 $ 0.78
</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
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 ex-
dividend 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, 1997 (excluding short-term commercial notes and repurchase
agreements), were as follows:
Purchases $ 60,111,225
Proceeds from sales 58,225,646
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
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
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
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