SCOUT
BALANCED
FUND
A no-load mutual
fund investing in both
equities and fixed income
obligations with emphasis
on both long-term growth
of capital and high
current income.
Semiannual Report
December 31, 1996
TO THE SHAREHOLDERS
Scout Balanced Fund's total return (price change and reinvested distributions)
for the six months ended December 31, 1996, was 3.21%. The Lipper Balanced
Fund index had a return of 8.33% for the same period.
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.
Rising interest rates are typically bad for the stock market, because a higher
level of rates increases the cost of doing business. Not so in 1996. For the
year, yields on U.S. Treasuries increased across the board. The two-year note
rose from 5.15% on January 1, 1996 to 5.87% on December 31, 1996. The ten-year
note rose from 5.57% to 6.42% and the 30-year bond increased from 5.95% to
6.64% for the same periods. Ironically, stock prices continued their advance
during the year. The unmanaged Standard & Poor's 500 returned 22.96%, the
Standard & Poor's Midcap 400 advanced 19.23%, and the unmanaged small cap
Russell 2000 gained 16.49%.
Scout Balanced Fund's 50.7% concentration in fixed income and 19.1% in cash
equivalent securities handicapped the fund's relative performance for the
year. As interest rates rose, bond prices declined. Although longer maturity
securities lost value during the year, the shorter maturity issues in the Fund
worked in our favor, resulting in very good relative performance for the fixed
income component. Since there is little compensation in the current market for
buyers of lower credit ratings, the credit quality is still AAA.
It is our opinion that the advance in the stock market has more to do with
mutual fund inflows and a dearth of selling pressure than from strengthening
of underlying fundamentals. The trend to indexing has become pervasive. As
actively managed portfolios are replaced by indexed or passively managed
portfolios, those securities not in the index to be replicated (but in the
portfolio) are liquidated with the proceeds reinvested in those securities
comprising the index. A two-tiered, inefficient market has evolved; that is,
the stock prices and capitalization's of the largest stocks in the popular
indices have appreciated much faster than sales, cash flow and earnings of
these companies. By the same token, the valuations of stocks not heavily
represented in these indices may trade at more reasonable multiples and
benefit as those companies experience growth. The same type of two-tiered
market had developed in the later stages of the last real bull market (1942 to
1972), which ended rather badly with a 45% drop in the S&P 500 between 1973
and 1974.
Our philosophy continues to be one of capital preservation. While most stocks
are not undervalued, we believe the stocks in this Fund are reasonably priced
relative to their underlying fundamentals. We do acknowledge that during
periods of rapidly falling stock prices, all boats recede with the tide; hence
our defensive 30.1% weighting in stocks.
While we do concern ourselves with the daily, quarterly, and even yearly
performance of Scout Balanced Fund, our investment time horizon is actually
much longer. We think the Fund is wisely and prudently invested in today's
climate of irrational exuberance.
We welcome new shareholders and appreciate your continued support. Please feel
free to call with questions or comments.
Top 10 Equity Holdings
Market Percent
Value of Total
O'Sullivan Industries Holdings, Inc. $140,000 1.91%
Bassett Furniture Industries, Inc. 122,500 1.67%
Mylan Laboratories, Inc. 116,375 1.59%
Bob Evans Farms 108,000 1.48%
Florida Progress Corp. 96,750 1.32%
Dominion Resources Inc. VA 96,250 1.32%
Rubbermaid Inc. 90,500 1.24%
Unicom Corporation 81,375 1.11%
Kerr McGee Corp. 72,000 0.98%
Cyprus Amax Minerals Co. 70,500 0.96%
Top 10 Equity Holdings Total: $994,250 13.58%
NOTE: All market values based on 12/31/96 statement of assets.
GRAPH -- Pie Chart
Sincerely
/s/Christopher P. Bloomstran
Christopher P. Bloomstran, CFA
UMB Investment Advisors
Shares of the Scout Funds are not deposits or obligations of, nor guaranteed
by, UMB Bank, n.a. or any other banking institution; nor are they insured by
the Federal Deposit Insurance Corporation or any other applicable deposit
insurance. These shares involve investment risks, including the possible loss
of the principal amount invested.
FINANCIAL STATEMENTS
Statement of Net Assets
December 31, 1996 (unaudited)
Market
Shares Company Value
COMMON STOCKS - 29.90%
BASIC MATERIALS - 4.00%
8,200 Amax Gold Inc. 52,275
2,500 Brush Wellman, Inc. 40,938
4,500 Calgon Carbon Corp. 55,125
3,000 Cyprus Amax Minerals Co. 70,125
2,000 Huntco, Inc. Cl. A 29,500
425 International Paper Co. 17,159
50 Weyerhaeuser Co. 2,369
1,500 Worthington Industries, Inc. 27,187
294,678
CAPITAL GOODS - 1.06%
1,500 Browning Ferris Industries 39,375
3,000 Giddings & Lewis, Inc. 38,625
78,000
CONSUMER CYCLICAL - 5.58%
5,000 Bassett Furniture Industries, Inc. 122,500
1,500 Dillards Dept. Stores, Inc. Cl A 46,313
200 Echelon International Corp. 3,125
552 Limited (The), Inc. 10,143
200 May Department Stores Co. 9,350
10,000 O'Sullivan Industries, Inc. 140,000
425 Penney (J.C.) & Co., Inc. 20,719
2,500 Stride Rite Corp. 25,000
1,500 Wal-Mart Stores, Inc. 34,312
411,462
CONSUMER STAPLES - 4.56%
525 Archer-Daniels-Midland Co. 11,550
8,000 Bob Evans Farms Inc. 108,000
3,000 Exabyte Corp. 40,125
3,000 Lance, Inc. 54,000
4,000 Rubbermaid, Inc. 91,000
2,400 VICORP Restaurants, Inc. 31,800
336,475
ENERGY - 2.19%
1,000 Kerr McGee Corp. 72,000
325 Murphy Oil Corp. 18,078
750 Phillips Petroleum Co. 33,188
1,600 USX-Marathon Group 38,200
161,466
FINANCE - 1.10%
3,000 Unicom Corp. 81,375
MISCELLANEOUS - 1.89%
3,500 ACX Technologies 69,563
10,000 B. I. Inc. 70,000
139,563
RAW MATERIALS - 0.61%
1,000 Newmont Mining Corp. 44,750
TECHNOLOGY - 4.04%
2,000 Apple Computer, Inc. 41,750
3,550 Brinker International 56,800
7,000 Mylan Laboratories Inc. 117,250
6,000 Novell, Inc. 56,812
400 Texas Instruments Inc. 25,500
298,112
UTILITIES - 4.87%
3,000 Alcatel Alsthom Sponsored ADR 48,000
2,500 Dominion Resources Inc. V.A. 96,250
3,000 Florida Progress Corp. 96,750
4,150 Niagara Mohawk Power Corp. 40,981
1,050 Nokia Corp. Sponsored ADR 60,506
500 U. S. West Inc. 16,125
358,612
TOTAL COMMON STOCKS - 29.90% 2,204,493
SHORT-TERM CORPORATE NOTES - 10.83%
100,000 American Greetings Corp.,
5.42%, due January 22, 1997 99,669
100,000 American Tel & Telegraph Co.,
5.20%, due January 10, 1997 99,856
100,000 Bell Atlantic Network Fdg.,
5.33%, due January 23, 1997 99,659
100,000 Disney Walt Co.,
5.37%, due January 17, 1997 99,746
100,000 Penny (J.C.) Funding Corp.,
5.34%, due January 21, 1997 99,688
100,000 Philip Morris Cos., Inc.,
5.25%, due January 7, 1997 99,898
100,000 Raytheon Co.,
5.34%, due January 9, 1997 99,866
100,000 Snap On Tools Corp.,
5.60%, due January 21 1997 99,673
TOTAL SHORT TERM CORPORATE NOTES - 10.83% 798,055
Market
Face Amount Description Value
GOVERNMENT SPONSORED ENTERPRISES - 42.30%
$ 150,000 Federal Farm Credit Banks,
5.40%, due March 6, 1998 149,321
150,000 Federal Farm Credit Banks,
5.035%, due January 19, 1999 147,211
100,000 Federal Farm Credit Banks,
5.20%, due January 25, 1999 98,453
100,000 Federal Home Loan Banks,
5.25%, due April 17, 1997 98,440
100,000 Federal Home Loan Banks,
5.30%, due June 11, 1997 99,922
100,000 Federal Home Loan Banks,
6.055% due, April 17, 1998 100,266
100,000 Federal Home Loan Banks,
5.86%, due April 2, 1999 99,500
100,000 Federal Home Loan Banks,
5.96%, due October 20, 2000 98,953
100,000 Federal Home Loan Banks,
5.50%, due January 10, 2001 97,187
150,000 Federal Home Loan Banks,
6.75%, due April 5, 2004 151,149
150,000 Federal Home Loan Mortgage Corporation,
Debentures,
6.99%, due July 5, 2006 152,508
150,000 Federal Home Loan Mortgage Corporation,
6.745%, due August 1, 2001 152,180
100,000 Federal National Mortgage Association,
5.19%, due January 13, 1997 99,813
100,000 Federal National Mortgage Association,
6.84%, due October 3, 1997 100,968
100,000 Federal National Mortgage Association,
6.05%, due January 12, 1998 100,031
200,000 Federal National Mortgage Association,
6.23%, due September 25, 1998 200,906
100,000 Federal National Mortgage Association,
5.55%, due March 12, 1999 99,031
72,648 Federal National Mortgage Association,
7.00%, due October 1, 1999 72,996
150,000 Federal National Mortgage Association,
6.29%, due October 4, 2000 149,881
79,432 Federal National Mortgage Association,
6.00%, due April 1, 2001 77,617
150,000 Federal National Mortgage Association,
7.05%, due November 12, 2002 154,171
66,989 Federal National Mortgage Association,
7.00%, due February 1, 2003 67,310
150,000 Federal National Mortgage Association,
6.71%, due May 21, 2003 151,875
150,000 Federal National Mortgage Association,
6.72%, due August 1, 2005 150,453
100,000 Tennessee Valley Authority,
5.95%, due September 15, 1998 100,000
150,000 Tennessee Valley Authority,
6.00%, due November 1, 2000 148,429
TOTAL GOVERNMENT SPONSORED ENTERPRISES - 42.30% 3,118,571
U.S. GOVERNMENT SECURITIES - 13.44%
250,000 U.S. Treasury Notes,
5.625%, due November 30, 1998 248,867
250,000 U.S. Treasury Notes,
5.875%, due November 15, 1999 249,023
250,000 U.S. Treasury Notes,
5.75%, due October 31, 2000 246,680
250,000 U.S. Treasury Notes,
5.875%, due November 30, 2001 246,368
TOTAL U.S. GOVERNMENT SECURITIES - 13.44% 990,938
REPURCHASE AGREEMENT - 2.71%
200,000 Northern Trust Co., 6.375%,
due January 2, 1997
(Collateralized by U.S. Treasury Notes,
6.50%, due May 15, 1997 200,000
TOTAL INVESTMENTS - 99.18% $ 7,312,057
Other assets less liabilities - 0.82% 60,369
TOTAL NET ASSETS - 100%
(equivalent to $10.33 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
713,531 shares outstanding) $ 7,372,426
ADR - American Depository Receipt
*Non-income producing security
See accompanying Notes to Financial Statements.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
December 31, 1996 (unaudited)
ASSETS:
Investment securities, at market value
(identified cost $7,151,690) $ 7,312,057
Cash 1,445
Dividends receivable 3,055
Interest receivable 55,869
Securities sold receivable -
Total assets 7,372,426
LIABILITIES AND NET ASSETS:
Payable for investments purchased $ -
Total liabilities -
NET ASSETS $ 7,372,426
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in surplus of capital) $ 7,215,347
Accumulated undistributed income:
Undistributed net investment income 4,199
Accumulated net realized loss on
investment transactions (1,016)
Net unrealized appreciation in value of investments 153,896
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 7,372,426
Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 713,531
NET ASSET VALUE PER SHARE $ 10.33
See accompanying Notes to Financial Statements.
FINANCIAL STATEMENTS
Statement of Operations
Six Months Ended December 31, 1996 (unaudited)
INVESTMENT INCOME:
Income:
Dividends $ 15,784
Interest 120,601
136,385
Expenses:
Withholding fees 148
Management fees (Note 3) 23,716
Registration fees and other expenses -
23,864
Net investment income 112,521
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 1):
Realized gain from investment transactions
(excluding commercial paper
and repurchase agreements):
Proceeds from sales of investments 197,973
Cost of investments sold 191,925
Net realized gain from investment transactions 6,048
Unrealized appreciation of investments:
Beginning of period 29,396
End of period 153,896
Increase in net unrealized appreciation in
value of investments 124,500
Net gain on investments 130,548
Net increase in net assets resulting
from operations $ 243,069
See accompanying Notes to Financial Statements.
FINANCIAL STATEMENTS
Statements of Changes in Net Assets
Six Months Ended October 2, 1996
December 31, 1996 to
(unaudited) June 30, 1996
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 112,521 $ 44,361
Net realized gain from investment activities 6,048 1,339
Increase (decrease) in net unrealized
appreciation on investments 124,500 29,396
Net increase in net assets resulting
from operations 243,069 75,096
DISTRIBUTIONS TO SHAREHOLDERS FROM:*
Net investment income (115,639) (37,042)
Net realized gain from investment transactions (8,404) -
Total distributions to shareholders (124,043) (37,042)
INCREASE FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from 478,864 and 349,299 shares sold 4,869,822 3,518,896
Net asset value of 11,884 and
3,648 shares issued for
reinvestment of distributions 123,123 37,042
4,992,945 3,555,938
Cost of 79,463 and 50,702 shares redeemed (816,062) (517,475)
Net increase from capital share
transactions 4,176,883 3,038,463
Total increase in net assets 4,295,909 3,076,517
NET ASSETS:
Beginning of period 3,076,517 -
End of period (including undistributed
net investment
income of $4,199 and $7,319) $ 7,372,426 $ 3,076,517
*Distributions to shareholders:
Income dividends per share $ .165 $ 0.24
Capital gains distribution per share $ .012 $ 0.00
See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The Fund was
capitalized on October 2, 1995 and initial public offering was made on
December 6, 1995. The Fund is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company. A
summary of significant accounting policies that the Fund uses in the
preparation of its financial statements follows. The policies are in
conformity with generally accepted accounting principles.
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. Debt securities (other than short-term obligations),
including listed issues, are valued at market on the basis of valuations
furnished by an independent pricing service which utilizes both dealer-
supplied valuations and electronic data processing techniques. Investment
transactions are recorded on the date securities are purchased or sold.
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. Short-term investments are valued at cost with interest
income recorded on the accrual basis.
Federal Income Taxes - The Fund has complied with the Internal Revenue Code
requirements applicable to regulated investment companies and will distribute
all income to its shareholders. Therefore, no Federal income tax provision is
required.
Amortization - Discounts and premiums on securities purchased are amortized
over the life of the respective securities.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
2. PURCHASES AND SALES OF SECURITIES - The aggregate amounts of security
transactions during the six months ended December 31, 1996 (excluding
repurchase agreements and short-term securities), are as follows:
Other than
U.S. Government U.S. Government
Securities Securities
Purchases $ 1,069,228 $ 2,241,015
Proceeds from sales 148,724 49,249
3. MANAGEMENT FEES - UMB Bank, n.a. is the Fund's manager and investment
adviser and provides or pays the cost of all management, supervisory and
administrative services required in the normal operation of the Fund. This
includes investment management; fees of the custodian, independent public
accountants and legal counsel; remuneration of officers and directors; rent;
and shareholder services, including maintenance of the shareholders accounting
system and transfer agency. Not considered normal operating expenses and
therefore payable by the Fund are taxes, interests, fees and the other charges
of governments and their agencies for qualifying the Fund's shares for sale,
special accounting and legal fees and brokerage commissions. UMB Bank's
management fees are based on average daily net assets of the Fund at the
annual rate of .85 of one percent of net assets. Certain officers and/or
directors of the Fund are also officers and/or directors of Jones & Babson,
Inc., which serves as the Fund's underwriter and distributor.
4. REPURCHASE AGREEMENTS - Securities purchased under agreements to resell
are held by the Fund's custodian and investment counsel, UMB Bank, n.a. The
custodian monitors the market values of the underlying securities which they
have purchased on behalf of the Fund to ensure that they are sufficient to
protect the Fund in the event of default by the seller.
This report has been prepared for the information of the Shareholders of Scout
Balanced 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 Scout Funds are offered only
by the Prospectus, a copy of which may be obtained from Jones & Babson, Inc.
BOARD OF DIRECTORS
AND OFFICERS
Board of Directors
Larry D. Armel
William E. Hoffman, D.D.S.
Eric T. Jager
Stephen F. Rose
Stuart Wien
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
John G. Dyer, Vice President
Constance E. Martin, Vice President
Investment Counsel
UMB Bank, n.a., Kansas City, Missouri
Auditors
Baird, Kurtz & Dobson, 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
JONES & BABSON
MUTUAL FUNDS
P.O. Box 410498
Kansas City, MO 64141-0498
TOLL-FREE 1-800-996-2862
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