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, 1997
TO THE SHAREHOLDERS
Scout Balanced Fund had a total return (price change and reinvested
distributions) of -0.64% for the quarter ended December 31, 1997. By
comparison, the Lipper Balanced Fund Index earned 1.46% 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.
Capital market returns were mixed during the quarter. The Standard &
Poor's 500 Index had a return of 2.87%; the Russell 2000, a good proxy
for small-capitalization stocks, declined 3.35%; and the international
MSCI-EAFE Index dropped 7.77%.
Interest rates fell as the majority of stocks lost value. The
2-year U.S. Treasury note yield dropped from 5.78% to 5.64% and the 30-
year Treasury bond dropped from 6.40% to 5.92%. This may signify a
disconnect of equity and bond prices, which moved down together in the
1970s and up together from 1982 until recently. Such a disconnect is
consistent with today's popular theme of deflation. Deflationary periods
over the past 300 years have been associated with currency devaluation
and a decline in the general price level. As inflation turns negative,
nominal interest rates adjust lower. The decline in interest rates fails
to make equities attractive because the erosion of prices causes an
earnings contraction.
Bonds tend to outperform stocks during a deflationary cycle. The Fund
has maintained an overweighted position in fixed-income obligations,
with 67% of assets committed to intermediate-term and cash-equivalent
securities. The Lehman Brothers Government/
Corporate Intermediate Bond Index returned 2.14% for the quarter. The
Fund benefited accordingly.
At December 31, 1997, Scout Balanced Fund is positioned at 3.7 years to
maturity with a yield to maturity of 5.95%.
We continue to underweight equities in the Fund, with that portion at
roughly one-third of assets. During the quarter we eliminated our
holdings in Browning-Ferris Industries and one-half of our position in
Mylan Laboratories. We added to positions in Amax Gold, Cyprus Amax
Minerals, Exabyte, Huntco, Newmont Mining and Novell. We initiated new
positions in two international equities, Fila Holding ADRs and Hitachi
LTD ADRs. We think Fila, the Italian footwear designer and sportswear
company, represents tremendous value with a good balance sheet, dividend
yield and superior prospects for growth in sales and earnings. Hitachi,
a Japanese diversified manufacturer, should benefit from a weak Yen and
represents excellent fundamental valuation relative to its U.S.-based
competitors.
Should the economy experience a deflationary period, stocks in the Fund
should have better relative performance than the large multinationals of
the S&P 500. Without deflation, our companies should have better long-
term growth in sales, cash flow and earnings than many in the market.
For the six months ended December 31, 1997, shareholders received an
ordinary income dividend of $.25 per share, a short-term capital gain of
$.17 per share and a long-term capital gain of $.16 per share.
For corporate shareholders, 10.02% of ordinary income distributions
qualify for the corporate dividends received deduction.
We welcome new shareholders to Scout Balanced Fund and appreciate your
continued support. Please feel free to call with questions or comments.
Sincerely,
/s/Christopher P. Bloomstran, CFA
Christopher P. Bloomstran, CFA
UMB Investment Advisors
TOP 10 EQUITY HOLDINGS
Market Percent
Value (000's) of Total
Bob Evans Farms Inc. $ 177 1.95%
Bassett Furniture Industries, Inc. 150 1.65%
Unicom Corp. 138 1.52%
Dominion Resources Inc. V.A. 128 1.41%
Cyprus Amax Minerals Co. 123 1.36%
Florida Progress Corp. 118 1.30%
Amax Gold Inc. 116 1.27%
Brinker International 112 1.23%
Brush Wellman, Inc. 110 1.21%
B. I. Inc. 107 1.18%
Top 10 Equity Holdings Total: $1,279 14.08%
NOTE: All market values based on 12/31/97 statement of assets.
PIE CHART - SECTOR DIVERSIFICATION
Basic Materials 18.7%
Capital Goods 2.5
Consumer Cyclical 17.8
Consumer Staples 28.7
Energy 6.1
Technology 7.3
Utilities 18.9
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 ("FDIC").
These shares involve investment risks, including the possible loss of
the principal invested.
FINANCIAL STATEMENTS
Statement of Net Assets
December 31, 1997 (unaudited)
Market
Shares Company Value
COMMON STOCKS - 33.43% $
BASIC MATERIALS - 6.25%
50,000 Amax Gold Inc. 115,625
4,500 Brush Wellman, Inc. 110,250
8,000 Cyprus Amax Minerals Co. 123,000
92 Deltic Timber Corp. 2,518
5,000 Huntco, Inc. Cl. A 84,375
3,500 Newmont Mining Corp. 102,813
1,500 Worthington Industries, Inc. 24,750
563,331
CAPITAL GOODS - 0.83%
7,000 Calgon Carbon Corp. 75,250
CONSUMER CYCLICAL - 5.95%
12,000 B. I. Inc. 107,250
5,000 Bassett Furniture Industries, Inc. 150,000
2,500 Dillards, Inc. 88,125
1,500 Fila Holdings SPA Sponsored ADR 30,187
2,000 Limited, Inc. 51,000
200 May Department Stores Co. 10,538
10,000 O'Sullivan Industries, Inc. 100,000
537,100
CONSUMER STAPLES - 9.58%
3,150 Archer-Daniels-Midland Co. 68,316
8,000 Bob Evans Farms Inc. 177,000
7,000 Brinker International 112,000
1,500 Fuji Photo Film Unsponsored ADR 57,281
750 Hitachi LTD Sponsored ADR 51,891
4,000 Lance, Inc. 105,250
5,000 Mylan Laboratories Inc. 104,687
4,000 Rubbermaid, Inc. 100,000
5,000 VICORP Restaurants, Inc. 87,500
863,925
ENERGY - 2.03%
1,000 Kerr McGee Corp. 63,312
325 Murphy Oil Corp. 17,611
1,000 Phillips Petroleum Co. 48,625
1,600 USX-Marathon Group 54,000
183,548
TECHNOLOGY - 2.45%
3,000 Alcatel Alsthom Sponsored ADR 75,938
12,000 Exabyte Corp. 77,250
9,000 Novell, Inc. 67,500
220,688
UTILITIES - 6.34%
3,000 Dominion Resources Inc. V.A. 127,687
2,000 Entergy Corp. 59,875
3,000 Florida Progress Corp. 117,750
4,150 Niagara Mohawk Power Corp. 43,575
2,000 Tele Danmark AS 61,625
4,500 Unicom Corp. 138,375
500 U. S. West Communication Group 22,563
571,450
TOTAL COMMON STOCKS - 33.43% 3,015,292
Market
Face Amount Description Value
SHORT-TERM CORPORATE NOTES - 13.81%
$ 100,000 American Tel & Telegraph Co.,
5.68%, due January 16, 1998 99,748
100,000 American Tel & Telegraph Co.,
5.72%, due January 28, 1998 99,555
100,000 Anheuser-Busch Cos. Inc.,
5.68%, due January 9, 1998 99,858
100,000 BP America,
5.87%, due January 20, 1998 99,674
100,000 Disney Walt Co.,
5.65%, due February 13, 1998 99,309
100,000 Dun & Bradstreet Corp.,
5.78%, due January 21, 1998 99,663
100,000 Emerson Electric Co.,
5.63%, due January 29, 1998 99,546
100,000 Emerson Electric Co.,
5.75%, due February 10, 1998 99,345
100,000 Engelhard Corp.,
5.72%, due February 3, 1998 99,460
100,000 Kimberly-Clark Corp.,
5.73%, due January 23, 1998 99,634
150,000 Monsanto Co.,
5.68%, due January 7, 1998 149,834
100,000 Nalco Chemical Co.,
6.00% due January 12, 1998 99,800
TOTAL SHORT TERM CORPORATE NOTES - 13.81% 1,245,426
GOVERNMENT SPONSORED ENTERPRISES - 42.20%
$ 150,000 Federal Farm Credit Banks,
5.40%, due March 6, 1998 149,953
100,000 Federal Farm Credit Banks,
5.20%, due January 25, 1999 99,469
100,000 Federal Home Loan Banks,
6.055% due, April 17, 1998 100,125
150,000 Federal Home Loan Banks,
5.035% due, January 19, 1999 148,968
100,000 Federal Home Loan Banks,
5.86%, due April 2, 1999 100,094
100,000 Federal Home Loan Banks,
5.50%, due January 10, 2001 99,062
150,000 Federal Home Loan Banks,
6.75%, due April 5, 2004 156,071
100,000 Federal Home Loan Mortgage Corporation,
5.96%, due October 20, 2000 100,344
150,000 Federal Home Loan Mortgage Corporation,
6.745%, due August 1, 2001 154,125
200,000 Federal Home Loan Mortgage Corporation,
6.704%, due January 9, 2007 207,938
150,000 Federal Home Loan Mortgage Corporation, Debentures,
6.99%, due July 5, 2006 159,024
100,000 Federal National Mortgage Association,
5.43%, due April 29, 1998 98,205
200,000 Federal National Mortgage Association,
6.23%, due September 25, 1998 200,688
100,000 Federal National Mortgage Association,
5.55%, due March 12, 1999 99,797
56,968 Federal National Mortgage Association,
7.00%, due October 1, 1999 57,367
250,000 Federal National Mortgage Association,
5.83%, due December 10, 1999 250,155
250,000 Federal National Mortgage Association,
6.09%, due July 11, 2000 251,603
150,000 Federal National Mortgage Association,
6.29%, due October 4, 2000 151,734
70,103 Federal National Mortgage Association,
6.00%, due April 1, 2001 69,775
150,000 Federal National Mortgage Association,
7.05%, due November 12, 2002 156,962
57,314 Federal National Mortgage Association,
7.00%, due February 1, 2003 58,123
150,000 Federal National Mortgage Association,
6.71%, due May 21, 2003 155,296
150,000 Federal National Mortgage Association,
6.72%, due August 1, 2005 156,093
200,000 Federal National Mortgage Association,
6.14%, due November 25, 2005 198,658
172,424 Government National Mortgage Association,
7.00%, due September 15, 2010 176,353
100,000 Tennessee Valley Authority,
5.95%, due September 15, 1998 99,984
150,000 Tennessee Valley Authority,
6.00%, due November 1, 2000 150,587
TOTAL GOVERNMENT SPONSORED ENTERPRISES - 42.20% 3,806,553
U.S. GOVERNMENT SECURITIES - 11.11%
$ 250,000 U.S. Treasury Notes,
5.625%, due November 30, 1998 250,000
250,000 U.S. Treasury Notes,
5.875%, due November 15, 1999 250,898
250,000 U.S. Treasury Notes,
5.75%, due October 31, 2000 250,312
250,000 U.S. Treasury Notes,
5.875%, due November 30, 2001 251,015
TOTAL U.S. GOVERNMENT SECURITIES - 11.11% 1,002,225
REPURCHASE AGREEMENT - 0.06%
5,000 Northern Trust Co., 6.40%, due January 2, 1998
(Collateralized by U.S. Treasury Notes,
5.875%, due February 28, 1999) 5,000
TOTAL INVESTMENTS - 100.61% $ 9,074,496
Other assets less liabilities - (0.61%) (54,895)
TOTAL NET ASSETS - 100%
(equivalent to $10.62 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
848,907 shares outstanding) $ 9,019,601
ADR - American Depository Receipt
*Non-income producing security
See accompanying Notes to Financial Statements.
Statement of Assets and Liabilities
December 31, 1997 (unaudited)
ASSETS:
Investment securities, at market value
(identified cost $8,711,077) $ 9,074,496
Cash (126,120)
Dividends receivable 3,650
Interest receivable 67,575
Securities sold receivable -
Total assets 9,019,601
LIABILITIES AND NET ASSETS:
Payable for investments purchased -
Total liabilities -
NET ASSETS $ 9,019,601
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in surplus of capital) $ 8,666,016
Accumulated undistributed income:
Undistributed net investment income 1,869
Accumulated net realized loss on investment transactions (188,116)
Net unrealized appreciation in value of investments 539,832
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 9,019,601
Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 848,907
NET ASSET VALUE PER SHARE $ 10.62
See accompanying Notes to Financial Statements.
Statement of Operations
Six Months Ended December 31, 1997 (unaudited)
INVESTMENT INCOME:
Income:
Dividends $ 29,294
Interest 183,081
212,375
Expenses:
Withholding fees 296
Management fees (Note 3) 38,741
Registration fees and other expenses -
39,037
Net investment income 173,338
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 1):
Realized gain from investment transactions
(excluding commercial paper and repurchase agreements):
Proceeds from sales of investments 670,061
Cost of investments sold 481,945
Net realized gain from investment transactions 188,116
Unrealized appreciation of investments:
Beginning of period 327,013
End of period 351,719
Increase in net unrealized appreciation in
value of investments 24,706
Net gain on investments 212,822
Net increase in net assets resulting from operations $ 386,160
See accompanying Notes to Financial Statements.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1997 Year Ended
(unaudited) June 30, 1997
</CAPTION>
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 173,338 $ 269,372
Net realized gain from investment activities 188,116 98,225
Increase (decrease) in net unrealized appreciation
on investments 24,706 297,617
Net increase in net assets resulting from operations 386,160 665,214
DISTRIBUTIONS TO SHAREHOLDERS FROM:*
Net investment income (210,950) (237,209)
Net realized gain from investment transactions (279,276) (8,404)
Total distributions to shareholders (490,226) (245,613)
INCREASE FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from 150,926 and 632,164 shares sold 1,646,572 6,463,676
Net asset value of 3,464 and 23,225 shares issued for
reinvestment of distributions 36,545 244,693
1,683,117 6,708,369
Cost of 75,246 and 187,871 shares redeemed (815,017) (1,948,920)
Net increase from capital share transactions 868,100 4,754,449
Total increase in net assets 764,034 5,179,050
NET ASSETS:
Beginning of period 8,255,567 3,076,517
End of period (including undistributed net investment
income of $1,869 and $39,482) $ 9,019,601 $ 8,255,567
*Distributions to shareholders:
Income dividends per share $ .251 $ 0.32
Capital gains distribution per share $ .333 $ 0.01
</TABLE>
See accompanying 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, 1997
(excluding repurchase agreements and short-term securities), are as
follows:
Other than
U.S. Government U.S. Government
Securities Securities
Purchases $ 389,852 $ 795,408
Proceeds from sales 446,216 35,729
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
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
www.umb.com
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