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.
Annual Report
June 30, 1998
TO THE SHAREHOLDERS
Scout Balanced Fund closed the quarter ended June 30, 1998, at $10.91
per share, with a total return (price change and reinvested
distributions) of -0.98% for the quarter and 4.62% for the calendar year
to date. The Fund seeks long-term capital growth and high current income
by investing in both equities and fixed income obligations.
The Fund ended the quarter with 37% of its assets invested in the stock
market, which is consistent with its allocation to stocks in recent
quarters. This allocation is lower than the Fund's long-term target and
is based on our belief that stocks are trading at unprecedented premiums
to the "fair value" for most companies.
We determine the fair value of a company based on a variety of factors,
including expected sales growth, expected cash flow growth, expected
earnings growth, balance sheet quality, competitive position in its
industry, quality of management and quality of earnings.
Based on our method, the majority of publicly traded companies are at
least fairly priced, and many are overpriced, in the stock market today.
In such an environment, it is important for the Fund to maintain its
long-term investment philosophy and avoid buying shares at prices above
our estimate of business worth.
Our reserves for stock purchases are primarily invested in intermediate-
term U.S. government and agency securities with an average maturity of
3.7 years.
During the quarter, the Fund eliminated or reduced equity positions in
Alcatel Alsthom; U.S. West Communications Group; Limited, Inc., Brinker
International, Inc.; Dillards, Inc.; and Tele Danmark AS. Amax Gold,
Inc., part of the Fund's portfolio, merged with Kinross Gold, Inc., at
the rate of .8004 shares of Kinross for each share of Amax Gold. The
combined entity, now known as Kinross Gold Corporation, has
substantially reduced debt and increased reserves, production profile
and exploration efforts. The Fund added to equity holdings in Hitachi
Ltd. and Fila Holdings SPA, and took a new position in Mallinckrodt,
Inc., a St. Louis-based health care and specialty chemical business.
For the six months ended June 30, 1998, shareholders received an
ordinary income dividend of $.20 per share; there were no capital gains
distributed for this period.
For corporate shareholders, 8.41% 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
CHART - HYPOTHETICAL GROWTH OF $10,000
as of June 30, 1998
SCOUT BALANCED FUND vs Lipper Balanced Fund. Index*
SOURCE: UMB Investment Advisors
*Unmanged index of stocks, bonds or mutual funds (there are no direct
investments or fees in these indices).
For illustrative purposes only; may not represent your returns.
CHART - FUND DIVERSIFICATION
Consumer Cyclical 6.0%
Consumer Staples 9.4%
Energy 4.0%
Fixed 53.5%
Capital Goods 0.9%
Technology 2.8%
Utilities 6.9%
Cash Equivalents 9.6%
Basic Materials 6.9%
As of June 30, 1998, statement of assets.
CHART - COMPARATIVE RATES OF RETURN
as of June 30, 1998
Quarter 1 1/2 Years
Scout Balanced Fund -0.98% 9.89%
Lipper Balanced Fund Index* 1.48% 20.00%
Scout Balanced Fund's average annual compound returns for
1 year and the life of the fund for periods ended June 30, 1998, are
9.38% and 8.35%, respectively. Inception - December 6, 1995.
Performance data contained in this report are 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 the original cost.
Along with the potential for higher returns, international
investments carry some additional risks from currency fluctuations,
economic and political factors, as well as differences in accounting.
*Unmanaged index of stocks, bonds or mutual funds (there are no
direct investments or fees in these indices).
CHART - TOP 10 EQUITY HOLDINGS
Market Percent
Value (000's) of Total
Unicom Corp. $158 2.10%
Mylan Laboratories, Inc. 150 2.00%
Bassett Furniture Industries, Inc. 141 1.88%
O'Sullivan Industries, Inc. 140 1.87%
Rubbermaid, Inc. 133 1.77%
Kinross Gold Corp. 130 1.73%
Florida Progress Corp. 123 1.64%
Dominion Resources, Inc. V.A. 122 1.63%
Novell, Inc. 115 1.53%
B. I., Inc. 113 1.50%
Top 10 Equity Holdings Total: $1,325 17.66%
NOTE: All market values based on June 30, 1998, statement of assets.
CHART - HISTORICAL PER SHARE RECORD
INCOME & CUMULATIVE**
NET SHORT-TERM LONG-TERM VALUE PER
ASSET GAINS GAINS SHARE PLUS
VALUE DISTRIBUTION DISTRIBUTION DISTRIBUTIONS
12/31/95 $10.02 $0.12 $ - $10.14
12/31/96 10.33 0.18 - 10.75
12/31/97 10.62 0.58 0.16 11.78
6/30/98* 10.91 0.20 - 12.27
*Six-month only. Distributions typically occur in June
and December.
**Does not assume any compounding of reinvested distributions.
Table shows calendar year distributions and net asset
values; may differ from fiscal year annual reports.
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.
FFINANCIAL STATEMENTS
Statement of Assets and Liabilities
June 30, 1998
Market
Shares Company Value
COMMON STOCKS - 36.87%
BASIC MATERIALS - 6.92%
4,500 Brush Wellman, Inc. $ 92,531
8,000 Cyprus Amax Minerals Co. 106,000
92 Deltic Timber Corp. 2,306
5,000 Huntco, Inc. Cl. A 59,375
40,020 Kinross Gold Corp.* 130,065
1,000 Mallinckrodt, Inc. 29,687
3,500 Newmont Mining Corp. 82,688
1,500 Worthington Industries, Inc. 22,594
525,246
CAPITAL GOODS - 0.92%
7,000 Calgon Carbon Corp. 69,562
CONSUMER CYCLICAL - 5.98%
12,000 B. I., Inc.* 112,500
5,000 Bassett Furniture Industries, Inc. 140,938
4,000 Fila Holdings SPA, Sponsored ADR 60,000
10,000 O'Sullivan Industries, Inc.* 140,000
453,438
CONSUMER STAPLES - 9.38%
3,150 Archer-Daniels-Midland Co. 61,031
4,000 Bob Evans Farms, Inc. 84,750
1,500 Fuji Photo Film, Unsponsored ADR 51,844
1,000 Hitachi LTD, Sponsored ADR 64,500
4,000 Lance, Inc. 89,500
5,000 Mylan Laboratories, Inc. 150,313
4,000 Rubbermaid, Inc. 132,750
5,000 VICORP Restaurants, Inc.* 76,875
711,563
ENERGY - 3.95%
1,200 Halliburton Co. 53,475
1,000 Kerr McGee Corp. 57,875
1,000 Murphy Oil Corp. 50,688
1,000 Phillips Petroleum Co. 48,187
500 Schlumberger LTD 34,156
1,600 USX-Marathon Group 54,900
299,281
TECHNOLOGY - 2.83%
12,000 Exabyte Corp.* 100,125
9,000 Novell, Inc.* 114,750
214,875
UTILITIES - 6.89%
3,000 Dominion Resources, Inc. V.A. 122,250
2,000 Entergy Corp. 57,500
3,000 Florida Progress Corp. 123,375
4,150 Niagara Mohawk Power Corp.* 61,991
4,500 Unicom Corp. 157,781
522,897
TOTAL COMMON STOCKS (Cost $2,566,315) - 36.87% 2,796,862
Market
Face Amount Description Value
SHORT-TERM CORPORATE NOTES - 5.26%
$ 100,000 Becton Dickenson, 5.62%, due July 15, 1998 99,766
100,000 Chevron USA Inc., 5.50%, due August 14, 1998 99,312
100,000 Progress Capital Co., 5.51%, due July 1, 1998 99,985
100,000 Sara Lee Corp., 5.75%, due July 7, 1998 99,888
TOTAL SHORT-TERM CORPORATE NOTES (Cost $398,951) - 5.26% 398,951
GOVERNMENT SPONSORED ENTERPRISES - 43.53%
100,000 Federal Farm Credit Banks,
5.20%, due January 25, 1999 99,797
150,000 Federal Home Loan Banks,
5.035% due, January 19, 1999 149,601
100,000 Federal Home Loan Banks,
5.86%, due April 2, 1999 100,156
100,000 Federal Home Loan Banks,
5.50%, due January 10, 2001 99,594
150,000 Federal Home Loan Banks,
6.75%, due April 5, 2004 157,242
100,000 Federal Home Loan Mortgage Corporation,
5.96%, due October 20, 2000 100,625
150,000 Federal Home Loan Mortgage Corporation,
6.745%, due August 1, 2001 154,359
150,000 Federal Home Loan Mortgage Corporation, Debentures,
6.99%, due July 5, 2006 161,016
100,000 Federal National Mortgage Association,
5.39%, due July 30, 1998 99,551
200,000 Federal National Mortgage Association,
6.23%, due September 25, 1998 200,374
100,000 Federal National Mortgage Association,
5.55%, due March 12, 1999 100,000
43,925 Federal National Mortgage Association,
7.00%, due October 1, 1999 44,251
250,000 Federal National Mortgage Association,
5.83%, due December 10, 1999 250,585
250,000 Federal National Mortgage Association,
6.09%, due July 11, 2000 252,110
150,000 Federal National Mortgage Association,
6.29%, due October 4, 2000 151,769
61,199 Federal National Mortgage Association,
6.00%, due April 1, 2001 61,023
150,000 Federal National Mortgage Association,
7.05%, due November 12, 2002 157,712
46,776 Federal National Mortgage Association,
7.00%, due February 1, 2003 47,448
150,000 Federal National Mortgage Association,
6.71%, due May 21, 2003 156,070
150,000 Federal National Mortgage Association,
6.72%, due August 1, 2005 157,780
200,000 Federal National Mortgage Association,
6.14%, due November 25, 2005 203,750
142,598 Government National Mortgage Association,
7.00%, due September 15, 2010 146,175
100,000 Tennessee Valley Authority,
5.95%, due September 15, 1998 100,156
150,000 Tennessee Valley Authority,
6.00%, due November 1, 2000 150,843
TOTAL GOVERNMENT SPONSORED ENTERPRISES (Cost $3,228,733) - 43.53% 3,301,987
U.S. GOVERNMENT SECURITIES - 9.95%
$ 250,000 U.S. Treasury Notes,
5.875%, due November 15, 1999 251,133
250,000 U.S. Treasury Notes,
5.75%, due October 31, 2000 251,172
250,000 U.S. Treasury Notes,
5.875%, due November 30, 2001 252,540
TOTAL U.S. GOVERNMENT SECURITIES (Cost $749,690) - 9.95% 754,845
REPURCHASE AGREEMENT (Cost $250,000) - 3.29%
250,000 Northern Trust Co., 5.55%, due July 1, 1998
(Collateralized by U.S. Treasury Notes,
5.75%, due September 30, 1999) 250,000
TOTAL INVESTMENTS (Cost $7,193,689) - 98.90% $ 7,502,645
Other assets less liabilities - 1.10% 83,137
TOTAL NET ASSETS - 100.00%
(equivalent to $10.91 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
695,216 shares outstanding) $ 7,585,782
For federal income tax purposes, the identified cost of investments owned at
June 30, 1998 was $7,193,689.
Net unrealized appreciation for federal income tax purposes was $308,956,
which is comprised of unrealized appreciation of $604,787 and unrealized
depreciation of $295,831.
ADR - American Depository Receipt
*Non-income producing security
See accompanying Notes to Financial Statements.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
June 30, 1998
ASSETS:
Investment securities, at market value
(identified cost $7,193,689) $ 7,502,645
Cash 23,136
Dividends receivable 4,246
Interest receivable 55,755
Total assets 7,585,782
NET ASSETS $ 7,585,782
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 6,967,864
Accumulated undistributed income:
Net investment income 24,905
Net realized gain on investment transactions 284,057
Net unrealized appreciation on investments 308,956
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 7,585,782
Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 695,216
NET ASSET VALUE PER SHARE $ 10.91
See accompanying Notes to Financial Statements.
FINANCIAL STATEMENTS
Statement of Operations
Year Ended June 30, 1998
INVESTMENT INCOME:
Income:
Dividends $ 61,809
Interest 344,389
406,198
Expenses:
Management fees 74,597
Net investment income 331,601
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions 472,173
Decrease in net unrealized appreciation of investments (18,057)
Net realized and unrealized gain on investments 454,116
Net increase in net assets resulting from operations $ 785,717
See accompanying Notes to Financial Statements.
FINANCIAL STATEMENTS
Statements of Changes in Net Assets
For the Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
</CAPTION>
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 331,601 $ 269,372
Net realized gain from investment transactions 472,173 98,225
Increase (decrease) in net unrealized appreciation of
investments (18,057) 297,617
Net increase in net assets resulting from operations 785,717 665,214
DISTRIBUTIONS TO SHAREHOLDERS FROM:*
Net investment income (346,178) (237,209)
Net realized gain from investment transactions (279,276) (8,404)
Decrease in net assets from distributions (625,454) (245,613)
INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from 217,322 and 632,164 shares sold 2,402,628 6,463,676
Net asset value of 58,707 and 23,225 shares issued for
reinvestment of distributions 623,518 244,693
3,026,146 6,708,369
Cost of 350,576 and 187,871 shares redeemed (3,856,194) (1,948,920)
Net increase (decrease) in net assets from capital share
transactions (830,048) 4,759,449
Net increase (decrease) in net assets (669,785) 5,179,050
NET ASSETS:
Beginning of year 8,255,567 3,076,517
End of year (including undistributed net investment
income of $24,905 and $39,482, respectively) $ 7,585,782 $ 8,255,567
*Distributions to shareholders:
Income dividends per share $ 0.45 $ 0.32
Capital gains distribution per share $ 0.33 $ 0.01
</TABLE>
See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
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. Securities traded over-the-
counter are valued 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 formula-based techniques. Short-term obligations are
valued at amortized cost, which approximates market value. Investment
transactions are recorded on the trade date. Interest income is recorded
daily. 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 Income Taxes - The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute all of its taxable
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 year ended June 30, 1998 (excluding
repurchase agreements and short-term securities), were as follows:
Other than
U.S. Government U.S. Government
Securities Securities
Purchases $ 564,612 $ 894,030
Proceeds from sales 1,389,376 940,616
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 shareholder accounting system and transfer agency.
Not considered normal operating expenses and therefore payable by the
Fund are taxes, interest, 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 the collateral is sufficient to protect the Fund in the event of
default by the seller.
5. SUBSEQUENT EVENT - Subsequent to the Fund's year-end, the Fund name
will change to UMB Scout Balanced Fund, Inc.
FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share
outstanding throughout the period.
<TABLE>
<CAPTION>
Years Ended December 6, 1995
June 30, to
1998 1997 June 30, 1996*
</CAPTION>
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.72 $ 10.18 $ 10.09
Income from investment operations:
Net investment income 0.43 0.35 0.27
Net realized and unrealized gain on securities 0.54 0.52 0.06
Total from investment operations 0.97 0.87 0.33
Distributions from:
Net investment income (0.45) (0.32) (0.24)
Net realized gain on investment transactions (0.33) (0.01) -
Total distributions (0.78) (0.33) (0.24)
Net asset value, end of period $ 10.91 $ 10.72 $ 10.18
Total return 9% 9% 6%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 8 $ 8 $ 3
Ratio of expenses to average net assets 0.85% 0.83% 0.85%
Ratio of net investment income to average net assets 3.78% 3.85% 3.71%
Portfolio turnover rate 15% 14% 5%
Average commission rate** $ .0426 $ .0641 $ .0660
</TABLE>
*The Fund was capitalized on October 2, 1995 with $100,000, representing
10,000 shares at a net asset value of $10.00 per share. Initial public
offering was made on December 6, 1995, at which time net asset value was
$10.09 per share.
Ratios for this initial period of operation are annualized.
**For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security trades
on which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
See accompanying Notes to Financial Statements.
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders and Board of Directors
of Scout Balanced Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
Scout Balanced Fund, Inc., including the statement of net assets, as of
June 30, 1998, and the related statement of operations, statements of
changes in net assets and the financial highlights for the periods
indicated thereon. These financial statements and financial highlights
are the responsibility of the Company'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. Our procedures included
verification of securities owned as of June 30, 1998, by confirmation,
or by the application of alternative auditing procedures with respect to
unsettled portfolio security transactions. 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 Scout Balanced Fund, Inc. as of June 30, 1998, the
results of its operations, the changes in its net assets and the
financial highlights for the periods indicated thereon in conformity
with generally accepted accounting principles.
BAIRD, KURTZ & DOBSON
Kansas City, Missouri
July 24, 1998
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
Martin A. Cramer, Vice President & Secretary
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
Custodian
UMB Bank, n.a., Kansas City, Missouri
SCOUT FUNDS
P.O. Box 410498
Kansas City, MO 64141-0498
TOLL-FREE (800) 996-2862
www.umb.com
Underwriter & Distributor: Jones & Babson, Inc., Kansas City, Missouri
JB28B 8/98
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<AVG-DEBT-PER-SHARE> 0
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