UMB Scout Funds
Balanced Fund
Annual Report June 30, 2000
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.
TO THE SHAREHOLDERS
In the past year, the financial markets continued to capture the nation's
fancy. The major drivers regarding financial asset prices over the last 12
months have been earnings and interest rates, as is typically the case.
However, last fall we witnessed a temporary detour from the "norm" as we
saw what turned out to be a speculative "bubble" being created when
investors purchased anything labeled ".com." While that bubble has not
burst, it is fair to say that much of the speculative "froth" has since
been eliminated from asset valuation levels.
In an effort to get a handle on the economy, Alan Greenspan conducted a
series of six interest rate increases designed to slow the economic
environment and ease any upward pressure on inflation rates. We are
beginning to see signs that the growth rate in the economy is decreasing.
For the time being, it appears that Mr. Greenspan's efforts were successful.
But what about the future? Will the economy continue to slow? And if it
does slow, could we slip into a recession? These are very significant
questions on many investors' minds. While we do not know what the future
holds, history would suggest that the economy is going to slow during the
remainder of 2000. Keep in mind that historically, the Federal Reserve,
currently headed by Greenspan, has had difficulty "fine tuning" the
economy. It has been shown that once the economy starts to slow, keeping it
out of a recessionary environment can be difficult. In our minds, recession
poses a major potential risk which investors may have to wrestle with
during the next 12 months.
Longer term, we continue to look at the investment landscape in a positive
sense. Inflation is low, and the economy is growing nicely. As long as
these two trends are at work, we believe that financial assets will
generate satisfactory returns.
In closing, we at UMB Investment Advisors would like to thank you, our
shareholders, for your continued support of the UMB Scout Funds. We fully
understand and appreciate the trust you have placed in our hands. We will
work hard to maintain that trust.
Respectfully,
/s/William B. Greiner
William B. Greiner
Executive Vice President
Chief Investment Officer
UMB Investment Advisors
Shares of the UMB 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") or any
other government agency. These shares involve investment risks, including
the possible loss of the principal invested.
TO THE SHAREHOLDERS
The UMB Scout Balanced Fund closed the quarter ended June 30, 2000 at $9.23
per share and had a total return (price change and reinvested
distributions) of -0.22% for the quarter and -4.33% for the fiscal year.
The Fund's benchmark, the Lipper Balanced Fund Index, posted returns of -
1.20% for the quarter and 4.43% for the fiscal year. The Fund seeks long-
term growth of capital and high current income by investing in equity
securities and fixed-income securities.
The Federal Reserve (Fed) has had a significant impact on the financial
markets and the economy over the past year. The Fed began raising the
interest rates under its control in June of 1999, and while it was
increasing the cost of money on one hand, on the other it proceeded to
inject large quantities of funds into the economy in an effort to stave off
any Y2K mishaps. In the second half of 1999 the money supply, measured on a
13-week rate of change basis, accelerated from a 4% growth rate to over
15%. As we projected in our December 31, 1999 semiannual report, we felt
once the Y2K hurdle was overcome, the Fed would become serious about
correcting the growing imbalances constantly referred to by Fed Chairman
Alan Greenspan. That has certainly been the case in this year's first six
months, as the rate of growth of the money supply has fallen by more than
50%. Therefore, not only has the cost of money risen, the growth rate of
the supply of funds has diminished, taking the steam out of the stock
market and, more recently, the economy. Specifically, the NASDAQ Composite,
last year's big winner and the major beneficiary of the speculative boom in
new ".com" issues, was growing at a 45% rate (measured on a 13-week rate of
change basis) going into year-end 1999. In this year's first six months,
the NASDAQ's 13-week rate of change dropped to -25%. Likewise, the economy,
as measured by retail sales, accelerated to a 4% growth rate during the
period when the Fed was adding "Y2K reserves," and has since fallen into
negative territory as retail sales have declined in each of the last two months.
Over the past year, the stock market has followed a normal path with
respect to the presidential election cycle. A significant high is usually
reached in the Fall of the third year of the presidential term, followed by
a meaningful low in the late Spring/Summer of the election year.
Furthermore, in recent years value-oriented stocks have outperformed growth
stocks in the first half of the year with growth issues moving into a
leadership position during the second half. To date, this seasonal
relationship has also been maintained.
In preparing for the second half of 2000, we feel the bulk of the Federal
Reserve's restrictive steps has probably already been taken as the economy
and the financial markets have slowed from their red-hot pace of last year.
Furthermore, as previously mentioned, stocks historically have performed
well in the second half of an election year, and when growth issues assume
a leadership role, the overall market has made good progress. Care must be
taken, as there will continue to be "earnings accidents" as the economy
slows; however, during periods of earnings deceleration, companies
continuing to show favorable comparisons should do well. In particular,
consumer non-durables, health care and financial services should be the
beneficiaries. We also believe that companies will continue to spend
heavily on technology as they strive to improve profits while experiencing
a slow-down in top-line growth. With the weeding out of many of the
untested ".com" companies which captured investors' fancy last year, the
technology sector again has the ability to return to market leadership.
With the improved prospects for the second half of 2000, we returned to a
fully invested position in early July, with 65% of the Fund's assets
invested in stocks and the remaining 35% invested in high-quality,
intermediate-length, fixed-income instruments.
Thank you for your investment in the UMB Scout Balanced Fund. We value you
as a shareholder and welcome your questions.
Sincerely,
/s/David R. Bagby, CFA
David R. Bagby, CFA
UMB Investment Advisors
Chart - HYPOTHETICAL GROWTH OF $10,000
UMB Scout Balanced Fund
as of June 30, 2000
Chart - COMPARATIVE RATES OF RETURN
UMB Scout Balanced Fund
as of June 30, 2000
Quarter 1 Year3 Years
UMB Scout Balanced Fund -0.22% -4.33% 2.16%
Lipper Balanced Fund Index* -1.20% 4.43%11.31%
Inception - December 6, 1995.
UMB Scout Balanced Fund's average annual compound return since inception
for the period ended June 30, 2000, is 4.03%.
Performance data contained in this report are for past periods only. Past
performance is not predictive of future results. Investment return and
share value will fluctuate, and redemption value may be more or less than
the original cost.
*Unmanaged index of stocks, bonds or mutual funds (there are no direct
investments or fees in these indices).
Chart - Top Ten Equity Holdings
UMB Scout Balanced Fund
Market Percent
Value (000's) of Total
Intel Corp. $ 94 2%
Helmerich & Payne, Inc. 75 2%
NPC International, Inc. 72 2%
Harmon Industries, Inc. 66 2%
Kerr-McGee Corp. 65 2%
Kellwood Co. 59 2%
BHA Group Holdings, Inc. 59 2%
Cerner Corp. 55 1%
Merck & Co., Inc. 54 1%
Vicorp Restaurants, Inc. 50 1%
Top Ten Equity Holdings Total: $647* 17% *
As of June 30, 2000, statement of assets. Subject to change.
*Market Values and Percents of Total are rounded; may not equal total.
CHART - Fund Diversification
UMB Scout Balanced Fund
CHART - HISTORICAL PER SHARE RECORD
UMB Scout Balanced Fund
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
12/31/98 10.01 0.45 0.49 12.11
12/31/99 9.24 0.64 0.03 12.01
06/30/00* 9.23 - - 11.88
*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.
FINANCIAL STATEMENTS JUNE 30, 2000
Statement of Net Assets
Market
SHARES DESCRIPTION Value
COMMON STOCKS - 30.8%
Consumer Discretionary - 3.5%
2,800 Kellwood Co. $ 59,150
500 Knight Ridder, Inc. 26,594
1,000 Limited, Inc. 21,625
1,000 Snap-On, Inc.* 26,625
133,994
Consumer Staples - 3.9%
8,000 NPC International, Inc.* 71,750
600 PepsiCo, Inc. 26,663
2,741 Vicorp Restaurants, Inc.* 50,023
148,436
Energy - 3.6%
2,000 Helmerich & Payne, Inc. 74,750
1,100 Kerr-McGee Corp. 64,831
139,581
Finance - 2.2%
1,200 Edwards, (A.G.), Inc. 46,800
1,000 Lincoln National Corp. Indiana 36,125
82,925
Health Care - 1.4%
700 Merck & Co., Inc. 53,638
Industrials - 8.8%
6,000 BHA Group Holdings, Inc. 58,500
1,650 Belden, Inc. 42,281
1,000 Block, (H&R), Inc. 32,375
2,000 Butler Manufacturing Co. 34,000
1,000 Fiserv, Inc.* 43,250
5,000 Harmon Industries, Inc. 66,250
3,000 Isco, Inc.* 12,750
2,500 Southwest Airlines Co. 47,344
336,750
Information Technology - 4.9%
2,000 Cerner Corp.* 54,500
700 Intel Corp. 93,581
600 Texas Instruments, Inc.* 41,213
189,294
Materials - 1.1%
2,000 Newmont Mining Corp. 44,032
Telecommunication Services - 0.3%
400 AT&T Corporation 12,650
Utilities - 1.1%
800 El Paso Energy Corp. 40,749
TOTAL COmmon stocks (Cost $1,158,058) - 30.8% 1,182,049
FACE Market
AMOUNT DESCRIPTION Value
Corporate Bonds - 2.5%
$ 50,000 PepsiCo, Inc., 5.75%, due January 2, 2003 48,208
50,000 Stanley Works, 5.75%, due March 1, 2004 47,556
TOTAL CORPORATE BONDS (Cost $100,981) - 2.5% 95,764
U.S. Government securities - 5.2%
75,000 U.S. Treasury Note, 6%, due August 15, 2009 74,402
125,000 U.S. Treasury Note, 6.375%, due April 30, 2002 124,844
TOTAL U.S. Government securities (Cost $197,102) - 5.2% 199,246
Government sponsored Agencies - 9.1%
100,000 Federal Home Loan Bank, 5.835%, due July 6, 2005 94,781
50,000 Federal Home Loan Bank, 5.805%, due August 24, 2005 47,289
125,000 Federal Home Loan Bank,
5.415%, due February 24, 2004 118,301
31,788 Federal National Mortgage Association,
6%, due April 1, 2001 31,501
50,000 Federal National Mortgage Association,
6%, due September 29, 2008 45,586
11,209 Federal National Mortgage Association,
7%, due February 1, 2003 11,108
TOTAL Government sponsored agencies (Cost $368,133) - 9.1% 348,566
REPURCHASE AGREEMENT (Cost $845,000) - 22.0%
$845,000 Northern Trust Co., 6.40%, due July 3, 2000
(Collateralized by U.S. Treasury Bonds,
11.875%, due November 15, 2003) 845,000
TOTAL INVESTMENTS (Cost $2,669,274) - 69.6% 2,670,625
Other assets less liabilities - 30.4% 1,169,655
TOTAL NET ASSETS - 100.0%
(equivalent to $9.23 per share; 10,000,000 shares of
$1.00 par value capital shares authorized;
415,849 shares outstanding) $ 3,840,280
For federal income tax purposes, the identified cost of investments owned
at June 30, 2000 was $2,669,274.
Net unrealized appreciation for federal income tax purposes was $1,351,
which is comprised of unrealized appreciation of $266,932 and unrealized
depreciation of $265,581.
*Non-income producing security
See accompanying Notes to Financial Statements.
FINANCIAL STATEMENTS JUNE 30, 2000
Statements of Assets and Liabilities
ASSETS:
Investment securities, at market
value (identified cost $2,669,274) $ 2,670,625
Cash 8,146
Dividends receivable 1,956
Interest receivable 26,593
Securities sold receivable 1,132,960
Total assets 3,840,280
NET ASSETS $ 3,840,280
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 4,093,526
Accumulated undistributed income:
Net investment income 11,421
Net realized loss on investment transactions (266,018)
Net unrealized appreciation on investments 1,351
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 3,840,280
Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 415,849
NET ASSET VALUE PER SHARE $ 9.23
See accompanying Notes to Financial Statements.
FINANCIAL STATEMENTS Year Ended June 30, 2000
StatementS of Operations
INVESTMENT INCOME:
Income:
Dividends $ 27,297
Interest 137,023
164,320
Expenses:
Management fees 35,536
Net investment income 128,784
REALIZED and unrealized LOSS ON INVESTMENTS:
Net realized loss from investment transactions (203,970)
Decrease in net unrealized appreciation on investments (122,611)
Net realized and unrealized loss on investments (326,581)
Net decrease in net assets resulting from operations $ (197,797)
See accompanying Notes to Financial Statements.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
Year Ended Year Ended
June 30, 2000 June 30, 1999
</CAPTION>
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 128,784 $ 229,236
Net realized gain (loss) from investment transactions (203,970) 70,581
Decrease in net unrealized appreciation on investments (122,611) (184,994)
Net increase (decrease) in net assets
resulting from operations (197,797) 114,823
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (155,794) (248,871)
Net realized gain from investment transactions (39,199) (344,326)
Decrease in net assets from distributions (194,993) (593,197)
DECREASE FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from 97,417 and 185,671 shares sold 917,095 1,921,356
Net asset value of 21,354 and 17,636 shares issued for
reinvestment of distributions 194,535 174,851
1,111,630 2,096,207
Cost of 207,138 and 394,307 shares redeemed (2,007,046) (4,075,129)
Net decrease in net assets from capital
share transactions (895,416) (1,978,922)
Net decrease in net assets (1,288,206) (2,457,296)
NET ASSETS:
Beginning of year 5,128,486 7,585,782
End of year (including undistributed net investment
income of $11,421 and $5,270, respectively) $3,840,280 $5,128,486
NET ASSETS - June 30, 2000 $707,489,142 $302,588,141
</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. At June 30, 2000,
the Fund has a net capital loss carryover of $33,000 available to offset
future realized capital gains and thereby reduce further taxable gains
distributions.
Net investment income and net realized gains differ for financial statement
and tax purposes primarily because of the deferral of wash sale losses and
post-October losses.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate
characterization for federal income tax purposes due to GAAP/tax
differences in the character of income recognition.
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, 2000 (excluding repurchase
agreements and short-term securities), were as follows:
Other than
U.S. Government U.S. Government
Securities Securities
Purchases $1,235,116 $ -
Proceeds from sales 2,746,925 1,682,640
3. MANAGEMENT FEES - UMB Bank, n.a. is the Fund's manager and investment
advisor 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 ACCOUNTING POLICY CHANGE - The Financial Accounting Standards
Board ("FASB") has issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"). This statement, as amended by SFAS No. 137, requires all derivatives
to be recorded on the balance sheet date at fair value and establishes
standard accounting methodologies for hedging activities. The standard will
result in the recognition of offsetting changes in value or cash flows of
both the hedge and the hedged item in net investment income in the same
period. The statement is effective for the Fund's fiscal year ending June
30, 2001. Because the Fund does not normally hold derivative instruments,
the adoption of this statement is not expected to have a material impact on
the financial statements.
FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share
outstanding throughout the period.
<TABLE>
<CAPTION>
December 6,
Years Ended June 30, 1995 to
2000 1999 1998 1997 1996*
</CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.17 $ 10.91 $ 10.72 $ 10.18 $ 10.09
Income from investment operations:
Net investment income 0.14 0.38 0.43 0.35 0.27
Net realized and unrealized gain (loss)
on securities (0.58) (0.21) 0.54 0.52 0.06
Total from investment operations (0.44) 0.17 0.97 0.87 0.33
Distributions from:
Net investment income (0.13) (0.41) (0.45) (0.32) (0.24)
Net realized gain on investment
transactions (0.37) (0.50) (0.33) (0.01) -
Total distributions (0.50) (0.91) (0.78) (0.33) (0.24)
Net asset value, end of period $ 9.23 $ 10.17 $ 10.91 $ 10.72 $ 10.18
Total return (4%) 2% 9% 9% 6%
Ratios/Supplemental Data
Net assets, end of period (in millions) $ 4 $ 5 $ 8 $ 8 $ 3
Ratio of expenses to average net assets 0.87% 0.87% 0.85% 0.83% 0.85%
Ratio of net investment income to
average net assets 3.16% 3.48% 3.78% 3.85% 3.71%
Portfolio turnover rate 44% 95% 15% 14% 5%
Average commission rate $ .0697 $ .0574 $ .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.
See accompanying Notes to Financial Statements.
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders and Board of Directors of UMB Scout Balanced Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of UMB
Scout Balanced Fund, Inc., including the statement of net assets, as of
June 30, 2000, 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, 2000, 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 UMB Scout Balanced Fund, Inc., as of June 30, 2000, 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 28, 2000
This report has been prepared for the information of the Shareholders of
UMB 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 UMB Scout
Funds are offered only by the Prospectus, a copy of which may be obtained
from Jones & Babson, Inc.
UMB Scout Funds
100% No-Load Mutual Funds
Balanced Fund
Bond Fund
Capital Preservation Fund
Equity Index Fund
Kansas Tax-Exempt Bond Fund*
Money Market Fund - Federal Portfolio
Money Market Fund - Prime Portfolio
Regional Fund
Stock Fund
Stock Select Fund
Tax-Free Money Market Fund
Technology Fund
WorldWide Fund
WorldWide Select Fund
*Available in Kansas and Missouri only.
Investment Advisors and Manager
UMB Bank, n.a., Kansas City, Missouri
Auditors
Baird, Kurtz & Dobson, Kansas City, Missouri
Legal Counsel
Stradley, Ronon, Stevens & Young, LLP
Philadelphia, Pennsylvania
Custodian
UMB Bank, n.a., Kansas City, Missouri
Underwriter, Distributor
and Transfer Agent
Jones & Babson, Inc., Kansas City, Missouri
UMB Scout Funds
P.O. Box 219757
Kansas City, MO 64121-9757
Toll Free 800-996-2862
www.umb.com
"UMB," "Scout" and the "Scout" design are registered
service marks of UMB Financial Corporation.
