August 11, 1995
Securities and Exchange Commission
450 5th Street N.W.
Washington, D. C. 20549
RE: D.L. TAX-FREE INCOME FUND, INC.
Post-Effective Amendment No. 21 File No. 2-65489
Amendment No. 22 File No. 811-2948
Ladies and Gentlemen:
Attached hereto is Post-Effective Amendment No. 21 and Amendment No. 22
to the Registration Statements for D. L. BABSON TAX-FREE INCOME FUND, INC.
on Form N-1A for filing pursuant to paragraph (a) of rule 485.
The sole purpose of this amendment is to reflect a change in the ownership
of the Fund s investment advisor. On June 30, 1995, David L. Babson & Co.
Inc., the investment advisor, became a wholly-owned subsidiary of
Massachusetts Mutual Life Insurance Company headquartered in Springfield,
Massachusetts. There were no changes to the personnel of David L.
Babson & Co. Inc. and no changes in the investment policies or operations
of the Fund.
The only section of the prospectus affected by this change is the caption
Management and Investment Counsel. There are no other changes included
in this amendment.
It is requested that the effective date of this amendment be October 31, 1995
in order to make it effective concurrently with an additional amendment
which it is anticipated will be filed pursuant to paragraph (b) of
rule 485 on or after October 10, 1995 to supply updated financials for
the Fund.
Thank you very much for your consideration in this matter.
Sincerely,
JGD:com John G. Dyer
Enc. Attorney
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ______ [ ]
Post-Effective Amendment No. 21 File No. 2-65489 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 22 File No. 811-2948 [X]
D.L. BABSON TAX-FREE INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
2440 Pershing Road, G-15 Kansas City, Missouri 64108
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code (816) 471-5200
Larry D. Armel, President, D.L. BABSON TAX-FREE INCOME FUND, INC.
2440 Pershing Road, G-15, Kansas City, Missouri 64108
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: October 31, 1995
It is proposed that this filing become effective:
X On October 31, 1995, pursuant to paragraph (A) of Rule 485
Registrant has registered an indefinite number or amount of securities
under the Securities Act of 1933 pursuant to Rule 24f-2 of the Invest-
ment Company Act of 1940, and will file its required Rule 24f-2 Notice
for the Registrant's fiscal year ended June 30, 1995, by August 30,
1995.
Please address inquiries and a carbon copy of all
and communications to: communications to:
John G. Dyer, Esq. Mark H. Plafker, Esq.
D.L. BABSON TAX-FREE Stradley, Ronon, Stevens & Young
INCOME FUND, INC. 2600 One Commerce Square
2440 Pershing Road, G-15 Philadelphia, PA 19103-7098
Kansas City, MO 64108 Telephone: (215) 569-3800
Telephone: (816) 471-5200
D. L. BABSON TAX-FREE INCOME FUND, INC.
CROSS REFERENCE SHEET
Form N-1A Item Number Location in Prospectus
Item 1. Cover Page . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . Not Applicable
Item 3. Condensed Financial Information . . Per Share Capital and
Income Changes
Item 4. General Description of Registrant. . Investment Objective
and Portfolio
Management Policy
Item 5. Management of the Fund . . . . . . . Officers and Directors;
Management and
Investment Counsel
Item 6. Capital Stock and Other Securities . How to Purchase Shares;
How to Redeem Shares;
How Share Price is
Determined; General
Information and
History; How Share
Price is Determined
Dividends Distributions
and their Taxation
Item 7. Purchase of Securities . . . . . . . Cover Page; How to
being Offered Purchase Shares;
Shareholder Services
Item 8. Redemption or Repurchase . . . . . How to Redeem Shares
Item 9. Pending Legal Proceedings . . . . . Not Applicable
D. L. BABSON TAX FREE INCOME FUND, INC.
CROSS REFERENCE SHEET (continued)
Location in Statement
of Additional
Form N-1A Item Number Information
Item 10. Cover Page . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . . . . Cover Page
Item 12. General Information and History . . Investment Objectives
and Policies;
Management and
Investment Counsel
Item 13. Investment Objectives and Policies . Investment Objectives
and Policies;
Investment Restrictions
Item 14. Management of the Fund . . . . . . . Management and
Investment Counsel
Item 15. Control Persons and Principal . . . Management and
Holders of Securities Investment Counsel;
Officers and Directors
Item 16. Investment Advisory and other . . . Management and
Services Investment Counsel;
Shareholder Services
(Prospectus)
Item 17. Brokerage Allocation . . . . . . . . Portfolio Transactions
Item 18. Capital Stock and Other Securities . General Information;
Financial Statements
Item 19. Purchase, Redemption and Pricing . . How Share Purchases
of Securities Being Offered are Handled; Redemption
of Shares
Financial Statements
Item 20. Tax Status . . . . . . . . . . . . . Dividends,
Distributions and their
Taxation (in Prospectus
Item 21. Underwriters . . . . . . . . . . . . How the Fund's Shares
are Distributed
Item 22. Calculation of Yield Quotations . . Performance Measures
of Money Market Fund
Item 23. Financial Statements . . . . . . . . Incorporated by
Reference
<PAGE>
PROSPECTUS
October 31, 1995
D. L. BABSON TAX-FREE INCOME FUND, INC.
Managed and Distributed By:
JONES & BABSON, INC.
Three Crown Center
2440 Pershing Road, Suite G-15
Kansas City, Missouri 64108
Toll-Free 1-800-4-BABSON
(1-800-422-2766)
In the Kansas City area 471-5200
Investment Counsel:
DAVID L. BABSON & CO. INC.
Cambridge, Massachusetts
INVESTMENT OBJECTIVE
The Babson Tax-Free Income Fund offers investors a choice among
three Portfolios with differing maturity lengths of
investment-grade municipal securities providing the highest level
of regular income exempt from federal income tax consistent with
their quality and maturity standards.
The Money Market Portfolio further seeks to maintain, but does
not guarantee, a constant net asset value of $1.00 per share.
Although each Portfolio invests in high quality instruments, the
shares of the Portfolios are not insured or guaranteed by the
U.S. Government and there can be no assurance that the Money
Market Portfolio will be able to maintain a constant net asset
value per share.
The Fund was founded particularly for those investors who share
its investment goals and who wish to have their investment
receive continuous portfolio supervision by the staff of David L.
Babson & Co. Inc.
PURCHASE INFORMATION
Minimum Investment
(each Portfolio selected)
Initial Purchase $ 1,000
Initial Uniform Transfers (Gifts) to Minors Purchases $ 250
Subsequent Purchase:
By Mail $ 100
By Telephone or Wire $ 1,000
All Automatic Purchases $ 100
Shares are purchased and redeemed at net asset value. There are
no sales, redemption or Rule 12b-1 distribution charges. If you
need further information, please call the Fund at the telephone
numbers indicated.
ADDITIONAL INFORMATION
This prospectus should be read and retained for future reference.
It contains the information that you should know before you
invest. A "Statement of Additional Information" of the
same date as this prospectus has been filed with the Securities
and Exchange Commission and is incorporated by reference.
Investors desiring additional information about the Fund may
obtain a copy without charge by writing or calling the Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page
Fund Expenses 3
Financial Highlights 5
Investment Objective and Portfolio Management Policy 7
Risk Factors Peculiar to Municipal Securities 8
Repurchase Agreements 8
Investment Restrictions 9
Performance Measures 9
How to Purchase Shares 10
Initial Investments 11
Investments Subsequent to Initial Investment 11
Telephone Investment Service 12
Automatic Monthly Investment Plan 12
How to Redeem Shares 12
Systematic Redemption Plan 15
How to Exchange Shares Between Portfolios and Babson Funds 16
How Share Price is Determined 17
Officers and Directors 18
Management and Investment Counsel 18
General Information and History 19
Dividends, Distributions and Their Taxation 20
Shareholder Services 22
Shareholder Inquiries 22
FUND EXPENSES
PORTFOLIO L
Shareholder Transaction Expenses
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends None
Deferred sales load None
Redemption fee None
Exchange fee None
Annual Fund Operation Expenses
(as a percentage of average net assets)
Management fees .95%
12b-1 fees None
Other expenses ___%
Total Fund operating expenses ___%
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 Year 3 Year 5 Year 10 Year
$__ $__ $__ $___
PORTFOLIO S
Shareholder Transaction Expenses
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends None
Deferred sales load None
Redemption fee None
Exchange fee None
Annual Fund Operation Expenses
(as a percentage of average net assets)
Management fees .95%
12b-1 fees None
Other expenses ___%
Total Fund operating expenses ____%
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 Year 3 Year 5 Year 10 Year
$__ $__ $__ $___
PORTFOLIO MM
Shareholder Transaction Expenses
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends None
Deferred sales load None
Redemption fee None
Exchange fee None
Annual Fund Operation Expenses
(as a percentage of average net assets)
Management fees .50%
12b-1 fees None
Other expenses ___%
Total Fund operating expenses ___%
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 Year 3 Year 5 Year 10 Year
$_ $__ $__ $__
The above information is provided in order to assist you in
understanding the various costs and expenses that a share-holder
of the Fund will bear directly or indirectly. The expenses set
forth above are for the fiscal year ended June 30, 1995. The
example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than
those shown.
D. L. BABSON TAX-FREE INCOME FUND, INC.FINANCIAL HIGHLIGHTS
(To be supplied by further amendment)
INVESTMENT OBJECTIVE AND PORTFOLIO MANAGEMENT POLICY
Babson Tax-Free Income Fund offers three separate Portfolios. The
Fund's objective is to provide investors with the highest level
of investment income exempt from federal income tax consistent
with the quality and maturity standards prescribed for each
Portfolio. The Money Market Portfolio further seeks to maintain
liquidity and a constant price of $1.00 per share. Although the
Fund cannot guarantee that these objectives will be achieved, but
through careful management and diversification it will seek to
reduce risk and enhance the opportunities for higher income and
greater price stability.
Each Portfolio will have substantially all of its assets invested
in investment-grade municipal securities, the interest on which
is deemed exempt from federal income tax (including the
alternative minimum tax). The essential difference in the
Portfolios will be the time to maturity of their holdings.
Investors may suit their financial needs and circumstances by
investing in one or more of the Portfolios or by transferring
from one to another. For a description of municipal securities
and their ratings, see "Municipal Securities Described and
Ratings" in the "Statement of Additional Information."
The Portfolios are:
Portfolio L - Longer Term: The weighted average maturity is
expected to be between ten and twenty-five years with maturities
generally being longer than five years at the time of purchase.
There is no maximum maturity. Longer maturities produce higher
income but carry greater possibility of price fluctuation
compared to obligations with shorter terms.
Portfolio S - Shorter Term: The weighted average maturity is
expected to be between two and five years with no maturities more
than ten years at the time of purchase. Shorter maturities
usually result in lower income but provide more stability in
price when compared to obligations with longer maturities.
Portfolio MM - Money Market: Expected average weighted maturity
is 90 days or less. No maturities will be more than one year at
the time of purchase. Net asset value is expected to remain
constant at $1.00 per share.
During periods of normal market conditions, the Fund will invest
at least 80% of the total assets of each Portfolio (exclusive of
cash) in municipal securities, such as bonds and other debt
obligations issued by or on behalf of states, territories and
possessions of the United States including their political
subdivisions or their constituted authorities, agencies and
instrumentalities, the interest on which is exempt from federal
income tax including the alternative minimum tax. This
fundamental policy will not be changed without shareholder
approval, except that the Fund reserves the right to deviate
temporarily from this policy during extraordinary circumstances
when, in the opinion of management, it is advisable to do so in
the best interest of shareholders, such as when market conditions
dictate a defensive posture in taxable obligations. During the
Fund s fiscal year ended June 30, 1995, the following
percentages of income were exempt from federal income taxes:
Portfolio L, _____%, Portfolio S, _____% and Portfolio MM,
_____%.
At least 90% of the municipal bonds in Portfolio L and Portfolio
S will be rated at the time of purchase within the top three
classifications of Moody's Investors Service, Inc. (Aaa, Aa and
A), or by Standard and Poor's Corp. (AAA, AA and A). Any
municipal bond backed by the full faith and credit of the federal
government shall be considered to have a rating of AAA.
Investments in short-term municipal obligations and notes are
limited to those obligations which at the time of purchase: (1)
are backed by the full faith and credit of the United States; or
(2) are rated MIG-1, MIG-2 or MIG-3 by Moody's; or (3) if the
notes are not rated, then the issuer's long-term bond rating
must be at least A as determined by Moody's or by S&P.
Short-term discount notes are limited to those obligations rated
A-1 or A-2 by S&P, or Prime-1 or Prime-2 by Moody's or their
equivalents as determined by the Board of Directors. With respect
to short-term discount notes which are not rated, the issuer's
long-term bond rating must be at least A by S&P or Moody's.
One hundred percent of the bonds in Portfolio MM must be rated at
the time of purchase within the two highest grades assigned by
Moody's Investors Service, Inc. (Aaa and Aa), or Standard &
Poor's Corporation (AAA and AA), or of comparable quality as
determined by the Board of Directors. Any municipal bond held in
Portfolio MM- Money Market that is backed by the full faith and
credit of the federal government shall be considered to have a
rating of AAA. Investments in short-term municipal obligations
and notes will be limited to those obligations which at the time
of purchase: (1) are backed by the full faith and credit of the
United States; (2) are rated MIG-1 or MIG-2 by Moody's; or (3)
if the obligations or notes are not rated, then of comparable
quality as determined by the Board of Directors. Short-term
discount notes will be limited to those obligations rated A-1 by
S&P or Prime-1 by Moody's or their equivalents as determined by
the Board of Directors. If the short-term discount notes are not
rated, then they must be of comparable quality as determined by
the Board of Directors.
While the Fund normally maintains at least 80% of each Portfolio
in municipal securities, it may invest any remaining balance in
taxable money market instruments on a temporary basis, if
management believes this action would be in the best interest of
shareholders. Included in this category are: obligations of the
United States of America, its agents or instrumentalities;
certificates of deposit; bankers' acceptances and other
short-term debt obligations of United States banks with total
assets of $1 billion or more; and commercial paper rated A-2 or
better by Standard & Poor's Corp. or Prime-2 or better by Moody's
Investors Service, Inc., or certain rights to acquire these
securities.
The Fund reserves the right to hold cash reserves as management
deems necessary for defensive or emergency purposes.
It is the policy of the Fund not to invest more than 25% of its
assets in any one classification of municipal securities, except
project notes or other tax-exempt obligations which are backed by
the U.S. government.
Should the rating organizations used by the Fund cease to exist
or change their systems, the Fund will attempt to use other
comparable ratings as standards for its investments in municipal
securities in accordance with its investment policies.
For the three years ended June 30, 1995, the annual portfolio
turnover rates were as follows:
Portfolio
Fiscal Turnover
Year Rate
Portfolio L - 1993 126%
Longer Term 1994 53%
1995 __%
Portfolio S - 1993 47%
Shorter Term 1994 21%
1995 __%
Since short-term debt securities with maturities of less than one
year are excluded from calculation of portfolio turnover,
Portfolio MM - Money Market has no portfolio turnover. The Fund
has paid no commissions.
RISK FACTORS PECULIAR TO MUNICIPAL SECURITIES
The values of the Portfolios and in turn the price of their
shares, may increase or decrease whenever interest rates change
on new issues. Normally, Portfolio price volatility declines as
its average maturity shortens. The Money Market Portfolio will
attempt to maintain a constant price, but there is no guarantee.
There also is a possibility that any of the issues may default on
their obligation. Management intends to minimize this risk by
maintaining all Portfolios in issues rated high in quality.
REPURCHASE AGREEMENTS
A repurchase agreement involves the sale of securities to the
Fund with the concurrent agreement by the seller to repurchase
the securities at the Fund's cost plus interest at an agreed rate
upon demand or within a specified time, thereby determining the
yield during the purchaser's period of ownership. The result is a
fixed rate of return insulated from market fluctuations during
such period. Under the Investment Company Act of 1940, repurchase
agreements are considered loans by the Fund.
The Fund will enter into such repurchase agreements only with
United States banks having assets in excess of $1 billion which
are members of the Federal Deposit Insurance Corporation, and
with certain securities dealers who meet the qualifications set
from time to time by the Board of Directors of the Fund. The term
to maturity of a repurchase agreement normally will be no longer
than a few days. Repurchase agreements maturing in more than
seven days and other illiquid securities will not exceed 10% of
the total assets of the Fund.
Risk Factors Applicable to Repurchase Agreements
Repurchase agreements involve investments in debt securities
where the seller (broker-dealer or bank) agrees to repurchase the
securities from the Fund at cost plus an agreed-to interest rate
within a specified time. A risk of repurchase agreements is that
if the seller seeks the protection of the bankruptcy laws, the
Fund's ability to liquidate the security involved could be
temporarily impaired, and it subsequently might incur a loss if
the value of the security declines or if the other party to a
repurchase agreement defaults on its obligation. There is also
the risk that the Fund may be delayed or prevented from
exercising its rights to dispose of the collateral.
INVESTMENT RESTRICTIONS
In addition to the policies set forth under the caption
"Investment Objective and Portfolio Management Policy" the Fund
is subject to certain other restrictions which may not be changed
without approval of the "holders of a majority of the outstanding
shares" of the Fund or the affected Portfolio series. Among these
restrictions, the more important ones are that the Fund
(Portfolio) will not invest in equity securities; purchase the
securities of any issuer if more than 5% of the Fund's total
assets would be invested in the securities of such issuer, or the
Fund would hold more than 10% of any class of securities of such
issuer; borrow money in any Portfolio except for temporary
emergency purposes, and then only in an amount not exceeding 10%
of the value of the total assets of that Portfolio. The full text
of these restrictions is set forth in the "Statement of
Additional Information."
There is no limitation with respect to investments in U.S.
Treasury Bills, or other obligations issued or guaranteed by the
federal government, its agencies and instrumentalities.
PERFORMANCE MEASURES
From time to time, each of the Portfolios may advertise its
performance in various ways, as summarized below. Further
discussion of these matters also appears in the "Statement of
Additional Information." A discussion of Fund performance is
included in the Fund's Annual Report to Shareholders which is
available from the Fund upon request at no charge.
Yield of Portfolio MM
From time to time, Portfolio MM may advertise "yield" and
"effective yield." The "yield" of a Fund refers to the
income generated by an investment over a seven-day period (which
period will be stated in the advertisement). This income is then
annualized. That is, the amount of income generated by the
investment during that week is assumed to be generated each week
over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated
similarly, but, when annualized, the income earned by an
investment in a Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
Portfolio MM may quote its yield in advertisements or in reports
to shareholders. Yield information may be useful in reviewing the
performance of Portfolio MM and in providing a basis for
comparison with other investment alternatives. However, since the
net investment income of Portfolio MM changes in response to
fluctuations in interest rates and Portfolio expenses, any given
yield quotations should not be considered representative of the
Portfolio's yield for any future period. Current yield and price
quotations for the Portfolio may be obtained by telephoning
1-800-4-BABSON (1-800-422-2766), or in the Kansas City area
471-5200.
Total Return of Portfolios L and S
Portfolio L and Portfolio S may advertise "average annual
total return" over various periods of time. Such total return
figures show the average percentage change in value of an
investment in a Portfolio from the beginning date of the
measuring period to the end of the measuring period. These
figures reflect changes in the price of the Portfolio's shares
and assume that any income dividends and/or capital gains
distributions made by the Portfolios during the period were
reinvested in additional shares. Figures will be given for recent
one-, five- and ten-year periods (if applicable), and may be
given for other periods as well (such as from commencement of a
Portfolio's operations, or on a year-by-year basis). When
considering "average" total return figures for periods
longer than one year, it is important to note that a Portfolio's
annual total return for any one year in the period might have
been greater or less than the average for the entire period.
Performance Comparisons
In advertisements or in reports to shareholders, each Portfolio
may compare its performance to that of other mutual funds with
similar investment objectives and to bond or other relevant
indices. Portfolio S and Portfolio L may compare their
performance to rankings prepared by Lipper Analytical Services,
Inc. (Lipper), a widely recognized independent service and to the
Shearson Lehman Hutton Government/Corporate Index, an unmanaged
index of government and corporate bonds, or the Consumer Price
Index. Performance information, rankings, ratings, published
editorial comments and listings as reported in national financial
publications such as Kiplinger s Personal Finance Magazine,
Business Week, Institutional Investor, The Wall Street Journal,
Mutual Fund Forecaster, No-Load Investor, Money, Forbes, Fortune
and Barron's may also be used in comparing performance of the
Fund. Similarly, Portfolio MM may compare its yields to the
Donoghue's Money Fund Average and the Donoghue's Government
Money Fund Average which are averages compiled by Donoghue's
Money Fund Report, a widely recognized independent publication
that monitors the performance of money market mutual funds, or to
the average yield reported by the Bank Rate Monitor for money
market deposit accounts offered by the 50 leading banks and
thrift institutions in the top five standard metropolitan
statistical areas. Performance comparisons should not be
considered as representative of the future performance of any
Fund. Further information regarding the performance of the Fund
is contained in the "Statement of Additional Information."
Performance rankings, recommendations, published editorial
comments and listings reported in Money, Barron's, Kiplinger's
Personal Finance Magazine, Financial World, Forbes, U.S. News &
World Report, Business Week, The Wall Street Journal, Investors
Business Daily, USA Today, Fortune and Stanger's, may also be
cited (if a Fund is listed in any such publication) or used for
comparison, as well as performance listings and rankings from
Morningstar Mutual Funds, Personal Finance, Income and Safety,
The Mutual Fund Letter, No-Load Fund Investor, United Mutual Fund
Selector, No-Load Fund Analyst, No-Load Fund X, Louis Rukeyeser's
Wall Street newsletter, Donoghue's Money Letter, CDA
Investment Technologies, Inc., Wiesenberger Investment Company
Service and Donoghue's Mutual Fund Almanac.
HOW TO PURCHASE SHARES
Shares are purchased at net asset value (no sales charge) from
the Fund through its agent, Jones & Babson, Inc., Three Crown
Center, 2440 Pershing Road, Suite G-15, Kansas City, MO 64108.
For information call toll free 1-800-4-BABSON (1-800-422-2766),
or in the Kansas City area 471-5200. If an investor wishes to
engage the services of any other broker to purchase (or redeem)
shares of the Fund, a fee may be charged by such broker. The Fund
will not be responsible for the consequences of delays including
delays in the banking or Federal Reserve wire systems.
You do not pay a sales commission when you buy shares of the
Fund. Shares are purchased at the Portfolio's net asset value
(price) per share next computed after a purchase order becomes
effective and payment has been received by the Fund. In the case
of certain institutions which have made satisfactory payment
arrangements with the Fund, orders may be processed at the net
asset value per share next effective after a purchase order has
been received by the Fund.
A purchase order becomes effective when it has been received in
the form of federal funds or converted to federal funds and
accepted by the Fund. Payments transmitted by federal funds wire
can become effective upon receipt. Payments transmitted by other
bank wire may take longer to be converted to federal funds. Money
transmitted by check is normally converted into federal funds on
the second business day following receipt. (Federal funds are
deposits made by member banks of the Federal Reserve System with
the Federal Reserve Bank which can be electronically transferred
from one member bank to another.)
The Fund reserves the right in its sole discretion to withdraw
all or any part of the offerings made by the prospectus or to
reject purchase orders when, in the judgment of management, such
withdrawal or rejection is in the best interest of the Fund and
its shareholders. The Fund also reserves the right at any time to
waive or increase the minimum requirements applicable to initial
or subsequent investments with respect to any person or class of
persons, which includes shareholders of the Fund's special
investment programs. The Fund reserves the right to refuse to
accept orders for fund shares unless accompanied by payment,
except when a responsible person has indemnified the Fund against
losses resulting from the failure of investors to make payment.
In the event that the Fund sustains a loss as the result of
failure by a purchaser to make payment, the Fund's underwriter,
Jones & Babson, Inc. will cover the loss.
INITIAL INVESTMENTS
Initial investments - By mail. You may open an account and make
an investment by completing and signing the application which
accompanies this prospectus. Make your check ($1,000 minimum for
each Portfolio selected unless your purchase is pursuant to the
Uniform Transfers (Gifts) to Minors Act, in which case the
minimum initial purchase is $250 for each portfolio selected)
payable to UMB Bank, n.a. Mail your application and check to:
D.L. Babson Tax-Free Income Fund, Inc.
Three Crown Center
2440 Pershing Road, Suite G-15
Kansas City, Missouri 64108
Initial investments - By wire. You may purchase shares of the
Fund by wiring the purchase price ($1,000 minimum for each
Portfolio selected) through the Federal Reserve Bank to the
custodian, UMB Bank, n.a. Prior to sending your money, you must
call the Fund toll free 1-800-4-BABSON (1-800-422-2766), or in
the Kansas City area 471-5200 and provide it with the identity of
the registered account owner, the registered address, the Social
Security or Tax Identification Number of the registered owner,
the amount being wired, the name and telephone number of the
wiring bank and the person to be contacted in connection with the
order. You will then be provided a Fund account number, after
which you should instruct your bank to wire the specified amount,
along with the account number and the account registration to:
UMB Bank, n.a.
Kansas City, Missouri, ABA #101000695
For Babson Tax-Free Income Fund
(insert name and number of Portfolio)
Portfolio L - Longer Term/AC=987032-619-1
Portfolio S - Shorter Term/AC=987032-618-3
Portfolio MM - Money Market/AC=987032-617-5
OBI=(assigned Fund number and name in which registered.)
A completed application must be sent to the Fund as soon as
possible so the necessary remaining information can be recorded
in your account. No redemptions can occur until this is done.
INVESTMENTS SUBSEQUENT TO INITIAL INVESTMENT
You may add to your Fund account at any time in amounts of $100
or more if purchases are made by mail, or $1,000 or more if
purchases are made by wire or telephone. Automatic monthly
investments must be in amounts of $100 or more.
Checks should be mailed to the Fund at its address, but make them
payable to UMB Bank, n.a. Always identify your account number or
include the detachable reminder stub which accompanies each
confirmation.
Wire share purchases should include your account registration,
your account number and the Babson Fund (Portfolio) in which you
are purchasing shares. It also is advisable to notify the Fund by
telephone that you have sent a wire purchase order to the bank.
TELEPHONE INVESTMENT SERVICE
To use the Telephone Investment Service, you must first establish
your Fund account and authorize telephone orders in the
application form, or, subsequently, on a special authorization
form provided upon request. If you elect the Telephone Investment
Service, you may purchase Fund shares by telephone and authorize
the Fund to draft your checking account for the cost of the
shares so purchased. You will receive the next available price
after the Fund has received your telephone call. Availability and
continuance of this privilege is subject to acceptance and
approval by the Fund and all participating banks. During periods
of increased market activity, you may have difficulty reaching
the Fund by telephone, in which case you should contact the Fund
by mail or telegraph. The Fund will not be responsible for the
consequences of delays including delays in the banking or Federal
Reserve wire systems.
The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if such
procedures are not followed, the Fund may be liable for losses
due to unauthorized or fraudulent instructions. Such procedures
may include, but are not limited to requiring personal
identification prior to acting upon instructions received by
telephone, providing written confirmations of such transactions,
and/or tape recording of telephone instructions.
The Fund reserves the right to initiate a charge for this service
and to terminate or modify any or all of the privileges in
connection with this service at any time upon 15 days written
notice to shareholders, and to terminate or modify the privileges
without prior notice in any circumstances where such termination
or modification is in the best interest of the Fund and its
investors.
AUTOMATIC MONTHLYINVESTMENT PLAN
You may elect to make monthly investments in a constant dollar
amount from your checking account ($100 minimum). The Fund will
draft your checking account on the same day each month in the
amount you authorize in your application, or, subsequently, on a
special authorization form provided upon request. Availability
and continuance of this privilege is subject to acceptance and
approval by the Fund and all participating banks. If the date
selected falls on a day upon which the Fund shares are not
priced, investment will be made on the first date thereafter upon
which Fund shares are priced. The Fund will not be responsible
for the consequences of delays including delays in the banking or
Federal Reserve wire systems.
The Fund reserves the right to initiate a charge for this service
and to terminate or modify any or all of the privileges in
connection with this service at any time upon 15 days written
notice to shareholders, and to terminate or modify the privileges
without prior notice in any circumstances where such termination
or modification is in the best interest of the Fund and its
investors.
HOW TO REDEEM SHARES
Shareholders registered in the stock records of the Fund may
withdraw all or part of their investment by redeeming shares for
which the Fund has received unconditional payment in the form of
federal funds or such payment has been converted to federal funds
and accepted by the Fund. For your convenience, and to enable
your account to continue earning daily dividends as long as
possible, the Fund offers several redemption procedures.
Portfolio L - Longer Term and Portfolio S - Shorter Term - You
may redeem shares from these Portfolios only by mail. In the case
of certain institutions which have made satisfactory redemption
arrangements with the Fund, redemption orders may be processed by
facsimile or telephone transmission at net asset value per share
next effective after receipt by the Fund. If an investor wishes
to engage the services of any other broker to redeem (or
purchase) shares of the Fund, a fee may be charged by such
broker.
Portfolio MM - Money Market - You may redeem shares from this
Portfolio by mail, telephone/telegraph or by "check"
(draft) if you have met all of the conditions as hereinafter
prescribed for these features.
In each instance you must comply with the general requirements
relating to all redemptions as well as with specific requirements
set out for the particular redemption method you select. If you
wish to expedite redemptions by using the telephone/telegraph or
draft writing (check) privileges, you should carefully note the
special requirements and limitations relating to these methods,
(available for Portfolio MM - Money Market only).
Where additional documentation is normally required to support
redemptions as in the case of corporations, fiduciaries, and
others who hold shares in a representative or nominee capacity
such as certified copies of corporate resolutions, or
certificates of incumbency, or such other documentation as may be
required under the Uniform Commercial Code or other applicable
laws or regulations, it is the responsibility of the shareholder
to maintain such documentation on file and in a current status. A
failure to do so will delay the redemption. If you have questions
concerning redemption requirements, please write or telephone the
Fund well ahead of an anticipated redemption in order to avoid
any possible delay.
Requests which are subject to special conditions or which specify
an effective date other than as provided herein cannot be
accepted. All redemption requests must be transmitted to the Fund
at Three Crown Center, 2440 Pershing Road, Suite G-15, Kansas
City, Missouri 64108. Shareholders who have authorized telephone
redemption (Portfolio MM only) may call toll free 1-800-4-BABSON
(1-800-422-2766), or in the Kansas City area 471-5200. The Fund
will redeem shares at the price (net asset value per share) next
computed after receipt of a redemption request in "good
order." (For more information on how the Fund intends to
maintain a constant price for shares of Portfolio MM, see
"How Share Price is Determined," page 17.)
The Fund will endeavor to transmit redemption proceeds to the
proper party, as instructed, as soon as practicable after a
redemption request has been received in "good order" and
accepted, but in no event later than the seventh day thereafter.
Transmissions are made by mail unless an expedited method has
been authorized and specified in the redemption request. The Fund
will not be responsible for the consequences of delays including
delays in the banking or Federal Reserve wire systems.
Redemptions will not become effective until all documents in the
form required have been received. In the case of redemption
requests made within 15 days of the date of purchase, the Fund
will delay transmission of proceeds until such time as it is
certain that unconditional payment in federal funds has been
collected for the purchase of shares being redeemed or 15 days
from the date of purchase. You can avoid the possibility of delay
by paying for all of your purchases with a transfer of federal
funds.
Shares redeemed will be entitled to receive all dividends
declared through the date of redemption. If you redeem all of the
shares in your account, in addition to the share redemption
check, a separate check representing all dividends declared but
unpaid on the shares redeemed will be distributed on the next
dividend payment date, according to your dividend instructions on
file with the fund. Any amount due you in your declared but
unpaid dividend account cannot be redeemed by draft.
Signature Guarantees are required in connection with all
redemptions by mail, or changes in share registration, except as
hereinafter provided. These requirements may be waived by the
Fund in certain instances where it appears reasonable to do so
and will not unduly affect the interests of other shareholders.
Signature(s) must be guaranteed by an "eligible Guarantor
institution" as defined under Rule 17Ad-15 under the
Securities Exchange Act of 1934. Eligible guarantor institutions
include: (1) national or state banks, savings associations,
savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national
securities exchanges, registered securities associations and
clearing agencies; or (3) securities broker/dealers which are
members of a national securities exchange or clearing agency or
which have a minimum net capital of $100,000. A notarized
signature will not be sufficient for the request to be in proper
form.
Signature guarantees will be waived for mail redemptions of
$10,000 or less, but they will be required if the checks are to
be payable to someone other than the registered owner(s), or are
to be mailed to an address different from the registered address
of the shareholder(s), or where there appears to be a pattern of
redemptions designed to circumvent the signature guarantee
requirement, or where the Fund has other reason to believe that
this requirement would be in the best interests of the Fund and
its shareholders.
The right of redemption may be suspended or the date of payment
postponed beyond the normal seven-day period when the New York
Stock Exchange is closed or under emergency circumstances as
determined by the Securities and Exchange Commission. Further,
the Fund reserves the right to redeem its shares in kind under
certain circumstances. If shares are redeemed in kind, the
shareholder may incur brokerage costs when converting into cash.
Additional details are set forth in the "Statement of
Additional Information."
Due to the high cost of maintaining smaller accounts, the Board
of Directors has authorized the Fund to close shareholder
accounts where their value falls below the current minimum
initial investment requirement at the time of initial purchase as
a result of redemptions and not as the result of market action,
and remains below this level for 60 days after each such
shareholder account is mailed a notice of: (1) the Fund's
intention to close the account, (2) the minimum account size
requirement, and (3) the date on which the account will be closed
if the minimum size requirement is not met.
Withdrawal By Mail - Shares may be redeemed by mailing your
request to the Fund. To be in "good order" the request
must include the following:
(1) A written redemption request or stock assignment (stock
power) containing the genuine signature of each registered owner
exactly as the shares are registered with clear identification of
the account by registered name(s) and account number and the
number of shares or the dollar amount to be redeemed;
(2) any outstanding stock certificates representing shares
to be redeemed;
(3) signature guarantees as required; and
(See Signature Guarantees page 13.)
(4) any additional documentation which the Fund may deem
necessary to insure a genuine redemption.
Withdrawal By Telephone or Telegraph (Portfolio MM only) You may
withdraw any amount of $1,000 or more by telephone toll free
1-800-4-BABSON (1-800-422-2766), or in the Kansas City area
471-5200, or by telegram to the Fund's address.
Telephone/telegraph redemption authorization signed by all
registered owners with signatures guaranteed must be on file with
the Fund before you may redeem by telephone or telegraph. The
signature guarantee requirement may be waived by the Fund if the
request for this redemption method is made at the same time the
initial application to purchase shares is submitted.
All communications must include the Fund's name, Portfolio name,
your account number, the exact registration of your shares, the
number of shares or dollar amount to be redeemed, and the
identity of the bank and bank account (name and number) to which
the proceeds are to be wired. This procedure may only be used for
non-certificated shares held in open account. For the protection
of shareholders, your redemption instructions can only be changed
by filing with the Fund new instructions on a form obtainable
from the Fund which must be properly signed with signature(s)
guaranteed.
Telephone or telegraph redemption proceeds may be transmitted to
your pre-identified bank account either by wire or mail to a
domestic commercial bank which is a member of the Federal Reserve
System as designated by you on your pre-authorization form. If
you elect to have proceeds wired to your bank, and your request
is received prior to 1:00 P.M. (Eastern Time), proceeds normally
will be wired the following business day. If your request is
received during the day thereafter, proceeds normally will be
wired on the second business day following the day of receipt of
your request. It is the Fund's present policy not to assess wire
charges on amounts of $5,000 or more. A charge of $5 normally
will be made on lesser amounts, but this charge may be reduced or
waived in connection with master accounts. The Fund reserves the
right to change this policy or to refuse a telephone or telegraph
redemption request or require additional documentation to assure
a genuine redemption, and, at its option, may pay such redemption
by wire or check and may limit the frequency or the amount of
such request. The Fund reserves the right to terminate or modify
any or all of the services in connection with this privilege at
any time without prior notice. Neither the Fund nor Jones &
Babson, Inc. assumes responsibility for the authenticity of
withdrawal instructions, and there are provisions on the
authorization form limiting their liability in this respect.
Withdrawal by Draft ("Check") (Portfolio MM only) - This
method of redemption is limited to open account shares. You may
elect this method of redemption on your initial application, or
on a form which will be sent to you upon request. All signatures
must be guaranteed unless this method of redemption is elected on
your initial application. The authorization form, which all
registered owners must sign, also contains a provision relieving
the Fund and Jones & Babson, Inc. from liability for loss, if
any, which you may sustain arising out of a non-genuine
redemption pursuant to this redemption feature. Any additional
documentation required to assure a genuine redemption must be
maintained on file with the Fund in such current status as the
Fund may deem necessary. A new form properly signed, with
signature(s) guaranteed must be received and accepted by the Fund
before authorized redemption instructions already on file with
the Fund can be changed.
When the draft authorization form is received by the Fund in
"good order" and accepted, you will be provided a supply of
drafts ("checks") which may be drawn on the Fund. Drafts
must be deposited in a bank account of the payee to be cleared
through the banking system in order to be presented to the Fund
for payment through UMB Bank, n.a. An additional supply of drafts
will be furnished upon request. There presently is no charge for
these drafts or their clearance. However, the Fund and UMB Bank,
n.a. reserve the right to make reasonable charges and to
terminate or modify any or all of the services in connection with
this privilege at any time and without prior notice.
These drafts must be signed by all registered owners exactly as
the shares are registered, except that if shares are owned in
joint tenancy, drafts may be signed by any one joint owner unless
otherwise indicated on the application. They may be made payable
to the order of any person in any amount ranging from $500 to
$100,000. The bank of the draft payee must present it for
collection through UMB Bank, n.a. which delivers it to the Fund
for redemption of a sufficient number of shares to cover the
amount of the draft. Dividends will be earned by the shareholder
on the draft proceeds until it clears at UMB Bank, n.a. Drafts
will not be honored by the Fund and will be returned unpaid if
there are insufficient open account shares to meet the withdrawal
amount. The Fund reserves the right to withhold the bank's
redemption request until it determines that it has received
unconditional payment in federal funds for at least the number of
shares required to be redeemed to make payment on the draft. If
such a delay is necessary, the bank may return the draft not
accepted (by the Fund) because there are not sufficient shares
for which good payment has been received in the shareholder
account. Dividends declared but not yet paid to you cannot be
withdrawn by drafts. Drafts (checks) written on the Babson
Tax-Free Income Fund (Portfolio MM) should not be used as a
redemption form or for the transfer of shares to another Babson
Fund unless the registration of the accounts involved is
identical.
SYSTEMATIC REDEMPTION PLAN
If you own shares in an open account valued at $10,000 or more,
and desire to make regular monthly or quarterly withdrawals
without the necessity and inconvenience of executing a separate
redemption request to initiate each withdrawal, you may enter
into a Systematic Withdrawal Plan by completing forms obtainable
from the Fund. For this service, the manager may charge you a fee
not to exceed $1.50 for each withdrawal. Currently the manager
assumes the additional expenses arising out of this type of plan,
but it reserves the right to initiate such a charge at any time
in the future when it deems it necessary. If such a charge is
imposed, participants will be provided 30 days notice.
Subject to a $50 minimum, you may withdraw each period a
specified dollar amount. Shares also may be redeemed at a rate
calculated to exhaust the account at the end of a specified
period of time.
Dividends and capital gains distributions must be reinvested in
additional shares. Under all withdrawal programs, liquidation of
shares in excess of dividends and distributions reinvested will
diminish and may exhaust your account, particularly during a
period of declining share values.
You may revoke or change your plan or redeem all of your
remaining shares at any time. Withdrawal payments will be
continued until the shares are exhausted or until the Fund or you
terminate the plan by written notice to the other.
HOW TO EXCHANGE SHARES BETWEEN PORTFOLIOS AND BABSON FUNDS
Shareholders may exchange without a waiting period their shares
of Portfolio MM which are held in open account, and shareholders
may exchange their shares of Portfolio S and Portfolio L if held
in open account for 30 days or more for identically registered
shares of any other Babson Fund, or any other Portfolio in the
Babson Fund Group which is legally registered for sale in the
state of residence of the investor, except Babson Enterprise
Fund, Inc., provided that the minimum amount exchanged has a
value of $1,000 or more and meets the minimum investment
requirement of the Fund or Portfolio into which it is exchanged.
Effective at the close of business on January 31, 1992, the
Directors of the Babson Enterprise Fund, Inc. took action to
limit the offering of that Fund's shares. Babson Enterprise Fund,
Inc. will not accept any new accounts, including IRAs and other
retirement plans, until further notice, nor will Babson
Enterprise Fund accept transfers from shareholders of other
Babson Funds, who were not shareholders of record of Babson
Enterprise Fund at the close of business on January 31, 1992.
Investors may want to consider purchasing shares in Babson
Enterprise Fund II, Inc. as an alternative.
To authorize the Telephone/Telegraph Exchange Privilege, all
registered owners must sign the appropriate section on the
original application, or the Fund must receive a special
authorization form, provided upon request. During periods of
increased market activity, you may have difficulty reaching the
Fund by telephone, in which case you should contact the Fund by
mail or telegraph. The Fund reserves the right to initiate a
charge for this service and to terminate or modify any or all of
the privileges in connection with this service at any time and
without prior notice under any circumstances where continuance of
these privileges would be detrimental to the Fund or its
shareholders such as an emergency, or where the volume of such
activity threatens the ability of the Fund to conduct business,
or under any other circumstances, upon 60 days written notice to
shareholders. The Fund will not be responsible for the
consequences of delays including delays in the banking or Federal
Reserve wire systems.
The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if such
procedures are not followed, the Fund may be liable for losses
due to unauthorized or fraudulent instructions. Such procedures
may include, but are not limited to requiring personal
identification prior to acting upon instructions received by
telephone, providing written confirmations of such transactions,
and/or tape recording of telephone instructions.
Exchanges by mail may be accomplished by a written request
properly signed by all registered owners identifying the account,
the number of shares or dollar amount to be redeemed for
exchange, and the Babson Fund into which the account is being
transferred.
If you wish to exchange part or all of your shares in the Fund
for shares of another Fund or Portfolio in the Babson Fund Group,
you should review the prospectus of the Fund to be purchased
which can be obtained from Jones & Babson, Inc. Any such exchange
will be based on the respective net asset values of the shares
involved. Any exchange between Funds or Portfolios involves the
sale of an asset. Unless the shareholder account is tax-deferred,
this is a taxable event.
HOW SHARE PRICE IS DETERMINED
In order to determine the price at which new shares will be sold
and at which issued shares presented for redemption will be
liquidated, the net asset value per share of each Portfolio is
computed once daily, Monday through Friday, at the specific time
during the day that the Board of Directors sets at least
annually, except on days on which changes in the value of
portfolio securities will not materially affect the net asset
value, or days during which no security is tendered for
redemption and no order to purchase or sell such security is
received by the Fund, or customary holidays. For a list of the
holidays during which the Fund is not open for business, see
"How Share Price is Determined" in the "Statement of
Additional Information."
The prices for Portfolio S and Portfolio L are determined at 4:00
P.M.(Eastern Time). The price for Portfolio MM is determined at
1:00 P.M. (Eastern Time), except on those days when the Fund is
not open for business.
The per share calculation is made by subtracting from each
Portfolio's total assets any liabilities and then dividing into
this amount the total outstanding shares as of the date of the
calculation.
Portfolio L and Portfolio S - Securities in Portfolio L and
Portfolio S for which market quotations are readily available are
valued at the mean between the most recent bid and asked prices
which may be furnished by a pricing service or directly by market
makers for such securities. Portfolio securities for which market
quotations are not readily available, and other assets, will be
valued at fair value using methods determined in good faith by
the Board of Directors and may include yield equivalents (bonds
are frequently quoted on the basis of yield), which will be
applied on a consistent basis. This shall include valuations
which may be furnished by a pricing service which may employ
electronic data processing techniques, including a matrix system
to determine valuations. Short-term instruments maturing within
60 days of the valuation date may be valued at cost plus or minus
any amortized discount or premium. The Board of Directors will
review valuation methods regularly in order to determine their
appropriateness.
Portfolio MM - Normally Portfolio MM's price will be $1.00 per
share. Although unlikely, it still is possible that the value of
the shares you redeem may be more or less than your cost
depending on the market value of the Portfolio's securities at
the time a redemption becomes effective. The Fund has received an
order of exemption permitting the Money Market Portfolio to value
its assets on the basis of amortized cost.
The valuation of securities based upon amortized cost does not
take into account unrealized capital gains or losses. Using
amortized cost, an instrument is valued at its cost and
thereafter a constant amortization to maturity of any discount or
premium is assumed, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or
lower than the price the Portfolio would receive if it sold the
instrument. During periods of declining interest rates, the daily
yield on shares of the Portfolio computed as described above may
tend to be higher than a like computation made by a fund with
identical investments utilizing a method of valuation based upon
market prices and estimates of market prices for its portfolio
instruments. Thus, if the use of amortized cost by the Portfolio
resulted in a lower aggregate Portfolio value on a particular
day, a prospective investor in the Portfolio would be able to
obtain a somewhat higher yield than would result from investment
in a fund utilizing market values, and existing investors in the
Portfolio would receive less investment income. The converse
would apply in a period of rising interest rates.
The Exemptive Order permitting the Money Market Portfolio to
value its assets on the basis of amortized cost and to maintain a
stable net asset value of $1.00 per share, is subject to certain
conditions which have been agreed to by the Fund. Accordingly,
the Fund maintains a dollar-weighted average Portfolio maturity
for the Money Market Portfolio of 90 days or less, and has agreed
to purchase instruments having remaining maturities not exceeding
one year, and to invest only in securities determined by the
Board of Directors to be of good quality with minimal credit
risks.
The Directors have established procedures designed to maintain
the Money Market Portfolio's price per share, as computed for
the purpose of sales and redemptions, at $1.00. These procedures
include a review of the Portfolio's holdings by the Directors at
such intervals as they deem appropriate to determine whether the
Portfolio's net asset value calculated by using available market
quotations deviates from $1.00 per share based on amortized cost.
If any deviation exceeds one-half of one percent, the Directors
will promptly consider what action, if any, will be initiated. In
the event the Directors determine that a deviation exists which
may result in material dilution or other unfair results to
investors or existing shareholders, they have agreed to take such
corrective action as they regard as necessary and appropriate,
including the sale of Portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average Portfolio
maturity; withhold dividends; make a special capital
distribution; redeem shares in kind; or establish net asset value
per share using available market quotations.
OFFICERS AND DIRECTORS
The officers of the Fund manage its day-to-day operations. The
Fund's manager and its officers are subject to the supervision
and control of the Board of Directors. A list of the officers and
directors of the Fund and a brief statement of their present
positions and principal occupations during the past five years is
set forth in the "Statement of Additional Information."
MANAGEMENT AND INVESTMENT COUNSEL
Jones & Babson, Inc. was founded in 1960. It organized the Fund
in 1979, and acts as its manager and principal underwriter.
Pursuant to the current Management Agreement, Jones & Babson,
Inc. provides or pays the cost of all management, supervisory and
administrative services required in the normal operation of the
Fund. This includes investment management and supervision; fees
of the custodian, independent public accountants and legal
counsel; remuneration of officers, directors and other personnel;
rent; shareholder services, including maintenance of the
shareholder accounting system and transfer agency; and such other
items as are incidental to corporate administration.
Not considered normal operating expenses, and therefore payable
by the Fund, are taxes, interest, governmental charges and fees,
including registration of the Fund and its shares with the
Securities and Exchange Commission and the Securities Departments
of the various States, brokerage costs, dues, and all
extraordinary costs and expenses including but not limited to
legal and accounting fees incurred in anticipation of or arising
out of litigation or administrative proceedings to which the
Fund, its officers or directors may be subject or a party
thereto.
As a part of the Management Agreement, Jones & Babson, Inc.
employs at its own expense David L. Babson & Co. Inc. as its
investment counsel to assist in the investment advisory function.
David L. Babson & Co. Inc. is an independent investment
counseling firm founded in 1940. It serves a broad variety of
individual, corporate and other institutional clients by
maintaining an extensive research and analytical staff. It has an
experienced investment analysis and research staff which
eliminates the need for Jones & Babson, Inc. and the Fund to
maintain an extensive duplicate staff, with the consequent
increase in the cost of investment advisory service. The cost of
the services of David L. Babson & Co. Inc. is included in the fee
of Jones & Babson, Inc. The Management Agreement limits the
liability of the manager and its investment counsel, as well as
their officers, directors and personnel, to acts or omissions
involving willful malfeasance, bad faith, gross negligence, or
reckless disregard of their duties. Joanne E. Keers has been the
portfolio manager of Babson Tax-Free Portfolio MM since 1989. She
joined David L. Babson & Co. in 1987 and has seven years
investment management experience. Joel M. Vernick has been the
portfolio manager of Portfolios L and S since 1986. He is
Chartered Financial Analyst. He joined David L. Babson & Co. in
1986 and has 15 years investment management experience.
As compensation for all the foregoing services, Portfolio L and
Portfolio S pay Jones & Babson, Inc. a fee at the annual rate of
95/100 of one percent (.95%) of each Portfolio's average daily
net assets, which is computed daily and paid semimonthly, from
which Jones & Babson, Inc. pays David L. Babson & Co. Inc. a fee
of 25/100 of one percent (.25%). Portfolio MM pays Jones &
Babson, Inc. a fee at the annual rate of 50/100 of one percent
(.50%) computed daily and paid semimonthly, from which Jones &
Babson, Inc. pays David L. Babson & Co. Inc. a fee of 10/100 of
one percent (.10%).
The annual fee charged by Jones & Babson, Inc. covers all normal
operating costs of the Fund. As a result, it is higher than the
fees of some other investment advisers whose charges cover only
investment advisory services with all remaining operational
expenses absorbed directly by the Fund. Yet, it compares
favorably with these other advisers when all expenses to Fund
shareholders are taken into account. The total expenses of the
Fund for the fiscal year ended June 30, 1995, amounted to ____%
of the average net assets for Portfolio L; ____% for Portfolio S
and ___% for Portfolio MM. Per share expenses of the three series
may differ due to differences in registration fees.
Certain officers and directors of the Fund are also officers or
directors or both of other Babson Funds, Jones & Babson, Inc. or
David L. Babson and Co. Inc.
Jones & Babson, Inc. is a wholly-owned subsidiary of Business
Men's Assurance Company of America which is considered to be a
controlling person under the Investment Company Act of 1940.
Assicurazioni Generali S.p.A., an insurance organization founded
in 1831 based in Trieste, Italy, is considered to be a
controlling person and is the ultimate parent of Business Men's
Assurance Company of America. Mediobanca is a 5% owner of
Generali.
On June 30, 1995, David L. Babson & Co. Inc.,
the investment counsel, became a wholly-owned
subsidiary of Massachusetts Mutual Life
Insurance Company, a leading provider of
individual life insurance. annuities, employee
group life, health, pension and investment
services headquartered in Springfield,
Massachusetts. There were no changes to the
personnel of David L. Babson & Co. Inc. and no
changes in the investment policies or operations
of the Funds.
The current Management Agreement between the Fund and Jones &
Babson, Inc., which includes the Investment Counsel Agreement
between Jones & Babson, Inc. and David L. Babson & Co. Inc., will
continue in effect until October 31, 1996, and will continue
automatically for successive annual periods ending each October
31 so long as such continuance is specifically approved at least
annually by the Board of Directors of the Fund or by the vote of
a majority of the outstanding voting securities of the Fund, and,
provided also that such continuance is approved by the vote of a
majority of the directors who are not parties to the Agreements
or interested persons of any such party at a meeting held in
person and called specifically for the purpose of evaluating and
voting on such approval. Both Agreements provide that either
party may terminate by giving the other 60 days written notice.
The Agreements terminate automatically if assigned by either
party.
GENERAL INFORMATION AND HISTORY
The Fund, incorporated in Maryland on August 22, 1979, has a
present authorized capitalization of 200,000,000 shares of $.10
par value common stock to be issued in three separate classes
("Portfolios"). Each full and fractional share, when issued and
outstanding, has: (1) equal voting rights with respect to matters
which affect the Fund in general and with respect to matters
relating solely to the interests of the Portfolio for which
issued, and (2) equal dividend, distribution and redemption
rights to the assets of the Portfolio for which issued and to
general assets, if any, of the Fund which are not specifically
allocated to a particular Portfolio. Shares when issued are fully
paid and non-assessable. Except for the priority of each share in
the assets of its Portfolio, the Fund will not issue any class of
securities senior to any other class. Shareholders do not have
pre-emptive or conversion rights. The Fund may issue additional
series of stock with the approval of the Fund's Board of
Directors.
Non-cumulative voting - These shares have non-cumulative voting
rights, which means that the holders of more than 50% of the
shares voting for the election of directors can elect 100% of the
directors, if they choose to do so, and in such event, the
holders of the remaining less than 50% of the shares voting will
not be able to elect any directors. Each series will vote
separately on investment advisory agreements, changes in
fundamental policies, and other matters affecting each series
separately.
The Maryland Statutes permit registered investment companies,
such as the Fund, to operate without an annual meeting of
shareholders under specified circumstances if an annual meeting
is not required by the Investment Company Act of 1940. There are
procedures whereby the shareholders may remove directors. These
procedures are described in the "Statement of Additional
Information" under the caption "Officers and Directors."
The Fund has adopted the appropriate provisions in its By-Laws
and may not, at its discretion, hold annual meetings of
shareholders for the following purposes unless required to do so:
(1) election of directors; (2) approval of any investment
advisory agreement; (3) ratification of the selection of
independent public accountants; and (4) approval of a
distribution plan. As a result, the Fund does not intend to hold
annual meetings.
The Fund may use the name "Babson" in its name so long as Jones &
Babson, Inc. is continued as manager and David L. Babson & Co.
Inc. as its investment counsel. Complete details with respect to
the use of the name are set out in the Management Agreement
between the Fund and Jones & Babson, Inc.
This prospectus omits certain of the information contained in the
registration statement filed with the Securities and Exchange
Commission, Washington, D.C. These items may be inspected at the
offices of the Commission or obtained from the Commission upon
payment of the fee prescribed.
DIVIDENDS, DISTRIBUTIONS AND THEIR TAXATION
At the close of each business day, dividends consisting of
substantially all of each Portfolio's net investment income are
declared payable to shareholders of record at the close of the
previous business day, and credited to their accounts. All daily
dividends declared during a given month will be distributed on
the last day of the month. Dividend and capital gains
distributions, if any, are automatically reinvested in additional
shares at net asset value, unless the shareholder has elected in
writing to receive cash. The method of payment elected remains in
effect until the Fund is notified in writing to the contrary. If
at the time of a complete redemption and closing of a shareholder
account, there is net undistributed income to the credit of the
shareholder, it will be paid by separate check on the next
dividend distribution date. In the case of a partial redemption,
any net undistributed credit will be distributed on the next
dividend date according to the shareholder's instructions on
file with the Fund.
Shares begin earning income on the day following the effective
date of purchase. Income earned by the Fund on weekends, holidays
and other days on which the Fund is closed for business is
declared as a dividend on the next day on which the Fund is open
for business, except for month-ends when such dividend is
declared as of the last day of the month.
Shareholders are notified annually by the Fund as to the Federal
tax status of dividends and distributions paid by each Portfolio
during the calendar year.
Each Portfolio within the Fund has qualified and intends to
continue to qualify for taxation as a "regulated investment
company" under the Internal Revenue Code so that each Portfolio
will not be subject to Federal income tax to the extent that it
distributes its income to its shareholders. In addition each
Portfolio intends to invest a sufficient portion of its assets in
municipal bonds and municipal notes so that it will qualify to
pay "exempt-interest dividends" (as defined in the
Internal Revenue Code) to shareholders. The dividends payable by
a Portfolio from net tax-exempt interest from municipal bonds
will qualify as exempt-interest dividends if, at the close of
each quarter of its taxable year, at least 50% of the value of
the total assets of such Portfolio consists of municipal bonds.
Exempt-interest dividends distributed to shareholders are not
includable in the shareholder's gross income for Federal income
tax purposes. Any insurance proceeds which represent maturing
interest on defaulted municipal obligations held by a Portfolio
will be excludable from Federal gross income. Distributions of
net investment income received by a Portfolio from investments in
debt securities other than municipal obligations, and any net
realized short-term capital gains distributed by a Portfolio,
will be taxable to the shareholders as ordinary income and will
not be eligible for the dividends-received deduction for
corporations. Further, any distribution of net realized capital
gains will generally be subject to taxation at the state and
local level.
Any loss incurred on sale or exchange of shares, held for six
months or less, will be disallowed to the extent of
exempt-interest dividends received with respect to such shares.
The Tax Reform Act of 1986 imposes certain additional
restrictions on the use of tax-exempt bond financing for
non-governmental business activities, such as industrial
development bonds. Accordingly, interest on certain types of
non-essential, or private activity bonds may no longer be exempt
from Federal income tax. Interest on other types of non-essential
or private activity bonds while still tax-exempt, will be treated
as a tax preference item for corporate and individual investors
in determining their liability in tax years beginning after 1986.
Whether paid in cash or additional shares of a Portfolio, and
regardless of the length of time the shares in such Portfolio
have been owned by the shareholder, distributions from long-term
capital gains are taxable to shareholders as such, but are not
eligible for the dividends-received deduction for corporations.
Information as to tax status of dividends will be provided
annually showing on an average basis that portion which is
taxable and that portion which is tax-exempt based on income
received during the previous year. Shareholders who have not been
in a Portfolio for a full fiscal year may have designated as
tax-exempt a percentage of income which is not equivalent to the
actual amount applicable to the period for which they have held
shares. Such dividends and distributions may also be subject to
state and local taxes.
Exchanges and redemptions of shares in a Portfolio are taxable
events for Federal income tax purposes. Shareholders may also be
subject to state and municipal taxes on such exchanges and
redemptions. You should consult your tax adviser with respect to
the tax status of distributions from the Fund in your state and
locality.
Each Portfolio intends to declare and pay dividends and capital
gains distributions so as to avoid imposition of the federal
excise tax. To do so, each Portfolio expects to distribute during
the calendar year an amount equal to: (1) 98% of its calendar
year ordinary income; (2) 98% of its capital gains net income
(the excess of short- and long-term capital gain over short- and
long-term capital loss) for the one-year period ending each
October 31; and (3) 100% of any undistributed ordinary or capital
gain net income from the prior calendar year. Dividends declared
in December by a Portfolio will be deemed to have been paid by
such Portfolio and received by shareholders on December 31
provided that the dividends are paid before February 1 of the
following year.
Pursuant to the Social Security Act Amendments of 1983, up to 50%
of a social security recipient's benefits may be included in
federal taxable income for benefit recipients whose adjusted
gross income (including income from the tax-exempt sources such
as tax-exempt bonds in each Portfolio) plus 50% of their benefits
exceeds certain established amounts.To comply with IRS
regulations, the Fund is required by federal law to withhold 31%
of reportable payments (which may include dividends, capital
gains distributions, and redemptions) paid to shareholders who
have not complied with IRS regulations. In order to avoid this
withholding requirement, shareholders must certify on their
Application, or on a separate form supplied by the Fund, that
their Social Security or Taxpayer Identification Number provided
is correct and that they are not currently subject to backup
withholding, or that they are exempt from backup withholding.
The exemption of interest income for federal income tax purposes
may not result in similar exemptions under the laws of a
particular state or local taxing authority. The Fund will report
annually to its shareholders the percentage and source, on a
state-by-state basis, of interest income earned on municipal
securities held be each Portfolio during the preceding year.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN
TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN
INVESTMENT IN THE FUND.
SHAREHOLDER SERVICES
The Fund and its manager offer shareholders a broad variety of
services described throughout this prospectus. In addition, the
following services are available:
Automatic Monthly Investment - You may elect to make monthly
investments in a constant dollar amount from your checking
account ($100 minimum). The Fund will draft your checking account
on the same day each month in the amount you authorize in your
application, or, subsequently, on a special authorization form
provided upon request.
Automatic Reinvestment - Dividends and capital gains
distributions may be reinvested automatically, or shareholders
may elect to have dividends paid in cash and capital gains
reinvested, or to have both paid in cash.Telephone Investments --
You may make investments of $1,000 or more by telephone if you
have authorized such investments in your application, or,
subsequently, on a special authorization form provided upon
request. See "Telephone Investment Service."
Automatic Exchange - You may exchange shares from your account
($100 minimum) in any of the Babson Funds to an identically
registered account in any other fund in the Babson Group except
Babson Enterprise Fund, Inc. according to your instructions.
Monthly exchanges will be continued until all shares have been
exchanged or until you terminate the Automatic Exchange
authorization. A special authorization form will be provided upon
request.
Transfer of Ownership - A shareholder may transfer shares to
another shareholder account. The requirements which apply to
redemptions apply to transfers. A transfer to a new account must
meet initial investment requirements.
Systematic Redemption Plan - Shareholders who own shares in open
account valued at $10,000 or more may arrange to make regular
withdrawals without the necessity of executing a separate
redemption request to initiate each withdrawal.
Sub-Accounting - Investors who must maintain separate participant
accounting records may meet these needs through services provided
by the Fund's manager, Jones & Babson, Inc. Investment minimums
may be met by accumulating the separate accounts of the group.
Although there is currently no charge for sub-accounting, the
Fund and its manager reserve the right to make reasonable charges
for this service.
SHAREHOLDER INQUIRIES
Telephone inquiries may be made toll free to the Fund,
1-800-4-BABSON (1-800-422-2766), or in the Kansas City area
471-5200.
Shareholders may address written inquiries to the Fund at:
D.L. Babson Tax-Free Income Fund, Inc.
Three Crown Center
2440 Pershing Road, Suite G-15
Kansas City, MO 64108
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
TRANSFER AGENT
JONES & BABSON, INC.
Kansas City, Missouri
<PAGE>
PART B
D.L. BABSON TAX-FREE INCOME FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
October 31, 1995
This Statement is not a prospectus but should be read in conjunction with
the Fund's current Prospectus dated October 31, 1995. To obtain the
Prospectus please call the Fund toll free 1-800-4- BABSON (1-800-422-2766),
or in the Kansas City area 471-5200.
TABLE OF CONTENTS
Page
Investment Objective and Policies
Portfolio Transactions
Investment Restrictions
Performance Measures
How the Fund's Shares are Distributed
How Share Purchases are Handled
Redemption of Shares
Signature Guarantees
Management and Investment Counsel
How Share Price is Determined
Officers and Directors
Custodian
Independent Public Accountants
Other Jones & Babson Funds
Municipal Securities Described and Ratings
Financial Statements
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the Fund s
investment objective and policies set forth in the
Prospectus.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Fund
are made by Jones & Babson, Inc. pursuant to
recommendations by David L. Babson & Co. Inc.
Officers of the Fund and Jones & Babson, Inc. are
generally responsible for implementing or
supervising these decisions, including allocation
of portfolio brokerage and principal business as
well as the negotiation of commissions and/or the
price of the securities. In instances where securties
are purchased on a commission basis, the Fund
will seek competitive and reasonable commission
rates based on the circumstances of the trade
involved and to the extent that they do not detract
from the quality of the execution.
In all transactions, it is the Fund's policy to
obtain the best combination of price and execution
commensurate with the circumstances as viewed
at the time.
The Fund expects that purchases and sales of
portfolio securities usually will be principal
transactions. Portfolio securities normally will be
purchased directly from the issuer or in the over-
the-counter market from a principal market maker
for the securities, unless it appears that a better
combination of price and execution may be
obtained elsewhere. Usually there will be no
brokerage commission paid by the Fund for such
purchases. Purchases from underwriters of
portfolio securities will include a commission or
concession paid by the issuer to the underwriter,
and purchases from dealers serving as market
makers will include the spread between the bid
and asked price.
The Fund believes it is in its best interest and
that of its shareholders to have a stable and
continuous relationship with a diverse group of
financially strong and technically qualified
broker-dealers who will provide quality executions
at competitive rates. Broker-dealers
meeting these qualifications also will be selected
for their demonstrated loyalty to the Fund, when
acting on its behalf, as well as for any research or
other services provided to the Fund. The Fund
normally will not pay a higher commission rate to
broker-dealers providing benefits or services to it
than it would pay to broker-dealers who do not
provide it such benefits or services. However, the
Fund reserves the right to do so within the
principles set out in Section 28(e) of the Securities
Act of 1934 when it appears that this would be in
the best interests of the shareholders.
No commitment is made to any broker or dealer
with regard to placing of orders for the purchase
or sale of Fund portfolio securities, and no specific
formula is used in placing such business.
Allocation is reviewed regularly by both the Board
of Directors of the Fund and Jones and Babson,
Inc.
Since the Fund does not market its shares
through intermediary brokers or dealers, it is not
the Fund's practice to allocate brokerage or
principal business on the basis of sales of its
shares which may be made through such firms.
However, it may place portfolio orders with
qualified broker-dealers who recommend the Fund
to other clients, or who act as agent in the
purchase of the Fund's shares for their clients.
Research services furnished by broker-dealers
may be useful to the Fund manager and its
investment counsel in serving other clients, as
well as the Fund. Conversely, the Fund may
benefit from research services obtained by the
manager or its investment counsel from the
placement of portfolio brokerage of other clients.
When it appears to be in the best interest of its
shareholders, the Fund may join with other clients
of the manager and its investment counsel in
acquiring or disposing of a portfolio holding.
Securities acquired or proceeds obtained will be
equitably distributed between the Fund and other
clients participating in the transaction. In some
instances, this investment procedure may affect
the price paid or received by the Fund or the size
of the position obtained by the Fund.
The Fund does not intend to purchase securities
solely for short-term trading; nor will securities be
sold for the sole purpose of realizing gains. A
security may be sold and another of comparable
quality purchased at approximately the same time,
however, to take advantage of what the Fund's
manager believes to be a disparity in the normal
yield relationship between the two securities. In
addition, a security may be sold and another
purchased when, in the opinion of the Fund's
management, a favorable yield spread exists
between specific issues or different market sectors.
Since short-term debt instruments with
maturities of less than one year are excluded from
the calculation of portfolio turnover, the Fund
does not anticipate having a portfolio turnover
ratio for Portfolio MM.
INVESTMENT RESTRICTIONS
In addition to the investment objective and
portfolio management policies set forth in the
Prospectus under the caption "Investment
Objective and Portfolio Management Policy,"
the following restrictions also may not be changed
without approval of the "holders of a majority of
the outstanding shares" of the Fund or the
affected Portfolio series.
The Fund will not: (1) invest in equity securities
or securities convertible into equities; (2) purchase
more than 10% of the outstanding publicly issued
debt obligations of any issuer; (3) borrow money
in any Portfolio except for temporary emergency
purposes, and then only in an amount not
exceeding 10% of the value of the total assets of
that Portfolio; (4) pledge, mortgage or
hypothecate the assets of any Portfolio to an extent
greater than 10% of the value of the net assets of
that Portfolio; (5) issue senior securities, as
defined in the Investment Company Act of 1940,
as amended; (6) underwrite any issue of securities;
(7) purchase or sell real estate, but this shall not
prevent investment in municipal bonds secured by
real estate; (8) make loans to other persons, except
by the purchase of bonds, debentures or similar
obligations which are publicly distributed; (9)
purchase on margin or sell short; (10) purchase or
retain securities of an issuer if to the knowledge of
the Fund s management those directors of the
Fund, each of whom owns more than one-half of
one percent (.5%) of such securities, together own
more than five percent (5%) of the securities of
such issuer; (11) purchase or sell commodities or
commodity contracts; (12) invest in put, call,
straddle or special options; (13) purchase
securities of any issuer (except the United States
government, its agencies and instrumentalities,
and any municipal bond guaranteed by the United
States government) in any Portfolio if, as a result,
more than 5% of the total assets of that Portfolio
would be invested in the securities of such issuer;
for purposes of this limitation, "issuer" will
be based on a determination of the source of assets
and revenues committed to meeting interest and
principal payments of each security, and a
government entity which guarantees the securities
issued by another entity is also considered an
issuer of that security; (14) invest in companies
for the purpose of exercising control; (15) invest
in securities of other investment companies,
except as they may be acquired as part of a
merger, consolidation or acquisition of assets; (16)
invest more than 5% of the value of its total assets
at the time of investment in the securities of any
issuer or issuers which have records of less than
three years continuous operation, including the
operation of any predecessor, but this limitation
does not apply to securities issued or guaranteed
as to interest and principal by the United States
government or its agencies or instrumentalities.
In addition to the fundamental investment
restrictions set out above, in order to comply with
the law or regulations of various states, the Fund
will not engage in the following practices: (1)
invest in securities which are not readily
marketable or in securities of foreign issuers
which are not listed on a recognized domestic or
foreign securities exchange; (2) write put or call
options (3) invest in oil, gas and other mineral
leases or arbitrage transactions; (4) purchase or
sell real estate (including limited partnership
interests, but excluding readily marketable
interests in real estate investment trusts or readily
marketable securities of companies which invest
in real estate).
Certain states also require that the Fund's
investments in warrants which are not listed on
the New York or American Stock Exchange,
valued at the lower of cost or market, may not
exceed 5% of the value of the Fund's net assets.
Included within that amount, but not to exceed
2% of the value of the Fund's net assets may be
warrants which are not listed on the New York or
American Stock Exchange. Warrants acquired by
the Fund in units or attached to securities may be
deemed to be without value for purposes of this
limitation.
PERFORMANCE MEASURES
Yield of Portfolio MM
From time to time, Portfolio MM may quote its
yield in advertisements, shareholder reports or
other communications to shareholders. Yield
information is generally available by calling the
Fund toll free 1-800-4-BABSON (1-800-422-
2766), or in the Kansas City area 471-5200.
The current annualized yield for Portfolio MM
is computed by: (a) determining the net change in
the value of a hypothetical pre-existing account in
a Fund having a balance of one share at the
beginning of a seven calendar-day period for
which yield is to be quoted, (b) dividing the net
change by the value of the account at the
beginning of the period to obtain the base period
return, and (c) annualizing the results (i.e.,
multiplying the base period return by 365/7). The
net change in value of the account reflects the
value of additional shares purchased with
dividends declared on the original share and any
such additional shares, but does not include
realized gains and losses or unrealized
appreciation and depreciation. In addition, each
Fund may calculate a compound effective yield by
adding 1 to the base period return (calculated as
described above, raising the sum to a power equal
to 365/7 and subtracting 1).
For the seven-day period ended June 30, 1995,
the current annualized yield of Portfolio MM was
____% and the compound effective yield was
____%. At June 30, 1995, Portfolio MM s
average maturity was __ days.
Total Return for Portfolio L and Portfolio S
These Portfolios average annual total
return figures described and shown below are
computed according to a formula prescribed by
the Securities and Exchange Commission. The
formula can be expressed as follows:
P(1+T)n = ERV
Where: P = a hypothetical initial payment
of $1000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a
hypothetical $1000 payment
made at the beginning of the 1,
5, or 10 years (or other) periods
at the end of the 1,5, or 10 years
(or other) periods (or fractional
portions thereof);
The table below shows the average total return
for each of the Funds or Portfolios for the
specified periods.
Portfolio L Portfolio S
For the one year
7/1/94-6/30/95 ____% ____%
For the five years
7/1/90-6/30/95 ____ ____%
For the ten years
7/1/85-6/30/95 ____% ____%
From commencement
of operations
to 6/30/95* ____% ____%
________________________________________
* Portfolios L & S commenced operation on
February 22, 1980.
HOW THE FUND S SHARES
ARE DISTRIBUTED
Jones & Babson, Inc., as agent of the Fund,
agrees to supply its best efforts as sole distributor
of the Fund s shares and, at its own expense, pay
all sales and distribution expenses in connection
with their offering other than registration fees and
other government charges.
Jones & Babson, Inc. does not receive any fee or
other compensation under the distribution
agreement which continues in effect until October
31, 1996, and which will continue automatically
for successive annual periods ending each October
31, if continued at least annually by the Fund's
Board of Directors, including a majority of those
Directors who are not parties to such agreements
or interested persons of any such party. It
terminates automatically if assigned by either
party or upon 60 days written notice by either
party to the other.
Jones & Babson, Inc. also acts as sole
distributor of the shares of David L. Babson
Growth Fund, Inc., Babson Enterprise Fund, Inc.,
Babson Enterprise Fund II, Inc., Babson Value
Fund, Inc., D. L. Babson Money Market Fund,
Inc., D. L. Babson Bond Trust, Shadow Stock
Fund, Inc., Babson-Stewart Ivory International
Fund, Inc., UMB Stock Fund, Inc., UMB Bond
Fund, Inc., UMB Money Market Fund, Inc., UMB
Tax-Free Money Market Fund, Inc., UMB
Heartland Fund, Inc., UMB WorldWide Fund,
Inc. and Buffalo Balanced Fund, Inc.
HOW SHARE PURCHASES ARE HANDLED
Each order accepted will be fully invested in
whole and fractional shares, unless the purchase
of a certain number of whole shares is specified, at
the net asset value per share next effective after
the order is accepted by the Fund.
Each investment is confirmed by a year-to-date
statement which provides the details of the
immediate transaction, plus all prior transactions
in your account during the current year. This
includes the dollar amount invested, the number
of shares purchased or redeemed, price per share,
and aggregate shares owned. A transcript of all
activity in your account during the previous year
will be furnished each January. By retaining each
annual summary and the last year-to-date
statement, you have a complete detailed history of
your account. A duplicate copy of a past annual
statement is available from Jones & Babson, Inc.
at its cost, subject to a minimum charge of $5 per
account, per year requested.
Normally, the shares which you purchase are
held by the Fund in open account, thereby
relieving you of the responsibility of providing for
the safekeeping of a negotiable share certificate.
Should you have a special need for a certificate,
one will be issued on request for all or a portion of
the whole shares in your account. There is no
charge for the first certificate issued. A charge of
$3.50 will be made for any replacement
certificates issued. In order to protect the interests
of the other shareholders, share certificates will be
sent to those shareholders who request them only
after the Fund has determined that unconditional
payment for the shares represented by the
certificate has been received by its custodian,
UMB Bank, n.a.
If an order to purchase shares must be canceled
due to non-payment, the purchaser will be
responsible for any loss incurred by the Fund
arising out of such cancellation. To recover any
such loss, the Fund reserves the right to redeem
shares owned by any purchaser whose order is
canceled, and such purchaser may be prohibited or
restricted in the manner of placing further orders.
The Fund reserves the right in its sole discretion
to withdraw all or any part of the offering made by
the prospectus or to reject purchase orders when,
in the judgment of management, such withdrawal
or rejection is in the best interest of the Fund and
its shareholders. The Fund also reserves the right
at any time to waive or increase the minimum
requirements applicable to initial or subsequent
investments with respect to any person or class of
persons, which includes shareholders of the Fund
s special investment programs.
REDEMPTION OF SHARES
The right of redemption may be suspended, or
the date of payment postponed beyond the normal
seven-day period by the Fund s Board of
Directors under the following conditions
authorized by the Investment Company Act of
1940: (1) for any period (a) during which the
New York Stock Exchange is closed, other than
customary weekend and holiday closing, or (b)
during which trading on the New York Stock
Exchange is restricted; (2) for any period during
which an emergency exists as a result of which (a)
disposal by the Fund of securities owned by it is
not reasonably practical, or (b) it is not reasonably
practicable for the Fund to determine the fair
value of its net assets; or (3) for such other periods
as the Securities and Exchange Commission may
by order permit for the protection of the Fund's
shareholders.
SIGNATURE GUARANTEES
Signature guarantees normally reduce the
possibility of forgery and are required in
connection with each redemption method to
protect shareholders from loss. Signature
guarantees are required in connection with all
redemptions by mail or changes in share
registration, except as provided in the Prospectus.
Signature guarantees must appear together with
the signature(s) of the registered owner(s), on:
(1) a written request for redemption,
(2) a separate instrument of assignment,
which should specify the total number of
shares to be redeemed (this stock
power may be obtained from the Fund
or from most banks or stock brokers), or
(3) all stock certificates tendered for
redemption.
MANAGEMENT AND
INVESTMENT COUNSEL
As a part of the Management Agreement, Jones
& Babson, Inc. employs at its own expense David
L. Babson & Co. Inc., as its investment counsel.
David L. Babson & Co. Inc. was founded in 1940.
It is a private investment research and counseling
organization serving individual, corporate and
other institutional clients. It participates with
Jones & Babson, Inc. in the management of nine
Babson no-load mutual funds in addition to UMB
Money Market Fund, Inc. and UMB Tax-Free
Money Market Fund, Inc.
The aggregate management fee paid to Jones &
Babson, Inc. during the most recent fiscal year
ended June 30, 1995, from which Jones &
Babson, Inc. paid all the Fund s expenses except
those payable directly by the Fund, was $_______.
The .95% annual fee charged by Jones & Babson,
Inc. covers all normal operating costs of the Fund.
As a result, it is higher than the fees of some other
advisers whose charges cover only investment
advisory services with all remaining operational
expenses absorbed directly by the Fund. Yet,
Jones & Babson's charges compare favorably with
these other advisers when all expenses to Fund
shareholders (i.e., operating expenses as a percent
of average net assets) are taken into account.
David L. Babson & Co. has an experienced
investment analysis and research staff which
eliminates the need for Jones & Babson, Inc. and
the Fund to maintain an extensive duplicate staff,
with the consequent increase in the cost of
investment advisory service. The cost of the
services of David L. Babson & Co. Inc. is
included in the services of Jones & Babson, Inc.
For its investment supervisory services and
counsel, Jones & Babson, Inc. pays David L.
Babson & Co. Inc. a fee computed on an annual
basis at the rate of .25% of the average daily total
net assets of the Fund. During the most recent
fiscal year ended June 30, 1995, Jones & Babson,
Inc. paid David L. Babson & Co. Inc. fees
amounting to $______.
HOW SHARE PRICE IS DETERMINED
The net asset value per share of each Fund
Portfolio is computed once daily, Monday through
Friday, at the specific time during the day that the
Board of Directors of each Fund sets at least
annually, except on days on which changes in the
value of a Fund's portfolio securities will not
materially affect the net asset value, or days
during which no security is tendered for
redemption and no order to purchase or sell such
security is received by the Fund, or the following
holidays:
New Years Day January 1
Martin Luther Third Monday
King Day* in January
Presidents Holiday Third Monday
in February
Good Friday Friday before
Easter
Memorial Day Last Monday
in May
Independence Day July 4
Labor Day First Monday
in September
Columbus Day* Second Monday
in October
Veterans Day* November 11
Thanksgiving Day Fourth Thursday
in November
Christmas Day December 25
* Money Market Portfolio only.
OFFICERS AND DIRECTORS
The Fund is managed by Jones & Babson
subject to the supervision and control of the Board
of Directors. Following is a list of the officers and
directors of the Fund. Unless noted otherwise, the
address of each officer and director is Three
Crown Center, 2440 Pershing Road, Suite G-15,
Kansas City, Missouri 64108. Except as
indicated, each has been an employee of Jones &
Babson, Inc. for more than five years.
* Larry D. Armel, President and Director.
President and Director, Jones & Babson, Inc.,
David L. Babson Growth Fund, Inc., D.L.
Babson Money Market Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund
II, Inc., Babson Value Fund Inc., Shadow Stock
Fund, Inc., Babson-Stewart Ivory International
Fund, Inc., UMB Stock Fund, Inc., UMB Bond
Fund, Inc., UMB Money Market Fund, Inc.,
UMB Tax-Free Money Market Fund, Inc.,
UMB Heartland Fund, Inc., UMB WorldWide
Fund, Inc., Buffalo Balanced Fund, Inc.;
Trustee and President, D. L. Babson Bond
Trust.
Francis C. Rood, Director.
Retired, 6429 West 92nd Street, Overland
Park, Kansas 66212. Formerly, Group Vice
President-Administration of Hallmark Cards,
Inc.; Director, David L. Babson Growth Fund,
Inc., D.L. Babson Money Market Fund, Inc.,
Babson Enterprise Fund, Inc., Babson
Enterprise Fund II, Inc., Babson Value Fund
Inc., Shadow Stock Fund, Inc., Buffalo
Balanced Fund, Inc.; Trustee, D.L. Babson
Bond Trust.
_______________________________________
* Directors who are interested persons as that
term is defined in the Investment Company
Act of 1940, as amended.
William H. Russell, Director.
Financial Consultant, 645 West 67th Street,
Kansas City, Missouri 64113; previously Vice
President, United Telecommunications, Inc.;
Director, David L. Babson Growth Fund, Inc., D.
L. Babson Money Market Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund II,
Inc., Babson Value Fund, Inc., Shadow Stock
Fund, Inc., Babson-Stewart Ivory International
Fund, Inc., Buffalo Balanced Fund, Inc.; Trustee,
D. L. Babson Bond Trust.
H. David Rybolt, Director.
Consultant, HDR Associates, P.O. Box 2468,
Shawnee Mission, Kansas 66202; Director, David
L. Babson Growth Fund, Inc., D.L. Babson
Money Market Fund, Inc., Babson Enterprise
Fund, Inc., Babson Enterprise Fund II, Inc.,
Babson Value Fund, Inc., Shadow Stock Fund,
Inc., Buffalo Balanced Fund, Inc.; Trustee, D.L.
Babson Bond Trust.
P. Bradley Adams, Vice President and
Treasurer.
Vice President and Treasurer, Jones & Babson,
Inc., David L. Babson Growth Fund, Inc., D.L.
Babson Money Market Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund II,
Inc., Babson Value Fund, Inc., Shadow Stock
Fund, Inc., Babson-Stewart Ivory International
Fund, Inc., D.L. Babson Bond Trust, UMB Stock
Fund, Inc., UMB Bond Fund, Inc., UMB Money
Market Fund, Inc., UMB Tax-Free Money Market
Fund, Inc., UMB Heartland Fund, Inc., UMB
WorldWide Fund, Inc., Buffalo Balanced Fund,
Inc.
Michael A. Brummel, Vice President, Assistant
Secretary and Assistant Treasurer.
Vice President, Jones & Babson, Inc., David L.
Babson Growth Fund, Inc., D.L. Babson Money
Market Fund, Inc., Babson Enterprise Fund, Inc.,
Babson Enterprise Fund II, Inc., Babson Value
Fund, Inc., Shadow Stock Fund, Inc., Babson-
Stewart Ivory International Fund, Inc., D.L.
Babson Bond Trust, UMB Stock Fund, Inc., UMB
Bond Fund, Inc., UMB Money Market Fund, Inc.,
UMB Tax-Free Money Market Fund, Inc., UMB
Heartland Fund, Inc., UMB WorldWide Fund,
Inc., Buffalo Balanced Fund, Inc.
Martin A. Cramer, Vice President and
Secretary.
Vice President and Secretary, Jones & Babson,
Inc., David L. Babson Growth Fund, Inc., D.L.
Babson Money Market Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund II,
Inc., Babson Value Fund, Inc., Shadow Stock
Fund, Inc., Babson-Stewart Ivory International
Fund, Inc., D.L. Babson Bond Trust, UMB Stock
Fund, Inc., UMB Bond Fund, Inc., UMB Money
Market Fund, Inc., UMB Tax-Free Money Market
Fund, Inc., UMB Heartland Fund, Inc., UMB
WorldWide Fund, Inc., Buffalo Balanced Fund,
Inc.
Ruth Evans, Vice President.
Vice President, Jones & Babson, Inc., David L.
Babson Growth Fund, Inc., D.L. Babson Money
Market Fund, Inc., Babson Enterprise Fund, Inc.,
Babson Enterprise Fund II, Inc., Babson Value
Fund, Inc., Shadow Stock Fund, Inc., Babson-
Stewart Ivory International Fund, Inc., D.L.
Babson Bond Trust, UMB Stock Fund, Inc., UMB
Bond Fund, Inc., UMB Money Market Fund, Inc.,
UMB Tax-Free Money Market Fund, Inc., UMB
Heartland Fund, Inc., UMB WorldWide Fund,
Inc., Buffalo Balanced Fund, Inc.
Edward L. Martin, Vice President-Portfolio.
Senior Vice President, David L. Babson & Co.
Inc., One Memorial Drive, Cambridge,
Massachusetts 02142; Vice President-Portfolio,
D.L. Babson Money Market Fund, Inc., Vice
President-Portfolio, D.L. Babson Bond Trust.
None of the officers or directors will be
remunerated by the Fund for their normal duties
and services. Their compensation and expenses
arising out of normal operations will be paid by
Jones & Babson, Inc. under the provisions of the
Management Agreement.
Messrs. Rood, Russell and Rybolt have no
financial interest in, nor are they affiliated with,
either Jones & Babson, Inc. or David L. Babson &
Co. Inc.
The Audit Committee of the Board of Directors
is composed of Messrs. Rood, Russell and Rybolt.
The officers and directors of the Fund as a
group own less than 1% of the Fund.
The Fund will not hold annual meetings except
as required by the Investment Company Act of
1940 and other applicable laws. The Fund is a
Maryland corporation. Under Maryland law, a
special meeting of stockholders of the Fund must
be held if the Fund receives the written request for
a meeting from the stockholders entitled to cast at
least 25 percent of all the votes entitled to be cast
at the meeting. The Fund has undertaken that its
Directors will call a meeting of stockholders if
such a meeting is requested in writing by the
holders of not less than 10% of the outstanding
shares of the Fund. To the extent required by the
undertaking, the Fund will assist shareholder
communications in such matters.
CUSTODIAN
The Fund s assets are held for safekeeping by
an independent custodian, UMB Bank, n.a. This
means the bank, rather than the Fund, has
possession of the Fund's cash and securities.
The custodian bank is not responsible for the
Fund's investment management or
administration. But, as directed by the Fund's
officers, it delivers cash to those who have sold
securities to the Fund in return for such securities,
and to those who have purchased portfolio
securities from the Fund, it delivers such
securities in return for their cash purchase price.
It also collects income directly from issuers of
securities owned by the Fund and holds this for
payment to shareholders after deduction of the
Fund's expenses. The custodian is compensated
for its services by the manager. There is no
charge to the Fund.
INDEPENDENT PUBLIC ACCOUNTANTS
The Fund's financial statements are examined
annually by independent public accountants
approved by the directors each year, and in years
in which an annual meeting is held the directors
may submit their selection of independent public
accountants to the shareholders for ratification.
Arthur Andersen LLP, P.O. Box 13406, Kansas
City, Missouri 64199, is the Fund' s present
independent public accountant.
Reports to shareholders will be published at
least semiannually.
OTHER JONES & BABSON FUNDS
The Fund is one of nine no-load funds
comprising the Babson Mutual Fund Group
managed by Jones & Babson, Inc. in association
with its investment counsel, David L. Babson &
Co. Inc. The other funds are:
EQUITY FUNDS
DAVID L. BABSON GROWTH FUND, INC.
was organized in 1960 with the objective of
long-term growth of both capital and dividend
income through investment in the common
stocks of well-managed companies which have
a record of long-term above-average growth of
both earnings and dividends.
BABSON ENTERPRISE FUND, INC. was
organized in 1983 with the objective of long-
term growth of capital by investing in a
diversified portfolio of common stocks of
smaller, faster-growing companies with market
capital of $15 million to $300 million at the
time of purchase. This Fund is intended to be
an investment vehicle for that part of an
investor's capital which can appropriately be
exposed to above-average risk in anticipation of
greater rewards. This Fund is currently closed
to new shareholders.
BABSON ENTERPRISE FUND II, INC. was
organized in 1991 with the objective of long-
term growth of capital by investing in a
diversified portfolio of common stocks of
smaller, faster-growing companies which at the
time of purchase are considered by the
Investment Adviser to be realistically valued in
the smaller company sector of the market. This
Fund is intended to be an investment vehicle for
that part of an investor's capital which can
appropriately be exposed to above-average risk
in anticipation of greater rewards.
BABSON VALUE FUND, INC. was
organized in 1984 with the objective of long-
term growth of capital and income by investing
in a diversified portfolio of common stocks
which are considered to be undervalued in
relation to earnings, dividends and/or assets.
SHADOW STOCK FUND, INC. was
organized in 1987 with the objective of long-
term growth of capital that can be exposed to
above-average risk in anticipation of greater-
than-average rewards. The Fund expects to
reach its objective by investing in small
company stocks called "Shadow Stocks",
i.e., stocks that combine the characteristics of
small stocks (as ranked by market
capitalization) and "neglected stocks" (least
held by institutions and least covered by
analysts).
BABSON-STEWART IVORY INTERNA-
TIONAL FUND, INC. was organized in 1987
with the objective of seeking a favorable total
return (from market appreciation and income)
by investing primarily in a diversified portfolio
of equity securities (common stocks and
securities convertible into common stocks) of
established companies whose primary business
is carried on outside the United States.
FIXED INCOME FUNDS
D.L. BABSON BOND TRUST was organized
in 1944, and has been managed by Jones &
Babson, Inc. since 1972, with the objective of a
high level of current income and reasonable
stability of principal. It offers two portfolios -
Portfolio L and Portfolio S.
D. L. BABSON MONEY MARKET FUND,
INC. was organized in 1979 to provide
investors the opportunity to manage their
money over the short term by investing in high-
quality short-term debt instruments for the
purpose of maximizing income to the extent
consistent with safety of principal and
maintenance of liquidity. It offers two
portfolios - Prime and Federal.
A prospectus for any of the Funds may be
obtained from Jones & Babson, Inc., Three Crown
Center, 2440 Pershing Road, Suite G-15, Kansas
City, Missouri 64108.
Jones & Babson, Inc. also sponsors and
manages six mutual funds which especially seek
to provide services to customers of affiliate banks
of UMB Financial Corporation. They are UMB
Stock Fund, Inc., UMB Bond Fund, Inc., UMB
Money Market Fund, Inc., UMB Tax-Free Money
Market Fund, Inc., UMB Heartland Fund, Inc.,
and UMB WorldWide Fund, Inc.
Jones & Babson, Inc. also sponsors and
manages the Buffalo Balanced Fund, Inc.
MUNICIPAL SECURITIES DESCRIBED
AND RATINGS
In evaluating investment suitability, each
investor must relate the characteristics of a
particular investment under consideration to
personal financial circumstances and goals.
Municipal securities include bonds and other
debt obligations issued by or on behalf of states,
territories and possessions of the United States of
America and the District of Columbia including
their political subdivisions or their duly
constituted authorities, agencies and
instrumentalities, the interest on which is exempt
from federal income tax.
Municipal securities are issued to obtain funds
for various public purposes, including the
construction of a wide range of public facilities,
such as airports, bridges, highways, housing,
hospitals, mass transportation, schools, streets,
waterworks and sewer systems. Municipal
securities also may be issued in connection with
the refunding of outstanding obligations and
obtaining funds to lend to other public institutions
and facilities or for general operating expenses.
The two principal classifications of municipal
bonds are "general obligation" and
"revenue." General obligation bonds are secured
by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and
interest. Revenue bonds are payable only from the
revenues derived from a particular facility or class
of facilities, or in some cases, from the proceeds of
a special excise tax or other specific revenue
source.
The Fund may invest in industrial development
bonds, the interest from which is exempt from
federal income tax. Under certain circumstances,
"substantial users" of the facilities financed with
such obligations, or persons related to
"substantial users," may be required to pay
federal income tax on this otherwise exempted
interest. Such persons should consult the Internal
Revenue Code and their financial adviser to
determine whether or not the Fund is an
appropriate investment for them.
There are a variety of hybrid and special types
of municipal obligations, as well as numerous
differences in the security of municipal bonds,
both within and between the two principal
classifications of general obligation and revenue.
Municipal notes include tax, revenue and bond
anticipation notes of short maturity, generally less
than three years, which are issued to obtain
temporary funds for various public purposes. Also
included in this category are Construction Loan
Notes, Short-Term Discount Notes and Project
Notes issued by a state or local housing agency but
secured by the full faith and credit of the United
States.
Yields on municipal securities depend on a
variety of factors, such as the size of a particular
offering, the maturity and the rating of the
obligation, economic and monetary conditions,
and conditions of the municipal securities market,
including the volume of municipal securities
available. Market values of municipal securities
will vary according to the relation of their yields
available. Consequently, the net asset value of the
Fund and its shares can be expected to change as
the level of interest rates fluctuates.
Municipal obligations, like all other debt
obligations, carry a risk of default. Through
careful selection and supervision, and
concentration in the higher-quality investment
grade issues, management intends to reduce this
risk.
Prices of outstanding municipal securities will
fluctuate with changes in the interest rates on new
issues. Thus, the price of the Fund's shares will
tend to increase as the rates on new issues decline,
and decrease whenever the current rate is rising.
Management will seek to minimize such share
price fluctuation to the extent this can be achieved
without detracting from the Fund's primary
objective of the highest quality and maturity
characteristics of the Portfolio.
Municipal securities are not traded as actively
as other securities. Even though municipal
securities will be redeemed at face value upon
maturity, from time to time, when there has been
no active trading in a particular Portfolio holding,
its interim pricing for the purpose of the daily
valuation of the Fund shares may have to be based
on other sources of information and methods
deemed fair and reasonable by the Board of
Directors. One principal method which is
commonly used by Funds and other investors who
own municipal securities is called matrix pricing.
From time to time, proposals have been
introduced in Congress to restrict or eliminate the
federal income tax exemption for interest on
municipal securities. Similar proposals may be
introduced in the future. If such a proposal was
enacted, the availability of municipal securities for
investment by the Fund would be adversely
affected. In such event, the Fund would re-
evaluate its investment objective and policies and
submit possible changes in the structure of the
Fund for the consideration of the shareholders.
RATINGS OF MUNICIPAL SECURITIES
The ratings of bonds by Moody's and Standard
and Poor's Corporation represent their opinions
of quality of the municipal bonds they undertake
to rate. These ratings are general and are not
absolute standards. Consequently, municipal
bonds with the same maturity, coupon and rating
may have different yields, while municipal bonds
of the same maturity and coupon with different
ratings may have the same yield.
Both Moody's and S&P's Municipal Bond
Ratings cover obligations of states and political
subdivisions. Ratings are assigned to general
obligation and revenue bonds. General obligation
bonds are usually secured by all resources
available to the municipality and the factors
outlined in the rating definitions below are
weighted in determining the rating. Because
revenue bonds in general are payable from
specifically pledged revenues, the essential
element in the security for a revenue bond is the
quantity and quality of the pledged revenues
available to pay debt service.
Although an appraisal of most of the same
factors that bear on the quality of general
obligation bond credit is usually appropriate in the
rating analysis of a revenue bond, other factors are
important, including particularly the competitive
position of the municipal enterprise under review
and the basic security covenants. Although a
rating reflects S&P's judgment as to the issuer's
capacity for the timely payment of debt service, in
certain instances it may also reflect a mechanism
or procedure for an assured and prompt cure of a
default, should one occur, i.e., an insurance
program, federal or state guaranty, or the
automatic withholding and use of state aid to pay
the defaulted debt service.
S&P'S RATINGS
AAA Prime - These are obligations of the
highest quality. They have the strongest capacity
for timely payment of debt service.
General Obligation Bonds - In a period of
economic stress, the issuers will suffer the
smallest declines in income and will be least
susceptible to autonomous decline. Debt burden is
moderate. A strong revenue structure appears
more than adequate to meet future expenditure
requirements. Quality of management appears
superior.
Revenue Bonds - Debt service coverage has
been, and is expected to remain, substantial.
Stability of the pledged revenues is also
exceptionally strong, due to the competitive
position of the municipal enterprise or to the
nature of the revenues. Basic security provisions
(including rate covenant, earnings test for
issuance of additional bonds, debt service, reserve
requirements) are rigorous. There is evidence of
superior management.
AA - High Grade - The investment
characteristics of general obligation and revenue
bonds in this group are only slightly less marked
than those of the prime quality issues. Bonds
rated "AA" have the second strongest
capacity for payment of debt service.
A - Good Grade - Principal and interest
payments on bonds in this category are regarded
as safe. This rating describes the third strongest
capacity for payment of debt service. It differs
from the two higher ratings because:
General Obligation Bonds - There is some
weakness, either in the local economic base, in
debt burden, in the balance between revenues and
expenditures, or in quality of management. Under
certain adverse circumstances, any one such
weakness might impair the ability of the issuer to
meet debt obligations at some future date.
Revenue Bonds - Debt service coverage is
good, but not exceptional. Stability of the pledged
revenues could show some variations because of
increased competition or economic influences on
revenues. Basic security provisions, while
satisfactory, are less stringent. Management
performance appears adequate.
MOODY'S RATINGS OF MUNICIPAL
BONDS
Aaa - Bonds which are rated Aaa are judged to
be of the best quality. These securities carry the
smallest degree of investment risk and are
generally referred to as "gilt-edge". Interest
payments are protected by a large, or by an
exceptionally stable margin, and principal is
secure. While the various protective elements are
likely to change, such changes as can be
visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be
of high quality by all standards. They are rated
lower than the best bonds because margins of
protection may not be as large as in Aaa
securities, fluctuation of protective elements may
be of greater amplitude, or there may be other
elements present which make the long-term risks
appear somewhat greater.
A - Bonds which are rated A possess many
favorable investment attributes and are to be
considered as upper medium grade obligations.
Factors giving security to principal and interest
are considered adequate, but elements may be
present which suggest a susceptibility to
impairment sometime in the future.
MOODY'S RATINGS OF MUNICIPAL
NOTES
MIG 1: The best quality, enjoying strong
protection from established cash flows of funds for
their servicing or from established and broad
based access to the market for refinancing, or
both.
MIG 2: High quality, with margins of
protection ample, although not so large as in the
preceding group.
MIG 3: Favorable quality, with all security
elements accounted for, but lacking the
undeniable strength of the preceding grades.
Market access for refinancing, in particular, is
likely to be less well established.
COMMERCIAL PAPER RATINGS
Moody's . . . Moody's commercial paper rating
is an opinion of the ability of an issuer to repay
punctually promissory obligations not having an
original maturity in excess of nine months.
Moody's has one rating - prime. Every such
prime rating means Moody's believes that the
commercial paper note will be redeemed as
agreed. Within this single rating category are the
following classifications:
Prime - 1 Highest Quality
Prime - 2 Higher Quality
Prime - 3 High Quality
The criteria used by Moody's for rating a
commercial paper issuer under this graded system
include, but are not limited to the following
factors:
(1) evaluation of the management of the issuer;
(2) economic evaluation of the issuer's
industry or industries and an appraisal of
speculative type risks which may be
inherent in certain areas;
(3) evaluation of the issuer's products in
relation to competition and customer
acceptance;
(4) liquidity;
(5) amount and quality of long-term debt;
(6) trend of earnings over a period of ten years;
(7) financial strength of a parent company and
relationships which exist with the issuer;
and
(8) recognition by the management of
obligations which may be present or may
arise as a result of public interest questions
and preparations to meet such obligations.
S&P . . . Standard & Poor's commercial paper
rating is a current assessment of the likelihood of
timely repayment of debt having an original
maturity of no more than 270 days. Ratings are
graded into four categories, ranging from "A"
for the highest quality obligations to"D" for
the lowest. The four categories are as follows:
A Issues assigned this highest rating are
regarded as having the greatest capacity for
timely payment. Issues in this category are
further refined with the designations 1, 2 and
3 to indicate the relative degree of safety.
A-1 This designation indicates that
the degree of safety regarding timely
payment is very strong.
A-2 Capacity for timely payment on
issues with this designation is strong.
However, the relative degree of safety
is not as overwhelming.
A-3 Issues carrying this designation
have a satisfactory capacity for timely
payment. They are, however,
somewhat more vulnerable to the
adverse effects of changes in
circumstances than obligations
carrying the higher designations.
B Issues rated "B" are regarded as
having only an adequate capacity for timely
payment. Furthermore, such capacity may be
damaged by changing conditions or short-
term adversities.
C This rating is assigned to short-term debt
obligations with a doubtful capacity for
payment.
D This rating indicates that the issuer is
either in default or is expected to be in default
upon maturity.
FINANCIAL STATEMENTS
(TO BE SUPPLIED BY FURTHER AMENDMENT)
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
Herewith are all financial statements and exhibits filed as
a part of this registration statement:
(a) Financial Statements:
(to be supplied by further amendment)
(b) *(1) Registrant s Articles of Incorporation.
*(2) Registrant s Bylaws.
(3) Not applicable, because there is no voting
trust agreement.
*(4) Specimen copy of each security to be issued by
the registrant.
*(5) (a) Form of Management Agreement between
Jones & Babson, Inc. and the Registrant.
(b) Form of Investment Counsel Agreement
between Jones & Babson, Inc. and David L.
Babson & Co. Inc.
*(6) Form of principal Underwriting Agreement
between Jones & Babson, Inc. and the
Registrant.
(7) Not applicable, because there are no pension,
bonus or other agreements for the benefit of
directors and officers.
*(8) Form of Custodian Agreement between Registrant
and State Street Bank and Trust Company.
(9) There are no other material contracts not made
in the ordinary course of business between the
Registrant and others.
(10) Opinion and consent of counsel as to the
legality of the registrant s securities being
registered. (To be supplied annually pursuant
to Rule 24f-2 of the Investment Company Act of
1940.)
*(11) The consent of Arthur Andersen & Co.,
Independent Public Accountants.
(to be supplied by further amendment)
(12) Not applicable.
*(13) Letter from contributors of initial capital to
the Registrant that purchase was made for
investment purposes without any present
intention of redeeming or selling.
(14) Not Applicable.
(15) Not applicable.
*(16) Schedule for computation of performance
quotations.
(17) Copies of Powers of Attorney pursuant to Rule
402(c).
*Previously filed and incorporated herein by reference.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL OF THE
REGISTRANT.
NONE
Item 26. NUMBER OF HOLDERS OF SECURITIES.
The number of record holders of each class of securities of
the Registrant as of July 31, 1995, is as follows:
(1) (2)
Title of class Number of Record Holders
Common Stock $0.10 par value 537
Portfolio S - Shorter Term
Common Stock $0.10 par value 767
Portfolio L - Longer Term
Common Stock $0.10 par value 347
Portfolio MM - Money Market
Item 27. INDEMNIFICATION.
Under the terms of the Maryland General Corporation Law and
the company's By-laws, the company shall indemnify any
person who was or is a director, officer, or employee of the
company to the maximum extent permitted by the Maryland
General Corporation Law; provided however, that any such
indemnification (unless ordered by a court) shall be made by
the company only as authorized in the specific case upon a
determination that indemnification of such persons is proper
in the circumstances. Such determination shall be made
(i) by the Board of Directors by a majority vote of a
quorum which consists of the directors who are neither
interested persons of the company as defined in
Section 2(a)(19) of the 1940 Act, nor parties to the
proceedings, or
(ii) if the required quorum is not obtainable or if a quorum
of such directors so directs, by independent legal
counsel in a written opinion.
No indemnification will be provided by the company to any
director or officer of the company for any liability to the
company or shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duty.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
The principal business of Jones & Babson, Inc. is the
management of the Babson family of mutual funds. It also
has expertise in the tax and pension plan field. It
supervises a number of prototype and profit-sharing plan
programs sponsoredby various organizations eligible to be
prototype plan sponsors.
The principal business of David L. Babson & Co., Inc. is to
provide investment counsel and advice to a wide variety of
clients. It supervises assets in excess of $3,000,000,000.
Item 29. PRINCIPAL UNDERWRITERS.
(a) Jones & Babson, Inc., the only principal underwriter of
the Registrant, also acts as principal underwriter for
the David L. Babson Growth Fund, Inc., Babson
Enterprise Fund, Inc., Babson Value Fund, Inc., D.L.
Babson Money Market Fund, Inc., D.L. Babson Bond Trust,
Shadow Stock Fund, Inc., Babson-Stewart Ivory
International Fund, Inc., UMB Stock Fund, Inc., UMB
Bond Fund, Inc., UMB Money Market Fund, Inc. and UMB
Tax-Free Money Market Fund, Inc. and UMB Qualified
Dividend Fund, Inc.
(b) Herewith is the information required by the following
table with respect to each director, officer or partner
of the only underwriter named in answer to Item 21 of
Part B:
Name and Principal Position and Offices Positions and Offices
_Business Address_ __with Underwriter__ ___with Registrant___
Stephen S. Soden Chairman and Director None
BMA Tower
One Penn Valley Park
Kansas City, MO 64141
Larry D. Armel President and Director President and
3
<PAGE>
Three Crown Center Director
2440 Pershing Road
Kansas City, MO 64108
Giorgio Balzer Director None
BMA Tower
One Penn Valley Park
Kansas City, MO 64141
J. William Sayler Director None
BMA Tower
One Penn Valley Park
Kansas City, MO 64141
Edward S. Ritter Director None
BMA Tower
One Penn Valley Park
Kansas City, MO 64141
Robert N. Sawyer Director None
BMA Tower
One Penn Valley Park
Kansas City, MO 64141
Vernon W. Voorhees Director None
BMA Tower
One Penn Valley Park
Kansas City, MO 64141
P. Bradley Adams Vice President Vice President
Three Crown Center
2440 Pershing Road, G-15
Kanasas City, Missouri 64108
Michael A Brummel Vice President Vice President
Three Crown Center
2440 Pershing Road, G-15
Kanasas City, Missouri 64108
Ruth Evans Vice President Vice President
Three Crown Center
2440 Pershing Road, G-15
Kanasas City, Missouri 64108
Martin A. Cramer Vice President Vice President
Three Crown Center and Secretary and Secretary
2440 Pershing Road, G-15
Kanasas City, Missouri 64108
(c) The principal underwriter does not receive any
remuneration or compensation for the duties or services
rendered to the Registrant pursuant to the principal
underwriting Agreement.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
Each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act and the Rules
(17 CFR 270.31a-1 to 31a-3) promulgated thereunder is in the
physical possession of Jones & Babson, Inc., at Three Crown
Center, 2440 Pershing Road, G-15, Kansas City, Missouri
64108.
Item 31. MANAGEMENT SERVICES.
All management services are covered in the management
agreement between the Registrant and Jones & Babson, Inc.,
which are discussed in Parts A and B.
Item 32. DISTRIBUTION EXPENSES.
Not applicable.
Item 33. UNDERTAKINGS.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused
this amendment to its registration statement to be signed on its
behalf by the undersigned, thereunto authorized, in the City of
Kansas City, and State of Missouri on the 11th day of August, 1995.
D. L. BABSON TAX-FREE INCOME FUND, INC.
(Registrant)
By Larry D. Armel, President
(Larry D. Armel, President)
Pursuant to the requirements of the Securities Act of 1933,
this Post-effective Amendment #21 to the Registration Statement
has been signed below by the following persons in the capacities
and on the date indicated.
Larry D. Armel President, Principal August 11, 1995
Larry D. Armel Executive Officer,
and Director
H. David Rybolt Director August 11, 1995
H. David Rybolt*
William H. Russell Director August 11, 1995
William H. Russell*
Francis C. Rood Director August 11, 1995
Francis C. Rood*
P. Bradley Adams Treasurer and Principal August 11, 1995
P. Bradley Adams Financial and Accounting
Officer
*Signed pursuant to Power of Attorney
By Larry D. Armel
Attorney-in Fact
