D. L. BABSON TAX-FREE INCOME FUND, INC.
PORTFOLIO S
IMPORTANT SHAREHOLDER INFORMATION
These materials are for a special meeting of Portfolio S shareholders
scheduled for October 3, 2000 at 2:00 p.m. Central time. The materials discuss
the proposals to be voted on at the meeting, and contain your proxy statement
and proxy card. A proxy card is, in essence, a ballot. When you vote your proxy,
it tells us how you wish to vote on important issues relating to your
Portfolio.
If you complete and sign the proxy card, we'll vote it exactly as you tell us.
If you simply sign the proxy card, we'll vote it in accordance with the Board
of Directors' recommendations.
We urge you to spend a few minutes reviewing the proposals in the proxy
statement. Then, fill out the proxy card and return it to us so that we know
how you would like to vote. If shareholders return their proxies promptly,
we may be able to avoid making additional mailings.
We welcome your comments. If you have any account specific questions, please
call the Fund at 1-800-4-BABSON (1-800-422-2766). If you have any proxy
related
questions, or need assistance voting your shares, please call our proxy
solicitor, D.F. King & Co., Inc., at 1-800-207-3158.
TELEPHONE AND INTERNET VOTING
For your convenience, you may be able to vote by telephone or through the
Internet, 24 hours a day. If your account is eligible, a control number and
separate instructions are enclosed.
Vote by Telephone: by calling the toll-free number on your proxy card and
following the recorded instructions. If you wish to speak with someone before
voting, please call our proxy solicitor, D.F. King & Co., Inc., at
1-800-207-3158.
Vote by Internet: by signing onto the Internet web site listed on your proxy
card and entering the proper information. Please have your proxy card with
your control number ready when using this option.
Dear Shareholder:
Enclosed is a Notice of Meeting for a Special Meeting of Portfolio S
shareholders of D.L. Babson Tax-Free Income Fund, Inc. (the "Fund"). The
Meeting is scheduled for October 3, 2000 at 2:00 p.m. Central time at the
offices of the Fund's manager, Jones & Babson, Inc. on the 19th floor of the
BMA Tower, 700 Karnes Boulevard, Kansas City, Missouri. The accompanying
materials describe an important proposal which may affect the future of your
Portfolio. We ask you to give this your prompt attention and vote via the
enclosed proxy card.
Please Take a Moment to Fill Out, Sign and Return the Enclosed Proxy Card
This meeting is very important to the future of Portfolio S. The Directors of
the Fund unanimously recommend that you consider and approve a Plan of
Reorganization that would result in your shares of Portfolio S being exchanged
for those of the Fund's Portfolio L. If the shareholders of Portfolio S
approve the proposal, you will receive shares of Portfolio L equal in value to
your investment in Portfolio S. You will no longer be a shareholder of
Portfolio S, and you will instead be a shareholder of Portfolio L. If the
reorganization is completed, Portfolio S will no longer exist and Portfolio L
will thereafter be referred to as the Babson Tax-Free Income Fund.
The proposed transaction is intended to be tax-free, which means that you will
not have a taxable gain or loss on the exchange of your shares.
The Directors recommend this transaction because the projected growth in
assets
of Portfolio S was not sufficient to provide competitive performance and high
quality service to shareholders over the long term. David L. Babson & Co.
provides the day-to-day management of each Portfolio's assets and Jones &
Babson, Inc. manages the Fund. Each Portfolio has similar investment
objectives
and investment policies, except for the average weighted maturity of the
securities held. Portfolio L holds longer-term securities which experience
larger price fluctuations in response to changes in interest rates. Therefore,
the price of Portfolio L shares will fluctuate more than Portfolio S
shares.\After the Portfolios are combined, the surviving Portfolio may be
able to
benefit from increased trading efficiency and investment opportunities and
the manager's cost of operating the Portfolio may be reduced.
Please take the time to review this document and vote now. The Directors of
the Fund unanimously recommend that you vote in favor of this proposal.
~ To ensure that your vote is counted, indicate your position on the
enclosed proxy card.
~ Sign and return your card promptly.
~ You may also vote by telephone or over the Internet.
~ If you determine at a later date that you wish to attend this meeting,
you may revoke your proxy and vote in person.
Thank you for your attention to this matter.
Sincerely,
/s/Stephen S. Soden
Stephen S. Soden
President
D. L. BABSON TAX-FREE INCOME FUND, INC.
PORTFOLIO S
Babson Funds
c/o Jones & Babson, Inc.
BMA Tower
700 Karnes Boulevard
Kansas City, Missouri 64121-9779
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on october 3, 2000
To the Portfolio S Shareholders of D. L. Babson Tax-Free Income Fund, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Portfolio S shareholders of
D. L. Babson Tax-Free Income Fund, Inc. (the "Fund") will be held at the
offices of the Fund's manager, Jones & Babson, Inc. on the 19th floor of
the BMA Tower, 700 Karnes Boulevard, Kansas City, Missouri on October 3, 2000,
at 2:00 p.m. Central time. The Meeting is being called for the following
purpose:
To approve or disapprove a Plan of Reorganization of D. L. Babson Tax-Free
Income Fund, Inc. (the "Fund") on behalf of two of its Portfolios, that
provides for the acquisition of substantially all of the assets of Portfolio
S in exchange for shares of Portfolio L, the distribution of such shares to
the shareholders of Portfolio S, and the liquidation and dissolution of
Portfolio S.
In addition, shareholders will be asked to grant the proxyholders the
authority
to vote upon any other business which may legally come before the Special
Meeting or any adjournment thereof. The attached Prospectus/Proxy Statement
describes the proposed transaction more completely. A copy of the Plan of
Reorganization is attached as Exhibit A to the Prospectus/Proxy Statement.
Shareholders of record as of the close of business on July 20, 2000, are
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
By Order of the Board of Directors,
Martin A. Cramer
Secretary
August 4, 2000
The Board of Directors urges you to complete, date, sign, and return the
enclosed proxy card in the enclosed postage-paid return envelope. It is
important that you return your signed proxy card promptly so that a quorum
may be ensured.
PROSPECTUS/PROXY STATEMENT
TABLE OF CONTENTS
Page
Cover Page Cover
Summary 2
What proposal am I voting on? 2
How will the shareholder voting be handled? 2
Comparisons of Some Important Features 2
How do the investment objectives and policies
of the Portfolios compare? 2
What are the risks of an investment in the Portfolios? 3
Who manages the Fund and the Portfolios? 4
What are the fees and expenses of each Portfolio
and what might they be after the Transaction? 5
Where can I find more financial information about the
Portfolios? 5
What are other key features of the Portfolios? 6
Reasons for the Transaction
6
Information about the Transaction 6
How will the Transaction be carried out? 6
Who will pay the expenses of the Transaction? 7
What are the tax consequences of the Transaction? 8
What should I know about the shares of Portfolio L 8
What are the capitalizations of the Portfolios and what might
the capitalization be after the Transaction? 8
Voting Information 8
How many votes are necessary to approve the Plan? 8
How do I ensure my vote is accurately recorded? 9
Can I revoke my proxy?
9
What other matters will be voted upon at the Meeting? 9
Who is entitled to vote? 9
What other solicitations will be made? 9
Are there dissenters' rights? 9
More Information about the Fund and the Portfolios 10
Principal Holders of Shares 10
Exhibits to Prospectus and Proxy Statement 11
Exhibit A - Plan of Reorganization (attached) A-1
Exhibit B - Babson Funds Combined Prospectus dated
October 31, 1999, as supplemented June 8, 2000 Enclosed
Exhibit C - Babson Funds Combined Annual Report to
Shareholders dated June 30, 1999 Enclosed
D. L. BABSON TAX-FREE INCOME FUND, INC.
PROSPECTUS/PROXY STATEMENT
Dated July 20, 2000
Acquisition of the Assets of PORTFOLIO S
By and in exchange for shares of PORTFOLIO L
This Prospectus/Proxy Statement solicits proxies to be voted at a Special
Meeting (the "Meeting") of Portfolio S shareholders of D. L. Babson Tax-Free
Income Fund, Inc. (the "Fund"), to approve or disapprove a Plan of
Reorganization (the "Plan"). If shareholders of Portfolio S vote to approve
the Plan, you will receive shares of Portfolio L equal in value to your
investment in shares of Portfolio S. Portfolio S will then be liquidated and
dissolved and Portfolio L will thereafter be referred to as the Babson
Tax-Free
Income Fund. The investment objectives and policies of the Portfolios are
substantially similar, except for the duration and maturity of the securities
held by each Portfolio.
The Meeting will be held at the offices of the Fund's manager, Jones & Babson,
Inc. which are located on the 19th floor of the BMA Tower, 700 Karnes
Boulevard, Kansas City, Missouri on October 3, 2000 at 2:00 p.m. Central time.
The Board of Directors of the Fund is soliciting these proxies on behalf of
Portfolio S. This Prospectus/Proxy Statement will first be sent to
shareholders
on or about August 4, 2000.
This Prospectus/Proxy Statement gives the information about the proposed
reorganization and shares of Portfolio L that you should know before
investing.
You should retain it for future reference. Additional information about
Portfolio L and the proposed reorganization has been filed with the SEC and
can be found in the following documents:
~ The Babson Funds Combined Prospectus dated October 31, 1999, as
supplemented June 8, 2000, is enclosed with and considered a part
of this Prospectus/Proxy Statement.
~ The Babson Funds Combined Annual Report to Shareholders dated
June 30, 1999, which contains financial and performance information
for Portfolio S and Portfolio L, is enclosed with and considered a
part of this Prospectus/Proxy Statement.
~ A Statement of Additional Information (SAI) relating to this
Prospectus/Proxy Statement dated July 20, 2000, has been filed with
the SEC and is incorporated by reference into this Prospectus/Proxy
Statement.
You may request a free copy of the SAI relating to this Prospectus/Proxy
Statement or other documents related to the Fund without charge by calling
1-800-4-BABSON (1-800-422-2766) or by writing to the Babson Funds at
P.O. Box 219757, Kansas City, MO 64121-9757.
The SEC has not approved or disapproved these securities or passed upon the
adequacy of this Prospectus/Proxy Statement. Any representation to the
contrary is a criminal offense.
Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other U.S. government agency.
Mutual fund shares involve investment risks, including the possible loss of
principal.
SUMMARY
This is only a summary of certain information contained in this Prospectus/
Proxy Statement. You should read the more complete information in the rest
of this Prospectus/Proxy Statement, including the Plan (attached as Exhibit
A),
the Babson Funds Combined Prospectus (enclosed as Exhibit B) and the Babson
Funds Combined Annual Report to Shareholders (enclosed as Exhibit C).
What proposal am I voting on?
You are being asked to consider and approve a Plan of Reorganization that will
have the effect of combining Portfolio S and Portfolio L into a single mutual
fund. If shareholders of Portfolio S vote to approve the Plan, the assets of
Portfolio S will be transferred to Portfolio L and Portfolio S shareholders
will exchange their shares of Portfolio S for an equal dollar amount of
Portfolio L shares. The proposed reorganization is referred to in this
Prospectus/Proxy Statement as the "Transaction." As a result of the
Transaction, you will cease to be a shareholder of Portfolio S and will
become a shareholder of Portfolio L.
The Board of Directors of the Fund has determined that the Transaction is in
the best interests of the shareholders of Portfolio S and also concluded that
no dilution in value would result to the shareholders of either Portfolio as
a result of the Transaction. The Board's approval was based in part on the
potential for the surviving Portfolio to benefit from increased trading
efficiencies and investment opportunities. The Board also considered the
manager's conclusion that it may not be cost-effective to continue to manage
each Portfolio separately in view of their relative sizes.
The Board of Directors of the Fund, on behalf of both Portfolio S and
Portfolio L, has approved the Plan and unanimously recommends that you vote
to approve the Plan.
How will the shareholder voting be handled?
Shareholders who own shares of Portfolio S at the close of business on
July 20, 2000, will be entitled to vote at the Meeting, and will be entitled
to one vote for each full share and a fractional vote for each fractional
share that they hold. To approve the Transaction, a majority of the
outstanding
shares of Portfolio S must be voted in favor of the Plan.
Please vote by proxy as soon as you receive this Prospectus/Proxy Statement.
You may place your vote by completing and signing the enclosed proxy card or
voting by telephone or over the Internet. If you vote by any of these three
methods, your votes will be officially cast at the Meeting by the persons
appointed as proxies.
You can revoke your proxy or change your voting instructions at any time until
the vote is taken at the Meeting. For more details about shareholder voting,
see the "Voting Information" section of this Prospectus/Proxy Statement.
COMPARISONS OF SOME IMPORTANT FEATURES
How do the investment objectives and policies of the Portfolios compare?
This section describes the differences between the investment policies of
Portfolios S and Portfolio L. For a complete description of the investment
policies and risks of Portfolio L, you should read the Babson Funds Combined
Prospectus, which is enclosed with this Prospectus/Proxy Statement.
The investment objective, providing the highest level of regular income exempt
from federal income tax consistent with quality and maturity standards, is the
same for Portfolio S and Portfolio L. The essential difference between the
Portfolios is the time to maturity of the securities they hold.
Portfolio L generally has a longer weighted average maturity than does
Portfolio S. The weighted average maturity of Portfolio L is normally between
ten and twenty-five years with security maturities generally being longer
than five years at the time of purchase. There is no maximum maturity for
Portfolio L. The weighted average maturity for Portfolio S normally remains
between two and five years with no security maturities of more than ten years
at the time of purchase. The difference in the maturity of the instruments
held by the Portfolios is responsible for differences in the volatility of the
price of their respective shares. The longer term instruments held by
Portfolio L are more susceptible to price fluctuations in response to interest
rate changes. As a result, Portfolio L share prices will fluctuate more than
Portfolio S shares.
Besides weighted average maturity, there are no notable differences in the
investment strategies of the Portfolios. Each Portfolio has substantially all
of its assets invested in investment-grade municipal securities, the interest
on which is deemed exempt from federal income tax. Both Portfolios may invest
in repurchase agreements; however, repurchase agreements maturing in more than
seven days and other illiquid securities will not exceed 10% of the net assets
of either Portfolio.
Each of the Portfolios' investments in short-term municipal obligations and
notes, short-term discount notes, and municipal bonds are limited by the same
credit quality standards. At least 90% of the municipal bonds in the
Portfolios
are required to be rated at the time of purchase within the top three
classifications of independent ratings services such as Moody's Investors
Services, Inc. (Aaa, Aa and A) or Standard & Poor's Ratings Group (AAA, AA,
and A). 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 U.S. government; (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, or Prime-1
or Prime-2 by Moody's or their equivalents as determined under the supervision
of the Board of Directors. 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 under the supervision of 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 as determined by S&P or Moody's.
The fundamental investment restrictions of Portfolio L and Portfolio S are
identical. The more important restrictions are that each Portfolio will not:
invest in equity securities; purchase the securities of any issuer if more
than 5% of the Portfolio's total assets would be invested in the securities
of such issuer, or if the Portfolio would hold more than 10% of any class of
securities of such issuer; borrow money 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 investment restrictions
can be found in the Babson Funds Combined Statement of Additional Information
dated October 31, 1999, which is available upon request.
What are the risks of an investment in the Portfolios?
Like all investments, an investment in either Portfolio involves risk. There
is no assurance that either of the Portfolios will meet its investment
objective. The achievement of the Portfolios' objective depends upon interest
rates and market conditions, generally, and on the portfolio managers'
analytical and portfolio management skills. The risks of the Portfolios are
basically the same as those of other investments in municipal securities.
Risk Factors Particular to Municipal Securities. The change in market value of
municipal securities is largely a function of changes in the prevailing level
of interest rates.
When interest rates go up, municipal security prices tend to go down, and when
interest rates go down, municipal security prices tend to rise. These price
changes are more dramatic for longer-term securities such as those held by
Portfolio L, which means that the share price of Portfolio L will tend to be
more volatile than that of Portfolio S.
When interest rates are falling, a portfolio with a shorter weighted average
maturity, such as Portfolio S, generally will not generate as high a level of
total return as a portfolio with a longer weighted average maturity, such as
Portfolio L. When interest rates are flat, shorter maturity portfolios
generally will not generate as high a level of total return as longer maturity
portfolios (assuming that long-term interest rates are higher than short-term
rates, which is commonly the case). When interest rates are rising, a
portfolio
with a shorter weighted average maturity will generally outperform longer
maturity portfolios. Normally, price volatility and interest rate risk
declines
as the average maturity of a portfolio shortens, as does its anticipated
potential for total return. Besides interest rate risk, there is also a risk
that any of the issues may default on their obligation.
Risk Factors Applicable to repurchase Agreements. Both Portfolios may invest
in repurchase agreements. Repurchase agreements involve investments in debt
securities where the seller (broker-dealer or bank) agrees to repurchase the
securities from the Portfolio 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 Portfolio'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 Portfolio may be delayed or prevented from exercising its rights to
dispose of the collateral.
Risk Factors of a Temporary Defensive Strategy. While each Portfolio normally
maintains at least 80% of its investments in municipal securities, each
Portfolio may invest up to 100% of its assets in taxable money market
instruments or hold cash reserves on a temporary basis, if management believes
these actions would be in the best interest of shareholders. During periods in
which these temporary defensive strategies are in place, the Portfolios may
not achieve their investment objectives.
Who manages the Fund and the Portfolios?
The management of the business and affairs of the Fund and its Portfolios is
supervised by the Board of Directors of the Fund. Jones & Babson, Inc. is the
Fund's manager and principal underwriter. Jones & Babson, Inc. was founded in
1959 and presently serves as the investment manager of 18 separate mutual
funds, including the 13 funds within the Babson Funds group. Jones & Babson,
Inc. also serves as principal underwriter and provides administrative,
transfer agency and/or accounting services for 37 separate funds, including
the Babson Funds. Jones & Babson, Inc. is located at the BMA Tower, 700 Karnes
Boulevard, Kansas City, MO 64121-9757.
Jones & Babson, Inc. has engaged David L. Babson & Co. to provide investment
sub-advisory services to the Fund and David L. Babson & Co. is responsible for
the day-to-day management of the assets of each Portfolio.
Joanne E. Keers, CFA is a Vice President of David L. Babson & Co. and has been
primarily responsible for managing the assets of both Portfolio S and
Portfolio L since 1999. Ms. Keers joined David L. Babson & Co. in 1987.
David L. Babson & Co. is located at One Memorial Drive, Cambridge, MA
02412-1300.
Jones & Babson, Inc. has entered into a Management Agreement with the Fund,
under which each Portfolio is obligated to pay annual management fees equal
to 0.95% of that Portfolio's average daily net assets. In exchange for
management fees, Jones & Babson, Inc. provides or pays all of the costs of
investment management, fund accounting, transfer agency and administrative
services. Jones & Babson, Inc. also pays all fees of the custodian,
independent auditors and legal counsel; and the cost of officers, directors
and other personnel; rent; shareholder services and other services incident to
corporate administration.
What are the fees and expenses of each Portfolio and what might they be after
the Transaction?
Fees and Expenses - The following table describes the fees and expenses that
you may pay if you buy and hold shares of the Portfolios, as well as the pro
forma fees and expenses of Portfolio L after the Transaction.
Actual+ Pro forma++
Portfolio S Portfolio L After Transaction
Shareholder Fees
(fees paid directly
from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases None None None
Maximum Deferred Sales
Charge (Load) None None None
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends None None None
Redemption Fee None* None* None*
Exchange Fee None None None
Annual Fund Operating Expenses
(expenses that are deducted
from Fund assets)
Management Fees 0.95% 0.95% 0.95%
Distribution (12b-1) Fees None None None
Other Expenses 0.06% 0.08% 0.06%
Total Annual Fund
Operating Expenses 1.01% 1.03% 1.01%
+Actual information for Portfolio S and Portfolio L shares is provided
for the fiscal year ended June 30, 1999.
++Projected expenses based on current and anticipated Portfolio L expenses.
*A $10.00 fee is imposed for redemptions by wire.
Expense Examples - These examples are intended to help you compare the cost of
investing in each Portfolio with the cost of investing in other mutual funds.
They assume you invest $10,000 and receive a 5% return each year. Although
your actual costs may be higher or lower, based on the above assumptions your
costs would be:
1 Year 3 Years 5 Years 10 Years
Portfolio S $103 $322 $558 $1,236
Portfolio L $105 $328 $569 $1,259
Pro forma (after Transaction) $103 $322 $558 $1,236
Where can I find more financial information about the Portfolios?
For Portfolio L, per share income information for the past five fiscal years
(and the most recent six month semiannual period) is shown below. Also, the
current Babson Funds Combined Annual Report to Shareholders, which is
enclosed,
contains more financial information about Portfolio L and Portfolio S as well
as discussions of each Portfolio's performance during the fiscal year ended
June 30, 1999. The SAI relating to this Prospectus/Proxy Statement contains
more financial information about Portfolio L and Portfolio S, as well as
discussions of each Portfolio's performance for the six month period ended
December 31, 1999.
Financial Highlights - Portfolio L
Condensed data for a share of capital stock outstanding throughout each
period.
Six Months Ended
December 31, 1999 Years ended June 30,
(unaudited) 1999 1998 1997 1996 1995
Net asset value,
beginning of period $ 8.91 $ 9.22 $ 8.96 $ 8.74 $ 8.67 $ 8.52
Income from investment
operations:
Net investment income .20 .40 .40 .42 .41 .42
Net gains (losses) on
securities(both realized\
and unrealized) (.34) (.24) .28 .24 .07 .17
Total from investment
operations (.14) .16 .68 .66 .48 .59
Less distributions:
Distributions from net
investment income (.20) (.40) (.40) (.42) (.41) (.42)
Distributions from capital
gains (.08) (.07) (.02) (.02) - (.02)
Total distributions (.28) (.47) (.42) (.44) (.41) (.44)
Net asset value, end of
period $ 8.49 $ 8.91 $ 9.22 $ 8.96 $ 8.74 $ 8.67
Total return1 (1.63%) (1.70%) (7.82%) (7.69%) (5.60%)(7.21%)
Ratios/Supplemental Data
Net assets, end of period
(in millions) $ 24 $ 26 $ 27 $ 27 $ 27 $ 28
Ratio of expenses to
average net assets2 1.02% 1.03% 1.06% 1.01% 1.01%
1.02%
Ratio of net investment
income to average net
assets2 4.49% 4.36% 4.46% 4.71% 4.67%
4.98%
Portfolio turnover rate 20% 9% 18% 21% 39%
34%
1Total return not annualized for periods less than one full year.
2Annualized for periods less than one full year.
What are other key features of the Portfolios?
Shares of each Portfolio are sold on a no-load basis and there are no sales
commissions or Rule 12b-1 fees. Shares of each Portfolio may be redeemed at
their respective net asset value per share at any time. Shares may also be
exchanged at no cost for shares of any other fund or portfolio in the Babson
Funds group. Because an exchange is technically a sale and purchase of shares,
an exchange is a taxable transaction (although the Transaction described in
this Proxy Statement is designed to be tax-free).
Additional information and specific instructions explaining how to buy, sell,
and exchange shares of the Portfolios is contained in the Babson Funds
Combined Prospectus, and the Prospectus also lists phone numbers for you to
call if you have any questions about your account.
Each Portfolio declares a dividend from its net investment income at the end
of each business day, and such dividends are payable to shareholders of record
at the end of the previous business day. On the last day of each month, all
dividends declared during that month are credited to the accounts of those
shareholders. Distributions from capital gains, if any, are declared annually
by December 31.
REASONS FOR THE TRANSACTION
The Board of Directors of the Fund has recommended the Transaction to
Portfolio S shareholders in order to combine Portfolio S with Portfolio L
to make a larger fund that has similar investment policies. A larger fund may
be able to benefit from reduced trading costs, and increased investment
opportunities. Also, the manager anticipates that it may be able to attain
increased operational efficiencies with a larger fund.
The Plan was presented to the Board of Directors of the Fund at a meeting
held on April 27, 2000. At the meeting, the Board of Directors reviewed the
expense ratios of both Portfolios; the comparative investment performance of
the Portfolios; the compatibility of the investment objectives, policies and
restrictions of the Portfolios; and the tax consequences of the Transaction.
The manager recommended the Transaction for the potential benefits to the Fund
and shareholders and because it believes that it may not be cost-effective to
continue to operate the Portfolios separately going forward. The manager also
believes that the surviving Portfolio may be marketed more easily as a larger
fund. During the course of its deliberations, the Board of Directors noted
that the expenses of the Transaction will be borne by the manager and not by
the Fund or either Portfolio.
The Board of Directors including a majority of the Directors who are not
interested persons of the Fund, unanimously concluded that the Transaction
is in the best interests of the shareholders of Portfolio S and that no
dilution of value would result to the shareholders of Portfolio S or
Portfolio L from the Transaction, and the Board approved the Plan and
recommended that shareholders of Portfolio S vote to approve the Transaction.
For the reasons discussed above, the Board of Directors unanimously recommends
that you vote for the Plan.
If shareholders of Portfolio S do not approve the Plan, the Board of Directors
will consider other possible courses of action for Portfolio S, including
liquidation and dissolution.
INFORMATION ABOUT THE TRANSACTION
This is only a summary of the Plan. You should read the actual Plan attached
as Exhibit A.
How will the Transaction be carried out?
If shareholders of Portfolio S approve the Plan, the Transaction will take
place after various conditions are satisfied by the Fund on behalf of
Portfolio S and Portfolio L, including the preparation of certain documents.
The Fund will determine a specific date for the actual Transaction to take
place. This is called the closing date. If the shareholders of Portfolio S
do not approve the Plan, the Transaction will not take place.
If shareholders of Portfolio S approve the Plan at the Meeting, shares of
Portfolio S will no longer be offered for sale to existing shareholders,
except for the reinvestment of dividend and capital gain distributions or
through established automatic investment plans. Until the close of business
on the day of the Meeting, you may continue to add to your existing account
subject to your applicable minimum additional investment amount or buy
additional shares through the reinvestment of dividend and capital gain
distributions.
If the shareholders of Portfolio S approve the Plan, Portfolio S will deliver
to Portfolio L substantially all of its assets on the closing date. In
exchange, shareholders of Portfolio S will receive shares of Portfolio L that
have a value equal to the dollar value of the assets delivered to Portfolio S.
The stock transfer books of Portfolio S will be permanently closed on the
closing date. Portfolio S will only accept requests for redemption received in
proper form before 10:00 a.m. Central time on the closing date. Requests
received after that time will be considered requests to redeem shares of
Portfolio L. To the extent permitted by law, the Fund may amend the Plan
without shareholder approval. It may also agree to terminate and abandon the
Transaction at any time before or, to the extent permitted by law, after the
approval by shareholders of Portfolio S.
Who will pay the expenses of the Transaction?
The expenses resulting from the Transaction will be paid by the manager and
not by the Fund or either Portfolio.
What are the tax consequences of the Transaction?
The Transaction is intended to qualify as a tax-free reorganization for
federal income tax purposes under Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended. Based on certain assumptions and representations
received from the Fund, on behalf of the Portfolios, it is the opinion of
Stradley Ronon Stevens & Young, LLP, counsel to the Fund, that shareholders
of Portfolio S will not recognize any gain or loss for federal income tax
purposes as a result of the exchange of their shares of Portfolio S for
shares of Portfolio L and that neither Portfolio L nor its shareholders will
recognize any gain or loss upon receipt of the assets of Portfolio S.
You will continue to be responsible for tracking the purchase cost and holding
period of your shares and should consult your tax advisor regarding the
effect,
if any, of the Transaction in light of your individual circumstances. You
should also consult your tax advisor as to state and local tax consequences,
if any, of the Transaction, because this discussion only relates to the
federal income tax consequences.
What should I know about the shares of Portfolio L?
Shares of Portfolio L will be distributed to shareholders of Portfolio S and
will have the same legal characteristics as the shares of Portfolio S with
respect to such matters as voting rights, assessibility, conversion rights,
and transferability.
What are the capitalizations of the Portfolios and what might the
capitalization be after the Transaction?
The following table sets forth, as of May 31, 2000, the capitalization of
shares of Portfolio S and Portfolio L. The table also shows the projected
capitalization of Portfolio L shares as adjusted to give effect to the
proposed Transaction. The capitalization of Portfolio L is likely to be
different when the Transaction is consummated.
Portfolio L
Portfolio S Portfolio L Pro Forma
(unaudited) (unaudited) (unaudited)
Net assets (millions) $17 $24 $41
Total shares outstanding 1,652,333 2,852,350 4,879,193
Net asset value per share $10.41 $8.49 $8.49
VOTING INFORMATION
How many votes are necessary to approve the Plan?
The affirmative vote of a majority of the total number of outstanding shares
of Portfolio S is necessary to approve the Plan. Each shareholder will be
entitled to one vote for each full share, and a fractional vote for each
fractional share of Portfolio S held at the close of business on July 20, 2000
(the "Record Date"). If sufficient votes to approve the Plan are not received
by the date of the Meeting, the Meeting may be adjourned to permit further
solicitations of proxies.
Under relevant state law and the Fund's governing documents, abstentions and
broker non-votes will be included for purposes of determining whether a
quorum is present at the Meeting, but will be treated as votes not cast and,
therefore, will not be counted for purposes of determining whether the matters
to be voted upon at the Meeting have been approved, and will have the same
effect as a vote against the Plan.
How do I ensure my vote is accurately recorded?
You can vote in any one of four ways:
~ By mail, with the enclosed proxy card.
~ In person at the Meeting.
~ Through D.F. King, a proxy solicitor, by calling toll-free
1-800-207-3158.
~ By telephone or through the Internet; a control number and internet
site or a toll-free number for the automated voting option is provided
on your proxy card and separateinstructions are enclosed.
A proxy card is, in essence, a ballot. If you simply sign and date the proxy
but give no voting instructions, your shares will be voted in favor of the
Plan and in accordance with the views of management upon any unexpected
matters that come before the Meeting or adjournment of the Meeting.
Can I revoke my proxy?
You may revoke your proxy at any time before it is voted by sending a written
notice to the Fund expressly revoking your proxy, by signing and forwarding to
the Fund a later-dated proxy, or by attending the Meeting and voting in
person.
What other matters will be voted upon at the Meeting?
The Board of Directors of the Fund does not intend to bring any matters before
the Meeting other than those described in this proxy. It is not aware of any
other matters to be brought before the Meeting by others. If any other matter
legally comes before the Meeting, proxies for which discretion has been
granted
will be voted in accordance with the views of management.
Who is entitled to vote?
Shareholders of record of Portfolio S on the Record Date will be entitled to
vote at the meeting. On the Record Date, there were 1,460,362.541 outstanding
shares of Portfolio S issued and outstanding.
What other solicitations will be made?
The Fund will request broker-dealer firms, custodians, nominees and
fiduciaries
to forward proxy material to the beneficial owners of the shares of record.
The
Fund may reimburse broker-dealer firms, custodians, nominees and fiduciaries
for their reasonable expenses incurred in connection with such proxy
solicitation. In addition to solicitations by mail, officers and employees of
the Fund, without extra pay, may conduct additional solicitations by
telephone,
personal interviews and other means. The Fund, on behalf of Portfolio S, has
engaged D.F. King & Co., Inc. to solicit proxies from brokers, banks, other
institutional holders and individual shareholders for an approximate fee,
including out-of-pocket expenses ranging between $5,000 and $10,000. The costs
of any additional solicitation and of any adjourned session will be borne by
the Manager.
Are there dissenters' rights?
Shareholders of Portfolio S will not be entitled to any "dissenters' rights"
since the proposed Transaction involves two open-end investment companies
registered under the 1940 Act (commonly called mutual funds). Although no
dissenters' rights may be available, you have the right to redeem your shares
at net asset value until the closing date. After the closing date, you may
redeem your Portfolio L shares or exchange them for shares of other funds in
the Babson Funds group, subject to the terms in the prospectus of the
respective fund.
MORE INFORMATION ABOUT THE FUND AND THE PORTFOLIOS
Portfolio S and Portfolio L are separate series of the Fund, which is an
open-end management investment company registered with the SEC under the 1940
Act. Each Portfolio is, in effect, a separate mutual fund. Detailed
information
about the Fund and each Portfolio (as well as the other funds in the Babson
Funds group) is contained in the current Babson Funds Combined Prospectus
which
is enclosed with and considered a part of this Prospectus/Proxy Statement.
Additional information about the Fund and each Portfolio is included in the
Babson Funds Combined SAI, dated October 31, 1999, which has been filed with
the SEC and is incorporated into the SAI relating to this Prospectus/Proxy
Statement.
You may request a free copy of the Semiannual Report to Shareholders for the
six month period ended December 31, 1999, by calling 1-800-4-BABSON
(1-800-422-2766) or by writing to the Fund at P.O. Box 219747, Kansas City,
MO 64121-9757. The Fund's Annual Report to Shareholders for the fiscal year
ended June 30, 1999, is enclosed with and considered a part of this
Prospectus/
Proxy Statement.
The Fund files proxy materials, reports and other information with the SEC in
accordance with the informational requirements of the Securities Exchange Act
of 1934 and the 1940 Act. These materials can be inspected and copied at: the
SEC's Public Reference Room at 450 Fifth Street NW, Washington, DC 20549, and
at the Regional Offices of the SEC located in New York City at 7 World Trade
Center, Suite 1300, New York, NY 10048 and in Chicago at 500 West Madison
Street, Suite 1400, Chicago, IL 60661. Also, copies of such material can be
obtained from the SEC's Public Reference Section, Washington, DC 20549-6009,
at prescribed rates, or from the SEC's Internet address at http://www.sec.gov.
PRINCIPAL HOLDERS OF SHARES
As of the Record Date, the principal shareholders of Portfolio S, beneficial
or
of record, were:
Name and Address Percentage (%)
Bowen, David & Co. 16.08%
From time to time, the number of Portfolio S shares held in the "street name"
accounts of various securities dealers for the benefit of their clients or in
centralized securities depositories may exceed 5% of the total shares
outstanding. No other person owned (beneficially or of record) 5% or more of
the outstanding shares of Portfolio S.
As of the Record Date, the officers and Directors of the Fund, as a group,
owned less than 1% of the outstanding voting shares of Portfolio S.
EXHIBITS TO PROSPECTUS/PROXY STATEMENT
EXHIBIT A - Plan of Reorganization by D. L. Babson Tax-Free Income Fund, Inc.
on behalf of Portfolio L and Portfolio S
EXHIBIT B - Babson Funds Combined Prospectus dated October 31, 1999, as
supplemented June 8, 2000 (enclosed)
EXHIBIT C - Babson Funds Combined Annual Report to Shareholders dated
June 30, 1999 (enclosed)
EXHIBIT A
FORM OF PLAN OF REORGANIZATION
THIS PLAN OF REORGANIZATION (the "Plan"), is made by D. L. Babson Tax-Free
Fund, Inc., a corporation organized under the laws of the State of Maryland
on August 22, 1979 (the "Fund"), as of this ___ day of ________, 2000, on
behalf of its two series Portfolio S and Portfolio L (collectively, the
"Portfolios"), with a principal place of business at 700 Karnes Blvd., Kansas
City, MO 64108.
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the "Plan of Reorganization")
will consist of (i) the acquisition by Portfolio L, of substantially all of
the property, assets and goodwill of Portfolio S in exchange solely for shares
of common stock, par value $0.10 each, of Portfolio L ("Portfolio L Shares");
(ii) the distribution of Portfolio L Shares to the shareholders of
Portfolio S according to their respective interests; and (iii) the subsequent
dissolution of Portfolio S as soon as practicable after the closing (as
defined in Section 3, hereinafter called the "Closing"), all upon and subject
to the terms and conditions of this Plan hereinafter set forth.
In order to consummate the Plan, the following actions shall be taken by the
Fund on behalf of the Portfolios:
1. Sale and Transfer of Assets, Liquidation and Dissolution of Portfolio S.
(a) Subject to the terms and conditions of this Plan, the Fund on behalf
of Portfolio S shall convey, transfer and deliver to Portfolio L at the
Closing all of Portfolio S's then existing assets, free and clear of all
liens, encumbrances, and claims whatsoever (other than shareholders' rights
of redemption), except for cash, bank deposits, or cash equivalent securities
in an estimated amount necessary to (i) discharge its unpaid liabilities on
its books at the closing date, including, but not limited to, its income
dividends and capital gains distributions, if any, payable for the period
prior to, and through, the Closing Date; and (ii) pay such contingent
liabilities as the Board of Directors shall reasonably deem to exist against
Portfolio S, if any, at the Closing Date, for which contingent and other
appropriate liability reserves shall be established on Portfolio S's books
(hereinafter "Net Assets"). Portfolio S shall also retain any and all rights
that it may have over and against any person that may have accrued up to and
including the close of business on the Closing Date.
(b) Subject to the terms and conditions of this Plan, the Fund on behalf
of Portfolio L shall at the Closing deliver to Portfolio S the number of
Portfolio L Shares, determined by dividing the net asset value per share of
the shares of Portfolio S ("Portfolio S Shares") by the net asset value per
share of Portfolio L Shares, as of 1:00 P.M. Central time on the Closing Date.
All such values shall be determined in the manner and as of the time set forth
in Section 2 hereof.
(c) Immediately following the Closing, the Fund shall dissolve Portfolio S
and distribute pro rata to the shareholders of record of Portfolio S as of the
close of business on the Closing Date, the Portfolio L Shares to be delivered
to Portfolio L pursuant to this Section 1. Such liquidation and distribution
shall be accomplished by the establishment of accounts on the share records of
the Fund relating to Portfolio S and noting in such accounts the type and
amounts of such Portfolio L Shares that such former Portfolio S shareholders
are due based on their respective holdings of Portfolio S as of the close of
business on the Closing Date. Fractional Portfolio L Shares shall be carried
to the third decimal place. At the time of merger, all outstanding
certificated shares of Portfolio S will be deemed canceled. Holders in
possession of certificated shares of Portfolio S will not be required to
surrender their certificates to complete the acquisition by Portfolio L. After
the acquisition, holders may request a certificate representing the number of
Portfolio L Shares they own.
2. Valuation.
(a) The value of Portfolio S's Net Assets to be transferred to Portfolio L
hereunder shall be computed as of 1:00 P.M. Central time on the Closing Date
using the valuation procedures set forth in Portfolio S's currently effective
prospectus.
(b) The net asset value of a share of Portfolio L shall be determined to
the third decimal point as of 1:00 P.M. Central time on the Closing Date using
the valuation procedures set forth in Portfolio L's currently effective
prospectus.
(c) The net asset value of a share of Portfolio S shall be determined to
the third decimal point as of 1:00 P.M. Central time on the Closing Date using
the valuation procedures set forth in Portfolio S's currently effective
prospectus.
3. Closing and Closing Date.
The Closing Date shall be October 27, 2000, or such later date as determined
by the Fund's officers. The Closing shall take place at the principal office
of the Fund at 2:00 P.M. Central time on the Closing Date. The Fund on behalf
of Portfolio S shall have provided for delivery as of the Closing of Portfolio
S's Net Assets to be transferred to the account of Portfolio at the Fund's
Custodian, UMB Bank, n.a., 700 Karnes Blvd, Kansas City, MO 64108. Also, the
Fund on behalf of Portfolio S shall produce at the Closing a list of names
and addresses of the shareholders of record of its Portfolio S Shares and the
number of shares owned by each such shareholder, indicating thereon which such
shares are represented by outstanding certificates and which by book-entry
accounts, all as of 1:00 P.M. Central time on the Closing Date, certified by
its transfer agent or by its President to the best of its or his or her
knowledge and belief. The Fund on behalf of Portfolio L shall issue and
deliver
a certificate or certificates evidencing the shares of Portfolio L to be
delivered to the account of Portfolio S at said transfer agent registered in
such manner as the officers of the Fund on behalf of Portfolio S may request,
or provide evidence satisfactory to Portfolio S that such Portfolio L Shares
have been registered in an account on the books of Portfolio L in such manner
as the Fund on behalf of Portfolio S may request.
4. Representations and Warranties by the Fund on behalf of Portfolio S.
The Fund makes the following representations and warranties about Portfolio S:
(a) Portfolio S is a series of the Fund, a corporation organized under the
laws of the State of Maryland on August 22, 1979 and validly existing and in
good standing under the laws of that State. The Fund is duly registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), an open-end,
management investment company and all of the Portfolio S Shares sold were sold
pursuant to an effective registration statement filed under the Securities Act
of 1933, as amended (the "1933 Act"), except for those shares sold pursuant to
the private offering exemption for the purpose of raising the required initial
capital.
(b) The Fund is authorized to issue 100,000,000 shares of common stock,
par value $0.10 each, each outstanding share of which is fully paid, non-
assessable, fully transferable and has full voting rights and currently issues
shares of two (2) series. The Fund is authorized to issue 50,000,000 shares of
beneficial interest of each series.
(c) The financial statements appearing in the Fund's Annual Report to
Shareholders for the fiscal year ended June 30, 1999, audited by Ernst &
Young LLP, and the Fund's unaudited Semiannual Report to shareholders for the
six months ended December 31, 1999, fairly present the financial position of
Portfolio S as of such dates and the results of its operations for the periods
indicated in conformity with generally accepted accounting principles applied
on a consistent basis.
(d) The Fund has the necessary power and authority to conduct Portfolio S's
business as such business is now being conducted.
(e) The Fund on behalf of Portfolio S is not a party to or obligated under
any provision of the Fund's Articles of Incorporation, as amended and
supplemented or By-laws, or any contract or any other commitment or
obligation,
and is not subject to any order or decree that would be violated by its
execution of or performance under this Plan.
(f) The Fund has elected to treat Portfolio S as a regulated investment
company ("RIC") for federal income tax purposes under Part I of Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"), and Portfolio S
has qualified as a RIC for each taxable year since its inception and will
qualify as a RIC as of the Closing Date.
5. Representations and Warranties by the Fund on behalf of Portfolio L.
The Fund makes the following representations and warranties about Portfolio L:
(a) Portfolio L is a series of the Fund, a corporation organized under the
laws of the State of Maryland on August 22, 1994 and validly existing and in
good standing under the laws of that State. The Fund is duly registered under
the 1940 Act as an open-end, management investment company and all its shares
sold have been sold pursuant to an effective registration statement filed
under the 1933 Act, except for those shares sold pursuant to the private
offering exemption for the purpose of raising the required initial capital.
(b) The Fund is authorized to issue 50,000,000 shares of Portfolio L, par
value $0.10 each, each outstanding share of which is fully paid, non-
assessable, fully transferable, and has full voting rights. Portfolio L
Shares to be issued pursuant to this Plan will be fully paid, non-assessable,
freely transferable and have full voting rights.
(c) At the Closing, Portfolio L Shares will be eligible for offering to
the public in those states of the United States and jurisdictions in which the
shares of Portfolio S are presently eligible for offering to the public, and
there are a sufficient number of Portfolio L Shares registered under the 1933
Act to permit the transfers contemplated by this Plan to be consummated.
(d) The financial statements appearing in the Fund's Annual Report to
Shareholders for the fiscal year ended June 30, 1999, audited by Ernst &
Young LLP, and the Fund's unaudited Semiannual Report to shareholders for the
six months ended December 31, 1999, fairly present the financial position of
Portfolio L as of such dates and the results of its operations for the periods
indicated in conformity with generally accepted accounting principles applied
on a consistent basis.
(e) The Fund has the necessary power and authority to conduct Portfolio L's
business as such business is now being conducted.
(f) The Fund on behalf of Portfolio L is not a party to or obligated under
any provision of the Fund's Articles of Incorporation, as amended and
supplemented or By-laws, or any contract or any other commitment or
obligation, and is not subject to any order or decree that would be violated
by its execution of or performance under this Plan.
(g) The Fund has elected to treat Portfolio L as a RIC for federal income
tax purposes under Part I of Subchapter M of the Code, and Portfolio L has
qualified as a RIC for each taxable year since its inception and will qualify
as a RIC as of the Closing Date.
6. Representations and Warranties by the Fund on behalf of the Portfolios.
The Fund makes the following representations and warranties about both
Portfolio S and Portfolio L:
(a) The statement of assets and liabilities to be created by the Fund for
each of the Portfolios as of 1:00 P.M. Central time on the Closing Date for
the purpose of determining the number of Portfolio L Shares to be issued
pursuant to Section 1 of this Plan will accurately reflect the Net Assets in
the case of Portfolio S and the net assets in the case of Portfolio L, and
outstanding shares, as of such date, in conformity with generally accepted
accounting principles applied on a consistent basis.
(b) At the Closing, the Portfolios will have good and marketable title to
all of the securities and other assets shown on the statement of assets and
liabilities referred to in "(a)" above, free and clear of all liens or
encumbrances of any nature whatsoever, except such imperfections of title or
encumbrances as do not materially detract from the value or use of the assets
subject thereto, or materially affect title thereto.
(c) Except as disclosed in the Fund's current effective prospectus relating
to Portfolio S and Portfolio L, there is no material suit, judicial action, or
legal or administrative proceeding pending or threatened against either of the
Portfolios.
(d) There are no known actual or proposed deficiency assessments with
respect to any taxes payable by either of the Portfolios.
(e) The execution, delivery, and performance of this Plan have been duly
authorized by all necessary action of the Fund's Board of Directors, and this
Plan constitutes a valid and binding obligation enforceable in accordance with
its terms.
(f) It anticipates that consummation of this Plan will not cause either of
the Portfolios to fail to conform to the requirements of Subchapter M of the
Code for Federal income taxation as a RIC at the end of each of the fiscal
year.
(g) The Fund has the necessary power and authority to conduct the business
of the Portfolios, as such business is now being conducted.
7. Intentions of the Fund on behalf of the Portfolios.
(a) The Fund intends to operate each Portfolio's respective business as
presently conducted between the date hereof and the Closing.
(b) The Fund intends that the Portfolio S will not acquire the Portfolio L
Shares for the purpose of making distributions thereof to anyone other than
Portfolio S's shareholders.
(c) The Fund on behalf of Portfolio S intends, if this Plan is consummated,
to liquidate and dissolve Portfolio S.
(d) The Fund intends that, by the Closing, all of the Portfolios' Federal
and other tax returns and reports required by law to be filed on or before
such date shall have been filed, and all Federal and other taxes shown as due
on said returns shall have either been paid or adequate liability reserves
shall have been provided for the payment of such taxes.
(e) At the Closing, the Fund on behalf of Portfolio S intends to have
available a copy of the shareholder ledger accounts, certified by the Fund's
transfer agent or its President to the best of its or his or her knowledge
and belief, for all the shareholders of record of Portfolio S Shares as of
1:00 p.m. Central time on the Closing Date who are to become shareholders of
Portfolio L as a result of the transfer of assets that is the subject of this
Plan.
(f) The Fund intends to mail to each shareholder of record of Portfolio S
entitled to vote at the meeting of its shareholders at which action on this
Plan is to be considered, in sufficient time to comply with requirements as to
notice thereof, a Combined Proxy Statement and Prospectus that complies in all
material respects with the applicable provisions of Section 14(a) of the
Securities Exchange Act of 1934, as amended, and Section 20(a) of the 1940
Act,
and the rules and regulations, respectively, thereunder.
(g) The Fund intends to file with the U.S. Securities and Exchange
Commission a registration statement on Form N-14 under the 1933 Act relating
to the Portfolio L Shares issuable hereunder ("Registration Statement"), and
will use its best efforts to provide that the Registration Statement becomes
effective as promptly as practicable. At the time it becomes effective, the
Registration Statement will: (i) comply in all material respects with the
applicable provisions of the 1933 Act, and the rules and regulations
promulgated thereunder; and (ii) not contain any untrue statement of material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. At the time the
Registration Statement becomes effective, at the time of Portfolio S's
shareholders' meeting, and at the Closing Date, the prospectus and statement
of additional information included in the Registration Statement will not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
8. Conditions Precedent to be Fulfilled by Fund on behalf of the Portfolios.
The consummation of the Plan shall be subject to the following conditions:
(a) That: (i) all the representations and warranties contained herein
shall be true and correct as of the Closing with the same effect as though
made as of and at such date; (ii) performance of all obligations required by
this Plan to be performed by the Fund on behalf of the Portfolios shall occur
prior to the Closing; and (iii) the Fund shall execute a certificate signed by
the President and by the Secretary or equivalent officer to the foregoing
effect.
(b) That this Plan shall have been adopted and approved by the appropriate
action of the Board of Directors of the Fund on behalf of each of the
Portfolios.
(c) That the U.S. Securities and Exchange Commission shall not have issued
an unfavorable management report under Section 25(b) of the 1940 Act or
instituted or threatened to institute any proceeding seeking to enjoin
consummation of the Plan under Section 25(c) of the 1940 Act. And, further,
no other legal, administrative or other proceeding shall have been instituted
or threatened that would materially affect the financial condition of either
Portfolio or would prohibit the transactions contemplated hereby.
(d) That the Plan contemplated hereby shall have been adopted and approved
by the appropriate action of the shareholders of Portfolio S at an annual or
special meeting or any adjournment thereof.
(e) That a distribution or distributions shall have been declared for both
Portfolios, prior to the Closing Date that, together with all previous
distributions, shall have the effect of distributing to shareholders of each
party (i) all net investment income and all net realized capital gains, if
any, for the period from the close of its last fiscal year to 1:00 P.M.
Central time on the Closing Date; and (ii) any undistributed net investment
income and net realized capital gains from any period to the extent not
otherwise declared for distribution.
(f) That there shall be delivered to the Fund on behalf of Portfolio S an
opinion from Messrs. Stradley, Ronon, Stevens & Young, LLP, counsel to the
Fund, to the effect that, provided the acquisition contemplated hereby is
carried out in accordance with this Plan and based upon certificates of the
officers of the Fund with regard to matters of fact:
(1) The acquisition by Portfolio L of substantially all the assets of
Portfolio S as provided for herein in exchange for Portfolio L Shares will
qualify as a reorganization within the meaning of Section 368(a)(1)(C) of
the Code, and Portfolio S and Portfolio L will each be a party to the
respective reorganization within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by Portfolio S upon the transfer
of substantially all of its assets to Portfolio L in exchange solely for
voting shares of Portfolio L (Sections 361(a) and 357(a)). No opinion,
however, will be expressed as to whether any accrued market discount will be
required to be recognized as ordinary income pursuant to Section 1276 of the
Code;
(3) No gain or loss will be recognized by Portfolio L upon the receipt of
substantially all of the assets of Portfolio S in exchange solely for voting
shares of Portfolio L (Section 1032(a));
(4) The basis of the assets of Portfolio S received by Portfolio L will
be the same as the basis of such assets to Portfolio S immediately prior to
the exchange (Section 362(b));
(5) The holding period of the assets of Portfolio S received by Portfolio
L will include the period during which such assets were held by Portfolio S
(Section 1223(2));
(6) No gain or loss will be recognized to the shareholders of Portfolio S
upon the exchange of their shares in Portfolio S for voting shares of
Portfolio L (Section 354(a));
(7) The basis of the Portfolio L Shares received by Portfolio S's
shareholders shall be the same as the basis of the Portfolio S Shares
exchanged therefor (Section 358(a)(1));
(8) The holding period of Portfolio L Shares received by Portfolio S's
shareholders (including fractional shares to which they may be entitled)
will include the holding period of Portfolio S's shares surrendered in
exchange therefor, provided that Portfolio S's shares were held as a capital
asset on the date of the exchange (Section 1223(1));
and
(9) Portfolio L will succeed to and take into account as of the date of
the proposed transfer (as defined in Section 1.381(b)-1(b) of the Income Tax
Regulations) the items of Portfolio S described in Section 381(c) of the Code
(as defined in Section 1.381(b)-1(b) of the Income Tax Regulations), subject
to the conditions and limitations specified in Sections 381(b) and (c), 382,
383 and 384 of the Code and the Income Tax Regulations thereunder.
(g) That there shall be delivered to the Fund on behalf of the Portfolios
an opinion in form and substance satisfactory to it from Messrs. Stradley
Ronon Stevens & Young, LLP, counsel to the Fund, to the effect that, subject
in all respects to the effects of bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, and other laws now or hereafter affecting
generally the enforcement of creditors' rights:
(1) Portfolio S is a series of the Fund, which was organized as a
corporation under the laws of the State of Maryland on August 22, 1979 and is
validly existing and in good standing under the laws of that State;
(2) The Fund is authorized to issue 50,000,000 shares of Portfolio S, par
value $0.10 each. Assuming that the initial shares were issued in accordance
with the 1940 Act and the Fund's Articles of Incorporation, as amended and
supplemented and By-laws of the Fund, and that all other outstanding shares
of Portfolio S were sold, issued and paid for in accordance with the terms of
Portfolio S's prospectus in effect at the time of such sales, each such
outstanding share is fully paid, non-assessable, fully transferable and has
full voting rights;
(3) Portfolio S is a series of the Fund is an open-end, investment company
of the management type registered as such under the 1940 Act;
(4) Except as disclosed in Portfolio S's currently effective prospectus,
such counsel does not know of any material suit, action, or legal or
administrative proceeding pending or threatened against Portfolio S, the
unfavorable outcome of which would materially and adversely affect Portfolio
S;
(5) All actions required to be taken by the Fund and/or Portfolio S to
authorize and effect the Plan contemplated hereby have been duly authorized
by all necessary action on the part of the Fund and Portfolio S; and
(6) Neither the execution, delivery nor performance of this Plan by the
Fund and/or Portfolio S violates any provision of the Fund's Articles of
Incorporation, as amended and supplemented or By-laws, or the provisions of
any agreement or other instrument known to such counsel to which the Fund is
a party or by which Portfolio S is otherwise bound; this Plan is the legal,
valid and binding obligation of the Fund and Portfolio S and is enforceable
against the Fund and/or Portfolio S in accordance with its terms. In giving
the opinions set forth above, counsel may state that it is relying on
certificates of the officers of the Fund with regard to matters of fact, and
certain certifications and written statements of governmental officials with
respect to the good standing of the Fund.
(h) That there shall be delivered to the Fund on behalf of the Portfolio S
an opinion in form and substance satisfactory to it from Messrs. Stradley,
Ronon, Stevens & Young, LLP, counsel to the Fund, to the effect that, subject
in all respects to the effects of bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other laws now or hereafter affecting
generally the enforcement of creditors' rights:
(1) Portfolio L is a series of the Fund, which was organized as a
corporation under the laws of the State of Maryland on August 22, 1979 and is
validly existing and in good standing under the laws of that State;
(2) The Fund is authorized to issue 50,000,000 shares of Portfolio L, par
value $0.10 each. Assuming that the initial capital shares of Portfolio L were
issued in accordance with the 1940 Act, and the Amended and Restated Agreement
and Declaration of Fund and By-laws of the Fund, and that all other
outstanding
shares of Portfolio L were sold, issued and paid for in accordance with the
terms of Portfolio L's prospectus in effect at the time of such sales, each
such outstanding share of Portfolio L is fully paid, non-assessable, freely
transferable and has full voting rights;
(3) The Fund is an open-end, non-diversified investment company of the
management type registered as such under the 1940 Act;
(4) Except as disclosed in Portfolio L's currently effective prospectus,
such counsel does not know of any material suit, action, or legal or
administrative proceeding pending or threatened against Portfolio L, the
unfavorable outcome of which would materially and adversely affect Portfolio
L;
(5) Portfolio L Shares to be issued pursuant to the terms of this Plan have
been duly authorized and, when issued and delivered as provided in this Plan,
will have been validly issued and fully paid and will be non-assessable by the
Fund, on behalf of Portfolio L;
(6) All actions required to be taken by the Fund and/or Portfolio L to
authorize the Plan contemplated hereby have been duly authorized by all
necessary action on the part of Portfolio L;
(7) Neither the execution, delivery nor performance of the Plan by the
Fund and/or Portfolio L violates any provision of the Fund's Articles of
Incorporation, as amended and supplemented, or its By-laws, or the provisions
of any agreement or other instrument known to such counsel to which the Fund
is a party or by which Portfolio L is otherwise bound; this Plan is the legal,
valid and binding obligation of the Fund and Portfolio L and is enforceable
against the Fund and/or Portfolio L in accordance with its terms; and
(8) The Fund's registration statement of which the prospectus dated
October 31, 1999, as supplemented June 8, 2000 of Portfolio L is a part (the
"Prospectus") is, at the time of the signing of this Plan, effective under the
1933 Act, and, to the best knowledge of such counsel, no stop order
suspending the effectiveness of such registration statement has been issued,
and no proceedings for such purpose have been instituted or are pending before
or threatened by the U.S. Securities and Exchange Commission under the 1933
Act, and nothing has come to counsel's attention that causes it to believe
that, at the time the Prospectus became effective, or at the time of the
signing of this Plan, or at the Closing, such Prospectus (except for the
financial statements and other financial and statistical data included
therein, as to which counsel need not express an opinion), contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; and such counsel knows of no legal or government proceedings
required to be described in the Prospectus, or of any contract or document of
a character required to be described in the Prospectus that is not described
as required.
In giving the opinions set forth above, counsel may state that it is relying
on certificates of the officers of the Fund with regard to matters of fact,
and certain certifications and written statements of governmental officials
with respect to the good standing of the Fund.
(i) That the Fund's Registration Statement with respect to the Portfolio L
Shares to be delivered to the Portfolio S's shareholders in accordance with
this Plan shall have become effective, and no stop order suspending the
effectiveness of the Registration Statement or any amendment or supplement
thereto, shall have been issued prior to the Closing Date or shall be in
effect at Closing, and no proceedings for the issuance of such an order shall
be pending or threatened on that date.
(j) That the Portfolio L Shares to be delivered hereunder shall be eligible
for sale by Portfolio L with each state commission or agency with which such
eligibility is required in order to permit the Portfolio L Shares lawfully to
be delivered to each Portfolio S shareholder.
(k) That, at the Closing, there shall be transferred to Portfolio L
aggregate Net Assets of Portfolio S comprising at least 90% in fair market
value of the total net assets and 70% of the fair market value of the total
gross assets recorded on the books of Portfolio S on the Closing Date.
9. Expenses.
(a) The Fund represents and warrants that there are no broker or finders'
fees payable by it in connection with the transactions provided for herein.
(b) The expenses of entering into and carrying out the provisions of this
Plan shall be borne by the Manager.
10. Termination; Postponement; Waiver; Order.
(a) Anything contained in this Plan to the contrary notwithstanding, this
Plan may be terminated and abandoned at any time (whether before or after
approval thereof by the shareholders of Portfolio S) prior to the Closing or
the Closing may be postponed by the Fund on behalf of either party by
resolution of the Board of Directors, if circumstances develop that, in the
opinion of the Board, make proceeding with the Plan inadvisable.
(b) If the transactions contemplated by this Plan have not been
consummated by December 31, 2000, the Plan shall automatically terminate on
that date, unless a later date is agreed to by the Fund on behalf of
Portfolio L and Portfolio S.
(c) In the event of termination of this Plan pursuant to the provisions
hereof, the same shall become void and have no further effect, and neither
the Fund, Portfolio S nor Portfolio L, nor the directors, officers, agents or
shareholders shall have any liability in respect of this Plan.
(d) At any time prior to the Closing, any of the terms or conditions of
this Plan may be waived by the party who is entitled to the benefit thereof
by action taken by the Fund's Board of Directors if, in the judgment of such
Board of Directors, such action or waiver will not have a material adverse
affect on the benefits intended under this Plan to its shareholders, on behalf
of whom such action is taken.
(e) The respective representations and warranties contained in Sections 4
to 6 hereof shall expire with and be terminated by the Plan of Reorganization,
and neither the Fund nor any of its officers, Directors, agents or
shareholders
nor the Funds nor any of their shareholders shall have any liability with
respect to such representations or warranties after the Closing. This
provision
shall not protect any officer, Director, agent or shareholder of either of the
Funds or the Fund against any liability to the entity for which that officer,
Director, agent or shareholder so acts or to any of the Funds' shareholders to
which that officer, Director, agent or shareholder would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties in the conduct of such office.
(f) If any order or orders of the U.S. Securities and Exchange Commission
with respect to this Plan shall be issued prior to the Closing and shall
impose
any terms or conditions that are determined by action of the Board of
Directors
of the Fund on behalf of the Portfolio S or Portfolio L to be acceptable, such
terms and conditions shall be binding as if a part of this Plan without
further
vote or approval of the shareholders of Portfolio S, unless such terms and
conditions shall result in a change in the method of computing the number of
Portfolio L Shares to be issued to Portfolio S in which event, unless such
terms and conditions shall have been included in the proxy solicitation
material furnished to the shareholders of Portfolio S prior to the meeting
at which the transactions contemplated by this Plan shall have been approved,
this Plan shall not be consummated and shall terminate unless the Fund on
behalf of Portfolio S shall promptly call a special meeting of shareholders
at which such conditions so imposed shall be submitted for approval.
11. Entire Plan and Amendments.
This Plan embodies the entire plan of the Fund on behalf of the Portfolios and
there are no agreements, understandings, restrictions, or warranties between
the parties other than those set forth herein or herein provided for. This
Plan may be amended only by the Fund on behalf of the Portfolio in writing.
Neither this Plan nor any interest herein may be assigned without the prior
written consent of the Fund on behalf of the Portfolio.
12. Notices.
Any notice, report, or demand required or permitted by any provision of this
Plan shall be in writing and shall be deemed to have been given if delivered
or mailed, first class postage prepaid, addressed to the Fund at 700 Karnes
Blvd., Kansas City, MO, 64108, Attention: Secretary.
13. Governing Law.
This Plan shall be governed by and carried out in accordance with the laws of
the State of Maryland.
IN WITNESS WHEREOF, D. L. Babson Tax-Free Income Fund, Inc. on behalf of
Portfolio L and Portfolio S, has executed this Plan by its duly authorized
officer, all as of the date and year first-above written.
D. L. Babson Tax-Free Income Fund, Inc.
on behalf of
Portfolio S
Attest:
By:
Assistant Secretary
D. L. Babson Tax-Free Income Fund, Inc.
on behalf of
Portfolio L
Attest:
By:
Assistant Secretary
EXHIBIT B
BABSON FUNDS
PROSPECTUS
October 31, 1999
Equities
Enterprise Fund
Enterprise Fund II
Growth Fund
Shadow Stock Fund
Value Fund
International Fund
Fixed Income
Bond Trust
Money Market Fund
Tax-Free Income Fund
Babson Funds
Jones & Babson Distributors
A Member of the Generali Group
Shares of the Funds have not been approved or disapproved by
the Securities and Exchange Commission nor has the
Commission passed on the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
Equity Funds
Babson Enterprise Fund, Inc.
Babson Enterprise Fund II, Inc.
Babson Growth Fund, Inc.
Shadow Stock Fund, Inc.
Babson Value Fund, Inc.
Babson-Stewart Ivory
International Fund, Inc.
Fixed
Income Funds
D.L. Babson Bond Trust
D.L. Babson Money Market Fund, Inc.
D.L. Babson Tax-Free Income Fund, Inc.
PROSPECTUS
October 31, 1999
BABSON FUNDS
INVESTMENT ADVISER:
David L. Babson & Co., Inc.
Cambridge, Massachusetts
MANAGED AND DISTRIBUTED BY:
Jones & Babson, Inc.
Kansas City, Missouri
TABLE OF CONTENTS
Information About the Funds
Investment Objective and
Principal Investment Strategies 2
Principal Risk Factors 6
Past Performance 7
Fees and Expenses 11
Management and Investment Advisor 12
Financial Highlights 13
Information about Investing
How to Purchase Shares 20
How to Redeem Shares 20
Shareholder Services 21
How Share Price is Determined 21
Dividends, Distributions and their Taxation 22
Additional Policies about Transactions 24
Conducting Business with the Babson Funds 26
INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES
BABSON FUND:
Babson Enterprise Fund
Babson Enterprise Fund II
Shadow Stock Fund
OBJECTIVE:
Long term growth of capital.
PRINCIPAL RISKS:
Market Risks
Small Company Risks
BABSON FUND:
Babson Growth Fund
OBJECTIVE:
Above average total return over longer
periods of time through the growth
of both capital and dividend income.
PRINCIPAL RISKS:
Market Risks
BABSON FUND:
Babson Value Fund
OBJECTIVE:
Long term growth of capital and income.
PRINCIPAL RISKS:
Market Risks
BABSON FUND:
Babson-Stewart Ivory
International Fund
OBJECTIVE:
Favorable total return
(market appreciation and income).
PRINCIPAL RISKS:
Market Risks
International Risks
BABSON FUNDS:
Babson Bond Trust
Portfolio S - Shorter Term
Babson Bond Trust
Portfolio L - Longer Term
OBJECTIVE:
Maximum current income and reasonable
stability of principal, consistent with its
quality and maturity standards.
PRINCIPAL RISKS:
Fixed Income Risks
Credit Risks
BABSON FUNDS:
Babson Money Market Fund
Federal Portfolio
Babson Money Market Fund
Prime Portfolio
OBJECTIVE:
Maximizing income consistent with safety of
principal and liquidity. Seeks to maintain
liquidity and a one dollar net asset value.
PRINCIPAL RISKS:
Fixed Income Risks
BABSON FUND:
Babson Tax-Free Income Fund
Portfolio MM - Money Market
Babson Tax-Free Income Fund
Portfolio S - Shorter Term
Babson Tax-Free Income Fund
Portfolio L - Longer Term
OBJECTIVE:
Providing the highest level of regular income
exempt from federal income tax consistent
with their quality and maturity standards.
The Money Market Portfolio seeks to maintain
a one dollar
net asset value.
PRINCIPAL RISKS:
Fixed Income Risks
The Principal Risks associated with each
Fund or Portfolio are described more fully
below in the section titled Principal Risk
Factors.
PRINCIPAL INVESTMENT STRATEGIES:
Each Fund and Portfolio will normally invest
for the long term (but may sell a stock at
any time the Advisor considers it overvalued
or otherwise unfavorable). They intend to
pursue their objectives by principally
investing as described below:
Babson Enterprise Fund - This Fund will
invest at least 80% in common stocks of
small, faster-growing companies (referred to
as micro-cap) worth between $15 million and
$300 million in stock market capitalization
at the time of purchase. The Fund will select
companies whose stocks are selling at prices
it believes are reasonable in relation to the
company's fundamental financial
characteristics and business prospects. The
primary valuation ratios used are:
price relative to earnings
price relative to sales
price relative to assets as measured by book value
price relative to cash flow
Babson Enterprise Fund II - This Fund will
invest substantially the same way as Babson
Enterprise Fund with the exception that it
will target companies larger relative to net
worth of between $250 million and $1 billion
in stock market capitalization at the time of
purchase. The Fund generally invests in
stocks listed on national or regional
exchanges or listed over-the-counter (e.g.,
NASDAQ) with prices quoted daily in the
financial press.
Babson Growth Fund - This Fund will remain
80% invested in a diversified list of common
stocks representing companies selected for
their long-term possibilities of both capital
and dividend income growth. The Investment
Adviser defines "above-average total return"
as total return that is higher than return
generated by traditional investment vehicles
other than equity products.
Babson Growth Fund will invest at time of
initial purchase in stocks of well-managed
companies in growing industries which have
demonstrated both a consistent and an above-
average ability to increase their earnings
and dividends and which have favorable
prospects of sustaining such growth.
Measurements used for selection screening
include:
earning power
dividend paying ability
assets of the company
Shadow Stock Fund - This Fund will invest in
small company stocks called "Shadow Stocks".
These are stocks that combine the
characteristics of "small stocks" and
"neglected stocks". Small stocks are those
stocks that have market capitalization of
between $20 million and $213 million and have
annual net profits of at least $1 million for
the three most recent fiscal years.
"Neglected Stocks" are those that have below
average institutional holdings and below
average coverage by analysts and newsletters.
It is estimated that the Shadow Stock Fund
will contain about 250 stocks at any one
time.
The Fund will screen "small and neglected
stocks" and will not buy a stock or will sell
part or all of a stock it owns if the
Investment Adviser believes:
the financial condition of the company is in jeopardy
that liquidity is insufficient
that total acquisition costs are unreasonably high
the stock is selling for less than $5 per share (stock will not be sold for
this reason alone but additional stock will not be bought below $4 per
share)
The Fund will also sell stock based on:
potential negative earnings
tenders or potential mergers
not meeting criteria for "neglected stocks" for three semi-annual evaluations
not meeting criteria for "small stocks" by having market capitalization
below $10 million or above $426 million
Babson Value Fund - This Fund will invest at
least 90% in common stocks that are
considered to be undervalued in relation to
earnings, dividends and/or assets. The Fund
will invest at time of initial purchase in
stocks that meet each of the following
criteria:
stocks that the Fund considers to be undervalued based on their earnings,
dividends and/or assets, or other widely recognized stock valuation
measurements
stocks of companies the Fund believes are sound businesses with good future
potential based on their fundamental characteristics
stocks of companies with an investment quality rating (growth and stability
of earnings and dividends) of "B-" or better by Standard & Poor's, or a
financial strength rating of "B" or better by Value Line.
stocks of any price range that may or may not be paying current dividends
Babson-Stewart Ivory International Fund -
This Fund will invest at least 80% in equity
securities (common stocks and securities
convertible into common stocks) of
established companies whose primary business
is carried on outside the United States. It
will invest in at least 3 foreign countries
and no more than 35% of its assets in any one
country. Securities purchased will primarily
be listed on foreign stock exchanges and will
have attractive characteristics in terms of:
growth
financial resources
quality
acceptance of products or services
ability to generate profits and in many cases - dividends
Babson-Stewart Ivory International Fund from
time to time will also purchase:
investment grade fixed income securities of foreign governments or
corporations
American Depository Receipts
European Depository Receipts
International Depository Receipts
Foreign currency or foreign currency forwards (the latter only for hedging)
Securities not listed on an exchange (which may be more difficult to sell)
D.L. Babson Bond Trust - Portfolio L and
portfolio S - D.L. Babson Bond Trust offers
shares of two separate fixed income
portfolios. Portfolio L (Longer Term) will
have a dollar weighted average maturity of
more than five years. Portfolio S (Shorter
Term) will have a dollar weighted average
maturity of five years or less. Each
Portfolio may invest at time of purchase:
At least 80% of its assets in debt securities to include: (1) direct or
guaranteed obligations of the U.S. government and its agencies, and (2)
investment grade debt securities issued by corporations or other business
organizations, including notes and bonds. The Portfolios will limit its
investment in securities rated BBB or Baa to no more than 25% of their
assets.
In debt securities secured by specific assets of the issuing corporation
(such as mortgage bonds and equipment trusts) as well as unsecured debt
securities that represent claims on the general credit of the issuer.
Up to 25% of their assets in Yankee Bonds. Yankee Bonds are issued by
foreign-domiciled entities and underwritten by a U.S. syndicate for delivery
in the U.S.
In cash or short term debt obligations.
In variable rate master demand notes, which represent a borrowing agreement
between an institutional lender and borrower.
Currently, the average weighted maturity
range of Portfolio L is 7 to 15 years and
Portfolio S is 2 to 5 years, but maturities
may be shortened or lengthened to respond to
interest rate changes.
D.L. Babson Money Market Fund - Federal
Portfolio and Prime Portfolio - D.L. Babson
Money Market Fund offers shares of two
separate portfolios. The Federal Portfolio
only invests in U.S. government securities,
while the Prime Portfolio may also invest in
other money market securities. Each invests
in high quality short-term debt instruments
for the purpose of maximizing income
consistent with safety of principal and
liquidity. Each Portfolio will have an
expected weighted average maturity 90 days or
less. Net asset value is expected to remain
constant at $1.00 per share. Each Portfolio
may invest at time of purchase:
In direct obligations of the U.S. Government
In obligations of U.S. government agencies and instrumentalities which are
secured by the full faith and credit of the U.S. Treasury such as Government
National Mortgage Association, Export-Import Bank, or the Student Loan
Marketing Association; or which are secured by the right of the issuer to
borrow from the Treasury, such as securities issued by the Federal Financing
Bank or the U.S. Postal Service; or are supported by the credit of the
government agency or instrumentality itself, such as securities of the
Federal Home Loan Banks, or the Federal National Mortgage Association.
In repurchase agreements collateralized by issues of the United States
Treasury or United States government agencies
In addition, Prime Portfolio may invest at
time of purchase:
In short term obligations issued domestically by U.S. commercial banks or
savings and loan associations having assets of at least $1 billion and are
members of FDIC or Federal Home Loan Banks Association
In high quality commercial paper or variable rate master demand notes of
corporations
In high quality non-convertible short-term debt obligations
D.L. Babson Tax-Free Income Fund - Portfolio
L and Portfolio S - D.L. Babson Tax-Free
Income Fund offers shares of three separate
fixed income portfolios exempt from federal
income tax. Portfolio L (Longer Term) will
have an expected weighted average maturity
between ten and twenty five years with
maturities being longer than five years at
time of purchase. Portfolio S (Shorter Term)
will have an expected weighted average
maturity between two and five years with no
maturities more than ten years at time of
purchase. Each Portfolio may invest at time
of purchase:
At least 80% of its assets (exclusive of cash) in municipal securities,
such as bonds and other debt instruments issued by or on behalf of states,
territories and possessions of the United States, including their
subdivisions, authorities, agencies and instrumentalities. The interest
they pay is expected to be exempt from federal income tax including the
alternative minimum tax.
At least 90% of the municipal bonds bought by Portfolio L and Portfolio S
will be rated within the three top rating categories of Moody's (Aaa, Aa or
A) or Standard & Poor's (AAA, AA or A).
Investments by Portfolio L and Portfolio S in short term municipal
obligations and notes will be (1) backed by the full faith and credit of the
United States; or (2) rated MIG-1, MIG-2 or MIG-3 by Moody's; or (3) A-1 or
A-2 by Standard & Poor's; or (4) if unrated short-term then the issuer's
long-term bond rating must be at least A as determined by Moody's or
Standard & Poor's.
In cash or short term money market obligations (including taxable money
market obligations on a temporary basis) that are rated in the top two
categories (A-1/Prime-1 or A-2/Prime-2).
D.L. Babson Tax-Free Income Fund - Portfolio
MM - Portfolio MM is a portfolio of money
market securities exempt from federal income
tax. It will have an expected weighted
average maturity 90 days or less. Net asset
value is expected to remain constant at $1.00
per share. Portfolio MM may invest at time of
purchase:
Only in securities that satisfy the requirements of Rule 2a-7 of the
Investment Company Act of 1940.
At least 80% of its assets (exclusive of cash) in municipal securities,
such as bonds and other debt instruments issued by or on behalf of states,
territories and possessions of the United States. Most interest is expect
to be exempt from federal income tax including the alternative minimum tax.
In cash or short term money market obligations.
PRINCIPAL RISK FACTORS
As with any mutual fund, there is a risk that
you could lose money by investing in the
Funds or Portfolios. Investments are not
insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government
agency.
Market Risks
Common stocks fluctuate in price. Since
Growth, Enterprise, Enterprise II, Value,
Shadow and International Funds invest
primarily in common stocks, the value of the
Funds may go down.
Small Company Risks
Generally, smaller and less seasoned
companies have more potential for rapid
growth. However, they often involve greater
risk than larger companies. They may not have
the management experience, financial
resources, product diversification and
competitive strengths of larger companies.
Smaller company stocks tend to be bought and
sold less often and in smaller amounts than
larger company stocks. Because of this, if a
Fund wants to sell a large quantity of a
small company stock it may have to sell at a
lower price than its Adviser might prefer, or
it may have to sell in small quantities over
a period of time. Enterprise and Enterprise
II Funds try to minimize this risk by
investing in stocks that are readily bought
and sold. However, the lower liquidity of the
neglected stocks in which Shadow Stock Fund
invests carry greater risk in the event of a
weak stock market and substantial
liquidations by the Fund.
Fixed Income Risks
The yields and principal values of debt
securities fluctuate. Generally, values of
debt securities change inversely with changes
in interest rates. When interest rates go up,
the values of debt securities tend to go
down. As a result, the values of the
Portfolios L and S of Bond Trust and Tax-Free
Income Fund may go down. The fluctuations
that are experienced by Portfolios L will
likely be greater than those of Portfolios S,
since longer-term bond prices tend to
fluctuate more in response to interest rate
changes. Future interest rates cannot be
accurately and consistently forecast.
The amount of the dividends paid by a
Portfolio of Bond Trust, Tax-Free Income Fund
and Money Market Funds will change based on
the amount of income it earns on its
investments. Also, it is possible that the
issuer of a debt security may default on the
interest and principal payments due to a
Portfolio.
CREDIT RISKS
Fixed income securities rated in the fourth
classification by Moody's (Baa) and S&P (BBB)
may be purchased by Bond Trust. These
securities have speculative characteristics
and changes in economic conditions or other
circumstances are more likely to lead to a
weakened capacity of those issuers to make
principal or interest payments, as compared
to issuers of more highly rated securities.
International Risks
International investing by the "International
Fund" poses additional risks such as currency
fluctuation and political instability. These
risks are inherently passed on to the
company's shareholders and in turn, to the
Fund's shareholders.
Investing in developing countries may pose
additional risks. Securities issued by
companies in developing countries may not be
as liquid as those in more developed
countries. In addition, regulations in
developing countries may not be as strong nor
information as readily available. Babson-
Stewart Ivory International Fund intends to
limit purchases of securities issued by
developing countries to no more than 20% of
the Fund.
Year 2000 Risks
Computer systems that cannot process and
calculate date-related information as of and
after January 1, 2000 are a concern for
financial and business organizations around
the world including "all the Funds." We are
taking steps to address the Year 2000 issue
with respect to the computers we use, and
have asked that our major service providers
take comparable steps. Also, the Funds'
Adviser is using its best efforts to evaluate
any potential adverse effects from the Year
2000 issue that may affect companies whose
stock may be purchased by the Funds. However,
there is no way to be sure that these steps
will completely protect the Funds from being
affected.
Temporary Defensive Strategy
Each Fund may respond to adverse market,
economic, political or other conditions by
investing up to 100% of its assets in
temporary defensive investments, such as
cash, short-term debt obligations or other
high quality investments. During such
periods, the Funds may not achieve their
investment objectives.
PAST PERFORMANCE
The tables on the following page provide an
indication of the risks of investing in the
Funds. The tables below show how the total
returns generated by the respective Funds
have changed for each calendar year and how
the Funds' average annual returns for certain
periods compare with those of an appropriate
benchmark. Each table reflects all expenses
of each Fund and assumes that all dividends
and capital gains distributions have been
reinvested in new shares of the same Fund.
Past performance is not necessarily an
indication of how a Fund will perform in the
future.
Babson Enterprise Fund - Chart
Babson Enterprise Fund II - Chart
Babson Growth Fund - Chart
Babson Value Fund - Chart
Shadow Stock Fund - Chart
Babson-Stewart Ivory International Fund - Chart
Babson Bond Trust - Portfolio L - Chart
Babson Bond Trust - Portfolio S - Chart
Babson Money Market Fund - Prime Portfolio - Chart
Babson Money Market Fund - Federal Portfolio - Chart
Babson Tax-Free Income Fund - Portfolio L - Chart
Babson Tax-Free Income Fund - Portfolio MM - Chart
Babson Tax-Free Income Fund - Portfolio S - Chart
FEES & EXPENSES
The following tables describe the fees and expenses that you may pay if you buy
and hold shares of the Funds.
BABSON BABSON BABSON SHADOW BABSON STEWART IVORY
ENTERPRISE ENTERPRISE GROWTH STOCK VALUE INTERNATIONAL
FUND FUND II FUND FUND FUND FUND
Shareholder Fees
(fees paid directly
from your investment)
Maximum Sales Charge
(Load) Imposed
on Purchases None None None None None None
Maximum Deferred
Sales Charge
(Load) None None None None None None
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends None None None None None None
Redemption Fee None* None* None* None* None* None*
Exchange Fee None None None None None None
*A $10 fee is imposed for redemptions by wire.
Annual Fund Operating
Expenses (expenses that
are deducted from Fund
assets)
Management Fees 1.10% 1.20% .78% 1.00% .95% .95%
Distribution (12b-1)
Fees None None None None None None
Other Expenses .01% .03% .01% .10% .01% .28%
Total annual Fund
Operating Expenses 1.11% 1.23% .79% 1.10% .96% 1.23%
BABSON BABSON BABSON BABSON BABSON
BABSON BABSON MONEY MONEY TAX-FREE TAX-FREE TAX-FREE
BOND BOND MARKET MARKET INCOME INCOME INCOME
TRUST TRUST FUND FUND FUND FUND FUND
PORTFOLIO PORTFOLIO PRIME FEDERAL PORTFOLIO PORTFOLIO PORTFOLIO
L S PORTFOLIO PORTFOLIO L S MM
Shareholder Fees
(fees paid directly
from your investment)
Maximum Sales Charge
(Load) Imposed on
Purchases None None None None None None None
Maximum Deferred
Sales Charge(Load) None None None None None None None
Maximum Sales Charge
(Load)Imposed on
Reinvested Dividends None None None None None None None
Redemption Fee None* None* None* None* None* None* None*
Exchange Fee None None None None None None None
*A $10 fee is imposed for redemptions by wire.
Annual Fund Operating
Expenses(expenses
that are deducted
from Fund assets)
Management Fees .95% .95%** .85% .85% .95% .95% .50%
Distribution
(12b-1) Fees None None None None None None None
Other Expenses .02% .02% .03% .03% .08% .06% .05%
Total Annual Fund
Operating Expenses .97% .97% .88% .88% 1.03% 1.01% .55%
**The Manager has voluntarily agreed to a reduction in the management fee paid
by the portfolio to .65% through March 31, 2000.
Fee Examples
These examples are intended to help you
compare the cost of investing in each Fund
with the cost of investing in other mutual
funds. They assume you invest $10,000 and
receive a 5% return each year. Although your
actual costs may be higher or lower, based on
the assumptions below your costs would be:
1 Year 3 Years 5 Years 10 Years
Babson Enterprise Fund 113 353 612 1,352
Babson Enterprise Fund II 125 390 676 1,489
Babson Growth Fund 81 252 439 978
Shadow Stock Fund 112 350 606 1,340
Babson Value Fund 98 306 531 1,178
Babson-Stewart Ivory International Fund 125 390 676 1,489
Babson Bond Trust - Portfolio L 99 309 536 1,190
Babson Bond Trust - Portfolio S 99 309 536 1,190
Babson Money Market - Federal Portfolio 90 281 488 1,084
Babson Money Market - Prime Portfolio 90 281 488 1,084
Babson Tax-Free Income - Portfolio L 105 328 569 1,259
Babson Tax-Free Income - Portfolio S 103 322 558 1,236
Babson Tax-Free Income - Portfolio MM 56 176 307 689
MANAGEMENT AND INVESTMENT ADVISER
Jones & Babson, Inc. was founded in 1959.
Jones & Babson, Inc. acts as the Manager and
principal underwriter of the Babson Fund
family. 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 Funds. This includes
investment management and supervision; fees
of the custodian, independent auditors and
legal counsel; officers, directors and other
personnel; rent; shareholder services; and
other items incidental to corporate
administration.
Operating expenses not required in the normal
operation of the Funds are payable by the
Funds. These expenses include taxes,
interest, governmental charges and fees,
including registration of the Fund with the
Securities and Exchange Commission and the
fees payable to various States, brokerage
costs, dues, and all extraordinary costs
including expenses arising out of anticipated
or actual litigation or administrative
proceedings.
As a part of the Management Agreement, Jones
& Babson, Inc. employs at its own expense
David L. Babson & Co., Inc., an investment
advisory firm founded in 1940, as its
Investment Adviser to assist in the
investment advisory function. To assist in
the investment advisory function related to
Babson-Stewart Ivory International Fund,
Jones & Babson, Inc. employs at its own
expense Babson-Stewart Ivory International, a
partnership formed in 1987, by David L.
Babson & Co. of Cambridge, Massachusetts and
Stewart Ivory & Company (International) Ltd,
a wholly owned subsidiary of Stewart Ivory
(Holdings), Ltd., of Edinburgh, Scotland.
James B. Gribbell has been the manager of
Babson Growth Fund since 1996. He is a
Chartered Financial Analyst ("CFA"). He
joined David L. Babson & Co. in 1991. Lance
F. James has been the manager of Babson
Enterprise II since its inception in 1991 and
manager of Enterprise since 1999. He joined
David L. Babson & Co. in 1986. Anthony M.
Maramarco, CFA, has been the manager of
Babson Value Fund and the Shadow Stock Fund
since 1999. He joined David L. Babson & Co.
in 1996 and has over 18 years investment
management experience, previously at Concept
Capital Management, Inc., from 1993-1996.
John G.L. Wright has been the manager of
Babson-Stewart Ivory International Fund since
its inception in 1988. He joined Stewart Fund
Managers (which became Stewart-Ivory) in
1971, and has over 30 years of investment
management experience. As of October 1999,
Mr. Wright co-manages the Fund with James W.
Burns. Mr. Burns joined Stewart Fund Managers
in 1990, and has 18 years of investment
management experience. Babson Bond Trust has
been managed by a committee of fixed income
professionals since October 1999. Joanne E.
Keers, CFA, has been the manager of Babson
Tax-Free Income Fund since 1999. She joined
David L. Babson & Co. in 1987.
For its services, Babson Growth Fund pays
Jones & Babson, Inc. a fee at the annual rate
of .85% of the first $250 million and .70% of
amounts in excess of $250 million of average
daily net assets. Babson Enterprise Fund and
Enterprise Fund II pay Jones & Babson, Inc. a
fee at the annual rate of 1.50% of the first
$30 million and 1% of amounts in excess of
$30 million of its average daily net assets.
Babson Value Fund, Babson-Stewart Ivory
International Fund and Babson Bond Trust pay
Jones & Babson, Inc. a fee at the annual rate
of .95% of average daily net assets. However,
during the period from May 1, 1988 through
March 31, 2000, Jones & Babson has agreed to
voluntarily waive .30% of the fee for
Portfolio S bringing its total to .65%.
Babson Tax-Free Income Fund Portfolio L and
Portfolio S pay Jones & Babson, Inc. a fee at
the annual rate of .95% of average daily net
assets. Shadow Stock Fund pays Jones &
Babson, Inc. a fee of 1.00% of average daily
assets. Babson Tax-Free Income Fund Portfolio
MM pays Jones & Babson, Inc. a fee at the
annual rate of .50% of average daily net
assets. Babson Money Market Fund Portfolio
Prime and Portfolio Federal pay Jones &
Babson, Inc. a fee at the annual rate of
0.85% of average daily assets. The Management
Agreement limits the liability of the Manager
or its Investment Adviser, 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.
Jones & Babson, Inc. is located at 700 Karnes
Blvd., Kansas City, MO 64108-3306 and David
L. Babson & Co., Inc. is located at One
Memorial Drive, Cambridge, MA 02142.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended
to help you understand each Fund's financial
performance for the five years ended June 30,
1999, except for Babson Enterprise Fund,
Babson Enterprise Fund II, Babson Value Fund
and Babson Bond Trust (Portfolio L &
Portfolio S) which is for the seven months
ended June 30, 1999 and the five years ended
November 30, 1998. Certain information
reflects financial results for a single share
of a Fund. The total returns in the tables
represent the rate that an investor would
have earned on an investment in a Fund
(assuming reinvestment of all dividends and
distributions). The financial highlights for
Babson Growth Fund, Shadow Stock Fund, Babson-
Stewart Ivory International Fund, Babson
Money Market Fund (Portfolio Prime and
Portfolio Federal) and Babson Tax-Free Income
Fund (Portfolio L, Portfolio S and Portfolio
MM) have been audited by Ernst & Young LLP
for the year ended June 30, 1999.
Additionally, the financial highlights for
Babson Enterprise Fund, Babson Enterprise
Fund II, Babson Value Fund and Babson Bond
Trust (Portfolio L and Portfolio S) were
audited by Ernst & Young LLP for the periods
indicated above. The financial highlights for
Babson Growth Fund, Shadow Stock Fund, Babson-
Stewart Ivory International Fund, Babson
Money Market Fund, (Portfolio Prime and
Portfolio Federal) and Babson Tax-Free Income
Fund (Portfolio L, Portfolio S and Portfolio
MM) for the years ended on or before June 30,
1998 have been audited by other auditors.
This information, along with the Funds'
financial statements, are included in the
annual report, which is available upon
request.
BABSON ENTERPRISE FUND
Condensed data for a share of capital stock
outstanding throughout each period.
SEVEN MONTHS ENDED YEARS ENDED NOVEMBER 30,
JUNE 30, 1999 1998 1997 1996 1995 1994
Net asset value, beginning of period $16.63 $ 21.22 $18.51 $17.35 $16.64 $17.20
Income from investment operations:
Net investment income .03 .04 .06 .06 .10 .03
Net gains (losses) on securities
(both realized and unrealized) .58 (2.15) 5.31 3.06 2.34 .57
Total from investment operations .61 (2.11) 5.37 3.12 2.44 .60
Less distributions:
Dividends from net investment income (.05) (.06) - (.12) (.04) (.05)
Distributions from capital gains (2.47) (2.42) (2.66) (1.84) (1.69) (1.11)
Total distributions (2.52) (2.48) (2.66) (1.96) (1.73) (1.16)
Net asset value, end of period $14.72 $16.63 $21.22 $18.51 $17.35 $16.64
Total return* 4.70% (11.05%) 33.49% 20.17% 16.42% 3.70%
Ratios/Supplemental Data
Net assets, end of period (in millions) $155 $179 $216 $202 $202 $188
Ratio of expenses to average net assets** 1.11% 1.09% 1.08% 1.08% 1.09% 1.08%
Ratio of net investment income to
average net assets** .32% .29% .30% .35% .67% .22%
Portfolio turnover rate 12% 22% 22% 24% 13% 15%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
BABSON ENTERPRISE FUND II
Condensed data for a share of capital stock
outstanding throughout each period.
SEVEN MONTHS ENDED YEARS ENDED NOVEMBER 30,
JUNE 30, 1999 1998 1997 1996 1995 1994
Net asset value, beginning of period $23.20 $26.70 $22.75 $19.19 $16.22 $16.92
Income from investment operations:
Net investment income .03 .10 .08 .11 .05 .02
Net gains (losses) on securities
(both realized and unrealized) 2.37 (1.50) 6.97 4.45 3.03 (.39)
Total from investment operations 2.40 (1.40) 7.05 4.56 3.08 (.37)
Less distributions:
Dividends from net investment income (.05) (.05) (.11) (.05) (.02) -
Distributions from capital gains (1.07) (2.05) (2.99) (.95) (.09) (.33)
Total distributions (1.12) (2.10) (3.10) (1.00) (.11) (.33)
Net asset value, end of period $24.48 $23.20 $26.70 $22.75 $19.19 $16.22
Total return* 11.03% (5.61%) 35.29% 25.04% 19.11% (2.32%)
Ratios/Supplemental Data
Net assets, end of period (in millions) $77 $83 $82 $46 $40 $36
Ratio of expenses to average net assets** 1.23% 1.22% 1.28% 1.38% 1.45% 1.50%
Ratio of net investment income to
average net assets** .11% .40% .27% .55% .30% .14%
Portfolio turnover rate 14% 25% 25% 30% 15% 9%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
BABSON GROWTH FUND
Condensed data for a share of capital stock
outstanding throughout each period.
YEARS ENDED JUNE 30,
1999 1998 1997 1996 1995
Net asset value, beginning of year $ 20.77 $ 17.80 $ 14.42 $ 13.43 $ 11.78
Income from investment operations:
Net investment income .02 .06 .09 .12 .18
Net gains (losses) on securities
(both realized and unrealized) 3.25 4.41 4.16 2.91 2.18
Total from investment operations 3.27 4.47 4.25 3.03 2.36
Less distributions:
Dividends from net investment income (.02) (.06) (.09) (.13) (.18)
Distributions from capital gains (4.01) (1.44) (.78) (1.91) (.53)
Total distributions (4.03) (1.50) (.87) (2.04) (.71)
Net asset value, end of year $ 20.01 $ 20.77 $ 17.80 $ 14.42 $ 13.43
Total return 17.04% 26.73% 30.10% 22.99% 20.23%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 490 $ 451 $ 365 $ 280 $ 247
Ratio of expenses to average net assets .79% .80% .83% .85% .85%
Ratio of net investment income to
average net assets .09% .30% .61% .82% 1.42%
Portfolio turnover rate 39% 35% 20% 33% 17%
SHADOW STOCK FUND
YEARS ENDED JUNE 30,
1999 1998 1997 1996 1995
Net asset value, beginning of year $ 13.24 $ 12.57 $ 11.31 $ 10.55 $ 9.67
Income from investment operations:
Net investment income .11 .08 .12 .09 .10
Net gains (losses) on securities
(both realized and unrealized) (.24) 2.54 2.44 1.67 1.42
Total from investment operations (.13) 2.62 2.56 1.76 1.52
Less distributions:
Dividends from net investment income (.07) (.10) (.09) (.10) (.10)
Distributions from capital gains (.98) (1.85) (1.21) (.90) (.54)
Total distributions (1.05) (1.95) (1.30) (1.00) (.64)
Net asset value, end of year $ 12.06 $ 13.24 $ 12.57 $ 11.31 $ 10.55
Total return (.25%) 21.98% 23.63% 17.13% 16.16%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 50 $ 52 $ 41 $ 39 $ 39
Ratio of expenses to average net assets 1.10% 1.16% 1.13% 1.14% 1.13%
Ratio of net investment income
to average net assets .97% .56% 1.00% .79% 1.01%
Portfolio turnover rate 21% 43% 0% 25% 19%
BABSON VALUE FUND
Condensed data for a share of capital stock
outstanding throughout each period.
SEVEN MONTHS ENDED YEARS ENDED NOVEMBER 30,
JUNE 30, 1999 1998 1997 1996 1995 1994
Net asset value, beginning of period $47.42 $47.73 $38.65 $31.78 $25.19 $25.36
Income from investment operations:
Net investment income .45 .62 .51 .55 .59 .56
Net gains (losses) on securities
(both realized and unrealized) 5.90 1.09 9.65 7.20 7.20 .58
Total from investment operations 6.35 1.71 10.16 7.75 7.79 1.14
Less distributions:
Dividends from net investment income (.44) (.56) (.47) (.53) (.60) (.40)
Distributions from capital gains (1.97) (1.46) (.61) (.35) (.60) (.91)
Total distributions (2.41) (2.02) (1.08) (.88) (1.20) (1.31)
Net asset value, end of period $51.36 $47.42 $47.73 $38.65 $31.78 $25.19
Total return* 14.14% 3.85% 26.89% 24.91% 32.07% 4.51%
Ratios/Supplemental Data
Net assets, end of period (in millions) $1,244 $1,494 $1,419 $764 $293 $120
Ratio of expenses to average net assets** .96% .98% .97% .96% .98% .99%
Ratio of net investment income
to average net assets** 1.05% 1.28% 1.22% 1.63% 2.12% 2.32%
Portfolio turnover rate 13% 42% 17% 11% 6% 14%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
BABSON-STEWART IVORY INTERNATIONAL FUND
Condensed data for a share of capital stock
outstanding throughout each period.
YEARS ENDED JUNE 30,
1999 1998 1997 1996 1995
Net asset value, beginning of year $ 19.65 $ 19.53 $ 18.04 $ 15.96 $ 16.41
Income from investment operations:
Net investment income .03 .08 .07 .07 .16
Net gains (losses) on securities
(both realized and unrealized) .66 1.07 1.70 2.85 .23
Total from investment operations .69 1.15 1.77 2.92 .39
Less distributions:
Dividends from net investment income (.04) (.07) (.05) (.08) (.17)
Distributions from capital gains (.82) (.96) (.23) (.65) (.67)
Distributions in excess of
realized capital gains - - - (.11) -
Total distributions (.86) (1.03) (.28) (.84) (.84)
Net asset value, end of year $ 19.48 $ 19.65 $ 19.53 $ 18.04 $ 15.96
Total return 3.76% 6.48% 9.91% 18.66% 2.54%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 89 $ 104 $ 111 $ 80 $ 65
Ratio of expenses to average net assets 1.23% 1.16% 1.19% 1.26% 1.30%
Ratio of net investment income
to average net assets .24% .37% .47% .44% 1.13%
Portfolio turnover rate 51% 48% 40% 33% 37%
BABSON BOND TRUST - PORTFOLIO L
Condensed data for a share of capital stock
outstanding throughout each period.
SEVEN MONTHS ENDED YEARS ENDED NOVEMBER 30,
JUNE 30, 1999 1998 1997 1996 1995 1994
Net asset value, beginning of period $ 1.59 $ 1.56 $ 1.55 $ 1.58 $ 1.47 $ 1.67
Income from investment operations:
Net investment income .05 .09 .10 .11 .11 .11
Net gains (losses) on securities
(both realized and unrealized) (.07) .03 .01 (.03) .11 (.15)
Total from investment operations (.02) .12 .11 .08 .22 (.04)
Less distributions:
Dividends from net investment income (.05) (.09) (.10) (.11) (.11) (.11)
Distributions from capital gains - - - - - (.05)
Total distributions (.05) (.09) (.10) (.11) (.11) (.16)
Net asset value, end of period $ 1.52 $ 1.59 $ 1.56 $ 1.55 $ 1.58 $ 1.47
Total return* (1.16%) 8.13% 7.26% 5.17% 15.28% (2.71%)
Ratios/Supplemental Data
Net assets, end of period (in millions) $ 121 $ 128 $ 132 $ 142 $ 161 $ 140
Ratio of expenses to average net assets** .97% .97% .97% .97% .97% .97%
Ratio of net investment income
to average net assets** 5.73% 5.93% 6.38% 6.96% 7.06% 6.95%
Portfolio turnover rate 38% 43% 59% 61% 50% 40%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
BABSON BOND TRUST - PORTFOLIO S
Condensed data for a share of capital stock
outstanding throughout each period.
SEVEN MONTHS ENDED YEARS ENDED NOVEMBER 30,
JUNE 30, 1999 1998 1997 1996 1995 1994
Net asset value, beginning of period $ 9.91 $ 9.78 $ 9.77 $ 9.90 $9.43 $10.48
Income from investment operations:
Net investment income .33 .58 .62 .69 .73 .69
Net gains (losses) on securities
(both realized and unrealized) (.31) .13 .01 (.13) .47 (.90)
Total from investment operations .02 .71 .63 .56 1.20 (.21)
Less distributions:
Dividends from net investment income (.33) (.58) (.62) (.69) (.73) (.69)
Distributions from capital gains - - - - - (.15)
Total distributions (.33) (.58) (.62) (.69) (.73) (.84)
Net asset value, end of period $ 9.60 $ 9.91 $ 9.78 $ 9.77 $9.90 $ 9.43
Total return* .15% 7.47% 6.70% 5.96% 13.10% (2.06%)
Ratios/Supplemental Data
Net assets, end of period (in millions) $ 37 $ 38 $ 41 $ 34 $33 $ 30
Ratio of expenses to average net assets** .67% .67% .66% .66% .67% .67%
Ratio of net investment income
to average net assets** 5.75% 5.90% 6.42% 7.10% 7.47% 7.02%
Ratio of expenses to average net assets
before voluntary reduction of
management fee ** .97% .97% .97% .96% .97% .97%
Portfolio turnover rate 54% 60% 65% 48% 57% 42%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
BABSON MONEY MARKET FUND - PRIME PORTFOLIO
Condensed data for a share of capital stock
outstanding throughout each period.
YEARS ENDED JUNE 30,
1999 1998 1997 1996 1995
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income .04 .05 .05 .05 .05
Less distributions:
Dividends from net investment income (.04) (.05) (.05) (.05) (.05)
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return 4.38% 4.82% 4.61% 4.83% 4.66%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 39 $ 37 $ 38 $ 36 $ 40
Ratio of expenses to average net assets .88% .91% .92% .92% .92%
Ratio of net investment income
to average net assets 4.30% 4.73% 4.58% 4.75% 4.58%
BABSON MONEY MARKET FUND - FEDERAL PORTFOLIO
Condensed data for a share of capital stock
outstanding throughout each period.
YEARS ENDED JUNE 30,
1999 1998 1997 1996 1995
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income .04 .05 .04 .05 .04
Less distributions:
Dividends from net investment income (.04) (.05) (.04) (.05) (.04)
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return 4.31% 4.75% 4.58% 4.77% 4.56%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 13 $ 12 $ 13 $ 10 $ 10
Ratio of expenses to average net assets .88% .91% .91% .91% .92%
Ratio of net investment income
to average net assets 4.23% 4.65% 4.51% 4.67% 4.48%
BABSON TAX-FREE INCOME FUND - PORTFOLIO L
Condensed data for a share of capital stock
outstanding throughout each period.
YEARS ENDED JUNE 30,
1999 1998 1997 1996 1995
Net asset value, beginning of year $ 9.22 $ 8.96 $ 8.74 $ 8.67 $8.52
Income from investment operations:
Net investment income .40 .40 .42 .41 .42
Net gains (losses) on securities
(both realized and unrealized) (.24) .28 .24 .07 .17
Total from investment operations .16 .68 .66 .48 .59
Less distributions:
Dividends from net investment income (.40) (.40) (.42) (.41) (.42)
Distributions from capital gains (.07) (.02) (.02) - (.02)
Total distributions (.47) (.42) (.44) (.41) (.44)
Net asset value, end of year $ 8.91 $ 9.22 $ 8.96 $ 8.74 $8.67
Total return 1.70% 7.82% 7.67% 5.60% 7.21%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 26 $ 27 $ 27 $ 27 $28
Ratio of expenses to average net assets 1.03% 1.06% 1.01% 1.01% 1.02%
Ratio of net investment income
to average net assets 4.36% 4.46% 4.71% 4.67% 4.98%
Portfolio turnover rate 9% 18% 21% 39% 34%
BABSON TAX-FREE INCOME FUND - PORTFOLIO S
YEARS ENDED JUNE 30,
1999 1998 1997 1996 1995
Net asset value, beginning of year $ 10.79 $ 10.74 $ 10.69 $ 10.71 $ 10.62
Income from investment operations:
Net investment income .42 .44 .44 .44 .45
Net gains (losses) on securities
(both realized and unrealized) (.21) .08 .10 .01 .10
Total from investment operations .21 .52 .54 .45 .55
Less distributions:
Dividends from net investment income (.42) (.44) (.44) (.44) (.45)
Distributions from capital gains (.03) (.03) (.05) (.03) (.01)
Total distributions (.44) (.47) (.49) (.47) (.46)
Net asset value, end of year $ 10.56 $ 10.79 $ 10.74 $ 10.69 $ 10.71
Total return 1.96% 4.84% 5.18% 4.25% 5.32%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 19 $ 21 $ 23 $ 25 $ 28
Ratio of expenses to average net assets 1.01% 1.06% 1.01% 1.01% 1.01%
Ratio of net investment income
to average net assets 3.82% 4.00% 4.12% 4.13% 4.28%
Portfolio turnover rate 22% 21% 23% 41% 34%
BABSON TAX-FREE INCOME FUND - PORTFOLIO MM
Condensed data for a share of capital stock
outstanding throughout each period.
YEARS ENDED JUNE 30,
1999 1998 1997 1996 1995
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
Income from investment operations:
Net investment income .03 .03 .03 .03 .03
Less distributions:
Dividends from net investment income (.03) (.03) (.03) (.03) (.03)
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
Total return 2.70% 3.06% 3.03% 3.15% 3.05%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 10 $ 10 $ 9 $ 8 $16
Ratio of expenses to average net assets .55% .61% .58% .58% .59%
Ratio of net investment income
to average net assets 2.65% 3.06% 3.10% 3.15% 3.07%
HOW TO PURCHASE SHARES
No Load Funds
There are no sales commissions or Rule 12b-1 fees
How to Buy Shares (see accompanying chart on page 24 for details)
By phone, mail or wire
Through Automatic Monthly Investments
Through exchanges from a Babson or Buffalo Fund (non fiduciary accounts only)
Minimum Initial Investment
$1,000 for most accounts
$250 for IRA and Uniform Transfer (Gift) to Minors accounts
$100 with an Automatic Monthly Investment
$1,000 for exchanges from another fund ($100 for IRAs and Uniform Gifts to
Minors accounts)
Minimum Additional Investment
$100 by phone, mail or ACH
$1,000 By Wire
$50 for Automatic Monthly Investments
$1,000 for exchanges from another fund ($100 for IRAs and Uniform Gifts to
Minors accounts)
Minimum Account Size
You must maintain a minimum account value
equal to the current minimum initial
investment ($1,000). If your account falls
below this amount due to redemptions (not
market action) we may notify you and ask you
to increase the account to the minimum. We
will close the account and send your money if
you do not bring the account up to the
minimum within 60 days after we mail you the
notice.
HOW TO REDEEM SHARES
You may withdraw from your Fund's account at
any time in the following amounts:
any amount for redemptions requested by
mail or phone to address of record
$50,000 for fund web site redemptions
$1,000 or more for redemptions wired to
your account ($10 fee) ($100 minimum for ACH
to bank account)
$50 or more for redemptions by a systematic
redemption plan (there may be a fee)
$1,000 or more for exchanges to another
fund ($100 for IRAs and Uniform Gifts to
Minors accounts)
$100 or more for redemptions by automatic
monthly exchange to another fund
SHAREHOLDER SERVICES
The following services are also available to
shareholders. Please call 1-800-4-BABSON (1-
800-422-2766) for more information:
Uniform Transfers (Gifts) to Minors
accounts
Accounts for corporations or partnerships
Sub-Accounting Services for tax qualified
retirement plans and others
Prototype Retirement Plans for the self-
employed, partnerships and corporations.
Traditional IRA accounts
Roth IRA accounts
Simplified Employee Pensions (SEPs)
HOW SHARE PRICE IS DETERMINED
Shares of the Funds are purchased or redeemed
at the net asset value per share next
calculated after your purchase order and
payment or redemption order is received in
good order (see "Additional Policies" below).
In the case of certain institutions which
have made satisfactory payment or redemption
arrangements with the Funds, orders may be
processed at the net asset value per share
next effective after receipt by that
institution.
The per share calculation is made by
subtracting from the Fund's total assets any
liabilities and then dividing into this
amount the total outstanding shares as of the
date of the calculation. The net asset value
per share (except for portfolio MM) is
computed once daily, Monday through Friday,
at 4:00 p.m. (Eastern Time) on days when the
Funds are open for business (generally the
same days that the New York Stock Exchange is
open for trading). The net asset value per
share for Portfolio MM is computed at 1:00
p.m. (Eastern Standard Time).
Each security owned by the Funds that is
listed on an Exchange is valued at its last
sale price on that Exchange on the date as of
which assets are valued. Where the security
is listed on more than one Exchange, the
Funds will use the price of that Exchange
which they generally consider to be the
principal Exchange on which the stock is
traded. Lacking sales, the security is valued
at the mean between the last current closing
bid and asked prices. An unlisted security
for which over-the-counter market quotations
are readily available is valued at the mean
between the last current bid and asked
prices. When market quotations are not
readily available, any security or other
asset is valued at its fair value as
determined in good faith by the Board of
Directors.
Short-term instruments maturing within 60
days may be valued at amortized cost. The
Portfolios of the Money Market Fund and
Portfolio MM of the Tax-Free Income Fund
value assets on the basis of amortized cost.
DIVIDENDS, DISTRIBUTIONS AND THEIR TAXATION
Your distributions will be reinvested
automatically in additional shares of the
same Fund unless you have elected on your
original application, or by written
instructions filed with the Funds, to have
them paid in cash ($10 minimum check amount).
There are no fees or sales charges on
reinvestments.
If you buy shares of any fund shortly before
the record date, please keep in mind that any
distribution will lower the value of the
fund's shares by the amount of the
distribution and you will then receive a
portion of the price back in the form of a
taxable distribution.
DISTRIBUTIONS - Bond Trust, Tax Free Income
Fund and Money Market Fund - At the end of
each day, the Portfolios declare dividends
from their net investment income. These
dividends are payable to those who were
shareholders of record at the end of the
previous business day. On the last day of the
month, all dividends declared during that
month are credited to the accounts of those
shareholders. Distributions from capital
gains, if any, will be declared annually by
December 31.
Shares begin earning income on the day
following the effective date of purchase.
Income earned by a Portfolio on weekends,
holidays and other days on which the Funds is
closed for business is declared as a dividend
on the next day on which the Fund is open for
business. However, on month-ends such
dividend is declared as of the last day of
the month.
Value Fund - The Value Fund pays shareholders
distributions from its net investment income
quarterly, usually in March, June, September
and December. Distributions from any net
capital gains that it has realized on the
sale of securities will be declared annually
on or before December 31.
Stewart Ivory International Fund, Growth Fund
and Shadow Stock Fund - The Funds pay
dividends from net investment income and
capital gains, if any, semiannually, usually
in June and December.
Enterprise Fund and Enterprise Fund II - The
Funds pay shareholders distributions from its
net investment income and from any net
capital gains that it has realized on the
sale of the securities. Each of these
distributions will be declared annually on or
before December 31.
TAX CONSIDERATIONS - In general, fund
distributions are taxable to you as either
ordinary income or capital gains. This is
true whether you reinvest your distributions
in additional fund shares or receive them in
cash. Any capital gains a fund distributes
are taxable to you as long-term capital gains
no matter how long you have owned your
shares.
Distributions from Portfolios S and L of the
Tax-Free Income Fund will consist primarily
of exempt- interest dividends from interest
earned on municipal securities. In general,
exempt-interest dividends are exempt from
federal income tax. These portfolios,
however, may invest a portion of their assets
in securities that pay income that is not tax-
exempt.
By law, a fund must withhold 31% of your
taxable distributions and proceeds if you do
not provide your correct social security or
taxpayer identification number, or if the IRS
instructs the fund to do so.
Every January, you will receive a statement
that shows the tax status of distributions
you received for the previous year.
Distributions declared in December but paid
in January are taxable as if they were paid
in December.
In general, when you sell your shares of a
fund, you may have a capital gain or loss.
For tax purposes, an exchange of your fund
shares for shares of a different Babson Fund
is the same as a sale. The individual tax
rate on any gain from the sale or exchange of
your fund shares depends on your marginal tax
bracket and on how long the shares have been
held. However, because the Federal and Prime
Portfolios of the Money Market Fund and
Portfolio MM of the Tax-Free Income Fund
expect to maintain a $1.00 net asset value
per share, investors in these Portfolios
should not have any gain or loss on the sale
of such shares.
Exempt-interest dividends paid by Portfolios
S and L of the Tax-Free Income Fund are taken
into account when determining the taxable
portion of an investor's social security or
railroad retirement benefits. These
Portfolios may invest a portion of their
assets in private activity bonds. The income
from these bonds will be a preference item
when determining an investor's alternative
minimum tax.
Many states grant tax-free status to
dividends paid from interest earned on direct
obligations of the U.S. government, subject
to certain restrictions.
Exempt-interest dividends from interest
earned on municipal securities of a state, or
of its political subdivisions, generally will
be exempt from that state's personal income
taxes. Most states, however, do not grant tax-
free treatment to interest on investments in
municipal securities of other states.
Fund distributions and gains from the sale or
exchange of your fund shares generally will
be subject to state and local income tax. Any
foreign taxes paid by the Stewart-Ivory
International Fund on its investments may be
passed through to you as a foreign tax
credit. Non-U.S. investors may be subject to
U.S. withholding and estate tax. You should
consult your tax advisor about the federal,
state, local or foreign tax consequences of
your investment in a fund.
ADDITIONAL POLICIES ABOUT TRANSACTIONS
We cannot process transaction requests that
are not complete and in good order as
described in this section. We may cancel or
change our transaction policies without
notice. To avoid delays, please call us if
you have any questions about these policies.
If you wish to purchase (or redeem) shares of
a Babson Fund through a broker, a fee may be
charged by that broker. In addition, you may
be subject to other policies or restrictions
of the broker such as higher minimum account
value, etc.
Purchases - We may reject orders when not
accompanied by payment or when in the best
interest of the Funds and their shareholders.
Redemptions - The Funds try to send
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 reserves the right
under certain circumstances to delay
redemption transactions up to seven days, or
as required by applicable law. The Fund
Manager believes that certain investors who
try to "time the market" by purchasing and
redeeming shares from the Funds on a regular
basis, may disrupt the investment process and
pose additional transactions costs to the
Funds. In those cases the Fund Managers may
delay redemption proceeds as described above
or take other actions it deems necessary to
discourage such activity.
If you request a redemption within 15 days of
purchase, we will delay sending your proceeds
until we are certain that we have collected
unconditional payment, which may take up to
15 days from the date of purchase. For your
protection, if your account address has been
changed within the last 30 days, your
redemption request must be in writing and
signed by each account owner, with signature
guarantees. The right to redeem shares may be
temporarily suspended in emergency situations
only as permitted under Federal law.
Withdrawal by Draft ("check") is limited to
open account shares of Babson Money Market
Fund or Babson Tax-Free Income Fund Portfolio
MM. Draft amounts may range from $500 to
$100,000.
We cannot accept requests that contain
special conditions or effective dates. We may
request additional documentation to insure
that a request is genuine. Under certain
circumstances, we may pay you proceeds in the
form of portfolio securities owned by the
Fund being redeemed. If you receive
securities instead of cash, you may incur
brokerage costs when converting into cash.
Signature Guarantees - You can get a
signature guarantee from most banks or
securities dealers, but not a notary public.
For your protection, we require a guaranteed
signature if you request:
A redemption check sent to a different
payee, bank or address than we have on file.
A redemption check mailed to an address
that has been changed within the last 30
days.
A redemption for $50,000 or more in
writing.
A change in account registration or
redemption instructions (including withdrawal
by draft election).
Corporations, Trusts and Other Entities -
Additional documentation is normally required
for corporations, fiduciaries and others who
hold shares in a representative or nominee
capacity. We cannot process your request
until we have all documents in the form
required. Please call us first to avoid
delays.
Exchanges to Another Fund - You must meet the
minimum investment requirement of the fund
you are exchanging into. The names and
registrations on the two accounts must be
identical. Your shares must have been held in
an open account for 15 days or more and we
must have received good payment before we
will exchange shares.
Telephone and fund web site Services - During
periods of increased market activity, you may
have difficulty reaching us by telephone. If
this happens, contact us by mail or web site.
We may refuse a telephone request, including
a telephone redemption request. We will use
reasonable procedures to confirm that
telephone or Fund web site instructions are
genuine. If such procedures are not followed,
the Funds may be liable for losses due to
unauthorized or fraudulent instructions. At
our option, we may limit the frequency or the
amount of telephone redemption requests.
Neither the Funds nor Jones & Babson, Inc.
assumes responsibility for the authenticity
of telephone and Fund web site redemption
requests.
CONDUCTING BUSINESS WITH THE BABSON FUNDS
BY PHONE
1-800-4-BABSON
(1-800-422-2766)
in the Kansas City area 751-5900
You must authorize each type of telephone
transaction
on your account application or the
appropriate form,
available from us. All account owners must
sign. When you call, we may request personal
identification and tape record the call.
HOW TO OPEN AN ACCOUNT BY PHONE
If you already have an account with us and
you have authorized telephone exchanges, you
may call to open an account in another Babson
or Buffalo Fund by exchange ($1,000 minimum).
The names and registrations on the accounts
must be identical.
HOW TO ADD TO AN ACCOUNT BY PHONE
You may make investments ($100 minimum) by
telephone. After we have received your
telephone call, we will deduct from your
checking account the cost of the shares.
Availability of this service is subject to
approval by the Funds and participating
banks.
HOW TO SELL SHARES BY PHONE
You may withdraw any amount ($1,000 minimum
if wired) by telephone or telegram. We will
send funds only to the address or bank
account on file with us. Provide the Fund's
name, your account number, the names of each
account owner (exactly as registered), and
the number of shares or dollar amount to be
redeemed. For wires, also provide the bank
name and bank account number.
HOW TO EXCHANGE SHARES BY PHONE
You may exchange shares ($1,000 minimum or
the initial minimum fund requirement) for
shares in another Babson Fund which have been
held in open account for 15 days or more.
All account owners are automatically granted
telephone and Fund web site exchange
privileges unless they decline them
explicitly in writing, either on the account
application or by writing to the Babson
Funds.
CONDUCTING BUSINESS WITH THE BABSON FUNDS
BY MAIL
Initial Purchases, Redemptions and all
Correspondence:
The Babson Fund Group
P.O. Box 219757
Kansas City, MO 64121-9779
Subsequent Purchases:
The Babson Fund Group
P.O. Box 219779
Kansas City, MO 64121-9779
HOW TO OPEN AN ACCOUNT BY MAIL
Complete and sign the application which
accompanies this Prospectus. Your initial
investment must meet the minimum amount. Make
your check payable to UMB Bank, n.a.
HOW TO ADD TO AN ACCOUNT BY MAIL
Make your check ($50 minimum) payable to UMB
Bank, n.a. and mail it to us. Always identify
your account number or include the detachable
reminder stub (from your confirmation
statement).
HOW TO SELL SHARES BY MAIL
In a letter, include the genuine signature of
each registered owner (exactly as
registered), the name of each account owner,
the account number and the number of shares
or the dollar amount to be redeemed. We will
send funds only to the address of record.
HOW TO EXCHANGE SHARES BY MAIL
In a letter, include the genuine signature of
each registered owner,
the account number, the number of shares or
dollar amount to
be exchanged ($1,000 minimum) and the Babson
Fund into which
the amount is being transferred.
CONDUCTING BUSINESS WITH THE BABSON FUNDS
BY WIRE
UMB Bank, n.a.,
Kansas City, Missouri, ABA #101000695
For Account Number 9870326213
Please provide:
(Fund Number)/(Babson Account Number)/(Name
on Account)
HOW TO OPEN AN ACCOUNT BY WIRE
Call us first to get an account number. We
will require information such as your Social
Security or Taxpayer Identification Number,
the amount being wired ($1,000 minimum), and
the name and telephone number of the wiring
bank. Then tell your bank to wire the amount.
You must send us a completed application as
soon as possible or payment of your
redemption proceeds will be delayed.
HOW TO ADD TO AN ACCOUNT BY WIRE
Wire share purchases ($1,000 minimum) should
include the names of each account owner, your
account number and the Babson Fund in which
you are purchasing shares. You should notify
us by telephone that you have sent a wire
purchase order to UMB Bank, n.a.
HOW TO SELL SHARES BY WIRE
Redemption proceeds ($1,000 minimum) may be
wired to your pre-identified bank account. A
$10 fee is deducted. If we receive your
request before 4:00 P.M. (Eastern Time) we
will normally wire funds the following
business day. If we receive your request
later in the day, we will normally wire funds
on the second business day. Contact your bank
about the time of receipt and availability.
HOW TO EXCHANGE SHARES BY WIRE
Not applicable.
CONDUCTING BUSINESS WITH THE BABSON FUNDS
THROUGH AUTOMATIC TRANSACTION PLANS
You must authorize each type of automatic
transaction on your account application or
complete an authorization form, available
from us upon request. All registered
owners must sign.
HOW TO OPEN AN ACCOUNT THROUGH AUTOMATIC
TRANSACTION PLANS
Not applicable.
HOW TO ADD TO AN ACCOUNT THROUGH AUTOMATIC
TRANSACTION PLANS
Automatic Monthly Investment:
You may authorize automatic monthly
investments in a constant dollar amount ($50
minimum) from your checking account. We will
draft your checking account on the same day
each month in the amount you authorize.
HOW TO SELL SHARES THROUGH AUTOMATIC
TRANSACTION PLANS
Systematic Redemption Plan:
You may specify a dollar amount ($50 minimum)
to be withdrawn monthly or quarterly or have
your shares redeemed at a rate calculated to
exhaust the account at the end of a specified
period. A fee of $1.50 or less may be charged
for each withdrawal. You must own shares in
an open account valued at $10,000 when you
first authorize the systematic redemption
plan. You may cancel or change your plan or
redeem all your shares at any time. We will
continue withdrawals until your shares are
gone or until the Fund or you cancel the
plan.
HOW TO EXCHANGE SHARES THROUGH AUTOMATIC
TRANSACTION PLANS
Monthly Exchanges:
You may authorize monthly exchanges from your
account ($100 minimum) to another Babson
Fund. Exchanges will be continued until all
shares have been exchanged or until you
terminate the service.
ADDITIONAL INFORMATION
The Statement of Additional Information (SAI)
contains additional information about the
Funds and is incorporated by reference into
this Prospectus. The Funds' annual and semi-
annual reports to shareholders contain
additional information about each Funds'
investments. In the Funds' annual report, you
will find a discussion of the market
conditions and investment strategies that
significantly affected each Fund's
performance during the last fiscal year.
You may obtain a free copy of these documents
by calling, writing or e-mailing the Funds as
shown below. You also may call the toll free
number given below to request other
information about the Funds and to make
shareholder inquiries.
You may review and copy the SAI and other
information about the Funds by visiting the
Securities and Exchange Commission's Public
Reference Room in Washington, DC (1-800-SEC-
0330) or by visiting the Commission's
Internet site at http://www.sec.gov. Copies
of this information also may be obtained,
upon payment of a duplicating fee, by writing
to the Public Reference Section of the
Commission, Washington, DC 20549-6009.
811-3823 Enterprise Fund
811-6258 Enterprise Fund II
811-901 Growth Fund
811-5218 Shadow Stock Fund
811-4114 Value Fund
811-5386 International Fund
811-495 Bond Trust
811-2963 Money Market Fund
811-2948 Tax-Free Income Fund
BABSON FUNDS
Jones & Babson Distributors
A Member of the Generali Group
1-800-4-BABSON
(1-800-422-2766)
www.babsonfunds.com
EXHIBIT C
BABSON FUNDS
ANNUAL REPORT
June 30, 1999
EQUITIES
Enterprise Fund
Enterprise Fund II
Growth Fund
Shadow Stock Fund
Value Fund
International Fund
FIXED INCOME
Bond Trust
Money Market Fund
Tax-Free Income Fund
BABSON FUNDS
Jones & Babson Distributors
A Member of the Generali Group
Table of
Contents
Economic Review 1
Babson Enterprise Fund 2
Babson Enterprise Fund II 5
Babson Growth Fund 8
Shadow Stock Fund 11
Babson Value Fund 16
Babson-Stewart Ivory
International Fund 19
Babson Bond Trust 23
Babson Bond Trust
Portfolio L 25
Babson Bond Trust
Portfolio S 29
Babson Money Market Fund 33
Babson Money Market Fund
Prime 34
Babson Money Market Fund
Federal 35
Babson Tax-Free Income Fund 36
Babson Tax-Free Income Fund
Portfolio L 37
Babson Tax-Free Income Fund
Portfolio S 39
Babson Tax-Free Income Fund
Portfolio MM 41
Statements of Assets
and Liabilities 44
Statements of Operations 46
Statements of Changes
in Net Assets 48
Notes to Financial Statements 52
Financial Highlights 56
Report of Ernst & Young LLP,
Independent Auditors 63
Message to our Shareholders
We are pleased to bring you the first combined annual statement
of the Babson Family of Funds, which includes fiscal year-end
reports for each of the Babson Funds. Previous annual reports
were printed individually, and were supplied only to shareholders
of each respective fund. We believe it will be beneficial for
fund
shareholders to receive reports on all of the Babson Funds, and
we expect the combined report to result in printing and mailing
efficiencies, and enhanced shareholder servicing.
The combined annual report was made possible by our recent
decision to standardize the fiscal year of the various Babson
Funds to June 30. This date was selected both because many of the
Babson Funds already used that fiscal year-end, and also because
it moved fiscal year-end audit work away from calendar year-end.
The common year-end should be beneficial for various reasons,
including the possibility of combined fund prospectuses and
standardized dates for fiscal year-end distributions.
Shareholders who have not had a chance to invest in Babson
Enterprise Fund in recent years can now take part. The Fund has
been temporarily reopended as of July 1, 1999.
These changes were made with our ultimate goal in mind - how can
we best serve our Babson shareholder base? We understand that
there are many other investment opportunities available, and we
are alert for enhancements that will make your experience with us
both profitable and pleasurable.
Thank you for your interest and participation in the Babson
Funds. We welcome your comments and questions.
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
ECONOMIC REVIEW
The two year tug of war between strength at home and weakness
abroad may be coming to an end. The result could be more
moderate, but better balanced, growth for the U.S. economy.
Although the Asian economies' recovery will be a long and arduous
process, their freefall has stopped (as shown at right). This
improvement, from a sharply negative to a flat growth rate, means
that these countries' currencies are no longer imploding. The
weakness of the Asian currencies played havoc with U.S.
manufacturers over the past few years, causing demand for U.S.
exports to plummet while inexpensive imports flooded this
country. The stabilization of these currencies has led to the
beginning of a modest improvement in American manufacturing.
While the U.S. economy is no longer being weighted down by
foreign factors, strong domestic demand, a prime factor in the
current robust economic growth, may also be in the process of
being tempered. The Federal Reserve lowered short-term rates by
three-quarters of a percent last fall when the Asian crisis
threatened to pull down the U.S. economy. Lower rates caused a
surge in consumer spending as homeowners refinanced their
mortgages in droves, permanently lowering their monthly mortgage
payments and freeing up money for other outlays. With foreign
economies having stopped deteriorating, the Fed took away some of
last fall's stimulus by raising rates one-quarter of a percent on
June 30. More significantly, long-term interest rates, which are
determined by the market, rose a full percent during the first
half of 1999 in response to the strong U.S. economy and a better
overseas situation. Mortgage refinancings have plummeted in
response to higher rates, indicating that there will be less of a
"kick" to consumption in the coming months (as shown at right).
A modest slowdown in growth would be good for the economy. While
impressive productivity gains have held inflation in check, the
strength of demand has been outstripping the growth of the labor
force. If that trend continues, inflationary forces could build
to the point where the expansion would be threatened. By taking
some modest pre-emptive action, the Fed hopes that a little steam
will be let out of the economy, allowing growth to continue for a
much longer time than would otherwise be the case.
David L. Babson & Co. Inc.
CHART - JAPANESE GDP YEAR-TO-YEAR PERCENT CHANGE
CHART - MORTGAGE REFINANCINGS VERSUS RATES
BABSON ENTERPRISE FUND
Babson Enterprise Fund achieved a solid total return (price
change and reinvested distributions) of 18.9% in the most recent
fiscal quarter ended
June 30, 1999. During the same period, the small capitalization
stocks in the unmanaged Russell
2000 index rose 15.6% while the large capitalization stocks in
the unmanaged Standard & Poor's 500 index rose 7.1%. The Fund's
strong second quarter follows a period of disappointing relative
performance in the first fiscal quarter which brings the total
return year-to-date through June 30, 1999 to 3.2%. This compares
to 9.3% for the Russell 2000 and 12.4% for the S&P's 500.
The first quarter saw a continuation of last year's keen investor
focus on a narrow group of large cap stocks. This has propelled
not just the large cap S&P 500 index but also the small cap
Russell 2000 index, which contains a number of the largest
Internet stocks. These stocks have sky-rocketed well beyond small
cap status with E*Trade and CMGI being two of the largest, each
with a market cap of more than $8 billion!
The tide has begun to turn in the last few months. Many Internet
stocks are down significantly from their highs and small cap
stocks have outperformed since early April. Even more encouraging
is the recent performance of the very small cap names in Babson
Enterprise Fund. From April 26, 1999 to June 30, 1999, the Fund
rose 13%, far surpassing the Russell 2000's 5% return and the S&P
500's 1% return.
The outperformance of large cap stocks over the last few years
has resulted in a large valuation gap between the largest and
smallest stocks. These compelling valuations have not gone
unnoticed with six of the portfolio holdings receiving buyout
offers from other companies this year at significant premiums. We
believe the portfolio is currently well positioned with both
bargain-basement valuations and strong earnings prospects.
The following companies were added to the portfolio in the first
half of 1999:
Aavid Thermal Technologies - provides thermal management
solutions for electrical components.
Catherine's Stores - operates large-size women's apparel stores.
Cubic - designs and manufactures public transit revenue
collection systems.
Cuno - manufactures liquid and gas filtration products for the
healthcare and industrial fluid processing industries.
Dayton Superior - manufactures concrete forming systems.
Enesco Group - sells branded gifts and collectibles.
Haven Bancorp - New York-based Savings and Loan with most of its
branch offices in supermarkets.
Interface - manufactures carpet tile for the commercial and
institutional markets.
Petco Animal Supplies - operates pet supply stores.
Styling Technology - manufactures salon/spa personal care
products.
Zygo - designs high precision measurement tools.
Nine positions were liquidated during the quarter. CATS Software,
Daniel Industries, Defiance, Shelby Williams, Vermont Financial,
and Walbro were all buyout related sales or tenders. Shelby
Williams was acquired by another company in the portfolio, Falcon
Products, Arctic Cat, Brady, and Tab Products were liquidated
during the last six months due to adverse assessments of future
earnings prospects relative to existing market valuations.
CHART - BABSON ENTERPRISE FUND
VERSUS RUSSELL 2000
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
BABSON ENTERPRISE FUND
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 95.07%
BASIC MATERIALS - 3.34%
175,000 Furon Co. $ 3,325,000
114,250 Penford Corp. 1,856,562
CAPITAL GOODS - 24.63%
158,900 ABC-Naco, Inc.* 3,257,450
216,400 American Precision Industries, Inc.* 2,326,300
150,626 Athey Products Corp.* 320,080
357,500 Brown & Sharpe Manufacturing Co. Cl. A* 1,943,906
120,800 Channell Commercial Corp.* 1,208,000
197,700 Chicago Bridge & Iron Co. 2,755,444
231,900 Congoleum Corp. Cl. A* 1,666,781
219,425 Corrpro Companies, Inc.* 1,892,540
9,500 Cubic Corp.* 233,938
1,300 Cuno, Inc.* 24,862
108,400 Dayton Superior Corp.* 2,012,175
186,300 EDO Corp. 1,350,675
90,400 Engineered Support Systems, Inc. 1,067,850
46,300 Farrell Corp. 95,494
165,800 Flir Systems, Inc.* 2,507,725
131,900 Instron Corp. 2,670,975
96,200 K-Tron International, Inc.* 1,695,525
446,800 Lamson & Sessions Co.* 2,680,800
186,165 Newcor, Inc.* 907,554
196,200 Schawk, Inc. Cl. A 1,753,537
73,600 Starrett (L.S.) Co. Cl. A 1,978,000
49,200 Terex Corp.* 1,497,525
123,100 TransTechnology Corp. 2,423,531
38,270,667
CONSUMER CYCLICAL - 14.44%
108,500 Baldwin Piano & Organ Co.* 895,125
57,000 Catherine's Stores Corp.* 705,375
1,100 Enesco Group, Inc.* 25,438
99,200 Fab Industries, Inc. 1,531,400
241,870 Falcon Products, Inc. 2,464,051
206,800 Gottschalks, Inc.* 1,887,050
194,400 Helen of Troy Ltd.* 3,487,050
10,200 Interface, Inc.* 87,975
204,400 Jacobson Stores, Inc.* 1,481,900
239,900 MDC Corp. Cl. A* 2,908,788
51,550 Oneida Ltd. 1,449,844
82,200 Petco Animal Supplies, Inc.* 1,294,650
70,600 Pulaski Furniture Corp. 1,438,475
318,100 Spartan Motors, Inc. 1,829,075
106,200 Swiss Army Brands, Inc.* 942,525
22,428,721
CONSUMER STAPLES - 6.01%
54,500 Genesee Corp. Cl. B 1,444,250
119,300 J & J Snack Foods Corp.* 2,863,200
36,700 Marsh Supermarkets, Inc. Cl. A 532,150
84,700 Marsh Supermarkets, Inc. Cl. B 995,225
207,200 Northland Cranberries, Inc. Cl. A 1,748,250
51,800 Styling Technology Corp.* 673,400
93,600 Sylvan, Inc.* 1,088,100
9,344,575
ENERGY - 6.24%
588,500 Kaneb Services, Inc.* 2,501,125
317,900 Matrix Service Co.* 1,311,338
94,600 Petroleum Helicopters, Inc. (non-voting) 1,158,850
73,700 Petroleum Helicopters, Inc. (voting) 962,706
328,700 Tokheim Corp.* 3,759,506
9,693,525
FINANCIAL - 3.02%
107,775 Capital Corp. of the West* 1,347,188
65,400 Cass Commercial Corp. 1,602,300
2,100 Haven Bancorp, Inc.* 33,600
124,000 Sterling Financial Corp.* 1,712,750
4,695,838
HEALTH CARE - 0.90%
175,375 Penwest Pharmaceutical Co.* 1,403,000
MISCELLANEOUS - 9.11%
132,300 Alltrista Corp.* 4,365,900
98,900 Andersons, Inc. 1,260,975
342,383 Jason, Inc.* 2,739,064
208,800 Kaman Corp. Cl. A 3,275,550
63,000 Sea Containers Ltd. Cl. A 2,114,437
12,000 Sea Containers Ltd. Cl. B 403,500
14,159,426
TECHNOLOGY - 21.02%
18,000 Aavid Thermal Technologies* 407,250
146,700 CEM Corp.* 1,100,250
39,634 CSP, Inc.* 262,575
231,000 Cerprobe Corp. 2,310,000
300,400 Ennis Business Forms, Inc. 2,572,175
221,800 ESCO Electronics Corp.* 2,841,812
127,400 INSO Corp.* 684,775
87,400 Landauer, Inc. 2,578,300
219,000 MSC Software Corp.* 1,272,938
148,100 Nashua Corp.* 1,462,488
79,700 New England Business Service, Inc. 2,460,737
137,700 Nichols Research Corp.* 3,012,188
172,700 Norstan, Inc.* 2,147,956
368,800 Spectrum Control, Inc.* 2,696,850
465,600 Titan Corp.* 5,121,600
151,600 Zygo Corp.* 1,733,925
32,665,819
TRANSPORTATION & SERVICES - 4.84%
90,200 ABM Industries, Inc. 2,768,013
132,800 International Shipholding Corp. 1,909,000
204,600 Railtex, Inc.* 2,838,825
7,515,838
UTILITIES - 1.52%
51,600 E'town Corp. 2,360,700
TOTAL COMMON STOCKS 147,719,671
(Cost $133,854,150)
FACE
AMOUNT DESCRIPTION MARKET VALUE
REPURCHASE AGREEMENT - 6.82%
$10,600,000 UMB Bank, n.a.,
4.29%, due July 1, 1999
(Collateralized by Federal National
Mortgage Association Discount Notes,
due July 19, 1999 with a value
of $7,413,464 and U.S. Treasury Notes,
6.25%, due August 31, 2000
with a value of $3,397,834)
(Cost $10,600,000) 10,600,000
TOTAL INVESTMENTS - 101.89% 158,319,671
(Cost $144,454,150)
Other assets less liabilities - (1.89%) (2,940,260)
TOTAL NET ASSETS - 100.00% $ 155,379,411
For federal income tax purposes, the identified cost of
investments owned at June 30, 1999 was $144,646,780.
Net unrealized appreciation for federal income tax purposes was
$13,672,891, which is comprised of unrealized appreciation of
$33,221,763 and unrealized depreciation of $19,548,872.
*Non-income producing security
See accompanying Notes to Financial Statements.
BABSON ENTERPRISE FUND II
Babson Enterprise Fund II completed the second quarter, 1999 with
a total return (price change and reinvested distributions) of
17.5%, compared to 15.6% for the unmanaged Russell 2000 index of
small company stocks. This followed a period of less favorable
relative performance in the first quarter so that the Fund's
total return for the first half of 1999 was 7.8% versus 9.3% for
the Russell 2000 index.
The Fund maintains a sizable advantage over the small cap
benchmark for the three years ended June 30, 1999 with an average
annual total return of 14.5% versus 11.2% for the Russell 2000.
This superior longer term performance is one of the factors which
led Standard & Poor's to recently select Babson Enterprise Fund
II as one of 19 mutual funds, out of a universe of 257 small-
capitalization value funds, to be awarded a Standard & Poor's
Select Fund designation (July 1999) for small cap value
investing. We are proud of this prestigious designation and will
continue to strive to merit it.
The second quarter, 1999 was especially important to small cap
investors because it marked the first time since the third
quarter of 1997 that small cap stocks outperformed large caps,
based on their benchmark indexes. In the second quarter, the
Russell 2000's 15.6% return compared favorably to the S&P 500's
7.1% performance. The small cap sector benefited during the
quarter from a rotation to cyclical stocks and to increased
merger and acquisition activity as larger companies are taking
advantage of the extremely attractive relative valuations of
smaller companies to buy growth cheaply. The increased buyout
activity has not only boosted the value of targeted small cap
stocks, but is refocusing investors' attention on the broader
market where other neglected small businesses possess a
compelling combination of earnings power and valuation. Even with
the resurgence of small cap stocks in the second quarter,
valuations relative to large caps remain near 25-year lows.
Five new holdings were added to the Babson Enterprise Fund II
portfolio in the six-month period. All five trade at attractive
valuations while possessing the potential for meaningful
earnings acceleration. Helen of Troy markets brand name hair care
appliances and other personal care products and has an
outstanding record for strong, consistent earnings growth. Metals
USA processes metals and manufactures components from processed
metals for a diverse client base. S.L. Green Realty is a real
estate investment trust focusing on Class B office property in
New York City. Stein Mart is an apparel and accessories retailer
offering current-season, brand name merchandise at prices 25% to
60% below traditional department stores. Titan is a high
technology defense contractor with exciting commercial
application potential for a number of its proprietary products.
Nine positions were liquidated in the first half of 1999.
Calmat, Elsag Bailey, and Life USA were objects of corporate
buyout offers at significant premiums to their public market
valuations. Calenergy, Charming Shoppes, Flowserve, Halter
Marine, PRI Automation, and Scitex were all sold due to concerns
about future earnings prospects relative to their stock
valuations.
Within the small cap sector, we believe the Fund's portfolio is
well positioned with a strong value orientation.
CHART - BABSON ENTERPRISE FUND II
VERSUS S&P 500 AND RUSSELL 2000
Standard & Poor's Select Funds is a ranking of mutual funds on a
semiannual basis which have demonstrated above-average absolute
and volatility-adjusted returns relative to funds with the same
investment style along with investment management attributes
which are consistent with the fund's investment style.
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
BABSON ENTERPRISE FUND II
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 99.25%
BASIC MATERIALS - 10.19%
108,500 Apogee Enterprises, Inc. $ 1,457,969
47,800 Brush Wellman, Inc. 866,375
223,400 Interface, Inc. Cl. A 1,926,825
61,200 Metals USA, Inc.* 780,300
60,700 New England Business Service, Inc. 1,874,113
54,198 Wausau-Mosinee Paper Corp. 975,564
7,881,146
CAPITAL GOODS - 16.90%
66,100 Commscope, Inc.* 2,032,575
114,100 Cuno, Inc.* 2,182,163
76,400 Foster Wheeler Corp. 1,079,150
113,400 Gerber Scientific, Inc. 2,501,887
110,400 Herman Miller, Inc. 2,318,400
152,300 MagneTek, Inc.* 1,608,669
41,900 Roper Industries, Inc. 1,340,800
13,063,644
CONSUMER CYCLICAL - 32.55%
60,000 AC Nielsen Corp.* 1,815,000
121,800 BJ's Wholesale Club, Inc.* 3,661,612
81,200 Central Newspapers, Inc. Cl. A 3,055,150
49,100 Enesco Group, Inc. 1,135,437
49,900 Exide Corp. 736,025
34,900 Helen of Troy Ltd.* 626,019
90,900 Huffy Corp. 1,272,600
105,300 La-Z Boy Chair Co. 2,421,900
35,700 Lee Enterprises, Inc. 1,088,850
28,000 Libbey, Inc. 812,000
135,200 Petco Animal Supplies, Inc.* 2,129,400
83,200 Stein Mart, Inc.* 780,000
147,100 Stride Rite Corp. 1,516,969
100,200 Sturm, Ruger & Company, Inc. 1,070,887
101,300 True North Communications, Inc. 3,039,000
25,160,849
CONSUMER STAPLES - 3.02%
40,000 Alberto-Culver Co. Cl. A 912,500
127,175 PSS World Medical, Inc.* 1,422,770
2,335,270
ENERGY - 3.25%
102,900 Nabors Industries, Inc.* 2,514,619
FINANCIAL - 12.00%
15,800 BancFirst Corp. 541,150
182,208 Cash America International, Inc. 2,345,928
56,631 Commerce Bancorp, Inc. 2,420,975
24,860 Community Trust Bancorporation, Inc. 581,103
98,600 Golden State Bancorp, Inc.* 2,169,200
30,200 Golden State Bancorp, Inc.
Litigation Tracking Warrants* 39,637
34,500 Haven Bancorp, Inc. 552,000
30,600 S.L. Green Realty Corp. 625,388
9,275,381
MISCELLANEOUS - 10.52%
72,000 Carlisle Companies, Inc. 3,465,000
110,500 Kaman Corp. Cl. A 1,733,469
84,300 Sea Containers Ltd. Cl. A 2,829,319
3,200 Sea Containers Ltd. Cl. B 107,600
8,135,388
TECHNOLOGY - 9.20%
84,500 Adaptive Broadband Corp.* 1,848,438
76,200 Exar Corp. Delaware* 1,885,950
116,500 Information Resources, Inc.* 1,019,375
27,500 Newport News Shipbuilding, Inc. 811,250
55,300 Titan Corp.* 608,300
31,300 Xircom, Inc.* 940,956
7,114,269
TRANSPORTATION & SERVICES - 1.62%
57,100 Circle International Group, Inc. 1,249,062
TOTAL COMMON STOCKS
(Cost $61,012,748) 76,729,628
FACE
AMOUNT DESCRIPTION MARKET VALUE
REPURCHASE AGREEMENT - 0.94%
$725,000 UMB Bank, n.a.,
4.29%, due July 1, 1999
(Collateralized by Federal
National Mortgage Association
Discount Notes, due July 19, 1999
with a value of $740,050)
(Cost $725,000) 725,000
TOTAL INVESTMENTS - 100.19%
(Cost $61,737,748) 77,454,628
Other assets less liabilities - (0.19%) (145,592)
TOTAL NET ASSETS - 100.00% $ 77,309,036
For federal income tax purposes, the identified cost of
investments owned
at June 30, 1999 was $61,743,735.
Net unrealized appreciation for federal income tax purposes was
$15,710,893, which is comprised of unrealized appreciation of
$20,584,905 and unrealized depreciation of $4,874,012.
*Non-income producing security
See accompanying Notes to Financial Statements.
BABSON GROWTH FUND
Babson Growth Fund achieved a total return (price change and
reinvested distributions) of 3.0% in the second calendar quarter
ended June 30, 1999. During the same period, growth stocks in the
unmanaged Russell 1000 Growth index rose 3.9% and the average
growth fund (1,216 total) as measured by Lipper Analytical
Services increased by 7.1%. Over the past year Babson Growth Fund
increased by 17.0% on a total return basis, just below the 18.9%
return of the average growth fund tracked by Lipper.
Sector rotation was prolific and severe in the beginning of the
second calendar quarter. Stable, high quality growth stocks were
marked down considerably as investor sentiment turned on a dime
and shifted toward value-oriented cyclical stocks that have
underperformed the broader market for the past several years.
Growth stocks in the S&P 500 index increased by 3.8% in the
second quarter, while value-oriented stocks in the index advanced
10.8% during the same time period.
Business trends in many parts of the technology and
communications sectors have been very strong in 1999, following a
cyclical downturn in 1998. Semiconductor companies and
communication chip companies in particular have been big
contributors to returns in recent months. Four out of our top
five performing investments in the second quarter were in the
semiconductor industry: Analog Devices (analog semiconductors, up
69%), Microchip Technology (microcontrollers, up 37%), KLA-Tencor
(semiconductor manufacturing equipment, up 34%) and Vitesse
Semiconductor (high speed communications semiconductors, up 33%).
Other top performers Linear Technology and Maxim Integrated
Products were eliminated from the Fund during the quarter due to
lofty valuations.
Stocks in the healthcare sector, and the pharmaceutical industry
in particular, have underperformed the market so far this year by
15% as three factors came together in the second quarter: 1) an
improved profit outlook for cyclical industries, 2) rising
interest rates and 3) credible proposals for a Medicare drug
benefit. Most of our large investments in the healthcare sector
underperformed the market in the second quarter, including Pfizer
(pharmaceuticals, down 21%), Guidant (medical devices, down 16%)
and American Home Products (pharmaceuticals, down 12%). At the
end of the day it is quite clear to us that the pharmaceutical
industry is one of the most attractive businesses in America
today. Drug company products serve the general good, are
protected
from competing products with patents and are very research
intensive, thus providing steep barriers to entry. We feel very
confident in the prospects for the pharmaceutical industry longer
term.
FUND COMPOSITION
TOP TEN HOLDINGS: % OF TOTAL
Cardinal Health 5.03
Vitesse Semiconductor 4.62
Federal Home Loan Mortgage 4.07
Microchip Technology 3.66
MCI Worldcom 3.63
Boston Scientific 3.56
Guidant 3.58
Analog Devices 3.42
American Home Products 3.40
Safeway 3.10
Total 38.07%
Total Securities in Portfolio 40
As of June 30, 1999, statement of assets. Subject to change.
CHART - BABSON GROWTH FUND
VERSUS S&P 500 AND VALUE LINE
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
BABSON GROWTH FUND
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 99.56%
BASIC MATERIALS - 1.84%
229,000 Monsanto Co. $ 9,031,187
CAPITAL GOODS - 7.64%
105,000 General Electric Co. 11,865,000
569,900 Herman Miller, Inc. 11,967,900
1,327,600 MSC Industrial Direct, Inc. Cl. A* 13,607,900
37,440,800
CONSUMER CYCLICAL - 4.00%
240,200 CVS Corp. 12,190,150
336,000 Office Depot, Inc.* 7,413,000
19,603,150
CONSUMER STAPLES - 11.58%
71,900 Anheuser-Busch Cos., Inc. 5,100,406
199,800 Gillette Co. 8,191,800
236,000 PepsiCo, Inc. 9,130,250
256,600 Philip Morris Cos., Inc. 10,312,112
307,000 Safeway, Inc.* 15,196,500
370,100 Service Corp. International 7,124,425
19,400 Wrigley William Jr. Co. 1,746,000
56,801,493
ENERGY - 2.02%
100,000 Mobil Corp. 9,900,000
FINANCIAL - 13.88%
129,450 American International
Group, Inc. 15,153,741
110,000 BankAmerica Corp. 8,064,375
3,465 Berkshire Hathaway, Inc. Cl. B* 7,761,600
344,500 Federal Home Loan
Mortgage Corp. 19,981,000
234,000 Mellon Bank Corp. 8,511,750
269,812 Paychex, Inc. 8,600,257
68,072,723
HEALTH CARE - 24.88%
290,000 American Home Products Corp. 16,675,000
397,700 Boston Scientific Corp.* 17,473,944
169,800 Bristol-Myers Squibb Co. 11,960,287
384,250 Cardinal Health, Inc. 24,640,031
341,300 Guidant Corp.* 17,555,619
731,400 Health Management Associates,
Inc. Cl. A* 8,228,250
186,800 Pharmacia & UpJohn, Inc. 10,612,575
135,500 Pfizer, Inc. 14,871,125
122,016,831
MEDIA & ENTERTAINMENT - 4.37%
330,800 A T & T Corp.* 12,156,900
300,177 Walt Disney Co. 9,249,204
21,406,104
TECHNOLOGY - 29.35%
334,200 Analog Devices, Inc.* 16,772,663
215,200 Automatic Data Processing, Inc. 9,468,800
1,023,200 Cadence Design Systems, Inc.* 13,045,800
161,100 Cisco Systems, Inc.* 10,390,950
427,000 Etec Systems, Inc.* 14,197,750
282,500 KLA-Tencor Corp.* 18,327,188
206,100 MCI Worldcom, Inc.* 17,776,125
378,800 Microchip Technology, Inc.* 17,945,650
37,200 Microsoft Corp.* 3,354,975
336,000 Vitesse Semiconductor Corp.* 22,659,000
143,938,901
TOTAL COMMON STOCKS 488,211,189
(Cost $283,662,172)
FACE
AMOUNT DESCRIPTION MARKET VALUE
REPURCHASE AGREEMENT - 1.80%
$8,820,000 UMB Bank, n.a.,
4.29%, due July 1, 1999
(Collateralized by U.S.
Treasury Notes, 6.25%
due 8/31/00 with a value
of $8,997,472)
(Cost $8,820,000) 8,820,000
TOTAL INVESTMENTS - 101.36% 497,031,189
(Cost $292,482,172)
Other assets less liabilities - (1.36%) (6,689,929)
TOTAL NET ASSETS - 100.00% $ 490,341,260
For federal income tax purposes, the identified cost of
investments owned at June 30, 1999 was $293,498,365.
Net unrealized appreciation for federal income tax purposes was
$203,532,824, which is comprised of unrealized appreciation of
$222,038,002 and unrealized depreciation of $18,505,178.
*Non-income producing security
See accompanying Notes to Financial Statements.
SHADOW STOCK FUND
Shadow Stock Fund achieved a total return (price change and
reinvested distributions) of 19.4% in the most recent quarter and
6.9% for the six months ended June 30, 1999. During the same
period, the small capitalization stocks in the unmanaged Russell
2000 index rose 15.6% and 9.3%, respectively.
In the first quarter of 1999 small capitalization stock
portfolios continued to be challenged by a difficult market
environment that disproportionately favored a select group of
large capitalization and highly liquid domestic equities. It was
this select group of "large cap" growth stocks that drove the
market to record highs in the quarter. Although small
capitalization stocks continued to be undervalued relative to
large caps, investors continued to embrace the liquidity of the
larger names. This disparity also existed in the first quarter
within the small cap arena. Because of their small size, the
companies in Shadow Stock Fund were more harshly penalized than
the overall small cap sector as measured by the unmanaged Russell
2000 Index: returns for the companies in the Russell 2000 that
exceeded our size limitation were more than 13 percentage points
greater than the returns of the remaining companies.
Compounding negative effect of the "size factor" was the fact
that Shadow Stock Fund had no participation in the strongest
Russell 2000 sector, communications services. One of our largest
weightings was in the utilities sector, which was the weakest
sector in the index.
In the second quarter Shadow Stock Fund participated nicely in
the rebound of the small cap sector and managed to outperform the
unmanaged Russell 2000. Our micro cap orientation benefited
greatly from the extreme reversal of style preference from growth
to value experienced in April. It took only a small percentage of
funds reallocated from the big favorites to the smaller companies
to result in a quick and dramatic price increase in the generally
less liquid, smaller stocks. More specifically, our strong
performance in the second quarter relative to the benchmark can
be attributed largely to our overweighting in the utilities
sector.
The valuation characteristics of Shadow Stock Fund continue to be
very attractive. Though recent performance has been strong, we
have seen only a small portion of the potential impact that
further normalization of the valuation gap between small caps and
large stocks can produce.
In late June, ordinary income dividends of $0.03 per share and
realized capital gains of $0.30 per share were distributed and
reinvested at $11.52 per share.
CHART - SHADOW STOCK FUND
VERSUS RUSSELL 2000
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
SHADOW STOCK FUND
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 95.14%
BASIC MATERIALS - 4.81%
14,101 Aceto Corp. $ 162,162
3,300 American Biltrite, Inc. 67,650
15,200 American Pacific Corp.* 128,250
4,500 Badger Paper Mills, Inc.* 32,625
4,480 Baltek Corp.* 43,680
40,600 Global Industrial Technologies, Inc.* 489,738
14,000 Mining Services International* 66,500
13,200 Pitt-Des Moines, Inc. 825,000
19,000 Roanoke Electric Steel Corp. 330,125
8,500 Stephan Co. 35,594
17,500 Tuscarora, Inc. 237,344
2,418,668
CAPITAL GOODS - 15.47%
8,900 AG Services of America* 153,525
7,200 American Technical Ceramics Corp.* 61,200
11,000 Autocam Corp. 148,500
3,600 Badger Meter, Inc. 125,100
15,000 Baker (Michael) Corp.* 113,438
14,000 Blonder Tongue Labs.* 87,500
23,900 Building Material Holding Corp.* 274,850
16,300 Cameron Ashley Building Products, Inc.* 170,131
21,000 Cascade Corp. 294,000
14,800 Ceradyne, Inc.* 67,525
29,200 Cherry Corp.* 408,800
3,000 Chicago Rivet & Machine Co. 66,000
17,000 Coastcast Corp.* 216,750
9,300 Diodes, Inc.* 77,888
7,315 Ecology and Environment, Inc. Cl. A. 50,291
19,100 Engle Homes, Inc. 262,625
14,800 Exponent, Inc.* 103,600
15,000 Farr Co.* 165,000
14,300 Fibermark, Inc.* 188,581
18,900 GP Strategies Corp.* 165,375
11,500 Gehl Co.* 232,875
3,150 Graham Corp.* 29,138
8,000 Heist (C.H.) Corp.* 53,000
23,006 Intermagnetics General Corp.* 178,296
13,100 JLM Industries* 68,775
7,600 Liberty Homes, Inc. Cl. A 72,437
15,100 M/I Schottenstein Homes, Inc. 278,406
16,800 Mestek, Inc.* 369,600
14,112 Met-Pro Corp. 176,400
16,000 Nanometrics, Inc.* 126,000
6,300 Noland Co. 127,575
12,000 Northwest Pipe Co.* 199,500
6,000 Oilgear Co. 54,000
28,800 O'sullivan Corp. 351,000
5,000 P & F Industries Cl. A* 48,281
3,200 Penn Engineering & Manufacturing
Corp. (voting) 72,000
11,900 Penn Engineering & Manufacturing
Corp. (non-voting) 267,750
10,200 Puerto Rican Cement Co., Inc. 338,513
5,727 Sames Corp.* 113,824
10,000 Selas Corp. of America 68,750
11,000 Sifco Industries 90,750
9,600 SL Industries, Inc. 123,600
9,426 Southwest Water Co. 163,777
26,900 Symmetricom, Inc.* 218,562
25,700 URS Corp.* 753,331
7,776,819
CONSUMER CYCLICAL - 15.60%
14,000 AC Moore Arts & Crafts, Inc.* 78,750
21,600 Amplicon, Inc. 302,400
15,000 Ben & Jerry's Homemade, Inc. Cl. A* 416,250
8,000 Black Hawk Gaming & Development* 61,000
28,200 Bon-Ton Stores, Inc.* 181,537
19,200 Carmike Cinemas, Inc. Cl. A* 306,000
9,000 Childtime Learning Centers, Inc.* 132,750
17,000 Conso Products Co.* 97,750
6,750 Decorator Industries, Inc. 48,938
20,900 Dixie Group, Inc. Cl. A 177,323
9,500 Duckwall-Alto Stores, Inc.* 99,750
12,400 Ellis (Perry) International, Inc.* 165,850
9,300 ELXSI Corp.* 105,788
12,750 Equinox Systems, Inc.* 137,859
2,700 Federal Screw Works 133,650
13,100 Gart Sports Co.* 73,688
8,400 Globe Business Resources, Inc.* 109,200
23,200 Gottschalks, Inc.* 211,700
16,700 Government Technology Services, Inc.* 68,888
10,530 Hampton Industries, Inc. 46,728
28,700 Inacom Corp.* 362,338
15,000 Kevco, Inc.* 122,813
10,916 Knape & Vogt Manufacturing Co. 192,395
15,000 Lacrosse Footwear, Inc.* 116,250
9,498 M/A/R/C, Inc. 137,721
18,000 Maxwell Shoe, Inc. Cl. A* 163,125
16,000 Mazel Stores, Inc.* 174,000
8,500 McRae Industries, Inc. Cl. A 49,938
12,000 Motorcar Parts & Accessories, Inc.* 64,500
23,000 Navigant International, Inc.* 181,125
12,000 Nobel Learning Communitys, Inc.* 60,000
11,000 OroAmerica, Inc.* 77,000
20,000 Piccadilly Cafeterias, Inc. 166,250
7,000 Pulaski Furniture Corp. 142,625
16,400 R & B, Inc.* 135,300
13,700 Reading Entertainment, Inc.* 104,463
14,000 Rex Stores Corp.* 417,375
17,000 Rock Bottom Restaurants, Inc.* 164,688
10,100 Rocky Shoes & Boots, Inc.* 83,956
35,200 RPC Energy Services, Inc. 308,000
8,400 S & K Famous Brands, Inc.* 80,063
8,600 Scheib (Earl), Inc.* 40,850
7,000 Somerset Group, Inc.* 140,000
21,285 Supreme Industries, Inc. Cl. A* 206,198
30,000 Syms Corp.* 243,750
39,500 TCBY Enterprises, Inc. 239,469
9,000 Weyco Group, Inc. 207,000
13,828 Wolohan Lumber Co. 169,393
23,500 Workflow Management, Inc.* 334,875
7,841,259
CONSUMER STAPLES - 5.88%
11,000 Bowl America, Inc. Cl. A 77,000
9,300 Cagle's, Inc. Cl. A 167,400
15,800 Chalone Wine Group Ltd.* 154,050
4,000 Foodarama Supermarkets, Inc.* 119,500
31,200 Frozen Food Express Industries, Inc. 237,900
3,200 Genesee Corp. Cl. B 84,800
38,200 Ingles Markets, Inc. Cl. A 582,550
7,325 Marsh Supermarkets, Inc. Cl. A 106,212
12,725 Marsh Supermarkets, Inc. Cl. B 149,519
9,000 Max & Erma's Restaurants* 69,750
22,800 Quaker Fabric Corp.* 95,475
8,800 Safety Components International, Inc.* 44,000
23,250 Sanderson Farms, Inc. 331,313
11,400 Seaway Food Town, Inc. 223,725
5,000 Span-America Medical Systems, Inc. 21,562
14,000 Swiss Army Brands, Inc.* 124,250
7,000 Triple S Plastics, Inc.* 29,750
12,900 Vallen Corp.* 206,400
10,800 Western Beef, Inc.* 66,825
8,100 Zaring National Corp.* 64,800
2,956,781
ENERGY - 2.38%
10,500 Adams Resources & Energy, Inc. 82,687
33,203 HS Resources, Inc.* 489,744
21,500 Key Production, Inc.* 197,531
9,100 Maynard Oil Co.* 93,275
10,200 Prima Energy Corp.* 230,775
5,000 Roanoke Gas Co. 103,750
1,197,762
FINANCIAL - 17.46%
7,370 Amwest Insurance Group, Inc. 68,173
10,500 BancInsurance Corp.* 55,125
50 B B & T Corp. 1,834
19,000 Capitol Transamerica Corp. 251,750
16,500 Chartwell Re Corp. 307,312
11,952 Cotton States Life and Health
Insurance Co. 146,412
6,000 DeWolfe Companies, Inc. 42,750
16,000 Donegal Group, Inc. 182,000
20,000 EMC Insurance Group, Inc. 235,000
8,000 First Cash, Inc.* 77,000
12,600 First Albany Companies, Inc. 201,600
11,000 First Investors Financial
Services Group, Inc.* 66,000
17,000 Guarantee Life Companies, Inc. 427,125
7,000 JW Genesis Financial Corp.* 98,875
15,000 Kaye Group, Inc. 118,125
6,000 KBK Capital Corp.* 38,250
12,300 Litchfield Financial Corp. 208,331
5,000 Merchants Group, Inc. 111,875
13,530 Meridian Insurance Group, Inc. 226,628
17,400 Midland Co.* 441,525
6,100 Minuteman International, Inc. 64,050
26,100 National Discount Brokers Group, Inc.*1,513,800
4,850 National Security Group, Inc. 56,987
6,000 National Western Life Insurance Co.* 577,500
15,400 Navigators Group, Inc.* 231,000
16,500 Penn-America Group, Inc. 171,188
14,000 Penn Treaty American Corp.* 336,875
14,300 Professionals Insurance Company
Management Group* 482,625
22,800 PXRE Corp. 413,250
27,000 Ragen MacKenzie Group, Inc.* 320,625
20,000 South Jersey Industries, Inc. 566,250
14,000 Standard Management Corp.* 91,875
26,800 Stewart Information Services Corp. 566,150
4,600 Ziegler (The) Companies, Inc. 80,787
8,778,652
HEALTH CARE - 0.33%
13,000 Advocat, Inc.* 25,188
13,700 Merit Medical Systems, Inc.* 68,286
16,300 Novametrix Medical Systems, Inc.* 72,331
165,805
MISCELLANEOUS - 3.09%
14,000 Andersons, Inc. 178,500
8,910 Astronics Corp.* 89,100
10,400 Edelbrock Corp.* 153,400
4,966 Enstar Group, Inc.* 47,177
2,250 FRM Nexus, Inc.* 4,781
21,750 Hardinge, Inc. 381,984
15,500 Hoenig Group, Inc.* 154,031
10,600 Primesource Corp. 64,925
4,500 Programming and Systems, Inc.* 4,500
2,600 Scope Industries 170,300
12,000 Sun Hydraulics Corp. 107,250
18,000 Todd-AO Corp. Cl. A 198,000
1,553,948
TECHNOLOGY - 10.81%
2,100 Allen Organ Co. Cl. B 76,913
12,400 Autologic Information
International, Inc.* 56,575
11,400 BEI Medical Systems Company, Inc.* 16,388
12,600 BEI Technologies, Inc. 126,000
17,320 Bell Industries, Inc. 76,858
15,100 Bell Microproducts, Inc.* 103,812
22,500 Brite Voice Systems, Inc.* 312,187
12,700 CPAC, Inc. 106,363
10,000 Data Research Associates, Inc. 103,750
9,200 Dataram Corp.* 90,850
13,200 Del Global Technologies Corp.* 128,700
11,400 DRS Technologies, Inc.* 120,412
7,800 Eastern (The) Co. 139,425
13,000 EDO Corp. 94,250
6,000 Equitrac Corp.* 113,250
14,700 Franklin Electronic Publishers, Inc.* 54,206
15,000 IFR Systems, Inc.* 71,250
16,000 Integrated Measurement System, Inc.* 206,000
14,000 Interphase Corp.* 322,000
6,000 IPC Information Systems* 409,500
8,500 Koss Corp.* 102,531
4,800 Moore Products Co. 110,100
16,400 Newport Corp. 254,200
23,600 Nichols Research Corp.* 516,250
18,200 Norstan, Inc.* 226,362
16,000 Powell Industries, Inc.* 148,000
8,900 Programmer's Paradise, Inc.* 109,025
4,300 Quipp, Inc. 55,900
8,000 Refac Technology Develop Corp.* 52,000
22,000 Semitool, Inc.* 211,750
20,200 Thermo Power Group* 235,456
28,300 Thermospectra Corp.* 449,263
12,000 TRM Copy Center Corp.* 78,750
11,400 Vertex Communications Corp.* 156,037
5,434,313
TRANSPORTATION & SERVICES - 2.93%
12,000 International Shipholding Corp. 172,500
4,000 Kenan Transport Co. 123,000
30,000 Kitty Hawk, Inc.* 236,250
8,066 KLLM Transport Services, Inc.* 46,379
12,000 Marten Transport Ltd.* 148,125
15,500 Old Dominion Freight Line, Inc.* 184,062
13,000 Pam Transportation Services* 128,375
5,000 Petroleum Helicopters, Inc. 65,313
12,000 Transport Corporation of America, Inc.* 154,500
17,000 USA Truck, Inc.* 155,656
5,250 VSE Corp. 55,945
1,470,105
UTILITIES - 16.38%
16,600 American States Water Co. 471,025
19,500 Aquarion Co. 677,625
6,600 Atrion Corp.* 61,875
16,100 Bangor Hydro-Electric Co. 259,612
7,000 Berkshire Gas Co. 157,500
18,900 Cascade Natural Gas Corp. 359,100
8,700 Chesapeake Utilities Corp. 161,494
15,150 Colonial Gas Co. 560,550
17,600 Connecticut Energy Corp. 678,700
7,800 Connecticut Water Service, Inc. 214,500
19,000 CTG Resources, Inc. 691,125
4,000 Delta Natural Gas Company, Inc. 66,500
3,300 Dominguez Services Corp. 101,887
14,400 E'town Corp. 658,800
6,000 EnergyNorth, Inc. 173,625
6,000 Florida Public Utilities Co. 113,250
9,700 Green Mountain Power Corp. 109,125
7,000 Maine Public Service Co. 124,250
7,600 Middlesex Water Co. 190,950
21,700 NUI Corp. 542,500
18,500 Pennsylvania Enterprises, Inc. 567,719
10,800 Providence Energy Corp. 288,225
6,100 SJW Corp. 485,712
14,000 St. Joseph Light & Power Co. 287,875
9,176 UNITIL Corp. 231,121
8,234,645
TOTAL COMMON STOCKS 47,828,757
(Cost $38,577,478)
FACE
AMOUNT DESCRIPTION MARKET VALUE
REPURCHASE AGREEMENT - 4.48%
$2,255,000 UMB Bank, n.a.
4.29%, due July 1, 1999
(Collateralized by U.S.
Treasury Notes, 6.25%,
due August 31, 2000 with
a value of $2,300,531) 2,255,000
(Cost $2,255,000)
TOTAL INVESTMENTS - 99.62% 50,083,757
(Cost $40,832,478)
Other assets less liabilities - 0.38% 189,125
TOTAL NET ASSETS - 100.00% $ 50,272,882
For federal income tax purposes, the identified cost of
investments owned at June 30, 1999 was $41,208,213.
Net unrealized appreciation for federal income tax purposes was
$8,875,544, which is comprised of unrealized appreciation of
$13,249,721 and unrealized depreciation of $4,374,177.
*Non-income producing security
See accompanying Notes to Financial Statements.
BABSON VALUE FUND
Babson Value Fund achieved a total return (price change and
reinvested distributions) of 12.9% in the most recent quarter and
12.6% for the six months ended June 30, 1999. During the same
period the unmanaged Standard & Poor's 500 index rose 7.1% and
12.4%, respectively.
In the first quarter the S&P 500 continued to be dominated by a
small number of large "growth" stocks, which extended into a
sixth year their record run versus "value" stocks. Indeed, five
of the top ten highest returning stocks were either technology-
or communications-related, they accounted for over 50% of the
index's return in the quarter, and their valuations were "sky
high" - the kinds of companies our disciplines just don't allow
us to buy.
But what a difference a month makes! April marked a dramatic
turnaround in market sentiment from growth to value. During that
month we witnessed what was perhaps the most violent reversal of
style in the stock market in our experience. Most of the shift
occurred in six trading days from April 9 through April 19. At
the end of the first quarter, the year-to-date return of the
S&P/BARRA Growth Index exceeded the year-to-date return of the
S&P/BARRA Value Index by 4.1 percentage points. By the end of
April the Value Index year-to-date return exceeded the Growth
Index by 5.0 percentage points, a swing of 9.1 percentage points
in one month!
A number of value characteristics of the Fund - low absolute and
relative price-to-earnings and price-to-book, for example - were
exactly what investors were looking for when the shift from
growth to value occurred. Additionally, certain sectors (basic
materials, consumer cyclical, and financial) and the Fund's
overweight positions in those sectors contributed most to our
successful results in the second quarter. Furthermore, because
the market caps of many growth stocks are so large relative to
the market caps of most of the basic materials and cyclical
companies, it took only a small percentage of money flowing from
the big favorites into the less liquid value stocks to result a
sharp run-up in the prices of those value stocks in the April
turnaround period.
May was another good month for value stocks. Although the major
indices produced negative returns in May and Babson Value Fund
experienced a slight downturn as well, relative performance was
positive. Thus the positive return spread between the Fund and
the indexes that occurred in April widened in May. The last three
days of a very up-and-down June market were characterized by a
sharp rebound in the growth sector, as stocks rallied as concerns
regarding a series of interest rate hikes began to ease.
Nonetheless, the Babson Value Fund held its performance advantage
through this period.
The Babson Value Fund strategy continues to possess attractive
valuation characteristics even after the excellent performance of
value stocks in the second quarter. Even though recent
performance has been strong, there is plenty of room for further
normalization of the valuation gap between growth companies and
neglected value stocks.
CHART - BABSON VALUE FUND
VERSUS S&P 500
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
BABSON VALUE FUND
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 97.85%
BASIC MATERIALS - 14.75%
482,100 duPont (E.I.) deNemours & Co. $ 32,933,456
805,100 Potlatch Corp. 35,374,081
103,400 Martin Marietta Materials, Inc. 6,100,600
602,000 Millennium Chemicals, Inc. 14,184,625
1,156,000 USX-U.S. Steel Group 31,212,000
474,000 Weyerhaeuser Co. 32,587,500
675,300 Willamette Industries, Inc. 31,106,006
183,498,268
CAPITAL GOODS - 6.89%
716,000 Boeing Co. 31,638,250
689,200 Dana Corp. 31,746,275
601,000 Lockheed Martin Corp. 22,387,250
85,771,775
CONSUMER CYCLICAL - 14.34%
603,700 Harcourt General, Inc. 31,128,281
1,727,600 Kmart Corp.* 28,397,425
679,000 Limited, Inc. 30,809,625
610,158 Penney (J.C.) Co., Inc. 29,630,798
1,519,500 Reebok International Ltd.* 28,300,688
675,500 Sears, Roebuck & Co. 30,101,969
178,368,786
CONSUMER STAPLES - 2.17%
628,000 Diageo PLC, ADR 27,004,000
ENERGY - 5.30%
381,300 Atlantic Richfield Co. 31,862,381
564,500 Royal Dutch Petroleum Co. 34,011,125
65,873,506
FINANCIAL - 28.31%
372,100 Aetna, Inc. 33,279,694
837,000 Allstate Corp. 30,027,375
217,100 American Express Co. 28,250,137
12,322 Berkshire Hathaway, Inc. Cl. B* 27,601,280
345,000 Chase Manhattan Corp. 29,885,625
597,000 Citigroup, Inc. 28,357,500
394,000 National City Corp. 25,807,000
660,850 SLM Holding Corp. 30,275,191
628,200 Student Loan Corp. 27,954,900
415,200 Transamerica Corp. 31,140,000
802,700 U.S. Bancorp 27,291,800
756,330 Wells Fargo & Co. 32,333,107
352,203,609
HEALTH CARE - 4.33%
1,322,900 Tenet Healthcare* 24,556,331
468,000 United Healthcare Corp. 29,308,500
53,864,831
MISCELLANEOUS - 1.19%
333,100 Hanson PLC, ADR 14,781,313
TECHNOLOGY - 10.17%
670,200 Apple Computer, Inc.* 31,038,638
252,000 International Business Machines Corp.32,571,000
1,299,700 Wallace Computer Services, Inc. 32,492,500
514,000 Xerox Corp. 30,358,125
126,460,263
TRANSPORTATION - 5.73%
716,000 CSX Corp. 32,443,750
1,014,382 KLM Royal Dutch Airlines 28,973,286
766,090 Overseas Shipholding Group, Inc. 9,863,409
71,280,445
UTILITIES - 4.67%
1,122,000 Illinova Corp. 30,574,500
667,200 Texas Utilities Co. 27,522,000
58,096,500
TOTAL COMMON STOCKS 1,217,203,296
(Cost $825,560,185)
FACE
AMOUNT DESCRIPTION MARKET VALUE
REPURCHASE AGREEMENT - 2.11%
$26,190,000 UMB Bank, n.a.,
4.29%, due July 1, 1999
(Collateralized by U.S.
Treasury Notes, 6.25%
due August 31, 2000 with
a value of $26,714,747) 26,190,000
(Cost $26,190,000)
TOTAL INVESTMENTS - 99.96% 1,243,393,296
(Cost $851,750,185)
Other assets less liabilities - 0.04% 536,911
TOTAL NET ASSETS - 100.00% $1,243,930,207
For federal income tax purposes, the identified cost of
investments owned
at June 30, 1999 was $861,447,793.
Net unrealized appreciation for federal income tax purposes was
$381,945,503, which is comprised of unrealized appreciation of
$395,565,090 and unrealized depreciation of $13,619,587.
*Non-income producing security
See accompanying Notes to Financial Statements.
BABSON-STEWART IVORY INTERNATIONAL FUND
At June 30, 1999, the net asset value of Babson-Stewart Ivory
International Fund was $19.48, representing a
total return (price change and reinvested distributions) of 3.73%
for the quarter, and 3.76% for the fiscal year. Comparisons
against the unmanaged Morgan Stanley Capital International (MSCI)
EAFE and other indices are as follows:
Investment Results - Total Return
Periods Ended 6/30/99
Second Quarter Previous Twelve
1999 Months
BSIIF 3.73% 3.76%
MSCI EAFE* Index** 2.60% 7.93%
MSCI World Index** 4.86% 16.08%
S&P 500 Index** 7.06% 22.77%
Lipper International Funds
(avg. funds 630 and
570, respectively) 5.55% 4.00%
*Europe, Australia, Far East
**unmanaged
The portfolio's overall performance for the last quarter was
ahead of the benchmark index, but behind for the year-to-date and
the fiscal year, when we did not keep pace with the market's
recovery from the depressed levels of last fall. In particular we
suffered in the first quarter of 1999 from the markets' shift
away from growth stocks, particularly in Europe, to more cyclical
sectors. This movement was less pronounced in the second quarter,
which also saw better relative performance by smaller companies.
Forecasts for U.S. economic growth this year have been raised to
4% following the strong start in 1999. Growth prospects in Europe
and Asia remain much more subdued, with forecasts of under 2% for
the major countries of the Euro-11 group, around 1% for the UK,
and with Japan still struggling to achieve any growth at all in
1999. The principal world economies are now at different stages
of the economic cycle, with the U.S. at a much more advanced
phase than other countries. In these circumstances it seems
unlikely that the current revival of economic growth outside the
U.S. will lead to any general overheating, thus avoiding further
rises in commodity prices and acceleration of inflation.
Having under-performed other markets so far this year, European
markets now seem reasonably valued, and the rotation into
cyclical stocks from the start of the year appears to have
slowed, as most such companies have insufficient pricing power to
sustain earnings recovery as the economy improves. The success of
Olivetti's hostile takeover bid for Telecom Italia represents an
important milestone for European stock markets, with shareholder
value now taking a more important role than before. The
development of an equity culture in continental Europe is still
at a relatively early stage, with pension plans and collective
investment funds creating new and more favorable supply/demand
conditions for
equities.
We would expect to continue to find opportunities in Japan and
Asia. After such a severe bear market, some of the very rapid
appreciation of the recent period may represent a recovery from
excessive pessimism and more progress is likely if economic
conditions continue to improve. Signs of a new commitment to
restructuring and to a more profit-oriented management
philosophy, particularly in Japan, should also encourage new
interest in investing in the region.
CHART - BABSON-STEWART IVORY INTERNATIONAL FUND
VERSUS MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
BABSON-STEWART IVORY INTERNATIONAL FUND
SHARES COMPANY AND DESCRIPTION MARKET VALUE
COMMON STOCKS - 90.83%
AUSTRALIA - 2.25%
42,000 Brambles
(Transport, plant services) $ 1,105,011
65,000 Lend Lease
(Real estate) 891,290
1,996,301
BELGIUM - 0.74%
1,000 Colruyt
(Food retailer) 657,682
CROATIA - 0.54%
32,000 Pliva
(Pharmaceuticals) 480,000
DENMARK - 1.33%
24,000 TeleDanmark
(Telecoms) 1,178,004
FINLAND - 0.59%
6,000 Nokia
(Telecom equipment) 525,734
FRANCE - 9.37%
8,000 AXA-UAP
(Insurance, financial services) 975,597
4,000 Danone
(Food products) 1,030,850
9,000 Lafarge
(Building materials, cement) 855,400
1,000 L' Oreal
(Cosmetics) 675,722
20,000 Sanofi*
(Pharmaceuticals) 848,390
13,000 Total
(Oil major) 1,676,472
13,000 Valeo
(Automotive components) 1,072,084
14,400 Vivendi
(Diversified utilities) 1,166,015
8,300,530
GERMANY - 3.66%
6,500 Fresenius
(Pharmaceuticals, medical equipment) 1,149,140
14,000 Mannesmann
(Telecoms and engineering) 2,088,296
3,237,436
GREECE - 0.58%
24,000 OTE
(Telecoms utility) 513,666
HONG KONG - 5.64%
330,000 Asia Satellite
(Satellite operator) 776,235
180,000 CLP Holdings
(Electric utility) 874,642
425,000 Gold Peak
(Batteries) 90,931
600,000 HK & China Gas
(Gas utility) 870,002
1,215,000 Shaw Bros.
(T.V. network, film production
and distribution) 829,982
1,100,000 Swire Pacific Cl. B
(Trading, airlines, real estate) 822,313
230,000 V-Tech
(Electronic learning aids) 730,738
4,994,843
HUNGARY - 0.66%
13,500 Gedeon Richter
(Pharmaceuticals) 587,250
IRELAND - 1.14%
17,595 Irish Life
(Insurance) 185,913
70,000 Kerry Group
(Food manufacturer) 827,531
1,013,444
ITALY - 2.04%
20,300 Banca Popolare Di Brescia
(Banking, financial services) 869,486
60,000 Luxottica
(Eyeglass frames) 933,750
1,803,236
JAPAN - 21.60%
29,000 Bridgestone
(Tires) 877,408
13,400 Circle K
(Convenience stores) 558,287
40,000 Credit Saison
(Credit card services) 836,571
12,000 Fuji Photo
(Film) 454,328
54,000 Hosiden
(Electronic components) 1,165,082
18,000 Hoya
(Opto-electronics) 1,016,285
13,000 Ito-Yokado
(Supermarket chain) 870,464
12,000 Matsushita Communication
(Industrial electronics) 858,064
8,800 Nintendo
(Video games) 1,237,398
65,000 Nippon Comsys
(Telecoms engineering) 1,055,840
80 NTT Mobile Communication*
(Cellular telecommunications) 1,073,985
88,000 Olympus Optical
(Precision instruments, cameras) 1,301,414
18,700 Promise
(Consumer lending) 1,105,274
12,000 Secom
(Security services) 1,249,897
11,000 Sony
(Consumer electronics) 1,186,658
53,000 Suzuki
(Cars, motorcycles) 843,391
60,000 Taiyo Yuden
(Electronic component manufacturer) 985,038
16,000 Takeda
(Pharmaceuticals, chemicals) 742,002
40,000 Terumo
(Medical equipment) 891,130
117,000 Toshiba
(Electronic equipment) 834,678
19,143,194
MALAYSIA - 0.53%
400,000 Perlis Plantations
(Trading, mining, agriculture) 467,368
NETHERLANDS - 7.33%
11,000 Aegon
(Insurance) 797,723
25,000 Ahold
(Supermarkets) 860,760
25,000 Getronics
(Support services) 961,268
20,000 ING Groep
(Financial services) 1,082,393
17,000 KPN
(Postal and telecom services) 797,363
30,000 VNU
(Publishing) 1,198,363
20,000 Wolters Kluwer
(Publisher) 795,816
6,493,686
POLAND - 0.57%
32,000 Bank Handlowy*
(Banking) 507,200
PORTUGAL - 1.09%
29,333 Jeronimo Martins
(Food distributors) 968,521
SINGAPORE - 1.04%
40,000 Overseas Union Bank
(Banking) 192,715
203,000 Overseas Union Enterprise
(Hotels, property investment) 644,066
46,000 Trans-Island Bus Services
(Bus transport) 82,703
919,484
SPAIN - 4.15%
40,000 Argentaria
(Banking services) 909,210
11,400 Banco Popular
(Banking) 819,681
26,000 Mapfre Vida Seguro
(Insurance) 742,418
24,969 Telefonica
(Telephone utility) 1,205,371
3,676,680
SWEDEN - 4.92%
33,200 Atlas-Copco
(Engineering) 891,695
40,000 Hennes & Mauritz
(Retailing) 989,516
31,500 L.M. Ericsson
(Telecom equipment) 1,011,162
125,000 Nordbanken Holding
(Swedish/Finnish banking) 731,829
49,050 Securitas
(Security/cleaning services) 733,814
4,358,016
SWITZERLAND - 2.03%
11,347 ABB
(Engineering) 1,068,957
500 Novartis
(Pharmaceuticals and chemicals) 729,857
1,798,814
UNITED KINGDOM - 19.03%
64,000 Bank of Scotland
(Banking) 855,967
120,000 Bowthorpe
(Electronics components, instruments) 1,048,837
95,000 Cable & Wireless Communications
(Telecommunications) 913,437
88,000 Capita Group
(Facilities management) 910,631
172,000 Cattles
(Consumer loans) 929,925
97,000 Electrocomponents
(Electronics) 714,026
40,000 Glaxo Wellcome
(Pharmaceuticals) 1,111,572
114,000 Hays
(Business services) 1,202,143
90,000 Kingfisher
(Diversified retailing) 1,050,223
103,000 Lloyds TSB
(Banking) 1,398,678
47,000 Logica
(Computer software) 494,361
420,000 Morrison Supermarkets
(Supermarkets) 946,696
118,000 Northern Rock
(Mortgage bank) 898,368
140,000 Shell
(Oil major) 1,050,413
90,000 SmithKline Beecham
(Pharmaceuticals) 1,170,366
55,000 Smiths Industries
(Instrumentation) 729,962
73,000 Vodafone AirTouch
(Cellular telephone network) 1,436,027
16,861,632
TOTAL COMMON STOCKS 80,482,721
(Cost $61,129,366)
FACE
AMOUNT DESCRIPTION MARKET VALUE
REPURCHASE AGREEMENT - 1.79%
$1,590,000 State Street Bank,
3.25%, due July 1, 1999
(Collateralized by U.S.
Treasury Bonds, 8.125%
due August 15, 2019 with
a value of $1,623,109) 1,590,000
(Cost $1,590,000)
TOTAL INVESTMENTS - 92.62% 82,072,721
(Cost $62,719,366)
Other assets less liabilities - 7.38% 6,537,410
TOTAL NET ASSETS - 100.00% $ 88,610,131
For federal income tax purposes, the identified cost of
investments owned at June 30, 1999 was $63,283,352.
Net unrealized appreciation for federal income tax purposes was
$18,789,369, which is comprised of unrealized appreciation of
$21,724,807 and unrealized depreciation of $2,935,438.
*Non-income producing security
See accompanying Notes to Financial Statements.
BABSON BOND TRUST
Absolute returns in the fixed income market for thefirst half of
the year were a disappointment, reflecting the rise in the
general level of interest rates since the beginning of 1999. At
the end of the second quarter the Federal Reserve raised short-
term rates as a pre-emptive measure to thwart the risk of an
increase in the level of inflation. Though the Fed acknowledges
that there are no signs of gathering inflation, it is worried
that the imbalance between strong demand outpacing productivity
gains coupled with a dwindling labor pool will lead to wage
pressures. This in turn could threaten the viability of the
current economic expansion. The net effect of this was to send
interest rates up a full percentage point since the end of last
year.
Normalcy returned to the credit markets after the financial
market turmoil dissipated during the fourth quarter of 1998.
Improved liquidity for spread sector securities, such as
corporates, mortgages and asset-backs helped to fuel record
corporate issuance and allowed quality spreads, during the first
quarter, to retrace a majority of the widening incurred last
summer and fall. However, in the second quarter continued heavy
supply and Y2K jitters caught up with the market and spreads
again widened.
For the six and twelve month periods ended June 30, 1999, total
investment returns (price change and reinvested distributions)
for Portfolio S were -0.22% and 3.22%, respectively. Dividends
for the previous twelve months amounted to $0.565 per share,
resulting in an income yield of 5.74% based on a beginning net
asset value of $9.85. During the same six and twelve month
periods, total investment returns for Portfolio L were -1.76% and
1.88%, respectively. Dividends for the previous twelve months
were $0.090 a share, producing an income yield of 5.71% based on
a beginning net asset value of $1.58.
Portfolio S is ranked in the top quarter of the Lipper Short-
Intermediate Investment Grade Bond fund grouping for the most
recent three-year period.1 Portfolio L remains ranked in the top
half of the Lipper A-Rated Bond Fund category for the most recent
one-year period.1
Our bias toward shorter maturity corporates, initiated during the
fourth quarter of 1998, remained in place over the past
six months. Breakeven analysis using a one year time horizon
still favored shorter maturity (i.e., 2-year) corporate bonds
over both intermediate (i.e., 5-year) and long maturity (i.e., 30-
year) securities. In light of this, and partially reflective of
our increased concerns over credit trends, we sold holdings of
Tosco and Dana Corp. maturing in 2006 and 2008, respectively.
Other corporate activity included selling positions in the GMAC
2000 notes and the Merrill Lynch 2001 notes at much narrower
spreads to Treasuries than when initially purchased during the
fourth quarter. In replacing these two issues, we purchased JB
Hunt Transportation and Service Corp. International, both
maturing in 2000. While these two issues are lower rated than the
GMAC and Merrill Lynch notes that were sold, both are solid
triple-B credits that carry very attractive yields.
Currently, the average maturity is 5 years for Portfolio S and
8.9 years for Portfolio L, after taking into consideration bonds
trading to their call dates and average life assumptions for
mortgage and asset-backed securities.
QUALITY RATINGS
PORTFOLIO L
Aaa 49.6%
Aa 6.5%
A 19.0%
Baa 24.9%
Total 100.0%
Source: Moody's
CHART - BABSON BOND TRUST - PORTFOLIO L
VERSUS LEHMAN BROTHERS
AGGREGATE BOND INDEX
QUALITY RATINGS
PORTFOLIO S
Aaa 51.2%
Aa 8.1%
A 16.5%
Baa 24.2%
Total 100.0%
Source: Moody's
CHART - BABSON BOND TRUST - PORTFOLIO S
VERSUS LEHMAN BROTHERS
INTERMEDIATE GOV'T./CORP. INDEX
1 Lipper Short-Intermediate Investment Grade Bond Fund ranking
for Portfolio S for one, three, five and ten year periods ended
June 30, 1999, were 63 of 101, 8 of 76, 7 of 54, and 4 of 11,
respectively.
Lipper A-Rated Bond Fund ranking for Portfolio L for one,
three, five and ten year periods ended June 30, 1999, were 54 of
158, 67 of 130, 53 of 89, and 26 of 42, respectively.
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
BABSON BOND TRUST - PORTFOLIO L
PRINCIPAL MARKET
DESCRIPTION VALUE VALUE
CORPORATE BONDS - 48.54%
BANKS AND FINANCE - 13.42%
American Stores Company,
8.00%, due June 1, 2026 $ 1,650,000 $ 1,773,667
Associates Corporation North America,
5.80%, due April 20, 2004 4,500,000 4,336,605
Ford Capital B V,
10.125%, due November 15, 2000 2,500,000 2,623,750
Hellenic Republic,
6.95%, due March 4, 2008 1,300,000 1,301,430
Republic of Chile,
6.875%, due April 28, 2009 750,000 694,942
Southern Investments UK PLC,
6.375%, due November 15, 2001 1,300,000 1,285,648
SunTrust Banks, Inc.,
6.00%, due February 15, 2026 3,000,000 2,852,910
Wachovia Capital Trust II,
6.062%, due January 15, 2027 1,300,000 1,239,784
16,300,000 16,108,736
COMMUNICATIONS - 5.97%
A T & T Capital Corp.,
6.875%, due January 16, 2001 1,265,000 1,265,531
BellSouth Savings & Employee Stock
Ownership Trust,
9.19%, due July 1, 2003 823,452 882,840
Tele Communications, Inc.,
8.75%, due February 15, 2023 1,000,000 1,032,630
Time Warner Entertainment Company LP,
8.375%, due March 15, 2023 1,000,000 1,083,170
Time Warner, Inc.,
9.15%, due February 1, 2023 1,350,000 1,548,194
WorldCom, Inc.,
7.75%, due April 1, 2007 1,300,000 1,361,425
6,738,452 7,173,790
DIVERSIFIED - 2.68%
International Business Machines Corp.,
6.22%, due August 1, 2027 1,500,000 1,489,455
Lucent Technologies, Inc.,
6.90%, due July 15, 2001 1,700,000 1,728,696
3,200,000 3,218,151
INDUSTRIALS - 15.76%
Airgas, Inc.,
7.14%, due March 8, 2004 1,650,000 1,652,376
Cardinal Health, Inc.,
6.00%, due January 15, 2006 1,835,000 1,734,369
Comdisco, Inc.,
6.375%, due November 30, 2001 3,675,000 3,665,261
Georgia-Pacific Corp.,
9.625%, due March 15, 2022 1,500,000 1,605,120
Hydro Quebec,
8.05%, due July 7, 2024 2,900,000 3,142,817
Oslo Seismic Services, Inc.,
8.28%, due June 1, 2011 1,939,107 1,980,119
Petroleum Geo-Services A/S,
7.50%, due March 31, 2007 1,500,000 1,496,640
Philip Morris Companies, Inc.,
7.20%, due February 1, 2007 1,000,000 1,001,180
Philip Morris Companies, Inc.,
6.15%, due March 15, 2000 750,000 752,977
Raytheon Company,
6.15%, due November 1, 2008 2,000,000 1,888,180
18,749,107 18,919,039
TRANSPORTATION - 3.51%
CSX Corp.,
9.50%, due August 1, 2000 680,000 702,569
JB Hunt Transport Services, Inc.,
6.25%, due November 17, 2000 1,785,000 1,795,067
United Airlines Pass-Thru Trusts,
7.27%, due January 30, 2013 1,811,249 1,720,397
4,276,249 4,218,033
U.S. DOLLAR DENOMINATED CANADIAN SECURITIES - 4.04%
Canadian National Railway Company,
7.00%, due March 15, 2004 1,950,000 1,959,263
Newfoundland Province of Canada,
7.32%, due October 13, 2023 1,950,000 1,966,282
Ontario Province of Canada,
5.50%, due October 1, 2008 1,000,000 920,240
4,900,000 4,845,785
UTILITIES - 3.16%
Consolidated Edison Company NY, Inc.,
6.15%, due July 1, 2008 2,000,000 1,915,960
Illinois Power Special Purpose Trust, Cl. A-6,
5.54%, due June 25, 2009 2,000,000 1,873,120
4,000,000 3,789,080
TOTAL CORPORATE BONDS 58,163,808 58,272,614
(Cost $59,608,386)
ASSET-BACKED BONDS - 5.36%
California Infrastructure & Economic
Development Bank Special Purpose Trust,
6.42%, due September 25, 2008 2,500,000 2,486,200
California Infrastructure & Economic
Development Bank Special Purpose Trust,
6.22%, due March 25, 2004 1,000,000 997,500
Comed Transitional Funding Trust,
5.63%, due June 25, 2009 1,250,000 1,173,038
Green Tree Financial Corp.,
6.70%, due October 15, 2017 332,271 331,719
Green Tree Securitized Net Interest
Margin Trust,
7.25%, due July 15, 2005 526,242 516,375
MBNA Master Credit Card Trust II,
5.90%, due August 15, 2011 1,000,000 939,680
TOTAL ASSET-BACKED BONDS 6,608,513 6,444,512
(Cost $6,597,711)
COMMERCIAL MORTGAGE-BACKED BONDS - 5.55%
DLJ Commercial Mortgage Corp.,
6.11%, due December 10, 2007 2,348,308 2,286,665
JP Morgan Commercial Mortgage Financial Corp.,
6.507%, due
October 15, 2035 1,500,000 1,448,640
Nomura Asset Securities Corp.,
6.59%, due March 17, 2028 3,000,000 2,926,410
TOTAL COMMERCIAL MORTGAGE-BACKED BONDS 6,848,308 6,661,715
(Cost $6,906,259)
REVENUE BOND - 1.91%
New Jersey Economic Development Authority
State Pension Funding Revenue,
7.425%, due February 15, 2029 2,200,000 2,287,450
(Cost $2,237,298)
U.S. GOVERNMENTAL AGENCY,
U.S. GOVERNMENT SECURITIES AND
GOVERNMENT SPONSORED ENTERPRISES - 32.74%
U.S. GOVERNMENTAL AGENCY - 9.88%
Government National Mortgage Association
7.50%, due March 15, 2007 100,261 101,326
7.50%, due July 15, 2007 187,453 189,444
8.00%, due October 15, 2007 244,308 251,102
8.00%, due November 15, 2009 2,997,642 3,110,983
9.50%, due April 15, 2016 24,260 26,147
9.50%, due January 15, 2019 71,726 77,307
8.00%, due May 15, 2022 296,866 305,122
7.00%, due March 15, 2024 3,284,002 3,243,970
8.00%, due December 15, 2026 3,979,308 4,089,973
Small Business Administration guaranteed
developent participation certificates
9.80%, due July 1, 2008 147,657 158,165
10.05%, due August 1, 2008 133,520 142,609
10.05%, due April 1, 2009 152,849 164,186
11,619,852 11,860,334
U.S. GOVERNMENT SECURITIES - 9.01%
U.S. Treasury Notes
11.125%, due August 15, 2003 1,520,000 1,812,843
7.25%, due August 15, 2004 2,850,000 3,031,687
6.50%, due October 15, 2006 1,065,000 1,099,613
8.125%, due May 15, 2021 4,000,000 4,871,240
9,435,000 10,815,383
*GOVERNMENT SPONSORED ENTERPRISES - 13.85%
Federal Home Loan Mortgage Corporation
7.75%, due April 1, 2008 172,714 177,733
7.75%, due November 1, 2008 36,681 37,747
8.00%, due August 1, 2009 34,343 35,599
8.25%, due October 1, 2010 290,802 303,978
9.00%, due June 1, 2016 103,954 110,872
8.00%, due October 1, 2018 150,449 155,950
9.00%, due October 1, 2018 72,872 77,266
7.50%, due February 1, 2021 1,163,552 1,177,724
6.00%, due November 1, 2028 6,381,699 6,014,751
Federal National Mortgage Association
5.625%, due March 15, 2001 3,385,000 3,379,516
7.00%, due December 1, 2007 383,800 379,721
8.25%, due January 1, 2009 136,206 140,973
5.25%, due January 15, 2009 3,000,000 2,750,370
8.00%, due February 1, 2009 176,720 181,303
7.50%, due September 1, 2011 222,880 226,501
8.50%, due July 1, 2013 45,779 47,796
9.50%, due June 25, 2018 135,635 142,642
9.25%, due October 1, 2020 85,968 91,421
6.50%, due March 1, 2029 1,240,219 1,197,965
17,219,273 16,629,828
TOTAL U.S. GOVERNMENTAL AGENCY,
U.S. GOVERNMENT SECURITIES
AND GOVERNMENT SPONSORED ENTERPRISES 38,274,123 39,305,545
(Cost $39,727,306)
REPURCHASE AGREEMENT - 4.91%
UMB Bank, n.a., 4.29%, due July 1, 1999
(Collateralized by U.S. Treasury Notes,
6.25%, due August 31, 2000
with a value of $6,018,197) 5,900,000 5,900,000
(Cost $5,900,000)
TOTAL INVESTMENTS - 99.01%
118,871,836
(Cost $120,976,960)
Other assets less liabilities - 0.99% 1,191,990
TOTAL NET ASSETS - 100.00%
$ 120,063,826
The identified cost of investments owned at June 30, 1999 was the
same for financial statement and federal income tax purposes.
Net unrealized depreciation for federal income tax purposes was
$2,105,124, which is comprised of unrealized appreciation
of $735,416 and unrealized depreciation of $2,840,540.
*Mortgage-backed securities
See accompanying Notes to Financial Statements.
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
BABSON BOND TRUST - PORTFOLIO S
PRINCIPAL MARKET
DESCRIPTION VALUE VALUE
CORPORATE BONDS - 46.51%
BANKS AND FINANCE - 8.72%
Associates Corporation North America,
5.80%, due April 20, 2004 $ 750,000 $ 722,767
Chrysler Financial Corp.,
6.375%, due January 28, 2000 600,000 601,722
Hellenic Republic,
6.95%, due March 4, 2008 375,000 375,412
Republic of Chile,
6.875%, due April 28, 2009 200,000 185,318
Southern Investments UK PLC,
6.375%, due November 15, 2001 300,000 296,688
SunTrust Banks, Inc.,
6.00%, due February 15, 2026 700,000 665,679
Wachovia Capital Trust II,
6.062%, due January 15, 2027 375,000 357,630
3,300,000 3,233,848
COMMUNICATIONS - 5.10%
A T & T Capital Corp.,
6.875%, due January 16, 2001 350,000 350,147
BellSouth Savings & Employee
Stock Ownership Trust,
9.19%, due July 1, 2003 597,099 640,161
Time Warner Entertainment Company LP,
8.375%, due March 15, 2023 300,000 324,951
WorldCom, Inc.,
7.75%, due April 1, 2007 550,000 575,988
1,797,099 1,891,247
DIVERSIFIED - 2.10%
International Business Machines Corp.,
6.22%, due August 1, 2027 400,000 397,188
Lucent Technologies, Inc.,
6.90%, due July 15, 2001 375,000 381,330
775,000 778,518
INDUSTRIALS - 18.78%
Airgas, Inc.,
7.14%, due March 8, 2004 550,000 550,792
Cardinal Health, Inc.,
6.25%, due July 15, 2008 650,000 608,809
Comdisco, Inc.,
6.375%, due November 30, 2001 1,000,000 997,350
Ford Motor Credit Company,
5.75%, due February 23, 2004 1,600,000 1,544,080
Georgia Pacific Corp.,
9.125%, due July 1, 2022 375,000 390,679
Hydro-Quebec,
8.05%, due July 7, 2024 425,000 460,585
Oslo Seismic Services, Inc.,
8.28%, due June 1, 2011 484,777 495,030
Petroleum Geo-Services A/S,
7.50%, due March 31, 2007 500,000 498,880
Philip Morris Companies, Inc.,
7.20%, due February 1, 2007 200,000 200,236
Philip Morris Companies, Inc.,
6.15%, due March 15, 2000 250,000 250,993
Raytheon Company,
6.15%, due November 1, 2008 500,000 472,045
Service Corporation International,
6.375% notes, due October 1, 2000 500,000 497,285
7,034,777 6,966,764
TRANSPORTATION - 3.62%
Burlington Northern Santa Fe Corp.,
6.05%, due March 15, 2001 400,000 398,020
JB Hunt Transport Services, Inc.,
6.25%, due November 17, 2000 350,000 351,974
United Airlines Pass-Thru Trusts,
7.27%, due January 30, 2013 399,886 379,828
Wisconsin Central Transportation Corp.,
6.625%, due April 15, 2008 225,000 213,865
1,374,886 1,343,687
U.S. DOLLAR DENOMINATED CANADIAN SECURITIES - 4.46%
Canadian National Railway Company,
7.00%, due March 15, 2004 500,000 502,375
Ontario Province of Canada,
5.50%, due October 1, 2008 1,250,000 1,150,300
1,750,000 1,652,675
UTILITIES - 3.73%
Consolidated Edison Company NY, Inc.,
6.15%, due July 1, 2008 400,000 383,192
Long Island Lighting Company,
7.30%, due July 15, 1999 1,000,000 1,000,590
1,400,000 1,383,782
TOTAL CORPORATE BONDS 17,431,762 17,250,521
(Cost $17,550,026)
ASSET-BACKED BONDS - 7.41%
California Infrastructure & Economic
Development Bank Special Purpose Trust
6.14%, due March 25, 2002 305,111 306,512
6.22%, due March 25, 2004 300,000 299,250
6.42%, due September 25, 2008 150,000 149,172
Comed Transitional Funding Trust,
5.63%, due June 25, 2009 1,100,000 1,032,273
Green Tree Financial Corp.,
6.70%, due October 15, 2017 90,620 90,469
Green Tree Securitized Net
Interest Margin Trust,
6.90%, due February 15, 2004 120,223 119,922
MBNA Master Credit Card Trust II,
5.90%, due August 15, 2011 800,000 751,744
TOTAL ASSET-BACKED BONDS 2,865,954 2,749,342
(Cost $2,820,075)
COMMERCIAL MORTGAGE-BACKED BONDS - 4.65%
DLJ Commercial Mortgage Corp.,
6.11%, due December 10, 2007 751,459 731,732
JP Morgan Commercial Mortgage Financial Corp.,
6.507%, due October 15, 2035 250,000 241,440
Nomura Asset Securities Corporation,
6.59%, due March 17, 2028 800,000 780,376
TOTAL COMMERICAL MORTGAGE-BACKED BONDS 1,801,459 1,724,916
(Cost $1,815,427)
U.S. GOVERNMENTAL AGENCY,
U.S. GOVERNMENT SECURITIES AND
GOVERNMENT SPONSORED ENTERPRISES - 37.12%
U.S. GOVERNMENTAL AGENCY - 6.68%
Government National Mortgage Association
8.00%, due October 15, 2007 17,713 18,205
8.00%, due November 15, 2009 537,945 558,284
7.50%, due October 15, 2011 309,472 316,241
7.50%, due November 15, 2011 345,367 352,920
9.50%, due September 15, 2019 15,054 16,225
8.00%, due December 15, 2022 193,895 199,287
7.00%, due May 15, 2024 614,746 607,253
8.00%, due November 15, 2026 371,592 381,927
Small Business Administration
guaranteed development
participation certificates
9.80%, due July 1, 2008 24,609 26,361
2,430,393 2,476,703
U.S. GOVERNMENT SECURITIES - 6.00%
U.S. Treasury Bonds
11.125%, due August 15, 2003 700,000 834,862
U.S. Treasury Notes
7.25%, due August 15, 2004 250,000 265,938
5.625%, due February 15, 2006 250,000 246,250
6.50%, due October 15, 2006 850,000 877,625
2,050,000 2,224,675
*GOVERNMENT SPONSORED ENTERPRISES - 24.44%
Federal Home Loan Mortgage Corporation
8.25%, due July 1, 2008 20,239 20,745
8.00%, due January 1, 2012 471,656 486,098
9.00%, due June 1, 2016 83,963 89,551
8.00%, due May 1, 2017 40,919 42,414
9.00%, due May 15, 2021 105,463 109,516
6.00%, due November 1, 2028 1,963,599 1,850,693
Federal National Mortgage Association
5.625%, due March 15, 2001 4,425,000 4,417,832
7.00%, due December 1, 2007 71,277 70,520
5.25%, due January 15, 2009 800,000 733,432
8.25%, due January 1, 2009 14,188 14,683
7.50%, due September 1, 2011 222,879 226,501
9.25%, due October 1, 2020 45,246 48,116
6.50%, due March 1, 2029 992,175 958,372
9,256,604 9,068,473
TOTAL U.S. GOVERNMENTAL AGENCY,
U.S. GOVERNMENT SECURITIES
AND GOVERNMENT SPONSORED ENTERPRISES
13,736,997 13,769,851
(Cost $13,948,873)
REPURCHASE AGREEMENT - 4.04%
UMB Bank, n.a., 4.29%, due July 1, 1999
(Collateralized by U.S. Treasury Notes,
6.25%, due August 31, 2000
with a value of $1,530,259)
1,500,000 1,500,000
(Cost $1,500,000)
TOTAL INVESTMENTS - 99.73% 36,994,630
(Cost $37,634,401)
Other assets less liabilities - 0.27% 99,532
TOTAL NET ASSETS - 100.00% $ 37,094,162
The identified cost of investments owned at June 30, 1999 was the
same for financial statement and federal income tax purposes.
Net unrealized depreciation for federal income tax purposes was
$639,771, which is comprised of unrealized appreciation
of $112,951 and unrealized depreciation of $752,722.
*Mortgage-backed securities
See accompanying Notes to Financial Statements.
BABSON MONEY MARKET FUND
The economic tug of war between strength at home and weakness
abroad produced a roller coaster ride for money market investors
in the twelve months ended in June.
The fiscal year began with most market participants convinced
that the Federal Reserve was about to begin a round of short-term
rate increases. GDP growth had been stronger than expected and
the weakness of the Asian economies, while dampening U.S.
manufacturing, had done little to slow the American economy.
The outlook for rate hikes turned on a dime last August. The
spreading of the "Asian flu" to Russia was the catalyst that
disrupted financial markets to such a point that the Federal
Reserve had to hurriedly ease three times to prevent an
unnecessary recession. This decline in interest rates did calm
financial markets, and also unleashed a flood of mortgage
refinancings by homeowners. By permanently lowering their monthly
mortgage payments, consumers were able to dramatically increase
their level of spending.
As calendar 1999 progressed, it became apparent that the
increased consumer spending was keeping the economy very strong
and market rates began a sustained rise. Intermediate- and long-
term rates rose by 1 percent and money market rates such as six-
month commercial paper rose more than one-half percent. These
increases did not slow the economy, so on June 30, the Fed hiked
the Federal Funds rate by one-quarter of a percent. No one knows
if this tightening of monetary policy will only be the first of a
series. It is clear that the Fed will keep tightening until the
economy shows some signs of slowing.
What investors should remember from the past year is that
sentiment and markets can turn on a dime. In money market
investing, investors should focus on quality and liquidity since
the rewards for riskier strategies are meager. This has been our
policy at the Babson Money Market Fund, and we feel that it will
continue to benefit our shareholders.
The seven-day yield for Babson Money Market Fund's Prime
Portfolio was 4.10% and the Federal Portfolio was 4.00%, as of
June 30, 1999.
Money market funds are neither insured nor guaranteed by the U.S.
Government. There is no assurance that the fund will maintain a
stable net asset value of one dollar per share.
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
BABSON MONEY MARKET FUND - PRIME
PRINCIPAL MARKET
DESCRIPTION AMOUNT VALUE
SHORT-TERM CORPORATE NOTES - 76.13%
Anheuser-Busch Companies, Inc.,
4.92%, due July 19, 1999 $1,800,000 $1,795,572
Caterpillar Financial Services,
4.83%, due August 9, 1999 1,600,000 1,591,628
Coca-Cola Company,
5.00%, due September 7, 1999 1,800,000 1,783,000
duPont (E.I.) deNemours & Company,
4.83%, due July 17, 1999 1,800,000 1,795,653
Ford Motor Credit Company,
4.79%, due September 7, 1999 2,000,000 1,981,904
Fortune Brands, Inc.,
5.02%, due August 9, 1999 1,800,000 1,790,211
General Electric Capital Company,
4.73%, due July 19, 1999 1,800,000 1,795,743
General Mills, Inc.,
4.84%, due July 7, 1999 1,800,000 1,798,548
General Motors Acceptance Corp.,
4.76%, due November 3, 1999 1,800,000 1,770,250
Grainger (W.W.), Inc.,
5.00%, due July 12, 1999 1,800,000 1,797,250
Heinz (H.J.) Company,
4.82%, due July 22, 1999 1,800,000 1,794,939
Lucent Technologies, Inc.,
4.83%, due July 15, 1999 1,000,000 998,122
McGraw-Hill Companies, Inc.,
4.75%, due August 3, 1999 1,900,000 1,891,727
Proctor & Gamble Company,
4.88%, due August 2, 1999 1,800,000 1,792,192
Sara Lee Corp.,
4.82%, due July 6, 1999 1,800,000 1,798,795
Shell Oil Company,
5.00%, due July 12, 1999 1,800,000 1,797,250
Xerox Corp.,
5.04%, due September 27, 1999 1,800,000 1,777,824
TOTAL SHORT-TERM CORPORATE NOTES 29,900,000 29,750,608
(Cost $29,750,608)
GOVERNMENT SPONSORED ENTERPRISES - 11.39%
Federal Home Loan Mortgage Corporation
Discount Notes,
4.69%, due October 18, 1999 2,500,000 2,464,499
Federal National Mortgage Association
Discount Notes,
5.21%, due July 16, 1999 1,000,000 997,829
Federal National Mortgage Association
Discount Notes,
4.63%, due September 20, 1999 1,000,000 989,583
TOTAL GOVERNMENT SPONSORED ENTERPRISES 4,500,000 4,451,911
(Cost $4,451,911)
REPURCHASE AGREEMENT - 13.12%
Morgan Guaranty Trust Company,
4.60%, due July 1, 1999
(Collateralized by U.S.
Treasury Bonds,
6.875%, due August 15, 2025
with a value of $5,228,541) 5,126,000 5,126,000
(Cost $5,126,000)
TOTAL INVESTMENTS - 100.64% 39,328,519
(Cost $39,328,519)
Other assets less liabilities - (0.64%) (252,251)
TOTAL NET ASSETS - 100.00% $39,076,268
The identified cost of investments owned at June 30, 1999 was the
same for financial statement and federal income tax purposes.
See accompanying Notes to Financial Statements.
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
BABSON MONEY MARKET FUND - FEDERAL
PRINCIPAL MARKET
DESCRIPTION AMOUNT VALUE
GOVERNMENT SPONSORED ENTERPRISES - 85.04%
Federal Farm Credit Banks Discount Notes,
4.70%, due August 5, 1999 $ 500,000 $ 497,715
Federal Home Loan Banks Discount Notes,
4.51%, due October 22, 1999 1,000,000 985,844
Federal Home Loan Mortgage Corporation
Discount Notes
4.83%, due July 9, 1999 3,000,000 2,996,780
4.73%, due August 2, 1999 1,000,000 995,796
4.67%, due August 26, 1999 1,000,000 992,736
Federal National Mortgage Association
Discount Notes
4.77%, due July 1, 1999 1,500,000 1,500,000
4.73%, due July 28, 1999 1,000,000 996,452
4.71%, due September 13, 1999 1,000,000 990,318
5.00%, due September 14, 1999 1,500,000 1,484,375
TOTAL GOVERNMENT SPONSORED ENTERPRISES 11,500,000 11,440,016
(Cost $11,440,016)
REPURCHASE AGREEMENT - 14.70%
Morgan Guaranty Trust Company,
4.60%, due July 1, 1999
(Collateralized by U.S.
Treasury Bonds,
6.875%, due August 15, 2025
with a value of $2,017,560) 1,978,000 1,978,000
(Cost $1,978,000)
TOTAL INVESTMENTS - 99.74% 13,418,016
(Cost $13,418,016)
Other assets less liabilities - 0.26% 34,931
TOTAL NET ASSETS - 100.00% $ 13,452,947
The identified cost of investments owned at June 30, 1999 was
the same for financial statement and federal income tax purposes.
See accompanying Notes to Financial Statements.
Babson Tax-Free Income Fund
#For the fiscal year ended June 30, 1999 total investment returns
(price change and reinvested distributions) for the Tax-Free Long
and Short portfolios were 1.70% and 1.96%, respectively.
Portfolio MM's price remained at $1.00 and provided a return of
2.70% for the same period. The average maturities of Portfolios
L, S and MM were 13.8 years, 4.2 years and 42 days, respectively.
Tax-exempt interest rates increased during the past year as a
result of the overall weakness in the fixed income markets.
Interest rates have been on the rise due to inflationary fears
and speculation over whether the Federal Reserve Board would
raise the Federal Funds rate to slow down the economy. Most of
the increase in tax-exempt interest rates occurred during the
past four months, and therefore, 1999 year-to-date municipal
returns are negative. Coupon income was insufficient to offset
losses in principal. Shorter maturities had the best performance
and this explains why Portfolio L posted the lowest returns of
the three portfolios for the one-year period.
Currently, at two hundred basis points, the municipal yield curve
(the yield differential between one and thirty years) is twice as
steep as the Treasury curve. The front end of the curve is the
steepest and this enables investors to pick up almost one
percentage point in yield by moving from a one-year maturity to a
five-year maturity. In fact, investors can capture seventy-five
percent of the entire yield curve by investing in fifteen-year
maturities. Due to the higher level of interest rates and
reallocation of funds from over-weighted equity positions, retail
demand for municipal bonds has increased.
Over the past several years, issuance in the municipal market has
had a tremendous influence on the level of tax-exempt interest
rates. While issuance during 1998 was at near record levels, 1999
year-to-date issuance has declined considerably. Refunding
issuance declined the most because the back up in interest rates
caused many of these deals to be postponed or cancelled. This
decline in municipal issuance is in stark contrast to the
increase in corporate bond issuance during 1999. The tremendous
amount of corporate debt issuance caused corporate credit spreads
to widen out. Municipal bond quality spreads, on the other hand,
remain relatively narrow by historical standards.
Credit quality in the municipal market remains very strong. The
number of ratings upgrades continues to outnumber the number of
downgrades. A strong economy has certainly been the catalyst for
ratings upgrades, but increasingly diversified regional economies
and prudent financial management have also been key factors.
Because of the powerful national economy, state and local tax
governments are seeing greater than anticipated revenues. The tax-
backed sector continues to benefit from increasing personal and
corporate income taxes, property taxes and sales taxes.
QUALITY RATINGS
PORTFOLIO PORTFOLIO PORTFOLIO
L S MM
Aaa 51% 56% 79%
Aa 28 22 21
A 17 13 0
Lower 4 9 0
Total 100% 100% 100%
Source: Moody's
CHART - BABSON TAX-FREE INCOME FUND
PORTFOLIOS L & S VERSUS LIPPER GENERAL MUNICIPAL BOND FUNDS AND
LIPPER SHORT TERM MUNICIPAL BOND FUNDS
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
BABSON TAX-FREE INCOME FUND - PORTFOLIO L
PRINCIPAL MARKET
DESCRIPTION AMOUNT VALUE
ALABAMA
Jefferson County Sewer,
5.00%, due February 1, 2033 $ 1,000,000 $ 920,000
ARIZONA
Maricopa County Unified School District #48,
9.25%, due July 1, 2007 500,000 649,375
ARKANSAS
Arkansas, Series B,
0.00%, due June 1, 2010 1,000,000 582,500
University of Arkansas
(Athletic Facilities Fayetteville),
4.80%, due September 15, 2007 1,000,000 996,250
CALIFORNIA
Santa Rosa Water, Series B,
6.00%, due September 1, 2015 500,000 546,875
University of California, Series D,
5.75%, due July 1, 2013 1,000,000 1,050,000
COLORADO
Adams County School District #12,
6.20%, due December 15, 2010 500,000 527,500
DISTRICT OF COLUMBIA
District of Columbia, Series A,
5.75%, due June 1, 2003 35,000 36,400
District of Columbia, Series A,
5.75%, due June 1, 2003 465,000 484,762
FLORIDA
Dade County,
0.00%, due October 1, 2027 1,000,000 195,000
Florida State Public Board of Education,
Series A,
7.25%, due June 1, 2023 1,000,000 1,050,530
Miami-Dade County, Series A,
0.00%, due October 1, 2015 500,000 208,125
Palm Beach County Airport,
7.75%, due October 1, 2010 500,000 544,375
Tampa (Catholic Health Care East),
4.875%, due November 15, 2023 500,000 454,375
ILLINOIS
Chicago, Series B,
5.125%, due January 1, 2022 1,000,000 966,250
Lake County School District,
5.00%, due December 15, 2014 1,000,000 970,000
INDIANA
Indiana Bond Bank Special Program,
Series 94 A-1,
5.60%, due August 1, 2015 500,000 517,500
KANSAS
Johnson County Unified School District #229,
Series A,
4.90%, due October 1, 2011 1,000,000 985,000
LOUISIANA
St. Tammany Parish Hospital Service
District #2 (Slidell Memorial Hospital
& Medical Center),
6.125%, due October 1, 2011 500,000 535,000
MASSACHUSETTS
Massachusetts Health & Education, Series D,
5.75%, due July 1, 2014 500,000 513,750
Massachusetts Housing Finance Agency
Projects, Series A,
6.375%, due April 1, 2021 975,000 1,028,625
MICHIGAN
Michigan State Hospital Finance Authority
(Mercy Health Services), Series Q,
5.375%, due August 15, 2026 500,000 488,750
NEVADA
Clark County School District, Series A,
6.75%, due March 1, 2007 500,000 521,250
Nevada (Natural Resources), Series C,
5.375%, due May 15, 2017 500,000 499,375
NEW HAMPSHIRE
New Hampshire Higher Education &
Health Facility (Concord Hospital),
5.70%, due October 1, 2010 500,000 526,875
New Hampshire Higher Education &
Health Facility (Franklin Pierce Law Center),
5.50%, due July 1, 2018 500,000 476,875
NEW JERSEY
New Jersey Turnpike,
10.375%, due January 1, 2003 115,000 128,369
NEW YORK
Battery Park City, Series A,
5.00%, due November 1, 2004 1,000,000 1,021,250
New York City Municipal Water
Financing Authority, Series A,
6.80%, due June 15, 2004 1,000,000 1,056,250
New York Dormitory
(State University Education Facility),
Series B,
6.10%, due May 15, 2008 1,000,000 1,087,500
New York Environmental, Series B,
6.65%, due September 15, 2013 500,000 540,000
RHODE ISLAND
Rhode Island Depositors
Economic Protection Corp., Series B,
5.80%, due August 1, 2009 500,000 531,250
Rhode Island Industrial Facility Corp.,
9.125%, due October 1, 2000 40,000 40,158
TEXAS
San Antonio Electric & Gas,
5.75%, due February 1, 2011 295,000 303,481
San Antonio Electric & Gas,
5.75%, due February 1, 2011 205,000 214,225
Texas Public Finance, Series A,
6.00%, due February 1, 2008 500,000 533,750
VIRGINIA
Danville Industrial Development
(Danville Regional Medical Center),
6.375%, due October 1, 2014 500,000 547,500
Fairfax County Industrial Development,
5.50%, due August 15, 2009 500,000 513,750
Virginia State University,
5.75%, due May 1, 2021 500,000 513,750
WASHINGTON
Tacoma Conservation System Project
(Tacoma Public Utilities),
6.50%, due January 1, 2012 500,000 538,125
Washington, Series DD-13,
5.875%, due March 1, 2014 500,000 525,000
Washington Public Power Supply System
Nuclear Project #2, Series 94 A,
5.375%, due July 1, 2011 500,000 504,375
WISCONSIN
Wisconsin Public Power,
5.90%, due July 1, 2011 500,000 530,625
TOTAL INVESTMENTS - 98.08% 25,404,675
(Cost $24,551,804)
Other assets less liabilities - 1.92% 497,706
TOTAL NET ASSETS - 100.00% $ 25,902,381
The identified cost of investments owned at June 30, 1999 was the
same for financial statement and federal income tax purposes.
Net unrealized appreciation for federal income tax purposes was
$852,871, which is comprised of unrealized appreciation
of $1,029,154 and unrealized depreciation of $176,283.
See accompanying Notes to Financial Statements.
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
BABSON TAX-FREE INCOME FUND - PORTFOLIO S
PRINCIPAL MARKET
DESCRIPTION AMOUNT VALUE
ARIZONA
Chandler,
6.90%, due July 1, 2005 $ 1,000,000 $ 1,055,000
Maricopa County Unified School District #93,
6.40%, due July 1, 2005 500,000 542,500
ARKANSAS
University of Arkansas
(Athletic Facilities Fayetteville),
4.50%, due September 15, 2003 500,000 502,500
COLORADO
Jefferson County School District #R-001,
Series A,
6.00%, due December 15, 2006 500,000 542,500
DISTRICT OF COLUMBIA
District of Columbia, Series A,
5.75%, due June 1, 2003 465,000 484,763
District of Columbia, Series A,
5.75%, due June 1, 2003 35,000 36,400
GUAM
Guam Government Limited Obligation,
Series A,
5.75%, due May 1, 2001 500,000 515,000
ILLINOIS
Du Page & Will Counties Community
School District #204,
7.25%, due December 30, 2004 500,000 565,000
INDIANA
Kokomo-Center School Building Corp.,
6.75%, due July 15, 2007 250,000 281,563
MASSACHUSETTS
Massachusetts Health & Education
(Milford-Whitinsville Regional), Series C,
4.75%, due July 15, 2003 500,000 496,250
Massachusetts Housing Finance Agency Projects,
Series A, 5.35%, due April 1, 2003 500,000 516,250
MICHIGAN
Utica Community Schools,
5.375%, due May 1, 2005 500,000 520,000
MISSOURI
Jackson County Industrial Development
Authority (St. Joseph Health Center),
4.60%, due July 1, 2001 500,000 503,750
Sikeston Electric,
5.80%, due June 1, 2002 500,000 520,625
NEVADA
Washoe County Hospital, Series A,
5.25%, due June 1, 2001 500,000 510,000
Washoe County (Reno Sparks Bowling Facility),
Series A, 5.40%, due July 1, 2006 500,000 518,125
NEW MEXICO
Las Cruces School District,
6.125%, due August 1, 2000 500,000 512,585
NEW YORK
Battery Park City,
6.00%, due November 1, 2003 500,000 530,625
Metropolitan Transportation,
5.00%, due April 1, 2008 500,000 503,750
New York Medical Care Finance Agency, Series F,
6.00%, due August 15, 2002 500,000 523,125
New York Medical Care Finance Agency, Series A,
5.40%, due August 15, 2004 285,000 288,562
New York State Dormitory,
5.35%, due November 1, 2005 500,000 519,375
New York State,
5.00%, due April 1, 2009 500,000 501,250
NORTH CAROLINA
North Carolina Eastern Municipal Power Agency,
Series 93 B,
5.375%, due January 1, 2001 500,000 503,750
OHIO
Columbus City School District,
6.65%, due December 1, 2012 500,000 546,250
Ohio Special Obligation, Series A,
5.55%, due June 1, 2000 500,000 509,235
Ohio State Building Authority,
4.00%, due October 1, 2004 250,000 243,750
PENNSYLVANIA
North Hampton County,
4.20%, due August 15, 2008 500,000 475,625
TENNESSEE
Shelby County,
4.75%, due June 1, 2009 500,000 491,875
Tennessee Housing Development Agency,
Series A,
4.95%, due July 1, 2000 500,000 505,415
TEXAS
Fort Bend County,
4.55%, due October 1, 2011 500,000 500,980
Houston, Series C,
5.90%, due March 1, 2003 140,000 145,425
Houston, Series C,
5.90%, due March 1, 2003 360,000 373,950
San Antonio Water,
0.00%, due May 1, 2010 1,250,000 604,325
WASHINGTON
Washington Public Power Supply System
Nuclear Project #2, Series B,
5.10%, due July 1, 2004 500,000 513,750
Washington Public Power Supply System
Nuclear Project #2, Series B,
7.50%, due July 1, 2004 300,000 317,178
Washington, Series B,
5.00%, due January 1, 2008 500,000 502,500
WISCONSIN
Chippewa Valley Techonologies College
District, Series A,
4.75%, due April 1, 2007 500,000 498,125
Milwaukee County, Series A,
5.35%, due September 1, 2001 500,000 512,500
Milwaukee Metropolitan Sewer District, Series A,
7.00%, due September 1, 2000 500,000 518,750
TOTAL INVESTMENTS - 101.60% 19,252,881
(Cost $19,256,749)
Other assets less liabilities - (1.60%) (302,947)
TOTAL NET ASSETS - 100.00% $ 18,949,934
The identified cost of investments owned at June 30, 1999 was the
same for financial statement and federal income tax purposes.
Net unrealized depreciation for federal income tax purposes was
$3,868, which is comprised of unrealized appreciation
of $217,099 and unrealized depreciation of $220,967.
See accompanying Notes to Financial Statements.
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
BABSON TAX-FREE INCOME FUND - PORTFOLIO MM
PRINCIPAL MARKET
DESCRIPTION AMOUNT VALUE
ALABAMA
Montgomery Industrial,
3.30%, due July 7, 1999 $ 300,000 $ 300,000
ALASKA
Alaska Housing Finance Corp., Series C,
3.30%, due June 1, 2026* 500,000 500,000
COLORADO
Denver City & County,
7.00%, due October 1, 1999 200,000 201,945
CONNECTICUT
Connecticut, Series 97 B,
3.60%, due May 15, 2014* 200,000 200,000
Connecticut,
4.60%, due May 15, 2000 150,000 151,273
Connecticut,
3.38%, due July 1, 2000 200,000 200,000
Connecticut,
3.60%, due July 1, 1999 200,000 200,000
Redding,
5.85%, due April 15, 2000 175,000 178,092
FLORIDA
Dade County Water & Sewer System,
3.30%, due October 5, 2022* 400,000 400,000
Dade County (Florida Power & Light),
3.40%, due June 1, 2021 200,000 200,000
GEORGIA
Metro Atlanta Rapid Transit Authority,
5.50%, due July 1, 1999 175,000 175,000
Municipal Gas Authority, Series 97 B,
3.30%, due September 1, 2007 200,000 200,000
De Kalb Private Hospital Authority
(Egleston Childrens Hospital), Series A,
3.35%, due March 1, 2024* 300,000 300,000
ILLINOIS
Illinois Health Facilties
(Rush-Presbyterian, St. Lukes), Series B,
3.50%, due November 15, 2023* 200,000 200,000
Lake County Industrial,
3.00%, due December 15, 1999 190,000 190,000
Northbrook,
3.75%, due November 1, 1999 500,000 500,985
INDIANA
St. Joseph County Education Facilities
(University of Notre Dame),
3.60%, due March 1, 2033* 300,000 300,000
MICHIGAN
Michigan State Building Authority,
3.15%, due August 5, 1999 200,000 200,000
Michigan State Building Authority, Series I,
4.90%, due October 1, 1999 100,000 100,405
MISSISSIPPI
Jackson County, Series 92,
3.40%, due June 1, 2023* 200,000 200,000
MISSOURI
Missouri Health & Education Facilities
Authority (Washington University), Series B,
3.45%, due September 1, 2030* 200,000 200,000
MONTANA
Montana, Series C,
4.50%, due August 1, 1999 100,000 100,125
NEBRASKA
Omaha Public Power District,
4.30%, due February 1, 2000 100,000 100,569
NEW MEXICO
Albuquerque Airport, Series 95,
3.30%, due July 1, 2014* 200,000 200,000
Hurley (British Petroleum),
3.40%, due December 1, 2015* 200,000 200,000
NEW JERSEY
Bergen County,
6.35%, due January 15, 2000 180,000 182,943
NEW YORK
New York City Municipal Water
Finance Authority, Series G,
3.40%, due June 15, 2024* 200,000 200,000
Port Authority of New York/New Jersey,
3.40%, due June 1, 2020 100,000 100,000
NORTH CAROLINA
Charlotte Airport, Series 93 A,
3.30%, due July 1, 2016* 300,000 300,000
Raleigh Durham Airport Authority,
3.45%, due November 1, 2005 100,000 100,000
Winston-Salem Water & Sewer System,
3.35%, due June 1, 2014* 200,000 200,000
OHIO
Ohio Highway, 4.80%, due May 1, 2000 100,000 101,054
Ohio State University,
3.13%, due August 26, 1999 300,000 300,000
RHODE ISLAND
Rhode Island Correction Facility,
6.85%, due August 1, 1999 150,000 153,384
TENNESSEE
Tennessee, Series 98 C,
3.30%, due July 2, 2001* 200,000 200,000
TEXAS
Harris County, Series A,
3.25%, due July 14, 1999 100,000 100,000
Harris County, Series B,
3.05%, due July 19, 1999 200,000 200,000
Lone Star Airport Improvement Authority,
Series B-4, 3.85%, due
December 1, 2014* 100,000 100,000
Lower Neches Valley Authority
Industrial Development Corp.,
3.30%, due February 1, 2004* 500,000 500,000
Southwest Higher Education Authority, Series 85,
3.45%, due July 1, 2015* 300,000 300,000
UTAH
Utah Transit Authority,
3.65%, due May 1, 2028* 400,000 400,000
Intermountain Power Agency,
3.125%, due September 15, 1999 200,000 200,000
WASHINGTON
Seattle Municipal Light & Power,
3.30%, due November 1, 2018 200,000 200,000
Washington, Series 96 B,
3.40%, due June 1, 2020* 200,000 200,000
Washington Public Power Supply System
Nuclear Project #1, Series 1A-1,
3.40%, due July 1, 2017* 100,000 100,000
WISCONSIN
Oak Creek (Wisconsin Electric Power Co),
3.45%, due August 1, 2016 400,000 400,000
Sheboygan (Wisconsin Power & Light Co),
3.75%, due August 1, 2014* 300,000 300,000
Milwaukee County, Series A,
5.10%, due September 1, 1999 100,000 100,307
Wisconsin, Series 1,
4.80%, due November 1, 1999 100,000 100,526
WYOMING
Sublette County,
3.40%, due November 1, 2014 300,000 300,000
TOTAL INVESTMENTS - 105.18% 11,036,608
(Cost $11,036,608)
Other assets less liabilities - (5.18%) (543,478)
TOTAL NET ASSETS - 100.00% $ 10,493,130
The identified cost of investments owned at June 30, 1999 was the
same for financial statement and federal income tax purposes.
*Variable rate security
See accompanying Notes to Financial Statements.
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1999
(IN THOUSANDS EXCEPT PER SHARE DATA)
BABSON BABSON BABSON SHADOW BABSON
ENTERPRISE ENTERPRISE II GROWTH STOCK VALUE
FUND FUND FUND FUND FUND
ASSETS:
Investments at cost $144,454 $61,738 $292,482 $40,833 $851,750
Investments at value $158,320 $77,455 $497,031 $50,084 $1,243,393
Cash denominated in foreign currencies
(cost $38) - - - - -
Cash 4 - - - -
Receivables:
Investments sold 573 110 - - 559
Dividends 197 80 280 62 1,211
Interest 1 - 1 - 3
Fund shares sold - 60 - 308 606
Foreign tax - - - - -
Other - - - - -
Prepaid registration fees - - - - -
Total assets 159,095 77,705 497,312 50,454 1,245,772
LIABILITIES AND NET ASSETS:
Cash overdraft - 22 2,027 142 855
Payables:
Management fees 137 73 312 31 987
Registration fees - - - - -
Dividends - - - - -
Investments purchased 3,579 301 4,632 - -
Fund share redemptions - - - - -
Foreign tax withholding - - - - -
Other - - - 8 -
Total liabilities 3,716 396 6,971 181 1,842
NET ASSETS $155,379 $77,309 $490,341 $50,273 $1,243,930
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in
capital) $129,588 $59,700 $251,566 $39,681 $793,400
Undistributed net investment income 287 48 - 191 450
Undistributed net realized gain (loss)
from investment transactions and
foreign currency transactions 11,638 1,844 34,226 1,150 58,437
Net unrealized appreciation
(depreciation) of investments and
translation of assets and liabilities
in foreign currencies 13,866 15,717 204,549 9,251 391,643
NET ASSETS APPLICABLE TO
OUTSTANDING SHARES $155,379 $77,309 $490,341 $50,273 $1,243,930
Capital shares, $1.00 par value
Authorized 20,000 10,000 100,000 10,000 50,000
Outstanding 10,556 3,158 24,508 4,168 24,219
NET ASSET VALUE PER SHARE $14.72 $24.48 $20.01 $12.06 $51.36
See accompanying Notes to Financial Statements.
ASSETS:
BABSON BABSON BABSON BABSON BABSON BABSON BABSON BABSON
STEWART BOND BOND MONEY MONEY TAX-FREE TAX-FREE TAX-FREE
IVORY TRUST TRUST MARKET MARKET INCOME INCOME INCOME
INTER- PORTFOLIO PORTFOLIO FUND FUND FUND FUND FUND
NATIONAL L S PRIME FEDERAL PORTFOLIO PORTFOLIO PORTFOLIO
FUND PORTFOLIO PORTFOLIO L S MM
$62,719 $120,977 $37,635 $39,329 $13,418 $4,552 $19,257 $11,037
$82,073 $118,872 $36,995 $39,329 $13,418 $25,405 $19,253 $11,037
38 - - - - - - -
- 855 425 - 79 201 - -
1,782 75 8 - - - - -
160 - - - - - - -
- 1,806 585 1 - 417 308 66
4,633 27 - - - - - -
97 - - - - - - -
- 37 26 - - - - -
- - - 13 9 - - -
88,783 121,672 38,039 39,343 13,506 26,023 19,561 11,103
- - - 109 - - 532 377
69 90 19 28 10 20 15 5
- - - - - 6 5 2
- 573 178 130 43 95 59 26
- 935 748 - - - - 200
83 10 - - - - - -
18 - - - - - - -
3 - - - - - - -
173 1,608 945 267 53 121 611 610
$88,610 $120,064 $37,094 $39,076 $13,453 $25,902 $18,950 $10,493
$62,489 $125,477 $39,722 $39,083 $13,453 $24,893 $18,854 $10,493
(488) - - - - - - -
7,269 (3,308) (1,988) (7) - 156 99 -
19,340 (2,105) (640) - - 853 (4) -
$88,610 $120,064 $37,094 $39,076 $13,453 $25,902 $18,950 $10,493
10,000 UnlimitedUnlimited 1,000,000 1,000,000 50,000 50,000 100,000
4,549 78,931 3,864 39,061 13,451 2,906 1,795 10,487
$19.48 $1.52 $9.60 $1.00 $1.00 $8.91 $10.56 $1.00
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, EXCEPT AS INDICATED
(IN THOUSANDS)
BABSON BABSON BABSON SHADOW BABSON
ENTERPRISE ENTERPRISE GROWTH STOCK VALUE
FUND FUND II FUND FUND FUND
1999(1) 1998(2) 1999(1) 1998(2) 1999 1999 1999(1)
INVESTMENT INCOME:
Dividends $1,200 $2,545 $550 $1,141 $3,443 $876 $14,610
Interest 87 282 26 230 696 91 773
Foreign tax withheld - - - - - - (149)
1,287 2,827 576 1,371 4,139 967 15,234
EXPENSES:
Management fees 990 2,199 513 999 3,700 375 7,202
Registration fees 10 26 15 32 32 44 68
Custody and pricing
service fees - - - - - 94 -
Total expenses
before voluntary
reduction of
management fees 1,000 2,225 528 1,031 3,732 513 7,270
Less: voluntary
reduction of
management fees - - - - - - -
Net expenses 1,000 2,225 528 1,031 3,732 513 7,270
Net investment income 287 602 48 340 407 454 7,964
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain
(loss) from:
Investment
transactions 11,805 28,111 1,859 4,678 78,657 3,419 68,640
Foreign currency
transactions - - - - - - -
Net unrealized
appreciation
(depreciation)
during the period
on:
Investments (6,426) (51,434) 5,370 (10,623) (2,914) (4,111) 84,680
Translation of
assets and
liabilities in
foreign currencies - - - - - - -
Net gain (loss) on
investments and
foreign currency 5,379 (23,323) 7,229 (5,945) 75,743 (692) 153,320
Net increase
(decrease) in net
assets resulting
from operations $5,666 $(22,721) $7,277 $(5,605)$76,150 $(238)$161,284
(1) For the seven month period ended June 30, 1999.
(2) For the fiscal year ended November 30, 1998.
See accompanying Notes to Financial Statements.
Babson Babson Babson Babson Babson
Babson- Money Money Tax-Free Tax-Free Tax-Free
Stewart Ivory Market Market Income Income Income
Babson Inter- Babson Bond Trust Babson Bond Trust Fund Fund Fund Fund Fund
Value nationalPortfolioPortfolio PortfolioPortfolio Prime FederalPortfolioPortfolioPortfolio
Fund Fund L L S S PortfolioPortfolio L S MM
1998(2) 1999 1999(1) 1998(2) 1999(1) 1998(2) 1999 1999 1999 1999 1999
$31,990 $1,428 $- $- $- $- $- $- $- $- $-
2,872 92 4,895 8,902 1,428 2,557 2,013 710 1,440 999 374
- (155) - - - - - - - - -
34,862 1,365 4,895 8,902 1,428 2,557 2,013 710 1,440 999 374
14,844 885 692 1,226 215 370 330 118 259 197 6
204 27 15 26 5 7 13 4 15 12 58
- 233 - - - - - - - - -
15,048 1,145 707 1,252 220 377 343 122 274 209 64
- - - - (71) (117) - - - -
15,048 1,145 707 1,252 149 260 343 122 274 209 64
19,814 220 4,188 7,650 1,279 2,297 1,670 588 1,166 790 310
75,274 10,042 97 2,150 156 337 - - 157 107 -
- (925) - - - - - - - - -
(55,316) (4,705) (5,777) 394 (1,355) 155 - - (827) (472) -
- (14) - - - - - - - - -
19,958 4,398 (5,680) 2,544 (1,199) 492 - - (670) (365) -
$39,772 $4,618 $(1,492) $10,194 $80 $2,789 $1,670 $588 $496 $425 $310
Statements of Changes in Net Assets
FOR THE YEAR ENDED JUNE 30, EXCEPT AS INDICATED
(IN THOUSANDS)
BABSON ENTERPRISE FUND BABSONENTERPRISE FUND II
1999(1) 1998(2) 1997(3) 1999(1) 1998(2) 1997(3)
OPERATIONS:
Net investment
income $287 $602 $615 $48 $340 $165
Net realized
gain from investment
and foreign
currency transactions 11,805 28,111 24,456 1,859 4,678 6,574
Net unrealized
appreciation
(depreciation)on
investments and
translation of assets
and liabilities in
foreign currencies
during the period (6,426) (51,434) 33,258 5,370 (10,623) 11,080
Net increase
(decrease)
in net assets
resulting from
operations 5,666 (22,721) 58,329 7,277 (5,605) 17,819
Net equalization
included in the
price of shares
issued and redeemed - (78) (97) - 72 147
DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment
income (531) (607) - (174) (154) (235)
Net realized gain
from investment
transactions (26,217) (24,566) (27,062) (3,718) (6,554) (6,251)
Total
distributions
to shareholders (26,748) (25,173) (27,062) (3,892) (6,708) (6,486)
CAPITAL SHARE
TRANSACTIONS:*
Shares sold 3,937 7,033 9,796 10,618 41,623 48,745
Reinvested
distributions 25,039 23,501 25,690 3,737 6,442 6,306
28,976 30,534 35,486 14,355 48,065 55,051
Shares repurchased (31,806) (19,465) (52,241) (23,385) (34,570)(30,458)
Net increase
(decrease)
from capital
share transactions (2,830) 11,069 (16,755) (9,030) 13,495 24,593
Net increase
(decrease)
in net assets (23,912) (36,903) 14,415 (5,645) 1,254 36,073
NET ASSETS:
Beginning of period 179,291 216,194 201,779 82,954 81,700 45,627
End of period $155,379 $179,291 $216,194 $77,309 $82,954 $81,700
Undistributed net
investment income
at end of period $287 $643 $1,548 $48 $480 $405
*Fund share transactions:
Shares sold 287 389 552 481 1,679 2,016
Reinvested
distributions 1,817 1,279 1,588 174 265 311
2,104 1,668 2,140 655 1,944 2,327
Shares repurchased (2,329) (1,074) (2,854) (1,072) (1,428) (1,273)
Net increase
(decrease) in
fund shares (225) 594 (714) (417) 516 1,054
(1) For the seven month period ended June 30, 1999.
(2) For the fiscal year ended November 30, 1998.
(3) For the fiscal year ended November 30, 1997.
See accompanying Notes to Financial Statements.
BABSON-STEWARTIVORY
BABSON GROWTH SHADOW STOCK BABSON VALUE INTERNATIONAL FUND
FUND FUND FUND FUND
1999 1998 1999 1998 1999(1) 1998(2) 1997(3) 1999 1998
$407 $1,251 $454 $288 $7,964 $19,814 $13,631 $220 $389
78,657 66,315 3,419 6,818 68,640 75,274 43,841 9,117 6,390
(2,914) 28,509 (4,111) 2,320 84,680 (55,316) 215,582 (4,719) (404)
76,150 96,075 (238) 9,426 161,284 39,772 273,054 4,618 6,375
- (15) - (12) - 1,006 4,673 - -
(435) (1,286) (283) (350) (11,954) (17,864) (12,080) (196) (347)
(89,064) (29,518) (3,971) (6,317) (60,876) (43,880) (12,342) (4,016) (5,120)
(89,499) (30,804) (4,254) (6,667) (72,830) (61,744) (24,422) (4,212) (5,467)
68,166 60,232 16,595 51,683 183,659 513,526 676,854 141,384 41,330
82,101 28,406 3,827 6,122 59,332 49,896 18,924 3,579 4,600
150,267 88,638 20,422 57,805 242,991 563,422 695,778 144,963 45,930
(97,578) (68,117) (17,176) (50,355) (581,111) (468,037) (293,897) (161,163) (53,066)
52,689 20,521 3,246 7,450 (338,120) 95,385 401,881 (16,200) (7,136)
39,340 85,777 (1,246) 10,197 (249,666) 74,419 655,186 (15,794) (6,228)
451,001 365,224 51,519 41,322 1,493,596 1,419,177 763,991 104,404 110,632
$490,341 $451,001 $50,273 $51,519$1,243,930$1,493,596$1,419,177 $88,610 $104,404
$- $49 $191 $34 $450 $17,971 $16,435 $(488) $183
3,360 3,112 1,433 3,766 3,842 10,705 16,489 7,620 2,161
4,205 1,617 340 490 1,320 1,109 470 194 262
7,565 4,729 1,773 4,256 5,162 11,814 16,959 7,814 2,423
(4,770) (3,537) (1,497) (3,652) (12,441) (10,053) (6,991) (8,579) (2,773)
2,795 1,192 276 604 (7,279) 1,761 9,968 (765) (350)
150,267 88,638 20,422 57,805 242,991 563,422 695,778 144,963 45,930
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED JUNE 30, EXCEPT AS INDICATED
(IN THOUSANDS)
BABSON BOND TRUST - BABSONBOND TRUST -
PORTFOLIO L PORTFOLIO S
1999(1) 1998(2) 1997(3) 1999(1) 1998(2) 1997(3)
OPERATIONS:
Net investment
income $4,188 $7,650 $8,568 $1,279 $2,297 $2,499
Net realized
gain (loss) from
investment
transactions 97 2,150 (546) 156 337 (443)
Net unrealized
appreciation
(depreciation)
on investments
during the period (5,777) 394 876 (1,355) 155 569
Net increase
(decrease) in
net assets
resulting from
operations (1,492) 10,194 8,898 80 2,789 2,625
DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment
income (4,188) (7,650) (8,568) (1,279) (2,297) (2,499)
Net realized gain
from investment
transactions - - - - - -
Total from
distributions
to shareholders (4,188) (7,650) (8,568) (1,279) (2,297) (2,499)
CAPITAL SHARE
TRANSACTIONS:*
Shares sold 20,367 23,231 19,321 6,269 6,842 14,583
Reinvested
distributions 2,940 6,273 6,988 943 2,008 2,075
23,307 29,504 26,309 7,212 8,850 16,658
Shares repurchased (25,749) (36,335) (36,426) (7,377) (11,448) (10,395)
Net increase
(decrease) from
capital share
transactions (2,442) (6,831) (10,117) (165) (2,598) 6,263
Net increase
(decrease)
in net assets (8,122) (4,287) (9,787) (1,364) (2,106) 6,389
NET ASSETS:
Beginning of period 128,186 132,473 142,260 38,458 40,564 34,175
End of period $120,064 $128,186 $132,473 $37,094 $38,458 $40,564
Undistributed net
investment income
at end of period $- $260 $260 $- $- $-
*Fund share
transactions:
Shares sold 12,849 14,688 12,616 638 692 1,511
Reinvested
distributions 1,880 3,973 4,566 96 203 215
14,729 18,661 17,182 734 895 1,726
Shares repurchased (16,326) (23,027) (23,793) (751) (1,161) (1,076)
Net increase
(decrease)
in fund shares (1,597) (4,366) (6,611) (17) (266) 650
(1) For the seven month period ended June 30, 1999.
(2) For the fiscal year ended November 30, 1998.
(3) For the fiscal year ended November 30, 1997.
See accompanying Notes to Financial Statements.
Babson Babson Babson Babson Babson
Money Market Money Market Tax-Free Income Tax-Free Income Tax-Free Income
Fund Fund Fund Fund Fund
Prime Portfolio Federal Portfolio Portfolio L Portfolio S Portfolio MM
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
$1,670 $1,769 $588 $586 $1,166 $1,223 $790 $897 $310 $334
- - - - 157 220 107 74 - -
- - - - (827) 635 (472) 80 - -
1,670 1,769 588 586 496 2,078 425 1,051 310 334
(1,670) (1,769) (588) (586) (1,166) (1,223) (790) (897) (310) (334)
- - - - (221) (66) (51) (63) - -
(1,670) (1,769) (588) (586) (1,387) (1,289) (841) (960) (310) (334)
41,648 35,310 13,595 11,233 1,283 1,816 737 1,145 10,230 16,715
1,563 1,678 566 561 757 714 574 599 277 262
43,211 36,988 14,161 11,794 2,040 2,530 1,311 1,744 10,507 16,977
(40,853) (38,544) (13,014) (12,688) (2,541) (3,268) (3,290) (3,426) (10,283) (16,158)
2,358 (1,556) 1,147 (894) (501) (738) (1,979) (1,682) 224 819
2,358 (1,556) 1,147 (894) (1,392) 51 (2,395) (1,591) 224 819
36,718 38,274 12,306 13,200 27,294 27,243 21,345 22,936 10,269 9,450
$39,076 $36,718 $13,453 $12,306 $25,902 $27,294 $18,950 $21,345 $10,493 $10,269
$- $- $- $- $- $- $1 $- $- $-
41,657 35,310 13,594 11,233 131 198 65 106 10,230 16,715
1,563 1,678 566 561 83 78 53 55 277 262
43,220 36,988 14,160 11,794 214 276 118 161 10,507 16,977
(39,081) (38,544) (12,997) (12,688) (269) (356) (302) (317) (10,283) (16,158)
4,139 (1,556) 1,163 (894) (55) (80) (184) (156) 224 819
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES:
The Babson Enterprise Fund, Babson Enterprise Fund II, David L. Babson Growth
Fund, Shadow Stock Fund, Babson Value Fund, Babson-Stewart Ivory International
Fund, D.L. Babson Bond Trust, D.L. Babson Money Market Fund and D.L. Babson Tax-
Free Income Fund (collectively referred to herein as the "Funds") are registered
under the Investment Company Act of 1940, as amended, as no-load open-end,
diversified management investment companies. The D.L. Babson Bond Trust
(comprising of Portfolio L and S), D.L. Babson Money Market Fund (comprising of
Prime and Federal Portfolios) and D.L. Babson Tax-Free Income Fund (comprising
of Portfolio L, S and MM) are of a series type. The Funds are required to
account for the assets of each Series separately and to allocate general
liabilities of a Fund to each Series based upon the net asset value of each
Series. The following is a summary of significant accounting policies
consistently followed by the Funds in preparation of their financial statements.
In 1999, the Funds' Board of Directors approved a change in the Babson
Enterprise Fund, Babson Enterprise Fund II, Babson Value Fund and D.L. Babson
Bond Trust fiscal year end from November 30 to June 30. As a result, this
financial report reflects the seven month period from December 1, 1998 through
June 30, 1999 for these Funds.
A. Investment Valuation - Securities are valued at the latest sales price for
securities traded on a principal exchange (U.S. or foreign) and on the NASDAQ
National Market. Securities traded on over-the-counter markets and listed
securities
for which no sales are reported are valued at the mean between the last reported
bid and asked prices. When market quotations are not readily available,
securities are valued at fair value as determined in good faith by the Board of
Directors. Short-term securities maturing within 60 days are valued at amortized
cost, which approximates market value. Foreign securities are converted to U.S.
dollars using exchange rates in London last quoted by a major bank. If such
quotations are not available as of 4:00 P.M. (Eastern Time), the rate of
exchange will be determined in good faith by the Board of Directors.
B. Investment Transactions and Investment Income - Security transactions are
accounted for on the date the securities are purchased or sold. Dividend income
less foreign taxes withheld (if any) is recorded on the ex-dividend date.
Interest income is recognized on the accrual basis and includes accretion of
market discounts. Premiums on debt securities are not amortized, except for D.L.
Babson Tax-Free Income Fund which amortizes premiums. Realized gains and losses
from investment transactions and unrealized appreciation and depreciation of
investments are reported on the identified cost basis.
C. Foreign Currency Translation - All assets and liabilities expressed in
foreign currencies are converted into U.S. dollars based on exchange rates last
quoted by a major bank in London at the end of the period. The cost of portfolio
securities is translated at the rates of exchange prevailing when acquired.
Dividend income is translated at the rate of exchange on the ex-dividend date.
The effects of changes in foreign currency exchange rates on investments in
securities are included in net realized and unrealized gain (loss) on
investments in the Statement of Operations.
D. Forward Foreign Currency Contracts - The Babson-Stewart Ivory International
Fund may enter into forward foreign
currency contracts as a way of managing foreign exchange rate risk. The
portfolio may enter into these contracts to fix the U.S. dollar value of a
security that it has agreed to buy or sell for the period between the date the
trade was entered into and the date the security is delivered and paid for.
These
contracts may also be used to hedge the U.S. dollar value of securities owned
which are denominated in foreign currencies.
Forward foreign currency contracts are valued each day at the close of the New
York Stock Exchange at the forward rate, and are marked-to-market daily. The
change in market value is recorded as an unrealized gain or loss. When the
contract is closed, a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and closed is recorded.
he use of forward foreign currency contracts does not eliminate fluctuations in
the underlying prices of the securities, but it does establish a rate of
exchange that can be achieved in the future. Although forward foreign currency
contracts limit the risk of loss due to a decline in the value of the hedged
currency, they also limit a potential gain that might result should the value of
the currency increase. These contracts involve market risk in excess of the
amount reflected in the Statement of Assets and Liabilities. The face or
contract amount in U.S. dollars reflects the total exposure the portfolio has in
that particular currency contract. In addition, there could be exposure to risks
(limited to the amount of unrealized gains) if the counterparties to the
contracts are unable to meet the terms of their contracts.
E. Federal and State Taxes - The Funds complied with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
therefore, no provision for federal or state tax is required. At June 30, 1999,
the D.L. Babson Money Market Prime Portfolio, D.L. Babson Bond Trust Portfolio L
and D.L. Babson Bond Trust Portfolio S have accumulated net realized losses on
sales of investments for federal income tax purposes of $7,368 (expiring $67 in
2000, $56 in 2001, $81 in 2002, $6,722 in 2003, $306 in 2005 and $136 in 2006),
$3,307,631 (expiring $970,985 in 2002, $423,327 in 2003, $1,367,653 in 2004 and
$545,666 in 2005) and $1,988,385 (expiring $579,476 in 2002, $388,485 in 2003,
$577,562 in 2004 and $442,862 in 2005), respectively, which are available to
offset future taxable gains.
For corporate shareholders, the following percentages of ordinary income
distributions qualify for the corporate dividends received deduction:
fund percentage
Enterprise 100%
Enterprise II 70%
Growth 19%
Shadow Stock 100%
Value 33%
The following percentages of ordinary income distributions are exempt-interest
dividends for federal income tax purposes:
fund percentage
Tax-Free Income - Portfolio L 100%
Tax-Free Income - Portfolio S 100%
Tax-Free Income - Portfolio MM 100%
For federal income tax purposes, the Funds designate capital gain dividends as
follows:
fund
Enterprise $26,217,600
Enterprise II 3,718,579
Growth 76,170,304
Shadow Stock 3,565,056
Value 60,875,853
Stewart Ivory International 2,877,019
Bond - Portfolio L -
Bond - Portfolio S -
Money Market - Prime -
Money Market - Federal -
Tax-Free Income - Portfolio L 215,463
Tax-Free Income - Portfolio S 42,689
Tax-Free Income - Portfolio MM -
F. Equalization - Prior to December 1, 1998, the Babson Enterprise Fund, Babson
Enterprise Fund II, David L. Babson Growth Fund, Shadow Stock Fund and Babson
Value Fund used equalization accounting, by which a portion of the proceeds from
sales and costs of redemption of fund shares is credited or charged to
undistributed net investment income so that income per share available for
distribution is not affected by the sales or redemption of fund shares. As of
December 1, 1998, these Funds discontinued using equalization. This change has
no effect on the Funds' net assets, net asset value per share or distributions
to shareholders. The cumulative effect of the discontinuance of equalization
accounting was to decrease undistributed net investment income and increase
paid-in-capital as of December 1, 1998 for the Babson Enterprise Fund, Babson
Enterprise Fund II, David L. Babson Growth Fund, Shadow Stock Fund, Babson Value
Fund by $111,919, $306,310, $4,345, $331 and $13,531,896, respectively.
G. Distributions to Shareholders - Distributions to shareholders are recorded on
ex-dividend date. Distributions are determined in accordance with federal tax
regulations and may differ from those determined in accordance with generally
accepted accounting principles. These differences are primarily due to losses
deferred due to wash sales and foreign currency transactions.
H. Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amount reported in the financial statements and
accompanying notes. Actual results could differ from such estimates.
2. MANAGEMENT FEES:
Management fees are paid to Jones & Babson, Inc. in accordance with the advisory
agreement with the Funds. Management fees are paid for services which include
administration, and all other operating expenses of each Fund except the cost of
acquiring and disposing of portfolio securities, the taxes, if any, imposed
directly on each Fund and its shares and the cost of qualifying a Fund's shares
for sale in any jurisdiction. Certain officers and/or directors of the Funds are
also officers and/or directors of Jones & Babson, Inc. Each of the Funds was
subject to the following management fees:
Average Daily Net Annual Rate
Fund Assets of Fund Percentage
Enterprise and Up to $30 million 1.5%
Enterprise II Over $30 million 1.0%
Shadow Stock 1.0%
Growth Up to $250 million .85%
Over $250 million .70%
Value, Tax-Free Income
(Portfolio L and S), Bond
Trust (Portfolio L and S)
and Stewart Ivory
International .95%
Money Market
(Portfolio Prime and Federal) .85%
Tax-Free Income
(Portfolio MM) .50%
During the period from December 1, 1991 to March 31, 2000, fees for Bond Trust
(Portfolio S) have been voluntarily reduced to an annual rate of .65% of average
daily net assets of the portfolio.
3. INVESTMENT TRANSACTIONS:
Investment transactions for the period ended June 30, 1999 (excluding maturities
of short-term commercial notes and repurchase agreements) are as follows:
Babson Enterprise Fund:
Purchases $ 17,631,727
Proceeds from sales 48,335,601
Babson Enterprise Fund II:
Purchases $ 10,143,593
Proceeds from sales 19,215,576
Babson Growth Fund:
Purchases $ 181,619,056
Proceeds from sales 212,350,661
Shadow Stock Fund:
Purchases $ 10,111,186
Proceeds from sales 11,097,738
Babson Value Fund:
Purchases $ 160,497,590
Proceeds from sales 461,274,163
Babson-Stewart Ivory International Fund:
Purchases $ 45,175,287
Proceeds from sales 70,278,040
Babson Bond Trust - Portfolio L:
Purchases $ 47,053,756
Proceeds from sales 47,671,943
Babson Bond Trust - Portfolio S:
Purchases $ 20,807,198
Proceeds from sales 20,172,023
Babson Money Market Fund - Prime Portfolio:
Purchases $ 320,757,434
Proceeds from sales 325,352,848
Babson Money Market Fund - Federal Portfolio:
Purchases $ 157,499,169
Proceeds from sales 220,657,209
Babson Tax-Free Income Fund - Portfolio L:
Purchases $ 2,497,317
Proceeds from sales 3,579,522
Babson Tax-Free Income Fund - Portfolio S:
Purchases $ 4,480,088
Proceeds from sales 6,273,660
Babson Tax-Free Income Fund - Portfolio MM:
Purchases $ 32,447,294
Proceeds from sales 32,071,000
4. FORWARD FOREIGN CURRENCY CONTRACTS:
Following is a summary of forward foreign currency contracts that were
outstanding at June 30, 1999 for the Babson-Stewart Ivory International Fund:
Contracts to Sell Currency:
Foreign Amount To Be Net Unrealized
Settlement Currency Received In U.S. $ Value Appreciation
Date To Be Delivered U.S.$ as of 6/30/99 (depreciation)
European Euro 7/1/99 325 $334 $334 $ -
Japanese Yen 7/1/99 4,430,879 36,543 36,543 -
$36,877 $36,877 $ -
5. CHANGE IN ACCOUNTANTS (UNAUDITED):
On April 27, 1999, Arthur Andersen LLP (AA) resigned as independent accountants
for the David L. Babson Growth Fund, Inc., Shadow Stock Fund, Inc., Babson-
Stewart Ivory International Fund, Inc., D.L. Babson Money Market Fund, Inc., and
D.L. Babson Tax-Free Income Fund, Inc. (the Funds). AA's reports on the Funds'
financial statements for the past two years have not contained an adverse
opinion or a disclaimer of opinion, and have not been qualified as to
uncertainty, audit scope, or accounting principles. In addition, there have not
been any disagreements with AA during the Funds' two most recent fiscal years on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to the
satisfaction of AA, would have caused it to make a reference to the subject
matter of the disagreement in connection with its reports. The Funds' Board of
Directors, upon the recommendation of the audit committee, appointed Ernst &
Young LLP as the independent accountants for the Funds for the fiscal year
ending June 30, 1999.
FINANCIAL HIGHLIGHTS
BABSON ENTERPRISE FUND
Condensed data for a share of capital stock
outstanding throughout each period.
SEVEN MONTHS ENDED Years Ended November 30,
JUNE 30, 1999 1998 1997 1996 1995 1994
Net asset value,
beginning of period $16.63 $21.22 $18.51 $17.35 $16.64 $17.20
Income from
investment
operations:
Net investment
income .03 .04 .06 .06 .10 .03
Net gains (losses)
on securities
(both realized and
unrealized) .58 (2.15) 5.31 3.06 2.34 .57
Total from investment
operations .61 (2.11) 5.37 3.12 2.44 .60
Less distributions:
Dividends from net
investment income (.05) (.06) - (.12) (.04) (.05)
Distributions from
capital gains (2.47) (2.42) (2.66) (1.84) (1.69) (1.11)
Total distributions (2.52) (2.48) (2.66) (1.96) (1.73) (1.16)
Net asset value, end
of period $14.72 $16.63 $21.22 $18.51 $17.35 $16.64
Total return* 4.70% (11.05%) 33.49% 20.17% 16.42% 3.70%
Ratios/Supplemental
Data
Net assets, end of period
(in millions) $155 $179 $216 $202 $202 $188
Ratio of expenses to
average net assets** 1.11% 1.09% 1.08% 1.08% 1.09% 1.08%
Ratio of net investment
income to average net
assets** .32% .29% .30% .35% .67% .22%
Portfolio turnover rate 12% 22% 22% 24% 13% 15%
BABSON ENTERPRISE FUND II
Condensed data for a share of capital stock
outstanding throughout each period.
SEVEN MONTHS ENDED Years Ended November 30,
JUNE 30, 1999 1998 1997 1996 1995 1994
Net asset value,
beginning of period $23.20 $26.70 $22.7 $19.19 $16.22 $16.92
Income from
investment
operations:
Net investment
income .03 .10 .08 .11 .05 .02
Net gains (losses)
on securities
(both realized
and unrealized) 2.37 (1.50) 6.97 4.45 3.03 (.39)
Total from investment
operations 2.40 (1.40) 7.05 4.56 3.08 (.37)
Less distributions:
Dividends from net
investment income (.05) (.05) (.11) (.05) (.02) -
Distributions from
capital gains (1.07) (2.05) (2.99) (.95) (.09) (.33)
Total distributions (1.12) (2.10) (3.10) (1.00) (.11) (.33)
Net asset value, end
of period $24.48 $23.20 $26.70 $22.75 $19.19 $16.22
Total return* 11.03% (5.61%) 35.29% 25.04% 19.11% (2.32%)
Ratios/Supplemental Data
Net assets, end
of period (in millions) $77 $83 $82 $46 $40 $36
Ratio of expenses to
average net assets** 1.23% 1.22% 1.28% 1.38% 1.45% 1.50%
Ratio of net investment
income to average net
assets** .11% .40% .27% .55% .30% .14%
Portfolio turnover rate 14% 25% 25% 30% 15% 9%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
See accompanying Notes to Financial Statements.
BABSON GROWTH FUND
Condensed data for a share of capital stock
outstanding throughout each year.
YEARS ENDED JUNE 30,
1999 1998 1997 1996 1995
Net asset value, beginning of year $20.77 $17.80 $14.42 $13.43 $11.78
Income from investment operations:
Net investment income .02 .06 .09 .12 .18
Net gains (losses) on securities
(both realized and unrealized) 3.25 4.41 4.16 2.91 2.18
Total from investment operations 3.27 4.47 4.25 3.03 2.36
Less distributions:
Dividends from net investment income (.02) (.06) (.09) (.13) (.18)
Distributions from capital gains (4.01) (1.44) (.78) (1.91) (.53)
Total distributions (4.03) (1.50) (.87) (2.04) (.71)
Net asset value, end of year $20.01 $20.77 $17.80 $14.42 $13.43
Total return 17.04% 26.73% 30.10% 22.99% 20.23%
Ratios/Supplemental Data
Net assets, end of year (in millions) $490 $451 $365 $280 $247
Ratio of expenses to average net assets .79% .80% .83% .85% .85%
Ratio of net investment income to average
net assets .09% .30% .61% .82% 1.42%
Portfolio turnover rate 39% 35% 20% 33% 17%
SHADOW STOCK FUND
Condensed data for a share of capital stock
outstanding throughout each year.
YEARS ENDED JUNE 30,
1999 1998 1997 1996 1995
Net asset value, beginning of year $13.24 $12.57 $11.31 $10.55 $9.67
Income from investment operations:
Net investment income .11 .08 .12 .09 .10
Net gains (losses) on securities
(both realized and unrealized) (.24) 2.54 2.44 1.67 1.42
Total from investment operations (.13) 2.62 2.56 1.76 1.52
Less distributions:
Dividends from net investment income (.07) (.10) (.09) (.10) (.10)
Distributions from capital gains (.98) (1.85) (1.21) (.90) (.54)
Total distributions (1.05) (1.95) (1.30) (1.00) (.64)
Net asset value, end of year $12.06 $13.24 $12.57 $11.31 $10.55
Total return (.25%) 21.98% 23.63% 17.13% 16.16%
Ratios/Supplemental Data
Net assets, end of year (in millions) $50 $52 $41 $39 $39
Ratio of expenses to average net assets 1.10% 1.16% 1.13% 1.14% 1.13%
Ratio of net investment income to
average net assets .97% .56% 1.00% .79% 1.01%
Portfolio turnover rate 21% 43% 0% 25% 19%
See accompanying Notes to Financial Statements.
BABSON VALUE FUND
Condensed data for a share of capital stock
outstanding throughout each year.
SEVEN MONTHS ENDED Years Ended November 30,
JUNE 30, 1999 1998 1997 1996 1995 1994
Net asset value,
beginning of period $47.42 $47.73 $38.65 $31.78 $25.19 $25.36
Income from investment
operations:
Net investment income .45 .62 .51 .55 .59 .56
Net gains (losses) on
securities
(both realized and
unrealized) 5.90 1.09 9.65 7.20 7.20 .58
Total from investment
operations 6.35 1.71 10.16 7.75 7.79 1.14
Less distributions:
Dividends from net
investment income (.44) (.56) (.47) (.53) (.60) (.40)
Distributions from
capital gains (1.97) (1.46) (.61) (.35) (.60) (.91)
Total distributions (2.41) (2.02) (1.08) (.88) (1.20) (1.31)
Net asset value, end
of period $51.36 $47.42 $47.73 $38.65 $31.78 $25.19
Total return* 14.14% 3.85% 26.89% 24.91% 32.07% 4.51%
Ratios/Supplemental Data
Net assets, end of period
(in millions) $1,244 $1,494 $1,419 $764 $293 $120
Ratio of expenses to
average net assets** .96% .98% .97% .96% .98% .99%
Ratio of net investment
income to average
net assets** 1.05% 1.28% 1.22% 1.63% 2.12% 2.32%
Portfolio turnover rate 13% 42% 17% 11% 6% 14%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
BABSON-STEWART IVORY INTERNATIONAL FUND
Condensed data for a share of capital stock
outstanding throughout each year.
YEARS ENDED JUNE 30,
1999 1998 1997 1996 1995
Net asset value, beginning of year $19.65 $19.53 $18.04 $15.96 $16.41
Income from investment operations:
Net investment income .03 .08 .07 .07 .16
Net gains (losses) on securities
(both realized and unrealized) .66 1.07 1.70 2.85 .23
Total from investment operations .69 1.15 1.77 2.92 .39
Less distributions:
Dividends from net investment income (.04) (.07) (.05) (.08) (.17)
Distributions from capital gains (.82) (.96) (.23) (.65) (.67)
Distributions in excess of realized
capital gains - - - (.11) -
Total distributions (.86) (1.03) (.28) (.84) (.84)
Net asset value, end of year $19.48 $19.65 $19.53 $18.04 $15.96
Total return 3.76% 6.48% 9.91% 18.66% 2.54%
Ratios/Supplemental Data
Net assets, end of year (in millions) $89 $104 $111 $80 $65
Ratio of expenses to average net assets 1.23% 1.16% 1.19% 1.26% 1.30%
Ratio of net investment income to
average net assets .24% .37% .47% .44% 1.13%
Portfolio turnover rate 51% 48% 40% 33% 37%
See accompanying Notes to Financial Statements.
BABSON BOND TRUST - PORTFOLIO L
Condensed data for a share of capital stock
outstanding throughout each period.
SEVEN MONTHS ENDED Years Ended November 30,
JUNE 30, 1999 1998 1997 1996 1995 1994
Net asset value,
beginning of period $1.59 $1.56 $1.55 $1.58 $1.47 $1.67
Income from investment
operations:
Net investment income .05 .09 .10 .11 .11 .11
Net gains (losses) on
securities
(both realized and
unrealized) (.07) .03 .01 (.03) .11 (.15)
Total from investment
operations (.02) .12 .11 .08 .22 (.04)
Less distributions:
Dividends from net
investment income (.05) (.09) (.10) (.11) (.11) (.11)
Distributions from
capital gains - - - - - (.05)
Total distributions (.05) (.09) (.10) (.11) (.11) (.16)
Net asset value, end
of period $1.52 $1.59 $1.56 $1.55 $1.58 $1.47
Total return* (1.16%) 8.13% 7.26% 5.17% 15.28% (2.71%)
Ratios/Supplemental Data
Net assets, end of
period (in millions) $121 $128 $132 $142 $161 $140
Ratio of expenses to
average net assets** .97% .97% .97% .97% .97% .97%
Ratio of net investment
income to average net
assets** 5.73% 5.93% 6.38% 6.96% 7.06% 6.95%
Portfolio turnover rate 38% 43% 59% 61% 50% 40%
BABSON BOND TRUST - PORTFOLIO S
Condensed data for a share of capital stock
outstanding throughout each period.
SEVEN MONTHS ENDED Years Ended November 30,
JUNE 30, 1999 1998 1997 1996 1995 1994
Net asset value,
beginning of period $9.91 $9.78 $9.77 $9.90 $9.43 $10.48
Income from investment
operations:
Net investment income .33 .58 .62 .69 .73 .69
Net gains (losses) on
securities
(both realized and
unrealized) (.31) .13 .01 (.13) .47 (.90)
Total from investment
operations .02 .71 .63 .56 1.20 (.21)
Less distributions:
Dividends from net
investment income (.33) (.58) (.62) (.69) (.73) (.69)
Distributions from
capital gains - - - - - (.15)
Total distributions (.33) (.58) (.62) (.69) (.73) (.84)
Net asset value, end
of period $9.60 $9.91 $9.78 $9.77 $9.90 $9.43
Total return* 15% 7.47% 6.70% 5.96% 13.10% (2.06%)
Ratios/Supplemental Data
Net assets, end of period
(in millions) $37 $38 $41 $34 $33 $30
Ratio of expenses to
average net assets** .67% .67% .66% .66% .67% .67%
Ratio of net investment
income to average net
assets** 5.75% 5.90% 6.42% 7.10% 7.47% 7.02%
Ratio of expenses to
average net assets before
voluntary reduction of
management fee ** .97% .97% .97% .96% .97% .97%
Portfolio turnover rate 54% 60% 65% 48% 57% 42%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
See accompanying Notes to Financial Statements.
BABSON MONEY MARKET FUND - PRIME PORTFOLIO
Condensed data for a share of capital stock
outstanding throughout each year.
YEARS ENDED JUNE 30,
1999 1998 1997 1996 1995
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income .04 .05 .05 .05 .05
Less distributions:
Dividends from net investment income (.04) (.05) (.05) (.05) (.05)
Net asset value, end of year $1.00 $1.00 1.00 $1.00 $1.00
Total return 4.38% 4.82% 4.61% 4.83% 4.66%
Ratios/Supplemental Data
Net assets, end of year (in millions) $39 $37 $38 $36 $40
Ratio of expenses to average net assets .88% .91% .92% .92% .92%
Ratio of net investment income to
average net assets 4.30% 4.73% 4.58% 4.75% 4.58%
BABSON MONEY MARKET FUND - FEDERAL PORTFOLIO
Condensed data for a share of capital stock
outstanding throughout each year.
YEARS ENDED JUNE 30,
1999 1998 1997 1996 1995
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income .04 .05 .04 .05 .04
Less distributions:
Dividends from net investment income (.04) (.05) (.04) (.05) (.04)
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
Total return 4.31% 4.75% 4.58% 4.77% 4.56%
Ratios/Supplemental Data
Net assets, end of year (in millions) $13 $12 $13 $10 $10
Ratio of expenses to average net assets .88% .91% .91% .91% .92%
Ratio of net investment income to
average net assets 4.23% 4.65% 4.51% 4.67% 4.48%
See accompanying Notes to Financial Statements.
BABSON TAX-FREE INCOME FUND - PORTFOLIO L
Condensed data for a share of capital stock
outstanding throughout each year.
YEARS ENDED JUNE 30,
1999 1998 1997 1996 1995
Net asset value, beginning of year $9.22 $8.96 $8.74 $8.67 $8.52
Income from investment operations:
Net investment income .40 .40 .42 .41 .42
Net gains (losses) on securities
(both realized and unrealized) (.24) .28 .24 .07 .17
Total from investment operations .16 .68 .66 .48 .59
Less distributions:
Dividends from net investment income (.40) (.40) (.42) (.41) (.42)
Distributions from capital gains (.07) (.02) (.02) - (.02)
Total distributions (.47) (.42) (.44) (.41) (.44)
Net asset value, end of year $8.91 $9.22 $8.96 $8.74 $8.67
Total return 1.70% 7.82% 7.69% 5.60% 7.21%
Ratios/Supplemental Data
Net assets, end of year (in millions) $26 $27 $27 $27 $28
Ratio of expenses to average net assets 1.03% 1.06% 1.01% 1.01% 1.02%
Ratio of net investment income to
average net assets 4.36% 4.46% 4.71% 4.67% 4.98%
Portfolio turnover rate 9% 18% 21% 39% 34%
BABSON TAX-FREE INCOME FUND - PORTFOLIO S
Condensed data for a share of capital stock
outstanding throughout each year.
YEARS ENDED JUNE 30,
1999 1998 1997 1996 1995
Net asset value, beginning of year $10.79 $10.74 $10.69 $10.71 $10.62
Income from investment operations:
Net investment income .42 .44 .44 .44 .45
Net gains (losses) on securities
(both realized and unrealized) (.20) .08 .10 .01 .10
Total from investment operations .22 .52 .54 .45 .55
Less distributions:
Dividends from net investment income (.42) (.44) (.44) (.44) (.45)
Distributions from capital gains (.03) (.03) (.05) (.03) (.01)
Total distributions (.45) (.47) (.49) (.47) (.46)
Net asset value, end of year $10.56 $10.79 $10.74 $10.69 $10.71
Total return 1.96% 4.84% 5.18% 4.25% 5.32%
Ratios/Supplemental Data
Net assets, end of year (in millions) $19 $21 $23 $25 $28
Ratio of expenses to average net assets 1.01% 1.06% 1.01% 1.01% 1.01%
Ratio of net investment income to
average net assets 3.82% 4.00% 4.12% 4.13% 4.28%
Portfolio turnover rate 22% 21% 23% 41% 34%
See accompanying Notes to Financial Statements.
BABSON TAX-FREE INCOME FUND - PORTFOLIO MM
Condensed data for a share of capital stock
outstanding throughout each year.
YEARS ENDED JUNE 30,
1999 1998 1997 1996 1995
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income .03 .03 .03 .03 .03
Less distributions:
Dividends from net investment income (.03) (.03) (.03) (.03) (.03)
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
Total return 2.70% 3.06% 3.03% 3.15% 3.05%
Ratios/Supplemental Data
Net assets, end of year (in millions) $10 $10 $9 $8 $16
Ratio of expenses to average net assets .55% .61% .58% .58% .59%
Ratio of net investment income to
average net assets 2.65% 3.06% 3.10% 3.15% 3.07%
See accompanying Notes to Financial Statements.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders of Babson Enterprise Fund, Inc., Babson
Enterprise Fund II, Inc., David L. Babson Growth Fund, Inc., Shadow Stock Fund,
Inc., Babson Value Fund, Inc., Babson-Stewart Ivory International Fund, Inc.,
D.L. Babson Bond Trust, D.L. Babson Money Market Fund, Inc., and D.L. Babson
Tax-Free Income Fund, Inc.
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Babson Enterprise Fund, Inc., Babson Enterprise
Fund II, Inc., Babson
Value Fund, Inc., and D.L. Babson Bond Trust (comprised of Portfolio L and
Portfolio S) as of June 30, 1999, and the related statements of operations,
changes in net assets, and financial highlights for the periods presented in the
corresponding financial statements and financial highlights and we have also
audited the accompanying statements of assets and
liabilities, including the schedules of investments, of David L.Babson Growth
Fund, Inc., Shadow Stock Fund, Inc., Babson-Stewart Ivory International Fund,
Inc., D.L. Babson Money Market Fund, Inc. (comprised of Portfolio Prime and
Portfolio Federal) and D.L. Babson Tax-Free Income Fund, Inc. (comprised of
Portfolio L, Portfolio S and Portfolio MM) as of June 30, 1999, and the related
statements of operations, changes in net assets and the financial highlights for
the
year then ended. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The statements of changes in net assets for the year ended June 30, 1998
and the financial highlights for each of the four years in the period then ended
for David L. Babson Growth Fund, Inc., Shadow Stock Fund, Inc., Babson-Stewart
Ivory International Fund, Inc., D.L. Babson Money Market Fund, Inc., and D.L.
Babson Tax-Free Income Fund, Inc. were audited by other auditors whose report
dated July 28, 1998, expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial
highlights. Our procedures included confirmation of investments owned as of June
30, 1999, by correspondence with the custodian and brokers. As to securities
relating to certain uncompleted transactions, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Funds and each of the related portfolios at June 30, 1999, the results of their
operations, changes in their net assets and the financial highlights for the
periods indicated above in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Kansas City, Missouri
August 6, 1999
This report has been prepared for the information of the Shareholders of Babson
Enterprise Fund, Inc.,
Babson Enterprise Fund II, Inc., David L. Babson Growth Fund, Inc., Shadow Stock
Fund, Inc.,
Babson Value Fund, Inc., Babson-Stewart Ivory International Fund, Inc., D.L.
Babson Bond Trust,
D.L. Babson Money Market Fund, Inc., and D.L. Babson Tax-Free Income Fund, Inc.,
and is not to be construed as an offering of the shares of the Funds. Shares of
the Funds
are offered only by the Prospectus, a copy of which may be obtained from Jones &
Babson, Inc.
VOTE TODAY BY MAIL,
TOUCH-TONE PHONE OR THE INTERNET
CALL TOLL-FREE 1-888-221-0697
OR LOG ON TO WWW.PROXYWEB.COM
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE VOTE YOUR PROXY TODAY!
Please fold and detach card at perforation before mailing
PROXY PROXY
SPECIAL MEETING OF SHAREHOLDERS
D. L. Babson Tax-Free Income Fund, Inc.
Portfolio S
October 3, 2000
The undersigned hereby revokes all previous proxies for his or her shares and
appoints Stephen S. Soden, P. Bradley Adams and Martin A. Cramer, and each of
them, proxies of the undersigned with full power of substitution to vote all
shares of Portfolio S of D. L. Babson Tax-Free Income Fund, Inc. that
the undersigned is entitled to vote at the Special Meeting of Shareholders,
including any adjournments thereof (the "Meeting"), to be held at the offices
of Jones & Babson, Inc., on the 19th floor of the BMA Tower, 700 Karnes
Boulevard, Kansas City, Missouri at 2:00 p.m., Central Time on October 3,
2000, upon such business as may properly be brought before the Meeting.
IMPORTANT: PLEASE VOTE YOUR PROXY TODAY.
You are urged to date and sign this proxy and return it promptly. This will
save the expense of follow-up letters to shareholders who have not responded.
Note: Please sign exactly as your
name appears on the proxy. If
signing for estates, trusts or
corporations, title or capacity
should be stated. If shares are
held jointly, each holder must sign.
____________________
Date
____________________________________
Signature(s)
IMPORTANT: PLEASE VOTE YOUR PROXY...TODAY
(Please see reverse side)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE OR VOTE BY
PHONE OR INTERNET. NO POSTAGE REQUIRED IF MAILED IN THE U.S.
Please fold and detach card at perforation before mailing
This proxy is solicited on behalf of the Board of Directors of D. L. Babson
Tax-Free Income Fund, Inc. (the "Fund"). It will be voted as specified. If no
specification is made, this proxy shall be voted in favor of Proposals 1 and
2. If any other matters properly come before the Meeting about which the
proxyholders were not aware prior to the time of the solicitation, Proposal
2 gives authorization to the proxyholders to vote in accordance with the
views of management on such matters. Management is not aware of any such
matters.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF PROPOSALS 1 AND 2
1. To approve a Plan of Reorganization of D. L.
Babson Tax-Free Income Fund, Inc. on behalf FOR AGAINST ABSTAIN
of its two Portfolios, that provides for the
acquisition of substantially all of the
assets of Portfolio S in exchange for
shares of Portfolio L, the distribution
of such shares to the shareholders of
Portfolio S and the liquidation and dissolution
of Portfolio S.
2. To grant the proxyholders authority to vote
upon any other business that may properly
come before the Meeting.
IMPORTANT: PLEASE VOTE YOUR PROXY...TODAY
STATEMENT OF ADDITIONAL INFORMATION
FOR
D. L. BABSON TAX-FREE INCOME FUND, INC.
Dated July 20, 2000
Acquisition of the Assets of
PORTFOLIO S,
a series of D. L. Babson Tax-Free Income Fund, Inc.
By and in exchange for shares of the
PORTFOLIO L,
also a series of D. L. Babson Tax-Free Income Fund, Inc.
This Statement of Additional Information (SAI) relates specifically to the
proposed delivery of substantially all of the assets of Portfolio S for
shares of Portfolio L.
This SAI consists of this Cover Page and the following documents. Each of
these documents is enclosed with and is legally considered to be a part of
this SAI:
1.Projected (Pro Forma) after Transaction Financial Statements.
2.Babson Funds Combined Statement of Additional Information dated
October 31, 1999.
3.Babson Funds Combined Semiannual Report to Shareholders for the
six months ended December 31, 1999.
This SAI is not a Prospectus; you should read this SAI in conjunction with
the Prospectus/Proxy Statement dated July 20, 2000, relating to the above-
referenced transaction. You can request a copy of the Prospectus/Proxy
Statement by calling 1-800-4BABSON (1-800-422-2766) or by writing to the
Babson Funds at P.O. Box 219757, Kansas City, MO 64121-9757.
Pro Forma COMBINING Statement of Investments
Babson Tax-Free Income Fund - Portfolio S
Babson Tax-Free Income Fund - Portfolio L
December 31, 1999 (unaudited)
BABSON BABSON
TAX-FREE TAX-FREE
INCOME INCOME
FUND FUND
Portfolio S Portfolio L PRO FORMA COMBINED
Shares/ Shares/ Shares/
Description Country Warrants Value Warrants Value Warrants Value
Jefferson
County Sewer,
5.00%, due
February 1, 2033 United States $1,000,000 $822,500 $1,000,000 $822,500
ARIZONA
Chandler,
6.90%, due
July 1, 2005 United States $1,000,000 $1,097,137 1,000,000 1,097,137
Maricopa County
Unified School
District #93,
6.40%, due
July 1, 2005 United States 500,000 532,500 500,000 532,500
Maricopa County
Unified School
District, #48,
9.25%, due
July 1, 2007 United States 500,000 631,875 500,000 631,875
ARKANSAS
Arkansas,
Series B,
0.00%, due
June 1, 2010 United States 1,000,000 571,250 1,000,000 571,250
CALIFORNIA
California,
5.50%, due
October 1, 2011 United States 1,000,000 1,020,000 1,000,000 1,020,000
Santa Rosa Water,
Series B,
6.00%, due
September 1, 2015 United States 500,000 521,875 500,000 521,875
University of
California,
Series D,
5.75%, due
July 1, 2013 United States 1,000,000 1,017,500 1,000,000 1,017,500
COLORADO
Adams County
School District
#12,
6.20%, due
December 15, 2010 United States 500,000 517,500 500,000 517,500
Jefferson County
School District
#R-001, Series A,
6.00%, due
December 15, 2006 United States 500,000 529,375 500,000 529,375
DISTRICT OF COLUMBIA
District of
Columbia, Series A,
5.75%, due
June 1, 2003 United States 245,000 252,350 245,000 252,350 490,000 504,700
District of
Columbia, Series A,
5.75%, due
June 1, 2003 United States 255,000 262,013 255,000 262,013 510,000 524,026
FLORIDA
Dade County,
0.00%, due
October 1, 2027 United States 1,000,000 195,000 1,000,000 195,000
Florida State Public
Board of Education,
Series A,
7.25%, due
June 1, 2023 United States 1,000,000 1,032,540 1,000,000 1,032,540
Miami-Dade County,
Series A,
0.00%, due
October 1, 2015 United States 500,000 196,250 500,000 196,250
Palm Beach County
Airport,
7.75%, due
October 1, 2010 United States 500,000 535,000 500,000 535,000
Tampa (Catholic
Health Care East),
4.875%, due
November 15, 2023 United States 500,000 417,500 500,000 417,500
GUAM
Guam Government
Limited Obligation,
Series A,
5.75%, due
May 1, 2001 United States 500,000 508,750 500,000 508,750
HAWAII
Hawaii State,
5.50%, due
September 1, 2006 United States 500,000 513,750 500,000 513,750
ILLINOIS
Chicago Public
Building,
5.375%, due
February 1, 2005 United States 250,000 255,313 250,000 255,313
Chicago, Series B,
5.125%, due
January 1, 2022 United States 1,000,000 872,500 1,000,000 872,500
Du Page & Will
Counties Community
School District #204,
7.25%, due
December 30, 2004 United States 500,000 551,250 500,000 551,250
Lake County School
District,
5.00%, due
December 15, 2014 United States 100,000 918,750 100,000 918,750
Metro Pier & Expo
Tax Authority,
5.375%, due
December 15, 2017 United States 1,000,000 931,250 1,000,000 931,250
INDIANA
Indiana Bond Bank
Special Program,
Series 94 A-1,
5.60%, due
August 1, 2015 United States 500,000 495,625 500,000 495,625
Kokomo-Center
School Building
Corp.,
6.75%, due
July 15, 2007 United States 250,000 275,625 250,000 275,625
KANSAS
Johnson County
Unified School
District #229,
Series A,
4.90%, Due
October 1, 2011 United States 1,000,000 958,750 1,000,000 958,750
LOUISIANA
St. Tammany Parish
Hospital Service
District #2,
(Slidell Memorial
Hospital & Medical
Center),
6.125%, due
October 1, 2011 United States 500,000 521,875 500,000 521,875
MASSACHUSETTS
Massachusetts Health
& Education
(Milford-Whitinsville
Regional), Series C,
4.75%, due
July 15, 2003 United States 500,000 483,125 500,000 483,125
Massachusetts
Health & Education,
Series D,
5.75%, due
July 1, 2014 United States 500,000 501,250 500,000 501,250
Massachusetts
Housing Finance
Agency Projects,
Series A,
5.35%, due
April 1, 2003 United States 500,000 508,750 500,000 508,750
Massachusetts
Housing Finance
Agency Projects,
Series A,
6.375%, due
April 1, 2021 United States 975,000 987,187 975,000 987,187
Massachusetts State
Consolidated Loan,
5.25%, due
August 1, 2018 United States 1,000,000 921,250 1,000,000 921,250
MICHIGAN
Utica Community
Schools,
5.375%, due
May 1, 2005 United States 500,000 510,625 500,000 510,625
MISSOURI
Sikeston Electric,
5.80%, due
June 1, 2002 United States 500,000 515,000 500,000 515,000
NEVADA
Clark County School
District, Series A,
6.75%, due
March 1, 2007 United States 500,000 514,375 500,000 514,375
Washoe County
Hospital, Series A,
5.25%, due
June 1, 2001 United States 500,000 505,625 500,000 505,625
Washoe County
(Reno Sparks
Bowling Facility),
Series A,
5.40%, due
July 1, 2006 United States 500,000 508,750 500,000 508,750
NEW HAMPSHIRE
New Hampshire
Higher Education
& Health Facility
(Concord Hospital),
5.70%, due
October 1, 2010 United States 500,000 513,750 500,000 513,750
New Hampshire Higher
Education & Health
Facility (Franklin
Pierce Law Center),
5.50%, due
July 1, 2018 United States 500,000 442,500 500,000 442,500
NEW JERSEY
New Jersey
Turnpike,
10.375%, due
January 1, 2003 United States 115,000 125,781 115,000 125,781
NEW YORK
Battery Park City,
6.00%, due
November 1, 2003 United States 500,000 518,750 500,000 518,750
Long Island Power,
3.60%, due
May 1, 2033 United States 400,000 400,000 800,000 800,000 1,200,000 1,200,000
Metropolitan Transportation,
5.00%, due
April 1, 2008 United States 500,000 494,375 500,000 494,375
New York City
Municipal Water
Financing Authority,
Series A,
6.80%, due
June 15, 2004 United States 1,000,000 1,041,250 1,000,000 1,041,250
New York Dormitory
(State University
Education Facility),
Series B,
6.10%, due
May 15, 2008 United States 1,000,000 1,067,500 1,000,000 1,067,500
New York
Environmental,
Series B,
6.65%, due
September 15, 2013United States 500,000 527,500 500,000 527,500
New York Medical
Care Finance Agency,
Series F,
6.00%, due
August 15, 2002 United States 500,000 515,000 500,000 515,000
New York Medical
Care Finance Agency,
Series A,
5.40%, due
August 15, 2004 United States 235,000 237,693 235,000 237,693
New York State
Dormitory,
5.35%, due
November 1, 2005 United States 500,000 511,250 500,000 511,250
New York State
Thruway Authority
Highway,
5.50%, due 2005 United States 500,000 514,375 500,000 514,375
NORTH CAROLINA
North Carolina
Eastern Municipal Power
Agency, Series 93 B,
5.375%, due
January 1, 2001 United States 500,000 501,115 500,000 501,115
OHIO
Columbus City
School District,
6.65%, due
December 1, 2012 United States 500,000 536,250 500,000 536,250
Ohio Major
Infrastructure,
5.00%, due
December 15, 2007 United States 500,000 497,500 00,000 497,500
Ohio State Building
Authority,
4.00%, due
October 1, 2004 United States 250,000 241,562 250,000 241,562
PENNSYLVANIA
North Hampton
County,
4.20%, due
August 15, 2008 United States 500,000 464,375 500,000 464,375
RHODE ISLAND
Rhode Island
Depositors Economic
Protection Corp.,
Series B,
5.80%, due
August 1, 2009 United States 500,000 521,875 500,000 521,875
Rhode Island
Industrial Facility Corp.,
9.125%, due
October 1, 2000 United States 20,000 20,015 20,000 20,015
TENNESSEE
McKinney
Independent School,
5.25%, due
February 15, 2006 United States 500,000 508,125 500,000 508,125
Metro Nashville
Airport,
5.00%, due
October 1, 2012 United States 200,000 200,000 200,000 200,000
Tennessee Housing
Development Agency,
Series A,
4.95%, due
July 1, 2000 United States 490,000 491,377 490,000 491,377
TEXAS
Houston, Series C,
5.90%, due
March 1, 2003 United States 140,000 143,675 140,000 143,675
Houston, Series C,
5.90%, due
March 1, 2003 United States 360,000 369,000 360,000 369,000
San Antonio
Electric & Gas,
5.75%, due
February 1, 2011 United States 295,000 298,319 295,000 298,319
San Antonio Electric
& Gas,
5.75%, due
February 1, 2011 United States 205,000 211,406 205,000 211,406
VIRGINIA
Fairfax County
Industrial Development,
5.50%, due
August 15, 2009 United States 500,000 499,375 500,000 499,375
WASHINGTON
Tacoma Conservation
System Project
(Tacoma Public
Utilities),
6.50%, due
January 1, 2012 United States 500,000 526,250 500,000 526,250
Seattle Water System,
5.75%, due
July 1, 2023 United States 1,000,000 955,000 1,000,000 955,000
Washington Public
Power Supply System
Nuclear Project #2,
Series B,
5.10%, due
July 1, 2004 United States 500,000 504,375 500,000 504,375
Washington Public
Power Supply
System
Nuclear Project #2,
Series B,
7.50%, due
July 1, 2004 United States 300,000 310,767 300,000 310,767
Washington, Series B,
5.00%, due
January 1, 2008 United States 500,000 495,625 500,000 495,625
WISCONSIN
Milwaukee County,
Series A,
5.35%, due
September 1, 2001 United States 500,000 506,875 500,000 506,875
Milwaukee Metropolitan
Sewer District,
Series A,
7.00%, due
September 1, 2000 United States 500,000 509,280 500,000 509,280
Wisconsin Public
Power,
5.90%, due
July 1, 2011 United States 500,000 518,125 500,000 518,125
TOTAL INVESTMENTS - 98.67% 17,081,282 23,884,611 40,965,893
Other Assets less
Liabilities - 1.33% 234,052 319,037 553,089
TOTAL NET ASSETS - 100.00% $17,315,334 $24,203,648 $41,518,982
See accompanying Notes to the Financial Statements.
Pro Forma COMBINING Statements of Assets and Liabilities
Babson Tax-Free Income Fund - Portfolio S
Babson Tax-Free Income Fund - Portfolio L
December 31, 1999 (unaudited)
BABSON BABSON BABSON
TAX-FREE TAX-FREE TAX-FREE INCOME FUND
INCOME INCOME Portfolio L
FUND FUND Pro Forma PRO FORMA
Portfolio S Portfolio L ADJUSTMENTS COMBINED
Assets:
Investments in securities
Cost $16,778,732 $23,073,865 $ - $39,852,597
Value 16,681,282 22,884,611 - 39,565,893
Repurchase agreements, at value
and cost 400,000 1,000,000 - 1,400,000
Cash 26,780 27,560 - 54,341
Receivables:
Capital shares sold - 28,000 - 28,000
Dividends and interest 278,258 375,913 - 654,170
Total assets 17,386,320 24,316,084 - 41,702,404
Liabilities:
Payables for:
Management fees 14,043 19,752 - 33,795
Registration fees 1,330 243 - 1,573
Dividends 55,613 92,442 - 148,055
Total liabilities 70,986 112,437 - 183,423
Net assets $17,315,334 $24,203,647 $ - $41,518,981
Net Assets Consist of:
Paid in capital 17,463,388 24,427,053 - 41,890,441
Undistributed net investment
income (loss) 906 - - 906
Accumulated undistributed net
realized gain (loss)
on sale of investments (51,510) (34,152) - (85,662)
Net unrealized appreciation
(depreciation) in value
of investments (97,450) (189,253) - (286,703)
Total net assets 17,315,334 24,203,647 - 41,518,981
Capital shares outstanding 1,662,554 2,852,374 2,038,538(A) 4,890,912
Net assets 17,315,334 24,203,647 41,518,981
Net asset value per share 10.41 8.49 8.49
(A) Reflect new shares issued, net of retired shares of Portfolio S
See accompanying Notes to the Financial Statements.
Pro Forma COMBINING Statement of operations
Babson Tax-Free Income Fund - Portfolio S
Babson Tax-Free Income Fund - Portfolio L
For the Twelve Months Ended December 31, 1999 (unaudited)
BABSON BABSON BABSON
TAX-FREE TAX-FREE TAX-FREE INCOME FUND
INCOME INCOME Portfolio L
FUND FUND Pro Forma PRO FORMA
Portfolio S Portfolio L ADJUSTMENTS COMBINED
Investment income:
Interest $ 916,514 $ 1,406,500 $ - $ 2,323,074
Total investment income 916,514 1,406,500 - 2,323,074
Expenses:
Management fees 182,027 247,876 - 429,903
Registration and filing fees 12,271 15,315 - 27,586
Total expenses 194,298 263,191 - 457,489
Net investment income
(loss) 722,216 1,143,369 - 1,865,585
Realized and unrealized gains (loss):
Net realized gain (loss) during the
period on investments (1,599) 180,920 - 179,321
Net change in unrealized
appreciation (depreciation)
during the period on investments (631,541) (2,146,286) - (2,777,827)
Net gain (loss) (633,140) (1,965,366) - (2,598,506)
Net increase (decrease) in net
assets resulting from operations $ 89,076 $ (821,997) $ - $ (732,921)
D. L. BABSON TAX-FREE INCOME FUND, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: BASIS OF COMBINATION
On April 27, 2000, the Babson Board of Directors approved an Agreement and
Plan of Reorganization (the "Plan") whereby, subject to approval by the
shareholders of Babson Tax-Free Income Fund Portfolio Short, Babson Tax-Free
Income Fund Portfolio Long will acquire all the assets of the Babson Tax-Free
Income Fund Portfolio Short subject to the liabilities of such a fund, in
exchange for a number of shares equal to the pro rata net assets of shares of
the Tax-Free Income Fund Portfolio Long (the "Merger").
The Merger will be accounted for as a tax-free merger of investment companies.
The pro forma combined financial statements are presented for the information
of the reader and may not necessarily be representative of what the actual
combined financial statements would have been had the reorganization occurred
at December 31, 1999. The unaudited pro forma portfolio of investments and
statements of assets and liabilities reflect the financial position of the
Babson Tax-Free Income Fund Portfolio Short and the Babson Tax-Free Income
Fund Portfolio Long at December 31, 1999. The unaudited pro forma statements
of operations reflects the results of operations of Babson Tax-Free Income
Fund Portfolio Short and Babson Tax-Free Income Fund Portfolio Long for the
year ended December 31, 1999. These statements have been derived from the
Funds' respective books and records utilized in calculating daily net asset
value at the dates indicated above for Babson Tax-Free Income Fund Portfolio
Short and Babson Tax-Free Income Fund Portfolio Long under accounting
principles generally accepted in the United States. The historical cost of
investment securities will be carried forward to the surviving entity and
results of operations of Babson Tax-Free Income Fund Portfolio Long for
pre-combination periods will not be restated.
The pro forma portfolio of investment and statements of assets and liabilities
and operations should be read in conjunction with the historical financial
statement of the Funds incorporated by reference in the Statements of
Additional Information.
Note 2: capital shares
The pro forma net asset value per share assumes additional shares of common
stock issued in connection with the proposed acquisition of Babson Tax-Free
Income Fund Portfolio Short by Babson Tax-Free Income Fund Portfolio Long as
of December 31, 1999. The number of additional shares issued was calculated
by dividing the net asset value of Babson Tax-Free Income Fund Portfolio
Short by the net asset value per share of Babson Tax-Free Income Fund
Portfolio Long.
Note 3: Pro Forma Adjustment
The accompanying pro forma financial statements reflect changes in fund shares
as if the merger had taken place on December 31, 1999.
Note 4: merger costs and distributions
Merger costs are estimated at approximately $10,000 and are not included in
the pro forma statement of operations since these costs are nonrecurring.
These costs represent the estimated expense of all funds carrying out their
obligations under the Plan and consist of management's estimate of legal fees,
accounting fees, printing costs and mailing charges related to the proposed
merger.
It is the policy of the Funds, to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to
distribute substantially all of their net investment income and any net
realized gains to their shareholders. Therefore, a federal income tax or
excise tax provision is not required. In addition, by distributing during
each calendar year substantially all of its net investment income and net
realized capital gains, each Fund intends not be subject to any federal
excise tax.
The Board of Directors intends to offset any net capital gains with any
available capital loss carryforward until each carryforward has been fully
utilized or expires. In addition, no capital gain distribution shall be made
until the capital loss carryforward has been fully utilized or expires.
Babson Tax-Free Income Fund Portfolio Short and Babson Tax-Free Income Fund
Portfolio Long will distribute substantially all their investment income and
any realized gains prior to the merger date.
PART B
BABSON GROWTH FUND, INC. BABSON BOND TRUST
BABSON ENTERPRISE FUND, INC. BABSON MONEY MARKET FUND, INC.
BABSON ENTERPRISE FUND II, INC. BABSON TAX-FREE INCOME FUND, INC.
BABSON VALUE FUND, INC.
SHADOW STOCK FUND, INC.
BABSON-STEWART IVORY INTERNATIONAL FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
October 31, 1999
This Statement is not a Prospectus but should be read in conjunction
with the Funds' current combined Prospectus dated October 31, 1999. To
obtain the Prospectus or Annual Report to Shareholders, please call the
Funds toll-free at 1-800-4-BABSON (1-800-422-2766), or in the Kansas City
area 751-5900. Certain information from the Annual Report to Shareholders
is incorporated by reference into this Statement.
TABLE OF CONTENTS
Page
Investment Strategies and Risks 2
Fund Strategies 2
Repurchase Agreements - All Funds 6
Risks for Babson-Stewart Ivory International Fund 6
Cash Management - All Funds 8
Fundamental Investment Restrictions 8
Portfolio Transactions 11
Performance Measures 12
Total Return 13
How the Fund's Shares are Distributed 14
Purchase and Redemption Services 14
How Share Purchases are Handled 15
Redemption of Shares 15
Management and Investment Counsel 16
Officers and Directors 17
Compensation Table 19
Holidays 19
Dividends, Distributions and their Taxation 19
General Information and History 22
Custodian 23
Transfer Agent 23
Independent Auditors 23
Other Jones & Babson Funds 24
Description of Stock Ratings 24
Ratings of Municipal and Taxable Securities 26
Description of Commercial Paper Ratings 27
Financial Statements 28
INVESTMENT STRATEGIES AND RISKS
The Funds are open-ended, diversified
management investment companies commonly
known as mutual funds. The following information
supplements the Prospectus which describes each
Fund's investment objective, and principal strategies
and risks. None of the Funds will invest more than
25% of its assets in a single industry. In addition,
none of the Funds intend to borrow in excess of 5%
of its total assets.
FUND STRATEGIES
Babson Growth Fund. Current yield is
secondary objective. The Fund generally defines
"above average total return" as total return that is
higher than return generated by traditional investment
vehicles other than equity products, including but not
limited to, passbook savings accounts, certificates of
deposit, bonds, U.S. government securities and
traditional insurance products, such as whole life
policies and annuities. All assets of the Fund will be
invested in marketable securities composed
principally of common stocks and securities
convertible into common stock. Necessary reserves
will be held in cash or high-quality short-term debt
obligations readily changeable to cash, such as
treasury bills, commercial paper or repurchase
agreements. The Fund reserves the freedom to invest
in preferred stocks, high grade bonds or other
defensive issues when, in management's judgment,
economic and market conditions make such a course
desirable. Normally, however, the Fund will
maintain at least 80% of the portfolio in common
stocks.
D.L. Babson Bond Trust. Babson Bond
Trust will limit its investments in securities rated in
the fourth classification (Baa and BBB) to a
maximum of 25% of its assets since these securities
may have speculative characteristics and changes in
economic conditions or other circumstances are more
likely to lead to a weakened capacity of those issuers
to make principal or interest payments.
The Portfolios may shorten or lengthen
portfolio maturities as interest rates change. If the
bond rating of a security purchased by a Portfolio is
subsequently downgraded, the Portfolio will take any
necessary steps designed to bring the Portfolio into
compliance with its investment policies as soon as
reasonably practicable. The Portfolios may also
respond to adverse market, economic, political or
other considerations by investing up to 100% of its
assets in cash or short-term debt obligations for
temporary defensive purposes.
Portfolio L will generally have a duration of
between 3.5 and 7 years (excluding short-term
investments). Portfolio S will generally have a
duration of between 2 and 4 years (excluding short-
term investments). Duration is a portfolio
management tool used to determine the price
sensitivity of an individual bond or portfolio of fixed
income securities to a change in interest rates.
Unlike maturity, which only states when the final
payment is received, the duration of a fixed income
security is the weighted average maturity, expressed
in years, of the present value of all future cash flows,
including coupon payments and principal
repayments. The Portfolios may include securities
with maturities and durations outside these ranges.
Babson Enterprise Fund and Babson
Enterprise Fund II. Since Babson Enterprise
Fund's and Babson Enterprise Fund II's focus on
smaller companies, the overall income return on
these Funds may be low. Smaller companies
frequently need to retain all or most of their profits to
finance their growth and will pay small dividend
yields, or none. If the companies are successful, this
plow-back of earnings and internal financing of
growth without the need to issue additional shares
ultimately should enhance the companies' per share
earnings and dividend capability and make their
shares more attractive in the marketplace.
Effective July 1, 1999, the Babson
Enterprise Fund was opened to new investors. This
means that investors may open new accounts with the
Fund through direct purchases, or through exchanges
from any other fund in the Babson Funds family or
the Buffalo Funds family. Investors whose accounts
were open in 1992 when the Fund was closed to new
investors have been permitted to add to their accounts
since that time. It is anticipated that the Fund will
again close to new investors when it reaches $280
million in assets.
Babson Value Fund. Under normal
conditions, the Fund will invest at least 90% of its
assets in common stocks. In addition, the Fund
intends to hold a small percentage of cash or high
quality, short term debt obligations for reserves to
cover redemptions and unanticipated expenses.
Babson Shadow Stock Fund, Inc. "Small
stocks" were originally defined as those in the bottom
quintile of stocks listed on the New York Stock
Exchange ("NYSE") when ranked by market
capitalization (number of shares outstanding times
price per share). At present this would be a market
capitalization of below $213 million, but this level
changes as market prices rise and fall. Currently, this
concept is also applied to stocks listed on the
American Stock Exchange ("AMEX") and over-the-
counter ("OTC") stocks. The Fund defines "small
stocks" to include stocks listed on the NYSE, AMEX
and OTC stocks that have market capitalization of
between $20 million and $213 million and have
annual net profits of at least $1 million for the three
most recent fiscal years. "Neglected stocks" are
those that have below average institutional holdings
and below average coverage by analysts and
newsletters. The term "neglected" has not had a
consistent definition, but the Fund's Manager and
Investment Adviser define it as meaning the fifty
percent of "small stocks" which have the least
coverage by institutions and analysts. The Fund's
Manager and Investment Adviser will use their
judgment in determining the methods of measuring
analyst and institutional interest. It is estimated that
Shadow Stock Fund's portfolio will contain about
250 stocks and thus be very diversified.
It is the intention of the Fund to maintain
ownership of the Shadow Stocks approximately in
proportion to their respective market capitalizations,
but this approach may be departed from for the
following reasons. First, acquisition of the shares of
smaller companies is sometimes difficult without
disrupting the supply/demand relationship and
thereby increasing transaction costs. For this reason,
shares of companies on the buy list may be purchased
when opportunities for block trades present
themselves even if purchases of such a company's
stock would not otherwise be the highest priority on a
market capitalization basis. Conversely, high priority
shares might be avoided if they cannot be acquired at
the time without disrupting the market. Second, the
Fund will attempt to purchase shares in optimal lot
sizes which precludes fine tuning of the weighting.
Third, the Fund's Manager and Investment Adviser
will take a long-term view and do not feel it prudent
to constantly purchase and sell stocks for short-term
balancing. Guideline relative weights will be
reviewed in detail twice a year.
Shares of stock will be considered for
elimination from the portfolio in the following bases:
(1) on the basis of the $5 minimum price criterion (a
stock will not be sold for this reason alone, but
additional shares will not be purchased below $4 per
share which may result in a disproportionate
representation in terms of ideal weighting); (2) on the
basis or profitability (a company's stock will be sold
as soon as the Fund's Manager and Investment
Adviser feel it is highly unlikely that there will be
negative earnings in the current fiscal year); (3) on
the basis of tenders or potential mergers (the Fund's
Manager and Investment Adviser will use their
judgment as to the best time to sell or tender); (4) on
the basis on neglect (shares will be sold when the
company has been beyond the Manager's and
Investment Adviser's criteria for a neglected stock
for three successive semiannual evaluation periods);
or (5) on the basis of capitalization a stock will be
sold if, at a semiannual evaluation, either the market
capitalization is twice the current acceptable
maximum or one-half the current minimum. In the
case of portfolio companies whose capitalization has
gone beyond the current maximum or minimum, the
Fund's Investment Adviser may keep the portfolio
weighting at the level appropriate for the current
maximum or minimum. If funds beyond current
liquid assets are necessary to meet redemptions,
stocks not meeting current initial criteria will be
liquidated first.
While the objectives of the Fund would
favor a fully invested position in Shadow Stocks, the
practicality of Fund management requires liquidity.
An average of about 5% of the Fund's assets may be
invested in cash or cash equivalents including:
securities that are issued or guaranteed as to principal
and interest by the U.S. government, its agencies,
authorities or instrumentalities (such as U.S. Treasury
obligations, which differ only in their interest rates,
maturities and times of issuance, and obligations
issued or guaranteed by U.S. government agencies or
instrumentalities which are backed by the full faith
and credit of the U.S. Treasury or which are
supported by the right of the issuer to borrow from
the U.S. government), repurchase agreements,
certificates of deposit, time deposits, commercial
paper and other high quality short-term debt
securities. The Fund may adopt a temporary
defensive position by investing it assets in debt
securities, such as money market obligations,
including securities of the U.S. government and its
agencies, high quality commercial paper, bankers'
acceptances and repurchase agreements with banks
and brokers for U.S. government securities.
Babson-Stewart Ivory International
Fund, Inc. The Fund will look at such factors as the
location of the company's assets, personnel, sales and
earnings, to determine whether a company's primary
business is carried on outside the United States. The
Fund diversifies its investments among various
countries and a number of different industries. The
Fund is designed to provide investors with a
diversified participation in international businesses.
Over the years, some foreign businesses have been
especially successful in their particular industries and
some foreign stock markets have outperformed the
American markets. Foreign securities markets do not
always move in parallel with the U.S. securities
markets, so investing in international securities can
provide diversification advantages.
The Fund primarily invests in equity
securities of seasoned companies which are listed on
foreign stock exchanges and which the investment
counsel considers to have attractive characteristics in
terms of profitability, growth and financial resources.
"Seasoned" and "established" companies are those
companies which, in the opinion of the investment
counsel, are known for the quality and acceptance of
their products or services and for their ability to
generate profits and in many cases pay dividends.
The Fund may invest in fixed-income securities of
foreign governments or companies when the
investment counsel believes that prevailing market,
economic, political or currency conditions warrant
such investments. While most foreign securities are
not subject to standard credit ratings, the investment
counsel intends to select "investment grade" issued of
foreign debt securities which are comparable to a Baa
or higher rating by Moody's Investors Service, Inc.
or a BBB or higher rating by Standard and Poor's
Corporation based on available information, and
taking into account liquidity and quality issues.
Securities rated BBB or Baa are considered to be
medium grade and may have speculative
characteristics.
The Fund may also purchase American
Depository Receipts ("ADRs") which represent
foreign securities traded on U.S. exchanges or in the
over-the-counter market, European Depository
Receipts ("EDRs"), and International Depository
Receipts ("IDRs"), in bearer form, which are
designed for use in European and other securities
markets. The fund may also invest in securities that
are not listed on an exchange. Generally, the volume
of trading in an unlisted common stock is less than
the volume of trading in a listed stock. This means
that the degree of market liquidity of some stocks in
which the Fund invests may be relatively limited.
When the Fund disposes of such a stock it may have
to offer the shares at a discount from recent prices or
sell the shares in small lots over an extended period
of time.
In order to expedite settlement of portfolio
transactions and to minimize currency value
fluctuations, the Fund may purchase foreign
currencies and/or engage in forward foreign currency
transactions. The Fund will not engage in forward
foreign currency exchange contracts for speculative
purposes. A forward foreign currency exchange
contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any
fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time
of the contract. These contracts may be bought or
sold to protect the Fund, to some degree, against a
possible loss resulting from an adverse change in the
relationship between foreign currencies and the U.S.
dollar. This method of protecting the value of the
Fund's investment securities against a decline in the
value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It establishes
a rate of exchange that one can achieve at some
future point in time. Although such contracts tend to
minimize the risk of loss due to a decline in the value
of the hedged currency, at the same time, they tend to
limit any potential gain which might result should the
value of such currency increase.
Generally, the Fund does not intend to invest
more than 35% of its total assets in any one particular
country. However, the Fund may, at times,
temporarily invest a substantial portion of its assets in
one or more of such countries if economic and
business conditions warrant such investments,
although it currently does not intend to do so to any
principal extent. The Fund may also invest up to
20% of its assets in companies located in developing
countries. A developing country is generally
considered to be a country which is in the initial
stages of its industrialization cycle with a low per
capita gross national product. Compared to
investment in the United States and other developed
countries, investing in the equity and fixed income
markets of developing countries involves exposure to
relatively unstable governments, economic structures
that are generally less mature and based on only a
few industries, and securities markets which trade a
small number of securities. Prices on securities
exchanges in developing countries tend to be more
volatile than those in developed countries. The Fund
will not invest more than 20% of its total assets in
companies located in developing countries.
Under normal conditions, the Fund will
invest at least 65% of its assets in equity securities of
foreign issuers. However, to meet the liquidity needs
of the Fund or when the Fund believes that
investments should be deployed in a temporary
defensive position because of economic or market
conditions, the Fund may invest all or a major portion
of its assets in short-term debt securities denominated
in U.S. dollars, including U.S. Treasury bills and
other securities of the U.S. government and its
agencies, bankers' acceptances, certificates of
deposit, and repurchase agreements maturing in
seven days or less with U.S. banks and broker-
dealers. The Fund may also hold cash and time
deposits in foreign banks, denominated in any major
foreign currency.
Babson Money Market Fund. To achieve
its objectives the Fund may engage in trading activity
in order to take advantage of opportunities to enhance
yield, protect principal or improve liquidity. This
trading activity should not increase the Fund's
expenses since there are normally no broker's
commissions paid by the Fund for the purchase or
sale of money market instruments. However, a
markup or spread may be paid to a dealer from which
the Fund purchases a security.
To assure compliance with the adopted
procedures pursuant to Rule 2a-7 under the
Investment Company Act of 1940, the Fund will only
invest in U.S. dollar denominated securities with
remaining maturities of 397 days or less, maintain the
dollar weighted average maturity of the securities in
the Fund's portfolio at 90 days or less and limit its
investments to those instruments which the Directors
of the Fund determine to present minimal credit risks
and which are eligible investments under the rule.
Babson Tax-Free Income Fund. 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. The Portfolios are:
Portfolio L - Longer term: 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:
Shorter maturities usually result in
lower income but provide more
stability in price when compared to
obligations with longer maturities.
Portfolio MM - Money Market:
Maturities will conform to Rule 2a-
7 at the time of purchase.
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. The Fund may invest any remaining
balance in taxable money market instruments on a
temporary basis, if management believes this actions
would be in the best interest of shareholders.
Included in this category are: obligations of the U.S.,
its agencies or instrumentalities; certificates of
deposit; bankers' acceptances and other short-term
debt obligations of U.S. banks with total assets of $1
billion or more; and commercial paper rated A-2 or
better by Standard & Poor's Corp. ("S&P") or Prime-
2 or better by Moody's Investors Services, Inc.
("Moody's"), or certain rights to acquire these
securities.
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 interests of
shareholders.
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 (Aaa, Aa and A), or by S&P (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 U.S.; 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 (Aaa and Aa) or
by S&P (AAA and AA) or of comparable quality as
determined by the Board of Directors. Any
municipal bond held in Portfolio MM 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 U.S.; (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 short-term
discount notes are not rated, then they must be of
comparable quality as determined by the Board of
Directors
It is the policy of the Fund not to invest
more than 25% of its assets in any one classification
of municipal securities, except tax-exempt
obligations which are backed by the U.S.
governments. 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.
REPURCHASE AGREEMENTS - ALL FUNDS
All the Funds may invest in issues of the United
States Treasury or a United States government
agency subject to repurchase agreements. A
repurchase agreement involves the sale of securities
to the Funds 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 Funds.
The Funds 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
Funds. 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 net assets of the Funds.
Repurchase Agreement Risk Factors. The use of
repurchase agreements involves certain risks. For
example, if the seller of the agreement defaults on its
obligation to repurchase the underlying securities at a
time when the value of these securities has declined,
the Funds may incur a loss upon disposition of them.
If the seller of the agreement becomes insolvent and
subject to liquidation or reorganization under the
Bankruptcy Code or other laws, disposition of the
underlying securities may be delayed pending court
proceedings. Finally, it is possible that the Funds may
not be able to perfect its interest in the underlying
securities. While the Funds' management
acknowledges these risks, it is expected that they can
be controlled through stringent security selection
criteria and careful monitoring procedures.
RISKS FOR BABSON-STEWART IVORY
INTERNATIONAL FUND
Foreign Investments. Investors should recognize
that investing in foreign companies involves certain
special considerations which are not typically
associated with investing in U.S. companies. Since
the stocks of foreign companies are frequently
denominated in foreign currencies, and since the
Fund may temporarily hold uninvested reserves in
bank deposits in foreign currencies, the Fund will be
affected favorably or unfavorably by changes in
currency rates and in exchange control regulations,
and may incur costs in connection with conversions
between various currencies. The investment policies
of the Fund permit it to enter into forward foreign
currency exchange contracts in order to hedge the
Fund's holdings and commitments against changes in
the level of future currency rates. Such contracts
involve an obligation to purchase or sell a specific
currency at a future date at a price set at the time of
the contract.
As foreign companies are not generally subject to
uniform accounting, auditing and financial reporting
standards and practices comparable to those
applicable to domestic companies, there may be less
publicly available information about certain foreign
companies than about domestic companies.
Securities of some foreign companies are generally
less liquid and more volatile than securities of
comparable domestic companies. There is generally
less government supervision and regulation of stock
exchanges, brokers and listed companies than in the
U.S. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S.
investments in those countries.
Although the Fund will endeavor to achieve most
favorable execution costs in its portfolio transactions,
fixed commissions on many foreign stock exchanges
are generally higher than negotiated commissions on
U.S. Exchanges. In addition, it is expected that the
expenses of custodian arrangements of the Fund's
foreign securities will be somewhat greater than the
expenses for the custodian arrangements for handling
the Fund's securities of equal value.
Certain foreign governments levy withholding taxes
against dividend and interest income. Although in
some countries a portion of these taxes are
recoverable, the nonrecovered portion of foreign
withholding taxes will reduce the income received
from the companies comprising the Fund's portfolio.
Foreign Currency Transactions. The value of the
assets of the Babson-Stewart Ivory International
Fund as measured in U. S. dollars may be affected
favorably or unfavorably by changes in foreign
currency exchange rates and exchange control
regulations, and the Fund may incur costs in
connection with conversions between various
currencies.
The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the
spot rate prevailing in the foreign currency exchange
market, or through the use of forward contracts to
purchase or sell foreign currencies. A forward
foreign currency exchange contract will involve an
obligation by the Fund to purchase or sell a specific
amount of currency at a future date, which may be
any fixed number of days, from the date of the
contract agreed upon by the parties, at a price set at
the time of the contract. These contracts are
transferable in the interbank market conducted
directly between currency traders (usually large
commercial banks) and their customers. A forward
contract generally has no deposit requirements, and
no commissions are charged at any stage for trades.
Neither type of foreign currency transaction will
eliminate fluctuations in the prices of the Fund's
portfolio securities or prevent loss if the prices of
such securities should decline.
The Fund may enter into forward foreign currency
exchange contracts only under two circumstances.
First, when the Fund enters into a contract for the
purchase or sale of a security denominated in a
foreign currency, it may desire to "lock in" the U.S.
dollar price of the security. The Fund will then enter
into a forward contract for the purchase or sale, for a
fixed amount of dollars, of the amount of foreign
currency involved in the underlying securities
transaction; in this manner the Fund will be better
able to protect itself against a possible loss resulting
from an adverse change in the relationship between
the U.S. dollar and the subject foreign currency
during the period between the date the securities are
purchased or sold and the date on which payment is
made or received.
Second, when the Investment Adviser believes that
the currency of a particular foreign country may
suffer a substantial decline against the U.S. dollar, it
may enter into a forward contract to sell, for a fixed
amount of dollars, the amount of foreign currency
approximating the value of some or all of the Fund's
securities denominated in such foreign currency. The
precise matching of the forward contract amounts and
the value of the securities involved will not generally
be possible since the future value of such securities in
foreign currencies will change as a consequence of
market movements in the value of those securities
between the date the forward contract is entered into
and the date it matures. The projection of short-term
currency market movement is extremely difficult, and
the successful execution of a short-term hedging
strategy is highly uncertain. The Investment Adviser
does not intend to enter into such forward contracts
under this second circumstance on a regular or
continuous basis. The Fund will also not enter into
such forward contracts or maintain a net exposure to
such contracts when the consummation of the
contracts would obligate the Fund to deliver an
amount of foreign currency in excess of the value of
the Fund's securities or other assets denominated in
that currency. The Investment Adviser believes that
it is important to have flexibility to enter into such
forward contracts when it determines that to do so is
in the best interests of the Fund. The Fund's
custodian bank segregates cash or equity or debt
securities in an amount not less than the value of the
Fund's total assets committed to forward foreign
currency exchange contracts entered into under this
second type of transaction. If the value of the
securities segregated declines, additional cash or
securities is added so that the segregated amount is
not less than the amount of the Funds' commitments
with respect to such contracts. Under normal
circumstances, the Fund expects that any appreciation
or depreciation on such forward exchange contracts
will be approximately offset by the depreciation or
appreciation in translation of the underlying foreign
investment arising from fluctuations in foreign
currency exchange rates.
The Fund will recognize the unrealized appreciation
or depreciation from the fluctuation in a foreign
currency forward contract as an increase or decrease
in the Fund's net assets on a daily basis, thereby
providing an appropriate measure of the Fund's
financial position and changes in financial position.
CASH MANAGEMENT - ALL FUNDS
For purposes including but not limited to meeting
redemptions and unanticipated expenses, the Funds
may invest a portion of their assets in cash or high-
quality, short-term debt obligations readily
changeable into cash such as:
(1) certificates of deposit, bankers' acceptances and
other short-term obligations issued domestically
by United States commercial banks having assets
of at least $1 billion and which are members of
the Federal Deposit Insurance Corporation or
holding companies of such banks; (2)
commercial paper of companies rated P-2/MIG-2
or higher by Moody's Investors Service, Inc.
(Moody's) or A-2 or higher by Standard and
Poor's Corporation (S&P), or if not rated by
either Moody's or S&P, a company's
commercial paper may be purchased by the Fund
if the company has an outstanding bond issue
rated A or higher by Moody's or A or higher by
S&P; (3) short-term debt securities which are
non-convertible and which have one year or less
remaining to maturity at the date of purchase and
which are rated A or higher by Moody's or A or
higher by S&P; (4) negotiable certificates of
deposit and other short-term debt obligations of
savings and loan associations having assets of at
least $1 billion and which are members of the
Federal Home Loan Banks Association and
insured by the Federal Deposit Insurance
Corporation.
FUNDAMENTAL INVESTMENT
RESTRICTIONS
In addition to the investment objective and portfolio
management policies set forth in the Prospectus
under the caption "Investment Objective and
Principal Investment Strategies," the Funds are
subject to certain other restrictions which may not be
changed without approval of the lesser of: (1) at least
67% of the voting securities present at a meeting if
the holders of more than 50% of the outstanding
securities of the Fund are present or represented by
proxy, or (2) more than 50% of the outstanding
voting securities of the Fund.
Babson Growth Fund and Babson Value Fund
will not: (1) purchase the securities of any one
issuer, except the United States government, if
immediately after and as a result of such purchase (a)
the value of the holdings of the Fund in the securities
of such issuer exceeds 5% of the value of the Fund's
total assets, or (b) the Fund owns more than 10% of
the outstanding voting securities, or any other class of
securities, of such issuer; (2) engage in the purchase
or sale of real estate or commodities; (3) underwrite
the securities of other issuers; (4) make loans to any
of its officers, directors, or employees, or to its
manager, or general distributor, or officers or
directors thereof; (5) make any loan (the purchase of
a security subject to a repurchase agreement or the
purchase of a portion of an issue of publicly
distributed debt securities is not considered the
making of a loan); (6)invest in companies for the
purpose of exercising control of management; (7)
purchase securities on margin or sell securities short;
(8) purchase shares of other investment companies
except in the open market at ordinary broker's
commission, but, with respect to the Growth Fund,
not in excess of 5% of the Growth Fund's assets, or,
for either Fund, pursuant to a plan of merger or
consolidation; (9) invest in the aggregate more than
5% of the value of its gross assets in the securities of
issuers (other than federal, state, territorial, or local
governments, or corporations, or authorities
established thereby), which including predecessors,
have not had at least three years' continuous
operations nor, with respect to the Growth Fund,
invest more than 25% of the Growth Fund's assets in
any one industry; (10) enter into dealings with its
officers or directors, its manager or underwriter, or
their officers or directors or any organization in
which such persons have a financial interest except
for transactions in the Fund's own shares or other
securities through brokerage practices which are
considered normal and generally accepted under
circumstances existing at the time; (11) purchase or
retain securities of any company in which any Fund
officers or directors, or Fund manager, its partner,
officer, or director beneficially owns more than 1/2 of
1% of said company's securities, if all such persons
owning more than 1/2 of 1% of such company's
securities, own in the aggregate more than 5% of the
outstanding securities of such company; (12) borrow
or pledge its credit under normal circumstances
except up to 10% of its gross assets (computed at the
lower of fair market value or cost) for temporary or
emergency purposes, and not for the purpose of
leveraging its investments, and provided further that
any borrowing in excess of 5% of the total assets of
the Fund shall have asset coverage of at least 3 to1;
(13) make itself or its assets liable for the
indebtedness of others; or (14) invest in securities
which are assessable or involve unlimited liability.
Babson Enterprise Fund, Babson Enterprise Fund
II and Shadow Stock Fund will not: (1) purchase
the securities of any one issuer, except the United
States government, if immediately after and as a
result of such purchase (a) the value of the holdings
of the Fund in the securities of such issuer exceeds
5% of the value of the Fund's total assets, or (b) the
Fund owns more than 10% of the outstanding voting
securities, or any other class of securities, of such
issuer; (2) engage in the purchase or sale of real
estate or commodities or, with respect to Enterprise
Fund II, futures contracts; (3) underwrite the
securities of other issuers; (4) make loans to any of
its officers, directors, or employees, or to its
manager, or general distributor, or officers or
directors thereof; (5) make loans to other persons,
except by the purchase of debt obligations which are
permitted under its investment policy; (6)invest in
companies for the purpose of exercising control of
management; (7) purchase securities on margin or
sell securities short; (8) purchase shares of other
investment companies except in the open market at
ordinary broker's commission, but not in excess of
5% of the Fund's assets, or pursuant to a plan of
merger or consolidation; (9) invest in the aggregate
more than 5% of the value of its gross assets in the
securities of issuers (other than federal, state,
territorial, or local governments, or corporations, or
authorities established thereby), which including
predecessors, have not had at least three years'
continuous operations nor invest more than 25% of
the Fund's assets in any one industry; (10) enter into
dealings with its officers or directors, its manager or
underwriter, or their officers or directors or any
organization in which such persons have a financial
interest except for transactions in the Fund's own
shares or other securities through brokerage practices
which are considered normal and generally accepted
under circumstances existing at the time; (11)
purchase or retain securities of any company in
which any Fund officers or directors, or Fund
manager, its partner, officer, or director beneficially
owns more than 1/2 of 1% of said company's
securities, if all such persons owning more than 1/2 of
1% of such company's securities, own in the
aggregate more than 5% of the outstanding securities
of such company; (12) borrow or pledge its credit
under normal circumstances, except up to 10% of its
gross assets (computed at the lower of fair market
value or cost) for temporary or emergency purposes,
and not for the purpose of leveraging its investments,
and provided further that any borrowing in excess of
5% of the total assets of the Fund shall have asset
coverage of at least 3 to1; (13) make itself or its
assets liable for the indebtedness of others; (14)
invest in securities which are assessable or involve
unlimited liability; or (15) issue senior securities
except for those investment procedures permissible
under the Fund's other restrictions.
Babson-Stewart Ivory International Fund will not:
(1) purchase the securities of any one issuer, except
the United States government, if immediately after
and as a result of such purchase (a) the value of the
holdings of the Fund in the securities of such issuer
exceeds 5% of the value of the Fund's total assets, or
(b) the Fund owns more than 10% of the outstanding
voting securities, or any other class of securities, of
such issuer; (2) engage in the purchase or sale of real
estate or commodities; (3) underwrite the securities
of other issuers; (4) make loans to any of its officers,
directors, or employees, or to its manager, or general
distributor, or officers or directors thereof; (5) make
loans to other persons, except by the purchase of debt
obligations which are permitted under its investment
policy; (6) invest in companies for the purpose of
exercising control of management; (7) purchase
securities on margin or sell securities short; (8)
purchase shares of other investment companies
except shares of closed-end investment companies,
purchased in the open market at ordinary broker's
commission, but not in excess of 5% of the Fund's
assets, or pursuant to a plan of merger or
consolidation; (9) invest in the aggregate more than
5% of the value of its gross assets in the securities of
issuers (other than federal, state, territorial, or local
governments, or corporations, or authorities
established thereby), which including predecessors,
have not had at least three years' continuous
operations nor invest more than 25% of the Fund's
assets in any one industry; (10) enter into dealings
with its officers or directors, its manager or
underwriter, or their officers or directors or any
organization in which such persons have a financial
interest except for transactions in the Fund's own
shares or other securities through brokerage practices
which are considered normal and generally accepted
under circumstances existing at the time; (11)
purchase or retain securities of any company in
which any Fund officers or directors, or Fund
manager, its partner, officer, or director beneficially
owns more than 1/2 of 1% of said company's
securities, if all such persons owning more than 1/2 of
1% of such company's securities, own in the
aggregate more than 5% of the outstanding securities
of such company; (12) borrow or pledge its credit
under normal circumstances, except up to 10% of its
gross assets (computed at the lower of fair market
value or cost) for temporary or emergency purposes,
and not for the purpose of leveraging its investments,
and provided further that any borrowing in excess of
5% of the total assets of the Fund shall have asset
coverage of at least 3 to1; (13) make itself or its
assets liable for the indebtedness of others; (14)
invest in securities which are assessable or involve
unlimited liability; or (15) issue senior securities
except for those investment procedures permissible
under the Fund's other restrictions.
Although not fundamental policies subject to
shareholder vote, Babson-Stewart Ivory International
Fund may not engage in any of the following
activities: (1) invest directly in oil, gas, or other
mineral exploration or development programs: (2)
invest more than 5% of its total assets in securities
which are restricted as to future sale; (3) invest more
than 5% of its total assets in puts, calls, straddles,
spreads, and any combination thereof (the Fund will
engage in options transactions for hedging purposes
only); and (4) purchase warrants, valued at the lower
of cost or market, in excess of 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 at any time in units or attached
to securities are not subject to this restriction.
Babson Bond Trust will not: (1) purchase any
investment security for credit or on margin, except
such short-term credits as are necessary for the
clearance of transactions; (2) participate on a joint or
a joint-and-several basis in any trading account in
securities; (3) sell any securities short; (4) borrow
money, securities or other property in any event or
for any purpose whatsoever, or issue any security
senior to the shares authorized by the Trust
Indenture; (5) lend money, securities or other assets
of the Trust for any purpose whatsoever, provided,
however, that the acquisition of any publicly
distributed securities shall not be held or construed to
be the making of a loan; (6) mortgage, pledge,
hypothecate or encumber in any manner whatsoever
any investment securities at any time owned or held
by the Trust; (7) underwrite or participate in the
underwriting of any securities; (8) purchase shares of
other investment companies except in the open
market at ordinary broker's commission or pursuant
to a plan of merger or consolidation; (9) acquire any
security issued by any issuer in which an officer,
director or stockholder of such issuer is a Trustee of
the Trust or an officer or director of a principal
underwriter (as defined in the Investment Company
Act of 1940) if after the purchase of such security
one or more of the Trustees owns beneficially more
than 1/2 of 1% of the capital stock of such issuer and
such Trustees together own beneficially more than
5% of the capital stock of such issuer; (10) acquire
any security of another issuer if immediately after
and as a result of such acquisition the market value of
such securities of such other issuer shall exceed 5%
of the market value of the total assets of the Trust or
the Trust shall own more than 10% of the outstanding
voting securities of such issuer (this restriction does
not apply to securities issued by the United States or
any state, county or municipality thereof; (11) invest
more than 25% of the value of its assets in any one
industry; (12) engage in the purchase or sale of real
estate or commodities; (13) invest in companies for
the purpose of exercising control of management; or
(14) purchase any securities which are subject to
legal or contractual restrictions, i.e., restricted
securities which may not be distributed publicly
without registration under the Securities Act of 1933.
Babson Money Market Fund will not: (1) invest in
equity securities or securities convertible into
equities; (2) purchase the securities of any issuer
(other than obligations issued or guaranteed as to
principal and interest by the government of the
United States, its agencies or instrumentalities), if as
a result, (a) more than 5% of the Fund's total assets
(taken at current value) would be invested in the
securities of such issuer, or (b) the Fund would hold
more than 10% of any class of securities of such
issuer (for this purpose, all debts and obligations of
an issuer maturing in less than one year are treated as
a single class of securities); (3) borrow money in
excess of 15% of its total assets taken at market
value, and then only from banks as a temporary
measure for extraordinary or emergency purposes;
the Fund will not borrow to increase income
(leveraging) but only to facilitate redemption requests
which might otherwise require untimely dispositions
of Portfolio securities; the Fund will repay all
borrowings before making additional investments,
and interest paid on such borrowings will reduce net
income; (4) mortgage, pledge or hypothecate its
assets except in an amount up to 15% (10% as long
as the Fund's shares are registered for sale in certain
states) of the value of its total assets but only to
secure borrowings for temporary or emergency
purposes; (5) issue senior securities, as defined in the
Investment Company Act of 1940, as amended; (6)
underwrite securities issued by other persons; (7)
purchase or sell real estate, but this shall not prevent
investment in obligations secured by real estate; (8)
make loans to other persons, except by the purchase
of debt obligations which are permitted under its
investment policy; (9) purchase securities 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 1/2 of 1% of such securities, together own more
than 5% of the securities of such issuer; (11)
purchase or sell commodities or commodity
contracts; (12) write or invest in put, call, straddle or
spread options or invest in interests in oil, gas or
other mineral exploration or development programs;
(13) invest in companies for the purpose of
exercising control; (14) invest in securities of other
investment companies, except as they may be
acquired as part of a merger, consolidation or
acquisition of assets; (15) 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 U.S.
government or its agencies or instrumentalities; or
(16) purchase any securities which would cause more
than 25% of the value of a Portfolio's total net assets
at the time of such purchase to be invested in any one
industry; provided, however, the Prime Portfolio does
not consider assets in certificates of deposit or
bankers' acceptances of domestic branches of U.S.
banks to be investments in a single industry.
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.
Babson Tax-Free Income 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) mortgage, pledge 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 securities 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 1/2 of 1% of such securities,
together own more than 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 U.S. government, its agencies and
instrumentalities, and any municipal bond guaranteed
by the U.S. 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 U.S.
government or its agencies or instrumentalities.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Funds are
made by Jones & Babson, Inc. pursuant to
recommendations by David L. Babson & Co. Inc. and
Babson-Stewart Ivory International. Officers of the
Funds and Jones & Babson, Inc. are generally
responsible for implementing or supervising these
decisions, including allocation of portfolio brokerage
and principal business and the negotiation of
commissions and/or the price of the securities.
Portfolio turnover will be no more than is necessary
to meet the Funds' investment objectives. Under
normal circumstances, it is anticipated that the
Funds' portfolio turnover will not exceed 100%.
In instances where securities are purchased on a
commission basis, the Funds will seek competitive
and reasonable commission rates based on
circumstances of the trade involved and to the extent
that they do not detract from the quality of the
execution. The Funds, in purchasing and selling
portfolio securities, will seek the best available
combination of execution and overall price (which
shall include the cost of the transaction) consistent
with the circumstances which exist at the time. The
Funds do not intend to solicit competitive bids on
each transaction.
The Funds believe it is in its best interest and that
of their 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
Funds, when acting on their behalf, as well as for any
research or other services provided to the Funds.
Substantially all of the equity portfolio transactions
(except for the Babson-Stewart Ivory International
Fund) are through brokerage firms which are
members of the New York Stock Exchange which is
typically the most active market in the size of the
Fund's transactions and for the types of securities
predominant in the Fund's portfolio. Commissions of
transactions executed on foreign exchanges are
generally on a fixed basis. The Babson-Stewart Ivory
International Fund endeavors to obtain the rate of
such commission in good faith so as to achieve the
most favorable results under the circumstances of
each transaction. When buying securities in the over-
the-counter market, the Funds will select a broker
who maintains a primary market for the security
unless it appears that a better combination of price
and execution may be obtained elsewhere. The
Funds 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
Funds reserve the right to do so within the principles
set out in Section 28(e) of the Securities Exchange
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 Funds and Jones & Babson, Inc.
Since the Funds do not currently market shares
through intermediary brokers or dealers, it is not the
Funds' 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 Funds to other clients, or who act as
agents in the purchase of the Funds' shares for their
clients.
Research services furnished by broker-dealers may
be useful to the Fund managers in serving other
clients, as well as the Funds. Conversely, the Funds
may benefit from research services obtained by the
managers from the placement of portfolio brokerage
of other clients.
When it appears to be in the best interests of its
shareholders, the Funds may join with other clients of
the managers in acquiring or disposing of a portfolio
holding. Securities acquired or proceeds obtained
will be equitably distributed between the Funds and
other clients participating in the transaction. In some
instances, this investment procedure may affect the
price paid or received by the Funds or the size of the
position obtained by the Funds.
For the past three fiscal years each year, the total
dollar amount of brokerage commissions paid by the
Funds were as follows:
Growth - $488,655, $208,141 and $129,998 for
1999, 1998 and 1997 respectively; Enterprise -
$ 92,129*, $264,561 and $306,945; Enterprise II -
$64,350*, $95,748 and $52,014; Value - $866,352*,
$1,103,306 and $669,271; Shadow $ 38,503,
$81,743 and $8,350; International - $260,815,
$268,815 and $229,337.
*Denotes seven month figures.
PERFORMANCE MEASURES
The Funds 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 the Funds from the beginning
date of the measuring period to the end of the
measuring period. These figures reflect changes in
the price of the Funds' shares and assume that any
income dividends and/or capital gains distributions
made by the Funds during the period were reinvested
in shares of the Funds. 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 the Funds' 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 Fund's annual total return
for any one year in the period might have been
greater or less than the average for the entire period.
From time to time, the Babson Money Market Fund
and the Babson Tax-Free Income Fund Portfolio MM
may quote their yields in advertisements, shareholder
reports or other communications to shareholders.
Yield information is generally available by calling
the Funds toll free 1-800-4-BABSON (1-800-422-
2766), or in the Kansas City area 751-5900. The
current annualized yield for the Money Market Fund
and Portfolio MM is computed by: (a) determining
the net change in the value of a hypothetical pre-
existing account in each Fund or Portfolio 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 465/7 and subtracting 1). For the
seven-day period ended June 30, 1999, the current
annualized yield and compound effective yield of
Money Market Portfolio Prime was 4.09% and
4.10%, of Money Market Portfolio Federal was
3.96% and 4.00% and of Tax-Free Income Portfolio
MM was 2.91% and 3.03%. At June 30, 1999, the
average maturity of Federal was 35 days, of Prime
was 38 days and of Portfolio MM was 42 days.
Performance Comparisons. In advertisements or in
reports to shareholders, the Funds may compare their
performance to that of other mutual funds with
similar investment objectives and to stock or other
relevant indices. For example, they may compare
their performance to rankings prepared by Lipper
Analytical Services, Inc. (Lipper) or Morningstar,
Inc., two widely recognized independent services
which monitor the performance of mutual funds. The
Funds may compare their performance to the
Standard & Poor's 500 Stock Index (S&P 500), an
index of unmanaged groups of common stocks, the
Dow Jones Industrial Average, a recognized
unmanaged index of common stocks of 30 industrial
companies listed on the NYSE, the MSCI/EAFE, an
index of unmanaged stocks from 20 international
markets, the S&P Barra Value, a capitalization
weighted index associated with "value" stocks, the
S&P Barra Growth, a capitalization weighted index
associated with "growth" stocks, the Russell 2000
Index, an index that measures the performance of the
smallest 2000 publicly traded companies, the Lehman
Brothers Aggregate Bond Index, an index of
government, corporate and agency bonds, the
Lehman Brothers Intermediate Government
Corporate Index, an index of government, agency and
corporate notes between 1 and 10 years maturities, 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, Morningstar Mutual Funds,
Investor's Business Daily, 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. Performance comparisons should not be
considered as representative of the future
performance of any Fund.
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 the Funds
are 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 Rukeyser's Wall Street newsletter, Donoghue's
Money Letter, CDA Investment Technologies, Inc.,
Wiesenberger Investment Companies Service and
Donoghue's Mutual Fund Almanac.
TOTAL RETURN
The Funds' "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 $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a
hypothetical $1,000 payment
made at the beginning of the 1,
5 or 10 year (or other) periods
at the end of the 1, 5 or 10 year
(or other) periods (or fractional
portions thereof).
The table below shows the average total return for
each Fund for the specified periods.
For the one year 7/1/98-6/30/99
Growth 17.04%
Enterprise -11.30%
Enterprise II 0.00%
Value 5.63%
Shadow Stock -0.25%
Stewart Ivory International 3.76%
Bond Trust - L 1.88%
Bond Trust - S 3.22%
Tax-Free Income - L 1.70%
Tax-Free Income - S 1.96%
Tax-Free Income - MM 2.70%
Money Market - Federal 4.31%
Money Market - Prime 4.38%
For the five years 7/1/94 - 6/30/99
Growth 23.33%
Enterprise 12.54%
Enterprise II 15.65%
Value 19.95%
Shadow Stock 15.40%
Stewart Ivory International 8.12%
Bond Trust - L 6.86%
Bond Trust - S 6.61%
Tax-Free Income - L 5.98%
Tax-Free Income - S 4.30%
Tax-Free Income - MM 3.00%
Money Market - Federal 4.60%
Money Market - Prime 4.66%
For the ten years 7/1/89 - 6/30/99
Growth 14.89%
Enterprise 12.44%
Enterprise II 14.30%*
Value 15.51%
Shadow Stock 11.35%
Stewart Ivory International 9.41%
Bond Trust - L 7.51%
Bond Trust - S 7.16%
Tax-Free Income - L 6.46%
Tax-Free Income - S 5.20%
Tax-Free Income - MM 3.31%
Money Market - Federal 4.65%
Money Market - Prime 4.72%
*Inception date 8/5/91.
HOW THE FUND'S SHARES ARE
DISTRIBUTED
Jones & Babson, Inc., as agent of the Funds agrees
to supply its best efforts as sole distributor of the
Funds' 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. is located
at BMA Tower, 700 Karnes Blvd., Kansas City, MO
64108-3306.
Jones & Babson, Inc. does not receive any fee or
other compensation under the distribution agreement
which continues in effect until October 31, 1999, and
which will continue automatically for successive
annual periods ending each October 31, if continued
at least annually by the Funds' 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 for UMB Scout Stock Fund, Inc., UMB
Scout Bond Fund, Inc., UMB Scout Money Market
Fund, Inc., UMB Scout Tax-Free Money Market
Fund, Inc., UMB Scout Regional Fund, Inc., UMB
Scout WorldWide Fund, Inc., UMB Scout Balanced
Fund, Inc., UMB Scout Capital Preservation Fund,
Inc., UMB Scout Kansas Tax-Exempt Bond Fund,
Inc., Buffalo Balanced Fund, Inc., Buffalo Equity
Fund, Inc., Buffalo High Yield Fund, Inc., Buffalo
USA Global Fund, Inc., Buffalo Small Cap Fund,
Inc. and AFBA Five Star Fund, Inc.
PURCHASE AND REDEMPTION SERVICES
We reserve the right to:
Waive or increase the minimum investment
requirements with respect to any person or class of
persons, which include shareholders of the Funds'
special investment programs.
Cancel or change the telephone/Fund web site
investment service, the telephone/internet exchange
service and the automatic monthly investment plan
without prior notice to you where in the best interest
of the Funds and theirs investors.
Cancel or change the telephone/Fund web site
redemption service at any time without notice.
Begin charging a fee for the telephone investment
service or the automatic monthly investment plan and
to cancel or change these services upon 15 days
written notice to you.
Begin charging a fee for the telephone/Fund web
site service and to cancel or change the service upon
60 days written notice to you.
Begin charging a fee for the systematic redemption
plan upon 30 days written notice to you.
Waive signature guarantee requirements in certain
instances where it appears reasonable to do so and
will not unduly affect the interests of other
shareholders. We may waive the signature guarantee
requirement if you authorize the telephone/Fund web
site redemption method at the same time you submit
the initial application to purchase shares.
Require signature guarantee if there appears to be a
pattern of redemptions designed to avoid the
signature guarantee requirement, or if we have other
reason to believe that this requirement would be in
the best interests of the Funds and their shareholders.
HOW SHARE PURCHASES ARE HANDLED
We will not be responsible for the consequences of
delays, including delays in the banking or Federal
Reserve wire systems. We cannot process
transaction requests that are not complete and in good
order as described in the prospectus. If you use the
services of any other broker to purchase or redeem
shares of the Funds, that broker may charge you a
fee. 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 Funds.
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, the price per share, and the 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 which provides
necessary tax information. 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.
The shares which you purchase are held by the
Funds in open account, thereby relieving you of the
responsibility of providing for the safekeeping of a
negotiable share certificate. Jones & Babson does
not intend to issue new certificated shares for any
accounts.
If an order to purchase shares must be canceled due
to non-payment, the purchaser will be responsible for
any loss incurred by the Funds arising out of such
cancellation. To recover any such loss, the Funds
reserve 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 Funds reserve 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 Funds and their
shareholders.
The Funds may accept investments in kind of
stocks based on judgments as to whether, in each
case, acceptance of stock will allow the Fund to
acquire the stock at no more than net cost of
acquiring it through normal channels, and whether
the stock has restrictions on its sale by the Fund
under the Securities Act of 1933. Fund shares
purchased in exchange for stock are issued at net
asset value.
The Funds reserve 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 Funds sustain a loss as the result of failure by
a purchaser to make payment, the Funds'
underwriter, Jones & Babson, Inc., will cover the
loss.
REDEMPTION OF SHARES
We will not be responsible for the consequences of
delays, including delays in the banking or Federal
Reserve wire systems. We cannot process
transaction requests that are not complete and in good
order. We must receive an endorsed share certificate
with a signature guarantee, where a certificate has
been issued.
The Telephone/Fund Web Site Redemption Service
may only be used for non certificated shares held in
an open account. We reserve the right to refuse a
telephone or Fund web site redemption request. At
our option, we may pay such redemption by wire or
check. We may reduce or waive the $10 charge for
wiring redemption proceeds in connection with
certain accounts.
To participate in the Systematic Redemption Plan
your dividends and capital gains distributions must be
reinvested in additional shares of the Funds.
The right of redemption may be suspended, or the
date of payment postponed beyond the normal three-
day period 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 Funds of securities
owned by it is not reasonably practicable, or (b) it is
not reasonably practicable for the Funds to determine
the fair value of its net assets; or (3) under certain
circumstances where certain shareholders are
attempting to "time the market" by purchasing and
redeeming shares from the Funds on a regular basis;
or (4) for such other periods as the Securities and
Exchange Commission may by order permit for the
protection of the Fund's shareholders.
Babson Money Market Fund and Portfolio MM of
Babson Tax-Free Income Fund may accept drafts
(checks) on the form provided by the Fund without
the necessity of an accompanying guarantee of
signature, and drawn on the registered shareholder
account, to redeem sufficient shares in the registered
shareholder account and to deposit the proceeds in a
special account at UMB Bank, n.a. for transmission
through the commercial banking system to the credit
of the draft payee. The drafts must be in at least the
amount of $500, and may be drawn only against
shares held in open account (no certificate
outstanding). The Funds and their Manager may
refuse to honor drafts where there are insufficient
open account shares in the registered account, or
where shares to be redeemed which were purchased
by check have been held for less than 15 days, and to
the specific conditions relating to this privilege as
well as the general conditions set out above.
The Funds have elected to be governed by Rule
18f-1 under the Investment Company Act of 1940
pursuant to which the Funds are obligated to redeem
shares solely in cash up to the lesser of $250,000 or
1% of the Funds' net asset value during any 90-day
period for any one shareholder. Should redemptions
by any shareholder exceed such limitation, the Funds
may redeem the excess in kind. If shares are
redeemed in kind, the redeeming shareholder may
incur brokerage costs in converting the assets to cash.
The method of valuing securities used to make
redemptions in kind will be the same as the method
of valuing portfolio securities described under "How
Share Price is Determined" in the Prospectus, and
such valuation will be made as of the same time the
redemption price is determined.
MANAGEMENT AND
INVESTMENT ADVISER
As a part of the Management Agreement, Jones &
Babson, Inc. employs at its own expense David L.
Babson & Co. Inc. and for the Babson-Stewart Ivory
International Fund, Babson-Stewart Ivory
International, as its investment advisers. David L.
Babson & Co. Inc. was founded in 1940 as a private
investment research and counseling organization.
David L. Babson & Co. Inc. serves individual,
corporate and other institutional clients. It
participates with Jones & Babson in the management
of nine Babson no-load mutual funds. Babson-
Stewart Ivory International is a partnership formed in
1987, by David L. Babson & Co. of Cambridge,
Massachusetts and Stewart Ivory & Company
(International) Ltd, a wholly owned subsidiary of
Stewart Ivory (Holdings), Ltd., of Edinburgh,
Scotland.
The aggregate management fees paid to Jones &
Babson, Inc. by the Funds during the three most
recent fiscal years ended June 30, 1999, 1998, and
1997 (from which Jones & Babson, Inc. paid all the
Funds' expenses except those payable directly by the
Funds) were $3,699,538, $3,251,137, and
$2,566,555, respectively for the Growth Fund;
$990,364*, $2,199,612 and $2,176,042 for the
Enterprise Fund; $513,015*, $998,783 and $760,997
for the Enterprise Fund II; $7,202,092*, $5,468,960
and $3,911,594 for the Value Fund; $374,771,
$527,001 and $379,685 for the Shadow Stock Fund;
$884,366, $995,338 and $857,963 for the Stewart
Ivory International Fund; $691,818*, $1,226,260 and
$1,275,822 for the Bond Trust Portfolio L;
$215,212*, $370,143 and $254,164 for the Bond
Trust Portfolio S (does not include the effect of fee
waiver); $448,280, $426,396 and $436,044 for the
Money Market Fund; $513,722, $530,401 and
$535,180 for the Tax-Free Income Fund. Figures
followed by an asterisk (*) denote 7 month figures
due to a change in fiscal year end from November 30
to June 30. The annual fee charged by Jones &
Babson, Inc. covers all normal operating costs of the
Funds. The annual fee charged by Jones & Babson,
Inc. is higher than the fees of most other investment
advisers whose charges cover only investment
advisory services with all remaining operational
expenses absorbed directly by the Funds. Yet, it
compares favorably with these other advisers when
all expenses to Funds shareholders are taken into
account.
David L. Babson & Co. Inc. has an experienced
investment analysis and research staff which
eliminates the need for Jones & Babson, Inc. and the
Funds to maintain an extensive duplicate staff, with
the consequent increase in the cost of investment
advisory service. Jones & Babson, Inc. pays David
L. Babson & Co. Inc. a fee of 30/100 of one percent
(0.30%) for the first $100 million, 25/100 of one
percent (0.25%) on the next $150 million and 20/100
of one percent (0.20%) for amounts in excess of $250
million of Growth Fund's average daily total net
assets; 70/100 of one percent (0.70%) of the first $30
million and 50/100 of one percent (0.50%) of
amounts in excess of $30 million of Enterprise
Fund's; 70/100 of one percent (0.70%) of the first $30
million and 50/100 of one percent (0.50%) of
amounts in excess of $30 million of Enterprise Fund
II's; 35/100 of one percent (0.35%) of Value Fund's;
25/100 of one percent (0.25%) of Shadow Stock
Fund's; 475/1000 of one percent (0.475%) of Stewart
Ivory International Fund's; 25/100 of one percent
(0.25%) of Bond Trust Portfolio L's; 15/100 of one
percent (0.15%) of Bond Trust Portfolio S's (through
March 1, 2000); 20/100 of one percent (0.20%) of
Money Market Fund Portfolio Federal and Prime's;
25/100 of one percent (0.25%) of Tax-Free Income
Fund Portfolio L's, 25/100 of one percent (0.25%) of
Tax-Free Income Fund Portfolio S's, 10/100 of one
percent (0.10%) of Tax-Free Income Fund Portfolio
MM's, which is computed daily and paid
semimonthly. The cost of the services of David L.
Babson & Co. Inc. is included in the services of
Jones & Babson, Inc. During the three most recent
fiscal years ended June 30, 1999, 1998 and 1997,
Jones & Babson, Inc. paid David L. Babson & Co.
Inc. fees amounting to $1,128,746, $1,003,328, and
$800,947, respectively for the Growth Fund,
$486,539*, $1,088,793 and $1,088,713 for the
Enterprise Fund; $249,077*, $486,060 and $365,461
for the Enterprise Fund II; $2,652,720*, $5,468,960
and $3,911,594 for the Value Fund; $117,145,
$131,750 and $94,921 for the Shadow Stock Fund;
$93,716, $497,669 and $428,982 for the Stewart
Ivory International Fund; $182,021*, $323,879 and
$335,133 for the Bond Trust Portfolio L; $33,198*,
$58,443 and $58,337 for the Bond Trust Portfolio S;
$105,477, $100,325 and $102,869 for the Money
Market Fund; $131,478, $136,416 and $137,997 for
the Tax-Free Income Fund, related to services
provided to the Funds. Figures followed by an
asterisk (*) denote seven month figures due to a
change in fiscal year end from November 30 to June
30.
Controlling Persons. Certain officers and directors
of the Funds are also officers or directors or both of
Jones & Babson, Inc., Babson-Stewart Ivory
International or David L. Babson & 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.
David L. Babson & Co. Inc. is a wholly-owned
subsidiary of DLB Acquisition Corporation, an
indirect, majority owned subsidiary of Massachusetts
Mutual Life Insurance Company headquartered in
Springfield, Massachusetts. Massachusetts Mutual
Life Insurance Company is an insurance organization
founded in 1851 and is considered to be a controlling
person of David L. Babson & Co. Inc., under the
Investment Company Act of 1940. Babson-Stewart
Ivory International is a partnership formed in 1987 by
David L. Babson & Co. Inc. and Stewart Ivory &
Company Ltd.
OFFICERS AND DIRECTORS
The officers of the Funds manage their day-to-day
operations. The Funds' manager and their officers
are subject to the supervision and control of the
Board of Directors.
The following table lists the officers and directors
of the Funds and their ages. Unless noted otherwise,
the address of each officer and director is BMA
Tower, 700 Karnes Blvd., Kansas City, Missouri
64108-3306. Except as indicated, each has been an
employee of Jones & Babson, Inc. for more than five
years.
* Larry D. Armel (58), President and Director.
President and Director, Jones & Babson, Inc., and of
each of the Babson Funds, UMB Scout Funds,
Buffalo Funds and the Investors Mark Series Fund,
Inc.; President and Trustee, D.L. Babson Bond Trust;
Director, AFBA Five Star Fund, Inc.
Francis C. Rood (65), Director. Retired, 73-395
Agave Lane, Palm Desert, California 92260-6653.
Formerly Vice President of Finance, Hallmark Cards,
Inc.; Director, of each of the Babson Funds, Buffalo
Funds and the Investors Mark Series Fund, Inc.;
Trustee, D.L. Babson Bond Trust.
William H. Russell (75), Director. Financial
Consultant, 645 West 67th Street, Kansas City,
Missouri 64113; previously Vice President, Sprint;
Director, of each of the Babson Funds, Buffalo Funds
and the Investors Mark Series Fund, Inc.; Trustee,
D.L. Babson Bond Trust.
H. David Rybolt (57), Director. Consultant, HDR
Associates, P.O. Box 2468, Shawnee Mission,
Kansas 66201; Director, of each of the Babson
Funds, (except the Babson-Stewart Ivory
International Fund, Inc.) Buffalo Funds and the
Investors Mark Series Fund, Inc.; Trustee, D.L.
Babson Bond Trust.
James T. Jensen (70), Director. Chief Executive
Officer, Jensen Associates, Inc., 892 Worcester
Street, Suite 210, Wellesley, Massachusetts 02482;
Director, of Babson-Stewart Ivory International
Fund, Inc.
Richard J. Phelps (71), Director. Chairman, Phelps
Industries, Inc., 122 Quincy Shore Drive, Quincy,
Massachusetts 02171. Trustee, The DLB Fund
Group; Director, Superior Pet Products (Aust.) Pty.
Ltd. And Superior Pet Products, Ltd. (England);
Member, Board of Overseers, Tufts University
School of Veterinary Medicine and Dean's Council,
Harvard Graduate School of Education; Director, of
Babson-Stewart Ivory International Fund, Inc.
P. Bradley Adams (39), Vice President and
Treasurer. Vice President and Treasurer, Jones &
Babson, Inc., and each of the Babson Funds, UMB
Scout Funds and Buffalo Funds; Vice President and
Chief Financial Officer, AFBA Five Star Fund, Inc.;
Principal Financial Officer, Investors Mark Series
Fund, Inc.
Martin A. Cramer (49), Vice President and
Secretary. Vice President and Secretary, Jones &
Babson, Inc., and of each of the Babson Funds, UMB
Scout Funds and Buffalo Funds; Secretary and
Assistant Vice President, AFBA Five Star Fund, Inc.;
Secretary, Investors Mark Series Fund, Inc.;
Constance E. Martin (38), Vice President.
Shareholder Operations Vice President and Director,
Jones & Babson, Inc.; Vice President, of each of the
Babson Funds, UMB Scout Funds, Buffalo Funds
and AFBA Five Star Fund, Inc.
Rhonda L. Grimes (39), Vice President. Vice
President and Director Control and Technology
Integration, Jones & Babson, Inc.; Vice President, of
each of the Babson Funds, AFBA Five Star Fund and
Buffalo Funds. She joined Jones & Babson in 1998.
W. Guy Cooke (38), Vice President. Chief
Compliance Officer, Jones & Babson, Inc.; Vice
President, of each of the Babson Funds, AFBA Five
Star Fund and Buffalo Funds. He joined Jones &
Babson in 1998.
Anthony M. Maramarco (50), Vice President-
Portfolio. Senior Vice President and Director, David
L. Babson & Co. Inc., One Memorial Drive,
Cambridge, Massachusetts 02142; Vice President-
Babson Value Fund, Inc. and Shadow Stock Fund,
Inc.
James B. Gribbell (32), Vice President-Portfolio.
Vice President, David L. Babson & Co. Inc., One
Memorial Drive, Cambridge, Massachusetts 02142;
Vice President-Babson Growth Fund, Inc.
Lance F. James (45), Vice President-Portfolio.
Executive Vice President and Director, David L.
Babson & Co. Inc., One Memorial Drive, Cambridge,
Massachusetts 02142; Vice President-Babson
Enterprise Fund, Inc. and Babson Enterprise Fund II,
Inc.
Remuneration of Officers, Directors and Trustees.
None of the officers, directors or Trustees will be
remunerated by the Funds 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, Rybolt, Jensen and Phelps
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 for Babson-Stewart Ivory International
Fund, Inc. is composed of Messrs. Jensen, Phelps,
Rood and Russell. The Audit Committee of the
Board of Directors for the other Babson Funds is
composed of Messrs. Rood, Russell and Rybolt.
The officers, directors and trustees of the Funds as
a group own less than 1% of the Fund. To the best
information available to the Manager, there are no
"Controlling Persons", shareholders that constitute
5% or 25% of the Funds.
COMPENSATION TABLE
Pension or Total
Retirement Estimated Compensation
Benefits Annual From All Babson
Aggregate Accrued As Benefits Funds Paid to
Compensation Part of Fund Upon Directors**
Name of DirectorFrom the Fund Expenses Retirement
-------------- ------------- ------------ ---------- -------------------
Larry D. Armel* -- -- -- --
Francis C. Rood $500 -- -- $7,250
William H. Russell $500 -- -- $7,250
H. David Rybolt $500 -- -- $7,000
James T. Jensen $3375 -- -- $3,375
Richard J. Phelps $3250 -- -- $3,250
* As an "interested director," Mr. Armel received no compensation
for his services as a director.
** The amounts reported in this column reflect the total compensation
paid to Messrs. Jensen and Phelps for services as directors of Babson-Stewart
Ivory International Fund, Inc. Mr. Rybolt for services as director or
trustee of eight Babson Funds and to Messrs. Rood and Russell for services
as a directors or trustees of nine Babson Funds during the fiscal year ended
June 30, 1999. Directors' fees are paid by the Funds' manager and
not by the Funds themselves.
HOLIDAYS
The net asset value per share is computed once
daily, Monday through Friday, at 4:00 p.m.
(Eastern Time) except: days when the Funds are
not open for business; days on which changes in
the value of portfolio securities will not materially
affect the net asset value; days during which no
purchase or redemption order is received by the
Funds; and customary holidays.
The Funds do not compute their net asset value
on the following customary holidays:
New Year's Day January 1
Martin Luther Third Monday
King, Jr. 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
Thanksgiving Day Fourth Thursday
in November
Christmas Day December 25
DIVIDENDS, DISTRIBUTIONS AND
THEIR TAXATION
Distributions and Taxes
Distributions of net investment income In
general, the Funds receive income in the form of
dividends or interest on their investments. This
income, less expenses incurred in the operation of a
fund, constitutes a fund's net investment income
from which dividends may be paid to investors.
Any distributions by a fund from such income will
be taxable to investors as ordinary income, whether
the investors take them in cash or in additional
shares.
By meeting certain requirements of the Internal
Revenue Code, Portfolios S and L of the Tax-Free
Income Fund have qualified and continue to
qualify to pay exempt-interest dividends. These
dividends are derived from interest income exempt
from regular federal income tax, and are not
subject to regular federal income tax when they are
distributed. In addition, to the extent that exempt-
interest dividends are derived from interest on
obligations of a state or its political subdivisions, or
from interest on qualifying U.S. territorial
obligations (including qualifying obligations of
Puerto Rico, the U.S. Virgin Islands or Guam),
they also will be exempt from such state's personal
income taxes. A state generally does not grant tax-
free treatment to interest on state and municipal
securities of other states.
Portfolios S and L of the Tax-Free Income Fund
may earn taxable income on any temporary
investments, on the discount from stripped
obligations or their coupons, on income from
securities loans or other taxable transactions, or on
ordinary income derived from the sale of market
discount bonds. Any fund distributions from such
income will be taxable as ordinary income,
whether received by investors in cash or in
additional shares.
The Federal and Prime Portfolios of the Money
Market Fund, Portfolio MM of the Tax-Free
Income Fund and Portfolios S and L of the Bond
Trust declare dividends for each day that their net
asset value is calculated. These dividends will
equal all of the daily net income payable to
shareholders of record as of the close of business
the preceding day. The daily net income includes
accrued interest and any original issue or
acquisition discount, plus or minus any gain or loss
on the sale of portfolio securities and changes in
unrealized appreciation or depreciation in portfolio
securities (to the extent required to maintain a
constant net asset value per share), less the
estimated expenses of the funds.
Distributions of capital gains In general, the
funds may derive capital gains and losses in
connection with sales or other dispositions of their
portfolio securities. Distributions from net short-
term capital gains will be taxable as ordinary
income. Distributions from net long-term capital
gains will be taxable as long-term capital gain,
regardless of how long the fund shares have been
held. Any net capital gains realized by a fund
generally will be distributed once each year, and
may be distributed more frequently, if necessary, in
order to reduce or eliminate excise or income taxes
on the fund. Because the Federal and Prime
Portfolios of the Money Market Fund and Portfolio
MM of the Tax-Free Income Fund are money
market funds, they do not anticipate realizing any
long-term capital gains.
Effect of foreign investments on distributions
Most foreign exchange gains realized on the sale of
debt securities are treated as ordinary income by a
fund for tax purposes. Similarly, foreign exchange
losses realized by a fund on the sale of debt
securities are generally treated as ordinary losses
by the fund for tax purposes. These gains when
distributed will be taxable as ordinary dividends,
and any losses will reduce a fund's ordinary
income otherwise available for distribution. This
treatment could increase or reduce a fund's
ordinary income distributions, and may cause some
or all of a fund's previously distributed income to
be classified as a return of capital.
The funds may be subject to foreign withholding
taxes on income from certain of their foreign
securities. If more than 50% of a fund's total
assets at the end of the fiscal year are invested in
securities of foreign corporations, the fund may
elect to pass-through each investor's pro rata share
of foreign taxes paid by the fund. If this election is
made, the year-end statement investors receive
from the fund will show more taxable income than
was actually distributed. However, investors will
be entitled to either deduct their share of such taxes
in computing their taxable income or (subject to
limitations) claim a foreign tax credit for such
taxes against their U.S. federal income tax. The
fund will provide investors with the information
necessary to complete their individual income tax
returns if it makes this election.
Information on the tax character of
distributions The funds will inform you of the
amount of your ordinary income dividends and
capital gains distributions at the time they are paid,
and will advise you of their tax status for federal
income tax purposes shortly after the close of each
calendar year. If you have not held fund shares for
a full year, a fund may designate and distribute to
you, as ordinary income or capital gain, a
percentage of income that is not equal to the actual
amount of such income earned during the period of
your investment in the fund.
Election to be taxed as a regulated investment
company Each fund has elected to be treated as a
regulated investment company under Subchapter M
of the Internal Revenue Code, has qualified as such
for its most recent fiscal year, and intends to so
qualify during the current fiscal year. As regulated
investment companies, the funds generally pay no
federal income tax on the income and gains they
distribute to you. The board reserves the right not
to maintain the qualification of a fund as a
regulated investment company if it determines such
course of action to be beneficial to shareholders.
In such case, a fund will be subject to federal, and
possibly state, corporate taxes on its taxable
income and gains, and distributions to you will be
taxed as ordinary dividend income to the extent of
such fund's earnings and profits.
Excise tax distribution requirements To avoid
federal excise taxes, the Internal Revenue Code
requires a fund to distribute to you by December 31
of each year, at a minimum, the following
amounts: 98% of its taxable ordinary income
earned during the calendar year; 98% of its capital
gain net income earned during the twelve month
period ending October 31; and 100% of any
undistributed amounts from the prior year. Each
fund intends to declare and pay these amounts in
December (or in January that are treated by you as
received in December) to avoid these excise taxes,
but can give no assurances that its distributions will
be sufficient to eliminate all taxes.
Redemption of fund shares Redemptions and
exchanges of fund shares are taxable transactions
for federal and state income tax purposes. If you
redeem your fund shares, or exchange your fund
shares for shares of a different Babson Fund, the
IRS will require that you report a gain or loss on
your redemption or exchange. If you hold your
shares as a capital asset, the gain or loss that you
realize will be capital gain or loss and will be long-
term or short-term, generally depending on how
long you hold your shares. Any loss incurred on
the redemption or exchange of shares held for six
months or less will be treated as a long-term capital
loss to the extent of any long-term capital gains
distributed to you by the fund on those shares.
All or a portion of any loss that you realize upon
the redemption of your fund shares will be
disallowed to the extent that you buy other shares
in such fund (through reinvestment of dividends or
otherwise) within 30 days before or after your
share redemption. Any loss disallowed under these
rules will be added to your tax basis in the new
shares you buy.
As to Portfolios S and L of the Tax-Free Income
Fund, any loss incurred on the redemption or
exchange of shares held for six months or less will
be disallowed to the extent of any exempt-interest
dividends distributed to investors with respect to
his or her fund shares and any remaining loss will
be treated as a long-term capital loss to the extent
of any long-term capital gains distributed to the
investor by the fund on those shares.
As to the Federal and Prime Portfolios of the
Money Market Fund and Portfolio MM of the Tax-
Free Income Fund, because the funds seek to
maintain a constant $1.00 per share net asset value,
investors should not expect to realize a capital gain
or loss upon redemption or exchange of fund
shares.
U.S. government obligations Many states grant
tax-free status to dividends paid to you from
interest earned on direct obligations of the U.S.
government, subject in some states to minimum
investment requirements that must be met by a
fund. Investments in Government National
Mortgage Association or Federal National
Mortgage Association securities, bankers'
acceptances, commercial paper and repurchase
agreements collateralized by U.S. government
securities do not generally qualify for tax-free
treatment. The rules on exclusion of this income
are different for corporations.
Dividends-received deduction for corporations
If you are a corporate shareholder, you should note
that dividends paid by the following funds for the
most recent fiscal year qualified for the dividends-
received deduction as set forth below:
Value Fund 33%
Growth Fund 19%
Shadow Stock Fund 100%
Enterprise Fund 100%
Enterprise Fund II 70%
In some circumstances, you will be allowed to
deduct these qualified dividends, thereby reducing
the tax that you would otherwise be required to pay
on these dividends. The dividends-received
deduction will be available only with respect to
dividends designated by such fund as eligible for
such treatment. All dividends (including the
deducted portion) must be included in your
alternative minimum taxable income calculation.
Because the Stewart-Ivory International Fund's
income is derived primarily from investments in
foreign rather than domestic U.S securities, no
portion of its distributions will generally be eligible
for the dividends-received deduction. None of the
dividends paid by the fund for the most recent
calendar year qualified for such deduction, and it is
anticipated that none of the current year's
dividends will so qualify.
Because the Money Market Fund's (Federal and
Prime Portfolios), the Tax-Free Income Fund's
(Portfolios S, L and MM) and the Bond Trust's
(Portfolios S and L) income consists of interest
rather than dividends, no portion of their
distributions will generally be eligible for the
dividends-received deduction. None of the
dividends paid by the funds for the most recent
calendar year qualified for such deduction, and it is
anticipated that none of the current year's
dividends will so qualify.
Investment in complex securities The funds may
invest in complex securities. These investments
may be subject to numerous special and complex
tax rules. These rules could affect whether gains
and losses recognized by a fund are treated as
ordinary income or capital gain, accelerate the
recognition of income to a fund and/or defer a
fund's ability to recognize losses, and, in limited
cases, subject a fund to U.S. federal income tax on
income from certain of its foreign securities. In
turn, these rules may affect the amount, timing or
character of the income distributed to you by a
fund.
GENERAL INFORMATION AND
HISTORY
The Babson Bond Trust was organized in Kansas
City, Missouri, as a common law trust under an
Agreement and Declaration of Trust dated
November 2, 1944, which was amended and
restated on February 24, 1989. It originally was
known as Mutual Trust. When it came under the
management of Jones & Babson, Inc., its name was
changed to Babson (D.L.) Income Trust. On
February 14, 1984, shareholders changed its name
to D.L. Babson Bond Trust. On March 31, 1988,
the issued and outstanding shares of beneficial
interest of the Trust were redesignated as "Portfolio
L" (longer term) and a second class or series of
shares known as "Portfolio S" (shorter term) was
created. Each full and fractional share, when
issued and outstanding, has: (1) equal voting rights
with respect to matters which affect the Trust 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 Trust which are
not specifically allocated to either Portfolio. Shares
when issued are fully paid and non-assessable.
Except for the priority of each share in the assets of
its Portfolio, the Trust will not issue any class of
securities senior to any other class. The initial par
value of the shares was $1.00 each. On September
30, 1955, this was changed to $0.25 each, and three
additional shares at that time were issued for each
share then outstanding. Shareholders do not have
pre-emptive or conversion rights.
The other Babson Funds were incorporated in
Maryland as follows: The Growth Fund, originally
incorporated in Delaware in 1959 and was merged
into a Maryland corporation in 1978, has a present
authorized capitalization of 100,000,000 shares of
$1 par value common stock; the Enterprise Fund
on July 5, 1983, has a present authorized
capitalization of 20,000,000 shares of $1 par value
common stock; the Enterprise Fund II on February
5, 1991, has a present authorized capitalization of
10,000,000 shares of $1 par value common stock;
the Value Fund on July 24, 1984, has a present
authorized capitalization of 50,000,000 shares of
$1 par value common stock; the Shadow Stock
Fund on June 3, 1987, has a present authorized
capitalization of 10,000,000 shares of $1 par value
common stock; the Stewart Ivory International
Fund on October 2, 1987, has a present authorized
capitalization of 10,000,000 shares of $1 par value
common stock; the Money Market Fund on
October 19, 1979, has a present authorized
capitalization of 2,000,000,000 shares of $.01 par
value common stock to be issued in two separate
classes; and the Tax-Free Income Fund 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. All
shares are of the same class unless otherwise stated
and with like rights and privileges. Each full and
fractional share, when issued and outstanding, has:
(1) equal voting rights with respect to matters
which affect the Fund, and (2) equal dividend,
distribution and redemption rights to the assets of
the Fund. Shares when issued are fully paid and
non-assessable. The Funds may create other series
of stock but will not issue any senior securities.
Shareholders do not have pre-emptive or
conversion rights.
Non-cumulative voting - The Funds' 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.
The Funds may not, at their discretion, hold
annual meetings of shareholders for the following
purposes unless required to do so: (1) election of
directors; (2) approval of continuance of any
investment advisory agreement; (3) ratification of
the selection of independent auditors; and (4)
approval of a distribution plan. As a result, the
Funds do not intend to hold annual meetings.
The Funds will not hold annual meetings except
as required by the Investment Company Act of
1940 and other applicable laws. A special meeting
of stockholders of the Funds must be held if the
Fund receives the written request for a meeting
from the stockholders entitled to cast at least 25%
of all the votes entitled to be cast at the meeting.
The Funds have undertaken that their 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 each Fund. To
the extent required by the undertaking, the Funds
will assist shareholder communications in such
matters.
The Funds may use the name "Babson" in their
names so long as Jones & Babson, Inc. continues
as manager and David L. Babson & Co. Inc. as its
investment adviser. Complete details with respect
to the use of the name are set out in the
Management Agreement between the Funds and
Jones & Babson, Inc.
Shadow Stock Fund has an exclusive and
perpetual license to use the name "Shadow Stock"
in its name so long as Analytic Systems, Inc. or an
affiliate thereof or of James B. Cloonan, acts as its
Investment Adviser. Complete details with respect
to the use of the name are set out in the
Management Agreement between the Fund and
Jones & Babson, Inc.
CUSTODIAN
Except for the Babson-Stewart Ivory
International Fund, Inc., the Funds' assets are held
for safekeeping by an independent custodian, UMB
Bank, n.a. This means the bank, rather than the
Funds, has possession of the Funds' cash and
securities. The custodian bank is not responsible
for the Funds' investment management or
administration. But, as directed by the Funds'
officers, it delivers cash to those who have sold
securities to the Funds in return for such securities,
and to those who have purchased portfolio
securities from the Funds, it delivers such
securities in return for their cash purchase price. It
also collects income directly from issuers of
securities owned by the Funds and holds this for
payment to shareholders after deduction of the
Funds' expenses. The custodian is compensated for
its services by the manager. There is no separate
charge to the Funds.
The Babson-Stewart Ivory International Fund's
assets are held for safekeeping by an independent
custodian, State Street Bank and Trust Company of
Boston, Massachusetts and foreign subcustodians
as discussed below. This means State Street Bank
and Trust Company, rather than the Fund, has
possession of the Fund's cash and securities. State
Street Bank and Trust Company 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 Fund.
Pursuant to rules adopted under the 1940 Act, the
Fund may maintain its foreign securities and cash
in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign
custodial institutions is made by the Board of
Directors following a consideration of a number of
factors, including (but not limited to) the eligibility
and financial stability of the institution; the ability
of the institution to perform capably custodial
services for the fund; the reputation of the
institution in its national market; the political and
economic stability of the country in which the
institution is located; and further risks of potential
nationalization or expropriation of Fund assets.
TRANSFER AGENT
Jones & Babson, Inc. also serves as transfer
agent to the Funds.
INDEPENDENT AUDITORS
The Funds' financial statements are audited
annually by independent auditors approved by the
directors each year, and in years in which an
annual meeting is held the directors may submit
their selection of independent auditors to the
shareholders for ratification. Ernst & Young LLP,
One Kansas City Place, 1200 Main Street, Suite
2000, Kansas City, Missouri 64105, serves as the
Funds' present independent auditor.
OTHER JONES & BABSON FUNDS
Jones & Babson also sponsors and manages the
Buffalo Group of Mutual Funds. They are:
BUFFALO BALANCED FUND, INC. was
organized in 1994, with the objective of long-
term capital growth and high current income
through investing in common stocks and
secondarily by investing in convertible bonds,
preferred stocks and convertible preferred stocks.
BUFFALO EQUITY FUND, INC. was
organized in 1994, with the objective of long-
term capital appreciation to be achieved
primarily by investment in common stocks.
Realization of dividend income is a secondary
consideration.
BUFFALO HIGH YIELD FUND, INC. was
organized in 1994, with the objective of a high
level of current income and secondarily, capital
growth by investing primarily in high-yielding
fixed income securities.
BUFFALO USA GLOBAL FUND, INC. was
organized in 1994, with the objective of capital
growth by investing in common stocks of
companies based in the United States that receive
greater than 40% of their revenues or pre-tax
income from international operations.
BUFFALO SMALL CAP FUND, INC. was
organized in 1998, with the objective of long-
term capital growth by investment in equity
securities of small companies.
A prospectus for any of the Funds may be
obtained from Jones & Babson, Inc., BMA Tower,
700 Karnes Blvd., Kansas City, MO 64108-3306.
Jones & Babson, Inc. also sponsors nine mutual
funds which especially seek to provide services to
customers of affiliate banks of UMB Financial
Corporation. They are: UMB Scout Stock Fund,
Inc., UMB Scout Bond Fund, Inc., UMB Scout
Money Market Fund, Inc., UMB Scout Tax-Free
Money Market Fund, Inc., UMB Scout Regional
Fund, Inc., UMB Scout WorldWide Fund, Inc.,
UMB Scout Balanced Fund, Inc., UMB Scout
Capital Preservation Fund, Inc. and UMB Scout
Kansas Tax-Exempt Bond Fund, Inc.
Jones & Babson, Inc., also sponsors the AFBA
Five Star Fund, Inc.
DESCRIPTION OF STOCK RATINGS
Standard & Poor's Earnings and Dividend
Rankings for Common Stocks (S&P) - Growth and
stability of earnings and dividends are deemed key
elements in establishing Standard & Poor's
earnings and dividend rankings for common stocks.
Basic scores are computed for earnings and
dividends, then adjusted by a set of predetermined
modifiers for growth, stability within long-term
trend, and cyclically. Adjusted scores for earnings
and dividends are then combined to yield a final
score. The final score is measured against a
scoring matrix determined by an analysis of the
scores of a large and representative sample of
stocks. The rankings are:
A+ Highest
A High
A- Above Average
B+ Average
B Below Average
B- Lower
C Lowest
D In Reorganization
Value Line Ratings of Financial Strength - The
financial strength of each of the companies
reviewed by Value Line is rated relative to all the
others. The ratings are:
A++ The very highest relative financial
strength.
A+ Excellent financial position relative to
other companies.
A High grade relative financial strength.
B++ Superior financial health on a relative
basis.
B+ Very good relative financial structure.
B Good overall relative financial structure.
C++ Satisfactory finances relative to other
companies.
C+ Below-average relative financial position.
C Poorest financial strength relative to other
major companies.
The ratings are based upon computer analysis of
a number of key variables that determine: (a)
financial leverage, (b) business risk and (c)
company size plus the judgment of their analysts
and senior editors regarding factors that cannot be
quantified across-the-board for all stocks. The
primary variables that are indexed and studied
include equity coverage of debt, equity coverage of
intangibles, "quick ratio" accounting methods,
variability of return, quality of fixed charge
coverage, stock price stability and company size.
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" 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 reevaluate its investment
objective and policies and submit possible changes
in the structure of the Fund for the consideration of
the shareholders.
RATINGS OF MUNICIPAL AND TAXABLE
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 form 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.
S&P'S BOND 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
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.
BBB Adequate Grade - These are obligations
regarded as having adequate capacity to pay
interest and repay principal. Whereas it
normally exhibits adequate protection
parameters, adverse economic conditions or
changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay
principal for debt in this category than in higher
rated categories.
MOODY'S RATINGS OF
BONDS
Aaa - Bonds which are rated Aaa are judged to be
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.
Baa Adequate Grade - These are obligations
regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this
category than in higher rated categories.
MOODY'S RATINGS
OF MUNICIPAL NOTES
MIG 1: The best quality, enjoying strong
protection from established cash flow 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.
DESCRIPTION OF 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
The audited financial statements of the Funds
which are contained in the June 30, 1999, Annual
Report to Shareholders are incorporated herein by
reference.
Babson Funds
Semiannual Report
December 31, 1999
Equities
Enterprise Fund
Enterprise Fund II
Growth Fund
Shadow Stock Fund
Value Fund
International Fund
Fixed Income
Bond Trust
Money Market Fund
Tax-Free Income Fund
Babson Funds
Jones & Babson Distributors
A Member of the Generali Group
Table of Contents
Economic Review 1
Babson Enterprise Fund 2
Babson Enterprise Fund II 5
Babson Growth Fund 8
Shadow Stock Fund 11
Babson Value Fund 16
Babson-Stewart Ivory
International Fund 19
Babson Bond Trust 23
Babson Bond Trust
Portfolio L 25
Babson Bond Trust
Portfolio S 29
Babson Money Market Fund 33
Babson Money Market Fund
Prime 34
Babson Money Market Fund
Federal 35
Babson Tax-Free Income Fund 36
Babson Tax-Free Income Fund
Portfolio L 37
Babson Tax-Free Income Fund
Portfolio S 39
Babson Tax-Free Income Fund
Portfolio MM 41
Statements of Assets
and Liabilities 44
Statements of Operations 46
Statements of Changes
in Net Assets 48
Notes to Financial Statements 52
Financial Highlights 54
Message to our Shareholders
It is with a great deal of pride and
excitement, and a little sadness, that I am
retiring as President and CEO as of the end
of January. I'll be passing the torch to
Steve Soden, our Chairman since 1993.
I have been at the company for 16 years, and
have been President since 1985. During that
time assets have grown tenfold, we've added
new Funds and Fund families, extended services,
entered new marketplaces, and have
dramatically increased our use of technology.
It's been a very rewarding challenge, and a
real honor to bring the Funds into the 21st
century.
I was blessed with a group of great people to
work with, and we've all grown and achieved
together. We've been through a lot, with the
acquisition by BMA in 1993, our relocation to
new headquarters in 1997 and the transition
to our new shareholder processing systems in
1998. It's very satisfying to have had so
many loyal, long-term employees. Many of them
came to be like a second family.
I want to thank you, as shareholders, for
your loyal support. I enjoyed staying close
to you, talking to you, listening to you,
understanding your frustrations and
challenges and appreciating your praise for
our Portfolio Managers and staff. It is
important that we never lose touch with those
we are truly serving. You've stuck with us
through fads in the markets, corrections, and
some downright difficult times. My goal has
been that you be rewarded in the long-run,
for sticking with us.
Back in 1968, David L. Babson found himself
in the midst of a speculative market driven
by high-multiple sector stocks. Sounds
something like today's markets, doesn't it? I
believe his remarks are as pertinent now as
they were thirty-two years ago:
". . . there is a silver lining in every
cloud . . . performance seekers create
wonderful opportunities for those willing to
use a little courage and patience to work
against them."
"Remember, it is very easy to measure
your performance, but it isn't easy to
measure the risks you take in seeking that
performance. . . . When we seek spectacular
short-term profits by performance methods, we
run the risk of having disastrous long-term results."
Shortly thereafter Mr. Babson was vindicated
for his fundamental-driven approach. Since
then we've been vindicated numerous times,
simply by keeping the courage of our
convictions and staying with our fundamental,
bottom-up investment philosophy. I know we'll
be vindicated this time around too.
Again, thanks for so many years of loyalty,
support and investments. I am leaving with a
terrific management team in place. They know
the company well, and the transition should
be seamless. I've known Steve for many years,
as a friend and colleague, and through his
leadership, the best is yet to come.
See you on the golf course!
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
Economic Review
This past year will be remembered for its
surprising strength. At the beginning of 1999, some
economists were calling for a recession, and
most were expecting growth of only 2%.
Instead, real Gross Domestic Product advanced
at nearly twice this rate.
Part of the reason for this unexpected vigor
stems from the continued shift in the
nation's resources from the public to the
private sector. The swing in recent years in
the federal budget from a deficit to a
surplus has freed up $400 billion annually
for the more efficient private sector to
spend and invest.
Another important factor in last year's
strength was the decline in interest rates
during the last half of 1998. In response to
the Asian crisis that year, the Federal
Reserve lowered short-term rates by three-
quarters of a percent and long-term Treasury
yields plummeted. These declines energized
the interest sensitive sectors of the
economy.
The resulting robustness in consumer demand
has proven to be so strong and enduring that
the Fed reversed course and raised short-term
rates by three-quarters of a point during the
second half of 1999 in an attempt to lower
the economy's overall growth rate from 4%
down to 3%. Long-term rates also rose more
than one and one-half percent during the
year, but consumption showed no sign of
slowing. This may be because many consumers
refinanced their mortgages in the declining
interest rate environment of 1998. By doing
this, they locked in the low rates and
insulated themselves from the effects of
rising rates. Thus, the economy may now not
be as sensitive to rising interest rates as
many observers believe. Coming at a time when
inflationary pressures are rising, the Fed
may have to tighten numerous times to rein in
growth.
In fact, the economy may even accelerate its
pace of growth at the beginning of 2000.
First of all, some consumers withdrew extra
cash from their bank accounts in anticipation
of problems with the century date change.
Moreover, many companies reported that their
customers withheld some orders at the end of
1999 for the same reason. If the start of the
New Year sees the extra liquidity being spent
by consumers, along with extra factory
orders, the result could be even stronger
economic growth. The Fed, already worried by
the inflationary potential of historically
low unemployment, would almost certainly
follow with a string of rate hikes to cool
off demand.
A major reason why inflation is not rising
faster than it is now is that the private
sector has spent its additional resources
wisely and has been able to increase
productivity roughly in line with wage
growth. New technology has helped this
process tremendously, and the potential for
the Internet to revolutionize business-to-
business transactions promises to help keep
this trend going. Still, the Internet has not
repealed the laws of supply and demand, it
has only changed the balance between them.
Were it not for the Internet, inflation and
interest rates would both be higher than they
are now. However, should the economy's growth
accelerate further, even Internet generated
efficiency gains might not be able to
counteract the inflationary pressures posed
by a shortage of workers. If the Fed is able
to eventually bring growth down to a
sustainable level of around 3%, and if the
budget surplus and technology allow the
private sector to continue to improve
productivity, then the expansion could
continue for a long time.
David L. Babson & Co. Inc.
BABSON ENTERPRISE FUND
Babson Enterprise Fund's total return (price change and
reinvested distributions) was -10.16% for the six months, and -
7.26% for the year ended December 31, 1999, compared to 10.96%
and 21.26%, respectively, for the unmanaged Russell 2000 index,
and -6.41% and -1.49%, respectively, for the unmanaged Russell
2000 Value index.
Average annual compounded total returns for five and ten year
periods as of December 31, 1999, were 8.98% and 10.63%,
respectively. Performance data contained in this report is for
past periods only. Past performance is not predictive of future
performance. Investment return and share value will fluctuate,
and redemption value may be more or less than original cost.
The market factors affecting the Fund's performance last year
were the growth orientation of the small cap markets and
specifically the stellar run-up in the technology sector. The
unmanaged Russell 2000 Growth index soared to a double-digit gain
in 1999, along with the Russell 2000's technology sector, which
was up 65% in the fourth quarter. Meanwhile, the Russell 2000
Value index posted a loss.
We didn't invest in many high-tech companies, which hurt the
Fund's performance, but the unreasonably high prices of many of
these stocks simply do not fit the conservative, earnings-driven
value approach of Babson Enterprise Fund. We do, however, invest
in such companies as Spectrum Control, a technology stock that
is, paradoxically, a classic example of a Babson Enterprise Fund
holding. The stock traded at $5 with little institutional
interest when we began to purchase it in mid-1997. The company
manufactures filters and connectors that go into
telecommunications equipment. Spectrum has also completed several
acquisitions that should dramatically increase its long-term
earnings potential. Despite having increased by 150% from our
purchase price, the stock trades at only 17x its expected
earnings, which we expect to grow at 25% or more for the next
several years.
Our company specific research indicates that the U.S. economy
remains healthy. We are therefore overweighted in sectors such as
materials and processing, producer durables, and consumer
discretionary services. Retail holdings like Fred's and Petco are
reporting impressive gains in same-store sales and earning per
share, but trade at a sizable price/earnings discount to other
category-dominant retailers.
In the past, increased acquisition activity of smaller companies
has been an early sign of a turn in the attractiveness of small
cap investing. In 1999, Babson Enterprise Fund had almost a dozen
companies acquired or with acquisitions pending as of year-end.
Most of these involved a buyout by a larger corporation at a
significant price premium, implying that strategic buyers
perceive an opportunity in the current valuation gap between
small and large companies. Given the Fund's efforts to
concentrate its holdings among leaders in attractive markets, it
is no surprise that our holdings were so often the target of
external interest.
Another indicator of a turn toward small caps may be the Russell
2000's outperformance of the large cap S&P 500 for the first year
since 1993, even if it was by just a small amount. In late 1990
and 1991, the markets began to favor smaller capitalization
stocks after a prolonged period of large cap outperformance.
Small cap growth stocks led the shift then, just as they did in
1999, but small cap value stocks dominated performance for the
rest of that small cap cycle, with the Russell 2000 Value index
up 59.8% in the 1992-93 period versus 22.2% for the Russell 2000
Growth index. And while past performance is no indicator of
future returns, we would be well positioned to reap the rewards
should the market turn in that direction again.
Portfolio additions for the six month period:
Bank of the Ozarks - Arkansas community bank
Compx International - office furniture components
Fred's - Southeastern U.S. discount retailer of general
merchandise and pharmacy goods
Tetra Technologies - products and services for the oil and gas
industry
Young Innovations - manufacturer of products used by dentists and
dental hygienists
Three companies are no longer in the portfolio due to buyouts:
Furon, Instron, and Nichols Research. The following were
eliminated from the Fund due to fundamentals: Baldwin Piano, CSP,
Farrel, INSO, Athey Products, Anderson's, International
Shipholding, Newcor, and Tokheim.
Fund Composition
Top Ten Holdings: % of Total
Zygo Corp. 3.30
Titan Corp. 3.17
Spectrum Control, Inc. 2.82
J&J Snack Foods 2.11
Channell Commercial Corp. 2.10
Oneida Ltd. 2.09
Penford Corp. 2.09
Kaneb Services, Inc. 2.00
Chicago Bridge & Iron Co. 1.92
Alltrista Corp. 1.92
Total 23.52%
Total Securities in Portfolio 73
As of December 31, 1999, statement of assets. Subject to change.
Schedule of Investments
December 31, 1999 (unaudited)
BABSON ENTERPRISE FUND
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 95.54%
BASIC MATERIALS - 2.09%
140,450 Penford Corp. $ 2,422,763
CAPITAL GOODS - 25.90%
138,900 ABC-Naco, Inc.* 1,145,925
216,400 American Precision Industries, Inc. 1,866,450
357,500 Brown & Sharpe Manufacturing Co. Cl. A 759,687
213,300 Channell Commercial Corp.* 2,439,619
162,300 Chicago Bridge & Iron Co. 2,231,625
231,900 Congoleum Corp. Cl. A* 927,600
240,763 Corrpro Companies, Inc. 1,414,483
62,300 Cubic Corp. 1,362,812
50,100 Cuno, Inc.* 1,037,227
135,700 Dayton Superior Corp.* 2,205,125
186,300 EDO Corp. 1,094,512
160,400 Engineered Support Systems, Inc. 1,924,800
134,100 Flir Systems, Inc.* 2,179,125
88,200 K-Tron International, Inc. 1,190,700
446,800 Lamson & Sessions Co.* 2,178,150
185,300 Schawk, Inc. Cl. A 1,575,050
64,800 Starrett (L.S.) Co. Cl. A 1,453,950
49,200 Terex Corp. 1,365,300
154,300 TransTechnology Corp. 1,706,944
30,059,084
CONSUMER CYCLICAL - 15.95%
85,900 Enesco Group, Inc. 950,269
99,200 Fab Industries, Inc. 1,072,600
241,870 Falcon Products, Inc. 2,086,129
61,500 Fred's, Inc. 980,156
206,800 Gottschalks, Inc.* 1,538,075
194,400 Helen of Troy Ltd. 1,409,400
175,100 Interface, Inc. 1,006,825
204,400 Jacobson Stores, Inc. 1,200,850
102,000 MDC Corp. Cl. A 854,250
111,650 Oneida Ltd. 2,428,388
85,800 Petco Animal Supplies, Inc. 1,276,275
99,300 Pulaski Furniture Corp. 1,539,150
318,100 Spartan Motors, Inc. 1,391,687
108,200 Swiss Army Brands, Inc.* 770,925
18,504,979
CONSUMER STAPLES - 5.54%
53,300 Genesee Corp. Cl. B 1,135,956
119,300 J & J Snack Foods Corp.* 2,445,650
36,700 Marsh Supermarkets, Inc. Cl. A 509,213
84,700 Marsh Supermarkets, Inc. Cl. B 857,587
207,200 Northland Cranberries, Inc. Cl. A 1,243,200
76,800 Styling Technology Corp. 240,000
6,431,606
ENERGY - 4.47%
529,500 Kaneb Services, Inc.* 2,316,562
278,300 Matrix Service Co. 1,269,744
94,600 Petroleum Helicopters, Inc. (non-voting) 922,350
73,700 Petroleum Helicopters, Inc. (voting) 681,725
5,190,381
FINANCIAL - 5.57%
22,000 Bank of the Ozarks, Inc. 429,000
124,940 Capital Corp. of the West 1,218,165
86,200 Cass Commercial Corp. 1,745,550
91,800 Haven Bancorp, Inc. 1,417,162
143,900 Sterling Financial Corp. 1,654,850
6,464,727
HEALTH CARE - 2.77%
140,375 Penwest Pharmaceutical Co.* 2,140,719
73,300 Young Innovations, Inc.* 1,076,594
3,217,313
MISCELLANEOUS - 7.20%
100,800 Alltrista Corp.* 2,230,200
277,683 Jason, Inc. 2,013,202
164,300 Kaman Corp. Cl. A 2,115,362
63,000 Sea Containers Ltd. Cl. A 1,677,375
12,000 Sea Containers Ltd. Cl. B 317,250
8,353,389
TECHNOLOGY - 22.88%
5,700 Aavid Thermal Technologies* 140,006
146,700 CEM Corp.* 1,577,025
71,800 Compx International, Inc. 1,319,325
266,400 Ennis Business Forms 2,064,600
176,000 ESCO Electronics Corp. 2,046,000
87,400 Landauer, Inc. 1,911,875
134,900 MSC Software Corp. 1,365,863
148,100 Nashua Corp. 1,110,750
79,700 New England Business Service, Inc. 1,947,669
172,700 Norstan, Inc. 1,100,962
307,500 Spectrum Control, Inc.* 3,267,188
164,600 Tetra Technologies, Inc. 1,193,350
78,000 Titan Corp.* 3,675,750
190,300 Zygo Corp. 3,829,787
26,550,150
TRANSPORTATION & SERVICES - 2.19%
90,200 ABM Industries, Inc. 1,837,825
39,200 Railtex, Inc.* 700,700
2,538,525
UTILITIES - 0.98%
18,200 E'town Corp. 1,132,950
TOTAL COMMON STOCKS 110,865,867
(Cost $116,266,410)
FACE
AMOUNT COMPANY MARKET VALUE
REPURCHASE AGREEMENT - 4.52%
$ 5,250,000 UMB Bank, n.a.,
3.00%, due January 3, 2000
(Collateralized by Federal National
Mortgage Association Discount Notes,
due January 18, 2000 with a value
of $4,553,284 and U.S. Treasury Notes,
6.25%, due August 31, 2000
with a value of $802,736) 5,250,000
(Cost $5,250,000)
TOTAL INVESTMENTS - 100.06% 116,115,867
(Cost $121,516,410)
Other assets less liabilities - (0.06%) (68,376)
TOTAL NET ASSETS - 100.00% $ 116,047,491
The identified cost of investments owned at
December 31, 1999, was the same for federal
income tax and book purposes.
Net unrealized depreciation for federal
income tax purposes was $5,400,543, which is
comprised of unrealized appreciation of $20,843,104
and unrealized depreciation of $26,243,647.
*Non-income producing security
See accompanying Notes to Financial Statements.
Babson Enterprise Fund II
The total return (price change and reinvested
distributions) of Babson Enterprise Fund II
was -1.48% for the six months and 6.16% for
the year ended December 31, 1999. Our value-
oriented portfolio trailed the unmanaged
Russell 2000 small company index, by 10.96%
for the six months and 21.26% for the year
ended December 31, 1999, but outperformed the
unmanaged Russell 2000 Value index by -6.41%
and -1.49%, respectively, for the same
periods.
Average annual compounded total returns for
five years and the life of the Fund
(inception August 5, 1991) as of December 31,
1999, were 15.67% and 13.19%, respectively.
Performance data contained in this report is
for past periods only. Past performance is
not predictive of future performance.
Investment return and share value will
fluctuate, and redemption value may be more
or less than original cost.
The Russell 2000 index outperformed the
unmanaged large cap Standard & Poor's 500 in
the second half of the year as small caps
completed their first full calendar year of
superior performance since 1993. 1999 saw the
largest ever calendar year differential in
performance between the Russell 2000 Growth
index 43.1% and the Russell 2000 Value index
-1.5%.
The exceptional performance of small cap
growth stocks was driven by the technology
sector which in 1999 rose more than 100% in
the Russell 2000 index. This surge in
technology stocks was the result of a rush by
investors to obtain exposure to the Internet
and other communications technology stocks,
practically without regard to valuations and
in the absence of reasonable future earnings
estimates. History demonstrates that while
speculative fervor ebbs and flows on Wall
Street, over the long run stock valuations
and underlying earnings are tightly
correlated. Therefore we maintain our
discipline of investing in undervalued
companies that have the potential to
significantly improve their earnings through
profit margin enhancement.
The Babson Enterprise Fund II portfolio is
underweighted relative to the Russell 2000
index in high technology, although certain
individual technology names in the portfolio
performed quite well in 1999. Our holdings in
Titan, Adaptive Broadband, Exar, and Xircom
were each up well over 100% in 1999. Titan
received USDA approval of its methodology to
irradiate ground beef and chicken to
eliminate illness-inducing pathogens.
Additionally, expectations grew that the
company would spin off a portion of its e-
business solutions software unit. Xircom and
Exar achieved sizable improvement in their
operating fundamentals, while Adaptive
Broadband advanced on more speculative
estimates of potential international growth
of wireless communications.
Some of the weaker performing stocks in the
portfolio for the six month period and for
the year were those of companies which
manufacture products to be sold to consumers
in the retail marketplace. Huffy announced
the closing of its domestic bicycle
manufacturing facility and attendant one-time
charges. Enesco is experiencing weakening
sales from its traditional gift and greeting
card retail distribution channel, but is
making inroads among mass merchandisers that
should sustain long-term growth.
We feel very bullish about the investment
return potential for small cap value stocks.
As with the last major turn in favor of
smaller capitalization stocks (late 1990 and
1991), the shift in 1999 was led by small cap
growth stocks. After the initial turn to
small cap growth stocks in 1991, though,
small cap value stocks dominated performance
for the rest of that small cap cycle, with
the Russell 2000 Value index up 59.8% in the
1992-93 period versus 22.2% for the Russell
2000 Growth index. We believe the Fund is
well positioned to profit from a return to
popularity of this sector based on its
attractive combination of valuation and
earnings fundamentals.
Portfolio additions for the six month period:
ADVO - direct mail marketing
Benchmark Electronics - electronics
manufacturing and design
CDI - staffing and outsourcing
Gardner Denver - air compressors and blowers
Penton Media - trade magazines, buyer's
guides, and trade shows
Rayovac - batteries
Stolt Comex Seaway - offshore oil and gas
underwater services contractors
Urban Shopping Centers - top-grade super-
regional malls and community shopping centers
REIT
Alberto-Culver and Zygo were liquidated from
the portfolio due to their valuations, Brush
Wellman, Libbey, and Sturm Ruger were
eliminated based on fundamentals.
Fund Composition
Top Ten Holdings: % of Total
BJ's Wholesale Club, Inc. 5.60
True North Communications, Inc. 4.77
Nabors Industries, Inc. 4.10
Carlisle Companies, Inc. 4.09
Gerber Scientific, Inc. 3.58
Sea Containers Ltd. Cl. A 3.55
Cuno, Inc. 3.40
Central Newspapers, Inc. Cl. A 3.35
Commerce Bancorp, Inc. 3.34
Miller Herman, Inc. 3.28
Total 39.06%
Total Securities in Portfolio 54
As of December 31, 1999, statement of assets. Subject to change.
Schedule of Investments
December 31, 1999 (unaudited)
BABSON ENTERPRISE FUND II
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 100.79%
BASIC MATERIALS - 6.28%
118,500 Apogee Enterprises, Inc. $ 599,906
223,400 Interface, Inc. Cl. A 1,284,550
106,000 Metals USA, Inc.* 901,000
32,700 New England Business Service, Inc. 799,106
33,498 Wausau-Mosinee Paper Corp. 391,508
3,976,070
CAPITAL GOODS - 17.81%
30,000 Commscope, Inc.* 1,209,375
104,100 Cuno, Inc.* 2,155,195
61,400 Foster Wheeler Corp. 544,925
103,400 Gerber Scientific, Inc. 2,268,337
90,400 Herman Miller, Inc. 2,079,200
88,900 MagneTek, Inc.* 683,419
41,900 Roper Industries, Inc. 1,584,344
67,900 Stolt Comex Seaway 751,144
11,275,939
CONSUMER CYCLICAL - 30.48%
40,000 AC Nielsen Corp.* 985,000
15,800 ADVO, Inc. 375,250
97,200 BJ's Wholesale Club, Inc. 3,547,800
53,800 Central Newspapers, Inc. Cl. A 2,118,375
49,100 Enesco Group, Inc. 543,169
83,300 Exide Corp. 692,431
81,400 Helen of Troy Ltd. 590,150
104,400 Huffy Corp. 548,100
110,300 La-Z Boy Chair Co. 1,854,419
35,700 Lee Enterprises, Inc. 1,140,169
35,600 Penton Media, Inc. 854,400
116,300 Petco Animal Supplies, Inc. 1,729,962
83,200 Stein Mart, Inc. 473,200
127,100 Stride Rite Corp. 826,150
67,600 True North Communications, Inc. 3,020,875
19,299,450
CONSUMER STAPLES - 3.24%
153,775 PSS World Medical, Inc. 1,451,252
31,700 Rayovac Corp.* 598,337
2,049,589
ENERGY - 4.10%
83,900 Nabors Industries, Inc.* 2,595,656
FINANCIAL - 13.92%
15,800 BancFirst Corp. 536,213
162,208 Cash America International, Inc. 1,581,528
52,231 Commerce Bancorp, Inc. 2,112,091
24,860 Community Trust Bancorporation, Inc. 497,200
98,600 Golden State Bancorp, Inc. 1,700,850
30,200 Golden State Bancorp, Inc.
Litigation Tracking Warrants* 26,425
34,500 Haven Bancorp, Inc. 532,594
48,600 S.L. Green Realty Corp. 1,057,050
28,400 Urban Shopping Centers 770,350
8,814,301
MISCELLANEOUS - 9.88%
72,000 Carlisle Companies, Inc. 2,592,000
4,800 CDI, Inc.* 115,800
3,100 Gardner Denver, Inc. 51,731
90,500 Kaman Corp. Cl. A 1,165,188
84,300 Sea Containers Ltd. Cl. A 2,244,487
3,200 Sea Containers Ltd. Cl. B 84,600
6,253,806
TECHNOLOGY - 13.43%
13,200 Adaptive Broadband Corp.* 974,325
27,100 Benchmark Electronics 621,606
34,600 Exar Corp. Delaware 2,037,075
112,000 Information Resources, Inc. 1,036,000
27,500 Newport News Shipbuilding, Inc. 756,250
34,600 Titan Corp.* 1,630,525
19,300 Xircom, Inc.* 1,447,500
8,503,281
TRANSPORTATION & SERVICES - 1.65%
47,100 Circle International Group, Inc. 1,047,975
TOTAL COMMON STOCKS 63,816,067
(Cost $52,642,592)
TOTAL INVESTMENTS - 100.79% 63,816,067
(Cost $52,642,592)
Other assets less liabilities - (0.79%) (502,278)
TOTAL NET ASSETS - 100.00% $ 63,313,789
The identified cost of investments owned at
December 31, 1999, was the same for federal
income tax and book purposes.
Net unrealized appreciation for federal
income tax purposes was $11,173,475, which is
comprised of unrealized appreciation of $20,949,210
and unrealized depreciation of $9,775,735.
*Non-income producing security
See accompanying Notes to Financial Statements.
Babson Growth Fund
While the unmanaged Standard & Poor's 500
index was up 12.39% in the first six months
of 1999, Babson Growth Fund's total return
(price change and reinvested distributions)
was only up 2.49%. Since that time the tables
have turned, and we've kept pace with or
exceeded the S&P 500. We ended up the year
with a total return of 12.57%, vs. the S&P
500 at 21.04%, with fourth quarter
performance of 17.97% for the Fund, vs.
14.88% for the S&P 500.
Average annual compounded total returns for
five and ten year periods as of December 31,
1999, were 24.99% and 15.34%, respectively.
Performance data contained in this report is
for past periods only. Past performance is
not predictive of future performance.
Investment return and share value will
fluctuate, and redemption value may be more
or less than original cost.
Although we use market indexes as benchmarks,
they have not been very true indicators of
what has been happening in the market this
year. Despite its positive return as a whole,
57% of the individual stocks in the S&P 500
actually declined in 1999.
In the short run, our performance will never
directly track the performance of the indexes
because of our highly focused portfolio. We
hold 40 companies and our top ten holdings
comprise 42% of total fund assets, so short-
term movements in any one of those holdings
can have a great impact on the performance of
the Fund. Longer term, we have shown that our
shareholders are rewarded by holding larger
positions in a smaller group of high-quality
companies.
Many of our top holdings, and our largest
sector weighting, are in technology. We
started 1999 with a technology weighting of
about 30%, and closed the year at 44%. For
comparison, 30% of the S&P 500 is made up of
technology stocks (up from only 13% just
three years ago), and 44% of the unmanaged
Russell 1000 Growth index is in technology,
reflecting the impact technology has on the
markets and the economy today. We're
investing in the companies that are building
out the Internet infrastructure rather than
investing directly in Internet stocks. We
invest in companies like Lucent Technology,
MCI Worldcom (over 1/2 of all the data on the
Internet is carried over their networks
globally) and EMC Corporation, the largest
manufacturer of network storage equipment.
Babson Growth Fund's overweighting in health
care (about 16% of the portfolio, compared to
11% of the S&P) and the negative trends
affecting this sector were a drag on
performance in 1999. Our strategy to combat
those trends is to own companies with
attractive valuations (American Home
Products), and to own the drug stocks with
deep, broad pipelines, such as Bristol-Myers,
Pharmacia & Upjohn and Pfizer. We will also
invest in companies like Cardinal Health
which benefit from generic competition, and
we continue to avoid the health care service
companies.
In the finance sector, we're still slightly
overweighted. It's been an anemic part of the
market to be investing in, primarily because
of rising interest rates. We continue to
scale back our finance holdings as we
selectively add to our technology holdings on
price weakness.
Overall we're very optimistic about the
growth prospects of the companies we have in
the portfolio. The stocks we hold are
primarily of mid- to large-cap growth
companies, with proven management teams and
market dominant positions in high-growth
industries. We have combed the markets to
find companies that have sustainable
competitive advantages such as patented
technology or product lines, economies of
scale or branding power to help support their
earnings growth throughout market and
economic cycles. These companies have the
ability to dominate their respective
industries and sustain earnings growth over
the coming years.
Portfolio additions for the six month period:
Comcast and Cox Communications - operators of cable television systems
Corning - manufacturer of fiber optic cable and equipment for
telecommunications
EMC - developer of network storage equipment and software
Flextronics - contract manufacturer of electronic equipment
Home Depot - building supply retailer
Lucent - manufacturer of telecommunications equipment
Nokia - manufacturer and marketer of wireless telecommunications handsets
Solectron - contract manufacturer of electronic equipment
The following positions were liquidated from the portfolio:
BancAmerica (margin pressure with rising
interest rates), Disney (continued slow
growth in core entertainment businesses),
Health Management Associates (declining
margins from reduced Medicare reimbursement
rates), Herman Miller (completion of recovery
in order growth and operating margins), MSC
Industrial (continued weakness in many
industrial end markets), Philip Morris
(increased tobacco litigation risk), Service
Corp. International (slowing death rate with
a negative impact on the funeral home
industry), and W.W. Wrigley (lack of expected
volume growth acceleration).
Fund Composition
Top Ten Holdings: % of Total
AT&T Corp. Liberty Media Group 5.45
Microsoft Corp. 4.90
Cisco Systems, Inc. 4.70
Vitesse Semiconductor Corp. 4.47
Analog Devices, Inc. 4.34
Lucent Technologies 3.94
MCI Worldcom, Inc. 3.91
EMC Corp. 3.72
American International Group, Inc.. 3.50
Federal Home Loan Mortgage Corp. 3.41
Total 42.34%
Total Securities in Portfolio 40
As of December 31, 1999, statement of assets. Subject to change.
Schedule of Investments
December 31, 1999 (unaudited)
BABSON GROWTH FUND
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 97.92%
BASIC MATERIALS - 1.44%
202,800 Monsanto Co. $ 7,224,750
CAPITAL GOODS - 3.25%
105,000 General Electric Co. 16,248,750
CONSUMER CYCLICAL - 6.44%
240,200 CVS Corp. 9,592,988
81,400 Corning, Inc. 10,495,512
177,000 Home Depot, Inc. 12,135,562
32,224,062
CONSUMER STAPLES - 5.30%
50,900 Anheuser-Busch Cos., Inc. 3,607,537
199,800 Gillette Co. 8,229,262
107,400 PepsiCo, Inc. 3,785,850
307,000 Safeway, Inc. 10,917,688
26,540,337
ENERGY - 1.38%
85,437 Exxon Mobil Corp. 6,883,018
FINANCIAL - 11.42%
161,812 American International Group, Inc. 17,495,923
1,665 Berkshire Hathaway, Inc. Cl. B* 3,046,950
362,200 Federal Home LoanMortgage Corp. 17,046,037
106,700 Mellon Financial Corp. 3,634,469
397,512 Paychex, Inc. 15,900,480
57,123,859
HEALTH CARE - 16.00%
218,300 American Home Products Corp. 8,609,206
551,400 Boston Scientific Corp. 12,061,875
141,200 Bristol-Myers Squibb Co. 9,063,275
296,650 Cardinal Health, Inc. 14,202,119
318,900 Guidant Corp. 14,988,300
157,800 Pharmacia & UpJohn, Inc. 7,101,000
432,100 Pfizer, Inc. 14,016,244
80,042,019
MEDIA & ENTERTAINMENT - 8.40%
480,400 A T & T Corp. Liberty Media Group 27,262,700
149,800 Comcast Corp. 7,171,675
147,900 Cox Communications, Inc. 7,616,850
42,051,225
TECHNOLOGY - 44.29%
233,400 Analog Devices, Inc. 21,706,200
148,600 Automatic Data Processing, Inc. 8,005,825
449,000 Cadence Design Systems, Inc. 10,776,000
219,500 Cisco Systems, Inc. 23,513,938
170,200 EMC Corp. 18,594,350
104,700 Etec Systems, Inc.* 4,698,412
56,900 Flextronics International Ltd. 2,617,400
94,200 KLA Instruments Corp. 10,491,525
263,200 Lucent Technologies 19,690,650
369,150 MCI Worldcom, Inc. 19,588,022
197,600 Microchip Technology, Inc. 13,523,250
210,200 Microsoft Corp. 24,540,850
59,200 Nokia Corp. 11,248,000
107,600 Solectron Corp. 10,235,450
426,500 Vitesse Semiconductor Corp. 22,364,594
221,594,466
TOTAL COMMON STOCKS 489,932,486
(Cost $271,322,037)
FACE
AMOUNT COMPANY MARKET VALUE
REPURCHASE AGREEMENT - 3.99%
$19,950,000 UMB Bank, n.a., 3.00%, due January 3, 2000
(Collateralized by U.S. Treasury Notes,
6.25 due 8/31/00 with a of $20,347,579) 19,950,000
(Cost $19,950,000)
TOTAL INVESTMENTS - 101.91% 509,882,486
(Cost $291,272,037)
Other assets less liabilities - (1.91%) (9,532,671)
TOTAL NET ASSETS - 100.00% $ 500,349,815
The identified cost of investments owned at
December 31, 1999, was the same for federal
income tax and book purposes.
Net unrealized appreciation for federal
income tax purposes was $218,610,450, which
is comprised of unrealized appreciation of $223,855,463
and unrealized depreciation of $5,245,013.
*Non-income producing security
See accompanying Notes to Financial Statements.
Shadow Stock Fund
Over the six months ended December 31, 1999,
Shadow Stock Fund's total return (price
change and reinvested distributions) was
-1.92%, a very good relative performance vs.
the unmanaged Russell 2000 Value index, which
returned -6.41%.
Average annual compounded total returns for
one, five and ten year periods as of December
31, 1999, were 4.89%, 14.62% and 11.22%,
respectively. Performance data contained in
this report is for past periods only. Past
performance is not predictive of future
performance. Investment return and share
value will fluctuate, and redemption value
may be more or less than original cost.
Shadow Stock Fund invests in very small
companies that have a market capitalization
of less than $200 million and that have been
neglected by institutional shareholders. The
Fund's investment strategy is based on
academic research that has determined that
stocks with low price-to-book values, low
institutional ownership, and small market
caps outperform the market as a whole over
longer investment horizons. In addition to
these criteria, we screen the NYSE universe
for the stocks that have a price over $5 and
income greater than $1 million for each of
the previous three fiscal years.
Unfortunately, throughout the last year stock
market returns of smaller companies generally
paled in comparison to those of larger
companies. In an analysis we conducted of
companies in the Russell 2000 index, in which
we divided that universe between companies
with market capitalizations of less than $200
million (those that qualified for the Fund)
and those with larger market capitalizations,
the larger cap group on average outperformed
by 55% points.
Additionally, the widening gulf between value
and growth also affected the Fund. This was
dramatically reflected in the comparative
performances of the Russell 2000 Growth
index, which soared to a double-digit gain in
1999, and the Russell 2000 Value index, which
posted a loss. Thus the market's preference
for larger capitalization growth companies
presented significant challenges to our small
cap value strategy.
Our management style continues to be bottom
up and based on specific screening criteria.
We do not make buy or sell decisions based on
a company's inclusion in a particular sector
(our underweighting in heath care and
technology hurt performance in the last six
months) or because of stories or rumors. We
sell holdings once they have appreciated to
the point at which their price-to-book or
market cap exceeds two times an upper limit,
which is determined in our initial screening
process. We also sell holdings if they fall
below our price limitations in three
consecutive measurement periods. We have also
seen a wave of buyouts among our holdings,
and we expect that phenomenon to continue as
potential acquirers continue to appreciate
the values represented in Shadow Stock Fund
holdings.
In our view, both the long-term prospects of
our holdings and their present valuations
remain positive. Performance spreads between
the growth and value styles, and between
small and large companies, have become so
wide that any return to an historically
normal relationship will benefit small cap
value funds. We have also been encouraged by
the acquisition interest in several of our
holdings, which we think may indicate a small-
cap resurgence in 2000. When small value
investing returns to the forefront, Shadow
Stock Fund should do very well.
Portfolio additions for the six month period:
Aegis Realty - real estate investment trust
American Business Financial - financial
services company
Books-A-Million - book retailer
Detection Systems - makes security equipment
II-VI - makes optical laser components
Ontrack Data - computer data service provider
Palex - produces pallets
Prophet 21 - makes and sells business
software for wholesale distributors
Provantage Health - provide pharmacy benefit
management services
RWD Technologies - provides information
technology services
The following were received as a result of an
acquisition: Computer Sciences, Intervoice-
Brite, Southern Union, and Trenwick.
The following stocks are no longer in the
Fund because they were subjects of buyouts:
Colonial Gas, Equitra, Litchfield Financial,
M A R C, O'Sullivan, Rock Bottom Restaurants,
and Thermo Power.
The following stocks were eliminated because
their price fell below the Fund restrictions:
Advocat, Autologic Information, BEI Medical
Systems, Earl Scheib, Government Technology
Services, Hampton Industries, Kevco, IFR
Systems, Mining Services, Novametrix Medical
Systems, Safety Components, and Span-America
Medical Systems.
The following stocks were eliminated because
their market cap exceeded Fund limitations:
BB&T, Computer Sciences, Inacom, IPC
Communications and National Discount Brokers.
Fund Composition
Top Ten Holdings: % of Total
E'town Corp. 2.19
Newport Corp. 1.83
Aquarion Co. 1.76
Connecticut Energy Corp. 1.67
Workflow Management, Inc. 1.65
SJW Corp. 1.41
NUI Corp. 1.40
Southern Union Co. 1.38
URS Corp. 1.36
Todd-AO Corp. Cl. A 1.34
Total 15.99%
Total Securities in Portfolio 232
As of December 31, 1999, statement of assets. Subject to change.
Schedule of Investments
December 31, 1999 (unaudited)
SHADOW STOCK FUND
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 96.27%
BASIC MATERIALS - 4.64%
14,101 Aceto Corp. $ 155,111
3,300 American Biltrite, Inc. 47,025
15,200 American Pacific Corp. 129,200
4,500 Badger Paper Mills, Inc. 24,047
4,480 Baltek Corp. 35,000
40,600 Global Industrial Technologies, Inc.* 522,725
14,900 Palex, Inc.* 104,300
13,200 Pitt-Des Moines, Inc. 325,050
19,000 Roanoke Electric Steel Corp. 308,750
8,500 Stephan Co. 34,000
17,500 Tuscarora, Inc. 212,187
1,897,395
CAPITAL GOODS - 16.38%
8,900 AG Services of America 132,944
7,200 American Technical Ceramics Corp.* 115,200
11,000 Autocam Corp. 198,687
3,600 Badger Meter, Inc. 108,450
15,000 Baker (Michael) Corp. 99,375
14,000 Blonder Tongue Labs.* 70,000
23,900 Building Material Holding Corp. 244,975
16,300 Cameron Ashley Building Products, Inc.* 163,000
21,000 Cascade Corp. 192,938
14,800 Ceradyne, Inc.* 67,525
19,200 Cherry Corp. 204,000
1,800 Chicago Rivet & Machine Co. 41,287
14,000 Coastcast Corp.* 232,750
9,300 Diodes, Inc.* 199,950
7,315 Ecology and Environment, Inc. Cl. A 40,232
19,100 Engle Homes, Inc. 229,200
14,800 Exponent, Inc.* 98,050
15,000 Farr Co. 146,250
14,300 Fibermark, Inc. 168,025
18,900 GP Strategies Corp. 115,762
11,500 Gehl Co. 207,000
3,150 Graham Corp. 20,869
4,400 Heist (C.H.) Corp.* 25,850
23,006 Intermagnetics General Corp. 201,302
13,100 JLM Industries* 44,212
7,600 Liberty Homes, Inc. Cl. A 62,225
15,100 M/I Schottenstein Homes, Inc. 234,994
13,900 Mestek, Inc.* 281,475
14,112 Met-Pro Corp. 141,120
16,000 Nanometrics, Inc.* 322,000
6,300 Noland Co. 112,613
12,000 Northwest Pipe Co.* 168,000
3,000 Oilgear Co. 20,625
5,000 P & F Industries Cl. A* 32,188
3,200 Penn Engineering & Manufacturing Corp. (voting) 74,100
11,900 Penn Engineering & Manufacturing Corp. (non-voting) 275,559
8,400 Puerto Rican Cement Co., Inc. 285,600
5,727 Sames Corp. 88,411
10,000 Selas Corp. of America 66,875
11,000 Sifco Industries 76,313
9,600 SL Industries, Inc. 111,600
10,139 Southwest Water Co. 152,085
26,900 Symmetricom, Inc. 267,319
25,700 URS Corp. 557,369
6,698,304
CONSUMER CYCLICAL - 14.17%
14,000 AC Moore Arts & Crafts, Inc.* 81,375
21,600 Amplicon, Inc. 248,400
11,300 Ben & Jerry's Homemade, Inc. Cl. A 281,087
8,000 Black Hawk Gaming & Development* 47,000
28,200 Bon-Ton Stores, Inc.* 103,987
19,200 Carmike Cinemas, Inc. Cl. A* 150,000
9,000 Childtime Learning Centers, Inc.* 111,375
17,000 Conso Products Co. 146,625
6,750 Decorator Industries, Inc. 35,859
20,900 Dixie Group, Inc. Cl. A 154,137
9,500 Duckwall-Alto Stores, Inc. 72,438
12,400 Ellis (Perry) International, Inc. 144,150
9,300 ELXSI Corp. 118,866
9,750 Equinox Systems, Inc. 87,750
1,700 Federal Screw Works 71,400
13,100 Gart Sports Co.* 80,238
8,400 Globe Business Resources, Inc.* 108,150
23,200 Gottschalks, Inc.* 172,550
8,916 Knape & Vogt Manufacturing Co. 123,152
10,000 Lacrosse Footwear, Inc. 44,375
18,000 Maxwell Shoe, Inc. Cl. A* 144,000
16,000 Mazel Stores, Inc.* 148,000
4,500 McRae Industries, Inc. Cl. A 25,313
12,000 Motorcar Parts & Accessories, Inc.* 13,126
23,000 Navigant International, Inc.* 268,812
12,000 Nobel Learning Communitys, Inc. 87,000
11,000 OroAmerica, Inc.* 68,750
20,000 Piccadilly Cafeterias, Inc. 80,000
5,000 Pulaski Furniture Corp. 77,500
16,400 R & B, Inc.* 75,850
13,700 Reading Entertainment, Inc.* 78,775
14,000 Rex Stores Corp.* 490,000
10,100 Rocky Shoes & Boots, Inc.* 77,013
35,200 RPC Energy Services, Inc. 202,400
8,400 S & K Famous Brands, Inc. 49,875
5,000 Somerset Group, Inc. 95,781
23,466 Supreme Industries, Inc. Cl. A 145,196
30,000 Syms Corp. 150,000
39,500 TCBY Enterprises, Inc. 150,594
7,000 Weyco Group, Inc. 179,812
10,828 Wolohan Lumber Co. 131,290
23,500 Workflow Management, Inc.* 672,687
5,794,688
CONSUMER STAPLES - 5.06%
14,000 Books-A-Million, Inc. 116,375
11,000 Bowl America, Inc. Cl. A 77,000
9,300 Cagle's, Inc. Cl. A 105,788
15,800 Chalone Wine Group Ltd.* 137,263
1,700 Foodarama Supermarkets, Inc.* 33,787
31,200 Frozen Food Express Industries, Inc. 120,900
3,200 Genesee Corp. Cl. B 68,200
38,200 Ingles Markets, Inc. Cl. A 424,975
7,325 Marsh Supermarkets, Inc. Cl. A 101,634
12,725 Marsh Supermarkets, Inc. Cl. B 128,841
5,000 Max & Erma's Restaurants 37,188
22,800 Quaker Fabric Corp. 96,900
23,250 Sanderson Farms, Inc. 199,078
11,400 Seaway Food Town, Inc. 185,250
14,000 Swiss Army Brands, Inc.* 99,750
7,000 Triple S Plastics, Inc.* 97,125
8,100 Zaring National Corp.* 37,462
2,067,516
ENERGY - 2.59%
6,500 Adams Resources & Energy, Inc. 55,250
29,503 HS Resources, Inc.* 508,927
21,500 Key Production, Inc.* 158,563
9,100 Maynard Oil Co.* 91,000
10,200 Prima Energy Corp. 245,437
1,059,177
FINANCIAL - 14.30%
6,400 Aegis Realty, Inc. 56,400
2,900 American Business Financial Services 34,075
7,370 Amwest Insurance Group, Inc. 53,433
10,500 BancInsurance Corp. 55,125
19,000 Capitol Transamerica Corp. 191,187
11,952 Cotton States Life and Health
Insurance Co. 103,086
6,000 DeWolfe Companies, Inc. 40,500
16,000 Donegal Group, Inc. 102,000
20,000 EMC Insurance Group, Inc. 182,500
8,000 First Cash, Inc.* 66,000
13,230 First Albany Companies, Inc. 191,008
11,000 First Investors Financial
Services Group, Inc.* 59,125
14,500 Guarantee Life Companies, Inc. 463,547
7,000 JW Genesis Financial Corp. 207,375
15,000 Kaye Group, Inc. 125,625
6,000 KBK Capital Corp.* 20,250
5,000 Merchants Group, Inc. 97,500
14,883 Meridian Insurance Group, Inc. 211,153
17,400 Midland Co. 361,050
6,100 Minuteman International, Inc. 55,662
3,250 National Security Group, Inc. 40,016
6,000 National Western Life Insurance Co.* 411,750
15,400 Navigators Group, Inc. 154,000
16,500 Penn-America Group, Inc. 127,875
14,000 Penn Treaty American Corp. 220,500
15,730 Professionals Group, Inc. 368,672
22,800 PXRE Corp. 296,400
20,200 Ragen MacKenzie Group, Inc.* 363,600
17,200 South Jersey Industries, Inc. 489,125
14,000 Standard Management Corp. 66,500
25,000 Stewart Information Services Corp. 332,812
13,612 Trenwick Group, Inc. 230,553
4,600 Ziegler (The) Companies, Inc. 68,713
5,847,117
HEALTH CARE - 0.51%
13,700 Merit Medical Systems, Inc. 99,325
13,800 Provantage Health Services* 110,400
209,725
MISCELLANEOUS - 3.82%
14,000 Andersons, Inc. 115,500
8,910 Astronics Corp. 92,998
5,600 Detection Systems, Inc. 52,850
10,400 Edelbrock Corp. 124,800
2,250 FRM Nexus, Inc. 3,234
17,750 Hardinge, Inc. 231,859
15,500 Hoenig Group, Inc. 143,375
10,600 Primesource Corp. 50,350
4,500 Programming and Systems, Inc.* 4,500
3,800 Prophet 21, Inc.* 37,525
1,700 Scope Industries 76,925
12,000 Sun Hydraulics Corp. 78,000
18,000 Todd-AO Corp. Cl. A 549,000
1,560,916
TECHNOLOGY - 11.62%
2,100 Allen Organ Co. Cl. B 79,800
12,600 BEI Technologies, Inc. 192,150
17,320 Bell Industries, Inc. 128,818
15,100 Bell Microproducts, Inc.* 166,100
12,700 CPAC, Inc. 103,187
10,000 Data Research Associates, Inc. 80,000
13,800 Dataram Corp. 309,637
13,200 Del Global Technologies Corp. 102,300
11,400 DRS Technologies, Inc.* 111,150
7,800 Eastern (The) Co. 121,875
13,000 EDO Corp. 76,375
14,700 Franklin Electronic Publishers, Inc.* 87,281
14,000 Integrated Measurement System, Inc.* 197,750
11,000 Interphase Corp.* 232,375
21,535 Intervoice-Brite, Inc. 500,689
5,500 Koss Corp.* 78,719
4,800 Moore Products Co. 191,400
16,400 Newport Corp. 750,300
18,200 Norstan, Inc. 116,025
7,500 Ontrack Data International* 90,469
16,000 Powell Industries, Inc.* 110,000
8,900 Programmer's Paradise, Inc.* 67,862
2,900 Quipp, Inc. 44,950
8,000 Refac Technology Develop Corp. 31,000
11,300 RWD Technologies, Inc.* 117,238
22,000 Semitool, Inc. 330,000
12,000 TRM Copy Center Corp.* 73,500
8,000 Vertex Communications Corp.* 164,000
4,900 II-VI, Inc. 98,612
4,753,562
TRANSPORTATION & SERVICES - 3.16%
12,000 International Shipholding Corp. 139,500
4,000 Kenan Transport Co. 126,750
30,000 Kitty Hawk, Inc.* 206,250
8,066 KLLM Transport Services, Inc. 38,313
9,000 Marten Transport Ltd. 115,875
15,500 Old Dominion Freight Line, Inc.* 166,625
13,000 Pam Transportation Services* 142,594
5,000 Petroleum Helicopters, Inc. 46,250
12,000 Transport Corporation of America, Inc.* 149,250
17,000 USA Truck, Inc. 133,875
3,350 VSE Corp. 25,963
1,291,245
UTILITIES - 20.02%
14,100 American States Water Co. 507,600
19,500 Aquarion Co. 721,500
4,000 Atrion Corp. 42,500
13,100 Bangor Hydro-Electric Co. 213,694
5,000 Berkshire Gas Co. 175,000
18,900 Cascade Natural Gas Corp. 304,762
8,700 Chesapeake Utilities Corp. 159,863
17,600 Connecticut Energy Corp. 684,200
7,800 Connecticut Water Service, Inc. 249,600
14,000 CTG Resources, Inc. 486,500
4,000 Delta Natural Gas Company, Inc. 62,250
3,300 Dominguez Services Corp. 99,825
14,400 E'town Corp. 896,400
6,000 EnergyNorth, Inc. 330,375
6,000 Florida Public Utilities Co. 102,000
9,700 Green Mountain Power Corp. 72,144
2,500 Maine Public Service Co. 43,437
7,600 Middlesex Water Co. 243,200
21,700 NUI Corp. 572,338
10,800 Providence Energy Corp. 400,950
2,900 RGC Resources, Inc. 63,800
4,800 SJW Corp. 577,200
29,416 Southern Union Co. 562,581
14,000 St. Joseph Light & Power Co. 287,000
9,176 UNITIL Corp. 328,042
8,186,761
TOTAL COMMON STOCKS 39,366,406
(Cost $33,345,529)
FACE
AMOUNT COMPANY MARKET VALUE
REPURCHASE AGREEMENT - 3.40%
$1,390,000 UMB Bank, n.a., 3.00%, due January 3, 2000
(Collateralized by U.S. Treasury Notes,
6.25%, due August 31, 2000 with a value
of $1,418,338) 1,390,000
(Cost $1,390,000)
TOTAL INVESTMENTS - 99.67% 40,756,406
(Cost $34,735,529)
Other assets less liabilities - 0.33% 136,362
TOTAL NET ASSETS - 100.00% $ 40,892,768
The identified cost of investments owned at
December 31, 1999, was the same for federal
income tax and book purposes.
Net unrealized appreciation for federal
income tax purposes was $6,020,877, which is
comprised of unrealized appreciation of $11,907,037
and unrealized depreciation of $5,886,160.
*Non-income producing security
See accompanying Notes to Financial Statements.
Babson Value Fund
It has been a difficult market for value-
oriented investors, particularly those with a
deep-value, tax-efficient orientation such as ours.
For the six months ended December 31, 1999, Babson
Value Fund's total return (price change and
reinvested distributions) was -10.24%, versus the
unmanaged S&P/Barra Value index, which lost -1.08%
and the unmanaged Standard & Poor's 500,
which was up 7.71%.
Average annual compounded total returns for
one, five and ten year periods as of December
31, 1999, were 1.09%, 17.01% and 13.80%,
respectively. Performance data contained in
this report is for past periods only. Past
performance is not predictive of future
performance. Investment return and share
value will fluctuate, and redemption value
may be more or less than original cost.
The striking difference in returns of the
Babson Value Fund and value indexes, as
compared to the S&P 500 and other equity
markets in general, came down once again to
growth vs. value investment styles. In
comparing the Russell 2000 Value vs. Russell
2000 Growth over the last six months, there
were about 33.2 percentage points difference
in performance between those two indexes.
Looking at the larger companies over the same
time period, the Russell 1000 Value and the
Russell 1000 Growth returns had a spread of
25.5%, with the growth indexes' performance
being the most positive in each case.
This disparity has been driven by the
technology sector, the only sector in the S&P
500 that had a positive return in the third
quarter. This third quarter technology
phenomenon was responsible for our worst
quarter in 1999, but its effects extended
into the other quarters as well. While the
performance extremes of the technology sector
drove the markets to new highs, non-
technology stocks languished, and anyone who
was not heavily weighted in technology
suffered. Without its tech stocks, the S&P
500's performance for the calendar year of
1999 would have been 3.1% (vs. actual returns
of 21%). We will not compromise our strict
value discipline of investing in companies
with below-market price-to-earnings (P/E),
low price-to-book (P/B) ratios and above-
average current yields to chase a sector with
P/E ratios in the 100's. As a result, our
technology holdings have comprised only about
10% of the portfolio, while the S&P is made
up of about 30% technology stocks, up from
about 13% just three years ago.
One technology holding that has worked well
for Babson Value Fund is Apple Computer,
returning 126.9% over the last six months. We
have held Apple since 1995, and have been in
the position of having to explain our
reasoning for holding this stock more than a
few times. But our patience paid off. Our
average purchase price is $13.5 per share and
the stock closed on 12/31/99 at 102 13/16.
Even though it looks more like a growth stock
currently, we will continue to hold Apple
until its relative strength declines
meaningfully.
The period of preference that growth has seen
over value has been the longest in recent
history, accompanied by unprecedented
performance spreads. We believe that this
wide performance spread between growth and
value is unsustainable. Our philosophy has
always been to remain consistent "deep value"
investors, buying and holding companies with
valuation characteristics that pass our
intensive screening process. As we look at
the market's brief return to the value style
that we experienced in the second quarter, we
see that the market generously rewarded the
types of companies and sectors that dominate
our Fund. In that quarter, the market moved
toward favoring deep value stocks - low P/E,
low P/B stocks, and toward the basic
materials - with a bias toward companies with
slightly smaller market capitalizations. This
is how our portfolio is positioned. Our
belief is that when the market cycle turns
back toward the value style, we will be well
positioned to reap the rewards.
Portfolio additions for the six month period:
Albertson's - operates a retail food and drug chain
Neiman Marcus Cl. B - received as a spinoff
of Harcourt
Raytheon Cl. B - defense and commercial electronics
Too - received as a spinoff of the Limited
Travelers Property Casualty - property/casualty insurer
Four positions were liquidated during the
last six months: Aegon was received as a
result of Aegon's acquisition of
Transamerica, and liquidated in August,
Illinova was the target of a takeover by
Dynegy, and subsequently sold from our value
portfolios, Reebok was sold for tax loss
purposes, the position was not re-established
due to continuing poor fundamentals, and Too
was received as a spinoff of the Limited and
subsequently sold.
Fund Composition
Top Ten Holdings: % of Total
Student Loan Corp. 3.81
USX-U.S. Steel Group 2.88
Apple Computer, Inc. 2.87
United Healthcare Corp. 2.78
Weyerhaeuser Co. 2.74
Berkshire Hathaway, Inc. Cl. B 2.74
duPont (E.I.) deNemours & Co. 2.72
Tenet Healthcare 2.71
Harcourt General, Inc. 2.70
Atlantic Richfield Co. 2.69
Total 28.64%
Total Securities in Portfolio 43
As of December 31, 1999, statement of assets. Subject to change.
Schedule of Investments
December 31, 1999 (unaudited)
BABSON VALUE FUND
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 96.01%
BASIC MATERIALS - 15.09%
340,000 duPont (E.I.) deNemours & Co. $ 22,397,500
458,100 Potlatch Corp. 20,442,713
110,400 Martin Marietta Materials, Inc. 4,526,400
525,000 Millennium Chemicals, Inc. 10,368,750
718,000 USX-U.S. Steel Group 23,694,000
314,500 Weyerhaeuser Co. 22,585,031
436,300 Willamette Industries, Inc. 20,260,681
124,275,075
CAPITAL GOODS - 9.58%
486,000 Boeing Co. 20,199,375
271,100 Hanson PLC, ADR 10,962,606
379,772 Lockheed Martin Corp. 8,307,513
671,700 Raytheon Co. Cl. B 17,842,031
1,299,700 Wallace Computer Services, Inc. 21,607,513
78,919,038
CONSUMER CYCLICAL - 11.40%
689,200 Dana Corp. 20,632,925
551,700 Harcourt General, Inc. 22,205,925
897,000 Kmart Corp. 9,026,063
501,000 Limited, Inc. 21,699,562
46,000 Nieman Marcus Group Cl. B* 1,239,125
381,058 Penney (J.C.) Co., Inc. 7,597,344
375,500 Sears, Roebuck & Co. 11,429,281
93,830,225
CONSUMER STAPLES - 4.81%
603,700 Albertson's, Inc. 19,469,325
628,000 Diageo PLC, ADR 20,096,000
39,565,325
ENERGY - 5.27%
256,300 Atlantic Richfield Co. 22,169,950
350,500 Royal Dutch Petroleum Co. 21,183,344
43,353,294
FINANCIAL - 27.99%
758,000 Allstate Corp. 18,192,000
123,900 American Express Co. 20,598,375
12,322 Berkshire Hathaway, Inc. Cl. B* 22,549,260
262,000 Chase Manhattan Corp. 20,354,125
396,000 Citigroup, Inc. 22,002,750
915,000 National City Corp. 21,674,063
480,850 SLM Holding Corp. 20,315,912
628,200 Student Loan Corp. 31,331,475
417,000 Travelers Property Casualty Corp. 14,282,250
752,700 U.S. Bancorp 17,923,669
526,330 Wells Fargo & Co. 21,283,469
230,507,348
HEALTH CARE - 7.59%
310,000 Aetna, Inc. 17,301,875
947,900 Tenet Healthcare 22,275,650
431,000 United Healthcare Corp. 22,896,875
62,474,400
TECHNOLOGY - 7.09%
230,000 Apple Computer, Inc. 23,646,875
193,000 International Business Machines Corp. 20,844,000
614,000 Xerox Corp. 13,930,125
58,421,000
TRANSPORTATION - 4.71%
615,000 CSX Corp. 19,295,625
780,807 KLM Royal Dutch Airlines 19,471,374
38,766,999
UTILITIES - 2.48%
575,200 Texas Utilities Co. 20,455,550
TOTAL COMMON STOCKS 790,568,254
(Cost $611,717,083)
FACE
AMOUNT COMPANY MARKET VALUE
REPURCHASE AGREEMENT - 3.28%
$27,000,000 UMB Bank, n.a., 3.00%, due January 3, 2000
(Collateralized by U.S. Treasury Notes,
6.25%, due August 31, 2000 with a value
of $27,538,461) 27,000,000
(Cost $27,000,000)
TOTAL INVESTMENTS - 99.29% 817,568,254
(Cost $638,717,083)
Other assets less liabilities - 0.71% 5,849,780
TOTAL NET ASSETS - 100.00% $ 823,418,034
The identified cost of investments owned at
December 31, 1999, was the same for federal
income tax and book purposes.
Net unrealized appreciation for federal
income tax purposes was $178,851,171, which
is comprised of unrealized appreciation of $232,294,308
and unrealized depreciation of $53,443,137.
*Non-income producing security
See accompanying Notes to Financial Statements.
Babson-Stewart Ivory International Fund
Overall it's been a very good year. Our
performance has exceeded the EAFE benchmark's
for the second, third and fourth quarters of
1999. Babson-Stewart Ivory International Fund
finished the six months ended December 31,
1999, with a total return (price change and
reinvested distributions) of 28.57%, against
the EAFE benchmark of 22.27%, giving us a
particularly strong end of the year.
Comparisons against the unmanaged Morgan
Stanley Capital International (MSCI) EAFE and
other indices are as follows:
Investment Results - Total Return
Periods Ended 12/31/99
Fourth Quarter Previous Twelve
1999 Months
BSIIF 21.35% 31.06%
MSCI EAFE* Index** 17.05% 27.30%
MSCI World Index** 16.96% 25.34%
S&P 500 Index** 14.88% 21.04%
Lipper International Funds
(avg. funds 677 and
619, respectively) 24.73% 37.83%
*Europe, Australia, Far East
**unmanaged
Average annual compounded total returns for
five and ten year periods ended December 31,
1999, were 14.06% and 10.35%, respectively.
Performance data contained in this report is
for past periods only. Past performance is
not predictive of future performance.
Investment return and share value will
fluctuate, and redemption value may be more
or less than original cost.
In the early months of 1999 we saw the
markets temporarily favor value companies.
Being a growth-oriented Fund, this negatively
impacted our performance. However, in the
second half of the year against a backdrop of
low inflation and a shallow economic cycle,
investors sought out companies with
exceptional growth potential. As growth
companies found a new lease on life with new
products, the Internet, and new technology,
we saw a strong switch back to a growth-
oriented market.
Throughout the year the economic news got
better and better. Europe saw some growth,
with some recovery in Germany, and the UK saw
buoyant growth in parts of its economy. The
Japanese economy, which had been in recession
for a number of years, came out of recession
mid-year, and is now expecting a return to
real GDP growth. Asia and the emerging
markets are benefiting from the positive
moves in the world economies.
As of year-end the Fund had 59% of the
portfolio in Europe, 34% in Asia and the Far
East, 2% in other areas including emerging
markets, and 5% cash. Despite Europe's
generally positive economic climate,
investors suffered currency-based losses
there as the Euro (which was introduced at
the start of 1999) weakened appreciably
against the U.S. dollar. We moved money out
of continental Europe into Japan this year,
(total allocation in Japan currently is 25%)
which benefited us since both the Japanese
market and currency has been strong. As
always, the Fund's country and regional
allocations are largely a by-product of our
bottom-up decisions.
In our Japanese portfolio there are a number
of companies that are being called "New
Japan" companies - operating in service
industries which are fairly new to the
Japanese economy. An example is a company
called Secom, a security services company,
providing alarm systems and data services to
residences and businesses. After we added the
stock to our portfolio in 1999 it almost
tripled in value.
Looking forward, the global economy appears
to be in good shape, which should provide a
solid foundation for international investors.
We expect good economic growth for the year
2000, and there doesn't seem to be much
inflationary pressure around the world. Asian
economies should continue their recovery and
we anticipate European issues to provide a
more even contribution to the portfolio,
especially as the Euro stabilizes.
Portfolio additions for the six month period:
Australia - Broken Hill (restructuring resources group)
Brazil - Cemig Pref. (electric utility group)
France - Banque Nationale de Paris (beneficiary of banking
industry consolidation)
Pinault-Printemps-Redoute (fast-growing specialty retail)
Germany - DePfa (niche financial lender)
Porsche (specialist auto group)
Hong Kong - Cheung Kong (property and industrial holdings)
China Telecom (beneficiary of low cellular penetration rate)
Japan - Fuji Bank (leading banking group)
Japan Airport Terminal (airport operator, beneficiary of airport deregulation)
Nomura (leading brokerage group)
Sanwa Bank (leading banking group)
Netherlands - Buhrmann (office products distributor)
Sweden - Modern Times (free newspaper distributor)
UK - BBA (specialist in friction materials - aerospace, auto use)
Energis (business telecommunications)
SSL (healthcare products, manufacture & distribution)
The following positions were liquidated from
the portfolio: Valeo, Vivendi (France),
Hennes & Mauritz (Sweden), ABB (Switzerland),
Nintendo and Olympus Optical (Japan) all
achieved their price targets. Pliva (Croatia)
and OTE (Greece) were sold to rebalance our
European exposure, and Irish Life (Ireland)
to rebalance our financial holdings. Ahold,
Wolters Kluwer (Netherlands), Jeronimo
Martins (Portugal) and TeleDanmark (Denmark)
showed signs of slowing growth rates. Smiths
Industries (UK) and Suzuki (Japan)
experienced slowdowns in their industries, as
Danone (France) felt pricing pressure from
retailers. Other sales include Cable &
Wireless Communications (UK), subject of
corporate reorganization, Northern Rock (UK)
on earnings disappointment. In Belgium,
Dolmen Computer Applications was sold after
being received as part of a spin-off from
Colruyt. Bank Handlowy (Poland) and TIBS
Holdings (Singapore) were liquidated due to
delays or concerns with merger plans. In
Japan we also sold Circle K because of their
slow pace of restructuring, Taiyo Yuden due
to concern at order delays, and Toshiba on
valuation concerns. Liquidated positions in
Hong Kong included Gold Peak (lack of
earnings visibility) and V-Tech (short-term
earnings outlook dull). The relaxation of
exchange controls permitted our sale of
Perlis Plantations (Malaysia).
Schedule of Investments
December 31, 1999 (unaudited)
BABSON-STEWART IVORY INTERNATIONAL FUND
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 94.65%
AUSTRALIA - 2.73%
27,000 Brambles
(Transport, plant services) $ 746,651
75,000 Broken Hill Proprietary
(Resources) 984,799
65,000 Lend Lease
(Real estate) 910,631
2,642,081
BELGIUM - 0.71%
12,000 Colruyt
(Food retailer) 689,027
BRAZIL - 0.65%
28,170,000 Cemig
(Electric utility) 631,544
FINLAND - 1.13%
6,000 Nokia
(Telecom equipment) 1,087,938
FRANCE - 8.47%
8,000 AXA-UAP
(Insurance, financial services) 1,115,338
12,000 Banque Nationale de Paris
(Banking) 1,107,279
9,000 Lafarge
(Building materials, cement) 1,048,047
1,000 L' Oreal
(Cosmetics) 802,354
5,900 Pinault-Printemps-Redoute
(Specialty retailing) 1,557,161
20,000 Sanofi
(Pharmaceuticals) 832,877
13,000 Total
(Oil major) 1,735,160
8,198,216
GERMANY - 4.99%
10,000 DePfa
(Mortgage banking) 747,453
6,500 Fresenius
(Pharmaceuticals, medical equipment) 1,191,695
8,000 Mannesmann
(Telecoms and engineering) 1,930,082
350 Porsche
(Auto manufacturing) 958,997
4,828,227
HONG KONG - 5.80%
330,000 Asia Satellite
(Satellite operator) 1,042,195
180,000 CLP Holdings
(Electric utility) 828,970
60,000 Cheung Kong
(Property and investment) 760,275
140,000 China Telecom*
(Telecom utility) 873,480
600,000 HK & China Gas
(Gas utility) 822,024
270,000 Shaw Bros.
(T.V. network, film production and distribution) 317,811
1,100,000 Swire Pacific Cl. B
(Trading, airlines, real estate) 962,244
5,606,999
HUNGARY - 0.91%
13,500 Gedeon Richter
(Pharmaceuticals) 882,214
IRELAND - 0.85%
70,000 Kerry Group
(Food manufacturer) 819,765
ITALY - 2.95%
20,300 Banca Popolare Di Brescia
(Banking, financial services) 1,796,462
60,000 Luxottica
(Eyeglass frames) 1,053,750
2,850,212
JAPAN - 24.56%
41,000 Bridgestone
(Tires) 902,907
41,100 Credit Saison
(Credit card services) 716,042
93,000 Fuji Bank
(Banking) 903,876
23,000 Fuji Photo
(Film) 839,679
38,000 Hosiden
(Electronic components) 2,439,855
19,000 Hoya
(Opto-electronics) 1,497,015
10,000 Ito-Yokado
(Supermarket chain) 1,086,425
79,000 Japan Airport Terminal
(Airport operator) 734,560
10,000 Matsushita Communication
(Industrial electronics) 2,642,654
40,000 Nippon Comsys
(Telecoms engineering) 829,989
75,000 Nomura
(Securities house) 1,354,360
55 NTT Mobile Communication
(Cellular telecommunications) 2,115,592
15,300 Promise
(Consumer lending) 778,702
68,000 Sanwa Bank
(Banking) 827,288
14,000 Secom
(Security services) 1,541,548
9,000 Sony
(Consumer electronics) 2,669,081
16,000 Takeda
(Pharmaceuticals, chemicals) 790,839
41,000 Terumo
(Medical equipment) 1,095,527
23,765,939
NETHERLANDS - 7.65%
9,000 Aegon
(Insurance) 869,443
40,000 Buhrmann
(Office products supplier) 602,395
15,000 Getronics
(Support services) 1,196,731
20,000 ING Groep
(Financial services) 1,207,611
20,000 KPN
(Postal and telecom services) 1,952,244
30,000 VNU
(Publishing) 1,576,905
7,405,329
PORTUGAL - 1.30%
115,000 Portugal Telecom
(Telecom utility) 1,261,554
SINGAPORE - 0.98%
45,680 Overseas Union Bank
(Banking) 267,415
203,000 Overseas Union Enterprise
(Hotels, property investment) 682,558
949,973
SPAIN - 4.45%
40,000 Argentaria
(Banking services) 940,059
11,400 Banco Popular
(Banking) 743,575
31,000 Mapfre Vida Seguro
(Insurance) 715,118
76,405 Telefonica*
(Telephone utility) 1,908,770
4,307,522
SWEDEN - 5.37%
37,942 Atlas-Copco
(Engineering) 1,079,089
25,000 L.M. Ericsson
(Telecom equipment) 1,607,122
15,000 Modern Times*
(Broadcasting, media) 743,918
125,000 Nordbanken Holding
(Swedish/Finnish banking) 734,516
57,000 Securitas
(Security/cleaning services) 1,031,614
5,196,259
SWITZERLAND - 1.06%
700 Novartis
(Pharmaceuticals and chemicals) 1,027,821
UNITED KINGDOM - 20.09%
84,000 Bank of Scotland
(Banking) 975,577
121,000 BBA Group
(Engineering) 1,002,665
76,000 Bowthorpe
(Electronics components, instruments) 1,335,659
70,000 Capita Group
(Facilities management) 1,272,049
209,000 Cattles
(Consumer loans) 1,103,945
97,000 Electrocomponents
(Electronics) 1,073,286
28,000 Energis*
(Telecoms) 1,345,545
34,000 Glaxo Wellcome
(Pharmaceuticals) 963,300
80,000 Hays
(Business services) 1,276,733
105,000 Kingfisher
(Diversified retailing) 1,165,197
76,000 Lloyds TSB
(Banking) 944,046
60,000 Logica
(Computer software) 1,550,688
350,000 Morrison Supermarkets
(Supermarkets) 751,922
148,000 Shell
(Oil major) 1,229,986
74,000 SSL International
(Healthcare and sporting goods) 937,431
90,000 SmithKline Beecham
(Pharmaceuticals) 1,141,210
275,000 Vodafone AirTouch
(Cellular telephone network) 1,370,780
19,440,019
TOTAL COMMON STOCKS 91,590,639
(Cost $57,787,440)
SHARES OR
FACE AMOUNT COMPANY MARKET VALUE
REPURCHASE AGREEMENT - 5.29%
$5,117,000 State Street Bank, 2.50%, due January 3, 2000
(Collateralized by U.S. Treasury Notes,
4.50%, due September 30, 2000 with a value
of $5,220,000) 5,117,000
(Cost $5,117,000)
TOTAL INVESTMENTS - 99.94% 96,707,639
(Cost $62,904,440)
Other assets less liabilities - 0.06% 59,839
TOTAL NET ASSETS - 100.00% $ 96,767,478
The identified cost of investments owned at
December 31, 1999, was the same for federal
income tax and book purposes.
Net unrealized appreciation for federal
income tax purposes was $33,803,285, which is
comprised of unrealized appreciation of $35,882,164
and unrealized depreciation of $2,078,879.
*Non-income producing security
See accompanying Notes to Financial Statements.
Babson Bond Trust
We closed out the calendar year of 1999 with
flat or slightly negative total returns, with
the income that the portfolios generated
being offset by the price depreciation we
saw. For the year ended December 31, 1999,
total investment returns (price change and
reinvested distributions) for Portfolio L and
S were -1.40% and 0.37%, respectively. These
compare to the Lehman Brothers Aggregate Bond
and Intermediate Gov't./Corp. indices which
returned -0.82% and 0.39% in 1999,
respectively.
Average annual compounded total returns for
Portfolio S for five and ten year periods as
of December 31, 1999, were 6.61% and 6.83%,
respectively. For Portfolio L, total returns
for five and ten year periods were 6.75% and
7.15%, respectively. Performance data
contained in this report is for past periods
only. Past performance is not predictive of
future performance. Investment return and
share value will fluctuate, and redemption
value may be more or less than original cost.
The bond market in general had a somewhat
difficult year, with interest rates rising
steadily throughout 1999, ending the year up
between 1.3% and 1.8%, depending on maturity.
The movement in interest rates is the primary
determinate of bond returns, and when
interest rates rise, bond prices fall.
We continue to be underweighted in Treasuries
and agencies (15 - 25% of the portfolio, vs.
75% of the Lehman Aggregate index) and
overweighted in corporates, mortgage-backed
issues and yankee bonds. These sectors
provide higher starting yields than
Treasuries, and give us the opportunity to
add value through good credit work, selecting
above-average issues and rotating between
sectors.
We focused on the mortgage- and asset-backed
areas in 1999. This type of bond issuance
(securitized), has seen tremendous growth
over the last few years. The bonds tend to be
AAA rated, with very strong support in terms
of cash flows and underlying collateral.
We're starting to introduce them to the
portfolio, focusing on very liquid, high
quality securities.
We also invest in commercial mortgage-backed
securities that are similar to GNMAs, but are
backed by large commercial loans, typically
on properties ranging from shopping malls to
multi-family housing. We're focusing only on
AAA bonds that are ERISA (Employee Retirement
and Investment Security Act) eligible.
Commercial mortgage-backed bonds have been
one of the best performing sectors of the
market in 1999, and we have about a 6%
weighting in our portfolios.
Yankee bonds are dollar-denominated bonds
issued in the U.S. by foreign banks and
corporations. Traditionally, we have only had
activity in Canadian Yankee bonds. We're
still heavily weighted in Canadian bonds, but
we are branching out into other country
issues (again, only those denominated in U.S.
dollars). They provide diversification, and
they're highly liquid. We feel that these are
an alternative investment to corporates,
providing a high-quality investment with a
good yield. In addition, they aren't as
highly correlated with corporates as some
other sectors, and may provide a buffer to
market volatility.
Looking forward, interest rates will be the
key issue in 2000. The Federal Reserve raised
rates in June, August and November of 1999 to
slow the economy down, apparently without
success. Everything that we look at would
lead us to believe that inflation is picking
up in the U.S., and even though it's not
showing up in the CPI numbers, it's a
possibility that the Fed will raise rates
again. However, if inflation stays down, and
the economy slows, there are some that say
interest rates will be much lower in the
2000. Although we favor the higher interest
rate scenario, our investment objective is to
bring expertise to the portfolios with our
credit work, issue selection and sector
rotation rather than positioning the
portfolios based on unpredictable interest
rate forecasts.
Additions and deletions within the portfolios:
Portfolio Long
Buys:
Lockheed Martin, 7.95%/2005 - turnaround
credit story, very cheap new issue
GMAC, 6.85%/2004 - solid credit, increasing
corporate bonds exposure
Quebec Province of Canada, 7.50%/2029 - good
credit, non-callable/puttable
FNMA, 7.50%/2029 - increasing exposure to
mortgage backed sector-attractive, new
production 30 year single family mortgages
Sells:
Hydro Quebec, 8.05%/2024 - sold this issue to
buy the noncallable Quebec issue above
Republic of Chile, 6.875%/2009 - taking
profits from recent strong performance in this name
Wachovia Capital Trust II, 6.062%/2027 -
reducing exposure to banks
Raytheon, 6.15%/2008 - sold this recent purchase
following management disclosure of problems
Portfolio Short
Buys:
Lockheed Martin, 7.95%/2005 - turnaround
credit story, very cheap new issue
GMAC, 6.85%/2004 - solid credit, increasing
corporate bonds exposure
Quebec Province of Canada, 7.50%/2029 - good
credit, non-callable/puttable
FNMA, 7.50%/2029 - increasing exposure to
mortgage backed sector-attractive, new
production 30 year single family mortgages
Ford Motor Credit, 7.375%/2009 - extending
maturity of Ford holdings
Ford Motor Credit, 6.70%/2004 - new issue by
Ford global, improved liquidity & yield
Sells:
Hydro Quebec, 8.05%/2024 - sold this issue to
buy the noncallable Quebec issue above
Republic of Chile, 6.875%/2009 - taking profits
from recent strong performance in this name
Wachovia Capital Trust II, 6.062%/2027 -
reducing exposure to banks
Raytheon, 6.15%/2008 - sold this recent purchase
following management disclosure of problems
Ford Motor Credit, 5.75%/2004
Cardinal Health, 6.25%/2008 - some concern over
mounting competitive pressure, recent negative news
Ford Motor Credit, 6.70%/2004
Currently, the average maturity is 9.3 years
for Portfolio S and 11.8 years for Portfolio
L, after taking into consideration bonds
trading to their call dates and average life
assumptions for mortgage and asset-backed
securities.
Quality Ratings
Portfolio L
Aaa 50.8%
Aa 5.4%
A 20.7%
Baa 23.1%
Total 100.0%
Source: Moody's
Quality Ratings
Portfolio S
Aaa 56.2%
Aa 7.2%
A 15.9%
Baa 20.7%
Total 100.0%
Source: Moody's
Schedule of Investments
December 31, 1999 (unaudited)
BABSON BOND TRUST - PORTFOLIO L
PRINCIPAL
DESCRIPTION AMOUNT MARKET VALUE
CORPORATE BONDS - 51.46%
BANKS AND FINANCE - 15.01%
American Stores Company, 8.00%, due June 1, 2026 $ 1,650,000 $ 1,663,596
Associates Corporation North America, 5.80%, due April 20, 2004 4,500,000 4,263,705
Ford Capital B V, 10.125%, due November 15, 2000 2,500,000 2,568,175
GMAC, 6.85%, due June 17, 2004 2,415,000 2,380,079
Hellenic Republic, 6.95%, due March 4, 2008 1,300,000 1,251,796
Southern Investments UK PLC, 6.375%, due November 15, 2001 1,300,000 1,273,103
SunTrust Banks, Inc., 6.00%, due February 15, 2026 3,000,000 2,769,750
16,665,000 16,170,204
COMMUNICATIONS - 6.44%
A T & T Capital Corp., 6.875%, due January 16, 2001 1,265,000 1,264,760
BellSouth Savings & Employee Stock Ownership Trust,
9.19%, due July 1, 2003 767,055 801,703
Tele Communications, Inc., 8.75%, due February 15, 2023 1,000,000 1,000,430
Time Warner Entertainment Company LP, 8.375%, due March 15, 2023 1,000,000 1,039,730
Time Warner, Inc., 9.15%, due February 1, 2023 1,350,000 1,508,450
WorldCom, Inc., 7.75%, due April 1, 2007 1,300,000 1,325,727
6,682,055 6,940,800
DIVERSIFIED - 2.92%
International Business Machines Corp., 6.22%, due August 1, 2027 1,500,000 1,443,870
Lucent Technologies, Inc., 6.90%, due July 15, 2001 1,700,000 1,703,332
3,200,000 3,147,202
INDUSTRIALS - 13.14%
Airgas, Inc., 7.14%, due March 8, 2004 1,650,000 1,628,698
Cardinal Health, Inc., 6.00%, due January 15, 2006 1,835,000 1,704,165
Comdisco, Inc., 6.375%, due November 30, 2001 3,675,000 3,603,815
Georgia-Pacific Corp., 9.625%, due March 15, 2022 1,500,000 1,547,925
Lockheed Martin, 7.95%, due December 1, 2005 550,000 543,812
Oslo Seismic Services, Inc., 8.28%, due June 1, 2011 1,892,106 1,870,763
Petroleum Geo-Services A/S, 7.50%, due March 31, 2007 1,500,000 1,466,415
Philip Morris Companies, Inc., 7.20%, due February 1, 2007 1,000,000 936,270
Philip Morris Companies, Inc., 6.15%, due March 15, 2000 850,000 848,649
14,452,106 14,150,512
TRANSPORTATION - 3.80%
CSX Corp., 9.50%, due August 1, 2000 680,000 690,560
JB Hunt Transport Services, Inc., 6.25%, due November 17, 2000 1,785,000 1,781,519
United Airlines Pass-Thru Trusts, 7.27%, due January 30, 2013 1,811,249 1,621,612
4,276,249 4,093,691
U.S. DOLLAR DENOMINATED CANADIAN SECURITIES - 6.77%
Canadian National Railway Company, 7.00%, due March 15, 2004 1,950,000 1,910,454
Newfoundland Province of Canada, 7.32%, due October 13, 2023 1,950,000 1,829,958
Ontario Province of Canada, 5.50%, due October 1, 2008 1,000,000 885,770
Quebec Province of Canada, 7.50%, due September 15, 2029 2,750,000 2,665,768
7,650,000 7,291,950
UTILITIES - 3.38%
Consolidated Edison Company NY, Inc., 6.15%, due July 1, 2008 2,000,000 1,828,600
Illinois Power Special Purpose Trust, Cl. A-6,
5.54%, due June 25, 2009 2,000,000 1,813,740
4,000,000 3,642,340
TOTAL CORPORATE BONDS 56,925,410 55,436,699
(Cost $58,343,802)
ASSET-BACKED BONDS - 5.65%
California Infrastructure & Economic Development Bank
Special Purpose Trust, 6.22%, due March 25, 2004 1,000,000 988,120
California Infrastructure & Economic Development Bank
Special Purpose Trust, 6.42%, due September 25, 2008 2,500,000 2,419,800
Comed Transitional Funding Trust, 5.63%, due June 25, 2009 1,400,000 1,271,648
Green Tree Securitized Net Interest Margin Trust,
7.25%, due July 15, 2005 514,562 498,000
MBNA Master Credit Card Trust II,
5.90%, due August 15, 2011 1,000,000 905,880
TOTAL ASSET-BACKED BONDS 6,414,562 6,083,448
(Cost $6,396,776)
COMMERCIAL MORTGAGE-BACKED BONDS - 5.87%
DLJ Commercial Mortgage Corp., 6.11%, due December 10, 2007 2,269,316 2,146,160
JP Morgan Commercial Mortgage Financial Corp.,
6.507%, due October 15, 2035 1,500,000 1,389,060
Nomura Asset Securities Corp., 6.59%, due March 17, 2028 3,000,000 2,790,930
TOTAL COMMERCIAL MORTGAGE-BACKED BONDS 6,769,316 6,326,150
(Cost $6,827,254)
REVENUE BOND - 1.99%
New Jersey Economic Development Authority
State Pension Funding Revenue,
7.425%, due February 15, 2029 2,200,000 2,145,748
(Cost $2,237,298)
U.S. GOVERNMENTAL AGENCY, U.S. GOVERNMENT SECURITIES AND
GOVERNMENT SPONSORED ENTERPRISES - 37.01%
U.S. GOVERNMENTAL AGENCY - 9.57%
*Government National Mortgage Association
7.50%, due March 15, 2007 90,431 89,469
7.50%, due July 15, 2007 144,936 143,395
8.00%, due October 15, 2007 220,053 222,390
8.00%, due November 15, 2009 2,624,195 2,682,399
9.50%, due April 15, 2016 21,463 22,871
9.50%, due January 15, 2019 58,179 61,996
8.00%, due May 15, 2022 259,515 262,271
7.00%, due March 15, 2024 3,047,605 2,944,748
8.00%, due December 15, 2026 3,524,226 3,561,653
Small Business Administration guaranteed development
participation certificates
9.80%, due July 1, 2008 130,798 134,796
10.05%, due August 1, 2008 65,435 68,218
10.05%, due April 1, 2009 107,881 113,487
10,294,717 10,307,693
U.S. GOVERNMENT SECURITIES - 12.13%
U.S. Treasury Notes
11.125%, due August 15, 2003 1,520,000 1,742,300
7.25%, due August 15, 2004 2,850,000 2,939,063
6.50%, due October 15, 2006 3,815,000 3,804,852
8.125%, due May 15, 2021 4,000,000 4,585,000
12,185,000 13,071,215
*GOVERNMENT SPONSORED ENTERPRISES - 15.31%
Federal Home Loan Mortgage Corporation
7.75%, due April 12, 2008 150,545 152,097
7.75%, due November 1, 2008 29,896 30,204
8.00%, due August 1, 2009 28,488 29,058
8.25%, due October 1, 2010 271,029 278,734
9.00%, due June 1, 2016 90,717 95,054
8.00%, due October 1, 2018 132,168 134,811
9.00%, due October 1, 2018 61,314 63,863
7.50%, due February 1, 2021 959,499 950,499
6.00%, due November 1, 2028 6,184,724 5,668,671
Federal National Mortgage Association
5.625%, due March 15, 2001 3,385,000 3,354,027
7.00%, due December 1, 2007 330,815 319,958
8.25%, due January 1, 2009 126,988 129,131
5.25%, due January 15, 2009 1,250,000 1,102,250
8.00%, due February 1, 2009 161,267 162,577
7.50%, due September 1, 2011 201,176 202,558
8.50%, due July 1, 2013 39,231 40,236
9.50%, due June 25, 2018 110,271 114,435
9.25%, due October 1, 2020 76,923 80,744
6.50%, due March 1, 2029 1,216,116 1,146,566
7.50%, due September 1, 2029 2,466,267 2,440,050
17,272,434 16,495,523
TOTAL U.S. GOVERNMENTAL AGENCY, U.S. GOVERNMENT SECURITIES
AND GOVERNMENT SPONSORED ENTERPRISES 39,752,151 39,874,431
(Cost $41,313,055)
TOTAL INVESTMENTS - 101.98%
109,866,476
(Cost $115,118,185)
Other assets less liabilities - (1.98%)
(2,129,102)
TOTAL NET ASSETS - 100.00%
$107,737,374
The identified cost of investments owned at
December 31, 1999, was the same for financial
statement and federal income tax purposes.
Net unrealized depreciation for federal
income tax purposes was $5,251,709, which is
comprised of unrealized appreciation of $206,166
and unrealized depreciation of $5,457,875.
*Mortgage-backed securities
See accompanying Notes to Financial Statements.
Schedule of Investments
December 31, 1999 (unaudited)
BABSON BOND TRUST - PORTFOLIO S
PRINCIPAL
DESCRIPTION AMOUNT MARKET VALUE
CORPORATE BONDS - 43.54%
BANKS AND FINANCE - 9.93%
Associates Corporation North America, 5.80%, due April 20, 2004 $ 750,000 $ 710,618
Chrysler Financial Corp., 6.375%, due January 28, 2000 600,000 600,120
GMAC, 6.85%, due June 17, 2004 700,000 689,878
Hellenic Republic, 6.95%, due March 4, 2008 375,000 361,095
Southern Investments UK PLC, 6.375%, due November 15, 2001 300,000 293,793
SunTrust Banks, Inc., 6.00%, due February 15, 2026 700,000 646,275
3,425,000 3,301,779
COMMUNICATIONS - 5.42%
A T & T Capital Corp., 6.875%, due January 16, 2001 350,000 349,934
BellSouth Savings & Employee Stock Ownership Trust,
9.19%, due July 1, 2003 556,204 581,327
Time Warner Entertainment Company LP, 8.375%, due March 15, 2023 300,000 311,919
WorldCom, Inc., 7.75%, due April 1, 2007 550,000 560,885
1,756,204 1,804,065
DIVERSIFIED - 2.29%
International Business Machines Corp., 6.22%, due August 1, 2027 400,000 385,032
Lucent Technologies, Inc., 6.90%, due July 15, 2001
375,000 375,735
775,000 760,767
INDUSTRIALS - 14.83%
Airgas, Inc., 7.14%, due March 8, 2004 550,000 542,899
Comdisco, Inc., 6.375%, due November 30, 2001 1,000,000 980,630
Ford Motor Credit Company, 7.375%, due October 28, 2009 1,000,000 987,250
Georgia Pacific Corp., 9.125%, due July 1, 2022 375,000 376,328
Lockheed Martin, 7.95%, due December 1, 2005 175,000 173,031
Oslo Seismic Services, Inc., 8.28%, due June 1, 2011 473,027 467,691
Petroleum Geo-Services A/S, 7.50%, due March 31, 2007 500,000 488,805
Philip Morris Companies, Inc., 7.20%, due February 1, 2007 200,000 187,254
Philip Morris Companies, Inc., 6.15%, due March 15, 2000 250,000 249,603
Service Corporation International,
6.375% notes, due October 1, 2000 500,000 477,195
5,023,027 4,930,686
TRANSPORTATION - 3.93%
Burlington Northern Santa Fe Corp., 6.05%, due March 15, 2001 400,000 395,016
JB Hunt Transport Services, Inc., 6.25%, due November 17, 2000 350,000 349,318
United Airlines Pass-Thru Trusts, 7.27%, due January 30, 2013 399,886 358,018
Wisconsin Central Transportation Corp., 6.625%, due April 15, 2008 225,000 205,999
1,374,886 1,308,351
U.S. DOLLAR DENOMINATED CANADIAN SECURITIES - 6.04%
Canadian National Railway Company, 7.00%, due March 15, 2004 500,000 489,860
Ontario Province of Canada, 5.50%, due October 1, 2008 1,250,000 1,107,213
Quebec Province of Canada, 7.50%, due September 15, 2029 425,000 411,982
2,175,000 2,009,055
UTILITIES - 1.10%
Consolidated Edison Company NY, Inc., 6.15%, due July 1, 2008 400,000 365,720
TOTAL CORPORATE BONDS 14,929,117 14,480,423
(Cost $15,593,187)
ASSET-BACKED BONDS - 6.97%
California Infrastructure & Economic Development Bank
Special Purpose Trust
6.14%, due March 25, 2002 99,189 99,474
6.22%, due March 25, 2004 300,000 296,436
6.42%, due September 25, 2008 150,000 145,188
Comed Transitional Funding Trust, 5.63%, due June 25, 2009 1,100,000 999,152
Green Tree Securitized Net Interest Margin Trust,
6.90%, due February 15, 2004 53,066 52,702
MBNA Master Credit Card Trust II, 5.90%, due August 15, 2011 800,000 724,704
TOTAL ASSET-BACKED BONDS 2,502,255 2,317,656
(Cost $1,906,578)
COMMERCIAL MORTGAGE-BACKED BONDS - 5.00%
DLJ Commercial Mortgage Corp., 6.11%, due December 10, 2007 726,181 686,771
JP Morgan Commercial Mortgage Financial Corp.,
6.507%, due October 15, 2035 250,000 231,510
Nomura Asset Securities Corporation, 6.59%, due March 17, 2028 800,000 744,248
TOTAL COMMERICAL MORTGAGE-BACKED BONDS 1,776,181 1,662,529
(Cost $1,790,146)
U.S. GOVERNMENTAL AGENCY, U.S. GOVERNMENT SECURITIES AND
GOVERNMENT SPONSORED ENTERPRISES - 44.24%
U.S. GOVERNMENTAL AGENCY - 6.63%
*Government National Mortgage Association
8.00%, due October 15, 2007 15,954 16,123
8.00%, due November 15, 2009 470,927 481,372
7.50%, due October 15, 2011 266,902 269,152
7.50%, due November 15, 2011 323,807 326,537
9.50%, due September 15, 2019 13,412 14,292
8.00%, due December 15, 2022 179,394 181,299
7.00%, due May 15, 2024 566,814 547,684
8.00%, due November 15, 2026 342,385 346,021
Small Business Administration guaranteed
development participation certificates
9.80%, due July 1, 2008 21,800 22,466
2,201,395 2,204,946
U.S. GOVERNMENT SECURITIES - 7.51%
U.S. Treasury Bonds
11.125%, due August 15, 2003 700,000 802,375
U.S. Treasury Notes
7.25%, due August 15, 2004 250,000 257,813
5.625%, due February 15, 2006 250,000 239,180
6.50%, due October 15, 2006 1,200,000 1,196,808
2,400,000 2,496,176
*GOVERNMENT SPONSORED ENTERPRISES - 30.10%
Federal Home Loan Mortgage Corporation
8.25%, due July 1, 2008 17,318 17,615
8.00%, due January 1, 2012 400,916 409,183
9.00%, due June 1, 2016 73,271 76,774
8.00%, due May 1, 2017 40,429 41,237
9.00%, due May 15, 2021 87,601 90,174
6.00%, due November 1, 2028 1,902,992 1,744,206
Federal National Mortgage Association
5.625%, due March 15, 2001 4,425,000 4,384,511
7.00%, due December 1, 2007 61,437 59,421
5.25%, due January 15, 2009 1,450,000 1,278,610
8.25%, due January 1, 2009 13,228 13,451
7.50%, due September 1, 2011 201,176 202,558
9.25%, due October 1, 2020 40,486 42,497
7.50%, due September 1, 2020 739,880 732,015
6.50%, due March 1, 2029 972,892 917,253
10,426,626 10,009,505
TOTAL U.S. GOVERNMENTAL AGENCY, U.S. GOVERNMENT SECURITIES
AND GOVERNMENT SPONSORED ENTERPRISES 15,028,021 14,710,627
(Cost $15,159,433)
TOTAL INVESTMENTS - 99.75%
33,171,235
(Cost $34,449,344)
Other assets less liabilities - 0.25% 83,829
TOTAL NET ASSETS - 100.00% $ 33,255,064
The identified cost of investments owned at
December 31, 1999, was the same for financial
statement and federal income tax purposes.
Net unrealized depreciation for federal
income tax purposes was $1,278,109, which is
comprised of unrealized appreciation of $34,946
and unrealized depreciation of $1,313,055.
*Mortgage-backed securities
See accompanying Notes to Financial Statements.
Babson Money Market Fund
There was a tremendous divide in the market
for the last six months of 1999 due to Y2K
concerns. Money market issuers, seeking to
ensure funding into the year 2000, boosted
yields on securities that mature in the first
quarter of 2000 to entice money market
investors. At the same time that this helped
ensure adequate funding for the issuers,
money market investors had an opportunity to
receive additional yield by extending from
December 1999 maturities to January and
February of 2000. Although this happens to a
certain extent each year-end, this year it
started as early as July.
Because many dealers were trying to get their
inventory off the books for year end, January
and February commercial paper was trading at
much higher yields than later paper - to the
extent of .50 to .75%. We took advantage of
this wide commercial paper yield differential
(what we call the "Y2K cliff") for the Prime
Portfolio, which boosted our yields during
this report period. Of course, we had to keep
some December paper for liquidity purposes.
We did not see the "Y2K cliff" yield
differential to the same extent in the
Federal Portfolio. First, because there is
not as much credit risk in Federal Treasury
and Agency paper as commercial paper, and
secondly, agencies did a better job managing
their issuance. Still, there was a benefit to
holding January and February paper, and we
took advantage when we could, without
compromising liquidity.
The U.S. economy continues to grow much
faster than expected, and well above
potential. In addition, rising wages have
remained an inflationary threat, as have oil
prices, which doubled over the last twelve
months. These developments have pushed
interest rates 85-180 basis points higher
along the yield curve since the beginning of
the year. The three-month Treasury bill rose
from 4.45% to 5.30% over the course of 1999.
Given the economic fundamentals, the Federal
Reserve increased the Federal Funds rate
(5.50% at year end) by 25 basis points at
each of the June, August and November
meetings in an effort to offset potential
inflationary pressures. Despite these strong
economic fundamentals, inflation remains well
behaved. In fact the Consumer Price Index is
only running around 2%.
Looking toward the year 2000, there is
concern among Fed members regarding tight
employment, strong economic activity and
rising commodity prices. We anticipate a
heightened level of vigilance toward
inflationary pressures. Additional action by
the Fed is possible as we turn into the new
year, and consequently, short-term interest
rates are likely to rise at least through the
second quarter.
In money market investing, it is important
for investors to focus on quality and
liquidity since the rewards for riskier
strategies are meager. This has been our
policy at the Babson Money Market Fund, and
we feel that it will continue to benefit our
shareholders.
The seven-day yield for Babson Money Market
Fund's Prime Portfolio was 5.03% and the
Federal Portfolio was 4.58%, as of December
31, 1999.
An investment in this Fund is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Although the Fund seeks to preserve the value
of your investment at $1.00 per share, it is
possible to lose money by investing in the
Fund.
Schedule of Investments
December 31, 1999 (unaudited)
BABSON MONEY MARKET FUND - PRIME
PRINCIPAL
DESCRIPTION AMOUNT MARKET VALUE
SHORT-TERM CORPORATE NOTES - 93.44%
AIG Funding, Incorporated, 5.68%, due May 5, 2000 $ 1,500,000 $ 1,470,417
AT & T Corporation, 5.90%, due January 25, 2000 2,000,000 1,992,133
Associates Corporation, 5.90%, due January 27, 2000 2,000,000 1,991,478
Bell Atlantic Financial, 5.88%, due January 24, 2000 1,900,000 1,892,862
Caterpillar Financial Services, 5.72%, due January 28, 2000 2,000,000 1,991,420
Coca-Cola Company, 5.75%, due March 7, 2000 2,000,000 1,978,917
duPont (E.I.) deNemours & Company, 5.85%, due January 18, 2000 1,000,000 997,238
duPont (E.I.) deNemours & Company, 5.45%, due March 2, 2000 1,000,000 990,765
Emerson Electric Company, 5.95%, due January 31, 2000 1,000,000 995,042
Ford Motor Credit Company, 6.50%, due January 4, 2000 1,500,000 1,499,188
General Mills, Incorporated, 5.80%, due February 23, 2000 1,900,000 1,883,776
General Motors Acceptance Corporation, 5.70%, due March 6, 2000 2,000,000 1,979,417
Grainger (W.W.), Incorporated, 5.82%, due February 17, 2000 1,900,000 1,885,563
Heinz (H.J.) Company, 5.85%, due January 31, 2000 2,000,000 1,990,250
IBM Credit Corporation, 5.52%, due February 4, 2000 1,800,000 1,790,616
Lucent Technologies, Incorporated, 5.77%, due February 2, 2000 1,900,000 1,890,255
McGraw-Hill Companies, Incorporated, 6.20%, due January 21, 2000 2,000,000 1,993,111
Merck & Company, Incorporated, 5.30%, due February 4, 2000 1,800,000 1,790,990
Motorola, Incorporated, 6.55%, due January 28, 2000 1,100,000 1,094,596
Nicor, Incorporated, 5.89%, due January 18, 2000 2,000,000 1,994,437
Proctor & Gamble Company, 5.85%, due February 4, 2000 2,000,000 1,988,950
Sonoco Products Company, 5.75%, due March 14, 2000 1,000,000 988,340
TOTAL SHORT-TERM CORPORATE NOTES 37,300,000 37,069,761
(Cost $37,069,761)
GOVERNMENT SPONSORED ENTERPRISES - 4.98%
Federal Home Loan Mortgage Corporation Discount Notes,
5.20%, due March 31, 2000 1,000,000 987,000
Federal Home Loan Mortgage Corporation Discount Notes,
5.22%, due March 31, 2000 1,000,000 986,950
TOTAL GOVERNMENT SPONSORED ENTERPRISES 2,000,000 1,973,950
(Cost $1,973,950)
REPURCHASE AGREEMENT - 1.80%
Morgan Guaranty Trust Company, 2.25%, due January 3, 2000
(Collateralized by U.S. Treasury Notes,
6.75%, due August 15, 2026 with a value of $730,317) 716,000 716,000
(Cost $716,000)
TOTAL INVESTMENTS - 100.22% 39,759,711
(Cost $39,759,711)
Other assets less liabilities - (0.22%) (86,889)
TOTAL NET ASSETS - 100.00% $ 39,672,822
The identified cost of investments owned at
December 31, 1999, was the same for financial
statement and federal income tax purposes.
See accompanying Notes to Financial Statements.
Schedule of Investments
December 31, 1999 (unaudited)
BABSON MONEY MARKET FUND - FEDERAL
PRINCIPAL
DESCRIPTION AMOUNT MARKET VALUE
GOVERNMENT SPONSORED ENTERPRISES - 82.72%
Federal Farm Credit Banks Discount Notes,
5.50%, due March 27, 2000 $ 1,000,000 $ 986,861
Federal Home Loan Mortgage Corporation Discount Notes
5.75%, due January 24, 2000 1,500,000 1,494,490
5.51%, due March 8, 2000 500,000 494,873
5.49%, due February 2, 2000 1,000,000 995,120
5.73%, due March 30, 2000 1,000,000 985,834
Federal National Mortgage Association Discount Notes
5.53%, due February 2, 2000 2,250,000 2,238,940
5.57%, due March 1, 2000 750,000 743,037
TOTAL GOVERNMENT SPONSORED ENTERPRISES 8,000,000 7,939,155
(Cost $7,939,155)
REPURCHASE AGREEMENT - 17.75%
Morgan Guaranty Trust Company, 2.25%, due January 3, 2000
(Collateralized by U.S. Treasury Notes,
6.75%, due August 15, 2026 with a value of $1,738,076) 1,704,000 1,704,000
(Cost $1,704,000)
TOTAL INVESTMENTS - 100.46% 9,643,155
(Cost $9,643,155)
Other assets less liabilities - (0.46%) (44,324)
TOTAL NET ASSETS - 100.00% $ 9,598,831
The identified cost of investments owned at
December 31, 1999, was the same for financial
statement and federal income tax purposes.
See accompanying Notes to Financial Statements.
Babson Tax-Free Income Fund
This was the worst year for fixed income
portfolios since 1994. Municipal rates rose a
full 1%, and when interest rates rise, bond
prices fall. The last six months of 1999
remained consistent with that story, with the
Tax-Free Short Portfolio's total investment
return
(price change and reinvested distributions)
of 0.86% and Long Portfolio returning -1.63%,
compared to the Lipper Short-Intermediate
Municipal Bond index return of 0.69% and the
Lipper General Municipal Bond index return of
-5.75%. Portfolio MM's price remained at
$1.00 and provided a return of 1.42% for the
same period. Some income from the Fund may be
subject to the federal Alternative Minimum
Tax as well as state and local taxes. The
average maturities of Portfolio L, S and MM
were 13.7 years, 4.3 years and 35 days,
respectively.
Average annual compounded total returns for
one, five and ten year periods as of December
31, 1999, were -3.10%, 5.95% and 6.02% for
Portfolio L, 0.49%, 4.46% and 4.93% for
Portfolio S and 2.69%, 3.01% and 3.16% for
Portfolio MM, respectively. Performance data
contained in this report is for past periods
only. Past performance is not predictive of
future performance. Investment return and
share value will fluctuate, and redemption
value may be more or less than original cost.
In general, market returns for municipals
were negative for the one year period ending
December 31. Results, however, varied widely
across the yield curve, with the shortest
maturities posting the best performance and
maturities beyond seven years dipping into
sharply negative territory. One-year
municipals returned three percent, while
returns for maturities beyond twenty years
were down almost seven percent.
The Federal Reserve's interest rate hikes,
coupled with a decline in demand by mutual
funds, put upward pressure on municipal
rates. Tax loss selling (selling securities
that have depreciated in value to offset
gains) which began late in the third quarter,
continued unabated until the very end of the
year.
While 1999 was very disappointing in many
respects, municipal credit quality stood out.
As a result of the healthy economy, many
state and local governments report they are
in the best fiscal shape ever. Due to the
robust economy, and resultant increases in
income, property, business and sales tax
revenues, general obligation and tax-backed
bonds have been the best performers.
Restructuring in the health care and utility
sectors caused these sectors to weaken. We
have pared down our exposure in the hospital
sector due to continuing pressures and the
potential for further credit deterioration.
Over the last several years we've had a bias
towards purchasing high quality issues
because quality spreads have been narrow.
When quality spreads are narrow, investors
are not fully compensated with additional
yield for assuming more credit risk.
Portfolio L and S both have an average
quality rating of AA+, with 97% of Portfolio
L and 93% of Portfolio S in A, AA, or AAA
rated bonds.
As the new year begins, the market is
expecting the Federal Reserve Board to raise
interest rates in an effort to dampen
economic growth and combat inflation. Actions
by the Fed will impact the direction of
municipal rates as well. Additionally, being
an election year, there will likely be
discussions regarding the reduction of income
taxes. We will continue to look for
opportunities to add value to the portfolios
through the purchase of undervalued issues,
sectors and maturities. We expect our general
obligation and tax-backed bonds (which make
up 44% of Portfolio S, and 38% of Portfolio
L) to continue to be good performers.
We find that many of our investors are in
high tax brackets, which makes investing in a
tax-exempt vehicle that much more important.
Our Portfolios are managed for those
investors to be conservative, provide a good
total return, and to minimize tax
consequences. Our small size is a benefit,
because we can take advantage of smaller
pieces and smaller issues, and we can move in
and out of the market easily.
Quality Ratings
PORTFOLIO PORTFOLIO PORTFOLIO
L S MM
Aaa 56% 60% 89%
Aa 31 24 11
A 10 9 0
Lower 3 7 0
Total 100% 100% 100%
Source: Moody's
Schedule of Investments
December 31, 1999 (unaudited)
BABSON TAX-FREE INCOME FUND - PORTFOLIO L
PRINCIPAL
DESCRIPTION AMOUNT MARKET VALUE
ALABAMA
Jefferson County Sewer, 5.00%, due February 1, 2033 $ 1,000,000 $ 822,500
ARIZONA
Maricopa County Unified School District #48,
9.25%, due July 1, 2007 500,000 631,875
ARKANSAS
Arkansas, Series B, 0.00%, due June 1, 2010 1,000,000 571,250
CALIFORNIA
California, 5.50%, due October 1, 2011 1,000,000 1,020,000
Santa Rosa Water, Series B, 6.00%, due September 1, 2015 500,000 521,875
University of California, Series D, 5.75%, due July 1, 2013 1,000,000 1,017,500
COLORADO
Adams County School District #12, 6.20%, due December 15, 2010 500,000 517,500
DISTRICT OF COLUMBIA
District of Columbia, Series A, 5.75%, due June 1, 2003 245,000 252,350
District of Columbia, Series A, 5.75%, due June 1, 2003 255,000 262,013
FLORIDA
Dade County, 0.00%, due October 1, 2027 1,000,000 195,000
Florida State Public Board of Education, Series A,
7.25%, due June 1, 2023 1,000,000 1,032,540
Miami-Dade County, Series A, 0.00%, due October 1, 2015 500,000 196,250
Palm Beach County Airport, 7.75%, due October 1, 2010 500,000 535,000
Tampa (Catholic Health Care East),
4.875%, due November 15, 2023 500,000 417,500
ILLINOIS
Chicago, Series B, 5.125%, due January 1, 2022 1,000,000 872,500
Lake County School District, 5.00%, due December 15, 2014 1,000,000 918,750
Metro Pier & Expo Tax Authority, 5.375%, due December 15, 2017 1,000,000 931,250
INDIANA
Indiana Bond Bank Special Program, Series 94 A-1,
5.60%, due August 1, 2015 500,000 495,625
KANSAS
Johnson County Unified School District #229, Series A,
4.90%, due October 1, 2011 1,000,000 958,750
LOUISIANA
St. Tammany Parish Hospital Service District #2
(Slidell Memorial Hospital & Medical Center),
6.125%, due October 1, 2011 500,000 521,875
MASSACHUSETTS
Massachusetts Health & Education, Series D,
5.75%, due July 1, 2014 500,000 501,250
Massachusetts Housing Finance Agency Projects, Series A,
6.375%, due April 1, 2021 975,000 987,187
Massachusetts State Consolidated Loan,
5.25%, due August 1, 2018 1,000,000 921,250
NEVADA
Clark County School District, Series A, 6.75%, due March 1, 2007 500,000 514,375
NEW HAMPSHIRE
New Hampshire Higher Education & Health Facility
(Concord Hospital),
5.70%, due October 1, 2010 500,000 513,750
New Hampshire Higher Education & Health Facility
(Franklin Pierce Law Center), 5.50%, due July 1, 2018 500,000 442,500
NEW JERSEY
New Jersey Turnpike, 10.375%, due January 1, 2003 115,000 125,781
NEW YORK
Long Island Power, 3.60%, due May 1, 2033 800,000 800,000
New York City Municipal Water Financing Authority, Series A,
6.80%, due June 15, 2004 1,000,000 1,041,250
New York Dormitory (State University Education Facility),
Series B, 6.10%, due May 15, 2008 1,000,000 1,067,500
New York Environmental, Series B, 6.65%, due September 15, 2013 500,000 527,500
RHODE ISLAND
Rhode Island Depositors Economic Protection Corp., Series B,
5.80%, due August 1, 2009 500,000 521,875
Rhode Island Industrial Facility Corp.,
9.125%, due October 1, 2000 20,000 20,015
TENNESSEE
Metro Nashville Airport, 5.00%, due October 1, 2012 200,000 200,000
TEXAS
San Antonio Electric & Gas, 5.75%, due February 1, 2011 295,000 298,319
San Antonio Electric & Gas, 5.75%, due February 1, 2011 205,000 211,406
VIRGINIA
Fairfax County Industrial Development,
5.50%, due August 15, 2009 500,000 499,375
WASHINGTON
Tacoma Conservation System Project (Tacoma Public Utilities),
6.50%, due January 1, 2012 500,000 526,250
Seattle Water System, 5.75%, due July 1, 2023 1,000,000 955,000
WISCONSIN
Wisconsin Public Power, 5.90%, due July 1, 2011 500,000 518,125
TOTAL INVESTMENTS - 98.68% 23,884,611
(Cost $24,073,865)
Other assets less liabilities - 1.32% 319,037
TOTAL NET ASSETS - 100.00% $ 24,203,648
The identified cost of investments owned at
December 31, 1999, was the same for financial
statement and federal income tax purposes.
Net unrealized depreciation for federal
income tax purposes was $189,253, which is
comprised of unrealized appreciation of $452,982
and unrealized depreciation of $642,235.
See accompanying Notes to Financial Statements.
Schedule of Investments
December 31, 1999 (unaudited)
BABSON TAX-FREE INCOME FUND - PORTFOLIO S
PRINCIPAL
DESCRIPTION AMOUNT MARKET VALUE
ARIZONA
Chandler, 6.90%, due July 1, 2005 $ 1,000,000 $ 1,097,137
Maricopa County Unified School District #93,
6.40%, due July 1, 2005 500,000 532,500
COLORADO
Jefferson County School District #R-001, Series A,
6.00%, due December 15, 2006 500,000 529,375
DISTRICT OF COLUMBIA
District of Columbia, Series A, 5.75%, due June 1, 2003 245,000 252,350
District of Columbia, Series A, 5.75%, due June 1, 2003 255,000 262,013
GUAM
Guam Government Limited Obligation, Series A,
5.75%, due May 1, 2001 500,000 508,750
HAWAII
Hawaii State, 5.50%, due September 1, 2006 500,000 513,750
ILLINOIS
Chicago Public Building, 5.375%, due February 1, 2005 250,000 255,313
Du Page & Will Counties Community School District #204,
7.25%, due December 30, 2004 500,000 551,250
INDIANA
Kokomo-Center School Building Corp., 6.75%, due July 15, 2007 250,000 275,625
MASSACHUSETTS
Massachusetts Health & Education (Milford-Whitinsville Regional),
Series C, 4.75%, due July 15, 2003 500,000 483,125
Massachusetts Housing Finance Agency Projects, Series A,
5.35%, due April 1, 2003 500,000 508,750
MICHIGAN
Utica Community Schools, 5.375%, due May 1, 2005 500,000 510,625
MISSOURI
Sikeston Electric, 5.80%, due June 1, 2002 500,000 515,000
NEVADA
Washoe County Hospital, Series A, 5.25%, due June 1, 2001 500,000 505,625
Washoe County (Reno Sparks Bowling Facility), Series A,
5.40%, due July 1, 2006 500,000 508,750
NEW YORK
Battery Park City, 6.00%, due November 1, 2003 500,000 518,750
Long Island Power, 3.60%, due May 1, 2033 400,000 400,000
Metropolitan Transportation, 5.00%, due April 1, 2008 500,000 494,375
New York Medical Care Finance Agency, Series F,
6.00%, due August 15, 2002 500,000 515,000
New York Medical Care Finance Agency, Series A,
5.40%, due August 15, 2004 235,000 237,693
New York State Dormitory, 5.35%, due November 1, 2005 500,000 511,250
New York State Thruway Authority Highway,
5.50%, due April 1, 2005 500,000 514,375
NORTH CAROLINA
North Carolina Eastern Municipal Power Agency, Series 93 B,
5.375%, due January 1, 2001 500,000 501,115
OHIO
Columbus City School District, 6.65%, due December 1, 2012 500,000 536,250
Ohio Major Infrastructure, 5.00%, due December 15, 2007 500,000 497,500
Ohio State Building Authority, 4.00%, due October 1, 2004 250,000 241,562
PENNSYLVANIA
North Hampton County, 4.20%, due August 15, 2008 500,000 464,375
TENNESSEE
McKinney Independent School, 5.25%, due February 15, 2006 500,000 508,125
Tennessee Housing Development Agency, Series A,
4.95%, due July 1, 2000 490,000 491,377
TEXAS
Houston, Series C, 5.90%, due March 1, 2003 140,000 143,675
Houston, Series C, 5.90%, due March 1, 2003 360,000 369,000
WASHINGTON
Washington Public Power Supply System Nuclear Project #2,
Series B, 5.10%, due July 1, 2004 500,000 504,375
Washington Public Power Supply System Nuclear Project #2,
Series B, 7.50%, due July 1, 2004 300,000 310,767
Washington, Series B, 5.00%, due January 1, 2008 500,000 495,625
WISCONSIN
Milwaukee County, Series A, 5.35%, due September 1, 2001 500,000 506,875
Milwaukee Metropolitan Sewer District, Series A,
7.00%, due September 1, 2000 500,000 509,280
TOTAL INVESTMENTS - 98.65% 17,081,282
(Cost $17,178,732)
Other assets less liabilities - 1.35% 234,052
TOTAL NET ASSETS - 100.00% $ 17,315,334
The identified cost of investments owned at
December 31, 1999, was the same for financial
statement and federal income tax purposes.
Net unrealized depreciation for federal
income tax purposes was $97,450, which is
comprised of unrealized appreciation of $136,701
and unrealized depreciation of $234,151.
See accompanying Notes to Financial Statements.
Schedule of Investments
December 31, 1999 (unaudited)
BABSON TAX-FREE INCOME FUND - PORTFOLIO MM
PRINCIPAL
DESCRIPTION AMOUNT MARKET VALUE
ARIZONA
Maricopa County, 4.90%, due May 1, 2029* $ 200,000 $ 200,000
Salt River, Series 97 A, 3.40%, due February 11, 2000 250,000 250,000
CONNECTICUT
Connecticut, Series 97 B, 5.10%, due May 15, 2014* 200,000 200,000
Connecticut, 3.38%, due July 1, 2000 200,000 200,000
FLORIDA
Dade County (Florida Power & Light),
4.40%, due June 1, 2021* 200,000 200,000
GEORGIA
Burke County Development Authority, 4.90%, due July 1, 2024* 100,000 100,000
De Kalb Private Hospital Authority
(Egleston Childrens Hospital), Series A,
5.20%, due March 1, 2024* 300,000 300,000
ILLINOIS
Illinois Health Facilties (Rush-Presbyterian, St. Lukes),
Series B, 5.60%, due November 15, 2023* 100,000 100,000
Illinois Health Facilties (Rush-Presbyterian, St. Lukes),
5.35%, due August 15, 2022* 200,000 200,000
INDIANA
Indiana University, 3.75%, due August 1, 2000 100,000 100,337
St. Joseph County Education Facilities
(University of Notre Dame), 5.20%, due March 1, 2033* 300,000 300,000
LOUISIANA
St. Charles Parish, 4.85%, due October 1, 2022* 100,000 100,000
MICHIGAN
Michigan Municipal Bond Authority, 4.25%, due August 5, 2000 125,000 125,507
Michigan State Building Authority, 3.90%, due January 12, 2000 150,000 150,000
MINNESOTA
Rochester Health Facility (Mayo Foundation), Series 92,
3.75%, due March 8, 2000 300,000 300,000
MISSOURI
Missouri Health & Education Facilities Authority,
3.65%, due March 1, 2000 200,000 200,000
NEBRASKA
Omaha Public Power District, 4.30%, due February 1, 2000 100,000 100,082
NEVADA
Clark County, 5.15%, due July 1, 2025* 300,000 300,000
NEW MEXICO
Albuquerque Airport, Series 95, 5.15%, due July 1, 2014* 100,000 100,000
Hurley (British Petroleum), 4.85%, due December 1, 2015* 100,000 100,000
NEW JERSEY
Bergen County, 6.35%, due January 15, 2000 180,000 180,208
NEW YORK
Long Island Power, 4.75%, due May 1, 2033* 150,000 150,000
NORTH CAROLINA
Charlotte Airport, Series 93 A, 5.15%, due July 1, 2016* 300,000 300,000
Raleigh Durham Airport Authority, 4.95%, due November 1, 2015* 200,000 200,000
Winston-Salem Water & Sewer System, 5.20%, due June 1, 2014* 200,000 200,000
RHODE ISLAND
Rhode Island Correction Facility, 5.60%, due June 1, 2018 300,000 300,000
TEXAS
Dallas Rapid Transportation Sales, 3.85%, due February 11, 2000 250,000 250,000
Harris County, 3.75%, due January 24, 2000 345,000 345,000
Harris County, 3.70%, due March 9, 2000 100,000 100,000
Lone Star Airport Improvement Authority, Series B-4,
4.80%, due December 1, 2014* 100,000 100,000
San Antonio Water System, 3.65%, due March 10, 2000 300,000 300,000
Shelby County, 3.70%, due March 8, 2000 100,000 100,000
Texas State Tax & Revenue Anticipation Notes,
4.50%, due August 31, 2000 200,000 201,092
WASHINGTON
Seattle Municipal Light & Power, 5.55%, due November 1, 2018* 100,000 100,000
Washington, Series 96 B, 5.40%, due June 1, 2020* 200,000 200,000
Washington Public Power Supply System Nuclear Project #1,
Series 1A-1, 5.50%, due July 1, 2017* 100,000 100,000
WISCONSIN
Sheboygan (Wisconsin Power & Light Co),
5.00%, due August 1, 2014* 300,000 300,000
WYOMING
Lincoln County, Series D, 4.85%, due August 1, 2015* 200,000 200,000
Sublette County, 4.85%, due November 1, 2014 100,000 100,000
TOTAL INVESTMENTS - 98.73% 7,352,226
(Cost $7,352,226)
Other assets less liabilities - 1.27% 94,870
TOTAL NET ASSETS - 100.00% $ 7,447,096
The identified cost of investments owned at
December 31, 1999, was the same for financial
statement and federal income tax purposes.
*Variable rate security
See accompanying Notes to Financial Statements.
Statements of Assets and Liabilities
December 31, 1999
(in thousands except per share data)
BABSON BABSON BABSON
ENTERPRISE FUND ENTERPRISE FUND II GROWTH FUND
ASSETS:
Investments at cost $ 121,516 $ 52,643 $291,272
Investments at value $ 116,116 $ 63,816 $509,882
Cash denominated in foreign currencies (cost $2) - - -
Cash 14 - 1,068
Receivables:
Investments sold - - 2,554
Dividends 171 87 261
Interest - - 3
Fund shares sold 2 - 3
Foreign tax - - -
Other - - -
Prepaid registration fees - - -
Total assets 116,303 63,903 513,771
LIABILITIES AND NET ASSETS:
Cash overdraft - 524 -
Payables:
Management fees 110 65 320
Registration fees - - -
Dividends - - -
Investments purchased 146 - 13,101
Fund share redemptions - - -
Foreign tax withholding - - -
Other - - -
Total liabilities 256 589 13,421
NET ASSETS $ 116,047 $ 63,314 $500,350
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 115,758 $ 48,781 $243,987
Undistributed net investment income 199 42 (15)
Undistributed net realized gain (loss)
from investment transactions and
foreign currency transactions 5,490 3,317 37,767
Net unrealized appreciation (depreciation)
of investments and translation of assets
and liabilities in foreign currencies (5,400) 11,174 218,611
NET ASSETS APPLICABLE TO
OUTSTANDING SHARES $ 116,047 $ 63,314 $500,350
Capital shares, $1.00 par value
Authorized 20,000 10,000 100,000
Outstanding 9,579 2,684 24,158
NET ASSET VALUE PER SHARE $ 12.11 $ 23.59 $20.71
See accompanying Notes to Financial Statements
Statements of Assets and Liabilities
December 31, 1999
(in thousands except per share data)
SHADOW BABSON
STOCK FUND VALUE FUND
ASSETS:
Investments at cost $ 34,736 $ 638,717
Investments at value $ 40,756 $ 817,568
Cash denominated in foreign currencies (cost $2) - -
Cash 106 -
Receivables:
Investments sold - 27,243
Dividends 60 852
Interest - 2
Fund shares sold 5 216
Foreign tax - -
Other - -
Prepaid registration fees - -
Total assets 40,927 845,881
LIABILITIES AND NET ASSETS:
Cash overdraft - 21,760
Payables:
Management fees 34 703
Registration fees - -
Dividends - -
Investments purchased - -
Fund share redemptions - -
Foreign tax withholding - -
Other - -
Total liabilities 34 22,463
NET ASSETS $ 40,893 $ 823,418
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 32,662 $ 530,582
Undistributed net investment income 149 6,709
Undistributed net realized gain (loss)
from investment transactions and
foreign currency transactions 2,061 107,276
Net unrealized appreciation (depreciation)
of investments and translation of assets
and liabilities in foreign currencies 6,021 178,851
NET ASSETS APPLICABLE TO
OUTSTANDING SHARES $ 40,893 $ 823,418
Capital shares, $1.00 par value
Authorized 10,000 50,000
Outstanding 3,568 18,610
NET ASSET VALUE PER SHARE $ 11.46 $ 44.25
See accompanying Notes to Financial Statements.
Statements of Assets and Liabilities
December 31, 1999
(in thousands except per share data)
BABSON- BABSON BABSON
STEWART IVORY BOND TRUST BOND TRUST
INTERNATIONAL FUND PORTFOLIO L PORTFOLIO S
ASSETS:
Investments at cost $ 62,904 $ 115,118 $34,449
Investments at value $ 96,708 $ 109,866 $33,171
Cash denominated in foreign currencies (cost $2) 3 - -
Cash 1 - -
Receivables:
Investments sold - - -
Dividends 61 - -
Interest - 1,796 537
Fund shares sold 18 - 7
Foreign tax 63 - -
Other - 153 56
Prepaid registration fees - 3 1
Total assets 96,854 111,818 33,772
LIABILITIES AND NET ASSETS:
Cash overdraft - 3,415 323
Payables:
Management fees 80 89 19
Registration fees - - -
Dividends - 577 175
Investments purchased - - -
Fund share redemptions - - -
Foreign tax withholding 7 - -
Other - - -
Total liabilities 87 4,081 517
NET ASSETS $ 96,767 $ 107,737 $ 33,255
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 49,268 $ 116,538 $ 36,729
Undistributed net investment income (674) - -
Undistributed net realized gain (loss)
from investment transactions and
foreign currency transactions 14,372 (3,549) (2,196)
Net unrealized appreciation (depreciation)
of investments and translation of assets
and liabilities in foreign currencies 33,801 (5,25) (1,278)
NET ASSETS APPLICABLE TO
OUTSTANDING SHARES $ 96,767 $ 107,737 $ 33,255
Capital shares, $1.00 par value
Authorized 10,000 Unlimited Unlimited
Outstanding 3,913 72,552 3,549
NET ASSET VALUE PER SHARE $ 24.73 $ 1.48 $ 9.37
See accompanying Notes to Financial Statements
Statements of Assets and Liabilities
December 31, 1999
(in thousands except per share data)
BABSON BABSON
MONEY MARKET FUND MONEY MARKET FUND
PRIME PORTFOLIO FEDERAL PORTFOLIO
ASSETS:
Investments at cost $ 39,760 $ 9,643
Investments at value $ 39,760 $ 9,643
Cash denominated in foreign currencies (cost $2) - -
Cash 88 -
Receivables:
Investments sold - -
Dividends - -
Interest - -
Fund shares sold - -
Foreign tax - -
Other - -
Prepaid registration fees 24 12
Total assets 39,872 9,655
LIABILITIES AND NET ASSETS:
Cash overdraft - 11
Payables:
Management fees 30 7
Registration fees - -
Dividends 169 38
Investments purchased - -
Fund share redemptions - -
Foreign tax withholding - -
Other - -
Total liabilities 199 56
NET ASSETS $ 39,673 $ 9,599
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 39,680 $ 9,599
Undistributed net investment income - -
Undistributed net realized gain (loss)
from investment transactions and
foreign currency transactions (7) -
Net unrealized appreciation (depreciation)
of investments and translation of assets
and liabilities in foreign currencies - -
NET ASSETS APPLICABLE TO
OUTSTANDING SHARES $ 39,673 $ 9,599
Capital shares, $1.00 par value
Authorized 1,000,000 1,000,000
Outstanding 39,677 9,598
NET ASSET VALUE PER SHARE $ 1.00 $ 1.00
See accompanying Notes to Financial Statements.
Statements of Assets and Liabilities
December 31, 1999
(in thousands except per share data)
BABSON BABSON BABSON
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
PORTFOLIO L PORTFOLIO S PORTFOLIO MM
ASSETS:
Investments at cost $ 24,074 $ 17,179 $7,352
Investments at value $ 23,885 $ 17,081 $7,352
Cash denominated in foreign currencies (cost $2) - - -
Cash 27 27 64
Receivables:
Investments sold - - -
Dividends - - -
Interest 376 278 55
Fund shares sold 28 - -
Foreign tax - - -
Other - - -
Prepaid registration fees - - -
Total assets 24,316 17,386 7,471
LIABILITIES AND NET ASSETS:
Cash overdraft - - -
Payables:
Management fees 20 14 4
Registration fees - 1 -
Dividends 92 56 20
Investments purchased - - -
Fund share redemptions - - -
Foreign tax withholding - - -
Other - - -
Total liabilities 112 71 24
NET ASSETS $ 24,204 $ 17,315 $ 7,447
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 24,427 $ 17,463 $ 7,450
Undistributed net investment income - 1 -
Undistributed net realized gain (loss)
from investment transactions and
foreign currency transactions (34) (52) (3)
Net unrealized appreciation (depreciation)
of investments and translation of assets
and liabilities in foreign currencies (189) (97) -
NET ASSETS APPLICABLE TO
OUTSTANDING SHARES $ 24,204 $ 17,315 $ 7,447
Capital shares, $1.00 par value
Authorized 50,000 50,000 100,000
Outstanding 2,852 1,663 7,444
NET ASSET VALUE PER SHARE $ 8.49 $ 10.41 $ 1.00
See accompanying Notes to Financial Statements.
Statements of Operations
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
(In Thousands)
BABSON BABSON BABSON
ENTERPRISE FUND ENTERPRISE FUND II GROWTH FUND
INVESTMENT INCOME:
Dividends $ 750 $ 457 $ 1,462
Interest 52 23 395
Foreign tax withheld (3) - -
799 480 1,857
EXPENSES:
Management fees 741 422 1,848
Registration fees 13 13 24
Custody and pricing service fees - - -
Total expenses before voluntary reduction
of management fees 754 435 1,872
Less: voluntary reduction of management fees - - -
Net expenses 754 435 1,872
Net investment income 45 45 (15)
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain (loss) from:
Investment transactions 3,172 2,786 31,175
Foreign currency transactions - - -
Net unrealized appreciation (depreciation)
during the period on:
Investments (19,266) (4,543) 14,062
Translation of assets and liabilities
in foreign currencies - - -
Net gain (loss) on investments
and foreign currency (16,094) (1,757) 45,237
Net increase (decrease) in net assets
resulting from operations $ (16,04) $ (1,712) $ 45,222
See accompanying Notes to Financial Statements.
Statements of Operations
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
(In Thousands)
SHADOW BABSON
STOCK FUND VALUE FUND
INVESTMENT INCOME:
Dividends $ 340 $ 19,124
Interest 34 653
Foreign tax withheld - (163)
374 19,614
EXPENSES:
Management fees 177 5,001
Registration fees 65 31
Custody and pricing service fees - -
Total expenses before voluntary reduction
of management fees 242 5,032
Less: voluntary reduction of management fees - -
Net expenses 242 5,032
Net investment income 132 14,582
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain (loss) from:
Investment transactions 2,009 76,022
Foreign currency transactions - -
Net unrealized appreciation (depreciation)
during the period on:
Investments (3,230) (212,792)
Translation of assets and liabilities
in foreign currencies - -
Net gain (loss) on investments
and foreign currency (1,221) (136,770)
Net increase (decrease) in net assets
resulting from operations $ (1,089) $ (122,188)
See accompanying Notes to Financial Statements.
Statements of Operations
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
(In Thousands)
BABSON- BABSON BABSON
STEWART IVORY BOND TRUST BOND TRUST
INTERNATIONAL FUND PORTFOLIO L PORTFOLIO S
INVESTMENT INCOME:
Dividends $ 369 $ - $ -
Interest 35 4,044 1,192
Foreign tax withheld (48) - -
356 4,044 1,192
EXPENSES:
Management fees 412 551 170
Registration fees 14 14 5
Custody and pricing service fees 116 - -
Total expenses before voluntary reduction
of management fees 542 565 175
Less: voluntary reduction of management fees - - (54)
Net expenses 542 565 121
Net investment income (186) 3,479 1,071
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain (loss) from:
Investment transactions 8,263 (244) (200)
Foreign currency transactions (20) - -
Net unrealized appreciation (depreciation)
during the period on:
Investments 14,450 (3,147) (638)
Translation of assets and liabilities
in foreign currencies 11 - -
Net gain (loss) on investments
and foreign currency 22,704 (3,391) (838)
Net increase (decrease) in net assets
resulting from operations $ 22,518 $ 88 $ 233
See accompanying Notes to Financial Statements.
Statements of Operations
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
(In Thousands)
BABSON BABSON
MONEY MARKET FUND MONEY MARKET FUND
PRIME PORTFOLIO FEDERAL PORTFOLIO
INVESTMENT INCOME:
Dividends $ - $ -
Interest 1,098 305
Foreign tax withheld - -
1,098 305
EXPENSES:
Management fees 173 50
Registration fees 5 1
Custody and pricing service fees - -
Total expenses before voluntary reduction
of management fees 178 51
Less: voluntary reduction of management fees - -
Net expenses 178 51
Net investment income 920 254
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain (loss) from:
Investment transactions - -
Foreign currency transactions - -
Net unrealized appreciation (depreciation)
during the period on:
Investments - -
Translation of assets and liabilities
in foreign currencies - -
Net gain (loss) on investments
and foreign currency - -
Net increase (decrease) in net assets
resulting from operations $ 920 $ 254
See accompanying Notes to Financial Statements.
Statements of Operations
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
(In Thousands)
BABSON BABSON BABSON
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
PORTFOLIO L PORTFOLIO S PORTFOLIO MM
INVESTMENT INCOME:
Dividends $ - $ - $ -
Interest 694 437 180
Foreign tax withheld - - -
694 437 180
EXPENSES:
Management fees 120 87 27
Registration fees 8 6 4
Custody and pricing service fees - - -
Total expenses before voluntary reduction
of management fees 128 93 31
Less: voluntary reduction of management fees - - -
Net expenses 128 93 31
Net investment income 566 344 149
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain (loss) from:
Investment transactions 38 (83) (2)
Foreign currency transactions - - -
Net unrealized appreciation (depreciation)
during the period on:
Investments (1,042) (93) -
Translation of assets and liabilities
in foreign currencies - - -
Net gain (loss) on investments
and foreign currency (1,004) (176) (2)
Net increase (decrease) in net assets
resulting from operations $ (438) $ 168 $ 147
See accompanying Notes to Financial Statements.
Statements of Changes in Net Assets
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED), EXCEPT AS INDICATED
(IN THOUSANDS)
BABSON ENTERPRISE FUND
1999 1999(1) 1998(2)
OPERATIONS:
Net investment income $ 45 $ 287 $ 602
Net realized gain from investment
and foreign currency transactions 3,172 11,805 28,111
Net unrealized appreciation (depreciation)
on investments and translation of assets and
liabilities in foreign currencies during
the period (19,266) (6,426) (51,434)
Net increase (decrease) in net assets
resulting from operations (16,049) 5,666 (22,721)
Net equalization included in the price
of shares issued and redeemed - - (78)
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (133) (531) (607)
Net realized gain from investment transactions (9,320) (26,217) (24,566)
Total distributions to shareholders (9,453) (26,748) (25,173)
CAPITAL SHARE TRANSACTIONS:*
Shares sold 7,216 3,937 7,033
Reinvested distributions 8,858 25,039 23,501
16,074 28,976 30,534
Shares repurchased (29,904) (31,806) (19,465)
Net increase (decrease) from capital
share transactions (13,830) (2,830) 11,069
Net increase (decrease) in net assets (39,332) (23,912) (36,903)
NET ASSETS:
Beginning of period 155,379 179,291 216,194
End of period $ 116,047 $ 155,379 $ 179,291
Undistributed net investment
income at end of period $ 199,333 $ 287 $ 643
*Fund share transactions:
Shares sold 557 287 389
Reinvested distributions 763 1,817 1,279
1,320 2,104 1,668
Shares repurchased (2,297) (2,329) (1,074)
Net increase (decrease) in fund shares (977) (225) 594
(1) For the seven month period ended June 30, 1999.
(2) For the fiscal year ended November 30, 1998.
(3) For the fiscal year ended June 30, 1999.
See accompanying Notes to Financial Statements.
Statements of Changes in Net Assets
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED), EXCEPT AS INDICATED
(IN THOUSANDS)
BABSON ENTERPRISE FUND II
1999 1999(1) 1998(2)
OPERATIONS:
Net investment income $ 45 $ 48 $ 340
Net realized gain from investment
and foreign currency transactions 2,786 1,859 4,678
Net unrealized appreciation (depreciation)
on investments and translation of assets and
liabilities in foreign currencies during
the period (4,543) 5,370 (10,623)
Net increase (decrease) in net assets
resulting from operations (1,712) 7,277 (5,605)
Net equalization included in the price
of shares issued and redeemed - - 72
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (51) (174) (154)
Net realized gain from investment transactions (1,313) (3,718) (6,554)
Total distributions to shareholders (1,364) (3,892) (6,708)
CAPITAL SHARE TRANSACTIONS:*
Shares sold 6,443 10,618 41,623
Reinvested distributions 1,298 3,737 6,442
7,741 14,355 48,065
Shares repurchased (18,660) (23,385) (34,570)
Net increase (decrease) from
capital share transactions (10,919) (9,030) 13,495
Net increase (decrease) in net assets (13,995) (5,645) 1,254
NET ASSETS:
Beginning of period 77,309 82,954 81,700
End of period $ 63,314 $ 77,309 $ 82,954
Undistributed net investment
income at end of period $ 42 $ 48 $ 480
*Fund share transactions:
Shares sold 272 481 1,679
Reinvested distributions 58 174 265
330 655 1,944
Shares repurchased (804) (1,072) (1,428)
Net increase (decrease) in fund shares (474) (417) 516
(1) For the seven month period ended June 30, 1999.
(2) For the fiscal year ended November 30, 1998.
(3) For the fiscal year ended June 30, 1999.
See accompanying Notes to Financial Statements.
Statements of Changes in Net Assets
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED), EXCEPT AS INDICATED
(IN THOUSANDS)
BABSON GROWTH FUND
1999 1999(3)
OPERATIONS:
Net investment income $ (15) $ 407
Net realized gain from investment
and foreign currency transactions 31,175 78,657
Net unrealized appreciation (depreciation)
on investments and translation of assets and
liabilities in foreign currencies during
the period 14,062 (2,914)
Net increase (decrease) in net assets
resulting from operations 45,222 76,150
Net equalization included in the price
of shares issued and redeemed - -
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income - (435)
Net realized gain from investment transactions (27,634) (89,064)
Total distributions to shareholders (27,634) (89,499)
CAPITAL SHARE TRANSACTIONS:*
Shares sold 14,244 68,166
Reinvested distributions 25,499 82,101
39,743 150,267
Shares repurchased (47,322) (97,578)
Net increase (decrease) from
capital share transactions (7,579) 52,689
Net increase (decrease) in net assets 10,009 39,340
NET ASSETS:
Beginning of period 490,341 451,001
End of period $ 500,350 $ 490,341
Undistributed net investment income at
end of period $ (15) $ -
*Fund share transactions:
Shares sold 717 3,360
Reinvested distributions 1,302 4,205
2,019 7,565
Shares repurchased (2,369) (4,770)
Net increase (decrease) in fund shares (350) 2,795
(1) For the seven month period ended June 30, 1999.
(2) For the fiscal year ended November 30, 1998.
(3) For the fiscal year ended June 30, 1999.
See accompanying Notes to Financial Statements.
Statements of Changes in Net Assets
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED), EXCEPT AS INDICATED
(IN THOUSANDS)
SHADOW STOCK FUND
1999 1999(3)
OPERATIONS:
Net investment income $ 132 $ 454
Net realized gain from investment
and foreign currency transactions 76,022 68,640
Net unrealized appreciation (depreciation)
on investments and translation of assets
and liabilities in foreign currencies during
the period (1,089) (238)
Net increase (decrease) in net assets
resulting from operations (1,089) (238)
Net equalization included in the price
of shares issued and redeemed - -
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (174) (283)
Net realized gain from investment transactions (1,098) (3,971)
Total distributions to shareholders (1,272) (4,254)
CAPITAL SHARE TRANSACTIONS:*
Shares sold 4,848 16,595
Reinvested distributions 1,148 3,827
5,996 20,422
Shares repurchased (13,015) (17,176)
Net increase (decrease) from
capital share transactions (7,019) 3,246
Net increase (decrease) in net assets (9,380) (1,246)
NET ASSETS:
Beginning of period 50,273 51,519
End of period $ 40,893 $ 50,273
Undistributed net investment income at end
of period $ 150 $ 191
*Fund share transactions:
Shares sold 411 1,433
Reinvested distributions 103 340
514 1,773
Shares repurchased (1,114) (1,497)
Net increase (decrease) in fund shares (600) 276
(1) For the seven month period ended June 30, 1999.
(2) For the fiscal year ended November 30, 1998.
(3) For the fiscal year ended June 30, 1999.
See accompanying Notes to Financial Statements.
Statements of Changes in Net Assets
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED), EXCEPT AS INDICATED
(IN THOUSANDS)
BABSON VALUE FUND
1999 1999(1) 1999(2)
OPERATIONS:
Net investment income $ 14,582 $ 7,964 $ 19,814
Net realized gain from investment
and foreign currency transactions 76,022 68,640 75,274
Net unrealized appreciation (depreciation)
on investments and translation of assets
and liabilities in foreign currencies during
the period (212,792) 84,680 (55,316)
Net increase (decrease) in net assets
resulting from operations (122,188) 161,284 39,772
Net equalization included in the price
of shares issued and redeemed - - 1,006
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (8,323) (11,954) (17,864)
Net realized gain from investment transactions (27,183) (60,876) (43,88)
Total distributions to shareholders (35,506) (72,830) (61,744)
CAPITAL SHARE TRANSACTIONS:*
Shares sold 58,661 183,659 513,526
Reinvested distributions 30,217 59,332 49,896
88,878 242,991 563,422
Shares repurchased (351,696) (581,111) (468,037)
Net increase (decrease) from
capital share transactions (262,818) (338,120) 95,385
Net increase (decrease) in net assets (420,512) (249,666) 74,419
NET ASSETS:
Beginning of period 1,243,930 1,493,596 1,419,177
End of period $ 823,418 $ 1,243,930 $1,493,596
Undistributed net investment income at end
of period $ 6,708 $ 450 $ 17,971
*Fund share transactions:
Shares sold 1,232 3,842 10,705
Reinvested distributions 694 1,320 1,109
1,926 5,162 11,814
Shares repurchased (7,535) (12,441) (10,053)
Net increase (decrease) in fund shares (5,609) (7,279) 1,761
(1) For the seven month period ended June 30, 1999.
(2) For the fiscal year ended November 30, 1998.
(3) For the fiscal year ended June 30, 1999.
See accompanying Notes to Financial Statements.
Statements of Changes in Net Assets
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED), EXCEPT AS INDICATED
(IN THOUSANDS)
BABSON STEWART IVORY
INTERNATIONAL FUND
1999 1999(3)
OPERATIONS:
Net investment income $ (186) $ 220
Net realized gain from investment
and foreign currency transactions 8,243 9,117
Net unrealized appreciation (depreciation)
on investments and translation of assets
and liabilities in foreign currencies during
the period 14,461 (4,719)
Net increase (decrease) in net assets resulting
from operations 22,518 4,618
Net equalization included in the price
of shares issued and redeemed - -
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income - (196)
Net realized gain from investment transactions (1,140) (4,016)
Total distributions to shareholders (1,140) (4,212)
CAPITAL SHARE TRANSACTIONS:*
Shares sold 60,800 141,384
Reinvested distributions 965 3,579
61,765 144,963
Shares repurchased (74,986) (161,163)
Net increase (decrease) from
capital share transactions (13,221) (16,200)
Net increase (decrease) in net assets 8,157 (15,794)
NET ASSETS:
Beginning of period 88,610 104,404
End of period $ 96,767 $ 88,610
Undistributed net investment income at end
of period $ (674) $ (488)
*Fund share transactions:
Shares sold 2,918 7,620
Reinvested distributions 42 194
2,960 7,814
Shares repurchased (3,596) (8,579)
Net increase (decrease) in fund shares (636) (765)
(1) For the seven month period ended June 30, 1999.
(2) For the fiscal year ended November 30, 1998.
(3) For the fiscal year ended June 30, 1999.
See accompanying Notes to Financial Statements.
Statements of Changes in Net Assets
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED), EXCEPT AS INDICATED
(IN THOUSANDS)
BABSON BOND TRUST - PORTFOLIO L
1999 1999(1) 1999(2)
OPERATIONS:
Net investment income $ 3,479 $ 4,188 $ 7,650
Net realized gain (loss) from
investment transactions (244) 97 2,150
Net unrealized appreciation (depreciation)
on investments during the period (3,147) (5,777) 394
Net increase (decrease) in net assets
resulting from operations 88 (1,492) 10,194
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (3,479) (4,188) (7,650)
Net realized gain from investment transactions - - -
Total from distributions to shareholders (3,479) (4,188) (7,650)
CAPITAL SHARE TRANSACTIONS:*
Shares sold 5,243 20,367 23,231
Reinvested distributions 2,883 2,940 6,273
8,126 23,307 29,504
Shares repurchased (17,065) (25,749) (36,335)
Net increase (decrease) from
capital share transactions (8,939) (2,442) (6,831)
Net increase (decrease) in net assets (12,330) (8,122) (4,287)
NET ASSETS:
Beginning of period 120,679 128,186 132,473
End of period $ 108,349 $ 120,064 $ 128,186
Undistributed net investment income at end
of period $ - $ - $ 260
Fund share transactions:
Shares sold 3,072 12,849 14,688
Reinvested distributions 1,920 1,880 3,973
4,992 14,729 18,661
Shares repurchased (11,371) (16,326) (23,027)
Net increase (decrease) in fund shares (6,379) (1,597) (4,366)
(1) For the seven month period ended June 30, 1999.
(2) For the fiscal year ended November 30, 1998.
(3) For the fiscal year ended June 30, 1999.
See accompanying Notes to Financial Statements.
Statements of Changes in Net Assets
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED), EXCEPT AS INDICATED
(IN THOUSANDS)
BABSON BOND TRUST - PORTFOLIO S
1999 1999(1) 1999(2)
OPERATIONS:
Net investment income $ 1,071 $ 1,279 $ 2,297
Net realized gain (loss) from
investment transactions (200) 156 337
Net unrealized appreciation (depreciation)
on investments during the period (638) (1,355) 155
Net increase (decrease) in net assets
resulting from operations 233 80 2,789
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (1,071) (1,279) (2,297)
Net realized gain from investment transactions - - -
Total from distributions to shareholders (1,071) (1,279) (2,297)
CAPITAL SHARE TRANSACTIONS:*
Shares sold 1,687 6,269 6,842
Reinvested distributions 929 943 2,008
2,616 7,212 8,850
Shares repurchased (5,609) (7,377) (11,448)
Net increase (decrease) from
capital share transactions (2,993) (165) (2,598)
Net increase (decrease) in net assets (3,831) (1,364) (2,106)
NET ASSETS:
Beginning of period 37,094 38,458 40,564
End of period $ 33,263 $ 37,094 $ 38,458
Undistributed net investment income at end
of period $ - $ - $ -
Fund share transactions:
Shares sold 177 638 692
Reinvested distributions 98 96 203
275 734 895
Shares repurchased (590) (751) (1,161)
Net increase (decrease) in fund shares (315) (17) (266)
(1) For the seven month period ended June 30, 1999.
(2) For the fiscal year ended November 30, 1998.
(3) For the fiscal year ended June 30, 1999.
See accompanying Notes to Financial Statements.
Statements of Changes in Net Assets
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED), EXCEPT AS INDICATED
(IN THOUSANDS)
BABSON MONEY MARKET FUND - PRIME PORTFOLIO
1999 1999(3)
OPERATIONS:
Net investment income $ 920 $ 1,670
Net realized gain (loss) from investment
transactions - -
Net unrealized appreciation (depreciation)
on investments during the period - -
Net increase (decrease) in net assets
resulting from operations 920 1,670
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (920) (1,670)
Net realized gain from investment transactions - -
Total from distributions to shareholders (920) (1,670)
CAPITAL SHARE TRANSACTIONS:*
Shares sold 24,862 41,648
Reinvested distributions 838 1,563
25,700 43,211
Shares repurchased (25,103) (40,853)
Net increase (decrease) from
capital share transactions 597 2,358
Net increase (decrease) in net assets 597 2,358
NET ASSETS:
Beginning of period 39,076 36,718
End of period $ 39,673 $ 39,076
Undistributed net investment income at end
of period $ - $ -
Fund share transactions:
Shares sold 24,861 41,657
Reinvested distributions 838 1,563
25,699 43,220
Shares repurchased (25,103) (39,081)
Net increase (decrease) in fund shares 596 4,139
(1) For the seven month period ended June 30, 1999.
(2) For the fiscal year ended November 30, 1998.
(3) For the fiscal year ended June 30, 1999.
See accompanying Notes to Financial Statements.
Statements of Changes in Net Assets
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED), EXCEPT AS INDICATED
(IN THOUSANDS)
BABSON MONEY MARKET FUND - FEDERAL PORTFOLIO
1999 1999(3)
OPERATIONS:
Net investment income $ 254 $ 588
Net realized gain (loss) from investment
transactions - -
Net unrealized appreciation (depreciation)
on investments during the period - -
Net increase (decrease) in net assets
resulting from operations 254 588
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (254) (588)
Net realized gain from investment transactions - -
Total from distributions to shareholders (254) (588)
CAPITAL SHARE TRANSACTIONS:*
Shares sold 3,181 13,595
Reinvested distributions (1,191) 566
1,990 14,161
Shares repurchased (5,844) (13,014)
Net increase (decrease) from
capital share transactions (3,854) 1,147
Net increase (decrease) in net assets (3,854) 1,147
NET ASSETS:
Beginning of period 13,453 12,306
End of period $ 9,599 $ 13,453
Undistributed net investment income at end
of period $ - $ -
Fund share transactions:
Shares sold 3,181 13,594
Reinvested distributions (1,191) 566
1,990 14,160
Shares repurchased (5,843) (12,997)
Net increase (decrease) in fund shares (3,853) 1,163
(1) For the seven month period ended June 30, 1999.
(2) For the fiscal year ended November 30, 1998.
(3) For the fiscal year ended June 30, 1999.
See accompanying Notes to Financial Statements.
Statements of Changes in Net Assets
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED), EXCEPT AS INDICATED
(IN THOUSANDS)
BABSON TAX-FREE INCOME FUND PORTFOLIO L
1999 1999(3)
OPERATIONS:
Net investment income $ 566 $ 1,166
Net realized gain (loss) from investment
transactions 38 157
Net unrealized appreciation (depreciation)
on investments during the period (1,042) (827)
Net increase (decrease) in net assets
resulting from operations (438) 496
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (566) (1,166)
Net realized gain from investment transactions (228) (221)
Total from distributions to shareholders (794) (1,387)
CAPITAL SHARE TRANSACTIONS:*
Shares sold 272 1,283
Reinvested distributions 468 757
740 2,040
Shares repurchased (1,206) (2,541)
Net increase (decrease) from
capital share transactions (466) (501)
Net increase (decrease) in net assets (1,698) (1,392)
NET ASSETS:
Beginning of period 25,902 27,294
End of period $ 24,204 $ 25,902
Undistributed net investment income at end
of period $ - $ -
Fund share transactions:
Shares sold 31 131
Reinvested distributions 53 83
84 214
Shares repurchased (138) (269)
Net increase (decrease) in fund shares (54) (55)
(1) For the seven month period ended June 30, 1999.
(2) For the fiscal year ended November 30, 1998.
(3) For the fiscal year ended June 30, 1999.
See accompanying Notes to Financial Statements.
Statements of Changes in Net Assets
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED), EXCEPT AS INDICATED
(IN THOUSANDS)
BABSON TAX-FREE INCOME FUND PORTFOLIO S
1999 1999(3)
OPERATIONS:
Net investment income $ 344 $ 790
Net realized gain (loss) from investment
transactions (83) 107
Net unrealized appreciation (depreciation)
on investments during the period (93) (472)
Net increase (decrease) in net assets
resulting from operations 168 425
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (344) (790)
Net realized gain from investment transactions (68) (51)
Total from distributions to shareholders (412) (841)
CAPITAL SHARE TRANSACTIONS:*
Shares sold 203 737
Reinvested distributions 287 574
490 1,311
Shares repurchased (1,881) (3,290)
Net increase (decrease) from
capital share transactions (1,391) (1,979)
Net increase (decrease) in net assets (1,635) (2,395)
NET ASSETS:
Beginning of period 18,950 21,345
End of period $ 17,315 $ 18,950
Undistributed net investment income at end
of period $ 1 $ 1
Fund share transactions:
Shares sold 23 65
Reinvested distributions 24 53
47 118
Shares repurchased (179) (302)
Net increase (decrease) in fund shares (132) (184)
(1) For the seven month period ended June 30, 1999.
(2) For the fiscal year ended November 30, 1998.
(3) For the fiscal year ended June 30, 1999.
See accompanying Notes to Financial Statements.
Statements of Changes in Net Assets
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED), EXCEPT AS INDICATED
(IN THOUSANDS)
BABSON TAX-FREE INCOME FUND PORTFOLIO M
1999 1999(3)
OPERATIONS:
Net investment income $ 149 $ 310
Net realized gain (loss) from investment
transactions (2) -
Net unrealized appreciation (depreciation)
on investments during the period - -
Net increase (decrease) in net assets
resulting from operations 147 310
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (150) (310)
Net realized gain from investment transactions - -
Total from distributions to shareholders (150) (310)
CAPITAL SHARE TRANSACTIONS:*
Shares sold 3,099 10,230
Reinvested distributions 141 277
3,240 10,507
Shares repurchased (6,283) (10,283)
Net increase (decrease) from
capital share transactions (3,043) 224
Net increase (decrease) in net assets (3,046) 224
NET ASSETS:
Beginning of period 10,493 10,269
End of period $ 7,447 $ 10,493
Undistributed net investment income at end
of period $ - $ -
Fund share transactions:
Shares sold 3,119 10,230
Reinvested distributions 120 277
3,239 10,507
Shares repurchased (6,282) (10,283)
Net increase (decrease) in fund shares (3,043) 224
(1) For the seven month period ended June 30, 1999.
(2) For the fiscal year ended November 30, 1998.
(3) For the fiscal year ended June 30, 1999.
See accompanying Notes to Financial Statements.
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES:
The Babson Enterprise Fund, Babson Enterprise
Fund II, David L. Babson Growth Fund, Shadow
Stock Fund, Babson Value Fund, Babson-Stewart
Ivory International Fund, D.L. Babson Bond
Trust, D.L. Babson Money Market Fund and D.L.
Babson Tax-Free Income Fund (collectively
referred to herein as the "Funds") are
registered under the Investment Company Act
of 1940, as amended, as no-load open-end,
diversified management investment companies.
The D.L. Babson Bond Trust (comprising of
Portfolio L and S), D.L. Babson Money Market
Fund (comprising of Prime and Federal
Portfolios) and D.L. Babson Tax-Free Income
Fund (comprising of Portfolio L, S and MM)
are of a series type. The Funds are required
to account for the assets of each Series
separately and to allocate general
liabilities of a Fund to each Series based
upon the net asset value of each Series. The
following is a summary of significant
accounting policies consistently followed by
the Funds in preparation of their financial
statements.
A. Investment Valuation - Securities are
valued at the latest sales price for
securities traded on a principal exchange
(U.S. or foreign) and on the NASDAQ National
Market. Securities traded on over-the-
counter markets and listed securities for
which no sales are reported are valued at the
mean between the last reported bid and asked
prices. When market quotations are not
readily available, securities are valued at
fair value as determined in good faith by the
Board of Directors. Short-term securities
maturing within 60 days are valued at
amortized cost, which approximates market
value. Foreign securities are converted to
U.S. dollars using exchange rates in London
last quoted by a major bank. If such
quotations are not available as of 4:00 P.M.
(Eastern Time), the rate of exchange will be
determined in good faith by the Board of
Directors.
B. Investment Transactions and Investment
Income - Security transactions are accounted
for on the date the securities are purchased
or sold. Dividend income less foreign taxes
withheld (if any) is recorded on the ex-
dividend date. Interest income is recognized
on the accrual basis and includes accretion
of market discounts. Premiums on debt
securities are not amortized, except for D.L.
Babson Tax-Free Income Fund which amortizes
premiums. Realized gains and losses from
investment transactions and unrealized
appreciation and depreciation of investments
are reported on the identified cost basis.
C. Foreign Currency Translation - All assets
and liabilities expressed in foreign
currencies are converted into U.S. dollars
based on exchange rates last quoted by a
major bank in London at the end of the
period. The cost of portfolio securities is
translated at the rates of exchange
prevailing when acquired. Dividend income is
translated at the rate of exchange on the ex-
dividend date. The effects of changes in
foreign currency exchange rates on
investments in securities are included in net
realized and unrealized gain (loss) on
investments in the Statement of Operations.
D. Forward Foreign Currency Contracts - The
Babson-Stewart Ivory International Fund may
enter into forward foreign currency
contracts as a way of managing foreign
exchange rate risk. The portfolio may enter
into these contracts to fix the U.S. dollar
value of a security that it has agreed to buy
or sell for the period between the date the
trade was entered into and the date the
security is delivered and paid for. These
contracts may also be used to hedge the U.S.
dollar value of securities owned which are
denominated in foreign currencies.
Forward foreign currency contracts are valued
each day at the close of the New York Stock
Exchange at the forward rate, and are marked-
to-market daily. The change in market value
is recorded as an unrealized gain or loss.
When the contract is closed, a realized gain
or loss equal to the difference between the
value of the contract at the time it was
opened and closed is recorded.
The use of forward foreign currency contracts
does not eliminate fluctuations in the
underlying prices of the securities, but it
does establish a rate of exchange that can be
achieved in the future. Although forward
foreign currency contracts limit the risk of
loss due to a decline in the value of the
hedged currency, they also limit a potential
gain that might result should the value of
the currency increase. These contracts
involve market risk in excess of the amount
reflected in the Statement of Assets and
Liabilities. The face or contract amount in
U.S. dollars reflects the total exposure the
portfolio has in that particular currency
contract. In addition, there could be
exposure to risks (limited to the amount of
unrealized gains) if the counterparties to
the contracts are unable to meet the terms
of their contracts. There were no outstanding
forward foreign currency contracts for the
period ended December 31, 1999.
E. Federal and State Taxes - The Funds
complied with the requirements of the
Internal Revenue Code applicable to
regulated investment companies and therefore,
no provision for federal or state tax is
required. At June 30, 1999, the D.L. Babson
Money Market Prime Portfolio, D.L. Babson
Bond Trust Portfolio L and D.L. Babson Bond
Trust Portfolio S had accumulated net
realized losses on sales of investments for
federal income tax purposes of $7,368
(expiring $67 in 2000, $56 in 2001, $81 in
2002, $6,722 in 2003, $306 in 2005 and $136
in 2006), $3,307,631 (expiring $970,985 in
2002, $423,327 in 2003, $1,367,653 in 2004
and $545,666 in 2005) and $1,988,385
(expiring $579,476 in 2002, $388,485 in 2003,
$577,562 in 2004 and $442,862 in 2005),
respectively, which are available to offset
future taxable gains.
F. Distributions to Shareholders -
Distributions to shareholders are recorded on
ex-dividend date. Distributions are
determined in accordance with federal tax
regulations and may differ from those
determined in accordance with generally
accepted accounting principles. These
differences are primarily due to losses
deferred due to wash sales and foreign
currency transactions.
G. Use of Estimates - The preparation of
financial statements in conformity with
generally accepted accounting principles
requires management to make estimates and
assumptions that affect the amount reported
in the financial statements and accompanying
notes. Actual results could differ from such
estimates.
2. MANAGEMENT FEES:
Management fees are paid to Jones & Babson,
Inc. in accordance with the advisory
agreement with the Funds. Management fees are
paid for services which include
administration, and all other operating
expenses of each Fund except the cost of
acquiring and disposing of portfolio
securities, the taxes, if any, imposed
directly on each Fund and its shares and the
cost of qualifying a Fund's shares for sale
in any jurisdiction. Certain officers and/or
directors of the Funds are also officers
and/or directors of Jones & Babson, Inc. Each
of the Funds was subject to the following
management fees:
AVERAGE DAILY NET ANNUAL RATE
FUND ASSETS OF FUND PERCENTAGE
Enterprise and Up to $30 million 1.5%
Enterprise II Over $30 million 1.0%
Shadow Stock 1.0%
Growth Up to $250 million .85%
Over $250 million .70%
Value, Tax-Free Income
(Portfolio L and S), Bond
Trust (Portfolio L and S)
and Stewart Ivory
International .95%
Money Market
(Portfolio Prime and Federal) .85%
Tax-Free Income
(Portfolio MM) .50%
During the period from December 1, 1991 to
March 31, 2001, fees for Bond Trust
(Portfolio S) have been voluntarily reduced
to an annual rate of .65% of average daily
net assets of the portfolio.
3. INVESTMENT TRANSACTIONS:
Investment transactions for the period ended
December 31, 1999 (excluding maturities of
short-term commercial notes and repurchase
agreements) are as follows:
Babson Enterprise Fund:
Purchases $ 21,204,188
Proceeds from sales 38,791,928
Babson Enterprise Fund II:
Purchases $ 6,835,365
Proceeds from sales 15,205,521
Babson Growth Fund:
Purchases $ 133,687,179
Proceeds from sales 146,027,315
Shadow Stock Fund:
Purchases $ 795,063
Proceeds from sales 6,027,013
Babson Value Fund:
Purchases $ 121,258,743
Proceeds from sales 335,101,844
Babson-Stewart Ivory International Fund:
Purchases $ 20,239,559
Proceeds from sales 31,944,053
Babson Bond Trust - Portfolio L:
Purchases $ 11,218,005
Proceeds from sales 8,709,572
Babson Bond Trust - Portfolio S:
Purchases $ 6,570,906
Proceeds from sales 7,372,723
Babson Money Market Fund - Prime Portfolio:
Purchases $ 802,666,658
Proceeds from sales 803,195,000
Babson Money Market Fund - Federal Portfolio:
Purchases $ 321,609,793
Proceeds from sales 325,629,000
Babson Tax-Free Income Fund - Portfolio L:
Purchases $ 4,958,930
Proceeds from sales 6,439,138
Babson Tax-Free Income Fund - Portfolio S:
Purchases $ 2,313,183
Proceeds from sales 4,740,597
Babson Tax-Free Income Fund - Portfolio MM:
Purchases $ 13,521,785
Proceeds from sales 17,193,494
4. LINE OF CREDIT:
Babson Enterprise Fund, Babson Enterprise
Fund II, Babson Growth Fund, Shadow Stock
Fund, Babson Value Fund and Babson-Stewart
Ivory International Fund share in a $45
million revolving credit facility for
temporary or emergency purposes, including
the meeting of redemption requests that
otherwise might require the untimely
disposition of securities. Any related
commitment fees are paid by Jones & Babson,
Inc. There were no borrowings under the line
of credit for the six months ended December
31, 1999.
FINANCIAL HIGHLIGHTS
BABSON ENTERPRISE FUND
Condensed data for a share of capital stock
Outstanding throughout each period.
SIX MONTHS SEVEN MONTHS
ENDED ENDED
DECEMBER 31, 1999 JUNE 30, YEARS ENDED NOVEMBER 30,
(UNAUDITED) 1999 1998 1997 1996 1995
Net asset value,
beginning of period $ 14.72 $ 16.63 $ 21.22 $ 18.51 $ 17.35 $ 16.64
Income from investment
operations:
Net investment income .01 .03 .04 .06 .06 .10
Net gains (losses)
on securities
(both realized
and unrealized) (1.55) .58 (2.15) 5.31 3.06 2.34
Total from investment
operations (1.54) .61 (2.11) 5.37 3.12 2.44
Less distributions:
Dividends from net
investment income (.02) (.05) (.06) - (.12) (.04)
Distributions from
capital gains (1.05) (2.47) (2.42) (2.66) (1.84) (1.69)
Total distributions (1.07) (2.52) (2.48) (2.66) (1.96) (1.73)
Net asset value, end
of period $ 12.11 $ 14.72 $ 16.63 $ 21.22 $ 18.51 $ 17.35
Total return* (10.16%) 4.70% (11.05%) 33.49% 20.17% 16.42%
Ratios/Supplemental Data
Net assets, end of period
(in millions) $ 116 $ 155 $ 179 $ 216 $ 202 $ 202
Ratio of expenses to average
net assets** 1.14% 1.11% 1.09% 1.08% 1.08% 1.09%
Ratio of net investment income
to average net assets** .07% .32% .29% .30% .35% .67%
Portfolio turnover rate 16% 12% 22% 22% 24% 13%
*Total return not annualized for periods less than one full year
BABSON ENTERPRISE FUND II
Condensed data for a share of capital stock
Outstanding throughout each period.
SIX MONTHS SEVEN MONTHS
ENDED ENDED
DECEMBER 31, 1999 JUNE 30, YEARS ENDED NOVEMBER 30,
(UNAUDITED) 1999 1998 1997 1996 1995
Net asset value,
beginning of period $ 24.48 $ 23.20 $ 26.70 $ 22.75 $ 19.19 $ 16.22
Income from investment
operations:
Net investment income .02 .03 .10 .08 .11 .05
Net gains (losses) on
securities
(both realized and
unrealized) (.40) 2.37 (1.50) 6.97 4.45 3.03
Total from investment
operations (.38) 2.40 (1.40) 7.05 4.56 3.08
Less distributions:
Dividends from net
investment income (.02) (.05) (.05) (.11) (.05) (.02)
Distributions from capital
gains (.49) (1.07) (2.05) (2.99) (.95) (.09)
Total distributions (.51) (1.12) (2.10) (3.10) (1.00) (.11)
Net asset value, end
of period $ 23.59 $ 24.48 $ 23.20 $ 26.70 $ 22.75 $ 19.19
Total return* (1.48%) 11.03% (5.61%) 35.29% 25.04% 19.11%
Ratios/supplemental data
Net assets, end of period
(in millions) $ 63 $ 77 $ 83 $ 82 $ 46 $ 40
Ratio of expenses to
average net assets** 1.26% 1.23% 1.22% 1.28% 1.38% 1.45%
Ratio of net investment
income to average net
assets** .13% .11% .40% .27% .55% .30%
Portfolio turnover rate 10% 14% 25% 25% 30% 15%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
BABSON GROWTH FUND
Condensed data for a share of capital stock
Outstanding throughout each period.
SIX MONTHS
ENDED
DECEMBER 31, 1999 YEARS ENDED JUNE 30,
(UNAUDITED) 1999 1998 1997 1996 1995
Net asset value,
beginning of period $ 20.01 $ 20.77 $ 17.80 $ 14.42 $ 13.43 $ 11.78
Income from investment
operations:
Net investment income - .02 .06 .09 .12 .18
Net gains (losses) on
securities
(both realized and
unrealized) 3.00 3.25 4.41 4.16 2.91 2.18
Total from investment
operations 3.00 3.27 4.47 4.25 3.03 2.36
Less distributions:
Dividends from net
investment income - (.02) (.06) (.09) (.13) (.18)
Distributions from
capital gains (2.30) (4.01) (1.44) (.78) (1.91) (.53)
Total distributions (2.30) (4.03) (1.50) (.87) (2.04) (.71)
Net asset value, end
of period $ 20.71 $ 20.01 $ 20.77 $ 17.80 $ 14.42 $ 13.43
Total return* 9.84% 17.04% 26.73% 30.10% 22.99% 20.23%
Ratios/Supplemental Data
Net assets, end of
period (in millions) $ 500 $ 490 $ 451 $ 365 $ 280 $ 247
Ratio of expenses to
average net assets** .79% .79% .80% .83% .85% .85%
Ratio of net investment
income to
average net assets** (.01%) .09% .30% .61% .82% 1.42%
Portfolio turnover rate 28% 39% 35% 20% 33% 17%
SHADOW STOCK FUND
Condensed data for a share of capital stock
Outstanding throughout each period.
SIX MONTHS
ENDED
DECEMBER 31, 1999 YEARS ENDED JUNE 30,
(UNAUDITED) 1999 1998 1997 1996 1995
Net asset value,
beginning of period $ 12.06 $ 13.24 $ 12.57 $ 11.31 $ 10.55 $ 9.67
Income from investment
operations:
Net investment income .08 .11 .08 .12 .09 .10
Net gains (losses) on
securities
(both realized
and unrealized) .01 (.24) 2.54 2.44 1.67 1.42
Total from investment
operations .09 (.13) 2.62 2.56 1.76 1.52
Less distributions:
Dividends from net
investment income (.08) (.07) (.10) (.09) (.10) (.10)
Distributions from
capital gains (.61) (.98) (1.85) (1.21) (.90) (.54)
Total distributions (.69) (1.05) (1.95) (1.30) (1.00) (.64)
Net asset value, end
of period $ 11.46 $ 12.06 $ 13.24 $ 12.57 $ 11.31 $ 10.55
Total return* (1.92%) (.25%) 21.98% 23.63% 17.13% 16.16%
Ratios/Supplemental Data
Net assets, end of period
(in millions) $ 41 $ 50 $ 52 $ 41 $ 39 $ 39
Ratio of expenses to
average net assets** 1.10% 1.10% 1.16% 1.13% 1.14% 1.13%
Ratio of net investment
income to average net
assets** .60% .97% .56% 1.00% .79% 1.01%
Portfolio turnover rate 2% 21% 43% 0% 25% 19%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
See accompanying Notes to Financial Statements
FINANCIAL HIGHLIGHTS
BABSON VALUE FUND
Condensed data for a share of capital stock
Outstanding throughout each period.
SIX MONTHS SEVEN MONTHS
ENDED ENDED
DECEMBER 31, 1999 JUNE 30, YEARS ENDED NOVEMBER 30,
(UNAUDITED) 1999 1998 1997 1996 1995
Net asset value,
beginning of period $ 51.36 $ 47.42 $ 47.73 $ 38.65 $ 31.78 $ 25.19
Income from investment
operations:
Net investment income .85 .45 .62 .51 .55 .59
Net gains (losses)
on securities
(both realized
and unrealized) (6.04) 5.90 1.09 9.65 7.20 7.20
Total from investment
operations (5.19) 6.35 1.71 10.16 7.75 7.79
Less distributions:
Dividends from net
investment income (.51) (.44) (.56) (.47) (.53) (.60)
Distributions from
capital gains (1.41) (1.97) (1.46) (.61) (.35) (.60)
Total distributions (1.92) (2.41) (2.02) (1.08) (.88) (1.20)
Net asset value, end of
period $ 44.25 $ 51.36 $ 47.42 $ 47.73 $ 38.65 $ 31.78
Total return* (10.24%) 14.14% 3.85% 26.89% 24.91% 32.07%
Ratios/Supplemental Data
Net assets, end of period
(in millions) $ 823 $ 1,244 $ 1,494 $ 1,419 $ 764 $ 293
Ratio of expenses to
average net assets** .96% .96% .98% .97% .96% .98%
Ratio of net investment
income to average
net assets** 2.79% 1.05% 1.28% 1.22% 1.63% 2.12%
Portfolio turnover rate 12% 13% 42% 17% 11% 6%
BABSON-STEWART IVORY INTERNATIONAL FUND
Condensed data for a share of capital stock
Outstanding throughout each period.
SIX MONTHS
ENDED
DECEMBER 31, 1999 YEARS ENDED JUNE 30,
(UNAUDITED) 1999 1998 1997 1996 1995
Net asset value,
beginning of period $ 19.48 $ 19.65 $ 19.53 $ 18.04 $ 15.96 $ 16.41
Income from investment
operations:
Net investment income (.06) .03 .08 .07 .07 .16
Net gains (losses) on
securities
(both realized
and unrealized) 5.61 .66 1.07 1.70 2.85 .23
Total from investment
operations 5.55 .69 1.15 1.77 2.92 .39
Less distributions:
Dividends from net
investment income - (.04) (.07) (.05) (.08) (.17)
Distributions from
capital gains (.30) (.82) (.96) (.23) (.65) (.67)
Distributions in
excess of
realized capital
gains - - - - (.11) -
Total distributions (.30) (.86) (1.03) (.28) (.84) (.84)
Net asset value, end
of period $ 24.73 $ 19.48 $ 19.65 $ 19.53 $ 18.04 $ 15.96
Total return* 28.57% 3.76% 6.48% 9.91% 18.66% 2.54%
Ratios/Supplemental Data
Net assets, end of
period (in millions) $ 97 $ 89 $ 104 $ 111 $ 80 $ 65
Ratio of expenses to
average net assets** 1.26% 1.23% 1.16% 1.19% 1.26% 1.30%
Ratio of net investment
income to average
net assets** (.43%) .24% .37% .47% .44% 1.13%
Portfolio turnover rate 24% 51% 48% 40% 33% 37%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
See accompanying Notes to Financial Statements
FINANCIAL HIGHLIGHTS
BABSON BOND TRUST - PORTFOLIO L
Condensed data for a share of capital stock
Outstanding throughout each period.
SIX MONTHS SEVEN MONTHS
ENDED ENDED
DECEMBER 31, 1999 JUNE 30, YEARS ENDED NOVEMBER 30,
(UNAUDITED) 1999 1998 1997 1996 1995
Net asset value,
beginning of period $ 1.52 $ 1.59 $ 1.56 $ 1.55 $ 1.58 $ 1.47
Income from
investment operations:
Net investment income .05 .05 .09 .10 .11 .11
Net gains (losses)
on securities
(both realized
and unrealized) (.04) (.07) .03 .01 (.03) .11
Total from investment
operations .01 (.02) .12 .11 .08 .22
Less distributions:
Dividends from net
investment income (.05) (.05) (.09) (.10) (.11) (.11)
Distributions from
capital gains - - - - - -
Total distributions (.05) (.05) (.09) (.10) (.11) (.11)
Net asset value,
end of period $ 1.48 $ 1.52 $ 1.59 $ 1.56 $ 1.55 $ 1.58
Total return* .37% (1.16%) 8.13% 7.26% 5.17% 15.28%
Ratios/Supplemental Data
Net assets, end of
period (in millions) $ 108 $ 121 $ 128 $ 132 $ 142 $ 161
Ratio of expenses to
average net assets** .98% .97% .97% .97% .97% .97%
Ratio of net investment
income to average net
assets** 6.03% 5.73% 5.93% 6.38% 6.96% 7.06%
Portfolio turnover rate 8% 38% 43% 59% 61% 50%
BABSON BOND TRUST - PORTFOLIO S
Condensed data for a share of capital stock
Outstanding throughout each period.
SIX MONTHS SEVEN MONTHS
ENDED ENDED
DECEMBER 31, 1999 JUNE 30, YEARS ENDED NOVEMBER 30,
(UNAUDITED) 1999 1998 1997 1996 1995
Net asset value,
beginning of period $ 9.60 $ 9.91 $ 9.78 $ 9.77 $ 9.90 $ 9.43
Income from investment
operations:
Net investment income .30 .33 .58 .62 .69 .73
Net gains (losses) on
securities
(both realized
and unrealized) (.23) (.31) .13 .01 (.13) .47
Total from investment
operations .07 .02 .71 .63 .56 1.20
Less distributions:
Dividends from net
investment income (.30) (.33) (.58) (.62) (.69) (.73)
Distributions from
capital gains - - - - - -
Total distributions (.30) (.33) (.58) (.62) (.69) (.73)
Net asset value,
end of period $ 9.37 $ 9.60 $ 9.91 $ 9.78 $ 9.77 $ 9.90
Total return* .60% .15% 7.47% 6.70% 5.96% 13.10%
Ratios/Supplemental Data
Net assets, end of period
(in millions) $ 33 $ 37 $ 38 $ 41 $ 34 $ 33
Ratio of expenses to
average net assets** .68% .67% .67% .66% .66% .67%
Ratio of net investment
income to average
net assets** 6.02% 5.75% 5.90% 6.42% 7.10% 7.47%
Ratio of expenses to
average net assets
before voluntary reduction of
management fee ** .98% .97% .97% .97% .96% .97%
Portfolio turnover rate 19% 54% 60% 65% 48% 57%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
See accompanying Notes to Financial Statements
BABSON MONEY MARKET FUND - PRIME PORTFOLIO
Condensed data for a share of capital stock
Outstanding throughout each period.
SIX MONTHS
ENDED
DECEMBER 31, 1999 YEARS ENDED JUNE 30,
(UNAUDITED) 1999 1998 1997 1996 1995
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment income .02 .04 .05 .05 .05 .05
Less distributions:
Dividends from net
investment income (.02) (.04) (.05) (.05) (.05) (.05)
Net asset value,
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return* 2.30% 4.38% 4.82% 4.61% 4.83% 4.66%
Ratios/Supplemental Data
Net assets, end of
period (in millions) $ 40 $ 39 $ 37 $ 38 $ 36 $ 40
Ratio of expenses to
average net assets** .88% .88% .91% .92% .92% .92%
Ratio of net
investment income
to average net assets** 4.54% 4.30% 4.73% 4.58% 4.75% 4.58%
BABSON MONEY MARKET FUND - FEDERAL PORTFOLIO
Condensed data for a share of capital stock
Outstanding throughout each period.
SIX MONTHS
ENDED
DECEMBER 31, 1999 YEARS ENDED JUNE 30,
(UNAUDITED) 1999 1998 1997 1996 1995
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from
investment operations:
Net investment income .02 .04 .05 .04 .05 .04
Less distributions:
Dividends from net
investment income (.02) (.04) (.05) (.04) (.05) (.04)
Net asset value,
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return* 2.23% 4.31% 4.75% 4.58% 4.77% 4.56%
Ratios/Supplemental Data
Net assets, end of
period (in millions) $ 10 $ 13 $ 12 $ 13 $ 10 $ 10
Ratio of expenses to
average net assets** .88% .88% .91% .91% .91% .92%
Ratio of net
investment income
to average net assets** 4.38% 4.23% 4.65% 4.51% 4.67% 4.48%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
BABSON TAX-FREE INCOME FUND - PORTFOLIO L
Condensed data for a share of capital stock
Outstanding throughout each period.
SIX MONTHS
ENDED
DECEMBER 31, 1999 YEARS ENDED JUNE 30,
(UNAUDITED) 1999 1998 1997 1996 1995
Net asset value,
beginning of period $ 8.91 $ 9.22 $ 8.96 $ 8.74 $ 8.67 $ 8.52
Income from
investment operations:
Net investment income .20 .40 .40 .42 .41 .42
Net gains (losses)
on securities
(both realized
and unrealized) (.34) (.24) .28 .24 .07 .17
Total from investment
operations (.14) .16 .68 .66 .48 .59
Less distributions:
Dividends from net
investment income (.20) (.40) (.40) (.42) (.41) (.42)
Distributions from
capital gains (.08) (.07) (.02) (.02) - (.02)
Total distributions (.28) (.47) (.42) (.44) (.41) (.44)
Net asset value,
end of period $ 8.49 $ 8.91 $ 9.22 $ 8.96 $ 8.74 $ 8.67
Total return* (1.63%) 1.70% 7.82% 7.69% 5.60% 7.21%
Ratios/Supplemental Data
Net assets, end of
period (in millions) $ 24 $ 26 $ 27 $ 27 $ 27 $ 28
Ratio of expenses to
average net assets** 1.02% 1.03% 1.06% 1.01% 1.01% 1.02%
Ratio of net
investment income
to average net assets** 4.49% 4.36% 4.46% 4.71% 4.67% 4.98%
Portfolio turnover rate 20% 9% 18% 21% 39% 34%
BABSON TAX-FREE INCOME FUND - PORTFOLIO S
Condensed data for a share of capital stock
Outstanding throughout each period.
SIX MONTHS
ENDED
DECEMBER 31, 1999 YEARS ENDED JUNE 30,
(UNAUDITED) 1999 1998 1997 1996 1995
Net asset value,
beginning of period $ 10.56 $ 10.79 $ 10.74 $ 10.69 $ 10.71 $ 10.62
Income from investment
operations:
Net investment income .20 .42 .44 .44 .44 .45
Net gains (losses)
on securities
(both realized
and unrealized) (.11) (.20) .08 .10 .01 .10
Total from investment
operations .09 .22 .52 .54 .45 .55
Less distributions:
Dividends from net
investment income (.20) (.42) (.44) (.44) (.44) (.45)
Distributions from
capital gains (.04) (.03) (.03) (.05) (.03) (.01)
Total distributions (.24) (.45) (.47) (.49) (.47) (.46)
Net asset value,
end of period $ 10.41 $ 10.56 $ 10.79 $ 10.74 $ 10.69 $ 10.71
Total return* .86% 1.96% 4.84% 5.18% 4.25% 5.32%
Ratios/Supplemental Data
Net assets,
end of period
(in millions) $ 17 $ 19 $ 21 $ 23 $ 25 $ 28
Ratio of expenses
to average net assets** 1.02% 1.01% 1.06% 1.01% 1.01% 1.01%
Ratio of net
investment income
to average net assets** 3.78% 3.82% 4.00% 4.12% 4.13% 4.28%
Portfolio turnover rate 13% 22% 21% 23% 41% 34%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
See accompanying Notes to Financial Statements.
BABSON TAX-FREE INCOME FUND - PORTFOLIO MM
Condensed data for a share of capital stock
Outstanding throughout each period.
SIX MONTHS
ENDED
DECEMBER 31, 1999 YEARS ENDED JUNE 30,
(UNAUDITED) 1999 1998 1997 1996 1995
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from
investment operations:
Net investment income .01 .03 .03 .03 .03 .03
Less distributions:
Dividends from net
investment income (.01) (.03) (.03) (.03) (.03) (.03)
Net asset value,
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return* 1.42% 2.70% 3.06% 3.03% 3.15% 3.05%
Ratios/Supplemental Data
Net assets,
end of period (in millions) $ 7 $ 10 $ 10 $ 9 $ 8 $ 16
Ratio of expenses
to average net assets** .58% .55% .61% .58% .58% .59%
Ratio of net
investment income
to average net assets** 2.78% 2.65% 3.06% 3.10% 3.15% 3.07%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
See accompanying Notes to Financial Statements.
THIS REPORT HAS BEEN PREPARED FOR THE INFORMATION OF THE SHAREHOLDERS OF BABSON
ENTERPRISE FUND, INC., BABSON ENTERPRISE FUND II, INC., DAVID L. BABSON GROWTH
FUND, INC., SHADOW STOCK FUND, INC., BABSON VALUE FUND, INC., BABSON-STEWART
IVORY INTERNATIONAL FUND, INC., D.L. BABSON BOND TRUST, D.L. BABSON MONEY
MARKET FUND, INC., AND D.L. BABSON TAX-FREE INCOME FUND, INC., AND IS NOT TO
BE CONSTRUED AS AN OFFERING OF THE SHARES OF THE FUNDS. SHARES OF THE FUNDS
ARE OFFERED ONLY BY THE PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED FROM
JONES & BABSON, INC.
BABSON FUNDS
JONES & BABSON DISTRIBUTORS
A MEMBER OF THE GENERALI GROUP
P.O. BOX 219757, KANSAS CITY, MO 64121-9757
1-800-4-BABSON
(1-800-422-2766)
WWW.BABSONFUNDS.COM
