PROSPECTUS
March 31, 1996
BABSON
VALUE FUND, INC.
Managed and Distributed By:
JONES & BABSON, INC.
Three Crown Center
2440 Pershing Road, Suite G-15
Kansas City, Missouri 64108
Toll-Free 1-800-4-BABSON
(1-800-422-2766)
In the Kansas City area 471-5200
Investment Counsel:
DAVID L. BABSON & CO. INC.
Cambridge, Massachusetts
INVESTMENT OBJECTIVE
A no-load mutual fund which seeks long-term growth of capital and income
by investing in a diversified portfolio of common stocks which are
considered to be undervalued in relation to earnings, dividends and/or
assets. The Fund may be considered "contrarian" in nature in that the
portfolio will typically include shares of companies that are relatively
unpopular and out-of-favor with general investors. (For a definition of
"contrarian," see page 5 of this prospectus.) This Fund is not intended
to be a complete investment program. (For a discussion of risk factors
see page 6 of this prospectus.)
PURCHASE INFORMATION
Minimum Investment
Initial Purchase $ 1,000
Initial IRA and Uniform Transfers (Gifts)
to Minors Purchases $ 250
Subsequent Purchase:
By Mail $ 100
By Telephone or Wire $ 1,000
All Automatic Purchases $ 100
Shares are purchased and redeemed at net asset value. There are no
sales, redemption or Rule 12b-1 distribution charges. If you need
further information, please call the Fund at the telephone numbers
indicated.
ADDITIONAL INFORMATION
This prospectus should be read and retained for future reference. It
contains the information that you should know before you invest. A
"Statement of Additional Information" of the same date as this
prospectus has been filed with the Securities and Exchange Commission
and is incorporated by reference. Investors desiring additional
information about the Fund may obtain a copy without charge by writing
or calling the Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page
Fund Expenses 3
Financial Highlights 4
Investment Objective and Portfolio Management Policy 5
Repurchase Agreements 6
Risk Factors 6
Investment Restrictions 7
Performance Measures 7
How to Purchase Shares 8
Initial Investments 9
Investments Subsequent to Initial Investment 9
Telephone Investment Service 9
Automatic Monthly Investment Plan 10
How to Redeem Shares 10
Systematic Redemption Plan 12
How to Exchange Shares Between Babson Funds 12
How Share Price is Determined 13
Officers and Directors 14
Management and Investment Counsel 14
General Information and History 15
Dividends, Distributions and Their Taxation 16
Shareholder Services 17
Shareholder Inquiries 18
BABSON VALUE FUND, INC.
FUND EXPENSES
Shareholder Transaction Expenses
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends None
Deferred sales load None
Redemption fee None
Exchange fee None
Annual Fund Operation Expenses
(as a percentage of average net assets)
Management fees .95%
12b-1 fees None
Other expenses .03%
Total Fund operating expenses .98%
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
1 Year 3 Year 5 Year 10 Year
$10 $31 $54 $120
The above information is provided in order to assist you in
understanding the various costs and expenses that a shareholder of the
Fund will bear directly or indirectly. The expenses set forth above are
for the fiscal year ended November 30, 1995. The example should not be
considered a representation of past or future expenses. Actual expenses
may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The following financial highlights for each of the ten years in the
period ended November 30, 1995, have been derived from audited financial
statements of Babson Value Fund, Inc. Such information for each of the
five years in the period ended November 30, 1995, should be read in
conjunction with the financial statements of the Fund and the report of
Ernst & Young LLP, independent auditors, appearing in the November 30,
1995, Annual Report to Shareholders which is incorporated by reference
in this prospectus. The information for each of the five years in the
period ended November 30, 1990, is not covered by the report of Ernst &
Young LLP.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
Net asset value,
beginning of year $25.19 $25.36 $22.24 $18.74 $16.20 $19.00 $16.85 $13.59 $15.04 $12.59
Income from investment
operations:
Net investment income .589 .562 .543 .649 .711 .770 .764 .636 .553 .494
Net gains or losses on
securities (both realized
and unrealized) 7.205 .577 3.932 3.565 2.539 (3.025) 2.226 2.656 (1.333) 3.005
Total from investment
operations 7.794 1.139 4.475 4.214 3.250 (2.255) 2.990 3.292 (.780) 3.499
Less distributions:
Dividends from net
investment income (.60) (.398) (1.030) (.714) (.710) (.506) (.760) (.032) (.630) (.867)
Distributions from
capital gains (.604) (.911) (.325) - - (.039) (.080) - (.040) (.182)
Total distributions (1.204) (1.309) (1.355) (.714) (.710) (.545) (.840) (.032) (.670) (1.049)
Net asset value,
end of year $31.78 $25.19 $25.36 $22.24 $18.74 $16.20 $19.00 $16.85 $13.59 $15.04
Total return 32% 5% 21% 23% 21% (12)% 19% 24% (5)% 29%
Ratios/Supplemental Data
Net assets, end of year
(in millions) $ 293 $ 120 $ 42 $ 34 $ 25 $ 22 $ 20 $ 10 $ 13 $ 7
Ratio of expenses to
average net assets .98% .99% 1.00% 1.01% 1.01% 1.04% 1.06% 1.11% 1.08% 1.20%
Ratio of net investment
income to average
net assets 2.12% 2.32% 2.34% 3.10% 3.82% 4.44% 4.10% 3.87% 3.31% 3.60%
Portfolio turnover rate 6% 14% 26% 17% 31% 6% 17% 24% 52% 28%
</TABLE>
INVESTMENT OBJECTIVE AND
PORTFOLIO MANAGEMENT POLICY
Babson Value Fund's investment objective is to seek long-term growth of
capital and income by investing principally in a diversified portfolio
of common stocks which are considered to be undervalued in relation to
earnings, dividends and/or assets. The Fund's investment objective and
policy as described in this section will not be changed without approval
of a majority of the Fund's outstanding shares.
The Fund intends to invest in stocks of companies which are rated "B-"
or better in investment quality (growth and stability of earnings and
dividends) by Standard & Poor's and/or "B" or better by Value Line in
financial strength. (For a description of these ratings see "Description
of Stock Ratings" in the "Statement of Additional Information.")
A stock will be considered to be undervalued if it is currently trading
at a price below which the investment adviser believes it should be
trading and therefore a superior potential investment based on one or
more of the following comparisons:
1. price relative to earnings,
2. price relative to dividends,
3. price relative to assets as measured by book value.
Valuation levels as described above for each security will be compared
to a large universe of stocks as selected by the investment adviser, as
well as its own past history of valuation over several years. The
universe will vary from time to time and may consist of as many as a
thousand stocks. The holdings in the portfolio will be monitored
regularly by the Fund's manager to determine that they continue to be
relatively favorable investments. For a discussion of risk factors
involved in investing in undervalued stocks, see "Risk Factors."
Investors' attitudes toward different kinds of companies tend to shift
back and forth over time, from enthusiasm to pessimism and back to
enthusiasm. The Fund may be considered to be "contrarian" in nature
because of its primary focus on undervalued stocks, and typically its
portfolio will consist of companies whose shares are relatively
unpopular and out-of-favor, among investors generally, at the time of
purchase. However, the portfolio will be restricted to companies which
the Fund's investment counsel believes are sound businesses with good
future potential and should, therefore, eventually gain greater investor
favor.
Although individual stocks in the portfolio may be in any price range
because value as determined by the investment adviser is relative rather
than absolute, it is expected that the average price/earnings ratio of
the stocks in the portfolio as a whole will be lower than that of the
Standard & Poor's 500, that the average dividend yield on the
investments will be higher than that of the S&P 500, and that the
average price to book value ratio will be lower than that of the S&P
500. It is also anticipated that some of the companies in the portfolio
may not be paying current dividends.
Except for necessary reserves including but not limited to reserves held
to cover redemptions and unanticipated expenses, as determined by
management, all assets will be invested in marketable securities
composed principally of common stocks and securities convertible into
common stocks. The reserves will be held 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 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 Aa or higher by
Moody's or AA 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 Aa or higher by Moody's or AA 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 Savings and Loan Insurance
Corporation. (For additional information on ratings, see "Description of
Commercial Paper Ratings" in the "Statement of Additional Information.")
Management believes, however, that there may be times when the
shareholders' interests are best served by investing temporarily in
preferred stocks, bonds or other defensive issues. It retains the
freedom to administer the portfolio of the Fund accordingly when, in its
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. There are no restrictions or guidelines regarding the
investment of Fund assets in shares listed on an exchange or traded
over-the-counter.
The Fund may also invest in issues of the United States Treasury or a
United States government agency subject to repurchase agreements. The
use of repurchase agreements by the Fund involves certain risks. For a
discussion of these risks, see "Risk Factors Applicable to Repurchase
Agreements."
There is no assurance that the Fund's objective of long-term growth of
capital and income can be achieved. Portfolio turnover will be no more
than is necessary to meet the Fund's objective. Under normal
circumstances, it is anticipated that it will not exceed 100% on an
annual basis. For the fiscal years ended November 30, 1995, November 30,
1994 and November 30, 1993, the total dollar amount of brokerage
commissions paid by the Fund and the annual portfolio turnover rate were
as follows:
Portfolio
Fiscal Brokerage Turnover
Year Commissions Rate
1995 $243,470 6%
1994 $184,842 14%
1993 $ 49,717 26%
REPURCHASE AGREEMENTS
A repurchase agreement involves the sale of securities to the Fund with
the concurrent agreement by the seller to repurchase the securities at
the Fund's cost plus interest at an agreed rate upon demand or within a
specified time, thereby determining the yield during the purchaser's
period of ownership. The result is a fixed rate of return insulated from
market fluctuations during such period. Under the Investment Company Act
of 1940, repurchase agreements are considered loans by the Fund.
The Fund will enter into such repurchase agreements only with United
States banks having assets in excess of $1 billion which are members of
the Federal Deposit Insurance Corporation, and with certain securities
dealers who meet the qualifications set from time to time by the Board
of Directors of the Fund. The term to maturity of a repurchase agreement
normally will be no longer than a few days. Repurchase agreements
maturing in more than seven days and other illiquid securities will not
exceed 10% of the total assets of the Fund.
RISK FACTORS
There are risks in investing in unpopular stocks since the factors
causing the unpopularity may persist longer than expected at the time of
purchase, or they may get worse. These factors may range from a
reduction in earnings
expectations to a major business problem. However, in the judgment of
management, those risks are substantially mitigated by investing in stocks
which are undervalued in the market in relation to earnings, dividends
and/or assets.
Risk Factors
Applicable To
Repurchase Agreements
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 Fund 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 Fund may not be able to perfect its
interest in the underlying securities. While the Fund's management
acknowledges these risks, it is expected that they can be controlled
through stringent security selection criteria and careful monitoring
procedures.
INVESTMENT RESTRICTIONS
In addition to the investment objective and portfolio management
policies set forth under the caption "Investment Objective and Portfolio
Management Policy," the Fund is subject to certain other restrictions
which may not be changed without approval of the 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. Among these restrictions, the more important
ones are that the Fund will not purchase the securities of any issuer if
more than 5% of the Fund's total assets would be invested in the
securities of such issuer, or the Fund would hold more than 10% of any
class of securities of such issuer; the Fund will not 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); and the Fund will not borrow or pledge
its credit under normal circumstances, except up to 10% of its total
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 borrowings shall have
asset coverage of at least 3 to 1. The Fund will not buy securities
while borrowings are outstanding. The full text of these restrictions
are set forth in the "Statement of Additional Information."
PERFORMANCE MEASURES
From time to time, the Fund may advertise its performance in various
ways, as summarized below. Further discussion of these matters also
appears in the "Statement of Additional Information." A discussion of
Fund performance is included in the Fund's Annual Report to Shareholders
which is available from the Fund upon request at no charge.
Total Return
The Fund 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 Fund from the beginning date of
the measuring period to the end of the measuring period. These figures
reflect changes in the price of the Fund's shares and assume that any
income dividends and/or capital gains distributions made by the Fund
during the period were reinvested in shares of the Fund. 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
Fund's operations, or on a year-by-year basis). When considering
"average" total return figures for periods longer than one year, it is
important to note that a 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.
Performance Comparisons
In advertisements or in reports to shareholders, the Fund may compare
its performance to that of other mutual funds with similar investment
objectives and to stock or other relevant indices. For example, it may
compare its performance to rankings prepared by Lipper Analytical
Services, Inc. (Lipper), a widely recognized independent service which
monitors the performance of mutual funds. The Fund may compare its
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, 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. Further information regarding the
performance of the Fund is contained in the "Statement of Additional
Information."
Performance rankings, recommendations, published editorial comments and
listings reported in Money, Barron's, Kiplinger's Personal Finance
Magazine, Financial World, Forbes, U.S. News & World Report, Business
Week, The Wall Street Journal, Investors Business Daily, USA Today,
Fortune and Stanger's may also be cited (if the Fund is listed in any
such publication) or used for comparison, as well as performance
listings and rankings from Morningstar Mutual Funds, Personal Finance,
Income and Safety, The Mutual Fund Letter, No-Load Fund Investor, United
Mutual Fund Selector, No-Load Fund Analyst, No-Load Fund X, Louis
Rukeyser's Wall Street newsletter, Donoghue's Money Letter, CDA
Investment Technologies, Inc., Wiesenberger Investment Companies
Service, and Donoghue's Mutual Fund Almanac.
HOW TO PURCHASE SHARES
Shares are purchased at net asset value (no sales charge) from the Fund
through its agent, Jones & Babson, Inc., Three Crown Center, 2440
Pershing Road, Suite G-15, Kansas City, MO 64108. For information call
toll free 1-800-4-BABSON (1-800-422-2766), or in the Kansas City area
471-5200. If an investor wishes to engage the services of any other
broker to purchase (or redeem) shares of the Fund, a fee may be charged
by such broker. The Fund will not be responsible for the consequences of
delays including delays in the banking or Federal Reserve wire systems.
You do not pay a sales commission when you buy shares of the Fund.
Shares are purchased at the Fund's net asset value (price) per share
next effective after a purchase order and payment have been received by
the Fund. In the case of certain institutions which have made
satisfactory payment arrangements with the Fund, orders may be processed
at the net asset value per share next effective after a purchase order
has been received by the Fund.
The Fund reserves the right in its sole discretion to withdraw all or
any part of the offering made by this prospectus or to reject purchase
orders when, in the judgment of management, such withdrawal or rejection
is in the best interest of the Fund and its shareholders. The Fund also
reserves the right at any time to waive or increase the minimum
requirements applicable to initial or subsequent investments with
respect to any person or class of persons, which include shareholders of
the Fund's special investment programs. The Fund reserves the right to
refuse to accept orders for Fund shares unless accompanied by payment,
except when a responsible person has indemnified
the Fund against losses resulting from the failure of investors to make
payment. In the event that the Fund sustains a loss as the result of
failure by a purchaser to make payment, the Fund's underwriter, Jones &
Babson, Inc. will cover the loss.
INITIAL INVESTMENTS
Initial investments - By mail. You may open an account and make an
investment by completing and signing the application which accompanies
this prospectus. Make your check ($1,000 minimum unless your purchase is
pursuant to an IRA or the Uniform Transfers (Gifts) to Minors Act in
which case the minimum initial purchase is $250) payable to UMB Bank,
n.a. Mail your application and check to:
Babson Value Fund, Inc.
Three Crown Center
2440 Pershing Road, Suite G-15
Kansas City, Missouri 64108
Initial investments - By wire. You may purchase shares of the Fund by
wiring funds ($1,000 minimum) through the Federal Reserve Bank to the
custodian, UMB Bank, n.a. Prior to sending your money, you must call the
Fund toll free 1-800-4-BABSON (1-800-422-2766), or in the Kansas City
area 471-5200 and provide it with the identity of the registered account
owner, the registered address, the Social Security or Taxpayer
Identification Number of the registered owner, the amount being wired,
the name and telephone number of the wiring bank and the person to be
contacted in connection with the order. You will then be provided a Fund
account number, after which you should instruct your bank to wire the
specified amount, along with the account number and the account
registration to:
UMB Bank, n.a.
Kansas City, Missouri, ABA #101000695
For Babson Value Fund, Inc./
AC=987032-6213
OBI=(Assigned Fund number and name in
which registered.)
A completed application must be sent to the Fund as soon as possible so
the necessary remaining information can be recorded in your account.
Payment of redemption proceeds will be delayed until the completed
application is received by the Fund.
INVESTMENTS SUBSEQUENT TO
INITIAL INVESTMENT
You may add to your Fund account at any time in amounts of $100 or more
if purchases are made by mail, or $1,000 or more if purchases are made
by wire or telephone. Automatic monthly investments must be in amounts
of $100 or more.
Checks should be mailed to the Fund at its address, and make them
payable to UMB Bank, n.a. Always identify your account number or include
the detachable reminder stub which accompanies each confirmation.
Wire share purchases should include your account registration, your
account number and the Babson Fund in which you are purchasing shares.
It also is advisable to notify the Fund by telephone that you have sent
a wire purchase order to the bank.
TELEPHONE INVESTMENT SERVICE
To use the Telephone Investment Service, you must first establish your
Fund account and authorize telephone orders in the application form, or,
subsequently, on a special authorization form provided upon request. If
you elect the Telephone Investment Service, you may purchase Fund shares
by telephone and authorize the Fund to draft your checking account for
the cost of the shares so purchased. You will receive the next available
price after the Fund has received your telephone call. Availability and
continuance of this privilege is subject to acceptance and approval by
the Fund and all participating banks. During periods of increased market
activity, you may have difficulty reaching the Fund by telephone, in
which case you should contact the Fund by mail or telegraph. The Fund
will not be responsible for the consequences of delays, including delays
in the banking or Federal Reserve wire systems.
The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and if such procedures are not
followed, the Fund may be liable for losses due to unauthorized or
fraudulent instructions. Such procedures may include, but are not
limited to requiring personal identification prior to acting upon
instructions received by telephone, providing written confirmations of
such transactions, and/or tape recording of telephone instructions.
The Fund reserves the right to initiate a charge for this service and to
terminate or modify any or all of the privileges in connection with this
service at any time upon 15 days written notice to shareholders, and to
terminate or modify the privileges without prior notice in any
circumstances where such termination or modification is in the best
interest of the Fund and its investors.
AUTOMATIC MONTHLY
INVESTMENT PLAN
You may elect to make monthly investments in a constant dollar amount
from your checking account ($100 minimum). The Fund will draft your
checking account on the same day each month in the amount you authorize
in your application, or, subsequently, on a special authorization form
provided upon request. Availability and continuance of this privilege is
subject to acceptance and approval by the Fund and all participating
banks. If the date selected falls on a day upon which the Fund shares
are not priced, investment will be made on the first date thereafter
upon which Fund shares are priced. The Fund will not be responsible for
the consequences of delays, including delays in the banking or Federal
Reserve wire systems.
The Fund reserves the right to initiate a charge for this service and to
terminate or modify any or all of the privileges in connection with this
service at any time upon 15 days written notice to shareholders, and to
terminate or modify the privileges without prior notice in any
circumstances where such termination or modification is in the best
interest of the Fund and its investors.
HOW TO REDEEM SHARES
The Fund will redeem shares at the price (net asset value per share)
next computed after receipt of a redemption request in "good order."
(See "How Share Price is Determined.")
A written request for redemption, together with an endorsed share
certificate where a certificate has been issued, must be received by the
Fund in order to constitute a valid tender for redemption. For
authorization of redemptions by a corporation, it will also be necessary
to have an appropriate certified copy of resolutions on file with the
Fund before a redemption request will be considered in "good order." In
the case of certain institutions which have made satisfactory redemption
arrangements with the Fund, redemption orders may be processed by
facsimile or telephone transmission at net asset value per share next
effective after receipt by the Fund. If an investor wishes to engage the
services of any other broker to redeem (or purchase) shares of the Fund,
a fee may be charged by such broker.
To be in "good order" the request must include the following:
(1) A written redemption request or stock assignment (stock
power) containing the genuine signature of each registered owner exactly
as the shares are registered, with clear identification of the account
by registered name(s) and account number and the number of shares or the
dollar amount to be redeemed;
(2) any outstanding stock certificates representing shares to be
redeemed;
(3) signature guarantees as required (see Signature Guarantees);
and
(4) any additional documentation which the Fund may deem
necessary to insure a genuine redemption.
Where additional documentation is normally required to support
redemptions as in the case of corporations, fiduciaries, and others who
hold shares in a representative or nominee capacity, such as certified
copies of corporate resolutions, or certificates of incumbency, or such
other documentation as may be required under the Uniform Commercial Code
or other applicable laws or regulations, it is the responsibility of the
shareholder to maintain such documentation on file and in a current
status. A failure to do so will delay the redemption. If you have
questions concerning redemption requirements, please write or telephone
the Fund well ahead of an anticipated redemption in order to avoid any
possible delay.
Requests which are subject to special conditions or which specify an
effective date other than as provided herein cannot be accepted. All
redemption requests must be transmitted to the Fund at Three Crown
Center, 2440 Pershing Road, Suite G-15, Kansas City, Missouri 64108.
The Fund will redeem shares at the price (net asset value per share)
next computed after receipt of a redemption request in "good order."
(See "How Share Price is Determined." )
The Fund will endeavor to transmit redemption proceeds to the proper
party, as instructed, as soon as practicable after a redemption request
has been received in "good order" and accepted, but in no event later
than the third business day thereafter. Transmissions are made by mail
unless an expedited method has been authorized and specified in the
redemption request. The Fund will not be responsible for the
consequences of delays including delays in the banking or Federal
Reserve wire systems.
Redemptions will not become effective until all documents in the form
required have been received. In the case of redemption requests made
within 15 days of the date of purchase, the Fund will delay transmission
of proceeds until such time as it is certain that unconditional payment
in federal funds has been collected for the purchase of shares being
redeemed or 15 days from the date of purchase. You can avoid the
possibility of delay by paying for all of your purchases with a transfer
of federal funds.
Signature Guarantees are required in connection with all redemptions by
mail, or changes in share registration, except as hereinafter provided.
These requirements may be waived by the Fund in certain instances where
it appears reasonable to do so and will not unduly affect the interests
of other shareholders. Signature(s) must be guaranteed by an "eligible
Guarantor institution" as defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934. Eligible guarantor institutions include: (1)
national or state banks, savings associations, savings and loan
associations, trust companies, savings banks, industrial loan companies
and credit unions; (2) national securities exchanges, registered
securities associations and clearing agencies; or (3) securities
broker/dealers which are members of a national securities exchange or
clearing agency or which have a minimum net capital of $100,000. A
notarized signature will not be sufficient for the request to be in
proper form.
Signature guarantees will be waived for mail redemptions of $10,000 or
less, but they will be required if the checks are to be payable to
someone other than the registered owner(s), or are to be mailed to an
address different from the registered address of the shareholder(s), or
where there appears to be a pattern of redemptions designed to
circumvent the signature guarantee requirement, or where the Fund has
other reason to believe that this requirement would be in the best
interests of the Fund and its shareholders.
The right of redemption may be suspended or the date of payment
postponed beyond the normal three-day period when the New York Stock
Exchange is closed or under emergency circumstances as determined by the
Securities and Exchange Commission. Further, the Fund reserves the right
to redeem its shares in kind under certain circumstances. If shares are
redeemed in kind, the shareholder may incur brokerage costs when
converting into cash. Additional details are set forth in the "Statement
of Additional Information."
Due to the high cost of maintaining smaller accounts, the Board of
Directors has authorized the Fund to close shareholder accounts where
their value falls below the current minimum initial investment
requirement at the time of initial purchase as a result of redemptions
and not as the result of market action, and remains below this level for
60 days after each such shareholder account is mailed a notice of: (1)
the Fund's intention to close the account, (2) the minimum account size
requirement, and (3) the date on which the account will be closed if the
minimum size requirement is not met.
SYSTEMATIC REDEMPTION PLAN
If you own shares in an open account valued at $10,000 or more, and
desire to make regular monthly or quarterly withdrawals without the
necessity and inconvenience of executing a separate redemption request
to initiate each withdrawal, you may enter into a Systematic Withdrawal
Plan by completing forms obtainable from the Fund. For this service, the
manager may charge you a fee not to exceed $1.50 for each withdrawal.
Currently the manager assumes the additional expenses arising out of
this type of plan, but it reserves the right to initiate such a charge
at any time in the future when it deems it necessary. If such a charge
is imposed, participants will be provided 30 days notice.
Subject to a $50 minimum, you may withdraw each period a specified
dollar amount. Shares also may be redeemed at a rate calculated to
exhaust the account at the end of a specified period of time.
Dividends and capital gains distributions must be reinvested in
additional shares. Under all withdrawal programs, liquidation of shares
in excess of dividends and distributions reinvested will diminish and
may exhaust your account, particularly during a period of declining
share values.
You may revoke or change your plan or redeem all of your remaining
shares at any time. Withdrawal payments will be continued until the
shares are exhausted or until the Fund or you terminate the plan by
written notice to the other.
HOW TO EXCHANGE SHARES
BETWEEN BABSON FUNDS
Shareholders may exchange their Fund shares, which have been held in
open account for 30 days or more, and for which good payment has been
received, for identically registered shares of any other Fund in the
Babson Fund Group which is legally registered for sale in the state of
residence of the investor, except Babson Enterprise Fund, Inc., provided
that the minimum amount exchanged has a value of $1,000 or more and
meets the minimum investment requirement of the Fund or Portfolio into
which it is exchanged.
Effective at the close of business on January 31, 1992, the Directors of
the Babson Enterprise Fund, Inc. took action to limit the offering of
that Fund's shares. Babson Enterprise Fund, Inc. will not accept any new
accounts, including IRAs and other retirement plans, until further
notice, nor will Babson Enterprise Fund accept transfers from
shareholders of other Babson Funds, who were not shareholders of record
of Babson Enterprise Fund at the close of business on January 31, 1992.
Investors may want to consider purchasing shares in Babson Enterprise
Fund II, Inc. as an alternative.
To authorize the Telephone/Telegraph Exchange Privilege, all registered
owners must sign the appropriate section on the original application, or
the Fund must receive a special authorization form, provided upon
request. During periods of increased market activity, you may have
difficulty reaching the Fund by telephone, in which case
you should contact the Fund by mail or telegraph. The Fund reserves the
right to initiate a charge for this service and to terminate or modify any
or all of the privileges in connection with this service at any time and
without prior notice under any circumstances where continuance of these
privileges would be detrimental to the Fund or its shareholders such as
an emergency, or where the volume of such activity threatens the ability
of the Fund to conduct business, or under any other circumstances, upon
60 days written notice to shareholders. The Fund will not be responsible
for the consequences of delays including delays in the banking or
Federal Reserve wire systems.
The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and if such procedures are not
followed, the Fund may be liable for losses due to unauthorized or
fraudulent instructions. Such procedures may include, but are not
limited to requiring personal identification prior to acting upon
instructions received by telephone, providing written confirmations of
such transactions, and/or tape recording of telephone instructions.
Exchanges by mail may be accomplished by a written request properly
signed by all registered owners identifying the account, the number of
shares or dollar amount to be redeemed for exchange, and the Babson Fund
into which the account is being transferred.
If you wish to exchange part or all of your shares in the Fund for
shares of another Fund or Portfolio in the Babson Fund Group, you should
review the prospectus of the Fund to be purchased, which can be obtained
from Jones & Babson, Inc. Any such exchange will be based on the
respective net asset values of the shares involved. Any exchange between
Funds involves the sale of an asset. Unless the shareholder account is
tax-deferred, this is a taxable event.
HOW SHARE PRICE IS DETERMINED
In order to determine the price at which new shares will be sold and at
which issued shares presented for redemption will be liquidated, the net
asset value per share is computed once daily, Monday through Friday, at
the specific time during the day that the Board of Directors sets at
least annually, except on days on which changes in the value of
portfolio securities will not materially affect the net asset value, or
days during which no security is tendered for redemption and no order to
purchase or sell such security is received by the Fund, or customary
holidays. For a list of the holidays during which the Fund is not open
for business, see "How Share Price is Determined" in the "Statement of
Additional Information."
The price at which new shares of the Fund will be sold and at which
issued shares presented for redemption will be liquidated is computed
once daily at 4:00 P.M. (Eastern Time), except on those days when the
Fund is not open for business.
The per share calculation is made by subtracting from the Fund's total
assets any liabilities and then dividing into this amount the total
outstanding shares as of the date of the calculation.
Each security 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 Fund will use the
price of that Exchange which it generally considers to be the principal
Exchange on which the stock is traded. Lacking sales, the security is
valued at the mean between the 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.
OFFICERS AND DIRECTORS
The officers of the Fund manage its day-to-day operations. The Fund's
manager and its officers are subject to the supervision and control of
the Board of Directors. A list of the officers and directors of the Fund
and a brief statement of their present positions and principal
occupations during the past five years is set forth in the "Statement of
Additional Information."
MANAGEMENT AND INVESTMENT COUNSEL
Jones & Babson, Inc. was founded in 1960. It organized the Fund in 1984,
and acts as its manager and principal underwriter. Pursuant to the
current Management Agreement, Jones & Babson, Inc. provides or pays the
cost of all management, supervisory and administrative services required
in the normal operation of the Fund. This includes investment management
and supervision; fees of the custodian, independent auditors and legal
counsel; remuneration of officers, directors and other personnel; rent;
shareholder services, including the maintenance of the shareholder
accounting system and transfer agency; and such other items as are
incidental to corporate administration.
Not considered normal operating expenses, and therefore payable by the
Fund, are taxes, interest, governmental charges and fees, including
registration of the Fund and its shares with the Securities and Exchange
Commission and the Securities Departments of the various States,
brokerage costs, dues, and all extraordinary costs and expenses
including but not limited to legal and accounting fees incurred in
anticipation of or arising out of litigation or administrative
proceedings to which the Fund, its officers or directors may be subject
or a party thereto.
As a part of the Management Agreement, Jones & Babson, Inc. employs at
its own expense David L. Babson & Co. Inc. as its investment counsel to
assist in the investment advisory function. David L. Babson & Co. Inc.
is an investment counseling firm founded in 1940. It serves a broad
variety of individual, corporate and other institutional clients by
maintaining an extensive research and analytical staff. It has an
experienced investment analysis and research staff which eliminates the
need for Jones & Babson, Inc. and the Fund to maintain an extensive
duplicate staff, with the consequent increase in the cost of investment
advisory service. The cost of the services of David L. Babson & Co. Inc.
is included in the fee of Jones & Babson, Inc. The Management Agreement
limits the liability of the manager and its investment counsel, as well
as their officers, directors and personnel, to acts or omissions
involving willful malfeasance, bad faith, gross negligence, or reckless
disregard of their duties. Roland W. Whitridge has been the manager of
Babson Value Fund since its inception in 1984. He is a Chartered
Financial Analyst. He joined David L. Babson & Co. in 1974, and has over
30 years of investment management experience.
As compensation for all the foregoing services, the Fund pays Jones &
Babson, Inc. a fee at the annual rate of 95/100 of one percent (.95%) of
average daily net assets.
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 Fund. Yet, it compares favorably with these other
advisers when all expenses to Fund shareholders are taken into account.
Jones & Babson, Inc. pays David L. Babson & Co.
Inc. a fee of 35/100 of one percent (.35%) of the average daily total
net assets, which is computed daily and paid semimonthly. The total
expenses of the Fund for the fiscal year ended November 30, 1995, amounted
to 98/100 of one percent (.98%) of the average net assets.
Certain officers and directors of the Fund are also officers or
directors or both of other Babson Funds, Jones & Babson, Inc. or David
L. Babson & 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 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.
The current Management Agreement between the Fund and Jones & Babson,
Inc., which includes the Investment Counsel Agreement between Jones &
Babson, Inc. and David L. Babson & Co. Inc., will continue in effect
until October 31, 1996, and will continue automatically for successive
annual periods ending each October 31 so long as such continuance is
specifically approved at least annually by the Board of Directors of the
Fund or by the vote of a majority of the outstanding voting securities
of the Fund, and, provided also that such continuance is approved by the
vote of a majority of the directors who are not parties to the
Agreements or interested persons of any such party at a meeting held in
person and called specifically for the purpose of evaluating and voting
on such approval. Both Agreements provide that either party may
terminate by giving the other 60 days written notice. The Agreements
terminate automatically if assigned by either party.
GENERAL INFORMATION AND HISTORY
The Fund, incorporated in Maryland on July 24, 1984, has a present
authorized capitalization of 20,000,000 shares of $1 par value common
stock. All shares are of the same class 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 Fund
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 - These shares have non-cumulative voting rights,
which means that the holders of more than 50% of the shares voting for
the election of directors can elect 100% of the directors, if they
choose to do so, and in such event, the holders of the remaining less
than 50% of the shares voting will not be able to elect any directors.
The Maryland Statutes permit registered investment companies, such as
the Fund, to operate without an annual meeting of shareholders under
specified circumstances if an annual meeting is not required by the
Investment Company Act of 1940. There are procedures whereby the
shareholders may remove directors. These procedures are described
in the "Statement of Additional Information" under the caption "Officers
and Directors." The Fund has adopted the appropriate provisions in its
By-Laws and may not, at its discretion, hold annual meetings of
shareholders for the following purposes unless required to do so: (1)
election of directors; (2) approval of any investment advisory
agreement; (3) ratification of the selection of independent auditors;
and (4) approval of a distribution plan. As a result, the Fund does not
intend to hold annual meetings.
The Fund may use the name "Babson" in its name so long as Jones &
Babson, Inc. is continued as manager and David L. Babson & Co. Inc. as
its investment counsel. Complete details with respect to the use of the
name are set out in the Management Agreement between the Fund and Jones
& Babson, Inc.
This prospectus omits certain of the information contained in the
registration statement filed with the Securities and Exchange
Commission, Washington, D.C. These items may be inspected at the offices
of the Commission or obtained from the Commission upon payment of the
fee prescribed.
DIVIDENDS, DISTRIBUTIONS AND THEIR TAXATION
The Fund pays dividends from net investment income quarterly, usually in
March, June, September and December. Distribution from capital gains
realized on the sale of securities, if any, will be declared annually on
or before December 31. Dividend and capital gains distributions will be
reinvested automatically in additional shares at the net asset value per
share next computed and effective at the close of business on the day
after the record date, unless the shareholder has elected on the
original application, or by written instructions filed with the Fund, to
have them paid in cash.
The Fund has qualified and intends to continue to qualify for taxation
as a "regulated investment company" under the Internal Revenue Code so
that the Fund will not be subject to federal income tax to the extent
that it distributes its income to its shareholders. Dividends, either
in cash or reinvested in shares, paid by the Fund from net investment
income will be taxable to shareholders as ordinary income, and will
generally qualify in part for the 70% dividends-received deduction for
corporations. The portion of the dividends so qualified depends on the
aggregate taxable qualifying dividend income received by the Fund from
domestic (U.S.) sources. The Fund will send to shareholders a statement
each year advising the amount of the dividend income which qualifies for
such treatment.
Whether paid in cash or additional shares of the Fund, and regardless of
the length of time Fund shares have been owned by the shareholder,
distributions from long-term capital gains are taxable to shareholders
as such, but are not eligible for the dividends-received deduction for
corporations. Shareholders are notified annually by the Fund as to
federal tax status of dividends and distributions paid by the Fund. Such
dividends and distributions may also be subject to state and local
taxes.
Exchange and redemption of Fund shares are taxable events for federal
income tax purposes. Shareholders may also be subject to state and
municipal taxes on such exchanges and redemptions. You should consult
your tax adviser with respect to the tax status of distributions from
the Fund in your state and locality.
The Fund intends to declare and pay dividends and capital gains
distributions so as to avoid imposition of the federal excise tax. To do
so, the Fund expects to distribute
during each calendar year an amount equal to: (1) 98% of its calendar year
ordinary income; (2) 98% of its capital gains net income (the excess of
short- and long-term capital gain over short- and long-term capital loss)
for the one-year period ending each November 30; and (3) 100% of any
undistributed ordinary or capital gain net income from the prior calendar
year. Dividends declared in October, November or December and made payable
to shareholders of record in such a month are deemed to have been paid by
the Fund and received by shareholders on December 31 of such year, so long
as the dividends are actually paid before February 1 of the following
year.
To comply with IRS regulations, the Fund is required by federal law to
withhold 31% of reportable payments (which may include dividends,
capital gains distributions, and redemptions) paid to shareholders who
have not complied with IRS regulations. In order to avoid this
withholding requirement, shareholders must certify on their Application,
or on a separate form supplied by the Fund, that their Social Security
or Taxpayer Identification Number provided is correct and that they are
not currently subject to backup withholding, or that they are exempt
from backup withholding.
The federal income tax status of all distributions will be reported to
shareholders each January as a part of the annual statement of
shareholder transactions. Shareholders not subject to tax on their
income will not be required to pay tax on amounts distributed to them.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN THE FUND.
SHAREHOLDER SERVICES
The Fund and its manager offer shareholders a broad variety of services
described throughout this prospectus. In addition, the following
services are available:
Automatic Monthly Investment - You may elect to make monthly
investments in a constant dollar amount from your checking account ($100
minimum). The Fund will draft your checking account on the same day each
month in the amount you authorize in your application, or, subsequently,
on a special authorization form provided upon request.
Automatic Reinvestment - Dividends and capital gains distributions may
be reinvested automatically, or shareholders may elect to have dividends
paid in cash and capital gains reinvested, or to have both paid in cash.
Telephone Investments - You may make investments of $1,000 or more by
telephone if you have authorized such investments in your application,
or, subsequently, on a special authorization form provided upon request.
See "Telephone Investment Service."
Automatic Exchange - You may exchange shares from your account ($100
minimum) in any of the Babson Funds to an identically registered account
in any other fund in the Babson Group except Babson Enterprise Fund,
Inc. according to your instructions. Monthly exchanges will be continued
until all shares have been exchanged or until you terminate the
Automatic Exchange authorization. A special authorization form will be
provided upon request.
Transfer of Ownership - A shareholder may transfer shares to another
shareholder account. The requirements which apply to redemptions apply
to transfers. A transfer to a new account must meet initial investment
requirements.
Systematic Redemption Plan - Shareholders who own shares in open
account valued at $10,000 or more may arrange to make regular
withdrawals without the necessity of executing a separate redemption
request to initiate each withdrawal.
Sub-Accounting - Keogh and corporate tax qualified retirement plans, as
well as certain other investors who must maintain separate participant
accounting records, may meet these needs through services provided by
the Fund's manager, Jones & Babson, Inc. Investment minimums may be met
by accumulating the separate accounts of the group. Although there is
currently no charge for sub-accounting, the Fund and its manager reserve
the right to make reasonable charges for this service.
Prototype Retirement Plans - Jones & Babson, Inc. offers a defined
contribution prototype plan - The Universal Retirement Plan- which is
suitable for all who are self-employed, including sole proprietors,
partnerships, and corporations. The Universal Prototype includes both
money purchase pension and profit-sharing plan options.
Individual Retirement Accounts - Also available is an Individual
Retirement Account (IRA). The IRA uses the IRS model form of plan and
provides an excellent way to accumulate a retirement fund which will
earn tax-deferred dollars until withdrawn. An IRA may also be used to
defer taxes on certain distributions from employer-sponsored retirement
plans. You may contribute up to $2,000 of compensation each year ($2,250
if a spousal IRA is established), some or all of which may be
deductible. Consult your tax adviser concerning the amount of the tax
deduction, if any.
Simplified Employee Pensions (SEPs) - The Jones & Babson IRA may be
used with IRS Form 5305 - SEP to establish a SEP-IRA, to which the self-
employed individual may contribute up to 15% of net earned income or
$30,000, whichever is less. A SEP-IRA offers the employer the ability to
make the same level of deductible contributions as a Profit-Sharing Plan
with greater ease of administration, but less flexibility in plan
coverage of employees.
SHAREHOLDER INQUIRIES
Telephone inquiries may be made toll free to the Fund, 1-800-4-BABSON
(1-800-422-2766), or in the Kansas City area 471-5200.
Shareholders may address written inquiries to the Fund at:
Babson Value Fund, Inc.
Three Crown Center
2440 Pershing Road, Suite G-15
Kansas City, MO 64108
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
Kansas City, Missouri
LEGAL COUNSEL
STRADLEY, RONON, STEVENS & YOUNG
Philadelphia, Pennsylvania
JOHN G. DYER
Kansas City, Missouri
CUSTODIAN
UMB BANK, n.a.
Kansas City, Missouri
TRANSFER AGENT
JONES & BABSON, INC.
Kansas City, Missouri
PART B
BABSON VALUE FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
March 31, 1996
This Statement is not a prospectus but should be read in
conjunction with the Fund's current Prospectus dated March
31, 1996. To obtain the Prospectus please call the Fund toll-
free 1-800-4-BABSON (1-800-422-2766), or in the Kansas City
area 471-5200.
TABLE OF CONTENTS
Page
Investment Objective and Policies 2
Portfolio Transactions 2
Investment Restrictions 2
Performance Measures 3
How the Fund's Shares are Distributed 4
How Share Purchases are Handled 4
Redemption of Shares 4
Signature Guarantees 5
Management and Investment Counsel 5
How Share Price is Determined 5
Officers and Directors 6
Custodian 7
Independent Auditors 7
Other Jones & Babson Funds 8
Description of Stock Ratings 9
Description of Commercial Paper Ratings 9
Financial Statements 10
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the Fund's
investment objective and policies set forth in the
Prospectus.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Fund are
made by Jones & Babson, Inc. pursuant to
recommendations by David L. Babson & Co. Inc.
Officers of the Fund and Jones & Babson, Inc. are
generally responsible for implementing or supervising
these decisions, including allocation of portfolio
brokerage and principal business and the negotiation of
commissions and/or the price of the securities. In
instances where securities are purchased on a
commission basis, the Fund 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 Fund, 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 Fund does
not intend to solicit competitive bids on each
transaction.
The Fund believes it is in its best interest and that of
its shareholders to have a stable and continuous
relationship with a diverse group of financially strong
and technically qualified broker-dealers who will
provide quality executions at competitive rates.
Broker-dealers meeting these qualifications also will be
selected for their demonstrated loyalty to the Fund,
when acting on its behalf, as well as for any research or
other services provided to the Fund. Substantially all
of the portfolio transactions 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. When
buying securities in the over-the-counter market, the
Fund 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 Fund normally will not pay a higher
commission rate to broker-dealers providing benefits or
services to it than it would pay to broker-dealers who
do not provide it such benefits or services. However,
the Fund reserves the right to do so within the
principles set out in Section 28(e) of the Securities
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 Fund
and Jones & Babson, Inc.
Since the Fund does not market its shares through
intermediary brokers or dealers, it is not the Fund's
practice to allocate brokerage or principal business on
the basis of sales of its shares which may be made
through such firms. However, it may place portfolio
orders with qualified broker-dealers who recommend
the Fund to other clients, or who act as agents in the
purchase of the Fund's shares for their clients.
Research services furnished by broker-dealers may
be useful to the Fund manager and its investment
counsel in serving other clients, as well as the Fund.
Conversely, the Fund may benefit from research
services obtained by the manager or its investment
counsel from the placement of portfolio brokerage of
other clients.
When it appears to be in the best interests of its
shareholders, the Fund may join with other clients of
the manager and its investment counsel in acquiring or
disposing of a portfolio holding. Securities acquired or
proceeds obtained will be equitably distributed between
the Fund and other clients participating in the
transaction. In some instances, this investment
procedure may affect the price paid or received by the
Fund or the size of the position obtained by the Fund.
INVESTMENT RESTRICTIONS
In addition to the investment objective and portfolio
management policies set forth in the Prospectus under
the caption "Investment Objective and Portfolio
Management Policy," the following restrictions also
may not be changed without approval of the "holders of
a majority of the outstanding shares" of the Fund.
The 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
2
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 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' con-
tinuous operations; (10) except for transactions in its
shares or other securities through brokerage practices
which are considered normal and generally accepted
under circumstances existing at the time, 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; (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 to 1; (13) make itself or its assets
liable for the indebtedness of others; or (14) invest in
securities which are assessable or involve unlimited
liability.
In addition to the fundamental investment restric-
tions set out above, in order to comply with the law or
regulations of various States, the Fund will not engage
in the following practices: (1) invest in securities
which are not readily marketable or in securities of
foreign issuers which are not listed on a recognized
domestic or foreign securities exchange; (2) write put
or call options; (3) invest in oil, gas and other mineral
leases or arbitrage transactions; (4) purchase or sell
real estate (including limited partnership interests, but
excluding readily marketable interests in real estate
investment trusts or readily marketable securities of
companies which invest in real estate); or (5) purchase
securities of issuers which the company is restricted
from selling to the public without registration under
the Securities Act of 1933, including Rule 144(a)
securities.
Certain states also require that the Fund's
investments in warrants, valued at the lower of cost or
market, may not exceed 5% of the value of the Fund's
net assets. Included within that amount, but not to
exceed 2% of the value of the Fund's net assets may be
warrants which are not listed on the New York or
American Stock Exchange. Warrants acquired by the
Fund in units or attached to securities may be deemed
to be without value for purposes of this limitation.
PERFORMANCE MEASURES
Total Return
The Fund's "average annual total return" figures
described and shown below are computed according to
a formula prescribed by the Securities and Exchange
Commission. The formula can be expressed as
follows:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of
$1000
T = average annual total return
ERV = Ending Redeemable Value of a
hypothetical $1000 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
the Fund for the specified periods.
For the one year 12/1/94-11/30/95 32.07%
For the five years 12/1/90-11/30/95 20.02%
For the ten years12/1/85-11/30/95 14.64%
3
From commencement of 15.45%
operation to 11/30/95*
___________________________________________
*The Fund commenced operation December 21, 1984.
HOW THE FUND'S SHARES ARE
DISTRIBUTED
Jones & Babson, Inc., as agent of the Fund, agrees to
supply its best efforts as sole distributor of the Fund's
shares and, at its own expense, pay all sales and
distribution expenses in connection with their offering
other than registration fees and other government
charges.
Jones & Babson, Inc. does not receive any fee or
other compensation under the distribution agreement
which continues in effect until October 31, 1996, and
which will continue automatically for successive
annual periods ending each October 31, if continued at
least annually by the Fund's Board of Directors,
including a majority of those Directors who are not
parties to such Agreements or interested persons of any
such party. It terminates automatically if assigned by
either party or upon 60 days written notice by either
party to the other.
Jones & Babson, Inc. also acts as sole distributor of
the shares for David L. Babson Growth Fund, Inc.,
D.L. Babson Bond Trust, D.L. Babson Money Market
Fund, Inc., D.L. Babson Tax-Free Income Fund, Inc.,
Babson Enterprise Fund, Inc., Babson Enterprise Fund
II, Inc., Shadow Stock Fund, Inc., Babson-Stewart
Ivory International Fund, Inc., Scout Stock Fund, Inc.,
Scout Bond Fund, Inc., Scout Money Market Fund,
Inc., Scout Tax-Free Money Market Fund, Inc., Scout
Regional Fund, Inc., Scout WorldWide Fund, Inc.,
Scout Balanced Fund, Inc., Buffalo Balanced Fund,
Inc., Buffalo Equity Fund, Inc., Buffalo High Yield
Fund, Inc. and Buffalo USA Global Fund, Inc.
HOW SHARE PURCHASES ARE HANDLED
Each order accepted will be fully invested in whole
and fractional shares, unless the purchase of a certain
number of whole shares is specified, at the net asset
value per share next effective after the order is
accepted by the Fund.
Each investment is confirmed by a year-to-date
statement which provides the details of the immediate
transaction, plus all prior transactions in your account
during the current year. This includes the dollar
amount invested, the number of shares purchased or
redeemed, 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.
Normally, the shares which you purchase are held by
the Fund in open account, thereby relieving you of the
responsibility of providing for the safekeeping of a
negotiable share certificate. Should you have a special
need for a certificate, one will be issued on request for
all or a portion of the whole shares in your account.
There is no charge for the first certificate issued. A
charge of $3.50 will be made for any replacement
certificates issued. In order to protect the interests of
the other shareholders, share certificates will be sent to
those shareholders who request them only after the
Fund has determined that unconditional payment for
the shares represented by the certificate has been
received by its custodian, UMB Bank, n.a.
If an order to purchase shares must be canceled due
to non-payment, the purchaser will be responsible for
any loss incurred by the Fund arising out of such
cancellation. To recover any such loss, the Fund
reserves the right to redeem shares owned by any
purchaser whose order is canceled, and such purchaser
may be prohibited or restricted in the manner of
placing further orders.
The Fund reserves the right in its sole discretion to
withdraw all or any part of the offering made by the
prospectus or to reject purchase orders when, in the
judgment of management, such withdrawal or rejection
is in the best interest of the Fund and its shareholders.
The Fund also reserves the right at any time to waive
or increase the minimum requirements applicable to
initial or subsequent investments with respect to any
person or class of persons, which include shareholders
of the Fund's special investment programs.
REDEMPTION OF SHARES
The right of redemption may be suspended, or the
date of payment postponed beyond the normal three-
day period by the Fund's Board of Directors under the
following conditions authorized by the Investment
Company Act of 1940: (1) for any period (a) during
4
which the New York Stock Exchange is closed, other
than customary weekend and holiday closing, or (b)
during which trading on the New York Stock
Exchange is restricted; (2) for any period during which
an emergency exists as a result of which (a) disposal by
the Fund of securities owned by it is not reasonably
practicable, or (b) it is not reasonably practicable for
the Fund to determine the fair value of its net assets; or
(3) for such other periods as the Securities and
Exchange Commission may by order permit for the
protection of the Fund's shareholders.
The Fund has elected to be governed by Rule 18f-1
under the Investment Company Act of 1940 pursuant
to which the Fund is obligated to redeem shares solely
in cash up to the lesser of $250,000 or 1% of the
Fund's net asset value during any 90-day period for any
one shareholder. Should redemptions by any
shareholder exceed such limitation, the Fund 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.
SIGNATURE GUARANTEES
Signature guarantees normally reduce the possibility
of forgery and are required in connection with each
redemption method to protect shareholders from loss.
Signature guarantees are required in connection with
all redemptions by mail or changes in share
registration, except as provided in the Prospectus.
Signature guarantees must appear together with the
signature(s) of the registered owner(s), on:
(1) a written request for redemption,
(2) a separate instrument of assignment, which
should specify the total number of shares to be
redeemed (this "stock power" may be obtained
from the Fund or from most banks or stock
brokers), or
(3) all stock certificates tendered for redemption.
MANAGEMENT AND
INVESTMENT COUNSEL
As a part of the Management Agreement, Jones &
Babson, Inc. employs at its own expense David L.
Babson & Co. Inc., as its investment counsel. David L.
Babson & Co. Inc. was founded in 1940 as a private
investment research and counseling organization. On
June 30, 1995, David L. Babson & Co. Inc. became a
wholly-owned subsidiary of Massachusetts Mutual Life
Insurance Company. 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.
The aggregate management fees paid to Jones &
Babson, Inc. during the most recent fiscal year ended
November 30, 1995, and from which Jones & Babson,
Inc. paid all the Fund's expenses except those payable
directly by the Fund, were $1,892,581. The annual fee
charged by Jones & Babson, Inc. covers all normal
operating costs of the Fund.
David L. Babson & Co. Inc. has an experienced
investment analysis and research staff which
eliminates the need for Jones & Babson, Inc. and the
Fund to maintain an extensive duplicate staff, with the
consequent increase in the cost of investment advisory
service. The cost of the services of David L. Babson &
Co. Inc. is included in the services of Jones & Babson,
Inc. During the most recent fiscal year ended
November 30, 1995, Jones & Babson, Inc. paid David
L. Babson & Co. Inc. a fee amounting to $697,267.
HOW SHARE PRICE IS DETERMINED
The net asset value per share of the Fund portfolio is
computed once daily, Monday through Friday, at the
specific time during the day that the Board of Directors
of the Fund sets at least annually, except on days on
which changes in the value of a Fund's portfolio
securities will not materially affect the net asset value,
or days during which no security is tendered for
redemption and no order to purchase or sell such
security is received by the Fund, or the following
holidays:
New Year's Day January 1
Presidents' Holiday Third Monday
in February
5
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
OFFICERS AND DIRECTORS
The Fund is managed by Jones & Babson, Inc.
subject to the supervision and control of the Board of
Directors. The following table lists the Officers and
Directors of the Fund. Unless noted otherwise, the
address of each Officer and Director is 2440 Pershing
Road, Suite G-15, Kansas City, Missouri 64108.
Except as indicated, each has been an employee of
Jones & Babson, Inc. for more than five years.
* Larry D. Armel, President and Director.
President and Director, Jones & Babson, Inc., David
L. Babson Growth Fund, Inc., D.L. Babson Money
Market Fund, Inc., D.L. Babson Tax-Free Income
Fund, Inc., Babson Enterprise Fund, Inc., Babson
Enterprise Fund II, Inc., Shadow Stock Fund, Inc.,
Babson-Stewart Ivory International Fund, Inc, Scout
Stock Fund, Inc. , Scout Bond Fund, Inc., Scout
Money Market Fund, Inc., Scout Tax-Free Money
Market Fund, Inc., Scout Regional Fund, Inc., Scout
WorldWide Fund, Inc.,Scout Balanced Fund, Inc.,
Buffalo Balanced Fund, Inc., Buffalo Equity Fund,
Inc., Buffalo High Yield Fund, Inc., Buffalo USA
Global Fund, Inc.; President and Trustee of D.L.
Babson Bond Trust.
____________________________________________
* Directors who are interested persons as that term
is defined in the Investment Company Act of
1940, as amended.
Francis C. Rood, Director.
Retired, 6429 West 92nd Street, Overland Park,
Kansas 66212. Formerly, Group Vice President-
Administration, Hallmark Cards, Inc.; Director, David
L. Babson Growth Fund, Inc., D. L. Babson Money
Market Fund, Inc., D.L. Babson Tax-Free Income
Fund, Inc., Babson Enterprise Fund, Inc., Babson
Enterprise Fund II, Inc., Shadow Stock Fund, Inc.;
Buffalo Balanced Fund, Inc., Buffalo Equity Fund,
Inc., Buffalo High Yield Fund, Inc., Buffalo USA
Global Fund, Inc.; Trustee of D.L. Babson Bond Trust.
William H. Russell, Director.
Financial consultant, 645 West 67th Street, Kansas
City, Missouri 64113; Director, David L. Babson
Growth Fund, Inc., D.L. Babson Money Market Fund,
Inc., D.L. Babson Tax-Free Income Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund II, Inc.,
Shadow Stock Fund, Inc., Babson-Stewart Ivory
International Fund, Inc.; Buffalo Balanced Fund, Inc.,
Buffalo Equity Fund, Inc., Buffalo High Yield Fund,
Inc., Buffalo USA Global Fund, Inc.; Trustee of D.L.
Babson Bond Trust.
H. David Rybolt, Director.
Consultant, HDR Associates, P.O. Box 2468, Shawnee
Mission, Kansas 66202; Director, David L. Babson
Growth Fund, Inc., D.L. Babson Money Market Fund,
Inc., D.L. Babson Tax-Free Income Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund II, Inc.,
Shadow Stock Fund, Inc.; Buffalo Balanced Fund, Inc.,
Buffalo Equity Fund, Inc., Buffalo High Yield Fund,
Inc., Buffalo USA Global Fund, Inc.; Trustee of D.L.
Babson Bond Trust.
P. Bradley Adams, Vice President and Treasurer.
Vice President and Treasurer, Jones & Babson, Inc.,
David L. Babson Growth Fund, Inc., D.L. Babson
Money Market Fund, Inc., D.L. Babson Tax-Free
Income Fund, Inc., Babson Enterprise Fund, Inc.,
Babson Enterprise Fund II, Inc., Shadow Stock Fund,
Inc., Babson-Stewart Ivory International Fund, Inc.,
D.L. Babson Bond Trust; Scout Stock Fund, Inc., Scout
Bond Fund, Inc., Scout Money Market Fund, Inc.,
Scout Tax-Free Money Market Fund, Inc., Scout
Regional Fund, Inc., Scout WorldWide Fund, Inc.,
Scout Balanced Fund, Inc.; Buffalo Balanced Fund,
Inc., Buffalo Equity Fund, Inc., Buffalo High Yield
Fund, Inc., Buffalo USA Global Fund, Inc.
6
Michael A. Brummel, Vice President, Assistant
Secretary and Assistant Treasurer.
Vice President, Jones & Babson, Inc., David L. Babson
Growth Fund, Inc., D.L. Babson Money Market Fund,
Inc., D.L. Babson Tax-Free Income Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund II, Inc.,
Shadow Stock Fund, Inc., Babson-Stewart Ivory
International Fund, Inc., D.L. Babson Bond Trust;
Vice President, Assistant Secretary and Assistant
Treasurer, Scout Stock Fund, Inc., Scout Bond Fund,
Inc., Scout Money Market Fund, Inc., Scout Tax-Free
Money Market Fund, Inc., Scout Regional Fund, Inc,
Scout WorldWide Fund, Inc., Scout Balanced Fund,
Inc.; Buffalo Balanced Fund, Inc., Buffalo Equity
Fund, Inc., Buffalo High Yield Fund, Inc., Buffalo
USA Global Fund, Inc.
Martin A. Cramer, Vice President and Secretary.
Vice President and Secretary, Jones & Babson, Inc.,
David L. Babson Growth Fund, Inc., D.L. Babson
Money Market Fund, Inc., D.L. Babson Tax-Free
Income Fund, Inc., Babson Enterprise Fund, Inc.,
Babson Enterprise Fund II, Inc., Shadow Stock Fund,
Inc., Babson-Stewart Ivory International Fund, Inc.,
D.L. Babson Bond Trust; Scout Stock Fund, Inc., Scout
Bond Fund, Inc., Scout Money Market Fund, Inc.,
Scout Tax-Free Money Market Fund, Inc., Scout
Regional Fund, Inc., Scout WorldWide Fund, Inc.,
Scout Balanced Fund, Inc.; Buffalo Balanced Fund,
Inc., Buffalo Equity Fund, Inc., Buffalo High Yield
Fund, Inc., Buffalo USA Global Fund, Inc.
David G. Kirk, Vice President.
Senior Vice President and Director, David L. Babson
& Co. Inc., One Memorial Drive, Cambridge,
Massachusetts 02142. Vice President, Babson
Enterprise Fund, Inc., Babson Enterprise Fund II, Inc.
Roland W. Whitridge, Vice President-Portfolio.
Sr. Vice President and Director, David L. Babson &
Co. Inc., One Memorial Drive, Cambridge,
Massachussetts 02142; Vice President-Portfolio,
Shadow Stock Fund, Inc.
None of the officers or directors will be remunerated
by the Fund for their normal duties and services. Their
compensation and expenses arising out of normal
operations will be paid by Jones & Babson, Inc. under
the provisions of the Management Agreement.
Messrs. Rood, Russell and Rybolt have no financial
interest in, nor are they affiliated with, either Jones &
Babson, Inc. or David L. Babson & Co. Inc.
The Audit Committee of the Board of Directors is
composed of Messrs. Rood, Russell and Rybolt.
The Officers and Directors of the Fund as a group
own less than 1% of the Fund.
The Fund will not hold annual meetings except as
required by the Investment Company Act of 1940 and
other applicable laws. The Fund is a Maryland
corporation. Under Maryland law, a special meeting of
stockholders of the Fund must be held if the Fund
receives the written request for a meeting from the
stockholders entitled to cast at least 25% of all the
votes entitled to be cast at the meeting. The Fund has
undertaken that its Directors will call a meeting of
stockholders if such a meeting is requested in writing
by the holders of not less than 10% of the outstanding
shares of the Fund. To the extent required by the
undertaking, the Fund will assist shareholder
communications in such matters.
CUSTODIAN
The Fund's assets are held for safekeeping by an
independent custodian, UMB Bank, n.a. This means
the bank, rather than the Fund, has possession of the
Fund's cash and securities. The custodian bank is not
responsible for the Fund's investment management or
administration. But, as directed by the Fund's officers,
it delivers cash to those who have sold securities to the
Fund in return for such securities, and to those who
have purchased portfolio securities from the Fund, it
delivers such securities in return for their cash
purchase price. It also collects income directly from
issuers of securities owned by the Fund and holds this
for payment to shareholders after deduction of the
Fund's expenses. The custodian is compensated for its
services by the manager. There is no charge to the
Fund.
INDEPENDENT AUDITORS
The Fund's 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, is the Fund's
present independent auditors.
Reports to shareholders will be published at least
semiannually.
7
OTHER JONES & BABSON FUNDS
The Fund is one of nine no-load funds comprising
the Babson Mutual Fund Group managed by Jones &
Babson, Inc. in association with its investment counsel,
David L. Babson & Co. Inc. The other funds are:
EQUITY FUNDS
DAVID L. BABSON GROWTH FUND, INC. was
organized in 1960 with the objective of long-term
growth of both capital and dividend income through
investment in the common stocks of well-managed
companies which have a record of long term above-
average growth of both earnings and dividends.
BABSON ENTERPRISE FUND, INC. was
organized in 1983 with the objective of long-term
growth of capital by investing in a diversified
portfolio of common stocks of smaller, faster-growing
companies with market capital of $15 million to $300
million at the time of purchase. This Fund is
intended to be an investment vehicle for that part of
an investor's capital which can appropriately be
exposed to above-average risk in anticipation of
greater rewards. This Fund is currently closed to new
shareholders.
BABSON ENTERPRISE FUND II, INC. was
organized in 1991 with the objective of long-term
growth of capital by investing in a diversified
portfolio of common stocks of smaller, faster-growing
companies which at the time of purchase are
considered by the Investment Adviser to be
realistically valued in the smaller company sector of
the market. This Fund is intended to be an
investment vehicle for that part of an investor's capital
which can appropriately be exposed to above-average
risk in anticipation of greater rewards.
SHADOW STOCK FUND, INC. was organized in
1987 with the objective of long-term growth of capital
that can be exposed to above-average risk in anticipa-
tion of greater-than-average rewards. The Fund
expects to reach its objective by investing in small
company stocks called "Shadow Stocks," i.e., stocks
that combine the characteristics of "small stocks" (as
ranked by market capitalization) and "neglected
stocks" (least held by institutions and least covered by
analysts).
BABSON-STEWART IVORY INTERNATIONAL
FUND, INC. was organized in 1987 with the
objective of seeking a favorable total return (from
market appreciation and income) by investing
primarily in a diversified portfolio of equity securities
(common stocks and securities convertible into
common stocks) of established companies whose
primary business is carried on outside the United
States.
FIXED INCOME FUNDS
D. L. BABSON BOND TRUST was organized in
1944, and has been managed by Jones & Babson, Inc.
since 1972, with the objective of a high level of
current income and reasonable stability of principal.
It offers two portfolios - Portfolio L and Portfolio S.
D. L. BABSON MONEY MARKET FUND, INC.
was organized in 1979 to provide investors the
opportunity to manage their money over the short
term by investing in high-quality short-term debt
instruments for the purpose of maximizing income to
the extent consistent with safety of principal and
maintenance of liquidity. It offers two portfolios -
Prime and Federal. Money market funds are neither
insured nor guaranteed by the U.S. Government and
there is no assurance that the funds will maintain a
stable net asset value.
D. L. BABSON TAX-FREE INCOME FUND,
INC. was organized in 1979 to provide shareholders
the highest level of regular income exempt from
federal income taxes consistent with investing in
quality municipal securities. It offers three separate
high-quality portfolios (including a money market
portfolio) which vary as to average length of maturity.
Income from the Tax-Free Money Market portfolio
may be subject to state and local taxes, as well as the
Alternative Minimum Tax.
A prospectus for any of the Funds may be obtained
from Jones & Babson, Inc., 2440 Pershing Road, Suite
G-15, Kansas City, Missouri 64108.
Jones & Babson, Inc. also sponsors seven mutual
funds which especially seek to provide services to
customers of affiliate banks of UMB Financial
Corporation. They are Scout Stock Fund, Inc., Scout
Bond Fund, Inc., Scout Money Market Fund, Inc.,
Scout Tax-Free Money Market Fund, Inc., Scout
Regional Fund, Inc., Scout WorldWide Fund, Inc. and
Scout Balanced Fund, Inc.
8
Jones & Babson, Inc. also sponsors and manages the
Buffalo Group of Mutual Funds. They are: Buffalo
Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo High Yield Fund, Inc. and Buffalo USA Global
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.
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
9
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 Fund which
are contained in the November 30, 1995, Annual
Report to Shareholders are incorporated herein by
reference.
10
