SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. 12 File No. 33-15074 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
Amendment No. 14 File No. 811-5218 [X]
SHADOW STOCK FUND, INC.
(Exact Name of Registrant as Specified in Charter)
2440 Pershing Road, G-15 Kansas City, Missouri 64108
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code (816)471-5200
Larry D. Armel, President, SHADOW STOCK FUND, INC.
2440 Pershing Road, G-15, Kansas City, Missouri 64108
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering October 31, 1995
It is proposed that this filing become effective:
X October 31, 1995, pursuant to paragraph (b) of rule 485
Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933 pursuant to Rule
24f-2 of the Investment Company Act of 1940, and will file its
required Rule 24f-2 Notice for the Registrant's fiscal year ended
June 30, 1996, by August 30, 1996
Please address inquiries and carbon copy of all
and communications to: communications to:
John G. Dyer, Esq. Mark H. Plafker, Esq.
Shadow Stock Fund, Inc. Stradley, Ronon, Stevens & Young
2440 Pershing Road, G-15 2600 One Commerce Square
Kansas City, MO 64108 Philadelphia, PA 19103-7098
Telephone: (816) 471-5200 Telephone: (215) 564-8024
SHADOW STOCK FUND, INC.
CROSS REFERENCE SHEET
Form N-1A Item Number Location in Prospectus
Item 1. Cover Page . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . Not Applicable
Item 3. Condensed Financial Information. . Per Share Capital and
Income Changes
Item 4. General Description of Registrant. Investment Objective
and Portfolio
Management Policy
Item 5. Management of the Fund . . . . . . Officers & Directors;
Management and
Investment Counsel
Item 6. Capital Stock and Other Securities.How to Purchase
Shares; How to
Redeem Shares; How
Share Price is
Determined; General
Information and
History; Dividends,
Distributions and
their Taxation
Item 7. Purchase of Securities . . . . . . Cover Page; How to
being Offered Purchase Shares;
Shareholder Services
Item 8. Redemption or Repurchase . . . . . How to Redeem Shares
Item 9. Pending Legal Proceedings. . . . . Not Applicable
SHADOW STOCK FUND, INC.
CROSS REFERENCE SHEET (Continued)
Location in Statement
of Additional
Form N-1A Item Number Information__________
Item 10. Cover Page . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . Cover Page
Item 12. General Information and
History . . . . . . . . . . . Investment Objectives
and Policies; Management
and Investment Counsel
Item 13. Investment Objectives and
Policies . . . . . . . . . . Investment Objectives and
Policies; Investment
Restrictions
Item 14. Management of the Fund . . . Management and Investment
Counsel
Item 15. Control Persons and Principal
Holders of Securities . . . . Management and Investment
Counsel; Officers and
Directors
Item 16. Investment Advisory and
other Services . . . . . . . Management of the Fund
Item 17. Brokerage Allocation . . . . Portfolio Transactions
Item 18. Capital Stock and Other
Securities . . . . . . . . . General Information;
Financial Statements
Item 19. Purchase, Redemption and . . How Share Purchases are
Pricing of Securities Being Handled; Redemption of
Shares; Financial
Statements
Item 20. Tax Status . . . . . . . . . Dividends, Distributions
and their Taxation
Item 21. Underwriters . . . . . . . . How the Fund's Shares are
Distributed
SHADOW STOCK FUND, INC.
CROSS REFERENCE SHEET (Continued)
Item 22. Calculation of Yield
Quotations of Money Market
Fund . . . . . . . . . . . . Performance Measures
Item 23. Financial Statement . . . . . Financial Statements
<PAGE>
PROSPECTUS
October 31, 1995
SHADOW STOCK
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 diversified mutual fund that seeks long-term growth of
capital by investing in small company stocks called "Shadow
Stocks." These are stocks that combine the characteristics of
"small stocks" (as ranked by market capitalization in addition to
other factors) and "neglected stocks" (generally those least held by
institutions and least covered by analysts). (See "Investment
Objective and Portfolio Management Policy" on page 4 of the
prospectus.) The Fund is intended to be an investment vehicle for
that portion of an investor's portfolio that can be exposed to above-
average risk in anticipation of greater rewards. There is no
guarantee that the Fund's objective will be achieved. (For a
discussion of risk factors see page 5 of this prospectus.)
PURCHASE INFORMATION
Minimum Investment
Initial Purchase $ 2,500
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.
<PAGE>
TABLE OF CONTENTS
Fund Expenses 2
Financial Highlights 3
Investment Objective and
Portfolio Management Policy 4
Repurchase Agreements 5
Risk Factors 5
Investment Restrictions 6
Performance Measures 6
How to Purchase Shares 7
Initial Investments 7
Investments Subsequent to Initial Investment 8
Telephone Investment Service 8
Automatic Monthly Investment Plan 8
How to Redeem Shares 9
Systematic Redemption Plan 10
How to Exchange Shares Between
Babson Funds 10
How Share Price is Determined 11
Officers and Directors 12
Management and Investment Counsel 12
General Information and History 13
Dividends, Distributions and Their Taxation 13
Shareholder Services 14
Shareholder Inquiries 15
SHADOW STOCK 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 1.00%
12b-1 fees None
Other expenses .13%
Total Fund operating expenses 1.13%
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
$12 $36 $62 $137
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 June 30, 1995. The example
should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those
shown.
FINANCIAL HIGHLIGHTS
The following financial highlights for the seven fiscal years ended
June 30, 1995 and the period from inception (August 28, 1987) to
June 30, 1988, have been derived from audited financial
statements of Shadow Stock Fund, Inc. Such information should
be read in conjunction with the financial statements of the Fund
and the report of Arthur Andersen LLP, independent public
accountants, appearing in the June 30, 1995 annual report to
shareholders which is incorporated by reference in this prospectus.
The information for the periods ended June 30, 1990 and prior is
not covered by the report of Arthur Andersen LLP.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 9.67 $11.66 $10.32 $ 8.96 $ 9.01 $ 9.34 $ 8.69 $10.00
Income from investment
operations:
Net investment income 0.10 0.06 0.12 0.09 0.10 0.14 0.12 0.10
Net gains or losses
on securities
(both realized and
unrealized) 1.42 0.46 1.87 1.36 (0.05) (0.29) 0.99 (1.33)
Total from Investment
Operations 1.52 0.52 1.99 1.45 0.05 (0.15) 1.11 (1.23)
Less distributions:
Dividends from net
investment income (0.10) (0.06) (0.11) (0.09) (0.10) (0.14) (0.13) (0.08)
Distributions from
capital gains (0.54) (0.45) (0.54) -- -- (0.04) (0.33) --
Total Distributions (0.64) (2.51) (0.65) (0.09) (0.10) (0.18) (0.46) (0.08)
Net asset value,
end of year $10.55 $ 9.67 $11.66 $10.32 $ 8.96 $ 9.01 $ 9.34 $ 8.69
Total Return 16% 4% 19% 16% 1% (2)% 13% (13)%
Ratios/Supplemental
Data
Net assets, end of
year (in millions) $ 39 $ 31 $ 33 $ 26 $ 22 $ 25 $ 26 $ 16
Ratio of expenses to
average net assets 1.13% 1.28% 1.25% 1.26% 1.31% 1.29% 1.33% 1.51%
Ratio of net
investment income to
average net assets 1.01% 0.50% 1.05% 0.87% 1.20% 1.49% 1.39% 1.57%
Portfolio
turnover rate 19% 43% 15% 23% 0% 16% 15% 7%
</TABLE>
*Ratios for this initial period of operations are annualized.
INVESTMENT OBJECTIVE AND
PORTFOLIO MANAGEMENT POLICY
Shadow Stock Fund is a no-load diversified mutual fund that seeks
long-term growth of capital income by investing in small company
stocks called "Shadow Stocks." These are stocks that combine the
characteristics of "small stocks" (as ranked by market
capitalization in addition to other factors) and "neglected stocks"
(generally those least held by institutions and least covered by
analysts). In the opinion of the Manager and Investment Counsel,
historical research demonstrates that in the past such stocks have
outperformed the shares of the larger, better known companies.
However, there is no guarantee that this pattern will continue in
the future. 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.
"Small stocks" were originally defined in the earliest research on
the topic by Rolf Banz as those in the bottom quintile of stocks
listed on the New York Stock Exchange when ranked by market
capitalization (number of shares outstanding times price per
share). At present this would be a market capitalization of below
$110 million, but this level changes as market prices rise and fall.
Currently this concept is also applied to AMEX and OTC stocks.
Research done on "small stocks" almost invariably addressed itself
not only to capitalization, but to profitable companies that have
been in existence long enough to qualify for listing on the NYSE.
The Fund defines "small stocks" to include stocks listed on the
NYSE and AMEX and OTC traded stocks that have market
capitalization of between $20 million and $110 million and have
annual net profits of at least $1 million for the three most recent
fiscal years.
"Neglected stocks" are those that have below average institutional
holdings and below average coverage by analysts and newsletters.
The term "neglected" has not had a consistent definition, but the
Fund's Manager and Investment Counsel define it as meaning the
fifty percent of small stocks (as described in the preceding
paragraph) which have the least coverage by institutions and
analysts. The Fund's Manager and Investment Counsel will use
their judgment in determining the methods of measuring analyst
and institutional interest. It is estimated that Shadow Stock Fund's
portfolio will contain about 400 stocks and thus will be very
diversified.
Of the Shadow Stocks available for inclusion in the Fund's
portfolio, the Fund will eliminate stocks from consideration, or sell
all or part of those Shadow Stocks it owns, if in the judgment of
the Manager and Investment Counsel the financial condition of the
company is in jeopardy, if liquidity is insufficient, or if total
acquisition costs become unreasonably high. Because it is believed
that acquisition costs for extremely low-priced stocks are
frequently unreasonably high, stocks will not be placed on the buy
list if their prices are below $5.
It is the intention of the Fund to maintain ownership of
the Shadow Stocks approximately in proportion to their respective
market capitalizations, but this general approach may be departed
from for the following reasons. First, acquisition of the shares of
smaller companies is sometimes difficult without disrupting the
supply/demand relationship and thereby increasing transaction
costs. For this reason, shares of companies on the buy list may be
purchased when opportunities for block trades present themselves
even if purchase of such a company's stock would not otherwise
be the highest priority on a market capitalization basis.
Conversely, high priority shares might be avoided if they cannot
be acquired at the time without disrupting the market. Second, the
Fund will attempt to purchase shares in optimal lot sizes which
precludes fine tuning of the weighting. Third, the Fund's Manager
and Investment Counsel will take a long-term view and do not feel
it prudent to constantly purchase and sell stocks for short-term
balancing. Guideline relative weights will be reviewed in detail
twice a year.
Shares of stock will be considered for elimination from the
portfolio on the following bases: (1) on the basis of the $5
minimum price criterion (a stock will not be sold for this reason
alone, but additional shares will not be purchased below $4 per
share which may result in a disproportionate representation in
terms of ideal weighting); (2) on the basis of profitability (a
company's stock will be sold as soon as the Fund's Manager and
Investment Counsel feel it is highly likely that there will be
negative earnings in the current fiscal year); (3) on the basis of
tenders or potential mergers (the Fund's Manager and Investment
Counsel will use their judgment as to the best time to sell or
tender); (4) on the basis of neglect (shares will be sold when the
company has been beyond the Manager's and Investment
Counsel's criteria for a neglected stock for three successive
semiannual evaluation periods); or (5) on the basis of
capitalization a stock will be sold if, at a semiannual evaluation,
either the market capitalization is twice
the current acceptable maximum or one-half the current minimum.
In the case of portfolio companies whose capitalization has gone
beyond the current maximum or minimum, the Fund's Investment
Counsel may keep the portfolio weighting at the level appropriate
for the current maximum or minimum. If funds beyond current
liquid assets are necessary to meet redemptions, stocks not
meeting current initial criteria will be liquidated first.
Because of the long-term approach taken, it is expected that in the
absence of unusual circumstances, the annual turnover ratio of the
Fund will be less than 20%.
While the objectives of the Fund would favor a fully invested
position in Shadow Stocks, the practicality of Fund management
requires liquidity. An average of about 5% of the Fund's assets
may be invested in cash or cash equivalents including: securities
that are issued or guaranteed as to principal and interest by the
U.S. government, its agencies, authorities or instrumentalities
(such as U.S. Treasury obligations, which differ only in their
interest rates, maturities and times of issuance, and obligations
issued or guaranteed by U.S. government agencies or
instrumentalities which are backed by the full faith and credit of
the U.S. Treasury or which are supported by the right of the issuer
to borrow from the U.S. government), repurchase agreements,
certificates of deposit, time deposits, commercial paper and other
high quality short-term debt securities.
If in the judgment of the Manager and Investment Counsel
extremely abnormal conditions persist in the markets for Shadow
Stocks, management retains the authority to adopt a temporary
defensive posture by investing the Fund's assets in debt securities,
such as money market obligations, including securities of the U.S.
government and its agencies, high-quality commercial paper,
bankers' acceptances and repurchase agreements with banks and
brokers for U.S. government securities. The use of repurchase
agreements by the Fund involves certain risks. For a discussion of
these risks, see "Risk Factors Applicable to Repurchase
Agreements."
For the three years ended June 30, 1995 the total dollar amount of
brokerage commissions paid by the Fund and the annual portfolio
turnover rates were as follows:
Portfolio
Fiscal Brokerage Turnover
Year Commissions Rate
1993 $30,426 15%
1994 $75,235 43%*
1995 $32,370 19%
*Unusally high due to portfolio restructuring.
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
While the investment approach of the Fund is well diversified, it is
an aggressive growth fund and presents market risk. Investments
in small and neglected stocks tend to be speculative. The Fund's
Manager and Investment Counsel feel the risk is more than offset
by the opportunity for long-term rewards, but the Fund has above-
average risk particularly for short-term and is recommended only
for long-term investors. In addition to normal market risk, the
lower liquidity of Shadow Stocks would impose additional risks in
the event of a weak stock market and substantial Fund
liquidations. The frequency and volume of trading in Shadow
Stocks is significantly less than is typical of larger companies,
making Shadow Stocks subject to wider price fluctuations. Small
companies of ten have limited product lines, markets, or financial
resources, and they may be dependent upon one-person
management.
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 is 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, the Russell 2000 Index, a small
company stock index, or the Consumer Price Index. The Fund may
compare its performance to the Shearson/Lehman
Government/Corporate Index, an unmanaged
index of government and corporate bonds. 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
Stangers'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 may accept investments in kind of stocks on the Fund's
buy list for purchase of the Fund's shares. Acceptance of such
stocks will be at the discretion of the Manager and Investment
Counsel based on judgments as to whether, in each case,
acceptance of stock will allow the Fund to acquire stock at no
more than the net cost of acquiring it through normal channels,
and whether the stock has restrictions on its sale by the Fund
under the Securities Act of 1933. Fund shares purchased in
exchange for stocks are issued at net asset value.
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 ($2,500 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:
Shadow Stock 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 ($2,500 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 Shadow Stock Fund, Inc./AC=987032-6221
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, but make them
payable to UMB Bank, n.a. Always identify your account number
or include the detachable reminder stub which accompanies each
confirmation.
Wire share purchases should include your account registration,
your account number and the Babson Fund 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; and
(See Signature Guarantees.)
(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 fifth 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 under Rule 17Ad-15 under the Securities
Exchange Act of 1934. Eligible guarantor institutions include: (1)
national or state banks, savings associations, savings and loan
associations, trust companies, savings banks, industrial loan
companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; or, (3)
securities broker/dealers which are members of a national
securities exchange or clearing agency or which have a minimum
net capital of $100,000. A notarized signature will not be
sufficient for the request to be in proper form.
Signature guarantees will be waived for mail redemptions of
$10,000 or less, but they will be required if the checks are to be
payable to someone other than the registered owner(s), or are to be
mailed to an address different from the registered address of the
shareholder(s), or where there appears to be a pattern of
redemptions designed to circumvent the signature guarantee
requirement, or where the Fund has other reason to believe that
this requirement would be in the best interests of the Fund and its
shareholders.
The right of redemption may be suspended or the date of payment
postponed beyond the normal five-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.
Further, the Fund reserves the right to redeem its shares in kind
under certain circumstances. 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 when converting
the assets into 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. Additional
details are set forth in the "Statement of Additional Information."
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 continue
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 1987, 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
independent public accountants 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 fees for pricing services, custodian fees, 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. and Analytic
Systems, Inc. as its investment counsels 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. Analytic Systems, Inc. and James B.
Cloonan, its principal owner, developed the concept of Shadow
Stocks, will continually adapt the concept to current market
conditions, and will carry out research relative to future
investment applications. The costs of the services of David L.
Babson & Co. Inc. and Analytic Systems, Inc. are included in the
fee of Jones & Babson, Inc. The Management Agreement limits the
liability of the manager and its investment counsels, 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. Peter C. Schliemann and
Roland W. Whitridge have been the co-managers of Shadow Stock
Fund since its inception in 1987. Mr. Schliemann joined David L.
Babson & Co. in 1979 and has 26 years of investment management
experience. Mr. Whitridge is a Chartered Financial Analyst.
He joined the Babson organization in 1974 and has 30 years
investment management experience.
As compensation for the services provided by Jones
& Babson, the Fund pays Jones & Babson, Inc. a fee at the annual
rate of one percent (1%) of its 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. The fee, from which Jones &
Babson, Inc. pays David L. Babson & Co. Inc. a fee of 1/4 of one
percent (.25%) of average daily total net assets, and Analytic
Systems, Inc. a fee of 1/5 of one percent (.20%) of average daily
total net assets, is computed daily and paid semimonthly. The total
expenses of the Fund for the fiscal year ended June 30, 1995,
amounted to 113/100 of one percent (1.13%) 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.,
David L. Babson & Co. Inc. or Analytic Systems, 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.
Analytic Systems, Inc. is a closely held corporation and has
limitations in the ownership of its stock designed to maintain
control in those who are active in management.
The current Management Agreement between the Fund and Jones
& Babson, Inc., which includes the Investment Counsel
Agreements between Jones & Babson, Inc. and David L. Babson
& Co. Inc., and between Jones & Babson, Inc. and Analytic
Systems, 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. Each Agreement provides 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 June 3, 1987, and has a
present authorized capitalization of 10,000,000 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 public accountants; and (4) approval
of a distribution plan. As a result, the Fund does not intend to hold
annual meetings.
The Fund has an exclusive and perpetual license to use the name
"Shadow Stock" in its name so long as Analytic Systems, Inc. or
an affiliate thereof or of James B. Cloonan, acts as its investment
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, usually in
June. Any capital gains realized during a fiscal year will be
distributed with the fiscal year-end dividend in June. 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 October 31; and (3) 100% of any
undistributed ordinary or capital gain net income from the prior
fiscal year. Dividends declared in December will be deemed to
have been paid by the Fund and received by shareholders on the
record date 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:
Shadow Stock Fund, Inc.
Three Crown Center
2440 Pershing Road, Suite G-15
Kansas City, MO 64108
AUDITORS
ARTHUR ANDERSEN LLP
Kansas City, Missouri
LEGAL COUNSEL
STRADLEY, RONON, STEVENS & YOUNG
Philadelphia, Pennsylvania
JOHN G. DYER
Kansas City, Missouri
CUSTODIAN
UMB BANK, n.a.
Kansas City, Missouri
TRANSFER AGENT
JONES & BABSON, INC.
Kansas City, Missouri
<PAGE>
PART B
SHADOW STOCK FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
October 31, 1995
This Statement is not a prospectus but should be read in conjunction with the
Fund's current Prospectus dated October 31, 1995 To obtain the Prospectus
please call the Fund toll free 1--800-4-BABSON or in the Kansas City area
471-5200.
TABLE OF CONTENTS
PAGE
Investment Objective and Policies
Portfolio Transactions
Investment Restrictions
Risk Factors Involving Repurchase Agreements
Performance Measures
How the Fund's Shares are Distributed
How Share Purchases are Handled
Redemption of Shares
Signature Guarantees
Management and Investment Counsel
How Share Price is Determined
Officers and Directors
Custodian
Independent Public Accountants
Other Jones & Babson Funds
Financial Statements
<PAGE>
INVESTMENT OBJECTIVE AND
POLICIES
The following policies supplement the
Fund's investment objective and policies
set forth in the Prospectus.
Although the Shadow Stock Fund
intends to invest its assets in Shadow
Stocks, if, in the judgment of the
Investment Counsel, extremely abnormal
conditions persist in the markets for such
securities, management retains the
authority to adopt a defensive posture by
investing in debt securities, such as money
market obligations, including securities of
the U.S. Government and its agencies,
high-quality commercial paper, bankers'
acceptances and repurchase agreements
with banks and brokers for U.S.
Government securities.
Instead of investing in a particular stock
on the buy list, in some cases the Fund
may purchase the equivalent amount of
securities convertible into the common
stock, if in the judgment of the Investment
Counsel it is advantageous to the Fund to
do so.
Fund transactions will be placed with a
view to receiving the best price and
execution. The Fund does not intend to
solicit competitive bids on each
transaction. Since it is the policy of the
Fund to invest in stocks of small
companies, which are not as liquid as
stocks of large companies, the Fund will
seek to acquire and dispose of securities in
a manner which would cause as little
fluctuation in the market prices of stocks
being purchased or sold as possible in light
of the size of the transactions being
effected, and brokers will be selected with
this goal in view. The Investment Counsel
will monitor the performance of brokers
which effect transactions for the Fund to
determine the impact that the Fund's
trading has on the market prices of the
securities in which it invests and check the
rates of commission being paid by the
Fund to brokers to ascertain that they are
competitive with those charged by other
brokers for similar services. Transactions
also may be placed with brokers who
provide the Investment Counsel with
investment research, such as reports
concerning individual issuers, industries
and general economic and financial trends
and other research services and the
Investment Counsel may knowingly pay commissions to
such brokers that may be higher than another
broker might charge, if in good faith the
Investment Counsel determines that the
commissions paid are reasonable in
relation to the brokerage and research
services provided.
The OTC companies eligible for
purchase by the Fund are among the most
thinly traded securities the Fund will buy
or sell. Therefore, the Investment Counsel
believes it needs maximum flexibility to
effect OTC trades on a best execution
basis. To that end, the Investment
Counsel may place OTC buy and sell
orders with primary market makers, third
market brokers or Instinet.
Although stocks held in the Fund's
portfolio are generally those that are least
held by institutions, in some circumstances
where the Fund seeks to acquire or
dispose of portfolio securities, transactions
with institutional holders through third
market brokers will enable the Investment
Counsel to trade with other institutional
holders directly on a net basis. This allows
the Investment Counsel to sometimes
trade larger blocks than would be possible
by going through a single market maker.
Instinet is an electronic information and
communication network whose subscribers
include most market makers as well as
many institutions. Instinet charges a
commission for each trade executed on its
system. On any given trade, the Shadow
Stock Fund by trading through Instinet,
could pay a dealer spread to a dealer on
the other side of the trade plus a
commission to Instinet. However, placing
a buy (or sell) position on Instinet
communicates to many (potentially all)
market makers and institutions at once.
This can create a more complete picture of
the market and thus increase the likelihood
that the Fund can buy at the lowest
possible price or sell at the highest possible
price.
Money regularly flowing into the Fund
for investment is unlikely to be received in
amounts required for an ideally weighted
basket of stocks. As a result, shares will be
purchased in efficient lot sizes so as to
purchase first those stocks furthest below
their ideal weight.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for
the Fund are made by Jones & Babson,
Inc. pursuant to recommendations by
David L. Babson & Co. Inc. Officers of
the Fund and Jones & Babson, Inc. are
generally responsible for implementing or
supervising these decisions, including
allocation of portfolio brokerage and
principal business as well as the
negotiation of commissions and/or the
price of the securities.
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 because usually the most
active market in the size of the Fund's
transactions and for the type of securities
predominant in the Fund's portfolio is to
be found there. 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 agent in the
purchase of the Fund's shares for their
clients.
Research services furnished by broker-
dealers may be useful to the Fund manager
and its investment counsel in serving other
clients, as well as the Fund. Conversely,
the Fund may benefit from research
services obtained by the manager or its
investment counsel from the placement of
portfolio brokerage of other clients.
When it appears to be in the best interest
of its shareholders, the Fund may join with
other clients of the manager and its
investment counsel in acquiring or
disposing of a portfolio holding.
Securities acquired or proceeds obtained
will be equitably distributed between the
Fund and other clients participating in the
transaction. In some instances, this
investment procedure may affect the price
paid or received by the Fund or the size of
the position obtained by the Fund.
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 sale of real
estate or commodities; (3) underwrite the
securities of other issuers; (4) make loans
to any of its officers, directors, or
employees, or to its manager, or general
distributor, or officers or directors thereof;
(5) make loans to other persons, except by
the purchase of debt obligations which are
permitted under its investment policy; (6)
invest in companies for the purpose of
exercising control of management; (7)
purchase securities on margin, or sell
securities short; (8) purchase shares of
other investment companies except in the
open market at ordinary broker's
commission, but not in excess of 5% of the
Fund's assets, or pursuant to a plan of
merger or consolidation; (9) invest in the
aggregate more than 5% of the value of its
gross assets in the securities of issuers
(other than federal, state, territorial, or
local governments, or corporations, or
authorities established thereby), which,
including predecessors, have not had at
least three years' continuous operations
nor invest more than 25% of the Fund's
assets in any one industry; (10) enter into
dealings with its officers or directors, its
manager or underwriter, or their officers
or directors, or any organization in which
such persons have a financial interest
except for transactions in the Fund's own
shares or other securities through
brokerage practices which are considered
normal and generally accepted under
circumstances existing at the time; (11)
purchase or retain securities of any
company in which any Fund officers or
directors, or Fund manager, its partner,
officer, or director beneficially owns more
than 1/2 of 1% of said company's
securities, if all such persons owning more
than 1/2 of 1% of such company's
securities, own in the aggregate more than
5% of the outstanding securities of such
company; (12) borrow or pledge its credit
under normal circumstances, except up to
10% of its gross assets (computed at the
lower of fair market value or cost) for
temporary or emergency purposes, and not
for the purpose of leveraging its
investments, and provided further that any
borrowing in excess of 5% of the total
assets of the Fund shall have asset
coverage of at least 3 to 1; (13) make itself
or its assets liable for the indebtedness of
others; (14) invest in securities which are
assessable or involve unlimited liability; or
(15) issue senior securities except for
those investment procedures permissible
under the Fund's other restrictions.
In addition to the fundamental
investment restrictions set out above, in
order to comply with the law or
regulations of various States, the Fund will
not engage in the following practices: (1)
invest in securities which are not readily
marketable or in securities of foreign
issuers which are not listed on a
recognized domestic or foreign securities
exchange; (2) write put or call options; (3)
invest in oil, gas and other mineral leases
or arbitrage transactions; (4) purchase or
sell real estate (including limited
partnership interests, but excluding readily
marketable interests in real estate
investment trusts or readily marketable
securities of companies which invest in
real estate); or (5) purchase securities,
including Rule 144(a) securities, of issuers
which the company is restricted from
selling to the public without registration
under the Securities Act of 1933.
Certain States also require that the
Fund's investments in warrants which are
not listed on the New York or American
Stock Exchange, valued at the lower of
cost or market, may not exceed 5% of the
value of the Fund's net assets. Included
within that amount, but not to exceed 2%
of the value of the Fund's net assets may
be warrants which are not listed on the
New York or American Stock Exchange.
Warrants acquired by the Fund in units or
attached to securities may be deemed to be
without value for purposes of this
limitation. In addition, the Fund has
undertaken to the state of California to
comply with the expense limitations set
forth in Rule 260.140.84(a) of Title 10 of
the California Administrative Code.
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
n = number of years
ERV = Ending Redeemable
Value of a hypothetical
$1000 payment made at the
beginning of the 1, 5, or 10
years (or other) periods at
the end of the 1,5, or 10
years (or other) periods (or
fractional portions thereof);
The table below shows the average total
return for the Fund for the specified
periods.
For the one year 7/1/94-6/30/95
16.16%
For the five years 7/1/90-6/30/95
11.10%
From commencement
of operations to 6/30/95* 6.61%
__________________________________
* The Fund commenced operation on
September 10, 1987.
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 the 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., Babson
Value 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., 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. 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 five-day
period by the Fund's Board of Directors
under the following conditions authorized
by the Investment Company Act of 1940:
(1) for any period (a) during which the
New York Stock Exchange is closed,
other than customary weekend and holiday
closing, or (b) during which trading on the
New York Stock Exchange is restricted;
(2) for any period during which an
emergency exists as a result of which (a)
disposal by the Fund of securities owned
by it is not reasonably 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. and Analytic Systems, Inc. as its
investment counsels. David L. Babson &
Co. Inc. also participates with Jones &
Babson in the management of nine Babson
no-load mutual funds. David L. Babson &
Co. Inc. was founded in 1940 as a private
investment research and counseling
organization. On June 30, 1995, it became
a wholly-owned subsidiary of
Massachusetts Mutual Life Insurance
Company.
The aggregate management fees paid to
Jones & Babson, Inc. during the most
recent fiscal year ended June 30, 1995,
from which Jones & Babson, Inc. paid all
the Fund's expenses except those payable
directly by the Fund, was $344,518. The
annual fee charged by Jones & Babson,
Inc. covers all normal operating costs of
the Fund.
David L. Babson & Co. Inc. and
Analytic Systems, Inc. have experienced
investment analysis and research staffs
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., and Analytic Systems, Inc., are
included in the services of Jones &
Babson, Inc. During the most recent fiscal
year ended June 30, 1995, Jones &
Babson, Inc. paid David L. Babson & Co.
Inc. fees amounting to $86,130. During
the most recent fiscal year ended June 30,
1995, Jones & Babson, Inc. paid Analytic
Systems, Inc. fees amounting to $68,904.
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
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 Three
Crown Center, 2440 Pershing Road, Suite
G-15, Kansas City, Missouri 64108.
Except as indicated, each has been an
employee of Jones & Babson, Inc. for
more than five years.
* Larry D. Armel, President and
Director.
President and Director, Jones & Babson,
Inc., David L. Babson Growth Fund, Inc.,
D. L. Babson Money Market Fund, Inc.,
D. L. Babson Tax-Free Income Fund, Inc.,
Babson Enterprise Fund, Inc., Babson
Enterprise Fund II, Inc., Babson Value
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.,
Buffalo Balanced Fund, Inc.; Buffalo
Equity Fund, Inc., Buffalo High Yield
Fund, Inc., Buffalo USA Global Fund,
Inc.; President and Trustee, D. L. Babson
Bond Trust.
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., Babson Value Fund, Inc., Buffalo
Balanced Fund, Inc., Buffalo Equity Fund,
Inc., Buffalo High Yield Fund, Inc.,
Buffalo USA Global Fund, Inc.; Trustee,
D. L. Babson Bond Trust.
William H. Russell, Director.
Financial consultant, 645 West 67th
Street, Kansas City, Missouri 64113;
previously Vice President, United
Telecommunications, Inc.; Director, David
L. Babson Growth Fund, Inc., D. L.
Babson Money Market Fund, Inc., D. L.
Babson Tax-Free Income Fund, Inc.,
Babson Enterprise Fund, Inc., Babson
Enterprise Fund II, Inc., Babson Value
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, D. L.
Babson Bond Trust.
__________________________________
* Directors who are interested persons as
that term is defined in the Investment
Company Act of 1940, as amended.
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., Babson
Value Fund, Inc., Buffalo Balanced Fund,
Inc., Buffalo Equity Fund, Inc., Buffalo
High Yield Fund, Inc., Buffalo USA
Global Fund, Inc.; Trustee, D.L. Babson
Bond Trust.
P. Bradley Adams, Vice President and
Treasurer.
Vice President and Treasurer, Jones &
Babson, Inc., David L. Babson Growth
Fund, Inc., D.L. Babson Money Market
Fund, Inc., D.L. Babson Tax-Free Income
Fund, Inc., Babson Enterprise Fund, Inc.,
Babson Enterprise Fund II, Inc., Babson
Value 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., Buffalo
Balanced Fund, Inc.; Buffalo Equity Fund,
Inc., Buffalo High Yield Fund, Inc.,
Buffalo USA Global Fund, Inc.
Michael A. Brummel, Vice President,
Assistant Secretary and Assistant
Treasurer.
Vice President, Jones & Babson, Inc.,
David L. Babson Growth Fund, Inc., D.L.
Babson Money Market Fund, Inc., D.L.
Babson Tax-Free Income Fund, Inc.,
Babson Enterprise Fund, Inc., Babson
Enterprise Fund II, Inc., Babson Value
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., 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., Babson
Value 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., Buffalo
Balanced Fund, Inc., Buffalo Equity Fund,
Inc., Buffalo High Yield Fund, Inc.,
Buffalo USA Global Fund, Inc.
Peter C. Schliemann, Vice President -
Portfolio.
Executive Vice President and Director,
David L. Babson & Co. Inc., One
Memorial Drive, Cambridge,
Massachusetts 02142; Vice President-
Portfolio, Babson Enterprise Fund, Inc.,
Babson Enterprise Fund II, Inc.
Roland W. Whitridge, Vice President -
Portfolio.
Senior Vice President and Director, David
L. Babson & Co. Inc., One Memorial
Drive, Cambridge, Massachusetts 02142;
Vice President-Portfolio, Babson Value
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
percent of all the votes entitled to be cast
at the meeting. The Fund has undertaken
that its Directors will call a meeting of
stockholders if such a meeting is requested
in writing by the holders of not less than
10% of the outstanding shares of the
Fund. To the extent required by the
undertaking, the Fund will assist
shareholder communications in such
matters.
CUSTODIAN
The Fund's assets are held for
safekeeping by an independent custodian,
UMB Bank, n.a. This means the bank,
rather than the Fund, has possession of the
Fund's cash and securities. The custodian
bank is not responsible for the Fund's
investment management or administration.
But, as directed by the Fund's officers, it
delivers cash to those who have sold
securities to the Fund in return for such
securities, and to those who have
purchased portfolio securities from the
Fund, it delivers such securities in return
for their cash purchase price. It also
collects income directly from issuers of
securities owned by the Fund and holds
this for payment to shareholders after
deduction of the Fund's expenses. The
custodian is compensated for its services
by the manager. There is no charge to the
Fund.
INDEPENDENT PUBLIC
ACCOUNTANTS
The Fund's financial statements are
examined annually by independent public
accountants approved by the directors
each year, and in years in which an annual
meeting is held the directors may submit
their selection of independent public
accountants to the shareholders for
ratification. Arthur Andersen LLP, P.O.
Box 13406, Kansas City, Missouri 64199,
is the Fund's present independent public
accountant.
Reports to shareholders will be
published at least semiannually.
OTHER JONES & BABSON FUNDS
The Fund is one of nine no-load funds
comprising the Babson Mutual Fund
Group managed by Jones & Babson, Inc.
in association with its investment counsel,
David L. Babson & Co. Inc. The other
funds are:
EQUITY FUNDS
DAVID L. BABSON GROWTH
FUND, INC. was organized in 1960
with the objective of long-term growth
of both capital and dividend income
through investment in the common
stocks of well-managed companies
which have a record of long-term above-
average growth of both earnings and
dividends.
BABSON ENTERPRISE FUND,
INC. was organized in 1983 with the
objective of long-term growth of capital
by investing in a diversified portfolio of
common stocks of smaller, faster-
growing companies with market capital
of $15 million to $300 million at the time
of purchase. This Fund is intended to be
an investment vehicle for that part of an
investor's capital which can appropriately
be exposed to above-average risk in
anticipation of greater rewards. This
Fund is currently closed to new
shareholders.
BABSON ENTERPRISE FUND II,
INC. was organized in 1991 with the
objective of long-term growth of capital
by investing in a diversified portfolio of
common stocks of smaller, faster-
growing companies which at the time of
purchase are considered by the
Investment Adviser to be realistically
valued in the smaller company sector of
the market. This Fund is intended to be
an investment vehicle for that part of an
investor's capital which can appropriately
be exposed to above-average risk in
anticipation of greater rewards.
BABSON VALUE FUND, INC. was
organized in 1984 with the objective of
long-term growth of capital and income
by investing in a diversified portfolio of
common stocks which are considered to
be undervalued in relation to earnings,
dividends and/or assets.
BABSON-STEWART IVORY
INTERNA-TIONAL FUND, INC. was
organized in 1987 with the objective of
seeking a favorable total return (from
market appreciation and income) by
investing primarily in a diversified
portfolio of equity securities (common
stocks and securities convertible into
common stocks) of established
companies whose primary business is
carried on outside the United States.
FIXED INCOME FUNDS
D.L. BABSON BOND TRUST was
organized in 1944, and has been
managed by Jones & Babson, Inc. since
1972, with the objective of a high level
of current income and reasonable
stability of principal. It offers two
portfolios - Portfolio L and Portfolio S.
D. L. BABSON MONEY MARKET
FUND, INC. was organized in 1979 to
provide investors the opportunity to
manage their money over the short term
by investing in high-quality short-term
debt instruments for the purpose of
maximizing income to the extent
consistent with safety of principal and
maintenance of liquidity. It offers two
portfolios - Prime and Federal. 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.,
Three Crown Center, 2440 Pershing Road,
Suite G-15, Kansas City, Missouri 64108.
Jones & Babson, Inc. also sponsors and
manages six mutual funds which especially
seek to provide services to customers of
affiliate banks of UMB Financial
Corporation. They are: Scout Stock Fund,
Inc., Scout Bond Fund, Inc., Scout Money
Market Fund, Inc., Scout Tax-Free Money
Market Fund, Inc., Scout Regional Fund,
Inc. and Scout WorldWide Fund, Inc.
Jones & Babson also sponsors and
manages the Buffalo Group of Mutual
Funds. They are: Buffalo Balanced Fund,
Inc., Buffalo Equity Fund, Inc., Buffalo
High Yield Income Fund, Inc. and Buffalo
USA Global Fund, Inc.
FINANCIAL STATEMENTS
The audited financial statements of the
Fund which are contained in the June 30,
1995 Annual Report to Shareholders, are
incorporated herein by reference.
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
Herewith are all financial statements and exhibits filed as
a part of this registration statement:
(a) Financial Statements:
Included in Part A - Prospectus:
Per Share Capital and Income Changes
Included in Part B - Statement of Additional Information:
The audited financial statements contained in the
most recent Annual Report to Shareholders of David L.
Babson Growth Fund, Inc., are incorporated by
reference into Part B. of this Registration
Statement.
Included in Part C - Other Information:
Consents of Independent Public Accountants
Arthur Andersen & Co.
(b) *(1) Registrant s Articles of Incorporation.
*(2) Registrant s Bylaws.
(3) Not applicable, because there is no voting
trust agreement.
*(4) Specimen copy of each security to be issued by
the registrant.
*(5) (a) Form of Management Agreement between
Jones & Babson, Inc. and the Registrant.
(b) Form of Investment Counsel Agreement
between Jones & Babson, Inc. and David L.
Babson & Co. Inc.
(c) Form of Investment Counsel Agreement
between Jones & Babson, Inc. and Analytic
Systems, Inc.
*(6) Form of principal Underwriting Agreement
between Jones & Babson, Inc. and the
Registrant.
(7) Not applicable, because there are no pension,
bonus or other agreements for the benefit of
directors and officers.
*(8) Form of Custodian Agreement between Registrant
and United Missouri Bank of Kansas City, N. A.
(9) There are no other material contracts not made
in the ordinary course of business between the
Registrant and others.
(10) Opinion and consent of counsel as to the
legality of the registrant s securities being
registered. (To be supplied annually pursuant
to Rule 24f-2 of the Investment Company Act of
1940.)
(11) The consent of Arthur Andersen & Co.,
Independent Public Accountants.
(12) Not applicable.
*(13) Letter from contributors of initial capital to
the Registrant that purchase was made for
investment purposes without any present
intention of redeeming or selling.
*(14) Copies of the model plan used in the establishment
of any retirement plan in conjunction with which
Registrant offers its securities.
(15) Not applicable.
*(16) Schedule for computation of performance
quotations.
*(17) Copies of Powers of Attorney pursuant to Rule
402(c).
*Previously filed and incorporated herein by reference.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL OF THE
REGISTRANT.
NONE
Item 26. NUMBER OF HOLDERS OF SECURITIES.
The number of record holders of each class of securities of the
Registrant as of October 20, 1995, is as follows:
(1) (2)
Title of class Number of Record Holders
Common Stock $1.00 par value 2,836
Item 27. INDEMNIFICATION.
Under the terms of the Maryland General Corporation Law and
the company s By-laws, the company shall indemnify any
person who was or is a director, officer, or employee of the
company to the maximum extent permitted by the Maryland
General Corporation Law; provided however, that any such
indemnification (unless ordered by a court) shall be made by
the company only as authorized in the specific case upon a
determination that indemnification of such persons is proper
in the circumstances. Such determination shall be made
(i) by the Board of Directors by a majority vote of a
quorum which consists of the directors who are neither
interested persons of the company as defined in Section
2(a)(19) of the 1940 Act, nor parties to the proceedings, or
(ii) if the required quorum is not obtainable or if a
quorum of such directors so directs, by
independent legal counsel in a written opinion.
No indemnification will be provided by the company to any
director or officer of the company for any liability to the
company or shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duty.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
The principal business of Jones & Babson, Inc. is the management of
the Babson family of mutual funds. It also has expertise in the tax
and pension plan field. It supervises a number of prototype and
profit-sharing plan programs sponsored by various organizations
eligible to be prototype plan sponsors.
The principal business of David L. Babson & Co., Inc. is to provide
investment counsel and advice to a wide variety of clients. It
supervises assets in excess of $3,000,000,000.
Item 29. PRINCIPAL UNDERWRITERS.
(a) Jones & Babson, Inc., the only principal underwriter of
the Registrant, also acts as principal underwriter for
the David L. Babson Growth Fund, Inc., Babson
Enterprise Fund, Inc., Babson Value Fund, Inc., D.L.
Babson Money Market Fund, Inc., D.L. Babson Tax-Free
Income Fund, Inc., D.L. Babson Bond Trust,
Babson-Stewart Ivory International Fund, Inc., UMB
Stock Fund, Inc., UMB Bond Fund, Inc., UMB Money Market
Fund, Inc., UMB Tax-Free Money Market Fund, Inc., UMB
Heartland Fund, Inc., and UMB WorldWide Fund, Inc.
(b) Herewith is the information required by the following
table with respect to each director, officer or
partner of the only underwriter named in answer to Item
21 of Part B:
Name and Principal Position and Offices Positions and Offices
_Business Address_ __with Underwriter__ ___with Registrant___
Stephen S. Soden Chairman and Director None
BMA Tower
One Penn Valley Park
Kansas City, MO 64141
Larry D. Armel President and Director President and
Three Crown Center Director
2440 Pershing Road
Kansas City, MO 64108
Giorgio Balzer Director None
BMA Tower
One Penn Valley Park
Kansas City, MO 64141
J. William Sayler Director None
BMA Tower
One Penn Valley Park
Kansas City, MO 64141
Edward S. Ritter Director None
BMA Tower
One Penn Valley Park
Kansas City, MO 64141
Robert N. Sawyer Director None
BMA Tower
One Penn Valley Park
Kansas City, MO 64141
Vernon W. Voorhees Director None
BMA Tower
One Penn Valley Park
Kansas City, MO 64141
P. Bradley Adam Vice President Vice President
Three Crown Center and Treasurer and Treasurer
2440 Pershing Road, G-15
Kanasas City, Missouri 64108
Michael A Brummel Vice President Vice President
Three Crown Center
2440 Pershing Road, G-15
Kanasas City, Missouri 64108
Ruth Evans Vice President Vice President
Three Crown Center
2440 Pershing Road, G-15
Kanasas City, Missouri 64108
Martin A. Cramer Vice President Vice President
Three Crown Center and Secretary and Secretary
2440 Pershing Road, G-15
Kanasas City, Missouri 64108
(c) The principal underwriter does not receive any remuneration or
compansation for the duties or services rendered to the
Registrant pursuant to the principal underwriting Agreement.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
Each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act and the Rules
(17 CFR 270.31a-1 to 31a-3) promulgated thereunder is in the
physical possession of Jones & Babson, Inc., at Three Crown
Center, 2440 Pershing Road, G-15, Kansas City, Missouri
64108.
Item 31. MANAGEMENT SERVICES.
All management services are covered in the management
agreement between the Registrant and Jones & Babson, Inc.,
which are discussed in Parts A and B.
Item 32. DISTRIBUTION EXPENSES.
Not applicable.
Item 33. UNDERTAKINGS.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this amendment to
its registration statement to be signed on its behalf by the undersigned,
thereunto authorized, in the City of Kansas City, and State of Missouri on the
26th day of October, 1995.
SHADOW STOCK FUND, INC.
(Registrant)
By Larry D. Armel
(Larry D. Armel, President)
Pursuant to the requirements of the Securities Act of 1933, this
Post-effective Amendment #12 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
Larry D. Armel President, Principal October 26, 1995
Larry D. Armel Executive Officer, and Director
H. David Rybolt Director October 26, 1995
H. David Rybolt*
William H. Russell Director October 26, 1995
William H. Russell*
Francis C. Rood Director October 26, 1995
Francis C. Rood*
P. Bradley Adams Treasurer and Principal October 26, 1995
P. Bradley Adams Financial and Accounting Officer
*Signed pursuant to Power of Attorney
By Larry D. Armel
Attorney-in Fact
REPRESENTATIONS OF COUNSEL
I assisted in the preparation of this Post Effective Amendment to the Fund's
Registration Statement filed under the Securities Act of 1933 and the
Amendment to the Fund's Registration Statement filed under the Investment
Company Act of 1940. Based on my review it is my opinion that this amendment
does not contain disclosures which would render it ineligible to become
effective pursuant to paragraph (b) of Rule 485 under the Securities Act of
1933.
John G. Dyer Attorney October 26, 1995
John G. Dyer
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated August 4, 1995, included in the Shadow
Stock Fund, Inc.'s Annual Report for the year ended June 30, 1995 (and all
references to our Firm) included in or made a part of this Post-effective
Amendment No. 12 to the Registration Statement File No. 2-79132 under the
Securities Act of 1933 and Amendment No. 14 to the Registration Statement
File No. 811-3558 under the Investment Company Act of 1940 on Form N-1A.
Arthur Andersen LLP
Kansas City, Missouri,
October 25, 1995
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