August 11, 1995
Securities and Exchange Commission
450 5th Street N.W.
Washington, D. C. 20549
RE: SHADOW STOCK FUND, INC.
Post-Effective Amendment No. 11 File No. 33-15074
Amendment No. 13 File No. 811-5218
Ladies and Gentlemen:
Attached hereto is Post-Effective Amendment No. 11 and Amendment No. 13
to the Registration Statements for SHADOW STOCK FUND, INC.
on Form N-1A for filing pursuant to paragraph (a) of rule 485.
The sole purpose of this amendment is to reflect a change in the ownership
of the Fund s investment advisor. On June 30, 1995, David L. Babson & Co.
Inc., the investment advisor, became a wholly-owned subsidiary of
Massachusetts Mutual Life Insurance Company headquartered in Springfield,
Massachusetts. There were no changes to the personnel of David L.
Babson & Co. Inc. and no changes in the investment policies or operations
of the Fund.
The only section of the prospectus affected by this change is the caption
Management and Investment Counsel. There are no other changes included
in this amendment.
It is requested that the effective date of this amendment be October 31, 1995
in order to make it effective concurrently with an additional amendment
which it is anticipated will be filed pursuant to paragraph (b) of
rule 485 on or after October 10, 1995 to supply updated financials for
the Fund.
Thank you very much for your consideration in this matter.
Sincerely,
JGD:com John G. Dyer
Enc. Attorney
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. 11 File No. 33-15074 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
Amendment No. 13 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 (a) of rule 485
Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933 pursuant to Rule
24f-2 of the Investment Company Act of 1940, and will file its
required Rule 24f-2 Notice for the Registrant's fiscal year ended
June 30, 1995, by August 30, 1995
Please address inquiries and 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
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 InvestmentInitial 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.
TABLE OF CONTENTS
Page
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 ___%
Total Fund operating expenses ____%
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 Year 3 Year 5 Year 10 Year
$__ $__ $__ $___
The above information is provided in order to assist you in
understanding the various costs and expenses that a 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
(To be supplied by further amendment)
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 out performed 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" on page 6.
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 $_____ __%
*Unusually 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, 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., Wienberger 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. No redemptions can occur until this is done.
INVESTMENTS SUBSEQUENT TO INITIAL INVESTMENT
You may add to your Fund account at any time in amounts of $100
or more if purchases are made by mail, or $1,000 or more if
purchases are made by wire or telephone. Automatic monthly
investments must be in amounts of $100 or more.
Checks should be mailed to the Fund at its address, but make them
payable to UMB Bank, n.a. Always identify your account number or
include the detachable reminder stub which accompanies each
confirmation.
Wire share purchases should include your account registration,
your account number and the Babson Fund 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,"
page 11.)
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 on this page.)
(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," page 11.)
The Fund will endeavor to transmit redemption proceeds to the
proper party, as instructed, as soon as practicable after a
redemption request has been received in "good order" and
accepted, but in no event later than the seventh day thereafter.
Transmissions are made by mail unless an expedited method has
been authorized and specified in the redemption request. The Fund
will not be responsible for the consequences of delays including
delays in the banking or Federal Reserve wire systems.
Redemptions will not become effective until all documents in the
form required have been received. In the case of redemption
requests made within 15 days of the date of purchase, the Fund
will delay transmission of proceeds until such time as it is
certain that unconditional payment in federal funds has been
collected for the purchase of shares being redeemed or 15 days
from the date of purchase. You can avoid the possibility of delay
by paying for all of your purchases with a transfer of federal
funds.
Signature Guarantees are required in connection with all
redemptions by mail, or changes in share registration, except as
hereinafter provided. These requirements may be waived by the
Fund in certain instances where it appears reasonable to do so
and will not unduly affect the interests of other shareholders.
Signature(s) must be guaranteed by an "eligible Guarantor
institution" as defined under Rule 17Ad-15 under the Securities
Exchange Act of 1934. Eligible guarantor institutions include:
(1) national or state banks, savings associations, savings and
loan associations, trust companies, savings banks, industrial
loan companies and credit unions; (2) national securities
exchanges, registered securities associations and clearing
agencies; or, (3) securities broker/dealers which are members of
a national securities exchange or clearing agency or which have a
minimum net capital of $100,000. A notarized signature will not
be sufficient for the request to be in proper form.
Signature guarantees will be waived for mail redemptions of
$10,000 or less, but they will be required if the checks are to
be payable to someone other than the registered owner(s), or are
to be mailed to an address different from the registered address
of the shareholder(s), or where there appears to be a pattern of
redemptions designed to circumvent the signature guarantee
requirement, or where the Fund has other reason to believe that
this requirement would be in the best interests of the Fund and
its shareholders.
The right of redemption may be suspended or the date of payment
postponed beyond the normal seven-day period when the New York
Stock Exchange is closed or under emergency circumstances as
determined by the Securities and Exchange Commission. Further,
the Fund reserves the right to redeem its shares in kind under
certain circumstances. If shares are redeemed in kind, the
shareholder may incur brokerage costs when converting into cash.
Additional details are set forth in the "Statement of
Additional Information."
Due to the high cost of maintaining smaller accounts, the Board
of Directors has authorized the Fund to close shareholder
accounts where their value falls below the current minimum
initial investment requirement at the time of initial purchase as
a result of redemptions and not as the result of market action,
and remains below this level for 60 days after each such
shareholder account is mailed a notice of: (1) the Fund's
intention to close the account, (2) the minimum account size
requirement, and (3) the date on which the account will be closed
if the minimum size requirement is not met.
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 SHARESBETWEEN 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 independent investment counseling firm founded in 1940. It
serves a broad variety of individual, corporate and other
institutional clients by maintaining an extensive research and
analytical staff. It has an experienced investment analysis and
research staff which eliminates the need for Jones & Babson, Inc.
and the Fund to maintain an extensive duplicate staff, with the
consequent increase in the cost of investment advisory service.
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 25 years
of investment management experience. Mr. Whitridge is a Chartered
Financial Analyst. He joined the Babson organization in 1974 and
has 29 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 _______ of one percent (____%) 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.
On June 30, 1995, David L. Babson & Co. Inc.,
the investment counsel, became a wholly-owned
subsidiary of Massachusetts Mutual Life
Insurance Company, a leading provider of
individual life insurance. annuities, employee
group life, health, pension and investment
services headquartered in Springfield,
Massachusetts. There were no changes to the
personnel of David L. Babson & Co. Inc. and no
changes in the investment policies or operations
of the Funds.
The current Management Agreement between the Fund and Jones &
Babson, Inc., which includes the Investment Counsel 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 provided that the
dividends are 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
AUDITORSARTHUR 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
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); (5) purchase securities of issuers
which the company is restricted from selling to
the public without registration under the
Securities Act of 1933, including Rule 144(a)
securities.
Certain States also require that the Fund's
investments in warrants 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 ____%
For the five years
7/1/90-6/30/95 ____%
From commencement
of operations to 6/30/95* ____%
________________________________________
* 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., UMB Stock Fund, Inc.,
UMB Bond Fund, Inc., UMB Money Market
Fund, Inc., UMB Tax-Free Money Market Fund,
Inc., UMB Heartland Fund, Inc., UMB
WorldWide Fund, Inc. and Buffalo Balanced
Fund, Inc.
HOW SHARE PURCHASES ARE HANDLED
Each order accepted will be fully invested in
whole and fractional shares, unless the purchase
of a certain number of whole shares is specified, at
the net asset value per share next effective after
the order is accepted by the Fund.
Each investment is confirmed by a year-to-date
statement which provides the details of the
immediate transaction, plus all prior transactions
in your account during the current year. This
includes the dollar amount invested, the number
of shares purchased or redeemed, 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
seven-day period by the Fund's Board of
Directors under the following conditions
authorized by the Investment Company Act of
1940: (1) for any period (a) during which the
New York Stock Exchange is closed, other than
customary weekend and holiday closing, or (b)
during which trading on the New York Stock
Exchange is restricted; (2) for any period during
which an emergency exists as a result of which (a)
disposal by the Fund of securities owned by it is
not reasonably 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, in addition to UMB Money Market Fund,
Inc. and UMB Tax-Free Money Market Fund, Inc.
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 $354,017.
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 $______.
During the most recent fiscal year ended June 30,
____, Jones & Babson, Inc. paid Analytic
Systems, Inc. fees amounting to $______.
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., UMB Stock Fund, Inc.
UMB Bond Fund, Inc., UMB Money Market
Fund, Inc., UMB Tax-Free Money Market
Fund, Inc., UMB Heartland Fund, Inc., UMB
WorldWide Fund, Inc., Buffalo Balanced Fund,
Inc.; 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.; 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.; Trustee, D. L. Babson Bond
Trust.
H. David Rybolt, Director.
Consultant, HDR Associates, P.O. Box 2468,
Shawnee Mission, Kansas 66202; Director, David
L. Babson Growth Fund, Inc., D.L. Babson
Money Market Fund, Inc., 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.; 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,
UMB Stock Fund, Inc., UMB Bond Fund, Inc.,
UMB Money Market Fund, Inc., UMB Tax-Free
Money Market Fund, Inc., UMB Heartland Fund,
Inc., UMB WorldWide Fund, Inc., Buffalo
Balanced Fund, Inc.
Michael A. Brummel, Vice President, Assistant
Secretary and Assistant Treasurer.
Vice President, Jones & Babson, Inc., David L.
Babson Growth Fund, Inc., D.L. Babson Money
Market Fund, Inc., 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, UMB Stock Fund, Inc.,
UMB Bond Fund, Inc., UMB Money Market
Fund, Inc., UMB Tax-Free Money Market Fund,
Inc., UMB Heartland Fund, Inc., UMB
WorldWide Fund, Inc., Buffalo Balanced Fund,
Inc.
________________________________________
* Directors who are interested persons as that
term is defined in the Investment Company
Act of 1940, as amended.
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,
UMB Stock Fund, Inc., UMB Bond Fund, Inc.,
UMB Money Market Fund, Inc., UMB Tax-Free
Money Market Fund, Inc., UMB Heartland Fund,
Inc., UMB WorldWide Fund, Inc., Buffalo
Balanced Fund, Inc.
Ruth Evans, Vice President.
Vice President, Jones & Babson, Inc., David L.
Babson Growth Fund, Inc., D.L. Babson Money
Market Fund, Inc., 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, UMB Stock Fund, Inc.,
UMB Bond Fund, Inc., UMB Money Market
Fund, Inc., UMB Tax-Free Money Market Fund,
Inc., UMB Heartland Fund, Inc., UMB
WorldWide Fund, Inc., Buffalo Balanced Fund,
Inc.
Peter C. Schliemann, Vice President - Portfolio.
Senior Vice President and Director, David L.
Babson & Co. Inc., One Memorial Drive,
Cambridge, Massachussetts 02142; Vice
President-Portfolio, Babson Enterprise Fund, Inc.,
Babson Enterprise Fund II, Inc.
Roland W. Whitridge, Vice President -
Portfolio.
Vice President and Director, David L. Babson &
Co. Inc., One Memorial Drive, Cambridge,
Massachussetts 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.
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.
A prospectus for any of the Funds may be
obtained from Jones & Babson, Inc., Three Crown
Center, 2440 Pershing Road, Suite G-15, Kansas
City, Missouri 64108.
Jones & Babson, Inc. also sponsors and
manages six mutual funds which especially seek
to provide services to customers of affiliate banks
of UMB Financial Corporation. They are UMB
Stock Fund, Inc., UMB Bond Fund, Inc., UMB
Money Market Fund, Inc., UMB Tax-Free Money
Market Fund, Inc., UMB Heartland Fund, Inc.
and UMB WorldWide Fund, Inc.
Jones & Babson also sponsors and manages the
Buffalo Balanced Fund, Inc.
FINANCIAL STATEMENTS
(To be supplied by further amendment)
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
Herewith are all financial statements and exhibits filed as
a part of this registration statement:
(a) Financial Statements:
(to be supplied by further amendment)
(b) *(1) Registrant s Articles of Incorporation.
*(2) Registrant s Bylaws.
(3) Not applicable, because there is no voting
trust agreement.
*(4) Specimen copy of each security to be issued by
the registrant.
*(5) (a) Form of Management Agreement between
Jones & Babson, Inc. and the Registrant.
(b) Form of Investment Counsel Agreement
between Jones & Babson, Inc. and David L.
Babson & Co. Inc.
(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.
(To be supplied by further amendment)
(12) Not applicable.
*(13) Letter from contributors of initial capital to
the Registrant that purchase was made for
investment purposes without any present
intention of redeeming or selling.
*(14) 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 July 31, 1995, is as follows:
(1) (2)
Title of class Number of Record Holders
Common Stock $1.00 par value 2,919
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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused
this amendment to its registration statement to be signed on its
behalf by the undersigned, thereunto authorized, in the City of
Kansas City, and State of Missouri on the 11th day of August, 1995.
SHADOW STOCK FUND, INC.
(Registrant)
By Larry D. Armel. President
(Larry D. Armel, President)
Pursuant to the requirements of the Securities Act of 1933,
this Post-effective Amendment #11 to the Registration Statement
has been signed below by the following persons in the capacities
and on the date indicated.
Larry D. Armel President, Principal August 11, 1995
Larry D. Armel Executive Officer,
and Director
H. David Rybolt Director August 11, 1995
H. David Rybolt*
William H. Russell Director August 11, 1995
William H. Russell*
Francis C. Rood Director August 11, 1995
Francis C. Rood*
P. Bradley Adams Treasurer and Principal August 11, 1995
P. Bradley Adams Financial and Accounting
Officer
*Signed pursuant to Power of Attorney
By _________________________________
Attorney-in Fact
