SHADOW STOCK FUND INC, 497J, 1996-11-06

SHADOW STOCK FUND INC
497J, 1996-11-06

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SHADOW
STOCK
FUND

Prospectus
October 31, 1996

A no-load mutual fund designed to achieve
long-term growth for capital that can be
exposed to above-average risk in anticipation
of greater-than-average rewards. The Fund
expects to reach its objective by investing in
small company stocks called "Shadow Stocks."

JONES & BABSON
MUTUAL FUNDS

PROSPECTUS
October 31, 1996

SHADOW STOCK
FUND, INC.

Managed and Distributed By:
JONES & BABSON, INC.
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 Port-folio Management Policy" on page 4 of this
prospectus.) The Fund is intended to be an investment vehicle for that portion
of an investor's portfolio that can be exposed to above-average risk in
anticipation of greater rewards. There is no guarantee that the Fund's
objective will be achieved. (For a discussion of risk factors see page 5 of
this prospectus.)

PURCHASE INFORMATION
Minimum Investment

Initial Purchase $ 2,500
Initial IRA and Uniform Transfers (Gifts)
to Minors Purchases $ 250
Subsequent Purchase:
By Mail or Telephone Purchase (ACH) $ 100
By Wire $ 1,000
All Automatic Monthly Purchases $ 50

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 8
Systematic Redemption Plan 10
How to Exchange Shares Between Funds 11
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 14
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 .14%
Total Fund operating expenses 1.14%
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and
(2) redemption at the end of each time period:
1 Year 3 Year 5 Year 10 Year
$12 $36 $63 $139

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, 1996. The example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.

FINANCIAL HIGHLIGHTS

The following financial highlights for the eight fiscal years ended June 30,
1996, and the period from inception (August 28, 1987) to June 30, 1988, have
been derived from audited financial statements of Shadow Stock Fund, Inc. Such
information should be read in conjunction with the financial statements of the
Fund and the report of Arthur Andersen LLP, independent public accountants,
appearing in the June 30, 1996, Annual Report to Shareholders which is
incorporated by reference in this prospectus. The information for the periods
ended June 30, 1991, and prior is not covered by the report of Arthur Andersen
LLP.

<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.55 $ 9.67 $11.66 $10.32 $ 8.96 $ 9.01 $ 9.34 $ 8.69 $10.00
Income from investment operations:
Net investment income 0.09 0.10 0.06 0.12 0.09 0.10 0.14 0.12 0.10
Net gains or losses on securities
(both realized and unrealized) 1.67 1.42 0.46 1.87 1.36 (0.05) (0.29) 0.99 (1.33)
Total from investment operations 1.76 1.52 0.52 1.99 1.45 0.05 (0.15) 1.11 (1.23)
Less distributions:
Dividends from net
investment income (0.10) (0.10) (0.06) (0.11) (0.09) (0.10) (0.14) (0.13) (0.08)
Distributions from capital gains (0.90) (0.54) (2.45) (0.54) - - (0.04) (0.33) -
Total distributions (1.00) (0.64) (2.51) (0.65) (0.09) (0.10) (0.18) (0.46) (0.08)
Net asset value, end of year $11.31 $10.55 $ 9.67 $11.66 $10.32 $ 8.96 $ 9.01 $ 9.34 $ 8.69
Total return 17% 16% 4% 19% 16% 1% (2)% 13% (13)%

Ratios/Supplemental Data
Net assets, end of year (in millions) $ 39 $ 39 $ 31 $ 33 $ 26 $ 22 $ 25 $ 26 $ 16
Ratio of expenses to average net assets 1.14% 1.13% 1.28% 1.25% 1.26% 1.31% 1.29% 1.33% 1.51%*
Ratio of net investment income to average
net assets 0.79% 1.01% 0.50% 1.05% 0.87% 1.20% 1.49% 1.39% 1.57%*
Portfolio turnover rate 25% 19% 43% 15% 23% 0% 16% 15% 7%*

<FN>
<F1>*Ratios for this initial period of operations are annualized.
</FN>
</TABLE>

INVESTMENT OBJECTIVE AND
PORTFOLIO MANAGEMENT POLICY

Shadow Stock Fund is a no-load diversified mutual fund that seeks long-term
growth of capital income by investing in small company stocks called "Shadow
Stocks." These are stocks that combine the characteristics of "small stocks"
(as ranked by market capitalization in addition to other factors) and
"neglected stocks" (generally those least held by institutions and least
covered by analysts). In the opinion of the Manager and Investment Counsel,
historical research demonstrates that in the past such stocks have
outperformed the shares of the larger, better known companies. However, there
is no guarantee that this pattern will continue in the future. The Fund's
investment objective and policy as described in this section will not be
changed without approval of a majority of the Fund's outstanding shares.

"Small stocks" were originally defined in the earliest research on the topic
by Rolf Banz as those in the bottom quintile of stocks listed on the New York
Stock Exchange when ranked by market capitalization (number of shares
outstanding times price per share). At present this would be a market
capitalization of below $193 million, but this level changes as market prices
rise and fall. Currently this concept is also applied to AMEX and OTC stocks.
Research done on "small stocks" almost invariably addressed itself not only to
capitalization, but to profitable companies that have been in existence long
enough to qualify for listing on the NYSE. The Fund defines "small stocks" to
include stocks listed on the NYSE and AMEX and OTC traded stocks that have
market capitalization of between $20 million and $110 million and have annual
net profits of at least $1 million for the three most recent fiscal years.

"Neglected stocks" are those that have below average institutional holdings
and below average coverage by analysts and newsletters. The term "neglected"
has not had a consistent definition, but the Fund's Manager and Investment
Counsel define it as meaning the fifty percent of small stocks (as described
in the preceding paragraph) which have the least coverage by institutions and
analysts. The Fund's Manager and Investment Counsel will use their judgment in
determining the methods of measuring analyst and institutional interest. It is
estimated that Shadow Stock Fund's portfolio will contain about 400 stocks and
thus will be very diversified.

Of the Shadow Stocks available for inclusion in the Fund's portfolio, the Fund
will eliminate stocks from consideration, or sell all or part of those Shadow
Stocks it owns, if in the judgment of the Manager and Investment Counsel the
financial condition of the company is in jeopardy, if liquidity is
insufficient, or if total acquisition costs become unreasonably high. Because
it is believed that acquisition costs for extremely low-priced stocks are
frequently unreasonably high, stocks will not be placed on the buy list if
their prices are below $5.

It is the intention of the Fund to maintain ownership of the Shadow Stocks
approximately in proportion to their respective market capitalizations, but
this general approach may be departed from for the following reasons. First,
acquisition of the shares of smaller companies is sometimes difficult without
disrupting the supply/demand relationship and thereby increasing transaction
costs. For this reason, shares of companies on the buy list may be purchased
when opportunities for block trades present themselves even if purchase of
such a company's stock would not otherwise be the highest priority on a market
capitalization basis. Conversely, high priority shares might be avoided if
they cannot be acquired at the time without disrupting the market. Second, the
Fund will attempt to purchase shares in optimal lot sizes which precludes fine
tuning of the weighting. Third, the Fund's Manager and Investment Counsel will
take a long-term view and do not feel it prudent to constantly purchase and
sell stocks for short-term balancing. Guideline relative weights will be
reviewed in detail twice a year.

Shares of stock will be considered for elimination from the portfolio on the
following bases: (1) on the basis of the $5 minimum price criterion (a stock
will not be sold for this reason alone, but additional shares will not be
purchased below $4 per share which may result in a disproportionate
representation in terms of ideal weighting); (2) on the basis of profitability
(a company's stock will be sold as soon as the Fund's Manager and Investment
Counsel feel it is highly likely that there will be negative earnings in the
current fiscal year); (3) on the basis of tenders or potential mergers (the
Fund's Manager and Investment Counsel will use their judgment as to the best
time to sell or tender); (4) on the basis of neglect (shares will be sold when
the company has been beyond the Manager's and Investment Counsel's criteria
for a neglected stock for three successive semiannual evaluation periods); or
(5) on the basis of capitalization a stock will be sold if, at a semiannual
evaluation, either the market capitalization is twice
the current acceptable maximum or one-half the current minimum. In the case of
portfolio companies whose capitalization has gone beyond the current maximum
or minimum, the Fund's Investment Counsel may keep the portfolio weighting at
the level appropriate for the current maximum or minimum. If funds beyond
current liquid assets are necessary to meet redemptions, stocks not meeting
current initial criteria will be liquidated first.

Because of the long-term approach taken, it is expected that in the absence of
unusual circumstances, the annual turnover ratio of the Fund will be less than
20%.

While the objectives of the Fund would favor a fully invested position in
Shadow Stocks, the practicality of Fund management requires liquidity. An
average of about 5% of the Fund's assets may be invested in cash or cash
equivalents including: securities that are issued or guaranteed as to
principal and interest by the U.S. government, its agencies, authorities or
instrumentalities (such as U.S. Treasury obligations, which differ only in
their interest rates, maturities and times of issuance, and obligations issued
or guaranteed by U.S. government agencies or instrumentalities which are
backed by the full faith and credit of the U.S. Treasury or which are
supported by the right of the issuer to borrow from the U.S. government),
repurchase agreements, certificates of deposit, time deposits, commercial
paper and other high quality short-term debt securities.

If in the judgment of the Manager and Investment Counsel extremely abnormal
conditions persist in the markets for Shadow Stocks, management retains the
authority to adopt a temporary defensive posture by investing the Fund's
assets in debt securities, such as money market obligations, including
securities of the U.S. government and its agencies, high-quality commercial
paper, bankers' acceptances and repurchase agreements with banks and brokers
for U.S. government securities. The use of repurchase agreements by the Fund
involves certain risks. For a discussion of these risks, see "Risk Factors
Applicable to Repurchase Agreements."

For the three years ended June 30, 1996, 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
1994 $ 75,235 43%*
1995 $ 32,370 19%
1996 $ 46,313 25%
*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, Morningstar Mutual Funds, Investor's Business Daily,
Institutional Investor, The Wall Street Journal, Mutual Fund Forecaster,
No-Load Investor, Money, Forbes, Fortune and Barron's may also be used in
comparing performance of the Fund. Performance comparisons should not be
considered as representative of the future performance of any Fund. Further
information regarding the performance of the Fund is contained in the
"Statement of Additional Information."
Performance rankings, recommendations, published editorial comments and
listings reported in Money, Barron's, Kiplinger's Personal Finance Magazine,
Financial World, Forbes, U.S. News & World Report, Business Week, The Wall
Street Journal, Investors Business Daily, USA Today, Fortune and Stanger's,
may also be cited (if the Fund is listed in any such publication) or used for
comparison, as well as performance listings and rankings from Morningstar
Mutual Funds, Personal Finance, Income and Safety, The Mutual Fund Letter, No-
Load Fund Investor, United Mutual Fund Selector, No-Load Fund Analyst, No-Load
Fund X, Louis Rukeyser's Wall Street newsletter, Donoghue's Money Letter, CDA
Investment Technologies, Inc., Wiesenberger Investment Companies Service, and
Donoghue's Mutual Fund Almanac.

HOW TO PURCHASE SHARES

Shares are purchased at net asset value (no sales charge) from the Fund
through its agent, Jones & Babson, Inc., 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.
2440 Pershing Road, Suite G-15
Kansas City, Missouri 64108

Initial investments - By wire. You may purchase shares of the Fund by wiring
funds ($2,500 minimum) through the Federal Reserve Bank to the custodian, UMB
Bank, n.a. Prior to sending your money, you must call the Fund toll free 1-
800-4-BABSON (1-800-422-2766), or in the Kansas City area 471-5200 and provide
it with the identity of the registered account owner, the registered address,
the Social Security or Taxpayer Identification Number of the registered owner,
the amount being wired, the name and telephone number of the wiring bank and
the person to be contacted in connection with the order. You will then be
provided a Fund account number, after which you should instruct your bank to
wire the specified amount, along with the account number and the account
registration to:

UMB Bank, n.a.
Kansas City, Missouri, ABA #101000695
For Shadow Stock Fund, Inc./AC=987032-6221
OBI=(assigned Fund number and name in which registered.)

A completed application must be sent to the Fund as soon as possible so the
necessary remaining information can be recorded in your account. Payment of
redemption proceeds will be delayed until the completed application is
received by the Fund.

INVESTMENTS SUBSEQUENT
TO INITIAL INVESTMENT

You may add to your Fund account at any time in amounts of $100 or more if
purchases are made by mail or telephone purchase (ACH), or $1,000 or more if
purchases are made by wire. Automatic monthly investments must be in amounts
of $50 or more.

Checks should be mailed to the Fund at its address, and make them payable to
UMB Bank, n.a. Always identify your account number or include the detachable
reminder stub which accompanies each confirmation.

Wire share purchases should include your account registration, your account
number and the Babson Fund in which you are purchasing shares. It also is
advisable to notify the Fund by telephone that you have sent a wire purchase
order to the bank.

TELEPHONE INVESTMENT SERVICE

To use the Telephone Investment Service, you must first establish your Fund
account and authorize telephone orders in the application form, or,
subsequently, on a special authorization form provided upon request. If you
elect the Telephone Investment Service, you may purchase Fund shares by
telephone and authorize the Fund to draft your checking account ($100 minimum)
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 ($50 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.

HOW TO REDEEM SHARES

The Fund will redeem shares at the price (net asset value per share) effective
after receipt of a redemption request in "good order." (See "How Share Price
is Determined"). Shares can be redeemed by written request or if previously
authorized by telephone toll free 1-800-4-BABSON (1-800-422-2766), or in the
Kansas City area 471-5200.

All telephone requests to redeem shares, the proceeds of which are to be paid
by check, made within 30 days of our receipt of an address change (including
requests to redeem that accompany an address change) must be in writing. The
request must be signed by each person in whose name the shares are owned, and
all signatures must be guaranteed.

In each instance you must comply with the general requirements relating to all
redemptions as well as with specific requirements set out for the particular
redemption method you select. If you wish to expedite redemptions by using the
telephone/telegraph privilege, you should carefully note the special
requirements and limitations relating to these methods. 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.

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 2440 Pershing Road, Suite G-15, Kansas
City, Missouri 64108. The Fund will redeem shares at the price (net asset
value per share) next computed after receipt of a redemption request in "good
order." (See "How Share Price is Determined.")

The Fund will endeavor to transmit redemption proceeds to the proper party, as
instructed, as soon as practicable after a redemption request has been
received in "good order" and accepted, but in no event later than the third
business day thereafter. Transmissions are made by mail unless an expedited
method has been authorized and specified in the redemption request. The Fund
will not be responsible for the consequences of delays including delays in the
banking or Federal Reserve wire systems.

Redemptions will not become effective until all documents in the form required
have been received. In the case of redemption requests made within 15 days of
the date of purchase, the Fund will delay transmission of proceeds until such
time as it is certain that unconditional payment in federal funds has been
collected for the purchase of shares being redeemed or 15 days from the date
of purchase. You can avoid the possibility of delay by paying for all of your
purchases with a transfer of federal funds.

Signature Guarantees are required in connection with all redemptions of
$50,000 or more by mail, or changes in share registration, except as
hereinafter provided. These requirements may be waived by the Fund in certain
instances where it appears reasonable to do so and will not unduly affect the
interests of other shareholders. Signature(s) must be guaranteed by an
"eligible Guarantor institution" as defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934. Eligible guarantor institutions include: (1)
national or state banks, savings associations, savings and loan associations,
trust companies, savings banks, industrial loan companies and credit unions;
(2) national securities exchanges, registered securities associations and
clearing agencies; or, (3) securities broker/dealers which are members of a
national securities exchange or clearing agency or which have a minimum net
capital of $100,000. A notarized signature will not be sufficient for the
request to be in proper form.

Signature guarantees will be waived for mail redemptions of $50,000 or less,
but they will be required if the checks are to be payable to someone other
than the registered owner(s), or are to be mailed to an address different from
the registered address of the shareholder(s), or where there appears to be a
pattern of redemptions designed to circumvent the signature guarantee
requirement, or where the Fund has other reason to believe that this
requirement would be in the best interests of the Fund and its shareholders.

The right of redemption may be suspended or the date of payment postponed
beyond the normal three-day period when the New York Stock Exchange is closed
or under emergency circumstances as determined by the Securities and Exchange
Commission. Further, the Fund reserves the right to redeem its shares in kind
under certain circumstances. If shares are redeemed in kind, the shareholder
may incur brokerage costs when converting into cash. Additional details are
set forth in the "Statement of Additional Information."

Due to the high cost of maintaining smaller accounts, the Board of Directors
has authorized the Fund to close shareholder accounts where their value falls
below the current minimum initial investment requirement at the time of
initial purchase as a result of redemptions and not as the result of market
action, and remains below this level for 60 days after each such shareholder
account is mailed a notice of: (1) the Fund's intention to close the account,
(2) the minimum account size requirement, and (3) the date on which the
account will be closed if the minimum size requirement is not met. Since the
minimum investment amount and the minimum account size are the same, any
redemption from an account containing only the minimum investment amount may
result in redemption of that account.

Withdrawal By Mail - Shares may be redeemed by mailing your request to the
Fund. To be in "good order" the request must include the following:

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.

(1) A written redemption request or stock assignment (stock power)
containing the genuine signature of each registered owner exactly as the
shares are registered, with clear identification of the account by registered
name(s) and account number and the number of shares or the dollar amount to be
redeemed;

(2) any outstanding stock certificates representing shares to be redeemed;

(3) signature guarantees as required (see Signature Guarantees); and

(4) any additional documentation which the Fund may deem necessary to insure
a genuine redemption.

Withdrawal By Telephone or Telegraph - You may withdraw any amount ($1,000
minimum if wired) or more by telephone toll free 1-800-4-BABSON (1-800-422-
2766), or in the Kansas City area 471-5200, or by telegram to the Fund's
address. Telephone/telegraph redemption authorization signed by all registered
owners with signatures guaranteed must be on file with the Fund before you may
redeem by telephone or telegraph. Funds will be sent only to the address of
record. The signature guarantee requirement may be waived by the Fund if the
request for this redemption method is made at the same time the initial
application to purchase shares is submitted.

All communications must include the Fund's name, your account number, the
exact registration of your shares, the number of shares or dollar amount to be
redeemed, and the identity of the bank and bank account (name and number) to
which the proceeds are to be wired. This procedure may only be used for non-
certificated shares held in open account. For the protection of shareholders,
your redemption instructions can only be changed by filing with the Fund new
instructions on a form obtainable from the Fund which must be properly signed
with signature(s) guaranteed.

Telephone or telegraph redemption proceeds may be transmitted to your pre-
identified bank account Requests received prior to 4:00 P.M. (Eastern Time),
normally will be wired the following business day. Once the funds are
transmitted, the time of receipt and the funds' availability are not under our
control. If your request is received during the day thereafter, proceeds
normally will be wired on the second business day following the day of receipt
of your request. Wired funds are subject to a $10 fee to cover bank wire
charges, which is deducted from redemption proceeds, but this charge may be
reduced or waived in connection with certain accounts. The Fund reserves the
right to change this policy or to refuse a telephone or telegraph redemption
request or require additional documentation to assure a genuine redemption,
and, at its option, may pay such redemption by wire or check and may limit the
frequency or the amount of such request. The Fund reserves the right to
terminate or modify any or all of the services in connection with this
privilege at any time without prior notice. Neither the Fund nor Jones &
Babson, Inc. assumes responsibility for the authenticity of withdrawal
instructions, and there are provisions on the authorization form limiting
their liability in this respect.

Further, the Fund reserves the right to redeem its shares in kind under
certain circumstances. The Fund has elected to be governed by Rule 18f-1 under
the Investment Company Act of 1940 pursuant to which the Fund is obligated to
redeem shares solely in cash up to the lesser of $250,000 or 1% of the Fund's
net asset value during any 90-day period for any one shareholder. Should
redemptions by any shareholder exceed such limitation, the Fund may redeem the
excess in kind. If shares are redeemed in kind, the redeeming shareholder may
incur brokerage costs when converting the assets into cash. The method of
valuing securities used to make redemptions in kind will be the same as the
method of valuing portfolio securities described under "How Share Price is
Determined" in the prospectus, and such valuation will be made as of the same
time the redemption price is determined. Additional details are set forth in
the "Statement of Additional Information."

SYSTEMATIC REDEMPTION PLAN

If you own shares in an open account valued at $10,000 or more, and desire to
make regular monthly or quarterly withdrawals without the necessity and
inconvenience of executing a separate redemption request to initiate each
withdrawal, you may enter into a Systematic Withdrawal Plan by completing
forms obtainable from the Fund. For this service, the manager may charge you a
fee not to exceed $1.50 for each withdrawal. Currently the manager assumes the
additional expenses arising out of this type of plan, but it reserves the
right to initiate such a charge at any time in the future when it deems it
necessary. If such a charge is imposed, participants will be provided 30 days
notice.

Subject to a $50 minimum, you may withdraw each period a specified dollar
amount. Shares also may be redeemed at a rate calculated to exhaust the
account at the end of a specified period of time.

Dividends and capital gains distributions must be reinvested in additional
shares. Under all withdrawal programs, liquidation of shares in excess of
dividends and distributions reinvested will diminish and may exhaust your
account, particularly during a period of declining share values.

You may revoke or change your plan or redeem all of your remaining shares at
any time. Withdrawal payments will continue until the shares are exhausted or
until the Fund or you terminate the plan by written notice to the other.

HOW TO EXCHANGE SHARES BETWEEN FUNDS

Shareholders may exchange their Fund shares, which have been held in open
account for 15 days or more, and for which good payment has been received, for
identically registered shares of any other Fund in the Babson or Buffalo 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 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 or Buffalo Fund Group, you should
review the prospectus of the Fund to be purchased, which can be obtained from
Jones & Babson, Inc. Any such exchange will be based on the respective net
asset values of the shares involved. Any exchange between Funds involves the
sale of an asset. Unless the shareholder account is tax-deferred, this is a
taxable event.

HOW SHARE PRICE IS DETERMINED

In order to determine the price at which new shares will be sold and at which
issued shares presented for redemption will be liquidated, the net asset value
per share is computed once daily, Monday through Friday, at the specific time
during the day that the Board of Directors sets at least annually, except on
days on which changes in the value of portfolio securities will not materially
affect the net asset value, or days during which no security is tendered for
redemption and no order to purchase or sell such security is received by the
Fund, or customary holidays. For a list of the holidays during which the Fund
is not open for business, see "How Share Price is Determined" in the
"Statement of Additional Information."

The price at which new shares of the Fund will be sold and at which issued
shares presented for redemption will be liquidated is computed once daily at
4:00 P.M. (Eastern Time), except on those days when the Fund is not open for
business.

The per share calculation is made by subtracting from the Fund's total assets
any liabilities and then dividing into this amount the total outstanding
shares as of the date of the calculation.

Each security listed on an Exchange is valued at its last sale price on that
Exchange on the date as of which assets are valued. Where the security is
listed on more than one Exchange, the Fund will use the price of that Exchange
which it generally considers to be the principal Exchange on which the stock
is traded. Lacking sales, the security is valued at the mean between the
current closing bid and asked prices. An unlisted security for which over-the-
counter market quotations are readily available is valued at the mean between
the last current bid and asked prices. When market quotations are not readily
available, any security or other asset is valued at its fair value as
determined in good faith by the Board of Directors.

OFFICERS AND DIRECTORS

The officers of the Fund manage its day-to-day operations. The Fund's manager
and its officers are subject to the supervision and control of the Board of
Directors. A list of the officers and directors of the Fund and a brief
statement of their present positions and principal occupations during the past
five years is set forth in the "Statement of Additional Information."

MANAGEMENT AND INVESTMENT COUNSEL

Jones & Babson, Inc. was founded in 1960. It organized the Fund in 1987, and
acts as its manager and principal underwriter. Pursuant to the current
Management Agreement, Jones & Babson, Inc. provides or pays the cost of all
management, supervisory and administrative services required in the normal
operation of the Fund. This includes investment management and supervision;
fees of the independent public accountants and legal counsel; remuneration of
officers, directors and other personnel; rent; shareholder services, including
the maintenance of the shareholder accounting system and transfer agency; and
such other items as are incidental to corporate administration.

Not considered normal operating expenses, and therefore payable by the Fund,
are fees for pricing services, custodian fees, taxes, interest, governmental
charges and fees, including registration of the Fund and its shares with the
Securities and Exchange Commission and the Securities Departments of the
various States, brokerage costs, dues, and all extraordinary costs and
expenses including but not limited to legal and accounting fees incurred in
anticipation of or arising out of litigation or administrative proceedings to
which the Fund, its officers or directors may be subject or a party thereto.

As a part of the Management Agreement, Jones & Babson, Inc. employs at its own
expense David L. Babson & Co. Inc. and Analytic Systems, Inc. as its
investment counsels to assist in the investment advisory function. David L.
Babson & Co. Inc. is an investment counseling firm founded in 1940. It serves
a broad variety of individual, corporate and other institutional clients by
maintaining an extensive research and analytical staff. It has an experienced
investment analysis and research staff which eliminates the need for Jones &
Babson, Inc. and the Fund to maintain an extensive duplicate staff, with the
consequent increase in the cost of investment advisory service. Analytic
Systems, Inc. and James B. Cloonan, its principal owner, developed the concept
of Shadow Stocks, will continually adapt the concept to current market
conditions, and will carry out research relative to future investment
applications. The costs of the services of David L. Babson & Co. Inc. and
Analytic Systems, Inc. are included in the fee of Jones & Babson, Inc. The
Management Agreement limits the liability of the manager and its investment
counsels, as well as their officers, directors and personnel, to acts or
omissions involving willful malfeasance, bad faith, gross negligence, or
reckless disregard of their duties. Peter C. Schliemann and Roland W.
Whitridge have been the co-managers of Shadow Stock Fund since its inception
in 1987. Mr. Schliemann joined David L. Babson & Co. in 1979, and has 27 years
of investment management experience. Mr. Whitridge is a Chartered Financial
Analyst. He joined the Babson organization in 1974, and has over 30 years
investment management experience.

As compensation for the services provided by Jones & Babson, the Fund pays
Jones & Babson, Inc. a fee at the annual rate of one percent (1%) of its
average daily net assets.

The annual fee charged by Jones & Babson, Inc. is higher than the fees of most
other investment advisers whose charges cover only investment advisory
services with all remaining operational expenses absorbed directly by the
Fund. Yet, it compares favorably with these other advisers when all expenses
to Fund shareholders are taken into account. The fee, from which Jones &
Babson, Inc. pays David L. Babson & Co. Inc. a fee of 1/4 of one percent
(.25%) of average daily total net assets, and Analytic Systems, Inc. a fee of
1/5 of one percent (.20%) of average daily total net assets, is computed daily
and paid semimonthly. The total expenses of the Fund for the fiscal year ended
June 30, 1996, amounted to 114/100 of one percent (1.14%) of the average net
assets.

Certain officers and directors of the Fund are also officers or directors or
both of other Babson Funds, Jones & Babson, Inc., David L. Babson & Co. Inc.
or Analytic Systems, Inc.

Jones & Babson, Inc. is a wholly-owned subsidiary of Business Men's Assurance
Company of America which is considered to be a controlling person under the
Investment Company Act of 1940. Assicurazioni Generali S.p.A., an insurance
organization founded in 1831 based in Trieste, Italy, is considered to be a
controlling person and is the ultimate parent of Business Men's Assurance
Company of America. Mediobanca is a 5% owner of Generali.

David L. Babson & Co. Inc. is a wholly-owned subsidiary of Massachusetts
Mutual Life Insurance Company headquartered in Springfield, Massachusetts.
Massachusetts Mutual Life Insurance Company is an insurance organization
founded in 1851 and is considered to be a controlling person of David L.
Babson & Co. Inc., under the Investment Company Act of 1940.

Analytic Systems, Inc. is a closely held corporation and has limitations in
the ownership of its stock designed to maintain control in those who are
active in management.

The current Management Agreement between the Fund and Jones & Babson, Inc.,
which includes the Investment Counsel Agreements between Jones & Babson, Inc.
and David L. Babson & Co. Inc., and between Jones & Babson, Inc. and Analytic
Systems, Inc., will continue in effect until October 31, 1997, and will
continue automatically for successive annual periods ending each October 31 so
long as such continuance is specifically approved at least annually by the
Board of Directors of the Fund or by the vote of a majority of the outstanding
voting securities of the Fund, and, provided also that such continuance is
approved by the vote of a majority of the directors who are not parties to the
Agreements or interested persons of any such party at a meeting held in person
and called specifically for the purpose of evaluating and voting on such
approval. Each Agreement provides that either party may terminate by giving
the other 60 days written notice. The Agreements terminate automatically if
assigned by either party.

GENERAL INFORMATION AND HISTORY

The Fund, incorporated in Maryland on June 3, 1987, and has a present
authorized capitalization of 10,000,000 shares of $1 par value common stock.
All shares are of the same class with like rights and privileges. Each full
and fractional share, when issued and outstanding, has: (1) equal voting
rights with respect to matters which affect the Fund, and (2) equal dividend,
distribution and redemption rights to the assets of the Fund. Shares when
issued are fully paid and non-assessable. The Fund may create other series of
stock but will not issue any senior securities. Shareholders do not have pre-
emptive or conversion rights.

Non-cumulative voting - These shares have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election
of directors can elect 100% of the directors, if they choose to do so, and in
such event, the holders of the remaining less than 50% of the shares voting
will not be able to elect any directors.

The Maryland Statutes permit registered investment companies, such as the
Fund, to operate without an annual meeting of shareholders under specified
circumstances if an annual meeting is not required by the Investment Company
Act of 1940. There are procedures whereby the shareholders may remove
directors. These procedures are described in the "Statement of Additional
Information" under the caption "Officers and Directors." The Fund has adopted
the appropriate provisions in its By-Laws and may not, at its discretion, hold
annual meetings of shareholders for the following purposes unless required to
do so: (1) election of directors; (2) approval of any investment advisory
agreement; (3) ratification of the selection of independent public
accountants; and (4) approval of a distribution plan. As a result, the Fund
does not intend to hold annual meetings.

The Fund has an exclusive and perpetual license to use the name "Shadow Stock"
in its name so long as Analytic Systems, Inc. or an affiliate thereof or of
James B. Cloonan, acts as its investment counsel. Complete details with
respect to the use of the name are set out in the Management Agreement between
the Fund and Jones & Babson, Inc.

This prospectus omits certain of the information contained in the registration
statement filed with the Securities and Exchange Commission, Washington, D.C.
These items may be inspected at the offices of the Commission or obtained from
the Commission upon payment of the fee prescribed.

DIVIDENDS, DISTRIBUTIONS AND THEIR TAXATION

The Fund pays dividends from net investment income, usually in June. Any
capital gains realized during a fiscal year will be distributed with the
fiscal year-end dividend in June. Dividend and capital gains distributions
will be reinvested automatically in additional shares at the net asset value
per share next computed and effective at the close of business on the day
after the record date, unless the shareholder has elected on the original
application, or by written instructions filed with the Fund, to have them paid
in cash.

The Fund has qualified and intends to continue to qualify for taxation as a
"regulated investment company" under the Internal Revenue Code so that the
Fund will not be subject to federal income tax to the extent that it
distributes its income to its shareholders. Dividends, either in cash or
reinvested in shares, paid by the Fund from net investment income will be
taxable to shareholders as ordinary income, and will generally qualify in part
for the 70% dividends-received deduction for corporations. The portion of the
dividends so qualified depends on the aggregate taxable qualifying dividend
income received by the Fund from domestic (U.S.) sources. The Fund will send
to shareholders a statement each year advising the amount of the dividend
income which qualifies for such treatment.

Whether paid in cash or additional shares of the Fund, and regardless of the
length of time Fund shares have been owned by the shareholder, distributions
from long-term capital gains are taxable to shareholders as such, but are not
eligible for the dividends-received deduction for corporations. Shareholders
are notified annually by the Fund as to federal tax status of dividends and
distributions paid by the Fund. Such dividends and distributions may also be
subject to state and local taxes.

Exchange and redemption of Fund shares are taxable events for federal income
tax purposes. Shareholders may also be subject to state and municipal taxes on
such exchanges and redemptions. You should consult your tax adviser with
respect to the tax status of distributions from the Fund in your state and
locality.

The Fund intends to declare and pay dividends and capital gains distributions
so as to avoid imposition of the federal excise tax. To do so, the Fund
expects to distribute during each calendar year an amount equal to: (1) 98% of
its calendar year ordinary income; (2) 98% of its capital gains net income
(the excess of short- and long-term capital gain over short- and long-term
capital loss) for the one-year period ending each October 31; and (3) 100% of
any undistributed ordinary or capital gain net income from the prior fiscal
year. Dividends declared in December will be deemed to have been paid by the
Fund and received by shareholders on the record date so long as the dividends
are actually paid before February 1 of the following year.

To comply with IRS regulations, the Fund is required by federal law to
withhold 31% of reportable payments (which may include dividends, capital
gains distributions, and redemptions) paid to shareholders who have not
complied with IRS regulations. In order to avoid this withholding requirement,
shareholders must certify on their Application, or on a separate form supplied
by the Fund, that their Social Security or Taxpayer Identification Number
provided is correct and that they are not currently subject to backup
withholding, or that they are exempt from backup withholding.

The federal income tax status of all distributions will be reported to
shareholders each January as a part of the annual statement of shareholder
transactions. Shareholders not subject to tax on their income will not be
required to pay tax on amounts distributed to them.

THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL INFORMATION
ONLY. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS WITH RESPECT
TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE FUND.

SHAREHOLDER SERVICES

The Fund and its manager offer shareholders a broad variety of services
described throughout this prospectus. In addition, the following services are
available:

Automatic Monthly Investment - You may elect to make monthly investments in a
constant dollar amount from your checking account ($50 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 $100 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 or Buffalo 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.
2440 Pershing Road, Suite G-15
Kansas City, MO 64108

AUDITORS
ARTHUR ANDERSEN LLP
Kansas City, Missouri

LEGAL COUNSEL
STRADLEY, RONON, STEVENS & YOUNG
Philadelphia, Pennsylvania
JOHN G. DYER
Kansas City, Missouri

CUSTODIAN
UMB BANK, n.a.
Kansas City, Missouri

TRANSFER AGENT
JONES & BABSON, INC.
Kansas City, Missouri

EQUITIES
Growth Fund
Enterprise Fund*
Enterprise Fund II
Value Fund
Shadow Stock Fund
International Fund

FIXED INCOME
Bond Trust
Money Market Fund
Tax-Free Income Fund

* Closed to new investors.

JONES & BABSON
MUTUAL FUNDS

2440 Pershing Road
Kansas City, MO 64108-2561
816-471-5200

1-800-4-BABSON
(1-800-422-2766)

http://www.jbfunds.com

PART B

SHADOW STOCK FUND, INC.

STATEMENT OF ADDITIONAL INFORMATION

October 31, 1996

This Statement is not a Prospectus but should be read in conjunction
with the Fund's current Prospectus dated October 31, 1996. To obtain the
Prospectus please call the Fund toll-free 1-800-4-BABSON (1-800-422-2766),
or in the Kansas City area 471-5200.

TABLE OF CONTENTS
Page

Investment Objective and Policies 2
Portfolio Transactions 3
Investment Restrictions 3
Performance Measures 4
How the Fund's Shares are Distributed 5
How Share Purchases are Handled 5
Redemption of Shares 6
Signature Guarantees 6
Management and Investment Counsel 6
How Share Price is Determined 7
Officers and Directors 7
Custodian 9
Independent Public Accountants 10
Other Jones & Babson Funds 10
Financial Statements 11

<PAGE>

INVESTMENT OBJECTIVE
AND POLICIES

The following policies supplement the Fund's
investment objective and policies set forth in the
Prospectus.

Although the Shadow Stock Fund intends to
invest its assets in Shadow Stocks, if, in the
judgment of the Investment Counsel, extremely
abnormal conditions persist in the markets for
such securities, management retains the
authority to adopt a defensive posture by
investing in debt securities, such as money
market obligations, including securities of the
U.S. Government and its agencies, high-quality
commercial paper, bankers' acceptances and
repurchase agreements with banks and brokers
for U.S. Government securities.

Instead of investing in a particular stock on
the buy list, in some cases the Fund may
purchase the equivalent amount of securities
convertible into the common stock, if in the
judgment of the Investment Counsel it is
advantageous to the Fund to do so.

Fund transactions will be placed with a view
to receiving the best price and execution. The
Fund does not intend to solicit competitive bids
on each transaction. Since it is the policy of the
Fund to invest in stocks of small companies,
which are not as liquid as stocks of large
companies, the Fund will seek to acquire and
dispose of securities in a manner which would
cause as little fluctuation in the market prices of
stocks being purchased or sold as possible in
light of the size of the transactions being
effected, and brokers will be selected with this
goal in view. The Investment Counsel will
monitor the performance of brokers which effect
transactions for the Fund to determine the
impact that the Fund's trading has on the market
prices of the securities in which it invests and
check the rates of commission being paid by the
Fund to brokers to ascertain that they are
competitive with those charged by other brokers
for similar services. Transactions also may be
placed with brokers who provide the Investment
Counsel with investment research, such as
reports concerning individual issuers, industries
and general economic and financial trends and
other research services and the Investment
Counsel may knowingly pay commissions to
such brokers that may be higher than another
broker might charge, if in good faith the
Investment Counsel determines that the
commissions paid are reasonable in relation to
the brokerage and research services provided.

The OTC companies eligible for purchase by
the Fund are among the most thinly traded
securities the Fund will buy or sell. Therefore,
the Investment Counsel believes it needs
maximum flexibility to effect OTC trades on a
best execution basis. To that end, the Investment
Counsel may place OTC buy and sell orders
with primary market makers, third market
brokers or Instinet.

Although stocks held in the Fund's portfolio
are generally those that are least held by
institutions, in some circumstances where the
Fund seeks to acquire or dispose of portfolio
securities, transactions with institutional holders
through third market brokers will enable the
Investment Counsel to trade with other
institutional holders directly on a net basis. This
allows the Investment Counsel to sometimes
trade larger blocks than would be possible by
going through a single market maker.

Instinet is an electronic information and
communication network whose subscribers
include most market makers as well as many
institutions. Instinet charges a commission for
each trade executed on its system. On any given
trade, the Shadow Stock Fund by trading
through Instinet, could pay a dealer spread to a
dealer on the other side of the trade plus a
commission to Instinet. However, placing a buy
(or sell) position on Instinet communicates to
many (potentially all) market makers and
institutions at once. This can create a more
complete picture of the market and thus increase
the likelihood that the Fund can buy at the
lowest possible price or sell at the highest
possible price.

Money regularly flowing into the Fund for
investment is unlikely to be received in amounts
required for an ideally weighted basket of
stocks. As a result, shares will be purchased in
efficient lot sizes so as to purchase first those
stocks furthest below their ideal weight.

2
<PAGE>

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

3
<PAGE>

purchase or sale of real estate or commodities;
(3) underwrite the securities of other issuers; (4)
make loans to any of its officers, directors, or
employees, or to its manager, or general
distributor, or officers or directors thereof; (5)
make loans to other persons, except by the
purchase of debt obligations which are permitted
under its investment policy; (6) invest in
companies for the purpose of exercising control
of management; (7) purchase securities on
margin, or sell securities short; (8) purchase
shares of other investment companies except in
the open market at ordinary broker's
commission, but not in excess of 5% of the
Fund's assets, or pursuant to a plan of merger or
consolidation; (9) invest in the aggregate more
than 5% of the value of its gross assets in the
securities of issuers (other than federal, state,
territorial, or local governments, or
corporations, or authorities established thereby),
which, including predecessors, have not had at
least three years' continuous operations nor
invest more than 25% of the Fund's assets in any
one industry; (10) enter into dealings with its
officers or directors, its manager or underwriter,
or their officers or directors, or any organization
in which such persons have a financial interest
except for transactions in the Fund's own shares
or other securities through brokerage practices
which are considered normal and generally
accepted under circumstances existing at the
time; (11) purchase or retain securities of any
company in which any Fund officers or
directors, or Fund manager, its partner, officer,
or director beneficially owns more than 1/2 of
1% of said company's securities, if all such
persons owning more than 1/2 of 1% of such
company's securities, own in the aggregate more
than 5% of the outstanding securities of such
company; (12) borrow or pledge its credit under
normal circumstances, except up to 10% of its
gross assets (computed at the lower of fair
market value or cost) for temporary or
emergency purposes, and not for the purpose of
leveraging its investments, and provided further
that any borrowing in excess of 5% of the total
assets of the Fund shall have asset coverage of at
least 3 to 1; (13) make itself or its assets liable
for the indebtedness of others; (14) invest in
securities which are assessable or involve
unlimited liability; or (15) issue senior securities
except for those investment procedures
permissible under the Fund's other restrictions.

In addition to the fundamental investment
restrictions set out above, in order to comply
with the law or regulations of various States, the
Fund will not engage in the following practices:
(1) invest in securities which are not readily
marketable or in securities of foreign issuers
which are not listed on a recognized domestic or
foreign securities exchange; (2) write put or call
options; (3) invest in oil, gas and other mineral
leases or arbitrage transactions; (4) purchase or
sell real estate (including limited partnership
interests, but excluding readily marketable
interests in real estate investment trusts or
readily marketable securities of companies
which invest in real estate); or (5) purchase
securities, including Rule 144(a) securities, of
issuers which the company is restricted from
selling to the public without registration under
the Securities Act of 1933.

Certain States also require that the Fund's
investments in warrants which are not listed on
the New York or American Stock Exchange,
valued at the lower of cost or market, may not
exceed 5% of the value of the Fund's net assets.
Included within that amount, but not to exceed
2% of the value of the Fund's net assets may be
warrants which are not listed on the New York
or American Stock Exchange. Warrants
acquired by the Fund in units or attached to
securities may be deemed to be without value for
purposes of this limitation. In addition, the Fund
has undertaken to the state of California to
comply with the expense limitations set forth in
Rule 260.140.84(a) of Title 10 of the California
Administrative Code.

PERFORMANCE MEASURES

Total Return

The Fund's "average annual total return"
figures described and shown below are
computed according to a formula prescribed by
the Securities and Exchange Commission. The
formula can be expressed as follows:

P(1+T)n = ERV

Where: P = a hypothetical initial payment
of $1000

T = average annual total return

4
<PAGE>

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
7/1/95-6/30/96 16.93%

For the five years
7/1/91-6/30/96 14.47%

From commencement
of operation to 6/30/96* 7.73%
_____________________________________
*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, 1997, and which will continue
automatically for successive annual periods
ending each October 31, if continued at least
annually by the Fund's Board of Directors,
including a majority of those Directors who are
not parties to such Agreements or interested
persons of any such party. It terminates
automatically if assigned by either party or upon
60 days written notice by either party to the
other.

Jones & Babson, Inc. also acts as sole
distributor of the shares for the David L. Babson
Growth Fund, Inc., D.L. Babson Bond Trust,
D.L. Babson Money Market Fund, Inc., D.L.
Babson Tax-Free Income Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund
II, Inc., Babson Value Fund, Inc., Babson-
Stewart Ivory International Fund, Inc., Scout
Stock Fund, Inc., Scout Bond Fund, Inc., Scout
Money Market Fund, Inc., Scout Tax-Free
Money Market Fund, Inc., Scout Regional Fund,
Inc., Scout WorldWide Fund, Inc., Scout
Balanced Fund, Inc., Buffalo Balanced Fund,
Inc., Buffalo Equity Fund, Inc., Buffalo High
Yield Fund, Inc. and Buffalo USA Global Fund,
Inc.

HOW SHARE PURCHASES
ARE HANDLED

Each order accepted will be fully invested in
whole and fractional shares, unless the purchase
of a certain number of whole shares is specified,
at the net asset value per share next effective
after the order is accepted by the Fund.

Each investment is confirmed by a year-to-
date statement which provides the details of the
immediate transaction, plus all prior
transactions in your account during the current
year. This includes the dollar amount invested,
the number of shares purchased or redeemed,
the price per share, and the aggregate shares
owned. A transcript of all activity in your
account during the previous year will be
furnished each January. By retaining each
annual summary and the last year-to-date
statement, you have a complete detailed history
of your account. 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.

5
<PAGE>

If an order to purchase shares must be
canceled due to non-payment, the purchaser will
be responsible for any loss incurred by the Fund
arising out of such cancellation. To recover any
such loss, the Fund reserves the right to redeem
shares owned by any purchaser whose order is
canceled, and such purchaser may be prohibited
or restricted in the manner of placing further
orders.

The Fund reserves the right in its sole
discretion to withdraw all or any part of the
offering made by the prospectus or to reject
purchase orders when, in the judgment of
management, such withdrawal or rejection is in
the best interest of the Fund and its
shareholders. The Fund also reserves the right at
any time to waive or increase the minimum
requirements applicable to initial or subsequent
investments with respect to any person or class
of persons, which include shareholders of the
Fund's special investment programs.

REDEMPTION OF SHARES

The right of redemption may be suspended, or
the date of payment postponed beyond the
normal three-day period by the Fund's Board of
Directors under the following conditions
authorized by the Investment Company Act of
1940: (1) for any period (a) during 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 of $50,000 or more by mail or
changes in share registration, except as provided
in the Prospectus.

Signature guarantees must appear together
with the signature(s) of the registered owner(s),
on:

(1) a written request for redemption;

(2) a separate instrument of assignment,
which should specify the total number of
shares to be redeemed (this "stock power"
may be obtained from the Fund or from
most banks or stock brokers); or

(3) all stock certificates tendered for
redemption.

MANAGEMENT AND
INVESTMENT COUNSEL

As a part of the Management Agreement,
Jones & Babson, Inc. employs at its own
expense David L. Babson & Co. Inc. and
Analytic Systems, Inc. as its investment
counsels. David L. Babson & Co. Inc. also
participates with Jones & Babson in the
management of nine Babson no-load mutual
funds. David L. Babson & Co. Inc. was founded
in 1940 as a private investment research and
counseling organization. On June 30, 1995, it
became a wholly-owned subsidiary of
Massachusetts Mutual Life Insurance Company.

The aggregate management fees paid to Jones
& Babson, Inc. during the most recent fiscal
year ended June 30, 1996, from which Jones &

6
<PAGE>

Babson, Inc. paid all the Fund's expenses except
those payable directly by the Fund, was
$388,469. 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, 1996, Jones &
Babson, Inc. paid David L. Babson & Co. Inc.
fees amounting to $97,117. During the most
recent fiscal year ended June 30, 1996, Jones &
Babson, Inc. paid Analytic Systems, Inc. fees
amounting to $77,694.

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 2440 Pershing Road, Suite G-15,
Kansas City, Missouri 64108. Except as
indicated, each has been an employee of Jones &
Babson, Inc. for more than five years.

*Larry D. Armel, President and Director.
President and Director, Jones & Babson, Inc.,
David L. Babson Growth Fund, Inc., D. L.
Babson Money Market Fund, Inc., D. L.
Babson Tax-Free Income Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise
Fund II, Inc., Babson Value Fund, Inc.,
Babson-Stewart Ivory International Fund,
Inc., Scout Stock Fund, Inc. Scout Bond Fund,
Inc., Scout Money Market Fund, Inc., Scout
Tax-Free Money Market Fund, Inc., Scout
Regional Fund, Inc., Scout WorldWide Fund,
Inc., Scout Balanced Fund, Inc., Buffalo
Balanced Fund, Inc.; Buffalo Equity Fund,
Inc., Buffalo High Yield Fund, Inc., Buffalo
USA Global Fund, Inc.; President and
Trustee, D. L. Babson Bond Trust.

Francis C. Rood, Director.
Retired, 6429 West 92nd Street, Overland
Park, Kansas 66212. Formerly, Group Vice
President-Administration, Hallmark Cards,
Inc.; Director, David L. Babson Growth Fund,
Inc., D. L. Babson Money Market Fund, Inc.,
D. L. Babson Tax-Free Income Fund, Inc.,
Babson Enterprise Fund, Inc., Babson
Enterprise Fund II, Inc., Babson Value Fund,
Inc., Buffalo Balanced Fund, Inc., Buffalo
Equity Fund, Inc., Buffalo High Yield Fund,
Inc., Buffalo USA Global Fund, Inc.; Trustee,
D. L. Babson Bond Trust.

_____________________________________

* Directors who are interested persons as
that term is defined in the Investment
Company Act of 1940, as amended.

7
<PAGE>

William H. Russell, Director.
Financial consultant, 645 West 67th Street,
Kansas City, Missouri 64113; previously Vice
President, United Telecommunications, Inc.;
Director, David L. Babson Growth Fund, Inc.,
D. L. Babson Money Market Fund, Inc., D. L.
Babson Tax-Free Income Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund
II, Inc., Babson Value Fund, Inc., Babson-
Stewart Ivory International Fund, Inc., Buffalo
Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo High Yield Fund, Inc., Buffalo USA
Global Fund, Inc.; Trustee, D. L. Babson Bond
Trust.

H. David Rybolt, Director.
Consultant, HDR Associates, P.O. Box 2468,
Shawnee Mission, Kansas 66202; Director,
David L. Babson Growth Fund, Inc., D.L.
Babson Money Market Fund, Inc., D.L. Babson
Tax-Free Income Fund, Inc., Babson Enterprise
Fund, Inc., Babson Enterprise Fund II, Inc.,
Babson Value Fund, Inc., Buffalo Balanced
Fund, Inc., Buffalo Equity Fund, Inc., Buffalo
High Yield Fund, Inc., Buffalo USA Global
Fund, Inc.; Trustee, D.L. Babson Bond Trust.

P. Bradley Adams, Vice President and
Treasurer.
Vice President and Treasurer, Jones & Babson,
Inc., David L. Babson Growth Fund, Inc., D.L.
Babson Money Market Fund, Inc., D.L. Babson
Tax-Free Income Fund, Inc., Babson Enterprise
Fund, Inc., Babson Enterprise Fund II, Inc.,
Babson Value Fund, Inc., Babson-Stewart Ivory
International Fund, Inc., D.L. Babson Bond
Trust, Scout Stock Fund, Inc. Scout Bond Fund,
Inc., Scout Money Market Fund, Inc., Scout
Tax-Free Money Market Fund, Inc., Scout
Regional Fund, Inc., Scout WorldWide Fund,
Inc., Scout Balanced Fund, Inc., Buffalo
Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo High Yield Fund, Inc., Buffalo USA
Global Fund, Inc.

Elizabeth L. Allwood, Vice President and
Assistant Secretary.
Assistant Vice President and Assistant
Secretary, Jones & Babson, Inc. Vice President
and Assistant Secretary, David L. Babson
Growth Fund, Inc., D.L. Babson Money Market
Fund, Inc., D.L. Babson Tax-Free Income Fund,
Inc., Babson Enterprise Fund, Inc., Babson
Enterprise Fund II, Inc., Babson Value Fund,
Inc., Babson-Stewart Ivory International Fund,
Inc., D.L. Babson Bond Trust, Scout Stock
Fund, Inc., Scout Bond Fund, Inc., Scout Money
Market Fund, Inc., Scout Tax-Free Money
Market Fund, Inc., Scout Regional Fund, Inc.,
Scout WorldWide Fund, Inc., Scout Balanced
Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo
Equity Fund, Inc., Buffalo High Yield Fund,
Inc., Buffalo USA Global Fund, Inc.

Michael A. Brummel, Vice President,
Assistant Secretary and Assistant Treasurer.
Vice President, Jones & Babson, Inc., David L.
Babson Growth Fund, Inc., D.L. Babson Money
Market Fund, Inc., D.L. Babson Tax-Free
Income Fund, Inc., Babson Enterprise Fund,
Inc., Babson Enterprise Fund II, Inc., Babson
Value Fund, Inc., Babson-Stewart Ivory
International Fund, Inc., D.L. Babson Bond
Trust, Scout Stock Fund, Inc. Scout Bond Fund,
Inc., Scout Money Market Fund, Inc., Scout
Tax-Free Money Market Fund, Inc., Scout
Regional Fund, Inc., Scout WorldWide Fund,
Inc., Scout Balanced Fund, Inc., Buffalo
Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo High Yield Fund, Inc., Buffalo USA
Global Fund, Inc.

Martin A. Cramer, Vice President and
Secretary.
Vice President and Secretary, Jones & Babson,
Inc., David L. Babson Growth Fund, Inc., D.L.
Babson Money Market Fund, Inc., D.L. Babson
Tax-Free Income Fund, Inc., Babson Enterprise
Fund, Inc., Babson Enterprise Fund II, Inc.,
Babson Value Fund, Inc., Babson-Stewart Ivory
International Fund, Inc., D.L. Babson Bond
Trust, Scout Stock Fund, Inc. Scout Bond Fund,
Inc., Scout Money Market Fund, Inc., Scout
Tax-Free Money Market Fund, Inc., Scout
Regional Fund, Inc., Scout WorldWide Fund,
Inc., Scout Balanced Fund, Inc., Buffalo
Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo High Yield Fund, Inc., Buffalo USA
Global Fund, Inc.

Constance E. Martin, Vice President.
Assistant Vice President, Jones & Babson, Inc.
Vice President, 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,

8
<PAGE>

Inc., D.L. Babson Bond Trust, Scout Stock
Fund, Inc., Scout Bond Fund, Inc., Scout Money
Market Fund, Inc., Scout Tax-Free Money
Market Fund, Inc., Scout Regional Fund, Inc.,
Scout WorldWide Fund, Inc., Scout Balanced
Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo
Equity Fund, Inc., Buffalo High Yield Fund,
Inc., Buffalo USA Global Fund, Inc.

Peter C. Schliemann, Vice President -
Portfolio.
Executive Vice President and Director, David L.
Babson & Co. Inc., One Memorial Drive,
Cambridge, Massachusetts 02142; Vice
President-Portfolio, Babson Enterprise Fund,
Inc., Babson Enterprise Fund II, Inc.

Roland W. Whitridge, Vice President
Portfolio.
Senior Vice President and Director, David L.
Babson & Co. Inc., One Memorial Drive,
Cambridge, Massachusetts 02142; Vice
President-Portfolio, Babson Value Fund, Inc.

Remuneration of Officers and Directors.
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.

<TABLE>
<CAPTION>
COMPENSATION TABLE

Pension or Estimated Total
Aggregate Retirement Annual Compensation
Name of Compensation Benefits Accrued Benefits From All Babson
Director From each As Part of Fund Upon Funds Paid to
Fund Expenses Retirement Directors**
______________ ____________ ________________ __________ _____________
</CAPTION>
<S> <C> <C> <C> <C>
Larry D. Armel* -- -- -- --
Francis C. Rood $7,250 -- -- $7,250
William H. Russell $7,250 -- -- $7,500
H. David Rybolt $7,250 -- -- $7,250
</TABLE>

* As an "interested director," Mr. Armel received no compensation
for his services as a director.
** The amounts reported in this column reflect the total compensation
paid to each director for his services as a director of nine Babson
Funds during the fiscal year ended June 30, 1996. Directors fees
are paid by the Funds' manager and not by the Funds themselves.

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 theundertaking, 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

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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

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the purpose of maximizing income to the
extent consistent with safety of principal and
maintenance of liquidity. It offers two
portfolios - Prime and Federal. Money market
funds are neither insured nor guaranteed by
the U.S. Government and there is no
assurance that the funds will maintain a stable
net asset value.

D. L. BABSON TAX-FREE INCOME
FUND, INC. was organized in 1979, to
provide shareholders the highest level of
regular income exempt from federal income
taxes consistent with investing in quality
municipal securities. It offers three separate
high-quality portfolios (including a money
market portfolio) which vary as to average
length of maturity. Income from the Tax-Free
Money Market portfolio may be subject to
state and local taxes, as well as the
Alternative Minimum Tax.

BUFFALO FUNDS

Jones & Babson also sponsors and manages
the Buffalo Group of Mutual Funds. They are:

BUFFALO BALANCED FUND, INC. was
organized in 1994, with the objective of long-
term capital growth and high current income
through investing in common stocks and
secondarily by investing in convertible bonds,
preferred stocks and convertible preferred
stocks.

BUFFALO EQUITY FUND, INC. was
organized in 1994, with the objective of long-
term capital appreciation to be achieved
primarily by investment in common stocks.
Realization of dividend income is a secondary
consideration.

BUFFALO HIGH YIELD FUND, INC. was
organized in 1994, with the objective of a
high level of current income and secondarily,
capital growth by investing primarily in high-
yielding fixed income securities.

BUFFALO USA GLOBAL FUND, INC.
was organized in 1994, with the objective of
capital growth by investing in common stocks
of companies based in the United States that
receive greater than 40% of their revenues or
pre-tax income from international operations.

A prospectus for any of the Funds may be
obtained from Jones & Babson, Inc., 2440
Pershing Road, Suite G-15, Kansas City,
Missouri 64108.

Jones & Babson, Inc. also sponsors seven
mutual funds which especially seek to provide
services to customers of affiliate banks of UMB
Financial Corporation. They are: Scout Stock
Fund, Inc., Scout Bond Fund, Inc., Scout Money
Market Fund, Inc., Scout Tax-Free Money
Market Fund, Inc., Scout Regional Fund, Inc.,
Scout WorldWide Fund, Inc. and Scout
Balanced Fund, Inc.

FINANCIAL STATEMENTS

The audited financial statements of the Fund
which are contained in the June 30, 1996,
Annual Report to Shareholders, are incorporated
herein by reference.

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