SHADOW
STOCK
FUND
Annual Report
June 30, 1997
JONES & BABSON
MUTUAL FUNDS
MESSAGE
TO OUR SHAREHOLDERS
For the fiscal year ended June 30, 1997, Shadow Stock Fund produced a total
return (price change and reinvested distributions) of 23.9%. This return
compared favorably with the 16.3% return of the unmanaged Russell 2000 index
of small capitalization stocks. The average return for the small company
growth funds (avg. 495 funds) covered by the Lipper Mutual Fund Performance
Analysis was 13.7% for the same period.
Distributions of $0.05 of ordinary income dividends, and $0.30 net capital
gains were made in late June. Shareholders who had elected reinvestment
received additional shares at a reinvestment price of $12.31. For our
corporate shareholders, 57.55% of ordinary income distributions qualify for
the corporate dividends received deduction.
The Fund continues to have attractive valuation
characteristics. The average price/earnings ratio based on estimated earnings
for 1997 for the portfolio companies is only 17, below the Standard & Poor's
500 multiple of 25.5 times earnings. The average price-to-book value is 1.6,
compared to 6 for the S&P 500 index.
The small company investor will do well to consider these characteristics.
Over the last 12 months, companies with the most attractive valuations have
significantly out-performed those companies with higher multiples. This is
illustrated by noting the returns of the unmanaged Russell 2000 Growth index,
4.6%, versus the unmanaged Russell 2000 Value index, which returned 28.2% for
the 12-month period ended June 30, 1997. This disparity is not usually as
acute, but if history is any indication, it is sustainable over the long term.
Taken over a longer period, value oriented stocks out-perform those that are
considered more growth oriented. The Russell 2000 Growth index returned 9%
versus the Russell 2000 Value index return of 13% during the
10-year period ended June 30, 1997.
The Fund continues to base its policies on three primary characteristics that
academic studies have identified as leading to above average performance in
the past. They are small size, neglect by Wall Street, and low price-to-book
value. Although the Fund's policies are not always what the stock market
favors, its returns on a risk-adjusted basis are above average.
Merger and acquisition activity continues to impact the portfolio. American
Recreation Centers, Syratech, Medex, and Tylan General were all purchased by
private investors and were removed from the portfolio. North Star Universal
was acquired for shares of Michael Foods in March and that stock has just
about doubled in value since then.
If a market correction occurs, the reasonable valuations of the Fund's
investments should reduce the risk of a setback. These same valuations should
begin to attract attention if the market remains strong. If history is any
indication, the fortunes of the large company universe should begin to trickle
down to the smaller companies.
We appreciate your continued use of our Fund in your investment program.
Sincerely,
/S/Larry D. Armel
Larry D. Armel
President
GRAPH - Shadow Stock Fund versus Russell 2000
Shadow Stock Fund's average annual componded returns for one, five and
life of the Fund (inception August 28, 1987) as of June 30, 1997
were 23.85%, 15.93% and 9.27%, respectively. Performance data contained
in this report is for past periods only. Past performance is not predictive
of future performance. Investment return and share value will fluctuate,
redemption value may be more or less than original cost.
STATEMENT OF NET ASSETS
June 30, 1997
<TABLE>
<CAPTION>
S&P
RANKING** SHARES COMPANY COST MARKET VALUE
</CAPTION>
<S> <C> <C>
COMMON STOCKS - 96.02%
BASIC MATERIALS - 3.12%
B+ 9,401 Aceto Corp. $ 95,299 $ 137,490
NR 31,400 American Pacific Corp.* 345,455 227,650
NR 3,500 Badger Paper Mills, Inc. 51,820 27,125
B- 4,480 Baltek Corp. 28,424 34,440
C 17,700 Hauser Chemical Research, Inc.* 80,481 95,137
B- 15,517 Insteel Industries, In 112,395 126,076
NR 11,000 National Sanitary Supply Co 118,050 151,250
B 6,600 Pitt-Des Moines, Inc. 167,793 214,500
B 16,325 Roanoke Electric Steel Corp. 150,643 273,444
1,150,360 1,287,112
CAPITAL GOODS - 17.32%
B+ 6,700 American Filtrona Corp. 163,611 274,700
B 7,000 American Technical Ceramics Corp.* 63,883 101,500
NR 7,044 Athey Products Corp.* 40,350 29,937
B+ 9,900 Aztec Manufacturing Co. 59,887 157,163
B+ 6,600 Badger Meter, Inc. 62,297 195,525
B- 26,400 Baker (Michael) Corp. 221,374 183,150
NR 5,627 Binks Manufacturing Co. 130,676 260,249
NR 20,900 BMC West Corp.* 391,564 256,025
NR 19,300 Cameron Ashley Building Products, Inc. 233,404 267,787
B 28,200 Cascade Corp. 280,320 544,613
B- 12,200 Cherry Corp. Cl. A* 126,120 158,600
B- 12,000 Cherry Corp. Cl. B 125,670 168,000
B+ 8,382 Del Global Technology 59,675 71,247
C 7,700 Devcon International Corp. 78,035 35,613
B 7,315 Ecology and Environment, Inc. Cl. A 81,393 61,263
NR 14,400 Engle Homes, Inc. 149,025 136,800
NR 14,800 Failure (The) Group, Inc.* 91,161 92,500
NR 20,500 Fairfield Communities, Inc.* 243,775 689,313
B- 9,712 Farr Co. 44,573 151,750
B- 11,300 Gehl Co. 94,194 189,275
B- 3,150 Graham Corp. 31,489 55,519
B- 4,000 Heist (C.H.) Corp.* 33,898 26,750
NR 5,400 Industrial Acoustics Company, Inc. 61,225 46,237
NR 7,600 Liberty Homes, Inc. Cl. A 95,680 72,200
NR 6,000 M/I Schottenstein Homes, Inc.* 59,739 67,500
B 16,800 Mestek, Inc. 158,480 346,500
B+ 12,712 Met-Pro Corp. 69,087 192,269
NR 8,600 Monaco Coach Corp.* 103,630 208,550
B 5,700 Noland Co. 98,460 133,950
B- 29,500 O'Sullivan Corp. 297,166 258,125
NR 1,800 Oilgear Co. 40,835 31,275
B- 8,600 Oriole Homes Corp. Cl. A 76,842 72,025
B+ 3,200 Penn Engineering & Manufacturing Corp.
(voting) 34,608 60,000
B+ 9,600 Penn Engineering & Manufacturing Corp.
(non-voting) 69,217 188,400
B- 11,200 Plasti-Line, Inc.* 61,450 124,600
B+ 9,700 Puerto Rican Cement Co., Inc. 191,881 315,856
B- 11,900 SL Industries, Inc. 100,710 116,025
B 7,182 Southwest Water Co. 91,095 87,979
NR 11,000 Starrett Housing Corp. 72,230 123,063
C 19,875 Terex Corp. 152,076 382,594
B- 16,800 URS Corp. New* 131,807 220,500
4,772,592 7,154,927
CONSUMER CYCLICAL - 17.86%
NR 19,000 All American Communications Inc.* 199,381 287,375
B+ 10,200 Amplicon, Inc. 139,813 244,800
B+ 4,400 Analysis & Technology, Inc. 59,796 69,987
NR 13,400 Ben & Jerry's Homemade, Inc. Cl. A* 187,350 184,250
NR 20,500 Bon-Ton Stores, Inc.* 153,000 164,000
B- 19,200 Carmike Cinemas, Inc. Cl. A* 349,592 628,800
NR 13,300 Crown Books Corp.* 206,367 136,325
NR 30,721 Dixie Group, Inc. Cl. A* 245,835 314,890
NR 40,600 Egghead, Inc.* 358,356 159,863
B- 9,300 ELXSI Corp.* 68,610 67,425
NR 2,700 Federal Screw Works 49,917 126,900
B 8,600 Fuqua Enterprises, Inc. 125,992 182,750
C 21,300 Gottschalks, Inc.* 187,259 175,725
NR 20,300 Government Technology Services, Inc.* 179,045 101,500
B- 8,703 Hampton Industries, Inc. 51,451 69,624
B- 6,424 Hein-Werner Corp.* 53,514 51,392
B- 900 Howell Industries, Inc. 23,090 32,850
B 22,200 InaCom Corp.* 272,163 690,975
B+ 7,916 Knape & Vogt Manufacturing Co. 84,521 126,656
NR 7,798 M/A/R/C (The) Group 46,371 152,061
B+ 4,000 McRae Industries, Inc. Cl. A 35,003 35,000
NR 8,700 National Picture & Frame Co.* 90,225 95,700
B 12,700 Optical Coating Laboratory, Inc. 82,351 171,450
NR 11,000 OroAmerica Inc.* 60,050 55,000
B- 20,000 Piccadilly Cafeterias, Inc. 206,803 212,500
B 5,700 Pulaski Furniture Corp. 105,990 101,888
B 16,400 R & B, Inc.* 99,220 131,200
NR 8,500 Reading Entertainment, Inc.* 110,732 97,219
B 17,500 Rex Stores Corp.* 283,782 177,187
B 23,000 RPC Energy Services, Inc.* 183,459 339,250
NR 17,400 S & K Famous Brands, Inc.* 132,375 191,400
C 8,000 Scheib (Earl), Inc. 118,613 48,500
NR 23,100 Sportmart, Inc.* 166,549 86,625
B 40,100 Syms Corp. 326,697 398,494
B- 30,200 TCBY Enterprises, Inc. 145,911 190,637
B- 11,800 Thomaston Mills, Inc. Cl. A 133,321 110,625
NR 1,000 Thomaston Mills, Inc. Cl. B 10,500 7,938
NR 8,100 Trimark Holdings, Inc.* 52,854 41,513
B+ 12,300 Uni-Marts, Inc. 75,463 61,500
B+ 5,250 Valley Forge Corp. 48,338 96,141
B+ 10,597 Virco Manufacturing Corp. 50,316 274,197
NR 4,900 Weyco Group, Inc. 155,927 318,500
B+ 13,828 Wolohan Lumber Co. 180,276 168,529
5,896,178 7,379,141
CONSUMER STAPLES - 12.78%
B+ 19,100 Blessings Corp. 217,238 198,162
NR 16,100 Buttrey Food & Drug Stores Co.* 131,025 166,031
B 9,300 Cagle's, Inc. Cl. A 119,266 140,663
B 14,400 Chattem, Inc. 78,599 194,400
B- 4,200 Christiana Companies, Inc. 100,440 167,475
B- 6,700 Continental Can Company, Inc. 164,608 134,000
A- 11,866 Del Laboratories, Inc. 219,041 416,793
B- 2,500 Foodarama Supermarkets, Inc. 38,219 47,500
B 3,200 Genesee Corp. Cl. B 138,775 127,200
B- 17,750 Golden Poultry Company, Inc. 80,596 239,625
B 11,900 Grist Mill Co.* 74,981 84,044
B+ 19,444 HEALTHSOUTH Corp. 114,194 484,885
NR 33,500 Ingles Markets, Inc. Cl. A 244,423 548,563
A 7,225 Marsh Supermarkets, Inc. Cl. A 91,553 99,344
NR 9,125 Marsh Supermarkets, Inc. Cl. B 112,058 127,750
NR 8,373 Michael Food, Inc. 89,774 154,900
B- 19,600 Orange-Co. Inc. 168,451 151,900
NR 15,200 Quaker Fabric Corp.* 142,350 250,800
NR 8,200 Safety Components International, Inc.* 103,722 82,000
NR 12,550 Sanderson Farms, Inc. 85,444 219,625
B 6,200 Seaway Food Town, Inc. 41,846 143,375
NR 8,900 Seneca Foods Corp. Cl. A* 111,790 159,644
NR 5,900 Seneca Foods Corp. Cl. B* 65,761 105,463
B 7,400 Span-America Medical Systems, Inc. 57,290 37,000
B- 15,600 Swiss Army Brands, Inc.* 158,139 189,150
B- 12,100 Toastmaster Inc. 74,245 40,838
B 7,850 Tranzonic Cos. Cl. A 98,027 164,850
NR 9,500 Triple S Plastics, Inc.* 82,292 76,000
B+ 7,900 Vallen Corp.* 82,093 144,175
B+ 10,800 Western Beef, Inc. 73,709 113,400
NR 7,400 Zaring Homes, Inc.* 53,950 74,000
3,413,899 5,283,555
ENERGY - 0.96%
NR 2,203 HS Resources, Inc. 13,677 31,117
NR 9,100 Maynard Oil Co.* 44,601 147,875
NR 10,200 Prima Energy Corp. 105,425 173,400
NR 2,600 Roanoke Gas Co. 46,800 43,550
210,503 395,942
FINANCIAL - 19.33%
B 4,300 Amwest Insurance Group, Inc. 41,593 64,500
NR 14,208 Chartwell Re Corp. 236,164 426,240
B+ 13,870 Conseco, Inc. 186,906 513,190
B+ 7,968 Cotton States Life and Health Insurance Co. 42,365 132,468
B+ 33,900 EMC Insurance Group, Inc. 295,783 419,512
NR 17,200 First Financial Caribbean Corp. 173,911 561,150
B- 11,500 Interstate/Johnson Lane, Inc. 134,340 270,250
NR 11,800 Lawyers Title Corp. 221,626 222,725
B+ 5,000 McDonald & Co. Investments, Inc. 25,929 229,375
B- 5,000 Merchants Group, Inc. 66,774 102,500
NR 12,300 Meridian Insurance Group, Inc. 111,575 185,269
B+ 5,800 Midland Co. 180,897 290,000
NR 5,600 Minuteman International, Inc. 50,988 51,800
NR 12,995 Mobile America Corp. 105,019 131,574
B+ 20,000 Morgan Keegan, Inc. 36,606 397,500
NR 10,800 National Insurance Group 125,283 70,200
NR 4,850 National Security Group, Inc. 56,275 71,537
NR 5,300 National Western Life Insurance Co.* 101,698 473,025
B- 15,200 Navigators Group, Inc.* 246,958 275,500
NR 12,400 Penn Treaty American Corp.* 119,430 379,750
NR 11,250 Penn-America Group, Inc. 98,468 169,453
NR 6,600 Professionals Insurance Company Management
Group* 157,200 188,925
B 16,000 PXRE Corp. 308,202 492,000
B+ 9,900 RLI Corp. 62,960 360,731
B+ 5,550 Scott & Stringfellow Financial, Inc. 42,547 98,513
B- 22,800 Sherwood Group, Inc.* 239,870 384,750
NR 25,000 State Auto Financial Corp. 156,135 562,500
B 13,400 Stewart Information Services Corp. 170,167 276,375
NR 9,672 Walshire Assurance Co. 92,121 103,974
B 4,600 Ziegler (The) Companies, Inc. 72,899 82,800
3,960,689 7,988,086
MISCELLANEOUS - 1.27%
NR 12,900 Celebrity, Inc.* 90,945 40,312
NR 9,000 Edelbrock Corp.* 161,350 193,500
NR 4,966 Enstar Group, Inc. 4,725 4,966
NR 1,500 FRM Nexus, Inc.* 10,980 1,500
NR 10,600 Primesource Corp. 74,200 80,825
NR 4,500 Programming and Systems, Inc.* 21,960 4,500
NR 12,400 Rottlund Inc.* 99,655 60,450
B 2,600 Scope Industries 79,121 140,075
542,936 526,128
TECHNOLOGY - 9.73%
NR 2,100 Allen Organ Co. Cl. B 60,713 83,737
NR 6,400 Autologic Information International, Inc.* 63,525 40,000
B- 11,400 BEI Electronics, Inc. 71,731 125,400
B- 18,120 Bell Industries Inc.* 372,099 283,125
NR 18,700 Bell Microproducts Inc.* 160,048 198,687
B+ 12,800 CPAC Inc. 143,575 155,200
NR 16,800 Data Systems & Software Inc.* 127,536 79,800
B- 10,600 Dataram Corp.* 106,178 100,700
B 4,000 Datron Systems, Inc.* 34,675 40,500
B 5,200 Eastern (The) Co. 60,601 75,400
NR 7,900 Equitrac Corp.* 42,258 105,662
B- 3,100 Espey Mfg. & Electronics Corp. 52,389 53,475
NR 26,200 Genus Inc.* 258,861 117,900
NR 4,700 Giga-tronics, Inc.* 37,688 32,900
B- 18,200 GTI Corp. 192,885 104,650
NR 13,000 IEC Electronics Corp.* 107,070 183,625
B- 11,900 IFR Systems, Inc. 115,575 223,125
B- 50,463 Intelligent Electronics, Inc. 626,657 141,927
C 8,600 Interphase Corp.* 73,205 74,443
NR 9,313 Isco, Inc. 90,668 81,489
C 13,200 K-Tron International, Inc.* 99,941 198,000
NR 4,300 Moore Products Co.* 104,660 94,063
B- 16,400 Newport Corp. 159,275 184,500
NR 19,950 Nichols Research Corp. 201,037 418,950
B 16,200 Norstan, Inc. 112,784 263,250
NR 12,000 Powell Industries, Inc.* 72,600 183,000
NR 17,400 Proxima Corp.* 242,585 87,000
NR 3,700 SBE, Inc.* 33,420 24,975
NR 8,000 TRM Copy Center Corp.* 54,150 85,000
NR 6,800 Vertex Communications Corp.* 89,320 181,900
3,967,709 4,022,383
TRANSPORTATION & SERVICES - 1.69%
B+ 9,312 International Shipholding Corp. 131,312 158,886
NR 3,800 Kenan Transport Co. 57,723 77,425
NR 9,466 KLLM Transport Services, Inc.* 130,870 111,225
NR 8,000 Marten Transport Ltd.* 52,750 104,000
NR 11,100 Petroleum Helicopters, Inc. 136,272 190,088
B+ 4,200 VSE Corp. 26,025 54,600
534,952 696,224
UTILITIES - 11.96%
NR 6,600 Atrion Corp. 67,408 103,950
B 17,100 Bangor Hydro-Electric Co. 259,451 98,325
NR 3,800 Berkshire Gas Co. 62,195 60,800
B+ 16,350 Cascade Natural Gas Corp. 217,583 267,731
B+ 5,700 Chesapeake Utilities Corp. 76,930 96,900
B+ 12,150 Colonial Gas Co. 203,244 255,909
A- 14,450 Connecticut Energy Corp. 266,867 350,413
B+ 5,000 Connecticut Water Service, Inc. 112,440 141,250
NR 17,800 Consumers Water Co. 286,618 315,950
B 4,000 Delta Natural Gas Company, Inc. 67,695 71,000
NR 2,200 Dominguez Services Corp. 42,130 54,450
B+ 11,600 E`town Corp. 326,528 356,700
A- 5,000 EnergyNorth, Inc. 70,637 113,125
A 3,400 Essex County Gas Co. 91,205 87,975
B+ 3,100 Florida Public Utilities Co. 61,411 64,906
A- 10,600 Green Mountain Power Corp. 270,769 251,087
B 2,600 Maine Public Service Co. 45,538 31,850
NR 7,600 Middlesex Water Co. 118,645 131,100
B 22,419 NUI Corp. 494,422 503,026
B+ 23,850 Philadelphia Suburban Corp. 250,858 456,131
B 9,800 Providence Energy Corp. 160,000 171,500
B+ 6,100 SJW Corp. 174,497 320,250
B+ 14,300 Southern California Water Co. 221,777 350,350
A- 9,176 UNITIL Corp. 159,885 186,961
NR 5,100 Upper Peninsula Energy Corp. 73,120 99,450
4,181,853 4,941,089
TOTAL COMMON STOCKS - 96.02% 28,631,671 39,674,587
</TABLE>
<TABLE>
<CAPTION>
FACE AMOUNT DESCRIPTION COST MARKET VALUE
</CAPTION>
<S> <C> <C>
REPURCHASE AGREEMENT - 3.87%
$1,600,000 UMB Bank, n.a., 5.30%, due July 1, 1997
(Collateralized by U.S. Treasury Notes,
7.875%, due November 15, 1999) 1,600,000 1,600,000
TOTAL INVESTMENTS - 99.89% $ 30,231,671 41,274,587
Other assets less liabilities - 0.11% 47,477
TOTAL NET ASSETS - 100.00%
(equivalent to $12.57 per share; 10,000,000 shares of
$1.00 par value capital shares authorized;
3,286,896 shares outstanding) $ 41,322,064
</TABLE>
For federal income tax purposes, the identified cost of investments owned
at June 30, 1997, was $30,231,671.
Net unrealized appreciation for federal income tax purposes was $11,042,916,
which is comprised of unrealized appreciation of $13,873,780 and unrealized
depreciation of $2,830,864.
*Securities on which no cash dividends were paid during the preceding year.
**Standard & Poor's rankings are derived from statistical measurements of past
earnings and dividend stability and growth.
NR - indicates no ranking is available. Rankings are not covered by the
report of independent auditors.
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1997
ASSETS:
Investment securities, at market value
(identified cost $30,231,671) $ 41,274,587
Cash 1,043
Dividends receivable 46,434
Total assets 41,322,064
NET ASSETS $ 41,322,064
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 29,045,760
Accumulated undistributed income:
Undistributed net investment income 107,415
Undistributed net realized gain on investment
transactions 1,125,973
Net unrealized appreciation in value of investments 11,042,916
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 41,322,064
Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 3,286,896
NET ASSET VALUE PER SHARE $ 12.57
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Year Ended June 30, 1997
INVESTMENT INCOME:
Income:
Dividends $ 780,124
Interest 29,340
809,464
Expenses:
Management fees (Note 3) 379,685
Custodian fees 6,207
Pricing service fees 25,438
Registration fees 18,295
429,625
Net investment income 379,839
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 1):
Realized gain from investment transactions
(excluding repurchase agreements):
Proceeds from sales of investments 7,008,053
Cost of investments sold 3,490,511
Net realized gain from investment transactions 3,517,542
Unrealized appreciation on investments:
Beginning of year 6,795,364
End of year 11,042,916
Increase in net unrealized appreciation on investments 4,247,552
Net gain on investments 7,765,094
Increase in net assets resulting from operations $ 8,144,933
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
For The Two Years Ended June 30, 1997
<TABLE>
<CAPTION>
1997 1996
</CAPTION>
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 379,839 $ 309,091
Net realized gain from investment transactions 3,517,542 3,842,508
Increase in net unrealized appreciation on investments 4,247,552 1,972,752
Net increase in net assets resulting from operations 8,144,933 6,124,351
Net equalization included in the price of shares issued
and redeemed (Note 1) 5,879 (14,204)
DISTRIBUTIONS TO SHAREHOLDERS FROM:*
Net investment income (272,927) (333,014)
Net realized gain from investment transactions (3,793,901) (3,002,705)
Total distributions to shareholders (4,066,828) (3,335,719)
DECREASE FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from 666,941 and 401,940 shares sold 7,776,031 4,446,012
Net asset value of 323,888 and 281,278 shares issued for
reinvestment of distributions 3,812,222 3,105,517
11,588,253 7,551,529
Cost of 1,137,409 and 912,215 shares redeemed (13,173,479) (10,151,906)
Net decrease from capital share transactions (1,585,226) (2,600,377)
Total increase in net assets 2,498,758 174,051
NET ASSETS:
Beginning of year 38,823,306 38,649,255
End of year (including undistributed net investment
income of $107,415 in 1997 and $7,768 in 1996) $ 41,322,064 $ 38,823,306
*Distributions to shareholders:
Income dividends per share $ 0.0864 $ 0.10
Capital gains distribution per share $ 1.2086 $ 0.90
</TABLE>
See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of 1940, as amended,
as a diversified open-end management investment company. The financial
statements have been prepared in conformity with generally accepted accounting
principles which require management to make certain estimates and assumptions
at the date of the financial statements. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
Investments - Common stocks traded on a national securities exchange are
valued at the last reported sales price on the last business day of the period
or, if no sale was reported on that date, at the average of the last reported
bid and asked prices. Common stocks traded over-the-counter are valued at the
average of the last reported bid and asked prices. Investment transactions are
recorded on the trade date. Dividend income and distributions to shareholders
are recorded on the ex-dividend dates. Realized gains and losses from
investment transactions and unrealized appreciation and depreciation of
investments are reported on the identified cost basis.
Federal and State Taxes - The Fund's policy is to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no provision for federal or state tax is required.
Equalization - The Fund uses the accounting practice known as equalization,
by which a portion of the proceeds from sales and costs of redemption of
capital shares, equivalent on a per share basis to the amount of undistributed
net investment income on the date of the transactions, is credited or charged
to undistributed income. As a result, undistributed net investment income per
share is unaffected by sales or redemptions of capital shares. During the year
ended June 30, 1997, $5,879 was reclassified from undistributed net investment
income to capital stock.
2. PURCHASES AND SALES OF SECURITIES:
The aggregate amounts of security transactions during the year ended June 30,
1997 (excluding repurchase agreements), were as follows:
Purchases $ -
Proceeds from sales 7,008,053
3. MANAGEMENT FEES:
Management fees, which include all normal expenses of the Fund other than fees
for pricing services, custodian fees, dues, taxes, fees and other charges of
governmental agencies for qualifying the Fund's shares for sale, special legal
fees, interest and brokerage commissions, are paid to Jones & Babson, Inc., an
affiliated company. These fees are based on average daily net assets of the
Fund at the annual rate of one percent of net assets. Certain officers and/or
directors of the Fund are also officers and/or directors of Jones & Babson,
Inc.
FINANCIAL HIGHLIGHTS
The following table sets forth information as to capital and income changes
for a share outstanding for each of the five years in the period ended
June 30, 1997:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
</CAPTION> <C> <C> <C> <C> <C>
<S>
Net asset value, beginning of year $ 11.31 $ 10.55 $ 9.67 $ 11.66 $ 10.32
Income from investment operations:
Net investment income 0.12 0.09 0.10 0.06 0.12
Net gains on securities
(both realized and unrealized) 2.44 1.67 1.42 0.46 1.87
Total from investment operations 2.56 1.76 1.52 0.52 1.99
Less distributions:
Dividends from net investment income (0.09) (0.10) (0.10) (0.06) (0.11)
Distributions from capital gains (1.21) (0.90) (0.54) (2.45) (0.54)
Total distributions (1.30) (1.00) (0.64) (2.51) (0.65)
Net asset value, end of year $ 12.57 $ 11.31 $ 10.55 $ 9.67 $ 11.66
Total return 24% 17% 16% 4% 19%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 41 $ 39 $ 39 $ 31 $ 33
Ratio of expenses to average net assets 1.13% 1.14% 1.13% 1.28% 1.25%
Ratio of net investment income to average net assets 1.00% 0.79% 1.01% 0.50% 1.05%
Portfolio turnover rate 0% 25% 19% 43% 15%
*Average commission paid per equity share traded $ .0530 - - - -
</TABLE>
*Disclosure required for fiscal years beginning
after September 1, 1995.
See accompanying Notes to Financial Statements.
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Shadow Stock Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Shadow
Stock Fund, Inc. (a Maryland corporation), including the statement of net
assets as of June 30, 1997, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of June 30, 1997, by correspondence with the custodian or
verification of settlement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Shadow Stock Fund, Inc. as of June 30, 1997, the results of its operations for
the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Kansas City, Missouri
July 28, 1997
This report has been prepared for the information of the Shareholders of
Shadow Stock Fund, Inc., and is not to be construed as an offering of the
shares of the Fund. Shares of this Fund and of the other Babson Funds are
offered only by the Prospectus, a copy of which may be obtained from Jones &
Babson, Inc.
This page left blank intentionally.
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
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 30231671
<INVESTMENTS-AT-VALUE> 41274587
<RECEIVABLES> 46434
<ASSETS-OTHER> 1043
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41322064
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29045760
<SHARES-COMMON-STOCK> 3286896
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 107415
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1125973
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11042916
<NET-ASSETS> 41322064
<DIVIDEND-INCOME> 780124
<INTEREST-INCOME> 29340
<OTHER-INCOME> 0
<EXPENSES-NET> 429625
<NET-INVESTMENT-INCOME> 379839
<REALIZED-GAINS-CURRENT> 3517542
<APPREC-INCREASE-CURRENT> 4247552
<NET-CHANGE-FROM-OPS> 8144933
<EQUALIZATION> 5879
<DISTRIBUTIONS-OF-INCOME> 272927
<DISTRIBUTIONS-OF-GAINS> 3793901
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 666941
<NUMBER-OF-SHARES-REDEEMED> 1137409
<SHARES-REINVESTED> 323888
<NET-CHANGE-IN-ASSETS> 2498758
<ACCUMULATED-NII-PRIOR> 7768
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 379685
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 429625
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 11.31
<PER-SHARE-NII> .12
<PER-SHARE-GAIN-APPREC> 2.44
<PER-SHARE-DIVIDEND> .09
<PER-SHARE-DISTRIBUTIONS> 1.21
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.57
<EXPENSE-RATIO> 1.13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
