SHADOW
Stock
FUND
Annual Report
June 30, 1998
BABSON FUNDS
JONES & BABSON DISTRIBUTORS
A member of the Generali Group
Message
To Our Shareholders
For the fiscal year ended June 30, 1998, Shadow Stock Fund produced a
total return (price change and reinvested distributions) of 22.0%. For
the same period the return of the unmanaged Russell 2000 index of small
capitalization stocks was 16.5%.
The table below shows how the Fund has ranked in the Lipper universe of
microcap funds:
Lipper Micro-Cap universe
Number of Years Shadow Stock Fund Number of Funds
Ended 6/30/98 Rank in universe
1 26 41
2 9 28
3 6 16
5 4 8
10 3 6
For all of the periods shown longer than one year the Fund has ranked in
the top half of its universe of peers.
Distributions of $0.02 of ordinary income dividends, and $0.15 net
capital gains were made in late June. Shareholders who had elected
reinvestment received additional shares at a reinvestment price of
$12.97. For our corporate shareholders, 100% 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 1998 for the companies in the Fund is 18.6, below the
Standard & Poor's 500 multiple of 23.8 times earnings. The average
price-to-book value is 1.7, compared to 4.3 for the S&P 500 index.
Performance during the second half of the fiscal year, through June 30,
was boosted by some of our largest holdings. Stewart Information
Systems, a title insurance firm, benefited from the swelling housing
market and returned 68%. Tarrant Apparel, producer of women's casual
clothing for private label firms such as The Limited and Kmart, was up
just over 141% due to the robust retail environment. Winnebago
Industries, a manufacturer of recreational vehicles, returned 45%. Nobel
Education Dynamics provider of K-8 private education, was up 78%, and
Childtime Learning Centers, a Gerber spin-off that provides daycare from
6 weeks old was up 48%. These last few firms were added during the
normal rebalancing which occurred in October of 1997.
Shareholders are not alone in their interest in low valuations. Merger
and acquisition activity continues to influence the portfolio.
Blessings, a plastic packing company, was purchased by Huntsman
Packaging for $21 a share. Continental Can was taken over by Suiza Foods
in a non-taxable stock exchange. Suiza was sold a short time later due
to its large market cap size. Hein-Werner was purchased by Snap-On
Tools, Intelligent Electronics by Xerox, and McDonald & Co. Investments
by KeyCorp.
In the event of a market correction, the reasonable valuations of the
Fund's investments should help to reduce the impact on the portfolio.
This was illustrated during the second quarter of this year when the
Russell 2000 Growth Index declined -5.7%, while the Russell 2000 Value
Index was only down -3.6%. These same valuations should begin to attract
attention if the market strengthens.
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 compare favorably
to Morningstar's Small-Cap Value universe (based on
3-year Sharpe ratios).
We appreciate your continued use of our Fund in your investment program.
Sincerely,
/s/ Larry D. Armel
Larry D. Armel
President
Shadow Stock Fund versus Russell 2000
CHART
**Unmanaged stock index
Shadow Stock Fund's average annual compounded total returns for one,
five and ten year periods ended June 30, 1998 were 21.98%, 16.44% and
12.77%, 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, and
redemption value may be more or less than original cost.
STATEMENT OF NET ASSETS
June 30, 1998
Shares Company Market Value
COMMON STOCKS - 96.10%
BASIC MATERIALS - 3.89%
14,101 Aceto Corp. $ 229,141
13,000 American Pacific Corp.* 128,375
8,500 Badger Paper Mills, Inc.* 72,250
4,480 Baltek Corp.* 39,900
27,800 Global Industrial Technologies, Inc.* 399,625
17,700 Hauser Chemical Research, Inc.*. 102,881
14,417 Insteel Industries, Inc. 91,007
13,200 Pitt-Des Moines, Inc. 349,800
18,487 Roanoke Electric Steel Corp. 346,631
4,400 Stephan Co. 60,225
11,500 Tuscarora, Inc. 182,562
2,002,397
CAPITAL GOODS - 13.50%
7,000 American Technical Ceramics Corp.* 65,187
11,044 Athey Products Corp.* 55,220
9,450 Autocam Corp. 157,106
2,300 Badger Meter, Inc. 81,506
15,000 Baker (Michael) Corp.* 135,938
5,727 Binks Manufacturing Co. 250,198
29,900 Building Materials Holding Corp.* 412,994
16,300 Cameron Ashley Building Products, Inc.* 275,062
21,000 Cascade Corp. 383,250
12,200 Cherry Corp. Cl. A* 198,250
9,000 Cherry Corp. Cl. B* 146,250
7,000 Devcon International Corp.* 19,687
5,700 Diodes, Inc.* 39,188
7,015 Ecology and Environment, Inc. Cl. A 70,150
12,000 Engle Homes, Inc. 187,500
14,800 Exponent, Inc.* 125,800
15,000 Farr Co.* 184,687
11,000 Fibermark, Inc.* 176,000
11,500 Gehl Co.* 232,875
3,150 Graham Corp.* 51,187
8,000 Heist (C.H.) Corp.* 57,000
5,400 Industrial Acoustics Company, Inc.* 57,038
20,300 Intermagnetics General Corp. 185,238
7,600 Liberty Homes, Inc. Cl. A 85,500
6,000 M/I Schottenstein Homes, Inc. 129,750
16,800 Mestek, Inc.* 359,100
13,112 Met-Pro Corp. 195,861
15,300 Monaco Coach Corp. 447,525
5,700 Noland Co. 146,775
11,000 Northwest Pipe Co.* 258,500
25,500 O'Sullivan Corp. 248,625
6,000 Oilgear Co. 89,625
9,600 Oriole Homes Corp. Cl. A* 46,800
3,200 Penn Engineering & Manufacturing Corp.
(voting) 65,600
9,600 Penn Engineering & Manufacturing Corp.
(non-voting) 240,000
10,200 Puerto Rican Cement Co., Inc. 481,950
9,000 Selas Corp. of America 79,875
4,900 SL Industries, Inc. 67,375
7,541 Southwest Water Co. 131,968
19,600 URS Corp. New* 333,200
6,955,340
CONSUMER CYCLICAL - 19.22%
21,600 Amplicon, Inc. 280,800
6,600 Analysis & Technology, Inc. 135,300
15,000 Ben & Jerry's Homemade, Inc. Cl. A* 290,625
20,000 Bon-Ton Stores, Inc.* 321,250
19,200 Carmike Cinemas, Inc. Cl. A* 517,200
9,000 Childtime Learning Centers, Inc.* 183,375
17,000 Conso Products Co.* 140,250
16,800 Crown Books Corp.* 14,700
15,000 Deckers Outdoor Corp.* 103,125
5,000 Decorator Industries, Inc. 65,000
20,000 Dixie Group, Inc. Cl. A 190,000
9,000 Duckwall-Alto Stores, Inc.* 157,500
36,000 Egghead, Inc.* 303,750
9,300 ELXSI Corp.* 97,650
12,750 Equinox Systems, Inc. 105,984
2,700 Federal Screw Works 136,350
7,811 Gart Sports Co. 98,614
8,000 Globe Business Resources, Inc.* 119,000
17,500 Gottschalks, Inc.* 155,313
14,000 Government Technology Services, Inc.* 66,500
9,573 Hampton Industries, Inc.* 65,814
7,000 InaCom Corp.* 222,250
10,916 Knape & Vogt Manufacturing Co. 245,610
9,498 M/A/R/C (The) Group 156,717
18,000 Maxwell Shoe, Inc. Cl. A* 357,750
8,500 McRae Industries, Inc. Cl. A 59,500
12,000 Motorcar Parts & Accessories, Inc.* 177,000
21,000 Nobel Education Dynamics, Inc.* 189,000
15,700 Optical Coating Laboratory, Inc. 300,262
11,000 OroAmerica Inc.* 123,750
5,000 Personnel Management, Inc.* 75,625
20,000 Piccadilly Cafeterias, Inc. 257,500
7,000 Pulaski Furniture Corp. 175,000
16,400 R & B, Inc.* 176,300
8,500 Reading Entertainment, Inc.* 108,375
14,000 Rex Stores Corp.* 176,750
17,000 Rock Bottom Restaurants, Inc.* 108,375
6,000 Rocky Shoes & Boots, Inc.* 85,500
30,000 RPC Energy Services, Inc. 375,000
8,400 S & K Famous Brands, Inc.* 149,100
14,600 Scheib (Earl), Inc.* 111,325
6,772 Supreme Industries, Inc. Cl. A 82,957
11,000 Supreme International Corp.* 180,125
29,000 Syms Corp.* 413,250
24,000 Tarrant Apparel Group 453,000
36,200 TCBY Enterprises, Inc. 332,588
11,000 Thomaston Mills, Inc. Cl. A 64,625
1,000 Thomaston Mills, Inc. Cl. B 6,375
7,000 Trimark Holdings, Inc.* 26,250
23,800 Uni-Marts, Inc.* 93,713
7,875 Valley Forge Corp. 118,125
9,000 Weyco Group, Inc. 235,125
42,000 Winnebago Industries, Inc. 535,500
13,828 Wolohan Lumber Co. 180,628
9,901,050
CONSUMER STAPLES - 7.70%
16,100 Buttrey Food & Drug Stores Co.* 235,462
9,300 Cagle's, Inc. Cl. A 155,194
12,600 Chalone Wine Group Ltd.* 137,025
6,000 Christiana Companies, Inc.* 186,000
4,000 Foodarama Supermarkets, Inc.* 135,500
30,000 Frozen Food Express Industries, Inc. 296,250
3,200 Genesee Corp. Cl. B 105,600
35,000 Ingles Markets, Inc. Cl. A 507,500
7,325 Marsh Supermarkets, Inc. Cl. A 120,863
9,725 Marsh Supermarkets, Inc. Cl. B 136,150
18,000 Orange-Co. Inc.* 106,875
22,800 Quaker Fabric Corp. 329,175
8,200 Safety Components International, Inc.* 145,550
19,550 Sanderson Farms, Inc. 288,362
9,300 Seaway Food Town, Inc. 180,188
6,900 Seneca Foods Corp. Cl. A* 93,150
5,900 Seneca Foods Corp. Cl. B* 87,025
5,000 Span-America Medical Systems, Inc. 40,000
14,000 Swiss Army Brands, Inc.* 161,000
13,000 Toastmaster Inc. 72,313
6,000 Triple S Plastics, Inc.* 39,375
12,900 Vallen Corp.* 256,388
10,800 Western Beef, Inc.* 89,100
7,400 Zaring National Corp.* 64,750
3,968,795
ENERGY - 1.52%
10,500 Adams Resources & Energy, Inc. 122,719
3,203 HS Resources, Inc.* 46,644
20,000 Key Production, Inc.* 237,500
9,100 Maynard Oil Co.* 92,137
10,200 Prima Energy Corp.* 181,050
5,000 Roanoke Gas Co. 102,500
782,550
FINANCIAL - 16.68%
4,730 Amwest Insurance Group, Inc. 68,585
10,000 Capitol Transamerica Corp. 205,625
14,208 Chartwell Re Corp. 418,248
11,952 Cotton States Life and Health Insurance Co. 170,316
5,000 Dewolfe Companies, Inc.* 33,125
20,000 Doral Financial Corp. 350,000
20,000 EMC Insurance Group, Inc. 295,000
17,000 Emergent Group, Inc.* 65,875
7,000 First Cash, Inc.* 87,500
11,000 First Investment Financial Services Group, Inc.* 70,125
16,000 Guarantee Life Companies, Inc. 350,000
11,500 Interstate/Johnson Lane, Inc. 362,250
11,800 Landamerica Financial Group, Inc. 675,550
10,000 Litchfield Financial Corp. 210,000
5,000 Merchants Group, Inc. 118,125
12,300 Meridian Insurance Group, Inc. 235,238
17,400 Midland Co. 398,025
5,600 Minuteman International, Inc. 64,050
22,800 National Discount Brokers Group, Inc.* 242,250
7,000 National Insurance Group * 61,250
4,850 National Security Group, Inc. 90,937
4,000 National Western Life Insurance Co.* 484,000
15,400 Navigators Group, Inc.* 291,638
14,000 Penn Treaty American Corp.* 441,000
12,250 Penn-America Group, Inc. 165,375
6,600 Professionals Insurance Company
Management Group*. 247,500
12,000 PXRE Corp. 360,000
9,875 RLI Corp. 401,789
20,000 RTW, Inc.* 155,000
5,550 Scott & Stringfellow Financial, Inc. 138,750
19,000 South Jersey Industries, Inc. 524,875
13,400 Stewart Information Services Corp. 650,737
9,672 Walshire Assurance Co. 64,077
4,600 Ziegler (The) Companies, Inc. 95,738
8,592,553
HEALTHCARE - 0.58%
13,000 Advocat, Inc.* 89,375
18,060 Graham-Field Health Products, Inc.* 101,588
12,000 Merit Medical Systems, Inc.* 106,500
297,463
MISCELLANEOUS - 3.45%
14,000 Andersons, Inc. 145,250
8,100 Astronics Corp.* 111,375
11,900 Celebrity, Inc.* 14,131
16,400 Drypers Corp. New* 106,600
10,400 Edelbrock Corp.* 183,300
4,966 Enstar Group, Inc.* 32,279
1,500 FRM Nexus, Inc.* 1,500
21,750 Hardinge, Inc. 530,156
15,500 Hoenig Group, Inc.* 112,375
10,600 Primesource Corp. 95,400
4,500 Programming and Systems, Inc.* 4,500
17,400 Rottlund Inc.* 71,775
2,600 Scope Industries 183,137
18,000 Todd AO Corp. Cl. A 184,500
1,776,278
TECHNOLOGY - 12.31%
2,100 Allen Organ Co. Cl. B 84,525
12,400 Autologic Information International, Inc.* 75,175
11,400 BEI Medical Systems Company, Inc. 45,600
11,400 BEI Technologies, Inc. 218,025
16,020 Bell Industries Inc.* 182,227
13,700 Bell Microproducts Inc.* 109,171
12,000 Brite Voice Systems, Inc.* 136,500
45,000 BT Office Products International, Inc.* 607,500
12,000 CPAC Inc.* 115,500
10,000 Data Research Associates, Inc. 192,500
23,000 Data Systems & Software Inc.* 94,875
4,600 Dataram Corp.* 53,475
4,000 Datron Systems, Inc.* 27,000
8,382 Del Global Technology* 83,820
10,000 DRS Technologies, Inc.* 120,000
5,200 Eastern (The) Co. 143,000
11,000 Environmental Technologies Corp.* 59,813
6,000 Equitrac Corp.* 120,000
4,000 Espey Mfg. & Electronics Corp. 56,000
14,000 Franklin Electronic Publishers, Inc.* 140,000
48,000 Genus Inc.* 48,000
7,000 Giga-tronics, Inc.* 31,937
27,000 GTI Corp.* 75,938
13,900 IEC Electronics Corp.* 96,431
15,000 IFR Systems, Inc. 270,000
16,000 Integrated Measurement System, Inc.* 124,000
14,000 Interphase Corp.* 94,500
9,000 Isco, Inc. 72,000
8,500 Koss Corp.* 86,062
4,300 Moore Products Co. 119,325
16,400 Newport Corp. 323,900
18,000 Nichols Research Corp.* 491,625
17,200 Norstan, Inc.* 431,075
16,000 Powell Industries, Inc.* 200,000
6,500 Programmer's Paradise, Inc.* 53,625
12,000 Quad Systems Corp.* 30,374
4,300 Quipp, Inc.* 86,000
8,000 Refac Technology Develop Corp. 98,500
5,000 Thermo Power Corp.* 52,500
27,000 Thermospectra Corp.* 344,250
10,000 TRM Copy Center Corp.* 142,500
11,400 Vertex Communications Corp.* 267,900
9,000 Wandel & Goltermann Technologies, Inc.* 135,843
6,340,991
TRANSPORTATION & SERVICES - 2.90%
12,000 International Shipholding Corp. 192,750
4,000 Kenan Transport Co. 137,500
6,966 KLLM Transport Services, Inc.* 84,898
12,000 Marten Transport Ltd. 216,000
15,500 Old Dominion Freight Line, Inc.*. 240,492
5,000 Petroleum Helicopters, Inc. 103,125
12,000 Transport Corporation of America, Inc.* 198,000
17,000 USA Truck, Inc.* 274,125
5,250 VSE Corp. 48,563
1,495,453
UTILITIES - 14.35%
13,000 Aquarion Co. 444,438
6,600 Atrion Corp. 58,575
31,100 Bangor Hydro-Electric Co.* 279,900
7,000 Berkshire Gas Co. 162,750
18,350 Cascade Natural Gas Corp. 287,866
8,300 Chesapeake Utilities Corp. 145,250
15,150 Colonial Gas Co. 433,669
16,450 Connecticut Energy Corp. 458,544
5,000 Connecticut Water Service, Inc. 172,500
17,800 Consumers Water Co. 491,725
19,000 CTG Resources, Inc. 446,500
4,000 Delta Natural Gas Company, Inc. 71,000
3,300 Dominguez Services Corp. 58,575
13,000 E`town Corp. 487,500
6,000 EnergyNorth, Inc. 158,250
3,400 Essex County Gas Co. 156,400
5,000 Florida Public Utilities Co. 151,250
9,000 Green Mountain Power Corp. 128,812
7,000 Maine Public Service Co. 99,750
7,600 Middlesex Water Co. 153,900
18,419 NUI Corp. 468,533
8,900 Pennsylvania Enterprises, Inc. 239,744
8,600 Philadelphia Suburban Corp. 188,125
10,800 Providence Energy Corp. 227,475
6,100 SJW Corp. 359,900
16,600 Southern California Water Co. 450,275
14,000 St. Joseph Light & Power Co. 260,750
9,176 UNITIL Corp. 215,636
5,100 Upper Peninsula Energy Corp. 137,063
7,394,655
TOTAL COMMON STOCKS - 96.10% 49,507,525
(COST $36,145,014)
FACE AMOUNT DESCRIPTION MARKET VALUE
REPURCHASE AGREEMENT - 3.59%
$ 1,850,000 UMB Bank, n.a.,
5.05%, due July 1, 1998
(Collateralized by U.S.
Treasury Notes, 5.75%,
due September 30, 1999)
(COST $1,850,000) 1,850,000
TOTAL INVESTMENTS - 99.69% $ 51,357,525
(COST $37,995,014)
Other assets less liabilities - 0.31% 161,762
TOTAL NET ASSETS - 100.00%
(equivalent to $13.24 per share;
10,000,000 shares of $1.00 par
value capital shares authorized;
3,891,781 shares outstanding) $ 51,519,287
For federal income tax purposes, the identified cost of investments owned at
June 30, 1998, was $38,458,236.
Net unrealized appreciation for federal income tax purposes was $12,899,289,
which is comprised of unrealized appreciation of $16,060,909 and
unrealized depreciation of $3,161,620.
*Securities on which no cash dividends were paid during the
preceding year.
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1998
ASSETS:
Investment securities, at market value
(identified cost $37,995,014) $ 51,357,525
Cash 87,297
Dividends receivable 74,465
Total assets 51,519,287
NET ASSETS $ 51,519,287
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 36,496,307
Accumulated undistributed income:
Undistributed net investment income 33,724
Undistributed net realized gain on investment transactions
1,626,745
Net unrealized appreciation in value of investments
13,362,511
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 51,519,287
Capital shares, $1.00 par value
Authorized 10,000,000
Outstanding 3,891,781
NET ASSET VALUE PER SHARE $ 13.24
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Year Ended June 30, 1998
INVESTMENT INCOME:
Income:
Dividends $ 737,378
Interest 152,000
889,378
Expenses:
Management fees (Note 3) 527,001
Custodian fees 23,721
Pricing service fees 28,398
Registration fees 22,225
601,345
Net investment income 288,033
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 1):
Realized gain from investment transactions
(excluding repurchase agreements):
Proceeds from sales of investments 20,983,503
Cost of investments sold 14,165,339
Net realized gain from investment transactions 6,818,164
Unrealized appreciation on investments:
Beginning of year 11,042,916
End of year 13,362,511
Increase in net unrealized appreciation on investments 2,319,595
Net gain on investments 9,137,759
Increase in net assets resulting from operations $ 9,425,792
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
For The Two Years Ended June 30, 1998
<TABLE>
<CAPTION>
1998 1997
</CAPTION>
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 288,033 $ 379,839
Net realized gain from investment transactions 6,818,164 3,517,542
Increase in net unrealized appreciation on investments 2,319,595 4,247,552
Net increase in net assets resulting from operations 9,425,792 8,144,933
Net equalization included in the price of shares issued and
redeemed (Note 1) (12,049) 5,879
DISTRIBUTIONS TO SHAREHOLDERS FROM:*
Net investment income (349,675) (272,927)
Net realized gain from investment transactions (6,317,392) (3,793,901)
Total distributions to shareholders (6,667,067) (4,066,828)
INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from 3,766,494 and 666,941 shares sold 51,683,031 7,776,031
Net asset value of 490,161 and 323,888 shares issued for
reinvestment of distributions 6,122,001 3,812,222
57,805,032 11,588,253
Cost of 3,651,770 and 1,137,409 shares redeemed (50,354,485) (13,173,479)
Net increase (decrease) from capital share transactions 7,450,547 (1,585,226)
Total increase in net assets 10,197,223 2,498,758
NET ASSETS:
Beginning of year 41,322,064 38,823,306
End of year (including undistributed net investment income
of $33,724 in 1998 and $107,415 in 1997) $ 51,519,287 $ 41,322,064
*Distributions to shareholders:
Income dividends per share $ 0.1008 $ 0.0864
Capital gains distribution per share $ 1.8492 $ 1.2086
</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,
1998, ($12,049) 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, 1998 (excluding repurchase agreements), were as follows:
Purchases $ 21,651,544
Proceeds from sales 20,983,503
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, 1998:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
</CATPION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $12.57 $11.31 $10.55 $ 9.67 $11.66
Income from investment operations:
Net investment income 0.08 0.12 0.09 0.10 0.06
Net gains on securities
(both realized and unrealized) 2.54 2.44 1.67 1.42 0.46
Total from investment operations 2.62 2.56 1.76 1.52 0.52
Less distributions:
Dividends from net investment income (0.10) (0.09) (0.10) (0.10) (0.06)
Distributions from capital gains (1.85) (1.21) (0.90) (0.54) (2.45)
Total distributions (1.95) (1.30) (1.00) (0.64) (2.51)
Net asset value, end of year $13.24 $12.57 $11.31 $10.55 $ 9.67
Total return 22% 24% 17% 16% 4%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 52 $ 41 $ 39 $ 39 $ 31
Ratio of expenses to average net assets 1.16% 1.13% 1.14% 1.13% 1.28%
Ratio of net investment income to average net assets 0.56% 1.00% 0.79% 1.01% 0.50%
Portfolio turnover rate 43% 0% 25% 19% 43%
</TABLE>
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, 1998, 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, 1998, by correspondence
with the custodian. 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, 1998,
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, 1998
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.
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.
BABSON FUNDS
JONES & BABSON DISTRIBUTORS
A member of the Generali Group
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306
816-751-5900
1-800-4-BABSON
(1-800-422-2766)
http://www.jbfunds.com
JB1C-2 8/98
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<NAME> SHADOW STOCK FUND INC
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