SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. 15 File No. 33-15074 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 17 File No. 811-5218 [X]
SHADOW STOCK FUND, INC.
- --------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
700 Karnes Blvd., Kansas City, Missouri 64108-3306
- --------------------------------------------------------------
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code (816)-751-5900
Larry D. Armel, President, SHADOW STOCK FUND, INC.
700 Karnes Blvd., Kansas City, Missouri 64108-3306
- --------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: October 31, 1998
It is proposed that this filing become effective:
X On October 31, 1998, pursuant to paragraph (b) of Rule 485
Title of securities being registered:
Common Stock, $1.00 par value
Please address inquiries and communications to:
Martin A. Cramer
Shadow Stock Fund, Inc.
700 Karnes Blvd.
Kansas City, MO 64108-3306
Telephone: (816) 751-5900
and a carbon copy of all communications to:
Mark H. Plafker, Esq.
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Telephone: (215) 564-8000
<PAGE>
CROSS REFERENCE SHEET
Form N-1A Item Number Location in Prospectus
Item 1. Cover Page . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . Not Applicable
Item 3. Condensed Financial Information . . Per Share Capital and
Income Changes
Item 4. General Description of Registrant. . Investment Objective
and Portfolio
Management Policy
Item 5. Management of the Fund . . . . . . . Officers and Directors;
Management and
Investment Counsel
Item 6. Capital Stock and Other Securities . How to Purchase Shares;
How to Redeem Shares;
How Share Price is
Determined; General
Information and
History; How Share
Price is Determined
Dividends Distributions
and their Taxation
Item 7. Purchase of Securities . . . . . . . Cover Page; How to
being Offered Purchase Shares;
Shareholder Services
Item 8. Redemption or Repurchase . . . . . . How to Redeem Shares
Item 9. Pending Legal Proceedings . . . . . Not Applicable
Item 10. Cover Page . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . . . . Cover Page
Item 12. General Information and History . . Investment Objectives and
Policies; Management and
Investment Counsel
Item 13. Investment Objectives and Policies . Investment Objectives
and Policies;
Investment Restrictions
Item 14. Management of the Fund . . . . . . . Management and
Investment Counsel
Item 15. Control Persons and Principal . . . Management and
Holders of Securities Investment Counsel;
Officers and Directors
Item 16. Investment Advisory and other . . . Management and Investment
Services Counsel; Shareholder
Services (Prospectus)
Item 17. Brokerage Allocation . . . . . . . . Portfolio Transactions
Item 18. Capital Stock and Other Securities . General Information;
Financial Statements
Item 19. Purchase, Redemption and Pricing . . How Share Purchases
of Securities Being Offered are Handled; Redemption
of Shares
Financial Statements
Item 20. Tax Status . . . . . . . . . . . . . Dividends, Distributions
and their Taxation (in
Prospectus)
Item 21. Underwriters . . . . . . . . . . . . How the Fund's Shares
are Distributed
Item 22. Calculation of Yield Quotations. . . Performance Measures
of Money Market Fund
Item 23. Financial Statements . . . . . . . . (Incorporated by
reference)
<PAGE>
SHADOW
Stock
FUND
Prospectus
October 31, 1998
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."
BABSON FUNDS
Jones & Babson Distributors
A member of the Generali Group
PROSPECTUS
October 31, 1998
SHADOW STOCK
FUND, INC.
Managed and Distributed By:
JONES & BABSON, INC.
Kansas City, Missouri
Toll-Free 1-800-4-BABSON
(1-800-422-2766)
In the Kansas City area 751-5900
Investment Counsels:
DAVID L. BABSON & CO. INC.
Cambridge, Massachusetts
ANALYTIC SYSTEMS, INC.
Chicago, Illinois
INVESTMENT OBJECTIVE
A no-load diversified mutual fund that seeks long-term growth of capital
by investing in small company stocks called "Shadow Stocks." These are
stocks that combine the characteristics of "small stocks" (as ranked
by market capitalization in addition to other factors) and "neglected
stocks" (generally those least held by institutions and least covered
by analysts). (See "Investment Objective and Portfolio Management
Policy" on page 4 of 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 (unless Automatic Monthly) $ 2,500
Initial IRA and Uniform Transfers (Gifts)
to Minors Purchases (unless Automatic Monthly) $ 250
Subsequent Purchase (unless Automatic Monthly):
By Mail or Telephone Purchase (ACH) $ 100
By Wire $ 1,000
Automatic Monthly Purchases (ACH):
Initial $ 100
Subsequent $ 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 above.
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 calling
the Fund at the telephone numbers indicated above or by writing to the
address on the back cover.
These securities have not been approved or disapproved by the Securities
and Exchange Commission nor has the 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 Operating Expenses
(as a percentage of average net assets)
Management fees 1.00%
12b-1 fees None
Other expenses .16%
Total Fund operating expenses 1.16%
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 Years 5 Years 10 Years
$12 $37 $64 $141
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, 1998. 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 each of the past ten fiscal years
have been derived from audited financial statements of Shadow Stock
Fund, Inc. Such information for the most recent five fiscal years 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, 1998, Annual Report to Shareholders which is
incorporated by reference into this prospectus. The information for each
of the five fiscal years from the period ended June 30, 1989 to June 30,
1993, is not covered by the report of Arthur Andersen LLP.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 12.57 $ 11.31 $ 10.55 $ 9.67 $ 11.66 $ 10.32 $ 8.96 $ 9.01 $ 9.34 $ 8.69
Income from investment operations:
Net investment income 0.08 0.12 0.09 0.10 0.06 0.12 0.09 0.10 0.14 0.12
Net gains (or losses) on securities
(both realized and unrealized) 2.54 2.44 1.67 1.42 0.46 1.87 1.36 (0.05) (0.29) 0.99
Total from investment operations 2.62 2.56 1.76 1.52 0.52 1.99 1.45 0.05 (0.15) 1.11
Less distributions:
Dividends from net
investment income (0.10) (0.09) (0.10) (0.10) (0.06) (0.11) (0.09) (0.10) (0.14) (0.13)
Distributions from capital gains (1.85) (1.21) (0.90) (0.54) (2.45) (0.54) - - (0.04) (0.33)
Total distributions (1.95) (1.30) (1.00) (0.64) (2.51) (0.65) (0.09) (0.10) (0.18) (0.46)
Net asset value, end of year $ 13.24 $ 12.57 $ 11.31 $ 10.55 $ 9.67 $ 11.66 $ 10.32 $ 8.96 $ 9.01 $ 9.34
Total return 22% 24% 17% 16% 4% 19% 16% 1% (2)% 13%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 52 $ 41 $ 39 $ 39 $ 31 $ 33 $ 26 $ 22 $ 25 $ 26
Ratio of expenses to average
net assets 1.16% 1.13% 1.14% 1.13% 1.28% 1.25% 1.26% 1.31% 1.29% 1.33%
Ratio of net investment income
to average net assets 0.56% 1.00% 0.79% 1.01% 0.50% 1.05% 0.87% 1.20% 1.49% 1.39%
Portfolio turnover rate 43% 0% 25% 19% 43% 15% 23% 0% 16% 15%
</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."
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 net 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 when the securities are sold. 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.
Risk Factors Applicable to
Year 2000 Issue
Like other mutual funds, as well as other financial and business
organizations around the world, the Fund could be adversely affected if
the computer systems used by the Manager, Investment Counsels and other
service providers, in performing their administrative functions do not
properly process and calculate date-related information and data as of
and after January 1, 2000. This is commonly known as the "Year 2000
Issue." The Manager and Investment Counsels are taking steps that they
believe are reasonably designed to address the Year 2000 Issue with
respect to computer systems that they use and to obtain reasonable
assurances that comparable steps are being taken by the Fund's other
major service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse
impact to the Fund.
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 Share-
holders 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 and
Fortune, 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. To complete a purchase order by
mail, wire or telephone, please provide the information detailed below.
For information or assistance call toll free 1-800-4-BABSON (1-800-422-
2766), or in the Kansas City area 751-5900. 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 and
accepted 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 such institutions.
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. The minimum initial purchase is $2,500 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. However,
if electing the Automatic Monthly Investment Plan, the minimum initial
purchase is reduced to $100 for all accounts. Make your check payable to
UMB Bank, n.a. Mail your application and check to:
Shadow Stock Fund, Inc.
P.O. Box 419757
Kansas City, MO 64141-6757
Initial investments - By wire. You may purchase shares of the Fund by
wiring the purchase price ($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 751-5900 and provide 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 may 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, 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 made payable to UMB Bank, n.a. and mailed to the Fund
at:
P.O. Box 419779
Kansas City, MO 64141-6779
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 name of 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. Debits to your
checking account would be processed through the Automated Clearing House
(ACH). 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
followed, the Fund will not 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 in-
structions 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 shareholders.
AUTOMATIC MONTHLY
INVESTMENT PLAN
You may elect to make monthly investments in a constant dollar amount
from your checking account ($50 minimum, after an initial investment of
$100 or more for any account). 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. Debits to your checking account would be processed through
the Automated Clearing House (ACH). Availability and continuance of this
privilege is subject to acceptance and approval by the Fund and all
participating banks. If the date selected falls on a day upon which the
Fund shares are not priced, investment will be made on the first date
thereafter upon which Fund shares are priced. The Fund will not be
responsible for the consequences of delays, including delays in the
banking or Federal Reserve wire systems.
The Fund reserves the right to initiate a charge for this service and to
terminate or modify any or all of the privileges in connection with this
service at any time upon 15 days written notice to shareholders, and to
terminate or modify the privileges without prior notice in any
circumstances where such termination or modification is in the best
interest of the Fund and its shareholders.
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 751-5900.
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:
P.O. Box 419757
Kansas City, MO 64141-6757
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, whichever occurs first.
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 en-dorsed 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 751-5900, 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 normally
deducted from redemption proceeds, unless otherwise instructed. 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
For all accounts, except Traditional and Roth IRAs, shareholders may
exchange Fund shares which have been held in an open account for 15 days
or more, and for which good payment has been received and accepted, for
identically registered shares of any other Babson or Buffalo Fund which
is authorized for sale in the state in which the investor is located,
except Babson Enterprise Fund, Inc., provided that the minimum amount
exchanged has a value of $1,000 and meets the minimum investment
requirement of the Fund into which it is exchanged.
For Traditional and Roth IRAs, shareholders may exchange Fund shares
which have been held in an open account for 15 days or more, and for
which good payment has been received and accepted, for identically
registered shares of any other Babson Fund which is authorized for sale
in the state in which the investor is located, except Babson Enterprise
Fund, Inc., provided that the minimum amount exchanged has a value of
$1,000 and meets the minimum investment requirement of the Fund into
which it is exchanged.
Automatic exchanges ($100 minimum) are also available for all accounts.
Once started, they continue monthly until all shares are exchanged or
until you terminate the Automatic Exchange authorization.
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 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
followed, the Fund will not 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 in-
structions 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 by name and
number, the number of shares or dollar amount to be redeemed for
exchange and the 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 Babson Fund or Buffalo Fund, 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. An 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., BMA Tower, 700 Karnes Blvd., Kansas City, MO
64108-3306, was founded in 1959. 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;
fees and other charges of governments and their agencies, including the
cost of qualifying the Fund's shares for sale in any jurisdiction;
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 29 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 all the foregoing services the Fund pays Jones &
Babson, Inc. a fee at the annual rate of one percent (1%) of average
daily net assets. Jones & Babson, Inc. pays David L. Babson & Co. Inc. a
fee of 1/4 of one percent (.25%) of the average daily total net assets,
and Analytic Systems, Inc. a fee of 1/5 of one percent (.20%) of the
average daily total net assets. These fees are computed daily. The fee
to Jones & Babson, Inc. is paid semimonthly and fees to David L. Babson
& Co. Inc. and Analytic Systems, Inc. are paid monthly. The total
expenses of the Fund for the fiscal year ended June 30, 1998, amounted
to 116/100 of one percent (1.16%) 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, 1999, 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, as required under the
Investment Company Act of 1940.
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 General Corporation Law permits 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 and capital gains
semiannually, usually in June and December. Dividend and capital gains
distributions will be automatically reinvested in additional shares of
the Fund, unless the shareholder has elected on the original application
or by written instructions filed with the Fund, to have them paid in
cash.
Distributions by the Fund are taxable as either ordinary income or
capital gains. Any capital gains distributed by the Fund are taxable as
long-term capital gains no matter how long you have owned your shares.
Distributions by a Fund of ordinary income or capital gains are taxable
whether you reinvest your distributions or receive them in cash. If you
purchase shares of the Fund shortly before a record date for a dividend
or capital gain distribution, a portion of such purchase may be returned
as a taxable distribution. Distributions by the Fund may also be
subject to state and local taxes.
The income received by the Fund is generally expected to constitute
dividends from domestic (U.S.) sources, and therefore distributions from
the Fund generally will be eligible for the dividends-received deduction
for corporations. The Fund will send to shareholders a statement each
year advising the amount of the dividend income which qualifies for such
treatment.
When you sell your shares, you may have a capital gain or loss. For tax
purposes, an exchange is the same as a sale. The tax rate on any gain
from the sale or exchange of your shares depends on how long you have
held your shares.
Fund distributions and gains from the sale or exchange of your shares
will generally be subject to state and local income tax. Non-U.S.
investors may be subject to U.S. withholding and estate tax.
The Fund is required to withhold 31% of reportable payments made to any
shareholder who fails to certify on their application that their Social
Security or Taxpayer Identification Number provided is correct and that
they are not subject to backup withholding.
The federal income tax status of all distributions will be reported to
shareholders each January as part of the annual statement of shareholder
transactions.
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 Federal, State, Local and Foreign 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, after an initial investment of $100 or more). 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 - Unless your account is a Traditional or Roth IRA,
you may exchange shares from your account in any of the Babson Funds for
shares to be held in an identically registered account in any other
Babson or Buffalo Fund, except Babson Enterprise Fund, Inc., according
to your instructions. If your account is a Traditional or Roth IRA, you
may exchange shares from your account in any of the Babson Funds for
shares to be held in an identically registered account in any other
Babson Fund, except Babson Enterprise Fund, according to your
instructions. The minimum amount is $100, and monthly exchanges will
continue 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 are the following
Individual Retirement Accounts (IRAs):
Traditional IRA: The IRS has increased the phase-out ranges for
deductible contributions. 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 ($4,000
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, as well as the best IRA for your financial goals.
Roth IRA: Unlike the Traditional IRA, contributions are non-deductible,
however, distribution will be exempt from federal taxes provided that,
at the time of withdrawal, the IRA has been held for five years and (1)
the account holder is 59 1/2 years old or (2) the withdrawals are used
to purchase a first home. The maximum contribution to a Roth IRA is
$2,000 and eligibility is subject to restrictions. Traditional IRAs may
be converted into Roth IRAs. Consult your tax adviser to determine the
best IRA for your financial goals.
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 751-5900.
Shareholders may address written inquiries to the
Fund at:
Mailing Addresses
For Subsequent Purchases:
Shadow Stock Fund, Inc.
P.O. Box 419779
Kansas City, MO 64141-6779
For All Other Correspondence:
Shadow Stock Fund, Inc.
P.O. Box 419757
Kansas City, MO 64141-6757
Overnight Deliveries
Shadow Stock Fund, Inc.
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306
AUDITORS
ARTHUR ANDERSEN LLP
Kansas City, Missouri
LEGAL COUNSEL
STRADLEY, RONON, STEVENS & YOUNG, LLP
Philadelphia, Pennsylvania
CUSTODIAN
UMB BANK, n.a.
Kansas City, Missouri
TRANSFER AGENT
JONES & BABSON, INC.
Kansas City, Missouri
EUQITIES
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
P.O. Box 419757
Kansas City, MO 64141-6757
816-751-5900
1-800-4-BABSON
(1-800-422-2766)
www.babsonfunds.com
JB1B 10/98
<PAGE>
PART B
SHADOW STOCK FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
October 31, 1998
This Statement is not a Prospectus but should be read in conjunction with
the Fund's current Prospectus dated October 31, 1998. To obtain the
Prospectus please call the Fund toll-free at 1-800-4-BABSON (1-800-422-2766),
or in the Kansas City area 751-5900.
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE AND POLICIES 1
PORTFOLIO TRANSACTIONS 2
INVESTMENT RESTRICTIONS 3
PERFORMANCE MEASURES 3
HOW THE FUND'S SHARES ARE DISTRIBUTED 4
HOW SHARE PURCHASES ARE HANDLED 4
REDEMPTION OF SHARES 5
SIGNATURE GUARANTEES 6
MANAGEMENT AND INVESTMENT COUNSEL 6
HOW SHARE PRICE IS DETERMINED 6
OFFICERS AND DIRECTORS 7
DIVIDENDS, DISTRIBUTIONS AND THEIR TAXATION 9
CUSTODIAN 10
INDEPENDENT PUBLIC ACCOUNTANTS 10
OTHER JONES & BABSON FUNDS 11
FINANCIAL STATEMENTS 12
JB57 10/98
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the Fund's investment objective and
policies set forth in the Prospectus.
Although the Shadow Stock Fund intends to invest its assets in Shadow
Stocks, if, in the judgment of the Investment Counsel, extremely
abnormal conditions persist in the markets for such securities,
management retains the authority to adopt a defensive posture by
investing in debt securities, such as money market obligations,
including securities of the U.S. Government and its agencies, high-
quality commercial paper, bankers' acceptances and repurchase agreements
with banks and brokers for U.S. government securities.
Instead of investing in a particular stock on the buy list, in some
cases the Fund may purchase the equivalent amount of securities
convertible into the common stock, if in the judgment of the Investment
Counsel it is advantageous to the Fund to do so.
Fund transactions will be placed with a view to receiving the best price
and execution. The Fund does not intend to solicit competitive bids on
each transaction. Since it is the policy of the Fund to invest in
stocks of small companies, which are not as liquid as stocks of large
companies, the Fund will seek to acquire and dispose of securities in a
manner which would cause as little fluctuation in the market prices of
stocks being purchased or sold as possible in light of the size of the
transactions being effected, and brokers will be selected with this goal
in view. The Investment Counsel will monitor the performance of brokers
which effect transactions for the Fund to determine the impact that the
Fund's trading has on the market prices of the securities in which it
invests and check the rates of commission being paid by the Fund to
brokers to ascertain that they are competitive with those charged by
other brokers for similar services. Transactions also may be placed
with brokers who provide the Investment Counsel with investment
research, such as reports concerning individual issuers, industries and
general economic and financial trends and other research services and
the Investment Counsel may knowingly pay commissions to such brokers
that may be higher than another broker might charge, if in good faith
the Investment Counsel determines that the commissions paid are
reasonable in relation to the brokerage and research services provided.
The OTC companies eligible for purchase by the Fund are among the most
thinly traded securities the Fund will buy or sell. Therefore, the
Investment Counsel believes it needs maximum flexibility to effect OTC
trades on a best execution basis. To that end, the Investment Counsel
may place OTC buy and sell orders with primary market makers, third
market brokers or Instinet.
Although stocks held in the Fund's portfolio are generally those that
are least held by institutions, in some circumstances where the Fund
seeks to acquire or dispose of portfolio securities, transactions with
institutional holders through third market brokers will enable the
Investment Counsel to trade with other institutional holders directly on
a net basis. This allows the Investment Counsel to sometimes trade
larger blocks than would be possible by going through a single market
maker.
Instinet is an electronic information and communication network whose
subscribers include most market makers as well as many institutions.
Instinet charges a commission for each trade executed on its system. On
any given trade, the Shadow Stock Fund by trading through Instinet,
could pay a dealer spread to a dealer on the other side of the trade
plus a commission to Instinet. However, placing a buy (or sell)
position on Instinet communicates to many (potentially all) market
makers and institutions at once. This can create a more complete
picture of the market and thus increase the likelihood that the Fund can
buy at the lowest possible price or sell at the highest possible price.
Money regularly flowing into the Fund for investment is unlikely to be
received in amounts required for an ideally weighted basket of stocks.
As a result, shares will be purchased in efficient lot sizes so as to
purchase first those stocks furthest below their ideal weight.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Fund are made by Jones &
Babson, Inc. pursuant to recommendations by David L. Babson & Co. Inc.
Officers of the Fund and Jones & Babson, Inc. are generally responsible
for implementing or supervising these decisions, including allocation of
portfolio brokerage and principal business as well as the negotiation of
commissions and/or the price of the securities.
The Fund, in purchasing and selling portfolio securities, will seek the
best available combination of execution and overall price (which shall
include the cost of the transaction) consistent with the circumstances
which exist at the time. The Fund does not intend to solicit
competitive bids on each transaction.
The Fund believes it is in its best interest and that of its
shareholders to have a stable and continuous relationship with a diverse
group of financially strong and technically qualified broker-dealers who
will provide quality executions at competitive rates. Broker-dealers
meeting these qualifications also will be selected for their
demonstrated loyalty to the Fund, when acting on its behalf, as well as
for any research or other services provided to the Fund. Substantially
all of the portfolio transactions are through brokerage firms which are
members of the New York Stock Exchange because usually the most active
market in the size of the Fund's transactions and for the type of
securities predominant in the Fund's portfolio is to be found there.
When buying securities in the over-the-counter market, the Fund will
select a broker who maintains a primary market for the security unless
it appears that a better combination of price and execution may be
obtained elsewhere. The Fund normally will not pay a higher commission
rate to broker-dealers providing benefits or services to it than it
would pay to broker-dealers who do not provide it such benefits or
services. However, the Fund reserves the right to do so within the
principles set out in Section 28(e) of the Securities Exchange Act of
1934 when it appears that this would be in the best interests of the
shareholders.
No commitment is made to any broker or dealer with regard to placing of
orders for the purchase or sale of Fund portfolio securities, and no
specific formula is used in placing such business. Allocation is
reviewed regularly by both the Board of Directors of the Fund and Jones
& Babson, Inc.
Since the Fund does not market its shares through intermediary brokers
or dealers, it is not the Fund's practice to allocate brokerage or
principal business on the basis of sales of its shares which may be made
through such firms. However, it may place portfolio orders with
qualified broker-dealers who recommend the Fund to other clients, or who
act as agent in the purchase of the Fund's shares for their clients.
Research services furnished by broker-dealers may be useful to the Fund
manager and its investment counsel in serving other clients, as well as
the Fund. Conversely, the Fund may benefit from research services
obtained by the manager or its investment counsel from the placement of
portfolio brokerage of other clients.
When it appears to be in the best interest of its shareholders, the Fund
may join with other clients of the manager and its investment counsel in
acquiring or disposing of a portfolio holding. Securities acquired or
proceeds obtained will be equitably distributed between the Fund and
other clients participating in the transaction. In some instances, this
investment procedure may affect the price paid or received by the Fund
or the size of the position obtained by the Fund.
For the past three fiscal years ended on June 30 each year, 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
1996 $ 46,313 25%
1997 $ 8,350 0%
1998 $ 81,743 43%
INVESTMENT RESTRICTIONS
In addition to the investment objective and portfolio management
policies set forth in the Prospectus under the caption "Investment
Objective and Portfolio Management Policy," the following restrictions
also may not be changed without approval of the "holders of a majority
of the outstanding shares" of the Fund.
The Fund will not: (1) purchase the securities of any one issuer, except
the United States Government, if immediately after and as a result of
such purchase (a) the value of the holdings of the Fund in the
securities of such issuer exceeds 5% of the value of the Fund's total
assets, or (b) the Fund owns more than 10% of the outstanding voting
securities, or any other class of securities, of such issuer; (2) engage
in the purchase or sale of real estate or commodities; (3) underwrite
the securities of other issuers; (4) make loans to any of its officers,
directors, or employees, or to its manager, or general distributor, or
officers or directors thereof, (5) make loans to other persons, except
by the purchase of debt obligations which are permitted under its
investment policy; (6) invest in companies for the purpose of exercising
control of management; (7) purchase securities on margin, or sell
securities short; (8) purchase shares of other investment companies
except in the open market at ordinary broker's commission, but not in
excess of 5% of the Fund's assets, or pursuant to a plan of merger or
consolidation; (9) invest in the aggregate more than 5% of the value of
its gross assets in the securities of issuers (other than federal,
state, territorial, or local governments, or corporations, or
authorities established thereby), which, including predecessors, have
not had at least three years' continuous operations nor invest more than
25% of the Fund's assets in any one industry; (10) enter into dealings
with its officers or directors, its manager or underwriter, or their
officers or directors, or any organization in which such persons have a
financial interest except for transactions in the Fund's own shares or
other securities through brokerage practices which are considered normal
and generally accepted under circumstances existing at the time; (11)
purchase or retain securities of any company in which any Fund officers
or directors, or Fund manager, its partner, officer, or director
beneficially owns more than 1/2 of 1% of said company's securities, if
all such persons owning more than 1/2 of 1% of such company's
securities, own in the aggregate more than 5% of the outstanding
securities of such company; (12) borrow or pledge its credit under
normal circumstances, except up to 10% of its gross assets (computed at
the lower of fair market value or cost) for temporary or emergency
purposes, and not for the purpose of leveraging its investments, and
provided further that any borrowing in excess of 5% of the total assets
of the Fund shall have asset coverage of at least 3 to 1; (13) make
itself or its assets liable for the indebtedness of others; (14) invest
in securities which are assessable or involve unlimited liability; or
(15) issue senior securities except for those investment procedures
permissible under the Fund's other restrictions.
PERFORMANCE MEASURES
Total Return
The Fund's "average annual total return" figures described and shown
below are computed according to a formula prescribed by the Securities
and Exchange Commission. The formula can be expressed as follows:
P(1+T)^n = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1000 payment
made at the beginning of the 1, 5 or 10 years (or other)
periods at the end of the 1, 5 or 10 years (or other)
periods (or fractional portions thereof).
The table below shows the average annual total return for the Fund for
the specified periods.
For the one year 7/l/97-6/30/98 21.98%
For the five years 7/l/93-6/30/98 16.44%
For the ten years 7/1/88-6/30/98 12.77%
From commencement of
operation to 6/30/98* 10.39%
_______________________________________________
*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, 1999, and which will continue automatically for successive annual
periods ending each October 31, if continued at least annually by the
Fund's Board of Directors, including a majority of those Directors who
are not parties to such Agreements or interested persons of any such
party. It terminates automatically if assigned by either party or upon
60 days written notice by either party to the other.
Jones & Babson, Inc. also acts as sole distributor of the shares for the
David L. Babson Growth Fund, Inc., D.L. Babson Bond Trust, D.L. Babson
Money Market Fund, Inc., D.L. Babson Tax-Free Income Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund II, Inc., Babson Value
Fund, Inc., Babson-Stewart Ivory International Fund, Inc., UMB Scout
Stock Fund, Inc., UMB Scout Bond Fund, Inc., UMB Scout Money Market
Fund, Inc., UMB Scout Tax-Free Money Market Fund, Inc., UMB Scout
Regional Fund, Inc., UMB Scout WorldWide Fund, Inc., UMB Scout Balanced
Fund, Inc., UMB Scout Capital Preservation Fund, Inc., UMB Scout Kansas
Tax-Exempt Bond Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo Equity
Fund, Inc., Buffalo High Yield Fund, Inc., Buffalo Small Cap Fund, Inc.,
Buffalo USA Global Fund, Inc. and AFBA Five Star 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.
The Fund may authorize certain brokers or other institutions
(intermediaries) to accept, on the Fund's behalf, purchase, redemption
or exchange orders. These parties may also designate other
intermediaries to accept orders on the Fund's behalf. The Fund will be
deemed to have received a purchase, redemption or exchange order when an
authorized intermediary (or authorized designee), accepts the order.
All customer orders will be priced at the Fund's net asset value next
computed after such orders are accepted by an authorized intermediary
(or designee).
Each investment is confirmed by a year-to-date statement which provides
the details of the immediate transaction, plus all prior transactions in
your account during the current year. This includes the dollar amount
invested, the number of shares purchased or redeemed, the price per
share, and the aggregate shares owned. A transcript of all activity in
your account during the previous year will be furnished each January.
By retaining each annual summary and the last year-to-date statement,
you have a complete detailed history of your account. A duplicate copy
of a past annual statement is available from Jones & Babson, Inc. at its
cost, subject to a minimum charge of $5 per account, per year requested.
Normally, the shares which you purchase are held by the Fund in open
account, thereby relieving you of the responsibility of providing for
the safekeeping of a negotiable share certificate. Should you have a
special need for a certificate, one will be issued on request for all or
a portion of the whole shares in your account. There is no charge for
the first certificate issued. A charge of $3.50 will be made for any
replacement certificates issued. In order to protect the interests of
the other shareholders, share certificates will be sent to those
shareholders who request them only after the Fund has determined that
unconditional payment for the shares represented by the certificate has
been received by its custodian, UMB Bank, n.a.
If an order to purchase shares must be canceled due to non-payment, the
purchaser will be responsible for any loss incurred by the Fund arising
out of such cancellation. To recover any such loss, the Fund reserves
the right to redeem shares owned by any purchaser whose order is
canceled, and such purchaser may be prohibited or restricted in the
manner of placing further orders.
The Fund reserves the right in its sole discretion to withdraw all or
any part of the offering made by the prospectus or to reject purchase
orders when, in the judgment of management, such withdrawal or rejection
is in the best interest of the Fund and its shareholders. The Fund also
reserves the right at any time to waive or increase the minimum
requirements applicable to initial or subsequent investments with
respect to any person or class of persons, which include shareholders of
the Fund's special investment programs.
REDEMPTION OF SHARES
The right of redemption may be suspended, or the date of payment
postponed beyond the normal 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. was founded in 1940
as a private investment research and counseling organization. David L.
Babson & Co. Inc. is a wholly-owned subsidiary of Massachusetts Mutual
Life Insurance Company. David L. Babson & Co. Inc. serves individual,
corporate and other institutional clients. It participates with Jones &
Babson in the management of nine Babson no-load mutual funds.
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.
The aggregate management fees paid to Jones & Babson, Inc. during the
three most recent fiscal years ended June 30, 1998, 1997 and 1996, from
which Jones & Babson, Inc. paid all the Fund's expenses except those
payable directly by the Fund, were $527,001, $379,685 and $388,469,
respectively. The annual fee charged by Jones & Babson, Inc. covers all
normal operating costs of the Fund.
During the three most recent fiscal years ended June 30, 1998, 1997 and
1996, Jones & Babson, Inc. paid David L. Babson & Co. Inc. fees
amounting to $131,750, $94,921, and $97,117, respectively.
During the three most recent fiscal years ended June 30, 1998, 1997 and
1996, Jones & Babson, Inc. paid Analytic Systems, Inc. fees amounting
to $105,400, $75,937 and $77,694, respectively.
HOW SHARE PRICE IS DETERMINED
The net asset value per share of the Fund's 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 the 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
Martin Luther King, Jr. Day Third Monday in January
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 and their ages. Unless noted
otherwise, the address of each officer and director is BMA Tower, 700
Karnes Blvd., Kansas City, Missouri 64108-3306. Except as indicated,
each has been an employee of Jones & Babson, Inc. for more than five
years.
*Larry D. Armel (56), President and Director. President and
Director, Jones & Babson, Inc., David L. Babson Growth Fund, Inc.,
D.L. Babson Money Market Fund, Inc., D.L. Babson Tax-Free Income
Fund, Inc., Babson Enterprise Fund, Inc., Babson Enterprise Fund II,
Inc., Babson Value Fund, Inc., Babson-Stewart Ivory International
Fund, Inc., UMB Scout Stock Fund, Inc., UMB Scout Bond Fund, Inc.,
UMB Scout Money Market Fund, Inc., UMB Scout Tax-Free Money Market
Fund, Inc., UMB Scout Regional Fund, Inc., UMB Scout WorldWide Fund,
Inc., UMB Scout Balanced Fund, Inc., UMB Scout Capital Preservation
Fund, Inc., UMB Scout Kansas Tax-Exempt Bond Fund, Inc., Buffalo
Balanced Fund, Inc.; Buffalo Equity Fund, Inc., Buffalo High Yield
Fund, Inc., Buffalo USA Global Fund, Inc., Buffalo Small Cap Fund,
Inc., Investors Mark Series Fund, Inc.; President and Trustee, D.L.
Babson Bond Trust; Director, AFBA Five Star Fund, Inc.
Francis C. Rood (64), Director. Retired, 73-395 Agave Lane, Palm
Desert, California 92260-6653. Formerly Vice President of Finance,
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., Babson-Stewart Ivory International
Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo High Yield Fund, Inc., Buffalo USA Global Fund, Inc., Buffalo
Small Cap Fund, Inc., Investors Mark Series Fund, Inc.; Trustee, D.L.
Babson Bond Trust.
William H. Russell (75), Director. Financial Consultant, 645 West
67th Street, Kansas City, Missouri 64113; previously Vice President,
Sprint; 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., Buffalo Small Cap
Fund, Inc., Investors Mark Series Fund, Inc.; Trustee, D.L. Babson
Bond Trust.
_____________________________
*Directors who are interested persons as that term is defined in the
Investment Company Act of 1940, as amended.
H. David Rybolt (56), Director. Consultant, HDR Associates, P.O. Box
2468, Shawnee Mission, Kansas 66201; 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., Buffalo Small Cap Fund, Inc., Investors Mark
Series Fund, Inc.; Trustee, D.L. Babson Bond Trust.
P. Bradley Adams (38), Vice President and Treasurer. Vice President
and Treasurer, Jones & Babson, Inc., David L. Babson Growth Fund,
Inc., D.L. Babson Money Market Fund, Inc., D.L. Babson Tax-Free
Income Fund, Inc., Babson Enterprise Fund, Inc., Babson Enterprise
Fund II, Inc., Babson Value Fund, Inc., Babson-Stewart Ivory
International Fund, Inc., D.L. Babson Bond Trust, UMB Scout Stock
Fund, Inc., UMB Scout Bond Fund, Inc., UMB Scout Money Market Fund,
Inc., UMB Scout Tax-Free Money Market Fund, Inc., UMB Scout Regional
Fund, Inc., UMB Scout WorldWide Fund, Inc., UMB Scout Balanced Fund,
Inc., UMB Scout Capital Preservation Fund, Inc., UMB Scout Kansas
Tax-Exempt Bond Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo
Equity Fund, Inc., Buffalo High Yield Fund, Inc., Buffalo USA Global
Fund, Inc., Buffalo Small Cap Fund, Inc.; Vice President and Chief
Financial Officer, AFBA Five Star Fund, Inc.; Principal Financial
Officer, Investors Mark Series Fund, Inc.
Martin A. Cramer (48), Vice President and Secretary. Vice President
and Secretary, Jones & Babson, Inc., David L. Babson Growth Fund,
Inc., D.L. Babson Money Market Fund, Inc., D.L. Babson Tax-Free
Income Fund, Inc., Babson Enterprise Fund, Inc., Babson Enterprise
Fund II, Inc., Babson Value Fund, Inc., Babson-Stewart Ivory
International Fund, Inc., D.L. Babson Bond Trust, UMB Scout Stock
Fund, Inc., UMB Scout Bond Fund, Inc., UMB Scout Money Market Fund,
Inc., UMB Scout Tax-Free Money Market Fund, Inc., UMB Scout Regional
Fund, Inc., UMB Scout WorldWide Fund, Inc., UMB Scout Balanced Fund,
Inc., UMB Scout Capital Preservation Fund, Inc., UMB Scout Kansas
Tax-Exempt Bond Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo
Equity Fund, Inc., Buffalo High Yield Fund, Inc., Buffalo USA Global
Fund, Inc., Buffalo Small Cap Fund, Inc.; Secretary and Assistant
Vice President, AFBA Five Star Fund, Inc.; Secretary, Investors Mark
Series Fund, Inc.
Constance E. Martin (37), 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, Inc., D.L. Babson Bond Trust, UMB Scout Stock
Fund, Inc., UMB Scout Bond Fund, Inc., UMB Scout Money Market Fund,
Inc., UMB Scout Tax-Free Money Market Fund, Inc., UMB Scout Regional
Fund, Inc., UMB Scout WorldWide Fund, Inc., UMB Scout Balanced Fund,
Inc., UMB Scout Capital Preservation Fund, Inc., UMB Scout Kansas
Tax-Exempt Bond Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo
Equity Fund, Inc., Buffalo High Yield Fund, Inc., Buffalo USA Global
Fund, Inc., Buffalo Small Cap Fund, Inc.
Peter C. Schliemann (53), 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 (60), 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.
Compensation Table
<TABLE>
<CAPTION>
Aggregate Pension or Retirement Estimated Total Compensation
Compensation Benefits Accrued As Annual Benefits From All Babson Funds
Name of Director From the Fund Part of Fund Expenses Upon Retirement Paid to Directors**
</CAPTION>
<S> <C> <C> <C> <C>
Larry D. Armel* -- -- -- --
Francis C. Rood $3,625 -- -- $7,125
William H. Russell $3,625 -- -- $7,375
H. David Rybolt $3,625 -- -- $7,125
</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 Messrs. Rood and Rybolt for services as directors of eight
Babson Funds and to Mr. Russell for services as a director of nine
Babson Funds during the fiscal year ended June 30, 1998. 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
the undertaking, the Fund will assist shareholder communications in such
matters.
DIVIDENDS, DISTRIBUTIONS AND THEIR TAXATION
Distributions of Net Investment Income. The Fund receives income
generally in the form of dividends and interest on its investments.
This income, less expenses incurred in the operation of the Fund,
constitute its net investment income from which dividends may be paid to
you. Any distributions by the Fund from such income will be taxable to
you as ordinary income, whether you take them in cash or in additional
shares.
Distributions of Capital Gains. The Fund may derive capital gains and
losses in connection with sales or other dispositions of its portfolio
securities. Distributions derived from the excess of net short-term
capital gain over net long-term capital loss will be taxable to you as
ordinary income. Distributions paid from long-term capital gains
realized by the Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your shares in the Fund. Any net
short-term or long-term capital gains realized by the Fund (net of any
capital loss carryovers) generally will be distributed semiannually.
Information on the Tax Character of Distributions. The Fund will inform
you of the amount and character of your distributions at the time they
are paid, and will advise you of the tax status for federal income tax
purposes of such distributions shortly after the close of each calendar
year. If you have not held Fund shares for a full year, you may have
designated and distributed to you as ordinary income or capital gain a
percentage of income that is not equal to the actual amount of such
income earned during the period of your investment in the Fund.
Election to be Taxed as a Regulated Investment Company. The Fund has
elected to be treated as a regulated investment company under Subchapter
M of the Code, has qualified as such for its most recent fiscal year and
intends to so qualify during the current fiscal year. As a regulated
investment company, the Fund generally pays no federal income tax on the
income and gains it distributes to you. The Board reserves the right
not to maintain the qualification of the Fund as a regulated investment
company if it determines such course of action to be beneficial to you.
In such case, the Fund will be subject to federal, and possibly state,
corporate taxes on its taxable income and gains, and distributions to
you will be taxed as ordinary dividend income to the extent of the
Fund's available earnings and profits.
Excise Tax Distribution Requirements. The Code requires the Fund to
distribute at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its capital gain net income earned during the
12-month period ending October 31 (in addition to undistributed amounts
from the prior year) to you by December 31 of each year in order to
avoid federal excise taxes. The Fund intends to declare and pay
sufficient dividends in December (or in January that are treated by you
as received in December) but does not guarantee and can give no
assurances that its distributions will be sufficient to eliminate all
such taxes.
Redemption of Fund Shares. Redemptions and exchanges of Fund shares are
taxable transactions for federal and state income tax purposes that
cause you to recognize a gain or loss. If you hold your shares as a
capital asset, the gain or loss that you realize will be capital gain or
loss. Any loss incurred on the redemption or exchange of shares held
for six months or less will be treated as a long-term capital loss to
the extent of any long-term capital gains distributed to you by the Fund
on those shares.
All or a portion of any loss that you realize upon the redemption of
your Fund shares will be disallowed to the extent that you purchase
other shares in the Fund (through reinvestment of dividends or
otherwise) within 30 days before or after your share redemption. Any
loss disallowed under these rules will be added to your tax basis in the
new shares you purchase.
Dividends-Received Deduction for Corporations. Distributions from the
Fund 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. All dividends, including
those which qualify for the dividends-received deduction, must be
included in your alternative minimum taxable income calculation.
Investment in Complex Securities. The Fund may invest in complex
securities. Such investments may be subject to numerous special and
complicated tax rules. These rules could affect whether gains and
losses recognized by the Fund are treated as ordinary income or capital
gain and/or accelerate the recognition of income to the Fund or defer
the Fund's ability to recognize losses. In turn, these rules may affect
the amount, timing or character of the income distributed to you by the
Fund.
CUSTODIAN
The Fund's assets are held for safekeeping by an independent custodian,
UMB Bank, n.a. This means UMB Bank, n.a., rather than the Fund, has
possession of the Fund's cash and securities. UMB Bank, n.a. is not
responsible for the Fund's investment management or administration.
But, as directed by the Fund's officers, it delivers cash to those who
have sold securities to the Fund in return for such securities, and to
those who have purchased portfolio securities from the Fund, it delivers
such securities in return for their cash purchase price. It also
collects income directly from issuers of securities owned by the Fund
and holds this for payment to shareholders after deduction of the Fund's
expenses. The custodian is compensated for its services by the manager.
There is no charge to the Fund.
INDEPENDENT PUBLIC ACCOUNTANTS
The Fund's financial statements are audited 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, 911 Main Street, Suite 1500, Kansas City, Missouri
64105, is the Fund's present independent public accountant.
Reports to shareholders will be published at least semiannually.
OTHER JONES & BABSON FUNDS
BABSON FUNDS. The Fund is one of nine no-load funds comprising the
Babson Mutual Fund Group. These funds are managed by Jones & Babson,
Inc. in association with investment counsels: David L. Babson & Co.
Inc., Analytic Systems, Inc. and Babson-Stewart Ivory International.
The other funds are:
Equity Funds
David L. Babson Growth Fund, Inc. was organized in 1959, 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 International Fund, Inc. was organized in 1987,
with the objective of seeking a favorable total return (from market
appreciation and income) by investing primarily in a diversified
portfolio of equity securities (common stocks and securities
convertible into common stocks) of established companies whose
primary business is carried on outside the United States.
Fixed Income Funds
D.L. Babson Bond Trust was organized in 1944, and has been managed by
Jones & Babson, Inc. since 1972, with the objective of a high level
of current income and reasonable stability of principal. It offers
two portfolios, Portfolio L and Portfolio S.
D.L. Babson Money Market Fund, Inc. was organized in 1979, to provide
investors the opportunity to manage their money over the short term
by investing in high-quality short-term debt instruments for the
purpose of maximizing income to the extent consistent with safety of
principal and maintenance of liquidity. It offers two portfolios -
Prime and Federal. Money market funds are neither insured nor
guaranteed by the U. S. Government and there is no assurance that the
funds will maintain a stable net asset value.
D.L. Babson Tax-Free Income Fund, Inc. was organized in 1979, to
provide shareholders the highest level of regular income exempt from
federal income taxes consistent with investing in quality municipal
securities. It offers three separate high-quality portfolios
(including a money market portfolio) which vary as to average length
of maturity. Income from the Tax-Free Money Market portfolio may be
subject to state and local taxes, as well as the Alternative Minimum
Tax.
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.
Buffalo Small Cap Fund, Inc. was organized in 1997, with the
objective of long-term capital growth by investment in equity
securities of small companies.
A prospectus for any of the Funds may be obtained from Jones & Babson,
Inc., BMA Tower, 700 Karnes Blvd., Kansas City, MO 64108-3306.
Jones & Babson, Inc. also sponsors nine mutual funds which especially
seek to provide services to customers of affiliate banks of UMB
Financial Corporation. They are: UMB Scout Stock Fund, Inc., UMB Scout
Bond Fund, Inc., UMB Scout Money Market Fund, Inc., UMB Scout Tax-Free
Money Market Fund, Inc., UMB Scout Regional Fund, Inc., UMB Scout
WorldWide Fund, Inc., UMB Scout Balanced Fund, Inc., UMB Scout Capital
Preservation Fund, Inc. and UMB Scout Kansas Tax-Exempt Bond Fund, Inc.
Jones & Babson, Inc. also sponsors the AFBA Five Star Fund, Inc.
FINANCIAL STATEMENTS
The audited financial statements of the Fund which are contained in the
June 30, 1998, Annual Report to Shareholders, are incorporated herein by
reference.
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
Included in Part A - Prospectus:
Per Share Capital and Income Changes
Included in Part B - Statement of Additional Information:
The audited financial statements contained in
the most recent Annual Report to Shareholders of
Shadow Stock Fund, Inc. are incorporated by
reference into Part B of this Registration Statement.
Included in Part C - Other Information:
Consents of Independent Public Accountants
(b) (1) Registrants's Articles of Incorporation*
(2) Form of Registrant's By-laws*
(3) Not applicable, because there is no
voting trust agreement.
(4) Specimen copy of each security to
be issued by the registrant.*
(5) (a) Form of Management Agreement between
Jones & Babson, Inc. and the Registrant*
(b) Form of Investment Counsel Agreement
between Jones & Babson,Inc. and
David L. Babson & Co. Inc.*
(c) Form of Investment Counsel Agreement
between Jones & Babson, Inc. and
Analytic Systems, Inc.*
(6) Form of principal Underwriting Agreement between
Jones & Babson, Inc. and the Registrant*
(7) Not applicable, because there are no pension,
bonus or other agreements for the benefit of
directors and officers.
(8) Forms of Custodian Agreement between Registrant
and UMB Bank, n.a.*
(9) There are no other material contracts not made in
the ordinary course of business between the
Registrant and others
(10) Opinion and consent of counsel as to the legality
of the registrant's securities being registered.*
(11) (a) Powers of Attorney*
(b) Auditors Consent
(c) 485(b) Letter from Counsel
(12) Not applicable.
(13) Form of letter from contributors of initial
capital to the Registrant that purchase was made
for investment purposes without any present
intention of redeeming or selling.*
(14) Copies of model plan used in the
establishment of any retirement plan in
conjunction with which Registrant offers
its securities.*
(15) Not applicable.
(16) Schedule for computation of performance
quotations.*
(17) Financial Data Schedules for
Shadow Stock Fund, Inc.
*Previously filed on Form N-1 and incorporated by reference herein.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL OF THE REGISTRANT.
NONE
Item 26. NUMBER OF HOLDERS OF SECURITIES.
The number of record holders of each class of securities of the
Registrants as of October 16, 1998, is as follows:
(1) (2)
Title of Class
Common Stock Number of Record Holders
$1.00 par value
Shadow Stock Fund, Inc. 2,505
Item 27. INDEMNIFICATION.
Under the terms of the Maryland General Corporation Law and the
company's By-laws, the company shall indemnify any person who
was or is a director, officer, or employee of the company to
the maximum extent permitted by the Maryland General
Corporation Law; provided however, that any such
indemnification (unless ordered by a court) shall be made by
the company only as authorized in the specific case upon a
determination that indemnification of such persons is proper in
the circumstances. Such determination shall be made.
(i) by the Board of Directors by a majority vote of a quorum
which consists of the directors who are neither "interested
persons" of the company as defined in Section 2(a)(19) of the
1940 Act, nor parties to the proceedings, or
(ii) if the required quorum is not obtainable or if a quorum
of such directors so directs, by independent legal counsel in a
written opinion.
No indemnification will be provided by the company to any
director or officer of the company for any liability to the
company or shareholders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of duty.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
The principal business of Jones & Babson, Inc. is the
management of the Babson and Buffalo family of mutual funds.
It supervises a number of prototype and profit-sharing plan
programs sponsored by various organizations eligible to be
prototype plan sponsors.
The principal business of David L. Babson & Co. Inc. is
to provide investment counsel and advice to a wide variety of
clients.
Item 29. PRINCIPAL UNDERWRITERS.
(a) Jones & Babson, Inc., the only principal underwriter
of the Registrant, also acts as principal underwriter
for the:
David L. Babson Growth Fund, Inc.,
D.L. Babson Money Market Fund, Inc.,
D.L. Babson Tax-Free Income Fund, Inc.,
D.L. Babson Bond Trust,
Babson Value Fund, Inc.,
Babson-Stewart Ivory International Fund, Inc.,
Babson Enterprise Fund, Inc.,
Babson Enteprise Fund II, Inc.,
Buffalo Balanced Fund, Inc.
Buffalo Equity Fund, Inc.
Buffalo USA Global Fund, Inc.
Buffalo Small Cap Fund, Inc.
Buffalo High Yield Fund, Inc.
Scout Stock Fund, Inc.,
Scout Bond Fund, Inc.,
Scout Money Market Fund, Inc. and
Scout Tax-Free Money Market Fund, Inc.,
Scout Regional Fund, Inc.,
Scout WorldWide Fund, Inc.,
Scout Capital Preservation Fund, Inc.,
Scout Kansas Tax-Exempt Bond Fund, Inc.,
Scout Balanced Fund, Inc.,
AFBA Five Star Fund, Inc., and
Investors Mark Series Fund, Inc.
(b) Herewith is the information required by the
following table with respect to each director, officer
or partner of the only underwriter named in answer to
Item 21 of Part B:
Name and Position and Positions and
Principal Offices with Offices with
Business Address Underwriter Registrant
Stephen S. Soden Chairman and Director
700 Karnes Blvd. Director
Kansas City, MO 64108-3306
Larry D. Armel President and President and
700 Karnes Blvd. Director Director
Kansas City, MO 64108-3306
Giorgio Balzer Director None
700 Karnes Blvd.
Kansas City, MO 64108-3306
Robert T. Rakich Director None
700 Karnes Blvd.
Kansas City, MO 64108-3306
Edward S. Ritter Director None
700 Karnes Blvd.
Kansas City, MO 64108-3306
Robert N. Sawyer Director None
700 Karnes Blvd.
Kansas City, MO 64108-3306
Vernon W. Voorhees Director None
700 Karnes Blvd.
Kansas City, MO 64108-3306
P. Bradley Adams Vice President Vice President
700 Karnes Blvd. and Treasurer and Treasurer
Kansas City, MO 64108-3306
Martin A. Cramer Vice President Vice President
700 Karnes Blvd. and Secretary and Secretary
Kansas City, MO 64108-3306
(c) The principal underwriter does not receive any remuneration or
compensation for the duties or services rendered to the Registrant
pursuant to the principal underwriting Agreement.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
Each account, book or other document required to be maintained by
Section 31(a) of the 1940 Act and the Rules (17 CFR 270.31a-1 to
31a-3) promulgated thereunder is in the physical possession of
Jones & Babson, Inc., at 700 Karnes Blvd., Kansas City, Missouri
64108-3306.
Item 31. MANAGEMENT SERVICES.
All management services are covered in the Management Agreement
between the Registrant and Jones & Babson, Inc., which are
discussed in Parts A and B.
Item 32. UNDERTAKINGS.
Not Applicable.
EXHIBIT INDEX
11(b) Consent of Auditors
11(c) 485(b) Letter from Counsel
27 Financial Data Schedules
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
amendment to its registration statement to be signed on its behalf by the
undersigned, thereunto authorized, in the City of Kansas City, and State of
Missouri on the 19th day of October, 1998.
SHADOW STOCK FUND, INC.
By /s/Larry D. Armel
Larry D. Armel
Pursuant to the requirements of the Securities Act of 1933, this
Post-effective Amendment 15/17 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
/s/Larry Armel President, October 19, 1998
Larry Armel Prinicpal Executive Officer,
and Director
/s/F.C. Rood* Director October 19, 1998
F.C. Rood
/s/H. David Rybolt* Director October 19, 1998
H. David Rybolt
/s/William H. Russell* Director October 19, 1998
William H. Russell
/s/P. Bradley Adams Vice President and October 19, 1998
P. Bradley Adams Principal Financial
and Accounting Officer
*Signed pursuant to Power of
Attorney
By /s/Larry D. Armel
Larry D. Armel
Attorney-in-Fact
EX-99.B11(b)
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated July 28, 1998, included in the Shadow Stock
Fund, Inc.'s Annual Report for the year ended June 30, 1998 (and all
references to our Firm) included in or made a part of this Post-effective
Amendment No. 15 to the Registration Statement File No. 33-15074 under the
Securities Act of 1933 and Amendment No.17 to the Registration Statement
File No. 811-5218 under the Investment Company Act of 1940 on Form N-1A.
Arthur Andersen LLP
Kansas City, Missouri,
October 19, 1998
EX-99.B11(c)
Law Offices
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
(215) 564-8000
October 19, 1998
FILED VIA EDGAR
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Attn: Filing Desk
Re: Shadow Stock Fund, Inc.
File Nos. 33-15074; 811-5218
Post-Effective Amendment No. 15; Amendment 17
CIK No. 817750
Dear Sir or Madam:
Included for filing via EDGAR is Post-Effective Amendment No. 15
to the Registration Statement on Form N-1A for Shadow Stock Fund, Inc.
This post-effective amendment is being filed under Section 6 of
the Securities Act of 1933 and Rule 485(b) thereunder for the purpose of
bringing the Financial Statements and other information up-to-date, and in
conjunction therewith, making other appropriate non-material changes.
No material event requiring disclosure in the Prospectus has occurred since
the effective date of the most recent Post-Effective Amendment. The amendment
does not contain disclosures which would render it ineligible to become
effective pursuant to Rule 485(b). Questions related to this filing should
be directed to me at the number above.
Very truly yours,
/s/Michael P. O'Hare
Michael P. O'Hare
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