<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
CHECK THE APPROPRIATE BOX:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
M.S.B. FUND, INC.
------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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M.S.B. FUND, INC.
200 PARK AVENUE, 45TH FLOOR
NEW YORK, NEW YORK 10166
------------------
October 3, 1997
Dear Stockholder:
Enclosed is a Notice of Meeting and Proxy Statement for a Special Meeting
of Stockholders of M.S.B. Fund, Inc. (the "Fund"). At the Special Meeting,
stockholders will be asked to approve a new investment advisory agreement with
Shay Assets Management, Inc.
M.S.B. Fund's current investment adviser, Shay Assets Management Co., is a
general partnership consisting of two general partners, Shay Assets Management,
Inc. and ACB Assets Management, Inc. ("ACB"), each of which holds a 50% interest
in the partnership. As part of a proposed transaction, ACB has agreed to sell
its 50% partnership interest to Shay Assets Management, Inc. Immediately upon
purchasing ACB's interest, the partnership's investment advisory functions will
be transferred to Shay Assets Management, Inc., which is the managing partner of
the current investment adviser.
Under the Investment Company Act of 1940, as amended, the transaction may
constitute an "assignment" of the Fund's current investment advisory agreement
and, therefore, would result in an automatic termination of that agreement.
Therefore, stockholders are being asked to approve a new investment advisory
agreement. The new investment adviser, Shay Assets Management, Inc., will
undertake the investment advisory responsibilities for the Fund on substantially
the same terms and conditions as are contained in the Fund's current investment
advisory agreement. There are no changes planned in the advisory fees, the
senior personnel of the investment adviser, the portfolio manager of the Fund or
the investment objectives and policies of the Fund. The transaction has no
effect on the number of shares you own or the value of those shares, and the
investment objective of the Fund will remain the same.
The Fund's Board of Directors has approved the new investment advisory
agreement unanimously and recommends it for your approval. I encourage you to
vote in favor of the proposal. Please vote now to help save the cost of
additional solicitations.
As always, we thank you for your confidence and support.
Sincerely,
/s/ Edward E. Sammons, Jr.
Edward E. Sammons, Jr.
Secretary
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MSB FUND LOGO
200 PARK AVENUE, 45TH FLOOR
NEW YORK, NY 10166
NOTICE OF SPECIAL MEETING
OF STOCKHOLDERS TO BE HELD
NOVEMBER 13, 1997
----------------------------------------
To the Stockholders of M.S.B. FUND, INC.:
A Special Meeting of Stockholders of M.S.B. FUND, INC. will be held in the
Board Room of The Community Bankers Association of New York State, 45th Floor,
200 Park Avenue, New York, New York on Thursday, November 13, 1997, at 11:00
A.M. for the following purposes:
- to consider and vote upon a proposal to approve a new investment
advisory agreement with Shay Assets Management, Inc. (Proposal 1); and
- to transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on October 1, 1997, will be
entitled to vote at the meeting or any adjournment thereof.
STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF
PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED FOR THIS PURPOSE. If you
attend the meeting and wish to vote in person, your proxy will not be used.
By Order of the Board of
Directors
/s/ Edward E. Sammons, Jr.
Edward E. Sammons, Jr.
Secretary
October 3, 1997
<PAGE> 4
M.S.B. FUND, INC.
200 PARK AVENUE, 45TH FLOOR
NEW YORK, NEW YORK 10166
------------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD NOVEMBER 13, 1997
------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of M.S.B. Fund, Inc. (the "Fund") to
be voted at the Special Meeting of Stockholders of the Fund to be held in the
Board Room of The Community Bankers Association of New York State, 45th Floor,
200 Park Avenue, New York, New York on Thursday, November 13, 1997, at 11:00
A.M. and at any adjournment thereof, for the purposes set forth in the
accompanying Notice of Special Meeting of Stockholders. This Proxy Statement and
the accompanying notice of meeting and proxy card are being mailed to
stockholders for the first time on or about October 3, 1997.
If the enclosed proxy card is executed and returned, it may nevertheless be
revoked at any time insofar as it has not been exercised. Revocation may be made
in writing to the Secretary of the Fund (by execution of a proxy bearing a later
date or otherwise) or orally by a stockholder present at the meeting. Unless so
revoked, the shares represented by a properly executed proxy will be voted at
the meeting and at any adjournment thereof in accordance with the instructions
indicated on that proxy. If no such instructions are specified, the proxy will
be voted for Proposal 1 described in this Proxy Statement.
Stockholders of record at the close of business on October 1, 1997, will be
entitled to vote at the meeting and any adjournment thereof. The Fund had
outstanding 2,685,729 voting shares on such date. Each full share held by a
stockholder is entitled to one vote. Fractional share credits held by a
stockholder do not have voting rights. As to each matter presented to a vote of
stockholders, shares present at the meeting in person or represented by proxy
which abstain on a matter or are not voted because the proxyholder has not
received necessary authorization will be counted in determining the presence of
a quorum but will not be counted as for or against the matter and will not be
counted in the number of votes cast for purposes of determining whether the
approval of any required percentage of shares voting at the Special Meeting has
been obtained. Broker non-votes (i.e., proxies sent in by brokers and other
nominees that cannot be voted on a proposal because instructions have not been
received from the beneficial owners) will be treated in the same manner as
abstentions.
Approval of Proposal 1 will require the affirmative vote of a majority of
the outstanding securities of the Fund. For this purpose, the term "majority of
the outstanding securities of the Fund" means the vote of (i) 67% or more of the
shares present in person or represented by proxy at the Special Meeting, if more
than 50% of the shares of the Fund outstanding on the record date are present or
represented by proxy at the Special Meeting or (ii) more than 50% of the
outstanding shares of the Fund, whichever is less.
Although the Special Meeting is called to transact any other business that
may properly come before it, the management of the Fund does not intend to
present, and at the date hereof has no
1
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information that others will present, any matters other than Proposal 1.
However, stockholders are being asked on the enclosed proxy card to authorize
the persons named therein to vote with respect to any additional matters that
properly come before the Special Meeting, including all matters incidental to
the conduct of the Special Meeting. If any such matters do properly come before
the Special Meeting, it is the intention of the persons named in the proxies to
vote said proxies in accordance with their best judgment.
A majority of the shares of the Fund outstanding on the record date,
present in person or represented by proxy, constitutes a quorum for the
transaction of business at the Special Meeting. In the event that a quorum is
not present, or if sufficient votes in favor of Proposal 1 are not received by
the time of the Special Meeting, the persons named as proxies may propose one or
more adjournments of the Special Meeting to permit the gathering of additional
proxies. Any such adjournment of the Special Meeting will require the
affirmative vote of a majority of the shares present in person or represented by
proxy at the session of the Special Meeting to be adjourned and will not require
any further notice to stockholders other than announcement at the meeting of the
time and place to which the meeting is adjourned. The persons named as proxies
will vote in favor of such adjournment those proxies which they are entitled to
vote in favor of Proposal 1. They will vote against any such adjournment those
proxies required to be voted against or to abstain from voting on Proposal 1.
Shay Assets Management, Inc., the proposed new investment adviser under the
proposed new investment advisory agreement, and certain of its affiliates will
bear the cost of this solicitation, including the cost of preparing and mailing
the notice of meeting and this proxy statement, and other costs and expenses
associated with the Special Meeting or the approval of the proposed new
investment advisory agreement. The solicitation of proxies will be primarily by
mail. Supplementary solicitation may be made, without cost to the Fund, by mail,
telephone, facsimile transmission or oral communication by officers of the Fund
or employees of Shay Financial Services Co., the Fund's distributor.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, THE BOARD OF DIRECTORS
REQUESTS THAT YOU COMPLETE, DATE AND SIGN YOUR PROXY CARD AND RETURN IT PROMPTLY
IN THE ENVELOPE PROVIDED FOR THIS PURPOSE TO ENSURE THAT YOUR SHARES WILL BE
REPRESENTED AT THE MEETING. If you attend the meeting and wish to vote in
person, your proxy will not be used.
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<PAGE> 6
MATTERS TO COME BEFORE THE SPECIAL MEETING
PROPOSAL 1 -- APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT WITH SHAY ASSETS
MANAGEMENT, INC.
The stockholders of the Fund are being asked to approve at the Special
Meeting an investment advisory agreement (the "New Shay Agreement") with Shay
Assets Management, Inc. ("SAMI"). The New Shay Agreement will replace the Fund's
existing investment advisory agreement with Shay Assets Management Co. ("SAMC"),
and SAMI will replace SAMC as investment adviser to the Fund. The New Shay
Agreement is being proposed to stockholders of the Fund as the result of certain
transactions (the "Shay/ACB Transaction") between companies controlled by Rodger
D. Shay, Sr. ("Mr. Shay") and America's Community Banking Partners, Inc. ("ACB
Partners") and its subsidiaries and affiliates.
BACKGROUND
The Fund's current investment adviser, SAMC, is a general partnership
composed of two general partners, SAMI and ACB Assets Management Inc. ("ACB").
SAMI is the managing partner of the partnership and is controlled by Mr. Shay.
ACB is a wholly-owned subsidiary of ACB Partners. As part of the Shay/ACB
Transaction, SAMI has agreed to purchase ACB's 50% interest in SAMC. Upon
consummation of the transaction, SAMC will be dissolved and its business, assets
and liabilities (including its investment management operations and personnel)
will be transferred to SAMI.
Consummation of this transaction may constitute an assignment of the Fund's
current investment advisory agreement under which SAMC serves as investment
adviser (the "Current Agreement") to the Fund. As required by the Investment
Company Act of 1940, as amended (the "Investment Company Act"), the Current
Agreement provides that it will terminate automatically in the event of its
assignment. In anticipation of the Shay/ACB Transaction and the resulting
termination of the Current Agreement, the New Shay Agreement between the Fund
and SAMI is being proposed for approval by the stockholders of the Fund. A copy
of the proposed form of the New Shay Agreement is attached hereto as Exhibit A.
The form of agreement set forth in Exhibit A has been marked to show all changes
from the Current Agreement.
The New Shay Agreement, if approved at the Special Meeting, will be entered
into contemporaneously with the consummation of the Shay/ACB Transaction, which
is expected to occur in the fourth quarter of 1997. In the event the Shay/ACB
Transaction is not consummated, the parties will not enter into the New Shay
Agreement, and the Current Agreement will continue in effect.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors met on August 20, 1997, to consider the Shay/ACB
Transaction and to consider the New Shay Agreement. The Board, including a
majority of the directors who are not parties to the transaction or interested
persons of any such party and including all of the directors present at the
meeting, voted to approve the New Shay Agreement and to recommend it to the
stockholders for approval. Additional information concerning the directors'
deliberations and the reasons for the Board's recommendation are set forth under
the caption "-- Board of Directors Evaluation" below.
DESCRIPTION OF THE NEW SHAY AGREEMENT
There are no material differences between the terms of the New Shay
Agreement and the terms of the Current Agreement.* All substantive terms,
including without limitation, the services provided, the fees payable and the
expense limitations, remain unchanged. See Exhibit A for the complete text
- ---------------
* The provisions of the New Shay Agreement will be identical to those of the
Current Agreement, except for: (i) the identity of the Adviser, (ii) the date
of the Agreement, (iii) the deletion of certain transitional arrangements (in
Sections 7(a), 7(d), 7A and 10) that were applicable only at the time of the
effectiveness of the Current Agreement in May, 1995, (iv) the change of the
annual renewal date in Section 10 from May 19 to May 30, and (v) the address
of the Fund.
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<PAGE> 7
of the New Shay Agreement and the precise differences between the New Shay
Agreement and the Current Agreement.
Under the New Shay Agreement, the investment adviser will provide
investment advisory services to the Fund, will manage the investment and
reinvestment of the assets of the Fund (including the purchase, retention and
disposition of portfolio securities) and will manage the business affairs of the
Fund incidental to such portfolio management, subject to the supervision of the
Board of Directors of the Fund. The New Shay Agreement requires the investment
adviser to conduct its activities under the agreement in conformity with all
applicable laws and regulations (including tax requirements relating to the
Fund's status as a regulated investment company) and with the Certificate of
Incorporation, By-laws, prospectus and statement of additional information of
the Fund and in accordance with any policies or resolutions adopted by the Board
of Directors of the Fund. The investment adviser is required to maintain books
and records with respect to the portfolio transactions of the Fund in accordance
with the requirements of the Investment Company Act. The investment adviser also
is required to provide such office and other facilities as may be required by
the Fund and is responsible for the cost of preparing minutes of meetings of the
Board of Directors. The New Shay Agreement also requires the investment adviser
to provide PFPC Inc. and PNC Bank Corp., the Fund's administrator and custodian,
respectively, with such information concerning the portfolio transactions of the
Fund as they may require in connection with the performance of their respective
duties to the Fund.
In consideration of the services provided by the investment adviser, the
Fund will pay the investment adviser a fee computed at the annual rate of 0.75%
of the first $100 million of the Fund's average daily net assets and 0.50% of
the Fund's average daily net assets in excess of $100 million. The fee is
accrued daily and paid monthly. This fee is identical to the fee provided for
under the Current Agreement. The net assets of the Fund at June 30, 1997, were
approximately $45 million.
Under the New Shay Agreement, the investment adviser pays all the expenses
incurred by it in connection with its activities under the agreement. All other
expenses are borne by the Fund, subject to the expense limitation described
below. These expenses include, among other things, the fees payable to the
Fund's investment adviser, administrator, transfer agent, shareholder servicing
agent, dividend paying agent and custodian, brokerage fees and expenses, filing
fees for the registration of the Fund's shares under federal securities laws,
taxes, interest, the cost of liability insurance, fidelity bonds,
indemnification expenses, legal and auditing fees and expenses, any costs and
expenses of preparing and printing prospectuses, proxy materials, reports and
notices and of mailing the same to shareholders and regulatory authorities
(except for such costs and expenses as relate to the Special Meeting and the
implementation of the New Shay Agreement, which costs and expenses will be paid
by SAMI and its affiliates), the compensation and expenses of the Fund's
directors and officers who are not affiliated with the Fund's investment adviser
or administrator and any extraordinary expenses incurred by the Fund.
The New Shay Agreement includes an expense limitation provision which is
identical to the expense limitation contained in the Current Agreement. This
expense limitation will result in a reduction of the advisory fee payable to the
investment adviser to the extent the expenses of the Fund (exclusive of
professional fees, directors fees and expenses and 12b-1 fees) exceed 1.10% of
the Fund's average daily net assets during any fiscal year. As a result of this
limitation, the overall expenses of the Fund, after taking into account all
compensation paid to the investment adviser and the Fund's administrator,
transfer agent, registrar and custodian, will not exceed the sum of (i) 1.10% of
the Fund's average daily net assets, (ii) the aggregate amount paid for
professional fees (i.e. legal and accounting fees) and directors' fees and
expenses and (iii) any distribution expenses paid under a plan of distribution,
if any, adopted under Rule 12b-1 under the Investment Company Act. The Fund does
not currently have any such plan of distribution.
During 1996, the fee paid to SAMC under the Current Agreement was $267,946
after a reduction of $51,122 as a result of the expense limitation described
above.
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<PAGE> 8
Under the New Shay Agreement, the investment adviser is not liable to the
Fund for any error of judgment or mistake of law or for any loss suffered by the
Fund, except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under the
agreement.
The New Shay Agreement, if approved by the stockholders at the Special
Meeting, will be entered into contemporaneously with the consummation of the
Shay/ACB Transaction and will remain in effect until May 30, 1998. The agreement
will continue in effect from year to year thereafter, subject to termination by
the Fund or the investment adviser as described below, if such continuance is
approved at least annually by the vote of the Fund's Board of Directors and a
majority of the directors of the Fund who are not "interested persons" of the
Fund or of the investment adviser.
In the Current Agreement, SAMC has committed to the fee arrangement and
contractual terms contained in the Current Agreement for a period of at least
three years from the effective date of that agreement, i.e. until May 19, 1998.
The investment adviser may terminate the New Shay Agreement only after May 19,
1998, upon 90 days' written notice to the Fund. The New Shay Agreement may be
terminated at any time by the Fund, without payment of any penalty, upon 30
days' written notice to the investment adviser. The New Shay Agreement
terminates automatically in the event of its assignment by the investment
adviser.
ADDITIONAL INFORMATION CONCERNING THE NEW INVESTMENT ADVISER (SAMI) AND THE
CURRENT INVESTMENT ADVISER (SAMC)
The Current Investment Adviser (SAMC)
The Fund's current investment adviser, SAMC, is an Illinois general
partnership that consists of two general partners, SAMI and ACB. Each of the
partners holds a 50% interest in the partnership. SAMI, which is the managing
partner of the investment adviser, is controlled by Rodger D. Shay, Sr., who is
a Vice President of the Fund. ACB is a wholly-owned subsidiary of ACB Investment
Services, Inc., which is a wholly-owned subsidiary of ACB Partners, which in
turn is a wholly-owned subsidiary of America's Community Bankers(R) (the
"Association"), which is the trade association representing savings institutions
in the United States. SAMC's principal office is located at 111 East Wacker
Drive, Chicago, Illinois 60601. It also maintains offices in Miami, Florida, New
York City and Summit, New Jersey. The principal executive office of ACB and of
its parent companies (other than the Association, which is located in
Washington, D.C.), is located at 111 East Wacker Drive, Chicago, Illinois 60601.
SAMC has served as the Fund's investment adviser since May, 1995, pursuant
to the Current Agreement which is dated May 19, 1995. The Current Agreement was
submitted to and approved by the stockholders of the Fund at a meeting of
stockholders held on June 6, 1995. At a meeting held on April 17, 1997, the
Board of Directors of the Fund reviewed and approved the continuation of the
Current Agreement for an additional term of twelve months ending May 19, 1998.
SAMC also serves as investment adviser to Asset Management Fund, Inc., a
registered investment company comprising five fixed-income portfolios with
aggregate net assets of approximately $1 billion at June 30, 1997, and as
investment adviser to Institutional Investors Capital Appreciation Fund, Inc.
("IICAF"), an investment company which invests in equity securities and had net
assets of approximately $82 million at June 30, 1997. SAMC's investment advisory
agreement with Institutional Investors Capital Appreciation Fund, Inc. is
substantially the same as the Current Agreement with the Fund, including fees
and expense limitations. Because of the greater net assets of IICAF, the expense
limitations did not result in any reduction of SAMC's fee under that agreement
during 1996.
The New Investment Adviser (SAMI)
The proposed new investment adviser, SAMI, is a Florida corporation that
serves as the managing partner of the Fund's current investment adviser. The
principal executive offices of SAMI are located
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at 111 East Wacker Drive, Chicago, Illinois 60601, and SAMI will continue to
maintain the current offices of SAMC in Miami, New York City and Summit, New
Jersey.
SAMI currently is owned by Rodger D. Shay, Sr., his son Rodger D. Shay, Jr.
and two long-standing employees of the Shay organization. Rodger D. Shay, Sr. is
the majority owner of the company. Upon the consummation of the Shay/ACB
Transaction, SAMI will become wholly owned by Shay Investment Services, Inc.
("SISI"), a Florida corporation which will serve as the holding company for SAMI
and certain other companies currently controlled by Rodger D. Shay, Sr. Rodger
D. Shay, Sr. and Rodger D. Shay, Jr. will own 66.5% and 25%, respectively, of
the stock of SISI with the remaining 8.5% to be held by the two employees. The
principal executive office of SISI is located at 888 Brickell Avenue, Miami,
Florida.
SAMI currently is not registered with the Securities and Exchange
Commission (the "Commission") as an investment adviser but has filed with the
Commission an application to register as an investment adviser. The consummation
of the Shay/ACB Transaction is subject to a number of conditions, including,
among other things, the effectiveness of SAMI's registration as an investment
adviser.
The principal executive officer and the sole director of SAMI and SISI is
Rodger D. Shay, Sr. Mr. Shay and his son, Rodger D. Shay, Jr., are the only
persons who will own more than 10% of the outstanding voting securities of SISI
upon the completion of the Shay/ACB Transaction. As described above, upon
completion of that transaction, the new investment adviser, SAMI, will become a
wholly-owned subsidiary of SISI. Rodger D. Shay, Sr. is President and Chief
Executive Officer of Shay Assets Management Co., President of Shay Assets
Management, Inc., President and Chief Executive Officer of Shay Financial
Services Co. and President of Shay Financial Services, Inc. The address of
Rodger D. Shay, Sr. and Rodger D. Shay, Jr. is 888 Brickell Avenue, Miami,
Florida.
BOARD OF DIRECTORS EVALUATION
At a special meeting of the Board of Directors held on August 20, 1997,
called for the purpose of considering the New Shay Agreement and at which a
quorum was present, the New Shay Agreement was approved by the vote of a
majority of the Board of Directors (a unanimous vote of the directors present at
the meeting), including a majority of the directors of the Fund who are not
interested persons of the Fund or of SAMI or SAMC.
On July 17, 1997, the Board of Directors of the Fund was informed that SAMI
and ACB had reached an agreement in principle pursuant to which SAMI would
acquire ACB's 50% interest in SAMC. A special meeting of the Board of Directors
of the Fund was held on August 20, 1997, to consider the approval of the New
Shay Agreement with SAMI. In connection therewith, the directors received and
reviewed written information concerning the Shay/ACB Transaction and concerning
SAMI and SAMC. In connection with their review, the directors were assisted and
advised by legal counsel.
In connection with the directors' review, SAMI and Rodger D. Shay, Sr., who
will be the controlling shareholder of the parent company of SAMI and who is an
officer of the Fund, represented to the directors and the Fund, among other
things, that:
- the transaction will not result in any change in the Fund's investment
objective or policies;
- as a result of the transaction there will not be any change in the senior
management or personnel of the investment adviser, any change in the
Fund's portfolio managers or any change in the financial condition of the
investment advisor, nor is there any expectation that the profitability of
the investment adviser would be affected as a direct result of the
transaction;
- the transaction will not adversely affect the quality of the services
provided to the Fund;
- the business affairs of the investment adviser will continue to be
managed by Rodger D. Shay, Sr., and the investment adviser will be
controlled by Rodger D. Shay, Sr., who currently is the controlling
shareholder of SAMI, which currently is the managing partner of SAMC; and
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<PAGE> 10
- the investment adviser will not raise its fees or lower its current level
of expense waiver as a direct result of the transaction, and the
investment adviser does not anticipate raising its fees in the
foreseeable future.
The Board of Directors also was advised that SAMI and ACB intend to rely on
Section 15(f) of the Investment Company Act, which provides a non-exclusive safe
harbor permitting an investment adviser to an investment company or any of the
investment adviser's affiliated persons (as defined under the Investment Company
Act) to receive any amount or benefit in connection with a change in control of
the investment adviser so long as two conditions are met. First, for a period of
three years after the transaction, at least 75% of the directors of the
investment company must not be "interested persons" of the investment company's
investment adviser or its predecessor investment adviser. The Board of Directors
of the Fund is and, upon the completion of the Shay/ACB Transaction, will be in
compliance with this requirement. Second, an "unfair burden" is not imposed upon
the investment company as a result of such transaction or any express or implied
terms, conditions or understandings applicable thereto. The term "unfair burden"
is defined in Section 15(f) to include any arrangement during the two-year
period after the transaction whereby the investment adviser, or any interested
person of any such investment adviser, receives or is entitled to receive any
compensation, directly or indirectly, from the investment company or its
shareholders (other than fees for bona fide investment advisory or other
services) or from any person in connection with the purchase or sale of
securities or other property to, from or on behalf of the investment company
(other than bona fide ordinary compensation as principal underwriter for such
investment company). SAMI and Rodger D. Shay, Sr. have represented to the Board
of the Directors that no unfair burden (as defined in Section 15(f)) will be
imposed on the Fund's stockholders by virtue of the Shay/ACB Transaction. SAMI
and Mr. Shay also have agreed that for a period of three years following the
Shay/ACB Transaction, at least 75% of the members of the Board of Directors of
the Fund will not be interested persons of SAMI or its affiliates.
In addition, SISI, SAMI and Shay Financial Services, Inc. have agreed,
jointly and severally, to bear all expenses incurred by the Fund in connection
with the special meetings of the Board of Directors and the stockholders of the
Fund called to consider the New Shay Agreement, including without limitation,
the following: (i) fees and expenses of the directors and officers of the Fund
in connection with their attendance at such meetings, (ii) fees and expenses of
counsel to the Fund in connection with their preparation for and attendance at
such meetings, the preparation and filing of proxy materials related to the
Special Meeting of stockholders and the preparation and filing of any amendment
to the registration statements of the Fund or any prospectus supplement relating
to the Shay/ACB transaction, (iii) printing and mailing costs relating to such
proxy materials, amendments and prospectus supplements, and (iv) fees and
expenses of the Fund's administrator and registrar and any inspector of
election, proxy tabulator or mailing agent related to the Special Meeting. Mr.
Shay also agreed that SAMI would reimburse the Fund for any additional insurance
premiums that may be incurred by the Fund as the result of the Shay/ACB
Transaction.
In the course of their deliberations, the directors of the Fund, considered
a variety of factors, including: the nature and quality of the services
furnished to the Fund by SAMC and the policies and practices of SAMC with
respect to the management of the Fund's investment portfolio; the investment
performance and expense ratio of the Fund and of other similar mutual funds; the
profitability of SAMC under the Current Agreement in acting as investment
adviser to the Fund; the nature and structure of the Shay/ACB Transaction,
including, the identity of SAMI and its regulatory status, the identity of the
control group of SAMI, SAMC and SISI and the continuity in the management and
personnel of the investment adviser, including portfolio managers, and the
continuity in the manner in which the Fund's investment operations will be
conducted; the financial condition of SAMI and the fairness of the advisory fee
to be paid to SAMI in relation to the nature and quality of the services
provided and in comparison to other similar mutual funds, the benefits to the
Fund and the investment adviser of any soft dollar benefits received in
connection with the execution of portfolio
7
<PAGE> 11
transactions for the Fund; the absence of material changes in the Fund's
investment advisory agreement; and the fairness of the overall terms of the New
Shay Agreement.
Based on the directors' review of the foregoing materials and information
and their consideration of the foregoing factors and such other factors as they
deemed relevant, the Board of Directors concluded that the Shay/ACB Transaction
should not cause any reduction in the quality of the services provided to the
Fund and that the New Shay Agreement is fair and reasonable and in the best
interests of the Fund.
BROKERAGE ALLOCATION
The primary aim of the Fund in the allocation of portfolio transactions to
various brokers is the attainment of best price and execution consistent with
obtaining investment research services and statistical information at reasonable
cost. A large majority of the Fund's portfolio transactions are executed on
national securities exchanges through member firms. However, when the investment
adviser believes that a better price can be obtained for the Fund, portfolio
transactions may be executed in the third market. Portfolio transactions in
unlisted securities are executed in the over-the-counter market through
principal market makers. The list of brokers used by the Fund is reviewed
continually in an effort to obtain maximum advantage from investment research
and statistical information made available by brokers, and allocation among the
brokers is made on the basis of best price and execution consistent with
obtaining research and statistical information at reasonable cost. The
investment adviser is thus authorized to pay a brokerage commission in excess of
that which another broker might have charged for effecting the same transaction
in recognition of the value of efficient execution and research and statistical
information provided by the selected broker. In 1996, 69% of the Fund's
brokerage (attributable to purchases of $14,953,498 and proceeds from sales of
$17,778,502) was placed with brokers who provided investment research and
statistical information to the investment adviser. The research and statistical
information provided to the investment adviser consists primarily of written and
electronic reports and presentations analyzing specific companies, industry
sectors, the stock market and the economy. To the extent that such research and
information are used by the investment adviser in rendering investment advice to
the Fund, they tend to reduce the investment adviser's expenses. Research
services and statistical information furnished by brokers through which the Fund
effects securities transactions may be used by the investment adviser in
servicing other accounts, and not all such services may be used by the
investment adviser in connection with the Fund. The total amounts of brokerage
commissions paid in 1996 was $36,281. The investment adviser monitors the
reasonableness of commissions paid by the Fund based on its experience in the
market, and the reasonableness of such commissions is reviewed periodically by
the Board of Directors. The average commission rate per share paid by the Fund
was $0.0443 in 1996 and $0.0487 for the first six months of 1997. The Fund does
not employ any broker that is affiliated with the investment adviser.
AFFILIATIONS OF DIRECTORS AND OFFICERS OF THE FUND
Certain officers and directors of the Fund are also officers, employees,
directors or shareholders of SAMC and are, or will be, officers, employees,
directors or shareholders of SAMI. Messrs. Rodger D. Shay, Sr., Edward E.
Sammons, Jr., John J. McCabe and Mark F. Trautman, who are officers of the Fund,
are officers and employees of SAMC and are or will be officers and employees of
SAMI. Mr. Shay is the sole director of SAMI and SISI. Mr. Shay also is the
controlling stockholder of SAMI and, upon the closing of the Shay/ACB
Transaction, will become the majority stockholder of SISI, which at that time
will become the corporate parent of SAMI.
Messrs. Harry P. Doherty and David F. Holland, who are directors of the
Fund, also hold positions with affiliates of the investment adviser. Mr. Holland
is Chairman of the Board of ACB Partners, a director of ACB, which is a general
partner in the Fund's current investment adviser, and a director of ACB
Investment Services Inc. Mr. Doherty is a director of the Association. Mr.
Holland also served as a director and officer of the Association prior to 1996.
Messrs. Doherty and Holland currently are
8
<PAGE> 12
considered to be "interested persons" of the Fund by virtue of their positions
with ACB Partners, the Association or their affiliates. Because Mr. Holland
intends to resign those positions concurrently with the closing of the Shay/ACB
Transaction, Mr. Holland will be deemed to be no longer an "interested person,"
unless the Commission by order determines that Mr. Holland is an "interested
person" by virtue of having a material relationship with the Fund's investment
adviser or distributor as a result of his prior positions with ACB Partners and
its affiliates. Mr. Doherty may continue to be considered an "interested person"
as the result of his continued position with the Association and the interest of
the Association in the royalty and other payments that will be made by the Shay
Entities (as defined below) to ACB Partners and its affiliates.
DESCRIPTION OF THE SHAY/ACB TRANSACTION
ACB Partners and certain of its subsidiaries have entered into a Purchase
and Sale Agreement (the "Purchase Agreement") with SAMI and certain other
companies controlled by Rodger D. Shay, Sr. (collectively the "Shay Entities")
pursuant to which ACB Partners and such subsidiaries (collectively the "ACB
Entities") will sell to the Shay Entities their interests in certain businesses
that are owned jointly by the ACB Entities and the Shay Entities. These
businesses include, among others, SAMC, which is the Fund's current investment
adviser, and Shay Financial Services Co., which is the Fund's current
distributor. In each case, the relevant ACB Entity will sell its interest in the
jointly owned company to the relevant Shay Entity which owns the remaining
interest in the business.
ACB has agreed in the Purchase Agreement to sell its 50% interest in the
Fund's current investment adviser, SAMC, to SAMI. Upon the completion of the
Shay/ACB Transaction, SAMC will be dissolved and all of SAMC's assets will be
transferred to SAMI. SAMI will assume all the liabilities and obligations of ACB
in its capacity as a partner in SAMC, and SAMI will continue to operate the
investment advisory business previously conducted by SAMC. All personnel of SAMC
will be transferred to, and will continue as employees of, SAMI.
The Purchase Agreement provides that at the closing of the Shay/ACB
Transaction, SAMI and other Shay Entities shall enter into a Marketing Agreement
with ACB Development Services, Inc., an indirect subsidiary of the Association,
whereby the Association will provide marketing resources in order to assist the
Shay Entities with promotion and marketing of broker/dealer, asset management
and investment advisory products and services for insured institutions and
related business entities to members of the Association and their affiliated
entities in exchange for payment of an annual fee.
The Purchase Agreement also provides that the Shay Entities shall enter
into a Royalty Agreement with the Association whereby the Association will
permit the use of the Association's name and logo in connection with the sale
and marketing of the Shay Entities' broker/dealer, asset management and
investment advisory products and services for insured institutions and related
business entities to members of the Association and their affiliated entities in
exchange for payment of royalties. The Royalty Agreement would require the
payment of royalties on, among other things, the revenue received by SAMI under
investment advisory agreements with Asset Management Fund, Inc. and IICAF, to
the extent that any of such revenues are derived from assets invested in such
entities by the Association or any of its members or their affiliated entities.
It would not require the payment of royalties on any revenues received by SAMI
from the Fund.
The Shay Entities also will continue to sublease from the Association
certain office space located at 111 East Wacker Drive in Chicago through
September, 1998.
The consummation of the Shay/ACB Transaction is conditioned upon, among
other things, the receipt of all necessary regulatory approvals, which would
include the effectiveness of the registration of SAMI as an investment adviser
under the Investment Advisers Act of 1940, as amended, and the effectiveness of
the registration of the Fund's new distributor as a broker-dealer under the
Securities Exchange Act of 1934, as amended, and any applicable state laws. In
addition, the closing of the Shay/ACB Transaction is conditioned upon the
approval by the stockholders of each registered investment company for which
SAMC currently acts as investment adviser of new investment advisory
9
<PAGE> 13
agreements with SAMI. SAMI has advised the Fund that if the stockholders of the
Fund do not approve the New Shay Agreement, SAMI and ACB will proceed with the
proposed transaction (assuming that all other conditions precedent have been
satisfied or waived). In that event, the Fund's Board of Directors would take
such action as it deemed to be in the best interests of the Fund and its
stockholders, including, if necessary, seeking exemptive relief from the
Commission so that SAMI could provide investment advisory services to the Fund
on an interim basis. If the Shay/ACB Transaction is not consummated for any
reason, the current investment advisory agreement between the Fund and SAMC will
continue in effect.
The consummation of the Shay/ACB Transaction is expected to occur in the
fourth quarter of 1997.
ADDITIONAL INFORMATION -- DISTRIBUTION ARRANGEMENTS
The Fund's current distributor, Shay Financial Services Co., is an Illinois
general partnership that consists of two general partners, Shay Financial
Services, Inc. ("SFSI") and ACB Securities, Inc. ("ACB Securities"), each of
which holds a 50% interest in the partnership. SFSI is the managing partner of
the distributor and is controlled by Rodger D. Shay, Sr. ACB Securities is an
indirect wholly-owned subsidiary of ACB Partners. As part of the Shay/ACB
Transaction, ACB Securities has agreed to sell its 50% interest in the
distributor to SFSI. Upon the consummation of the Shay/ACB Transaction, Shay
Financial Services, Inc. will become the Fund's distributor under a distribution
agreement that is substantially the same as the current distribution agreement
with Shay Financial Services Co. Neither the current distribution agreement with
Shay Financial Services Co. nor the new distribution agreement with SFSI
provides for any compensation to the distributor. If the Shay/ACB Transaction is
not consummated, the new distribution agreement will not take effect and the
current distribution agreement with SFSI will continue in effect.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 1.
10
<PAGE> 14
SECURITY OWNERSHIP OF MANAGEMENT
The following table provides information with respect to shares of the Fund
beneficially owned by each director and by all directors and executive officers
as a group as of August 31, 1997. On August 31, 1997, all directors and officers
of the Fund as a group beneficially owned 116,771 shares (approximately 4.3% of
the shares outstanding on such date) of the Fund. No person or group is known to
the Fund to be the beneficial owner of more than 5% of the Fund's outstanding
shares. The table below sets forth the shares owned by the directors of the Fund
and the Fund's directors and officers of the Fund as a group as of August 31,
1997.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENT
NAME BENEFICIALLY OWNED(1) OF CLASS
- ---- --------------------- --------
<S> <C> <C>
DIRECTORS
Malcolm J. Delaney..................... 2,743(2) *
Timothy A. Dempsey..................... 539 *
Harry P. Doherty....................... 2,665(2) *
Joseph R. Ficalora..................... 885 *
David Freer, Jr. ...................... 26,477(2)(3) *
Michael J. Gagliardi................... 16,692(2)(4) *
David F. Holland....................... 263 *
William A. McKenna, Jr. ............... 25,952(2)(5) *
Norman W. Sinclair..................... 3,227 *
Ian D. Smith........................... 5,790 *
EXECUTIVE OFFICERS WHO ARE NOT ALSO
DIRECTORS
Rodger D. Shay, Sr. ................... 8,051(2)(6) *
Edward E. Sammons, Jr. ................ 1,259 *
John J. McCabe......................... 11,641(6) *
Mark F. Trautman....................... 10,588(2)(6)(7) *
Jay F. Nusblatt........................ 0 *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS
A GROUP (15 persons)................. 116,771 4.3%
</TABLE>
- ---------------
* Less than 1%.
(1) Except as otherwise indicated, the beneficial owner has sole voting and
investment power.
(2) Includes shares owned by, or jointly held with, spouses as follows: Mr.
Delaney -- 2,743 shares jointly owned with Mrs. Delaney; Mr. Doherty --
2,400 shares jointly owned with Mrs. Doherty; Mr. Freer -- 5,737 shares
jointly owned with Mrs. Freer and 3,294 shares owned by Mrs. Freer; Mr.
Gagliardi -- 1,735 shares jointly owned with Mrs. Gagliardi; Mr. McKenna --
19,932 shares jointly owned with Mrs. McKenna; Mr. Shay -- 3,252 shares
jointly owned with Mrs. Shay; and Mr. Trautman -- 2,362 shares jointly owned
with Mrs. Trautman and 1,672 shares owned by Mrs. Trautman.
(3) Includes 835 shares owned by Double V Enterprises, Inc. which is 100% owned
by Mr. Freer.
(4) Includes 635 shares owned and voted by Mr. Gagliardi's son (as to which Mr.
Gagliardi disclaims beneficial ownership).
(5) Includes 5,511 shares held by Mr. McKenna as custodian for his children and
for which Mr. McKenna has sole voting and investment power and 509 shares
owned and voted by Mr. McKenna's children.
(6) Includes shares owned through the Shay Assets Management Co. 401(k) Plan, as
follows: Mr. Shay -- 4,799 shares; Mr. McCabe -- 2,455 shares; and Mr.
Trautman -- 2,519 shares.
(7) Includes 171 shares held by Mr. Trautman as custodian under the Uniform
Gifts to Minors Act.
11
<PAGE> 15
ADDITIONAL INFORMATION
ANNUAL REPORT AND SEMI-ANNUAL REPORT DELIVERY
The Fund will furnish, without charge, a copy of its Annual Report for the
fiscal year ended December 31, 1996, and its Semi-Annual Report for the six
months ended June 30, 1997, to any stockholder upon request. Contact the Fund
c/o Shay Assets Management Co. at 111 East Wacker Drive, Chicago, Illinois 60601
or call 800-661-3938 to request a copy of the Annual Report and Semi-Annual
Report.
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Any stockholder proposal intended to be presented at the 1998 Annual
Meeting of the Fund must be received by the Fund at the offices of its
administrator, PFPC, Inc., at P.O. Box 8905, Wilmington, Delaware 19809 on or
before October 15, 1997 in order for such proposal to be considered for
inclusion in the Fund's proxy statement and form of proxy relating to that
meeting.
By Order of the Board of Directors
/s/ Edward E. Sammons, Jr.
Edward E. Sammons, Jr.
Secretary
Dated: October 3, 1997
12
<PAGE> 16
EXHIBIT A
Key to markings: Deletions are indicated by struck through text. Insertions
are indicated by underscored text.
INVESTMENT ADVISORY AGREEMENT
This Agreement made and entered into as of M-a-y- 1-9-,- 1-9-9-5
[ ], 1997, by and between M.S.B. Fund, Inc., a New
======================
York corporation (the "Fund"), and Shay Assets Management C-o-.-,- a-n-
I-l-l-i-n-o-i-s- g-e-n-e-r-a-l- p-a-r-t-n-e-r-s-h-i-p-, Inc., a Florida
===============
corporation (the "Adviser"):
===========
WITNESSETH:
WHEREAS, the Fund is an open-end diversified management investment company
incorporated in New York on June 8, 1964; and
WHEREAS, the Fund desires to retain the Adviser to render investment
advisory services to the Fund, and the Adviser is willing to render such
services;
NOW, THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth the parties hereto agree as follows:
1. Advisory Services. The Fund hereby appoints the Adviser to act as
investment adviser to the Fund with respect to the assets belonging to the
Fund's Class A stock, $0.001 par value, for the period and on the terms set
forth in this Agreement. Shares of the Fund's Class A stock, $0.001 par value,
are referred to herein as "Fund Shares". The Adviser accepts such appointment
and agrees to render the services herein set forth, for the compensation herein
provided. The Fund, at its option, may also appoint the Adviser to act as
investment adviser to the Fund hereunder with respect to the assets belonging to
any other class of capital stock of the Fund from time to time created, but the
Adviser shall not be required to accept any such appointment. The Adviser shall
furnish investment research and advice to the Fund and shall manage the
investment and reinvestment of the assets and its business affairs and matters
incidental thereto, all subject to the supervision of the Board of Directors of
the Fund and subject to the provisions of the Certificate of Incorporation (as
defined in paragraph 3(a) of this Agreement) and By-Laws (as defined in
paragraph 3(b) of this Agreement) of the Fund and any resolution, rules or
regulations adopted by the Board of Directors of the Fund. The Adviser shall for
all purposes herein provided be deemed to be an independent contractor and
shall, unless otherwise expressly provided herein or authorized by the Board of
Directors of the Fund from time to time, have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent for the Fund. The
Fund shall also be free to retain, at its own expense, other persons to provide
it with any services whatsoever including, but not limited to, statistical,
factual or technical information or advice. The services of the Adviser herein
provided are not to be deemed exclusive and the Adviser shall be free to render
similar services or other services to others.
2. Duties of the Adviser. Subject to the general supervision of the Board
of Directors of the Fund, the Adviser shall, employing its discretion, manage
the investment operations of the Fund and the composition of the portfolio of
securities and investments (including cash) belonging to the Fund, including the
purchase, retention and disposition thereof and the execution of agreements
relating thereto, in accordance with the investment objective, policies and
restrictions of the Fund as stated in the Prospectus (as defined in paragraph
3(f) of this Agreement), Registration Statement (as defined in paragraph 3(d) of
this Agreement), Certificate of Incorporation and By-Laws of the Fund and
subject to the following understandings:
(a) The Adviser shall furnish a continuous investment program for the
Fund and determine from time to time what investments or securities will be
purchased, retained or sold by the Fund, and what portion of the assets
will be invested or held uninvested as cash.
<PAGE> 17
(b) The Adviser shall use its best judgment in the performance of its
duties under this Agreement.
(c) The Adviser, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Certificate of
Incorporation, the By-Laws and Prospectus of the Fund and with the
instructions and directions of the Board of Directors of the Fund and will
conform to and comply with the requirements of the Investment Company Act
of 1940, as amended from time to time, and the rules and regulations of the
Securities and Exchange Commission thereunder (collectively, the "1940
Act") and all other applicable Federal and state laws and regulations,
including without limitation the provisions of the Internal Revenue Code,
as amended from time to time, applicable to the Fund as a regulated
investment company.
(d) The Adviser shall determine the securities and other investments
to be purchased or sold by the Fund and, as agent for the Fund, will effect
transactions pursuant to its determinations either directly with the issuer
or with any broker and/or dealer in such securities. In placing orders with
brokers and/or dealers the Adviser intends to seek the best price and
execution for purchases and sales and will comply with such policies with
respect to brokerage as are set forth in the Fund's Registration Statement
and Prospectus or as the Fund's Board of Directors may adopt from time to
time. On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other customers,
the Adviser may, to the extent permitted by applicable laws and
regulations, but shall not be obligated to, aggregate the securities to be
sold or purchased in order to obtain the best price and execution. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Adviser in a
manner it considers to be equitable and consistent with its fiduciary
obligations to the Fund and, if applicable, to such other customers.
(e) The Adviser shall maintain books and records with respect to the
portfolio transactions of the Fund and shall render to the Fund's Board of
Directors such periodic and special reports as the Board of Directors may
reasonably request.
(f) The Adviser shall provide the Fund's custodian and administrator
on each business day with information relating to all transactions
concerning the assets of the Fund, except redemptions of and any
subscriptions for Fund Shares, and will provide on a timely basis to the
Fund's administrator and other persons providing services to the Fund such
information as the administrator or such other persons may reasonably
request in connection with the performance of their respective duties and
obligations with respect to the Fund.
(g) The Adviser will report to the Board of Directors of the Fund at
each meeting thereof all changes in the investments and other assets of the
Fund since the prior report, and will keep the Board of Directors informed
of material developments affecting the Fund and the Adviser, and on its own
initiative, will furnish the Board of Directors from time to time with such
information as the Adviser may believe appropriate for this purpose,
whether concerning the individual companies whose securities are included
in the Fund's holdings, the industries in which they engage, or the
economic, social or political conditions prevailing in each country in
which the Fund maintains investments. The Adviser also will furnish the
Board of Directors with such statistical and analytical information with
respect to securities and other investments of the Fund as the Adviser may
believe appropriate or as the Board of Directors may reasonably request.
The Adviser shall prepare and furnish to the Board of Directors all such
other written materials and documents as may be requested or as may
otherwise be necessary or appropriate in connection with meetings of the
Board of Directors, and, if the Secretary of the Fund is an officer,
director, or employee of the Adviser or any of its affiliated persons, the
Adviser shall cause to be prepared and shall bear the costs of preparing
and keeping the minutes of the meetings of the Board of Directors and
committees thereof and of meetings of the stockholders of the Fund.
(h) The Adviser shall furnish such office and other facilities as may
be required by the Fund.
<PAGE> 18
3. Delivery of Documents. The Fund has delivered, or will deliver promptly,
copies of each of the following documents to the Adviser and will promptly
notify and deliver to it all future amendments and supplements if any:
(a) Certificate of incorporation of the Fund, as filed with the
Secretary of State of the State of New York and in effect on the date
hereof and as amended or restated from time to time (the "Certificate of
Incorporation").
(b) By-Laws of the Fund, as in effect on the date hereof and as
amended or restated from time to time (the "By-Laws").
(c) Certified resolutions of the Board of Directors of the Fund and of
the Fund's stockholders, respectively, authorizing the appointment of the
Adviser and approving the form of this Agreement.
(d) Registration Statement under the 1940 Act and the Securities Act
of 1933, as amended, on Form N-1A (the "Registration Statement") as filed
with the Securities and Exchange Commission (the "Commission") and in
effect on the date hereof relating to the Fund, and all subsequent
amendments thereto.
(e) Notification of Registration under the 1940 Act on Form N-8A as
filed with the Commission.
(f) Prospectus or Prospectuses and Statement or Statements of
Additional Information of the Fund, if any, as currently in effect and as
amended or supplemented from time to time, being herein called the
"Prospectus".
4. Employees of the Adviser. The Adviser shall authorize and permit any of
its directors, officers and employees who may be elected as Directors or
officers of the Fund to serve in the capacities in which they are elected.
5. Books and Records. The Adviser shall keep the Fund's books and records
required to be maintained by it pursuant to paragraph 2(e) of this Agreement.
The Adviser agrees that all records which it maintains for the Fund are the
property to the Fund and it will promptly surrender any of such records to the
Fund upon the Fund's request. The Adviser further agrees to preserve for the
period prescribed by Rule 31a-2 of the Commission under the 1940 Act any such
records as are required to be maintained by the Adviser with respect to the Fund
hereunder or by Rule 31a-1 of the Commission under the 1940 Act, as such rule
may be amended from time to time, and any other applicable rule that may be
adopted by the Commission.
6. Expenses. During the term of this Agreement the Adviser will pay all
expenses (including without limitation the compensation of all its directors,
officers and employees serving as Directors or officers of the Fund pursuant to
paragraph 4 of this Agreement) incurred by it in connection with its activities
under this Agreement other than the cost of the securities and investments
purchased for the Fund (including taxes and brokerage commissions, if any). The
Adviser also shall pay the salaries, fees and expenses of Directors, officers
and employees of the Fund who are affiliated persons of the Adviser or
affiliated persons of any affiliated person of the Adviser. All other expenses
shall be borne by the Fund, subject to the limitations and reimbursements
provided for in paragraphs 7 and 8 hereof.
7. Compensation and General Expense Limitation.
(a) For the services provided and expenses borne by the Adviser
pursuant to this Agreement, the Fund shall pay to the Adviser compensation
based on the annual percentage of the Fund's average daily net assets paid
monthly, as follows: 0.75% of the first $100 million and 0.50% over $100
million; provided, however, that if the Restricted Expenses (as defined
below) of the Fund with respect to any fiscal year of the Fund exceed an
amount (the "Restricted Expense Cap") equal to 1.10% of the average daily
net asset value of the Fund during such fiscal year, the fee payable to the
Adviser with respect to such fiscal year shall be reduced by the amount of
such
<PAGE> 19
excess, but not below zero. The fee payable to the Adviser pursuant to
this paragraph 7 (the "Advisory Fee") shall commence on the date
o-n- w-h-i-c-h- t-h-i-s- A-g-r-e-e-m-e-n-t- i-s- a-p-p-r-o-v-e-d- b-y- a-
m-a-j-o-r-i-t-y- o-f- t-h-e- F-u-n-d-'-s- o-u-t-s-t-a-n-d-i-n-g-
v-o-t-i-n-g- s-e-c-u-r-i-t-i-e-s-,- a-s- d-e-f-i-n-e-d- i-n- t-h-e-
1-9-4-0-A-c-t- (-t-h-e- "-S-t-o-c-k-h-o-l-d-e-r- A-p-p-r-o-v-a-l
hereof (the "Effective Date") and shall be accrued daily, subject to
======================
adjustment as provided below in this paragraph 7 and subject to further
adjustment as provided in paragraph 8, and the fee for each month will be
paid to the Adviser during the succeeding month.
(b) The amount of compensation payable to the Adviser with respect to
each day during a fiscal year of the Fund shall be adjusted as follows:
(i) If the total amount of Restricted Expenses accrued by the Fund
from the beginning of the fiscal year through the close of
business on such day exceeds the Applicable Pro Rata Portion
of the Restricted Expense Cap (as defined below) through such
day, the compensation payable to the Adviser with respect to
such day shall be reduced by the amount of such excess.
(ii) If the total amount of Restricted Expenses accrued by the Fund
from the beginning of the fiscal year through the close of
business on such day is less than the Applicable Pro Rata
Portion of the Restricted Expense Cap through such day, the
compensation payable to the Adviser with respect to such day
shall be increased by the amount of such excess, except to the
extent such increase would cause the aggregate compensation
payable to the Adviser with respect to the period from the
beginning of such fiscal year through such date to exceed the
Applicable Pro Rata Portion of the Advisory Fee (as defined
below).
In the event any reduction of the Advisory Fee provided for in this paragraph
7(b) would result in an aggregate Advisory Fee of less than zero for any month
in a fiscal year, the Adviser shall make a refund payment to the Fund in such
amount; provided, however, the Adviser shall not be obligated to refund an
amount greater than the aggregate amount of the Advisory Fee previously paid to
the Adviser with respect to such fiscal year.
(c) For purposes of this paragraph 7:
(i) "Applicable Pro Rata Portion of the Restricted Expense Cap" as
of any day shall mean the dollar amount computed by
multiplying 1.10% by (A) the ratio computed by dividing the
number of days elapsed since the beginning of the relevant
fiscal year by the number of days in such year and (B) the
average daily net asset value of the Fund from the beginning
of the relevant fiscal year through such day.
(ii) "Applicable Pro Rata Portion of the Advisory Fee" as of any
day shall mean the dollar amount of the Advisory Fee that
would be payable to the Adviser with respect to the period
from the beginning of the relevant fiscal year through such
day, if such amount were computed without regard to the
limitations set forth in paragraph 7(b) and paragraph 8,
multiplied by the ratio computed by dividing the number of
days elapsed since the beginning of the relevant fiscal year
by the number of days in such fiscal year.
(d) In the event this Agreement becomes effective on a date other than
the first day of any fiscal year, solely for the purpose of computing the
amount of the Advisory Fee for such fiscal year, such first fiscal year
shall be deemed to begin on the S-t-o-c-k-h-o-l-d-e-r- A-p-p-r-o-v-a-l
Effective Date and to end on December 31 of such year. In the event this
=========
Agreement terminates on a date other than the last day of any fiscal year,
solely for the purpose of computing the amount of the Advisory Fee for such
fiscal year, such fiscal year shall be deemed to begin on January 1 of such
year and to end on the date of the termination of this Agreement. In either
of such events, the Applicable Pro Rata Portion of the Restricted Expense
Cap and the Applicable Pro Rata Portion of the Advisory Fee shall be
reduced by multiplying such amount by the ratio computed by dividing the
number of days deemed to occur in such fiscal year by 365.
<PAGE> 20
(e) As used herein, the term "Restricted Expenses" means all expenses
of the Fund, including without limitation (i) the general expenses of the
Fund, (ii) the fees payable to the Adviser, the Fund's administrator, if
any, the Fund's transfer agent and dividend paying agent, if any, and the
Fund's custodian and (iii) registration fees and the costs and expenses of
qualifying the Fund's shares for offer and sale under the Blue Sky laws of
any jurisdiction where such shares may be qualified from time to time; but
the Restricted Expenses shall exclude (A) the fees and expenses of the
Fund's outside counsel (other than registration and filing fees disbursed
by such counsel on behalf of the Fund), (B) the fees and expenses of the
Fund's independent accountants, (C) Directors' fees and the expenses
incurred by Directors and reimbursed by the Fund and (D) fees and expenses
paid under a plan of distribution, if any, adopted pursuant to Rule 12b-1
under the 1940 Act.
7-A-. C-o-m-p-e-n-s-a-t-i-o-n- d-u-r-i-n-g- t-h-e- I-n-t-e-r-i-m-
P-e-r-i-o-d-.
N-o-t-w-i-t-h-s-t-a-n-d-i-n-g- a-n-y- o-t-h-e-r- p-r-o-v-i-s-i-o-n- o-f-
t-h-i-s- A-g-r-e-e-m-e-n-t-,- i-n- o-r-d-e-r- t-o- c-o-m-p-l-y- w-i-t-h-
R-u-l-e- 1-5-a-4- u-n-d-e-r- t-h-e- 1-9-4-0- A-c-t-:- (-i-)- t-h-e-
c-o-m-p-e-n-s-a-t-i-o-n- p-a-y-a-b-l-e- t-o- t-h-e- A-d-v-i-s-e-r- w-i-t-h-
r-e-s-p-e-c-t- t-o- t-h-e- p-e-r-i-o-d- f-r-o-m- t-h-e- d-a-t-e- h-e-r-e-o-f-
u-n-t-i-l- t-h-e- S-t-o-c-k-h-o-l-d-e-r- A-p-p-r-o-v-a-l- D-a-t-e- (-t-h-e-
"-I-n-t-e-r-i-m- P-e-r-i-o-d-"-)- s-h-a-l-l- b-e- e-q-u-a-l- t-o- t-h-e-
a-m-o-u-n-t- t-h-a-t- w-o-u-l-d- h-a-v-e- b-e-e-n- p-a-y-a-b-l-e- w-i-t-h-
r-e-s-p-e-c-t- t-o- t-h-e- I-n-t-e-r-i-m- P-e-r-i-o-d- t-o- N-a-t-i-o-n-a-r-
a-s- t-h-e- F-u-n-d-'-s- p-r-i-o-r- i-n-v-e-s-t-m-e-n-t- a-d-v-i-s-e-r-,-
a-d-m-i-n-i-s-t-r-a-t-o-r-,- t-r-a-n-s-f-e-r- a-g-e-n-t-,- r-e-g-i-s-t-r-a-r-
a-n-d- c-u-s-t-o-d-i-a-n- p-u-r-s-u-a-n-t- t-o- t-h-e- A-m-e-n-d-e-d- a-n-d-
R-e-s-t-a-t-e-d- A-g-r-e-e-m-e-n-t- b-e-t-w-e-e-n- t-h-e- F-u-n-d- a-n-d-
N-a-t-i-o-n-a-r- d-a-t-e-d- a-s- o-f- A-p-r-i-l- 1-,- 1-9-9-4- f-i-l-e-d- a-s-
a-n- e-x-h-i-b-i-t- t-o- t-h-e- F-u-n-d-'-s- r-e-g-i-s-t-r-a-t-i-o-n-
s-t-a-t-e-m-e-n-t- o-n- F-o-r-m- N-1-A- a-n-d- (-i-i-)- t-h-e- A-d-v-i-s-e-r-
s-h-a-l-l- b-e-a-r- t-h-e- f-e-e-s- a-n-d- o-t-h-e-r- c-o-m-p-e-n-s-a-t-i-o-n-
o-f- t-h-e- F-u-n-d-'-s- a-d-m-i-n-i-s-t-r-a-t-o-r-,- t-r-a-n-s-f-e-r-
a-g-e-n-t-,- r-e-g-i-s-t-r-a-r- a-n-d- c-u-s-t-o-d-i-a-n- w-i-t-h-
r-e-s-p-e-c-t- t-o- t-h-e- I-n-t-e-r-i-m- P-e-r-i-o-d-.
8. Blue Sky Limitation on Expenses.
(a) In the event the Expenses (as defined in paragraph 8(b) below) of
the Fund for any fiscal year exceed the lowest applicable annual expense
limitations, if any, established pursuant to the statutes or regulations of
any jurisdictions in which Fund Shares are then qualified for offer and
sale (such excess hereinafter called the "Blue Sky Excess Expense"), the
compensation due to the Adviser under paragraph 7 for the fiscal year in
question shall be reduced by an amount equal to the Blue Sky Excess Expense
of the Fund, and if the Blue Sky Excess Expense of the Fund exceeds the
fees of the Fund payable to the Adviser with respect to the Fund for the
fiscal year in question, the Adviser shall, to the extent required by such
statute or regulations, reimburse the Fund for the amount of such excess.
If for any month the Expenses shall exceed 1/12th of the percentage of
average daily net assets allowable as Expenses, the payment to the Adviser
for that month shall be reduced, and, if necessary, the Adviser shall make
a refund payment to the Fund so that the Expenses will not exceed such
percentage. As of the end of the fiscal year, however, the foregoing
computations shall be readjusted so that the aggregate compensation payable
to the Adviser for the year is equal to the amount provided for in
paragraph 7 hereof, reduced by an amount equal to the Blue Sky Excess
Expense of the Fund. The aggregate of the repayments, if any, by the
Adviser to the Fund for the year shall be the amount necessary to reimburse
the Fund for the amount of such excess.
(b) For purposes of paragraph 8(a) of this Agreement, the term
"Expenses" means the general expenses of the Fund, including without
limitation fees payable to the Adviser, the Fund's administrator, if any,
the Fund's transfer agent, if any, and to the Fund's custodian; but the
Expenses shall exclude any interest, taxes, brokerage commissions and
litigation and indemnification expenses and other extraordinary expenses
not incurred in the ordinary course of the Fund's business.
9. Limitation of Liability. The Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this Agreement relates, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services (in which case any award of damages shall be limited to the period and
the amount set forth in Section 36(b)(3) of the 1940 Act) or a loss resulting
from willful misfeasance,
<PAGE> 21
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement.
10. Effective Date and Term. This Agreement shall become effective on the
date hereof. This Agreement shall remain in effect f-o-r- a- p-e-r-i-o-d- o-f-
t-w-e-l-v-e- (-1-2-)- m-o-n-t-h-s- f-r-o-m- t-h-e- d-a-t-e- o-f- s-u-c-h-
e-f-f-e-c-t-i-v-e-n-e-s-s until May 30, 1998, and shall continue in effect
===================
thereafter for successive twelve-month periods (or for such shorter periods
==========
as may be specified by the Fund's Board of Directors) subject to
termination as hereinafter provided, if such continuance is approved at least
annually (a) by vote of the Fund's Board of Directors, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by vote of a
majority of the Directors of the Fund who are not parties to this Agreement or
"interested persons" (as defined in the 1940 Act) of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval;-p-r-o-v-i-d-e-d-,- h-o-w-e-v-e-r-,- t-h-a-t- t-h-i-s-
A-g-r-e-e-m-e-n-t- s-h-a-l-l- n-o-t- c-o-n-t-i-n-u-e- a-n-d- s-h-a-l-l-
t-e-r-m-i-n-a-t-e- o-n- t-h-e- 1-2-0-t-h- d-a-y- a-f-t-e-r- t-h-e- d-a-t-e-
h-e-r-e-o-f- u-n-l-e-s-s-,- o-n- o-r- p-r-i-o-r- t-o- s-u-c-h- d-a-t-e-,-
t-h-i-s- A-g-r-e-e-m-e-n-t- i-s- a-p-p-r-o-v-e-d- b-y- a- m-a-j-o-r-i-t-y- o-f-
t-h-e- o-u-t-s-t-a-n-d-i-n-g- v-o-t-i-n-g- s-e-c-u-r-i-t-i-e-s- (-a-s-
d-e-f-i-n-e-d- i-n- t-h-e- 1-9-4-0- A-c-t-)- o-f- t-h-e- F-u-n-d-. The annual
approvals provided for herein shall be effective to continue this Agreement
from year to year (or for such shorter period referred to above) if given
within a period beginning not more than ninety (90) days prior to (and
including) the anniversary of the date upon which the most recent previous
continuance of this Agreement became effective, notwithstanding the fact that
more than three hundred sixty-five (365) days may have elapsed since the date
on which such approval was last given. This Agreement may be terminated (i) by
the Fund at any time, without the payment of any penalty, by the Board of
Directors of the Fund or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund, on 30 (thirty) days'
written notice to the Adviser, or (ii) after t-h-e- t-h-i-r-d-
a-n-n-i-v-e-r-s-a-r-y- o-f- t-h-e- d-a-t-e- o-f- t-h-i-s- A-g-r-e-e-m-e-n-t
May 19, 1998, by the Adviser at any time, without the payment of any penalty,
============
on 90 (ninety) days' written notice to the Fund. This Agreement
will automatically and immediately terminate in the event of its assignment (as
defined in the 1940 Act).
11. Amendment of Agreement. This Agreement may be amended by mutual
consent, provided that the amendment is approved (a) by vote of a majority of
those Directors of the Fund who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of any such party, cast in person at a
meeting called for the purpose of voting on such amendment, and (b), if required
by the 1940 Act, by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund.
12. Notices. Notices of any kind to be given to the Adviser by the Fund
shall be in writing and shall be duly given if mailed or delivered to the
Adviser at 111 East Wacker Dr., Chicago, IL 60601, Attention: Executive Vice
President, or at such other address or to such other individual as shall be
specified by the Adviser to the Fund in accordance with this paragraph 12.
Notices of any kind to be given to the Fund by the Adviser shall be in writing
and shall be duly given if mailed or delivered to the Fund at 3-3-0-
M-a-d-i-s-o-n 200 Park Avenue, New York, NY 1-0-0-1-7 10166, Attention:
======== =====
President, or at such other address or to such other individual as shall be
specified by the Fund to the Adviser in accordance with this paragraph 12, with
copies to each of the Fund's Directors at their respective addresses set forth
in the Fund's Registration Statement and to the legal counsel to the Fund.
13. Authority. The Directors have authorized the execution of this
Agreement in their capacity as Directors and not individually. The Adviser
agrees that neither the stockholders nor the Directors nor any officer,
employee, representative or agent of the Fund shall be personally liable upon,
nor shall resort be had to their private property for the satisfaction of,
obligations given, executed or delivered on behalf of or by the Fund, that the
stockholders, Directors, officers, employees, representatives and agents of the
Fund shall not be personally liable hereunder, and that the Adviser shall look
solely to the property of the Fund for the satisfaction of any claim hereunder.
14. Controlling Law. This Agreement shall be governed by the construed in
accordance with the laws of the state of New York.
<PAGE> 22
15. Multiple Counterparts. This Agreement may be executed simultaneously in
several counterparts, each of which shall be deemed to be an original, but which
together shall constitute one and the same instrument.
16. Captions. The captions of the paragraphs are for descriptive purposes
only and they are not intended to limit or otherwise affect the content of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
M.S.B. FUND, INC.
By:
--------------------------------------------
D-a-v-i-d- F-r-e-e-r-,- J-r-.
Joseph R. Ficalora
==================
President
SHAY ASSETS MANAGEMENT -C-O-., INC.
====
By:
--------------------------------------------
E-d-w-a-r-d- E-.- S-a-m-m-o-n-s-,- J-r-.
E-x-e-c-u-t-i-v-e- V-i-c-e-
P-r-e-s-i-d-e-n-t-,
S-h-a-y- A-s-s-e-t-s-
M-a-n-a-g-e-m-e-n-t-,- I-n-c-.-,
M-a-n-a-g-i-n-g- P-a-r-t-n-e-r
Rodger D. Shay
==============
Chairman
========
<PAGE> 23
PROXY M.S.B. FUND, INC. PROXY
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS - NOVEMBER 13, 1997
The undersigned hereby appoints Joseph R. Ficalora and Ian D. Smith as Proxies,
each with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated herein, all the shares of capital stock of
M.S.B. Fund, Inc. held of record by the undersigned on October 1, 1997, at
the Special Meeting of Stockholders to be held on November 13, 1997, or any
adjournment thereof. This proxy is solicited on behalf of the Board of
Directors. This proxy when properly executed will be voted in the manner
directed herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" PROPOSAL 1. PLEASE MARK, SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
NOTE: Please sign exactly as your
name appears below. When shares are
held by joint tenants, both should
sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such. If a corporation, please sign
in full corporate name by president
or other authorized officer. If a
partnership, please sign in
partnership name by authorized
persons.
Date __________________________, 1997
-----------------------------------
( )
( )
( )
( )
------------------------------------
Signature(s) Title(s), if applicable
<PAGE> 24
2
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THE DIRECTORS
RECOMMEND VOTING "FOR" PROPOSAL 1. PLEASE MARK YOUR VOTE BELOW IN BLUE OR BLACK
INK. EXAMPLE: / /
<TABLE>
<S> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
1. The approval of the Investment Advisory Agreement with Shay Assets Management, Inc. / / / / / /
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment thereof.
</TABLE>
