<PAGE> 1
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER AGENCY.
This Prospectus does not constitute an offer in any state or jurisdiction in
which, or to any person to whom, the Fund may not lawfully make such an offer.
[LOGO OF M.S.B. FUND, INC.]
PROSPECTUS
------------------
May 1, 1999
------------------
A NO-LOAD FUND
------------------
Investment Objective:
LONG-TERM GROWTH OF CAPITAL
You should read this Prospectus
and retain it for future reference.
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Key Points............................ 2
Performance Summary................... 3
Fees and Expenses of the Fund......... 4
Investment Objective and Strategies... 5
Principal Risks....................... 5
Share Price -- Net Asset Value........ 6
Purchase of Fund Shares............... 6
Share Purchase Options................ 8
Redeeming Shares...................... 10
Understanding Performance............. 13
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Dividends, Distributions and Federal
Income Tax Status................... 13
Portfolio Management.................. 14
Administrator, Transfer Agent,
Dividend Paying Agent and
Custodian........................... 15
Distributor........................... 15
Financial Highlights.................. 15
Additional Information and Shareholder Back
Inquiries........................... Cover
</TABLE>
------------------------
KEY POINTS
GOAL AND PRINCIPAL STRATEGIES: The Fund's investment objective is to achieve
long-term growth of capital for its shareholders. The Fund seeks to achieve this
objective by investing in a diversified portfolio of equity securities,
consisting primarily of securities of U.S.-based companies whose growth, cash
flow, earnings and dividend prospects are promising and whose securities are
reasonably priced and have the potential for capital appreciation in the opinion
of its Investment Adviser. The equity securities in which the Fund invests
consist primarily of dividend-paying common stocks of large-capitalization
companies, i.e., companies with a market capitalization in excess of $5 billion.
There is no assurance that the Fund in fact will achieve this objective.
RISKS: All investments in equity mutual funds, like the Fund, involve some
level of risk. Simply defined, risk is the possibility that you will lose money
or not make money. Below is a summary of the principal risk factors for the
Fund.
- MARKET AND INVESTMENT RISKS. The value of the Fund's shares will
fluctuate in accordance with the value of the securities held in its
portfolio. Declines are possible in the overall stock market or in the
particular securities or types of securities held by the Fund, and it is
possible to lose money as a result of your investment.
- PORTFOLIO MANAGEMENT RISKS. The Investment Adviser's skill will affect
the ability of the Fund to achieve its investment objective. The
strategies employed by the Fund may not match the performance of other
strategies at different times or under different market or economic
conditions. Accordingly, the Fund's performance for any period may
differ from the performance of the overall market or from other
investments that may be available to you.
INVESTMENTS NOT INSURED OR GUARANTEED: An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
2
<PAGE> 3
PERFORMANCE SUMMARY
The bar chart and table shown below provide an indication of the risks of
investing in the Fund by showing changes in the Fund's performance from
year-to-year over a 10-year period and by showing how the Fund's average annual
returns for one-, three-, five-, and ten-years compare to those of a broad-based
securities market index. All returns assume reinvestment of dividends. How the
Fund has performed in the past is not necessarily an indication of how the Fund
will perform in the future.
YEAR-BY-YEAR TOTAL RETURNS (AS OF DECEMBER 31 OF EACH YEAR)
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURNS
(AS OF DECEMBER 31 OF EACH YEAR)
--------------------------------
<S> <C>
1989 28.06%
1990 (7.40)
1991 16.97
1992 10.66
1993 20.64
1994 (1.70)
1995 24.97
1996 21.16
1997 28.88
1998 31.45
</TABLE>
Best Quarter: 4th Quarter, 1998 +22.56%
Worst Quarter: 3rd Quarter, 1990 -16.93%
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
M.S.B. Fund, Inc................... 31.45% 27.09% 20.32% 16.66%
S&P 500 Index*..................... 28.58% 28.23% 24.06% 19.21%
</TABLE>
- ---------------
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 Stocks,
which is a commonly recognized unmanaged price index of 500 widely held common
stocks. Unlike the Fund's returns, index returns do not reflect any fees or
expenses.
3
<PAGE> 4
FEES AND EXPENSES OF THE FUND
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD SHARES OF THE FUND.
<TABLE>
<S> <C> <C>
SHAREHOLDER FEES (fees paid directly from your investment).......... NONE+
ANNUAL FUND OPERATING EXPENSES (deducted from Fund assets)
Management Fees................................................... 0.75%*
Distribution or Service (12b-1) Fees.............................. NONE
Other Expenses.................................................... 0.64%
Administration, Transfer Agent and Custodian Fees...... 0.26%*
Professional and Directors' Expenses................... 0.22%
Insurance, Printing and Miscellaneous Expenses......... 0.16%
Total Annual Fund Operating Expenses.............................. 1.39%*
</TABLE>
- ---------------
+ For shareholders who elect to have redemption proceeds of $5,000 or more
wired to their brokerage account or a commercial bank account, there will be
a $7.50 bank wire charge.
* The preceding table is based on expenses incurred during the fiscal year
ended December 31, 1998, without giving effect to expense limitations that
were in effect during the year under the Fund's investment advisory
agreement and fee waivers by the Fund's Administrator and Transfer Agent,
and are expressed as a percentage of the Fund's average net assets. If the
effect of these expense limitations and fee waivers were included, the
Management Fees in the table would have been 0.73%, the Administration,
Transfer Agent and Custodian Fees in the foregoing table would have been
0.21%, and Total Annual Fund Operating Expenses would have been 1.32%. The
Fund's investment advisory agreement does not provide for any expiration of
the expense limitation. The Administrator and Transfer Agent have
contractually agreed to continue the fee waivers through May 18, 2000.
EXAMPLE
This Example may help you compare the cost of investing in the Fund with
the cost of investing in other mutual funds. Because it uses hypothetical
conditions, your actual costs may be higher or lower.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated. The Example also assumes that your investment has a 5% return
each year, all dividends and distributions are reinvested and the Fund's
operating expenses described in the preceding table remain the same as a
percentage of net assets.* Based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- --------
<S> <C> <C> <C>
$142 $440 $761 $1,669
</TABLE>
- ---------------
* If the effect of expense limitations and fee waivers that were in effect
during the year were reflected in the Example, the expenses paid for the
one-, three-, five- and ten-year periods would have been $134, $418, $723
and $1,590, respectively.
4
<PAGE> 5
INVESTMENT OBJECTIVE AND STRATEGIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to achieve long-term growth of
capital for its shareholders. The Fund is designed as an investment vehicle for
value-oriented investors who want to see their capital grow over the longer term
and who are willing to take moderate risks to achieve that goal. There is no
assurance that the Fund will, in fact, achieve its objective.
The Board of Directors may change the Fund's investment objective without
shareholder approval.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in equity securities of U.S.-based companies
whose growth, cash flow, earnings and dividend prospects are promising and whose
securities are reasonably priced and have the potential for capital appreciation
in the opinion of its Investment Adviser.
The equity securities in which the Fund invests consist primarily of
dividend-paying common stocks of large-capitalization companies, i.e., companies
with a market capitalization in excess of $5 billion. The Fund may invest up to
25% of its assets in equity securities of smaller companies. The equity
securities in which the Fund may invest also include common stocks that do not
pay dividends.
Under normal market conditions, it is the Fund's policy to invest
substantially all of its assets in equity securities. However, if the Fund's
Investment Adviser deems it beneficial for defensive purposes during adverse
market, economic or other conditions, the Fund may invest up to 100% of its
assets temporarily in non-equity securities, such as investment grade corporate
bonds, commercial paper and government securities. In taking this action, the
Fund would reduce its exposure to fluctuations and risks in the market for
equity securities and would increase its exposure to fluctuations and risks of
the market for debt securities. These defensive actions would reduce the benefit
from any upswing in the equity markets and, if the Investment Adviser does not
correctly anticipate fluctuations in the equity and debt securities markets, may
not contribute to the achievement of the Fund's investment objective.
To a limited extent, the Fund also may engage in other investment
practices.
More information about the Fund's investments and strategies is provided in
the Statement of Additional Information.
PRINCIPAL RISKS
All investments in equity mutual funds, like the Fund, involve some level
of risk. Simply defined, risk is the possibility that you will lose money or not
make money.
The principal risk factors for the Fund are discussed below. Before you
invest, please make sure you understand the risks that apply to your investment.
MARKET AND INVESTMENT RISKS
The value of the Fund's shares will fluctuate in accordance with the value
of the securities held in its portfolio so that your shares, when redeemed, may
be worth more or less than their original cost. Declines are possible in the
overall stock market or in the particular securities or types of securities held
by the Fund, and it is possible to lose money as a result of your investment.
The Fund may invest up to 25% of its assets in the securities of companies
with a market capitalization of less than $5 billion. These companies carry
additional risks because their earnings tend to be less predictable, their share
prices more volatile and their securities less liquid than the securities of
larger companies.
Investments in mutual funds are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
PORTFOLIO STRATEGY
The Investment Adviser's skill in choosing appropriate investments for the
Fund will affect the ability of the Fund to achieve its investment objective,
and the investment strategies employed by the Fund may not match the performance
of other strategies at different times or under different market or economic
conditions. Accordingly, the
5
<PAGE> 6
Fund's performance for any period may differ from the performance of the overall
market or from other investments that may be available to you.
YEAR 2000 RISKS
Many computer software systems in use today cannot distinguish the year
2000 from the year 1900 or correctly process certain other dates after 1998
because of the way dates are encoded. These difficulties are referred to
generally as the "Year 2000" issue. The Fund depends primarily on its Investment
Adviser, Administrator, Transfer Agent and Custodian for operational activities
and, accordingly, is dependent on the proper functioning of the computer systems
used by them and by their vendors and service providers. The Fund could be
adversely affected if the computer systems used by the Fund's Investment
Adviser, Administrator, Transfer Agent or Custodian or other vendors or service
providers do not properly process and calculate date-related information from
and after January 1, 1999. Such an event could have a negative impact on the
handling of securities trades, payments of dividends, pricing, processing of
investments and redemptions and other accounting services, among other
activities.
Although the Fund's Investment Adviser, Administrator, Transfer Agent and
Custodian have been actively working on changes to their computer systems to
address potential problems and believe that their systems will be Year 2000
compliant when required, there is no assurance that the Year 2000 issue will not
result in service disruptions that could have a negative impact on the
operations of the Fund.
The Year 2000 issue affects practically all companies, organizations and
markets, including companies in which the Fund invests and the markets in which
they trade. At this time no one knows precisely what the degree of impact of the
Year 2000 issue will be. To the extent that the impact on an investment held by
the Fund or on the securities markets or the economy is negative, it could
seriously affect the Fund's investment performance.
SHARE PRICE -- NET ASSET VALUE
The price of the Fund's shares is also referred to as their net asset value
or NAV. The net asset value per share of the Fund is determined by computing the
total value of all securities and other assets of the Fund, subtracting all of
its liabilities and then dividing by the total number of shares of the Fund
outstanding:
Net Asset Value = Total Assets - Liabilities
--------------------------
Number of Shares
Outstanding
The Fund determines net asset value per share of the Fund as of 4:00 P.M.,
New York time. Shares will not be priced on days on which the New York Stock
Exchange is closed for trading.
The Fund uses market prices in valuing portfolio securities, but may use
fair value estimates if reliable market prices are unavailable.
PURCHASE OF FUND SHARES
You purchase shares at the Fund's next-determined net asset value after the
Fund receives your order to purchase. Except for orders by institutional
investors that elect next-day settlement, all orders must be accompanied by a
check or other form of payment. The Fund will not accept non-institutional
orders without payment. Orders to purchase shares are not binding on the Fund
until accepted by the Fund. The Fund reserves the right to reject any purchase
order.
As an M.S.B. Fund shareholder, you pay no shareholder transaction fees,
such as sales loads, redemption fees or exchange fees, when purchasing or
redeeming shares.
INITIAL AND SUBSEQUENT PURCHASES
To make an investment in the Fund, follow the instructions provided on page
8 under the heading "Share Purchase Options." An Account Application may be
obtained separately from the Fund by calling 800-982-1846.
You receive a Confirmation Notice from the Fund confirming each share
purchase. Each Confirmation Notice includes a detachable order form
6
<PAGE> 7
which you may use to make additional purchases of shares.
Subsequent purchases also may be made by telephone.
AUTOMATIC INVESTMENT PLAN
You may make automatic periodic investments in the Fund by authorizing the
Fund's Transfer Agent to withdraw funds from your bank account. If you desire to
participate in the Automatic Investment Plan, complete Sections 4 and 7 of the
application, which may be obtained separately from the Fund by calling
800-982-1846, and mail it to the Fund. Allow up to one month for processing of
the application.
TAX-SHELTERED RETIREMENT PLANS
The Fund offers certain tax-sheltered retirement plans through which you
may purchase shares, including traditional, SEP, Roth and Education IRAs. Call
the Fund at 800-982-1846 to obtain the appropriate forms.
PAYROLL DEDUCTION PLANS
A number of employers make purchases of M.S.B. Fund shares available to
their employees by means of payroll deductions. Contact your employer for
information about the availability of a payroll deduction plan.
NEXT-DAY SETTLEMENT OPTION FOR INSTITUTIONAL INVESTORS
The Fund makes available a next-day settlement option for institutional
investors, including but not limited to banks, savings associations, trust
companies, broker-dealers and other institutions, whether acting for themselves
or their customers. Next-day settlement permits an institution to place an order
by telephone or fax to purchase Fund shares at the net asset value per share
next determined after receipt of the order to purchase and to deliver payment
for the order by wire transfer the following business day.
To use the next-day settlement option, follow the instructions on page 8
under the heading "Share Purchase Options." You may obtain telephone transaction
authorization forms needed to activate next-day settlement by calling the Fund
at 800-661-3938.
Institutional investors may submit purchase orders by telephone for their
initial investment in the Fund or any subsequent investment.
A purchase order for next-day settlement is binding upon the investor. If
the Fund must cancel your order because payment was not timely received, you
will be responsible for the difference between the price of the shares when
ordered and the price of the shares when the order is canceled, and for any fees
or other losses and expenses incurred by the Fund. The Fund may redeem shares
from your account in an amount equal to the amount of the difference in share
price and the fees and other losses and expenses incurred, if any, and may
retain the proceeds of the redemption in satisfaction of your liability to the
Fund. You will continue to be responsible for any deficiency. In addition, the
Fund may prohibit or restrict you from electing next-day settlement in the
future or from making future purchases of the Fund's shares.
Any funds received by the Fund in respect of a canceled purchase order will
be returned upon instructions from the sender without any liability to the Fund,
the Investment Adviser, the Distributor or the Custodian. If it is not possible
to return the funds the same day, you will not have use of the funds until the
next business day when it is possible to effect the return payment. The Fund
reserves the right to reject any purchase order.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
You may elect to have dividends and capital gains distributions of the
Fund, when paid, reinvested in shares of the Fund at the net asset value per
share determined at the close of business on the ex-dividend date. The Fund will
so reinvest dividends and capital gains distributions unless you state a
contrary intention in the space provided for that purpose in the Account
Application. You may change an election at any time prior to a record date for a
dividend or distribution by notifying the Fund in writing.
7
<PAGE> 8
SHARE PURCHASE OPTIONS
<TABLE>
<CAPTION>
INITIAL PURCHASE SUBSEQUENT INVESTMENT
---------------- ---------------------
<S> <C> <C>
MINIMUM $250 ($50 for investors enrolling in $50 ($25 for investments through the
INVESTMENT the Automatic Investment Plan) Automatic Investment Plan)
BY MAIL OR Complete and sign the application. Make your check payable to "M.S.B.
OVERNIGHT COURIER Make your check payable to "M.S.B. Fund, Inc." and send it to the address
Fund, Inc." and send the completed at the left. Put your name, address
application and check to: and M.S.B. Fund account number on your
check. Subsequent investment forms
By Mail: M.S.B. Fund, Inc. will be included with each shareholder
c/o PFPC Inc. statement for your convenience.
P.O. Box 8905 Alternatively, include a note giving
Wilmington, DE your M.S.B. Fund account number, your
19899-8905 name and your address.
By Courier: M.S.B. Fund, Inc.
c/o PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
BY TELEPHONE Telephone transactions may not be used If you want to make telephone
for initial purchases, unless the transactions, call 800-661-3938 to
investor is an institution. If you request an authorization form to set
want to make telephone transactions, up your account for this feature. All
call 800-661-3938 to request an purchases made by telephone must be
authorization form to set up your paid by wire transfer.
account for this feature. All
purchases made by telephone must be
paid by wire transfer.
WIRE INSTRUCTIONS First, call 800-661-3938 to notify the Please carefully follow instructions
Fund that you intend to purchase at left and include the following
shares by wire and to verify wire information:
instructions. Then, wire funds care of
PNC Bank, N.A., Philadelphia, PA Shareholder Account #______________
Shareholder Name/Registration
ABA#: 031000053 Taxpayer Identification Number.
Credit: BNF M.S.B. Fund
DDA#8610304163
Further credit: (Shareholder Name and
Account Number)
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
INITIAL PURCHASE SUBSEQUENT INVESTMENT
---------------- ---------------------
<S> <C> <C>
INSTITUTIONAL 1. Open an account by submitting a Follow the directions to the left.
INVESTORS -- completed Account Application by mail
NEXT-DAY or overnight courier. Authorize
SETTLEMENT telephone transactions on an
authorization form available from the
Fund.
2. Notify the Fund by calling 800-661-
3938 that you desire to purchase
shares with next-day settlement.
3. Submit an order to purchase shares
either by fax or telephone, indicating
the amount of the investment or the
number of shares you desire to
purchase. Be sure to indicate on the
order that next-day settlement is
sought. If you are submitting the
purchase order by fax, transmit the
fax to 302-791-4088.
4. Wire funds using the wire
instructions above. Immediately
available funds must be received by
4:00 P.M. New York City time on the
next business day after the order is
submitted or the order will be
canceled.
AUTOMATIC Complete Sections 4 and 7 of the Follow the directions to the left.
INVESTMENT PLAN Account Application which may be
obtained separately from the Fund.
Send the completed application and a
voided personal check to the Fund at
the address provided on page 8 for
delivery by mail or overnight courier.
Allow up to one month for processing
of your application.
PAYROLL DEDUCTION See your employer for information. See your employer for information.
PLANS
TO OBTAIN ACCOUNT Call the Fund at 800-982-1846. Call the Fund at 800-982-1846.
APPLICATIONS AND
OTHER FORMS
</TABLE>
9
<PAGE> 10
SHARE CERTIFICATES
The Fund will not issue certificates representing the Fund's shares unless
you make a request in writing directly to the Fund's Administrator or to an
account representative of an eligible broker-dealer, bank or other financial
intermediary. Wire and telephone redemptions of shares held in certificate form
are not permitted.
PURCHASES THROUGH FINANCIAL INTERMEDIARIES
You may also purchase shares of the Fund through authorized broker/dealers
or other financial intermediaries such as banks, 401(k) plans, financial
advisers and financial supermarkets. These parties may charge transaction fees
and may set different minimum investments or limitations on buying or selling
shares. The intermediaries are responsible for transmitting purchase orders and
funds and for crediting their customers' accounts following timely redemptions
made in accordance with their customer agreements and this Prospectus.
REDEEMING SHARES
You may withdraw any part of your account at any time by redeeming shares
(subject to the conditions and limited exceptions described below). You may make
redemption requests in writing or by telephone if you have elected the telephone
redemption option. If share certificates were issued to you for the shares to be
redeemed, the share certificates must accompany the redemption request.
Procedures for redeeming shares are described below.
Shares are redeemed at their net asset value per share next determined
after receipt by the Fund of the request for redemption and all other necessary
documentation.
The Fund may refuse to honor a request for redemption until any check
delivered in payment for the purchase of the shares being redeemed has cleared.
WRITTEN REDEMPTION REQUESTS
To be in good order, written redemption requests must be signed exactly as
the account is registered by all persons in whose names the account is held and
must include the following information and documents:
- - the account number from which shares are to be redeemed,
- - the dollar value or number of shares to be redeemed,
- - the address the redemption proceeds should be mailed to,
- - the shareholder's daytime phone number,
- - the signatures of all account owners exactly as registered on the account,
- - signature guarantees (if required, as
described below under the heading "Signature Guarantees"),
- - any supporting legal documentation that may be required in the event of the
death or incapacity of a shareholder,
- - any certificates you are holding for the shares being redeemed.
You should direct redemption requests to M.S.B. Fund, Inc., c/o PFPC Inc.,
P.O. Box 8905, Wilmington, DE 19899-8905. Redemption requests sent by overnight
courier should be sent to M.S.B. Fund, Inc., c/o PFPC Inc., 400 Bellevue
Parkway, Wilmington, DE 19899.
SIGNATURE GUARANTEES
Except for redemption requests by 401(k) plan omnibus accounts and
redemptions by institutional investors, redemption requests that are greater
than $10,000 require signature guarantees. A signature guarantee is designed to
protect you and the Fund against fraudulent transactions by unauthorized
persons. The types of signature guarantees that are required are described
below.
10
<PAGE> 11
<TABLE>
<CAPTION>
AMOUNT OF
REDEMPTION TYPE OF SIGNATURE GUARANTEE REQUIRED
- ---------- ------------------------------------
<S> <C>
$10,000-$25,000 Signatures must be guaranteed by a
domestic bank or trust company,
broker-dealer, clearing agency,
credit union or savings association
(a "Qualified Guarantor").
OVER $25,000 Signatures must be guaranteed by a
Qualified Guarantor that is a
participant in a medallion program
(described below) recognized by the
Securities Transfer Association.
REDEMPTIONS BY
401(K) PLAN
OMNIBUS
ACCOUNTS OR BY
INSTITUTIONAL
INVESTORS Signature guarantee not required.
</TABLE>
The three recognized medallion programs are Securities Transfer Agents
Medallion (STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock
Exchange, Inc. Medallion Signature Program (MSP).
Signature guarantees by a Qualified Guarantor also are required if:
- - the proceeds of the redemption are to be paid to a person other than the
record owner,
- - the proceeds are to be sent to an address other than the address on the
records of the Fund's Transfer Agent,
- - the redemption request is received within thirty (30) days after the Transfer
Agent has been notified of an address change.
The Transfer Agent reserves the right to request additional information
from, and make reasonable inquiries of, any eligible guarantor institution.
TELEPHONE REDEMPTIONS
The Fund permits individual shareholders (once within a thirty day period)
or a representative of record for an account to redeem shares by telephone in
amounts up to $10,000 by calling the Fund at 800-661-3938. In order to use this
service, you must elect to do so on your application or complete a separate
authorization form supplied by the Fund.
Telephone redemptions must be in amounts of $500 or more. Instructions must
include your M.S.B. Fund account number and the dollar amount or number of
shares to be redeemed. Checks issued must be made payable to the owner of record
and may be mailed only to the address of record.
Telephone redemption requests are not available:
- - for retirement account shares,
- - for shares purchased within 15 days prior to the redemption request,
- - for shares for which share certificates have been issued or
- - if an address change has been made for the account within 60 days prior to
the telephone redemption request.
The Fund does not restrict institutional investors as to the frequency or
the maximum dollar amount of redemptions that they can make by telephone.
If there are multiple account owners, the Fund may rely on the telephone
instructions of only one owner.
The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. These procedures may include, among other
things, requiring some form of personal identification prior to acting upon
telephone instructions. The Fund reserves the right to refuse a telephone
redemption if it believes it advisable to do so. Assuming the Fund's security
procedures are followed, neither the Fund nor the Fund's Administrator or
Transfer Agent will be responsible for the authenticity of redemption
instructions received by telephone and believed to be genuine, and the investor
will bear any loss. The Fund may record all calls.
During periods of substantial economic or market change, telephone
redemptions may be difficult to complete. Shares may be redeemed by
11
<PAGE> 12
mail if you are unable to contact the Fund by telephone.
ADDITIONAL INFORMATION CONCERNING REDEMPTIONS
Wiring of Redemption Proceeds. An individual shareholder who holds Fund
shares in non-certificate form may elect to have redemption proceeds of $5,000
or more wired to the shareholder's brokerage account or a commercial bank
account designated by the shareholder. The bank wire charge for this service is
$7.50. The Fund does not restrict institutional buyers as to the minimum or
maximum amount of redemption proceeds that may be transmitted to them by wire
transfer.
Redemption of IRA or Retirement Plan Accounts. If you desire to redeem
shares held in an IRA or other retirement plan account, you must indicate on
your redemption request whether or not to withhold federal income tax.
Redemption requests failing to indicate an election not to have federal tax
withheld will be subject to withholding.
Broker-Dealers. You also may redeem Fund shares through broker-dealers who
are holding shares on your behalf and have made arrangements with the Fund
permitting redemptions by telephone or fax transmission. These broker-dealers
may charge a fee for this service.
EXCEPTIONS TO OBLIGATION TO REDEEM
Redemptions may be suspended, and the date of payment postponed, if:
- - trading on the New York Stock Exchange is suspended or restricted,
- - an emergency makes determination of net asset value or disposition of
portfolio securities not reasonably practicable, or
- - the Securities and Exchange Commission by order permits suspension for the
protection of shareholders.
Requests for redemption received during a period when the right to redeem
is suspended may be withdrawn at any time until redemptions are recommenced.
REDEMPTION IN KIND
The Fund reserves the right to make a "redemption in kind"-- payment in
portfolio securities rather than cash -- if the amount you are redeeming in any
90-day period is large enough to effect Fund operations (i.e., if it represents
more than $250,000 or 1% of the Fund's assets). The Statement of Additional
Information contains supplementary details concerning redemption in kind.
AUTOMATIC WITHDRAWAL PLAN
You may elect to participate in an Automatic Withdrawal Plan which will
enable you to withdraw cash systematically from your investment in the Fund
without the necessity of submitting a redemption order each time a redemption of
shares is to be made. The redemption of shares under the Automatic Withdrawal
Plan will reduce and may eventually eliminate all shares held in your account.
Under the Automatic Withdrawal Plan, you may have payments made to you
either monthly or quarterly. In addition, you may request either payment of a
fixed dollar amount (through the redemption of sufficient shares on the
redemption date) or the redemption of a specified number of shares. If you
designate the redemption of a specified number of shares and not a fixed dollar
amount, the actual cash payments received will vary according to the net asset
value of your shares on the redemption date.
Under the Automatic Withdrawal Plan, you may not redeem shares for which
share certificates have been issued. If you elect to participate in the
Automatic Withdrawal Plan, all income dividends and capital gain distributions
payable to you will be reinvested in Fund shares regardless of previous
instructions which you may have given to the Fund.
Either you or the Fund may terminate the Automatic Withdrawal Plan by
giving at least 30 days' written notice at any time.
Additional information regarding the Automatic Withdrawal Plan and
applications are available from the Fund upon request.
REDEMPTION AT THE OPTION OF THE FUND
If the value of the shares in your account is less than $250, and you are
not enrolled in the Automatic Investment Plan, the Fund may notify you that,
unless you bring the account up to $250
12
<PAGE> 13
in value, the Fund will redeem all shares and close your account. The Fund will
give you forty-five days after it sends the notice to bring your account up to
$250 before it takes any action. This minimum balance requirement does not apply
to IRAs and other tax-sheltered investment accounts. This right of redemption
will not apply if the value of your account drops below $250 solely as the
result of market action.
The Fund reserves the right to do this because of the expense to the Fund,
in relation to the size of the investment, of maintaining small accounts.
UNDERSTANDING PERFORMANCE
From time to time the Fund reports performance information in the form of
total return and average annual total return. See, for example, "Performance
Summary" at page 3 of this Prospectus. Total return shows the change in the
value of an investment in the Fund over a specified period of time (such as one,
three, five or ten years), assuming reinvestment of all dividends and
distributions and after deduction of all applicable charges and expenses. The
Fund's average annual total return represents the annual compounded growth rate
that would produce the total return achieved over the period. The performance
information reported by the Fund does not take into account any federal or state
income taxes that you may pay.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX STATUS
DIVIDEND POLICY
The Fund pays dividends of net investment income, if any, annually. The
Fund usually makes distributions of net long-term capital gains, if any,
realized during a fiscal year in December of that fiscal year.
The Fund's dividend distribution will vary with the amount of dividend and
other investment income received, and the expenses incurred, by the Fund. In
periods of relatively low dividend and interest rates, the Fund's dividend and
interest income may not exceed the Fund's expenses, so that dividend
distributions may not occur or may be low.
TAX STATUS; TREATMENT OF DIVIDENDS, DISTRIBUTIONS, GAINS AND LOSSES
Tax Status of the Fund. The Fund has elected to qualify, and intends to
remain qualified, as a regulated investment company under Subchapter M of the
Internal Revenue Code. The Fund intends to distribute all of its net investment
income and capital gains to shareholders. Assuming that it is so qualified and
makes such distributions, the Fund will not be subject to federal income tax on
the net investment income and capital gains distributed. If the Fund failed to
qualify as a regulated investment company or failed to meet certain 90%
distribution requirements, it would be taxed as an ordinary corporation. Even if
it meets these qualifications, if the Fund did not distribute 98% of its
ordinary income and 98% of its capital gain net income, it would be subject to a
non-deductible 4% excise tax on the amount required to be but not distributed.
Taxation of Dividends and Distributions. All distributions received by a
shareholder will be taxable to the shareholder, either as ordinary income or
capital gains, whether or not the distributions are reinvested in additional
shares of the Fund and regardless of the length of time the shareholder has
owned his shares. Shareholders that are tax-exempt entities will not be subject
to tax on distributions by the Fund. The Fund expects that its distributions
will consist primarily of long-term capital gains. However, increases in the
Fund's portfolio turnover rate may cause the Fund to realize an increased level
of short-term gains.
Dividends from the net long-term capital gains of the Fund will be taxable
as long-term capital gains to shareholders, regardless of the length of time a
shareholder has owned his shares. Long-term capital gain distributions received
by shareholders that are individuals generally are taxed at a maximum tax rate
of 20%. Net long-term capital gains received by corporate shareholders are taxed
at the same rates as ordinary income.
Dividends paid out of the net investment income and short-term capital
gains of the Fund will be taxable as ordinary income to shareholders. A portion
of dividends paid from net investment
13
<PAGE> 14
income attributable to dividends from domestic corporations may qualify for the
dividends-received deduction for corporate shareholders.
Dividends or capital gains distributions declared in October, November or
December with a record date in such a month and paid during the following
January will be taxable as if received by shareholders on December 31 of the
calendar year in which the dividends or distributions are declared.
The Fund will notify shareholders after the close of its fiscal year of the
dollar amount and the tax status of that year's dividends and distributions.
Shareholders buying shares just prior to a distribution should note that
the distribution will be taxable to them even though the price of the shares
will have included the amount of the forthcoming distribution.
Taxation of Gains and Losses upon Sale or Redemption. Any gain (or loss)
realized by a shareholder that is an individual upon a sale or redemption of
Fund shares, generally will be subject to tax as long-term capital gain (or
loss) at a maximum tax rate of 20% if the shares have been held for more than
one year. If the shares have been held less than one year the shareholder will
realize short-term capital gain or loss, except that any loss realized on Fund
shares that the shareholder has held for six months or less will be treated as
long-term capital loss to the extent of any capital gains dividend received by
the shareholder with respect to such shares. Gain realized by a corporate
shareholder will be taxed as ordinary income.
To avoid withholding tax on any dividends, capital gain distributions and
redemption proceeds, a shareholder must certify that the social security number
or taxpayer identification number provided to the Fund is correct and that the
shareholder is not currently subject to backup withholding or is exempt from
backup withholding.
Other. The foregoing discussion relates only to shareholders who are U.S.
persons (citizens, residents and domestic entities). Shareholders that are not
U.S. persons should consider that different tax consequences, including the
imposition of a 30% withholding tax, may apply.
You should consult your own tax advisers for specific questions about the
federal, state or local income tax implications of an investment in the Fund.
PORTFOLIO MANAGEMENT
INVESTMENT ADVISER
Shay Assets Management, Inc. (the "Investment Adviser") makes the
investment decisions for the Fund, subject to policies established by the Fund's
Board of Directors, and is responsible for placing purchase and sale orders for
portfolio securities and other investments.
Shay Assets Management, Inc. is a registered investment adviser under the
Investment Advisers Act of 1940 and serves as investment adviser to Asset
Management Fund, Inc., a registered investment company comprising five
fixed-income portfolios with aggregate net assets of approximately $1.5 billion
at December 31, 1998, and as investment adviser to Institutional Investors
Capital Appreciation Fund, Inc., which had net assets at December 31, 1998, of
approximately $119 million.
The Investment Adviser's principal office is located at 230 West Monroe
Street, Chicago, Illinois 60606. The Investment Adviser is controlled by Rodger
D. Shay, who is a Vice President of the Fund. Shay Assets Management, Inc.,
together with its predecessor, Shay Assets Management Co., has served as the
Fund's investment adviser since May 19, 1995.
INVESTMENT ADVISER'S FEE
The Fund pays the Investment Adviser a graduated investment management fee.
The fee is computed at the annual rate of 0.75% of the first $100,000,000 of the
Fund's average daily net assets and 0.50% of the Fund's average daily net assets
in excess of $100,000,000. The fee payable to the Investment Adviser is reduced
(but not below zero) to the extent the expenses of the Fund (exclusive of
professional fees, such as legal and audit fees, directors' fees and expenses
and distribution expenses, if any, payable under Rule 12b-1) exceed 1.10% of the
Fund's average daily net assets during any fiscal year. In 1998 the Fund's total
payment
14
<PAGE> 15
for investment advisory services was 0.73% of the Fund's average net assets.
PORTFOLIO MANAGERS
The individuals with primary responsibility for the management of the
Fund's portfolio are John J. McCabe and Mark Trautman. Mr. McCabe and Mr.
Trautman have been responsible for the Fund's investments since 1991 and 1993,
respectively, first as employees of the Fund's prior investment adviser,
Nationar, and currently as Portfolio Managers of Shay Assets Management, Inc.
Mr. McCabe is Senior Vice President of the Investment Adviser and joined
the Investment Adviser in May 1995. Mr. McCabe previously served as Senior Vice
President and Chief Investment Officer of Nationar, the Fund's former investment
adviser, from August 1991 through May 1995, and in that capacity had
responsibility for the Fund's investments. Mr. McCabe is a director and past
President of the New York Society of Security Analysts, a past director of the
Financial Analysts Federation and a member and founding Governor of The
Association for Investment Management and Research.
Mr. Trautman is Vice President of the Investment Adviser and joined the
Investment Adviser in May 1995. Prior to May 20, 1995, Mr. Trautman served as
Director of Mutual Funds Investment for the Fund's former investment adviser,
Nationar, and in that capacity had responsibility for the Fund's investments. He
also has served as Portfolio Manager for Institutional Investors Capital
Appreciation Fund, Inc. since March 1993. From January 1992 through March 1993
he served as Senior Equity Analyst for the two funds.
ADMINISTRATOR, TRANSFER AGENT, DIVIDEND PAYING AGENT AND CUSTODIAN
Administrator, Transfer Agent and Dividend Paying Agent. The Fund
appointed PFPC Inc. ("PFPC" or the "Administrator"), P.O. Box 8905, Wilmington,
Delaware 19899-8905, as its administrator effective May 19, 1995. PFPC also
serves as the transfer agent, registrar and dividend paying agent for the Fund's
shares.
Custodian. PFPC Trust Company ("PFPC Trust" or the "Custodian"),
Philadelphia, Pennsylvania, is the custodian of the Fund's investments. PFPC
Trust and PFPC are affiliates of PNC Bank Corp.
DISTRIBUTOR
Shay Financial Services, Inc. (the "Distributor") acts as the distributor
of the Fund. The Distributor's principal office is located at 230 West Monroe
Street, Chicago, IL 60606. The Distributor is controlled by Rodger D. Shay, a
Vice President of the Fund. The Fund has authorized the Distributor to undertake
certain activities in connection with the sale of shares of the Fund, including
informing potential investors about the Fund through written materials, seminars
and personal contacts. The Distributor does not receive any compensation from
the Fund for these activities.
FINANCIAL HIGHLIGHTS
The financial highlights information, including the financial highlights
table, contained in the Fund's Annual Report to shareholders for the year ended
December 31, 1998 (the "Annual Report") is incorporated herein by reference to
the Annual Report.
The financial highlights table is intended to help you understand the
Fund's financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned or lost on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by KPMG LLP, whose report, along with the Fund's
financial statements, are included in the Annual Report, which is available upon
request.
15
<PAGE> 16
NOTES
16
<PAGE> 17
NOTES
17
<PAGE> 18
NOTES
18
<PAGE> 19
[M.S.B. FUND, INC. LOGO]
C/O SHAY FINANCIAL SERVICES, INC.
230 WEST MONROE STREET
CHICAGO, ILLINOIS 60606
TELEPHONE 800-661-3938
INVESTMENT ADVISER
Shay Assets Management, Inc.
230 West Monroe Street
Chicago, Illinois 60606
DISTRIBUTOR
Shay Financial Services, Inc.
230 West Monroe Street
Chicago, Illinois 60606
ADMINISTRATOR, TRANSFER AGENT,
SHAREHOLDER SERVICING AGENT
AND DIVIDEND PAYING AGENT
PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809
CUSTODIAN
PFPC Trust Company
17th & Chestnut Streets
Philadelphia, Pennsylvania 19101
LEGAL COUNSEL
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
INDEPENDENT AUDITORS
Arthur Andersen LLP
1601 Market Street
Philadelphia, PA 19103
19
<PAGE> 20
ADDITIONAL INFORMATION AND SHAREHOLDER INQUIRIES
A current Statement of Additional Information ("SAI") which provides more detail
about the Fund is on file with the Securities and Exchange Commission. The SAI
is incorporated herein by reference, which means that it is legally considered
part of this Prospectus.
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
The SAI, annual report and semi-annual report are available without charge upon
request. To obtain a copy of the current SAI, annual or semi-annual report or
other information about the Fund or to make shareholder inquiries:
Call: 800-661-3938
Write to: M.S.B. Fund, Inc.
c/o Shay Financial Services, Inc.
230 West Monroe Street
Chicago, Illinois 60606
E-mail: Send your request to
[email protected]
You may view information about the Fund (including the SAI) by visiting the
Securities and Exchange Commission's internet website (www.sec.gov). You can
also review and obtain copies of Fund information by visiting the SEC's Public
Reference Room in Washington, DC (phone 800-SEC-0330) or by sending your request
and a duplicating fee to the SEC's Public Reference Section, Washington, DC
20549-6009.
[LOGO OF M.S.B. FUND, INC.]
PROSPECTUS
------------------
May 1, 1999
------------------
A No-Load Fund
------------------
Investment Objective:
LONG-TERM GROWTH OF CAPITAL
Investment Company Act File No. 811-1273
<PAGE> 21
M.S.B.
FUND, INC.
---------------------------------------
INVESTMENT OBJECTIVE: M.S.B. Fund, Inc.
LONG-TERM GROWTH c/o Shay Financial Services, Inc.
OF CAPITAL 230 West Monroe Street
Chicago, Illinois 60606
800-661-3938
STATEMENT OF
ADDITIONAL
INFORMATION
May 1, 1999
This Statement of
Additional Information
is not a prospectus. You
should read this
document in conjunction
with the Prospectus of
the Fund, dated May 1,
1999. This document
incorporates by
reference the Prospectus
and the financial
statements, accompanying
notes and report of
independent auditors
appearing in the Annual
Report. You may obtain a
copy of the Prospectus
and the Annual Report
from the Fund without
charge at the above
address or by calling
800-661-3938.
---------------------------------------
<PAGE> 22
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
The Fund ........................................................................................... 1
Investment Objective, Policies, and Risks .......................................................... 1
Investment Objective .......................................................................... 1
Risks ......................................................................................... 1
Additional Investment Strategies .............................................................. 2
Investments under Abnormal Market Conditions .................................................. 2
Fundamental Investment Policies-- Investment Restrictions Regarding Portfolio Securities ...... 3
Issuance of Senior Securities ................................................................. 4
Writing Covered Call Options .................................................................. 4
Portfolio Turnover ............................................................................ 5
Purchase and Redemption of Shares .................................................................. 5
Performance Information ............................................................................ 7
Income Tax Status, Dividends and Distributions ..................................................... 8
Officers and Directors of the Fund ................................................................. 8
Certain Other Affiliations and Business Relationships ......................................... 15
Compensation of Directors and Officers ........................................................ 15
Investment Advisory and Other Services ............................................................. 17
Investment Adviser ............................................................................ 17
Administrator, Transfer Agent, Shareholder Servicing Agent, Dividend Paying
Agent and Custodian ........................................................................... 18
Distributor ................................................................................... 19
Independent Auditors ............................................................................... 19
Purchase and Sale of Portfolio Securities .......................................................... 20
Expenses of the Fund ............................................................................... 21
Description of Capital Stock ....................................................................... 21
General Information ................................................................................ 21
Financial Statements ............................................................................... 22
</TABLE>
<PAGE> 23
THE FUND
M.S.B. Fund, Inc. (the "Fund") is a diversified open-end management
investment company organized as a New York corporation. The Fund was
incorporated under the laws of the State of New York on June 8, 1964.
INVESTMENT OBJECTIVE, POLICIES, AND RISKS
INVESTMENT OBJECTIVE
The investment objective of the Fund is to achieve long-term growth
of capital for its shareholders. The Fund is designed as an investment vehicle
for value-oriented investors who want to see their capital grow over the longer
term and who are willing to take moderate risks to achieve that goal. There is
no assurance that the Fund will, in fact, achieve its objective.
The Board of Directors may change the Fund's investment objective
without shareholder approval.
RISKS
All investments in equity mutual funds, like the Fund, involve some
level of risk.
Market and Investment Risks. The value of the Fund's shares will
fluctuate in accordance with the value of the securities held in its portfolio
so that an investor's shares, when redeemed, may be worth more or less than
their original cost. Declines are possible in the overall stock market or in the
particular securities or types of securities held by the Fund.
The Fund may invest up to 25% of its assets in the securities of
companies with a market capitalization of less than $5 billion. These companies
carry additional risks because their earnings tend to be less predictable, their
share prices more volatile and their securities less liquid than the securities
of larger companies.
Investments in mutual funds are not bank deposits and are not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund may invest from time to time in convertible debt securities
and may, under abnormal market conditions, invest up to 100% of its assets in
fixed income securities. See "--Investments under Abnormal Market Conditions" in
this Statement of Additional Information. Investments in fixed income securities
expose the Fund to the risk that interest or principal may not be paid in a
timely manner. In addition, prices of fixed income securities tend to move
inversely with changes in interest rates. An increase in interest rates will
result in a drop in the prices of fixed income securities, which could adversely
affect the Fund's share price.
Portfolio Strategy Risks. The Investment Adviser's skill in choosing
appropriate investments for the Fund will affect the ability of the Fund to
achieve its investment objective, and the investment strategies employed by the
Fund may not match the performance of other strategies at different times or
under different market or economic conditions. Accordingly, the
1
<PAGE> 24
Fund's performance for any period may differ from the performance of the overall
market or from other investments that may be available to an investor.
ADDITIONAL INVESTMENT STRATEGIES
In addition to the principal investments and investment strategies
described in the Prospectus (see "Investment Objective and Strategies" in the
Prospectus), the Fund may also invest in preferred stocks and corporate debt
securities convertible into common stock. It is not expected that the Fund's
holdings of convertible debt securities would ordinarily exceed 5% of the Fund's
assets. Additionally, the Fund invests its non-committed cash primarily in
commercial paper. The Fund's investments in commercial paper ordinarily consist
of commercial paper rated "Prime-2" or better by Moody's Investors Services,
Inc. or rated "A-2" or better by Standard & Poor's Corporation. The Fund's
investments in commercial paper typically mature overnight. The Fund may also
write covered options. See "--Writing Covered Call Options."
The Fund may not invest more than 5% of its total assets in the
securities of issuers which, together with any predecessors, have a record of
less than three years of continuous operation. The Fund may not purchase
securities which the Fund is restricted from selling to the public without
registration under the Securities Act of 1933, as amended, and may not invest
more than 10% of its total assets in securities which are otherwise restricted
as to disposition. The Fund may not purchase or retain the securities of any
issuer if the officers or directors of the Fund, and any of the advisers or
managers of the Fund who individually beneficially own more than one half of one
percent of the securities of that issuer, together beneficially own more than
five percent of the securities of the issuer.
INVESTMENTS UNDER ABNORMAL MARKET CONDITIONS
Under normal market conditions, it is the Fund's policy to invest
substantially all of its assets in equity securities. However, if the Fund's
Investment Adviser deems it beneficial for defensive purposes during adverse
market, economic or other conditions, the Fund may invest up to 100% of its
assets temporarily in non-equity securities, such as investment grade corporate
bonds, commercial paper and government securities. In taking this action, the
Fund would reduce its exposure to fluctuations and risks in the market for
equity securities and would increase its exposure to fluctuations and risks of
the market for debt securities. These defensive actions would reduce the benefit
from any upswing in the equity markets and, if the Investment Adviser does not
correctly anticipate fluctuations in the equity and debt securities markets, may
not contribute to the achievement of the Fund's investment objective.
2
<PAGE> 25
FUNDAMENTAL INVESTMENT POLICIES -- INVESTMENT RESTRICTIONS REGARDING PORTFOLIO
SECURITIES
As a matter of fundamental policy, the Fund may not:
- Purchase securities of an issuer (other than obligations of the United
States and its instrumentalities) if such purchase would cause more
than 5% of the Fund's total assets, taken at market value, to be
invested in the securities of such issuer;
- Purchase securities of an issuer if such purchase would cause more than
10% of any class of securities of such issuer to be held by the Fund;
- Purchase or retain securities of an issuer if, to the knowledge of the
Fund, the officers and directors of the Fund together own more than 5%
of any class of securities of such issuer or an officer, director or
employee of, or counsel for, the Fund is an officer or employee of the
issuer;
- Invest more than 25% of its assets in any one industry;
- Invest in securities whose sale by the Fund would be restricted under
the Securities Act of 1933 (letter stock);
- Invest in companies for the purpose of exercising control or
management;
- Purchase securities issued by another registered investment company;
- Buy or sell real estate, commodities or commodity contracts, unless
acquired as a result of ownership of securities;
- Make loans other than by the purchase of a portion of publicly
distributed debt securities;
- Underwrite securities issued by others;
- Make short sales of securities;
- Buy securities on margin;
- Buy or sell put options;
- Borrow money except for temporary administrative or liquidity (but not
leveraging) purposes, and then only from banks up to an amount not in
excess of 5% of the value of total assets at the time of the loan,
repayable in not more than 60 days; or
- Pledge, mortgage or hypothecate its assets except as may be necessary
to enable it to borrow funds temporarily for administrative or
liquidity (but not leveraging) purposes or to engage in writing covered
call options.
The Fund's fundamental investment policies may be changed only upon affirmative
vote of a majority of the voting securities of the Fund.
3
<PAGE> 26
ISSUANCE OF SENIOR SECURITIES
The Fund does not issue senior securities, except that it may borrow
money for temporary administrative or liquidity (but not leveraging) purposes,
as described above under "Fundamental Investment Policies -- Investment
Restrictions Regarding Portfolio Securities." The Fund may borrow only from
banks up to an amount not in excess of 5% of the value of the Fund's total
assets at the time of the loan, repayable in not more than 60 days. This policy
is a fundamental investment policy of the Fund and may not be altered, amended,
or repealed except as authorized by the vote of a majority of the outstanding
shares of the Fund.
WRITING COVERED CALL OPTIONS
Covered Call Options. The Fund may engage in writing (i.e., selling)
call options listed on organized securities exchanges with respect to securities
owned by the Fund (called "covered" options). Except in the circumstances
described below, the Fund will not sell any security subject to a call option
written by the Fund so long as that option is outstanding. Call options are
currently listed on the Chicago Board Options Exchange and the New York,
American, Midwest and Pacific Stock Exchanges.
A call option gives the purchaser the right to buy a security from
the Fund at a fixed price (the "exercise price") at any time prior to the
expiration of the option contract regardless of the market price of the security
at that time. In return for such right, the purchaser pays the Fund a premium
which the Fund retains whether or not the purchaser exercises the option. The
premium represents consideration to the Fund for undertaking the option
obligation and thereby foregoing (during the period of the option) the
opportunity to profit from an increase in the market price of the underlying
security above the exercise price. For example, assume the Fund owns 100 shares
of XYZ and, at a time when the market price of XYZ was $50 per share, the Fund
wrote a six month call option on those shares at an exercise price of $50 for a
premium of $500 (less transaction costs). If the price of XYZ declined to $40
per share the call would likely not be exercised. The 100 XYZ shares would have
declined $1,000 in value and the Fund would have received income in the amount
of $500. On the other hand, should the price of XYZ rise to $60 per share the
call would likely be exercised with the result that, in exchange for the $500
premium, the Fund would have foregone the $1,000 appreciation on the underlying
shares.
When the Fund writes an option the securities subject to the option
will be segregated or otherwise held for delivery in accordance with the
requirements of any applicable securities exchange. The Fund may purchase call
options only for the purpose of closing out a previous option commitment (called
a "closing purchase transaction"). A closing purchase transaction is made by
buying an option with identical terms as an option previously written, resulting
in the cancellation of the Fund's previous option obligation. If the Fund wishes
to sell securities on which it has options outstanding it would execute a
closing purchase transaction prior to selling the securities. A profit or loss
may be realized on a closing purchase transaction if the amount paid to purchase
a call option previously written is less or more than the amount received from
its sale.
4
<PAGE> 27
The writing of covered call options involves certain risks. An
option position may be closed out only on an exchange which provides a market
for an option of the same series. Although the Fund will generally write only
those call options for which there appears to be an active market, there is no
assurance that an active market on an exchange will exist for any particular
option at any particular time. If the Fund as a covered call option writer is
unable to effect a closing purchase transaction in a secondary market, it would,
as a result, be subject to any price decline in the underlying security. If such
a situation were to arise, the Fund's Investment Adviser would determine whether
to hold the underlying securities and risk depreciation in their market value or
to sell the securities and substitute cash or other securities as collateral for
the option obligation.
In general, premiums received on options which are not exercised and
gains or losses realized on closing purchase transactions are treated as
short-term capital gains or losses. When an option is exercised the premium is
added to the exercise price and the resulting gain or loss is characterized as a
short- or long-term capital gain or loss depending on the holding period of the
underlying securities. In general, brokerage commissions associated with buying
and selling call options are higher than those associated with other securities
transactions.
The Board of Directors has directed the Fund's Investment Adviser to
write options only in situations where the exercise price plus the premium (less
transaction costs) would, at the time the option is written, equal a price at
which the Investment Adviser would recommend selling the underlying securities
because of fundamental investment considerations. Consequently, the Fund does
not believe that option writing has a material effect on the Fund's portfolio
turnover rate and the Fund believes that option writing may contribute to the
objective of the Fund of achieving long-term growth of capital. In addition, the
Board of Directors has directed the Investment Adviser to restrict option
writing so that no more than 5% of the Fund's total assets may be subject to
outstanding options at any time. The Board of Directors may change these
restrictions whenever such changes appear to be in the best interest of the
Fund.
PORTFOLIO TURNOVER
The Fund's annual portfolio turnover rate was 45%, 23% and 32% in
1996, 1997 and 1998, respectively. The portfolio turnover rate is determined by
dividing the amount of the lesser of the purchases or sales during the year by
the average value of the Fund's portfolio securities during such year. The
portfolio turnover rate of the Fund is not normally expected to exceed 75% but
may do so if the Fund's investment objective and policies in the light of market
conditions require more frequent trades.
PURCHASE AND REDEMPTION OF SHARES
Purchase and Redemption at Net Asset Value. Investors may purchase
or redeem shares of the Fund at the Fund's net asset value per share next
determined after receipt of an order for purchase or redemption as described in
the Prospectus.
Net asset value per share of the Fund is determined as of 4:00 P.M.,
New York time. The Fund computes its net asset value once daily on days the New
York Stock Exchange is open for trading. Purchase orders received prior to 4:00
P.M., New York time, on a trading day
5
<PAGE> 28
are executed at the net asset value per share computed as of 4:00 P.M., New York
time, on such day. Orders received after 4:00 P.M., New York time, on a trading
day or on a day which is not a trading day are executed at the net asset value
per share computed as of 4:00 P.M., New York time, on the next trading day.
The net asset value per share of the Fund is determined by computing
the total value of all securities and other assets of the Fund, subtracting all
of its liabilities and then dividing by the total number of shares of the Fund
outstanding. For purposes of such computation, a security listed on a national
securities exchange or on the NASDAQ National Market System is valued at the
last reported sale price thereof on the exchange or system where the security is
principally traded. If no trade occurs on such exchange or system on the date of
computation, such security will be valued at the mean of the last bid and asked
prices on such day on such exchange or system.
Securities not listed on a national securities exchange or on the
NASDAQ National Market System but traded in an over-the-counter market are
valued at the average of the last bid and asked prices prior to the computation.
Short term interest-bearing investments for which market quotations are not
available are valued at cost plus discount earned, which the Board of Directors
has determined to be fair value. Other securities are valued at their fair
value, as determined in good faith by the Board of Directors of the Fund.
Securities underlying outstanding call options written by the Fund
are valued at their market price as determined above. Premiums received on the
sale of call options are included in the net asset value; however, the current
market value of outstanding options written by the Fund is deducted in computing
net asset value. The current market value of an option listed on an organized
securities exchange is based on the last sales price on such exchange prior to
4:00 P.M., New York time, or, if none, the mean of the last bid and asked prices
as of 4:00 P.M., New York time.
Procedure for Purchasing and Redeeming Shares. Shares are purchased
through the Fund's Distributor, Shay Financial Services, Inc., or by sending
money directly to the Fund. Procedures for purchasing and selling shares are
described in the Prospectus.
Investors may also purchase shares of the Fund through authorized
broker/dealers or other financial intermediaries such as banks, 401(k) plans,
financial advisers and financial supermarkets. These parties may charge
transaction fees and may set different minimum investments or limitations on
buying or selling shares. The intermediaries are responsible for transmitting
purchase orders and funds and for crediting their customers' accounts following
timely redemptions made in accordance with their customer agreements and this
Prospectus.
Redemption in Kind. The Fund has filed a Notification under Rule
18f-1 under the Investment Company Act, pursuant to which it has undertaken to
pay in cash all requests for redemption by any shareholder of record, limited in
amount with respect to each shareholder during any 90-day period to the lesser
of (i) $250,000, or (ii) 1% of the net asset value of the Fund at the beginning
of the 90-day period. The Fund reserves the right to pay redemption
6
<PAGE> 29
proceeds in excess of this amount in kind if it is deemed to be in the best
interest of the Fund to do so.
In making a redemption in kind, the Fund reserves the right to
select from each portfolio holding a number of shares which will reflect the
portfolio make-up and the value of which (determined on the same basis used to
compute the net asset value of the shares being redeemed) will approximate the
value of the Fund shares being redeemed or to select from one or more portfolio
investments shares approximately equal in value to the total value of the Fund
shares being redeemed. Any shortfall will be made up in cash.
Investors receiving an in kind distribution will incur a brokerage
charge on the disposition of the securities through a broker.
PERFORMANCE INFORMATION
The following table sets forth the total return on an investment in
the Fund for the one-, three-, five- and ten-year periods ended December 31,
1998, and the average annual total return for such periods:
<TABLE>
<CAPTION>
M.S.B. FUND, INC. TOTAL RETURN DATA
PERIODS ENDED DECEMBER 31, 1998
----------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- -------- --------
<S> <C> <C> <C> <C>
Total Return.............................. 31.45% 105.26% 152.20% 367.08%
Average Annual Total Return............... 31.45% 27.09% 20.32% 16.66%
</TABLE>
Total return shows the percentage change in the value of an
investment in the Fund over the specified periods, assuming (i) a hypothetical
investment of $1,000 at the beginning of the period, (ii) reinvestment of all
dividends and distributions and (iii) deduction of all applicable charges and
expenses. The Fund's average annual total return represents the annual
compounded growth rate that would produce the total return achieved over the
applicable period. For example, as indicated in the table above, a 20.32%
average annual rate of return would produce a total return of 152.20% over a
five-year period. The performance information reported above does not take into
account any federal or state income taxes that may be payable by an investor.
The foregoing information is a statement of the past record of the
Fund and should not be construed as a representation or prediction of future
results. The investment return and principal value of an investment in the Fund
will fluctuate with changing market conditions so that an investor's shares,
when redeemed, may be worth more or less than their original cost. Comparisons
of total returns on a year-to-year basis may facilitate an understanding of how
changing market conditions affect the Fund. The average annual total return
permits an investor to identify the overall rate of return achieved by the Fund
during a multi-year period without regard to year-to-year variations.
7
<PAGE> 30
INCOME TAX STATUS, DIVIDENDS AND DISTRIBUTIONS
The Fund has elected to qualify, and intends to remain qualified, as
a regulated investment company under Subchapter M of the Internal Revenue Code.
It is the Fund's policy to distribute all of its net investment income (income
from dividends and interest, less expenses) and net short-term capital gain, if
any, as income dividends and to distribute substantially all net long-term
capital gain (net of short-term capital loss) on sales of portfolio securities
as capital gain distributions. If the Fund should fail to qualify for Subchapter
M status, it would be subject to federal corporate income tax on its net
investment income and capital gains. In addition, distributions to shareholders
would be taxed as corporate dividends at ordinary income rates. No portion of
the dividends would be afforded capital gains treatment. In the event the Fund
fails to distribute to shareholders in a calendar year an amount equal to the
sum of (i) 98% of its ordinary income (excluding capital gain), (ii) 98% of its
capital gain net income (determined as of the twelve-month period ending October
31), and (iii) the amount, if any, of ordinary income and capital gain not
distributed in the preceding calendar year, it would be subject to a
non-deductible 4% excise tax on the excess of the amounts not distributed over
the amounts required to be distributed. Because the Fund expects to distribute
all of its net investment income and net capital gain, it does not expect to
incur a liability for this tax.
OFFICERS AND DIRECTORS OF THE FUND
The directors of the Fund, in addition to reviewing the actions of
the Fund's Investment Adviser, decide upon matters of general policy at their
regular meetings. The Fund's officers supervise the business operations of the
Fund.
The Fund has ten directors who are elected for staggered terms of
three years each. The officers of the Fund are the President, First Vice
President, Second Vice President, Vice President, Treasurer, Secretary and
Assistant Secretary. All directors must be shareholders; the President and First
Vice President must be directors.
The directors and officers of the Fund, together with their ages,
principal occupations for the last five years and the expiration of their terms
as directors, are set forth in the following table.
8
<PAGE> 31
<TABLE>
<CAPTION>
POSITION(S) HELD WITH
REGISTRANT AND EXPIRATION
NAME, AGE AND ADDRESS OF TERM AS A DIRECTOR PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- --------------------- -------------------------------- -----------------------------------------
<S> <C> <C>
JOSEPH R. FICALORA (Age 52)* President and Director (2002) Mr. Ficalora has been Chairman, President
38-25 Main Street and Chief Executive Officer of Queens County
Flushing, NY 11354 Bancorp, Inc. since its inception in July
1993, and has been President of Queens
County Savings Bank, its principal
subsidiary, since 1989. Mr. Ficalora
previously served as President and Chief
Operating Officer of Queens County Savings
Bank. Mr. Ficalora also previously served as
Chairman of the Board of the New York
Savings Bank Life Insurance Fund, President
of the Queens Library Foundation Board,
Executive Vice President of Finance and
Board member of Queensborough Boy Scouts and
Vice President and a member of the Board of
the Queens Chamber of Commerce. He also
serves on the Board of the following
organizations: Queensborough Community
College, Queens Museum, Flushing Cemetery
and the Community Bankers Association of New
York State. Mr. Ficalora has served as
President of the Fund since April 1997 and
served as First Vice President of the Fund
from March 1996 to April 1997.
MICHAEL J. GAGLIARDI (Age 58)* First Vice President and Mr. Gagliardi is President, Chief Executive
36 Pacific Street Director (2002) Officer and a director of Ironbound Bankcorp
Newark, NJ 07105 and its principal subsidiary, Ironbound
Bank. From January 1992 through February
1993, he served as Chairman, President and
Chief Executive Officer of Green Point
Savings Bank. From 1989 through 1992, Mr.
Gagliardi served as President and Chief
Executive Officer, and from 1987 through
1989 he served as Executive Vice President
and Chief Financial Officer, of Green Point
Savings Bank. He also serves as a director
of the National Center for the Study of
Wilson's Disease. Mr. Gagliardi has served
as First Vice President of the Fund since
April 1997.
NORMAN W. SINCLAIR (Age 74)* Second Vice President and Mr. Sinclair is retired. Mr. Sinclair served
38 Ambleside Road Director (2000) as Chairman of Lockport Savings Bank from
Lockport, NY 14094 December 1988 to June 1994. Prior to June
1989, Mr. Sinclair also served as Chief
Executive Officer of Lockport Savings Bank.
Mr. Sinclair also serves as
- ---------------------------
* These directors are regarded as "interested persons" under the
Investment Company Act of 1940 because they are officers of the
Fund.
</TABLE>
9
<PAGE> 32
<TABLE>
<CAPTION>
POSITION(S) HELD WITH
REGISTRANT AND EXPIRATION
NAME, AGE AND ADDRESS OF TERM AS A DIRECTOR PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- --------------------- -------------------------------- -----------------------------------------
<S> <C> <C>
Treasurer and Secretary of Townline Bowl
Inc., which owns and operates bowling lanes.
Mr. Sinclair has served as Second Vice
President of the Fund since April 1997.
MALCOLM J. DELANEY (Age 72) Director (2001) Mr. Delaney is retired. From 1986 through
518A Heritage Hills 1992, Mr. Delaney served as President and
Somers, NY 10589 Chief Executive Officer of Eastchester
Savings Bank, which was acquired by Southold
Savings Bank in 1991. Mr. Delaney had served
as a trustee of the bank since 1981. Mr.
Delaney also served as a director of the
North Fork Bancorporation, Inc. until August
1996.
TIMOTHY A. DEMPSEY (Age 65) Director (2002) Mr. Dempsey serves as Chairman and Chief
18 Oakland Avenue Executive Officer and as a director of
Warwick, NY 10990-0591 Warwick Institutional Community Bancorp,
Inc. and is Chairman of the Board and Chief
Executive Officer of its Investors principal
subsidiary, The Warwick Savings Bank. Mr.
Dempsey also serves as a director of Capital
Appreciation Fund, Inc., an investment
company registered under the Investment
Company Act of 1940 for which Shay Assets
Management, Inc. also acts as investment
adviser.
HARRY P. DOHERTY (Age 56)** Director (2002) Mr. Doherty serves as Chairman and Chief
15 Beach Street Executive Officer and as a director of
Staten Island, New York 10304 Staten and Island Bancorp, Inc. and has been
Chairman and Chief Executive Officer of its
principal as subsidiary, Staten Island
Savings Bank, since 1990. Mr. Doherty also
serves as a director President of
Institutional Investors Capital Appreciation
Fund, Inc., an investment company registered
under the Investment Company Act of 1940 for
which Shay Assets Management, Inc. also acts
as investment adviser. Mr. Doherty also
serves as a director of America's Community
Bankers, which until December 7, 1997, owned
through subsidiaries a 50% interest in Shay
Assets Management Co. and Shay Financial
Services Co., which served as the Fund's
investment adviser and distributor,
respectively, from May 1995 to December 7,
- ------------------------
** This director may be regarded as an "interested person" under the
Investment Company Act of 1940 because he is a director of America's
Community Bankers. See "-Certain Other Affiliations and Business
Relationships."
</TABLE>
10
<PAGE> 33
<TABLE>
<CAPTION>
POSITION(S) HELD WITH
REGISTRANT AND EXPIRATION
NAME, AGE AND ADDRESS OF TERM AS A DIRECTOR PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- --------------------- -------------------------------- -----------------------------------------
<S> <C> <C>
1997. Mr. Doherty also is a director of
Community Bankers Association of New York
State.
DAVID FREER, JR. (Age 59) Director (2001) Since 1990, Mr. Freer has served as
Greatview Lane President, Treasurer and a director of
P.O. Box 732 Budget Payment Corporation, which until 1999
Highland, NY 12528 engaged in the business of financing
insurance premiums. Mr. Freer served as
President of the Fund from November 1990 to
1997, and as Vice President of the Fund from
1985 through 1990.
DAVID F. HOLLAND (Age 57) Director (2000) Mr. Holland has been Chief Executive Officer
17 New England Executive Park of Boston Federal Savings Bank since 1986
Burlington, Massachusetts 01803 and 1995. Chairman of the Board of Boston
Federal Savings Bank since 1989, and has
been Chairman and Mr. Chief Executive
Officer of its holding company, BostonFed
Bancorp Inc. since its inception Holland
also in serves as a director of Asset
Management Fund, Inc., an investment company
registered under the Investment Company Act
of 1940 for which Shay Assets Management,
Inc. acts as investment adviser. He formerly
served as Chairman of America's Community
Banking Partners, Inc. and as a director of
ACB Investment Services, Inc., which, until
December 7, 1997, owned through a subsidiary
a 50% interest in Shay Assets Management Co.
and Shay Financial Services Co., which
served as the Fund's investment adviser and
distributor, respectively, from May 1995 to
December 7, 1997. Mr. Holland also is a
director of NYCE Corporation. He was a
member of the Thrift Industry Advisory
Council from 1995 to 1997 and served as its
President in 1997. He has been a director of
the Federal Home Loan Bank of Boston since
1998, and previously served in that capacity
from 1989 until 1994. He has been a director
and chairman of the Center for Financial
Studies since December of 1995. Mr. Holland
was also a director from 1990 through 1995
and the chairman from 1993 through 1994 of
America's Community Bankers. See "--Certain
Other Affiliations and Business
Relationships."
</TABLE>
11
<PAGE> 34
<TABLE>
<CAPTION>
POSITION(S) HELD WITH
REGISTRANT AND EXPIRATION
NAME, AGE AND ADDRESS OF TERM AS A DIRECTOR PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- --------------------- -------------------------------- -----------------------------------------
<S> <C> <C>
WILLIAM A. McKENNA, JR. (Age 62) Director (2001) Since January 1992, Mr. McKenna has served
71-02 Forest Avenue as Chairman, President and Chief Executive
Ridgewood, NY 11385 Second Officer of Ridgewood Savings Bank.
From January 1985 to January 1992, Mr.
McKenna served Vice as President and Chief
Operating Officer of Ridgewood Savings Bank.
Mr. McKenna served as President of the Fund
from June 1991 through March 1994. From
September 1993 to February 1995, Mr. McKenna
served as a director of Nationar, a trust
company which served as the Fund's
investment adviser prior to May 1995. Mr.
McKenna also serves as a director of
Institutional Investors Capital Appreciation
Fund, Inc., an investment company registered
under the Investment Company Act of 1940 for
which Shay Assets Management, Inc. acts as
investment adviser. Since May 1998, Mr.
McKenna has served as a trustee of RSI
Trust, an investment company registered
under the Investment Company Act of 1940. In
addition, Mr. McKenna serves on the board of
a number of educational and civic
organizations, including St. Joseph's
College in Brooklyn, New York, St. Vincent's
Services and Boys Hope/Girls Hope.
IAN D. SMITH (Age 75) Director (2000) Mr. Smith is retired. Mr. Smith served as
69 Pietro Drive Senior Vice President and Managing Director
Yonkers, New York 10710 of Second Apple Bank for Savings from July
1989 through August 1991. From 1983 to 1987,
Mr. Smith Vice served as Executive Vice
President of Seamen's Bank for Savings,
F.S.B. He served as President of the Fund
from March 1994 to April 1997 and previously
served as President of the Fund from March
1985 through March 1987.
RODGER D. SHAY (Age 62) Vice President and Assistant Mr. Shay has been Chairman and the sole
1000 Brickell Avenue Secretary director of the Fund's investment adviser,
Miami, FL 33131 Shay of Assets Management, Inc., since
November 1997 and previously served as its
President and as the a director from 1990 to
1997. Mr. Shay also has served as Chairman
and the sole director Fund's distributor,
Shay Financial Services, Inc., since
November 1997 and previously served as its
President and as a director from 1990 to
1997. Mr. Shay held similar positions with
Shay Assets Management Co. and Shay
Financial Services Co., which served as the
Fund's investment adviser and distributor,
respectively, from 1995 through December
1997. Mr. Shay has been the Chairman, sole
director and President of Shay Investment
Services, Inc., an enterprise which owns
100% of Shay Assets
</TABLE>
12
<PAGE> 35
<TABLE>
<CAPTION>
POSITION(S) HELD WITH
REGISTRANT AND EXPIRATION
NAME, AGE AND ADDRESS OF TERM AS A DIRECTOR PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- --------------------- -------------------------------- -----------------------------------------
<S> <C> <C>
Management, Inc., and Shay Financial Services, Inc.,
since 1990. He serves or has previously served in the
following capacities: Chairman and a Director,
Asset Management Fund, Inc., a registered
investment company; Vice President and Assistant
Secretary of Institutional Investors Capital
Appreciation Fund, Inc., a registered investment
company; and Director, First Home Savings Bank, S.L.A.
since 1990. He previously was employed by certain
subsidiaries of Merrill Lynch & Co. from 1955 to 1981,
where he served in various executive positions including
Chairman of the Board of Merrill Lynch Government
Securities, Inc., Chairman of the Board of Merrill Lynch
Money Market Securities, Inc. and Managing Director of
the Debt Trading Division of Merrill Lynch, Pierce,
Fenner & Smith Inc.
EDWARD E. SAMMONS, JR. Vice President and Secretary Mr. Sammons has been President of the Fund's
(Age 59) investment adviser, Shay Assets Management,
230 West Monroe Street Executive Inc., since November 1997 and
Chicago, IL 60606 previously served as its Executive Vice
President from 1990 Vice to 1997. Mr.
Sammons also has served as Executive Vice
President of the Fund's President
distributor, Shay Financial Services, Inc.,
since 1990. He also held the position of
with Shay Assets Management Co. and Shay
Financial Services Co. from 1990 through
December 1997. These companies served as the
Fund's investment adviser and distributor,
respectively, from 1995 through December
1997. Mr. Sammons has served as Executive
Vice President of Shay Investment Services,
Inc., since September 1990. He serves or has
previously served in the following
capacities: President and Treasurer of Asset
Management Fund, Inc., a registered
investment company; Vice President and
Secretary of Institutional Investors Capital
Appreciation Fund, Inc.; Vice President,
from 1987 to 1990, Advance America Funds,
Inc.; and Senior Vice President and Manager
of Fixed Income Securities, Republic
National Bank in Dallas from 1962 to 1983.
JOHN J. McCABE (Age 55) Vice President Mr. McCabe has been a Senior Vice President
200 Park Avenue, 45th Floor of Shay Assets Management, Inc., since June
New York, New York 10166 Officer 1995 and held the comparable
position with Shay Assets Management Co.
through December of 1997. From August 1991
through May 1995, he was Senior Vice
President and Chief Investment Nationar. He
also serves as a Vice President of
Institutional Investors Capital Appreciation
Fund, Inc. He previously served as Managing
Director and Portfolio Manager at Sterling
Manhattan Corporation, an investment banking
firm, for approximately three years and in
</TABLE>
13
<PAGE> 36
<TABLE>
<CAPTION>
POSITION(S) HELD WITH
REGISTRANT AND EXPIRATION
NAME, AGE AND ADDRESS OF TERM AS A DIRECTOR PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- --------------------- -------------------------------- -----------------------------------------
<S> <C> <C>
various positions at Bankers Trust Company,
including Director of Investment Research
and Managing Director of the Investment
Management Group. Mr. McCabe is a director
and past President of the New York Society
of Security Analysts, a past director of the
Financial Analysts Federation and a member
and founding Governor of The Association for
Investment Management and Research.
MARK F. TRAUTMAN (Age 33) Vice President Mr. Trautman has been a Vice President of
200 Park Avenue, 45th Floor Shay Assets Management, Inc., since June
New York, New York 10166 1995 1995, and held the comparable position
with Shay Assets Management Co. through
December 1997. he He has been Portfolio
Manager of the Fund since March 1993. From
March 1993 through May served as Director of
Mutual Funds Investment of Nationar. He also
serves as a Vice President and Portfolio
Manager for Institutional Investors Capital
Appreciation Fund, Inc. From January 1992
through March 1993 he served as Senior
Equity Analyst for the two funds. From
December 1988 through December 1991, Mr.
Trautman was a Senior Associate with
Sterling Manhattan Corporation. From June
1987 through November 1988, Mr. Trautman
held the position of Treasury Analyst at
Thomson McKinnon Securities, Inc., a
securities brokerage firm. He is also a
member of The New York Society of Security
Analysts and The Association for Investment
Management and Research.
JAY F. NUSBLATT (Age 38) Treasurer Mr. Nusblatt has been Vice President and
0103 Bellevue Parkway Director of Fund Accounting and
Wilmington, Delaware 19809 Administration of financial PFPC Inc., the
Fund's administrative agent, since March
1993. He was previously employed reporting
as an Assistant Vice President of Fund/Plan
Services, Inc., with responsibility for and
fund administration, 1989 to 1993. Mr.
Nusblatt also serves as Treasurer of
Institutional Investors Capital Appreciation
Fund, Inc. and as an officer to other mutual
funds registered under the Investment
Company Act of 1940 who are clients of PFPC.
Mr. Nusblatt has served as Treasurer of the
Fund since May 1995.
</TABLE>
The Fund has an Executive Committee, composed of Messrs. Joseph R.
Ficalora, Michael J. Gagliardi, David Freer, Jr. and Ian D. Smith, which meets
from time to time between meetings of the Board, as necessary, to consider
matters concerning the Fund. Subject to limitations provided by law or the
Fund's by-laws, the Executive Committee is authorized to exercise the power and
authority of the Board of Directors as may be necessary during the intervals
between meetings of the Board of Directors.
14
<PAGE> 37
CERTAIN OTHER AFFILIATIONS AND BUSINESS RELATIONSHIPS
Certain officers and directors of the Fund are also officers,
employees, directors or shareholders of Shay Assets Management, Inc. ("SAMI")
and Shay Financial Services, Inc. ("SFSI"). Messrs. Rodger D. Shay, Edward E.
Sammons, Jr., John J. McCabe and Mark F. Trautman, who are officers of the Fund,
are officers and employees of SAMI. Mr. Shay is the sole director of SAMI, SFSI
and Shay Investment Services, Inc. ("SISI"), which is the sole stockholder of
SAMI and SFSI. Mr. Shay also is the majority stockholder of SISI.
Messrs. Harry P. Doherty and David F. Holland, who are directors of
the Fund, also hold or have recently held positions with affiliates of Shay
Assets Management Co., which, prior to December 1997, served as the Fund's
investment adviser. Mr. Doherty is a director of America's Community Bankers
(the "Association"). Until December of 1997, Mr. Holland held positions with
subsidiaries of the Association, including the position of director of ACB
Investment Services, Inc., which was a general partner in Shay Assets Management
Co. Mr. Holland also served as a director and officer of the Association prior
to 1996. Mr. Doherty may be considered an "interested person" as the result of
his continued position with the Association and the interest of the Association
in certain royalty and other payments that SISI and its affiliates make to the
Association and its affiliates. Because Mr. Holland has resigned his positions
with the Association and its affiliates, Mr. Holland will not be deemed to be an
"interested person," unless the Securities and Exchange 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 the Association and its affiliates.
COMPENSATION OF DIRECTORS AND OFFICERS
Directors of the Fund receive compensation for their services as
directors of the Fund consisting of:
- a $3,000 annual retainer per director, payable in four
quarterly installments
- a per-meeting fee of $500 for each meeting of the Board of
Directors attended in person
- a per-meeting fee of $250 for each meeting of a Board
committee attended in person on a date on which a meeting of
the Board of Directors is not held.
The Board of Directors holds its regular meetings quarterly. Directors do not
receive any additional fee for telephonic meetings. Directors are also
reimbursed for reasonable expenses incurred in attending meetings or otherwise
incurred in connection with their attention to the affairs of the Fund.
In recognition of the additional responsibilities and duties performed
by the President of the Fund, the President receives an additional annual
retainer of $2,000, payable in
15
<PAGE> 38
four quarterly installments, which is in addition to the compensation the
President receives as a director.
The other officers of the Fund do not receive any compensation from
the Fund other than the compensation they may receive as directors of the Fund.
No fee is payable for telephonic meetings of the Board of Directors or any
committee. No pension or retirement benefits are paid to directors, advisory
board members, or executive officers.
The total compensation received by directors and officers of the Fund
for service during 1998 was $50,500. The total amount of expenses incurred
during 1998 for which the directors were reimbursed was $6,407. The Fund does
not provide officers or directors, directly or indirectly, with any pension or
retirement benefits.
The following table sets forth the aggregate compensation received by
each director of the Fund from the Fund and any other investment company having
the same investment adviser for services as a director or officer during 1998.
Such compensation does not include reimbursements to the directors for their
expenses incurred in connection with their activities as directors.
<TABLE>
<CAPTION>
COMPENSATION TABLE
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM THE FUND
NAME OF DIRECTOR FROM THE FUND AND FUND COMPLEX
---------------- ---------------- -----------------------
<S> <C> <C>
Malcolm J. Delaney.............. $5,000 $5,000
Timothy A. Dempsey.............. $4,750 $9,750*
Harry P. Doherty................ $5,000 $12,000*
Joseph R. Ficalora.............. $7,000 $7,000
David Freer, Jr................. $5,000 $5,000
Michael J. Gagliardi............ $5,000 $5,000
David F. Holland................ $4,500 20,500*
William A. McKenna, Jr.......... $4,500 $9,500*
Norman W. Sinclair.............. $4,750 $4,750
Ian D. Smith.................... $5,000 $5,000
</TABLE>
* Includes compensation of $5,000, $16,000 and $5,000 received by Messrs.
Dempsey, Holland and McKenna as directors and $7,000 received by Mr.
Doherty as a director and officer of one other investment company with
the same investment adviser as the Fund.
As of March 31, 1999, all officers and directors of the Fund, as a
group, owned both of record or beneficially an aggregate of 162,328 shares of
the Fund (approximately 5.3% of the 3,083,716 shares outstanding on such date).
16
<PAGE> 39
INVESTMENT ADVISORY AND OTHER SERVICES
Shay Assets Management, Inc. serves as the Investment Adviser of the
Fund; PFPC Inc. serves as its administrator, transfer agent, dividend paying
agent and shareholder servicing agent; and PFPC Trust Company is the custodian
for the Fund.
INVESTMENT ADVISER
Shay Assets Management, Inc. (the Fund's "Investment Adviser") makes
investment decisions for the Fund and is responsible for placing purchase and
sale orders for portfolio securities and other investments. Under the investment
advisory agreement between the Investment Adviser and the Fund (the "Investment
Advisory Agreement"), the Investment Adviser receives a fee from the Fund
computed at the annual rate of 0.75% of the first $100,000,000 of the Fund's
average daily net assets and 0.50% of the Fund's average daily net assets in
excess of $100,000,000. The fee payable to the Investment Adviser is reduced
(but not below zero) to the extent the expenses of the Fund (exclusive of
professional fees, such as legal and audit fees, directors' fees and expenses
and distribution expenses, if any, payable under Rule 12b-1) exceed 1.10% of the
Fund's average daily net assets during any fiscal year during the term of the
Fund's agreement with the Investment Adviser. The Investment Advisory Agreement
also provides for a reduction in the fee payable to the Investment Adviser to
the extent the expenses of the Fund would exceed any applicable limit
established pursuant to the statutes or regulations of any jurisdictions in
which the Fund's shares are qualified for offer and sale. The total amounts paid
by the Fund to the Investment Adviser and its predecessor, Shay Assets
Management Co., for the years ended December 31, 1996, 1997 and 1998 in respect
of investment advisory services were $216,493, $294,823 and $407,390,
respectively, representing 0.61%, 0.67% and 0.73% of the Fund's average daily
net assets (after all fee reductions and expense limitations). The Investment
Adviser pays for the Fund's legal counsel to prepare the minutes of meetings of
the Board of Directors and its committees.
The Investment Adviser is a registered investment adviser under the
Investment Advisers Act of 1940 and serves as investment adviser to Asset
Management Fund, Inc., a registered investment company comprising five
fixed-income portfolios with aggregate net assets of approximately $1.3 billion
at December 31, 1998, and to Institutional Investors Capital Appreciation Fund,
Inc., a registered investment company with net assets of approximately $119
million as of December 31, 1998.
The Investment Adviser, Shay Assets Management, Inc., is a Florida
corporation that is controlled by Rodger D. Shay. The Investment Adviser is a
wholly-owned subsidiary of Shay Investment Services, Inc., which is the holding
company for the Fund's Investment Adviser and Distributor and certain other
related companies engaged primarily in securities-related businesses. Rodger D.
Shay is the majority stockholder of Shay Investment Services, Inc. The
Investment Adviser's principal office is located at 230 West Monroe Street,
Chicago, Illinois 60606. Shay Assets Management, Inc. (together with its
predecessor, Shay Assets Management Co.) has served as the Fund's Investment
Adviser since May 19, 1995. The Fund's current
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investment advisory agreement with Shay Assets Management, Inc. was approved by
the shareholders of the Fund on November 13, 1997.
Under the Investment Advisory 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 (i) a breach of fiduciary
duty with respect to the receipt of compensation for services, (ii) a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or (iii) reckless disregard by it of its
obligations and duties under the agreement.
The Investment Advisory Agreement will continue in effect from year to
year, 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.
The Investment Adviser may terminate the Investment Advisory Agreement
upon 90 days' written notice to the Fund. The Investment Advisory Agreement can
be terminated at any time without penalty by the Fund upon 30 days' written
notice to the Investment Adviser. The Investment Advisory Agreement will
terminate automatically in the event of its assignment.
Certain directors and officers of the Fund also are directors,
officers or employees of the Investment Adviser and its affiliates. See
"Officers and Directors of the Fund."
ADMINISTRATOR, TRANSFER AGENT, SHAREHOLDER SERVICING AGENT, DIVIDEND PAYING
AGENT AND CUSTODIAN
Administrator, Transfer Agent, Shareholder Servicing Agent and
Dividend Paying Agent. PFPC Inc. ("PFPC"), P.O. Box 8905, Wilmington, Delaware
19899-8905, is the Fund's administrative agent. Pursuant to the terms of the
Administration and Accounting Services Agreement between the Fund and PFPC, PFPC
performs various administrative services for the Fund, including: (i)
maintenance of the Fund's books and records; (ii) preparation of various
filings, reports, statements and returns filed with governmental authorities or
distributed to shareholders of the Fund and (iii) computation of the Fund's net
asset value for purposes of sales and redemptions of shares.
The Fund pays PFPC for its services as administrator a fee computed at
the annual rate of 0.10% of the first $200 million of the Fund's average net
assets, 0.075% of the next $200 million of average net assets, with further
reductions in the applicable rate for net assets in excess of $400 million,
subject to a minimum annual charge of $80,400. The amounts paid to PFPC for the
years ended December 31, 1996, 1997 and 1998 were $62,510, $60,300 and $60,300
after the fee waivers described below. PFPC also serves as the transfer agent,
registrar, shareholder servicing agent and dividend paying agent for the Fund's
shares and receives additional compensation in such capacities.
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PFPC has served in the foregoing capacities since May 19, 1995. An
officer of PFPC also is an officer of the Fund. See "Officers and Directors of
the Fund."
Custodian. PFPC Trust Company ("PFPC Trust"), 17th & Chestnut Streets,
Philadelphia, Pennsylvania, is the custodian of the Fund's investments. PFPC
Trust and PFPC are affiliates of PNC Bank Corp. PFPC Trust (or its affiliate PNC
Bank, N.A.) has served as the Fund's Custodian since May 19, 1995.
Fee Waiver. The Fund's administrator and custodian agreed to waive a
portion of their fees during the first year (which ended May 18, 1996) of their
respective agreements with the Fund so that the aggregate fees payable by the
Fund for their services would not exceed 0.25% of the Fund's average daily net
assets, plus certain transaction charges and out-of-pocket costs. Since May 18,
1996, the administrator and transfer agent have waived a portion (25%) of the
applicable minimum charges and have contractually agreed to continue this waiver
through May 18, 2000.
DISTRIBUTOR
Shay Financial Services, Inc. (the "Distributor") is the distributor
of the Fund. The Distributor is a Florida corporation that is controlled by
Rodger D. Shay, who is a Vice President of the Fund. The principal business
address of the Distributor is 230 West Monroe Street, Chicago, IL 60606.
The Fund has authorized the Distributor to undertake certain
activities in connection with the continuous offer and sale of shares of the
Fund, including informing potential investors about the Fund through written
materials, seminars and personal contacts. The Distributor is obligated to use
its best efforts to effect sales of shares of the Fund, but has no obligation to
sell any particular number of shares. The Distributor does not receive any
compensation from the Fund in connection with such activities.
Certain directors and officers of the Fund also are directors,
officers or employees of the Distributor and its affiliates. See "Officers and
Directors of the Fund."
INDEPENDENT AUDITORS
KPMG LLP, 1600 Market Street, Philadelphia, Pennsylvania, served as
the Fund's independent auditors, and in that capacity audited the Fund's annual
financial statements for the year ended December 31, 1998. Subject to
stockholder approval at the 1999 Annual Meeting of Stockholders, the Board of
Directors has approved Arthur Andersen LLP, 1601 Market Street, Philadelphia,
Pennsylvania, to serve as the Fund's independent auditors for the year ended
December 31, 1999.
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PURCHASE AND SALE OF PORTFOLIO SECURITIES
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. 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. Transactions in portfolio securities were effected during the calendar
year 1998 through a total of 3 brokers, drawn from a list of brokers selected by
the Investment Adviser on the basis of their ability to provide efficient
execution of portfolio transactions and investment research and statistical
information. 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.
The brokerage list 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.
In 1998, brokerage commissions of $25,150 (attributable to purchases
of $9,346,680 and proceeds from sales of $11,669,816) were paid to brokers who
provided investment research and statistical information to the Investment
Adviser. The research and statistical information provided to the Investment
Adviser consist primarily of written and electronic reports and presentations
analyzing specific companies, industry sectors, the stock market and the
economy. To the extent that the Investment Adviser uses such research and
information in rendering investment advice to the Fund, the research and
information tend to reduce the Investment Adviser's expenses. The Investment
Adviser may use research services and statistical information furnished by
brokers through which the Fund effects securities transactions in servicing all
of its accounts, and the Investment Adviser may not use all such services in
connection with the Fund. The total amounts of brokerage commissions paid in
1996, 1997 and 1998 were $36,281, $26,700 and $31,426, respectively. The
Investment Adviser monitors the reasonableness of commissions paid by the Fund
based on its experience in the market, and the Board of Directors periodically
reviews the reasonableness of such commissions as well. Brokerage commissions
were lower in 1997 and in 1998 than in 1996 as fewer securities were required to
be sold (which sales would have generated brokerage commissions) to meet
redemption or other cash requirements.
Neither the Fund nor any of its officers or directors, nor its
Investment Adviser, is affiliated with any broker employed by the Fund in
connection with the purchase or sale of portfolio securities or other
investments. The Fund does not maintain joint or joint and several trading
accounts in securities.
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EXPENSES OF THE FUND
The Fund is responsible for the payment of its expenses. Such expenses
include, without limitation, 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 or qualification of the Fund's shares under federal or state
securities laws; taxes; interest; the cost of liability insurance, fidelity
bonds, indemnification expenses; legal and auditing fees and expenses; any
costs, expenses or losses arising out of any liability of, or claim for damages
or other relief asserted against, the Fund for violation of any law; expenses of
preparing and printing prospectuses, proxy materials, reports and notices and of
mailing the same to shareholders and regulatory authorities; the compensation
and expenses of the Fund's directors and officers who are not affiliated with
the Fund's Investment Adviser or administrative agent; and any extraordinary
expenses incurred by the Fund. Annual and semi-annual reports to shareholders
include a statement of operational expenses.
DESCRIPTION OF CAPITAL STOCK
The Fund is authorized to issue five classes of shares, par value
$.001 each. At present, shares of only one class are outstanding ("Class A"),
and each Class A share represents a proportionate interest in the Fund's
existing investment portfolio. Shares of other classes, if and when issued,
would represent interests in other portfolios of investments which would be
invested in accordance with the separate investment objectives, policies and
restrictions that the Board of Directors may establish for such other
portfolios. The investment return and net asset value of shares of each class
would be determined separately from all other classes of shares and would be
based upon the investment results of that class's separate portfolio. The Board
of Directors may establish additional portfolios at any time. Each share has one
vote on all matters submitted to a vote of the shareholders, except that
shareholders of a particular portfolio would not be entitled to vote on matters
which affect only the interests of other portfolios. Shareholders of each
portfolio would vote separately as a class on all matters which affect their
portfolio, unless the interests of each portfolio are substantially identical,
in which case shareholders of all portfolios would vote in the aggregate. In the
event of the liquidation or dissolution of the Fund, the shareholders of each
portfolio would have priority over shareholders of all other portfolios with
respect to the assets of their respective portfolios. They also would be
entitled to receive a pro rata portion of the assets of that portfolio after
provision for the debts and expenses relating to that portfolio. All shares of
each class are entitled to share pro rata in all dividends and distributions
paid on shares of that class, including liquidating dividends. Shareholders do
not have any conversion or pre-emptive rights.
GENERAL INFORMATION
Statements contained in the Prospectus and this Statement of
Additional Information as to the contents of any contract or agreement or other
document referred to are not necessarily complete. In each instance, reference
is made to the copy of such contract, agreement or other document filed as an
exhibit to the Registration Statement of which the Prospectus and
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this Statement of Additional Information form a part, each such statement being
qualified in all respects by such reference.
FINANCIAL STATEMENTS
The audited financial statements of the Fund for the fiscal year ended
December 31, 1998, including the notes thereto and the report of KPMG LLP,
contained in the Fund's Annual Report to shareholders for the year ended
December 31, 1998 (the "Annual Report") are incorporated herein by reference.
Except as set forth above, this Statement of Additional Information does not
incorporate any other portion of the Annual Report. KPMG LLP has audited such
financial statements, and the financial statements are incorporated by reference
in reliance on the report of KPMG LLP and the authority of such firm as experts
in accounting and auditing.
The Fund will provide a copy of the Annual Report without charge to
each person to whom this Statement of Additional Information is delivered.
Investors should direct requests to the Fund in writing c/o Shay Financial
Services, Inc., 230 West Monroe Street, Chicago, IL 60606, or by telephone at
800-982-1846.
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